Children's Place Inc (PLCE) 2010 Q4 法說會逐字稿

Good day and welcome to today's Children's Place fourth-quarter and fiscal 2010 financial results conference call.

At this time all participants are in a listen-only mode and later you will have the opportunity to ask questions during the question-and-answer session. I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Mrs. Jane Singer. Please go ahead, ma'am.

Thank you, Michael. Good morning, everyone, and thank you for joining us today for a review of the Children's Place Retail Stores Inc.'s fourth-quarter and fiscal 2010 financial results. Participating on this morning's call are Jane Elfers, President and Chief Executive Officer, and John Taylor, Vice President, Finance and Interim Principal Financial Officer.

Before we begin I would like to remind participants that any forward-looking remarks made today are subject to the Safe Harbor statements 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 publically release any revision to these forward-looking statements to reflect events or circumstances after the date hereof. Please also note that a reconciliation of certain non-GAAP financial measure discussed on this call is contained in this morning's press release which can be found on our ChildrensPlace.com website.

Now I will turn the call over to Jane for her opening remarks.

Thank you, Jane, and good morning, everyone. The Children's Place made solid progress in 2010. We significantly strengthened the management team, we made excellent progress on our five key growth initiatives, we grew sales and earnings, and we expanded market share.

Let's start with some highlights from the fourth quarter. Income from continuing operations, excluding one-time items, increased 13% despite a 5.9% decline in our comp store sales. Earnings per share increased from $1.03 in 2009 to $1.22 in 2010.

Gross margin expanded by 120 basis points due to lower markdowns and stronger inventory management. That is the strongest gross margin rate we have delivered in the fourth quarter in four years. Our e-commerce business continued to perform very well with comp sales increasing 32% on top of a 27% increase last year.

Now let's move on to comp store sales. During the fourth quarter we were still moving through previously designed product. Going into January we had significantly lower levels of clearance product resulting from more disciplined inventory management. In addition, we experienced store closures and declines in mall traffic associated with severe weather during the month of January. All these factors combined to negatively impact sales during the fourth quarter.

In terms of merchandise, the fashion misses we experienced in fall with the girls and newborns continued into holiday. However, we reduce inventory purchases for holiday which resulted in lower markdowns rates and expanded margins for the quarter.

We did see some bright spots in the fourth quarter starting with footwear, particularly boots, which we chased into for the fourth quarter; accessories, particularly jewelry, which was a new business we added for the fourth quarter; and graphic tees, which we were able to significantly upgrade due to shorter lead times. In addition, the Girls knit bottom and jegging classifications, which we chased into, experienced great success.

We were also very encouraged with the response to spring merchandise which began delivering in early December and was well received by our customers. They liked the fresh color palette, updated designs, and greater differentiation by age group. Sales of the spring line increased nearly 50% during the fourth quarter of 2010 accounting for 14% of sales compared to 9% last year.

As we look at the first quarter of 2011 the important Easter holiday shift will present challenges for The Children's Place and for the kids sector in general. Easter falls in the last week of the quarter this year which is the latest Easter in 68 years. As a result, the sales are backloaded for the quarter and that puts a tremendous amount of pressure on the month of April. A late Easter historically has been a negative for The Children's Place as Easter is the primary shopping catalyst for the fourth quarter -- I am sorry, for the first quarter.

In addition to the unusually late Easter, there are some challenges in the first quarter that are unique to The Children's Place. We entered the quarter with 39% less carryover inventory, which negatively impacted sales during the month of February. Our dressy line set February week one last year and accounted for 22% of last year's February sales. This year due to the Easter shift we set dressy at the end of February.

And third, we have a challenging comp comparison in March due to the calendar shift and the unusually warm weather we experienced last March. These are three major swings for us in the first quarter and we took them into account with our negative low single-digit comp guidance for the quarter.

Now I would like to update you on the senior team. Assembling a strong senior leadership team was my top priority when I joined the Company and I would like to review the key appointments we have made in the past year. EVP of Merchandising and Design Natalie Levy, Senior Vice President of Planning and Allocation Barrie Scardina, Senior Vice President of Outlets Mark Polinski, Senior Vice President of IT Sunil Verma, Senior Vice President of HR Larry McClure, Senior Vice President and General Counsel Brad Cost, VP of e-commerce Mike Dupuis, and two new Store Zone VPs, Carmen Blanco and Mary Kay O'Connor-Wente.

I am very pleased to have these talented and experienced executives on board and the team is transitioning well. We are finalizing our search for a Head Designer and, as you know, we are searching for a Chief Marketing Officer and a CFO.

Now I would like to update you on the significant progress we made on our five key initiatives during 2010 and our plans for 2011.

