Susan Riley: In this quarter gross margin was down at both brands. The external gross margin was down at both Disney and Children''s Place, due primarily to markdowns.
Kimberly Greenberger (Citigroup): Are you seeing some sourcing gains at Disney and those were overwhelmed by higher markdown levels, or are you now seeing the same progress with sourcing and increased IMU at the Disney brand?
Tara Poseley: We are pleased with the direction that we are moving our initial margin. The second quarter was driven by a higher markdown rate, much more promotional environment and it affected our margin for the quarter. We have made good strides in apparel. That was a core competency of the company and we were able to tackle that area first. There would still be some savings in that area, but the area we still have opportunity in toys, but we want to find the right partners in toys. We are taking that slowly to make sure these are long-term partners. We do believe as we expand our sourcing base in that area we will continue to glean better initial margins in the future.
Kimberly Greenberger (Citigroup): The Disney concessions are in adult merchandise, not in product, that would draw children necessarily to other specialty retailers. Is that the right way to read it?
Ezra Dabah: That is correct.
Janet Kloppenburg (JJK Research): Could you talk about the corrections to course you took specifically?
Amy Hauk: In hindsight in the second quarter, there are a couple of missteps that we made. We launched Ariel and her sisters and we did the Tiki Family collection, and we did an interruptive, more sophisticated flat line art style. It just did not resonate with our guests. We corrected that going forward. We are being more literal in story telling in our art style. We have one idea too many in our stores in the second quarter.
Janet Kloppenburg (JJK Research): Could you talk about the competitive profile in the back-to-school period?
Ezra Dabah: Back-to-school season started off competitively with Wal-Mart being the first, dropping prices 10% to 15%. The majority of that slowdown in the start to the season had to do with those major states that delayed their back-to-school opening. Because of the slow start, everybody became competitive and we were part of that. Whatever we did, our promotion cadence on denim and expediting our back-to-school sale about ten days earlier has helped results month-to-date.
Janet Kloppenburg (JJK Research): Is there a way to create a situation, where you and Disney have an understanding and where you are not constantly in violation of contract covenants?
Ezra Dabah: We have gotten some relief on our obligations in 2007 and 2008, so one might take that from there that we have gotten some ability to push back some of our obligation in 2008 and 2009.
John Zolidis (Buckingham Research): Could you give the square footage for both divisions?
Susan Riley: Square footage, is 4.1 for Children''s Place and 5.1 for Disney.
John Zolidis (Buckingham Research): The inventory plan for the end of the third quarter is up mid-teens for the Children''s Place division and up in the mid-20s excluding the e-commerce business for Disney. Why do you feel that planning inventory so aggressively when you had experienced some sales softness?
Ezra Dabah: The guidance for the end of the third quarter, without e-com at Disney, says inventory being up in the teens, not the 20s. Both brands are in the teens at the end of the third quarter. It trends from the first half of the year continuing to the back half of the year, then we have more inventory than we would like. What we have done is in the guidance that we gave this morning, we have contemplated the markdowns necessary to get back inline by the end of the year, assuming that should happen. The downside in the markdowns due to having liquidate the inventory is already built into our guidance.
John Zolidis (Buckingham Research): Are you saying that a mid-teen increase is higher than you would like it to be, or that is where you want it to be?
Ezra Dabah: It depends on what happens to the business. On The Children''s Place side, a year ago, we came out and said going into the fourth quarter we came in under the inventory level that we would like and going into the first quarter of this year, we had less inventory carryover than we would have liked. There is still a fair amount of volume that gets done on carryover inventory at markdown in both of those quarters. Part of the adjustment on the TCP side is due to us wanting to have more inventory than we had last year, because we think we ratcheted down too much last year. However, the increased inventory investment in the back half is much more focused in a narrow deep assortment rather than scattered over a broad assortment. We think it is a bigger investment and it was a planned bigger investment, but a much smarter investment. On the Disney side, there is couple of other things going on. One is, there were some store slides and changes based on some of the stuff that has been going on, trying to land on the remodel. We ended up buying for a few more stores than we would have liked to and we now have to deal with that inventory. On the positive side at Disney, there is a bigger percentage of the inventory that is basic or ongoing and our ability to get out of some of that inventory and push it out and adjust our inventory levels is higher at Disney. In either case, what we have done is in the guidance we have built in the markdowns, we need to get to the level we would want to be at the end of the year.
Margaret Whitfield (Sterne Agee): What are your current thoughts on a buyback given the valuation of the shares currently?
Ezra Dabah: Since we could not do a buyback while the SEC filings are not current, a buyback is something that the Board has not considered. We listen to our shareholders and we know that this is an idea that a number of shareholders want us to consider. Our management and our Board are committed to enhancing shareholder value and acting in the company''s best interest, so we will see what happens from here.
Margaret Whitfield (Sterne Agee): Does the last incident with Disney, in which you have not received any written confirmation, differ in any way from the prior situations for which you did get written confirmation that they were not breaches?
Tara Poseley: It is more of the same. The only reason why we did not have a waiver of the breach is because it surfaced later in the cycle. What had happened in that instance is that there was a store that we had been in dialogue with Disney about delaying a store because the mall the center of the store was located in was undergoing a renovation, so design plans for that store were not submitted along with other design plans. It is a breach as the letter is written, but nonetheless it is relatively minor and is being contemplated in this overall amendment that we have been talking about.
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