UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
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| Item 2.02 | Results of Operations and Financial Condition. |
On May 24, 2023, the Company issued a press release containing the Company’s financial results for the first quarter of the fiscal year ending February 3, 2024 (“Fiscal 2023”), providing an estimated range of adjusted net loss per share for the second quarter of Fiscal 2023 and of adjusted net income per diluted share for Fiscal 2023. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The preliminary unaudited information in this Current Report is being furnished pursuant to Item 2.02 of Form 8-K, insofar as it discloses historical information regarding the Company’s results of operations and financial condition as of and for the first quarter of Fiscal 2023. In accordance with General Instruction B.2 of Form 8-K, such information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such a filing.
| Item 9.01 | Financial Statement and Exhibits. |
| (d) | Exhibits | ||
| Exhibit 99.1 | Press Release, dated May 24, 2023, issued by the Company (Exhibit 99.1 is furnished as part of this Current Report on Form 8-K). | ||
| Exhibit 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document. |
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Forward Looking Statements
This Current Report on Form 8-K, including Exhibit 99.1, contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2023. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 24, 2023 |
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| THE CHILDREN’S PLACE, INC. |
| By: | /s/ Jane Elfers | |
| Name: | Jane Elfers | |
| Title: | President and Chief Executive Officer |
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Exhibit 99.1
THE CHILDREN’S PLACE REPORTS FIRST QUARTER 2023 RESULTS
Reports Q1 GAAP EPS of ($2.33) versus $1.43 in Q1 2022
Reports Q1 Adjusted EPS of ($2.00) versus $1.05 in Q1 2022
Expects Double-Digit Operating Margin and Adjusted EPS of Over $5.00
in the Back Half of 2023
Secaucus, New Jersey – May 24, 2023 – The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced financial results for the first quarter ended April 29, 2023.
Jane Elfers, President and Chief Executive Officer announced, “Our first quarter results were negatively impacted by the ongoing macro-tension which resulted in outsized pressure on our core customer by limiting their purchasing power.”
Ms. Elfers continued, “Our Easter assortments from both our TCP and Gymboree brands performed exceptionally well. Our digital sales trend significantly outperformed our stores sales trend for the quarter. Digital represented 46% of our retail sales versus 45% in Q1 2022 and our digital traffic was up double digits for the quarter. Our Amazon business continued to outperform, with site sales up over 100% and traffic up over 200% for the quarter versus last year.”
Ms. Elfers concluded, “Due to the ongoing outsized pressure on our core consumer from the challenging macro-economic environment, we have tempered both our top and bottom line expectations for the full year. However, with input cost pressures significantly abating in the back half of the year, combined with inventory levels that are projected to continue to decline versus last year, we continue to expect to deliver double digit operating margin in the back half of 2023.”
First Quarter 2023 Results
Net sales decreased $40.8 million, or 11.2%, to $321.6 million in the three months ended April 29, 2023, compared to $362.4 million in the three months ended April 30, 2022. The decrease in net sales was primarily due to the combination of the ongoing macro-economic environment and the resulting outsized pressure on our consumer. Comparable retail sales decreased 8.2% for the quarter.
Gross profit decreased $45.4 million to $96.5 million or 30% of net sales in the three months ended April 29, 2023, compared to $141.9 million or 39.2% of net sales in the three months ended April 30, 2022. The 920 basis point decrease in gross margin was primarily the result of higher input costs, including cotton and other supply chain costs such as inbound transportation expenses, all of which are embedded in our inventory, and the deleverage of fixed expenses resulting from the decline in net sales.
Selling, general, and administrative expenses were $112.9 million in the three months ended April 29, 2023, compared to $109.0 million in the three months ended April 30, 2022. Adjusted SG&A was $109.2 million in the three months ended April 29, 2023, compared to $108.2 million in the comparable period last year. Adjusted SG&A deleveraged 400 basis points to 33.9% of net sales versus Q1 2022, primarily as a result of the deleverage of fixed expenses resulting from the decline in net sales, as well as planned higher marketing spend.
