PLCE - NASDAQ

Good morning and welcome to The Children's Place First Quarter 2023 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 first quarter 2023 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. Our Q1 results were negatively impacted by the ongoing macro-tension, which resulted in outsized pressure on our core consumer by limiting their purchasing power. With respect to monthly cadence, February was the strongest month. March was below expectations and April further decelerated post Easter. For Q1, our e-commerce top line trend was significantly better than our stores trend. Quarter-to-date, top line retail trends have decelerated from April with continuing inflationary pressure on our lower income consumer. Based on what we believe will continue to be a difficult macro environment, we have tempered both our top and bottom line expectations for the balance of the year. I'll provide more detail on how we're thinking about the back half of the year after I provide a brief update on our strategic pillars. Starting with our first strategic pillar product. Our Easter dress-up product across both TCP and Gymboree were the highlights of the quarter. Starting with TCP, no one in the kids space compares to our assortment of family matching dress-up product for the holidays and Easter was no exception. With respect to Gymboree, customer demand for our Easter dress-up product was outstanding, resulting in sell outs of many of the styles from our Mandy Moore Easter collection, which provided us with some excellent learnings for next year. Not only with respect to depth of ownership, but also with respect to the top line power of our spot-on celebrity partnerships. Moving on to our second pillar, Digital Transformation. Digital represented 46% of our retail sales in Q1 versus 45% last year. After accounting for the artificially inflated February store sales and traffic compare due to the Omicron surge from last year, Digital represented 49% of retail sales in March and April. We continue to deliver industry leading digital penetration and our highest operating margin channel supported by marketing initiatives focused on optimizing our channel results. We are clearly the leader in the Digital space among kids retailers and our customer continues to prove that she prefers shopping online versus traveling to stores. Approximately 56% of our acquisition came through our Digital channel in Q1, further demonstrating how important Digital is to our core millennial customer. Our millennial moms clear preference for the ease and convenience of shopping for her kids online is here to stay. And we believe that our rapid and successful shift to Digital as our number one acquisition channel puts us years ahead of our competition and gives us an important competitive advantage as we work to acquire and retain millennial moms and begin to market to the oldest of the Gen

