Item 1. Financial Statements
J.Jill, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
|
|
November 3, 2018
|
|
|
February 3, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
59,890
|
|
|
$
|
25,978
|
|
Accounts receivable
|
|
|
7,509
|
|
|
|
4,733
|
|
Inventories, net
|
|
|
78,844
|
|
|
|
80,591
|
|
Prepaid expenses and other current assets
|
|
|
25,053
|
|
|
|
21,166
|
|
Total current assets
|
|
|
171,296
|
|
|
|
132,468
|
|
Property and equipment, net
|
|
|
113,932
|
|
|
|
118,420
|
|
Intangible assets, net
|
|
|
139,373
|
|
|
|
148,961
|
|
Goodwill
|
|
|
197,026
|
|
|
|
197,026
|
|
Other assets
|
|
|
501
|
|
|
|
682
|
|
Total assets
|
|
$
|
622,128
|
|
|
$
|
597,557
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,648
|
|
|
$
|
53,962
|
|
Accrued expenses and other current liabilities
|
|
|
47,099
|
|
|
|
48,759
|
|
Current portion of long-term debt
|
|
|
2,799
|
|
|
|
2,799
|
|
Total current liabilities
|
|
|
101,546
|
|
|
|
105,520
|
|
Long-term debt, net of discount and current portion
|
|
|
237,813
|
|
|
|
238,881
|
|
Deferred income taxes
|
|
|
42,348
|
|
|
|
46,263
|
|
Other liabilities
|
|
|
30,008
|
|
|
|
27,577
|
|
Total liabilities
|
|
|
411,715
|
|
|
|
418,241
|
|
Commitments and contingencies (see Note 9)
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 250,000,000 shares authorized;
43,747,757 and 43,752,790 shares issued and outstanding at November 3, 2018 and February 3, 2018, respectively
|
|
|
437
|
|
|
|
437
|
|
Additional paid-in capital
|
|
|
120,347
|
|
|
|
117,393
|
|
Accumulated earnings
|
|
|
89,629
|
|
|
|
61,486
|
|
Total shareholders’ equity
|
|
|
210,413
|
|
|
|
179,316
|
|
Total liabilities and shareholders’ equity
|
|
$
|
622,128
|
|
|
$
|
597,557
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
J.Jill, Inc.
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
|
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
Net sales
|
|
$
|
174,106
|
|
|
$
|
161,975
|
|
|
$
|
535,360
|
|
|
$
|
509,473
|
|
Costs of goods sold
|
|
|
58,643
|
|
|
|
53,479
|
|
|
|
182,901
|
|
|
|
162,721
|
|
Gross profit
|
|
|
115,463
|
|
|
|
108,496
|
|
|
|
352,459
|
|
|
|
346,752
|
|
Selling, general and administrative expenses
|
|
|
101,589
|
|
|
|
95,240
|
|
|
|
299,248
|
|
|
|
289,284
|
|
Operating income
|
|
|
13,874
|
|
|
|
13,256
|
|
|
|
53,211
|
|
|
|
57,468
|
|
Interest expense, net
|
|
|
4,698
|
|
|
|
4,496
|
|
|
|
14,368
|
|
|
|
14,525
|
|
Income before provision for income taxes
|
|
|
9,176
|
|
|
|
8,760
|
|
|
|
38,843
|
|
|
|
42,943
|
|
Provision for income taxes
|
|
|
2,488
|
|
|
|
2,766
|
|
|
|
10,412
|
|
|
|
16,926
|
|
Net income and total comprehensive income
|
|
$
|
6,688
|
|
|
$
|
5,994
|
|
|
$
|
28,431
|
|
|
$
|
26,017
|
|
Net income per common share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.67
|
|
|
$
|
0.62
|
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
0.64
|
|
|
$
|
0.60
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,953,173
|
|
|
|
41,731,765
|
|
|
|
42,674,957
|
|
|
|
41,933,244
|
|
Diluted
|
|
|
44,475,793
|
|
|
|
43,554,000
|
|
|
|
44,199,800
|
|
|
|
43,468,846
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
J.Jill, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except common share data)
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
Balance, February 3, 2018
|
|
|
43,752,790
|
|
|
$
|
437
|
|
|
$
|
117,393
|
|
|
$
|
61,486
|
|
|
$
|
179,316
|
|
Adoption of ASU 2014-09
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(288
|
)
|
|
|
(288
|
)
|
Vesting of restricted stock units
|
|
|
6,410
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
760
|
|
|
|
—
|
|
|
|
760
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,258
|
|
|
|
11,258
|
|
Balance, May 5, 2018
|
|
|
43,759,200
|
|
|
$
|
438
|
|
|
$
|
118,153
|
|
|
$
|
72,456
|
|
|
$
|
191,047
|
|
Vesting of restricted stock units
|
|
|
3,192
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeiture of restricted stock awards
|
|
|
(18,359
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,083
|
|
|
|
—
|
|
|
|
1,083
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,485
|
|
|
|
10,485
|
|
Balance, August 4, 2018
|
|
|
43,744,033
|
|
|
$
|
437
|
|
|
$
|
119,236
|
|
|
$
|
82,941
|
|
|
$
|
202,614
|
|
Vesting of restricted stock units
|
|
|
3,724
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,111
|
|
|
|
—
|
|
|
|
1,111
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,688
|
|
|
|
6,688
|
|
Balance, November 3, 2018
|
|
|
43,747,757
|
|
|
$
|
437
|
|
|
$
|
120,347
|
|
|
$
|
89,629
|
|
|
$
|
210,413
|
|
(1)
See Note 2 for additional detail regarding the adoption of new accounting standards.
