Childrens Place Inc. (PLCE)

After reporting a loss in the preceding two quarters, The Children’s Place, Inc. PLCE swung back to profit in the third quarter of fiscal 2020. During the quarter, both top and bottom lines cruised past the Zacks Consensus Estimate. Markedly, shares of this children’s specialty apparel retailer gained 6.9% during the trading session on Nov 19.

However, both earnings and sales declined year over year. Incidentally, revenues during the peak back-to-school season were majorly hurt by the adoption of remote and hybrid learning practices amid the pandemic. Nonetheless, sales improved following the back-to-school season peak as the company’s offerings converted to having more casual options and as the weather became cooler. Also, Children’s Place has been benefiting from solid digital sales, which have accelerated amid the pandemic.

Delving Deeper
Notably, the company’s digital penetration elevated to 44% in the third quarter and it was 55% of sales in the year-to-date period. Management highlighted that since the onset of the pandemic in March, the company has seen its new digital customer count double year over year. Further, it has converted more than 800,000 of its store-only customers to omnichannel ones. Moreover, the company’s app downloads have risen more than 60%.

Certainly, the solid digital engagement gives management further confidence in its accelerated store closure plans. In fact, the company’s focus on digital transformation and speeding up store closures is expected to place it well for accelerated operating margin expansion in the post-pandemic period.

However, the Zacks Rank #4 (Sell) company expects sales and profitability to remain under pressure in the fourth quarter due to several challenges associated with coronavirus. These include lower demand for dress-up products, a major decline in store traffic, social distancing measures, reduced operating hours at malls and recent countrywide surges in coronavirus cases, which in turn have resulted in more temporary store closures.

Apart from this, fourth-quarter sales and margins are likely to bear the brunt of capacity limitations in the domestic logistics network stemming from unexpected online demand and the associated freight surcharges levied by the company’s major carriers. Management expects sales in the fourth quarter to be at or a little lower than the third-quarter level.