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

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Form 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 25, 1999
|--- | --------------------------------------------------------------------------------------------------------------------------
|    | OR                                                                                                                        
|/ / | 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.)
|---------------------------------------------------------------------------- |  | ----------------------------------------------
|25 Recreation Park Drive
Hingham, MA(Address of Principal Executive Offices) |  | 02043(Zip Code)                               

Registrant's telephone number, including area code: (781) 740-2718

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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 /x/  No / /

Shares
outstanding of the Registrant's common stock (par value $0.01) at November 1, 1999: 9,990,422

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## 

THE J. JILL GROUP, INC.

(FORMERLY DM MANAGEMENT COMPANY)

INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 25, 1999

|                             |  |         |  |                                                                                                                                |  |     
|---------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | ----
|PART IFINANCIAL INFORMATION
|                             |  | Item 1. |  | Consolidated Financial Statements                                                                                              |  | 3-8 
|                             |  |         |  | Consolidated Balance Sheets at September 25, 1999, September 26, 1998 and December 26, 1998                                    |  | 3   
|                             |  |         |  | Consolidated Statements of Operations for the three months and the nine months ended September 25, 1999 and September 26, 1998 |  | 4   
|                             |  |         |  | Consolidated Statements of Cash Flows for the nine months ended September 25, 1999 and September 26, 1998                      |  | 5   
|                             |  |         |  | Notes to Consolidated Financial Statements                                                                                     |  | 6-8 
|                             |  | Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 9-16
|                             |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 16  
|                             |  |         |  |                                                                                                                                |  |     
|PART IIOTHER INFORMATION   
|                             |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                               |  | 17  
|Signatures                   |  | 18     
|                             |  |         |  |                                                                                                                                |  |     



THE J. JILL GROUP, INC.

(FORMERLY DM MANAGEMENT COMPANY)

CONSOLIDATED BALANCE SHEETS

(in thousands)
(unaudited)

|                                                                                                                                                                                                                |  | September 25, 1999 |         | September 26, 1998 |   | December 26, 1998 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ----------------- | -
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|ASSETS                                                                                                                                                                                                          | 
|Current assets:                                                                                                                                                                                                 |  |                    |         |                    |   |                   |  
|Cash and cash equivalents                                                                                                                                                                                       |  | $                  | 1,614   |                    | $ | 18,806            |  
|Assets held for sale                                                                                                                                                                                            |  |                    | 2,423   |                    |   |                  |  
|Inventory                                                                                                                                                                                                       |  |                    | 31,326  |                    |   | 29,083            |  
|Prepaid catalog expenses                                                                                                                                                                                        |  |                    | 7,475   |                    |   | 6,097             |  
|Deferred income taxes                                                                                                                                                                                           |  |                    | 6,662   |                    |   | 5,295             |  
|Other current assets                                                                                                                                                                                            |  |                    | 7,744   |                    |   | 4,980             |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Total current assets                                                                                                                                                                                            |  |                    | 57,244  |                    |   | 64,261            |  
|Property and equipment, net                                                                                                                                                                                     |  |                    | 44,614  |                    |   | 40,899            |  
|Deferred income taxes                                                                                                                                                                                           |  |                    | 3,926   |                    |   | 4,479             |  
|Other non-current assets                                                                                                                                                                                        |  |                    | 1,770   |                    |   |                  |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Total assets                                                                                                                                                                                                    |  | $                  | 107,554 |                    | $ | 109,639           |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                            | 
|Current liabilities:                                                                                                                                                                                            |  |                    |         |                    |   |                   |  
|Accounts payable                                                                                                                                                                                                |  | $                  | 12,522  |                    | $ | 13,580            |  
|Accrued expenses                                                                                                                                                                                                |  |                    | 5,754   |                    |   | 7,464             |  
|Accrued customer returns                                                                                                                                                                                        |  |                    | 6,684   |                    |   | 5,211             |  
|Short-term borrowings                                                                                                                                                                                           |  |                    |        |                    |   | 20,701            |  
|Current portion of long-term debt                                                                                                                                                                               |  |                    | 1,815   |                    |   | 9,287             |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Total current liabilities                                                                                                                                                                                       |  |                    | 26,775  |                    |   | 56,243            |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Long-term debt, less current portion                                                                                                                                                                            |  |                    | 25,010  |                    |   | 3,418             |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Commitments                                                                                                                                                                                                     |  |                    |         |                    |   |                   |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Stockholders' equity:                                                                                                                                                                                           |  |                    |         |                    |   |                   |  
|Special preferred stock (par value $0.01) 1,000,000 shares authorized                                                                                                                                           |  |                    |        |                    |   |                  |  
|Common stock (par value $0.01) 15,000,000 shares authorized, 9,988,671, 9,599,652, and 9,631,401 shares issued and outstanding as of September 25, 1999, September 26, 1998 and December 26, 1998,
respectively |  |                    | 100     |                    |   | 96                |  
|Additional paid-in capital                                                                                                                                                                                      |  |                    | 61,260  |                    |   | 59,182            |  
|Accumulated deficit                                                                                                                                                                                             |  |                    | (5,591  | )                  |   | (9,300            | )
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Total stockholders' equity                                                                                                                                                                                      |  |                    | 55,769  |                    |   | 49,978            |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  
|Total liabilities and stockholders' equity                                                                                                                                                                      |  | $                  | 107,554 |                    | $ | 109,639           |  
|                                                                                                                                                                                                                |  |                    |         |                    |   |                   |  

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



THE J. JILL GROUP, INC.

