Operator: Good day everyone and welcome to The Children's Place First Quarter 2013 Conference. At this time, all participants are in a listen-only mode, later you will have the opportunity to ask questions during the question-and-answer session. Please note this call maybe recorded and I will be standing by should you need any assistance.
It is now my pleasure to turn the conference over to Ms. Jane Singer. Please go ahead Ma'am.
Jane Singer - VP, IR: Thank you, Zack. Thank you for joining us this morning. With me here today are Jane Elfers, President and Chief Executive Officer; and Mike Scarpa, Chief Operating Officer and Chief Financial Officer.
We issued a press release this morning announcing first quarter 2013 financial results. A copy of the release can be found on our Investor website.
Before we begin, I would like to remind participants that any forward-looking remarks made today are subject to the Safe Harbor statement found in this morning's press release as well as in our SEC filings. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially. The Company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date hereof.
After the prepared remarks, we will open the call to questions. We request that each of you limit yourself to two questions, so that everyone will have an opportunity to speak.
Thank you. Now, I will turn the call over to Jane Elfers for her opening remarks.
Jane Elfers - President and CEO: Thank you, Jane. Good morning everyone. We exceeded our guidance for the quarter due to a combination of significantly improved sales and merchandise margins in the month of April and tight expense management throughout the quarter. The results by channel for the quarter were our e-commerce. Sales increased double-digits, up 13% for the quarter. All divisions comped positive and key categories increased double digits with the notable exceptions of shorts and tanks and swimwear. Even the web wasn't immune to the record cold.
Outlet performance was in line. We ended the quarter with an approximately flat comp, which was significantly stronger than our performance in full price stores. We attribute this result to two factors; one, strong customer acceptance of our made-for-outlet product. For example, our made-for-outlet assortment in dresses this year was stronger than last year and delivered significantly better results. In addition, we also delivered a full assortment of accessories and shoes, which we didn't have last year. We now have over 80% of our assortment in made-for-outlet product and it is clearly resonating with our customer; two, a more diverse store base with less reliance on the cold weather state during the first quarter. Due to our geographic diversity in outlets, we were able to perform better in the key volume short and swim categories.
U.S. Place; U.S. Place performance was tough through the end of March and significantly improved in April. For the quarter, the Northeast and Midwest were the most difficult and the South and Southwest the best performing regions.
All divisions underperformed and product category performance was clearly split. We experienced double-digit decreases in the key volume classifications of shorts, tank tops, skirts, swimwear, and sandals and double-digit increases in the smaller volume spring categories of denim, jeggings and jackets.
Clearly, the weather was a driving factor behind moms' purchasing decisions in Q1.
Canada, traffic in transactions experienced significant declines in Canada during Q1 with two main drivers of performance. First, the weather during the quarter was significantly colder and stormier than last year and all regions negatively comped. Sales increased significantly in April when the weather turned much warmer across the country.
Secondly, as you may recall, Canada had a very difficult margin performance in Q1 last year due to a heavy inventory position in spring product. We significantly pulled back the spring buy for Q1 this year. While we suffered on the top line, we had a 260 basis point improvement in merch margin for the quarter.
Starting with summer product, which we delivered in March, receipts are in line with last year's size.
Now I'd like to update you on our senior leadership team and our geographic expansion plans. The senior leadership team, our top priority has been getting the right leadership team in place and the significant time investment is paying off. Mike Scarpa has made a significant contribution since joining us last year. His operational focus, coupled with a culture of tight expense management in producing results every day.
Greg Poole, our Senior Vice President of Sourcing, is making good progress on vendor consolidation and country migration. Greg is spending the summer in Asia, working directly with our overseas teams to focus on our longer-term strategy for Sourcing.
Natalie Levy, EVP, Merchandising & Design has led the effort to significantly improve our assortments and we are well-positioned for back-to-school and holiday. Our baby business is just starting to turn the corner and we anticipate sequential improvement for the balance of the year in both our baby and newborn divisions.
Kevin Low, our Senior Vice President of Stores, has made significant strides on standards, presentation, and associate engagement this past year and it shows in the quality of our field team.
Jason McAndrew, our Senior Vice President of Planning & Allocation, has been instrumental since his arrival last year and leading our transformation efforts as it relates to our future business systems. Jason has a very strong team and together they have significantly improved the quality of the buys, as well as the quality of the allocation, while working within the constraints of our current systems infrastructure.
Geographic expansions; e-commerce continues to deliver outsized growth. We are launching our new e-commerce platform during Q2, which we anticipate will have a meaningful impact on conversion and provide mom with a much easier shopping experience.
