Good morning and welcome to The Children's Place Third Quarter 2018 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; and Mike Scarpa, Chief Operating Officer and Chief Financial Officer. The Children's Place issued its third quarter 2018 earnings press release earlier this morning, and the copy of the release and presentation material for today's call have been posted on the Investor Relations section of the company's website. After the speakers’ remarks there will be a question and answer session. [Operator Instructions]. 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, including the Risk Factors section of the company's annual report on Form 10-K for its most recent fiscal year. 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 for 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. And now, I would like to turn the call over to Jane Elfers.

Thank you, Laurie, and good morning, everybody. After briefly reviewing Q3 highlights, I will focus my remarks on our progress with respect to our accelerated digital transformation initiative with the goal of gaining additional market share. I will detail the significant upside that we expect customer personalization will deliver over both those short and long-term, including an update on the value of acquiring, retaining, and engaging customers. I will also discuss the opportunity we have to continue to accelerate market share gains in both the short and long-term as we continue to see consolidation in the retail sector. I will then hand it over to Mike who will discuss progress on our alternate channels of distribution and fleet optimization initiatives, as well as share our strategies with respect to some of the current headwinds facing the retail industry. Mike will also cover our Q3 results in detail and provide our forward outlook before passing it back for closing comments. Following our prepared remarks, we will open it up for your questions. Q3 highlights, EPS was at the high end of our guided range for the quarter. Our top-line momentum continued and we delivered an industry leading positive 9.5% comp, on top of a positive 5.1% comp last year. Our strong results were driven by 38% increase in our digital sales, which represented 29% of our net sales in the quarter. Margin results were impacted by another quarter of record setting e-commerce growth and our strategic focus on additional market share gains. As we reiterated in the beginning of the year, there are significant market share opportunities as the competitive landscape continues to shrink and we intend to stay focused on aggressively pursuing them. Even with our focus on market share gains and our significant investment in our digital transformation strategy…

Thank you, Jane, and good morning, everyone. Today I will provide an update on our China and Amazon growth initiatives update you on our fleet optimization strategy and provide our insight into how the news on tariffs and labor impacts The Children's Place before moving on to our financial results. China, our china growth strategy through our strategic partnership with Semir is progressing well and we remain excited about the open runway for growth in this key strategic market. We opened two stores in Shanghai in the third quarter and have three additional openings planned for the remainder of 2018. On Tmall, we transitioned our Tmall flagship store to Semir at the end of July and Semir has expanded the assortment of product available on the site over the past few months. We are also working closely with Semir on localizing the product assortment, which is critical to success in China. Several of the styles our design teams have collaborated on are already top sellers in the market. We continue to anticipate that our partnership will result in approximately 300 points of distribution and generate between $125 million and $150 million in retail sales by year five. Amazon, we continue to see nice increases in our Amazon business with third quarter sales up nearly 40% versus last year’s comparable period. This growth is off a low base, but we thought we’d offer a window into the trend in the business for those trying to understand the health of the relationship. As discussed before replenishment has been a big driver of sales growth on Amazon as we continue to increase our product offerings on the platform. So all is positive on the Amazon front. Fleet optimization, we have over 1,000 lease events occurring over the next three years, which provides us…

Thanks, Mike. Our results show that we are clearly separating ourselves from the competition, many of which are lacking a strategy and/or struggling to make the investments necessary to compete in an omni-channel world. Almost a decade ago we made the strategic decision to diversify manufacturing away from China, while others chose to stay. Six years ago, we made the decision to launch a fleet optimization initiative and close underperforming stores and renegotiate the balance of our portfolio, while others focused on opening stores. Years ago we pursued a partnership with Amazon, while others chose to compete and this year we took two more bold strategic steps knowing that the returns of both will be measured in quarters and years not months. First, we accelerated $50 million of incremental digital transformation spend, with the goal of gaining additional market share through personalization. Second, we strategically invested in margins to take market share from struggling competitors and to build our customer database. A customer loss today is a customer gained across the street and if we have the strategy to secure that customer today it will make it very difficult to do business across the streets in the years ahead. We are managing our business for sustained growth and we are very proud of what we’ve accomplished over the past several years. We hope our commentary helps dimensionalize the opportunity that lays ahead following our strategic margins and incremental SG&A investments in 2018. Our strategy is firmly in place, with a more efficient and agile management structure as we transform to a next generation omni-channel retailer. With most of the heavy lifting behind us we’re excited about the opportunity ahead and look forward to updating you on our progress in early 2019. At this point we’ll open up the call to your questions.