(FORMERLY DM MANAGEMENT COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)
(unaudited)

|                                     |  | Three Months Ended |        | Nine Months Ended |  
|------------------------------------ |  | ------------------ | ------ | ----------------- | -
|
|                                     |  |                    |        |                   |  
|Net sales                            |  | $                  | 46,323 |                   | $
|Costs and expenses:                  |  |                    |        |                   |  
|Product                              |  |                    | 21,437 |                   |  
|Operations                           |  |                    | 11,601 |                   |  
|Selling                              |  |                    | 11,301 |                   |  
|General and administrative           |  |                    | 4,990  |                   |  
|Special charge                       |  |                    | 3,628  |                   |  
|Interest, net                        |  |                    | 409    |                   |  
|                                     |  |                    |        |                   |  
|Income (loss) before income taxes    |  |                    | (7,043 | )                 |  
|Income tax provision (benefit)       |  |                    | (2,817 | )                 |  
|                                     |  |                    |        |                   |  
|Net income (loss)                    |  | $                  | (4,226 | )                 | $
|                                     |  |                    |        |                   |  
|                                     |  |                    |        |                   |  
|Earnings (loss) per share:           |  |                    |        |                   |  
|Basic                                |  | $                  | (0.42  | )                 | $
|Diluted                              |  | $                  | (0.42  | )                 | $
|                                     |  |                    |        |                   |  
|Weighted average shares outstanding: |  |                    |        |                   |  
|Basic                                |  |                    | 9,956  |                   |  
|Diluted                              |  |                    | 9,956  |                   |  

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



THE J. JILL GROUP, INC.

(FORMERLY DM MANAGEMENT COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

|                                                                              |  | Nine Months Ended |        
|----------------------------------------------------------------------------- |  | ----------------- | -------
|
|                                                                              |  |                   |        
|Cash flows provided by operating activities:                                  |  |                   |        
|Net income                                                                    |  | $                 | 862    
|Adjustments to reconcile net income to net cash used in operating activities: |  |                   |        
|Depreciation                                                                  |  |                   | 3,443  
|Loss on sale of marketable securities                                         |  |                   |       
|Deferred income taxes                                                         |  |                   | 866    
|Non-cash write-down of assets held for sale                                   |  |                   | 2,129  
|Changes in assets and liabilities:                                            |  |                   |        
|Increase in inventory                                                         |  |                   | (4,479 
|(Increase) decrease in prepaid catalog expenses                               |  |                   | (2,221 
|Increase in other current assets                                              |  |                   | (4,588 
|Increase in other non-current assets                                          |  |                   | (470   
|Increase (decrease) in accounts payable and accrued expenses                  |  |                   | (1,659 
|Increase (decrease) in accrued customer returns                               |  |                   | (1,649 
|                                                                              |  |                   |        
|Net cash used in operating activities                                         |  |                   | (7,766 
|                                                                              |  |                   |        
|Cash flows used in investing activities:                                      |  |                   |        
|Additions to property and equipment                                           |  |                   | (5,817 
|Proceeds from sale of marketable securities                                   |  |                   |       
|                                                                              |  |                   |        
|Net cash used in investing activities                                         |  |                   | (5,817 
|                                                                              |  |                   |        
|Cash flows provided by (used in) financing activities:                        |  |                   |        
|Borrowings under debt agreements                                              |  |                   | 24,921 
|Payments of debt borrowings                                                   |  |                   | (31,031
|Proceeds from stock transactions                                              |  |                   | 1,311  
|                                                                              |  |                   |        
|Net cash provided by (used in) financing activities                           |  |                   | (4,799 
|                                                                              |  |                   |        
|Net decrease in cash and cash equivalents                                     |  |                   | (18,382
|                                                                              |  |                   |        
|Cash and cash equivalents at:                                                 |  |                   |        
|Beginning of period                                                           |  |                   | 19,996 
|                                                                              |  |                   |        
|End of period                                                                 |  | $                 | 1,614  
|                                                                              |  |                   |        

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



THE J. JILL GROUP, INC.

(FORMERLY DM MANAGEMENT COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The
consolidated financial statements included herein have been prepared by The J. Jill Group, Inc. (the "Company" or the "J. Jill Group"), formerly known as DM Management
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 only normal
recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The results of operations for such interim periods
are not necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's
Annual Report to Stockholders for the fiscal year ended December 26, 1998.

A. Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been
eliminated.

