The Children's Place(PLCE) - 2026 Q2 - Quarterly Results

Executive Summary & Business Update Second Quarter 2025 Highlights The company ended Q2 FY2025 with strong back-to-school momentum, achieving positive comparable sales growth in its direct-to-consumer business and reducing inventory by $78 million - The company showed strong momentum during the back-to-school season, achieving positive comparable sales growth in its owned direct-to-consumer business in July for the first time in 18 months[3] - Inventory position improved, decreasing by $78 million year-over-year, prioritizing working capital and free cash flow management[3] Company Announces Transformation Initiative The company announced a long-term transformation plan to generate over $40 million in benefits over three years by optimizing costs and shifting its store strategy from closures to openings - The company will implement a long-term plan aimed at generating over $40 million in total benefits over the next three years by cutting unnecessary corporate office costs, optimizing the distribution network, and adjusting non-merchandise and third-party spending[4] - Transformation efforts include a review of the corporate cost structure, with plans to reduce the corporate payroll run rate from over $120 million at the beginning of fiscal 2023 to below $80 million in fiscal 2026[4] - The strategic focus is shifting from closing stores to opening them to revitalize the store look, feel, and customer experience, with a new loyalty program planned for launch in the third quarter to enhance customer retention and lifetime value[4] Tariff Update The company anticipates $20 to $25 million in additional tariffs for fiscal 2025 but has mitigation plans to offset approximately 80% of the impact - An estimated $20 million to $25 million in additional tariffs and taxes are expected in fiscal 2025[5] - The company plans to offset approximately 80% of the tariff impact through diversified sourcing strategies, strong vendor partnerships, and improved inbound ocean freight rates[5] Financial Results Second Quarter 2025 Financial Performance In Q2 FY2025, net sales and gross profit declined, but operating results turned profitable and net loss narrowed significantly, largely due to a prior-year impairment charge Second Quarter Fiscal 2025 Key Financial Data (GAAP) | Metric | August 2, 2025 (USD in thousands) | August 3, 2024 (USD in thousands) | Change (USD in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 298,006 | 319,655 | (21,649) | -6.8% | | Gross Profit | 101,272 | 111,794 | (10,522) | -9.4% | | Operating Income (Loss) | 4,106 | (21,776) | 25,882 | 118.9% | | Net Loss | (5,365) | (32,114) | 26,749 | -83.3% | | Diluted Loss Per Share | (0.24) | (2.51) | 2.27 | -90.4% | Net Sales Q2 net sales decreased 6.8% year-over-year to $298 million, driven by fewer stores and declines in traffic and e-commerce, with comparable retail sales down 4.7% - Net sales decreased by $21.7 million, or 6.8%, to $298 million, primarily due to a lower store count, decreased foot traffic, and a decline in e-commerce sales[6] - Comparable retail sales decreased by 4.7% for the quarter[6] Gross Profit Gross profit fell by $10.5 million to $101.3 million, with gross margin declining 100 basis points to 34.0% due to inventory adjustments and channel mix shifts - Gross profit decreased by $10.5 million to $101.3 million[7] - Gross margin decreased by 100 basis points to 34.0% (compared to 35.0% last year), mainly impacted by adjustments related to lower inventory balances and channel mix shifts, partially offset by favorable product margins[7] Selling, General, and Administrative Expenses (SG&A) SG&A expenses decreased to $89.6 million, primarily due to lower one-time restructuring costs compared to the prior year, with adjusted SG&A at 29.4% of net sales - SG&A expenses were $89.6 million, down from $96.1 million last year, primarily due to a reduction in one-time restructuring costs from the prior year, partially offset by increased marketing expenses[8] - Adjusted SG&A was $87.6 million, representing 29.4% of net sales, compared to $88.3 million last year[8] Operating Income (Loss) Operating income was $4.1 million, a significant turnaround from a $21.8 million loss last year, which included a $28 million trademark impairment charge - Operating income was $4.1 million, compared to an operating loss of $21.8 million last year, which included a $28 million impairment charge for the Gymboree trademark[9] - Adjusted operating income was $6.1 million, down from $14.2 million last year[9] Net Interest Expense Net interest expense declined to $8.0 million, driven by lower average borrowings and a reduced average interest rate on the revolving