Number one, improving the merchandise. In 2010 our merchandise and design team were significantly strengthened and you are just beginning to see their impact in stores. We increased our focus on apparel, particularly in Girls and Newborn, and we added new categories to Accessories. We expanded our footwear assortment and drove a positive 20% comp in that category in 2010 and we added a swing shop in all Place stores to maximize seasonal opportunities throughout the year.

For 2011 the merchandise we are delivering now has been updated to better reflect current trends, particularly in the Girls and Newborn division. It is more differentiated by age group and the color palette is more appealing. We have better ownership by classification in the key categories that drive sales.

We have enhanced and expanded our seasonal basic assortment for 2011. Seasonal basics is an important business for The Children's Place and we expect the new focus on fashionable basics to be popular with our customers.

For Newborn we plan to offer more knitwear and giftable items, and we will continue to expand our successful Footwear and Accessories offerings in 2011. We expect these merchandise enhancements will help us to continue to expand our market share.

Our new outlet strategy will begin rolling out in the back half of the year. Mark Polinski worked with us as a consultant on this initiative in 2010 and he has since joined us full-time to lead this effort. We will be introducing our first made-for-outlet assortments for Back to School.

Made-for-outlet will account for approximately 15% of the assortment in the third quarter of 2011 compared to 3% last year. We plan to further increase penetration of made-for-outlet products in holiday and fiscal 2012. With the planning team now focused on the outlet business, we are able to better capitalize on the different seasonality curves of our diverse outlet base, and we will begin tailoring our marketing and promotional messages to align with the outlet cadence rather than following the Place stores.

Number two, accelerating new store growth with a focus on value centers. In 2010 we opened 67 new stores and increased our square footage by 5%. Two-thirds of the new stores are located in value centers which now account for 9% of our fleet. Year one ROI for value centers exceeded 50% in 2010, which is well above our 35% hurdle rate.

Our value center store comp sales were stronger than the rest of the chain during 2010 and we remodeled 35 stores last year. For 2011 we will continue to increase our North American footprint with an emphasis on value centers. We plan to open 85 new stores and grow square footage by approximately 6.5% this year. Value centers stores are expected to account for approximately 13% of the fleet by year-end.

We plan to remodel 90 stores in 2011. In addition, we plan to reconfigure most of our expanded shoe stores midyear so that we can integrate hanging shoes into the apparel presentation as we do in all our other stores.

Number three, improving inventory management. In 2010 we upgraded our planning and allocation team. We assessed our current allocation and assortment planning capabilities, processes, and systems. We initiated planning and purchasing by channel. We cleared through underperforming fashion earlier in the season so that we were able to end each quarter clean with minimal carryover inventory.

We reduced initial allocations to stores. And as a result, transfers from stores to outlets have been significantly reduced, and with more inventory held in the distribution centers we have the capacity to opportunistically move merchandise to better meet demand throughout the quarter.

Finally, and very importantly, the strategic decision to buy less inventory for the fourth quarter of 2010 resulted in significantly fewer markdowns and margin enhancement.

For 2011 the focus will be on channel specific planning which will be in place by the third quarter of 2011. We plan to create weather-specific assortments and receipt flows starting in the fourth quarter, and in the stores we are planning lower unit inventories with more frequent replenishment.

Number four, sharpening our marketing message. During 2010 we streamlined our marketing message to focus on value in fashion. We aligned our direct mail, e-mail, windows, and in-store signing. We resegmented our customer database to ensure high-cost marketing tactics were being devoted to high ROI segments while the broader base was reached through lower cost e-marketing.

And we expanded our e-mail marketing reach with a four-fold increase in our e-mail list. For 2011 we will continue to increase our use of e-mail and social media to engage our customers as these have become the preferred methods of communication among the young mothers we target. We have significantly enhanced the capabilities of our in-house customer database so that we can deliver personalized marketing messages to key customer segments.

And as I mentioned earlier, we have a search underway for a Chief Marketing Officer who will help us further strengthen our marketing efforts in 2011.

Number five, driving e-commerce growth. E-commerce had an exceptional year in 2010. Comp sales increased 30% on top of a 32% increase in 2009. Site traffic and transactions increased significantly.

We simplified the look of the site and made enhancements to improve the user experience. We added new categories exclusively for e-commerce, including a special occasion shop. We added Place shops which carries school uniforms, swimwear, and special occasion product year-round. We added a planning team focused on the e-commerce business so the inventory is being planned more appropriately to meet the demands and in November we began offering international shipping to 37 countries.

We introduced e-gift cards for the first time which contributed to the growth in our gift card business during the fourth quarter.

For 2011 we have new leadership, Mike Dupuis, to drive the e-commerce business going forward. We will be launching an e-commerce site for Canada at the end of the first quarter. We are continuing to enhance the customer experience on the site. We are expanding web exclusive products and will add new categories to the site, and we believe our e-commerce business will continue to deliver double-digit growth in 2011.

