Women’s apparel retailer J.Jill saw net sales increase more than 29 percent to $151.7 million on net profit of $11.2 million in the third quarter, leading stock to rise as much as 20 percent in after hours trading on Monday.
In a Nutshell: As J.Jill further continues its turnaround, the women’s specialty retailer is heading into 2022 with two big goals: delivering newness to the customer and boosting full-price sales.
The company’s third quarter put these goals in motion. While core franchise businesses such as basics, denim, linen and knits saw strong sales in the period, the “exceptional” response to novelties such as embroidered sweaters and textured fabrics has powered the retailer to deliver more full-price sales, according to Claire Spofford, J.Jill president and CEO.
“We’ve been flowing [in] newness a lot more regularly, as opposed to launching around 12 big drops a year, where you may see some diminished returns over the course of the time period before you add more newness,” Spofford told Sourcing Journal.
Inventory at the end of the third quarter decreased 15.8 percent to $56.9 million compared to $67.6 million to close the 2020 period. Spofford said that the retailer has deliberately tightened inventories as the company has been able to generate sales at lower promotional rates.
Gross margin was 68.9 percent, largely due to the strong full-price selling and reduced promotions, with the metric seeing a 10-percentage-point improvement from the 58.9 percent in the 2020 third quarter. Gross margin reflected approximately 200 basis points (2 percentage points) of freight expenses due to supply chain disruption.
Mark Webb, chief financial and operating officer at J.Jill, said the majority of the freight pressures stemmed from the move to transport product to the U.S. via air ahead of the holiday season. Like many apparel retailers, J.Jill uses air freight only in “exception-based” decisions, like in today’s port-congested supply chain.
“We’ve moved forward production delivery dates so that we have a little bit more time to make that ocean/air trade off decision,” Webb told Sourcing Journal. “It’s down to the reliability of the bookings at the port of origin, and not all ports are created equal in terms of their reliability right now…And if you can manage the ocean side of it with a high degree of certainty and land your product with enough time to get to your floor set, that’s the choice we’re making all day long.”
The gross margin impact for expedited shipping costs will increase to 250 to 300 basis points as air freighted goods received in the third quarter are sold over the holiday period, Webb said in the retailer’s third quarter earnings call. He added that he wouldn’t guide for any major difference in air freight levels over the first two quarters of 2022.
The company ended the third quarter with $17.5 million in cash, with no borrowings against its its revolving credit agreement. The retailer still has $35.6 million of total availability under the asset-based lending agreement.
J.Jill reiterated that it expects to close about 20 stores in fiscal 2021, while expected total capital spend is now at $6 million, down from the second quarter’s projections of $8 million. The company closed one store in the quarter, ending the period with 260 locations. Spofford noted in the earnings call that the company believes it has the opportunity to open new locations going forward.
For the fourth quarter, the women’s apparel retailer expects revenues to grow on a year-over-year basis. The company also expects strong adjusted EBITDA growth for the quarter, driven by full-price selling and a continued reduction in promotions, as well as increased gross margins, although not as robust as the third quarter due to the rising freight costs.
Net Sales: Total net sales for the third quarter were up 29.4 percent to $151.7 million compared to $117.2 million in the 2020 period, while two-year totals saw sales decline 8.7 percent.
Total company comparable sales, which includes comparable store and direct-to-consumer sales, increased by 42.2 percent.
Direct-to-consumer net sales were down 8.3 percent from 2020 on lower markdown sales, and represent 44.9 percent of total net sales.
Net Earnings: Net income was $11.2 million on 79 cents per diluted share, bouncing back from a net loss of $23.2 million on a $2.52 loss per diluted share in the third quarter of fiscal 2020.
Excluding the impact of non-recurring items, adjusted net income per diluted share in the third quarter was 65 cents, compared to a loss of $1.18 in the year-ago quarter.
Third-quarter adjusted EBITDA was $27 million compared to a loss of $1.6 million in the third quarter of fiscal 2020. Operating income was $51.2 million in the quarter, compared to last year’s loss of $135.7 million last year.
CEO’s Take: Spofford said that J.Jill will be raising prices in 2022, although she did not identify which categories would be impacted.
“We’ve taken a step back and taken that clear-eyed look at the whole assortment and tried to think about where we think we can get more credit for the design, the make and the novelty in the product,” Spofford said.