Children's Place Inc (PLCE) 2009 Q4 法說會逐字稿

Good day, everyone and welcome to The Children's Place fourth quarter Q&A session.

(Operator Instructions).

And it is now my pleasure to turn the conference over to Jane Singer, please go ahead, ma'am.

Thank you, Caitlyn. Good morning, everyone, and thank you for joining us today for a review of The Children's Place Retail Stores, Inc. fourth quarter and fiscal year 2009 financial results. Participating on this morning's call are Jane Elfers, President and Chief Executive Officer, and Sue Riley, Executive Vice President, Finance and Administration. 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, as well as in our SEC filings. These forward looking statements involve risks and uncertainties that could cause our actual results to differ materially. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof. Please also note that a reconciliation of non-GAAP financial measures discussed on this call is contained in this morning's press release which can be found on the our childrensplace.com website. And now I will turn the call over to Jane Elfers, for her opening remarks.

Thank you, Jane, and good morning everyone. I am very happy to be here today, as I believe The Children's Place has a unique and enviable position in the market place. I am excited about the growth prospects for this Company. As I evaluated The Children's Place, I saw several opportunities where my background as a seasoned retail executive could bring value to the Company and to the shareholders. The Children's Place is the largest pure-play children specialty apparel retailer in North America. The brand provide an unparalleled combination of fashion, value and convenience, and has one of the highest awareness in advocacy ratings in shoppers of children's wear.

The management team is committed to the brand, and the economic environment is one that works in concert with the value proposition of The Children's Place. The opportunities to increase market share are clear, and the Company has the balance sheet to fund growth. After considering all this, it was an easy decision, and it is my privilege to have this opportunity to lead the Company into it's next phase of growth. The first 60 days have been very energizing. I have been working with the team to identify and start to formulate a strategy around five key initiatives that we expect will drive sales and profit for 2010 and beyond. The five key initiatives are strengthening the merchandise, accelerating new store growth with the focus on value centers, optimizing inventory management, sharpening our marketing message, and driving e-commerce growth. Before going into more detail on each of these initiatives, I am going to turn the call over to Sue to recap the fourth quarter 2009 financial results.

Thank you, Jane. And good morning, everyone. Net sales from The Children's Place business for the fourth quarter ended January 30, 2010 increased 5% to $462.8 million. Comparable retail sales were flat during the quarter, compared to a 1% increase last year. A 7% increase in transactions was offset, by a 7% decline in average transaction size, due to the lower average unit retail price associated with promotions during the quarter. Our market share grew 40 basis points during the fourth quarter of 2009, to 4.3% of of the total children's apparel market, and increased to 17.5% of the specialty children's market according to NPD, a market research company. The increase in net sales was the result of online sales, which increased 27% during the quarter, and growth in our store base. At the end of fiscal 2009, our store count was 947, compared to 917 stores at the end of 2008.

In addition, the appreciation and value of the Canadian dollar relative to the US dollar, positively impacted sales by approximately $8 million, or 2% compared to the fourth quarter of 2008. Gross profit dollars increased 6% to $185.8 million during the fourth quarter of 2009, and gross margin increased 40 basis points to 40.2% from 39.8% at 2008. The increase is the result of lower shrink charges. Recall that last year, we had to book a large true-up in the fourth quarter of 2008, which we did not have to do this year. Other reasons for the strong -- stronger margin in the fourth quarter of 2009, include a higher IMU, a positive impact from foreign exchange, and slight leverage of occupancy, which were largely offset by higher markdowns during the quarter.

SG&A as a percentage of sales was 25.8% in the fourth quarter of 2009, representing a [130] basis points of leverage. Excluding items which impact comparability from the fourth quarters of both years, SG&A leveraged by a 150 basis points, due to lower accrual for management bonuses and equity compensation, better management of store expenses, a reduction in corporate head count, and other miscellaneous items representing approximately 250 basis points of leverage. This was partially offset by deleverage of store payroll, and higher costs with the new corporate headquarters during the fourth quarter of 2009, which resulted in approximately100 basis points of deleverage. Moving down the P&L, we had an asset impairment charge of $500,000 of the fourth quarter this year, compared to $5.4 million last year. The asset impairment charge of 2008 included $4.9 million for under improving stores that had been open less than two years.

Depreciation and amortization expense as a percentage of sales during the fourth quarter was 3.9%, compared to 4.1% last year. Income from continuing operations before interest and tax, increased almost 50% to $48 million in the fourth quarter of this year, compared to $32.5 million last year. Net interest expense was $500,000 this quarter, compared to $2.1 million in 2008, as the Company paid off a $85 million term loan during 2009. Our effective tax rate for the quarter was 28%, as we benefited from excess foreign tax credits generated by the repatriation of cash from abroad. We expect our effective tax rate for 2010 to be approximately 41%.

