UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                               |                                                                                         
|---------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTER ENDED SEPTEMBER 25, 2004
|OR                                      
|o                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22480

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The J. Jill Group, Inc.(Exact Name of Registrant as Specified in its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

04-2973769(I.R.S. Employer
Identification No.)4 Batterymarch Park, Quincy, MA(Address of Principal Executive Offices)

02169(Zip Code)


Registrant's
telephone number, including area code:(617) 376-4300

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes ý    No o

Shares outstanding of the registrant's common stock (par value $0.01) at October 28, 2004: 20,103,123



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THE J. JILL GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 25, 2004

|                               |         |                                                                                                                                          |                                                                                       | Page
|------------------------------ | ------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|PART I  FINANCIAL INFORMATION |         |                                                                                                                                         
|                               | Item 1. |                                                                                                                                          | Condensed Consolidated Financial Statements                                           |     
|                               |         | Condensed Consolidated Balance Sheets at September 25, 2004, September 27, 2003 and December 27, 2003                                    |                                                                                       | 3   
|                               |         | Condensed Consolidated Statements of Operations for the three months and the nine months ended September 25, 2004 and September 27, 2003 |                                                                                       | 4   
|                               |         | Condensed Consolidated Statements of Cash Flows for the nine months ended September 25, 2004 and September 27, 2003                      |                                                                                       | 5   
|                               |         | Notes to Condensed Consolidated Financial Statements                                                                                     |                                                                                       | 6   
|                               | Item 2. |                                                                                                                                          | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                               | Item 3. |                                                                                                                                          | Quantitative and Qualitative Disclosures about Market Risk                            |     
|                               | Item 4. |                                                                                                                                          | Controls and Procedures                                                               |     
|PART II  OTHER INFORMATION    |         |                                                                                                                                         
|                               | Item 1. |                                                                                                                                          | Legal Proceedings                                                                     |     
|                               | Item 6. |                                                                                                                                          | Exhibits and Reports on Form 8-K                                                      |     
|SIGNATURES                     |         | 29                                                                                                                                      

2

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PART IFINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE J. JILL GROUP, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands, except share and per share amounts)        (unaudited)

|                                          |                                                                                                                                                                                                                   | September 25,
2004                         |         | September 27,
2003 |         | December 27,
2003
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------------ | ------- | -----------------
|ASSETS                                    |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|Current assets:                           |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          | Cash and cash equivalents                                                                                                                                                                                         |                                            | $       | 51,085             |         | $                
|                                          | Cash held in escrow                                                                                                                                                                                               |                                            |         | 1,051              |         |                  
|                                          | Marketable securities                                                                                                                                                                                             |                                            |         | 13,306             |         |                  
|                                          | Accounts receivable, net                                                                                                                                                                                          |                                            |         | 11,410             |         |                  
|                                          | Inventory                                                                                                                                                                                                         |                                            |         | 37,627             |         |                  
|                                          | Prepaid catalog expenses                                                                                                                                                                                          |                                            |         | 4,637              |         |                  
|                                          | Deferred income taxes                                                                                                                                                                                             |                                            |         | 6,753              |         |                  
|                                          | Other current assets                                                                                                                                                                                              |                                            |         | 10,692             |         |                  
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          |                                                                                                                                                                                                                   | Total current assets                       |         |                    | 136,561 |                  
|Property and equipment, net               |                                                                                                                                                                                                                   |                                            | 131,145 |                    |         | 123,727          
|Other non-current assets                  |                                                                                                                                                                                                                   |                                            | 4,761   |                    |         | 3,887            
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          |                                                                                                                                                                                                                   | Total assets                               |         | $                  | 272,467 |                  
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|Current liabilities:                      |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          | Accounts payable                                                                                                                                                                                                  |                                            | $       | 19,152             |         | $                
|                                          | Accrued expenses                                                                                                                                                                                                  |                                            |         | 24,744             |         |                  
|                                          | Accrued customer returns                                                                                                                                                                                          |                                            |         | 6,103              |         |                  
|                                          | Current portion of long-term debt                                                                                                                                                                                 |                                            |         | 1,780              |         |                  
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          |                                                                                                                                                                                                                   | Total current liabilities                  |         |                    | 51,779  |                  
|Long-term debt, less current portion      |                                                                                                                                                                                                                   |                                            | 10,892  |                    |         | 12,672           
|Deferred credits from landlords and other |                                                                                                                                                                                                                   |                                            | 40,518  |                    |         | 33,303           
|Deferred income taxes                     |                                                                                                                                                                                                                   |                                            | 5,703   |                    |         | 3,414            
|Commitments and contingencies             |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|Stockholders' equity:                     |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          | Special preferred stock (par value $0.01) 1,000,000 shares authorized                                                                                                                                             |                                            |         |                   |         |                  
|                                          | Common stock (par value $0.01) 30,000,000 shares authorized, 20,103,123, 19,578,616 and 19,658,303 shares issued and outstanding as of September 25, 2004, September 27, 2003 and December 27, 2003,
respectively |                                            |         | 201                |         |                  
|Additional paid-in capital                |                                                                                                                                                                                                                   |                                            | 112,362 |                    |         | 107,700          
|Retained earnings                         |                                                                                                                                                                                                                   |                                            | 51,012  |                    |         | 41,692           
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          |                                                                                                                                                                                                                   | Total stockholders' equity                 |         |                    | 163,575 |                  
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  
|                                          |                                                                                                                                                                                                                   | Total liabilities and stockholders' equity |         | $                  | 272,467 |                  
|                                          |                                                                                                                                                                                                                   |                                            |         |                    |         |                  

The
accompanying notes are an integral part of the condensed consolidated financial statements.

3

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THE J. JILL GROUP, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)        (unaudited)

|                                             |                            | Three Months Ended |        | Nine Months Ended
|-------------------------------------------- | -------------------------- | ------------------ | ------ | -----------------
|
|Net sales                                    |                            | $                  | 94,933 |                  
|Cost of products and merchandising           |                            |                    | 64,718 |                  
|                                             |                            |                    |        |                  
|                                             | Gross margin               |                    |        | 30,215           
|Selling, general and administrative expenses |                            |                    | 34,552 |                  
|                                             |                            |                    |        |                  
|                                             | Operating income (loss)    |                    |        | (4,337           
|Interest, net                                |                            |                    | 97     |                  
|                                             |                            |                    |        |                  
|                                             | Income (loss) before taxes |                    |        | (4,434           
|Income tax provision (benefit)               |                            |                    | (1,826 | )                
|                                             |                            |                    |        |                  
|                                             | Net income (loss)          |                    | $      | (2,608           
|                                             |                            |                    |        |                  
|Earnings (loss) per share:                   |                            |                    |        |                  
|Basic                                        |                            | $                  | (0.13  | )                
|Diluted                                      |                            | $                  | (0.13  | )                
|Weighted average shares outstanding:         |                            |                    |        |                  
|Basic                                        |                            |                    | 20,103 |                  
|Diluted                                      |                            |                    | 20,103 |                  

The
accompanying notes are an integral part of the condensed consolidated financial statements.

4

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THE J. JILL GROUP, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)        (unaudited)

|                                                       |                                                                                   | Nine Months Ended                                     |        
|------------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------- | -------
|
|Cash flows provided by operating activities:           |                                                                                   |                                                       |        
|                                                       | Net income                                                                        |                                                       | $      
|                                                       | Adjustments to reconcile net income to net cash provided by operating activities: |                                                       |        
|                                                       |                                                                                   | Depreciation and amortization                         |        
|                                                       |                                                                                   | Loss (gain) on trust assets                           |        
|                                                       |                                                                                   | Deferred income taxes                                 |        
|                                                       | Changes in assets and liabilities:                                                |                                                       |        
|                                                       |                                                                                   | Decrease in accounts receivable, net                  |        
|                                                       |                                                                                   | Increase in inventory                                 |        
|                                                       |                                                                                   | Increase in prepaid catalog expenses                  |        
|                                                       |                                                                                   | Increase in other assets                              |        
|                                                       |                                                                                   | Increase in accounts payable                          |        
|                                                       |                                                                                   | Increase (decrease) in accrued expenses               |        
|                                                       |                                                                                   | Decrease in accrued customer returns                  |        
|                                                       |                                                                                   | Increase in deferred credits from landlords and other |        
|                                                       |                                                                                   |                                                       |        
|Net cash provided by operating activities              |                                                                                   |                                                       | 21,603 
|Cash flows used in investing activities:               |                                                                                   |                                                       |        
|                                                       | Additions to property and equipment                                               |                                                       |        
|                                                       | Purchases of marketable securities                                                |                                                       |        
|                                                       | Investment in trust assets                                                        |                                                       |        
|                                                       | Increase in cash held in escrow                                                   |                                                       |        
|                                                       |                                                                                   |                                                       |        
|Net cash used in investing activities                  |                                                                                   |                                                       | (31,615
|Cash flows provided by (used in) financing activities: |                                                                                   |                                                       |        
|                                                       | Proceeds from stock transactions                                                  |                                                       |        
|                                                       | Payments of debt borrowings                                                       |                                                       |        
|                                                       |                                                                                   |                                                       |        
|Net cash provided by (used in) financing activities    |                                                                                   |                                                       | 1,810  
|Net increase (decrease) in cash and cash equivalents   |                                                                                   |                                                       | (8,202 
|Cash and cash equivalents at:                          |                                                                                   |                                                       |        
|                                                       | Beginning of period                                                               |                                                       |        
|                                                       |                                                                                   |                                                       |        
|                                                       | End of period                                                                     |                                                       | $      
|                                                       |                                                                                   |                                                       |        
|Supplemental information:                              |                                                                                   |                                                       |        
|Non-cash investing activities:                         |                                                                                   |                                                       |        
|                                                       | Construction costs accrued, not paid                                              |                                                       | $      

The
accompanying notes are an integral part of the condensed consolidated financial statements.

