MW Children's Place profit nearly halves as troubled retailer's turnaround efforts dampen sales
By Ciara Linnane
Troubled retailer is moving away from unprofitable sales and offers of free shipping
Children's Place Inc.'s stock tumbled 19% Tuesday, after the troubled retailer's fiscal third-quarter profit almost halved from a year ago, as it continued to cut costs and pull away from unprofitable business in an effort to boost returns.
The Secaucus, N.J.-based company $(PLCE)$, parent to brands including Gymboree, Sugar & Jade and PJ Place, has been working on a turnaround since Saudi-based Mithaq Capital acquired a 54% controlling stake in February and ousted its longtime CEO.
Muhammad Umair, who has a finance background and was appointed to the company's board of directors by Mithaq, was named interim CEO and described the quarter as one in which the company continued to build on efforts to boost profitability.
"As we previously discussed, we anticipated our strategic changes would provide pressure to topline sales, however we are laser focused on profitability and willing to proactively sacrifice unprofitable sales to improve operating results for our shareholders," Umair said in prepared remarks.
The company posted net income of $20.1 million, or $1.57 a share, for the quarter to Nov. 2, down from $38.5 million, or $3.05 a share, in the year-earlier period. Adjusted for one-time items, the company had EPS of $2.04.
Sales fell to $390.2 million from $480.2 million a year ago. Same-store sales fell 17.1%, mostly driven by a sharp decline in e-commerce revenue, as the company shed unprofitable sales, pulled back inflated marketing spend and ended "free shipping" orders.
There are no reliable FactSet consensus estimates for the company.
Umair highlighted a new agreement with Chinese ultralow-cost shopping site Shein, which he said would bring Children's Place to customers "that would not typically be found in our customer file."
The company suffered a decline in brick-and-mortar sales in the quarter, due to a lower store count and lower transactions.
On a brighter note, the company was able to reduce sales, general & administrative costs to the lowest level in more than 15 years. That was achieved by reducing store payroll and home-office payroll and eliminating certain marketing costs.
Net interest costs rose to $10.1 million from $7.9 million a year ago, mostly due to higher average interest rates on loans extended by Mithaq and on its revolving credit facility.
Children's Place closed five stores during the quarter and ended with 510 and square footage of 2.4 million. The company opened its first store in more than two years, a Gymboree store in the Garden State Plaza Mall.
The stock has fallen 43% in the year to date, while the S&P 500 SPX has gained 27%.
-Ciara Linnane
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December 03, 2024 10:45 ET (15:45 GMT)
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