The Children’s Place Reports Record First Quarter 2021 Results

Reports Q1 GAAP Earnings per Diluted Share of $3.01 versus a Loss per Diluted Share of $(7.86) in Q1 2020

Reports Q1 Adjusted Earnings per Diluted Share of $3.25 versus an Adjusted Loss per Diluted Share of $(3.33) in Q1 2020

SECAUCUS, N.J., May 20, 2021 (GLOBE NEWSWIRE) — The Children’s Place, Inc. (Nasdaq: PLCE), the largest pure-play children’s specialty apparel retailer in North America, today announced financial results for the first quarter ended May 1, 2021.

Jane Elfers, President and Chief Executive Officer announced, “We delivered outstanding first quarter results with gross margin, operating margin, and EPS all at record levels. Our Q1 2021 net sales of $435 million exceeded our pre-COVID Q1 2019 net sales of $412 million, despite having 261 or 27% fewer stores ending Q1 2021 versus Q1 2019.”

Ms. Elfers continued, “All key metrics across both our digital and stores channels exceeded expectations. Our top line results were driven by several factors, including double digit increases in AUR versus Q1 2020, resulting from strong product acceptance, higher price realization, reduced promotional activity, and unprecedented stimulus, as well as an acceleration in back-to-school sales, our ability to retain new digital customers we acquired during the pandemic, and a significant reactivation of store customers that we had temporarily lost during the government-mandated closure of all of our stores. Our record gross margin was driven by significantly higher merchandise margins versus Q1 2020 in both our digital and stores channels, significant occupancy savings from favorable lease negotiations and fewer stores, and meaningful e-commerce fulfillment optimization.”

Ms. Elfers continued, “We leveraged a very difficult period in 2020 to accelerate our strategic transformation and we are now well positioned for accelerated operating margin expansion in 2021 and beyond. The acceleration of our digital business, our highest operating margin channel, made possible by our pre-pandemic digital transformation investments, combined with the significant sales transfer rate we are achieving from our strategic decision to close 300, or a third, of our stores in less than 20 months, is resulting in an industry leading approximately 50% steady state annual digital penetration. Our long-standing fleet optimization strategy enables us to close the 300 stores, without financial penalty, and reset our occupancy costs. These occupancy cost reductions should continue to be a significant operating margin tailwind throughout 2021 and beyond. In addition, by aligning our overhead cost structure in 2020 to our digital first strategy, we have gained efficiencies and removed significant expense from our P&L, which will continue to benefit us in 2021 and beyond. We anticipate further operational efficiencies and sales opportunities when social distancing and other restrictions, such as limits on hours of operation, are further removed and we are able to return to normal operations in both our stores and distribution centers.”

Ms. Elfers concluded, “We are operating at a high level. We continue to navigate the extraordinary complexity of the pandemic while remaining firmly on offense. Our long-standing strategic plan has served us well. We are a stronger company today than we were prior to the pandemic and we look forward to continuing to deliver accelerated operating margin expansion for our shareholders in 2021 and beyond.”

First Quarter 2021 Results
Net sales increased $180.3 million, or 70.6%, to $435.5 million in the three months ended May 1, 2021, compared to $255.2 million in the three months ended May 2, 2020 primarily driven by strong customer response to our product assortment and the unprecedented level of stimulus payments from the recent government pandemic relief legislation.   Our fiscal 2021 first quarter net sales were negatively impacted by permanent and temporary store closures and the impact of reduced operating hours in our mall stores, as mandated by the mall owners.  Our fiscal 2020 first quarter sales were negatively impacted by the initial onset of the COVID-19 pandemic. Comparable retail sales were 83.0% for the quarter.

Gross profit increased $207.9 million to $188.2 million in the three months ended May 1, 2021, compared to a gross loss of ($19.7) million in the three months ended May 2, 2020. Adjusted gross profit increased $143.9 million to $189.2 million in the three months ended May 1, 2021, compared to $45.3 million in the comparable period last year, and leveraged 2,571 basis points to 43.4% of net sales.  The increase was primarily a result of the leverage of fixed expenses resulting from the increase in net sales, higher merchandise margins in both our digital and stores channels, and lower occupancy expenses due to rent abatements of $8 million, favorable lease negotiations, and permanent store closures.