Thank you, Jane, and good morning, everyone. Since the start of our marketing transformation, we've been focused on three key strategies. First, the accelerated growth of our e-commerce footprint. Second, our fully integrated marketing and media mix with an emphasis on top of funnel brand awareness. And third, new customer acquisition via our compelling and differentiated family of brands. Let's recap our encouraging results across these key strategies, beginning with accelerated e-commerce growth. Consolidated e-commerce traffic in Q1 was up low double-digits versus Q1 of 2022, fueled by our increased media spend and top of funnel brand campaigns. Consolidated e-comm traffic across our family of brands represented 77% of our total traffic, up from 74% in 2022 and 60% in 2019, making digital our largest traffic channel. Digital represented 46% of our retail sales in Q1, up from 45% in 2022 and 33% in 2019. Mobile continues to be the cornerstone of our digital strategy. In Q1, 76% of our US digital transactions occurred on a mobile device. Our targeted mobile app strategies have driven a significant increase in mobile app transactions and mobile app users. In Q1, our mobile app accounted for 19% of our US digital transactions versus 15% in Q1 of 2022 and 7% in Q1 of 2019 fueled by an impressive 32% increase in mobile app customers versus last year. Our mobile app customers spend 75% more than non-app users and shop 61% more than non-app users. Our mobile app continues to drive strong customer engagement, especially amongst our loyalty members who represent over 97% of our mobile app transactions. We're very proud of our industry leading digital penetration and we're planning for continued growth in this channel throughout the balance of 2023 fueled by our increased media spend and top of funnel brand campaigns in the back half of the year. Now let's move on to our brand awareness and marketing initiatives and the successful results from Q1. Our top of funnel brand work has been a key focus for us over recent years. This spring we launched two brand campaigns highlighting our expansive full family Easter assortment for The Children's Place and Gymboree brands featuring Eli Manning and Mandy Moore. We continued our disruptive strategy in featuring a star studded millennial focused cast, including Olivia Culpo and her sisters Cody Rigsby, Remi Bader and more for our PJ Place brand. Across our spring campaigns for The Children's Place, Gymboree and PJ Place, we garnered over 25 billion impressions across our earned and made paid media efforts. These disruptive brand campaigns also translated to positive top line results. For every dollar we invested, we made close to five times back in top line revenue and our blended return on ad spend is well above the industry benchmark for top of funnel performance. In addition to driving a healthy return, these brand campaigns have a meaningful impact on traffic, further positioning us for success in the back half of the year with our back-to-school and holiday campaigns. Our successful top of funnel media brand activations also heavily influence our third strategy, customer growth through new customer acquisition. Our ongoing brand work coupled with our fully integrated media strategies have fueled our acquisition. US acquisition during the first quarter of 2023 was up 21% versus last year with 56% of those acquisitions coming through Digital. Even more impressive when compared to Q1 of 2019, total acquisition is up 7% despite having significantly fewer stores, which further validates our successful digital acquisition strategy. With these results, we've shown consistent acquisition growth over the past several quarters, leaving us with an active and healthy pool of newly acquired customers that we will be marketing to in the back half of this year. We believe that this not only sets us up for success for the remainder of this year, but our future e-comm growth. Our loyalty and private label credit programs continue to be strong retention vehicles for our brands. Much like last quarter, our customer continues to feel the pain of inflation and this is apparent in our overall customer spend. Customer spend in Q1 was down 8% versus Q1 of 2022, making it that much more important for us to focus on driving new customers to trial our brand. Even through this incredibly challenging environment, we have proven that we now have the ability to drive meaningful reach, drive incremental qualified traffic, capitalize on this traffic and scale our digital penetration and acquire net new audiences to our family of brands, which is going to be key to propelling our future results. We hold a leadership position in The Children's Apparel industry, providing market differentiation through our unique and trend right product assortment. We have a very clear vision and a love for our customer. We know who she is. We know where she is and we know how to efficiently and effectively invite her to trial our family of brands. Now let's move onto Amazon. The significant time and resources that we have dedicated towards building our Amazon marketplace have resulted in another strong quarter. Our Q1 Amazon site sales were up 124% versus Q1 of 2022 fueled by a 214% increase in traffic and an 81% increase in customers over Q1 of 2022. Our Easter dressy assortment was particularly strong during Q1 with our fashion penetration growing over a thousand basis points compared to Q1 of 2022. Marketing continues to be a key component to driving the Amazon business and our successful marketing strategies are driving the significant year-over-year increases in traffic. Ad attributed sales were 51% of total Amazon channel sales for Q1 of 2023, up 145% versus 2022 with a strong double-digit return on ad spend. Our top performing ads for the time period featured our NFL Celebrity Campaign, which garnered over 18 million impressions on Amazon during Q1. Last fall, we launched our iconic Gymboree brand on Amazon and the Amazon business has built consistently since our launch and exceeded our expectations for Q1 of 2023. The momentum behind the Gymboree launch continues to be fueled by an enhanced advertising strategy built around maximizing the brand's visibility in high impact placements. Ad attributed sales for the quarter were 49% of total sales at a very healthy return on ad spend, which signals the significant opportunity ahead to drive incremental sales through increased marketing investment. Easter collection ad units featuring Mandy Moore drove a 25% conversion rate increases versus non-Easter Creative. In addition, the Mandy Moore ad units continued to be a strong acquisition driver with new to brand customers, generating 43% of total orders during Q1. We anticipate that our partnership with Amazon will continue to strengthen and plan for the business to grow significantly in the back half of this year. We'll talk more about future opportunities as the year progresses, but we continue to see opportunity to pursue expanding our family of brands through the Amazon Channel as well as Amazon International Growth Opportunities. Now I'll turn it over to Sheamus.

