JOANN Inc. (NASDAQ: JOAN) (“JOANN”), the nation’s category leader
in sewing and one of the fastest growing competitors in the arts
and crafts category, today reported results for its fourth quarter
and full year ended January 29, 2022.
“We’ve now completed our first full year as a
public company. During Fiscal 2022, we achieved a number of
critical milestones which we expect will underpin our continued
growth longer term. Despite significant supply chain headwinds and
disruptions, our top-line improved by 8% compared to pre-pandemic
levels. Even after fully absorbing close to $60 million of higher
ocean freight costs this past year, our gross profit improved by
10% over Fiscal 2020,” noted JOANN’s President and Chief Executive
Officer, Wade Miquelon. “I’m very proud of the contributions made
by our team members at JOANN. As we head into Fiscal 2023, I’m
excited about a number of new growth initiatives including our
joint venture with Singer, our recent acquisition of WeaveUp, and
our latest strategic partnership with the JDM group, through which
we’ve launched a B2B platform that will enable us to sell products
through wholesale and other retail channels.”
Fourth Quarter Highlights:
- Net sales declined by 12.5%
compared to the same period last year, to $735.3 million with total
comparable sales decreasing 12.4%. On a two-year stack, total
comparable sales increased 6.0%.
- Omni-channel net sales were $102.8
million for the quarter, reflecting 125% growth on a two-year basis
and representing approximately 14% of total fourth quarter
sales.
- Gross profit of $324.4 million
decreased by 1% on a two-year basis and by 18% compared to the
fourth quarter of last year. After adjusting for $35.3 million of
excess ocean freight and related supply chain costs, gross profit
increased by approximately 10% based on two-year comparisons.
- Gross margin was 44.1%. After
adjusting for excess supply chain costs, gross margin of 48.9%
improved by 170 basis points on a two-year basis and by 190 basis
points compared to the fourth quarter last year.
- Net income of $13.6 million, an
increase of $371.7 million compared to same quarter two years
ago.
- Adjusted EBITDA of $88.9 million
improved by 10% compared to the same quarter two years ago.
- Our quarterly dividend of $0.10 per
share was paid to holders of JOANN common stock on December 29,
2021.
Fiscal 2022 Full Year Financial and
Business Highlights:
- Net sales increased by 7.9% to $2.4
billion and comparable sales grew by 8.3% compared to Fiscal
2020.
- Gross profit increased by 10%
compared to Fiscal 2020. Gross profit increased by approximately
14% from Fiscal 2020 after adjusting for $46.6 million of excess
ocean freight and related supply chain costs.
- Gross margin of 50.2% improved by
approximately 90 basis points compared to Fiscal 2020. Adjusted for
excess ocean freight and related supply chain costs, gross margin
improved by approximately 280 basis points from Fiscal 2020.
- Net income of $56.7 million, an
increase of $603.3 million compared to Fiscal 2020.
- Adjusted EBITDA of $242.5 million
increased by 58% compared to Fiscal 2020.
- Added 6.4 million new customers to
our database, of which 85% were acquired through digital channels.
Our customer database has grown by 42% over the past three
years.
- Refinanced our term loan and
revolving credit facility under more favorable pricing terms and
extended debt maturities.
Balance Sheet Highlights:
- Adjusted EBITDA for Credit
Agreement reporting was $251.3 million on a trailing 12-month
basis, resulting in net debt to Adjusted EBITDA leverage of 3.1x
for Credit Agreement Reporting.
- Long-term debt, net was $778.6
million as of January 29, 2022 with cash and cash equivalents of
$22.5 million.
- During the quarter we repurchased
910,120 shares of our common stock at a total cost of $9.2 million.
For the full year, we repurchased 1,889,050 shares at a total cost
of $20.0 million.
Webcast and Conference Call
Information: JOANN management will host a conference call
and webcast to discuss the results today, Thursday, March 17, 2022
at 5:00 p.m. ET. The number to call for the live interactive
teleconference is 1 (833) 398-1023 and the passcode is 3449457. The
live broadcast of JOANN’s conference call will be available online
at the Company's website, www.joann.com, under the Investor
Relations section, on March 17, 2022, beginning at 5:00 p.m. ET.
The online replay will follow shortly after the call and will be
available for one year.
