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The Children’s Place Q1 comparable sales decrease 1.8 percent

For the thirteen weeks to May 5, 2018, The Children’s Place, Inc. recorded net sales decrease of 0.1 percent to 436.3 million dollars and comparable retail sales decrease of 1.8 percent. Net income was 31.5 million or 1.78 dollars per diluted share compared to 36.2 million dollars or 1.97 dollars per diluted share, the previous year. Adjusted net income was 33.2 million dollars or 1.87 dollars per diluted share, compared to 35.9 million dollars or 1.95 dollars per diluted share, in the first quarter last year.

Commenting on the first quarter trading, Jane Elfers, the company’s President and CEO said in a statement: “Our ability to sell seasonal product in the first quarter was severely hampered by the combination of a record number of winter storms and the unseasonably cold temperatures that persisted across our major markets. We generated comparable retail sales of negative 1.8 percent in the first quarter vs. a positive 6.1 percent comp in the first quarter of 2017. We expect to achieve a 12 percent operating margin and 12 dollars in EPS by the end of 2020.”

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Financial highlights of The Children’s Place results

Gross profit for the quarter was 160.2 million dollars compared to 170.6 million dollars in the first quarter of 2017. Adjusted gross profit was 161.5 million dollars compared to 171 million dollars last year, and deleveraged 220 basis points to 37 percent of sales.

The company said, lower than expected traffic in the quarter pressured gross margin as the company lowered AUR’s to clear merchandise, resulting in on plan inventory levels at the end of the quarter. Gross margin rate in the quarter was also negatively impacted by the increase in penetration of digital business to 26 percent from 23 percent last year.

Operating income was 23.1 million dollars compared to 42.3 million dollars in the first quarter of 2017, while adjusted operating income was 25.4 million dollars or 5.8 percent of net sales, compared to 48.4 million dollars in the first quarter last year, deleveraging 530 basis points compared to last year.

The income tax impact on share-based compensation contributed 0.80 cents to adjusted EPS in the first quarter compared to 0.19 cents in the first quarter of 2017, due to the timing of share vesting.

Consistent with the company’s store fleet optimization initiative, the company closed 12 stores and did not open any stores during the first quarter of 2018. The company ended the first quarter with 1,002 stores, a decrease of 2.7 percent compared to the prior year. Since the fleet optimization initiative was announced in 2013, the company has closed 181 stores. The company’s international franchise partners opened 11 points of distribution and closed one in the first quarter, and it ended the quarter with 200 international points of distribution open and operated by its eight franchise partners in 20 countries.

The Children’s Place reaffirms outlook

For fiscal 2018, the company is reaffirming its outlook for adjusted net income per diluted share in the range of 7.95 dollars to 8.20 dollars. This compares to adjusted net income per diluted share of 7.91 dollars in fiscal 2017. Total net sales for the year are expected to be in the range of 1.920 billion dollars to 1.935 billion dollars. This guidance assumes a comparable retail sales increase of approximately 3.5 percent to 4.5 percent. The Company now expects adjusted operating margin to be in the range of 8.5 percent to 8.7 percent, reflecting lower adjusted operating income compared to its previous outlook.

The company expects net income per diluted share in the second quarter of 2018 to be in the range of 0.51 dollar to 0.61 dollar based upon a high single digit comparable retail sales increase. This compares to adjusted net income per diluted share of 0.86 dollar in the second quarter of 2017.

The company’s board of directors has authorized a dividend of 0.50 dollar per share, payable on June 29, 2018 to shareholders of record at the close of business on June 18, 2018.

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