Good morning and welcome to The Children's Place Third Quarter 2017 Conference Call. After the speakers' remarks, there will be a question-and-answer session. At this time, I will turn the call over to Mr. Bob Vill, Group Vice President, Finance.

Thank you for joining us this morning. With me here today are Jane Elfers, President and Chief Executive Officer; Mike Scarpa, Chief Operating Officer; and Anurup Pruthi, Chief Financial Officer. A copy of our press release can be found on our website. Before we begin, I would like to remind participants that any forward-looking statements made today are subject to the Safe Harbor statements 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 to these forward-looking statements to reflect events or circumstances after the date hereof. In addition, to find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations site. 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.

Thank you, Bob, and good morning, everybody. The third quarter was another outstanding quarter for The Children's Place, with comparable retail sales, gross margin, operating margin, and earnings per diluted share, all exceeding last year, enabling us to beat the high end of our guidance range. Let's review the highlights. First, our comp performance. We delivered a positive 5.1% consolidated comp. We delivered positive comps in both our brick-and-mortar and our digital channels. The U.S. delivered a positive 5.9% comp. Canada delivered a negative 1.2% comp, a significant improvement from Q2. Moving onto key metrics. AUR increased versus last year. ADS increased versus last year. UPTs increased versus last year. Transactions increased versus last year. Conversion increased versus last year. Gross margin leveraged 30 basis points versus last year. Merchandise margin was up for the 11th consecutive quarter, and our store traffic has experienced sequential improvement for each of the past six quarters. Now I want to cover several topics on everyone's mind and discuss their impact on our third quarter results. First, the impact from the three major hurricanes. We lost nearly $3 million in net sales in the third quarter due to hurricane-related closures in Houston, Florida, and Puerto Rico. While we experienced significant store closures in both Houston and Florida during and in the aftermath of the hurricane, we were able to reopen all of our stores, with the exception of one store in Houston, which is expected to reopen on Monday. In Puerto Rico, we have 11 stores; all of them are still closed. We expect to open three stores in November and three stores in December. We'll keep you posted on developments as they relate to the remaining five stores. Second, the impact of the Gymboree bankruptcy and the subsequent liquidation of hundreds of their…

Thank you, Jane. This morning I will provide an update on other key elements of our strategy, our growing business with Amazon, our international expansion, our fleet optimization program, and our connected store initiative. Starting with Amazon, we continue to see strong growth in our business with Amazon. We see continued opportunity in the replenishment program that we launched with Amazon in the third quarter of 2016. This replenishment program is incremental to the fashion wholesale business that we launched with them in 2015. We have identified additional styles and categories to add to the program and now expect to have over 5,000 SKUs in the program with this holiday season. Together with Amazon, we are leveraging new marketing programs to increase our exposure on their site and drive customers to our brand. We will also be providing more detailed product information, which we expect will increase customer conversion. We will launch with Amazon in Canada for holiday 2017 and are currently working with Amazon to pursue other international opportunities. Moving on to our international business. In our international franchise markets, we opened 10 new points of distribution in the third quarter and we now have 168 points of distribution in 19 countries. These include stores, shop-in-shops, and e-commerce websites operated by our partners. Our newest franchise partner, Gill Capital, will be opening five Children's Play stores in Indonesia on November 18. They expect to open 25 stores in that market over time. We believe we have the opportunity to establish over 300 points of distribution by the end of 2020. We expect to accomplish this through growth with existing partners, as well as expansion into new geographic regions with new partners. Fleet optimization. Our fleet optimization program continues to generate significant financial benefits. We have closed 156 stores since…

