Q4 2023 JJill Inc Earnings Call
Participants
Claire Spofford; President, Chief Executive Officer, Director; JJill Inc
Mark Webb; EVP, Chief Financial & Operating Officer; JJill Inc
Ryan Meyers; Analyst; Lake Street Capital Markets
Jeff Lick; Analyst; B. Riley Securities
Dylan Carden; Analyst; William Blair
Oliver Chen; Analyst; TD Cowen
Marni Shapiro; Analyst; Retail Tracker
Dana Telsey; Analyst; Telsey Advisory Group
Presentation
Operator
Hello, and welcome to the J.Jill, Inc., Q4 2023 earnings call. (Operator Instructions) I will now turn the conference over to Claire Spofford, Chief Executive Officer and President. Please go ahead.
Claire Spofford
Thank you, operator, and hello, everyone. Thank you for joining us this morning. We are pleased with our strong end to 2023, capping off another year of great progress for J. Jill as a result of disciplined execution of our operating model.
For the fourth quarter, we delivered adjusted EBITDA above the prior year, supported by strong gross margin performance. As we discussed in our third quarter call, we started to see our customer become somewhat more discerning with their spend, and we have prepared for a slightly higher promotional holiday period, which did play out. However, through strong execution, solid customers such as our winter assortment and spray preview in the latter half of the quarter as well as tightly manage expenses, we deliver our Q4 results above our expectations.
Our performance throughout the year, including during the fourth quarter, is a customer to our team, effectively leveraging our loyal customer base and to their ongoing focus on consistently delivering against our objectives amidst a volatile consumer environment. For the year, we delivered sales of $605 million and an adjusted EBITDA margin of 18.6%, while generating $46 million in free cash flow in line with our recent annual trends.
During the year, we made great progress on strengthening our financial and operational foundation of planting the seeds for future growth. We successfully refinanced our debt, enhanced our omnichannel capabilities with the rollout of our POS system and refinements to our website, delivered our first net new store opening year in over three years, and continue to identify and test new concepts within our assortment with capsules, including Pure Gel Elements and Wherever Work.
We also effectively managed our customer acquisition strategies and costs to support our customer file. Our customer file remain healthy, and we saw nice growth from our best customer segment for the year, which partially offset the impact we had from our more cost conscious cohort given that dynamic macro environment she was navigating.
Average customer spend increased versus the prior year, supported by growth in frequency and full-price penetration, and we continued to benefit from our ongoing customer insight work. As a result, we've been able to not only strengthen our relationships with new and existing customers, but also identify areas of opportunities for enhanced focus and growth. A seamless are inclusive sizing offering and capital launches, including the Wherever Work collection.
Through offering quality fabrications and an assortment that celebrates the totality if we see is we are able to deliver the experience our customer expects from J. Jill. With this strong foundation in place, we believe we are well positioned to continue to deliver on our financial objectives while supporting our growth initiatives.
While we are maintaining a cautious view on the macro backdrop as we move into 2024, we plan to continue to execute and leverage our proven disciplined operating model of further supporting our plants drive mid and long term profitable growth.
In 2024, we plan to continue to invest in our omnichannel foundation, building off of the completion of the POS rollout. In 2023, we have launched our OMS project. Through the new POS and OMS system, we will have greater omni capabilities ramping in 2025, which we believe will further enhance our customer shopping experience and enable us to benefit even furthe r from our balanced operating model.
In addition, we expect to open up to five net new stores in 2024. As we've discussed previously, with only 244 stores, we have significant opportunity for further store growth plan to take a very measured and fiscally responsible approach to our opening in the near and medium term.
Finally, we plan continue to strengthen our customer file for new marketing strategies, including an upcoming summer campaign that we believe will help to increase brand awareness and drive new customer acquisitions . As I've said before, we have a great loyal customer with tremendous opportunity to increase our brand awareness and to welcome new customers to J. Jill through the strength of our brand equity, our assortment, and overall customer experience.