Income from continuing operations, net of tax was $34.2 million or $1.23 per diluted share, compared to $23.3 million or $0.79 per share in the fourth quarter of last year. Our diluted share count for the quarter was 27.7 million shares. Excluding the transactions that affect comparability, fourth quarter adjusted income from continuing operations net of tax increased 34% to $28.5 million or a $1.03 per diluted share, compared to $21.3 million or $0.72 per dilute share in the prior quarter. Foreign exchange positively impacted our fourth quarter 2009 EPS by approximately $0.07 per diluted share. The share buyback positively impacted our fourth quarter 2009 EPS by approximately $0.08 per diluted share. GAAP net income for the fourth quarter, including the impact of discontinued operations was $34.1 million or $1.23 per diluted share, compared to $38.8 million or a $1.31 per diluted share last year.

To briefly touch on fiscal 2009, income from operations net of tax was $88.8 million or $3.09 per diluted share, compared to $73.9 million or $2.50 per diluted share in the previous year. Excluding transactions affecting comparability from both years, income from continuing operations after tax increased 15% to $75.8 million or $2.64 per diluted share, compared to $66 million or $2.23 per diluted share in fiscal 2008. Foreign exchange negatively impacted our the fiscal 2009 EPS by approximately $0.09 per diluted share. And the share buyback positively impacted our 2009 EPS by approximately $0.11 per diluted share.

Moving on to the balance sheet. Our cash balance at the end of fiscal 2009 was $170.5 million, compared to $226 million last year, which included a $85 million term loan. As I mentioned earlier, we repaid the term loan in full during fiscal 2009. We also closed on a transaction to repurchase 2.5 -- 2.45 million shares owned by Ezra Dabah and his family for approximately $74 million during the third quarter of 2009. Our year-end cash position reflects strong cash generation from operations of approximately $156 million during fiscal 2009. Inventory at the end of fiscal 2009 was down 2% in total, or 6% per square foot. Carry over inventory was 7.8% of total inventory at the end of fiscal 2009, which was a 50 basis point improvement compared to last year. During the fourth quarter we opened four stores, and closed seven. During fiscal 2009 we opened 38 stores, and closed eight. At the ends of fiscal 2009, we operated 947 stores with a total of approximately 4.7 million square feet.

Turning to CapEx, capital expenditures included $62 million in fiscal 2009, compared to $52 million the previous year. CapEx spending came in below expectations due to lower spending for new stores, delay of some remodeling projects, and lower than anticipated capital expenses related to our corporate move. In summary, The Children's Place had solid results during the fourth quarter -- and fiscal 2009. We believe we are well positioned, as we enter 2010 with strong momentum, a strong balance sheet, and a strong cash position. Thanks. And now I will turn the call back over to Jane Elfers.

Thanks, Sue. Over the past two years, the team has done a great job of improving operational efficiencies and managing expense in a difficult economic environment. This gives us a solid base upon which to build. I have spent the last 60 days studying The Children's Place business, getting to know the team, and developing short, mid, and long term strategies to drive profitable growth over the near and longer term. We have a great deal of work to do around implementing these strategies. And it is my intention today, to begin the dialogue with you on these important topics, while understanding we will provide you with more detail in the upcoming months.

For 2010 and beyond, we see five key focused areas which I mentioned earlier in the call, strengthening the merchandise, accelerating new store growth with a focus on value centers, optimizing inventory management, sharpening our marketing message, and driving e-commerce growth. Let's start with the merchandise. We have an opportunity to improve our merchandising at The Children's Place. We are currently working on the holiday 2010 delivery. And based on the results of last year's holiday season, there is opportunity to further focus the buys into the key categories that drives sales, and at the same time modernize the offering for 2010. We are also working on new and expanded merchandise categories that can provided additional sales and profit, beginning in the fourth quarter of this year.

Accelerating new store growth with a focus on value centers. The Children's Place is the largest pure-play specialty apparel retailer in North America. The brand has broad appeal, and our stores perform very well in a variety of retail formats. We have almost 950 stores, and fashion, value and convenience are the key to our success. Our brand is well penetrated in A and B malls, and we perform very well there. However, growth potential exists for the The Children's Place in smaller to mid-sized markets. We plan to open 65 new stores in 2010, which will add an additional 5% square footage to the chain, net of closures. Majority of the stores going forward will be located in value centers. We define value centers as strip or enclosed malls comprised largely of value-oriented retailers. There are thousands of these locations across the United States and we currently just have 52 stores located in value centers. So, there is plenty of opportunity here.

