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The Children’s Place Eyes 300 Store Closures

The Children’s Place plans to close 300 stores amid a growing focus on digital commerce that has accelerated amid coronavirus disruption.

In a Nutshell: The children’s wear retailer said it had reopened 61 stores in the U.S. and Canada as of June 8, representing approximately 5 percent of its total fleet of 920 stores.

The Children’s Place said it is now targeting 300 permanent store closures by the end of fiscal 2021, however, with 200 of those to take place in the current fiscal year as a result of increased e-commerce penetration.

Entering fiscal 2022, the company expects to have greatly reduced its brick-and-mortar penetration, with a special focus on pruning mall-based locations. Its mall property portfolio will represent less than 25 percent of its revenue by fiscal 2022, according to president and CEO Jane Elfers.

Since its decision to optimize its store fleet in 2013, The Children’s Place has closed 275 stores.

“Over the past several years, [The Children’s Place chief financial officer and chief operating officer Mike Scarpa] and our store development team have strategically positioned the company for optimum flexibility in our lease terms, culminating in lease actions that impact approximately 70 percent of our fleet through fiscal 2021,” Elfers said. “This level of fleet flexibility on a fleet of our size is unique, and because of it, we can now significantly accelerate store closures without financial penalty.”

The kids-oriented chain derived 31 percent of its revenue from online retail at the end of 2019, Elfers said, noting that recent digital commerce investments and advanced omnichannel infrastructure helped the company to fulfill “outsized online demand,” up 300 percent in the quarter.

Beginning in April, the company has implemented ship-from-store in 85 percent of its stores, more than doubling its daily distribution center capacity, which Elfers said was a key factor in preventing a significant loss in market share and brand loyalty.

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The Children’s Place doesn’t expect to have to pack and hold any inventory by the end of the second quarter, providing its vendor partners with continued order flow, Elfers said, and allowing the company to avoid the fate of many apparel peers stuck with trapped and aging seasonal merchandise. The company’s inventory was down approximately 1.5 percent in the first quarter, including a COVID-19 inventory provision of $63.2 million and $37.1 million in impairment charges.

Sales: Falling by 38.1 percent over the comparable period, The Children’s Place reported first-quarter net sales of $255.2 million, less than the $270.6 million Wall Street expected.

Comparable sales were up in the low single-digits prior to the lockdown, which began on March 18. E-commerce sales improved 12.2 percent in the quarter, accounting for 53 percent of net sales.

As a result of higher overhead from these changes, adjusted gross margin decreased 990 basis points to 26.8 percent from 36.7 percent, 70 percent of which was credited to e-commerce penetration.

“Due to the pandemic, consumers all across America have been forced to shop online, many for the first time, with positive results,” Elfers said. “We anticipate that the lingering impact of COVID-19 will continue to accelerate the shift to digital, putting enormous pressure on the already-stressed brick and mortar channel, resulting in accelerated store closures.

“When you combine the accelerated shift to digital, which we believe will continue over the long term, with the large number of store closures anticipated to occur over the next few years, we believe that significant market share consolidation opportunities exist for retailers with stronger balance sheets, developed omni capabilities, and recession-proof assortments,” she added, pointing out the space left by the bankruptcies of “several weaker retailers.”

Consumers have evolved from “store only” transactions to becoming omnichannel shoppers at four times faster than they did prior to the pandemic, the company said, with 50 percent of its customer base engaging in cross-channel commerce versus 37 percent last year.

Plus, The Children’s Place has attracted 250 percent more new e-commerce shoppers since stores shut down in March.

Earnings: The Children’s Place reported a net loss of $28.6 million, or an adjusted loss per diluted share of $1.96, better than the $2.13 loss per share Wall Street expected.

Adjusted gross profit of $68.4 million fell in comparison to the $151.4 million earned by the company in the comparable period, largely due to higher e-commerce fulfillment costs.

CEO’s Take: “Although we are facing a period of uncertainty regarding the future impact of the COVID-19 pandemic, The Children’s Place is moving swiftly and decisively to proactively address these challenges,” Elfers said. “In an effort to structurally position the company for continued success, we are significantly accelerating our fleet optimization initiative, and focusing our resources on accelerating our digital sales, both key elements of our long-standing transformation strategy.”