10-Q 1 jill-20231028.htm 10-Q 10-Q
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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 October 28, 2023

OR

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
Identification No.)

 

 

 

4 Batterymarch Park,

Quincy, MA 02169

 

02169

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (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 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, 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 1, 2023 the registrant had 10,602,705 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

2

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

 

3

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) (Unaudited)

 

4

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

Item 2.

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

 

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

Controls and Procedures

 

23

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

24

Item 1A.

Risk Factors

 

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3.

Defaults Upon Senior Securities

 

24

Item 4.

Mine Safety Disclosures

 

24

Item 5.

Other Information

 

24

Item 6.

Exhibits

 

24

Exhibit Index

 

24

Signatures

 

26

 

 

 

 

1


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

J.Jill, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

October 28, 2023

 

 

January 28, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,115

 

 

$

87,053

 

Accounts receivable

 

 

6,210

 

 

 

7,039

 

Inventories, net

 

 

56,652

 

 

 

50,585

 

Prepaid expenses and other current assets

 

 

16,629

 

 

 

16,143

 

Total current assets

 

 

143,606

 

 

 

160,820

 

Property and equipment, net

 

 

53,883

 

 

 

53,497

 

Intangible assets, net

 

 

67,981

 

 

 

73,188

 

Goodwill

 

 

59,697

 

 

 

59,697

 

Operating lease assets, net

 

 

112,389

 

 

 

119,118

 

Other assets

 

 

492

 

 

 

97

 

Total assets

 

$

438,048

 

 

$

466,417

 

Liabilities and Shareholders’ Equity (Deficit):

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

48,981

 

 

$

39,306

 

Accrued expenses and other current liabilities

 

 

42,858

 

 

 

49,730

 

Current portion of long-term debt

 

 

8,750

 

 

 

3,424

 

Current portion of operating lease liabilities

 

 

35,415

 

 

 

34,527

 

Total current liabilities

 

 

136,004

 

 

 

126,987

 

Long-term debt, net of discount and current portion

 

 

148,731

 

 

 

195,517

 

Long-term debt, net of discount - related party

 

 

 

 

 

9,719

 

Deferred income taxes

 

 

10,738

 

 

 

10,059

 

Operating lease liabilities, net of current portion

 

 

110,008

 

 

 

123,101

 

Other liabilities

 

 

909

 

 

 

1,253

 

Total liabilities

 

 

406,390

 

 

 

466,636

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

Shareholders’ Equity (Deficit)

 

 

 

 

 

 

Common stock, par value $0.01 per share; 50,000,000 shares authorized; 10,603,506 and 10,165,361 shares issued and outstanding at October 28, 2023 and January 28, 2023, respectively

 

 

107

 

 

 

102

 

Additional paid-in capital

 

 

212,443

 

 

 

212,005

 

Accumulated deficit

 

 

(180,892

)

 

 

(212,326

)

Total shareholders’ equity (deficit)

 

 

31,658

 

 

 

(219

)

Total liabilities and shareholders’ equity (deficit)

 

$

438,048

 

 

$

466,417

 

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

2


Table of Contents

 

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

 

 

 

October 28, 2023

 

 

October 29, 2022

 

 

October 28, 2023

 

 

October 29, 2022

 

Net sales

 

$

150,125

 

 

$

150,204

 

 

$

455,214

 

 

$

467,616

 

Costs of goods sold (exclusive of depreciation and amortization)

 

 

42,283

 

 

 

45,181

 

 

 

128,423

 

 

 

140,656

 

Gross profit

 

 

107,842

 

 

 

105,023

 

 

 

326,791

 

 

 

326,960

 

Selling, general and administrative expenses

 

 

85,694

 

 

 

84,873

 

 

 

251,161

 

 

 

254,624

 

Impairment of long-lived assets

 

 

21

 

 

 

1,300

 

 

 

66

 

 

 

1,408

 

Operating income

 

 

22,127

 

 

 

18,850

 

 

 

75,564

 

 

 

70,928

 

Loss on debt refinancing

 

 

 

 

 

 

 

 

12,702

 

 

 

 

