JOANN, Inc.

Good afternoon and welcome to the JOANN fourth quarter fiscal 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd like to turn the conference over to Dan Callahan with ICR. Please go ahead.

Thank you, and 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. 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, materials posted on the company's investor relations website, 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 are Wade Michelon, President and Chief Executive Officer, and Scott Sikella, Chief Financial Officer. During the question and answer portion of the call, we'll also be joined by Chris Petulio, Joanne's Executive Vice President and Chief Customer Officer, and Rob Will, Joanne's Executive Vice President and Chief Merchant. I will now turn the call over to Wade for his prepared comments.

Thank you. Good afternoon, and welcome to Joanne's fourth quarter and full year fiscal 2023 earnings call. Without a doubt, fiscal 2023 was a challenging year for Joanne and many other companies around the world. Joanne debates a series of challenges that impacted our fiscal 2023 performance, including comparisons against pandemic and stimulus-filled comps and uncertain outcomes macroeconomic environment, unprecedented inflation, and continued supply chain disruptions, which were particularly felt strongly in terms of increased ocean freight. However, in the face of these challenges, we had sequential improvement in our top-line fourth quarter results and are making progress with our ongoing efforts to enhance our cash flow, reduce multiple sources of costs, and implement our strategic blue ocean initiatives. Based on these efforts, we believe JOANN is well positioned for fiscal 2024. Before getting into our specific fiscal year 2023 and fourth quarter results, and a more detailed discussion of how we've set ourselves up for fiscal year 2024, I want to take a moment to recognize our team members. Much of how we were able to weather the challenges that fiscal year 2023 presented is attributable to the team members who work at Joann. And I want to send a heartfelt thanks to our entire Joann team, including our store support center, our distribution centers, our Omni fulfillment center, as well as our 20,000 team members in our approximately 830 stores, for their unwavering dedication to provide service to our customers in what remained a challenging environment. Commitment and quality of our team members was recognized by others as well, including Forbes and Newsweek, which named Joanne as one of America's best large employers and greatest workplaces for diversity, respectively. This is a testament to how our team remained flexible and navigated this very difficult landscape with agility, while staying true to our mission to inspire the creative spirit in each of us and help everyone find their happy place. through superior assortments, presentation, and service. I could not be prouder of all their hard work. These efforts helped to drive a strong finish to our fourth quarter. After a slow start to the quarter, we saw top line sales pick up post-Black Friday, leading to a sequential improvement in our sales and a positive January comp. For the full fourth quarter, we delivered net sales of $693 million, and our fourth quarter adjusted EBITDA was $48.6 million, or 7% of net sales. The strengthening we saw in our comparable sales, similar to pre-pandemic trends, with strong selling during our peak periods, gives us confidence as we head into fiscal 2024. Our category performance in the quarter was mixed, but we did see healthy performance in our core sewing and craft businesses. We continue to see the craft technology business as our primary headwind to positive comparable sales. And while our data indicates we are outperforming the industry, sales pressure was significant in the quarter, and we expect it will continue to be a headwind into fiscal 2024. On the positive side, our core fabric, sewing, and craft categories strengthened throughout the quarter and also continue to show positive momentum into fiscal year 2024. Seeing our largest sewing and craft categories come back is critical as it indicates that our core customer is reengaged in the space after a brief pullback following the increased spending and engagement during the early pandemic and stimulus-fueled timeframe. In fact, in the month of January, every measurable tier in our known customer database was positive comp, including reactivated customers up over 20%. We are also seeing this strong engagement with our core enthusiasts, and it continues into early fiscal year 2024. Turning to our full year fiscal 2023 results, we registered net sales of $2.22 billion, which was only slightly below our pre-pandemic net sales in fiscal 2020. As I mentioned, we faced many challenges in fiscal year 2023, including significant supply chain disruptions, inflationary pressure, and tariffs resulting in increased incremental costs of over $200 million. We saw ocean freight cost pressures begin to abate in late fiscal 2023 and anticipate this trend will continue into fiscal 2024, which will be a key driver to our expected significant year-over-year improvement in cash generation. Despite the headwinds we faced, our full-year adjusted gross margin remained 170 basis points above fiscal 2020. We delivered adjusted EBITDA for the year of $98.5 million, or 4.4% of net sales. As we look to build on our fourth quarter improvements into fiscal year 2024, we are focused on strengthening our balance sheet and continuing to deliver a great customer experience. This includes taking actions to improve cash generation. We've already engaged in multiple activities to enhance our cash position. As you likely saw in our press release and Form 8K filing earlier this month, we've successfully secured a $100 million first-in, last-out credit agreement, providing increased flexibility and access to capital to drive the business. During the continued macroeconomic uncertainty, we believe this new credit agreement is a productive tool to keep Joanne in a sound financial position and successfully operate the business and invest in our strategic growth initiatives in fiscal 2024. Additionally, in fiscal 2023, we launched our Focus, Simplify, and Grow initiative. As a part of this initiative, we're targeting approximately $200 million of annual cost savings in three general buckets, including $100 million in supply chain