J.Jill, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ / MEMBERS’ EQUITY (UNAUDITED)
(in thousands, except common share and common unit data)
|
|
Common Units
|
|
|
Common Stock
|
|
|
Contributed
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
Balance, January 28, 2017
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116,743
|
|
|
|
—
|
|
|
|
6,121
|
|
|
|
122,864
|
|
Other equity transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
Corporate Conversion
|
|
|
(1,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(117,048
|
)
|
|
|
117,048
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of Common Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
43,747,944
|
|
|
|
437
|
|
|
|
—
|
|
|
|
(437
|
)
|
|
|
—
|
|
|
|
—
|
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
24
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,027
|
|
|
|
8,027
|
|
Balance, April 29, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
43,747,944
|
|
|
$
|
437
|
|
|
$
|
—
|
|
|
$
|
116,635
|
|
|
$
|
14,148
|
|
|
$
|
131,220
|
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
237
|
|
|
|
—
|
|
|
|
237
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,996
|
|
|
|
11,996
|
|
Balance, July 29, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
43,747,944
|
|
|
$
|
437
|
|
|
$
|
—
|
|
|
$
|
116,872
|
|
|
$
|
26,144
|
|
|
$
|
143,453
|
|
Equity-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
278
|
|
|
|
—
|
|
|
|
278
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,994
|
|
|
|
5,994
|
|
Balance, October 28, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
43,747,944
|
|
|
$
|
437
|
|
|
$
|
—
|
|
|
$
|
117,150
|
|
|
$
|
32,138
|
|
|
$
|
149,725
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
J.Jill, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
For the Thirty-Nine Weeks Ended
|
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
Net income
|
|
$
|
28,431
|
|
|
$
|
26,017
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,397
|
|
|
|
25,759
|
|
Loss on disposal of fixed assets
|
|
|
87
|
|
|
|
569
|
|
Noncash amortization of deferred financing and debt discount costs
|
|
|
1,196
|
|
|
|
2,012
|
|
Equity-based compensation
|
|
|
2,954
|
|
|
|
539
|
|
Deferred rent liability
|
|
|
(99
|
)
|
|
|
978
|
|
Deferred income taxes
|
|
|
(3,812
|
)
|
|
|
(2,342
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,777
|
)
|
|
|
(5,211
|
)
|
Inventories
|
|
|
1,747
|
|
|
|
(18,764
|
)
|
Prepaid expenses and other current assets
|
|
|
(4,958
|
)
|
|
|
2,173
|
|
Accounts payable
|
|
|
(3,032
|
)
|
|
|
15,278
|
|
Accrued expenses
|
|
|
44
|
|
|
|
667
|
|
Other noncurrent assets and liabilities
|
|
|
2,850
|
|
|
|
6,860
|
|
Net cash provided by operating activities
|
|
|
50,028
|
|
|
|
54,535
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(14,017
|
)
|
|
|
(22,325
|
)
|
Net cash used in investing activities
|
|
|
(14,017
|
)
|
|
|
(22,325
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Repayments on long-term debt
|
|
|
(2,099
|
)
|
|
|
(22,099
|
)
|
Receivable from related party
|
|
|
—
|
|
|
|
2,227
|
|
Net cash used in financing activities
|
|
|
(2,099
|
)
|
|
|
(19,872
|
)
|
Net change in cash
|
|
|
33,912
|
|
|
|
12,338
|
|
Cash:
|
|
|
|
|
|
|
|
|
Beginning of Period
|
|
|
25,978
|
|
|
|
13,468
|
|
End of Period
|
|
$
|
59,890
|
|
|
$
|
25,806
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
J.Jill, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Business
J.Jill, Inc.,“J.Jill” or the “Company”, is a premier omnichannel retailer and nationally recognized women’s apparel brand committed to delighting customers with great wear-now product. The brand represents an easy, relaxed, inspired style that reflects the confidence and comfort of a woman with a rich, full life. J.Jill provides guiding service through more than 270 stores nationwide and a robust e-commerce platform. J.Jill is headquartered outside Boston.
2. Summary of Significant Accounting Policies
Basis of Presentation
Our interim 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”). In the opinion of management, these interim 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 February 3, 2018 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 November 3, 2018 are not necessarily indicative of future results or results to be expected for the full year ending February 2, 2019. You should read these statements in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended February 3, 2018.
Significant changes to our accounting policies as a result of adopting Accounting Standards Update (“ASU”) 2014-09 –
Revenue from Contracts with Customers
(Topic 606)
are discussed below in “Significant Accounting Policies Update” and Note 3.
Recently Adopted Accounting Policies
In May 2014, the FASB issued ASU 2014-09 –
Revenue from Contracts with Customers (Topic 606)
, which supersedes the revenue recognition requirements in FASB ASC Topic 605 –
Revenue Recognition
. The new guidance established principles for reporting revenue and cash flows arising from an entity’s contracts with customers. The Company adopted ASU 2014-09 and related amendments, collectively known as Accounting Standards Codification 606 (“Topic 606”) as of February 4, 2018 on a modified retrospective basis. See “Significant Accounting Policies Update” and Note 3 for a discussion of our updated policies related to revenue recognition and disclosures related to the impact of this standard.
In October 2016 the FASB issued
ASU 2016-16 –
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
. This update is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Under the new guidance, an entity would recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. Intra-entity inventory transfers would still be an exception. The provisions of ASU 2016-16 were adopted as of February 4, 2018 under the modified retrospective method with no cumulative-effect adjustment to retained earnings.
In August 2016, the FASB issued ASU 2016-15 –
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments,
which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard was retrospectively adopted as of February 4, 2018 and did not have an impact on the consolidated statement of cash flows.
Recently Issued Accounting Pronouncements
In September 2018, the FASB issued ASU 2018-15 –
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. The amendment is intended to address aspects of the guidance issued in the amendments in ASU 2015-05. ASU 2018-15 intends to improve an entities ability to evaluate the accounting for fees paid by a customer in a cloud computing arrangement that is a service contract. The provisions of ASU 2018-15 are effective for fiscal years beginning after December 15, 2019. The Company plans to adopt these standards beginning in the first quarter of fiscal 2020 using a prospective approach. The Company is evaluating the impact that adopting ASU 2018-15 will have on its consolidated financial statements.
6
Table of Contents
In July 2018, the FASB issued ASU 2018-09
–
Codification Improvements
, which facilitates amendments to a variety of topics to clarify, correct errors i
n, or make minor improvements to the accounting standards codification. The effective date of the standard is dependent on the facts and circumstances of each amendment. Some amendments do not require transition guidance and will be effective upon the issu
ance of this standard. A majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2018. We will be required to adopt this standard in the first quarter of fiscal 2019.
This standard is not expected to have
a material impact on our consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07 –
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The provisions of ASU 2018-07 are effective for fiscal years beginning after December 15, 2018. The Company plans to adopt these standards beginning in the first quarter of fiscal 2019 using a modified retrospective approach. The Company is evaluating the impact that adopting ASU 2018-07 will have on its consolidated financial statements, and does not expect that impact to be material.
In February 2016, the FASB issued ASU 2016-02 –
Leases
. The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the beginning of interim or annual reporting periods. In July 2018, the FASB issued ASU 2018-10 –
Codification Improvements to Topic 842, Leases
. The amendments are intended to address narrow aspects of the guidance issued in the amendments in ASU 2016-02. In July 2018, the FASB issued ASU 2018-11 –
Leases (Topic 842): Targeted Improvements
, which provides an additional (and optional) transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. These provisions are effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that adopting ASU 2016-02 and related amendments will have on its consolidated financial statements and expects to raise significant “Right of Use” assets and significant, offsetting lease liabilities. These amounts have not yet been quantified. The Company plans to adopt these standards beginning in the first quarter of fiscal 2019 using the modified retrospective approach with a cumulative adjustment to retained earnings.
Significant Accounting Policies Update
Adoption of ASC Topic 606: Revenue from Contracts with Customers
On February 4, 2018, the Company adopted Topic 606 using the modified retrospective method applied to contracts which were not completed as of February 4, 2018. As part of the adoption of Topic 606, Topic 340-20 –
Capitalized Advertising Costs
was superseded and therefore, the Company transitioned to ASC 720-35 –
Advertising Costs
for reporting on costs of advertising. Results for reporting periods beginning after February 4, 2018 are presented under Topic 606 and Topic 720, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605 and Topic 340.
The Company recorded a cumulative reduction to opening retained earnings of $0.3 million. The impact on opening retained earnings was a $0.8 million decrease from the acceleration of prepaid catalog expenses offset by a $0.5 million increase from the recognition of direct revenues previously deferred under Topic 605.
Effective February 4, 2018, the Company changed its consolidated balance sheet presentation for expected sales returns and recorded a $5.0 million return asset and a corresponding increase to the return liability to present our sales reserve gross in accordance with Topic 606. In addition, as of the date of adoption of Topic 606, the Company will present reimbursements of costs of marketing programs related to the private label credit card gross in the consolidated statement of operations with no impact to opening retained earnings.
