JJill Inc (JILL) 2017 Q1 法說會逐字稿

Good morning. My name is Carol and I will be a conference operator today. At this time I would like to welcome everyone to the J.Jill first-quarter 2017 conference call. On today's call are Paula Bennett, President and CEO of J.Jill, Inc., and Dave Biese, Chief Financial Officer. (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 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 in our press release issued today. If you do not have a copy of today's press release you may obtain one by visiting the Investor Relations page of our website at JJill.com. I will now turn the call over to Paula.

Thank you, and thank you, everyone, for joining us today; we are so glad to be with you. I am very proud of the first-quarter results we are able to share with you today. We delivered nearly 10% total comparable sales growth with strong performance in both stores and direct along with close to 50% adjusted net income growth. Our success in driving consistent profitable growth is a testament to our data-driven omni-channel model, as well as our growing highly loyal customer base.

This quarter demonstrates once again our proven ability to add new customers to our file, retain existing customers and increase the spending of all segments. Using our customer data, we effectively delight her with the style; assortment and service experience she trusts J.Jill to deliver and further differentiate ourselves from others in our sector.

We have developed a formula that works. While we have had a lot of success we have also continued to improve all facets of our business over time. We are positioned to strategically invest to drive our growth and take advantage of the opportunities we have in front of us, opportunities that we establish for ourselves by creating and continuously evolving our model.

As I mentioned, we have a growing highly loyal customer base. With our disciplined data centric approach to our marketing investments, we know how to bring even more women into our brand and we retain our customers for an average of seven years. On top of earning her loyalty, we also have the opportunity to move her from a single to a multi-channel customer which increases her spend with our brand by an average of three times.

In 2016 we grew our active customer file by 11%. In the first quarter we continued this growth by applying our focused marketing strategies to acquire 40- to 65-year-old women with an average household income of over $150,000. And given our low market share, we have considerable opportunity to continue to gain customers.

Through our customer file and the rich database it drives, we truly know our customer given we match 97% of all transactions to a specific customer. From this purchase history we have created a wealth of knowledge about who she is and what she expects from J.Jill, which we incorporate into all of our planning and use to better predict future purchase behaviors across channels.

Our planning throughout our business is deliberate and rich in data-driven analysis. When we plan our year we include robust hind sighting to develop our initiatives and investments. This disciplined cadence is what underlies our ability to drive a successful full-price business, which includes periodic planned promotions. It's important to note that these events are planned and executed to drive customer engagement and profitable performance across our omni-channel platform.

We don't just believe; we know that we have a formula that works. Our customer data and analytics drive our confidence. We capitalize on every opportunity we have to engage with her and we make every decision with her in mind.

As we look to the future of J.Jill, we will stay focused on this disciplined approach to our model. As a reminder, our five growth initiatives include: growing the size and value of our active customer base; increasing our direct sales penetration; strengthening our omni-channel capabilities; profitably expanding our store base; and finally, continuing to enhance our product assortment.

Of our growth initiatives I want to focus for a moment today on our retail stores which outperformed our expectations for the quarter. We have continued to demonstrate that through our differentiated omni-channel model our loyal customers greatly appreciate our stores as well as our e-commerce site. Our stores are a very important component of our overall strategy and are also very profitable.

One of the ways we have been able to drive positive results in stores while continuing to also see our e-commerce channel thrive comes down to how we engage with our customer. We are constantly inviting her in to shop our stores through our targeted digital communication as well as with our biweekly catalog drops. Through this communication she sees the newness we have in our stores as well as online with our new product story delivered every four weeks and at the same time across our channels.

I think that I have drilled this home. With this we don't just hope that our customer will shop our stores, we know our target customer loves to shop in store. She appreciates the welcoming, guiding, differentiated store experience we provide and I don't think that will ever change.

Our stores are in the right locations and they are destinations. When she comes in she is greeted by our wonderful sales associates in addition to a guiding merchandise presentation that is tailored for the market. We also offer her full access to the entire inventory in every store -- all sizes, styles and colors through our concierge service. Two-thirds of our new customers make their first purchase with our brand through our retail stores and then we know how to bring her back in which we are consistently able to do.

We are also very excited for the important further development of our e-commerce site. We are on track to roll out our new e-commerce platform this fall. We are looking forward to delivering our customers the enhanced services and overall improved and more personalized customer service model that this platform enables.

And again, consistent with our disciplined approach, we are ensuring a seamless transition to this platform and we are eager to see the positive reactions we believe our customers will have as we deliver an even stronger brand and service experience with this launch.