costs, approximately $60 million in our cost of goods sold, and another approximate $40 million in SG&A costs. These efforts are well underway, and we are already seeing cost headwinds become tailwinds through our Focus, Simplify, and Grow initiative, most notably through supply chain cost savings through decreased international and domestic freight costs. We've also been clawing back inflationary price increases in our cost of goods, and these negotiations are ongoing, and we believe they will be of very positive impact on cash flow in 2024 and positively impact EBITDA in early fiscal year 2025. Finally, through efforts through our Focus, Simplify, and Grow initiative to identify savings on SG&A-related costs that are underway as well, and they're yielding positive results. We're leaving no stone unturned as we move to improve our cost leverage and become a leader and more agile business. Through these efforts, we anticipate seeing more of the cash benefit of these cost reductions in fiscal 2024, with full annualized adjusted EBITDA impacts in fiscal 2025. These cash and EBITDA benefits are independent of growth, but we continue to focus on how to stabilize and grow our top line as well. This starts with a focus on our customers. In early fiscal 2023, our known database customers increased their engagement throughout the year and represented nearly 70% of our business. During this past year, we reactivated nearly 2 million customers who hadn't shopped over the previous year, and we added 3 million new customers to our database as well. We are very pleased with the continual momentum we are seeing in our customer file, as our base continues to become increasingly digitally active and diverse. We're especially encouraged by the traction we're gaining with new, younger customers. We were recently highlighted by Ad Age as a brand that's gaining popularity with Gen Z. Conducted quarterly, their poll surveys U.S. consumer ages 18 to 24, and the fourth quarter survey showed Joanne's ranking increased 10.3 points over the third quarter, and is one of only three retailers to make the top 20 list. We're seeing this translate into our customer base, where the average age of our customer continues to decline from where we were prior to the pandemic, with sales to customers under the age of 35 increasing by 19%. Even with this customer momentum, we recognize consumer and macroeconomic environments remain uncertain, and many customers, given the inflationary pressure we continue to see, are managing how frequently and how much they spend. That said, we do see a path to growth in fiscal 2024 as we begin to realize incremental revenue through our strategic and Blue Ocean initiatives. as well as seeing growth in our e-commerce business. This growth includes Ditto, which we believe has the ability to revolutionize the sewing industry. Ditto, to remind everybody, is a 50-50 joint venture with Singer Viking Faf, the business successfully launched during Fashion Week in New York in early February 2023. This is a truly revolutionary product and platform for sewing enthusiasts, which aims to take the most painful part of sewing, laying out, tracing, and cutting patterns, and turn it into the most enjoyable part of the process. The patented Ditto system uses an AI platform integrated with a precise digital projector system and mobile app to enable easy access to a multitude of designs and allows sewers to easily adjust and customize patterns. Instead of spending hours on the step of the process, sewers can literally move from ideation to sewing in minutes. We believe Ditto will be a game changer for sewing enthusiasts. As I mentioned on a previous call, Ditto received one of the highest purchase intent scores our external 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 with customers. Pre-sale units start arriving in customers' homes in mid-March, and we're already seeing reorders from the dealer network. The official Joann in-store launch is set for Saturday, April 1st. Another Glow Ocean initiative we're working on is our wholesale business, and we see tremendous opportunity with this initiative for our B2B wholesale customers. In January 2023, we launched a commercial website for our wholesale business, InspirationDirect.com. In less than three months, we've registered 800 customers on the site and started shipping both domestic and international orders. While it's still early, we believe our wholesale initiative is another important step with the potential to drive incremental sales. Additionally, we're excited about our recently announced partnership with the world-renowned American designers Mark Badgley and James Mishka. Badgley Mishka is a brand that has enchanted the fashion world for the past two decades. with dreamlike beauty and luxurious designs. In early April, our customers will be able to purchase fabrics, trims, ribbon, and even jewelry that captures this quality and beauty at Joann. This partnership adds a new product assortment targeted at our younger customers. It represents a new way to leverage strategic collaborations. As we move through fiscal 2024, we'll be rolling out additional partnerships to strengthen our position as the nation's category leader in sewing. We're also very pleased with the performance of our e-commerce business. We saw increased traffic and recorded our highest meant promoter score to date in the fourth quarter as the investments we've made in our digital business continue to show results. Much like the overall business, we saw positive sales growth in our core sewing and craft categories across the quarter. As channel shopping patterns have established a new normal in the post-pandemic, our e-commerce penetration has held steady year-over-year at 14%. This is despite the headwinds in craft technology, a business that has highly penetrated online. With all of this in mind, we recognize there's still work to be done and we're still operating in an uncertain economic environment. That said, as we level set where the new post-pandemic normal is, I believe the actions we've taken will allow us to build on fourth quarter results and position us for success moving forward. And now with that, I'll turn it over to our CFO, Scott Zucchella, to give a more detailed rundown on our financial results and a forward snapshot into the drivers of our anticipated free cash flow improvement in fiscal 2024. Before wrapping up, with answering your questions.