Good morning and welcome to The Children’s Place Fourth Quarter and Fiscal Year End 2016 Conference Call. I will now turn the call over to Mr. Bob Vill, Group Vice President, Finance. [Operator Instructions]

Thank you for joining us this morning. With me here today are Jane Elfers, President and Chief Executive Officer; Mike Scarpa, Chief Operating Officer; and Anurup Pruthi, Chief Financial Officer. A copy of our press release can be found on our website. Before we begin, I would like to remind participants that any forward-looking statements made today are subject to the Safe Harbor statement found in this morning’s press release as well as in the company’s SEC filings. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. The company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date hereof. In addition, to find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning’s earnings release and to our SEC filings that can be found on our Investor Relations site. After the prepared remarks, we will open the call to questions. We ask that each of you limit yourself to one question so that everyone will have an opportunity. I will now turn the call over to Jane Elfers.

Thank you, Bob and good morning everybody. We had a very strong finish to Q4 and we delivered outstanding results for full year 2016. I want to thank all our associates for their hard work and their terrific results in 2016. I will start by reviewing our financial highlights, then move into an overview of our significant strategic accomplishments. Starting with the fourth quarter, we delivered adjusted diluted EPS of $1.88, a 58% increase versus last year and $0.30 above the high-end of our guidance. Comparable retail sales increased 6.9%. U.S. comp sales increased 7.7%. Canada comp sales were flat. All key comp metrics were positive for the quarter, AUR, conversion, UPT and ADS. Traffic trends in our stores improved versus our Q3 and year-to-date trends. Adjusted gross margin increased 50 basis points versus last year. SG&A leveraged 220 basis points compared to last year. Inventory was up 6.5% compared to last year in line with our guidance, primarily due to higher in-transit inventory due to the timing of Chinese New Year. And we returned $43 million to shareholders in Q4 through share repurchases and dividend payments. Moving on to full year 2016 financial results, we delivered adjusted diluted EPS of $5.43, a 51% increase versus last year. Comparable retail sales increased 4.9% versus last year. We comped positive in every channel. U.S. comp sales increased 4.9% versus last year. Canada comp sales increased 5.1% versus last year. All key comp metrics were positive, AUR, conversion, UPT and ADS. Adjusted gross margin increased 140 basis points versus last year. Adjusted SG&A leveraged by 80 basis points compared to last year. Adjusted operating income was $152 million or 8.5% versus $111 million or 6.4% last year, a record for The Children’s Place. We returned $166 million or 83% of our operating…

Thank you, Jane. Based on our digitally savvy mobile mom and more importantly, our strong connection to our NexGen customers, we anticipated several years ago that our digital sales would grow at a very rapid pace. Since then, we have seen a significant sales shift from our brick-and-mortar channels to our digital channels. Currently, 22% of our customers are either omni-channel or e-commerce only transactors, representing 32% of our net sales. These are significant percentages, but much more opportunity remains in terms of what we believe our digital channels will represent to our total sales in the not-so-distant future. We know that our digital customers spend significantly more than our non-digital customers. And our e-commerce channel is our fastest growing, highest margin business, representing almost 20% of our total sales in 2016. So, it is imperative that we continue to focus on delivering a more seamless customer experience in order to sustain the brand’s momentum. When we first launched our fleet optimization program, our priority was to close unprofitable stores and because of this focus, we now have only a few unprofitable stores remaining in our portfolio. In light of our significant digital opportunity, we have broadened our fleet optimization initiative to focus on optimizing total enterprise profitability. It is important to understand that at its core, our fleet optimization initiative is about optimizing our customer reach and our profitability in an omni-channel world. Since our fleet optimization initiative was announced in 2013, we have closed 142 stores. Today, we are extending our store optimization program from a target of 200 closures by the end of 2017 to a minimum of 300 closures by 2020. Our fleet rationalization initiative will ultimately result in a decrease in total fleet square footage of over 100 million – 1 million, excuse me, square…