credit facility - Net interest expense was $8.0 million, down from $9.2 million last year, due to lower average borrowings and a lower average interest rate on the revolving credit facility[10] Provision for Income Taxes The provision for income taxes was $1.5 million as the company adjusts its valuation allowance based on ongoing operating performance - The provision for income taxes was $1.5 million, compared to $1.1 million last year[11] Net Loss and EPS Net loss significantly narrowed to $5.4 million, or $0.24 per diluted share, compared to a $32.1 million loss, or $2.51 per share, in the prior year - Net loss was $5.4 million, with a diluted loss per share of $0.24, a significant improvement from a net loss of $32.1 million and $2.51 per share last year[12] - Adjusted net loss was $3.4 million, with an adjusted diluted loss per share of $0.15, compared to an adjusted net income of $3.9 million and $0.30 per share last year[12] Fiscal Year-To-Date 2025 Financial Performance Year-to-date, the company's net sales and gross profit decreased, while operating and net losses narrowed on a GAAP basis but widened on an adjusted basis Fiscal Year-To-Date 2025 Key Financial Data (GAAP) | Metric | August 2, 2025 (USD in thousands) | August 3, 2024 (USD in thousands) | Change (USD in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 540,131 | 587,533 | (47,402) | -8.1% | | Gross Profit | 172,055 | 204,535 | (32,480) | -15.9% | | Operating Loss | (20,011) | (49,764) | 29,753 | -59.8% | | Net Loss | (39,388) | (69,909) | 30,521 | -43.7% | | Diluted Loss Per Share | (1.80) | (5.49) | 3.69 | -67.2% | Net Sales Year-to-date net sales declined 8.1% to $540.1 million, primarily from lower e-commerce and retail store sales, with comparable retail sales down 8.9% - Year-to-date net sales decreased by $47.4 million, or 8.1%, to $540.1 million, mainly due to lower e-commerce sales and reduced store count and volume, partially offset by increased wholesale revenue[13] - Comparable retail sales decreased by 8.9%[13] Gross Profit Year-to-date gross profit fell by $32.5 million to $172.1 million, with gross margin down 290 basis points to 31.9% due to inventory adjustments and channel mix shifts - Gross profit decreased by $32.5 million to $172.1 million[14] - Gross margin decreased by 290 basis points to 31.9% (compared to 34.8% last year), mainly impacted by adjustments related to lower inventory balances and channel mix shifts from higher wholesale penetration[14] Selling, General, and Administrative Expenses (SG&A) Year-to-date SG&A expenses decreased to $176.3 million, primarily due to the absence of prior-year one-time costs related to a change in control and a terminated financing transaction - SG&A expenses were $176.3 million, down from $205.2 million last year, primarily due to the absence of one-time costs in the prior year related to a change in control and a terminated financing transaction[15] - Adjusted SG&A was $174.2 million, representing 32.2% of net sales, compared to $177.0 million last year[15] Operating Loss The year-to-date operating loss narrowed to $20.0 million from $49.8 million last year, while the adjusted operating result shifted from income to a loss of $17.9 million - The operating loss was $20.0 million, narrowing from $49.8 million last year[16] - The adjusted operating loss was $17.9 million, compared to an adjusted operating income of $9.2 million last year[16] Net Interest Expense Year-to-date net interest expense was $16.6 million, slightly lower than the prior year's $17.0 million, mainly due to a lower average interest rate on the revolving credit facility - Net interest expense was $16.6 million, down from $17.0 million last year, primarily due to a lower average interest rate on the revolving credit facility, partially offset by the write-off of deferred financing costs related to the partial repayment of the Mithaq Tranche 1 Term Loan[17] Provision for Income Taxes The year-to-date provision for income taxes was $2.8 million as the company adjusts its valuation allowance based on ongoing operating performance - The provision for income taxes was $2.8 million, compared to $3.2 million last year[18] Net Loss and EPS The year-to-date net loss narrowed to $39.4 million, or $1.80 per diluted share, from $69.9 million, or $5.49 per share, in the prior year - Net loss was $39.4 million, with a diluted loss per share of $1.80, an improvement from a net loss of $69.9 million and $5.49 per share last year[19] - Adjusted net loss was $36.3 million, with an adjusted diluted loss per share of $1.66, compared to $11.0 million and $0.86 per share last year[19] Store Update The company ended the second quarter with 494 stores, a net decrease of one store