Before I pass the call over to Dave to review our financial results in more detail, I want to congratulate our team once again on a successful quarter. We know that we have a winning formula in place. With our continued commitment to and focus on our customer, our continued keen attention to data and detail, along with disciplined decision-making and investments, we will continue to deliver consistent profitable growth and we will deliver value to our shareholders. With that I will turn the call over to Dave.

Thank you, Paula, and good morning to everyone. I will begin with a review of our first-quarter results and then discuss our outlook for the second quarter and for the full year of 2017.

Turning first to our income statement, our total net sales for the first quarter were $166.1 million, up 12.5% versus last year. Total Company comparable sales increased 9.9% and within that our direct sales penetration increased to 42.6% of total net sales from 40.7% last year. And as Paula mentioned, we had strong performances in both stores and direct.

Gross profit was $115.6 million, a 13.9% increase versus last year. As a reminder, our gross profit does not include rent, occupancy or depreciation expenses which are often included in cost of goods sold when reported by other retailers.

Our gross margin increased 90 basis points versus the prior year to 69.6% driven primarily by a favorable customer response to our product offering, especially in the second half of the quarter.

Our GAAP SG&A expenses were $97 million versus $87.1 million last year. Included in this year's expenses were $3.6 million of nonrecurring costs associated with our March IPO, and $300,000 of ongoing public company cost that we did not incur a year ago. This compares to last year's nonrecurring expenses of $1.1 million.

As a percentage of sales and excluding these nonrecurring expenses in both years, SG&A for the quarter leveraged 190 basis points to 56.3%. This improvement was driven by our ability to leverage our infrastructure and reflects the higher penetration of our direct-to-consumer sales to total sales.

Our operating income increased to $18.6 million, or 11.2% of sales. This is a 28.7% increase over last year and this again includes the nonrecurring expenses I referred to in both of the years. Excluding these nonrecurring expenses from both periods, operating margin increased to $22.2 million or 13.3% of sales from 10.5% of sales last year, an improvement of 280 basis points.

Adjusted EBITDA for the quarter increased 19.7% to $31 million and a reconciliation of adjusted EBITDA to net income is included in our press release.

Our income tax expense rate for the quarter was 41.1% compared to 41.2% in the first quarter of 2016. Our marginal tax rate for 2017 is approximately 40% but, due to the non-deductibility of certain IPO-related costs, it moved the tax rate for the quarter a little above 40%.

Finally, GAAP net income was $8 million, or $0.18 per diluted share, up from $6.1 million or $0.14 per diluted share last year.

Adjusted diluted earnings per share which excludes nonrecurring expenses was $0.24 for the quarter, up from $0.16 last year. And I will note that the diluted share count reflects 43.7 million shares in both periods.

With regard to our balance sheet, we ended the quarter with $15.3 million in cash and availability of $37.9 million under our revolving credit facility. Inventory at the end of the quarter was $73.6 million as compared to $66.6 million at the end of fiscal 2016.

For the quarter, gross capital expenditures were $4.4 million and we opened one new store ending the quarter with 276 stores.

Turning now to our outlook; as a reminder, our full-year outlook is for a 52-week year in 2017 so as to be comparable to fiscal 2016. For the second quarter and for the full year 2017, we expect total comparable sales to increase by high-single-digits or between 7% and 9%. We plan to open two new stores in the second quarter and between 10 and 15 stores over the full-year and may close approximately 5 stores during the year.

We expect gross margin for the second quarter to be approximately equal to or slightly down compared to the strong performance we had in the second quarter of 2016. Gross margin for the full-year 2017 is now expected to be approximately equal to our fiscal 2016 gross margin.

With regard to second quarter SG&A, we expect to incur approximately $900,000 of nonrecurring expenses associated with the IPO. In addition, our second-quarter SG&A will include approximately $300,000 of ongoing public company cost that we did not incur a year ago. Despite these additional expenses we still expect significant leverage in SG&A for the quarter versus the prior year.

For the full year, we expect to incur approximately $5 million of nonrecurring expenses associated with the IPO. In addition, our 2017 SG&A will include approximately $1.4 million of ongoing public company cost not incurred in 2016. Despite these expenses, we still expect moderate SG&A leverage driven by a higher penetration of our direct-to-consumer sales to total sales.

For the second quarter of fiscal 2017, GAAP diluted earnings per share are expected to be in the range of $0.26 to $0.28. Adjusted diluted earnings per share, which excludes the nonrecurring costs I noted, are expected to be in the range of $0.27 to $0.29. Both the GAAP and adjusted diluted earnings per share include approximately $300,000 of ongoing public company cost not incurred in 2016.

