UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2017April 29, 2023
OR
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|
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 001-38026
J.Jill, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 45-1459825 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | |
4 Batterymarch Park, Quincy, MA 02169 | 02169 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (617) (617) 376-4300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | JILL | New York Stock Exchange |
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☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer |
| |||
Non-accelerated filer |
| Smaller reporting company |
| |||
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
As of December 12, 2017,May 31, 2023, the registrant had 43,747,94410,585,346 shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
Page | |||
PART I. | |||
Item 1. | |||
2 | |||
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) | 3 | ||
Condensed Consolidated | 4 | ||
5 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3. |
| ||
Item 4. |
| ||
PART II. | |||
Item 1. |
| ||
Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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| |||
1
PART I—FINANCIALFINANCIAL INFORMATION
J.Jill, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except common unit and common share data)
|
| October 28, 2017 |
|
| January 28, 2017 |
|
| April 29, 2023 |
|
| January 28, 2023 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash |
| $ | 25,806 |
|
| $ | 13,468 |
| ||||||||
Cash and cash equivalents |
| $ | 27,891 |
|
| $ | 87,053 |
| ||||||||
Accounts receivable |
|
| 9,062 |
|
|
| 3,851 |
|
|
| 8,153 |
|
|
| 7,039 |
|
Inventories, net |
|
| 85,406 |
|
|
| 66,641 |
|
|
| 53,788 |
|
|
| 50,585 |
|
Prepaid expenses and other current assets |
|
| 16,385 |
|
|
| 18,559 |
|
|
| 17,313 |
|
|
| 16,143 |
|
Receivable from related party |
|
| — |
|
|
| 1,922 |
| ||||||||
Total current assets |
|
| 136,659 |
|
|
| 104,441 |
|
|
| 107,145 |
|
|
| 160,820 |
|
Property and equipment, net |
|
| 113,126 |
|
|
| 102,322 |
|
|
| 53,791 |
|
|
| 53,497 |
|
Intangible assets, net |
|
| 152,591 |
|
|
| 163,483 |
|
|
| 71,452 |
|
|
| 73,188 |
|
Goodwill |
|
| 197,026 |
|
|
| 197,026 |
|
|
| 59,697 |
|
|
| 59,697 |
|
Operating lease assets, net |
|
| 115,564 |
|
|
| 119,118 |
| ||||||||
Other assets |
|
| 743 |
|
|
| 1,033 |
|
|
| 318 |
|
|
| 97 |
|
Total assets |
| $ | 600,145 |
|
| $ | 568,305 |
|
| $ | 407,967 |
|
| $ | 466,417 |
|
Liabilities and Shareholders’ / Members’ Equity |
|
|
|
|
|
|
|
| ||||||||
Liabilities and Shareholders’ Equity (Deficit): |
|
|
|
|
|
| ||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 56,524 |
|
| $ | 38,438 |
|
| $ | 41,858 |
|
| $ | 39,306 |
|
Accrued expenses and other current liabilities |
|
| 48,324 |
|
|
| 46,121 |
|
|
| 38,846 |
|
|
| 49,730 |
|
Current portion of long-term debt |
|
| 2,799 |
|
|
| 2,799 |
|
|
| 8,750 |
|
|
| 3,424 |
|
Current portion of operating lease liabilities |
|
| 34,160 |
|
|
| 34,527 |
| ||||||||
Total current liabilities |
|
| 107,647 |
|
|
| 87,358 |
|
|
| 123,614 |
|
|
| 126,987 |
|
Long-term debt, net of discount and current portion |
|
| 244,078 |
|
|
| 264,440 |
|
|
| 151,787 |
|
|
| 195,517 |
|
Long-term debt, net of discount - related party |
|
| — |
|
|
| 9,719 |
| ||||||||
Deferred income taxes |
|
| 71,169 |
|
|
| 73,511 |
|
|
| 9,956 |
|
|
| 10,059 |
|
Operating lease liabilities, net of current portion |
|
| 118,361 |
|
|
| 123,101 |
| ||||||||
Other liabilities |
|
| 27,526 |
|
|
| 20,132 |
|
|
| 924 |
|
|
| 1,253 |
|
Total liabilities |
|
| 450,420 |
|
|
| 445,441 |
|
|
| 404,642 |
|
|
| 466,636 |
|
Commitments and contingencies (see Note 9) |
|
|
|
|
|
|
|
| ||||||||
Shareholders’ / Members’ Equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, par value $0.01 per share; 250,000,000 shares authorized; 43,747,944 shares issued and outstanding at October 28, 2017 |
|
| 437 |
|
|
| — |
| ||||||||
Common units, zero par value, 1,000,000 units authorized, issued and outstanding at January 28, 2017 |
|
| — |
|
|
| — |
| ||||||||
Contributed capital |
|
| — |
|
|
| 116,743 |
| ||||||||
Commitments and contingencies (see Note 11) |
|
|
|
|
|
| ||||||||||
Shareholders’ Equity (Deficit) |
|
|
|
|
|
| ||||||||||
Common stock, par value $0.01 per share; 50,000,000 shares authorized; 10,580,802 and 10,165,361 shares issued and outstanding at April 29, 2023 and January 28, 2023, respectively |
|
| 107 |
|
|
| 102 |
| ||||||||
Additional paid-in capital |
|
| 117,150 |
|
|
| — |
|
|
| 210,948 |
|
|
| 212,005 |
|
Accumulated earnings |
|
| 32,138 |
|
|
| 6,121 |
| ||||||||
Total shareholders’ / members’ equity |
|
| 149,725 |
|
|
| 122,864 |
| ||||||||
Total liabilities and shareholders’ / members’ equity |
| $ | 600,145 |
|
| $ | 568,305 |
| ||||||||
Accumulated deficit |
|
| (207,730 | ) |
|
| (212,326 | ) | ||||||||
Total shareholders’ equity (deficit) |
|
| 3,325 |
|
|
| (219 | ) | ||||||||
Total liabilities and shareholders’ equity (deficit) |
| $ | 407,967 |
|
| $ | 466,417 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
J.Jill, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share and per share data)
|
| For the Thirteen Weeks Ended |
|
| For the Thirty-Nine Weeks Ended |
|
| For the Thirteen Weeks Ended |
| |||||||||||||||
|
| October 28, 2017 |
|
| October 29, 2016 |
|
| October 28, 2017 |
|
| October 29, 2016 |
|
| April 29, 2023 |
|
| April 30, 2022 |
| ||||||
Net sales |
| $ | 161,975 |
|
| $ | 159,439 |
|
| $ | 509,473 |
|
| $ | 472,139 |
|
| $ | 149,420 |
|
| $ | 157,069 |
|
Costs of goods sold |
|
| 53,479 |
|
|
| 51,334 |
|
|
| 162,721 |
|
|
| 149,673 |
| ||||||||
Costs of goods sold (exclusive of depreciation and amortization) |
|
| 41,880 |
|
|
| 47,606 |
| ||||||||||||||||
Gross profit |
|
| 108,496 |
|
|
| 108,105 |
|
|
| 346,752 |
|
|
| 322,466 |
|
|
| 107,540 |
|
|
| 109,463 |
|
Selling, general and administrative expenses |
|
| 95,240 |
|
|
| 92,638 |
|
|
| 289,284 |
|
|
| 273,882 |
|
|
| 82,146 |
|
|
| 85,578 |
|
Operating income |
|
| 13,256 |
|
|
| 15,467 |
|
|
| 57,468 |
|
|
| 48,584 |
|
|
| 25,394 |
|
|
| 23,885 |
|
Interest expense |
|
| 4,496 |
|
|
| 4,844 |
|
|
| 14,525 |
|
|
| 13,630 |
| ||||||||
Loss on debt refinancing |
|
| 12,702 |
|
|
| — |
| ||||||||||||||||
Interest expense, net |
|
| 5,057 |
|
|
| 3,658 |
| ||||||||||||||||
Interest expense, net - related party |
|
| 1,074 |
|
|
| 802 |
| ||||||||||||||||
Income before provision for income taxes |
|
| 8,760 |
|
|
| 10,623 |
|
|
| 42,943 |
|
|
| 34,954 |
|
|
| 6,561 |
|
|
| 19,425 |
|
Provision for income taxes |
|
| 2,766 |
|
|
| 2,815 |
|
|
| 16,926 |
|
|
| 12,924 |
| ||||||||
Income tax provision |
|
| 1,965 |
|
|
| 5,010 |
| ||||||||||||||||
Net income and total comprehensive income |
| $ | 5,994 |
|
| $ | 7,808 |
|
| $ | 26,017 |
|
| $ | 22,030 |
|
| $ | 4,596 |
|
| $ | 14,415 |
|
Net income per common share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Per share data (Note 8): |
|
|
|
|
|
| ||||||||||||||||||
Net income per common share: |
|
|
|
|
|
| ||||||||||||||||||
Basic |
| $ | 0.14 |
|
| $ | 0.18 |
|
| $ | 0.62 |
|
| $ | 0.50 |
|
| $ | 0.32 |
|
| $ | 1.04 |
|
Diluted |
| $ | 0.14 |
|
| $ | 0.18 |
|
| $ | 0.60 |
|
| $ | 0.50 |
|
| $ | 0.32 |
|
| $ | 1.02 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted average common shares: |
|
|
|
|
|
| ||||||||||||||||||
Basic |
|
| 41,731,765 |
|
|
| 43,747,944 |
|
|
| 41,933,244 |
|
|
| 43,747,944 |
|
|
| 14,250,811 |
|
|
| 13,874,546 |
|
Diluted |
|
| 43,554,000 |
|
|
| 43,747,944 |
|
|
| 43,468,846 |
|
|
| 43,747,944 |
|
|
| 14,510,008 |
|
|
| 14,171,082 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
J.Jill, Inc.