Interest expense, net

 

 

5,794

 

 

 

4,348

 

 

 

17,008

 

 

 

11,553

 

Interest expense, net - related party

 

 

 

 

 

1,092

 

 

 

1,074

 

 

 

2,823

 

Income before provision for income taxes

 

 

16,333

 

 

 

13,410

 

 

 

44,780

 

 

 

56,552

 

Income tax provision

 

 

4,717

 

 

 

4,491

 

 

 

13,346

 

 

 

15,413

 

Net income and total comprehensive income

 

$

11,616

 

 

$

8,919

 

 

$

31,434

 

 

$

41,139

 

Per share data (Note 8):

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.82

 

 

$

0.64

 

 

$

2.22

 

 

$

2.95

 

Diluted

 

$

0.80

 

 

$

0.62

 

 

$

2.19

 

 

$

2.89

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,169,955

 

 

 

13,962,467

 

 

 

14,130,734

 

 

 

13,922,460

 

Diluted

 

 

14,448,228

 

 

 

14,297,925

 

 

 

14,379,529

 

 

 

14,240,486

 

 

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

3


Table of Contents

 

J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(in thousands, except common share data)

 

 

 

 

 

 

 

 

 

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

 

Vesting of restricted stock units

 

 

39,334

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(17,431

)

 

 

 

 

 

(371

)

 

 

 

 

 

(371

)

Equity-based compensation

 

 

 

 

 

 

 

 

937

 

 

 

 

 

 

937

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,222

 

 

 

15,222

 

Balance, July 29, 2023

 

 

10,602,705

 

 

$

107

 

 

$

211,514

 

 

$

(192,508

)

 

$

19,113

 

Vesting of restricted stock units

 

 

1,293

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(492

)

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Equity-based compensation

 

 

 

 

 

 

 

 

942

 

 

 

 

 

 

942

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11,616

 

 

 

11,616

 

Balance, October 28, 2023

 

 

10,603,506

 

 

$

107

 

 

$

212,443

 

 

$

(180,892

)

 

$

31,658

 

 

 

 

 

 

 

 

 

 

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

)

Vesting of restricted stock units

 

 

62,090

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(13,430

)

 

 

 

 

 

(244

)

 

 

 

 

 

(244

)

Equity-based compensation

 

 

 

 

 

 

 

 

976

 

 

 

 

 

 

976

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,805

 

 

 

17,805

 

Balance, July 30, 2022

 

 

10,148,504

 

 

$

102

 

 

$

210,398

 

 

$

(222,281

)

 

$

(11,781

)

Vesting of restricted stock units

 

 

4,863

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(1,429

)

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

Equity-based compensation

 

 

 

 

 

 

 

 

897

 

 

 

 

 

 

897

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,919

 

 

 

8,919

 

Balance, October 29, 2022

 

 

10,151,938

 

 

$

102

 

 

$

211,268

 

 

$

(213,362

)

 

$

(1,992

)

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

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J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

For the Thirty-Nine Weeks Ended

 

 

 

October 28, 2023

 

 

October 29, 2022

 

Net Income

 

$

31,434

 

 

$

41,139

 

Operating activities:

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

16,847

 

 

 

19,445

 

Impairment of long-lived assets

 

 

66

 

 

 

1,408

 

Adjustment for exited retail stores

 

 

(632

)

 

 

(246

)

Loss on disposal of fixed assets

 

 

65

 

 

 

231

 

Loss on debt refinancing

 

 

12,702

 

 

 

 

Noncash interest expense, net

 

 

2,826

 

 

 

4,138

 

Equity-based compensation

 

 

2,757

 

 

 

2,615

 

Deferred rent incentives

 

 

(116

)

 

 

(539

)

Deferred income taxes

 

 

679

 

 

 

(472

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

829

 

 

 

(2,168

)

Inventories, net

 

 

(6,067

)

 

 

(4,105

)

Prepaid expenses and other current assets

 

 

(486

)

 

 

(1,034

)

Accounts payable

 

 

9,453

 

 

 

(2,767

)

Accrued expenses and other current liabilities

 

 