5

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THE J. JILL GROUP, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (unaudited)

The condensed consolidated financial statements included herein have been prepared by The J. Jill Group, Inc. (together with its wholly owned consolidated
subsidiaries, the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and in the opinion of management contain all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP") have been omitted pursuant to such rules and regulations. Accordingly, although
the Company believes that the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2003 ("fiscal
2003"). As a retailer, the Company is subject to seasonal fluctuations in net sales. The results of operations for interim periods are not necessarily indicative of the results to be expected for the
full year.

A.    Nature of business:

The Company is a multi-channel specialty retailer of women's apparel, including accessories and footwear, that markets its products through retail stores,
catalogs and its websitejjill.com.

B.    Revenue recognition:

The Company recognizes sales and the related cost of products at the time the products are received by customers. The Company's customers may return purchased
items for an exchange or refund. The Company provides a returns allowance based on projected merchandise returns, taking into consideration historical experience and other factors. The returns
allowance is recorded as a reduction to net sales for the estimated retail value of the projected merchandise returns and as a reduction to cost of products for the corresponding cost amount. From
time to time, the Company offers marketing promotions that may involve multiple purchases by the customer whereby as a result of their first purchase the customer receives a coupon for a specified
discount on their next purchase. In these cases, revenue is deferred at the time of the first purchase for the estimated discount amount and recognized when the second purchase is made or the
promotional period ends. Shipping and processing fees charged to the customer are recognized at the time the products are received by the customer and are included in net sales. The cost of shipping
and processing customer orders is recognized at the time the products are received by the customer and is included in cost of products and merchandising. Sales taxes are excluded from net sales.

C.    Selling expenses:

Selling expenses consist primarily of the costs to produce, print and distribute catalogs ("catalog costs"), retail store selling and administrative costs
(primarily salaries and benefits) and other marketing department costs. Costs associated with the Company's website are also included in selling expenses. Catalog costs in our direct segment are
considered direct response advertising and as such are capitalized as incurred and amortized over the expected sales life of each catalog, which is generally a period not exceeding six months.
Creative and production costs associated with the Company's website are also considered direct response advertising and, as such, are capitalized as incurred and amortized over the respective selling
season, which is generally a period not exceeding six months. Catalog costs in our retail segment are considered advertising and as such are expensed as incurred.

6

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D.    Accounting for stock-based compensation:

At September 25, 2004, the Company had three stock-based plans, which are described in Note G to the financial statements contained in the Company's
Annual Report on Form 10-K for fiscal 2003. The Company discloses stock-based compensation information in accordance with Financial Accounting Standards Board ("FASB") issued
Statement No. 148 ("SFAS 148"),"Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement
No. 123"and FASB issued Statement No. 123 ("SFAS 123"),"Accounting for Stock-Based Compensation."The
Company has elected to continue to account for its stock-based plans under Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to
Employees,"as well as to provide disclosure of stock-based compensation as outlined in SFAS 123, as amended by SFAS 148. No compensation expense has been
recognized related to the Company's stock-based plans.

The
Company uses the Black-Scholes option pricing model to estimate the fair value at the date of grant of stock options granted under the Company's stock option plans and stock purchase
rights associated with the Company's 1998 Employee Stock Purchase Plan. A summary of the assumptions used for stock option grants and stock purchase right grants follows:

|                                  |                         | Three Months Ended |           | Nine Months Ended
|--------------------------------- | ----------------------- | ------------------ | --------- | -----------------
|
|1993 and 2001 stock option plans: |                         |                    |           |                  
|                                  | Dividend yield          |                    | 0.0%      |                  
|                                  | Expected volatility     |                    | 70.0%     |                  
|                                  | Risk free interest rate |                    | 3.4%      |                  
|                                  | Expected lives          |                    | 4.0 years |                  
|Employee stock purchase plan:     |                         |                    |           |                  
|                                  | Dividend yield          |                    | n/a(1     | )                
|                                  | Expected volatility     |                    | n/a(1     | )                
|                                  | Risk free interest rate |                    | n/a(1     | )                
|                                  | Expected lives          |                    | n/a(1     | )                

A
reconciliation of net income (loss), as reported, to pro forma net income (loss) including compensation expense for the Company's stock-based plans as calculated in
accordance with the provisions of SFAS 123, as amended by SFAS 148, as well as a comparison of as reported and pro forma basic and diluted earnings (loss) per share ("EPS") follows (in
thousands, except per share data):

7

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|                           |                                                     | Three Months Ended |   | Nine Months Ended |  
|-------------------------- | --------------------------------------------------- | ------------------ | - | ----------------- | -
|
|Net income (loss):         |                                                     |                    |   |                   |  
|                           | As reported                                         |                    | $ | (2,608            | )
|                           | Compensation expense, net of related tax benefit(1) |                    |   | (1,490            | )
|                           |                                                     |                    |   |                   |  
|                           | Pro forma                                           |                    | $ | (4,098            | )
|                           |                                                     |                    |   |                   |  
|Earnings (loss) per share: |                                                     |                    |   |                   |  
|Basic                      |                                                     |                    |   |                   |  
|                           | As reported                                         |                    | $ | (0.13             | )
|                           | Pro forma                                           |                    | $ | (0.20             | )
|Diluted                    |                                                     |                    |   |                   |  
|                           | As reported                                         |                    | $ | (0.13             | )
|                           | Pro forma                                           |                    | $ | (0.20             | )

The
effects on pro forma net income (loss) and pro forma EPS of the estimated stock-based compensation expense, net of tax, calculated using the fair value of stock
options and stock purchase rights in accordance with the Black-Scholes option pricing model for the three months and nine months ended September 25, 2004 and September 27, 2003 are not
necessarily representative of the effects on the Company's results of operations in the future. In addition, the compensation expense estimates utilize an option pricing model developed for traded
options with relatively short lives. The Company's stock option grants typically have a life of up to ten years and are not transferable. Therefore, the actual fair value of a stock option grant may
be different from the Company's estimates. The Company believes that its estimates incorporate all relevant information and represent a reasonable approximation in light of the difficulties involved
in valuing non-traded stock options.

E.    Marketable securities:

The Company accounts for marketable securities in accordance with FASB issued Statement No. 115 ("SFAS 115"),"Accounting
for Certain Investments in Debt and Equity Securities."The Company intends to maintain a liquid portfolio and accordingly all of the Company's marketable securities are
classified as available-for-sale and reported at fair value. Unrealized holding gains and losses on available-for-sale securities are recorded in
stockholders' equity. Realized gains and losses on available-for-sale securities are included in the determination of net income or loss for the period. Any premiums paid for
individual securities are amortized over the term of such securities and included in interest expense. Any discounts from par value are also amortized over the term of the security and recorded as a
reduction to interest expense.

At
September 25, 2004, the aggregate fair value of marketable securities was $13,306,000 and consisted of municipal debt securities. The Company held no marketable securities at
September 27, 2003 or December 27, 2003. Unrealized holding gains and losses were not material for the three months and nine months ended September 25, 2004. There were no
realized gains or losses on marketable securities for the three and nine months ended September 25, 2004.

8

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A
summary of the contractual maturities of available-for-sale securities at September 25, 2004 follows (in thousands):

Fair Market ValueDue within one year

$
11,164Due between one and two years


2,142Total

$
13,306


F.     Accounts receivable:

Accounts receivable include $5,137,000, $398,000 and $7,794,000 of trade receivables related to the Company's deferred billing program at September 25,
2004, September 27, 2003 and December 27, 2003, respectively. The Company's deferred billing programs provide its customers with the option of deferring payment for their purchases. The
deferral period is generally 60 to 90 days. For deferred billing offered on the Company's private label credit card, the Company typically receives cash from the sale within four business days
from the date of purchase. For deferred billing offered on major credit cards, the Company receives cash after the deferral period expires, net of any returns or adjustments processed during the
deferral period. Also included in accounts receivable are landlord allowances of $3,712,000, $6,136,000 and $6,471,000 at September 25, 2004, September 27, 2003 and December 27,
2003, respectively.

G.    Inventory:

Inventory, consisting of merchandise for sale, is stated at the lower of cost, as determined by the weighted average cost method, or market, based on estimated
net realizable value.

H.    Debt:

The Company's credit facilities at September 25, 2004 consisted of (i) a $60,000,000 revolving credit facility (the "Revolving Credit Facility");
(ii) a $12,000,000 real estate loan (the "Tilton Facility Loan"); and (iii) a $4,100,000 equipment loan (the "Equipment Loan").

