Children's Place: Peppy

By Gene G. Marcial

A growing share of the $29 billion market for kids' apparel is luring investors to Children's Place Retail Stores (PLCE ). Although the stock jumped from 17 in August to 30 on Mar. 10, "we still see it doubling in the next 18 months," says Mary Lisanti, president of money manager AT Lisanti Capital Growth, which has been buying shares. The consensus earnings estimates of analysts "are too low," she says.

With operating margins at 7% and heading up, Lisanti sees earnings of $1.45 a share in 2004, on sales of $950 million, vs. a consensus view of $1.33. In 2005, she sees operating margins of 8%, so she expects profits of $2 on $1.1 billion, vs. the Street's $1.58. With new managers -- most from Gap (GPS ) and The Limited (LTD ) -- Lisanti says Place has sharpened quality, boosted its market share, and upped its return on investment. Focused on clothes and accessories solely for infants and kids up to 12, Place operates 656 stores, mostly at malls, in the U.S. and Canada. The products, not quite the quality of those at Gymboree (GYMB ) and Gap Kids, are priced 20% to 30% lower, notes Lisanti.

A big plus: Kids 'R' Us (TOY ), with sales of $450 million, has closed its 146 stores. Some 75% of Place's stores are located within three miles of Kids' stores, says Lisanti, who expects Place to grab most of their customers. Deborah Fung of Value Line (VALU ) says customers are lapping up new styles at Place. The stock, she says, should outpace the market in the year ahead.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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