Revenue Recognition
Revenue is primarily derived from the sale of apparel and accessory merchandise through our retail channel and direct channel, which includes website and catalog phone orders. Revenue also includes shipping and handling fees collected from customers. Topic 606 requires entities to recognize revenue when control of the promised goods or services are transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Revenue from our retail channel is recognized at the time of sale and revenue from our direct channel is recognized upon shipment of merchandise to the customer.
7
Table of Contents
The Company has a return policy where merchandise returns will be accepted within 90 days of the original purchase
date. At the time of sale, the Company records an estimated sales reserve for merchandise returns based on historical prior returns experience and expected future returns. The estimated sales reserve is recorded as a return asset (and corresponding adjust
ment to cost of goods sold) for the cost of inventory and a return liability for the amount to settle the return with a customer (and a corresponding adjustment to revenue). The return asset and return liability are recorded in prepaid expenses and other a
ssets, and accrued expenses and other current liabilities, respectively, in the consolidated balance sheet. The Company collects and remits sales and use taxes in all states in which retail and direct sales occur and taxes are applicable. These taxes are r
eported on a net basis and are thereby excluded from revenue.
The Company sells gift cards without expiration dates to customers. The Company does not charge administrative fees on unused gift cards. Proceeds from the sale of gift cards are recorded as a contract liability until the customer redeems the gift card or when the likelihood of redemption is remote. Based on historical experience, the Company estimates the value of outstanding gift cards that will ultimately not be redeemed (“gift card breakage”) and will not be escheated under statutory unclaimed property laws. This gift card breakage is recognized as revenue over the time period established by the Company’s historical gift card redemption pattern.
The Company recognizes revenues from shipments to customers before the shipping and handling activities occur and will accrue those related costs. Shipping and handling costs are recorded in selling, general and administrative expenses. There is no change to the Company’s comparative reporting of shipping and handling costs as a result of adopting of Topic 606.
Credit Card Agreement
The Company has an arrangement with a third party to provide a private label credit card to its customers through August 2023, and will automatically renew thereafter for successive two year terms. The Company does not bear the credit risk associated with the private label credit card at any point prior to the termination of the agreement, at which point the Company would be obligated to purchase the receivables. If the arrangement is terminated prior to September 7, 2021 and other criteria are met, the Company is obligated to pay a purchase price premium. The potential impact of the purchase obligation cannot be reasonably estimated, and therefore, has not been recorded.
The Company receives royalty payments through its private label credit card agreement. The royalty payments are recognized as revenue when they are received. Royalty payments recognized in the thirteen and thirty-nine weeks ended November 3, 2018 were $1.5 million and $4.3 million, respectively, and in the thirteen and thirty-nine weeks ended October 28, 2017 were $1.2 million and $3.5 million, respectively.
The Company also receives reimbursements for costs of marketing programs related to the private label credit card, which are recorded as revenue as earned and the costs incurred are recorded as operating expenses in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss). Reimbursements for costs of marketing programs of $0.2 million and $1.7 million were recognized in the thirteen and thirty-nine weeks ended November 3, 2018, respectively.
The credit card agreement provides a signing bonus to the Company, which is recognized into revenue over the life of the agreement.
Advertising Costs
The Company incurs costs to produce, print, and distribute its catalogs. Catalog costs are considered direct response advertising, which are capitalized as incurred, and expensed when the catalog is mailed to the customer (the first time the advertising occurs). Advertising expenses were $11.3 million and $30.0 million in the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and $9.6 million and $27.6 million in the thirteen and thirty-nine weeks ended October 28, 2017, respectively. The costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).
Other advertising costs are recorded as incurred. Other advertising costs recorded were $5.9 million and $17.1 million in the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and $5.4 million and $15.9 million in the thirteen and thirty-nine weeks ended October 28, 2017, respectively. The costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).
8
Table of Contents
3. Revenues
Disaggregation of Revenue
The Company sells its products directly to consumers and the Company earns royalties under its credit card agreement. The following table presents revenues disaggregated by revenue source (in thousands):
|
|
For the Thirteen Weeks Ended
|
|
|
For the Thirty-Nine Weeks Ended
|
|
|
|
November 3, 2018
|
|
|
October 28, 2017
(1)
|
|
|
November 3, 2018
|
|
|
October 28, 2017
(1)
|
|
Retail
|
|
$
|
104,840
|
|
|
$
|
98,070
|
|
|
$
|
319,080
|
|
|
$
|
296,606
|
|
Direct
|
|
$
|
69,266
|
|
|
$
|
63,905
|
|
|
|
216,280
|
|
|
|
212,867
|
|
Net revenues
|
|
$
|
174,106
|
|
|
$
|
161,975
|
|
|
$
|
535,360
|
|
|
$
|
509,473
|
|
(1)
As previously noted, prior period amounts have not been adjusted under the modified retrospective method.
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):
|
November 3, 2018
|
|
|
February 3, 2018
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
Signing bonus
|
$
|
682
|
|
|
$
|
788
|
|
Unredeemed gift cards
|
|
4,588
|
|
|
|
6,466
|
|
Total contract liabilities
(1)
|
$
|
5,270
|
|
|
$
|
7,254
|
|
(1)
Included in accrued expenses and other current liabilities on the Company's consolidated balance sheet. The short term portion of the signing bonus is included in accrued expenses on the Company’s consolidated balance sheet.
For the thirteen and thirty-nine weeks ended November 3, 2018, the Company recognized approximately $2.1 million and $8.2 million of revenue related to gift card redemptions and breakage. For the thirteen and thirty-nine weeks ended October 28, 2017, the Company recognized approximately $2.0 million and $7.9 million of revenue related to gift card redemptions and breakage. Revenue recognized consists of gift cards that were part of the unredeemed gift card balance at the beginning of the period as well as gift cards that were issued during the period.
Performance Obligations
The Company has a remaining performance obligation of $0.7 million for a signing bonus related to the private label credit card agreement. The Company will recognize revenue over the remaining life of the contract as follows (in thousands):
|
Fiscal Year 2018
|
|
|
Fiscal Year 2019
|
|
|
Thereafter
|
|
Signing bonus
|
$
|
35
|
|
|
$
|
141
|
|
|
$
|
506
|
|
This disclosure does not include revenue related to performance obligations from unredeemed gift cards, as substantially all gift cards are redeemed in the first year of issuance.
Practical Expedients and Policy Elections
The Company excludes from its transaction price 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.
9
Table of Contents
4. Debt
The components of the Company’s outstanding Term Loan were as follows (in thousands):
|
|
November 3, 2018
|
|
|
February 3, 2018
|
|
Term Loan
|
|
$
|
246,077
|
|
|
$
|
248,176
|
|
Discount on debt and debt issuance costs
|
|
|
(5,465
|
)
|
|
|
(6,496
|
)
|
Less: Current portion
|
|
|
(2,799
|
)
|
|
|
(2,799
|
)
|
Net long-term debt
|
|
$
|
237,813
|
|
|
$
|
238,881
|
|
The Company was in compliance with all financial covenants as of November 3, 2018.
