John Taylor – Vice President Finance Jane T. Elfers – Chief Executive Officer, President and Director Michael Scarpa – Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Executive Vice President.

Betty Chen – Mizuho Securities Susan Anderson – FBR Capital Markets Anna Andreeva – Oppenheimer & Co.

Janet Kloppenburg – JJK Research Adrienne Tennant - Janney Capital Markets Steph Wissink – Piper Jaffray Shreya Jawalker – Stephens Jennifer Davis – The Buckingham Research Group Richard Jaffe – Stifel Marni Shapiro – The Retail Tracker Jay Sole – Morgan Stanley Brian J. Tunick – JP Morgan Dana Telsey – Telsey Advisory Group.

Good day, everyone, and welcome to The Children's Place First Quarter 2014 Conference Call. (Operator instructions) Please note this call maybe recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Mr. John Taylor. You may begin sir..

Thank you, Steve. Thank you for joining us this morning. With me here today are Jane Elfers, President and Chief Executive Officer; and Mike Scarpa, Chief Operating Officer and Chief Financial Officer. We issued a press release earlier this morning, announcing first quarter 2014 financial results. A copy of the release can be found on our website.

Before we begin, I would like to remind participants that any forward-looking remarks made today are subject to the Safe Harbor statements found in this morning's press release, as well as in our SEC filings. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially.

The company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date hereof. After the prepared remarks, we will open the call to questions. (Operator instructions) Thank you. And now, I will turn the call over to Jane Elfers for her opening remarks..

Thank you, John, and good morning, everyone. We delivered earnings above the high end of our guidance range in Q1 despite significant weather issues that continued into the beginning of April, weak consumer traffic and a highly promotional environment.

We achieved these results through disciplined operational execution, tight expense control, and effective inventory management. Let me review our Q1 financial results. Q1 sales of $410 million were 2.2% lower versus last year on a constant currency basis, and comp sales declined 3.6% for the quarter.

However, we posted a 9% comp in April due to the Easter shift and more normalized weather pattern. US comp sales declined 3.2%, the West, Southwest, and Southeast regions, where weather patterns were more consistent throughout the quarter significantly outperformed the Northeast, mid-Atlantic, Midwest and Rockies region.

Canada comp sales declined 7.7%. eCommerce sales grew 17.2% and adjusted EPS was $0.68, $0.02 above the top end of our guidance range. Some key accomplishments during Q1 include the following. We opened 13 International stores, including our first 10 in Israel, and the results to date are very encouraging.

Today we announced a new franchise agreement with Grupo David. We will partner with Grupo David to open 35 to 40 stores in Latin America and the Caribbean over the next few years and we expect to have our first store opened during the fall of this year.

In early May, we seamlessly transitioned to our SAP, enterprise resource planning system, a primary component of our strategic roadmap. With this major milestone now behind us, we will intensify our focus on our International and wholesale growth opportunities, and increase our investments in our seamless retail and systems initiatives.

As a result of our fleet optimization initiative, we have made the decision to curtail new store openings in North America in 2014 and beyond, and reprioritize our capital investments to our omni-channel growth initiatives.

And as part of our commitment to return excess cash to shareholders we paid our first ever quarterly dividend and repurchased 521,000 shares for a total of $26.5 million.

For the first 10 weeks of the quarter sales were soft in our Northeast, mid-Atlantic, Midwest, and Rockies regions across all warm weather categories, shorts, short sleeved tees, tanks, sundresses, swimwear, sunglasses, flip-flops and sandals.

The bright spot throughout the entire quarter was our newborn business, where we posted an 8% comp, our second consecutive quarter of a positive newborn comp. It appears that our new merchandising strategy for newborn is paying off.

Business opened up in the last three weeks of the quarter and with the later Easter and the more normalized weather pattern, we posted a positive 9% comp for the month of April. Now I would like to highlight our channel performance during the quarter, and provide a more detailed update on our digital strategy and our system transformation efforts.

First, channel performance, outlets. The cold weather had an even more significant impact on this channel during Q1 due to the outdoor nature of many of these centers, but like US [play stores] business improved significantly in April when the weather normalized. We have fully implemented our outlet strategy.

80% of our outlet merchandise is now made exclusively for this channel. Customers have responded positively to this assortment, and through improved inventory management we grew outlet merchandise margins 160 basis points year-over-year during the quarter. Canada. Canada was hit very hard by the severe weather in Q1 with no regional offsets.