Table 1.JOANN
Inc. Consolidated Statements of Income
(Loss)(Unaudited)
|
Thirteen Weeks Ended |
|
|
Fifty-Two Weeks Ended |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
(Dollars in millions except per share data) |
|
Net sales |
$ |
735.3 |
|
|
$ |
840.8 |
|
|
$ |
695.6 |
|
|
$ |
2,417.6 |
|
|
$ |
2,762.3 |
|
|
$ |
2,241.2 |
|
Cost of sales |
|
410.9 |
|
|
|
446.3 |
|
|
|
367.3 |
|
|
|
1,204.9 |
|
|
|
1,396.1 |
|
|
|
1,135.9 |
|
Gross profit |
|
324.4 |
|
|
|
394.5 |
|
|
|
328.3 |
|
|
|
1,212.7 |
|
|
|
1,366.2 |
|
|
|
1,105.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
278.4 |
|
|
|
313.8 |
|
|
|
254.4 |
|
|
|
1,032.9 |
|
|
|
1,132.0 |
|
|
|
977.4 |
|
Depreciation and
amortization |
|
20.0 |
|
|
|
20.2 |
|
|
|
20.2 |
|
|
|
80.1 |
|
|
|
80.0 |
|
|
|
77.5 |
|
Goodwill impairment |
|
— |
|
|
|
— |
|
|
|
356.4 |
|
|
|
— |
|
|
|
— |
|
|
|
486.8 |
|
Operating profit (loss) |
|
26.0 |
|
|
|
60.5 |
|
|
|
(302.7 |
) |
|
|
99.7 |
|
|
|
154.2 |
|
|
|
(436.4 |
) |
Interest expense, net |
|
11.4 |
|
|
|
14.0 |
|
|
|
24.3 |
|
|
|
51.2 |
|
|
|
69.0 |
|
|
|
101.9 |
|
Debt related loss (gain) |
|
0.3 |
|
|
|
(2.2 |
) |
|
|
(3.8 |
) |
|
|
3.3 |
|
|
|
(155.1 |
) |
|
|
(3.8 |
) |
Gain on sale leaseback |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.5 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) before income taxes |
|
14.3 |
|
|
|
48.7 |
|
|
|
(323.2 |
) |
|
|
69.7 |
|
|
|
240.3 |
|
|
|
(534.5 |
) |
Income tax provision |
|
0.7 |
|
|
|
10.4 |
|
|
|
34.9 |
|
|
|
13.0 |
|
|
|
28.0 |
|
|
|
12.1 |
|
Net income (loss) |
$ |
13.6 |
|
|
$ |
38.3 |
|
|
$ |
(358.1 |
) |
|
$ |
56.7 |
|
|
$ |
212.3 |
|
|
$ |
(546.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.33 |
|
|
$ |
1.10 |
|
|
$ |
(10.26 |
) |
|
$ |
1.39 |
|
|
$ |
6.08 |
|
|
$ |
(15.67 |
) |
Diluted |
$ |
0.32 |
|
|
$ |
1.06 |
|
|
$ |
(10.26 |
) |
|
$ |
1.35 |
|
|
$ |
5.93 |
|
|
$ |
(15.67 |
) |
Weighted-average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
40,931,817 |
|
|
|
34,902,380 |
|
|
|
34,902,380 |
|
|
|
40,805,319 |
|
|
|
34,902,380 |
|
|
|
34,882,306 |
|
Diluted |
|
41,884,886 |
|
|
|
36,288,050 |
|
|
|
34,902,380 |
|
|
|
42,075,986 |
|
|
|
35,798,491 |
|
|
|
34,882,306 |
|
Table 2.JOANN
Inc. Consolidated Balance
Sheets(Unaudited)
|
January 29,2022 |
|
|
January 30,2021 |
|
|
(Dollars in millions) |
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
22.5 |
|
|
$ |
27.4 |
|
Inventories |
|
658.6 |
|
|
|
555.9 |
|
Prepaid expenses and other current assets |
|
39.2 |
|
|
|
71.5 |
|
Total current assets |
|
720.3 |
|
|
|
654.8 |
|
|
|
|
|
|
|
Property, equipment and leasehold
improvements, net |
|
256.8 |
|
|
|
280.5 |
|
Operating lease assets |
|
818.0 |
|
|
|
837.0 |
|
Goodwill, net |
|
162.0 |
|
|
|
162.0 |
|
Intangible assets, net |
|
370.3 |
|
|
|
377.2 |
|
Other assets |
|
34.8 |
|
|
|
25.8 |
|
Total assets |
$ |
2,362.2 |
|
|
$ |
2,337.3 |
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
253.8 |
|
|
$ |
250.1 |
|
Accrued expenses |
|
142.4 |
|
|
|
171.3 |
|
Current portion of operating lease liabilities |
|
173.8 |
|
|
|
187.2 |
|
Current portion of long-term debt |
|
6.8 |
|
|
|
— |
|
Total current liabilities |
|
576.8 |
|
|
|
608.6 |
|
|
|
|
|
|
|
Long-term debt, net |
|
778.6 |
|
|
|
786.3 |
|
Long-term operating lease
liabilities |
|
733.0 |
|
|
|
766.4 |
|
Long-term deferred income
taxes |
|
87.7 |
|
|
|
87.3 |
|
Other long-term liabilities |
|
36.3 |
|
|
|
46.3 |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
Common stock, stated value $0.01 per share |
|
0.4 |
|
|
|
0.3 |
|
Additional paid-in capital |
|
203.3 |
|
|
|
124.7 |
|
Retained deficit |
|
(24.9 |
) |
|
|
(69.0 |
) |
Accumulated other comprehensive income (loss) |
