Children's Place Retail Stores, Inc. (NASDAQ:PLCE)

NetscribeRetail (95.38) Submitted: 6/6/2007 1:24:51 AM : Start Price: $55.77 PLCE Score: +5.81

While the fundamental outlook for apparel retailers is neutral, The Children's Place chain is facing weak apparel sales and a resulting increase in markdown levels due to lack of key volume drivers. This is an ongoing problem, as the chain's spring assortment did not perform to the company's expectations repeatedly, which led to higher than anticipated first-quarter markdowns.

During the recent quarter, revenues increased by 12% to $478.9 million due to increased children place brand sales to Disney store and higher income from comparable store sales. Net income of $13.1 million was down by 15% due to higher selling and general expenses and presence of interest expense instead of income. Besides company opened 6 Children’s Place stores but closed four stores. Company is expected to renovate or upgrade a substantial number of Disney Stores over the next 5 years, beginning immediately, and to spend about $175 million, but this is a long term process and would not be great upshot in the near term.

The company made positive comments about recent trends and reiterated its recently lowered annual EPS guidance. Management stated that the summer product was performing better relative to its plan. Further, EPS guidance which was recently lowered to $3.54 - $3.64 was reiterated which is based on comp store sales increases, improved gross margins and leveraging selling and general expenses. But with two consecutive missed quarters behind and more difficult comparisons ahead, the guidance strongly remains at risk.