On the international front, we opened four new stores in the Middle East during the quarter, bringing our total to 20 and we are on track to have 40 stores in the Middle East by the end of this year. Bruce Marshall, our Senior Vice President of International is in talks to expand to additional markets potentially as soon as the fourth quarter of this year.
In summary, weather negatively impacted us through the first nine weeks of the quarter and when it turned more seasonable, we finished strong. We were comping down negative 10% after nine weeks and with the arrival of more seasonable weather, we were able to end the quarter at negative 5.5%.
We are raising our guidance for the full year to reflect these improved results and our entire team remains focused on driving our growth initiatives to deliver long-term shareholder value. Going forward, there are some significant timing shifts due to the 53rd-week last year, which will impact our sales and inventory by quarter.
I'll turn the call over to Mike, who will provide more clarity in his remark. Mike?
Michael Scarpa - EVP, COO and CFO: Thank you, Jane good morning, everyone. I'm going to start with an overview of the first quarter results, then I'll move on to an update of the key operational initiatives we are undertaking in fiscal 2013 and will conclude with our guidance.
As Jane mentioned, sales strengthened considerably as the weather improved in April which enabled us to achieve better-than-expected sales in the quarter. Overall, net sales declined 3.5% to $423 million and comparable retail sales declined 5.5%. The negative comp was driven by a 2.7% decline in transactions and a 2.9% decline in average transaction value.
Comparable store sales declined 6.9% in the U.S. and 15.1% in Canada. E-commerce comp sales increased 13%. Gross margin rate declined 210 basis points to 38.6% for the quarter, which was better than our initial guidance as sales and margin came in stronger than forecasted.
A flat merchandise margin during the quarter was offset by higher supply chain costs, as we continued to invest in our sourcing capabilities and by deleverage the fixed expenses on the negative comp.
SG&A was well-managed in the quarter with a decline in dollars spend year-over-year, primarily due to more effectively managing store expenses. The rate deleveraged 70 basis points to 28% of sales on the negative comp.
Adjusted depreciation and amortization expense in the first quarter was 3.9% of sales compared to 3.7% last year. Adjusted operating income was $28.4 million, or 6.7% of sales. Earnings and adjusted earnings were $0.83 per diluted share, compared with $1 in the first quarter of 2012 on a GAAP basis and $1.14 on an adjusted basis.
Moving on to the balance sheet, our cash and short-term investments at the end of the first quarter were $201 million compared to $205 million last year. In the past 12 months, the company has generated $175 million in operating cash flow, while investing $90 million in CapEx and repurchasing $94 million in stock. The Company repurchased 512,000 shares for a total of approximately $24 million during the first quarter.
Consistent with our guidance, balance sheet inventory at the end of the quarter increased 14% in dollars and 11% per square foot. Overall, inventory was up $31 million within transit and early fall receipts increasing $36 million, partially offset by $5 million was spring and prior season inventory.
Higher in-transit inventory and early receipt of fall product is due to a shift of floor set timing year-over-year as a result of the 53rd week last year.
During the quarter, we opened 20 stores and closed four. We operated 1,111 stores at the end of the quarter with a total of 5.3 million square feet. This represents a 3% increase in square footage compared to last year.
Going forward, I believe there is a tremendous opportunity to improve our operations and strengthen our financial performance by continuing to focus on managing companywide expenses, increasing hurdles for return on invested capital which will impact our store expansion decisions, making progress on systems implementation, and developing alternative channels of distribution.
Companywide expense management; we are happy with the progress we made in Q1. We continue to believe we can achieve our goal of reducing the absolute level of SG&A spend versus last year despite the full year impact of new stores in 2012 and the incremental SG&A associated with the planned openings in 2013.
Improving operational efficiencies and reducing costs is an imperative and we are making it a priority in our culture. We are making good progress on plans to increase our four-wall contribution and store productivity through fleet optimization. As I mentioned on our year-end call, we are undertaking a thorough market-by-market store portfolio review. We will be in a position to communicate more about our portfolio review and plans for optimizing store openings and closings on our second quarter call.
However, as part of this review, we executed early lease kick-out options at 10 stores in the first quarter and we'll close those stores as part of the fleet optimization initiative. Systems implementations, with successful completion of the SAP financial system behind us, we are focused on implementing a core merchandising system, which we expect to be operational in the next 12 months.
Developing alternative channels of distribution, As Jane mentioned, we are in talks to expand into additional international markets. We expect both the international and wholesale businesses to become meaningful contributor to operating margin over time.
Combined with continued strong growth in our e-commerce channel, improve four-wall contribution from North American stores and strong expense management; we believe the Company can significantly improve operating margins over the next few years.
Now I'd like to move to guidance. As a result of our stronger than expected first quarter performance, we are raising our guidance for fiscal 2013. We are now projecting earnings per diluted share to be in the range of $3.05 to $3.20 assuming flat to slightly negative comparable retail sales for the year.
