Good morning, and welcome to The Children's Place Fourth Quarter and Fiscal Full-Year 2021 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; and Rob Helm, Chief Financial Officer. At this time, all participants are in a listen-only mode.

After the prepared remarks, we will open the call up to your questions. We ask that each of you limit yourself to one question, so that everyone will have an opportunity. As a reminder, this call is being recorded. The Children's Place issued its fourth quarter and fiscal full-year 2021 earnings press release earlier this morning.

A copy of the release and presentation materials for today's call have been posted to the Investor Relations section of the company's website.

Before we begin, I would like to remind everyone 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's 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 risks 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. It is now my pleasure to turn the call over to Jane Elfers..

Thank you and good morning everyone. We delivered another outstanding quarter with gross margin, operating margin and EPS all at record levels. Since the onset of the pandemic, our accelerated structural reset to a digital first company has delivered impressive results. We delivered a 15.1% adjusted operating margin in 2021 versus 6% in 2019.

We delivered a 41.6% gross margin, a 660 basis point improvement versus 35% in 2019. Our 2021 operating income was $289 million versus our full-year 2019 adjusted operating income of $111 million, a $178 million increase.

We delivered a 2% net sales increase in 2021 versus 2019 despite having 256 or 28% fewer stores, and our EPS was $13.40 in 2021 versus $5.36 in 2019. I want to thank all of our associates for their hard work in delivering these industry-leading results, particularly with all the challenges we've faced in the last 24 months. Starting with digital.

Our digital business has always been our highest operating margin contributor due to its high UPT, low single-digit return rates, and lower overhead costs versus our stores channel.

And with the pandemic driven acceleration of our digital business, we continue to gain additional leverage on fixed overhead costs, and drive significantly higher digital margins. Our digital sales represented an industry-leading 48% of our Q4 sales versus 31% in Q4 2019, as we target a 50% annual digital penetration for full-year 2022.

Importantly, supporting our accelerated digital penetration, our customer transfer rate further improved to an industry-leading 32% in full-year 2021 from 30% ending full-year 2020.

As our digital business continues to grow on both the top and bottom line, we are making significant investments in marketing and technology to continue to support this growth. We're focused on investing in brand awareness, which continues to drive customer acquisition through our digital marketing channel.

With respect to customer acquisition, we've leveraged our marketing tactics, and focused our additional investments to achieve a 50:50 split between digital and store customer acquisition, which is in line with where our digital penetration is planned in the near-term. In fiscal 2021, we obtained a 16% increase in our new customer file.

And with customer acquisition more balanced between our channels, we're benefiting from the improved channel mix, resulting in significantly higher average spend, and higher margins per customer.

As the shift to digital has accelerated over the past two years, we've benefited by being able to better identify our customers and use that data to drive higher cost efficiency and marketing spend.

And during 2022, we've established robust customer acquisition and retention targets by brand, enabled by our customer segmentation data to deliver enhanced personalized content that resonates with each target audience.

In addition, we've recently enabled a multi-touch attribution tool to help us better understand the incrementality of our investments, and allow us to shift our budgets in support of the highest contributing marketing tactics in a much more efficient and nimble manner than we were previously capable of.

The shift towards mobile and our mobile app continues to exceed our expectations. During Q4, we had our highest percentage ever of digital transactions come through a mobile device at over 73% of transactions. And for the full-year, over 70% of our transactions were converted using a mobile device.

Our mobile app continues to drive strong customer acquisition and engagement with new mobile app users up 34% for full-year 2021. And this is on top of the significant increases we saw during the pandemic in the first half of 2020.

And importantly, our basket sizes for customers transacting on our mobile app are over 10% higher than our non-app mobile purchases. With respect to the launch of Afterpay, we're impressed with Afterpay's performance to-date.

Not only do our transactions on Afterpay run 65% higher AOV's than the average of our non-buy now, pay later tender option, Afterpay is already driving a high teens penetration of our digital acquisition.

Afterpay is bringing new digitally native mobile first customers to our brands, resulting in Afterpay, already delivering a low double-digit penetration of our total digital transactions in just the six months since launch.

As we highlighted in our Q3 investor deck, we partnered with Afterpay and the Kardashians on our Christmas Family PJ Campaign, which resulted in 2.1 billion impressions for our brand over the course of the campaign. We continue to focus on leveraging Afterpay's ability to reach new millennial and Gen Z customers through our partnership.