B. Special charges:

During the three months ended September 25, 1999 ("third quarter 1999") the Company recorded charges totaling $5,276,000 primarily associated with its
decision to discontinue itsnicolecatalog concept. These charges included a $1,648,000 inventory markdown charge, included in product costs, and a
$3,628,000 special charge shown separately on the accompanying consolidated statements of operations. The inventory markdown charge includes a write-down of inventory expected to be liquidated through
outlet stores and other liquidation vehicles to lower of cost or market as well as costs to exit certain purchase commitments made in the ordinary course of business. The following is a summary of
costs included in the $3,628,000 special charge (in thousands):

|                                     |  |   |      
|------------------------------------ |  | - | -----
|Fixed asset impairments (See Note C) |  | $ | 2,130
|Prepaid catalog costs                |  |   | 725  
|Lease commitment costs               |  |   | 422  
|Severance costs                      |  |   | 120  
|Other costs                          |  |   | 231  
|                                     |  |  
|Total special charge                 |  | $ | 3,628
|                                     |  |  

In
connection with the decision to discontinue thenicolecatalog concept, the Company decided not to circulate certain previously
plannednicolecatalogs. Prepaid catalog costs incurred or committed for these catalogs were written off as part of the special charge. Severance costs
relate to five terminated employees previously associated with thenicolecatalog concept. These employees were terminated prior to September 25,
1999. Lease commitment costs are primarly comprised of costs to close an existingnicoleoutlet store.

At
September 25, 1999, accrued expenses included $637,000 of accrued special charges. This amount was comprised of the lease commitment costs, severance costs and certain of
the other costs listed above. The Company expects to complete paying for these items by the end of the third quarter of 2000.

C. Assets held for sale

Assets held for sale is primarily comprised of property and equipment associated with the Company's operations and fulfillment center in Meredith, New
Hampshire (the "Meredith facility"). As a result of the Company's decision to discontinue itsnicolecatalog concept, the Company expects that the
operations and fulfillment center in Tilton, New Hampshire (the "Tilton facility") will now have enough warehousing and distribution capacity to house its future retail operations center. Based on the
Tilton facility's ability to house the new retail operations center, the Company has decided to no longer hold its Meredith facility for that purpose. As a result, the Company reclassified the
property and equipment and the related accumulated depreciation to assets held for sale and recognized fixed asset impairments of $2,129,000 to write-down these assets to their estimated fair market
value, net of estimated costs of disposal. The Company expects to dispose of these assets by the end of the third quarter of 2000.

D. Debt:

The Company's credit facilities at September 25, 1999 consisted of (i) a $12,000,000 real estate loan (the "Tilton Facility Loan"); (ii) a
$9,500,000 equipment loan (the "Equipment Loan"); (iii) a $980,000 furniture loan (the "Furniture Loan"); (iv) a $1,650,000 real estate loan (the "Meredith Facility Loan"); and
(v) a $30,000,000 revolving line of credit (the "Revolver").

The
Tilton Facility Loan is collateralized by a mortgage lien on the Tilton facility. The Tilton facility is owned by the J. Jill Group's wholly owned subsidiary, Birch Pond Realty
Corporation ("Birch Pond") and leased to the J. Jill Group. During the first quarter of 1999, Birch Pond entered into the Tilton Facility Loan with a third party financial institution. The Equipment
Loan is collateralized by substantially all of the Company's materials handling equipment. The Furniture Loan is collateralized by certain workstations and office furniture. The remaining credit
facilities are collateralized by substantially all of the Company's remaining assets. All of these credit facilities contain various lending conditions and covenants including restrictions on
permitted liens and certain credit facilities also require compliance with certain debt coverage ratios.

Payments
of principal and interest on the Tilton Facility Loan are due monthly through its maturity on March 1, 2009 with the interest rate fixed at 7.30% per annum. The
Equipment Loan requires monthly payments of principal and interest through its maturity on December 1, 2005 and has two components with different fixed interest rates, with a weighted average
interest rate of 7.62% per annum. Interest on the Furniture Loan is fixed at 6.25% per annum and requires monthly payments of principal and interest through its maturity on March 30, 2002.
Payments of principal and interest on the Meredith Facility Loan are due monthly, based on a 15-year amortization, with the remaining balance payable on July 30, 2002. Interest on the Meredith
Facility Loan is currently based on the 3-year United States Treasury rate plus 1.5% which resulted in a rate of 6.74% per annum at September 25, 1999. The Revolver is available for borrowings
and for letters of credit and matures on June 1, 2001. At September 25, 1999 there were

$8,664,000 in letters of credit outstanding under the Revolver and borrowings outstanding as set forth in the table below. At September 25, 1999 the Revolver bore interest at 8.25% per annum.
The outstanding letters of credit do not bear interest.

