Solid margin expansion during Q2 - The Children's Place

20 Aug '11

4 min read

The Children's Place Retail Stores Inc, the largest pure-play children's specialty apparel retailer in North America, announced second quarter net sales for the thirteen weeks ended July 30, 2011 were $343.5 million, compared to $345.3 million in the second quarter of 2010. Comparable retail sales declined 5.6% in the second quarter of 2011.

Gross margin expanded to 33.6% in the second quarter of 2011, compared to 32.9% in the prior year. Strong customer response to the newly-designed product coupled with lower unit inventory levels resulted in higher average unit retails and lower markdowns in the quarter.

The Company's focus on new store growth drove higher selling, general and administrative expenses in the second quarter of 2011 compared to the previous year, as planned. During the second quarter of 2011, the Company opened 28 new stores compared to 18 stores in 2010. Fiscal year-to-date, The Children's Place opened 70 new stores compared to 34 stores in the first half of 2010.

The loss from continuing operations after tax was $9.8 million, or $0.38 per share, in the second quarter of 2011, compared to a loss of $8.3 million, or $0.30 per share, in the second quarter of 2010. The $0.38 per share loss was at the upper-end of the Company's guidance range for the quarter.

"Our strategy to significantly reduce the amount of unproductive inventory in our stores resulted in lower mark-downs and solid margin expansion during the quarter, despite higher product costs," commented Jane Elfers, President and Chief Executive Officer of The Children's Place. "The competitive environment was highly promotional throughout the quarter which constrained top-line sales. However, with our significantly improved merchandise and tightly controlled inventory, we were able to reach the high-end of our guidance range."

Ms. Elfers concluded, "We enter the second half of 2011 with much stronger merchandise assortments, an excellent inventory position with conservative back-to-school unit buys, and carryover inventory down significantly compared to last year. While there remains a great deal of economic uncertainty, we believe we are well positioned to continue expanding gross margin in the third quarter and we are updating our fiscal 2011 earnings guidance to be in the range of $3.13 to $3.25 per share."

Fiscal Year-to-Date
Net sales from continuing operations were $774.3 million fiscal year-to-date 2011, a 1% increase compared to $767.4 million for the same period last year. Comparable retail sales declined 4.3% fiscal year-to-date 2011.

Gross margin expanded to 38.6% from 38.2% fiscal year-to-date 2010.

Income from continuing operations after tax was $19.3 million, or $0.74 per diluted share, fiscal year-to-date 2011, compared to $19.7 million, or $0.70 per diluted share, last year.

Share Repurchase Program
During the second quarter of fiscal 2011, the Company repurchased 586 thousand shares for approximately $28.1 million. During the first half of fiscal 2011, the Company repurchased 958 thousand shares for approximately $46.5 million. At the end of the quarter, there was $63.5 million remaining of the $100 million share repurchase program which was authorized by the Board of Directors in March 2011. Under the 2011 share repurchase program, the Company may repurchase shares in the open market at current market prices at the time of purchase or in privately negotiated transactions. The timing and actual number of shares repurchased under the program will depend on a variety of factors including price, corporate and regulatory requirements, and other market and business conditions. The Company may suspend or discontinue the program at any time, and may thereafter reinstitute purchases, all without prior announcement.

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