JOANN, Inc.

Good day, and thank you for standing by. Welcome to Joanne's second quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the conference over to your speaker for today. A.J. Jang, head of investor relations. You may begin.

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 on the investor relations section of Joanne's website at investors.joanne.com. On the call today from Joanne are Wade Michelon, President and Chief Executive Officer, and Tom Dreyer, Controller and Interim Chief Financial Officer. During the question and answer portion of the call, we'll also be joined by Chris DiTullio, Joanne's Executive Vice President and Chief Customer Officer. I'll now turn the call over to Wade for his prepared comments.

Good afternoon. Welcome to Joanne's second quarter fiscal 2023 earnings call. I'd like to begin my comments by acknowledging the recent passing of our Chief Financial Officer, Matt Seuss. Matt was a very talented leader who served in a variety of senior financial roles during his 26-year career at Joanne. While math passing was devastating, we were very fortunate to have Tom Dreyer, our controller and 30-plus year Joanne veteran step in on an interim basis as CFO while we undertook the search for a permanent CFO. Thank you, Tom, again for that. Following our announcement earlier today, I'm very pleased to welcome Scott Segella to our incoming CFO effective September 26th. Scott comes to Joanne with the wealth of experience and increasing responsibilities and finance across many diverse organizations including Ford Motor Company, Pfizer, Hankel, Crocs, and most recently at Under Armour. Please join me in welcoming Scott and the Joanne team. We're very excited to have him on board, and he's an exceptional talent. I also want to take the opportunity to welcome Mario Stamson to the Joanne leadership team. Mario will oversee the supply chain operations and has held senior roles in companies in logistics, planning, distribution, transportation at a variety of national retailers, including Amazon, Unique Industries, Macy's, Target, and most recently at Ollie's Bargain Outlet. We're very excited to have Mario on board to help lead Joanne through an increasingly complex supply chain environment. And we're confident that Mario will help restore a level of normalcy to our supply chain related to cost, as well as lead the supply chain transformation for Joanne into the future. Regarding business trends, as you're aware, there are many cross-currents impacting retailers during this earnings season. Geopolitical uncertainty, inflationary pressures, and supply chain challenges remain some of the defining issues impacting our customers in the current environment. Recent data points on the economy offer further confirmation on my long-held view that we are in the midst of a recession. Relative to other discretionary and specialty retailers, however, we tend to get impacted earlier from the economic downturns, but we also tend to recover much faster. That has certainly been the case in previous cycles. I'm also pleased to report that as we enter into a more mature phase in the post-pandemic period, we continue to see strong engagement from both crafting and selling enthusiasts. Our overall comp trend is strengthening, And as of now, we believe that should be the case for the balance of the fiscal year. Concurrently, our cost outlook is also beginning to show signs of improvement. This favorable revenue and cost dynamic will enable us to generate a high level of free cash flow and pay down debt during the back half. While I'm encouraged by the steady improvement in our operating performance in recent months, we still remain vigilant given the overall economic environment. The biggest opportunity for joining the month ahead is in relation to our cost structure. And over time, we feel that the current economic headwinds will actually help to remedy the supply chain imbalances and generate significant cost savings for Joann going forward. Our organization has absorbed in excess of $160 million of increased supply chain cost and product cost inflation on an annualized basis. We continue to also absorb roughly $40 million of unmitigated Section 301 tariffs imposed on goods imported from China. Having said that, we feel that OSHA freight cost pressures as well as certain product costs have peaked, and these should begin to improve as we head into fiscal 2024. As I said earlier in my comments, our operating performance has improved since we reported our first quarter results. Recall when we reported our quarterly results in June, our inter-quarter sales trend for Q2 had already shown some signs of improvement. Our cadence continued to improve as we ended the quarter with four consecutive months of sequential improvement. During Q2, our revenue declined by 6.8% with total comparable sales decreasing by 6.2%. Our digital business was a significant bright spot, increasing by 2.2% during the quarter and accounting for 12% of our Q2 revenue. Trends for transactions and average ticket both improved on a sequential basis in Q2. Based on a three-year comparison relative to pre-pandemic