A
summary of the Company's outstanding long-term debt follows (in thousands):

|                                     |  | September 25, 1999 |        | September 26, 1998 |   | December 26, 1998
|------------------------------------ |  | ------------------ | ------ | ------------------ | - | -----------------
|                                     |  |                    |        |                    |   |                  
|Real estate loans                    |  | $                  | 13,316 |                    | $ | 1,531            
|Term loans                           |  |                    |       |                    |   | 2,700            
|Equipment loans                      |  |                    | 8,639  |                    |   |                 
|Furniture loans                      |  |                    | 855    |                    |   |                 
|Revolver borrowings                  |  |                    | 4,000  |                    |   | 8,450            
|Capitalized lease obligations        |  |                    | 15     |                    |   | 24               
|                                     |  |                    |        |                    |   |                  
|Total long-term debt                 |  |                    | 26,825 |                    |   | 12,705           
|Less current maturities              |  |                    | 1,815  |                    |   | 9,287            
|                                     |  |                    |        |                    |   |                  
|Long-term debt, less current portion |  | $                  | 25,010 |                    | $ | 3,418            
|                                     |  |                    |        |                    |   |                  

E. Earnings (loss) per share:

The Company calculates earnings (loss) per share ("EPS") in accordance with Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share." A reconciliation of the numerators and denominators of the basic and diluted EPS calculation follows (in thousands, except per
share data):

|                                            |  | Three Months Ended |        | Nine Months Ended
|------------------------------------------- |  | ------------------ | ------ | -----------------
|
|                                            |  |                    |        |                  
|Numerator:                                  |  |                    |        |                  
|Net income (loss)                           |  | $                  | (4,226 | )                
|                                            |  |                    |        |                  
|Denominator (shares):                       |  |                    |        |                  
|Basic weighted average shares outstanding   |  |                    | 9,956  |                  
|Assumed exercise of stock options           |  |                    |       |                  
|                                            |  |                    |        |                  
|Diluted weighted average shares outstanding |  |                    | 9,956  |                  
|                                            |  |                    |        |                  
|Earnings (loss) per share:                  |  |                    |        |                  
|Basic                                       |  | $                  | (0.42  | )                
|Diluted                                     |  | $                  | (0.42  | )                

F. Reclassifications:

Certain prior year financial statement amounts have been reclassified to be consistent with presentation at September 25, 1999.

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

The following discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, which involve risks and uncertainties. For this purpose, any statements contained herein or incorporated 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 "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements.
The Company's 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: the success or failure of the J. Jill retail store and e-commerce initiatives; the success or failure of the nicole wind-down strategy; the
success or failure of new customer acquisition efforts; failure of the Company or its significant vendors or suppliers to become Year 2000 compliant; significant changes in customer response rates;
changes in competition in the apparel industry; general economic and business conditions; success or failure of operating initiatives; the ability of the Company to effectively liquidate its
overstocked merchandise; changes in consumer spending and consumer preferences; changes in business strategy; possible future increases in expenses; the existence or absence of brand awareness; the
existence or absence of publicity, advertising and promotional efforts; availability, terms and deployment of capital; quality of management; business abilities and judgment of personnel; availability
of qualified personnel; labor and employee benefit costs; changes in, or the failure to comply with, government regulations, and other factors.

Overview

The J. Jill Group, Inc. (the "Company" or the "J. Jill Group"), formerly known as DM Management Company, is a specialty direct marketer of high
quality women's apparel, accessories, shoes and gifts. The Company currently markets its products through two discrete catalog concepts,J. Jillandnicole. During the three months ended September 25, 1999 ("third quarter 1999"), the Company decided
to discontinue itsnicolecatalog concept ("nicole") (See Significant Event below).
TheJ. Jillcatalog concept ("J. Jill") is designed to appeal to active,
affluent women age 35 and older. In August 1999 the Company launched its website,jjill.com, to provide increased customer service, including
inventory availability, and as an alternate marketing channel forJ. Jill. The Company plans to open two new retail stores in
November 1999 as a third channel of distribution. One of these stores will be located in Natick, Massachusetts and the other in Providence, Rhode Island. The Company plans to have a total of
ten to twelve retail stores open by the end of fiscal year 2000.

Significant Event

During third quarter 1999 the Company decided to discontinuenicole.Nicolewas an attempt to refocus the
Company'sNicole
Summerscatalog concept, which had been experiencing declining sales. The Company began mailing its new refocused catalog concept,nicole, during third quarter 1999. As a result of lower than expected performance of this new, refocused catalog concept, the Company decided to discontinuenicoleand focus
its resources on developingJ. Jill.

