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spk_0: that afternoon and welcome to the joanne fourth quarter fiscal tweet tweet three earnings conference call all participants to be innocent only vote should you need assistance picks ago conference special special starkey followed by zero after today's position to be up to ask questions that's a question because started one your telephone keep it to a trial question please post starting to please note that the that has been recorded on i kinda complicated than callahan with i see our please go ahead
spk_1: thank you good afternoon i'd like to remind everyone that the comments made today may include forward looking statements which are subject to significant risks and uncertainties that could cause the company's actual results
spk_0: to differ materially from management's current expectations
spk_1: these statement 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 materials posted on the company's investor relations website and the recent violence with the fcc during the call today management may refer to certain non gap financial measures a reconciliation between gap and nine get financial measures can be found in the company's earnings press release which was filed today with the fcc and poster to the investor relations section of chileans web site and investors stacho and dot com on the call today from joanne are weighed mikel on president and chief executive officer and scots color chief financial officer during the question the answer portion of the call will also be joined by chris the julia
spk_0: giants executive vice president and chief customer officer and joe and executive vice president and chief merchant i went out turn the call over to wait for his prepared comments
spk_2: thank you that afternoon a the giants fourth quarter is all your fiscal twenty twenty three earnings call that i doubt that whole twenty three was challenging year for joanne many other companies around the world
spk_3: i'm in a series of challenges that impacted article twenty three performance including a parasitic as pandemic and mls till camps and uncertain macro economic environment and inflation innocent and supply chain disruptions which will quickly that felt strongly in terms of increased ocean free
spk_2: however in the face of his challenges we had sequential improvement in our top line fourth quarter results are making progress in their ongoing efforts to enhance our cash flow reduce multiple sources cause and implementers his a blue ocean initiatives been on his ours we believe joanne is well positioned purpose or point four before getting into a specific fiscal year twenty three and fourth quarter results and a more detailed discussion and how we set ourselves up for this year twenty four i wanted a moment recognize our team members watch and how they able to weather the challenges that fiscal year two thousand twenty three percent it is attributable to the team members who were to join our said a heartfelt thanks to our tired joanne team including our store support center or distribution centers around is still much better as well as or twenty thousand team members and are approximately eight hundred and thirty stores for their unwavering dedication to provide service to our customers will remain a challenging environment commitment to quality of our team members was recognized by others as well including forms and to three which they enjoy it as one of america's best large employers and greatest workplaces for diversity respectively this is a testament to how our team remain flexible and navigated is very difficult landscape with agility was trained true to our mission to inspire the creative spirit and each of us and health everyone fine they're happy place to superior assortments presentation and service i cannot be prouder of all their hard work how to drive strong finished or fourth for after a slow start in the corner we saw topline sales pick up post black friday that into a sequential driven or sales and a positive january camp and a for fourth quarter we'll ever get sales hundred ninety three million or fourth quarter just leave a dog was forty eight point six million or set up for sediments thales a we saw comical sales and literary pandemic trends a strong selling derby period is as cabbage as we had an official twenty twenty four i kenilworth once in a corner of next but we didn't see how they perform it's dark horse saw and craft businesses the changes in the crap out ninety business and our primary had when the park accountable sales in our data indicate where outperform the industry feel pressure was significant and a quarter to expect will continue to be a headwind into fiscal point twenty four and about aside side core fabric selling crack category strengthens around the corner and all and to show positive momentum into fiscal year two thousand twenty four they are largest selling crack categories come back is critical as an indicator or customer is reengage the space after a brief pullback by the increase spending and engagement during the early pandemic of most fuel timeframe time frame and back in the mother january every measurable tear are no customer database was positive cop degree regulated customers are over twenty percent we're also seeing the strong gator with our core of doozies and it continues into early fiscal year twenty twenty four traitor of all your visible ten minutes results we western net failed to point two billion dollars which was only slightly below every minute i never fails fiscal pulling twenty and they magically space many challenges and physically or twenty twenty three and a significant supply chain disruptions inflationary pressure and tariffs resulting in increased incremental costs of over to two hundred million dollars mister ocean for a cost pressures begin to a bait and late visible point one in three anticipates trends continue into this one point when you for to be a key driver to are expected significant your year and proven cash generation by the heavens we faced or full your just gross margin remain a hundred and seventy basis points above this whole twenty twenty we deliver just even daughter the year that many a point five million dollars or four point four percent and hundred dollars or for improvements physically or toy or we are folks are pregnant or balance sheet and continue to deliver a great customer experience as opposed taking actions to improve cast generation is already engaged multiple activist and hands or cast position as you like a sauna press release form a cave filing early this month access lee secured one hundred million dollars or same last out an agreement by the increased flexibility and accessed candle to drive a business and continue backers about macro economic uncertainty we believe this new credit agreement is upright and told him show and in a sound financial position and says we operate the business and investors to to grow finished his physical twenty four additionally official twenty three traded lighter focused on the by and road initiative and partisan issue initiative libertarian approximately two hundred million dollars in annual cost savings in three general but putting one hundred million dollars and supply chain costs roughly six million dollars in our costs and soul another proximate forty million dollars in destiny costs these efforts are well underway and we're already seeing cost and become tail and to invoke a simple buying bro initiative most notably through supply chain cost savings to decrease international and domestic free cause loss and climb back inflationary price increases in our cost of goods and these negotiations knowing knowing we will you be very positive feedback from cash flow and point for possibly him that he may die and early as between twenty five bali to efforts to revoke simplifying broadest is and to identify savings and as a related costs are underway as well and really positive result really no stone unturned is removed improve our past levers and become a leader and more at i'll discuss these efforts me into space seeing more of the cash benefit of his cost reductions fiscal two thousand twenty four with all