Now I want to move on to the costing pressures in the back half of the year. There continues to be a great deal in the news about the cost increases which are impacting all apparel retailers in 2011.

As I mentioned on our last conference call, we were able to mitigate the cost increases for the first half of the year through product cost engineering, mix changes, and selective price increases. However, as we are all aware, cotton prices have continued to escalate and are at record highs and retails will increase in the second half of 2011.

We are buying unit inventory conservatively for the back half of the year. We continue to work to mitigate the higher product cost through product cost engineering, mix changes, and price increases. We believe we have significantly improved our merchandise assortment, enhanced our allocation strategies, instituted stronger inventory discipline, and embarked upon our outlet strategy which will all work to our advantage as we enter the second half of the year.

These strategies, along with price increases, will help to mitigate cost pressures and we do anticipate modest gross margin expansion in 2011.

In closing, after my first year at the helm of The Children's Place I am even more optimistic than I was when I started. We have quickly assembled a top-notch team and they are making excellent progress on our key growth initiatives. We will approach 2011 cautiously given the state of the economic recovery and rising costs.

US consumers face rising energy, food, and apparel prices this year and they will need to make difficult spending choices. I believe we are well-positioned to continue to steadily grow market share given our strong brand and value proposition.

Now I will turn it over to John Taylor who will review our financials and update our outlook. John?

Thank you, Jane. Good morning, everyone. Net sales for the fourth quarter ended January 29, 2011, declined 2% to $453.2 million. Comparable retail sales declined 5.9% resulting from a 4% decline in transactions and 2% decline in average transaction value.

A slight increase in average unit retail during the quarter was offset by a decline in units and units per transaction as we had less holiday clearance product this year.

Regionally we performed slightly better in the Southeast, Southwest, West, and Mid-Atlantic. By department Accessories comped positive low double digits. Boys outperformed Girls and Newborn. By store type, value centers performed somewhat better than the other store types.

The decline in net sales for the quarter was due to negative comp sales in US and Canadian stores. This decline was partially offset by growth in our store base and e-commerce sales. At the end of the fourth quarter our store count was 995 compared to 947 stores at the end of fiscal 2009.

E-commerce comp sales increased 32% on top of a 27% increase last year. Gross profit dollars increased 1% to $187.5 million during the fourth quarter of 2010 and gross margin increased 120 basis points to 41.4% from 40.2% last year. The increase in gross margin rate is the result of less holiday clearance inventory during the quarter, which was partially offset by a deleverage of distribution and occupancy expense.

SG&A spending was $117.5 million during the fourth quarter of 2010, a 1% decline compared to last year, primarily due to lower marketing expenses and lower equity compensation. SG&A as a percentage of sales deleveraged 10 basis points to 25.9% due to lower sales. Excluding the items that affect comparability between quarters, SG&A deleveraged by 30 basis points.

We had asset impairment charges of $200,000 during the fourth quarter for two underperforming stores. Depreciation and amortization expense as a percentage of sales during the fourth quarter was 4%, similar to last year. Operating income increased 8% to $51.7 million compared to $48 million last year.

Our effective tax rate for the quarter was 36.4%. Last year our effective tax rate for the quarter was 28.1% as we benefited from excess foreign tax credits generated by the repatriation of cash.

Income from continuing operations was $32.7 million or $1.24 per diluted share in the fourth quarter of 2010. This compares to income of $34.2 million or $1.23 per diluted share in the fourth quarter of 2009. Excluding transactions that affect comparability between quarters, adjusted income from continuing operations increased 13% in the fourth quarter of 2010 and earnings per diluted share increased $0.19 to $1.22.

The Company's share repurchase program resulted in a $0.09 per share benefit during the fourth quarter. Foreign exchange positively impacted fourth-quarter earnings per share by approximately $0.05. Our diluted weighted average share count for the fourth quarter was 26.5 million shares.

To briefly touch on fiscal 2010 income from continuing operations was $83.6 million or $3.05 per diluted share. This compares to income of $88.8 million or a $3.09 per diluted share in fiscal 2009. Excluding items that affect comparability between the years, our adjusted income from continuing operations increased 10% and earnings per diluted share increased $0.39 to $3.03.

Foreign exchange positively impacted fiscal 2010 earnings per share by approximately $0.25 per share. The share repurchase program resulted in an $0.08 per share benefit for the year.

Moving on to the balance sheet. Our cash balance at the end of fiscal 2010 was $185.9 million compared to $170.5 million last year. We were able to improve our cash balance in fiscal 2010 while repurchasing 1.9 million shares for approximately $90 million and reinvesting in our business through capital expenditures.

As we announced in our press release this morning, we plan to complete the remaining 2010 share repurchase authorization of approximately $10 million during the first quarter of 2011. We also announced that the Board has authorized a new share repurchase program in the amount of $100 million. We believe this share buyback program is consistent with our commitment to increase returns on capital and create long-term shareholder value.

