The rumor mills were cranking today with word that J. Jill (NASDAQ:JILL) may be ripe for a takeover. Its stock price jumped more than 9% at one point, although it's since calmed down. The weirdest part for me? The supposed identity of one of J. Jill's mystery suitors. There's nothing wrong with being a city hipster or a soccer mom, but I'm not sure the twain should ever meet.
According to a report in Women's Wear Daily, terminally hip retailer Urban Outfitters (NASDAQ:URBN) is a potential buyer for J. Jill, which targets "active, affluent women age 35 and older," according to its 10-K filing. That's a coveted and highly competitive market, by the way -- Gap (NYSE:GPS) is also angling to get in on the action there.
Although J. Jill went through a long phase where its apparel lost appeal with shoppers, I recently visited a store and was impressed with its new, slightly hipper, more bohemian approach. The tags on its clothes proclaim artistry; for a long while, I just didn't see it, but that seems to be changing.
However, J. Jill's frumpy phrase was certainly borne out by its sluggish quarterly earnings announcements. If things are indeed improving, the company's next hurdle is to woo back shoppers who may have defected to other stores.
Last year I took an in-depth look at Urban Outfitters and found many things to admire: its cash reserve, lack of debt, and torrid sales and earnings growth. I suppose it could easily afford to buy up a strategic competitor. But ... uh ... where's the strategy here?
Urban Outfitters' namesake stores, as well as its Anthropologie and Free People concepts, all seem to appeal to a very hip element. (Not to mention that Anthropologie already successfully caters to affluent, sophisticated women ages 30 to 45, the same market J. Jill seeks to attract.) Although J. Jill's selection has vastly improved recently, its products are more classic and sedate than the hipster items that have given Urban Outfitters its urban, edgy feel. It seems to me that these two would make a poorly fitting ensemble.
J. Jill has also continued to struggle -- just compare its last quarterly report (better than Wall Street expected, but quarterly profit was still down 41%) to that of Urban Outfitters, which Fool Nate Parmelee covered recently. Even more to the point, I don't even see how J. Jill could be considered any kind of a bargain. It's currently trading at a P/E ratio of more than 100, which says to me that investors have bid up its shares more than enough, expecting a turnaround. (For anyone who'd like to argue that Urban Outfitters is a pricey stock, at least it has impressive financials to back up its premium pricing.)
I have complained in the past about significant stock moves based on rumors, and it's obvious that today's situation with J. Jill sounds pretty outlandish to me. Certainly, J. Jill could be a takeover target, but buying on this rumor strikes me as a rather expensive gamble.
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Alyce Lomax does not own shares of any of the companies mentioned.
