Q2 2019 Earnings Call
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It is now my pleasure to turn the floor over to Anthony It's hard <unk> director of Investor Relations to begin.
Good morning, and welcome to the children's place 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 issue press releases earlier 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 speakers 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 mornings press release as well as in the company's FCC filings, including the risk factor 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 up the call to your questions. We ask that each of you limit your 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.
Thank you Anthony and good morning, everybody today I'll provide an update on three strategic areas of focus that uniquely position us to capture a greater share of the estimated 600 million of sales exceeded each year by poorly positioned competitors first I'll discuss our progress with respect to the gymboree integration and offer a deeper dive into our gym to rebrand strategy.
Second I'll update the status of our digital transformation and third I'll discuss our competitive pricing advantage.
So first let's start with Q2 results.
Despite the adverse impact from weather comparisons and the likely pull forward of demand into Q1 liquidation of approximately 800, Jim Murray and Crazy eight stores. Our E. P. S results were at the top end of our guided range amidst lingering pressure from the Q1, Jim Barry liquidation, we delivered a 3.8% comp decrease in Q2 versus a 13.2% comp increase last year.
Sales for the quarter met our expectations. However, traffic remained weaker than anticipated, which led to a late quarter increase in promotional activity across the sector.
Although we exited the quarter with seasonal carryover inventory down double digit we believe it's prudent to assume an elevated promotional environment for the back half of 2019.
Shifting to the gymboree integration.
A key component of our ongoing strategy to uniquely position ourselves to secure a greater portion of the estimated 600 million of annual sales seeded by the group of children's apparel market share donors.
As our focus on re launching the Jim Murray brand in spring 2020.
In late June we relaunched the gymboree web site, which was immediately well received by the passionate Jim Murray customer base.
The loyal Gymboree mom instantaneously found their way to the site and traffic and engagement like meaningfully on social media with visits and commentary surging post launch.
I'd encourage you to read the gymboree customer commentary on our gymboree social media site.
Some of which we've included on our IR web page under our Q2 investor presentation.
The overwhelmingly positive post illustrate just how emotionally attached the gymboree mom is to the gym to re brand name.
And how much she values the gymboree brand above all of their kids brands in the market.
In addition to re launching the product we've deployed a two pronged real estate strategy to help us gain the gen three market share.
First we will be launching the gymboree branded product within 200, plus existing TCP location.
These are many of our best TCP locations, which are located in centers that also housed the most productive form or temporary stores.
This provides us with another vehicle to penetrate deeper into the estimated 600 million of sales seeded by market share donors.
As it will make our existing brick and mortar stores more productive.
By bringing gymboree traffic into our existing TCP stores.
And to our toddler area specifically.
Where we haven't historically been underpenetrated, we stand to gain another big advantage versus our competitors, who may already have mature toddler businesses.
Building, our toddler business provides a white space growth opportunity in that one the gymboree shopper growth out of Gymboree. We believe she will migrate to TCP branded bigger kids die. This.
Armed with the knowledge of what the Gymboree mom wants.
And with sales data from every form or Jim for relocation.
We've put into motion the second prong of our Jim Breen market share strategy.
This is a high return strategy to capture the displaced gymboree market share with little risk of cannibalizing our existing sales.
We previously discussed having identified 40 locations that were extremely productive for Jim Murray, where TCP does not currently have a presence.
These are centers, which have no existing children's place to cannibalize and do not have another TCP location within a large radius.
In addition, these centers are largely occupied by other kids retailers, who likely perform extremely well in these locations.
We believe the new TCP doors in these locations will be nearly 100% incremental for TCP.
And at the same time allow us to pick up share from key competitors as we bring the Jim Murray brand back to these highly productive centers.
Our real estate team began to execute on this strategy in Q2 with three new TCP locations opened in the quarter as part of a planned 25 store openings over the next two years.
Although they've only been open for a few weeks that early results are exceeding expectations.
That were already set well above chain average productivity.
We look forward to providing updates on these highly targeted highly productive centers.
That are natural extensions of our site selection process.
And don't represent a pivot in our real estate strategy.
