The Children's Place, Inc. (PLCE) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to The Children's Place second quarter 2015 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 revision of these forward-looking statements to reflect the events or circumstances after the date hereof. After the prepared remarks, we will open the call to questions. We ask that each of you limit yourself to one question, so that everyone will have an opportunity. I will now turn the call over to Jane Elfers. Jane T. Elfers - President, Chief Executive Officer & Director: Thank you, Laurie, and good morning everyone. We delivered earnings at the upper end of our guidance range in Q2. Adjusted EPS was negative $0.33 versus our guidance range of negative $0.36 to negative $0.32, includes about negative $0.02 impact due to foreign exchange. This compares to adjusted EPS of negative $0.37 in the second quarter of 2014. Q2 sales of $366 million were 4.7% lower versus last year. Comp sales decreased 3.5% in the quarter. U.S. comp sales decreased 3.3%. Canada comp sales decreased 5.1%. Our negative 3.5% comp in the quarter was primarily driven by a significant deceleration of consumer traffic as the quarter progressed, resulting in a more intense promotional environment than anticipated, which was further exacerbated by the continuing West Coast port issues experienced by our competitive set. Despite these headwinds, our clean inventory position enabled us to expand AUR and increase our merchandise margin and gross margin compared to last year. Importantly, our inventories remain in excellent shape. We ended the second quarter with total inventory down 7.4% and carryover inventory down 18%. Our disciplined operational execution, tight expense control, and effective inventory management enabled us to achieve these results in a challenging quarter. Traffic had significantly accelerated in the month of August, and we have seen a very positive response to our back-to-school assortment, resulting in a low single-digit positive comp quarter to date. We believe we are well positioned to deliver third quarter adjusted EPS in the range of $1.90 to $1.96 inclusive of a $0.07 negative impact from foreign exchange compared to adjusted EPS of $1.82 in the third quarter of 2014. We are updating our fiscal 2015 adjusted EPS guidance range to $3.35 to $3.45 from a range of $3.30 to $3.45, inclusive of a $0.15 negative impact from foreign exchange, reflecting our confidence in our outlook for the balance of the year. We returned $24 million to shareholders through the repurchase of approximately 324,000 shares and dividend payments. We have $78 million remaining on our share buyback authorization. This provides us with the flexibility to continue to return capital to shareholders at a significant rate as part of our overall capital allocation strategy. We've been strategic in our use of capital, making significant investments in our systems while we continue to return capital to shareholders. We are on track with these investments and have delivered all of our major systems milestones on schedule. We have been sharply focused on the execution of our transformation plan, and we are pleased with our continued progress on this initiative. We expect to continue to deliver enhanced value to shareholders throughout 2015 and beyond as we realize the full benefits of our transformation. Now I'll turn it over to Mike.

