J. Jill, Inc.

Good morning. My name is JL and I will be your conference operator today. At this time, I would like to welcome everyone to the JGIL second quarter 2023 earnings conference call. On today's call are Claire Spofford, President and Chief Executive Officer, and Mark Webb, Executive Vice President, Chief Financial Officer and Chief 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, again, the star one. Before we begin, I need to remind you that certain comments made during these remarks may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbour Prevention Act of 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 JGL's SEC filings. The forward-looking statements made on this recording are as of August 31, 2023, and JGL does not undertake any obligation to update these forward-looking statements. Finally, J. Jill may refer to certain adjustments of non-GAAP financial measures during these remarks. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in the press release issued August 31, 2023. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page of the website at jjill.com. I will now turn the call over to Claire.

Thank you operator and hello everyone. Thank you for joining us this morning. I'll begin our discussion by reviewing highlights from our second quarter performance and will then provide an update on a few of our strategic initiatives before turning the call over to Mark to review our financial performance and outlook in more detail. Our second quarter results exceeded our expectations and reflected a nice improvement in trend that progressed over the quarter. As a reminder, The second quarter is an important period for us, as it has historically been our largest quarter from a sales and EBITDA perspective. In this season, we lean into our key franchises like dresses, summer tees, and linen that our customer seeks for her late spring and summer wardrobes. While our customer exhibited more hesitancy with her spend early on in the quarter, as we moved into the key summer months, she responded well to our seasonal summer favorites, accessories, and novelty items. which were highlighted with trend forward details and a bright and joyful color palette. In addition, in line with our strategy to maintain a disciplined approach to inventory management, we leveraged category specific promotions that not only drove sales of those items, but spurred an energizing effect across the assortment. In July, while typically a sale focused month for retail, We were pleased with the level of full price selling we drove in conjunction with a balanced but clear value message appropriate for the season. We were pleased to see customer growth in both channels and especially pleased to see strength in new to brand customers in our direct channel. We saw nice results from our size inclusivity initiative, which has also brought new customers to JGIL that are at the lower end of our target age demographic, a trend we are also seeing with our sub-brand wherever. As we move into fall, we will be introducing a Wherever Works capsule, highlighting pieces that are versatile and can follow our customer from a casual work environment to dinner with friends. This versatility is inherent to our design ethos as it reinforces J. Jill's differentiated message that our brand celebrates the totality of today's woman and the fullness and diversity of their lives. Turning now to our focus on strengthening our omnichannel capabilities with the strategic investments in our infrastructure and systems. Within our stores, we are continuing to roll out the new POS system, which will be completed by the end of Q3. And as Mark will discuss, we're beginning the next phase of our omni enhancements with the upgrade of our order management system. We believe these tools will help to support our ability to provide a more seamless experience for our customers and create efficiencies across our operations. Within our direct channel, we're making enhancements that we believe will improve the customer experience and support improvement in top line performance. One of our customers top priorities is being able to confidently order and know the product will look great and fit as expected. In Q2, we updated our fit guide, making it more intuitive for customers to utilize, ensuring customers see measurements most relevant to the product they are viewing, as well as a new How to Measure tab added to inform customers of how to take their own measurements to identify their perfect size. We've also made some updates to increase the engagement of the site, such as new hover states on our product listing pages so that she can get a better sense of the fit and features without clicking into them. We've launched Shop the Model, which highlights the outfits shown in our page features. We also launched Featured Shops, which can be used to curate thematic landing pages dedicated to styling and outfitting inspiration. We believe these enhancements will help us address the elevated return rates we have been experiencing and are encouraged with the early results thus far. In addition, we continue to build our outfitting experience with inspiring imagery, faster ability to respond to new styles, and additional placements on the site. As we look ahead, we believe the enhancements we are making in our stores and direct channels will support growth across our customer base, and in particular with our omni-channel customers, who spend approximately three times more than our single-channel customer. In summary, we're pleased with the progress against our growth initiatives, including introducing new customers to the brand through our size inclusivity initiative and sub-brands, and strengthening the omni experience with enhanced tools and capabilities. As we enter the third quarter, we are encouraged by the trends we are seeing in our business, both with respect to consumer sentiment and responsiveness that are consistent with the improved levels we saw late in the second quarter. We have a number of big weeks ahead of us with our upcoming fall floor sets, and we continue to take a cautious approach with respect to our plans for the remainder of the year, but expect to continue to operate with discipline and focus on leveraging our balanced model and strong foundation. As always, I'd like to thank our exemplary team for executing admirably. I'll turn it over to Mark to discuss our financial performance in more detail.

