Children's Place Inc (PLCE) 2007 Q2 法說會逐字稿

The Q2 2007 The Children's Place Retail Stores, Inc. earnings conference call will begin shortly. Welcome to today's teleconference. At this time all participants are in a listen-only mode. Later there will be an opportunity to ask questions during our Q&A session. Please note this call may be recorded.

I will now turn the program over to Ms. Heather Anthony.

Thank you Kevin, and good morning everyone. Thanks for joining us today for a review of our fiscal 2007 preliminary second quarter financial results. Joining us on this morning's calls are Ezra Dabah, Chief Executive Officer, Neal Goldberg, President, Tara Poseley, President of Disney Store, and Sue Riley, Executive Vice President of Finance and Administration. Also on hand to answer your questions at the end of our remarks are Richard Flaks, Senior Vice President of Planning, Allocation, and IT, Amy Hauk, Senior Vice President and General Merchandise Manager at the Disney Store, and Jill Kronenberg, Senior Vice President and General Merchandise Manager at The Children's Place. Today Ezra will provide some opening remarks, Sue will cover our preliminary financials, Neal will cover review The Children's Place business, and Tara will discuss Disney Store.

Before we begin, I would like to remind participants that any forward-looking remarks made today are subject to the Safe Harbor Statement found in this morning's press release. After our prepared remarks, we will take your questions.

With that out of the way, let me turn the call over to Ezra Dabah.

Thank you, Heather, and good morning, everyone. The second quarter proved challenging for both brands. This morning I will address my remarks separately for the Children's Place and the Disney Stores.

At The Children's Place, sales increased 8%, and comparable store sales decreased 1% for the second quarter. The second quarter reflects similar challenges to the ones we have faced in the previous two quarters. Our merchandise lacks clarity of offer, which was compounded by our strategy to increase AUR, primarily through mix, which did not meet our expectations.

We believe our Back-to-School and holiday assortment at The Children's Place reflects progress from the clarity in AUR standpoint. It is important to note The Children's Place brand remains uniquely positioned within the competitive arena, and we are confident in our team's ability to strengthen that position and drive long-term profitable growth.

At Disney Store, sales increased 6% and comparable store sales were flat. Tara will provide color on Disney Store's results later in the call. This morning we also announced that we are in discussion with Disney on modifying some of the deadlines to remodel and refresh the chain in 2007 and 2008. In return for this, we are discussing to lift some of the restrictions of the license agreement that are important to Disney, however we believe should not be material to our business. We are working closely together to quickly finalize our understanding.

I want to take this opportunity to reiterate our strong belief in the Disney Store brand. Our access to the full vault of characters past, present, and future merchandised in an emporium format operating under the Disney Store brand, positions us for long-term profitable growth. The resurgence of classic characters driven by Playhouse Disney, new franchises like Cars and Fairies, and the hugely popular tween properties like "High School Musical" and "Hannah Montana" fuel our enthusiasm.

The desire for Disney branded merchandise is growing rapidly. Disney's licensed product business is on-track to reach $26 billion this year, double where it was five years ago. The Disney store team is talented, energized, and loves working with all the creative possibilities that the Disney Store brand offers, to elevate and innovate our merchandise assortment, strengthening our unique position.

Turning to operations, next week our new 700,000 square foot distribution center in Fort Payne, Alabama, goes live on schedule, and will support our current needs and future growth over the next few years. Regarding guidance, this morning we lowered our outlook for 2007 in view of the sales and margin trends we have experienced at both brands through the first half. While we remain cautiously optimistic regarding the second half, and are pleased with the month-to-date sales trends, we believe it is best to take a conservative view for the remainder of 2007.

Thanks, and I will now turn the call over to Sue, who will review our financial results in more detail.

Thank you, Ezra, and good morning, everyone. Before I begin a discussion of our second quarter results, I want to remind everyone that these results are preliminary, and may be subject to adjustment pending the review and confirmation of certain tax laws and other factors. Due to our previously announced restatement, we are not providing full comparative financial results, and we are providing only selected balance sheet data.

For ease of comparison, last year's numbers are as reported in the press release. As such, any comparisons to last year made today are subject to change post the restatement. We are providing preliminary net income results today only. Preliminary net loss for the second quarter was $27.1 million, compared to a net loss of $15.2 million last year. On a preliminary per share basis, we lost $0.93, versus a loss of $0.53 last year.

During the quarter, we also incurred stock option investigation fees of approximately $1.8 million pretax. On a segment basis, The Children's Place recorded an operating loss of $8 million, versus an operating profit of $3.5 million last year. Disney Store's operating loss was $10.6 million, compared to an operating loss of $4.5 million last year. Shared services reported an operating loss of $24.1 million, including $1.8 million in stock-option investigation fees, versus an operating loss of $24 million last year. Excluding the previously mentioned stock-option investigation fees, shared services expense decreased 7%.

Consolidated net sales for the second quarter increased 7% to $242.3 million, from $395.6 million last year. Second quarter sales were comprised of $290.5 million from the Children's Place brands, an 8% increase over last year, and $133.8 million from Disney Store, a 6% increase over last year. Consolidated comparable store sales decreased 1% for the quarter, reflecting an approximate 1% decrease in comparable store sales transactions. The Children's Place brands' comparable store sales decreased 1%, versus a 13% increase last year.

Comparable store sales for the Disney Store were flat compared to last year's 15% increase. Consolidated gross profit dollars decreased 3% to $130.3 million. Consolidated gross margin decreased approximately 320 basis points to 30.7%, primarily driven by higher markdowns in occupancy deleverage of both brands. Partially offsetting the decrease was higher initial markup.

Selling, general and administrative expense as a percentage of sales was 36.4%, which represents approximately 10 basis points of deleverage versus last year. The deleverage reflects increased payroll expense, higher store variable expenses, and previously mentioned stock-option investigation fees, partially offset by lower management bonus accrual, and a credit taken in the quarter for long-term equity compensation. Additional factors contributing to SG&A were lower marketing costs compared to last year, as well as lower store and remodeling expenses, due to the timing this year versus last year.

During the second quarter, we incurred a $635,000 asset impairment charge for one of our Children's Place stores. Depreciation and amortization expense was 4.3%, which represents approximately 40 basis points of deleverage, reflecting higher capital spending coupled with accelerated depreciation on the Mickey stores that we plan to renovate. Operating loss for the second quarter was $42.7 million, compared to an operating loss of $25 million last year. Our effective tax rate was 36% in the second quarter versus 37% last year.

Moving on to the balance sheet, we ended the second quarter with cash and short-term investments of $83 million, compared to $110 million last year. In addition, we had $72 million of borrowing on our credit facility at quarter end, compared to zero borrowings last year. Cash from the beginning of the year changed primarily as a result of capital spending of approximately $100 million, inventory build of $94 million, which were partially offset by borrowings on our credit facility.