Thank you, Maegan, and good morning, everyone. As Jane discussed, the first quarter proved to be a difficult period from a top line perspective due to a challenging macro environment which continued to impact demand from our core customer. While sales were negatively impacted, we continued to make significant progress on our inventory levels, with Q1 ending inventory down 8% year-over-year. We took advantage of the cooler weather to liquidate more of our fall winter inventory than originally planned, enabling us to work through some additional higher AUC goods. Net sales for the first quarter decreased $40.8 million or 11.2% to $321.6 million, primarily driven by the continued macro-economic challenges, including inflation, lack of government stimulus and a decrease in tax refunds. Our US net sales decreased by $39.5 million, or 13% to $268.2 million and our Canadian net sales decreased by $6 million or 20% to $24.5 million. Comparable store sales decreased 8.2% for the quarter. Our comparable store traffic was up approximately 3%, while our e-commerce traffic was up low double-digits. Our comp store traffic was driven by a double-digit increase in February in which we lapped the COVID surge from last year. While our consolidated AUR declined by approximately 2%, driven by the liquidation of prior season merchandise. Our AUR on go forward spring and summer product was flat. Importantly, AURs remained significantly higher than pre-pandemic levels, validating the success of our restructured pricing strategies, which we believe will continue to pay significant dividends as input and transactional costs come down as we move into the back half of 2023 and our AUC decline as we continue to liquidate goods purchased after the surge in supply chain costs in 2022. Gross profit margin for the first quarter decreased to 30% of net sales as compared to 39.2% of net sales in the prior year. This was better than our prior guidance, but still reflected the combination of an unprecedented increase in input costs, including cotton and supply chain costs and the impact of a highly promotional retail environment. Adjusted SG&A was $109.2 million for the first quarter as compared to $108.2 million in the comparable period last year. This modest increase was primarily a result of planned investments in marketing initiatives as Maegan detailed and was mostly offset by a reduction in store expenses and a reduction in equity compensation. Our net interest expense was $5.9 million for the quarter versus adjusted net interest expense of $1.7 million in the prior year's first 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 due to increases in our variable rate based upon market rate increases. Our adjusted tax rate for the quarter decreased to approximately 19% as compared to 23.5% in the prior year, reflecting a shift in certain taxable income. For the first quarter, we reflected an adjusted net loss of $24.7 million or $2 per share as compared to an adjusted net profit of $14.5 million or $1.05 per diluted share in the comparable period last year. Moving to the balance sheet. We ended the quarter with cash and short-term investments of $18.2 million and with $300.8 million of borrowings under our revolving credit facility and a modest amount of long-term debt, which remains unchanged at $50 million. During the quarter, we continued to make significant progress in our inventory reduction efforts. As we previously discussed, our inventory still includes certain higher average unit cost of 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 Q1 and importantly ended the quarter with lower levels of seasonal fall and holiday inventory. Inventory levels, which had been up 4% as we entered the year, were down approximately 8% as we ended the quarter, enabling us to end in a healthy unit position despite the higher carrying costs. As previously disclosed, we experienced an increase in the average unit cost of inventory in recent periods due to the higher input costs, including cotton and supply chain costs, which increased our inventory investments, but we have reduced units which are down double-digits versus the prior year first quarter. Our basic inventory, which includes several key high volume categories with limited to no markdown risk, accounted for over 50% of our on-hand inventory at the end of the first quarter. This is a larger portion of inventory dedicated to basics than in prior periods, which helps mitigate inventory risk in a low AUR category. We expect inventory investments to be down throughout fiscal 2023, providing a significant opportunity to expand free cash flow. Moving onto cash flow and liquidity, we generated $5 million in cash from operations in Q1 versus a use of $19 million last year. As we will discuss in our outlook, our digital first model positions us well to generate free cash flow, which we expect will ramp up in the second half of the year. Capital expenditures in Q1 were $11 million. As we have previously discussed, as part of our operating plan for 2023, we remain focused on inventory management and have significantly reduced our purchases throughout 2023, which will result in a reduced level of inventory investment throughout the year as compared to the prior year. While inventory levels are down versus the prior year. We are currently building inventory to support our critical back-to-school selling period, which requires a significant use of working capital. We are pleased to be near the end of this peak working capital period in the next few weeks and we project that we will then begin to generate significant cash flow, which we plan to use to reduce debt. As we progress through the back half of the year, when free cash flow is expected to expand significantly due to the combination of sequential reductions in inventory and our return to profitability, we intend to reduce debt. We continue to expect to decrease borrowings by more than $100 million by the end of the year, further positioning us for long-term sustainable growth. During the first quarter, we closed 14 locations, ending the quarter with 599 stores. We continue to carefully evaluate our store fleet and close lower 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. Moving to our outlook. Given the significant macroeconomic headwinds which have an outsized impact on our lower income customer purchasing power, including the continuation of record inflation and tempered consumer sentiment, we now have a more cautious consumer outlook. As a result, the company believes it is prudent to take a more conservative approach. And as a result, we have tempered both our top line and bottom line expectations for the remainder of the year. As we have reduced top line expectations, we have further reduced our planned inventory and capital investments as well as our expenses. These strategies are designed to reduce risk while helping position us to achieve double-digit operating margins in the back half of the year. Now let me take you through our outlook for Q2 and the back half of the year. As the company has previously indicated, the first six months of 2023 will be negatively impacted by several temporary input cost headwinds, most notably cotton. These high input costs, which are embedded in our spring and summer inventory in the first half of 2023 will continue to negatively impact margin rates in Q2. For Q2, the company expects net sales to be in the range of $340 million to $345 million, representing a decrease in the high single-digits to low double-digit percentage range as compared to the prior year second quarter. Adjusted operating loss is expected to be approximately 8% of net sales. The tax rate for Q2 is expected to be similar to the rate experienced in Q1. Adjusted net loss per share is expected to be approximately $2.15 per share to $2.20 per share. We anticipate that the Q2 2023 gross margin rate will decline by approximately 200 basis points, reflecting higher input costs on goods expected to be sold during the quarter. Selling, general and administrative expenses are expected to be in line with last year, reflecting planned increase in marketing investments 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 second quarter, inventory is expected to continue to be down in the high single-digit percentage range versus the prior year second quarter. In the back half of 2023, despite continued macro pressures on top line, the company expects to drive increases in wholesale revenue with an acceleration in Q4, experience a softening of the pressures from high input costs, which year-over-year represents an estimated annualized impact of more than $100 million benefit from clean and appropriately sized inventory investments, which are expected to reduce the need to liquidate seasonal goods and reduce expenses with a more optimized expense structure. All of which is expected to enable us to achieve double-digit operating margins and adjusted net EPS of over $5 in the back half of 2023. For the full year, the company now expects the following. Net sales are expected to be in the range of $1.57 billion to $1.59 billion, representing a decrease in the high single-digit percentage range as compared to the prior fiscal year. Adjusted operating profit is expected to be approximately 2.5% to 2.9% of net sales. The consolidated tax rate for the full fiscal year is now expected to be in the low 20% range. Adjusted net earnings per diluted share is expected to be in the range of $1 per share to $1.50 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 have also significantly reduced our planned capital expenditures for the full fiscal year, which are now expected to be in the range of $20 million to $25 million, primarily to support our DC expansion, digital initiatives and enhancement of our fulfilment 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. Thank you. And now we will open up the call to your questions.

