The Children's Place, Inc. (NASDAQ:PLCE) Q1 2019 Earnings Conference Call Transcript

May 15, 2019 • 08:00 am ET

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The Children's Place, Inc. (NASDAQ:PLCE) Q1 2019 Earnings Conference Call Transcript

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Presentation
Executive
Jane Elfers

month of April. As a reminder, I reassumed day-to-day direction of merchandising starting with this delivery.

Let's move on to our real estate strategy. Our portfolio of brick-and-mortar location provides us with a meaningful competitive advantage in securing market share. We continue to execute our fleet optimization strategy with the objective of maintaining maximum flexibility and leverage in the current retail environment. The US has experienced a marked increase in retail bankruptcies and store closures, with nearly 6,500 retail closures already announced in 2019 exceeding the total store closures for all of 2018. As the digital disruption continues, we expect to see more bankruptcies and store closures from retailers that are unwilling or incapable of investing in digital initiatives. We expect continued bifurcation of the winners and losers in this space.Within brick-and-mortar retail, we expect additional bifurcation as the higher quality centers strengthen at the expense of the lower quality centers.

TCP has been strategically ahead of the curve for several years, as we've dramatically slowed down openings, accelerated store closures in low quality centers, and significantly shorten lease term to allow for maximum flexibility within the portfolio. Our multi-year real estate strategy strongly positions us to capture the benefits of meaningful market share redistribution, as we believe competitors will continue to donate sizable market share in the coming years. We estimate approximately 40% of the US Children's Apparel market revenue is generated by retailers that we classify as market share donors. And this group has ceded approximately $600 million a year in revenue over the last three years to a stronger group of market share takers.

Importantly, we estimate that only 25% of the sales generated by this group of market share donors is located off-mall, which implies that retailers that are well-positioned in the mall, in the outlet and on e-commerce where most of these market share donors are located are best positioned to capture what we believe will be sizable ongoing annual market share donation. Conversely, we estimate, only 8% of the sales done by the industries group of market share takers is generated in the mall, which reinforces our strategic real estate positioning and its ability to continue to capture incremental market share.

Now let me update you on TCP's positioning in the mall. In 2017, we shared with you that out of the approximately 1,060 malls in the United States there are projections that up to 260 will close. We refer to these 260 malls as dying mall. We are currently not located in 80% or 208 of these dying malls after having closed over 20% of our stores in these malls since 2017. Further of the remaining 52 dying malls where we still have a store, our average lease term is now less than one year and the total locations makeup only approximately 2% of our total US revenue.

Stripping out the 260 dying malls, there are approximately 800 A, B and C malls in the US, approximately 37% are A-plus and A, 51%