PLCE Childrens Place Inc

The Children’s Place, Inc. (Nasdaq: PLCE), an omni-channel children’s specialty portfolio of brands, today announced financial results for the second quarter ended August 3, 2024.

Muhammad Umair, President and Interim Chief Executive Officer said, “During the second quarter we proactively made certain strategic and operational changes to improve the profitability of the business and provide a foundation for future growth and we were pleased with the results. While we anticipated that these efforts would provide pressure to topline sales, we drove significant improvements in gross profit margin versus the prior year’s second quarter and sequential improvement in margin for two quarters, which is particularly important moving from the first quarter to the second quarter. In addition, we were also able to significantly decrease Adjusted SG&A expenses as we reduced payroll costs and eliminated unprofitable marketing spend, all of which has combined to show more than a $39 million improvement in Adjusted operating income despite the lower top line sales. While these first steps to improve operating results have been promising, we still believe that we have significant work ahead of us in future quarters as we rationalize profitability.”

Second Quarter 2024 ResultsNet sales decreased $25.9 million, or 7.5%, to $319.7 million in the three months ended August 3, 2024, compared to $345.6 million in the three months ended July 29, 2023. The decrease in net sales was primarily driven by an anticipated decrease in ecommerce revenue, as the Company proactively rationalized its unprofitable promotional strategies, inflated marketing spend and “free shipping” offers to significantly improve profitability, which was successful during the second quarter. These efforts not only improved the profitability of the Company’s ecommerce business, despite the lower revenue, but also benefited the brick-and-mortar channel, as the stores business experienced positive comparable store sales for the first time in ten quarters. The wholesale business also rebounded with double-digit growth after a decline in the first quarter.

Comparable retail sales decreased 7.2% for the quarter, largely driven by the planned decrease in ecommerce as this business decreased by a double-digit percentage as the Company proactively sacrificed unprofitable sales to improve profitability. Stores experienced a positive comparable store sales result for the first time since the post COVID-19 period of 2021, driven by stronger units per transaction and conversion metrics, and improving traffic trends.

Gross profit increased $24.0 million to $111.8 million in the three months ended August 3, 2024, compared to $87.8 million in the three months ended July 29, 2023. The gross margin rate increased by 960 basis points to 35.0% during the three months ended August 3, 2024, compared to 25.4% in the prior year period. The increase was caused by a combination of factors, including reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year. These improvements were combined with the success of the Company’s rationalization of profit-draining promotional strategies and shipping offers, which resulted in a significant improvement in the leverage of ecommerce freight costs due to the Company’s new shipping threshold for free shipping.

Selling, general, and administrative expenses were well controlled at $96.1 million in the three months ended August 3, 2024, compared to $112.0 million in the three months ended July 29, 2023. Adjusted selling, general & administrative expenses were $88.3 million in the three months ended August 3, 2024, compared to $101.7 million in the comparable period last year, and leveraged 180 basis points to 27.6% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs. This represents the lowest level of Adjusted selling, general, and administrative expenses in over 15 years for the second quarter.

Operating loss was $(21.8) million in the three months ended August 3, 2024, compared to $(36.9) million in the three months ended July 29, 2023. Operating loss was impacted by incremental expenses of $36.0 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, and restructuring costs of $6.1 million due to recent changes in the senior leadership team. These charges have been classified as non-GAAP adjustments, leading to a shift back to profitability with an adjusted operating income of $14.2 million in the three months ended August 3, 2024, or an improvement of $39.2 million compared to an adjusted operating loss of $(25.0) million in the comparable period last year, and leveraged 1,170 basis points to 4.5% of net sales.  

Net interest expense was $9.2 million in the three months ended August 3, 2024, compared to $7.6 million in the three months ended July 29, 2023. The increase in interest expense was primarily driven by higher average interest rates associated with the Company’s revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from the Company’s majority shareholder, Mithaq Capital SPC (“Mithaq”).

As previously announced, in the three months ended February 3, 2024, the Company established a valuation allowance against its net deferred tax assets and, as such, continues to adjust the allowance based upon the ongoing operating results. The provision for income taxes, which is reflected net of these adjustments, was $1.1 million in the three months ended August 3, 2024, compared to a benefit for income taxes of $(9.2) million during the three months ended July 29, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of the valuation allowance against the Company’s net deferred tax assets.

