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The Children's Place shares sink after retailer misses Street's fiscal 4Q estimates and and announces purchase of Gymboree assets

The clothing retailer will pay $76 million for the rights to the names Gymboree and Crazy 8
The retailer's adjusted earnings came in at $1.10 per share, missing Wall Street’s estimate of $2.12

Shares of The Children’s Place Inc (NASDAQ:PLCE) sank in Monday’s pre-market session after the children’s clothing retailer fell short of Wall Street’s estimates in its fiscal fourth quarter and announced it is purchasing the brand name of its bankrupt rival Gymboree.

After winning a bankruptcy auction, the company will pay $76 million for the rights to the names Gymboree, Crazy 8 and other intellectual property held by Gymboree.

Despite the asset sale, Gymboree’s liquidation created challenges for the Secaucus, New Jersey-based retailer’s business, according to Jane Elfers, president and CEO of The Children’s Place.

READ: US stocks gearing up to start week higher as global equities rise on trade deal hopes

Investors were left unimpressed by the results and news of the acquisition, sending shares of the retailer down 14% to $81.29 before the opening bell on Monday.

“We have never experienced a total liquidation of a direct competitor of the size and proximity of Gymboree. … Additionally, we are challenged by a very late Easter,” Elfers said in a statement. “Taken together, these create unprecedented near-term visibility challenges, and, as a result, the first half of 2019 is anticipated to be a highly disruptive time for The Children’s Place.”

In the three months until February 2, the retailer swung to a profit of $12 million from a loss of $9.9 million in the year-ago quarter. Its adjusted earnings came in at $1.10 per share, missing Wall Street’s estimate of $2.12. Its revenue, meanwhile, amounted to $530.6 million, which also fell short of the consensus of $554.16 million.

Looking ahead to fiscal 2019, the company projects its adjusted earnings per share will fall between $5.25 and $5.75 while revenues will come in at $1.89 billion to $1.92 billion. Its retail sales are expected to fall in the range of flat to negative 1% over the same period.

The agreement to acquire the Gymboree and Crazy 8 assets will adversely impact adjusted net income per diluted share by about $0.75 as “we make incremental investments to support the strategic opportunities for the brand and fund the acquisition”, according to the statement.

Contact at Ellen Kelleher at [email protected]

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