5. Income Taxes
The Company recorded income tax expense of $2.5 million and $10.4 million during the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and $2.8 million and $16.9 million during the thirteen and thirty-nine weeks ended October 28, 2017, respectively. The effective tax rates were 27.1% and 26.8% in the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and 31.6% and 39.4% in the thirteen and thirty-nine weeks ended October 28, 2017, respectively.
The effective tax rate for the thirteen and thirty-nine weeks ended November 3, 2018 exceeds the federal statutory rate of 21.0% primarily due to stock compensation, state income taxes and §162(m) officer compensation limitation. The effective tax rate for the thirteen and thirty-nine weeks ended October 28, 2017 exceeds the federal statutory rate of 35.0% primarily due to state income taxes and non-deductible IPO related expenses.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (TCJA) legislation was signed. The new U.S. tax legislation is subject to a number of provisions,
including
a reduction of the U.S. federal corporate income tax rate from 35.0% to 21.0% (effective January 1, 2018) and a change in certain business deductions, including allowing for immediate expensing of certain qualified capital expenditures.
Staff Accounting Bulletin No. 118 (“SAB 118”), issued by the Securities and Exchange Commission in December 2017, provides the Company with up to one year to finalize accounting for the impacts of TCJA. When the initial accounting for TCJA impacts is incomplete, the Company may include provisional amounts when reasonable estimates may be determined. As of February 3, 2018, the Company made a reasonable estimate of its deferred income tax benefit related to the corporate rate change of $24.0 million and estimates to expense qualifying capital expenditures.
In the thirteen and thirty-nine weeks ended November 3, 2018, the Company has not recognized any measurement period adjustments.
The Company has not completed its
process
to determine the final impact of TCJA. The final impact may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions that the Company has made and the issuance of additional regulatory and other guidance. Further, any required adjustment would be reflected as a discrete expense or benefit in the quarter that it is identified, as allowed by SAB 118. A
lthough no material changes are anticipated, the Company expects to complete the analysis within the measurement period in accordance with SAB 118.
10
Table of Contents
6. Earnings Per Share
The following table summarizes the computation of basic and diluted net income per share attributable to common shareholders (in thousands, except share and per share data):
|
|
For the Thirteen Weeks Ended
|
|
|
For the Thirty-Nine Weeks Ended
|
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders:
|
|
$
|
6,688
|
|
|
$
|
5,994
|
|
|
$
|
28,431
|
|
|
$
|
26,017
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic:
|
|
|
42,953,173
|
|
|
|
41,731,765
|
|
|
|
42,674,957
|
|
|
|
41,933,244
|
|
Dilutive effect of stock options and restricted shares:
|
|
|
1,522,620
|
|
|
|
1,822,235
|
|
|
|
1,524,843
|
|
|
|
1,535,602
|
|
Weighted average number of common shares outstanding, diluted:
|
|
|
44,475,793
|
|
|
|
43,554,000
|
|
|
|
44,199,800
|
|
|
|
43,468,846
|
|
Net income per common share attributable to common shareholders, basic:
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.67
|
|
|
$
|
0.62
|
|
Net income per common share attributable to common shareholders, diluted:
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
0.64
|
|
|
$
|
0.60
|
|
The weighted average common shares for the diluted earnings per share calculation exclude the impact of outstanding equity awards if the assumed proceeds per share of the award is in excess of the related fiscal period’s average price of the Company’s common stock. Such awards are excluded because they would have an antidilutive effect. There were 1,083,876 and 847,600 for the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and 277,006 and 270,090 for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, such awards excluded.
7. Equity-Based Compensation
Compensation expense was $1.1 million and $2.9 million for the thirteen and thirty-nine weeks ended November 3, 2018, respectively, and $0.3 million and $0.5 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively.
8. Related Party Transactions
For the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred an immaterial amount of related party transactions. For the thirteen and thirty-nine weeks ended October 28, 2017 the
Company incurred an immaterial amount of out-of-pocket expenses in relation to the advisory services agreement with a related party. These expenses are included in operating expenses in the accompanying consolidated statements of operations and comprehensive income.
9. Commitments and Contingencies
Operating Lease Agreements
The Company recorded a deferred lease liability of $11.2 million and $9.5 million as of November 3, 2018 and February 3, 2018, respectively. In certain instances, the Company also receives tenant improvement incentives for its store leases, which it accrues and amortizes ratably over the life of the lease. The Company maintained a tenant improvement incentive liability of $18.8 million and $17.3 million as of November 3, 2018 and February 3, 2018, respectively.
Total rental and common area maintenance expense was $15.1 million and $45.7 million for the thirteen and thirty-nine weeks ended November 3, 2018, respectively, exclusive of contingent rental expense recorded of $0.4 million and $1.0 million for the same respective periods. Total rental and common area maintenance expense was $15.2 million and $44.6 million for the thirteen and thirty-nine weeks ended October 28, 2017, respectively, exclusive of contingent rental expense recorded of $0.4 million and $1.2 million for the same respective periods.
11
Table of Contents
Legal Proceedings
Shareholder Class Action Lawsuits
On October 13, 2017, a securities lawsuit was filed in the United States District Court for the District of Massachusetts against the Company, several members of our Board of Directors and our Chief Financial Officer, among others. The complaint was brought under the Securities Act of 1933 and sought certification of a class of plaintiffs comprised of all shareholders that acquired stock issued by the Company in its initial public offering in March 2017. The plaintiffs sought compensation for losses they incurred since purchasing the stock. Following the filing of this lawsuit, two additional, similar actions were brought in the same court. The three matters were eventually consolidated, and a lead plaintiff was appointed by the court. On March 9, 2018, an amended complaint captioned
The Pension Trust v. J.Jill, Inc., et al.
was filed. The Company filed a motion to dismiss on May 14, 2018, which was opposed by the plaintiffs on July 17, 2018. The Company believes the claims in the case are without merit and intends to defend the matter vigorously. No material amount has been accrued.
We
are not presently party to any other legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
12
Table of Contents
Item 2. Management’s Discussion and Analysis of
Financial Condition an
d Results of Operations
The following
discussion
and analysis
should
be read in conjunction
with our consolidated
financial statements
and related
notes
thereto
included
elsewhere
in this
Quarterly Report
on Form 10-Q. The following
discussion
contains
forward-looking statements
that
reflect
our plans,
estimates
and assumptions.
Our actual
results
could
differ
materially
from those
discussed
in the
forward-looking
statements.
Factors
that
could
cause
such differences
are discussed
in the sections
of this
Quarterly Report on Form 10-Q titled
“Risk Factors” and “Special Note Regarding Forward-Looking Statements”.
We
operate
on a 52- or 53-week
fiscal
year
that
ends on the
Saturday
that
is
closest
to January
31. Each fiscal
year
generally
is
comprised
of four
13-week
fiscal
quarters,
although
in the
years
with 53 weeks, the
fourth quarter
represents
a 14-week
period.
The f
iscal year ending February 2, 2019
(“Fiscal Year 2018”) and fiscal year ended
February 3, 2018 (“Fiscal Year 2017”) are comprised
of 52 weeks and 53 weeks, respectively.
Overview
J.Jill is a premier omnichannel retailer and nationally recognized women’s apparel brand committed to delighting customers with great wear-now product. The brand represents an easy, relaxed, inspired style that reflects the confidence and comfort of a woman with a rich, full life. J.Jill provides guiding service through more than 270 stores nationwide and a robust e-commerce platform. J.Jill is headquartered outside Boston.
