The Children's Place, Inc. (PLCE) Q3 2013 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to The Children's Place Third Quarter 2013 Conference Call. [Operator Instructions] Please note this call is being recorded and I'll be standing by, should you need assistance. It is now my pleasure to turn the conference over to Ms. Jane Singer. Please go ahead, ma'am.

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 earlier this morning, announcing third 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. [Operator Instructions] Thank you, and now, I will turn the call over to Jane Elfers for her opening remarks.

Thank you, Jane, and good morning, everyone. We achieved the high end of our earnings guidance for the quarter as a result of strong execution of our important back-to-school period, and the continuation of disciplined expense management across the organization. Following a strong back-to-school period, the onset of warmer weather and the uncertainties surrounding the government shutdown made for a challenging mid-quarter. However, with cooler temperatures and a temporary end to the controversy in Washington, sales accelerated significantly throughout October. For Q3, adjusted earnings per share increased 11% to $1.89. Net sales declined 2% as a high-volume back-to-school week moved into the second quarter. Consolidated comp sales were down 0.7%. U.S. comp sales were down 0.4%. Canada comp sales were down 2.9%, a 30 basis point sequential improvement over Q2. Gross margin rate declined 60 basis points. Tight expense control throughout the quarter enabled us to leverage SG&A rate by 130 basis points. E-comm posted double-digit sales growth for the 31st quarter in a row. E-commerce is an important growth vehicle for us, accounting for 14% of sales year-to-date. We're optimizing our store fleet by closing underperforming locations, and expect to close 27 stores at the end of Q4 for a total of 43 closures this year. We opened an additional 6 stores in the Middle East for a total of 32 stores. We expect to end the year with 36 stores in the Middle East, and we are on track to begin opening stores in Israel in 2014. For competitive reasons, we won't provide any specifics on our wholesale business other than to say our product has been very well received by our new partner. And we made solid progress during Q3 on our key operational initiatives, which Mike will cover. On the merchandise front, our holiday assortment was very well received and resonated with our customers. The holiday line comp tie single digits with significant improvement across all divisions. Big kids had a very strong performance, with positive mid-single-digit comps for Q3. Baby comps improved 170 basis points versus last year with a strong response to our holiday line, and we expect continued improvement in the baby area for Q4. Accessories and footwear, both declined in Q3 due to a combination of a pullback in Q3 receipts in cold-weather accessories and boots and some fashion accessories that did not resonate with our customers. Moving on to sourcing. We're continuing to make good progress with respect to country migration and vendor consolidation, and we're finalizing our first half 2014 buys. In marketing, our loyalty program is continuing to gain traction and now has 7.2 million members. MyPlace Rewards customers account for more than 1/3 of our total customer base. Compared to nonmembers, they spend 2.5x more annually, have twice as many transactions and account for 60% of total sales. Continuing to expand loyalty membership is key to helping us drive transactions in sales over the next 12 months. Looking ahead, we updated our fiscal 2013 guidance and now expect adjusted earnings per share to be the range of $3.20 to $3.28. While we're expecting a heightened promotional environment for Q4, we're confident in our ability to effectively compete as our inventories are well-managed, our categories are well-positioned and our marketing strategy is strong. I'll now turn it over to Mike.

