The Children's Place Q4 Earnings Conference Call: Full Transcript

Operator: Good morning and welcome to the Children's Place Fourth Quarter and Fiscal Year 2015 Conference Call. Thank you for joining us this morning. With us here today are Jane Elfers, President and Chief Executive Officer; Mike Scarpa, Chief Operating Officer; and Anurup Pruthi, Chief Financial Officer. A copy of the press release can be found on the company's website. 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. 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 revision of these forward-looking statements to reflect the events or circumstances after this date hereof. After the prepared remarks, we will open the call to questions. We ask that each of you limit yourself to one question so that everyone will have an opportunity. I'll now turn the call over to Jane Elfers. Jane Elfers: President and Chief Executive Officer: Thank you, Laurie and good morning, everyone. During our Q2, 2014 earnings call, we stated that our companywide multi-pronged transformation strategy would begin to deliver results in the back half of 2015. So let's recap how we're doing against that commitment. For Q4, we delivered adjusted earnings per share growth of 27% to $1.19 per share compared to last year's fourth quarter. This exceeded our updated guidance range of a $1.05 to a $1.12. On a constant currency basis adjusted earnings per diluted share grew 30% to a $1.22 compared to 2014. We delivered our strongest comp in 8 years in Q4, with comparable retail sales up 6.7% on top of a 3.7% comp increase in the fourth quarter of 2014. US comp sales increased 6%, Canada comp sales increased 13.1% and importantly we also delivered a positive comp in both are US and Canada for converter channel. We increased our adjusted operating margin by 70 basis points in Q4 to 6.7% compared to 6% in 2014. We returned $41 million to shareholders in the fourth quarter for the repurchase of approximately 676,000 shares and dividend payments. Our inventories entering Q1 are in excellent shape. We ended the quarter with total inventories down 9.7% and that's on top of a 7.7% reduction in inventory for the fourth quarter of 2014. For the full year 2015 we delivered a superior merchandise assortment disciplined expense management and strong inventory control which resulted in five consecutive quarters of year-over-year decreases in inventory and four consecutive quarters of increases in AUR and gross margin. We increased our adjusted gross margin by 90 basis points in 2014. We leveraged SG&A by 10 basis points versus 2014. We increased our adjusted operating margin by 80 basis points to 6.4% compared to 5.6% in fiscal 2014 and we returned over $131 million to our shareholders with the repurchase of nearly 2 million shares and dividend payments. Now let's review in more detail the significant progress we've made and the key milestones we've achieved with respect to our strategic growth plan. Operational excellence is the foundation for everything we do. Operational excellence supports our four strategic pillars which are; superior product, business transformation through technology, growth through alternate channels of distribution, and fleet optimization. Talent is the halo that ultimately defines our success, so let's start there. Our management team is the reason for our success. Over the past five years, we have built a best-in-class management team and those of you who have followed us for the past several years have seen firsthand the extensive talent upgrade that has taken place throughout our company. This world-class management team is a significant competitive advantage for the Children's Place and it is their commitment to deliver on our long standing strategic growth plan that sets them apart. It is so rare in retailing to expect that successful turnaround particularly of this magnitude and the team deserves all the credit. Moving on to the four strategic pillars of our growth strategy, let's start with number one; superior product. Over the past 18 months, we have significantly upgraded our design talent. This talented team has been focused on consistent product execution across all divisions and more frequent fashion delivery to maintain currency of inventory flows. For competitive reasons, I am not going to get into the specifics about our product or category performance but when you shop the kid space, we believe our assortments speak for themselves. Moving on to pillar number two; business transformation through technology. As most of you know, when I joined PCP in 2010, the systems had not been addressed or upgraded in more than two decades. We were woefully behind the competition and the task of replacing every major system in the company while also expecting a companywide transformation, was a big challenge. However, our team has done a remarkable job modernizing our systems over the past three years. We have made significant investments in our systems and have delivered all of our major implementations on schedule and on budget. In 2015, we implemented a state-of-the-art inventory allocation and replenishment tool for back-to-school 2015 which has enabled us to significantly improve our inventory management capability. We