Hello, and welcome to the J.Jill Inc. Q3 2024 Earnings Call. 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 11, 2024, 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 11, 2024. 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. [Operator Instructions] I will now turn the call over to Claire Spofford, President and Chief Executive Officer of J.Jill Inc. Claire, please go ahead.

Good afternoon. Thank you, everyone, for joining us. Before we discuss our quarterly results, I want to take a moment to address the announcement of my planned retirement next year. After four years leading this incredible company and after nearly three decades leading retail organizations, I have decided that the time is right for a new chapter. I am extremely proud of what our team has accomplished together, transforming J.Jill into a stronger, more agile retailer positioned for sustainable growth. The Board has begun a thorough search process to identify my successor, and I'm fully committed to ensuring a smooth and seamless transition. Looking back, I'm particularly proud of how we strengthened the foundation of this business. We implemented rigorous operational discipline and refocus the organization to prioritize full-price selling with a new mindset of earning our way back into growth. More recently, we've taken steps to modernize the brand, enhance our value proposition and strengthen our omnichannel capabilities, all while maintaining our unwavering focus on serving our customers. The operational discipline and strategic framework we've established will serve the company well as it enters its next chapter. This next stage of growth will be focused on capitalizing on the opportunities that are ahead, including new store growth and unlocking robust omnichannel capabilities. We are also engaging a consultant that brings fresh perspective to further enhance the business' growth plans. In addition, we are excited to announce in recognition of the strong foundation we've built and our confidence in the future, that the Board has authorized a new share repurchase program. This authorization reflects a strong step forward with our TSR strategy as well as the conviction in our business model, proven track record of cash generation and the significant growth opportunities that lie ahead. Now let me turn to…

Thank you, Claire. First off, I know I speak for the entire J.Jill team when I say it has been an honor to work alongside you these past four years. We strengthened the foundation of the business and instill a disciplined operating model, which continues to yield results even amidst a somewhat challenging consumer environment as reflected in our third quarter performance. As we discussed on the Q2 call, our expectations as we entered Q3 took into account the trends we were seeing in the business as well as easier year-over-year comparisons as we progress through the period. As Claire discussed, while we have not yet seen the strong return to full-price selling we saw earlier this year, we have maintained our operating discipline. During the quarter, we delivered a healthy gross margin of 71.4% and even after taking markdowns and additional targeted promotions where needed to end the quarter with inventories on a normalized basis, flat to last year. We also remain focused on the controllables, reducing expenses where possible, while protecting strategic investments in marketing and the OMS project delivering adjusted EBITDA for the quarter of $26.8 million or 17.7% of sales. Now I'll review third quarter financial performance in more detail. Total company comparable sales for third quarter decreased 0.8% compared to a positive 1.9% last year. The decline was driven by an approximate $800,000 negative comp impact from incremental storm activity on store and direct sales in the quarter as well as by softer full-price selling in the direct channel. Excluding the incremental impact of storms, total company comp sales were negative 0.3% for the quarter. Total company sales for the quarter were about $151 million, up 0.3% versus Q3 2023. This performance was the result of a $2 million benefit due to the calendar shift…

[Operator Instructions] Your first question comes from the line of Janine Stichter with BTIG. Your line is open.

Hi. Thanks for taking my question. And congrats on the solid quarter in a tough environment. I guess to start out, just maybe the cadence of the trends in the quarter. I know August got off to a slow start. Maybe elaborate more on what you've seen kind of notwithstanding the hurricane. And curious what you're seeing just in terms of consumer behavior? Are we still seeing consumers kind of shopping around those peak periods and then taking a break or a breather during the walls? Or are you seeing any change in how the consumer is responding? Thank you.

Thanks, Janine. So yes, August was a soft month for us. We had nice sequential improvement as we move deeper into the quarter. The latter half of the quarter was a little bit of an easier compare, but we were pleased to see traction as we got into the quarter. We put those sort of hurricane events behind us. And as I mentioned, we also saw some colder weather as well as some of our efforts to engage consumers gaining some nice traction. So it was a sequential improvement over the quarter on a year-over-year basis. We continue to see the consumer behavior being mixed. Mark, I think, mentioned in his script about the full-price consumer not coming back in a robust way as we saw earlier in the year. And so it is a little bit mixed and a little bit mixed by channel. The direct consumer continues to be a little bit more price sensitive than our retail consumer and traded into markdowns a little bit more in the quarter. But we supported the business and achieved our objectives through focused promotions, supporting the top line and also ensuring that we exited the quarter in the right inventory position.

