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Press Release

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The Children’s Place Reports Second Quarter 2017 Results
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Delivers Q2 Comparable Retail Sales Increase of 3.1%

Reports Q2 GAAP Earnings per Diluted Share of $0.79 vs ($0.11) in Q2 2016 and Q2 Adjusted Earnings per Diluted Share of $0.86 vs ($0.01) in Q2 2016

Repurchases $25 Million in Stock and Pays $7 Million in Dividends in Q2 

Increases Adjusted EPS Guidance to a Range of $7.23 to $7.33 for FY 2017 Compared to Previous Guidance of $7.10 to $7.20

SECAUCUS, N.J., Aug. 09, 2017 (GLOBE NEWSWIRE) -- 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 thirteen weeks ended July 29, 2017.

Jane Elfers, President and Chief Executive Officer, said, “We continued to deliver outstanding operating results in the second quarter. Comparable retail sales, gross margin, operating margin and earnings per diluted share were above last year and exceeded the high end of our guidance range. Our second quarter comparable retail sales increased 3.1%, on top of a positive 2.4% comp in the second quarter of 2016 and store traffic showed sequential improvement compared to the first quarter. We saw increases in ADS driven by higher AUR and UPT, as well as merchandise margin expansion in the quarter. And, we repurchased $25 million in stock and paid $7 million in dividends in the quarter.”

Ms. Elfers said, “Our results are indicative of the significant progress we have made against each of our strategic growth initiatives - superior product, business transformation through technology, global growth through alternate channels of distribution and fleet optimization - all of which are supported by a best-in-class management team. Within our digital transformation initiative, we are intensely focused on developing and implementing a robust Personalized Customer Contact Strategy.”

Elfers continued, “Gymboree’s recent bankruptcy, and the liquidation of 330 of their stores, presents a market share opportunity for The Children’s Place.  We are directly co-located in 216 of those locations and we have experienced sales and traffic lifts in those stores since the Gymboree liquidation began on July 18th.”

Ms. Elfers concluded, “Although we are only a couple weeks into the key Back-to-School selling season, we are encouraged by our early results. Our product clearly continues to resonate with our customer.”

Financial Results
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Second Quarter 2017 Results
Net sales increased 0.6% to $373.6 million in the second quarter of 2017. Comparable retail sales increased 3.1% in the second quarter of 2017.

Net income was $14.3 million, or $0.79 per diluted share, in the second quarter of 2017, compared to a net loss of ($2.0) million, or ($0.11) per diluted share, the previous year.  Adjusted net income was $15.6 million, or $0.86 per diluted share, compared to an adjusted net loss of ($0.2) million, or ($0.01) per diluted share, in the second quarter last year. This $0.87 increase in adjusted net income per diluted share includes a $0.68 benefit resulting from the new accounting rules for the income tax impact on share-based compensation.  

Gross profit was $128.4 million in the second quarter, compared to $123.9 million in the second quarter of 2016. Adjusted gross profit was $128.7 million in the second quarter, compared to $123.9 million last year, and leveraged 100 basis points to 34.4% of sales, driven by increases in AUR and merchandise margin resulting from strong product acceptance and inventory management, inclusive of the impact of the increased penetration of our ecommerce business which runs at a lower gross margin rate.

Selling, general and administrative expenses were $108.2 million compared to $107.9 million in the second quarter of 2016. Adjusted SG&A was $107.6 million compared to $107.9 million in the second quarter last year and leveraged 30 basis points as a percentage of sales primarily as a result of decreased store expenses, including lower store compensation expenses and credit card fees, partially offset by increased expenses related to the investment in our transformation initiatives and increased administrative compensation expenses.

Operating income was $3.2 million, compared to a net operating loss of ($2.9) million in the second quarter of 2016. Adjusted operating income in the second quarter of 2017 was $5.1 million, or 1.4% of net sales, compared to adjusted operating income of $0.1 million in the second quarter last year, leveraging 140 basis points compared to last year.

For the second quarter, the Company’s adjusted results exclude net expenses of approximately $1.3 million, compared to excluded net expenses of approximately $1.8 million in the second quarter of 2016, comprising certain items which the Company believes are not reflective of the performance of its core business. For the second quarter of 2017, these excluded items are primarily related to expenses associated with asset impairment charges, a state sales and use tax audit settlement, a provision for foreign exchange control penalties and an insurance claim deductible, partially offset by income related to restructuring costs. For the second quarter of 2016, these excluded items related primarily related to asset impairment charges.