Thank you, Mike. Good morning, everyone. In the third quarter, we delivered adjusted EPS of $2.58 compared to adjusted EPS of $2.29 last year, a 13% increase. This resulted in a $0.12 beat versus the high end of our guidance range of $2.46. These results include a $0.03 tax benefit due to the new accounting rules for the income tax impact on share-based compensation. For the first nine months of 2017, we delivered adjusted EPS of $5.39 compared to adjusted EPS of $3.57 last year, a 51% increase. This increase in adjusted EPS includes a $0.90 benefit resulting from the new accounting rules for the income tax impact on share-based compensation. Excluding this benefit, adjusted EPS increased 26%. Details for the third quarter are as follows. Net sales increased 3.4% to $490 million. Comparable retail sales increased 5.1% on top of a positive 4.6% comp in the third quarter of 2016. U.S. comp sales increased 5.9%. Canada comp sales decreased 1.2%. We achieved positive comps in our brick-and-mortar stores, and continue to see a significant increase in the penetration of our e-commerce sales. Adjusted gross margin leveraged 30 basis points, to 41.3% of sales. This was driven by our 11th consecutive quarter of merchandise margin expansion and the leverage of fixed expenses, partially offset by the increased penetration of our e-commerce business, which operates at a lower gross margin rate due to higher fulfillment costs. Adjusted SG&A leveraged 50 basis points, to 23.9%. The leverage was primarily a result of the positive comparable retail sales, a decrease in store expenses driven by lower credit card fees, and lower incentive compensation accruals, partially offset by the investment in our transformation initiatives. Depreciation was $16.8 million for the quarter. Adjusted operating income was $68.4 million, an increase of 9.5% compared to last…

We ask in the interest of time that you do limit yourself to one question. Our first question comes from Susan Anderson with B. Riley.

Hi. Good morning. Very nice job on the quarter. Very impressive quarter, especially in this environment. I was wondering if you could talk a little bit more about AUR. I think you mentioned that all of the comp metrics really improved in the quarter. On the AUR front, maybe kind of if you could parcel out big drivers there. Is it mainly more full price selling, lower promotions, pricing, or even maybe a mix shift to higher ticket items? Because I feel like I have seen especially on the growth side some more fashion products that potentially could have higher tickets. And then kind of as we look out to next year, how should we think of the drivers there? Thanks.

Hi, Susan. It's Anurup. I'll take the AUR question in general. So, at the outset, it certainly reflects less clearance and a better mix of full price selling. As you know, strong product acceptance has been a common theme and been one of the key factors in driving our consolidated comps this year. So I think along with those factors, our inventory management tools, better in-stock position in basics, as Jane talked about, the success we had in fact with the back-to-school test in 2017, which we continue to pursue, all of those factors are driving a healthier AUR. It's more mix managed. We're certainly not in the – with our core customer and value proposition. It's not about raising prices, but it's more about in-stock position, better mix of basics versus fashion, continued very, very strong product acceptance.

Our next question comes from Adrienne Yih with Wolfe Research.

Good morning. Let me add my congratulations. Well done.

Thank you.

Jane, I'm going to start with a question for you. So can you just explain to us the changes that you have made to make the business less weather sensitive? Obviously, historically, the kid space has the most levered to these weather kind of anomalies. And based on what we've heard from other retailers so far, you actually have kind of come out the most robust, I guess, I'll say. And then can you also just talk about the digital focus, have you started to see the payback yet in this quarter and how many 12-month active customers do you have? Thank you.

Sure. As far as the cold weather categories are concerned or the wear-now categories are concerned, we really did make a fundamental change in the third quarter. We really put a stake in the ground and said, we were going to own the big items we needed to own during back-to-school, which are the denim and the graphics and the uniform. And that we were going to push the cold weather categories later into the year at some point into October and some of the categories even till November and December. So we focused on wear-now. We stayed in things like short-sleeve longer and pushed things like outerwear, cold weather accessories, microfleece, blanket sleepers, those types of things, much later in the quarter and that really paid off for us. As we move into Q4, we also have a much better, I think, category mix of not really heavy. As I mentioned, in my call the outerwear, the cold weather categories, they were bought conservatively. So the ability for us to make a lot more money on those and get out of them and not have carryover as we get into later December into January is really where we're at with that right now. As far as the digital transformation, as we mentioned on the call, Steve has started, he has brought some key players into his team and he's really starting to look at some low-hanging fruit and also really set us up for the future, which is really personalization. A lot of work going-on on a lot of fronts there. There's a lot of architectural work going on as it relates to like our digital platforms and upgrading functionality for moms. The conversion is really, as we discussed on the last call, the big play here and I think that that's what's going to come through when we get a little bit more sophisticated on predictive analytics through personalized marketing, and that's really the longer work into 2018 that we look to benefit from in 2019. The loyalty program is one of the things that we believe has really helped our business. We have very, very strong anniversary of last year's loyalty program and private label credit card launch. We are very excited that we were able to anniversary such a strong launch. And so we think that's helping us certainly on the marketing front, also rolling out BOPIS, we think, is helping us with traffic in our store and also with the attachment rate as we talked about. And then, certainly the other omni capabilities that Mike covered in his speech as far as, save the sale functionality coming up, ship from store functionality. There is a lot going on here as it relates to personalization, digital transformation, as we've been talking about, so lots of engines and firing on a lot of cylinders there. And as far as what our 12-month active customer file is, I think we're going to pass on that one.

