The Children's Place(PLCE) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record Q3 adjusted EPS of $5.43, with net sales increasing by $133 million or 31% to $558 million compared to $426 million last year [19][20] - Adjusted gross margin increased by 868 basis points to 43.9% of net sales, compared to 35.2% last year, driven by higher merchandise margins and strategic pricing [22][23] - Adjusted operating income rose by $85 million to $117 million, representing 20.9% of sales, compared to $31 million last year [24] Business Line Data and Key Metrics Changes - Digital sales increased by 36% in Q3, representing 45% of total sales, with U.S. digital sales up 40% [21] - Store net sales were $278 million, approximately 89% of Q3 2019 store net sales, despite having 26% fewer stores [21] - The company achieved a 17% increase in market share for Q3 compared to 2020, with a 900 basis point increase in gross margins [8][20] Market Data and Key Metrics Changes - U.S. net sales increased by $113 million or 31% to $475 million, while Canadian net sales increased by $5 million or 10% to $53 million [20] - Comparable retail sales were up 36% versus Q3 2020 and 19% versus Q3 2019 [20] Company Strategy and Development Direction - The company is focusing on digital growth, targeting approximately 50% steady-state annual digital penetration [5] - A new brand, Sugar & Jade, was launched targeting the $8 billion U.S. tween market, with plans for gradual expansion based on market response [13][46] - The company plans to close approximately 275 stores by the end of 2021, down from an original target of 300, due to favorable lease negotiations [11][28] Management's Comments on Operating Environment and Future Outlook - Management expects supply chain disruptions to continue at least through back-to-school 2022, but feels confident in inventory management [37] - The company anticipates Q4 gross margins to exceed historical levels, despite a lower rate than Q3 due to a condensed promotional calendar [31][57] - Management remains optimistic about the company's positioning for continued growth and shareholder returns [16] Other Important Information - The company generated $71 million in cash from operations in Q3, compared to $32 million last year, and repurchased $32 million of stock [27] - The company ended the quarter with $67 million in cash and short-term investments, and $174 million outstanding on its revolving credit facility [26] Q&A Session Summary Question: Update on supply chain situation and future collaborations - Management indicated that supply chain issues are expected to last through at least back-to-school 2022, but they have managed inventory well [37] - Future collaborations were not disclosed for competitive reasons, but there is an intention to increase marketing spend [40][41] Question: Details on Sugar & Jade launch and growth potential - The tween market is seen as an $8 billion opportunity, with plans to launch Sugar & Jade across various categories to gauge market response [44][46] - Initial costs associated with the launch are included in the planned SG&A for Q4 [47] Question: Drivers of strong sales in Q3 - Strong back-to-school performance and a return to higher margins were key drivers, with a significant market share gain noted [51][52] Question: Q4 sales trends and promotional calendar impact - Management noted a strong start to Q4 but refrained from providing specific comp guidance [56] - Q4 gross margins are expected to be higher than historical levels despite a seasonal dip due to promotions [57]