Children's Place Inc (PLCE) 2011 Q1 法說會逐字稿

Good day, and welcome to The Children's Place first-quarter earnings call. At this time all participants are in a listen-only mode and later you will have an opportunity to ask questions during the question-and-answer session. Please note the call is being recorded and 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.

Good morning, everyone, and thank you for joining us today for a review of The Children's Place Retail Stores, Inc. first-quarter 2011 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 statement found in this morning's press release as well as in our SBC 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 revision to these forward-looking statements to reflect events or circumstances after the date hereof. And now I will turn the call over to Jane for her opening remarks.

Thank you, Jane, and good morning, everyone. During the first quarter of 2011 net sales increased 2% driven by a double-digit increase in online sales and 6% square footage growth. Net income increased 4% to $29 million or $1.10 per share versus $1 per share last year. Comp retail sales declined 3% in the quarter, which was in line with our projections.

Although we believe the unusually late Easter and unseasonably cool weather had a negative impact on the quarter, our first-quarter sales represented a marked improvement in trend from the third and fourth quarters of 2010 when comp sales declined approximately 6%. Let's start with sales by channel.

US comp store sales declined 4.9% during the quarter. From a regional perspective the West and Southwest were the best performing regions and the Midwest and Rockies underperformed due to less favorable weather versus the year before.

As you may remember, we ended the fourth quarter with 39% less carryover inventory than the prior year. This had a significant impact on comp sales in the Place stores during the first two weeks of February as we were up against clearing heavy holiday inventories the prior year.

In the outlet channel the reduced carryover inventory negatively impacted comp sales and traffic throughout the entire first quarter. While outlets had weaker comp sales they delivered meaningful improvement in margin for the quarter as a result of lower clearance levels and improved merchandising which drove increases in AUR and average transaction value.

eCommerce sales increased 24% during the quarter due to a significant increase in transactions coupled with a slight increase in average transaction value. Canada comp sales declined 9.7% primarily due to the unseasonably cold and wet weather which gripped the country for most of the first quarter. Canada stores were also impacted in early February by the lack of clearance. Value center comp sales continue to outperform the rest of the fleet. We now have 114 value center stores which is about 11% of the fleet.

Now let's move to margin. Merchandise margins expanded during the quarter in spite of higher product cost. The AUR and average transaction value increased due to improved merchandise assortments, disciplined inventory management and selective price increases. The AUR increases were particularly strong in girls due to positive consumer acceptance of our spring and summer lines and our greater focus on differentiation by age.

Assembling a strong leadership team was my top priority when I joined the Company, and we made several key management appointments since our last earnings call. Eric Bauer joined The Children's Place this week as Chief Operating Officer. He brings a wealth of operational expertise across finance, planning and allocation, store operations, store development, logistics, distribution and information technology and will be a tremendous asset going forward.

Michael Giannelli joined the Company in March as Head Designer. He has extensive experience designing children's apparel and accessories and has already made an impact on our spring 2012 line.

And Bruce Marshall also joined the Company in March as Head of International. He is a leading our effort to develop a roadmap for international expansion which offers a significant growth opportunity.

Now to update our five key growth initiatives and the progress we have made. Number one, improving the merchandise. We made meaningful progress in improving the merchandise for spring and summer 2011 and our new designs resonated well with our customers.

Girls was the highlight of the quarter as we improved from a negative low teen comp in holiday to a negative mid-single-digit comp for the first quarter. Business was driven by trend right fashion and more productive key items including graphics, matchables and active separates. The biggest AUR increase was in the girls division resulting from much improved and more differentiated assortments for the first quarter.

Within the girls division, big girls, which accounts for the majority of the sales, delivered the strongest comp improvement driven by skirts and sports, knit bottoms, sleeveless knits, woven tops and graphic tees.

Accessories continue to deliver strong comps driven by newness in jewelry, fashion sleepwear, casual shoes, sandals and flip-flops. Boys had a positive AUR for the quarter and continued to perform well driven by short-sleeved knits, graphics and shorts.

