The Children's Place, Inc. PLCE

Next week ER… some good news and we are back to the 30’s.

No liquidity issues. New shareholders. 1.6$ billions sales. Clean inventory. This is a good business and the risk rewards is extremely positive!

And the liquidity issue caused by the 2023 losses. This is being solved as we speak with the new controlling shareholders.

In apparel if you buy too much inventory you have to do massive promotions and you have significant inventory markdowns.
They made all possible mistakes accompanied by expensive inventory (cotton and freight).
Bottom line - they clean the inventory (at high cost…), they have to get back to the normal 35% GM and now it is possible ( cotton is down and so is freight).
They need to get back to normal business with 500 store and 50%+ digital/WHS. With reduced OH they can get back to 10% EBITDA in 2025.

Shorts are pushing us down to 15$.

Put options for March 15 are exceptionally high representing millions of shares. This is pushing the stock down in the short term.
March 21st earnings release and new banking arrangements plus good guidance for 2024…
Shorties will lose all their money!

$1.0 billion valuation according to 12.5 million shares is 80$ a share! Even if they do a dilutive rights offering (say 30% dilution) we are still at ~63$ per share (rights offering will reduce debt and increase share count so 1.1B$ EV divided by 17.5 million shares outstanding).

Re the $445 million ABL and the $50 million Term loan.
The shareholders new loan will be used to pay the $50 million and the new $130 million credit line will also be used to reduce the $445 million ABL. Obviously, the banks are asking to reduce the risk but they have no benefit to cancel the line due to the change in ownership violation.
We will see a solution by the end of month and probably when they announce on March 21 (ER).

This is a good business that can easily generate 1.6$ billion sales with $160 million EBITDA. It will be achieved in 2025 and we will see improvement in 2024 (~$80-100 million EBITDA).

160 million times 7.5 (EV/EBITDA multiple) is 1.2 billion minus net debt of 200 million (end of 225) is 1.0 billion market cap.

The combination of short sellers with the probable (company will do best effort) right offering (up to $90 million) is pushing the stock down.
Net debt down to $277 million and new shareholders infuse $78 million interest free loan and a new credit line of $130 million is due by end of March. This is more than enough liquidity to go through the BTS season.
Why do they need a rights offering? Yes it will make the company stronger but it is not a must. They can wait after BTS if they still need it they can do. The main shareholder will probably convert his new loans to equity.
We need good guidance to kick out the shorties!

Also it is not a commitment of the company.
Between us I do not understand why they need it at all? Maybe the new controlling shareholders want to convert their loans to equity.