We expect to leverage gross margin modestly by 10 to 40 basis points, better than our previous guidance as Q1 came in better than we expected. While we still expect SG&A dollar spending will decline slightly for the year, we are now projecting SG&A to be flat as a percentage of sales.
There were some significant changes in sales and inventory by quarter this year as a result of the calendar shifts attributable to the 53rd week in 2012.
Let's start with the second quarter; a shift in tax-free events from the first week of August last year to the last week of July this year will benefit Q2 net sales by approximately $12 million. We expect flat comparable retail sales compared to 4% adjusted comp in the second quarter of 2012. We expect an adjusted loss per share between $0.50 and $0.55.
Gross margin is expected to leverage by 60 to 100 basis points driven by stronger merchandise margin. As a result of the back-to-school sales shift, we expect to leverage the SG&A by 20 to 40 basis points, however total SG&A expenditures will increase by approximately 5% in the quarter in part due to a shift of some back-to-school expenses from third quarter into second quarter.
We expect inventory to be up mid 20s at the end of the second quarter. Inventory will be approximately $65 million to $70 million at the end of Q2 with in-transit inventory in early holiday receipts accounting for the entire increase.
As you model the third and fourth quarters, there are also some calendar shifts to keep in mind. Q3 net sales growth will be negatively impacted by the tax-free sale shift into Q2 this year and Q4 has 13-weeks compared to 14-weeks last year, which will make net sales comparison more challenging in the fourth quarter. Just a reminder, week-53 last year represented $22 million in sales.
In terms of inventory levels with the back half, while we don't provide inventory guidance beyond the end of the next quarter, you should expect more normalized inventory comparisons as we end the year.
Finally, I want to say, we remain committed to using our strong balance sheet and cash generated by operations to invest in our business to support long-term profitable growth and to consistently return cash to our shareholders. At the end of the quarter, we had $56 million available under our current share repurchase authorization.
At this point, we'll open the call to your questions.
Operator: Dorothy Lakner, Topeka Capital Markets.
Dorothy Lakner - Topeka Capital Markets: Congrats on the great quarter here. I wondered if, one, Jane, you could speak to the girls and boys performance in the quarter. Girls spend obviously such a bright spot for you. Then just if you could give us a little bit of color on how you've worked to improve the baby and the newborn business? Then secondly, just if Mike could update us on planning and allocation and what we should expect going forward there?
Jane Elfers - President and CEO: Sure. Well, Dorothy as we said in the opening remarks, in Place all divisions comps negatively and underperformed for Q1 due to certainly the weather impact through the first nine weeks of the quarter. Having said that, the laggard in Q1 was baby girl. The big girl business and the big boy business were better overall, but as I've said, still negative. From a turning the corner your baby question, we started to see in April when we delivered our Summer 2 deliveries, we started to see a nice improvement in the baby business, particularly the baby girl business, which has been the biggest struggle for us, and we are continuing to see that through May. I think the merchandising difference versus last year's April and May deliveries, it's much more mix and match, it's much more knit-driven than woven-driven. I think that some of the colors and some of the art are a lot better than we had last year. So the merchants see that continuing now. I think Natalie believes that we've really turned the corner there and that we should see that baby business and the newborn business continue to improve sequentially through the balance of the year. As far as – I know you asked about planning and allocation as well. Jason and his team have made some pretty significant improvements on our ownership since last year by size and by classification. When you look at just the pure inventory content that's on the floor right now and that we're delivering for back-to-school, we are in a much better place than we were a year ago as it relates to the ownership of key categories and key basics heading into back-to-school. With respect to allocation, they've developed tools; even though working within the system constraints we currently have, that really much more accurately place inventory by store grade and by store attributes. So they really have made a significant difference in the past year and we're really looking forward to seeing that come to life through the balance of the second quarter and into back-to-school.
Operator: Lorraine Hutchinson, Bank of America Merrill Lynch.
Lorraine Hutchinson - Bank of America-Merrill Lynch: As you approach the fall season, can you talk about some of the lessons learned from the dressy assortment and how you are changing things this year to try to capitalize on that preholiday opportunity?
