Good morning and welcome to The Children’s Place Fourth Quarter 2017 Conference Call. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Now, at this time, I will turn the call over to Mr. Bob Vill, Group Vice President, Finance..

Thank you for joining us this morning. With me here today are Jane Elfers, President and Chief Executive Officer; Mike Scarpa, Chief Operating Officer; and Anurup Pruthi, Chief Financial Officer. A copy of our press release can be found on our website.

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

The company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date hereof.

In addition, to find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning’s earnings release and to our SEC filings that can be found on our Investor Relations site. After the prepared remarks, we will open the call to questions.

We ask that each of you limit yourself to one question so that everyone will have an opportunity. I will now turn the call over to Jane Elfers..

one, recognize and reach the right customers across all their devices; two, build profiles that are enhanced with each interaction and touch point with our brands; three, make data informed decisions about the best message to deliver; and four, measure the impact of that message across all channels.

With this approach, we will eventually be able to personalize each brand interaction. So, let’s take a look at the digital runway ahead of us by reviewing some of the common tools and systems that we have not had the benefit of.

Bear in mind, that most of our competitors that had the benefit of these tools and strategies for a long time and we are still outperforming them.

While this speaks to the strength of our product offering and the consistent execution of our strategic plan, it also speaks to the outsized market share gains possible through an accelerated digital transformation. The following list just some of the 100 plus key initiatives that we plan to tackle on our digital roadmap over the next 24 months.

Advanced analytics, predictive analytics, effective onsite analytical tools, a single view of the customer, sophisticated campaign management tools and advanced mobile app, a state-of-the-art search tool, AB testing capabilities, live chat, a customer preference center, mobile payment options, social logins, SMS capabilities, integrated database acquisition, retention and engagement strategies, the ability to auto-trigger personalized e-mail campaigns, display retargeting, sophisticated paid search strategies and automated integrated loyalty system, and a state-of-the-art POS system in our stores with save a sale functionality and the ability to extend personalized offers at checkout.

And here is the snapshot of some of our key digital accomplishments that we completed in Q4 2017 that are foundational for future personalization capabilities. Connected stores Wi-Fi has now been rolled out to all U.S. stores and mobile POS devices now been rolled out to all U.S. stores. BOPIS has been rolled out to the entire U.S.

fleet and we are already seeing attachment rates in the mid-20s. BOPIS will be rolled out to Canada by Q3 2018. Ship-from-store capabilities were tested in Q4 with a full rollout to U.S. stores by the end of Q2. BOS, Buy Online Ship to Store, we are working to bring this capability live in the back half of 2018 or early 2019.

Save a sale, save a sale functionality has existed, as most other retailers for sometime now. Save a sale is one of our single biggest top and bottom line opportunities with respect to omni-channel capabilities. Save a sale opens up the inventory, so one pool of inventory is viewed by both the stores and digital channels.

This allows us to make sure we can get mom what she needs wherever she needs. For example, when mom is in one of our stores and we are missing a size or color, we can get it from our e-commerce site or from another store and have it shipped to her store of choice or to her home.

The foundation for save a sale is being addressed in 2018, but save a sale will officially launch in mid-2019 in conjunction with our new state-of-the-art POS system. And free shipping, as of the end of 2017, we have converted all of our regular e-commerce shipments to everyday free shipping with no minimum order amount.

We have been working this strategy through our P&L for several years now and it is complete. This is a major digital competitive advantage for the Children’s Place as none of the other kids brands currently offer everyday free shipping, with no minimum purchase.

We believe that being the only kids retailer who offers free shipping everyday with no minimum purchase is clearly resonating with our millennial mom and will continue to further accelerate our digital market share gains.

Our digital roadmap initiatives are critical to driving sales growth and operating margin expansion by improving customer retention, increasing customer acquisition and improving customer engagement.

