AP NEWS

The Children’s Place Reports Third Quarter 2018 Results

December 6, 2018

Delivers Q3 Comparable Retail Sales Increase of 9.5%

Digital Sales Increased 38% to 29% of Net Sales

Reports Q3 GAAP Earnings per Diluted Share of $3.03 vs $2.44 in Q3 2017, a 24% increase

Q3 Adjusted Earnings per Diluted Share of $3.07 vs $2.58 in Q3 2017, a 19% increase

Updates FY 2018 Adjusted EPS Guidance to $7.69 to $7.79

SECAUCUS, N.J., Dec. 06, 2018 (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 thirteen weeks ended November 3, 2018.

Jane Elfers, President and Chief Executive Officer announced, “For Q3, we delivered adjusted EPS of $3.07, the high-end of our guidance range. Led by surging demand in our digital channels, we delivered an industry-leading 9.5% comp on top of a positive 5.1% comp last year. Our digital channels delivered a 38% increase, representing 29% of our net sales for the quarter. Our strategy to take market share continues to produce meaningful results; we delivered positive traffic in our brick-and-mortar stores and generated positive comps every month in the quarter. Importantly, our customer file increased five percent in Q3, which provides us with increased visibility into future sales.”

Ms. Elfers continued, “Moving on to Q4, due to stronger than anticipated digital demand in the back-half of 2018, we were forced to accelerate online access to our brick-and-mortar inventory and our ship from store fulfillment capabilities, resulting in an anticipated incremental fulfillment cost of $5 million, or $0.24 in EPS in Q4. These capabilities allow our digital customers to access our brick-and-mortar inventory, which helped fuel high teens growth in our digital channels over the extended Thanksgiving holiday weekend. We ended the month of November with comparable retail sales up low-single digits. Additionally, given recent competitor news, our updated outlook also assumes the sales and margin impact of potentially significant liquidation events.”

Ms. Elfers concluded, “We are uniquely positioned from a competitive standpoint to gain additional market share by leveraging our accelerated digital transformation investment. We are focused on driving customer acquisition, improving customer retention and increasing customer engagement through our digital transformation investments and the results are tangible. We have significant runway ahead of us through the continued successful execution of our multi-year strategic growth initiatives.”

Financial ResultsThe Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Third Quarter 2018 Results

Net sales increased by $32.5 million, or 6.6%, to $522.5 million during the third quarter 2018 from $490.0 million during the third quarter 2017. This increase was primarily driven by a positive comparable retail sales increase of 9.5% and approximately $5.0 million due to the new revenue recognition rules, partially offset by an approximately a $14.0 million adverse impact from the calendar shift related to the 53rd week in fiscal 2017.

Net income was $49.9 million, or $3.03 per diluted share, in the third quarter of 2018, compared to net income of $44.1 million, or $2.44 per diluted share, the previous year. Adjusted net income was $50.7 million, or $3.07 per diluted share, compared to adjusted net income of $46.7 million, or $2.58 per diluted share, in the third quarter last year. Return on invested capital improved approximately 320 basis points to 22.8% in the quarter.

Gross profit was $204.4 million in the third quarter, compared to $202.4 million in the third quarter of 2017. Adjusted gross profit was $204.4 million in the third quarter, compared to $202.4 million last year. Adjusted gross margin deleveraged 220 basis points to 39.1% of sales, as a result of stronger sales in e-commerce and our decision to compete aggressively for market share, partially offset by fixed cost leverage on stronger comparable retail sales and the reclassification of certain items due to the new revenue recognition rules.

Selling, general, and administrative expenses were $123.2 million compared to $118.3 million in the third quarter of 2017. Adjusted selling, general, and administrative expense was $122.0 million compared to $117.3 million in the third quarter last year and leveraged 60 basis points as a percentage of net sales. The SG&A leverage was primarily driven by fixed cost leverage on stronger comparable retail sales and lower incentive compensation expenses, partially offset by an increase in expenditures in our transformation initiatives and the reclassification of certain items due to the new revenue recognition rules.

Operating income was $64.6 million, compared to $64.1 million in the third quarter of 2017. Adjusted operating income in the third quarter of 2018 was $65.5 million, or 12.5% of net sales, compared to adjusted operating income of $68.4 million in the third quarter last year, deleveraging 150 basis points.