The high Incrementality of the Gymboree sales provides TCP the opportunity to penetrate much deeper into the estimated 600 million of annual sales seeded by market share donors, each year without breaking from our long standing growth strategy or cannibalizing ourselves to achieve a marginal piece of the pie.
Shifting to crazy eight.
Our engagement with the abandoned crazy eight customer remain strong.
We continue to experience open and click through rates meaningfully above the rate for legacy TCP emails, which is leading to earlier and stronger than expected conversion of those customers.
Our TCP locations that are co located in center was closed crazy eight locations.
Comped hundreds of basis points better than chain average in Q2.
Which suggests that for gaining early traction in securing positive comp contribution.
From the abandon crazy eight customers.
As a reminder, crazy eight was nearly 30% of the approximately 650 million of total sales for the combined businesses.
[noise] recall, our Q2 guidance anticipated that our stores that are co located in centers that experienced a gymboree closure in Q1 would be adverse adversely impacted by the high likelihood that sales were pulled forward into the liquidation.
Although it's difficult to precisely determine if a lost sale in Q2 came as a result of a customer stocking up at the Q1 liquidations of them.
TCP doors that are co located in centers was closed gymboree location.
As expected underperformed the chain average in the quarter. However, the declines at these locations improved in the second half of Q2 and for Q3 quarter to date the gap has completely close.
Moving onto digital transformation.
After building the foundational capabilities for personalization as part of our $50 million investment in accelerating digital transformation over the past 18 months.
We launched the initial test phase of personalization in early May focused on a limited number of identified behavioral segments across five channels of distribution.
With only a modest portion of our personalization tool kit deployed to date. The early results have been encouraging.
Building upon the behavioral segments addressed in Q2, we expect to begin to deliver personalized content to additional segments in the back half of 2019.
We discussed at our digital transformation could be in 200 billion dollar revenue opportunity for the children's place and we continue to believe that the digital personalization initiative is the single largest contributor towards that opportunity.
[noise] omni channel capabilities are an important part of our overall personalization strategy.
Our store fulfillment capabilities continue to outperform expectations and drive enhanced options for Mam.
The response to the Q2 rollout of boss or buy online ship to store has been encouraging.
As she picked up for online orders in stores. She was attaching at a low twentys rate.
Leading to a considerably higher than average ticket.
Later this year, we will roll out save the sale functionality.
Which will provide our moms with access to inventory from other store locations or the distribution center for products that are not in stock at a specific store location.
We'll be able to deliver that product directly to her and capture incremental sale that would have otherwise been lost absent the CEVA sell capability.
E Com penetration increased approximately 240 basis points to approximately 29 or internet.
Net sales in Q2, and our outside digital growth continues to flatten out.
Increased penetration in our loyalty and private label credit card programs, which are key to our digital transformation.
And it's important to note that we are the only children's apparel retailer to offer free shipping with no minimum purchase on all of our ecommerce orders.
We don't simply advertised free shipping for orders picked up in stores via bought or Bopis or with the use of a private label credit card.
This has been the case for the last several years and as an important component of our omni channel market share strategy.
Now I'll discuss how our diversified sourcing model provides us with a valuable competitive advantage.
We frequently discussed our diversified sourcing model and how it provides us with a unique competitive advantage. We've discussed that are lower APC or product cost advantage is the result of our decade long strategy of strategically moving out of China and into lower cost countries.
Today, many retailers find themselves under the strain of rising sourcing costs, resulting from there over reliance on China and other higher cost sourcing market.
The children's place is a high unit volume retailer, we source and sell more units than most other competitors in the children's apparel space.
Which provides us with a strategically advantaged model.
Due to our large unit buys a modest 1% reduction in HCC or product costs per unit yields and meaningful merchandize margin improvement.
Therefore, the continued execution of our longstanding diversified sourcing initiative.
Coupled with disciplined buying can produce a meaningful portion of our anticipated margin improvement.
As we continue to mix our cost lower through diversified sourcing it provides us with the ability to continue to offer compelling price point.