In a recent survey, The Children’s Place was the second most preferred brand for children ages 0 to 4 and the second most preferred brand for children 5 to 9 years old. The Children’s Place is the second most popular children’s brand in the United States among the key millennial demographic.

Additionally, The Children’s Place scores as the number two children’s brand with both middle income households and higher income households. This is the right time to accelerate our digital investments.

We have the talent, we have the strategy, we have the resources, and most importantly, we have the perfect target customer for our digital transformation. We project that based on our accelerated digital investments, our digital penetration will grow to approximately 35% of our total business by the end of 2020.

Our third pillar, alternate channels of distribution we see additional growth opportunities in both domestic and international wholesale channels. Let’s start with international and let’s start with China. We announced a partnership this morning that fundamentally changes the trajectory of our international growth opportunity.

We are absolutely thrilled to announce that we have partnered with Semir, owner of the number one children’s apparel retailer in China, Balabala. Today’s announcement unites two of the world’s largest children’s apparel retailers both with long and outstanding track records of success.

This strategic partnership is a game changer for our international business and is clearly a case where one plus one equals three. The children’s apparel market is already one of the fastest growing categories in China. It is currently estimated at $24 billion and with China’s two-child policy firmly in place, it’s forecasted to double by 2025.

Semir, through their Balabala brand, currently operates in franchises over 4,400 Children’s Apparel stores as well as having the largest children’s apparel e-commerce business in China through their partnership with third-party platforms such as Tmall, JD and vip.com.

Over the first 5 years of this agreement, Semir will execute an omni-channel strategy opening at least 300 Children’s Place locations in Greater China and managing our e-commerce business. This partnership will generate between $125 million and $150 million in retail sales in year five.

This partnership provides an entrée for the Children’s Place into the China market that would not otherwise be possible with any other partner.

Semir’s number one position in children’s retailing in China, their strong retail and operational capabilities and their extensive knowledge of the Greater China market provides the Children’s Place with instant access to prime retail locations, established relationships with a large number of franchisees and significant local sourcing and logistics capabilities.

This partnership enables us to grow in China and takes us one step closer to our goal of becoming the leading global kids specialty brand. As for the balance of international in 2012, we began our international franchise growth. In 5 years, we have grown to 190 points of distribution in 19 countries with 7 partners.

Around the world, we are recognized for fashion, outfitting and value, where busy moms can quickly and easily assemble head to toe outfit that are affordable and always in style. We are one of the fastest growing children’s brands internationally with stores throughout Asia, Latin America, and the Middle East.

In 2017, we opened 49 points of distribution, including six openings in Indonesia in Q4 with our newest franchise partner. We expect to add 45 to 50 points of distribution in 2018. Some wholesale highlights, we see a clear path to expand our already successful relationship with Amazon. Amazon basic replenishment has been a success.

So, we are now going to test fashion replenishment for back-to-school ‘18. And in the brick-and-mortar segment of our wholesale business, our largest partner, have committed to significant new categories of business and will also be adding our brand to their e-commerce assortment in 2018.

And our fourth pillar, fleet optimization, our fleet optimization initiative will continue to drive our operating margin and our ROIC higher. Let’s recap where we entered 2017 with our fleet. For full year 2017, we closed 27 stores and we have 1,014 stores remaining at the end of full year 2017.

Of the 886 stores in the U.S., 524 or 59% are in malls, 135 are in A, 282 in B, 105 in C and 2 are in D mall, of the remaining 362 of our 886 U.S. stores are in outlet centers, strip centers, lifestyle centers or street locations. And I would like to point out that only 15% of our fleet is located in outlet centers.

On our Q2 call I mentioned that research firms project that as many as 260 out of the approximately 1,060 malls in the U.S. will close within the next 5 years. We internally refer to these 260 targeted malls as dying mall and I will update you how our real estate portfolio was positioned at year end with respect to these 260 malls.

