PLCE Childrens Place Inc

The Children’s Place, Inc. (Nasdaq: PLCE), an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first model, today announced financial results for the first quarter ended May 4, 2024.

First Quarter 2024 ResultsNet sales decreased $53.7 million, or 16.7%, to $267.9 million in the three months ended May 4, 2024, from $321.6 million in the three months ended April 29, 2023. The decrease in net sales compared to the first quarter 2023 was primarily due to reductions in retail sales due to lower store count, traffic declines to stores, declines in ecommerce demand due to reductions in marketing resulting from liquidity challenges early in the quarter and decreases in wholesale revenue. Comparable retail sales decreased 11.7% for the quarter.

Gross profit decreased $3.8 million to $92.7 million in the three months ended May 4, 2024, compared to $96.5 million in the three months ended April 29, 2023. The gross margin rate increased by 460 basis points to 34.6% during the three months ended May 4, 2024 compared to 30.0% in the prior year period. The increase was primarily due to reductions in product input costs, including cotton and supply chain costs, which negatively impacted margins in the prior year coupled with improvements in the leverage of ecommerce freight costs due to the Company’s new shipping threshold for free shipping. These improvements were partially offset by margin pressure due to aggressive promotions, as the Company sought to maximize revenue during the quarter and due to increases in freight cost resulting from split shipments.

Selling, general, and administrative expenses, which included several unusual charges associated with the recent change of control of the Company, due to the investment in the Company by Mithaq Capital SPC (“Mithaq”), and the Company’s new financing initiatives, were $109.1 million in the three months ended May 4, 2024, compared to $112.9 million in the three months ended April 29, 2023. Adjusted selling, general & administrative expenses were $88.6 million in the three months ended May 4, 2024, compared to $109.2 million in the comparable period last year, and leveraged 80 basis points to 33.1% of net sales, primarily as a result of significant reductions in store payroll and home office payroll, and reductions in marketing costs.

Operating loss was ($28.0) million in the three months ended May 4, 2024, compared to ($30.1) million in the three months ended April 29, 2023. Operating loss was impacted by several charges due to the Company’s recent change of control, due to the investment in the Company by Mithaq, and several new financing initiatives. These charges, which include $10.8 million of non-cash equity compensation charges and $3.8 million in other fees associated with the change of control, and $6.7 million of financing-related charges have been classified as non-GAAP adjustments leading to an adjusted operating loss of ($5.1) million in the three months ended May 4, 2024, compared to an adjusted operating loss of ($24.5) million in the comparable period last year, and leveraged 570 basis points to (1.9)% of net sales.

Net interest expense was $7.7 million in the three months ended May 4, 2024 compared to $5.9 million in the three months ended April 29, 2023. The increase in interest expense was largely driven by higher average interest rates associated with the Company’s revolving credit facility due to the impact of refinancings and continued market-based rate increases.

As previously announced, the Company has established a valuation allowance against the Company’s net deferred tax assets and, as such, continues to adjust the allowance based upon the ongoing operating results. The provision for income taxes which is reflected net of these adjustments was $2.1 million in the three months ended May 4, 2024, compared to a benefit for income taxes of $7.1 million during the three months ended April 29, 2023. The change in the provision (benefit) for income taxes was primarily driven by the establishment of a valuation allowance against the Company’s net deferred tax assets.

Net loss, which reflected several unusual charges associated with the recent change of control of the Company, due to the investment in the Company by Mithaq, and the Company’s new financing initiatives, was ($37.8) million, or ($2.99) per diluted share, in the three months ended May 4, 2024 compared to ($28.8) million, or ($2.33) per diluted share, in the three months ended April 29, 2023. Adjusted net loss, excluding the impact of the Company’s non-GAAP charges, was ($14.9) million, or ($1.18) per diluted share, compared to ($24.7) million, or ($2.00) per diluted share in the comparable period last year.

Store UpdateThe Company closed 5 stores in the three months ended May 4, 2024 and ended the quarter with 518 stores and square footage of 2.5 million.

Balance Sheet and Cash FlowAs of May 4, 2024, the Company had $13.0 million of cash and cash equivalents and $226.1 million outstanding on its revolving credit facility, compared to $18.2 million of cash and cash equivalents and $300.8 million outstanding on its revolving credit facility as of April 29, 2023.

