PLCE - NASDAQ

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 growth. Our growth will be underpinned by the same 4 strategic pillars: superior product; digital dominance; wholesale and international expansion; and an optimized fleet. Today, we thought it would be helpful to review how our strategic initiatives have positioned us for long-term growth with our digitally-savvy core millennial customers and the Gen

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

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, and I am highly confident that beginning in the back half of 2023, our results will prove that our transformation strategy was the right one. In terms of a brief overview of our Q4, as we previously disclosed, our fourth quarter results came in significantly below our original expectations, but were slightly better than our revised guidance in early February. We reported adjusted loss per share of $3.87 per share for Q4. This loss was primarily due to the combination of high product input cost, most notably cotton and freight and the effects of the macroeconomic environment that proved to be far more challenging for our core customers than we originally expected. In the face of these unforeseen challenges, the company made several strategic decisions with respect to the level and composition of inventory and expenses, which resulted in additional operating margin pressure as we disclosed in our February 6 press release. In terms of the detailed results, net sales for the fourth quarter decreased $52 million or 10% to $456 million, primarily driven by the macroeconomic challenges. Our U.S. net sales decreased by $72 million or 16% to $372 million, and our Canadian net sales decreased by $4 million or 9% to $43 million. Comparable store sales decreased 12.8% for the quarter. This result was negatively impacted by the challenging macro environment, resulting in the continued slowdown in consumer demand due to unprecedented levels of inflation and the absence of government stimulus. Our comparable store traffic was up approximately 2%, and our e-commerce traffic was down approximately 3%, driven by lapping the COVID surge last year, which significantly decreased store traffic and increased e-commerce traffic last year in December and January. Our overall average dollar sale declined by approximately 10%, driven by a mid-single-digit decline in both AUR and UPT. Importantly, AURs remain significantly higher than pre-pandemic levels, validating the success of our updated pricing strategies, which we believe will pay significant dividends as input and transactional costs come down as we move into the back half of 2023. Adjusted gross profit margin for the quarter decreased to 17.5% of net sales as compared to 38.2% of net sales in the prior year, driven by the combination of an unprecedented increase in input costs, including cotton and supply chain costs, the impact of a highly promotional retail environment, temporarily elevated transaction costs due to an increase in the number of packages shipped, combined with various strategic initiatives that the company took to reduce inventory and ensure that we entered the spring season with clean, fresh inventories. Adjusted SG&A was $129 million for the fourth quarter as compared to $119 million last year. This increase was primarily a result of the investment and marketing initiatives, as Maegan described, an increase in various sales tax reserves and inflationary pressures on various general and administrative expenses. Our net interest expense was $5 million for the quarter versus adjusted net interest of $2 million in the prior year's fourth quarter. The increase in interest expense was driven by higher borrowings and higher average interest rates associated with the revolving credit facility and term loan. For the fourth quarter, we reflected an adjusted net loss of $48 million or $3.87 per share as compared to an adjusted net profit of $44 million or $3.02 per diluted share in the comparable period last year. Moving to our balance sheet. We ended the year with cash and short-term investments of $17 million, $287 million of outstanding borrowings on our revolving credit facility and a modest amount of long-term debt, which remains unchanged at $50 million. During the quarter, we made significant progress in our inventory reduction efforts. As we previously discussed, our inventory still includes certain higher average unit cost inventory that was purchased in 2022 when input costs were at their peak. Nonetheless, we are pleased that we were able to liquidate a significant portion of this inventory in Q4 and importantly, ended the year with lower inventory levels of seasonal fall and holiday inventory. Inventory levels, which had been up 24% as we entered the quarter, were only up approximately 4% as we ended the quarter, enabling us to end in a healthy unit position despite the higher carrying costs. As previously disclosed, the increase in inventory as of year-end is entirely due to higher input costs, including cotton and supply chain costs as unit inventories are down double digits versus the prior year. Our basic inventory, which includes several key high-volume categories with limited to no markdown risk, accounted for approximately 50% of our on-hand inventory at the end of Q4. This is a larger portion of inventory dedicated to basics than in past years, which helps mitigate inventory risk in a low AUR category. Moving on to cash flow and liquidity. We generated $9 million of cash from operations in Q4 versus $66 million last year. As we will discuss in our outlook, our digital-first model positions us well to generate free cash flow, which will ramp up in the second half of the year. Capital expenditures in Q4 were $14 million. During the fourth quarter, we repurchased 372,000 shares for $14 million, leaving $164 million outstanding on our current authorization. Year-to-date, we have purchased 2 million shares. During the fourth quarter, we closed 45 locations, and for the full year 2022, closed 59 locations, ending the year with 613 stores. We continue to carefully evaluate our store fleet and close low-volume, unprofitable stores. With over 75% of our fleet coming up for lease action in the next 24 months, we are maintaining meaningful financial flexibility in our lease portfolio. In a moment, I will provide further commentary about our real estate rationalization program as part of my discussion of our future outlook. Before I get into our specific guidance, let me provide you with my thoughts on how we are approaching 2023 and beyond. With the support of Jane and the Board, I am making some necessary changes to install more financial and operating discipline to improve our results, provide more consistent