Children's Place Retail Stores Inc (PLCE.O) slashed its fourth-quarter profit outlook as warmer-than-expected weather forced the retailer to heavily discount its winter apparel and accessories, sending its shares down as much as 13 percent.
Secaucus, New Jersey-based Children's Place has made merchandising mistakes in the past that forced it to discount heavily, and its Chief Executive Jane Elfers has introduced revamped styles to address those issues.
"The product designs are dramatically better so it really became an issue of warm weather impacting sales of merchandise like sweaters and outer wear, rather than a design issue," Wedbush Securities analyst Betty Chen said.
"We have certainly heard other retailers allude to weather being a problem for them as well."
Department store operator Bon-Ton Stores Inc (BONT.O) had said its December sales and margins were hurt by unseasonably mild weather.
J.C. Penney Co Inc (JCP.N), Gap Inc (GPS.N), Limited Brands LTD.N and American Eagle Outfitters (AEO.N) also discounted more than they wanted over the holidays.
Chen, who kept her "outperform" rating on the Children's Place stock, expects the company's strategy to pay off, and said the fall in the share price was a good buying opportunity for long-term investors.
"The long-term vision to improve product designs, streamline their supply chain, focus on improving their outlet business, especially gross margin (is intact)."
The kids clothing retailer said "record high" apparel costs in the quarter also hurt its margins.
Children's Place, which competes with chains like Target Corp (TGT.N) and Gap Inc's (GPS.N) Old Navy, now expects to earn 85 cents to 90 cents a share from continued operations for the quarter, down from its previous view of $1.19 to $1.24 a share.
Analysts on average were expecting earnings of $1.23 a share, according to Thomson Reuters I/B/E/S.
The company, however, expects quarterly sales to be in line with its previous forecast and said comparable sales in the period would remain flat.
Shares of the company were down 6 percent at $49.78 on Thursday on the Nasdaq.
(Additional reporting by Mihir Dalal in Bangalore; Editing by Maju Samuel and Don Sebastian)