|
1.8 |
|
|
|
(0.3 |
) |
Treasury stock at cost |
|
(30.8 |
) |
|
|
(13.3 |
) |
Total shareholders’ equity |
|
149.8 |
|
|
|
42.4 |
|
Total liabilities and
shareholders’ equity |
$ |
2,362.2 |
|
|
$ |
2,337.3 |
|
Table 3.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted EBITDA(Unaudited)
|
Thirteen Weeks Ended |
|
|
Fifty-Two Weeks Ended |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
(Dollars in millions) |
|
Net income (loss) |
$ |
13.6 |
|
|
$ |
38.3 |
|
|
$ |
(358.1 |
) |
|
$ |
56.7 |
|
|
$ |
212.3 |
|
|
$ |
(546.6 |
) |
Income tax provision |
|
0.7 |
|
|
|
10.4 |
|
|
|
34.9 |
|
|
|
13.0 |
|
|
|
28.0 |
|
|
|
12.1 |
|
Interest expense, net |
|
11.4 |
|
|
|
14.0 |
|
|
|
24.3 |
|
|
|
51.2 |
|
|
|
69.0 |
|
|
|
101.9 |
|
Depreciation and amortization
(1) |
|
20.2 |
|
|
|
20.4 |
|
|
|
20.3 |
|
|
|
80.8 |
|
|
|
80.6 |
|
|
|
78.0 |
|
Debt related loss (gain)
(2) |
|
0.3 |
|
|
|
(2.2 |
) |
|
|
(3.8 |
) |
|
|
3.3 |
|
|
|
(155.1 |
) |
|
|
(3.8 |
) |
Gain on sale leaseback
(3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.5 |
) |
|
|
— |
|
|
|
— |
|
Strategic initiatives (4) |
|
2.3 |
|
|
|
2.1 |
|
|
|
1.2 |
|
|
|
3.7 |
|
|
|
6.2 |
|
|
|
9.0 |
|
Excess import freight costs
(5) |
|
35.3 |
|
|
|
— |
|
|
|
— |
|
|
|
46.6 |
|
|
|
— |
|
|
|
— |
|
Other COVID-19 costs (6) |
|
0.2 |
|
|
|
16.6 |
|
|
|
— |
|
|
|
1.5 |
|
|
|
65.0 |
|
|
|
— |
|
Technology development expense
(7) |
|
2.8 |
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
9.0 |
|
|
|
5.8 |
|
|
|
6.4 |
|
Stock-based compensation
expense |
|
0.4 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
1.5 |
|
|
|
1.2 |
|
Loss on disposal and
impairment of fixed and operating lease assets |
|
1.2 |
|
|
|
2.0 |
|
|
|
0.6 |
|
|
|
1.1 |
|
|
|
5.6 |
|
|
|
1.0 |
|
Goodwill and trade name
impairment (8) |
|
— |
|
|
|
— |
|
|
|
356.4 |
|
|
|
— |
|
|
|
— |
|
|
|
486.8 |
|
Sponsor management fee
(9) |
|
— |
|
|
|
0.5 |
|
|
|
1.2 |
|
|
|
0.4 |
|
|
|
1.3 |
|
|
|
5.0 |
|
Other (10) |
|
0.5 |
|
|
|
1.4 |
|
|
|
0.6 |
|
|
|
(2.8 |
) |
|
|
3.1 |
|
|
|
2.4 |
|
Adjusted EBITDA |
$ |
88.9 |
|
|
$ |
106.1 |
|
|
$ |
80.6 |
|
|
$ |
242.5 |
|
|
$ |
323.3 |
|
|
$ |
153.4 |
|
(1) “Depreciation and amortization”
represents depreciation, amortization of intangible assets and
amortization of content costs. (2) “Debt related loss (gain)”
represents losses and gains associated with debt repurchases below
par and the write off of unamortized fees and original issue
discount associated with debt refinancings.(3) “Gain on sale
leaseback” represents the gain attributable to the sale leaseback
of our distribution center in Opelika, Alabama.(4) “Strategic
initiatives” represents non-recurring costs, such as third-party
consulting costs and one-time start-up costs, that are not part of
our ongoing operations and are incurred to execute differentiated,
project-based strategic initiatives, including costs (i) to design
a new prototype and assortment optimization process for store
locations, (ii) related to our efforts to initially evaluate and
implement opportunities to offset the significant costs incurred
due to the new U.S. tariffs on merchandise produced in China, (iii)
to start up a new technology product that would traditionally be
incurred by our vendors, (iv) to evaluate our opportunity in new
potential lines of business, (v) to analyze improved supply chain
capabilities and (vi) to establish our foreign sourcing office. (5)
As discussed in greater detail below, "Excess import freight costs"
represents excess inbound freight costs (compared to our standard
costs based on recently negotiated carrier rates) due to increasing
freight rates, in particular the significant transitory impact of