A
summary of outstanding long-term debt follows (in thousands):

September 25,
2004

September 27,
2003

December 27,
2003Tilton Facility Loan

$
10,320

$
10,682

$
10,593Equipment Loan


2,352


3,673


3,349Capitalized lease obligations





4


Total long-term debt


12,672


14,359


13,942Less current maturities


(1,780
)

(1,687
)

(1,706
)Long-term debt, less current portion

$
10,892

$
12,672

$
12,236


At
September 25, 2004, the Company estimated the fair value of its outstanding borrowings, including current maturities, to be $13,898,000.

On
September 30, 2004, the Company amended the Revolving Credit Facility primarily to extend its term and modify or delete certain lending conditions and covenants. The maturity
date of the Revolving Credit Facility, as amended, is June 1, 2006. The total amount available under the Revolving Credit Facility

9

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is
$60,000,000 and is reduced by outstanding borrowings and outstanding letters of credit. Outstanding borrowings may not exceed $20,000,000. Letters of credit are primarily used to procure inventory
from foreign vendors. The Revolving Credit Facility is collateralized by substantially all of the personal property, both tangible and intangible, of the Company. Outstanding borrowings bear interest
at an annual rate equal to the prime lending rate announced by one of the participating banks or the LIBOR lending rate plus 1.75% per annum. At September 25, 2004, the Revolving Credit
Facility bore interest at 4.75% per annum. There were no outstanding borrowings on the Revolving Credit Facility at September 25, 2004, September 27, 2003 or December 27, 2003.
Outstanding letters of credit totaled $33,648,000, $26,603,000 and $25,534,000 at September 25, 2004, September 27, 2003 and December 27, 2003, respectively. Availability under
the Revolving Credit Facility at September 25, 2004, September 27, 2003 and December 27, 2003 was $26,352,000, $33,397,000 and $34,466,000, respectively, subject in each case to
the borrowing cap. Outstanding letters of credit do not bear interest. The Company is required to pay a commitment fee of 1/4 of 1% per annum on the unused portion of the Revolving
Credit Facility.

The
Tilton Facility Loan is collateralized by a mortgage lien on the Company's operations, fulfillment and distribution center in Tilton, New Hampshire (the "Tilton facility"). The
Tilton facility is owned by Birch Pond Realty Corporation, a wholly owned subsidiary of The J. Jill Group, Inc., and leased to The J. Jill Group, Inc. Payments of principal
and interest on the Tilton Facility Loan, a 10-year loan, are due monthly, based on a 20-year amortization, with a balloon payment of the remaining balance payable on
April 1, 2009. The interest rate on the Tilton Facility Loan is fixed at 7.30% per annum.

The
Equipment Loan is collateralized by substantially all of the Company's materials handling equipment. The maturity date of the Equipment Loan is May 1, 2006 and payments of
principal and interest are due monthly. The interest rate on the Equipment Loan is fixed at 5.00% per annum.

The
Company's credit facilities contain various lending conditions and covenants including restrictions on permitted liens. In the case of the Revolving Credit Facility, these conditions
and covenants include certain financial coverage calculations and ratios, including (i) indebtedness and outstanding letter of credit balance to tangible net worth; (ii) hard current
assets to current liabilities; (iii) debt service coverage; (iv) indebtedness, outstanding letter of credit balance and net present value of operating leases to tangible net worth;
(v) minimum tangible net worth; and (vi) minimum annual net profit. The manner of making these calculations and computing these ratios is defined by the provisions of the Fifth Amended
and Restated Loan Agreement, as amended, which is part of the Revolving Credit Facility. The Company was in compliance with the covenants associated with its credit facilities as of and for the
quarters ended September 25, 2004 and September 27, 2003 and as of and for the year ended December 27, 2003. As part of the amendment dated September 30, 2004, the minimum
tangible net worth covenant was deleted. Modifications to lending conditions and covenants are effective for the calculations for the year ended December 25, 2004 and are not in effect for the
third quarter of fiscal 2004.

I.     Deferred credits from landlords and other:

Deferred credits from landlords and other consists primarily of step rent and allowances from landlords related to the Company's retail stores. Step rent
represents the difference between actual operating lease payments due and operating lease expense, which is recorded by the Company on a straight-line basis over the term of the lease.
This amount is recorded as a deferred credit in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the
lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts promised to the Company by landlords in the form of cash or rent

10

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abatements.
These allowances are part of the negotiated terms of the lease. In situations where cash is to be received, the Company records a receivable for the full amount of the allowance when
certain performance criteria articulated in the lease are met, typically when the store opens, and a liability is concurrently established. This deferred credit from landlords is amortized into income
(through lower rent expense) over the term of the applicable lease and the receivable is reduced as amounts are received from the landlord. The liability for unamortized landlord allowances was
$36,697,000, $31,046,000 and $34,363,000 at September 25, 2004, September 27, 2003 and December 27, 2003, respectively.

J.     Earnings (loss) per share:

A reconciliation of the numerators and denominators of the basic and diluted EPS computations follows (in thousands, except per share data):

|                           |                                                                                      | Three Months Ended |       | Nine Months Ended
|-------------------------- | ------------------------------------------------------------------------------------ | ------------------ | ----- | -----------------
|
|Numerator:                 |                                                                                      |                    |       |                  
|                           | Net income (loss)                                                                    |                    | $     | (2,608           
|                           |                                                                                      |                    |       |                  
|Denominator (shares):      |                                                                                      |                    |       |                  
|                           | Basic weighted average shares outstanding                                            |                    |       | 20,103           
|                           | Assumed issuance of shares under stock option plans and employee stock purchase plan |                    |       |                 
|                           |                                                                                      |                    |       |                  
|                           | Diluted weighted average shares outstanding                                          |                    |       | 20,103           
|                           |                                                                                      |                    |       |                  
|Earnings (loss) per share: |                                                                                      |                    |       |                  
|Basic                      |                                                                                      | $                  | (0.13 | )                
|Diluted                    |                                                                                      | $                  | (0.13 | )                

For
the three months and nine months ended September 25, 2004, of the options then outstanding, options to purchase 3,212,037 and 1,220,500 shares of common stock,
respectively, were excluded from the computation of diluted EPS on the basis that such options were antidilutive. For the three months and nine months ended September 27, 2003, of the options
then outstanding, options to purchase 3,361,782 and 1,825,500 shares of common stock, respectively, were excluded from the computation of diluted EPS on the basis that such options were antidilutive.

During
the third quarter of fiscal 2004, options to purchase 74,000 shares of the Company's common stock were granted and options to purchase 1,000 shares of common stock were canceled.
There were no options exercised during the third quarter of fiscal 2004. During the third quarter of fiscal 2003, options to purchase 1,000 shares of the Company's common stock were granted, options
to purchase 3,612 shares of common stock were exercised and options to purchase 2,000 shares of common stock
were canceled. The Company received $8,000 in cash from the exercise of stock options and did not record any related tax benefit during the third quarter of fiscal 2003.

During
the nine months ended September 25, 2004, options to purchase 429,500 shares of the Company's common stock were granted, options to purchase 408,558 shares of common stock
were exercised and options to purchase 34,000 shares of common stock were canceled. The Company received $2,689,000 in cash from the exercise of stock options and recorded a related tax benefit of
$1,159,000

11

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during
the nine months ended September 25, 2004. In addition, during the nine months ended September 25, 2004, the Company issued 36,262 shares of common stock under its employee stock
purchase plan and received cash proceeds of approximately $392,000. During the nine months ended September 27, 2003, options to purchase 342,500 shares of the Company's common stock were
granted, options to purchase 52,214 shares of common stock were exercised and options to purchase 13,000 shares of common stock were canceled. The Company received $106,000 in cash from the exercise
of stock options and did not record any related tax benefit during the nine months ended September 27, 2003. In addition, during the nine months ended September 27, 2003, the Company
issued 30,991 shares of common stock under its employee stock purchase plan and received cash proceeds of approximately $368,000.

K.    Commitments and contingencies:

Lease commitments

The Company leases certain of its facilities under non-cancelable operating leases having initial or remaining terms of more than one year. Many of
the Company's leases contain scheduled increases in annual rent payments and the majority of the Company's real estate leases also require the Company to pay maintenance, insurance and real estate
taxes. Additionally, certain of the Company's leases include provisions for the payment of additional rent based on a percentage of sales over an established minimum.

During
the nine months ended September 25, 2004, the Company entered into leases for 17 retail stores and one outlet store, each having initial lease termination dates between
2015 and 2016. At September 25, 2004, the future minimum lease payments, excluding maintenance, insurance and real estate taxes, for operating leases having a remaining term in excess of one
year at such date, including
the 18 operating leases entered into during the nine months ended September 25, 2004, were as follows (in thousands):

For the remainder of fiscal 2004

$
4,525Fiscal 2005


28,617Fiscal 2006


29,384Fiscal 2007


29,806Fiscal 2008


30,216Thereafter


110,286Total

$
232,834


Most
of the Company's retail store leases contain provisions that allow for early termination of the lease by either party if certain predetermined annual sales levels
are not met. Generally, these provisions allow the lease to be terminated between the third and fifth year of the lease. Should the lease be terminated under these provisions, the unamortized portion
of any landlord allowances related to that property would be payable to the landlord.

