Barchart’s Bottom 100 Stocks to Buy had some big movers on Monday. Children’s Place (PLCE) wasn’t one of them. The children’s retailer stayed in the 59th spot with a weighted alpha of -82.26 and a 52-week change of -52.79%.
Children’s Place is a company and stock that has experienced its fair share of highs and lows. However, as recently as January 2018, it traded at an all-time high of $161.65, nearly 15 times its current price. It traded over $38 in February, almost four times its current price.
If you’re a risk-averse investor, PLCE stock is not for you, but if you’re aggressive and patient, there might be a light at the end of the tunnel.
A new floor appears to have been established around $10.40. I’m no technical analyst, but the work it’s done in recent quarters, delivering profits rather than losses, suggests that the worst could be behind it.
If you’re open to a speculative bet, Children’s Place could be that play. Here’s why.
Lots of Turmoil and Change
The latest news from the beleaguered company was Seamus Toal's departure on Dec. 13. Toal joined the company as CFO in November 2022 and added the COO title in August 2023. According to its 2024 proxy, Toal earned nearly $2 million in total compensation in 2023.
Chief Accounting Officer Laura Lentini was named interim CFO. Lentini previously worked as a senior vice president and corporate controller at Capri Holdings (CPRI). She’s a veteran of the retail world, so it likely won’t affect Children’s Place in any detrimental way. It might even help.
This change comes mere months after CEO Jane Elfers, who served as CEO for 14 years, left on May 20. During her tenure, PLCE stock lost 36% of its value, although, as mentioned earlier, it did have quite a run in 2018.
The writing was on the wall once Saudi investment firm Mithaq Capital took majority control (54%) of the company in February. At the time, Children’s Place announced that Mithaq Capital intended to nominate its own slate to the board at the company’s 2024 annual meeting in May.
With Elfers's departure, the board now includes five people and two independent directors. Two others are Mithaq Capital Managing Director Turki Saleh A. Alrajhi, Chairman, and Muhammad Asif Seemab, another Mithaq Capital executive and Vice Chairman.
The final director, Muhammad Umair, was named interim CEO of the company. He has been working with Mithaq Capital to implement a pathway to greater profitability.
It Has a Plan, But It Might Be Too Late
Chairman Alrajhi’s letter of May 24 laid out the company’s strategy. It’s worth a read.
Tops on its list of things to do is the elimination of debt.
According to S&P Global Market Intelligence, as of Nov. 2, it had $702 million in total debt, including operating leases. Over half ($362 million) was a short-term revolving loan. Year-to-date (9 months), the interest expense on the revolving loan was $19.1 million. Its interest expense in the trailing 12 months ended Nov. 2 was $35.6 million. It will be more than that for all of 2024.
“Mithaq stepped in to lend on terms materially more favorable to TCP. TCP will also raise equity capital through a rights offering committed to at the time we provided our initial TCP rescue financing, which, depending on the market conditions at the time of the rights offering, will add permanent capital to and strengthen the balance sheet,” Alrajhi stated.
The management and board are focused on eliminating bureaucracy, which increases costs and reduces innovation. Therefore, they continue implementing operational controls to eliminate unnecessary costs, including automation technology, while accelerating decision-making.
As part of the turnaround, it has stopped providing quarterly earnings guidance and conducting quarterly analyst calls. The board and Mithaq want management to focus on the business’s performance and make long-term decisions for the company and shareholders.
It has implemented a minimum order size for free shipping of $30. In Canada, where I live, it’s CAD$50, which is about the equivalent after currency conversion. It believes it could go higher than that to generate profitable orders.
This move led to an expected decline in e-commerce revenues in the third quarter--same-store sales fell 17.1% from a year ago. Still, the gross margin increased by 180 basis points to 35.5%, while its adjusted selling, general and administrative expenses were $93.8 millon, down from $102.9 million a year earlier.
As a result, it generated a second consecutive quarter of positive adjusted net income--$3.9 million in Q2 2024 and $26.1 million in Q3 2024--and its trailing 12-month EBITDA was $22.5 million.
While it’s making progress on the profit front, UBS analyst Jay Sole warned in 2023 that North American children’s apparel sales, which had averaged 2.3% annual growth over the past decade, are expected to slow to 1% or less.
It won’t be enough to repay its debt if it can’t reignite sales.
However, as the Chairman said in the final paragraph of his May letter to shareholders, “In making decisions, our fundamental focus will be on long-term results rather than being swayed by short-term profitability considerations or reacting to – Wall Street – immediate responses.”
If this were baseball, we’d be in the third inning of a nine-inning game. There’s plenty of water to come under the bridge.
The Bet to Make
The Jan. 16/2026 $10 call had three trades for 43 contracts in Monday trading. The trade prices varied from $4.60 to $4.90. At $4.90, that’s 45% of Children Place’s closing share price of $10.91.
While that’s high, you have over a year to see this play out. With an expected move on the upside of 62.87% to $17.77, you’ve got a 52.46% shot of being in the money. Further, the open interest of 2,080 suggests you wouldn’t be the only one who thinks this is possible.
Children’s Place has had a history of volatility, so this isn’t a slam dunk, which is why you have no business being a part of this type of play if you’re risk intolerant.
But if you’re aggressive, Alrajhi’s thinking is how you need to be successful over the long haul. We’ll see if his bet pays off. I think it can.
