Linda Heasley - Chief Executive Officer David Biese - Executive Vice President, Chief Financial and Operating Officer.

Lorraine Hutchinson - Bank of America Merrill Lynch Oliver Chen - Cowen & Company Janine Stichter - Jefferies LLC Paul Trussell - Deutsche Bank Kimberly Greenberger - Morgan Stanley Ike Boruchow - Wells Fargo Securities LLC Brian Tunick - Royal Bank of Canada.

Good morning. My name is Carole and I’ll be your conference operator today. At this time, I would like to welcome everyone to the J. Jill Second Quarter 2018 Conference Call. On today’s call are Linda Heasley, CEO of J. Jill Inc.; and Dave Biese, Executive Vice President and Chief Financial and Operating Officer.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Before we begin, I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the press release and J. Jill’s SEC’s filings.

The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward-looking statements. Finally, we may refer to certain adjusted or non-GAAP financial measures on this call.

A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available on our press release issued today. If you do not have a copy of today’s press release, you may obtain one by visiting the Investor Relations page of our website at jjill.com. I will now turn the call over to Linda..

one, knowing our customer, validating who she is and what we are to her as well as we want to be and what we should be to her; two, defining the brand by which I mean product on the one hand and how we message to her on the other; three, developing more efficient and effective support functions of the business, so we can be even more focused on the customer; and four, identifying the best prospects for growth.

These focus areas will require an investment of time and other resources and are part of a developing and comprehensive list of initiatives that we will be executing throughout this year and next. To start knowing our customer, who is she and what are we to her? I have tasked our entire team to refocus on our customer.

Our customer exhibits are real love for our brand, something which is truly special in a retail environment right with fickle consumer behavior. J. Jill has an admirable base and consequently the opportunity to be more to the women we serve.

We have the experience and expertise to be special to women new to the brand, women currently unaware of who and what we are. We need to think less about age and age cohorts and more about life stage, mindset and style sensibility. Age is an imprecise indicator of customer behavior.

We are asking and listening more to what she is telling us, not just about specific garment and wardrobe requests, but also about how the fabric and construction feels and moves with her through her very busy day, as well as how easy it is to clean, pack, and style.

And she clearly appreciates the smallest of details in the products that are unique to J. Jill and that make her feel unique as well. Second, brand definition first with product. All of our channels would benefit from a new focus on product. We need to be even more relevant and current.

I believe that for a period, we have relied too heavily on variants of tried and true offerings, and some customers became fatigued with the absence of newness. This is a testable hypothesis. We will offer fresh takes while continuing to offer a core selection of the staple she expects from us.

As I have mentioned, I’m working closely with our merchandising and design teams and we are adjusting our plans, where we can. I have been pleasantly surprised with the flexibility that we have in our supply chain.

We are continuing to improve lead times and cultivate a test-and-learn strategy to enable us to more quickly prototype and scale opportunities. That said, the impact will come in stages and will begin to be realized in the middle of next year.

Related to this, we are putting a greater focus on our extended size women’s business and testing various merchandising options in our stores, as well as improving messaging and search on our digital platforms. You will see more inclusive imagery and messaging across multiple touch points in the upcoming quarter.

Helping us in this regard will be our new Senior Vice President and Chief Merchandising Officer, Shelley Liebsch, who I welcome to J. Jill.

Shelley has a great background having worked in a range of vertically integrated specialty retailers like Victoria’s Secret, Urban Outfitters, and Anthropologie, and most recently, at Destination Maternity, where she had led design and merchandising functions for the past two years. And in her role at J.

Jill, Shelley will be a key partner to Joann Fielder, our Executive Vice President and Chief Creative Officer, in-charge of design and creative expression. Both roles will report to me. I’m excited to have Shelley join us at this juncture and bring a new perspective to our offering.

A second major component of brand definition is how we reach and message potential and existing customers and continue to grow our base. As we evolve the product line to be even more relevant and current, we’re also evolving how we speak to our customers by communicating a more effective and cohesive message across the full spectrum of touch points.

