The Children's Place Reports Third Quarter 2016 Results

Delivers Q3 Comparable Retail Sales Increase of 4.6%

Reports Q3 GAAP Earnings per Diluted Share of $2.36, a 26% Increase vs Q3 2015 and

Q3 Adjusted Earnings per Diluted Share of $2.29, a 19% Increase vs Q3 2015

Increases Fiscal 2016 Adjusted EPS Guidance to $5.00 to $5.05 vs Previous Guidance of $4.60 to $4.70

Returns $123 Million to Shareholders Year to Date, a 37% Increase Compared to LY  

SECAUCUS, N.J., Nov. 17, 2016 (GLOBE NEWSWIRE) -- The Children's Place, Inc. (Nasdaq:PLCE), the largest pure-play children's specialty apparel retailer in North America, today announced financial results for the thirteen weeks ended October 29, 2016.

Jane Elfers, President and Chief Executive Officer, said, "We delivered another outstanding quarter, with EPS significantly above the high end of our guidance range. Comparable retail sales increased 4.6%. Comps were positive in all three months and accelerated as the quarter progressed. Inventory decreased 0.6% and is in excellent shape as we enter the fourth quarter. Based on these results, we are raising our adjusted EPS guidance for the full year to $5.00 to $5.05 per share compared to our previous guidance of $4.60 to $4.70 per share."

Ms. Elfers continued, "Our number one priority is the creation of shareholder value. Our results are indicative of the impressive progress we have made against each of our strategic growth initiatives - superior product, business transformation through technology, global growth through alternate channels of distribution and fleet optimization - all of which are supported by a best-in-class management team. We look forward to continued momentum in our business for the fourth quarter and beyond."

Financial ResultsThe Company's results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Third Quarter 2016 ResultsNet sales increased 3.9% to $473.8 million in the third quarter of 2016. Comparable retail sales increased 4.6% in the third quarter of 2016.

Net income was $44.2 million, or $2.36 per diluted share, in the third quarter of 2016, compared to net income of $38.5 million, or $1.88 per diluted share, the previous year.  Adjusted net income was $42.8 million, or $2.29 per diluted share, compared to adjusted net income of $39.6 million, or $1.93 per diluted share, in the third quarter last year. There was no impact on adjusted net income per diluted share in the quarter from currency exchange rate fluctuations.

Gross profit was $194.5 million in the third quarter, compared to $180.5 million in the third quarter of 2015. Adjusted gross profit was $194.4 million in the third quarter, compared to $180.6 million last year, and leveraged 140 basis points to 41.0% of sales primarily as a result of merchandise margin leverage and a higher AUR.

Selling, general and administrative expenses were $115.4 million compared to $105.8 million in the third quarter of 2015. Adjusted SG&A was $115.4 million compared to $105.0 million in the third quarter last year and deleveraged 140 basis points as a percentage of sales primarily as a result of increased incentive compensation expenses which were partially offset by decreased store and administrative expenses.

Operating income was $62.1 million, compared to $57.6 million in the third quarter of 2015. Adjusted operating income in the third quarter of 2016 was $62.4 million compared to an adjusted operating income of $59.5 million in the third quarter last year, and leveraged 10 basis points compared to last year.

For the third quarter, the Company's adjusted results exclude net income of approximately $1.4 million, compared to excluded charges of approximately $1.1 million in the third quarter of 2015, comprising certain items which the Company believes are not reflective of the performance of its core business. These excluded items are primarily related to income due to the release of reserves for prior year uncertain tax positions offset by asset impairment charges in the third quarter of 2016, and asset impairment charges and restructuring costs in the third quarter of 2015.

Fiscal Year to DateNet sales increased 3.0% to $1,265 million, including the negative impact of approximately $3.7 million from currency exchange rate fluctuations.  On a constant currency basis, net sales were $1,268 million, a 3.3% increase compared to net sales of $1,227 million in the prior year. Comparable retail sales increased 4.1% in the first nine months of fiscal 2016.

