Good morning. And welcome to The Children's Place Fourth Quarter and Fiscal Full Year 2022 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer; Sheamus Toal, Chief Financial Officer; Maegan Markee, Senior Vice President, Digital Marketing; and Josh Truppo, Vice President, Financial Planning and Analysis.

After the prepared remarks, we will open the call up to your questions. The Children's Place issued its fourth quarter and full year fiscal 2022 earnings press release earlier this morning, and a copy of the release and presentation materials have been posted to the Investor Relations section of the company's website.

Before we begin, let me remind you that statements made on this conference call and in the company's earnings release and presentation materials about the company's outlook, plans and future performance are forward-looking statements. Actual results may differ materially from those projected.

For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission and the presentation materials posted on the company's website.

On this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. It is now my pleasure to turn the call over to Jane Elfers..

superior product; digital dominance; wholesale and international expansion; and an optimized fleet. Today, we thought it would be helpful to review how our strategic initiatives have positioned us for long-term growth with our digitally-savvy core millennial customers and the Gen Z customers right behind them.

So let's start with our successful digital transformation. Prior to the onset of the pandemic, we accelerated our digital transformation with a $50 million investment to upgrade our platform systems and omnichannel capabilities.

This was a necessary and timely initiative that enabled us to keep pace with our core millennial customer, a younger consumer who is rapidly evolving into a digital-first consumer. We know our customer well, and we recognized long before the pandemic that our millennial mom shift to digital was happening.

And now as we are about to enter our fourth year since the pandemic hit, her preference for online shopping has only continued to increase. Without that investment, we would not have been able to service our customers when all of our stores were shut down for several months at the start of the pandemic.

And we would not have the significant competitive advantage of our industry-leading digital penetration that we have today.

Importantly, in order to take full advantage of our customers' strong preference for online shopping, we focused on rapidly shifting our primary acquisition channel from digital to digital from stores, and we have achieved our desired results in a remarkably short period of time. With digital now our primary acquisition channel.

We then made the strategic decision to aggressively promote our product in order to capture market share in the then over-stored kids retail space. One year later, we saw the benefits from the strategy as we captured pricing power for our core TCP brand when there were approximately 2,000 fewer mall-based kid stores.

Concurrently, our design team began rejuvenating the iconic Gymboree brand, an acquisition that has strategically positioned us to be a more powerful competitor in what has been for us, an underpenetrated toddler demographic. And during the pandemic, we recognized the opportunity to further accelerate our transformation.

We launched 3 new brands, each one targeting an untapped or underdeveloped market share opportunity and a higher-income demographic than our core TCP customer. Our brand expansion strategy is a key element of our market share growth strategy as these new brands give us the opportunity to significantly expand our customers' lifetime value.

Maegan will cover this in more detail in her prepared remarks. Looking ahead to what we believed was going to be a significantly larger and higher-margin digital business, post-pandemic, we further invested in our industry-leading digital channel with a focus on expanding our digital fulfillment capabilities.

We partnered more closely with Amazon, and we invested in the Amazon business and achieved significant growth with this important wholesale partner and are now positioned for sustained growth with Amazon in 2023 and beyond.

Based on our millennial customers' rapidly evolving preference for shopping online, we accelerated our fleet optimization initiative by closing almost 1/3 of our stores within 20 months without additional cost to us, given a lease flexibility we have built into our model.

Our store closing initiative enabled the structural change to our digital-first business model and significantly lowered occupancy expense on our remaining fleet.

By the end of 2023, our fleet optimization strategy will be substantially complete, positioning us in the optimum brick-and-mortar locations to service our Millennial and Gen Z consumers omni-channel shopping preferences.

And lastly, to support our strategic reset, we invested in and transformed our marketing function, positioning us to optimize every touch point along our younger, digitally-savvy core customers purchase journey.

Our data-driven marketing strategy is designed to support topline growth by increasing new customer acquisition, increasing customer retention and loyalty and importantly, significantly increasing customer lifetime value by supporting a synergistic shopping experience across our expanded family of brands.

We made strategic investments across every area of the marketing organization, our teams, both internal and external, our research and processes and new state-of-the-art marketing tools and systems. As we have discussed several times, we have historically underfunded marketing.