Fiscal Year to Date
Net sales increased 2.5% to $810.3 million in the first half of fiscal 2017. Comparable retail sales increased 4.7% in the first half of fiscal 2017.

Net income was $50.5 million, or $2.76 per diluted share, in the first half of fiscal 2017, compared to net income of $24.0 million, or $1.24 per diluted share, the previous year. Adjusted net income was $51.6 million, or $2.82 per diluted share, compared to $25.6 million, or $1.32 per diluted share. This $1.50 increase in adjusted net income per diluted share includes an $0.87 benefit resulting from the new accounting rules for the income tax impact on share-based compensation.  

Gross profit was $299.0 million in the first half of fiscal 2017, compared to $289.2 million last year.  Adjusted gross profit was $299.6 million, or 37.0% of net sales, leveraging 40 basis points compared to last year.  

Selling, general and administrative expenses in the first half of fiscal 2017 were $220.4 million, compared to $217.1 million last year. Adjusted SG&A was $214.5 million, compared to $217.5 million last year, leveraging 100 basis points compared to last year.

Operating income was $45.5 million, compared to operating income of $36.7 million in fiscal 2016. Adjusted operating income was $53.5 million, or 6.6% of net sales, compared to $39.3 million, or 5.0% of net sales last year, an increase of 36%.

During the first half of fiscal 2017, the Company’s adjusted results exclude net expenses of approximately $1.0 million, compared to excluded net expenses of approximately $1.6 million during the first half of fiscal 2016, comprising certain items which the Company believes are not reflective of the performance of its core business. For the first half of fiscal 2017, these excluded items are primarily related to charges due to a provision for a legal settlement resulting from a pricing litigation, asset impairment charges, restructuring costs, a state sales and use tax audit settlement, a provision for foreign exchange control penalties, and an insurance claim deductible, partially offset by income associated with the release of reserves for prior year uncertain tax positions. For the first half of fiscal 2016, these excluded expenses primarily related to asset impairment charges, partially offset by income associated with restructuring costs.

Store Openings and Closures
In accordance with our fleet optimization initiative, the Company closed 7 stores and did not open any stores during the second quarter of 2017. The Company ended the quarter with 1,026 stores and square footage of 4.801 million, a decrease of 3.4% compared to the prior year. Since our fleet optimization initiative was announced in 2013, we have closed 156 stores.

The Company’s international franchise partners opened 6 points of distribution and closed 1 in the second quarter, and the Company ended the quarter with 161 international points of distribution open and operated by its 7 franchise partners in 19 countries.

Capital Return Program
During the second quarter of 2017, the Company repurchased 209,760 shares for approximately $25 million, consisting of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid a quarterly dividend of approximately $7 million, or $0.40 per share, in the quarter.

For the first half of 2017, the Company repurchased 507,368 shares for approximately $57 million, inclusive of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid quarterly dividends totaling approximately $14 million in the first half of 2017.

Since 2009, the Company has returned over $829 million to its investors through share repurchases and dividends. At the end of the second quarter of 2017, approximately $306 million remained available for future share repurchases under the Company’s existing share repurchase programs.

Additionally, the Company’s Board of Directors authorized a quarterly dividend of $0.40 per share. The dividend for the third quarter is payable on October 3, 2017 to shareholders of record at the close of business on September 12, 2017.

Outlook
The Company is updating its outlook for fiscal 2017 and now expects adjusted net income per diluted share to be in the range of $7.23 to $7.33, inclusive of an $0.89 benefit resulting from new accounting rules for the income tax impact on share-based compensation. This compares to the Company’s previous guidance for adjusted net income per diluted share of $7.10 to $7.20, inclusive of an $0.89 benefit resulting from new accounting rules for the income tax impact on share-based compensation. Excluding the tax benefit, full year adjusted net income per diluted share guidance is projected to increase 17% to 19% compared to adjusted net income per diluted share of $5.43 last year. This guidance assumes an approximate 3% increase in comparable retail sales for the year.

This guidance for adjusted net income per diluted share excludes year to date net expenses of approximately $1.0 million related to charges due to a provision for a legal settlement resulting from a pricing litigation, asset impairment charges, restructuring costs, a state sales and use tax audit settlement, a provision for foreign exchange control penalties, and an insurance claim deductible, partially offset by income associated with the release of reserves for prior year uncertain tax positions, as the Company believes these items are not reflective of the performance of its core business.

