Good morning, and welcome to The Children's Place First Quarter 2022 Earnings Conference Call. On the call today are Jane Elfers, President and Chief Executive Officer, Robert Helm, Chief Financial Officer, and Josh Truppo, Vice President, Financial Planning and Analysis. At this time, all participants are in a listen-only mode. After the prepared remarks, we will open the call up to your questions. We ask that each of you limit yourself to one question so that everyone will have an opportunity. As a reminder, this conference is being recorded. The Children's Place issued its first quarter 2022 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted to the investor relations section of the company's 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, 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. It is now my pleasure to turn the call over to Jane Elfers.
Thank you, and good morning, everyone. I'd like to welcome Josh Truppo, Vice President, Financial Planning and Analysis to The Children's Place team. Josh joins us from Five Below, where his most recent position was Vice President for Corporate Strategic Finance. Our Q1 results were negatively impacted by several factors, the largest being lapping the unprecedented stimulus released into the economy in March 2021. March sales were extremely challenging, with sales down approximately 35% versus March 2021. We also believe the combination of the unseasonably cold weather that lasted through the end of the quarter in most of our key markets and the unprecedented levels of inflation negatively impacted our Q1 results.
On the positive side, for the first time in three years, families joined together to celebrate the Easter holiday, and we were very pleased with the performance of our Easter dressy business across all three of our brands. Gymboree and TCP had standout performances across all dressy categories, and Sugar & Jade delivered strong results in the categories where they had dressy ownership. Looking ahead, while the impacts of last year's stimulus will eventually wane and the weather will eventually change, we believe that the unprecedented levels of inflation, which are now projected to persist into 2023, will continue to have an outsized impact on the lower income consumer, particularly due to significantly higher gasoline and food prices. In addition, cotton prices continue to climb significantly above the levels where they were projected to be earlier this year.
Due to these persistently high levels of inflation and the lack of visibility into its impact on the balance of the year, we are tempering our top line expectations for 2022, and we are now planning for a mid-single digit decline in sales for 2022. Despite these headwinds, and supported by the significant structural reset we have made to our business model over the past two years, we remain focused on our goal of delivering double-digit operating margin and double-digit EPS for full year 2022 and beyond. To reinforce the significance of our structural reset, we believe that it is important for us to continue to measure our progress against and provide comparisons to our 2019 pre-pandemic performance.
Applying that lens, our Q1 2022 operating income was up 211% versus Q1 2019, and our Q1 2022 EPS was up 192% versus Q1 2019. We achieved these results despite $50 million less in Q1 2022 versus Q1 2019 and operating 306 or 32% fewer stores versus Q1 2019. Moving on to digital. Our digital sales represented 45% of our total retail sales for Q1 versus 44% in Q1 2021. As we continue to plan for digital growth, we are making significant investments in marketing and technology to continue to support this growth. We are focused on investing in brand awareness, which continues to drive customer acquisition through our digital marketing channels.
With respect to customer acquisition, as the shift to digital has accelerated, we have benefited by being better able to identify our customers and use that data to drive higher cost efficiency on marketing spend. We have also recently enabled a multi-touch attribution tool to help us better understand the incrementality of our investments and allow us to shift our budgets in support of the highest contributing marketing tactics in a much more efficient and timely manner than we were previously capable of. During Q1, we had 73% of digital transactions come through a mobile device. Our mobile app continues to drive strong customer acquisition and engagement. Importantly, our basket sizes for customers transacting on our mobile app are over 16% higher than our non-app mobile purchases.
With respect to Gymboree, we're proud to announce that starting this July, Amazon will launch our iconic Gymboree brand on their website. We're excited to continue to grow Gymboree by partnering with the number one apparel retailer in the U.S. to reach a significantly larger, digitally savvy customer base and to build on Gymboree's momentum in 2022 and beyond. With respect to Amazon, in addition to the upcoming launch of Gymboree, the TCP brand continues to experience very strong sell-throughs on Amazon, and we continue to significantly accelerate our brand marketing and inventory investments with them. We continue to project significant growth with Amazon for 2022 and beyond.