Net loss, which included certain non-cash impairment charges and non-operating restructuring charges, was $(32.1) million, or $(2.51) per diluted share, in the three months ended August 3, 2024, compared to $(35.4) million, or $(2.82) per diluted share, in the three months ended July 29, 2023. Adjusted net income shifted back to profitability after two years of losses during the second quarter, improving by $30.4 million versus the prior year to $3.9 million, or $0.30 per diluted share, compared to an adjusted net loss of $(26.5) million, or $(2.12) per diluted share, in the comparable period last year.

Fiscal Year-To-Date 2024 ResultsNet sales decreased $79.7 million, or 11.9%, to $587.5 million in the six months ended August 3, 2024, compared to $667.2 million in the six months ended July 29, 2023. The decrease in net sales was primarily due to reductions in retail sales due to lower store count, and anticipated declines in ecommerce demand due to the rationalization of promotions, reductions in inflated and unprofitable marketing spend and the strategic decision to change “free shipping” offers, as the Company proactively sacrificed unprofitable sales in an effort to improve profitability. Comparable retail sales decreased 9.4% for the six months ended August 3, 2024. 

Gross profit increased $20.3 million to $204.5 million in the six months ended August 3, 2024, compared to $184.2 million in the six months ended July 29, 2023. The gross margin rate increased by 720 basis points to 34.8% during the six months ended August 3, 2024 compared to 27.6% in the prior year period. The increase was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year. These improvements were combined with the success of the Company’s rationalization of profit-draining promotional strategies and shipping offers, which resulted in a significant improvement in the leverage of ecommerce freight costs due to the Company’s new shipping threshold for free shipping.

Selling, general, and administrative expenses were $205.2 million in the six months ended August 3, 2024, compared to $224.9 million in the six months ended July 29, 2023. Adjusted selling, general & administrative expenses were $177.0 million in the six months ended August 3, 2024, compared to $210.8 million in the comparable period last year, and leveraged 150 basis points to 30.1% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and the elimination of inflated and unprofitable marketing costs. This represents the lowest level of Adjusted selling, general and administrative expenses in over 15 years for the first two quarters of a fiscal year.

Operating loss was $(49.8) million in the six months ended August 3, 2024, compared to $(67.0) million in the six months ended July 29, 2023. Operating loss was impacted by incremental expenses of $58.9 million, which included an impairment charge of $28.0 million on the Gymboree tradename, primarily due to reductions in Gymboree sales forecasts and a reduction in the royalty rate used to value the tradename, restructuring costs of $6.4 million primarily due to recent changes in the senior leadership team, and several charges due to the Company’s recent change of control, due to the investment in the Company by Mithaq, and several new financing initiatives, which include $10.8 million of non-cash equity compensation charges and $3.8 million in other fees associated with the change of control, and $6.7 million of financing-related charges. These charges have been classified as non-GAAP adjustments leading to a shift back to profitability with an adjusted operating income of $9.2 million for year-to-date 2024, or an improvement of $58.7 million compared to an adjusted operating loss of $(49.5) million in the comparable period last year, and leveraged 900 basis points to 1.6% of net sales.

Net interest expense was $17.0 million in the six months ended August 3, 2024, compared to $13.5 million in the six months ended July 29, 2023. The increase in interest expense was primarily driven by higher average interest rates associated with the Company’s revolving credit facility due to the impact of refinancings and continued market-based rate increases, partially offset by continued benefits associated with certain non-interest bearing loans from Mithaq.

The provision for income taxes was $3.2 million in the six months ended August 3, 2024, compared to a benefit for income taxes of $(16.4) million during the six months ended July 29, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against the Company’s net deferred tax assets in the Company’s fiscal year for 2023.

Net loss, which included certain non-cash impairment charges and non-operating restructuring charges, was $(69.9) million, or $(5.50) per diluted share, in the six months ended August 3, 2024, compared to $(64.2) million, or $(5.16) per diluted share, in the six months ended July 29, 2023. Adjusted net loss, which was driven by losses in the first quarter and partially offset by profits in the second quarter, was $(11.0) million, or $(0.87) per diluted share, compared to $(51.2) million, or $(4.12) per diluted share, in the comparable period last year.

Store Update The Company closed 3 stores in the three months ended August 3, 2024 and ended the quarter with 515 stores and square footage of 2.5 million.

Balance Sheet and Cash FlowAs of August 3, 2024, the Company had $9.6 million of cash and cash equivalents and $316.7 million outstanding on its revolving credit facility. Additionally, the Company used $194.7 million in operating cash flows in the six months ended August 3, 2024.

Inventories were $520.6 million as of August 3, 2024, compared to $537.0 million as of July 29, 2023.