(in thousands, except common share and common unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Shareholders’ / |
| ||
|
| Common Units |
|
| Common Stock |
|
| Contributed |
|
| Paid-in |
|
| Accumulated |
|
| Members’ |
| ||||||||||||||
|
| Units |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Capital |
|
| Earnings |
|
| Equity |
| ||||||||
Balance, January 28, 2017 |
|
| 1,000,000 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 116,743 |
|
| $ | — |
|
| $ | 6,121 |
|
| $ | 122,864 |
|
Other equity transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 305 |
|
|
| — |
|
|
| — |
|
|
| 305 |
|
Corporate conversion |
|
| (1,000,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (117,048 | ) |
|
| 117,048 |
|
|
| — |
|
|
| — |
|
Issuance of common stock |
|
| — |
|
|
| — |
|
|
| 43,747,944 |
|
|
| 437 |
|
|
| — |
|
|
| (437 | ) |
|
| — |
|
|
| — |
|
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 539 |
|
|
| — |
|
|
| 539 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,017 |
|
|
| 26,017 |
|
Balance, October 28, 2017 |
|
| — |
|
| $ | — |
|
|
| 43,747,944 |
|
| $ | 437 |
|
| $ | — |
|
| $ | 117,150 |
|
| $ | 32,138 |
|
| $ | 149,725 |
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Shareholders’ |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity (Deficit) |
| |||||
Balance, January 28, 2023 |
|
| 10,165,361 |
|
| $ | 102 |
|
| $ | 212,005 |
|
| $ | (212,326 | ) |
| $ | (219 | ) |
Vesting of restricted stock units |
|
| 227,237 |
|
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
Surrender of shares to pay withholding taxes |
|
| (66,423 | ) |
|
| — |
|
|
| (1,930 | ) |
|
| — |
|
|
| (1,930 | ) |
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| 878 |
|
|
| — |
|
|
| 878 |
|
Exercise of warrants |
|
| 254,627 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,596 |
|
|
| 4,596 |
|
Balance, April 29, 2023 |
|
| 10,580,802 |
|
| $ | 107 |
|
| $ | 210,948 |
|
| $ | (207,730 | ) |
| $ | 3,325 |
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Total |
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Shareholders’ |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Deficit |
| |||||
Balance, January 29, 2022 |
|
| 10,001,422 |
|
| $ | 100 |
|
| $ | 209,747 |
|
| $ | (254,501 | ) |
| $ | (44,654 | ) |
Vesting of restricted stock units |
|
| 146,852 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Surrender of shares to pay withholding taxes |
|
| (48,430 | ) |
|
| — |
|
|
| (821 | ) |
|
| — |
|
|
| (821 | ) |
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| 742 |
|
|
| — |
|
|
| 742 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,415 |
|
|
| 14,415 |
|
Balance, April 30, 2022 |
|
| 10,099,844 |
|
| $ | 100 |
|
| $ | 209,668 |
|
| $ | (240,086 | ) |
| $ | (30,318 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
J.Jill, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
| For the Thirty-Nine Weeks Ended |
| |||||
|
| October 28, 2017 |
|
| October 29, 2016 |
| ||
Net income |
| $ | 26,017 |
|
| $ | 22,030 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 25,759 |
|
|
| 27,282 |
|
Loss on disposal of fixed assets |
|
| 569 |
|
|
| 384 |
|
Noncash amortization of deferred financing and debt discount costs |
|
| 2,012 |
|
|
| 1,139 |
|
Equity-based compensation |
|
| 539 |
|
|
| 458 |
|
Deferred rent liability |
|
| 978 |
|
|
| 1,851 |
|
Deferred income taxes |
|
| (2,342 | ) |
|
| (1,495 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (5,211 | ) |
|
| (8,174 | ) |
Tax receivable |
|
| — |
|
|
| 2,356 |
|
Inventories |
|
| (18,764 | ) |
|
| (14,634 | ) |
Prepaid expenses and other current assets |
|
| 2,173 |
|
|
| (31 | ) |
Accounts payable |
|
| 15,278 |
|
|
| (1,984 | ) |
Accrued taxes payable |
|
| 756 |
|
|
| — |
|
Accrued expenses |
|
| (89 | ) |
|
| 4,948 |
|
Other noncurrent assets and liabilities |
|
| 6,860 |
|
|
| 2,950 |
|
Net cash provided by operating activities |
|
| 54,535 |
|
|
| 37,080 |
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (22,325 | ) |
|
| (25,815 | ) |
Net cash used in investing activities |
|
| (22,325 | ) |
|
| (25,815 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
Repayments on long-term debt |
|
| (22,099 | ) |
|
| (2,075 | ) |
Proceeds from long-term debt |
|
| — |
|
|
| 40,000 |
|
Payment of debt issuance costs |
|
| — |
|
|
| (1,668 | ) |
Receivable from related party |
|
| 2,227 |
|
|
| 233 |
|
Distribution to member |
|
| — |
|
|
| (70,000 | ) |
Other equity transactions |
|
| — |
|
|
| (305 | ) |
Net cash used in financing activities |
|
| (19,872 | ) |
|
| (33,815 | ) |
Net change in cash |
|
| 12,338 |
|
|
| (22,550 | ) |
Cash: |
|
|
|
|
|
|
|
|
Beginning of Period |
|
| 13,468 |
|
|
| 27,505 |
|
End of Period |
| $ | 25,806 |
|
| $ | 4,955 |
|
|
| For the Thirteen Weeks Ended |
| |||||
|
| April 29, 2023 |
|
| April 30, 2022 |
| ||
Net Income |
| $ | 4,596 |
|
| $ | 14,415 |
|
Operating activities: |
|
|
|
|
|
| ||
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 5,568 |
|
|
| 6,713 |
|
Adjustment for exited retail stores |
|
| — |
|
|
| (243 | ) |
Loss on disposal of fixed assets |
|
| 20 |
|
|
| 92 |
|
Loss on debt refinancing |
|
| 12,702 |
|
|
| — |
|
Noncash interest expense, net |
|
| 1,562 |
|
|
| 1,242 |
|
Equity-based compensation |
|
| 878 |
|
|
| 742 |
|
Deferred rent incentives |
|
| (32 | ) |
|
| (115 | ) |
Deferred income taxes |
|
| (103 | ) |
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (1,114 | ) |
|
| (1,785 | ) |
Inventories, net |
|
| (3,203 | ) |
|
| (7,192 | ) |
Prepaid expenses and other current assets |
|
| (1,170 | ) |
|
| (1,679 | ) |
Accounts payable |
|
| 1,502 |
|
|
| (3,560 | ) |
Accrued expenses and other current liabilities |
|
| (11,276 | ) |
|
| 502 |
|
Operating lease assets and liabilities |
|
| (1,553 | ) |
|
| (1,969 | ) |
Other noncurrent assets and liabilities |
|
| (518 | ) |
|
| 5 |
|
Net cash provided by operating activities |
|
| 7,859 |
|
|
| 7,168 |
|
Investing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (1,504 | ) |
|
| (185 | ) |
Capitalized software |
|
| (1,421 | ) |
|
| (565 | ) |
Net cash used in investing activities |
|
| (2,925 | ) |
|
| (750 | ) |
Financing activities: |
|
|
|
|
|
| ||
Principal repayments on Priming Term Loan |
|
| (201,349 | ) |
|
| (715 | ) |
Principal repayments on Subordinated Term Loan-related party |
|
| (21,181 | ) |
|
| — |
|
Proceeds from issuance of Term Loan |
|
| 164,050 |
|
|
| — |
|
Third-party debt financing costs |
|
| (3,686 | ) |
|
| — |
|
Surrender of shares to pay withholding taxes |
|
| (1,930 | ) |
|
| (821 | ) |
Net cash used in financing activities |
|
| (64,096 | ) |
|
| (1,536 | ) |
Net change in cash and cash equivalents |
|
| (59,162 | ) |
|
| 4,882 |
|
Cash and cash equivalents: |
|
|
|
|
|
| ||
Beginning of Period |
|
| 87,053 |
|
|
| 35,957 |
|
End of Period |
| $ | 27,891 |
|
| $ | 40,839 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
J.Jill, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business
J.Jill, Inc., “J.Jill” or the “Company,”“Company”, is a nationally recognized women’snational lifestyle brand that provides apparel, brand focused onfootwear and accessories designed to help its customers move through a loyal, engaged and affluent customer in the attractive 40-65 age segment.full life with ease. The J.Jill brand represents an easy, relaxedthoughtful, and inspired style that reflectscelebrates the confidencetotality of all women and comfort ofdesigns its products with its core brand ethos in mind: keep it simple and make it matter. J.Jill offers a woman withhigh touch customer experience through over 200 stores nationwide and a rich, full life. We operate a highly profitable omnichannel platform thatrobust ecommerce platform. J.Jill is well diversified across our direct and retail channels. We began as a catalog company and have been a pioneer of the omnichannel model with a compelling presence across stores, website and catalog since 1999. We take a data-centric approach, in which we leverage our database and apply our insights to manage our business as well as to acquire and engage customers to drive optimum value and productivity.headquartered outside Boston.
2. Summary of Significant Accounting Policies
Basis of Presentation
Our interim condensed consolidated financial statements are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). associated with reporting of interim period financial information. We consistently applied the accounting policies described in our Annual Report on Form 10-K (the “2022 Annual Report”) for the fiscal year ended January 28, 2023 (“Fiscal Year 2022”) in preparing these unaudited interim condensed consolidated financial statements. J.Jill operates on a 52- or 53-week fiscal year that ends on the Saturday that is closest to January 31. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ending February 3, 2024 (“Fiscal Year 2023”) is comprised of 53 weeks and Fiscal Year 2022 is comprised of 52 weeks.
In the opinion of management, these interim condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company. The consolidated balance sheet as of January 28, 20172023 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the thirteen and thirty-nine weeks ended October 28, 2017April 29, 2023 are not necessarily indicative of future results or results to be expected for the full year ending February 3, 2018.Fiscal Year 2023. You should read these statements in conjunction with our audited consolidated financial statements and related notes in our 2022 Annual Report on Form 10-K forReport.
Financial Statement Presentation
Certain reclassifications have been made to prior periods to conform with the year ended January 28, 2017.
During the first quarter of 2017, Jill Intermediate LLC completed a corporate conversion from a Delaware limited liability company into a Delaware corporation and changed its name to J.Jill, Inc. Subsequent to this corporate conversion, J.Jill, Inc. completed an initial public offering (“IPO”). Refer to Note 7 Shareholders’ Equity for further details of the corporate conversion and IPO.
Recently Adopted Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies application of the guidance to a change in the terms or conditions of a share-based payment award under Topic 718. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including early adoption to an interim period. This standard was early adopted in the second quarter of fiscal 2017. The adoption of ASU 2017-09 was done on a prospective basis and did not have a material impact oncurrent period presentation. On the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard was early adopted as of January 29, 2017. The adoption of ASU 2017-04 was done on a prospective basis and did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share—Based Payment Accounting. The amendments in this update involve several aspects of accounting for equity-based payment transactions, including income tax consequences, classification of awards, and classification on the statement of cash flows. For public business entities,flows, the amendmentsCompany reclassified amounts for capitalized software purchases for the thirteen weeks ended April 30, 2022 from purchases of property and equipment to a separate financial statement line item within investing activities to conform to the current presentation for the thirteen weeks ended April 29, 2023 of capitalized software purchases.
Cost of Goods Sold
Cost of goods sold (“COGS”) includes the direct costs of sold merchandise, which include customs, taxes, duties, commissions and inbound shipping costs, inventory shrinkage, and adjustments and reserves for excess, aged and obsolete inventory. COGS does not include distribution center costs and allocations of indirect costs, such as occupancy, depreciation, amortization, or labor and benefits.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of payroll and related expenses, occupancy costs, information systems costs and other operating expenses related to our stores and to our operations at our headquarters, including utilities, depreciation and amortization. These expenses also include marketing expense, including catalog production and mailing costs, warehousing, distribution and outbound shipping costs, customer service operations, consulting and software services, professional services and other administrative costs.
6
3. Revenues
Disaggregation of Revenue
Net sales consist primarily of revenues, net of merchandise returns and discounts, generated from the sale of apparel and accessory merchandise through retail stores (“Retail”) and through our website and catalog orders (“Direct”). Net sales also include shipping and handling fees collected from customers, royalty revenues and marketing reimbursements related to our private label credit card agreement. Retail revenue is recognized at the time of sale and Direct revenue is recognized upon shipment of merchandise to the customer. The following table presents disaggregated revenues by source (in thousands):
|
| For the Thirteen Weeks Ended |
| |||||
|
| April 29, 2023 |
|
| April 30, 2022 |
| ||
Retail |
| $ | 82,204 |
|
| $ | 84,212 |
|
Direct |
|
| 67,216 |
|
|
| 72,857 |
|
Net sales |
| $ | 149,420 |
|
| $ | 157,069 |
|
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from the customer and has a future obligation to the customer. Total contract liabilities consisted of the following (in thousands):
|
| April 29, 2023 |
|
| January 28, 2023 |
| ||
Contract liabilities: |
|
|
|
|
|
| ||
Signing bonus (1) |
| $ | 47 |
|
| $ | 82 |
|
Unredeemed gift cards |
|
| 5,918 |
|
|
| 7,131 |
|
Total contract liabilities |
| $ | 5,965 |
|
| $ | 7,213 |
|
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The adoption of ASU 2015-11 was done on a prospective basis and did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra—Entity Transfers of Assets Other Than Inventory. This update is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Under the new guidance, an entity would recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. Intra-entity inventory transfers would still be an exception. The provisions of ASU 2016-16 are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earningsbalance sheets as of April 29, 2023 and January 28, 2023.
For the thirteen weeks ended April 29, 2023 and April 30, 2022, the Company recognized approximately $2.9 million and $3.0 million, respectively, of revenue related to gift card redemptions and breakage. Revenue recognized consists of gift cards that were part of the unredeemed gift card balance at the beginning of the period of adoption. as well as gift cards that were issued and redeemed during the period.