Our marketing strategies produced strong returns in the back half of 2022, particularly in the areas of brand awareness and acquisition.

Now that we've seen strong returns from our marketing transformation, we believe we can unlock significant topline growth opportunity through increased marketing investments in 2023 and beyond, more closely aligning our marketing spend with industry norms.

Despite major challenges for our team, our business and our customers, our work during the pandemic accelerated our digital transformation by approximately 5 years, allowing us to successfully complete our multiyear strategic reset at the end of 2022. As we move into our next phase, sustained growth, our strategic pillars remain consistent.

So let's take this opportunity to review the current status of each of them. Starting with our first strategic pillar, product. Our core TCP brand continued to strongly resonate with our customers in 2022.

The strength of our core TCP product is due in large part to our long-tenured best-in-class design team's deep understanding of our customers' wants and needs. The consistent strength of our core TCP product gave us the confidence to explore new brand opportunities. To that end, we launched 3 new brands, Gymboree, Sugar & Jade and PJ Place.

With respect to market share, birth rates peaked in 2007 and have not returned to those levels in the 15 years since, and future projections do not have birth rates approaching 2007 levels. Counting on an uptick in birth rates to solve for declining sector market share is not a winning strategy.

Each of our new brands is strategically positioned to target an underdeveloped or untapped market share opportunity, is rooted in our core competencies and targets a higher-income demographic than our core TCP brand.

With the addition of these three brands, we can realize a significantly higher customer lifetime value than would be possible with just a single brand, making this complementary multi-brand approach, an important part of our future growth strategy.

In addition to expanding our market share and increasing customer LTV, our family of brands provides us with additional opportunities to partner with our wholesale and international franchisees to further grow brand awareness, market share and increase our top and bottom line. Starting with Gymboree.

The Gymboree customer is a higher income customer and is less price sensitive than our core TCP customer. Gymboree targets the key toddler demographic, ages 2 to 6, which is an underpenetrated demographic for TCP. With the Gymboree brand, we are acquiring customers whose children are very young.

And as the child grows, we introduce those customers to our wider stable of brands.

For example, a Gymboree toddler girl can grow up wearing the iconic Gymboree bow-to-toe looks and then move on to TCP big girl product and then on to our Sugar & Jade tween line, and eventually into our Gen Z PJ Place offerings before she eventually starts a family of her own and the whole cycle repeats.

Our launch of Gymboree on Amazon last fall was a very important step in Gymboree's growth trajectory as it provided us with a significant acquisition vehicle from a higher-income consumer. Looking ahead to 2023 and beyond, we are planning to increase Gymboree's marketing investments to further drive brand awareness and acquisition.

We now anticipate that the Gymboree brand will reach our initial revenue goal of $140 million in sales in full year 2025. Moving on to Sugar & Jade. The tween market is a fragmented market that is estimated at approximately $8 billion. Our largest TCP business is our big girl division.

And due to our leadership position in big girl apparel and accessories, Sugar & Jade is a natural extension of that core competency. The strategy behind Sugar & Jade keeps our highest spending customer, our big girl customer, and our brands longer and further expands their lifetime value. We are entering our second year with Sugar & Jade.

And from a product point of view, we have a clear understanding of what categories resonate with the tween customer. With our refined product strategy, our next step in Sugar & Jade's evolution is to build brand awareness to reach a wider audience. This increased marketing investment is planned to begin for holiday 2023. And lastly, PJ Place.

PJ Place is a one-stop shop for all of our sleepwear and loungewear. We have a leadership position in kids sleepwear and matching adult sleepwear. In fact, within our sleepwear business, adult is our fastest-growing category.

This new sleep and lounge product also gives us an opportunity to be relevant to an older Gen Z customer and younger Millennials before they start families of their own. PJ Place houses all of our sleep and loungewear products and brands, TCP, Gymboree, Sugar & Jade and our new PJ Place sleep and lounge product in one easy-to-shop tab on our website.

Looking ahead to 2023 and beyond, we are focused on continuing to expand our total sleep and loungewear market share across all of our brands and partners in this fast-growing category. Moving on to our second pillar, digital transformation. For full year 2022, digital represented 48% of our retail sales versus 33% in 2019.