In addition to the sales opportunity that exists in these under-penetrated markets, we have lowered our build-out cost for our new Tech II store format. The Tech II costs are 35% to 40% lower than our previous format, and we are working to drive the costs down even further. We are achieving significantly lower lease costs through a combination of value center rents, and a particularly friendly tenant environment. These substantially lower lease costs, coupled with the lower build-out costs and proven success in the centers provide the The Children's Place with a unique opportunity to gain significant market share over the next several years. This new store growth initiative is based on a disciplined retail strategy, and sound financial requirements. Minimum hurdle rates for these value center stores are a year one ROI of 35% or higher, and we are already seeing returns north of 50% for the stores opened in the last year.

Improving inventory management. Having the right merchandise in the right store at the right time is the ultimate goal, and we have a great opportunity in this area. With almost 950 stores stretching from San Juan to Saskatchewan, The Children's Place serves a very broad base. In the past we have approached merchandise planning and allocation, as more of a one size fits all proposition. Going forward, we have an opportunity to one, plan inventories more strategically up front, and two, allocate more strategically by volume, climate and market. In addition to focusing on the getting the right merchandise into the right store at the right time, we are taking a hard look at how much inventory we need to drive top line sales, and how to optimize inventory flow into the stores. I have a bias towards lean inventories, and there is clearly an opportunity at the The Children's Place to reduce inventory levels, and better manage flow to the stores.

The fourth key initiative is sharpening our marketing message. The Children's Place is a well-recognized brand, our fashion offering is well developed, and our value proposition is compelling. We have the opportunity going forward, to provide our customers with a much more clearer, streamlined marketing message that aligns direct mail, windows, in-store signing and e-mail. You will see the initial efforts start to take shape in April when our summer deliveries hit the floor. Our direct mail, windows, e-mail, and in-store signing will be aligned on message, and more focused on fashion and value than we have been in the past. I have been working closely with the marketing team for the last 60 days, reviewing how and where our marketing dollars have been spent, and we found some big opportunities to better focus the marketing spend to maximize return.

And finally, driving e-commerce growth. E-commerce currently accounts for only 7% of the business, with major growth potential. In addition to the organic growth we have been experiencing, we have the opportunity to drive additional online sales by improving the site, better aligning our web experience with our in-store experience, expanding into new categories, and expanding our web presence outside the United States. Our goal is to increase customer loyalty and provide customers with a seamless experience between our stores and our e-commerce site. In summary, I am very optimistic about the long term growth prospect of The Children's Place. I believe with the five key initiatives I have outlined, we will be able to capitalize on the strong position in the market place. I look forward to working with The Children's Place team to execute these growth strategies. I thank you for listening, and I look forward to meeting you in person, and sharing more detail around the key growth drivers. With that, I am going to turn the call back over to Sue who will discuss guidance for 2010, and then we will take your questions. Thank you.

Thanks, Jane. For fiscal 2010, we are projecting EPS from continuing operation for full-year to be in the range of $2.90 to $3.10 per diluted share. For the first quarter of 2010, we are projecting EPS from continuing operations to be in the range of $0.85 to $0.90 per diluted share. This guidance assumes comparable retail sales will increase in the low single digit range for the fiscal year, and will be approximately flat for the first quarter. We expect gross margin to expand 40 to 60 basis points during fiscal 2010, with most of that increase occurring in the first half of the year, as a result of favorable IMU, due to lower costs in Asia at the time when we purchase our spring and summer inventory.

We anticipate SG&A spending as a percentage of sales in 2010 will be approximately flat, excluding noncomparable items. SG&A as a percentage of sales is expected to be roughly comparable to 2009 on a quarterly basis. We expect our effective tax rate to be 41% for fiscal 2010, and net interest expense to be in the $2 million to $2.5 million range. We anticipate a weighted average share count of approximately 27.8 million shares for 2010, and approximately 28.1 million shares for fiscal 2010. We expect to end the first quarter of 2010 with total inventory per square foot approximately flat to last year. As Jane mentioned, we plan to open 65 new stores in 2010, which will result in a net of 50 additional stores at the end of the year. Turning to capital expenditures, we expect 2010 capital expenditures to be in the range of $80 million to $85 million, with about 60% of the spending on new store openings, remodels and store maintenance, with the remainder being for distribution center enhancements and IT projects. Thanks, and now we will open the call to your questions.

Thank you.

(Operator Instructions). We will take the first question from Linda Tsai from MKM partners. And we will take the first question from Linda Tsai from MKM partners. Please go ahead.

