Children's Place, Inc. (The)

Good morning and welcome to the Children's Place third quarter 2023 earnings conference call. On the call today are Jane Elvers, President and Chief Executive Officer, Megan Markey, Brand President, and Seamus Tull, Chief Operating Officer and Chief Financial Officer. After the prepared remarks, we will open the call up to your questions. The Children's Place issued its third quarter 2023 earnings press release earlier this morning and a copy of the release and presentation materials have been posted to the Investors Relations section of the company's website. Before we begin, let me remind you that statements made on this conference call and in the company's earnings release and presentation materials about the company's outlook, plans, and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual and quarterly reports filed with the Securities and Exchange Commission and the presentation materials posted on the company's website. On this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. It is now my pleasure to turn the call over to Jane Elvers.

Thank you, and good morning, everyone. Our Q3 results exceeded our expectations on the top line. The top line beat was driven by another quarter of industry-leading digital performance fueled by a double-digit increase in e-commerce traffic with strong back-to-school results in August and the success of our seasonal categories in September and October. And our wholesale channel, led by Amazon, delivered another outstanding quarter. Importantly, our Q3 ending inventories were down 16%, exceeding our expectations. Our bottom-line results were negatively impacted in the third quarter by higher-than-planned distribution costs driven by a combination of largely unplanned but addressable factors. First, higher fulfillment costs, including the increased utilization of third-party fulfillment services, stemming from shipping significantly more e-commerce units than planned due to higher volumes coupled with an outsized increase in packages, resulting from lower transaction size, as our consumer remains under pressure in the current environment. Second, significantly higher labor costs than planned due to the increased e-commerce demand and a very tight labor market. And third, a delay of certain planned freight and fulfillment savings. Looking ahead, we are planning for these increased distribution costs to continue in the fourth quarter. Seamus will cover this in more detail in his prepared remarks. For the third quarter, our e-commerce sales were up low single digits, driven by a double digit increase in e-commerce traffic. Our e-commerce channel represented an industry leading 57% of our retail sales in Q3, up from 50% last year and 37% in 2019. Our digital channels are clearly where our current core millennial customer prefers to shop for her kids. And based on the data, digital is where our future Gen Z moms will overwhelmingly prefer to transact. Almost all new digital buyers will come from Gen Z. Gen Z digital buyers nationwide are expected to surge from 45 million today to over 61 million in 2027, only four short years away. The importance of the digitally native Gen Z demographic to our future business cannot be underestimated, and we remain laser focused on ensuring that digital is at the core of everything we do. While our core customer remains under significant pressure, We were pleased with our ability to drive top line above our expectations throughout the third quarter. Our top line momentum from Q3 has accelerated into Q4 as our customer is responding to our trend right assortments and our enhanced marketing tactics. November is off to a strong start with consolidated retail sales running up low single digits quarter to date versus last year. driven by the continued strength of our digital business. Our accelerated digital transformation and fleet optimization strategies have positioned us to operate the company with less resources, including less stores, less inventory, less people, and less expense, allowing us to better service our customer online where she prefers to shop, resulting in what we believe will translate to more consistent and sustainable results over time. Thank you, and now I'll turn it over to Megan to provide an update on our strong Q3 marketing results.

