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. 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 supported by the significant structural reset we have made to our business model over the past two years, we remain focused on our goal of delivering double-digit operating margin and double-digit EPS for the full year '22 and beyond. To reinforce the significance of our structural reset, we believe that it is important for us to continue to measure our progress against and provide comparisons to our 2019 pre-pandemic performance. Applying that lens, our Q1 2022 operating income was up 211% versus Q1 '19, and our Q1 2022 EPS was up 192% versus Q1 '19. And we achieved these results despite $50 million less in Q1 2022 versus Q1 2019 and operating 306 or 32% fewer stores versus Q1 2019. Moving on to digital. Our digital sales represented 45% of our total retail sales for Q1 versus 44% in Q1 '21. As we continue to plan for digital growth, we are making significant investments in marketing and technology to continue to support this growth. We are focused on investing in brand awareness, which continues to drive customer acquisition through our digital marketing channel. With respect to customer acquisition as the shift to digital has accelerated, we have benefited by being better able to identify our customers and use that data to drive higher cost efficiency on marketing spend. We have also recently enabled a multi-touch attribution tool to help us better understand the incrementality of our investments and allow us to shift our budgets in support of the highest contributing marketing tactics in a much more efficient and timely manner than we were previously capable of. During Q1, we had 73% of digital transactions come through a mobile device. Our mobile app continues to drive strong customer acquisition and engagement and importantly our basket sizes for customers transacting on our mobile app are over 16% higher than our non-app mobile purchases. With respect to Gymboree, we're proud to announce that starting this July Amazon will launch our iconic Gymboree brand on their website. We're excited to continue to grow Gymboree by partnering with the number one apparel retailer in the US to reach a significantly larger, digitally savvy customer base and to build on Gymboree's momentum in 2022 and beyond. With respect to Amazon, in addition to the upcoming launch of Gymboree, the TCP brand continues to experience very strong sell-throughs on Amazon and we continue to significantly accelerate our brand marketing and inventory investments with them. And we continue to project significant growth with Amazon for 2022 and beyond. With respect to EPS guidance and looking ahead to the balance of 2022, we said on our March call that we needed to have a clear understanding of lapping the stimulus impact on Q1 before resuming quarterly guidance in Q2. Based on the deteriorating macro environment, we will continue to defer providing guidance until we have more visibility. In closing, we are confident that we will continue to make significant progress on our results in 2022 versus pre-pandemic levels, despite the ongoing challenges, many of which we now anticipate will linger well into 2023. Several years ago, we developed the multi-pronged transformation strategy focused on four key initiatives: superior product, digital transformation, fleet optimization, and alternate channels of distribution. Fast forward to today, our expanded, high quality, value-focused, multi-brand offerings are consistently well received. Our accelerated digital investments have positioned us as an industry leader in digital penetration with our digital channel being our highest operating margin contributor. Our investments in digital marketing capabilities now enable us to be significantly more strategic and nimble with respect to marketing tactics and marketing spend. Our real estate portfolio has been completely transformed by a combination of rightsizing our store fleet and a structural reset of our occupancy costs. Our Amazon business is growing rapidly and with the addition of Gymboree, Amazon becomes an even more important part of our growth strategy. The continued successful execution of these key strategic initiatives will remain our priority in 2022. And now, I'll turn it over to Rob.