Our use of a catalog continues to be a key marketing vehicle. Yet we are developing ways to contemporize our approach and integrate it more completely with her shopping experience across all channels. For starters, we have shifted to more lifestyle imagery that fosters a sense of time, place, and community as part of our creative expression.

We have included a range of styling cues to show her the versatility of the garments to dress more relaxed moments to time when she wants to feel a little more tailored to put together. We have updated our online shop to look feature to match the catalog imagery.

And in September, we will test an enhanced version that will enable minimal click shopping of the image itself. Our website is, of course, a very important touch point. We can do much with engaging her in the brand experience through this capability, and leveraging this part of the business to further connect the components of the omnichannel model.

She tells us that if she can see how it fits on her, she will purchase. We will soon be launching enhanced fit and size tools to assist her in her selection process. Also, beginning this fall, you will see exclusive capsule collection for the e-commerce channel called online editions, these of the moment statements will hearten to what J.

Jill has meant and will always mean to our customers, always appropriate of the moment unique offerings that complement all of her wardrobe options. We start with our White Shirt Shop, which will be launched in context with the store and catalog with additional unique styles online.

Mobile is, as you probably expect, the fastest growing touch point and we’re working to continue to find new ways to provide ease of shopping and transacting on mobile and smart devices for our customers.

This is important to capitalizing on traffic, but it’s also often our best foretaste of emerging ways customers, especially new to brand customers would like to interact with the brands. You will also see an enhanced focus on community, digital and social with fresh content across all channels beginning with our fall campaign.

Our Compassion Fund was founded in 2002. And since its inception has donated more than $14 million to a network of women shelters, targeted at addressing issues of homelessness and domestic violence.

Through ongoing work with our Compassion Fund partners and new efforts to maximize our social footprint, you will hear it leverage our voice more on these very important programs appropriately addressing women’s issues. Our September and October catalog, store presentation and digital platforms showcase members of this partnership of organizations.

I hope you are as touched and humbled as I’m with their stories for why they do, what they do. Overseeing J. Jill’s go-to-market resources and the work I have just described, requires more than my attention.

And we are delighted to announce that Brian Beitler will be joining us as our Executive Vice President and Chief Marketing and Brand Development Officer. I have worked with Brian before. He brings a wealth of experience and customer-facing strategies and brand management. Recently, he was Chief Marketing Officer for the Plus Segment at Ascena.

Prior to that, he was Chief Marketing Officer at David’s Bridal and held marketing roles at Kohl’s and Bath & Body Works. Third, we are looking to develop more efficient and effective sales support processes and practices. Benchmarking suggests, we have opportunity.

I’m always keen to free any asset from non-value added work to be able to focus more on our customers, where we can be more efficient and we will. Fourth and last, we are identifying the best prospects for growth as we stabilize and enhance our existing business.

We have started with optimizing the things we are doing today, including store growth and e-commerce, and we’ll have more to discuss with you in future quarters on new opportunities. In summary, I recently completed my fourth month with J.

Jill and continue to spend my time with the team assessing the business and looking across our platforms to find the areas in which we can hasten the realization of our potential, then creating and implementing action plans to realize that potential. It is truly a wonderful brand and we are poised to do much.

There is much more right than wrong with J. Jill. The company’s strength and opportunities are defined by a distinct well-recognized brand, valuable loyal customers. The elements of the strong omnichannel model with catalog at its core, but with very successful store and e-commerce businesses.

And we have a strong data orientation that reflects our direct-to-consumer heritage. I look forward to further exploring these learnings and cultivating the focal points to further develop the J. Jill brands and better serve our customers and sharing a longer-term view with you as we progress.

Now I will turn it over to Dave to elaborate on the second quarter results and guidance for the third quarter.

Dave?.

Thank you, Linda. As Linda mentioned, our second quarter sales and earnings results were in line with our expectations. However, our gross margin was more pressured than our guidance contemplated, as we took greater clearance action than originally anticipated to meet our goal of reducing our inventory to start the fall season.

Before going into detail, I remind you once again that 2018 is a 52-week fiscal year versus 53-week since 2017, and we experienced an impact from the related calendar shift.