First, of the 260 malls that have been identified by the real estate research firm as closure candidates we are not in 75% or 195 of them. Second, of the remaining 65 dying malls that we are located in our average lease term is approximately 1 year and combined these 65 stores make up only approximately 3% of our total U.S. revenue.

If you assume that the 260 dying malls were to close that will leave approximately 800 A, B and C malls in the U.S. and they break out as follows. A and A plus is 37%, B is 51% and C is 12%, so of the remaining 800 U.S. malls 88% of them are designated A and B centers. So now let’s look at how this compares to our remaining U.S. mall based portfolio.

Of the remaining 800 U.S. malls The Children’s Place is in 459 or 57% of them. A plus and A are 29%, B is 62% and C is 9%. So of the 459 malls we are located in 91% of our stores are located in A and B malls.

Key elements of our fleet optimization strategy have been; first our sales transfer rate in excess of 20%, second our ability to successfully negotiate rent reduction for a significant percentage of our expiring leases and third lease flexibility with the majority of the lease renewals being 1-year and 2-year deals which has resulted in a significant reduction of our average lease term to less than 3 years.

We realized several years ago that its strategy that relied on opening brick-and-mortar stores would not be a winning one. We were well ahead of our competition on fleet optimization and our fleet optimization program.

The closure of 300 stores through 2020 will ultimately result in a decrease in total fleet square footage of over 1 million square feet or 20% along with an expansion in operating margin of 200 basis points.

With respect to the 300 store closures, we have already closed 169 stores and we will be accelerating closures in dying malls to fund our outside e-commerce growth. In addition, based on our accelerated digital transformation timeline, we will use 2018 to assess whether there is potentially even more opportunity above the 300 door closure number.

Shareholder return, we have an outstanding track record of consistently rewarding our shareholders. To-date, we have repurchased nearly 870 million in stock with 245 million remaining on our current authorization. Today, we announced a three-pronged strategy that not only continues to reward our shareholders, but accelerates shareholder return.

First, $125 million accelerated share repurchase program which we expect to be completed no later than the second quarter of this year; second, our new 250 million buyback authorization; and third, a 25% increase in our dividend to $2 per share.

This three-pronged approach coupled with our consistent history of rewarding our shareholders best exhibits our continued confidence in our business and our ability to deliver. So in closing, our strong execution of our long standing strategic growth plan has been responsible for industry leading results.

We are industry leaders with respect to our product offering. We are industry leaders with respect to our fleet optimization strategy, by actively reducing our store count since 2013. We are industry leaders with respect to our early relationship with Amazon and we are now industry leaders with respect to our international objective.

Now, it’s time for us to leapfrog our competition and become industry leaders with respect to digital and personalization capabilities. We are excited about the next phase of growth and we look forward to continuing to deliver industry leading results for our shareholders. Now I will turn it over to Anurup..

digital and omni-channel capabilities, supply chain and inventory management enhancements, including the requirements of our distribution and logistics network that will support these digital capabilities.

Our connected in-store experience to deliver customer personalization and growing our partnership with Semir in China announced today, along with the continued growth of our wholesale business. The $30 million incremental SG&A investment in 2018 breaks down as follows.

We expect to invest $17 million in incremental SG&A on digital technologies, which includes enhancements to our e-commerce and mobile sites, customer analytics and personalization. We expect to invest $5 million in incremental SG&A on supply chain and inventory management enhancements.

We expect to invest $5 million in incremental SG&A on our connected in-store experience to deliver customer personalization, primarily focusing on the areas of loyalty and couponing. We expect to invest $3 million in incremental SG&A growing our partnership with Semir in China and continued growth of our wholesale business.

In 2019, we expect to make significant progress towards the 12% operating margin milestone and expect operating margins to be in the range of 10% to 10.5%. We expect total net sales to be in the range of $2.05 billion to $2.075 billion by 2020 based on low single-digit comp sales growth in 2018 and mid single-digit comp sales growth in 2019 and ‘20.