began implementation on a markdown optimization tool with a plan go alive in the second half of this year. We implemented sophisticated technologies to further enable our Omni channel capabilities, allowing us to focus on customer segmentation to increase acquisition, retention, and engagement. We implemented a new distributed order management system in Q3 which will enable us to begin to unlock cross-channel capabilities in the second half of 2016. We enhanced our digital capabilities including organic search and dynamic life cycle email campaign triggered by individual behaviors, and we launched e-receipts in June which enabled additional customer contact opportunities adding 1.2 million new emails to our database. Although 2015 marked the end of third year of our five year system implementation plan, we are only at the beginning of a long runway of an improved operating results enable by these enhance technologies. Our third pillar is growth through alternate channels of distribution. Our wholesale and international businesses have continued to expand since they were launched in 2012 and the investments we have made in technology will enable us to scale both the international and wholesale businesses. We now have six international franchise partners operating in 16 countries with 102 points of distribution and expect to add 40 points of distribution in 2016. We have been a success in every market we have entered with our franchise partner and it gives us confidence that there is a tremendous amount of white space globally for our unique brand. Our international team has also been making preparations to enter e-tailing in China focusing on building the right partnerships while putting the operational building blocks in place. We now have large technologically sophisticated e-tailing and brick-and-mortar wholesale customers who are poised to grow with us in 2016 and beyond. And our fourth pillar is our fleet optimization initiative. We began our fleet optimization initiative in 2013 and initially targeted 100 store closers from 2013 to 2016. At the beginning of 2015, based on the continuing work with our external partners on customer segmentation and shopping pattern, we increased the store closure target to 200 stores through 2017. We are maintaining our targeted level of store closures at 200 for the period from 2013 to 2017. Our fleet optimization initiative should ultimately result in operating margin accretion in excess of a 100 basis points. As we mentioned earlier, operational excellence is the foundation for all that we do. Our SG&A management has been spectacular. We've done an outstanding job on SG&A management, reducing adjusted SG&A by $55 million or 180 basis points over the past three years and we are committed to further leveraging SG&A in 2016. Our ability to continue to leverage SG&A while making the critical investments required for our companywide transformation speaks to the strength and focus of our management team. And we've returned a significant amount to shareholders. Prudent cash flow management and our strong balance sheet have allowed us to consistently reward shareholders. Since 2009 we have returned approximately $624 million to our investors through share repurchases and dividend. Our share repurchases over the last three years as a percentage of our market capitalization totaled 19%. In fiscal 2014, we instituted a dividend for the first time in our history. In the first fiscal quarter of 2015, we increased the dividend by over 13% and today we announced that we increased the quarterly dividend by an additional to 33.3% to $0.20 per share, a total increase of 51% over two years. At the end of fiscal 2015, approximately $271 million remained available for future share repurchases under our existing share repurchase program. So when you look at commitment we made to our shareholders back in 2014 that our transformation strategy would start to deliver results in the back half of 2015, I think it's safe to say we delivered. Now let's move on to 2016. For fiscal 2016, we are providing initial adjusted EPS guidance in the range of $4 to $4.10, inclusive of a negative $0.16 impact from foreign exchange compared to adjusted EPS of $3.60 in fiscal 2015. For Q1, we are providing initial adjusted EPS guidance in the range of a $1 to $1.06 inclusive of a negative $0.03 impact from foreign exchange compared to adjusted EPS of $0.83 in the fourth quarter of 2015. While we still have a significant portion of the quarter head of us, we are off to a terrific start with comp store sales running positive 9.7% quarter-to-date. Now I'll turn it over to Mike. Michael Scarpa: Chief Operating Officer: Thank you, Jane and good morning everyone. We have made substantial progress on implementing our transformation roadmap. We are very encouraged with the results thus far. We have a significant runway ahead of us an opportunity to continue to deliver improved operating results. We are just beginning to build out our digital platform and deliver against this initiative. Meanwhile, we continue to enhance our learnings and build additional capabilities in our inventory management tools which went live successfully during the back-to-school 2015 season. Finally, we