Children’s Place Inc. (PLCE) Q2 2020 Earnings Call Transcript

Children’s Place Inc. (NASDAQ: PLCE) Q2 2020 Earnings Conference Call
Aug. 25, 2020

Corporate Participants:

Anthony Attardo — Director of Investor Relations

Jane Elfers — President and Chief Executive Officer

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

Analysts:

Dana Telsey — Telsey Advisory Group — Analyst

Jim Chartier — Monness, Crespi and Hardt — Analyst

Adrienne Yih — Barclays — Analyst

Jay Sole — UBS — Analyst

Paul Lejuez — Citi — Analyst

Susan Anderson — B. Riley FBR — Analyst

David Buckley — Bank of America Merrill Lynch — Analyst

Marni Shapiro — The Retail Tracker — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to The Children’s Place Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

It is now my pleasure to turn the floor over to Anthony Attardo, Director of Investor Relations to begin.

Anthony Attardo — Director of Investor Relations

Good morning and welcome to Children’s Places conference call. On the call today are Jane Elfers, President and Chief Executive Officer; and Mike Scarpa, Chief Operating Officer and Chief Financial Officer.

The Children’s Place issued press releases early this morning and copies of the releases and presentation materials for today’s call have been posted on the Investor Relations section of the company’s website. After the speaker’s remarks, there will be a question-and-answer session.

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, including the Risk Factors section of the company’s annual report on Form 10-K for its most recent fiscal year. 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 revisions to these forward-looking statements to reflect events or circumstances after the date hereof.

After the prepared remarks, we will open the call to your questions. We ask that each of you limit yourself to one question, so that everyone will have an opportunity.

And with that, I’d like to turn the call over to Jane Elfers.

Jane Elfers — President and Chief Executive Officer

Thank you, Anthony, and good morning everyone. We generated a 118% increase in our digital channel in Q2. We have clearly benefited from our digital transformation investments, which provided us with the omni-channel capabilities necessary to fulfill our strong online demand. Increased digital adoption accelerated by COVID-19 continues to drive online sales to an increasingly greater share of our overall sales, representing a long-term market share opportunity.

Importantly, our digital growth came from both existing and new customers. Since March, we have increased new customers to our digital file by approximately 175%, converted our store-only customers to omni-channel customers at a rate approximately 3 times the pre-pandemic rate and increased our app downloads by 115%. And according to NPD data through June, we were the only pure-play children’s retailer to gain market share year-to-date.

With respect to inventory the teams did a great job selling through our spring and summer product and we are entering Q3 seasonal carryover inventory down approximately 50%. Importantly, we have zero pack and hold on our balance sheet or sitting in overseas factories, which allows us to continue to take full advantage of what we believe will be a favorable AUC environment in 2021.

With respect to fleet optimization, the next phase of our fleet optimization initiative leverages our lease flexibility to accelerate store closings. We are targeting 300 store closures through the end of fiscal 2021, with 200 in fiscal 2020, inclusive of the 102 permanent store closures we executed during the first half of 2020, and 100 closures in fiscal 2021, bringing our total fleet to approximately 625 stores by the end of fiscal ’21.

And lastly since the onset of the pandemic in March, we have focused on internally modeling and externally discussing the potential short-term headwinds of COVID-19 as they relate to our business, particularly the impact of continued remote learning through the back half of the year and the pressure on Q4, due to reduced holiday traffic and a sustained promotional environment. At the same time we’ve remained focused on the long-term by accelerating our digital and fleet optimization strategies in support of market share opportunities that have been and will continue to be created by the pandemic.

And now I’ll turn it over to Mike.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

Thank you, Jane and good morning everyone. I’ll start by reviewing our Q2 results, I will then provide an update on our progress on the strategic actions taken to significantly accelerate our store closures. I will then provide some insight on our current business.

Starting with our Q2 results. In the fiscal second quarter, we generated an adjusted EPS loss of $1.48, net sales decreased approximately 12% to $369 million versus last year’s $421 million. E-commerce sales increased 118% to approximately 71% of total net sales as online accelerated following store closures in March. Despite our stores being closed for over half of the selling days in the quarter, sales growth was up mid single-digits through the end of June, when school districts across the country began moving to remote or hybrid learning models, which we believe meaningfully impacted sales in July. Last year, July represented approximately 39% of total Q2 sales.