and more profitable growth and drive shareholder returns. Let's start with our approach to inventory. Fiscal 2022 was clearly a challenging period for the company and the entire retail sector due to the impacts of record-high inflation and also from an inventory management perspective. These challenges included the impact of decade-high cotton prices, record-high container costs, an unprecedented reliance on airfreight due to supply chain delays, cost challenges that unlike most other retailers, the company was able to largely avoid in 2021, but they did impact us in 2022. As we previously disclosed, our 2022 operating results were negatively impacted by approximately $125 million versus 2021 due to 3 input costs. First, a $65 million impact due to the spike in cotton prices, our largest product input cost; second, approximately $30 million of airfreight, amidst the worldwide supply chain delays caused by the COVID-19 pandemic; and third, approximately a $30 million increase in container costs also due to the COVID-19 pandemic. While these costs certainly impacted 2022, it will be a different story in 2023. As we enter 2023, cotton prices are down approximately 40% from their 2022 highs and are expected to continue to decline in 2023. Container costs are now approaching pre-pandemic levels. And we have effectively eliminated the use of airfreight in 2023 as the worldwide supply chain moves back in line with historical norms. While we still need to work through inventory in the front half of 2023, that has these higher input costs embedded in it, beginning in the back half of 2023, the reduction in these costs is expected to result in an annualized benefit of more than $100 million. While the effects of these high input costs have impacted all cotton-based apparel retailers, the timing or quarterly periods impacted may be different from company to company, due to the length of each company's production cycle and their use of pack and hold from previous seasons. For us, given our supply chain process, these higher costs significantly impacted the latter part of 2022 and will continue through the first half of 2023. But we clearly see the light at the end of the tunnel as these costs have subsided. We fully expect that these headwinds will turn to tailwinds in the second half of 2023 and will position us on a path of consistent, sustainable, profitable growth. As we moved into 2023, we remained cautious with our inventory investments as we believe the challenging environment will persist, and our customers will continue to face pressures due to high inflation and lower disposable income. This started with ensuring that we ended 2022 with lower levels of holiday fashion and non-go-forward inventory, which we accomplished in Q4. We also took a cautious view of spring and summer inventory and reduced unit inventory purchase for the first half of 2023, given the high input costs. Finally, we ensured that we appropriately invested in inventory in the back half of 2023 to maximize the margin opportunity that we see as average unit costs decline and we successfully hold the average unit price increases that we realized over the past 2 years. We believe these actions together will enable us to deliver consistent margin performance and sustainable improvement in profitability as we move into the back half of 2023 and beyond, as we further enhance our already strong digital presence. Now let's shift to the digital transformation we've undergone. As Jane described, several years ago, the company developed a strategic plan to transform from a traditional brick-and-mortar business with a website into a dynamic multi-branded omnichannel business with an industry-leading digital penetration. This strategic decision not only saved the company during the pandemic, but I firmly believe that had the company not put this plan in place when it did, and had the team not remained laser-focused on achieving it despite the short-term volatility it may have caused, we would not be here today talking about how well positioned we now are for long-term sustainable growth on the top and bottom lines. The main goal of this strategy was to increase the shareholder value by shifting away from deteriorating mall-based retail locations with multiyear declining traffic trends and high fixed cost structures to a multi-brand digital experience that increases the lifetime value of our core Millennial customers by extending the life of the relationship with them despite the negative demographic trends of 15 years of declining birth since their peak in 2007. This transformation also required a major shift in our DC strategy and capabilities as we had to rapidly transition from our then existing predominantly store-based distribution center operations to a digital-first fulfillment model. While this transformation strategy required significant investments and created short-term volatility, it has clearly positioned us for long-term success. Without these investments, we would not have been able to optimize our relationship with our core Millennial customer, who clearly prefers a digital-first experience. The benefits of this transformation are clear, as we have not only doubled our e-commerce business, which now represents approximately 50% of our revenue, but we've done this during a time period when we've closed approximately half of our retail locations. This digital transformation has enabled us to show dramatic growth in this important component of our business, which has our highest operating margins with room for additional margin expansion and drives the best return on investment for our shareholders. First, in terms of brick-and-mortar, we previously had more than 1,100 retail stores, with very high fixed operating costs due to minimum guaranteed occupancy deals, high support costs and increasing payroll expenses due to rising minimum wage rates, which have led to a more than 30% increase in our store-level wage rates over the past 5 years. Importantly, our transformation has allowed us to migrate customers away from underperforming low-volume stores to our higher operating margin digital channel, which is not burdened with high fixed costs and consistent negative traffic trends like mall-based retail locations. These real estate rationalization efforts have led to us ending 2022 with 613 stores with an industry-leading 50% digital penetration. In terms of our future store footprint, we have spent a considerable amount of time analyzing our portfolio. And depending upon the outcome of various landlord negotiations, we expect to optimize our fleet with approximately 500 retail stores in the best trade areas to service our core customers' omnichannel needs. On the digital side, as Maegan described, we continue to