level, our sales were slightly positive, improved by roughly 400 basis points on a sequential basis from last quarter. Also encouragingly, While adjusted gross profit declined by 9% compared to last year, it increased by 7% compared to pre-pandemic levels in fiscal 2020. Among our merchandising divisions, our home seasonal business was particularly strong in Q2. We finished the season with healthy sell-through of our spring and summer goods, along with encouraging results of early fall and Halloween sets. Additionally, a number of our important sewing categories for the back half of the year ended the quarter with good momentum. We also continue to see the increase in our average unit retail outpace the increase in our cost of goods. This is a function of strategic pricing and promotional actions we discussed on our first quarter earnings call. Importantly, the rollout of retail price increases has not come at the expense of incremental units or transactions. The quality of our inventory is extremely healthy, as clean as it's been in our recent history. We manage our inventory build in Q2 strategically with an eye on getting in front of any further supply chain disruptions. During the quarter, we pulled forward receipts of fall and Halloween seasonal inventory in order to optimize the flow of product across the distribution network to better align with demand. We are already seeing the benefit of that decision in sales. Meanwhile, we're also continuing to invest in basics and other critical categories for the back half of the year. These actions have better positioned Joanne for a crucial holiday selling season. Recall that on our last earnings call, we mentioned that we would continue to build inventory units in the second quarter while also taking actions to reduce inventory receipts in the back half of the year. We are executing at a high level on these plans and have reduced our back half merchandise receipts by $120 million. Given these and other actions, we expect to be significantly free cash flow generated through the end of the year. I also want to take the opportunity to remind investors that our business is highly seasonal and the vast majority of our annualized earnings and cash flow take shape after Labor Day. This seasonal dynamic is an important consideration to keep in mind with respect to our inventory position over the next two quarters. By year end, our inventory costs and inventory units should both decrease materially compared to the fourth quarter of fiscal 2022. Next, I'd like to discuss the opportunities that lie ahead in addressing our ongoing ocean freight challenges that I previously referenced. Ocean freight costs peaked during the fourth quarter of fiscal 2022. Since then, we've seen sequential improvement in each quarter, and we are seeing continued signs of stabilization in container freight rates. We expect further sequential improvement with ocean freight costs in the backhand in fiscal 2023. As time will lay out in more detail, we're implementing a wide range of cost reduction efforts and working capital initiatives, and have a comprehensive action plan in place to capitalize on lower ocean freight as these headwinds transition into tailwinds later in the year. In the meantime, we're continuing to manage our cash position and balance sheet very carefully. Although we've seen improvement in our sales cadence, our assumptions remain that the macro environment will remain challenging at least through the end of the current fiscal year. There's been no substantive change in our capital allocation strategy or in relation to our store refresh program since our last update in June. Our multi-purpose distribution center in West Jefferson, Ohio is set to go live in our coming months. This facility will help to improve our operating efficiency and significantly enhance our omnichannel growth capabilities. In the weeks and months ahead, I'll have more to share about our various Blue Ocean growth initiatives as they go live. Our wholesale partnership with JEM Group is going well, and our sales are ramping nicely. Separately, we made a recent investment in QPixel. QPixel app combines cutting-edge augmented reality and artificial intelligence technologies with premium art content to allow users to create a very visual and stunning work of art. This product is now available online and in our stores with additional information on joann.com. Well, to conclude, I'm pleased we entered the quarter with momentum and on a more solid foundation than we began it. As an organization, we're primed for our holiday selling season with exciting product assortments heading into the back half of the year. I'm thankful for the hard work of the team across the country and what they're doing to navigate through this tough environment. From those in our store support center in Hudson to our distribution center teams and our 20,000 team members in our stores, we remain focused on our customer in all we do and will be an even stronger company from this very hard work. With that, I'm going to turn the call over to Tom Dreyer for a more detailed overview of our financial performance. Tom?