Performance Obligations
The Company has a remaining immaterial performance obligation for a signing bonus related to the private label credit card agreement that is evaluatingbeing amortized to revenue evenly through the impact that adopting ASU 2016-16 will have on its consolidated financial statements.third quarter of Fiscal Year 2023.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash paymentsUnredeemed gift cards also require a performance obligation for revenue to be recognized, but substantially all gift cards are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact that adopting ASU 2016-15 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. The Company is currently evaluating the impact that adopting ASU 2016-02 will have on its consolidated financial statements and expects to raise significant “Right of Use” assets and significant, offsetting lease liabilities. These amounts have not yet been quantified.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in FASB ASC Topic 605. The new guidance established principles for reporting revenue and cash flows arising from an entity’s contracts with customers. This new revenue recognition standard will replace most of the recognition guidance within GAAP. This guidance was deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued by the FASB in August 2015, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which further clarifies the implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenues from Contracts with Customers: Narrow—Scope Improvements and Practical Expedients, which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which addresses various technical corrections for the ASUs listed above. These standards are effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Based on the Company’s preliminary assessment of these standards, it has identified certain changes to accounting policies, including the timing of revenue recognition, direct response advertising costs and the gross versus net presentation of merchandise returns. The Company is continuing to assess the impact of the standards through evaluation of customer programs and relevant contracts. The Company plans to adopt these standards beginningredeemed in the first quarteryear of issuance.
Practical Expedients and Policy Elections
The Company excludes from its revenue all amounts collected from customers for sales taxes that are remitted to taxing authorities.
Shipping and handling activities that occur after control of related goods transfers to the customer are accounted for as fulfillment activities rather than assessing these activities as performance obligations.
The Company does not disclose remaining performance obligations that have an expected duration of one year or less.
7
4. Goodwill and Other Intangible Assets
The balance of goodwill was $59.7 million at April 29, 2023 and January 28, 2023. The accumulated goodwill impairment losses as of April 29, 2023 are $137.3 million.
A summary of other intangible assets as of April 29, 2023 and January 28, 2023 is as follows (in thousands):
|
|
|
| April 29, 2023 |
| |||||||||||||
|
| Weighted Average Useful Life (Years) |
| Gross |
|
| Accumulated Amortization |
|
| Accumulated Impairment |
|
| Carrying Amount |
| ||||
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade name |
| N/A |
| $ | 58,100 |
|
| $ | — |
|
| $ | 24,100 |
|
| $ | 34,000 |
|
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships |
| 13.2 |
|
| 134,200 |
|
|
| 94,128 |
|
|
| 2,620 |
|
|
| 37,452 |
|
Total intangible assets |
|
|
| $ | 192,300 |
|
| $ | 94,128 |
|
| $ | 26,720 |
|
| $ | 71,452 |
|
|
|
|
| January 28, 2023 |
| |||||||||||||
|
| Weighted Average Useful Life (Years) |
| Gross |
|
| Accumulated Amortization |
|
| Accumulated Impairment |
|
| Carrying Amount |
| ||||
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade name |
| N/A |
| $ | 58,100 |
|
| $ | — |
|
| $ | 24,100 |
|
| $ | 34,000 |
|
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer relationships |
| 13.2 |
|
| 134,200 |
|
|
| 92,392 |
|
|
| 2,620 |
|
|
| 39,188 |
|
Total intangible assets |
|
|
| $ | 192,300 |
|
| $ | 92,392 |
|
| $ | 26,720 |
|
| $ | 73,188 |
|
Total amortization expense for these amortizable intangible assets was $1.7 million and $1.9 million for the thirteen weeks ended April 29, 2023 and April 30, 2022, respectively.
Impairment Tests
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually at fiscal 2018 usingyear-end, or more frequently when events or changes in circumstances indicate that the modified retrospective approach with a cumulative adjustment to retained earnings.carrying value may not be recoverable. Definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of the business.
3.
8
5. Debt
The components of the Company’s outstanding Term Loanlong-term debt at April 29, 2023 and January 28, 2023 were as follows (in thousands):
|
| At April 29, 2023 |
| |||||||||||||
|
| Outstanding Balance |
|
| Original Issue Discount |
|
| Capitalized Fees & Expenses |
|
| Balance Sheet |
| ||||
Term Loan due 2028 |
| $ | 175,000 |
|
| $ | (10,847 | ) |
| $ | (3,616 | ) |
| $ | 160,537 |
|
Less: Current portion |
|
| (8,750 | ) |
|
| — |
|
|
| — |
|
|
| (8,750 | ) |
Net long-term debt |
| $ | 166,250 |
|
| $ | — |
|
| $ | — |
|
| $ | 151,787 |
|
|
| At January 28, 2023 |
| |||||||||||||
|
| Outstanding Balance |
|
| Original Issue Discount |
|
| Capitalized Fees & Expenses |
|
| Balance Sheet |
| ||||
Priming Term Loan due 2024 |
| $ | 201,349 |
|
| $ | (786 | ) |
| $ | (1,622 | ) |
| $ | 198,941 |
|
Subordinated Term Loan due 2024 |
|
| 20,548 |
|
|
| — |
|
|
| (10,829 | ) |
|
| 9,719 |
|
Totals |
|
| 221,897 |
|
|
| (786 | ) |
|
| (12,451 | ) |
|
| 208,660 |
|
Less: Current portion |
|
| (3,424 | ) |
|
| — |
|
|
| — |
|
|
| (3,424 | ) |
Net long-term debt |
| $ | 218,473 |
|
| $ | (786 | ) |
| $ | (12,451 | ) |
| $ | 205,236 |
|
Term Loan Credit Agreement
|
| October 28, 2017 |
|
| January 28, 2017 |
| ||
Term Loan |
| $ | 253,876 |
|
| $ | 275,975 |
|
Discount on debt and debt issuance costs |
|
| (6,999 | ) |
|
| (8,736 | ) |
Less: Current portion |
|
| (2,799 | ) |
|
| (2,799 | ) |
Net long-term debt |
| $ | 244,078 |
|
| $ | 264,440 |
|
On June 16, 2017,April 5, 2023, the Company madeand Jill Acquisition LLC (the “Borrower”) entered into a voluntaryTerm Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among the lenders party thereto and Jefferies Finance LLC (“Jefferies Finance”), as administrative and collateral agent. The Term Loan Credit Agreement provides for a secured term loan facility in an aggregate principal amount of $175.0 million with a maturity date of May 8, 2028 (the “Term Loan Facility”). Loans under the Term Loan Credit Agreement bear interest at the Borrower’s election at (1) Base Rate (as defined in the Term Loan Credit Agreement) plus 7.00% or (2) Adjusted Term SOFR (as defined in the Term Loan Credit Agreement) plus 8.00%, with Adjusted Term SOFR subject to a floor rate of 1.00%.
The Term Loan Credit Agreement facility is to be repaid in quarterly payments of $2.2 million from July 28, 2023 to May 2, 2025, and $3.3 million from August 1, 2025 to April 28, 2028 with the balance of the Term Loan Credit Agreement facility due upon maturity on May 8, 2028.
The Borrower’s obligations under the Term Loan Credit Agreement are guaranteed by the Company and J.Jill Gift Card Solutions, Inc., a Florida corporation (“Jill Gift Card Solutions” and collectively with the Company, the “Guarantors”), and are secured by substantially all of the real and personal property of the Borrower and the Guarantors, subject to certain customary exceptions. The Term Loan Credit Agreement includes customary negative covenants for term loan agreements of this type, including covenants limiting the ability of the Borrower and the Guarantors to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and purchases, pay dividends and distributions, enter into transactions with affiliates, and make payments in respect of junior indebtedness, in each case subject to customary exceptions for term loan agreements of this type. The Term Loan Credit Agreement also includes certain customary representations and warranties, affirmative covenants, certain financial covenants and events of default, including but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under the Employee Retirement Income Security Act of 1974 (“ERISA”), certain final non-appealable judgments that are not covered by a reputable and solvent insurance company, certain defaults under other indebtedness, change of control and certain Title 11 proceedings.
In conjunction with the entry into the Term Loan Credit Agreement, the Company paid $3.7 million in third-party fees related to legal, consulting, agent and other fees. Of these costs, $3.1 million were deferred and presented as a direct reduction from the carrying amount of long-term debt on the consolidated balance sheets as of April 29, 2023 and will be amortized through the line item “Interest Expense” in the Company’s condensed consolidated statements of operations and comprehensive income over the term of the Term Loan Credit Agreement using the effective interest method.
As of April 29, 2023, the Company was in compliance with all covenants.
9
Priming and Subordinated Term Loans
The proceeds from the Term Loan Credit Agreement, combined with a portion of the Company’s existing cash on hand, were used to repay in full the outstanding balances of $225.4 million, inclusive of $3.6 million interest, under the Priming Term Loan Credit Agreement (the “Priming Credit Agreement”) and the Subordinated Term Loan Credit Agreement (the “Subordinated Credit Agreement”). All security interests and liens incurred in connection with the Priming Credit Agreement and Subordinated Credit Agreement have been released. The prepayment of $20.2the Priming Credit Agreement and Subordinated Credit Agreement was in accordance with the terms of such agreements.
A portion of the transaction was accounted for as a debt modification. As a result, approximately $0.4 million including accruedof deferred costs will continue to be deferred and amortized using the effective interest method through May 8, 2028, the maturity date of the Term Loan Facility. These fees are presented as a direct reduction from the carrying amount of long-term debt on the Term Loan.consolidated balance sheets. For repayment of the remaining portion of the Priming Credit Agreement and for the entirety of the Subordinated Credit Agreement, the Company recorded a loss on debt refinancing of $12.7 million of which $10.4 million relates to the Subordinated Facility, inclusive of the write-off of original issue discount, and deferred debt issuance costs and other fees, in the line item “Loss on debt refinancing” in its condensed consolidated statements of operations and comprehensive income and in the condensed consolidated statement of cash flows. No debt refinancing gains or losses were recognized during the thirteen weeks ended April 30, 2022.
The Company was in compliance with all covenants under the Priming Credit Agreement and the Subordinated Credit Agreement at the time of their repayment.
Asset-Based Revolving Credit Agreement
The Company is party to a secured $40.0 million asset-based revolving credit facility agreement (the “ABL Credit Agreement” and, such facility, the “ABL Facility”).
Based on the terms of the ABL Facility, as amended, the maturity date of the ABL Facility was extended to May 8, 2024, in connection with the entry into the Term Loan Credit Agreement. The benchmark interest rate applicable to the loans under the ABL Facility is the forward-looking secured overnight financing rate.
Borrowings under the ABL Facility are secured by a first lien on accounts receivable and inventory. In connection with the ABL Facility, the Company is subject to various financial reporting (including with respect to liquidity), financial and other covenants. Affirmative covenants include providing timely quarterly and annual financial statements and prompt notification of the occurrence of any event of default or any other event, change or circumstance that has had, or could reasonably be expected to have, a material adverse effect as defined in the ABL Facility. In addition, there are negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with other entities, make advances, investments and loans or modify its organizational documents. The ABL Facility also includes certain financial maintenance covenants, including a requirement to maintain a fixed charge coverage ratio greater than or equal to 1.00:1.00 if availability under the ABL Facility is less than specified levels. As of April 29, 2023 and January 28, 2023, the Company was in compliance with all covenants.
The Company had no short-term borrowings under the Company’s ABL Facility as of OctoberApril 29, 2023 and January 28, 2017.2023. The Company’s available borrowing capacity under the ABL Facility as of April 29, 2023 and January 28, 2023 was $34.2 million and $30.0 million, respectively. At April 29, 2023 and January 28, 2023, there were outstanding letters of credit of $5.8 million and $7.0 million, respectively, which reduced the availability under the ABL Facility. As of April 29, 2023, the maximum commitment for letters of credit was $10.0 million.
Subsequent Event
On May 10, 2023, the Company entered into Amendment No. 6 to the ABL Credit Agreement (the “ABL Amendment”), by and among the Company, J.Jill Gift Card Solutions, the other guarantors party thereto from time to time, the other lenders party thereto from time to time and CIT Finance LLC, as the administrative agent and collateral agent.
The ABL Amendment extended the maturity date of the ABL Credit Agreement from May 8, 2024 to May 10, 2028 (or 180 days prior to the maturity date of the Company’s Term Loan Credit Agreement if the maturity date of such Term Loan Facility has not been extended to a date that is at least 180 days after the maturity date of the ABL Credit Agreement). The other terms and conditions of the ABL Credit Facility remain substantially unchanged.