Thank you, Jane, and good morning, everyone. We are pleased with our overall performance in the third quarter, achieving adjusted earnings per share of $1.89, at the top end of our guidance range. In doing so, we were able to manage our ending inventory to planned, incurring slightly deeper promotions, which had an impact on both our top line and gross margins during the quarter. We more than made up for that shortfall by effectively managing our SG&A. Details for the third quarter are as follows: Net sales decreased 1.6% or $8 million to $493 million. Net sales were negatively impacted by approximately $12 million as an important back-to-school week, moved out of 3Q into 2Q this year. In addition, foreign exchange negatively impacted the quarter by approximately $3 million. Consolidated retail comp sales declined 0.7%. The slightly negative comp was primarily due to a 0.6% decline in average transaction value, as higher units per transaction were offset by a decline in AUR, due to the highly promotional competitive environment. Transactions were relatively flat as challenging comp store traffic was offset by higher conversion. U.S. comp sales declined 0.4%. A 0.3% increase in transaction was more than offset by a 0.7% decline in average transaction value. Canada comp sales declined 2.9%, which was entirely due to a decline in transactions as average transaction value remained flat. E-commerce accounted for 14.8% in net sales in the quarter compared to 12.6% last year. Adjusted gross margin rate deleveraged 60 basis points to 41.2% of sales for the quarter, as an improvement in merchandise margin more than offset by increased costs, as we continue to build our supply chain capabilities. As well as increased occupancy costs, all on a lower sales base. Adjusted SG&A was down $9 million to 25% of sales, a decline of 130 basis points compared to last year, driven primarily by a reduction in store payroll costs. Managing company-wide expenses has been a key focus for the entire organization. Adjusted operating income leveraged 80 basis points to 12.8% of sales, and adjusted net income per diluted share was $1.89, an increase of 11%. Moving on to the balance sheet. Our cash and short-term investments at the end of the third quarter were $194 million compared to $203 million last year. In the past 12 months, the company generated $161 million in operating cash flow, while investing $76 million in CapEx and repurchasing $96 million in stock. During the third quarter, the company generated $35 million in operating cash flow, while investing $19 million in CapEx and repurchasing $7 million in stock. As I mentioned, before, we ended our overall inventory on planned and in excellent condition as we enter the fourth quarter. Consistent with our guidance, balance sheet inventory at the end of the quarter increased $41 million or 13.8%. Holiday and prior season inventory is down $24 million, with spring and replenishment inventory including in transits of $65 million, slightly in line with our plan. Now I'll provide a progress update on 3 key strategic and operational initiatives: one, optimizing our store fleet; two, our long-term systems implementation and transformation plan; and three, driving additional growth and profitability through our international and wholesale distribution channels. Fleet optimization. For those of you who are on last quarter's call, you know we had 100 stores slated for closure through 2016. We also had another 70 stores that were on the fence, where we needed to review options to improve their financial viability. We have come to conclusions on approximately 45 of the 70 stores. 10 more stores will be added to our closure list and another 35 currently stay in the portfolio. At this point, we now plan to close approximately 110 stores through 2016, including 43 stores during fiscal 2013. We are continuing to evaluate options to get the remaining 25 stores above the minimum hurdle rate, including occupancy relief, but if we are unable to do so, additional stores will move to our closure list. For your modeling purposes, we ended the quarter with 1,123 stores and square footage of 5.31 million, an increase of 0.5%. We plan to end fiscal '13 with approximately 1,105 stores, and square footage is expected to be down 1.1% at the end of the year. Systems implementation. We continue to devote significant resources and focus to our business and information technology initiatives that we expect will transform our business over time. We continue to be very methodical in our planning and have significant resources and oversight in place to manage the process from the planning phase, through testing and implementation and into the follow-up and refinement phases of the project. We remain on schedule to complete our ERP implementation in Q2 2014 with the rollout of the core merchandising and pricing modules. This will set the foundation to enable us to significantly enhance our planning, allocation and omnichannel initiatives. Additional channels of distribution. In addition to e-commerce, 2 major strategic planks for future growth are our international and wholesale businesses. On the international front, our franchise partners opened 6 new stores in the Middle East during the quarter, bringing our total to 32, and we are on track to have 36 stores in the Middle East by the end of this year. We are very pleased with our franchise operations and expect to have approximately 55 to 60 stores in the Middle East and Israel by the end of fiscal 2014. In wholesale, we're in discussions with additional retailers in both the United States and Canada as we look to expand our distribution during fiscal 2014. Now I'd like to move on to our guidance. We are now projecting adjusted net income per diluted share for fiscal 2013 to be in the range of $3.20 to $3.28, assuming negative low-single-digit comp sales for the year. We expect to deleverage gross margins by 50 to 70 basis points, and expect SG&A dollar spending will decline and SG&A rate will leverage by 20 to 40 basis points. We now expect capital expenditures to be in the $80 million to $85 million range for the year. For the fourth quarter, we expect adjusted net income per diluted share to be in the range of $0.90 to $0.98, assuming negative low-single-digit comp sales for the quarter. Gross margin is expected to deleverage by 20 to 60 basis points. SG&A dollar expenditures will be lower than last year, and SG&A rate will be approximately flat compared to last year. Inventory guidance for fiscal 2013. We anticipate our inventory at year end to be in excellent condition. We expect our carryover inventories of fall, holiday and early spring to be down year-on-year. Our replenishment inventory, which has become a larger portion of our offering and drove our merchandise margin expansion in the third quarter, is in a much better stock position versus last year, when we were consistently out of stock in key styles and sizes. However, our in-transit inventory at year end will be significantly impacted by 2 factors: one, the timing of Chinese New Year, which falls on January 31, 10 days earlier than last year. As you may be aware, there is generally a 2-week shipping hiatus after Chinese New Years as factories shut down and there are limited sailings out of the ports. And two, the recent shipping disruptions in the supply chain in countries such as Bangladesh. In light of these 2 significant issues, we have made the decision to accelerate an additional $50 million of Q1 shipments to ensure these goods are there for our March set-up, our most important floor set of the season. Combining in-house and expected in-transit, inventory on the balance sheet will be up mid-20s at the end of Q4, with in-transits representing 75% of the increase. As a point of reference our inventory purchases for the full fiscal 2013 year were down 1% in dollars, and our Q1 2014 inventory buy is down low-single digits in dollars. Finally, we remain committed to using our strong balance sheet and cash flow to invest in our business to support long-term, profitable growth and to return cash to our shareholders. At the end of the quarter, we had $26 million available under our current share repurchase authorization. At this point, we'll open the call to your questions.