Thank you, Jane, and good morning, everyone. I will provide an update on our transformation and other operating initiatives. We have made significant progress to date on our transformation initiatives. Some key milestones include: the launch of our core merchandising and pricing modules for our ERP system; the successful implementation of a global sourcing portal; the implementation of our assortment planning tool; and most recently for back-to-school, the implementation of our new allocation and replenishment tool. In addition, upgrades to our e-commerce website and mobile site permitting advanced functionality and enhancements to our CRM capabilities allow us to focus on customer segmentation to increase acquisition, retention, and engagement. Fleet optimization, we remain on track to close a total of 200 stores through 2017, including the 76 stores we closed in 2013 and 2014 along with the 14 stores we have closed in the first two quarters of 2015. We continue to monitor the 12-month sales transfer rate on the stores we have closed. During the second quarter, we analyzed the eight stores that we had closed in the first quarter of 2014. Consistent with the previously closed stores, the 12-month sales transfer rate on those eight stores are in excess of 20%. In those markets where we have closed stores, we are seeing the neighboring stores along with our e-commerce business become more productive from both a comp sales and profitability perspective. These results further our commitment to executing this optimization program while dramatically slowing down new store openings. Channel expansion, we are confident about the long-term growth and profit potential associated with our expansion into alternative channels of distribution as we further develop our relationships with our international and wholesale partners. We made significant progress in Q2 on the investments in technology that we discussed on the last call, which will enable us to accelerate our channel expansion through our international, wholesale, and e-commerce channels beginning with the summer 2016 season. The majority of these enhancements are completed, fully automating key processes supporting inventory receipts and deliveries with our partners. In addition, enhancements that will enable the movement of inventory between channels will be implemented in the third quarter. Importantly, we have also developed sorely needed EDI capabilities that will greatly enhance our interaction with our customers. We will be rolling this technology out in the coming months. Finally, we opened our first retail store, first shop-in-shop location, and also launched an e-commerce business in India this month with our partner, Arvind Lifestyle Brands. There was extensive media coverage and an outstanding response from the public. It is early days, but we cannot be more pleased with the launch and the opportunity in this market. We ended the second quarter with 85 franchise stores and are planning to end the year with approximately 100 franchise stores. Inventory management initiatives, we continue to refine our learnings with our assortment planning tool to optimize our overall buys and better match breadth of assortment with depth of inventory. As we plan for spring 2016, we are seeing a mid-single-digit reduction in our unit buy. We went live with our new allocation and replenishment tool for a portion of our back-to-school delivery. This module complements our assortment planning tool and drives initial store allocation using dynamic data and algorithms to forecast demand by store. Based on initial sales results, it flows product to stores in the appropriate quantity, maximizing margin opportunities. Early readings from our initial use of this system indicate that we can allocate less product upfront to each store and replenish more frequently based on demand. We are also on track to initiate work at the end of this quarter on a markdown optimization tool to complete the three major pillars of our inventory management efforts. Digital capabilities, the continued development of our digital capabilities will be critical to our continued success. Here is an update. One, customer acquisition; we successfully launched e-receipts across our store fleet in Q2 and continue to make enhancements to our search engine capabilities. Two, customer retention; our recently completed work on the strategic segmentation of our customers enables us to deliver real-time, personalized product recommendations, providing more relevant content and messaging based upon our customer's unique behaviors. Three, customer engagement, we made changes to our loyalty program to significantly improve customer ease of online account creation and access to points and rewards. We now have enhanced life cycle marketing capabilities, enabling us to target those customers best suited to be loyalty members. And finally, four, cross channel fulfillment; we are in the process of implementing a new order management system, which will enable us to pilot cross channel fulfillment capabilities early in fiscal 2016. Now I'll turn it over to Anurup, who will take you through our second quarter results and our third quarter and full-year 2015 guidance.