Thank you, Mike. Good morning, everyone. In the fourth quarter, we delivered adjusted diluted earnings per share of $1.88 compared to $1.19 per diluted share in the fourth quarter last year significantly above the high-end of our guidance range. There was no impact on adjusted net income per diluted share in the quarter from currency exchange rate fluctuations. Details for the fourth quarter are as follows; net sales increased 4.5% to $520.8 million, comparable retail sales increased 6.9% on top of a positive 6.7% comp in the fourth quarter of 2015. Adjusted gross margin for the quarter leveraged 50 basis points versus last year to 36.1%. We benefited from a strong merchandise margin increase and higher AUR with fixed cost leverage resulting from the strong comparable retail sales. Strong product acceptance and our new inventory management tools have now generated eight consecutive quarters of increases in merchandise margin and AUR. Adjusted SG&A leveraged 220 basis points compared to last year to 23.3%. The leverage was primarily due to decreases in-store and incentive compensation expenses and the impact of the higher comparable retail sales. Depreciation was $16.8 million for the quarter. Adjusted operating income leveraged 290 basis points to 9.6% of net sales. Our adjusted tax rate for the quarter was 30.7% compared to 27.9% in fiscal 2015. Moving on to the balance sheet, our cash and short-term investments have ended the quarter with $243 million compared to $228 million last year. We ended the quarter with $15 million outstanding on our revolver. We had no revolver borrowings at year end 2015. Balance sheet inventory, inventory at the end of the quarter was up 6.5% due to the timing of floor sets and in-transit inventory, in line with our guidance. We generated $199 million in cash flow from operating activities in…

[Operator Instructions] Your first question comes from the line of Susan Anderson with FBR Capital Markets.

Another very nice quarter, good job. I was going to maybe drill down a little more on gross margin going forward, I guess maybe if you could talk about kind of the puts and takes of the drivers again it sounds like AUC will be favorable, do you still expect some AUR and then also occupancy and is one going to be a bigger driver than the other? And then maybe if you could you just also touch on the promotional environment, I know it’s always pretty tough out there, we have been hearing from some other retailers that it’s king of gotten worse just given the weaker mall traffic, people has been promoting more kind of drive traffic back into the store? Thanks.

Sure, I will start with the promotional environment. I think if you look at our two consecutive years of positive comps, margin expansion and our AUR increases, I think from The Children’s Place perspective, we are in an increasingly strong position. With respect to product acceptance and inventory management, we have a very well-controlled promotional cadence and have for the last several quarters. And I think significantly important is that this is all in the face of negative traffic trends, as you mentioned. If you look back at our Q4 promotions, I think they were orderly and well planned, but I think what we are seeing from some of our competitions, which I mentioned in my prepared remarks is really what become chronic product issues and chronic product misses and they seem to consistently lead them to pull down estimates and take incrementally deeper discounts year-over-year. I think that as I look back at what happened to us over the past may be four to six quarters, it just appears that even though they continue to take those markdowns and become more promotional, with the improvements that we have made in our product and the improvements that we have made in our inventory management and particularly in our ability to allocate so much better than we used to be able to, it appears that their promotional activity is having less and less of an impact in our business. I think our business just continues to strengthen each quarter and the customers really searching out our product. So it’s just I think a little bit of an interesting twist on what’s really happening. I think we are becoming, I wouldn’t say immune, but we are really in a much a stronger position when they go promotional on products.

It’s Anurup, Susan. I would just – on your gross margin question, I would start with operating margin. And as you know, our guidance for 2017 is a 9% to a 9.2% operating margin, about 260 basis points to 280 basis points increase from just 2 years ago. So we have made tremendous progress and are very gratified by our results. And as you have seen, we ended the year with a 4.9 comp and Q4 with a very strong comp of 6.9 on top of the 6.7 last year. As far as the outlook for gross margin goes into ‘17, we do see full year 2017 continuing to benefit from AUR, very strong product acceptance. And as Jane mentioned in her prepared remarks, AUC continues to be a tailwind for The Children’s Place. Thanks in part to our diversified country sourcing strategy and experience of our sourcing teams. So we believe those fundamentals will continue to drive our gross margin forward. And our guidance is obviously, net of planned dilution from our channel expansion initiatives.

Your next question comes from the line of Stephen Albert with Bank of America/Merrill Lynch.

Good morning. I was hoping you could maybe talk a little bit more about some of the comp metrics that you saw during fourth quarter, at least qualitatively, I think you had mentioned previously your traffic was down, but actually saw a sequential improvement over the holiday period, which is very contrary to some of the other retailers out there. And then I guess also if you could remind us what your current recapture rate is for the stores that you have closed to-date and if my math is correct, it sounds like you are going to see – you are seeing about one-third higher margin accretion per store closure than your previous outlook?

Yes. Stephen, it’s Anurup, I will take the first part. So in Q4, it is – we did see an improvement in our store traffic trends versus Q3 and year-to-date through Q3. All of our key retail selling metrics were positive. We comped positive in every month of the quarter. So very, very pleased with our overall performance consistently throughout the quarter. And as you know, we have – it resulted in a very strong comp of 6.9%. And Mike will take the second part.