[Operator Instructions] We'll take our first question from Lorraine Hutchinson with Bank of America.

It's Paul for Lorraine. Can you guys update us on the effort to transfer sales from closing stores to existing stores and the effort to measure that transfer as well? I think last quarter, you talked about a hypothetical 20% transfer. Have you been able to measure that? If you have, are you achieving that kind of level of transfer, and what are you doing to effect that transfer?

Well, we're just beginning the process of the measurement of transfer sales. We have a great deal of -- the majority of our store closures in fiscal 2013 will take place in the fourth quarter. So we'll be measuring that over time. You were correct in assuming that we are assuming for a 20% recapture. We think that it could help us expand our overall operating margin. Store closures by itself should improve operating margins by 30 basis points. And if we're able to recapture that 20%, we think we can grow it 80 basis points. So we're putting together a comprehensive marketing program, which includes bounce backs, a revised email strategy to those customers, targeted direct mail and online and digital support to help the consumer migrate to existing stores within the marketplace. But it's too early at this point to really measure it.

And we'll go next to Anna Andreeva with Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: I had a couple of questions. So on gross margins, I think you said the merchandise margins were up, which is pretty impressive despite the higher promotional cadence that we saw. Could you maybe break out what drove the 60 basis points gross margin decline between higher occupancy and the supply chain investments you mentioned, you're making? And Jane, perhaps you could talk about just what are you seeing in the competitive landscape? It seems like the value of kids space was more promotional in the third quarter, and that seems to be continuing here in 4Q. My second question, I was hoping to get a little bit of color on accessories and the footwear miss. Just what happened there, and how quickly can you guys affect those categories? And how did baby perform? You talked about opportunity there obviously for some time.

