Good morning. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to the J. Jill Third Quarter 2017 Conference Call. On today’s call are Paula Bennett, President and CEO of J. Jill Incorporated; and Dave Biese, Chief Financial 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. [Operator Instructions] Before we begin, I need to remind you that certain comments made during this call 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 SECs filing. These forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward-looking statements. Finally, we may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation schedule following the GAAP various non-GAAP financial measures is available in our press release issued today. If you do not have a copy of today’s press release, you may obtain one by visiting the Investor Relations page of our website at jjill.com. I will now turn the call over to Paula.

Thank you, and thank you, everyone, for joining us. I will begin today’s call with an overview of our third quarter results and we’ll provide insight into the shortfalls in the quarter and the steps we are taking to regain momentum and deliver consistent performance going forward. I will also provide a look into our current business trends before turning the call over to Dave, who will walk you through our third quarter financial results in more detail and also provide our fourth quarter and annual outlook. For the quarter, total comparable sales declined by 0.6% and adjusted earnings per share was $0.13. While we finished stronger than the revised guidance we provided in early October, we are disappointed with the sharp deceleration we experienced versus the consistency we have driven in prior quarters and years. There were a few factors that when combined impacted our results, but the bottom line is we did not deliver the way we have in the past. We take this very seriously and have taken action to help minimize any volatility going forward. In addition, we have seen improved positive trends in October and into the fourth quarter, which I will share more on later. With that said, let me review the quarter. As noted in our release in early October, we had product and marketing issues that were all connected. First, there were product and merchandising issues, primarily related to our new September floorset. Second, we saw deceleration of our e-commerce sale business that was driven by a separate merchandising issue. And third, both were exacerbated by a shift in our marketing calendar around the Labor Day weekend. Given these issues, both our retail and direct channels experienced significant softness in September, reflected in a shortfall in conversion. As a reminder, when we…

Thank you, Paula, and good morning. I’ll begin with a review of our third quarter and then discuss our outlook for the fourth quarter and for the full-year of 2017. Turning first to our income statement. Our total net sales for the third quarter were $162 million, an increase of 1.6% versus last year. Total company comparable sales declined 0.6%, driven primarily by the challenging September performance that Paula noted. We finished the quarter with positive trends in October, driven largely by our retail stores. Gross profit was $108.5 million versus $108.1 million last year, and gross margin was 67% compared to last year’s 67.8%. The rate reduction reflects the actions taken to move through slow selling product in the quarter. Our SG&A expenses were $95.2 million versus $92.6 million last year. Included in this year’s expense was $700,000 of non-recurring cost, primarily associated with our transition to operating as a public company after our IPO in the first quarter. In the third quarter of 2016, we had $2.3 million of non-recurring costs related to the IPO. Excluding the non-recurring expenses from both this year’s and last year’s figures, SG&A as a percentage of total net sales was 58.4% versus 56.7% for the third quarter of 2016 Our GAAP operating income was $13.3 million, or 8.2% of sales. Excluding the non-recurring expenses from both periods, operating income was $13.9 million, or 8.6% of sales versus $17.7 million, or a 11.1% of sales last year. Adjusted EBITDA for the quarter was $23 million, as compared to $26.6 million last year. As a percentage of sales, adjusted EBITDA was 14.2% versus 16.7% last year. A reconciliation of adjusted EBITDA to net income is included in our press release. Interest expense for the quarter decreased to $4.5 million from last year’s $4.8 million,…

[Operator Instructions] Your first question comes from the line of Paul Trussell from Deutsche Bank. Your line is open.

Hi, this is Gaby Carbone on for Paul. Thanks for taking our question. Just I was wondering if you can dig in a little bit further around the trends you’re seeing in the stores channel versus the direct, especially in the month of October? And could you talk about the actions you’re taking to get these channels working back in line with each other? Thank you.

Well, I’ll talk first to the trends. Some of the information we’ve shared is that, when we moved from September to October, we saw the conversion in both channels improved in the month of October. Retail, which really delivered the performance outside our guidance was really driven by the traffic that we saw in that month that continued to have some strong conversion as well, but traffic was positive for us in October. As we move into the fourth quarter, too, both channels are seeing relative strength versus the third quarter in both traffic and conversion, but again, retail is being driven largely by improvements in traffic. And as far as, getting them both back in line, if you will, as we thought about the fourth quarter, we looked at both of them kind of contributing equal in terms of our guidance. And particularly with around direct, there is any number of initiatives that we’re employing in that channel to better analyze and really refocus the merchandising strategies there. We talked about the sale business in that channel contributing to a shortfall in the third quarter. So in terms of merchandising, both the regular business and the sales business, we are – we have a lot of effort in that regard. And I would also tell you that, we are spending even more time analyzing both the marketing investments in that channel, as well as the promotional cadence to really understand holiday as we can return that channel to growing in the way that we have seen it in the past, but that work is ongoing.

