The retailer’s net sales grew 3.9% Y-o-Y to $473.8 million, comp sales grew 4.6%
The Children’s Place Inc. (NASDAQ: PLCE) announced its Q3 FY16 financial results on November 17th, 2016.
The Secaucus, New Jersey-based Company, the largest pure-play children’s specialty apparel retailer in North America, sells apparel, accessories, footwear, and other items for children; and designs, contracts to manufacture, and sells merchandise under The Children’s Place, Place, and Baby Place brand names.
As of October 29th, 2016, the Company operated 1,061 stores in the U.S., Canada, and Puerto Rico, an online store www.childrensplace.com, and 139 international points of distribution open and operated by its 6 franchise partners in 17 countries. Read more about Children’s Place’s financial results below.
Q3 FY16 financial highlights
During Q3 FY16, Children’s Place’s net sales grew 3.9% Y-o-Y to $473.8 million, surging past unlike specialty retailers like Abercrombie & Fitch Co. (NYSE: ANF) and American Eagle Outfitters Inc. (NYSE: AEO) that reported tepid sales. Comparable retail sales grew by a robust 4.6% in Q3 FY16, compared to other specialty retailers such as Five Below Inc. (NASDAQ: FIVE), which reported a 0.2% decline in comp sales during the reporting quarter.
The Company’s better-than-expected results hinges on its multi-pronged transformation strategy that comprises superior product, business transformation through technology, global growth through alternate channels of distribution and store fleet optimization aimed at combating a challenging retail environment and the continued weakness in store traffic.
During Q3 FY16, gross profit increased to $194.5 million compared to $180.5 million in the year-ago same period. Adjusted gross profit was $194.4 million compared to $180.6 million last year, and leveraged 140 basis points to 41.0% of sales primarily as a result of merchandise margin leverage and higher average unit retail (AUR).
During Q3 FY16, Children’s Place’s selling, general, and administrative (SG&A) expenses rose to $115.4 million compared to $105.8 million in the year-ago same period. Adjusted SG&A was $115.4 million compared to $105.0 million last year and deleveraged 140 basis points as a percentage of sales due to higher incentive compensation expenses, which were partially offset by decreased store and administrative expenses.
Despite higher expenses, operating income rose to $62.1 million compared to $57.6 million in the year-ago same period. Adjusted operating income also grew to $62.4 million compared to an adjusted operating income of $59.5 million in Q3 FY15, and leveraged 10 basis points compared to last year.
Finally, Q3 FY16 net income rose to $44.2 million, or $2.36 per diluted share, compared to net income of $38.5 million, or $1.88 per diluted share, the previous year. Adjusted net income was $42.8 million, or $2.29 per diluted share, compared to adjusted net income of $39.6 million, or $1.93 per diluted share, in the year-ago period. There was no impact on adjusted net income per diluted share in the quarter from currency exchange rate fluctuations.
Store update: Children’s Place closed 5 stores and opened 2 stores during Q3 FY16. The Company ended Q3 FY16 with 1,061 stores and square footage of 4.96 million, a decrease of 2% compared to the prior year. The Company’s international franchise partners opened 16 points of distribution in Q3 FY16, and the Company ended the quarter with 139 international points of distribution open and operated by its 6 franchise partners in 17 countries.
Share repurchase and dividend: During Q3 FY16, the Company returned approximately $37 million to shareholders through the repurchase of 416,865 shares and its quarterly dividend payment of $0.20 per share. Year-to-date, the Company returned approximately $123 million to shareholders compared to approximately $90 million last year. Since 2009, the Company has returned over $747 million to its investors through share repurchases and dividends. At the end of the third quarter, approximately $159 million remained available for future share repurchases under the Company’s existing share repurchase program.
Additionally, the Company’s Board of Directors authorized a quarterly dividend of $0.20 per share, payable on January 05th, 2017, to shareholders of record at the close of business on December 17th, 2016.
Inventory: The Company reduced its inventory by 0.6% Y-o-Y to $325.4 million as it enters the all-important holiday season with fresh stocks.
Guidance for Q4 FY16 and full year FY16
The Children’s Place updated its outlook for FY16 and now expects adjusted EPS to be in the range of $5.00 to $5.05, inclusive of a $0.03 negative impact from foreign exchange. This compares to the Company’s previous guidance for adjusted EPS of $4.60 to $4.70. The updated guidance assumes a positive low single digit increase in comparable retail sales for the year. The guidance for adjusted EPS excludes year-to-date net charges of about $0.2 million related to asset impairment charges and income related to the release of reserves for the prior year.
For Q4 FY16, the Company expects adjusted EPS to be between $1.43 and $1.48. The Company expects no impact on adjusted EPS from currency exchange rate fluctuations. This guidance assumes a positive low single-digit increase in comparable retail sales for the quarter.
The Children’s Place’s stock ended the day at $109.05, gaining 2.20%, at the close on Wednesday, December 07th, 2016, having vacillated between an intraday high of $109.20 and a low of $106.45 during the session. The stock’s trading volume was at 377,748 for the day. The Company’s market cap was at $1.96 billion as of Wednesday’s close.