Dive Brief:
- Spiking cotton prices shaved $65 million from The Children’s Place’s results for fiscal 2022, with the raw material its largest product input cost, according to preliminary full-year and Q4 results.
- Jane Elfers, CEO of the children’s apparel brand and retailer, noted in a statement that prices have since fallen 40% from their highs last year and the company expects them to continue receding in 2023.
- Other supply chain costs ate into The Children’s Place’s bottom line as well, including a $30 million impact from air freight costs and another $30 million from elevated container costs.
Dive Insight:
The Children’s Place’s preliminary results from last year show a company still under financial pressure from the myriad supply chain challenges that came front and center starting in 2021. Add to those elevated costs a sudden downswing in consumer demand starting last spring, and it makes for an ugly year.
The Children’s Place expects shrunken margins made for a net loss of between $52 million to $57 million just in Q4 — coming below the company’s previous estimates. Elfers cited “a macro-economic environment in the fourth quarter that proved to be far more challenging for our core customers than we originally anticipated.”
As for the company’s cotten woes, prices rocketed upward last year as the global cotton crop came in below the previous year’s. Not all clothing sellers were affected equally, though.
For example, Levi’s CFO Harmit Singh told analysts last April that the apparel brand locked into cotton contracts at prices lower than the market. The company at the time projected a 5% increase to its cost of sales, which Singh said Levi’s would largely price in to its products, absorbing the rest. The word “cotton” didn’t even merit a mention in the company’s full-year earnings report last month.
Analysts with Telsey Advisory Group said of The Children’s Place’s cotton and other supply chain challenges that “many of these pressure points were mostly foreseen through 2022 across retail and could have been better mitigated if not for execution issues over the last year,” according to a Tuesday note.
Going forward, the good news for The Children’s Place is that many of its cost headaches are easing. Elfers said that cotton has come down from its decade-high and is expected to continue falling in 2023.
The chief added that “container costs are now approaching pre-pandemic rates, and we have effectively eliminated the use of air freight in 2023 as the worldwide supply chain moves back in line with historical norms.”
The upshot for The Children’s Place is a projected $100 million benefit to its operating results for the second half of 2023 as it laps last-year’s heightened supply chain costs, according to Elfers.