Currently there are a number of challengers as it relates to doing business in Canada, a cautious consumer, erratic weather pattern, FX headwinds, a shifting competitive set, and a generally weak retail backdrop. We plan to manage through this period by controlling cost and being very cautious with our [commitments] until we have more visibility.

ECommerce. We have been focused on improving our digital capabilities and our Q1 performance reflects that. We posted a 17.2% comp for the quarter with online sales reaching $64 million and accounting for 16% of total sales. This is our 33rd consecutive quarter of double-digit comps. Now I would like to update you on our transformation initiative.

First our digital strategy. Our customers continued to leverage technology to improve efficiencies in their everyday life and were investing in our digital strategies to further enable customers to seamlessly access our brands. We upgraded our US platform in February and we now have one global e-commerce site.

At the same time we also launched a new mobile optimized site and new mobile app. Our new digital experience helps our customers find what they are looking for faster, allows them to complete shopping transactions in less time, and enables them to redeem loyalty rewards efficiently across channels.

Navigation is now more intuitive, the product presentation is cleaner with bigger images, customers can view products and add them to their card in fewer steps, and a new dynamic store locator makes it easier to find the nearest store.

With the SAP implementation now behind us, we are able to invest the time and resources necessary to accelerate accessibility to our brand for moms. Our digital team is now focused on the development of digital platform to provide our customer with an integrated network that allows her to engage our brand when, where and how she wants.

Continued enhancements to our mobile platform as mobile devices are our customers’ preferred method for accessing our site, and strategic segmentation with the goal of delivering targeted, personalized communication. Moving onto systems.

Working with legacy systems that are woefully out of date is one of the biggest challenges at The Children's Place and at the same time it is one of our biggest opportunities going forward. We have invested and we will continue to invest significant resources to harness this upside potential.

In addition to the successful installation of our ERP system, we also successfully launched our vendor portal to provide the necessary support for our global sourcing, logistics and distribution initiatives. We are thrilled to have accomplished these two milestones and congratulate the entire team for an outstanding job.

The key systems implementations have now set the foundation to enable us to significantly improve sales and margins through the addition of state-of-the-art inventory management systems. In addition, they allow us to more rapidly expand our international and wholesale businesses.

Looking forward, we are expecting the run rate of the business to improve in Q2 through Q4 as weather patterns stabilize and our strategic initiatives continue to gain traction. Now, I'll turn it over to Mike Scarpa..

One, optimizing our North American fleet; two, driving additional growth and profitability through our international and wholesale distribution channels; and three, our SAP implementation and transformation initiatives. Fleet optimization.

We remain on track to close 125 underperforming stores through 2016, which includes the 41 stores we closed in 2013 along with approximately 35 stores we plan to close in 2014. Additionally, we are slowing new store growth in 2014, and now plan to open 25 stores this year, down 10 from our previous guidance.

We expect to opening even fewer stores in 2015 and beyond as we focus on our international and wholesale channels and re-prioritize our investment in our omni channel initiatives. On the international front, we opened 13 stores in the first quarter, including 10 stores in Israel, the first stores we have opened in this market.

We are pleased by the early reads in Israel. Additionally, we announced a new franchise agreement with Grupo David to expand into Latin America and the Caribbean with our first store opening slated for the fall of 2014. We have the potential to open 35 to 40 stores in these markets over the next few years.

Overall, we remain very enthused with our franchise operations and now expect to have approximately 75 franchise stores internationally as the end of fiscal 2014. In our wholesale business, we continued to expand categories and distribution with our existing customer base during Q1.

We remain on track to continue to expand our customer base beginning in the second quarter of 2014. Over time we expect both the international and wholesale businesses to become meaningful contributors to operating margin. SAP implementation and transformational initiatives.

We have successfully implemented and are currently running our business on our new SAP enterprise resource planning system. This is a major milestone for our company, and this ERP system will service the core of our transformation initiatives going forward.

We are focusing our resources and capital on key planning, allocation and price optimization systems as well as omni channel capabilities to further enable us to manage inventory, improve margins and provide a better customer experience. Now I like to move onto our guidance.

Our guidance for the second quarter assumes comparable retail sales will be down low single digits. As a result, we project second-quarter adjusted net loss per share will be in the range of $0.47 to $0.41, compared to a loss of $0.43 in the second quarter of 2013.

