UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended October 31, 2020

OR

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

For the transition period from _____________________ to _____________________

Commission File Number: 001-38026

 

J.Jill, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

45-1459825

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

4 Batterymarch Park,

Quincy, MA 02169

 

02169

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 376-4300

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

JILL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(g) of the Act: None

As of December 7, 2020, the registrant had 9,619,850 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

 

 

Consolidated Balance Sheets (Unaudited)

 

2

 

Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

 

3

 

Consolidated Statement of Shareholders’ Equity (Unaudited)

 

4

 

Consolidated Statements of Cash Flows (Unaudited)

 

5

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

Item 2.

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

 

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

Controls and Procedures

 

29

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

30

Item 1A.

Risk Factors

 

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 3.

Defaults Upon Senior Securities

 

32

Item 4.

Mine Safety Disclosures

 

32

Item 5.

Other Information

 

32

Item 6.

Exhibits

 

32

Exhibit Index

 

33

Signatures

 

35

 

 

1


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

J.Jill, Inc.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

 

October 31, 2020

 

 

February 1, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

9,197

 

 

$

21,527

 

Accounts receivable

 

 

3,728

 

 

 

6,568

 

Inventories, net

 

 

67,584

 

 

 

72,599

 

Prepaid expenses and other current assets

 

 

41,570

 

 

 

22,256

 

Total current assets

 

 

122,079

 

 

 

122,950

 

Property and equipment, net

 

 

83,337

 

 

 

107,645

 

Intangible assets, net

 

 

99,240

 

 

 

112,814

 

Goodwill

 

 

59,697

 

 

 

77,597

 

Operating lease assets, net

 

 

170,843

 

 

 

211,332

 

Other assets

 

 

2,134

 

 

 

1,650

 

Total assets

 

$

537,330

 

 

$

633,988

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

62,518

 

 

$

43,053

 

Accrued expenses and other current liabilities

 

 

57,724

 

 

 

42,712

 

Current portion of long-term debt

 

 

2,799

 

 

 

2,799

 

Current portion of operating lease liabilities

 

 

36,564

 

 

 

33,875

 

Total current liabilities

 

 

159,605

 

 

 

122,439

 

Long-term debt, net of discount and current portion

 

 

228,547

 

 

 

231,200

 

Deferred income taxes

 

 

16,824

 

 

 

31,034

 

Operating lease liabilities, net of current portion

 

 

186,258

 

 

 

208,800

 

Warrants and derivative liability

 

 

14,841

 

 

 

 

Other liabilities

 

 

1,735

 

 

 

1,950

 

Total liabilities

 

 

607,810

 

 

 

595,423

 

Commitments and contingencies (see Note 12)

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 50,000,000 shares authorized; 9,619,976 and 8,857,625 shares issued and outstanding at October 31, 2020 and February 1, 2020, respectively

 

 

96

 

 

 

89

 

Additional paid-in capital

 

 

128,840

 

 

 

125,430

 

Accumulated deficit

 

 

(199,416

)

 

 

(86,954

)

Total shareholders’ equity (deficit)

 

 

(70,480

)

 

 

38,565

 

Total liabilities and shareholders’ equity

 

$

537,330

 

 

$

633,988

 

 

 

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 (LOSS) (UNAUDITED)

(in thousands, except share and per share data)

 

 

 

For the Thirteen Weeks Ended

 

 

For the Thirty-Nine Weeks Ended

 

 

 

October 31, 2020

 

 

November 2, 2019

 

 

October 31, 2020

 

 

November 2, 2019

 

Net sales

 

$

117,224

 

 

$

166,085

 

 

$

300,829

 

 

$

523,281

 

Costs of goods sold

 

 

48,225

 

 

 

59,137

 

 

 

126,645

 

 

 

194,736

 

Gross profit

 

 

68,999

 

 

 

106,948

 

 

 

174,184

 

 

 

328,545

 

Selling, general and administrative expenses

 

 

92,184

 

 

 

97,972

 

 

 