Balance sheet inventory at the end of the fourth quarter was 2% higher than last year in total. On a per square foot basis inventory declined 2%. Carryover inventory at cost was 39% lower per square foot at the end of fiscal 2010 than last year.

During the fourth quarter we opened five stores and closed 15. In fiscal 2010 we opened 67 stores and closed 19. At the end of the fiscal year we operated 995 stores with a total of approximately 4.92 million square feet, which represents a 5% increase.

Turning to CapEx, capital expenditures totaled $84 million in fiscal 2010 compared to $62 million the previous year.

The new spring line has been well received by customers. Nevertheless, we are cautiously approaching fiscal 2011 given the state of the economy, the rising product costs, and the unusually late Easter timing in the first quarter.

Our initial guidance for fiscal 2011 and the first quarter is as follows. For fiscal 2011 we are projecting earnings per diluted share from continuing operations to be in the range of $3.05 to $3.25 per share. For the first quarter of 2011 we are projecting earnings per diluted share from continuing operations to be in the range of $1 to $1.05.

This guidance assumes comparable retail sales will be approximately flat for the fiscal year and will be negative low-single digits for the first quarter. We expect gross margin to expand 30 to 50 basis points during fiscal 2011 as a result of a lower markdown rate. We have mitigated the cost increases for the first three quarters of 2011 through product engineering, mix changes, and price increases.

We have not yet completed the holiday 2011 buy but are expecting some IMU degradation in the fourth quarter given the continued increase in cotton prices.

We anticipate SG&A spending will increase in 2011 and SG&A will deleverage somewhat as a percent of sales due to higher store expense associated with more new stores, higher administrative expenses, and flattish comp sales. We expect our effective tax rate to be approximately 39% for fiscal 2011 and net interest expense to be in the range of $1.5 million to $2 million.

This guidance is based on a fully diluted share count of 26.6 million shares. It does not include the impact of potential share repurchases in fiscal 2011. The guidance also assumes currency exchange rates will remain where they are today.

In terms of inventory, we expect to end the first quarter of 2011 with total inventory per square foot approximately flat. We plan to open 85 new stores in fiscal 2011 for a net of approximately 65 additional stores, including closures. Square footage is expected to increase by approximately 6.5% in 2011.

We expect our capital expenditures to be in the range of $85 million to $90 million with about two-thirds of the spending on new store openings, remodels, and store maintenance, and the remainder for the distribution center and IT projects.

Now we will open the call to your questions.

(Operator Instructions) Anna Andreeva.

Great, thanks so much. Good morning, guys. Just a follow-up on the quarter-to-date results. You mentioned lower clearance levels negatively impacted your February performance. Are you guys running in line with negative low-single digit comp guidance for the first quarter right now? Just trying to understand if strength and full-price selling continued from the fourth quarter.

Yes, the spring product, the playwear and the sportswear in spring, continues to be very strong. In February, when you exclude dressy which we said was the last week of the month versus the first week of the month last year, we are up 40% in spring product so that does continue to do well. However, coming in with 39% less carryover inventory and the weather in the first part of the month did significantly impact us in the month of February.

And are you guys seeing improved results in the Girls and Big Girl and Newborn? I know you have talked about that being a big opportunity for the business.

Yes, I think that was one of the most exciting things we saw in the fourth quarter and continuing into the first quarter was the market turnaround in the Girls business, both big and little. We were not only able to differentiate much better, I think, between big and little girl, but we were able to get the fashion much more on trend and the color palette much more on trend. So that has been a big turnaround for us.

Okay, that is great. Maybe talk about price increases. I know you have talked about testing some higher price points already here in the first quarter. Can you maybe talk about initial consumer acceptance to higher price points so far? Are there specific categories that you guys are targeting for price increases?

In the first half of the year, as we had said before, we had modest price increases and we have seen an uptick in AUR in the fourth quarter. We feel that the customer is responding to them and we have not seen anything negative related to them so far.

Okay, that is great. Best of luck for the spring season.

Thank you.

Tom Filandro.

Thanks and happy anniversary, Jane. Congrats on the progress.

Thanks, Tom.

Can you talk a little bit about how shoppers are reacting to the new e-commerce Place shops? Are you planning any significant enhancements there?

And I am kind of interested in some of the new strategies and exclusives online, such as communion and christening outfits. Can you talk a little bit about what you are trying to drive there? Thank you.

Sure. When I first came last year I quickly understood how important the dressy/special occasion business was to The Children's Place and really how much opportunity we had to continue to propel that going forward. So what we were able to do for last holiday is we were able to get a special occasion shop up online with a much more expanded assortment of special occasions focusing mostly on girls dresses. And we were very successful with that.