Yes, hi, I had a question for Jane. Relative to optimizing inventory management, could you go over what kind of investments you might need to make, in order to get it to a level that you are happy with?

Hi, Linda. Yes, certainly. I think when you look at optimizing management, you really have to start with aligning the internal team, the merchants, the finance department on how much inventory you really need to drive sales, and that's what we are working on now for 2011 and beyond. And once you align on that, I think that there is opportunity at the The Children's Place to enhance our systems, and also enhance the team that currently works on merchandise allocation and planning. So that's where we are focused right now, and that will require new systems, and will require some more head count. I think if you look at the many, many companies that have come before us, and forged ground on merchandise planning and allocation, you will also see that pay back is almost immediate. We are excited about the opportunity.

Thanks, and good luck.

Thanks.

Thank you, and we will take our next question from Betty Chen from Wedbush. Please go ahead.

Thank you, and good morning, and congratulations on a great quarter. I was wondering, Jane, if you can you speak to a little bit about, I guess, if you could, for competitive reasons some of the expanded categories that you are working on for the holiday? If you could give us a sense of what are the opportunities that you identified? And then also, in addition to that, if you can talk a little bit about the D to C, and what sort of expansion and what regions or countries, and would that imply some incremental fulfillment investments that you need to make? Thank you.

Thank you, and hi, Betty. To answer your question on fourth quarter merchandising, I think that we have opportunities in the merchandising to -- and I am going to speak to just the categories that we currently carry. I don't want to get into the new categories. We can talk maybe talk about that off line, but I don't want to get into the new categories on this call. If you look at the fourth quarter, there is a lot of opportunities when you take a hindsight look, to improve next holiday. We were over bought in a lot of classifications that didn't produce for us.

If you take, woven bottoms, as an example. We were too heavily invested in woven bottoms, and we were too heavily invested in sweaters, and the opportunity for us to move the classifications into knits, and to move those classifications into alternate bottoms are large. So, we are working on that now. I think the other big opportunity other than classification merchandising that we have at the The Children's Place, is we have an opportunity to further differentiate little girls from big girls. And I think when you look back at some of the recent selling we have had, it is clear that the older girl responds to colors and styling quite different than the younger girl may. And I think we have an opportunity to really kind of split that customer a little bit better, and carve her out better. And same goes for boys, as we have in the past.

On the C to D question, we are really looking -- as far as international expansion, we are looking to get a website presence in Canada -- in for 2011. We already have a very strong Canadian bricks and mortar business. And we think there is a big opportunity to leverage that with a website in Canada for a lot of reasons. As far as the other international expansion, I certainly think that this brand is very transportable, and believe that is a future opportunity, but not something that we are currently working on right now.

And we'll take our next question is from Tom Filandro from SIG. Please go ahead.

Hey, Jane, welcome, and congratulations on your initial successes. My first question is, can you give us a sense, if you have a sense at this point, what the long term operating margin structure of the business you believe it can be? And then my second question is really honing in on the second quarter. I know you highlighted some opportunities in sort of the short term, the medium term and long term. Second quarter has been a challenging quarter for the Company. Do you see any immediate opportunities to improve the performance in the summer selling season? Thank you.

Well, thank you, Tom. And I will give the operating margin, piece of that question question to Sue. But I will jump to the second part of your question and tell you that, I think the opportunities that we see in second quarter, I think that we have a solid offering. I reviewed the summer line, I think that there are some very trend right styling in there, that we can do well with. I also think the marketing that I spoke about a little bit earlier in the call, is a pretty big play for the The Children's Place. I don't think we've been as clear as we could have been in the past. And I think that we sometimes we maybe confused the customer.

When you look at the spend in marketing, we've also been probably have what I would call, over-versioned, and gone too deeply into the direct mail file. So we have gotten some, I think what I would call, quick wins for the summer. I think that we are more focused on who we are mailing to. I think that we are going to be much more on our windows and our in-store signage, and much more focused and ahead of our e-mail campaigns. So I do see opportunity there, with that, on the summer line. I am going to give Sue the first part of the question.

Okay, yes,Tom. We continue to believe we can get our operating margins back to the low double digit range within the next three, three or four years or so. And that would be basically by generating more top line, and managing the infrastructure as we have been. We are not looking for huge gross margin expansion. We expect gross margin to expand moderately with top line growth, as we leverage occupancy and then really leveraging -- leveraging SG&A.

Thank you, and we will take our next question from John Zolidis. from Buckingham Research. Please go ahead

Hi, good morning, and welcome, Jane.

Thank you.

