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Less than a week after The Children’s Place issued a profit warning and said it was working to secure cash, Saudi Arabian investor group Mithaq Capital has taken a 54% controlling stake in the company.

In a Feb. 15 message to shareholders, the Secaucus-based children’s apparel retailer said the firm plans to nominate 11 people to the board at the company’s annual shareholder meeting.

“The company intends to accept Mithaq’s request to enter into discussions regarding the provision of financing to assist with the Company’s liquidity needs. Any such financing would be subject to, among other things, lender approval and compliance with applicable law,” The Children’s Place said.

Since the unsolicited acquisition of shares triggered a change in control and automatically put the business into default on existing credit agreements, The Children’s Place said it is in talks with lenders for a waiver.

Buying blitz

Mithaq Capital – a Saudi family investment firm with ties to the world’s biggest Islamic bank – has about $200 million worth of reported holdings of public stocks, including a British litigation-finance firm, an Israeli data-intelligence firm, a Chinese tour-guide company, an Australian goat-milk producer and an advertising-technology company that just delisted from Nasdaq, Semafor reported.

For The Children’s Place, Mithaq spent least $80 million over the course of three trading sessions after The Children’s Place’s Feb. 9 announcement it was experiencing liquidity problems, according to the publication.

Semafor also noted that the firm’s buying spree was “an unheard-of blitz for even the most aggressive of hostile bidders and corporate agitators.”

Announcing a wider-than-expected loss for fourth quarter 2023, The Children’s Place said it is working with advisors and lenders to obtain new financing to keep operations going. It also said it is considering “strategic alternatives” in case it can’t shore up support.

The Children’s Place’s brand portfolio includes Gymboree, Sugar & Jade and PJ Place.

Expectations

The company now projects quarterly sales of $454 million to $456 million, down from prior guidance of $460 million to $465 million. Adjusted operating loss for the quarter is expected to be higher than anticipated – in the range of 9% to 8% of net sales, where prior guidance called for between 2% to 3% of net sales.

Total liquidity is expected to be about $45 million – a combination of $13 million in cash and cash equivalents plus $32 million in excess availability under a credit facility. Total debt is expected to shrink by more than $100 million from the previous quarter. For the year, it sits at about $277 million compared to $408 million the year before.

“The adjusted operating loss reflects the impact of lower-than-expected merchandise margin resulting from more aggressive promotions in an effort to maximize sales, higher than anticipated split shipments to meet customer e-commerce demand, and increased inventory valuation adjustments,” The Children’s Place said.

The company also expects to end its fiscal year in a clean inventory position, with inventory expected to be down 16% to 20% from the prior year.

The revised projections are from The Children’s Place preliminary unaudited Q4 results, with an official earnings report expected March 14.

Omnichannel optimizations

For the past decade, the retailer has worked to shift from a traditional store concept into a digital-first business, spending $50 million to upgrade omnichannel capabilities. As part of its fleet optimization strategy, The Children’s Place permanently closed more than 700 stores, leaving it with roughly 500 locations in the U.S., Canada and Puerto Rico.

Over the past year, the company has let go 181 employers. The majority worked at its corporate offices.

The Children Place also said it will end the lease for its headquarters in Secaucus early to “capitalize on the prevailing tenant-favorable market conditions.” It is unclear what the company’s plans are for after it leaves the Hudson County property in May 2024.

In a Feb. 15 statement, The Children’s Place reiterated that its board and leadership remain “committed to acting in the best interests of all shareholders” and that for now shareholders themselves are not required to take any action.

Editor’s note: This story was updated at 4:14 p.m. ET Feb. 16, 2024, to correct the amount Mithaq spent over the over the course of three trading sessions to $80 million.