While 2003 ended on a high note -- by some standards -- for women's apparel retailer J. Jill (NASDAQ:JILL) the challenges that lie ahead of the work-in-progress company are considerable. Today, interspersed with its Q4 and 2003 financial results, we got a better look at the anticipated financial impact of those challenges.

Shares were ahead more than 11% in early trading on news that Q4 numbers topped Street estimates. If you like playing the estimate game, that's fine, but it's still worth pointing out that, while sales rose year over year, operating and net income fell significantly. The company measures direct and retail sales productivity using "demand per 1,000 square [catalog] inches circulated" and sales per square foot, respectively. Both were flat with year-ago levels.

Holiday results were better than the company expected -- but the big picture is still murky at J. Jill. (Competitor Talbots (NYSE:TLB) has also seen some difficulty lately.) The transition from a purely direct model to a multi-channel business has been difficult as fashion troubles, seasonality, and economic issues hurt the company. Not everyone, though, is struggling. Chico's FAS (NYSE:CHS), for example, reported a 21% same-store sales boost for the quarter ended Jan. 31.

Management maintains that we won't see the new, improved J. Jill in action until late 2004. A longtime Gap (NYSE:GPS) executive, Steve Pearson, was called in to handle merchandising and product development. For now, we're told that J. Jill expects to continue growing sales this year while EPS is seen about flat. That's not bad news under the circumstances.

Still, the market is currently asking you to pay 43 times projected earnings for J. Jill. Understandably, the shares have risen since the company reported better-than-expected holiday sales in Q3, but, as an outsider looking in, they still look rich. Investors are paying up to show their support for management.

Think J. Jill will justify its valuation before the year is out? Make your case on our J. Jill discussion board.

Dave Marino-Nachison doesn't own any of the companies in this article. He can be reached via email.