Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the J.Jill First Quarter 2022 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. [Operator Instructions] 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 J.Jill's SEC filings. The forward-looking statements made on this recording are as of June 8, 2022 and J.Jill does not undertake any obligation to update these forward-looking statements. Finally, J.Jill may refer to certain adjusted or 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 June 8, 2022. 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'll now turn the call over to Claire.

Thank you, operator and hello, everyone. Thank you for your interest in J.Jill. For today's call, I'll review highlights of our first quarter performance and provide an update on our strategy, focused on driving profitable growth, before turning the call over to Mark to review our financial performance and outlook in more detail. We anticipated a strong Q1 this year compared to last year. However, our results were better than expected and demonstrated strength throughout the quarter. Net sales were up 22% to $157 million compared to $129 million for the prior year quarter. And adjusted EBITDA for the first quarter of fiscal 2022 was $31 million compared to $17 million in the first quarter of fiscal 2021. Our performance was the result of our ability to execute against our disciplined operating model, focused on inventory management, full price selling and flowing newness. Our loyal and engaged customer base responded well to our assortment and our position is more relevant than ever as consumers continue to trend toward a premium casual lifestyle. While we are encouraged by our results and our customer response, we know inflationary pressures are increasingly driving consumer behavior. However, our customers tend to be more resilient to economic pressures than the average consumer. Our data shows that she has an average household income of $150,000 plus and for many of our customers, her discretionary dollars are her own to spend with children out of the home. We, like all retailers, continue to navigate a dynamic and uncertain macro environment. I'm proud of how our teams continue to be nimble and responsive, while remaining focused on our commitment to our operating model and our customers. During the quarter, we continued to see a great response from our customers to our product assortment. She was extremely receptive to…

Thank you, Claire and good morning, everyone. We are very pleased with performance in the first quarter of 2022. Our original guide for Q1 reflected an easier year-over-year comparison but even so, results came in above expectations on both the top and bottom line, driven by strong customer response to full-price product and a better-than-expected improvement in store traffic. In addition to strong business performance in Q1, we further strengthened the balance sheet and we're pleased to have received a ratings upgrade from Moody's. During the quarter, we extended the maturity of our ABL by one year to May 2024 and subsequent to quarter end, paid off the maturing $5 million existing term loan, further reducing our funded debt balance. As noted in our release today, we are also planning to explore a refinancing of our outstanding term loan credit facilities with the objective to decrease the total size of our facilities and extend our debt maturities. Now, I will review financial results for the first quarter. Total company sales for the quarter were $157 million, up 22% versus Q1 2021. Total company comp sales were up 24% in the first quarter, driven by the stores channel. Store sales for Q1 were up over 53% versus Q1 2021, driven by higher unit sales associated with continued recovery in both lifestyle center and mall traffic and full price average unit retails resulting primarily from a lower promotional rate in the quarter. Direct sales as a percentage of total sales were 46% in the quarter. Compared to first quarter last year, direct sales were down 2% driven by lower markdown sales. As a reminder, historically, direct was used to clear markdowns for both channels. Our updated operating model resulted in a significant reduction in this clearance activity which negatively impacts sales comparisons…

[Operator Instructions] Our first question this morning is from Janet Joseph Kloppenburg with JJK Research Associates.

Congratulations on a great quarter. I was wondering on the inventory of 7% if the content was where you wanted it to be, Claire. In other words, was it geared towards the tops and the dresses that would drive in the wovens that we're driving, I think, are the best momentum categories and if you felt good about the allocation of your inventory? And Mark, if you thought that the inventories would continue to be up as we go through the rest of the year, what we should expect there? And then on the second half, I know you're a little bit more conservative on your outlook but I was just wondering if you're optimistic that the trends you're seeing in buying related to more social activity travel, etcetera, would continue and that there's some opportunity there for continued momentum.

Sure. I'll start, Janet and then I'll let Mark address the second part of your inventory question. We'll go from there. So yes, we feel good about the mix and the inventory. I think we feel balanced across the portfolio of Core and sub-brands. We feel balanced across the category, certainly happy to see the strength in the categories that we mentioned continuing and we feel well positioned for that. So I feel like we're in a good place there and also feel good about the allocation. I think we talked in prior quarters about how the team has just done an incredible job navigating what has just been unprecedented in terms of supply chain and challenges and we feel like we've been able to, for the most part, have the assortments that we wanted in front of our customers in both channels at the right time. So we certainly see some impact from disruption and delays but I feel like we're navigating as well as possible.