during the quarter and 21 stores year-over-year - The company opened 1 store and closed 2 stores in the second quarter, ending with a total of 494 stores[20] - The store count was 515 at the end of the second quarter of fiscal 2024, representing a year-over-year decrease of 21 stores[20] Balance Sheet and Cash Flow As of August 2, 2025, the company had total liquidity of $91.6 million, and inventory levels decreased year-over-year, reflecting improved inventory management Liquidity Position | Metric | Amount (USD in millions) | | :--- | :--- | | Cash and cash equivalents | 7.8 | | Availability on revolving credit facility | 43.8 | | Availability under Mithaq commitment letter | 40.0 | | Total Liquidity | 91.6 | - As of August 2, 2025, inventory was $442.7 million, a decrease from $520.6 million on August 3, 2024, reflecting improved inventory management[22] - Year-to-date, cash used in operating activities was $73.4 million[21] Non-GAAP Financial Information Non-GAAP Reconciliation Overview The company reports financial performance on both a GAAP and an adjusted, non-GAAP basis to help investors compare core business performance across periods - The company's reported results include both GAAP and adjusted, non-GAAP figures[23] - Non-GAAP measures are intended to exclude income and expense items not indicative of core business performance, facilitating comparison of the company's past and current results[23] Adjusted Net Income (Loss) Reconciliation This section provides a reconciliation from GAAP net loss to adjusted net income (loss), detailing non-GAAP adjustments for Q2 and year-to-date periods Adjusted Net Income (Loss) Reconciliation (USD in thousands, except per share data) | Metric | Q2 August 2, 2025 | Q2 August 3, 2024 | YTD August 2, 2025 | YTD August 3, 2024 | | :--- | :--- | :--- | :--- | :--- | | GAAP Net Loss | (5,365) | (32,114) | (39,388) | (69,909) | | Total Non-GAAP Adjustments | 1,961 | 36,007 | 3,138 | 58,914 | | Adjusted Net Income (Loss) | (3,404) | 3,893 | (36,250) | (10,995) | | GAAP Diluted Loss Per Share | (0.24) | (2.51) | (1.80) | (5.49) | | Adjusted Diluted Loss (Income) Per Share | (0.15) | 0.30 | (1.66) | (0.86) | Adjusted Operating Income (Loss) Reconciliation This section provides a reconciliation from GAAP operating income (loss) to adjusted operating income (loss), detailing non-GAAP adjustments for Q2 and year-to-date periods Adjusted Operating Income (Loss) Reconciliation (USD in thousands) | Metric | Q2 August 2, 2025 | Q2 August 3, 2024 | YTD August 2, 2025 | YTD August 3, 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating Income (Loss) | 4,106 | (21,776) | (20,011) | (49,764) | | Total Non-GAAP Adjustments | 1,961 | 36,007 | 2,099 | 58,914 | | Adjusted Operating Income (Loss) | 6,067 | 14,231 | (17,912) | 9,150 | Adjusted Gross Profit and SG&A Reconciliation This section reconciles GAAP to adjusted figures for gross profit and SG&A, detailing non-GAAP adjustments for Q2 and year-to-date periods Adjusted Gross Profit Reconciliation (USD in thousands) | Metric | Q2 August 2, 2025 | Q2 August 3, 2024 | YTD August 2, 2025 | YTD August 3, 2024 | | :--- | :--- | :--- | :--- | :--- | | GAAP Gross Profit | 101,272 | 111,794 | 172,055 | 204,535 | | Total Non-GAAP Adjustments | — | — | — | 905 | | Adjusted Gross Profit | 101,272 | 111,794 | 172,055 | 205,440 | Adjusted Selling, General, and Administrative Expenses Reconciliation (USD in thousands) | Metric | Q2 August 2, 2025 | Q2 August 3, 2024 | YTD August 2, 2025 | YTD August 3, 2024 | | :--- | :--- | :--- | :--- | :--- | | GAAP Selling, General, and Administrative Expenses | 89,596 | 96,065 | 176,266 | 205,159 | | Total Non-GAAP Adjustments | (1,961) | (7,751) | (2,099) | (28,196) | | Adjusted Selling, General, and Administrative Expenses | 87,635 | 88,314 | 174,167 | 176,963 | Company Information & Disclosures About The Children's Place The Children's Place is North America's largest pure-play children's specialty retailer, operating an omnichannel portfolio with a leading digital-first model - The Children's Place is North America's largest pure-play children's specialty retailer, featuring an omnichannel portfolio and an industry-leading, digital-first model[25] - Its global retail and wholesale network includes two digital storefronts, 494 stores in North America, and distribution in 12 countries through seven international franchise and wholesale partners[25] - The company primarily designs, contracts to manufacture, and sells stylish, high-quality, value-priced apparel under its proprietary brands: "The Children's Place," "Gymboree," "Sugar & Jade," and "PJ Place"[25] Forward-Looking Statements This press release contains forward-looking statements regarding the