Jane Elfers - President and CEO: That's a great question. On back-to-school, I think what the biggest lesson that we learned last year from back-to-school, we had a terrific August and even within that very strong August, we had a lot of issues on out of stocks. August is really built around four key classifications. You have uniform, you have backpacks, you have graphic tees and you have denim. Then in the girl's side over the last year or so, jegging has really come on as a competitor to the denim, so you could really maybe add in a fourth classification. We did well with those classifications last year during back-to-school but we had some significant out of stocks and some significant misses in sizes last year, and that kind of goes back to what I was talking about with Jason and his team. They have really worked very hard since last year to put us in a good position into those basics. Going into September last year, we set up holiday in mid-September and I think the hindsight from that was that it was too much of the floor set and too much of the floor space and what we really should have done is we should have stayed in a back-to-school mode much longer into the month of September than we did. So this year when you look at the floor sets post Labor Day, you'll still see holiday product coming in because picture taking in early holidays, the customer need is there but from a level in the month of September and a floor placement in the month of September, it won't take up the square footage that it did last year and you'll see us continue through the month of September to really play a back-to-school.
Operator: Marni Shapiro, The Retail Tracker.
Marni Shapiro - The Retail Tracker: Congratulations. Could you just talk a little bit about the gross margin line, but it seems like you guys are making some nice progress here and I was wondering if you could break it down a little bit, because you have three things happening at the same time. You're sourcing some improved full price selling and you have the outlet business. If you could just put a little color around the three buckets in the gross margin, or if there is more?
Michael Scarpa - EVP, COO and CFO: Sure. Obviously, we're making good progress in terms of our sourcing initiatives around country migration and vendor consolidation. So we're seeing nice reduction in terms of overall AUCs, which were down the mid-single digits in the quarter. So, that obviously contributed to the overall gross margin and merchandise margin. When we look at initiatives around the outlet business, we have closed the gap from what was 1,000 basis points, a few years back to 400 at the end of last year and we think we'll get the parity by 2014 with, hopefully, half of that differential of 400 close this year in terms of margin expansion. What hurt us overall in the first quarter, though, was the fact that we had comped negatively. Obviously, we had some fixed cost into our gross margins and as we negative comped in the quarter, that was solely the reason for our gross margin decline. As we move forward and obviously, we expect to have better comps in the Q2 to Q4, obviously, we'll be in a better position to leverage those comps and help drive some gross margin percentage.
Marni Shapiro - The Retail Tracker: Are you guys able to sort of separate out, though, the full price selling? Are you seeing improved full price selling in big girls and is that continuing across the board? I know there have been some spots that have been a little bit tougher, but in general on the fashion side especially.
Michael Scarpa - EVP, COO and CFO: I think we've seen a great response to our Summer product, obviously, we were a little disappointed in spring, really weather-related. But as the weather warmed up we saw increases in customer acceptance of our goods and we expect with normalized weather patterns, we'll continue to see that.
Operator: Betty Chen, Wedbush Morgan Securities.
Betty Chen - Wedbush Morgan Securities: Congratulations on a great quarter. I was wondering if you can talk a little bit about the additional distribution you mentioned earlier. I guess how far along are we in terms of the additional markets coming up by the end of this year? What type of markets are you considering? Should it be a similar business model as the Middle East? Then regarding wholesale, I think the test at Sam's Club did very well last year. What is the additional color you can give us regarding maybe a more comprehensive question to the wholesale channel?
Michael Scarpa - EVP, COO and CFO: I'll start with wholesale first. We are still in the process of developing our overall strategy for wholesale. As I mentioned on our year-end call, we had just brought in an executive to head up the wholesale area for us. We continue to shift to Sam's Club and continue to get great response in terms of products. We think it is a big opportunity for us and we see operating margins in that segment of the business to be accretive to the overall operating margins of the Company and we look at it as a key initiative for the Company as we move forward to help us drive operating margins. From an international perspective, as Jane mentioned, we opened four stores in the first quarter. Our goal is to have 40 stores in the Middle East by the end of the year, and we feel comfortable with that. We're currently in negotiations in three different markets, which I will not name until those negotiations are complete, but we do see geographical expansion as we move through the fourth quarter of this year.
Operator: Janet Kloppenberg, JJK Research.
Janet Kloppenberg - JJK Research: Congratulations. A couple of questions. I think you said your AUC benefit was about mid-single digits in the first quarter, Michael, and I was wondering what we should expect in the second quarter and beyond this year. Jane, I was wondering if you could talk a little bit about Canada and factory. What kind of sales trends you saw there at the end of the quarter and if we should be thinking that or why shouldn't be thinking that those segments couldn't generate positive comps for the remainder of the year.
