Susquehanna Cheers The Children's Place 'Stringently Control' On Inventories, Expenses; Upgrades

• Childrens Place Inc PLCE shares have appreciated by more than 7 percent in the last one year and closed at $58.20 on August 25, 2015.
• Susquehanna analyst Thomas Filandro upgraded the company from Neutral to Positive, while raising the price target from $68 to $69.
• Filandro believes that continued improvement in inventory utilization and management’s strong commitment towards regular distribution of cash to shareholders bode well for the stock.

Children’s Place reported a loss per share of $0.33 for 2Q15, in-line with expectations. The figure was in-line, despite deceleration in traffic and a 3.5 percent decline in comps. Analyst Thomas Filandro said the company continued to control inventories and expenses, while fueling MMU and AUR expansion, in a challenging traffic quarter.

“Higher MMU and AUR supported GM expansion of 40 bps and well-managed expense controls resulted in 60 bps of leverage and a dollar decline in excess of 6%,” Filandro added.

The company’s strengths lie in continued improvement in inventory utilization, coupled with “lower AUC into 2H15 and a positive LSD comp trend in BTS.”

Regular distribution of excess cash to shareholders through share repurchases and dividends, averaging $85 million over the past five years, depicts management’s strong commitment, the Susquehanna report stated.

“The company remains in a strong financial position, with 2Q15-end cash and short-term investments of ~$10 per share, or ~17% of market capitalization,” Filandro wrote.

The company’s fleet optimization program remains on track, with 200 stores expected to be closed through 2017. “Closures are anticipated to positively impact OPM by 100+ bps due to sales transfer and the elimination of underperforming stores,” the report added.