analyzed just the but i impact in fiscal twenty twenty five these cash limit on benefits are independent growth but we continue to focus on how stabilizing broad outline as well the start of folks hundred customers and early as bitcoin twenty three are no database customers increase their engagement throughout the years represent a nearly seventy percent of our business and this past year be reactivated nearly two million customers who had a shout over the previous here and we added three million customers our databases well we're very pleased with continuum of we're seeing anarchist or file as our basement continues to become increasingly visually active and diverse where specially charge by the traction regaining with new younger customers the recently highlighted by at age as a brand getting as the brand is gaining popularity vincenzi and at a quarterly their polls surveys us consumer ages eighteen to twenty four and a fourth quarter surveys showed show as rankings increase ten point three points over three quarters and one of only three retailers to make the top twenty list are seen as translate or customer base for the average age of our customers and his decline from where we were private pandemic sales to customers under the age of thirty five increasing by nineteen percent in with us government and we recognize him singer and metronomic x macro economic environments remain uncertain and many customers given the inflationary pressure contains the are managing how frequently how much to spend that said reduce the impact path growth and fiscal point when for to begin to realize incremental revenues for a strategic implosion justice as well as being growth energy
spk_4: commerce business
spk_2: as growth includes ditto what we believe as ability revolutionize selling industry to daughter might everybody in the deputy joint venture with they are abiding but the been successfully launched during fashion week in new york in early february twenty twenty three is the truly revolutionary product and platform for song of disease which aims take the most painful part of selling bang outrage in cutting patterns and turn into the most enjoyable part of the process the benefit of system uses an ai platform integrated with the precise digital projector system and mobile app that unable to enable easy access to most to design and wow so as to easily adjusting had to my parents so spending hours on the step of the process so as from there
spk_5: radiation to sewing and minutes
spk_2: the we believe that it will be a game changer for selling enthusiasm and i much at a previous call don't see why the highest percentage scores of arms are still design harder has ever seen and we have seen a very high level of excitement from the public since launching in february ditto is already gaining traction customers presale unit start arriving in customers homes and mid march and we're already seeing real smith dealer network efficient join or launched his set for saturday april first and an abortion issue of work out as or wholesale business and was a tremendous opportunity with his initiative for a be to be also customers january twenty three we lost commercial website for a wholesale business inspiration direct dotcom and less than three months we registered eight hundred customers on his face and started shipping both domestic and international orders are still early to their wholesale initiative is another important step with the potential to drive incremental sales additionally we're excited about a recently announced a partnership with the world renown american designers mart badly and james mr badly misguided and branded as enchanted a special world the past two decades with dream like beauty and luxuries designs and in early april our customs be able to purchase fabrics trams written and even sure if the captures this quality
spk_6: the amelia joanne
spk_2: this partnership as a new product assortment targeted are younger customers resent represents a new way to leverage to do collaboration too much as will punch way forward will be rolling out additional partnerships strengthen our position as a nation category leader and selling browser very pleased with one is already commerce business to start increase traffic and record our eyes met promoters or today in the board porter as he messes with a international business continue to show results much like the overall business we stop how the sales growth and encore selling crack categories across the border a shell shopping patterns steps to do not have them and the post pandemic or ecommerce penetration is that he over here and forty percent as a despite the head with the craft analogy a business that is highly penetrated by mine with all this in my recognize restored to be done and we still operating in an uncertain economic environment that fed and level said where the new post pandemic moralists i believe actions you take him allows to build and fourth quarter results and position as for success with a bore and now that i turned over to our see of got together to get a more detailed rundown our financial results and afford snapshot into the drivers are anticipated free cash flow improvement disappointing for before wrapping up with answering your questions
spk_7: thank you way
spk_8: as we discussed in his remarks we saw positive improvement in our fourth quarter of fiscal twenty twenty three results and we see these trains carrying over into the first quarter of fiscal twenty twenty four when combined with our ongoing efforts to strengthen our balance sheet and have cash flow reduce costs and invest in our strategic initiatives we believe that we are well positioned as we head into fiscal twenty twenty four through these outbursts we expect that over the course of the year we will be able to meaningfully improve cash flow stabilize or top line and began expanding a but it's old historical levels with him i'd today i'll provide a deeper recap of
spk_2: or fourth quarter results reviewer for fiscal year twenty twenty three results and provides an additional color on what we see for fiscal your twenty twenty four
spk_8: in the fourth quarter that sales totaled six hundred ninety two point eight million a decline of five point eight percent compared to last year total comparable sales decreasing five point nine percent
spk_2: or sales early in the fourth quarter were slower than we anticipated due to some cycling of last year's be are missing out on comparable sales improve sequentially post black friday and his way merchant we were pleased with the positive january pop
spk_8: relative to prepare dominic levels of the fourth quarter of fiscal twenty twenty or total sales were largely flat down four tenths of a point
spk_2: we saw the top line strengthen throughout the fourth quarter in our core sewing and craft categories signaling that are court consumer who was so important to our business is reengage and get a meaningful way
spk_8: on a gap basis or gross profit in the fourth quarter was three hundred and three point seven million a decrease of six point four percent from last year and a decrease of seven point five percent from pretend alec levels and fiscal year twenty twenty we absorb sixteen point seven million of excess import free cause during the quarter this figure reflects and eighteen point six million decrease to the fourth quarter of fiscal year twenty twenty two as we continue to benefit from improving conditions on the spot market after adjusting for access and portray costs are gross profit was three hundred and twenty point four million or fourth quarter merchandising margin was down one hundred and seventy basis points compared to the same period last year
spk_2: are averaging in a cost improve that a sequential basis and up four point one percent of the prior year period average unit retail slightly increased by chance of a point relative to the same period last year driven by strategic pricing actions that was partially offset by a deeper and earlier promotional marketplace related to the home and seasonal categories or gross margin on a gap basis was forty three point eight percent of the fourth quarter a decrease of thirty basis points from last year in the fourth quarter we started to benefit from cycling extremely high ocean for a cause for the back half of last year