257,829

 

 

 

306,051

 

Impairment of long-lived assets

 

 

906

 

 

 

 

 

 

27,493

 

 

 

2,064

 

Impairment of goodwill

 

 

 

 

 

 

 

 

17,900

 

 

 

88,428

 

Impairment of intangible assets

 

 

 

 

 

 

 

 

6,620

 

 

 

7,000

 

Operating (loss) income

 

 

(24,091

)

 

 

8,976

 

 

 

(135,658

)

 

 

(74,998

)

Other expense

 

 

1,628

 

 

 

-

 

 

 

1,628

 

 

 

 

Interest expense, net

 

 

4,753

 

 

 

4,826

 

 

 

13,640

 

 

 

14,852

 

(Loss) income before provision for income taxes

 

 

(30,472

)

 

 

4,150

 

 

 

(150,926

)

 

 

(89,850

)

Income tax (benefit) provision

 

 

(7,313

)

 

 

1,763

 

 

 

(38,464

)

 

 

132

 

Net (loss) income and total comprehensive (loss) income

 

$

(23,159

)

 

$

2,387

 

 

$

(112,462

)

 

$

(89,982

)

Net (loss) income per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.52

)

 

$

0.27

 

 

$

(12.49

)

 

$

(10.31

)

Diluted

 

$

(2.52

)

 

$

0.27

 

 

$

(12.49

)

 

$

(10.31

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,177,350

 

 

 

8,767,733

 

 

 

9,004,321

 

 

 

8,730,636

 

Diluted

 

 

9,177,350

 

 

 

8,790,140

 

 

 

9,004,321

 

 

 

8,730,636

 

 

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

 

 

3


Table of Contents

 

J.Jill, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except common share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Shareholders’

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

(Deficit)

 

Balance, February 1, 2020

 

 

8,857,625

 

 

$

89

 

 

$

125,430

 

 

$

(86,954

)

 

$

38,565

 

Vesting of restricted stock units

 

 

138,202

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Net-share settlement of equity-based compensation

 

 

(40,987

)

 

 

 

 

 

(137

)

 

 

 

 

 

(137

)

Equity-based compensation

 

 

 

 

 

 

 

 

676

 

 

 

 

 

 

676

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(70,269

)

 

 

(70,269

)

Balance, May 2, 2020

 

 

8,954,840

 

 

$

90

 

 

$

125,968

 

 

$

(157,223

)

 

$

(31,165

)

Vesting of restricted stock units

 

 

7,961

 

 

 

 

 

 

 

 

 

 

 

 

 

Net-share settlement of equity-based compensation

 

 

(2,327

)

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Equity-based compensation

 

 

 

 

 

 

 

 

615

 

 

 

 

 

 

615

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,034

)

 

 

(19,034

)

Balance, August 1, 2020

 

 

8,960,474

 

 

$

90

 

 

$

126,570

 

 

$

(176,257

)

 

$

(49,597

)

Vesting of restricted stock units

 

 

4,875

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Net-share settlement of equity-based compensation

 

 

(1,428

)

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Equity-based compensation

 

 

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

Forfeiture of restricted stock awards

 

 

(661

)

 

 

 

 

 

 

 

 

 

 

 

 

Participating lender equity consideration

 

 

656,717

 

 

 

6

 

 

 

1,951

 

 

 

 

 

 

1,957

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,159

)

 

 

(23,159

)

Balance, October 31, 2020

 

 

9,619,976

 

 

$

96

 

 

$

128,840

 

 

$

(199,416

)

 

$

(70,480

)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Earnings

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

Equity

 

Balance, February 2, 2019

 

 

8,734,484

 

 

$

88

 

 

$

121,984

 

 

$

91,723

 

 

$

213,795

 

Adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

59

 

 

 

59

 

Special cash dividend ($1.15 per share)

 

 

 

 

 

 

 

 

 

 

 

(50,154

)

 

 

(50,154

)

Vesting of restricted stock units

 

 

146,895

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Net-share settlement of equity-based compensation

