J.Jill, Inc. (NYSE:JILL) Q3 2023 Earnings Call Transcript
J.Jill, Inc. (NYSE:JILL) Q3 2023 Earnings Call Transcript December 5, 2023
J.Jill, Inc. beats earnings expectations. Reported EPS is $0.78, expectations were $0.62.
Operator: Good morning. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the J.Jill Third Quarter 2023 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] 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 press release -- on this recording are as of December 5, 2023, 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 5, 2023. 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 will now turn the call over to Claire.
Claire Spofford: Thank you, operator, and hello, everyone. Thank you for joining us this morning. I will begin our discussion by reviewing highlights from our third quarter performance and will then provide an update on a few of our strategic initiatives before turning the call over to Mark to review our financial performance and outlook in more detail. We are pleased with our third quarter performance and our continued strong execution of our disciplined operating model, which enabled us to deliver sales and adjusted EBITDA above our expectations. We saw particular strength earlier in the quarter, supported by solid customer reception to our transitional product as we entered the fall season. Throughout the quarter, we continued to deliver collections that were versatile, modern, and that appealed to our loyal customer base.
This product flow drove nice growth in our core assortment in the third quarter, highlighted by particular strengths in sweaters, as well as woven. As a result, we saw full price performed well across both our retail and direct channels. We were pleased with the sequential top line improvement we delivered within direct, compared to the prior quarter. As we have discussed on prior call, we're leveraging aspects of our assortment to not only celebrate the totality of women everywhere and fuel their journey with joy and ease, but to build strength and momentum across our customer file. In Q3, we continued to see growth in new-to-brand customers across both channels with particular strengths in direct. Our size inclusivity initiative and wherever sub-brand are continuing to support our acquisition of new-to-brand customers, who are younger than our average customer, but consistent with our target demographic.
During the third quarter, we successfully anniversaried the launch of our size inclusivity initiative from last year and delivered growth across all extended sizes, despite the tougher comparison. We were also pleased with our Wherever Works capsule collection, which launched right after Labor Day and highlighted versatile pieces that customers could wear to work and that would carry them throughout their day. As we look ahead, we will continue to periodically launch capsules to lean into opportunities both from a top-line growth perspective, as well as providing an avenue for broadening our brand awareness and fueling the health of our customer file. Throughout the quarter, we successfully leveraged our digital and influencer strategies and are pleased with the efficiencies these tactics have driven, as well as giving exposure to new customer audiences.
These marketing efforts, along with the benefits from the enhancements we made to the online customer experience earlier this summer, help support the sequential improvement in our direct channel this quarter, compared to Q2. While we're seeing an impact again from elevated return rates as the customer has become more discerning with their spend, particularly in certain categories. We believe through the actions we have taken with our updated fit guide and shop the model features, we have been able partially to mitigate the impact by ensuring that our customer understands and can find the right fit for her. While we cannot control all external factors, we continue to operate with discipline in order to effectively manage all elements within our control, and we are investing in both channels in order to drive balanced growth.
As mentioned previously, we implemented a new POS system this year, which is already yielding a more efficient and positive customer experience in stores. We are also embarking on an OMS project that we expect will enable more productive omni-channel capabilities. We look forward to updating you on this important initiative in the future. In summary, we continue to operate with discipline, which has yielded better-than-expected results this quarter and supported our strong cash flow generation. We have a great brand with a wonderful loyal customer, and we are continuing to invest across our channels to enhance her experience wherever and whenever she chooses to shop with us. We've continued to say that our customer is resilient, but not impervious to macro uncertainty.
And as I mentioned, we did see her pull back for spend later in the third quarter, which continued into the start of the fourth quarter with some strengthening over the promotional Black Friday, Cyber Monday period. As a reminder, the fourth quarter is historically our smallest period from a sales and profitability perspective, positioning us differently from many of our retail peers. And while we are maintaining a prudent outlook for the remainder of the year, given the current trends and our recent customer survey work, we believe we remain well positioned to achieve our objectives for this year. I will now turn the call over to Mark to review our results and outlook in more detail. Mark?
