Description

Here comes another lazy writeup from me, a template chucker with limited brain cells, zero sophistication, and a now my pedigree as a "private" investor (one of those mom and pops they warn you about who don't know nothin') now so right up the line of my typical 2nd grader ideas.  First, to get JILL you should read this fine writeup which was both successful and predictable:

https://www.valueinvestorsclub.com/idea/J._Jill/0149423500#messages

As a template chucker, I am attracted to commodity retailers as a rule usually in one of two situations:  1) those experiencing near term sales (SSS) momentum which is expected to last at least a quarter or two (regardless of what they are doing foolishly with their capital), and 2) commodity retailers which use capital carefully and sanely, thereby being a possible date forever (you don't marry these stocks).  In the later group think BKE vs. GPS or BIG or CTRN or CHS or....these tend to be rare.   I like the 1st group cause they can go up hard (ala CTRN from $20 to $100 though I sold well before triple digits) in a short while and like the 2nd group cause, as a rule, commodity retail fluctuates a lot and if you have a pretty BS and think sanely about cash flow then down times should be viewed as buying times cause these are cyclical by nature and fluctuations can be extreme.  I also like really simple stories too so as to not have to think a lot, which means that any progress in the business is noticed by other normal people like me and often exaggerated cause it isn't hard to figure out what is happening which can be a problem for me with other brilliant ideas that make my head hurt if it isn't obvious.  Obvious for me is measuring CFFO vs. CapEx and getting a 7x to 10x number and combine that with an EV that gets you a double digit FCF yield.  

To recap the story:

• company came public a few years ago and went SPLAT!  Was public before and come out with lots of debt
• JILL sells clothes to 45-65 year olds with high household income (150k-175k)
• the company sells roughly 50/50 via retail shops and DTC, with the shops being rationalized down to 287 to 243 seen this year
• Per the splat, the company almost went under not that long ago and floated some high yield debt & warrants and...lived to fight another day and...
• ...the last three years, got very careful on CapEx, spending about 22m in the last 3 years (13m estimated for 2022) so...
• ...like most retailers, business has sharply recovered (see VL sheet for DDS OperMargin way up vs 2019) and unlike most retailers due to the lack of Capex and the presence of high yield debt (CapEx restriction) the company just kept the cash and per app's updates could approximate 50m in net debt with thankfully not divis or wasteful buybacks in the last 3 years which is pretty cool consider debt levels just a few years ago

That's pretty much it, though in theory customers seem to be loyal per the company (10 years; they say many people who work for them do so partially to get the employee discount, but you have to wonder abt that given that if a household is making 175k maybe they are working at a retail store).   So, what does it look like going forward?  Some interesting questions would be:

1 - will they stay rational on CapEx spending?  Unlike a CHS who never met a CapEx they didn't like, this CEO and CFO are currently at least saying all the right things.  Like in the ICR presentation they mention caution and push and pull w/store openings and being focused on margins vs. sales.  Course, time will tell, and you could hear the itching from the analyst wanting to ask them about 'shareholder valuation' bozo buybacks but so far JILL has reisted and who would care with a no-moat commoidity retailer like this one anyway?   

2 - will they stay rational on store expansion?  BKE has proven the validity of the no-growth retail model, and when the analyst mentioned opening 25 stores a year (which would be INSANE; stores are 97% EBITDA positive), the company pushed back with a suggestion that they had store opportunities but that they would be careful and cautious.  Again, these are 3k type stores and kinda flaky with 'mature' women buying clothes and this isn't the concept for breakneck growth.  

3 - is it true that they have unique insights with the store and DTC mix?   This is an appealing part of the story, with the company in theory having a couple ways to judge the mood (along with surveys that I've never gotten or nobody I know has ever gotten but somebody must get them) from DTC and store buying pattersn and being able to focus on full price selling but I'm not sure but take them at their word.

4 - are margins too high?  BKE just reported another SSS that was up and I was shocked so maybe the money sloshing around keeps margins as high as they are.  I don't know longer-term, and any drop in SSS and margins will combined to punish anybody holding these shares.  Still, they did do 11.5 interest expense last 9 months and maybe that goes away if they get net cash positive and don't do anything stupid with that capital.  The debt is currently at exorbidant rates, and they are looking for refinance.  

5 - what is this worth?  I don't really know (sorry - I always go with more than this).   I just look at the TTM CFFO of 88m and NI+Da of 71m and compare that to the cap of 407 or EV of 460 and figure that's pretty good, esp. with CapEx at 13m.  String a few of these together, maybe years of it even if it isn't quite as good, and good things will happen regardless of whether you get clocked in the meantime.   It will fluctuate - it fell 4% for whatever weird reason yesterday, and it trades with slim volumes mostly.  

Debt – Q3 10Q

• Priming Loan due 5-8-2024               199185                  LIBOR + 5%
• Sub Loan due 11-8-2024                    8428                       Base + 11%; LIBOR + 12%
• Current                                                  -2739
• Total is 204874

RSU expense roughly 2-3m a year last 3 years;  CEO got 6.9m last year which honestly seems high, esp in relation to other pay but it is what it is; only one DC which acts as the contact center; they still print catalysts - ah, catalogs (they call them catalysts);  think freight costs will help them due to not having to do air freight shipments; ocean is coming down

Catalyst

Valuation and Rational Capital Allocation