J.Jill, Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2016 Q3, but the supplied filing is for the thirteen and thirty-nine weeks ended October 28, 2017, with comparisons to October 29, 2016. The filing was signed December 12, 2017.
Business context and financial performance
J.Jill is a women’s apparel retailer operating stores and direct channels, including its website and catalog. It reported 275 stores at October 28, 2017, versus 271 a year earlier. Amounts below are in millions except per-share data.
| Metric | 13 weeks ended Oct. 28, 2017 | 13 weeks ended Oct. 29, 2016 | 39 weeks ended Oct. 28, 2017 | 39 weeks ended Oct. 29, 2016 |
|---|---|---|---|---|
| Net sales | $162.0 | $159.4 | $509.5 | $472.1 |
| Gross profit / margin | $108.5 / 67.0% | $108.1 / 67.8% | $346.8 / 68.1% | $322.5 / 68.3% |
| Operating income / margin | $13.3 / 8.2% | $15.5 / 9.7% | $57.5 / 11.3% | $48.6 / 10.3% |
| Net income / diluted EPS | $6.0 / $0.14 | $7.8 / $0.18 | $26.0 / $0.60 | $22.0 / $0.50 |
| Adjusted EBITDA / margin | $23.0 / 14.2% | $26.6 / 16.7% | $89.3 / 17.5% | $83.5 / 17.7% |
Cash flow, debt and liquidity
- For the 39 weeks, operating cash flow was $54.5 million, investing cash flow was negative $22.3 million, and financing cash flow was negative $19.9 million. Capital expenditures were $22.3 million, primarily for stores and information systems.
- Cash increased to $25.8 million at October 28, 2017 from $13.5 million at January 28, 2017. Inventory was $85.4 million, up from $66.6 million at fiscal year-end.
- Term Loan principal was $253.9 million, with net long-term debt carrying value of $244.1 million after discounts and current portion. The company made a voluntary $20.2 million prepayment, including accrued interest, in June and reported compliance with financial covenants.
- No borrowings were outstanding under the ABL facility; additional borrowing capacity was $38.4 million, with $1.6 million in letters of credit outstanding.
Changes, outlook and material matters
- Quarterly sales grew 1.6%, but net income declined 23.2%. Management attributed sales growth to a larger active customer base and more stores; gross margin fell amid increased promotions and markdowns, while SG&A rose 2.8%.
- For the 39 weeks, sales rose 7.9%, including 5.6% growth in total comparable company sales. Net income increased 18.1%; operating margin improved to 11.3% from 10.3% as SG&A declined as a share of sales. Gross margin edged down.
- Management said current liquidity sources should fund operations, its growth strategy and expected public-company costs for at least the next 12 months, while cautioning that cash generation and future borrowing availability are not assured. Fiscal 2017 capital expenditures were planned at approximately $38 million.
- No formal earnings or sales guidance is provided. The company does not anticipate cash dividends in the foreseeable future.
- Three similar securities class actions were filed following the March 2017 IPO, alleging claims under the Securities Act and seeking compensation for investor losses. The company considers the claims without merit; no material amount was accrued, and it expects the matters may be consolidated.
- The IPO was a sale of shares by an existing shareholder; proceeds, net of underwriting discount, went to that selling shareholder, not the company. The company completed a corporate conversion and IPO in 2017.
- J.Jill planned to adopt the new revenue-recognition standard in fiscal 2018 using the modified retrospective method; its preliminary assessment identified potential changes to revenue timing, advertising-cost accounting and merchandise-return presentation. It expected the new lease standard to result in significant right-of-use assets and offsetting lease liabilities, not yet quantified.
Management cited exposure to economic conditions, consumer preferences and fashion trends, competition, merchandise pricing and mix, and execution and returns on strategic investments. The company reported effective disclosure controls and no material change to internal control over financial reporting during the quarter. A 10% change in current interest rates was estimated to affect fiscal 2017 net income by $1.1 million; the company reported no interest-rate hedging.
Important facts for investors to verify
- Whether subsequent quarters sustain comparable-sales growth and recover the quarterly gross-margin decline tied to promotions and markdowns.
- How inventory levels, markdown activity and working-capital needs affect cash generation and liquidity.
- Debt repayment, variable-rate exposure, covenant compliance and availability under the ABL facility.
- Developments, potential costs and any accruals related to the IPO-related class actions.
- The quantified financial effects of adopting revenue-recognition and lease-accounting standards.
- The distinction between GAAP results and Adjusted EBITDA, which the filing presents as a non-GAAP measure.