will complete to build out of our technology capabilities to scale alternate channels of distribution. Here is an update on each of our major transformational initiatives. Inventory management. As anticipated, we are seeing the benefits from our inventory management initiatives. We continue to refine on learnings from our assortment planning tool to optimize our overall buys and better match breadth of assortment with depth of inventory. For the first half of 2016, our overall unit buys increased high single digits and as we are finalizing our second half buys, we also see unit buys down in the high single digit range. Our new allocation replenishment system allows us to allocate products closer to need, increasing our allocation frequency and lowering our average units per allocation. Allocation frequency on our fashion product is up over 60% while our average units per allocation is down over 50%. This is providing us with additional inventory flow back into stores based on actual store selling results. This inventory productivity capability has been a driver of the comp sales and margin results we announced today. In the second quarter, we will begin implementation of an enhanced order planning and forecasting tool which will automate and enable greater precision and timeliness on the reordering of our basics, allowing us to optimize the levels of replenishment inventory. We are scheduled to go live in Q4 in time to influence our basic inventory position for the back-to-school 2017 season. Markdown optimization will drive the profitable and on time liquidation of our seasonal inventory. We are piloting this initiative in the second quarter and plan to go live with Phase 1 in the second half of 2016. We are also planning to implement a size impact optimization tool which will generate accurate size scales and optimal pack types, further optimizing inventory at skew level by store. We are targeting implementation of this tool to impact the summer 2017 buy. Digital capabilities. The continued development of our digital capabilities will be critical to our Omni channel strategy. These capabilities will give us the opportunity to capitalize on our digitally savvy customer. Here is a review of our key 2016 digital initiatives. One, we see an opportunity to significantly improve our mobile capabilities. We are moving into the second phase of our mobile first digital transformation, prioritizing enhancements to browse, navigate, search, and check-out. Two, we will pilot our first Omni channel initiative in the second half of 2016. Our Omni channel initiatives will facilitate cross-channel traffic and create the potential to drive additional sales. And three, the redesign of our loyalty program and migration to a new private label credit card provider will be happening in the fourth quarter of 2016. We are working now to create a program that drives participation across the entire membership with differentiated rewards and engaging experiences for our loyal members. The new program will be easy, seamless, personalized, and most importantly, digital. Fleet optimization. Our store fleet optimization initiative continues to drive positive results. The 12-month sales transfer rate on the stores we have closed continues to be in excess of 20%. We are maintaining our targeted level of store closures at 200 in the period from 2013 to 2017, including the 108 stores closed in fiscal 2013 through 2015. We continued to evaluate our stores and their level of profitability as we assess the impact of a number of factors. One, our new inventory management tools and their impact on merchandise margins; two, our developing Omni channel capabilities and the advantage of leveraging an extensive existing store network; three, our overall transfer rates; and four, our ongoing lease renegotiations. Channel expansion. We are confident about the long-term growth and profit potential associated with our expansion into alternate channels of distribution as we further develop our relationships with our international and wholesale partners. We continue to make significant progress in the fourth quarter on the investments in technology that will enable us to accelerate our channel expansion through our international wholesale and e-commerce channels. In our wholesale business, we are working collaboratively with a major e-tailing customer, set up a replenishment program which will enable us to add significant scale to this business. We are also encouraged by the opportunity in our international business. Our international franchise partners opened 11 points of distribution in the fourth quarter and we ended the year with 102 international franchise points of distribution in 16 countries. As Jane mentioned, we expect to add another 40 points of distribution in 2016 and during the year we will look to lay a foundation for entry into China through e-commerce. In summary, 2016 will be the fourth year of our five-year systems transformation plan and we expect the benefits from our strategic initiatives to enable us to make continued progress towards our 10% adjusted operating margin target. Now I'll turn it over to Anurup. Anurup Pruthi: Chief Financial Officer: Thank you, Mike and good morning, everyone. In