Ladies and gentlemen, thank you for standing by, and welcome to The Children’s Place Second Quarter 2019 Earnings Conference Call. This call is being recorded. If you object to our recording of this call, please disconnect at this time.

[Operator Instructions] It is now my pleasure to turn the floor over to Anthony Attardo, Director of Investor Relations, to begin..

Good morning, and welcome to The Children’s Place conference call. On the call today are Jane Elfers, President and Chief Executive Officer; and Mike Scarpa, Chief Operating Officer and Chief Financial Officer.

The Children’s Place issued press releases earlier this morning, and copies of the releases and presentation materials for today’s call have been posted on the Investor Relations section of the company’s website. After the speakers’ remarks, there will be a question-and-answer session.

Before we begin, I would like to remind participants that any forward-looking statements made today are subject to the safe harbor statement found in this morning’s press release as well as in the Company’s SEC filings, including the Risk Factors section of the Company’s annual report on Form 10-K for its most recent fiscal year.

These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof. After the prepared remarks, we will open the call to your questions.

We ask that each of you limit yourself to one question, so that everyone will have an opportunity. And with that, I’d like to turn the call over to Jane Elfers..

Thank you, Anthony, and good morning, everybody. Today, I’ll provide an update on three strategic areas of focus that uniquely position us to capture a greater share of the estimated $600 million of sales ceded each year by poorly positioned competitors.

First, I’ll discuss our progress with respect to the Gymboree integration, and offer a deeper dive into our Gymboree brand strategy. Second, I’ll update the status of our digital transformation. And third, I’ll discuss our competitive pricing advantage. So first, let’s start with Q2 results.

Despite the adverse impact from weather comparisons and the likely pull-forward of demand into Q1’s liquidation of approximately 800 Gymboree and Crazy 8 stores, our EPS results were at the top end of our guided range.

Amidst lingering pressure from the Q1 Gymboree liquidation, we delivered a 3.8% comp decrease in Q2 versus a 13.2% comp increase last year. Sales for the quarter met our expectations, however, traffic remained weaker than anticipated, which led to a late quarter increase in promotional activity across the sector.

Although we exited the quarter with seasonal carryover inventory down double-digit, we believe it’s prudent to assume an elevated promotional environment for the back half of 2019. Shifting to the Gymboree integration.

A key component of our ongoing strategy to uniquely position ourselves to secure a greater portion of the estimated $600 million of annual sales, ceded by the group of children’s apparel market share donors, is our focus on relaunching the Gymboree brand in spring 2020.

In late June, we relaunched the Gymboree website, which was immediately well received by the passionate Gymboree customer base. The loyal Gymboree moms instantaneously found their way to the site and traffic and engagements by meaningfully on social media with visits and commentary surging post-launch.

I’d encourage you to read the Gymboree customer commentary on our Gymboree social media site, some of which, we’ve included on our IR web page under our Q2 investor presentation.

The overwhelmingly positive post illustrate just how emotionally attached the Gymboree mom is to the Gymboree brand name, and how much she values the Gymboree brand above all other kids brands in the market. In addition to relaunching the product, we’ve deployed a two pronged real estate strategy to help us gain the Gymboree market share.

First, we’ll be launching the Gymboree branded product within 200-plus existing TCP locations. These are many of our best TCP locations, which are located in centers that also housed the most productive former Gymboree stores.

This provides us with another vehicle to penetrate deeper into the estimated $600 million of sales, ceded by market share donors, as we make our existing brick-and-mortar stores more productive.

By bringing Gymboree traffic into our existing TCP stores and to our toddler area specifically, where we have historically been underpenetrated, we stand to gain another big advantage versus our competitors who may already have mature toddler businesses.

Building our toddler business provides a white space growth opportunity in that ones the Gymboree shopper grows out of Gymboree, we believe she will migrate to TCP branded bigger kid sizes.

Armed with the knowledge of what the Gymboree mom wants and with sales data from every former Gymboree location, we’ve put into motion the second prong of our Gymboree market share strategy. This is the high-return strategy to capture the displaced Gymboree market share with little risk of cannibalizing our existing sales.