spk_8: after adjusting for access import for a cause adjusted gross margin of forty six point two percent represents a decrease of two hundred seventy basis points from last year driven by the hundred seventy bases point decline in our merchandising margin fifty five basis points to the timing and cycling have capitalized domestic for cause thirty five basis points resulting from lower bender allowances due to our strategic inventory receipt reduction in thirty basis points of higher shrink expenses these were partially offset by twenty basis points of improvement through the optimization of our ecommerce shipping promotions on a sequential basis the decline and i just had gross margin in the fourth quarter was higher compared to the eighty bases point decline in the prior quarter primarily due to the deeper and earlier promotional environment we experienced in the fourth quarter we saw improvement of product cause during the fourth quarter relative to the third quarter as because from the peak of last year supply chain headwinds began to roll off lower costs related to import freight provided a tailwind in the fourth quarter during the fourth quarter we realized twenty six point three mil and of cash benefit from lower ocean freight rates with the renegotiation of for a contracts and fiscal year twenty twenty four along with our cost savings initiatives we expect the outlook for averaging the cost to continue to improve turning to expenses or sg and a expenses increased by three point one percent from last year like many companies we have been adversely impacted by inflationary pressures on wages and other costs across the business with that being said we were pleased with our ability to manage as to in a expenses despite these pressures direction such as the strategic management of labor hours in our stores and our continued optimization of advertising spend as we shift to more digital channels effectively managing these costs allowed us to support incremental spanned associated with our recently opened only fulfillment center and further fuel or strategic initiatives
spk_2: or net loss in the fourth quarter was ninety one point one million which includes and ninety five million of non cash pretax impairment compared to a net income of thirteen point six million in the same period last year
spk_8: adjusted he but on the fourth quarter was forty eight point six million compared to eighty eight point nine million last year
spk_2: turn into the four year fiscal twenty twenty three net sales decreased by a point three percent to two point two billion and comparable sales decline a point one percent
spk_8: for the year we absorb ninety one point two million year over year of access ocean freight and related supply chain cause which was excluded from are adjusted gross margin and adjusted he but a non dab measures year over year or gross margin or a decline by approximately three hundred thirty basis points to forty six point nine percent in fiscal year twenty twenty three compared to fiscal year twenty twenty two adjusted for access ocean free and related supply chain costs gross margin decline by one hundred and ten basis points for last year to fifty one percent primarily driven by increase domestic carry and fuel rates are soaring expenses and lower vendor allowances do our strategic inventory receiver reader
spk_2: option
spk_8: but a four year fiscal twenty twenty three or net loss was two hundred and point six million which includes ninety five million of noncash pretax superman compared to net income of fifty six point seven million last year for the four year adjusted ebitda was ninety eight point five million
spk_2: moving on to our balance sheet or cash and cash equivalents were twenty point two million at the end of the fourth quarter
spk_0: as of january twenty eight twenty twenty three we had eighty seven point two million of availability on a revolving credit facility but this is now meaningfully improved with our new flashed out credit facility which i will touch on shortly
spk_8: also consistent with what we indicated a last quarter's call or face value of debt debt of cash at the end of the fourth quarter was nine hundred seventy point four million
spk_2: this reflects an increase of one hundred ninety eight point six million from the same period last year and a leverage ratio of five point nine acts as measured by net debt and finance lease obligations relative to credit facility adjusted ebitda on a trailing twelve month faces
spk_8: in terms of inventory or inventory at the end of the fourth quarter was down eleven percent compared to fiscal twenty twenty two
spk_2: this decline was in line with our expectations inconsistent consistent with our plans are strategically lower inventory receipts during the back half
spk_8: additionally we took the necessary action and are seasonal swordsman to exit the queen and well positioned for fiscal year twenty twenty four
spk_2: in fact or plans him a toy continues to represent less than five percent of total
spk_8: or even toy position has never been as clean and his positions as well to capitalize on our innovation initiatives and the evolving consumer demand environment as we leverage test read and react capabilities as we head into fiscal year two thousand and twenty four we're seeing the stabilization of our top line we expect are you commerce business and strategic partnerships to play an important role and provide a buffer to the business in light of the challenging and uncertain macro economic environment or customers continue to face also fiscal year twenty twenty four contains a fifty third fifth fiscal week worth approximately thirty five to four
spk_2: thirty million so the top one
spk_8: as way it mentions cast generation is a critical focus in fiscal year twenty twenty four trip already initiated multiple actions that are supporting the a handsome and of our free cash flow position throughout fiscal twenty twenty four
spk_2: this includes are focus simplifying grow cost reduction initiatives
spk_8: launched in fiscal year twenty three focus simplifying grows focused on reducing annual pass by approximately two hundred million and three broad categories across all areas of our business including approximately one hundred million supply chain costs possibly sixty million a product costs and another approximately forty million of sg and eight os while we seeing cost reductions across all of these buckets the most significant kern impact is derived from lower supply chain cause driven by reductions in ocean frame what was for most of fiscal year twenty twenty three a significant headway has become a tailwind for us as we continue to see improving conditions of of spot market is positive change combined with ongoing efforts to call clawback inflationary increases in our product costs and a done a fine implement sg and i reductions will provide a growing cash posted throughout just to your twenty twenty four and due to the timing of inventory sell through should have a mostly analyze adjusted ebitda impact in early to school you're twenty twenty five
spk_2: a date we have a terrified approximately seventy five percent of the target two hundred million annual savings
spk_8: additionally we have taken pro active steps to improve our liquidity as way mention and i referenced earlier last week we announce we entered into a hundred million dollar first and last our credit facility
spk_2: this new credit facility is an incremental facility to our existing a bl in all pro actively provide the company additional liquidity as we continue to navigate through macro economic uncertainty
spk_8: on the closing date we borrowed the full amount available under the new credit facility to be used as cash on hand repay a portion of the outstanding amounts under the a be out and cover transaction costs
spk_2: in conclusion fiscal year two thousand and twenty three was certainly challenging like many companies around the world joanne was impacted by series of factors that impacted our performance such as pandemic and stimulus fuel pumps and uncertain macro economic environment