Okay. Well let me start to try to answer those. #1, on the promotional environment, we definitely have had to intensify our marketing and enhance some of our value offerings to drive business due to the current economic environment. Then that has put pressure on AUR. I think the stores have done a great job converting the traffic we do have, and I think a lot of that has to do with the improvements we made in the assortments versus last year, so we're pretty excited about that. From a competitive viewpoint going into Q4, I think the environment is as competitive as I've seen since I started in 2010, and I think that we're going to continue to see a pretty intense environment going into Q4. We feel good about our ability to compete. We think our inventories are well-managed. Certainly, our category ownership is a lot better than it was last year, so we feel good about that going into the fourth quarter. And I think when you look competitively, I think that just some of the promotional conversations we've talked about, I think inventories overall from a competitive set, are in line and they've kept inventories in check. From an accessories and footwear, to answer your question there, we did a significant pullback in Q3 in accessories, cold-weather accessories, I should say, cold-weather products, and also in boots. We had way too many boots last year and way too much in the cold-weather accessory categories. And coming out of Christmas and into January and February, we really had way more inventory in those 2 categories than we wanted to have. So we did do a significant pullback in Q3 in order to better position us for Q4, really looking for a gross margin dollar play here versus last year. I think we'll still see a little bit of pressure on the comps in Q4 in those 2 categories. But certainly, I think with the colder weather we're having, we'll have a better -- a top line there as well in Q4. From the answer to the accessories miss, we had some fashion misses in our hat department and in our hair department. I think looking back on it, it was just a little bit too similar to LY. The forward deliveries, which are really the December deliveries are starting to hit the floor now. And according to Natalie, we've seen some really good reaction to some of those -- some of that product in those 2 categories of hair and also in hats. So I think that we'll pretty quickly be able to turn the trend and we'll look to see those comp possibly in Q4. And as far as the baby question, we had improvement in baby over LY. I think that when you look at our assortment for Q3, was much more wear now. We really de-emphasized dressy and put much more into play wear, and you'll continue to see that for Q4. So we're pretty excited to continue to see sequential improvement there.

From a merchandise margin perspective, we were actually up about 70 basis points in the quarter. As I mentioned, our supply chain costs and occupancy fixed costs deleveraged based on the sales decrease. Supply chain represented about 1/2 of that amount and occupancy was about another 40% of that. So all in all, down about 60 bps in the quarter.

We'll take our next question from Thomas Filandro with Susquehanna Financial.

Could you guys please maybe give us a little bit of a deeper dive into the Canadian operations? I wanted to understand what you're seeing in terms of acceptance of your pricing structure, with Target now in town, and just give us sort of profit picture and what's happened year-to-date, and how you're thinking about that business going forward.

Yes, I'll start off. Hi, Tom. As far as we're concerned of competition up there, we feel pretty good about our Canadian business last quarter. We were able to improve sequentially 30 basis points for Q3. We've talked a lot on previous calls about the efforts we put up into Canada as far as the store team, the remodels, the refreshes and also the new merchandising team here in corporate. And with the efforts that they've done to really change the assortment to more match the profile of the Canadian customer. We are pretty happy with our market share up in Canada. We have a 10% market share up in Canada, we have the #2 market share. And we're able to hold that market share year-to-date even with all the competition up there, so we feel very good about our ability to compete from an assortment point of view as well as pricing.

And from a profit perspective, obviously, we're quite pleased with the progress we're making in our Canadian comps, as Jane mentioned -- down 2.9% in the third quarter. We're looking at segment profitability for our international group, which includes Canada and our new international businesses. For the third quarter, you'll see operating margins virtually flat year-on-year.

And we'll go next to Betty Chen with Mizuho Securities.

I was hoping for -- to squeeze in 2 questions, please. Could you, Jane, remind us the product costs for spring and whether we could continue to see some benefit as the team has done a great job of reducing costs this year? And then secondly, in terms of outlet, Michael, are we making progress towards reaching parity with the retail margins, if you could remind us where we are today?

Sure. As far as the product costs are concerned, Greg and his team have done a great job, as we mentioned, and have mentioned on country migration and vendor consolidation. There was a lot of opportunity in our supply chain to continue to fine-tune our efforts. And I think when you look forward to spring, we're not seeing anything in raw materials costing that gives us some pause. And really, it's all about labor. We should be able to -- we don't see anything that would keep us from being at least flat to 2013 in costing.

