Jill Tries To Climb IPO Hill

Despite the “retail winter” that Amazon (AMZN) has wrought on the industry, investors remain interested in finding defensible niches in the business. One meme that has gained some momentum is around “brands that control their product, distribution, and destiny.” 

J. Jill (JILL) is a woman’s clothing brand that started out as a catalog business in 1959. It was acquired by Talbots in 2006 for $517M. Just three years later it was “unloaded” in a sale to private equity firm Golden Gate Capital for $75M. Reports suggested that J. Jill lost $76M in 2008. Since then JILL has posted some growth (CAGR of 10%) and expanded their Adjusted EBITDA margins from 10% in 2012 to over 16% in 2016. As a result, EBITDA has doubled from $50M in 2013 to $105M for 2016.

JILL is a brand aimed at women who are over 35 and more professional. They company controls their brand, product and distribution with a combination of stores and direct (mostly online) distribution. This strategy has helped them “know their customer” and defend them from the destructive cycle of having excess inventory and constant markdowns.

Sales in 2016 are expected to be $639M (up 15% YoY) with most of the growth coming from e-commerce (up 25% to $245M) and retail stores still the largest segment at $363M. Catalog sales of $31M are the slowest growing segment and by our reckoning an unprofitable business that should be scaled back if not eliminated.

In terms of market opportunity, JILL believes they can expand stores from 275 to 375 over time which would generate $500M in that segment. They also target direct sales of 50% (versus the current 38%) which would add another $500M in total sales. So the long-term opportunity for JILL about $1B in sales (more if they can improve same-store results). They can probably improve margins a bit more over that time period where Adjusted EBITDA can approach 20% and FCF margins can be 10%+.

Some points on the deal