The Children's Place Reports Second Quarter 2024 Results

SECAUCUS, N.J., Sept. 11, 2024 (GLOBE NEWSWIRE) The Children’s Place, Inc. (Nasdaq: PLCE), an omni-channel children’s specialty portfolio of brands, today announced financial results for the second quarter ended August 3, 2024.

Muhammad Umair, President and Interim Chief Executive Officer said, “During the second quarter we proactively made certain strategic and operational changes to improve the profitability of the business and provide a foundation for future growth and we were pleased with the results. While we anticipated that these efforts would provide pressure to topline sales, we drove significant improvements in gross profit margin versus the prior year’s second quarter and sequential improvement in margin for two quarters, which is particularly important moving from the first quarter to the second quarter. In addition, we were also able to significantly decrease Adjusted SG&A expenses as we reduced payroll costs and eliminated unprofitable marketing spend, all of which has combined to show more than a $39 million improvement in Adjusted operating income despite the lower top line sales. While these first steps to improve operating results have been promising, we still believe that we have significant work ahead of us in future quarters as we rationalize profitability.”

Second Quarter 2024 Results
Net sales decreased $25.9 million, or 7.5%, to $319.7 million in the three months ended August 3, 2024, compared to $345.6 million in the three months ended July 29, 2023. The decrease in net sales was primarily driven by an anticipated decrease in ecommerce revenue, as the Company proactively rationalized its unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to significantly improve profitability, which was successful during the second quarter. These efforts not only improved the profitability of the Company’s ecommerce business, despite the lower revenue, but also benefited the brick-and-mortar channel, as the stores business experienced positive comparable store sales for the first time in ten quarters. The wholesale business also rebounded with double-digit growth after a decline in the first quarter.

Comparable retail sales decreased 7.2% for the quarter, largely driven by the planned decrease in ecommerce as this business decreased by a double-digit percentage as the Company proactively sacrificed unprofitable sales to improve profitability. Stores experienced a positive comparable store sales result for the first time since the post COVID-19 period of 2021, driven by stronger units per transaction and conversion metrics, and improving traffic trends.

Gross profit increased $24.0 million to $111.8 million in the three months ended August 3, 2024, compared to $87.8 million in the three months ended July 29, 2023. The gross margin rate increased by 960 basis points to 35.0% during the three months ended August 3, 2024, compared to 25.4% in the prior year period. The increase was caused by a combination of factors, including reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year. These improvements were combined with the success of the Company’s rationalization of profit-draining promotional strategies and shipping offers, which resulted in a significant improvement in the leverage of ecommerce freight costs due to the Company’s new shipping threshold for free shipping.

Selling, general, and administrative expenses were well controlled at $96.1 million in the three months ended August 3, 2024, compared to $112.0 million in the three months ended July 29, 2023. Adjusted selling, general & administrative expenses were $88.3 million in the three months ended August 3, 2024, compared to $101.7 million in the comparable period last year, and leveraged 180 basis points to 27.6% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs. This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the second quarter.

Operating loss was $(21.8) million in the three months ended August 3, 2024, compared to $(36.9) million in the three months ended July 29, 2023. Operating loss was impacted by incremental expenses of $36.0 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, and restructuring costs of $6.1 million due to recent changes in the senior leadership team. These charges have been classified as non-GAAP adjustments, leading to a shift back to profitability with an adjusted operating income of $14.2 million in the three months ended August 3, 2024, or an improvement of $39.2 million compared to an adjusted operating loss of $(25.0) million in the comparable period last year, and leveraged 1,170 basis points to 4.5% of net sales.  

Net interest expense was $9.2 million in the three months ended August 3, 2024, compared to $7.6 million in the three months ended July 29, 2023. The increase in interest expense was primarily driven by higher average interest rates associated with the Company’s revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from the Company’s majority shareholder, Mithaq Capital SPC (“Mithaq”).

As previously announced, in the three months ended February 3, 2024, the Company established a valuation allowance against its net deferred tax assets and, as such, continues to adjust the allowance based upon the ongoing operating results. The provision for income taxes, which is reflected net of these adjustments, was $1.1 million in the three months ended August 3, 2024, compared to a benefit for income taxes of $(9.2) million during the three months ended July 29, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of the valuation allowance against the Company’s net deferred tax assets.