the fourth quarter, we delivered adjusted income per diluted share of $1.19 compared to $0.94 per diluted share in the fourth quarter last year, a 27% increase. The comparison to the fourth quarter of 2014 was negatively impacted by $0.03 due to foreign exchange. On a constant currency basis , adjusted earnings per diluted share were $1.22, a 30% increase compared to the fourth quarter of 2014. Details for the fourth quarter are as follows. Net sales were $498.5 million. The comparison to the fourth quarter of 2014 was negatively impacted by foreign exchange of $8.8 million. On a constant currency basis, net sales were $507.3 million, a 5.9% increase compared to net sales of $479.2 million in the fourth quarter of 2014. Comparable retail sales increased 6.7% on top of a positive 3.7% increase in the fourth quarter of 2014 compared to our updated guidance of an increase in the range of 6% to 7%. Adjusted gross margin for the quarter leveraged 130 basis points versus last year to 35.6%. We benefited from a strong merchandise margin increase, a higher AUR, and fixed gross leverage resulting from the positive comp. Adjusted SG&A leveraged 40 basis points compared to last year to 25.5% driven by increased incentive compensation expenses which were partially offset by decreased store expenses. Depreciation was $16.9 million for the quarter and deleveraged 20 basis points, reflecting increased depreciation associated with certain transformation related systems. Adjusted operating income leveraged 70 basis points to 6.7% of sales compared to our guidance of leverage of 10 basis points to 60 basis points. For the year, our comparable retail sales increased 0.4% with our e-commerce business expanding to over 17% as a percentage of net sales. Adjusted gross margin expanded 90 basis points, adjusted SG&A leveraged 10 basis points, and adjusted operating income leveraged 80 basis points. Moving on to the balance sheet. Our cash and short term investments at the end of the quarter were $228 million compared to $225 million last year. We ended the quarter with no outstanding balance on our revolver. Balance sheet inventory. Inventory of the end of the quarter was down 9.7% compared to our guidance of a mid-single-digit decrease. This is on top of a 7.7% decrease in the fourth quarter of 2014. We are pleased with these results and we will continue to tightly manage our inventory levels. We generated $183 million in cash flow from operating activities in fiscal 2015 compared to $161 million last year, a 13% increase. Our strong cash flow and liquidity profile provides us with the financial flexibility to continue to fund our strategic initiatives and return capital to shareholders. Now let me take it to our guidance. First quarter guidance. We are providing initial first quarter adjusted EPS guidance in the range of $1 per share to $1.06 per share. This guidance range assumes that currency exchange rates will negatively impact adjusted EPS by approximately $0.03 in the first quarter. On a constant currency basis, adjusted EPS is projected to be $1.03 to $1.09 per share compared to $0.83 per share in the first quarter of 2015. Our first quarter guidance assumes that comparable retail sales will increase mid-single digits. We are off to a strong start quarter-to-date and our comp guidance for the quarter reflects the impact of an earlier Easter compared to last year, warmer weather in the quarter-to-date period, as well as a shift or certain promotional events to earlier in the quarter compared to last year. We expect adjusted gross margin to leverage 70 to 90 basis points compared to last year. We expect adjusted SG&A to leverage 50 to 60 basis points compared to last year. Our first quarter guidance assumes that depreciation will be approximately $16.5 million, deleveraging 40 to 50 basis points compared to last year. We project adjusted operating margin to leverage 90 to 110 basis points compared to last year. We are guiding inventory to be down high single digits at the end of the first quarter compared to last year. Now, on to full year 2016 guidance. We are providing initial fiscal 2016 adjusted EPS guidance in the range of $4 to $4.10 per share. This guidance range assumes the currency exchange rates will negatively impact adjusted EPS by approximately $0.16 for the full year. On a constant currency basis, adjusted EPS is projected to be $4.16 to $4.26 per share compared to $3.60 per share in fiscal 2015. We expect comparable retail sales for the year to increase low single digits compared to last year. We expect adjusted gross margin to leverage 80 to 90 basis points compared to last year. We expect adjusted SG&A to leverage 10 basis points compared to last year including the impact of a restructuring we executed in the fourth quarter to further streamline our business. We expect depreciation for the full year 2016 to be approximately $69 million. We project adjusted operating margin to leverage 50 to 60 basis points compared to 2015. This guidance excludes unusual costs or events that I are reported in our non-GAAP adjustments. Additional guidance for fiscal 2016. We expect our adjusted tax rate to be approximately 35% for the year. We expect apparel EC to be down low single digits