Children's Place Inc (PLCE) 2016 Q2 法說會逐字稿

Good morning and welcome to The Children's Place second-quarter 2016 conference call. Thank you for joining us this morning.

With us here today are Jane Elfers, President and Chief Executive Officer; Mike Scarpa, Chief Operating Officer; and Anurup Pruthi, Chief Financial Officer. A copy of the press release can be found on the Company's website.

Before we begin I would like to remind participants that any forward-looking statements made today are subject to the Safe Harbor statement found in this morning's press release, as well as in the Company's SEC filings. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof.

In addition, to find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our investor relations site. (Operator Instructions)

I will now turn the call over to Ms. Jane Elfers.

Thank you, Crystal, and good morning, everyone. We delivered another outstanding quarter. Based on these results and the consistently positive customer response to merchandise assortment, we are raising our guidance for the full year.

We continue to demonstrate our ability to deliver on our transformation strategy, which includes superior products, business transformation through technology, global growth through alternate channels of distribution, and store fleet optimization, despite the challenging retail environment and the continued weakness in store traffic. These strategic initiatives are led by a best-in-class management team and supported by a foundation of operational excellence.

For Q2, adjusted operating income was slightly positive, a $9 million increase compared to last year's second quarter, resulting in an adjusted loss per diluted share of negative $0.01 compared to negative $0.33 in the second quarter of 2015. We delivered a comp retail sales increase of 2.4%.

We had positive comps in all channels: US comp sales increased 2.3%; Canada comp sales increased 3.2%. We have leveraged our adjusted gross margin by 200 basis points from Q2 to 33.4% compared to 31.4% in 2015. We leveraged our adjusted SG&A by 50 basis points in Q2 to 29.1% compared to 29.6% in 2015.

We increased our adjusted operating margin by 240 basis points in Q2 compared to 2015 and our inventories entering Q3 are in excellent shape. We ended the quarter with total inventory down 5.6% and that's on top of a 7.4% reduction in inventory for the second quarter of 2015.

We continue to return a significant amount of capital to shareholders. Prudent cash flow management and our strong balance sheet have allowed us to consistently reward shareholders. We returned $86 million to shareholders year-to-date through the repurchase of over 1 million shares and dividend payments. And since 2009 we have returned over $710 million to our investors through share repurchases and dividends.

Turning toward the current state, customer response to our back-to-school assortment has been strong. We have cycle through all the tax-free events except Connecticut. We are pleased with our results and want to commend our field organization for their outstanding execution of these very important events. We are not going to get into specifics regarding product, category, or division selling, but what we will say is that all of our key back-to-school categories across all of our channels are performing well.

As far as the current promotional environment is concerned, we are in a very promotional sector inside of a very promotional retail environment. We expect the environment to continue to be promotional due to a number of factors, including a target consumer who is under pressure, weak traffic, and inventory buildups with respect to some of our competition.

Our strategy is to continue to become a proficient, global, omnichannel operator and to compete and win with superior products and strong inventory management. As you can see by our results, we think it's a winning strategy.

Now I will turn it over to Mike.

Thank you, Jane, and good morning, everyone. We continue to make substantial progress on implementing our transformation roadmap and are very encouraged with the results thus far. We have a significant runway ahead of us and opportunity to continue to deliver improved operating results. Here's a brief update on each of our major transformation initiatives.

Inventory management. As you saw in today's release, strong product acceptance, along with our inventory management initiatives, are driving merchandise margin expansion and inventory productivity gains. We are planning to go live with phase one of our size and pack optimization tool in the third quarter with the summer of 2017 buy. This tool will optimize the size curve and pack sizes for initial and flow orders to our stores, further strengthening our capabilities of driving inventory capability and allocation efficiency.

We continue to execute a Q4 pilot of our order planning and forecasting tool, which will influence select categories for the back-to-school 2017 season. This tool will automate and enhance the precision of our basic inventory reorders. We plan to fully deploy this tool in the first half of 2017.