(8,183

)

 

 

14,336

 

Operating lease assets and liabilities

 

 

(4,844

)

 

 

(5,360

)

Other noncurrent assets and liabilities

 

 

(648

)

 

 

99

 

Net cash provided by operating activities

 

 

56,682

 

 

 

66,720

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,822

)

 

 

(2,467

)

Capitalized software

 

 

(4,938

)

 

 

(2,706

)

Net cash used in investing activities

 

 

(10,760

)

 

 

(5,173

)

Financing activities:

 

 

 

 

 

 

Principal repayments on Term Loan

 

 

(4,374

)

 

 

 

Principal repayments on Priming Term Loan

 

 

(201,349

)

 

 

(6,332

)

Principal repayments on Subordinated Term Loan-related party

 

 

(21,181

)

 

 

 

Proceeds from issuance of Term Loan

 

 

164,050

 

 

 

 

Third-party debt financing costs

 

 

(3,692

)

 

 

 

Surrender of shares to pay withholding taxes

 

 

(2,314

)

 

 

(1,092

)

Net cash used in financing activities

 

 

(68,860

)

 

 

(7,424

)

Net change in cash and cash equivalents

 

 

(22,938

)

 

 

54,123

 

Cash and cash equivalents:

 

 

 

 

 

 

Beginning of Period

 

 

87,053

 

 

 

35,957

 

End of Period

 

$

64,115

 

 

$

90,080

 

 

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

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J.Jill, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Description of Business

J.Jill, Inc., “J.Jill” or the “Company”, is a national lifestyle brand that provides apparel, footwear and accessories designed to help its customers move through a full life with ease. The brand represents an easy, thoughtful and inspired style that celebrates the totality of all women and designs its products with its core brand ethos in mind: keep it simple and make it matter. J.Jill offers a high touch customer experience through over 200 stores nationwide and a robust ecommerce platform. J.Jill is 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, 2023 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, 2023 are not necessarily indicative of future results or results to be expected for Fiscal Year 2023. You should read these statements in conjunction with our audited consolidated financial statements and related notes in our 2022 Annual Report.

Financial Statement Presentation
 

Certain reclassifications have been made to prior periods to conform with the current period presentation. On the consolidated statement of cash flows, the Company reclassified amounts for capitalized software purchases for the thirty-nine weeks ended October 29, 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 thirty-nine weeks ended October 28, 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 operations at the headquarters, including utilities, depreciation and amortization. These expenses also consist of 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.

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Recently Issued Accounting Pronouncements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative”. This ASU amends the FASB Accounting Standards Codification in response to the SEC's disclosure update and simplification initiative. This guidance will be applied prospectively with effective date for each amendment to be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is assessing what impact this guidance will have on the Company's condensed consolidated financial statements.

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

 

 

For the Thirty-Nine Weeks Ended

 

 

 

October 28, 2023

 

 

October 29, 2022

 

 

October 28, 2023

 

 

October 29, 2022

 

Retail

 

$

82,051

 

 

$

81,800

 

 

$

250,365

 

 

$

253,093

 

Direct

 

 

68,074

 

 

 

68,404

 

 

 

204,849

 

 

 

214,523

 

Net sales

 

$

150,125

 

 

$

150,204

 

 

$

455,214

 

 

$

467,616

 

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):

 

 

October 28, 2023

 

 

January 28, 2023

 

Contract liabilities:

 

 

 

 

 

 

Signing bonus (1)

 

 

 

 

$

82

 

Unredeemed gift cards

 

 

5,184

 

 

 

7,131

 

Total contract liabilities

 

$

5,184

 

 

$

7,213

 

(1) Signing bonus is included in Accrued expenses and other current liabilities on the Company’s consolidated balance sheets as of January 28, 2023.

The Company recognized revenue related to gift card redemptions and breakage for the thirteen and thirty-nine weeks ended October 28, 2023 of approximately $2.0 million and $7.5 million, respectively, and for the thirteen and thirty-nine weeks ended October 29, 2022 of approximately $1.8 million and $7.3 million, respectively. Revenue recognized consists of gift cards that were part of the unredeemed gift card balance at the beginning of the period as well as gift cards that were issued and redeemed during the period.

