The Children's Place(PLCE) - 2025 Q2 - Quarterly Results

CEO Commentary and Strategic Overview Strategic Q2 operational changes improved profitability, yielding a significant gross margin increase and a return to adjusted operating income despite lower sales - Proactively implemented strategic and operational changes to improve profitability, resulting in significant gross profit margin improvement and a return to adjusted operating profitability despite lower sales[2] - Significantly decreased Adjusted SG&A expenses by reducing payroll costs and eliminating unprofitable marketing spend, reaching the lowest Q2 level in over 15 years[2][5] - The company acknowledges that while initial results are promising, significant work remains to rationalize profitability in future quarters[2] Second Quarter 2024 Financial Performance Q2 net sales decreased due to planned promotional reductions, but this strategy boosted gross margin and returned the company to adjusted operating profitability Sales and Revenue Net sales fell due to a planned e-commerce promotion reduction, though this led to positive comparable store sales and a wholesale business rebound Q2 2024 Net Sales Performance | Metric | Q2 2024 (ended Aug 3) | Q2 2023 (ended Jul 29) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $319.7 million | $345.6 million | -7.5% | | Comparable Retail Sales | N/A | N/A | -7.2% | - The decrease in net sales was an anticipated result of rationalizing unprofitable promotional strategies and "free shipping" offers in the e-commerce channel[3] - Brick-and-mortar stores experienced positive comparable store sales for the first time in ten quarters, driven by stronger units per transaction and conversion[3][4] - The wholesale business rebounded with double-digit growth after a decline in the first quarter[3] Profitability Analysis Gross profit and margin expanded significantly due to lower costs and reduced promotions, driving a strong turnaround in adjusted operating and net income Q2 2024 Profitability Metrics vs. Q2 2023 | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Gross Profit | $111.8M | $87.8M | +$24.0M | | Gross Margin | 35.0% | 25.4% | +960 bps | | Adjusted SG&A | $88.3M | $101.7M | -$13.4M | | Adjusted Operating Income (Loss) | $14.2M | $(25.0)M | +$39.2M | | Adjusted Net Income (Loss) | $3.9M | $(26.5)M | +$30.4M | | Adjusted EPS | $0.30 | $(2.12) | +$2.42 | - Gross margin improvement was driven by lower product input costs (cotton, supply chain) and the rationalization of profit-draining promotional strategies and shipping offers[5] - GAAP net loss was $(32.1) million, or $(2.51) per share, impacted by a $28.0 million impairment charge on the Gymboree tradename and $6.1 million in restructuring costs[6][9] Fiscal Year-To-Date 2024 Results Year-to-date net sales declined, but gross margin improved and adjusted operating income turned positive, though GAAP net loss widened due to non-GAAP adjustments YTD 2024 Financial Highlights vs. YTD 2023 | Metric | YTD 2024 | YTD 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $587.5M | $667.2M | -11.9% | | Gross Margin | 34.8% | 27.6% | +720 bps | | Adjusted Operating Income (Loss) | $9.2M | $(49.5)M | +$58.7M | | Adjusted Net Loss | $(11.0)M | $(51.2)M | Improvement | | Adjusted EPS | $(0.87) | $(4.12) | Improvement | - The decrease in YTD net sales was due to lower store count and anticipated declines in e-commerce from the rationalization of promotions and marketing spend[10] - YTD operating loss was impacted by $58.9 million in incremental expenses, including a $28.0M Gymboree impairment, $6.4M in restructuring, and $14.6M in change of control costs[14] Store Update, Balance Sheet and Cash Flow The company continued its store rationalization, ending Q2 with 515 stores, while managing its balance sheet with $9.6 million in cash and using $194.7 million in operating cash flows YTD - The company closed 3 stores in Q2 2024, ending the quarter with 515 stores and 2.5 million square feet[16] Key Balance Sheet & Cash Flow Items (as of Aug 3, 2024) | Metric | Value | Comparison (vs Jul 29, 2023) | | :--- | :--- | :--- | | Cash and cash equivalents | $9.6 million | $18.8 million | | Inventories | $520.6 million | $537.0 million | | Revolving credit facility outstanding | $316.7 million | $347.5 million | | YTD Net cash used in operating activities | $(194.7) million | $(32.7) million | Financial Statements and Reconciliations This section provides detailed unaudited financial statements and reconciliations of GAAP to non-GAAP measures for Q2 and YTD 2024 Condensed Consolidated Statements of Operations The statement details a Q2 2024 GAAP operating loss of $21.8 million and a net loss of $32.1 million, or $(2.51) per diluted share Q2 2024 Statement of Operations (Selected Items, in thousands) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net sales | $319,655 | $345,599 | | Gross profit | $111,794 | $87,759 | | Operating loss | $(21,776) | $(36,941) | | Net loss | $(32,114) | $(35,355) | | Diluted EPS | $(2.51) | $(2.82) | Condensed Consolidated Balance Sheets The balance sheet as of August 3, 2024, shows total assets of $921.4 million and a stockholders' deficit of $68.9 million Balance Sheet Summary (Selected Items, in thousands) | Line Item | Aug 3, 2024 | July 29, 2023 | | :--- | :--- | :--- | | Total assets | $921,414 | $1,023,085 | | Total liabilities | $990,286 | $937,155 | | Stockholders' (deficit) equity | $(68,872) | $85,930 | Condensed Consolidated Statements of Cash Flows For the first six months of 2024, the company used $194.7 million in cash from operations, offset by $203.7 million from financing activities YTD 2024 Statement of Cash Flows (in thousands) | Line Item | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(194,687) | $(32,705) | | Net cash used in investing activities | $(12,478) | $(18,261) | | Net cash provided by financing activities | $203,652 | $52,969 | | Net (decrease) increase in cash | $(4,066) | $2,157 | Reconciliation of Non-GAAP to GAAP Financials This section details adjustments totaling $36.0 million that reconcile the Q2 GAAP operating loss to a $14.2 million adjusted operating income - Q2 2024 non-GAAP adjustments to operating income totaled $36.0 million, primarily from a $28.0 million asset impairment and $6.1 million in restructuring costs[21][22] Q2 2024 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP | Adjustments | Non-GAAP (Adjusted) | | :--- | :--- | :--- | :--- | | Operating Loss/Income | $(21,776) | $36,007 | $14,231 | | Net Loss/Income | $(32,114) | $36,007 | $3,893 |