Factors
Affecting
Our Operating
Results
Various
factors
are
expected
to continue
to affect
our results
of operations
going forward,
including
the following:
Overall
Economic Trends
. Consumer
purchases
of clothing
and other
merchandise
generally
decline
during recessionary
periods
and other
periods
when disposable
income
is
adversely
affected,
and consequently
our results
of operations
may
be affected
by general
economic
conditions.
For example,
reduced
consumer confidence
and lower
availability
and higher
cost
of consumer
credit
may
reduce
demand
for
our merchandise and may
limit
our ability
to increase
or sustain
prices.
The growth rate
of the
market
could
be affected
by macroeconomic
conditions
in the
United
States.
Consumer Preferences
and Fashion Trends
. Our ability
to maintain
our appeal
to existing
customers
and attract
new customers
depends
on our ability
to anticipate
fashion
trends.
During periods
in which we have successfully
anticipated
fashion
trend
s
, we have generally
had more
favorable
results.
Competitio
n
. The retail
industry
is
highly
competitive
and retailers
compete
based
on a variety
of factors, including
design,
quality,
price
and customer
service.
Levels
of competition
and the
ability
of our competitors
to more
accurately
predict
fashion
trends
and otherwise
attract
customers
through
competitive
pricing
or other factors
may
impact
our results
of operations.
Our Strategic Initiatives.
Our business will continue to have an impact on our results of operations, including our e-commerce site, which was re-platformed earlier in Fiscal 2018. Although initiatives of this nature are designed to create growth in our business and continuing improvement in our operating results, the timing of expenditures related to these initiatives, as well as the achievement of returns on our investments, may affect our results of operation in future periods.
Pricing
and Changes in Our Merchandise
Mi
x
. Our product
offering
changes
from
period
to period,
as do the
prices
at
which goods are
sold
and the
margins
we are
able
to earn
from
the
sales
of those
goods. The levels at
which we are
able
to price
our merchandise
are
influenced
by a variety
of factors,
including
the
quality
of our products,
cost
of production,
prices
at
which our competitors
are
selling
similar
products
and the
willingness
of our customers
to pay for
products.
Potential Changes in Tax Laws and/or Regulations
. Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could adversely affect our business, financial condition and operating results. Additionally, any potential changes with respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries could adversely affect our business, as we source the majority of our merchandise from manufacturers located outside of the U.S.
13
Table of Contents
How We Assess
the Performance
of Our Business
In assessing
the
performance
of our business,
we consider
a variety
of financial
and operating
metrics, including
GAAP
and non-GAAP
measures,
including
the
following:
Net sales
consists
primarily
of revenues,
net
of merchandise
returns
and discounts,
generated
from
the
sale of apparel
and accessory
merchandise
through
our retail
channel
and direct
channel.
Net sales
also
include shipping
and handling
fees
collected
from
customers and royalty revenues and marketing reimbursements related to our private label credit card agreement.
Revenue from
our retail
channel
is
recognized
at
the
time of sale
and revenue
from
our direct
channel
is
recognized
upon shipment
of merchandise
to the
customer.
Net sales
are
impacted
by the
size
of our active
customer
base,
product
assortment
and availability, marketing
and promotional
activities
and the
spending
habits
of our customers.
Net sales
are
also
impacted
by the migration
of single-channel
customers
to omnichannel
customers
who, on averag
e
, spend nearly
three
times more
than
singl
e
-channel
customers.
Total
company
comparable
sales
includes
net
sales
from
our full-price
stores
that
have been open for
more than
52 weeks and from
our direct
channel.
This measure
highlights
the
performance
of existing
stores
open during
the
period,
while
excluding
the
impact
of new store
openings
and closures.
When a store
in the
total company
comparable
store
base
is
temporarily
closed
for
remodeling
or other
reasons,
it
is
included
in total company
comparable
sales
only using
the
full
weeks it
was open. Certain
of our competitors
and other
retailers may
calculate
total
company
comparable
sales
differently
than
we do. As a result,
the
reporting
of our total company
comparable
sales
may
not be comparable
to sales
data
made
available
by other
companies.
Number of stores
reflects
all
stores
open at
the
end of a reporting
period.
In connection
with opening
new stores,
we incur
pre-opening
costs.
Pre-opening
costs
include
expenses
incurred
prior
to opening
a new store
and primarily
consist
of payroll,
travel,
training,
marketing,
initial
opening
supplies
and costs
of transporting
initial inventory
and fixtures
to store
locations,
as well
as occupancy
costs
incurred
from
the
time
of possession
of a store
site
to the
opening
of that
store.
These pre-opening
costs
are
included
in selling,
general
and administrative expenses
and are
generally
incurred
and expensed
within
30 days of opening
a new store.
Gross profit
is
equal
to our net
sales
less
costs
of goods sold.
Gross profit
as a percentage
of our net
sales
is referred
to as gross
margin.
Costs of goods sold
includes
the
direct
costs
of sold
merchandise,
inventory shrinkage,
and adjustments
and reserves
for
excess,
aged and obsolete
inventory.
We review
our inventory
levels on an ongoing basis
to identify
slow-moving
merchandise
and use product
markdowns
to efficiently
sell
these products.
Changes in the
assortment
of our products
may
also
impact
our gross
profit.
The timing
and level
of markdowns
are
driven
by customer
acceptance
of our merchandise.
Certain
of our competitors
and other
retailers may
report
costs
of goods sold
differently
than
we do. As a result,
the
reporting
of our gross
profit
and gross margin
may
not be comparable
to other
companies.
The primary
drivers
of the
costs
of goods sold
are
raw materials,
which fluctuate
based
on certain
factors beyond our control,
including
labor
conditions,
transportation
or freight
costs,
energy
prices,
currency fluctuations
and commodity
prices.
We place
orders
with merchandise
suppliers
in United
States
dollars
and, as a result,
are
not exposed
to significant
foreign
currency
exchange
risk.
Selling,
general
and administrative
expenses
include
all
operating
costs
not included
in costs
of goods sold. These expenses
include
all
payroll
and related
expenses,
occupancy
costs
and other
operating
expenses
related
to our stores
and to our operations
at
our headquarters,
including
utilities,
depreciation
and amortization.
These expenses
also
include
marketing
expense,
including
catalog
production
and mailing
costs,
warehousing, distribution
and shipping
costs,
customer
service
operations,
consulting
and software
services,
professional services
and other
administrative
costs.
Our historical revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant increases were in occupancy costs associated with retail store expansion, and in marketing and payroll investments.
Adjusted EBITDA and Adjusted EBITDA Margin.
Adjusted EBITDA, which represents net income (loss) plus net interest expense, provision (benefit) for income taxes, depreciation and amortization, equity-based compensation expense, write-off of property and equipment, and other non-recurring expenses and one-time items. We present Adjusted EBITDA on a consolidated basis because management uses it as a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, securities analysts and other interested parties as a measure of our comparative operating performance from period to period. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and as such, use it internally to report results.
14
Table of Contents
While
we believe
that
Adju
sted
EBITDA
is
useful
in evaluating
our business,
Adjusted
EBITDA
is
a non-GAAP
financial
measure
that
has limitations
as an analytical
tool.
Adjusted
EBITDA
should
not be considered an alternative
to, or substitute
for,
net
income
(loss),
which is
calculated
in accordance
with GAAP.
