J.Jill, Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to the J.Jill, Inc. Second Quarter 2026 Earnings Call. 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 September 9, 2026, 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 September 9, 2026. 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. That's jjill.com.

I will now hand the conference over to Mary Ellen Coyne, CEO and President. Please go ahead.

Good morning, and thank you for joining us. Our second quarter results indicate a meaningful step forward and reflect the progress we are making across each of our 3 strategic priorities: evolving the product assortment, enhancing the customer journey and advancing the way we work. We are thrilled to have delivered results that exceeded our expectations and represented a significant improvement in trend from the first quarter. This momentum has carried over into the start of the third quarter and gives us confidence to raise our guidance for the year while strategically deploying tariff refunds to invest in the business.

Before we discuss our outlook, let me provide highlights from our second quarter results. Net sales for the second quarter increased compared to last year, supported by an improving trend in our full-price business across both stores and direct. In the direct channel, we continued to enhance the product detail page experience with improved fabric and fit information as well as richer item-level storytelling. This channel also benefited from increased markdowns given the seasonal sale period. In stores, we saw positive traffic for the quarter where our teams are effectively engaging existing, returning and new customers with the energy and expertise that differentiate the J.Jill in-store experience.

In terms of profitability, we delivered adjusted EBITDA of $20.1 million, excluding the benefit of tariff refunds and the actions we initiated in the quarter to strategically invest in the business. My confidence in the quarter's results goes deeper than the numbers, to the source of the progress, from meaningful improvement in customer acquisition and more effective marketing to stronger product execution. The customer file is stabilizing, and new-to-brand acquisition is accelerating, exactly the combination we have been working towards. Huge thanks to our teams who are aligned and delivering with speed and precision.

With that said, I want to put our progress in context. While we are encouraged by both the direction and momentum, we are still in the early stages of this evolution. Each quarter, we learn more about our customer, sharpen our assortment strategy and continue to strengthen and build the capabilities that will drive sustainable long-term growth. Let me walk you through our 3 areas of strategic focus. I'll start with evolving the product assortment. Our Q2 assortment represented continued progress and reinforced important learnings that will directly inform the second half.

We saw meaningful strength in a number of categories, particularly outerwear and accessories. Accessories has been a standout as it scales, which we expect to continue into Q3. We are also very encouraged by the introduction of our Luxe Lounge collection and the relaunch of our denim assortment, which are seeing great early results. In terms of opportunity, customer purchasing behavior and direct feedback point to an appetite for more color and more breadth. We heard this in Q1, and we are taking action that will begin to be seen in our fall and holiday assortments.

We anticipate these kinds of learning cycles as we move forward, and I am proud of how the team is incorporating feedback and reacting in real time. We are constantly evaluating the assortment to make sure we are serving both our most loyal existing customers and the newer customers we are attracting into the brand. We are also modernizing our sub-brand portfolio. We are consolidating the best-selling pieces of the Wearever sub-brand into the core J.Jill assortment in a way that preserves what customers love about it. This is a deliberate decision to simplify our lineup and reallocate investment into areas where we see the most growth potential.

For example, Luxe Lounge, which include our travel capsules, and denim, an important lifestyle component of the brand, are now building into meaningful categories. Pure Jill, our most iconic sub-brand, known for quality and craftsmanship, remains a priority. Looking ahead to the second half, we are entering it with a stronger and more strategically aligned product framework. Our design and merchandising teams are fully in sync. The early reads on our fall assortments are encouraging, and we expect gradual sequential improvement to continue.

Turning to enhancing the customer journey. This was a standout area in Q2, thanks to the significant progress made by our teams. Our total customer file saw improvement from the start of the year and is showing signs of stabilization from which we have a foundation to grow. That improvement was driven by strong new-to-brand acquisition and continued success reactivating lapsed customers. The profile of our new-to-brand customer is also improving with a slightly younger customer coming into the file. These are early indicators that our approach to broadening the appeal of the brand is resonating with the evolving J.Jill customer without disrupting the deep relationship we have with our highly loyal base.

We are also seeing these new-to-brand customers spend more with us than in recent history, driven by higher average order value and more trips, both of which are encouraging. Supporting this success is our marketing engine, which is performing well across channels, driving new customer acquisition and generating stronger returns on our investment. SMS continued its growth trajectory with our subscriber file scaling nicely, and our catalog is delivering improved profitability with disciplined optimization, driving better returns on a more focused circulation base. Our loyalty program is also showing encouraging early signs with members retaining at a meaningfully higher rate than nonmembers.

Behind that, our marketing team is bringing together JJCC and our loyalty program, J.Jill Collective, into a more unified view of the customer organized around 2 clear areas of focus: acquisition and retention. Historically, the vast majority of our marketing investment has gone toward existing customers and capturing demand we know is there. We are actively rebalancing this mix toward prospective and reactive customers while building broader brand awareness to drive demand generation. Looking ahead, we are investing even more into these efforts, deploying tariff refunds into the second half marketing, including at the top and middle of the funnel, an investment this year that we believe will have a continued impact as we move into next year and beyond.

On our third pillar, advancing how we work, we continue to strengthen and build the capabilities that will support our business at a higher level over time. We are increasingly leveraging AI-enabled tools to drive efficiencies across the organization, and our teams are utilizing these new tools to increase capacity, improve decision-making and unlock new ways of working. Our new AI-enabled merchandise planning and allocation system is on track to begin launching later this year and will be an important new tool to support full price selling, which will drive top and bottom line growth.

In addition to this work, we are also progressing on several investments to enhance our digital platform and personalization technology, both of which will modernize our digital business. Additionally, we are utilizing a portion of the tariff refunds to pull forward the kickoff of exciting technology initiatives into fiscal 2026 that should deliver benefits earlier in 2027. It is important to note that we have made the intentional decision to invest most of the refunds into these strategic initiatives, which we believe improves the customer experience, strengthens the business and positions us for a more productive 2027.

We are also moving forward with a strong team fully in place. The energy across the organization is palpable. This was highlighted in our recent denim launch. The product team tested new shapes and moved quickly once we saw which resonated most strongly. Our marketing team developed an integrated influencer campaign that drove exceptional early engagement with nearly 1 million impressions in the campaign's first 3 days alone. Our stores brought the launch to life with dedicated fit events and activations, and our website team built dedicated content to support it. This is a great proof point of what we can achieve when our product, marketing, stores and direct teams are fully and seamlessly aligned.

With that, I'll turn it over to Mark to speak to the details of our financials and our updated outlook.

Thank you, Mary Ellen, and good morning, everyone. We are very pleased with our second quarter performance, as Mary Ellen reviewed. We delivered sales growth above our guidance and underlying adjusted EBITDA of $20.1 million. This underlying performance excludes the $13.3 million in net tariff refunds received in the quarter as well as the deliberate decision to begin to invest in strategic initiatives and, to a lesser extent, cover emerging cost pressures from fuel surcharges on shipping. In the second quarter, about $600,000 of the refund was absorbed by these investments and costs. The receipt of the tariff refunds presents an opportunity, and we have made a deliberate decision to invest most into strategic priorities we believe strengthens the business, supports our momentum and sets us up well for 2027. Both our third quarter and full year outlooks, which I'll discuss in a moment, reflect this decision.

But first, I'll review second quarter results. Total company sales for the second quarter were $154.8 million, up 0.5% compared to Q2 2025. Total company comparable sales for the quarter were up 0.5%. Non-comp sales from new stores were offset by timing associated with reserves. Looking ahead, we expect non-comp spread will normalize between 1 and 2 percentage points. Store sales for Q2 were down 0.7% compared to Q2 2025 as strength in full-price sales was more than offset by a decline in markdown selling in stores during the quarter. Direct sales, which represented about 47% of total sales in the quarter, were up 1.9% compared to the second quarter of fiscal 2025, driven by higher markdown sales during the quarter. As Mary Ellen mentioned, we did see a meaningful improvement in full-price sales performance versus prior year in the second quarter compared to first quarter full-price year-over-year results.

Q2 total company gross profit, including the impact of net refunds, was about $119 million, up $13.6 million compared to Q2 2025. Q2 gross margin was 76.8%, up about 840 basis points versus Q2 2025. Excluding net tariff refunds, gross profit was $105.7 million and gross margin was 68.3%, about flat versus Q2 last year as a higher full-price gross margin rate offset a greater mix of markdown sales compared to last year. SG&A expenses for the quarter were about $94.6 million compared to approximately $88.6 million last year. The increase was driven by store expenses due to 8 net new stores compared to the second quarter last year, increased occupancy costs on lease renewals, marketing expense, including strategic investments mentioned, shipping expenses due in part to fuel surcharges and higher management incentive accruals.

Adjusted EBITDA for the second quarter was $32.8 million compared to $25.6 million in Q2 2025. Excluding the tariff refunds and the approximately $600,000 related to the strategic investments and costs I mentioned, adjusted EBITDA for the second quarter was $20.1 million. All forward guidance we are providing today include net tariff refunds as well as our strategic investments and cost coverage assumptions. Total interest expense was $1.9 million in the second quarter compared to $2.7 million last year. Adjusted net income per diluted share was $1.24 compared to $0.81 last year, which reflected an average weighted diluted share count of 15.1 million shares this year versus 15.3 million shares last year. We repurchased about 100,000 shares for approximately $1.5 million in the second quarter, bringing year-to-date repurchases to 168,000 shares for $2.3 million, resulting in approximately $0.01 of benefit to reported second quarter adjusted diluted EPS.

As of the end of the second quarter, we had approximately $11.8 million remaining on the $25 million share repurchase authorization. We also paid our quarterly dividend of $0.09 per share on July 8. And as announced on September 2, our Board approved payment of the Q3 dividend on October 7 to shareholders of record as of September 23. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures.

Turning now to the balance sheet. For the quarter, cash from operations was about $46 million, including approximately $19 million related to gross tariff refunds. Ending cash, including these refunds, was about $77 million with funded debt on the balance sheet of approximately $72 million. Excluding the impact of refunds, cash from operations was approximately $27 million, and free cash flow was approximately $25 million in the quarter. Looking at inventory, we ended the second quarter with inventories in good shape, down about 5% compared to the end of the second quarter last year. We are now anniversarying incremental tariff expenses that previously impacted year-over-year comparisons. So reported inventory growth is now on a like-for-like basis.

Capital expenditures for the quarter were about $2 million compared to $3 million last year. Spend was focused primarily on store projects, including anticipated openings and the merch planning and allocation project expected to launch later this year. With respect to store count, we did not open or close any stores during the second quarter, resulting in an end-of-quarter store count of 255 stores compared to 247 stores at the end of Q2 last year.

Now turning to our outlook. As mentioned, we made the deliberate decision to strategically invest the majority of the net tariff refunds. These investments are primarily focused on marketing to build the brand and accelerate file growth, which will in part support second half 2026 sales growth while also benefiting 2027 and beyond. The outlook we are providing today takes into consideration the refunds as well as these investments, which we expect will be fairly evenly split between the third and fourth quarters. This will result in a bigger impact to Q4 given the relative size of EBITDA historically in this quarter. In addition, given the evolving tariff regulations, we now are estimating tariff rates will land at 10% to 12.5% for goods landed in the second half.

For our third quarter outlook, we expect adjusted EBITDA to be in the range of $20 million to $22 million. This range assumes sales will be up 3% to 5% for the quarter, and comps will be up 1% to 3%. Gross margins are assumed to be about flat compared to last year. Second half tariff costs at current rates are expected to be down approximately $1 million compared to our prior expectations and down versus last year beginning in the fourth quarter.