Great. Thanks. And then just a quick follow-up, the guidance for the fourth quarter. Could we – for the gross margin line. Could we expect that to be down similar to what we just saw in the third quarter, or should we see kind of a slight improvement there? Thank you.

I would say that, we would expect it to be similar to the third quarter. So moderate historically from me is meant that, it could be around a point, give or take 20 basis points. And we would expect that the fourth quarter would look something like the third quarter, but again, kind of in that range of 80 to 120 basis points decline.

All right, great. Thanks. Best of luck.

Your next question comes from the line of Oliver Chen from Cowen and Company. Your line is open.

Hi, good morning. Our question was about the comments from breadth and depth. And could you just articulate what needs to happen there? And what’s going to happen going forward in regards to thinking about balancing the assortment that way? And the second sub-point is about the product flow, and what are your thoughts on product flow in relation to what you experienced? Our modeling question had to do with the long-term view on operating margin, if there is a framework for thinking about operating margin over a multi-year period, that would be helpful as well? Thank you.

Well, I’ll start with the breadth and depth question. We are – we found that, we, as you know, had identified. We have made an investment in novelty woven tops that didn’t resonate with our customer the way we expected. We had also had a secondary story in the month that was around a Camel & Black story that we used as our marketing focus. And had not invested enough in it, because we made the decision to invest in it rather late in the process. She responded strongly. We disappointed her. She did not respond to the novelty woven top. So with that, we had more novelty pieces that moved to markdown and where did not have the depth in the markdown – that the proper depth in the assortment that we owned in markdown. But I think that the thing that we are focusing on, we have rolled out a new merchandise financial planning system in September, that will effect, have a positive impact in mid-2018, and that really will enable us to plan our inventories in a way that we planned the assortment breadth, but we also can plan full price and sale and the flow through more effectively than we have in the past. So we believe that our – between the architecture work that we’ve done on our assortment and the investment approach that we’re taking across both price and sale that we’ll be in, we’re confident in our approach going forward.

Thanks.

As far as operating margins and thinking about going forward, originally, when we guided the year, we were looking for an improvement in our operating margin, which really would have been the result of growing our direct business in the high teens. And in doing that would have expected about 50 to 60 basis points growth in our operating margin. That was the original idea for the year. As far as how to think about that now, I would tell you that our long-term prospect for the business hasn’t – haven’t changed. We feel very optimistic that the models in tact, and we can look to grow this business the way we originally intended. Having said that, for 2018, we will take the chance we’re heavy and planning right now and we’re going to take full advantage of the time we have between now and our year-end call to plan our business for 2018 and really understand where our guidance should be for 2018.

Thank you. Best regards. Happy holidays.

Thank you.

Your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your line is open.

Great. Thank you so much. Good morning. I wanted to ask a couple of questions. First on inventory. It looks like, it’s up about 8% here. How much of this is carryover from the third quarter versus fresh fourth quarter inventory? And what would you expect to be able to move through that? And the second is, I’m not sure I totally understand what’s going on with the slowdown in e-commerce? I think, you mentioned the new e-commerce platform saw lower conversion and a lower average order value. I’m not sure how to think about those two changes in your metrics, and whether or not they’re caused by the merchandising miscues that you discussed, or in fact, if they are related to the new platform and what are you doing to address that? Thanks.

Well, in terms of the e-commerce performance, the – I’ll just go quickly into the new e-commerce platform. And that, we have done – we’ve taken a very conservative approach to rolling that out with testing along the way. So that has not had a significant impact on the results that we’ve delivered in e-commerce. It really does a – we’re just making efforts to ensure that we have that we created great customer experience as we rollover. So and I can go into some of the more technical aspects of that. But we would take that to the merchandising assortment. And the fact that, because the full price assortment in September did not resonate with the customer. And because of the fact that the sale product assortment, as we mentioned in our October call, the sale product assortment was broad and not be, we were impacted most dramatically in merchandising because of the impact of the sale product in e-commerce. So it – the e-commerce platform change has a very small impact. But one that we’re working through and doing it in a very deliberate way to ensure a great customer experience.

And Kimberly, with regard to inventory, yes, we’re up about 8% at the end of the third quarter year-over-year. I’ll reiterate that, we’re very comfortable with where our inventory is at the moment in light of the third quarter. We’ve had relative success, if you will, moving through some of the product channels and feel, obviously, that’s fully baked into the rate we’ve quoted. As we look forward, again, we look for something equal in terms of margin change year-over-year to continue to move through those goods and would expect to exit the year in something comparable to third quarter in terms of year-over-year growth. By year-end, we do not expect to have a significant portion of our inventory represented in the third quarter goods. And expected [Multiple Speakers]...

