J. Jill on the Selling Block

Talbots is throwing in the towel on J. Jill: Just two and a half years after buying the women’s apparel cataloger/retailer, Talbots is putting the brand up for sale.

The 60-year-old retailer said though it has made progress with the struggling J. Jill, it wants to focus on its core Talbots brand, which sells classic women’s apparel. J. Jill’s line is slightly more casual.

The Hingham, MA-based company reclassified the third-quarter results of J. Jill as discontinued operations for the period ended Nov. 1. Its Talbots brand recorded sales of $357 million for the third quarter, down 14% from $414 million in the same quarter last year. Same-store sales fell 13.9% in the quarter from the period in 2007.

Talbots has done a lot with J. Jill “as far as putting in great management team and vastly improving the merchandise,” says Julie Lorigan, Talbots’ senior vice president for investor and media relations. “We’ve also come a long way in reenergizing the Talbots brand.”

But in the current environment, Lorigan notes, “you don’t have unlimited resources, and you have to manage conservatively. We just don’t have the resources to do justice to two brands.”

Talbots bought J. Jill in February 2006. Multibrand apparel manufacturer/marketer Liz Claiborne had been vying for the company for two years; Talbots ended paying for $517 million for J. Jill, or 34% more than Liz Claiborne was willing to.

In fiscal 2007, Talbots generated $2.2 billion in revenue — $1.8 billion from Talbots and $478 million from J. Jill. At the end of fiscal 2007, Talbots operated a total of 1,421 stores; 1,150 Talbots locations and 271 J. Jill stores.

The company’s direct marketing operation mailed about 126 million catalogs last year– 48 million under the Talbots brand name and 78 million under the J. Jill brand. Talbots announced early last year that it was dropping its Talbots Kids and Talbots Mens lines.

Lee Helman, a managing director with investment bank Financo, notes that the move isn’t surprising given J. Jill’s performance. “I think J. Jill diverts resources away from the core Talbots brand, so it makes sense to not have that happen much longer.”

Indeed, says Chris Shannon, managing director for investment bank Berkery, Noyes & Co.: “There are only a limited number of dollars around to spend, and more and more companies are focusing those dollars on their core brand.”

Stuart Rose, managing director for investment bank Tully & Holland, is a bit harsher: “J. Jill has been a lead weight around Talbots’ neck these past few years, essentially since the acquisition.” And with Talbots struggling itself, he says, “getting rid of the worst part of the problem is a good decision.”

It won’t be that easy, however. Since Talbots has spent the past few years tying the two businesses together, “untying them will be a chore,” Rose says. “And of course, with prices for businesses down and a drop off in consumer spending, the market for J. Jill isn’t as strong as it would have been last year.”

This isn’t the best market for Talbots to find a buyer for J. Jill, Rose notes. “The vultures will be circling.”

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