Jane Elfers - President and CEO: Sure. Well, on outlet, as we said, we had approximately flat comp for the quarter, so we were excited to see that. I think a lot of that has to do with the made-for-outlet products that was in the chain, that was not in last year. If you remember when we turned the corner for the first time in outlet last year, was the month of July. So the beginning of the second quarter was a little bit more difficult and then we turned and had a really strong July and then into the third and fourth quarters. So we're looking to continue to have a solid performance in outlet through the second quarter and then I think this is some of the same things that we've applied to Place as far as ownership in key items in key basics, I think that play through to the third quarter and back-to-school for outlet as well. When you look at Canada, I think it was really two issues in Canada. They had extremely cold and extremely snowy winters throughout the entire country and they also were up against that heat wave of last year in the month of March. So they did not have any regions in Canada that were better than really any other region. For instance, in the United States, our South and Southwest were much stronger than our Northeast and our Midwest. They didn't have that. They really had tough performance across all of their provinces. So that hurt them and then also last year, we had a difficult margin performance in Q1, so we had pulled back the spring product, which started to deliver in December, which is really the December through February deliveries. We had pulled that back pretty significantly, which did hurt us somewhat on the topline during the quarter, but I think we saw the merch margin improvement and that's really what we were looking for it to kind of stabilize the merch margins up there. I think when the weather got warm in the middle of April through the beginning of May, the Canadian business got a lot better, so we're looking for it to certainly not repeat the performance of Q1, but there also are some other things going up in Canada from a competitive point of view. There are a lot of other people going up to Canada not just target, but a lot of specialty stores have come up into Canada, and then of course, you have the big target openings which started during the quarter. So I think we just need to keep a close eye on the competitive landscape up in Canada and continue to stick with our strategy but be aware.
Michael Scarpa - EVP, COO and CFO: Then from an AUC perspective, we were down mid-single digits in the first quarter and expect to be down in the mid-to-high range in the second quarter as we finish the anniversarying of the cotton increases. We would expect in the back half of the year to be in the low-to-mid single-digit reduction overall in AUC.
Operator: Thomas Filandro, Susquehanna.
Thomas Filandro - SIG-Susquehanna Financial Group: Well-executed quarters team. So a couple of quick questions. Mike, can you tell us like what is the profile of those 10 stores that were closed, at least kick-out and can you let us know how many stores are up for renewal over the near-term? Then I have a question about if you could give us a sense of what the implied EPS impact is during the second quarter related to that one week shift as well as the 53rd-week which I identified as $22 million in sales, what was the rough EPS impact? Then my final question is could you just tell us – remind us again what your cash comfort level is, please?
Michael Scarpa - EVP, COO and CFO: Let's start with the stores first. We made the decision to exercise kick-outs on approximately 10 stores in the first quarter which will close throughout the year. As we looked at those stores, they had underperforming four-walls, productivity was under the average of the fleet. Also, when we looked at the size of those stores, it didn't make sense to continue with them they were oversized and obviously provided some headaches in terms of inventory allocation. So it's a process we go through in terms of looking at a market-by-market approach. We've put into place some hurdle rates around what we want to achieve as a minimum for four-wall contribution. We look at productivity levels and obviously what we'd do from a cash perspective if we were to go out and remodel or downsize. From an EPS perspective, week-53 was approximately $22 million in sales and generated a little over ($1 million) in operating income, so basically had a $0.02 to $0.03 impact in the fourth quarter. As we look at the $12 million coming in, we think that it probably has a $0.02 to $0.03 EPS impact overall. As far as cash goes, we continue to generate strong cash, we've averaged the $175 million in the past 12 months and it really put that back into the business in terms of CapEx and share buyback. We ended the quarter with excess of $200 million. We'll burn through some cash in the second quarter as we normally do due to seasonal cash flows probably to tune of that $50 million or $55 million. As you know, we have approximately two-thirds of our cash at the current time, permanently reinvested overseas. So, we may see to the point in the second and probably in the third quarter will go on our line a little bit, but we're not concerned about that. We have leverage that we can pull. If we see business tailing off in terms of what we can do from a CapEx perspective or an expense perspective, but we're very comfortable with our cash position and comfortable going on the line.
Operator: Adrienne Tennant, Janney Capital.
Adrienne Tennant - Janney Capital: Let me add my congratulations. Jane, can you talk about the promotional environment in the kids sector? Are you seeing any signs that there could be release perhaps as we go into the summer months, as inventory across the sector is maybe a little bit cleaner, if you can just talk a little bit about that? Then just following up on, Mike, on the 53rd week. I'm just curious, if the $12 million is about $0.02 and the $22 million is about $0.02 to $0.03, is that because you actually did have to accrue (rod) in the fourth quarter? I'm just wondering what the differential there is?
Jane Elfers - President and CEO: As far as the competitive environment, we haven't really seen a difference in Q1 versus where we have been for the last few quarters. So we haven't really seen it keyed up. As far as the second quarter being (released out) or being cleaner, I'm not sure yet based on Q1, which we've heard was pretty tough for most kids' retailers. It's hard to get a true look at it, because there is not very many pure play kids people that report, but what we've heard is that the kids was obviously tough through February and March with the weather. So the wildcard really is where the inventory levels are in kids and how promotional the competition is going to have to get to clear. We are in a very nice inventory position right now and we intend to stay that way as we have been for the last couple of years. So we are hoping that it stays pretty much where it was or pretty comparable to LY.