Net income was $68.1 million, or $3.56 per diluted share, in the first nine months of fiscal 2016, compared to net income of $40.4 million, or $1.94 per diluted share, the previous year. Adjusted net income was $68.4 million, or $3.57 per diluted share, inclusive of a negative ($0.03) impact due to foreign exchange, compared to $50.5 million, or $2.42 per diluted share, an increase of 48%, compared to the previous year. On a constant currency basis, adjusted net income per diluted share was $3.60, a 49% increase compared to the previous year.

Gross profit was $483.7 million in the first nine months of fiscal 2016, compared to $447.6 million last year.  Adjusted gross profit was $483.6 million, or 38.2% of net sales, leveraging 170 basis points compared to last year.  

Selling, general and administrative expenses in the first nine months of fiscal 2016 were $332.6 million, compared to $338.7 million last year. Adjusted SG&A was $332.9 million, compared to $324.9 million last year, leveraging 20 basis points compared to last year.

Operating income was $98.8 million, compared to operating income of $60.7 million in the first nine months of fiscal 2015. Adjusted operating income was $101.7 million, or 8.0% of net sales, compared to $77.4 million, or 6.3% of net sales last year.

For the first nine months, the Company's adjusted results exclude net charges of approximately $0.2 million, compared to excluded charges of approximately $10.1 million in the first nine months of 2015, comprising certain items which the Company believes are not reflective of the performance of its core business. These excluded charges are primarily related to asset impairment charges offset by income related to the release of reserves for prior year uncertain tax positions in the first nine months of 2016, and proxy and legal settlement costs, asset impairment charges and restructuring costs in the first nine months of 2015.

Store Openings and ClosuresThe Company closed 5 stores and opened 2 stores during the third quarter of 2016. The Company ended the third quarter with 1,061 stores and square footage of 4.961 million, a decrease of 2.0% compared to the prior year. The Company's international franchise partners opened 16 points of distribution in the third quarter, and the Company ended the quarter with 139 international points of distribution open and operated by its 6 franchise partners in 17 countries.

Capital Return ProgramDuring the third quarter of 2016, the Company returned approximately $37 million to shareholders through the repurchase of 416,865 shares and its quarterly dividend payment of $0.20 per share. Year to date, the Company returned approximately $123 million to shareholders compared to approximately $90 million last year. Since 2009, the Company has returned over $747 million to its investors through share repurchases and dividends. At the end of the third quarter, approximately $159 million remained available for future share repurchases under the Company's existing share repurchase program.

Additionally, the Company's Board of Directors authorized a quarterly dividend of $0.20 per share, payable on January 5, 2017 to shareholders of record at the close of business on December 17, 2016.

OutlookThe Company is updating its outlook for fiscal 2016 and now expects adjusted net income per diluted share to be in the range of $5.00 to $5.05, inclusive of a ($0.03) negative impact from foreign exchange. This compares to the Company's previous guidance for adjusted net income per diluted share of $4.60 to $4.70 and to adjusted net income per diluted share of $3.60 in fiscal 2015. This guidance assumes a positive low single digit increase in comparable retail sales for the year. This guidance for adjusted net income per diluted share excludes year to date net charges of approximately $0.2 million primarily related to asset impairment charges and income related to the release of reserves for prior year uncertain tax positions that the Company believes are not reflective of the performance of its core business.

The Company expects adjusted net income per diluted share in the fourth quarter of 2016 to be between $1.43 and $1.48. The Company expects no impact on adjusted net income per diluted share in the quarter from currency exchange rate fluctuations. This compares to adjusted net income per diluted share of $1.19 in the fourth quarter of 2015. This guidance assumes a positive low single digit increase in comparable retail sales for the quarter.

Financial ResultsThe Company's results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income, adjusted net income per diluted share, adjusted gross profit, adjusted SG&A, and adjusted operating income 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 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.  The Company uses non-GAAP measures to evaluate and measure operating performance, including, as previously disclosed, to measure performance for purposes of the Company's annual bonus and long-term incentive compensation plans. A reconciliation of non-GAAP to GAAP financial information is provided at the end of this press release.