Thank you. [Operator Instructions] We'll go first to Jim Chartier with Monness, Crespi, Hardt.

Hi. Good morning. Sheamus, I was wondering if you could first kind of talk about the gross margin in first quarter. What were the biggest drivers of the decline, if you can quantify the impact of the freight and cotton costs there, how the inventory, how you're going to manage promotional activity in the second quarter given the sales shortfall? And then if you could provide an update on kind of the cost structure and any additional cost savings that you've seen with a little bit more time with the company? Thank you.

Yeah, absolutely. Thanks, Jim, I appreciate the question. First, in terms of Q1, as we discussed in our prepared remarks, Q1's gross margin rate came in slightly better than we had expected. I think our original guidance was to be down approximately 1000 basis points when we came in a little bit better than that, as we talked, when we gave the original guidance and in various discussions previously, that impact in terms of gross margin was largely driven by the higher input costs, in terms of the higher AUCs that had built up in our inventories, given the supply chain pressures and cotton pressures that we experienced last year in our purchasing activity. As we look at kind of bifurcating the most significant pieces of that. In Q1, it was clearly a combination of both cotton as well as high supply chain costs that were embedded in inventory that was receded towards the end of 2022. With cotton probably being a higher penetration of that deterioration. The anticipated margin impact was not as a result of incremental promotional activities or liquidation of inventory. It was almost exclusively those higher input costs. As we move into Q2, as we guided, we're still anticipating some level of pressure on margins as compared to last year, certainly much less than we experienced in Q1, but nonetheless, we are anticipating about a 200 basis point decline in margin in Q2. That decrease in margin is primarily the result of again, higher input costs, but in this case almost exclusively cotton, because the higher freight costs have dissipated and the inventory associated with those higher freight costs has also largely been liquidated. So the impact in Q2 is more so related to cotton. It's still a little bit of higher freight cost and then also a little bit of a shift in terms of as we penetrate higher in terms of wholesale it is a lower gross margin business for us. However, we don't incur the same costs. So it is a strongly profitable operating margin business for us. So there is some shift in terms of geography of expense structure as we penetrate higher and higher in terms of wholesale. It is a strong profitable business for us, but it does shift around a little bit the margin and the gross margin and operating margin. As we look to the final part of your question, expenses. I think in my first few months here, we definitely have spent a lot of time analyzing the expense structure. And as we hinted in some of our commentary, we do believe and have implemented a number of changes to rationalize expenses across the board, starting with our real estate initiatives, our store operation initiatives, as well as some of our home office activities, all geared towards understanding and believing that we do need to invest more in digital marketing. As we've become a digitally dominant retailer, we do need to invest more dollars there. So we've definitely saved dollars in terms of expense structure across the board, diverted some of those dollars into marketing initiatives. And we believe that positions us well for future success and future growth. So it moves us more in line with where we should have been in terms of marketing investment. So we're pleased with those activities and believe that will serve us well and pay dividends as we move into particularly the back half of the year and beyond, where, we'll start to see growth and more sustainable growth expansion of margins as well as generating significant free cash flow.