Legal proceedings and other contingencies

In August 2003, a Complaint was served on The Birch Pond Group, Inc. (a subsidiary of The J. Jill Group, Inc.) in a civil action filed in the
California Superior Court, Riverside County, against The Birch Pond Group, Inc. and certain fictitiously named and unknown defendants who allegedly are or were operating J. Jill stores within
the State of California. This action, allegedly on behalf of a class of non-salaried store workers, alleges, among other things, violations of various provisions of the California Labor
Code and related regulations regarding meal periods, rest periods and coerced patronage, and

12

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unfair
competition. The Complaint seeks compensatory damages, additional wages, civil penalties, interest, attorney's fees and punitive damages in unspecified amounts, as well as restitution in an
unspecified amount and injunctive relief. The Company intends to defend itself vigorously against these claims, and in September 2003, The Birch Pond Group, Inc. filed its answer to the
Complaint, denying the plaintiffs' claims and setting forth various affirmative defenses. A hearing on the plaintiffs' motion for class certification is scheduled for December 10, 2004, and the
parties have begun to explore the possibility of settlement. During the third quarter of fiscal 2004, in accordance with FASB issued Statement No. 5,"Accounting for
Contingencies,"the Company recorded an accrual related to this proceeding as a result of settlement discussions. The Company considers the amount accrued to be immaterial to
the financial statements taken as a whole. No assurance can be given with respect to the ultimate outcome of this proceeding and the timing of the final resolution is also uncertain.

In
March 2004, the Company received a letter from a third party informing the Company of the third party's ownership of a number of patents and alleging that various aspects of
the Company's website were covered by those patents. The letter offered to grant a patent license to the Company on commercially reasonable terms. The Company is currently in the process of analyzing
the validity of the patents and their applicability to the Company's website. At this time the Company cannot predict whether or not it will be required to license these patents nor can the Company
reasonably estimate a range of potential costs should it be required to do so.

From
time to time, the Company is party to various legal proceedings primarily arising in the ordinary course of business. Further, additional claims may be asserted in the future
relative to events currently unknown to management.

L.    Segment information:

The Company currently has two reportable business segments, retail and direct. Each segment is separately managed and utilizes distinct distribution, marketing
and inventory management strategies. The
retail segment markets merchandise through retail stores. The direct segment markets merchandise through catalogs and the Company's website. Segment reporting is intended to give financial statement
users a view of the Company "through the eyes of management." The Company's internal management reporting is the basis for the information disclosed for its business segments. In accordance with GAAP,
the Company's internally defined measure of segment profit or loss, segment contribution, is required to be disclosed, but it is not a GAAP measure. Information related to segment contribution should
be read in conjunction with the reconciliation to "Operating income (loss)" as determined by GAAP.

During
the first quarter of fiscal 2004, the Company changed its segment reporting as a result of changes in the way management views the business. Outlet store revenues and expenses and
inventory control costs, previously included in the retail and direct segments, have been reclassified to other. Additionally, the Company now includes certain previously unallocated costs in the
retail and direct segments, including certain sales allowances and order fulfillment costs. Finally, outlet store assets have been reclassified to unallocated assets from the retail and direct segment
identifiable assets. Net sales, segment contribution and segment asset information for fiscal 2003 have been reclassified to conform to current period presentation.

The
Company evaluates segment profitability based on the contribution of each segment. Segment contribution represents each segment's net sales less direct costs related to the segment's
operations. Direct costs for the retail and direct segments include merchandise acquisition and control costs and inventory markdowns. Direct costs also include retail store selling, occupancy,
depreciation, inventory

13

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distribution
and administrative costs for the retail segment and catalog costs, certain order processing costs, fulfillment costs and internet selling costs for the direct segment. Segment
contribution less other and general and administrative expenses is equal to operating income (loss). Other represents unallocated shared-service costs such as merchandising, product development,
sourcing, inventory control and distribution facility costs, as well as outlet store revenues and expenses. General and administrative expenses include corporate executive management costs, support
service costs (e.g., shared information systems, finance and human resources) and corporate headquarters occupancy costs.

Segment
assets are those that are directly used in or identified with segment operations, including inventory, fixed assets, primarily related to store construction, accounts receivable
and other operating assets. Unallocated assets include corporate cash and cash equivalents, marketable securities, the Company's corporate headquarters and distribution facility, corporate information
systems, deferred tax amounts and other corporate assets.

The
accounting policies of the Company's segments are the same as those described in Note B to the financial statements contained in the Company's Annual Report on
Form 10-K for fiscal 2003. Inter-segment balances and transactions have been eliminated.

The
following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income (loss) (in thousands):

|                                           |                                     | Three Months Ended      |   | Nine Months Ended |       
|------------------------------------------ | ----------------------------------- | ----------------------- | - | ----------------- | ------
|
|Net sales:                                 |                                     |                         |   |                   |       
|                                           | Retail                              |                         | $ | 51,368            |       
|                                           | Direct                              |                         |   | 42,108            |       
|                                           | Other(1)                            |                         |   | 1,457             |       
|                                           |                                     |                         |   |                   |       
|                                           |                                     | Total net sales         |   | $                 | 94,933
|                                           |                                     |                         |   |                   |       
|Reconciliation to operating income (loss): |                                     |                         |   |                   |       
|                                           | Retail segment contribution         |                         | $ | 278               |       
|                                           | Direct segment contribution         |                         |   | 8,050             |       
|                                           | Other(2)                            |                         |   | (4,557            | )     
|                                           | General and administrative expenses |                         |   | (8,108            | )     
|                                           |                                     |                         |   |                   |       
|                                           |                                     | Operating income (loss) |   | $                 | (4,337
|                                           |                                     |                         |   |                   |       

|                     |                    | Retail |   | Direct  |  | Unallocated
Assets |        | Total
|-------------------- | ------------------ | ------ | - | ------- |  | ------------------ | ------ | -----
|Identifiable assets: |                    |        |   |         |  |                    |        |      
|                     | September 25, 2004 |        | $ | 127,618 |  | $                  | 23,977 |      
|                     | September 27, 2003 |        | $ | 121,771 |  | $                  | 26,662 |      
|                     | December 27, 2003  |        | $ | 118,042 |  | $                  | 24,076 |      

M.   Reclassifications:

Certain segment information for fiscal 2003 has been reclassified to conform to current period presentation and management's current internal reporting structure.

14

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, the words "projected," "anticipated," "planned," "expected" and similar expressions
are intended to identify forward-looking statements. In particular, statements regarding future financial targets or trends are forward-looking statements. Forward-looking statements are not
guarantees of our future financial performance, and undue reliance should not be placed on them. Our actual results, performance or achievements may differ significantly from the results discussed in
or implied by the forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following: significant changes in customer acceptance of our product
offerings; the success or failure of our retail store initiative; our ability to effectively manage our operations and growth in a multi-channel environment; the success of our product development and
merchandising initiatives; changes in consumer spending, fashion trends and consumer preferences; the customary risks of purchasing merchandise abroad, including longer lead times, higher initial
purchase commitments and foreign currency fluctuations; timeliness of receipts of inventory from vendors; changes in competition in the apparel industry; the impact of the Sarbanes-Oxley Act of 2002,
including the diversion of management attention and financial resources to comply with the legislation and the possible adverse effect of a determination by us or our independent auditors that we have
material weaknesses in our internal controls; changes in, or the failure to comply with, federal and state tax and other government regulations; our ability to attract and retain qualified personnel;
possible future increases in expenses and labor and employee benefit costs; business abilities and judgment of management; the existence or absence of brand awareness; the existence or absence of
publicity, advertising and promotional efforts; the success or failure of operating initiatives; the mix of our sales between full price and liquidation merchandise; general political, economic and
business conditions; and other factors. See also Item 1A, "Risk Factors," included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2003 ("fiscal
2003"). We disclaim any intent or obligation to update any forward-looking statements.

Overview

We are a multi-channel specialty retailer of women's apparel, including accessories and footwear. We market our products through retail stores, catalogs and our
websitejjill.com. We currently have two reportable business segments, retail and direct. Each segment is separately managed and utilizes distinct
distribution, marketing and inventory management strategies. The retail segment markets merchandise through retail stores. The direct segment markets merchandise through catalogs and our website. For
more information about our reportable business segments, please see Note L to the accompanying condensed consolidated financial statements.

Net
sales during the three months ended September 25, 2004 ("third quarter fiscal 2004") increased by 15.3% to $94.9 million from $82.3 million during the three
months ended September 27, 2003 ("third quarter fiscal 2003"). We generated an operating loss during third quarter fiscal 2004 of $4.3 million compared to an operating loss of
$4.7 million during third quarter fiscal 2003. The net loss during third quarter fiscal 2004 was $2.6 million, or $0.13 per share, compared to a net loss of $2.9 million, or $0.15
per share, during third quarter fiscal 2003.

For
the nine months ended September 25, 2004, net sales increased by 20.4% to $315.4 million from $262.1 million for the nine months ended September 27, 2003.
Operating income for the nine months ended September 25, 2004 was $10.9 million, or 3.5% of net sales, compared to $7.3 million, or 2.8% of net sales, for the nine months ended
September 27, 2003. Net income for the nine months ended September 25, 2004 was $6.1 million, or $0.30 per diluted share, compared to $4.0 million, or $0.20 per diluted
share, for the nine months ended September 27, 2003.