We expect to deleverage gross margins by 200 to 240 basis points due to increased fixed expenses, and our expectation that a difficult first quarter weather pattern will result in a promotional second quarter as retailers work through spring inventory.

We expect SG&A dollar spending will be down approximately $4 million to $5 million, as continued SG&A efficiencies are partially offset by continued start-up costs for our system initiatives.

We expect inventory to be up approximately $40 million or 12% at the end of the second quarter as a result of two factors, one, our basic inventory is currently in an in-stock position versus what was still a build model at the end of Q2 last year; and two; holiday in-transits will be up as a result of us moving our quarter inventory for our in-transit goods from the West Coast to the East Coast to avoid any potential disruptions that maybe caused by the expiration of the West Coast [stock workers] contract on June 30.

We anticipate our fashion carryover inventory will be down once again at the end of the second quarter. We now project fiscal 2014 adjusted net income per diluted share to be between $2.90 and $3.05, with comps in the range of flat to negative 1%.

We expect gross margins to be down approximately 140 to 160 basis points, and we expect SG&A to leverage approximately 70 basis points. This guidance excludes unusual costs or events that are reported in our non-GAAP adjustments.

It also assumes that currency exchange rates will remain consistent with today's rates, which is expected to negatively impact adjusted net income per diluted share by approximately $0.02 in the second quarter and $0.10 for the year. Additional guidance for fiscal 2014. We now expect depreciation to be down slightly year-over-year.

We expect our tax rate to be approximately 33.5% for the year. We entered the second quarter with approximately $88 million remaining on our share repurchase authorization, and we expect to continue to return capital to shareholders through both our dividend program as well as through share repurchase.

And our capital expenditures for the year are forecasted to be in the $80 million to $85 million range. At this point, we'll open the call to your questions..

(Operator instructions) Our first question is from Betty Chen from Mizuho Securities. Your line is open..

Thank you. Good morning everyone. Congratulations on a great quarter in a tough environment..

Hi, Betty..

Betty Chen – Mizuho Securities:.

:.

Sure.

Well, the newborn and baby business together make-up a little bit more than 30% of our total business, and what we saw in this past quarter and we also saw in the fourth quarter was a pretty major acceleration in the newborn piece of that business and what we have done is we have pretty dramatically changed the merchandising strategy in newborn and we have really minimized the fashion and gone after sleepwear in a much bigger way, and gone after sets in a much bigger way versus separates and that strategy, you know, as we mentioned on the call seems to really be paying off.

As we look into Q2, we expect that to continue to produce for us as well as in the back half of the year, and in the baby business, which is, you know, up to size 4. Newborn really zero to 24 months and baby, you know, 2 T to 4 T, 2 T to 5 T depending on the classification.

We have also gotten behind sleepwear in the baby business up to size 5 T, which is new for us, which is really performing well. And we have gotten a lot more playwear into the assortments of baby as well. So all those things combined are helping us propel the trend..

And from a systems perspective, you know, having SAP now implemented as our enterprise resource planning system, it will enable us to accelerate our growth in both the international and the wholesale businesses.

We basically have been working manual in terms of order processing and PO generation, which has limited the amount of partners that we can really hook up with the amount of complication around doing things manually.

This technology will allow us to automatically generate purchase orders, and sales orders, and it also meets the requirements of some of our potential partners in terms of EDI transmissions. So all in all, we expect acceleration as we move forward now. .

And our next question is from Susan Anderson from FBR Capital Markets. Your line is open..

Good morning. Congrats on a really good quarter in a really tough environment.

I was wondering if you could talk about the store rationalization program, just what you are kind of seeing versus your expectation in terms of the retention rate in the first quarter, and then any impact to the margin, you know, earnings and sales that you could talk about would be helpful?.

Sure. What the – store closure program is on course, you know, with 125 planned stores through 2016, including the 41 we closed in ’13. On the last call, we indicated that we were going to be opening 35 stores and closing 30 for a net of plus 5. This has now been revised to an opening of 25 and a closing of 35 for a net minus 10 store count.

So moving forward overall on stores, now I mentioned on the last call that we had looked at some data from our 4Q 2012 store closings, and that we were encouraged in terms of the transfer rate of customers and their dollar spend.