 

 

(47,823

)

 

 

 

 

 

(1,268

)

 

 

 

 

 

(1,268

)

Forfeiture of restricted stock awards

 

 

(13,996

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,202

 

 

 

 

 

 

1,202

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,366

 

 

 

4,366

 

Balance, May 4, 2019

 

 

8,819,559

 

 

$

89

 

 

$

121,917

 

 

$

45,994

 

 

$

168,000

 

Forfeitable dividend

 

 

 

 

 

 

 

 

107

 

 

 

 

 

 

107

 

Forfeiture of restricted stock awards

 

 

(18,537

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,214

 

 

 

 

 

 

1,214

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(96,735

)

 

 

(96,735

)

Balance, August 3, 2019

 

 

8,801,022

 

 

$

89

 

 

$

123,238

 

 

$

(50,741

)

 

$

72,586

 

Vesting of restricted stock units

 

 

10,087

 

 

 

 

 

 

(0

)

 

 

 

 

 

 

Net-share settlement of equity-based compensation

 

 

(2,966

)

 

 

 

 

 

(35

)

 

 

 

 

 

(35

)

Forfeitable dividend

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Forfeiture of restricted stock awards

 

 

(1,222

)

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,128

 

 

 

 

 

 

1,128

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,387

 

 

 

2,387

 

Balance, November 2, 2019

 

 

8,806,922

 

 

$

89

 

 

$

124,338

 

 

$

(48,354

)

 

$

76,072

 

 

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

 

 

 

October 31, 2020

 

 

November 2, 2019

 

Net loss

 

$

(112,462

)

 

$

(89,982

)

Operating activities:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,663

 

 

 

28,301

 

Impairment of goodwill and intangible assets

 

 

24,520

 

 

 

95,428

 

Impairment of long-lived assets

 

 

27,493

 

 

 

2,064

 

Adjustment for exited retail stores

 

 

(958

)

 

 

 

Loss on disposal of fixed assets

 

 

376

 

 

 

85

 

Gain from barter arrangement

 

 

 

 

 

(1,274

)

Noncash interest expense

 

 

1,350

 

 

 

1,250

 

Noncash change in fair value of warrants and derivatives

 

 

1,628

 

 

 

-

 

Equity-based compensation

 

 

1,614

 

 

 

3,544

 

Deferred rent incentives

 

 

(136

)

 

 

(133

)

Deferred income taxes

 

 

(14,210

)

 

 

(7,908

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,840

 

 

 

(3,677

)

Inventories

 

 

5,015

 

 

 

(4,797

)

Prepaid expenses and other current assets

 

 

(19,313

)

 

 

(1,662

)

Accounts payable

 

 

19,562

 

 

 

(4,102

)

Accrued expenses

 

 

15,848

 

 

 

(60

)

Operating lease assets and liabilities

 

 

1,437

 

 

 

718

 

Other noncurrent assets and liabilities

 

 

(631

)

 

 

(108

)

Net cash (used in) provided by operating activities

 

 

(20,364

)

 

 

17,687

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,037

)

 

 

(13,493

)

Net cash used in investing activities

 

 

(3,037

)

 

 

(13,493

)

Financing activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

33,000

 

 

 

 

Repayments of revolving credit facility

 

 

(33,000

)

 

 

 

Borrowings under subordinated facility, net of issuance costs

 

 

14,560

 

 

 

 

Lender fees for priming loans

 

 

(1,235

)

 

 

 

Repayments on debt

 

 

(2,099

)

 

 

(2,099

)

Payments of withholding tax on net-share settlement of equity-based compensation plans

 

 

(155

)

 

 

(1,301

)

Special dividend paid to shareholders

 

 

 

 

 

(50,154

)

Forfeitable dividend

 

 

 

 

 

114

 

Net cash provided by (used in) financing activities

 

 

11,071

 

 

 

(53,440

)

Net change in cash

 

 

(12,330

)

 

 

(49,246

)

Cash:

 

 

 