Inventories were $425.2 million as of May 4, 2024, compared to $504.2 million as of April 29, 2023.

As previously announced, the Company recently secured a total of $78.6 million in interest-free, unsecured and subordinated loans from its new majority shareholder, Mithaq, providing the Company with new capital. In addition, on April 17, 2024, the Company closed on an additional $90 million unsecured and subordinated term loan from Mithaq which was used to repay the Company’s $50 million term loan under the Company’s credit agreement with Wells Fargo, National Association and other lenders, and to provide additional working capital. Subsequently, on May 2, 2024, the Company entered into a commitment letter with Mithaq for a $40.0 million senior unsecured credit facility. The combined impact of these new financings provides the Company with additional liquidity to operate its business.

Non-GAAP ReconciliationThe Company’s results are reported in this press release on a GAAP and as adjusted, non-GAAP basis. Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted gross profit, adjusted selling, general, and administrative expenses and adjusted operating income (loss) are non-GAAP measures, and are not intended to replace GAAP financial information, and may be different from non-GAAP measures reported by other companies. The Company believes the income and expense items excluded as non-GAAP adjustments are not reflective of the performance of its core business, and that providing this supplemental disclosure to investors will facilitate comparisons of the past and present performance of its core business.

Please refer to the “Reconciliation of Non-GAAP Financial Information to GAAP” later in this press release, which sets forth the non-GAAP operating adjustments for the 13-week periods ended May 4, 2024 and April 29, 2023.

About The Children’s PlaceThe Children’s Place is an omni-channel children’s specialty portfolio of brands with an industry-leading digital-first model. Its global retail and wholesale network includes two digital storefronts, more than 500 stores in North America, wholesale marketplaces and distribution in 16 countries through six international franchise partners. The Children’s Place designs, contracts to manufacture, and sells fashionable, high-quality apparel, accessories and footwear predominantly at value prices, primarily under its proprietary brands: “The Children’s Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place”. For more information, visit: www.childrensplace.com and www.gymboree.com, as well as the Company’s social media channels on Instagram, Facebook, X, formerly known as Twitter, YouTube and Pinterest.

Forward-Looking StatementsThis press release contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” section of its annual report on Form 10-K for the fiscal year ended February 3, 2024. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unable to achieve operating results at levels sufficient to fund and/or finance the Company’s current level of operations and repayment of indebtedness, the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risk that changes in the Company’s plans and strategies with respect to pricing, capital allocation, capital structure, investor communications and/or operations may have a negative effect on the Company’s business, the risk that the Company’s strategic initiatives to increase sales and margin, improve operational efficiencies, enhance operating controls, decentralize operational authority and reshape the Company’s culture are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under securities, consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, risks related to the existence of a controlling shareholder, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Contact:  Investor Relations (201) 558-2400 ext. 14500

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)(Unaudited)
	First Quarter Ended
	May 4,2024				April 29,2023
Net sales	$	267,878			$	321,640
Cost of sales		175,137				225,178
Gross profit		92,741				96,462
Selling, general and administrative expenses		109,094				112,931
Depreciation and amortization		11,635				11,848
Asset impairment charges		—				1,750
Operating loss		(27,988	)			(30,067	)
Interest expense, net		(7,721	)			(5,903	)
Loss before provision (benefit) for income taxes		(35,709	)			(35,970	)
Provision (benefit) for income taxes		2,086				(7,136	)
Net loss	$	(37,795	)		$	(28,834	)
Loss per common share
Basic	$	(2.99	)		$	(2.33	)
Diluted	$	(2.99	)		$	(2.33	)
Weighted average common shares outstanding
Basic		12,643				12,374
Diluted		12,643				12,374

THE CHILDREN’S PLACE, INC.RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP(In thousands, except per share amounts)(Unaudited)
	First Quarter Ended
	May 4,2024				April 29,2023
Net loss	$	(37,795	)		$	(28,834	)
Non-GAAP adjustments:
Change of control		14,589				—
Broken financing and restructuring fees		6,661				—
Accelerated depreciation		1,557				—
Canada distribution center closure		781				—
Credit agreement		750				—
Fleet optimization		585				1,087
Restructuring costs		264				269
Reversal of legal settlement accrual		(2,279	)			—
Asset impairment charges		—				1,750
Contract termination costs		—				2,415
Aggregate impact of non-GAAP adjustments		22,908				5,521
Income tax effect (1)		—				(1,436	)
Net impact of non-GAAP adjustments		22,908				4,085
Adjusted net loss	$	(14,887	)		$	(24,749	)
GAAP net loss per common share	$	(2.99	)		$	(2.33	)
Adjusted net loss per common share	$	(1.18	)		$	(2.00	)

(1) The tax effects of the non-GAAP items are calculated based on the statutory rate of the jurisdiction in which the discrete item resides, adjusted for the impact of any valuation allowance.