At this point, we really don’t have much more to report on that because of the amount of stores that we closed in the fourth quarter of 2013, and allowing for three months worth of actual data results in that is not really sufficient to make for any type of conclusions, but as I mentioned on the call, in March we are optimistic that, you know, the transfer rate, it can be above what we have modeled out overall..

That is helpful, and then last question on the promotional environment, it sounds like you kind of managed March margins pretty well given the environment, so just kind of curious, where is the P&L in the quarter versus your expectations, and then you know, going forward it sounds like it is going to be – continue to be pretty promotional and just kind of give your plans around that?.

You know, when we – when we last spoke at the beginning of March, you know, our traffic metrics were down about 10%. We indicated at our conference down 6%, and that our merchandise margins actually were down about 160 basis points.

So, we were basically able to improve on all of those metrics, and get basically within the guidance range that we – that we set out.

We were pleased with the way our margins actually – the margins we achieved in the month of April and we actually saw that margins in April, merchandise margins were actually up slightly over where they were a year ago. So, you know, feeling good about that. .

And our next question is from Anna Andreeva from Oppenheimer & Co. Your line is open..

Great. Thank you so much, good morning guys, and congrats also on executing well.

We had a couple of questions, I was hoping to follow up on the variability in the first quarter, between your cold weather versus warm weather stores, the Southwest and West regions actually comped positively, and did the strength you saw in April continue into May as the weather is becoming more normalized?.

As far as the regions played out, we had flat to positive results in the West. We were negative very low single digits in the Southwest and the Southeast and we were high negative single digits in the Midwest, the Rockies, the Northeast and the Metro, you know, New York and New Jersey region.

So we had significant differences between where the weather was more normalized and where we experienced some of the severe cold and large number of storms. You know, we don’t really comment on monthly comps as a rule of thumb, but I will tell you that, you know, May is certainly off to a better start than Q1 was..

Our next question is from Janet Kloppenburg from JJK Research. Your line is open. .

Good morning everyone. Congratulations on bringing in a good quarter. Jane just a couple of questions, first of all I think you said the newborn and baby business were better.

I am not sure if it's just newborn or if baby is included and if we could have an update on what is going on in the childwear area that would help a lot? And for Mike, I was wondering if we should be expecting inventories by the end of the year to be tracking inline with revenues or what our expectations should be there, and I am also wondering given the significant difference between geographies during the quarter, if you were able to maintain some regional differences in the regional markdowns, or if you have – I’m not sure if you have that capability or not? Thank you so much..

Sure. On the newborn question, when we are speaking to the 8% comp, we are speaking to the newborn business, which is zero to 24, which has been positive for the last couple of quarters.

As far as the baby business is concerned, the update there on the toddler zone is where we have gone after the sleepwear business in that zone as well like we have in newborn and where we have gone after much more playwear, we have seen much better results.

We still have not been able to comp positive in the baby section like we have in newborn, and we are working on to continuing to make those assortments more casual and more playwear in nature..

From an inventory perspective, you know, our number one priority is really to ensure that we have our goods available for our customers when they want to purchase.

We haven’t really seen any major surprises in terms of the inventory levels, you know, as we have had to deal with, you know, basically strikes and political disruptions in countries like Bangladesh, Pakistan, Indonesia and Vietnam.

You know, we have had to manage through timing issues in terms of in transits with the items such as Chinese New Year last year. Now today we are anticipating what could be potential impacts on delivery of goods to west coast’s port strike that happened.

So we had the deal with new onsets in our quarter-end inventory levels but I’ll tell you this that you know overall we are purchasing those units this year basically down around 1% in the first half of the year and about down to 4% in the second year so we feel good with our inventory levels and would expect them to be in line year on year..

Our next question comes from Adrienne Tennant from Janney Capital Markets..

Good morning and that me and my congratulations to you.

Jane, I was wondering if you can talk about sort of whether it just continues to be kind of very volatile, if we look into the back half of the year, they sort of two consecutive years of whether related issues and last year you had bought down the seasonal items which was a great strategy, I was wondering if you could update us on how you are thinking about mitigating weather related risks there.

And then a really quickly might just a follow up on that last question, is there a disparity between units in dollars or I just didn’t understand the units are going to be down, the dollar up. I was just wondering how to reconcile that. Thank you..

Sure. Thank you. On the go-forward buying strategy, the way that we have been looking at it at the last couple of years, such with some of the weather issues we have been facing is that, looking at Q2 and Q3, we don't really seem to see the issues as much there.