Conference Call InformationThe Children's Place will host a conference call to discuss its third quarter 2016 results today at 8:00 a.m. Eastern Time. The call will be broadcast live at http://investor.childrensplace.com. An audio archive will be available on the Company's website approximately one hour after the conclusion of the call.

About The Children's Place, Inc.The Children's Place is the largest pure-play children's specialty apparel retailer in North America.  The Company designs, contracts to manufacture, sells at retail and wholesale, and licenses to sell fashionable, high-quality merchandise at value prices, primarily under the proprietary "The Children's Place," "Place" and "Baby Place" brand names.  As of October 29, 2016, the Company operated 1,061 stores in the United States, Canada and Puerto Rico, an online store at www.childrensplace.com, and had 139 international points of distribution open and operated by its 6 franchise partners in 17 countries.

Forward Looking Statement

This press release contains, and the above referenced conference call 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 adjusted net income 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 January 30, 2016. Included among the risks and uncertainties that could cause actual results and performance to differ materially are 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 weakness in the economy that continues to affect the Company's target customer, the risk that the Company's strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions and disruptions in the Company's global supply chain, including resulting from foreign sources of supply in less developed countries or more politically unstable countries, 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, 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.

(Tables Follow)

                 
THE CHILDREN'S PLACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
                 
                 
    Third Quarter Ended   Year-to-Date Ended
    October 29,   October 31,   October 29,   October 31,
      2016       2015       2016       2015  
Net sales   $   473,777     $   455,913     $   1,264,544     $   1,227,233  
Cost of sales       279,260         275,400         780,805         779,607  
Gross profit       194,517         180,513         483,739         447,626  
Selling, general and administrative expenses       115,442         105,797         332,557         338,653  
Asset impairment charges       392         919         3,218         2,371  
Other costs       17         14         276         87  
Depreciation and amortization        16,586         16,136         48,938         45,782  
Operating income        62,080         57,647         98,750         60,733  
Interest expense, net       (158 )       (254 )       (408 )       (635 )
Income before taxes       61,922         57,393         98,342         60,098  
Provision for income taxes       17,756         18,898         30,202         19,687  
Net income    $   44,166     $   38,495     $   68,140     $   40,411  
                 
Earnings per common share                
Basic   $   2.41     $   1.90     $   3.63     $   1.96  
Diluted   $   2.36     $   1.88     $   3.56     $   1.94  
                 
Weighted average common shares outstanding                
Basic       18,342         20,297         18,785         20,628  
Diluted       18,703         20,517         19,139         20,878  

 
THE CHILDREN'S PLACE, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
                 
                 
    Third Quarter Ended   Year-to-Date Ended
    October 29,   October 31,   October 29,   October 31,
      2016       2015       2016       2015  
                 
Net income   $   44,166     $   38,495     $   68,140     $   40,411  
                 
Non-GAAP adjustments:                
Asset impairment charges       392         919         3,218         2,371  
Restructuring costs       (56 )       919         (527 )       2,044  
Proxy costs       -          10         12         5,773  
Legal Settlement       -          -          -          5,000  
Sales tax audit       -          -          -          1,350  
DC exit costs       17         14         276         87  
Aggregate impact of Non-GAAP adjustments       353         1,862         2,979         16,625  
Income tax effect (1)       (141 )       (745 )       (1,153 )       (6,520 )
Prior year uncertain tax positions (2)       (1,580 )       -          (1,580 )       -   
Net impact of Non-GAAP adjustments       (1,368 )       1,117         246         10,105  
                 
Adjusted net income   $   42,798     $   39,612     $   68,386     $   50,516  
                 
GAAP net income per common share    $ 2.36     $ 1.88     $ 3.56     $ 1.94  
                 
Adjusted net income per common share   $ 2.29     $ 1.93     $ 3.57     $ 2.42  
                 
(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. 
                 
(2) Prior year tax provision related to uncertain tax positions.      
                 