Before I close, I also wanted to highlight our upcoming impact report that we will be publishing later this spring. We continue to build upon our history of empowering women, prioritizing responsible environmental stewardship, and contributing to the communities in which we operate, and we look forward to sharing this progress in our report.
We are very proud of the work we've done to date with the compassion fund, which has donated over $24 million in grants and in-kind donations over the last 20 years and continues to focus on empowering and supporting underserved women and helping them establish a better life for themselves, their children, and their families.
In summary, fiscal 2023 marked another year of great progress for J. Jill as we continued to strengthen our foundation and position the brand for long-term profitable growth. As we enter 2024, we plan to build on this progress by executing and leveraging our model while investing in enhanced omni capabilities, store growth and marketing to drive further brand awareness and customer acquisition.
I wanted to thank our teams and stakeholders for their support and dedication to J. Jill. We believe we are just scratching the surface of the brand opportunity that lies ahead for our brand, and we look forward to driving even more value and delivering on our objectives in both the near and long term.
With that, I will now turn the call over to Mark to discuss our results and outlook in more detail.
Mark Webb
Thank you, Claire, and good morning, everyone. As Claire discussed, we were pleased to have delivered a strong end of the year, resulting in Q4 and full-year adjusted EBITDA ahead of our expectations . Our disciplined approach to operating the business, highlighted by tight inventory management, supporting a strong gross margin profile and healthy free cash flow generation continued to deliver solid results.
Before I review our results in detail, as a reminder, fourth quarter and full year 2023 included a 14th and 53rd week, respectively, which represented approximately $8 million in sales and $2 million in adjusted EBITDA. All results reported today are inclusive of this 53rd week impact, with the exception of our comp sales metric, which is reported on a like for like 13 and 52-week calendar.
More detail on results for the quarter. Total company comparable sales for the fourth quarter decreased 3.6%, (technical difficulty) to our holiday promotions, the slow start to the quarter impacted both channels and adverse weather in January disproportionately impacted traffic in stores at the end of the quarter, contributing to the negative comp.
Total company sales for the quarter were $149 million, up 1% compared to Q4 2022. This performance was driven by full price mix, improved markdown AUR in January, and the 53rd week actualizing as expected. Store sales for Q4 were down 1.5% versus Q4 2022, as traffic was challenging, especially in January.
Direct sales as a percentage of total sales were 51% in the quarter compared to the fourth quarter of fiscal 2022, direct sales were up 4%, driven by the 53rd week. Return levels improved in the fourth quarter, returning to more normalized levels on a year-over-year basis.
Q4 total company gross profit was $101 million, up $6 million compared to Q4 2022. Q4 gross margin was 67.3%, up 290 basis points over Q4 2022, driven by a stronger mix of full-price sales, benefit and create, a better markdown gross margin, and first cost AUC benefit, partially offset by higher promotional environment in the quarter.
SG&A expenses for the quarter were $90 million compared to $87 million last year. The increase was driven primarily by variable expenses on sales in the 53rd week as well as incremental expense associated with the OMS project. Adjusted EBITDA was $18 million in the quarter compared to $15 million in Q4 2022.
For the full year, we delivered total net sales of $605 million, down 1.7% versus fiscal 2022. Adjusted EBITDA was $112.2 million compared to $109.4 million in fiscal full year 2022. Excluding the impact of the 53rd week, we were pleased to have delivered adjusted EBITDA above prior year for both Q4 and the whole year despite the challenging consumer environment that persisted throughout the year.
Please refer to today's press release for a reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure.
Turning to cash flow. For the quarter, we generated $7 million of cash from operations, resulting in ending cash of $62 million, with zero borrowings against the ABL. For fiscal 2023, we generated approximately $63 million of cash from operations and $46 million of free cash flow, defined as cash from operations less capital expenditures. As a reminder, we used cash on hand to reduce total outstanding debt by approximately $50 million in the first quarter of 2023.
As required and the term loan agreement and based on our fiscal 2023 performance, we anticipate making a mandatory excess cash flow payment in the second quarter of 2024 of $26.6 million, which is now included in short term debt on the year end balance sheet.