spk_8: unprecedented inflation i continued supply chain disruptions however based on the factors we have discussed today such as the positive momentum we saw in the fourth quarter fiscal twenty three and carry over into early portion of his first quarter fiscal twenty four the pro active steps we've taken to reduce costs and improve liquidity as well as our continued investment our strategic initiatives
spk_0: we are excited for what's ahead and we believe we are well positioned for fiscal year twenty twenty four and beyond with that would be happy to take your questions operator we will now begin the question answer session just a question you make us dragon when you're talking keep keypad if using a speakerphone keys to up your had before press keys she was try a question please post starting to
spk_9: at this time the momentarily to send my roster i first question will come from peter keith with piper sandler he may not go ahead
spk_3: i think i'm going good afternoon and you'd mentioned in the script that the would be positive pump in january that that the trend had continued as i guess i want to open condemning it you're still reading positive for february march and add anything to call out of that's the case with their than what promotions or or anything it or is it just a better demand for the abroad
spk_9: we're going to happen in the corner quarter day when we're seeing as as low single digits negative fighting again i got the craft and pry actually slightly positive so right in that or recall last year we started quarter too strong and then we had a huge and drop off may corner and them a rebound the end of the corner bobby stuff and then about the underlying business as an ex craft act of across the board pampering and probably strength and that still sequential improve themselves from where we weren't you for
spk_8: yeah okay now get and they're not impressed by the on the inventory is gotta think if i heard you correctly ned in the script and write towards the any talk about two hundred seventy nine million of any life savings from lower afraid if i i heard correctly i'm any to thinking but the inventory levels the is your way to figure out where inventory could end up at a year and any from an inventory days or even toy term perspective a papers scott get so the the savings or expected for most of those were clarifies you're probably around the hundred million sort sorta level on as we go forward inventory was down eleven for seventy four
spk_2: we continue to see reduction in units
spk_9: reduction in cost were and then the other big foods with some of supply chain disruption cleared up or in transit is down a
spk_10: in a large way as well as we go forward we're going to continue with the strategic inventory receipt reduction so i expect some working capital benefit from that and fiscal twenty four and and continued sort of clean inventories and as we move forward and in anyway just a friend that up for us we know we were in the toilet when i lay land by year end or to target bubble
spk_8: so little tough to say
spk_11: oh yeah i expected probably be somewhere around
spk_9: coast of flats a slightly down
spk_2: okay enough and from few point you just supported correct
spk_12: okay
spk_11: that thank you very much
spk_0: and on on the assumption too aware know he finally land with our
spk_13: or ocean by race our that flows through goshen is now that those markets and pretty much return to where they were prevent any
spk_14: okay thank you very much as the but thanks
spk_8: our next question will come from lara champagne with me capital you may not on it thanks for taking my question it can you come a little bit about how quickly you can make the to her million dollars of costs improvements and on the likelihood that you'll need to raise additional that to shore up to balance sheet this year
spk_2: a lawyer sky
spk_15: so yeah as a yeah we're having great progress as i said where we were terrified about seventy five percent of the two hundred and that also doesn't take into account some of the working capital opportunities that we have so from a cash flow perspective
spk_8: where is you got a good amount of added fiscal twenty four from a deeper perspective the majority of that's actually going to come and fiscal twenty five that sort of what we have said all along so i gotta think about it into words as we had an airbag and whatever a ninety nine hours and ocean free that goes away this year
spk_12: so so that's also part of l close to the piano me just to be correct and then the product cost savings will need to flow through the a now but i'll get that cash flow impact this year as we buy those goods and ultimately seldom next year
spk_3: not it so in your view do that alleviate the need for you to raise additional capital this year
spk_12: yeah i think you know the the follow was a pro active measures i'm not anticipating any additional capitalism
spk_16: him with the follows ya was you become more efficient than him and or management
spk_15: and as are in transit goes down and love to be the more efficient in a wheel we can avail as much of our a the l one part time so the file really fill that gap so even as we know where did you ever this year that is us availability that that
spk_8: that we would otherwise have an inventory and just last week can you give this and an estimate of what your interest expense
spk_12: is likely to be on the piano this year
spk_3: yeah yeah i mean it's go to devil you to be out because warm you up the file okay for there and were rates are are trending so it's i probably expected to be up in the
spk_8: go around or million which is probably up around forty million or so
spk_15: not it
spk_0: they'll assume that you know with that recent raise and maybe one more but we are some any pull back and the back end of year but
spk_17: we also have a we also have a before slabs of forgiveness benefit on the back every year of the entered into that does a more mature really impact us in fiscal twenty five to do
spk_2: got it thank you
spk_18: or next question will from joe feldman with kelsey advisory group he may never had
spk_2: yeah i a few guys with with regard to i think he made a statement weighed about customer engagement and reactivating i i i heard you're right you said two to three million customers and i just wanted a dig in there if you could share a little more about how you did that and how you got people back in and you know highest him related them to to to come back to the store an oligarchy cut her off sir chris handle eleanor
spk_8: i job or yeah we're we're pretty excited about the trends were saying we're seeing customers reengage in in our core selling or core craft categories and i think we've mentioned earlier
spk_1: it's comments
spk_19: young sellers are in particular which is which is really exciting for us
spk_1: we're we've been able to use a number of a more sophisticated digital marketing tactics to reach these younger customers
spk_20: as we've been able to shift our budgets out over traditional cranston into a in the more digital and crm overtime so we're seeing the benefits of that being able to or to reach more people with was banned
spk_8: and that that's helpful thanks and this need to see who is well better
spk_20: are you studying
spk_2: and he trade down within category you know like a devil would reflect the environment like maybe people are engaging but the ring gauging at a lower price pointer were and opting for lower quality goods though i we're not seeing trade down as we measure of the performance of our are different categories we're seeing a very consistent average a yet retail and a very consistent average ticket
spk_21: of of a purchase of the you know it impacted our business last year i would say was a brief depth and frequency
spk_17: versus a depth and how much people spend when they come in