We continued to deliver industry-leading digital penetration in our highest operating margin channel in 2022, supported by marketing initiatives, focused on optimizing our channel results. Approximately 60% of our acquisitions came through our digital channel in Q4.

Our Millennial moms clear preference for the ease and convenience of shopping for her kids online is here to stay.

And we believe our rapid and successful shift to digital as our primary acquisition channel gives us an important competitive advantage as we work to acquire and retain Millennial mom and begin to market to the oldest of the Gen Z cohort who are now starting to become our next generation of customers.

We are excited about our digital growth opportunities and our highest operating margin channel, and based on the success of our digital transformation, the strength of our digital business and our increased investments in this channel.

Digital is projected to represent over $1 billion in sales by full year 2025 or over 60% of our total retail sales versus 33% of our retail sales in 2019, doubling our digital penetration in 6 years and further cementing our successful transition to a digital-first retailer.

As a point of reference, our $1 billion digital revenue forecast does not include digital revenue from our wholesale or international businesses. Moving on to our third strategic pillar, alternate channels of distribution. Our Amazon business continued to outperform our projections in 2022.

Amazon is a key growth focus in our wholesale distribution strategy. And in 2022, we strengthened our Amazon partnership. Amazon is our second highest operating margin channel, a significant contributor to our top and bottom line and a very important consumer acquisition vehicle with many of these customers having higher income levels.

Amazon represents a major growth opportunity in 2023 and beyond, and Maegan will further discuss Amazon in her remarks. And with respect to our fourth and final pillar, fleet optimization. We have made outstanding progress on our fleet optimization initiative over the last few years. We have closed 315 stores since 2019, representing 34% of our fleet.

If we had stayed locked into our over-stored model with onerous fixed costs and multiyear double-digit traffic decline even before the pandemic, I believe we would have followed the path of dozens of other retailers who permanently closed their doors before and during the pandemic.

Instead, we have transformed into a dynamic, variable-based transactional cost structure with our industry-leading digital business, thereby reducing risk and paving the path towards sustained top and bottom line growth.

Looking ahead, we are now anticipating that we will close approximately 100 more stores, with the bulk of those store closures occurring in 2023. This will leave us with an optimized fleet of approximately 500 stores as we enter 2024.

Our fleet optimization strategy has been a critical part of our company's structural reset and aligns with our current and future customers' digital shopping preferences. The data is clear. Millennials have a strong preference for online shopping, and this is only projected to continue to increase with Gen Z parents.

I think it's important to note that we have a very small newborn and baby business.

So our customers are overwhelmingly younger self-purchasers versus other retailers who still have a much larger share of older customers, including grandparents and gifters, many of whom, for example, still prefer an in-store experience as they drive to the store to pick up the perfect baby gift.

We are confident that our projected fleet size of approximately 500 stores allows us to maximize our omnichannel capabilities and grow our industry-leading digital penetration and service our young, digitally-savvy customers through our highest operating margin channel. Thank you.

And now I'll turn it over to Maegan to discuss our marketing transformation and our Amazon channel..

Thank you, Jane, and good morning, everyone. As Jane mentioned, our marketing transformation over the past few years enables us to capitalize on maximizing our interactions with our younger, digitally-savvy Millennial and Gen Z customers and to support the growth of a significantly larger and stronger digital business coming out of the pandemic.

Starting in the back half of 2022, we felt confident in our ability to concept, build, deploy and optimize fully integrated creative marketing strategies paired with a robust media mix aimed to reach, inspire and convert our shoppers at every stage of their purchase journey with The Children's Place family of brands.

Our data-driven marketing transformation was designed to support the significant future topline opportunity we've been discussing for several quarters by increasing new customer acquisition, customer retention and loyalty, and importantly, significantly increasing customer lifetime value through our marketing efforts and our new brand launches.

As Jane discussed earlier, the recent launch of our Gymboree, Sugar & Jade and PJ Place brands have not only aided in our success in driving overall brand awareness and our ability to seize untapped market share opportunities, but has also lifted customer lifetime value.