In outlets we improved the merchandising during the first quarter by making stronger statements of key item programs at compelling price points. We were dramatically cleaner on carryover inventory which allowed us to merchandise key item programs at great values with full size ranges versus the broken clearance assortments we had last year.

We introduced outlet specific window and marketing campaigns and we began the transition to a dedicated outlet field management team. We will be introducing our first made for outlet assortments for back to school. Made for outlet product will account for approximately 15% of the assortment in 2011 compared to 3% last year.

On the downside, holiday carryover sales versus last year were a major negative due to the quarter -- a major negative to the quarter and dress up product, including woven bottoms and sweaters, underperformed due to the unusually late Easter. Newborn improved sequentially but continued to lag the other divisions.

Number two, accelerating new store growth with a focus on value centers. We opened 42 new stores in the first quarter and we expect to open a total of 70 new stores during the first half of 2011. To put these numbers in perspective, 70 stores is more than we opened in all of 2010 and more than we opened in fiscal 2008 and 2009 combined. For fiscal 2011 we expect to open approximately 85 new stores.

Our store development team continues to shorten the buildout time and bring down the cost for new stores. About half the new stores this year will be in value centers and smaller markets which are comping above the chain average and delivering the strongest ROI. Bruce Marshall is developing a roadmap for international expansion and this is a long-term initiative which we will talk more about on future calls.

Number three, improving inventory management. We ended the first quarter with inventory per square foot down 1% and carryover inventory down 15%. Our more disciplined inventory management resulted in an AUR increase for the second quarter in a row following five consecutive quarters of declines.

As we continued to reduce the level of clearance inventory, particularly in outlets, merchandise margins expanded. Channel specific planning will be in place by the third quarter of 2011 and we created climate specific assortments starting with our hot and tropical assortment that will deliver in the fourth quarter of this year.

Number four, sharpening our marketing message. We developed a strong promotional calendar for the first quarter to help offset the challenges of the unusually late Easter. We ran a Place cash event in March which redeemed at the same time as Easter last year followed by a friends and family event in early April to help drive traffic and conversion pre Easter.

We are continuing 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 enhanced the capabilities of our in-house customer database so that we can develop personalized marketing messages for key customer segments. And as we mentioned last quarter, we have a search underway for a CMO who will help us continue to strengthen our marketing efforts going forward.

And number five, driving eCommerce growth. eCommerce continues to be a strong growth engine for us with sales up 24% during the quarter. We expanded our online Place shop to include communion and christening outfits, flower girl dresses, baby shower gifts and newborn bedding. We also introduced a Hello Kitty shop which is proving to be very popular. And we launched our Canada eCommerce site on April 29 and initial sales are encouraging.

Now I want to move on to product costs which are impacting all apparel retailers in 2011. As we've discussed several times, 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. Customer acceptance of the modest price increases on the spring and summer lines are evidenced by the higher AUR and higher average transaction size we generated in the first quarter.

Looking forward to the second half of the year, cotton prices were at a record high when we purchased back-to-school and holiday assortments. Retails will increase in the second half of 2011; however, we bought unit inventory much more conservatively for the back half of the year as we do not know what the price elasticity will be in the third and fourth quarter.

We will be completing the Spring 2012 buy in June. Cotton futures have begun to ebb from their record highs, but costs for Spring 2012 will remain above Spring 2011, although favorable compared to holiday 2011.

Now I want to talk about our second-quarter guidance. Our guidance for the second quarter is a loss per share of $0.38 to $0.43. And the key factors behind our guidance are -- number one, comp sales. We're facing a difficult comparison. We generated the highest quarterly comps during the second quarter last year driven by our need to clear poorly performing excess inventory.

Number two, expense. This year we expect to open 36 more stores in the first half of the year versus last year and this will drive new store costs up in the second quarter which is our lowest sales quarter of the year.

