Good morning, and welcome to The Children's Place First Quarter 2022 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; Rob Helm, Chief Financial Officer and Josh Truppo Vice President, Financial Planning and Analysis. At this time all participants are in a listen only mode. After the prepared remarks we will open the call up to your questions. [Operator Instructions] As a reminder, this conference is being recorded. The Children's Place issued its first quarter 2022 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 participants 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 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. I'd like to welcome Josh Truppo, Vice President, Financial Planning and Analysis to The Children's Place team. Josh joins us from Five Below where his most recent position was Vice President for Corporate Strategic Finance. Our Q1 results were negatively impacted by several factors, the largest being lapping the unprecedented stimulus released into the economy in March of 2021. March sales were extremely challenging with sales down approximately 35% versus March of 2021. We also believe the combination of the unseasonably cold weather that lasted through the end of the quarter in most of our key markets and the unprecedented levels of inflation negatively impacted our Q1 results. On the positive side, for the first time in three years, families joined together to celebrate the Easter holiday and we were very pleased with the performance of our Easter dressy business across all three of our brands. Gymboree and TCP had standout performances across all dressy categories and Sugar & Jade delivered strong results in the categories where they had dressy ownership. Looking ahead, while the impact of last year's stimulus will eventually wane and the weather will eventually change, we believe that the unprecedented levels of inflation, which are now projected to persist into 2023 will continue to have an outsized impact on the lower income consumer, particularly due to significantly higher gasoline and food prices. In addition, cotton prices continue to climb, significantly above the levels where they were projected to be earlier this year. Due to these persistently high levels of inflation and the lack of visibility into its impact on the balance of the year, we are tempering our top-line expectations for 2022 and we are now planning for a mid-single digit decline in sales for 2022. Despite these headwinds and…

Thank you Jane, and good morning everyone. After I review our Q1 results, I will provide some thoughts on our expectations for the balance of the year. I will provide comparisons to both 2021 and 2019 to highlight the significant profitability improvements versus our pre-pandemic results due to the significant structural changes we made to our business model over the past two years. In the fiscal first quarter, we delivered an adjusted EPS of $1.5 versus $325 million in 2021 and versus $0.36 in 2019. Net sales decreased by $73 million or 17% to $362 million versus $435 million in Q1 2021 and decreased $50 million versus $412 million in Q1 2019. Our US net sales decreased by $79 million or 21%, the $306 million versus last year's $385 million while our Canadian net sales increased by $1 million or 2% to $31 million versus last year's $30 million. Comparable retail sales were a negative 16.9% versus Q1 2021 and a negative 1.4% versus Q1 2019. Our net sales were positively impacted by strong customer response to our Easter product assortment and AUR increases in both our stores and digital channels, driven by higher realized pricing and reduced promotions. Our net sales were negatively impacted by lapping the impact of the stimulus released in the economy last year, the impact of unprecedented inflation with significant increases in gasoline and food prices negatively impacting our customer, prolonged unseasonably cold temperatures through late April in most of our major markets. And lastly, the impact of permit store closures, representing approximately $13 million for the quarter. Our monthly sales flow for the quarter was as follows. February sales were up low-single digits. March was significantly worse than we anticipated as we lap the impact of the stimulus released in the economy last year.…

[Operator Instructions] We'll take a question from Dana Telsey of the Telsey Group.

Good morning, everyone. Definitely a challenging environment. As you think of the AUR increases that you got from the merchandise margin, how much of an AUR increase you're getting? What are your plans for price increases going forward and the level of acceptance? And we haven't seen inflation before given the guidance that you gave out of sales now down mid-single digits for the year, that implies an improvement as we go through the year. Any qualitative commentary on how you're thinking about the uptick in sales and of getting that from that lower income consumer and the margin opportunity from digital given that's the highest margin channel. And one other thing, any cost for Gymboree and Amazon? Thank you.

Sure. Well, that's a lot of questions. So let me try to part them out, might not be in the same order you asked them, but let me give it a try. So I think when we look about what happened in Q1, as Rob mentioned on the call, February was a decent month. We clearly, clearly underestimated the stimulus impact to our business last March. And March was a really tough month. We were down 35%. When we went into April, it was significantly better than March, but that was really when you unpack it due to the Easter shift. In the first two weeks of the month, we had a nice trend, obviously, because of Easter. But as soon as Easter passed, the trend reverted right back to negative mid-teens and the month ended up as Rob said below expectations, I think down 7%. Moving into May, week one was still tough, still up against stimulus. We were still mid-teens negative. And then in the second month, like clockwork, with the arrival of warm weather across the whole country, the trend immediately reversed and sales were up positive low-single digits versus '21 and they were up in the low 20s. I think up 21% versus 2019. And so, there was a significant trend reversal, like I said, starting in May week two, which we are very encouraged by. So I think when you think about what happened in March with the big stimulus impact, we were able to start to see that wane which we always kind of believed we would in the second quarter and then we got the pop, obviously from the weather. When you think about going forward to your question about what's happening in the macro environment with respect to the inflation as you…

And on Gymboree and Amazon, we leveraged nicely on the TCP platform. We don't have much in terms of incremental overhead expenses there. We will fund it with additional marketing and inventory investments, but we've seen that pay off very nicely in the significant gains we made with Amazon over the last year.