And from an outlet perspective, before we began our made-for-outlet product, we were actually down about 1,000 basis points in overall gross margins. We tightened that gap to 400 at the end of last year. And through the third quarter, we're at 230 basis points below our Place stores and with the goal of getting parity at the end of 2014. So we're well on our way to do that.

And we'll go next to Taposh Bari with Goldman Sachs.

2 questions for you. First is -- Mike, can you just help further decompose that 70 basis point merchandise margin improvement? I'm assuming channel mix and channel performance played a role there. And the second question is on SG&A down 7%, this quarter year-over-year, pretty impressive. I guess the question is how sustainable is that? What are some of the structural areas of cost savings that you're able to achieve?

Yes, from a cost savings perspective, first, we're managing store payroll very carefully and overall store expenses. And as we anticipated certain weeks with lower traffic volume, we reacted accordingly. So we're pleased with where we've been in the quarter and where we've been for the entire year in terms of store-in-store expenses. We're also putting pressure on the rest of the SG&A line, and we scrutinized all expenses where there's an opportunity to potentially decrease them. The question how sustainable is it, we're making progress, and it's slow and steady progress and that's our goal. We are going to be in a position where we start building our international and wholesale businesses, and our goal is not to add a lot of incremental overhead to support those 2 businesses. But really to leverage what we have from our company perspective. So it's -- we continue to just monitor it and watch it very carefully. From overall margin perspective -- we've, as I mentioned in my prepared remarks around some of the comps and costs associated with the different components of the business, we're overall pleased with the inventory management of our business, which enabled us to tightly control our merchandise margins. We were impacted in the quarter by the promotional climate out there. We anticipate that, that probably cost us about 60 basis points overall in terms of our margins -- our merchandise margins. And another 20 to 30 basis points was attributable to our hit on the top line from a promotional aspect. So we had guided that we would be up in gross margins for the quarter, up 10 to 30. We ended up down 60. So, between the promotional environment and the sales miss, that accounted for the miss.

And we'll go next to Janet Kloppenburg with JJK Research.

Jane, I was wondering if you could talk a little bit about the factory assortments. I thought they looked quite good this year, this quarter. And I was wondering if you could talk about the conversion to made for factory, if it's where you want it to be, and the overall metrics, the performance in that channel. And Mike, I might have missed it, but could you tell us what -- what the comps were in that channel? I don't know if you did. And also, Jane, on the baby -- on the baby assortments, did comps turn positive in the quarter? I'm not sure if that was highlighted either, but I do think those assortments look a lot better. And lastly, Mike, should we think that these kinds of SG&A savings are sustainable as we move forward?

Hey, Janet. I'll take it with the made-for-outlet. We are still on track to be at about 85% of the assortment on -- at the end of this year for made-for-outlet. And that's pretty much where we'll probably see through 2014. The team in outlet has done a really good job, and the sourcing teams has also done a good job there on AUCs. So we feel good about that, and we feel good about the customer response to outlet. As Mike mentioned, we closed the margin gap to 230 basis points. So we're looking, that parity by the end of 2014 on that. As far as the baby assortments, they didn't comp positive. They improved, but they did not comp positive. And we think a lot of that improvement came from -- having the assortments positioned much more wear now, much more play what than they had in the past and really the deemphasizing of the dressy assortments from LY.

So from a comp perspective, we mentioned we were going to begin to consolidated comps in the U.S. and in Canada. We would begin to do that beginning with next year. But from an overall perspective, our stores in the U.S. outlet was down about 2.5% on a comp basis. As far as SG&A, the guidance we give for 4Q, will have the SG&A dollars down again year-on-year. And I would ask you that to stay tuned to our March call, when we give guidance in '14 and we'll give you a little longer-term perspective on what SG&A would look like.

And we'll go next to Rick Patel with Stephens Inc.

Just a question on the Canada e-commerce. I know this is an area that's ramping up quickly. Do you expect the penetration in this region to hit the 15% level that you that you've outlined as your goal for the U.S. business? Or are there any structural reasons to assume why that can't occur? And as a follow-up question, as you build your presence in wholesale through some other retailers, have you considered selling products outside of Children's Place's own website?