We expect to end this year with cash of approximately 160 to $170 million, which assumes an equipment financing of $30 million. This estimate, of course, is based on our ability to meet our most recent guidance. We had no long-term debt this year or last year at the end of the quarter. Total consolidated inventory was up at cost 33% or 23% on a square foot basis.

At The Children's Place, inventory at cost was up 19% on a square foot basis, above our previous guidance, reflecting higher merchandise in transit. Excluding the merchandise in transit and incremental shoe inventory, inventory per square foot was up approximately 10%. Children's Place carryover inventory per square foot as a percentage to total is comparable to last year at less than 3%.

Disney Store inventory at cost was up 37% on a square foot basis, below our previous guidance reflecting lower inventory in transit. As a reminder, the growth in inventory primarily reflects our new eCommerce business. Excluding eComm, inventory per square foot was up 22%, also below previous guidance. Disney Store's carryover inventory per square foot as a percent to total was comparable to last year at less than 5%, and we are comfortable with the freshness of our inventory as we move into the third quarter.

Looking ahead, we expect The Children's Place brand to end the third quarter with inventory per square foot up in the mid-teens. At Disney Store, we expect to end the third quarter with inventory per square foot up in the high 20s or the mid- to high teens excluding eCommerce. During the second quarter we opened 16 Children's Place stores and closed one. Year-to-date we have opened 22 Children's Place stores and closed five. As of August 4, 2007, we operated a total of 1,211 stores, comprised of 883 Children's Place stores at approximately 4.1 million square feet, and 328 Disney Stores at approximately 1.5 million square feet.

Turning to CapEx, we have reduced our expected capital spend for fiscal 2007 from $230 million to approximately $200 million, primarily reflecting a slower buildout of our new corporate headquarters, and reductions in IT and store level spending.

Turning to guidance, while we remain cautiously optimistic regarding the second half, we believe it is best to take a conservative view for the remainder of the year. As stated in this morning's press release, we now anticipate reported earnings per share of $2.25 to $2.40 for fiscal 2007. Our full-year projection includes $3.4 million incurred year-to-date for stock option investigation expenses. Third quarter earnings are expected to be $0.94 to $1.02 per share, and fourth quarter earnings is estimated at $1.79 to $1.86 per share.

Our second half guidance implies that SG&A as a percent of sales will be approximately flat to last year, as we will continue to accrue long-term equity compensation at about 50%, and are focused on reducing nonessential and discretionary spending. Gross margin as a percent of sales is expected to decrease, reflecting the markdowns associated with planned promotions we expect to roll out in the back half of this year. We now anticipate a tax rate of approximately 37% for the year, and our year end diluted share count is estimated at 30.5 million shares. Again, we remain committed to filing our financial statements with the SEC by the end of next week.

Now I will turn the call over to Neal.

Thank you, Sue. Today I will review the second quarter, initial Back-to-School trends, and our plans for the second half.

Our second quarter results reflect weak customer response to our summer line, particularly in big girls and newborns, boy's and accessories comped in the positive low single digits for the quarter. Our decision to move our Monster Sale and Back-to-School floor sets later in the quarter, the results of which were negative to sales. Increased average unit retails, which did not resonate with the customer, and a slow start to initial Back-to-School selling, particularly due to later Back-to-School starts, corresponding tax-free shopping events, coupled with an intense promotional environment. Our slow start was particularly felt in big girls.

Our negative 1% comps reflects a 1% decrease in transactions. Lower traffic was partially offset by higher conversions. By region, Canada was strongest with a low-teen comp, while the southeast was weakest was a negative double-digit comp. Based on early Back-to-School selling, we looked at the second half to ensure we have proactive strategies in place, to compete in a promotional environment to drive traffic and sales.

As part of the strategy, we launched a $9.99 denim event the third week of July, and moved up our Fall One sale by ten days in early August. Both events were successful in driving traffic and sales into our stores. The markdowns we expect to take as a result of our second half promotional strategy are factored in today's earnings guidance. Fall 2 set last Friday and includes our Halloween costume offering.

Let me now point out some key differences between how we approached our assortments between the first half and the second half. For example, in the first half, ticketed AURs increased in the mid- to high single digits. In the second half, ticketed AURs are planned flat to slightly down versus last year. In the first half, our style count was up approximately 20% versus last year. In the second half, our style count is planned up 2%. In the first half, depth per style decreased 20%. In the second half, depth per style is up 10%. Our second half plans reflect our commitment to narrow deep, focused assortments at a great value, which makes for an easy shopping experience and is easier to execute.

On July 10 we launched on schedule our new store-within-a-store shoe concept, and are now currently operating 33 stores, as well as online. Though still very new, initial customer response has been positive. While we have a lot more to learn, we are confident that our concept of fashionable, high-quality shoes at a great value fills a big void in the marketplace. As a reminder, shoes will not be material to our financial results in 2007.

In closing, while the second quarter and first half have been challenging, we believe we have identified the issues, and have made the right changes from a pricing, planning, and promotional standpoint.

Thanks and I will now turn the call over to Tara.

Thank you, Neal, and good morning, everyone. Q2 recap. The second quarter at Disney Store was challenging. We attribute our results to continued mall traffic declines, number two, Meet the Robinsons and Ratatouille merchandise not meeting our expectations, and thirdly, our decision to move both Semi-annual sales and fall delivery a week later this year versus last year.

Areas of strength during the quarter came from our "Cars", "Pirates of the Caribbean," and "Golden Princess" assortments. Our flat comp for the quarter reflects a 1% increase in our average transaction size, driven by higher units per transaction, partially offset by lower average unit retail. Comparable sales transactions decreased 1%, partially offset by higher guest conversion. Guest traffic, which we are dependent on was down 6% in the quarter, in-line with national mall traffic declines.

By geography, comps were positive in Canada and in the Northeast, and in the negative, low-single digits in all other regions. By department, hard lines achieved a positive, mid-single digit comp, while soft lines comped in the negative, low-single digits, due to softness in boy's apparel, reflecting last year's strength in Cars. Media comps, while not material to our results, were negative for the quarter, due to last year's DVD release of "High School Musical."

Back-to-school, turning to fall, guests have responded favorably to our new studio collection. Other strong categories include home decor, particularly our new canvas artwork and stationery, kids' graphic tees, girl's fashion and denim, where our backpack program has been challenging.

EComm, on July 10, we soft launched on-schedule our new eCommerce initiative in alliance with Disney Shopping. Initial customer feedback has been positive, and we are on-track to offer our full online assortment in time for the holiday season. Fall 2 and Halloween. Our Fall 2 stage set arrived in stores this week similar to last year, and features our famous world play and Halloween costumes. We have expanded our infant plush costume offerings this year versus last year, and for the first time are offering adult sizes in select stores.

