Good morning. My name is Leandra, and I will be your conference operator today. At this time, I would like to welcome, everyone, to the J.Jill Fourth Quarter 2018 Conference Call. On today's call are Linda Heasley, President and CEO of J.Jill Inc., and Dave Biese, Executive Vice President and Chief Financial and Operating Officer. [Operator Instructions]. Before we begin, I need to remind you that certain comments made during this call 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 J.Jill's SEC filings. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. Finally, we may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available on our press release issued today. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page of our website at jjill.com. I will now turn the call over to Linda.

Thank you, and good morning. I am pleased to report that our fourth quarter results demonstrate continued progress. Our sales were better than expectations as we anniversaried our strongest comp quarter of 2017. I am especially pleased by our year-over-year gross margin improvement for the quarter, driven by cleaner, leaner inventories and reduction in promotional activity. Of note, our stores delivered our 19th consecutive quarter of positive comps and our e-commerce channel showed continued improvement. For the year, we delivered on our initiatives including elevating our customer engagement, tightening our focus on balancing the assortment and managing inventory and in the second half of the year relying less on promotional activities as we improved profitable sell-throughs. Our customer file grew 4.2% over 2017. New-to-brand growth has been lower than in prior years, reflecting moderating marketing investment as we resolved inventory and e-commerce challenges. We’re encouraged by the engagement of customers in the back half of the year despite tempering our promotional posture. As we look to 2019, we will accelerate an increased investment for future growth, while continuing to build on our ongoing initiatives. Our focus on listening more closely to our customers, providing more relevant and trend right product continues, as does messaging to reflect the brand essence, while better relating our offering to our customers lifestyle. We are also improving our agility and discipline in planning, merchandising, and marketing to react more nimbly to market and consumer changes. I'd like to review operational improvements that remain priorities in 2019. First is leadership; in recent months we've made significant changes to our senior team. We separated the design and merchant leadership roles to create the healthy tension so essential to realizing the best assortment, while streamlining our development cycle, both roles are now filled. We hired Shelley Liebsch in…

Thank you, Linda. Before going into our results, a reminder that 2018 was a 52-week fiscal year versus 53-weeks in 2017 and we experienced an impact on the related calendar shift. The shift did not materially impact our annual comparisons, but did move the timing of sales from the fourth quarter to our third quarter when compared to 2017. Last year's fourth quarter also had the extra week of business as a result. With that, in our fourth quarter of 2018, total net sales for the 13 weeks ended February 2nd, 2019 were $170.9 million compared to $188.7 million for the 14 weeks ended February 3rd, 2019. The added week of sales in the fourth quarter of 2017 was approximately $9.2 million. The remaining decline can be attributed to the shift of sales from the fourth quarter to the third quarter, due to the calendar change, as well as a negative comparable sales comparison. On a 13-week basis, total company comparable sales were a negative 1.7% after a promotionally driven increase of 8.9% for the 13 weeks last year that included elevated clearance sales. Gross profit for the quarter was $107.8 million versus $117.3 million last year, and gross margin was 63.1% compared to last year's 62.2%. The gross margin improvement was driven by having cleaner inventories and reduced clearance sales versus the prior year. SG&A expense was $99.8 million versus $105.6 million last year. And the fourth quarter last year included $2.3 million of non-recurring expenses. As a percentage of total net sales and excluding last year's non-recurring expenses, SG&A was 58.4% versus 54.8% last year. The deleveraging of the rate reflects the reduced year-over-year sales. Operating income was $8 million or 4.7% of sales compared to last year's adjusted operating income of $14 million or 7.4% of sales…

[Operator Instructions]. And your first question comes from the line of Lorraine Hutchinson with Bank of America Merrill Lynch. Your line is open.

Thank you. Good morning. I wanted to follow up on the SG&A comments that you made for the full year. It sounds like it will be about flat despite some pretty significant increases in technology spending. So can you talk about what the offsets are for that?

Sure, good morning, Lorraine. In general, I would say we've challenged ourselves to look critically at the cost structure of the business given the fact that in late 2017 our business slowed down off of our trend rate. So we've been working diligently to do that. There are a number of areas that we look to improve on across the year and a lot of those reside in the overhead in the business as well as a lot of the services that are provided to the business. I'll say more in the ordinary course. So that's certainly part of it. And that is reflected largely over the second through the fourth quarters. The other larger part of that is our marketing investment. We've talked pretty repeatedly to this point about our opportunity to continue to kind of use our data to help us navigate how we spend, and what that means is we are testing into improving out opportunities to shift more of a spend in marketing from a more expensive I'll say a little less efficient catalog spend into a much more efficient digital spend. So the combination of those things is what leads us to a flat for the year I'll say in spite of the significant deleverage in the first quarter.