	First Quarter Ended
	May 4,2024				April 29,2023
Operating loss	$	(27,988	)		$	(30,067	)
Non-GAAP adjustments:
Change of control		14,589				—
Broken financing and restructuring fees		6,661				—
Accelerated depreciation		1,557				—
Canada distribution center closure		781				—
Credit agreement		750				—
Fleet optimization		585				1,087
Restructuring costs		264				269
Reversal of legal settlement accrual		(2,279	)			—
Asset impairment charges		—				1,750
Contract termination costs		—				2,415
Aggregate impact of non-GAAP adjustments		22,908				5,521
Adjusted operating loss	$	(5,080	)		$	(24,546	)

THE CHILDREN’S PLACE, INC.RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION TO GAAP(In thousands, except per share amounts)(Unaudited)
	First Quarter Ended
	May 4,2024			April 29,2023
Gross profit	$	92,741		$	96,462
Non-GAAP adjustments:
Change of control		905			—
Aggregate impact of non-GAAP adjustments		905			—
Adjusted gross profit	$	93,646		$	96,462

	First Quarter Ended
	May 4,2024				April 29,2023
Selling, general and administrative expenses	$	109,094			$	112,931
Non-GAAP adjustments:
Reversal of legal settlement accrual		2,279				—
Restructuring costs		(264	)			(269	)
Fleet optimization		(585	)			(1,087	)
Credit agreement		(750	)			—
Canada distribution center closure		(781	)			—
Broken financing and restructuring fees		(6,661	)			—
Change of control		(13,684	)			—
Contract termination costs		—				(2,415	)
Aggregate impact of non-GAAP adjustments		(20,446	)			(3,771	)
Adjusted selling, general and administrative expenses	$	88,648			$	109,160

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)
	May 4,2024				February 3,2024*				April 29,2023
Assets:
Cash and cash equivalents	$	12,960			$	13,639			$	18,242
Accounts receivable		28,286				33,219				25,659
Inventories		425,156				362,099				504,194
Prepaid expenses and other current assets		43,210				43,169				58,504
Total current assets		509,612				452,126				606,599
Property and equipment, net		116,779				124,750				146,315
Right-of-use assets		173,987				175,351				144,781
Tradenames, net		41,000				41,123				70,691
Other assets, net		6,957				6,958				46,484
Total assets	$	848,335			$	800,308			$	1,014,870
Liabilities and Stockholders' (Deficit) Equity:
Revolving loan	$	226,100			$	226,715			$	300,835
Accounts payable		193,100				225,549				223,244
Current portion of operating lease liabilities		70,668				69,235				74,741
Accrued expenses and other current liabilities		83,348				94,905				120,467
Total current liabilities		573,216				616,404				719,287
Long-term debt		166,635				49,818				49,768
Long-term portion of operating lease liabilities		118,363				118,073				87,905
Other long-term liabilities		24,971				25,032				32,089
Total liabilities		883,185				809,327				889,049
Stockholders' (deficit) equity		(34,850	)			(9,019	)			125,821
Total liabilities and stockholders' (deficit) equity	$	848,335			$	800,308			$	1,014,870

* Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

THE CHILDREN’S PLACE, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)
	First Quarter Ended
	May 4,2024				April 29,2023
Net loss	$	(37,795	)		$	(28,834	)
Non-cash adjustments		43,818				35,383
Working capital		(116,779	)			(1,415	)
Net cash (used in) provided by operating activities		(110,756	)			5,134
Net cash used in investing activities		(4,694	)			(11,037	)
Net cash provided by financing activities		114,889				7,757
Effect of exchange rate changes on cash and cash equivalents		(118	)			(301	)
Net (decrease) increase in cash and cash equivalents		(679	)			1,553
Cash and cash equivalents, beginning of period		13,639				16,689
Cash and cash equivalents, end of period	$	12,960			$	18,242