The Company expects adjusted net income per diluted share in the third quarter of 2017 will be between $2.41 and $2.46. This compares to adjusted net income per diluted share of $2.29 in the third quarter of 2016. This guidance assumes a low single digit increase in comparable retail sales.

Financial Results
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income, adjusted net income per diluted share, adjusted gross profit, adjusted SG&A, and adjusted operating income 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.  The Company uses non-GAAP measures to evaluate and measure operating performance, including, to measure performance for purposes of the Company’s annual bonus and long-term incentive compensation plans. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Conference Call Information
The Children’s Place will host a conference call to discuss its second quarter 2017 results today at 8:00 a.m. Eastern Time. The call will be broadcast live at http://investor.childrensplace.com. An audio archive will be available on the Company’s website approximately one hour after the conclusion of the call.

About The Children’s Place, Inc.
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 at value prices, primarily under the proprietary “The Children’s Place,” “Place” and “Baby Place” brand names.  As of July 29, 2017, the Company operated 1,026 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 161 international points of distribution open and operated by its 7 franchise partners in 19 countries.

Forward Looking Statement

This press release contains, and the above referenced conference call 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 adjusted net income 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, 2017. 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 weakness in the economy that continues to affect the Company’s target customer, 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 and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, 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, 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.


 (Tables Follow)


THE CHILDREN’S PLACE, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  
(Unaudited)  
                   
                   
    Second Quarter Ended   Year-to-Date Ended  
    July 29,   July 30,   July 29,   July 30,  
      2017       2016       2017       2016    
Net sales   $   373,601     $   371,416     $   810,277     $   790,767    
Cost of sales       245,196         247,545         511,281         501,545    
Gross profit       128,405         123,871         298,996         289,222    
Selling, general and administrative expenses       108,227         107,903         220,354         217,115    
Asset impairment charges       974         2,826         1,458         2,826    
Other costs       6         191         10         259    
Depreciation and amortization        15,979         15,891         31,671         32,352    
Operating income (loss)       3,219         (2,940 )       45,503         36,670    
Interest expense       (291 )       (176 )       (329 )       (250 )  
Income (loss) before taxes       2,928         (3,116 )       45,174         36,420    
Provision (benefit) for income taxes       (11,362 )       (1,105 )       (5,345 )       12,446    
Net income (loss)   $   14,290     $   (2,011 )   $   50,519     $   23,974    
                   
                   
Earnings (loss) per common share                  
Basic   $   0.81     $   (0.11 )   $   2.86     $   1.26    
Diluted   $   0.79     $   (0.11 )   $   2.76     $   1.24    
                   
Weighted average common shares outstanding                  
Basic       17,704         18,811         17,659         19,006    
Diluted       18,177         18,811         18,289         19,357    
                   

 

THE CHILDREN’S PLACE, INC.  
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP  
(In thousands, except per share amounts)  
(Unaudited)  
                   
                   
    Second Quarter Ended   Year-to-Date Ended  
    July 29,   July 30,   July 29,   July 30,  
    2017   2016   2017   2016  
                   
Net income (loss)   $   14,290     $   (2,011 )   $   50,519     $   23,974    
                   
Non-GAAP adjustments:                  
Provision for legal settlement       -          -          5,000         -     
Restructuring costs       (75 )       (4 )       562         (471 )  
Asset impairment charges       974         2,826         1,458         2,826    
Sales tax audit       418         -          418         -     
Foreign exchange penalties       300         -          300         -     
Insurance claim deductible       250         -          250         -     
Proxy costs       -          -          -          12    
DC exit costs (income)       -          191         -          259    
Aggregate impact of Non-GAAP adjustments       1,867         3,013         7,988         2,626    
Income tax effect (1)       (527 )       (1,175 )       (2,894 )       (1,013 )  
Prior year uncertain tax positions (2)       -          -          (4,048 )       -     
Net impact of Non-GAAP adjustments       1,340         1,838         1,046         1,613    
                   
Adjusted net income (loss)   $   15,630     $   (173 )   $   51,565     $   25,587    
                   
GAAP net income (loss) per common share    $ 0.79     ($ 0.11 )   $ 2.76     $ 1.24    
                   
Adjusted net income (loss) per common share   $ 0.86     ($ 0.01 )   $ 2.82     $ 1.32    
                   
(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.        
                   
(2) Prior year tax related to uncertain tax positions.        
                   
