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J.Jill’s First Turnaround Task: Offloading Excess Inventory

J.Jill is still taking its lumps throughout the Covid-19 pandemic as it attempts its turnaround, with net sales declining 29.4 percent to $117.2 million a quarter after seeing sales drop 50 percent.

In a Nutshell: The women’s specialty apparel retailer has been through the wringer this year in a bid to could to stave off Chapter 11 bankruptcy, completing an out-of-court restructuring with lenders in September—after five forbearance extensions—that extended 98 percent of its long-term debt to 2024.

In the wake of the restructuring, J.Jill announced the appointment of a new CEO and board member, Claire Spofford, effective no later than Feb. 15, with interim CEO James Scully staying on board during the transition. Spofford, most recently the CEO of lifestyle brand catalog operator Cornerstone Brands, initially served as J.Jill’s senior vice president and chief marketing officer from 2011 to 2013.

And in November, to regain compliance with the New York Stock Exchange’s listing standards, the retailer announced a 1-for-5 reverse stock split.

J.Jill slashed its quarterly inventory 17 percent to $67.6 million, compared to $81.4 million at the end of last year’s third quarter. The efforts to clear excess inventory had a significant impact on gross margin, which dropped year over year from 64.4 percent to 58.9 percent.

Mark Webb, executive vice president and chief financial officer at J.Jill, said in an earnings call that the retailer “will continue to be aggressive with inventory management this year, with the goal of starting fiscal 2021 with inventories well positioned to support average unit retail and gross margin recovery.”

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Part of the inventory clearance has involved cancelling orders wherever possible, and reallocating units from stores to online to better align supply with demand. Additionally, J.Jill instilled markdowns and carved out units for third-party liquidation, moves that Webb said constituted the majority of the gross margin decline.

The retailer closed five stores in the quarter and expects to close six more by the end the year, leaving its total footprint at approximately 270 locations. The company hasn’t ruled out a return to store growth, but Webb indicated that J.Jill will continue to review its store fleet in 2021 for further potential closures. The store closures were predominantly based in malls, Scully said.

J.Jill is not providing financial guidance for the fourth quarter or the full year, but expects capital expenditures to reach approximately $5 million in 2020.

The company ended the quarter with $9.2 million in cash and $37.3 million available under its revolving credit agreement. Liquidity totaled more than $53 million.

Net sales: Total net sales for quarter were $117.2 million, 29.4 percent down compared to $166.1 million in the year-ago period.

The company did not break out comparable store sales, which typically account for all stores open for at least one year.

Direct-to-consumer (online) net sales represented 63.3 percent of total net sales in the third quarter, compared to 43 percent in the quarter last year. Overall, for the first three quarters, direct-to-consumer net sales represented 65.3 percent of total net sales compared to 42.5 percent in 2019.

However, the quarterly direct-to-consumer sales only jumped 4 percent, suggesting that the retailer’s online channel hasn’t gotten much traction even as apparel retailers continue to see growth in the channel.

Net earnings: Third-quarter net losses at J.Jill totaled $23.2 million, compared to income of $2.4 million in the third quarter of fiscal 2019. Net loss per share was $2.52 in the quarter compared to income of 27 cents in the year-ago period, including the impact of non-recurring expenses related to Covid-19 and adjusted for the 5-for-1 reverse stock split.

Gross profit was $69 million, a steep decline year over year from $106.9 million in the period last year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was a loss of $1.6 million, compared to income of $19.6 million in last year’s third quarter.

CEO’s Take: In the call, Scully said J.Jill has reevaluated its operating model and taken several steps to strengthen the business for the future.

“We are optimizing our product assortment and streamlining the number of product flows which will improve the efficiency of product development activities as well as store and e-commerce operations,’ Scully said. “We have reviewed our marketing mix, reducing the number of important, but expensive catalog drops to be in line with the new product flows. We have adjusted our organizational overhead to reflect a simplified way of working.”