Q3 2025 J.Jill Inc Earnings Call
and the impact of storms during the period.
Q3 total company gross profit was about $108 million, down about $600,000 compared to Q3 2023.
Q3 Gross Margin was 71.4%, down 60 basis points versus Q3 2023, driven by elevated levels of full price promotion, additional markdowns, and elevated ocean freight costs in the quarter.
As we have previously discussed, we are shipping goods early to offset delays related to the rerouting of shipping lanes away from the Red Sea.
And we took evasive measures to reroute some holiday goods to the West Coast in advance of the potential East Coast port strike this fall.
This resulted in goods associated with our late fall and holiday floor sets.
carrying elevated freight costs from the summer that will be realized as we sell these goods in Q4.
Importantly, while there is still uncertainty related to the East Coast port contract extension expiring in January 2025, overall ocean freight rates have stabilized more in line with prior year for spring goods that are shipping now in fourth quarter and will be sold during Q1 of fiscal 2025.
SG&A expenses for the quarter were about $89 million compared to approximately $86 million last year.
The increase was driven primarily by wage inflation, marketing, and $400,000 in incremental expense associated with the OMS project, all of which were partially offset by favorable management incentive.
Adjusted EBITDA was $26.8 million in the quarter compared to $28.6 million in Q3 2023. 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 about $19 million of cash from operations, resulting in ending cash of about $39 million with zero borrowings against the ABL.
Looking at inventory, as mentioned on prior quarter calls, we expect reported inventories to be up this year due to calendar ship timing and the strategy to ship goods approximately one week early to offset delays related to the rerouting of shipping lanes away from the Red Sea.
As a result, at the end of third quarter, total reported inventories were up about 9% compared to the end of third quarter last year. On a normalized basis, inventories were about flat to end the quarter.
Capital expenditures for the quarter were 5.5 million dollars compared to 3.7 million dollars last year. Investments were focused on stores and the OMS technology project, which continues to make good progress on the path to implementation in fiscal 2025.
With respect to store count, we ended the quarter with 247 stores.
We closed one store in Asheville, North Carolina, due to extensive hurricane damage, as I mentioned.
and we opened a total of four stores in the quarter consisting of one reopening in Linfield, Massachusetts of a store closed for relocation during the second quarter and the opening of three new stores in Virginia Beach, Atlanta, and Colorado Springs.
The Virginia Beach Store opened at the end of August as a re-entry into a new center in this single-store market exited four years ago. The Atlanta opening at end of October marked the seventh store in this vibrant market, the first in West Marietta, Georgia in West Cobb.
And also, at the end of October, we re-entered the same center in the single-store Colorado Springs market we exited three years ago following a redevelopment and re-merchandising of the Promenade Shops Lifestyle Center.
We are excited to continue expanding the fleet. New stores represent an opportunity to capture new customers, grow awareness, and deliver healthy financial results with payback periods just under three years and healthy cash-on-cash returns of over 30%.
We are actively working on our plans for next year and continue to see opportunity to open up to 50 net new stores in the next five years.
Turning now to our Outlook.
As we have mentioned, we have not yet seen the return of the strong, full-priced customer we saw earlier this year, though we continue to operate with discipline and manage our controllables.
As such, we are tightening our outlook slightly, with the assumption this trend continues throughout the remainder of the year.
For fourth quarter, we expect sales compared to the 14-week Q4 2023 to be down 4-6% compared to $150.3 million in the prior year.
We expect Q4 revenue to be negatively impacted by about $2 million related to the calendar shift and another $8 million associated with the extra week in Q4 last year.
We expect total comparable sales growth, which excludes the impact from the 53rd week, to increase 1-3% compared to the prior year period.
This expectation reflects the continuation of trends I just mentioned against the easier comparison to the prior year period, which saw comparable sales decline 3.6%.
We expect Q4 Adjusted EBITDA to be in the range of $12 and $14 million.
This guidance reflects expected gross margin pressure greater than that seen in Q3, largely driven by the elevated freight costs associated with our holiday product that I reviewed earlier.
Our continuing commitment to moving inventory in season through pricing and promotion actions as necessary, and the impact of the calendar shift, which pulls in a markdown week to this year versus a full price week included in the last year comparison.
For full year, we expect total revenue to be about flat to plus one percent, total company comparable sales to be up one to two percent, and for gross margin to be down modestly.