Thank you, Mike. Good morning, everyone. In the second quarter, we delivered an adjusted loss per diluted share of negative $0.33 compared to negative $0.37 per diluted share in the second quarter last year. The comparison to the second quarter of 2014 was negatively impacted by $0.02 due to foreign exchange. Details for the second quarter are as follows. Net sales were $366 million. The comparison to the second quarter of 2014 was negatively impacted by foreign exchange of $6.4 million. Comparable retail sales decreased 3.5% compared to our guidance of an increase of approximately 1% and a positive 0.8% comp last year. E-commerce accounted for 17% of net sales in the quarter compared to 15% last year. Adjusted gross margin for the quarter leveraged 40 basis points versus last year to 31.4%, compared to our guidance of an increase of 60 basis points to 80 basis points. We benefited from a merchandise margin increase and a higher AUR, which was partially offset by the dilutive impact on gross margin of our channel expansion initiatives, and the fixed cost deleverage resulting from the negative comp. Adjusted SG&A leveraged 60 basis points compared to last year to 29.6% compared to our guidance of flat to deleverage of 20 basis points. As we saw traffic begin to decelerate, we made a concerted effort to reduce our SG&A spend during the quarter. Adjusted SG&A spending decreased by $7.4 million compared to last year driven by reductions in store payroll and administrative expenses offset by increased spending related to our transformation efforts. Adjusted operating income leveraged 80 basis points to negative 2.4% of sales compared to our guidance of leverage of 40 basis points to 70 basis points. Moving onto the balance sheet, our cash and short-term investments at the end of the quarter were $205 million compared to $200 million last year. We ended the quarter with $30 million outstanding on our revolver compared to $27 million last year. Balance sheet inventory; inventory at the end of the quarter was down $25 million versus last year or 7.4%, better than our guidance of a mid-single digit decrease. Carryover inventory was down 18% versus last year. We are very pleased with these results and with the help of our new systems, we will continue to tightly manage our inventory levels. Now, let me take you through our guidance. Third quarter guidance; we project third quarter adjusted EPS to be in the range of $1.90 per share to $1.96 per share compared to $1.82 per share in the third quarter of 2014. This guidance range assumes that currency exchange rates will negatively impact adjusted EPS by approximately $0.07 in the third quarter. Our third quarter guidance assumes that comparable retail sales will increase by approximately 1%. We expect adjusted gross margin to leverage 40 basis points to 60 basis points compared to last year. We expect adjusted SG&A to leverage 10 basis points to 30 basis points compared to last year. Our third quarter guidance assumes that depreciation will be approximately $17 million, deleveraging 50 basis points compared to last year, reflecting increased depreciation associated with certain transformation-related systems that went live in the second quarter. We are guiding inventory will be down mid-single digits at the end of the third quarter compared to last year. We project adjusted operating margin to leverage 10 basis points to 40 basis points compared to last year. Now, on to full year 2015 guidance. We are updating our fiscal 2015 adjusted EPS guidance to be in the range of $3.35 to $3.45 per share, bringing up the low end of the range by $0.05. This is inclusive of a $0.15 negative EPS impact for the full year due to FX, assuming the currency exchange rates remain consistent with today's rates for the balance of the year. We expect comparable retail sales for the year to be approximately flat compared to last year. We expect adjusted gross margin to leverage 60 basis points to 80 basis points compared to 2014. We expect adjusted SG&A to leverage approximately 30 basis points compared to last year. We expect depreciation for the full year 2015 to be approximately $65 million. We project adjusted operating margin to leverage 60 basis points to 70 basis points compared to 2014. This guidance excludes unusual cost or events at our reported in our non-GAAP adjustments. Additional guidance for fiscal 2015; we expect our tax rate to be approximately 33.5% for the year. We expect AUC to be down low-single digits in Q3 compared to last year. We are in the process of assessing the opportunity for additional reductions in cost in the fourth quarter and beyond based on the recent Asian currency devaluations. We are forecasting another year of strong cash from operations in 2015. Our CapEx is expected to be approximately $65 million to $70 million for the year. We plan to open five stores and close 30 stores in 2015. At this point, we'll open the call to your questions.

Your first question comes from the line of Dorothy Lakner of Topeka Capital.

Thanks and good morning, everyone, and congrats on getting through the quarter in fine shape. I just wondered if, Jane, you could talk a little bit about the strength in terms of product in the quarter and what we should be looking for this quarter in terms of newness in the assortments. Any color you could provide would be great. Jane T. Elfers - President, Chief Executive Officer & Director: Hi and thanks, Dorothy. We've made the decision internally that going forward, we're no longer going to provide detail around sales by gender, division, or category on these calls. This is a very competitive space and getting more competitive by the day. And being the number one player in this space, we found we have a lot of imitators. So we're going to stop providing specifics around product performance. And particularly now that our go-forward product is all going to be from our new design team, we are super excited about the early reads we're getting. So, we're going to keep that information to ourselves. As far as the back-to-school selling environment, I can give you a little bit of color on that. As we've talked about and we've all read, it appears to have started later this year, and I think there are a couple of reasons for that. I think the customer continues to shop closer to need. We've seen that year after year, and we're certainly seeing that this year. We had the big tax-free shift from July into August. We have a later Labor Day, which should be a positive for us, as we had mentioned in our press release. We're running a positive comp right now, and we've got three weeks of August behind us. We've got the big tax-free events behind us. And we still think we have a benefit to come with Labor Day a week later, so we're excited about that. We've spent a lot of time preparing for back-to-school, as we do every year; and not just the product, but the marketing efforts surrounding them. And we think that all that work is really paying off in the sales column.

