The Children’s Place Takeover – Insider Weekends

The Children’s Place Inc. (PLCE): $29.12

Market Cap:$363.34M

Enterprise Value:$901.15M

Before we jump into our article about the recent saga surrounding the children’s clothing retailer Children’s Place (PLCE) and a series of purchases by one of Saudi Arabia’s wealthiest families, we wanted to cover an insider sale that’s been making the news recently. In this past week alone, Jeff Bezos sold $4.11 billion worth of Amazon (AMZN) stock. This adds to the $2.04 billion sale just last week, and marks the first time he’s sold shares since 2021. Despite the large amounts, we don’t believe the transactions is anything similar to the Pied Piper situation we saw with Elon Musk back in 2021.

Bezos’ sales were made as part of a 10b5-1 trading plan both established and announced back in November 2023, the sales only represent about 3.6% of Bezos’ total ownership of Amazon, and align with the timing of his recent move to Florida – a state with relatively light tax regulations. Amazon  had an amazing last few quarters, with both revenue and net income constantly growing – despite recent competition with new online retailers such as Temu and Shein. Free cash flow has been positive the last three quarters, the company is improving operating margins, and has continued to grow AWS. Amazon has also become an advertising juggernaut.

What interested us far more was what was essentially a takeover of children’s apparel retailer Children’s Place (PLCE) by Mithaq Capital in the span of a week. We typically don’t cover transactions by 10% owners in these articles, but the situation was so fascinating that we chose to make an exception. To understand the event fully, it’s important to take a look back at Children’s Place history and general struggles in the past few years.

The last we wrote about Children’s Place was in October 2022, and we noted the appointment of Sheamus Toal as the company’s new CFO. Mr. Toal was the company’s second new CFO in less than a year and a half, hinting at greater problems as the company tried to make its way out of the pandemic and move to a more e-commerce focused business model. We had written about the company a little further in a December 2019 Insider Weekends article, where we noted the following:

In the world of retail and especially the niche that focuses on children’s apparel, Children’s Place has stood out for managing its business well even as competitors like Gymboree went private and eventually bankrupt. I have had the stock on my watch list for nearly a decade and never purchased shares even as the stock rose from around $25 all the way to $160 in October 2018.

The stock has been hit hard after revenue growth turned negative in three of the last four quarters. Even though comparable same store sales went up 0.8% in fiscal Q3, their weak holiday forecast sent the stock down more than 23% on December 11th. The CEO and CFO purchased shares two days later and the directors purchased shares on December 16th. Ms. Elfers has been the CEO of Children’s Place since 2010 and Mr. Scarpa has been the CFO since 2012. The last time we saw insider buying in Children’s Place was in 2012.

It is possible that this weakness is temporary and Children’s Place will turn a corner soon but I would wait to see the signs of the turnaround instead of anticipating it in advance. Like value investors, insiders tend to be early and often buy shares after large one day declines in the stock.

Looking at a price chart of Children’s Place, we can see that like many other companies, the stock ran up rapidly during 2021 – hitting highs of over $100 per share in November 2021. By the start of 2024, the stock had dropped to the $20 level and hovered there for quite a while.

When the company announced unsatisfactory preliminary results for Q4 2023, on February 9th, 2024, the stock was hit hard. Net sales were estimated to be between $454 million to $456 million, below the prior guidance of $460 million to $465 million, and the company reported an operating loss that would be in range of -9.0% to -8.0% of net sales, lower than previous guidance suggesting the operating loss would be between -2$ to -3% of net sales. Despite advancing further into the digital and e-commerce sphere in Q3 2023, the company still faced difficulties regarding increased promotion to lift sales, higher than anticipated split shipments to meet customer e-commerce demand, and more. Total indebtness did decrease to $277 million, though the company was working towards securing more financing and was considering strategic alternatives in the event that this new funding couldn’t be acquired.

The stock reached a low of around $8 per share, and it was at this time that Mithaq Capital began to purchase shares. Mithaq Capital is the investment firm of the wealthy Saudi AlRajhi family, who made their fortune through their ties to one of the largest banks in Saudi Arabia. Through a series of transactions, from February 9th onwards, the AlRajhi family continued to purchase shares of Children’s Place, and eventually ended up with a 54% ownership stake in the company. The stock was extremely volatile during this period, up and down double digits every day.

The biggest question that remains is what will happen to Children’s Place from here on out. With what is now their majority ownership of the company, Mithaq Capital announced plans to appoint 11 new directors to the board of Children’s Place. Both Children’s Place and Mithaq Capital have made plans to discuss financing for the liquidity issues the company has been having. The other concern this takeover brings up is that as part of prior loan agreements, if Children’s Place was to transfer ownership in some way (as has happened now with the majority ownership by Mithaq Capital), they are required to refinance a prior $50 million debt package.

With this recent news, the market quickly ran Children’s Place back up – by around 161% in the span of a few days. However, we still remain concerned about the possibility of Children’s Place to grow in the future, especially considering that many major retailers like Target or Gap have started in-store children’s apparel brands of their own, increasing competition in a market that isn’t really big to begin with. Gross margins for Children’s Place have also been below guidance in the last quarter (hovering at around 35%), and the net margin continues to be negative. Store count keeps dropping, currently hovering at around 590 stores, and around 60% of sales stem from digital or online shopping – where competition is fierce.

The likely play here is that Mithaq Capital decides to take the company private by buying out the rest of the shareholders. We have invested in several pre-deal situations but this one doesn’t particularly interest us because we don’t want to be stuck with Children’s Place if a deal does not transpire.

Editor’s Note: Tamanna Suria contributed to this article.

