J. Jill, Inc.

Thank you for standing by and welcome to the JGL Inc's second quarter 2024 earnings conference call. 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, press the star one. Thank you. I'd now like to turn the call over to Claire Spofford, Chief Executive Officer and President. You may begin.

Thank you, operator, and hello, everyone. Thank you for joining us this morning. As detailed in our press release, we delivered a solid second quarter performance, reflecting total comparable sales growth of 1.7% and adjusted EBITDA of $30.2 million, slightly above our expectations and yielding a 19.4% adjusted EBITDA margin for the period. Underlying this performance was a strong start to the period, which saw healthy full-price selling as customers responded well to our early summer collection, particularly around the Mother's Day holiday. And we continued to see relative strength in our direct channel, which helped to offset ongoing dynamic trends in store traffic. As the quarter progressed, we noticed a meaningful shift in consumer demand beginning in July. Adhering to our disciplined operating model, we promptly took strategic and precise actions during the quarter to promote slower-moving items to optimize yields manage inventory, and prepare for our fall product launch debuting after Labor Day. While we continue to see softness in August, it is a difficult time to assess and evaluate the drivers to the change in demand trends, as we are in the midst of small volume months highlighted by seasonal sales and transitional assortments, as well as a volatile macro environment that has clearly created noise and distraction for our customers. That said, as Mark will review, We believe it is prudent to take these current trends into account as we assess our expectations for the balance of the year. While we are revising our guidance, our updated expectations remain in line with the hallmarks of our operating model, including healthy margins and significant cash generation. As we have discussed before, in retail, the best defense amidst an ever-changing environment is the consistent delivery of strong product assortments that resonate with our customer and meet her needs for versatility and trend rate items that she is looking for to refresh her wardrobe. At J Jill, we design, develop, source, and market the vast majority of our proprietary products based on a deep understanding of our customer and what she's looking for. This approach delivers consistency and yields strong margin performance. The annuity-like categories in our assortment that she comes to us for year after year and season after season, like our core linen and cotton gauze franchises, were especially strong through the heart of the quarter. In addition, we are pleased with our performance in our core bottoms programs and sweaters, particularly our cardigan assortment and our more fashion forward crochet and open stitch detailed sweaters. Dresses, which have been on a strong trend for two years, did not see the same full price performance we've historically seen as she started to trade into more markdown and sale offerings during the period. But again, in accordance with our disciplined operating model, we took appropriate action to move products in season, and we ended the period with comparable inventories flat as we move into the fall season. As we look to the fall, we're excited to launch our iconic J. Jill series. This product marketing effort will begin this month, highlighting our ponty pant and showing great outfitting options and underscoring the quality and versatility of the core J. Jill products that are central to our value proposition. We are also excited about the Ecovero fabric launch in our Wherever sub-brand collection, in support of our initiative to leverage sustainable fabrications. And of course, we are looking forward to welcoming fall with our new collections of sweaters and corduroy offerings and trend rate pallets for the season. Turning next to our strategic priorities. We remain on track with our plans for our OMS project, as well as our new store openings for later this year. Despite the softness we are currently seeing in retail traffic, we know that stores are an important channel for us to drive sales and customer acquisition. Many of our upcoming store openings are planned for markets that we know very well and that already have a strong customer base that we believe will not only drive retail sales, but omni-channel file growth as well. As we build our customer file and increase our brand awareness over time, we are continuing to evaluate our marketing plans and diversify our channels. While our customer file declined slightly for the quarter, consistent with the overall performance by channel, we saw nice growth in our direct-to-consumer customer file, particularly in the new-to-brand performance. Our retail channel customers were more challenging, reflective of the traffic patterns we saw in the quarter. We launched our One Wardrobe No Limits campaign in late spring and saw nice dynamics on our Reach campaign elements, a step forward in driving brand awareness and introducing new customers to the JGL value proposition. The introduction