Skip to main content

Rival’s liquidation impacts Children’s Place Q4; to close 40-45 stores

The Children’s Place is facing an “unprecedented” challenge from the bankruptcy of rival Gymboree Group.

The retailer on Monday reported earnings, sales and an outlook that were all below expectations, citing the impact of the liquidation of Gymboree’s namesake and Crazy 8 stores along with a late Easter.

“We have never experienced a total liquidation of a direct competitor of the size and proximity of Gymboree,” said Jane Elfers, president and CEO, Children’s Place. “We overlap with nearly 70% of the approximately 800 Gymboree and Crazy 8 stores, all which will complete their liquidation events and close within the next 60 days. Additionally, we are challenged by a very late Easter. Taken together, these create unprecedented near-term visibility challenges, and, as a result, the first half of 2019 is anticipated to be a highly disruptive time for The Children’s Place.”

Children’s Place said it took action in the fourth quarter to significantly accelerate the liquidation of its seasonal inventories ahead of Gymboree’s total liquidation in the first quarter.

“Our strategy enabled us to exit the quarter with over 50% less seasonal carryover inventory versus a year ago, with total inventories down 6.5% versus our guided range of flat to up low single-digits,” said Elfers. “This accelerated liquidation adversely impacted our fourth quarter EPS by $0.79. Our lean inventory levels entering Q1 better position us to prioritize the sell-through of our spring seasonal product in what we anticipate will be a highly volatile first half of 2019.”

In other news, Children’s Place confirmed that it won an auction to buy the intellectual property and related assets of Gymboree and Crazy 8.

Children’s Place net income totaled $12.02 million, or 74 cents a share, for the quarter ended Feb. 2, compared to a loss of $9.9 million, or 57 cents a share, in the year-ago period. Excluding non-recurring items, adjusted EPS came to $1.10, well below analysts’ estimates of $2.10.

Net sales fell 6.9% to $530.6 million, missing estimates of $553.1 million.

Same-store sales fell 0.6%, also missing expectations. 8.2% decline in U.S. comparable retail store sales were 8.2%. Retail comparable store traffic was down 3% during the quarter, largely driven by an 11% decrease in traffic in the weeks leading up to Christmas.

For fiscal 2019, the company expects adjusted EPS of $5.25 to $5.75, below the Street estimates of $8.84 and net sales of $1.89 billion to $1.92 million compared to expectations of $2.01 billion. It expects same-store sales will be flat to down 1%, compared with expectations of 3.7% growth.

Children’s Place said it anticipate improved performance beginning in the back-half of 2019 amid “record supply reduction” in the children’s apparel space.

“We expect to drive margin benefits from reduced inventory levels, lower product costs, and the tapering-off of the accelerated digital transformation spend,” Elfers said. “Importantly, today’s announced agreement to acquire the Gymboree Assets creates additional avenues of growth.”
This ad will auto-close in 10 seconds