Adjusted gross margin. Adjusted gross margin decreased 760 basis points to 25.4% of net sales. Merchandise margins were down slightly in the quarter as a result of liquidation sales at stores permanently closed during the quarter. Merchandise margins in our digital business increased in the quarter. The gross margin decrease was primarily the result of higher fulfillment costs related to meaningfully higher levels of Ship from Store activity, due to strong digital demand. Adjusted gross margin excluded approximately $27 million in charges, primarily due to occupancy charges related to stores temporarily closed, due to COVID-19. We did resume rent payments on a modified basis in Q2 as stores began to reopen.

Adjusted SG&A. Adjusted SG&A was approximately $104 million versus $116 million last year and deleveraged 60 basis points to 28.1% of net sales, primarily as a result of deleverage of fixed expenses resulting from the decline in sales, partially offset by a reduction in operating expenses associated with actions taken in response to the COVID-19 pandemic. Adjusted SG&A excludes approximately $11 million in certain items, primarily related to approximately $9 million in charges, due to incremental COVID-19 expenses in stores along with store closing costs.

Adjusted operating income. Adjusted operating loss for the quarter was $25 million versus operating income of $6 million last year and delevered 820 basis points to negative 6.8% of sales. Tax rate, our adjusted tax rate was 22.2% versus 15.9% last year.

Moving onto the balance sheet. Our cash and short-term investments ended the quarter at $36 million, as compared to $72 million in Q1. We ended the quarter with $251 million outstanding on our revolving credit facility, compared to $235 million outstanding on our revolving credit facility in Q1. The changes reflect funding to support operations and seasonal working capital needs. Inventory management continues to be a top priority for us, and we exited the quarter with inventories down approximately 1% to last year and with seasonal carryover inventory down by roughly half, allowing us to enter the important back half with current seasonal inventory.

Based on current sales trends, we anticipate a build-in inventory levels in Q3 versus last year, primarily in uniform and basics. The company plans to feature it’s back-to-school assortment for an extended period of time permitting parents to shop later when there is additional certainty on the timing of a return to in-person learning.

Moving onto cash flow and liquidity. We used approximately $43 million in cash flow from operations in the second quarter, as compared to $2 million in cash generated in Q2 of last year. Historically, the company generates the majority of its annual cash flow in the back half of the year. Capital expenditures in Q2 were approximately $9 million.

I’ll now provide a brief update on our store activity in the quarter along with planned actions we are taking to accelerate our fleet optimization initiative. We permanently closed 98 locations in the quarter, which brings our total store closures to 102 for the first half of fiscal 2020. We opened two locations in Q2 and ended the quarter with 771 of our 824 locations opened to the public. With the remaining stores largely in California anticipated to open as local health guidelines allow. As e-commerce demand has accelerated partly as a result of COVID-19, we have significantly increased our planned store closures and continue to target approximately 300 store locations to close in fiscal 2020 and 2021.

We remain on track with our target to close approximately 200 store locations in fiscal 2020, including the 102 locations closed in the first half of 2020, and approximately 100 additional stores that we are targeting to close in fiscal 2021, resulting in approximately 625 store locations by year-end fiscal 2021. By the end of fiscal 2021. We continue to expect to greatly reduce our reliance on our brick and mortar channel, resulting in a smaller, more profitable store footprint and positioning us to enter fiscal 2022 with less than an estimated 25% of our total revenue in traditional malls.

Outlook. Due to the continued level of uncertainty in the current business environment, we are not providing guidance for 2020. However, we think it is important to provide some insight with respect to our current business. The company is providing total net sales in lieu of comparable retail sales metrics, given the impact on the current business environment, due to the continued number of store closures related to the COVID-19 pandemic. With over 90% of our major US markets, adopting either 100% remote or hybrid learning models for the start of the school year. Our back-to-school sales have been significantly impacted. Approximately 70% of our Q3 sales are normally generated in August and September, with the majority of those sales coming from back-to-school apparel and accessories.