As we continued to think about spring, we really felt that we have a lot of opportunity to get even into more categories other than just your traditional dress up or Easter dresses and we moved to the communion shop, which is on the site now, and also in Newborn the christening shop. It has been up for a couple of weeks. The results have been very encouraging and you will continue to see us keep a special occasion shop up year-round.

We think that from what we have learned, based on what just happened in the fourth quarter, we have got some ideas of how we can make that even better for the fourth quarter of next year. So we will continue to do that.

As far as your question about exclusives online, we have expanded assortments in products that are doing well for us online. We have expanded our shoe assortment, we have expanded our accessory assortment, and we have started to expand our sizing assortment online between slim and husky. You will also continue to see us do that in 2011 as well as add some new categories, but we are just not ready to discuss those categories on the call today.

Thanks, Jane. Just one follow-up, on any licensed product like the Justin Beiber tees, that kind of stuff. Can you talk to us about what you are doing on that front and should we see more of that in 2011?

Yes, we felt that there was an opportunity to really go after some of these license activities but very selectively. In Boys, for holiday we went after some of the superhero T-shirts which had been a call out from our customer. In the past, for whatever reason, we had been reticent to try things like that. But we brought them in and they were very successful, so you will continue to see some of that on the Boys side.

Then for Girls there was such a demand for Justin Beiber that we went out and we said this is something that -- the business we should be in and we started delivering that at the end of the third quarter last year, beginning of the fourth quarter. Again, that was very successful for us so you will continue to see opportunistic buys like that from us.

Fantastic, thank you. Best of luck.

Thank you.

[Stacy Pak].

Hi, thanks. Jane, I was hoping you could just drill down a little bit more on the new spring product. I guess I was hoping to maybe hear a grade from you on especially the dressy product --and I totally understand what you are saying about timing of delivery and all that. But the dressy product, big girl versus little girl, do you think it's adequately differentiated?

What kind of sell-through experience did you see on the military mod and on the dressy business? Specifically speak to conversion and full-price selling and the ability to raise prices on like-for-like items on spring. So not Q4 but what we are seeing now.

Well, as far as the dressy conversation is concerned, we can't really give you sell-throughs on that. It's basically just hitting now. But when you look at the differentiation part of your question, when you look on the selling floor now we have really approached dressy -- let me think about the best way to say this.

On the Girls side in dressy we have been very traditional looking in the past and we felt that there was an opportunity to break dressy out into two separate segments, a more modern dressy look for the girl and a more traditional dressy look. So when you go on the floor now you will see a package of dressy which includes skirts, printed skirts, solid skirts, cardigans with embellishment, tank tops. That delivery which has more of a multi-end-use than the traditional Easter, has been in since the beginning of February and that has done very, very well.

It's in the big girl as well as the little girl, but the styling is difference between the two. Both have been very successful. When you take the traditional Easter dressy that is what has just delivered in the third/fourth week of February versus last year's first week of February.

The selling out of the box in that traditional has also been strong. I think that Natalie and her team did a really good job focusing the traditional dressy into the best-selling bodies and really putting the inventory investments behind the prints and the patterns and the silhouettes that were going to be the most salable.

So we feel good that dressy will be a strong delivery. It is smaller than last year based on the later Easter timing. You will see a summer delivery set for us later this month, which is more multi-end-use in nature and contains a much, much higher percent of dresses than we had last year. And we feel with Easter on April 24 you will see that customer migrate somewhat from that true traditional dress-up Easter to some more casual looks just based on timing.

So I think that pretty much covers the dressy question.

On the product cost increases, we have taken modest price increases for the spring -- $0.50 endings, $0.95 endings. We have not seen any customer pushback against that. As I said, the AUR in the fourth quarter was slightly higher and we are continuing to see that trend through February.

So I think that when you take the disciplined inventory approach that we have applied and the better allocations that we have applied, I think that that is a reason why it may be a little bit more unique to The Children's Place. We believe that we will be able to continue to raise AUR throughout the year.

Okay, great. Thanks so much.

Thank you.

Nicole Shevins.

Good morning. Thanks for taking my questions. My first question was just on your fourth-quarter gross margin rate. It was up nicely, so could you talk about some of the drivers behind that, like IMU versus improved markdown rates?

Sure.

Just generally, in order of magnitude our markdown rates in the fourth quarter were the key driver on the improvement year over year. Our IMU was flattish relative to last year and so the big driver was just the disciplined inventory management and the lower holiday buy resulting in lower holiday clearance and lower markdowns in the quarter.

Then as we think about 2011, what should we expect for IMU and how much more opportunity do you see on the markdown rate?

In terms of 2011 we said in our prepared remarks that we see modest gross margin expansion for the year. We think the opportunities for gross margin improvement are in the second and third quarter for us. It's going to be a combination of inventory management, better buying by classification, and a reduction in markdowns.