I had two questions. One is on the expansion into the value centers, thanks for sharing those ROIC metrics for the stores in those areas. Can you compare the ROIC that you think you can get by expanding in the areas to what you are getting now, or what you had typically gotten in some of the other formats? In other words, is this, is that center, are those channeling more profitable channel, and better return channel than what you have got historically? And then my second question is on staffing. You did talk about hiring some more people in the sourcing area. Over the last year, year and a half, there have been some management departures in certain areas of the Company. Can you talk about where you think there is an opportunity to hire additional people, to bring in some more executives to sell some holes that you may have seen since you have gotten there. Thank you.

Sure, John, I am going to answer the second part of that question on staffing, and then I'm going to turn it over to Sue on the ROI's on the different formats -- different store formats. As far as management changes are concerned, shortly after I arrived, we realigned the marketing area, and the creative part of marketing is currently reporting to me. I feel very strongly, that I want to work with that team for the next period of time, to get ourselves to where I think I can get from a marketing perspective. So I am excited to work with them.

We had a new head of HR that started Monday, and excited to have him on board. And then from an inventory management and optimizing the allocation team, we are currently looking to replace the position that is open right now, as the Senior Vice President of Merchandise Planning and Allocation. We are actively searching, and had some great conversations with people out there. So there definitely have been some changes, and there will continue to be more changes. On the ROI's though, I will turn that part to Sue.

On the ROI's, the -- as Jane had said, the ROIs that we are seeing, that's year one return on investment that we are seeing on the value oriented centers -- are -- above 50%. We generally -- and they vary depending on the size of the store, the format, there are a lot of factors that go into the ROIs in general or on average. We say that the mall-based stores, are about a 30% or so. So, net net, because we -- because build out costs are less and they are profitable, we are getting a high return on investment than we had been getting on some of the mall-based stores. It doesn't mean we are not going into some malls, and that the mall stores are not -- the mall-based stores are not profitable. It's just that we get a higher year one return on investment with this new format.

We will take our next question from the line of Kimberly Greenberger from Citi. Please go ahead.

Great, thank you, and good morning, and Jane, we are thrilled that you have arrived. And we look forward to watching the progress here over the next year or two. I just wanted to dive a little bit more into inventory management. I was intrigued by your comments. I'm wondering if --p I know Mark Rose has done an amazing job sourcing and getting just fantastic costs for you. And I think the lead times are slow in part, because of the cost advantages that you have secured. Is there an opportunity to -- to maybe take a smaller piece of the assortment, and get it on a little bit more rapid lead time? So do you think that there is any kind of a payoff on that kind of strategy? And then, any opportunity kind of managing your inventory seamlessly across channels, where you would be able to hold back maybe a little bit more in your distribution center. And fill it in either to the stores that are selling it better or hold it for the website where it might be easier than -- I know in the past, years ago, the Company used to just sort of push all the inventory out to the stores. There was a lot of off site storage, and full back rooms. So I am just wondering if you looked at the inventory management in a bigger way, and if you thought any overarching strategies where you see opportunity? Thanks.

Thanks, I think, overall, I just want to reiterate the very, very large opportunity in getting our arms around merchandise planning and allocation at The Children's Place. And to answer specifically the questions about fad fashion, the team has done some good work last year in two categories, knits and denims. And they've been able to responds much more quickly to washes, and changes in washes, than we have in the past. And that seems to be showing itself in some of the early spring selling, and we will continue to work through us, for us, through the fall season. The other category is knits, and particularly in graphic tees. The team have made a lot of progress, in being able to take a position in the fabric, and then being able to print the tees much closer to time, than they have in the past. And the sell-throughs in the graphic tee portion of the knit business have been substantially increased since they have done that.

I believe there more opportunity to your point, to take more of a piece of the business. Not a huge piece of the business, but more of the piece of the business into places where we can react a little quicker. And knits continues with me to be, I think an easy win for us. And Mark Rose, as you said has done a great job, and he is on board with working with us to get that fad fashion to be a little bit bigger piece of the pie. As far as holding back on the distro. we have in the past, overloaded the stores. And I think that when you look at what is happening now for spring, the team took that to heart last year, and the initial distros that are in the store right now, are much lower than they would have been in the past, and the goods in the warehouse are being used to flow into the channels you spoke of. There is e-com back up, there is US store back up, and then there is outlet back ups. So, they have done a better job at that. I still think from a total inventory perspective, however, the opportunity to own less total inventory, and to allocate it better into those multi-channels, we got -- a ways to go on that.

Thank you. And we will take our next question from the Margaret Whitefield from Sterne Agee. Please go ahead.