Adjusted tax rate was 21.7% for the quarter versus 31.6% last year. The effective tax rate was lower during the third quarter primarily as a result of a lower U.S. federal tax rate in 2018 due to the Tax Cuts and Jobs Act and a favorable mix of income generated in foreign jurisdictions subject to lower tax rates.

For the third quarter, the Company’s adjusted results exclude net expenses of approximately $0.7 million, compared to excluded net expenses of approximately $2.6 million in the third quarter of 2017, comprising certain items, which the Company believes, are not reflective of the performance of its core business. For the third quarter of 2018, these excluded items primarily related to consulting costs for organizational design efforts, accelerated depreciation, asset impairment charges, costs incurred in connection with the review of the Company’s warehouse and distribution network, an insurance claim deductible, and restructuring costs, partially offset by other income and a state tax audit. For the third quarter of 2017, these excluded items were primarily related to expenses associated with asset impairment charges and restructuring costs.

Fiscal Year to Date ResultsNet sales increased 8.2% to $1.408 billion and comparable retail sales increased 6.7% for the first nine months of 2018, inclusive of a positive impact of approximately $17.0 million resulting from the calendar shift related to the 53rd week in fiscal 2017 and approximately $14.0 million due to the new revenue recognition rules.

Net income was $88.9 million, or $5.24 per diluted share, in the first nine months of 2018, compared to net income of $94.6 million, or $5.19 per diluted share, the previous year. Adjusted net income was $95.5 million, or $5.62 per diluted share, compared to adjusted net income of $98.3 million, or $5.39 per diluted share, in the first nine months of last year.

Gross profit was $519.4 million compared to $501.4 million in the first nine months of last year. Adjusted gross profit was $520.6 million compared to $502.1 million in the first nine months last year, and deleveraged 160 basis points to 37.0% of sales. The gross margin performance was as a result of stronger sales in e-commerce and our decision to compete aggressively for market share, partially offset by fixed cost leverage on stronger comparable retail sales and the reclassification of certain items due to the new revenue recognition rules.

Selling, general and administrative expenses were $365.9 million compared to $338.6 million in the first nine months of last year. Adjusted selling, general, and administrative expense was $363.2 million compared to $331.7 million in the first nine months of last year and deleveraged 30 basis points as a percentage of net sales. The increase in selling, general, and administrative expenses were driven by an increase in expenditures in our transformation initiatives and the reclassification of certain items due to the new revenue recognition rules, partially offset by fixed cost leverage on stronger comparable retail sales and lower incentive compensation expenses.

Operating income was $97.7 million, compared to operating income of $109.7 million in the first nine months of 2017. Adjusted operating income in the first nine months of 2018 was $106.6 million, or 7.6% of net sales, compared to adjusted operating income of $121.9 million in the first nine months last year, deleveraging 180 basis points compared to last year.

Adjusted tax rate was 8.6% for the first nine months of 2018 versus 19.1% last year, as a result of a lower U.S. federal tax rate in 2018 due to the Tax Cuts and Jobs Act.

During the first nine months of fiscal 2018, the Company’s adjusted results exclude net expenses of approximately $6.6 million, compared to excluded net expenses of approximately $3.7 million in the first nine months of 2017, comprising certain items, which the Company believes, are not reflective of the performance of its core business. For the first nine months of 2018, these excluded items primarily related to asset impairment charges, restructuring costs, consulting costs for organizational design efforts, accelerated depreciation, costs incurred in connection with the review of the Company’s warehouse and distribution network, system transition costs and a provision for an insurance claim deductible, partially offset by other income, a state sales and use tax audit settlement, and an insurance claim settlement. For the first nine months of fiscal 2017, these excluded items are primarily related to charges due to a provision for a legal settlement resulting from a pricing litigation, asset impairment charges, restructuring costs, a state sales and use tax audit settlement, a provision for foreign exchange control penalties and an insurance claim deductible, partially offset by income associated with the release of reserves for prior year uncertain tax positions.