And Jim, I think from the promotional question you asked, we placed we had mentioned before that we placed summer fashion receipts down significantly versus last year due to the pressure we had on AUC. So as Sheamus says, we plan to end the quarter down with inventory down high singles and we anticipate that the fashion element of the high AUC spring and summer goods will be completely behind us. And then we'll end with a healthy position in basics, which sets us up for back-to-school.

Thank you. Our next question comes from Jeff Lick with B. Riley Financial.

Hi, guys. Thanks for taking the question. Jane, I was wondering if you maybe could elaborate a little typically in this quarter's call when you have a weak weather period, the May deterioration that you talked about, generally, you show some signs of picking up, that didn't happen this year. So I was wondering if you could elaborate a little on that and then just juxtapose that against all the good things you kind of have going on with the digital traffic up, getting into the back half, also Amazon. I'm just wondering there seems like there'll be this kind of aha moment where those the good factors kind of overwhelm the bad factors. I'm just kind of curious how you're thinking about that?

Yeah, I think we had. Thank you. I think we had mentioned in our last call that we really wanted to see a weather break because we didn't get a weather break the whole quarter during first quarter. And so that would allow us to see how much of what was happening in Q1 was weather versus how much was the consumer. So to your point, we did get a break in the weather in early May and we did not see that change our trajectory. As we mentioned on the call, we've decelerated in May versus where we were in April. So we believe that it's really solidly on the back of the consumer right now and clearly she's under pressure. We don't see that changing in the near term. As Maegan pointed out, she's spending less when she visits. And inflation is in everything she buys. You've heard it all. Savings are down. Credit card debt is up. And so she's being very, very cautious with her budget. From a marketing perspective, remember that Q2 is our usually our least profitable quarter. We don't have a marketing campaign per se in Q2 until we get the very end of July where we start up our back-to-school in mid-July. So when you think about what marketing is doing for us currently, it's not doing what it did for us in Q1, which Maegan outlined, and it's certainly not doing for us what we anticipated to do in Q3 and Q4 and what we saw from last year. So we anticipate May is going to continue to be tough. The store business is going to continue to be tough. June is going to be a continuation of that. And then when we get to July, remember that we have a bit of a different cadence than others. 40% of our quarter is comes from the month of July and about 60% of that comes from the last two weeks. So that is a very important period for us. And like I said we'll be ramping up marketing. From an Amazon point of view, I'm going to turn it over to Maegan to talk about it. I think she can provide some more detail on as we shift into back-to-school in mid-July on both the marketing front and the Amazon front to kind of round out your question about how we see the low right now and then how we see that improvement in the back half.