Performance Obligations

As of August 2023, the remaining, immaterial balance of the performance obligation for the signing bonus related to the private label credit card agreement was fully amortized.

Unredeemed gift cards require a performance obligation for revenue to be recognized, but substantially all gift cards are redeemed in the first year 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.

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4. Goodwill and Other Intangible Assets

The balance of goodwill was $59.7 million at October 28, 2023 and January 28, 2023. The accumulated goodwill impairment losses as of October 28, 2023 are $137.3 million.

A summary of other intangible assets as of October 28, 2023 and January 28, 2023 is as follows (in thousands):

 

 

 

 

 

October 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

 

 

 

97,599

 

 

 

2,620

 

 

 

33,981

 

Total intangible assets

 

 

 

$

192,300

 

 

$

97,599

 

 

$

26,720

 

 

$

67,981

 

 

 

 

 

 

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 October 28, 2023 and October 29, 2022, respectively, and $5.2 million and $5.6 million for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.

Impairment Tests

Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the 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.

During the thirty-nine weeks ended October 28, 2023 and October 29, 2022, the Company did not identify any events or circumstances that indicated the fair value of a reporting unit was less than its carrying value.
 


 

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5. Debt

The components of the Company’s outstanding long-term debt at October 28, 2023 and January 28, 2023 were as follows (in thousands):

 

 

At October 28, 2023

 

 

 

Outstanding Balance

 

 

Original Issue Discount

 

 

Capitalized Fees & Expenses

 

 

Balance Sheet

 

Term Loan due 2028

 

$

170,625

 

 

$

(9,858

)

 

$

(3,286

)

 

$

157,481

 

Less: Current portion

 

 

(8,750

)

 

 

 

 

 

 

 

 

(8,750

)

Net long-term debt

 

$

161,875

 

 

$

(9,858

)

 

$

(3,286

)

 

$

148,731

 

 

 

 

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

On April 5, 2023, the Company and Jill Acquisition LLC (the “Borrower”) entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among the lenders party thereto and Jefferies Finance LLC, 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 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 Facility due upon maturity on May 8, 2028. 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 October 28, 2023 and are 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. On October 27, 2023, the Company made a quarterly payment of $2.2 million in accordance with the Term Loan Credit Agreement.

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.

As of October 28, 2023, the Company was in compliance with all covenants.

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Table of Contents

 

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 balance 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 the 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 of 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 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 $9.3 million relates to the Subordinated Credit Agreement, 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 during the thirty-nine weeks ended October 28, 2023. No debt refinancing gains or losses were recognized during the thirty-nine weeks ended October 29, 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”).

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 the other lenders party thereto, 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 Facility remain substantially unchanged. 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 October 28, 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 October 28, 2023 and January 28, 2023. The Company’s available borrowing capacity under the ABL Facility as of October 28, 2023 and January 28, 2023 was $34.2 million and $30.0 million, respectively. At October 28, 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 October 28, 2023, the maximum commitment for letters of credit was $10.0 million.

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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:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.
Level 3 - Unobservable inputs for the assets or liabilities that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These are valued based on management’s estimates and assumptions that market participants would use in pricing the asset or liabilities.

The following table presents the carrying value and fair value hierarchy for debt as of October 28, 2023 and January 28, 2023, respectively (in thousands):

 

 

 

 

 

 

Fair Value as of October 28, 2023

 

 

 

Carrying Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial instruments not carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

     Total debt

 

$

157,481

 

 

$

 

 

$

163,030

 

 

$

 

Total financial instruments not carried at fair value

 

$

157,481

 

 

$

 

 

$

163,030

 

 

$

 

 

 

 

 

 

 

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 Credit Agreement as of October 28, 2023, and the Priming Credit Agreement and Subordinated Credit Agreement 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.

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7. Income Taxes

The Company recorded an income tax provision of $4.7 million and $4.5 million during the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. The Company recorded an income tax provision of $13.3 million and $15.4 million for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.

