Childrens Place Q3 Earnings: Exceptional Operating Results

Small cap children’s specialty apparel retailerChildrens Place Inc (NASDAQ: PLCE) reported Q3 2017 earnings before the market opened on Wednesday with results beating expectations. Net sales increased 3.4% to $490.0 million and comparable retail sales increased 5.1%. Net income was $44.1 million versusnet income of $44.2 million. The CEO commented:

We delivered exceptional operating results in the third quarter with comparable retail sales, gross margin, operating margin and earnings per diluted share all exceeding last year. Our third quarter comparable retail sales increased 5.1%, our eighth consecutive quarter of positive comps, on top of a positive 4.6% comp in the third quarter of 2016. Merchandise margin expanded for the 11th consecutive quarter. Our store traffic has experienced sequential improvement for each of the past six quarters and all of our key retail metrics increased – AUR, ADS, UPT, transactions and conversion. And, we repurchased $28 million in stock and paid $7 million in dividends in the quarter.

Our results are impressive on their own, but given the impact of three major hurricanes, Gymborees bankruptcy and inventory liquidation sales, the record October heat across most of the country, and the anniversary of our very successful private label credit card and loyalty program launches in the third quarter of last year, our results are outstanding.

Looking ahead, while we are only a couple of weeks into the fourth quarter, our business is strong. We continue to make significant progress 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.

In a separate announcement, theBoard of Directors declared a quarterly dividend with the CEO commenting:

We continued to deliver outstanding operating results in the third quarter and the continuation of our quarterly dividend is a further reflection of our confidence in our ability to execute on our strategic initiatives and our continuing commitment to return excess capital to shareholders. The Childrens Place has a profitable business model which generates strong cash flow. Since 2009, we have returned over $863 million to shareholders through share repurchases and dividends.

In early 2015, our Elite Opportunity Pro (EOP) portfolio had an openposition in Childrens Place with a March EOP newsletterhaving thefollowing to say:

To set the backdrop and theme for our interest in PLCE, one has to remember what I mentioned recently with respect to the dollar, and isolating some of your investment ideas to companies that don’t rely on foreign exposure. With a rapidly rising dollar, true or not, consumers feel richer, and the first place they’ll spend their money is on their children.

Secondly, we’re talking about a strong brand and a Company that’s well known within a consumer demographic here at home. Meaning, they don’t rely much on the rest of the world for their revenue growth. Right now, that’s a good thing.

A technical chart for Childrens Place shows shares above a $100 support level and two trend lines that appear to be converging:

A long term performance chart shows shares of Childrens Placeoutperforming last year before leveling off into a range while mid cap peerCarter’s, Inc (NYSE: CRI) is nearing previous highs againand small cap Summer Infant, Inc (NASDAQ: SUMR) is well below previous highs:

Finally, here is a quick recap of small cap Childrens Places recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

Earnings History10/30/20161/30/20174/29/20177/30/2017
EPS Est. 2.01 1.59 1.64 0.76
EPS Actual 2.29 1.88 1.95 0.86
Difference 0.28 0.29 0.31 0.1
Surprise % 13.90% 18.20% 18.90% 13.20%
EPS TrendCurrent Qtr. (Oct 2017)Next Qtr. (Jan 2018)Current Year (2018)Next Year (2019)
Current Estimate 2.47 2.12 7.36 7.91
7 Days Ago 2.47 2.12 7.36 7.91
30 Days Ago 2.47 2.12 7.36 7.91
60 Days Ago 2.46 2.11 7.35 7.89
90 Days Ago 2.46 2.11 7.34 7.86

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