Through our family of brands, we've been able to provide market differentiation through our unique and trend-right product assortments and provide value defined beyond just price that is delivered through quality, fit, versatility and durability, solidifying The Children's Place leadership position in the children's apparel industry.

In the short time since launching these brands, we've seen strong results as it relates to customer lifetime value, spend and frequency. To date, our analysis shows that, on average, our multi-brand shoppers, customers who shop The Children's Place and one or more other of our brands spend 2.5x more than single brand shoppers.

These multi-brand shoppers have a frequency of more than 2x a single brand shopper and have a higher spend per purchase of 15% more than a single brand shopper. Said another way, customers that shop 2 or more of our family of brands are far more valuable than our single brand shoppers. Now let's move to recap.

Our very encouraging full funnel strategy results from the back half of 2022, starting with top of funnel. With top-of-funnel brand awareness being a key area of focus for us in Q3 and Q4, The Children's Place, Gymboree, Sugar & Jade and our new brand launch, PJ Place, cut through the noise experienced by other retailers during this timeframe.

It was a curtains-up moment for our brand, and we're incredibly proud of the results. We partnered with some of the largest celebrity names in mainstream media, including Kevin Hart, Kris Jenner, Khloé Kardashian, Mandy Moore and Tyler Cameron.

Across our back-to-school and holiday campaigns for The Children's Place, Gymboree and PJ Place, we garnered over 143 billion impressions across our earned and paid media efforts. To put this in perspective, our 2021 back half campaigns represented just 0.6% of the reach that we achieved in the back half of 2022.

These incredibly disruptive brand campaigns also translated to positive topline results. For every dollar we invested, we made close to 7x back in topline revenue. And our blended return on ad spend of $6.75 is well above the industry benchmark for top-of-funnel performance. Moving on to our social dominance.

While our followers continue to steadily increase, the true measure of success across social media is the quality of our followers and the level of engagement.

Our Q3 and Q4 brand campaigns have proven that The Children's Place brands continue to hold the #1 position on social media, driving industry-leading results, representing 70% of total social impressions and representing 59% of total social interactions amongst our children's apparel retailers' competitive set.

The Children's Place family of brands dominated social media to take the #1 rank across impressions and interactions for Q3 and Q4 of 2022. All of these successful top-of-funnel brand activations fueled our growth and acquisition. In fact, U.S.

acquisition during the fourth quarter of 2022 was up 3% versus last year despite being up against a record-setting Q4 in 2021. Even more impressive, when compared to Q4 of 2019, acquisition is up 11% despite having significantly less stores, which further validates our successful digital acquisition strategy.

When looking at full year 2022, acquisition was up 3% versus 2021, a banner year for the industry and up 7% versus 2019 despite having 34% less stores. Looking ahead to 2023 and based on the successes of our recent strategies, we're planning for growth in our customer file, driven by digital acquisition.

Now let's move further down the funnel and discuss retention and loyalty. Consolidated U.S. retention was up 4% in Q4 of 2022 versus Q4 of 2021. As a customer-centric organization, we think mobile first. Our Millennial and Gen Z shoppers are connected to their mobile devices, and mobile is the cornerstone of our digital strategy. In Q4, 77% of our U.S.

digital transactions occurred on a mobile device. Our targeted mobile app strategies have driven a significant increase in mobile app transactions and mobile app users. In Q4, our mobile app accounted for 18% of our U.S. digital transactions versus 14% in Q4 of 2021, fueled by an impressive 15% increase in mobile app customers versus last year.

Our mobile app customers spend and shop 2x more than our non-app customers. Our loyalty and private label credit programs also continue to be strong retention vehicles for our brand. Our consolidated loyalty penetration was 78% of U.S. sales in Q4 of 2022 versus 74% in 2021, showing meaningful growth across our largest customer base.

And our private label credit penetration was 22% of U.S. sales in Q4 of 2022. While we saw strong acquisition and retention results in 2022, we also experienced challenges with respect to customer spend due to the unprecedented inflationary environment which disproportionately impacted our core customer.

While we were able to maintain our customer frequency in the U.S. versus 2021, we had a decrease in customer spend of 7% versus 2021. Now let's move on to our historical marketing investments, our future investment plans and their respective returns.

