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J Crew Group
10-Q 2019-08-03 Quarter: 2019-08-03
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10-K 2019-02-02 Annual: 2019-02-02
10-Q 2018-11-03 Quarter: 2018-11-03
10-Q 2018-08-04 Quarter: 2018-08-04
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10-Q 2016-10-29 Quarter: 2016-10-29
10-Q 2016-07-30 Quarter: 2016-07-30
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10-K 2016-01-30 Annual: 2016-01-30
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10-Q 2014-08-02 Quarter: 2014-08-02
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10-K 2014-02-01 Annual: 2014-02-01
8-K 2019-09-13 Earnings, Exhibits
8-K 2019-09-13 Officers, Other Events, Exhibits
8-K 2019-09-13 Regulation FD, Exhibits
8-K 2019-05-29 Earnings, Exhibits
8-K 2019-04-11 Officers, Other Events
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8-K 2018-11-17 Officers, Exhibits
8-K 2018-09-19 Enter Agreement, Off-BS Arrangement, Exhibits
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HCAC Hennessy Capital Acquisition III 368
RCAR RenovaCare 137
GSPE Gulfslope Energy 44
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PARF Paradise 18
AGGG Antilia Group 1
DOW Dow Chemical 0
SGLDF Shoal Games 0
AQIM Altegris Qim Futures Fund 0
MTII Monitronics International 0
JCG 2019-08-03
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 jcg-ex101_47.htm
EX-10.2 jcg-ex102_48.htm
EX-31.1 jcg-ex311_6.htm
EX-31.2 jcg-ex312_8.htm
EX-32.1 jcg-ex321_7.htm

J Crew Group Earnings 2019-08-03

JCG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 jcg-10q_20190803.htm FORM 10-Q jcg-10q_20190803.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 3, 2019

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission

File Number

 

Registrant, State of Incorporation

Address and Telephone Number

 

I.R.S. Employer

Identification No.

333-175075

 

 

 

22-2894486

 

J.CREW GROUP, INC.

(Incorporated in Delaware)

 

225 Liberty Street

New York, New York 10281

Telephone: (212) 209-2500

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

None

 

N/A

 

N/A

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 every Interactive Data File required to be submitted 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 such files).      Yes        No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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   

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock

 

Outstanding at September 13, 2019

Common Stock, $.01 par value per share

 

1,000 shares

*

The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, but is not required to file such reports under such sections.

 

 

 

 


 

J.CREW GROUP, INC.

TABLE OF CONTENTS – FORM 10-Q

 

 

 

Page
Number

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

3

 

 

 

 

Condensed Consolidated Balance Sheets at August 3, 2019 and February 2, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the thirteen weeks ended August 3, 2019 and August 4, 2018

4

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the twenty-six weeks ended August 3, 2019 and August 4, 2018

5

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended August 3, 2019 and August 4, 2018

7

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

37

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

Item 1A.

Risk Factors

39

 

 

 

Item 6.

Exhibits

40

 

 

 

2


 

PART I – FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

J.CREW GROUP, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)

 

 

 

August 3,

2019

 

 

February 2,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,173

 

 

$

25,738

 

Restricted cash

 

 

3,728

 

 

 

13,747

 

Accounts receivable, net

 

 

42,059

 

 

 

40,342

 

Merchandise inventories, net

 

 

415,637

 

 

 

390,470

 

Prepaid expenses and other current assets

 

 

57,474

 

 

 

84,942

 

Refundable income taxes

 

 

4,531

 

 

 

7,331

 

Total current assets

 

 

550,602

 

 

 

562,570

 

Property and equipment, net

 

 

237,295

 

 

 

243,620

 

Right-of-use lease assets

 

 

501,787

 

 

 

 

Intangible assets, net

 

 

298,779

 

 

 

301,397

 

Goodwill

 

 

107,900

 

 

 

107,900

 

Other assets

 

 

12,618

 

 

 

6,164

 

Total assets

 

$

1,708,981

 

 

$

1,221,651

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

251,562

 

 

$

259,705

 

Other current liabilities

 

 

208,784

 

 

 

244,864

 

Borrowings under the ABL Facility

 

 

198,200

 

 

 

70,800

 

Current portion of right-of-use lease liabilities

 

 

113,831

 

 

 

 

Due to Parent

 

 

35,472

 

 

 

37,462

 

Interest payable

 

 

20,085

 

 

 

23,866

 

Current portion of long-term debt

 

 

21,600

 

 

 

32,070

 

Total current liabilities

 

 

849,534

 

 

 

668,767

 

Long-term debt, net

 

 

1,667,318

 

 

 

