J.Jill(JILL) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents J.Jill, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets (Unaudited) Presents J.Jill, Inc.'s financial position, detailing assets, liabilities, and shareholders' deficit at specific dates | Metric | October 29, 2022 (in thousands) | January 29, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Assets | | | | Cash and cash equivalents | $90,080 | $35,957 | | Total current assets | $184,678 | $123,248 | | Total assets | $489,400 | $451,849 | | Liabilities and Shareholders' Deficit | | | | Total current liabilities | $148,823 | $138,745 | | Total liabilities | $491,392 | $496,503 | | Total shareholders' deficit | $(1,992) | $(44,654) | | Total liabilities and shareholders' deficit | $489,400 | $451,849 | - The company's cash and cash equivalents significantly increased from $35.96 million at January 29, 2022, to $90.08 million at October 29, 2022[11] - Total shareholders' deficit improved substantially from $(44.65) million at January 29, 2022, to $(1.99) million at October 29, 2022[11] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Presents J.Jill, Inc.'s financial performance, detailing net sales, gross profit, operating income, and net income (loss) | Metric | 13 Weeks Ended Oct 29, 2022 (in thousands) | 13 Weeks Ended Oct 30, 2021 (in thousands) | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $150,204 | $151,731 | $467,616 | $440,053 | | Gross profit | $105,023 | $104,535 | $326,960 | $301,714 | | Operating income | $18,850 | $19,004 | $70,928 | $51,198 | | Income (loss) before provision for income taxes | $13,410 | $13,830 | $56,552 | $(23,288) | | Net income (loss) | $8,919 | $11,238 | $41,139 | $(31,718) | | Basic EPS | $0.64 | $0.81 | $2.95 | $(2.65) | | Diluted EPS | $0.62 | $0.79 | $2.89 | $(2.65) | - For the thirty-nine weeks ended October 29, 2022, net sales increased by 6.3% to $467.6 million, and the company reported a net income of $41.1 million, a significant turnaround from a net loss of $31.7 million in the prior year period[13] - Diluted EPS for the thirty-nine weeks ended October 29, 2022, was $2.89, compared to a diluted loss per share of $(2.65) in the same period last year[13] Condensed Consolidated Statements of Shareholders' Deficit (Unaudited) Outlines changes in J.Jill, Inc.'s shareholders' deficit, including net income (loss) and equity-based compensation | Metric | January 29, 2022 (in thousands) | October 29, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Total Shareholders' Deficit | $(44,654) | $(1,992) | | Net income (loss) (39 weeks) | N/A | $41,139 | | Equity-based compensation (39 weeks) | N/A | $2,615 | | Surrender of shares to pay withholding taxes (39 weeks) | N/A | $(1,092) | - The total shareholders' deficit significantly decreased from $(44.65) million at January 29, 2022, to $(1.99) million at October 29, 2022, primarily driven by net income and equity-based compensation[14] Condensed Consolidated Statements of Cash Flows (Unaudited) Presents J.Jill, Inc.'s cash flows from operating, investing, and financing activities, and the resulting net change in cash | Metric | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | $41,139 | $(31,718) | | Net cash provided by operating activities | $66,720 | $53,423 | | Net cash used in investing activities | $(5,173) | $(2,488) | | Net cash used in financing activities | $(7,424) | $(37,869) | | Net change in cash | $54,123 | $13,066 | | Cash and cash equivalents, End of Period | $90,080 | $17,473 | - Net cash provided by operating activities increased by $13.3 million to $66.7 million for the thirty-nine weeks ended October 29, 2022, primarily due to a positive change in net income[16][120] - Cash and cash equivalents at the end of the period significantly increased to $90.08 million from $17.47 million in the prior year, reflecting a net change in cash of $54.12 million[16] Notes to Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures for J.Jill, Inc.'s unaudited condensed consolidated financial statements 1. Description of Business Outlines J.Jill, Inc.'s core business as an omnichannel women's apparel retailer - J.Jill, Inc. is a premier omnichannel retailer specializing in women's apparel, operating 247 stores nationwide and a robust e-commerce platform[18] 2. Summary of Significant Accounting Policies Summarizes J.Jill, Inc.'s key accounting policies, including revenue recognition, cost of goods sold, and recent pronouncement adoptions - The interim condensed consolidated financial statements are unaudited and prepared in accordance with GAAP, omitting certain disclosures per SEC rules for interim reporting[19] - Cost of goods sold includes direct merchandise costs, inventory adjustments, and