Our annual comparisons are largely unaffected, but shifted sales from the second quarter to the first quarter and will further shift sales from our fourth quarter to our third quarter. And as it relates to reporting comparable sales, we are using the NRF’s restated 2017 calendar to calculate our comparable sales.

Moving now to our second quarter results, our total company comparable sales increased 2.2%. Similar to the first quarter, this performance was driven by our stores. Total net sales was $179.7 million, a decrease of 0.9% versus last year’s $181.4 million. Total net sales reflect the calendar shift I noted earlier.

Gross profit was $116.7 million versus $122.6 million last year, and gross margin was 64.9%, compared to last year’s 67.6%. We started the quarter fully expecting to increase promotions year-over-year yet promoted more than anticipated. We also removed certain inventory from being available for sale and liquidated it.

SG&A expense was $97.4 million versus $97 million last year. Last year’s second quarter included $700,000 of non-recurring expenses related to the IPO in March 2017. As a percentage of total net sales and excluding last year’s non-recurring expenses, SG&A was 54.2% versus 53.1% for the second quarter of 2017.

Our original guidance anticipated the loss of leverage, driven by the calendar shift. And you may recall that the shift helped us realize positive leverage in the first quarter. When combining the two quarters or on a year-to-date basis and excluding non-recurring expenses, SG&A was 54.3% versus 54.6% in 2017.

Operating income was $19.3 million, or 10.7% of sales. This compares to last year’s adjusted operating income of $26.4 million, or 14.5% of sales when excluding non-recurring expenses. Adjusted EBITDA for the quarter was $29.3 million, as compared to $35.3 million last year. As a percentage of sales, adjusted EBITDA was 16.3% versus 19.4% last year.

A reconciliation of EBITDA to net income is included in our press really. Interest expense for the quarter was $4.9 million versus $5.1 million last year, reflecting voluntary prepayments on our term loan made in 2017. This benefit was partially offset by higher interest rates this year.

Tax expense for the quarter was $4 million versus $8.6 million in the second quarter of 2017, and the effective tax rate was 27.4% compared to 41.6%. This reduction reflects the benefit of the U.S. Tax Cuts and Jobs Act.

GAAP net income for the period was $10.5 million, or $0.23 per diluted share versus $12 million, or $0.28 per diluted share last year, which included a 1% negative impact from non-recurring expenses related to the company’s IPO.

When comparing to last year, second quarter EPS was negatively impacted by approximately $0.03 due to the calendar shift yet benefited by approximately $0.04 from the lower tax rate. For our year-to-date performance highlights, please refer to this morning’s press release. Turning to the balance sheet.

We ended the quarter with $62 million in cash and $38.4 million in availability under our revolving credit facility. Our inventory at the end of the quarter was $61.6 million, compared to $62.8 million at the end of the second quarter in 2017. During the quarter, we opened three stores and closed three. We ended the quarter with 273 stores.

Finally, gross capital expenditures in the quarter were $3.5 million. Turning now to our outlook and as noted previously, we are providing guidance at this time for one quarter out. We feel positive about our actions to improve our inventory and our e-commerce site performance.

Yet we are cautious regarding the fall, given the uncertainty of changing our promotional posture and the softness in e-commerce. For the third quarter, we expect total comparable sales to decrease between 2% and 4%. We continue to expect comparable sales in our stores to be positive albeit at a somewhat slower rate than in the first-half.

We do not expect e-commerce sales to be positive versus last year. Total net sales were expected to increase between 2% and 4%, driven by the benefit of the calendar shift and again, this shift will become a headwind in the fourth quarter.

At the midpoint of our comparable sales guidance and versus last year, we expect gross margin to decline approximately 125 basis points and SG&A to deleverage approximately 100 basis points after excluding the $700,000 of non-recurring expenses in the third quarter of 2017.

Interest expense for the quarter will increase approximately $500,000 compared to last year, due to higher interest rates in our term loan. Diluted earnings per share are expected to be in the range of $0.09 and $0.11, including a $0.03 benefit from the calendar shift and a $0.02 benefit from a lower tax rate.