Right. And Janet, I would add that, overall, ending the quarter with inventories plus 7% with the sales performance and the comp of 24%, we feel really good about the overall level of inventory and believe that it's in the spirit and reflective of our disciplined approach to inventory management and the new operating model and the things that we've been speaking about. The mix of that inventory is much healthier at full price versus markdown. And that's been a trend now for a couple of quarters and again reflective of the strategic approach. The driver of the plus 7% was in transit. And I mentioned that some of that was due to a couple of small delays related to end of quarter inventories cusping into Q2, so they went into in-transit. And then, the strategic decision which I know many out there are taking to ship earlier due to the extended freight lead times and, in some cases, some slight moves to floor set dates. But that is, as we look forward, the overall disciplined approach doesn't change. That impact of earlier transit times we mentioned would impact likely the end of quarter, Q2 and Q3 inventory levels. And by the end of the year, we expect that -- at current thinking, expect that to start to normalize against kind of where we were at the end of last year. But for right now, it's Q2, Q3, we expect that to still be a factor in the report that we put out. And overall, the approach to the inventory isn't changing at all as we go forward.

And then regarding the...

I had a couple -- go ahead. Yes, with regards to outlook. And then I have a couple of follow-ons. Sorry.

Sure. So yes, I hope our customer continues to plan on traveling and getting together with friends, I certainly am. And she indicates that she's very -- she very much wants to refresh her wardrobe seasonally and we see those customers coming back. We hear and listen carefully to what they say to us in our stores and that's certainly been a theme. So I would expect that to continue going forward. And -- but who knows what the world will be over the course of the remainder of the year. It's certainly been tumultuous for the last couple of years.

And maybe you'll talk to the price increase opportunity, how much you've done, how much the opportunity there is there? And also Claire, we've heard from others that the lounge and active categories might be slowing down a little bit. Maybe you could talk to that and how you're managing through that. And if those categories could be growth categories again next year?

Yes. Yes, sure. So I'll take the last one first, if I may and then I'll go to pricing. So we've talked about FIT. That's sort of our most obvious activewear category. And that's a very small part of our business and assortment. So we have seen nice growth as we've talked about but it's on a small base. And so we feel like it's managed appropriately within the penetration of the core brand and the sub-brands. Our brands run a little bit of a gamut all within the premium casual space. So we're able to drive penetration deeper or sort of wax and wane the sub-brands based on what we're seeing in trend from a consumer standpoint. So we feel good about the way that's all balanced. And so, not -- it wasn't a huge piece of our business but we'll certainly be paying attention to it and leaning into it if we see the opportunity for more growth there. From a pricing standpoint, as we talked about on the last quarter, we took a strategic approach to price increases. So we really sat back and looked at where we thought there was value in the product from a consumer standpoint that we could realize in terms of taking tickets up. And so we did that. I mentioned in the script that the two categories where AURs were up the most in the first quarter were dresses and woven tops and we didn't see any price resistance there. So that's the approach we're taking for the remainder of the year in terms of being really surgical and trying to be consumer oriented in terms of the way we approached it, not just raising prices across the board and it so far seems to be working well.

And Janet, I would...

Does that mean -- wait, I just have one question for Claire, I'm sorry, I'm hogging the phone line. But Claire, does that mean that you're done with price increasing for the year? Or do you think there's some opportunity as we go forward?

So our approach for the remainder of the year is very similar to the approach we took in Q1. We haven't seen any reason to need to change that further. But obviously, we monitor it. And the other piece is just the promotional lever where we were able to pull back on that even further than we had anticipated in Q1. We start to come up in Q2 and Q3 against a cleaner promotional cadence on a year-over-year basis, so yes.

Apologies, Mark, for interrupting you.

No problem, Janet. That was the point I was going to make.

Our next question is from Dana Telsey with Telsey Group.

Congratulations on the nice results. As you think about freight, it looks like incremental freight was around 250 basis points this quarter compared to 300 basis points last quarter. What are you seeing there? And how do you -- how are you planning for it going forward? And then, Claire, just following up on what Janet said, anything that we should be watching for with any new categories or pricing or category merchandising assortment initiatives as we go through the balance of the year. And then just a question on stores also, the traffic seems like it was terrific. What was the difference with traffic in direct versus stores. And it sounds like with the opening in off-mall and in-mall that you're seeing strength in all areas.

Great. I'll let Mark maybe address freight and store traffic and then I'll jump in on the on the category piece.

Yes. Dana, the way that we're looking at freight is, at this point, we're not anticipating the freight, elevated freight costs to materially improve through the rest of the year. So that's sort of embedded in our forecast. We do start to anniversary that freight into the back half of the year. And the only thing I would state on the basis points is the freight often comes as a rate of units and Q4's revenue relative to Q1's revenue, the basis points equate to a fairly consistent cost if you calculate it out. So I think that's -- as we think about it, at some point, we expect freight costs and lead times, etcetera, to improve. Right now, we're seeing it sort of where it improves in one lever, it sort of deteriorates in another. And overall, it's kind of stable and we're anticipating that, that continues at least through the end of the year.