Store Openings and ClosuresConsistent with the Company’s store fleet optimization initiative, the Company closed four stores and did not open any stores during the third quarter of 2018. The Company ended the third quarter with 988 stores and square footage of 4.6 million, a decrease of 4% compared to the prior year. Since our fleet optimization initiative announced in 2013, the Company has closed 195 stores.

The Company’s international franchise partners opened 21 net new points of distribution in the first nine months of 2018 and ended the quarter with 211 international points of distribution open and operated by its eight franchise partners in 20 countries.

Capital Return ProgramDuring the third quarter of 2018, the Company repurchased approximately 192.2 thousand shares for approximately $26 million, inclusive of shares surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid a quarterly dividend of approximately $8 million, or $0.50 per share, in the quarter.

For the first nine months of 2018, the Company repurchased approximately 1.7 million shares for approximately $213 million, inclusive of shares repurchased under an accelerated share repurchase program and shares surrendered to cover tax withholdings associated with the vesting of equity awards held by management. The Company also paid quarterly dividends totaling approximately $25 million in the first nine months of 2018.

Since 2009, the Company has repurchased approximately $1.1 billion of its common stock and, since 2014, paid approximately $92 million in dividends. At the end of the third quarter of 2018, approximately $281 million remained available for future share repurchases under the Company’s existing share repurchase programs.

The Company’s Board of Directors authorized a dividend of $0.50 per share, payable on December 28, 2018 to shareholders of record at the close of business on December 17, 2018.OutlookThe Company is updating its outlook for fiscal 2018 and now expects adjusted net income per diluted share to be in the range of $7.69 to $7.79 compared to previous guidance in the range of $8.09 to $8.29. This compares to adjusted net income per diluted share of $7.91 in fiscal 2017. The Company now expects total net sales for the year to be in the range of $1.955 to $1.960 billion. This guidance assumes a positive mid-single digit comparable retail sales increase. The Company now expects adjusted operating margin to be in the range of 7.7% to 7.8%. The updated margin outlook reflects $5 million, or $0.24 in EPS, of added fulfillment costs in the fourth quarter to support the exposure of our brick-and-mortar inventory on-line and our ship from store capabilities. Additionally, the outlook considers the potential margin impact of increased competitiveness as the industry attempts to win market share abandoned by distressed competitors.

The Company expects adjusted net income per diluted share in the fourth quarter of 2018 to be in the range of $2.07 to $2.17. This compares to adjusted net income per diluted share of $2.52 in fiscal 2017. The Company now expects total net sales in the fourth quarter of 2018 to be in the range of $547 million to $552 million. This guidance assumes a positive low-single digit comparable retail sales increase.

Additional details underlying the Company’s outlook for the third quarter and full year 2018 will be provided on the conference call and will be available in the conference call transcript, which will be posted on our website. An audio archive will also be available on the Company’s website.

Conference Call InformationThe Children’s Place will host a conference call today at 8:00 a.m. Eastern Time to discuss its third quarter 2018 results and the Company’s outlook. The call will be broadcast live at http://investor.childrensplace.com. An audio archive will be available on the Company’s website approximately one hour after the conclusion of the call. A conference call transcript will also be posted on our website.

Financial ResultsThe Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income, adjusted net income per diluted share, adjusted gross profit, adjusted selling, general, and administrative expense, and adjusted operating income 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. The Company uses non-GAAP measures to evaluate and measure operating performance, including, to measure performance for purposes of the Company’s annual bonus and long-term incentive compensation plans. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

About The Children’s Place, Inc.The Children’s Place is the largest pure-play children’s specialty apparel retailer in North America. The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary “The Children’s Place,” “Place” and “Baby Place” brand names. As of November 3, 2018, the Company operated 988 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 211 international points of distribution open and operated by its eight franchise partners in 20 countries.