10
6. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value require the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The following table presents the carrying value and fair value hierarchy for debt as of April 29, 2023 and January 28, 2023, respectively (in thousands):
|
|
|
|
| Fair Value as of April 29, 2023 |
| ||||||||||
|
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Financial instruments not carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total debt |
| $ | 160,537 |
|
| $ | — |
|
| $ | 160,537 |
|
| $ | — |
|
Total financial instruments not carried at fair value |
| $ | 160,537 |
|
| $ | — |
|
| $ | 160,537 |
|
| $ | — |
|
|
|
|
|
| Fair Value as of January 28, 2023 |
| ||||||||||
|
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Financial instruments not carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total debt |
| $ | 208,660 |
|
| $ | — |
|
| $ | 223,616 |
|
| $ | — |
|
Total financial instruments not carried at fair value |
| $ | 208,660 |
|
| $ | — |
|
| $ | 223,616 |
|
| $ | — |
|
The Company’s debt instruments include the Term Loan as of April 29, 2023 and Priming Loan and the Subordinated Facility as of January 28, 2023. The debt instruments are recorded at cost, net of debt issuance costs and any related discount. The fair value of the debt instruments is obtained based on observable market prices quoted on public exchanges for similar instruments.
The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, accounts payable and any amounts drawn on its revolving credit facilities, consisting primarily of instruments without extended maturities, based on management’s estimates, approximates their fair value due to the short-term maturities of these instruments.
Assets and Liabilities with Recurring Fair Value Measurements - Certain assets and liabilities may be measured at fair value on an ongoing basis. We did not elect to apply the fair value option for recording financial assets and financial liabilities. Other than total debt, we do not have any assets or liabilities which we measure at fair value on a recurring basis.
Assets and Liabilities with Nonrecurring Fair Value Measurements - Certain assets and liabilities are not measured at fair value on an ongoing basis. These assets and liabilities, which include long-lived assets, goodwill, intangible assets, and debt are subject to fair value adjustment in certain circumstances. From time to time, the fair value is determined on these assets and liabilities as part of related impairment tests or for disclosure purposes. See Note 4. Goodwill and Other Intangible Assets, for additional information.
11
7. Income Taxes
The Company recorded an income tax expenseprovision of $2.8$2.0 million and $16.9$5.0 million during the thirteen and thirty-nine weeks ended October 28, 2017, respectively,April 29, 2023 and $2.8 million and $12.9 million during the thirteen and thirty-nine weeks ended October 29, 2016,April 30, 2022, respectively. The effective tax rates were 31.6% and 39.4% in the thirteen and thirty-nine weeks ended October 28, 2017, respectively, and 26.5% and 37.0% in the thirteen and thirty-nine weeks ended October 29, 2016, respectively.
The effective tax ratesrate was 29.9% for the thirteen weeks ended October 28, 2017April 29, 2023, and October25.8% for the thirteen weeks ended April 30, 2022.
The effective tax rate for the thirteen weeks ended April 29, 2016 are lower than2023 differs from the federal statutory rate of 35.0%21% primarily due to federal researchthe impact of state and development tax credits, Massachusetts manufacturing tax creditslocal income taxes, executive compensation limitations and provision to tax return true-up adjustments.non-deductible expenses. The effective tax ratesrate for the thirty-ninethirteen weeks ended October 28, 2017 and October 29, 2016 exceedApril 30, 2022 differs from the federal statutory rate of 35.0%21% primarily due to the impact of state and local income taxes and non-deductible IPO related expenses.partial release of its valuation allowance on state deferred tax assets.
5. Earnings8. Net Income Per Share
The following table summarizes the computation of basic and diluted net income per common share attributable to common shareholders(“EPS”) (in thousands, except share and per share data):
|
| For the Thirteen Weeks Ended |
|
| For the Thirty-Nine Weeks Ended |
| ||||||||||
|
| October 28, 2017 |
|
| October 29, 2016 |
|
| October 28, 2017 |
|
| October 29, 2016 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders: |
| $ | 5,994 |
|
| $ | 7,808 |
|
| $ | 26,017 |
|
| $ | 22,030 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic: |
|
| 41,731,765 |
|
|
| 43,747,944 |
|
|
| 41,933,244 |
|
|
| 43,747,944 |
|
Dilutive effect of restricted shares |
|
| 1,822,235 |
|
|
| — |
|
|
| 1,535,602 |
|
|
| — |
|
Weighted average number of common shares outstanding, diluted: |
|
| 43,554,000 |
|
|
| 43,747,944 |
|
|
| 43,468,846 |
|
|
| 43,747,944 |
|
Net income per common share attributable to common shareholders, basic: |
| $ | 0.14 |
|
| $ | 0.18 |
|
| $ | 0.62 |
|
| $ | 0.50 |
|
Net income per common share attributable to common shareholders, diluted: |
| $ | 0.14 |
|
| $ | 0.18 |
|
| $ | 0.60 |
|
| $ | 0.50 |
|
|
| For the Thirteen Weeks Ended |
| |||||
|
| April 29, 2023 |
|
| April 30, 2022 |
| ||
Numerator |
|
|
|
|
|
| ||
Net income attributable to common shareholders |
| $ | 4,596 |
|
| $ | 14,415 |
|
Denominator |
|
|
|
|
|
| ||
Weighted average number of common shares outstanding |
|
| 10,431,506 |
|
|
| 10,065,969 |
|
Assumed exercise of warrants |
|
| 3,819,305 |
|
|
| 3,808,577 |
|
Weighted average common shares, basic |
|
| 14,250,811 |
|
|
| 13,874,546 |
|
Dilutive effect of equity compensation awards |
|
| 259,197 |
|
|
| 296,536 |
|
Weighted average common shares, diluted |
|
| 14,510,008 |
|
|
| 14,171,082 |
|
Net income per common share, basic |
| $ | 0.32 |
|
| $ | 1.04 |
|
Net income per common share, diluted |
| $ | 0.32 |
|
| $ | 1.02 |
|
The weighted average common shares forEquity compensation awards are excluded from the diluted earnings per share calculation excludewhen their inclusion would have an antidilutive effect such as when the impact of outstanding equity awardsCompany has a net loss for the reporting period, or if the assumed proceeds per share of the award is in excess of the related fiscal period’s average price of the Company’s common stock. Such awards are excluded because they would have an antidilutive effect. There were 277,006Accordingly, 35,195 and 270,090 such awards excluded162,406 shares for the thirteen and thirty-nine weeks ended October 28, 2017. ThereApril 29, 2023 and April 30, 2022, respectively, were no awards excluded forfrom the diluted earnings per share calculation because their inclusion would be antidilutive.
For the thirteen and thirty-nine weeks ended OctoberApril 29, 2016.2023 and April 30, 2022, warrants issued to the Subordinated Facility holders have been included in the denominator for basic and diluted EPS calculations as the exercise of the warrants is near certain because the exercise price is non-substantive in relation to the fair value of the common shares to be issued upon exercise.
12
6.
9. Equity-Based Compensation
Compensation expense was $0.3 million and $0.5 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, and $0.2 million and $0.5 million for the thirteen and thirty-nine weeks ended October 29, 2016.
7. Shareholders’ Equity
On February 24, 2017, the Company completed a corporate conversion from a Delaware limited liability company named Jill Intermediate LLC into a Delaware corporation and changed its name to J.Jill, Inc. In conjunction with the corporate conversion, allinitial public offering (“IPO”), on March 9, 2017, the Company established the J.Jill, Inc. Omnibus Equity Incentive Plan, as amended on June 7, 2018 (the “2017 Plan”), which reserves common stock for issuance upon exercise of options, or in respect of granted awards. The 2017 Plan is administered by the Compensation Committee of the outstanding equityBoard of Jill Intermediate LLCDirectors (the “Committee”). The Committee has the authority to determine the type, size and terms and conditions of awards to be granted and to grant such awards. The 2017 Plan has 1,293,453 shares of common stock reserved for issuance to awards granted by the Committee. As of April 29, 2023, there were an aggregate of 351,831 shares remaining for future issuance.
During the thirteen weeks ended April 29, 2023, the Committee approved and granted restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) under the 2017 Plan.
Restricted Stock Units (“RSUs”)
For the thirteen weeks ended April 29, 2023 and April 30, 2022, the Committee granted RSUs under the 2017 Plan, which vest in one to three equal annual installments, beginning one year from the date of grant. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. For the thirteen weeks ended April 29, 2023 and April 30, 2022, the fair market value of RSUs was determined based on the market price of the Company’s shares on the date of the grant.
The following table summarizes the RSU awards activity for the thirteen weeks ended April 29, 2023:
| Number of RSUs |
| Weighted Average Grant Date Fair Value |
| ||
Unvested units outstanding at January 28, 2023 |
| 678,510 |
| $ | 11.78 |
|
Granted |
| 88,673 |
| $ | 25.00 |
|
Vested |
| (227,237 | ) | $ | 11.30 |
|
Forfeited |
| (29,773 | ) | $ | 13.12 |
|
Unvested units outstanding at April 29, 2023 |
| 510,173 |
| $ | 14.26 |
|
As of April 29, 2023, there was $6.2 million of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average service period of 2.1 years. The total fair value of RSUs vested during the thirteen weeks ended April 29, 2023 and April 30, 2022 was $2.6 million, and $1.4 million, respectively.
Performance Stock Units (“PSUs”)
For the thirteen weeks ended April 29, 2023, the Company granted PSUs, a portion of which are based on achieving an Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) goal and the remaining portion is based on achieving an annualized absolute total shareholder return (“TSR”) growth goal.
Each PSU award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient provided the employee continues to provide services to the Company through January 31, 2026 (“Fiscal Year 2025”). For Adjusted EBITDA based PSUs, the number of units earned will be determined based on the achievement of the predetermined Adjusted EBITDA goals at the end of each performance period ending January 29, 2024, February 1, 2025 (“Fiscal Year 2024”), and Fiscal Year 2025, respectively, and for TSR based PSUs, the number of units earned will be determined based on the achievement of the predetermined TSR growth goal at the end of Fiscal Year 2025. The TSR is based on J Jill’s 30-trading day average beginning and closing price of the three-year performance period, assuming the reinvestment of dividends. Depending on the performance results based on Adjusted EBITDA and TSR, the actual number of shares that a grant recipient receives at the end of the vesting period may range from 0% to 200% of the Target Shares granted. PSUs are converted into shares of common stock of J.Jill, Inc. Followingupon vesting, under the Company’s conversion from a limited liability company to a corporation, JJill Holdings, Inc. merged with and into J.Jill, Inc. on February 24, 2017, with J.Jill, Inc. continuing as the surviving entity.
On March 14, 2017, J.Jill, Inc. completed an IPO. An existing shareholderterms of the Company sold 11,666,667 shares2017 Plan.
The fair value of the PSUs granted during the thirteen weeks ended April 29, 2023 for which the performance is based on an Adjusted EBITDA goal was determined based on the market price of the Company’s common stock at a share price of $13.00 per share. The underwriters subsequently elected to exercise their over-allotment option to purchase an additional 865,000 shares of common stock fromon the selling shareholder at the IPO price of $13.00 per share. All proceedsdate of the IPO, netgrant. Additionally, for those awards whose performance is based on a TSR growth goal, the fair value was estimated on the grant date using a Monte Carlo simulation with the below noted assumptions:
Monte Carlo Simulation Assumptions | |||
Risk Free Interest Rate | 3.87 | % | |
Expected Dividend Yield | — | ||
Expected Volatility | 74.98 | % | |
Expected Term | 2.84 years |
13
The Company recognizes equity-based compensation expense related to Adjusted EBITDA PSUs based on the Company’s estimate of the underwriter’s discount, were distributed to the selling shareholder.