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Operating loss was $30.1 million in the three months ended April 29, 2023, compared to operating income of $19.3 million in the three months ended April 30, 2022. Adjusted operating loss was $24.5 million in the three months ended April 29, 2023, compared to an adjusted operating income of $20.6 million in the comparable period last year. Q1 2023 adjusted operating loss deleveraged 1,330 basis points to (7.6)% of net sales versus Q1 2022.
Net interest expense was $5.9 million in the three months ended April 29, 2023, compared to $1.7 million in the three months ended April 30, 2022. The increase in interest expense was driven by higher borrowings and higher average interest rates associated with the Company’s revolving credit facility and term loan due to continued market-based rate increases.
Net loss was $28.8 million, or ($2.33) per share, in the three months ended April 29, 2023, compared to net income of $19.8 million, or $1.43 per diluted share, in the three months ended April 30, 2022. Adjusted net loss was $24.7 million, or ($2.00) per share, compared to adjusted net income of $14.5 million, or $1.05 per diluted share, in the comparable period last year.
Store Update
The Company ended the first quarter of 2023 with 599 stores and square footage of 2.9 million, a decrease of 9% compared to the prior year. Consistent with the Company’s store fleet optimization initiative, the Company permanently closed 14 stores during the first quarter of 2023 and has permanently closed 600 stores since 2013 and decreased total square footage by 2.4 million square feet or approximately 45%. The Company is planning to close a total of approximately 80 - 100 stores this year.
Balance Sheet and Cash Flow
As of April 29, 2023, the Company had $18.2 million of cash and cash equivalents and $300.8 million borrowings on its revolving credit facility. Additionally, the Company generated $5.1 million in operating cash flows in the three months ended April 29, 2023.
Inventories were $504.2 million as of April 29, 2023, compared to $549.2 million in the same period last year, representing an 8.2% decrease in ending inventory.
Outlook
Given the significant macro-economic headwinds, including the continuation of record inflation and tempered consumer sentiment, which have an outsized impact on the Company’s lower income customers’ purchasing power, the Company has now taken a more cautious consumer outlook. As a result, the Company believes it is prudent to take a more conservative approach, and, as a result, the Company has tempered both its top and bottom line expectations for the remainder of the year.
As top line expectations have been reduced, the Company has further reduced its planned inventory investments and its expenses. These actions are designed to reduce risk while helping to position the Company to achieve double digit operating margin in the back half of the year.
For the second quarter of 2023, the Company expects:
| ● | Net sales in the range of $340 million to $345 million, representing an approximately 10% decrease as compared to the prior year second quarter. | |
| ● | Adjusted operating loss of approximately (8.0)% of net sales. | |
| ● | Adjusted net loss per share in the range of ($2.15) to ($2.20). |
Despite continued macro-economic pressures, the Company expects to deliver double-digit operating margin and adjusted net earnings per diluted share of over $5.00 in the back half of 2023, driven by decreasing input costs embedded in inventory and the benefit from appropriately sized inventory investments.
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For the full fiscal year 2023, the Company now expects:
| ● | Net sales in the range of $1.575 billion to $1.590 billion, representing a decrease in the high-single digit percentage range as compared to the prior fiscal year. | |
| ● | Adjusted operating income in the range of 2.5% to 2.9% of net sales. | |
| ● | Adjusted net earnings per diluted share in the range of $1.00 to $1.50. |
Additional details underlying the Company’s outlook for the second quarter and full year 2023 will be provided on the conference call and will also be available in the conference call transcript which will be posted on the Company’s website. An audio archive will also be available on the Company’s website.
Non-GAAP Reconciliation
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses, and adjusted operating income (loss) are non-GAAP measures, and are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies. The Company believes the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of its core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of its core business.
Please refer to the “Reconciliation of Non-GAAP Financial Information to GAAP” later in this press release, which sets forth the non-GAAP adjustments for the 13-week periods ended April 29, 2023, and April 30, 2022.
