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Covid Kicks Children’s Place ‘Digital Transformation’ into High Gear

Amid a pandemic-caused net loss and sales falloff in the second quarter, The Children’s Place is seeing an upside from its omnichannel strategy.

In a Nutshell: As it reported second-quarter results, The Children’s Place said it is on a path to replace its over-reliance on traditional retail revenue with a stronger focus on e-commerce.

After suspending all store operations in the U.S. and Canada on March 18 due to the Covid-19 pandemic, the children’s wear company said it started reopening stores on May 19 in 10 states and restored the majority of its remaining stores during the last two weeks of June. As of Aug. 1, The Children’s Place had 771 of its 824 stores open to the public in the U.S., Canada and Puerto Rico, with the majority of the closed stores located in California.

Consistent with the company’s store fleet optimization initiative, the retailer opened two stores and permanently closed 98 stores in the three months ended Aug. 1. The Children’s Place ended the quarter with 824 stores and square footage of 3.9 million, a decrease of 13.2 percent compared to the prior year.

As of Aug. 1, The Children’s Place had approximately $36.1 million of cash and cash equivalents with no long-term debt and $250.8 million outstanding on its revolving credit facility. The company used approximately $42.7 million in operating cash flow in the three months.

As a result of the continued uncertainty created by the Covid-19 pandemic, the company said it is not providing financial guidance.

Sales: Net sales for the second quarter ended Aug. 1 decreased 12.3 percent to $368.9 million from $420.5 million in the prior-year period.

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This was primarily a result of the impact of temporary store closures, along with a decrease in back-to-school sales beginning in mid-July, the company said, partially offset by increased digital sales. Second-quarter digital sales increased 118 percent.

Earnings: The company reported a net loss of $46.6 million, or $3.19 per diluted share, in the three months compared to net income of $1.5 million, or 10 cents per diluted share, in the year-ago quarter.

Gross profit fell 51.7 percent to $67.1 million in the quarter compared to gross profit of $138.8 million in the three months ended Aug. 3, 2019. Adjusted gross profit was $93.8 million in the quarter compared to $138.8 million in the comparable period last year, and deleveraged 760 basis points to 25.4 percent of net sales, primarily as a result of higher fulfillment costs related to meaningfully higher levels of ship-from-store from strong digital demand.

CEO’s Take: Jane Elfers, president and CEO, said: “We have clearly benefited from our $50 million digital transformation investment, which provided us with the omni-channel capabilities necessary to fulfill our strong online demand. Since the temporary store closures in March, we have increased new customers to our digital file by approximately 175 percent, converted our store-only customers to omni-channel customers at a rate approximately three times the pre-pandemic rate and increased our app downloads by nearly 115 percent. Combined, these provide a strong foundation for continued digital growth as digital adoption, accelerated by the COVID-19 pandemic, continues to drive online sales to an increasingly greater share of total sales and provides us with a long-term market share opportunity.

“Due to the large majority of schools adopting remote or hybrid learning models for the start of the school year, our back-to-school sales have been significantly impacted and we anticipate a meaningful negative impact on our Q3 results,” Elfers added.