SECAUCUS, N.J., May 19, 2022 (GLOBE NEWSWIRE) The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced financial results for the first quarter ended April 30, 2022.

Jane Elfers, President and Chief Executive Officer announced, “Our Q1 results were negatively impacted by several factors, the largest being lapping the unprecedented stimulus released into the economy in March of 2021. March sales this year were extremely challenging with sales down approximately 35% versus March 2021.  We also believe that the combination of the unseasonably cold weather that lasted through the end of the quarter in most of our key markets, and the unprecedented levels of inflation, particularly with respect to gasoline and food prices, negatively impacted our Q1 results. On a positive note, for the first time in three years families joined together to celebrate the Easter Holiday, and we were very pleased with the performance of our Easter Dressy Business across all three of our brands. Gymboree and TCP had standout performances across all dressy categories and Sugar & Jade delivered strong results in the categories where we had dressy ownership.”

Ms. Elfers continued, “We are proud to announce that starting this July, Amazon will launch our iconic Gymboree brand on their website. We are excited to continue to grow Gymboree by partnering with the number one apparel retailer in the U.S. to reach a significantly larger, digitally savvy, customer base and to build upon the Gymboree momentum in 2022 and beyond.”

Ms. Elfers continued, “Looking ahead, while the impact of last year’s stimulus will eventually wane and the weather will eventually change, we believe that the unprecedented levels of inflation, which are now projected to persist into 2023, will continue to have an outsized impact on the lower income consumer, particularly due to significantly higher gasoline and food prices. Due to these persistently high levels of inflation and the lack of visibility into its impact on the balance of the year, we are tempering our top line expectation for 2022 and we are now planning for a mid-single digit decline in sales for 2022. Despite these headwinds, and supported by the significant structural reset we have made to our business model over the past two years, we remain focused on our goal of delivering double digit operating margin and double digit EPS for 2022 and beyond.”

Ms. Elfers concluded, “Several years ago, we developed a multi-pronged transformation strategy focused on four key initiatives; superior product, digital transformation, fleet optimization, and alternate channels of distribution. Fast forward to today; our expanded, high quality, value focused multi-brand offerings are consistently well received. Our accelerated digital investments have positioned us as an industry-leader in digital penetration, with our digital channel being our highest operating margin contributor. Our investments in digital marketing capabilities now enable us to be significantly more strategic and nimble with respect to marketing spend and tactics. Our real estate portfolio has been completely transformed by a combination of right-sizing our store fleet and a structural reset of our occupancy costs. Our Amazon business is growing rapidly and, with the addition of Gymboree, Amazon becomes an even more important part of our growth strategy. The continued successful execution of these key strategic initiatives will remain our priority in 2022.”

Financial Results
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Financial results for the first quarter 2022 reported in this press release are compared against both first quarter 2021 and first quarter 2019 given that management believes a comparison to 2019 is relevant to measuring the Company’s progress against its 2019 pre-pandemic performance, given the significant structural changes made to the Company’s operating model since the onset of the COVID-19 pandemic.

First Quarter 2022 Results
Net sales decreased $73.1 million, or 16.8%, to $362.4 million in the three months ended April 30, 2022, compared to $435.5 million in the three months ended May 1, 2021, and decreased $50.0 million, or 12.1%, compared to $412.4 million in the three months ended May 4, 2019.  The decrease in net sales compared to Q1 2021 was primarily due to lapping the COVID-19 stimulus relief program last year, the impact of unprecedented inflation on our customer, prolonged unseasonably cold temperatures through the end of the quarter in our major markets, and the impact of permanent store closures.  Comparable retail sales decreased 16.9% for the quarter.

Gross profit decreased $46.3 million to $141.9 million in the three months ended April 30, 2022, compared to $188.2 million in the three months ended May 1, 2021, and decreased $10.1 million compared to $152.0 million in the three months ended May 4, 2019.  Adjusted gross profit decreased $47.3 million to $141.9 million in the three months ended April 30, 2022, compared to $189.2 million in the comparable period last year, and decreased $9.5 million compared to $151.4 million in the comparable period in 2019.  Adjusted gross margin deleveraged 429 basis points to 39.2% of net sales versus Q1 2021, primarily the result of higher inbound transportation expenses and the deleverage of fixed expenses resulting from the decline in net sales, partially offset by higher merchandise margins in both channels, driven by AUR increases in both channels. Adjusted gross margin of 39.2% in Q1 2022 compares to Q1 2019 adjusted gross margin of 36.7%.