With respect to EPS guidance and looking ahead to the balance of 2022, we said on our March call that we needed to have a clearer understanding of lapping the stimulus impact on Q1 before resuming quarterly guidance in Q2. Based on the deteriorating macro environment, we will continue to defer providing guidance until we have more visibility. In closing, we are confident that we will continue to make significant progress on our results in 2022 versus pre-pandemic levels despite the ongoing challenges, many of which we now anticipate will linger well into 2023. Several years ago, we developed a multi-pronged transformation strategy focused on four key initiatives, superior product, digital transformation, fleet optimization, and alternate channels of distribution. Fast-forward to today. Our expanded, high quality, value-focused multi-brand offerings are consistently well received.
Our accelerated digital investments have positioned us as an industry leader in digital penetration, with our digital channel being our highest operating margin contributor. Our investments in digital marketing capabilities now enable us to be significantly more strategic and nimble with respect to marketing tactics and marketing spend. Our real estate portfolio has been completely transformed by a combination of right-sizing our store fleet and a structural reset of our occupancy costs. Our Amazon business is growing rapidly, and with the addition of Gymboree, Amazon becomes an even more important part of our growth strategy. The continued successful execution of these key strategic initiatives will remain our priority in 2022. Now I'll turn it over to Rob.
Thank you, Jane, and good morning, everyone. After I review our Q1 results, I will provide some thoughts on our expectations for the balance of the year. I will provide comparisons to both 2021 and 2019 to highlight the significant profitability improvements versus our pre-pandemic results due to the significant structural changes we made to our business model over the past two years. In the fiscal first quarter, we delivered an adjusted EPS of $1.5 versus $3.25 in 2021 and versus $0.36 in 2019. Net sales decreased by $73 million or 17%, to $362 million versus $435 million in Q1 2021, and decreased $50 million versus $412 million in Q1 2019.
Our U.S .net sales decreased by $79 million or 21%, to $306 million versus last year's $385 million, while our Canadian net sales increased by CAD 1 million or 2% to CAD 31 million versus last year's CAD 30 million. Comparable retail sales were a negative 16.9% versus Q1 2021, and a negative 1.4% versus Q1 2019. Our net sales were positively impacted by strong customer response to our Easter product assortment and AUR increases in both our stores and digital channels, driven by higher realized pricing and reduced promotions. Our net sales were negatively impacted by lapping the impact of the stimulus released in the economy last year, the impact of unprecedented inflation with significant increases in gasoline and food prices negatively impacting our customer, prolonged unseasonably cold temperatures through late April in most of our major markets.
Lastly, the impact of permanent store closures representing approximately $13 million for the quarter. Our monthly sales flow for the quarter was as follows. February sales were up low single digits. March was significantly worse than we anticipated as we lapped the impact of the stimulus released in the economy last year. In March, we experienced a significant deceleration in our business, with sales down approximately 35% for the month. April delivered a significant improvement versus March, but sales were still softer than anticipated, with sales down approximately 7% for the month. The sales declines were evenly balanced between the two channels. Consolidated digital sales decreased 18% versus Q1 2021, representing 45% of our total retail sales. Store net sales were down 20% versus Q1 2021.
Our comp store traffic was down 8% versus Q1 2021. As a point of reference, store traffic remains significantly below pre-pandemic levels, with comp store traffic down 30% for Q1 2022 versus Q1 2019. Adjusted gross margin. Adjusted gross margin decreased 429 basis points to 39.2% of net sales, compared to 43.4% of net sales in Q1 2021, significantly above our 2019 gross margin of 36.7%. The gross margin decrease versus last year was the result of the impact of incremental inbound freight transportation, driven by higher levels of air freight costs and higher container rates, impacting our Q1 gross margin by approximately 275 basis points.