As the millennial mom seek value in apparel purchases to fund higher spend on experiences.
And lastly, with respect to current business.
With the majority of back to school sales and tax free events behind us were off to a strong start.
Our quarter to date consolidated comp is running positive 14%.
And now I will turn it over to Mike.
Thank you Jane and good morning, everyone.
Today, I will provide an update on our fleet optimization.
In our international and wholesale businesses before reviewing our financial results and our outlook.
First an update on fleet optimization.
We closed 13 locations in the quarter.
Resulting in 226 overall closures toward our plan to close 300 locations by the end of 2020.
Through the second quarter, we have close 15 of the 40 to 45 planned store closures for 2019.
We also opened three locations in the quarter.
That's part of the 25 stores, we plan to open and highly productive centers over the next two years based on our detailed analysis of jewelry store sales.
It is important to note we will continue to be a net closure of stores.
Our real estate team continues to strategically limit our exposure to the troubled outlet channel and we ended the quarter without let exposure that represents only 13% of our store base.
Our fleet optimization strategy has resulted in a highly optimized outlet store base with nearly two thirds of our outlets and better centers and only four stores located in what we classify as dying outlet centers.
We strategically limited our outlet exposure and optimized to the most productive centers.
Knowing that the outlet channel was particularly at risk of cannibalization from digital growth.
The outlet channel was born out of a need to give the consumer direct access to brands and providing her value in doing so.
Today, the consumer can easily find that access and those values online, where we maintain a strong position.
We believe that we.
By limiting the risk by maintaining a full price to outlet store ratio at nearly seven to one.
Which is among the highest in our peer universe with several of our competitors closer to two to two to two to one.
Which means that 30% to 40% of their store base remains in outlets.
This provides us with a meaningful competitive advantage.
International and wholesale.
In wholesale we are soliciting interest among both existing and potential new wholesale partners in anticipation of the gymboree brand relaunch.
With the intent to possibly provide exclusive access to the gym to rebrand.
We believe that the gymboree Graham will provide potential partners for the steady flow of highly coveted millennial traffic, which is difficult to find in today's retail environment.
Additionally, gymboree represents a highly attractive demographic.
With an average income of over $95000 per year.
We're excited about the wholesale potential for the timber rebrand and look forward to providing additional updates.
We opened 18, new international points of distribution in the quarter and had 225 international points of distribution in 19 countries opened and operated by our franchise partners at quarter end.
Along with our strategic partner Samir the number one children's apparel retailer in the Chinese market.
We have opened six of the approximately 15 locations we plan to open in China in 2019.
I'll now provide an update on Q2 results and discuss our forward outlook.
Details for the second quarter are as follows.
In the second quarter, we generated adjusted earnings per share of 19 cents, which was at the high end of our guidance range of zero to 20 cents.
Versus 70 cents last year.
Net sales were $420 million, which was at the high end of our guidance range of $415 million to $420 million, but down 29 million or 6.3%.
Versus last year's 449 million.
We recorded a decline in comp retail sales of 3.8%, which was better than our initial guidance of a negative five to negative 4% decline.
US comps declined 4.2%.
In Canada comps were slightly positive.
Ecommerce penetration increased approximately 240 basis points to 29%.
Sales were impacted by Q1 s, Jim Murray and create liquidation events.
Yeah adverse impact of strong weather driven demand in early Q2, a year ago and difficult store traffic.
Store traffic transactions and conversions were all down in the quarter with a you are slightly lower due to increased promotional activity across the sector.
Adjusted gross margin.
Adjusted gross margin decreased to 150 basis points to 33% of sales from 34.5% in Q2 of 2018.
Driven by deleverage of fixed expenses, resulting from a decline in comp retail sales.
And the adverse impact of increased penetration of our e-commerce business, along with a modest decline in merchandise margin as a result of difficult traffic, which led to an increase in promotional activity across the sector.
Adjusted EPS DNA.
Adjusted EBITDA was $115 million versus $122 million last year.
And de leveraged 20 basis points to 27.5% of sales as a result of the negative comp sales.
We were able to manage expenses across the organization in response to the difficult traffic in the quarter.