During
third quarter 1999 the Company recorded charges totaling $5.3 million primarily associated with its decision to discontinuenicole. These charges included a $1.6 million inventory markdown charge,
included in product costs, and a $3.6 million special charge shown separately
on the accompanying consolidated statements of operations. The inventory markdown charge includes a write-down of inventory expected to be liquidated through outlet stores and other liquidation
vehicles to lower of cost or market as

well as costs to exit certain purchase commitments made in the ordinary course of business. The following is a summary of costs included in the $3.6 million special charge (in thousands):

|Fixed asset impairments |  | $ | 2,130
|----------------------- |  | - | -----
|Prepaid catalog costs   |  |   | 725  
|Lease commitment costs  |  |   | 422  
|Severance costs         |  |   | 120  
|Other costs             |  |   | 231  
|                        |  |  
|Total special charge    |  | $ | 3,628
|                        |  |  

As
a result of the Company's decision to discontinuenicole, the Company expects that the operations and fulfillment center in Tilton,
New Hampshire (the "Tilton facility") will now have enough warehousing and distribution capacity to house its future retail operations center. Based on the Tilton facility's ability to house the new
retail operations center, the Company has decided to no longer hold its operations and fulfillment center in Meredith, New Hampshire (the "Meredith facility") for that purpose. As a result, the
Company reclassified the property and equipment and the related accumulated depreciation to assets held for sale and recognized fixed asset impairments of $2.1 million to write-down these assets to
their estimated fair market value, net of estimated costs of disposal. The Company expects to dispose of these assets by the end of the third quarter of 2000.

In
connection with the decision to discontinue nicole, the Company decided not to circulate certain previously plannednicolecatalogs.
Prepaid catalog costs incurred or committed for these catalogs were written off as part of the special charge. Severance costs relate to five terminated employees previously associated
withnicole. These employees were terminated prior to September 25, 1999. Lease commitment costs are primarily comprised of costs
to close an existingnicoleoutlet store.

At
September 25, 1999, accrued expenses included $0.6 million of accrued special charges. This amount was comprised of the lease commitment costs, severance costs and certain
of the other costs listed above. The Company expects to complete paying for these items by the end of the third quarter of 2000.

Results of Operations

The following table sets forth the consolidated statements of operations for the Company expressed as a percentage of net sales and certain selected operating
data:

|                                        |  | Three Months Ended |    | Nine Months Ended |  
|--------------------------------------- |  | ------------------ | -- | ----------------- | -
|
|Consolidated Statement of Operations:   |  |                    |    |                   |  
|Net sales                               |  | 100.0              | %  | 100.0             | %
|Costs and expenses:                     |  |                    |    |                   |  
|Product                                 |  | 46.3               |    | 43.5              |  
|Operations                              |  | 25.0               |    | 22.2              |  
|Selling                                 |  | 24.4               |    | 21.6              |  
|General and administrative              |  | 10.8               |    | 7.8               |  
|Special charge                          |  | 7.8                |    |                  |  
|Interest, net                           |  | 0.9                |    | (0.1              | )
|                                        |  |                    |    |                   |  
|Income (loss) before income taxes       |  | (15.2              | )  | 5.0               |  
|Income tax provision (benefit)          |  | (6.1               | )  | 2.0               |  
|                                        |  |                    |    |                   |  
|Net income (loss)                       |  | (9.1               | )% | 3.0               | %
|                                        |  |                    |    |                   |  
|Selected Operating Data (in thousands): |  |                    |    |                   |  
|Catalog circulation(1)                  |  | 17,200             |    | 15,100            |  
|Twelve-month buyers(2)                  |  | 1,247              |    | 914               |  

---

Comparison of the Three Months Ended September 25, 1999 with the Three Months Ended September 26, 1998

Net SalesDuring third quarter 1999 net sales decreased by 0.6% to $46.3 million from $46.6 million during the three months ended September 26, 1998 ("third quarter 1998"). Net sales forJ.
 Jillincreased to $41.8 million during third quarter 1999 from $36.3 million during third quarter 1998, an increase of 15.2%. This increase inJ. Jillnet sales was
driven by a 25.5% increase in circulation offset by decreases in response rates and average order sizes for the comparable
periods. During third quarter 1999 net sales and circulation fornicoledecreased by 56.4% and 25.5%, respectively, as compared to third quarter 1998.
This decrease innicolenet sales was primarily attributable to a decrease in response rates during the comparable periods as well as the aforementioned
decrease in circulation. Total Company catalog circulation increased by 13.9% to 17.2 million during third quarter 1999 from 15.1 million during third quarter 1998. The number of twelve-month buyers
increased by 36.4% to 1,247,000 at September 25, 1999 from 914,000 at September 26, 1998.

ProductProduct costs consist primarily of merchandise acquisition costs, including freight costs, and provisions for markdowns. During third quarter 1999 product costs increased by 5.7% to
$21.4 million from $20.3 million during third quarter 1998. As a percentage of net sales, product costs increased to 46.3% during

third quarter 1999 from 43.5% during third quarter 1998. This increase in product costs as a percentage of net sales is primarily attributable to a $1.6 million special charge for inventory markdowns
recorded during third quarter 1999 related to the Company's decision to discontinuenicole. Product costs, absent this special charge, as a percentage
of net sales decreased to 42.7% during third quarter 1999 from 43.5% during third quarter 1998. This decrease was primarily a result of the shift in the mix of the
business towardJ. Jill, which has higher margins thannicoledue to its higher
concentration of private label merchandise. The Company expects fiscal year 1999 product costs, absent special charges, as a percentage of net sales to increase to slightly higher levels than
experienced for the nine months ended September 25, 1999.