spk_0: can and we saw that frequency blip begin to turn positive for us later in the quarter and early trends the sheer are encouraging it's it's run by just to add a pair on of our craft technology business that we rapper inside a you are down eleven percent which did have a negative impact on are you on a quarter but as you look at those core businesses the christened waited mentioned with selling and grabbed ah the balance of the craft business were actually seeing a nice uptick in our a you ours as customers are returning to apparel selling which is inherently a little bit higher per yard retail that's helpful thanks guys get my goodness and cancun this include a question and answer session the conflict is not included a fucking today's presentation gimme now disconnect good afternoon and welcome to the joanne fourth quarter fiscal twenty three three earnings conference call
spk_1: has been to be a missile only mode should you need a suitcase ago coughing special special starkey followed by zero after today's position to been up to ask questions that's a question because gastar than one your telephone keep it to try question please just starting to please note that has been recorded on i kinda complicated than callahan with i see our please go ahead thank you good afternoon i'd like to remind everyone that the 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 the statement 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 materials posted on the company's investor relations website
spk_2: and the recent filings with the fcc during the call today management may refer to certain angel measures a reconciliation between gap and i get financial measures can be found in the company's earnings press release which was filed today with the fcc and posted to the investor relations section of chileans website
spk_3: i had investors dutch oh and dot com
spk_2: on the call today from joanne are weighed mikel on president and chief executive officer and scots keller chief financial officer during the question answer portion of the call will also be joined by chris the julio jones executive vice president and chief customer officer and rodwell joe and executive vice president and chief merchant i went out from the call over to wait for his prepared comments i do that afternoon along the giants fourth quarter is all your fiscal twenty twenty three earnings call that an outfit called twenty three was challenging year for joanne many other companies around the world joanne in a series of challenges that impacted article twenty three performance including a parasitic as pandemic is camilla skull caps and uncertain macro economic environment and press inflation goes into the supply chain disruptions which would replace them felt strongly in terms of increased ocean frame however in the face of his challenges we had sequential improvement in our top blind fourth quarter results and are making progress of their ongoing efforts to enhance our cash flow reduce multiple sources cause and implementers are teaching blue ocean initiatives been on his ours we believe joanne is well positioned purpose or point four before getting into a specific fiscal your toy twenty three and fourth quarter results and a more detailed discussion and how we set ourselves up for this year twenty four i wanted a moment recognize our team members much and how they're able to weather the challenges that fiscal year two thousand twenty three percent presented attributable to the team members who were to join our said a heartfelt thanks to our entire joanne team including our store support center or distribution centers around his dollars better as well as or twenty thousand team members and are approximately eight hundred and the restores for their unwavering dedication to provide service to our customers will remain a challenging environment
spk_3: commitment a quality of our team members was recognized by others as well including for was and newsweek which they enjoy it is one of america's best large employers and greatest workplaces for diversity respectively this is a testament to how our team remain flexible and navigated is very difficult landscape with agility was trained true to our mission to inspire the creative spirit and each of us and help
spk_2: everyone fine they're happy place to superior assortments presentation and service i cannot be prouder of all their hard work his ourselves to drive strong finished or fourth for after a slow start of the corner we saw toppling sales pick up post black friday that into a sequential unproven or sales and a positive january income and a for fourth quarter we deliver net sales hundred ninety three million or fourth quarter just the the guy was forty eight point six million or seven percent of that thales a strictly we saw are comparable sales and motor prevent any trends strong selling derby period is as cabbage as we had an official twenty twenty four or kenilworth once in the corner was next but we didn't see how the performance dark horse saw and craft businesses the changes in the crafting algae minutes and our primary had when the park accountable sales and our data indicate where outperform the industry fails pressure was significant and a quarter to expect it will continue to be a headwind into physical point forty four and about his side our core fabric selling crack category strengthens around the corner and asked and a to show positive momentum into fiscal year twenty four they are largest selling crack categories come back is critical as an indicator for customer is reengage space after a brief pullback by the increase spending and engagements during the early pandemic of the most fuel time for back and the mother january every measurable tier are no customer database was pardoned cop to play regulated customers up over twenty percent we're also seeing the strong get on with our core of doozies and it continues into early fiscal year twenty twenty four trait or of all your fiscal ten minutes results we reached no failed to point two billion dollars which was only slightly lower than that i never fails to fiscal point twenty and they matched with many challenges and physically or twenty twenty three and a significant supply chain disruptions inflationary pressure and tariffs resulting in increased incremental costs of over to two hundred million dollars is the ocean break cost pressures big into a bait and late visible point twenty three anticipates trends continue into this one point when you for to be a key driver to are expected significant your ear and proven cash generation spine the heavens we face or full you're just gross margin remain a hundred and seventy basis points to this whole twenty twenty allow every just even daughter the year and many a point five million dollars or four point four percent fail it looked at a lot of course for improvements to physically or toy or we are folks as pregnant or bouncy sheet continue to deliver a great customer experience as it was taking action to improve cash generation a large engaged multiple activist and hands are cast position as you like a sauna press release and form a cave filing early this month firstly secured a hundred million dollars or same last out pedigree and fighting increased flexibility next candle to drive a business and if the than about macro economic uncertainty we believe this new credit agreement is and project told game show and in a sound financial position and says we operate the business and investors teacher growth initiative is one point one four additionally official twenty three the water focused on the fly and road initiative and part of initiative were approximately two hundred million dollars in annual cost savings and three general but putting a hundred million dollars and supply chain costs roughly six million dollars in our costs and soul another proximate forty nine dollars in destiny costs his efforts are well and or
spk_3: way and we're already seeing cost and will become tail and to vying for oh initiative most notably through supply chain cost savings to decrease international and domestic free cause loss and going back and stationary bikes increases in our cost of goods and these negotiations wrangling it we will be very positive back from cash flow and point one four paws
