Through The Fly's Eyes: Children's Place

from Louis Jacobs of Theflyonthewall.com

Bad Times In Toyland

Children’s merchandise retailer Children’s Place (PLCE) reported lower than anticipated earnings today. The company previously reported a guidance EPS of 94c-$1.02, but third quarter results are now expected to be at least 60% lower than the low-end of that figure.

Children’s Place interim CEO Chuck Crovitz said that “the results primarily reflect inventory levels that are higher than we would like given current sales trends.” He also suggested that higher fuels costs have led to limited clothing and home-good purchases. Consequently, the company will try to clear out inventory through substantial discounts.

The lowered earnings expectations only add to the problems the company has experienced as of late. Two weeks ago, former CEO Ezra Dabah resigned after an internal investigation found that he violated policies for securities trades. The company also stripped former Chief Creative Officer, Nina Miner, after she was also found violating the company’s code of business conduct. Furthermore, the company is a target of a class-action lawsuit alleging that shareholders were misled by company executives which led an artificially inflated stock price.

As a result, the company’s stock has sagged this past year. The stock is down more than 7% in today’s trading to $22.59, well below it’s 52-week high of $71.81. Analysts are also bearish as Sterne, Agee and Leach, Inc. downgraded Children’s Place stock to “Hold” from “Buy” due to lowered guidance, the impending lawsuit and corporate governance issues.

The forecast for Children’s Place remains murky. While the company has a licensing agreement with Disney (DIS), which is always a best seller, the credit and mortgage crisis has affected consumer sentiment more than anticipated. So long as the credit woes and sky-high fuel costs continue, sales are likely to remain depressed as consumers will be looking to curb spending during these uncertain times.