The Children’s Place Reports Third Quarter 2018 Results

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SECAUCUS, N.J., Dec. 06, 2018 (GLOBE NEWSWIRE) -- the largest pure-play children’s specialty apparel retailer in North America, today announced financial results for the thirteen weeks ended November 3, 2018.

Jane Elfers, President and Chief Executive Officer announced, “For Q3, we delivered adjusted EPS of $3.07, the high-end of our guidance range.  Led by surging demand in our digital channels, we delivered an industry-leading 9.5% comp on top of a positive 5.1% comp last year.  Our digital channels delivered a 38% increase, representing 29% of our net sales for the quarter.  Our strategy to take market share continues to produce meaningful results; we delivered positive traffic in our brick-and-mortar stores and generated positive comps every month in the quarter.  Importantly, our customer file increased five percent in Q3, which provides us with increased visibility into future sales.”

Ms. Elfers continued, “Moving on to Q4, due to stronger than anticipated digital demand in the back-half of 2018, we were forced to accelerate online access to our brick-and-mortar inventory and our ship from store fulfillment capabilities, resulting in an anticipated incremental fulfillment cost of $5 million, or $0.24 in EPS in Q4.  These capabilities allow our digital customers to access our brick-and-mortar inventory, which helped fuel high teens growth in our digital channels over the extended Thanksgiving holiday weekend.  We ended the month of November with comparable retail sales up low-single digits.  Additionally, given recent competitor news, our updated outlook also assumes the sales and margin impact of potentially significant liquidation events.”

Ms. Elfers concluded, “We are uniquely positioned from a competitive standpoint to gain additional market share by leveraging our accelerated digital transformation investment.  We are focused on driving customer acquisition, improving customer retention and increasing customer engagement through our digital transformation investments and the results are tangible.  We have significant runway ahead of us through the continued successful execution of our multi-year strategic growth initiatives.”

Net sales increased by $32.5 million, or 6.6%, to $522.5 million during the third quarter 2018 from $490.0 million during the third quarter 2017.  This increase was primarily driven by a positive comparable retail sales increase of 9.5% and approximately $5.0 million due to the new revenue recognition rules, partially offset by an approximately a $14.0 million adverse impact from the calendar shift related to the 53rd week in fiscal 2017.

Net income was $49.9 million, or $3.03 per diluted share, in the third quarter of 2018, compared to net income of $44.1 million, or $2.44 per diluted share, the previous year.  Adjusted net income was $50.7 million, or $3.07 per diluted share, compared to adjusted net income of $46.7 million, or $2.58 per diluted share, in the third quarter last year.  Return on invested capital improved approximately 320 basis points to 22.8% in the quarter.

Gross profit was $204.4 million in the third quarter, compared to $202.4 million in the third quarter of 2017.  Adjusted gross profit was $204.4 million in the third quarter, compared to $202.4 million last year.  Adjusted gross margin deleveraged 220 basis points to 39.1% of sales, as a result of stronger sales in e-commerce and our decision to compete aggressively for market share, partially offset by fixed cost leverage on stronger comparable retail sales and the reclassification of certain items due to the new revenue recognition rules.

Selling, general, and administrative expenses were $123.2 million compared to $118.3 million in the third quarter of 2017.  Adjusted selling, general, and administrative expense was $122.0 million compared to $117.3 million in the third quarter last year and leveraged 60 basis points as a percentage of net sales.  The SG&A leverage was primarily driven by fixed cost leverage on stronger comparable retail sales and lower incentive compensation expenses, partially offset by an increase in expenditures in our transformation initiatives and the reclassification of certain items due to the new revenue recognition rules.

Operating income was $64.6 million, compared to $64.1 million in the third quarter of 2017.  Adjusted operating income in the third quarter of 2018 was $65.5 million, or 12.5% of net sales, compared to adjusted operating income of $68.4 million in the third quarter last year, deleveraging 150 basis points.

Adjusted tax rate was 21.7% for the quarter versus 31.6% last year.  The effective tax rate was lower during the third quarter primarily as a result of a lower U.S. federal tax rate in 2018 due to the Tax Cuts and Jobs Act and a favorable mix of income generated in foreign jurisdictions subject to lower tax rates.

For the third quarter, the Company’s adjusted results exclude net expenses of approximately $0.7 million, compared to excluded net expenses of approximately $2.6 million in the third quarter of 2017, comprising certain items, which the Company believes, are not reflective of the performance of its core business. For the third quarter of 2018, these excluded items primarily related to consulting costs for organizational design efforts, accelerated depreciation, asset impairment charges, costs incurred in connection with the review of the Company’s warehouse and distribution network, an insurance claim deductible, and restructuring costs, partially offset by other income and a state tax audit.  For the third quarter of 2017, these excluded items were primarily related to expenses associated with asset impairment charges and restructuring costs.

Net income was $88.9 million, or $5.24 per diluted share, in the first nine months of 2018, compared to net income of $94.6 million, or $5.19 per diluted share, the previous year.  Adjusted net income was $95.5 million, or $5.62 per diluted share, compared to adjusted net income of $98.3 million, or $5.39 per diluted share, in the first nine months of last year.