Given our performance year-to-date and our expectations for Q4, we have narrowed our guidance range for adjusted EBITDA to $105 to $107 million, reflecting a year-over-year decline of 5 to 7 percent.
of about $8 million in sales and $2 million in adjusted EBITDA, as well as approximately $2 million in incremental operating expenses related to the OMS project.
Excluding the impact of the 53rd week and operating expense investment in the OMS project, we expect fiscal 2024 revenue to be up in the range of one to two percent and adjusted EBITDA to be down two to four percent compared to the prior year.
Regarding store count, for fourth quarter, we expect to open five new stores and close up to five stores to deliver four net new stores for fiscal year 2024, excluding the temporary closure in Asheville.
And with respect to total capital expenditures, we still expect to spend about $22 million in reported CapEx during fiscal 2024.
In closing, as Claire mentioned, we remain confident in the operating model of the business and are focused on executing and operating with discipline.
Our expectations for this year will yield the fourth consecutive year of adjusted EBITDA margin in the high teens while generating significant free cash flow.
As we look beyond this year, we expect to continue to deliver on the operating model and are committed to our capital allocation priorities, including investing in the business, paying down debt, and driving total shareholder return strategies.
We have significantly strengthened the balance sheet this year, reducing debt levels to approximately $76 million of principal outstanding, and initiated our first ordinary dividend program, demonstrating our commitment to driving total shareholder returns.
Today, we are very pleased to have announced the next step in that strategy, the board's authorization of a $25 million dollar share of purchase program, the first one since going public in 2017.
The authorization is good for two years and is expected to be funded through existing cash and future free cash flow. The timing, manner, price, and amount of any repurchases will depend on many factors and we plan to be measured but opportunistic.
In addition, we are looking forward to bringing in additional resources, as Claire reviewed, to support our team in further advancing the growth plans of the business.
We continue to believe in the opportunities that lie ahead with new store growth and unlocking the new omni-channel capabilities that we have invested in these past two years. We also recognize the untapped potential we have in this great brand and look forward to advancing our growth plans and trajectory to position J. Jill for long-term success.
Speaker Change: Thank you. I will now hand it back to the operator for questions.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you.
Speaker Change: Your first question comes from the line of Janine Stichter with BTIG. Your line is open.
Janine Stichter: Hi, thanks for taking my question and congrats on the solid quarter in a tough environment.
Speaker Change: 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.
Speaker Change: 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 lulls, or are you seeing any change in how the consumer is responding? Thank you.
Speaker Change: Thanks, Janine. So, yes, August was a soft month for us. We had
Nice sequential improvement as we move deeper into the quarter.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We continue to see the consumer behavior be nixed. Mark, I think, mentioned in his script about the full-price consumer not coming back in as robust a way as we saw earlier in the year.
Speaker Change: 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.
Speaker Change: But we, you know, supported the business and achieved our objectives through focused promotion, supporting the top line, and also ensuring that we exited the quarter in the right inventory position.
Speaker Change: Great, and then maybe just 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?
Speaker Change: Yeah, I mean, we're in a very obviously promotional quarter, Q4 in women's apparel retail.
Spofford, Mark Webb
Speaker Change: performance over that time period, but you know the fourth quarter just tends to be terribly promotional across the board.
Thank you so much and best of luck.
Thank you.
Speaker Change: The next question is from Dylan Carden with William Blair. Your line is open.
Thanks a lot.
Speaker Change: You mentioned weather as being a little bit of a headwind, but not nearly as much as some others have been talking about this early season. Do you think that sort of a delay in cool weather hit you in any meaningful capacity? And I guess if there's the sequential ramp, maybe was that just some of the easier comparisons?
Speaker Change: programs in sweaters and outerwear beginning at the beginning of the fall season really coming into September those did pick up
Spofford, Mark Webb Spofford, Mark Webb
Speaker Change: I had wind in the early part of the fall season.
Speaker Change: 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.
Speaker Change: kind of what we're seeing in the business and trending that forward. It 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, a reasonable guide.
Speaker Change: And then finally for me, 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.
Speaker Change: Is that, have you lost that customer or is that customer just now only engaging at sort of lower price points, more promotional levels?
but we still have, you know, a pretty robust
Speaker Change: Full price and full price with limited promo customer 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
Speaker Change: an incredibly strong May and June, and full price penetration was super high. And then, you know, we saw some change in behavior as we moved into the summer. So we haven't seen that May-June profile come completely back.
I really appreciate it. Thanks.
