The Children's Place Could Benefit From a Post-Vaccine Baby Boom The Children's Place could be poised for an upturn with a predicted baby boom caused by the pandemic.

The Children's Place (NASDAQ:PLCE) is off to a great start in 2021. After spending most of 2020, meandering at or below pre-pandemic levels, PLCE stock is surging nearly 59% so far this year. And the stock continues to rise on expectation of its March 9 earnings report.

If the whisper number is accurate, the company will post better-than-expected earnings per share. It will still be a negative 10 cents per share. However, that is 7 cents higher than analysts are projecting. For the quarter, analysts project $419 million in revenue.

Despite the fact that the company's brick-and-mortar operations were shut down, the year-over-year revenue numbers may be pleasantly surprising. In 2019, the company generated $1.87 billion in revenue. If the fourth-quarter revenue projection holds, The Children's Place will post approximately $1.46 billion for 2020.

That's a 20% decline. But after revenue was effectively cut in half from the fourth quarter of 2019 to the first quarter of 2020, revenue is starting to return to pre-pandemic levels.

Digital saved the day

By now you're probably sick of hearing the word omnichannel. But the retailers that have weathered the pandemic with the most success are doing so because they've embraced digital. And that's the case with The Children's Place.

The company made a $50 million investment as part of a digital transformation strategy. During the pandemic, this strategy began to pay dividends. In its prior quarter earnings the company pointed to some highlights. Specifically, the company's digital customer count doubled on a year-over-year basis. More than 800,000 of its previously store-only customers were now availing themselves of the Buy-Online-Pick-Up-In-Store (BOPIS) or Buy-Online-Ship-to-Store (BOSS) initiatives that are at the cornerstone of their omnichannel strategy.

The company is also seeing digital penetration rise to 44% in the third quarter. This will be key to the company achieving its goal of decreasing its dependency on brick-and-mortar stores. In fact, the company has a goal to make revenue from mall-based brick-and-mortar stores account for less than 25% of its revenue entering the next fiscal year (2022).

What can the company do for an encore?

In the early months of the pandemic, many analysts were forecasting a baby boom in 2021. For public health reasons, couples would be sharing close quarters with each other. And the logical assumption was that many of those couples particularly those without children might decide to accelerate their family planning.

However, it hasn't worked out that way. In June 2020, the Brookings Institute estimated that 2020 would bring 300,000 to 500,000 fewer births than in 2019. The institute has since landed towards the lower end of that estimate, but the facts remain the same. For any number of reasons, couples have decided to hold off on starting or adding to their family.

One of those reasons is a general lack of optimism in their personal future. Will that change with a return to normalcy? That's a question that nobody can answer right now, but the answer should be a significant factor in your decision about whether to buy PLCE stock.

When there are 300,000 fewer births, that's a ripple effect that will last for several years of toddlers and young children. And that means a smaller addressable audience for The Children's Place.

But if the wave that was, perhaps naively, expected in 2021 does hit in a smaller fashion in 2022, the outlook could change again.

Wait Until After the Dividend to Take a Position

If you already own PLCE stock, you should base your opinion on what, if anything, you hear regarding the company's future guidance. After the significant run-up this year, anything other than blowout guidance will probably be a sell signal for some institutional investors.

One thing to pay attention to is any guidance about when, or if, the company plans to reinstate its dividend that it suspended at the onset of the pandemic. Prior to 2020, PLCE was a good dividend stock, averaging a 27% growth for the prior six years.