BofA/Merrill analyst David Buckley downgraded Children's Place to Underperform from Neutral with a $45 price target. The analyst is concerned that the retailer's path to operating margin recovery "will be more challenging than previously expected." Industry competition remains intense, says Buckley, who notes Children's Place provided "disappointing" guidance. The analyst reduced his fiscal 2020 margin estimates on a lack of visibility and believes consensus estimates for the year "remain unrealistic."
Reports Q1 revenue $362.4M, consensus $401.59M. Jane Elfers, President and Chief Executive Officer announced, "Our Q1 results were negatively impacted by several factors, the largest being lapping the unprecedented stimulus released into the economy in March of 2021. March sales this year were extremely challenging with sales down approximately 35% versus March 2021. We also believe that the combination of the unseasonably cold weather that lasted through the end of the quarter in most of our key markets, and the unprecedented levels of inflation, particularly with respect to gasoline and food prices, negatively impacted our Q1 results. On a positive note, for the first time in three years families joined together to celebrate the Easter Holiday, and we were very pleased with the performance of our Easter Dressy Business across all three of our brands. Gymboree and TCP had standout performances across all dressy categories and Sugar & Jade delivered strong results in the categories where we had dressy ownership. We are proud to announce that starting this July, Amazon will launch our iconic Gymboree brand on their website. We are excited to continue to grow Gymboree by partnering with the number one apparel retailer in the U.S. to reach a significantly larger, digitally savvy, customer base and to build upon the Gymboree momentum in 2022 and beyond." Looking ahead, while the impact of last year's stimulus will eventually wane and the weather will eventually change, we believe that the unprecedented levels of inflation, which are now projected to persist into 2023, will continue to have an outsized impact on the lower income consumer, particularly due to significantly higher gasoline and food prices. Due to these persistently high levels of inflation and the lack of visibility into its impact on the balance of the year, we are tempering our top line expectation for 2022 and we are now planning for a mid-single digit decline in sales for 2022. Despite these headwinds, and supported by the significant structural reset we have made to our business model over the past two years, we remain focused on our goal of delivering double digit operating margin and double digit EPS for 2022 and beyond. Several years ago, we developed a multi-pronged transformation strategy focused on four key initiatives; superior product, digital transformation, fleet optimization, and alternate channels of distribution. Fast forward to today; our expanded, high quality, value focused multi-brand offerings are consistently well received. Our accelerated digital investments have positioned us as an industry-leader in digital penetration, with our digital channel being our highest operating margin contributor. Our investments in digital marketing capabilities now enable us to be significantly more strategic and nimble with respect to marketing spend and tactics. Our real estate portfolio has been completely transformed by a combination of right-sizing our store fleet and a structural reset of our occupancy costs. Our Amazon business is growing rapidly and, with the addition of Gymboree, Amazon becomes an even more important part of our growth strategy. The continued successful execution of these key strategic initiatives will remain our priority in 2022."
B. Riley analyst Susan Anderson lowered the firm's price target on Children's Place to $84 from $105 and keeps a Buy rating on the shares ahead of earnings. Specialty retailers with exposure to fashion likely have a chance to outperform in Q1 as channel checks continue to show consumers gravitating towards fashion like dresses, workwear and occasion apparel with limited promotions, Anderson tell investors in a research note. However, freight and other cost pressures are likely to weigh on profitability this quarter and the rest of the year, says the analyst. She adds that while the macro environment remains challenging with decade-high inflation, spending "remains solid in key categories."