J. Jill, Inc.

Thank you for standing by. My name is JL and I'll be your conference operator today. At this time, I would like to welcome everyone to the JGL's fourth quarter 2025 earnings 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, simply press star one again. Thank you. 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 harbor provisions of the Private Securities Litigation Reform 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 March 31, 2026, and J. Jill does not undertake any obligation to update these forward-looking statements. Finally, J. Jill may refer to certain adjusted 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 March 31, 2026. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page on the website at jjill.com. I would now like to turn the conference over to Mary Ellen Coyne, Chief Executive Officer and President of JGIL. You may begin.

Good morning, everyone, and thank you for joining us today. 2025 marks the beginning of a strategic evolution for JGIL. We embarked on a period of testing and learning in order to build a strong foundation for our business by expanding our customer file through product evolution, enhancing the customer journey, and improving the way we work as an organization. While we delivered fourth quarter results that exceeded the updated guidance we provided in January, the period reinforced why this evolution is essential. We had an early assortment that did not resonate as hoped. We came up against earlier and deeper competitive holiday promotions and we watched our direct customer continue to migrate toward the promotional end of the spectrum, seeking value and discounts rather than engaging at full price. Against this backdrop, our teams remained agile and reacted in season to ensure we ended the period with inventories in a clean position. As we enter 2026, We are taking the steps to transition and position the business for long-term growth. To achieve our objectives, we must expand our customer file. This requires patience and precision. We're expanding into new categories and modernizing our aesthetic to appeal to a broader customer base, but doing so in a way that upholds the quality, fit, and values that our loyal customers expect and trust from JGIL. That's why our test and learn methodology is so critical. It allows us to validate new concepts with both new and existing customers before scaling, ensuring we're building sustainable growth rather than simply pursuing short-term gains. As we move through 2026 and beyond, You'll see us continue this balanced approach, and we believe the investments and strategic shifts we are making will position us well to achieve our objectives. This evolution will take time, and we should not expect the path to be linear. But we are committed to maintaining a disciplined operating model, carefully managing expenses, and leveraging our strong financial position and strengthen balance sheets as we pursue this course. None of this transformation would be possible without a best-in-class team, a combination of strong internal leaders with deep knowledge of J. Jill and outside leaders bringing relevant experience and new perspectives. Throughout 2025, we've made deliberate decisions to strengthen our leadership bench by recruiting proven talent with deep expertise in brand transformation. We brought Courtney O'Connor on board in July as Chief Merchandising Officer to support our product evolution, and Viv Redkey in November as the company's first ever Chief Growth Officer to lead our e-commerce and AI initiatives. As we grow, we will continue investing in talent that complements our existing strengths and supports new capabilities. Turning now to our three key strategic pillars. First, evolving the product. In 2025, we analyzed our assortment and identified areas in which we needed to streamline, remove redundancy, and evolve to capture a greater share of our customers' wardrobe. We began testing categories and concepts to expand the relevance of our product assortments. In Q4, for example, we successfully tested small capsules in areas where we saw potential but wanted to validate customer response before making larger commitments. We also piloted a localized merchandising strategy, adjusting our assortment to better reflect the lifestyle needs of specific markets. What became clear through those tests is that when we gave our customer the newness she wanted, she responded, even in a highly challenging promotional environment. These learnings shaped how we approached our 2026 assortments and are informing our broader merchandising strategy going forward. As a reminder, our summer 2026 assortment, which we'll be introducing Q2, will capture the first influence from our strengthened merchant and design team. And we expect continued improvements in assortments as we move throughout the year. There will be more newness with silhouettes and fabrics, as well as the beginning stages of expansion into areas of accessories, such as bags and belts. Our goal is to continue to provide our loyal customer the quality and value she knows and loves us