We began piloting markdown optimization analytics during the quarter. We are encouraged by the pricing recommendations generated thus far. We plan to continue this pilot through the third quarter before determining next steps.

Digital capabilities. Our 2016 digital initiatives remain on track. These initiatives are part of a comprehensive digital transformation roadmap that is focused on enhancing our e-commerce architecture and omnichannel capabilities.

We launched improvements to enhance our mobile site at the end of the quarter, significantly improving check out and search capabilities. We are experiencing higher traffic and improved conversion rates on mobile as we continue to strengthen our capabilities as part of the digital roadmap.

We are on track to pilot reserve online/pickup in-store as our first omnichannel initiative in the third quarter in 102 stores across three states. We will incorporate learnings from this pilot in designing future omnichannel use cases.

The redesign of our loyalty program in conjunction with the migration to Alliance Data Systems as our new private-label credit card provider is planned to occur in the third quarter of this year, providing significant opportunity to increase membership and enhance the value proposition of our loyalty and private-label credit card programs in the future.

Fleet optimization. Our store fleet optimization initiative continues to drive positive results. We are maintaining our targeted level of store closures at 200 in the period from 2013 to 2017, including the 115 stores already closed.

Channel expansion. In our wholesale business, during the second quarter we successfully piloted a replenishment program with our major detailing customer, which we will continue to roll out over the balance of the year. This will enable us to scale this business over time.

In international, we opened 13 new points of distribution in the second quarter and now have 123 points of distribution, which consists of stores, shop-in-shops, and e-commerce websites operated by our partners. We are on track to open approximately 40 points of distribution in 2016.

Finally, we are encouraged by the opportunity for our brand in China and are on track to begin selling online in that market in the late 2016/early 2017 timeframe.

Now I will turn it over to Anurup.

Thank you, Mike. Good morning, everyone. In the second quarter we delivered an adjusted loss per diluted share of $0.01, compared to a loss of $0.33 per diluted share in the second quarter last year. Comparison to the second quarter of 2015 was negatively impacted by $0.02 due to foreign exchange.

Details for the second quarter are as follows. Net sales increased 1.4% to $371.4 million. Comparable retail sales increased 2.4% compared to a negative 3.5% comp in the second quarter of 2015, exceeding our guidance of 1% to 2% comp sales increase. Adjusted gross margin for the quarter leveraged 200 basis points versus last year to 33.4%, compared to our guidance of an increase of 130 to 180 basis points.

We benefited from a strong merchandise margin increase, higher AUR, and lower AUC, with fixed-cost leverage resulting from the comp. Strong product acceptance and our new inventory management tools have now generated six consecutive quarters of increases in merchandise margin and AUR.

Adjusted SG&A leveraged 50 basis points compared to last year to 29.1%, compared to our guidance of 70 to 80 basis points in deleverage. The leverage was in part a result of the higher comp sales and decreases in store and administrative expenses, which were partially offset by increased incentive compensation expenses.

Depreciation was $15.9 million for the quarter and deleveraged 10 basis points, reflecting increased depreciation associated with certain transformation-related systems. Adjusted operating income leveraged 240 basis points compared to our guidance of leverage of 20 to 80 basis points.

Moving on to the balance sheet, our cash and short-term investments at the end of the quarter were $246 million compared to $205 million last year. We ended the quarter with $44 million outstanding on our revolver, compared to $30 million last year.

Balance sheet inventory. Inventory at the end of the quarter was down 5.6% compared to our guidance of a low single-digit decrease. This is on top of a 7.4% decrease in the second quarter of 2015.

It is important to note that we have now had seven consecutive quarters of inventory reduction. We are pleased with these results.

We generated $75 million in cash flow from operating activities year-to-date compared to $40 million last year, an 88% increase. Our strong cash flow and liquidity profile provides us with the financial flexibility to continue to fund our strategic initiatives and return capital to shareholders.

Now let me take you through our guidance. This guidance excludes certain costs or events that are set forth in our non-GAAP adjustments included in this morning's press release.