In addition to the significant negative impact on our sales from remote and hybrid learning models, there are three other notable factors that are adversely impacting our total net sales in Q3 by an estimated 10% when combined: first, the 147 permanent store closures that we are still up against from 2019 and 2020; second, over 50 stores are still temporarily closed in California and New York, due to state and local mandates; and third, a majority of our stores are in malls that are subject to operating hours dictated by the mall owners. In most of these locations, we cannot open before 11:00 a.m. and we are required to close at 7:00 p.m. We normally generate approximately 15% of our sales after 7:00 p.m.

Taking all of these factors into account, we are anticipating our total net sales for the third quarter to be in the range of negative 25% to negative 30%. To help put the loss of in-person learning into perspective, our Canadian business is trending down single-digits quarter-to-date with close to 90% of Canadian schools returning to full-time in-person learning, the opposite of the United States.

Looking ahead, we are planning for our business to be adversely impacted in Q4, particularly as it pertains to the continuation of significantly reduced store traffic and the expectations of the heightened and sustained promotional environment, as retailer start their holiday events earlier and with more urgency.

At this point, we will open the call to your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Dana Telsey of Telsey Advisory Group.

Dana Telsey — Telsey Advisory Group — Analyst

Good morning, everyone. Hope everyone is safe and healthy. As you think of these upcoming third quarter and inventory planning, Mike, you said a build-in inventory in uniform and basics. How do you think of that inventory build? How much should it be? How are you thinking about the margins?

And Jane when you think about the shift to digital, what learning’s you’re getting in terms of what consumers are buying anything different? And how are you managing fulfillment and shipping costs? Is there a leverage point on that fulfillment and shipping cost? Thank you.

Jane Elfers — President and Chief Executive Officer

Sure. Well, thanks, Dana, I hope you’re well as well. From a digital perspective of what selling in Q2, we had a very strong performance in digital and I think when you look at our assortments in Q2 they directly mirrored what mom was looking for. She was looking for casual products, she was looking for comfortable product and I think we had spoken about it when we were on the call in June that a lot of that business was driven by graphic tees and mix and match and shorts and things that kids were wearing as they were at home and not in school, and obviously with the weather change.

When you look at what happens to our inventory, starting at 7.15 both online and in stores, they switch over to back-to-school with a heavy focus on basics. And so I would say that while our online business is doing better than our brick and mortar business, our online business is still very much struggling as the assortments are really pitched to the back-to-school basics.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

And from an overall inventory perspective, we ended the quarter with inventories down about $5 million or 1%, but our carryover inventories were roughly half of what it was a year ago. So we entered Q3 in really good shape. Based on the current sales trends that we’re seeing, we do expect inventories to build during the quarter, primarily in uniform and basics. We could see our inventories up, low double-digits at the end of Q3 based on our projection for sales. We will be featuring our back-to-school assortments for an extended period of time, which will permit parents to shop later as certainty on the timing of the return to in-person learning happens and we have no plans at this time to be in a position to mark that inventory down.

Operator

Your next question comes from the line of Jim Chartier of Monness, Crespi and Hardt.

Jim Chartier — Monness, Crespi and Hardt — Analyst

Good morning. Thanks for taking my question. Mike, can you just talk about the — how your e-commerce fulfillment looks for back-to-school and beyond? And what your plan is for Ship from Store going forward? And then how that should help improve the e-commerce and margins for the back half? Thanks.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

Sure. Obviously, we pointed out that the major hit on our gross margin line, was the Ship from Store fulfillment that we did in the second quarter, fulfilling e-com demand from our store inventory. We did roughly 55% of our e-com shipping from — in the perspective of Ship from Store. So obviously a very unproductive way to move that inventory, but obviously we had the demand online to do that.

As we go into the third quarter we see — third and fourth quarters, we see that the Ship from Store will be a much more reasonable percentage overall, we normally plan Ship from Store in the 3% to 5% range. So from the third quarter perspective, we think our margins will continue to improve on a basis points differential versus last year similar to what happened in Q2. But we think Q4 could be a different story. Q4 particularly as it pertains to significantly reduced store traffic will result in a higher penetration of our e-com business and we believe this along with the establishment of surcharges, the shipping of e-commerce packages imposed by both UPS and USPS will result the pressure on margins in the fourth quarter.