Okay, yes.

…fresh in terms of the mix of the full price what we call whole price and sale goods.

Yes, we look at the quantitative and qualitative aspects of our inventory for each season and actually each month. And we’re confident, we’ll be in good shape heading into the New Year.

That’s very helpful. Thanks so much. Lastly, did you experience growth in your customer file during the quarter, or were the issues that you experienced, do they prevent any growth in your customer file?

We did have growth in our customer file. We saw a deceleration in the quarter, but we still believe in our business model, we’ve been able to and our ability to acquire and retain and grow the value of our loyal customers, and we’re continuing to invest in our customer acquisition strategy. So we had, yes, we did have growth in the third quarter. It was slight deceleration from the prior quarter, but again, we’re very confident in our ability with the right product assortment to be able to acquire customers retain them and develop them. And we really have confidence in our ability to continue to grow the file.

And we had a positive month in November.

Great. Thank you.

Month in November.

Yes, we did in – yes, in October and November, yes

Okay. Thanks so much.

Thank you.

Your next question comes from the line of Brian Tunick from RBC. Your line is open.

Great. Thanks. Good morning. I guess, two questions. I guess, first, on the store side. Can you maybe tell us if the positive comps in October and November were driven by both transactions and AURs? And also on the store side, how should we be thinking about maybe store opening count for next year? And then the second question, on the online side, can you maybe help us think about, how you used shipping offers, or order minimums so far in the fourth quarter versus last year with their more days of free shipping, or anything like that that you could help us understand that line item? Thank you very much.

Okay. So as I tick through those, in October and November, again, our stores really the – what we saw there was largely driven by traffic. I would say, we also saw a nice improvement in conversion. We saw it in October versus September, and then again had an improvement going into November. As far as like AURs and average order and the like, there wasn’t really anything notable on either side of the plus or minus. So for the most part, we’ll call it engagement with the customer improved. And we really feel like that was reflective of the product improvement as we move from September and on. As far as store openings is concerned, we don’t have a different viewpoint in terms of the overall opportunity in new stores. I don’t have a number to guide you for next year just yet, and I will wait to do that until our year-end call. But again, the overall opportunity and the way we’ve described it previously has not changed. With regard to ship offers, what I would say is, as we moved through October and into the fourth quarter, we were more promotional in order to cleared goods. And often when we use free ship, it is in conjunction with a broader promotional offer. And just real quickly to it often, it always involves a minimum with the exception of, say, a Cyber Monday. As we increase promotional days, we would have offered more free ship days year-over-year in that context.

Great. That’s very helpful. Good luck for the rest of holiday.

Thank you.

Thank you.

Your next question comes from the line of Randy Konik from Jefferies. Your line is open.

Hi, thanks for taking our question. This is [indiscernible] on for Randy. I just had a question around SG&A. Looks like, it’s kind of been running up in the mid single-digit range. Is there what – some guidance you can give us to think about how we should be modeling SG&A for next year? And then maybe some color on some of the new customer acquisition tools that you’re investing in, how you expect those to drive sales and kind of what specifically you’re doing? Thank you.

So on the SG&A, some of the comments that we gave you, as we went through the script, is really right now being driven largely by our marketing investment and the influence of that. I guess, what I would say to that is, we are still seeing and we’re seeing a nice ramp up in customer engagement. So we feel like our marketing investment, as a general rule, is still relevant and valid in driving the business and we are tailoring the mix of it more than we are revisiting the level of spend. As far as next year is concerned in terms of SG&A, I’m simply not prepared to give a whole lot of color yet on next year. And that is not to avoid the question it is, because we are in the middle of our planning now, and again, really are going to take full advantage of that time to really understand what our model looks like for next year, particularly by season, given in spite of our quarters just last year. So there’s a lot going on in that regard and we’re going to again wait and provide more color on our year-end call. With regard to customer acquisition, I would tell you that, I don’t see us taking a veering off of really how we think about that. We always hindsight that and tailor to what we’re experiencing. We did see growth in the file on the third quarter not at the level we are accustomed to. But I would tell you, we saw a nice improvement in October and November. So we will adjust, as we always have the level of investment in the acquisition and kind of meet what we’re experiencing what the metrics tell us. But right now, I think, our opportunity to continue to acquire, customers is still strong.

Right. And to play up what Dave said, we use our data very effectively to drive our growth projections, as well as our profitability projections in terms of our customer file. So to acquire customers, but also to retain and grow the value of each customer and that that is intact and we are focused on that more than ever.

Great. Thank you.