With respect to our fleet optimization strategy, we continue to secure very favorable lease terms throughout Q4 allowing us to reduce our closures to 78 stores for full-year 2021 bringing the total closures for full-year 2020 and 2021 to 256 stores versus our original target of 300 stores.

For full-year 2022, we're targeting to close approximately 40 stores. While we realize significant occupancy savings since the onset of the pandemic, we remain well-positioned to continue to realize additional savings with over 75% of our stores having a lease action within the next 24 months.

It's important to highlight that as we enter 2022, we're planning for approximately 50% of our retail sales to come from our stores, with approximately 50% of our store sales coming from traditional malls and 50% coming from off-mall.

With our digital business also planned at an industry-leading 50% of total retail sales, our plan for 2022 targets approximately 75% of our retail sales coming from off-mall strongly supporting our structural reset to a digital first retailer. With respect to Gymboree, we received an overwhelmingly positive response to our holiday deliveries.

Clearly, many families joined together to celebrate the holidays, and chose to dress their children in this unique brand. We're excited about our strong Gymboree momentum, and we're looking forward to building on this momentum in 2022 and beyond. On November 9, we launched our newest brand Sugar & Jade targeted to the $8 billion U.S. tween market.

We're thrilled to be able to offer the tween customer a dedicated digital-only brand. Based on the strength of our Big Girls business, Sugar & Jade is a natural extension of our core competency and adds to our total addressable market opportunity. We currently have 4 million names in our file to whom we are actively marketing Sugar & Jade.

And as we anticipated, we were able to capture significant learnings this past holiday from our initial Sugar & Jade launch and armed with this information, we're well-positioned to grow this brand for holiday 2022. With respect to wholesale, we remain laser-focused on growing our business with Amazon.

They continue to experience very strong sell-throughs on our products, and we continue to significantly accelerate our investments with them in brand marketing. We are projecting significant growth with Amazon for 2022 and beyond. In closing, we have strong brands that offer considerable value and enjoy a very loyal following.

We delivered record breaking results in 2021 due to our accelerated structural reset to a digital first company that has taken place since the start of the pandemic.

We plan to resume providing EPS guidance during our Q1 earnings call in May, after we have a clearer understanding of the top-line impact of lapping the unprecedented stimulus released into the economy one year ago.

Looking ahead at 2022, we are facing significant top and bottom-line headwinds including decade high cotton prices, surging inflation with a particular focus on rapidly rising oil and gasoline prices, as our core consumer is particularly impacted by these.

Lapping the stimulus from last year, continued global freight disruptions, and rising transportation costs.

However, despite these many challenges, we are confident that our accelerated structural reset to a digital first company, including our pricing and promotional reset, combined with our significantly enhanced data-driven ability to maximize marketing, and our demonstrated successes with respect to inventory management, fleet optimization, fulfillment initiatives, and SG&A has reset the bar and positioned us to deliver double-digit EPS and double-digit operating margin as the new baseline for full-year 2022 and beyond.

And now, I'll turn it over to Rob..

we're planning for digital sales to grow in fiscal 2022, and we're projecting that digital sales will represent an industry-leading approximately 50% of our total consolidated net sales for fiscal 2022, with only 25% of our total retail sales coming from traditional brick-and-mortar models; we are taking pricing actions to offset raw material costs increases, which will benefit us on both the top and bottom-line; we're building on strong sales momentum from Gymboree, making meaningful progress towards the sales opportunity of $140 million we estimated when we acquired the brand; we are making significant marketing investments with Amazon and are planning for accelerated growth in 2022, on top of the significant gains we made in 2021; our early positive results from our investments in top of funnel and brand awareness marketing are very encouraging and we intend to build on these initiatives in 2022; and lastly, the incremental sales opportunity from our recent Sugar & Jade launch.

With respect to quarterly top-line cadence for the year, while we're planning for lower net sales in Q1, as we lap the impact of stimulus payment last year, we anticipate that Q2 sales will be higher than last year as the year-over-year comparisons against the impact of stimulus payments last year becomes less pronounced.

For the back half of 2022 we anticipate to return to a more balanced sales split between the third and fourth quarters. We anticipate that Q3 net sales will be lower than last year, due to our record setting back-to-school season last year and rollout of enhanced child tax credits.

And we anticipate that our Q4 net sales will be higher than 2021 as we lap the impact of the Omicron spike and deliver organic sales growth from the strategic actions I just outlined. Moving on to the bottom-line.

