JJill Inc (JILL) 2017 Q2 法說會逐字稿

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the J.Jill Second 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. I will begin today's call with a brief overview of our second quarter results and then touch on progress we've made and are making against our strategic priorities. Following my remarks, Dave will walk you through our financial results and outlook in more detail.

With regards to our performance, we're very pleased to deliver another quarter of strong results even as we anniversaried our best quarter last year. We continue to drive profitable growth by expanding our customer file in line with historical trend and by driving conversion and increased spend per customer through the product and experience our customer expects from J.Jill. The results, once again, reflects a disciplined data-driven approach we take to our business and our investments. Our results also highlight our ability to actively and profitably engage and drive more customers to shop at the J.Jill omni-channel experience. I would like to add that we had an especially vibrant retail store business again this quarter.

Specifically for the second quarter, total revenues increased nearly 10% to $181 million. This was driven by total company comparable sales growth of almost 8%. At the same time, adjusted net income grew by over 20% to $0.29 per diluted share. We know that we have a strong foundation and a model that works. Our teams are committed to delivering to our customer the product and experience they trust J.Jill to provide whether it be online or in our stores. We remain engaged with our customers from our most loyal to our new-to-brand through our strong brand and product story and our strategic digital marketing and circulation investment. We have significant runway ahead as we continue to grow our customer file, build out strong capabilities across our channels and expand our product offerings, all while remaining focused on and connected to our customer. As you know, we deliver nearly 40% of our sales through e-commerce while growing profitably in all channels. We are currently working towards the launch of our upgraded e-commerce platform that is scheduled for September. The project is on time and on budget and we're excited to bring the elevated customer service experience that this new platform will provide to our J.Jill customer. As we've discussed, we're taking the appropriate and prudent steps to ensure that no disruption occurs with this launch. We've already begun our A/B testing by directing a small percentage of traffic to the new site. We will continue migrating traffic while maintaining our current site to ensure a smooth transition. This new upgraded e-commerce platform strengthens our omni-channel strategy by delivering an even more seamless and inspiring customer experience. This initiative will continue to drive the omni-channel segment of our customer file, which we increased last year by 18% and have continued to grow at similar levels in the first half of this year. Our omni-channel customer spends nearly 3x what a single-channel customer spends, which reinforces why this is such an important strategic investment.

So in summary, our team is pleased with our second quarter performance, and we look forward to delivering on our outlook for the year. We are disciplined, always leveraging our data and our customer insights to drive our progress. This disciplined approach gives us confidence that we will continue to deliver for our customers and our shareholders for years to come.

Before I close, I also wanted to welcome Jim Scully to our Board of Directors. Jim brings tremendous retail experience to our board, including prior roles with J. Crew and Saks Incorporated. I welcome his insight and contributions as we continue on our path of consistent profitable growth.

With that, I will turn the call over to Dave.

Thank you, Paula, and good morning. I'll begin with the review of our second quarter, and then discuss our outlook for the third quarter and for the full year of 2017.

Turning first to our income statement. Our total net sales for the second quarter were $181.4 million, up 9.9% versus last year. Total company comparable sales increased 7.8% reflecting a strong performance across our channels.

Gross profit was $122.6 million, an 8.7% increase versus last year. And gross margin was 67.6% compared to last year's 68.4%. The lower rate reflects the comparison to last year's record-level gross margin for a second quarter period.

Our reported SG&A expenses were $97 million versus $94.2 million last year. Included in this year's expense was $700,000 of nonrecurring costs associated with our transition to operating as a public company after our IPO in the first quarter. The quarter also included $500,000 of ongoing public company cost that we did not incur a year ago. In the second quarter of 2016, we incurred $3.5 million of nonrecurring costs related to the IPO. Excluding the nonrecurring expenses from both this year's and last year's figures, SG&A as a percentage of total net sales was 53.1%, a 190 basis points improvement compared to 55% for the second quarter of 2016. This improvement is driven by our ability to leverage our infrastructure and reflects the higher penetration of our direct-to-consumer sales to total sales.

