Good morning, and welcome to The Children's Place Fourth Quarter and Fiscal Full-Year 2021 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; and Rob Helm, Chief Financial Officer. At this time, all participants are in a listen-only mode. After the prepared remarks, we will open the call up to your questions. We ask that each of you limit yourself to one question, so that everyone will have an opportunity. As a reminder, this call is being recorded. The Children's Place issued its fourth quarter and fiscal full-year 2021 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted to the Investor Relations section of the company's website. Before we begin, I would like to remind everyone that any forward-looking statements made today are subject to the Safe Harbor statements found in this morning's press release as well as in the company's SEC's 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 revisions to these forward-looking statements to reflect events or circumstances after the date hereof. It is now my pleasure to turn the call over to Jane Elfers.

Thank you and good morning everyone. We delivered another outstanding quarter with gross margin, operating margin and EPS all at record levels. Since the onset of the pandemic, our accelerated structural reset to a digital first company has delivered impressive results. We delivered a 15.1% adjusted operating margin in 2021 versus 6% in 2019. We delivered a 41.6% gross margin, a 660 basis point improvement versus 35% in 2019. Our 2021 operating income was $289 million versus our full-year 2019 adjusted operating income of $111 million, a $178 million increase. We delivered a 2% net sales increase in 2021 versus 2019 despite having 256 or 28% fewer stores, and our EPS was $13.40 in 2021 versus $5.36 in 2019. I want to thank all of our associates for their hard work in delivering these industry-leading results, particularly with all the challenges we've faced in the last 24 months. Starting with digital. Our digital business has always been our highest operating margin contributor due to its high UPT, low single-digit return rates, and lower overhead costs versus our stores channel. And with the pandemic driven acceleration of our digital business, we continue to gain additional leverage on fixed overhead costs, and drive significantly higher digital margins. Our digital sales represented an industry-leading 48% of our Q4 sales versus 31% in Q4 2019, as we target a 50% annual digital penetration for full-year 2022. Importantly, supporting our accelerated digital penetration, our customer transfer rate further improved to an industry-leading 32% in full-year 2021 from 30% ending full-year 2020. As our digital business continues to grow on both the top and bottom line, we are making significant investments in marketing and technology to continue to support this growth. We're focused on investing in brand awareness, which continues to drive customer acquisition through our…

Thank you, Jane, and good morning everyone. After I review our Q4 results, I will provide some additional remarks with respect to 2022. In the fiscal fourth quarter, we delivered a record Q4 adjusted EPS of $3.02. Net sales increased by $35 million or 7% to $508 million versus last year's $473 million and decreased by 1% versus 2019. Our U.S. net sales increased by $29 million, or 7% to $440 million versus last year's $411 million, while our Canadian net sales increased by $10 million, or 29% to $47 million versus last year's $37 million. Comparable retail sales were a positive 13% versus Q4 2020. Our net sales were positively impacted by the strong customer response to our product assortment in our key holiday selling period of November and December, and significant increases in AUR in both our stores and digital channels due to the strategic reset of our pricing and promotions. Our net sales were negatively impacted by the impact of the surging Omicron variant in the month of January, which we estimate negatively impacted our sales by approximately $14 million for the quarter, and the impact of permanent store closures representing approximately $12 million for the quarter. Consolidated digital sales increased 11% in Q4 versus 2020, representing 48% of our total sales versus 2019 consolidated digital sales increased by 53% in Q4. Store net sales were $249 million for the quarter, which represents approximately 76% of our Q4 2019 store net sales. Despite having 256 or 28% fewer stores in Q4 2021 versus Q4 2019 as well as a high single-digit percentage reduction in operating hours versus 2019 as dictated by the mall landlords. Our store traffic significantly improved versus Q4 2020 driven by 25% higher calm traffic in the key holiday selling weeks in November and…

[Operator Instructions]. We'll take a question from Dana Telsey of Telsey Group. Your line is open.

Good morning, everyone. Thank you for giving all the information.

Hi, Dana.