Occupancy expenses were $7 million higher in the quarter due to lapping the one-time abatements of $8 million from Q1 2021, impacting Q1 gross margin by approximately 220 basis points. As an additional point of reference, our occupancy expenses were $18 million lower in Q1 2022 versus Q1 2019 due to favorable lease negotiations and reductions in occupancy expense for permanent store closures. Lastly, the deleverage of fixed expenses resulting from the decrease in net sales. These decreases were partially offset by higher merchandise margins in both our digital and stores channel, driven by AUR increases in both channels, resulting from higher realized pricing and reduced promotions. Adjusted SG&A.
Adjusted SG&A was $108 million versus $104 million last year, and $127 million in 2019, and deleveraged 595 basis points to 29.9% of net sales, compared to 23.9% of net sales last year. The deleverage was the result of the decline in net sales on our fixed expenses, as well as the impact of planned higher marketing spend. Adjusted depreciation and amortization was $13 million in the quarter versus $14 million last year and $18 million in 2019. Adjusted operating income.
Adjusted operating income for the quarter decreased $50 million to $21 million versus $71 million last year, and deleveraged 1,057 basis points to 5.7% of net sales compared to 16.2% of net sales last year, and increased 409 basis points versus Q1 2019 when adjusted operating income was 1.6% of net sales. Interest expense. Our interest expense for the quarter was $1.7 million versus $4.4 million last year. The decrease in interest expense was driven by lower interest rates due to our recent refinancing and a lower term loan balance outstanding this quarter. Tax rate. Our adjusted tax rate was 24%. Moving on to the balance sheet. Our cash and short-term investments ended the quarter at $58 million.
We ended the quarter with $250 million outstanding on our revolving credit facility. Inventories ended the quarter up 31% versus last year, with 24% of our inventory in transit as we continue to take actions to mitigate the impact of the ongoing global supply chain disruption and elevated transit times by pulling up receipts. As planned, higher raw material and inbound transportation costs are also contributing to the increase in inventory year-over-year. 7% of our inventory is Amazon dedicated inventory to support that rapidly expanding business. We are anticipating that our inventories will remain elevated as we continue to try to mitigate the ongoing supply chain pressures through receipt pull-ups. Moving on to cash flow and liquidity. We used $19 million in cash from operations in Q1 versus $17 million last year. Capital expenditures in Q1 were $11 million.
During the first quarter, we repurchased 666,000 shares for $39 million, leaving 219 million outstanding on our current authorization. ROC remains strong at approximately 75% for Q1. Now we'll provide an update on our store activity in the quarter. We closed 7 locations in the first quarter and we anticipate on closing 40 stores for full year 2022. With over 85% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio. These short-term leases will continue to provide us with the flexibility to optimize our occupancy costs and our store mix. We ended the quarter with 665 stores and total square footage of 3.2 million sq ft, a decrease of 8% compared to Q1 2021.
With respect to our fleet optimization strategy, it's important to continue to highlight that for 2022, we're planning for approximately 50% of our retail sales to come from stores, with approximately 50% of our store sales coming from traditional malls and 50% coming from off-mall. With our digital business also planning an industry-leading approximate 50% of total retail sales, our plan for 2022 targets approximately 75% of our retail sales coming from off-mall, strongly supporting our structural reset to a digital-first retailer. Outlook. Based on the deteriorating macro environment, we will not be providing EPS guidance at this time. However, we wanted to provide you with some context around our expectations for the remainder of the year.
The significant structural reset to our business model will continue to benefit our operating margins, and we remain focused on our goal of delivering double-digit operating margin and double-digit EPS for the full year 2022 and beyond. Starting with the top line. As we have said, based on the macro environment, particularly as it relates to the unprecedented inflation, we are tempering our top-line expectations for 2022 and are now planning for a mid-single-digit decline in net sales for the year. We anticipate that our sales trends will improve versus Q1 as we progress through the balance of the year. We were up against significant top-line headwinds in the first quarter due to the lapping government stimulus from last year.