1,673,282

 

Long-term right-of-use lease liabilities

 

 

472,949

 

 

 

 

Lease-related deferred credits, net

 

 

 

 

 

105,877

 

Deferred income taxes, net

 

 

19,098

 

 

 

16,872

 

Other liabilities

 

 

35,064

 

 

 

29,096

 

Total liabilities

 

 

3,043,963

 

 

 

2,493,894

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock $0.01 par value; 1,000 shares authorized, issued and outstanding

 

 

 

 

 

 

Additional paid-in capital

 

 

733,250

 

 

 

733,229

 

Accumulated other comprehensive loss

 

 

(4,275

)

 

 

(1,967

)

Accumulated deficit

 

 

(2,063,957

)

 

 

(2,003,505

)

Total stockholders’ deficit

 

 

(1,334,982

)

 

 

(1,272,243

)

Total liabilities and stockholders’ deficit

 

$

1,708,981

 

 

$

1,221,651

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


 

J.CREW GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands)

 

 

 

For the

Thirteen

Weeks Ended

August 3, 2019

 

 

For the

Thirteen

Weeks Ended

August 4, 2018

 

Revenues:

 

 

 

 

 

 

 

 

Net sales

 

$

538,812

 

 

$

550,541

 

Other

 

 

50,017

 

 

 

37,032

 

Total revenues

 

 

588,829

 

 

 

587,573

 

Cost of goods sold, including buying and occupancy costs

 

 

379,383

 

 

 

361,572

 

Gross profit

 

 

209,446

 

 

 

226,001

 

Selling, general and administrative expenses

 

 

208,020

 

 

 

192,659

 

Impairment losses

 

 

2,962

 

 

 

 

Income (loss) from operations

 

 

(1,536

)

 

 

33,342

 

Interest expense, net

 

 

37,727

 

 

 

34,400

 

Loss before income taxes

 

 

(39,263

)

 

 

(1,058

)

Provision for income taxes

 

 

4,959

 

 

 

5,036

 

Net loss

 

$

(44,222

)

 

$

(6,094

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Reclassification of losses on cash flow hedges, net of tax, to earnings

 

 

1,137

 

 

 

365

 

Unrealized loss on cash flow hedges, net of tax

 

 

(2,632

)

 

 

(201

)

Foreign currency translation adjustments

 

 

138

 

 

 

(147

)

Comprehensive loss

 

$

(45,579

)

 

$

(6,077

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


 

J.CREW GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands)

 

 

 

For the

Twenty-six

Weeks Ended

August 3, 2019

 

 

For the

Twenty-six

Weeks Ended

August 4, 2018

 

Revenues:

 

 

 

 

 

 

 

 

Net sales

 

$

1,047,788

 

 

$

1,058,247

 

Other

 

 

119,547

 

 

 

69,776

 

Total revenues

 

 

1,167,335

 

 

 

1,128,023

 

Cost of goods sold, including buying and occupancy costs

 

 

744,112

 

 

 

695,214

 

Gross profit

 

 

423,223

 

 

 

432,809

 

Selling, general and administrative expenses

 

 

397,771

 

 

 

393,495

 

Impairment losses

 

 

4,880

 

 

 

6,866

 

Income from operations

 

 

20,572

 

 

 

32,448

 

Interest expense, net

 

 

74,645

 

 

 

67,382

 

Loss before income taxes

 

 

(54,073

)

 

 

(34,934

)

Provision for income taxes

 

 

6,379

 

 

 

5,085

 

Net loss

 

$

(60,452

)

 

$

(40,019

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Reclassification of losses on cash flow hedges, net of tax, to earnings

 

 

804

 

 

 

1,361

 

Unrealized gain (loss) on cash flow hedges, net of tax

 

 

(3,298

)

 

 

2,217

 

Foreign currency translation adjustments

 

 

186

 

 

 

(478

)

Comprehensive loss

 

$

(62,760

)

 

$

(36,919

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

5


 

J.CREW GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(unaudited)

(in thousands, except shares)

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

Accumulated

other

comprehensive

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

income (loss)

 

 

deficit

 

Balance at February 3, 2018

 

 

1,000

 

 

$

 

 

$

733,071

 

 

$

(1,883,426

)

 

$

(2,603

)

 

$

(1,152,958

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(33,925

)

 

 

 

 

 

(33,925

)

Share-based compensation

 

 

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

46

 

Reclassification of realized losses on cash flow

   hedges, net of tax, to earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

996

 

 

 

996

 

Unrealized gain on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,418

 

 

 

2,418

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(331

)

 

 

(331

)

Balance at May 5, 2018

 