With respect to the full year, we are updating our full year outlook as follows: adjusted EBITDA now expected to be in the range of $75 million to $80 million, which reflects tariff refunds received, partially offset by the investments and costs I mentioned. Sales are now expected to be flat to up 2% versus last year. Comp sales are expected to be between down 1% to up 1%. And gross margin, reflecting in part the benefit of tariff refunds, is expected to be up 100 to 150 basis points versus prior year. With respect to full year capital expenditures, we continue to expect spend of between $20 million and $25 million. Regarding store count, we now expect to open between 1 and 3 net new stores this year with 2 planned to open in the third quarter. The slight reduction versus prior guide is due to landlord delivery delays on 2 stores that will most likely push those openings into early 2027. And finally, with respect to free cash flow, we now expect free cash flow of approximately $40 million.

As previously mentioned, we announced our quarterly dividend of $0.09 per share payable on October 7 to shareholders of record on September 23. We have repurchased approximately 168,000 shares year-to-date for about $2.3 million, including the repurchase of 100,000 shares in Q2. Since launching our repurchase program in Q4 2024, we have repurchased about 826,000 shares for $13.2 million, leaving approximately $11.8 million of the original $25 million authorization available.

Thank you. I will now turn it back over to Mary Ellen for some closing remarks.

Thanks, Mark. Before we take your questions, let me leave you with a few key takeaways. First, we beat our expectations on both sales and profitability and showed meaningful sequential improvement in virtually every metric that matters. Second, our customer file is stabilizing. New-to-brand acquisition continues to grow. The profile of our incoming customer is younger, and reactivation is building momentum. The most important indicators of customer health are all pointing in the right direction. Third, we know exactly where to focus in the second half and how to scale what is working with discipline and intention.

Finally, the work ahead is rooted in the same priorities I described today: evolving the product assortment, enhancing the customer journey and advancing the way we work. These 3 priorities will continue to drive our progress in the business. While we are still early in this evolution, we are confident we are making the right decisions today to position this brand for sustainable long-term growth, and we appreciate your ongoing interest in our future.

And now we'll take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Jonna Kim with TD Cowen.

My first question is around marketing. Obviously, you've seen a lot of success, and you talked about the details of where you're deploying additional marketing. Is -- the guide that you're giving currently reflect the potential benefit from higher investment? And how would that sort of look like as you look at the second half in terms of just, as you noted, middle to upper funnel and influencer, but sort of what are key strategic areas you're looking to spend more on?

And then the second question is just around the holiday. How are you thinking about this holiday differently than last year? What are key learnings that you're implementing this year versus last year?

Jonna, thank you for the question. So for half 2, when we think about marketing as we're moving forward, we are investing across the board, really taking the learnings that we've had in Q1 and Q2, especially. In Q2, our strategy under the new leadership in place with Kimberly here was really a refinement in execution, really sharpening our messaging and moving into segmentation strategies within our owned channels. And yes, we have invested some of that money. As Mark said in his remarks, $600,000 went to marketing efforts, which we believe we'll see in Q2, and we will release some in the back half that will return for us.

But the more important investment for us is really when we think about demand generation and the awareness play that will impact '27 and beyond, right? So the way we're thinking through marketing in the second half is really looking at demand generation leading to awareness, which then leads to consideration, which then leads to intent to purchase. So as we go through that journey through the second half, we believe our investments will return really second half and beyond, we're looking to '27 and future to really build that customer file.

With respect to holiday, what I would say is we've taken the learnings from Q1 and Q2, and we are looking to drive -- keep this momentum in our full-price business as we head into holiday, that we know that it will be an exceptionally promotional time across the board. But as much full-price momentum as we can continue to drive will allow us to really limit the promotions that we need or at least be less dramatic than we've been in the past. I will say that some -- the team has done a great job in reading and reacting to some things that have worked and on the periphery are able to chase into best-selling items.

So we're encouraged about Q4 again because the learnings will allow us to build product assortments and marketing strategies, and really being able to connect those 2 is where we see the win, right? When marketing is able to drive what the product teams are putting out there is where we will be successful. And I think, as you know, we're very excited to really have a year under our belt with the design and merchandising teams working together, and now having that fully supported by marketing is what's giving us confidence as we move forward.

Your next question comes from the line of Janine Stichter with U.S. Bancorp BTIG.

Congrats on the progress. I guess to start, I'd love if you could share a bit more about the new-to-brand customer that you're seeing. You mentioned it's a younger customer. Maybe elaborate more on who that customer is and then what you're seeing in terms of retention, how you're balancing a new customer that you're attracting versus the existing customer? And then would love your insights on the bottoms category. It sounds like denim has been really strong. I think last quarter, you had talked about some challenges in that category. Maybe weigh in on what you think is industry-wide versus -- it sounds like a lot of your own execution is really coming in here with the denim relaunch.

Thanks, Janine. I'll start with new-to-brand. And yes, our new-to-brand customer is coming in younger than our existing, which we are very excited about. She also is retaining at a higher rate, and she is spending more than we have seen her spend historically. So really successful across all fronts there. At the same time, we are seeing a reactivation customer come back also with the same metrics, which is exciting.

And in terms of retention, right now, the team is really thinking about personalization and segmentation and how they are messaging the new-to-brand journey, how they are keeping that customer engaged versus a react versus an existing customer. And that is a lot of the work that is ahead of us as we move forward into half 2, both from the marketing side, but also from the experience in store and the experience on the direct channel, which we're spending a tremendous amount of time working on personalization there.

With respect to bottoms, what we see is very encouraging. As we move through the back half -- or sorry, as we move through Q2, bottoms stabilized. And what we saw was success in some of our core items, which we have historically run, our pull-on linen and pants, but we also saw success in new leg shapes. And that's what's really encouraging for us as we move forward and has happened through the denim launch. We're seeing that where we have credibility in a fit, if we are taking that same fit and then offering new leg shapes, the wide leg happens to be a standout right now in denim, the customer is absolutely responding to that newness. She's responding to a barrel silhouette. So we're excited to see that bottoms is now working on both the basic side and the fashion side.

[Operator Instructions] Your next question comes from the line of Marni Shapiro with Retail Tracker.

Congratulations. I mean you know I think the stores have looked amazing. I felt like visually watched that turn happen. And I had stumbled into that denim event, and it was packed, and your sales associates were unbelievable. It was a party in there. So a couple of quick questions. Just historically, what did denim look like for J.Jill? And I guess, what could it be for J.Jill? And then I have 1 or 2 other quick ones. I'm curious about what denim could look like there.

Great. So what I would say, Marni, in the past is our denim was very one note. The customer liked the fit of our authentic jeans, but it tended to always be a slim silhouette, and we ran it on repeat, and it was very much fulfilling a piece of her lifestyle that was very casual. What we're seeing now is the expansion of the denim assortment from, again, staying with that trusted fit in terms of the upper, but giving her new fashion leg shapes and then advancing denim to go to the other 2 fits that we have, a modern wide leg and then some fashion denim trousers. It's allowing for denim to become something that is important to every aspect of her lifestyle instead of just when she's super casual. So we're really seeing the end use of it expand as we're giving her new leg shapes and new silhouettes.

Okay. That makes so much sense because you already have a lot of that in your non-denim bottoms like in your pants, jeans and stuff like that. Could we also just talk a little bit about the difference between your online consumer versus your in-store consumer? Because I think you mentioned that you're selling more at full price, but that I think online, there was more sale. So are the metrics similar? Does the consumer -- are they buying as much same UPTs in-store as online, same AUR in store as online? Or does the in-store consumer tend to be more fully outfitted, more UPTs, higher AUR because it's full price and online is a little more picky/choosy? Can you just talk a little bit about the difference there?

What we're super excited about, Marni, is that both stores and the direct channel have seen significant improvement in full-price selling. So we're very optimistic about that as we move forward. As you know, and as we said in our remarks, the direct channel will always be a source of selling through markdown product in a very profitable way. They just -- they always are. But we see AUR and ATV all significantly -- all improving in both channels. So -- and that's what we're most excited about, is the momentum across the business.

Congratulations to you guys.

Your next question comes from the line of Dana Telsey with Telsey Group.

Nice to see the progress. Given the product enhancements that are resonating, can you talk a little bit about tops also? I think in the first quarter, I think some of them were too short or more tunics were wanted and dresses improved to offset the bottoms. So what are you seeing in tops and dresses and color versus neutral?

Dana, thanks for the question. I will say the good news for us is that, again, tops really stabilized for us in Q2, given the learnings that we saw in Q1 and what we were able to respond to. We absolutely believe we were not balanced enough in Q1 and have course-corrected that as we move forward. The other thing I will say with tops particularly, and it ties to your third question, which is around color, we really need to have color extensions in our top programs.

And so where we were -- where the miss was in tops, and I'll say in dresses, so this is a perfect way to tie in all of your questions, was a lack of color and print. Where we had color and print, it was very successful. We learned in Q1 that we did not have enough, we were too neutral, and Q2 was obviously too soon to impact. So what we've done for Q3 and Q4 is add color to programs wherever possible, particularly in tops and print in tops and dresses wherever we could because that's where we're seeing tremendous success. So we've rebalanced the silhouettes, and we've added color and print back in specifically to the top and dress categories as we're moving forward. Q3 and Q4 are certainly an improvement from where we were Q1 and Q2. When we get to Q1 of '27, we are back in an ideal position.

Got it. And then the tariff refund investments, Mark, how would you characterize them? Or is there buckets where tariff refunds are going most to? Is it marketing? And just any shaping of Q3 and Q4 reminders that we should be aware of?

Sure, Dana. Yes, we mentioned that the receipt of the refund in Q2 really just presents an opportunity for us. And so we're leaning into that momentum and taking advantage of the opportunity to invest primarily in marketing. Mary Ellen spoke a little bit about it, but that Q3 and Q4 sales guide range is a little bit of the momentum we've seen, a little bit of the expected return from new marketing investments, but really, the investment is a down payment on the file and on delivering 2027 and beyond, more upper funnel, more mid-funnel awareness driving brand building, et cetera.

We're also -- we mentioned in my remarks, there are some emerging costs. It's not the majority by far, but some emerging costs out there around fuel surcharges, et cetera. And then we have some exciting initiatives underway that we're looking to launch this year that may have not launched until next year, just again, taking advantage of the opportunity that the tariff refunds represent. So the guidance that we provided for the full year now forward includes the refund, and it includes the impact of those investments.

We have reached the end of the Q&A session. I will now turn the call back to Mary Ellen for closing remarks.

Thank you all for joining us this morning and for your continued interest in J.Jill. We look forward to speaking with you again next quarter. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the J.Jill Inc. First Quarter 2026 Earnings Call. [Operator Instructions] Before we begin, I need to remind you that certain comments made during these remarks may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and J.Jill's SEC filings.

The forward-looking statements made on this recording are as of June 10, 2026, 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 June 10, 2026. 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 would now like to turn the conference over to Mary Ellen Coyne, CEO and President. You may begin.

Good morning, and thank you for joining us. As I have said on previous calls, J.Jill is in the early stage of evolving both the brands and the business amidst the dynamics of a complicated external environment. We began 2026 with a sharp focus on expanding the customer file, making progress through disciplined execution in 3 key areas: evolving our product assortment, enhancing the customer journey and advancing the way we work. This strategic framework is essential to build a solid foundation for sustainable long-term growth.

Evolution takes time and requires patience as our product and marketing strategies are introduced to both new and existing customers. Insights gained in the first quarter, particularly in stores where customers can touch, feel and experience our new assortment, supported by our exceptional sales associates, give us confidence in our ability to achieve success. We delivered first quarter results in line with our expectations for both sales and profitability. And while it was a challenging period for a number of reasons, we are actively applying learnings that should continue to drive momentum throughout the rest of this fiscal year and beyond.

