Children’s Place stock plunges after warning of a surprise, large loss

Excluding nonrecurring items, the adjusted per-share loss of $4.02 to $4.41 compared with the company’s previous guidance for EPS of 50 cents to 75 cents, and the FactSet EPS consensus of 55 cents.

Sales are expected to be $454 million to $456 million, below the FactSet consensus of $468 million.

The stock sank 13.4% in morning trading, just two sessions after closing at a 5 1/2-month high. It was headed for the biggest one-day drop since it plunged 18.9% on Aug. 25, 2020.

The company said the macro-economic environment in the fourth quarter proved to be “far more challenging for our core customers than originally expected,” resulting in lower sales than projected and the need for increased promotions to drive sales and reduce seasonal inventory levels.

Results for 2022 were hurt by about $125 million from three input costs when compared with 2021, including $65 million due to the spike higher in cotton prices, $30 million due to having to use airfreight rather than ground transportation given supply chain delays caused by the COVID-19 pandemic and $30 million due a jump in container costs.

“As a result of this challenging environment and significantly higher input costs, including decade-high cotton costs and other supply chain costs, the Company made several forward-looking strategic decisions regarding the level and composition of its inventory, which negatively impacted short-term margins but significantly reduced higher cost, end-of-season merchandise, putting us in a much healthier inventory position as we enter 2023,” said Chief Executive Jane Elfers.

Entering 2023, Elfers said cotton prices have fallen about 40% from their 2022 highs, and are expected to keep falling this year. In addition, container prices have approaching pre-pandemic levels and have eliminated the use of air freight as the supply chain returns to historical norms.

“While we still need to work through inventory in the front half of 2023 that has these higher input costs embedded in it, beginning in the back half of 2023, the combined impact of these three input cost reductions is expected to result in an annualized benefit to our operating results of more than $100 million,” Elfers said.

Despite Monday’s selloff, the stock has still gained 6.2% over the past three month, but the SPDR S&P Retail exchange-traded fund has run up 19.1% and the S&P 500 has advanced 9.0%.