15

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Third
quarter fiscal 2004 was a challenging quarter for us. The positive customer reaction to our spring merchandise left us with unusually low levels of clearance inventory in our
retail stores. This lack of clearance inventory combined with lower than expected sales of fall season full price merchandise in our direct segment and increased spending on certain retail selling
expenses, our merchandising and product development initiative and our Sarbanes-Oxley compliance efforts resulted in disappointing financial results for the quarter. However, we have been encouraged
by the strong customer response to our fall season full price merchandise offerings in our retail stores. Notably, net sales in our retail segment have improved as we transitioned from the traditional
summer clearance months of July and August into the post-Labor Day fall full price environment. Additionally, at September 25, 2004 our comparable store full price inventory was up
by approximately 12% over last year's levels and our comparable store clearance inventory was down by approximately 70% compared to last year. At this point we feel our retail inventory levels are
sufficient to support the upcoming holiday season. In our direct segment, we experienced improved productivity as a result of a substantial decrease in page counts and an improvement in return rates.
However, the performance of our catalogs throughout the fall season has been skewed toward promotionally priced items. We believe that the actions we are taking to improve our results in
retailopening stores, aligning our catalog drop dates with our retail floor sets, increasing the amount of novelty items in our merchandise assortmentsmay be negatively
affecting the performance of our direct segment.

As
we have previously indicated, we consider fiscal 2004 to be a transitional year during which we are making significant investments to improve our merchandising and product development
infrastructure. While we were fortunate to have had a very strong spring season, it is important to remember that we are still in transitionhiring and assimilating new people and
implementing new systems and processes. Nevertheless, we are pleased with the consumers' response to our fall season full price
merchandise in retail and believe it is an affirmation of our new direction in merchandising and product development. The changes we are making in product development and merchandising are critical,
and we expect them to result in merchandise assortments that are better in quality and fit, more focused and easier to shop. However, there can be no assurance that these initiatives will improve
merchandise offerings or result in increased sales or profitability.

Results of Operations

The following table presents our condensed consolidated statements of operations expressed as a percentage of net sales:

|                                             |                            | Three Months Ended |      | Nine Months Ended |     
|-------------------------------------------- | -------------------------- | ------------------ | ---- | ----------------- | ----
|
|Net sales                                    |                            | 100.0              | %    | 100.0             | %   
|Cost of products and merchandising           |                            | 68.2               |      | 70.4              |     
|                                             |                            |                    |      |                   |     
|                                             | Gross margin               |                    | 31.8 |                   | 29.6
|Selling, general and administrative expenses |                            | 36.4               |      | 35.4              |     
|                                             |                            |                    |      |                   |     
|                                             | Operating income (loss)    |                    | (4.6 | )                 | (5.8
|Interest, net                                |                            | 0.1                |      | 0.2               |     
|                                             |                            |                    |      |                   |     
|                                             | Income (loss) before taxes |                    | (4.7 | )                 | (6.0
|Income tax provision (benefit)               |                            | (1.9               | )    | (2.5              | )   
|                                             |                            |                    |      |                   |     
|                                             | Net income (loss)          |                    | (2.8 | )%                | (3.5
|                                             |                            |                    |      |                   |     

16

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The
following table presents certain selected operating data:

|           |                                     | Three Months Ended          |           | Nine Months Ended
|---------- | ----------------------------------- | --------------------------- | --------- | -----------------
|
|Retail:(1) |                                     |                             |           |                  
|           | Stores open:                        |                             |           |                  
|           |                                     | Beginning of period         |           | 130              
|           |                                     | End of period               |           | 134              
|           | Weighted average stores open (2)    |                             | 132       |                  
|           | Weighted average square footage (3) |                             | 597,100   |                  
|           | Comparable store sales (4)          |                             | 4.7       | %                
|Direct:    |                                     |                             |           |                  
|           | Circulation (5)                     |                             |           |                  
|           |                                     | Catalogs (in thousands)     |           | 17,400           
|           |                                     | Square inches (in millions) |           | 99,600           
|Other:     |                                     |                             |           |                  
|           | Total 12-month buyers (6)           |                             | 1,625,000 |                  
|           | J. Jill credit card holders         |                             | 676,000   |                  
|           | E-mail addresses                    |                             | 1,146,000 |                  

17

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The
following table summarizes net sales by segment (in thousands):

Three Months Ended

Nine Months EndedSeptember 25,
2004

September 27,
2003

September 25,
2004

September 27,
2003Retail

$
51,368

$
40,497

$
166,725

$
114,783Direct


42,108


40,266


145,120


143,672Other (1)


1,457


1,562


3,578


3,598Total net sales

$
94,933

$
82,325

$
315,423

$
262,053


Comparison of the Three Months Ended September 25, 2004 with the Three Months Ended September 27, 2003

Net sales increased by $12.6 million, or 15.3%, to $94.9 million during third quarter fiscal 2004 from $82.3 million during third quarter
fiscal 2003 primarily as a result of increased store count and higher sales productivity, particularly in our direct segment. Retail segment net sales increased by $10.9 million, or 26.8%,
during third quarter fiscal 2004. This increase is attributable to a 24.7% increase in the weighted average square footage of retail stores open during the quarter and a 1.7% increase in retail
segment sales productivity, as measured by net sales per weighted average square foot. During third quarter fiscal 2004, we opened four retail stores and ended the quarter with 134 retail stores.
Comparable store sales for stores open at least one full fiscal year increased by 4.7% during third quarter fiscal 2004. Direct segment net sales increased by $1.8 million, or 4.6%, during
third quarter fiscal 2004. This increase is attributable to a 22.1% decrease in square inches circulated being more than offset by a 34.2% increase in direct segment sales productivity, as measured by
net sales per 1,000 square inches circulated. The increase in direct segment sales productivity is primarily attributable to planned page count reductions and lower customer return rates. Internet net
sales represented 43.2% of total direct segment net sales during third quarter fiscal 2004 compared to 35.3% during third quarter fiscal 2003.

Gross
margin represents net sales less cost of products and merchandising. Cost of products and merchandising consists primarily of product costs (e.g., product development, sourcing,
merchandising, inventory control and inventory acquisition costs and inventory markdowns) and operating costs (e.g., occupancy and depreciation costs for our retail stores, order processing costs and
distribution facility costs). During third quarter fiscal 2004, gross margin increased by $5.8 million, or 24.0%, to $30.2 million from $24.4 million during third quarter fiscal
2003. As a percentage of net sales, gross margin increased to 31.8% during third quarter fiscal 2004 from 29.6% during third quarter fiscal 2003. The 2.2 percentage point increase in gross
margin as a percentage of net sales was attributable to a 1.6 percentage point decrease in product costs and a 0.6 percentage point decrease in operating costs, both as a percentage of
net sales. Product costs as a percentage of net sales decreased primarily as a result of a shift in the mix of sales toward full price, particularly in our retail segment, and lower inventory
markdowns in our retail segment associated with fewer prior season overstocks. These factors were partially offset by lower gross margins in our direct segment and increased spending on our
merchandising and product development infrastructure. Operating costs as a percentage of net sales decreased primarily as a result of the leveraging of certain fixed operating costs over higher net
sales.

Selling,
general and administrative expenses consist primarily of retail store selling costs, costs to produce, print and distribute catalogs, as well as website and corporate
administrative costs. During third quarter fiscal 2004, selling, general and administrative expenses increased by $5.4 million, or 18.7%, to $34.6 million from $29.1 million
during third quarter fiscal 2003. As a percentage of net sales, selling, general and administrative expenses increased to 36.4% during third quarter fiscal 2004 from 35.4% during third quarter fiscal
2003. The 1.0 percentage point increase in selling, general and administrative expenses

18

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as
a percentage of net sales was attributable to a 0.1 percentage point increase in selling expenses and a 0.9 percentage point increase in general and administrative expenses, both as a
percentage of net sales. Selling expenses as a percentage of net sales increased primarily as a result of increased retail selling expenses as a percentage of net sales (e.g., payroll expenses and
advertising and in-store visual costs, including costs associated with catalogs mailed to retail-only customers) partially offset by the leveraging of lower catalog costs in
our direct segment over higher net sales. General and administrative expenses as a percentage of net sales increased primarily as a result of increased spending on professional fees and employee
related costs, together representing a $1.2 million year-over-year increase in expenses.

Interest
income increased to $152,000 during third quarter fiscal 2004 from $110,000 during third quarter fiscal 2003. Interest expense decreased to $249,000 during third quarter fiscal
2004 from $293,000 during third quarter fiscal 2003.

Comparison of the Nine Months Ended September 25, 2004 with the Nine Months Ended September 27, 2003

Net sales increased by $53.4 million, or 20.4%, to $315.4 million during the nine months ended September 25, 2004 from $262.1 million
during the nine months ended September 27, 2003 primarily as a result of increased store count and higher sales productivity in both segments. Retail segment net sales increased by
$51.9 million, or 45.3%, during the nine months ended September 25, 2004. This increase is attributable to a 28.8% increase in the weighted average square footage of retail stores open
during the nine months and a 12.8% increase in retail segment sales productivity. During the nine months ended September 25, 2004, we opened 12 retail stores. Comparable store sales for stores
open at least one full fiscal year increased by 15.1% during the nine months ended September 25, 2004. Direct segment net sales increased by $1.4 million, or 1.0%, during the nine months
ended September 25, 2004. This increase is attributable to a 10.0% decrease in square inches circulated being more than offset by a 12.3% increase in direct segment sales productivity. The
increases in the sales productivity of the retail and direct segments during the nine months ended September 25, 2004 are primarily attributable to the positive customer reaction to our spring
merchandise. In addition, direct segment sales productivity was also positively affected by planned page count reductions and lower customer return rates. Internet net sales represented 40.9% of total
direct segment net sales during the nine months ended September 25, 2004 compared to 34.7% during the nine months ended September 27, 2003.