This growth will be primarily driven by our digital business which we expect to grow at a compound annual growth rate in the low-20% range, increasing our digital penetration to approximately 35% of our total sales by 2020.

Our digital business is unique because it is accretive to operating margin, primarily due to our high basket size and low return rates.

This significant shift in digital and digital penetration will make gross margin and SG&A comparisons less relevant, so we will no longer provide guidance on gross margin and SG&A as we are focused on operating margin expansion.

Based on our continued strong cash flow generation, consistent shareholder return program further aided by the ability to repatriate excess cash with the new tax legislation, we project to repurchase approximately $500 million in shares over the next 3 years.

Based on these initiatives, we are targeting an operating margin of 12% and EPS of $12 by 2020, a compound annual growth rate of approximately 15% from 2017. Now, let me take you through detailed full year 2018 and Q1 guidance.

Full year 2018 guidance, we expect total net sales for the year to be in the range of $1.905 billion to $1.925 billion with comp sales growth of 2.5% to 3.5% compared to fiscal 2017. We project digital penetration to grow from 22.7% to approximately 26% of net sales. The total revenue guidance includes the impact of the new revenue recognition rules.

Due to these new accounting standards total revenues, gross margin and SG&A will all increase by approximately $17 million in fiscal 2018. The reclassification of certain items due to the new revenue recognition rules has no impact on adjusted EPS and comp sales. We project adjusted operating margin in the range of 8.7% to 9% in fiscal 2018.

We expect our adjusted tax rate to be approximately 18% to 19% for the year as compared to 20% in 2017 as a result of the positive impact of the new tax legislation, the impact of the excess stock based compensation deduction and ongoing planning tax planning initiatives.

This new tax rate represents our best estimates and will be subject to change as we evaluate the many aspects of the new tax law in future regulatory updates. In addition, the benefit of stock based compensation is significantly dependent upon our share price at the time of share vesting.

We expect weighted average shares for 2018 to be approximately 17 million shares. We are introducing fiscal 2018 EPS guidance of $7.95 to $8.20 per share compared to adjusted EPS of $7.91 in fiscal 2017. Let me discuss the key components of our EPS guidance for 2018.

The operating results associated with our planned 2.5% to 3.5% comp excluding the impact of our accelerated investments are expected to generate $1.08 to $1.33 in incremental EPS. We expect $0.54 EPS benefit from the shares we expect to repurchase associated with the accelerated share repurchase program and other share repurchases.

Lower expected tax rate will generate an incremental $0.22 in EPS due to the new tax legislation and we expect EPS resulting from the income tax impact on share-based compensation to be $0.13 lower compared to fiscal 2017. This adds up to a range of $9.62 and $9.87 in EPS in fiscal 2018, an incremental $1.71 to $1.96 over last year.

This will be partially offset by the negative $1.67 impact of the acceleration of our investments and higher depreciation resulting in EPS guidance of $7.95 to $8.20 for fiscal 2018.

The deemed repatriation tax that we incurred as part of the recently enacted tax legislation enables us to repatriate $380 million in past earnings and profits from outside the U.S.

We have repatriated the first $175 million in cash which we will utilize to enter into an accelerated share repurchase program of $125 million and deploy approximately $50 million for working capital purposes. Further, this legislation allows us to repatriate an additional $200 million in cash tax free in the future.

With the ability to continue to repatriate cash, we also would not expect any significant borrowing on our revolver at year end 2018. In addition, our board has authorized a new $250 million share repurchase program and increased our quarterly dividend by 25% to $0.50 per share from $0.40 per share. Let me now discuss some additional key metrics.

The 53rd week in 2017 is resulting in a calendar shift in 2018 whereby Q1 ends on May 5 compared to April 29 in Q1 2017. The majority of our back-to-school in transits and our incremental investment in basics will be included in our Q1 inventory compared to 2017 when the majority of our back-to-school receipts were included in Q2.

