Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the J. Jill Third 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [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 December 6, 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 December 6, 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 third quarter performance and provide an update on our strategy, before turning the call over to Mark to review our financial performance and outlook in more detail. Our disciplined approach to executing our strategy helps support our better than expected third quarter performance as we navigated a volatile consumer backdrop and absorbed planned strategic investments. We delivered adjusted EBITDA of $27.5 million, up modestly from a very strong Q3 last year on expanded margins of 69.9% and sales down 1% versus the prior year. While we did begin to see some hesitancy from customers as inflation and macroeconomic concerns increased, she continued to find pieces she liked and remained willing to pay full price for unique and special items, which we flowed regularly throughout the quarter. She continued to respond very well to our unique pieces and especially our assortment of dresses, leading to a third consecutive quarter where dresses were a standout category. Our Wearever sub brand benefited from her gravitating toward restocking her wardrobe with versatile and beautiful pieces for work, travel and occasion. Also of interest, we continue to see real strength in our best customer segment with both shopping rate and spend per customer up, driven by increased average order value. With that said, we continue to stay close to her to keep a pulse on how the inflationary environment is impacting her purchase intent on an ongoing basis. And to ensure we continue to deliver the products and experiences she wants and expects. Now I'd like to provide an update on the Welcome Everybody and inclusive sizing initiative, which we launched on August 4. Welcome Everybody and inclusive sizing marked a significant enterprise…

Thank you, Claire, and good morning, everyone. The third quarter again demonstrated the merits of our disciplined approach to managing the business with a profit focused business model. The third quarter represented a difficult comparison to last year, as we lapped the significantly lower full price promotional performance in Q3 last year. Despite this difficult comparison, we maintained a low level of promotional activity and were pleased to deliver gross margins and adjusted EBITDA above prior year. Now for an overview of our financial results. Total company sales for the quarter were $150 million, down 1% versus Q3 2021. Total company comp sales were down 1.2%. Store sales for Q3 were down about 2.2% versus Q3 2021 on 5% fewer stores as higher average unit retails partially offset lower traffic from fewer stores. Direct sales as a percentage of total sales were 46% in the quarter, direct sales were up 0.4% compared to third quarter last year. Looking at the rest of the P&L, reflecting our continued focus on driving profitability, gross profit was $105 million, up $500,000 compared to Q3 2021. Q3 gross margin was 69.9%, up 100 basis points over Q3 2021, driven by moderating freight costs. We also benefited from the impact of strategic price increases, which offset product cost inflation. SG&A expenses were $85 million compared to $86 million last year as increases in selling costs from store operating hours and shipping and strategic investments in marketing were offset by savings in occupancy costs and management incentive. SG&A was essentially flat as a percentage of sales compared to the prior year. Adjusted EBITDA was $27.5 million or 18.3% of sales for the third quarter of 2022, compared to $27 million or 17.8% of sales in Q3 2021. Please refer to today's press release for a reconciliation…

[Operator Instructions] Your first question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.

Good morning, everyone, and congratulations on the nice progress. Can you expand just on the top line what you saw as you went through the quarter, given that you had mentioned the slowing down in the second half of the second quarter, anything that you saw during Black Friday? And when you think about your buckets of product categories, Claire, anything to note in terms of acceptance, given the Welcome Everybody campaign? And then Mark, the moderating freight expenses, what magnitude of moderating freight are you thinking about as we move through 2023? And I think the CapEx reduction, is that delays in any stores or anything to note of [indiscernible] $2 million a little bit lower than it had been, what we should be looking for? Thank you.

Sure. Thanks, Dana. We did see sort of an up and down cadence over the quarter. And we did see some resistance in terms of certain basic categories. As you know, we stay close to the customer and we have a tracker that we put in the field to really get an understanding of how she's feeling, her consumer confidence, her purchase intent and how she's feeling kind of about the macro environment as well as how she's feeling about our brand and our products. And we did see an increase in sort of her hesitancy and her awareness and some caution around the macroeconomic environment. That said, we continued to see very little price resistance for products that were truly unique and special. I mentioned in my remarks about the strength of dresses. We had a small capsule collection called Pure Jill Elements, which is actually slightly higher price points, products with a lot of make in them, beautiful fabrics, artisanal details. We had a nice response to that and very little price resistance. So it really was a combination. And as I said, some ups and downs over the quarter. With regard to Black Friday, obviously, this quarter we are sticking to our strategies and our intent. And while we are certainly paying a lot of attention to what's happening in the macro environment and the competitive environment from a promotional cadence and level standpoint, we are -- we continue to try to minimize our promotions in full recognition of the fact that Q4 is just a little bit of a different animal, but we anniversaried the same promo level over that weekend as we did last year. And that's -- the product piece is really what I said, the special piece is the unique pieces and newness standout categories like dresses, Wearever was strong in the quarter as well. Those are really the big callouts.