We anticipate that our peak back-to-school sales this year, the period from mid-July through Labor Day, will be meaningfully lower than last year when the combination of pent-up demand and the impact of the monthly Child Tax Credit initiated last July propelled us to a record-setting back-to-school season. We are building on strong sales momentum from Gymboree and anticipate that the Amazon launch of Gymboree will continue to fuel this momentum. We are making significant marketing and inventory investments with Amazon and are planning for accelerated growth in 2022 on top of the gains we made in 2021. We continue to build on the incremental sales opportunity from our recent Sugar & Jade launch. Moving on to the bottom line. The structural changes we have made to our business model will continue to benefit our operating margins by providing increased resiliency against the negative macro environment.
We continue to benefit from our pricing and promotion reset, resulting in higher realized pricing. This is supported by our increased investments in brand marketing, which we anticipate will continue to reduce unnecessary promotions and markdowns and drive higher overall AOV. This also provides our e-commerce channel with strong leverage on our fulfillment expenses. We are planning for lower occupancy expenses versus last year due to the impact of our permanent store closures, as well as the benefits of our favorable lease negotiations. We have significantly improved the profitability of our store fleet, a key contributor to our overall operating margin gains. Moving on to SG&A. We continue to benefit from our fleet optimization and accelerated store closures, which provides us with a lower fixed cost base than before the pandemic. We also continue to see benefits on the depreciation and amortization line from store closures.
We are planning for lower incentive compensation expenses in 2022 versus 2021. We are also planning for significantly lower interest expense in 2022, resulting from the favorable interest rates we secured as part of the refinancing of our revolving credit facility and term loan in the fourth quarter. Given our accelerated digital transformation and the structural reset to our business, we expect to generate significantly higher levels of operating cash flow for the year than we did pre-pandemic. These significant levels of free cash flow will provide us with the opportunity to continue to reinvest in our business and return significant capital to our shareholders in 2022. Lastly, we are planning for capital expenditures in the range of $55 million for fiscal year 2022, with a large majority allocated to digital and supply chain fulfillment initiatives. Now, we will open the call to your questions.
At this time, if you would like to ask a question, please press star one now on your telephone keypad. Again, to ask a question that is star one. We'll take a question from Dana Telsey of the Telsey Advisory Group.
Good morning, everyone. Definitely a challenging environment. As you think of the AUR increases that you got from the merchandise margin, how much of an AUR increase are you getting? What are your plans for price increases going forward and the level of acceptance? We haven't seen inflation before. Given the guidance that you gave on sales now down mid-single digits% for the year, that implies an improvement as we go through the year. Any qualitative commentary on how you're thinking about the uptick in sales and of getting that from that lower income consumer and the margin opportunity from digital, given that's the highest margin channel. One other thing, any cost for Gymboree and Amazon? Thank you.
Sure. Well, that's a lot of questions, so let me try to, you know, parse them out. Might not be in the same order you asked them, but let me give it a try. I think when we look about what happened in Q1, you know, as Rob mentioned on the call, February was a decent month. We clearly underestimated the stimulus impact to our business last March. March was a really tough month. We were down 35%. When we went into April, it was significantly better than March, but that was really when you unpack it due to the Easter shift. In the first two weeks of the month, we had, you know, a nice trend, obviously because of Easter.
As soon as Easter passed, the trend reverted right back to negative mid-teens, and the month ended up, as Rob said, below expectations, I think, you know, down 7. Moving into May, week one was still tough, you know, still up against stimulus. We were still mid-teens negative. Then in the second week, like clockwork, with the arrival of warm weather across the whole country, the trend immediately reversed and sales were up positive low single digits versus 2021, and they were up in the low 20s, I think up 21% versus 2019. And so there was a significant trend reversal, you know, like I said, starting in May week two, which we were very encouraged by.