During
the nine months ended September 25, 2004, gross margin increased by $25.9 million, or 30.0%, to $112.5 million from $86.5 million during the nine
months ended September 27, 2003. As a percentage of net sales, gross margin increased to 35.7% during the nine months ended September 25, 2004 from 33.0% during the nine months ended
September 27, 2003. The 2.7 percentage point increase in gross margin as a percentage of net sales was attributable to a 1.4 percentage point decrease in product costs and a
1.3 percentage point decrease in operating costs, both as a percentage of net sales. Product costs as a percentage of net sales decreased primarily as a result of lower inventory markdowns in
both segments associated with fewer prior season overstocks and a shift in the mix of sales toward full price, particularly in our retail segment. These factors were partially offset by increased
spending on our merchandising and product development infrastructure. Operating costs as a percentage of net sales decreased primarily as a result of the leveraging of certain fixed operating costs
over higher net sales.

During
the nine months ended September 25, 2004, selling, general and administrative expenses increased by $22.4 million, or 28.2%, to $101.5 million from
$79.2 million during the nine months ended September 27, 2003. As a percentage of net sales, selling, general and administrative expenses increased to 32.2% during the nine months ended
September 25, 2004 from 30.2% during the nine months ended September 27, 2003. The 2.0 percentage point increase in selling, general and administrative expenses as a percentage of
net sales was attributable to a 0.8 percentage point increase in selling expenses and a 1.2 percentage point increase in general and administrative expenses, both as a percentage of net
sales. Selling expenses as a percentage of net sales increased primarily as a result of increased retail selling expenses as a percentage of net sales (e.g., payroll expenses and advertising and
in-store visual costs,

19

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including
costs associated with catalogs mailed to retail-only customers) partially offset by the leveraging of lower catalog costs in our direct segment over higher net sales. General and
administrative expenses as a percentage of net sales increased primarily as a result of increased spending on professional fees, spring season performance bonuses and employee related costs, together
representing a $5.1 million year-over-year increase in expenses.

Interest
income increased to $460,000 during the nine months ended September 25, 2004 from $366,000 during the nine months ended September 27, 2003. Interest expense
decreased to $795,000 during the nine months ended September 25, 2004 from $912,000 during the nine months ended September 27, 2003.

Income Taxes

We provide for income taxes at an effective tax rate that includes the full federal and state statutory tax rates. Our effective tax rate was 41.2% during third
quarter fiscal 2004 and 42.0% during the nine months ended September 25, 2004, compared to 42.2% and 41.0% during third quarter fiscal 2003 and
the nine months ended September 27, 2003, respectively. Our effective tax rate continues to be negatively affected as a result of conducting business in states with higher tax rates. In
addition, our effective tax rate for third quarter fiscal 2003 includes the impact of the reversal of a valuation allowance. As a result, we recorded a benefit for taxes that was lower as a percentage
of pretax income in third quarter fiscal 2004 than it was in third quarter fiscal 2003 and we had a higher effective tax rate for the nine months ended September 25, 2004 as compared to the
nine months ended September 27, 2003.

Segment Analysis

We currently have two reportable business segments, retail and direct. Segment reporting is intended to give financial statement users a view of our business
"through the eyes of management." Our internal management reporting is the basis for the information disclosed for our business segments. In accordance with Generally Accepted Accounting Principles
("GAAP"), our internally defined measure of segment profit or loss, segment contribution, is required to be disclosed, but it is not a GAAP measure. Information related to segment contribution should
be read in conjunction with the reconciliation to "Operating income (loss)" as determined by GAAP.

During
the first quarter of fiscal 2004, we changed our segment reporting as a result of changes in the way management views the business. Outlet store revenues and expenses and
inventory control costs, previously included in the retail and direct segments, have been reclassified to other. Additionally, we now include certain previously unallocated costs in the retail and
direct segments, including certain sales allowances and order fulfillment costs. Net sales and segment contribution information for fiscal 2003 have been reclassified to conform to current period
presentation.

We
evaluate segment profitability based on the contribution of each segment. Segment contribution represents each segment's net sales less direct costs related to the segment's
operations. Direct costs for the retail and direct segments include merchandise acquisition and control costs and inventory markdowns. Direct costs also include retail store selling, occupancy,
depreciation, inventory distribution and administrative costs for the retail segment and catalog costs, certain order processing costs, fulfillment costs and internet selling costs for the direct
segment. Segment contribution less other and general and administrative expenses is equal to operating income (loss). Other represents unallocated shared-service costs such as merchandising, product
development, sourcing, inventory control and distribution facility costs, as well as outlet store revenues and expenses. General and administrative expenses include corporate executive management
costs, support service costs (e.g., shared information systems, finance and human resources) and corporate headquarters occupancy costs.

20

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The
accounting policies of our segments are the same as those described in Note B to the financial statements contained in our Annual Report on Form 10-K for
fiscal 2003. Inter-segment balances and transactions have been eliminated.

The
following table provides a reconciliation of segment contribution to operating income (loss) (in thousands):

|                                    |                         | Three Months Ended |        | Nine Months Ended |  
|----------------------------------- | ----------------------- | ------------------ | ------ | ----------------- | -
|
|Retail segment contribution         |                         | $                  | 278    |                   | $
|Direct segment contribution         |                         |                    | 8,050  |                   |  
|Other (1)                           |                         |                    | (4,557 | )                 |  
|General and administrative expenses |                         |                    | (8,108 | )                 |  
|                                    |                         |                    |        |                   |  
|                                    | Operating income (loss) |                    | $      | (4,337            | )
|                                    |                         |                    |        |                   |  

Segment Comparison of the Three Months Ended September 25, 2004 with the Three Months Ended September 27, 2003



The retail segment's third quarter fiscal 2004 contribution increased by $2.2 million to $278,000 as compared to a deficit of $1.9 million during
third quarter fiscal 2003. As a percentage of segment net sales, segment contribution was 0.5% during third quarter fiscal 2004 as compared to a segment deficit of 4.8% during third quarter fiscal
2003. The 5.3 percentage point change in segment contribution as a percentage of net sales was primarily attributable to a 7.7 percentage point decrease in product costs and a
0.8 percentage point decrease in operating costs partially offset by a 3.2 percentage point increase in selling expenses, all as a percentage of net sales. Segment product costs as a
percentage of net sales decreased primarily as a result of a shift in the mix of sales toward full price and lower inventory markdowns associated with fewer prior season overstocks. Segment operating
costs as a percentage of net sales decreased primarily as a result of the leveraging of occupancy and depreciation costs over higher net sales. Segment selling expenses as a percentage of net sales
increased primarily as a result of higher advertising, including costs associated with catalogs mailed to retail-only customers, and in-store visual costs partially offset by
lower pre-opening expenses.



The direct segment's third quarter fiscal 2004 contribution increased by $564,000, or 7.5%, to $8.1 million from $7.5 million during third quarter
fiscal 2003. As a percentage of segment net sales, segment contribution increased to 19.1% during third quarter fiscal 2004 from 18.6% during third quarter fiscal 2003. The 0.5 percentage point
increase in segment contribution as a percentage of net sales was primarily attributable to a 3.3 percentage point increase in product costs and a 0.2 percentage point increase in
operating costs being more than offset by a 4.0 percentage point decrease in selling expenses, all as a percentage of net sales. Segment product costs as a percentage of net sales increased
primarily as a result of deeper discounting of our off price offerings, increased sales of our promotionally priced merchandise and higher inventory markdowns associated with liquidating current
season overstocks. Segment selling expenses as a percentage of net sales decreased primarily as a result of the leveraging of lower catalog costs over higher sales. Catalog costs were lower during
third quarter fiscal 2004 as compared to third quarter fiscal 2003 primarily as a result of planned reductions in page counts.

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Other net expenses increased by $483,000, or 11.9%, to $4.6 million during third quarter fiscal 2004 from $4.1 million during third quarter fiscal
2003 primarily as a result of increased spending in merchandising and product development partially offset by lower distribution facility costs and depreciation expense.



General and administrative expenses increased by $1.9 million, or 30.1%, to $8.1 million during third quarter fiscal 2004 from $6.2 million
during third quarter fiscal 2003. Please see our discussion of general and administrative expenses under the heading"Comparison of the Three Months Ended September 25,
2004 with the Three Months Ended September 27, 2003"above.