We previously discussed having identified 40 locations that were extremely productive for Gymboree, where TCP does not currently have a presence. These are centers which have no existing children’s place to cannibalize and do not have another TCP location within a large radius.

In addition, these centers are largely occupied by other kids retailers, who likely perform extremely well in these locations.

We believe the new TCP stores in these locations will be nearly 100% incremental for TCP, and at the same time, allows to pick up share from key competitors as we bring the Gymboree brand back to these highly productive centers.

Our real estate team began to execute on this strategy in Q2 with three new TCP locations opened in the quarter as part of a planned 25 store openings over the next two years. Although they’ve only been open for a few weeks, the early results are exceeding expectations that were already set well above chain average productivity.

We look forward to providing updates on these highly targeted, highly productive centers that are natural extensions of our site-selection process and don’t represent a pivot in our real estate strategy.

The high incrementality of the Gymboree sales provides TCP the opportunity to penetrate much deeper into the estimated $600 million of annual sales ceded by market share donors each year without breaking from our long-standing growth strategies or cannibalizing ourselves to achieve a marginal piece of the pie. Shifting to Crazy 8.

Our engagement with the abandoned Crazy 8 customer remains strong. We continue to experience open and click-through rates meaningfully above the rates our legacy TCP e-mails, which is leading to earlier and stronger-than-expected conversion of those customers.

Our TCP locations that are co-located in center with closed Crazy 8 locations count hundreds of basis points better than chain average in Q2, which suggest we’re gaining early traction in securing positive comp contribution from the abandoned Crazy 8 customers.

As a reminder, Crazy 8 was nearly 30% of the approximately $650 million of total sales for the combined businesses. Recall our Q2 guidance anticipated that our stores that are colocated in centers that experienced the Gymboree closure in Q1, would be adversely impacted by the high likelihood that sales were pulled forward into the liquidation.

Although it’s difficult to precisely determine if a lost sale in Q2 came as a result of a customer stocking up at the Q1 liquidations events. TCP stores that are colocated in centers with closed Gymboree locations, as expected, underperform the chain average in the quarter.

However, the declines at these locations improved in the second half of Q2, and for Q3 quarter-to-date, the gap has completely closed. Moving on to digital transformation.

After building the foundational capabilities for personalization as part of our $50 million investment in accelerating digital transformation over the past 18 months, we launched the initial test phase of personalization in early May, focused on a limited number of identified behavioral segments across five channels of distribution.

With only a modest portion of our personalization toolkit deployed to-date, the early results have been encouraging. Building upon the behavioral segments addressed in Q2, we expect to begin to deliver personalized content to additional segments in the back half of 2019.

We discussed that our digital transformation could be a $200 million revenue opportunity for the Children’s Place, and we continue to believe that the digital personalization initiative is the single largest contributor towards that opportunity. Omni-channel capabilities are an important part of our overall personalization strategy.

Our store fulfillment capabilities continue to outperform expectations and drive enhanced options for moms. The response to the Q2 rollout of BOSS, our Buy Online, Ship to Store has been encouraging. As she picked up her online orders in stores, she was attaching at a low 20s rate, leading to a considerably higher-than-average ticket.

Later this year, we will roll out Save the Sale functionality, which will provide our moms with access to inventory from other stores location or the distribution center for products that are not in stock at a specific store location.

We’ll be able to deliver that product directly to her and capture incremental sales that would’ve otherwise been lost absent the Save the Sale capability.

E-comm penetration increased approximately 240 basis points to approximately 29% of net sales in Q2, and our outsized digital growth continues to increase penetration in our loyalty and private label credit card program, which are key to our digital transformation.

And it’s important to note that we are the only children’s apparel retailer to offer free shipping with no minimum purchase on all of our e-commerce orders. We don’t simply advertise free shipping for orders picked up in stores by a BOSS or BOPIS or with the use of a private label credit card.

This has been the case for the last several years and is an important component of our omni-channel market share strategy. Now discuss how our diversified sourcing model provides us with a valuable competitive advantage. We frequently discuss our diversified sourcing model and how it provides us with the unique competitive advantage.

We have discussed that our lower AUC or product-cost advantage is the result of our decade-long strategy of strategically moving out of China and into a lower-cost countries. Today, many retailers find themselves under the strain of rising sourcing cost resulting from their overreliance on China and other higher-cost sourcing market.