constrained ocean freight capacity and incremental domestic
transportation costs incurred due to unprecedented congestion in
U.S. ports arising from surging market demand for shipping capacity
as economies begin to recover from the COVID-19 pandemic. (6)
“Other COVID-19 costs” represents premium pay for store location
team members (including cleaning and store location capacity
management labor), incremental seasonal clearance associated with
store location closures, donations for our mask making initiative
and additional store location cleaning supplies. (7)
“Technology development expense” represents one-time IT project
management and implementation expenses, such as internal project
management labor, third-party consulting fees and user fees
incurred during the development period of a new software
application, that are not part of our ongoing operations and are
typically redundant during the initial implementation of software
applications or other technology systems across different
functional operations of our business before they are in productive
use.(8) Based on our evaluation for impairment of the
carrying amount of goodwill and trade name on our balance sheet.
Impairment recorded was driven predominantly by the result of
negative total comparable sales and declining margins, primarily
resulting from the incremental U.S. tariffs on Chinese imports,
along with a weaker than expected peak selling season. (9)
“Sponsor management fee” represents management fees paid to our
sponsor, LGP (or advisory affiliates thereof), in accordance with
our management services agreement, which terminated upon the
consummation of our initial public offering. Following our
offering, LGP does not provide managerial services to us in any
form.(10) “Other” represents the one-time impact of
severance, certain legal matters, executive leadership transition
and business transition activities.
Table 4.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted Net Income (Loss)(Unaudited)
|
Thirteen Weeks Ended |
|
|
Fifty-Two Weeks Ended |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
(Dollars in millions except per share data) |
|
Net income (loss) |
$ |
13.6 |
|
|
$ |
38.3 |
|
|
$ |
(358.1 |
) |
|
$ |
56.7 |
|
|
$ |
212.3 |
|
|
$ |
(546.6 |
) |
Debt related loss (gain) |
|
0.3 |
|
|
|
(2.2 |
) |
|
|
(3.8 |
) |
|
|
3.3 |
|
|
|
(155.1 |
) |
|
|
(3.8 |
) |
Gain on sale leaseback |
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(24.5 |
) |
|
|
— |
|
|
|
— |
|
Strategic initiatives |
|
2.3 |
|
|
|
2.1 |
|
|
|
1.2 |
|
|
|
3.7 |
|
|
|
6.2 |
|
|
|
9.0 |
|
Excess import freight
costs |
|
35.3 |
|
|
|
— |
|
|
|
— |
|
|
|
46.6 |
|
|
|
— |
|
|
|
— |
|
Other COVID-19 costs |
|
0.2 |
|
|
|
16.6 |
|
|
|
— |
|
|
|
1.5 |
|
|
|
65.0 |
|
|
|
— |
|
Technology development
expense |
|
2.8 |
|
|
|
2.2 |
|
|
|
2.7 |
|
|
|
9.0 |
|
|
|
5.8 |
|
|
|
6.4 |
|
Stock-based compensation
expense |
|
0.4 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
1.5 |
|
|
|
1.2 |
|
Loss on disposal and
impairment of fixed and operating lease assets |
|
1.2 |
|
|
|
2.0 |
|
|
|
0.6 |
|
|
|
1.1 |
|
|
|
5.6 |
|
|
|
1.0 |
|
Goodwill and trade name
impairment |
|
— |
|
|
|
— |
|
|
|
356.4 |
|
|
|
— |
|
|
|
— |
|
|
|
486.8 |
|
Sponsor management fee |
|
— |
|
|
|
0.5 |
|
|
|
1.2 |
|
|
|
0.4 |
|
|
|
1.3 |
|
|
|
5.0 |
|
Other |
|
0.5 |
|
|
|
1.4 |
|
|
|
0.6 |
|
|
|
(2.8 |
) |
|
|
3.1 |
|
|
|
2.4 |
|
Tax impact of adjustments
(11) |
|
(8.1 |
) |
|
|
(1.3 |
) |
|
|
(0.3 |
) |
|
|
(7.6 |
) |
|
|
17.2 |
|
|
|
(4.7 |
) |
Adjusted net income
(loss) |
$ |
48.5 |
|
|
$ |
60.0 |
|
|
$ |
0.8 |
|
|
$ |
89.9 |
|
|
$ |
162.9 |
|
|
$ |
(43.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share |