Operator

Your next question comes from the line of Adrienne Yih of Barclays.

Adrienne Yih — Barclays — Analyst

Good morning, everybody, as well. Jane, a couple of questions for you, so holiday, obviously, everybody is talking about an earlier shopping experience by the consumer, more concentrated perhaps a big change in Black Friday. Can you talk about how you are staffing the stores, planning store events and planning the inventory flows for holiday? And then number two, could you also give us an update on the Gymboree aspect in the launch therein?

And then Mike, just a couple of housekeeping question. I assume you’re seeing the ATV size go up, baskets go up on a fewer shopping encounters. And then on merch margin, I understand the pressure on the gross margin for shipping, deleverage etc. On the merch margin given that you’re expecting — that you have less carryover inventory and you’re expecting to build that inventory at the end of the third quarter. When do we see merch margin flat or the positive inflection? Thank you very much.

Jane Elfers — President and Chief Executive Officer

Sure. Okay, well let me start off for gym — as far as Gymboree is concerned the response to each new Gymboree collection that we’ve put out there has been very positive, it’s still a small part of the business. We significantly de-emphasize the amount of dressy product that we placed in the back half of 2020, particularly for holiday, due to COVID-19, and as we know, holiday dress-up is a key part of the Gymboree business. So we’re not anticipating to see a big pop there, but they’re very happy with the deliveries. We have had the feedback continues to be good for mom and we’ll be introducing mostly casual collections in early September.

From a Children’s Place point of view from an inventory point of view, to start with that — with holiday, we did a significant pullback on dresses and dress-up product when we placed our holiday by an anticipation that COVID-19 would continue and that, social get together’s would be minimized. So that is — I think a positive — certainly from a margin point of view is that it’s fashion product and with the higher AURs, so that’s a significant pullback. I think from just looking at Q4, we are being extraordinarily cautious as we think about Q4, we think that as you mentioned that the promotional environment will be heightened, it will be sustained throughout the entire quarter. We think that the holiday sales will start earlier as retailers try to spread the demand out, if you will. There is definitely a customer of version to shopping in-store, and I think that there is going to be significant pressure on Black Friday that might not be well understood.

Right now, I think you’re hearing a lot of people say that they’re going to close on Thanksgiving, which we are as well, but I don’t think that they’ve really addressed Black Friday itself. We anticipate that there will be a significantly reduced Black Friday event. I’m — we’re not even sure if there will even be a traditional in-store Black Friday this year, certainly not appropriate to have door busters and driving large amounts of traffic into the store, and we think families will be very reticent to pack the malls on Black Friday and in some of those big December weekend. So we think that’s definitely a jeopardy from a storage point of view, you certainly have the freights, surcharges that Mike spoke about. So you’re looking at an unnaturally high percentage of online business in Q4. And that has been a growing percent of our business, but like I said, it’s going to be a unnaturally high percent of our business. So the freight, surcharges are going to hurt there on the margin lines. We don’t know about COVID spikes or are there going to be more temporary store closures throughout Q4, and then you throw on top of it, the uncertainty around the presidential election. So just overall proceed with caution.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

And just from a merchandise margin perspective. Our merchandise margins in the second quarter were pretty much in line with our expectations, they were just down slightly and they were predominantly driven by the 98 stores that we liquidated and closed in the quarter. Along with a higher penetration of e-com, compared to last year. Margins actually — merch margins actually increased in our e-comm business in the second quarter.

In the third quarter we — our point of view is that we can continue to see slightly elevated merch margins for both our retail and e-com business though, when you look at the penetration of e-com, we anticipate that it will be higher than where it was a year ago, so that could slightly dilute the merch margins overall. And then from an inventory perspective, I did indicate that the build was in uniform and basics and at this point in time as I mentioned, we do not have any plans to mark that down, and we’ll leave that at our normal selling price as we continue on through the quarter.

Operator

Your next question comes from the line of Jay Sole of UBS.

Jay Sole — UBS — Analyst

Great, thank you so much. I just want to ask you about one of your competitors, who caters more to an older female. Is closing a whole lot of stores. Can you just talk about how that’s impacted the business lately? And more importantly, do you see an opportunity to perhaps take market share after those stores are gone, when you look into next year? Thank you.