Our incentive compensation expense in the quarter was relatively flat as higher bonus accruals were offset by a one time decrease.
Accrual for our long term incentive plan.
Adjusted depreciation and amortization was approximately $18 million in the quarter.
Adjusted operating income.
Adjusted operating income for the quarter was $5.8 million for 1.4% of sales.
Versus $15.7 million or 3.5% of sales in Q2 of 18.
Down $9.9 million for 210 basis points, primarily as a result of the lingering impact of the gymboree liquidation.
Adverse weather comparisons early in the quarter, along with difficult store traffic, which led to increased promotion across the sector.
Tax rate.
Our adjusted tax rate of 15.9% was below the 21% tax rate in last year's comparable quarter.
Moving onto the balance sheet.
Our cash and short term investments for the quarter were $65 million as compared to $106 million last year.
We ended the quarter with $196 million outstanding on our revolver compared to $89 million last year.
The increase reflects funding to support the $76 million Gymboree acquisition.
And our shareholder capital return program.
We ended the quarter with inventories up approximately 5.4%, including the result of accelerated shipments China merchandise as we reacted to the tariff situation.
Our seasonal carryover inventory continues to be down double digits to last year.
Moving on to cash flow.
We generated $23 million of operating cash flow in the first six months of the year versus $11 million of operating cash flow for the comparable period a year ago.
Capital expenditures in the quarter were approximately $11 million.
We repurchased approximately 27 million of stock in the quarter and paid out approximately 9 million in dividends.
Now let me take you through our updated outlook for 2019.
The company now expects sales for fiscal 2019 to be in the range of 1.91 billion to $1.925 billion.
Comparable retail sales growth of approximately flat versus fiscal 2018.
We project E Commerce penetration will increase to approximately 30% of net sales.
We now anticipate fiscal 2019, adjusted net income per diluted share to be in the range of $5.40 to $5.75 inclusive of eight cents of adverse impact from incremental tariffs.
Versus our prior guidance of $5.75.
To $6.25.
This compares to adjusted net income per diluted share of $6.75 in 2018.
Although we exited the quarter with seasonal carryover down double digits, our outlook assumes elevated promotional activity will continue for the balance of the year.
Adjusted operating income is expected to range between 6.1% to 6.4% of sales.
As compared to 6.6% and adjusted operating income in 2018.
We are projecting a tax rate in the low 20%.
We expect to generate strong cash flow from operations in 2019.
Which will help fund our shareholder return program and capital expenditures.
We expect capital expenditures to be approximately 65 million to $70 million in 2019.
We ended Q2 with approximately $179 million remaining on our share repurchase authorization.
And remain firmly committed to returning cash to shareholders.
Q3 2019 outlook.
The company expects sales for the third quarter to be in the range of 530 million to $535 million based on a comparable retail sales increase of 3% to 4% versus a 9.5% comparison a year earlier.
As a reminder, in earlier break to colder temperatures drove strong sales of seasonal product into October last year.
Which resulted in a strong monthly comp increase.
We've considered this difficult comparison in our outlook.
Adjusted operating income is expected to be in the range of 11.5% to 12% of sales.
As compared to 12.5% and adjust that or operating income in Q3 of 18.
We anticipate third quarter adjusted net income per diluted share in the range of $2.90 to $3.05 as compared to adjusted net income per diluted share of $3.07 in Q3 of 2018.
Inventories at the end of Q3 19 are anticipated to be flat to up low single digits versus last year.
Looking ahead.
There's been a lot of commentary a bit about back to school shipping so I'd like to briefly address it.
We experienced a significant increase in the number of orders as back to school season.
Our shipping policy states that orders placed with standard free shipping may take up to 10 business days for delivery.
Our records reflect that over 98% of our orders will be delivered within this window for the back to school season.
As we previously said we plan to utilize third party logistics provider to assist with the fulfillment of holiday 2019, ecommerce demand, which should help minimize the impact of peak season shipping bottlenecks going forward.
We currently anticipate a Q4 2019 comp increase of approximately 4%.