Non-GAAP ReconciliationThe Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses, adjusted operating income (loss) and adjusted EBITDA are non-GAAP measures, and are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies. The Company believes the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of its core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of its core business.

Please refer to the “Reconciliation of Non-GAAP Financial Information to GAAP” later in this press release, which sets forth the non-GAAP operating adjustments for the 13-week periods and 26-week periods ended August 3, 2024, and July 29, 2023.

About The Children’s PlaceThe Children’s Place is an omni-channel children’s specialty portfolio of brands. Its global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 15 countries through five international franchise partners. The Children’s Place designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under its proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”. For more information, visit: www.childrensplace.com and www.gymboree.com, as well as the Company’s social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.  

Forward-Looking StatementsThis press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon 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. Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended February 3, 2024. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company’s current level of operations and repayment of indebtedness, the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risk that changes in the Company’s plans and strategies with respect to pricing, capital allocation, capital structure, investor communications and/or operations may have a negative effect on the Company’s business, the risk that the Company’s strategic initiatives to increase sales and margin, improve operational efficiencies, enhance operating controls, decentralize operational authority and reshape the Company’s culture are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under securities, consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, risks related to the existence of a controlling shareholder, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Contact: Investor Relations (201) 558-2400 ext. 14500

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)(Unaudited)
	Second Quarter Ended								Year-to-Date Ended
	August 3,2024				July 29,2023				August 3,2024				July 29,2023
Net sales	$	319,655			$	345,599			$	587,533			$	667,239
Cost of sales		207,861				257,840				382,998				483,019
Gross profit		111,794				87,759				204,535				184,220
Selling, general and administrative expenses		96,065				111,965				205,159				224,895
Depreciation and amortization		9,505				11,953				21,140				23,801
Asset impairment charges		28,000				782				28,000				2,532
Operating loss		(21,776	)			(36,941	)			(49,764	)			(67,008	)
Interest expense, net		(9,231	)			(7,641	)			(16,952	)			(13,543	)
Loss before provision (benefit) for income taxes		(31,007	)			(44,582	)			(66,716	)			(80,551	)
Provision (benefit) for income taxes		1,107				(9,227	)			3,193				(16,363	)
Net loss	$	(32,114	)		$	(35,355	)		$	(69,909	)		$	(64,188	)
Loss per common share
Basic	$	(2.51	)		$	(2.82	)		$	(5.50	)		$	(5.16	)
Diluted	$	(2.51	)		$	(2.82	)		$	(5.50	)		$	(5.16	)
Weighted average common shares outstanding
Basic		12,772				12,522				12,707				12,448
Diluted		12,772				12,522				12,707				12,448

THE CHILDREN’S PLACE, INC.RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP(In thousands, except per share amounts)(Unaudited)
	Second Quarter Ended								Year-to-Date Ended
	August 3,2024				July 29,2023				August 3,2024				July 29,2023
Net loss	$	(32,114	)		$	(35,355	)		$	(69,909	)		$	(64,188	)
Non-GAAP adjustments:
Asset impairment charges		28,000				782				28,000				2,532
Restructuring costs		6,104				9,659				6,367				9,928
Credit agreement/lender-required consulting		1,102				—				1,852				—
Professional and consulting fees		422				—				422				—
Accelerated depreciation		256				907				1,813				907
Fleet optimization		123				81				708				1,168
Change of control		—				—				14,589				—
Broken financing and restructuring fees		—				—				6,661				—
Canada distribution center closure		—				—				781				—
Reversal of legal settlement accrual		—				—				(2,279	)			—
Contract termination costs		—				546				—				2,962
Aggregate impact of non-GAAP adjustments		36,007				11,975				58,914				17,497
Income tax effect (1)		—				(3,113	)			—				(4,549	)
Net impact of non-GAAP adjustments		36,007				8,862				58,914				12,948
Adjusted net income (loss)	$	3,893			$	(26,493	)		$	(10,995	)		$	(51,240	)
GAAP net loss per common share	$	(2.51	)		$	(2.82	)		$	(5.50	)		$	(5.16	)
Adjusted net income (loss) per common share	$	0.30			$	(2.12	)		$	(0.87	)		$	(4.12	)

(1) The tax effects of the non-GAAP items are calculated based on the statutory rate of the jurisdiction in which the discrete item resides, adjusted for the impact of any valuation allowance.