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 $1.50 versus $3.25 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%, to $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. In March, we experienced a significant deceleration in our business with sales down approximately 35% for the month. April delivered a significant improvement versus March, but sales were still softer than anticipated with sales down approximately 7% for the month. The sales declines were evenly balanced between the two channels. Consolidated digital sales decreased 18% versus Q1 2021 representing 45% of our total retail sales. Store net sales were down 20% versus Q1 2021. Our comp store traffic was down 8% versus Q1 2021. As a point of reference, store traffic remains significantly below pre-pandemic levels with comp store traffic down 30% for Q1 2022 versus Q1 2019. Adjusted gross margin decreased 429 basis points to 39.2% of net sales compared to 43.4% of net sales in Q1 2021, significantly above our 2019 gross margin of 36.7%. The gross margin decrease versus last year was the result of the impact of incremental inbound freight transportation, driven by higher levels of air freight costs and higher container rates, impacting our Q1 gross margin by approximately 275 basis points. Occupancy expenses were $7 million higher in the quarter due to lapping the one-time abatements of $8 million from Q1 2021, impacting Q1 gross margin by approximately 220 basis points. As an additional point of reference, our occupancy expenses were $18 million lower in Q1 2022 versus Q1 2019 due to favorable lease negotiations and reductions in occupancy expenses for permanent store closures. And lastly, the deleverage of fixed expenses resulting from the decrease in net sales. These decreases were partially offset by higher merchandise margins in both our digital and stores channels, driven by AUR increases in both channels resulting from higher realized pricing and reduced promotions. Adjusted SG&A was $108 million versus $104 million last year and $127 million in 2019, and deleveraged 595 basis points to 29.9% of net sales, compared to 23.9% of net sales last year. The deleverage was the result of the decline in net sales on our fixed expenses, as well as the impact of planned higher marketing spend. Adjusted depreciation and amortization was $13 million in the quarter versus $14 million last year and $18 million in 2019. Adjusted operating income for the quarter decreased $50 million to $21 million versus $71 million last year, and deleveraged 1,057 basis points to 5.7% of net sales compared to 16.2% of net sales last year and increased 409 basis points versus Q1 2019 when adjusted operating income was 1.6% of net sales. Our interest expense for the quarter was $1.7 million versus $4.4 million last year. The decrease in interest expense was driven by lower interest rates due to our recent refinancing and a lower term loan balance updating this quarter. Our adjusted tax rate was 24%. Moving on to the balance sheet, our cash and short-term investments ended the quarter at $58 million. We ended the quarter with $250 million outstanding on our revolving credit facility. Inventories ended the quarter up 31% versus last year with 24% of our inventory in transit as we continue to take actions to mitigate the impact of the ongoing global supply chain disruption and elevated transit times by pulling up receipts. As planned, higher raw material and inbound transportation costs are also contributing to the increase in inventory year-over-year. 7% of our inventory is Amazon dedicated inventory to support their rapidly expanding business. We are anticipating that our inventories will remain elevated as we continue to try to mitigate the ongoing supply chain pressures to receive pull-ups. Moving on to cash flow and liquidity, we used $19 million in cash from operations in Q1 versus $17 million last year. Capital expenditures in Q1 were $11 million. During the first quarter, we repurchased 666,000 shares for $39 million, leaving $219 million outstanding on our current authorization. ROIC remained strong at approximately 75% for Q1. Now, I'll provide an update on our store exit during the quarter. We closed seven locations in the first quarter, and we anticipate closing 40 stores for full year 2022. With over 85% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio. These short-term leases will continue to provide us with the flexibility to optimize our occupancy costs and our spending. We ended the quarter with 665 stores and total square footage of 3.2 million square feet, a decrease of 8% compared to Q1 2021. With respect to our fleet optimization strategy, it's important to continue to highlight that for 2022, we're planning for approximately 50% of our retail sales to come from stores, with approximately 50% of our store sales coming from traditional malls and 50% coming from off-mall. With our digital business also planned at an industry-leading approximately 50% of total retail sales, our plan for 2022 targets approximately 75% of our retail sales coming from off-mall, strongly supporting our structural reset to a digital-first retailer. Outlook: based on the deteriorating macro environment, we will not be providing EPS guidance at this time. However, we wanted to provide you with some context around our expectations for the remainder of the year. The significant structural reset to our business model will continue to benefit our operating margins and we remain focused on our goal of delivering double-digit operating margin and double-digit EPS for the full year '22 and beyond. Starting with the top line, as we've said, based on the macro environment, particularly as it relates to the unprecedented inflation, we are tempering our top-line expectations for 2022 and are now planning for a mid-single-digit decline in net sales for the year. We anticipate that our sales trends will improve versus Q1 as we progress through the balance of the year. We were up against significant top-line headwinds in the first quarter due to the lapping government stimulus from last year. We anticipate that our peak back-to-school sales this year, the period from mid-July through Labor Day, will be meaningfully lower than last year when the combination of pent-up demand and the impact of the monthly child tax credit initiated last July propelled us to a record-setting back-to-school season. We are building on strong sales momentum from Gymboree and anticipate that the Amazon launch of Gymboree will continue to fuel this momentum. We are making significant marketing and inventory investments with Amazon and are planning for accelerated growth in '22 on top of the gains we made in 2021. And we continue to build on the incremental sales opportunities from our recent Sugar & Jade launch. Moving on to the bottom line, the structural changes we've made to our business model will continue to benefit our operating margins by providing increased resiliency against the negative macro environment. We continue to benefit from our pricing and promotion reset, resulting in higher realized pricing. This is supported by our increased investments in brand marketing, which we anticipate will continue to reduce unnecessary promotions and markdowns and drive higher overall AOVs. This also provides our ecommerce channel with strong leverage on our fulfillment expenses. We are planning for lower occupancy expenses versus last year due to the impact of our permanent store closures, as well as the benefits of our favorable lease negotiations. We have significantly improved the profitability of our store fleet, a key contributor to our overall operating margin gains. Moving on to SG&A: we continue to benefit from our fleet optimization and accelerated store closures, which provides us with a lower fixed cost base than before the pandemic. We also continue to see benefits on the depreciation and amortization line from store closures. We are planning for lower incentive compensation expenses in '22 versus '21. We are also planning for significantly lower interest expense in 2022, resulting from the favorable interest rates we secured as part of the refinancing of our revolving credit facility and term loan in the fourth quarter. Given our accelerated digital transformation and the structural reset to our business, we expect to generate significantly higher levels of operating cash flow for the year than we did pre-pandemic. These significant levels of free cash flow will provide us with the opportunity to continue to reinvest in our business and return significant capital to our shareholders in 2022. Lastly, we are planning for capital expenditures in the range of $55 million for fiscal year 2022, with the large majority allocated to digital and supply chain fulfillment initiatives. Now, we will open the call to your questions.