Starting with gross margin, while we expect that our 2022 and beyond gross margins will continue to significantly exceed pre-pandemic highs, we anticipate our full-year 2022 gross margin will be down approximately 200 to 300 basis points lower than our full-year 2021 results.

We are planning for gross margins to be lower in the first half of 2022 versus the back half, largely driven by the Q1 headwinds I just outlined. Higher inbound transportation costs will continue to impact gross margin throughout the balance of fiscal 2022 resulting from the continued disruption in global supply chain.

We anticipate that these increased costs, particularly expedited air freight costs, will impact us to a greater degree in the first half of the year versus the second half.

For the full-year, we are planning for a high single-digit increase to our COGS due to elevating cotton prices, which we are planning to mitigate with a corresponding high single-digit increase in AUR. However, at this point, based on record levels of inflation, particularly surging oil prices, we do not yet have visibility on the full-year 2022 AUC.

So we believe it's prudent to wait until we have more clarity on how inflation may further impact our AUCs before we commit to mitigating any further AUC increases with further AUR increases. And the full-year 2022 loss of AGOA trade preferences in Ethiopia is significant and is projected at $15 million.

We are planning to partially offset these gross margin headwinds through higher realized pricing supported by our increased investment in top of funnel and brand awareness marketing, which we anticipate will continue to reduce promotions and markdowns.

Lower occupancy costs in fiscal 2022 versus 2021 due to the impact of our permanent store closures, as well as the benefits of favorable lease negotiations, which will more than mitigate the impact of the one-time abatements of $12 million we recognized in fiscal 2021.

We continue to work on significant fulfillment optimization initiatives across our global supply chain and in our distribution centers, an intent to build on the optimizations we already have in place to further reduce our fulfillment cost per order for 2022. Moving on to SG&A. We're planning for full-year SG&A to be slightly higher than in 2021.

First, we are reinvesting some of the cost efficiencies and benefits from our fleet optimization program into incremental investments and brand marketing. In addition, we are planning for wage increases in our stores. These increases will be partially offset by lower incentive compensation accruals in 2022.

We continue to see benefits from our fleet optimization program and accelerated store closures on the depreciation and amortization line and are planning for depreciation and amortization to be lower in 2022 than 2021.

We are planning for significantly lower interest expense in 2022 resulting from the favorable interest rates we secured as part of the refinancing of our revolving credit facility and term loan in the fourth quarter, as well as the $29 million decrease in our term loan. We expect our full-year tax rate to be in the range of 26%.

Given our accelerated digital transformation and the structural reset to our business, we expect to generate significantly higher levels of operating cash flow for the full-year 2022 then we did in pre-pandemic and project to deliver operating cash flows in the range of $250 million for 2022.

Based on the historical seasonality of our business, we expect to generate a significant portion of these cash flows in the back half of next year.

These strong operating cash flows combined with a much lower store count, and the strategic decision to accelerate our digital transformation pre-pandemic, putting an investment behind us, will result in significant levels of free cash flow for 2022 and beyond.

These significant levels of free cash flow will provide us with the opportunity to continue to reinvest in our business, and provide us with the opportunity to continue to return significant capital to our shareholders in 2022.

We are planning for capital expenditures in the range of $55 million for the fiscal year 2022, with a large majority allocated to digital and supply chain fulfillment initiatives. At this point, we will open the call to your questions..

[Operator Instructions]. We'll take a question from Dana Telsey of Telsey Group. Your line is open..

Good morning, everyone. Thank you for giving all the information..

Hi, Dana..

Hi, thank you for giving all the information and the framework for 2022.

As you think about this upcoming year, the brand marketing, what should we be watching for? Is there a difference in the cadence of the year of what you're looking at in the first half? I mean, Kardashians thing was very impactful in the fourth quarter, any new things like that planned? And on the AUCs that still, uncertainties and all the cotton costs and all, whether it's Gymboree, whether it's the new Sugar & Jade, does it impact one business more than another? And is there any difference in price increase that you're planning to take? Thank you..

Sure. I think, on the AUC impact across, we're a big user of cotton in all three brands. We've taken, obviously, Sugar & Jade is new, but we've taken pricing increases throughout the past year in TCP and in Gymboree. And as Rob outlined on the call, we are planning on mitigating, the full impact of the AUC increases with AUR increases in 2022.

So I would say that, there really isn't one brand that sticks out. From a marketing strategy point of view, I think that's a little bit more of a complicated answer. I think, we've really have a big lever in marketing. We've done a lot of work on personalization over the last several years.