spk_2: liam back he may die in early as between twenty five bali to efforts to revoke simple by is in to identify savings and as a related costs are under way as well and really positive result really you know someone turns removed improve our cost levers and become a leader and more at i'll discuss with these efforts me into space seeing more of the cash benefit of these cost reductions in fiscal two thousand twenty four was all analyze just a but i am eggs in fiscal twenty twenty five these cash payment or that of a are independent growth but we continue to focus on how stabilizing broiler topline as well the start of the folks on our customers and early as between twenty three are no database customers increased during a twin throughout the year represented nearly seventy percent of our business for this past year be reactivated nearly two million customers who a shout over the previous here and we added three million customers to our databases well be very pleased with continuum of we're seeing anarchist or file and are based it used to become increasingly this reactors and diverse
spk_4: where specially charge by the traction regaining with new younger customers
spk_2: the recently highlighted by at age as a brand getting as a brand is gaining popularity vincenzi and at a quarterly their poll surveys us consumer ages eighteen to twenty four and a fourth quarter surveys showed show as reagan increase ten point three points over the third quarter and one of only three retailers to make the top twenty list are seen as translate or customer base where the average age of our customer condition declined from where we were private pandemic sales to customers under the age of thirty five increasing by nineteen percent in with us government and we recognize consumer and metronomic x macro economic environments remain uncertain and many customers given inflationary pressure to the are managing how frequently how much to spend that said reduce the about the growth and fiscal point when for to begin to realize incremental revenue towards getting implosion listed as well as being growth energy commerce business as growth includes ditto which we believe as ability revolutionized selling industry to don't remind everybody is pretty for the joint venture with thing by in fact the been successfully launched from fashion week in new york in early february twenty twenty three is the truly revolutionary product and platform for song of disease which amps take the most painful part of selling laying outrage using putting patterns and turn into the most enjoyable part of the process the benefit of system uses an ai platform integrated with the precise digital projector system and mobile app that unable to enable easy access to most to design and wow so as to easily adjusting to my parents and spending hours on the step of the process so as to the removed from mediation to sewing and minutes we believe that it will be a game changer for selling and disease and i mentioned a previous call diversity where the highest person test scores of arms are still design partner has ever seen and we have seen a very high level of excitement from the public since launching in february ditto is already gaining traction customers presale unit start arriving in customers homes and mid march and we're already seeing real risk the dealer network efficient join his store launched is set for steadily april first another bush initiative work out as or wholesale business and was a tremendous opportunity with his initiative for be to be also customers january twenty twenty three we lost commercial website for also business inspiration direct dotcom and less than three months we registered eight hundred customers on his face and started shipping both domestic and international borders are still early people that are wholesale initiative is another important step with the potential to drive incremental sales additionally we're excited about a recently announced a partnership with the world renown american designers mark badly and james mischka badly missions and branded as enchanted the fashion world the past two decades with dreamlike beauty and luxuries designs and early april our customs be able to purchase fabrics trams revenue even jewelry the captures is quality the actual amp this partnership as a new product assortment targeted are younger customers resent represents a new way to leverage to do collaboration promoters much will punch way forward and be rolling out additional partnerships strengthen our position as a nation category leader and selling
spk_7: browser very pleased with one is already commerce business start increased traffic and record our eyes met promoters for today in the board quarter as he messes with a international business continue to show results
spk_2: much like the overall business we stop how the sales growth and encore selling crack categories across quarter a shell shabby patterns steps to do not have it and the post pandemic or ecommerce penetration is held that he over here and forty percent as a despite the head with the craft analogy a business that is highly penetrated online
spk_8: with all this in my to recognize are still work to be done and we still operating in an uncertain economic environment that said as level said where the new post pandemic is i that actions you take him allows to build and fourth quarter results and position as for success with a board
spk_2: and now that i turned over to our see about got together to get a more detail rundown our financial results and afford snapshot into the drivers are anticipated free cash flow improvement in twenty for before wrapping up with answering your questions thank you way
spk_8: as we discussed in his remarks we saw positive improvement in our fourth quarter of fiscal twenty twenty three results and we see these trains carrying over into the first quarter of fiscal twenty twenty four when combined with our ongoing efforts to strike a balance sheet and have cash flow reduce costs and invest in our strategic initiatives we believe that we are well positioned as we head into fiscal twenty twenty four through these outbursts we expect that over the course of the year we will be able to meaningfully improve cash flow stabilize or top line and began expanding a but it's old historical levels with that alive today i'll provide a deeper recap
spk_2: or fourth quarter results
spk_8: reviewer for fiscal year twenty twenty three results and provide some additional color on what we see for fiscal year twenty twenty four
spk_2: in the fourth quarter net sales totaled six hundred ninety two point eight million a decline of five point eight percent compared to last year
spk_8: total comparable sales decreasing five point nine percent or sales early in the fourth quarter were slower than we anticipated due to some cycling of last year's be are missing out on comparable sales improve sequentially post black friday and his way mention we were pleased with the positive january com relative to prepare dominic levels of the fourth quarter of fiscal twenty twenty or total sales were largely flat doubt four tenths of a point we saw the top line strengthen throughout the fourth quarter and our core sewing and craft categories signaling that are court consumer who was so important to our business is reengage and get a meaningful way
spk_2: on a gap basis or gross profit in the fourth quarter was three hundred and three point seven million a decrease of six point four percent from last year and a decrease of seven point five percent from pretend alec levels and fiscal year twenty twenty we absorb sixteen point seven million of excess import free cause during the quarter this figure reflects and eighteen point six million decrease to the fourth quarter of fiscal year twenty twenty two as we continue to benefit from improving conditions on the spot market after adjusting for access and portray costs are gross profit was three hundred and twenty point four million or fourth quarter merchandising margin was down one hundred and seventy basis points compared to the same period last year