Upon the closingpercentage of the IPOaward that will be achieved. The Company evaluates the estimate on March 14, 2017, JJill Topco Holdings, LP (“Topco”) completedthese awards on a distribution of J.Jill, Inc. common stockquarterly basis and adjusts equity-based compensation expense related to its partners that held vested and unvested common interests in accordance with its limited partnership agreement. The shares of J.Jill, Inc. common stock distributed in respect of unvested common interests became restricted J.Jill, Inc. common stock, subject tothese awards, as appropriate. For the original vesting terms of such common interests. Holders of vested and unvested common interests receivedTSR goal based PSUs, the equity-based compensation expense is recognized on a pro-rata distribution of vested and unvested J.Jill, Inc. common stock, equal to theirstraight-line basis over the three year performance period based on the grant-date fair value of common interests immediately priorthese PSUs.
The following table summarizes the PSU awards activity for the thirteen weeks ended April 29, 2023:
| Number of PSUs |
| Weighted Average Grant Date Fair Value |
| ||
Unvested units outstanding at January 28, 2023 |
| — |
|
| — |
|
Granted |
| 65,928 |
| $ | 30.50 |
|
Forfeited |
| (3,514 | ) | $ | 30.50 |
|
Unvested units outstanding at April 29, 2023 |
| 62,414 |
| $ | 30.50 |
|
As of April 29, 2023, there was $1.9 million of total unrecognized compensation expense related to unvested PSUs, which is expected to be recognized over a weighted-average service period of 2.8 years.
Equity-based compensation expense for all award types of $0.9 million and $0.7 million was recorded in the distribution, resultingSelling, general and administrative expenses in no incremental fair value.the consolidated statement of operations and comprehensive income for the thirteen weeks ended April 29, 2023 and April 30, 2022, respectively.
10. Related Party Transactions
AsTowerBrook Capital Partners, LP (“TowerBrook”) controls a majority of the voting power of our outstanding voting stock, and as a result 2,385,001 shareswe are a controlled company within the meaning of the 43,747,944 sharesNew York Stock Exchange (the “NYSE”) corporate governance standards.
On September 30, 2020, the Company entered into the Subordinated Facility, with a group of J.Jill, Inc. common shares were treated as restricted shares upon closinglenders that includes certain affiliates of TowerBrook and our Chairman of the IPO and will vestboard of directors (the “Subordinated Lenders”).
As of April 5, 2023, the Subordinated Facility was repaid in accordancefull. Refer to Note 5. Debt for additional information on repayment of the Subordinated Facility.
In association with the original vesting termsSubordinated Facility, the Company incurred $1.1 million and $0.8 million of Interest expense, net – related party for the common interests. All restricted shares of J.Jill, Inc. continue to be considered outstanding shares for legal purposes. The restricted shares have been included in diluted earnings per share.thirteen weeks ended April 29, 2023 and April 30, 2022, respectively.
8. Related Party Transactions
For the thirty-ninethirteen weeks ended October 28, 2017,April 29, 2023 and April 30, 2022, the Company incurred an immaterial amount of out-of-pocket expenses in relationother related party transactions.
11. Commitments and Contingencies
Legal Proceedings
The Company is subject to the advisory services agreement with a related party. These expenses are included in operating expensesvarious legal proceedings that arise in the accompanying consolidated statementsordinary course of operations and comprehensive income.
9. Commitments and Contingencies
Operating Lease Agreements
The Company recorded a deferred lease liabilitybusiness. Although the outcome of $8.9 million and $6.5 million as of October 28, 2017 and January 28, 2017, respectively. In certain instances, such proceedings cannot be predicted with certainty, management does not believe that the Company also receives tenant improvement incentives for its store leases, which it accrues and amortizes ratably over the life of the lease. The Company maintained a tenant improvement incentive liability of $15.4 million and $9.9 million as of October 28, 2017 and January 28, 2017, respectively.
Total rental and common area maintenance expense was $15.2 million and $44.6 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, exclusive of contingent rental expense recorded of $0.4 million and $1.2 million for the same respective periods.
Total rental and common area maintenance expense was $13.6 million and $41.1 million for the thirteen and thirty-nine weeks ended October 29, 2016, respectively, exclusive of contingent rental expense recorded of $0.5 million and $1.4 million for the same respective periods.
Legal Proceedings
Shareholder Class Action Lawsuits
On October 13, 2017, a securities lawsuit was filed in the United States District Court for the District of Massachusetts against the Company, several members of our Board of Directors and our Chief Financial Officer, among others. The complaint is brought under the Securities Act of 1933 and seeks certification of a class of plaintiffs comprised of all shareholders that acquired stock issued by the Company in its initial public offering in March 2017. The plaintiffs would seek compensation for losses they incurred since purchasing the stock. Following the filing of this lawsuit, two additional, similar actions were brought in the same court. It is likely that these matters will eventually be consolidated and no material amount has been accrued. The Company has not yet filed responsive pleadings in these matters. The Company believes the claims are without merit and intends to defend the matter vigorously.
We are not presently party to any other legal proceedings the resolution of which we believemanagement believes would have a material adverse effect on ourthe Company’s business, financial condition, operating results or cash flows. We establishThe Company establishes reserves for specific legal matters when we determinethe Company determines that the likelihood of an unfavorable outcome is probable, and the loss is reasonably estimable.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Reportquarterly report on Form 10-Q.10-Q (the “Quarterly Report”). The following discussion contains forward-looking statements that reflect our plans, estimates and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements”.Statements.”
We operate on a 52- or 53-week fiscal year that ends on the Saturday that is closest to January 31. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ending February 3, 2024 (“Fiscal Year 2023”) is comprised of 53 weeks and fiscal year ended January 28, 20172023 (“Fiscal Year 2016”2022”) and the fiscal year ending February 3, 2018 (“Fiscal Year 2017”) areis comprised of 52 weeks and 53 weeks, respectively.weeks.
Overview
J.Jill is a nationally recognized women’snational lifestyle brand that provides apparel, brand focused onfootwear and accessories designed to help its customers move through a loyal, engaged and affluent customer in the attractive 40-65 age segment.full life with ease. The J.Jill brand represents an easy, relaxedthoughtful, and inspired style that reflectscelebrates the confidencetotality of all women and comfort ofdesigns its products with its core brand ethos in mind: keep it simple and make it matter. J.Jill offers a woman withhigh touch customer experience through over 200 stores nationwide and a rich, full life. We operate a highly profitable omnichannel platform thatrobust ecommerce platform. J.Jill is well diversified across our direct and retail channels. We began as a catalog company and have been a pioneer of the omnichannel model with a compelling presence across stores, website and catalog since 1999. We take a data-centric approach, in which we leverage our database and apply our insights to manage our business as well as to acquire and engage customers to drive optimum value and productivity.headquartered outside Boston.
Factors Affecting Our Operating Results
Various factors are expected to continue to affect our results of operations going forward, including the following:
Overall Economic Trends. Consumerpurchasesof clothingand othermerchandisegenerallydeclineduring recessionaryperiodsand otherperiodswhen disposableincomeisadverselyaffected,and consequentlyour resultsof operationsmaybe affectedby generaleconomicconditions.For example,reducedconsumer confidence,and loweravailability, inflationary pressures and highercostof consumercreditmayreducedemandforour merchandise and maylimitour abilityto increaseor sustainprices.The growth rateof themarketcouldbe affectedby macroeconomicconditionsin theUnitedStates. Additionally, the occurrence or reoccurrence of any significant pandemic could impact our sales and business operations.
Consumer Preferences and Fashion Trends. Our abilityto maintainour appealto existingcustomersand attractnew customersdependson our abilityto anticipatefashiontrends.During periodsin which we have successfullyanticipatedfashiontrends, trends, we have generallyhad morefavorableresults.
CompetitionCompetition. The retailindustryishighlycompetitiveand retailerscompetebasedon a varietyof factors, includingdesign,quality,priceand customerservice.Levelsof competitionand theabilityof our competitorsto moreaccuratelypredictfashiontrendsand otherwiseattractcustomersthroughcompetitivepricingor other factorsmayimpactour resultsof operations.
Our Strategic Initiatives. We arein theprocessInitiatives. The ongoing implementation of implementingsignificantbusinessstrategic initiativesthathave had and willcontinueto have an impacton our resultsof operations. These initiatives include our ecommerce platform and our initiative to upgrade and enhance our information systems, including ongoing initiatives to upgrade our Point of Sale systems. Although theseinitiatives of this nature aredesignedto creategrowth in our businessand continuing improvementin our operatingresults,thetimingof expendituresrelatedto theseinitiatives,as wellas the achievementof returnson our investments,mayaffectour resultsof operationoperations in futureperiods.
Pricing and Changes in Our Merchandise MixMix or Supply Chain Issues. Our productofferingchangesfromperiodto period,as do thepricesatwhich goods aresoldand themarginswe areableto earnfromthesalesof thosegoods. The levels atwhich we areableto priceour merchandiseareinfluencedby a varietyof factors,includingthequalityof our products,costof production,pricesatwhich our competitorsaresellingsimilarproducts, sourcing and/or distributing product, and thewillingnessof our customersto pay forproducts.
Potential Changes in Tax Laws and/or Regulations. Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could adversely affect our business, financial condition and operating results. Additionally, any potential changes with respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries could adversely affect our business, as we source the majority of our merchandise from manufacturers located outside of the U.S.
15
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of financial and operating metrics, including GAAP and non-GAAP measures, including the following:
Net sales consistsconsist primarilyof revenues,netof merchandisereturnsand discounts,generatedfromthesale of appareland accessorymerchandisethroughour directchannelretail stores (“Retail”) and retailchannel.through our website and catalog orders (“Direct”). Net salesalsoinclude shippingand handlingfeescollectedfrom
customers.Revenue from customers, royalty revenues and marketing reimbursements related to our retailchannelprivate label credit card agreement. Retail revenue isrecognizedatthetime of saleand Direct revenuefromour directchannelisrecognizedupon receiptshipment of merchandiseby to thecustomer.
Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers to omnichannel customers who, on average,average, spend nearly three times more than single-channelsingle-channel customers.
Total company comparable sales includesinclude netsalesfromour full-priceretail storesthathave been open formore than52 weeks and fromour directDirect channel.This measurehighlightstheperformanceof existingstoresopen duringtheperiod,whileexcludingtheimpactof new storeopeningsand closures.When a storein thetotal companycomparablestorebaseistemporarilyclosedforremodeling four or otherreasons,more days within a fiscal week, the store is excluded from the comparable store base; if itis temporarily closed for three or fewer days within a fiscal week, the store is includedin total company within the comparablesalesonly usingthefullweeks itwas open. store base. Certainof our competitorsand otherretailers maycalculatetotalcompanycomparablesalesdifferentlythanwe do. As a result,thereportingof our total companycomparablesalesmaynot be comparableto salesdatamadeavailableby othercompanies.
Number of stores reflectsallstoresopen attheend of a reportingperiod.In connectionwith openingnew stores,we incurpre-openingcosts.Pre-openingcostsincludeexpensesincurredpriorto openinga new storeand primarilyconsistof payroll,travel,training,marketing,initialopeningsuppliesand costsof transportinginitial inventoryand fixturesto storelocations,retail stores, as wellas occupancycostsincurredfromthetimeof possessionof a storesiteto theopeningof thatstore. In connection with closing stores, we incur store-closing costs. Store-closing costs primarily consist of lease termination penalties and costs of transporting inventory and fixtures to other store locations. These pre-opening and store-closing costsareincludedin selling,generaland administrative expensesand aregenerallyincurredand expensedwithin30 days of openinga new store or closing a store.
Gross profit isequalto our netsaleslesscostsof goods sold.Gross profitas a percentageof our netsalesis referredto as grossmargin.
Costs of goods sold (“COGS”) includesthedirectcostsof soldmerchandise,inventory shrinkage,and adjustmentsand reservesforexcess,aged and obsoleteinventory.We reviewour inventorylevels on an ongoing basisto identifyslow-movingmerchandiseand use productmarkdownsto efficientlysellliquidate these products.Changes in theassortmentof our productsmayalsoimpactour grossprofit.The timingand levelof markdownsaredrivenby customeracceptanceof our merchandise.Certainof our competitors The Company’s COGS, and otherretailersconsequently gross profit, mayreportcostsof goods solddifferentlythanwe do. As a result,thereportingof our grossprofitand gross marginmaynot be comparableto those of othercompanies. retailers, as inclusion of certain costs vary across the industry.