This compares to $0.14 in the third quarter of fiscal 2017. Adjusted diluted earnings per share for the third quarter of 2017 were $0.13, which excludes $0.01 of non-recurring expenses related to last year’s transition to operating as a public company.

During the quarter, we expect to open five stores and to close one, ending the quarter with 277 stores. For the full-year, we expect to open 13 new stores and close seven, ending the year with 282 stores.

We expect capital expenditures for the year to be in the range of $27 million to $29 million versus $30 million to $32 million in our prior guidance, which reflects the movement of select projects for 2019.

Now I reiterate that we see this year in general as a transition period to shore up our foundation, and it will take sometime for the actions we’ve taken and the initiatives we are further planning to take hold. Having said that, we are doing all we can to deliver the optimal result in the back-half of 2018.

I’ll end by reiterating Linda’s point that we are evaluating all aspects of our business to best position ourselves for profitable growth over the long-term. This work is well underway and we look forward to sharing more later this year. And with that, I’ll turn the call back to the operator for questions..

[Operator Instructions] Your first question comes from the line of Lorraine Hutchinson from Bank of America. Your line is open..

Thank you. Good morning. I was hoping to get a little bit more details around your strategy for the fall season.

You talked about changing your promotional posture, so I guess, that’s – the first facet of the question would be, what are the plans in terms of that promotional posture? And then secondly, can you give us an update on the website and why e-commerce sales would continue to be negative in the third quarter?.

Okay. This is Dave. Good morning, Lorraine. I’ll talk first to the promotional posture for the fall. I mean, there’s a number of strategies we’re looking to in the fall that give us some optimism about the fall and Linda touched on a good deal of those in the script.

As far as the promotional cadence goes, again, it’s kind of in line with what we’ve been talking about previously, which is getting our inventories right-sized for the fall that’s level and mix, I think, we will reach our objective in terms of level.

That sets us in a place, where we can be more mindful, more planful about promotions, which isn’t necessarily that we’re going to discontinue promoting. I think, we’ll – you’ll continue to see us use those promotional vehicles that have worked for us in the past.

But I would tell you, the overall number of days and the level at which we use that, those will be different, so we’re not going from zero, so to speak, and pulling promotions out. It will be less days and perhaps a little less sharper in terms of level of discount.

One of the things that I’ll acknowledge as part of our guidance though is being conservative, particularly around margin in terms of what the response to that could be, so we’re mindful of the fact that change is change and particularly around the e-commerce business where we have been clearing a great deal of product through there and using promotions significantly.

So with that, I think Linda has some comments on the website, it’s the things we’re doing to try to get the customer something else to think about other than promotions..

Yes. Look, I also wanted to add on to the promotional comments. What you’ll – what you saw in August building into September is announcing a wonderful new pant. And for me that’s a type of promotion that isn’t discounted, but highlights the product, and you’re going to see more of that in the fall as well starting with the September catalog.

With respect to the e-commerce platform, it’s been about a year where we’ve seen the deceleration in our business. A lot of that was tied to the replatforming. We’re fixing all technical, as well as non-technical considerations on the site. We’re seeing improvement in the site performance as we speak.

At the same time, it’s correcting our use of that channel not to be exclusively or primarily a clearance channel, as Dave mentioned in his comments. It is the showcase the lifestyle that we embrace and what we want to talk to our customer about. It is about highlighting ways to style it effortlessly and easily.

It is about ensuring that she can envision the product fit and size on her. So you’re going to see enhancements to the overall site as well as exclusive product to be introduced to move us away from it being primarily a clearance channel on a sales channel to being something that’s about what the brand stands for..

Thank you..

Your next question comes from the line of Oliver Chen from Cowen & Company..

Hi, Linda and David, thank you very much.

Regarding the innovation and changes you’re making to the assortment, what would you say is the magnitude of changes that need to happen as you both update essentials and look at the trend right novelty? And how would you conceptualize those changes in the context of both managing for traffic trends and also making sure that you’re appealing to your existing, as well as new customers?.

Hi, Oliver, thank you for the question. Some of it is -- – it’s our conscience. It’s ensuring that we don’t walk away from the tried to true things she [indiscernible] at J.