Tweens. Last week we launched a new tween offering in our 70 top stores, coinciding with Disney Channel's August 17th premier of "High School Musical II." Our assortment expands room decor, accessories, apparel, and stationery, and features The Disney Channel's hugely popular "High School Musical" and "Hannah Montana" franchises. We will roll out chain-wide during the holiday season with a broader, more comprehensive assortment.

Looking ahead, as we look forward, we are excited about the DVD releases for the second half, which include the 40th Anniversary platinum addition of Walt Disney "The Jungle Book", "Meet the Robinsons", "Ratatouille", and "Pirates of the Caribbean:Dead Man's Chest." DVDs while not a gross margin business, are great traffic drivers. We also look forward to the theatrical release of the Walt Disney picture "Enchanted", featuring Giselle, a new concept from Disney.

In closing, we look forward to the opportunities that lie ahead for us. Our home-grown, big ideas create unique excitement that set us apart from the competition, and upcoming synergy events offer endless product profitabilities.

Thanks and I will now turn the call over to Ezra to wrap up.

Thanks, Tara. I am actually going to open the call to questions. Kevin, please open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) We will take our first question from the line of Kimberly Greenberger with Citigroup. Your line is now open.

Great. Good morning.

Good morning.

I was hoping you could talk to us a little bit more about the disclosure in the press release about Disney's ability to grant direct licenses to other specialty retailers. Can you just talk about what the amendment is to the agreement versus the June agreement? Also, if you could, is there anything else you can say on the violation of internal controls and compliance by two executives internally? And on the filings, is the only delay, Sue, is in the ability to get those filings updated, the disclosures on the Disney discussion, or is there something else there? And then lastly, if you could give us any update on sourcing progress at Disney, and any color on gross margin performance at any of your divisions, that would be helpful. I apologize for the slew of questions there.

Kimberly, I will take the first one as it relates to Disney. One, it is important to note that we are working very, very closely together. And our relationship to date has been one of, a good relationship that is based on what is right for our business, and what is right for their business. As you know, we signed a letter agreement in June, and we bound ourselves to certain deadlines, especially as it relates to '07 remodels and refreshes.

Unfortunately, in view of these deadlines, we were not able to meet, mostly because of circumstances beyond our control. Disney, understanding that, basically gave us waivers, and at the same time, I wanted you to know, so far the waivers regard were for immaterial delays in what we were supposed to, what we were supposed to do. What they are asking us is to release some of the constraints that we had on them, as to their ability to direct to retail license in Specialty retail, and they have asked us to do that in the area of adult merchandise.

One that is not so relevant to our business and we actually believe that to the extent they can increase their adult offering, it is actually going to be good to our business. So that is one. The other is, they wanted some flexibility regarding their New York store, which is really not important to us and important to them, so in view of our good relationship, we just work together on what we need on our end, and what they need on their end, and we basically have an understanding that we look forward to document very quickly.

Kimberly, on the internal controls. Basically, we had two violations of our policies and procedures on the part of senior executives. One was by a nonexecutive, one was not an executive officer, or a named executive officer, and the other was.

As I characterize the control violations, I would say that the violation on the part of the named executive officer was relatively small, although given that there is a heightened sensitivity to control to our control environment right now, given what happened with stock options.

The internal control violation or policy violation on the part of the executive who is not a named executive officer is more serious, and can be characterized as a very serious lapse of judgment. There will be remedial actions. We expect there to be remedial actions that will be taken by our Board, but we do expect the executives to remain in place.

As to our filings, yes, you are correct that the filing is being delayed, because we want to reach, we feel we need to reach resolution with the Walt Disney Company before we file, and further the internal controls, the evaluation of our internal control framework has also resulted in the delay in filing. As I said, we are committed to August 31st, but there may be some delays to that date.

Then you asked about gross margin at both brands, and in this quarter gross margin was in fact down at both brands. The external gross margin was down at both Disney and at Children's Place, due primarily to markdowns.

Okay. Are you still seeing some sourcing gains at Disney, and those were just overwhelmed by higher markdown levels, or are you now seeing the same progress with sourcing and reduced, and increased IMU at the Disney brand?

Kimberly, hi, it is Tara. We are very pleased with the direction that we are moving our initial margin, so really the Q2 was driven by a much higher markdown rate, much more promotional environment and it affected our margin for the quarter. I think we have made great strides in apparel.

Obviously, that was a core competency of the company, and we were able to really tackle that area first. There will still be some savings in that area, but the area we still have opportunity in, and I don't want to quote what that exactly looks like, because really the end process of that is toys, but we really want to find the right partners in toys, we are taking that very slowly, to make sure these are long-term partners, but we do believe as we expand our sourcing base in that area, we will continue to glean better initial margins in the future.

Very helpful. So Ezra, just with regard to the Disney concession, it sounds to me like the concessions are in adult merchandise, not in product that would draw children necessarily to other specialty retailers. Is that the right way to read it?

That is correct.

Fantastic. Thanks and good luck for the second half!

Thank you.

We will take our next question from the line of Janet Kloppenburg with JJK Research.

Thanks so much. I just wanted to talk a little bit about the Disney business with Tara and maybe with Amy. If you could talk a little bit about the corrections, the course you took specifically. I know that you had later Semi-annual sales and the Fall came in later. It sounds like the apparel business maybe isn't quite as strong as it needs to be, something could be off in boys. Maybe you could talk a little bit if those situations have been remedied for the third quarter, or if we should look to the fourth quarter.

And I think I heard Neal say that Back-to-School got off to a good start. I was wondering if you could comment on that as well. Neal, if you could talk a little bit about the trends you are seeing in the business, and if it is just a tax-free event that is leading to the business being better, and what the outlook for sustainability is there, especially if you could talk a little bit about the girl's products. Thanks.

Janet, this is Amy. Good morning.

Hi, Amy.

Hi, how are you?

Good, thanks. You?

In hindsight in Q2, there are a couple of missteps that I think I made, and I look back at the product and I am going to really focus it on art style. We launched Ariel and her sisters, and we did the Tiki Family collection, and we really did an interpretive, more sophisticated very flat line art style, and it just didn't resonate with our guests. When I look at that art style and what they are really responding to, I think that that was a misstep on our part, and they just didn't respond to that product. So we have course corrected that going forward.

We really, in looking at historical business trends, and what really resonates with the guests, we are being more literal in story telling in our art style, and I feel confident going into the back half, that we have really addressed that and course corrected. I will also say we probably, Janet, have one idea too many in our stores in Q2. I am a firm believer that less is more, and I think that in trying to get all these great franchises and properties, and this wealth of Disney characters that Ezra referred to, we could have been more disciplined in editing out one of those ideas. That is what I really feel from a product --

Amy, you feel you were able to course correct fully for the back half, or do you really think this could take a couple more quarters?

You don't know until you are in it.

Correct.

So we do the best we can and I am proud to say, I am lucky I guess, that I work with a team that really holds themselves accountable to the highest level in executing great product and strategy.

