Is There A Place For Children's Place In Your Portfolio?

Children's Place Retail Stores, Inc. PLCE reported earnings this morning that were better than Wall Street estimates, but the stock is falling on lowered second quarter and full year guidance. So is there a place for Children's Place in your holdings? Let's break down the numbers first. The company reported first quarter earnings of $1.10 per share on revenues of $430.8 million, versus Wall Street estimates of $1.05 per share on $431.7 million. At first glance, this is not good, as revenues only rose 2% year-over-year, and missed consensus estimates. Revenue at same-store-sales fell 3.2%, also not a good a sign. In addition to this, the company issued downside guidance for the second quarter, saying it expects to lose 38 to 43 cents per share, versus Wall Street estimates of a 28 cent loss. Children's Place said it expects to earn $3.10-$3.25 per share, slightly raising the bottom end of the forecast. During the quarter, the company also repurchased $18.4 million worth of company stock. "We grew net sales and earnings during the first quarter, and expanded merchandise margins as a result of improved merchandise assortments and disciplined inventory management," commented Jane Elfers, President and Chief Executive Officer. "E-commerce sales grew 24% and square footage expanded by 6% as we accelerated new store openings earlier in the year. We significantly strengthened the senior leadership team with the appointments of Eric Bauer -- Chief Operating Officer, Michael Giannelli -- SVP, Design and Bruce Marshall -- SVP, International. "In spite of higher product costs, we expect gross margin will expand over the next couple of quarters and fiscal 2011 due to the progress being made on our key growth initiatives," Elfers concluded. Shares are not expensive at these levels, trading at 13.5 times 2012 earnings, and if the company can continue to improve gross margins, this will be a good sign going forward. There is also the persistent rumor that Children's Place will be taken private, as retail private equity firms are flush with cash that needs to be put to work. Shares are trading at 1.48 times price to earnings growth, not that higher either. Ultimately, I believe that Children's Place may be taken private, and traders may want to play this by buying long dated calls, as the company continues to improve its financial situation, and allow the company to return to a stronger performance.