Forward Looking Statement

This press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and adjusted net income per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended February 3, 2018. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company’s global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Contact: Anthony Attardo, CFA, Director, Investor Relations, (201) 453-6693(Tables Follow)

THE CHILDREN’S PLACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Third Quarter Ended Year-To-Date Ended November 3, October 28, November 3, October 28, 2018 2017 2018 2017 - ------- - - ------- - - --------- - - --------- - Net sales $ 522,495 $ 490,026 $ 1,407,526 $ 1,300,303 Cost of sales 318,129 287,593 888,125 798,874 - ------- - - ------- - - --------- - - --------- - Gross profit 204,366 202,433 519,401 501,429 Selling, general and administrative expenses 123,207 118,288 365,933 338,642 Asset impairment charges 396 3,203 5,632 4,661 Other costs (income) (1,246 ) 4 (1,255 ) 14 Depreciation and amortization 17,404 16,789 51,405 48,460 - ------- - - ------- - - --------- - - --------- - Operating income 64,605 64,149 97,686 109,652 Interest expense (831 ) (100 ) (2,074 ) (429 ) - ------- - - ------- - - --------- - - --------- - Income before taxes 63,774 64,049 95,612 109,223 Provision for income taxes 13,861 19,972 6,675 14,627 - ------- - - ------- - - --------- - - --------- - Net income $ 49,913 $ 44,077 $ 88,937 $ 94,596 - ------- - - ------- - - --------- - - --------- - Earnings per common share Basic $ 3.04 $ 2.50 $ 5.33 $ 5.36 Diluted $ 3.03 $ 2.44 $ 5.24 $ 5.19 Weighted average common shares outstanding Basic 16,394 17,617 16,677 17,645 Diluted 16,496 18,090 16,982 18,223

THE CHILDREN’S PLACE, INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP (In thousands, except per share amounts) (Unaudited) Third Quarter Ended Year-To-Date Ended November October November 3, October 28, 3, 28, 2018 2017 2018 2017 - ------ - - ------ - - ------- - - ------- - Net income $ 49,913 $ 44,077 $ 88,937 $ 94,596 - ------ - - ------ - - ------- - - ------- - Non-GAAP adjustments: Asset impairment charges 396 3,203 5,632 4,661 Organizational design costs 934 - 1,649 - Restructuring costs 241 1,016 2,498 1,578 System transition costs - - 250 - Distribution network review 228 - 378 - costs Provision for legal settlement - - - 5,000 Sales tax audit (518 ) - (518 ) 418 Foreign exchange penalties - - - 300 Insurance claim deductible 200 - 200 250 Accelerated depreciation 546 - 546 - Other income (1,097 ) - (1,097 ) - Insurance claim settlement - - (606 ) - Aggregate impact of Non-GAAP 930 4,219 8,932 12,207 adjustments Income tax effect (1) (192 ) (1,611 ) (2,241 ) (4,503 ) Prior year uncertain tax - - (112 ) (4,048 ) positions (2) Net impact of Non-GAAP 738 2,608 6,579 3,656 adjustments Adjusted net income $ 50,651 $ 46,685 $ 95,516 $ 98,252 - ------ - - ------ - - ------- - - ------- - GAAP net income per common $ 3.03 $ 2.44 $ 5.24 $ 5.19 share Adjusted net income per common $ 3.07 $ 2.58 $ 5.62 $ 5.39 share (1) The tax effects of the non-GAAP items are calculated based on the statutory rate of the jurisdiction in which the discrete item resides. (2) Prior year tax related to uncertain tax positions. Third Quarter Ended Year-To-Date Ended November October November 3, October 28, 3, 28, 2018 2017 2018 2017 - ------ - - ------ - - ------- - - ------- - Operating income $ 64,605 $ 64,149 $ 97,686 $ 109,652 - ------ - - ------ - - ------- - - ------- - Non-GAAP adjustments: Asset impairment charges 396 3,203 5,632 4,661 Organizational design costs 934 - 1,649 - Restructuring costs 241 1,016 2,498 1,578 System transition costs - - 250 - Distribution network review 228 - 378 - costs Provision for legal settlement - - - 5,000 Sales tax audit (518 ) - (518 ) 418 Foreign exchange penalties - - - 300 Insurance claim deductible 200 - 200 250 Accelerated depreciation 546 - 546 - Other income (1,097 ) - (1,097 ) - Insurance claim settlement - - (606 ) - Aggregate impact of Non-GAAP 930 4,219 8,932 12,207 adjustments Adjusted operating income $ 65,535 $ 68,368 $ 106,618 $ 121,859 - ------ - - ------ - - ------- - - ------- -