We are going to be really focused on enhancing AUR by being cleaner on inventory and being more disciplined in our inventory. It's not going to be an IMU driver per se. It's going to be inventory management and markdown driven.

Rick Patel.

Good morning, everyone. Can you give us a breakdown of gross margins in the US versus Canada? I am just wondering if you saw any changes in the trends there and I am also wondering how much of an impact did currency have on gross margins.

We don't normally give that level of detail by country. Our margins are pretty consistent across the channel. We saw the same level of improvement relative to last year in both countries, both divisions.

Okay. And then over the past year you have sort of edited the way you communicate with your customers. Can you just talk about what you have learned and any additional changes we should expect this year?

I think from a marketing front we did a good job last year. We really looked at the ROI of the direct mail that had been done in the past. There are significant opportunities to cut back on direct mail and not cut back on sales, and we saw that happen and we saw great lift on the ROI.

We have had a four-fold increase in our e-mail list and we are using the lower cost e-marketing to reach a broader base. We have seen a lot of success with that, particularly with the younger customer we have and the younger mom we target. That is pretty much the preferred method of communication for her, so you will just I think continue to see us reaching more into the e-com method of marketing and communication.

Janet Kloppenburg.

Hi, everybody. Congratulations on all the progress.

Thank you.

I had a couple of questions. It sounds like the AUR is moving higher and I think you expect that level to accelerate. It's hard for me to determine if you are more or less promotional than last year because your promotional strategies are so different than prior management.

So I am wondering if you could talk about out-the-door prices. I know you have had some ticket increases but the promotions are different and they appear more frequent to me. So I am wondering if you could talk about what we should expect for actual out-the-door prices going forward.

Also, I think we should expect the comps to be hurt going forward because of the lower levels of clearance and I am wondering what kind of pressure that will put on the SG&A line. John, if you could talk a little bit about what we should expect the SG&A levels to be looking like as we go through the year. Thanks so much.

Sure, I will take the first part of that. We are seeing the AUR, the out-the-door prices, going higher. I think, as far as the promotional activity is concerned, we are expecting gross margin to be flattish in the first quarter with markdowns to be flat to slightly higher. I think when you look at the promotional cadence of this quarter in particular it is very different due to the Easter shift than it was last year.

We are in the middle of spring sale right now. We planned spring sale to start the first week of March which was three weeks earlier than last year. We also delivered spring significantly earlier this year than we did last year, so we had more spring delivering in December and January to convert the floors more as we dramatically placed less holiday. So we moved the spring sale up into the first week of March to anniversary of the traffic from last year due to the Easter shift.

So I think your question about are we more or less promotional, I don't think that on balance for the year of 2011 we are planning on being significantly more promotional than last year but in this period of time we are running spring sale three weeks earlier than last year.

John, (multiple speakers) second part of that.

Janet, in terms of SG&A we do expect SG&A to grow on a dollar basis this year as we are opening 85 stores and we do have the annualization of some expense increases in our administrative groups. But on a leverage basis we think SG&A -- we are looking at 30 to 50 basis points of deleverage on the year. And that is really a function of a little bit of increase in dollar expense but really flat comp sales in the year in our models.

Margaret Whitfield.

Good morning. I would love more color, Jane, on the level of price increases you are planning for the back half and then the unit degradation you talked about. Also, you mentioned you had increased share. Wondered if you could give us what the share is now and discuss the competitive environment.

And also the timing of all of those new store openings, will it be early our backend weighted? Thanks a lot.

On the new store openings I think we are more proactive about it this year than we were last year, and we have got 85% of the new stores opening in the first half of the year, which I think will bode well for us.

As far as market share, we ended up at a 4.4% against a 4.1% share last year so we did continue to expand market share at The Children's Place.

On the pricing question we have talked about the first half a lot, very modest price increases. When we placed fall the cotton prices were significantly up from summer and as we are placing holiday now the prices are up from fall. I think that the price increases are well understood and well documented out there and I think really what it's going to come down, Margaret, is the demand drivers.

And I think when you look at the demand drivers and you look at The Children's Place, with the strengthening of the merchandise, the improved allocation, the inventory discipline, and embarking upon an outlet-only strategy, I think those are the things that are going to really help us mitigate some of these cost increases. We are planning our units down for the second half of the year and that kind of goes hand in hand with the bias I have towards lean inventories. We do believe by right-sizing those inventories and not buying the degree of inventory that we bought in the past that our AUR will continue to rise as we don't have to deal with those levels of clearance that we have in the past traditionally dealt with.

Betty Chen.

Thank you. Just made it. Congratulations on a good --

Betty, I don't think you are the last one. I think we have got some more time, but anyway go ahead. How are you?