GAAP diluted earnings per share for the full fiscal year 2017 are expected to be in the range of $0.72 to $0.76. Adjusted diluted earnings per share are expected to be in the range of $0.80 to $0.84 and again exclude the nonrecurring costs. Both GAAP and adjusted diluted earnings per share include approximately $1.4 million of ongoing public company cost not incurred in 2016.

The 53rd week of fiscal 2017, which is not contemplated in the figures I just shared, is expected to contribute approximately $9 million in sales and approximately $0.01 per share.

With respect to annual capital expenditures in 2017, we continue to plan to spend approximately $48 million on a gross basis. On a net basis after allowances from real estate developers, we expect spending of approximately $40 million. This reflects our investment in new stores and the remodeling of existing stores and further reflects our investment in technology.

To conclude, I echo Paula's comments as to how pleased we are with the start of the year, which positions us to deliver against our goals for 2017 and in line with our long-term expectations which call for sales growth in the high-single-digits, EBIT growth in the mid-teens and net income growth of approximately 20% per year.

And with that, I will turn the call back to the operator and we are happy to address any questions you may have.

(Operator Instructions). Lorraine Hutchinson, Bank of America.

Thank you, good morning. I wanted to follow up on the new customer growth statistic that you gave for 2016 of 11%. What did that look like in 2017? And then is there -- are there any details you can give us on profitability or productivity of these customers in year one versus year two and how that gives you confidence that you can continue to put up these positive comps?

Hello, Lorraine, this is Paula. Thank you for your question. We have continued the level of growth that we saw in 2016 and profitable growth in our customer file. We know that we can invest and our return is seven times what it cost us to invest in a customer, so we are well within the opportunity that we have to continue to grow our file with confidence.

Lorraine, I will just add just remind you too; in 2016 we grew our file by 11%. So just to reinforce that we continue to see those trends in terms of customer growth.

In terms of how our customer migrates over time, the longer she stays with us the more valuable she becomes and the more she spends. So we do see increased activity after the first year from a customer. We have talked in the past too about the migration from single to omni which is also what we see over time.

And I might add that we continue to see that same level of growth in our omni-channel customer base as we saw in 2016, which was an 18% increase. And as we have mentioned, that omni-channel customer spends three times what a single channel customer does. So we have great strength in our file and the growth of our file.

Thanks. And then I just wanted to follow-up on the gross margin commentary. It sounds like the second half of the quarter had better product acceptance. Was that a new line specifically? Was it a pullback on promotions? Maybe just a little more detail there.

Yes, thank you, that's a great question. Well, we continue to see healthy margins in our business. And with regards to Q1 performance, we did see a strong second half to the quarter. It was really driven primarily by strong product acceptance from our customers.

So as you know, we bring in new collections every four weeks. So the newness was an important driver. We had a very strong response, actually throughout the quarter. But plus we had foundational wardrobe builders that drove significant volume and then we refreshed those with color and novelty throughout the season.

So we really grew strength in our foundational product as well as the novelty that we brought in throughout the season. So the assortments were strong and all segments of the assortment were strong. So it really was driven by the customer, by the product offer that we delivered and the acceptance of that product by our customer.

We really didn't move off of our promotional cadence. We referred to the strong full price selling that we saw; we saw it, we were strong in both channels throughout the period. We did see some outsized performance in the second half of the quarter and I would also point to retail.

We have talked in the past about how our retail stores are more of a full price representation given we keep a limited amount of product or the most recent product in there. So with the strength in retail you also saw a nice benefit to the margin.

Thank you.

Oliver Chen, Cowen.

Hi, thank you. On the promotional front, you mentioned that they were planned. Could you give us some thoughts on the promotional environment at large? You have done a really good job managing -- and how you think promotions may play out in the second half. And just modeling question: on the comp store sales how did traffic versus ticket versus pricing turn out and relative to your expectations? Thank you.

Want me to do the first one -- do the second one first?

Why don't you do the second one first? Go for it.

Yes, so again, both channels strong for the quarter. What I would say, given we don't necessarily get into the details and the metrics, but it was somewhat consistent with what we've communicated in the past. What that means is our direct business was largely driven by our ability to generate very strong traffic. So we continue to see traffic as the driver in direct.

In retail we continue to be able to maintain our traffic in that channel and we are really driving the result through conversion, which is really the response to the product that we were talking to. So a little bit of color in terms of how that broke down and then I will let Paula comment on the other item.

