Children’s Place (PLCE, Financial) reported better-than-expected fourth quarter earnings for fiscal 2014. The company, which saw comparable-retail sales growing 3.7% year-over-year, logged an adjusted EPS of 94 cents a share or adjusted net income of $20.17 million compared to the consensus estimate figure of 93 cents a share. Following the results, the Children’s Place stock surged to a 52-week high of $64.35 before closing at $62.98. The stock has been trading in the $44.54 -$64.16 during the past 12 months. However, the company revealed a flat outlook for fiscal 2015, disappointing investors.
Sales Growth, Store-optimization Spur Revenue
Children’s Place saw net sales for the fourth quarter growing from $467.50 million in the year-ago period to $479.24 million. The company also logged growth in GAAP net income from $15.65 million or 69 cents a share in Q4 2013 to $17.04 million or 79 cents a share. However, the company’s performance fell short of its prior-year quarter’s adjusted income of $21.76 million translating into earnings of 96 cents a share, owing in part to negative foreign currency headwinds amounting to $4.6 million.
During Q4 2014, Children’s Place opened only one store versus the shutting down of 21 stores, ending the quarter with a total 1,097 retail outlets. Also, the company’s franchise partners in the international market opened 5 stores, ending the quarter with 72 operational retail outlets.
For the full fiscal 2014, Children’s Place reported a 0.4% growth in comparable-retail sales. However, net sales, including the negative impact of $14.7 million in foreign currency headwinds, dipped 0.3% to $17.61 billion compared to $17.65 billion in 2013. The company’s net income for FY2014 stood at $56.9 million or $2.59 per diluted share compared to the previous fiscal’s figure of $53.0 million or $2.32 per diluted share. At the same time, gross profit dropped 5.1% from the previous fiscal’s figure of $655.5 million to $622.3 million.
Children’s Place competes with niche children’s apparel retailers such as the privately held The Gymboree Corp. as well as universal clothing retailers such as GAP Inc (GPS, Financial) and Target Corporation (TGT, Financial).
Flat Outlook for 2015
In 2014, Children’s Place generated an operating cash flow of $161 million and returned $86 million to the company’s shareholders through share buybacks and dividend payouts. The company also announced a 13% increase in quarterly dividend to $0.15 per share, payable to shareholders by end of April 2015.
Children’s Place also revealed guidance for FY2015 with projected EPS of $3.15-$3.30 a share inclusive of a $0.15 a share negative impact of foreign currency headwinds. Expert estimates had pegged the figure at $3.41 per share. The company expects to shut down a total of 200 outlets by the end of 2017 as part of its store fleet optimization program, including the 76 outlets that were shut down in 2013 and 2014.
Concurrently, for the first quarter of fiscal 2015, the specialty children’s retailer foresees adjusted EPS of 60-65 cents a share, compared to the consensus estimate for 73 cents a share. The company, which foresees an almost flat growth in comparable-retail sales for both the first quarter and full fiscal 2015, expects to see the results of its earlier investments beginning the second half of the year.
Final Thoughts
Children’s Place posted better-than-expected Q4 results for 2014 on the back of strong sales. However, the relatively tame figures for the full fiscal 2014 and a flat outlook for 2015 are sure to disappoint investors. Further, the company’s projected EPS for Q1 2015 as the full fiscal fall short of consensus estimates. However, experts project an average annual earnings growth rate in the range of 8% - 10% for Children’s Place over the upcoming five years. The company’s stock currently carries a ‘hold’ guidance for the short to mid-term.