THE CHILDREN’S PLACE, INC. RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP (In thousands, except per share amounts) (Unaudited) Third Quarter Ended Year-To-Date Ended November 3, October 28, November 3, October 28, 2018 2017 2018 2017 - ------- - - ------- - - ------- - - ------- - Gross Profit $ 204,366 $ 202,433 $ 519,401 $ 501,429 - ------- - - ------- - - ------- - - ------- - Non-GAAP adjustments: Restructuring costs - - 1,239 377 Insurance claim deductible - - - 250 Aggregate impact of Non-GAAP - - 1,239 627 adjustments Adjusted Gross Profit $ 204,366 $ 202,433 $ 520,640 $ 502,056 - ------- - - ------- - - ------- - - ------- - Third Quarter Ended Year-To-Date Ended November 3, October 28, November 3, October 28, 2018 2017 2018 2017 - ------- - - ------- - - ------- - - ------- - Selling, general and $ 123,207 $ 118,288 $ 365,933 $ 338,642 administrative expenses - ------- - - ------- - - ------- - - ------- - Non-GAAP adjustments: Organizational design costs (1,185 ) - (1,900 ) - Restructuring costs (1,236 ) (1,016 ) (2,263 ) (1,201 ) System transition costs - - (250 ) - Other income 1,097 - 1,097 - Distribution network review (228 ) - (378 ) - costs Provision for legal - - - (5,000 ) settlement Sales tax audit 518 - 518 (418 ) Insurance claim deductible (200 ) (200 ) - Foreign exchange penalties - - - (300 ) Insurance claim settlement - - 606 - Aggregate impact of Non-GAAP (1,234 ) (1,016 ) (2,770 ) (6,919 ) adjustments Adjusted Selling, general and $ 121,973 $ 117,272 $ 363,163 $ 331,723 administrative expenses - ------- - - ------- - - ------- - - ------- -

THE CHILDREN’S PLACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) November February October 28, 3, 3, 2018 2018* 2017 --------- --------- ----------- Assets: Cash and cash equivalents $ 92,950 $ 244,519 $ 257,743 Short-term investments - 15,000 15,000 Accounts receivable 40,111 26,094 32,432 Inventories 376,858 324,435 363,788 Other current assets 37,467 46,456 22,690 - ------- - ------- - --------- Total current assets 547,386 656,504 691,653 Property and equipment, net 262,380 258,537 266,230 Other assets, net 27,487 25,187 55,541 Total assets $ 837,253 $ 940,228 $ 1,013,424 - ------- - ------- - --------- Liabilities and Stockholders’ Equity: Revolving loan $ 65,000 $ 21,460 $ 56,400 Accounts payable 223,607 210,300 249,562 Accrued expenses and other current liabilities 123,181 128,764 123,216 - ------- - ------- - --------- Total current liabilities 411,788 360,524 429,178 Other liabilities 82,007 106,005 73,780 - ------- - ------- - --------- Total liabilities 493,795 466,529 502,958 Stockholders’ equity 343,458 473,699 510,466 - ------- - ------- - --------- Total liabilities and stockholders’ equity $ 837,253 $ 940,228 $ 1,013,424 - ------- - ------- - --------- * Derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018.

THE CHILDREN’S PLACE, INC. CONDENSED CONSOLIDATED CASH FLOWS (In thousands) (Unaudited) 39 Weeks 39 Weeks Ended Ended November 3, October 28, 2018 2017 ------------ ----------- Net income $ 88,937 $ 94,596 Non-cash adjustments 78,118 72,299 Working Capital (83,577 ) (36,950 ) Net cash provided by operating activities 83,478 129,945 Net cash used in investing activities (41,121 ) (4,218 ) Net cash used in financing activities (194,471 ) (65,510 ) Effect of exchange rate changes on cash 545 3,817 - -------- - - ------- - Net increase (decrease) in cash and cash equivalents (151,569 ) 64,034 Cash and cash equivalents, beginning of period 244,519 193,709 - -------- - - ------- - Cash and cash equivalents, end of period $ 92,950 $ 257,743 - -------- - - ------- -

AP RADIO
Update hourly