Conference Call Information
The Children’s Place will host a conference call on Wednesday, May 24, 2023 at 8:00 a.m. Eastern Time to discuss its first quarter 2023 results.
The call will be broadcast live at http://investor.childrensplace.com. An audio transcript will be available on the Company’s website approximately one hour after the conclusion of the call.
About The Children’s Place
The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise predominantly at value prices, primarily under the proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade” and “PJ Place” brand names. The Company has online stores at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com and www.pjplace.com and, as of April 29, 2023, the Company had 599 stores in the United States, Canada, and Puerto Rico and the Company’s five international franchise partners had 212 international points of distribution in 15 countries.
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Forward Looking Statements
This press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company's current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended January 28, 2023. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Contact: Investor Relations (201) 558-2400 ext. 14500
(Tables to follow)
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THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| First Quarter Ended | ||||||||
April 29, 2023 | April 30, 2022 | |||||||
| Net sales | $ | 321,640 | $ | 362,350 | ||||
| Cost of sales | 225,178 | 220,445 | ||||||
| Gross profit | 96,462 | 141,905 | ||||||
| Selling, general and administrative expenses | 112,931 | 109,036 | ||||||
| Depreciation and amortization | 11,848 | 13,615 | ||||||
| Asset impairment charges | 1,750 | — | ||||||
| Operating income (loss) | (30,067 | ) | 19,254 | |||||
| Interest expense, net | (5,903 | ) | (1,705 | ) | ||||
| Income (loss) before benefit for income taxes | (35,970 | ) | 17,549 | |||||
| Benefit for income taxes | (7,136 | ) | (2,282 | ) | ||||
| Net income (loss) | $ | (28,834 | ) | $ | 19,831 | |||
| Earnings (loss) per common share | ||||||||
| Basic | $ | (2.33 | ) | $ | 1.46 | |||
| Diluted | $ | (2.33 | ) | $ | 1.43 | |||
| Weighted average common shares outstanding | ||||||||
| Basic | 12,374 | 13,621 | ||||||
| Diluted | 12,374 | 13,841 | ||||||
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THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
| First Quarter Ended | ||||||||
April 29, 2023 | April 30, 2022 | |||||||
| Net income (loss) | $ | (28,834 | ) | $ | 19,831 | |||
| Non-GAAP adjustments: | ||||||||
| Contract termination costs | 2,415 | — | ||||||
| Asset impairment charges | 1,750 | — | ||||||
| Fleet optimization | 1,087 | 328 | ||||||
| Restructuring costs | 269 | 35 | ||||||
| Accelerated depreciation | — | 537 | ||||||
| Professional and consulting fees | — | 488 | ||||||
| Aggregate impact of non-GAAP adjustments | 5,521 | 1,388 | ||||||
| Income tax effect (1) | (1,436 | ) | (360 | ) | ||||
| Settlement of tax examination | — | (6,379 | ) | |||||
| Net impact of non-GAAP adjustments | 4,085 | (5,351 | ) | |||||
| Adjusted net income (loss) | $ | (24,749 | ) | $ | 14,480 | |||
| GAAP net income (loss) per common share | $ | (2.33 | ) | $ | 1.43 | |||
| Adjusted net income (loss) per common share | $ | (2.00 | ) | $ | 1.05 | |||
(1) The tax effects of the non-GAAP items are calculated based on the statutory rate of the jurisdiction in which the discrete item resides.