Michael Scarpa - EVP, COO and CFO: From the differential on the $22 million of the 53rd week versus the $12 million coming in, in the second quarter and then basically having the same EPS effect. Obviously, we needed to accrue the appropriate expenses for the 53rd week around occupancy and fixed cost. So that's really the difference there.
Operator: Lee Giordano, Imperial Capital.
Lee Giordano - Imperial Capital: Can you talk a little bit about the expected store opening cadence by quarter for this year? Then remind us longer-term where your expectations are for store growth, including outlet in Canada.
Michael Scarpa - EVP, COO and CFO: On a quarterly basis, we expect to open up roughly 55 stores. We've opened up 20 in the first quarter. We'll open up approximately 16 in the second quarter and probably another 15 or so in the third and then the remainder will – couple, three stores or so we'll open up in the fourth quarter. That nets against 30 closures. So we'll be plus 25. I will caution everyone that as we look at our store by store – market store of our portfolio review that obviously there could be more closures coming in the future. When we are looking at outlets, we are looking at it more opportunistically as currently we have over 130 outlet stores and we're in most of the centers that we want to be in. Obviously, the real estate market continues to evolve, so when centers get redeveloped or are opened, we're looking for those opportunities. But as we look at Canada, we're not looking to really to do any type of major expansion. We already have a big footprint there. We're more focused in on what we need to do from a remodel perspective with Canada and as we got ready for competition coming into the market in the past, we've remodeled approximately 30% – 35% of the fleet. So we continue to look for opportunities in remodeling.
Operator: Brian Tunick, JPMorgan.
Brian Tunick - JPMorgan: Two questions. First on the Canada margin. I think they were as high as 20% three years ago. Just curious if you could maybe just talk about what were those drivers and sort of what's the opportunity do you think to get back towards those margins? Then the second question, longer term, Jane, when you think about what should be right channel mix of the company, what should we thinking factory, e-com, full price stores? What do you generally think as a percentage of sales that those different channels should represent for your company?
Jane Elfers - President and CEO: Sure. I'll take the second part. I think when you look at e-commerce right now, it's about 12% to our total and I think where we see it over the next couple of years, is getting as high as 15% to the total business. As I said, I think we need to keep an eye on Canada from the competitive point of view. We just don't know what that target opening is going to mean to us over time and certainly with the onslaught of specialty retail that is headed to Canada. We need to really watch that. I think from an outlet and a place perspective, I think we'll pretty much be in line.
Michael Scarpa - EVP, COO and CFO: From a margin perspective, obviously, we've diluted over the past 18-24 months and we see opportunities in terms of getting back there with some tighter control around inventory, which obviously hurt us in the first quarter of last year. So we feel we're in much better position from a buy perspective. We're looking at AUC costs that are down year-on-year, so we feel that that also should contribute. Then just the whole marketing program up there, we think we can hopefully drive some additional sales. We've been investing in remodels which we think modernizes our fleet and we feel good about it. We've also implemented – really put into place a team up there headed by a merchant who has significant experience in kids in both the U.S. and in Canada. We revamped the sales force up there and add new leadership. So we feel good about where we are from a team perspective.
Operator: (Topash Bari), Goldman Sachs.
Topash Bari - Goldman Sachs: Mike, the back-to-school sales shift that you quantified, does that actually impact reported comps as well for 2Q and 3Q?
Michael Scarpa - EVP, COO and CFO: No, it does not. We report on a shifted basis. So it does not.
Topash Bari - Goldman Sachs: Jane, I wanted to follow-up on Adrienne's question about the promotional environment. So looking at the industry, with the (public reporters) in the kids space, seems like most missed first quarter sales versus plan, yet your own merchandise margins were flat and it looks like many retailers, kids, non-kids kind of held out on pushing the panic button. So assuming that – I guess the question is, the uncertainty remains in how promotional it's going to get in 2Q? If it actually does get promotional, when would you expect that to actually happen?
Jane Elfers - President and CEO: Well, usually Memorial Day, it's a pretty good (rommeter) and we're in the middle of Memorial Day weekend right now. So when you look at what the competition has and what the promos in the mall are and what the emails we've seen, we haven't seen anything that is materially different from last year Memorial Day. The next big time would be June as kids retailers will clear through, getting ready for back-to-school. So I think the fact that we're not seeing the panic button pushed on Memorial Day is a good sign.
Operator: Stephanie Wissink, Piper Jaffray.
Stephanie Wissink - Piper Jaffray: I just have a question, Jane if you could share with us a little bit about the loyalty program and give us some details on participation or conversion? Then I'm curious around your prospecting on some of the new moms, as we think about your baby and infant initiatives?
