The Children's Place(PLCE) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EPS for Q3 was $3.03, at the high end of guidance, compared to $3.07 last year [49] - Net sales were $525 million, slightly above last year's $523 million, but below the guidance range of $530 million to $535 million [50] - Adjusted gross margin decreased by 130 basis points to 37.8% from 39.1% in Q3 2018, primarily due to increased e-commerce penetration [51] - Adjusted SG&A was $117 million, down from $122 million last year, leveraging 110 basis points to 22.2% of sales [52] - Cash and short-term investments decreased to $66 million from $93 million last year, with outstanding revolver increasing to $184 million from $65 million [54] Business Line Data and Key Metrics Changes - E-commerce sales grew by 23%, representing a record 35% penetration of total sales, a 650 basis point increase year-over-year [9][50] - Comparable sales increased by 0.8%, with U.S. comps up 1.2% and Canada comps down 2.8% [50] - Inventory levels increased approximately 3% year-over-year, with seasonal carryover inventory down double-digits [13][54] Market Data and Key Metrics Changes - The company noted a significant disparity in traffic trends between mall and outlet stores, with mall traffic trending significantly below outlet traffic [66] - The Canadian market showed a slightly positive comp trend quarter-to-date, contrasting with the U.S. market [67] Company Strategy and Development Direction - The company plans to relaunch the Gymboree brand in early 2020, focusing on a digital experience and shop-in-shop locations [14][17] - The strategy includes opening new TCP locations in centers previously occupied by Gymboree, with six new locations opened in Q3 [23] - The company is investing $50 million in digital transformation, aiming to extend personalized content to 80% of its customer file in the first half of 2020 [27][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from prolonged warm weather affecting sales of colder weather products and increased promotional activity in the kids' apparel space [12][41] - The outlook for Q4 was lowered due to weaker-than-planned mall traffic, with expected sales between $504 million to $509 million [56] - The company anticipates a decrease in comparable retail sales for Q4, projecting adjusted net income per diluted share between $1.48 to $1.68 [57] Other Important Information - The company has identified 40 locations that were productive for Gymboree, where TCP does not currently have a presence, allowing for potential market share capture [24] - The integration of Radial, a third-party logistics provider, has improved shipping times and reduced backlog significantly [96] Q&A Session Summary Question: Reasons for continued headwinds in Q4 - Management noted significant differences in performance between U.S. malls and outlets, with a shift in consumer behavior towards off-mall value retailers [66][67] Question: Growth margin dynamics - The decline in gross margin was primarily driven by e-commerce fulfillment costs, while store merchandise margins were slightly higher due to higher AURs [75] Question: 2020 outlook for comp reacceleration and margin recapture - Management indicated that they would wait to see how the holiday season plays out before providing a 2020 outlook [80] Question: Managing sales and gross margin equation - The company is focused on balancing sales and gross margin, with expectations for margin increases in Q4 due to improved inventory management [83] Question: Customer loyalty and pricing strategy - Management emphasized their success in gaining market share and maintaining customer loyalty through effective product offerings and loyalty programs [89] Question: E-commerce shipping performance post back-to-school - The integration with Radial has improved shipping efficiency, with a significant decrease in backlog days compared to the previous year [96]