They seem to play out pretty seasonably when you take all the regions together where we have had difficulty with dramatic and erratic weather has been in Q4 and Q1, so last year as we mentioned in Q4, we didn’t pullback on some of those seasonal categories like coats in cold weather but also at the same time we shifted our assortment to be a little bit more where we are now.

When you look into Q4 this year we have kind of ramped up that where now then the total of the assortment.

So, what you will see is, you will see the same pretty much the same level this seasonal business like outerwear and cold weather accessories, heavier sleepwear but in the wear-now component which starts to deliver in the December, you will see a lot more I will call it weather-appropriate merchandise particularly on the fashion side than we saw last year.

So I think that's going to help us as we move into the December and January time period with the customer purchasing things that more long sleeves, more three quarters sleeves versus the shorter sleeves offerings that we have this year..

From an inventory perspective, just want to clarify that we bought less units this year, we are down about 1% in unit purchases in the first half and about down 4% in the second half.

Our sourcing team has done a great job, their strategy in vendor consolidation and country migration has served us well as we have been able to mitigate the majority of the pressure on wage increases that the industry seem during this past 12 months.

We are seeing very slight AUC increases in the second half of the year versus what we are flattish AUCs in the first half. So dollars and units are pretty much in line..

Our next question is from Dorothy S. Lakner from Topeka Capital Markets. Your line is open. Dorothy Lakner your line is open? Next, we will go to Rick Patel from Stephen. Your line is open. Mr. Rick Patel your line is open? Next we will go to Steph Wissink from Piper Jaffray..

Hi good morning can you hear me okay?.

Steph, we can hear you fine..

Okay. Third time for charm. One clarification, Mike, if I could on the franchise agreements. Just a clarification around structure, are those all structured consistently and if you could just remind us how the franchise revenues flow through the P&L that would be helpful.

And then two questions for you, Jane, its really exciting initiatives on the digital and mobile front, can you give us some stats around some of the transaction data related to e-comm? How does that compare to your legacy sources and then also maybe on some of the mobile transactions that you've been seeing flowing through the new portals, and also I have a question on pricing.

I think we've had several seasons now where AURs have been under pressure, any sense of a point of stability in the market place around that metric, are you seeing any improvement in the elasticity in certain categories and merchandise classifications where you are seeing some hope for pricing stability. Thank you.

I think on the promotional side, from the promotion from Q1 we had some pretty weak traffic during the quarter and we had to incentivize some of our promotional effort to drive sales particularly during the early part of the quarter with all the weather disruptions, we want to make sure inventories were positioned correctly heading into the important Easter period.

I think the team did a great job threading the needle during Q1 between traffic driving and preserving margins and as you may recall as Mike has said before we indicated on the March call that merch margins are running down at about 150 basis points and we ended the quarter with only very minimal merchandise margin erosion.

So I think we have currency of inventory I think when you look by channel, there were certainly a lot more pressure in AUR up in Canada than there was in the United States. I think looking forward into Q2, I think we are already seeing some pretty significant activity around kid space promotions both in mall and off mall channel.

We are starting to see a lot of entire store messages and windows 50 of entire store and we are starting to see a lot of mall-based competitors price point at their entire stores at one price point or under.

We have also heard as you have probably heard that one mall based kids retailer is also planning to close all their stores this year, their mall-based stores. So we anticipate that their liquidation in merchandise will probably ramp up pretty shortly and be somewhat of a minor distraction for the balance of the year.

So I do think their skill will be pressure on AUR, from mobile and digital perspective we are very excited about what we are doing going forward. Now that we have SAP behind us, as we have mentioned we can now have a clear sight to advance our ongoing digital transformation if you will.

We are kind of working to bring together email, mobile, our database content to try to give mom that seamless experience so that she can shop how she wants. And segmentation is key to that and really understanding how our customer wants to shop and what device they use and what device they preferred to shop with.

From the traffic point of view we have seen significant ramp up of traffic on the mobile side.

The conversion in mobile is not as high as it is from obviously tablet or desktop, so one of the things that digital team is now really focused on is that mobile effort and bringing together in a more seamless way that the mobile side with the e-commerce side.

So we will continue to update that as we go forward but as I said a clear path now for the team to focus time and resources on that with big systems implementation behind us..

And from a franchise structure perspective, all our deals are slightly different but in general we sell them our products to them at a profit and collect the royalty on their sales.