Jane Elfers — President and Chief Executive Officer

Sure, Jay, I assume you’re talking about Justice and so…

Jay Sole — UBS — Analyst

Yes.

Jane Elfers — President and Chief Executive Officer

As far as Justice is concerned they had 828 stores and their strategy was to liquidate 710 of those stores or 86%, which would leave them with a 118 stores and a website. All of those 710 liquidations are complete as of last week. So that liquidation is completely behind us. From a co-located perspective, we were co-located with 464 of those Justice stores or 56% of the stores and of those 464 stores, 388 of them are now liquidated, which is 83% of them, leaving us with 76 remaining co-locations. From a market share point of view, obviously Justice was focused on the size 4 to 20 girl, which is — has the major overlap with us, particularly in the 4 to 10 age range, and their market share in 2019. The total market share is zero to 10 in 2019 was about $26.5 billion and they were 1.7% of that.

Operator

Your next question comes from the line of Paul Lejuez of Citi.

Paul Lejuez — Citi — Analyst

Hey guys, thanks. Just curious, if you could talk about the cost to get out of some of these stores. Maybe the ones that you’ve already closed in first half, what you’ve got coming in the second half and what we’ve got on the way in F ’21? And then can you also talk about the stores that remained open? Are you trying to work now on rent rates, please talk about any success that you might be having on that front? And also, just totally separate, could you just remind us average basket size online versus in-stores? And what your return rates look like online versus in-store? Thanks.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

From a fleet perspective, we’ve built tremendous flexibility into the portfolio and we have basically leased about 65% of our fleet has lease actions by the end of 2021. We have about 35% lease events happening in the remainder of 2020 and about 30% happening in 2021. Further to this, we have built-in co-tenancy protections that we’ve negotiated in roughly half of our store leases. So that gives us a further opportunity to potentially close doors or leverage further rent reductions.

From an average basket size, we’ve seen the average basket size from an e-commerce perspective continue to increase through the second quarter versus a year ago. And from a return rate perspective we’re in the low single-digits as far as returns go.

Operator

Your next question comes from the line of Susan Anderson of B. Riley.

Susan Anderson — B. Riley FBR — Analyst

Hi, good morning. Thanks for taking my question. Jane, I’m just curious on the uniform sales, I think a lot of private schools are going back or at least a hybrid model. I’m just curious, if you’ve seen any less pressure there versus your regular back-to-school product.

And then I guess in the first half, looking out to the back half, I know you planned down the back half inventory. Just curious, how much you originally did plan back-to-school they own? And were you originally planning on schools returning to in-person learning? And then also, I was curious, if you were able to mix in kind of more of a casual or basic assortment for back-to-school that’s more conducive to at-home — the at-home environment? Thanks.

Jane Elfers — President and Chief Executive Officer

Sure. Thanks, Susan. From a back-to-school perspective to start with the inventory, where we pulled back was in fashion for back-to-school. And again, just like we did for holiday, we got out of a lot of the dress-up products for like first day outfits and things like that, so that we could protect the margin. As Mike has mentioned a few times on the call this morning, the product that we’re carrying is basic driven and so it’s not a margin risk, it’s not going to be product that we’re going to liquidate. We’re going to sell that product when the catalyst for back-to-school comes. Just as an aside, I’d like you guys to know that we don’t anticipate that there will be a catalyst to drive back — any back-to-school meaningful business until spring ’21 at the earliest. So we’re not looking for anything to happen in the later half of the year in fourth quarter to drive back-to-school sales, we think that’s a spring ’21 event at the earliest.

As far as holiday product is concerned, we had not placed holiday product at the start of the pandemic, so we were able to pull way back as we mentioned earlier on the dress-up product and we are able to focus on active wear and casual wear across our age ranges and our sizes. And we’ll also have a major, major push this year, which you can see online around sleepwear and particularly holiday sleepwear, which is off to a very, very strong start. So we put a lot of money behind sleepwear and a lot of money behind holiday sleepwear in particular.