Our next question comes from Stephen Albert with Bank of America Merrill Lynch.

Good morning, guys. Question is twofold. Number one, I was curious if you could parse out what your e-commerce sales growth was during the quarter? And then I wanted to, on the back of that, drill into the GMs a little bit, because my understanding is your fixed cost leverage point on your fixed COGS is a slightly positive comp. So driving a 5% comp and getting 30 bps of GM expansion with merch margin expansion as well. I'm just kind of curious, I'm assuming that's online shipping is the reason for the somewhat muted GM expansion. So I was curious if you could maybe give a sense for what your leverage point is on the fixed portion of your COGS, given a typical, call it, a 3 to 5 point sales mix shift to digital each quarter. Thank you.

Steve, it's Anurup. So, as we noted, merchandise margins, which obviously is the apex from a margin perspective, expanded for the 11th consecutive quarter, so very healthy comp driven by merchandise margin expansion for the consolidated business. As you noted, e-commerce had a very strong quarter. We don't typically break this out, because we really look at the business as a consolidated business comp for the quarter was 5.1%, 4.8% year-to-date. If we hit our guidance for the year, we would have expanded our operating margin to 9.6% versus 8.5%, and 400 basis points over just the last – since 2014. That being said, our e-commerce business has – in terms of its penetration to the total has increased by about 370 basis points in Q3, almost 400 basis points year-to-date. And as you would recall, it was 20% – almost 20% of our sales in 2016 and 17% the year prior. So very strong robust e-com growth in spite of not having all of the capabilities and tools that Jane described fully functional yet, but still to come. So we are very excited about that. But at the outset, I would just say, again, as far as our P&L geography is concerned, as e-com continues to penetrate and grow, we would see a lower rate of expansion in gross margin rate, but what we are really focused on is continued operating margin expansion. If we hit our guidance again for this year, EPS would grow about 21%, excluding the benefit of the excess tax share-based compensation. So very, very healthy metrics. And our e-commerce business, given high basket size and low returns, is accretive from an operating perspective. So very pleased with the business so far and as we continue to drive our digital efforts.

Our next question will come from Janet Kloppenburg with JJK Research.

Hi, everybody. I just wanted to ask, first a question about Canada. Do you see a road to that channel turning positive in the fourth quarter and going forward? And maybe just elaborate there on the improvement in the comp trend. And then just, Mike, on the Amazon business, you said you're going to 5,000 SKUs, maybe you can remind us where you were and somehow quantify for us the impact this is having on margins in the third quarter and going forward. Thank you.

Sure. Hi, Janet.

Hi. I forgot to say congratulations, but anyways, congratulations.

No problem, you can say it again.

Okay, okay.

As far as Canada is concerned, as we mentioned on our second quarter call, we had been cutting back receipts in Canada for several quarters due to FX issues, economic issues, et cetera, and we just cut too far in Q2. And as we said on the Q2 call, we will be in a much better inventory position heading into Q3, and you saw that by our results today, it was a significant improvement in trend from the Q2 trend. While still negative, the improvement, I think, was due to the same type of philosophy we did in the United States, which was to buy into the basics and to really own the items during the key back-to-school period. And yes, we do think Canada will turn positive; embedded in our Q4 guidance is a positive comp in Canada.

From an Amazon perspective, we started the replenishment program with them approximately a year ago, and roughly had about 300 SKUs on the site. We increased that to about 2,000 in the first quarter of this year. Last call, we talked about having up to 4,000 SKUs, and now they continue to add items on and we'll be over 5,000 as we enter the holiday season. Also, we've also expanded into Canada for holiday of 2017, so positive there also. From an overall margin perspective, we've said all along that the wholesale and the international franchise gross margins are dilutive to the company. Given the lean SG&A structure, that the overall operating margins are accretive to our bottom line. And we've been saying that since 2012, and we've been able to increase our overall margins from a guidance perspective now up to 400 basis points for this year, and we can still make the statement that they are overall accretive to our operating margin.