Our GAAP operating income increased to $25.6 million or 14.1% of sales. Excluding the nonrecurring expenses from both periods, operating income increased to $26.4 million, a 19.1% increase over last year. And as a percentage of sales, this was 14.5% or a 110 basis point improvement over last year.

Adjusted EBITDA for the quarter increased to $35.3 million or 13.5% over last year. As a percentage of sales, adjusted EBITDA increased 60 basis points to 19.4%. A reconciliation of adjusted EBITDA to net income is included in our press release.

Interest for the quarter increased to $5.1 million from last year's $4.7 million. The increase was due to approximately $600,000 of accelerated amortization of deferred financing costs as a result of a voluntary $20 million prepayment of our term loan made in June.

Finally, GAAP net income for the period was $12 million or $0.28 per diluted share, up from $8.1 million or $0.19 per diluted share last year. Adjusted diluted earnings per share excluding nonrecurring expenses were $0.29 for the quarter, a 20.8% increase over last year's $0.24.

With regard to our year-to-date result, we've delivered over 32% growth in adjusted diluted earnings per share on total sales growth of just over 11%. And I refer you to this morning's press release for further year-to-date performance highlights.

Turning to our balance sheet. We ended the quarter with $28.7 million in cash and $38 million in availability under our revolving credit facility. And as noted, we made a $20 million prepayment on our term loan in June. The accelerated amortization of approximately $600,000 that we recorded in interest expense in the quarter as a result will be offset by an equal amount of interest savings in the fall, split equally among the third and fourth quarters.

We were pleased with our inventory level at the end of the quarter, which was $63 million compared to $67 million at the end of the quarter in 2016. We opened 2 stores and closed 4 in the quarter, ending the quarter with 274 stores.

Turning now to our outlook. Once again, our full year outlook is for 52 weeks in fiscal 2017 so as to be comparable to fiscal 2016. For the third quarter, and the full year 2017, we expect total comparable sales to increase by high single digits or between 7% and 9%. We expect gross margin for the third quarter to be slightly down compared to the third quarter of 2016 and expect gross margin for the full year 2017 to be approximately equal to slightly down compared to our fiscal 2016 gross margin.

With regard to third quarter SG&A, we expect to incur approximately $700,000 of nonrecurring expenses associated with our transition to a public company. The third quarter SG&A will also include approximately $500,000 of ongoing public company costs that we did not incur a year ago. Even after including these additional expenses, we expect moderate leverage in SG&A for the quarter versus the prior year.

For the full year, we expect to incur approximately $5.4 million of nonrecurring expenses associated with the IPO and the subsequent transition to a public company. In addition, our annual 2017 SG&A will include approximately $1.4 million of ongoing public company costs not incurred in 2016. Despite these added costs, we expect moderate SG&A leverage driven by the leveraging of our infrastructure and the higher penetration of our direct-to-consumer sales to total sales.

As noted, with regard to interest expense, we see approximately $600,000 in savings spread equally among the third and fourth quarters as a result of the June $20 million prepayment on our term loan.

With regard to capital expenditures, we now expect to spend approximately $44 million for the year. You may recall, our capital program is driven by our investment in new stores, the remodel of existing stores and in improved technology. Previously, we guided spending to approximately $48 million. This reduction is due to the expectation of new store openings for the year on the low end of our 10 to 15 store range, coupled with the movement of certain remodel projects to 2018. We also now expect to close 7 to 8 stores this year versus our previous guidance of up to 5 locations.

For the third quarter of fiscal 2017, GAAP diluted earnings per share are expected to be in the range of $0.17 to $0.19. Adjusted diluted earnings per share, which exclude the nonrecurring costs, I noted, are expected to be in the range of $0.18 to $0.20. Both the GAAP and adjusted diluted earnings per share include approximately $500,000 of ongoing public company costs not incurred in 2016.