 

 

 

 

 

Beginning of Period

 

 

21,527

 

 

 

66,204

 

End of Period

 

$

9,197

 

 

$

16,958

 

 

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, thoughtful and inspired style that reflects the confidence of remarkable women who live life with joy, passion and purpose. J.Jill offers a guiding customer experience through about 275 stores nationwide and a robust ecommerce 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”) associated with reporting of interim period financial information. We consistently applied the accounting policies described in our 2019 Annual Report on Form 10-K ("2019 Form 10-K") in preparing these unaudited interim Consolidated Financial Statements. 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 1, 2020 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the thirteen and thirty-nine weeks ended October 31, 2020 are not necessarily indicative of future results or results to be expected for the full year ending January 30, 2021 (“Fiscal Year 2020”). 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 1, 2020.

Certain prior year amounts have been restated to reflect the reverse stock split on November 9, 2020 including common stock par value and additional paid-in capital on the Consolidated Balance Sheets and, shares and per share amounts on the Consolidated Statements of Operations and Comprehensive Income (Loss).  The prior year’s impairment of long-lived assets has been reclassified to be consistent with the current year presentation on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern,” the Company’s management evaluated whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date of issuance of these financial statements. Although the following matters raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements have been issued, the Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern.

In December 2019, COVID-19 pandemic (“COVID-19”) emerged and has subsequently spread worldwide. The World Health Organization declared COVID-19 a pandemic on March 11, 2020 resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. After close monitoring and taking into consideration the guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19, effective March 18, 2020, the Company closed all of its stores and its offices with employees working remotely where possible. The Company began reopening its stores in May 2020, with all stores having been reopened by late June 2020; however, operations of the stores may again be restricted by local guidelines.

As a result of COVID-19, the Company’s revenues, results of operations and cash flows were materially adversely impacted, which resulted in a failure by us to comply with the financial covenants contained in our Asset Based Revolving Credit Agreement (“ABL Facility”) and Term Loan Agreement (“Term Loan”). Additionally, the inclusion of substantial doubt about the Company’s ability to continue as a going concern in the report of our independent registered public accounting firm on our financial statements for the fiscal year ended February 1, 2020 resulted in a violation of affirmative covenants under our ABL Facility and Term Loan. During 2020, the Company entered into forbearance agreements (the “Forbearance Agreements”) with the lenders under its ABL Facility and Term Loan. Under the Forbearance Agreements, the respective lenders agreed not to exercise any rights and remedies through the period of time that allowed the Company to enter into a Transaction Support Agreement (“TSA”) on August 31, 2020 with lenders holding greater than 70% of the Company’s term loans (“Consenting Lenders”) and a majority of our shareholders on the principal terms of a financial restructuring (“Transaction”).  The Transaction was consented to by the requisite term loan lenders and was

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consummated on an out-of-court basis on September 30, 2020. The Transaction resulted in a waiver of any past non-compliance with the terms of the Company’s credit facilities, provided the Company with additional liquidity and extended the maturity of certain participating debt by two years, through May 2024.  Refer to Note 7, Debt for a further discussion of the Company’s debt restructuring.  

The Company could experience other potential impacts as a result of COVID-19, including, but not limited to, additional charges from potential adjustments to the carrying amount of its inventory, goodwill, intangible assets, right-of-use assets and long-lived assets as well as additional store closures. Actual results may differ materially from the Company’s current estimates as considerable risk remains related to the performance of stores, the resilience of the customer in an uncertain economic climate, and the possibility of a resurgence of COVID-19 with its potential for future business disruption and the related impacts on the U.S. economy in the coming 12 months.  If one or more of these risks materialize, we believe that our current liquidity and capital may not be sufficient to finance our continued operations for at least the next 12 months.  These risks raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements have been issued.