Inventory. With our disciplined receipt strategy this year we anticipate carryover inventory will be down double digits at the end of the second quarter.

And margin, we expect merchandise margins and gross margins will be higher than last year due to improved product and our disciplined approach to inventory management. However, this will not make up for negative comp sales and the higher SG&A associated with the timing of our new store openings.

In closing, we delivered first-quarter sales and margin as projected and beat our earnings target through effective expense management. We plan to approach the balance of 2011 conservatively in light of the continuing economic challenges and product cost headwinds. Our customer continues to be negatively impacted by the higher gas and food prices and remains very conservative in her spending.

We have a talented leadership team in place and they're making great progress on our five key growth initiatives. We believe The Children's Place has significant long-term growth opportunity and we are focusing all of our efforts on positioning the Company to deliver sustainable and profitable growth going forward. Now I'll turn it over to John Taylor who will review our financial results and update our outlook. John?

Thank you, Jane; good morning, everyone. Net sales for the first quarter ended April 30, 2011 increased 2% to $430.8 million, comparable retail sales declined 3.2%. A 3% increase in average transaction value was offset by a 6% decline in transactions. Average unit retail increased during the quarter. Units and units per transaction declined.

Comparable store sales declined 5.6% and eCommerce sales increased 24% during the quarter. Regionally come sales were strongest in the West and Southwest and weakest in the Rockies, Midwest and Canada.

By Department accessories were strongest. Boys and girls performed better than newborn. By store type value centers performed above average, outlets were below average.

The increase in net sales for the quarter was primarily the result of growth in our store base. At the end of the first quarter 2011 we had 70 more stores than last year and double-digit growth in eCommerce sales. ECommerce sales, including shipping and handling, represented 9.7% of sales in the quarter.

Gross profit dollars increased 2% to $183.6 million during the first quarter. Gross margin remained flat compared to last year at 42.6% as an increase in merchandise margins was offset by deleverage of distribution and occupancy expense.

SG&A spending was $116.7 million during the first quarter, a 3% increase compared to last year due to higher spending for new stores and somewhat higher administrative expenses. SG&A as a percentage of sales deleveraged 20 basis points to 27.1%.

Depreciation and amortization expense as a percentage of sales during the first quarter was 4.1%, similar to last year. Operating income increased 2% to $48.8 million compared to $47.7 million last year. Operating margin was essentially flat at 11.3% of sales. Our effective tax rate for the quarter was 40%.

Net income from continuing operations increased 4% to $29.1 million or $1.10 per diluted share in the first quarter of 2011. This compares to net income of $28 million or $1 per diluted share in the first quarter of 2010. Our diluted weighted average share count for the first quarter was 26.4 million shares.

Moving on to the balance sheet, our cash balance at the end of the first quarter of 2011 was $212.3 million compared to $225.7 million last year. We were able to maintain a sizable cash balance while repurchasing approximately 2.3 million shares at a cost of $108.4 million over the past 12 months.

Net cash provided by operating activities was $57.2 million in the quarter. Balance sheet inventory at the end of the first quarter increased 5.7% compared to last year, inventory per square foot declined 1%.

During the first quarter we opened 42 stores and closed five. At the end of the quarter we operated 1,032 stores with a total of approximately 5.1 million square feet which represents a 6.3% increase.

Moving on to guidance for the second quarter and fiscal 2011, for the second quarter of 2011 we are projecting a loss from continuing operations in the range of $0.38 to $0.43 per share, assuming negative low-single-digit comparable retail sales. We expect gross margin expansion will be more than offset by increased SG&A spending during the quarter due to higher store expense associated with the accelerated rollout of new stores and somewhat higher administrative expenses.

For fiscal 2011 we now project earnings to be in the range of $3.10 to $3.25 per diluted share assuming flat comparable retail sales. This guidance assumes that currency exchange rates will remain where they are today and does not include the impact of further potential share repurchases in fiscal 2011.