So we looked at Q2 and as soon as we started seeing things that weren't working we course corrected. When the numbers come in and all is said and done, in hindsight there is probably a few things we would have done differently, but hopefully we have made the right moves to positively impact the business.

Perfect. Good luck.

Thank you very much.

Janet, just to respond to, it was Ezra who said pleased with month-to-date sales.

Okay. I apologize Neal.

Clearly, the tax-free swing, the later Back-to-School, the weather, and our promotion cadence helped contribute to that. Other than that, I am not going to speak to any more future events, about the month or--

Okay. Could you perhaps you or Ezra talk about the competitive profile in the malls? It seems to me that Gap Kids has become more price focused, and if you go on the Crazy Eight Website, I think you will see a lot of price points that mimic yours. I was wondering how you might deal with this growing competitive profile? Thank you.

Janet, I think you know that the Back-to-School season started off very competitively with Wal-Mart being the first, dropping prices 10 to 15%. The majority of that slowdown in the start to the season, we believe, had to do with just the major states that actually delayed their Back-to-School opening, so just kind of started off slower, and because of the slow start, everybody became very competitive, and of course we were part of that. Whatever we did, our promotion cadence, as Neal mentioned on denim and expediting our Back-to-School sale about ten days earlier, has helped results month to date.

Okay. Then just Ezra, looking into fiscal '08, you have a tremendous number of renovations planned for Disney. I think the number is over 65, and I am just wondering if there is any way for you to modify this agreement with Disney, so that every time you release we don't get these scary notifications that you and Disney may part ways. Is there a way to create a situation where you and Disney have an understanding and where you are not constantly in violation of contract covenants? Thank you.

As we mentioned today, we have gotten some relief on our obligations in '07 and '08. So one might take that from there that we have gotten some ability to push back some of our obligations in '08 and '09. Again, it is important to note, that Disney is really working with us, and just to make sure that whatever we do is right for our business, they want us to be profitable, they want us to be successful, and they are working very closely with us.

May I just clarify? As I just said, we're working with the Walt Disney Company to get this relief, we don't have it yet, but nonetheless we are working towards that goal with them.

And it sounds you are happy with the way you are working together, and it feels like everyone wants to move forward together. Is that a correct interruption?

That is a very correct interruption.

Thank you and best of luck to you all.

Thank you.

Thank you.

We will take our next question from the line of John Zolidis with Buckingham Research. Your line is now open.

Hi, good morning.

Good morning, John.

First, just a housekeeping. Could you give us the square footage for both divisions, if you haven't done so already.

We did. Square footage, it is 4.1 for Children's Place and 1.5 for Disney.

Thank you. With regard to the inventory plan for the end of the third quarter, I believe you said up mid-teens for the Children's Place division, and then I think you said maybe up in the mid-20s excluding the eCommerce business for Disney. Why do you feel that planning inventory so aggressively when you have experienced some sales softness is the right way to go at this time? And why should we feel that we are not going to continue to see additional downward pressure on merchandise margins as a result of this?

John, first thing, I just want to clarify the guidance for the end of the third quarter. Without eComm at Disney, we are talking about inventory being up in the teens, not the 20s. So both brands are pretty much in the teens at the end of the third quarter.

The answer to your question is, if trends from the first half of the year are continuing to the back half of the year, then we have more inventory than we would like, and what we have done is in the guidance that we gave this morning, we have contemplated the markdowns necessary to get back in-line by the end of the year, assuming that should happen. So I believe the downside in the markdowns due to having have liquidate the inventory is already built into our guidance.

Okay. So the margin piece is in there, so are you saying that a mid-teen increase is actually higher than you would like it to be, or that is where you want it to be?

It depends on what happens to the business. So on The Children's Place side, a year ago we came out and said, going into the fourth quarter we came in under the inventory level that we would like, and in fact going into the first quarter of this year, we had less inventory carryover than we would have liked. There is still a fair amount of volume that gets done on carryover inventory at markdown in both of those quarters. So part of the adjustment on the TCP side is due to us wanting to have more inventory than we had last year, because we think we ratcheted down too much last year.

However, the increased inventory investment in the back half is much more focused in a narrow deep assortment, rather than scattered over a broad assortment. So we think it is a bigger investment and it was a planned bigger investment, but a much smarter investment.

On the Disney side, there are a couple of other things going on. One is, and I think we indicated, there were some stores, store slides and changes, based on some of the stuff that has been going on, trying to land on the remodel. We ended up buying for a few more stores than we would have liked to, and we now have to deal with that inventory.

On the positive side at Disney, there is a much bigger percentage of the inventory that is what I would classify as basic or ongoing, and our ability to get out of some of that inventory and push it out and adjust our inventory levels is a little higher at Disney. But in either case, what we have done is in the guidance, we have built in the markdowns we need to get to the level we would want to be at at the end of the year.

Okay, thank you. One last question. I am sure that it is not in Disney's best interest to try to walk away from the licensing agreement, but can you just try to give us some parameters about if in the worst case scenario, if that licensing agreement was terminated, and it had to be unwound, how would that actually play out? Any idea what the financial implications of such an event would be for your company? There would, it seems to me, be possibly some positive benefits from working capital and on, but could you just talk about that a little bit, so we can kind of have an ability to think about it? Thank you.

John, frankly, we don't even want to go down the road. To the extent that you wanted to, the license agreement is available, and you may be able to decipher from there what our obligations are, but it is more, what is most important here is, we basically have the right and the privilege to operate the Disney brand and Disney as a brand is really going places. The content is immense, the popularity is immense, and we have the rights to everything that Disney has, as I said, and we see this as just an enormous thing to have.

We have turned around the business, we have stabilized it, we have positioned it for growth, we have a great team in place, and we see a great future together, and I know some people are concerned about as you look at the capital investment and what the real return on investment is, but as we look at it, the return on investment is immense, as to the accretion that the Disney Store will generate over the next few years.

Great. I look forward to you guys getting back on-schedule with the remodels, so we can get that realized.

Thank you.

We will take our next question from the line of Margaret Whitfield with Stern Agee. Your line is now open.

Good morning, everyone. In light of my expectation and hope that you will be current on your filings soon, I wonder what your current thoughts are on a buyback, given the valuation of the shares currently?

Margaret, as you know, since we could not do a buyback while the SEC filings were not current, so a buyback is something that the Board has not considered. It is important to note that we listen to our shareholders, and we know that this is an idea that a number of shareholders want us to consider. Our management and our Board are committed to enhancing shareholder value, and acting in the Company's best interest. So we will see what happens from here.

Good to hear. Just to confirm, this last recent incident with Disney, in which you have not received any written confirmation, does that differ in any way from the prior situations in which you did get written confirmation that they were not breaches.

I think Margaret is referring to the current breach, right, the current--, we know it as a breach?

Yes.