Your next question comes from the line of Lorraine Hutchinson of Bank of America. Lorraine Maikis Hutchinson - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Thank you, good morning. I wanted to follow up on your gross margin guidance for the third quarter. With AUC down low single digits and some of the systems initiatives kicking in, can you talk about what some of the puts and takes are to get to that 40 to 60 basis point increase? And then also, if you could, give us an update, now that you've had the system in place in a limited way, what your longer term gross margin should look like. Should we think about it getting back up above the 40% range over time?

Hi, Lori, this is Anurup. I'll take the first part, and defer the second part on the systems to Mike. In terms of our guidance for the third quarter, as you recall, at our year-end call we had guided a 20 to 50 bps increase in gross margins for the year. After our Q1 performance and early indications we were getting from data reads of our new tools, we updated our guidance to reflect an increase of 80 to 100 bps. Based on our Q2 results, we are revising our guidance to leverage 60 to 80 bps, also recognizing the continued promotional environment that we've talked about. It's important to note that inventories are in excellent condition as we move into Q3, down 7.4% overall, with carryover inventory down 18%. Our assortment planning tool has consistently indicated reduction in overall unit buys. And we went live, as you know, with our new allocation and replenishment tool for back-to-school. We are starting to see some cotton price benefit along with the continued efforts from our sourcing teams, with AUCs down – apparel AUCs down low single digits in the back half of the year. We are continuing to work on the recent currency devaluations that have occurred just very recently, so more on that to come as we update Q4 and beyond. And on the marketing front, all of our digital efforts will help to acquire, engage, and retain our customer in a much stronger way going forward. And of course, we expect product acceptance from mom to continue to be outstanding. So all of this has really gone into the confidence in our guide currently of an increase of 60 to 80 bps for the year.

As far as long term goes, we're looking at it more in terms of operating margin than just gross margin expansion. We've talked about three keys to the expansion of the operating margin being the systems transformation, optimizing our store real estate portfolio, and expanding alternative channels of distribution. We've had a solid start with our systems transformation with SAP going in last year on time. We've layered in APT, and as Anurup has mentioned, have significantly curtailed our buys from summer 2015 through our planning process so far in spring of 2016. Went live with our allocation and replenishment tool, and have seen some good results so far in terms of allocating less to the stores initially and then feeding back in terms of the sales that the stores have had, so feeding back into that demand. And then we've talked about the digital opportunities around acquisition, with e-receipts adding over 250,000 new emails just in a couple of months. We've seen customer retention through the segmentation process. And obviously with the adjustments we've made to loyalty, we're seeing more customer engagement. From a real estate perspective, we're looking to close 200 underperforming doors through 2017 with a 20% sales transfer rate. We can expect 100 basis points more on operating margin. And then, alternative channels, distribution, wholesale, international, both accretive to operating margin, but dilutive to our gross margin. And we're happy with the systems work that we completed in Q2, and I think we're poised to grow those businesses long term.

Your next question comes from the line of Betty Chen of Mizuho Securities.

Hello. Good morning everyone. Nice quarter. I was wondering, Jane, if you can talk a little bit now about the environment. I know the second quarter was tough partly also on the port disruption on some of your competitors. Do you feel like the group is entering the third quarter with a cleaner inventory position? And also, any early thoughts on the promotional cadence? And then I had a clarification. In terms of the metrics for the second quarter, with AUR, can you quantify how much AUR was up and what were some of the other metrics, like UPT or conversion? Thanks. Jane T. Elfers - President, Chief Executive Officer & Director: Thanks, Betty. It's Jane. On the promotional environment, it was an intensely promotional environment in Q2. I think that we saw a lot of our competitive set over-inventoried due to the issues they experienced with the West Coast port strike. And as we had mentioned in the press release, as the quarter progressed, the traffic significantly decelerated. So, we had a low-single digit drop in traffic in May, mid-single digit drop in traffic in June, and a very high-single digit drop in traffic in July. And with those traffic drops – as those traffic drops happen, the promotional environment accelerated, and the sales kind of went with the traffic. So, that's what we saw for Q2. We've seen a significant increase in traffic starting into August, so we're excited about that. As we had mentioned, we're running a positive comp, and we're seeing some really nice reads in back-to-school. I can't really speak to the competitive set as far as their inventory levels into third quarter. I don't really have this ability into that. The back-to-school season is always very promotional particularly in the month of August with the key items and the basics that everyone is getting behind. We'll have to see what happens for the balance of Q3. As far as The Children's Place is concerned, as I look at into the balance of Q3, I think that we, here at TCP, have quite a bit to be optimistic about. We have our new design team's product. It's going to be hitting post Labor Day and as I'd mentioned early the reads on that product are pretty exciting. Mike mentioned stronger acquisition improvements in organic and paid search, stronger social media. He spoke about the retention and engagement strategy. We have lower AUCs into the third quarter and the improvements on the allocation and replenishment front exciting as well and a very strong senior leadership team. So I think hopefully we're set up to see some good things in Q3.