Hi, thank you for giving all the information and the framework for 2022. As you think about this upcoming year, the brand marketing, what should we be watching for? Is there a difference in the cadence of the year of what you're looking at in the first half? I mean, Kardashians thing was very impactful in the fourth quarter, any new things like that planned? And on the AUCs that still, uncertainties and all the cotton costs and all, whether it's Gymboree, whether it's the new Sugar & Jade, does it impact one business more than another? And is there any difference in price increase that you're planning to take? Thank you.

Sure. I think, on the AUC impact across, we're a big user of cotton in all three brands. We've taken, obviously, Sugar & Jade is new, but we've taken pricing increases throughout the past year in TCP and in Gymboree. And as Rob outlined on the call, we are planning on mitigating, the full impact of the AUC increases with AUR increases in 2022. So I would say that, there really isn't one brand that sticks out. From a marketing strategy point of view, I think that's a little bit more of a complicated answer. I think, we've really have a big lever in marketing. We've done a lot of work on personalization over the last several years. But in the last, I'd say 18 months, last year-and-a-half, we've really been able to move to a much more strategic marketing lens on our business. We've gotten some significant, outside help on segmenting our file, and really understanding who our customer is. And so I think we really think about marketing from four pillars, if you will, the first one's really customer centric marketing. And like I said, we had an outside partner come in their name is Merkel, who really helped us there. And what they helped us really do is take audience profiles, they at least define exactly who our customers are, they took the consumer demographics, psychographics, attitudinal behavioral data all across multiple platforms, and all the touch points and really helped us journey map, and then create customer plans for acquisition, retention, and reactivation by channel and brand based on those journey maps. And then we align our specific marketing tactics against those journey map. So that is a really big change for us. And a really important change for us is to be able to get…

Perfect. One other quick follow-up, as you think about your sales opportunity, obviously, last year, we had stimulus, but we also had your share gainer from competitors that have gone away. Any way to unpack that opportunity go-forward, Jane, anything different you're seeing in the landscape out there in terms of your share opportunity?

Well, I think when you look at 2021, not accounting Sugar & Jade because we're waiting for the kind of clean information on that. And certainly, we just get retail information as everyone else does. So you can't really double count wholesale. So this doesn't have anything to do with the growth in the Amazon business. It's really the market share data is based on retail business. We were able to hold our market share flat in 2021 and we were one of the very few to do so as we had, kind of foreshadowed over the year, we knew that the "essential retailers" would be giving up some share this year, which they did, as the rest of the world was allowed to open back up. We were the only kids, pure kid's player that was able to hold share in 2021. And I think Dana, when you think about us being able to hold share in 2021 with all the issues we are up against with COVID. And the fact that we picked up 1,472 basis points in gross margins versus 2021 and 660 basis points versus 2019. I think it kind of gives us confidence that our pricing reset is sticky, and has staying power. So I think those statistics are pretty powerful.

We'll take our next question from Jim Chartier of Monness, Crespi & Hardt.

Good morning. Thanks for taking my questions.

Hey, Jim.

Hey, Jane. Could you talk about the promotional environment what you saw in fourth quarter, and then kind of how are you planning for 2022 and then for first quarter, how impactful is the return of Easter dressy business in first quarter after not really having that business for a couple of years? Thanks.

Sure. Yes, I think that from what we see in our competitor base, everything is really, kind of benign, very rationale, I think people are still having some issues getting product in. And so I think that we're going to see, continue to see a rationale promotional environment. I think we are firm believers that we can get more for our product. And I think some of our competitors feel the same way. So I think everyone's at least currently on the same page as to holding on to these price increases, and getting discipline around inventory management. So I see the promotional environment, relatively calm. From I know, you didn't ask this, but the Easter dress -- the Christmas dress up business was strong, and that should bode well for having a much stronger Easter dressy business this year than we did last year. But I will remind you, and we've said this many times before, we're pretty much the students of the Easter business in kids. Easter is not the greatest date for us, Easter 4/17 this year. And as we said, a lot of times, we don't love a late Easter. And the reason why is, with a late March or an early April Easter, you get mom to come in in March, whether the weather's favorable or not, she has to shop for Easter. And not only does she buy Easter dress up, but she starts to look at what's available to stock up for Spring at the same time. And then when the weather changes, which it usually does, at some point in April, you get a second chance to have mom back in the quarter. So that's really the perfect timing for us late March or early April, with a late April unless you get a weather change in March, there's really no strong impetus for mom to come out in March, and she'll wait until April. So when we really think about it and Rob talked about Q1 which we think is going to be our toughest compare when you look at the fact that we're up against such a tremendous amount of stimulus from last year, and we have a later Easter, we really believe that that's going to combine together to, as Rob said, produce our toughest compare. But from a product point of view, and a positioning point of view and an inventory point of view we're -- we feel good that we'll do well with our dressy products, when mom comes out.