Full-year 2016 guidance. We increased FY16 adjusted EPS guidance to a range of $4.60 to $4.70 per share compared to our previous guidance of $4.17 to $4.27 per share. This guidance range assumes that currency exchange rates will negatively impact adjusted EPS by approximately $0.08 for the full year.

We expect comparable retail sales for the year to increase low single digits compared to last year. We expect adjusted gross margin to leverage 110 to 130 basis points compared to last year. We expect adjusted SG&A to leverage 20 to 30 basis points compared to last year.

We project adjusted operating margin to be in the range of 7.7% to 7.8%, an increase of 130 to 140 basis points compared to 2015. This would represent a two-year increase of 210 to 220 basis points, substantial progress towards our goal of a double-digit operating margin. This full-year guidance reflects a second-half 2016 outlook that assumes positive low single-digit comparable retail sales and adjusted operating margin leverage of 30 to 40 basis points compared to last year.

Third-quarter guidance. We are projecting third-quarter adjusted income per diluted share in the range of $1.93 to $2.01. This guidance range assumes that currency exchange rates will negatively impact this result by approximately $0.03.

We expect that comparable retail sales will increase low single digits. We expect adjusted gross margin to leverage 80 to 90 basis points compared to last year. We expect adjusted SG&A to increase $7 million to $9 million or deleverage 160 to 170 basis points compared to last year.

As you may recall, this reflects the impact of a significant shift in incentive compensation expense from Q3 2015 to Q4 2015 that we discussed with you on the last call. Our third-quarter guidance assumes that depreciation will be approximately $16.5 million, deleveraging 10 basis points compared to last year. We project adjusted operating margin to deleverage 70 to 90 basis points compared to last year.

We are guiding inventory to be up low to mid single digits at the end of the third quarter compared to last year, primarily due to the timing of receipts. Our future unit buys show a decrease in the low single-digit range, notwithstanding timing of receipts.

Lastly, here is additional guidance for FY16. We expect our adjusted tax rate to be approximately 34% for the year. We expect apparel AUC to be down low single digit for the year compared to 2015. We continue to forecast another year of strong cash from operations in 2016.

Our CapEx is expected to be approximately $50 million to $55 million for the year. We plan to open seven stores and close approximately 30 stores in 2016.

At this point, we will open the call to your questions.

(Operator Instructions) Anna Andreeva, Oppenheimer.

Thanks so much. Good morning, guys, and congrats, great quarter.

I guess my first question is: looking at the implied fourth-quarter guide, I think at the low end assumes about $0.10 of upside to current consensus. I guess, Jane, can you talk about how you think about opportunities for holiday? You mentioned basically the tough backdrop for value kid's space. How do you think about opportunities, whether by channel or product category? Thanks.

I think if you look at our guidance, as you are mentioning, I think there's many areas of concern that we are considering today, starting with a consumer who is under pressure, consistently weak mall traffic, depressed sales, and somewhat bloated inventories at some of our competitors, which I think all adds up to taking a disciplined approach to the back half of the year.

As you might've seen, we raised our guidance from $4.17 to $4.27 to $4.60 to $4.70. So I think you can safely say we are confident in the back half of the year, but at the same time I think disciplined with respect to realities of the environment.

Jay Sole, Morgan Stanley.

Thank you. The inventory -- the progress on reducing the amount of inventory dollars; obviously seven straight quarters of declines year over year has been very noticeable. And my question is: do you have a goal for inventory days, thinking out beyond just next quarter?

In the past inventory days were 75 to 80, but at the end of 2015 it was still 90 days. So can you talk about maybe where you see inventory going and how that relates to your kind of double-digit operating margin goal?

Jay, it's Anurup. We have entered Q3 with our inventories in really excellent shape. We have now had seven quarters of inventory reductions in a row. Inventory was down 5.6% at the end of Q2, which is on top of a negative 7.4% decrease a year ago.