inbound freight, but excludes shipping to customers, distribution, buying, store occupancy, and depreciation/amortization, which are in SG&A[20] - Selling, general and administrative expenses primarily consist of payroll, store occupancy, depreciation/amortization, advertising, IT, freight to customers, insurance, and professional fees[22] - The company adopted ASU 2019-12 (Income Taxes) in Q1 FY2022 with no material impact, and ASU 2020-04 (Reference Rate Reform) had no impact[24][25] 3. Revenues Details J.Jill, Inc.'s revenue disaggregation by source and contract liabilities, including gift card redemptions | Revenue Source | 13 Weeks Ended Oct 29, 2022 (in thousands) | 13 Weeks Ended Oct 30, 2021 (in thousands) | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Retail | $81,800 | $83,629 | $253,093 | $223,973 | | Direct | $68,404 | $68,102 | $214,523 | $216,080 | | Net revenues | $150,204 | $151,731 | $467,616 | $440,053 | - For the thirty-nine weeks ended October 29, 2022, Retail revenue increased by $29.12 million (13.0%) while Direct revenue slightly decreased by $1.56 million (0.7%)[26] | Contract Liabilities | October 29, 2022 (in thousands) | January 29, 2022 (in thousands) | | :------------------- | :------------------------------ | :------------------------------ | | Signing bonus | $118 | $224 | | Unredeemed gift cards | $5,181 | $7,410 | | Total contract liabilities | $5,299 | $7,634 | - The company recognized $7.3 million in revenue from gift card redemptions and breakage for the thirty-nine weeks ended October 29, 2022, up from $6.9 million in the prior year[28] 4. Asset Impairments Discusses J.Jill, Inc.'s noncash impairment charges for long-lived assets, goodwill, and intangible assets - The company recorded noncash impairment charges of $1.3 million for long-lived assets during the thirty-nine weeks ended October 29, 2022, primarily related to a right-of-use asset for corporate headquarters and leasehold improvements/furniture at five store locations[31] - Goodwill balance remained at $59.7 million, with accumulated impairment losses of $137.3 million as of October 29, 2022[33] | Intangible Asset | October 29, 2022 Carrying Amount (in thousands) | January 29, 2022 Carrying Amount (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | | Trade name | $34,000 | $34,000 | | Customer relationships | $41,069 | $46,711 | | Total intangible assets | $75,069 | $80,711 | - Total amortization expense for amortizable intangible assets was $5.6 million for the thirty-nine weeks ended October 29, 2022, down from $6.2 million in the prior year[36] 5. Debt Details J.Jill, Inc.'s debt structure, including Priming Term Loan, Subordinated Term Loan, ABL Facility, and covenant compliance | Debt Instrument | October 29, 2022 Balance Sheet (in thousands) | January 29, 2022 Balance Sheet (in thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Priming Term Loan due 2024 | $199,185 | $199,250 | | Subordinated Term Loan due 2024 | $8,428 | $5,605 | | Existing Term Loan due 2022 | — | $4,953 | | Total Net Long-Term Debt | $204,874 | $202,116 | - The Existing Term Loan was repaid on May 8, 2022[40] - The Priming Term Loan matures on May 8, 2024, and the Subordinated Term Loan matures on November 8, 2024[41][45] - The ABL Facility maturity date was extended to May 8, 2024, and the benchmark interest rate changed from LIBOR to the secured overnight financing rate[49] - The company was in compliance with all debt covenants as of October 29, 2022, and January 29, 2022[43][45][50] - Available borrowing capacity under the ABL Facility was $33.0 million as of October 29, 2022, up from $22.6 million at January 29, 2022[51] 6. Fair Value Measurements Explains J.Jill, Inc.'s fair value measurements for debt instruments, using observable market prices as Level 2 inputs - The company's debt instruments (Priming Loan, Subordinated Facility) are recorded at cost, with fair value determined using observable market prices (Level 2 inputs)[55] | Financial Instrument | Carrying Value (Oct 29, 2022, in thousands) | Fair Value (Oct 29, 2022, in thousands) | | :------------------- | :---------------------------------------- | :-------------------------------------- | | Total debt | $207,613 | $216,381 | 7. Income Taxes Presents J.Jill, Inc.'s income tax provision and effective tax rates for the reported periods | Metric | 13 Weeks Ended Oct 29, 2022 (in thousands) | 13 Weeks Ended Oct 30, 2021 (in thousands) | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Income tax provision | $4,491 | $2,592 | $15,413 | $8,430 | | Effective tax rate | 33.5% | 18.8% | 27.3% | (36.1)% | - The effective tax rate for the thirty-nine weeks ended October 29, 2022, was 27.3%, differing from the federal