Thank you. [Operator Instructions] Your first question comes from the line of Susan Anderson of B. Riley FBR.

Hi, good morning. Thanks for taking my call, nice job on the quarter, again. And I was wondering if maybe you can give some more color on the gross margin, just kind of the bigger driver – was it -- was the lower gross margin the bigger driver from the shift to e-commerce or was it more promoting to gain market share? And then, I guess, on the impact from the ship from store, is it something that maybe you can reduce going forward as you become more efficient or is this going to be an ongoing pressure point? And then, I think, you mentioned some longer-term impacts on this supply chain, maybe if you could give some more color on what those changes would be and the positive or negative impacts? Thanks.

Good morning, Susan, its Mike.

Hi, Mike.

Let’s start with gross margins. As we’ve discussed in the past, we’re thinking more in terms of operating margin than gross margin, especially as our business continues to transform to omni-channel. During the quarter and -- during the last two years, three years, we’ve seen rapid growth of our digital penetration, and thus our gross margins and SG&A comparisons become less relevant. But that all being said, we did report a gross margin decline of about 220 basis points in the quarter. Our e-comm sales grew 38% on a total sales increase of 6.6%, so you can see that penetration grew to almost 29% of sales, up 650 basis points. That accounted for a little more than half of the deleverage in the quarter. When we look at the -- when we talk about aggressively going and competing for market share, that accounted for a little slightly less than half the amount. As I looked at all the fixed costs that are part of the gross margins, the fulfillment costs, the occupancy costs, the new revenue recognition rules and inventory capitalization costs, they basically netted out to zero. So, the two big impacts were penetration more than one half and competing for market share slightly less than half. When we look at ship from store, obviously we weren’t planning to do this amount. So from an efficiency perspective, we have -- we’re still learning. When we look at the pressure points where we will be utilizing ship from store, it’s really around the back-to-school period and the holiday period where our DC runs into some capacity issues. So overall, we're still learning a lot. We anticipate that we're going to drive efficiency through it, and obviously this was a little bit of a good news and a surprise thus in…

Your next question comes from the line of Dana Telsey of Telsey Advisory Group.

Good morning, everyone. Jane, as you look at the opportunity to gain share in this once in a -- who knows however time opportunity, how do you look at the promotional cadence going forward? How do you see the opportunity to enhance brick-and-mortar and digital sales? Will this -- will the store closings of competitors, does that acceleration allow you to gain exponential sales? How do you see the timeframe of this? And lastly, is it the older kids business, where you see the greater share opportunities, younger kids, how do you think about it? Thank you.

Sure, thanks, Dana. Well, as we said in the prepared remarks, we consider market share -- we think there is a fundamental shift obviously going on in the kids wear space right now. And we don't see market share as one competitor and one and done or two competitors. We see this as we said is an annuity that’s going to continue for some time to come. There is different ways that we look about it. Obviously, our digital business is increasing pretty dramatically, we expect to be at a mid-30s penetration, and our mom is a millennial customer and really focused on digital. So, there are lot of opportunities to go after that market share through the digital transformation that we're working on. And as – if you listen to some of the statistics that we gave out in the script, you can see we're surging with private label credit card applications online, our file is up 5%, but I think we mentioned in digital was up 22%. Our conversion is up, our visits are up, our traffic is up, and obviously, Mike just went through what we're needing to do with the ship from store. So, we have good strategies in place to acquire share and to increase our files through digital efforts, but certainly on the brick-and-mortar side, there’s a lot of opportunity as well. 60% of our business still comes from malls, and as we detailed on previous calls, most of those stores we're in are -- about 90% of them are in thriving fully tenanted A and B malls. So we have a lot of competitors that are struggling in those malls be they department stores or be they obviously, the recent news around specialty stores. Not every competitor is created equally, but there is…