Clearly, strong product acceptance and our recent inventory management tools are clearly driving inventory productivity, allocation efficiency, and we are seeing a lot more productivity from overall inventory management. As we look forward, our view is that we will -- we do see our unit buys being down low single digits as we step into 2017. We see them down about 7% for the 2016 buys.

Our focus is really about continuing to drive productivity, maintaining a healthy delta between our overall comp sales and our inventory numbers, and I think we've now seen seven quarters of that being done successfully.

Adrienne Yih, Wolfe Research.

Good morning and let me add my congratulations. It was very nicely done in a tough environment.

Jane, if you can talk about -- if you can give any color on the comp progression during the quarter and how much of back-to-school do you have behind you. I know there used to be like a post back-to-school, a second pop, and lately we just haven't been seeing that. So how much of the back-to-school is completed?

Then, Mike, can you discuss a little bit more the replenishment program that happened in 2Q with your major e-tailer and how much larger that gets? It sounded like there was an acceleration for the third quarter.

And, Anurup, one for you as well. On the unit buys, down low single digits in units, which would imply AUC is down greater in dollars; how can long can that kind of AUC -- how long does that flow into 2017? Thank you very much.

Sure. I'll start with the back-to-school question. The way I think about back-to-school is I think about it as pretty much a seven-week season, so four weeks of August, the last two weeks of July, and pretty much the first week of September into Labor Day.

For us at Children's Place it's all about big kids and select accessory categories. We really don't spend a lot of time on the toddler business or the baby business during those seven weeks. We really put our full attention behind the big kids and some of the accessory businesses that work for back-to-school, and we put a huge focus on the tax-free events.

As I mentioned in my prepared remarks, we are through all our tax free events. Maryland is still going on this week, but we have enough information to know how that's going to turn out, and Connecticut is next week. So we are extremely pleased with how those events turned out, as we said, with our field execution of them.

We will still see builds in the East Coast in the next couple weeks because, as you track when certain states and regions go back to school, the Northeast, the area around here, is an area that goes back last, so their peak is still ahead of them. And then post Labor Day, as we said, it really starts to shift much more from those key category businesses to more of a fashion into the mix. And certainly baby and toddler become more important in the beginning of September. So we're feeling pretty good about where we are right now.

With the systems work that we undertook in 2015 and completed in 2016, we are now in a position that we can begin to scale some of the alternate channels of distribution. So we took on this replenishment pilot with this major e-tailer and completed the pilot in the second quarter. It will roll out through the end of the year, which we believe will enable us to scale this business over time.

Roughly 20% of the styles that we plan to roll out were used in the pilot, so we have a pretty long runway ahead of us as we go through the end of the year. And we have sourced these items out of the existing assortment that we have specifically for this replenishment program and have geared our warehouse to be in a position to turn around these automated EDI orders on a weekly basis in a 72-hour window, so we are ready to go for it.

As far as AUCs go, we've seen the positive impact of AUCs since the second half of 2015 with apparel AUCs down low single digits. And this low single digits is obviously a net of the investments we continue to make in our number one strategy, which is product.

At this point in time, based upon our future unit buys being down single, we still see AUCs at this point in time as a tailwind going into 2017. There has been a recent blip up in cotton prices, but our global sourcing teams -- with country migration strategies in place, we believe we should be able to offset that as we look at the early part of 2017 at this point in time.

So I think, in summary, we see unit buys down low single digits and AUCs continuing to be down low single digits at this point in time.

Janet Kloppenburg, JJK Research.

Good morning, everyone. Congratulations. Couple of quick questions.

Jane, I was just wondering -- I know you won't talk about categories or anything, but if you could maybe talk a little bit about wear-now strategies this fall versus last fall and perhaps any other merchandising strategies that you put in place to capitalize on the back-to-school opportunity. I think the assortments have much more wear-now year over year and maybe you could talk a little bit about that or other strategies.