Yes, Jane, and welcome to The Children's Place. And we are delighted that you arrived. You mention getting the right product to the right store. When will you be there, in getting it sorted by sizes and climate and store type?

Well, Margaret, I think as I said, we are looking to fill that position for the leader in the Senior VP of Merchandise Planning and Allocation, and the merchandise is basically brought for the 2010 season. What I am seeing, and where my strategy is really headed, is by the end of 2011, to really have made substantial progress in where we need to go. And when you think about it, it starts with, as I mentioned before, really aligning on how much a product you need. And then once you align on the product, how do you buy it, by boys, by girls, by accessories, by shoes. And then within those classification -- within those categories and sizes, how do you buy it by classification. And then once you have the buy optimized, how do you really allocate it.

And just to give you an example, I had a meeting with the stores people about a month ago. And I just threw out a question to them. And I said, could you guys just get together and get back to me. We were talking about hot and tropical stores, and they got back to me yesterday. And after sifting through about 200 call outs, they really narrowed it down to 52 very, very actionable call outs, that we can do on better allocating merchandise to our heat and tropical locations, which is really just the tip of the iceberg. But it really gives me even more confidence that getting our arms around this, and bringing this to the forefront of the senior leadership team, and thinking that the The Children's Place is going to have a big, big pay back for us.

What do you think the ultimate size of the chain could be in North America, with the focus on value centers?

I am working really on that now with the team, and I have some initial observations. I don't think I am really ready to share them today. But I do think when you look at these mid-sized markets, and we traditionally traded in markets of 75,000 or higher, and substantially higher in most cases. If you look at the markets of 75,000 people, there are really hundreds of locations where you don't trade. So you don't even get into a cannibalization conversation for a long, long time. And some of these store that is we have opened. Certainly the 2009 stores were very successful. And even stores we opened in the last month or so, are already dramatically exceeding our expectations. So I believe there is a big opportunity in the United States to continue to take this brand different places.

Another thing, I will add in if it's okay, when you think about The Children's Place, we are not over reliant on one category of business. This Company was built on outfitting, head to toe outfitting. And the fact, that we can take that, and we can merchandise our locations by lifestyle. I mean, we carry casual weekends product. We carry go to school product, and we carry special occasion product. And when we get our team together, and get focused on buying or allocating appropriately, the ability for The Children's Place to morph their assortment to meet the market needs, is pretty obvious, and pretty staggering the opportunity that exists there. So the fact that we have been able to have 950 stores of more of a one size fits all mentality on allocation. When we really get going, the fleet opportunity is quite large.

Thank you, and we will take our next question from the line of Richard Jaffe from Stifel Nicolaus. Please go ahead.

Good morning, and we say, Stifel, Stifel Nicolaus. Welcome, Jane. A couple of quick questions. Can you comment on your ability to merchandise by site. Would that be sort of a 20% variation from one extreme to the other? Or is it even greater than that?

I can't give you a percentage. But my instinct, and my experience, and my past experience will tell you it is greater than that. I think if you look at what we are currently doing and think of the opportunities. They are pretty big.

And do you have the system to implement that? Or is that part of the system upgrade we should look for this year?

That's the system upgrade we should look for this year. But the first thing we have to look for, is the team that is going to lead it, and then the systems will come shortly after that.

Okay. So, it is people, systems, and what date does it all come together roughly?

No, I think it comes together in the latter half of 2011. I think if you look at 2010, it's pretty much a done deal. So I think we are really looking at a 2011 proposition here. I am very energized to get moving on it quickly. So we will certainly keep you posted. But it is a top of mind.

Sure. I know you of mentioned the internet or e-commerce opportunity which I think is tremendous for you guys. As that unfolds, can you imagine that changing your view about secondary mall locations, or some of your real estate strategies going forward? That is to say, that the internet could serve the customers that maybe can't deserve -- justify a store.

No, I this how we think about it. It that is just going to supplement the opportunity. And it will show you, which I am sure you know that, when you have a multi channel consumer, that is the best consumer you can have. And the fact that we have almost a thousand stores now, and having that customer being able to do go online, and do the research and come to a store close to their home is part of the beauty of the overarching strategy. And I think that that will only help us.

No question that it is, one plus one is three, as you get the internet working, or working more effectively and I think that's going to be terrific. I have been to some of your stores, that, maybe, are generating a four wall level of profitability, but aren't matching the return on the invested capital. And that maybe, there could be over time a rationalization of that original mall real estate plan.

Our stores, Richard, this is Sue, our stores are pretty profitable. We have very few stores, given the size of the fleet that are problem stores. Very, very few, under 3% of the fleet. So they're pretty -- and not all stores are at profitability. And we have some that are more profitable than others, but over -- and we watch this very carefully. So we are not looking for a fleet rationalization at this point in time. We don't see a need to.

