JOANN, Inc.

Good day and welcome to the first quarter fiscal 2024 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchstone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jason Wood, Vice President Strategy and Corporate Responsibility. 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 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 our investor relations section of Joanne's website at investors.joanne.com. On the call today from Joanne are the co-leaders of the interim office of the CEO, Chris DiTullio, Executive Vice President and Chief Customer Officer, and Scott Sakel, Executive Vice President and Chief Financial Officer. During the question and answer portion of the call, we will also be joined by Rob Will, Executive Vice President and Chief Merchant for Joanne. I will now turn the call over to Chris for his prepared comments.

Thank you, Jason. Good afternoon and welcome to Joanne's first quarter fiscal 2024 earnings call. I want to start today by acknowledging the recent retirement of Wade Michelon as Joanne's president and chief executive officer. Wade spent seven years at Joanne, serving as CFO before becoming president and chief executive officer in 2019. During his time as CEO, Wade helped Joanne navigate periods of growth and challenge. including our initial public offering and our response to the COVID-19 pandemic. On behalf of Joanne, I would like to thank Wade for his leadership during his time here and wish him the best as he moves on to his next chapter. Our board of directors has commenced a search to find a permanent replacement, and that effort is well underway. While that search is ongoing, Scott Sikella, our chief financial officer, and I have been appointed to lead the interim office of the chief executive officer. In our role leading this office, we remain focused on delivering value for our shareholders. To do this, our focus in fiscal year 2024 is to deliver significant cash flow improvement and strengthen our top line by emphasizing the fundamentals that have made Joanne the nation's category leader in fabric and sewing and a strong competitor in the arts and crafts space. This approach represents a back to basics mindset in which we are strengthening our focus on winning in our core sewing and crafting categories, delivering a high-quality in-store and online experience with emphasis on driving operational excellence and efficiency. To support this approach, we are leaning in on delivering innovative assortments with a strategic mix of owned, national, and partner brands. A significant piece of this strategy is a continued investment in our owned brands. By building our portfolio of owned brands, we can customize our product assortment using a customer-first lens, improve margins through direct sourcing and value engineering, all while exercising greater control over product quality and supply chain efficiency. Our investment over the past few years in owned brands, such as Place and Time, Big Twist, Top Notch, and Pop, is already delivering value. Owned brand sales which represent nearly half of our total, outperformed the total company sales in the first quarter by nearly 500 basis points, with gross margin impact between 400 to 600 basis points higher than the balance of our products. Owned brand penetration also increased 2% in the first quarter, and we expect this trend to build in the back half of fiscal year 2024. As we move forward, we believe our continued investment in owned brands, combined with strategic national brand partnerships will enhance our innovative assortment of products and strengthen our position in both our core sewing and craft categories. As we look next at how we provide a differentiated in-store experience, we are focused on developing creative approaches to drive in-store productivity. This involves a holistic look at our stores to identify opportunities where a new or relocated location makes sense or where store refresh can help improve brand and customer experience, including better utilizing space for our core selling and craft categories. That said, we recognize that physical space is only one part of a great in-store experience. As a result, we continue to look for ways to make it easier for our team members to deliver great service and truly be friendly, clever allies to everyone who shops in our stores. This includes looking at ways to optimize our store labor hours to the key selling periods, delivering training support, and simplifying the execution of our visual merchandising tactics so that our team members are ready and available to engage with our customers and drive sales. Recognizing that the way people shop our assortments also continues to evolve, our broader strategic priorities in fiscal 2024 also include working to make the Joann brand ubiquitous through seamless and engaging digital touchpoints and compelling omnichannel offerings. We are committed to reducing friction across all customer touchpoints, which includes working to optimize customer fulfillment by leveraging our network of stores and distribution centers more efficiently to maximize our e-commerce flow rates and accelerate delivery time to customer. Additionally, Our customer continues to love our buy online and pick up in store or curbside options as we enable a shop your way service model. Our customer is responding and it's evidenced by increasing engagement and shopping through our mobile app, which has over 15 million downloads and provides a fully omni-channel experience. Underlying the strategic focus is our continued effort to operate as effectively and efficiently as possible. This starts with our Focus, Simplify, and Grow initiative. Launched in the back half fiscal year 2023, this initiative is a critical tool as we look to reduce costs and drive cash flow improvements. When combined with other ongoing operational efficiency efforts, such as our continued emphasis on and utilization of a data-driven decision-making infrastructure, Focused Simplify and Grow is an important driver of our ability to build for the future by reinvesting in our core strengths and growth strategies. Our Focused Simplify and Grow initiative targets, as a reminder, approximately $200 million of annualized cost savings in three general buckets, including approximately $100 million in supply chain costs, $60 