In response to COVID-19, we have taken and continue to take aggressive and prudent actions to reduce expenses and manage working capital to preserve cash on-hand. These actions include, but are not limited to:

 

reduced staffing and operating hours at retail locations for a phase-in period since reopening;

 

base salary reductions for our senior leadership team for a period of time, and suspension of pay raises for corporate employees;

 

extension of payment terms for all accounts payable, including merchandising vendors, other than those necessary to support our ecommerce business;

 

negotiated with certain landlords for rent abatements and/or rent deferrals;

 

withheld rent for certain retail locations related to the period of time they were closed, while continuing to negotiate with landlords for amended lease terms;

 

eliminated approximately half of our catalogs and are considering implementing this as a permanent change; and

 

significantly reduced planned capital expenditures.

Additionally, we have filed an income tax refund for $6.9 million, of which we have received $5.9 million, with the IRS and multiple state jurisdictions related to the provision under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted in March 2020 that provides numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer-paid portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company has elected to defer the employer-paid portion of social security taxes beginning with pay dates on and after April 1, 2020.  A portion of the deferral is payable in 2021 with the remainder due in 2022. We continue to evaluate the provisions of the CARES Act and the ways in which it could assist our business and improve our liquidity.

Recently Adopted Accounting Standards

In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements (“Topic 808”), which clarifies the interaction between Topic 808 and Topic 606, Revenue from Contracts with Customers. The provisions of ASU 2018-18 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ASU 2018-18 had no impact on the consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 – Income Tax Accounting (“Topic 740”), which simplifies the accounting for income taxes. The provisions of ASU 2019-12 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company will be required to adopt this standard in the first quarter of Fiscal Year 2021. This standard is not expected to have a material impact on our consolidated financial statements and related disclosures.

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3. Revenues

Disaggregation of Revenue

The Company sells its apparel and accessory merchandise through retail stores (“Retail”) and through its website and catalog orders (“Direct”). The following table presents disaggregated revenues by source (in thousands):

 

 

 

For the Thirteen Weeks Ended

 

 

For the Thirty-Nine Weeks Ended

 

 

 

October 31, 2020

 

 

November 2, 2019

 

 

October 31, 2020

 

 

November 2, 2019

 

Retail

 

$

42,991

 

 

$

94,748

 

 

$

104,388

 

 

$

301,008

 

Direct

 

 

74,233

 

 

 

71,337

 

 

 

196,441

 

 

 

222,273

 

Net revenues

 

$

117,224

 

 

$

166,085

 

 

$

300,829

 

 

$

523,281

 

 

Contract Liabilities

The Company recognizes a contract liability when it has received consideration from the customer and has a future obligation to the customer. Total contract liabilities consisted of the following (in thousands):

 

 

 

October 31, 2020

 

 

February 1, 2020

 

Contract liabilities:

 

 

 

 

 

 

 

 

Signing bonus

 

$

400

 

 

$

506

 

Unredeemed gift cards

 

 

5,444

 

 

 

7,264

 

Total contract liabilities(1)

 

$

5,845

 

 

$

7,770

 

 

(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 consolidated balance sheet as of October 31, 2020.

For the thirteen and thirty-nine weeks ended October 31, 2020, the Company recognized approximately $1.7 million and $5.7 million, respectively, of revenue related to gift card redemptions and breakage. For the thirteen and thirty-nine weeks ended November 2, 2019, the Company recognized approximately $2.0 million and $8.5 million, respectively, 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 $0.4 million for a signing bonus related to the private label credit card agreement that is being amortized to revenue evenly through the third quarter of Fiscal Year 2023.

 

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

4. Other Income

The Company filed an insurance claim as a result of a cargo vessel fire on or about January 8, 2019, where contents of two containers carried J.Jill inventory. In July 2019, it was determined that the inventory onboard the cargo vessel was nonsalable, and the insurance claim was settled for $3.3 million. The Company recorded a gain of $2.4 million on insurance proceeds in selling, general and administrative expenses in the consolidated statement of operations and comprehensive income (loss) for the thirty-nine weeks ended November 2, 2019. 

