The Children's Place, Inc. Q4 FY2022 earnings call

• Digital transformation: Achieved industry-leading digital penetration, with digital representing 48% of 2022 retail sales. Digital is projected to be over $1 billion in sales by full year 2025.
• Store closures: Closed 315 stores since 2019 (34% of fleet) and plans to close ~100 more stores in 2023, leaving ~500 stores by 2024.
• Brand expansion: Launched Gymboree, Sugar & Jade, and PJ Place brands, targeting underpenetrated markets.
• Marketing investments: Made strategic investments in marketing, with strong returns in back half of 2022. Blended return on ad spend was $6.75 in back half of 2022, well above industry benchmark.
• Amazon partnership: Amazon business outperformed projections in 2022, with Q4 Amazon site sales up 120% vs 2021, fueled by 200% traffic increase.

The Children's Place has several product segments. Digital represented 48% of retail sales in 2022 versus 33% in 2019. The core TCP brand remains strong. Gymboree targets the toddler demographic (ages 2-6) and is expected to reach $140 million in sales by full year 2025. Sugar & Jade is an extension of the big girl division, focusing on tween market, and needs increased marketing to build brand awareness. PJ Place is a one-stop shop for sleepwear and loungewear, with adult sleepwear being a fast-growing category.

• Q1 2023: Net sales expected to be $335M - $345M, adjusted operating loss 6.5%-8% of net sales, adjusted net loss per share $1.60 - $1.90. Inventory expected to be down high single-digit vs prior year.
• Full year 2023: Net sales expected $1.62B - $1.66B, adjusted operating profit 3.5%-4.0% of net sales, adjusted net earnings per diluted share $2.50 - $3.00. Anticipates closing ~100 stores in 2023, with bulk in 2023, leaving ~500 stores by 2024.
• Margin expectations: Anticipates double-digit operating margins in back half of 2023 due to reduced input costs and improved inventory management.

• Input cost pressures: Unprecedented input costs (cotton, air freight, container costs) impacted 2022 results. While cotton prices have declined, ongoing input cost challenges remain.
• Macroeconomic environment: High inflation and lower disposable income for core customers pose risks to consumer demand.
• Inventory management: Need to work through higher cost inventory in front half of 2023, which could impact margins.

Q: Can you just talk a little bit about how you see the sales growth trend playing out for the year?

A: Jay, this is Sheamus. As we guided, we're looking forward to a full year with double-digit operating margins in back half. We've been conservative on first half due to macro headwinds, but see improvement as we progress through the year.

Q: 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?

A: Jane Elfers says AUR decreased mid-singles for both fashion and basics. Cautious on fashion side due to consumer. Focus on inventory reductions, with continued competitive pricing environment.

Q: 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?

A: Jane Elfers states digital penetration was ~50% in 2022, projected to be over 60% by full year 2025. Maegan Markee adds on marketing spend balance, working with real estate team to balance marketing investment as stores close.

Q: 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?

A: Sheamus Toal clarifies it's selling through inventory normally, not liquidation sales, as they absorb higher cost inventory in cost of sales.