Jill and comes to us for, but at the same time, it’s ensuring a certain level of newness and an evolution of that product to make sure that we’re in front of relevant and current trends. So the August – this August, we relaunched the bi-stretch pants, she loved it. It is a go-to pant for her.

It augments the cotton essential pant, as well as pre – is a precursor to the ponte pant, which is more for the winter time wear. And relative to traffic, we drove significant amount of traffic beyond what we had anticipated, which says that, we’re going to have to learn how to balance her getting in front of these demands.

So I think it’s – all of these are – these are all testable hypotheses. We are implementing a test-and-learn approach to the business, particularly around products. So we do not alienate our most loyal customers. At the same time, I believe strongly we will delight her more as we bring new customers to the brand..

Okay. And just to follow-up, the IT and the website seems like you’re making some really great customer-centric innovations.

As you think about the roadmap for IT and what you’re prioritizing in terms of the seamless experience, what are – what is – what are the key priorities and what do you think will impact the numbers the most like near versus longer-term, and how you’re thinking about sequencing changes, because it’s not an easy task necessarily either?.

So I’ll start and I’ll turn it over to Dave. We are relooking at the – we’re relooking the roadmap or rethinking the roadmap and we’re trying to accelerate a lot of the things that we have slated for 2019 and calling it for our tailored, start seeing PayPal or start seeing a new focus unlike J. Jill, et cetera, to enhance our shopping experience.

At the same time, we are giving her styling tips you’re going to see embedded video. Some of this will be on the website itself. Some of it will be carried into some of our social platforms like Instagram. So again, it’s gear for a comprehensive taste of what it is to be part of J. Jill brand, and we’re going to invite her to share content with us.

So again, we’re looking at everything to help her identify and select product more easily, as well as complement her whole experience with the J. Jill brand. We are also tying the experience online more tightly with mobile, as well as with the catalog and with the store experience. So she should have a full 360 view of J. Jill.

Dave?.

Yes. I would add to that the fact that to see that, we make good progress against that. We will invest more resources on the technology side of our business to see that we are developing those things, I’ll say, expeditions – expeditiously, but also with intent and see that we do it the right way.

But we are going to make in an addition and I’m talking about something that’s relatively modest in the Graham’s scheme, but seeing that we have the resources to deliver that on time in a good way.

There – in terms of what that could mean? There are a number of examples there we could use something like a mobile, but simply starts for store experience that home as an example.

And we think through our styling programs and some other things, we can simply make it easier for her to shop us the way she likes regardless where she is in particular in a digital or mobile fashion.

There’s other opportunities as additional payment options we can offer, well, PayPal this fall, but there are certainly other options that people are probably well aware of that we can develop into. One thing we’ve heard loud and clear from our customers, she needs more fit information in that channel.

And that is something we can do and we can do well and that is on the road map. So there’s a number of examples and we’re just getting behind us now and see that we can deliver well starting this fall and into next year..

Thank you very much. Best regards..

Thank you..

Your next question comes from Janine Stichter from Jefferies. Your line is open..

Hi, good morning..

Good morning..

Good morning. I want to speak a little bit more into the inventory. Given the actions you took in the second quarter, it sounds like you’re in pretty good shape, should be in better shape by far.

How are you feeling about the composition of that inventory? And then any changes you’re making for the timing of flows going forward just to ensure more balanced flow of inventory in the future? Thank you..

Well, in terms of the absolute numbers, you have that in our press release. One nuance thing that I would say is, when you peel away the timing of something in transits, our overall inventory levels year-over-year are down about 8% going into the quarter. So in terms of that number, we feel like that’s a good number that addresses the absolute level.

We also feel better about the assortment. There is not – there will not be as many off-price choices through our direct channel for which was always part of our objective to make it more shoppable for our customer. Having said all that and we talked about where we can evolve in product, we still think – we still see opportunity there.

But in terms of, I’ll say, cleaning down and cleaning up inventory, we do feel like we will meet our objectives, where they’re frankly right now, it was always September in terms of being well-positioned in order to start to execute something different from a promotional standpoint.