So basically the sales line consists of selling the product and the royalty and the margin is the direct results of our sale price less of cost of goods sold to them at that profit and the royalty flows right from sales into profitability.

Overall, from a gross margin perspective, again the company, its dilutive but it's accretive from an operating margin perspective. .

And our next question comes from Rick Patel from Stephens. Your line is open..

Thanks for taking my question. This is Shreya Jawalker filling in for Rick.

Just wanted to ask about your Canada outlook, has the weather turned in that region and if so how you are thinking about that business?.

Well the weather is certainly more normalized in Canada right now than it was during Q1 so it is off to a significantly better start than at the end of the quarter..

And then a quick follow up to that where are you in terms of e-com penetration for Canada? Thanks..

Well, it’s a business that you know was started just few quarters ago. Overall it represents about 10% of the sales in Canada at this point. So we are pleased with its growth..

Our next question is from Jennifer Davis from Buckingham Research Group. Your line is open.

Hi, and let me add my congratulations as well. First, could you just talk about maybe traffic trends so far in May and then I'm sorry if I missed this, but did you say that you expect to enter new wholesale accounts this quarter and can you help us understand kind of the size of wholesale sales right now.

It seems like the amount of inventory that we've seen at TJ and Ross or at least in the stores that we've seen is still very small. So could you maybe give us a sense of the size of wholesale and maybe the growth rate you are seeing at the existing partners and I guess I will stop there..

Okay. From a traffic perspective in May, we are not going to quote specific numbers in the interim month but obviously it's much more normalized in what we have experienced in the first part of the first quarter.

From a wholesale perspective, I look at it as a building-block perspective, it's a process where they come in and they test certain categories of business. The ordering phase happens basically six to nine months later we are delivering products to them.

And then based on the sale-through against their expectations, they either continue to go forward and expand their distribution in the categories and that's currently what we are seeing here. So it's usually a slow start up and then it becomes more and more material for that account.

From an overall account perspective, we do expect to begin shipping to new account in the second quarter which is on our roadmap and we continue to expect to add additional account as we move through the rest of 2014.

Overall, the business is still small, it started roughly five quarters ago and so we expect it to become much more meaningful over the time but at this point it’s still small component of the overall business..

Our next question is from Richard Jaffe from Stifel..

Richard Jaffe here from Stifel. Thanks guys. a couple of questions. We have seen obviously the improvement in newborns, but I'm wondering about some of the initiatives in the big girl effort and if you could provide some color on the other merchandising categories.

And also how that extends to the e-commerce initiative, there's been talk of expanding the offerings online to have a much broader assortment of SKUs for the consumer.

I'm wondering is that part of the e-commerce growth or still yet to come and then further on the e-commerce side, the fulfill from stores, order from stores, pickup in stores, all the variable alternatives we are seeing developing on the e-commerce channel, I am wondering how you think about these things and where you stand. Thanks..

Sure. Well on the pickup and fulfill from the same store that isn’t possible until we have one full inventory in one new so we can do that until we had SAP behind us which we just announced we have behind us.

So that is part of what we are working on now as we go forward from an expanded offerings point of view on the e-commerce, close to 30% of our assortment online currently is exclusive and that's been a big part of the strength behind the e-comm business and that will continue to grow an important as we move forward in time and from the big kid’s business, the big kid’s business continues to outperform as it has for the last several years is certainly was under pressure in the February and March time period with the seasonal businesses but opened up very nicely once we got in the April..

Our next question is from Marni Shapiro from Retail Trackers. Your line is open..

Hey guys. Congrats on making it through a rough spring start.

If you could just -- two quick ones, on the wholesale side it's very intriguing and I am interested or wondering if you guys would think to not use your brand with some of your partners and to sort of go in and run their entire kids business, but under a brand that is agreed upon between the two partners and if you could just also very quickly, I think you have said that your carryover was very lean or down from last year.

So you are expecting that in spite of that and some I think very good-looking product you are still going have to participate because the environment is going to be so aggressive.

Is that what I'm reading?.

I think that's exactly right. As we said in even in the first quarter where our merchandise margins were slightly down but it is still highly promotional out there so everybody is competing for what is limited traffic at this point in time. As far as wholesale goes, I don't think you can count anything out in terms of our overall positioning there.