million in our cost of goods sold, and another $40 million in SG&A costs. Initially, we had planned for the identification of these cost savings to be completed by early fiscal year 2025. While Scott will speak to the specifics in greater detail, we have begun capturing significant supply chain cost savings through decreased domestic and international freight and, through our vendor negotiations, have clawed back some inflationary increases in our cost of goods with more to come. Additionally, our investment in own brands continues to help reduce product costs as well. Through this work and our ongoing efforts to reduce SG&A expenses, we now have full line of sight to the $200 million total and are leaving no stone unturned as we look for further cost reductions. As anticipated, these cost savings have supported significant improvement of $89 million in year-over-year free cash flow improvement in the first quarter of fiscal 2024, and will help move our adjusted EBITDA back towards historical levels in fiscal year 2025. We believe that by delivering on these foundational strategic priorities, creating a differentiated in-store experience, making the Joann brand ubiquitous across customer channels, and continuing to drive operational efficiency and effectiveness, Joanne, will be well positioned to create value in the near term and reinvest in the things that will drive long-term growth. Before getting into more detail about our first quarter performance, I do want to take a moment to recognize our team members. I could not be prouder of the dedicated professionals who work across all aspects of our company. The team members in our stores, distribution centers, Omni Fulfillment Center, and across our corporate offices truly are our greatest assets. As we move forward through fiscal year 2024, implementing our strategic priorities will require our more than 20,000 team members to display the passion, commitment, and flexibility they are known for as we work to inspire creativity in our customers and ourselves and help everyone find their happy place with Joanne. With this approach as a foundation, I will now provide some highlights from our first quarter fiscal year 2024 performance. For the first quarter, we delivered net sales of 478.1 million, decline of 4% compared to the same period last year. Gross margin on a GAAP basis was 52.1%, an increase of 380 basis points compared to the first quarter of fiscal 2023. Top line sales started strong in the quarter in February and early March, however, Like many other retailers, we saw a decrease as we moved into and through April. This deceleration coincided with a decline in consumer confidence driven by continuing inflationary pressures, rising interest rates, and the accompanying concerns over potential recession. We will, obviously, continue to monitor consumer sentiment and the pressure it is putting on the discretionary portion of the economy, and we will strategically adjust as necessary. That said, we remain optimistic. We will be able to deliver on our full-year outlook, which Scott will walk through in a few minutes, due to healthy customer engagement in our core selling and craft categories and our strategic focus on baseline cost reductions. Our merchandise category performance across the quarter was mixed. On the positive side, our core selling and craft businesses performed well during the first quarter. we are seeing strength in our textiles-related selling and craft businesses, along with the supplies that support those activities. This is critically important as it illustrates the effectiveness of our strategic focus on winning in our core categories and demonstrates that our core customer is also re-engaged in the space. It was also supported by the launch of Ditto in the first quarter. Ditto, to remind everyone, is our 50-50 joint venture with Singer Viking Props. This innovative product, which brings the pattern business into the digital age, is in its early stages of rollout at both Joanne and Singer Viking Gallery locations, and is gaining attention with selling enthusiasts across the country. On the merchandise headwind side, we do continue to see craft technology as our primary challenge to positive comparable sales. While our data indicates we're outperforming the industry, sales pressure from Kraft Technology was significant in the quarter, accounting for a decline in comparable sales of 150 basis points. We expect this headwind to continue as we move deeper into fiscal year 2024. Additionally, we have also made strategic pullbacks in higher-risk seasonal categories and, while currently a headwind to the top line, is supporting higher overall gross margin and company profitability. We also continue to see strength in our e-commerce business. In terms of performance in the first quarter, our year-over-year change in e-commerce sales outpaced store walk-in sales and the company overall, declining at a more moderate rate of 1% compared to last year. Overall, e-commerce sales accounted for 11.8% of revenue in the first quarter, a 30 basis point increase in the penetration rate over the same period last year. Much like the overall business, we saw positive sales growth in our core selling and craft categories across the quarter, while craft technology, a business that is highly penetrated online, was our primary headwind, accounting for a 390 basis point decline in comparable e-commerce sales. With all of this in mind, we recognize there is work to be done. While we can't control macroeconomic uncertainty, we will remain focused. on driving value for our shareholders. Through executing on the strategic priorities I've outlined today, including the execution of our focus, simplify, and grow initiative, along with our first quarter performance, gives us a clear line of sight to not only delivering significant full year-over-year cash flow improvement, but also to hitting our fiscal year 2024 outlook. With the great capabilities, commitment, and passion of our team members, I'm confident we can build on our first quarter results and position Joanne for long-term success moving forward. With that, I will turn it over to our CFO, Scott Sackella, to give a more detailed rundown of our first quarter financial results and a forward look at fiscal 2024 before we wrap up with answering your questions.