Just from a penetration perspective, we're really pleased with the growth that we've seen in our e-com business in Canada. It was up again, about 50%, obviously off a very low basis. We just started this up. But from an overall penetration perspective, it represents about 7.5% to 8% of our Canadian business at this point. And so our expectation is given the environment in Canada and given the geographical situation with the country, we believe that e-com can be a significant portion of our overall business in Canada. And obviously, as I mentioned in my prepared remarks, we're looking at sale options in Canada, and we believe that it's wide open at this point in terms of the overall opportunity.

And we'll go next to Lee Giordano with Imperial Capital.

Can you talk a little bit about the store opening opportunity? You talked about the stores you're planning to close, but is there any other opportunity to expand within the U.S. store base? And then secondly, can you talk about the marketing strategy this holiday season, and how it might be different than a year ago?

Sure. I think as far as the marketing strategy is concerned, we're putting a lot behind digital versus LY. We've had some great performance on our website. Our e-commerce business continues to continues to grow every quarter. And we're certainly getting behind that from a resource allocation point of view, online marketing dollars and an inventory point of view. I think our windows that you'll see post Black Friday and through the month of December are much more impactful than they were LY. So we think that will be a plus for us to help us drive traffic. And also I think that when you look at some of the price point offerings that I really don't want to go too deeply in this for competitive reasons. But some of the traffic driving -- the promotional offerings that we have based on how we bought our inventory and how we bought into categories, I think we're much stronger than we were there versus last year. Also, loyalty is absolutely key as we move into fourth quarter. We've been very, very pleased with what we've seen on MyPlace Rewards so far. Our customers certainly responding. As we mentioned in the prepared remarks, we have a little bit over 7 million members right now. And we plan on increasing the resources we're going to put behind getting those MyPlace Rewards members into our stores more often during the fourth quarter as well.

And from a store perspective, we've opened approximately 70 stores annually over the last 4 years, including a planned 53 this year. I would anticipate as we go forward that we'll be shifting some of our capital dollars from store openings to IT systems. So I would anticipate store openings probably in the 30 to 35 range for 2014. We're really focused on improving the overall productivity of the store portfolio, and that's our focus.

And we'll go next to Dorothy Lakner with Topeka Capital Markets.

Just wondered if there are any changes that you're making in terms of product flows in the fourth quarter. I know you did make some changes with kind of back-to-school and holiday, how that was set up in the third quarter. So wondering if there are any changes for the fourth quarter. And then secondly, any detail you could provide on the improvements you've made to sourcing -- just any color you could add to how much vendor consolidation is going on, country migration, kind of where you expect to be going into 2014?

Sure, thanks, Dorothy. I think from a product flow point of view, as I think through how the quarter is going to play out, I think probably the biggest change is what you might see in the stores right now. We talked a lot about inventory management around here, and we're pretty proud of how we'd been able to manage our inventories over the past few years. Based on how we bought holiday, and we were able to put our new December delivery on the floor pre-Thanksgiving. Until last year, where we weren't really able to get that out on the floor to take advantage of Thanksgiving and Black Friday weekend, we were able to set that up this year. So we put that on the floors at the end of last week. And when you go out to stores, you'll see that. And we think that's a big competitive advantage to have those new goods on the floor. A lot of them are perfect for gift-giving. And they're much more wear now and feeling than they were last year, and that holds true as well for Canada. So I think that would be the biggest product flow difference you'll see for the quarter. The other one that you'll see at the end of the quarter is you'll see that last year, when Easter was a little bit earlier, we had our dressy deliveries set up earlier in the month of January. You won't see that set up until later in the month of January now. Those will be the 2 big things. As far as sourcing is concerned, as I said, Greg has really, in the last year since he's been here, done a tremendous amount to position us for success on the side of -- on supply chain. We do about 38% of our business in China. I would think over the next period of time, the next 2 to 3 years, we're looking to get that down pretty significantly, probably closer to 20%. So I would say that, that's probably the biggest thing that he's working on as he moves that to other countries India, Vietnam, Cambodia. And then also certainly on the country -- I'm sorry, on the vendor consolidation, he has done a pretty terrific job there as well and probably decreased our vendor -- vendor count by over 40% since he started. So pretty significant on both country migration and vendor consolidation.