Looking at inventory, total inventories were up 5% at the end of the fourth quarter compared to the end of fourth quarter last year. As message on our Q3 2023 earnings call, the 53rd week this year impacted reported inventory levels due to one additional week of good shipping some vendors, which resulted in higher in-transit levels compared to prior year. Excluding this impact from the 53rd week, total inventories were about flat to last year.
Capital expenditures for the quarter were about $6 million. Total capital expenditures for full year were about $17 million compared to about $15 million last year. Full-year 2023 capital spend was below prior guidance, primarily due to the timing of smaller store refresh capital projects that moved into early 2024. Throughout the year, we made significant progress on our strategic technology roadmap, completing the first step, which was upgrading to a new modern POS platform in the store doors and kicking off the next step with the project to upgrade and replace our order management system.
With respect to store count, we closed one store in the fourth quarter. For full year 2023, we opened two new stores and closed one, resulting in end of your store count of 244 stores.
Turning to our outlook for fiscal 2024. As we have demonstrated over the past two years, with our disciplined operating model, we are able to deliver a healthy margin profile and strong cash flow generation while navigating a dynamic macro environment. While there are some improvement in economic indicators, the macro outlook for 2024 remains somewhat uncertain, and we are planning the business accordingly.
We expect to continue to build on the progress we made in 2023, maintaining a disciplined approach to inventory management while navigating ongoing inflationary pressures and beginning to invest both capital and SG&A to support profitable sales growth, including approximately $3 million in expenses related to our oil and gas price correct for the 52-week. Fiscal 2024 year, we expect total revenue to be flat to up in the low single digits and adjusted EBITDA to be down in the mid-single digits compared to the 53 week fiscal 2023. This guidance reflects the negative impact from the loss of the 53rd week of about $8 million in sales, a $2 million in adjusted EBITDA.
With respect to gross margin, we are currently experiencing some impact from the disruption in the Red Sea in the form of delayed deliveries, higher ocean container costs and select use of airfreight. We expect this impact to be concentrated in the second quarter, but expect lower cotton prices to help minimize any the impact to gross margin on a full-year basis. For full year 2024, we expect gross margin to be relatively flat to fiscal full year 2023.
Finally, we anticipate timing shifts associated with the 53rd week to impact recorded quarterly results. Specifically, we expect the calendar shift to benefit results in Q1 and Q3 and negatively impact results in Q2 and Q4 when compared to reported 2023 actuals. The first and third quarters are expected to benefit as smaller weeks at the beginning of each quarter are replaced by relatively larger weeks pulled into the end of the quarter. This impact will be largest in Q1.
Conversely, Q2 and Q4 are expected to be negatively impacted as larger weeks at beginning of quarter are a place with relatively smaller weeks at quarter end. In addition to this impact, the fourth quarter comparisons to prior year will also be negatively impacted by the loss of a 53rd week. For the first quarter of fiscal 2024, we expect sales to be up in the low to mid single digits and adjusted EBITDA to be in the range of $29 million to $33 million.
Regarding store count, we expect to grow net store count by up to five stores by the end of fiscal 2024. We expect openings will be weighted to the back half of the year, and we believe it is likely that we will close up to five stores in the first half of the year, leading to a decline in midyear store count. We continue to believe in the opportunity to grow our retail channel by about 20 to 25 net new stores over the near to medium term -- respect to capital expenditures, we expand $26 million in fiscal 2024, with investments focused on new stores, OMS project plus the projects that carried over from the end of fiscal year 2023.
Our expectations for fiscal 2024 are in line with the financial model that we deliver the past two years, and we believe will enable another year of strong free cash flow generation, which continues to create optionality as we aim to drive further shareholder value.
Thank you. I will now hand it back to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Ryan Meyers, Lake Street Capital Markets.