THE CHILDREN’S PLACE, INC.RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP(In thousands, except per share amounts)(Unaudited)
	Second Quarter Ended								Year-to-Date Ended
	August 3,2024				July 29,2023				August 3,2024				July 29,2023
Operating loss	$	(21,776	)		$	(36,941	)		$	(49,764	)		$	(67,008	)
Non-GAAP adjustments:
Asset impairment charges		28,000				782				28,000				2,532
Restructuring costs		6,104				9,659				6,367				9,928
Credit agreement/lender-required consulting		1,102				—				1,852				—
Professional and consulting fees		422				—				422				—
Accelerated depreciation		256				907				1,813				907
Fleet optimization		123				81				708				1,168
Change of control		—				—				14,589				—
Broken financing and restructuring fees		—				—				6,661				—
Canada distribution center closure		—				—				781				—
Reversal of legal settlement accrual		—				—				(2,279	)			—
Contract termination costs		—				546				—				2,962
Aggregate impact of non-GAAP adjustments		36,007				11,975				58,914				17,497
Adjusted operating income (loss)	$	14,231			$	(24,966	)		$	9,150			$	(49,511	)

THE CHILDREN’S PLACE, INC.RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP(In thousands, except per share amounts)(Unaudited)
	Second Quarter Ended								Year-to-Date Ended
	August 3,2024				July 29,2023				August 3,2024				July 29,2023
Gross profit	$	111,794			$	87,759			$	204,535			$	184,220
Non-GAAP adjustments:
Change of control		—				—				905				—
Aggregate impact of non-GAAP adjustments		—				—				905				—
Adjusted gross profit	$	111,794			$	87,759			$	205,440			$	184,220

	Second Quarter Ended								Year-to-Date Ended
	August 3,2024				July 29,2023				August 3,2024				July 29,2023
Selling, general and administrative expenses	$	96,065			$	111,965			$	205,159			$	224,895
Non-GAAP adjustments:
Restructuring costs		(6,104	)			(9,659	)			(6,367	)			(9,928	)
Credit agreement/lender-required consulting		(1,102	)			—				(1,852	)			—
Professional and consulting fees		(422	)			—				(422	)			—
Fleet optimization		(123	)			(81	)			(708	)			(1,168	)
Change of control		—				—				(13,684	)			—
Broken financing deal		—				—				(6,661	)			—
Canada distribution center closure		—				—				(781	)			—
Reversal of legal settlement accrual		—				—				2,279				—
Contract termination costs		—				(546	)							(2,962	)
Aggregate impact of non-GAAP adjustments		(7,751	)			(10,286	)			(28,196	)			(14,058	)
Adjusted selling, general and administrative expenses	$	88,314			$	101,679			$	176,963			$	210,837

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)
	August 3,2024				February 3,2024*				July 29,2023
Assets:
Cash and cash equivalents	$	9,573			$	13,639			$	18,846
Accounts receivable		61,926				33,219				33,073
Inventories		520,593				362,099				536,980
Prepaid expenses and other current assets		35,251				43,169				65,108
Total current assets		627,343				452,126				654,007
Property and equipment, net		111,296				124,750				141,244
Right-of-use assets		163,539				175,351				112,325
Tradenames, net		13,000				41,123				70,491
Other assets, net		6,236				6,958				45,018
Total assets	$	921,414			$	800,308			$	1,023,085
Liabilities and Stockholders' (Deficit) Equity:
Revolving loan	$	316,655			$	226,715			$	347,546
Accounts payable		215,793				225,549				262,369
Current portion of operating lease liabilities		67,610				69,235				65,266
Accrued expenses and other current liabilities		98,458				94,905				124,970
Total current liabilities		698,516				616,404				800,151
Long-term debt		—				49,818				49,785
Related party long-term debt		165,354				—				—
Long-term portion of operating lease liabilities		110,596				118,073				63,714
Other long-term liabilities		15,820				25,032				23,505
Total liabilities		990,286				809,327				937,155
Stockholders' (deficit) equity		(68,872	)			(9,019	)			85,930
Total liabilities and stockholders' (deficit) equity	$	921,414			$	800,308			$	1,023,085

* Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)
	Second Quarter Ended
	August 3,2024				July 29,2023
Net loss	$	(69,909	)		$	(64,188	)
Non-cash adjustments		100,757				63,570
Working capital		(225,535	)			(32,087	)
Net cash used in operating activities		(194,687	)			(32,705	)
Net cash used in investing activities		(12,478	)			(18,261	)
Net cash provided by financing activities		203,652				52,969
Effect of exchange rate changes on cash and cash equivalents		(553	)			154
Net (decrease) increase in cash and cash equivalents		(4,066	)			2,157
Cash and cash equivalents, beginning of period		13,639				16,689
Cash and cash equivalents, end of period	$	9,573			$	18,846