Despite a second-quarter beat, investors were not happy with J. Jill Inc.’s third-quarter guidance.
For the three months ended Aug. 4, the company reported a 12.6 percent decline in net income to $10.5 million, or 23 cents a diluted share, from $12 million, or 28 cents, a year ago. On an adjusted basis, excluding nonrecurring expenses, diluted earnings per share were 24 cents. Net sales slipped 0.9 percent to $179.7 million from $181.4 million, attributable mostly to a calendar shift in 2017 that created 53 weeks for the year. The company said total comparable-store sales rose 2.2 percent. Direct-to-consumer net sales represented 40.9 percent of total net sales for the quarter, down from 43.1 percent a year ago. Further gross margin in the quarter was 64.9 percent, a decline from 67.6 percent a year ago.
Wall Street was expecting adjusted diluted EPS of 23 cents on revenues of $178.8 million.
While J. Jill managed to beat Wall Street’s consensus, it appeared that investors weren’t keen on third-quarter projections.
For the third quarter, the company said it expects comps to fall 2 to 4 percent, with total net sales guided up by 2 to 4 percent. The company said that’s due to sales being shifted to the third quarter from the fourth because of the extra week in 2017 resulting in a calendar shift. Diluted generally accepted accounting principles EPS is expected to be in the range of 9 cents to 11 cents, or 13 cents on an adjusted basis. That compares with diluted GAAP EPS of 14 cents a year ago.
Investors sent shares of J. Jill down 10.5 percent to close at $6.85 in Big Board trading.
Linda Heasley, chief executive officer, told Wall Street analysts in a conference call Tuesday morning that “While our Q2 performance was in line with our guidance for top- and bottom-line, we acknowledge we have work to do to deliver growth and ensure consistent performance. That work is under way.”
Heasley noted that the company grew its active customer file and the store channel “remains strong, delivering positive comparable-store sales growth for the 17th consecutive quarter.” She added that the company is on track to deliver this fall its planned enhancements to improve its e-commerce shopping experience.
The ceo said management is developing a “comprehensive list of initiatives” that the company will execute through the rest of this year and in 2019. Included in that is a development of support functions for the business, and a better balancing between product and messaging to the customer base.
According to Heasley: “We have the experience and expertise to be special to women new to the brand. [For] women currently unaware of who and what we are, we need to think less about age and age cohorts and more about life stage, mind-set and style sensibility. Age is an imprecise indicator of customer behavior.” She added that the company is listening more to what the consumer wants, whether about fabric and construction or “how easy it is to clean, pack and style.”
The ceo also said the brand needs to be “even more relevant and current. I believe that for a period we have relied too heavily on variants of tried-and-true offerings. And some customers became fatigued with the absence of newness.” To that end, the company has improved lead times and implemented a test-and-learn strategy to allow it to work on prototypes and scale the ones that work. The impact from those initiatives is expected to “come in stages and will begin to be realized in the middle of next year,” Heasley said. She added that the company is extending the size range for its women’s business.
The company recently expanded its bench, adding Shelley Liebsch as senior vice president and chief merchandising officer, and Joann Fielder as executive vice president and chief creative officer.
Janine Stichter, equity analyst at Jefferies, has a “buy” rating on the company’s shares. She said the “company made progress in clearing through its inventory overhang, setting the stage for better promo control.” She also saw fiscal-year 2019 as a “reset” year as the company begins to implement the “comprehensive list of initiatives” addressed by Heasley during the company’s conference call.