spk_8: are averaging in a costs improve that a sequential basis and up four point one percent of the prior year period average unit retail slightly increased by chance of a point relative to the same period last year driven by strategic pricing actions that was partially offset by a deeper and earlier promotional marketplace related to the home and seasonal categories or gross margin on a gap basis was forty three point eight percent of the fourth quarter a decrease of thirty basis points from last year in the fourth quarter we started to benefit from cycling the extremely high ocean for a cause for the back half of last year after adjusting for access import for a cause adjusted gross margin of forty six point two percent represents a decrease of two hundred seventy basis points from last year driven by the hundred seventy basis point decline in our merchandising margin fifty five basis points to the timing and cycling have capitalized domestic freight costs thirty five basis points resulting from lower bender allowances due to our strategic inventory receipt reduction and thirty basis points of higher shrink expenses these were partially offset by twenty basis points of improvement through the optimization of our ecommerce shipping promotions on a sequential basis the decline and i adjusted gross margin in the fourth quarter was higher compared to the eighty bases point decline in the prior quarter primarily due to the deeper and earlier promotional environment we experienced in the fourth quarter we saw improvement of product cause during the fourth quarter relative to the third quarter as because from the peak of last year supply chain headwinds began to roll off lower costs related to import freight provided a tailwind in the fourth quarter during the fourth quarter we realized twenty six point three me alien of cash benefit from lower ocean freight rates with the renegotiation of for a contracts and fiscal year twenty twenty four along with our cost savings initiatives we expect the outlook for averaging a cost to continue to improve
spk_2: turning to expenses are sg and expenses increased by three point one percent from last year
spk_8: like many companies we have been adversely impacted by inflationary pressures on wages and other costs across the business
spk_2: with that being said we were pleased with our ability to manage as to in a expenses despite these pressures direction such as the strategic management of labor hours in our stores and our continued optimization of advertising spend as we shift to more digital channels
spk_8: effectively managing these costs allowed us to support incremental spanned associated with our recently opened only fulfillment center and further fuel or strategic initiatives or net loss in the fourth quarter was ninety one point one million which includes and ninety five million of noncash pretax impairment compared to a net income of thirteen point six million in the same period last year adjusted ebitda in the fourth quarter was forty eight point six million compared to eighty eight point nine million last year
spk_7: turning to the four year fiscal twenty twenty three net sales decreased by a point three percent to two point two billion and comparable sales declined a point one percent
spk_2: for the year we absorb ninety one point two million year over year of access ocean freight and related supply chain cause which was excluded from are adjusted gross margin and adjusted he did a non doubt measures
spk_8: year over year or gross margin rate declined by approximately three hundred thirty basis points to forty six point nine percent in fiscal year twenty twenty three compared to fiscal year twenty twenty two adjusted for access ocean free and related supply chain costs gross margin decline by one hundred and ten basis points for last year to fifty one percent
spk_2: primarily driven by increase domestic carry and feel rates are shreds expenses and lower vendor allowances do our strategic inventory receive reduction
spk_0: but a four year distal twenty twenty three or net loss was two hundred and point six million which includes ninety five million of noncash pretax superman compared to net income of fifty six point seven million last year
spk_8: for the full year adjusted ebitda was ninety eight point five million
spk_2: moving to our balance sheet or cash and cash equivalents were twenty point two million at the end of the fourth quarter
spk_8: as of january twenty eight twenty twenty three we had eighty seven point two million of availability on a revolving credit facility but this is now meaningfully improved with our new flashed out credit facility which i will touch on shortly
spk_2: also consistent with what we indicated a last quarter's call or face value of debt that of cash at the end of the fourth quarter was nine hundred and seventy point four million
spk_8: this reflects an increase of one hundred ninety eight point six million from the same period last year and a leverage ratio of five point nine act as measured by net debt and finance lease obligations relative to credit facility adjusted ebitda on a trail twelve month faces
spk_2: in terms of inventory or inventory of the end of the fourth quarter was down eleven percent compared to fiscal twenty twenty two
spk_8: this decline was in line with our expectations inconsistent with our plans to strategically lower inventory receives during the back half additionally we took the necessary action and are seasonal sort meant to exit the year queen and well positioned for fiscal year twenty twenty four in fact or clearance and the toy continues to represent less than five percent of total
spk_2: or even toy position has never been as clean and his positions as well to capitalise on our innovation initiatives and the evolving consumer demand environment as we leverage test read and react capabilities
spk_8: as we head into fiscal year two thousand twenty four we're seeing the stabilization of our top line
spk_2: we expect our you commerce business and strategic partnerships to play an important role and provide a buffer to the business in light of the challenging an uncertain macro economic environment or customers continue to face also to school year twenty twenty four contains the fifty third fifth fiscal week worth approximately thirty five to
spk_8: forty million to the top one as wade mentions cash generation is a critical focus in fiscal year twenty twenty four we've already initiated multiple actions that are supporting the advancement of our free cash flow position throughout fiscal twenty twenty four
spk_2: this includes are focused simplifying grow cost reduction initiatives
spk_8: launched in fiscal year twenty three focus simplifying grows focused on reducing annual pass by approximately two hundred million and three broad categories across all areas of our business including approximately one hundred million supply chain costs possibly sixty million a product costs and another approximately forty million of us to an acre os while we are seeing cost reductions across all of these buckets the most significant kern impact is derived from lower supply chain cause driven by reductions in ocean frame what was for most of fiscal year twenty twenty three a significant headway has become a tailwind for us as we continue to see improving conditions of us
spk_2: spot market is positive change
spk_8: combined with ongoing efforts to call clawback inflationary increases in our product costs and done a fine implement as gina
spk_2: reductions will provide a growing cash posted throughout fiscal year two thousand and twenty four and due to be timing of inventory sell through should have a mostly analyze adjusted ebitda impact in early to school you're twenty twenty five
spk_8: date we have a terrified approximately seventy five percent of the targeted two hundred million annual savings additionally we have taken proactive steps to improve our liquidity as way mention and i referenced earlier last week we announce we entered into a hundred million dollar first and last out credit facility this new credit facility is an incremental facility to our existing a bl in all pro actively provide the company additional liquidity as we continue to navigate through macro economic uncertainty on the closing date we borrowed the full amount available under the new credit facility to be used as cash on hand repay a portion of the outstanding amounts under the a be out and cover transaction costs in conclusion fiscal year two thousand and twenty three was certainly challenging like many companies around the world joanne was impacted by a series of factors that impacted our performance such as pandemic and stimulus fueled comps and uncertain macro economic environment