So in terms of the competitive environment and what we see out there, we have -- obviously retail is always competitive and there is always people with different promotional approaches. We believe we are very well-positioned to continue to capture market share because of our omni-channel brand and integrating our store and e-commerce experiences for the customer. And I will just say that we have a formula that works.

We know our customer; we know how to deliver to her. We provide her with the style, ease, quality and value that she expects from us. And we also -- and obviously that is demonstrated by the gross margin that we delivered in Q1. So it was not a more promotional period for us.

We also pride ourselves on making prudent investments in marketing. We know our customer, we know how to deliver to her, we know how to bring her in. So besides the investment in marketing and also prudent investment in inventory to support the business that we intend to drive so that we don't need to promote more than necessary.

And then I would just also remind you that with our low store base and our well developed omni-channel foundation we are really far ahead of competitors who are busy promoting and closing stores and trying to develop their e-commerce to catch up with where we are now.

So, all those things together make us even more confident that we have a formula that works and a disciplined approach that will continue to enable us to be successful in whatever the promotional environment is.

Thank you, great job.

Randy Konik, Jefferies.

Yes, thanks a lot. I guess my first question; I wanted to expand upon the existing customer as you are building this sticky and longer duration customer. Can you give some statistics on how the multi-channel penetration -- where it is today, where it has come from over -- let's say over the last year?

And then I think I recall private-label credit card penetration was over 50%, I think about 56% of sales. Now how is that changing, if at all, in terms of penetration? And how are you looking to these two vehicles, multi-channel, increasing that penetration as well as private-label credit card penetration to increase that penetration to drive that further duration of the consumer with you and the stickiness factor? Thanks.

Dave, do you want to comment on the private-label credit card and then I will talk about the file?

Yes, so to your point, I guess the big idea here is, yes, we do penetrate sales on the private-label credit card in the mid-50s range. That is something that has been steadily growing now for a few years.

So I would say we are adding about a point to 2 points penetration each year as they go by and it really is the thing that represents the loyalty program for us. We have the everyday 5% discount. We have special offers for our customers and our cardholders. And then there is even some specific marketing to customers depending upon their behavior.

So for us it's very important. It is also something that is -- as far as its positive impact on our business, it's something that as we continue to grow we will continue to see the benefits of that. And I think it is something that we can add to in the future that makes it even more of a loyalty factor for our customer.

Right. And back to our customer file growth. We have, as we have said, delivered last year double-digit -- over double-digit -- well, double-digit, excuse me, double-digit growth in our customer file really for the past three years. And that is continuing.

And it's continuing across the new to brand customers as well as the existing customers and our reactivated customers that we are bringing back into the brand. And it's important that we know how to invest to drive that activity. We have more customers in both channels. They are both going well and they are both spending more.

A big part of what we do that we have refocused on is not just bringing customers into the brand but retaining them well. And also getting them to spend more so that acquiring, retain and develop the customers and that's really our focus. And we've been able to focus on getting her to spend more, inviting her in more strategically, investing to bring her in. And then focusing when she does comment on the product, offering her the product and the service that she expects from J.Jill.

So, it's really a acquiring, developing and retaining the customer that has driven our success. In addition the omni-channel customer, which is an important part of it, as you know, last year we grew that segment of our file by 18%. And we continue to grow it at levels above the 11% of our overall file.

(Multiple speakers) -- I was just going to add that the growth is happening somewhat naturally, but I also think there are things we can do to encourage the behavior, if you will. And every time we add another point, so if we are roughly 22% of our customers now are omni-channel, if we add a point to that it's worth another $9 million to $10 million in sales for our business.

Yes, it's the fastest growing and the most valuable segment of our file.

Yes, those data points are very helpful. The other question I wanted to ask, and my final question, is just around new customer acquisition strategy. How do you think about the strategies you employed let's say over the last 12 to 24 months and how that may change, if at all, over the next 12 to 24 months?

I'm thinking about that first point of contact with a new potential lead, if you will. Are you thinking about that from -- just keep with a catalog or an email or how are you thinking about changing that strategy or morphing it, if at all, over the next 12 to 24 months? And how would that change the return characteristics of acquiring that new customer?

Well, we will continue to acquire customers as profitably as we have. The fact is that we are reaching out to her through our catalog, which is a key marketing investment for us, as you know.

One of the things that we have done that is exciting is to convert to all full-size books versus digests which presents a stronger brand presentation than the digest books did, so our prospects are responding very well to that. Everyone sees the same brand presentation and we started that in the first quarter and it's been quite successful. We will continue that.