Welcome to edition 721 of Insider Weekends. Insider buying increased significantly with insiders purchasing $168.82 million of stock compared to $43.11 million in the week prior. Selling also increased significantly to $6.03 billion compared to $3.87 million in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio decreased to 35.69. In other words, insiders sold almost 36 times as much stock as they purchased. This week, the Sell/Buy ratio was favorable, compared to the prior week when the ratio stood at 89.76.

Notable Insider Buys:

1. Mercury Systems Inc (MRCY): $29.13

Shares of this aerospace and defense technology company were acquired by 5 insiders:

• Director Partners Management, Jana acquired 1,335,848 shares, paying $27.90 per share for a total amount of $37.27 million.
• Director Howard L. Lance acquired 7,485 shares, paying $26.77 per share for a total amount of $200,391. Mr. Lance increased his stake by 42.96% to 24,910 shares with this purchase.
• Chairman, President & CEO William L. Ballhaus acquired 7,066 shares, paying $28.74 per share for a total amount of $203,094.
• EVP, CFO & Treasurer David E. Farnsworth acquired 3,567 shares, paying $28.09 per share for a total amount of $100,196. Mr. Farnsworth increased his stake by 2.90% to 126,618 shares with this purchase.
• Director Barry R. Nearhos acquired 3,500 shares, paying $27.15 per share for a total amount of $95,025. These shares were purchased indirectly by the reporting person’s spouse.

You can view the list of recent insider transactions for Mercury Systems Inc here.

2. Alteryx Inc (AYX): $47.86

Director Dean Stoecker acquired 77,500 shares of this analytics automation business, paying $47.70 per share for a total amount of $3.70 million.

You can view the list of recent insider transactions for Alteryx here.

3. WisdomTree Inc (WT): $7.3

Chief Executive Officer Jonathan L. Steinberg acquired 303,781 shares of this asset management company, paying $7.20 per share for a total amount of $2.19 million. Mr. Steinberg increased his stake by 3.43% to 9,172,838 shares with this purchase.

You can view the list of recent insider transactions for WisdomTree Inc here.

4. Everest Group Ltd (EG): $367.87

Shares of this insurance company were acquired by 6 insiders:

• EVP & CFO Mark Kociancic acquired 1,000 shares, paying $349.00 per share for a total amount of $349,000. Mr. Kociancic increased his stake by 4.04% to 25,733 shares with this purchase.
• President and CEO Juan C. Andrade acquired 720 shares, paying $349.72 per share for a total amount of $251,798. Mr. Andrade increased his stake by 1.43% to 51,220 shares with this purchase.
• EVP, Chief Operating Officer James Allan Williamson acquired 700 shares, paying $352.50 per share for a total amount of $246,750. Mr. Williamson increased his stake by 6.34% to 11,749 shares with this purchase.
• Director John A. Graf acquired 695 shares, paying $356.75 per share for a total amount of $247,941. Mr. Graf increased his stake by 4.94% to 14,754 shares with this purchase.
• Director Roger M. Singer acquired 500 shares, paying $357.21 per share for a total amount of $178,605. Mr. Singer increased his stake by 3.05% to 16,920 shares with this purchase.
• EVP, Pres/CEO Insurance Div Mike Karmilowicz acquired 285 shares, paying $352.39 per share for a total amount of $100,430. Mr. Karmilowicz increased his stake by 2.77% to 10,586 shares with this purchase.

You can view the list of recent insider transactions for Everest Group Ltd here.

5. Mr. Cooper Group Inc (COOP): $73.44

President Michael S. Weinbach acquired 17,000 shares of this non-banking services provider for mortgage loans, paying $71.16 per share for a total amount of $1.21 million.

You can view the list of recent insider transactions for Mr. Cooper Group Inc here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Amazon.com Inc. (AMZN): $169.51

Shares of Amazon were sold by 3 insiders:

• Executive Chair Jeffrey P. Bezos sold 23,995,396 shares for $171.40, generating $4.11 billion from the sale.
• CEO Worldwide Amazon Stores Douglas J. Herrington sold 14,300 shares for $175.00, generating $2.50 million from the sale.
• Director Jonathan Rubinstein sold 12,133 shares for $171.00, generating $2.07 million from the sale.

You can view the list of recent insider transactions for Amazon.com Inc. here.

2. Meta Platforms Inc (META): $473.32

COB and CEO Mark Zuckerberg sold 485,465 shares of Meta Platforms for $468.79, generating $227.58 million from the sale. These shares were sold indirectly by various entities.

You can view the list of recent insider transactions for Meta Platforms Inc here.

3. MACOM Technology Solutions Holdings Inc (MTSI): $85.63

Shares of this semiconductors company were sold by 2 insiders:

• Director Susan Ocampo sold 534,007 shares for $84.34, generating $45.04 million from the sale. These shares were sold indirectly by a trust.
• SVP, Operations Robert Dennehy sold 2,210 shares for $83.79, generating $185,176 from the sale.

You can view the list of recent insider transactions for MACOM Technology Solutions Holdings Inc here.

4. Ares Management Corp (ARES): $134.97

Head of Credit Group Kipp DeVeer sold 211,849 shares of this asset management company for $135.76, generating $28.76 million from the sale.

You can view the list of recent insider transactions for Ares Management Corp – Class A here.

5. Salesforce Inc (CRM): $289.72

Shares of Salesforce were sold by 3 insiders:

• Chair and CEO Marc Benioff sold 75,000 shares for $288.04, generating $21.60 million from the sale.
• Pres/Chief Engineering Officer Srinivas Tallapragada sold 10,000 shares for $288.93, generating $2.89 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Co-Founder and CTO, Slack Parker Harris sold 4,200 shares for $280.64, generating $1.18 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Salesforce Inc here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.