Gross profit was $519.4 million compared to $501.4 million in the first nine months of last year.  Adjusted gross profit was $520.6 million compared to $502.1 million in the first nine months last year, and deleveraged 160 basis points to 37.0% of sales.  The gross margin performance was as a result of stronger sales in e-commerce and our decision to compete aggressively for market share, partially offset by fixed cost leverage on stronger comparable retail sales and the reclassification of certain items due to the new revenue recognition rules.

Selling, general and administrative expenses were $365.9 million compared to $338.6 million in the first nine months of last year.  Adjusted selling, general, and administrative expense was $363.2 million compared to $331.7 million in the first nine months of last year and deleveraged 30 basis points as a percentage of net sales.  The increase in selling, general, and administrative expenses were driven by an increase in expenditures in our transformation initiatives and the reclassification of certain items due to the new revenue recognition rules, partially offset by fixed cost leverage on stronger comparable retail sales and lower incentive compensation expenses.

Operating income was $97.7 million, compared to operating income of $109.7 million in the first nine months of 2017.  Adjusted operating income in the first nine months of 2018 was $106.6 million, or 7.6% of net sales, compared to adjusted operating income of $121.9 million in the first nine months last year, deleveraging 180 basis points compared to last year.

Adjusted tax rate was 8.6% for the first nine months of 2018 versus 19.1% last year, as a result of a lower U.S. federal tax rate in 2018 due to the Tax Cuts and Jobs Act.

During the first nine months of fiscal 2018, the Company’s adjusted results exclude net expenses of approximately $6.6 million, compared to excluded net expenses of approximately $3.7 million in the first nine months of 2017, comprising certain items, which the Company believes, are not reflective of the performance of its core business.  For the first nine months of 2018, these excluded items primarily related to asset impairment charges, restructuring costs, consulting costs for organizational design efforts, accelerated depreciation, costs incurred in connection with the review of the Company’s warehouse and distribution network, system transition costs and a provision for an insurance claim deductible, partially offset by other income, a state sales and use tax audit settlement, and an insurance claim settlement.  For the first nine months of fiscal 2017, these excluded items are primarily related to charges due to a provision for a legal settlement resulting from a pricing litigation, asset impairment charges, restructuring costs, a state sales and use tax audit settlement, a provision for foreign exchange control penalties and an insurance claim deductible, partially offset by income associated with the release of reserves for prior year uncertain tax positions.

The Company’s international franchise partners opened 21 net new points of distribution in the first nine months of 2018 and ended the quarter with 211 international points of distribution open and operated by its eight franchise partners in 20 countries.

For the first nine months of 2018, the Company repurchased approximately 1.7 million shares for approximately $213 million, inclusive of shares repurchased under an accelerated share repurchase program and shares surrendered to cover tax withholdings associated with the vesting of equity awards held by management.  The Company also paid quarterly dividends totaling approximately $25 million in the first nine months of 2018.

Since 2009, the Company has repurchased approximately $1.1 billion of its common stock and, since 2014, paid approximately $92 million in dividends.  At the end of the third quarter of 2018, approximately $281 million remained available for future share repurchases under the Company’s existing share repurchase programs.

The Company’s Board of Directors authorized a dividend of $0.50 per share, payable on December 28, 2018 to shareholders of record at the close of business on December 17, 2018.The Company is updating its outlook for fiscal 2018 and now expects adjusted net income per diluted share to be in the range of $7.69 to $7.79 compared to previous guidance in the range of $8.09 to $8.29. This compares to adjusted net income per diluted share of $7.91 in fiscal 2017.  The Company now expects total net sales for the year to be in the range of $1.955 to $1.960 billion.  This guidance assumes a positive mid-single digit comparable retail sales increase.  The Company now expects adjusted operating margin to be in the range of 7.7% to 7.8%.  The updated margin outlook reflects $5 million, or $0.24 in EPS, of added fulfillment costs in the fourth quarter to support the exposure of our brick-and-mortar inventory on-line and our ship from store capabilities.  Additionally, the outlook considers the potential margin impact of increased competitiveness as the industry attempts to win market share abandoned by distressed competitors.

The Company expects adjusted net income per diluted share in the fourth quarter of 2018 to be in the range of $2.07 to $2.17. This compares to adjusted net income per diluted share of $2.52 in fiscal 2017.  The Company now expects total net sales in the fourth quarter of 2018 to be in the range of $547 million to $552 million.  This guidance assumes a positive low-single digit comparable retail sales increase.

Additional details underlying the Company’s outlook for the third quarter and full year 2018 will be provided on the conference call and will be available in the conference call transcript, which will be posted on our website. An audio archive will also be available on the Company’s website.

Contact:  Anthony Attardo, CFA, Director, Investor Relations, (201) 453-6693(Tables Follow)  

 

 

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Globe Newswire: 12:00 GMT Thursday 6th December 2018

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