We also note that we estimate that the holiday selling season in Q4 of 19 could be adversely impacted by approximately $5 million or 1% of sales.
From six less shopping days between Thanksgiving and Christmas in 2019.
Including gymboree.
Our exposure to Chinese imports across all categories.
Will be limited to an estimated mid to high single digit percent.
In 2020.
Which we believe will help lower our you see again in 2020 on top of the 2019 reduction.
At this point, we will open the call to your questions.
Thank you at this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
If your question has been answered and you wish to remove yourself from the queue press the pound key.
We ask that you limit yourself to one question to allow everyone time to participate.
Our first question comes from the line of Dana Telsey of Telsey Advisory group.
Good morning, everyone.
As you think about the integration of Jim Murray and you think about gross margin in the upcoming third quarter. How are you thinking about gross margin go forward and the opportunity for market share gains that you see and then just lastly on the logistics issues on that we are just talk Mike about the shipping times. What are you seeing in terms of incremental supply chain and logistics costs and that impact on the margin. Thank you.
Sure.
You know Dana, though we don't specifically guide to gross margins, we expect margins to continue to be under pressure in Q3 as inventories remain elevated in the sector.
Which is resulting in a promotional environment.
We're we're anticipating it's going to continue through year end.
The environment remains competitive as retailers continue to battle for market share in a sector that is not growing.
So we expect improvement in margins in Q4 versus last year, we're still forecasting continued pressure from those elevated inventories.
And store closures.
As far as the distribution.
The issues are and supply chain costs, we had indicated.
Last quarter that we did a pretty comprehensive network analysis and made the decision to utilize the threepl to assist us beginning in holiday of 19.
We thought that this would be the most.
Cost.
Efficient and effective alternative available.
We're utilizing currently our ship from store focus and boss Omni channel fulfillment capabilities to supplement our DC capacity as we get ready to transition over to the holiday timeframe.
Our sense is that.
98% of our orders for the back to school season will be delivered within our 10 day shipping in the business shipping window.
We expect that supply chain cost could be on the average of about a million and a half higher in Q3 based on some of the expedited shipping that we are doing.
And then there's just I also want to indicate that.
From a systems perspective or systems are running fine and we have not yet.
Bonnie encountered any snack foods as a result.
Demand.
Our next question comes from the line of Gen Redding of Wedbush Securities.
Hey, guys I was just wondering if you could give some color to it was a quarter to date, 14% comp increase if that then as less promotional or that's been promotionally driven.
Or I'm trying to figure out if it just because it lets us like promotions kind of pulled back.
So maybe they have and do you think they could just can get more promotional if you could speak to that and also if you could tell us.
If you're if you're able to say who the third party shipping partner is.
Thanks.
Sure John its Jane I'm as far as quarter to date comps that we said on the call in our prepared remarks that we are running up 14% quarter to date I think it's the result of several factors number one our inventories are very clean entering the quarter as we set our carryover inventories are down double digits. We have extremely strong back to school assortments that are focused on two key things basics and were now if you look at our assortment on the floor, we pretty significantly pulled back on the longer sleeve product versus where we were last year and were very very much into until were now shorter sleep product that's more appropriate for the timeframe and mom is clearly responding to that we have a strong marketing strategy in place, which is clearly working and I think overall you know we can pretty clearly say that mom is choosing us for her back to school needs. I think it's also important to recall that the 14% quarter to de consolidated comp that were running in the lion's share of back to school.
And almost all of tax free is behind US. We're also up against a similar double digit positive comp for the same period last year. So I think it's even more impressive when you look at it on a two year stack I think from a promotional environment. What we've seen is we were out early with our projections. When we were looking at Q2 post our call a lot of people came on talking about their inventories, which were kind of out of whack versus where their sales were.
We still see from some of the people that we've heard from and anticipate we'll hear from in the next couple of weeks that inventory growth is running ahead of expected sales growth in the sector. So I think for us it really the posture. We're taking is that it's a realistic and prudent to expect increased promos beyond Q2 based on the inventory levels of of the competitive set and kids and just honestly I think we'd rather guide to an elevated promotional environment. It would be wrong, then guide to a rational environment and be wrong, that's really where we're at right now.