In terms of the flow, I would describe that as being very mindful about how we’re buying in the next several quarters and into the future.

We need to make sure that we truly understand the demand patterns, that’s an absolute levels, but it’s also in terms of how we can flow and introduce the newness some of which Linda talked about and are working, I’ll say, vigorously to see that we can improve wherever we can and that’s another place to do that.

So how much we allocate initially, how much we replenish, all of those things come into play in terms of being more mindful about how we’re going to manage our gross margin going forward..

Anything changing in terms of lead times?.

Lead times..

We’re working on that now I’m starting to meet with many of our sourcing partners and factory base, and we’ll have more to talk about that in future quarters..

Great. Thank you..

Your next question comes from Paul Trussell from Deutsche Bank. Your line is open..

Good morning. Wanted to circle back on the third quarter top line guidance. To what extent is the negative comp forecast due to a meaningful slowdown that took place towards the end of the second quarter, or what you’ve seen quarter-to-date versus your expectation of customer reaction to the changes in strategy and promotional cadence.

Just want to better understand how we should think about third quarter expectations? And then second, you did talk about customer file growth, obviously, that has slowed last year, is picking back up, help us better understand what drove that game? Thanks..

Sure. So in terms of top line guidance, I mean, frankly, you’ve touched on it. Our second quarter, it was, I’ll say, somewhat stronger to start the quarter. It didn’t meaningfully decelerate as we went through the quarter, but it was taking more promotion in order to move those goods.

So the difference was again, having to promote especially as we moved through July to put ourselves in acquisition to meet our inventory objective.

So having said all that, July and August business, our August business has been relatively slow by comparison and together finishing the quarter in August has formed a good deal of what we’re talking about in terms of our top line and there might be some. There are reasons for optimism in terms of our product in the way that will come back to you.

But a couple of other things I’ll offer to you is, we are simply not going to have that level of clearance activity in the third quarter that we’ve had now for the last couple of quarters, where a significant on the top line sales were generated by off-price product that we had to move through the system.

So just the sheer volume of that drove some top line in the first-half. You touched on the promotional offer, it is being cautious about doing something different there, particularly in e-commerce and being mindful that we may see lesser traffic and conversion could be more challenge.

So all of that was in mind as we set our level or set our thoughts around the third quarter. But again, there is optimism around some of the product in the late third quarter..

Yes. I think the – I think there’s a couple of things, I think, are interesting about the file growth. During this activity of heavy clearance, we were very conscious on prospecting. And at the same time, we were able to build a nice bill to the file, which is upgrade.

In addition to that, I think a lot of it was the glimmers of great product that was, at least, saw throughout this summer, but it’s really building from August into September and September into October. Field associates that were in the house, our district managers and regional through really excited about this fall.

So I think that bodes well for getting even more new to brand customers and again, when they feel that’s excited about the product, that’s great. So the pant program is building more. And they said by scratching something, we’re stepping out in a big way. We have new interpretations on the ponte product that will be coming in this fall.

So I would think we feel very good about what we’re seeing..

So file growth, to your point, it was positive in the second quarter. So kind of the trajectory on the file growth was slower in the back-half of 2017, it picked up a little bit in the first quarter of 2018, it was somewhat slower in the second quarter than it was in the first quarter, that’s a lot to hold on to.

To Linda’s point though, we did admittedly prospect a little bit less, given our promotional posture and – I’ll say, our face to the market in that regard, we did not go strong into prospecting particularly in June and July. The existing file was very engaged across that period in terms of what we are trying to do.

As we look to make these improvements, we believe there is an opportunity to, at least, see that traction to begin marketing a little bit more, as well as bringing more prospects into the chain as we put a, I’ll say, a better foot forward in terms of product and the like. So that drove some of it.

A couple of other points on that, there was strength in the retail file direct largely reflects the clearance activity. We continue to see growth in our multichannel consumer as well. So overall, the file was good and that it demonstrates a lot of engagement. So we feel good about that.

But again, the caution is a little bit around the promotional cadence for the third quarter..

Thanks for the color. Best of luck..

Thank you..