In addition, other
companies,
including
companies
in our industry,
may
calculate
Adjusted
EBITDA
differently
or not at
all, which reduces
the
usefulness
of Adjusted
EBITDA
as a tool
for
comparison.
We recommend
that
you
review
the reconciliation
and calculation
of Adjusted
EBITDA
and Adjusted
EBITDA
margin
to net
income
(loss),
the
most directly
comparable
GAAP
financial
measure,
below and not rely
solely
on Adjusted
EBITDA
or any single financial
measure
to evaluate
our
business.
Reconciliation
of Net Income
to Adjusted
EBITDA
and Calculation
of Adjusted
EBITDA
Margin
The following
table
provides
a reconciliation
of net
income
to Adjusted
EBITDA
and the
calculation of Adjusted
EBITDA
margin
for
the
periods
presented.
|
|
For the Thirteen Weeks Ended
|
|
|
For the Thirty-Nine Weeks Ended
|
|
(in thousands)
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,688
|
|
|
$
|
5,994
|
|
|
$
|
28,431
|
|
|
$
|
26,017
|
|
Interest expense, net
|
|
|
4,698
|
|
|
|
4,496
|
|
|
|
14,368
|
|
|
|
14,525
|
|
Provision for income taxes
|
|
|
2,488
|
|
|
|
2,766
|
|
|
|
10,412
|
|
|
|
16,926
|
|
Depreciation and amortization
|
|
|
9,149
|
|
|
|
8,628
|
|
|
|
27,398
|
|
|
|
25,768
|
|
Equity-based compensation expense
(a)
|
|
|
1,111
|
|
|
|
278
|
|
|
|
2,954
|
|
|
|
539
|
|
Write-off of property and equipment
(b)
|
|
|
59
|
|
|
|
229
|
|
|
|
87
|
|
|
|
569
|
|
Other non-recurring expenses
(c)
|
|
|
—
|
|
|
|
658
|
|
|
|
1,346
|
|
|
|
4,964
|
|
Adjusted EBITDA
|
|
$
|
24,193
|
|
|
$
|
23,049
|
|
|
$
|
84,996
|
|
|
$
|
89,308
|
|
Net sales
|
|
$
|
174,106
|
|
|
$
|
161,975
|
|
|
$
|
535,360
|
|
|
$
|
509,473
|
|
Adjusted EBITDA margin
|
|
|
13.9
|
%
|
|
|
14.2
|
%
|
|
|
15.9
|
%
|
|
|
17.5
|
%
|
(a)
|
Represents
expenses
associated
with equity
incentive
instruments
granted
to our management and board of directors.
I
ncentive
instrument
s
are
accounted
for
as equity-classified
awards
with the
related
compensation
expense
recognized
based
on fair
value
at
the
date
of the
grants.
|
(b)
|
Represents
net
gain or
loss
on the
disposal
of fixed
assets.
|
(c)
|
Represents items management believes are not indicative of ongoing operating performance. For the period ended October 28, 2017, these expenses are primarily composed of legal and professional fees associated with the initial public offering completed March 14, 2017 and subsequent transition to a public company. For the thirty-nine weeks ended November 3, 2018, these expenses include costs related to a CEO transition.
|
Results
of Operations
Thirteen weeks ended November 3, 2018 Compared to Thirteen weeks ended October 28, 2017
The following
table
summarizes
our consolidated
results
of operations
for
the
periods
indicated:
|
|
For the Thirteen Weeks Ended
|
|
|
Change from the Thirteen Weeks Ended October 28, 2017 to the Thirteen Weeks
|
|
(in thousands)
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
|
Ended November 3, 2018
|
|
|
|
Dollars
|
|
|
% of Net
Sales
|
|
|
Dollars
|
|
|
% of Net
Sales
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales
|
|
$
|
174,106
|
|
|
|
100.0
|
%
|
|
$
|
161,975
|
|
|
|
100.0
|
%
|
|
$
|
12,131
|
|
|
|
7.5
|
%
|
Costs of goods sold
|
|
|
58,643
|
|
|
|
33.7
|
%
|
|
|
53,479
|
|
|
|
33.0
|
%
|
|
|
5,164
|
|
|
|
9.7
|
%
|
Gross profit
|
|
|
115,463
|
|
|
|
66.3
|
%
|
|
|
108,496
|
|
|
|
67.0
|
%
|
|
|
6,967
|
|
|
|
6.4
|
%
|
Selling, general and administrative expenses
|
|
|
101,589
|
|
|
|
58.3
|
%
|
|
|
95,240
|
|
|
|
58.8
|
%
|
|
|
6,349
|
|
|
|
6.7
|
%
|
Operating income
|
|
|
13,874
|
|
|
|
8.0
|
%
|
|
|
13,256
|
|
|
|
8.2
|
%
|
|
|
618
|
|
|
|
4.7
|
%
|
Interest expense, net
|
|
|
4,698
|
|
|
|
2.7
|
%
|
|
|
4,496
|
|
|
|
2.8
|
%
|
|
|
202
|
|
|
|
4.5
|
%
|
Income before provision for income taxes
|
|
|
9,176
|
|
|
|
5.3
|
%
|
|
|
8,760
|
|
|
|
5.4
|
%
|
|
|
416
|
|
|
|
4.7
|
%
|
Provision for income taxes
|
|
|
2,488
|
|
|
|
1.4
|
%
|
|
|
2,766
|
|
|
|
1.7
|
%
|
|
|
(278
|
)
|
|
|
(10.1
|
)%
|
Net income
|
|
$
|
6,688
|
|
|
|
3.9
|
%
|
|
$
|
5,994
|
|
|
|
3.7
|
%
|
|
$
|
694
|
|
|
|
11.6
|
%
|
15
Table of Contents
Net Sales
Net sales for
the thirteen weeks ended November 3, 2018
increased $12.1
million, or 7.5%, to $174.1 from $162.0 million for the thirteen weeks ended October 28, 2017.
At the
end of both of those
same
periods,
we operated 275
retail stores
. The increase in total net sales versus the prior year was driven by a 1.0% increase in total company comparable sales, and reflects in part an increase in our active customer base. It further reflects the benefit of a high-volume week in November that shifted into the third quarter, replacing a lower volume week in August that shifted into the second quarter due to the calendar shift created by the fifty-third week in fiscal 2017.
Our retail
channel contributed
60.2%
of our net
sales
in the thirteen weeks ended November 3, 2018 and 60.5% in the thirteen weeks ended October 28, 2017.
Our direct
channel contributed
39.8%
of our net
sales
in the thirteen weeks ended November 3, 2018 and 39.5% in the thirteen weeks ended October 28, 2017.
Gross Profit
and Costs of Goods Sold
Gross profit
for
the thirteen weeks ended November 3, 2018
increased
$7.0 million, or 6.4%, to $115.5 from $108.5 million for the thirteen weeks ended October 28, 2017.
The gross margin for the thirteen weeks ended November 3, 2018 was 66.3% compared to 67.0% for the thirteen weeks ended October 28, 2017, reflecting clearance markdowns taken early in the quarter.