The Children’s Place is a high unit volume retailer, we source and sell more units than most other competitors in the children’s apparel space, which provides us with a strategically advantage model. Due to our large unit buys, a modest 1% reduction in AUC or product cost per unit yields meaningful merchandise margin improvement.

Therefore, the continued execution of our long-standing, diversified-sourcing initiative, coupled with disciplined buying can produce a meaningful portion of our anticipated margin improvement.

As we continue to mix our cost lower through diversified sourcing, it provides us with the ability to continue to offer compelling price points as the millennial moms seeks value in apparel purchases to fund higher spend on experiences. And lastly, with respect to current business.

With the majority of back-to-school sales and tax-free events behind us, we’re off to a strong start. Our quarter-to-date consolidated comp is running positive 14%. And now I’ll turn it over to Mike..

Thank you, Jane, and good morning, everyone. Today I will provide an update on our fleet optimization, and our international and wholesale businesses before reviewing our financial results in our outlook. First, an update on our fleet optimization.

We closed 13 locations in the quarter, resulting in 226 overall closures toward our plan to close 300 locations by the end of 2020. Through the second quarter, we have closed 15 of the 40 to 45 planned store closures for 2019.

We also opened three locations in the quarter as part of the 25 stores we plan to open in highly productive centers over the next two years based on our detailed analysis of Gymboree store sales. It is important to note, we will continue to be a net closure of stores.

Our real estate team continues to strategically limit our exposure to the troubled outlet channel, and we ended the quarter with outlet exposure that represents only 13% of our store base.

Our fleet optimization strategy has resulted in a highly optimized outlet store base with nearly two-thirds of our outlets in better centers and only four stores located in what we classify as dying outlet centers.

We strategically limited our outlet exposure and optimized to the most productive centers, knowing that the outlet channel was particularly at risk of cannibalization from digital growth. The outlet channel was born out of a need to give the consumer direct access to brands and providing her value in doing so.

Today, the consumer can easily find that access in those values online where we maintain a strong position.

We believe that we – that by limiting the risk, by maintaining a full price to outlet store ratio at nearly seven to one, which is among the highest in our peer universe, with several of our competitors closer to two to one, which means that 30% to 40% of their store base remains in outlets. This provides us with a meaningful competitive advantage.

International and wholesale. In wholesale, we are soliciting interest among both existing and potential new wholesale partners in anticipation of the Gymboree brand relaunch, with the intent to possibly provide exclusive access to the Gymboree brand.

We believe that the Gymboree brand will provide potential partners with a steady flow of highly coveted millennial traffic, which is difficult to find in today’s retail environment. Additionally, Gymboree represents a highly attractive demographic with an average income of over $95,000 per year.

We’re excited about the wholesale potential for the Gymboree brand and look forward to providing additional updates. We opened 18 new international points of distribution in the quarter, and had 225 international points of distribution in 19 countries, opened and operated by our eight franchise partners at quarter end.

Along with our strategic partner Semir, the number one children’s apparel retailer in the Chinese market, we have opened six of the approximately 15 locations we plan to open in China in the 2019. I’ll now provide an update on Q2 results and discuss our forward outlook. Details for the second quarter are as follows.

In the second quarter, we generated adjusted earnings per share of $0.19, which was at the high end of our guidance range of zero to $0.20 versus $0.70 last year. Net sales were $420 million, which was at the high end of our guidance range of $415 million to $420 million, but down $29 million or 6.3% versus last year’s $449 million.

We recorded a decline in comp retail sales of 3.8%, which was better than our initial guidance of a negative 5% to a negative 4% decline. U.S. comps declined 4.2% and Canada comps were slightly positive. E-commerce penetration increased approximately 240 basis points to 29%.

Sales were impacted by Q1’s Gymboree and Crazy 8 liquidation events, the adverse impact of strong weather-driven demand in early Q2 a year ago and difficult store traffic. Store traffic transactions and conversions were all down in the quarter, with AUR slightly lower due to increased promotional activity across the sector. Adjusted gross margin.

