The three lead underwriters on JILL's IPO were BofA Merrill Lynch, Morgan Stanley, and Jefferies. All three issued positive reports with Morgan Stanley initiating with an Overweight and $15 target, while BofA Merrill Lynch and Jefferies offered Buy recommendations and $18 and $17 targets, respectively. A couple other noteworthy bullish initiations included a Buy and $16 target at Deutsche Bank and an Outperform and $17 target at Cowen. There were a couple more cautious reports such as Wells Fargo's Market Perform rating and Macquarie's Neutral, but, by and large, the analyst community has a bullish view on JILL.
Before discussing its Q4 results, here is a little more background on the company. As noted, JILL is a women's apparel brand. It specifically targets affluent customers in the 40-65 segment. JILL operates an omni-channel platform that is well diversified across direct (42% of revenue) and retail (58%) channels. JILL began as a catalog company then became a pioneer of the omni-channel model with a presence across stores, website and catalog.
Its retail store portfolio consists of 275 stores in 43 states. Just about all of these are full-price locations averaging approximately 3,750 sq ft. About half of its stores are located in lifestyle centers (boutique malls catering to affluent customers with shops and leisure amenities) and half in premium malls. The direct channel is primarily comprised of online sales (88% of channel sales) with catalog orders making up the other 12%. Its website provides customers with continuous access to the entire J.Jill product offering and features rich content, including updates on new collections and guidance on how to wear and wardrobe its styles, as well as the ability to chat live with a customer rep.
Its Q4 report on March 30 was its first as a public company, and, in fact, there were not any analyst estimates at the time. It reported Adjusted EPS of $0.08, doubling the year-ago figure of $0.04. Revenue was up 15% year/year to $166.9 million with comparable sales increasing by a solid 10.8%. That is particularly impressive in the current environment in which many retailers are struggling to post even modest single-digit comp growth. Furthermore, JILL has now delivered positive comparable sales in 18 of the past 20 quarters.
Gross margin also improved, increasing to 63.2% from 62.9% in the year ago quarter. Again, in a highly promotional arena, the fact that it was able to improve margins is a testament to its execution and to its brand name. With the jump in revenue and higher gross margin, operating income surged by 74% to $10.8 million.
JILL also provided its initial outlook for 1Q18 and FY18. For Q1, the company is expecting comparable sales to grow by high single digits with Adjusted EPS of $0.17-$0.19. For FY18, it is projecting comps to remain at high single digit levels, and to generate EPS of $0.75-$0.79. All in all, it was a very solid performance and the outlook is especially encouraging given the headwinds facing the brick and mortar retail sector.