5. Asset Impairments

Long-lived Asset Impairments

In the first quarter and third quarter of Fiscal Year 2020, the Company reduced the net carrying value of certain long-lived assets to their estimated fair value, which was determined using a discounted cash flows method.  These impairment charges arose from the material adverse effect that COVID-19 had on our results of operations, particularly with our store fleet.  The Company incurred non-cash impairment charges of $0.7 million and $7.3 million, respectively, on leasehold improvements for the thirteen and thirty-nine weeks ended October 31, 2020 and $0.2 million and $20.2 million, respectively, on the right-of-use assets for the thirteen and thirty-nine weeks ended October 31, 2020.

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In the second quarter of Fiscal Year 2019, the Company reduced the net carrying value of certain long-lived assets to their estimated fair value, determined using a discounted cash flows method. These impairment charges arose from the Company’s decision to vacate and sublease one floor of the corporate headquarters located in Quincy, Massachusetts. The Company incurred non-cash impairment charges of $0.3 million on leasehold improvements and $1.8 million on the right-of-use asset, which were recorded as impairment of long-lived assets in the consolidated statement of operations and comprehensive income (loss).

Goodwill and Other Intangible Asset Impairments

In the first quarter of Fiscal Year 2020, the Company temporarily closed its retail locations due to COVID-19, which had a material adverse effect on our results of operations, financial position and liquidity and led to a significant decline in our net sales for the first quarter of Fiscal Year 2020, as well as an expected decline for the full Fiscal Year 2020. The Company concluded that these factors, as well as the decrease in stock price represented indicators of impairment and required the Company to test goodwill and indefinite-lived and definite-lived intangible assets for impairment during the first quarter of Fiscal Year 2020 (the “Q1 Impairment Test”).

The Company performed the Q1 Impairment Test using a quantitative approach. The Q1 Impairment Test was performed using the income approach (or discounted cash flows method) for goodwill, the relief-from-royalty method for indefinite-lived intangible assets and a recoverability analysis for definite-lived intangible assets. The estimated fair values of goodwill and indefinite-lived and definite-lived intangible assets were below their carrying values resulting in a $17.9 million impairment of goodwill, a $4.0 million impairment of the Company’s tradename (indefinite-lived intangible asset) and a $2.6 million impairment of the Company’s customer list (definite-lived intangible asset).

During the third quarter of Fiscal Year 2020, the Company reduced its long-term estimates, and the Company concluded this represented an indicator of impairment and required the Company to test goodwill and indefinite-lived and definite-lived intangible assets for impairment during the third quarter of Fiscal Year 2020 (the “Q3 Impairment Test”).  

The Company performed the Q3 Impairment Test using a quantitative approach. The Q3 Impairment Test was performed using the income approach (or discounted cash flows method) for goodwill, the relief-from-royalty method for indefinite-lived intangible assets and a recoverability analysis for definite-lived intangible assets. The estimated fair values of goodwill and indefinite-lived and definite-lived intangible assets were above their carrying values resulting in no further impairment.  The Company will perform its annual impairment assessment during the fourth quarter of Fiscal Year 2020 and may incur further impairments based on the results of that assessment which may be material.

The most significant estimates and assumptions inherent in this approach are the preparation of revenue forecasts, selection of royalty and discount rates and a terminal year multiple. These assumptions are classified as Level 3 inputs. The methodology utilized for the Q1 Impairment Test and the Q3 Impairment Test has not changed materially from the prior year. The key assumptions used under the income approach and relief-from-royalty method include the following:

 

Future cash flow assumptions - The Company's projections for its reporting units were from historical experience and assumptions regarding future revenue growth and profitability trends. The Company's analyses incorporated an assumed period of cash flows of 5-10 years with a terminal value.

 

Discount rate - The discount rate was based on an estimated weighted average cost of capital ("WACC") for each reporting unit. The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The Company developed its cost of equity estimate based on perceived risks and predictability of future cash flows. The WACC used to estimate the fair values of the Company's reporting units was within a range of 20.5% to 22.5%. A 1% change in this discount rate would not result in an additional goodwill impairment charge.