And for Mike, I was wondering with all the system implementations if you -- where you thought the gross margins could go. I think historically peak gross margins have reached 40%. I'm wondering how soon -- if you can get there and how soon.

And for Anurup, it feels like your SG&A leverage point is moving down. The comp was a little bit above your guidance at 2.4%. The leverage was significantly better than expected. Perhaps you could talk a little bit about that. Thanks so much.

Sure. On the product, as we said, for back-to-school -- for the back-to-school period that is behind us now, we are really focused on big kids and we are focused on accessories categories. That seven weeks of business is all about those key categories, so from a wear-now point of view that wouldn't really affect those key categories. Those categories are the categories they are.

The fashion quotient that happens in the big kid's part of the business for back-to-school is really in the girl's side of the business, not in the boy's side of the business. And when you look at the girl's fashion that we do have on the floor, I think it looks terrific. It's certainly doing very well.

And I think that we've spent a lot of time over the past couple, several years really focusing more and more each season into wear-now, so there really is no difference or no strategy change-up there. I think the product does speak to the weather and that's why -- part of the reason why it's successful.

Janet, we have had our assortment planning system and allocation and replenishment system in effect for about 12 months now and you can see the impact that it has had so far on our margin expansion and inventory productivity. We talked about delivering three more tools to inventory management over the short timeframe -- order planning and forecasting, size and pack, and markdown optimization -- which we believe will continue to help drive the results, but at this point we are not quantifying specific gross margin targets.

Janet, on SG&A the overperformance on guidance was a result of the increased comp, about 40 bps was due to that, and we had a net cost control of about $3 million. This is really a testament to the management team, because we have several initiatives in the stores in corporate areas, in our efficiency and marketing, and so on. And all of this is why we continue to invest in our transformation strategies.

Susan Anderson, FBR Capital Markets.

Good morning. Congrats on a really good quarter, you guys.

So a couple questions for Jane. Maybe if you could just update us on baby. I know everyone is focused on back-to-school right now, but maybe just your thoughts around how it has been performing and then if you still expect that mix to maybe grow over time.

Then also, as we look out to winter, the season, I know last year you were very conservative on outerwear. How are you thinking about it this winter, especially as you become more -- you are doing more wear-now product out there?

Then one last one on the operating margin goal, it looks like you guys are obviously quickly on your way there to double digit and I think you guys had called out 10% historically. Just given the success you've had so far with your initiatives, any thoughts around maybe getting there sooner or even maybe getting above that goal longer term? Thanks.

Sure. From a toddler point of view, as we said on the call today, we don't put a lot of time into toddler during the back-to-school time period. However, as we mentioned, we comped positive in all channels, so I would tell you the toddler business is alive and well. It will become more important when we get into September when people start to do their baby sales and their toddler sales.

As far as the comment on outerwear, we were very conservative with outerwear last year, which put us in good stead since it was so warm. I will tell you that we were even more conservative in outerwear this year than we were last year, even though we don't feel that the weather will be as warm. I think it's a win-win situation. If we get seasonable weather, which we expect that we will, we will make more money. And if we don't, we will be protected on the downside.

And then I will turn the other part of it over to Anurup.

As far as our -- we have stated our long-term objective of getting to double-digit operating margin growth. Obviously we are very, very pleased with the progress today. Today we talked about full-year guidance that gets us to -- in a range of 7.7% to 7.8%, which is an 80 basis point expansion in 2015, projected 130 to 140 further expansion in 2016.

We are going to be spelling out our 2017 guidance in about six months, so I would just suggest to stay tuned and we'll talk about it more at that point in time.

Betty Chen, Mizuho Securities.

Thank you, good morning. Congratulations on a great quarter.

I was wondering maybe if you can start off by talking a little bit about the fleet optimization. Looks like everything is on track. I think historically, Mike, you've talked about some good transfers to either nearby stores or the online channel. Just curious whether you are still seeing I think roughly 20% or exceeding those thresholds and any changes in the transfer customers' behaviors.