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. That's a lot of questions. Let me break them down, even if it's not in the exact order you asked. Looking at Q1, as Rob mentioned, February was a decent month. We clearly underestimated the impact of stimulus on our business last March, which was a challenging month for us with a 35% decline. April showed significant improvement compared to March, mainly due to the Easter shift in sales during the first two weeks. However, after Easter, the trend dropped back to negative mid-teens, concluding the month down 7%, as Rob noted. May started off tough, still affected by stimulus, but in the second week of May, warm weather across the country reversed the trend, leading to a positive low-single-digit increase compared to 2021 and up about 21% versus 2019. This trend reversal is encouraging. The stimulus impact we saw in March is beginning to wane, as we anticipated for the second quarter, and the favorable weather contributed to our sales. Regarding the macro environment, with rising inflation and diminished stimulus, 2021 comparisons are becoming less relevant to us. That's why we’ve decided to focus on comparing our performance to pre-pandemic results from 2019. While we didn’t meet our expectations for Q1, our comparisons to 2019 were impressive, with an earnings per share of $1.50 compared to $0.36 in 2019, $50 million less in revenue, and 32% fewer stores. Our margins were 250 basis points higher, and operating income reached 5.6% to 5.7%, which exceeds 1.6% from 2019. These results reflect the structural reset of our business model, which is why we aim for $10 EPS and a $10 operating margin goal in 2022. Our accomplishments in the past couple of years have led to a more resilient model that can withstand challenges. For the latter part of 2022, we don’t anticipate dropping 16% again in any quarter, but we will exercise caution at the end of this quarter and in August to avoid the miscalculations made in March regarding stimulus effects. We cater primarily to kids' clothing, and we benefited greatly from stimulus packages last year, especially during the back-to-school shopping period in late July and up until Labor Day. There’s significant pent-up demand, as there were two years with no school. Our inventory levels for basics are strong, and while some competitors struggle with supply, we are well-positioned. The child tax credit, which started in July, positively impacted our business in its initial months. Given the significance of late July and August for back to school, we will take a careful approach this quarter, especially since these periods are critical for our sales. Turning to our P&L, two significant and permanent changes have occurred since the pandemic began: the real estate reset and the digital reset. The former, involving store closures and occupancy adjustments, has provided us with flexibility in lease negotiations in the coming years. The digital shift, with nearly 50% of our business now online—which also has the highest operating margins—serves as a strong advantage. Additionally, the lower fixed cost base from store closures and improved cash flow support share repurchases. Regarding pricing, we projected that average unit costs (AUCs) would rise mid-single digits in the first half of the year and high singles in the second half, planning to adjust our average unit retail (AUR) prices accordingly. Unfortunately, cotton prices have continued to increase. In Q1, we were pleased with our ability to maintain AUR growth, driven primarily by our basics and successfully received Easter assortments, although we missed out on additional sales as inventory ran low too soon. As we saw the trend turn positive in May, our pricing remained aligned with our projections at mid-single digits. Currently, we don't see pricing as a problem for our customers—the prices of our basic items remain unchanged from last year, keeping us competitive. Looking ahead, we anticipate that our AUR growth will come from our fashion collections and dress-up categories as families resume celebrating holidays. However, I won't commit to further price increases despite rising cotton costs, as it may not be advisable given the inflation environment. For now, we'll maintain our pricing strategy for the rest of the year.