GAAP diluted earnings per share for the full fiscal year of 2017 are expected to be in the range of $0.73 to $0.77. Adjusted diluted earnings per share are expected to be in the range of $0.81 to $0.85 and again exclude the nonrecurring costs. Both GAAP and adjusted diluted earnings per share include approximately $1.4 million of ongoing public company costs not incurred in 2016.

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

To conclude, we're pleased with our second quarter and our first half results that demonstrate the strength of the J.Jill model and our ability to consistently deliver profitable growth. We remain confident in our expectations for the remainder of the year, which are in line with our long-term expectation of 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'll turn the call back to our operator, and we're happy to address any questions you may have.

(Operator Instructions) Your first question comes from the line of Paul Trussell of Deutsche Bank.

So maybe just to start off with a little bit more kind of big picture question. We're little bit more than halfway through the year, and I'm just curious to what extent your view on the apparel backdrop, mall traffic, customer demand, fashion trends? Just to the extent your view has changed on any of those dynamics along with your overall view in the positioning and opportunity for J.Jill going forward?

Thank you, Paul. This is Paula, and thank you for your both questions. In terms of the competitive environment and what we see, retail is always competitive, but we believe that we're well positioned to continue to capture market share. We're truly an omnichannel brand, integrating our store and our e-commerce experiences for our customers. And for us, most importantly, we know our customer and we know how to deliver for her. We offer exclusive products that has the style, ease, quality and value she comes to us for and we drive activity and engagement. We have profitable marketing investments to bring her in. And additionally, with our mix, our low store base and our well-developed omni-channel business were far ahead of our competitors who are busy repositioning themselves to close stores and develop e-commerce. So we believe that we're in a very strong position to continue to drive profitable growth and that we have significant opportunity to do that.

And Paul, financially, I would tell you in terms of our guidance, in particular, we've really not changed our view for the back half or for the long term even though we've adjusted a couple of our guidance for the year in terms of store locations. Nothing has changed in either new stores or closures from a longer term point of view, and we're just as optimistic about both channels.

Good to hear. And my quick follow-up is, just discuss a little bit more in detail the puts and takes on gross margin, both what transpired in the second quarter and also how we think about those same puts and takes over the balance of the year?

Sure, Paul. With regards to gross margin, we were a little too optimistic when we gave guidance for Q2 on our last call and only actually fell slightly below that guidance. And we were a bit more promotional than our extremely strong record for the second quarter last year. So with that, our inventories go forward are fresh; they're at the desired level. And our Q3 guidance reflects our expectations for the quarter go forward.

And just to put a little bit of number on that, if you will -- if you go back to the second quarter of 2016 and you kind of normalize for the sale process in 2015, our second quarter in 2016 was up 100 basis points. And as we were coming out of the first quarter, we were up 90 basis points over the last year. So some of that optimism was justified at that time, but in hindsighting it now perhaps it was just a bit too optimistic. So we really kind of came back in line in terms of what we would consider a pretty strong gross margin for the quarter.

Your next question comes from the line of Lorraine Hutchison from Bank of America.

Just to follow up a little bit on Paul's gross margin question. As we look forward, would you expect that slight decline to continue into the out quarters? I understand you gave 3Q guidance, but 4Q and beyond?

Well, I -- if I go back, we always talked about the fact that our gross margins for product are -- would potentially be slightly down just given the mix of the channel businesses. So I guess, I would answer the question as, yes. But when I come back to the year though, we see again, relatively flat to last year or slightly down. So I would say -- and we will guide further on the fourth quarter in our next call. But right now, I would expect again it to be approximately equal to last year or perhaps slightly down.

And then, could you just discuss you made the debt repayment. How should we think about the capital structure going forward and as there are minimum level of cash that you're comfortable carrying?

