JOANN, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Joanne's first quarter fiscal 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. A.J. Jain, Head of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon. I'd like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today, and the company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information, or future circumstances. Please review the cautionary statements and risk factors contained in the company's earnings press release and the recent filings with the SEC. During the call today, management may refer to certain non-GAAP financial measures. A reconciliation between GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was filed today with the SEC and posted to the investor relations section of Joanne's website at investors.joanne.com. On the call today from Joanne or Wade Miquelon, President and Chief Executive Officer, and Matt Sues, Chief Financial Officer. I will now turn the call over to Wade.

I'd like to thank everyone for their interest in Joanne and joining us on the call today. After we transitioned to a public company last year, we had a very good start to fiscal 2022 on the back of a record-setting pandemic fiscal year 2021. Since that time, we've experienced unprecedented supply chain disruptions, and more recently, we've also been impacted by geopolitical events, and significant inflationary pressures affecting our customers. Joanne is obviously not immune from the same near-term challenges that are currently impacting a variety of other retailers that you've heard from during this earnings season. These factors also mean that the economic backdrop for consumers is increasingly challenging, and to that end, we expect the operating environment to remain challenging through at least the next few quarters. You'll recall that we provided some commentary regarding the recent shift in consumer behavior on our last earnings call in March. As we said on that call, we had reasonable momentum until the outbreak of the war in Ukraine, after which we saw significant drop-off in customer traffic. Since late March, things have steadily improved week to week, but are not at the rate we would like yet. Despite the recent sales softness, our adjusted gross margin rate and gross profit balance remain strong, especially relative to pre-pandemic levels. In light of the near-term macroeconomic uncertainty, we are managing our cash position balance sheet very carefully. Until the inflationary backdrop and supply chains begin to normalize, we will continue to manage our business cautiously with the assumption that the economic environment will remain challenging and any normalization will be a bonus for us. As an organization, we've successfully navigated through many different economic cycles throughout our operating history. While some expect a soft landing as a likely scenario, my view continues to be that entering a recession is highly probable and, in fact, maybe the most likely scenario. What would that mean for Joanne? From experience, we typically see strong resilience in our customer base when a recession occurs as our consumers tend to forego high-ticket goods and services and double down on sewing, crafting, and other hobbies that generate peace of mind. And recall that our average customer basket size is roughly $30. Recessionary environment would also help to curb inflation, including feedstocks, encouraging more labor participation, and heal broken and overburdened supply chains. Based on our extensive history through a variety of economic cycles, we believe that we can manage through an economic downturn more quickly compared to many other discretionary retailers as long as we adjust our cash, cost, and pricing choices accordingly. And for perspective, during the last major economic downturn 15 years ago, after initial same-store decline of about 6%, we count positively during each of the following four consecutive years. A more concerning economic environment would be that of entering a period of sustained stagflation. That is not our base case scenario, but one that all companies should hold out as a possible risk scenario to manage and mitigate. During Q1, we experienced sales declines across our customer segments with sales down by 13.3% relative to last year and minus 12.9% on a total comparison basis. This decline was in line with industry trends, and importantly, we're very confident that the recent softness does not reflect any incremental competitive pressures or any loss of market share. Recall, that we cycled a 15% positive comp in Q1 in fiscal 2022. After adjusting for $28.9 million of excess ocean freight and related supply chain costs, gross profit declined by 11% from last year, an increase versus pre-pandemic comparisons. We're pleased that our adjusted gross margins have continued to improve. Our gross margin performance should further benefit from strategic pricing actions that we've taken to offset higher input costs. To provide some context on inter-quarter trends for Q2, we note our May comp was better than Q1. We look forward for further sequential improvement in sales and gross margin performance as we move forward. We're also experiencing very strong momentum in our online business with double-digit increases in traffic in the current quarter. Some of this acceleration can be attributed to the recent surge in COVID cases, which according to many reports are vastly underreported due to a variety of factors. Now, you'll recall that last year a significant drag on our operating performance was the impact of the delayed reopening on our special event-driven business. Event-driven categories have been a significant