Ryan Meyers
Good morning, guys. Thank you for taking my questions. First one for me. Obviously, you've guided sales of flat to up a lot of the budgets, but EBITDA down mid-single digits. Just wondering if you can walk us through where that difference is? There feels like you're going to be investing a little bit more of an SG&A. So I think that makes sense. But is there anything else to call out there that kind of delta between the revenue and EBITDA guide?
Mark Webb
Right. I'll take that. Thanks for the question. With the calendar shifts and everything else, we tried to be a bit more. I hope helpful in the guidance we provided the sales guy of margins about flat do indicate that we are investing as we said in the remarks, in SG&A, in CapEx in support of both sort of rolling forward inflationary impacts that began at this year to some extent, rolling into next and then up more proactively investing in strategic initiatives, particularly marketing to support to support our profitable sales growth as we go forward.
And we have the LMS project, which we are not yet in the middle of and this is going to be a year out of another significant step on our technology road map with the LMS project that does carry with it project related expense and we call it out, but that's up $3 million worth of of SG&A as well.
Ryan Meyers
Got it. That's helpful. And then you guys have commented that it sounded like traffic in January was a little soft. And can you maybe talk a little bit above what you've seen as far as traffic levels go as it progressed here through Q1 churn?
Claire Spofford
Thanks, Ryan. I'll take that. We did see traffic impacted, particularly in the retail channel in January, and we continue to see some bumpiness coming into February. But we are hopeful that things sort of come down as we go further into the quarter and head into kind of the heart of our season in March and April.
Operator
Jeff Lick, B. Riley Financial.
Jeff Lick
Good morning, guys. Congrats on a great Q4. So just elaborating on the POS, OMS. as we enter 2024, I was curious if you could just maybe talk about what capabilities in how it manifests itself into the financial results from do you have going into this tier that you didn't have last year? And then one on the debt Mark, I was just curious, could you pay off more than the [26] as we go through the year and if you don't really typically guide interest expense, 2023?
Mark Webb
Jeff, I'll take both of those. I'll start with the second one. We outlined earlier this year. Our sort of priorities for them for for cash and debt. So we have this mandatory excess cash flow payments in the agreement with the term loan. We then continue to have amortization to pay down the debt. And as we've said previously, the cash flow generation, the company still provides additional cash to consider along those priority list.
So nothing to announce at this point. But the answer is there could be and there are other our options as well that we continue to evaluate as a management team for deploying cash and driving shareholder value. The first question around POS and OMS. These really are strategic foundational systems to really shore up the operational capabilities of the company first, and they do provide the platform to take advantage of current and future because the technology becomes more less stucked in the past and you can adjust it and take new technologies with it in the future.
But the benefits that we look at, first of all, a POS as the first step, it's really about from a better customer experience within the store, less friction in some of the existing omni capabilities that we have with respect to the top centers, which is the ability for a customer to order from the website from within the store, the facilitation of a transaction that includes an online return in the store, so a lot less friction within the store. We would look at the benefits of back in the form of up conversion first and transactions, which would be a support of unit growth within the stores.
And then OMS is a complementary system. It's really about the order management, order orchestration system for the e-commerce platform. But then really enterprise-wide omni capabilities that then creates the opportunity for additional inventory optimization, additional sales fulfillment opportunities that really would come once that system is in and hardened within the system within the within the business within the processes.
That's likely in 2025 launch. And also in 2020 for our guidance, we provided as both the expense associated with the projects and we've implied some of the benefits coming from the POS system.
Jeff Lick
Just maybe a clarification question, and this might have might fall into that bucket of with your details. You were elaborating for the calendar shifts. But given the low single digit sales guidance for Q1, that is the implication that things actually might have picked up a little bit in the first quarter because it is a little bit of an acceleration from Q4. I was just curious if you could elaborate on that. Are there --
Mark Webb
What I would say, Jeff, in addition to what Claire just mentioned, the first thing is we have a big second quarter and a large Mother's Day business, which we talked about previously. So the calendar shift for us pulling in essentially what would have been May week, one week into this quarter, and losing February week one week, which is typically end-of-season clearance and small versus mothers lead up to Mother's Day. A big at the end of the quarter, does have an impact for us, which is why we are as explicit as we were.