for the year compared to 2015. We continue to forecast another year of strong cash from operations in 2016. Our CapEx is expected to be approximately $50 million to $60 million for the year. We plan to open seven stores and closed approximately 35 stores in 2016. At this point, we'll open the call to your questions. Question & Answer Operator: [Operator Instructions]. Your first question comes from the line of Jay Sole of Morgan Stanley. Jay Sole: Morgan Stanley: Hi, good morning. Jane Elfers: Hey Jay. Jay Sole: Hi. So a few questions just first on the guidance. Can you talk about--what--you mentioned the comp guidance for the full year. Can you talk about the total company guidance for sales. Will it be kind of above the same store sales number or it would be below? How are you thinking about that line? Just to start off... Anurup Pruthi: Jay, its Anurup. Overall from a total perspective, the business spread of about 3.3 in total sales and comp sales. So overall perspective that's how to model it. As we've talked about, we have reflected a low single digits comp for the year. Our plan is also based upon gross margin and AUR expansion, superior product and execution is our first tenet and certainly we expect continued benefits from our transformation initiatives. Operator: Our next question comes from the line Susan Anderson of FBR. Susan Anderson: FBR: Good morning. Thank you so much for taking my question and congrats on a very nice quarter. I was wondering if you could may be give us an update on your longer term operating margin goal. I think, you guys have talked about getting to double digit over time and that looks like you are well on your way there. So may be if you can talk about kind of the past ticket there, the timing and the driver is, is it going to be a lot of a new systems and obviously really good product, may be if you can give us update on that? Thanks. Michael Scarpa: Sure Susan. Good morning. This is Mike. Susan Anderson: Hi. Michael Scarpa: We're pleased with the progress that we've made today. Obviously 80 basis point improvement in operating margin in 2015 and then the guidance of 50 to 60 which will get us from roughly a 5%, 6% up to about 7% toward our goal of 10%. You know obviously the keys to this margin expansion, number one is all about product focus on, you know putting the right product into the channels is key to all of this and then we can move in to from there go into systems transformation, real estate rationalization and then expansion of the alternative channels of distribution. So systems you know, we outlined on the call today that we continue to make progress with our inventory management system. APT sort of planning tool and our allocation replenishment tool went live and for back-to-school in '15 and as we go through '16 and into '17, we'll add markdown optimization, order planning and forecasting for our replenishment side of the business and then size impact optimization which will generate accurate size scales and optimal pack types for the summer of '17 buy. From a digital perspective, we're really focused on mobile capability enhancements around, navigate and search and checkout. We've done a fairly good job with customer acquisition through e-receipts as Jay mentioned 1.2 million new names since June. We are looking obviously at retention and then customer engagement through the new loyalty and new PLCE program and then obviously Omni channel strategy we're filing in '16. So maintaining our store real estate portfolio 200 which we think underperforming doors that will close through 2017 will add roughly 100 basis points of margin and then obviously wholesale and international which are growing nicely and are small but are overall relief to the company's operating margin. Anurup Pruthi: Yeah, and Susan I would just--its Anurup I would just add. The midpoint of our guidance for next year if you compare it to 2015, it includes $0.18 of increased depreciation, $0.16 of FX, so from the long term perspective, as our CapEx now inflects depreciation, I think it's important to note these facts along with the fact that Mike mentioned our '15 results of maybe expanded operating income and certainly our guidance for '16. Operator: Next question comes from the line of Betty Chen of Mizuho Securities. Betty Chen: Mizuho Securities: Thank you. Good morning, everyone. Congratulations on a great effort, wonderful quarter and year. I was wondering if you can talk a little bit about the ultimate channels of sales opportunity. Now that I guess remind us if you can sort of what's the sales penetration for wholesale and international and we recall that they are higher margin and accretive to the overall business and now that the system is in place, how can we think about the growth in 2016 or going forward? And then related to that, what--would laying the foundation for China, any additional color you can give us there and as when we expect that sales contribution into kick in? Thanks. Michael Scarpa: So Betty obviously we're pleased with the growth and the progress we have made in both our international and wholesale businesses. During the fourth quarter, we made significant progress on our investments in technology fully automating key