The other thing is we have obviously digital marketing that's very dynamic and that we are on every single day in terms of what we are investing in, what we are driving, what is bringing in new to brand. And so, we have a very dynamic e-commerce team, e-commerce marketing team that's on that every day.

So it really is going to continue to be the catalog, the direct mail as well as the digital marketing and brand marketing, whether it be in print books or through store activities that bring her in -- that invite her in.

Our acquisition model is very compelling. The value of a customer measured in almost any time period exceeds our cost of acquisition. And in the first year it's really a significant value of a customer given the cost. So even inside a year it's very compelling for us.

The catalog is very successful in that regard. We are also having success in digital programs. Over time what we might expect is I don't think we are going to necessarily back off catalog, but I think you are going to see more spending in digital because it's been successful as well, so it's additive.

The other thing that we are doing is working on an attribution model that will help us more clearly see exactly which investments are driving what, because there are so many touch points with a customer and that we expect will enable us to be even more strategic about our investment. So all the activities that we are taking are intended to drive an even more profitable acquisition and then retention and development of the customer.

Very helpful. Thank you.

Kimberly Greenberger, Morgan Stanley.

Great, thank you. Good morning. Dave, it sounded like -- I know you're not reporting comps by channel specifically, but that your stores actually were positive in the first quarter. I just wanted to make sure that I understood that correctly. Obviously that would be much better than what we've heard for most of this earnings season.

And then I'm wondering if you can share with us any difference in store traffic across mall types, A versus B versus lifestyle. And in aggregate I know you've got a really very healthy store fleet, but are there one, two, five stores in your entire store fleet that over the next let's say five to seven years that you would like to exit? Thanks so much.

Yes, so I will confirm that absolutely, our stores were comp positive in the first quarter. And again, I will just go back to our ability to maintain the traffic to our centers and then add to the conversion as the real driver. So very pleased with the results of our stores.

Traffic, I would say we don't really have a lot of B centers to be perfectly honest. There are some, but when you think about traffic, we tend to talk about it as lifestyle centers versus our premium malls. There was not a measurable difference between the two in the first quarter. Lifestyle centers historically have been a little bit better, but we were pleased with how the entire fleet operated for the quarter.

As far as the health of stores, what I would say is -- one thing we talked to is the potential to close five stores this year. And as I think about the future, there are always 5% of your fleet that land in a category of -- and the way we manage it is we keep them on what I call a very short leash.

We have very short-term deals almost all the time. And if we can continue to work with developers and maintain them profitability we will do that. But if we cannot then we will close them. But it is a very small, small portion of our portfolio.

Great, thank you. Congratulations on a nice quarter.

Brian Tunick, Royal Bank of Canada.

Yes, hi, this is Kate on for Brian. Thanks for taking our questions and congrats on a great quarter. I guess my question would be on the gross margin outlook here for 2Q and also for the rest of the year.

Just given the strength that you saw in the latter half of Q1, what's changing here in 2Q to result in the flattish outlook -- or flat to slightly down outlook here in 2Q? And then also how we should think about it for the back half of the year just given the strength we saw here in Q1? Thank you.

There is nothing I can point to that is structural that says that we necessarily expect to see that margins are going to go down. What I would -- in the second quarter that is. What I would point to is, first off, we have one quarter under the belt; we are very pleased with it.

But I think given the environment we would -- we think it's right to position ourselves right now against what was the strongest quarter of last year by expecting potentially that, given the environment, it's flat to slightly down. We just think that's the right place to position it.

As we think about the balance of the year -- and this is true of the whole year then -- we would expect our margin to be roughly flat year over year and that would be the case for the second half.

Great, best of luck.

Pam Quintiliano, SunTrust.

Thanks so much for taking my question, guys, and congratulations on a really phenomenal quarter in a difficult environment. So a few things I was wondering about. If you could talk about what you are seeing out there in terms of real estate.

With all the disruption are you getting better deals are better locations than you've seen historically in those A centers and in the lifestyle centers? Just anything you could talk about there with the lease terms and the locations?

And then regarding the product offering, a lot of commentary and questions regarding the momentum in the back half of the quarter. Are you building on that product in 2Q and the remainder of the year with the recognition that there is constant newness in the store? But did you discover something that you were more excited about that you anticipated that you could tweak and chase into for the remainder of the year? Thanks so much.

Well, I will go ahead and hit leases and then Paula can talk to product. On the leases I guess what I think about is for a few years running out our approach has always been we are not going to do a deal unless it's the right location at the right economics.