I would say it is more of the same. The only reason, I believe, I can't speak for the Walt Disney Company, but the only reason why we ddidn't have a waiver of the breach, is because it surfaced later in the cycle. What had happened in that instance is that there was a store that we had been in dialogue with Disney, about delaying a store because the mall, the center of the store was located in was undergoing a renovation, and so design plans for that store were not submitted along with other design plans. The theory, it is a breach as the letter of agreement is written, but nonetheless it is relatively minor, and is being contemplated in this overall amendment that we have been talking about.

Okay. This is for Jill. I know that the girl's area is in the subject of fashion issues, I wondered if you could discuss what you have missed out on, Jill, and what we might expect in forward deliveries to limit this problem?

Well, Margaret, a lot of challenges that Ezra and Neal have referred to, have really affected big girls more than other areas. The increase in AURs driven by our good, better, and best mix has definitely affected big girls more than the other divisions. Our lack of focus and depth has also affected big girls more dramatically than the rest. Again, compounding this with our decision to ship some of our floor set and sale dates out, and again the later Back-to-School and pass through shift as well.

How about the holiday delivery? Any new fashion you can speak to, Jill, because you have missed out on plaids and baby doll tops, not you, but the firm?

Sure. Do we wish we had some more plaids and baby doll tops for now, yes. Actually for holiday, our dressy collection is based on plaids. You will see it in our windows in October, you will see it in the front of our store in the pro shop, it's all about plaid. So we feel we have a much bigger statement in plaid for holiday.

In addition, we have a much bigger penetration of dresses as well for holiday, which we feel very good about. As we move into the back half of the year, and into holiday in particular, we are very well positioned in gift-giving items, which we feel becomes a much more important piece of the business at the time of year.

Can you elaborate on what you might be offering for gift items this year that differs from the past?

Not at this point.

Okay. All right. Thanks and good luck.

Thank you.

We will take our next question from the line of the Dorothy Lakner with CIBC World Markets. Your line is now open.

Thanks. Good morning, everyone.

Good morning, Dorothy.

Just a couple of housekeeping issues. Just, could you remind us of the size of the new Children's Place stores that you are opening this year, just the detail there? And then no new Disney Stores are opening, is that correct? And then just remind us of the number of remodels that we will have this year. How long approximately those take?

And then is there any way of sort of helping us out with looking, figuring out a way to look at CapEx for next year. Obviously, you are in the midst of these discussions with Disney, so I realize it may be difficult, but just help us think about that a little bit.

Finally, I just wanted to go back and make sure I understood. I think this may go back to Kimberly's question about the part in the press release discussing Disney's ability to grant direct licenses to other specialty retailers. The way it reads, it says specialty retailers primarily focused on children's merchandise, but I thought I heard you speak about adult merchandise. So I just wanted to get a little bit of clarification on that point.

Margaret, I will take the first --

Go ahead, Neal.

Just the size of the Children's Place Stores, 5500 the cost of addition of shoes to new stores.

We are opening new Disney Stores, primarily outlet store this year.

Okay.

The remodel is projected to take approximately 12 weeks.

Okay.

You asked about CapEx --

Just a point on that. When the remodels take 12 weeks, what happens with employees in those stores? You are paying them while the store is undergoing renovation, or are the stores completely closed during the renovation, or are they partly open?

I can take that. We have plans for all of our cast members during those times. Some of them are redeployed to other stores in the area.

Okay.

So you pretty much redeploy them. Because our full-time employees, we want to make sure we are retaining them. We have got great tenure in our cast members out there, so it is really important for us to not lose them during that 12-week period when we are going either through a remodel, obviously, with a new store you don't have that issue, because if it is a brand new store in the market then ramp up accordingly.

Right. Okay, that's great. Thank you.

Dorothy, you had asked two questions which I will take, one had to do with CapEx for '08, which we will be giving guidance on in the fourth quarter call.

And lastly the DTR restriction in the new agreement that we are talking to Disney about. In fact, the press release should have clarified. We will probably issue a clarification later today. But it should have said, in addition the parties have been discussing modifications, so that the restrictions on Disney's ability to grant direct licenses to other specialty retailers for the sale of Disney merchandise, will apply only to special retailers primarily focused on the sale of children's merchandise.

Okay, great.

It limits that, it reduces, relaxes that restriction, if you will.

Okay, great. That is helpful.

We will take our next question from the line of Jim Rice with Avenue Capital. Your line is now open.

Ezra, I guess, I am completely shocked on a number of fronts here. First of all, I am shocked you are not firing those executives that were responsible for potential breaches here. I really think a message needs to be sent within your organization that people need to have ethics here, especially in the wake of this options investigation.

Second of all, why as a shareholder, and why should the Board have confidence in you, Ezra, that you should remain in place, when you are responsible for a $1.3 billion decrease in market cap here. This is absolutely ridiculous.

Jim, as it relates to the executives, I think it is important to understand the issues before making any judgments. So as soon as the Board reviews it and makes it's decision, and as Sue mentioned, it was not big a material, and it is expected that these executives will stay on.

Why can't we have any more information about what the issues were?

As soon as it is resolved and as soon as we file the K, you will have all the information you need on that. As it relates to your second question, I am just not going to comment on it.

Yes, it is ridiculous. Good job.

We will take our next question from the line of John Morris with Wachovia. Your line is now open.

Thanks. I have a couple of questions, Ezra, as it relates to the nonoperating items that you talked about. First of all, I would just want to say I think it has been incredibly helpful for you and the company to be more forthcoming, particularly on this conference call, with respect to explaining how you have been handling both the Disney agreement, and also the SEC investigation, or the stock option investigation. Very helpful. Two or three follow-ups, I guess, on some of those that would give us a little bit of extra clarification.

One would be, with respect to the June agreement, I guess as I understand it, just explain to us a little bit why the company would have agreed to the original calendar timing of those remodels in June? Presumably you all would have known at that point in time, that you would have been able to schedule those remodels and make them accordingly or not. So I think if you can answer that question, that will probably shed some light on it.

Secondly, is the nonexecutive officer who is in violation still at the company? That would be helpful to know. Then third, is the Disney agreement, or I should say why is the Disney agreement connected to the inability to make the filings? Just maybe shed some light there, it might help.

Finally, to get to really the crux of the operating issues or operating performance, which would help to understand, has there been, Neal, any kind of a change in the promotional cadence scheduled for Fall as you look ahead? You have already talked about what you have done so far. If you could talk about that, that would be great. Thanks.

John, as it relates to obligation in the June agreement, all of us, including the team in charge, felt that the dates that we obligated ourselves to are executable. Unfortunately, we encountered certain things beyond our control. An example would be that a tenant did not vacate the store that we needed to remodel. That is on one end.

The other end, we just wanted to make sure that both us and Disney, the quality of the stores we do is absolutely 100% perfect, and we both felt that taking a little more time, and relieving some of those date obligations will be best suited for both of us. That is why we are working together to extend a few dates.

You asked --?