 

1,000

 

 

 

 

 

 

733,117

 

 

 

(1,917,351

)

 

 

480

 

 

 

(1,183,754

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,094

)

 

 

 

 

 

(6,094

)

Share-based compensation

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

74

 

Reclassification of realized losses on cash flow

   hedges, net of tax, to earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

365

 

 

 

365

 

Unrealized loss on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

(201

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(147

)

 

 

(147

)

Balance at August 4, 2018

 

 

1,000

 

 

$

 

 

$

733,191

 

 

$

(1,923,445

)

 

$

497

 

 

$

(1,189,757

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at February 2, 2019

 

 

1,000

 

 

$

 

 

$

733,229

 

 

$

(2,003,505

)

 

$

(1,967

)

 

$

(1,272,243

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,230

)

 

 

 

 

 

(16,230

)

Share-based compensation

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Reclassification of realized gains on cash flow

   hedges, net of tax, to earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(333

)

 

 

(333

)

Unrealized loss on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(666

)

 

 

(666

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

Balance at May 4, 2019

 

 

1,000

 

 

 

 

 

 

733,233

 

 

 

(2,019,735

)

 

 

(2,918

)

 

 

(1,289,420

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(44,222

)

 

 

 

 

 

(44,222

)

Share-based compensation

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Reclassification of realized losses on cash flow

   hedges, net of tax, to earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,137

 

 

 

1,137

 

Unrealized loss on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,632

)

 

 

(2,632

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138

 

 

 

138

 

Balance at August 3, 2019

 

 

1,000

 

 

$

 

 

$

733,250

 

 

$

(2,063,957

)

 

$

(4,275

)

 

$

(1,334,982

)

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

6


 

J.CREW GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

For the

Twenty-six

Weeks Ended

August 3, 2019

 

 

For the

Twenty-six

Weeks Ended

August 4, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(60,452

)

 

$

(40,019

)

Adjustments to reconcile to cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

40,383

 

 

 

45,253

 

Impairment losses

 

 

4,880

 

 

 

6,866

 

Amortization of deferred financing costs and debt discount

 

 

3,591

 

 

 

3,579

 

Amortization of intangible assets

 

 

2,568

 

 

 

3,603

 

Deferred income taxes

 

 

2,553

 

 

 

5,508

 

Reclassification of hedging losses to earnings

 

 

804

 

 

 

1,854

 

Foreign currency transaction losses

 

 

447

 

 

 

229

 

Share-based compensation

 

 

21

 

 

 

120

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,717

)

 

 

(12,445

)

Merchandise inventories, net

 

 

(25,359

)

 

 

(120,761

)

Prepaid expenses and other current assets

 

 

13,556

 

 

 

(3,270

)

Other assets

 

 

(6,801

)

 

 

(1,214

)

Accounts payable and other

 

 

(55,104

)

 

 

41,847

 

Federal and state income taxes

 

 

4,584

 

 

 

(1,169

)

Net cash used in operating activities

 

 

(76,046

)

 

 

(70,019

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(39,557

)

 

 

(19,106

)

Net cash used in investing activities

 

 

(39,557

)

 

 

(19,106

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net borrowings under the ABL Facility

 

 

127,400

 

 

 

25,300

 

Proceeds from Notes

 

 

1,003

 

 

 

 

Principal repayments of Term Loan Facility

 

 

(21,204

)

 

 

(7,835

)

Net cash provided by financing activities

 

 

107,199

 

 

 

17,465

 

Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash

 

 

(180

)

 

 

(664

)

Decrease in cash, cash equivalents and restricted cash

 

 

(8,584

)

 

 

(72,324

)

Beginning balance

 

 

39,485

 

 

 

107,066

 

Ending balance

 

$

30,901

 

 

$

34,742

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

512

 

 

$

793

 

Interest paid

 

$

74,226

 

 

$

63,053

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.


7


 

J.CREW GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the thirteen and twenty-six weeks ended August 3, 2019 and August 4, 2018

(Dollars in thousands, unless otherwise indicated)

 

1. Basis of Presentation  

J.Crew Group, Inc. and its wholly owned subsidiaries (the “Company” or “Group”) were acquired (the “Acquisition”) on March 7, 2011 through a merger with a subsidiary of Chinos Holdings, Inc. (the “Parent”). The Parent was formed by investment funds affiliated with TPG Capital, L.P. (“TPG”) and Leonard Green & Partners, L.P. (“LGP” and, together with TPG, the “Sponsors”). Subsequent to the Acquisition, Group became an indirect, wholly owned subsidiary of Parent, which is owned by affiliates of the Sponsors, investors and members of management. Prior to March 7, 2011, the Company operated as a public company with its common stock traded on the New York Stock Exchange.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

The Company’s fiscal year ends on the Saturday closest to January 31. All references to “fiscal 2019” represent the 52-week fiscal year that will end on February 1, 2020 and to “fiscal 2018” represent the 52-week fiscal year that ended February 2, 2019.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly in all material respects the Company’s financial position, results of operations and cash flows for the applicable interim periods. Certain prior year amounts have been reclassified to conform to current period presentation. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.