I think when you think about what happened in March with the big stimulus impact, we were able to start to see that wane, which we, you know, always kind of believed we would in the second quarter. Then we got the pop, obviously, from the weather. When you think about going forward to your question about what's happening in the macro environment with respect to the inflation, as you mentioned, you know, lack of stimulus, all the supply chain, you know, mess and cost pressures, 2021's becoming somewhat less relevant in our opinion as a comp, which is why we mentioned that we are gonna continue to, you know, compare throughout the balance of the year, our progress towards our pre-pandemic results in 2019.
Using that lens, when you look at Q1, while we really didn't deliver what we hoped, you know, our results against 2019 were pretty impressive. Like we had mentioned, $1.05 in EPS versus $0.36 in 2019. You know, we had $50 million less in top line than 2019 and 32% less stores. Margin was 250 basis points higher, and operating income was at, you know, mid-fives, $56 or $57 versus 2019's $16.
We're looking at those results to be, you know, directly correlated, if you will, to the structural reset of our business model, which is why, you know, we are going to keep driving in 2022 to the $10 EPS and the $10 operating margin goal because what we've been able to accomplish in the last couple years has really been a pretty massive structural reset, and we have ended up with a much more resilient model that can kind of weather some of these storms, to your point about taking the sales down. You know, mid-singles% is our latest projection. If you look at the balance of 2022 with the top line, what we're thinking about.
We obviously don't think we're gonna drop 16% again in any one of the quarters coming up, but we are going to be very, very careful at the end of this quarter and very, very careful in August because we're not gonna make the same mistake that we made in March by miscalculating the impact of stimulus. As we all know, you know, we've got one category of business and it's kids' clothes. We were clearly an outsized beneficiary of stimulus in Q1 last year, and we were clearly an outsized beneficiary as you go into the last 2 weeks of July and the period up until Labor Day. You know, we had pent-up demand. There was no school for 2 years.
We were in a really good stock position with basics, and some of our competitors were having trouble getting product in, but we really had a very good assortment. Then also we have the Child Tax Credit that started in July and really was a positive for our business, at least for the first three months of it. July, August, September. I think maybe it could have waned a little bit in the, you know, latter half and holiday, but it was very meaningful when it first started. The combination of that pent-up demand and the Child Tax Credit really makes us wary of those last two weeks and also of the month of August.
We are gonna take a more muted approach to what's gonna happen this quarter because those last two weeks of July, as you know, are really, really big weeks for us to the total quarter. July's a really important month for us, and then obviously August is an important month through Labor Day with back to school. That's really the reason behind the top line and really, you know, taking that down from where we were before based on March. On the bottom line, you know, as we kind of alluded to, there's been two significant and permanent changes to our P&L since the start of the pandemic. The first is the real estate reset.
Between the store closures and the occupancy reset, that's a big deal for us and, you know, you can obviously see it in our numbers, and that's permanent, and that's not gonna change. We have a ton of flexibility, you know, a ton of leases coming up in the next two years. We're gonna continue to work with our landlords and, you know, continue to optimize real estate. The other big one, which you know, is the, you know, digital reset, where we're approaching 50% of our business in digital, and it's our highest operating margin channel. Those are permanent, and those are, you know, definitely gonna be tailwinds for us in 2022 and, you know, into the future.
The other kind if I'm gonna put them in like a permanent bucket, you know, the lower fixed cost base due to store closures, and higher operating cash flows versus pre-pandemic, which are gonna support share repurchases, particularly at this price. We've got some year-specific things. I think Rob had mentioned one is incentive comp and then a lower interest expense. I think the wild card that a lot of people ask about is really pricing and how that impacts margin. Obviously, that's a key margin lever, and there's a lot of talk about that lately. I know that was part of your question. On the pricing element, like let's just recap where we are.
