Good morning. And welcome to The Children's Place Fourth Quarter and Fiscal Full Year 2022 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; Sheamus Toal, Chief Financial Officer; Maegan Markee, Senior Vice President, Digital Marketing; and Josh Truppo, Vice President, Financial Planning and Analysis. After the prepared remarks, we will open the call up to your questions. The Children's Place issued its fourth quarter and full year fiscal 2022 earnings press release earlier this morning, and a copy of the release and presentation materials have been posted to the Investor Relations section of the company's website. Before we begin, let me remind you that statements made on this conference call and in the company's earnings release and presentation materials about the company's outlook, plans and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission and the presentation materials posted on the company's website. On this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. It is now my pleasure to turn the call over to Jane Elfers.

Thank you, and good morning, everyone. After my opening remarks, I'll turn it over to Maegan who leads our marketing and Amazon teams to review our significant progress in 2022 and highlight our 2023 plans for these 2 key growth areas. Maegan will turn it over to Sheamus to review our Q4 and full year 2022 results and provide our Q1 and full year 2023 outlook. Sheamus will turn it back to me for closing comments. As we announced in early February, our 2022 operating results were negatively impacted by unprecedented input costs, the spike in cotton prices, air freight and container costs. While we are working through higher cost inventory in the front half of 2023, input cost reductions, our focus on expense and inventory management and our strategic growth initiatives are planned to drive double-digit operating margins in the back half of 2023. Over the last several years, we have successfully executed a strategic transformation of The Children's Place focused on 4 key pillars: superior product; digital transformation; wholesale and international expansion; and fleet optimization. When we embarked upon this initiative, we analyzed the highly competitive environment, rapidly changing consumer shopping trends and birth rates, which, as of 2017 have been falling for a decade. We determined that in order to successfully compete, we needed to capture market share, while positioning ourselves to meet the needs of our increasingly digitally-savvy core millennial customer along every step of her purchase journey. We made several key strategic decisions during the course of our transformation, some of which led to short-term volatility in our results, but all of which have positioned the company for sustained long-term growth on both the top and bottom lines. With our multiyear transformation now complete, we are focused on our next phase, top and bottom line…

Thank you, Jane, and good morning, everyone. As Jane mentioned, our marketing transformation over the past few years enables us to capitalize on maximizing our interactions with our younger, digitally-savvy Millennial and Gen Z customers and to support the growth of a significantly larger and stronger digital business coming out of the pandemic. Starting in the back half of 2022, we felt confident in our ability to concept, build, deploy and optimize fully integrated creative marketing strategies paired with a robust media mix aimed to reach, inspire and convert our shoppers at every stage of their purchase journey with The Children's Place family of brands. Our data-driven marketing transformation was designed to support the significant future topline opportunity we've been discussing for several quarters by increasing new customer acquisition, customer retention and loyalty, and importantly, significantly increasing customer lifetime value through our marketing efforts and our new brand launches. As Jane discussed earlier, the recent launch of our Gymboree, Sugar & Jade and PJ Place brands have not only aided in our success in driving overall brand awareness and our ability to seize untapped market share opportunities, but has also lifted customer lifetime value. Through our family of brands, we've been able to provide market differentiation through our unique and trend-right product assortments and provide value defined beyond just price that is delivered through quality, fit, versatility and durability, solidifying The Children's Place leadership position in the children's apparel industry. In the short time since launching these brands, we've seen strong results as it relates to customer lifetime value, spend and frequency. To date, our analysis shows that, on average, our multi-brand shoppers, customers who shop The Children's Place and one or more other of our brands spend 2.5x more than single brand shoppers. These multi-brand shoppers have a frequency…

Thank you, Maegan, and good morning, everyone. I would like to begin by providing some context to the full year 2022 and more specifics on our fourth quarter results. I will then provide some remarks with respect to our outlook for 2023 and our strategic vision for the future. First, as a relatively newcomer to the company, I was able to analyze the results of our comprehensive multiyear transformation with fresh eyes, and I am confident that our strategic reset to a digital-first company, provides a strong foundation for consistent and profitable growth in the future, which will drive shareholder value creation. Let me say a little bit more about the remarkable transition the company has made to a digital-first retailer with a productive, optimized store base. Make no mistake about it. This was a change, which our younger Millennial customer required us to make. I know from my past experience that the journey from a company with over 1,100 stores and a single-digit e-commerce penetration to one having approximately 600 stores and 50% of its revenues online is not easy, but The Children's Place did it. Ignore for a moment the impact of the macro issues which we and all retailers faced in the last 12 months, including the unprecedented cost of cotton, shipping containers and airfreight as well as the impact of record inflationary pressures which our customers confronted. To successfully transform, we needed to practically reinvent the company, and that transition did not come without some ups and downs, both operationally and financially. But it is my belief that the past volatility in our performance is now largely mitigated as we now have the key building blocks of our strategy in place, as Jane described. We will now begin to fine-tune and capitalize on our new model,…