spk_0: unprecedented inflation i continued supply chain disruptions however based on factors we have discussed today such as the positive momentum we saw in the fourth quarter of fiscal twenty three and carry over into early portion of his first quarter fiscal twenty four the pro active steps we've taken to reduce costs and improve liquidity as well as our continued investment our strategic initiatives we are excited for what's ahead and we believe we are well positioned for fiscal year twenty twenty four and beyond with that would be happy to take your questions operator we will now begin the question answer session
spk_9: sasha question you make us dragon one you're talking keypad if using a speaker keys to cook it has had before pressing keys
spk_3: she was trying to question please post starting to
spk_2: at this time will pump momentarily december arrested
spk_9: i first question will come from peter keith with piper sampler you mean i'll go ahead i think can really good afternoon
spk_8: and you'd better than a script that would be positive pump in january that that's the trend had continued i guess i want to clarify condemning it you're still running positive for february march and done anything to call out if that's the case that there's than were promotions or or anything is or is it just a better demand for and abroad ah we're gonna have within a corner quarter name what we're seeing as as such low single digits negative slightly negative the i got the crafting hours prior to be slightly positive so right in that or recall last year we started quarter too strong and the we had a huge can drop off may corner and any rebound the end of the corner bobby stuff and then about the underlying business an ex craft act of across the board pampering and brought this time there that still sequential improvement from where we weren't you for yeah okay now gun and they're not the on the inventory is gotta think if i heard you correctly ned in the script and right toward the any talk about i had to and and seven nine million of any life savings from lower afraid that i heard correctly i'm the any to thinking but the inventory levels
spk_2: is or way to figure out where inventory could end up at a year and any from an inventory days or even to return perspective
spk_9: the papers got get so the the savings are expected for most of those were clarifies you're probably around the hundred million
spk_10: sort of level as we go forward inventory was down eleven for seventy four
spk_8: you know we continue to see reduction in units reduction in cost were and then the other bitchy foods with some of the supply chain disruption cleared up or in transit is down a
spk_11: in a large was well as we go forward we're going to continue with the strategic inventory receipt reduction so i expect some working capital benefit from that and fiscal twenty four and and continued sort of queen inventories and as we move forward
spk_9: and in way is to find that up for us we know we were in the toilet when ultimately land by year end or to targeted novel
spk_12: so little tough to say
spk_5: oh you know i expected probably be somewhere around
spk_11: coast flat to slightly down
spk_0: okay enough and from for the you just reported correct
spk_13: okay
spk_14: that thank you very much
spk_8: and on on the assumption too aware you know he finally land with our or ocean by race our that flows through arctic ocean is now that those markets and pretty much return to where they were pretending
spk_2: get thank you very much as the bug fix
spk_15: or next question will come from laura champagne flute capital he may not on it
spk_8: thanks for taking my question it can you come a little bit about how quickly you can make the to our million dollars of costs improvements and on the likelihood that you'll need to raise additional that to shore up the balance sheet this year
spk_12: a of skype
spk_5: so yeah as a year we're having great progress as i said we're we've identified about seventy five percent of the two hundred and that also doesn't take into account some of the working capital opportunities that we have self from a cash flow perspective
spk_12: where is he a good a good amount of added fiscal twenty four from a deeper perspective the majority that's actually going to come in fiscal twenty five that sort of what we have said all along so i gotta think about it into well as we had an airbag and whatever a ninety nine hours and ocean for that those away this year
spk_16: so so that's also part of l close to the piano and adjusted is correct and then the product cost savings will need to flow through the p now but i'll get back cash flow impact this year as we buy those goods and ultimately felt and next year
spk_15: got it so in your view do that alleviate the need for you to raise additional capital this year
spk_8: yeah i think you know the the follow was a pro active measures i'm not anticipating any additional capitalism foreign with the file as you know as you become more efficient and inventory management
spk_3: and as are in transit goes down love to be a more efficient in a and we can avail as much of our in the l one part time so the violently told that capsule even as we know where did you ever this year
spk_12: that is give us an inability that that
spk_8: that would otherwise have an amateur
spk_15: and just last week can you give their son an estimate of what your interest expense i'm a is likely to be on the piano last year
spk_0: yeah yeah i mean it's good to avoid going to be up because one you got the file okay thin air and were rates are are trending so it's i probably expected to be up in the
spk_17: yeah around or million which is probably up around forty million or so
spk_1: not it
spk_2: they'll assume that you know when had them recent raise and many one more month we are innocent any pull back and the back and a year but
spk_18: we also have a we also have a slap some forgiveness benefit on the back half a year of the entered into
spk_2: that does are more materially impact us in fiscal twenty five to do got it thank you
spk_1: or next question will come from joe haldeman with chelsea advisory goods he may never had the how ya graphene guys with with regard to i think he made a statement
spk_20: weighed about customer engagement and reactivating i i i heard you're right you said two to three million customers and i just wanted a dig in there if you could share a little more about how you did that and how you got people back in and you know how you stimulated them to to to come back to the store and oligarchy as far off sir chris hello eleanor
spk_8: a job
spk_2: yeah we're we're pretty excited about the trials were saying we're seeing customers reengage and in our core selling our core crap categories and i think we've mentioned earlier
spk_8: it's comments
spk_2: young sellers in particular which is which is really exciting for us work we've been able to use a number of a more sophisticated digital marketing tactics to reach these younger customers as we've been able to shift our budgets out of traditional cranston into a and the more digital and crm overtime so we're seeing the benefits of that being able to or to reach more people with was banned and that that's helpful thanks and and just need to see who as well better
spk_21: are you seen any trade down within category you know like at the devil would reflect the environment like maybe people are read gauging but they're engaging in a lower price pointer were an opting for lower quality goods
spk_17: though i and we're not seeing trade down
spk_0: as we measure our the performance of our are different categories we're seeing a very consistent average or yet retail on a very consistent average ticket of of a purchase of the you know it impacted our business last year i would say was a brief depth and frequency
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