company's strategic initiatives and operating performance, which are subject to various risks and uncertainties - This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, concerning the company's strategic initiatives and operating performance[26] - Forward-looking statements are based on 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[27] - Risk factors include the inability to achieve sufficient operating performance to fund operations and service debt, changes in trade policy and tariffs, failure to anticipate fashion trends, intense competition, economic shifts, supply chain disruptions, increased raw material costs, and litigation risks[28] Contact Investor Relations can be reached at (201) 558-2400, extension 14500 - Investor Relations Contact: (201) 558-2400 x 14500[30] Condensed Consolidated Financial Statements (Appendix) Condensed Consolidated Statements of Operations This section presents the company's condensed consolidated statements of operations for the second quarter and year-to-date periods of fiscal 2025 Condensed Consolidated Statements of Operations (Unaudited, in thousands of USD, except per share amounts) | | For the Second Quarter Ended | | For the Year-to-Date Ended | | :--- | :--- | :--- | :--- | :--- | | | August 2, 2025 | August 3, 2024 | August 2, 2025 | August 3, 2024 | | Net sales | $298,006 | $319,655 | $540,131 | $587,533 | | Cost of sales | 196,734 | 207,861 | 368,076 | 382,998 | | Gross profit | 101,272 | 111,794 | 172,055 | 204,535 | | Selling, general, and administrative expenses | 89,596 | 96,065 | 176,266 | 205,159 | | Depreciation and amortization | 7,570 | 9,505 | 15,800 | 21,140 | | Asset impairment charges | — | 28,000 | — | 28,000 | | Operating income (loss) | 4,106 | (21,776) | (20,011) | (49,764) | | Interest expense, related party | (1,868) | (2,087) | (3,740) | (2,476) | | Other interest expense, net | (6,150) | (7,144) | (12,840) | (14,476) | | Loss before provision for income taxes | (3,912) | (31,007) | (36,591) | (66,716) | | Provision for income taxes | 1,453 | 1,107 | 2,797 | 3,193 | | Net loss | $(5,365) | $(32,114) | $(39,388) | $(69,909) | | Loss per share - diluted | $(0.24) | $(2.51) | $(1.80) | $(5.49) | Condensed Consolidated Balance Sheets This section provides the company's condensed consolidated balance sheets as of August 2, 2025, February 1, 2025, and August 3, 2024 Condensed Consolidated Balance Sheets (Unaudited, in thousands of USD) | | August 2, 2025 | February 1, 2025* | August 3, 2024 | | :--- | :--- | :--- | :--- | | Assets: | | | | | Cash and cash equivalents | $7,798 | $5,347 | $9,573 | | Accounts receivable | 54,365 | 42,701 | 61,926 | | Inventories | 442,705 | 399,602 | 520,593 | | Prepaid expenses and other current assets | 38,987 | 20,354 | 35,251 | | Total current assets | 543,855 | 468,004 | 627,343 | | Property and equipment, net | 89,445 | 97,487 | 111,296 | | Operating lease right-of-use assets | 151,145 | 161,595 | 163,539 | | Trademarks, net | 13,000 | 13,000 | 13,000 | | Other assets, net | 7,652 | 7,466 | 6,236 | | Total Assets | $805,097 | $747,552 | $921,414 | | Liabilities and Stockholders' Deficit: | | | | | Revolving loan | $294,417 | $245,659 | $316,655 | | Accounts payable | 132,436 | 126,716 | 215,793 | | Current portion of operating lease liabilities | 60,546 | 67,407 | 67,610 | | Accrued expenses and other current liabilities | 96,497 | 78,336 | 98,458 | | Total current liabilities | 583,896 | 518,118 | 698,516 | | Long-term debt, related party | 107,193 | 165,974 | 165,354 | | Long-term operating lease liabilities | 103,982 | 107,287 | 110,596 | | Other long-term liabilities | 14,893 | 15,584 | 15,820 | | Total Liabilities | 809,964 | 806,963 | 990,286 | | Stockholders' deficit | (4,867) | (59,411) | (68,872) | | Total Liabilities and Stockholders' Deficit | $805,097 | $747,552 | $921,414 | Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the year-to-date periods of fiscal 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands of USD) | | For the Year-to-Date Ended | | :--- | :--- | :--- | | | August 2, 2025 | August 3, 2024 | | Net loss | $(39,388) | $(69,909) | | Non-cash adjustments | 57,734 | 100,757 | | Changes in operating assets and liabilities | (91,782) | (225,535) | | Net cash used in operating activities | (73,436) | (194,687) | | Net cash used in investing activities | (4,843) | (12,478) | | Net cash provided by financing activities | 77,754 | 203,652 | | Effect of exchange rate changes on cash and cash equivalents | 2,976 | (553) | | Net increase (decrease) in cash and cash equivalents | 2,451 | (4,066) | | Cash and cash equivalents at beginning of period | 5,347 | 13,639 | | Cash and cash equivalents at end of period | $7,798 | $9,573 |