The primary drivers of the costs of goods sold arevariability in COGS is due to raw materials, whichtransportation and freight costs. These costs fluctuate based on certain factors beyond our control, including labor conditions, inbound transportation or freight costs, energy prices, currency fluctuations and commodity prices. We place orders with merchandise suppliers in United StatesU.S. dollars and, as a result, are not exposed to significant foreign currency exchange risk.
Selling, general and administrative (“SG&A”) expenses includealloperatingcostsnot includedin costsof goods sold.COGS. These expensesincludeallpayrolland relatedexpenses,occupancycosts, information systems costs and otheroperatingexpensesrelatedto our storesand to our operationsatour headquarters,includingutilities,depreciationand amortization.These expensesalsoincludemarketingexpense,includingcatalogproductionand mailingcosts,warehousing, distributionand outbound shippingcosts,customerserviceoperations,consultingand softwareservices,professional servicesand otheradministrativecosts. Additionally, our outbound shipping costs may fluctuate due to surcharges from shipping vendors based on demand for shipping services.
Our historical revenue growth has been accompanied by increasedWith the exception of store selling generalexpenses, certain marketing expenses and administrative expenses. The most significant increases were in occupancy costs associatedincentive compensation, SG&A expenses generally do not vary proportionately with retail store expansion, and in marketing and payroll investments. While we expect thesenet sales. As a result, SG&A expenses to increase as we continue to open new stores, increase brand awareness and grow our business, we believe these expenses will decrease as a percentage of net sales over time.are usually higher in lower-volume periods and lower in higher-volume periods.
As a public company, we will incur significant legal, accountingAdjusted earnings before interest, taxes, depreciation and other expenses that we did not incur as a private company. We expect that compliance with the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of the Sarbanes-Oxley Act. In that regard, we have hired additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
amortization (“ Adjusted EBITDAEBITDA”) and Adjusted EBITDA Margin. Margin. AdjustedEBITDArepresentsnetincome(loss)plus net interestexpense,provision(benefit)forincometaxes,depreciationand amortization,equity-basedcompensationexpense, goodwill and indefinite-lived intangible assets impairment, write-offof propertyand equipment, loss on debt refinancing and othernon-recurringexpenses,primarilyconsistingof outsidelegaland professionalfeesassociatedwith certainnon-recurringtransactionsand events.We presentAdjustedEBITDAon a consolidatedbasisbecauseour
16
managementusesitas a supplementalmeasurein assessingour operatingperformance,and we believethatitis helpfulto investors,securitiesanalystsand otherinterestedpartiesas a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, securities analysts and other interested parties as a measure of our comparativeoperating performancefromperiodto period.We alsouse
AdjustedEBITDAas one of theprimarymethodsforplanning and forecastingoverallexpectedperformanceof our businessand forevaluatingon a quarterlyand annualbasis actualresultsagainstsuch expectations.Further,we recognizeAdjustedEBITDAas a commonlyused measure in determiningbusinessvalueand as such, use itinternallyto reportresults.AdjustedEBITDAmargin represents,forany period,AdjustedEBITDAas a percentageof netsales.
While we believe that Adjusted EBITDA is useful in evaluating our business, Adjusted EBITDA is a non-GAAP financial measure that has limitations as an analytical tool. Adjusted EBITDA should not be considered an alternative to, or substitute for, net income, (loss), which is calculated in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces the usefulness of Adjusted EBITDA as a tool for comparison. We recommend that you review the reconciliation and calculation of Adjusted EBITDA and Adjusted EBITDA margin to net income, (loss), the most directly comparable GAAP financial measure, and the calculation of the resultant Adjusted EBITDA margin below and not rely solely on Adjusted EBITDA or any single financial measure to evaluate our business.
Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted EBITDA Margin
The following table provides a reconciliation of net income to Adjusted EBITDA and the calculation of Adjusted EBITDA margin for the periods presented.
|
| For the Thirteen Weeks Ended |
| |||||
(in thousands) |
| April 29, 2023 |
|
| April 30, 2022 |
| ||
Statements of Operations Data: |
|
|
|
|
|
| ||
Net income |
| $ | 4,596 |
|
| $ | 14,415 |
|
Interest expense, net |
|
| 5,057 |
|
|
| 3,658 |
|
Interest expense, net - related party |
|
| 1,074 |
|
|
| 802 |
|
Income tax provision |
|
| 1,965 |
|
|
| 5,010 |
|
Depreciation and amortization |
|
| 5,571 |
|
|
| 6,713 |
|
Equity-based compensation expense (a) |
|
| 878 |
|
|
| 742 |
|
Write-off of property and equipment (b) |
|
| 20 |
|
|
| 92 |
|
Loss on debt refinancing (c) |
|
| 12,702 |
|
|
| — |
|
Adjustment for exited retail stores (d) |
|
| — |
|
|
| (243 | ) |
Impairment of long-lived assets (e) |
|
| — |
|
|
| 108 |
|
Adjusted EBITDA |
| $ | 31,863 |
|
| $ | 31,297 |
|
Net sales |
| $ | 149,420 |
|
| $ | 157,069 |
|
Adjusted EBITDA margin |
| 21.3 | % |
|
| 19.9 | % |
|
| For the Thirteen Weeks Ended |
|
| For the Thirty-Nine Weeks Ended |
| ||||||||||
(in thousands) |
| October 28, 2017 |
|
| October 29, 2016 |
|
| October 28, 2017 |
|
| October 29, 2016 |
| ||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 5,994 |
|
| $ | 7,808 |
|
| $ | 26,017 |
|
| $ | 22,030 |
|
Interest expense |
|
| 4,496 |
|
|
| 4,844 |
|
|
| 14,525 |
|
|
| 13,630 |
|
Provision for income taxes |
|
| 2,766 |
|
|
| 2,815 |
|
|
| 16,926 |
|
|
| 12,924 |
|
Depreciation and amortization |
|
| 8,628 |
|
|
| 8,688 |
|
|
| 25,768 |
|
|
| 27,289 |
|
Equity-based compensation expense(a) |
|
| 278 |
|
|
| 173 |
|
|
| 539 |
|
|
| 458 |
|
Write-off of property and equipment (b) |
|
| 229 |
|
|
| — |
|
|
| 569 |
|
|
| 384 |
|
Other non-recurring expenses(c) |
|
| 658 |
|
|
| 2,261 |
|
|
| 4,964 |
|
|
| 6,824 |
|
Adjusted EBITDA |
| $ | 23,049 |
|
| $ | 26,589 |
|
| $ | 89,308 |
|
| $ | 83,539 |
|
Net sales |
| $ | 161,975 |
|
| $ | 159,439 |
|
| $ | 509,473 |
|
| $ | 472,139 |
|
Adjusted EBITDA margin |
|
| 14.2 | % |
|
| 16.7 | % |
|
| 17.5 | % |
|
| 17.7 | % |
17
|
|
|
|
|
|
Factors Affecting the ComparabilityTable of our Contents
Results of Operations
On February 24, 2017, we completed a conversion from a Delaware limited liability company named Jill Intermediate LLC into a Delaware corporation and changed our name to J.Jill, Inc. In conjunction with the conversion, all of our outstanding equity interests converted into shares of common stock. Accordingly, all historical earnings per share amounts presented in the accompanying consolidated statements of operations and comprehensive income and the related notes to the consolidated financial statements have been retroactively adjusted to reflect our conversion from a limited liability company to a corporation.
Following our conversion from a limited liability company to a corporation, J.Jill, Inc. merged with and into its direct parent company, JJill Holdings, Inc., on February 24, 2017, with J.Jill, Inc. continuing as the surviving entity. JJill Holdings, Inc. did not have operations of its own, except for buyer transaction costs of $8.6 million incurred in the second quarter of 2015 to execute the acquisition of Jill Intermediate LLC.
Thirteen weeks ended October 28, 2017April 29, 2023 Compared to Thirteen weeks ended October 29, 2016April 30, 2022
The following table summarizes our consolidated results of operations for the periods indicated:
|
| For the Thirteen Weeks Ended |
|
| Change from the Thirteen Weeks Ended April 30, 2022 to the Thirteen Weeks |
| ||||||||||||||||||||||||||||||||||||||||||
|
| For the Thirteen Weeks Ended |
|
| Change from the Thirteen Weeks Ended October 29, 2016 to the Thirteen Weeks |
|
| April 29, 2023 |
|
| April 30, 2022 |
|
| Ended April 29, 2023 |
| |||||||||||||||||||||||||||||||||
(in thousands) |
| October 28, 2017 |
|
| October 29, 2016 |
|
| Ended October 28, 2017 |
|
| Dollars |
|
| % of Net |
|
| Dollars |
|
| % of Net |
|
| $ Change |
|
| % Change |
| |||||||||||||||||||||
|
| Dollars |
|
| % of Net Sales |
|
| Dollars |
|
| % of Net Sales |
|
| $ Change |
|
| % Change |
| ||||||||||||||||||||||||||||||
Net sales |
| $ | 161,975 |
|
|
| 100.0 | % |
| $ | 159,439 |
|
|
| 100.0 | % |
| $ | 2,536 |
|
|
| 1.6 | % |
| $ | 149,420 |
|
|
| 100.0 | % |
| $ | 157,069 |
|
|
| 100.0 | % |
| $ | (7,649 | ) |
|
| (4.9 | )% |
Costs of goods sold |
|
| 53,479 |
|
|
| 33.0 | % |
|
| 51,334 |
|
|
| 32.2 | % |
|
| 2,145 |
|
|
| 4.2 | % |
|
| 41,880 |
|
|
| 28.0 | % |
|
| 47,606 |
|
|
| 30.3 | % |
|
| (5,726 | ) |
|
| (12.0 | )% |
Gross profit |
|
| 108,496 |
|
|
| 67.0 | % |
|
| 108,105 |
|
|
| 67.8 | % |
|
| 391 |
|
|
| 0.4 | % |
|
| 107,540 |
|
|
| 72.0 | % |
|
| 109,463 |
|
|
| 69.7 | % |
|
| (1,923 | ) |
|
| (1.8 | )% |
Selling, general and administrative expenses |
|
| 95,240 |
|
|
| 58.8 | % |
|
| 92,638 |
|
|
| 58.1 | % |
|
| 2,602 |
|
|
| 2.8 | % |
|
| 82,146 |
|
|
| 55.0 | % |
|
| 85,578 |
|
|
| 54.5 | % |
|
| (3,432 | ) |
|
| (4.0 | )% |
Operating income |
|
| 13,256 |
|
|
| 8.2 | % |
|
| 15,467 |
|
|
| 9.7 | % |
|
| (2,211 | ) |
|
| (14.3 | )% |
|
| 25,394 |
|
|
| 17.0 | % |
|
| 23,885 |
|
|
| 15.2 | % |
|
| 1,509 |
|
|
| 6.3 | % |
Interest expense |
|
| 4,496 |
|
|
| 2.8 | % |
|
| 4,844 |
|
|
| 3.0 | % |
|
| (348 | ) |
|
| (7.2 | )% | ||||||||||||||||||||||||
Loss on debt refinancing |
|
| 12,702 |
|
|
| 8.5 | % |
|
| — |
|
|
| — |
|
|
| 12,702 |
|
|
| 100.0 | % | ||||||||||||||||||||||||
Interest expense, net |
|
| 5,057 |
|
|
| 3.4 | % |
|
| 3,658 |
|
|
| 2.3 | % |
|
| 1,399 |
|
|
| 38.2 | % | ||||||||||||||||||||||||
Interest expense, net - related party |
|
| 1,074 |
|
|
| 0.7 | % |
|
| 802 |
|
|
| 0.5 | % |
|
| 272 |
|
|
| 33.9 | % | ||||||||||||||||||||||||
Income before provision for income taxes |
|
| 8,760 |
|
|
| 5.4 | % |
|
| 10,623 |
|
|
| 6.7 | % |
|
| (1,863 | ) |
|
| (17.5 | )% |
|
| 6,561 |
|
|
| 4.4 | % |
|
| 19,425 |
|
|
| 12.4 | % |
|
| (12,864 | ) |
|
| (66.2 | )% |
Provision for income taxes |
|
| 2,766 |
|
|
| 1.7 | % |
|
| 2,815 |
|
|
| 1.8 | % |
|
| (49 | ) |
|
| (1.7 | )% | ||||||||||||||||||||||||
Income tax provision |
|
| 1,965 |
|
|
| 1.3 | % |
|
| 5,010 |
|
|
| 3.2 | % |
|
| (3,045 | ) |
|
| (60.8 | )% | ||||||||||||||||||||||||
Net income |
| $ | 5,994 |
|
|
| 3.7 | % |
| $ | 7,808 |
|
|
| 4.9 | % |
| $ | (1,814 | ) |
|
| (23.2 | )% |
| $ | 4,596 |
|
|
| 3.1 | % |
| $ | 14,415 |
|
|
| 9.2 | % |
| $ | (9,819 | ) |
|
| (68.1 | )% |
Net Sales
Net sales for the thirteen weeks ended October 28, 2017 increased $2.5April 29, 2023 decreased $7.6 million, or 1.6%4.9%, to $162.0$149.4 million from $159.4$157.1 million for the thirteen weeks ended October 29, 2016.April 30, 2022. At the end of those same periods, we operated 275245 and 271249 retail stores, respectively. The increasedecrease in net sales was due to an increasedriven primarily by a decrease in our active customer base and store count.total company comparable sales of 2.7%.