And then I would say in addition to what player said she mentioned, it was still a bit bumpy coming in to February, a little bit of an improving trend at the end of February, but a lot of big weeks are in front of us. And so the bulk of the quarters in front of us.
Operator
Dylan Carden, William Blair.
Dylan Carden
Thanks a lot of just curious if this might be a tough question, but in broad strokes, kind of backing out the extra week on the retail channel, excluding weather perform more in line with the direct and I'll kind of down low single on top of that.
Mark Webb
So generally speaking, what I would say is it's in that sort of results that you'll see the direct business continues to improve. And in fact, when we think about Q4 and the performance against our guidance that we have found earlier in the in the month of January, that the traffic in the stores was, we mentioned it, surprised when the weather was widespread across the US and the impact of that channel. The benefit, we were pleased to see a direct offset.
And then just the benefits of the operating model carrying less inventory overall, less markdown inventory skews the sales into full price. So even in a quarter where we've mentioned it was on a more promotional quarter, we expected it to be back into Q3 report. And it was. That still have a better trade off at full price when it comes down.
And then the markdown margin benefits, AUR benefits with so many fewer markdowns unit. So that both benefits -- those both benefit gross margin and that was the lion's share of our being in Q4, but driven on that back of a fairly strong for abrupt.
Dylan Carden
And I kind of dovetails into my next question, which is then -- and apologies if I missed this. But for the guide this year to kind of get to the margin, would you expect to build it sounds like it's mostly positive SG&A investments in the new systems and what have you. So gross margins relatively flat, maybe some modest improvement is -- how should we think that?
Mark Webb
We guided to relatively flat given the macro, I'm not sure to get out there. You've got a little bit afraid noise popping back up, and then we have some benefits that we've talked about for a while. But with raw materials particularly tighten that we've said does should be neutral across the year. And then it's really behind the guide is on the revenue side is units supported by some of these initiatives that we talked about, PLS that conversion in the stores, a continuous enhancements in direct, et cetera.
Dylan Carden
Got it. And on the new stores, just want to be clear about that. So it's five net new stores for the year, but five closures in the front half. So 10 openings in the back half?
Claire Spofford
Yes, up to five net openings in '24.
Dylan Carden
Okay. And where are where the new stores, how should we think about kind of a ramp in productivity versus the fleet? I know it's going to be a drop in the bucket just from a scale standpoint, but anything to comment on there?
Mark Webb
Yes, I would say in the full year and the guy in the stores are are at the back end of the year, right? So there's very little at home in our guidance, aside from from the store base aside from you, how we're planning on a closure activity against the opening of it.
A lot of the stores, and we've mentioned this before, but on the 20 to 25 list, a lot of those market opportunities, stores to reopen and are unlikely to be in reopen markets. And the good thing about our store fleet is we open and head of around pretty quickly, once we're opening at within the first year and have a pretty stable performance across new stores that are forward, unlike some others who are open to low awareness and ramp up over several years, we tend to again reentry markets, have a customer.
We opened back up. We've done it now with better a more fair, I would call them economics in sites that are right for our brand. And that tends to be that first year. There is a is a pretty good indicator of the stores revenue.
Dylan Carden
Got it. And how are you feeling about your customer here? I know come into holiday, there was some incremental softness there on your clinical or higher income consumer folder on how she feeling. How are you telling us kind of come into this year that's coming into this year?
Claire Spofford
Again, we only field this customer tracker on primary research. We are pleased to see the outlook showing some signs of a positive shift. Coming into their into one. We also saw a high level satisfaction that our early spring assortment right at the core of who we are as a brand coming into spring, letting our fabric, our colors.
And so some positive energy there. And I think we talked about in the script that the file remains healthy, particularly with our best customer segments, put some pressure cost, somewhat to the macro environment at that lower spend cohort. But you know, all in all, I think a good balance and some nice positive energy in your mind coming in, but it's relative to where some then you have still a lot of uncertainty out there and the macroenvironment per share.