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

Good morning. Thank you for taking my question. Jane, one of my questions is on the inventory portion of it. If you're planning inventory to be kind of flat to slightly up and you were out of stock sort of on the online piece of the business. Is that a fourth quarter specific issue how far does that carry into 2019? And then for Mike, just on the merch margins piece of it, it sounds like 100 basis points or so on merch margin, how is that so different from the beginning of quarter expectations? And then, obviously, the fourth quarter is going to be significantly more than that, so could we expect that to be twice as much as that or just any color on that would be super helpful. Thank you very much.

Sure. On the out of stock position we as Mike detailed have several styles and categories that we have out of stock on e-comm due to the business that we've had in the back half. What we think that that will do is certainly play itself out through the month of December and January, which is assumed in our outlook. And then the character of the business shifts pretty significantly once you get out of January, particularly online to much more spring forward goods. So I think that we're not going to see the same situation as we go into the spring with out of stock on e-commerce we're seeing now. But certainly knowing we have this capability for the stores to chip in and help us they need to is good for us to know, but we anticipate that the out of stocks will really be a fourth quarter issue. We're in good shape for next back-to-school, so we don't anticipate that happening then. And I would say, on the good news front I think that the way we're looking at this is that this should help get our inventories in even better shape than we had assumed at the end of Q4 and it would probably help us with carry over and we're looking at it as a positive and as a tailwind potentially to Q1, with gross margin being able to liquidate some of these goods to our stores now.

And then Adrian, when I look at how we originally guided compared to the actual results for 3Q, obviously the 9.5 comp being driven by the penetration of e-comm had the biggest impact in terms of where we expected to be from a margin perspective compared to where we ended to be. So that's from a penetration perspective. And then obviously some of the DC and fulfillment costs associated with that also had an impact. As I look forward to 4Q that we're not specifically guiding for gross margins, obviously, we're going to see more of the same as indicated in terms of penetration levels. We indicated that November that our e-comm business was had a fantastic holiday extended weekend and it was up in the high-teens. So that continues to drive penetration and will have an impact on the overall margin. Obviously the distribution costs associated with ship from store will have an impact also to a greater extent than anything that we did in Q3. And then obviously, we are expecting that the promotional and discounting cadence is going to pick up based on the recent announcement by Gymboree. So it's all factored into our guidance, and so I would anticipate that margins may be a little worse overall than what we have done over the past three quarters.

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

Good morning, everybody. Hi, a couple of questions. Jane, if you could just talk a little bit about the competitive trend, I know Gymboree -- or the competitive pressures that you’re talking about I know Gymboree is in a tough spot and they’re going to become more promotional. So like what are you seeing from the discounters are you feeling more pricing pressure from Kohl’s [ph] or maybe et cetera, maybe you could talk a little bit about that for me. And it sounds like you had a great Black Friday on the digital side, do you think that -- well maybe you can just give us an idea of what happened on the brick-and-mortar side? And lastly, we’ve talked a lot in the past about if the digital penetration became greater than expected, which clearly it is. If you would consider adding to your store closure objective. So I wondered if you could talk about that as well. Thank you.