And we'll go next to Brian Tunick with JPMorgan. Brian J. Tunick - JP Morgan Chase & Co, Research Division: I apologize if these 2 have been asked already. I just got on a little late. But -- first one is I wasn't sure if you said where your comps are running right now. But just trying to think with Hurricane Sandy results behind you from last year and obviously the big week ahead of us, just curious how you'd characterize your down low-single digit comp guidance? Conservative, somewhat optimistic? That would be helpful. And then the second question, just on the store closings side, have you said what kind of EBIT impact or benefit there could be in 2014?

So from a store closure perspective, what I mentioned in the last call is that the 100 stores that we had planned to close were doing approximately $100 million in sales and virtually no four-wall profitability. And we've just added 10 new stores to it. Believe me, those stores were not making sizable four-wall profitability. So basically, we'll lose sales on the top line and hopefully we'll recapture a portion of that to drive the operating margin. As far as comps go for fourth quarter-to-date, basically where we're trending is incorporated into our guidance. It's really hard to talk about comps for the first 3.5 weeks in November, given the fact that Thanksgiving already happened the previous year. So it's all incorporated.

And we'll go next to Stephanie Wissink with Piper Jaffray.

Mike, a couple for you and then a strategic question for you, Jane. Just in follow-up to Brian's prior question. I think you mentioned that the 110 store closures were by 2016. I just want to make sure that we understand, is that January 2016 fiscal year or calendar 2016? And then separately on the fourth quarter guidance, does that assume consistent merchandise margin expansion as what we saw in the third quarter? Or are you assuming something different at just looking at the promotional environment sequentially from back-to-school to holiday? And then for you, Jane, I know you don't want to reveal too much on the wholesale business. But could you give us some sense of how that merchandise assortment and pricing structure compares to the full line and outlet stores strategy that you have in place? And maybe stepping back, who do you see as a comparable model of success across those 3 channels that you're looking to emulate as the strategy unfolds?

So from a calendar perspective on the store closures -- that's fiscal 2016, not January 2016. Fourth quarter merchandise margins, we're expecting them to be flattish, maybe up, maybe 10 to 20 basis points. But we're planning it relative to flat at this point in time.

As far as the wholesale business is concerned, I think when you look at the pricing of the merchandise that is out in that channel, it's very similar pricing to where Place is. And from an assortment point of view, really, our wholesale partners go after more of a category-driven business than go after a collection kind of head-to-toe business like we do. So you'll see much more of a category focus at similar prices.

And we'll go next to Marni Shapiro with The Retail Tracker.

So could you talk a little bit about 2 things. If you can parse out with traffic at the outlets versus the malls, first of all. And then Jane, you talked a bit about the cold-weather accessories and the boots. You seemed to also set the outerwear a little more leanly this year or you blew it out very quickly, so if you could just touch on that as well.

Sure. As far as the outerwear is concerned, we were very happy with our outerwear results for Q3. What we did is we bought a lot a lot less of the heavyweight, what we call the 3-in-1 jackets. And we bought a lot more wear now this year across all divisions, baby as well as bigs. And we had some very, very good response during back-to-school and into September and early October to the lighter-weight wear now outerwear. So that business was strong for us.

From a traffic perspective, both our U.S. place stores and our U.S. Outlet stores were down mid-single digits in traffic. There really wasn't a big differential between them.

Great. And then just one more question. On your marketing, it looked really good. And I've noticed, you guys are doing some partnerships, and you did a contest online, I don't know if you're still running when I remember seeing one with the Frozen movie. Could you just talk a little bit, I guess, bigger picture about your thoughts on the marketing and doing things like that in interesting ways? Will we see that mostly through continue to the digital space? Or will you also do that whether it's directly on things like that and in-store?