| First Quarter Ended | ||||||||
April 29, 2023 | April 30, 2022 | |||||||
| Operating income (loss) | $ | (30,067 | ) | $ | 19,254 | |||
| Non-GAAP adjustments: | ||||||||
| Contract termination costs | 2,415 | — | ||||||
| Asset impairment charges | 1,750 | — | ||||||
| Fleet optimization | 1,087 | 328 | ||||||
| Restructuring costs | 269 | 35 | ||||||
| Accelerated depreciation | — | 537 | ||||||
| Professional and consulting fees | — | 488 | ||||||
| Aggregate impact of non-GAAP adjustments | 5,521 | 1,388 | ||||||
| Adjusted operating income (loss) | $ | (24,546 | ) | $ | 20,642 | |||
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THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
| First Quarter Ended | ||||||||
April 29, 2023 | April 30, 2022 | |||||||
| Selling, general and administrative expenses | $ | 112,931 | $ | 109,036 | ||||
| Non-GAAP adjustments: | ||||||||
| Contract termination costs | (2,415 | ) | — | |||||
| Fleet optimization | (1,087 | ) | (328 | ) | ||||
| Restructuring costs | (269 | ) | (35 | ) | ||||
| Professional and consulting fees | — | (488 | ) | |||||
| Aggregate impact of non-GAAP adjustments | (3,771 | ) | (851 | ) | ||||
| Adjusted selling, general and administrative expenses | $ | 109,160 | $ | 108,185 | ||||
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THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| April 29, | January 28, | April 30, | ||||||||||
| 2023 | 2023* | 2022 | ||||||||||
| Assets: | ||||||||||||
| Cash and cash equivalents | $ | 18,242 | $ | 16,689 | $ | 58,494 | ||||||
| Accounts receivable | 25,659 | 49,584 | 28,812 | |||||||||
| Inventories | 504,194 | 447,795 | 549,167 | |||||||||
| Prepaid expenses and other current assets | 58,504 | 47,875 | 50,990 | |||||||||
| Total current assets | 606,599 | 561,943 | 687,463 | |||||||||
| Property and equipment, net | 146,315 | 149,874 | 157,033 | |||||||||
| Right-of-use assets | 144,781 | 155,481 | 191,559 | |||||||||
| Tradenames, net | 70,691 | 70,891 | 71,492 | |||||||||
| Other assets, net | 46,484 | 48,092 | 37,479 | |||||||||
| Total assets | $ | 1,014,870 | $ | 986,281 | $ | 1,145,026 | ||||||
| Liabilities and Stockholders' Equity: | ||||||||||||
| Revolving loan | $ | 300,835 | $ | 286,990 | $ | 249,544 | ||||||
| Accounts payable | 223,244 | 177,147 | 260,634 | |||||||||
| Current portion of operating lease liabilities | 74,741 | 78,576 | 89,566 | |||||||||
| Accrued expenses and other current liabilities | 120,467 | 105,672 | 117,927 | |||||||||
| Total current liabilities | 719,287 | 648,385 | 717,671 | |||||||||
| Long-term debt | 49,768 | 49,752 | 49,702 | |||||||||
| Long-term portion of operating lease liabilities | 87,905 | 96,482 | 129,111 | |||||||||
| Other long-term liabilities | 32,089 | 33,184 | 34,858 | |||||||||
| Total liabilities | 889,049 | 827,803 | 931,342 | |||||||||
| Stockholders' equity | 125,821 | 158,478 | 213,684 | |||||||||
| Total liabilities and stockholders' equity | $ | 1,014,870 | $ | 986,281 | $ | 1,145,026 | ||||||
* Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
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THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| First Quarter Ended | ||||||||
April 29, 2023 | April 30, 2022 | |||||||
| Net income (loss) | $ | (28,834 | ) | $ | 19,831 | |||
| Non-cash adjustments | 35,383 | 39,308 | ||||||
| Working capital | (1,415 | ) | (77,976 | ) | ||||
| Net cash provided by (used in) operating activities | 5,134 | (18,837 | ) | |||||
| Net cash used in investing activities | (11,037 | ) | (10,983 | ) | ||||
| Net cash provided by financing activities | 7,757 | 33,856 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (301 | ) | (329 | ) | ||||
| Net increase in cash and cash equivalents | 1,553 | 3,707 | ||||||
| Cash and cash equivalents, beginning of period | 16,689 | 54,787 | ||||||
| Cash and cash equivalents, end of period | $ | 18,242 | $ | 58,494 | ||||
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