statutory rate due to state/local income taxes, return to provision adjustments, and partial release of valuation allowance on state deferred tax assets[61][114] 8. Net Income (Loss) Per Share Details J.Jill, Inc.'s basic and diluted net income (loss) per share, including weighted average common shares | Metric | 13 Weeks Ended Oct 29, 2022 | 13 Weeks Ended Oct 30, 2021 | 39 Weeks Ended Oct 29, 2022 | 39 Weeks Ended Oct 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to common shareholders (in thousands) | $8,919 | $11,238 | $41,139 | $(31,718) | | Basic EPS | $0.64 | $0.81 | $2.95 | $(2.65) | | Diluted EPS | $0.62 | $0.79 | $2.89 | $(2.65) | | Weighted average common shares, diluted | 14,297,925 | 14,174,218 | 14,240,486 | 11,971,405 | - Warrants became exercisable into 3,820,748 shares of common stock on May 31, 2021, and were reclassified to Additional paid-in capital, impacting diluted EPS calculations[64][65] 9. Equity-Based Compensation Reports J.Jill, Inc.'s equity-based compensation expense for the specified periods | Period | Equity-Based Compensation Expense (in thousands) | | :--------------------------------------- | :--------------------------------------------- | | 13 Weeks Ended Oct 29, 2022 | $900 | | 13 Weeks Ended Oct 30, 2021 | $800 | | 39 Weeks Ended Oct 29, 2022 | $2,600 | | 39 Weeks Ended Oct 30, 2021 | $1,900 | - Equity-based compensation expense increased to $2.6 million for the thirty-nine weeks ended October 29, 2022, from $1.9 million in the prior year[66] 10. Related Party Transactions Discloses J.Jill, Inc.'s related party transactions, primarily focusing on interest expense associated with the Subordinated Facility | Related Party Expense | 13 Weeks Ended Oct 29, 2022 (in thousands) | 13 Weeks Ended Oct 30, 2021 (in thousands) | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Interest expense, net – related party | $1,100 | $600 | $2,800 | $1,600 | | Fair value adjustment of warrants – related party | — | — | — | $57,000 | - Interest expense, net – related party, associated with the Subordinated Facility, increased to $2.8 million for the thirty-nine weeks ended October 29, 2022, from $1.6 million in the prior year[68] 11. Commitments and Contingencies Addresses J.Jill, Inc.'s involvement in legal proceedings and the assessment of their potential financial impact - The company is involved in various legal proceedings in the ordinary course of business but does not believe any will have a material adverse effect on its financial statements[70] 12. Subsequent Event Reports a significant post-period event regarding federal income tax payments and refunds for J.Jill, Inc. - In November 2022, the company repaid an $8.3 million federal income tax payment received in error from the IRS and subsequently received a $9.2 million federal income tax refund, resulting in a net $0.9 million increase in operating cash flow in Q4 FY2022[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses J.Jill, Inc.'s financial condition and results of operations, covering performance, liquidity, capital resources, and critical accounting policies Overview Provides a brief overview of J.Jill, Inc.'s business as a premier omnichannel women's apparel retailer - J.Jill is a premier omnichannel women's apparel retailer with 247 stores and a robust e-commerce platform, focused on delivering an easy, thoughtful, and inspired style[74] Factors Affecting Our Operating Results Identifies key external and internal factors influencing J.Jill, Inc.'s operating results, such as economic trends and competition - Operating results are influenced by overall economic trends (consumer confidence, inflation), consumer preferences and fashion trends, intense retail competition, the timing and returns of strategic initiatives (e-commerce, IT upgrades), pricing strategies, merchandise mix, supply chain issues, and potential changes in tax laws/regulations[75][76][77][78][79][80] How We Assess the Performance of Our Business Explains the key performance metrics J.Jill, Inc. uses to evaluate its business, including net sales, gross profit, and Adjusted EBITDA - Key performance metrics include net sales (Retail and Direct), total company comparable sales, number of stores, gross profit, cost of goods sold (COGS), selling, general and administrative (SG&A) expenses, and Adjusted EBITDA[81][83][84][85][86][88][89] - Net sales are driven by active customer base, product assortment, marketing, and customer spending habits, with omnichannel customers spending nearly three times more than single-channel customers[82] - Adjusted EBITDA is a non-GAAP measure used by management and investors to assess operating performance, planning, and forecasting, and is reconciled to net income (loss)[89][90][91] | Metric | 13 Weeks Ended Oct 29, 2022 (in thousands) | 13 Weeks Ended Oct 30, 2021 (in thousands) | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | $8,919 | $11,238 | $41,139 | $(31,718) | | Adjusted EBITDA | $27,523 | $26,960 | $94,392 | $76,591 | | Net sales | $150,204 | $151,731 | $467,616 | $440,053 | | Adjusted EBITDA margin | 18.3% | 17.8% | 20.2% | 17.4% | - Adjusted EBITDA for the thirty-nine weeks ended October 29, 2022, increased by 23.2% to $94.4 million, with Adjusted EBITDA margin improving to 20.2% from 17.4% in the prior year[93] Items Affecting Comparability of Financial Results Highlights specific items impacting the comparability of J.Jill, Inc.'s financial results between periods, such as impairment charges and warrant adjustments - The thirty-nine weeks ended October 29, 2022, included $1.4 million in impairment charges for long-lived assets, while the prior year had none[94] - Fair value adjustments for warrants and derivative liabilities, totaling $59.8 million in the prior year (thirty-nine weeks ended October 30, 2021), were reclassified to equity as of May 31, 2021, and thus had no impact on the current period's results[95][96] Results of Operations Analyzes J.Jill, Inc.'s financial performance, detailing net sales, gross profit, SG&A, and net income (loss) for the reported periods Thirteen weeks ended October 29, 2022 Compared to Thirteen weeks ended October 30, 2021 Compares J.Jill, Inc.'s financial results for the thirteen-week periods, focusing on changes in sales, margins, and net income | Metric | Oct 29, 2022 (in thousands) | Oct 30, 2021 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net sales | $150,204 | $151,731 | $(1,527) | (1.0)% | | Gross profit | $105,023 | $104,535 | $488 | 0.5% | | Gross margin | 69.9% | 68.9% | 1.0 pp | | | Selling, general and administrative expenses | $84,873 | $85,531 | $(658) | (0.8)% | | Operating income | $18,850 | $19,004 | $(154) | (0.8)% | | Net income | $8,919 | $11,238 | $(2,319) | (20.6)% | - Net sales decreased by 1.0% due to a 1.2% decrease in total company comparable sales, driven by lower traffic partially offset by higher average transaction value[98] - Gross margin improved by 1.0 percentage point to 69.9%, benefiting from strategic price increases despite higher raw material costs[100] - SG&A expenses decreased by 0.8% primarily due to lower occupancy, depreciation, and insurance expenses, partially offset by increased marketing and shipping costs[101] - Net income decreased by 20.6% to $8.9 million, influenced by a higher income tax provision[97][104] Thirty-nine weeks ended October 29, 2022 Compared to Thirty-nine weeks ended October 30, 2021 Compares J.Jill, Inc.'s financial results for the thirty-nine-week periods, highlighting changes in sales, margins, and net income | Metric | Oct 29, 2022 (in thousands) | Oct 30, 2021 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net sales | $467,616 | $440,053 | $27,563 | 6.3% | | Gross profit | $326,960 | $301,714 | $25,246 | 8.4% | | Gross margin | 69.9% | 68.6% | 1.3 pp | | | Selling, general and administrative expenses | $254,624 | $250,516 | $4,108 | 1.6% | | Operating income | $70,928 | $51,198 | $19,730 | 38.5% | | Income (loss) before provision for income taxes | $56,552 | $(23,288) | $79,840 | (342.8)% | | Net income (loss) | $41,139 | $(31,718) | $72,857 | (229.7)% | - Net sales increased by 6.3% to $467.6 million, driven by a 6.8% increase in total company comparable sales, benefiting from higher Retail customer traffic, strong full-price sales, and fewer promotions[106] - Gross margin improved by 1.3 percentage points to 69.9%, attributed to an improved merchandise mix and lower promotional discounts[108][109] - SG&A expenses increased by 1.6% due to higher compensation and marketing expenses, partially offset by decreased occupancy costs from store closures and lease renegotiations[110] - The company achieved a net income of $41.1 million, a significant improvement from a net loss of $31.7 million in the prior year, largely due to the absence of fair value adjustments on warrants and derivatives[105][112] Liquidity and Capital Resources Examines J.Jill, Inc.'s liquidity sources, capital structure, debt compliance, and cash flow activities - Primary liquidity sources are cash from operations and availability under the ABL Facility. As of October 29, 2022, the company had $90.1 million in cash and cash equivalents and $33.0 million available under its ABL Facility[115] - The ABL Facility's maturity date was extended to May 8, 2024, and its benchmark interest rate was changed from LIBOR to the secured overnight financing rate[115] - The company received a total federal income tax refund of $26.7 million related to Fiscal