Thank you, Sheamus. I want to thank Sheamus for his strong partnership and the significant contributions he has made since he joined our team in November. He has made a very positive impact in a short time. And on behalf of the SLT, we are thankful for his experience and his contributions as we partner with him to drive shareholder value in 2023 and beyond. In closing, we are a very different company today than we were in 2019. We have architected and executed a sweeping structural reset of our company in the midst of one of the most turbulent times in retail history. I am so proud of our team for accomplishing this task. And I believe a large part of the reason we were able to deliver these accomplishments successfully and with conviction is our unique profile. We are a women-led company. Our senior team is over 50% women and approximately 90% of our associates and our customers are women. And further, the majority of our associates are from the Millennial and Gen Z generations. We are our customer. We learn from each other every day, and we push each other to stay relevant through our laser focus on our digital-first model and our accelerated store optimization plan. We have product that resonates with our digitally-savvy Millennial mom, marketing that converts, and we now have an infrastructure that is optimized for the way they shop today and will shop tomorrow. I am grateful to lead such a dynamic team, and I want to thank all of them for their hard work along this exciting journey. With our successful multiyear strategic transformation now complete, we are focused on our next phase, top and bottom line growth. Our growth will be underpinned by our four strategic pillars: superior product; digital dominance; wholesale and international expansion; and an optimized fleet. Topline growth will be fueled by our strong stable of brands, a business model focused on digital, our highest operating margin and most important channel for our young, digitally-savvy core Millennial customer and the Gen Z customer right behind her, our strong wholesale business and our successful marketing and branding efforts. Bottom line growth will be fueled by the return of normalized supply chain and cotton costs. The benefits of our significant AUR increases since the start of the pandemic, and the tailwinds from the strong financial and operational discipline initiatives that Sheamus is leading. Our team is resolutely focused on execution and we believe we are on track to return to double-digit operating margins in the back half of 2023 and are well positioned to deliver long-term consistent growth for our shareholders. Thank you. And now we'll open the call to your questions.

[Operator Instructions] We'll take our first question from Jay Sole of UBS.

Can you just talk a little bit about how you see the sales growth trend playing out for the year? You talked about Q1. But can you give us a sense of how you see it playing out through the year and what the key drivers will be?

Jay, this is Sheamus. I'll take that. Obviously, as we guided in our commentary and in our release, we're looking forward to a full year and a back half of the year where we're going to drive double-digit operating margins. As we said in the commentary, we've taken a conservative view to the year, particularly the first half of the year. I think we've been cautious in terms of what we see in the macro environment, some of the headwinds that we see in terms of still record-high inflation, unfavorable weather trends as well as lower tax refunds and the impact that, that has had on our customer. We also, as I described in our commentary, have invested in a little bit lower unit inventories given the high input costs in the first half of the year. So while we've guided to the fact that inventory is lower on a unit basis, we still do have that higher cost inventory to work through. And that plays through in our expectations in terms of guidance for topline. I think as we've talked in our release, and the specific guidance that we gave, we're expecting mid-single-digit decreases in the first part of the year, in the first quarter of the year. And that will improve as we go beyond Q1. We are still being conservative in terms of, and cautious, in our outlook for the back half of the year, but we do see some opportunity in the back half of the year, which gave us the ability to guide to, still lower levels of sales, but modestly improved versus Q1. So we do see improvement as we're progressing through the year.

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

First, I was wondering if you could talk about the AUR performance between fashion and basics. And then how are you planning inventory between fashion and basics? And then have promotional levels for you returned to normal, post the holiday season now that you've worked through some of the excess inventory?

Yes. On the AUR, Jim, it was pretty much the same decrease that we saw in Q4, mid-singles on both of them, basics and fashion. As we move ahead, we are a little bit cautious on the fashion side based on the consumer, so we'd be playing that a little bit lower as we -- a little bit lower than basics as we head into 2023. And then from a competitive view right now, as you probably know, many, if not most of our competitors specifically called out soft kids and baby business in Q4. So we certainly weren't alone there. And I think largely due to the inflationary pressures that are on the consumer right now. And I think all of us see the consumer shopping a little bit less frequently lately. Everyone seems to be focused on inventory reductions. We've pretty much heard that from everyone as well. But we believe that due to the continued macro pressures, particularly in the front half of the year, that it will remain a competitive pricing environment.