As we've discussed before, The Children's Place has historically been underfunded with respect to marketing versus our specialty peers. Our marketing spend, measured by our ad spend to sales ratio was less than 2% in 2022, well below the industry benchmark of over 3%.

Despite our relative underfunding in 2022, we delivered a blended return on ad spend of $10.52, which is significantly above the industry benchmark of $6 to $7. This clearly signals opportunity to further drive incremental sales through increased marketing investment, while still delivering a healthy return. Now let's move on to Amazon.

Along with our decision to accelerate our digital transformation, our store closure plans and our marketing transformation, we also accelerated our Amazon initiative.

The significant time and resources, including inventory and marketing investment that we've dedicated towards building our Amazon marketplace over the past 2 years has resulted in significant growth, with Amazon delivering another strong performance in Q4.

As we shared on our last call, we achieved record-high Amazon sales during the Prime Day period in Q2. And sales continued to build throughout the back half of the year. We participated in the Turkey Five Thanksgiving promotion in Q4, which resulted in the largest day of Amazon sales in our history, exceeding our Q2 Prime Day record.

Our Q4 Amazon site sales were up 120% versus Q4 of 2021, fueled by a 200% increase in traffic year-over-year.

Our Q4 performance capped a strong end to the year with site sales up 118% in full year 2022 versus full year 2021, fueled by a 197% increase in traffic, serving as a strong indicator of the potential we have with this partner in 2023 and beyond.

Marketing is a key component to driving the Amazon business and our successful marketing strategies are driving the significant year-over-year increases in traffic. Ad attributed sales with Amazon were 49% of total Amazon channel sales for 2022, up 308% versus 2021, with a strong double-digit return on ad spend.

Last fall, we launched our iconic Gymboree brand on Amazon. And the Amazon Gymboree business has consistently built since our launch and exceeded our expectations for 2022. This momentum was partially fueled by an enhanced advertising strategy built around maximizing the brand's visibility in high-impact placements.

Our Gymboree ad performance has been recognized by Amazon as a case study for successful cold start brands.

Based on the strong performance with over 50% of total Amazon channel sales coming through at attributed sales in 2022 at a very healthy return on ad spend, which signals the significant opportunity ahead to drive incremental sales through increased marketing investment. We anticipate that our partnership with Amazon will continue to strengthen.

We'll talk more about the future opportunities as the year progresses, but we see opportunity to pursue both expanding our family of brands through the Amazon channel as well as international growth opportunities.

Looking ahead to 2023 and beyond, we have significant growth potential from our marketing transformation, our realigned marketing spend and our strong Amazon partnership. I am proud to be leading these important initiatives. Now I will turn it over to Sheamus..

net sales are expected to be in the range of $1.62 billion to $1.66 billion, representing a decrease in the low to mid-single-digit percentage range as compared to the prior fiscal year; adjusted operating profit is expected to be in the range of 3.5% to 4.0% of net sales; adjusted net earnings per diluted share is expected to be in the range of $2.50 to $3 per share.

These results include the impact of the 53rd week in 2023 based upon our retail calendar. This week occurs during a low-volume non-peak clearance period and as a result, is expected to have a very modest impact on revenue and an insignificant impact on operating results.

We are planning capital expenditures for the full year to be in the range of $40 million to $50 million, primarily to support our DC expansion, digital initiatives and the enhancement of our fulfillment capabilities.

We anticipate closing 100 stores as part of our ongoing fleet optimization initiative with the bulk of the closures happening in 2023, leaving us with an optimized fleet of approximately 500 stores. We are planning for full year tax rate of approximately 25%. Thank you. And I will now turn it back over to Jane..

superior product; digital dominance; wholesale and international expansion; and an optimized fleet.

Topline growth will be fueled by our strong stable of brands, a business model focused on digital, our highest operating margin and most important channel for our young, digitally-savvy core Millennial customer and the Gen Z customer right behind her, our strong wholesale business and our successful marketing and branding efforts.

Bottom line growth will be fueled by the return of normalized supply chain and cotton costs. The benefits of our significant AUR increases since the start of the pandemic, and the tailwinds from the strong financial and operational discipline initiatives that Sheamus is leading.