Segment Comparison of the Nine Months Ended September 25, 2004 with the Nine Months Ended September 27, 2003



The retail segment's contribution during the nine months ended September 25, 2004, increased by $13.8 million to $13.1 million as compared to
a deficit of $659,000 during the nine months ended September 27, 2003. As a percentage of segment net sales, segment contribution was 7.9% during the nine months ended September 25, 2004
as compared to a segment deficit of 0.6% during the nine months ended September 27, 2003. The 8.5 percentage point change in segment contribution as a percentage of net sales was
primarily attributable to a 5.9 percentage point decrease in product costs and a 3.3 percentage point decrease in operating costs partially offset by a 0.7 percentage point
increase in selling expenses, all as a percentage of net sales. Segment product costs as a percentage of net sales decreased primarily as a result of a shift in the mix of sales toward full price and
lower inventory markdowns associated with fewer prior season overstocks. Segment operating costs as a percentage of net sales decreased primarily as a result of the leveraging of occupancy and
depreciation costs over higher net sales. Segment selling expenses as a percentage of net sales increased primarily as a result of higher advertising, including costs associated with catalogs mailed
to retail-only customers, and in-store visual costs partially offset by lower pre-opening expenses.



The direct segment's contribution during the nine months ended September 25, 2004, decreased by $728,000, or 2.0%, to $35.9 million from
$36.7 million during the nine months ended September 27, 2003. As a percentage of segment net sales, segment contribution decreased to 24.8% during the nine months ended
September 25, 2004 from 25.5% during the nine months ended September 27, 2003. The 0.7 percentage point decrease in segment contribution as a percentage of net sales was
attributable to a 0.4 percentage point increase in product costs and a 0.6 percentage point increase in operating costs partially offset by a 0.3 percentage point decrease in
selling expenses, all as a percentage of net sales. Segment product costs as a percentage of net sales increased primarily as a result of increased promotional activity associated with our customer
loyalty program partially offset by lower inventory markdowns associated with the fewer prior season overstocks. Segment operating costs as a percentage of net sales increased primarily as a result of
higher order processing costs (e.g., shipping and fulfillment expenses). Segment selling expenses as a percentage of net sales decreased primarily as a result of the leveraging of lower catalog costs
over higher net sales partially offset by increased internet marketing expense.



Other net expenses increased by $2.3 million, or 19.0%, to $14.4 million during the nine months ended September 25, 2004 from
$12.1 million during the nine months ended September 27, 2003 primarily as a

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result
of $3.6 million of incremental expenditures on our merchandising and product development organization partially offset by $1.2 million in lower depreciation expense and
distribution facility costs.



General and administrative expenses increased by $7.2 million, or 43.3%, to $23.7 million for the nine months ended September 25, 2004 from
$16.6 million during the nine months ended September 27, 2003. Please see our discussion of general and administrative expenses under the heading"Comparison of
the Nine Months Ended September 25, 2004 with the Nine Months Ended September 27, 2003"above.

Seasonality and Quarterly Fluctuations

We expect there to be fluctuations in our net sales from quarter to quarter, with the highest net sales coming in the second and fourth quarters of our fiscal
year and the lowest in the first and third quarters. As our retail store sales become a greater portion of our overall business, we anticipate that our business will become more seasonal. Our retail
store rollout plan is expected to materially impact year-over-year comparisons of our net sales. Also, January is included in our first fiscal quarter, but is included in the
fourth fiscal quarter for many other retailers. Because January is a month that traditionally involves significant promotional pricing, this difference needs to be taken into account when making
comparisons of our financial performance for interim periods with that of other retailers.

Liquidity and Capital Resources

Our principal working capital needs arise from the need to support costs incurred in advance of revenue generation primarily inventory acquisition, catalog
development, production and mailing costs and investments in our merchandising and product development infrastructure. We have two selling seasons that correspond to the fashion seasons. The spring
season begins in January and ends in July. The fall season begins in July and ends in January. Our capital investment needs arise from initiatives intended to support our growth, including the retail
store rollout and improvements to our physical and operating infrastructure. During the nine months ended September 25, 2004, we funded our working capital and capital investment needs with
cash generated from operations and cash on hand.

Cash
and cash equivalents ("cash") decreased by $8.2 million during the nine months ended September 25, 2004. Approximately $21.6 million in cash was generated from
operations, $17.0 million was invested in property and equipment, primarily related to our retail store rollout, $13.3 million was invested in marketable securities and
$3.1 million was received from stock transactions primarily from the exercise of stock options. During the nine months ended September 25, 2004, net income before depreciation and
amortization and lower accounts receivable were the primary sources of cash from operations. The primary use of cash from operations related to increases in inventory.

Cash
increased by $3.2 million during the nine months ended September 27, 2003. Approximately $29.3 million in cash was generated from operations and
$24.2 million was invested in property and equipment primarily related to our retail store rollout. During the nine months ended September 27, 2003, net income before depreciation and
amortization, lower accounts receivable, higher payable balances and additional deferred credits from landlords were the primary sources of cash from operations. The primary use of cash from
operations related to increases in inventory.

During
third quarter fiscal 2004, we invested some of our cash in marketable securities. We intend to maintain a liquid portfolio. At September 25, 2004, the aggregate fair value
of our marketable securities was $13.3 million and consisted of municipal debt securities. We did not hold any marketable securities at September 27, 2003 or December 27, 2003.

Accounts
receivable balances at September 25, 2004 were 29.4%, or $2.6 million, higher than at September 27, 2003 primarily as a result of an increase in receivables
associated with our deferred billing

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program
partially offset by a decrease in landlord allowance receivables. Our deferred billing programs provide our customers with the option of deferring payment for their purchases. The deferral
period is generally 60 to 90 days. For deferred billing offered on our private label credit card, we typically receive cash from the sale within four business days from the date of purchase.
For deferred billing offered on major credit cards, we receive cash after the deferral period expires, net of any returns or adjustments processed during the deferral period. At September 25,
2004, September 27, 2003 and December 27, 2003, there were $5.1 million, $398,000 and $7.8 million, respectively, of trade receivables related to our deferred billing
program. Accounts receivable balances at September 25, 2004 were 38.8%, or $7.2 million, lower than at December 27, 2003 primarily as a result of a decrease in landlord allowance
receivables and a decrease in receivables associated with our deferred billing program.

Other
current asset balances at September 25, 2004 were 76.8%, or $4.6 million, higher than at September 27, 2003 and 57.9%, or $3.9 million, higher than at
December 27, 2003 primarily as a result of an increase in prepaid income taxes.

Inventory
at September 25, 2004 was 14.5%, or $6.4 million, lower than at September 27, 2003. Inventory was lower than the prior year primarily as a result of lower
amounts of prior season merchandise on hand in our retail segment and the timing of current season merchandise receipts in our direct segment. Inventory per store in our retail segment was 21.2% lower
at September 25, 2004 than at September 27, 2003 primarily as a result of lower levels of prior season inventory. Retail inventory levels were unusually low throughout third quarter
fiscal 2004. These lower inventory levels were partially offset by inventory associated with 23 new retail stores opened since September 27, 2003. Inventory at September 25, 2004 was
33.8%, or $9.5 million, higher than at December 27, 2003 primarily as a result of fall season inventory received in preparation for the holidays and inventory associated with 12 new
retail stores opened since December 27, 2003.

A
summary of our inventory balances follows (in thousands):

September 25,
2004

September 27,
2003

December 27,
2003Retail

$
23,241

$
24,416

$
15,877Direct


13,824


18,968


11,657Other (1)


562


602


597Total

$
37,627

$
43,986

$
28,131


Accounts
payable balances at September 25, 2004 were 10.8%, or $2.3 million, lower than at September 27, 2003 primarily as a result of lower amounts payable for
retail store expenses and rollout costs. Accounts payable balances at September 25, 2004 were 28.3%, or $4.2 million, higher than at December 27, 2003 primarily as a result of
increased inventory payables partially offset by lower retail store expense payables.

Accrued
expense balances at September 25, 2004 were 14.9%, or $3.2 million, higher than at September 27, 2003 primarily as a result of increased accrued amounts for
insurance, gift certificates, deferred compensation and professional fees partially offset by lower accrued amounts for our retail store rollout. Accrued expenses at September 25, 2004 were
8.1%, or $1.9 million, higher than at December 27, 2003 primarily as a result of increased accrued amounts for our retail store rollout, insurance, professional fees and deferred
compensation partially offset by lower amounts accrued for customer refunds and gift certificates.

Deferred
credits from landlords and other at September 25, 2004 were 21.7%, or $7.2 million, higher than at September 27, 2003 and 7.9%, or $3.0 million
higher than at December 27, 2003 primarily as a result of opening additional retail stores. Deferred credits from landlords and other consists primarily of

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step
rent and allowances from landlords related to our retail stores. Step rent represents the difference between actual operating lease payments due and operating lease expense, which is recorded by
us on a straight-line basis over the term of the lease. This amount is recorded as a deferred credit in the early years of the lease, when cash payments are generally lower than
straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of
amounts promised to us by landlords in the form of cash or rent abatements. These allowances are part of the negotiated terms of the lease. In situations where cash is to be received, we record a
receivable for the full amount of the allowance when certain performance criteria articulated in the lease are met, typically when the store opens, and a liability is concurrently established. This
deferred credit from landlords is amortized into income (through lower rent expense) over the term of the applicable lease and the receivable is reduced as amounts are received from the landlord. The
liability for unamortized landlord allowances was $36.7 million, $31.0 million and $34.4 million at September 25, 2004, September 27, 2003 and December 27,
2003, respectively.