Yeah. So certainly from an Amazon perspective, despite the slowdown that we're seeing in consumer demand caused by inflation, it's really not impacting that business. Our results and the investment that we've made in marketing obviously resulted in a very strong quarter. And when we think about the back half of the year, there's a lot that we're planning for from an Amazon perspective in terms of significant growth. And it's really based on the current trends that we've been seeing quarter-over-quarter consistently for the past year. Our increased marketing investment, we're continuing to scale that as we head into Q3 and Q4, it will be very meaningful over last year, on the Amazon side. We're also seeing significant outsized fashion growth. So as I had mentioned, our fashion penetration was up a 1000 basis points in Q1, which really lends itself to the opportunity that we see as we head into Q4 specifically with holiday. So there's a lot of kind of really good happening there in terms of what we feel like we're going to see for the balance of the year. Along with what we're already seeing in book sales as we head into one of our biggest time periods as we head into back-to-school with Amazon. So there's a lot of momentum that's planned for the significant growth we're seeing in the back half of the business in the back half of the year for that business. And then from a marketing perspective, as Jane had mentioned, we really start to ramp up significantly in the July time period as we head into back-to-school with our back-to-school brand campaign and then the same into holiday. There's a lot when we think about kind of what's fueling that digital growth. And as we had mentioned in some of our prepared remarks, we're planning in the back half to see a similar traffic trend as it relates to digital to what we saw in Q1. So continuing to really fuel the digital business through that traffic and that's coming through our increased marketing investment, which is going to scale significantly in Q3 and Q4 over last year. We're also planning to see a slight change in our conversion trend as Jane had mentioned. And really that's based on being up against last year and Q4 specifically our lowest converting quarter historically as it relates to our digital business. And that was based on obviously the macro environment, the impact of inflation really coming up in a big way in Q4 of last year as well of some out-of-stocks that we saw on key marketing looks. All of which we feel like we've really right-sized in terms of a) the marketing investment that we're layering on top of this year and then the investment we made in from a product perspective to really make sure we're covering all of those key marketing looks. So we feel like we're really positioned well. I would also say really the third kind of driver is that acquisition growth that we've been talking about. And we've seen acquisition has a longer tail in terms of really seeing meaningful impact to top line. So when we think about when we're anticipating to see the growth and the impact of the top line from the past several quarters of really positive acquisition trends, we're assuming we're going to start to see a lot of that in the back half of this year and then into 2024.

Our next question comes from Jay Sole with UBS.

Great. Thank you so much. Jane, we just talked a lot about Amazon there. But if you can just maybe talk a little bit about you know I know you said you'd give some more numbers kind of maybe later in the year, but just big picture over the last 90 days, like what gives you confidence that the Amazon business continues to develop? And if you can give us an idea of like how big this business can be over time and how profitable it can be, that would be helpful. Thank you.

Yeah, I think as far as and I'll take this question just as far as again where we're really seeing the growth and why we feel confident in the back half of the year, from an Amazon perspective, we're looking at as we head into the back-to-school time period, what we already have in terms of book sales. We're also looking at, again, a scaled marketing investment. The trends, we're continuing to see the trend coming off of Q1. And then again, when we just look at those past 90 days, we have not seen the slowdown in that business. We've continued to build coming out of the Q1 time period and feel like we're in a significantly better position from both an inventory and an investment perspective for the Q3 and Q4 time period of this year than we've ever been historically with the Amazon business specifically. So I think that's really what those kind of levers are what really make us feel confident in the continued growth.

I think the other thing I would add to that is, you know, for us the Amazon business is certainly a big and important business and we anticipate that not only are we going to expect growth in the back half of the year, but we're really expecting that business to grow significantly as we move into '24 and '25. We believe we have, you know, opportunities within that business, both in the TCP brand as well as our recent launch of Gymboree on Amazon. So we believe that there's tremendous growth opportunity. I think it's important to put it in perspective as well. While the first half of the year was certainly a difficult time period for us or anticipated to be a difficult time period for us due to macro pressures and high input costs as we move into the back half of the year and into 2024, we really believe that we're establishing a new base for growth, go forward growth and part of that new base is that Amazon business that Maegan described and we're expecting an acceleration of that business as we move into the back half of the year. And in Q4, we're also going to benefit, as part of that new base from a stabilization in terms of cost. So the input costs are dissipating as we've talked. We're going to benefit from clean inventories. We're going to benefit from reduced expense structure that we're diverting into marketing and then also a stabilized store base as we're nearing the end of our store closure, initiatives that we believe we're going to settle in at around 500 stores. All of this adds up to really establishing a new base for the company in terms of growth for the future that will enable us to not only grow top line, but expand margins and generate significant free cash flow. So we think it's you know Amazon is certainly an important part of that go forward strategy.