[Operator Instructions] We'll go next to Dana Telsey of Telsey Group.

Thank you very much for all the detail on the business strategy going forward. When Maegan spoke about Amazon and the penetration, the success that you're having there, how do you think of the penetration of digital moving forward? Does it get beyond the 50% that you mentioned? And with the store closures that you have that increased marketing spend how is -- how do you see it divided whether it's different channels that you're seeing become more activated as you're spending the dollars on the marketing, what do you see is what that balance will be with that percentage of sale going to marketing? And then just lastly, Jane, as you think about the different brands, is there any that you're seeing that could be outsized as we move forward or the different puts and takes as you think of that customer base?

Sure. I think from a digital penetration, we've talked extensively about us being approximately 50% right now, which was our original goal when we set out our strategic transformation, and we're able to accelerate it by approximately 5 years due to the pandemic. So that's why we talk about having achieved that original goal by the end of '22. I think we've also talked pretty extensively about reaching a 60% digital penetration by the end of full year '24. And today, when we talked about, we introduced a little bit of forward-looking 2025, we think that we'll be over 60% digital penetration. So we continue to see digital as the core of our strategy. It certainly is where our Millennial customer wants to be and where the Gen Z consumer behind her is, so that will continue to be our focus. We talked about an optimized fleet. We talked about closing 100 more stores. We feel that will be substantially the end of our fleet optimization strategy. For now, we feel that, that will be the right stores, in the right trade areas that over-index and omnichannel capabilities and certainly are the ones that service the omnichannel needs of our Millennial and Gen Z customers. So we feel good about hitting that 500 number -- approximately 500 number by the end of 2023. From a marketing spend point of view, we've been pretty upfront and transparent about us being significantly underfunded in marketing in the past. I think with all the work that Maegan and her team has done on transforming our marketing area and the extraordinarily strong results we saw in the back half of '22 when she started to activate it on brand acquisition, awareness, social media dominance, she was pretty lengthy in her commentary on describing how…

Yes. I think from a spend balance perspective, going back to your question, just around closing the stores and then on marketing investment, as we optimize the fleet and close the stores, we worked very closely with the real estate team here to make sure that we're balancing our marketing investment to really kind of hone in on those key areas that we're closing stores. So we're making sure that our spend is balanced in those DMAs, those regions. So that we're really growing brand awareness without having to utilize a brick-and-mortar store front. The tactics are obviously primarily digital in nature, and that's where we're pushing the customer. As we close the store, we push here to the e-comm business. And again, we really focus our investment in those key areas where we're walking away from stores. From a tactic perspective, we're utilizing things like paid search, paid social and Amazon where she's going for brand discovery. So we have a pretty robust strategy around how we work in partnership as we kind of optimize our fleet and make sure our marketing investment is in the right places.

And we'll take our next question from Marni Shapiro of Retail Tracker.

Maegan the marketing over the holidays was truly outstanding. Actually, Sheamus, I just wanted to touch back on a couple of things you said. I think you said something about inventory, you were liquidating inventory in the first half. As in liquidating it or just selling it and moving through it. I just want to clarify that point because liquidating felt like a strong word there.

Yes. Marni, thanks for the question. Yes, just to clarify that, what I meant by that comment was we're selling it through in our normal process. So it's not like a liquidation sale, but as we sell through that higher unit cost inventory, we are going to absorb that higher cost inventory and our cost of sales. So I was just trying to reference that, that will flow through as part of our normal process. It is not something out of the ordinary where we're running liquidation events or anything like that.

Okay. Great. And then can you just also remind us, I think it was last -- it was back-to-school '22 where you had -- where selling through pack and hold from '21 when back-to-school wasn't really happening. And those units were purchased at lower cotton costs. So as we come into the back-to-school period, which for you guys is August and into September, depending on the region, will you be selling through some lower cost AUC plus the new lower cost -- some higher-cost AUC and some lower-cost AUC or you won't have quite the same compare on the product because of the pack and hold, meaning like the lift on the AUC improvement won't be as big in the third quarter?

Let me try to untangle that. In 2021 was where we were selling the goods that we didn't sell in 2020 because of the pandemic. So we sold them in 2021, which were lower-cost AUC goods that were bought prior to the cotton spike. The basics that we own now are basics that have the higher cotton in them. So as Sheamus outlined, we will still have some of those basics throughout all of 2023, but they will also -- we will also be getting in new basics in 2023 prior to back-to-school that have the lower cotton. So it will be, to your point, a combination of both in the basics category.

Thank you. And this does conclude our conference for today. Thank you for joining us. 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 great day.