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 caught our attention. The company produced a 1,000-basis-point improvement in its gross margin and a similar decline in SG&A that 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.
Jill Beat 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 1,000 basis points to 68.9%, while the SG&A declined by 1,100 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 with a loss of $2.52 last year. The adjusted earnings of $0.65 beat the Marketbeat.com consensus by $0.31 and reversed a loss of $1.51 last year.
The company did not give specific guidance but offered some 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 the availability of products will constrain revenue 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.
Technical Outlook: J. Jill Confirms Support And Resistance
Shares of J. Jill are confirming resistance at the short-term EMA. Therefore, 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 breaks, a move down to $12 or $10 may come into play.
