Direct Segment, 'Somber' Marketing Drag Down J. Jill

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J. Jill Group watched its stock price fall nearly 19 percent last month because of lower fourth-quarter profit and fiscal-year results. At least two analysts downgraded the women's clothing retailer based on its disappointing profit report and outlook.

On March 1, the stock was trading at $15.70 a share but by March 29 it was down to $12.72. However, it rebounded March 30 to $13.29. On March 10, the Quincy, MA, company said fourth-quarter earnings fell to $2.6 million from $3.2 million the previous year. Sales for the quarter climbed to $119.4 million from $114.9 million a year ago. For the fiscal year ended Dec. 25, the company recorded net sales of $434.9 million, up from $376.9 million for FY '03, while net income rose from $7 million to $8.7 million.

"We got off to a great start with a record-setting spring season and unfortunately finished the year off with a disappointing performance during the fall," president/CEO Gordon R. Cooke said in announcing J. Jill's Q4 and FY results last month. Cooke blamed the dropoff on a "struggling direct business segment, a lack of fashion-mandated colors or trends, marketing campaigns that were somber and an external environment that was somewhat weaker."

The company markets its products through retail stores, catalogs and its Web site to women 35 and older. Regarding the lagging direct business, Cooke said he knows what needs to be fixed.

"We think that our ongoing design initiatives, combined with our fit evolution, may be creating the appearance that we are shifting our focus to a different or younger customer," he said. "This is not our strategy, and we need to find a way to make that clear to our customers. ... Clearly we are still in the midst of a difficult transition. Unfortunately, the process of evolving merchandising is a complicated one requiring frequent fine-tuning."

Though the company expects to open 40 new stores in FY '05, it is reassessing its direct business "with an eye toward rightsizing" to maintain its profitability. It also said it will trim the size of its stores to 3,000 square feet, drive store traffic through its customer database and try to broaden the appeal of its products.

D.A. Davidson & Co. dropped its "buy" rating to "neutral" while analyst Elizabeth O. Pierce at Sanders Morris Harris lowered her rating on J. Jill from "buy" to "hold" March 11, saying she would take a "wait and see" approach.

"Management may not have their arms fully around the problems," Pierce wrote in her research note.

In other Portfolio news, Coldwater Creek (CWTR) has been adjusted for a 3-for-2 stock split.


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