Adjusted gross margin decreased 150 basis points to 33% of sales from 34.5% in Q2 of 2018, driven by the deleverage of fixed expenses resulting from a decline in comp retail sales and the adverse impact of increased penetration of our e-commerce business, along with a modest decline in merchandise margin as a result of difficult traffic, which led to an increase in promotional activity across the sector.

Adjusted SG&A. Adjusted SG&A was $115 million versus $122 million last year, and deleverage 20 basis points to 27.5% of sales as a result of the negative comp sales. We were able to manage expenses across the organization in response to difficult traffic in the quarter.

Our incentive compensation expense in the quarter was relatively flat as higher bonus accruals were offset by a one-time decrease in our approval for our long-term incentive plan. Adjusted depreciation and amortization was approximately $18 million in the quarter. Adjusted operating income.

Adjusted operating income for the quarter was $5.8 million or 1.4% of sales versus $15.7 million or 3.5% of sales in Q1 of 2018, down $9.9 million or 210 basis points primarily as a result of the lingering impact of the Gymboree liquidation, adverse weather comparisons early in the quarter along with difficult store traffic, which led to increased promotion across the sector.

Tax rate. Our adjusted tax rate of 15.9% was below the 21% tax rate in last year’s comparable quarter. Moving on to the balance sheet. Our cash and short-term investments for the quarter were $65 million as compared to $106 million last year. We ended the quarter with $196 million outstanding on our revolver compared to $89 million last year.

The increase reflects funding to support the $76 million Gymboree acquisition and our shareholder capital return program. We ended the quarter with inventories up approximately 5.4% including the result of accelerated shipments of China merchandise as we reacted to the tariff situation.

Our seasonal carryover inventory continues to be down double-digits to last year. Moving on to cash flow. We generated $23 million of operating cash flow in the first six months of the year versus $11 million of operating cash flow for the comparable period a year ago. Capital expenditures in the quarter were approximately $11 million.

We repurchased approximately $27 million of stock in the quarter and paid out approximately $9 million in dividends. Now let me take you through our updated outlook for 2019. The company now expects sales for fiscal 2019 to be in the range of $1.91 billion to $1.925 billion. A comparable retail sales growth of approximately flat versus fiscal 2018.

We project e-commerce penetration will increase to approximately 30% of net sales. We now anticipate fiscal 2019 adjusted net income per diluted share to be in the range of $5.40 to $5.75 inclusive of $0.08 of adverse impact from incremental tariffs versus our prior guidance of $5.75 to $6.25.

This compares to adjusted net income per diluted share of $6.75 in 2018. Although we exited the quarter with seasonal carryover down double-digits, our outlook assumes elevated promotional activity will continue for the balance of the year.

Adjusted operating income is expected to range between 6.1% to 6.4% of sales as compared to 6.6% in adjusted operating income in 2018. We are projecting a tax rate in the low 20%. We expect to generate strong cash flow from operations in 2019, which will help fund our shareholder return program and capital expenditures.

We expect capital expenditures to be approximately $65 million to $70 million in 2019. We ended Q2 with approximately $179 million remaining on our share repurchase authorization and remain firmly committed to return in cash to shareholders. Q3 2019 outlook.

The company expects sales for the third quarter to be in the range of $530 million to $535 million based on a comparable retail sales increase of 3% to 4% versus 9.5% comparison a year earlier.

As a reminder, in earlier break to colder temperatures grow strong sales of seasonal product into October last year, which resulted in a strong monthly comp increase. We’ve considered this difficult comparison in our outlook.

Adjusted operating income is expected to be in the range of 11.5% to 12% of sales as compared to 12.5% in adjusted operating income in Q3 of 2018. We anticipate third quarter adjusted net income per diluted share in the range of $2.90 to $3.05 as compared to adjusted net income per diluted share of $3.07 in Q3 of 2018.

Inventories at the end of Q3 2019 are anticipated to be flat to up low single digits versus last year. Looking ahead, there’s been a lot of commentary about back-to-school shipping, so I’d like to briefly address it. We experienced a significant increase in the number of orders this back-to-school season.

Our shipping policy states that orders placed with standard free shipping may take up to 10 business days for delivery. Our records reflect that over 98% of our orders will be delivered within this window to the back-to-school season.