Great. And then maybe just on the broader promotional environment. Have you seen any change there? And might that be part of what you're seeing as far as the consumer gravitating towards promotion?

Yes. I mean we're in a very, obviously, promotional quarter, Q4 in women's apparel retail. We did pull forward the beginning of our Black Friday promotion a little bit, but not as much as we saw some others doing. And we had a sort of an okay performance over that time period. But the fourth quarter just tends to be terribly promotional across the Board.

Thank you. And best of luck.

Thank you.

The next question is from Dylan Carden with William Blair. Your line is open.

Thanks a lot. Curious, you mentioned weather has been a little bit of a headwind, but not nearly as much as some others have been talking about this earnings season. Do you think that sort of a delay in cool weather hit you and any meaningful capacity? And I guess, if there's the sequential ramp maybe was that just some of the easier comparisons or…

Yes. Great question, Dylan. It definitely was part of what we saw as we were sort of moving into September from August. I mentioned we had a little bit of softness in some of our core programs in sweaters and outerwear beginning - at the beginning of the fall season really coming into September. Those did pick up as the weather got colder. I was going to say improve, but got colder. And then we also did kind of surgically promote them as we got later into the quarter to help support catching up on those categories. But we definitely think it was a little bit of a headwind in the early part of the 12th season.

Makes sense. And Mark, is it safe to assume that the comp guide for the fourth quarter is kind of what you're doing in the business now? Or is there an assumed ramp just given those comparisons get easier?

Thanks for the question, Dylan. Yes, the guide assumes kind of what we're seeing in the business and trending that forward. And always, we always try to encompass a range of potential outcomes and feel like, given where we're at in the quarter, that's a reasonable guide.

And then finally for me, the sort of the comments that you haven't seen the full price customer come back to the business like you saw in the beginning of the year, is that - have you lost that customer? Or is that customer just now only engaging at sort of lower price points, more promotional levels?

Yes. It's - I mean it's not a binary thing, Dylan, it's about a mix of sort of consumer behaviors. As I said, our direct customer tends to be a little bit more price sensitive. So we did see higher markdown penetration in that quarter in direct. But we still have a pretty robust full price and full price with limited promo customers, as you can see in the margin performance in the business. So it's not an all or nothing thing. It's just we had an incredibly strong May and June and full price penetration was super high. And then we saw some change in behavior as we moved into the summer. So we haven't seen that May, June profile come completely back.

Well, appreciate it. Thanks.

Thank you.

The next question comes from Corey Tarlowe with Jefferies. Your line is open.

Great. Thanks. Claire, I think in your comments, you had mentioned something about your customer file trends. Could you maybe unpack that for us a little bit more to just give us a little bit better understanding of how the consumer has been interacting with the brand generally and any trends that you've seen within your file specifically that you can call out?

Sure. So the overall customer file tracked fairly consistently with the top line of the business. It contracted slightly, but our best customer cohort outperformed that and continued to be very strong in the quarter. So I think it's - again, it's hard to speak generically about the customer when there are different segments that are behaving differently. So I think that's not surprising that you'd see the customers file contract a little bit if traffic is off and it was off in both channels in the quarter.

Got it. And then Mark, as you think about the store opening opportunity, is there any thought to what 2025 might look like in terms of openings? I know you've talked about a multiyear plan for a number of stores, but I'm curious, I would imagine that the plans for '25 are coming into view at this point.

Yes, Corey. We have a very robust pipeline of potential store voids that we're chasing down. So first of all, we're pleased we updated - we provided our guidance for this year of net four with basically nine store openings and expecting five closures in Q4. That represents a ramp-up in our store pipeline from certainly where we've been in the last four years and a ramp up from last year. So we would expect that to continue to ramp higher. We mentioned the 50 store opportunity over the five-year time frame. And we've mentioned 20% to 25% over a more medium-term or three-ish year time frame. So I would say net for this year, and we'll ramp into that 20% to 25% in the next couple of years.

Great. Thank you very much.

Thanks Corey.

The next question is from Jonna Kim with TD Cowen. Your line is open.

Hi. Thank you for taking my question. Just curious on your comment about direct consumers being more price sensitive. Has this been the trend prior and sort of what are potential strategies to change that dynamic going forward? And then just a second question on marketing spend. How are you thinking about marketing spend as we look to '25 and sort of any changes that you have as you continue to learn through your marketing initiatives. Thank you so much.