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 sounds 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?

We are certainly monitoring our inventory levels, which are currently 30% higher than usual. We expect these elevated inventory levels to persist as we address supply chain challenges. A significant portion of our inventory, nearly 25%, is in transit. However, we are not worried about the overall health of our inventory. Currently, we have no spring products on pack and hold and do not plan to place any from this season. We do have some pack and hold items for holiday basics that we will begin releasing in Q3 and Q4. From a fashion perspective, we feel confident in our inventory situation. Additionally, a large part of our in-transit inventory is being prepared for back-to-school, which follows a successful back-to-school season last year that depleted many of our basics. Therefore, I am not concerned about managing inventory levels. We have not recently taken steps to reduce inventory, and it is not something we are considering at this time. Overall, we are pleased with our planning for fashion and assortments, especially following our strong performance around Easter, which we believe will help us maintain solid average unit retail and draw customers back for family activities and celebrations. For now, we are comfortable with our inventory levels.

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?

There is a significant amount of uncertainty in the market. During our Q4 call, we mentioned that our gross margin for the first half would be under pressure due to increased freight costs, the AGOA impact, and abatements received the previous year. This remains accurate. Additionally, we are adjusting our sales expectations, which means we anticipate further fixed cost deleverage beyond what we discussed in Q4. Regarding SG&A, as Jane pointed out in her first question, we benefit from the accelerated store closures we enacted in 2020 and 2021, which has resulted in a lower fixed cost base compared to the past. As demand fluctuates, we will be able to reduce SG&A and manage costs effectively throughout the year.

Our next question is from Susan Anderson of B Riley.

Hi, good morning. Thank you for all the details today. I was curious about your thoughts on the inventory, which you seem comfortable with. How do you perceive the competitive landscape? Some of your larger competitors mentioned they need to reduce excess apparel. If they become more promotional, will you also have to amp up your promotions? Regarding the double-digit earnings and EBIT margin guidance, you discussed the factors that give you confidence in that outlook. Could you specify those factors in relation to 2019 and the main drivers that you believe will help maintain that double-digit margin despite a sales decline? Additionally, if sales were to decline further, would that double-digit margin still be attainable? Thank you.

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 fluctuate, so we tend to peak in the revolver between Q2 and Q3. So I would play that into the calculation when you think 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.