The Ratings Game
Children’s Place shares sank nearly 19% in Tuesday trading and have plunged 69% for the year to date
Children’s Place Inc. is taking a hit from the slow start to the back-to-school season, but analysts say the company is well-positioned for a comeback when the time comes.
Shares of the kid’s retailer fell nearly 19% on Tuesday after it reported wider-than-expected losses during the second quarter and braced investors for continued pain in the third quarter.
The stock is down more than 13% for the week so far and shares have plunged more than 69% for the year to date. The S&P 500 index
has gained 7.7% for the period.
But analysts took a hopeful tone for Children’s Place’s
future, with the retailer holding a top spot with consumers, alongside Walmart Inc.
, Target Corp.
and Kohl’s Corp.
“We see a meaningful opportunity for Children’s Place to take market share once the pandemic ends and the retail landscape normalizes,” UBS analysts led by Jay Sole said.
“New market research shows 6.8% of U.S. moms say The Children’s Place is the retailer they shop most often for children’s clothing. This percentage ranks fourth to only Walmart, Target and Kohl’s.”
UBS rates Children’s Place stock neutral with a $20 price target, down from $26.
“Since the onset of the pandemic in March, we have focused on internally modeling and externally discussing the potential short-term headwinds of COVID-19 as they relate to our business, particularly, the impact of continued remote learning through the back half of the year and the pressure on Q4 due to reduced holiday traffic and a sustained promotional environment,” said Jane Elfers, chief executive of Children’s Place, on the earnings call, according to FactSet.
“At the same time, we’ve remained focused on the long term by accelerating our digital and fleet optimization strategies in support of market share opportunities that have been and will continue to be created by the pandemic.”
Children’s Place online sales rose 118% during the quarter.
“Children’s Place gained market share in 1H20 despite permanent and temporary store closings and is well ahead of the competition in its omnichannel transformation with e-commerce trending to ~60% of total sales in FY22,” wrote Monness Crespi Hardt in a note.
“We continue to see significantly greater earnings potential in FY21 and beyond and think Children’s Place shares are undervalued based on this earnings power.”
Monness Crespi Hardt rates Children’s Place stock buy with a $35 price target, down from $55.
And Wedbush analysts rate Children’s Place stock neutral with a $20 price target, down from $25, taking into account the increased fulfillment costs during the remainder of the year as the company hangs on to the advantages of offering free shipping.
Children’s Place plans to keep its back-to-school assortment available for a longer period this year to give parents time to determine when, or if, in-person learning will take place.
“Typically, approximately 70% of 3Q sales generate in August and September, with the majority of sales coming from the back-to-school products,” Wedbush said.