And as far as our third party logistics provider, we use we're utilizing radio.
Who is also our third party logistics provider in Canada.
Pretty well established company with roughly 12 million square feet of warehouse and logistics capability. So we're pretty pleased so far with the integration.
And.
Looking forward to the holiday Nineteens season.
Our next question comes from the line of Susan Anderson of B. Riley FBR.
Hi, good morning, Thanks for taking my question.
I guess just to follow up on the promotional environment I was curious where you're seeing the most competition from is it within the mall I guess from the department stores, which I would suspect has elevated inventory or other specialty retailers or are you also seeing kind of the mass players get very aggressive and the kids business and then also I was curious what your expectations are for March margin in third quarter.
Yes, I think from a competitive environment, it's really coming from all three that you said you know, we certainly heard specialty inventories were elevated particularly people on their Q1 call forecasting into Q2, so we've seen.
Inventory growth outpaced sales growth from almost every one of our specialty competitors, we certainly see it in the department stores, but they don't specifically call out kids and from a promotional environment. The math guys are obviously going after back to fall in a big way as well, it's very important time period for everyone. So.
Promotionally out there.
It's aggressive.
But I really just think the inventory spread is really what we're looking at and we just want to be realistic and prudent if not conservative into the back half of the year and just make sure that we're really.
Feeling good about our guidance and what we anticipate could be an elevated environment. Mike also spoke to Q4, there's benson specialty stores that have announced significant amounts of closures that will happen at the end of 19. So we've taken that into account and also as Mike said in October .
We had an extremely strong October last year based on the pull up of cold weather.
And we're not anticipating in our guidance that that weather pattern is going to you know mere last year.
So we really try to take everything into account.
And from a Q3.
The von merge margin.
I'll just point you to our our Q2 merger.
Overall margins, we indicated that our merch margin was down modestly.
So the increase of the Decomp penetration and some de leverage around fixed expenses drove the majority of.
The.
The leverage of gross margins in Q2, we would expect a similar.
Situation in Q3.
Our next question comes from the line of Tiffany Kanaga of Deutsche Bank.
Hi, Thanks for taking our questions.
Considering that August is the toughest comparison of the quarter can you help us bridge the gap between the implied deceleration to your 3% to 4% full quarter comp guidance and Additionally, can you provide a quarter to date break down between stores and online considering the social media posts about the heavier ecommerce order volume and how are you working to address the negative customer reaction to longer shipper shipping times to keep her loyalty.
So from our perspective.
Q3 comps we've seen.
You know.
No increases in comps in both.
Stores and E com from from the run rate from Q2, and obviously the metrics have improved.
Also.
You know, we're we're we're constantly reaching out to our customer base and reminding them of the shipping window, we've gotten some nice responses back indicating that packages are being received on a timely basis and as I indicated we expect over 98% to be delivered within that window.
We were incurring additional cost to expedite some of these shipments and you know.
It's a it's a you know.
It's a situation that we're dealing with and we think it will be solved once we once we get into our third party in holiday 2019, I will correct. Your first question around the toughest comparison.
Being August October actually was our toughest comparison, what we saw.
Double digit comp increases in October versus what we saw in August and September which were 12, while they were positive they weren't to that extent.
Our next question comes from the line of David Buckley of Bank of America Merrill Lynch.
Good morning, Thanks for taking my question few questions first on.
Any questions any information you can share on the performance in the quarter.
Second how much of your inventory increase is related to earlier shipments related to tariffs and then last the implied fourth quarter guide has a significant amount of margin recapture baked in.
What gives you the confidence in the guide given the increased promotional environment, you're seeing now thank you.
Sure as far as Johnny collections is concerned we sell through the summer delivery well, we're happy with the results and probably saw an approximate 20% a large increase versus where the TCP branded goods are running we just delivered this past week our back to school assortment. So that you just hit on line and its Jeff in stores. So we're excited to see what happens with that we think it looks great.