for, while introducing relevant and compelling products focused on the new customers who we aim to attract. Our second pillar is enhancing the customer journey. This past fall, we began to look at our marketing strategy differently. and how we think about customer acquisition and engagement. Historically, our marketing spend has been disproportionately focused on our existing customer base. And while customer retention remains important, we know this approach was limiting our ability to expand our customer file and drive the kind of growth we're targeting. In 2026 and beyond, We plan to continue to rebalance our marketing investments to address the top of the funnel, building broader brand awareness and capturing new customers who may not yet be familiar with J Jill. We believe these awareness building initiatives will help us reach a larger, more diverse audience. Our third pillar is operational improvement. Throughout 2025, We focused on strengthening our operational capabilities and leveraging new technologies that we expect to support future growth. We successfully implemented our new OMS system, providing us with a more modern platform, and created the Chief Growth Officer role to fully maximize e-commerce and AI to help drive long-term success. As an organization, we are embracing the capabilities and efficiencies that AI can enable. With every potential use case, we ask ourselves, will it increase revenue? Will it increase efficiency? And will it drive speed to market? As we begin 2026, we are introducing several new tools across the organization and have kicked off a significant project. the implementation of a new merchandise planning and allocation tool from Anaplan. We plan to leverage this predictive AI-powered forecasting model to optimize how we plan and allocate inventory across the business. Thanks to the hard work of our team, we are on track to go live late in the second half of 2026 with meaningful benefits expected to begin in 2027. and we will continue to improve as the system learns and we scale it to drive better demand forecasting, smarter allocation by location, and reduced markdowns. As we look forward to 2026, we are confident in our strategic direction while being realistic about the current consumer environment, the impacts of tariffs, and the work ahead. While the quarter has seen a challenging start largely driven by continued price sensitivity, particularly in our direct channel, we are encouraged by the performance in our stores, supported by trained associates providing personalized guidance and tactile experiences that excite both existing and new customers around the brand's product evolution. Importantly, we are taking key learnings from these first few weeks of the year to inform our go-forward plans, all of which is reflected in our outlook, which Mark will review. In closing, we're viewing 2026 as a period of deliberate, accelerated change to expand our customer file while maintaining our operational discipline. We remain committed to our methodical test and learn approach building on validated successes around new initiatives before scaling investments. I am confident that this measured approach, combined with our strong balance sheet and operational rigor, will position us to achieve our objectives and deliver long-term shareholder value. And with that, I'll turn it over to Mark.

Thank you, Mary Ellen, and good morning, everyone. As Mary Ellen outlined 2025 marked the beginning of a strategic evolution for J Jill, a deliberate period of evaluation, testing and learning that began to build the foundation for expanding our customer file. As we enter 2026, we are deploying these learnings, which while we expect will take some time to fully take hold, we are confident will position the business well for long term sustainable growth. Before discussing our 2026 outlook, let me provide context on fiscal 2025, which demonstrated the resilience of our operating model even as we began this evolution and despite significant external headwinds. We generated $23.2 million in free cash flow in the year, maintained a solid gross margin rate of 68.7%, Despite incurring approximately $7.5 million of incremental net tariff costs, we opened four net new stores, successfully upgraded our order management system, and delivered adjusted EBITDA of $84.3 million on sales of $596.5 million. We also strengthened the balance sheet and returned significant capital to shareholders. We refinanced our $75 million term loan, which will save approximately $2 million in annualized cash interest expense. We repurchased $10.4 million or about 638,000 shares of JGL stock and paid approximately $5 million in ordinary dividends, demonstrating our ongoing commitment of returning cash to shareholders and supporting total shareholder return. These results reflect the operational discipline and agility of our organization in navigating a complex environment. The tariff policy enacted in April created unprecedented operational complexity, and we experienced a slowdown in our customer shopping behavior throughout the year, contributing to a 3% decline