Our next question is from Jay Sole of UBS.

Great, thank you so much. Rob, if you could sort of explain two things. One, could you give us an idea of the incremental benefits of sales in 2022 from Gymboree, Sugar & Jade and Amazon. And then maybe can you clarify in gross margin, you said gross margin down 200, 300 bps for the year lowering the first half and the second half. Did you mean that in terms of the year-over-year change will be lower in Q1 versus Q2 or the overall level of gross margin will be lower in Q1 versus Q2, sorry, the first half versus the second half? Thank you.

Sure. From a gross margin perspective, I call that 200 to 300 basis points down for the year versus 2021. The overall decline in Q1 and Q2 will be more pronounced than the declines in Q3 and Q4. And we expect a moderation in gross margin as we get to the back half of the year; we have the year-over-year comparison of the freight that I talked about this quarter. From a Sugar & Jade, Gymboree and Amazon perspective, we didn't call it amounts in terms of sales increases, but they're included within our 1% increase of consolidated net sales for the year. We continue to be excited about the Gymboree brands and the long-term opportunity for a $140 million. Sugar & Jade is early days. But it's a big addressable market for us in terms of $8 billion in the tween market. And Amazon is Amazon. So we're excited about that opportunity and we see significant growth in 2022 over the significant growth we saw in 2021.

We'll move next to Paul Lejuez of Citi. Your line is open.

Hey, thanks, guys. Jane, curious about your view on the growth in the Children's apparel market for FY 2022 in units and dollars. And would you expect to grow market share in the year ahead? Here's just curious if it's something that you set as a goal. And how much of that sales growth in FY 2022 you assume is units versus pricing? Thanks.

Paul, I can answer your question. From a unit perspective we were up this year versus last year. And we also had significant double-digit gains in AUR. As we pivot to an e-commerce business and had decidedly higher digital penetrations we're more focused on order value. And our order value was also up significant double-digits. The increases in the order value really provide for tremendous leverage on our fulfillment costs in our e-comm business, and is driven our highest operating margin channel even at much higher. We expect to continue benefits for next year as we continue to optimize the fulfillment cost structure.

And we'll take our final question from Susan Anderson of B. Riley.

Hi, good morning, nice to have on the call. Thanks for all the details. Just curious, based on your top-line guide for the first quarter, I guess does that entail are you currently comping in line with the guide? Are you assuming that sales kind of falloff in March and April is [ph] use like all those tough compares? And then it looks like based on the guide for the full-year, you're expecting sales and stabilized in the back half. So I'm assuming you guys still have the child tax credit wasn't as big of a benefit into stimulus in March last year?

Yes, Susan, we did not, obviously the child tax credit helped us and I think that's why Rob said, we expect Q3 to be lower this year than last year because of the pent-up demand with return to in-person learning and the child tax credit. And we expect to see a more balanced Q3 to Q4. As in response to your initial question, obviously January was a really tough month for us. We had a great November and December. And as Rob detailed when Omicron hit, we really took a dive in sales and traffic. We saw a nice rebound in February. We were up mid-single-digits comp through the end of February. But as we know, February is a small month and wasn't really up against stimulus. So we do expect a significant drop off in the month of March as we anniversary the stimulus which was about exactly one year ago today. So you know March and April really make up the bulk of the quarter and that's where we're going to see the drop we think.

This does conclude our question-and-answer session as well as our conference call for this morning. Thank you for joining us today. If you have further questions, please call Investor Relations at area code (201) 558-2400, extension 14500. You may now disconnect your lines and have a wonderful day.