And I'll pass it over to Mike to talk about the inventory increase due to the tariff and the margin recapture in Q4 sure David as we said inventories were up about 5.4 at the end of the second quarter, including the accelerated shipments of the Chinese foods, which accounted for approximately 20% of the increase.
We had also made the decision to accelerate shipments of certain basic brought products to ensure that we were well positioned for back to school and that was the majority of the increase as we indicated.
Carryover goods were down.
Double digits compared to.
The prior year.
As we look out to Q4.
We had a couple of things going on last year, our gross margins.
Overall were down roughly 550 basis points and a big.
Part of that was.
The liquidation of the advanced liquidation that we did on on certain holiday goods as we anticipated and then heard of the gymboree increased bankruptcies. So our sense is based on the way we bought goods for holiday and where we expect our inventory positions to be at the end of the year that we should see.
A chunk of that come back.
So we're we're confident in where we're guiding to at this point, but we never really specifically guided to gross margins.
Our next question comes from the line of John Lawrence of D.A. Davidson.
Thanks.
Jane I want you know going back to your outlook and the anticipation, which is probably pretty prudent that.
Competitors.
Around you are pretty high and inventory I'm wondering you know help us try to understand what you might be seeing or some hypotheticals.
And why its so high.
Competitively out there.
And they're they're bent towards promotions at this point it was that more of a delta than usual.
Just wondering if you can kind of shed some light given your.
Sector experience on what you think is going on there yeah, you know what I think it isn't what we talk about internally is that we think there is some euphoria by some of our competitive set a about a year ago in 2018, when they started to see some positive trends in the business and as you know kids is bought so much further out than another category based on the lower APC.
And you know that the market that we source from so we think that you know there is inventory that needs to be worked through the balance of the year and I think inventory or retailer usually learn by looking in the rearview mirror and I think by the time, we get into the end of Q4 and into the early part of 2020, you're going to see retailers pulling back in our sector significantly on inventory, but I think right now as we said, it's prudent to consider them to be elevated for the back half of the year and we're just.
Kind of sat on making sure that our guidance is.
It's covered for what we anticipate will continue to be elevated.
Inventory.
Our next question comes from the line apology.
Citi Research.
Hi, This is Kelly on for Paul I, just wanted to clarify on so you talked pretty positively around the upward trend in the in the 14% comp. It is obviously very strong, but what is that being driven by higher promotions or are you just anticipating that as we get to the low period post back to school that we will see an uptick in promotions across the board.
Yeah, I mean, we have like we said, we had a 14% comp up against a similar comp from last year, So pretty impressive on a two year stack 'em driven by a back to school forward product a as we said our inventories are clean. So we're driving this on back to school Assortments that are focused on basics and were now you know business is really really strong right. Now we are just going to be as we said on our prepared remarks, and you know during this Q and a session. They want to be very prudent as far as the balance of the year is concerned we're up against the big October with the cold weather and we feel very good about where our inventories are positioned in Q3 and coming out of Q4, and we just want to make sure that you know the guidance covers.
What could continue to be an elevated promotional environment.
And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Jim Chartier of Monness Crespi Hardt.
Good morning, Thanks for taking my question.
Could you just talk about.
You know the omni channel fulfillment what percentage of sales for back to school are being fulfilled from ship from store and just overall.
What the omni channel fulfillment is for you guys and then where do you want ship from store to be for.
Holiday and back to school going forward. Thanks.
Yeah. So on a go forward basis or you know, we're looking at a holiday 2019 for ship from store to be roughly in the.
Call it the 2% to 4% range of overall orders, we're using it slightly higher today based on our.
Our order quantities that we have.
But you know our sense is that we will have a third party logistics provider in place.
In holiday of 2019 two.
Avoid a utilizing ship from store to any great extent, where we there is a split shipments and what it does to the store associates. During the key selling period. Currently is Jane indicated earlier, we're really pleased with Boston the results of Boston, the attachment sales and how that's driving store traffic in business. So we've seen it is high is up.
You know over 20% in some cases, it's probably leveling down to about a 15% basis right now so we're pretty pleased with that overall.
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Yes.