As we previously said, we plan to utilize a third-party logistics provider to assist with the fulfillment of holiday 2019, e-commerce demand, which should help minimize the impact of peak season shipping bottlenecks going forward. We currently anticipate a Q4 2019 comp increase of approximately 4%.

We also know that we estimate that the holiday selling season in Q4 of 2019 could be adversely impacted by approximately $5 million or 1% of sales from six less shopping days between Thanksgiving and Christmas in 2019.

Including Gymboree, our exposure to Chinese imports across all categories will be limited to an estimated mid-to high single-digit percent in 2020, which we believe will help lower our AUC again in 2020 on top of the 2019 reduction. At this point, we will open the call to your questions..

Thank you. [Operator Instructions] Our first question comes from the line of Dana Telsey of Telsey Advisory Group..

Good morning, everyone.

As you think about the integration of the Gymboree and you think about the gross margin in the upcoming third quarter, how are you thinking about gross margin go forward and the opportunity for market share gains that you see? And then just lastly, on the logistics issues, on that – where you just talked, Mike, about the shipping times.

What are you seeing in terms of incremental supply chain and logistics costs and that impact on the margin? Thank you..

Sure. Dana, though we don’t specifically guide to gross margins. We expect margins to continue to be under pressure in Q3 as inventories remain elevated in the sector, which is resulting in a promotional environment that – we’re anticipating it’s going to continue through year end.

The environment remains a competitive as retailers continue to battle for market share in a sector that is not growing. Though we expect improvement in margins in Q4 versus last year, we’re still forecasting continued pressure from those elevated inventories and store closures.

As far as the distribution issues are – and supply chain costs, we had indicated last quarter that we did a pretty comprehensive network analysis and made the decision to utilize the 3PL to assist us beginning in holiday of 2019. We thought that this was the most cost-efficient and effective alternative available.

We’re utilizing currently our ship-from-store BOPIS and the BOSS omni-channel fulfillment capabilities to supplement our DC capacity as we get ready to transition over to the holiday time frame. Our sense is that 98% of our orders from the back-to-school will season will be delivered within our 10-day shipping – 10-day business shipping window.

We expect that supply chain cost could be on the average of about $1.5 million higher in Q3 based on some of the expedited shipping that we are doing. And then there’s just – I also want to indicate that from a systems perspective our systems are running fine, and we have not encountered any system snafu’s as a result of high demand..

Our next question comes from the line of Jen Redding of Wedbush Securities..

Hey guys. I was just wondering if you can give some color quarter-to-date 14% comp, increase – is that then less promotional or is that then promotional driven, or – I’m trying to figure out if you just – cause it look to us like promotion’s kind of pullback.

So maybe they have and do you think they’re just going to get more promotional if you could speak to that. And also, if you could tell us, if you’re able to say who the third-party shipping partner is? Thanks..

Sure, Jenn. It’s Jane. As far as quarter-to-date comps, we said on the call in our prepared remarks that we are running up 14% quarter-to-date. I think it’s a result of our several factors. Number one, our inventories are very clean entering the quarter as we said our carryover inventories are down double digits.

We have extremely strong back-to-school assortments that are focused on two key things, basics and Wear Now. If you look at our assortments on the floor, we pretty significantly pulled back on the longer sleeves product versus where we were last year.

And we’re very, very much into Wear Now shorter sleeve product that’s more appropriate for the time frame and mom is clearly, responding to that. We have a strong marketing strategy in place, which is clearly working. And I think, overall, we can pretty clearly say that mom is choosing us for her back-to-school needs.

I think it’s also important to recall that the 14% quarter-to-date consolidated comp that we’re running, the lion share of back-to-school and almost all of tax rate is behind us. We’re also up against a similar double-digit positive comp for the same period last year. So I think it’s even more impressive when you look it in on a two-year stack.

I think from a promotional environment, what we’ve seen is – we were out early with our projections when we were looking at Q2. Post our call, lot of people came on talking about their inventories, which were kind of out-of-whack versus where their sales were.

We still see from some of the people that we’ve heard from and anticipate we’ll hear from in the next couple of weeks that inventory growth is running ahead of expected sales growth in the sector.