Well, I was wondering, Jane, if you can talk a little bit about the value center stores. It sounds like they are still doing quite well and outperforming the chain from your prepared remarks, and also exceeding your hurdle rate. Can you remind us what is the mix of the 85 stores being open this year? Is that primarily in the value center?

Then also related to that I was wondering what is sort of going on in the international side? I know you started to ship to many other countries last year. Are there any early reads and get you some learning into potentially going abroad? Thank you.

Okay. Starting with the value center strategy, the value center stores have outperformed the rest of the chain in 2010. We feel very, very good about them going forward. We have opened in 2010 some small-market stores which are under 100,000 and we have seen those be particularly successful as well.

So we feel good about the strategy. The 85 stores that we are planning to open in 2011, half of them are in value centers and 25% of them are going to be in Canada. So value centers are about 9% of the fleet right now, by the end of 2011 they will be close to 14% of the fleet. So we will continue to really back those stores and continue along with that strategy.

On the international front, international is a very interesting potential for The Children's Place. As we are the number one children's specialty apparel retailer in North America we feel strongly that we can take that success internationally. We are not really -- can't really share details with you right now but on the next conference call we will be able to share some more details about how we are going to approach the international strategy. We will just leave it that it's an exciting opportunity and something that we are working very hard on.

Kimberly Greenberger.

Great, thank you. Good morning.

Good morning.

Kimberly, we can't hear you.

Can you hear me now?

A little better, yes.

Okay, sorry. I was hearing that the kids market was a bit of a laggard overall in the holiday season and has continued sluggish here into the first quarter. Jane, does that jive with what you are seeing in general out there in the kids market or are there any anecdotes or observations you can share with us?

Then secondarily, the inventory coming into Q1 looks a little bit high to us and I am wondering if you could comment on your level of comfort with the inventory growth rate in line to perhaps outpacing revenue growth rate. Thanks.

Sure. On the market share I think the adult market did outperform the kids market in the fourth quarter, so I think what you are seeing is validated. The kids, I think, dropped 4% in dollars for the fourth quarter and was pretty flat in units, so there is a little bit of a shift going on there. The dollars have been declining, the units have been rising, but now I think the units are flattening out.

I think from a Children's Place point of view I think it really goes back to the same things that we have been talking about. We have been able to continually gain market share over the past couple years and several quarters. I think that we will not see that lessen; we will continue to gain market share.

I think when you look at the initiatives we have in place, particularly starting with the strengthening of the merchandise and the turnaround we are starting to see on the Girls side of the business, when you look at the allocation strategies and when you look at the way that we are planning our inventories, I think that we feel that we can continue to gain share throughout the year.

As far as the second part of the question, I am going to turn that over to John.

Kimberly, this is John. From an inventory position at the end of the fourth quarter we feel very comfortable with our inventories heading into the first quarter. Our carryover inventory, as we have mentioned, is down almost 40% versus last year and so the inventory that we -- our inventory ownership is fresh and in current season inventory.

And inventory at the end of the period is always a point in time in inventory. So as we look at inventory heading into the first quarter we feel really good about our inventory position.

Thank you.

Marni Shapiro.

Congratulations on moving this team forward and getting some traction on the Girls side. I have one small housekeeping question. If you could just remind us the size of the stores as you move into these smaller markets, if it's the same size as your regular stores or a little bit smaller. And then the value centers as well.

Then I just have a quick follow-up question after that.

Store size is around 4,200 square feet to 4,500 square feet; same in value centers as it is in the malls so consistent.

Excellent. And then when I think about what you are seeing from your customers, you said she is starting to buy some of the Girls merchandise, are you seeing a difference across the country at all or online versus what you are seeing in Canada or strip stores versus value stores versus mall stores?

I am curious if there is any difference or if it's generally across the board that she is starting to be receptive to this.

No, it's definitely 100% across the board that the Girls product is much improved and sell-throughs are much better. We saw in fourth order and we are seeing it again this month in February.

I think there are some opportunities where different markets and different demographics are responding exceedingly well to some categories, and I think we can take that information that we learned from the fourth quarter and we can apply to the fourth quarter of next year. Some of the things as far as special occasion, we have some markets that really outperform us and continue to outperform us, whether it's spring or holiday. So we will continue to figure out how we can work through Barrie and her team in allocation to maximize those opportunities.

John Morris.

Hi, good morning. My congratulations on the progress you guys are making as well.

Thanks, John.

Jane, if you could talk a little bit about some of the categories that you have made progress in. Tell us a little bit about sleepwear, the sleepwear shop over holiday. Particularly curious a little bit not only about performance there but how much has it shifted as a percent of the mix and what the potential there would be.

But then the same as well for accessories in particular, because obviously that is a new introduction, and what is the potential for the mix in the stores for the accessories category?

