J. Jill Climbs Up The Hill On Wider Margins

J. Jill Is Poised For Profits 

J. Jill NYSE: JILL is moving higher after reporting a much better than expected quarter. While the revenue was largely in line with the market’s expectations it was the earnings that really caught our attention. The company produced a 1000 basis point improvement in its gross margin and a similar decline in SG&A that absolutely juiced the bottom-line results. The gain was driven by full-priced selling and a greatly reduced promotional environment that should drive profitability in the current quarter and future quarters. 

The only catch is that full-priced selling has taken a toll on DTC sales but those are more than offset by the other channels. Assuming this performance can be repeated and that supply chain disruptions don’t catch up to bite the company in some unexpected way, we see this stock retracing to the top of the current trading range and completing a reversal that began well before the pandemic set in. 

J. Jill Beat The Consensus 

Jill had a good quarter no matter how you look at it. The company’s $151.74 million in revenue is up 29.4% over last year and beat the consensus by 30 basis points. The 30 basis point beat is rather slim but there is something to consider before putting too much emphasis on it. There are only two analysts with a rating on the stock right now and both are more than 12 months old. The key takeaway is that revenue is approaching the pre-COVID levels and should exceed that level soon despite the company’s smaller footprint. 

Moving down to the earnings, the company’s gross margin expanded by 1000 basis points to 68.9% while the SG&A declined by 1100 basis points as a percentage of revenue. This helped to drive a significant improvement in operating margin and reverse a loss in the previous year’s quarter. The operating margin came in at 12.5% and left the GAAP EPS at $0.79 compared to a loss of $2.52 last year. The adjusted earnings of $0.65 beat the Marketbeat.com consensus by $0.31 and reverse a loss of $1.51 last year. 

The company did not give specific guidance but did offer some very favorable commentary. Execs are expecting revenue to grow on a YOY basis and for earnings and margin to grow at a much faster pace. In our view, with inventories down 16% from last year, the company is not in as great a shape as it could be. We are expecting strong sales and margins but there is a possibility that revenue will be constrained by the availability of products despite management’s vote of confidence. 

 “Entering the holiday season, we are well-positioned to delight our customers with the newness and novelty that she has responded to throughout this year. Our teams have worked hard to manage the supply chain so that we have the right inventory levels for the holiday season and through the fourth quarter,” said CEO Claire Spofford.

The Technical Outlook: J. Jill Confirms Support And Resistance 

Shares of J. Jill are up about 8.0% in early trading and are confirming support at the bottom of the trading range. The price action, however, is also confirming resistance at the short-term EMA so upward movement may be limited. Assuming the buyers overcome the sellers and push price action above the short-term EMA, we see this stock moving up to the $20 and possibly the $24 range by early next year. If not, this stock may not be ready for reversal and could easily retest support at $14. If that level were to break a move down to $12 or $10 may come into play.