in comparable sales for the year. I want to thank our vendor partners for their support amidst these challenges. and recognize and thank our cross-functional teams for their agility and resilience, adapting their work and processes in response to the changing business requirements. Many of these same team members managed the successful March 2025 cutover to our new OMS system, a major modernization of our technology foundation. As we move into 2026, we are planning for a year of strategic investment and measured transition. We're building the foundation for sustainable, profitable growth by expanding our customer file, modernizing our product offering, and further strengthening our operational capabilities. This requires deliberate investments that will pressure near-term profitability but position us for stronger performance in 2027 and beyond. Our financial approach doesn't change. We're being disciplined about where we invest, measuring returns carefully, and maintaining financial flexibility to adjust as we learn. Our strong balance sheet and cash position provide flexibility to execute this strategic evolution while continuing to return capital to shareholders. With that context, let me walk through our fourth quarter performance and then provide our outlook for fiscal 2026. Total company sales for the quarter were $138.4 million, down 3.1% compared to Q4 of 2024. Total company comparable sales for the fourth quarter decreased 4.8%, driven by the retail channel. Store sales for Q4 were down 9% versus Q4 2024, driven by soft traffic and conversion, which were partially offset by stronger average unit retails and average transaction values in the quarter. net new stores contributed approximately two million dollars in revenue direct sales as a percentage of total sales were 53.5 percent in the quarter compared to the fourth quarter of fiscal 2024 direct sales were up 2.6 percent driven by markdown sales which benefited from ship from store capabilities q4 total company gross profit was $87.3 million compared to $94.8 million last year. Q4 gross margin was 63.1%, down 320 basis points versus Q4 2024, driven by approximately $4.5 million of net tariff costs incurred during the quarter and deeper year-over-year discounting amidst a very competitive promotional environment. These headwinds were partially offset by favorable freight costs this year compared to last. SG&A expenses for the quarter were about $87 million compared to $89.3 million last year, as increased selling expense and G&A overhead were more than offset by lower marketing, management incentive, non-recurring costs, and stock-based compensation. Adjusted EBITDA was $7.2 million in the quarter compared to $14.5 million in Q4 2024. Interest expense was $2.2 million in Q4, down about $500,000 compared to last year, driven by the term loan refinance completed in December. Adjusted net income per diluted share in Q4 2025 was a loss of two cents per share compared to earnings of 32 cents per share in Q4 2024. Average weighted diluted share count in Q4 this year of 15.3 million shares reflected the impact of repurchasing 637.7 thousand shares in fiscal 2025. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures. Adjusted EBITDA, adjusted net income, and adjusted net income per diluted share to net income and free cash flow to cash from operations. Turning to cash, we ended the quarter and full year with $41 million of cash. For fiscal 2025, we generated $42.1 million of cash from operations and $23.2 million of free cash flow, defined as cash from operations, less capital expenditures. We refinanced our $75 million term loan in December extending the term through December of 2030 and saving approximately $2 million in annual cash interest expense. The regular quarterly cash dividends totaling $5 million and approximately $10.4 million of share repurchases in 2025 were funded from cash on hand. As of January 31st, 2026, there was $14.1 million of availability remaining under the stock repurchase authorization that expires in December 2026. Looking at inventory, at the end of the fourth quarter, total inventory excluding the impact of tariffs was about flat compared to the end of fourth quarter last year, including approximately $9 million related to net tariff costs. Reported inventory at end of Q4 was up 14% compared to end of Q4 inventory last year. Capital expenditures for the quarter were $10.1 million. Total capital expenditures for full year 2025 were $18.9 million, focused on new store openings and the OMS project. With respect to store count, we opened seven stores in the fourth quarter with no closures. We ended the year with 256 stores, a net increase of four for the year, as nine new store openings were offset by five closures. Turning to our expectations for fiscal 2026. As mentioned, we expect 2026 will be a year of deliberate investment. Our guidance reflects this, along with the continued uncertainty in the consumer and geopolitical environment, the turbulent trade policy landscape, and the expectation that it will take some time for new customers to respond to our