Management is required to make estimates and assumptions about future events in preparing financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses at the date of the unaudited condensed consolidated financial statements. While management believes that past estimates and assumptions have been materially accurate, current estimates are subject to change if different assumptions as to the outcome of future events are made. Management evaluates estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on reasonable factors. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited condensed consolidated financial statements.

 

2. Revenue Recognition

Overview

The Company generates revenue from three sources: (i) customers who shop in its brick-and-mortar stores, (ii) customers who shop on its websites and (iii) wholesale customers who buy and resell its merchandise. The Company recognizes revenue at (i) the point-of-sale in brick-and-mortar stores, (ii) the date of receipt by a customer in the e-commerce business and (iii) the time ownership is transferred in the wholesale business.

8


 

Disaggregation of Revenue  

A summary of disaggregated revenue is as follows:

 

 

For the

Thirteen

Weeks Ended

 

 

For the

Twenty-six

Weeks Ended

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

August 3, 2019

 

 

August 4, 2018

 

J.Crew

 

$

399,078

 

 

$

428,891

 

 

$

775,161

 

 

$

820,756

 

Madewell

 

 

139,734

 

 

 

121,650

 

 

 

272,627

 

 

 

237,491

 

Other revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

38,839

 

 

 

25,107

 

 

 

98,140

 

 

 

48,354

 

Shipping and handling fees

 

 

9,231

 

 

 

8,806

 

 

 

16,849

 

 

 

16,127

 

Other

 

 

1,947

 

 

 

3,119

 

 

 

4,558

 

 

 

5,295

 

Total revenues

 

$

588,829

 

 

$

587,573

 

 

$

1,167,335

 

 

$

1,128,023

 

 

Accounts Receivable

A summary of accounts receivable with respect to the Company’s wholesale customers is as follows:

 

 

August 3, 2019

 

 

February 2, 2019

 

Accounts receivable

 

$

42,137

 

 

$

40,439

 

Less allowance for doubtful accounts

 

 

(78

)

 

 

(97

)

Accounts receivable, net

 

$

42,059

 

 

$

40,342

 

Contract Liabilities

The Company recognizes a contract liability when it has received consideration from a customer and has a future performance obligation to transfer merchandise to the customer. The Company’s contract liabilities include (i) unredeemed gift cards and (ii) unredeemed loyalty program rewards.  

With respect to unredeemed gift cards, the Company is obligated to transfer merchandise in the future when a holder uses a gift card to make a purchase. The contract liability for gift cards is increased when customers purchase cards, and decreased when (i) a customer redeems the card or (ii) the Company estimates the gift card will go unredeemed (referred to as “breakage”). All of the Company’s gift cards do not have an expiration date, and are classified as a current liability.  

With respect to unearned loyalty program rewards, the Company is obligated to transfer merchandise to the customer upon accumulating points to certain thresholds. The contract liability for unearned loyalty program rewards is increased as certain customers make qualifying purchases, and decreased when (i) a customer achieves a threshold and a rewards card is issued or merchandise is transferred or (ii) the expiration of accumulated points that did not reach a threshold.

Rollforwards of the liabilities for gift cards and loyalty program awards are as follows:              

 

 

 

Unredeemed Gift Cards

 

 

 

For the

Thirteen

Weeks Ended

 

 

For the

Twenty-six

Weeks Ended

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

August 3, 2019

 

 

August 4, 2018

 

Balance at beginning of period

 

$

32,962

 

 

$

28,882

 

 

$

36,167

 

 

$

32,665

 

Issuance of cards

 

 

14,657

 

 

 

14,274

 

 

 

26,888

 

 

 

27,495

 

Redemption of cards

 

 

(13,830

)

 

 

(14,382

)

 

 

(28,531

)

 

 

(30,345

)

Recognition of estimated breakage

 

 

(807

)

 

 

(867

)

 

 

(1,617

)

 

 

(1,788

)

Other

 

 

261

 

 

 

24

 

 

 

336

 

 

 

(96

)

Balance at end of period

 

$

33,243

 

 

$

27,931

 

 

$

33,243

 

