Children's Place shares nearly double on profit surprise

By Steve Gelsi

Company generates adjusted income for the first time after two years of losses

Children's Place Inc.'s stock soared 86% Wednesday after the retailer topped analyst expectations with its first adjusted profit in two years.

Children's Place (PLCE) said its second-quarter net loss narrowed to $32.1 million, or $2.51 a share, from a loss of $35.4 million, or $2.82 a share, in the year-ago quarter.

Adjusted profit of 30 cents a share beat the FactSet consensus estimate for a loss of $1.15 a share.

Second-quarter revenue at the parent company of the Gymboree brand fell by 7.2% to $319.7 million, ahead of the analyst estimate of $312.9 million.

Children's Place's stock price jumped 85.7% at the closing bell to end the session at $9.10 a share, its highest level since June.

Interim Chief Executive Muhammad Umair said the company was pleased with its results, which include its lowest second-quarter selling, general, and administrative expenses in more than 15 years and an improvement in gross margins to 35%, an increase of 9.6% from the year-ago period.

"We reduced payroll costs and eliminated unprofitable marketing spend, all of which has combined to show more than a $39 million improvement in adjusted operating income despite the lower top line sales," Umair said in a prepared statement.

The stock has been a popular option for short sellers, who are investors that profit when share prices fall.

Short interest in Children's Place amounted to 47.5% ownership of its stock in the past six days, according to FactSet. It's one of the most shorted stocks in the equities market, based on MarketWatch's list.

The stock's rise marks a turnaround - at least for the day - for Children's Place after its stock hit hit 21-year lows in February after the company said it was running out of cash.

The stock hit another low in May after Saudi Arabia's Mithaq Capital took a controlling stake in the company. Umair was named interim chief executive at that time.

Including Wednesday's moves, Children's Place's stock is still down 60.8% in 2024, while the Nasdaq COMP has risen 16.4%.

-Steve Gelsi

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09-11-24 1609ET

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