Children’s Place Inc. (PLCE, Financial) recently revealed its first quarter results for fiscal 2015. The children’s retailer posted earnings of $0.73 a share up from $0.61 a share in the year-ago quarter. Excluding restructuring costs and other items, the company’s non-GAAP earnings stood at $0.83 a share compared to $0.68 a share in the prior-year quarter and beating the consensus estimate of $0.82 a share. However, revenues fell to $405 million from $410 million in Q1 2014, with a $4.7 million hit owing to negative foreign currency headwinds. Following the results, Children’s Place shares were down 1.06% to $67.12 at closing bell.
Earnings improve on higher margins
Children’s Place reported net income of $15.6 million for the first quarter of fiscal 2015, compared to net income of $13.6 million in the year-ago quarter. Adjusted net income was $17.7 million, up from $15.3 million last year. The company’s adjusted gross profit stood at $152.5 million compared to $148.4 million in the prior-year quarter and expanded 150 basis points to 37.7% of sales mostly on the back of a higher AUR and merchandise margin leverage, while adjusted operating margin increased 110 basis points. Children’s Place also saw 0.7% growth in comparable-store sales for the first quarter of 2015, with the result representing the fourth successive quarter of positive comparable-store sales for the company.
Children’s Place opened 2 stores while it shut down 7 underperforming stores during the first quarter, ending the quarter with 1,092 stores. At the same time, the company’s franchisee partners opened 7 international stores, taking the overall number of international outlets to 79. Further, the largest pure-play children’s retailer, which competes with businesses like The Gap Inc. (GPS, Financial), Target Corporation (TGT, Financial) and The Gymboree Corporation (GYMB, Financial), returned around $43 million to investors during the quarter through share buybacks and dividend payouts.
Outlook for FY2015
Following the results, Children’s Place projected non-GAAP earnings for the full fiscal 2015 to lie in the $3.30-$3.45 a share range, including a $0.15 a share negative impact of foreign currency headwinds. The company’s outlook assumes a nearly 1% year-over-year growth in comparable-store sales. Children’s Place had posted earnings of $3.05 a share for fiscal 2014.
For the second quarter of fiscal 2015 however, the company projected non-GAAP net loss of between $0.36 and $0.32 a share, including an estimated $0.02 a share negative impact from foreign currency headwinds. This compares to the consensus estimate expectation of $0.34 a share. Comparable-store sales for the quarter are expected to grow 1% year-over-year. The company has logged a non-GAAP net loss of $0.37 in the second quarter of 2014.
Final thoughts
Children’s Place posted better-than-expected earnings for the first quarter of fiscal 2015 on the back of its business restructuring efforts that include shutting down of underperforming stores and trimming the company’s supply chain. Consequently, the company saw year-over-year growth in operating as well as gross margins for the quarter. However, revenues declined on a year-over-year basis, also falling short of the consensus estimate. While the market is rather bearish about Children’s Place, experts are looking at an average annual earnings growth rate of 10.33% for the company over the next five years, with a peak expected at the end of fiscal 2016. Consequently, the Children’s Place stock currently carries a ‘hold’ guidance.