[Operator Instructions] Your next question comes from the line of Kimberly Greenberger from Morgan Stanley. Your line is open..

Great. Thank you. Good morning. Dave, I just wanted to reconcile a little bit the answer to Paul’s question.

On the mix between sales and gross margin here for the third quarter, so the comp is expected to be negative, particularly in e-commerce, because I think you said you’re not planning to lap as many promotions as last year, but the gross margin is still expected to decline.

So I just wanted to sort of understand what’s driving both the negative comp if promotions would be less and then the subsequent decline in margin? And then, Linda, I wanted to just make sure I understood your view of third quarter product as you’re sitting here today, it sounds like you said the field management team when they were visiting had positive things to say about it.

But there’s still not – I’m just not getting an overly constructive sense from you. I know there are pieces of it you feel good about.

Is it the issue you identified earlier too much the sameness in the fall product not enough newness and it will just take simply a while to get that newness in, maybe you could just sort of give us a well-rounded picture on that? And then my last question, Dave, is on the gross margin.

For the second quarter, I think, you said something about removing products for sale in the second quarter. I wasn’t sure if you took it down from the website and went through a disposition process. If you could just explain that a little bit further that would be great? Thank you..

So the last question first is, yes. It meant that we simply took that product out of the system, so that the customer didn’t see it frankly and that was largely in e-commerce and we liquidated that through some other channels.

In terms of the margin impact in the second quarter though, I would emphasize that the impact was more around discounting and less around some of that activity. But that activity was at a level that we’d not used in the past in terms of marking out of stock. So we thought we would make a note of it.

So – and then in terms of kind of looking to the third quarter and that interplay between sales and margin, I would say, it is the absolute level of clearance product that we’ve had in the first and second quarters drove a lot of top line. That simply will be absent in the third quarter, which impacts our volumes and our comps.

And as you further get into the comp and the margin, it is taking a cautious view that we are planning less promotions, but at the same time we are allowing in our guidance the fact that the customer may not respond the way we would like her to.

So from that standpoint, the guidance allows for us to react to whatever response we get from our customer, hopefully, that helps..

Great..

And then Linda as far as…?.

Sure. With respect to the Q3 product, August represented – August has a challenge for many retailers relative to a heavy sale or clearance component. It’s largely key item here then I think we’ve had some key item programs like our Bi-Stretch Pant, which are very, very strong. And at the same time, J.

Jill had to rethink – and a beautiful cohesive collection, but a very small part of our business at that time of the year. And wherever I had to rethink as well and again, a great story, but a small emphasis in the store. We’re building on August going into September to really transition into fall.

And there you’ll see much – you’ll see them men’s wear, I mean someone is detailing, you’ll see an interpretation of tweet and cloud and it definitely push into the fall season. And that’s what our filed associates got very excited about, is they can see September as the nice transition and then built very nicely into October as well.

Again, a lot of it is anchored in some great bottoms, but there is a great dress story and there’s pieces that pull together in an effortless wardrobing. And the challenge the fielders three to five items in the back, you can outfit her perfectly on the floor in mix and match items.

So it’s a nice transition for how the brand has presented itself previously, and I think speaks well or bodes well for the fall season.

Does that help?.

Yes. Thank you so much..

Your next question comes from the line of Ike Boruchow from Wells Fargo. Your line is open..

Hi. Good morning, everyone. Thanks for taking my question. I think I’m just trying to understand maybe Dave, the planning around the business in the near-term well, kind of acknowledged that the larger changes are going to be set for next fiscal year. I guess, the trajectory in the Q3 based on your guidance is negative.

And when we looked a holiday, the business has some very tough compares coming up in Q4, and I think that you also mentioned the calendar is going to work against you from sales and timing. I know, you’re not giving annual guidance.

But is there anyway you could give us some type of framework just on the thinking on how you guys are thinking about the business through the end of the year, it would be really helpful?.

Well, I guess, we – I do think about the third and fourth quarter similarly in terms of our thoughts about what we’re doing, as well as with the customer is going to experience, I’ll say, it’s going to be a transition and we see the fourth quarter similar. I mean, from a customer standpoint, again, it’s going to be less.