We know through both customer research and feedback from our sales associates that customers want J.Jill to evolve as their approach to building a wardrobe has evolved. But we also know that we must take care with the pace and scale of that change. We are being thoughtful about infusing newness while retaining the essential elements our most loyal customers value.

From a product perspective, our assortment in Q1 reflected the start of a transition, still dominated by legacy product, but with some new styles and silhouettes representing where we are headed. Notable successes in the quarter were jackets and accessories. Accessories are only a small part of the business today, but they showed strong growth, and we see more opportunity. As we know, accessories are often an entry point into a brand for new customers or an impulse purchase that reactivates lapsed customers. In terms of key learnings, tops assortment skewed too far into shorter length and did not offer enough breadth in print.

Another highlight in the quarter was our new-to-brand customer acquisition, which had slight year-over-year growth, driven primarily through the retail channel. Our store teams continue to perform at a high level, engaging existing, returning and new customers and doing a great job speaking to the brand's evolution. We saw a meaningful improvement in the profile of these new customers who are younger than our existing customers' average age.

While the new-to-brand segment of our customer file remains relatively small, we believe its growth is key to our long-term success. This progress is encouraging. We are also leveraging learning to make enhancements to our e-commerce site, such as fabric guides, look books and stronger product storytelling, all of which help to educate online customers on our product evolution, the way our sales associates are already doing in-store. While the e-commerce channel continues to be more price sensitive, we expect these new tools and enhancements to more fully animate our product assortment and move someone from discovery to purchase.

Turning to our 3 key areas of focus. First, evolving our product assortment. We are excited by customers' initial reactions to our summer assortment so far in the second quarter. These assortments reflect better alignment between our merchandising and design teams, represent a real step forward in terms of product evolution and are a good indication of where the brand is headed. These positive early reads are encouraging and position us for gradual sequential improvement in the second quarter and further throughout the remainder of the year as indicated in our guidance.

Second, enhancing the customer journey. As part of our plan to reinvigorate the brand and expand the customer file, we have already begun to enhance how people engage with J.Jill across channels. During the quarter, we saw growth in the SMS file. And in March, we launched a new nontender loyalty program called J.Jill Collective to a small subset of our customer base. We have plans to roll this out and we'll share more in the coming months.

Leading this program and all customer and marketing strategies is our new Chief Marketing Officer, Kimberly Wallengren, who joined us at the end of April. Previously with Coach and American Eagle, she brings a proven track record of leveraging marketing to drive brand evolution, boost relevance and broaden the customer base. Kimberly's expertise is perfectly matched to our objectives, and we are delighted to welcome her to J.Jill.

Our third area of focus is advancing the way we work. In addition to developing the right strategy, we have also been building the right capabilities. Our executive leadership team has the right balance of institutional knowledge, new insights and transformation experience to deliver on this strategy. Our strategies and capabilities will also be reinforced with new tools, starting with a merchandise planning and allocation system later this year.

The new system will move us from a manual and time-intensive approach to one with more predictive and data-driven forecasting that will allow us to better assess demand planning and allocate more effectively, which we expect will support higher full price sell-through and greater markdown yields beginning in earnest in 2027.

In summary, we are still in the early days of our transformation, but I'm encouraged by our progress and the discipline with which our team is executing against our strategic priorities. With that, I'll turn it over to Mark to speak to the details of the financials and our outlook.

Thank you, Mary Ellen, and good morning, everyone. I'll begin with a review of first quarter performance before discussing our outlook. Regarding first quarter, total company sales for the quarter were about $144 million, down 6% compared to Q1 2025, inclusive of total company comparable sales decline of 8.7%, which was partially offset by sales from new stores opened last year.

Retail sales for Q1 were down about 4% compared to Q1 2025, driven by soft conversion, partially offset by higher average unit retails and supported by net 6 new stores compared to the first quarter of 2025. Direct sales were down approximately 8% compared to Q1 2025 and represented about 46% of total sales. Sales declines were driven by conversion and a mix to markdowns as consumers continue to demonstrate price sensitivity, especially in the direct channel.

Q1 total company gross profit was about $98.7 million, down about $12 million compared to Q1 2025. Gross margin rate for Q1 was 68.3%, down 350 basis points versus Q1 2025, driven by approximately $4.7 million in net tariff costs and a higher mix of markdown sales, primarily in the direct channel. SG&A expenses for the quarter were about $90 million compared to approximately $91 million in Q1 2025. Lower marketing costs driven by a timing shift of the April catalog into May, lower G&A overhead and lower technology project costs were all partially offset by new store costs, occupancy inflation and merit increases.

Adjusted EBITDA for the quarter was $16.7 million compared to $27.3 million in Q1 2025. Interest expense was $1.9 million in Q1 compared to $2.8 million in Q1 2025. Adjusted net income per diluted share was $0.45 compared to $0.88 last year, which reflected a diluted share count of 15.0 million shares this year versus 15.4 million shares last year. During the quarter, we repurchased 68,500 shares for approximately $790,000. And as of today, we have approximately $13 million remaining on the $25 million share repurchase authorization.

Turning to cash flow. For the quarter, we generated about $1.7 million of cash from operations, resulting in ending cash of about $36.3 million. Free cash flow was an outflow of $1.1 million in the quarter. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures, adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income and free cash flow to cash from operations.

Looking at inventory. Total reported inventories, excluding tariffs, were down about 3.5% at the end of the first quarter compared to end of first quarter last year. As reported inventory, inclusive of the cost of tariffs was up 5.6%. Capital expenditures for the quarter were $2.8 million compared to $2.7 million last year. Investments were focused primarily on stores as well as the new merchandise planning and allocation project. With respect to store count, we closed 2 stores during the first quarter and opened one new, resulting in end-of-quarter store count of 255 stores compared to 249 stores at the end of Q1 last year.

Now for more on our outlook. For full year, we are reaffirming our prior guidance for sales, comparable sales, gross margin, adjusted EBITDA and free cash flow. We still expect full year sales to be flat to down 2%; full year comp sales to be down 1%, to down 3%; year-over-year gross margin to decline approximately 50 basis points; and adjusted EBITDA of $70 million to $75 million. In addition, full year free cash flow is still expected to be about $20 million.

We are continuing to invest in new stores but are adjusting our targeted net opening store count this year and related capital spend to reflect the current operating environment. As such, we now expect to spend between $20 million and $25 million of CapEx during the fiscal year compared to prior guidance of approximately $25 million, and we now expect to open between 1 and 5 net new stores this year versus prior guidance of about 5 net new stores. These expectations reflect about 6 to 8 new stores, offset by closures.

Our full year guidance reflects our expectation that strategies will show gradual improvement into Q2 before gaining more traction into Q3 and further momentum into Q4. For second quarter, we expect sales to be down 1% to down 3%, comp sales to be down 2% to down 4% and adjusted EBITDA to be in the range of $18 million to $20 million. This guidance includes the expectation for second quarter gross margin to decline approximately 100 basis points compared to last year, primarily driven by approximately $4 million of net tariff costs.

With respect to tariff refunds, though we received early in the second quarter a small portion of our IEEPA tariff refund claim, we are not assuming any refund benefit in our guidance at this time, given ongoing uncertainties related to the timing and ultimate amount of any remaining reimbursement. Embedded in our guidance is an assumed average 20% reciprocal tariff rate on applicable inventory received prior to February 28, 2026, an assumed average 10% tariff rate on applicable inventory received after February 28, 2026, through the second quarter of fiscal 2026 and an assumed average 15% tariff rate thereafter.

These assumptions equate to approximately $14.5 million of net tariff costs in our expected fiscal 2026 gross profit, down slightly versus our prior expectation with the benefit assumed to be offset by higher fuel and other input costs within our outlook.

Lastly, we remain committed to executing on our total shareholder return strategies. As announced on June 3, the Board declared a quarterly dividend of $0.09 per share payable July 8 to shareholders of record as of June 24 and we will continue to opportunistically repurchase shares, though we'll do so at an appropriate pace.

Now I'll hand it back to Mary Ellen for a few remarks before we go to Q&A.

Thanks, Mark. As our product continues to evolve and our new marketing strategies take hold, we expect to see gradual sequential improvement in our business. We are encouraged by the learnings gained in Q1 and the green shoots we have seen to date, most notably the growth in new-to-brand customers and the strength in emerging product categories. Our enthusiasm for the potential of J.Jill is balanced by an understanding that successful transformations take time. We are confident we are making the right decisions today to position the brand for sustainable long-term growth and value creation. Thank you. And now we'll take your questions.

[Operator Instructions]

Your first question comes from the line of Jonna Kim with TD Cowen.

How would you assess sort of the macro impact to your consumer in the first quarter and second quarter versus sort of assortment still that needs to improve? And could you give us a little bit more color on how Mother's Day trended for you? I know it's a big event for you. So what are some learnings from this year versus last year and how you sort of evolve that event going forward?

Thanks for the questions. I'll start with consumer. So in our most recent surveys, our consumer continues to exhibit caution and admittedly is more choiceful. But what we also see is she truly believes in the hallmarks of this brand in quality and customer service, and she is -- has had a very positive response to our latest collections.

So the way that we think about this in an environment that is challenging and promotional, we know that we need to focus internally on getting her to -- on putting product in front of her that she will respond to. And that's what we've seen really as we're heading into Q2. We're very encouraged by the latest floor sets. What I would say is that includes Mother's Day, right?

So as we entered Q2, we saw positive reads on the floor sets, certainly the one that dropped right before Mother's Day. We saw a more coordinated marketing effort this year and know that as we move forward, there is opportunity for us to continue to build on that as it is such an important holiday for us. Stores performed stronger than direct, which you would expect, again, with some activations in stores that were very positive.

Got it. Understood. And then just one follow-up. As you look at second half, I mean, you talked about gradual sort of improvement, but what really gives you confidence in that inflection? Is there a specific sort of product changes and marketing that you feel especially more optimistic on?

Sure. So yes, what I would say is, as you know, Q1 was a period of testing and learning for us. It was the start of our evolution. The product was predominantly legacy products, but we did fast track new categories, new silhouettes and really are taking the learnings from that and using them appropriately as we're moving forward. A lot of learnings around product specifics, around communications to our consumer. We talked a little bit about the direct business and really the things that we are adding in terms of the book and fabric guide to move her from consideration to conversion.

So moving forward, we're taking those learnings. We're very encouraged by current results as Q2 has kicked off, assortments, assets, and we're adjusting appropriately. So we are rebalancing where we feel that we need to. We know that we did not have enough color in the first quarter. We know that she wanted more tunics in the first quarter. These are things that we have corrected as we move into the back half of the year, and we're very excited about it.

So again, we continue to underscore that this is an evolution and that evolution takes time. All of that is implied in our guidance in a gradual sequential improvement. But the way that I would say that we are very much thinking about the product and the way that we're building our product framework and strategy is around a Venn diagram that is very much 60% of what we do will be applicable to our existing as well as new customers, and then we'll have 20% on either side where we are protecting legacy and moving forward. And what we've learned is that balance in categories where we are having an assortment of silhouettes that address the middle and both ends is where we're seeing much success.

And Mary Ellen, Jonna, I would probably just build on that from sort of the implications in the guidance. Everything that Mary Ellen said about this year and relative to how different it was this time last year, this is the first quarter now where we're fully aligned with our merchants and design teams and everything that Mary Ellen just mentioned gives us the confidence that we'll continue to gradually build this year.

As compared to last year, this time where we had a relatively new team coming together, we were in the process of working forward to this moment and the business performance actually degraded a little bit through the end of the year into Q4. So it's a combination of both of those years. And just to underscore also the ending inventory period at the end of Q1 is in a better place than it's been in a while, and we've adjusted the buys as we go forward a bit as well. So feel like -- so that supports as well some of the full price and new product strategies that we're executing.

