The children's place could be prepared for an upswing with a predicted baby boom from the pandemic.
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This story originally appeared on MarketBeat
Children’s Place (NASDAQ: PLCE) got off to a good start in 2021. After spending most of 2020 at or below pre-pandemic levels, PLCE stock is up nearly 59% so far this year. And the stock continues to climb in anticipation of its March 9 earnings report.
If the whisper number is correct, the company will produce better than expected earnings per share. It will still be negative 10 cents per share. However, that is 7 cents more than analysts forecast. For the quarter, analysts forecast sales of 419 million US dollars.
Despite the fact that the company's brick and mortar business has been shut down, year-over-year sales numbers can be pleasantly surprising. In 2019, the company had sales of $ 1.87 billion. If the fourth quarter sales forecast applies, The Children’s Place will be around $ 1.46 billion in 2020.
That's a 20% decrease. After revenues have effectively halved from the fourth quarter of 2019 to the first quarter of 2020, revenues are starting to return to pre-pandemic levels.
Digital saved the day
By now, you're probably fed up with the word omnichannel. However, the retailers who have weathered the pandemic most successfully are doing so because they chose to go digital. And that's the case with The Children's Place.
The company has made a $ 50 million investment as part of a digital transformation strategy. During the pandemic, that strategy began to pay off. In the result of the previous quarter, the company pointed out some high points. In particular, the number of the company's digital customers has doubled compared to the previous year. More than 800,000 of his customers who previously only worked in the store now use the Buy-Online-Pick-Up-In-Store (BOPIS) or Buy-Online-Ship-to-Store (BOSS) initiatives, which form the cornerstone of their omnichannel Strategy.
The company saw digital penetration increase to 44% in the third quarter. This will be key to helping the company achieve its goal of reducing reliance on brick and mortar stores. In fact, the company's goal is to have brick and mortar store revenue in shopping malls account for less than 25% of revenue in the next fiscal year (2022).
What can the company do for an encore?
In the first few months of the pandemic, many analysts predicted a baby boom in 2021. For public health reasons, couples would bond closely. And the logical assumption was that many of these couples, especially those without children, might decide to speed up their family planning.
However, it didn't work out that way. In June 2020, the Brookings Institute estimated that 2020 would be 300,000 to 500,000 fewer births than in 2019. The institute has since landed on the lower end of that estimate, but the facts remain the same. Couples have chosen not to create or expand their families for a number of reasons.
One of these reasons is a general lack of optimism about their personal future. Will that change with the return to normal? No one can answer that question right now, but the answer should be a major factor in your decision on whether to buy PLCE stock.
If there are 300,000 fewer births, this is a ripple effect that will last for several years in toddlers and toddlers. And that means a smaller, more addressable audience for The Children's Place.
But if the wave, which may have been naively expected in 2021, hits to a lesser extent in 2022, the outlook could change again.
Wait until after the dividend to take a position
If you already own PLCE stock, your opinion should be based on what, if anything, you hear about the company's future guidance. After the sharp rise this year, anything but the blowout forecast is likely to be a sell-signal for some institutional investors.
One thing to look out for is guidance on when or if the company plans to reinstate its dividend that it put on hold at the beginning of the pandemic. Prior to 2020, PLCE was a good dividend stock with an average growth of 27% over the past six years.