$ |
0.32 |
|
|
$ |
1.06 |
|
|
$ |
(10.26 |
) |
|
$ |
1.35 |
|
|
$ |
5.93 |
|
|
$ |
(15.67 |
) |
Adjusted diluted earnings
(loss) per share |
$ |
1.16 |
|
|
$ |
1.65 |
|
|
$ |
0.02 |
|
|
$ |
2.14 |
|
|
$ |
4.55 |
|
|
$ |
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding - basic |
|
40,931,817 |
|
|
|
34,902,380 |
|
|
|
34,902,380 |
|
|
|
40,805,319 |
|
|
|
34,902,380 |
|
|
|
34,882,306 |
|
Weighted-average shares
outstanding - diluted |
|
41,884,886 |
|
|
|
36,288,050 |
|
|
|
35,003,830 |
|
|
|
42,075,986 |
|
|
|
35,798,491 |
|
|
|
34,882,306 |
|
(11) “Tax impact of adjustments”
represents the tax effect of the total adjustments based on our
annual effective tax rate, before discrete adjustments, for fiscal
2020, fiscal 2021 and fiscal 2022.
Table 5.JOANN
Inc. Reconciliation of Gross Profit to Adjusted
Gross Profit(Unaudited)
|
Thirteen Weeks Ended |
|
|
Fifty-Two Weeks Ended |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
January 29,2022 |
|
|
January 30,2021 |
|
|
February 1,2020 |
|
|
(Dollars in millions) |
|
Net sales |
$ |
735.3 |
|
|
$ |
840.8 |
|
|
$ |
695.6 |
|
|
$ |
2,417.6 |
|
|
$ |
2,762.3 |
|
|
$ |
2,241.2 |
|
Cost of sales |
|
410.9 |
|
|
|
446.3 |
|
|
|
367.3 |
|
|
|
1,204.9 |
|
|
|
1,396.1 |
|
|
|
1,135.9 |
|
Gross profit |
|
324.4 |
|
|
|
394.5 |
|
|
|
328.3 |
|
|
|
1,212.7 |
|
|
|
1,366.2 |
|
|
|
1,105.3 |
|
Excess import freight
costs |
|
35.3 |
|
|
|
— |
|
|
|
— |
|
|
|
46.6 |
|
|
|
— |
|
|
|
— |
|
Other COVID-19 costs |
|
— |
|
|
|
0.8 |
|
|
|
— |
|
|
|
— |
|
|
|
14.0 |
|
|
|
— |
|
Adjusted gross profit |
$ |
359.7 |
|
|
$ |
395.3 |
|
|
$ |
328.3 |
|
|
$ |
1,259.3 |
|
|
$ |
1,380.2 |
|
|
$ |
1,105.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross margin |
|
48.9 |
% |
|
|
47.0 |
% |
|
|
47.2 |
% |
|
|
52.1 |
% |
|
|
50.0 |
% |
|
|
49.3 |
% |
Table 6.JOANN
Inc. Reconciliation of Net Cash Used for Operating
Activities to Credit Facility Adjusted
EBITDA(Unaudited)
(in millions) |
|
FiscalYear-Ended January
29, 2022 |
|
Net
cash used for operating activities |
|
$ |
(23.6 |
) |
Non-cash operating lease
expense |
|
|
(162.6 |
) |
Depreciation and amortization
excluding content cost amortization |
|
|
(80.1 |
) |
Deferred income taxes |
|
|
0.4 |
|
Stock-based compensation
expense |
|
|
(2.5 |
) |
Amortization of deferred
financing costs and original issue discount |
|
|
(2.5 |
) |
Debt related loss |
|
|
(3.3 |
) |
Gain on sale leaseback |
|
|
24.5 |
|
Loss on disposal and impairment
of other fixed assets |
|
|
(0.9 |
) |
Change in operating assets and
liabilities |
|
|
307.3 |
|
Net income |
|
$ |
56.7 |
|
Income tax provision |
|
|
13.0 |
|
Interest expense, net |
|
|
51.2 |
|
Debt related loss |
|
|
3.3 |
|
Gain on sale leaseback |
|
|
(24.5 |
) |
Depreciation and
amortization |
|
|
80.8 |
|
Strategic initiatives |
|
|
3.7 |
|
Excess import freight costs |
|
|
46.6 |
|
Other COVID-19 costs |
|
|
1.5 |
|
Technology development
expense |
|
|
9.0 |
|
Stock-based compensation
expense |
|
|
2.5 |
|
Loss on disposal and impairment
of fixed and operating lease assets |
|
|
1.1 |
|
Sponsor management fee |
|
|
0.4 |
|
Other |
|
|
(2.8 |
) |
Adjusted EBITDA |
|
$ |
242.5 |
|
Pre-opening and closing costs
excluding loss on disposal of fixed assets |
|
|
8.8 |
|
Credit Facility Adjusted EBITDA |
|
$ |
251.3 |
|
Non-GAAP Financial Measures
Adjusted EBITDA
JOANN presents Adjusted EBITDA, which is not a
recognized financial measure under accounting principles generally
accepted in the United States of America (“GAAP”), because it
believes it assists investors and analysts in comparing JOANN’s
performance across reporting periods on a consistent basis by
