J. Jill, Inc.

Good morning. My name is Sadie, and I will be your conference operator today. At this time, I would like to welcome everyone to the JGO Third Quarter Fiscal 2021 Earnings Conference Call. On today's call are Claire Sufford, President and Chief Executive Officer, and Mark Webb, Executive President, Chief Financial and Operating Officer. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, follow the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Before we begin, I need to remind you that the certain comments made during these remarks may constitute forward-looking statements and are made pursuant to and within the meaning of a safe harbor provisions of the Private Securities Litigation Reform Act 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and J. Jill SEC filing. The forward-looking statements made on these recordings are as of December 30, 2021, and JGL does not undertake any obligations to update these forward-looking statements. Finally, JGL may refer to certain adjusted or non-GAAP financial measures during these remarks. Our continuation schedule showing the GAAP versus non-GAAP financial measures are available in the Press Release issued December 30, 2021. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page at website jjill.com. I will now turn the call over to Claire.

Thank you, and thanks to everyone joining us on the call for your continued interest and support of J. Jill. I'm going to start with an update on our business strategy and operations, and Mark will cover our financial results. Overall, we're pleased with our results in the third quarter. Revenues are up more than 29% and margins improved 1,000 basis points versus Q3 2020, driven by strong full price selling and reduced promotion. All of this is driving significant improvement in the bottom line, even as we deal with the supply chain challenges that everyone is faced with this quarter. We are emerging from the turbulence of the past couple of years a much better, more focused and stronger company that is well positioned for profitable growth moving forward. Our strength comes from our knowledge of our brand and our customer. Women who are confident and purposeful in their choices. They value quality fabrications and versatile clothing that allows them to move freely through their busy lives. We have a deep understanding of our customer and her wants and needs. We know how she likes to shop, where she likes to shop, and the kind of products that she likes to buy. And we know the kind of experience that she's looking for and expects from J Jill, whether in a store or online. We're still in the early stages of our journey to realize the full potential of this brand and business, but we're making really significant progress. And I am proud of our J Jill team and their focus and commitment to deliver on our promise to our customer. Their efforts have been especially productive in the navigation of the current turbulence and supply chain. Supply chain disruption has influenced our business this quarter and has for virtually everyone in the retail space. But we're successfully managing all of the controllable factors as well as possible. We have strong relationships with suppliers, helping us optimize the flow of goods despite production and logistics challenges, and allowing us to present a well-curated assortment both online and in stores. Our team is effectively managing the flow of products resulting in a robust and engaging presentation in both channels. We are comfortable with our inventory levels and our ability to have the right assortment coming into Q4. I'd like to talk now about four specific topics that reflect how we're running the business to deliver on our objectives and drive strong financial performance. First, our strategy of managing inventory more tightly to focus on full price selling is working. In Q3, she loved our embroideries and patterns and textured fabrications, including our corduroy, cables, velvet, and ottoman. Denim and knit did well all season, and sweaters really began to ramp up in October. We're committed to our approach of flowing newness regularly and managing inventory levels diligently. This allows us to keep our customers focused on full-price products. And related to the first topic, our lower promotional cadence and decrease in markdown selling both continue to support our overall strategy. This transition has a significant impact on the mix in our sales. For example, if you look at our direct to consumer revenue this quarter, you'll see a decrease in overall volume. Our direct to consumer channel has traditionally been where we've moved markdown inventory. Given our lower level of markdowns this quarter, we had fewer units we needed to move through. Therefore, the mix in our direct channel had a much higher penetration of full-price sales and yielded significantly stronger maintained margins. Third, one of the things that we've learned about our customers is that she really seeks newness and specialness. She's willing to pay full price for our products when we offer her new and inspired assortments on a frequent basis. So we continue to focus on the optimal flow of new products in both channels. As an example, we moved away from 12 big collection drops a year to spreading out newness and flowing designs and color palettes frequently, creating more engagement and optionality for our customer. We're also focused on expanding our customer portfolio through products that attract and welcome the next cohort of customers who connect with the JGL design aesthetic. While there continue to be opportunities across our assortment to build on our relationships and increase sales with our existing customers, We're also introducing new customers to our value proposition that is grounded in providing for premium casual clothing that's easy and versatile and made of the finest fabric. Fourth, we're sharpening our focus on our customer experience. Our brand promises always included a very personal high touch experience, whether in-store or online. Stores continue to be a critical part of our business model. Our customer loves the personal attention she receives and the unique connection she has to our in-store team. This bond speaks to why there is a fun, celebratory environment when she visits us in-store. Whether she makes her in-person appointment to get first access to a new assortment or just stops by to love their high-touch, personalized shopping experience, our teams often pull items based on their knowledge for preferences to create a truly individualized experience. We continue to evaluate our retail footprint to ensure we have the right locations at the right economics. We also believe there are future opportunities for new store locations as we chart our path for profitable growth. Similarly, our online presence continues to be a focus. J. Jill started as a direct-to-consumer retail brand, and we built upon this heritage with advanced digital capabilities to provide a seamless experience that's tailored to our customers based on their behaviors and preferences. We're investing to ensure that our online experience meets our expectations in terms of product, presentation, and ease of use. Finally, I'd like to provide a little color on Q4 to date. We continue to see the strategies outlined above working. We're pleased with customer response to our fall and holiday assortment, and we continue to operate with a lower promotional cadence than previous holiday seasons. With that, I'm going to hand it over to Mark to discuss our financial results in more detail.