Your next question comes from the line of Susan Anderson of FBR. Susan K. Anderson - FBR Capital Markets & Co.: Good morning. Thanks for taking my question. I was wondering if you could talk about merch margin in the second quarter and then also expectations for third quarter. And then on the competitive environment, I know it's still early in third quarter, but maybe if you can touch on if you feel like – I know it's always heightened, but if it's kind of come back down a little bit so far. And does your guidance basically assume the heightened environment that you saw for second quarter? And I guess was that the primary driver of the lower expectation for gross margin? Thanks.

Hi, this is Anurup. I'll take the second quarter first. As Jane mentioned, we saw traffic deceleration throughout the quarter sequentially as we progressed. Despite the negative comps, both our AUR and merchandise margins have both expanded now for the – for Q2 as well as Q1. So overall, given the tough environment and the overall promotional environment, inventory gluts in the channel, we're pretty pleased with the overall outcome of the quarter. And from a total perspective, our balance sheet ended the quarter in excellent shape, inventories down 7.4%. We generated $40 million in cash from operations compared to $14 million last year. We've returned $68 million to shareholders through stock buybacks and dividends through the first six months. And SG&A leveraged 60 bps, and operating income leveraged 80 bps. So, overall, from a second quarter perspective, given the environment, pretty pleased with those results. And from a third quarter margin guidance perspective, yes, certainly, we have incorporated the environment into our overall guidance. And as I noted a few minutes ago, we had originally at the year-end guidance provided a margin outlook of 20 bps to 50 bps increase. We revised that subsequently in Q1 based upon the results at that point in time, as well as the environment at that point in time, to an increase of 80 bps to 100 bps. And now we've – our latest guidance based on Q2 results and the state of the market as it is today and what we foresee for the foreseeable future, an increase of 60 bps to 80 bps for the full year. So, that's our overall guidance at this point in time.

Your next question comes from the line of Anna Andreeva of Oppenheimer. Anna Andreeva - Oppenheimer & Co., Inc. (Broker): Great, thanks so much. Good morning, guys, and thanks for taking our question. So great to hear about acceleration in the business here in August. Maybe talk about is that driven by higher promotional stance on your part. Are you guys seeing any significant difference in early back-to-school regions versus later back-to-school? I know it's quite early here for the Northeast. And do you think that momentum is sustainable as we go through the third quarter? If I remember correctly, October was the easiest compare from last year. And then on the capital structure, with $8 in cash per share, just any updated thoughts on the capital structure going forward? Thanks. Jane T. Elfers - President, Chief Executive Officer & Director: Sure. Thanks, Anna. It's Jane. For August, as far as what I'm seeing on promotions, August is the usually, from what I've seen since I've been here, the most promotional month of the three months of the quarter as people are really kind of duking it out on basics for back-to-school like denim, backpacks, uniform, graphics. So, I don't really see a more of an intensity in the month of August so far on the promotional environment than we've seen in years past. So, I would say that everything is pretty much baked into our guidance on that. As far as significant differences to markets, as I have mentioned, we are past the tax rate. We were pretty excited about our tax free results and we've got those markets behind us. We look at our business in three dimensions during back-to-school which is really the first week of August through the end of Labor Day. We have the early markets, the mid-markets and the later markets. So we are pretty much past the early and the mid, and now we are moving into the later markets, as you mentioned, which is really the Northeast, Metro New York and New Jersey. And those markets will start to turn on this week. And then, as I'd mentioned, the benefit of a later Labor Day will get mom shopping again next week. So, pretty much on track as we expected it to be by region and promotionally. And I'll turn it back over to these guys on the capital question.