processes, supporting sales orders, inventory receipts and deliveries. We've also developed capabilities that will greatly enhance our interaction with our customers. As we look out through 2016, obviously we are--from a wholesale perspective, I mentioned we are focused on setting up some replenishment programs with major e-tailer. When we look at international, our focus in '16 is really on growing our existing partners and laying that foundation that we talked about in China. The fact that the technology is now in place we are able to add 40 new points of distribution in international and with the wholesale side really start to push on some of these accounts and drive the overall businesses. Operator: Your next question comes from the line of Dorothy Lakner of Topeka Capital Markets. Dorothy Lakner: Topeka Capital Markets: Thanks and good morning everyone. Congrats on a great quarter and finish to the year. I wondered if you could talk a little bit about the drivers of comp? Obviously AUR is a big part of that. But I just wondered if you could kind of go through the components of AUR traffic conversion etc.? And then looking at the guidance for the first quarter comp, obviously you've running very, very strong now and you mentioned I think a shift in a promotional event that might be impacting that as well as the earlier Easter but just wondered how we should think about the progression of comps throughout the quarter? Thanks. Jane Elfers: Dorothy on the first part of the question or the second part I should say, besides we see an outstanding customer response to our merchandise which is great. Obviously we saw it in Q4 and we're seeing into Q1 some of the things that are driving comps early in the quarter, is the earlier Easter shifted up a week or certainly seeing warmer weather versus last year which is also helping and as Anurup had mentioned, there are some promotional shifts. So those things together are accelerating comps earlier in the quarter and we expect that post Easter we will experience some comps deceleration and that is why our guidance assumes a mid-single digit comp which we think is realistic. The other thing I think you should know which is pretty impressive that's going on right now is that, as we've mentioned, that we're certainly seeing favorable weather in the east compared to last year. Last year you might remember we had some storms and some store closures. So we're obviously trending better in our East Coast stores but I think what's so impressive is that every single channel of our business is positive comping right now. So US play stores, US outlet stores, Canada brick-and-mortar stores and of course our e-commerce channel, all positive comping quarter today and not only is every channel positive comping, but every single region that we trade in, is positive comping. So it's not just the East where we are experiencing more favorable weather, it's the West Coast, in Southwest, the Midwest, the Southeast, and every single region in Canada as well. So there isn't one in all North America, every region is positive comp sale big growth. So every channel of every division all top quarters on inspire of some persistently negative sights. Operator: Your next question comes from the line of Anna Andreeva of Oppenheimer. Anna Andreeva: Oppenheimer & Co: Good morning. I guess we had two growth trend related questions. First your inventory per square, much below historic level is that you guys think about either for a per square foot or type of a metrics and then secondly just one how much bridge on that very strong comp in the fourth quarter may be but as your hurdle rates has that changed the history? Thanks. Anurup Pruthi: Hi Anna, it's Anurup. On the occupancy side, a positive comp does give a bridge and we haven't and we don't break but obviously a very positive comp has help in leveraging it. In terms of inventory per foot we would down 7% we are very pleased with that number on our internal plan and as for the continue to drive inventory product number as we look forward and as our tools deploy and we learn from systems and wanted to we have markdown optimization, size impact optimization, planning and forecasting to come and so we will update you as we will make progress in those tools as well. Operator: Your next question comes from the line of Janet Kloppenberg of JJK Research. Janet Kloppenberg: JJK Research: Good morning, guys and congratulations. Jane, I was wondering if you could address the strength in the outlet channel. Is that related to more made-for-factory products or other promotional strategies you may have in place there? I was also wondering if it was your outlook for promotional activities here in the first quarter, do you think that because the strength of the merchandising executing are you able to lean that in year-over-year. May be you could give us an overview of what's happening on the competitive front in terms of pricing and just lastly on cotton pricing, I was wondering if the impact in the--for the full year would be even or it would gain some incremental margin opportunity as the year unfolded? Thanks so much. Jane Elfers: Sure. Okay where to start? Classic questions. On the promotional strategy, we are certainly more