bright spot for us in fiscal 2023 thus far. On the other end of the spectrum, we are experiencing significant year-on-year softness in higher ticket discretionary purchases within our technology-based categories. We have previously been optimistic about the prospect of returning to positive one-year sales comparisons beginning in Q2. However, we currently do not expect to return to positive same-store sales growth in this current quarter. And as mentioned, the recent rise in COVID cases is also development that we are monitoring closely in relation to our store traffic. Overall, we're currently trending at a high single-digit sales decline for Q2, and while I anticipate that that trend should continue to improve throughout the year, I will caveat this by saying that there are still many unprecedented variables we are managing through, and these aren't only consumer demand-related. For example, on the supply side, we still have the war in Ukraine and related commodity inflation, the China COVID shutdown, and the LA port negotiations, all of which the team is currently managing through extremely well, but are very hard to label as business as usual. While we lack the visibility on the timing for a positive inflection point in sales growth, we're very confident the current set of challenges in the business will be proved to be temporary and typical in nature. We recognize we must adapt and control the things that we can control, such as our cost capital decisions, while preserving the rarefied air customer experience levels that we've been achieving. Relatedly, net promoter scores have remained at all-time record highs throughout fiscal 2023, and so I'd like to commend the field on the record customer satisfaction, despite the labor challenges that are plaguing the retail and service sectors. Our recent proprietary survey work confirms that our core customers, and customers across the creative products industry have very specific concerns about inflation, the economy in general, and the ongoing situation in Ukraine. Encouragingly, however, these same customers also say that they anticipate to spend more dollars in sewing and crafting in this upcoming year, not less. We're confident that we currently have a very good handle on all the issues that are within our control in relation to supply chain disruptions. The impact of excess ocean freight costs was in line with our expectations for the most recent quarter. Following recent negotiations for new freight contracts, we expect to have more operating flexibility through a wider range of ocean freight carriers compared to fiscal 2022. The increased capacity should allow for more timely delivery of products and ensure a strong in-stock position ahead of our all-important fall and holiday season. We're also encouraged by the recent developments in the spot market in relation to ocean freight costs. However, we expect the ocean freight market to remain extremely volatile through the balance of the year. We'll obviously continue to monitor the situation in China and the potential for work stoppage based on current contract negotiations between unionized workers and import authorities in Southern California. So far, the recent COVID shutdowns in Shanghai have not materially impacted our flow of goods or product availability. Based on the current uncertainty in the current retailing environment, we are taking steps to manage our balance sheet with a near-term focus on cash. We're not contemplating any major long-term changes in our capital allocation plans, but we will continue to be opportunistic in this area moving forward. Our Store Refresh program remains the biggest long-term focus among our capital allocation priorities. We still expect to relocate or remodel the vast majority of our fleet through this multi-year initiative. That said, we think it's appropriate to defer some capital projects based on the current marketing conditions, and Matt will cover this topic in more detail in his comments. Our Multipurpose Distribution Center in West Jefferson, Ohio, is set to go live later this fall. We remain very excited about our various Blue Ocean growth initiatives as well. As a reminder, current projects under the Blue Ocean Framework that we've already announced include, but are not limited to, Ditto, which is our joint venture with Singer, which we believe will be a major source of innovation for the sewing industry, our wholesale initiative in partnership with JDM, which will provide Joanne with access to a variety of B2B growth channels, and our recent acquisition of WeaveUp, which will streamline the production of digital fabric printing and related finished products. On several of our Blue Ocean initiatives we've already announced, the revenue opportunities are especially compelling. We'll have more to share with the investor community as these initiatives begin to have a more material impact on our financial results. Regarding Section 301 tariffs, we don't have any material updates on the ongoing litigation, potential expiration of existing tariffs, or the prospect of a more substantive policy reform. Any incremental tariff relief would be very beneficial to our perspective and very welcomed. There are a lot of moving parts in the economy and the world right now. But having said that, we've got winning strategies, and we have customers who love our brand and and we've got team members who are passionate beyond comprehension. I have no doubt that we'll seize the moment in time and come out of it as an even stronger and better organization as we always have before. And with that, I'll turn the call over to Matt for a more detailed recap of our financial performance.