This will result in a one-time Q1 inventory increase of approximately 25% to 30% compared to 2017. We expect this calendar shift to impact Q2 to a lesser extent with Q2 inventories up mid-teens compared to Q2 2017. We expect inventory increases in the second half of 2018 to be in line with sales.

Our CapEx is expected to be approximately $75 million to $85 million for the year. We expect to open 2 stores and close approximately 40 to 45 stores in 2018. By the end of fiscal 2018, we expect to have 210 to 215 store closures completed of our target of 300 store closures by 2020.

As our digital penetration grows, the flexibility provided by our average lease term of less than 3 years enables us to continue to evaluate the opportunity for additional store closures.

First quarter guidance, for Q1 we are guiding to EPS in the range of $2.12 to $2.22 compared to adjusted EPS of $1.95 in Q1 2017 with comparable retail sales projected to increase low single-digits. We project operating margin to be in the range of 7.7% to 8.2% in Q1 compared to 11.1% in 2017.

We expect our tax rate to be slightly negative in Q1 compared to 26% in 2017 due to the benefit related to stock-based compensation and the lower federal tax rate. Let me discuss the key components of our EPS guidance for Q1 2018.

The operating results associated with our planned low single-digit comp, excluding the impact of our accelerated investments and higher depreciation, are expected to generate $0.03 to $0.13 in incremental EPS.

We expect a $0.68 EPS benefit due to the accounting rules related to the income tax impact on share-based compensation or an incremental $0.49 compared to Q1 2017. The majority of this benefit will fall into the first quarter in 2018 versus the second quarter last year due to the impact of the calendar shift.

We expect a $0.16 benefit from a lower tax rate associated with the new tax legislation. We expect a $0.09 EPS benefit from the shares we expect to repurchase associated with the accelerated share repurchase program and other share repurchases. This adds up to a range of $2.72 to $2.82 in EPS in Q1 2018, an incremental $0.77 to $0.87 over last year.

This will be partially offset by the negative $0.60 impact in Q1 resulting from $13 million in incremental SG&A investments in our transformation initiatives and $2 million in higher depreciation compared to last year resulting in EPS guidance of $2.12 to $2.22 for Q1 2018.

In summary, we are excited about the significant opportunity we have to increase shareholder returns as we execute the strategic initiatives outlined today.

Our 2020 EPS target of $12 represents a 15% compound annual growth rate from our adjusted EPS of $7.91 in 2017 and our operating margin target of 12% represents a 240 basis point increase from the 9.6% level achieved in 2017.

We expect to continue to deliver strong operating cash flows and consistent shareholder return in terms of share buybacks and dividends and continue to deliver industry-leading return on invested capital. At this point, we will open the call to your questions..

[Operator Instructions] And our first question comes from the line of Susan Anderson..

Hi, good morning. Nice job on the quarter again and good to see the initiatives for the next few years.

I was wondering if you could maybe talk about, I know you are not giving gross margin, SG&A guidance anymore, but kind of the puts and takes of the drivers that you don’t necessarily have to bucket into those two categories, but driving to the 12% op margin by 2020? And then also how much of the $12 in earnings is below the op margin line by 2020? Thanks..

Sure, Susan, it’s Anurup. I will take that question. As our digital penetration has continued to grow as you mentioned our gross margin and SG&A comparisons have become less relevant, so we no longer going to break that guidance out in those buckets out going forward.

I would think of SG&A as we spelled out today about a $30 million mental investment in 2018 and that’s really driven by the digital initiatives, supply chain optimization, our in-store experience and our continued expansion in wholesale and international.

As we have talked about today, we expect our operating margin to be in the range of 10% to 10.5% in 2019 and about 12% by 2020. In terms of buybacks, in addition to the over $800 million we bought back in the last few years, we have also talked about today about buying back up to about $500 million in shares through the 2020 period.