restrained in our promotional strategy. We talked about that a lot in Q4 and to the range in Q which is adding to the consecutive quarters of higher AURs and gross margins, that's clearance and more driving new--at an our promotional activity past several quarters as far as outlet merchandise is concerned or in certainly has our stamp on that. We're working or learning a lot through her design and I think that we're putting some outlet channels that have been where to what we have channel, on the compelling things, we've heard as some of those are still struggling under the weight of excessive inventory from--during the they have to work, there ways through. We had issue with the--experience a very, very strong and not only end comp, AUR in to margin. I would say we've a little bit of situation then a lot of base merchandise and then on its back over to Anurup talk about the pattern. Anurup Pruthi: Pattern goes as we've talked about in the previous calls as well and we expect it to be at Children Place. At this point in time we placed our buyers to back-to-school holidays they you've seen to be lowest chips. It is a general thing. We will continue to protectively invest in on initiative which is some... Operator: Your next question comes from the line of Taposh Bari of Goldman Sachs. Taposh Bari: Goldman Sachs: Good morning. I wanted to ask on the wholesale team that you are having continued success there and obviously planning it, can you help us better understand margin, is it a product of higher product margin, retails or is that a combination of both? Thanks. Michael Scarpa: The overall margin, our wholesale gross margins are dilutive to the overall business gross margin. But the business is nicely accretive on the operating line due to the Easter supporting the business and the fact that we cover the existing mass of the company. Operator: Your next question comes from the line of Adrienne Tennant of Wolfe Research. Adrienne Tennant : Wolfe Research: Congratulations. Jane my first question is a follow on of the and it's really competitive, talk about the historical specialty players like Jim and the pressure that they are under and whether you are seeing any thoughts on that, and--ever has to ask your inventory to me--units down high single digit,--down assuming the dollar around more in the high single digit to. Is the productivity coming from better turn and allocation so but in highest use--unit of product? If you can help how you continue to strengthen positive comps based on that metric there. Thanks. Jane Elfers: Thanks Adrienne. On the competitive question, we are not going to discuss specific competitors but I will tell you we spend a lot of time looking at our market share and with the entrance that come into the base with a working order entrance or pure digital and we've been able to maintain / gain market share consistently since. So the coming from--and I think look at our we really have strength through the fourth quarter certainly and into the first quarter and we believe through the rest 2016 beyond the design and merchandising teams we have here now definitely is a competitive advantage. If you look at the team have at Children's Place and you look at the depth of talent -- we're really killing it as far as far as merchandise and they really our level of credit I think that we are going to--Children's Place continue to focus on what we can go and continue to focus on what we do best which way--for the first time in our history that playing with the I think is of systems and superior design and superior merchandising coupled with field execution which has been least in the field is doing a great job. I think we really -- everything is kind of coming down across really all the work the team and strategy we are really see the results. Operator: Your next question comes from the line of Marni Shapiro of The Retail Tracker. Marni Shapiro: The Retail Tracker: Congratulations for the year, looks fantastic. On China a bit more. What's the -- in China for American brands? As I understand that they trust their own brands for their children. So I am curious with the perspective and well as you launch directly your own site or consider -- or something like that or both in conjunction and I guess finally have you thought about in other social media push. Michael Scarpa: We are very early stages in terms of our entrance with China and as well for '16 is really to begin to lay that foundation. So we are working through all the legal and regulatory requirements, working through picking the right partners in terms of distribution and logistics, site maintenance. We are working through right now inventory management around merchandising and pricing strategy, sourcing strategy. So early days you have both the roll. Obviously it's a pretty fragmented market. It's a huge market but highly fragmented and our sense is that our brands seem to keep very well there as it has in the rest of the international markets that we have been involved with. So I'd just ask you to stay tuned and we'll have more information as we move forward. Operator: Your next question comes from the line of Dana Telsey of Telsey Advisory Group. Dana Telsey: Telsey Advisory Group: Good morning, everyone