From a recapture perspective on the stores that were closed and we continue to see in excess of 20% recapture rates, so it’s continuing to be a very objective program for us.

Your next question comes from the line of Kelly Halsor with Buckingham Research.

Thanks for taking my questions. I just wanted to dig a little bit in to SG&A some more, in terms of the fourth quarter, it was a nice surprise to see where it ends up, could you just elaborate on the puts and takes there and also as you think next year, what’s really driving the expense control that you have been seeing and is there any kind of lumpiness that we should be thinking about quarter-to-quarter? Thanks.

Yes. Kelly, from an overall SG&A perspective, in terms of Q4, primarily driven by lower store and incentive compensation expenses versus last year, which we have documented in the past. Obviously, the very strong comp of 6.9% also helped in terms of leveraging SG&A. And I think just overall, our disciplined expense control and we continue to make investments in our transformation initiatives. And surely, part of the culture here in TCP and in terms of driving efficiencies and continued SG&A management. As we look into 2017, as you would tell from our guidance, we continue to expect strong control over SG&A. We obviously have a significant transformation roadmap to achieve in the areas of inventory, customer marketing and digital that Jane spelled out. So in spite of all of that, we do continue to expect to manage SG&A in a very controlled manner.

Your next question comes from the line of Betty Chen with Mizuho Securities.

Congratulations on a great execution in a tough environment.

Thank you.

Hi Jane. I was wondering if you can talk a little bit more about the wholesale opportunity, it seems like obviously you pointed out Amazon, the relationship with Amazon has grown and remains very important, I think the last time we spoke, you mentioned the program has expanded to may be about 300 styles, not sure if that’s correct or where we are today and where do you see may be the future opportunity there, along with some of your other wholesale partners, off-price and discounters. And then my second question was regarding the ROPIS attachment rate, very impressive, I think three to one is what you mentioned, how – I guess how should you think about – how should we think about the opportunity to kind of increase that penetration and what do you see them sort of picking up once they are sort of in the store, just curious about that? Thanks.

So from a wholesale perspective Betty, obviously we are pleased with the progress that we have made in this channel of distribution, although it’s still relatively a small business. We have a lot of confidence that the product that we offer to our partners and the economics that we offer will continue to drive growth in this channel. We have had to make significant technology investments over the last 2 years to be in a position where we can begin to effectively interact with our partners and grow these businesses. And we are pretty much complete with what we need to do from that perspective. With Amazon, we have expanded the replenishment program from what was about 300 SKUs in July and were over 2,400 SKUs at year end. And all this in addition to the fashion wholesale business that we continue to do with them. And we are pretty pleased with the overall performance and in 2016 we actually achieved platinum vendor status with them, so pretty happy with that. From a club and off-price brick-and-mortar channel perspective, we continue to grow those businesses by adding additional categories and by adding depth in the categories that these customers have already bought. And just to remind you that wholesale is accretive to the overall operating margin. So as this business continues to grow, we will see operating margin expansion.

And as far as ROPIS is concerned, we are, as you said, really excited about what that attachment rate is and what it can be. From what the customer is buying, we are not seeing anything different than what we are seeing from our normal customer. So our key categories are pretty much in line with what they are picking up when they come in.

Your next question comes from the line of Adrienne Yih with Wolfe Research.

Good morning. Let me add my congratulations on the fourth quarter, but as well as on the current quarter.

Thank you.

You’re welcome. Jane, I want to ask you about the size 16 extension, you talked about, I think you decided potentially $50 million opportunity, I was wondering is that in all the stores, fully rolled out, how are you educating the customers that it is now available and over what time period could that happen. Mike, on the operating margin, you are quickly moving to your 10% milestone, what’s the kind of the next milestone for the OM. And then quickly for Anurup, the markdown optimization, what is the – it seem like it was to be rolled out more aggressively in the fourth quarter, I am wondering if some of that benefit kind of rolled forward into fiscal ‘17 and if you can talk about the kind of longer term impact of MDO? Thank you very much.

Sure. Okay. On size 16, what we did was we had that on e-comm in 2015 and it was smashing success, so we had the confidence to roll it out in 2016, fall of 2016 and we have rolled it out to all our brick-and-mortar doors, so it exists in every brick-and-mortar door we have the U.S., as well as Canada. And it’s in every style we carry in big boy and big girl. The way we educated the customer is that we have in-store signing and we also have signing on the outside of our stores that love our place a little longer. And then we also started to tease in on e-comm as soon as it was on, but to tease that it would be in the stores starting a month or so before we did it. We also have, you can see in our website, we just fill it out. And we also have from our customer segmentation efforts, we know which customers buy 14 and only buy 14, so we are in the process of reaching out to those customers who are in danger of dropping off because they can no longer think that they have the size and reach out to those specific customers to get them to understand we still have size 16.