We would expect at this point in time to buyback, including the ASR in the range of about $225 million to $250 million this year, which is a combination of our ASR and our continued open market repurchases.

So in terms of gross margin, again, we have had in our 12 quarters of merchandise margin expansion, we continue in our models to expect continued strong product acceptance and I would also expect from an SG&A perspective why we continue to invest in our transformation initiatives, these will inflect downwards in 2019 and ‘20.

And at ECP, the expense culture and management of expenses continues to be very strong and we will continue to drive efficiencies throughout the business..

Our next question comes from the line of Adrienne Yih..

Good morning, nice into the year..

Hi Adrienne..

You are very welcome. I guess my question is really on kind of the investments that you are making, probably this is for Anurup, the SG&A of this 13 million in the first quarter, what – how much of that is going to be wages, wage increases, store payroll and your human infrastructure versus the capital infrastructure.

And then help me understand the depreciation is higher by $2 million, I think per quarter, but you are closing a lot of stores so should be net beneficial, so where is this extra D&A, did the shorter depreciable life of the digital investment or the help there will be great? Thank you so much?.

Sure Adrienne. The second half of the question on useful lives, yes, we are investing the majority of our capital on transformation and technology which carries with it shorter useful lives, therefore it has a consequential impact on the depreciation.

So and as far as the transmission expense goes the $13 million in Q1 is as you talked about accelerating $30 million for the year, logically obviously we want to front-load it into the year to move as quickly as possible on the acceleration front, therefore $13 million falls into Q1.

It’s a combination of getting the best external resources to enable our transmission initiatives along with various models and tools and analysis to drive these initiatives forward. So the capital you would expect to be heavily weighted towards transformation, which carries with it shorter useful lives.

And then – and Adrienne, the point about wages, we have been dealing with that for the last several years. We have rolled out multiple initiatives through our very experienced store team to be able to mitigate those effects, so that really doesn’t play into this in any material way..

Our next question comes from the line of Janet Kloppenburg..

Good morning, everyone. This was on the good 2017. Just a couple of questions on the SG&A spend or one question on the SG&A and one question on gross margin, for ‘19 and ‘20 you have said $15 million and $5 million respectively in incremental SG&A, are there any offsets to that or should we just be building on models based on adding ‘18, ‘19 and ‘20.

And secondly on the gross margin line, I am wondering what the opportunity is for ongoing product margin improvement through improved AUR etcetera and more disciplined inventory management? Thanks so much..

Sure Janet, as we have talked about today, given the change in our business where additional penetration continues to increase, we are not going to get into specifics on SG&A and gross margin levels going forward. However, to your question, we are very focused on operating margin expansion.

As we have talked about on the call today, we expect 2019 operating margin to increase to 10% to 10.5% and 12% in 2020. And as you know having followed us in 2017, we recorded operating margin of 9.6%, 400 basis points over 2014, so very happy with our results to-date. We believe we have a tremendous amount of runway ahead in our digital work.

We are accelerating initiatives and the investment because it is the right time in our transformation roadmap to do so. We have a leader in place and a detailed digital roadmap laid-out. And we look forward to continuing to drive our operating results as we go forward..

Our next question comes from the line of David Buckley..

Hi, good morning. Thank you for taking my question.

On the digital side, can you talk about some of the personalization opportunities that you see having near-term, the launch of the new Apple contributes to these opportunities and then some of the differences in transactions that you see online versus in-store with AUR and UPT?.

Sure David and thanks for the question. As far as the digital strategy, as we have talked about this morning. We think we have a huge runway ahead of us with respect to digital transformation and personalized customer contact.

We strongly believe that digital technology as the core competency for companies going forward it’s going to separate the long-term winners.

And now it is the right time within our strategic transformation to take on digital, we have set the foundation over the past several years and now it’s really time to take the next leap into digital and into personalization and we think about it, we think about the opportunity in four buckets and each one has a pretty substantial incremental sales associated with them.