Jane Elfers - President and CEO: Sure. Well, we launched our loyalty program in October and we had a nice increase throughout Q4 and then into Q1. We now have over 5 million people enrolled in our loyalty program and we think that it is going to be a key lever in our marketing efforts going forward. A significant amount of our transactions are happening with people enrolled in our loyalty program and the other good news is that the loyalty program is driving people to our e-commerce site. On our e-commerce site is where you manage your points and manage your rewards. So as we know our multichannel customer is significantly more profitable than our single channel customer. So for us even to move incrementally customers from single to dual channel has a big payback for us and we're starting to see that happen with the advent of the loyalty program. As far as prospecting with new moms, we're working on the baby and newborn business, we're really attacking it from a merchandizing strategy. First, we've had some very difficult business as you know in baby and we're thrilled that we're starting to turn the corner. So what I really want to do is, I want to make sure that the merchants are comfortable that we really are where we want to be from a product and an in-store look before we really go out and invite people into more new customers into the store. We just want to make sure that the product offering we have is stable and right.
Operator: Richard Jaffe, Stifel Nicolaus.
Richard Jaffe - Stifel Nicolaus: I guess, trying to understand the catalyst behind that, would you ascribe that to better sourcing, greater discipline, holding back in the cold weather, anticipating warm weather and then not being so promotional or is there a third factor I am not taking into account?
Jane Elfers - President and CEO: I think a big part of it is certainly the AUC and that's a tailwind for us, so were able to have mid-to-high single in apparel decreases in AUC through Q1. I think another big piece of it was being able to come into this quarter with clean inventory. So we've been very focused on inventories for the last few years and being able to enter into the quarter with a cleaner inventory by channel has helped us as well. Also, I think the pullback of the spring by up in Canada from a merch margin point of view was instrumental and helping us, particularly with such a cold winter, having less spring product was important. Then made-for-outlet product is really a home run for us so far. We're really, really excited to be able to see that channel almost flat comp for the quarter and the customer response and the customer acceptance to that product has been very, very strong, so we're hopeful that we can continue to see that channel close in on place and have parity by the end of '14 from a merch margin point of view.
Richard Jaffe - Stifel Nicolaus: Just a quick add-on, with the loyalty program coming online becoming more powerful, should we anticipate some margin pressure as people use their points more and take advantage of the discounts offered by the loyalty program.
Michael Scarpa - EVP, COO and CFO: We've modeled some dilution in for that, but obviously we think that as we can drive people to our web and change them from a single channel customer to a multichannel customer, we think that we overall will drive sales and will drive operating margins.
Operator: John Zolidis, Buckingham Research.
John Zolidis - Buckingham Research: Question on merchandise margins and the longer term opportunity there. We're looking at about a 6% operating margin right now based on the current guidance for 2013, and I know we've talked about potentially get into a 10% op margin, so 400 basis points of room to the upside. It feels like most of the SG&A cutting has been accomplished and so to get to the higher operating margin, we had a combination of leverage and better merchandise margin? What could you – what possibilities are there for improving merchandise margins from here other than just waiting for a windfall benefit from lower cost? How can we drive up our merchandise margins higher and help to achieve that 10% op margin over time?
Michael Scarpa - EVP, COO and CFO: As I look at it, it's a combination of factors and it's not just merchandise margin. As we continue to expand international and (set-off) on our wholesale strategy, obviously, we're looking to leverage some of those expenses that we currently have. We book at international and the wholesale actually as dilutive to overall gross margins, but accretive to operating margin. So if those businesses become bigger, obviously, we'll see our operating margin expand. Fleet optimization, we think can also be a key contributor overall to operating margin growth. As we look at the current fleet and we look at the stores in terms of those underperforming or performing less than the corporate average. We think there's an opportunity and we think there is margin expansion as we begin to make decisions around our fleet. Obviously, e-commerce growth is key, which will help us begin to leverage expenses and we had a great first quarter again after three, four, five years of 20% plus increases. This first quarter it was up 13% in a very difficult weather-related quarter. Obviously we see e-commerce as a cornerstone of our growth. Then there's really all the systems that we need to undertake as a company. We implemented SAP Finance at the end of last year. We are looking at core merch being implemented in the next 12 months, which will help us really from an inventory, pricing, and planning and allocation perspective and we think that there's margin that we can unlock as we start implementing these systems. So all-in-all, we think that's a combination that can drive overall operating margins for the company.
Operator: Jay Sole, Morgan Stanley.