To briefly summarize our share repurchases during the first quarter of 2011, we repurchased 372,000 shares for approximately $18.4 million. We completed the $100 million share repurchase program announced in August 2010 and repurchased approximately $8.4 million of the new $100 million share repurchase program announced in March 2011.

In terms of inventory, we expect to end the second quarter with total inventory per square foot up mid-single-digits compared to last year due entirely to in transit inventory. As you know, disciplined inventory management has been and continues to be a top priority of this management team. We bought unit inventory much more conservatively for the back half of 2011, but we are making significant changes in the timing and the size of our floor sets in 2011 in order to bring in fresh clothes more quickly.

This is one of the key of planning and allocation initiatives that we expect will drive higher traffic and conversion in stores. As a result we will have significantly more inventory in transit at the end of July this year in order to support a major floor set planned in the third quarter. Excluding in transit, inventory per square foot will be down mid-single-digits at the end of the second quarter as a result of our disciplined receipt strategy. Now we'll open the call to your questions.

(Operator Instructions). Tom Filandro.

Hi, thanks, a couple of questions. First, I think, Jane, you mentioned that the sandals and flip-flops were strong spring trends. Can you expand your comments on footwear classification in terms of comp and margins? And do you believe the commitment to footwear in spring was appropriately balanced?

And then my next question is related to John's comment on inventory and flow. Can you give us a better sense of how we should think about your flow of product for this summer and back-to-school season in comparison to last year? Thank you.

Sure. Yes, the footwear business -- we're very committed to the footwear business. As far as flip-flops are concerned, we introduced an upgraded flip-flop this year versus where we've been, we still kept our basic flip-flop and introduced a new one and those did particularly well for us.

As we move into the second half of the year we will be putting even more focus on footwear, if you will, across all stores. We have 40 stores that still have the boxed shoe assortment and we will be changing them over to hanging in June which will only leave us with nine outlet stores that are still boxed, so we feel strongly about that.

Overall, as I said, we feel good about the footwear business and what we can do going forward. And the team has done a good job getting the margins up in that area as well.

On the inventory flow, we are going to be delivering receipts -- in mid-June is when our first transitional setup happens and then we deliver a back-to-school fall setup in mid-July. The mid-July back-to-school setup will be more robust than it was last July and the August flow will be smaller than it was last August.

Thank you, best of luck.

Thanks.

Rick Patel.

Hi, good morning, everyone. Can you just give us a little bit more detail around the price increases you tested in the first quarter; perhaps quantify them if you can? And which categories are responding best versus where you're seeing the most resistance?

Well, the price increases in the first half of the year were moderate price increases and they were in some fashion product and basically in denim product and a couple of the key items. We've seen our AUR increase in the first quarter and we've seen our [ADF] increase in the first quarter, so we feel that there really hasn't been customer resistance to those price increases that we took.

And as we think about the back half of the year should we expect average ticket to be up across every category if we look to maintain ticket in some areas?

No, I think when you look in the second half you're going to see price increases more across the board than you did in the first half.

Janet Kloppenburg.

Hi, Jane. How are you?

Hi, Janet.

I just wanted to touch on the price increases versus the promotional level. It's hard for me to know where you are. I see the prices going up, but then I see a lot of good value in the store, too. And I'm wondering if that will continue into the back half or if you think that because of the strength of the product you might be able to be a bit less promotional on the back half and therefore drive even higher AURs?

And I also have a question on clearance inventories, whether or not the clearance -- the fact that you had more clearance inventory last year versus this year is going to continue to be a comp deterrent in the back half of fiscal '11? Thanks.

Sure. I think as far as the price increases are concerned, I think the customer has been able to accept them pretty well and I think that you're going to see them increase in the second half of the year.

As far as your question about value, we're going to continue to offer significant value with The Children's Place and continue to be 25% to 30% below our mall-based competitors and we don't see that changing.

