‘Supply Chain Disruption is Increasing,’ J.Jill CFO Says

Date: Friday, September 10, 2021
Source: Sourcing Journal

Women’s specialty chain J.Jill Inc. is making progress on its turnaround strategy, helped by strength in full-price selling, but supply chain issues continue to pressure costs.

In a Nutshell:  “Supply chain disruption is increasing, resulting in both elevated shipping costs and delays,” Mark Webb, chief financial officer, said during the company’s conference call to Wall Street analysts on Thursday. The company expects disruptions continue “at least for the back half of the year,” he added, and J.Jill is “working with our supplier base and logistics providers to prioritize and expedite product shipments to ensure on time deliveries. Our focus on driving full price selling, and lower promotional discounts. can help mitigate some of this pressure and support gross margin expansion compared to 2020 through the end of the year.”

Webb said employees are “working very, very diligently to work around the problem and make the best of the situation” and are making “a lot of progress.”

Webb expects Chinese New Year, which starts on Feb. 1, might be the earliest timeframe when supply chain pressures might ease. J.Jill is working to manage both country risk and supply chain risk, he added.

Vietnam is one of J.Jill’s top three countries of origin, with Vietnam and India “probably running close to each other,” Webb said. South Vietnam is where most of the issues are right now, he said. “That’s about a third of our Vietnam product and sourcing. The other two-thirds are in the north, and not subject specific issues, but still subject to supply chain disruption,” Webb added.

J.Jill is working on pulling “similar levers” that others in the retail sector are using to get holiday shipments in on time, such as pulling forward delivery dates. But even when leveraging supplier relationships, Webb still expects continued delays.

J.Jill is trying to “get the goods at the port of origin as early as we can and get them in the shipping lanes as soon as we can,” he said.

And with the elevated shipping costs, Webb said said there’s a balancing act on how to manage inbound shipping impact and maintain full-price selling, with the latter a possible mitigating factor on margins.

The women’s specialty chain last year completed a financial restructuring that helped it avoid bankruptcy. It’s been working on disciplined inventory management and product newness to drive more full-price selling.

J.Jill president and CEO Claire Spofford noted three key elements that she said “make us optimistic about the potential for the business moving forward.”

The company continues to evolve its operating model, drive healthy full-price selling and margin recovery, and focus on “profitable sustainable growth,” which includes building out the brand and loyal customer base, the CEO said.

During the quarter, the company saw “strong footprints” across the board, with “exceptional strength” in its Pure Jill sub-brand and in Fit, also a sub-brand in the J.Jill line. Novelty and core basics also did well, Spofford said.

Consumers have embraced the product line, she said, which now includes “a modernized sensibility about color palettes and novelties, and we’re giving her the right level of fashion, balanced with a strong basics program. So, I feel really good about the balance of our product assortment and the response that we’re seeing from our customer.”

While competitive pressures means the retailer will need to pay attention to what’s going on from a promotional standpoint, Spofford said J.Jill’s knowledge of its customer base, and insights from customer data, should allow the company to “continue to figure out how we delight her in her experience in the product that we offer.” Those are all components that should help the company navigate ongoing changes in customer shopping patterns.

After the end of the second quarter, the company on Aug. 27 voluntarily made a prepayment of $25.0 million in aggregate principal amounts of its term loans, plus accrued and unpaid interest. The retailer said the prepayments avoids an increase to the interest rate for each interest payment on or after Aug. 31, 2021 under a certain credit agreement.

The company closed four stores in the quarter and ended the period with 261 stores. It still plans to close 20 stores during the fiscal year.

Net Sales: For the three months ended July 31, net sales rose 72 percent to $159.2 million from $92.6 million.

The company said direct-to-consumer net sales rose 11.3 percent over 2020, and represented 46.4 percent of total net sales, versus 71.6 percent in the same year-ago quarter. In addition, gross margin was 68.7 percent compared to 59.4 percent, with the increase driven by “strong full-price selling.”

J.Jill ended the quarter with a 24.5 percent reduction in inventory to $48.5 million, versus $64.2 million in the same 2020 quarter.

For the six months, net sales rose 57 percent to $288.3 million from $183.6 million.

Earnings: The specialty chain widened its net loss to $24.6 million, or $1.98 a diluted share, from a net loss of $19.0 million, or $2.13, in the year-ago quarter. On an adjusted basis, diluted earnings per share were 93 cents, versus a loss of $1.58 in the year-ago period.

The company said it was not providing financial guidance for fiscal 2021.

J.Jill ended the quarter with $18.1 million in cash and $29.8 million of total availability under its revolving credit agreement.

The net loss for the six months narrowed to $43 million, or $3.88 a diluted share, from $89.3 million, or $10.01, a year ago.

CEO’s Take: “We enter the back-half of the year with further confidence in our ability to execute against our objectives. While we, like others in the industry, expect to experience increased headwinds from supply chain disruption, we continue to position J.Jill for long term sustainable growth,” Spofford said.

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