of the JGL Social Circle, a collection of brand influencers, has been a great way to show styling tips on real women and yielded strong response in our paid and owned media efforts. Building brand awareness takes time, and we are still in the early stages of our efforts. As we look ahead, we will invest appropriately in marketing, continue to test and learn, and lean into new ways to engage current customers, as well as raise the profile of the brand to attract new customers. While we continue to focus on our customer and delivering her the experiences and products she wants, we are also operating in a very dynamic environment and are leaning into the disciplines of our operating model to continue to drive margin performance and generate strong cash flow. In addition, our commitment to our long-term objectives has not wavered. As evidenced by our voluntary debt pay down and initiation of the quarterly dividend program in Q2, we have strong confidence in our business and the opportunities for profitable growth that we know lie ahead. Before I turn the call over to Mark, I want to take a moment to thank our teams for their ongoing hard work and dedication as we continue to execute on our objectives. I am also very excited to welcome Courtney Chun to our Board of Directors. Courtney brings a wealth of experience in finance, strategy, and investor relations to our board. Most recently, Courtney was with Liberty Media in the roles of Chief Portfolio Officer and SVP of Investor Relations. She previously served on the boards of HSN Inc., Expedia Group, LendingTree, and ACE Scholarships. She also co-founded the Women's E-Commerce Network to unite female leaders in e-commerce and provide mentorship for promising female entrepreneurs. I couldn't be more thrilled to add such a talented female leader to our board. Let me now turn the call over to Mark to discuss our results and outlook in more detail.

Mark? Thank you, Claire, and good morning, everyone. As Claire discussed, taken as a whole, our second quarter represents solid performance, with sales in line with our expectations and adjusted EBITDA slightly above the high end of our prior guidance range. Though we experienced a slowdown in the month of July, we successfully navigated this dynamic period, sticking to our disciplined principles, deploying targeted promotions and taking markdowns as necessary, ending the quarter with like-for-like inventories in line with last year. In addition, we continue to progress our strategic initiatives and took actions to further strengthen our balance sheet through the voluntary pay down of approximately $85 million of debt, partially funded by the issuance of 1 million shares of equity, and delivered value to shareholders through the initiation of a quarterly dividend program. While we are continuing to navigate an uncertain macro environment, we remain committed to executing our business model and managing the business with discipline. Before I review our revised outlook, let me discuss our second quarter financial performance in more detail. Total company comparable sales for second quarter, which removes any impact from the calendar shift as well as other non-comp items, increased 1.7%, driven by a strong full price selling in the direct channel. Total company sales for the quarter were about $155 million, down 0.9% versus Q2 2023. This performance was the result of an approximate $7 million drag due to the calendar shift compared to reported Q2 2023, which was mostly offset by higher comp sales and modestly improving return rates. Store sales for Q2 were down about 5% compared to Q2 2023, driven primarily by the calendar shift, as well as some impact from lower traffic, which was most pronounced in the month of July. Direct sales as a percentage of total sales were about 47% in the quarter. Compared to the second quarter of fiscal 2023, direct sales were up about 4% as full price comparable selling and better return rates compared to last year, more than offset the drag related to the calendar shift. Q2 total company gross profit was about $109 million, down about $3 million compared to Q2 2023. Q2 gross margin was 70.5%, down 128 basis points versus Q2 2023, driven by a higher mix of markdowns due to the calendar shift as a full price week at beginning of quarter was replaced by a sale week at end of quarter. By pricing decisions taken during the quarter in response to the slowdown in July and by expected pressure related to the strategic decision to air freight some summer goods in light of the initial delays and uncertainty associated with the disruption in the Red Sea. SG&A expenses for the quarter were about $86 million compared to approximately $84 million last year. The increase was driven primarily by wage inflation in both stores and HQ functions and about $500,000 in incremental expense associated with the OMS project. Adjusted EBITDA was $30.2 million in the quarter compared to $34.6 million in Q2 2023. Please refer to today's press release for a reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure. Turning to cash flow, for the quarter we generated about $16 million of cash from operations, resulting in ending cash of about $28 million with zero borrowings against the ABL. Looking at inventory, as mentioned last quarter, we expected reported inventories to be up meaningfully at the end of Q2 due to timing and the strategy to get in front of the Red Sea delays by shipping goods one week early, beginning with our fall assortments. As expected, total reported inventories were up about 15% at the end of second quarter compared to end of second quarter last year, including these additional in transit fall goods. Normalizing for these actions, inventories were about flat to end the quarter. While the issues in the Red Sea with respect to our shipping lanes have stabilized, we have yet to see any signs of improvement and therefore now expect to keep our mitigation plans in place and as such, now expect reported inventory will remain elevated through at least the end of the fourth quarter of this fiscal year. Capital expenditures for the quarter were $2 million compared to $4 million last year. Investments were focused on stores, and the OMS Technology Project, which continues to make good progress. With respect to store count, we opened one new store in the quarter and temporarily closed one store for relocation, which will reopen in Q3. Store count at the end of the quarter was therefore unchanged at 244 stores. Turning now to our outlook. As Claire reviewed, following a very strong start to the quarter, we experienced a change in trend in July, which continued through August. And while it is difficult to assess how long these trends will persist, especially as we are just setting the fall floor sets, we believe it is prudent and necessary to take current trends into account as we assess our plans and adjust our expectations for the second half of the year. For third quarter, we expect sales compared to Q3 2023 to be down 1% to up 2% compared to $150.9 million in the prior year. We expect Q3 revenue to benefit by about $2 million related to the timing shift associated with the prior year 53-week calendar, which we have reviewed in prior calls. We expect adjusted EBITDA to be in the range of $23 and $27 million. As mentioned, our guidance takes into account the current trends we are seeing in the business as well as easier year-over-year comparisons as we progress through the period. The high end of our guidance also assumes a greater level of improvement in full price trends more consistent with what we saw earlier in the year prior to the change in customer behavior beginning in July. In addition, third quarter guidance reflects expected gross margin pressure, though less than experienced in Q2, related to elevated ocean freight costs, which have increased since our last update, and additional markdown and promo pressure as we remain committed to managing inventory in season and exiting the quarter with inventory levels in line with our expectations. In addition, This guidance reflects approximately $400,000 in SG&A investments related to the OMS project. While we continue to expect to invest in marketing to support the strategies that Claire reviewed, we are taking a more measured pace with these expenditures and other discretionary expenses as we enter the second half, given the trends we are seeing. For full year, we are now expecting total revenue to be about flat to plus 1%, gross margin to be down modestly and adjusted EBITDA to be down in the range of 4 to 9% compared to the 53 week fiscal year 2023. This outlook is compared to prior year revenue of $608 million and adjusted EBITDA of $113 million and reflects the negative impact from the loss of the 53rd week compared to fiscal year 2023 of about $8 million in sales and $2 million in adjusted EBITDA as well as approximately $2 million in operating expenses related to the OMS project. Excluding the impact of the 53rd week and the operating expense investment in the OMS project, we expect fiscal 2024 revenue to be up in the range of 2 to 3% and adjusted EBITDA to be down 1 to 6% compared to the prior year. Regarding store count, we still expect to grow net store count by up to five stores by the end of fiscal 2024 with up to four net openings during the third quarter, including the reopening of the store temporarily closed for relocation in Q2. And with respect to total capital expenditures, we now expect to spend about $22 million in reported CapEx during fiscal 2024 compared to our prior guidance of approximately $26 million. The change in our expectations is primarily driven by the treatment of cloud-based software implementation costs as prepaid expense in accordance with GAAP. We view the amortization of these investments similar to depreciation and adjust them out of our reported adjusted EBITDA. In closing, while our updated guidance for the full year reflects a change in trend from our first half performance, it still reflects the resilience and strength of our operating model. delivering adjusted EBITDA margin in the high teens and solid free cash flow, which helps us towards our ultimate goal of achieving a net cash position, even after disciplined investments, to drive long-term sustainable growth and total shareholder returns. Thank you. I will now hand it back to the operator for questions.