As far as the clearance strategy, we're up against a tremendous amount of clearance in the second quarter of last year and we had a lot of excess inventory that we had to clear and we were very, very promotional in the second quarter last year. We see as we get into the third and fourth quarters of this year that abating and we anticipate to start to see comp increases in the third and fourth quarter and continued margin expansion as we move forward in the balance of the year.

Pak Stacy (sic).

Hi, Stacy Pak. You can call me Pak Stacy. So I guess my question -- two things. I'm wondering can you share with us the real impact of the store opening expense in year over year in Q2 that's impacting the guidance.

And then, Jane, I was hoping you could dig a little bit more into the gross margin in Q1, maybe give us some more color by division what happened there and when that gross margin can kind of kick in more going forward?

And then I guess my other question is why do you think newborn didn't get a better response? I thought it looked good. So what do you think is wrong? Do you think there's not enough gifting from that clientele or what do you think is going on there?

Well, newborn did improve sequentially from Q3 and Q4; it just didn't improve as much as the girls division did. So I think we are making progress there. When you look at some of the things that we did online, we put a big focus on newborn with our christening shop and with our baby shower shop and with newborn bedding and we performed well there.

So I think newborn is just a matter of getting the merchandise right and I think as we continue to get through 2011 we will continue to see newborn improve sequentially each quarter. I'm going to hand the rest of the question over to John.

Yes, hi, Stacy. From an SG&A deleveraged standpoint in the second quarter, new store openings are deleveraging versus last year sort of 50 to 100 basis points and it's really driven by -- it's a twofold reason. One, we have preopening costs, so costs associated with getting the store ready for operation with no revenue.

And secondly, those stores start out modestly slow and ramp in the second quarter and we are staffing those stores obviously appropriately. So in the quarter it's a 50 to 100 basis point delever. And gross margin, first-quarter merch margins were better across the division.

And from a country standpoint our margins were flattish in the US and they were slightly better in Canada versus last year. And we did see significant improvement in our merchandise margin in our outlet business as the initiatives that Jane and the team are putting forward are starting to gain traction in the outlet space.

Nicole Shevins.

Good morning, thanks for taking my question. So you've added new accessory displays in recent quarters, can you just remind us what percent of sales your accessories are at and is there a target that you think you can get to over the next few years? Thanks.

Yes, accessories and shoes are about 19% of the business and we feel that we can continue to grow them into the 20s in the low 20s. It's a great business for us, it's additive to margin and it's a business where we do not need to displace any apparel, we have the room in the stores to add it and it's made a nice add-on to the customer as they're doing their head-to-toe outfitting.

Anna Andreeva.

Great, thanks so much. Good morning, guys. I was hoping you could quantify just the merchandise margin increase versus occupancy deleverage in the first quarter. And what were some of the drivers behind merchandise margin expansion, just IMU versus improved mark down rates? And I believe you also had foreign currency helping you?

Yes, hi, Anna. We don't give the specifics, but merch margins really offset occupancy. They were -- merch margin improved in the first quarter really driven by increased markup first and foremost and lower clearance inventory which drove AUR up. We did get a small benefit in the quarter from foreign exchange and markdowns were slightly deleveraged in the quarter versus last year.

Okay, okay, got it. And then just, again, looking out to the second quarter, I'm trying to reconcile the comments about SG&A guidance. What should we expect for total dollar growth in SG&A in 2Q? And then should that moderate for the back half of the year? Should we still expect -- I think previously you guys guided for 30 basis points to 50 basis points deleverage in SG&A on the year.

Yes, we're maintaining our full-year guidance on SG&A for the full year in the 30 basis points to 50 basis points of deleverage. From a second-quarter perspective SG&A is going to grow in absolute dollars in the mid-single-digit range versus last year and we'll deleverage in the 100 basis points to 150 basis points.

Betty Chen.

Thank you. Good morning. I was wondering if you can speak, Jane, a little bit more about some of your learnings from maybe the girls' product. It sounds like a lot of the initiatives around product design and differentiation between big and little are really resonating. What have you learned? Are there any areas that you feel could have further improvement? And I guess related to that, how did you feel about the boys assortment? Thanks.