Your next question comes from the line of Janine Stichter of BTIG.

Congrats on the progress. I wanted to ask about the direct channel. How do you think about restoring the more full price nature of that channel? Or do you think of it as remaining more of a clearance channel? And then on the stores, you lowered the outlook for new stores. Just curious how new stores are performing. Is this more a function of adding less new stores just based on the environment or anything you're seeing on the stores you're closing? Is there any changes to how you're thinking about the hurdles for closing units?

So I'll kick off and then Mark will join in for sure. On the direct channel, again, what we're seeing is stores are driving stronger results than direct at the moment. And again, we know that we are up against a promotional environment. But as I said earlier, we're very encouraged as we head into Q2 to see some improvement in full price selling. And we're actively taking steps to make sure that we can more fully engage that consumer in the lifestyle of the brand with the things that we talked about with a look book, with a fabric guide. The team has added video to the site. There are things that we're doing to really engage that customer because we know we're sitting in a promotional environment, but we know that we can stand out if we have the right product and the right messaging. So that's what I'll say about direct.

And I would just -- with respect to the store count and the capital, we just felt, Janine, at this point, it was prudent to nudge that down a bit. It's more about just the general environment and some of the uncertainty in the macro world and a little bit about some of the developments that are going on in the mall landscape, some of the remerchandising, the luxury additions, just to make sure that we're prudent in watching how those -- some of those efforts impact traffic and our customer, et cetera.

But we still feel very confident in the 300-store target we put out there before. I think more than anything, we're sort of reassessing the timing to that goal that feel like that's a very realistic goal. And overall, the stores continue to perform as we've indicated on previous calls, better in markets that we're reentering where we're kind of know the customer, the customer knows us, a little longer ramp in some of the new markets. We'll continue to prioritize where we can lifestyle centers and reentry markets and a select few new markets as well in the guide that we provided.

Great. And I know it's still early, but anything you can share on the initial pilot of the non-tender loyalty program?

Yes. So it is early days. We've had a very strong response so far. As you know, this J.Jill Collective is -- it's a vehicle that we will use to continue to engage and retain our existing customers and the response so far in terms of engagement has been very high. So we're looking forward to rolling that out to a broader group as we progress through the balance of the year.

Your next question comes from the line of Dana Telsey of the Telsey Group.

Mary Ellen, as you enhance the product, one of the categories that wasn't mentioned was bottoms. How did they do, whether in skirts or in bottoms? And as you see the continued enhancement of the product like the takeaways you had on shirts that were a little bit shorter, what -- how much should remain the core? How much should remain new? Do you think of it as a percentage? And then on new customer additions, any new demographic profile of those customers? And lastly, Mark, in terms of, I think there was some marketing that goes to the second quarter, how do you think of gross margin and SG&A, any puts and takes for Q2 and beyond?

Thanks for the question. I'll start with your first, which is around bottoms. And we saw a tougher first quarter in terms of bottoms. We saw growth in the other categories. Bottoms was tougher for us. And I think from what we've read, that seems to be an industry trend. We did see as the quarter progressed, our dress business picking up, which usually offsets bottoms, right? If they're buying one, they're generally -- don't need the other. So -- but we are -- we'll continue to watch as we move forward. That was one of the tougher categories. We saw great business in our jackets and outerwear as we keep talking about and again -- but dress is better.

To the point about core versus new, we are very measured about it. And as I mentioned earlier, we are making sure that the vast majority of what is in our assortment appeals to both customers. What we've seen is that when we then in any given category, offer a balanced assortment of silhouettes, 20% leaning toward new, 20% being very legacy, but the vast majority in the middle appealing to both, that's how we're building it.

In terms of shirtlings, it's interesting. A year ago, our business in tunics was terrible. We had a terrible season. And yet this year, when we reduced them, the consumer came back and said she wanted more choice in tunics. So that's one that's fortunately easy to rebalance. And we have done that in the back half of the year. And -- so I would say -- and color was also a very, very obvious call out that February leading into March was too neutral and our customer response to color. And again, we've seen that improve the Q2 business, and we'll watch that as a percent of the business going forward.

When -- look at new-to-brand customers, we are very encouraged for a few reasons. One, this new-to-brand customer coming in is younger than our customers' average age; and two, she's spending higher. And so both of those things encourage us. And so as we think about marketing efforts moving forward, right, we have things like the J.Jill Collective to retain our existing, we are focused on bringing new-to-brand in, but we are also focused on converting them to existing customers and keeping them within the brand. We're very excited about that set, which is growing and younger and has a high AOV.

And Dana, addressing your question on the marketing spend, we did -- so SG&A in Q1, we mentioned was down about $1 million, and that was driven in part by the catalog shift. It really was a 4-day shift or so from the last week in April into the first week in May. And that's a contributor to what I'll mention in a second in Q2 SG&A.

The other contributor to the upside in Q1 was project costs, given that last year, we were in OMS cutover in Q1. And this year, we have our merge planning allocation project going on, but it's a much lower burn rate than the final effort of OMS last year. So those were contributing factors. As you get into Q2, we'll continue to invest in marketing and then we have the timing shift. So that puts a bit more pressure into Q2 than we had in Q1. And the project costs really start to normalize year-over-year before they become a little bit of a headwind in the back half of the year.

So the modeling with the guidance we provided for Q2 with margin down about 100 bps implies that the margin tariff -- the net tariff load that we gave insight into that we're expecting with the inventory positioning and some of the progress that we're expecting to get some better performance through full price and yield. And then the model would indicate something like a few million dollar pressure most likely on SG&A in Q2. And I would say the first half net is probably a good way to model the back half SG&A as well in terms of -- relative to the prior year.

Your next question comes from the line of [indiscernible] of Jefferies.

I think you just touched on it a bit just now about second half gross margins. But can you just walk through the implied second half improvement for gross margin, especially after the improving tariff environment?

Sure, [indiscernible]. A couple of points on that, and it's -- I want to be really clear that we haven't factored anything related to refunds. We're sort of status quo to where we've talked previously about tariff load in the margin with the small exception that the 10% rates we had previously assumed would go through Q1. Now we're assuming they go through Q2, which is some upside in the tariff expectation.

We mentioned the full year load of $14.5 million. Last time we said about $15 million. It's about $1 million movement in that line, which does provide less year-over-year pressure from tariffs in Q3. And then we expect that at the current assumptions to be a tailwind into Q4. And at the same time, the inventory positioning, which ex all of the tariff load at the end of Q1 was down 3.5%. And we indicated in our press release today that we're positioning back half units down about mid-single digits.

We feel like that, along with the product strategies should help drive more fundamental margin at full price and yield across full price and markdown. So those are some of our assumptions, again, gradually improving and getting more so in Q3 and more so again in Q4, just as the product strategies solidify and we get reps under our belt with every floor set, and that's what's implied underneath the margin predominantly in the guide.

Your next question comes from the line of Marni Shapiro of The Retail Tracker.

Sorry, I had to hop on 1 or 2 minutes early -- late, sorry. I just wanted to ask, I know you had a little bit of trouble with the colors. But where you had color from my vantage point, it's sold out immediately. You had a beautiful pop of pink that came in, some blues. So was it across the board? Or when those colors came in, they sold and sold very quickly and at full price?

The latter, Marni. So yes, we struggled with color in Feb and March when it was much more neutral and the colors were muted. The minute that we dropped that pink delivery, the full price selling was very, very strong. Both pink solid and print that had pink in it followed up by a delivery that was all around a beautiful aqua color sold very strong. Then we go into Memorial Day, red, white and blue, very -- red always very strong for us. So color is working. And again, just something that we will be very cognizant of in terms of the percent of the assortment as we move forward.

Also, I felt like in and out of your stores instantaneously. Could we also just talk about the customer that's looking for the deals a little bit more? I guess, are these newer customers that are coming in online and looking for deals? Or are they across the file?

They are across the file, and it's what we've seen the last several quarters just continuing with the promotional cadence online being so elevated and remaining elevated. Again, what we know we need to do is we need to cut through, and we're seeing some encouraging results as we started Q2 with some full price selling in the direct channel, and we'll continue to really elevate that experience online. And as we bring new people in, be sure that they are having a full -- the true J.Jill experience and that they are converting at full price.

With no further questions, that concludes our Q&A session and today's conference call. Thank you for joining. You may now disconnect.

Hello, and welcome to the 2026 Annual Meeting of Stockholders of J.Jill, Inc. Please note that this meeting is being recorded. [Operator Instructions]

It is now my pleasure to turn the meeting over to Mary Ellen Coyne. Mary Ellen, the floor is yours.

Good morning, everyone. I'm Mary Ellen Coyne, Chief Executive Officer and President of J.Jill, Inc., and a member of the company's Board of Directors. I'll be presiding at this meeting, along with Michael Rahamim, the Chair of our Board of Directors. On behalf of the Board of Directors of J.Jill, I am pleased to welcome all of you to the 2026 Annual Meeting of Stockholders. It is approximately 8:30 a.m. Eastern and in accordance with the bylaws of the company, I will now call the meeting to order.

We appreciate you attending our 2026 Annual Meeting. All stockholders were given access to our proxy statement and annual report which contain information about the company and its business. Additional copies are available online.

Before proceeding to the business of the meeting, I would like to note that all members of J.Jill's Board are attending virtually. DeVonna Reed from Equiniti Trust Company, LLC, has been appointed as Inspector of Election in accordance with the company's bylaws. Also participating virtually are representatives of Grant Thornton LLP, whose appointment as the company's auditor for the 2026 fiscal year is up for ratification at this meeting, along with representatives of Hunton Andrews Kurth LLP, who served as our outside legal counsel. Kathleen Stevens, Senior Vice President, General Counsel, Secretary and ESG of the company, will serve as the Secretary of this meeting and will now cover the rules of conduct and agenda for the meeting.

Thank you, Michael. And thank you to the stockholders who are attending. The rules of conduct and agenda for the meeting should be visible to you on the platform. The meeting will be conducted in strict accordance with the rules and agenda. This meeting is held pursuant to a printed notice mailed on or about April 23, 2026. The notice went to each stockholder of record as of April 6, 2026. A list of stockholders entitled to vote at this meeting has been available for the past 10 days. All documents concerning the call and notice of this meeting will be filed with the records of the company. .

There are 14,906,245 shares of common stock issued outstanding and entitled to vote at this meeting. We were informed by the Inspector of Election that the holders of a sufficient number of shares of common stock are represented at this meeting to constitute a quorum.

Thank you. Because holders of the majority of the shares entitled to vote at this meeting are represented, I hereby declare that a quorum is present at this meeting in accordance with the company's bylaws and declare this meeting to be duly convened for purposes of transacting such business as may properly come before it.

If you intend to vote during this meeting, you may do so through the online platform. If you have already sent in your proxy card or voted online or by phone and do not want to change your vote, you do not need to do anything now.

The next order of business is a description of the matters to be voted upon at today's meeting. At this meeting, the stockholders will be asked to elect 2 Class III directors of the company and to ratify the appointment of Grant Thornton LLP as the company's independent registered public accounting firm for the current fiscal year ending on January 30, 2027.

The first proposal before the stockholders of the company is the nomination of 2 Class III directors of the company. The company has a staggered Board comprised of 3 classes of directors. The terms of the Class III directors expire by their terms at this annual meeting, and any Class III director elected today will hold office until the annual meeting held in 2029 or until a successor is elected and qualified.

To nominate the candidates listed in the proxy statement, I recognize the Chair of our Board of Directors, Michael Rahamim.

Thank you. I hereby nominate Michael Rahamim and Mary Ellen Coyne for election as Class III Directors of the company. These nominees are named and described beginning on Page 7 of the company's proxy statement.

