The Children’s Place, one of the largest kids' specialty apparel retailers in North America, is working with advisers and lenders to arrange new financing and is weighing "strategic alternatives" in case those efforts fail.
The Secaucus, New Jersey-based retailer, with more than 500 stores, issued the warning Friday when it reported its preliminary unaudited results for the fiscal fourth quarter last year, which fell below expectations. Net sales are anticipated to be roughly $454 million to $456 million, versus the company’s prior guidance of $460 million to $465 million. The retailer said its adjusted operating loss is expected to be in the range of 9% to 8% of net sales, versus prior guidance of adjusted operating income of about 2% to 3% of net sales.
Children's Place blamed the tough quarter, and the loss, on "the impact of lower-than-expected merchandise margin resulting from more aggressive promotions in an effort to maximize sales, higher than anticipated split shipments to meet customer e-commerce demand, and increased inventory valuation adjustments."
Children's Place said it has been working to improve its liquidity and strengthen its balance sheet to position the company for the future. The company is working with its advisers, including Centerview Partners, lenders and potential lenders to obtain the "new financing necessary to support ongoing operations, and is considering strategic alternatives in the event that the company is unable to consummate new financing," it said in its statement.
Children's Place is one of the first retailers so far this year to report it is in some financial distress. Last year, there were a bevy of retailers whose woes led them to seek additional funding, file for Chapter 11 protection or actually liquidate. Bed Bath & Beyond, and its Buy Buy Baby chain, Tuesday Morning, and Christmas Tree Shops were among those that went out of business. Party City and David's Bridal filed for bankruptcy protection and emerged as ongoing entities.
Children's Place over the past few years has slashed its store footprint in half, looking to shift more of its sales online. At one point, it had more than 1,100 retail locations. In November, the company reported that at the end of the fiscal third quarter it was down to 591 stores in the United States and Canada, with square footage of 2.8 million, a decrease of 9% compared to the prior year. Children's Place at that time said it had permanently closed 608 stores since 2013 and decreased total square footage by 2.4 million square feet, or roughly 46%.
The retailer has also been reducing its office space and headcount.
Last summer, Children's Place in a securities filing said it was doing an early termination of its lease for its headquarters at 500 Plaza Drive. The lease, whose term originally ended in 2029, now expires this May. Terminating it five years early "combined with the workforce reduction initiative, will enable the company to reduce its current space configuration and capitalize on lower prevailing market rates than would have been applicable under the company’s existing lease, which included escalations in occupancy costs and did not expire until 2029," Children's Place said in its filing.
Children's Place didn't immediately respond to a phone call from CoStar News asking if it had found a new location for its headquarters.
Last July, the retailer also said that in a restructuring it was laying off 17% of its workforce, with 181 jobs eliminated, most of them in Secaucus.
As a result of last year's job cuts and lease termination, Children' Place said it expected to incur a nonoperating charge in the range of $13 million to $15 million, which included a $4 million lease-termination payment in addition to employee severance and benefit costs associated with the workforce reduction.
On Friday, Children's Place said it plans to provide further comments on the fourth quarter and full fiscal year 2023 actual results, and its outlook for fiscal 2024, during the first quarter as part of its earnings release and conference call.
Its total liquidity, as of Feb. 3, was expected to be roughly $45 million, including about $13 million of cash and cash equivalents and about $32 million of excess availability under the company’s credit facility after excluding all necessary reserves and excess availability requirements. As previously anticipated, total indebtedness is expected to decrease by more than $100 million versus the third quarter of fiscal 2023 and, as of Feb. 3 is expected to be about $277 million as compared to $408 million as of the end of the third quarter of fiscal 2023.