Selling, general, and administrative expenses were $106.7 million in the three months ended May 1, 2021, compared to $98.5 million in the three months ended May 2, 2020. Adjusted SG&A was $104.1 million in the three months ended May 1, 2021, compared to $92.4 million in the comparable period last year, and leveraged 1,231 basis points to 23.9% of net sales, primarily as a result of the leverage of fixed expenses resulting from the increase in net sales, partially offset by higher incentive compensation accruals.

Operating income increased $239.1 million to $65.9 million in the three months ended May 1, 2021, compared to an operating loss of ($173.1) million in the three months ended May 2, 2020. Operating margin improved to 15.1%, compared to (67.8%) in the prior year period. Adjusted operating income increased $135.7 million to $70.7 million in the three months ended May 1, 2021, compared to an adjusted operating loss of ($64.9) million in the comparable period last year, and leveraged 4,168 basis points to 16.2% of net sales.

Net interest expense was $4.4 million in the three months ended May 1, 2021, compared to $1.8 million in the three months ended May 2, 2020.  The increase in interest expense was driven by a higher debt balance and the higher interest rate associated with our term loan.

Net income increased $160.0 million to $45.2 million, or $3.01 per diluted share, in the three months ended May 1, 2021, compared to net loss of $(114.8) million, or $(7.86) per diluted share, in the three months ended May 2, 2020. Adjusted net income increased $97.5 million to $48.7 million, or $3.25 per diluted share, compared to an adjusted net loss of $(48.7) million, or $(3.33) per diluted share, in the comparable period last year.

Non-GAAP Reconciliation
The Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit (loss), adjusted selling, general, and administrative expenses, and adjusted operating income (loss) are non-GAAP measures, and are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies. The Company believes the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of its core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of its core business.

Beginning with the fourth quarter of fiscal 2020, the Company modified its reporting practices regarding the use of non-GAAP measures. As a result, the Company does not exclude (1) occupancy charges for rent at our stores when they were temporarily closed and (2) payroll and benefits for certain store employees during the period our stores were temporarily closed, net of a payroll tax credit benefit resulting from the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). The presentation of adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit (loss), adjusted selling, general, and administrative expenses, and adjusted operating income (loss) reflects these changes for prior periods. Reconciliation of Non-GAAP Financial Information to GAAP tables setting forth reconciliations reflecting the above modifications for quarters in fiscal 2020 were provided in our Form 8-K filed with the U.S. Securities and Exchange Commission on March 9, 2021.

The Company’s adjusted results exclude net expenses of approximately $1.6 million comprising certain items, which the Company believes are not reflective of the performance of its core business as a result of the COVID-19 pandemic, including incremental operating expenses, primarily incentive pay and personal protective equipment for our associates.

Additionally, the Company excluded net expenses of $3.2 million related to accelerated depreciation, contract termination costs, and restructuring costs, which were unrelated to the COVID-19 pandemic.

The total impact on income taxes for the above items was $1.3 million.

Store Update
As of May 1, 2021, the Company had 679 of 724 stores open to the public in the U.S., Canada, and Puerto Rico, with all of the temporarily closed stores located in Canada.

Consistent with the Company’s store fleet optimization initiative, the Company permanently closed 25 stores in the three months ended May 1, 2021.  The Company is planning to close an additional 98 stores in fiscal 2021 bringing total closures to our previously announced target of 300 closures.

The Company ended the quarter with 724 stores and square footage of 3.4 million, a decrease of 20.2% compared to the prior year.  Since the Company’s fleet optimization initiative was announced in 2013, it has permanently closed 474 stores.
  
Balance Sheet and Cash Flow
As of May 1, 2021, the Company had approximately $65.4 million of cash and cash equivalents and $196.9 million outstanding on its revolving credit facility.  Additionally, the Company used approximately $16.6 million in operating cash flow in the three months ended May 1, 2021.

On April 24, 2020, the Company amended its revolving credit facility to provide for an additional $35 million of availability under an accordion feature for one year, increasing availability to $360 million.  On April 23, 2021, the Company amended its revolving credit facility to extend the additional $35 million of availability for an additional year until April 23, 2022.

Inventories as of May 1, 2021 were $417.8 million compared to inventories of $335.8 million, net of a COVID-19 pandemic related inventory reserve of $63.2 million, as of May 2, 2020.  The increase is primarily due to the absence of COVID-19 related inventory reserves in the current year as well as higher levels of back-to-school basics inventory.

Outlook
As a result of the continued volatility created by the COVID-19 pandemic, the Company is not providing EPS guidance.