Although Childrens Place Inc PLCE's share price has declined from its recent high, the stock has significantly outperformed year-to-date, rising 37 percent.
Oppenheimer’s Anna Andreeva downgraded the rating on the company to Perform, while lowering the price target from $82 to $72.
“Since fundamentals started inflecting with big upside to Holiday, multiple expanded by 3-4x; we expect company to be in beat-and-raise mode as new systems/merchandising initiatives kick in, although valuation leaves little room for error,” Andreeva mentioned.
AUR & Comps
The analyst pointed out that Children's Place’s AURs turned positive in 1Q15, driven by tightly managed inventories and new planning tools.
“While gross margins are still 200-300 bps below peaks and should continue to benefit from tighter inventories/AUC, getting sales and gross margins at the same time has been rare, and AUR compares get tougher in 2H16,” Andreeva said.
However, the estimated 10–15 percent decline in clearance is expected to drive comp of 2–4 percent, while higher ticket in some categories is also likely to drive comp upside.
In addition, Andreeva believes that there could be opportunity for further inventory reduction, lapping significant AUR upside in 4Q16.
The analyst also expressed concern regarding the lack of improvement in the competitive kids’ category.
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