OperationsOperating expenses consist primarily of order processing costs, such as order taking, customer service, fulfillment, shipping, warehousing and credit card processing costs, and
merchandising costs. During third quarter 1999 operating expenses increased by 12.1% to $11.6 million from $10.3 million during third quarter 1998. As a percentage of net sales, operating expenses
increased to 25.0% during third quarter 1999 from 22.2% during third quarter 1998. This increase in operating expenses as a percentage of net sales was attributable to decreased capacity utilization
resulting from lower than expected volume. The Company expects fourth quarter 1999 operating expenses as a percentage of net sales to decrease significantly from third quarter 1999 levels as a result
of increased volume and therefore increased capacity utilization.

SellingSelling expenses consist primarily of the cost to produce, print and distribute catalogs. During third quarter 1999 selling expenses increased by 12.2% to $11.3 million from $10.1
million during third quarter 1998. As a percentage of net sales, selling expenses increased to 24.4% during third quarter 1999 from 21.6% during third quarter 1998 primarily as a result of decreased
catalog productivity. If current catalog productivity trends continue, the Company expects that fourth quarter 1999 selling expenses as a percentage of net sales will be significantly higher than
levels experienced during third quarter 1999.

General and AdministrativeGeneral and administrative expenses consist primarily of executive, marketing, information systems and finance expenses. During third quarter 1999 general and administrative expenses
increased by 37.8% to $5.0 million from $3.6 million during third quarter 1998. This increase was primarily attributable to increased salaries and benefits, increased outlet store overhead resulting
from additional outlet stores, and increased professional fees. As a percentage of net sales, general and administrative expenses increased to 10.8% during third quarter 1999 from 7.8% during third
quarter 1998. The Company does not expect general and administrative expenses to change significantly during fourth quarter 1999 as compared to third quarter 1999.

Special ChargeAs discussed above, the Company has decided to discontinuenicoleresulting in a $3.6 million special charge recorded during third
quarter 1999. This special charge is comprised of fixed asset impairments, prepaid catalog costs, lease commitment costs, employee severance costs and other costs.

Interest, netInterest expense increased to $0.5 million during third quarter 1999 as compared to $0.1 million during third quarter 1998 primarily as a result of increased use of the Company's
credit facilities related to the financing of the Tilton facility. Interest income remained consistent at $0.1 million during both third quarter 1999 and third quarter 1998. The Company expects an
increase in net interest expense during

fourth quarter 1999 as compared to third quarter 1999 as a result of lower invested balances and higher debt levels.

Comparison of the Nine Months Ended September 25, 1999 with the Nine Months Ended September 26, 1998

Net SalesDuring the nine months ended September 25, 1999 net sales increased by 25.4% to $189.1 million from $150.7 million during the nine months ended September 26, 1998. This
net sales increase was primarily attributable to sales volume increases from the Company'sJ. Jillconcept. Net sales forJ. Jillincreased to
$159.7 million during the nine months ended September 25, 1999 from $109.2 million during the nine months ended
September 26, 1998, an increase of 46.2%. This increase inJ. Jillnet sales was driven by a 64.7% increase in circulation offset by
decreases in response rates and average order sizes for the comparable periods. During the nine months ended September 25, 1999 net sales and circulation
fornicoledecreased by 29.2% and 11.0%, as compared to the nine months ended September 26, 1998. This decrease
innicolenet sales was primarily attributable to decreases in response rates and average order sizes during the comparable periods as
well as the aforementioned decrease in circulation. Total Company catalog circulation increased by 42.5% to 69.1 million during the nine months ended September 25, 1999 from 48.5 million during
the nine months ended September 26, 1998.

ProductDuring the nine months ended September 25, 1999 product costs increased by 24.0% to $84.0 million from $67.7 million during the nine months ended September 26, 1998. As
a percentage of net sales, product costs decreased to 44.4% during the nine months ended September 25, 1999 from 44.9% during the nine months ended September 26, 1998. Product costs,
absent special charges for inventory markdowns, as a percentage of net sales decreased to 43.6% during the nine months ended September 25, 1999 from 44.9% during the nine months ended
September 26, 1998 primarily as a result of the shift in the mix of the business towardJ. Jill.

OperationsDuring the nine months ended September 25, 1999 operating expenses increased by 41.9% to $42.8 million from $30.2 million during the nine months ended September 26, 1998. As a
percentage of net sales, operating expenses increased to 22.7% during the nine months ended September 25, 1999 from 20.0% during the nine months ended September 26, 1998. This increase
in operating expenses as a percentage of net sales is attributable to the factors discussed above in the quarterly comparison of operating expenses as well as inefficiencies and reduced employee
productivity associated with the transition of the Company's operations from three distribution facilities into one during first quarter 1999.

SellingDuring the nine months ended September 25, 1999 selling expenses increased by 29.3% to $42.4 million from $32.8 million during the nine months ended September 26, 1998. As a
percentage of net sales, selling expenses increased to 22.4% during the nine months ended September 25, 1999 from 21.8% during the nine months ended September 26, 1998. This increase was
primarily the result of decreased catalog productivity during the nine months ended September 25, 1999 as compared to the nine months ended September 26, 1998.