Mark Webb: Thank you, Claire, and good morning everyone. Our results again show the strength of the J.Jill brand and the benefits of our disciplined, purposeful operating model, especially amidst a dynamic macro environment. Sales and adjusted EBITDA both actualized above guided levels as customers responded well to new floor sets, particularly early in the quarter. In addition, cash flow was once again strong in the quarter and disciplined inventory management resulted in clean end of quarter inventory levels. Total company comparable sales for the third quarter increased 1.9%, compared to last year's negative 1.2% comp. Total company sales for the quarter were $150 million flat, compared to Q3 2022. Store sales for Q3 were flat versus Q3 2022 on about 1% fewer stores.
Higher average unit retails in the channel were offset by lower units sold per transaction, driven primarily by fewer markdown units sold. Direct sales as a percentage of total sales were 45% in the quarter. Compared to the third quarter of fiscal 2022, direct sales were down 0.5%, representing a sequential improvement, compared to Q2. Q3 total company gross profit was $108 million, up $2.8 million, compared to Q3 2022. Q3 gross margin was 71.8%, up 190 basis points versus Q3 2022, as favorability and freight costs and underlying first cost AUCs, strong full price selling and lower promotions all contributed. SG&A expenses were $85.7 million, compared to $84.9 million last year as increases in selling costs and general overhead primarily due to wage inflation were partially offset by lower depreciation and amortization.
Adjusted EBITDA was $28.3 million in the quarter, up 3%, compared to $27.5 million in Q3 2022. Please refer to today's press release for a reconciliation of adjusted EBITDA. Turning to cash flow, third quarter marked another strong quarter generating $21 million of cash from operations and ending with $64 million in cash and zero borrowings against the ABL. Inventories at end of Q3 were down 6%, compared to the end of Q3 2022. As mentioned last quarter, we have now anniversary the supply chain disruption experienced in the first-half of 2022, and as a result, our year-over-year comparisons are more normalized. That said, as we look forward to the end of the year, we expect the 53rd week to impact reported inventory levels as we ship spring goods that week, resulting in higher in transit inventories at the end of the year.
As a result of this impact, we expect total reported inventory at the end of Q4 to be up, compared to last year. Capital expenditures in the quarter were about $4 million, compared to about $3 million last year. We neither closed or opened stores and ended the quarter with 245 stores. We are pleased to have completed the rollout of our new POS system during the third quarter. The new system will improve the efficiency of transactions in store, add mobile line busting capabilities, and is the first step in a broader plan to enhance enterprise omni customer fulfillment opportunities. The next step in that plan is kicking off now with a project to replace and upgrade our legacy order management system or OMS. We continue to train our staff on the capabilities of the new POS and are excited to begin work on OMS.
I want to take a moment and congratulate and thank the incredible team that executed the POS replacement. They worked hard with professional pride and dedication to make this project a success. So to the IS, corporate and store teams, thank you and congratulations. Turning now to our outlook. We continue to operate in a dynamic environment. As Claire mentioned, we saw softness at the end of the third quarter that carried into the start of the fourth quarter before strengthening somewhat on Black Friday, Cyber Monday, albeit at elevated levels of promotion. Given this, we believe that prudent to take a cautious approach with respect to our outlook for the remainder of the year. For fourth quarter, we expect sales to be approximately flat versus Q4 2022 and adjusted EBITDA to be in the range of $11 million to $13 million.
And for the full-year, we are maintaining our outlook for adjusted EBITDA to be down in the low-single-digits, compared to last year. As a reminder, fourth quarter and the full-year include an approximate $2 million adjusted EBITDA benefit from the 53rd week. Regarding store count, we still expect to close two stores in the fourth quarter to end 2023 store count flat to last year. And with respect to full-year capital, we expect to spend about $18 million with investments focused on technology, stores and facilities capital, and the POS and OMS projects. In summary, we continue to operate a very disciplined operating model and remain on track to deliver another strong year of cash flow generation, positioning us well to continue investing in the business and evaluating opportunities to drive profitable growth and total shareholder returns.
Thank you and I will now hand it back to the operator for questions.
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