Most
of our retail store leases contain provisions that allow for early termination of the lease by either party if certain predetermined annual sales levels are not met. Generally,
these provisions allow the lease to be terminated between the third and fifth year of the lease. Should the lease be terminated under these provisions, the unamortized portion of any landlord
allowances related to that property would be payable to the landlord.

At
September 25, 2004, we had 134 retail stores and five outlet stores open. We currently expect to open an additional 16 retail stores during the remainder of 2004 bringing our
total 2004 openings to 28. With our front-end merchandising and product development foundation established and taking into account our strong balance sheet and the increasingly competitive
landscape within our target demographic, we plan to accelerate our new store openings to 40 stores in 2005. The cash requirements related to our retail store initiative are significant and are
primarily comprised of leasehold improvements, net of landlord allowances, and initial inventory acquisition costs. Construction commitments are typically made one to six months in advance of a new
retail store opening. The initial net cash requirements for opening a new retail store are currently estimated at an average of approximately $500,000 per store.

The
following table summarizes the cash requirements related to our outstanding future minimum lease payments for operating leases having a remaining term in excess of one year and our
outstanding long-term debt at September 25, 2004 (in thousands):

Payments Due By Period (1)Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 YearsOperating lease obligations (2)

$
232,834

$
4,525

$
58,001

$
60,022

$
110,286Long-term debt obligations (3)


12,672


436


2,841


959


8,436Total

$
245,506

$
4,961

$
60,842

$
60,981

$
118,722


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At
September 25, 2004, the maximum amount of future minimum lease payments for operating leases in any year was $30.4 million in 2009.

Our
credit facilities at September 25, 2004 consisted of (i) a $60.0 million revolving credit facility (the "Revolving Credit Facility"); (ii) a
$12.0 million real estate loan (the "Tilton Facility Loan"); and (iii) a $4.1 million equipment loan (the "Equipment Loan").

On
September 30, 2004, we amended the Revolving Credit Facility primarily to extend its term and modify or delete certain lending conditions and covenants. The maturity date of
the Revolving Credit Facility, as amended, is June 1, 2006. The total amount available under the Revolving Credit Facility is $60.0 million and is reduced by outstanding borrowings and
outstanding letters of credit. Outstanding borrowings may not exceed $20.0 million. Letters of credit are primarily used to procure inventory from foreign vendors. The Revolving Credit Facility
is collateralized by substantially all of our personal property, both tangible and intangible. Outstanding borrowings bear interest at an annual rate equal to the prime lending rate announced by one
of the participating banks or the LIBOR lending rate plus 1.75% per annum. At September 25, 2004, the Revolving Credit Facility bore interest at 4.75% per annum. There were no outstanding
borrowings on the Revolving Credit Facility at September 25, 2004, September 27, 2003 or December 27, 2003. Outstanding letters of credit totaled $33.6 million,
$26.6 million and $25.5 million at September 25, 2004, September 27, 2003 and December 27, 2003, respectively. Availability under the Revolving Credit Facility at
September 25, 2004, September 27, 2003 and December 27, 2003 was $26.4 million, $33.4 million and $34.5 million, respectively, subject in each case to the
borrowing cap. Outstanding letters of credit do not bear interest. We are required to pay a commitment fee of 1/4 of 1% per annum on the unused portion of the Revolving Credit Facility.

The
Tilton Facility Loan is collateralized by a mortgage lien on our operations, fulfillment and distribution center in Tilton, New Hampshire (the "Tilton facility"). The Tilton facility
is owned by Birch Pond Realty Corporation, a wholly owned subsidiary of The J. Jill Group, Inc., and leased to The J. Jill
Group, Inc. Payments of principal and interest on the Tilton Facility Loan, a 10-year loan, are due monthly, based on a 20-year amortization, with a balloon payment of
the remaining balance payable on April 1, 2009. The interest rate on the Tilton Facility Loan is fixed at 7.30% per annum.

The
Equipment Loan is collateralized by substantially all of our materials handling equipment. The maturity date of the Equipment Loan is May 1, 2006 and payments of principal and
interest are due monthly. The interest rate on the Equipment Loan is fixed at 5.00% per annum.

The
cash requirements related to our merchandising and product development infrastructure improvements are significant and are primarily comprised of costs associated with increasing the
depth and breadth of the organization through hiring new personnel and upgrading our systems and processes. These costs, other than capital expenditures, are captured in the accompanying condensed
consolidated financial statements in cost of products and merchandising for salaries and benefits related to headcount additions and general and administrative expenses for relocation, recruiting and
other corporate overhead costs. We planned to spend approximately $6.0 million to $7.0 million on this initiative during 2004. We currently estimate that we will spend approximately
$4.9 million to $5.7 million this year on this initiative, of which we are estimating approximately $600,000 to $1.2 million will be spent in the fourth quarter. Our 2004 estimate
is comprised of approximately $4.4 million to $5.0 million in incremental expenses over last year and approximately $500,000 to $700,000 in capital expenditures. This estimate is for
2004 only and does not include any future investments to be made beyond 2004. With respect to 2005, we currently expect to

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continue
to make significant investments in this area. In addition to the recurring costs associated with new hires added and processes implemented in 2004, we expect to add more new hires and spend
more on systems and process improvements in this area in 2005. While we anticipate the additional investments in this area to be significant in 2005, we are unable to quantify the amount at this time.
There can be no assurance that these expenditures will result in improved sales or profitability in the future.

Our
sources of cash include cash on hand, our investments in marketable securities, available borrowing capacity under our Revolving Credit Facility of $20.0 million as of
September 25, 2004 and anticipated cash flow from operations. Our principal uses of cash include cash required to support current operations as well as investments in infrastructure and our
retail store rollout. Based on current operating conditions, we believe we have sufficient sources of cash to execute our operating plans and fund our planned infrastructure investments, capital
expenditures and commitments for the foreseeable future. Should current operating conditions deteriorate, we believe we have some flexibility to adjust our
mid-to-long-term operating plans, including our retail store rollout and our circulation strategies. In addition, we also have unused borrowing capacity under our
Revolving Credit Facility.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our objective in managing our long-term exposure to interest rate changes and foreign currency rate changes is to limit the material impact of the
changes on cash flows and earnings and to lower our overall borrowing costs. To achieve our objectives, we periodically identify these risks and manage them through our regular operating and financing
activities. These activities include periodic refinancing of debt obligations to increase availability while minimizing financing costs, considering fixed and variable rate debt positions and periodic
review of the return on investment of our marketable securities portfolio. Marketable securities investments are subject to interest rate risk and, as a result, changes in interest rates may affect
our operating results. We invest in highly liquid, interest bearing instruments, primarily municipal debt securities. We do not currently use derivative financial instruments. We have calculated the
effect of a 10% change in interest rates over a month for both our debt obligations and our marketable securities investments and determined the effect to be immaterial. We do not foresee or expect
any significant changes in the management of foreign currency or interest rate exposures or in the strategies we employ to manage such exposures in the near future.

We
have established a trust in connection with our deferred compensation plan. The trust assets are invested in corporate owned life insurance in a manner that is designed to approximate
the measurement designations of the plan participants, for both vested and unvested balances. Investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level
of risk associated with certain investments, it is at least reasonably possible that changes in the values of these investments will occur in the near term and that such changes will also impact
participant deferred compensation balances based on the measurement designations made by the participant. Changes in value of the trust assets are intended to mirror changes in the value of the
participants' deferred compensation accounts.

Item 4. Controls and Procedures

We carried out an evaluation, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure
controls and procedures as of September 25, 2004. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 25, 2004 our
disclosure controls and procedures were effective in timely alerting them to material information required to be included in our reports filed or submitted under the Securities Exchange Act of 1934.
No change in our internal control over financial reporting occurred during third quarter fiscal 2004 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

In August 2003, a Complaint was served on The Birch Pond Group, Inc. (a subsidiary of The J. Jill Group, Inc.) in a civil action filed in the
California Superior Court, Riverside County, against The Birch Pond Group, Inc. and certain fictitiously named and unknown defendants who allegedly are or were operating J. Jill stores within
the State of California. This action, allegedly on behalf of a class of non-salaried store workers, alleges, among other things, violations of various provisions of the California Labor
Code and related regulations regarding meal periods, rest periods and coerced patronage, and unfair competition. The Complaint seeks compensatory damages, additional wages, civil penalties, interest,
attorney's fees and punitive damages in unspecified amounts, as well as restitution in an unspecified amount and injunctive relief. We intend to defend ourselves vigorously against these claims, and
in September 2003, The Birch Pond Group, Inc. filed its answer to the Complaint, denying the plaintiffs' claims and setting forth various affirmative defenses. A hearing on the
plaintiffs' motion for class certification is scheduled for December 10, 2004, and the parties have begun to explore the possibility of settlement.

Item 6. Exhibits and Reports on Form 8-K



|     |  | Certifications                                                                                                            
|---- |  | --------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)              
|31.2 |  | Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)              
|32.1 |  | Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                        |  | THE J. JILL GROUP, INC.
|----------------------- |  | -----------------------
|Dated: November 4, 2004 |  | By:                    
|Dated: November 4, 2004 |  | By:                    

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THE J. JILL GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 25, 2004
EXHIBIT INDEX

Certifications

|31.1 |  | Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)              
|---- |  | --------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a)              
|32.1 |  | Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350

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