And I think given the fact that the developers, because of the information they have on some of our existing stores, because they are in their fleet, and because of the time we spent with them, have come to know us as somebody who is having a fair amount of success. So we feel like we've been getting pretty good deals for a while now.

If I were to say anything about what does the future hold, with all of the bankruptcies and the space that's opening up do I feel like that's an opportunity for us? It could be. But the reality of it is in the A centers you are not necessarily seeing less pressure on rents.

But I would say we feel like we've been successful and continue to expect to be successful in putting together the right economics. And we do feel like we have good partnerships with the developers in that regard. So we are confident we can continue to open stores profitably.

And Pam, in terms of the product, you mentioned the success that we had in the first quarter. One of the things that we are very, very disciplined about is we always have our plans of how we are moving forward, but we have a very robust hind sighting process where we assess what worked, what didn't work and how do we move it forward.

So we certainly will take the things that we learned in the first quarter, as we do every quarter, and integrate those positive learnings into our go-forward business. So it's really built around the fact that we provide her consistently -- we know her, we know what's relevant to her from a style and a style, ease, quality and value perspective and we are hyper focused on giving her that.

So we always -- I think another thing to point out is in addition to the newness that brings her in, we have a very strong foundation of products that we consistently deliver. We have newness that brings her in and gets her excited to add new pieces to her wardrobe.

And we also focus on wear now. We are always looking for what is she going to want to wear now and we give her fabrics and layers that she can adapt to her life. So again, we invite her in; we always are integrating what we learn into the next season that we can do that. So it's our normal course of the business.

And one just quick follow-up, and thank you for all that detail. Just any difference on the regional performance? You spoke about wear now, obviously weather was what it was in 1Q; it certainly wasn't beneficial. Any difference in regional performance to speak of? And was there any difference between stores and online in some of those regions where weather was unseasonal?

Well, as you know, we are really pleased with our performance across both our stores and e-commerce. I would say if there was one thing to call out it would be the business in the Northeast region where we've had a particularly cold and rainy season. But again, we still continue to deliver good results but not in line with the rest of the -- with the balance of the country.

And that was largely in our retail stores (multiple speakers).

Yes, retail.

As opposed to direct.

Yes, yes. E-commerce wise it was a strong across the country, but in terms of people coming into the stores in the Northeast it was a bit slow.

Thanks so much. Best of luck.

Michael Binetti, UBS.

Hey guys, good morning. Let me add my congrats on a really nice quarter. Just wanted to ask you on the -- I guess a little different way on the first quarter. The gross margin was above what you guys were I think thinking at the time of the IPO, good execution there.

Would you mind helping us a little bit with what some of the components were that built up to that plus 90 basis point in the quarter just so we can think about I guess some of the margin metrics that led to that upside in the quarter?

I'm sorry, Michael.

Components of --.

Yes, so I will have you ask me that question one more time to make sure I understand exactly what you're getting to.

Sure. So, could you just tell us maybe what were some of the higher-margin pieces that makes the margin -- the gross margin higher? Or was it all related to lower markdowns than what you had in the initial plan across both channels? Or was it one of the channels outperforming? Just so we can get a better idea of the components that built up to the gross margin upside. And I guess the roll forward question would be why those would -- why those dynamics would change in the second quarter.

So, really from a product standpoint, I wouldn't say that there was anything necessarily outside of what we expected. I will let Paula comment on anything further in that regard. Going back a little bit to what I was talking about previously, the strength in both -- there was strength in full-price selling in both channels.

Just like the way we've described in the past how direct might have a slight decrement to margin when we penetrate a little bit further in that channel. In this case, because of the performance of stores, and it was a very positive performance, it really had an upside impact on that.

As far as looking to the second quarter, I would say, again, it was very strong last year and why does that cause us to expect it to be softer this year? Well, it's because of the market and the way we feel about the environment right now, and the fact that others are as aggressive as they are.

So I will just characterize it as leaving ourselves some room to move in terms of being able to promote, if necessary, beyond where we are. But we don't necessarily expect that and aren't necessarily planning on it at this point.

Can I extend that and just ask you if there is something -- with May largely under our belts now, is it something -- has there been a change in the promotional cadence in the competitive set that you have noticed in the current quarter that has made you want to embrace a more conservative stance on 2Q?

No, I can't say that -- other than the fact that people are now coming out with results I can't necessarily say that I've experienced anything in the promotional environment as to the way the competition is behaving. I think they've been following the same pattern for a while now.

