imagesEvent: Children’s clothing retailer, The Children’s Place (NASDAQ: PLCE) reported earnings before the market opened on Tuesday. The company reported a profit of $1.15 per share. That was 11 cents per share better than average analyst estimates of $1.04 per share. Revenues also exceeded expectations. The company lowered guidance for the first quarter to 60-65 cents per share versus the current estimate of $1.21 per share. For the full year the company sees a profit range of $2.90-$3.10 versus $3.54 per share currently anticipated by analysts. Shares of Children’s were down 3% in early trading on Tuesday.

Analysis: I hate to break the news for those bulls drunk on the current rally, but earnings are suggesting the end is near. Children’s Place is just another example of a long line of retailers that are lowering expectations for the current year. The lower numbers makes already lofty valuations even pricier. With stocks in general moving higher on Tuesday the action in Children’s Place is relatively muted. It may be that shares, already lower have factored in reductions in earnings expectations. Using the new guidance, shares trade for 15 times estimated forward earnings. That’s a lofty valuation for a company that will see profits flat to shrinking next year. In this market valuation doesn’t seem to matter. As such from a trading perspective this one is likely to move higher over the next few months as the company is likely to beat these lower numbers.

Action: Buy PLCE June $45 Calls for a 2-3 month trade.

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