Sure. Hi, Betty. As far as boys is concerned, boys has always been stronger for us and it continued to do well, so we felt good about where the boys is and where the boys is going. I'm glad you asked about girls because I think really the highlight of the quarter was the girls business. The girls' sales have meant a drag on this Company for quite some time and that has really been where we've been hurt in excess inventory and we've been hurt in very high mark-down rates over the past few quarters.

When you look at what happened in the girls in first quarter and you see the power of that business and how that changed from the mid-teen comp negative to the low negative comp, when you really think about it you step back and you think about girls. A lot of what happened in the first two weeks in February when we didn't have the holiday carryover was responsible for some of that mid-negative comp in girls.

But once we got past that, it really was the shining star. And I really can't point to a category other than maybe dressy sweaters due to the late Easter where we were disappointed. We did well in skirts, we did well in skorts, we did well in knit tops, we did well in dresses, we did well in shorts. And to see that customer come back and respond and to see that AUR increase the way that it did in the girls division was really a testament to how hard that team is working.

And it was really quite remarkable to see the turn in such a short period of time in that business, which has been the toughest for us. When you look at the differentiation between big girls and little girls, the team I think also did a great job of continuing to really make the baby product more appropriate for the baby customer, more outfit dressing, more one-to-one ratios, and then really move that big girl into more trend-right appropriate key items at great value. So it really was terrific to see that this quarter.

John Morris.

Thanks very much. Congratulations on the nice pickup in the quarter.

Thank you.

Just kind of a couple of questions here on the store openings and the timing of the store openings. Did that have an impact on SG&A in Q1? It looks like maybe it didn't as much. So I guess my kind of follow-up corollary question then is why would it have more of an impact in Q2? Is it the timing month to month?

So maybe you can share a little bit of insight there in terms of the timing and why it would have the kind of impact that it has on Q2, other than the fact that obviously you've got lower volumes coming into Q2?

Yes, John, new store openings did have an impact in the first quarter. We were able to offset some of that in other lines within SG&A in the quarter. But in the second quarter due to our low sales volume, the SG&A impact is greater, and that is really because there is a lot -- there is fixed expense.

There is much not as much opportunity in the second quarter to take costs out of our SG&A line, and it is our low volume quarter. And the cost is driven by the activities in the store and our AUR is lower as we're selling smaller ticket items in the summer season. So the SG&A impact from new store openings in the second quarter has more impact, but it did impact us in the first quarter as well.

Marni Shapiro.

Hey, guys, congratulation, and the stores look fabulous. I was just curious if you saw any different trends online than you saw in stores, because the eCommerce business books like it is moving along at a swift pace.

And I was curious if you've thought about -- you've seen good results from newborn online, and it seems to me in talking to new moms they tend to go online to ship gifts. Is there an opportunity to really expand newborn online and make it meaningful there so it will help lift the area over -- the segment overall?

Yes, I think there is a big opportunity to expand newborn as well as some other categories online and we'll be doing that as we go forward. I also think your question about newborn giftables -- Michael Giannelli, our new Head Designer, one of the first things he brought up when he came on board was what an opportunity we have not only in in-line, but he was really focusing in store on how much more and how much better he thinks we can do by having more giftables in the store and more emotional type purchasing.

So I think, as I mentioned in the remarks, I think he's making a big impact on Spring 2012 and go forward. As far as the girls business, I think, like we said, it was really the highlight of the quarter. And I think what we're learning is we're learning that we can really push that business much more differentiated between big and little and still really hold on to the DNA of the brand. So I think as you see us move forward into the second quarter and the back-to-school setup we're just going to continue to see that business evolve.

Kimberly Greenberger.

Thank you, good morning. Jane, I wanted to ask about inventory. You've got a 5.7% percent increased in total coming out of Q1. Can you help us understand, is that being driven by a higher cost per unit and are units flat or down here? And then if you could just help us understand, you said you're buying inventory much more conservatively in the second half of the year, specifically you referred to the unit buy. Does that mean you're buying inventory down in the second half of the year?