Then my second question is for Anurup. I'm sorry if I missed it, but could you walk us through some of the comp drivers for the second-quarter comp upside and whether we think those are some of the drivers in the back half?

And then my last question is for Jane. When you talked about the environment still sort of being promotional out there, are you seeing any difference in terms of maybe the type of competition that is a little bit more in trouble with inventory buildup, whether it's specialty versus discounters or department stores? And any variances in regional patterns? Thanks.

I think on the promotional question, I think just for -- there's been a lot of people that have reported second quarter and certainly given guidance into the back half of the year, which overall seems pretty downbeat from the rest of the retailers. I think when you look at us, we really are an outlier; not only in the outstanding quarter we delivered, but also how we are looking at the back half of the year.

So I think there's a lot of people out there ranging from specialty to department stores that are in need of derisking their inventory levels based on a sluggish second quarter and downbeat second half. I think that's really what we are seeing.

Also seeing continued share gains in the pure-play Internet-only retail guys, who I'm sure you can imagine who that is. I think a lot of our competition are ceding market share to the big online players, so the need to continue to move their inventory down is causing the promotional environment to stay high.

As far as Q2 and the quarter in summary, obviously we had very strong results in Q2, positive comp in all channels and significant gross margin expansion. Our key selling retail metrics were all positive, excluding traffic of course. So we have now had six quarters of AUR and merch margin expansion, six quarters of operating margin leverage, and seven quarters of inventory reduction, which I mentioned earlier.

Our balance sheet is in excellent shape. Cash and short-term investments were $246 million versus $205 million the previous year. And we generated $70 million in cash from ops compared to $45 million last year and returned approximately $86 million to shareholders through stock buybacks and dividends.

When we look at specifically the key levers for the back half of the year, I think, number one, it continues to be strong product acceptance. That's the number one strategy in TCP and we've seen really strong results. And certainly we are seeing the benefits of our transformation efforts going back to when we talked about it having the effect in the second half of 2015 forward.

So that -- and those all result in AUR expansion, merch margin expansion, and we expect that to continue into the back half of the year.

From a store rationalization perspective, we are pretty much where we are based on the conversation we had with you folks last time. We are still targeting 200 doors to close through 2017. We've closed 115 through the second quarter; on pace to close 30 this year.

Continuing to see transfer rates in excess of 20% and with that 20% transfer rate, we still see the opportunity for 100 basis points of margin improvement. Good news is we are also leveraging occupancy as we close our underperformings or with the landlord community economics around existing leases.

And other good news is that we've brought down the overall length of our leases, so plenty of lease actions coming up over the next three years. In fact, we will have over 250 lease actions in 2017, so pretty confident around the 200 store closings and opportunities for 2018 and 2019 as another 200-plus come up in each of those years.

Steph Wissink, Piper Jaffray.

Good morning, everyone, and I will add my congratulations as well.

Jane, a question for you. You guys have been navigating a declining traffic environment for a number of years and you've been doing it quite well. I'm just curious if there's been any easing in the rate of decline or any patterns that you are starting to see around key event weekends or trip consolidation that might help as you start rolling out some of your forecasting modules in the back half of this year.

Then just one housekeeping item on your loyalty program. I'm just curious if you can give us an update on the size or the percentage of sales that that represents today.

From a traffic perspective, it's been pretty consistent quarter after quarter so it's been down. What we have seen is obviously some of the outlet malls affected a little more than our regular malls as traffic for tourism has been down, so we've seen a little bit worse traffic in our outlets than we have compared to our specialty stores.

From a loyalty perspective, we are about 7.9 million members with active 12-month purchases, which is up about 3% over where we were a year ago; represents about 50% of our customer base and about 70% of our trackable consumer spend. Good news is, on the average, they are spending anywhere -- about 2.3 times more than the non-loyalty members. And as we indicated, we are migrating to a new loyalty program and a new PLCC provider in the third quarter so we think that gives us opportunity as we move forward.

Richard Jaffe, Stifel.