From an operating margin perspective, we have guided this morning at 9% to 9.2%. As Anurup mentioned, that’s 260 basis points to 280 basis point increase from just 2 years ago. So we are quite pleased with the progress overall. And we have called the 10% operating margin a milestone now as opposed to a goal. So obviously, we think that there is opportunities to go above 10%, but at this point we are not ready to put a timeframe on it.

As far as MDO goes, Adrienne, when we – we have always had a very carefully sequenced and prioritized rollout of our inventory management tools. It really made sense for us to implement MDO once order planning and forecasting size and pack, tiering along with our core tools of assortment planning and allocation and replenishment were in place. So when we look at it from a sequencing perspective, it’s pretty exciting in the sense that the MDO isn’t even turned on, yet we are piloting it for sure, but it’s not turned on yet. But it made much more sense to sequence it accordingly. And we will spell out that the timing as we get near to eventually launching MDO.

Your next question comes from the line of Janet Kloppenburg with JJK Research.

Good morning everyone, congratulations. I was wondering if you could talk about a few things. First, what inning are we in on these IT upgrades and the impact on the operating margin for the company, in other words, could you get us much in ‘18 and ‘19 as you are getting – as you got in ‘16 and you are getting in ‘17? I am not sure where we are there. Also Mike, we are hearing a lot from other companies that the digital channel is growing faster than expected, but that it’s putting some logistical expense pressures on the companies that perhaps didn’t expect this level of e-comm growth. So perhaps you could talk about the operating margin outlook there. I know its premium to the brick-and-mortar, but is that level of margin diminishing? Just two more quick questions, just why Canada flattened out and what the outlook is there? And given the new systems in place, why you would expect inventory to be up high single-digits at the end of the first quarter. I know it’s an investment in basics, but I would have thought given all of the improvements that you have put in place that you could have flowed those on a more timely basis? Thank you.

Jan, it’s Anurup. I will take the last one first. As far as Q1 inventory goes, as you referred to, it’s about our order planning and forecasting tool highlighting to us opportunity in terms of recouping lost sales for the back-to-school period. I would tell you that the overall picture is that our unit buys are going to be down low single-digits for the first half of the year and our unit buys for the second half of the year are projected to be down mid single-digits. So, we are not – inventory is in excellent condition, but this was an opportunity for us to get back into lost sales. Also please bear in mind, we have long lead times in terms of where the product is sourced from, some of it is in Asia, some of it is from Africa, so significant lead times which have to be played into this as well. But overall, inventories are down low single in the first half, down mid single in the second half.

And Janet, I will tell you on Canada, we had a flat comp. We are up against a 13% comp in Q4 of 2015. But when I look back in hindsight, Canada I think part of the issue was that they are probably worth 2 to 3 points of comp was when we pulled back the outerwear business in the United States, which was the appropriate move for the United States and worked very well for us during Q4. I think we probably shouldn’t have done it to the same degree that we did it in Canada and I think we lost some pretty significant volume in Q4 in outerwear, so we will adjust that in Q4 of next year.

And from an IT initiatives perspective in our transformation, we still consider that we are in the early innings. When you look at the fact that our assortment planning tool and replenishment and allocation tool just started with back-to-school in 2015 it was phased in and we have these – all these new initiatives that will take place in 2017 around flow of inventory, tiering, size and pack and the order planning and forecasting and then the fact that MDO is not even rolled out yet. We are still in the early innings when it comes to inventory management. And from a digital perspective, we are just starting to put in new architecture and capabilities and beginning that customer journey, so still early innings. When we look at your question around the pressure on logistics cost as e-commerce continues to grow, obviously we see from a pure dollar perspective that continuing to increase in our P&L. That is somewhat offset from a gross margin perspective by us continuing to implement our store fleet optimization program. So, those two things go hand-in-hand, hence the fact that we announced today that we will be closing a minimum of 300 doors as we see the consumer shift toward that e-commerce and omni-channel world. And as we continue to shut doors, obviously from an SG&A perspective, we should see the benefit on that line as we continue to reduce our store expenses as it relates to payroll, etcetera.

Your next question comes from the line of Marni Shapiro with The Retail Tracker.