General and AdministrativeDuring the nine months ended September 25, 1999 general and administrative expenses increased by 19.8% to $13.6 million from $11.4 million during the nine months ended
September 26, 1998. This increase is primarily attributable to increased salaries and benefits, increased outlet store overhead resulting from

additional outlet stores, increased professional fees and increased expenses related to the new retail initiative. As a percentage of net sales, general and administrative expenses decreased to 7.2%
during the nine months ended September 25, 1999 from 7.6% during the nine months ended September 26, 1998.

Interest, netInterest expense increased to $1.5 million during the nine months ended September 25, 1999 as compared to $0.4 million during the nine months ended September 26, 1998,
primarily as a result of increased use of the Company's credit facilities. Interest income decreased to $0.3 million during the nine months ended September 25, 1999 from $0.8 million during the
nine months ended September 26, 1998, primarily due to lower cash and cash equivalent balances.

Income Taxes

The Company provides for income taxes at an effective tax rate that includes the full federal and state statutory tax rates. The Company's effective tax rate
for the nine months ended September 25, 1999 and the nine months ended September 26, 1998 was 40.0% and 39.0%, respectively. The increased effective tax rate during the nine months ended
September 25, 1999 reflects the effect of an increased federal statutory tax rate due to expected annual taxable income levels.

Liquidity and Capital Resources

The J. Jill Group's principal working capital needs arise from the need to support costs incurred in advance of revenue generation, primarily inventory
acquisition and catalog development, production and mailing costs incurred prior to the beginning of each selling season. The Company has two selling seasons which 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. Capital needs arise from capital expenditures related to expansions and improvements to
the Company's operating infrastructure. During the nine months ended September 25, 1999 and the nine months ended September 26, 1998 these capital expenditures primarily included costs related
to the construction of the Tilton facility. During the nine months ended September 25, 1999 the Company funded its operating and capital needs through its bank credit facilities, a new loan
from a financial institution, cash generated from operations, and proceeds from its 1997 public offering.

The
Company's operating activities used net cash of $7.8 million during the nine months ended September 25, 1999 primarily for increasing inventory and other current asset
balances, partially offset by net income before depreciation and a non-cash write-down of assets held for sale. The Company's operating activities used net cash of $1.8 million during the nine months
ended September 26, 1998 primarily for increasing inventory and other current asset balances, partially offset by net income before depreciation.

The
Company's investing activities used net cash of $5.8 million and $24.1 million during the nine months ended September 25, 1999 and the nine months ended
September 26, 1998, respectively, primarily for property and equipment additions related to the construction of the new Tilton facility. Construction of the Tilton facility began in 1997 and
was completed as of December 26, 1998.

The
Company's financing activities used net cash of $4.8 million during the nine months ended September 25, 1999. This usage was primarily the result of a paydown of short-term
borrowings and long-term debt, an increase in long-term debt in connection with the refinancing of the Tilton facility, equipment and furniture, and borrowings used to finance operations. During the
nine months ended September 26, 1998, net cash of $25.4 million was provided by financing activities, primarily as a result of borrowings used to finance the Tilton facility construction.

The
Company's credit facilities at September 25, 1999 consisted of (i) a $12.0 million real estate loan (the "Tilton Facility Loan"); (ii) a $9.5 million equipment loan
(the "Equipment Loan"); (iii) a $1.0
million furniture loan (the "Furniture Loan"); (iv) a $1.7 million real estate loan (the "Meredith Facility Loan"); and (v) a $30.0 million revolving line of credit (the "Revolver"). At
September 25, 1999 there was $17.3 million available under the Revolver. The weighted average interest rate for amounts outstanding under the Company's credit facilities during the nine months
ended September 26, 1999 was 7.16%. The Tilton Facility Loan is collateralized by a mortgage lien on the Tilton facility. The Tilton facility is owned by the J. Jill Group's wholly owned
subsidiary, Birch Pond Realty Corporation ("Birch Pond") and leased to the J. Jill Group. During the first quarter of 1999, Birch Pond entered into the Tilton Facility Loan with a third party
financial institution. The Equipment Loan is collateralized by substantially all of the Company's materials handling equipment. The Furniture Loan is collateralized by certain workstations and office
furniture. The remaining credit facilities are collateralized by substantially all of the Company's remaining assets. All of these credit facilities contain various lending conditions and covenants
including restrictions on permitted liens and certain credit facilities also require compliance with certain debt coverage ratios. The Company continues to monitor its compliance with the lending
conditions and covenants, including the potential compliance impact of the discontinuance ofnicole.

During
the fourth quarter of fiscal 1999 and the first quarter of fiscal year 2000 the Company plans to spend approximately $4.2 million for leasehold improvements and furniture for
the new corporate headquarters to be located in Quincy, Massachusetts. The Company currently plans to open two retail stores in November 1999 and an additional eight to ten retail stores in
fiscal year 2000. Cash requirements, primarily comprised of leasehold improvements and inventory acquisition, for these new retail stores are currently estimated between $0.8 million and $1.2 million
per retail store.