Our next question will come from Marni Shapiro with The Retail Tracker.

Hey, guys. Congratulations. The stores look fantastic.

Thank you.

Can you talk a little bit actually about the mix in your stores? Physically, the girls dominates the space and I'm curious if that's actually true in sales, and I'm curious about the mix online. Is it more heavily weighted towards girls for fashion? And then sort of follow-up would be, if that is the case, is there an opportunity in boy, or do boys' parents just not buy as much?

Hi, Marni.

Hi.

It's Jane. To answer your question, the girls' product does look amazing. Thank you. But overall, when you look at the trend and you look at the comp, the comps are very consistent across all categories, from toddler to big, to boy, to girl, to accessories, to shoes. So I would not say that the girls business is driving our outsized comp and making us the outlier that we are in retail. As far as online is concerned, there is a much heavier penetration in line on a couple things. The shoe business penetrates a lot heavier online and a couple of the categories embedded within fashion, and some of the seasonal categories trend higher online. But overall, you could say the same thing, that the business online is very well balanced.

Our next question will come from Jim Chartier with Monness, Crespi & Hardt (sic) [Monness, Crespi, Hardt] (36:52). Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Good morning. Nice quarter.

Hi, Jim. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: I had two questions. First, last quarter you mentioned you had some new digital tools that would help you better target displaced Gymboree customers. So curious how those are working for you. Are you seeing a greater lift from those store closings than maybe you had seen in previous years? And then second, I know it's – you probably don't want to talk about next year, but how should we think about the tax rate for next year? And specifically, do you expect to see a similar benefit from the income tax impact on share-based compensation next year? Thank you.

Sure. I'll take the Gymboree part. We have been able to use some tools to target displaced customers there. And we have seen through the third quarter a stronger comp in the stores where we're closing up against Gymboree than the balance of the fleet. And then as I said on the call, even though we're only a couple of weeks into the quarter, the trend in the stores that they have closed, the 135 stores that we mentioned they've closed, has been stronger than the balance of the fleet. So we are very hopeful/confident that going forward we will continue to see a nice market share gain from Gymboree as they close the stores that have been closed, and then as they continue to close stores through the fourth quarter.

Jim, on the tax rate for 2018, more on that to come when we actually have our next call and talk about 2018 in more detail. As far as the tax rate on stock comp, I think it's all subject to legislation at this point, given what's happening in Washington. So we will, obviously, update you once we have our 2018 – our first view into 2018. So that's – just stay tuned until then, please.

Our last question this morning will come from Anna Andreeva with Oppenheimer. Anna Andreeva - Oppenheimer & Co., Inc.: Great. Thanks so much. Good morning, everyone.

Hi. Anna Andreeva - Oppenheimer & Co., Inc.: A couple of questions. On inventories, I guess, curious what's driving the high single-digit increase at the end of the fourth quarter? And overall, inventories have been managed so tightly all these years. Just as we look into 2018, should we expect to see increases now as the new tools are in place? And then secondly on SG&A, I think you guided for deleverage during the quarter. Just curious if there were any timing shift in the digital expenses.

It's Anurup, Anna. From an expenses – I think the SG&A piece first, overall SG&A leveraged, as you noted, versus a guidance of deleverage, primarily driven by the very, very strong comp. We also indicated that store expenses were down (39:35) driven by credit card fees, and what's driving that is the continued penetration of our private label credit card business. So, overall, expenses were pretty much, aside from obviously getting leverage on the comp and the favorability on credit card fees, a slight timing issue on incentive comp, but overall the leverage was primarily attributed to those first two factors. There was no significant timing issues in the quarter and we continue to, obviously, manage expenses as prudently as possible while we continue to invest in our transformation efforts. As we noted on the Q3 inventory position, inventories ex-in-transit were up low single digits. As we look into Q4, we are asserting the opportunity in terms of what we have learned in back-to-school 2017. And as we chased and sold those basic units, gave us very, very strong results. So we continue to chase that opportunity into Q4. We also have an extra week of receipts with the 53rd week this year. But overall with the tools that we have deployed and the tools that we will deploy and continue to deploy, we do expect over the longer term to continue to see inventories inflect downwards and drive inventory productivity in the future.

Thank you for joining us today. If you have further questions, please call Bob Vill at 201-453-6693. You may now disconnect your lines and have a wonderful day.