Dive Brief:
- In order to improve liquidity and strengthen its balance sheet, The Children’s Place is working with Centerview Partners and other advisors, lenders and potential lenders.
- The children’s apparel retailer is also “considering strategic alternatives” in case it can’t shore up new financing. The move comes amid lower-than-expected results for the fourth quarter, according to unaudited preliminary results accompanying the announcement Friday.
- Total liquidity as of Feb. 3 is expected to be about $45 million (some $13 million in cash and cash equivalents plus $32 million in excess availability under a credit facility). Total debt is expected to shrink by more than $100 million from the previous quarter; for the year it will land at about $277 million, compared to $408 million the year before.
Dive Insight:
Like other specialty retailers, The Children’s Place has evolved its approach to the mall. A year ago, facing similar sales declines, the retailer said it had accelerated its store closure plans following the pandemic and shuttered more than 250 stores in two years, which was expected to improve productivity; a few months later the company cut its salaried workforce by 17%.
The Children’s Place now runs more than 500 stores in North America, down from 613 stores in the U.S., Puerto Rico and Canada a year ago. But reducing its mall fleet and boosting its e-commerce, including through Amazon, has done little for its prospects, according to UBS analysts led by Jay Sole, who earlier this month reiterated analysis from November.
Once again, The Children’s Place is warning that its Q4 results will likely miss expectations, with net sales expected to be about $454 million to $456 million, down from prior guidance of $460 million to $465 million. Merchandise margins in the period took an unexpected hit in part because the retailer resorted to “more aggressive promotions in an effort to maximize sales” and had to split more shipments to online customers than it had expected to, and due to inventory valuation adjustments, the company said.
Children’s apparel sales in North America are slowing, expected to rise just 1%, down from 2.3% annual growth, on average, in the last decade, according to UBS research. Forces working against the segment include a lower U.S. birth rate, challenges to discretionary spending and the shift to online shopping, which makes specialty retail more like commodity retail, those analysts said. For The Children’s Place, that will mean margin, sales and market share declines, they also said.