I guess, from our point of view, we look at -- we don't need a lot of cash per se as much as from our point of view, it would be nice to always have the backdrop of the ABL fully available. That's kind of how I think about it. So and that in terms of how we're going to continue to deploy excess cash, it's something we're not prepared to talk about now, but it is at this time an ongoing discussion we'll have with our board and we will look for further opportunities to deploy it properly or in its best use. But I've also said in the past too that at least in the midterm, it looks like continued deleveraging is the way to use that cash. So when there's more to talk about, we'll certainly do that. But again, we kind of look at -- or I kind of think about as having the ABL fully available.

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

This is Kate on for Brian. I guess, I just wanted to dig in a little bit more into the direct business here in 2Q. It seems like it's slowed a little bit relative to Q1. Just anything that we should consider in terms of traffic trends or customer acquisition? Seems like you're still pretty pleased with how that's going. And then Paula, just on the relaunch that's going to be happening in September, could you talk about the biggest changes that we should look to into the back half on the website relaunch? And then just any quantification or idea about what kind of lift you guys have seen in the past when you've made these kind of changes?

Yes, thank you. Well, as I mentioned, we're very pleased with our performance across both our stores and our direct business, which is, as you know, is primarily e-commerce. A little color. In June, our traffic was good, but we saw a conversion in direct below plan, but we were able to quickly and effectively react, we adjusted our marketing cadence and we finished the quarter on a strong note. We had significantly improved full-price selling through July. So we are pleased with our direct-to-consumer business. In terms of our new website, as we said, we're rolling that out as we speak. But in terms of what customers kind of expect to see with the new website, and if you have the pleasure of seeing it, you'll notice there's an updated creative look and feel that's easy to navigate. It includes simplified options for quickly shopping our products and full outfits and optimize adaptive platform for shopping on all devices whether you're on mobile, desktop or iPad. And also convenient order history for referencing your past transaction details to give you a complete order history. And as we've said, in the near future, we'll be taking that forward to enable seamless product discovery and also enhance the post-purchase service experience, including purchase and post-purchasing, including all payment activity. So we're very excited about the new capabilities that the site will bring us and the foundation it will set for our future growth. We have built in -- we planned the roll out, we've contemplated any potential impact positive and any challenges into our full year guidance. So I won't be breaking those out separately, but we are very, very -- we believe we've prudently planned it and we're looking forward to driving significant profitable growth with it.

If you were to run out and try to access the site, you may or may not be able to given the way we're using a geofencing roll out. So I just want to let you know that in case you were to go look real quick. So it's going to take a little while to go from the West Coast to the East Coast. The other thing you did mention was customer acquisition. I just want to reinforce, again, we did -- we've mentioned it -- but it is in line with what we've experienced historically, so we remain excited about our ability to continue to generate new customers into the brand.

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

Paula and Dave, I was wondering if you could talk about the comp metrics in the quarter? The big comp drivers? And then Paula, you talked about, in particular, strong results in your stores. Could you just give us any additional color on that?

Sure, happy to. Kimberly, well, when we think about how we've been able to achieve and sustain the comp growth, it really comes down to the fact that we are very well positioned with our omni-channel model. It comes down to the fact that we know our customers so well, we know what she wants and we deliver it for her. And our ability to add customers to our active customer list, which we can talk further about. But I think the key thing too is, we do not wait for our customers to come to us. We really drive significant activity and engagement with our targeted marketing approach. And then once she comes to J.Jill, we have a commitment to provide her with a guided merchandising approach with the well-now -- wear-now assortment that we consistently as you know, infuse with newness and is clearly resonates with her month after month. So this engagement is reflected in our strong conversion and in our consistent comp growth. As we've said, we're already over 40% direct-to-consumer and we expect that our model, our omni-channel initiatives, our marketing investments to drive traffic. We are increasing our average transaction value and enhancing conversion. So in terms of store comps, given the negative traffic environment out there, we're really pleased with our performance across both our stores and e-commerce. And similar to Q1, our retail performance was strong. It really helped drive the positive result. And as I've said, we're good at driving activity and engagement so we have more customers in both channels spending more. And these results, particularly in the stores, were driven by positive conversion in the quarter. And that's conversion driven by product and by the service that we provide. And I'd also remind you that our stores are located in A locations where traffic has been less of a headwind. So we've been building off our strong foundation and continuing to drive profitable growth.

