The Children’s Place Reports Fourth Quarter and Full Year 2023 Results

May 6, 2024

SECAUCUS, N.J., May 06, 2024 (GLOBE NEWSWIRE) -- The Children’s Place, Inc. (Nasdaq: PLCE), an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first model, today announced financial results for the fourth quarter and fiscal year ended February 3, 2024.

Fourth Quarter 2023 Results
Net sales decreased $1.1 million, or 0.2%, to $455.0 million in the three months ended February 3, 2024, from $456.1 million in the three months ended January 28, 2023. The decrease in net sales compared to the fourth quarter 2022 was primarily due to reductions in retail sales due to lower store count and traffic declines to stores partially offset by continued strength in e-commerce.  Comparable retail sales increased 4.8% for the quarter.

Gross profit and adjusted gross profit increased by $19.2 million to $98.9 million in the three months ended February 3, 2024, compared to $79.7 million in the three months ended January 28, 2023. Adjusted gross profit leveraged 420 basis points to 21.7% of net sales, compared to 17.5% of net sales last year. The increase was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year.  These improvements were partially offset by margin pressure due to aggressive promotions, as the Company sought to maximize revenue during the quarter, coupled with margin pressure in its wholesale business which underperformed relative to plan and due to increases in freight cost resulting from split shipments. 

Selling, general, and administrative expenses were $117.6 million in the three months ended February 3, 2024, compared to $130.5 million in the three months ended January 28, 2023. Adjusted selling, general & administrative expenses were $118.7 million in the three months ended February 3, 2024, compared to $128.5 million in the comparable period last year, and leveraged 210 basis points to 26.1% of net sales, primarily as a result of reductions in equity based compensation, significant reductions in store payroll and home office payroll, partially offset by planned increases in marketing and increases in professional fees.

Operating loss was ($61.8) million in the three months ended February 3, 2024, compared to ($64.8) million in the three months ended January 28, 2023. Operating loss was impacted by an impairment charge of $29.0 million on the Gymboree tradename, primarily due to an increase in the discount rate used to value the tradename and reductions to future Gymboree sales forecasts, and $2.5 million of impairment charges to stores during the quarter. These charges have been classified as non-GAAP adjustments leading to an adjusted operating loss of ($30.9) million in the three months ended February 3, 2024, compared to ($61.0) million in the comparable period last year, and leveraged 660 basis points to (6.8)% of net sales.

Net interest expense was $8.5 million in the three months ended February 3, 2024, compared to $5.2 million in the three months ended January 28, 2023.  The increase in interest expense was largely driven by higher borrowings and higher average interest rates associated with our revolving credit facility and term loan due to continued market-based rate increases.

Provision for income taxes was $58.6 million in the three months ended February 3, 2024, compared to a benefit for income taxes of $19.4 million during the three months ended January 28, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against the Company’s net deferred tax assets in the three months ended February 3, 2024.

Net loss was ($128.8) million, or ($10.26) per diluted share, in the three months ended February 3, 2024, compared to ($50.5) million, or ($4.10) per diluted share, in the three months ended January 28, 2023. Adjusted net loss was ($92.7) million, or ($7.38) per diluted share, compared to ($47.7) million, or ($3.87) per diluted share in the comparable period last year.

Fiscal 2023 Results
Net sales decreased $106.0 million, or 6.2%, to $1.603 billion in the twelve months ended February 3, 2024, compared to $1.708 billion in the twelve months ended January 28, 2023. The decrease in net sales compared to fiscal 2022 was primarily due to reductions in retail sales due to lower store count and traffic declines to stores partially offset by continued strength in e-commerce and an increase in wholesale revenue. Comparable retail sales decreased 4.7% for the twelve months ended February 3, 2024.

Gross profit decreased $68.9 million to $445.3 million in the twelve months ended February 3, 2024, compared to $514.2 million in the twelve months ended January 28, 2023. Adjusted gross profit decreased $68.3 million to $445.3 million in the twelve months ended February 3, 2024, compared to $513.5 million in the comparable period last year, and deleveraged 230 basis points to 27.8% of net sales. The decrease was primarily the result of lower retail revenue attributed to reduced store count and traffic declines and the related lower merchandise margins on those sales. Additionally, gross profit margin was impacted by a significantly larger wholesale business which operates at a lower gross margin rate but is accretive to operating margin. Gross profit was also impacted by higher than planned distribution and fulfillment costs due to growth in our e-commerce business and the deleveraging of fixed expenses resulting from the decline in net sales.