evolving product assortments. As Mary Ellen mentioned, and as is reflected in our first quarter guidance, we have seen a stopter start to Q1. We expect this performance to gradually improve in second quarter as the new assortments hit in their entirety for the first time before gaining incremental momentum as we move into the second half of 2026. Further, Our guidance assumes tariffs incurred and paid for products landed before February 28, 2026, will expense through the P&L during the first half of 2026. As a reminder, these tariffs were an average rate of approximately 20% and net of vendor offsets are expected to result in about $5 million of added cost of goods sold in the first quarter compared to zero tariffs incurred in Q1 2025. Going forward, we are now assuming 10% tariffs on goods received after February 28th through the end of the first quarter and 15% on goods received for the rest of the year. Given these rates, we expect the second quarter to incur approximately $4 million of incremental net tariff costs compared to less than $1 million incurred last year in Q2, and Q3 and Q4 to incur approximately $3 million of net tariff costs each, compared to $2.5 and $4.5 million in Q3 and Q4 last year, respectively. Total tariff load net of vendor offsets in 2026 will be about $15 million, compared to about $7.5 million incurred in 2025. Our assumptions related to tariff rates are all subject to any additional changes the US may enact to global trade policies. Further, our guidance does not assume receipt of any refunds of tariffs paid to date. For the first quarter of fiscal 2026, we expect sales to be down approximately 5 to 7% compared to last year, with total company comp sales down approximately 7 to 9%. We expect adjusted EBITDA to be in the range of $15 to $17 million, reflecting approximately $5 million of tariff pressure. For Q1, we expect gross margin to be down about 400 basis points compared to Q1 2025 as the annualized impacts of tariffs is incurred and product and marketing strategies are still evolving. While the quarter is off to a challenging start, as discussed, we are seeing relatively better performance quarter to date in our retail channel. For full year fiscal 2026, we expect sales to be down 2% to about flat compared to last year. Total company comp sales to be in the range of down 3% to down 1% and adjusted EBITDA of 70 to $75 million. This guidance assumes full year gross margins down about 50 basis points compared to 2025, as we expect headwinds related to tariffs in the first half to be partially offset by better full price selling, lower promotions, and lower year-over-year tariffs beginning in Q4. Regarding inventory, we will continue to take a prudent approach to inventory investments given the relative uncertainty we have discussed. with unit purchases positioned down in the mid single digits. Regarding store count, we continue to see opportunity to expand, but remain disciplined in our approach amidst our brand evolution. We are pleased with the performance of new stores open to date and expect to grow net store count by about five stores by the end of fiscal 2026. Of our planned openings, approximately half are in reentry markets. We expect reentry stores to ramp very quickly, given the customer reception and brand awareness that exists in these markets, while new markets are experiencing a longer ramp period. We expect openings in new markets to experience about a three to five year ramp to maturity. New stores represent an attractive investment opportunity, and we are excited to continue to expand our footprint at a disciplined pace. With respect to total capital expenditures, we expect to spend about $25 million in fiscal 2026 with investments focused on new stores and a new merch planning and allocation system that is projected to be completed toward the end of 2026. Regarding free cash flow, we expect free cash flow for fiscal 2026 of about $20 million. And finally, with respect to cash distributions, We announced today that our board of directors approved a nine cent dividend reflecting a one cent or 12 and a half percent increase in our ordinary dividend payable April 28th to shareholders of record as of April 14th. And we have $14 million remaining on our fair repurchase program, which is authorized through December 2026. It is important to note that giving the timing of year end and Q4 earnings announcements Our Q1 repurchase window tends to be shorter than other windows during the year. In summary, we believe we are making the adjustments necessary to position the business for sustainable growth. We are confident the modernization and evolution of our product and marketing efforts will enhance and broaden the appeal and awareness of our incredible brand. And we believe the investments we are making in our front end MP&A platforms will position us well and provide benefits into fiscal 2027 and beyond, all while continuing with our commitments to distribute excess cash to shareholders for our ordinary dividend program and share repurchases. Thank you. I will now hand it back to the operator for questions.