excluding items that management does not believe are indicative of
JOANN’s core operating performance. Management believes Adjusted
EBITDA is helpful in highlighting trends in JOANN’s core operating
performance compared to other measures, which can differ
significantly depending on long-term strategic decisions regarding
capital structure, the tax jurisdictions in which companies operate
and capital investments. JOANN also uses Adjusted EBITDA in
connection with establishing discretionary annual incentive
compensation; supplementing GAAP measures of performance in the
evaluation of the effectiveness of its business strategies; making
budgeting decisions; comparing its performance against that of
other peer companies using similar measures; and because its credit
facilities use measures similar to Adjusted EBITDA to measure its
compliance with certain covenants.
JOANN defines Adjusted EBITDA as net income
(loss) plus income tax provision, interest expense, net and
depreciation and amortization, as further adjusted to eliminate the
impact of certain non-cash items and other items that management
does not consider indicative of its ongoing operating performance,
including debt related loss (gain), sale leaseback gains, costs
related to strategic initiatives, COVID-19 costs, technology
development expense, stock-based compensation expense, loss on
disposal and impairment of fixed and operating lease assets,
goodwill and trade name impairment, sponsor management fees and
other one-time costs. Its adjustments for COVID-19 related costs
include, as a separate line item, excess import freight costs. The
excess import freight costs are directly attributable to surging
market demand for shipping capacity as economies begin to recover
from the COVID-19 pandemic, as well as actions taken by government
and industry leaders designed to protect against further spread of
the virus, which have disrupted the efficient operation of domestic
and international supply chains. These COVID-19 related conditions
have produced an imbalance of ocean freight capacity and related
demand, as well as port congestion and other supply chain
disruptions that are adding significant cost to JOANN’s procurement
of imported merchandise. JOANN believes that these excess import
freight costs include significantly higher rates paid per container
to ocean carriers, as well as fees paid due to congested ports that
JOANN does not normally incur. In a normative operating
environment, JOANN would procure 70% to 80% of its needs for ocean
freight under negotiated contract rates, with the balance procured
in a brokered market, typically at no more than a 10% - 15% premium
to its contract rates. Accordingly, JOANN established a standard
cost (“standard cost”) assuming those contract capacities,
established rates and typical premium in the brokered market for
peak volume needs not covered under its contracts. Negotiation of
its current contact rates were finalized in May 2021. In the
current COVID-19 impacted operating environment, its contracted
capacity has consistently not been met by its carriers, and rates
paid on the open market have escalated to up to an average of
nearly 200% above its contract rates and in some cases over 300%
greater. The amount of excess import freight costs included as an
adjustment to arrive at Adjusted EBITDA is calculated by
subtracting, from its actual import freight costs, its standard
cost for the applicable period. JOANN is identifying these COVID-19
related excess import freight costs as a separate line item in the
table above due to their magnitude and to distinguish them from
other COVID-19 related costs JOANN has previously excluded in
calculating Adjusted EBITDA.
Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for analysis of JOANN’s results as reported under GAAP.
Some of these limitations include:
- Adjusted EBITDA
does not reflect JOANN's cash expenditures or future requirements
for capital expenditures or contractual commitments;
- Adjusted EBITDA
does not reflect changes in JOANN's cash requirements for its
working capital needs;
- Adjusted EBITDA
does not reflect the interest expense and the cash requirements
necessary to service interest and principal payments on JOANN's
debt;
- Adjusted EBITDA
does not reflect cash requirements for replacement of assets that
are being depreciated and amortized;
- Adjusted EBITDA
does not reflect non-cash compensation, which is a key element of
JOANN’s overall long-term incentive compensation;
- Adjusted EBITDA
does not reflect the impact of certain cash charges or cash
receipts resulting from matters JOANN does not find indicative of
its ongoing operations; and
- other companies in
JOANN’s industry may calculate Adjusted EBITDA differently than it
does, limiting its usefulness as a comparative measure.
JOANN compensates for these limitations by
relying primarily on JOANN’s GAAP results and using Adjusted EBITDA
only as supplemental information.
Adjusted Net Income (Loss) and Adjusted
Diluted Earnings (Loss) per Share
JOANN presents adjusted net income (loss) and
adjusted diluted earnings (loss) per share, which are not
recognized financial measures under GAAP, because it believes these
additional key measures assist investors and analysts in comparing
JOANN’s performance across reporting periods on a consistent basis
by excluding items that management does not believe are indicative
of JOANN’s core operating performance. Management believes that
adjusted net income (loss) and adjusted diluted earnings (loss) per
share are helpful in highlighting trends in JOANN’s core operating
performance compared to other measures, which can differ
significantly depending on long-term strategic decisions regarding
capital structure and capital investments. JOANN also uses adjusted
net income (loss) and adjusted diluted earnings (loss) per share to
supplement GAAP measures of performance in the evaluation of the
effectiveness of its business strategies; to make budgeting
decisions; and to compare its performance against that of other
peer companies using similar measures.
JOANN defines adjusted net income (loss) as net
income (loss) adjusted to eliminate the impact of certain non-cash
items and other items that management does not consider indicative
of its ongoing operating performance, including debt related loss
(gain), sale leaseback gains, costs related to strategic
initiatives, COVID-19 costs, technology development expense,
stock-based compensation expense, loss on disposal and impairment
of fixed and operating lease assets, goodwill and trade name
impairment, sponsor management fees and other one-time costs. The
adjustments are itemized in the table above. Adjusted diluted
earnings (loss) per share is defined as adjusted net income (loss)
divided by the weighted-average number of common shares outstanding
assuming dilution in periods in which there is an adjusted net
income.
Adjusted Gross Profit and Adjusted Gross
Margin
JOANN presents adjusted gross profit and
adjusted gross margin, which are not recognized financial measures
under GAAP, because it believes they assist investors and analysts
in comparing JOANN’s performance across reporting periods on a
consistent basis by excluding items that management does not
believe are indicative of JOANN’s core operating performance.
JOANN defines adjusted gross profit as gross
profit excluding COVID-19 costs and adjusted gross margin as
adjusted gross profit divided by net sales.
Credit Facility Adjusted
EBITDA
JOANN presents Credit Facility Adjusted EBITDA
because it is a measure that is calculated in accordance with
JOANN’s asset-based revolving credit facility agreement, as
amended, and senior secured term loan facility (collectively
“Credit Facilities”) and used to determine compliance with certain
ratios in the Credit Facilities, tested each quarter on the basis
of the preceding four quarters. Accordingly, management believes
that Credit Facility Adjusted EBITDA is material to an investor’s
understanding of JOANN’s financial condition and liquidity.