Year 2020, benefiting from CARES Act provisions allowing net operating loss carrybacks[116][117] - All debt agreements (Priming Loan, Subordinated Term Loan, ABL) include customary covenants, and the company was in compliance as of October 29, 2022[118] | Cash Flow Activity | 39 Weeks Ended Oct 29, 2022 (in thousands) | 39 Weeks Ended Oct 30, 2021 (in thousands) | | :------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $66,720 | $53,423 | | Net cash used in investing activities | $(5,173) | $(2,488) | | Net cash used in financing activities | $(7,424) | $(37,869) | - Net cash provided by operating activities increased by $13.3 million, primarily due to improved net income[120] - Net cash used in financing activities significantly decreased to $7.4 million from $37.9 million, as the prior year included a $25.0 million voluntary principal payment on the Priming Loan[124] Critical Accounting Policies and Significant Estimates Outlines J.Jill, Inc.'s critical accounting estimates, including revenue recognition, inventory valuation, and asset impairment assessments - Critical accounting estimates involve revenue recognition (gift card breakage, merchandise returns), inventory valuation, and impairment assessments for goodwill, indefinite-lived intangible assets, and long-lived assets[130] - No significant changes to critical accounting policies and estimates were reported since the 2021 Annual Report[131] Recent Accounting Pronouncements Refers to Note 2 for details on J.Jill, Inc.'s recently adopted accounting standards and their estimated effects - Refer to Note 2 for details on recently adopted accounting standards and their estimated effects[132] Special Note Regarding Forward-Looking Statements Warns readers about forward-looking statements in the report, emphasizing inherent risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements identified by terms like 'anticipate,' 'expect,' and 'will,' which involve known and unknown risks and uncertainties[133][134] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially due to factors discussed in 'Risk Factors' and other cautionary statements[134][135] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the company's exposure to market risk during the third quarter of Fiscal Year 2022 - No material changes in market risk exposure occurred during the third quarter of Fiscal Year 2022[136] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 29, 2022, ensuring timely and accurate reporting of material information. No material changes to internal control over financial reporting occurred during the third quarter of Fiscal Year 2022 - Disclosure controls and procedures were deemed effective as of October 29, 2022, by management, including the CEO and CFO[137] - No material changes to internal control over financial reporting occurred during the third quarter of Fiscal Year 2022[138] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not believe any will have a material adverse effect on its financial statements. Reserves are established for probable and estimable losses - The company is involved in routine legal proceedings, but management does not anticipate any material adverse effects on financial statements[140] Item 1A. Risk Factors This section refers to the risk factors detailed in the company's 2021 Annual Report, stating that no material changes to these risks have occurred as of the date of this Quarterly Report. However, additional or currently immaterial risks may emerge - No material changes to previously disclosed risk factors in the 2021 Annual Report have occurred as of this filing date[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports that there were no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[142] Item 3. Defaults Upon Senior Securities This item indicates that there were no defaults upon senior securities during the period - No defaults upon senior securities occurred during the period[143] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[144] Item 5. Other Information This item states that there is no other information to report - No other information is reported under this item[145] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report, including certificates of incorporation, bylaws, certifications of principal executive and financial officers, and Inline XBRL documents - The exhibit index includes corporate governance documents (Certificate of Incorporation, Bylaws), officer certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents for financial data[146][148] SIGNATURES - The report is duly signed on December 6, 2022, by Claire Spofford, Chief Executive Officer, and Mark Webb, Executive Vice President, Chief Financial Officer/Chief Operating Officer[150][152]