We’re going to be in the game promotionally in the fourth quarter, you have to be. But again, in terms of looking to have a more cohesive product offer not over assorted a little tighter view maybe a little less sharper on promotional like all of those things together are what we will be going into the fourth quarter with.

So acknowledging again some of the same caution on the third quarter, I don’t see there being anything meaningfully different about the top line in the fourth quarter as we see in the third quarter. There is reason for optimism, the work on the product continues. the work in e-commerce continues.

There are things that we can point to that point the fact we’re not giving up by any means and we are going to make the most out of the fall. But again, as we transition and we work to do things to your point over the longer-term that will be even more meaningful. There is some caution in terms of going through the fall.

And I would say, I think about the fourth quarter similarly in terms of – are similar to the third quarter..

Got it. Thanks, Dave..

Your next question comes from the line of Brian Tunick from Royal Bank of Canada. Your line is open..

Great. Thanks, and good morning. Two questions. Wanted to talk a little about the delta at the store comps versus the DTC business.

Just any color you can share there regarding traffic, ticket? What kind of maybe product differentiation there is? Just trying to understand why the store comps continue to trend well? And then secondarily, on the timing, Linda, when do you think it would be reasonable to expect growth to come back to the DTC channel? And have you thought about what you think is the right-size of the – or the mix of the business DTC versus stores longer-term for the company? Thank you very much..

So I’ll grab that first line, which is a discussion of the channels. Our stores business remains strong on a relative basis, you’ve heard that. As we moved through the second quarter, we continue to see positives in both traffic and conversion. Both channels saw a lower AUR.

As we projected the third quarter in that sense, we continue to see and plan for and expect rather that positives traffic and conversion albeit at a more temperate level, given again the promotional posture. We did not – we plan for our AURs to increase, but I can’t say that I put a lot of reliance on that as you know, few from the guidance.

As you think about the rest, what we saw there was – as we make these improvements, we are seeing conversions for us nicely. We expect to continue to see that. Traffic has been slower as, I’ll say, particularly as of late and that’s an opportunity for us.

And from my point of view, as we can – as some of the things we’re doing take hold and we see some traction there, we can start to market a little bit more. We haven’t marketed that business as aggressively recently, because it’s not our best put forward. So we are working through some of this. We do know that there’s a point or feel.

There’s a point to get that traction and we can start to turn the spigot back on a little bit more in terms of stimulating traffic into that channel..

As to the relationship of the direct-to-consumer channel relative to the entirety of the brand, I think, it’s a great question and it’s something that we’re exploring right now. Ideally, we would be talking even more omni-behavior in our customer base, and that’s one of the other being that we’re working towards.

The online exclusive, the online edition product I talked about in my comments is intended to help drive that interaction between the store channel and the e-commerce channel.

And to Dave’s point, we’re already testing on areas in which we can amp up our digital marketing spend smartly and particularly, as we have a better foot to place forward and what we want her to see in the brand.

We’re going to be balancing our e-mail traffic to her relative to promotional messages, but as importantly, branded messages on some of these wonderful products that we’re bringing to her. So you’re going to see a rethink on all of these components on how we talk to her.

And I think we- as a result of that, we’re going to fuel even greater traffic to the site and we’re going to right-size it to – it’s importance to the brand in total. We, as a brand, we need to be thinking of how she starts her day and most likely, I mean, Dave said at a comment on mobile, most likely that’s her first touch point with the brand.

So how do we rethink all components of how we interact with her around digital first potentially? Catalog and storage remain critical. And I love the fact that we have positive traffic into our stores. And then when you go into our store, she sees it as her J. Jill. It’s her place to be, that’s very special, and we don’t want to take away from that.

But we definitely want to augment in with all these other touch points and digital to her. So more to come on all of that, and you’ll hear more from that about that in the future quarters..

All right. Great. Thanks, and good luck for the fall season..

Thank you..

Thanks, Brian..

There are no further questions at this time. I’ll now turn the call back over to Linda for some closing remarks..

Well, I want to thank everyone for joining us today, and we look forward to speaking to you again on our third quarter call. Thank you..

Thank you..

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