This is Anurup. On the capital structure issue, as you know, since 2009, since inception of our buyback program, we've returned over $560 million to shareholders. And this year, we've returned about $68 million in terms of share repurchase and dividends back to the shareholders. At the end of the second quarter, we have about $78 million on our stock repurchase authorization and the company has a lot of confidence that we would execute our strategic initiatives which will result in strong operating cash generation. This certainly provides us with the flexibility to increase or return capital to shareholders. And as we progress on this front and – in concert with our board, we will keep you updated.

Your next question comes from the line of Adrienne Yih of Wolfe Research.

Good morning and let me congratulate you on really putting together a nice quarter in a very difficult environment. My question, Jane, can you talk about the Canadian business? What trends you're seeing there? And if you can at all give us any color where the margin performance is relative to the U.S. business? And then, Anurup, if you can just talk about – you talked about the yuan impact for the fourth quarter of this year, and – with the long lead times, I was just wondering what could you do in that short of a timeframe? Thank you very much. Jane T. Elfers - President, Chief Executive Officer & Director: Thanks, Adrienne. It's Jane. I'll start with the Canada business. Our Canada business was difficult in Q2 and we've projected our business since the beginning of the year to be a little tougher, the consumers under a lot of pressure up there. There is big FX headwinds going on up there and the economy is – has been a little bit tougher. I will tell you that as the U.S. business has turned around in the month of August with traffic, we've seen a really nice turnaround in the Canadian business as well. It's early days. We've got three weeks behind us but we're pretty excited about what we're seeing up there. And basically from a merchandise point of view, the trends are similar. When you look at Canada and when they go back to school, there's a closer like to when they go back to school. There's not the differences between, as we just discussed on the last question. You don't have necessarily the early, mid and late delineations. It's closer towards one-time. And they are also this year going back to school later than they did last year, similar to the U.S. Labor Day. Not that they have Labor Day, but they're going back later. So we're starting to see a nice pickup up there as well in the month August.

As far as the devaluation goes, it's not just the yuan, as you know. It's several Asian currencies that have been devalued – revalued in the very recent times. And we're really focused on the last three months of the cycle, which is really production and delivery because yes, there are long lead times. But it's obviously incumbent on us now to go back and evaluate what we can do from a costing perspective for deliveries that are being produced onwards. So that would really be in the Q4 time period and beyond. So we have just initiated that work given these recent developments, and we will keep you posted as we progress.

Your next question comes from the line of Dana Telsey of Telsey Advisory Group.

Good morning, everyone. As you look at the wholesale business, can you give us an update on the wholesale business, how it's progressing, new partners that you may be working with, and when there will be more clarity to that, and how the profitability is? On the e-commerce business, how was the level of promotions there and the margins relative to the stores business? Thank you.

So from a wholesale perspective, we feel we're making significant progress with the business though it's still relatively small. As we've mentioned in the past, accounts take a while to ramp up, and they usually begin testing with specific categories and specific divisions. A key to unlocking the wholesale business though has been what we've been talking about in terms of systems enhancements. And as I mentioned on the call, we've made significant progress in Q2 with the majority of the enhancements that we needed to really start to scale these businesses being implemented. We also are in the – we've developed the EDI capabilities, which we've mentioned in the past that have been critical to really communicating and enhancing our interactions with this customer base. So we're really pleased with it. We've mentioned overall that wholesale and international both accretive to operating margin though dilutive to gross margin.

Your next question comes from the line of Rick Patel of Stephens, Inc.

Thanks. Good morning, everyone, just a question on the pricing environment. So with cotton prices coming down and competitors having a little more wiggle room on the margin front, do you expect average prices to continue coming down across the sector in the back half? And if so, how do we think about positive comps in the third quarter? Is it going to be AUR driven due to smarter inventory management, or do you see other drivers having a benefit?