Operator
Oliver Chen, Cowen.
Oliver Chen
Thank you for taking our question and the concern on the on. You mentioned higher full-price selling from to carry a higher malls in the consumer where they live. And where are my concept that I mean you saw in our selling and marketing, like your strategy around marketing this year and in your thoughts around driving higher ROI? Thank you.
Claire Spofford
Sure. Thanks for the question. Thanks for being with us. I think from a full-price selling standpoint, our inventory strategy has been supportive of keeping the focus on full price selling, telling our brand storytelling, telling our product assortment story without competing with ourselves from a markdown standpoint. And that has yielded nice full-price penetration, which we saw play out in fiscal year '23.
And again, our customer we've said this repeatedly, but if we offer her the product that she's looking for unique and special, she is willing to pay full price for it. And so you know, that focus on what makes them special and different. And I'm highlighting our key products has helped support that.
As we go into '24, we are making an investment in marketing behind them, a brand campaign, which you'll see that rolling out in the next few months, which we're very excited about. We think that there's a real opportunity to drive brand awareness. We know we have relatively low awareness compared to some of our competitors and some of that comes from having a smaller store fleet. But we're putting some investment behind that brand awareness and are excited about telling that story. And so we'll have more to say about that next call.
Operator
Marni Shapiro, Retail Tracker.
Marni Shapiro
Hey, guys, congratulations. The stores look great. And I love this new set that just went in. It's beautiful. Can you talk a little bit? I think you said you grew your customer file very nicely. Could you talk a little bit about what actions you're doing on top of funnel and with all your technology up-to-date, could you talk a little bit of forward thinking about loyalty programs and things like that?
Claire Spofford
Thanks, Marni, and they may bring we think the assortment looks great right now. Great color that she's responding to. From a top of funnel standpoint, the brand campaign that I just talked about is definitely aimed at broadening awareness. We are introducing new customers to the brand and that, as I said, it's going to be forthcoming in the next few months.
In addition, we're very focused on new-to-brand acquisition. Performance marketing and other efforts. And those did yield some nice benefits through much of '23 focused on usage occasions like the workwear and that and are inclusive sizing initiative on both focused on introducing new customers to the brand and customers that are at the younger end of our targeted demographic and very valuable.
So lots of efforts in terms of feeding the health of that file and also in making sure that we're communicating effectively with and nurturing our relationship with our best customers in our core customers, which we did see nice growth from our best customer segment as I mentioned in 2023.
Marni Shapiro
Fantastic. And can I just ask you a quick question? Online, I've been buying the FIT assortment. It looks nice, it's highly edited. I'm curious, are you thinking about bringing that into stores a little bit more expanding? It is a nice to have or do you feel like it to need to happen this year? First steps into the if you could just expand on that?
Claire Spofford
Yeah. Thanks, Marni. It's a small part of the business and we have it in select stores and we have an online and it fits. We think it's an important part for life and usage occasion that she cares about. But on, you know, it's not a major initiative.
Operator
Dana Telsey, Telsey Group.
Dana Telsey
Hi, good morning, everyone, and congratulations on the nice results. How close do you think about the assortment going forward and meet the changes and enhancements that we should think? What are you looking for this year? You mentioned the marketing campaign that we should be mindful as we go through the year.
And then Mark, you talked about the Red Sea issue in impacting more of Q2. Is there any bleed to death or any other quarters that you foresee with the lower cotton costs? How has that been projected throughout the year in the space of also the full-price sales that you're generating, how you're thinking about pricing that goes this year as compared to last year?
Claire Spofford
Thank you. Sure. I'll take the first and then hand it over to Mark. I think markers were heading into what is our big season. And obviously, we love the Mother's Day timeframe and moving through spring into summer. You'll see our core franchises really hit hard. Our linen programs are programs. We also have some really exciting things happening with cotton gone and other very summer breezy fabrications that she really looks to us for.
