Children’s Place Earnings Call Insights: Problems and Superstorm Sandy

Children’s Place Retail Stores, Inc. (NASDAQ:PLCE) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Dorothy Lakner – Caris & Co.: Jane, I wondered, if you could just give a little bit more color on what went wrong with the baby dresses business this year. What you are doing to rectify it? Any differences between the reaction in the U.S. versus Canada so any changes necessary there? Then just secondly, if you could just update us on the improvements that you have made to supply chain and what we should expect from that going forward?

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Jane Elfers – President and CEO: As far as baby dressy is concerned, when we delivered our dressy delivery last September, we were pretty much alone in the market for two or three weeks and we had a very, very successful delivery. If you recall that was our strongest month from last year in third quarter. When you look to this year, when we delivered baby dressy, most of the mall based competition delivered dressy at the same time, we delivered dressy this year which was a couple of weeks earlier than they had last year and if you walk the mall now, you can see baby dressy that is very similar in look and is running anywhere between 50% and 70% off. So, I think there is a couple of problems with it. I think number one, there is certainly too much baby dressy out there and it’s all very similar in look and I think when you think about this space certainly over the last year, it is getting more and more promotional I think as there are less and less customers available on the baby space, it’s getting more promotional and I think what we need to do at TCP is we need to refocus and limit our liability in the higher AUR fashion goods and really focus on key items at sharp price points going forward, so that we don’t find ourselves in the situation we found ourselves in Q3. If you look to Q4 to answer your questions, what are we doing to mitigate it? We don’t have a dressy delivery in baby in Q4. So our Q4 assortments are key item driven and they are at sharp price points. So we are not going to see the level of receipts that we saw and we are not going to see a delivery. When you look at Canada versus the U.S., the Canadian response to baby dressy was worse than the United States response to baby response. I think in keeping with the Canadian customer I think that it was just too high of a percentage of the receipts and AUR was just not where that customer wanted it to be. As far as the supply chain initiatives are concerned we are moving away from the agents as we have spoken about, we have made significant progress in moving away from the agents and we are also taking a really hard look going into 2013 and beyond at what percent of the business that we are doing in China. We think there is a lot of opportunities to move our sourcing to other parts of the world where the AUC advantages are there for us.

Superstorm Sandy

Rick Patel – Bank of America-Merrill Lynch: Just a question on Sandy, can you give us some color on just how many stores were closed during that period and for how long and how many stores remain closed today if any?

John Taylor – VP, Finance: Rick we had 280 stores that were affected during the first week or so of Sandy. Most of those stores have come back online. We have three stores right now that are closed, one is completely damaged and destroyed and we have – there a couple of stores that we think will come back online in the next say three months. We had 280 stores that were impacted I mentioned that. We had 225 stores closed for several days but it’s about 30% of our revenues are impacted – were impacted in the Northeast due to Sandy.

Rick Patel – Bank of America-Merrill Lynch: Then can you help me help us understand the guidance revision a little bit better. I understand the storm impacted a huge number of stores, but I would think that the sales for the first couple of weeks of November are relatively small compared to what’s going to happen between Black Friday through holiday. So, the question is, were you anticipating on selling a lot of products through the first couple of weeks of November or is it that you’re seeing a lot more promotions on the horizon for the holiday given the weak demand after Sandy or is it a combination of the two or something else entirely?

John Taylor – VP, Finance: Yeah. It’s a combination of the two. The first two weeks of the quarter represent about 15% of the quarter, so they are very important. They are full price selling weeks for us. We had very soft business across the entire Northeast and we were impacted in our outlet business specifically in regards to transportation issues. So inventory we think from what we’re seeing is backing up in the channel and we’re seeing a much heightened promotional environment already and so we do expect to clear through that inventory in the fourth quarter and we do feel that will drive sales to positive low single-digit comps in the fourth quarter. But we expect to do it in a much – in a shorter time frame, in a compressed time frame and in a much higher promotional environment and so that’s what really drove the change in our guidance for the fourth quarter. We really feel like we’re going to need to be aggressive to promote and to compete in this marketplace over the next 11 weeks.