Great. And Dana, I'll take maybe the second question first related to CapEx. Yes, you're right. It's a couple of delays in store -- new store openings that did move into the first quarter of next year, so pushed out. And then I would just call it a couple of other delays. The supply chain for our particular part of the industry is much improved, and I'll talk about freight in a second. But with respect to procuring some technology assets, etcetera, there is -- a slight delay is still there. So nothing other than mostly shifting expense or capital related to projects that are underway. With respect to freight, we mentioned that there was about 100 bps of benefit in the Q3 margin related to freight costs moderating. And that really is two factors right now. Remember, last year when things started to get complicated in the freight world, in the supply chain world we made the decision to air goods in and we're no longer really airing at elevated levels. And then, we also were seeing ocean rates increase fairly dramatically late last year, which carried over into this year. We are seeing those ocean rates moderate, but we're not back to pre-levels yet. I think there's still room to go as we roll forward with ocean rates continuing to come down and we will continue to use airfreight as we sort of normally like to use it, which is more strategically for getting goods in a little bit of chase, etcetera, versus just securing goods on time. The on time deliveries, the reliability of the shipping lanes has improved dramatically. The rates are coming down. That should now turn to a tailwind. And we indicated it would in Q4 and then a little bit into the first half of next year as well.

Thank you.

[Operator Instructions] Your next question comes from the line of Daniel Lupo from Jefferies. Your line is open.

Hey, thanks for taking the questions and nice quarter. Just kind of diving in further to the store comps, can you break out how we should think about price versus traffic mix?

So Daniel, with respect to what's driving the revenue pricing. We've taken strategic price increases. We've spoken a little bit about it the last several quarters. Those strategic price increases are sort of in the system now. We also are still experiencing raw material first cost inflation in our goods. And we indicated on the third quarter that those strategic price increases essentially offset the inflationary pressures in our first cost. Our primary driver of inflation is cotton and we're a heavy user of premium cotton or pima cotton and that is a crop that we're watching and hopeful will start to come back down from its peak levels in the coming quarters. The other factor we've had year to date, it's worth noting that our business model really has been to become much more focused on the full price promotional line and that has been contributing on a year over year basis AUR or positive increases in AUR above and beyond the ticket price increases. And Q3, we mentioned on the call that it was the most difficult comparison and that's because last year was really the first quarter Q3 that we obtained a really low healthy level of full price promos where we want to be. So that year over year gain kind of went away, but now we're a ticket, full price mix, etcetera, as we continue to move forward that will continue to drive the AUR.

Got it. That's helpful. And then just looking at the cash balance quarter over quarter, can you maybe talk about some of the puts and takes outside of the margin benefits as you saw year over year? Were there any kind of abnormalities in working capital? And maybe how you think about uses for cash? And maybe do you think that there's -- potential you could use that for further delevering to help effectuate the refinancing?

I think on the second front, we would say, yes, as one of the potential uses for cash is addressing the balance sheet, as well as fueling growth initiatives, etcetera. With respect to the quarter, I would say it's primarily gross margin driven. We did call out and it's a little bit complicated, but we did call out that there was right at the end of the quarter we've been awaiting a tax refund from our 2020 filings and we did receive a significant portion of what we expected late in the quarter. We subsequently identified that that was an error, which we then repaid and then received immediately -- almost simultaneously received the actual refund, which is slightly more, it's about $1 million more than we had sitting in cash at the end of the quarter. In those the balance sheet that you see that you'll have the cash that reflected that payment again, then you'd have a receivable that was for the entire amount, the $9.2 million amount. And then you'd have a payable that reflected the payable obligation to repay that $8 million up in cash. So it's more noisy than it needs to be, at the end of the day net $1 million better, but just timing cusp through the quarter, which is why we called it out in my script.

Got it. That's helpful. And then last question for me here. Looking at the fourth quarter guidance on the top line flat to down 3%, you said gross margin is expected to be flat year over year. Still looks like there's pretty significant kind of EBITDA margin compression, given kind of the outperformance in third quarter, can you maybe talk about the puts and takes into the 4Q margin guide? And how you think about maybe some one time kind of investments in G&A that could be leading to that compression, if that makes sense? Thank you.

Sure. Yes, there's a couple of things going on in SG&A. We've been alluding to them along the way. Kind of ramp into the fourth quarter, we have holiday operating hours for stores, which does add pressure to SG&A in the fourth quarter relative to where we've been. We also have our strategic investments in marketing that we continue to make. And those really are in our view intended to address current business, but also to build the file and support future growth. So those continue. What we mentioned on the Q4 guide behind the margin and the sales is that, we are taking a cautious view of the consumer just given the macro uncertainty and noise, inflation, etcetera and indicated that the gross margin will be flat, even though tailwinds are expected from freight. And those tailwinds in the fourth quarter we've indicated will offset any additional promotional activity that arises as a result of the holiday promotional time period.

Got it. That's helpful. Thank you for your time today and taking all the questions.

You bet. Thank you.

And there are no further questions. This concludes today's conference call. Thank you for your participation. You may now disconnect.