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Why Children's Place Stock Tumbled Today

A weak quarter and a disappointing outlook for the holiday period pushed the stock down.

Jeremy Bowman. Dec 11, 2019 at 1:06PM

What happened

Shares of Children's Place (NASDAQ:PLCE) were taking a dive today after the children's apparel retailer posted underwhelming results in its third-quarter earnings report and provided weak guidance for the fourth quarter.

As a result, the stock had plunged 22.2% as of 11:52 a.m. EST.

So what

Comparable sales at Children's Place rose 0.8% in the quarter, on top of 9.5% growth in the quarter a year ago, though that was below the company's own guidance of 3% to 4% comps growth. Overall revenue was up 0.4% to $524.8 million, significantly worse than estimates at $534 million.

Management blamed warmer-than-normal fall weather and a decline in mall traffic for the poor sales growth.

Gross margin in the quarter slipped from 39.1% to 37.8% due to increased penetration from e-commerce, which operates at a lower margin than in-store sales. Adjusted operating income fell 3.2% to $63.4 million, and adjusted earnings per share dropped from $3.07 to $3.03, though that beat expectations by a penny.

In a statement, CEO Jane Elfers called the back-to-school season "strong" but acknowledged multiple headwinds including warm weather and declining mall traffic. She also noted the digital penetration increased as the percentage of sales coming from e-commerce rose 650 basis points to 35%.

Now what

The retailer's guidance for the current quarter is probably the biggest reason for the stock's plunge today. Management sees comparable sales falling by mid-single digits and sales of $504 million to $509 million in the fourth quarter, which was much worse than estimates at $555.1 million. On the bottom line, the trend was similar, with an adjusted EPS forecast of $1.48 to $1.68, well below the analyst consensus at $2.06.

Elfers also talked up the company's relaunch of the Gymboree brand earlier next year, but the negative comparable sales trends for the fourth quarter seem to be a warning sign. Given the weak forecast for the holiday quarter, it's not surprising to see the stock tumbling today.