If the nonexecutive officer who was in violation, the nonexecutive officer, is that person still at the company, or no longer at the company?

That person still is at the company at this point in time. As I said earlier, there will be some kind of remediation that the Board will impose that is in discussion right now, but right now the person is still with the company and expected to be.

And on the business question you had on --

Go on. Before that you had asked about the Disney agreement. Why we had to have the Disney license agreement issues resolved before we could file the 10-K. The reason for that is, it is highly, highly advisable to have those issues resolved prior to filing the K. So just highly, highly advisable.

Okay. Again, I think it is very helpful to hear from you all on all these. You have been very forthcoming. Neal?

Yes. As I said in my prepared remarks, we really look closely at the second half to ensure we have very proactive strategies in place to compete in the promotional environment. That said, we built in a lot of contingencies. I am not going to discuss what they are. But as we demonstrated in the end of July, and so far in August, we have those. Very important is the markdowns anticipated to correspond with these are built into our guidance.

Okay, very clear. Thank you. Good luck for the rest of the season.

Thank you.

We will take our next question from the line of Brian Tunick with JPMorgan.

Thanks. I guess I will follow-up with a couple of questions, since it is hard to get a hold of you guys. I guess the first one, I guess a lot of questions about the Disney remodeling questions, but what kind of topline disruption do you expect that we should be thinking about for next year, as you go through remodeling the stores? I guess that is question number one.

Number two, I guess as far as guiding for up earnings for Q4, I know last year SG&A was pretty bloated, direct marketing, what is your plans for direct marketing customer acquisition this year in Q4?

And maybe finally as far as the balance sheet goes, what kind of cash or potential drawdown into your line of credit do you think we should be expecting for year end? And on the inventory side, are you seeing the sales lift at the Disney eCommerce that you are expecting given the inventory? So a couple of questions, appreciate your time.

First question was Disney remodels, what kind of topline disruption. Tara?

Oh, topline reduction from the remodel?

Topline disruption from the Disney remodeling.

Topline disruption. All of that has been really scheduled into our plans for 2008. I don't think that we are also going to have new stores coming online next year, so it is going to be a balance in some of the stores closing for remodel, and new stores coming online. We don't foresee any great disruption in the topline sales.

It is more just about trying to make sure we are getting all of those openings and remodels done in the first half of the year, so we are really staged and poised for that back half of the year, which is very important to the Disney business, obviously, as we move into that late, Q3, Q4 timeline.

And then I will just tag on before we hand it over The Children's Place, Brian, this is Amy Hauk. As far as acquisition of direct mail, we know that that is really important for our customer, our guest to get them through our doors and get them excited about the product. We have a fairly aggressive campaign in the back half of the year, and so that is up substantially over last year, our direct mail.

So our expense as a percent to sales is relatively flat in overall marketing spend. And then eCommerce, we are not going to comment any further than to say initial response has been good. We have a lot of history because Disney Shopping owned a lot of these categories previously, so we felt, the planning teams feel very comfortable about how much we invest , and where we have invested our inventory to support

And I think with the amount of traffic that goes to the Disney shopping site, as a percent of brick and mortar, the Disney Store eComm site is going to be a higher percent of sales than you would find at The Children's Place.

And in addition, also an exciting avenue we didn't have last year to drive traffic into brick and mortar, as well.

Just to embellish on Tara, Brian, as it relates to sales in '08, you have to take the projected number of stores that we are going to remodel and multiply it by 12 weeks? Some of that will be made up by new stores that we will be opening throughout the period.

Okay.

You asked about earnings in Q4 and marketing cadence to drive the earnings.

The marketing cadence is in line with last year's marketing spend. Many times, we are cautiously optimistic.

You asked about cash, expected cash balance at the end of the year, and what kind of drawdown you could expect on the credit facility. As I said in my prepared remarks, cash is expected to be between 160 to $170 million as of fiscal year end. That is contingent of course, on our ability to achieve the guidance.

Having said that, we also are anticipating doing an equipment financing for some of the equipment that we have in our Southeast distribution center for about $30 million. And that is contemplated in that ending cash balance. At this point in time, we are not looking at drawing down on the credit facility as we exit the year.

Okay. Just one final one. We saw that one large shareholder filed a 13-G recently, and sometimes companies respond with some kind of press release that they will talk to them or something. Are you guys open to talking to your larger shareholders, and have you had a meeting with them?

We are always open to speaking to our shareholders.

Have you met with the firm that filing the --?

We meet with many shareholders in the normal course of business, particularly the large ones. They call us frequently.

Okay. Good luck.

Thank you.

We will take our next question from the line of Rob Wilson with Tiburon Research. Your line is now open.

Thank you. Sue, you mentioned earlier there was a credit to long-term equity compensation in Q2. Could you provide us with that number? Second question would be as we look at Disney merchandise margin in Q2 this year, how does that compare with two years ago? Is it higher or lower? Finally, I am just curious if anyone at your corporate office has walked into a Crazy Eight store? Thank you.

Okay. The credit, starting with the credit that we have for long-term comp in the second quarter, it is under $1 million.

Okay. The merchandise margins at Disney this year versus two years ago?

Merchandise margins, Tara, do you want to take that or do you want me to?

Just directionally.

Directionally in this quarter, the merchandise margins at both Disney and TCP were down versus last year, and the reason for that is because of higher markdowns. I don't have happen to have the two-year-ago numbers in front of me, but they are down year-on-year. Do you want to [inaudible]

It is up. From an initial margin standpoint, the initial margins from '06 to '07 are up about 150 basis points, and we still continue to see some of that initial margin increase in the 2008 piece, and again to reiterate, really the merchandise margins were very affected by a more highly promotional climate that we had in Q2, to make sure that we are moving into inventory and moving into Q3 clean.

I guess I was just concerned, two years ago we had this tremendous merchandise margin opportunity, and I am just curious, did that all come to fruition?

Yes. It has been coming to fruition, and as we continue to expand our sourcing base, and as I talked about earlier, we still think we have a lot of opportunities in toys as we continue to develop new partners. We are confident and will continue to see our initial margin increase as we go forward, not as dramatically, probably as we have seen since the acquisition, but we do see that there is still opportunity there.

I really think for us it is really managing inventory, making sure that we are managing that promotional element to our business, and putting outstanding assortments out there that we get good flow-through on in our stores, and that is really what it's all about and what this team is focused on here, is putting outstanding assortments out there for our guests that they will respond to. I agree with you, but I guess I was talking more maintain margin and not initial margin.

Yes. I think another way to answer, perhaps you are looking at the sourcing gains that we've achieved at Disney, and we in fact if you look at our cost of goods in this quarter versus last year, cost of goods as a percentage of sales, in fact declined. But that was given back, as we have said, in markdowns, more than given back in markdowns, which resulted in a decrease in the gross margin.

Okay. Fair enough. Has anybody there walked into a Crazy Eight store and evaluated that concept and the potential implications to your brand?