Sure, as far as the competitive pressures, you mentioned off prices we don’t really see that as competitive pressure for us based on the complexion of their goods. We don’t really feel it from Kohl’s either as well, I think that it’s more from the specialty players certainly with the issues that Gymboree has those are pretty clear. And then some of the other people that compete with us in the kids space have elevated inventories. And it appears that their competitive posture may have ramped up in the month of November and continues to do so in the month of December. So we don’t see the promotional environment abating at all if anything as we’ve detailed on this call and in the prepared remarks, we think that it’s going to ramp up pretty significantly in Q4, particularly with the liquidation events. In normal course it is a promotional environment that we live in and we will continue to approach it as the highly promotional segment that it is. I think that when you think about Children's Place, we’ve got some really important levers available to us, particularly design source and capabilities. And then as Mike mentioned, with our AUCs lower in the first half of the year, I think we have some strong levers to help us continue to outperform the competition and kind of optimize our promotional cadence. From a Black Friday point of view, we had detailed that we ended the month of November up low-single-digits we had obviously stronger performance online than we did in the stores with high-teens performance online. The stores are pretty much in line with the trend for the rest of the month. And then as far as store closures around digital penetration, I’ll hand that over to Mike, but I think for right now we feel pretty good about the number of store closures we have online.

Yes, as I said, we expect to close about 45 doors this year, which brings us to 214 closures against the 300 target through 2020. We’ve indicated in the past that we’re going to use 2018 and assess the impact of our accelerated digital transformation on the number of store closures. Obviously the new news yesterday with Gymboree Corp. of the 86 stores that we have remaining to hit our 300 target, 32 overlap with them and 6 of the 32 are co-located with a Crazy 8 store. So we’ll assess all of this over the next month or so and we’ll get back to you in March during our Q4 call in terms of any updated targets.

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

Good morning, thanks for taking my questions. First, in terms of the overall sales impact from the low inventory online are you going to be able to fulfill all that demand from your stores, or is the net sale a drag on your overall sales in fourth quarter? And then, Jane, you talked about how customers progress through tears, how long does it take for a new customer to mature? Thanks.

Our sense from the sales perspective is that roughly half of what we’re fulfilling from ship from store are due to low levels of inventory from an e-comm perspective or stock outs from an e-comm inventory perspective. So we anticipate that we may run out of some seasonal goods at closer to Christmas in terms of like Christmas Pajamas, et cetera. But we don't think it's going to be a big overall impact in terms of the sales levels.

Yes, I would reiterate though I think it could be a positive in Q1 on the margin side, but I do agree with Mike, there are some seasonal categories that are in high demand when you get to the last couple weeks of the -- last couple weeks before Christmas in stores. And there are also high demand goods online. Obviously the online business shuts down before the store business does. So there could be some pockets there. But overall it’s a small percent of the total units we sell. As far as how long it take the customer to mature, there's a lot of different path that the customer takes, but I would say on average it's a two to three year timeframe.

We have time for one more question. Our final question will come from the line of Marni Shapiro of The Retail Tracker.

Hey, guys congratulations and best of luck on a really -- looks like it's going to be a fantastic holiday season. Could you just dive in a little bit to your international business? I'm curious as you grow internationally are you shipping from the U.S. internationally? Will you plan to -- are your partners running the websites locally, are you running them? What is their penetration look like online? If you could just bring us up to speed there, I'm curious if you're seeing the same trends globally as you continue to expand that part the business.

Marni, this is Mike. Obviously from an efficiency perspective, we're not shipping; we ship very few goods from the U.S. to our international partners. We have dropped ship capabilities where they pick up from a third-party logistics provider that we utilize. So I'd say, look, 1% of the shipments are being made from the U.S. As we look at e-commerce, obviously we see China and India as the big opportunities. China especially we’re early innings with Semir and they've just really taken over our Tmall site in the month of July. So, much more to come on that. But obviously they view that as a big opportunity. They're the number one children's brand on Tmall today. So they know the potential of e-commerce in China. And overall, we're just really pleased with the progress that we've made in international over 200 points of distribution in 20 countries, 8 franchise partners. So we're feeling good about the business and its contribution to the overall corporation. Thank you.

Thank you. I'll now turn the call over to Anthony Attardo for closing remarks.

I’d like to thank you all for listening to the call. I'm here for follow-up question, happy to help. Wish you all a happy and healthy holiday season. Thank you.

Thank you for joining us today. If you have further questions please call Investor Relations at 201-453-6693. You may now disconnect your lines, and have a wonderful day.