The Children's Place, Inc. Q1 FY2023 earnings call

Strategic pillars: 1. Product: TCP and Gymboree had successful Easter dress-up assortments, with Gymboree's Mandy Moore collection providing learnings. 2. Digital Transformation: Digital sales at 46% of retail, up from 45% last year. Digital is industry leading in kids retail, with 56% of acquisitions through Digital. Mobile app transactions and users increased. 3. Alternate channels: Amazon business outperformed, with Q1 site sales up 124%, traffic up 214%, customers up 81%. Marketing initiatives driving Amazon growth. Maegan Markee: Accelerated e-commerce growth, consolidated e-comm traffic up low double-digits, mobile app transactions and users increased. Brand awareness campaigns with high impressions and return on ad spend. Customer acquisition up 21% in Q1 with 56% through Digital. Sheamus Toal: Q1 net sales decreased $40.8M to $321.6M. Inventory down 8% YOY. Gross margin 30% vs 39.2% prior year. Adjusted SG&A $109.2M. Cash and short-term investments $18.2M, borrowings $300.8M. Inventory reduction efforts continued.

Product: Easter dress-up for TCP and Gymboree were highlights. TCP had strong family matching dress-up for Easter, Gymboree saw outstanding demand for Easter dress-up including sellouts from Mandy Moore collection. Digital Transformation: Digital represented 46% of retail sales in Q1 vs 45% last year. After adjusting for Omicron surge, Digital was 49% in March and April. Digital is 46% of retail sales, with 56% of acquisitions through Digital. Alternate channels: Amazon business outperformed projections in Q1, with Q1 Amazon site sales up 124% vs Q1 2022.

Q2 net sales expected $340M - $345M, decrease high single-digits to low double-digits YOY. Adjusted operating loss expected ~8% of net sales. Adjusted net loss per share ~$2.15 - $2.20. Back half of 2023 expects increases in wholesale revenue, softening of high input cost pressures, double-digit operating margins, adjusted net EPS over $5. Full year net sales $1.57B - $1.59B, adjusted operating profit 2.5% - 2.9% of net sales, adjusted net EPS $1 - $1.50. Anticipate closing 100 stores, leaving ~500 stores.

Macro-economic tension limiting core consumer purchasing power, inflationary pressure on lower income consumer, continued challenging macro environment impacting top line, high input costs embedding in inventory affecting margins.

Q: Talk about gross margin in Q1, drivers of decline, promotional activity in Q2, cost structure.

A: Q1 gross margin decline driven by higher input costs (cotton, supply chain). Q2 margin expected to decline ~200 basis points due to cotton costs. Expense structure rationalized, dollars diverted to digital marketing.

Q: Elaborate on weak weather period not changing trajectory, juxtapose with good digital, Amazon.

A: No weather break in Q1, consumer under pressure. Q2 least profitable, marketing ramping up in July. Amazon business strong, back half growth expected. Digital traffic to continue growing, conversion to improve.

Q: Talk about confidence in Amazon business continuing to develop, size and profitability.

A: Amazon business growing, trends positive. Back half and 2024-2025 growth expected. Amazon is part of new growth base, benefiting from stabilized costs, clean inventories, optimized expense structure, and stabilized store base.