Okay, great. And then David, sounded like an answer to Lorraine's question, you are prioritizing free cash flow or excess free cash flow, let’s call it, to pay down debt. Is that how we should think about it for the next 2 to 3 years? And is there sort of a -- an optimal leverage target that you have in mind?

I wouldn't direct you to say for the next 2 to 3 years. Right now, my window of time is, I'll call it the mid-term. So I don't think there's anything in the next year that would prioritize deleveraging.

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

I guess, Paula or Dave talked about the new web platform coming, I guess, now. I guess, since most think of it from a customer-facing perspective, does the web platform provide any kind of enhancement to data analytics capabilities you guys already have on, let’s say the back-end to you that you can explore further or -- and try to better reach the customer or what not? I'm just trying to get a sense of that.

Was your -- Randy, was your question if will we be providing -- I'm sorry, I missed part of the question. Dave, could you...

Well, I think (inaudible).

The question is...

Could you just repeat it? I'm sorry, it was...

Yes, no, the question is really -- you have this new web platform. Does the platform provide any additional back-end like data analytics capabilities that you didn't have before under the existing platform?

There's not a significant amount more. And that's not to say that because the reality is right now we're pretty well outfitted. We have significant capabilities in that area so I would describe the platform as more of a customer-facing event.

Right.

And we continue to have the significant capabilities we have in the back end now to really understand, you've heard Michele Parzianello talk in the past about the customer funnel and the like. And we'll still have all of that and likely a little bit more, but it's not the big idea for the platform.

Right. it will, down the road, enable us to create more personalized experiences for the customer in terms of product recommendations and wardrobing features and services, connecting services in store and online. And even now, enhanced product selection tools and our recommendations around outfits. So she will see a greater brand experience and then it will, as we go along, enable more seamless product discovery as well as a better, stronger purchase and post-purchase experience.

Got it. And then, as you spoke about -- I guess, you gave us good perspective on the gross margin trajectory should stay relatively stable in the medium-term, the obviously, the big move around the margin side is the SG&A rate leverage. Just can you maybe give us a reminder of that accretion factor you get from the channel shift to e-com from the stores channel? And what level of penetration improvement can we expect over the -- on an annualized kind of basis over the medium-term?

Well, in terms of penetration, we have talked publicly about reaching something like 50%, 50-50 split of the business by the year 2019. And that would be for the year 2019 as opposed to at the front-end. So we've talked about that historically as a good benchmark. In terms of the impact of the penetration, it does have a -- again, it does cause our gross margin in total to go down slightly year-after-year because of penetration of sale and clearance product in the business. However, when you get to a contribution standpoint, there's a significant benefit given the efficiencies that we have in that channel, which is accretive to operating income at that point, and it's pretty significant.

Understood. And I guess lastly, any kind of metric update on -- of the customer file, how many of the customers are, I guess, what percent are active? And then, I guess, the second area would be what kind of percent of the customer base right now is omni-channel? And how do you think about improving that penetration on an annualized basis?

Okay, sure. Well, we're very pleased that our comparable sales growth continues to be driven by the growth in our customer file. And while one drives the other in terms of the comp growth, the correlation isn't exact, it varies from quarter to quarter. But one of the reasons is that we have been marketing obviously to our existing and to new-to-brands customers. We're constantly making Investments and adjustments to drive the biggest opportunities in the file. In terms of omni-channel, we'll update that annually, but that's the way that we continue to drive the business. And as of the end of '16, we grew our omni-channel customer by 18% and the omni-channel customers represented over 22% of our active customer file growth. And as I mentioned earlier, this continues to be the fastest-growing segment with tremendous value for our business.

