Last night, J. Jill's (JILL) 11.7 million share IPO priced at $13, below the $14-$16 expected range, raising total gross proceeds of $152.1 million. The IPO, which was led by BofA Merrill Lynch, Morgan Stanley, and Jefferies, is set to open for trading on the NYSE later this morning.
JILL is a women's apparel brand focused on affluent customers in the 40-65 age segment. The J.Jill brand represents an easy, relaxed and inspired style. 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 typical customer is college educated and has an annual household income above $150,000. JILL enjoys a loyal customer base as 70% of its sales come from customers that have been shopping with J.Jill for at least five years.
Its product assortment is marketed under the J.Jill brand name, sold exclusively through its direct and retail channels, and includes knit and woven tops, bottoms and dresses as well as sweaters, outerwear and accessories across a full range of sizes, including Misses, Petites, Women's and Tall. It also offers most of these products across its two sub-brands, Pure Jill and Wearever.
JILL's 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. JILL introduced a new store design in 2013 that showcases its brand concept and elevates, yet simplifies the J.Jill shopping experience. JILL believes it has the potential to grow its store base by up to 100 stores over the long term.
The direct channel (42% of revenue) 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. JILL believes it has the ability to grow its direct sales from 42% to 50% over the next few years. To do this, JILL is in the process of re-platforming its website to improve the shopping experience and increase the ease of navigation, checkout and overall engagement. Its new platform will also provide the opportunity to expand internationally.
JILL also markets through an "Omni-Channel" platform. With so many retailers being impacted by online retailers, like Amazon, JILL talks a lot in its S-1 filing about the strength of its omni-channel (combines online with brick-and-mortar sales strategy) platform. It's likely they are anticipating concerns by investors so they want to address this issue.
JILL is profitable but its net margin is pretty thin. For the first nine months of FY17, it generated $22 million in net income for a net margin of 4.7%. As for revenue, it grew just 6% in FY15 to $483.4 mln, then jumped 16% to $562 mln in FY16. For the first nine months of FY17, revenue was $472.1 mln.
So the top line growth is decent. The margins are still pretty thin and a bit underwhelming but not horrible. Operating margin in the high single digits to low double digits is pretty decent for an apparel retailer. The most positive thing is that margins have been increasing. Operating margin improved to 8.1% in FY15 from 6.0% in FY14. Then it dipped a bit to 7.4% in FY16 but jumped to 10.3% in the first nine months of FY17.
Meanwhile, Adjusted EBITDA margin has been steadily increasing from 11.9% in FY14 to 13.6% in FY15 to 14.6% in FY16 to 17.7% for the first nine months of FY17. Same store comps are very important for retailers. On that score, JILL has posted positive comps in 17 of the last 19 consecutive quarters, including in each of the last ten consecutive quarters.