Selling, general, and administrative expenses were $447.3 million in the twelve months ended February 3, 2024, compared to $461.0 million in the twelve months ended January 28, 2023. Adjusted selling, general & administrative expenses were $432.5 million in the twelve months ended February 3, 2024, compared to $455.8 million in the comparable period last year and deleveraged 30 basis points to 27.0% of net sales, compared to 26.7% of net sales last year, primarily as a result of the deleveraging of fixed expenses resulting from the decline in net sales and higher planned marketing spending, partially offset by permanent reductions in store payroll and home office payroll, and reductions in variable performance-based equity compensation.

Operating loss was ($83.8) million in the twelve months ended February 3, 2024, compared to ($1.5) million in the twelve months ended January 28, 2023. Operating loss was impacted by an impairment charge of $29.0 million on the Gymboree tradename, primarily due to an increase in the discount rate used to value the tradename and reductions to future Gymboree sales forecasts, and $5.6 million of impairment charges to stores during the year. These charges have been classified as non-GAAP adjustments leading to an adjusted operating loss of ($32.5) million in the twelve months ended February 3, 2024, compared to adjusted operating income of $7.1 million in the comparable period last year, and deleveraged 240 basis points to (2.0)% of net sales, compared to 0.4% of net sales last year.

Net interest expense was $30.0 million in the twelve months ended February 3, 2024, compared to $13.2 million in the twelve months ended January 28, 2023. The increase in interest expense was largely driven by higher borrowings and higher average interest rates associated with our revolving credit facility and term loan due to continued market-based rate increases.

Provision for income taxes was $40.7 million in the twelve months ended February 3, 2024, compared to a benefit for income taxes of $13.6 million during the twelve months ended January 28, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against the Company’s net deferred tax assets in the twelve months ended February 3, 2024 and by the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in the twelve months ended January 28, 2023.

Net loss was ($154.5) million, or ($12.36) per diluted share, in the twelve months ended February 3, 2024, compared to ($1.1) million, or ($0.09) per diluted share, in the twelve months ended January 28, 2023.  Adjusted net loss was ($103.3) million, or ($8.26) per diluted share, compared to ($1.1) million, or ($0.08) per diluted share, in the comparable period last year.

Store Update
The Company closed 68 stores in the three months ended February 3, 2024 and closed 90 stores in the twelve months ended February 3, 2024

The Company ended the quarter with 523 stores and square footage of 2.6 million, a decrease of 12.8% compared to the prior year. Since the Company’s fleet optimization initiative was announced in 2013, it has permanently closed 676 stores.

Balance Sheet and Cash Flow
As of February 3, 2024, the Company had $13.6 million of cash and cash equivalents and $226.7 million outstanding on its revolving credit facility, compared to $16.7 million of cash and cash equivalents and $287.0 million outstanding on its revolving credit facility as of January 28, 2023. As of May 4, 2024, the Company had approximately $14 million of cash and cash equivalents and $226.1 million outstanding on its revolving credit facility. Additionally, the Company generated $135.4 million and $92.8 million in operating cash flows in the three months and twelve months ended February 3, 2024, respectively.

Inventories were $362.1 million as of February 3, 2024, compared to $447.8 million as of fiscal year end last year.

As previously announced, the Company recently secured a total of $78.6 million in unsecured subordinated loans from its new majority shareholder, Mithaq Capital SPC (“Mithaq”), providing the Company with new capital. In addition, on April 17, 2024, the Company closed on an additional $90 million unsecured subordinated term loan from Mithaq which was used to repay the Company’s $50 million term loan under the Company’s credit agreement with Wells Fargo, National Association and other lenders, and to provide additional working capital. Subsequently, on May 2, 2024, the Company entered into a commitment letter with Mithaq for a $40.0 million senior unsecured credit facility.   The combined impact of these new financings provides the Company with additional liquidity to operate our business. 

