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In a report published Thursday, analysts at Goldman Sachs upgraded
Childrens Place Inc from Sell to Neutral. The price target was raised from $49 to $64. The company was also removed from Goldman Sachs' Americas Sell List.
"Our change in view reflects improved inventory management which is, in turn, leading to better merchandise execution and a return to gross profit growth for the first time in nearly two years," the analysts stated.
According to Goldman Sachs, the improved execution by Childrens Place can be attributed to the company's self-help initiatives, such as its new systems and real estate realization, as well as a more favorable U.S. consumer environment, driven by lower gas prices.
"1Q15 marked a positive gross profit inflection for the first time since 2Q13. While against easy comparisons, we believe the improvement is sustainable in light of leaner inventories and systems initiatives," the analysts added.
Inventories declined for the first time in absolute terms in 4Q14 and 1Q15 since 3Q10, outpaced by sales growth. However, challenges still exist for the specialty apparel industry, especially retailers with high mall exposure.
Although the analysts expressed their optimism regarding Childrens Place's channel diversification strategy, they believe that it could take time for a healthy balance to be achieved.
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