The team has walked into Crazy Eight, we have product there, it is no different than any retailer. We are in the malls on a weekly basis, going into our competition, learning what they are doing, what their products look like, what is their quality, what is their promotion cadence, we don't have a merchant or a store person, so we are very focused on getting out there and not only looking at our stores, but seeing what everyone else is doing.

I appreciate that. Thank you.

We will take our next question from the line of Jeff Black with Lehman Brothers. Your line is now open.

Hey, thanks. Ezra, I am going to try to focus in on the same thing. On the Disney, what is an example of a retailer that has a direct license that isn't primarily focused on children that has Disney merchandise now? And is one of your overall implied contentions here, that there is just a lot of Disney product out there at Wal-Mart, Target, elsewhere, it is a great franchise, but you don't have all of it. Could you just elaborate on that? Thanks.

Can you repeat your question one more time, please?

Well, you seem to want to move the Disney agreement to specialty retail, to grant direct licenses to specialty retailers that are primarily focused on children.

No, no, no, no. That is a mistake. We have some restrictions in Disney's ability to grant the retail license for childrens and adult merchandise. And what we are relieving here is the ability to grant direct to retail licenses to specialty stores that carry, that primarily carry adult merchandise. So to us it is not so important, our adult business is 10 to a maximum 15% for the business, and as you know most of what we do is for children, and that restriction remains.

So maybe I am just being thick here, but you are trying to restrict --?

Not we are trying.

We are relaxing.

We are relaxing the restrictions that we had on Disney in our original license agreement.

Okay.

In consideration for getting extension of dates, due dates on store remodels

Fair enough. I think I am much more clear on that. Thanks.

The press release wasn't clear enough, and we will be issuing a clarification as soon as we conclude this call.

Okay. Thanks.

Thanks.

We will take our next question from the line of Marni Shapiro with The Retail Tracker. Your line is now open.

Hey, guys.

Hey, Marni.

I am exhausted for you guys already, and as if all the noise was not enough, it has been a tough start to Back-to-School. I want to start with products, because that is where it all happens, at Disney and at Place. At Place, if you guys could just talk about a little bit about how we should think about holiday versus fall, as it relates to your second half initiative to narrower and deep. Because this was put in place for Fall, but was not evident when you walked into the stores, and then if you could talk about the tween assortment that we are expected to see coming out of the Disney stores, because you said you were going to expand that, so I'm just curious into what other areas, would that include sleepwear and things like that as well?

Hi, Marni. It is Jill.

Hi.

We talk about the style and SKU counts being down in the back half of the year. When you look at fall versus holiday, it is much more dramatically down in holiday. We absolutely have made a more significant shift into key items at value price points in holiday. We did it in fall, but you will even see it more dramatically in holiday.

We have definitely shifted the assortment, it is more narrow, it is more focused, we have a much bigger investment into these key items, and we are coming out with strong, strong value price points on them. We have some fabulous preplanned promotions for holiday that we are very excited about, and we all feel very strong about the opportunity we have in the fourth quarter.

Good to know.

Marni, it is Amy. On the Disney side. I want to start with tween. We are rolling tween out to all stores currently right now. It is in 70 stores, and we are actually after the release of "High School Musical 2" and the 17.2 million viewers, and people who changed vacation plans so their children could watch "High School Musical 2" and participate in slumber parties, we are absolutely even fine-tuning the assortment now. It will definitely cover sleepwear, it will also cover things like sports equipment, raglan sleeves, and short tail bottoms, which we see checking tremendously, sleeping bags, stationery, home, as well as ready to wear.

And we will be focusing predominantly the assortment that we will be rolling out in holiday will be predominantly High School Musical, and we are working very closely with the Walt Disney Entertainment Corporation to see if we can take a fun spin on that. We are really excited about that.

As far as the rest of the fall assortment going into holiday, we are really focused from a fashion perspective around metallic accents and inserting metallic into the collection really pop, we are seeing a lot of that out there in the market where linens and different fabrications are actually shot through with metallic.

So you will be seeing a really strong point of view going into holiday around metallics, as well as the whole flat trend which will be continuing through the holiday season. And role play which just set this past week, is kind of a little more glitzy and glamorous. And if I was to say what you are going to feel when you go into the Disney store for holiday, it is going to be more glitz and glam. And that is also supported by Enchanted, which releases Thanksgiving weekend. What better news that to have a new Disney princess. That gives you a little flavor.

It does. I want to follow up on this. High School Musical is very much a tween, not a boy type of scenario, even though the boys are all watching it. I am just curious, is there a way to balance, and I believe you mentioned Hannah Montana as well on the call.

I congratulate you guys for getting on the bandwagon here, because I wondered where it was in your stores. But is there a way to also include, and I can't remember which of these boy's show, it is either Disney versus the other one, it is either Zack & Cody or something else, is there a way to include some of the other Disney names into your store, whether it's in books and notebooks and things like that, and have you thought about expanding that, and if that is the case, which I support completely, what comes out of your stores? Because as we have talked about, I think Amy you mentioned, editing is becoming more important, because there are so many great Disney franchises.

That is always the balance that you try to achieve is the passion for a new idea of fitting in because you have to be new in order to be relevant. You have to be fresh, but you also have to have clear messaging. We are actually really drilling down, I call it APF lethargy, it is culling through the assortment and looking what is not delivering on ROI.

We are also looking really dramatically at fixture, turn, and how many units do we actually have to have out on the floor, in order to support the volume that we need to do. So we have tightened up some SKUs in the boys and girls, some extraneous fashion SKUs to be able to support tween. Interestingly enough, Marni, the feedback we have gotten in talking in the field and getting out there and talking to Moms, is because of the sports element of High School Musical. We have gotten huge requests for the raglan baseball sleeves boys want to wear. The actual clothing that Troy wears in the movie and Corbin Blue wears, we are getting actual requests for that, as well as basketball and baseball, which are the sports-inspired aspect.

Your third point, it is funny, for spring you'll see exactly what you just talked about. What we are looking at is creating a specialty stationery and graphic tees, an emporium franchise that cover all the tween franchises, and then we will be highlighting in a bigger way one to two franchises a quarter, with a more fleshed out expanded assortment. So you will have that eclectic mix that appeals to the sweet life of Zack & Cody, there is new shows coming out from Disney, and then that will be anchored with bigger assortments with franchises like Hannah Montana and High School Musical.

Marni, it is Tara. The other exciting thing is just the channel is getting stronger and stronger. Synergy events that theatrical releases are still going to be really important to our business, but it is so exciting for us to have channel properties that are 365 days a year, that we can be reacting to, chasing into, and I am so proud of the merchant team here on this side. They have reacted so quickly to High School Musical, and are basically getting more High School Musical product back in store for holiday, we just started talking about this a few weeks ago, and we are going to have it for holiday.

