WARNING DEFLATES J. JILL SHARES 26.4%
Byline: Jennifer Weitzman
NEW YORK — Noting a slowdown in consumer demand over the past week in response to its catalog mailings, casual apparel retailer J. Jill Group’s shares tumbled 26.4 percent on Monday despite fourth-quarter results that were better than expected.
J. Jill’s performance ran counter to trend as the Dow Jones Industrial Average surged 200.63 points, or 1.9 percent, to 10,642.53 and the Nasdaq leaped 45.99 points, or 2 percent, to 2308.50 on growing investors’ hopes of another cut in interest rates prior to the Federal Reserve’s next scheduled meeting on March 20.
J. Jill’s caution closely parallels that of Coldwater Creek, which warned of lower profits to come on Feb. 14. Investors became anxious Monday when Quincy, Mass.-based J. Jill, a catalog and Internet retailer of women’s apparel and accessories, warned it saw its first indication of a slowdown in customer demand during the first week of its fourth book. That contrasts with reaction to the company’s first three catalogs for the spring selling season, which exceeded internal plans and carried the strong sales momentum of the previous year into the new one.
Still, president and chief executive Gordon Cooke told analysts on a conference call that it was too early to predict whether this slowdown would continue or what impact it might have on our overall business.
And like executives at Coldwater before him, Cooke said that, while J. Jill remains committed to the multichannel combination of “mail, mall and Web,” it intends “to rely primarily on our retail channel for our future growth.”
J. Jill opened 20 retail stores in fiscal 2000, bringing its total store count to 22. Cooke said that sales per square foot exceeded mall averages and were competitive with other well-known specialty stores like J. Crew and Talbots. The ceo said the company plans to open 24 doors this year.
Earnings for the three months ended Dec. 30 rose to $6.7 million, or 63 cents a share. Analysts on average figured the firm to earn 59 cents a share, according to First Call. That compares to a loss of $1.5 million, or 15 cents, in the year-ago period. Sales climbed 44.4 percent to $88.4 million from $61.2 million. Results from 1999 include $711,000 in special charges primarily associated with its Nicole Summer catalog closure.
J. Jill revised estimates upward Jan. 3. Cooke said results were achieved without resorting to significant price reductions, which boded well for fourth-quarter margins and bottom-line performance.
As a result of economic uncertainty and declining consumer confidence, the company would only provide quarterly guidance for the first quarter, unlike other specialty retailers, many of which are already sharing rosier second-half outlooks. The retailer indicated it was expecting flat earnings for the fiscal year, maintaining its financial targets of $1.22 to $1.28, a bad sign for an emerging growth company.
Jeffrey Klinefelter, a analyst with U.S. Bancorp Piper Jaffray, said, “Because of the meltdown of Coldwater Creek, a lot of people were spooked about the expense structure at a catalog and (brick-and-mortar) retailer.”
Still, Klinefelter said he expects the company will have a rebound in the stock market and expects the retailer to outperform the other stores in the specialty sector as it gains “more traction with its retail stores and it gains more control over inventory management and merchandising.”
Catalog companies like J. Jill and Coldwater have a harder time than mall-based retailers reducing expenses when sales slip because many of their expenses for its catalogs are front-loaded, occurring much earlier than actual sales. With J. Jill adding 20 stores this year and Coldwater planning to double in size next year, these catalog companies are hoping to counterbalance shortfalls in their mailings with their retail offering.
For the year, the company reported a profit of $12.8 million, or $1.23, compared to a loss of $684,000, or 30 cents. Sales decreased 1.6 percent to $246.3 million from $250.3 million.
On Feb. 6, in an effort to raise approximately $30.8 million in cash for new store openings and improved infrastructure, the company said it would sell 1.7 million shares of newly issued common stock to selected institutional investors at a purchase price of $18 a share. This scrutiny might have contributed to Monday’s skittishness, one analyst suggested.
Shares closed down $5.94 to $16.56 on Nasdaq, a 45.7 drop from its 52-week high of $30.50, reached Feb. 9.
Among the retailers sharing in the positive news for stocks on Monday were: Ames Department Stores, up 16 percent to $3.53; Christopher & Banks, up 15.3 percent to $29.25; J.C. Penney, up 9.2 percent to $15.18; Shopko, up 8.1 percent to $9.90, and Talbots, up 7.2 percent to $53.20. Federated was up 3.5 percent to $45.71 and May Department Stores, up 4.3 percent to $38.39. Youth-oriented retailers prospered as Charlotte Russe rose 15.8 percent to $30.25; Too, 11.3 percent to $21.50; Pacific Sunwear, 9.3 percent to $35.44; Abercrombie & Fitch, 7.9 percent to $30.45, and American Eagle Outfitters, 7.3 percent to $36.69.