Our team is resolutely focused on execution and we believe we are on track to return to double-digit operating margins in the back half of 2023 and are well positioned to deliver long-term consistent growth for our shareholders. Thank you. And now we'll open the call to your questions..

[Operator Instructions] We'll take our first question from Jay Sole of UBS..

Can you just talk a little bit about how you see the sales growth trend playing out for the year? You talked about Q1.

But can you give us a sense of how you see it playing out through the year and what the key drivers will be?.

Jay, this is Sheamus. I'll take that. Obviously, as we guided in our commentary and in our release, we're looking forward to a full year and a back half of the year where we're going to drive double-digit operating margins. As we said in the commentary, we've taken a conservative view to the year, particularly the first half of the year.

I think we've been cautious in terms of what we see in the macro environment, some of the headwinds that we see in terms of still record-high inflation, unfavorable weather trends as well as lower tax refunds and the impact that, that has had on our customer.

We also, as I described in our commentary, have invested in a little bit lower unit inventories given the high input costs in the first half of the year. So while we've guided to the fact that inventory is lower on a unit basis, we still do have that higher cost inventory to work through.

And that plays through in our expectations in terms of guidance for topline. I think as we've talked in our release, and the specific guidance that we gave, we're expecting mid-single-digit decreases in the first part of the year, in the first quarter of the year. And that will improve as we go beyond Q1.

We are still being conservative in terms of, and cautious, in our outlook for the back half of the year, but we do see some opportunity in the back half of the year, which gave us the ability to guide to, still lower levels of sales, but modestly improved versus Q1. So we do see improvement as we're progressing through the year..

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

First, I was wondering if you could talk about the AUR performance between fashion and basics.

And then how are you planning inventory between fashion and basics? And then have promotional levels for you returned to normal, post the holiday season now that you've worked through some of the excess inventory?.

Yes. On the AUR, Jim, it was pretty much the same decrease that we saw in Q4, mid-singles on both of them, basics and fashion. As we move ahead, we are a little bit cautious on the fashion side based on the consumer, so we'd be playing that a little bit lower as we -- a little bit lower than basics as we head into 2023.

And then from a competitive view right now, as you probably know, many, if not most of our competitors specifically called out soft kids and baby business in Q4. So we certainly weren't alone there. And I think largely due to the inflationary pressures that are on the consumer right now.

And I think all of us see the consumer shopping a little bit less frequently lately. Everyone seems to be focused on inventory reductions. We've pretty much heard that from everyone as well. But we believe that due to the continued macro pressures, particularly in the front half of the year, that it will remain a competitive pricing environment..

[Operator Instructions] We'll go next to Dana Telsey of Telsey Group..

Thank you very much for all the detail on the business strategy going forward.

When Maegan spoke about Amazon and the penetration, the success that you're having there, how do you think of the penetration of digital moving forward? Does it get beyond the 50% that you mentioned? And with the store closures that you have that increased marketing spend how is -- how do you see it divided whether it's different channels that you're seeing become more activated as you're spending the dollars on the marketing, what do you see is what that balance will be with that percentage of sale going to marketing? And then just lastly, Jane, as you think about the different brands, is there any that you're seeing that could be outsized as we move forward or the different puts and takes as you think of that customer base?.

Sure. I think from a digital penetration, we've talked extensively about us being approximately 50% right now, which was our original goal when we set out our strategic transformation, and we're able to accelerate it by approximately 5 years due to the pandemic. So that's why we talk about having achieved that original goal by the end of '22.

I think we've also talked pretty extensively about reaching a 60% digital penetration by the end of full year '24. And today, when we talked about, we introduced a little bit of forward-looking 2025, we think that we'll be over 60% digital penetration. So we continue to see digital as the core of our strategy.

It certainly is where our Millennial customer wants to be and where the Gen Z consumer behind her is, so that will continue to be our focus. We talked about an optimized fleet. We talked about closing 100 more stores. We feel that will be substantially the end of our fleet optimization strategy.

For now, we feel that, that will be the right stores, in the right trade areas that over-index and omnichannel capabilities and certainly are the ones that service the omnichannel needs of our Millennial and Gen Z customers. So we feel good about hitting that 500 number -- approximately 500 number by the end of 2023.