But in the last, I'd say 18 months, last year-and-a-half, we've really been able to move to a much more strategic marketing lens on our business. We've gotten some significant, outside help on segmenting our file, and really understanding who our customer is.

And so I think we really think about marketing from four pillars, if you will, the first one's really customer centric marketing. And like I said, we had an outside partner come in their name is Merkel, who really helped us there.

And what they helped us really do is take audience profiles, they at least define exactly who our customers are, they took the consumer demographics, psychographics, attitudinal behavioral data all across multiple platforms, and all the touch points and really helped us journey map, and then create customer plans for acquisition, retention, and reactivation by channel and brand based on those journey maps.

And then we align our specific marketing tactics against those journey map. So that is a really big change for us. And a really important change for us is to be able to get to that level with our customer on the profiles and the journey mapping. And then, I think really the second pillar is probably brand building.

So we then go and create 360 degree campaigns that tell our different product stories throughout our three brands and throughout all our customer touch points. And then we invest that kind of in all points of the journey, but we really are emphasizing and Rob mentioned it on the call the top of funnel awareness media.

And then we really to your point about the Kardashians are doubling down on our efforts with influencers and celebrities to really shift brand perception, away from more promotional, and to build awareness around the brand and really the values of the brand. And ultimately monetize those learnings obviously.

And then there's the other big change for us this year, which is really marketing mix optimization. And again, we had an outsider come in and help us with this. So I've mentioned in my remarks, we have a, what we call a multi-touch attribution tool. And that really is going to help us spend our dollars where they count.

So we're strategically shifting our mix to more top of funnel and more brand awareness and acquisition tactics.

And what does multi attribution tool fancy name, but what it does is it enables us to measure and optimize and forecast the different marketing investments and then implement like a statistical look back, really like a look back model to identify incrementality of our marketing spend, and really makes us much more nimble, and able to move that spend around much better as to where our customer is really finding us.

And then all those three really lead obviously to the fourth, which is a best-in-class digital experience. And that includes all the things we've been working on site enhancements, digital marketing channels focused on customer acquisition, personalization, new technology. And then clearly the focus on mobile and building out the app experience.

So we're really excited about the marketing strategy we have going forward. We've seen some great early results, and think that'll be a powerful lever in 2022..

Perfect. One other quick follow-up, as you think about your sales opportunity, obviously, last year, we had stimulus, but we also had your share gainer from competitors that have gone away.

Any way to unpack that opportunity go-forward, Jane, anything different you're seeing in the landscape out there in terms of your share opportunity?.

Well, I think when you look at 2021, not accounting Sugar & Jade because we're waiting for the kind of clean information on that. And certainly, we just get retail information as everyone else does. So you can't really double count wholesale. So this doesn't have anything to do with the growth in the Amazon business.

It's really the market share data is based on retail business. We were able to hold our market share flat in 2021 and we were one of the very few to do so as we had, kind of foreshadowed over the year, we knew that the "essential retailers" would be giving up some share this year, which they did, as the rest of the world was allowed to open back up.

We were the only kids, pure kid's player that was able to hold share in 2021. And I think Dana, when you think about us being able to hold share in 2021 with all the issues we are up against with COVID. And the fact that we picked up 1,472 basis points in gross margins versus 2021 and 660 basis points versus 2019.

I think it kind of gives us confidence that our pricing reset is sticky, and has staying power. So I think those statistics are pretty powerful..

We'll take our next question from Jim Chartier of Monness, Crespi & Hardt..

Good morning. Thanks for taking my questions..

Hey, Jim..

Hey, Jane. Could you talk about the promotional environment what you saw in fourth quarter, and then kind of how are you planning for 2022 and then for first quarter, how impactful is the return of Easter dressy business in first quarter after not really having that business for a couple of years? Thanks..

Sure. Yes, I think that from what we see in our competitor base, everything is really, kind of benign, very rationale, I think people are still having some issues getting product in. And so I think that we're going to see, continue to see a rationale promotional environment. I think we are firm believers that we can get more for our product.

And I think some of our competitors feel the same way. So I think everyone's at least currently on the same page as to holding on to these price increases, and getting discipline around inventory management. So I see the promotional environment, relatively calm.

From I know, you didn't ask this, but the Easter dress -- the Christmas dress up business was strong, and that should bode well for having a much stronger Easter dressy business this year than we did last year. But I will remind you, and we've said this many times before, we're pretty much the students of the Easter business in kids.

