This summary is based on the third quarter fiscal 2007 earnings call conducted by The Children’s Place Retail Stores Inc. (PLCE) on November 21, 2007.
Management:
Interim Chief Executive Officer: Chuck Crovitz
President: Neal Goldberg
President, Disney Store: Tara Poseley
Executive Vice President, Finance and Administration: Susan Riley
Senior Vice President, Planning, Allocation and Information Technology: Richard Flaks
Senior Vice President, General Merchandise Manager, Disney Store: Amy Hauk
Senior Vice President, General Merchandise Manager, The Children’s Place: Jill Kronenberg
Senior Director, Investor Relations: Heather Anthony
Key Investors Issues
- Preliminary net income was $11.8 million or 40 cents a share, down 69%.
- Net sales increased 7% to $587.4 million from $550.4 million in the prior year.
- The firm opened twenty five (25) Children’s Place stores and closed one, bringing the year to date openings to forty seven (47) and six (6) closures.
Year-to-date Highlights:
- Consolidated net sales increased 9% to $1,490.6 million compared to $1,372.5 million in the same period last year.
- Sales comprised of $1,076.0 million from The Children''s Place brand, a 9% increase over 2006, and $414.6 million from Disney Store, an 8% increase over the prior year. - Preliminary net loss was $1.5 million.
- The firm opened 47 Children''s Place stores and closed six and did not open or close any Disney Stores.
Third Quarter Highlights
Preliminary net income was $11.8 million or 40 cents a share, down 68.9% from $38 million or $1.26 a share in the prior year including $2.3 million investigation fees and $4 million severance expense.
- The Children’s Place segment recorded a operating profit of $46.4 million, a 40.9% decline from $78.5 million in 2006, while Disney Store’s operating loss was $1.3 million compared to a $10.4 million operating profit in the prior year.
- Shared services reported an operating loss of $25.5 million, a 9% improvement compared to $27.9 million last year primarily reflecting lower bonus, equity compensation, and legal expenses.
Consolidated net sales increased 7% to $587.4 million from $550.4 million in the prior year and comprised of $429.4 million from The Children’s Place brand, an 8% increase over 2006, and $158 million from Disney Store, a 3% increase over the prior year.
- Comparable store sales increased 1% reflecting a 4% increase in comparable store sales transactions partially offset by a 3% decrease in average transaction size.
- The Children’s Place brands comparable store sales increased 1% on top of a 15% increase in 2006 as substantial unit sales increases were partially offset by significant AUR decreases.
- Gross profit dollars decreased 6% to $225.6 million and gross margin decreased by 530 basis points to 38.4% driven by higher mark downs, as well as increased distribution costs.
- Selling general and administrative expense as a percentage of sales was 31.4%, which represents 180 basis points of D leverage in 2006, reflecting the store payroll, Disney E-com expense and increased supplies expense as the firm sold more units.
Depreciation and amortization expense as a percentage to sales was 3.5%, which represents 50 basis points of D leverage, reflecting increased store base, the new distribution center, and accelerated depreciation of the Mickey stores.
- The firm ended the quarter with cash and short-term investments of $111.2 million compared to $147.3 million in the prior year.
- Cash changed as a result of the current loss position versus an income position in 2006, higher capital spending, and inventory bills.
- In addition, in the prior year, the firm benefitted from $27 million in proceeds from stock option exercises.
- The company had $108.9 million of borrowings on its credit facility and most of the cash reserves are outside of the United States.
Total consolidated inventory at cost was at 30% or 22% on a square foot basis as the Children’s Place inventory at cost was up 23% on a square foot basis above the previous guidance due to higher merchandise in transit.
- Disney Store inventory at cost was up 24% on square foot basis, below previous guidance, reflecting lower inventory in transit.
- The firm opened twenty five (25) Children’s Place stores and closed one, bringing the year to date openings to forty seven (47) and six (6) closures.
- In an effort to focus on quality, the firm slowed down the rate of the new Disney store opening and expect to open fifteen (15) new Disney Stores in fiscal 2007 with the other five moving into fiscal 2008.
The firm remains on track to open 60 new Children’s Place stores this year.
- The firm has made progress in completing its outstanding SEC financial reports, and because of the ongoing delay requested an additional extension from NASDAQ, which has been granted until January 9th of 2008.
- The management reiterated that they have not found any material financial miss-statements during this process.
- In addition, the company is analyzing its operations in order to turn around the business and improve the operating and financial position.
Near Term Strategies To Improve Performance:
- The firm will adopt a more conservative investment strategy as it pertains to inventory buys and given current lead times will be able to partially affect the summer 2008 buys.
- It will also reduce the number of new store openings in 2008 and reduce the level of capital spending.
- The firm will seek to identify ways to reduce the expense structure through streamlining operations, driving process improvements, and generating efficiencies.
- Several key senior appointments were made, and the Board has set up a committee to conduct an executive search for a permanent CEO.
Fiscal 2007 Outlook