From an in-person learning versus remote versus hybrid, I’d like to just run you guys through how we came up with what our percentages are. We went out to every one of our stores, and we went out to every one of our states and every one of our cities and canvassed every one of our store manager starting about six weeks ago, and we get a daily update on that. And really what it’s based on is like I said, every state and then every major city within every state. And what we’ve come back with is that — as of yesterday 47% of our markets are virtual, 35% are a hybrid model, 11% are parents choice and that parents choice is either virtual or a hybrid, parents choice does not include going back full time in-person. So we’ve got 93% of our markets in either virtual, hybrid or parents choice. We have in-person at 4% of our markets and we have TBD at 3%. And that TBD includes Boston, Rhode Island all cities and then some three cities in West Virginia is really what we’re down to on the TBD.

As far as your question about uniform, most of our stores are — a lot of our stores are located near major cities and a lot of inner cities and those schools are very much uniform based schools and require uniforms. And as I said 93% of our markets are either in virtual or hybrid, which is having an, obviously, significant impact on our sales. When you look at Canada, we’re at almost 90% in-person learning and when you look at our business there, as Mike mentioned, down only single-digit, it’s a very different story up there with how we’re selling back-to-school product.

Operator

Your next question comes from the line of David Buckley of Bank of America.

David Buckley — Bank of America Merrill Lynch — Analyst

Good morning, thanks for taking my questions. Mike, how should we think about SG&A levels in the second half of this year? And then just given your cash burn increased in the second quarter, can you discuss your outlook for cash flow in the third quarter with your current liquidity position, is there a need to increase your borrowing capacity? Thanks.

Mike Scarpa — Chief Financial Officer and Chief Operating Officer

Sure. So from an overall SG&A perspective, we continue to look at our structure both from a corporate perspective and a store perspective, and we expect that SG&A in those two buckets of payroll from stores and corporate will continue to be down in the back half, just like they were in the first half. We also think that as we look at some of the activities that we’re doing around external consultants etc., we expect to have some savings on that line also.

Just to note, though in the third and fourth quarter of last year, we had some incentive compensation that we did a couple of reversals of accruals for our long-term incentive plan. So that’s going to come into place in the second half of the year versus the savings that you’re seeing in the first half, but we do expect SG&A to be lower in the third quarter, compared to where it was a year ago.

From a liquidity perspective, as I mentioned, we used about $43 million in operations versus last year where we had two. For the first half of the year, we’ve basically used about $83 million in cash, roughly about $100 million difference, compared to where we were a year ago and where we were in the previous year. Our expectations are that we’re going to end 3Q at a similar cash and ABL level, and we will generate cash in the fourth quarter. So we think we’ll end the year in a better position than we ended the second quarter.

Operator

We have time for one more question. Your final question will come from the line of Marni Shapiro of The Retail Tracker.

Marni Shapiro — The Retail Tracker — Analyst

Hey, guys. I have a couple of quick ones, and then Jane maybe one broader one. Would you guys consider shipping hurdles to offset some of the cost to shipping for the back half of the year, especially around holiday, because you were free shipping usually? And could you just confirm the conversation around favorable AUC in 2021, is that reflecting a decrease in demand generally and so the ability to negotiate with the factories?

Jane Elfers — President and Chief Executive Officer

Yes, I think we’ve been — had AUC tailwinds for the last couple of years, and particularly with looking into ’21 with the demand where it’s going to be in light of all the bankruptcies and uncertainty around COVID, we’re already seeing a favorable AUC environment for 2021, and that’s why we thought it was obviously very important for us to work through our inventories and our spring inventories. So we wouldn’t be carrying them on the balance sheet or sitting in overseas factories, so we’d be able to provide our vendors not only with continue order flow, but also to take advantage of that AUC environment.

From a shipping point of view, we have no intention of changing our free shipping, I think that certainly our customers under pressure with everything that’s going on. It’s a major competitive advantage of ours, it has allowed us to grow our digital business exponentially over the years and we have a very high basket. So we don’t really see an issue there. Obviously, these surcharges are, UPS is taking advantage of the situation that they can take advantage of, and so we’re going to have to live with that for Q4 and hopefully we will figure out as we get into Q4 of 2021 how to mitigate that.

Operator

Thank you for joining us today. If you have further questions, please call Investor Relations at (201) 453-6693. This does conclude the Children’s Place second quarter 2020 earning conference call. You may now disconnect your lines and have a wonderful day.