Thank you, Jane, and good morning, everyone. On our last call, we covered the four key pillars of our marketing transformation. Our partners, real-time optimized media measurement, marketing spend and contribution, and traditional versus non-traditional marketing. Today, we will focus on how those pillars have supported our Q3 top line results. Since launching our revamped marketing strategies in the back half of 2022, supported by our best-in-class partners and state-of-the-art marketing tools, we have significantly shifted the way we utilize media. Our strategies are rooted in a customer-centric mindset and filling the purchase funnel, which starts by driving qualified traffic. As Jane mentioned, we experienced a strong double digit increase in our digital traffic in Q3. Our positive traffic trends for the quarter are a direct result of knowing how to drive qualified audiences to our family of brands by utilizing our digital marketing channels, deep customer knowledge, and enhanced targeting capabilities. Our ability to scale our digital business by utilizing our digital marketing tactics, tools, and partners puts us ahead of our competition as we continue to acquire millennial and Gen Z customers into our family's brands. Now I'm going to recap our top of funnel performance. Our brand equity manifested itself in our top of funnel brand campaigns in Q3. Q3 contained two very important time periods for both our business and our consumers, back to school and the beginning of the holiday season. As a leader in the digital space, we know that our core digitally savvy millennial customer plans further ahead than our in-store shopper by browsing and purchasing earlier for all of the special emotional events in their children's lives. Combining this behavioral shopper knowledge with our leadership position in back to school, holiday dressing, and matching family pajamas, we launched two first to market seasonal campaigns with the goal of capturing in-market demand and market share. As a reminder, for Back to School, we partnered with the global pop superstars, the Jonas Brothers. The Jonas Brothers campaign delivered over 5 billion impressions across our earned and paid media efforts, as well as driving a 40% lift in mobile app downloads and a return on ad spend that is well above the industry benchmarks for top of funnel performance. For holiday, we launched two first-to-market blockbuster brand campaigns highlighting our expansive, full-family holiday assortment for the Children's Place and Gymboree brands, which include a three-part trilogy campaign combining music, family, and fashion to engage our core millennial consumer. This holiday campaign was a first-of-its-kind concept in the children's retail space. Music is synonymous with fashion. So for this year's holiday campaign, we partnered with music icons AJ McLean, Lance Bass, Joey Fatone, Wanya Morris, Snoop Dogg, and of course, the queen of Christmas herself, Mariah Carey, with a focus on our market-leading position in holiday dressy and PJs. For our Gymboree brand, we continued our long-standing partnership and ambassadorship with Mandy Moore and further expanded her engagement with the brand by designing a capsule collection with her for the winter season. Across our holiday campaigns for the Children's Place in Gymboree, we garnered over 12 billion impressions across our earned and paid media efforts. These incredibly disruptive brand campaigns also translated to positive top line results. For every dollar that we invested, we made over $5 back in top line revenue. In addition, the growth of our social presence and engagement driven by our very loyal communities through the start of the holiday season has been explosive. Since the launch of our holiday campaigns, our brands drove over 395,000 social interactions. Our performance has kept the Children's Place brands in the leadership position on social media, representing close to 50% of total social impressions amongst our children apparel retail competitive set. A robust digital acquisition strategy is critical to our success as a digital-first retailer. Our ongoing brand work, coupled with our fully integrated media strategies, fueled our digital acquisition growth during Q3. Q3 was our fifth consecutive quarter of increased acquisition, with digital acquisition up 3% to last year and up 93% to 2019. Our positive acquisition trend is a direct result of our transformed marketing and media mix strategies that strategically target the total addressable market in order to drive new customer acquisition. With respect to our marketing spend, in 2019, our total marketing spend was less than 2% of revenue versus the industry average for multi-channel brands of 5% to 7%. Our marketing spend, as reported, includes not only digital marketing, advertising, celebrity partnerships, and creative for our sites, it also includes the cost associated with our loyalty program, as well as our in-store signage and printed materials. Our marketing investment in Q3, we're in the mid single digit range, in line with our specialty peers. We have proven that we have the ability to drive incremental qualified traffic, capitalize on this traffic, and scale our digital penetration acquire net new audiences while engaging our existing shopper audiences into our family of brands. The progress we've been able to show in the challenging consumer environment gives us confidence in the significant opportunity ahead of us when the macro environment begins to improve. Now let's move on to our wholesale business. The significant time and resources that we have dedicated towards building our Amazon marketplace since the beginning of the pandemic have resulted in another outstanding quarter. Coming off of our biggest back-to-school season ever on Amazon, we participated in the October Prime Day event, resulting in the Children's Place largest week on Amazon in our history. The Children's Place matching family Christmas pajamas were highlighted as one of the top three favorite deals in Amazon's Prime Day press release. When we compare our relationship with Amazon today versus pre-pandemic, the progress we have made on both sides has been transformational. We believe that we have significant runway ahead for our continued wholesale growth in the fourth quarter and beyond. When we look at additional growth drivers in our wholesale channel for 2024, we're focused on the opportunity to scale the Walmart partnership and the international opportunity with Amazon. Thank you, and I will turn it over to Seamus.