You have heard the motion. Is there a second?

Second.

Since no other nominations have been made in accordance with the bylaws, I hereby declare the nominations closed. The election of directors is now in order. If you have not yet voted, please do so now before the polls close.

[Voting]

The polls are now closed. The second proposal being submitted to stockholders for action is the ratification of the appointment by the Board of Directors of Grant Thornton LLP as the independent registered public accounting firm of the company for the current fiscal year ending on January 30, 2027. I would like to call upon Michael Eck, the Chair of the Audit Committee for the recommendation of the Audit Committee and the Board of Directors in this regard.

Thank you. The Audit Committee has the responsibility of recommending auditors to be appointed by the Board of Directors. Upon recommendation of the Audit Committee, the Board of Directors unanimously voted to recommend Grant Thornton LLP as the company's independent registered public accounting firm for the current fiscal year ending on January 30, 2027. I move for the ratification of the appointment of Grant Thornton LLP to audit the financial statements of the company for the fiscal year ending January 30, 2027.

You have heard the motion. Is there a second? .

Second.

If you have not yet voted, please do so now before the polls close.

[Voting]

The polls are now closed.

The Inspector of Election has certified that the tally is complete. I now ask the Inspector of Election to report the results of the balloting.

The holders of a majority of the shares of common stock represented at this meeting have voted in favor of electing Michael Rahamim and Mary Ellen Coyne for election as Class III directors of the company and ratifying the selection of Grant Thornton LLP as the company's independent auditors for the fiscal year ending on January 30, 2027.

I hereby declare that the nominees for directors have been duly elected, and the appointment of Grant Thorton LLP has been duly ratified. I direct the Secretary to file the certified tally with the minutes of this meeting. There being no other business, the Annual Meeting of Stockholders has concluded.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the J.Jill's Fourth Quarter 2025 Earnings Call. [Operator Instructions].

Before we begin, I need to remind you that certain comments made during these remarks may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and J.Jill's SEC filings.

The forward-looking statements made on this recording are as of March 31, 2026, and J.Jill does not undertake any obligation to update these forward-looking statements. Finally, J.Jill may refer to certain adjusted 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 March 31, 2026. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page on the website at jjill.com.

I would now like to turn the conference over to Mary Ellen Coyne, Chief Executive Officer and President of J.Jill. You may begin.

Good morning, everyone, and thank you for joining us today. 2025 marks the beginning of a strategic evolution for J.Jill. We embarked on a period of testing and learning in order to build a strong foundation for our business by expanding our customer file through product evolution, enhancing the customer journey and improving the way we work as an organization.

While we delivered fourth quarter results that exceeded the updated guidance we provided in January, the period reinforced why this evolution is essential. We had an early assortment that did not resonate as hoped. We came up against earlier and deeper competitive holiday promotions. And we watch our direct customer continue to migrate towards the promotional end of the spectrum, seeking value and discounts rather than engaging at full price. Against this backdrop, our teams remained agile and reacted in season to ensure we ended the period with inventories in a clean position.

As we enter 2026, we are taking the steps to transition and position the business for long-term growth. To achieve our objectives, we must expand our customer files. This requires patience and precision. We're expanding into new categories and modernizing our aesthetic to appeal to a broader customer base. But doing so in a way that upholds the quality, fit and values that our loyal customers expect and trust from J.Jill. That's why our test-and-learn methodology is so critical. It allows us to validate new concepts with both new and existing customers before scaling, ensuring we're building sustainable growth rather than simply pursuing short-term gains.

As we move through 2026 and beyond, you'll see us continue this balanced approach. And we believe the investments and strategic shifts we are making will position us well to achieve our objectives. This evolution will take time, and we should not expect the path to be linear. But we are committed to maintaining a disciplined operating model, carefully managing expenses and leveraging our strong financial position and strengthen balance sheet as we pursue this course.

None of this transformation would be possible without a best-in-class team. A combination of strong internal leaders with deep knowledge of J.Jill, and outside leaders bringing relevant experience and new perspectives. Throughout 2025, we've made deliberate decisions to strengthen our leadership bench by recruiting proven talent with deep expertise in brand transformation. We brought Courtney O'Connor on board in July as Chief Merchandising Officer to support our product evolution. And Viv Rettke in November as the company's first-ever Chief Growth Officer to lead our e-commerce and AI initiatives. As we grow, we will continue investing in talent that complements our existing strengths and supports new capabilities.

Turning now to our 3 key strategic pillars. First, evolving the product. In 2025, we analyzed our assortment and identified areas in which we needed to streamline, remove redundancy and evolve to capture a greater share of our customers' wardrobe. We began testing categories and concepts to expand the relevance of our product assortments. In Q4, for example, we successfully tested small capsules in areas where we saw potential but wanted to validate customer response before making larger commitments.

We also piloted a localized merchandising strategy, adjusting our assortment to better reflect the lifestyle needs of specific markets. What became clear through those tests is that when we gave our customer the newness she wanted, she responded even in a highly challenging promotional environment. These learnings shaped how we approach our 2026 assortment and are informing our broader merchandising strategy going forward.

As a reminder, our summer 2026 assortment, which will be introduced in Q2, will capture the first influence from our strengthened merchant and design team and we expect continued improvements in assortment as we move throughout the year. There will be more newness with silhouettes and fabrics as well as the beginning stages of expansion into areas of accessories such as bags and belts. Our goal is to continue to provide our loyal customer the quality and value she knows and loves us for, while introducing relevant and compelling products focused on the new customers who we aim to attract.

Our second pillar is enhancing the customer journey. This past fall, we began to look at our marketing strategy differently and how we think about customer acquisition and engagement. Historically, our marketing spend has been disproportionately focused on our existing customer base. And while customer retention remains important, we know this approach was limiting our ability to expand our customer file and drive the kind of growth we're targeting.

In 2026 and beyond, we plan to continue to rebalance our marketing investments to address the top of the funnel, building broader brand awareness and capturing new customers who may not yet be familiar with J.Jill. We believe these awareness building initiatives will help us reach a larger, more diverse audience.

Our third pillar is operational improvements. Throughout 2025, we focused on strengthening our operational capabilities and leveraging new technologies that we expect to support future growth. We successfully implemented our new OMS system, providing us with a more modern platform, and created the Chief Growth Officer role to fully maximize e-commerce and AI to help drive long-term success.

As an organization, we are embracing the capabilities and efficiencies that AI can enable. With every potential use case, we ask ourselves: will it increase revenue? Will it increase efficiency? And will it drive speed to market? As we begin 2026, we are introducing several new tools across the organization and have kicked off a significant project, the implementation of a new merchandise planning and allocation tool from Anaplan.

We plan to leverage this predictive AI-powered forecasting model to optimize how we plan and allocate inventory across the business. Thanks to the hard work of our team, we are on track to go live late in the second half of 2026 with meaningful benefits expected to begin in 2027 and we will continue to improve as the system learns and we scale it to drive better demand forecasting, smarter allocation by location and reduced markdowns.

As we look forward to 2026, we are confident in our strategic direction while being realistic about the current consumer environment, the impacts of tariffs and the work ahead. While the quarter has seen a challenging start largely driven by continued price sensitivity, particularly in our direct channel, we are encouraged by the performance in our stores supported by trained associates, providing personalized guidance and tactile experiences that excite both existing and new customers around the brand's product evolution. Importantly, we are taking key learnings from these first few weeks of the year to inform our go-forward plan, all of which is reflected in our outlook, which Mark will review.

In closing, we're viewing 2026 as a period of deliberate accelerated change to expand our customer file while maintaining our operational discipline. We remain committed to our methodical test-and-learn approach, building on validated successes around new initiatives before scaling investments. I am confident that this measured approach, combined with our strong balance sheet and operational rigor will position us to achieve our objectives and deliver long-term shareholder value.

And with that, I'll turn it over to Mark.

Thank you, Mary Ellen, and good morning, everyone. As Mary Ellen outlined, 2025 marked the beginning of a strategic evolution for J.Jill, a deliberate period of evaluation, testing and learning, that began to build the foundation for expanding our customer file.

As we enter 2026, we are deploying these learnings which while we expect will take some time to fully take hold, we are confident we'll position the business well for long-term sustainable growth. Before discussing our 2026 outlook, let me provide context on fiscal 2025, which demonstrated the resilience of our operating model even as we began this evolution and despite significant external headwinds.

We generated $23.2 million in free cash flow in the year, maintained a solid gross margin rate of 68.7% despite incurring approximately $7.5 million of incremental net tariff costs. We opened 4 net new stores, successfully upgraded our order management system and delivered adjusted EBITDA of $84.3 million on sales of $596.5 million. We also strengthened the balance sheet and returned significant capital to shareholders. We refinanced our $75 million term loan, which will save approximately $2 million in annualized cash interest expense.

We repurchased $10.4 million or about 638,000 shares of J.Jill stock and paid approximately $5 million in ordinary dividends demonstrating our ongoing commitment of returning cash to shareholders and supporting total shareholder return. These results reflect the operational discipline and agility of our organization in navigating a complex environment. The tariff policy enacted in April created unprecedented operational complexity and we experienced a slowdown in our customers' shopping behavior throughout the year, contributing to a 3% decline in comparable sales for the year.

I want to thank our vendor partners for their support amidst these challenges and recognize and thank our cross-functional teams for their agility and resilience adapting their work and processes in response to the changing business requirements. Many of the same team members manage the successful March 2025 cutover to our new OMS system, a major modernization of our technology foundation.

As we move into 2026, we are planning for a year of strategic investment and measured transition. We're building the foundation for sustainable, profitable growth by expanding our customer file, modernizing our product offering and further strengthening our operational capabilities. This requires deliberate investments that will pressure near-term profitability, but position us for stronger performance in 2027 and beyond.

Our financial approach doesn't change. We're being disciplined about where we invest, measuring returns carefully and maintaining financial flexibility to adjust as we learn. Our strong balance sheet and cash position provide flexibility to execute this strategic evolution while continuing to return capital to shareholders.

With that context, let me walk through our fourth quarter performance and then provide our outlook for fiscal 2026. Total company sales for the quarter were $138.4 million down 3.1% compared to Q4 of 2024. Total company comparable sales for the fourth quarter decreased 4.8%, driven by the retail channel. Store sales for Q4 were down 9% versus Q4 2024, driven by soft traffic and conversion, which were partially offset by stronger average unit retails and average transaction values in the quarter.

Net new stores contributed approximately $2 million in revenue. Direct sales as a percentage of total sales were 53.5% in the quarter. Compared to the fourth quarter of fiscal 2024, direct sales were up 2.6%, driven by markdown sales, which benefited from ship-from-store capabilities.

Q4 total company gross profit was $87.3 million compared to $94.8 million last year. Q4 gross margin was 63.1%, down 320 basis points versus Q4 2024, driven by approximately $4.5 million of net tariff costs incurred during the quarter and deeper year-over-year discounting amidst a very competitive promotional environment. These headwinds were partially offset by favorable freight costs this year compared to last.

SG&A expenses for the quarter were about $87 million compared to $89.3 million last year as increased selling expense and G&A overhead were more than offset by lower marketing, management incentive, nonrecurring costs and stock-based compensation. Adjusted EBITDA was $7.2 million in the quarter compared to $14.5 million in Q4 2024. Interest expense was $2.2 million in Q4, down about $500,000 compared to last year, driven by the term loan refinance completed in December.

Adjusted net income per diluted share in Q4 2025 was a loss of $0.02 per share compared to earnings of $0.32 per share in Q4 2024. Average weighted diluted share count in Q4 this year of 15.3 million shares reflected the impact of repurchasing 637,700 shares in fiscal 2025. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income and free cash flow to cash from operations.

