With the help of online sales, Children’s Place Retail Stores (PLCE) revealed on Thursday a stronger-than-expected improvement in first-quarter profit, but said higher costs will likely weigh on its second-quarter results. 

The company, along with several of its peers, has been struggling under the rising cost of cotton and other raw materials. Before its margins started to rebound last quarter, the kid’s clothier had to discount heavily just to get rid of seasonal clothes. 

But the Secaucus, N.J.-based seller of children’s apparel and accessories rebounded last quarter, posting first-quarter net income of $29.1 million, or $1.11 a share, up from $27.9 million, or $1.01 a share, in the same quarter last year.

Excluding one-time items, the company earned $1.10 a share, ahead of average analyst estimates polled by Thomson Reuters of $1.05.

Revenue for the three months ended April 30 was $430.8 million up 2% from $422.1 million a year ago, narrowly missing the  Street’s view of $431.7 million. While improved, the sales fell short of expectations primarily due to a 2% drop in stores open more than a year.

“We grew net sales and earnings during the first quarter, and expanded merchandise margins as a result of improved merchandise assortments and disciplined inventory management,” Children’s Place CEO Jane Elfers said in a statement. “In spite of higher product costs, we expect gross margin will expand over the next couple of quarters and fiscal 2011 due to the progress being made on our key growth initiatives.”

For the current quarter, the retailer anticipates a loss of 38 cents to 43 cents a share, worse than current analyst estimates of a 29-cent loss. Children's Place raised its fiscal non-GAAP earnings outlook to a range of $3.10 to $3.25 from its earlier view of $3.05 to $3.25 a share. Wall Street is currently looking for earnings of $3.30.

During the quarter, Children’s Place repurchased 372,400 shares for $18.4 million, completing the $100 million buyback program announced in August. It also bought back $8.4 million shares as part of a new $100 million program authorized in March.

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