Selling,
General
and Administrative
Expenses
Selling,
general
and administrative
expenses
for
the thirteen weeks ended November 3, 2018 increased
$6.3
million, or 6.7%, to $101.6 from $95.2 million for the thirteen weeks ended October 28, 2017. The increase was driven largely by a $2.6 million increase in marketing spend as well as a $1.9 million increase in compensation and executive recruitment. Additionally, there was increased spending of $0.7 million for sales related expenses, $0.6 million for technology investment and $0.5 million in depreciation and amortization due to increased capital spending.
As a percentage
of net
sales,
selling,
general
and administrative
expenses
were 58.3% for
the thirteen weeks ended November 3, 2018 compared to 58.8% for
the thirteen weeks ended October 28, 2017.
Interest
Expense, Net
Interest expense, net, consists of interest expense on the Term Loan, partially offset by interest earned on cash. Interest
expense
for
the thirteen weeks ended November 3, 2018
increased $0.2
million, or 4.5%, to $4.7 from $4.5 million for the thirteen weeks ended October 28, 2017. The increase was due to higher interest rates.
Provision
for
Income Taxes
The provision
for
income
taxes
was $2.5 million for
the thirteen weeks ended November 3, 2018
compared to
$2.8 million for the thirteen weeks ended October 28, 2017.
Our effective
tax
rates
for
the
same
periods were 27.1% and 31.6%,
respectively. The decrease in the effective tax rate was primarily due to new U.S. tax legislation. The U.S. Tax Cuts and Jobs Act (the “TCJA”), enacted in December 2017, is subject to a number of provisions, including a reduction of the U.S. federal corporate income tax rate from 35.0% to 21.0% (effective January 1, 2018) and a change in certain business deductions, including allowing for immediate expensing of certain qualified capital expenditures.
16
Table of Contents
Thirty
-nine weeks ended November 3, 2018
Compared to
Thirty-nine weeks ended October 28, 2017
The following
table
summarizes
our consolidated
results
of operations
for
the
periods
indicated:
|
|
For the Thirty-Nine Weeks Ended
|
|
|
Change from the Thirty-Nine Weeks Ended October 28, 2017 to the Thirty-Nine Weeks
|
|
(in thousands)
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
|
Ended November 3, 2018
|
|
|
|
Dollars
|
|
|
% of Net
Sales
|
|
|
Dollars
|
|
|
% of Net
Sales
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales
|
|
$
|
535,360
|
|
|
|
100.0
|
%
|
|
$
|
509,473
|
|
|
|
100.0
|
%
|
|
$
|
25,887
|
|
|
|
5.1
|
%
|
Costs of goods sold
|
|
|
182,901
|
|
|
|
34.2
|
%
|
|
|
162,721
|
|
|
|
31.9
|
%
|
|
|
20,180
|
|
|
|
12.4
|
%
|
Gross profit
|
|
|
352,459
|
|
|
|
65.8
|
%
|
|
|
346,752
|
|
|
|
68.1
|
%
|
|
|
5,707
|
|
|
|
1.6
|
%
|
Selling, general and administrative expenses
|
|
|
299,248
|
|
|
|
55.9
|
%
|
|
|
289,284
|
|
|
|
56.8
|
%
|
|
|
9,964
|
|
|
|
3.4
|
%
|
Operating income
|
|
|
53,211
|
|
|
|
9.9
|
%
|
|
|
57,468
|
|
|
|
11.3
|
%
|
|
|
(4,257
|
)
|
|
|
(7.4
|
)%
|
Interest expense, net
|
|
|
14,368
|
|
|
|
2.7
|
%
|
|
|
14,525
|
|
|
|
2.9
|
%
|
|
|
(157
|
)
|
|
|
(1.1
|
)%
|
Income before provision for income taxes
|
|
|
38,843
|
|
|
|
7.2
|
%
|
|
|
42,943
|
|
|
|
8.4
|
%
|
|
|
(4,100
|
)
|
|
|
(9.5
|
)%
|
Provision for income taxes
|
|
|
10,412
|
|
|
|
1.9
|
%
|
|
|
16,926
|
|
|
|
3.3
|
%
|
|
|
(6,514
|
)
|
|
|
(38.5
|
)%
|
Net income
|
|
$
|
28,431
|
|
|
|
5.3
|
%
|
|
$
|
26,017
|
|
|
|
5.1
|
%
|
|
$
|
2,414
|
|
|
|
9.3
|
%
|
Net Sales
Net sales for
the thirty-nine weeks ended November 3, 2018
increased $25.9
million, or 5.1%, to $535.4 from $509.5 million for the thirty-nine weeks ended October 28, 2017.
At the
end of both of those
same
periods,
we operated 275 retail stores. The increase in net sales was due to a 1.8% increase in total company comparable sales, which reflects an increase in our active customer base.
Our retail
channel contributed
59.6%
of our net
sales
in
the thirty-nine weeks ended November 3, 2018
and 58.2% in the thirty-nine weeks ended October 28, 2017.
Our direct
channel contributed 40.4% of our net
sales
in
the thirty-nine weeks ended November 3, 2018
and 41.8% in the thirty-nine weeks ended October 28, 2017.
Gross Profit
and Costs of Goods Sold
Gross profit
for
the thirty-nine weeks ended November 3, 2018
increased
$5.7 million, or 1.6%, to $352.5 from $346.8 million for the thirty-nine weeks ended October 28, 2017.
The gross margin for
the thirty-nine weeks ended November 3, 2018
was 65.8% compared to 68.1% for the thirty-nine weeks ended October 28, 2017, largely driven by added promotions, markdowns, and liquidation actions to clear certain goods.
Selling,
General
and Administrative
Expenses
Selling,
general
and administrative
expenses
for
the thirty-nine weeks ended November 3, 2018
increased
$10.0
million, or 3.4%, to $299.2 from $289.3 million for the thirty-nine weeks ended October 28, 2017. The increase is related to a $5.4 million increase in marketing, $2.3 million increase in sales related expenses driven by direct fulfillment and retail payroll, $1.6 million increase in depreciation and amortization and a $0.9 million increase for investments in technology, partially offset by a decrease of $0.6 million in compensation.
As a percentage
of net
sales,
selling,
general
and administrative
expenses
were 55.9% for the thirty-nine weeks ended November 3, 2018
compared to 56.8% for the thirty-nine weeks ended October 28, 2017.
Interest
Expense, Net
Interest expense, net, consists of interest expense on the Term Loan, partially offset by interest earned on cash. Interest
expense
for
the thirty-nine weeks ended November 3, 2018
decreased $0.2
million, or 1.1%, to $14.4 from $14.5 million for the thirty-nine weeks ended October 28, 2017. The decrease was driven by the lower balance of the Term Loan and the acceleration of $0.6 million of deferred financing costs in the second quarter of 2017 due to a voluntary principal prepayment on the Term Loan of $20.0 million made in June 2017, partially offset by the impact of higher interest rates.
17
Table of Contents
Provision
for
Income Taxes
The provision
for
income
taxes
was $10.4 million for the thirty-nine weeks ended November 3, 2018
compared to $16.9
million for the thirty-nine weeks ended October 28, 2017.
Our effective
tax
rates
for
the
same
periods were 26.8% and 39.4%,
respectively. The decrease in the effective tax rate was primarily due to new U.S. tax legislation under the TCJA.