Hi, Rick. This is Anurup. I think it's all of the above. So certainly in our guidance, we have assumed AUR improvement. We certainly recognize that the overall environment is going to face certain headwinds in terms of promotions and hopefully the lingering effects of the West Coast port strike not continuing effects. But we have also, as you know, put in the tools in terms of our APT, our allocation and replenishment tools. We are investing consistently in our digital capabilities, our channel expansion capabilities that all go into us providing a guidance of 1% comp for the third quarter.

Your next question comes from the line of Janet Kloppenburg of JJK Research.

Good morning, everyone, congrats on a good quarter. I had a couple of questions, particularly on AUC. Given the fact that capacity is opening up in several Asian markets, I'm wondering if you think your AUC opportunity for fiscal 2016 could extend beyond what you're seeing here in 2015. And, Jane, I had a question about your clearance levels. I totally appreciate how much they're down. But I'm just wondering if you think that may impact the business as you get towards the end of the quarter when many of your competitors have higher clearance levels and are promoting more aggressively to clear seasonal product before the next season's line reaches the stores. I'm just wondering about that. And if someone could comment on margin trends in the factory channel, that would be great, given the work that you've done there to increase your made-for-factory assortment. Thanks. Jane T. Elfers - President, Chief Executive Officer & Director: Janet, let me just answer the third question on the outlet. We did have a nice improvement in margin and AUR, and that's about all we're going to say because we're not really discussing channels. On the clearance levels, I really think in Q2 there was a lot of clearance around because of the West Coast port issues. So there was certainly AUR pressure, and we saw that. I think as we go into – and we didn't have the systems in place in Q2 on the allocation and replenishment side. As we go into Q3, with fresh receipts for back-to-school, as we said, we're seeing some really nice reads on the back-to-school product, and we expect to continue to see improvement in our inventory management capabilities with respect to allocation and replenishment. So I think that's going to go a long way to combating the clearance issue that we may see from the other competitors. I think as we continue to flow goods, new goods more often and more appropriately, that's going to put us in good shape for the back half the year. And then I'll turn it over to Anurup for the AUC question.

Hi. On the AUC question, in terms of 2016, as I indicated earlier, little early to tell, however, we do have certain factors in our favor. The cotton deflation is expected to continue, recent currency devaluations and most – as importantly, the continued efforts of our sourcing teams across the globe. We are now in the process of developing our summer line. So, I think it's still early to tell. I think we are optimistic, however, from a go-forward trend in our AUCs. And we will update you sequentially on the next call on our progress.

Your next question comes from the line of Marni Shapiro of The Retail Tracker.

Hey, guys. Congratulations. The stores look fantastic. Could you just give us an update on traffic? I'm curious if you saw the trends fall off and then accelerate the same in the mall as you did on street locations. And did those trends follow the same in the outlets and online? Was it across the board? Jane T. Elfers - President, Chief Executive Officer & Director: Hi, Marni, and thanks. We're really excited about the new product as well. So, thank you for noticing. As far as traffic in Q2, it got significantly worse as the months progressed. And I would say that it was pretty consistent between channels. In the month of August, we've seen a significant bounce back in traffic in all channels of business. So, we feel good about that. And then as far as the street versus the mall locations, a lot of our street locations are located in the Northeast. We have a lot of street locations in the Metro region. So, we anticipate that this week and next week, we are going to really start to see the traffic come back in those locations as they really fall into the later back-to-school category.

Your next question comes from the line of Jay Sole of Morgan Stanley. Jay Sole - Morgan Stanley & Co. LLC: Hey, good morning. I want to ask about SG&A, really strong SG&A control again. And there's probably some store closures in there and some FX in there. Can you just talk about how dollars grew at the store level and maybe at the corporate level just to give us an idea of how those buckets are changing?

Jay, this is Anurup. Hi. I'll give you an update on overall SG&A development for Q2. As the quarter progressed, as we discussed before, traffic steadily decelerated. We reacted immediately and made adjustments primarily in store payroll, in all of our discretionary spend, and other administrative areas. The second quarter builds in volume and therefore our variable, and SME variable spend also builds by month, which also enabled us the opportunity to react in time. And our management team really executed consistently across the board, demonstrated the speed and the flexibility necessary to make these adjustments. And as we mentioned consistently, our investment in our transformation projects continued uninterrupted. And as we look forward, Janet, I mean, our work in SG&A is really never complete. We will consistently look to innovate and explore other opportunities. Our guidance however reflects our current views on how we will manage expenses for the balance of the year and this is in relation to all of the other KPIs and levers we need to execute in order to maximize the business. Finally, and I will just point out, we have reduced SG&A by approximately $45 million in the last two years. The current full year guidance projects another $15 million reduction this year. And we have established a strong expense management culture here at TCP and we'll continue to drive it forward.