Jay Sole - Morgan Stanley: Mike, I just want to follow-up on the last question. Can you talk more about the systems implementation you mentioned something called core merch, can you just define what that is? And talk about, maybe can you quantify at all on the EBIT margin impact you expected to have? Then, Jane, can you talk about accessories, has a bigger part of mix become accessories and are those higher margins and how those performed in the store recently?
Jane Elfers - President and CEO: The accessory and shoe business is about 20% of the total and the accessory business has been a major growth for us since Natalie came onboard. She has really directed us in those categories, because we didn't have a big offering a few years ago when we started. It is our highest margin category and it is a pickup item, so we've been able to see some good expansion over the last couple of years in sales as well as margins in all channels.
Michael Scarpa - EVP, COO and CFO: We look at core merch from SAP, we look at it as it's a set of capabilities, really focused around a single point of inventory, i.e., visibility to inventory across all our different channels. We look at pricing as a key component in terms of the capability in making certain price changes, adding certain promotions, capabilities in support of things like couponing and BOGOs. We look at from a sourcing perspective really having visibility across our sourcing network and also just the ease at which we can manage our POS, which will help us from a balance of the speed and cost. Then there's really capabilities around wholesale and franchising, which will help us from an order management perspective, which will help initiate orders and help us manage the order processing with a lot more ease than we currently have to go through. So it will facilitate growth in those two areas. Obviously, once we get that set of capabilities in Place, we move into demand-driven forecasting, planning and allocation which we think is the real game changer in terms of the ability to really analyze on a style, size, color on an individual door basis.
Operator: Dana Telsey, Telsey Advisory Group.
Dana Telsey - Telsey Advisory Group: Can you talk a little bit about what you're seeing on the factory side? It was flat this quarter and with the cold weather, certainly the trends there, how do you see the operating margin narrowing between full line and outlets given also the enhanced made-for-outlet product? Then also on Canada, how would – any qualitative color on profitability there this quarter versus last year and what you're expecting going forward? Thank you.
Michael Scarpa - EVP, COO and CFO: From a factory perspective, as I mentioned before, we were 1,000 basis point behind in margin. We started the (MFO) program. We now have it as basically an 80% mix between MFO and some of our core basics. We look at last year ending about 400 basis points behind in terms of merchandise margin and quite frankly, we think we'll be at parity at the end of 2014 and our goal is to cut the 400 down to 200 by the end of '13. Obviously, when we look at the overall profitability of factory, when we look at expense levels and percentage of sales, they are quite favorable overall to in terms of where we stand versus our U.S. and Canadian play stores. So, we feel very good about the opportunity to continue to improve profitability in that sector and we think that over time we'll see the factory is actually higher than the U.S. Place. From a Canadian perspective, obviously, we were hurt in the first quarter based on the comps and trying to leverage the occupancy and (indiscernible) definitely caused us to be (indiscernible) operating margin in Q1 from where we were last year. We would expect that differential between Q1 and end of year we'll start to mitigate and – but there's still a lot of pressure going on in the Canadian market. Obviously, there is competition up there and so we're watching it very closely and we'll adjust our operating model accordingly.
Operator: John Morris, BMO Capital.
John Morris - BMO Capital: My congratulations as well to everyone. Most of my questions were answered, but Jane maybe I guess unless I missed it, if you can talk a little bit more about if you step back and looked at your approach to brand marketing, any changes there in your thoughts? As a second part to that, any swing shifts in major promotional events that we should be aware of in Q2 or Q3?
Jane Elfers - President and CEO: Well, the big thing on brand right now really is this loyalty program and it has so many tentacles to it, mostly living on the website and really driving multichannel purchasing, having customers increase share of wallet by introducing a loyalty program, where I think we've been deficit for the past few years. So we think over time we had significant opportunities through this loyalty program to not only gain sales, gain share, but also turn our existing customers into multichannel customers and get more profit from them. From a shift point of view on promotions, Mike covered a little bit in his opening scripts, but a big shift is really at the end of Q2. The tax-free event that was last year week one August moved into week four of July. So that's Friday and Saturday, the last two days of the quarter is where you see that tax-free event. So far in tax-free, there are 16 states that have confirmed tax-free. Florida, Massachusetts and Puerto Rico have not yet confirmed. Of those 16 states, 11 of them are moving into week four of July on that Friday and Saturday. Then you have Mississippi which is in the true fiscal month of July and that anniversaries last year. So that's a pretty sizable shift and then the other thing is really the six less days between Thanksgiving and Christmas. Then when you get into the third quarter, you'll see a little bit of erosion there because of the moving of the tax rate to the last week of July.
Operator: I'd like to turn the conference back over to Jane Singer for closing remarks.
Jane Singer - VP, IR: Thank you for joining us today. If you have any further questions, please give me a call at 201-453-6955.
Operator: This does conclude today's conference. You may now disconnect and have a wonderful day.