Turning to cash. We ended the quarter and full year with $41 million of cash. For fiscal 2025, we generated $42.1 million of cash from operations and $23.2 million of free cash flow, defined as cash from operations less capital expenditures. We refinanced our $75 million term loan in December extending the term through December of 2030 and saving approximately $2 million in annual cash interest expense. The regular quarterly cash dividends totaling $5 million and approximately $10.4 million of share repurchases in 2025 were funded from cash on hand. As of January 31, 2026, there was $14.1 million of availability remaining under the stock repurchase authorization that expires in December 2026.

Looking at inventory. At the end of the fourth quarter, total inventory, excluding the impact of tariffs was about flat compared to the end of fourth quarter last year, including approximately $9 million related to net tariff costs, reported inventory at end of Q4 was up 14% compared to end of Q4 inventory last year. Capital expenditures for the quarter were $10.1 million.

Total capital expenditures for full year 2025 were $18.9 million focused on new store openings and the OMS project. With respect to store count, we opened 7 stores in the fourth quarter with no closures. We ended the year with 256 stores, a net increase of 4 for the year as 9 new store openings were offset by 5 closures.

Turning to our expectations for fiscal 2026. As mentioned, we expect 2026 will be a year of deliberate investment. Our guidance reflects this along with the continued uncertainty in the consumer and geopolitical environment, the turbulent trade policy landscape and the expectation that it will take some time for new customers to respond to our evolving product assortments.

As Mary Ellen mentioned, and as is reflected in our first quarter guidance, we have seen a softer start to Q1. We expect this performance to gradually improve in second quarter as the new assortments hit in their entirety for the first time before gaining incremental momentum as we move into the second half of 2026. Further, our guidance assumes tariffs incurred and paid for products landed before February 28, 2026, will expense through the P&L during the first half of 2026.

As a reminder, these tariffs were an average rate of approximately 20% and net of vendor offsets are expected to result in about $5 million of added cost of goods sold in the first quarter compared to 0 tariffs incurred in Q1 2025. Going forward, we are now assuming 10% tariffs on goods received after February 28 through the end of the first quarter and 15% on goods received for the rest of the year. Given these rates, we expect the second quarter to incur approximately $4 million of incremental net tariff costs compared to less than $1 million incurred last year in Q2 and Q3 and Q4 to incur approximately $3 million of net tariff costs each compared to $2.5 million and $4.5 million in Q3 and Q4 last year, respectively.

Total tariff load net of vendor offsets in 2026 will be about $15 million compared to about $7.5 million incurred in 2025. Our assumptions related to tariff rates are all subject to any additional changes the U.S. may enact to global trade policies.

Further, our guidance does not assume receipt of any refunds of tariffs paid to date. For the first quarter of fiscal 2026, we expect sales to be down approximately 5% to 7% compared to last year, with total company comp sales down approximately 7% to 9%. We expect adjusted EBITDA to be in the range of $15 million to $17 million, reflecting approximately $5 million of tariff pressure.

For Q1, we expect gross margin to be down about 400 basis points compared to Q1 2025 as the annualized impacts of tariffs is incurred and product and marketing strategies are still evolving. While the quarter is off to a challenging start, as discussed, we are seeing relatively better performance quarter-to-date in our retail channel.

For full year fiscal 2026, we expect sales to be down 2% to about flat compared to last year. Total company comp sales to be in the range of down 3% to down 1% and adjusted EBITDA of $70 million to $75 million. This guidance assumes full year gross margins down about 50 basis points compared to 2025 as we expect headwinds related to tariffs in the first half to be partially offset by better full-price selling, lower promotions and lower year-over-year tariffs beginning in Q4.

Regarding inventory, we will continue to take a prudent approach to inventory investments given the relative uncertainty we have discussed with unit purchases positioned down in the mid-single digits.

Regarding store count, we continue to see opportunity to expand, but remain disciplined in our approach amidst our brand evolution. We are pleased with the performance of new stores opened to date and expect to grow net store count by about 5 stores by the end of fiscal 2026. Of our planned openings, approximately half are in reentry markets.

We expect reentry stores to ramp very quickly given the customer reception and brand awareness that exists in these markets, while new markets are experiencing a longer ramp period. We expect openings in new markets to experience about a 3- to 5-year ramp to maturity. New stores represent an attractive investment opportunity and we are excited to continue to expand our footprint at a disciplined pace.

With respect to total capital expenditures, we expect to spend about $25 million in fiscal 2026 with investments focused on new stores and a new merch planning and allocation system that is projected to be completed toward the end of 2026. Regarding free cash flow, we expect free cash flow for fiscal 2026 of about $20 million.

And finally, with respect to cash distributions, we announced today that our Board of Directors approved a $0.09 dividend, reflecting a $0.01 or 12.5% increase in our ordinary dividend payable April 28 to shareholders of record as of April 14, and we have $14 million remaining on our share repurchase program, which is authorized through December 2026. It is important to note that given the timing of year-end and Q4 earnings announcements, our Q1 repurchase window tends to be shorter than other windows during the year.

In summary, we believe we are making the adjustments necessary to position the business for sustainable growth. We are confident the modernization and evolution of our product and marketing efforts will enhance and broaden the appeal and awareness of our incredible brand. And we believe the investments we are making in our front-end MP&A platforms will position us well and provide benefits into fiscal 2027 and beyond, all while continuing with our commitment to distribute excess cash to shareholders through our ordinary dividend program and share repurchases.

Thank you. I will now hand it back to the operator for questions.

[Operator Instructions]. Your first question comes from the line of Jonna Kim of TD Cowen.

Your customers are more sensitive to macro, how would you assess how much of the softness you're seeing in the first quarter is due to macro versus other factors? Would love any color there?

And then second question, how will this year's Mother's Day differ from last year? What are key product and marketing changes ahead of the Mother's Day.

Good morning Jonna, thanks for your question. So we are at the start of a very deliberate evolution. That being said, we do believe that Q1, which had a challenging start, was amidst of very tough macro backdrop, and we've talked about this consumer being impacted by that. We absolutely see that more in our direct channel, which is a continuation from what we saw in Q4. What is very encouraging to us is what we are seeing in stores with our talented store teams able to engage to have convert new customers and existing customers.

But we do believe that the macro environment had an impact in this quarter for sure.

With respect to Mother's Day, the marketing team has exciting initiatives in play. We are really focused on the timing of when we're launching our catalog when we are launching digital marketing. There is a whole program around it that we're super excited about, all backed up by a product drop that is coming in the 10 days before.

Your next question comes from the line of Dana Telsey of Telsey Group.

A lot of work underway. As you think about the product assortment and the test-and-learn that you've put in place, what is changing, bottoms, tops, sweaters, style, look, prints, patterns, what is changing? And what do you expect to see and when will the new full assortment be there?

And then with the customer acquisition strategies, who do you want to capture now that's different than your old customer? And as you think of the balance of the business, how much should be new versus existing customers go forward?

And then lastly, Mark, just on the components of margins. What are you seeing from energy prices and the impact of freight costs?

Good morning Dana. I'll start with the first question, which is what is changing in the assortment. So we are taking this time to really test and learn coming out of Q4 going into Q1. And what we are focused on is both new and existing customers achieving more of her wardrobe.

We are moving with what we are calling a more modern aesthetic, which is really addressing her lifestyle, and that lifestyle will be built with core things that she has known and loved from the J.Jill brand for years, accentuated by newness, and we see her really responding to newness, but it's how we give her versatile wardrobing pieces that take her through every aspect of her day and her life.

We see it being a very balanced approach, both in product and in marketing with everything we do, really benefiting the 3 customer segments that you referred to, right? So as we think about customers, we are focused on retaining the customers we have. We are focused on attracting new, and we are focused on reactivating people who have not shopped the brand recently. When we think about this customer segment, we love this customer segment. She's loyal. She's responsive. She has money and time to spend on herself. When we look at the segment today, we -- 45 to 65 is our target audience.

Today, our customer sits at the higher end of that and we know we have tremendous opportunity to target the middle of that range and bring very qualified women into this audience.

Great. And with respect to the gross margin, Dana, as we discussed on the last question, the macro environment is obviously very volatile right now and evolving quite real time. What we've included in our guidance is anything that we have seen concrete as of now with respect to gas or oil prices, et cetera.

What that means is that in sort of the ocean container rate environment, we've seen some momentary spikes here and there, but it seems to be normalizing itself fairly quickly. And so right now, what we're seeing is more flat ocean container rates, maybe up a tiny bit that we would have factored in. I mentioned in Q4 was the first quarter in a while where we actually had freight -- small freight savings.

And now, as I mentioned, more flat, maybe a little bit of pressure, but still watching it closely and it's evolving real time. In the expenses, we've seen some of the carriers, including the USPS pass-through fuel charge surcharges and we've reflected that in our SG&A included in our guidance going forward.

Yes. And I just want to circle back for one minute, Dana and just reiterate, while we know we have a great customer, we also know the #1 priority for us is to appeal to a broader audience, and we're excited about some of the testing that we've done with performance indicators that are encouraging as we move forward.

Your next question comes from the line of Corey Tarlowe of Jefferies.

Can you talk a little bit about trends by month? And any color on what you're seeing quarter-to-date?

Yes, Corey, it's Mark. With respect to Q4, we mentioned, overall, it was a pretty promotional quarter. It was markdown driven, particularly in the direct channel. The month themselves, January was the strongest, and it was sequentially better than December, better than November.I think we messaged some of that in some of our intra-quarter remarks that we've made around the guidance. The January performance was heavily sale. It's a sale period. It was heavily markdown driven as well. So the cadence was, as I mentioned, but with a deepening markdown support later in the quarter.

And then I would say quarter-to-date, we've seen a challenging start. We mentioned that in our remarks. It's very much in line with how we've guided the quarter overall and are committed as we exit all of these quarters through this learning period to manage our inventory as necessary during the quarter to exit as clean as we can entering the new quarter.

Understood. And I think you mentioned a new merchandise planning system. I know that there have been other initiatives that you've undertaken, whether it was the OMS project or other items. Can you talk a little bit about the benefits of this, what the costs are and then how we should think about other incremental projects that are coming in, in this year, which I think you called an investment year?

I mean, Corey, I'll start just by saying we are so excited about the MP&A project through Anaplan. It will allow us to take what is today a very manual Excel-based system and move it to predictive AI forecasting, which will allow us to have inventory optimized in the right location, in the right depth at the right time. So we're very excited about what this means from a customer service -- customer experience because the inventory will be where they need it, but also from a revenue and margin driving initiative.

Yes. And Corey, the OMS, one of the great advantages of the OMS project was taking a very old system and modernizing it, which then enables you to bolt in these newer technologies. So excited to be leveraging the newer platform to now start enhancing front-end systems, as Mary Ellen mentioned.

With respect to the investments, I would say the investments this year continue to be new stores. We mentioned we're opening net 5. We also have some relocations in the plan in 2026. And then the Anaplan project is a more targeted project than an OMS project would be. An OMS project is far region, which allows us within the capital guide that we provided to also invest in other smaller systems enhancements, benefits. Mary Ellen mentioned a few of them in her remarks around driving direct business, et cetera. So that's kind of what's behind the expectation of it being an investment here with respect to capital.

And then in the SG&A side of things, the investments really start with marketing more in Q2 and forward and then obviously, payroll and some of the investments we've made in talent.

Your next question comes from the line of Dylan Carden of William Blair.

This is Anna Linscott on for Dylan Carden. So the guide implies a softer first quarter with improvement as the year progresses, which I believe is a similar setup to this time last year. What would you say is different this year versus last year that gives you the confidence in the back half inflection? And how much of that outlook depends on macro stabilization or improvement?