Net loss, which included certain non-cash impairment charges and non-operating restructuring charges, was $(32.1) million, or $(2.51) per diluted share, in the three months ended August 3, 2024, compared to $(35.4) million, or $(2.82) per diluted share, in the three months ended July 29, 2023. Adjusted net income shifted back to profitability after two years of losses during the second quarter, improving by $30.4 million versus the prior year to $3.9 million, or $0.30 per diluted share, compared to an adjusted net loss of $(26.5) million, or $(2.12) per diluted share, in the comparable period last year.

Fiscal Year-To-Date 2024 Results
Net sales decreased $79.7 million, or 11.9%, to $587.5 million in the six months ended August 3, 2024, compared to $667.2 million in the six months ended July 29, 2023. The decrease in net sales was primarily due to reductions in retail sales due to lower store count, and anticipated declines in ecommerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend and the strategic decision to change “free shipping” offers, as the Company proactively sacrificed unprofitable sales in an effort to improve profitability. Comparable retail sales decreased 9.4% for the six months ended August 3, 2024. 

Gross profit increased $20.3 million to $204.5 million in the six months ended August 3, 2024, compared to $184.2 million in the six months ended July 29, 2023. The gross margin rate increased by 720 basis points to 34.8% during the six months ended August 3, 2024 compared to 27.6% in the prior year period. The increase was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year. These improvements were combined with the success of the Company’s rationalization of profit-draining promotional strategies and shipping offers, which resulted in a significant improvement in the leverage of ecommerce freight costs due to the Company’s new shipping threshold for free shipping.

Selling, general, and administrative expenses were $205.2 million in the six months ended August 3, 2024, compared to $224.9 million in the six months ended July 29, 2023. Adjusted selling, general & administrative expenses were $177.0 million in the six months ended August 3, 2024, compared to $210.8 million in the comparable period last year, and leveraged 150 basis points to 30.1% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs. This represents the lowest level of Adjusted selling, general and administrative expenses in over 15 years for the first two quarters of a fiscal year.

Operating loss was $(49.8) million in the six months ended August 3, 2024, compared to $(67.0) million in the six months ended July 29, 2023. Operating loss was impacted by incremental expenses of $58.9 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, restructuring costs of $6.4 million primarily due to recent changes in the senior leadership team, and several charges due to the Company’s recent change of control, due to the investment in the Company by Mithaq, and several new financing initiatives, which include $10.8 million of non-cash equity compensation charges and $3.8 million in other fees associated with the change of control, and $6.7 million of financing-related charges. These charges have been classified as non-GAAP adjustments leading to a shift back to profitability with an adjusted operating income of $9.2 million for year-to-date 2024, or an improvement of $58.7 million compared to an adjusted operating loss of $(49.5) million in the comparable period last year, and leveraged 900 basis points to 1.6% of net sales.

Net interest expense was $17.0 million in the six months ended August 3, 2024, compared to $13.5 million in the six months ended July 29, 2023. The increase in interest expense was primarily driven by higher average interest rates associated with the Company’s revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from Mithaq.

The provision for income taxes was $3.2 million in the six months ended August 3, 2024, compared to a benefit for income taxes of $(16.4) million during the six months ended July 29, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against the Company’s net deferred tax assets in the Company’s fiscal year for 2023.

Net loss, which included certain non-cash impairment charges and non-operating restructuring charges, was $(69.9) million, or $(5.50) per diluted share, in the six months ended August 3, 2024, compared to $(64.2) million, or $(5.16) per diluted share, in the six months ended July 29, 2023. Adjusted net loss, which was driven by losses in the first quarter and partially offset by profits in the second quarter, was $(11.0) million, or $(0.87) per diluted share, compared to $(51.2) million, or $(4.12) per diluted share, in the comparable period last year.

Store Update 
The Company closed 3 stores in the three months ended August 3, 2024 and ended the quarter with 515 stores and square footage of 2.5 million.

Balance Sheet and Cash Flow
As of August 3, 2024, the Company had $9.6 million of cash and cash equivalents and $316.7 million outstanding on its revolving credit facility. Additionally, the Company used $194.7 million in operating cash flows in the six months ended August 3, 2024.

Inventories were $520.6 million as of August 3, 2024, compared to $537.0 million as of July 29, 2023.

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 (loss), adjusted net income (loss) per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses, adjusted operating income (loss) and adjusted EBITDA 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.

Please refer to the “Reconciliation of Non-GAAP Financial Information to GAAP” later in this press release, which sets forth the non-GAAP operating adjustments for the 13-week periods and 26-week periods ended August 3, 2024, and July 29, 2023.

About The Children’s Place
The Children’s Place is an omni-channel children’s specialty portfolio of brands. Its global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 15 countries through five international franchise partners. The Children’s Place designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under its proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”.