Great. Thanks for the question. The direct consumer, so historically, before we sort of instituted this much more full-price focused business model, the direct consumer was very much more than today sort of a markdown customer and someone who would largely by on promo, and we were a lot more promotional in those days. Today, we still see that customer be a little bit more price sensitive than our retail customer. I think logically, the retail customer is going to the store with the purpose of purchasing the direct customer might be enticed a little bit more with promos and off-price options. That said, again, I would point to the margin profile of the business and the overall margin profile of the business is still very, very healthy and very full price focused. We're speaking, honestly, on a relative basis in the quarter. And then with regard to marketing spend, we haven't talked about '25 in any detail. We'll certainly do that when we get on to the Q4 call in March. But we are investing behind marketing. We are investing to bring new customers into the brand to build awareness. We feel great about the potential for this brand in this business and introducing new customers to it. So we are investing, but we're also trying to maintain the right level of discipline given the uncertainty that we have continued to see in the macro environment and some of that sensitivity from the consumer.

Got it. Thank you very much.

[Operator Instructions] Your next question comes from Ryan Meyers with Lake Street Capital Markets. Your line is open.

Hi, guys. Thanks for taking my question. Just one for me. Wondering if you can talk a little bit about a potential tariff impact as that obviously seems to be the top of the list of concerns for people. Just maybe highlight the supply chain, any sort of impact or anything you should be aware of there?

Yes, Ryan, thanks for the question. I'll take that one. So obviously, there's a lot of real-time information flowing out there around potential tariffs. The good news for us is that China, which is one of those that have been talked about with respect to tariffs. For us, China is below 5% in terms of finished goods production. So that's not really an issue for us. We don't really do much importing from Canada or Mexico. So some of those items. But the general thinking around tariffs and that which we're hearing, again, there's still a lot of detailed information to be better understood about what will actually be implemented, the timing, the amounts, et cetera. But we're very much aware of them. We are tracking them the impacts at some of the levels that they're talking about with respect to sort of all country tariffs would be meaningful and obviously, would require some level of negotiations with vendors, some level of price reviews on our products and some level of absorption within the company. But it's still way too early to comment on given that it's not yet the new administration, and we need to see where this stuff all lands.

Got it. That makes sense. Thanks for taking my question.

Thanks.

Thanks Ryan.

The next question comes from Marni Shapiro with The Retail Tracker. Your line is open.

Hi, guys. Congratulations, Claire. It's so exciting. I hope you're off to do something fun.

Thanks, Marni.

I'm just curious, I know you said robust full price selling hasn't returned. But just within that context, I'm curious if the levels you saw in May, June, is that where you expect to get back to? Or was that higher than usual? And then just along those lines, did you see an improvement in full price selling even if it wasn't back to May and June?

Yes. Great question. Thank you. So we talk all the time about May and June being our holiday, but our holiday without having to promote as much. So it was an unusually strong May and June this year. And so the full price penetration was very, very healthy. We did see pressure over July and August that we talked about on our last call. And we did see, as we moved into the fall season, some strengthening of trend, right? And so I think the full price profile of the business in the quarter overall was relatively strong, just not as robust as we have seen, and we did see at the beginning of Q2.

Okay. That makes sense. And then could I just follow up on, I guess, the full price selling or just what she's looking to buy. Is she gravitating towards the fashion and the novelty because when you hit holiday, I felt like the store looked very different. I mean it was that's snowflake sweater right in the front that's sold out in 15 minutes. It looked very different, and the colors were very rich and beautiful. So I'm curious if she's still gravitating for the fashion and if so, does - are you thinking about kind of what that balance looks like on an ongoing basis?

Yes. Great question. Thank you. Actually, some of our strength in Q3, I mentioned the bottoms business. I mentioned our iconic marketing campaign. The iconic campaign was structured around our Ponte Pant that we've had a version of in the line for a very long time. It is super central and core to our assortment. We refreshed the way we styled it, the way we shot it, the way we presented it, and we created a spotlight on it, and it saw some really nice traction, which was part of the strength in bottoms, which tend to be more less fashion for us. The snowflake, so the fourth quarter tends to be a fairly traditional assortment and level of fashion for us. We know what our customer looks for, and she loves snowflakes. So that snowflake setter that you saw sell out quickly is reflective of that. And so I guess my point is that it's really a very kind of seasonal thing in terms of the mix of fashion and core programs, but we continue to be focused on creating the right balance in that and understanding the seasonality and the trends from our consumer to reflect that appropriately.

Great. Thank you, guys.

Thanks Marni.

This concludes our Q&A session, and we'll conclude today's conference call. Thank you for joining. You may now disconnect.