Great. And with regard to categories, we talk a lot about the portfolio of core and the sub-brands, Dana. And I think that portfolio gives us the opportunity to lean in on things that are trending. And we feel, again, good about the balance we have there and how we're planning the balance based on seasonal differences and consumer trends. And then we also have good coverage of inclusive sizing on our website and somewhat in our stores. And to the extent that we see shifts in consumer behavior as it relates to size -- sizing. We have the opportunity to flex there, too. So we feel good with the portfolio that we have. We're not entering new categories like footwear or anything like that. We don't have any big news on that front but feel really good about the organic growth opportunities that we have within our business.

Yes. And lastly, Dana, with respect to store traffic, we are seeing the traffic improve across the footprint. So both lifestyles and malls were better throughout the quarter than we had anticipated and did come back out of Q4 stronger which was very encouraging to see. There is still opportunity to get those average store put steps back closer to where they were pre-COVID in 2019 but encouraged to see that continue and also encouraged that the opportunity it presents to continue to drive that back to those pre-COVID levels. The lifestyle centers continue to perform better than malls, though the gap between the two has narrowed a bit and hopeful that, that continues to be the case as we move forward. And then, I would say with direct, direct is still being impacted to some extent by the lower markdown volumes in the channel. And that relationship starts to normalize through the rest of this year. But that -- historically, the channel was clearing the majority of the markdowns for the business. And with the new operating model, we've sort of moved away from that model and it's a more profitable for the business overall and it does impact those revenues and to some extent, the traffic in that channel as well as we execute on that strategy but it should start to normalize through the rest of the year.

Got it. And then in marketing expense and just marketing, in general, what should we be looking for there?

Yes. So I think we have -- as I mentioned in my remarks, we have the opportunity to introduce more new customers to this brand. And I think amplify the voice of the brand out there a little bit. So watch for that. You'll see a lot more in terms of social engagement influencers, things that are very much top of funnel, exposing new people to the brand as well as continually leaning in on our performance marketing efforts to continue to drive size and value in the file. So watch for us on social.

Got it. And then just the gross margin expectation for flat in Q2, does that assume -- is that the supply chain headwinds? And does it assume clearance remains at these low levels or reduction in clearance?

It assumes that the clearance remains at low levels, Dana. If anything, the -- we called out in Q1 that the full price, the margin expansion was driven in large part by the lower promotional cadence in the business and the strong response to full-priced product. That element of our strategy really started to gain traction during Q2 and Q3 of last year. So that is sort of the lever that we look at as we start to anniversary the very healthy levels of promo in the business through Q2 and Q3, in particular.

[Operator Instructions] Our next question is from Daniel Lupo with Jefferies.

A very nice quarter. Just going back to kind of that G&A investment, you mentioned in your prepared remarks, Mark, how do you kind of think about that kind of additional investment in talent stores and marketing? Maybe I guess, using kind of the baseball analogy, what kind of -- what inning are we in, in terms of that investment? Is that kind of the middle of its investment or kind of more in the beginning of its overall investment?

Yes, Daniel, I always shy away from baseball references. But I understand the question. We are coming through the sort of recovery of the business into 2021. We see the opportunity as the business model strengthened through '21 and into 2022 to start to build some strategic investments to support profitable future growth. So much of that, that we're talking about outside of inflation, right? Because inflation is sort of just embedded in the P&L and we're going to live with it for a while. The investments in marketing, some of the talent investments are really meant to see as well as some of the capital investments we've talked about to build the foundational strength off of which we can grow profitably. So I would say it's at this point, beginning to step into that level of investment profile and really with the expectation that it drives profitable growth as we continue on that path.

Okay, that's helpful. And then last question for me. Just going off of the debt refinancing comments, I guess maybe how far along are you in the process? Has that kind of just kicked off? Or is that something that's been going on for a while? And then just given kind of how volatile the debt markets are right now, how do you kind of think about that refinancing for relative to a more kind of clubby kind of transaction relative to a more broadly syndicated type of deal?

Yes, Daniel. So I would characterize it as we just want to be ready and I said in my remarks, opportunistically look to refinance the debt and fully acknowledging the markets and where they're at. But our view is and it's been consistent post the recovery, where we're at now with the cash generation profile of the business, strengthening the balance sheet as an objective and this is key on that strategy. So we want to be ready, we're going to be ready and how and what form and all of that is TBD. But we feel like we're sort of moving into a position of strength to be able to tackle what's been an objective and a stated objective for a while. So more to come on that but nothing more to say at this time.

This concludes our Q&A session and also conclude today's conference call. Thank you, everyone, for participating and you may now disconnect.