Yes, we're in line with our -- well, I was going to say for our 2015 and 2016 trends, as we've put out there, we continue to grow in line in total and in terms of our omni-channel penetration. And omni again, to Paula's point, is the fastest-growing segment.

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

Paula and Dave. I guess, Dave, 2 questions for you on real estate. First, quickly, just -- can you tell us what net openings number we should expect for the back half of this fiscal year?

I would say -- so right now, we're at 274 and I would say that we'll probably have a net number that's somewhere between, I'll say, 4 and 6.

Got it. And then just a quick follow up to that. So David, sounds like you're looking to close an extra 2 to 3 stores versus the last time we heard from you guys. Maybe can you just give us a little more detail there? Maybe where those stores are located? What drove that decision? Is there any penalty for those closing? Just kind of curious what drove that decision?

So again, we looked -- you've heard us talk in the past about really, the way we are very disciplined in terms of our management of our portfolio and the fact that we are over 98% four-wall profitable in terms of a chain. In this particular case, this a couple of locations that we weren't contemplating at the beginning of the year that were just kind of, I'll say, circumstantial and I would say kind of a normal course in terms of reviewing the portfolio and editing where needed. One of the stores we did close was one of our 2 clearance centers. Again, that wasn't contemplated earlier in the year. So that is simply the matter of our effective ability to clear on line. And in this case, it made more sense to exit this location. The fact that there's maybe 1 or 2 more in the mix again, I would say nothing in particular about those location, just more of a normal ebb and flow of the portfolio. And as a general rule, we're closing when we're able to get the transfer that's needed in order to at least break even on a profit standpoint. Finally, no penalties here. These are all locations where we had the ability to exit because we're either at the end of term or we had an option to leave.

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

Our question was about your thoughts on different speed initiatives? And if there are some in terms of where you want to be with route to market and managing promotional cadence and merchandise and balancing the art and science of retail? Also, it would be great if you can communicate any thoughts on how you're feeling about the brand in relation to the brand studies you've done or been in progress? And what your thoughts are for the next opportunities there? And just a follow-up. As we continue to see a lot of traffic competition online, how are you thinking about shipping cost at large in terms of what your customer is willing to pay? I know you have a very loyal customer base and a real proprietary assortment, but wanted to get your thoughts on that.

Oliver, yes, those are good questions. First of all, in terms of speed to market, I mean, one is -- we're very pleased with our entire assortment as we move on into the third quarter, and we saw strength across our entire business. We don't drive our business through speed to market. Our assortment is really based on a strong foundation of product and we consistently deliver newness to that foundation, as you know, every 4 weeks through print and patterns that are seasonally appropriate and relevant to her. So we take a very thoughtful approach to what our assortment is. Our customer does not want to be first with the new fashion style trend. So we -- what she trusts us to do is to provide her with a guided view of our merchandise throughout our channels. And we know through our hindsighting, through knowing her, through our very significant -- the strength we have in data and our highly-disciplined approach to understanding the science of what happens. But then knowing her and what's relevant to her and how she lives, we do consistently combine that quantitative and qualitative approach to what we provide her. But the fact that we approach it with this very strong -- given the strength of our foundation, given the fact that we have newness that we bring into her every 4 weeks to keep her coming in and to -- what we say is delight her with our styles, inspire her confidence through our approach to dressing. And that we don't do that with speed as our factor, but we do it with efficiency in factor and with true intent as to what we intend to provide for her. And that's worked quite well for us.

And on the brand and what you're thinking there and the online and shipping fees? That would be great.

(inaudible)

Well, sure. I'll wait on the brand study, and I'll have you follow up with that. But just our point of view on shipping fees hasn't changed. And again, we remain confident in our model with that regard. You mentioned the loyalty of our customer. There's the household income too as well as the proprietary product. Also the fact that again, in our competitive set, specialty retail is far more prevalent from our point of view. So all together, we really just don't see that barrier to purchase and don't feel like we're experiencing that. Having said all that, we understand the dynamic, and it's something that we continue to monitor very closely as well as test. And we'll keep our eye on that, for sure, but our point of view hasn't changed.