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-operating adjustments for the 14- and 53-week period ended February 3, 2024, and 13- and 52-week period ended January 28, 2023.

About The Children’s Place
The Children’s Place is an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first model. Its global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 16 countries through six international franchise partners. The Children’s Place is proud to be a woman-led Company, including industry-leading gender diversity in senior management and throughout all levels of its workforce, and of its commitment to sustainable business practices that benefit its customers, associates, investors, suppliers and the communities it serves. The Children’s Place designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under its proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”. For more information , visit: www.childrensplace.com and www.gymboree.com, as well as the Company’s social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.  

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 February 3, 2024. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company’s current level of operations and repayment of indebtedness, 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 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 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 securities, 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, risks related to the existence of a controlling shareholder, 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

 
THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
  Fourth Quarter Ended   Year Ended
  February 3,
2024
  January 28,
2023
  February 3,
2024
  January 28,
2023
               
Net sales $ 455,034     $ 456,126     $ 1,602,508     $ 1,708,482  
Cost of sales   356,123       376,402       1,157,234       1,194,320  
Gross profit   98,911       79,724       445,274       514,162  
Selling, general and administrative expenses   117,587       130,494       447,343       460,972  
Depreciation and amortization   11,652       12,145       47,186       51,464  
Asset impairment charges   31,429       1,877       34,543       3,256  
Operating loss   (61,757 )     (64,792 )     (83,798 )     (1,530 )
Interest expense, net   (8,518 )     (5,152 )     (30,000 )     (13,232 )
Loss before provision (benefit) for income taxes   (70,275 )     (69,944 )     (113,798 )     (14,762 )
Provision (benefit) for income taxes   58,561       (19,419 )     40,743       (13,624 )
Net loss $ (128,836 )   $ (50,525 )   $ (154,541 )   $ (1,138 )
               
               
Loss per common share              
Basic $ (10.26 )   $ (4.10 )   $ (12.36 )   $ (0.09 )
Diluted $ (10.26 )   $ (4.10 )   $ (12.36 )   $ (0.09 )
               
Weighted average common shares outstanding              
Basic   12,556       12,332       12,501       13,041  
Diluted   12,556       12,332       12,501       13,041  


THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
 
  Fourth Quarter Ended   Year Ended
  February 3,
2024
  January 28,
2023
  February 3,
2024
  January 28,
2023
               
Net loss $ (128,836 )   $ (50,525 )   $ (154,541 )   $ (1,138 )
               
Non-GAAP adjustments:              
Asset impairment charges   31,429       1,877       34,543       3,256  
Provision for legal settlement   3,000             3,000        
Fleet optimization   1,546       873       3,086       1,215  
Credit agreement amendment   1,012             1,762        
Accelerated depreciation   597             1,959       746  
Restructuring costs   (225 )     702       10,458       1,897  
Settlement payment received   (6,461 )           (6,461 )      
Contract termination costs               2,961        
Professional and consulting fees                     721  
Legal reserve         375             375  
Provision for foreign settlement                     375  
Aggregate impact of non-GAAP adjustments   30,898       3,827       51,308       8,585  
Income tax effect(1)   5,228       (995 )     (80 )     (2,162 )
Settlement of tax examination                     (6,379 )
Net impact of non-GAAP adjustments   36,126       2,832       51,228       44  
               
Adjusted net loss $ (92,710 )   $ (47,693 )   $ (103,313 )   $ (1,094 )
               
GAAP net loss per common share $ (10.26 )   $ (4.10 )   $ (12.36 )   $ (0.09 )
               
Adjusted net loss per common share $ (7.38 )   $ (3.87 )   $ (8.26 )   $ (0.08 )

(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, adjusted for the impact of any valuation allowance.