Okay. And then on the gross margin side -- I conversely, I was a little surprised that it was only flat, because it seems like you're doing a lot to take inventory out of the channel and speed things up. What are the pressures that you see there to offset those initiatives?

What I would say generally is, we continue to be, I'll say, somewhat cautious in terms of how we think about gross margin, just given the way things are at the moment. What I mean by that, less about what we do and more about what's happening in the more macro environment. Other things that we've specifically allowed for in our gross margin is first-off, potential changes in the supply chain. We are leaving ourselves the possibility or the potential to be airing more goods as we look to tighten up the supply chain. And I would say that would be over a period of time in which we're looking to do things that are more structurally that will tighten up the supply chain and rely less on the airing of goods, but we do want to leave ourselves the opportunity to do that, but that's one example. The other thing I would point you too is, we are editing assortments such that we are looking to introduce more lower price point items in the line. I wouldn't say a dramatic shift in the assortment, things that we believe would be more accessible to more new-to-brand customers and the like, and in the near term, would expect that, that would have some impact on our markup as we work toward managing into a larger part of the assortment, and I'll say, manage that more toward our traditional gross margin level. So kind of conservativism as well as some of the things that we're planning on changing in the business. We've left ourselves an allowance to do that across the year.

Great. Thank you and good luck Dave.

Thank you.

Your next question comes from the line of Paul Trussell with Deutsche Bank. Your line is open.

Thanks, and good morning and my best to you, Dave.

Thanks.

I wanted to continue the conversation on you’re just mentioning like some of the initiatives and I certainly kind of understand the first half versus second half dynamics in the comp guide given what you're lapping, but really would be interested in hearing more about just how you feel about the current assortment, how you feel about where the merchandised organization is kind of taking the business, what you're hearing in terms of feedback from the customer and just how we should think about the progression of comps throughout the year, and just kind of the extent that what should we be looking out for if you will in terms of change as we check on the stores? Thanks.

So I’ll take the first part of that. Good morning, Paul. With respect to the assortment, I look at it as reliability versus predictability. Brands are supposed to be reliable. You go to the brands you love because you can count on finding things that you need or things that you aspire towards. Predictability is when you play it a little too safe and you keep repeating what you've done in the past. And I think we were a little guilty on that as a brand in terms of repeating a little bit too much of this tried and too safe things that are sold. So where I see the assortment going is continuing to deliver to our customers the things we know she loves, components of the Wearever program, the Pure Jill program, giving her Denim that she loves, giving her Cotton Essential, Bi-Stretch etcetera. Those are programs that J.Jill has built strong foundation upon. We do not intend to take that away, but we make it better. Elliot and Shelly coming on board help ensure that there is that healthy tension point with design pushing us forward to more aspirational components and merchandising reminding us of what the customer loves and [indiscernible] for. So what I see is great response from the customers, as we have been shifting the product line, again, not taking away from her which we know she wants but also moving it forward. And we're seeing a new-to-brand customer slightly younger, very engaged with the brand come in as well, which is also very exciting. And it's been ramping up over the last several weeks, which is great. With respect to comp and the initiatives, I’ll turn that over to Dave.

Well Paul, if I understand what you are driving at there. The things talked. So the leadership changes are kind of happening recently, and as we speak there's a number of initiatives as well that we continue to be kind of in the heart of in terms of getting operationalizing them and we are seeing traction against them as we move through the first half of the year. So in terms of one of those initiatives in our guidance start to realize themselves more, it's going to be in the second half as we noted. So the first half -- we there are some things in our business are very encouraging. We're looking for further traction, but we are pointing to the fact that we are comping all the clearance sales from last year and as we transition into the second half, seeing more benefit and traction against those initiatives such that the year then works to a more of a flat comp from our point of view.

Understood. And then just a quick follow-up on the tech investments. Just to the extent that you can maybe just elaborate a little bit more, one, the fact that this is a kind of a multi-year, multi-phase approach to the investment, is this something that ramps up in terms of dollars over the years? Is 2019 kind of the -- like how should we think about the quantification of it in '19 versus [the fall over there] [ph]?

Well I wanted to level set, some the capabilities that are going to be delivered with this project are things that are basic to our retailer, and a new POS system that positions us for next-gen technology and capabilities in our four-walled store environment, better visibility to our inventory so that we can facilitate the easier order online as well as identifying product that lives in other stores to save the sale. So that's a big component of what we are doing. And as I said, we are beginning this initiative right now, we're starting blueprinting. We will have a better sense of the timing on pilot, as well as rollout by the second half of this year and we'll be able to better articulate when deliveries of those benefits over the next couple of years can be counted upon. In terms of how we thought about the capital investments, I'll turn that to Dave.