 

Royalty rate - The royalty rates utilized consider external market evidence and internal financial metrics including a review of available returns after the consideration of property, plant and equipment, working capital and other intangible assets. The royalty rate used to estimate the available returns for the reporting units was within a range of 1% to 4%.

The Company is at risk of future impairments in Fiscal Year 2020 if actual results differ from forecasted results or there are changes to these key assumptions used in estimating the fair value.

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The following table displays a rollforward of the carrying amount of goodwill from February 2, 2019 to October 31, 2020 (in thousands):

 

Goodwill at February 2, 2019

 

$

197,026

 

Impairment losses

 

 

(119,429

)

Balance, February 1, 2020

 

 

77,597

 

Impairment losses

 

 

(17,900

)

Balance, October 31, 2020

 

$

59,697

 

 

The accumulated goodwill impairment losses as of October 31, 2020 are $137.3 million.

The following table reflects the gross carrying amount and accumulated amortization and impairment for each major intangible asset:

 

 

 

 

 

October 31, 2020

 

February 1, 2020

 

 

 

 

 

(in thousands)

 

 

 

Weighted Average Useful Life (Years)

 

Gross

 

 

Accumulated Amortization/ Impairment

 

 

Carrying Amount

 

 

Gross

 

 

Accumulated Amortization/ Impairment

 

 

Carrying Amount

 

Trade name

 

Indefinite

 

$

58,100

 

 

$

16,100

 

 

$

42,000

 

 

$

58,100

 

 

$

12,100

 

 

$

46,000

 

Customer relationships

 

13.2

 

 

134,200

 

 

 

76,960

 

 

 

57,240

 

 

 

134,200

 

 

 

67,386

 

 

 

66,814

 

Total intangible assets

 

 

 

$

192,300

 

 

$

93,060

 

 

$

99,240

 

 

$

192,300

 

 

$

79,486

 

 

$

112,814

 

 

The accumulated customer relationship impairment loss as of October 31, 2020 is $2.6 million.

In the second quarter of Fiscal Year 2019, the Company reduced comparable sales outlook for the second quarter that led to a reduced full year forecast of earnings for Fiscal Year 2019. The Company concluded that these factors, as well as the decrease in stock price represented indicators of impairment and required the Company to test goodwill and indefinite-lived intangible assets for impairment during the second quarter of Fiscal Year 2019 (the “Q2 FY19 Impairment Test”).

The Company performed the Q2 FY19 Impairment Test using a quantitative approach with the assistance of an independent valuation firm. The Q2 FY19 Impairment Test was performed using the income approach (or discounted cash flows method) for goodwill and the relief-from-royalty method for indefinite-lived intangible assets. The estimated fair values of goodwill and indefinite-lived intangible assets were below carrying values resulting in an $88.4 million impairment of goodwill and a $7.0 million impairment of the Company’s tradename (indefinite-lived intangible asset).

6. Restructuring Costs

In July 2019, the Company implemented a restructuring plan (the “2019 Restructuring Plan”) focused on cost reduction initiatives designed to execute against long-term strategies. The 2019 Restructuring Plan included headcount reductions primarily at the Company’s corporate headquarters in Quincy, Massachusetts and at the facility in Tilton, New Hampshire.

As a result of the 2019 Restructuring Plan, the Company recorded $1.6 million of restructuring costs in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. All restructuring costs were recognized in the second quarter of Fiscal Year 2019 and payments were completed in the third quarter of Fiscal Year 2020, ending on October 31, 2020.

The following table summarizes the activity of the restructuring costs discussed above and related accruals recorded in accrued other and other current liabilities on the consolidated balance sheet (in thousands):

 

 

 

February 1, 2020

 

 

Cash

Payments

 

 

Adjustments

 

 

October 31, 2020

 

 

Program Costs to Date October 31, 2020

 

Employee separation costs

 

$

216

 

 

$

131

 

 

$

85

 

 

$

 

 

$

1,402

 

Other

 

 

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