Does J.Jill Have The Right Mix For A Future In Digital Retail?

Michael Binetti of UBS initiated coverage of J.Jill Inc JILL with a Buy rating and $16 price target given the fashion retailer's "enviable combo" of a low store count (275 units) and high mix of ecommerce sales (38 percent).

According to Binetti, the retailer who underwent its IPO last month is better positioned to address the 40- to 65-year-old female than other specialty retail peers given its exposure to digital channels. Specifically, the analyst believes ecommerce sales will contribute 77 percent of the company's total revenue growth over the next three years, which will generate earnings per share growth.

Binetti also believes J. Jill's mix of physical stores and online presence will support strong same-store sales momentum and help the company avoid some of the challenges other specialty retailers will face in the coming years from negative store traffic and "distractions" from large-scale store closures.

"While the category has high fashion risk—and costs to grow customers are rising—JILL's modest valuation premium to peers that have much lower SSS growth & higher exposure to sluggish brick & mortar trends creates a favorable stock setup," Binetti wrote.

Loyal Customer Base

Binetti cited J. Jill's loyal customer base for a bullish outlook. In fact, since investing in marketing initiatives over the years, the company grew its active customer count at a compounded annual growth rate of 11.4 percent since 2014. Moreover, customer retention has risen to 60 percent in 2016, up from 53 percent just two years ago.

In addition to gaining new customers, J. Jill's customers who have been buying their products for over one year spend twice as much versus new customers.

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