So in thinking about 2019, Paul what I would say is from an expense standpoint and what it means to our P&L, I would think what we're talking about this year with the $5 million to $6 million would be a higher watermark in terms of any expenses associated with the project going forward. It should come down afterward. In terms of capital, I would expect that as you go from 2019 to 2020, the numbers would be comparable with regard to the project.

Helpful color. Thank you, best of luck.

Thank you.

[Operator Instructions] And your next question comes from the line of Oliver Chen with Cowen and Company. Your line is open.

Hi, thank you and David best regards. The go-to-market calendar opportunity sounds like a big opportunity in terms of increasing speed, could you just articulate where you think the biggest opportunities are there in terms of improving go-to-market and the timing and how the assortment architecture may work. And the other question we had is was on the lower price point items, and what are your thoughts on which part of the assortment could benefit from that most and how are you thinking about good, better, best as well as how the mix will work under your average tech sizes? Thank you.

I’ll jump in first and then I'll have Dave go on add to it. With respect to the go-to-market calendar, we need to shorten our timeframe which is well over a year right now, to be something a lot more responsive and we're in the process now with the March, April 2020 collection, putting some of the new elements of this development calendar into place now that Elliot and Shelly are here together. So we'll see potentially the intent is to see less rework. Identify what portion of the line we leave capacity to chase, so that we registered the latest of trends. At the same time, deliver on those programs that we know really important to her in terms of the essentials etcetera. In terms of how we would think about the fashion architecture, the assortment architecture relative to good, better, best we're in the process of going through that right now. Again, building on the programs we know she loves, but allowing for the fact that on some of our programs like our perfect tea, which is a two by two cotton tank for the most part, can we improve the price point and the margin associated with that to be something that's an essential that can be a multiple purchase play as well as in the an aspirational entry into the brand for someone new to the brand. So those are the kinds of that -- that's how we're approaching the assortment in terms of disaggregating every component of it and looking at what is the intent of the product and then how does it play in the line relative to fashion versus an essential staple. Is it going to be something that an existing customer loves or will it promote trial with a new customer?

Okay. Thank you. And…

I don't know if I’ve much to add. There you go. Perfect. Thanks.

I had a quick question on -- on David on inventory modeling. Going forward, how should we think about inventory versus sales and where that's headed? And then, also on the technology side, what are your thoughts on linking the customer relationship and the customer analysis and the customer file relative to the inventory visibility and how you're thinking about the entire technology ecosystem and sequencing that development?

So as far as kind of modeling the inventory right now, I would say that as we move through 2019, our inventories would move up a little bit off of 2018 levels, in part due to the fact that there are everyday categories of our business that we look to be in stock all year round. I think Linda has talked previously about a category like denim, so it’s not big moves. But I would expect that our inventories to move up slightly. I don't expect our turns to change dramatically in that sense though. And as far as the technology is concerned, there's a lot to that question in terms of the ecosystem and the like. From my point, when you talked about inventory in particular, I would say the way things that are going to sequence through piloting in the fall, we are going to have some capabilities already where we're making inventory visible to the potentially the customer some of that needs to be worked out. But it's probably more of a 2020 event, where we're rolling something out where a customer is going to have visibility into our inventory such that she can use that and I will call it the Save the sale capacity. So from that standpoint, I think that puts us right in the game in terms of what our customer would expect from us, by the time we roll this out of the POS portion that is in a 2020. Does that help you?

Thank you. Best regards.

And your final question comes from the line of Ike [Indiscernible] with Wells Fargo. Your line is open.

Good morning everyone. This is Lauren Frasch on for Ike. Do you maybe provide a little color on that direct versus retail performance in the quarter? And how you're thinking about the difference between the performances in these two channels in 2019? Thank you.

So in the quarter, Linda. First off just go back to the fact that in our stores channel, we once again delivered a positive comp in that channel. We continue to be slightly negative in our direct channel. As we move through 2019, I would expect our retail channel to our stores channel to moderate a little bit. They also have that same dynamic of having to lap in the first half of the year the clearance sales. So that's a dynamic in our store channel as well. So in the first half of the year, I would expect both channels to be slightly negative in terms of their comp differences.

That's very helpful. Thank you.

There are no further questions at this time. I will now turn the call back over to Linda for some closing remarks.

Thank you all for joining us today. I look forward to updating you on our future results as we start our next chapter in 2019. And finally, I'd like to thank Dave for his many years of service to J.Jill. We wish him the very best. I look forward to speaking to all of you in the next quarter. Thank you.

This concludes today's conference. You may now disconnect.