Yes, hi, Kimberly, this is John. In terms of inventory at the end of the first quarter, inventory was up 5.7% and that was really driven by -- it was down 1% per foot, so some of that inventory is to support our square footage growth. Unit inventory is down and we do see -- we are seeing cost per unit increases. We're not giving that level of detail in terms of what our unit costs or our unit inventories are down, but they are down substantially.

And in the second half of the year we are going to be buying -- we did buy units down. We do see dollar inventories growing just due to increased cost per unit. But we've made a very, very focused effort to reducing our units in our store and buying our unit inventories down to improve and manage inventory and keep inventories -- keep our inventory discipline focus and drive to enhance our margin opportunities.

Margaret Whitfield.

Good morning and congratulations. I wondered -- you mentioned weather was a factor in Canada as well as in the US. I wondered if you could comment on how the comps trended during the quarter and here in May with weather improving. Also, have you noted any impact from rising gasoline prices? And a flip to that one would it be, with the improved product have you any data points to suggest that you're gaining share or gaining new customers from those higher ticket competitors? Thanks.

Sure. When you look at the comps, we were hurt in the first quarter throughout all of Canada by weather and then most particularly in the Midwest and the Rockies which were our most difficult regions. And when you look at the answer as far as gas prices, our consumer remains cautious and our consumer is a more value consumer. And I think it's pretty well known that the gas prices and food prices are impacting her.

I think that we'll see as we move into the second half of the year that she's going to have to make some difficult choices because that's when we'll see most of the apparel increases happen. But I think that we're well positioned as a value player and we will continue to maintain our position at 20% to 30% below a lot of the mall-based competitors.

So I think the opportunity for us to continue to look for opportunities to gain share are there. The first-quarter numbers aren't out yet so I can't really comment on that. And then as far as May is concerned, we don't really comment on where our comps are by month. I can tell you that obviously April was our strongest month with the late Easter.

John Zolidis.

Hi, good morning. A couple of questions. First, I wanted to ask on the quarter if you looked at March and April together, how did that business -- how was that period?

We looked at March and April together, we always do based on the Easter shift, and that -- it was pretty consistent with our expectations for that two-month period. We had a strong promotions in March which was designed to mitigate some of the traffic drop from the Easter shift and Easter -- and April of course was benefited because of the Easter shift.

The challenge that we faced in the quarter was really in the beginning of the quarter as we were up -- we had 39% less carryover inventory as we entered the quarter and we were up against Easter dressy in the beginning of the quarter and that shift -- and we set that later.

Okay. So business improved in the later months. A question on the outlets, I don't understand why the made for outlet product is only going to 15% from 3%. I guess in the context of carryover inventory being down as much as it is and how you planned it for the year, it would seem that you won't have enough goods to put through the outlets and that therefore the outlets will be a drag on comps throughout the balance of the year.

Can you just talk about the thinking behind what percentage of the goods you'd like to have made direct for outlets and how that business is going to work out?

Yes, I think when you look at the 15% going forward, Mark Polinski, who's leading the effort out in outlets, has been able to make some very advantageous buys into key items. A lot of what's going to happen in the outlets in the second half of the year is we're going to own the category much deeper.

For instance, we'll own fleece much deeper, we'll own denim much deeper, we'll own key item T-shirts much deeper, we'll own the appropriate shoes. So there will be a big style cut and a SKU cut and much more focus on owning key items in the colors and in the sizes.

So when you look at the 15%, the 15% is really the exclusive outlet only product that you won't see in the Place stores, but there is a dramatic difference in the overall blend of what the outlets are going to carry going forward. And we're already starting to see as Mark is putting that into place significant margin expansion in the outlets which is what we were anticipating.