From a marketing spend point of view, we've been pretty upfront and transparent about us being significantly underfunded in marketing in the past.

I think with all the work that Maegan and her team has done on transforming our marketing area and the extraordinarily strong results we saw in the back half of '22 when she started to activate it on brand acquisition, awareness, social media dominance, she was pretty lengthy in her commentary on describing how strong we feel about it.

We will be making investments -- increased investments in 2023 and beyond in marketing. And I'll turn it over to Maegan to talk about it a little bit by brand. We certainly learned a ton from Amazon as we do a pretty large marketing spend with that channel.

And then I think going forward, to answer your question about the brands and the penetration, Gymboree is on a great trajectory. We introduced today that we think by end of full year '25 that we'll be at $140 million, which was our initial projection.

We're all pretty aware of the fact that we've launched Gymboree into pandemic and kind of lost 2 years there, as it's a very highly occasioned brand and you need occasions and you need families to get together to make that brand work around the key holidays.

We're happy what we saw in the back half of '22 when people were able to start to gather and get together again. And so we feel that '23 and beyond is really the time to put the marketing money behind Gymboree in a big way. And then we also spoke about Sugar & Jade, which is the smallest of the brands.

And certainly, we've perfected the product, we believe, with our best-in-class design team. And now what Sugar & Jade needs is brand awareness and marketing spend behind it. So let me turn it over to Maegan to add what she'd like to, to that..

Yes.

I think from a spend balance perspective, going back to your question, just around closing the stores and then on marketing investment, as we optimize the fleet and close the stores, we worked very closely with the real estate team here to make sure that we're balancing our marketing investment to really kind of hone in on those key areas that we're closing stores.

So we're making sure that our spend is balanced in those DMAs, those regions. So that we're really growing brand awareness without having to utilize a brick-and-mortar store front. The tactics are obviously primarily digital in nature, and that's where we're pushing the customer. As we close the store, we push here to the e-comm business.

And again, we really focus our investment in those key areas where we're walking away from stores. From a tactic perspective, we're utilizing things like paid search, paid social and Amazon where she's going for brand discovery.

So we have a pretty robust strategy around how we work in partnership as we kind of optimize our fleet and make sure our marketing investment is in the right places..

And we'll take our next question from Marni Shapiro of Retail Tracker..

Maegan the marketing over the holidays was truly outstanding. Actually, Sheamus, I just wanted to touch back on a couple of things you said. I think you said something about inventory, you were liquidating inventory in the first half. As in liquidating it or just selling it and moving through it.

I just want to clarify that point because liquidating felt like a strong word there..

Yes. Marni, thanks for the question. Yes, just to clarify that, what I meant by that comment was we're selling it through in our normal process. So it's not like a liquidation sale, but as we sell through that higher unit cost inventory, we are going to absorb that higher cost inventory and our cost of sales.

So I was just trying to reference that, that will flow through as part of our normal process. It is not something out of the ordinary where we're running liquidation events or anything like that..

Okay. Great. And then can you just also remind us, I think it was last -- it was back-to-school '22 where you had -- where selling through pack and hold from '21 when back-to-school wasn't really happening. And those units were purchased at lower cotton costs.

So as we come into the back-to-school period, which for you guys is August and into September, depending on the region, will you be selling through some lower cost AUC plus the new lower cost -- some higher-cost AUC and some lower-cost AUC or you won't have quite the same compare on the product because of the pack and hold, meaning like the lift on the AUC improvement won't be as big in the third quarter?.

Let me try to untangle that. In 2021 was where we were selling the goods that we didn't sell in 2020 because of the pandemic. So we sold them in 2021, which were lower-cost AUC goods that were bought prior to the cotton spike. The basics that we own now are basics that have the higher cotton in them.

So as Sheamus outlined, we will still have some of those basics throughout all of 2023, but they will also -- we will also be getting in new basics in 2023 prior to back-to-school that have the lower cotton. So it will be, to your point, a combination of both in the basics category..

Thank you. And this does conclude our conference for today. Thank you for joining us. 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 great day..