J.Jill, Inc. (NYSE:JILL) Q3 2022 Earnings Call Transcript
J.Jill, Inc. (NYSE:JILL) Q3 2022 Earnings Call Transcript December 6, 2022
Operator: 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. 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.
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Claire Spofford: 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 wide initiative to modernize the J. Jill brand and value proposition to be more relevant for our core customer and to welcome the next cohort of customers to the brand. And I'm pleased to report that the campaign successfully engaged with both existing and new customers. We checked in with our customer following the launch to ensure they were responding positively to the campaign and to learn how we could continue to improve their experience. They told us they recognize that representation is important in fashion, believe the same price for all sizes is a fair approach and that inclusive sizing either personally impact them or their friends and family. I want to thank the team for the expertly led rollout and continued execution of the initiative.
This is an ongoing strategic initiative and the team's disciplined approach to inventory management, ability to create a fully inclusive shopping experience and relentless focus on the customer enabled us to carry out a successful launch this quarter. In addition to the Welcome Everybody and inclusive sizing initiative, we continue to leverage our customer research and testing new and different opportunities within our assortment, where we see potential for growth over time. One such example is a recent test of a small capsule collection called Pure Jill Elements that we are piloting in seven stores and online. This collection features special artisanal pieces designed for the customer who is a fabric enthusiast and who values unique details that can command a higher price point.
Early reads from this pilot have already provided helpful insights into opportunities where we can potentially stretch our value proposition over time. The small capsule outfit did a great job of interesting prospects between 35 and 55 years old and was the subject of the top performing social and digital communication efforts to that audience. We will continue to use an ongoing test and learn approach as we continue to leverage data and insights to support our strategic growth initiatives. I look forward to sharing more on the learnings as we continue to focus on modernizing the J. Jill brand, explore opportunities within our sub brands and make progress against our other strategic initiatives. Before I close, I want to acknowledge all of our team for their continued dedication to J.
Jill and for delivering our customers the products and experience they love and expect from our brands. Our teams have continued to execute against our initiatives and our results year to date are a testament to their hard work as we continue to build a strong foundational platform for the long term profitable growth of the company. Now, looking to the remainder of the year. While we continue to take a conservative outlook based on today's macro headwind, we remain excited about continuing to delight our customers with beautiful styles, luxurious fabrications as she shops for the holiday and winter season. Now I'm going to turn it over to Mark who will go into detail about our financial performance.
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Mark Webb: 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 of adjusted EBITDA. Turning to cash flow, results continue to demonstrate the strong cash generation of the business. Cash flow from operations was $31 million in the third quarter and $67 million year to date. End of third quarter cash was just over $90 million. As will be noted in the 10-Q expected to be filed later today, we received an $8 million payment from the IRS late in the third quarter that was subsequently identified as an error. Following quarter end, that payment was repaid to the IRS. Separately in November, we received the expected remaining $9.2 million tax refund from the IRS associated with our fiscal 2020 tax filing.
As noted in our press release today, we continue to explore options to refinance our remaining outstanding term loan credit facilities and stand ready to execute when the market is supportive. We ended the quarter with inventory up 5.7% compared to the end of third quarter 2021. This increase is driven by the timing of holiday floorset receipts, which we shipped and received earlier than last year to ensure on time delivery of this important floorset. As we enter the fourth quarter, we are cautious on the consumer and stand ready to take promotional pricing action as necessary over the holiday period to ensure a clean end of year inventory position. Capital expenditures in the quarter were approximately $3 million and were primarily related to the POS project, as well as repairs and investments in the store environment.
Capital spend will continue to ramp in the fourth quarter as we progress with the POS project and new store investments. With regard to store count, we did not close or open any stores in the quarter ending with 247 stores. With respect to our future outlook for fiscal 2022, for the fourth quarter of fiscal 2022, we are projecting sales to be flat to down 3% versus Q4 2021, and adjusted EBITDA to be between $9 million and $11 million. Included in this outlook is an expectation that gross margins will be about flat to last year as any necessary pricing actions will be offset by the benefit from lower year over year freight costs. The resulting expectation for full year 2022 is, annual sales will grow between 4% and 5%; gross margins will be up about 100 basis points versus prior year; and adjusted EBITDA will be between $103 million and $105 million compared to $92 million last year.
Regarding store count, we will close net four stores in the fourth quarter of fiscal 2022, including the opening of one new store late in the fourth quarter, ending the year with 243 stores. And finally, we now expect capital expenditures of about $13 million for the year. Thank you. And I will now hand it back to the operator for questions.
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