Our directRetail channel contributed 39.5%55.0% of our net sales in the thirteen weeks ended October 28, 2017April 29, 2023 and 40.4%53.6% in the thirteen weeks ended October 29, 2016.April 30, 2022. Our retailDirect channel contributed 60.5% 45.0% of our net sales in the thirteen weeks ended October 28, 2017April 29, 2023 and 59.6%46.4% in the thirteen weeks ended October 29, 2016.April 30, 2022.
Gross Profit and Costs of Goods Sold
Gross profit for the thirteen weeks ended October 28, 2017 increased $0.4April 29, 2023 decreased $1.9 million, or 0.4%1.8%, to $108.5$107.5 million from $108.1$109.5 million for the thirteen weeks ended October 29, 2016. The increase was primarily due to increased sales.April 30, 2022. The gross margin for the thirteen weeks ended October 28, 2017April 29, 2023 was 67.0%72.0% compared to 67.8%69.7% for the thirteen weeks ended OctoberApril 30, 2022. The increase in gross margin for the thirteen weeks ended April 29, 2016,2023 was driven largely driven by added promotions and markdownslower freight costs compared to clear certain goods.the thirteen weeks ended April 30, 2022 .
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the thirteen weeks ended October 28, 2017 increased $2.6 April 29, 2023 decreased $3.4 million, or 2.8%4.0%, to $95.2$82.1 million from $92.6$85.6 million for the thirteen weeks ended October 29, 2016.April 30, 2022. The increasedecrease is related to higher sales related expenses of $2.7driven by a $3.4 million including retail payroll, occupancy and direct fulfillment and increased marketing costs of $1.0 million. These increases were offset by a decrease in employee relatedmanagement incentive expense of $1.2 million.expenses compared to the thirteen weeks ended April 30, 2022.
As a percentage of net sales, selling, general and administrative expenses were 58.8% for the thirteen weeks ended October 28, 2017 compared to 58.1%55.0% for the thirteen weeks ended OctoberApril 29, 2016.
Interest Expense
Interest expense2023 compared to 54.5% for the thirteen weeks ended October 28, 2017 decreased $0.3April 30, 2022.
18
Loss on debt refinancing
During the thirteen weeks ended April 29, 2023, the Company recognized a loss on debt refinancing of $12.7 million related to entering into a Term Loan Credit Agreement and the repayment of the Priming Credit Agreement and the Subordinated Credit Agreement, as discussed in the Liquidity and Capital Resources section below. The Company did not incur any gain or 7.2%, toloss on debt refinancing during the thirteen weeks ended April 30, 2022.
Interest Expense, Net
Interest expense, net, consists of interest expense on the Term Loan, Priming Loan, Subordinated Facility and ABL Facility, partially offset by interest earned on cash. Interest expense, net was $6.1 million and $4.5 from $4.8 million for the thirteen weeks ended OctoberApril 29, 2016. 2023 and April 30, 2022, respectively.
Income Tax Provision
The decrease was primarily due to voluntary principal prepayments on the Term Loan in January 2017 and June 2017, partially offset by an increase of approximately 40 basis points to the average interest rate on the Term Loan.
Theincome tax provision for income taxeswas $2.8$2.0 million for both the thirteen weeks ended October 28, 2017 andApril 29, 2023 compared to $5.0 million for the thirteen weeks ended October 29, 2016. OurApril 30, 2022, while our effective tax rates for the same periods were 31.6%29.9% and 26.5%25.8%, respectively. The increase in the effective tax rate is primarily due to a tax credit taken induring the thirteen weeks ended OctoberApril 29, 2016, which reduced the rate for that period.
Thirty-nine weeks ended October 28, 2017 Compared to Thirty-nine weeks ended October 29, 2016
The following table summarizes our consolidated results of operations for the periods indicated:
|
| For the Thirty-Nine Weeks Ended |
|
| Change from the Thirty-Nine Weeks Ended October 29, 2016 to the Thirty-Nine Weeks |
| ||||||||||||||||||
(in thousands) |
| October 28, 2017 |
|
| October 29, 2016 |
|
| Ended October 28, 2017 |
| |||||||||||||||
|
| Dollars |
|
| % of Net Sales |
|
| Dollars |
|
| % of Net Sales |
|
| $ Change |
|
| % Change |
| ||||||
Net sales |
| $ | 509,473 |
|
|
| 100.0 | % |
| $ | 472,139 |
|
|
| 100.0 | % |
| $ | 37,334 |
|
|
| 7.9 | % |
Costs of goods sold |
|
| 162,721 |
|
|
| 31.9 | % |
|
| 149,673 |
|
|
| 31.7 | % |
|
| 13,048 |
|
|
| 8.7 | % |
Gross profit |
|
| 346,752 |
|
|
| 68.1 | % |
|
| 322,466 |
|
|
| 68.3 | % |
|
| 24,286 |
|
|
| 7.5 | % |
Selling, general and administrative expenses |
|
| 289,284 |
|
|
| 56.8 | % |
|
| 273,882 |
|
|
| 58.0 | % |
|
| 15,402 |
|
|
| 5.6 | % |
Operating income |
|
| 57,468 |
|
|
| 11.3 | % |
|
| 48,584 |
|
|
| 10.3 | % |
|
| 8,884 |
|
|
| 18.3 | % |
Interest expense |
|
| 14,525 |
|
|
| 2.9 | % |
|
| 13,630 |
|
|
| 2.9 | % |
|
| 895 |
|
|
| 6.6 | % |
Income before provision for income taxes |
|
| 42,943 |
|
|
| 8.4 | % |
|
| 34,954 |
|
|
| 7.4 | % |
|
| 7,989 |
|
|
| 22.9 | % |
Provision for income taxes |
|
| 16,926 |
|
|
| 3.3 | % |
|
| 12,924 |
|
|
| 2.7 | % |
|
| 4,002 |
|
|
| 31.0 | % |
Net income |
| $ | 26,017 |
|
|
| 5.1 | % |
| $ | 22,030 |
|
|
| 4.7 | % |
| $ | 3,987 |
|
|
| 18.1 | % |
Net Sales
Net sales for the thirty-nine weeks ended October 28, 2017 increased $37.3 million, or 7.9%, to $509.5 from $472.1 million for the thirty-nine weeks ended October 29, 2016. At the end of those same periods, we operated 275 and 271 retail stores, respectively. The increase in net sales was due to a 5.6% increase in total comparable company sales driven by an increase in our active customer base, and an increase in store count.
Our direct channel contributed41.8% of our net sales in the thirty-nine weeks ended October 28, 2017 and 41.2% in the thirty-nine weeks ended October 29, 2016. Our retail channel contributed 58.2% of our net sales in the thirty-nine weeks ended October 28, 2017 and 58.8% in the thirty-nine weeks ended October 29, 2016.
Gross Profit and Costs of Goods Sold
Gross profit for the thirty-nine weeks ended October 28, 2017 increased $24.3 million, or 7.5%, to $346.8 from $322.5 million for the thirty-nine weeks ended October 29, 2016. The increase was driven by increased sales. The gross margin rate was 68.1% for the thirty-nine weeks ended October 28, 2017 and 68.3% for the thirty-nine weeks ended October 29, 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the thirty-nine weeks ended October 28, 2017 increased $15.4 million, or 5.6%, to $289.3 from $273.9 million for the thirty-nine weeks ended October 29, 2016. The increase2023 is related to higher sales related expenses of $10.7 million, including retail payroll, occupancy and direct fulfillment, increased marketing costs of $3.6 million and increased corporate payroll and other expenses of $4.0 million to support business growth. This increase was offset by decreases related to depreciation and amortization expense of $2.4 million.
As a percentage of net sales, selling, general and administrative expenses were 56.8% for the thirty-nine weeks ended October 28, 2017 compared to 58.0% for the thirty-nine weeks ended October 29, 2016.
Interest Expense
Interest expense for the thirty-nine weeks ended October 28, 2017 increased $0.9 million, or 6.6%, to $14.5 from $13.6 million for the thirty-nine weeks ended October 29, 2016. The increase was primarily due to an increase in deferred financing amortization
costs associated with a voluntary principal prepayment on the Term Loanimpact of $20.0 million made in June 2017state and an increase of approximately 20 basis points to the average interest rate on the Term Loan.
Provision for Income Taxes
The provision forlocal income taxes, for the thirty-nine weeks ended October 28, 2017 increased $4.0 million, or 31.0%, to $16.9 from $12.9 million for the thirty-nine weeks ended October 29, 2016. Our effective tax rates for the same periods were 39.4%executive compensation limitations, and 37.0%, respectively. The increase in the effective tax rate was primarily due to non-deductible IPO related costs in the thirty-nine weeks ended October 28, 2017.expenses.
Liquidity and Capital Resources
General
Our primary sources of liquidity and capital resources are cash generated from operating activities and availability under our ABL credit agreement, datedfacility (governed by the “ABL Credit Agreement” and, such facility the “ABL Facility”), so long as certain conditions related to the maturity of the Term Loan Credit Agreement are met. As of April 29, 2023, we had $27.9 million in cash and $34.2 million of total availability under our ABL Facility.
On April 5, 2023, the Company entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”). The Term Loan Credit Agreement provides for a secured term loan facility in an aggregate principal amount of $175.0 million with a maturity date of May 8, 2015, by2028. The proceeds of the Term Loan Credit Agreement, combined with a portion of the Company’s existing cash on hand, were used to fully repay the Priming Credit Agreement and the Subordinated Credit Agreement. All security interests and liens incurred in connection with the Priming Credit Agreement and Subordinated Credit Agreement have been released.
The Term Loan Credit Agreement includes customary negative covenants, including covenants limiting the ability of the Borrower to, among Jill Holdings LLC, Jill Acquisition LLC,other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and purchases, pay dividends and distributions, enter into transactions with affiliates, and make payments in respect of junior indebtedness.
The Term Loan Credit Agreement also has certain subsidiaries from timecustomary representations and warranties (see Note 5, Debt to time party thereto, the lenders party thereto and CIT Finance LLC ascondensed consolidated financial statements included in this Quarterly Report). As of April 29, 2023, the administrative agent and collateral agent, as amended onCompany is in compliance with all covenants.
On May 27, 2016 by10, 2023, the Company entered into Amendment No. 1 thereto6 to the ABL Credit Agreement (the “ABL Facility”Amendment”). Our primary requirements for liquidity and capital are working capital and general corporate needs, including merchandise inventories, marketing, including catalog production and distribution, payroll, store occupancy costs and capital expenditures associated with opening new stores, remodeling existing stores, upgrading information systems and costs
The ABL Amendment extended the maturity date of operating asthe ABL Credit Agreement from May 8, 2024 to May 10, 2028 (or 180 days prior to the maturity date of the Company’s Term Loan Credit Agreement if the maturity date of such term loan has not been extended to a public company. We believedate that our current sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur as a public company foris at least 180 days after the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under ourmaturity date of the ABL Credit Agreement). The other terms and conditions of the ABL Credit Facility or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business, and other factors, manyremain substantially unchanged.