Thank you, Claire, and good morning, everyone. Overall, we were pleased with second quarter results, which once again reflected the strength of our operating model as we delivered solid, adjusted EBITDA and generated strong cash from operations. Total company comparable sales for the second quarter decreased 1.3% compared to last year's positive 0.8% comp. Total company sales for the quarter were $156 million, down 2.9% compared to Q2 2022. Store sales for Q2 were down about 1% versus Q2 2022 on about 1% fewer stores. We were pleased with the trends we saw in the period with store sales improving sequentially each month compared to last year. Customers continued to respond to full price, which drove a higher average unit retail, but was offset by lower units sold per transaction, primarily driven by fewer markdown units sold. Direct sales as percentage of total sales were 45% in the quarter. Compared to the second quarter of fiscal 2022, direct sales were down 5%. Unit sales mixed more to markdown versus last year, and while higher online returns continued to negatively impact net sales, we did see some encouraging signs of return rates stabilizing in the quarter and were sequentially better on a year-over-year basis than they were in Q1. Q2 total company gross profit was $111 million, down $1.1 million compared to Q2 2022. Q2 gross margin was 71.6%, up 140 basis points versus Q2 2022, driven by the full abatement of incremental freight costs incurred last year, while the impact of increased promotional activity in the quarter was offset by better underlying first cost AUCs. SG&A expenses were $83 million compared to $84 million last year. increases in selling costs and general overhead, primarily due to wage inflation, were offset by lower depreciation and amortization and lower management incentive accruals. Adjusted EBITDA was $34.5 million in the quarter compared to $35.6 million in Q2 2022. Please refer to today's press release for a reconciliation of adjusted EBITDA. Turning to cash flow, A hallmark of our operating model is the significant cash flow it generates. In the second quarter, we generated $28 million of cash from operations, ending with $49 million in cash and zero borrowings against the ABL. We continue to focus on tight inventory management, and as mentioned last quarter, the supply chain disruption that began in the back half of 2021 is now behind us, and shipments this year are largely on time versus being late or delayed last year, which resulted in overall higher inventory levels last year in the first half. Inventories at end of Q2 were down 16% compared to the end of Q2 2022 due largely to the impact of those issues on last year actuals. Conditions improved in Q3 last year, and as a result, we expect reported year-over-year inventory levels at the end of Q3 this year to be more in line with last year. Capital expenditures in the quarter were about $4 million compared to about $1.4 million last year. During Q2, we relocated one store in Sacramento, California, and ended the quarter with 245 stores. We also continue to make great progress with our POS initiative, which is now live in over 80% of the fleet. Customers and employees are very excited by the new technology and the improvement in checkout, service, and selling. We look forward to completing the rollout during the third quarter. The POS project is the first phase of a broader strategy to upgrade the technology foundation and omni-channel capabilities of the company. As we complete the POS project, we are now kicking off the next phase, which includes replacing and upgrading our order management system, or OMS. These new systems will significantly enhance the operational capabilities of the business as we focus on delivering profitable growth and driving total shareholder returns in the near future. Turning to our outlook, as Claire mentioned, we are encouraged that the improvement in trend experienced in the second quarter has continued through August. While we are seeing green shoots with respect to customer sentiment and responsiveness, we continue to take a prudent approach with respect to our outlook for the remainder of the year. For the third quarter, we expect sales to be down versus Q3 2022 in the low single digits. and adjusted EBITDA to be in the range of $23 and $25 million. And as a reminder, as we said last quarter, we expect profitability compared to the prior year to be more pressured in third quarter than in the fourth quarter, given fourth quarter's easier comparisons to last year and the benefit of the 53rd week. For the full year, we are updating our guidance to reflect the better than expected Q2 performance and current expectations for the second half of the year. we now expect adjusted EBITDA to be down in the low single digits as a percent compared to last year, including an approximate $2 million benefit from the 53rd week. Regarding store count, we still expect flat store count to end 2023. And with respect to full year capital, we expect to spend about $18 million with investments focused on technology, stores capital, the completion of the POS project, and the kickoff of the OMS project. Thank you, and I will now hand it back to the operator for questions.