As we move towards 2012 the percentage of exclusive will go up dramatically and be north of 50% made for outlets. And I don't -- I do see that there will be a little bit of volatility in the top-line of outlets as we move towards rightsizing those inventories and getting those inventories where we want to own them by classification. But I don't see a long-term outlet top-line drag based on what I know about what we're doing for second half.

Dorothy Lakner.

Hi, everyone, and congratulations. I just wanted to follow up on that last question. First of all, so there will still be some volatility in the top-line at the outlets as you make that transition towards more made for outlet product, but what I'm hearing too is that the profitability is getting better and that should continue even with the volatility in the top-line, is that fair?

Yes.

Okay. And then just turning to the value centers, because that's been certainly a big part of the expansion strategy. I wonder if you could just give us a little bit more color on the improvements there. You've talked about ROIs in the past and I just wondered if you could put a little more color also on the shorter build out times and lower costs that you've been able to get?

Yes, hi, Dorothy, this is John. In terms of value centers, the value centers are -- have been the most profitable format for us from a four wall contribution standpoint. The value centers, we had 50 -- we have 115 or so value centers, we had -- we've been growing that, that's about 11% of our fleet; we think we can grow value centers to 13% or 14% of the fleet by the end of the year.

The ROIs continue to be strong and they're strongest format relative to the other formats that we're opening. They have lower volumes on average and sales per foot is lower just because of the traffic impacts to those stores. And their square footage is relatively the same size, but the buildout costs continue to come down, the occupancy costs are substantially lower and we're able to really drive nice improvement in four wall contribution.

Lee Giordano.

Thanks, good morning, everyone. Can you talk some more about the evolution of your marketing efforts and the expected marketing spend over the next few quarters relative to last year? And then also do you typically invest in any store specific marketing or store opening events particularly in the value centers? Thanks.

Yes, as far as the spend on marketing is concerned, percentage wise we anticipate being pretty flat for the year, up a little bit in dollars. We are going to continue to be -- I think as you look at overall marketing going into the third and fourth quarters, the team has been here for a while now and I think that we have a good handle on where the business is going from a marketing point of view.

So I think we have some very interesting promotions in store for the balance of the second quarter and then into third and fourth quarter around back-to-school and around holiday. From a new openings -- we do not a lot, I mean it's not -- it's very, very small, nothing major that the strategy to talk about there.

Richard Jaffe.

Thanks very much. A follow-on regarding the outlet center merch and unique merchandise opportunity. I'm wondering what the pace might be for that outlet center getting unique merchandise as we enter 2012. With 15% in the second half do you see that increasing dramatically? And do you -- as part of that thesis, will you be doing all your clearance efforts in store, not consolidating into the outlets?

We see the made for outlet product being north of 50% when we get into 2012. And a big part of the margin expansion that we're anticipating for The Children's Place is coming from disciplined receipt management and a big piece of that disciplined receipt management is not owning the level of goods and not transferring those level of goods from the Place stores to the outlets as we had done in the past. So we do consider that the Place stores will be self liquidating other than some end of season or end of year cleanup efforts that we'll need to make.

Dana Telsey.

Hi, good morning, everyone. Talk a little bit about on the price tag where you changed some of the prices to $0.95 endings, how is that being received? And also, will there be any more of that in the second half of the year? And just lastly, gross margin by channel or mix shift, any differences or opportunities? Thank you.

Sure. Well as far as the $0.95 endings that we've seen on the tickets, yes, that will continue as we go into the second half and we really have not seen any resistance from our consumer on those endings.

And from a gross margin standpoint, Dana, the opportunity that we see over the longer term is to improve gross margins in the outlet business through the outlet initiatives and that should bring our gross margins up by channel. Our margins traditionally have been stronger in Canada, and so to the extent we can continue to improve that business that should help us from a mix standpoint.

And at this time I'd like to turn the conference back over to Mrs. Jane Singer for closing remarks.

Thank you for joining us today. If you have any further questions please call me at 201-453-6955. And thank you for your interest in The Children's Place.

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