Thank you, and we will take our next question from the line of Brian Tunick with JPMorgan. Please go ahead. Go ahead.

Thanks, hi, Jane and Sue. I guess one short term question, and then I guess, one sort of longer term. On the short term side, really has to do with your Q1, almost comp guidance I guess. We know Easter was strong last year and late in the quarter. So what are you doing differently this year for Easter? And just basically hearing most retailers February comps, it just sounds like your flat comp number for Q1 seems conservative. So just curious, a little more about that. And then the second question, I guess for Jane, on the competitive environment, obviously just sort of your initial thoughts on what you see out there, particularly on the price side, a lot more people focusing on value. What do you think directionally has to happen to the AURs, as you sort of roll out over the next 12 months? Thanks very much.

Thank you. As far as the second part of your question for the competitive environment. There are -- there is a lot of competition in the children's market right now. It is a good spot to be in. And there is certainly a built-in customer. I think from a value point of view, The Children's Place has always had great value, and I think that's why we are probably the largest children's specialty apparel retailer, because we focus on value and fashion and convenience. I think the value messaging at The Children's Place is not as strong as the competition value messaging has been, and we have in some cases as good if not better values than the competition. So I think to answer your question, you will start to see as we move forward into April and May and onward into the year. You will see The Children's Place focus more on the value we do offer.

Then, with regard to the comp question that you asked, Brian, just to put it in perspective. Last year we delivered a 1% comp in the first quarter. The year before, in 2008, we were actually a plus six. So, notwithstanding, and what happened to a lot other retailers, in early 2009, we actually were able to hold our own in the first quarter, on top of a fairly strong comp in the 2008 year. So we think at this point in time, that the one comp is about right for us. And if you look at February, we had a lot of snow, weather was terrible in the northeast, where as you know we see a concentration of our business. And we were overall pleased with our results. So again, right now, I would not say that the one comp is either conservative or aggressive, I'd say it is realistic, given what we are seeing in our business. Flat, flat, excuse me, flat comp is -- sorry -- it was a one last year. Flat comp, beg your pardon, it is neither aggressive or conservative, given what we are seeing in our business.

Thank you, and we will take our next question from the line of Dana Telsey from Telsey Advisor Group .

Good morning, welcome, Jane. Hello, Sue and Jane. Jane, given your back ground in department stores, and in the short time you have been in the specialty store world so far, what is the same? What is different, and how do you see the opportunities? And then also, just on pricing overall, since you have gone over the merchandising and enhancements, do you see any pricing adjustments ,and what does that do to the AUR? Thank you.

Thank you. And welcome, Dana. I think that when you look at department stores versus specialty, there are so many differences. Having said that, retail is retail, and there are a lot of similarities as well. I think the big difference is the complexity level in a department store, with a couple thousand vendors, and being very reliant on those vendors to deliver what you need them to deliver, as well as working on men's and women's and kid's and accessories and shoes, and all the different categories at once.

I think the vertical experience is much more streamlined, and much more focused, and probably in some ways, easier to get your arms around. Having said that, you control your own destiny here. So you don't have a lot of partners, you need to make sure you are doing it right. So it's energizing, and it's exciting. I am enjoying learning about the design side, and working with Mark and really learning about the sourcing side. From a pricing, to answer the question part of the question, I don't see significant changes in our pricing. What I do see us, is getting more sharply focus dollars on the values for the marketing we do have, and really making more out of those values, and letting the customer know we have those values. That is really where I see the play right now for The Children's Place.

We will take our next question from Dorothy Lakner from Caris & Company. Please go ahead.

Thanks, and good morning, everybody, and welcome, Jane. My questions were if -- looking at the merchandising side the business, are you looking to make any additions to the team, as you sounded like you were in the process of making -- looking to make changes there. I wondered if you could put color on the term you used, of modernizing the offer. And also, just when we might begin to see some greater differentiation between the big girls and little girls big boys and little boys. Thanks.

Hi, Dorothy, thank you. I think to answer the first question. I didn't really speak about changes to the merchandising team. I think the changes are to the merchandising. And I think that's where we are focused right now. As far as additional people or changes in people, there might be some required for some of the new classifications or categories that we will be going after in the fourth quarter or beyond. I think what really has to happen on the merchandising front, is that we need to understand better where our business is coming from, and go after those key classifications with more rigor and more analysis. As far as modernizing the offering, I think you hit the nail on the head when you asked the second part of the question about when we are going to see some differentiation between the little and the big girls.