And we -- just to reiterate the fact that retail is always competitive; so we hyper focus on our product offer, our ability to bring her into the stores and to our e-commerce site and to continue to drive profitable growth. We have had very nice full price selling.

We have been able to -- we set a plan and we've been able to deliver on that plan. And we really focus on the prudent investments that we are making on our marketing and inventory and make sure that we are continuing to create the results that we intend to.

And if I could sneak one more in. I know around the IPO we got a lot of detail from you guys through the model on how to think about the business. And obviously you've got your public company go-forward metrics that you are going to speak to us from.

But as we look at the good delivery in the first quarter, the nice guidance for the second quarter and where you have pointed us to for the year, it kind of leaves the back half of the year part of the puzzle lower than what we spoke to -- lower than what you spoke to when you gave us the components during the IPO.

So, I am just wondering if anything has changed or if you just -- I mean it's obviously a nice problem to have to have less pressure on your second half. But I'm wondering if anything has changed in how you are looking at the back of the year since that is what we will be probably focused on when we talk to you guys in 90 days.

I would tell you that we don't feel differently about the back half of the year. I acknowledge the math isn't perfect when you get on the low-end of the sales range, but we are very comfortable with where we are guiding.

I don't see that there is anything different about the second half and how we are feeling about it and our cadence will be -- obviously when we get to this call at the end of the second quarter, we will be able to update you with our thoughts on the third quarter and the balance of the year.

Very helpful. Thanks again.

And I think the fact that we have driven such strong store performance and, as Dave said, given the competitive environment we are just being prudent with our guidance.

Makes a lot of sense. Thanks again.

Paul Trussell, Deutsche Bank.

Hi, this is Gabby Carbone on for Paul. Thanks for taking our question. We were wondering if you can discuss your omni-channel strategies going forward and how we can expect those to benefit moving through the year.

And then just a quick follow-up. We were wondering if you could discuss what you are seeing in terms of new store productivity this year versus like 8 to 12 months ago? Thank you.

I missed the first part of your question. I'm sorry, Gabby.

Just if you can discuss your omni-channel strategies going forward.

Well, we have -- exciting for us to note that we have a new e-commerce platform that we are rolling out beginning actually at the end of August that we expect will deliver a very strong customer service experience. It will be responsive design platform. So we are very excited about the improvements that that will make to the customer experience as well as the productivity of the site.

And that, as I said, is starting to roll out the end of July with a very -- in a very disciplined way. So we are excited what we will be able to do with that and that of course continues to drive business. We use it as a marketing vehicle too to drive business across all of our channels.

The other thing -- I'm sorry just one second. The other thing is that from an omni-channel perspective, I mean obviously we think of ourselves as a welcoming approachable brand and we offer friendly guiding service wherever she chooses to shop.

So one of the things that we do in our stores is offer a concierge service, which enables us, as I mentioned in my comments, when a customer comes into the store we want to make sure that we make it worth the trip. And we can provide to her -- she has full access to all the inventory across the entire Company style, size, color. And we do -- if we don't have something in our store to serve her, we ship it to her free of charge from the store.

So, we really do try to make it a seamless experience. We try to make it always a valuable experience for her because we know how busy she is and we know that she trusts us to guide her to the right products.

I will add in terms of our communication cadence and some of our marketing tools, I'm not going to get into the detail of some of the things we do. But our teams are very focused on the value of the omni-channel customer. So there are specific things they will do and we do do to encourage some of that shopping. So I will say that.

The other thing I will just point to quick, Paula was touching on it, but I mentioned our technology spend and that's something that this year and next year we will see some pretty significant spending. What's the idea there?

Well, we really -- the largest part of that is to continue to develop our service capabilities and also our data capabilities in terms of encouraging that omni-channel shopping. So we are putting a lot of resources behind that to see that we continue to grow that element or that segment of our customer.

Oh, I'm sorry, and then -- thank you. Someone reminded me we owe you a new store. Well honestly, we opened our second new store Thursday. We have only got one under our belt so far this year. As I look back on the last 12 months, I would say that we are opening stores and continue to see that on average they are in line with the model that we've communicated publicly, which is the $1 million annually in terms of volume, the 50/50 cash-on-cash returns and the like. So we continue to see that performance from our new stores.

Okay great. Thank you so much. Best of luck.

Ike Boruchow, Wells Fargo.

Good morning, this is Lauren Frasch on for Ike. When you think about marketing spend over the near- to medium-term, are you expecting a similar cadence to where you have been trending? Or do you see any need in a step-up or step-down? What are the areas in which you would expect to maybe invest more heavily your focus on? Thank you.