Speaker Change: The next question comes from Corey Tarlow with Jeffreys. Your line is open.
Speaker Change: 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
Speaker Change: 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.
Speaker Change: Sure. So the overall customer file, you know, tracked fairly consistently with the top line of the business. You know, it contracted slightly, but our best customer cohort outperformed that and continued to be very strong in the quarter. So, you know, I think it's, it's...
Again, it's hard to speak.
Speaker Change: generically about the customer when there are different segments that are behaving differently. So, you know, I think.
Speaker Change: That's not surprising that you'd see the customer self-contract a little bit if traffic is off and it was off in both channels in the quarter.
Got it. Um, and then Mark...
As you think about the store opening opportunity...
Speaker Change: Is there any thought to what 2025 might look like in terms of openings? I know you've talked about a multi-year plan for a number of stores, but I'm curious. I would imagine that the plans for 2025 are coming into view at this point.
Yeah, Corey.
We have a very robust pipeline of potential.
store voids.
Speaker Change: that we're chasing down. So, first of all, we're pleased we updated, you know, we provided our guidance for this year of
Speaker Change: 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 the last four years and a ramp up from last year. So we would expect that to continue to ramp higher.
Speaker Change: We've mentioned the, you know, 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, you know, net four this year and we'll ramp into that 20 to 25 in the next couple of years.
Great, thank you very much.
Thanks, Corey.
Speaker Change: The next question is from Jonah Kim with TD Cowan. Your line is open.
Jonah Kim: Hi, thank you for taking my question. Just curious on your comment about direct consumers being more.
Spofford, Mark Webb
Jonah Kim: How are you thinking about marketing spend as we 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.
Speaker Change: The direct consumer, so historically before we sort of instituted this
Spofford, Mark Webb
Speaker Change: 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 deals.
Speaker Change: That said, you know, 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.
Spofford, Mark Webb
Speaker Change: We feel great about the potential for this brand and 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
Speaker Change: 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.
Transcription by ESO. Translation by —
Speaker Change: As a reminder to ask a question please press star 1 on your telephone keypad.
Speaker Change: Your next question comes from Ryan Myers with Lake Street Capital Markets. Your line is open.
Ryan Myers: Hi guys, thanks for taking my question, just one for me. I'm wondering if you can talk a little bit about a potential tariff impact, as that obviously seems to be on the top of the list of concerns for people. Just, you know, maybe highlight the supply chain, any sort of impact or anything you should be aware of there.
Speaker Change: Yeah 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
Speaker Change: 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
Speaker Change: 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
Spofford, Mark Webb
Speaker Change: 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...
Speaker Change: 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.
Speaker Change: The next question comes from Marnie Shapiro with the Retail Tracker. Your line is open.
Speaker Change: Hey guys, congratulations Claire. That's so exciting. I hope you're off to do something fun.
Speaker Change: 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...
Speaker Change: Is that where you expect to get back to or was that higher than usual and then just along those lines?
Speaker Change: Did you see an improvement in full price selling even if it wasn't back to May and June?
Speaker Change: Yep, great question. Thank you. So, you know, we talk all the time about May and June being our holiday, but our holiday without having to promote as much. So it was.
Speaker Change: It was an unusually strong May and June this year, and so the full price penetration was very, very healthy. You know, 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,
Spofford, Mark Webb
Profile of the Business
Speaker Change: 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...
Speaker Change: Follow-up on I guess the full price selling or just hurt 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 snowflake sweater right in the front that sold out in 15 minutes
Speaker Change: It looked very different, and the colors were very rich and beautiful, so I'm curious if she's still gravitating towards the fashion, and if so, are you thinking about, you know, kind of what that balance looks like on an ongoing basis?
Speaker Change: Yeah, great question, thank you. You know, actually some of our strengths in Q3, I mentioned the bottoms business, I mentioned our Iconics.
Speaker Change: marketing campaign. The ICONX campaign was structured around our Ponte Pant that we've had a version of in the line for a very long time and it's super
Spofford, Mark Webb
you know, less fashion for us.
Speaker Change: the snowflake. So the fourth quarter tends to be a fairly traditional assortment and level of fashion for us.
Speaker Change: We know what our customer looks for, and she loves snowflakes. So that snowflake sweater that you saw that fell 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.
Speaker Change: 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, Barney.
Speaker Change: This concludes our Q&A session and we'll conclude today's conference call. Thank you for joining. You may now disconnect.