invest in marketing as this channel represents approximately 60% of our new customer acquisition as our Millennial customer clearly prefers to shop online, positioning us in very short order to have $1 billion digital business. In order to support this consistent and profitable growth, we continue to invest in our distribution capabilities to further improve margins and increase profitability. We are expanding our Alabama distribution center to add further e-commerce fulfillment capabilities with a planned capital investment of up to $40 million over the next 18 months. This owned DC already operates at significantly lower cost than our third-party fulfillment centers, and once our expansion is complete, we will move more of our fulfillment from third parties to our lower cost owned DC, which is expected to further expand margins. In summary, our successful digital transformation has enabled us to profitably shift away from underperforming stores with high fixed cost to our variable-based digital model where every transaction is accretive to earnings. We believe we will see the benefits of this success reflected in our financial results in the second half of 2023. We believe this strategy has successfully positioned us ahead of our peers for long-term sustainable growth in topline and expansion of bottom line profitability, driving incremental shareholder value. Moving to capital allocation. This is a topic on which we regularly discuss with our Board, and I have extensive experience. We have completed our operating plans for 2023, and we will maintain a strong focus on inventory management, reducing the level of inventory investment throughout the year. As we progress through the year and particularly in the back half of the year when free cash flow is expected to significantly expand due to our planned double-digit operating margins, we expect to reduce leverage and decrease borrowings by more than $100 million by the end of the year, further positioning us for long-term sustainable growth. Now let me take you through our outlook for Q1 and fiscal year 2023. As the company has previously indicated and has been widely reported across the retail apparel sector, the first 6 months of 2023 are expected to be impacted by several temporary macro headwinds, primarily resulting from higher input costs, most notably, cotton. These high input costs which are embedded in inventory that will be liquidated in the first half of 2023 will negatively impact margin rates during the first 6 months of 2023. However, importantly, these input costs have already decreased and goods purchased for the back half of 2023 are at much more favorable costs, which is planned to result in more consistent and profitable growth through significant margin expansion, resulting in double-digit operating margins in the back half of 2023. Our first quarter guidance also reflects a cautious consumer outlook with significant headwinds, including the macro environment, the continuation of record inflation, unfavorable weather trends across the country in March and lower tax refunds. These are significant factors affecting our lower-income customer. In light of these pressures, for Q1, the company expects the following: net sales are expected to be in the range of $335 million to $345 million, representing a decrease in the mid-single-digit percentage range as compared to the prior year first quarter; adjusted operating loss is expected to be in the range of 6.5% to 8% of net sales; adjusted net loss per share is expected to be in the range of $1.60 per share to $1.90 per share. We anticipate that the first quarter gross margin rate will decline approximately 1,000 basis points, reflecting the impact of higher input costs on goods expected to be sold in the first half of 2023 as well as anticipated higher shrink costs given the current retail environment. Selling, general and administrative expenses are expected to be up slightly, reflecting inflationary pressures and planned increases in marketing, partially offset by reductions in store payroll due to lower store count and our expense rationalization initiatives. However, on a rate basis, these expenses are expected to deleverage due to the impact of lower revenue. At the end of the first quarter, inventory is expected to be down in the high single-digit percentage range versus the prior year first quarter and unit inventories are expected to be down double digits versus the prior year. We are planning for capital expenditures of approximately $5 million for the quarter. The large majority being allocated to support digital initiatives and the expansion of our fulfillment capabilities. Moving on to Q2 and the full year outlook. As we move into the second quarter, we are expecting gross margin pressures to begin to subside. And while we're still expecting an operating loss for the quarter, this loss is expected to moderate versus our Q1 results. The cost headwind that is expected in the front half of 2023 are anticipated to turn to tailwinds in the back half of the year, largely due to inventory purchased for our critically important back-to-school and holiday seasons being at much lower input costs. This will enable us to significantly improve margins in the back half of the year as we plan to return to double-digit operating margins for the 6-month period and will drive significant free cash flow. For the full year, the company expects the following: net sales are expected to be in the range of $1.62 billion to $1.66 billion, representing a decrease in the low to mid-single-digit percentage range as compared to the prior fiscal year; adjusted operating profit is expected to be in the range of 3.5% to 4.0% of net sales; adjusted net earnings per diluted share is expected to be in the range of $2.50 to $3 per share. These results include the impact of the 53rd week in 2023 based upon our retail calendar. This week occurs during a low-volume non-peak clearance period and as a result, is expected to have a very modest impact on revenue and an insignificant impact on operating results. We are planning capital expenditures for the full year to be in the range of $40 million to $50 million, primarily to support our DC expansion, digital initiatives and the enhancement of our fulfillment capabilities. We anticipate closing 100 stores as part of our ongoing fleet optimization initiative with the bulk of the closures happening in 2023, leaving us with an optimized fleet of approximately 500 stores. We are planning for full year tax rate of approximately 25%. Thank you. And I will now turn it back over to Jane.

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

[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

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.