[Operator Instructions] Your next question comes from the line of Ike Boruchow from Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my question. Two questions. One quick one for Dave. Could you maybe just give us a tax rate to use for Q4? And then Paula, just bigger picture, I think, going back to Kimberly’s question, just want to make sure I understand, is the reason the conversion in average order value were trending lower on the new site because of the issues that you were seeing with the clearing section, or is it something else that you’re trying to figure out altogether and that’s why you’re kind of pushing this out to try to figure this out once holiday is behind you, just trying to make sure I understand the dynamics there?

Okay. Dave, if you want to take…

On the first one, our adjusted diluted number we used the 40% is kind of a run rate tax rate over time. As far as what to use for the effective rate, I would think something like a 39.6, 39.7 would be fine.

So, Ike, in terms of the new e-commerce site, which we call our ECT. I mean, there are two areas that were impacting the site performance. One and what we believe is the most significant one is the page load time. And they’re slower on the ECT than on our legacy site and they are within the intended goals that we set for the performance. So our total page load response times are averaging about 60% slower than our legacy site. And by extension than the average pages that a customer views when she goes to the site are about 15% lower than legacy. So I think, it’s important to note, these are issues that are driven by technical issues. They’re not driven at all by an inability to handle traffic on the new site on the new platform. And second, there are some differences in the way promotional discounts are being displayed on the new site, which are not as clear for the customers. So we believe that both of these areas are impacting the LV in conversion rates on the new site, and we’re working through rather than move more traffic onto the site. We’re working through those. We’re addressing those issues. They’re both significant areas of focus by our IS team. And we have to deploy a plan – deploy or fix this plan in early January once the holiday season is behind us, that meant to address both of those areas. And as I said, they are both technical areas that we feel confident, we’ll be able to address them and fix them. So that as we roll over on to the new site completely, we’ll be able to provide a great customer experience.

Got it. And Paula, when did you try – when did you first start rolling over into the new site when you started to see these issues pop up?

Well, we started with a 10% level initially. And then as we rolled a bit more through the site, we got to a point where we realized we didn’t want to take anymore on. We needed to have enough on there to learn that we wanted to make sure that we were not impacting the business for the customer experience.

And that was happening during Q3?

Yes, that’s right.

Got it, got it. Thank you so much. It’s really helpful.

You’re welcome. Thank you.

Your next question comes from the line of Pam Quintiliano from SunTrust. Your line is open.

Great. Thanks so much, and thank you for all the details, guys. So two quick ones. First, regarding holiday, how should we think about what your typical cadence is from a promotional perspective for the holiday season? Is there anything that that’s unusual, or should we see more of these 30%, 40% type of events? And then, as far as the comp guidance, very clear that you’re pleased with current trends. So does the guidance assume a continuation of current trends in acceleration and just whether you’re assuming about the competitive landscape and how you’re going to beat against that? Thank you.

Well, I’ll just start with your second question first with the competitive environment. I mean, retail is always competitive, but we don’t feel it’s more or less competitive at this time than it has been in the past. And with the product and the offerings that we have, we believe that we’re very well-positioned to continue to capture market share. And what was the second thing was?

The first part of that question was just regarding, is the guidance assumes a continuation of current trends in acceleration based on your visibility on the flows are coming in?

We’ve – well, I’ll just say quickly. We’ve had an improved trend with the October delivery, with the November, with the December delivery. We’ve had very nice acceptance from our customers of that product and have been moving through the product very well so.

As far as the promotional cadence, I guess, what I would say is, I don’t feel like you’re going to see necessarily a dramatic shift for us year-over-year and the way we used the promotions that we do use and generally the cadence that relates to it in our business that we do shift from – into a pretty heavy sale business, if you will, I’ll say shortly before Christmas and kind of generally as we travel through January. So you’re going to see that and you can imagine that as we move into sale, we’re pretty strong promotionally, but again, there’s nothing necessarily unusual about that. And again, everything we’re doing has an – is an eye towards optimizing margin at this point, taking advantage of the fact that our whole price offer is doing well, but at the same time balancing the fact that we have to move some of the goods yet better with us through the third quarter. And as far as a comp guidance is concerned at this point and really what is our guidance reflects, I wouldn’t say – I mean, the third quarter was so unusual that I wouldn’t say we drew a lot necessarily from what we saw in the third quarter. It’s really looking at our inventory levels, looking at all things I just described, understanding the promotional cadence and really kind of reading how our customer behave the November to really inform the balance of the quarter.

Great. Thanks so much. Good luck.

Thank you.

There are no further questions at this time. I will now turn the call back over to Paula for closing remarks.

Well, thank you all. Thank you for joining us today. Dave and I were very pleased to be able to be with you and to tell our story. But before we wrap up, I want to thank our J. Jill team for their dedication and commitment to our customer. And with the holiday season now underway, I’d really like to wish everyone a very happy holiday. We look forward to updating you on our progress in the New Year. Thank you.

This concludes today’s conference. You may now disconnect.