The Children’s Place Shares Dumped on Lowered FY12 Earnings Guidance (PLCE)

Specialty apparel retailer The Children’s Place (NASDAQ: PLCE) shares plunged yesterday following the fiscal 2012 fourth-quarter guidance below consensus and lowered full year forecast. Before the market opened Thursday, the company reported fiscal 2012 third-quarter revenues and earnings in line with the estimates.

The New Jersey-based Children’s Place offers apparel and accessories for children from newborn to 10 years of age. The company sells products under “The Children’s Place” brand name. The Children’s Place also serves the wardrobe needs of girls, boys and the newborn.

The net sales for the fiscal 2012 third quarter increased to $500.93 million from $484.09 million in the corresponding period last year. The revenue estimate of analysts was $500.87 million for the third quarter of fiscal 2012.

The GAAP net income for the reported quarter increased marginally to $35.02 million, or $1.44 per share, from $33.69 million, or $1.33 per share, in the comparable period of fiscal 2011.

The adjusted net income for the fiscal 2012 third quarter was $39.0 million, or $1.60 per share, up from $33.7 million, or $1.33 per share, in the third quarter of 2011. The earnings estimate of analysts was $1.60 for the third quarter of fiscal 2012.

Comparable retail sales for the third-quarter increased 1.1%. During the third quarter, The Children’s Place opened 23 stores and closed one.

Commenting on the results, Jane Elfers, President and CEO, said, “Our third quarter earnings per share exceeded our expectations. We had strong sales results in our e-commerce and outlet channels, and continued positive momentum in our big kids business throughout the quarter. Entering the fourth quarter, Hurricane Sandy had a devastating impact on our region, and our deepest sympathy goes out to all who were affected. Over 280 of our stores and our Northeast e-commerce business, which together account for approximately 31% of total company revenues, were impacted. We still expect to deliver positive comparable retail sales, but we are adjusting the margin and earnings outlook for the quarter and fiscal 2012 due to the heightened promotional environment post-Sandy.”

The share price of The Children’s Place had gained approximately 5% so far this year. The Children’s Place stock began the year 2012 on a bad note by slashing the fiscal 2011 fourth-quarter earnings outlook. Following the cut, the share price plunged to $48.67 in the second week of January 2012. As cautioned, the fourth-quarter results declared on March 7 missed estimates. The share price succumbed to another round of selling and declined to $45.85 on April 24. The fiscal 2012 first-quarter earnings that beat Wall Street’s estimates did little to improve the share price as the second-quarter loss outlook was wider than analysts’ estimates. However, the results halted further deterioration of shareholder value. On June 15, Motley Fool published a report stating that cash conversion cycle of The Children’s Place is better than the average of the past eight quarters. The report provided the necessary impetus for the share price to recover back to $51.00 in the early July 2012. The narrower-than-expected second-quarter loss reported on August 16 lifted the share price to $55.90 on the same day. On October 12, FBR Capital reiterated its “market performer” rating with a target price of $60.oo for The Children’s Place.

Yesterday, The stock of The Children’s Place opened 13% down at $49.65 following the gloomy outlook for the fourth quarter and full year of fiscal 2012 and continued to trade around $49.00 for the rest of the day without any attempt to retrace the losses.

As far as the previously commenced share repurchase program is concerned, there was approximately $21.6 million remaining at the end of the third-quarter of the $50 million authorized by the Board.

For the fiscal 2012 fourth quarter, The Children’s Place anticipates non-GAAP adjusted earnings per share between $1.01 and $1.06, assuming positive low-single digit comparable retail sales. The earnings estimate of analysts is $1.24 per share for the fiscal 2012 fourth quarter.

The Children’s Place also lowered its non-GAAP adjusted earnings expectation for the entire fiscal 2012. The company now expects adjusted earnings in the range of $3.10 to $3.15 per share. The previously issued adjusted earnings guidance range was $3.20 to $3.30 per share, assuming positive low-single digit comparable retail sales. Wall Street earnings estimate is $3.32 per share for the full year. The Q4 and Fy12 adjusted earnings per share were lowered considering the impact of Hurricane Sandy.

The Children’ Place ended yesterday’s trading session at $48.91 per share, down $8.09 or 14.2% on a volume of 3.2 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.