So I'll start -- thank you for the question. Listen, as we're entering 2026, we are in a period of evolution, and we are testing and learning every day. What I would say is we are sitting today with an incredibly talented team who are aligned on our vision and are committed to our journey. So as we move forward, we will see product improvements through Q2, 3, 4. We will see learnings from our marketing initiatives that we're testing, where we are rebalancing spend, where we are trying new things. And moving forward, we'll see that growth as we lean into the things that are working and equally as we pull away from those tests that don't.

I was just going to add with respect to the Q4, as Mary Ellen mentioned, the product, obviously, it's -- we're still pre the new assortments in Q1. And we're also in that period of unanniversaried tariffs. So the first half of the year, currently, as we outlined in my remarks, carries $9 million of tariffs against less than $1 million last year. And then that tariff load actually evens and becomes again, assuming the assumptions that we laid out that the tariff rates for the rest of the year around 15% post the Q1 receipts that Q4 would then turn to a small tailwind.

So just with respect to the years over years, there's some elements of just that structural component of tariff that supports that as well.

Understood. And then on pricing, do you guys see additional opportunity for targeted price increases in 2026? Is this reflected in the current guide? Or does the current consumer environment warrant a more cautious approach?

We will be taking a very measured approach to pricing. As we've said in our remarks, we have seen the overall consumer and specifically our direct channel be more price-sensitive. We're seeing incredible promotion out there in the market. So we will be very measured about any increases we take in price.

And your next question comes from the line of Janine Stichter of BTIG.

You've got Ethan Saghi on for Janine. Can you just provide some more color on which categories performed well and which may have lagged in Q4 and quarter-to-date?

Sure. So in Q4, what we saw was that newness and novelty were driving the business. So where we had repeat programs from a year prior or 2 years prior, they were very soft. We also saw success in some of the tests we had out there. We saw success in our travel capsule. We saw success in expanded categories in outerwear. We saw the start of accessories, which has really moved into Q1 as a success story and we tested some price points, particularly in sweaters with cashmere and saw success.

As we moved into Q1, we are seeing newness rebounding. We are -- but again, Q1 is not indicative of our true product evolution. Where we really see that evolution is in Q2, where newness in fabric and silhouette and category mix really starts to evolve based on our learnings. Clearly, with the goal to drive full price selling in both channels because we know that we've really seen the retail channel working. We've seen things like our dress business turnaround. It's exciting to see what's happening there.

With no further questions, that concludes our Q&A session and also concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Jill, and I will be your conference operator today. At this time, I would like to welcome everyone to the J.Jill Third Quarter 2025 Earnings Call. [Operator Instructions] Before we begin, I need to remind you that certain comments made during these remarks may constitute forward-looking statements and are made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and J.Jill's SEC filings. The forward-looking statements made in this recording are as of December 10, 2025, 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 10, 2025. 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 would now like to turn the conference over to Mary Ellen Coyne, CEO. You may begin.

Good morning, everyone, and thank you for joining us today. As seen in our press release this morning, we had a solid third quarter. We delivered better-than-expected earnings results with top line at the high end of our expectations for the period and drove healthy cash generation, a hallmark of our operating model. During the third quarter, we saw positive response to newness in the assortment, particularly in jackets and bottoms, including our fashion denim, faux suede and full leather outerwear.

We also took opportunities to test and rebalance our marketing mix, pulling back on catalog circulation while leaning into digital channels where we know customers are increasingly transacting. Within digital, we saw success, especially in prospecting where growth in new-to-brand customers delivered a healthy return. We also refreshed our imagery in store windows, digital and catalog, leading to positive responses with customers noticing the more compelling displays and presentations.

From a retail expansion perspective, we opened 2 new stores in Q3, one in Chicago, a reentry market and one in Houston, an existing and growing market for us and are pleased with the early results they are driving. As we exited October and entered November, however, we saw a change in trend. The competitive market became very promotional very early. The customer demonstrated increasing price sensitivity and our holiday product assortments did not resonate as well as we had planned.

Importantly, we are not standing still. Our entire team is collaborating, bringing fresh perspectives and new ideas as we focus on reinvigorating the customer file and driving growth. As we talked about previously, our goal for the second half of this year was to test and learn and inform our plans for 2026 when we will have the ability to more fully influence the product assortment.

We remain focused on our 3 strategic priorities. First, evolving our product assortment. Our merchandising and design teams are now in place and working together to eliminate redundancy, incorporate new styles that serve more of our customers' lifestyle needs and focus on areas where we see opportunities for scale. We recently introduced very small capsules in sleep, travel sets and cashmere that we were able to chase into for the holiday season and are seeing strong full price results despite the promotional trends I mentioned earlier.

We have also begun testing a more localized merchandising and planning strategy with promising early results from our New York store pilot, where we tailored the assortment to local customer preferences. Second, enhancing the customer journey. We will continue to rightsize our catalog circulation while reinvesting spends across channels and marketing funnels. Building on our small localized television advertising pilot last quarter, we are now testing a small national linear and streaming broadcast pilot as we continue to assess and learn how best to expand our reach.

Our stores continue to serve as powerful marketing vehicles, driving brand awareness while maintaining strong economics and profitability. We are excited for the new stores that will open before the end of the fiscal year, including our most recent opening in Pinehurst, North Carolina in November and our anticipated reopening in Asheville this month. We look forward to continuing to capitalize on the long-term opportunities for store growth ahead.

Lastly, we are enhancing the customer experience with plans to launch a non-tender loyalty program toward the end of this fiscal year. Third, improving how we work. We recently took decisive cost actions to streamline our organization and improve operational efficiencies. These changes, while difficult, position us to operate more nimbly while investing in growth initiatives. We also created a new chief growth officer role, welcoming experienced consumer executive, Viv Rettke, to our team to lead our e-commerce business, advance our AI initiatives and drive our longer-term strategic road map.

In summary, while we are focused on managing through the remainder of the year, the progress we are making on our initiatives today is building the foundation for our next chapter of growth focused on expanding our customer file. We are modernizing our brand presentation, maintaining the loyalty of our core demographic as we welcome new customers and leveraging technology to work smarter and faster. The foundation is solid, the opportunity is clear and the execution is underway. Now I'll turn it over to Mark for detailed financial results.

Thank you, Mary Ellen, and good morning, everyone. Before I dive into our results and outlook, I want to reiterate Mary Ellen's confidence in the foundation of the business and the progress we are making toward the opportunities ahead. Over the past several years, we have developed and executed a disciplined operating model that generates dependable, strong cash flow that we have been investing into the business and distributing to shareholders through our ordinary dividend and share buyback programs. While we are focused on executing the fourth quarter and end of year 2025, we are also sharpening and evolving our product and marketing efforts to position the business for 2026 and beyond.

Now I'll review results for the third quarter in detail. Total company comparable sales for third quarter decreased 0.9% compared to negative 0.8% last year. Total company sales for the quarter were about $151 million, in line with the higher end of our expectations, down 0.5% versus Q3 2024. Total company sales performance was driven by our direct channel as direct sales were up 2% compared to the prior year, while store sales were down 2.6% compared to prior year.

The difference in channel performance was largely driven by traffic trends as our direct channel saw positive traffic and some benefit from ship from store, while store traffic was soft in the quarter. In both channels, we saw lower conversion trends. However, our teams did a nice job managing promotions and markdowns to yield higher average unit retails. Q3 total company gross profit was about $107 million, down about $1 million compared to Q3 2024.

Q3 gross margin was 70.9%, down 50 basis points versus Q3 2024 and included approximately $2.5 million of net tariff pressure in the quarter. This tariff pressure was less than originally expected due to timing and mix of sales and was partially offset by positive average unit retails compared to last year. SG&A expenses for the quarter were about $92 million compared to approximately $89 million last year. The increase was driven by nonrecurring costs and shipping expenses associated with ship from store.

Importantly, at the end of the quarter, we took decisive actions to rightsize our organization and better prepare our teams to support future growth more efficiently. These actions will positively impact SG&A in the fourth quarter and into 2026, helping to offset expense pressure from new store growth and inflation. Adjusted EBITDA was $24.3 million in the quarter compared to $26.8 million in Q3 2024.

Interest expense was $2.7 million in Q3 compared to $2.8 million last year. Adjusted net income per diluted share was $0.76 compared to $0.89 last year, which reflected an average weighted diluted share count of 15.4 million shares this year versus 15.5 million shares last year. We repurchased 115,612 shares for approximately $2 million in the third quarter, bringing year-to-date repurchases to about 371,000 shares for $6.5 million, resulting in approximately $0.02 benefit to reported third quarter adjusted diluted EPS.

As of November 1, we have approximately $18 million remaining on the $25 million share repurchase authorization. We also paid our quarterly dividend of $0.08 per share on October 1. And as announced on December 3, our Board approved payment of the Q4 dividend on January 7 to shareholders of record as of December 24. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures.

Turning to cash flow. For the quarter, we generated about $19 million of cash from operations, resulting in ending cash of about $58 million. End of quarter inventory was up 8.4% compared to end of Q3 last year. Excluding approximately $6 million of net tariff costs, inventory was down 1% compared to end of quarter last year. Capital expenditures for the quarter were $3.3 million compared to $5.5 million last year, with investments focused primarily on store-related projects.

With respect to store count, we ended the quarter with 249 stores compared to 247 stores at end of third quarter last year. We opened 2 new stores at the end of the third quarter. The first, a new store in the existing Houston, Texas market in Kingwood and the second, a reentry in Orland, Illinois in the Chicago market.

Turning now to our outlook for fourth quarter and full year. As Mary Ellen mentioned, there is tremendous opportunity to evolve our product and marketing to broaden the appeal of the assortments, drive awareness and ultimately drive growth and have already been making small tweaks with encouraging results. The full impact of this opportunity will be felt more meaningfully next year.

With respect to Q4, the competitive promotional environment elevated with many going early and deep with Black Friday deals. While our Black Friday, Cyber Monday weekend showed some strength, overall November was challenging, and we believe the elevated promotional environment will continue through the quarter, which is assumed in our guidance. For the fourth quarter, we expect sales to be down approximately 5% to 7% and total comparable sales to be down 6.5% to 8.5%.

And regarding adjusted EBITDA, we expect Q4 adjusted EBITDA to be in the range of $3 million and $5 million, reflecting significantly more gross margin pressure than experienced in Q3 given the elevated promotional environment and the expectation that the full impact of approximately $5 million of net tariffs will hit cost of goods sold in Q4. These pressures will be partially offset by slightly better year-over-year freight costs.

In addition, while we expect SG&A dollars to be relatively flat compared to the fourth quarter last year, we expect it to deleverage given lower sales. Our year-to-date performance and expectations for the fourth quarter would imply that for the full year, we expect sales to be down about 3% and comparable sales to be down about 4% compared to fiscal 2024 and for full year adjusted EBITDA to be between $80 million and $82 million.

Regarding store count, we expect to open 7 new stores in the fourth quarter, including one opened in November in Pinehurst, North Carolina, a new market for us. We do not expect to close any additional stores this year, resulting in 4 net new stores for fiscal year 2025. And with respect to total capital expenditures, we expect to spend about $20 million in reported CapEx during fiscal 2025.

In closing, we are focused on continuing to operate the business with discipline, which, as demonstrated in the third quarter, generates strong free cash flow and supports the investments we are making into the business and our commitment to distributing excess cash to shareholders as evidenced by our continuing dividend and share repurchase programs.

We are energized by the work we have underway and confident that the strategies we are developing are setting the foundation to further support long-term profitable growth. Thank you. I'll now hand it back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Jonna Kim of TD Cowen.