and congratulations . As you think about merchandise margin and higher AUR going forward, that's the bucket to drive higher and you think you could get somewhere you're now? Thank you very much. Anurup Pruthi: Yes Dana it think as you probably noted, we're very pleased with margin expansion on our four quarters in a row AUR expansion, four quarters in row, a 130 bps multi margin expansion in Q4 and we guided significant expansion in Q1 and for the year. I think number one is start with products and product acceptance. I think we're encouraged by the results which Jane has talked to consistent across channels geographies and categories. Secondly that in--we've implemented on our allocation systems, back-to-school after small pilots. So we have a runway ahead of us in terms of using tools for learning success and we have additional enhancements to come took such as markdown optimization, size impact, basic order planning and forecasting. So we believe there is a significant runway ahead as far as margins. Michael Scarpa: And those event management tools are helping us overall with the fact that our inventories almost 10% had in Q, you know I mentioned on the call that our sort of planning tool we're looking at just seeing from a unit perspective, net negative high single digits in units and obviously and we'll paste the talk about the fact that our and apparel will less so we're obviously planning to inventory beside our allocation since the fashion and allocations per cycle is down units--giving us the opportunity to learn going much more. We figured from our go forward perspective that that will continue and improve with the new levels I think in '16, '17. Operator: Your next question comes from the line of Rick Patel of Stephens . Rick Patel: Stephens: Congrats on the --a question on the rollout of markdown optimization, provide us some granularity stores that it in, in the second quarter before its fully rolled out and also is it safe to assume that we'll start in the back half the gross margins or will this take time to ramp be more but in...? Thank you. Michael Scarpa: As we pilot markdown optimization, we're actually going to start with our e-com business and then move forward with a small group of US stores. So, we'll expect some impact in the back half of '16 but the major impact will be from a gross margin expansion perspective that will happen in '17. Operator: Your next question comes from the line of Stephanie Wissink of Piper Jaffray. Stephanie Wissink: Piper Jaffray: Thanks. Good morning everyone and our congratulations as well and just a couple of housekeeping. I think you mentioned your e-commerce business was over 17% so if you could just talk about the plans for the growth in that channel and then also Jane I think you talked about a million or so e-com--emails so you could just update us on your CRM program size and what that may represent as a percentage of sales? Thank you. Anurup Pruthi: Hi. It's Anurup. On the e-com question, e-com and our additional growth strategy is an integral part of future operating plans. However, we're not going to breakout e-commerce separately going forward. We believe from an investor perspective and from a business perspective given all of our Omni channel development that a consolidated view of the company is the best guide to our results and to our guidance. So, that's as far as e-com goes. As far as all the CRM activity goes and Mike might jump in after this, as we have, we have done various foundational work in 2015, be it order management system, launching of e-receipt and we have a roadmap ahead in '16 putting our mobile capabilities, enhancing all of the top and--launching program so there is a -- and personnel fulfillment. So a lot on the plate for 2016 and beyond as digital grows and so that's where I'll leave it at this point. Operator: Your final question comes from the line of Richard Jaffe of Stifel. Richard Jaffe: Stifel: Thanks very much guys and I guess two follow ons; one is the benefits many retailers are seeing regarding average unit costs falling in China not only cotton, the transportation, labor and a strong dollar, I am wondering if you can give us some help in -- '16 or getting a helm --commitment if you could talk a little bit more about the wholesale opportunities as you talked about gearing up, how big or important do you see wholesale become? I will say -- but you can't share that with us just give us a sense or change for year in 2016. Thank you. Anurup Pruthi: On EC, it continues to be a tailwind for the Children's Place, cotton, currency, our sourcing mix, the work of our sourcing offices across the globe, certainly has created--for us it allows us to continue to a strategically invest number one initiative product. As we look at 2016, we are planning these -- continue to be a tailwind and a low single digits. Michael Scarpa: Both of wholesale and internal perspective we have been talking about work that we needed to do that begin to in these businesses in 2016 so we are some aggressive growth in '16 at this point prepared to provide any more information on that but that was a growth plan. Operator: Thank you for joining us today. If you have further questions, please call 201-453-6693.