Our next question comes from Jim Chartier of Monness, Crespi. Your line is open.

Good morning. Thanks for taking my question. Wanted to ask about how your inventory position is today? You talked about pricing, it sound pretty good, but any risk that you'll have to kind of promote to move through that? And kind of what's your ability to cut back on inventory units in the back half of the year?

Yeah. Well, with respect to inventory, certainly having 30% more inventory is clearly something we're watching and we anticipate that those inventory levels, I think, we have said it before are going to continue to stay elevated, while we work through the supply chain issues. And we're doing a lot of pulling goods up. There is a lot in our in-transit. Almost 25% of our inventory is in transit. But at this point, when you really unpack it, we're not concerned at this point about the health of our inventory. From a pack and hold perspective, we have no current Spring product on pack and hold and we don't anticipate on putting anything in pack and hold from this current season. And then as we had mentioned a couple of times before, we have pack and hold in some holiday basics, like some seasonal basics for fall, that we're going to start to release throughout Q3 and Q4. And so from a fashion point of view or inventory that we would consider jeopardy, we are feeling pretty good. Also, a big part of our in-transit is really starting to load up for back to school. We obviously had an amazing back to school last year and we depleted a lot of our inventory and basics. So that's a big part of our inventory. So not really concerned as far as your question about being able to get out of inventory and that hasn't been something we've done recently and it's not something we're looking to do. I think we're pretty happy with how we plan the fashion and the assortments and then like I said, coming off of the kind of business we have on Easter, I'm feeling good about the ability to not only get AUR from those fashion goods but to drive customers through -- resuming the activities that they're doing with families and celebration. So we're feeling okay where the inventory is for now.

Our next question is from Jay Sole of UBS.

Great. Thanks so much. First, just a question on the P&L for Q2. Is there any commentary can you give us maybe on some thoughts, a little bit more color on your thoughts around gross margin and maybe just SG&A dollar guidance for Q2?

So obviously, there's a lot of uncertainty out there. When we had talked on the Q4 call, we had talked about our first half gross margin being under pressure for inbound -- incremental inbound freight expenses, the AGOA piece and the abatements that we have received in the prior year. That's still all remains true. What I would add to that is, we are tempering our sales expectations, so we would expect to see some incremental fixed cost deleverage beyond what we had kind of said at Q4. From an SG&A perspective, I think, Jane mentioned in her first question. The nice part about our SG&A base at this point is that, we are getting the benefit of the accelerated store closures that we had gone through in 2020 and 2021, which provides us for a much lower fixed cost base than we had in the past. So as the demand environment fluctuates, we are going to be able to cut down SG&A and leverage those costs as we navigate through the year.

Our next question is from Susan Anderson of B Riley.

Hi, good morning. Thanks for all the details today. I was wondering just on -- you talked a little bit about the inventory, which you sound comfortable with, I guess. How do you feel about just the competitive landscape? I think some of your big box competitors mentioned they need to clear some excess apparel. So I guess what happens if they do get more promotional, will you guys also have to promote more? And then just on the double-digit earnings and EBIT margin guide, you talked -- you kind of talked about the buckets there that gives you confidence in that guide. Maybe if you could kind of quantify those buckets versus 2019 and the big drivers there that you think will continue to give you that double-digit despite the sales decline? And then if sales did decline further, is that double-digit still reachable? Thanks.

Okay. Well, I'll take the first part and then I'll pass the second part back over to Rob. From a promotional competitive set, I would tell you that particularly with one competitor, we have seen dramatically increased promotions since the last couple of months. I think, as I had mentioned in the answer to the first question, when you look at like where we're priced on our key basics, we are still below or at our competitive set. So I don't feel like that's going to be an issue for us. I don't think that we have inventory issues to any degree or go up or things that we need to clear. We are certainly keeping a very close eye on promotions. And I think based on some of the things we've even heard this week, there may be other two who might be promoting more, but at this point there is nothing to signal to us that we're going to have to do anything drastic as far as what our mix looks like.

From a P&L perspective, I think, Jane alluded to it earlier on. But we fundamentally changed the dynamics of our P&L since 2019. And you see that come through in the Q1 results. Despite the sales decline in our operating income and EPS was significantly higher. From a dynamics perspective, the pieces contributing to it are the shift to e-commerce, which was our highest operating margin channel and is nicely accretive to our overall operating margins. Our reset of occupancy expenses and the permanent store closures that we went through, which has significantly improved our store profitability. The reset of our e-commerce fulfillment costs, including bringing in the 3PL and virtually eliminating ship from store, which is reduced unnecessary split shipments, as well as the numerous SG&A changes that a company being a digital first retailer as well as lower interest expense, lower G&A and higher share repurchases by virtue of our stronger profitability and higher operating cash flows.

Our final question is from Marni Shapiro of Retail Tracker.

Hey, guys. I wanted to just start with one clarification. The interest rate for the quarter, is that a good look through for the rest of the year? And then I just had a bigger picture question for Jane.

From an interest expense perspective, I would say that the decrease year-over-year is probably a good bar. Seasonally, our inventory and working capital needs fluctuates, so we tend to peak in the revolver between Q2 and Q3. So I would play that into the calculation when you thinking about interest expense.

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.