We said for AUCs that the first half were at mid-singles and the second half were up high singles, and our plan was to cover those AUC increases this year with corresponding AUR increases. We also said that we were gonna wait to see what happens with cotton before we made any further commitments on raising pricing. Unfortunately, as we mentioned, cotton continues to go up. When you look at the AUR, what happened in Q1, we were very pleased with our ability to grow AUR in line with our projections in Q1.
When you look at where the AUR came from in Q1, it came from a combination of basics, which is, you know, obviously a big part of our business, which are priced at the same price they were. I would say from the holiday time period, maybe October of last year, is when we took some, you know, increases on basics. We haven't changed those prices. So those are similar to where they were last year. Where we really got AUR was from our Easter assortments, which is our fashion product, which was extremely well received, as I had mentioned in my prepared remarks.
We were really able to really have a nice Easter assortment and, you know, unfortunately, ran out of a lot of styles a little bit too early and left, you know, considerable money, I would say, on the table for Easter. You know, opportunity going forward, but that was a nice driver of AUR. When you look at May week two, which we had talked about where the trend turned positive, with respect to pricing, we were still right where we thought we would be with the mid-single digits with our projections. At this point, we don't believe that pricing is an issue for our customer. We are still comfortably below our competitive set. Like I said, we have not changed our basic prices. When you look at our graphics, we're $4.99.
When you look at our mix and match, we're $4.99 and $3.99. The big programs in summer, you know, shorts are where they were basically last year. Those drivers are the same. I think where we can look to get AUR as we look through the balance of the year is really in our fashion assortments and our dress up categories as kids and families start to, you know, celebrate those holidays again. I think that bodes well what happened with Easter for us to think through those ticket prices. We're gonna reiterate that we're gonna stay with what we thought we'd be able to do on AUR for the year.
I will tell you, I am not gonna commit to raise prices any further, even if cotton continues to go up, because I don't think that's the right move in this inflationary environment. You know, I think, like I said, for now, we're gonna reiterate that we're gonna stick where we were and, you know, see that through for the balance of the year.
On Gymboree and Amazon, we leverage nicely on the TCP platform. We don't have much in terms of incremental overhead expenses there. We will fund it with additional marketing and inventory investments, but we've seen that pay off very nicely in the significant gains we've made with Amazon over the last year.
Our next question comes from Jim Chartier of Monness, Crespi, Hardt. Your line is open.
Morning. Thanks for taking my question. Wanted to ask about, you know, how your inventory position is today. You know, you talked about pricing, sound pretty good, but any risk that you'll have to kind of promote to move through that, and kind of what's your ability to cut back on inventory units in the back half of the year?
Yeah. Well, with respect to inventory, certainly having 30% more inventory is, you know, clearly something we're watching. You know, we anticipate that those inventory levels, I think we have said it before, are gonna continue to stay elevated while we work through the supply chain issues. You know, we're doing a lot of pulling goods up. There's a lot in our in-transit. Almost 25% of our inventory is in transit. At this point, when you really unpack it, we're not concerned at this point about the health of our inventory. From a pack-and-hold perspective, we have no current spring product on pack and hold, and we don't anticipate on putting anything in pack and hold from this current season.
As we had mentioned a couple times before, we have pack and hold in some holiday basics, like some seasonal basics for fall that we're gonna start to release throughout Q3 and Q4. From a you know like a fashion point of view or you know inventory that we would consider jeopardy, we're feeling pretty good. Also, a big part of our in-transit is really starting to load up for back to school. You know, we obviously had an amazing back to school last year, and we depleted a lot of our inventory and basics, so that's a big part of our inventory. Not really concerned. As far as you know your question about being able to get out of inventory, and that hasn't been something we've done recently, and it's not something we're looking to do.
I think we're pretty happy with how we've planned the fashion and the assortments. Like I said, coming off of the kind of business we had on Easter, I'm feeling good about the ability to not only get AUR from those fashion goods, but to drive customers through the, you know, resuming the activities that they're doing with families and celebrations. We're feeling okay where the inventory is for now.