 
THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
 
  Fourth Quarter Ended   Year Ended
  February 3,
2024
  January 28,
2023
  February 3,
2024
  January 28,
2023
               
Operating loss $ (61,757 )   $ (64,792 )   $ (83,798 )   $ (1,530 )
               
Non-GAAP adjustments:              
Asset impairment charges   31,429       1,877       34,543       3,256  
Provision for legal settlement   3,000             3,000        
Fleet optimization   1,546       873       3,086       1,215  
Credit agreement amendment   1,012             1,762        
Accelerated depreciation   597             1,959       746  
Restructuring costs   (225 )     702       10,458       1,897  
Settlement payment received   (6,461 )           (6,461 )      
Contract termination costs               2,961        
Professional and consulting fees                     721  
Legal reserve         375             375  
Provision for foreign settlement                     375  
Aggregate impact of non-GAAP adjustments   30,898       3,827       51,308       8,585  
               
Adjusted operating income (loss) $ (30,859 )   $ (60,965 )   $ (32,490 )   $ 7,055  


THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
 
  Fourth Quarter Ended   Year Ended
  February 3,
2024
  January 28,
2023
  February 3,
2024
  January 28,
2023
               
Gross profit $ 98,911   $ 79,724   $ 445,274   $ 514,162  
               
Non-GAAP adjustments:              
Fleet optimization               (621 )
Aggregate impact of non-GAAP adjustments               (621 )
               
Adjusted gross profit $ 98,911   $ 79,724   $ 445,274   $ 513,541  


  Fourth Quarter Ended   Year Ended
  February 3,
2024
  January 28,
2023
  February 3,
2024
  January 28,
2023
               
Selling, general and administrative expenses $ 117,587     $ 130,494     $ 447,343     $ 460,972  
               
Non-GAAP adjustments:              
Provision for legal settlement   (3,000 )           (3,000 )      
Fleet optimization   (1,546 )     (873 )     (3,086 )     (1,836 )
Credit agreement amendment   (1,012 )           (1,762 )      
Restructuring costs   225       (702 )     (10,458 )     (1,897 )
Settlement payment received   6,461             6,461        
Contract termination costs               (2,961 )     (721 )
Legal reserve         (375 )           (375 )
Provision for foreign settlement                     (375 )
Aggregate impact of non-GAAP adjustments   1,128       (1,950 )     (14,806 )     (5,204 )
               
Adjusted selling, general and administrative expenses $ 118,715     $ 128,544     $ 432,537     $ 455,768  


THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
  February 3,
2024
  January 28,
2023*
   
Assets:      
Cash and cash equivalents $ 13,639     $ 16,689
Accounts receivable   33,219       49,584
Inventories   362,099       447,795
Prepaid expenses and other current assets   43,169       47,875
Total current assets   452,126       561,943
       
Property and equipment, net   124,750       149,874
Right-of-use assets   175,351       155,481
Tradenames, net   41,123       70,891
Other assets, net   6,958       48,092
Total assets $ 800,308     $ 986,281
       
Liabilities and Stockholders' Equity (Deficit):      
Revolving loan $ 226,715     $ 286,990
Accounts payable   225,549       177,147
Current portion of operating lease liabilities   69,235       78,576
Accrued expenses and other current liabilities   94,905       105,672
Total current liabilities   616,404       648,385
       
Long-term debt   49,818       49,752
Long-term portion of operating lease liabilities   118,073       96,482
Other long-term liabilities   25,032       33,184
Total liabilities   809,327       827,803
       
Stockholders' equity (deficit)   (9,019 )     158,478
Total liabilities and stockholders' equity (deficit) $ 800,308     $ 986,281

* 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.

 
THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  Year Ended
  February 3,
2024
  January 28,
2023
       
Net loss $ (154,541 )   $ (1,138 )
Non-cash adjustments   197,448       159,732  
Working capital   49,893       (166,812 )
Net cash provided by (used in) operating activities   92,800       (8,218 )
       
Net cash used in investing activities   (27,790 )     (45,948 )
       
Net cash provided by (used in) financing activities   (68,268 )     17,056  
       
Effect of exchange rate changes on cash and cash equivalents   208       (988 )
       
Net decrease in cash and cash equivalents   (3,050 )     (38,098 )
       
Cash and cash equivalents, beginning of period   16,689       54,787  
       
Cash and cash equivalents, end of period $ 13,639     $ 16,689  

 


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Source: The Children's Place, Inc.

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