The first one is really around the digital platform that it allows us to engage our moms.

This wrapped around improvements in foundational features like optimized checkout, enhanced search, easier access to account, easier access to reward and then a streamlined sign up for our private label credit card and NPR and we have started to work on improved product recommendations.

This initiative also impacts the rollout of the new mobile app to your point and the digital architecture really sets the foundation for the advanced personalization capabilities we spoke about earlier on the call as far as predictive analytics. The second piece is really greater conversion through predictive analytics and personalized marketing.

I think this is probably the largest opportunity of the four buckets and this is where customer analytics marries up with the customer database and the customer segmentation work.

Once we have a contact strategy in place in the corresponding technology to enable the triggered dynamic marketing that’s when we can start really communicating one-on-one with mom through vehicles like triggered e-mails, personalized recommendations, targeted promotion personalized offers at POS, things like digital display marketing etcetera.

So the foundation of this work, is really a test and learn culture that we have been able to develop by implementing the tools we spoke about in Q4 of 2017. Third prong is really growing the penetration of our PLCC and My Place rewards loyalty programs.

We have found that this will significantly increase the lifetime value of our customers who are enrolled in the program and the early results from our segmentation and customer analytics work show a very strong ROI in this initiative and the insights that we are working on now are really helping us understand how to best accelerate the opportunity around PLCC and My Place rewards.

And then the last piece of the bucket is really the omni-channel capabilities kind of as we detailed on the call, we just scratched the surface of omni-channel, we launched both the ship from store, so that’s behind us in 2017 and now we really need to invest in moving on to the benefits associated with some of the other important omni capabilities like save a sale and based on while we talk about our core customer being a millennial digitally savvy mobile mom that we need to really advance these omni-channel capabilities quickly to put the foundation in place for the success of the personalized customer contact strategy.

As far as your questions online, we have a higher basket size online, a higher AUR online and as we have spoken about many times, our e-commerce business is accretive to operating margins, we are unique in that in retailers as we have such a large basket size in a very low return rate..

We have time for one final question and that question comes from the line of Stephen Albert..

Good morning.

I was wondering if we could talk more about the private label credit card, what was the sales penetration of the private label card for the full year 2017, how does that compare to ‘16 and then what are the expectations embedded within your 2018 guide? And then if you could give us, remind us on the difference of the LTV of the cardholder versus the non-cardholder? And then a follow-up on that is I guess switching to gross margin, any updates you can give us on the input cost do you see environment heading into 2018 with cotton kind of creeping up a little bit, any sort of pressure on that side? Thanks..

Steve its Anurup. On PLCC, the program has been very, very successful for us. Penetration was approximately 20.5% of U.S. sales in 2017, up about 500 basis points in penetration. I think as importantly its fundamental level within our overall customer marketing and engagement program.

Our loyalty program also increased about 200 basis points off a very big base in 2017 versus ‘16. In terms of LTV frankly, we have seen both recency, frequency and average spend for PLCC to be and our loyalty program to be higher than the – much higher than our average customer.

We don’t go into more specifics in that and frankly we are still discovering what the true LTV is given that our re-launched loyalty program and our relaunch credit card program are only just about a year old. So, a lot more on that to come, but we are very excited about the progression of that.

We do have benchmarks from the industry that says PLCC penetration could be in the mid-20s. Obviously, we are not there yet. We haven’t – I am not going to give you specifics of our 2018 plan except to say that we have significant runway ahead in our PLCC penetration.

In terms of AUC in your second part of your question, we continue to see tailwinds in apparel AUC. We have a very diversified sourcing base as you know and very, very experienced sourcing team and have been direct sourcing for many years. So, AUC continues to be favorable for us..

Thank you. This does conclude today’s Q&A session. Thank you for joining us today. If you have further questions, please call Bob Vill at 201-453-6693. You may disconnect at this time..