The Children’s Place, one of the largest pure-play children’s specialty apparel retailer in North America, announced financial results for the first quarter ended May 2, 2020.
Jane Elfers, President and Chief Executive Officer, said, “Although we are facing a period of uncertainty regarding the future impact of the COVID-19 pandemic, The Children’s Place is moving swiftly and decisively to proactively address these challenges. In an effort to structurally position the company for continued success, we are significantly accelerating our fleet optimization initiative, and focusing our resources on accelerating our digital sales, both key elements of our long-standing transformation strategy. At the same time, we are addressing the near-term priorities necessary to preserve our financial flexibility.”
Elfers continued, “We believe that our long-standing transformation strategy has prepared us well for these uncertain times. As demand for our essential children’s clothing continues to surge, our omnichannel advantages are clear; quarter-to-date, our consolidated sales are up positive low double-digits, with on-line demand up 300 percent, while approximately 95 percent of our stores remain closed. We are planning to have the majority of our stores open by July 1.”
Elfers continued, “We have spent the past several years focused on three key strategic pillars within our transformation strategy: Superior Product, Digital Transformation and Fleet Optimization. Our Superior Product consistently resonates with our core millennial customer and provides a strong value proposition that thrives in any type of economic environment. Our Digital Transformation has been supported by accelerated investments over the past three years enabling us to achieve one of the highest digital penetrations in the industry at 31 percent of revenue for fiscal 2019. These digital investments have allowed us to operate at a high level during the current crisis, with the ability to fulfill our outsized online demand through our advanced omnichannel capabilities. We believe that our strong digital foundation, coupled with the rapidly changing shopping patterns of our consumer, partly due to the COVID-19 pandemic, our strong value proposition and our core, digital-savvy, millennial customer, will result in the continued acceleration of our digital revenue. Our Fleet Optimization initiative has been a decade-long strategic focus that has resulted in optimum flexibility in our lease terms, enabling us to significantly accelerate store closures without financial penalty. We are now targeting to close an additional 300 stores by the end of fiscal 2021, with 200 closures planned for this year, and 100 closures planned for 2021. This initiative will greatly reduce our reliance on our brick-and-mortar channel and we are targeting our mall-based, brick-and-mortar portfolio to represent less than 25 percent of our revenue entering fiscal 2022.”
Elfers concluded, “The challenges that lie ahead are many, and visibility is limited, but we are moving forward with urgency and focus, guided by the strategic pillars of our long-standing transformation strategy. We believe that our superior product, coupled with our unique ability, at this critical juncture, to significantly grow digital revenue, while meaningfully reducing our reliance on our store portfolio, will result in consolidated market share gains for years to come.”
First Quarter 2020 Results
Net sales decreased 38.1 percent to US$ 255.2 million in the three months ended May 2, 2020 from US$ 412.4 million in the three months ended May 4, 2019, primarily as a result of temporary store closures related to the COVID-19 pandemic.
Net loss was US$ 114.8) million in the three months ended May 2, 2020, compared to net income of US$ 4.5 million, or US$ 0.28 per diluted share, in the three months ended May 4, 2019. Adjusted net loss was US$ 28.6) million compared to adjusted net income of US$ 5.8 million in the comparable period last year.
Gross profit was a loss of US$ 19.7 million in the three months ended May 2, 2020, compared to US$ 152.0 million in the three months ended May 4, 2019. Adjusted gross profit was US$ 68.4 million in the three months ended May 2, 2020, compared to US$ 151.4 million in the comparable period last year, and deleveraged 990 basis points to 26.8 percent of net sales, primarily as a result of increased penetration of our e-commerce business and its higher fulfillment costs, along with the deleverage of fixed expenses resulting from the decline in sales as a result of store closures related to the COVID-19 pandemic.
Selling, general, and administrative expenses were US$ 98.5 million in the three months ended May 2, 2020, compared to US$ 128.0 million in the three months ended May 4, 2019. Adjusted SG&A was US$ 88.2 million in the three months ended May 2, 2020, compared to US$ 127.2 million in the comparable period last year, and deleveraged 380 basis points to 34.6 percent of net sales, primarily as a result of the deleverage of fixed expenses resulting from the decline in sales as a result of temporary store closures, partly offset by a reduction in operating expenses associated with actions taken in response to the COVID-19 pandemic.
Operating loss was US$ 173.1 million in the three months ended May 2, 2020, compared to operating income of US$ 5.0 million in the three months ended May 4, 2019. Adjusted operating loss was US$ 37.5 million in the three months ended May 2, 2020, compared to adjusted operating income of US$ 6.6 million in the comparable period last year, and deleveraged 1,630 basis points to 14.7 percent of net sales.
On March 18, 2020, the company suspended all store operations in the U.S. and Canada until further notice due to the COVID-19 pandemic. The Children’s Place started reopening stores on May 19, 2020 in 10 states. The company intends to continue to reopen stores on a phased timeline, as state and local guidelines and conditions permit, taking an informed, measured approach based on a number of factors.
As of June 8, 2020, The Children’s Place had 61 stores open to the public in the U.S. and Canada.
Consistent with the company’s store fleet optimization initiative, the company closed four stores in the three months ended May 2, 2020. The company ended the quarter with 920 stores and square footage of 4.3 million, a decrease of 5.1 percent compared to the prior year. Since our fleet optimization initiative was announced in 2013, the Company has closed 275 stores.
The flexibility provided by our lease actions allows us to target the closure of 300 additional store locations by the end of fiscal 2021, including 200 closures in fiscal 2020 and 100 closures in fiscal 2021.
The company’s eight international franchise partners in 19 countries had 266 international points of distribution.