There is opportunities to do certain private labels and there is opportunities to do digital wholesale also. So those are things that we are thinking about and those are the things we are working on now that SAP is behind us..

Our next question is from Jay Sole from Morgan Stanley. Your line is open..

Hi, good morning..

Hi..

My question is just about the guidance. With 1Q coming in above the guidance you gave at the end of this quarter, some SG&A cuts that will probably benefit the rest of the year as well as 1Q and the fact that you've seen a comp rebound in April, it sounds like it's kind of continuing into May.

Did you consider taking up the high end of the full-year guidance range and if not why not?.

The way we are looking at it is we moved up the low end to 290 to 305 this is against the 326 number last year. 17% of the difference in the earnings per share happened in the first quarter.

We are projecting a second quarter that's about 41 to 47 so if you took the midpoint of that range, we could be down in the second quarter also and then there is the FX impact of $0.10 for the year so if you work through all of that, you will actually see that on high end of the range those are, if you took the last three quarters for the year that were actually slightly above where we were from an earnings per share perspective from last year.

But overall, it's still a pretty difficult environment out there. We continue to move forward on our strategies. We have got the major milestones behind us on the SAP implementation. We are on track on international and wholesale distribution channels and freight rationalization is heading in the right direction.

So all I could say is we look forward to updating you in few months on our progress and all of that. So stay tuned..

Understood. Thanks so much. Good luck..

And our next question is from Brian Tunick from JP Morgan..

Good morning.

I guess when you talk about achieving a high single digit operating margin over time, I guess we were just wondering given what's happening in Canada in particular and the environment there, can you walk us through the pieces that give you comfort that the high single digit EBIT margin is achievable given that backdrop for the overall Company? Then on the CapEx side, Mike, it sounds like you are maintaining your CapEx numbers but lowering the number of stores.

So just wondering what could be a normalized CapEx number as we think about free cash flow going forward. Thanks very much..

CapEx remains at 80 to 85 and we did say that we are reducing the number of store openings by 10. We kept the range of CapEx spend through the year because we are focusing on systems in our transformation initiatives and SAP behind us we have the opportunity to accelerate some of those initiatives we are going to do so.

In the past stores represented approximately 75% of our capital spent and we anticipate for the next couple of years that our systems and transformation initiatives will represent 75% to 80% on that spent.

So I think as we move forward, I think in the $75 million, to $80 million to $85 million range will be normal for the next call in two years as we get these initiatives underway but after that's the potential to fall off a little bit.

From operating margin perspective, it goes back to what I just said in terms of the initiatives that we have underway, obviously SAP behind us now we have what we think a sizable opportunities in terms of sales, margin and inventory management by implementing state-of-the-art inventory management systems on top of our SAP platform so that's a big driver.

We talked a little bit earlier in the call that international and wholesaling are both accretive to our operating margins and as they become much more significant part of our business that will help fuel margin and store rationalize obviously is something that we are focused on and hopefully by shutting these stores we are taking fixed expense out of our P&L and hopefully we are able to transfer the customers and their spent at a rate that’s sufficient enough to help drive that operating margin also.

Those are three key components of what we are doing here. Operator And we will take our last question from Dana Telsey from Telsey Advisory Group. Your line is open..

Good morning everyone and congratulation. As you shift to this omnichannel focus, how do you see it changing the margin structure of the business and would the timing more be like a 2015, 2016 and on your SAP implementation that's going on, when do you see that -- when does that begin to impact inventory planning and the inventory level. Thank you.

So from a margin structure perspective, our sense is that omnichannel make our stores more efficient and productive than they are today.

So that's the positive and if we can continue to engage the customer over omnichannel, they can repurchase 2.5 times more than a single channel shopper does, so that should also help drive sales and margin and just to remind everybody e-comm is right now is our profitable channel of distribution..

And then from systems initiative, now that we have got SAP behind us we are really focused on bringing these planning and allocation systems and tools online as quickly as we possibly can because we want to take advantage of the margin and enhancing opportunities and capabilities that they provide.

So we are targeting Q3 at 2015 for implementation of our planning and allocation system and when we talk of system we things like assortment planning, advance allocation and replenishment tool size and pack, price optimization and with the goal of providing localized initiatives and also of course supporting our seamless transformation initiative..

Thank you for joining us today. If you have further questions please call Mike and Me at (201) 453-7465. .

And this does conclude today's program. You may now disconnect, and have a wonderful day..