JOANN defines Credit Facility Adjusted EBITDA as
Adjusted EBITDA (as defined above) plus pre-opening and closing
costs excluding loss on disposal of fixed assets, which is
calculated consistently with the calculation of Adjusted EBITDA
under the Credit Facilities.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. JOANN intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”) and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Readers can
generally identify forward-looking statements by the use of
forward-looking terminology such as “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,”
“might,” “plan,” “potential,” “predict,” “seek,” “vision,” or
“should,” or the negative thereof or other variations thereon or
comparable terminology. Many factors could affect JOANN’s actual
financial results and cause them to vary materially from the
expectations contained in forward-looking statements, including
those set forth in this document. These risks, uncertainties, and
factors include, among other things: inflationary pressures and
their impact on JOANN’s ability to control costs and on its
customers level of discretionary income to spend on Creative
Products; JOANN’s ability to anticipate and effectively respond to
disruptions or inefficiencies in its distribution network,
e-commerce fulfillment function and transportation system,
including availability and cost of import and domestic freight; the
effects of potential changes to U.S. trade regulations and
policies, including tariffs, on JOANN’s business; developments
involving JOANN’s competitors and its industry; potential future
impacts of the COVID-19 pandemic, including effects on supply chain
costs and capacity; JOANN’s ability to timely identify or
effectively respond to consumer trends, and the potential effects
of that ability on its relationship with its customers, the demand
for JOANN’s products and its market share; JOANN’s expectations
regarding the seasonality of its business; JOANN’s ability to
manage the distinct risks facing its e-commerce business and
maintain a relevant omni-channel experience for its customers;
JOANN’s ability to maintain or negotiate favorable lease terms;
JOANN’s ability to execute on its growth strategy to renovate and
improve the performance of its existing store locations; JOANN’s
ability to attract and retain a qualified management team and other
team members while controlling its labor costs; the impact of
JOANN’s debt and lease obligations on its ability to raise
additional capital to fund its operations and maintain flexibility
in operating its business; JOANN’s reliance on and relationships
with third party service providers; JOANN’s reliance on and
relationships with foreign suppliers and their ability to supply it
with adequate, timely, and cost-effective product supplies; JOANN’s
ability, and its third party service providers’ ability, to
maintain security and prevent unauthorized access to electronic and
other confidential information; the impacts of potential
disruptions to JOANN’s information systems, including its websites
and mobile applications; JOANN’s ability to respond to risks
associated with existing and future payment options; JOANN’s
ability to maintain and enhance a strong brand image; JOANN’s
ability to maintain adequate insurance coverage; JOANN’s status as
a “controlled company” and control of JOANN as a public company by
affiliates of Leonard Green & Partners, L.P.; the impact of
evolving governmental laws and regulations and the outcomes of
legal proceedings; and the amount and timing of repurchases of
JOANN’s common stock, if any.
The preceding list is not intended to be an
exhaustive list of all of JOANN’s forward-looking statements. JOANN
has based these forward-looking statements on its current
expectations, assumptions, estimates and projections. While JOANN
believes these expectations, assumptions, estimates and projections
are reasonable, such forward-looking statements are only
predictions and involve known and unknown risks and uncertainties,
many of which are beyond JOANN’s control. Furthermore, the
potential impact of the COVID-19 pandemic on JOANN’s business
operations and financial results and on the world economy as a
whole may heighten the risks and uncertainties that affect JOANN’s
forward-looking statements. Given these risks and uncertainties,
Readers are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included
elsewhere in this document are not guarantees of future performance
and JOANN’s actual results of operations, financial condition and
liquidity, and the development of the industry in which it
operates, may differ materially from the forward-looking statements
included elsewhere in this document. In addition, even if JOANN’s
results of operations, financial condition and liquidity, and
events in the industry in which it operates, are consistent with
the forward-looking statements included elsewhere in this document,
they may not be predictive of results or developments in future
periods. Any forward-looking statement that JOANN makes in this
document speaks only as of the date of such statement. Except as
required by law, JOANN does not undertake any obligation to update
or revise, or to publicly announce any update or revision to, any
of the forward-looking statements, whether as a result of new
information, future events or otherwise, after the date of this
document.
About JOANN
For more than 75 years, JOANN has inspired
creativity in the hearts, hands, and minds of its customers. From a
single storefront in Cleveland, Ohio, the nation’s category leader
in sewing and fabrics and one of the fastest growing competitors in
the arts and crafts industry has grown to include 848 stores across
49 states and robust e-commerce business. With the goal of helping
every customer find their creative Happy Place, JOANN serves as a
convenient single source for all of the supplies, guidance, and
inspiration needed to achieve any project or passion.
Investor Relations Contact:
Ajay Jain
ajay.jain@joann.com
330-463-8585
Corporate Communications:
Amanda Hayes
amanda.hayes@joann.com
216-296-5887
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