So I think for us, really the posture we’re taking is that it’s realistic and prudent to expect increase promos beyond Q2 based on the inventory levels of the competitive set and kids. And just honestly, I think we’d rather guide to an elevated promotional environment and be wrong. That’s really where we’re at right now..

And as far as our third-party logistics provider, we use – we’re utilizing Radial, who is also our third-party logistics provider in Canada, pretty well-established company with roughly 12 million square feet of warehouse and logistics capabilities. So we’re pretty pleased so far with the integration and looking forward to the holiday 2019 season..

Our next question comes from the line of Susan Anderson of B. Riley FBR..

Hi, good morning. Thanks for taking my question. I guess just a follow up on the promotional environment.

I was curious where you’re seeing the most competition from? Is it within the mall, I guess from the department store, which I would suspect has elevated inventory or other specialty retailers? Or are you also seeing kind of the mass players get very aggressive in the kids business? And then also, I was curious, what your expectations are from merch margin in third quarter?.

Yes. I think from a competitive environment, it’s really coming from all three that you said. We’ve certainly heard specialty inventories were elevated, particularly people on their Q1 calls, forecasting into Q2. So we’ve seen inventory growth outpace sales growth from almost every one of our specialty competitors.

We’ve certainly seen in the department stores but they don’t specifically call out kids. And from a promotional environment, the mass guides are obviously going after back-to-school in the big way as well. It’s a very important time period for everybody so promotionally out there, it’s aggressive.

But I really just think the inventory spread is really what we’re looking at, and we just want to be realistic and prudent if not conservative into the back half of the year and just make sure that we’re really feeling good about our guidance and what we anticipate could be an elevated environment. Mike also spoke to Q4.

There’s been some specialty stores that have announced significant amount of closures that will happen at the end of 2019, so we’ve taken that into account. And also as Mike said in October, we had an extremely strong October last year based on the pull up of cold weather.

And we’re not anticipating in our guidance that, that weather pattern is going to mirror last year. So we really try to take everything into account..

And from a Q3 perspective on merch margin, I’ll just point you to our Q2 merch – overall margins. We’ve indicated that our merch margin was down modestly. So the increase of the e-comm penetration and something leverage around fixed expenses drove the majority of the deleverage of gross margins on Q2. We would expect some other situation in Q3..

Our next question comes from the line of Tiffany Kanaga of Deutsche Bank..

Hi, thanks for taking our questions. Considering that August is the toughest comparison of the quarter.

Can you help us bridge the GAAP between the implied deceleration to your 3% to 4% full quarter comp guidance? And additionally, can you provide a quarter-to-date breakdown between stores and online, considering the social media posts about the heavier e-commerce sort of volume? And how are you working to address the negative customer reaction to longer shipping times to keep her loyalty?.

So from a overall perspective on Q3 and comps, we’ve seen increases in comps in both stores and e-comm from the run rate from Q2 and obviously, the metrics have improved also. We’re constantly reaching out to our customer base and reminding them of the shipping window.

We’ve gotten some nice responses back, indicating that packages are being received on a timely basis. And as I indicated, we expect over 98% to be delivered within that window. We are incurring additional costs to expedite some of these shipments.

It’s a situation that we’re dealing with and we think it’ll be solved once we get into our third-party in the holiday 2019.

I will correct your first question around the toughest comparison being August; October actually was our toughest comparison where we saw double-digit comp increases in October versus what we saw in August and September, which were – while they were positive, they weren’t to that extent..

Our next question comes from the line of David Buckley of Bank of America, Merrill Lynch..

Good morning. Thanks for taking my question. Few questions. First on Tiny Collections; any information you can share on the performance on the quarter? Second, how much of your inventory increase is related to earlier shipments – related to tariffs? And then last, the implied fourth quarter guide has a significant amount of margin recapture baked in.

Now what gives you the confidence in the guide, given the increased promotional environment you’re seeing now? Thank you..

Sure. As far as Tiny Collections is concerned, we sold through the summer delivery well. We were happy with the results and probably saw an approximate 20% AUR increase versus where the TCP branded goods are running. We just delivered this past week our back-to-school assortment, so it just hit online and it’s just hit in stores.

So we’re excited to see what happens with that. We think it looks great. And now I’ll pass it over to Mike to talk about the inventory increase due to the tariffs and the margin recapture in Q4..