It is exciting because it is really forcing us to change us to have even more speed in our process, which I think the team is doing a tremendous job with, so we can keep reacting to some of these hot shows on the channels, especially when you are looking at tween. Not to even mention the whole Playhouse Disney. That is another place you are going to see our continued focus on the store and expansion, and we will talk more about that as we get into next year, because we have got some exciting plans around that as well.

I don't mean to monopolize the call here. I just had a follow-up on both of these. And Amy, by the way, my son will not have the Troy baseball shirts, I just don't think he's cool enough.

(laughter) You know there are kids that want it.

I am sure there are. Two quick follow-ups here. Is there a possibility, we have all seen obviously the explosion of Webkinz and some of the other tween retailers bring them in, albeit at a late date, and there are other trends out there like a kooky pen, for example, that the tweens buy in to. Is there an opportunity for Disney to enter into this sort of collectibles fun business that plays off of the Hannah Montanas and the High School Musical things?

And then the other question that begs here is if you go into Playhouse Disney in a bigger way and you are doing all of this, in your conversations and I guess this is really more bigger picture, but in your conversations with Disney, is there the opportunity left opened that in a year from now even, or two years from now that maybe there is a separate tween type of Disney store, or slightly older replication of a Disney store that targets that customer, with her entire lifestyle from apparel to sleep to accessories?

Marni, Disney acquired Club Penguin, which is a Canadian-based company. It is very similar--

--it's the number one, I believe.

What?

I believe it's the #1 site.

Right. So we are in discussions right now. I have been having conversations about how we leverage that and I am actually really excited about opportunity through eComm. So we are talking to them, we do recognize that that is valid and could be a potentially exciting opportunity.

What was the other part of it?

Collectible, I think, for --

Well, that would sort of be, that would be that part of the conversation. But is there an opportunity down the line that Disney has a small, could be a smaller footprint store, but a smaller store that is really a home for the tween and encompasses all of these items within the lifestyle, from apparel to sleeping bags to notebooks to hair?

That is an amazing idea, very exciting and all those kinds of ideas, obviously, are always being, are on the table, I have got a highly creative group here at the Disney store, but we can't really talk about those kind of things at this moment. But as there are new strategic initiatives that we are working on that we can share, we will do that.

Great. Good luck, guys, with the rest of the fall!

We will take our next question from Jim Chartier with Monness, Crespi, Hardt.

All my questions were answered. Thank you.

Okay, thanks.

We will take our next question from Paula Kalandiak with First Albany. Your line is now open.

I don't want to keep this call going much longer either, but just a couple quick questions on merchandising. With regards to the key items for holiday, would it be items that you have already invested deeply in in past holiday, and you know that they work, or are you taking any risks with any new key items this year?

Paula, it is Jill. We are doing both. We are definitely buying back into our true and blue gift-giving items that we have had success with over the course of a couple years that we still feel are very relevant for our customer, and we have significant investments in that. At the same time, we have added some fresh, new and exciting fashion gift items, more fashion basic, but new things that our customer hasn't seen before from us that we are very excited about.

Okay. Then just going back to the denim promotion that you had earlier in the quarter, was that exclusively to drive traffic, or did you actually need to get rid some denim?

I will answer that. It was really to drive traffic. The one area at The Children's Place that we have flexibility on inventory is in denim. A lot of the denim we are able to push out those deliveries and then not buy on the back end. It was really to drive traffic for the whole box.

Thanks and good luck.

Thanks.

We will take our next question from the line of [Vik Kumar], Soundpost Partners. Your line is now open.

Hi guys. One question on shares outstanding. It looks like the number of shares have declined quarter-over-quarter, and I thought I heard you say you haven't done a buyback, so was just wondering what is behind that?

That is because when we are in a loss, we have to use basic shares outstanding, not diluted. So there is a difference. It has nothing to do with buying back stock or option trades. Our windows have been closed.

Okay. Got it. That is it. Thank you.

We will take our next question from the line of Nicole Jacoby, Liberation. Your line is now open.

Hi there. I wanted to know a little bit more about the remodels and refreshes that you are required to do for Disney. Can you talk a little bit about what kind of incremental ROI you had in the past on those, or what you expect going forward on those?

The issue with the remodels on Disney, that really was, and the way we look at that, it was part of the acquisition cost of getting the Disney license at a 5% royalty fee. So that was a going in proposition.

We are not looking at returns on investments from incremental sales for those remodels as a discreet matter, but rather we are looking at the entire Disney business and those remodels being the going in and the acquisition fee, if you will. And the return on investment, when you look at it that way, is very high.

Can you give us an idea of the order of magnitude of the overall ROIs and on the purchase, including these kind of costs?

We have not disclosed our expected return on investment for the purchase of Disney Store.

Okay. The next question is, I know someone was asking earlier about worst case scenario, Disney actually goes ahead and cancels, and I think the answer was kind of look it up. I wanted to know if you guys could, as long as it is publicly available information, sort of believe that transparency with respect to your shareholders making it a little bit easier for them to learn about your company and do their jobs, would probably in the end be more beneficial to you guys. So I was hoping you can reconsider and tell us a little bit about what the implications would be?

I think the intent of that question is that the license agreement is a very, very thick agreement and as you know there has been a modification to it and in the term, the form of that letter agreement, we would be happy, Heather, Sue, and I will be happy to entertain calls, and we can answer questions about the license agreement, it is complicated and we don't want to tie up this call with purposes to really talk about our second quarter results and outlook for the rest of the year with questions, very specific questions on the license agreement. But if you give us a call afterwards, we will be happy to talk it through with you.

Okay. So even the general stuff like inventory and leases, you don't want to discuss on the call now?

What do you mean by inventory?

What would happen with the inventory, what would happen with the leases, that sort of thing?

The leases, the Hoop subsidiary, Hoop which is a subsidiary of The Children's Place stores has the lease obligations to the malls versus the Disney leases. Inventory is not owned by Children's Place. Inventory is owned by Hoop.

Okay. Great. Thank you. The last question was, I think you said you are aiming to file your 10-K by the end of the month. So about how long after that are you expecting to have your Annual Meeting?

We will issue a notice of the Annual Meeting as soon as we get the 10-K filed.

Okay. Then I just also, I was looking through your governance documents online, and I guess depending on when your meeting is informs when you can nominate directors. Can you give me some guidance as to what the timeframe is for nominating the directors?

We will get back to you on that.

Okay, great. Thank you very much.

We will take a follow-up question from Kimberly Greenberger with Citigroup. Your line is now open.

Kimberly?

She must have --

Okay. Is that the last one, operator?

No. The line of Kimberly Greenberg is now open.

Okay. In the effort of moving the call forward, I will ask offline. Thank you.

If there are no other questions --

We have actually got a question from Nick, no. Okay. We have no further questions at this time.

Okay. We thank you for your interest in the company as always. Sue and I and our team are available if you should have any additional follow-up questions. Thank you.