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J.Jill CEO Sees ‘Little Price Resistance’ for Unique, Artisanal Fashion

J.Jill saw total third-quarter net sales decline 1 percent to $150.2 million on net income of $8.9 million.

The revenue total and adjusted earnings per share (EPS) of 77 cents were a surprise beat of Wall Street estimates of $148.4 million and 54 cents per share.

In a Nutshell: In an earnings call, J.Jill president and CEO Claire Spofford, discussed the company’s inclusive sizing initiative, Welcome Everybody, which “successfully engaged with both existing and new customers” since its Aug. 4 launch.

“We checked in with our customer following the launch to ensure they were responding positively to the campaign and to learn how we could continue to improve their experience,” Spofford said. “They told us they recognize that representation is important in fashion, believe the same price for all sizes is a fair approach and that inclusive sizing either personally impact them or their friends and family.”

Spofford also highlighted the success of a recent test of a small capsule collection called Pure Jill Elements being piloted in seven stores and online. She said the collection features artisanal pieces designed for the customer “who is a fabric enthusiast and who values unique details that can command a higher price point.” The CEO said J.Jill has seen “very little price resistance for products that were truly unique and special.”

“Early reads from this pilot have already provided helpful insights into opportunities where we can potentially stretch our value proposition over time,” said Spofford. “The small capsule outfit did a great job of interesting prospects between 35 and 55 years old and was the subject of the top-performing social and digital communication efforts to that audience. We will continue to use an ongoing test and learn approach as we continue to leverage data and insights to support our strategic growth initiatives.”

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Inventory as of Oct. 29 was $60.1 million, up 5.7 percent compared to $56.9 million at the end of the third quarter of fiscal 2021. The increase is driven by the timing of holiday floorset receipts, which were shipped and received earlier than last year to ensure on-time delivery, according to J.Jill chief financial officer and chief operations officer Mark Webb.

Gross margin was 69.9 percent compared to 68.9 percent in the year-ago third quarter. The increase was driven by moderating freight costs as well as strategic price increases which offset product cost inflation.

For the fourth quarter, J.Jill expects revenues to be flat to down 3 percent compared to the fourth quarter of fiscal 2021, and for adjusted EBITDA to be in the range of $9 million and $11 million. Gross margin is projected to be about flat to last year as any necessary pricing actions will be offset by the benefit from lower year-over-year freight costs.

The women’s apparel retailer expects revenues to grow between 4 percent and 5 percent for the full year, with adjusted EBITDA forecasted to range between $103 million and $105 million.

J.Jill plans to close four net stores in the fourth quarter, including one new opening, to end the year with 243 stores.

The company ended the third quarter with a cash balance of $90.1 million. Cash flow from operations was $66.7 million at the end of the period, compared to $53.4 million after the third quarter last year.

Capital expenditures in the quarter were approximately $3 million and were primarily related to the retailer’s implementation of an updated POS system, as well as repairs and investments in the store environment.

J.Jill is also continuing to explore options to refinance its existing term loan credit facility. As of Oct. 29, the retailer had $33 million of total availability under its asset-based lending facility.

Net Sales: Total net sales for the third quarter inched down 1 percent to $150.2 million compared to $151.7 million in the year-ago period. The sales decrease was primarily driven by lower traffic partially offset by higher average transaction value.

Total comparable sales, which includes comparable store and direct-to-consumer sales, decreased by 1.2 percent in the third quarter.

Direct to consumer net sales were up 0.4 percent on a year-over-year basis compared to the third quarter of 2021, representing 45.5 percent of sales.

Net Earnings: Net income was $8.9 million, down from the $11.2 million J.Jill generated in the third quarter of 2021.

Net income per diluted share was 62 cents compared to 79 cents in the year-ago quarter, including the impact of non-recurring items like impairment charges related to right-of-use assets and leasehold improvements. Excluding the impact of these items, adjusted net income per diluted share in the period was 77 cents, an improvement from the 65 cents in the year prior.

Income from operations was $18.9 million, slightly down from $19 million in the 2021 third quarter. Adjusted income from operations, which excludes non-recurring items and impairment charges, was $20.2 million, compared to $18.8 million last year.

Adjusted EBITDA for the period increased to $27.5 million from $27 million, while adjusted EBITDA margin for the 2022 third quarter was 18.3 percent, up from 17.8 percent in the year-ago quarter.

CEO’s Take: Spofford reiterated the customer’s willingness to pay full price for J.Jill products, particularly dresses, which were a “standout category” for the third-straight quarter. The retailer controlled its promotional cadence even during the Black Friday holiday weekend.

“With regard to Black Friday, obviously, this quarter we are sticking to our strategies and our intent,” Spofford said. “And while we are certainly paying a lot of attention to what’s happening in the macro environment and the competitive environment from a promotional cadence and level standpoint, we continue to try to minimize our promotions in full recognition of the fact that Q4 is just a little bit of a different animal, but we anniversaried the same promo level over that weekend as we did last year.”