The Children's Place(US:PLCE)2022-05-20 01:38Financial Data and Key Metrics Changes - The company reported an adjusted EPS of $1.50, down from $3.25 in Q1 2021 and up from $0.36 in Q1 2019 [21] - Net sales decreased by $73 million or 17% to $362 million compared to $435 million in Q1 2021 and decreased by $50 million compared to $412 million in Q1 2019 [21] - Adjusted gross margin decreased by 429 basis points to 39.2% of net sales compared to 43.4% in Q1 2021, but was significantly above the 36.7% gross margin in Q1 2019 [25] - Adjusted operating income decreased by $50 million to $21 million, with a margin of 5.7% of net sales compared to 16.2% in the previous year and increased from 1.6% in Q1 2019 [28] Business Line Data and Key Metrics Changes - Digital sales represented 45% of total retail sales for Q1, up from 44% in Q1 2021, but consolidated digital sales decreased by 18% compared to Q1 2021 [12][24] - Store net sales were down 20% versus Q1 2021, with comparable retail sales down 16.9% versus Q1 2021 and down 1.4% versus Q1 2019 [22][24] Market Data and Key Metrics Changes - U.S. net sales decreased by $79 million or 21% to $306 million compared to $385 million in Q1 2021, while Canadian net sales increased by $1 million or 2% to $31 million [21] - Monthly sales flow showed February sales up low-single digits, March down approximately 35%, and April down approximately 7% compared to the previous year [23] Company Strategy and Development Direction - The company is focused on a multi-pronged transformation strategy with four key initiatives: superior product, digital transformation, fleet optimization, and alternate channels of distribution [16] - The structural reset of the business model aims to deliver double-digit operating margins and EPS for 2022 and beyond, despite a projected mid-single digit decline in sales for the year [10][35] Management's Comments on Operating Environment and Future Outlook - Management noted that unprecedented levels of inflation are expected to persist into 2023, impacting lower-income consumers significantly [9] - The company is tempering its top-line expectations for 2022 due to the macro environment and is planning for a mid-single digit decline in sales [10][36] - Management expressed confidence in achieving significant progress in 2022 compared to pre-pandemic levels, despite ongoing challenges [16] Other Important Information - The company closed seven locations in Q1 and anticipates closing 40 stores for the full year 2022, maintaining financial flexibility in its lease portfolio [33] - The company plans for capital expenditures in the range of $55 million for fiscal year 2022, primarily allocated to digital and supply chain fulfillment initiatives [42] Q&A Session Summary Question: Thoughts on AUR increases and pricing plans - Management acknowledged the challenges faced in Q1 due to stimulus impacts and noted that AUR increases were achieved through successful Easter assortments [45][46] Question: Inventory position and promotional risks - Management expressed confidence in inventory health, stating that they are not concerned about needing to promote to move through inventory [60][62] Question: Competitive landscape and potential promotions - Management indicated that they are monitoring competitors' promotional activities but do not foresee needing to make drastic changes to their pricing strategy [68][70] Question: P&L guidance for Q2 - Management highlighted that gross margins are under pressure due to inbound freight expenses and that SG&A costs are lower due to accelerated store closures [64][66]