J.Jill Group Inc. (JILL, Financial) is a women’s clothing retailer. Since it’s initial public offering last March, J.Jill has seen its stock plummet, down from $12.95 to under $5 this morning despite beating fourth-quarter estimates.
The facts
J. Jill’s comparable sales grew 8.9% in the fourth quarter. Direct-to-consumer sales still represented 46.6% of total revenue. Operating margins were still strong at 6.2% despite a small drop in gross margins to 62.2%. More importantly, in 2019 the company is looking to earn 96 cents a share and with a return on equity above 20%, future growth in book value could be very strong.
CEO retirement
Current President and CEO Paula Bennett will retire and Linda Heasley is succeeding her on April 16. Bennett presided over the company since 2009, and her announcement could be one of the reasons for today’s 35% stock drop.
J.Jill History
The company was founded in 1987 as DM Management Company to build a business by purchasing undervalued and poorly performing catalogs. In 1988 the company bought J.Jill from Carl Lipsky, who had founded it in 1959 and named it after his wife, Jennifer, and daughter, Jill. In 1990, it lost $9.63 million on $23 million in sales, but by 2000 the company began to expand retail and ecommerce operations and ended 2001 with 50 stores. Today, it has 270 retail stores, 1,405 full time employees and still generates nearly half of its business through catalog, online and direct to consumer sales.
Current financials
The company generated $676 million in sales in the last 12 months, up from $456 million in 2014. And, if it earns $42 million by the end of 2019, with the same multiple it has now, the stock would trade over $10 a share -- an easy double.
Gurus, debt and short-sellers
The enterprise value of the company is north of $440 million, which includes a substantial amount of debt: $246 million. It still generates plenty of cash and will benefit greatly from the recent tax breaks. Each of the big name investors -- Tudor Jones, Joel Greenblatt (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) -- sold out of the stock at the end of 2017, saving plenty of money on the way out.
However, now’s the time to buy back in, if nothing else than a flyer position. With 10% of the stock sold short it’s only a matter of time before increased earnings cause a short squeeze. Long term, the retail industry will keep moving forward to the direct-to-consumer model, and J.Jill is in a good position to benefit. Hard times are coming for businesses and investors but with a long history of challenge and change, J.Jill should survive and grow.
Disclosure: I am long JILL.