On a bigger picture point of view, Marni, we think we have a huge opportunity with partnerships. We have over 1,100 stores in North America, and I think that it makes a lot of sense for us to partner with people that meet kind of the core, the essence of our brand. You're going to see it digitally. That's really where you'll see it. You won't -- direct mail is not a big part piece of our business, nor will it be going forward, so you'll continue to see us ramp that up through digital efforts.

And we'll go next to John Zolidis with The Buckingham Research Group.

Question on the fourth quarter outlook. Just curious, is there -- what would be the source of upside if we were able to get positive comps? Like how could you envision the business producing comp store sales growth? Last year, we were up 4%. The environment was similarly difficult. Is there anything the company could do to drive comps a little bit better in the fourth quarter? And then also on the fourth quarter guidance with regard to the merchandise margins, in rough terms, I think last year was up 150 bps, but that was up against 500-plus points decline in the previous year. Is there any way to recapture more of that merchandise margin decline from 2011?

So you -- as I mentioned, we're preparing for comps to be down low-single digits, and it's all based on the different components in terms of where we see traffic, where we see AUR. Obviously, we're still continuing to plan conversions up. So our thoughts around how can we get a positive comp would be if we could see a pickup in traffic instead of being down in the mid-single digits, which it's been. AURs, obviously, it's a very promotional time out there. We could do a little bit better on AURs. But we feel confident that our store fleet has been doing a great job around conversions and about getting more units per transaction executed in the stores, and we continue to hope to see that in Q4. From a merchandise margin perspective, we said flattish to slightly up for merchandise margins. Again, it's all a factor of AUR. We continue to see costs come down in the fourth quarter on a unit basis. But obviously, with the pressure of the promotional environment out there, we're planning on the AURs down.

And we'll go next to Susan Anderson with FBR Capital. Susan K. Anderson - FBR Capital Markets & Co., Research Division: I was wondering if you can talk a little bit about the bigger kids, big girls and big boys. And I assume you're kind of still taking share there and what you think you're doing really well there to take share?

Hey, Susan, thank you. On bigger kids, it's been pretty much the story for a couple of years now. We continue to be able to grow that business and expand that business. I think we've got the mix of basic fashion and seasonal basics right there. I think the product is on trend. And I think that when you look at what we're becoming known for, I think we're starting to be able to keep kids in our brands just a little bit longer than we have been able to in the past. From a market share point of view, we've been pretty happy with our market share. We've been able to grow market share every year since I came. And year-to-date even in this very difficult environment, very difficult promotional environment, we've been able to grow market share year-to-date. So we're pretty happy with what we've been able to accomplish.

And we'll take our last question from Dana Telsey with Telsey Advisory.

You talked a little bit about the big kids and the baby business, and the big kids expanding by around 170 basis points this quarter. Is that more than it was last quarter? And what's driving the strength of the big kids, and how much improvement are you seeing in baby?

Hey, Dana. I think when you look at the big kids business, what I would just tell you just as a snapshot of third quarter, I would have called it the quarter of wear now. The merchants and the stores team really did a good job of making that come to life in what is an absolutely critical period for us, the back-to-school. When you look in the business that we were able to do in key categories like denim, jeggings, graphic tees, woven bottoms and actives, it was really a terrific quarter for us. Baby, not as important, obviously in the back-to-school business isn't big. But what we were able to do in baby is continue to improve. And how we did that is really minimize some of the dress-up and fashion items that we had, and really, get back to basics and more play wear inspired looks, more casual looks, more end use. And the customer certainly responding to that. When you look going into fourth quarter, I think you'll see us continue to be able to do a great job in big, and I think you'll continue to see sequential improvement in baby as those assortments become even more wear now and even more geared into knits and playwear. So we're really looking to continue to see that baby number improve and really to maintain our leadership position in big.

I'd like to turn it back over to Ms. Jane Singer for any closing remarks.

Thank you for joining us today. If you have further questions, please call me at (201) 453-6955.

This does conclude today's conference. You may now disconnect, and have a wonderful day.