Thank you, Claire, and good afternoon, everyone. We are pleased with performance in the third quarter as sales continued to recover versus 2020 and gross margin strength driven by strong full price acceptance and reduced overall promotional cadence continued in both channels. Total company comparable sales increased 42% year over year driven by the store channel. Total company sales were $152 million, up 29% versus Q3 2020 and down 9% compared to Q3 2019. Store sales were up over 94% versus Q3 2020 and down 12% compared to 2019 levels. While overall traffic levels remain below 2019, we are very encouraged by the continued recovery we saw in Q3 as customers returned and responded well to product assortments. Direct sales as a percentage of total sales were 45% in the quarter. Compared to the third quarter of fiscal 2020, direct sales were down 8%, and compared to the third quarter of fiscal 2019, were down 5%. As Claire reviewed, direct sales were impacted by fewer markdown sales. While this negatively impacts sales in the direct channel, it is a benefit to gross profit. Q3 total company gross profit was $104.5 million, up $36 million compared to Q3 2020 and down $2 million compared to Q3 2019. Q3 gross margin was 68.9%, up 1,000 basis points over Q3 2020 and up 450 basis points compared to Q3 2019, driven by better full price selling and reduced promotions. Q3 2021 gross margin included approximately 200 basis points of incremental freight charges. SG&A expenses were $86 million in the third quarter compared to $92 million in the third quarter last year. Excluding one-time costs of $13 million incurred last year related to our debt restructuring, SG&A was up $7 million versus prior year, driven by marketing investments, increased selling costs due to higher store operating hours and shipping costs, and management incentive. Compared to 2019, ST&A expenses in Q3 were down $10 million, driven by selling costs on fewer stores and lower marketing investment, partially offset by higher management incentives. Adjusted EBITDA was $27 million in the quarter, compared to a loss of $2 million in Q3 2020 and adjusted EBITDA of $20 million in Q3 2019. Please refer to today's press release for a reconciliation of adjusted EBITDA. Turning to cash flow, for the quarter we generated $26 million in cash from operations. We ended the quarter with total cash of $17 million with zero borrowings against our ABL. Total liquidity, as defined in the priming term loan agreement, measured as ending cash balance plus check flow plus ABL availability was $61 million at the end of the third quarter. Also, as previously disclosed, early in the third quarter we exercised the pick-pay-down option on the priming term loan, paying down $25 million, or over 10% of the outstanding loan, from cash on hand. Our operating strategy is to reduce reliance on promotions initially through right-sized inventory buys. As such, we are comfortable with inventory levels down 16% year-over-year as we exit Q3 and enter the holiday season. We continue to manage the supply chain, securing on-time ocean deliveries whenever possible, and utilizing air freight when needed. Through Q3, product floor sets were largely launched on time, and we expect this trend to continue in Q4, but the gross margin impact from expedited shipping costs will increase to 250 to 300 basis points as air freighted goods received in Q3 are sold over the holiday period. Our teams are actively managing this situation, doing a great job remaining flexible and adjusting plans as needed. Given the strength in our performance, we are continuing to invest back into the business. Capital expenditures in the quarter were about $1.1 million versus $300,000 last year. We continue to make investments in technology, our e-commerce site, and perform capital maintenance projects as necessary. Year-to-date capital maintenance needs have been trending below initial expectations, and we now expect to spend about $6 million in capital for full fiscal year 2021 compared to $3.5 million in 2020. During the third quarter, we closed one store, ending with 260 stores. The majority of 2021 lease action dates occur at the end of the fiscal year, and we continue to negotiate our store leases aggressively with the aim to achieve fair rents and term for this important channel. We are making good progress and continue to expect to close approximately 20 stores this year. While store closures will have a near-term impact on revenue, any impact to EBITDA is negligible after factoring transferred sales to stores and e-commerce. Importantly, we believe that physical stores are a very important channel for our customer and that the right economics will lead to store openings in the future as a source of growth. Looking ahead to Q4, we expect revenues to continue to grow versus 2020 and gross margin driven by the fundamentals of inventory management, full price selling, and reduced promotions to improve compared to 2020, but at slightly lower levels than year-to-date improvements given elevated freight costs as previously stated. We also expect SG&A costs to continue to build from Q3 2021 levels, primarily due to increased store operating hours and shipping costs. Despite the increased costs, we expect to drive strong year-over-year improvement in adjusted EBITDA for the period. In summary, third quarter and year-to-date results demonstrate the potential of our operating model executed by disciplined teams to drive adjusted EBITDA and generate strong cash flow. Thank you, and I'll now hand it back over to Claire.