The
Company expects that its cash and cash equivalents, existing credit facilities, anticipated new credit facilities and cash flows from operations will be sufficient to provide the
capital resources necessary to support the Company's capital and operating needs for the foreseeable future.

Future Considerations

The Company is currently working to determine the target size of theJ. Jillcatalog business. Following
this determination, the Company plans to review its current cost structure in relation to the target size forJ. Jill. This process could result
in additional special charges during the fourth quarter 1999.

Year 2000 Readiness Disclosure

The Year 2000 issue affects most companies that rely on computer systems and involves the computer software and hardware changes necessary to handle the
transition from the Year 1999 to the Year 2000. The Company does not manufacture or sell any products that will encounter problems as a result of the change of the date to the Year 2000. However, the
Company does rely heavily on complex computer hardware, software and systems, both internal and external, to help perform most of its catalog printing and distribution, order processing, inventory
management, and financial management. During 1997, the Company formulated a plan to address the Year 2000 issue. The Company has assessed its status regarding its Year 2000 compliance in three
components: internal information technology (IT) systems, internal non-information technology (non-IT) systems, and external Year 2000 issues related to the Company's vendors, suppliers and service
providers ("third party providers").

As
part of the Company's strategic business plan, all of the Company's internal IT and non-IT systems have been replaced or upgraded. The Company has received assurances from the
vendors of all of the Company's internal IT and non-IT systems indicating the new systems and upgrades are designed to be Year 2000 compliant. Because these system improvements were primarily
motivated by the Company's growth and technology needs, they are not considered to be costs directly attributable to the Year 2000
issue. The Company is continuing its validation process focused on verifying the assurances given by the

vendors of its internal IT and non-IT systems. At this time there can be no assurance that all of the Company's internal IT and non-IT systems will be Year 2000 compliant. The total historical and
estimated future costs to address the Year 2000 issue with respect to internal IT and non-IT systems is currently estimated to be less than $500,000.

As
part of the Company's plan to address the Year 2000 issue, the Company has continued to contact and receive letters from its significant third party providers either certifying
that they are currently Year 2000 compliant or indicating a date that a compliance certificate is expected. The Company is updating its contingency plans to deal with possible non-compliance by the
Company's significant third party providers. These plans include the possible replacement of the non-complying third party providers. The current estimated impact to the Company for these replacements
is approximately $200,000. At this time, there can be no assurance that all of the Company's third party providers will be Year 2000 compliant. The Company intends to further refine its contingency
plans during the remainder of 1999.

The
estimates mentioned above may change materially in the future as further information is obtained. Any failure of the Company or its significant third party providers to become
Year 2000 compliant could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

The Company's objective in managing its 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 its overall borrowing costs. To achieve its objectives, the Company identifies these risks and manages them through its regular operating and financing activities,
including periodic refinancing of debt obligations to lower financing costs and adjust fixed and variable rate debt positions. The Company does not currently use derivative financial instruments or
enter into foreign currency denominated contracts. Management has calculated the effect of a 10% change in interest rates over a month and determined the effect to be immaterial. Management does not
foresee or expect any significant changes in the management of foreign currency or interest rate exposures or in the strategies it employs to manage such exposures in the near future.

## 

Part IIOTHER INFORMATION

Item 6.Exhibits and Reports on Form 8-K

(1) Exhibits

Certificate of Incorporation and By-Laws

|                        |  |      |  |                                                                                                                                                                                                                                                                          
|----------------------- |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                        |  | 3.1  |  | Restated Certificate of Incorporation of the Company (included as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1993, File No. 0-22480, and incorporated herein by
reference)                                           
|                        |  | 3.2  |  | Certificate of Amendment of Restated Certificate of Incorporation of the Company, dated June 1, 1999 (included as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1999, File No. 0-22480, and
incorporated herein by reference)
|                        |  | 3.3  |  | By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Current Report on Form 8-K dated January 14, 1997, File No. 0-22480, and incorporated herein by reference)                                                                                  
|Financial Data Schedule
|                        |  | 27.1 |  | Financial Data Schedule                                                                                                                                                                                                                                                  
|                        |  |      |  |                                                                                                                                                                                                                                                                          

(2) Reports on Form 8-K

The
Company filed no reports on Form 8-K during the quarter ended September 25, 1999.

## 

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 8, 1999 |  | By:                    
|                        |  |                        
|Dated: November 8, 1999 |  | By:                    



## 

(FORMERLY DM MANAGEMENT COMPANY)

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 25, 1999

EXHIBIT INDEX

Financial Data Schedule

| |  | 27.1 |  | Financial Data Schedule
| |  | ---- |  | -----------------------



## QuickLinks

INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 25, 1999

Part IIOTHER INFORMATION

SIGNATURES

EXHIBIT INDEX