Our next question is from Jay Sole of UBS.
Great. Thanks so much. First, just a question on the P&L for Q2. Is there any commentary you can give us maybe on some thoughts, maybe a little bit more color on your thoughts around gross margin and maybe just SG&A dollar guidance for Q2?
Obviously, there's a lot of uncertainty out there. When we had talked on the Q4 call, we had talked about our first half gross margin being under pressure for incremental inbound freight expenses, the AGOA piece, and the abatement's that we had received in the prior year. That still all remains true. What I would add to that is we are tempering our sales expectations, so we would expect to see some incremental fixed cost deleverage beyond what we had kinda said at Q4. From an SG&A perspective, I think Jane mentioned it in our first question.
The nice part about our SG&A base at this point is that we are getting the benefit of the accelerated store closures that we had gone through in 2020 and 2021, which provides us for a much lower fixed cost base than what we had in the past. As the demand environment fluctuates, we are gonna be able to cut down SG&A and leverage those costs as we navigate through the year.
Our next question is from Susan Anderson of B. Riley.
Hi. Good morning. Thanks for all the details today. I was wondering. You talked a little bit about the inventory, which you sound comfortable with. I guess, how do you feel about just the competitive landscape? I think some of your big box competitors mentioned the need to clear some excess apparel. I guess, you know, what happens if they do get more promotional? Will you guys also have to promote more? And then just on the double-digit earnings and EBIT margin guide, you talked, you kinda talked about the buckets there, that gives you confidence in that guide. Maybe if you could kind of quantify those buckets versus 2019 and the big drivers there that you think will, you know, continue to give you that double-digit despite the sales decline.
If sales did decline further, is that double digit still reachable? Thanks.
Okay, well, I'll take the first part and then I'll pass the second part back over to Rob. From a promotional competitive set, I would tell you that, you know, particularly with one competitor, we have seen dramatically increased promotions since the last couple months. I think as I had mentioned in the answer to the first question, when you look at, like, where we're priced on our key basics, we are still, you know, below or at our competitive set. I don't feel like that's gonna be an issue for us. I don't think that we have inventory issues, you know, to any degree or gluts or, you know, things that we need to clear.
You know, we are certainly keeping a very close eye on promotions and I think, you know, based on some of the things we've even heard this week, you know, there may be others who might be promoting more, but at this point there's nothing to signal to us that we're gonna have to, you know, do anything drastic as far as what our mix looks like.
From a P&L perspective, I think Jane alluded to it earlier on, but we fundamentally changed the dynamics of our P&L since 2019. You see that come through in the Q1 results. Despite the sales decline, our operating income in EPS was significantly higher. From a dynamics perspective, you know, the pieces contributing to it are the shift to e-commerce, which was our highest operating margin channel, and is nicely accretive to our overall operating margins. Our reset of occupancy expenses and the permanent store closures that we went through, which has significantly improved our store profitability.
The reset of our E-commerce fulfillment costs, including bringing in the 3PL and virtually eliminating ship from store, which has reduced unnecessary split shipments, as well as the numerous SG&A changes that accompany being a digital first retailer, as well as lower interest expense, lower D&A and higher share repurchases, by virtue of our stronger profitability and higher operating cash flows.
Our final question is from Marni Shapiro of The Retail Tracker.
Hey, guys. I wanted to just start with one clarification. The interest rate for the quarter, is that a good look through for the rest of the year? I just had a bigger picture question for Jane.
From an interest expense perspective, I would say.
Yeah
That the decrease year-over-year is probably a good bar. Seasonally, our inventory and working capital needs fluctuate, so we tend to peak in the revolver between Q2 and Q3. I would play that into the ccalculus when you're thinking about interest expense.
Thank you for joining us today. If you have further questions, please call investor relations at area code 201-555-2400 extension 14500. You may now disconnect your lines, and have a wonderful day.