Sure. David, as we said, inventories were up about 5.4% at the end of the second quarter, including the accelerated shipments of the Chinese goods, which accounted for approximately 20% of the increase.

We had also made the decision to accelerate shipments of certain basic products to ensure that we were well positioned for back-to-school, and that was the majority of the increase. As we indicated, carryover goods were down double digits compared to the prior year. As you look at to Q4, we had a couple of things going on last year.

Our gross margins overall were down roughly 550 basis points, and a big part of that was the liquidation, the advance liquidation that we did on certain holiday goods as we anticipated and then heard of the Gymboree and Crazy 8 bankruptcies.

So our sense is based on the way bought units for holiday and where we expect our inventory positions to be at the end of the year that we should get to see a chunk of that comeback. So we’re confident in where we’re guiding to at this point, though we never really specifically, guided the gross margin..

Our next question comes from the line of John Morris of D.A. Davidson..

Thanks. Jane, I want you to know, going back to your outlook and anticipation, which is probably pretty prudent that competitors around you are pretty high in inventory. I’m wondering; help us try to understand what you might be seeing or some hypotheticals on why it’s so high competitively out there? And they’re bent towards promotions at this point.

Is it more of a delta than usual? Just wondering if you can kind of shed some light given your sector experience, what you think is going on there..

Yes. What I think it is and what we talk about internally is that we think there is some euphoria by some of our competitive said about one-year ago in 2018, when they started to see some positive trends in the business.

And as you know, kids has brought so much further out than other categories based on the lower AUC and the markets that we source from. So we think that this inventory that needs to be worked through, through the balance of the year. And I think inventories – retailers usually learn by looking in the rearview mirror.

And I think by the time we get into the end of Q4 and into the early part of 2020, you’re going to see retailers pulling back in our sectors significantly on inventories. But I think, right now, as we said, it’s prudent to consider them to be elevated for the back half of the year.

And we’re just kind of set on making sure that our guidance is covered for what we anticipate will continue to be elevated inventories..

Our next question comes from the line of Paul Lejuez of Citi Research..

Hi, this is Kelly on for Paul. I just want to clarify, so you talked pretty positively around the quarter-to-date trends and the 14% comp is obviously very strong.

But – is that been driven by higher promotions or are you just anticipating that as we get to the low period post back-to-school that we’ll see an uptick in promotions across-the-board?.

Yes. I mean we’re – like we said, we have 14% comp up against the similar comp from last year. So pretty impressive on the two years stack, driven by back-to-school forward product. As we said, our inventories are clean. So we’re driving this on back-to-school assortment that are focused on basics and Wear Now.

Business is really, really strong right now. We are just going to be, as we said on our prepared remarks and during this Q&A session, we want to be very prudent. As far as the balance of the year is concerned, we’re up against a big October with the cold weather. We feel very good about where our inventories are positioned in Q3 and coming out of Q4.

And we just want to make sure that the guidance covers what could continue to be an elevated promotional environment..

And ladies and gentlemen, we have time for one more question. Our final question will come from the line of James Chartier of Monness, Crespi, Hardt..

Good morning. Thanks for taking my question. Could you just talk about the omni-channel fulfillment.

What percentage of sales for back-to-school are being fulfilled from ship, from store? And then just overall, what the omni-channel fulfillment is for you guys? And then where do you want ship from store to be for holiday and back-to-school going forward? Thanks..

Yes. So on a go-forward basis; we’re looking at holiday 2019 for ship for stores would be roughly in the, call it, the 2% to 4% range of overall orders. We’re using it slightly higher today based on our order quantities that we have.

But our sense is that we’ll have a third-party logistics provider in place in holiday of 2019 to avoid utilizing ship from store to any great extent. So were we – there is split shipments and what it does to the stores associate during the key selling period.

Currently, it’s being indicated earlier, really pleased with BOSS and the results of BOSS and the attachment sales and how that’s driving store traffic and business. So we’ve seen it is high as – over 20% in some cases, it’s probably down to about 15% basis right now. So we’re pretty pleased with that, overall..

And thank you for joining us today. If you have further questions, please call Investor Relations at 201-453-6693..