                 
    Third Quarter Ended   Year-to-Date Ended
    October 29,   October 31,   October 29,   October 31,
      2016       2015       2016       2015  
                 
Operating income   $   62,080     $   57,647     $   98,750     $   60,733  
                 
Non-GAAP adjustments:                
Asset impairment charges       392         919         3,218         2,371  
Restructuring costs       (56 )       919         (527 )       2,044  
Proxy costs       -          10         12         5,773  
Legal Settlement       -          -          -          5,000  
Sales tax audit       -          -          -          1,350  
DC exit costs       17         14         276         87  
Aggregate impact of Non-GAAP adjustments       353         1,862         2,979         16,625  
                 
Adjusted operating income   $   62,433     $   59,509     $   101,729     $   77,358  

 
THE CHILDREN'S PLACE, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP
(In thousands, except per share amounts)
(Unaudited)
                 
                 
    Third Quarter Ended   Year-to-Date Ended
    October 29,   October 31,   October 29,   October 31,
      2016       2015       2016       2015  
                 
Gross Profit   $   194,517     $   180,513     $   483,739     $   447,626  
                 
Non-GAAP adjustments:                
Restructuring costs       (75 )       102         (125 )       406  
Aggregate impact of Non-GAAP adjustments       (75 )       102         (125 )       406  
                 
Adjusted Gross Profit   $   194,442     $   180,615     $   483,614     $   448,032  
                 
                 
                 
    Third Quarter Ended   Year-to-Date Ended
    October 29,   October 31,   October 29,   October 31,
      2016       2015       2016       2015  
                 
Selling, general and administrative expenses   $   115,442     $   105,797     $   332,557     $   338,653  
                 
Non-GAAP adjustments:                
Restructuring costs       (19 )       (817 )       402         (1,638 )
Proxy costs       -          (10 )       (12 )       (5,773 )
Legal Settlement       -          -          -          (5,000 )
Sales tax audit       -          -          -          (1,350 )
Aggregate impact of Non-GAAP adjustments       (19 )       (827 )       390         (13,761 )
                 
Adjusted Selling, general and administrative expenses   $   115,423     $   104,970     $   332,947     $   324,892  

 
THE CHILDREN'S PLACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
             
    October 29,   January 30,   October 31,
      2016     2016*     2015  
Assets:            
Cash and cash equivalents   $   192,243     $   187,534     $   183,923  
Short-term investments       75,100         40,100         34,600  
Accounts receivable       30,605         26,315         36,501  
Inventories       325,463         268,831         327,324  
Other current assets       53,132         58,528         52,106  
Total current assets       676,543         581,308         634,454  
             
Property and equipment, net       274,747         290,980         302,216  
Other assets, net       31,992         25,660         40,688  
Total assets   $   983,282     $   897,948     $   977,358  
             
Liabilities and Stockholders' Equity:            
Revolving loan   $   65,600     $   -      $   34,351  
Accounts payable       189,390         154,541         183,738  
Accrued expenses and other current liabilities       146,127         120,481         115,615  
Total current liabilities       401,117         275,022         333,704  
             
Other liabilities       87,850         95,133         94,127  
Total liabilities       488,967         370,155         427,831  
             
Stockholders' equity       494,315         527,793         549,527  
             
Total liabilities and stockholders' equity   $   983,282     $   897,948     $   977,358  
             
             
* Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K 
for the fiscal year ended January 30, 2016.            

 
 
THE CHILDREN'S PLACE, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(In thousands)
(Unaudited)
    39 Weeks Ended
    October 29,   October 31,
      2016       2015  
         
Net income   $   68,140     $   40,411  
Non-cash adjustments       55,267         48,497  
Working Capital       2,143         (3,847 )
Net cash provided by operating activities       125,550         85,061  
         
         
Net cash used in investing activities       (61,753 )       (16,932 )
         
         
Net cash used in financing activities       (62,088 )       (56,338 )
         
         
Effect of exchange rate changes on cash       3,000         (1,159 )
         
         
Net increase in cash and cash equivalents       4,709         10,632  
         
         
Cash and cash equivalents, beginning of period       187,534         173,291  
         
         
Cash and cash equivalents, end of period   $   192,243     $   183,923  

 
Contact:  Robert Vill, Group Vice President, Finance, (201) 453-6693