Your next question comes from the line of Richard Jaffe of Stifel. Richard E. Jaffe - Stifel, Nicolaus & Co., Inc.: Thanks very much, guys, just a couple of follow-on questions. Could you break out the contribution from wholesale and franchise as a percent of operating margin? And then a couple of questions about back-to-school as well.

We're not going to disclose that at this point in time. Richard E. Jaffe - Stifel, Nicolaus & Co., Inc.: Okay. If you could just comment on the areas of weakness in the back-to-school floor sets last year that are now opportunities this year and then comment on some of the price competition for basics and the uniform business, and wondering, if there's some pressure in those two category. Thank you. Jane T. Elfers - President, Chief Executive Officer & Director: Thanks, Richard. We're not going to comment on what we're up against from last year that we think is an opportunity this year. As I mentioned in the beginning, we have really seen over the past couple of years a lot of imitation being the number one player and certainly our mall based competitors, a couple of them are really struggling on the products front. So we're going to keep that information to ourselves, particularly as it pertains to go forward in the back half. From a price competition point of view, I do not see the deeper price competition in the month of August, anything deeper than what we anticipated or that was certainly baked into our promotional calendar. To your point, the uniform business is extremely promotional in the month of August through Labor Day as is the denim business and the backpack business and I think that we're seeing similar to promotions to last year for the most part, planned promotion.

Your next question comes from the line of Taposh Bari of Goldman Sachs. Chad H. Sutherland - Goldman Sachs & Co.: Hi, guys. This is Chad on for Taposh. Two questions for you on the first half in total. So the first one, how much was AUC up in the first half? And on the second, how big of a role are the new systems planning in the gross margin results? Of gross margins up 100 bps, how much of that is new systems? Thanks.

AUC is – this is not stripped out for the effect of tax and sets that we have obviously in our assortment, was up low-single digits in the first half. I would say it's truly up slightly in the first half, which was a sequential improvement over the back half of 2014, but we saw it up low-single digits and obviously as we look forward into 3Q and beyond, we expect AUCs to come down. In terms of tools and effect on our overall margins, the tools in terms of APT, our allocation and replenishment tools, we've just went live in back-to-school across certain product categories, it certainly become part and parcel of everything we do now in terms of inventory management and we are also looking to eventually roll out our markdown optimization tool later on in the year. So all of these factors, from the early days, when it became more of a behavior and the process, learning to – actually, when these tools get deployed and start having a real effect on our buys and allocation decisions, so they're certainly part and parcel of our overall margin delivery as we progress during the year.

We will take our last question from Tom Filandro of Susquehanna Financial.

Hi, thanks for taking my two questions and congratulations on controlling the controllables. It's a good quarter. So Anurup, a question for you, a follow-up on the SG&A, you guys had some great success on the payroll flexibility. I was wondering if you had further flexibility if sales slow down during the quarter and I'm curious if you made any adjustment to the field organization structure that's providing that flexibility. Thank you.

Hi. I would start by saying we've got a very experienced and deeply versatile field team, which allowed us to control the controllables, as you said, in the second quarter. We're not going to provide any specifics around those aspects going forward, except to repeat sort of what I said before, which is SG&A management is certainly part and parcel of the culture here at TCP. The way the second quarter played out in terms of the build of volume by month and therefore also the build of variable and semi-variable expenses allowed us to move quickly and react to the overall traffic issues. And I think as we look forward, we have the bench and team here to provide the flexibility and to react to business conditions as they warrant. So, very much part of the TCP culture here in terms of expense management, and we'll keep you updated as we progress.

Thank you for joining us today. If you have further questions, please call Bob Vill at 201-453-6693.