Well, the accessories accounted for about 18% of the business in the fourth quarter and I still think that that is light. We have a tremendous amount of opportunity going forward in accessories and shoes.

The new categories that we delivered in the fourth quarter were very successful. You will continue to see us go after those categories. The sleepwear shop outperformed in the months of November and December. We were able to add additional categories like more slippers, more robes, and more kind of sleepover-ish type pickup items which were all successful.

The uniform shop that we have added year-round online was very successful; you will continue to see that growth. The jewelry business was introduced at the end of third quarter, beginning of the fourth quarter. That was successful so we are going to continue that, and you will see that expand as a year-round category.

The boot business was very strong. We chased into the boot business upon arrival and we were able to make a lot of progress with that. You will see an emphasis on that as we go into back-to-school and fourth quarter.

Then again on this dress opportunity, we really think that we have an opportunity to really own the children's market on the special occasion dress category. And you will continue to see us put more inventory and more focus behind that effort.

Linda Tsai.

On the stores it looks like you closed a few more than we previously expected, maybe you could comment on that. And then outside of the value centers is there a particular mall type or venue that is performing better or worse and are landlords still willing to give a lot of concessions? Then if you could just remind us, how much lower is rent for value center?

Linda, this is John. In terms of your question on closures, we did close stores in the fourth quarter. Our leases -- we had a significant number of leases come due at the end of the period and the stores that closed were just in the normal course. There wasn't a situation where stores were specifically underperforming, but it was just an opportunity for us to either improve our positioning in a local market and/or in some cases just right-size ourselves in those markets.

So those closures were pretty normal and you will continue to see us close stores in the fourth quarter for the next couple of years. We do have a substantial portion of the fleet that is going to come -- leases will come due. It's almost a third of the fleet over the next 24 months.

And then in terms of value center rents, the rents in value centers are as much as half the rents in mall stores, so we are able to significantly take the risk out of value center opportunities by those lower rents.

Dana Telsey.

Good morning, everyone, and congratulations on the results.

Thanks, Dana.

Can you touch a little bit about the margins by channel? What you saw online, outlet, what you saw in Canada? How does it differ?

Then when you talked about the cost pressures in the second half of the year, how are you thinking about how prices will change? Thank you.

Dana, this is John. In terms of margins by channel, in the fourth quarter we were able to improve margins on a relative basis across all our channels through the disciplined inventory management. We do see margins -- we do see better margins in our Canadian businessman in the US and that was the case again in the fourth quarter.

And from an e-commerce standpoint that business continues to grow, as you know, from a revenue basis and we are growing that business very profitably. So margins were better across the channels.

Dana, the second part of the question, I think when you look at price increases on the second half mix was a big driver of how we were helped to mitigate some of these price increases. We had the opportunity to dramatically shift the mix in the second half of the year. It's how we bought the classifications so I think you will see that as a big part of the driver along with the allocation strategies and then certainly the strengthening of the merchandise.

John Zolidis.

Good morning. Wondering if you can give us the cash flow from operations number?

Free cash flow from operations for the full year was $91 million.

Sorry, that is the free cash flow after CapEx or the cash from ops number?

No, that is cash flow from operations. It was $91 million.

Okay. Looking at the fourth quarter, obviously you planned the inventory down which turned out to be a good decision relative to the margin performance, but the comps came in a little bit below the original guidance.

I am sorry, John, I didn't hear the back half of that. You said that we brought the inventory down but what did you ask about the comps?

Well, what I am curious about is given your plan for -- your initial buy at a lower level of inventory, wouldn't you have expected comps to come in in that negative 6% range? What was the differential between the negative low single-digit guidance and the negative 6%? My sense is that you --

Yes, I hear you.

If you had actually done a negative 2%, I mean it looks like earnings could have been $1.50 or something. So was wondering if you could just give us a little more color on that.

Yes, sure. I think when you look at the comps in the fourth quarter it didn't have really anything to do with not having enough inventory to do the sales. When you look at the performance of the Girls divisions, which are the biggest divisions that we have, and you look at the performance of the Newborn division they were way off and that was a continuation of what we saw in fall.

When you look at some of the major categories that hurt us in November and December, you look at woven bottoms in Girls, you look at sweaters in Girls. And even with the dramatic lessening of the buy those were still very big fashion misses and the customers did not respond to them.

It wasn't like we sold out of them and we wished we had had more. We had plenty and they didn't respond to them. So I think that that is what drove the difference between low negative and the 5.9% that we had.

At this time I would like to turn the conference back over to Ms. Jane Singer for closing remarks.

Yes, thank you for joining us today. And I am sorry we didn't get to all of the callers, but if you do have further questions, please call me at 201-453-6955. Thank you for your interest in The Children's Place.

This concludes today's conference call. You may disconnect at any time. Thank you and have a wonderful day.