And I think it will be holiday 2010. When we did a lot of analysis around what happened this past holiday 2009, we really found that when we merchandise girls, and our girls are 4 to 14, we merchandise it with a very similar type of look. And really when that girl gets to be size seven or size eight, she is looking for a different offering than her little sister. And that is something that we can very easily adjust. We have a strong design team here, and we have a very strong sourcing team. And we will be able to get there. And you will certainly start to see that for 2010, and more so for 2011 spring and beyond.

Thank you, and we will take our next question from the line of John Morris from BMO Capital Markets. Please go ahead. John Morris, your line is open. It looks like we don't have John Morris on the line. So we are going to go ahead and go to Rick Patel from Merrill Lynch. Please go ahead, sir.

Hi, good morning. Could you just talk about your priorities for cash this year, what is the minimum amount you would like to see on the balance sheet, and any thought on share repurchase or dividend?

Hi, Rick. This is Sue Riley. As you know, we do have -- we are very pleased with the cash we were able to close out the year with on our balance sheet. And I would remind you that some of that is, in fact, cash that is abroad. Jane and I have had a lot of conversations about what we want to do with the cash. And I think that at this point in time, we want to hold off making any decision until we get to a point in 2010, where we start to generate cash. And for us, that's the back-to-school, the back-to-school time frame. So we are having active discussions, both she and I, together with the Board, on how how we want to deploy the cash, and how we want to reinvest over the next few years, and what we will be doing to maximize the value to shareholders on that cash.

Thank you, and we'll take our next question is from the line of Lee Giordano from Imperial Capital. Please go ahead.

Hi, thanks, good morning, everybody. Jane, welcome, and just a big picture question. And from the time you have been there so far, what have you learned, and what has surprised you either positively or negatively about the Company so far? And then secondly, can you talk a little bit about the strategy for shoes and accessories business.

Well, thank you, Lee. And welcome. Surprised me, I did a lot of due diligence before joining The Children's Place. So there weren't a lot of surprises. What I will tell you is, the -- really understanding, and I knew there was opportunities around new store growth, and I knew there were opportunity around inventory management and merchandising.

But to see how much opportunity there really is, and to see such a clear path towards how get there, to me was pleasantly surprising. So that has been exciting. As far as what I have learned, I learned a ton, everyday I learn a lot, and obviously will continue to do that. From a shoe and accessory strategy, really I don't want to get into that too much online today. The shoe business has been terrific and the accessory business is strong, and there is a lot of opportunity for us there going forward.

Thank you, and we will take a question from our last caller, Marni Shapiro from The Retail Tracker. Please go ahead.

Hey, guys, good morning. Welcome aboard. I would of been disappointed if I didn't get to ask a question, of course.

Hi, Marni.

So, Sue, I do have one housekeeping question. If you could just give us a square footage at the end of the full-year. And then, if you guys can talk about two things, on these new stores in these new locations, co-tenancies that you feel would be ideal? Or are you looking at the demographics not just from the 75,000 pure number basis, but ethnically, are you looking at this, and will you adjust the stores because of it, and other opportunities due to this? And, Jane, you did touch on holiday, I am curious if you were you able to make any changes, whether it's even just merchandising it, on back-to-school?

Well, on the new store openings, on a demographic and psychographic point of view, we are certainly looking at everything. And once we look at the financial aspects, and get past the hurdle rates, we are certainly looking at opportunities to expand reach in the categories that you discussed. Holiday, yes, we were able to make changes to holiday. It was designed when I got here, but we were able to certainly do some things that were going to propel sales, and we hope that will propel sales next holiday.

From a back-to-school point of view, what we've been able to d,o Marni on that, is we've been able to go back and revisit the denim trend. Not only from a wash point of view, but we've been able to revisit that from what is happening in a styling point of view. We had some gaps, and we had some holes in the denim offering, and particularly on the girl side, and we feel good that we have been able to go back, and really fill those into the trends for the July and August time period.

And we have one more caller, from the line of John Morris from BMO Capital Markets.

Hey, guys, can you hear me okay now?

Hi, John, we can hear you.

Okay, thanks, sorry about that earlier.

Sure.

You've already talked a little bit about some of this already, in terms of some of the sourcing benefits, but I am kind of curious as to maybe a little you can give us a bit more clear on how that plays out, and over the course of of the year, thinking of first half versus second half?

I think the benefits we see will be more in the second half and much more than 2011.

Okay, great. All the other questions were asked and answered. Thanks. Good luck.

Thank you.

That concludes our Q&A session. That hereby concludes today's conference. Are there any closing words? Thank you, you may disconnect at this time.