Children's Place Shows Loss, Promises Fix

The executives said during the call that preliminary net income dropped to $11.8 million in the third quarter, compared to net income of $38 million in Q3 2006. Also, the company recorded a third quarter operating profit of $46.4 million, down from an operating profit of $78.5 million in Q3 2006. The company did not provide fourth-quarter projections.

"Clearly, we are disappointed with the operating results," said Chuck Crovitz, interim CEO of the company. "Our performance primarily reflects lower than planned top-line results and significant margin pressure as we work through our high inventor levels." Other reasons blamed for operating losses at the stores, and the partnered Disney Store, include the rough economy, a warmer start of winter, a late entry of the "tween" brand and marketing from shows such as "High School Musical," as well as $5.7 million spent in internal investigations and the severance of its former CEO. However, comp store sales were up by 1% for the Children's Place and flat for the Disney Store; figures that are decreases from double-digit comp sales in Q3 2006, but are in line with current retail market trends.

The company also reports that it will slow its store opening plans, though it will go over and above its agreement to refurbish Disney Stores. During the quarter, 25 Children's Place stores were opened and one was closed, and the Disney Store count remained the same. Susan Riley, EVP of finance and administration, said during the call that the company remains on track to open 60 Children's Place stores by December, as well as closing 10 Disney stores and opening 15. The capital spending for 2007, including refurbishment costs for Disney stores, is about $200 million, she said, but that amount will drop by 25% to $150 million for 2008. Riley said the company will open 30 new Children's Place stores in 2008, with another 17 remodeled; and open 15 Disney stores, with another 65 remodeled. The company agreed in September to remodel 56 stores by January 2009, and 236 stores by 2011. The company owns and operates 907 Children's Place stores and 328 Disney stores.

Crovitz said the company will implement plans to file its reports on time, reduce its store openings and lower expenses. Also, the company has started a search for a permanent CEO, and has made a few new hires, including Pat Gray as general counsel, Rich Paradise as SVP of finance and Melissa Bowden as VP of real estate.