Liquidity
and Capital
Resources
General
Our primary sources of liquidity and capital resources are cash generated from operating activities and availability under our ABL credit agreement, dated as of May 8, 2015, by and among Jill Holdings LLC, Jill Acquisition LLC, certain subsidiaries from time to time party thereto, the lenders party thereto and CIT Finance LLC as the administrative agent and collateral agent, as amended on May 27, 2016 by Amendment No. 1 thereto (the “ABL Facility”). Our primary requirements for liquidity and capital are working capital and general corporate needs, including merchandise inventories, marketing, including catalog production and distribution, payroll, store occupancy costs and capital expenditures associated with opening new stores, remodeling existing stores and upgrading information systems and the costs of operating as a public company. We believe that our current sources of liquidity and capital will be sufficient to finance our continued operations for at least the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our ABL Facility or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business, and other factors, many of which are beyond our control.
Capital expenditures were $14.0 million for the thirty-nine weeks ended November 3, 2018 compared to $22.3 million for the thirty-nine weeks ended October 28, 2017. The decrease in capital expenditures in Fiscal Year 2018 was due primarily to a decrease in spending on stores investments and technology projects.
Cash Flow Analysis
The following
table
shows our cash
flows
information
for
the
periods
presented:
|
|
For the Thirty-Nine Weeks Ended
|
|
(in thousands)
|
|
November 3, 2018
|
|
|
October 28, 2017
|
|
Net cash provided by operating activities
|
|
$
|
50,028
|
|
|
$
|
54,535
|
|
Net cash used in investing activities
|
|
|
(14,017
|
)
|
|
|
(22,325
|
)
|
Net cash used in financing activities
|
|
|
(2,099
|
)
|
|
|
(19,872
|
)
|
Net Cash provided
by Operating
Activities
Net cash
provided by
operating
activities
during
the thirty-nine weeks ended November 3, 2018
was $50.0 million.
Key elements
of cash provided
by operating
activities
were (i)
net
income
of $28.4 million,
(ii)
adjustments
to reconcile
net
income
to net
cash
provided
by operating
activities
of $27.7 million,
primarily
driven
by depreciation
and amortization, equity-based compensation and noncash amortization of deferred financing and debt discount costs, partially offset by deferred income taxes, and (iii)
an increase
in net
operating
assets
and liabilities
of $6.1 million,
primarily
driven
by prepaid expenses and other current assets as well as accounts payable and accounts receivable, partially offset by other noncurrent assets and liabilities and inventory.
Net cash provided by
operating
activities
during
the thirty-nine weeks ended October 28, 2017
was $54.5 million.
Key elements of cash
provided
by operating
activities
were (i)
net
income
of $26.0 million,
and
(ii)
adjustments
to reconcile
net income
to net
cash
provided
by operating
activities
of $27.5 million,
primarily
driven
by depreciation and amortization and non-cash amortization of deferred financing and debt discount costs, and (iii)
a decrease
in net
operating
assets
and liabilities
of $1.0 million,
prima
r
ily driven by cash provided by prepaid expenses and other current assets, accounts payable and other noncurrent assets and liabilities, partially offset with increases in accounts receivable and inventory.
Net Cash used in Investing
Activities
Net cash
used in
investing
activities
during
the thirty-nine weeks ended November 3, 2018
was $14.0 million,
representing
purchases
of property
and equipment
related
investments in stores
and information systems.
Net cash
used in
investing
activities
during
the thirty-nine weeks ended October 28, 2017
was $22.3 million,
representing
purchases
of property
and equipment
related
investments in stores
and information systems.
18
Table of Contents
Net Cash used
in Financing
Activities
Net cash used in
financing
activities
during
the thirty-nine weeks ended November 3, 2018
was $2.1 million,
which was the scheduled repayment of our Term Loan.
Net cash used in financing activities during
the thirty-nine weeks ended October 28, 2017
was $19.9 million, which was primarily due to a voluntary principal prepayment on the Term Loan of $20.0 million made in June 2017.
Dividends
Since our initial public offering, we have not declared or paid any cash dividends. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements, including our Term Loan and ABL Facility, and any other factors deemed relevant by our board of directors. As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of restrictions on their ability to pay dividends to us under our Term Loan, our ABL Facility and under future indebtedness that we or they may incur.
Credit
Facilities
At November 3, 2018 and February 3, 2018 there
were no loan
amounts
outstanding
under
the
ABL
Facility. At November 3, 2018 and February 3, 2018 the Company had outstanding
letters
of credit
in the
amounts
of $1.8 million and
$1.6 million, respectively, and had a maximum additional borrowing capacity of
$38.2 million and $38.4 million, respectively.
Contractual
Obligations
The Company’s contractual obligations consist primarily of long-term debt obligations, interest payments, operating leases and purchase orders for merchandise inventory. These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs. During the thirty-nine weeks ended November 3, 2018, there were no material changes in the contractual obligations as of February 3, 2018.
Contingencies
Shareholder Class Action Lawsuits
On October 13, 2017, a securities lawsuit was filed in the United States District Court for the District of Massachusetts against the Company, several members of our Board of Directors and our Chief Financial Officer, among others. The complaint was brought under the Securities Act of 1933 and sought certification of a class of plaintiffs comprised of all shareholders that acquired stock issued by the Company in its initial public offering in March 2017. The plaintiffs sought compensation for losses they incurred since purchasing the stock. Following the filing of this lawsuit, two additional, similar actions were brought in the same court. The three matters were eventually consolidated, and a lead plaintiff was appointed by the court. On March 9, 2018, an amended complaint captioned
The Pension Trust v. J.Jill, Inc., et al.
was filed. The Company filed a motion to dismiss on May 14, 2018, which was opposed by the plaintiffs on July 17, 2018. The Company believes the claims in the case are without merit and intends to defend the matter vigorously. No material amount has been accrued.
Off
-
Balance Sheet Arrangements
We are
not a party
to any off
-
balance
sheet
arrangements.
Critical
Accounting Policies
and Significant
Estimates
The most
significant
accounting
estimates
involve
a high degree
of judgment
or complexity.
Management believes
the
estimates
and judgments
most
critical
to the
preparation
of our consolidated
financial
statements
and to the
understanding
of our reported
financial
results
include
those
made
in connection
with revenue
recognition, including
accounting
for
gift
card
breakage
and estimated
merchandise
returns;
estimating
the
value
of inventory;
impairment
assessments
for
goodwill
and other
indefinite-lived
intangible
assets,
and long-lived
assets;
and estimating
equity-based
compensation
expense.
Management evaluates
its
policies
and assumptions
on an ongoing basis.
19
Table of Contents
Our significant
accounting
policies
related
to these accounts
in the
preparation
of our consolidated
financial
statements
are
described
under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates”
in our Annual Report
on Form
10-K for the fiscal year ended February 3, 2018.
As of t
he date of this filing, there were no significant changes to any of the critical accounting policies and estimates previously described in
our Annual Report on Form 10-K, except for the effects of the adoption of ASC 606 –
Revenue from Contracts with Custo
mers
. Refer to Note 2 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, under header, “Significant Accounting Policies Update” for the effects and disclosures of adoption.
Recent Accounting Pronouncements
Refer to Note 2 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, for recently adopted accounting standards, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.
These forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Risk Factors set forth in our Annual Report on Form 10-K for the year ended February 3, 2018 and other cautionary statements included therein and herein.
These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. We qualify all of our forward-looking statements by these cautionary statements.
20
Table of Contents