This summary is based on the second quarter fiscal 2007 earnings call conducted by The Children''s Place Retail Stores, Inc. (PLCE) on August 23, 2007.
President: Neal Goldberg
Chairman, CEO: Ezra Dabah
EVP of Finance and Administration, CFO: Susan Riley
Senior Director of Investor Relations: Heather Anthony
SVP, General Merchandise Manager: Jill Kronenberg
President of Disney Store: Tara Poseley
SVP, General Merchandise Manager of Disney Store: Amy Hauk
Key Investors Issues
- Consolidated net sales increased 7% to $424.3 million compared to $395.6 million last year.
- Consolidated gross profit dollars decreased 3% to $130.3 million.
- Cash and short term investments were $83 million compared to $110 million last year.
Second Quarter Highlights
Consolidated net sales increased 7% to $424.3 million from $395.6 million last year.
- Sales were comprised of $290.5 million from The Children''s Place brands, an 8% increase over last year, and $133.8 million from Disney Store, a 6% increase over last year.
- Consolidated comparable store sales decreased 1%, reflecting an approximate 1% decrease in comparable store sales transactions.
- The Children''s Place brands'' comparable store sales decreased 1% versus a 13% increase last year. Comparable store sales for the Disney Store were flat compared to last year''s 15% increase.
Consolidated gross profit dollars decreased 3% to $130.3 million.
Consolidated gross margin decreased approximately 320 basis points to 30.7%, primarily driven by higher markdowns in occupancy deleverage of both brands. Partially offsetting the decrease was higher initial markup.
Selling, general and administrative expense as a percentage of sales was 36.4%, which represents approximately 10 basis points of deleverage versus last year.
- The deleverage reflects increased payroll expense, higher store variable expenses and previously mentioned stock-option investigation fees, partially offset by lower management bonus accrual, and a credit taken in the quarter for long-term equity compensation.
- Additional factors contributing to SG&A were lower marketing costs compared to last year, as well as lower store and remodeling expenses due to the timing this year versus last year.
The company incurred $635,000 of asset impairment charge for one of Children''s Place stores.
- Depreciation and amortization expense was 4.3%, which represents approximately 40 basis points of deleverage, reflecting higher capital spending coupled with accelerated depreciation on the Mickey stores that is planned to renovate.
- Operating loss was $42.7 million compared to an operating loss of $25 million last year. Effective tax rate was 36% versus 37% last year.
The company ended the second quarter with cash and short term investments of $83 million compared to $110 million last year.
- In addition, it had $72 million of borrowing on credit facility at quarter end compared to zero borrowings last year.
- Cash from the beginning of the year changed primarily as a result of capital spending of approximately $100 million, inventory build of $94 million, which were partially offset by borrowings on credit facility.
Total consolidated inventory was up at cost 33% or 23% on a square foot basis.
- At The Children''s Place, inventory at cost was up 19% on a square foot basis, above previous guidance, reflecting higher merchandise in transit. Excluding the merchandise in transit and incremental shoe inventory, inventory per square foot was up approximately 10%.
Children''s Place carryover inventory per square foot as a percentage to total is comparable to last year at less than 3%.
- Disney Store inventory at cost was up 37% on a square foot basis, below previous guidance, reflecting lower inventory in transit. As a reminder, the growth in inventory primarily reflects new e-commerce business. Excluding e-com, inventory per square foot was up 22%, also below previous guidance.
- Disney Store''s carryover inventory per square foot as a percent to total was comparable to last year at less than 5%.
At The Children''s Place, sales increased 8% and comparable store sales decreased 1%.
- The second quarter reflects similar challenges to the ones faced in the previous two quarters.
- Merchandise lacked clarity of offer, which was compounded by strategy to increase AUR primarily through mix, which did not meet expectations.
- The company believes back-to-school and holiday assortment at The Children''s Place reflects progress from the clarity in AUR standpoint.
- At Disney Store, sales increased 6% and comparable store sales were flat.
Disney''s licensed product business is on-track to reach $26 billion this year, double where it was five years ago.