Follow-on with traffic. Seeing -- you are gaining sales and doing it with a little bit less foot traffic. Could you go into that conversion and some of the metrics around conversion and average unit retail and units per transaction? Thank you.

As we've said, we've seen average unit retails up for the last six quarter and obviously conversion has been positive as we've seen traffic go down, so that's been fairly consistent also. Then we've also seen our units per transaction up. So all-in-all, it's a bigger basket every purchase.

Just to add to that, the whole -- if you look at all of our inventory management initiative, starting with the assortment planning, allocation and replenishment, and the 2016 tools that Mike alluded to in his opening remarks, are all about driving inventory productivity, allocation efficiency. And that just is fundamental in continuing to drive positive retail metrics in a tough traffic environment.

Lorraine Hutchinson, Bank of America Merrill Lynch.

This is Stephen Albert in for Lorraine. Just a couple questions.

Number one, hoping you could provide maybe a little bit more math around the sales opportunity with the large e-tailer from where you stand now; I know you're ramping up in the back half. Maybe in terms of sales or even just depth of assortment or SKUs.

Secondly, I know you mentioned on the last call that the kid's market is not growing and you clearly -- three straight quarters of positive comps. Who would you say that you are taking the most share from? Where is your biggest opportunity moving forward? Thank you.

So from a major e-tailer perspective, we're not going to talk about volume.

I think we are not going to -- we know where we are taking share from, but we are not going to name the competitors that we are taking share from. I think you can see from their earnings reports you could probably figure it out.

Marni Shapiro, The Retail Tracker.

Congratulations, everybody. Amazing quarter and fall looks fantastic so far.

Can you -- just a couple of follow-ups on things. If you can update us at all on the shoes; you talked a little bit about accessories and back-to-school stuff. The shoes looked particularly strong, so if you could touch on that.

And then I've noticed online two things: extended sizes seems to be moving -- there's more extended size. I'm curious if this is helping you to keep your customers longer. Is it bringing in new customers or is it really to address different sizes in this generation?

And I've noticed that you have -- in the past I might have seen down puffers in the store on August 17, and I'm not seeing that today, but you have a beautiful assortment online including that amazing patched hooded olive green jacket. Has the ability to really drive the online business changed the way you are thinking about shipping to stores?

Any more questions?

That's it.

All right, I'll start with the first one on shoes. Shoes is not a huge business during back-to-school. It really starts to kick in in September and that's really led by the boot business.

We do have some early reads on our fashion boots. They are strong, but we will have more information on that as we really get into the September and October period. As well as the dressy shoes that go back to our dressy assortments, which also really hit in September, the ballets and things like that. So that's when that business really starts to go.

As far as extended sizes are concerned, you are seeing extended sizes online and we continue to push that category. We see that as incremental volume as we are able to keep kids in our brand longer and stay tuned for more information on that as it relates to the stores. We will have some information for you on our next call to share, which is pretty exciting.

Then as far as the down puffer conversation, we will have our down coats and our down puffers in full force starting with our [8/30] delivery in September. But we found online is almost in every category we have a much earlier shopper online, so we will start to see snowsuits and snow pants, which you can also find online right now with us, coats, boots. Those classifications is a much earlier online shopper, so we set those assortments up 30 days before we set them up in the stores because we know our mom wants to take advantage of that.

Dana Telsey, Telsey Advisory Group.

Wanted to know -- can you talk a little bit about your wholesale business and how that is developing? What do you think the opportunities are for that in terms of percentage of total sales and the impact on margins going forward? Thank you.

In wholesale, like I said, we're making pretty significant progress but it's still relatively small. Our major focus has been to get our systems up and running that we can continue to gain scale in 2016. And obviously with the replenishment pilot that we've talked about, we think that's a good start.

We're not at this point going to quantify what we think the opportunity is, but we will remind everybody that it's very accretive to our operating margin.

Thank you for joining us today. If you have further questions, please call Bob Vill at 201-453-6693. You may disconnect your lines at this time.