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Table of which are beyond our control.Contents
Purchases of property and equipment were $22.3 million during the thirty-nine weeks ended October 28, 2017, primarily representing investments in stores and information systems. Purchases of property and equipment in 2017 are planned to be approximately $38.0 million and reflects our investments in stores and information systems.
Cash Flow Analysis
The following table shows our cash flows information for the periods presented:
|
| For the Thirteen Weeks Ended | |||||||
(in thousands) |
| April 29, 2023 |
|
| April 30, 2022 |
|
| ||
Net cash provided by operating activities |
| $ | 7,859 |
|
| $ | 7,168 |
|
|
Net cash used in investing activities |
|
| (2,925 | ) |
|
| (750 | ) |
|
Net cash used in financing activities |
|
| (64,096 | ) |
|
| (1,536 | ) |
|
|
| For the Thirty-Nine Weeks Ended |
| |||||
(in thousands) |
| October 28, 2017 |
|
| October 29, 2016 |
| ||
Net cash provided by operating activities |
| $ | 54,535 |
|
| $ | 37,080 |
|
Net cash used in investing activities |
|
| (22,325 | ) |
|
| (25,815 | ) |
Net cash used in financing activities |
|
| (19,872 | ) |
|
| (33,815 | ) |
Net Cash provided by Operating Activities
Net cash provided by operating activities increased by $0.7 million during the thirteen weeks ended April 29, 2023 compared to the thirteen weeks ended April 30, 2022. The increase was driven primarily by improved operating performance, excluding the one-time charge related to a loss on debt refinancing during the thirteen weeks ended April 29, 2023, offset by an increase in cash used for working capital of $1.7 million. The net cash used in working capital was primarily driven by accrued expenses and other current liabilities, mainly management incentives of $5.0 million, income taxes of $3.2 million, and other net expenses of $2.0 million, partially offset by lower cash outflows of $4.0 million due to decreased inventory levels and timing of payments for accounts payable of $5.1 million.
Net cash provided by operating activities during the thirty-ninethirteen weeks ended October 28, 2017April 29, 2023 was $54.5$7.9 million. Key elements of cash provided by operating activities were (i) net income of $26.0$4.6 million, (ii) adjustments to reconcile net income to net cash provided by operating activities of $27.5$20.6 million, primarily driven by loss on debt refinancing and depreciation and amortization, and noncash amortization(iii) uses of deferred financing and debt discount costs, and (iii) a decrease incash totaling $17.3 million for net operating assets and liabilities of $1.0 million, primarily driven by cash provided by prepaid expenses and other current assets, accounts payable, and other noncurrent assets and liabilities, offset by cash uses in accounts receivable and inventory.liabilities.
Net cash provided by operating activities during the thirty-ninethirteen weeks ended October 29, 2016April 30, 2022 was $37.1$7.2 million. Key elements of cash provided by operating activities were (i) net income of $22.0$14.4 million, and (ii) adjustments to reconcile net income to net cash provided by operating activities of $29.6$8.4 million, primarily driven by depreciation and amortization, offset byand (iii) an increase in uses of cash totaling $15.6 million for net operating assets and liabilities and other activities of $14.5 million, primarilyto support increased sales, primarily driven by cash uses inhigher accounts receivable inventory, and inventories, and payments for accounts payable offset with cash provided by tax receivables, accrued expenses and other nonconcurrent assets andlease liabilities.
Net Cash used in Investing Activities
Net cash used in investing activities during the thirty-ninethirteen weeks ended October 28, 2017April 29, 2023 and April 30, 2022 was $22.3$2.9 million and $0.8 million, representing purchases of property and equipment related investments in stores and information systems.
Net cash used in investingactivitiesduring the thirty-nine weeks ended October 29, 2016 was $25.8 million,representingpurchasesof propertyand equipmentrelatedinvestments in storesand information systems.
Net Cash used in Financing Activities
Net cash used in financing activities duringwas $64.1 million for the thirty-ninethirteen weeks ended October 28, 2017 was $19.9April 29, 2023 compared to $1.5 million whichin the prior year. The change was primarily due to a voluntary principal prepayment ondriven by the repayment of the previously existing Priming and Subordinated Credit Agreements in the current year offset by the proceeds from issuance of the Term LoanLoan.
Dividends
The payment of $20.0 million made in June 2017.
Net cash used in financing activities during the thirty-nine weeks ended October 29, 2016 was $33.8 million, including $38.3 million of proceeds received on long-term debt, net of $1.7 million debt issuance costs paid. The proceeds from the long-term debt, along with cash on hand, were used to fund a $70.0 million dividend to the partners of Topco. Financing activities also included $2.1 million of scheduled repayments on our Term Loan.
Dividends
We intend to retain any future earnings for use in the operation and growth of our business, and therefore we do not anticipate paying any cash dividends in the foreseeable future.future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements and any other factors deemed relevant by our board of directors. As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of restrictions on their ability to pay dividends to us, under our debt agreements and under future indebtedness that we or they may incur.
Credit Facilities
At October 28, 2017There were no short-term borrowings outstanding under the Company’s ABL Facility as of April 29, 2023 and January 28, 2017 there were no loan amounts outstanding under2023. At April 29, 2023 and January 28, 2023, the ABL Facility. At those same dates, weCompany had outstanding letters of credit in the amountsamount of $1.6$5.8 million and $2.1$7.0 million, respectively, and ourhad a maximum additional borrowing capacity was $38.4of $34.2 million and $37.9$30.0 million, respectively.
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Contractual Obligations
The Company’s contractual obligations consist primarily of long-term debt obligations, interest payments, operating leases and purchase orders for merchandise inventory. These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs. During the thirty-nine weeks ended October 28, 2017, there were no material changes
Contingencies
We are subject to various legal proceedings that arise in the contractual obligations asordinary course of January 28, 2017.business. Although the outcome of such proceedings cannot be predicted with certainty, management does not believe that we are presently party to any legal proceedings the resolution of which management believes would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Contingencies
Shareholder Class Action Lawsuits
On October 13, 2017, a securities lawsuit was filed in the United States District Court for the District of Massachusetts against the Company, several members of our Board of Directors and our Chief Financial Officer, among others. The complaint is brought under the Securities Act of 1933 and seeks certification of a class of plaintiffs comprised of all shareholders that acquired stock issued by the Company in its initial public offering in March 2017. The plaintiffs would seek compensation for losses they incurred since purchasing the stock. Following the filing of this lawsuit, two additional, similar actions were brought in the same court. It is likely that these matters will eventually be consolidated. The Company has not yet filed responsive pleadings in these matters. The Company believes the claims are without merit and intends to defend the matter vigorously.
Off-BalanceOff-Balance Sheet Arrangements
We are not a party to any off-balanceoff-balance sheet arrangements.
Critical Accounting Policies and Significant Estimates
The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our condensed consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for gift card breakage and estimated merchandise returns; accounting for business combinations; estimating the value of inventory; impairment assessments for goodwill and other indefinite-lived intangible assets, and long-lived assets; and estimating equity-based compensation expense.assets. Management evaluates its policies and assumptions on an ongoing basis.
Our significant accounting policies related to these accounts in the preparation of our condensed consolidated financial statements are described under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations – Critical
Accounting Policies and Significant Estimates” in our Annual Reporton Form10-K for the fiscal year ended January 28, 2017. 2023 (the “2022 Annual Report”). As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates previously described in our 2022 Annual Report on Form 10-K.Report.
Recent Accounting Pronouncements
Refer to Note 1 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, for recently adopted accounting standards, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.
These forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Risk Factors set forth in our 2022 Annual Report on Form 10-K for the year ended January 28, 2017 and other cautionary statements included therein and herein.
These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q.Report. We anticipate that subsequent events and developments will cause our views to change. We qualify all of our forward-looking statements by these cautionary statements.
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Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk
Interest RateMarket Risk
We are subjectThere have been no material changes in our exposure to interest ratemarket risk in connection with borrowings underduring the Term Loanfirst quarter of Fiscal Year 2023. For a discussion of the Company’s exposure to market risk, refer to Part II, Item 7A, “Quantitative and ABL Facility, which bear interest at variable rates equal to LIBOR plus a margin as definedQualitative Disclosures About Market Risk,” contained in the respective agreements described above. As of October 28, 2017, there was no outstanding balance under the ABL Facility, and $1.6 million letters of credit outstanding. The undrawn borrowing availability under the ABL Facility was $38.4 million and the amount outstanding under the Term Loan had decreased to $253.9 million as a result of the scheduled repayment and voluntary prepayment of $20.0 million of our Term Loan. We currently do not engage in any interest rate hedging activity. Based on the interest rate on the ABL Facility at October 28, 2017, and the schedule of outstanding borrowings under our Term Loan, a 10% change in our current interest rate would affect net income by $1.1 million during Fiscal Year 2017.Company’s 2022 Annual Report.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to ourThe Company’s management, including ourits Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, under the supervisionhave conducted an evaluation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form-10-Q.Report. Based on that evaluation, ourthe Chief Executive Officer and Chief Financial Officer have concluded that as of April 29, 2023, that the end of the period covered by this Quarterly Report on Form-10-Q, our disclosure controls and procedures wereare effective in ensuring that all material information required to provide such reasonable assurance.
There were no changesbe filed in our internal control over financial reporting, (as defined in Rules 13a-15(e)this Quarterly Report has been recorded, processed, summarized and 15d-15(e) underreported when required and the Act) duringinformation is accumulated and communicated to the fiscal quarter ended October 28, 2017 identified in connection with the evaluation by ourCompany’s management, including ourits Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any changes in the Company’s internal control over financial reporting that occurred during the first quarter of Fiscal Year 2023 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
Limitations on the Effectiveness22
Table of Controls and ProceduresContents
In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and our management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Shareholder Class Action Lawsuits
On October 13, 2017, a securities lawsuit was filedWe are subject to various legal proceedings that arise in the United States District Court forordinary course of business. Although the Districtoutcome of Massachusetts against the Company, several members of our Board of Directors and our Chief Financial Officer, among others. The complaint is brought under the Securities Act of 1933 and seeks certification of a class of plaintiffs comprised of all shareholderssuch proceedings cannot be predicted with certainty, management does not believe that acquired stock issued by the Company in its initial public offering in March 2017. The plaintiffs would seek compensation for losses they incurred since purchasing the stock. Following the filing of this lawsuit, two additional, similar actions were brought in the same court. It is likely that these matters will eventually be consolidated and no material amount has been accrued. The Company has not yet filed responsive pleadings in these matters. The Company believes the claimswe are without merit and intends to defend the matter vigorously.
We are not presently party to any other legal proceedings the resolution of which we believemanagement believes would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Factors that could cause our actual results to differ materially from those in this report are described under the heading “Risk Factors” in ourour 2022 Annual Report on Form 10-K for the fiscal year ended January 28, 2017.Report. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. As of the date of this Quarterly Report, on Form 10-Q, there have been no material changes to the risk factors previously disclosed in our 2022 Annual Report on Form 10-K.Report. However, additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations and we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.Securities and Exchange Commission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
The exhibits listed on the Exhibit Index are filed or furnished as part of this Quarterly Report on Form 10-Q.Report.
Exhibit Number | Description | |
3.1 | ||
| ||
3.2 | ||
3.3 | ||
10.1 | ||
10.2* | ||
23
10.3* | ||
10.4* | ||
10.5* | ||
31.1* | ||
| ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101) |
|
|
* Furnished herewith.
24
Table of ContentsSIGNATURES
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.
J.Jill, Inc. | |||
Date: | By: | /s/ | |
| |||
Chief Executive Officer | |||
Date: | By: | /s/ | |
| |||
Executive Vice President, Chief Financial Officer/Chief Operating Officer |
25
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