So I think you'll see a lot of that again, as well as just wonderful color to that. She really response to at this time of year. So we had real strength in '23 with growth in dresses, woven tops and novelty tees on a strong about our business in the back half of the year. But we also had some operation opportunities. And we think that those opportunities and hopefully will be addressed in terms of, you know, better performance and things like bottoms and knit basics that we saw some challenges last year.
So overall, some opportunities that we see in front of us and then some some growth leading into where we have strength and momentum.
Mark Webb
And Dan out quickly hit the second part of your question. The great thing for us is that when the disruptions started happening back in the October timeframe, we created a task force inside the company that really came together and managed that uncertainty quite well. And we've kept that process going even as things starting to calm down a post COVID and through the last year.
So the team is led by an incredible as senior manager within the group and a great cross functional team to react very quickly and meets weekly. And so when the Red Sea issues started popping up, they were poised and ready to react. Doesn't mean it doesn't have an impact, which is why we called it out. But internally, we were more prepared than ever just given the effort that we put against it.
The delays that we're seeing have calmed down to some extent, the initial -- it's always an initial uncertainty that creates a longer delays. The delays have settled down. The teams are working on every opportunity to offset them. If we need to air freighting goods from the ports of origin to landed in the US, that's a team of merchants and merch planners who pour over those decisions and make them based on the relative importance of delayed style to floor set for the marketing or some combination.
And then the other options are to work with our great vendor base, which we've talked at length about the great relationships and see where we can move shipment dates early to compensate for any delays. And and then the last sort of element is if we do get delayed shipments here, we will make the decision whether to expedite the airplane to our West Coast stores as needed.
The Q2 timeframe and why we called it out is that is our important quarter with Mother's Day. And those assortments are more likely more in tune of the expedited air freight option than others . And we land those products in Q1, but we sell them through Q2, which is why we called out that that is the quarter that would feel the impact most. We are assuming that the issues sort of stabilizing don't worsen through the rest of the year. So that's the assumption that we've made.
And the cotton costs that's really say, starting to come in late last year, we mentioned it in some of our earnings calls, we expect that to help defray the costs and uncertainty from the Red Sea through that second quarter timeframe.
And really with respect to the guidance that we provided for the year, the assumptions are -- we'll always in the merchant teams and planning teams do always look at strategic opportunities for price opportunities, raising or decreasing based on market, our product, et cetera. That continues. But really for the most part, the guide that we provided implies that pricing is pretty simple and that units would be the driver of the sales range that we provided on the back of the initiatives that we're investing in the marketing efforts that we're taking and benefits that will accrue from the technology as we've implemented it.
Dana Telsey
Got it. Thank you. And one question on the store openings . Are you closing stores in malls and opening an open-air anything in terms of the local regional locations in terms of what you're doing in the store size at all, changing some cost open versus what had been done in the past given hadn't been administered, but over a long time to come out?
Claire Spofford
Yes, I'll take the first part and hand it over to Mark. We prefer lifestyle centers. That's what our customer prefers, but there obviously models that are very important. And the extent that we have exited location center, high potential will look at models as well as lifestyle centers. That certainly have a bias there. And as Mark said, the store openings will be weighted towards the back half of the year and store closures will be weighted toward the front half or so. And then on the customer and an affiliate.
Mark Webb
Generally speaking, Dana, the good news about our store model, it's a great aspect of it, stated differently, is that it's sort of a known, very are rightsized model and has been for some time. And so there aren't any major changes that we're deploying aside from new POS and what what opportunities that creates with respect to space requirements.
But generally speaking, we're right-size. We know the model and as we kick back off of the work, which we started in a little bit in 2022, and then we were a net store openings and by one store in 2023. We're refining that model again and nothing major to call out with respect to the cost side of it.
We are managing capital to vary. We think managing it well and generating significant level. And at the enterprise level, let you guys do the calculations, but that should show up in the results that we're producing.
Operator
This concludes the question and answer session. I'll turn the call to Claire Spofford for closing remarks.
Claire Spofford
Thank you, everyone, for your time and attention this morning. We look forward to chatting again on our Q1 call in a few months.
Operator
This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
