J.Jill, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 4, 2019, compared with the 13 weeks ended May 5, 2018. Although the request metadata says “2018 Q1,” the filing is for J.Jill’s first quarter of fiscal 2019.
Business context and financial performance
J.Jill is an omnichannel women’s apparel retailer with more than 280 stores and an e-commerce platform. It operated 283 stores at May 4, 2019, versus 273 a year earlier.
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Net sales | $176.5 million | $181.5 million | Down 2.8% |
| Gross profit / margin | $116.3 million / 65.9% | $120.3 million / 66.3% | Margin down 0.4 percentage points |
| Operating income / margin | $10.8 million / 6.1% | $20.0 million / 11.0% | Down 46.1% |
| Net income | $4.4 million | $11.3 million | Down 61.2% |
| Diluted EPS | $0.10 | $0.26 | Down $0.16 |
| Adjusted EBITDA / margin | $21.5 million / 12.2% | $31.5 million / 17.4% | Margin down 5.2 percentage points |
Retail sales were $102.6 million, down from $108.0 million; direct-channel sales were $73.9 million, slightly above $73.5 million. Adjusted EBITDA is a non-GAAP measure.
Cash flow, liquidity, debt, and balance sheet
- Operating cash flow was $4.3 million, versus $5.5 million a year earlier. Capital expenditures were $4.1 million, compared with $2.2 million; investing cash outflow was $4.1 million.
- Financing cash outflow was $52.1 million, primarily reflecting the $50.2 million special dividend paid April 1, 2019. Cash fell to $14.3 million from $66.2 million at February 2, 2019.
- Term Loan principal was $244.7 million; reported debt net of discount and issuance costs was approximately $239.9 million, including the current portion. The company reported compliance with all financial covenants.
- No ABL borrowings were outstanding; the company reported $38.2 million of additional borrowing capacity, with $1.8 million of letters of credit outstanding.
- Working capital was negative $3.6 million, based on current assets of $135.4 million and current liabilities of $139.0 million. Inventory was $85.4 million, up from $77.3 million at February 2.
- Adoption of lease accounting brought operating lease assets of $221.3 million and lease liabilities of $249.2 million onto the May 4 balance sheet. This accounting change affects balance-sheet comparability with prior periods; management said it had no material impact on earnings or cash flows.
Material changes, outlook, and risks
- Management attributed lower sales to a reduced response to new product offerings and said sales could continue to be adversely affected. Higher promotions, reflecting elevated inventory, pressured gross margin; management expected promotions to remain higher and weigh on gross profit and margin in future periods.
- SG&A increased 5.1% to $105.4 million, with cited increases of $3.2 million for technology investments, $1.5 million in sales-related costs, mainly shipping and handling, $1.0 million in marketing, and $0.4 million in stock compensation. The prior-year period included $1.3 million of CEO-transition costs.
- Management stated current liquidity sources should fund operations for at least the next 12 months, while cautioning that future cash generation and borrowing availability are not assured. No specific revenue or earnings guidance was provided.
- The company said it planned to evaluate goodwill and intangible assets in Q2 FY2019 following a recent stock-price decline; no impairment was identified in Q1. Results remain exposed to consumer demand, fashion and product acceptance, competition, promotions and inventory, technology-investment returns, and potential trade-policy or tariff changes.
- Ordinary-course legal proceedings were disclosed; management did not believe any pending matter was expected to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether product response and sales trends improve, and whether elevated inventory requires continued discounting.
- Subsequent gross margin, operating expenses, and returns from technology and store investments.
- Cash generation and liquidity after the special dividend, including use of the ABL capacity and debt-service obligations.
- Results of the planned Q2 goodwill and intangible-asset evaluation.
- Lease obligations and the effect of the new lease-accounting presentation when comparing periods.