    Second Quarter Ended   Year-to-Date Ended  
    July 29,   July 30,   July 29,   July 30,  
    2017   2016   2017   2016  
                   
Operating income (loss)   $   3,219     $   (2,940 )   $   45,503     $   36,670    
                   
Non-GAAP adjustments:                  
Provision for legal settlement       -          -          5,000         -     
Restructuring costs       (75 )       (4 )       562         (471 )  
Asset impairment charges       974         2,826         1,458         2,826    
Sales tax audit       418         -          418         -     
Foreign exchange penalties       300         -          300         -     
Insurance claim deductible       250         -          250         -     
Proxy costs       -          -          -          12    
DC exit costs (income)       -          191         -          259    
Aggregate impact of Non-GAAP adjustments       1,867         3,013         7,988         2,626    
                   
Adjusted operating income   $   5,086     $   73     $   53,491     $   39,296    
                   

 

THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
                 
                 
    Second Quarter Ended   Year-to-Date Ended
    July 29,   July 30,   July 29,   July 30,
    2017   2016   2017     2016
                 
Gross Profit   $   128,405     $   123,871   $   298,996     $   289,222  
                 
Non-GAAP adjustments:                
Restructuring costs       -          -        377         (50 )
Insurance claim deductible       250         -        250         -   
Aggregate impact of Non-GAAP adjustments       250         -        627         (50 )
                 
Adjusted Gross Profit   $   128,655     $   123,871   $   299,623     $   289,172  
                 
                 
                 
    Second Quarter Ended   Year-to-Date Ended
    July 29,   July 30,   July 29,   July 30,
    2017   2016   2017   2016
                 
Selling, general and administrative expenses   $   108,227     $   107,903   $   220,354     $   217,115  
                 
Non-GAAP adjustments:                
Provision for legal settlement       -          -        (5,000 )       -   
Restructuring costs       75         4       (185 )       421  
Sales tax audit       (418 )       -        (418 )       -   
Foreign exchange penalties       (300 )       -        (300 )       -   
Proxy costs       -          -        -          (12 )
Aggregate impact of Non-GAAP adjustments       (643 )       4       (5,903 )       409  
                 
Adjusted Selling, general and administrative expenses   $   107,584     $   107,907   $   214,451     $   217,524  
                 

 

THE CHILDREN’S PLACE, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
               
    July 29,   January 28,   July 30,  
    2017   2017*   2016  
Assets:              
Cash and cash equivalents   $   202,332   $   193,709   $   170,829  
Short-term investments       55,800       49,300       75,100  
Accounts receivable       33,077       31,413       35,255  
Inventories       311,047       286,343       296,584  
Other current assets       54,100       50,398       49,774  
Total current assets       656,356       611,163       627,542  
               
Property and equipment, net       263,311       264,280       277,195  
Other assets, net       51,008       35,056       28,800  
Total assets   $   970,675   $   910,499   $   933,537  
               
Liabilities and Stockholders' Equity:              
Revolving loan   $   54,500   $   15,380   $   43,860  
Accounts payable       219,334       178,208       198,675  
Accrued expenses and other current liabilities       122,651       135,609       116,629  
Total current liabilities       396,485       329,197       359,164  
               
Other liabilities       76,530       85,015       91,953  
Total liabilities       473,015       414,212       451,117  
               
Stockholders' equity       497,660       496,287       482,420  
               
Total liabilities and stockholders' equity   $   970,675   $   910,499   $   933,537  
               
               
*  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, 2017.              

 

THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(In thousands)
(Unaudited)
    26 Weeks Ended
    July 29,   July 30,
    2017   2016
         
Net income   $ 50,519     $ 23,974  
Non-cash adjustments     43,364       30,946  
Working Capital     (22,434 )     20,263  
Net cash provided by operating activities     71,449       75,183  
         
         
Net cash used in investing activities     (30,174 )     (51,187 )
         
         
Net cash used in financing activities     (32,351 )     (46,481 )
         
         
Effect of exchange rate changes on cash     (301 )     5,780  
         
         
Net increase (decrease) in cash and cash equivalents     8,623       (16,705 )
         
         
Cash and cash equivalents, beginning of period     193,709       187,534  
         
         
Cash and cash equivalents, end of period   $ 202,332     $ 170,829  
         


Contact:  Robert Vill, Group Vice President, Finance, (201) 453-6693

Children's Place, Inc.