Hey, everybody. Congratulations. The stores look fantastic. So, I have two quick extended size questions. The first is you have online and a little bit in stores – I want to call it real bra, but a little bralette and the panty business. I am curious as the girls size up a little bit, is there an opportunity to build that a little bit online and take a little of that business from the others that are doing it? And also the footwear online has been pretty spectacular, is there an opportunity to extend some of the sizes in footwear, maybe even just one size up to capture a little bit more there as well?

Thanks, Marni. We don’t like to talk about product a lot for competitive reasons, but I would tell you on both of your callouts, right on as usual, just stay tuned.

Your next question comes from the line of Anna Andreeva with Oppenheimer.

Great. Thanks so much. Good morning, guys and let me add my congrats as well.

Thank you.

I guess a couple of questions. Jane, maybe remind us about your market share currently in kids and baby space and where was it when you began this transformation? And just curious, some of the department stores and mass channel players are now growing their own private label lines, including in kids. Just any updated thoughts on that? And then secondly regarding the 3 million units in basics for back-to-school, any specific categories we should think of? Is this across all age groups? Just trying to quantify this incremental opportunity for 3Q? Thanks so much.

Yes, sure. Well, when we launched our order planning and forecasting tool, we found, as I said in my prepared remarks, really some jaw-dropping opportunity in sizes and washes and colors that we missed during back-to-school. The order planning and forecasting tool accounts for every basic SKU we have in the company. So, it goes all the way from newborn up to big kids and it also covers where we have basics and accessories like underwear and things like that. So, it does cover every single style. I will tell you that what we found, which would be probably intuitive was that a lot of the missing opportunity was in the big kids sizes, because we are speaking about the back-to-school time period. And a lot of it was in bottoms which you would imagine denims across washes and colors and sizes, but certainly, sizes skewed to the larger sizes, kind of commensurate with the back-to-school time period. And then we also saw things and tops, uniform pieces and things like that. So that would be the bulk of what we are seeing. But the tool like we said, it’s automated it actualizes every single month and we are really looking forward to continuing to have a much better view into our basics inventories as we continue to ‘17 into holiday. As far as our market share, our market share was in the mid to high 5s when I started. Our market share is still in the high 5s. There has been a tremendous amount of new entrants into the space, the tremendous amount of digital competition and as well you know significantly less work sense for 2008. So, our ability to grow our market share since I have come on in light of all the new entrants and the fact that we don’t have a growing number of customers, I think really speaks to the transformation efforts and how successful we have been in that.

Your final question comes from the line of Jim Chartier with Monness, Crespi, Hardt.

Good morning. Thanks for taking my questions. First, Mike it sounds like you have had some good growth in the private label credit card since that was reintroduced. Has the 20% growth been a steady build over the last 4 months and do you expect to continue growing? And then on the loyalty program, what kind of growth have you seen in loyalty members since the new program was introduced? And can you remind us what the average spend for private label and loyalty members are versus the average? And then for Anurup, on the stock-based compensation accounting change, the benefit you guys have talked about seems a little bit higher than what other people have discussed. Is that 29% tax rate a good number to use going forward or is the benefit in ‘17 greater than you might expect going forward? Thanks.

So, from a loyalty perspective, Jim, we currently have about little over 8 million members, something about 4% over last year, represents approximately 60% on the overall base of our customers and about 74% of our trackable customers spend. And the on the average, they spend 2x more than non-loyalty members. Just for 4Q, because we started the program in mid-October, our customer penetration is up about 400 basis points from last year and the sales associated with loyalty, it’s up about 500 basis points for last year, so pretty good progress there. And from a private label credit card perspective, the old penetration was roughly at 11%, well below an industry benchmark, which were putting at north of 20%. And we are happy so far with what we have seen in the fourth quarter, customer penetration was up over 300 basis points, over 14% of sales and the sales themselves were up 400 basis points. So, good news there. And then as Jane mentioned, almost 240,000 new accounts in the first 3.5 months that we have had this program in place, up 20%, so all positives and we look forward to a pretty good ‘17 with both those programs.

Jim, regarding the new accounting standard, the $0.45 that we talked about in our guidance this morning is might be little higher than what you have heard elsewhere, but that’s primarily probably due to the significant increase in our stock price over the last few years. I would just point out from a modeling perspective we expect this impact to be primarily in the first half of 2017 and we talked about $0.08 impact in Q1. So, the balance would be primarily in Q2 and the 29% tax rate that we guided to includes the benefit of this new accounting standard.

Thank you for joining us today. If you have further questions, please call Bob Vill at 201-453-6693. You may now disconnect.