Selling, general, and administrative expenses were $109.0 million in the three months ended April 30, 2022, compared to $106.7 million in the three months ended May 1, 2021 and $128.0 million in the three months ended May 4, 2019. Adjusted SG&A was $108.2 million in the three months ended April 30, 2022, compared to $104.1 million in the comparable period last year and $127.2 million in the comparable period in 2019.  Adjusted SG&A deleveraged 595 basis points to 29.9% of net sales versus Q1 2021, primarily as a result of the deleverage of fixed expenses resulting from the decline in net sales as well as planned higher marketing spend.

Operating income decreased $46.6 million to $19.3 million in the three months ended April 30, 2022, compared to $65.9 million in the three months ended May 1, 2021 and increased $14.3 million compared to $5.0 million in the three months ended May 4, 2019. Adjusted operating income decreased $50.1 million to $20.6 million in the three months ended April 30, 2022, compared to an adjusted operating income of $70.7 million in the comparable period last year and increased $14.0 million compared to $6.6 million in the comparable period in 2019.  Q1 2022 adjusted operating income deleveraged 1,057 basis points to 5.7% of net sales versus Q1 2021 and leveraged 409 basis points versus Q1 2019 adjusted operating income, which was 1.6% of net sales.

Net interest expense was $1.7 million in the three months ended April 30, 2022, compared to $4.4 million in the three months ended May 1, 2021.  The decrease in interest expense versus Q1 2021 was driven by lower interest rates due to our recent refinancing and a lower term loan balance outstanding this quarter.

Net income decreased $25.4 million to $19.8 million, or $1.43 per diluted share, in the three months ended April 30, 2022, compared to net income of $45.2 million, or $3.01 per diluted share, in the three months ended May 1, 2021 and increased $15.3 million compared to $4.5 million, or $0.28 per diluted share, in the three months ended May 4, 2019.  Adjusted net income decreased $34.2 million to $14.5 million, or $1.05 per diluted share, compared to adjusted net income of $48.7 million, or $3.25 per diluted share, in the comparable period last year, and increased $8.7 million compared to $5.8 million, or $0.36 per diluted share, in the comparable period in 2019.

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, adjusted net income per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses, adjusted operating income, and adjusted provision for income taxes 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.

The Company excluded net income of $5.4 million for the three months ended April 30, 2022, including the settlement of a foreign tax audit, partially offset by excluded expenses, including accelerated depreciation, professional and consulting fees, and fleet optimization costs.  The total impact on income taxes for the above items was $6.7 million.

Store Update 
The Company ended the first quarter of 2022 with 665 stores and square footage of 3.2 million, a decrease of 8% compared to the prior year and a decrease of 30% compared to the end of Q1 2019 when the Company operated 971 stores pre-pandemic. Consistent with the Company’s store fleet optimization initiative, the Company permanently closed 7 stores during the first quarter of 2022 and has permanently closed 534 stores since 2013 and decreased total square footage by 2.1 million square feet or approximately 40%. The Company is planning to close a total of approximately 40 stores this year.

Balance Sheet and Cash Flow
As of April 30, 2022, the Company had $58.5 million of cash and cash equivalents and $249.5 million outstanding on its revolving credit facility.  Additionally, the Company used $18.8 million in operating cash flows in the three months ended April 30, 2022.

Inventories were $549.2 million as of April 30, 2022, with 24% of our inventory, or approximately $132.6 million, in-transit due to steps taken to mitigate global supply chain disruptions, compared to $417.8 million in the same period last year.

Capital Return Program
During the three months ended April 30, 2022 the Company repurchased 666 thousand shares for approximately $38.8 million, inclusive of shares repurchased and surrendered to cover tax withholdings associated with the vesting of equity awards held by management.  As of April 30, 2022, $218.6 million remained on the Company’s existing share repurchase program authorization.  

Outlook
Based on the uncertainty in the current environment, the Company is not providing EPS guidance at this time. 

About The Children’s Place

The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise predominantly at value prices, primarily under the proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree” and “Sugar & Jade” brand names. The Company has online stores at www.childrensplace.com, www.gymboree.com and www.sugarandjade.com and, as of April 30, 2022, the Company had 665 stores in the United States, Canada, and Puerto Rico and the Company’s six international franchise partners had 212 international points of distribution in 16 countries. 

(Tables follow)

THE CHILDREN’S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

THE CHILDREN’S PLACE, INC.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)

⁽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.