Okay. And a follow-up is in relation to thoughts around your customer research on your customer? And if there's a lot of Amazon customer overlap? And your thoughts on how you can just optimize your competitive advantage? Or would you contemplate the partnership just as Amazon continues to make some pretty obvious inroads in the apparel market in general?

We're very pleased with our distribution channel at this point. Our product is available exclusively through J.Jill. We believe we've done a very good job of letting her know what she can -- who we are, what we represent and what she can expect from us. And we have been able to drive that activity, as I've said, through our investment in our marketing activities whether they be circulation through our heritage as a direct marketer, but also through the dynamic digital marketing that we use to drive activity and engagement. So we're pleased with where we are from our brand presence and we're pleased with the ability to serve her through our exclusive channels, through our website and through our stores.

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

First one, if you could talk a little bit more about the real estate environment? And I know you're in premier locations. But are you seeing any types of concessions or anything that we should think about with rent? Or even when you're looking to get into new centers, are you getting better real estate opportunities there?

It's back to the point about we are really only in A centers. And where we're not, we're calling some of the locations back, meaning to the extent they don't add to our brand or our profit. I would tell you right now that the developers are leveraging the fact that they do have A centers. So I would say it's -- I wouldn't necessarily represent that we're seeing concessions or they're trying to entice people in, in a way they haven't in the past. We're accustomed to getting, I think, what I would say is certainly at least customary in the industry in terms of support. What I will say though is I think the development community has come to understand and appreciate our model. And I do think that when they want to represent our category in a center, that they work really hard along with us and we think we have a great relationship to do what they can to see that we're represented. And we, I will say, stick to our guns in terms of the economics we need. And there are instances where we'll go back and say, "This is the economic package we're willing to pay." And we have to have that and we do get that not all the time, but I would say a fair amount of the time. So I don't know if it's because the environment's necessarily different or it's just simply the relationship we built and the way we work. But I would say, we are generally pretty successful.

That's great to hear. And then -- just -- and sorry if I missed this. When you talked about the 2Q promotional environment or your 2Q gross margins and having to be a bit more promotional than you anticipated, was there any specific categories that didn't resonate as much? Or was there a shift in the consumer behavior or the competitive environment beyond the fact that you were just going up against such strong results? Is there anything else we should think about there?

No, there was nothing that stood out as an exceptional aspect of that. We just were optimistic going into the quarter based on the strength of the first quarter. And of course, going up against our very best quarter last year.

And do you think your customer -- obviously, she's very devoted to your brand, the lifestyle, the quality of the product. As you think about the competitive landscape, which is obviously, very heightened out there, how do you think about that for holiday? And do you need to shift at all how you communicate with her? And how you communicate the perceived value proposition of the product?

We don't see a -- we have no desire to change what we're doing. We just are continually focused on investing in the most productive ways, whether it be through store marketing, whether it be through circulation changes, whether it be through our e-commerce channel. So our message is strong, she trusts us to provide the product and service that she wants and we just have to keep showing her what it is that's new and that can add to her J.Jill experience, and she responds consistently.

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

Thank you. Before we close, I just wanted to say that our hearts and minds are with the people of Texas, including, of course, our associates. It's our history at J.Jill to respond and provide support in times of disaster. And with this in mind, J.Jill is making a donation of $50,000 from the J.Jill compassion fund to the American Red Cross. Additionally, the fund will also be matching associate donations for up to $50,000 to support the many victims through this important relief effort. So with that, I wanted to thank you all for joining us this morning. We're very pleased with our performance in the first half. We look forward to executing against our goals for the remainder of the year and we look forward to speaking with you again on our third quarter call. Thank you very much.

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