 

$

27,931

 

 

 

9


 

 

 

Unredeemed Loyalty Program Rewards

 

 

 

For the

Thirteen

Weeks Ended

 

 

For the

Twenty-six

Weeks Ended

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

August 3, 2019

 

 

August 4, 2018

 

Balance at beginning of period

 

$

15,392

 

 

$

3,914

 

 

$

13,830

 

 

$

8,422

 

Earning of loyalty program points

 

 

8,221

 

 

 

4,615

 

 

 

17,493

 

 

 

8,152

 

Redemption of cards

 

 

(6,632

)

 

 

(2,048

)

 

 

(12,065

)

 

 

(9,511

)

Recognition of estimated breakage

 

 

485

 

 

 

(1,136

)

 

 

(1,784

)

 

 

(1,903

)

Other

 

 

(23

)

 

 

31

 

 

 

(31

)

 

 

216

 

Balance at end of period

 

$

17,443

 

 

$

5,376

 

 

$

17,443

 

 

$

5,376

 

 

3. Leases

Overview

The Company is party to various long-term operating lease agreements in connection with the leasing of its brick-and-mortar stores and its corporate offices. These operating leases expire on varying dates through 2034, with a portion of these leases containing options to renew for periods of up to 5 years. Generally, these leases contain standard provisions concerning the payment of rent, events of default and the rights and obligations of each party. Rent due under the leases is typically comprised of annual base rent plus a contingent rent payment based on the store’s sales in excess of a specified threshold. Some of the leases also contain early termination options, which can be exercised by the Company or the landlord under certain conditions. The leases ordinarily require the Company to pay real estate taxes, insurance, certain utilities and common area costs.

Accounting for Leases

Historically, these operating leases were accounted for by expensing rent payments on a straight-line basis after consideration of rent holidays, step rent provisions and escalation clauses. Differences between rental expense, which was recognized from the date of possession, and actual rental payments were recorded as deferred rent and included in deferred credits. No liabilities were recognized on the balance sheet for long-term obligations pursuant to these lease agreements.

During the first quarter of fiscal 2019, however, the Company adopted pronouncements that were issued with respect to the accounting for leases. The pronouncements require lessees to recognize right-of-use lease assets (“ROU assets”) and right-of-use lease liabilities (“ROU liabilities”) for leases with terms of more than one year. The ROU liabilities are measured as the present value of the lease obligations. The ROU assets reflect the amount of the ROU liabilities less lease-related deferred credits. The Company used the effective date method whereby initial application occurred on the date of adoption with comparative periods unchanged. 

Upon adoption of the new standard, the Company recorded a significant gross-up to the balance sheet, including ROU assets of $533.5 million and ROU liabilities of $624.6 million. The Company utilized the package of practical expedients permitted by the transition guidance, which allowed for a carryforward of its identification of leases, historical lease classification and initial direct costs for existing leases. The Company elected to use hindsight in determining lease term.

The new pronouncement requires a company to discount its ROU liabilities using implicit rates of return in the underlying leases. To the extent these rates of return cannot be readily determined, a company is permitted to use its incremental borrowing rate, which is required to be a collateralized rate for a period of time that corresponds to the remaining lease term.  

A summary of the components of lease expense included in the statement of operations is as follows:

 

 

For the

Thirteen

Weeks Ended

August 3, 2019

 

 

For the

Twenty-six

Weeks Ended

August 3, 2019

 

Operating lease cost

 

$

35,899

 

 

$

71,015

 

Variable lease cost

 

 

25,733

 

 

 

54,483

 

Total lease cost

 

$

61,632

 

 

$

125,498

 

As of August 3, 2019, the weighted-average remaining lease term was 8.2 years and the weighted-average discount rate was 9.01%. The Company paid $78.3 million in the first half of fiscal 2019 for amounts included in the measurement of the ROU liabilities.

10


 

A reconciliation of undiscounted cash flows to the ROU liabilities is as follows:

Fiscal year

 

Amount

 

Remainder of 2019

 

$

77,354

 

2020

 

 

130,398

 

2021

 

 

129,028

 

2022

 

 

114,429

 

2023

 

 

89,116

 

Thereafter

 

 

312,318

 

Total lease payments

 

$

852,643

 

Less: interest

 

 

(265,863

)

Present value of ROU liabilities

 

$

586,780

 

 

 

 

August 3, 2019

 

Current portion of ROU liabilities

 

$

113,831

 

Long-term ROU liabilities

 

 

472,949

 

Total ROU liabilities

 

$

586,780

 

A summary of aggregate minimum rent at February 2, 2019 is as follows:

Fiscal year