The effective tax rate for the thirteen and thirty-nine weeks ended October 28, 2023 differs from the federal statutory rate of 21% primarily due to the impact of state and local income taxes, executive compensation limitations and non-deductible expenses. The effective tax rate for the thirteen and thirty-nine weeks ended October 29, 2022 differs from the federal statutory rate of 21% primarily due to the impact of state and local income taxes, return to provision adjustments and partial release of its valuation allowance on state deferred tax assets.

As of October 28, 2023, the Company maintained a $1.3 million valuation allowance against the state deferred tax assets. The Company will continue to evaluate the positive and negative evidence available and may reduce the valuation allowance in the future if the Company’s recent profitability trends continue during the remainder of Fiscal Year 2023.

8. Net Income Per Share

The following table summarizes the computation of basic and diluted net income per common share (“EPS”) (in thousands, except share and per share data):

 

 

 

For the Thirteen Weeks Ended

 

 

For the Thirty-Nine Weeks Ended

 

 

 

October 28, 2023

 

 

October 29, 2022

 

 

October 28, 2023

 

 

October 29, 2022

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

 

$

11,616

 

 

$

8,919

 

 

$

31,434

 

 

$

41,139

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

10,605,208

 

 

 

10,152,538

 

 

 

10,543,699

 

 

 

10,112,911

 

Assumed exercise of warrants

 

 

3,564,747

 

 

 

3,809,929

 

 

 

3,587,035

 

 

 

3,809,549

 

Weighted average common shares, basic

 

 

14,169,955

 

 

 

13,962,467

 

 

 

14,130,734

 

 

 

13,922,460

 

Dilutive effect of equity compensation awards

 

 

278,273

 

 

 

335,458

 

 

 

248,795

 

 

 

318,026

 

Weighted average common shares, diluted

 

 

14,448,228

 

 

 

14,297,925

 

 

 

14,379,529

 

 

 

14,240,486

 

Net income per common share, basic

 

$

0.82

 

 

$

0.64

 

 

$

2.22

 

 

$

2.95

 

Net income per common share, diluted

 

$

0.80

 

 

$

0.62

 

 

$

2.19

 

 

$

2.89

 

 

Equity compensation awards are excluded from the diluted earnings per share calculation when their inclusion would have an antidilutive effect such as when the Company 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. Accordingly, 35,195 and 72,248 shares for the thirteen and thirty-nine weeks ended October 28, 2023, respectively, and 110,982 and 136,546 shares for the thirteen and thirty-nine weeks ended October 29, 2022, respectively, were excluded from the diluted earnings per share calculation because their inclusion would be antidilutive.

For the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022, warrants issued to the Subordinated Credit Agreement 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


Table of Contents

 

9. Equity-Based Compensation

In conjunction with the initial public offering (“IPO”), on March 9, 2017, the Company established the J.Jill, Inc. Omnibus Equity Incentive Plan, as amended and restated on June 1, 2023 (the “A&R Plan”), which reserves common stock for issuance upon exercise of options, or in respect of granted awards. The A&R Plan is administered by the Compensation Committee of the Board of Directors (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.

On June 29, 2023, the Company registered an additional 750,000 shares of its common stock at par value of $0.01 per share. As of October 28, 2023, the A&R Plan has 2,043,453 shares of common stock reserved for issuance to awards granted by the Committee with an aggregate of 1,118,111 shares remaining for future issuance.

During the thirty-nine weeks ended October 28, 2023, the Committee approved and granted restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) under the A&R Plan.

Restricted Stock Units

For the thirty-nine weeks ended October 28, 2023 and October 29, 2022, the Committee granted RSUs under the A&R 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 thirty-nine weeks ended October 28, 2023 and October 29, 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 thirty-nine weeks ended October 28, 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

 

(267,864

)

$

12.97

 

Forfeited

 

(30,019

)

$

13.03

 

Unvested units outstanding at October 28, 2023

 

469,300

 

$

13.57

 

As of October 28, 2023, there was $4.6 million of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average service period of 2.4 years. The total fair value of RSUs vested during the thirty-nine weeks ended October 28, 2023 and October 29, 2022 was $