Just curious on how you're thinking about next year as you think about merchandising and also marketing, how you're prioritizing some of your initiatives there? And then just how would you characterize the softness that you saw in fourth quarter? Is that more macro driven in your view? I know you also mentioned the holiday products may resonate, but what changes you could have made potentially to have better resonance with consumers there would love additional color?

Good morning Jonna and thanks for the question. As we had mentioned earlier, entering Q2, we knew that we could not influence much with respect to the product. So we are very pleased at how the team navigated and delivered Q3. That being said, towards the end of the quarter and moving into Q4, we have seen a soft start, particularly in response to the assortment. But there's very heavy promotion out there, which started much earlier and deeper than usual, and the customer is demonstrating increased price sensitivity.

So I think that in conjunction with a softer assortment led to the results that we're seeing today. What we're very encouraged by as we think about 2026 are the learnings that we've had coming out of this quarter. And to your question, we -- about product and marketing, we will be able to influence product assortments as we get toward the end of Q1, and those will be continuing to evolve as we go through the year. We've also done some marketing tests, as we mentioned in the script about really evaluating cert, evaluating digital, rebalancing and seeing some of those successes, we believe we're poised to make adjustments to our marketing mix next year that will really resonate, bringing in new-to-brand customers, but also maintaining our loyal customer base, which is so critical for us and increasing retention and spend on that front.

And Jonna, I would just add on to Mary Ellen's comments regarding Q3 into Q4 that Q4 is really never our favorite quarter here. It's different than many other retailers in that our holiday is not -- it's not our biggest quarter. It's always promotional, and it's the least sort of aligned with our full price model just given that level of promotion.

The sort of macro versus our own product, I think it's both to the points that Mary Ellen just made and really coming into November where a quarter that is heavily front-loaded right up until the holidays and Christmas and then becomes very sale focused in smaller weeks for the rest of the quarter sort of leads us to the guidance to really put out there our expectation that it appears that with those macro factors in November, with the fact that the competitive environment is very promotional, we expect that, that promotional level will continue, and we will do what's necessary to manage through this Q4, like we kind of always do, but manage through this Q4 to then enter Q1 of 2026 clean and really sort of start to see what we're all excited about, what Mary Ellen just talked about with respect to the product and the marketing adjustments that we're making along the way.

Your next question comes from the line of Corey Tarlowe from Jefferies.

Mary Ellen, I was just wondering if you could talk about from a high level, what worked well in the third quarter and maybe quarter-to-date as well, where you've seen some green shoots from a product perspective, that would just be good to get an understanding of?

Sure. Thanks, Corey. Yes, in Q3, we saw particular strength in product categories, bottoms and jackets and outerwear. And we are encouraged as we've seen jackets and outerwear continue to perform in Q4. What we're most encouraged about are some of the categories where we've done some testing. We've seen newness work in Q3 which is very exciting, again, particularly when we sort of leather -- full leather, faux suede and the percent of newness really outpacing -- sales outpacing inventory was very encouraging.

As we look forward, some of the tests that we've done where we mentioned where we've put cashmere back into the business in a very small way as the test has one, where we've leaned into sleep has one. So we're excited about those things as we move forward.

That's really helpful. And then just for Mark, it sounds like you've really kind of taken cost out of the business. Mary Ellen, I think you mentioned that you also made a new hire in AI and technology. So I'm curious about how you -- the role of technology or how you see the role of technology evolving the business going forward and where you see opportunities for leverage and further efficiencies?

Yes, Corey, let me start and Mary Ellen can fill in on some of the exciting news around the new appointment. What I would say is a lot of the heavy lifting on systems that we've done to date, which are large foundational systems help prepare the tech stack to be ready to take advantage of the new technology, AI, et cetera, just by getting cleaner data, getting cleaner and easier and easier is maybe not the word, but more modern interfaces and integration layers with our systems.

So we get excited about the capabilities that, that presents for us as we go forward and definitely do view having that sort of foundation laid the opportunity to now continue to push into more front-end business type systems enabled with the newest technologies that we can start to test and get efficiencies from as we go forward.

Yes. And I'll just jump in and say we're very excited to have Viv join the team and lead our AI -- our technology initiatives, specifically focused on AI. As you know, as Mark just mentioned, there are -- there's so much out there that we can really incorporate into our business process that will just make us more operationally efficient. It will allow us to move faster. It will allow us to test and learn. So we're very excited about the road map that we are building with Viv that incorporates both larger scale projects and then small platforms that we can plug in to see some quick wins. And it's for us, it's very important to have someone here day-to-day really leading that champion that effort as we're all working on so many different things.

All right. Thank so much and best of luck.

Your next question comes from the line of Marni Shapiro of The Retail Tracker.

Congrats on the quarter, and I know it's tough out there, but I have to say, I think your stores have looked very good. And cleaner, I guess, is the best way, easier to shop. I don't know, they look a little bit more modern. So kudos for that, because I think it does look different in there.

Can you talk a little bit, because now I'm wondering have I've been in some of the stores in the localized strategy. Can you talk a little bit about the test you ran on the localized strategy, kind of what you did, what that is about and then how that also impacts your marketing? Because I think you talked about some localized strategy even within marketing and streaming and things like that?

Sure. Thanks, Marni. Our -- the test that we did in the New York stores, it's interesting. We very -- we went in very strategically and thought about the customer and the end use and have really made the assortment more relevant for her lifestyle. So it starts with the products we put in there. Obviously, New York, we're going to do more black, a little bit more put together. We've taken some of the print mix out and then really set the store up in a way that we find it very easy for her to -- it's compelling and it's easy for her to shop and shop for outfits.

We've changed the window graphics and the mannequins, and we've gotten street traffic based on that. So very encouraging. And with the caveat that this is a test of one store. What we truly believe, though, is that we can have categories of stores that are -- we're doing allocations by climate, by end use. And so we think that there's a lot more to come in '26 as we dive into this.

Important too, though, local strategies around marketing. So the first one was our broadcast television pilot, which was in three markets where we saw a lift, obviously, engagement, but a lift in new-to-brand customers and traffic overall to the site and to the stores. But again, a test of 3 markets. So we've rolled out a broader test, which we will be evaluating shortly, and I'm encouraged by that.

We also, in our Chicago market, where we opened a store in Orland Park and went in and did a heavy up where we really leaned into digital social advertising in those markets and saw a really strong return in Q3 as we did that. So again, all of these tests important as we move into 2026 and really think through how we have a greater impact with these efforts, both on the product and the marketing side.

That's great. And can I also do one quick follow-up just on some of the product. You said you had put cashmere in there. You mentioned that some of what I would call the novelty denim sold out. I've noticed certain things that have sold out in your stores just sold down very quickly. It seems to be the items that are new, novel, they're not just wardrobe updates, they're kind of something fresh and new. Is your customer passing right now on just -- an update and looking for what's new? And are you able to shift the assortment for the first half of '26? Or is it too late? Like how are you thinking about all of that?

Yes. So what I would say is what we saw particularly as we had ended Q3 and headed into Q4 is we did not have enough newness that the customer really is looking for that. At this moment in time, with the environment the way it is incredibly promotional, with consumer sentiment where it is, she's being very choiceful. So what we're very encouraged by is when we have something new in front of her that she's excited by, she will respond. So as we head into the back half of Q1 and the balance of 2026, that is absolutely the way that we are moving forward, ensuring that we have enough newness for her, protecting the core items that she's always loved from us, but really making sure we have enough newness on the floor to keep her engaged.

Your next question comes from the line of Janine Stichter of BTIG.

Mary Ellen, you mentioned pricing sensitivity with the consumer. I think you took some price increases, small in August and I think a little bit more in September. I'm curious what you learned when you took those price increases and how that impacts your thoughts on how much you can offset the $5 million tariff headwind?

Sure. Janine, we took very strategic and measured price increases in Q3, right? So rather than taking prices up across the board, we went in where we really thought the customer would respond and would not have an issue with it. What we saw was an overall AUR increase in Q3. So we're pleased that she has responded well, and she is going with us with those increases. And it was, as we mentioned earlier, it was a single-digit percent that we took prices up. So far, we're pleased with the response.

Okay. Great. And then maybe just as we think about kind of the right level of promotion for the business, and I know Q4 is a particularly weird time, but how do you think about what the right level of promotion is? And also, I'm curious about how you're planning inventory for next year. It sounds like the goal is to end the year fully clean and be off to a fresh start in Q1. But how do you think about the first half purchases just given the volatility out there?

Janine, it's Mark. I'll answer the inventory question first. We're going to plan inventory as conservative just knowing that we are sort -- with the we're evolving the product assortments and that we are exiting this sort of unknown end date of when the consumer sentiment stabilizes and hopefully starts to increase at some point. So we'll be relatively conservative on the inventory buys going into the year.

Yes. And Janine, I would say on the promotional front, Q4 is always the most promotional quarter. What we've seen is that our direct peer set started much earlier and much deeper starting back at the beginning of October. So we're seeing elevated promotions this year across the board. And we will do -- we will manage our promotions to get out of the fourth quarter clean, as we look to 2026, we're obviously looking to be very measured in how and when we promote. And obviously, response to product is key there. When we see her response to good product, we know we don't need to be promotional.

Your next question comes from the line of Dylan Carden of William Blair.

This is Marcus Belanger. I'm on for Dylan. I'm just curious, can you talk a little bit about your pricing strategy going into 2026? Are you planning to be as conservative as you've been thus far? And can you talk a little bit about what you're seeing from your consumer? I know they're sort of at the higher income demo. So that's been the one that's been reported to be driving the economy. So can you provide a little color on that disconnect and just your overall read on the higher income shopper?

Marcus, it's Mark. I'll take the first part on pricing, and then Mary Ellen can jump in on the second part. I would say that as Mary Ellen just answered in the previous question, we'll continue to be very strategic with respect to pricing. And that means not going and spreading peanut butter price increases across the assortment.

It means looking strategically with the merchant teams and identifying pockets of opportunity relative to the competitive sets and relative to what we feel is a great -- still a great value for money that you get. So that sort of approach that we've already launched with, which Mary Ellen said is in the low single digits, that approach continues.

Yes. And what I would add to that, Marcus, is we -- as we look forward and as assortments evolve, our pricing strategy will be reflected in the assortment. So as we rebalance, we'll do the appropriate -- take the appropriate actions as we move forward. As Mark said, we're going to be very strategic. We're going to be very targeted as to where we believe the consumer will pay the price. This is a brand that has always been known for value and for quality, and we will protect those.

That being said, several of the styles that we have tested end of Q3 and into Q4 that are at higher tickets have worked in small tests, small product categories, but they've worked. So we're encouraged as we move forward, but we'll be very diligent about where we believe the price is worth the value.

I guess on gross margin, if you add back the 2.5% tariff better-than-expected performance, you kind of get to what you previously guided to. Were there any other things embedded in the third quarter performance that surprised you?

Marcus, what I would say is the offset to the tariff pressure of the $2.5 million, which is straight math, is largely the AUR benefit that we were able to see. And I would just build on what Mary Ellen just said that pricing -- strategic pricing increases can work all the way through the yield curve. And in Q3, we did see a lot of that benefit come through in the markdown part of the yield curve with opportunity as we go forward with all the assortment and marketing evolutions we're putting in is to drive more at full price and yield the full price as well.

So -- but in the quarter in Q3, the offset was largely the AUR that we realized in the quarter that helped offset that $2.5 million worth of tariff partially. And then there was a little bit of freight upside in the quarter as well. But the lion's share was the AUR performance.

With no further questions, I would like to turn the conference back over to management for closing remarks.

Thank you all for joining us today. We look forward to speaking with you again on the fourth quarter call, and we hope that everyone has a happy and healthy holiday seasons.

This concludes today's conference call. You may now disconnect.