Easter is not the greatest date for us, Easter 4/17 this year. And as we said, a lot of times, we don't love a late Easter. And the reason why is, with a late March or an early April Easter, you get mom to come in in March, whether the weather's favorable or not, she has to shop for Easter.

And not only does she buy Easter dress up, but she starts to look at what's available to stock up for Spring at the same time. And then when the weather changes, which it usually does, at some point in April, you get a second chance to have mom back in the quarter.

So that's really the perfect timing for us late March or early April, with a late April unless you get a weather change in March, there's really no strong impetus for mom to come out in March, and she'll wait until April.

So when we really think about it and Rob talked about Q1 which we think is going to be our toughest compare when you look at the fact that we're up against such a tremendous amount of stimulus from last year, and we have a later Easter, we really believe that that's going to combine together to, as Rob said, produce our toughest compare.

But from a product point of view, and a positioning point of view and an inventory point of view we're -- we feel good that we'll do well with our dressy products, when mom comes out..

Our next question is from Jay Sole of UBS..

Great, thank you so much. Rob, if you could sort of explain two things. One, could you give us an idea of the incremental benefits of sales in 2022 from Gymboree, Sugar & Jade and Amazon. And then maybe can you clarify in gross margin, you said gross margin down 200, 300 bps for the year lowering the first half and the second half.

Did you mean that in terms of the year-over-year change will be lower in Q1 versus Q2 or the overall level of gross margin will be lower in Q1 versus Q2, sorry, the first half versus the second half? Thank you..

Sure. From a gross margin perspective, I call that 200 to 300 basis points down for the year versus 2021. The overall decline in Q1 and Q2 will be more pronounced than the declines in Q3 and Q4.

And we expect a moderation in gross margin as we get to the back half of the year; we have the year-over-year comparison of the freight that I talked about this quarter.

From a Sugar & Jade, Gymboree and Amazon perspective, we didn't call it amounts in terms of sales increases, but they're included within our 1% increase of consolidated net sales for the year. We continue to be excited about the Gymboree brands and the long-term opportunity for a $140 million. Sugar & Jade is early days.

But it's a big addressable market for us in terms of $8 billion in the tween market. And Amazon is Amazon. So we're excited about that opportunity and we see significant growth in 2022 over the significant growth we saw in 2021..

We'll move next to Paul Lejuez of Citi. Your line is open..

Hey, thanks, guys. Jane, curious about your view on the growth in the Children's apparel market for FY 2022 in units and dollars. And would you expect to grow market share in the year ahead? Here's just curious if it's something that you set as a goal. And how much of that sales growth in FY 2022 you assume is units versus pricing? Thanks..

Paul, I can answer your question. From a unit perspective we were up this year versus last year. And we also had significant double-digit gains in AUR. As we pivot to an e-commerce business and had decidedly higher digital penetrations we're more focused on order value. And our order value was also up significant double-digits.

The increases in the order value really provide for tremendous leverage on our fulfillment costs in our e-comm business, and is driven our highest operating margin channel even at much higher. We expect to continue benefits for next year as we continue to optimize the fulfillment cost structure..

And we'll take our final question from Susan Anderson of B. Riley..

Hi, good morning, nice to have on the call. Thanks for all the details.

Just curious, based on your top-line guide for the first quarter, I guess does that entail are you currently comping in line with the guide? Are you assuming that sales kind of falloff in March and April is [ph] use like all those tough compares? And then it looks like based on the guide for the full-year, you're expecting sales and stabilized in the back half.

So I'm assuming you guys still have the child tax credit wasn't as big of a benefit into stimulus in March last year?.

Yes, Susan, we did not, obviously the child tax credit helped us and I think that's why Rob said, we expect Q3 to be lower this year than last year because of the pent-up demand with return to in-person learning and the child tax credit. And we expect to see a more balanced Q3 to Q4.

As in response to your initial question, obviously January was a really tough month for us. We had a great November and December. And as Rob detailed when Omicron hit, we really took a dive in sales and traffic. We saw a nice rebound in February. We were up mid-single-digits comp through the end of February.

But as we know, February is a small month and wasn't really up against stimulus. So we do expect a significant drop off in the month of March as we anniversary the stimulus which was about exactly one year ago today. So you know March and April really make up the bulk of the quarter and that's where we're going to see the drop we think..

This does conclude our question-and-answer session as well as our conference call for this morning. Thank you for joining us today. If you have further questions, please call Investor Relations at area code (201) 558-2400, extension 14500. You may now disconnect your lines and have a wonderful day..