Well, I think that in terms of a need to step up or step down, no. We are marketing very profitably. We see opportunity to step up though because of the profitability of the marketing investments that we are making and the way that we are able to focus them. We will continue to have a very strong catalog presence. As I said earlier, we believe that it presents our brand and our offer very effectively for our customer.

But we also -- certainly with our new e-commerce platform, will be -- looking further for opportunities on e-commerce, marketing, digital marketing and able to deliver a much more -- a stronger creative and brand message through our new e-commerce platform. So again, not and need to market more heavily, but we certainly see opportunities based on the profitability of the customers that we've been able to bring into our brand and retain within our brand.

Great, thank you so much.

Janet Kloppenburg, JJK Research.

Good morning, everyone, and congratulations on a nice quarter. Just a couple questions. I heard the conversation about the (inaudible) occupancy levels remaining pretty high, but I'm wondering about locations within those centers, if you are seeing some opportunity there. And also I was wondering, given the strength in the direct channel, if you are thinking at all about perhaps shrinking your store size and -- to protect yourself as the consumer moves to that channel?

Then secondly, Paula, I was wondering about sourcing capabilities on two fronts: with capacity opening up in the Far East, if you are seeing any opportunity there particularly as your pencil gets bigger. And secondly, with the response to newness and fashion, I'm just wondering what your speed to market initiatives are how quickly you can respond to new trends. Thank you.

Well, why don't I go ahead and jump in on the store question? Similar to how I answered it before, I think we have historically been successful at getting the locations that we want. The fact that our model is not dependent upon store growth -- we are very committed to retail for all the benefits we spoke to, but it's not the big driver in our model. We don't pressure ourselves, I will say, just to open stores.

So we are very disciplined, we are very committed to there are certain centers and certain locations in centers. And I will tell you that developers understand that. They want to create the right adjacencies as well and create destination shops for our customers, so we work really hard to do that.

So we feel good about our locations in centers. And I would tell you once again that even though store closures are a topic for people right now, that's not necessarily true of your premium centers.

Yes, I was just wondering if you were getting better center court locations. That's all I was wondering about.

Well, again, we don't necessarily say we have to be center court. We look for certain representations of our peer set as well as certain anchors and that drives our decision. When the center court happens to be the place for it, then I would say we have been successful in getting the placement that we want.

As far as the size of our store, I am very happy with the size of our store. I think we are very happy with the size of our store. We think it represents the right number of deliveries and the right presentation of our assortment, tells the stories properly. We see it as being the right size for our business right now. So we are very pleased.

And we continue to have a model that looks for something between 3,600 and 3,800 square feet. We are not wedded to that and sometimes you have to be flexible where there are some other circumstances. But we believe that kind of model square footage is right for us and really serves the brand well and our customer appreciates it as well.

Right. And I just would add too, Janet, that, just to remind everyone, with our low store base and our well developed omni-channel foundation, we are far ahead of our competitors who are working really hard to reposition themselves by -- to [weather] brick-and-mortar, whether it's closing stores where they have too many doors or whether they are really scrambling to develop an e-commerce business.

We have the omni-channel model that others are working toward and we are spending our energy on developing those versus making huge changes to it. You asked about sourcing. We have a very strong sourcing team, they are always out in the market looking for opportunities for capacity. We have a very strong vendor base who is really committed to us in terms of the quality that we expect and also the timeliness of deliveries.

If you can imagine. when we deliver new product, 40% new product assortment every four weeks, it's critically important that our vendors understand the on-time delivery needs that we have. So we look for the quality, the value as well as the ability to deliver on time. And again, we are always out there looking for opportunities to do that better.

In terms of the speed to market, we deliver 40% newness every four weeks. Our customer really counts on us to present a guided product assortment. So it is not just about new; it's about presenting a story to her that is easy for her to see how it goes together and how it will work into her wardrobe.

So we are not -- because of that, because she is not looking to be first with fashion it gives us the opportunity again to hindsight, to see what works, to incorporate those learnings into what we do next.

And also obviously our head of design leaders are always out in the market. They are in Europe, they are in California, they are wherever they need to be to see what is going on. But then they are always interpreting that to make sure that what we bring to our J.Jill customer is relevant to her and her lifestyle.

And at this time I would like to turn the call back to Paula for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. J.Jill is a great Company. I'm very excited about our future. We have a highly loyal and growing customer base and we have a data centric formula that works. And that positions us for continued profitable growth across our omni-channel platform. So Dave and I look forward to speaking with you again on our second-quarter call. Thank you very much.

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