The women’s clothing retailer says it is quickly addressing the issue, but bearish analysts have downgraded the company.
Women’s clothing retailer J. Jill Inc. was downgraded twice after the women’s clothing retailer issued a profit warning late Wednesday, blaming “product and calendar issues that are affecting traffic and conversion” for the shortfall.
The company now sees earnings per share of 7 cents to 9 cents and adjusted EPS of 8 cents to 10 cents for the third quarter. Same-store sales are expected to fall 3% to 5%. The FactSet consensus is for EPS of 13 cents and a 0.2% same-store growth.
J. Jill JILL, -50.45% shares, which plummeted 35% after the announcement, were down over 50% in Thursday trading.
SunTrust Robinson Humphrey analysts say there was a “poor response” to the Labor Day delivery, particularly woven tops. And with items normally for sale for eight weeks, both September and October were hurt.
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“A one-two punch of poor selling new product and slow-moving markdowns should lead to elevated discounting, a rarity for J. Jill that could jeopardize customer willingness to pay full-price in the future,” the note said.
SunTrust downgraded J. Jill to hold from buy, and slashed its price target to $7 from $16.
J. Jill’s Chief Executive Paula Bennett said in a statement that the company is “reacting quickly” and should “regain momentum,” but SunTrust is cautious.
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“While we are cautiously optimistic regarding improvements, we believe that it typically takes more than one quarter to recover merchandising missteps,” analysts said.
RBC Capital Markets also downgraded J. Jill, to sector perform from outperform, citing a lack of clarity about the future. Its price target was halved to $7 from $14.
“While execution missteps are being called out for the slowdown, the second consecutive guidance miss suggests a lack of visibility to J. Jill’s earnings algorithm, with comps now negative on the company’s superior 15% earnings before interest, taxes, depreciation and amortization margins,” the note said.
J. Jill began trading in March.
Wells Fargo analysts led by Ike Boruchow note that the second quarter was “choppy,” with this latest announcement showing a swift deceleration.
“The real issue is that following their recent IPO, the J. Jill story was predicated on sustainable, steady mid-single-digit-to-high-single-digit comp growth and margin expansion, meaning that something may have gone very wrong over the past six months,” Wells Fargo said.
Wells Fargo rates J. Jill stock market perform with a $10 price target.
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Analysts at Cowen & Company maintained their optimism, and their outperform rating, despite the gloomy news. However, they cut the price target to $9 from $12.
“We believe J. Jill is well-positioned to gain market share and consistently execute to drive comps and leverage margins over the long term,” analysts wrote. They cite four reasons for optimism: sales channels are varied, with 43% attributed to direct sales, mostly e-commerce; a “prudent” store base of 274; a large, wealthy, loyal, and tech-savvy target shopper; and decision-making that relies on data.
“We are hopeful that J. Jill can quickly improve their product and marketing strategy before holiday, and this is possible given they have 12 deliveries each year, which is a strategy to mitigate a past miss,” the note said. “However, we do note that overall retail environment pressures of negative store traffic, aggressive promo environment across the mall and department store channels, increasing competition in the apparel space from online pure-plays, and volatile weather could be structural headwinds.”
J. Jill shares are down more than 59% for the last three months while the SPDR S&P Retail ETF XRT, -1.19% is down 10.1% and the S&P 500 index SPX, -0.04% is up 14% for the period.