J.Jill, Inc. — Form 10-Q Summary
Period clarification: The request metadata labels this “2016 Q2,” but the filing is for the 13 and 26 weeks ended July 29, 2017, compared with periods ended July 30, 2016. Fiscal 2017 is a 53-week year ending February 3, 2018.
Business context and reporting period
J.Jill is a women’s apparel retailer operating through stores, its website, and catalogs. At quarter-end it had 274 stores, versus 265 a year earlier. Direct sales represented 43% of sales and retail sales 57%.
Financial performance
| Metric | Quarter ended July 29, 2017 | Year-over-year change | 26 weeks ended July 29, 2017 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $181.4 million | +9.9% | $347.5 million | +11.1% |
| Comparable sales | +7.8% | — | +8.8% | — |
| Gross profit / margin | $122.6 million / 67.6% | +8.7% / down 0.8 percentage point | $238.3 million / 68.6% | +11.1% / unchanged |
| Operating income / margin | $25.6 million / 14.1% | +37.2% / up 2.8 points | $44.2 million / 12.7% | +33.5% / up 2.1 points |
| Net income | $12.0 million | +47.2% | $20.0 million | +40.8% |
| Diluted earnings per share | $0.28 | vs. $0.19 | $0.46 | vs. $0.33 |
| Adjusted EBITDA (non-GAAP) / margin | $35.3 million / 19.4% | vs. $31.1 million / 18.8% | $66.3 million / 19.1% | vs. $57.0 million / 18.2% |
Quarterly sales growth reflected an expanded active customer base, higher comparable sales, and store additions. The company attributed the quarterly gross-margin decline to increased promotions. First-half gross margin was unchanged year over year; SG&A declined as a percentage of sales in both periods.
Cash flow, debt, and liquidity
- First-half operating cash flow was $45.3 million, compared with $36.9 million a year earlier. Capital expenditures were $10.9 million, versus $15.9 million; management said these primarily funded stores and information systems.
- Cash increased to $28.7 million from $13.5 million at January 28, 2017. Working capital was approximately $24.4 million.
- Term-loan principal was $254.6 million at July 29, before the debt discount and issuance costs; the balance-sheet carrying amount of total debt was approximately $247.2 million. The company voluntarily prepaid $20.0 million of principal in June and reported compliance with financial covenants.
- No amounts were drawn under the ABL facility; additional borrowing capacity was $37.9 million, with $2.1 million of letters of credit outstanding. The company said available liquidity was expected to support operations, growth, and public-company costs for at least 12 months, while noting that cash generation and future borrowing availability were not assured.
- First-half financing cash outflow was $19.2 million, primarily due to the term-loan prepayment. Planned fiscal-2017 capital expenditures were approximately $43.7 million. The company did not anticipate cash dividends in the foreseeable future.
Material changes, outlook, and risks
- J.Jill completed its corporate conversion in February 2017 and IPO in March. The IPO involved a selling shareholder’s sale of shares; net proceeds went to that shareholder, not the company. The filing identified IPO and public-company transition fees as non-recurring expenses.
- Management cited economic conditions, fashion and customer preferences, competition, merchandise pricing and mix, and execution and returns on strategic initiatives as factors that could affect results. It also expects public-company compliance costs.
- Variable-rate debt creates interest-rate exposure; the company reported no interest-rate hedges and estimated that a 10% change in its current interest rate would affect fiscal-2017 net income by $1.1 million.
- The filing provided no specific sales or earnings guidance. It noted that adoption of the new revenue standard was planned for fiscal 2018 and could affect revenue-recognition timing, direct-response advertising costs, and the presentation of merchandise returns. The company expected the forthcoming lease standard to result in significant right-of-use assets and corresponding lease liabilities, not yet quantified.
- Management said ordinary-course legal proceedings were not expected to result in material adverse effects and that no material changes had occurred to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether sales and comparable-sales growth persisted after the reporting period, and how much growth came from customer expansion versus store additions.
- Whether promotional activity continued to pressure gross margin and whether sales growth translated into sustained operating-margin improvement.
- The pace of term-loan repayments, interest expense, ABL availability, and compliance with debt covenants.
- Actual fiscal-year capital spending versus the approximately $43.7 million plan, and the effects of revenue-standard and lease-standard adoption.
- The impact of ongoing public-company costs and any further information on the company’s outlook, which this filing does not quantify.