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 May 1, 2021

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 June 1, 2021, the registrant had 9,983,839 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

3

 

Condensed Consolidated Statements of Shareholders’ Deficit (Unaudited)

 

4

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

Item 2.

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

 

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4.

Controls and Procedures

 

22

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

23

Item 1A.

Risk Factors

 

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

Item 3.

Defaults Upon Senior Securities

 

23

Item 4.

Mine Safety Disclosures

 

23

Item 5.

Other Information

 

23

Item 6.

Exhibits

 

23

Exhibit Index

 

24

Signatures

 

25

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

J.Jill, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

 

May 1, 2021

 

 

January 30, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

10,725

 

 

$

4,407

 

Accounts receivable

 

 

7,085

 

 

 

7,793

 

Inventories, net

 

 

59,298

 

 

 

58,034

 

Prepaid expenses and other current assets

 

 

44,705

 

 

 

43,035

 

Total current assets

 

 

121,813

 

 

 

113,269

 

Property and equipment, net

 

 

68,742

 

 

 

73,906

 

Intangible assets, net

 

 

86,909

 

 

 

88,976

 

Goodwill

 

 

59,697

 

 

 

59,697

 

Operating lease assets, net

 

 

152,055

 

 

 

161,135

 

Other assets

 

 

179

 

 

 

199

 

Total assets

 

$

489,395

 

 

$

497,182

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

47,149

 

 

$

56,263

 

Accrued expenses and other current liabilities

 

 

42,694

 

 

 

43,854

 

Current portion of long-term debt

 

 

2,799

 

 

 

2,799

 

Current portion of operating lease liabilities

 

 

36,094

 

 

 

37,967

 

Borrowings under revolving credit facility

 

 

23,044

 

 

 

11,146

 

Total current liabilities

 

 

151,780

 

 

 

152,029

 

Long-term debt, net of discount and current portion

 

 

225,170

 

 

 

225,401

 

Long-term debt, net of discount - related party

 

 

3,772

 

 

 

3,311

 

Deferred income taxes

 

 

14,202

 

 

 

13,835

 

Operating lease liabilities, net of current portion

 

 

168,658

 

 

 

179,022

 

Warrants - related party

 

 

34,642

 

 

 

15,997

 

Derivative liability

 

 

4,586

 

 

 

2,436

 

Other liabilities

 

 

1,619

 

 

 

2,049

 

Total liabilities

 

 

604,429

 

 

 

594,080

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 50,000,000 shares authorized; 9,711,710 and 9,631,633 shares issued and outstanding at May 1, 2021 and January 30, 2021, respectively

 

 

98

 

 

 

97

 

Additional paid-in capital

 

 

129,534

 

 

 

129,363

 

Accumulated deficit

 

 

(244,666

)

 

 

(226,358

)

Total shareholders’ deficit

 

 

(115,034

)

 

 

(96,898

)

Total liabilities and shareholders’ deficit

 

$

489,395

 

 

$

497,182

 

 

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

 

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J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS (UNAUDITED)

(in thousands, except share and per share data)

 

 

 

For the Thirteen Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net sales

 

$

129,086

 

 

$

90,969

 

Costs of goods sold

 

 

41,260

 

 

 

40,804

 

Gross profit

 

 

87,826

 

 

 

50,165

 

Selling, general and administrative expenses

 

 

79,139

 

 

 

87,908

 

Impairment of long-lived assets

 

 

 

 

 

27,480

 

Impairment of goodwill

 

 

 

 

 

17,900

 

Impairment of intangible assets

 

 

 

 

 

6,620

 

Operating income (loss)

 

 

8,687

 

 

 

(89,743

)

Fair value adjustment of derivative

 

 

2,150

 

 

 

 

Fair value adjustment of warrants - related party

 

 

18,646

 

 

 

 

Interest expense, net

 

 

4,346

 

 

 

4,643

 

Interest expense, net - related party

 

 

461

 

 

 

 

Loss before provision for income taxes

 

 

(16,916

)

 

 

(94,386

)

Income tax provision (benefit)

 

 

1,392

 

 

 

(24,117

)

Net loss and total comprehensive loss

 

$

(18,308

)

 

$

(70,269

)

Net loss per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

(1.89

)

 

$

(7.91

)

Diluted

 

$

(1.89

)

 

$

(7.91

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

9,666,353

 

 

 

8,882,183

 

Diluted

 

 

9,666,353

 

 

 

8,882,183

 

 

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

 

 

 

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J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (UNAUDITED)

(in thousands, except common share data)

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, January 30, 2021

 

 

9,631,633

 

 

$

97

 

 

$

129,363

 

 

$

(226,358

)

 

$

(96,898

)

Vesting of restricted stock units

 

 

111,248

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(31,171

)

 

 

 

 

 

(271

)

 

 

 

 

 

(271

)

Equity-based compensation

 

 

 

 

 

 

 

 

443

 

 

 

 

 

 

443

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,308

)

 

 

(18,308

)

Balance, May 1, 2021

 

 

9,711,710

 

 

$

98

 

 

$

129,534

 

 

$

(244,666

)

 

$

(115,034

)

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Shareholders’

 

 

 

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

)

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(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

)

 

 

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

 

 

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J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

For the Thirteen Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net loss

 

$

(18,308

)

 

$

(70,269

)

Operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,577

 

 

 

9,033

 

Impairment of goodwill and intangible assets

 

 

 

 

 

24,520

 

Impairment of long-lived assets

 

 

 

 

 

27,480

 

Adjustment for exited retail stores

 

 

(719

)

 

 

 

Loss on disposal of fixed assets

 

 

86

 

 

 

12

 

Noncash interest expense, net

 

 

929

 

 

 

428

 

Noncash change in fair value of derivative

 

 

2,150

 

 

 

-

 

Noncash change in fair value of warrants - related party

 

 

18,646

 

 

 

-

 

Equity-based compensation

 

 

443

 

 

 

676

 

Deferred rent incentives

 

 

(633

)

 

 

(46

)

Deferred income taxes

 

 

31

 

 

 

(11,773

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

708

 

 

 

4,594

 

Inventories

 

 

(1,263

)

 

 

(2,917

)

Prepaid expenses and other current assets

 

 

(1,671

)

 

 

(16,592

)

Accounts payable

 

 

(9,042

)

 

 

15,531

 

Accrued expenses

 

 

(1,187

)

 

 

19,752

 

Operating lease assets and liabilities

 

 

(1,856

)

 

 

3,201

 

Other noncurrent assets and liabilities

 

 

(24

)

 

 

(665

)

Net cash (used in) provided by operating activities

 

 

(4,133

)

 

 

2,965

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(476

)

 

 

(1,832

)

Net cash used in investing activities

 

 

(476

)

 

 

(1,832

)

Financing activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

41,288

 

 

 

33,000

 

Repayments of revolving credit facility

 

 

(29,390

)

 

 

 

Repayments on debt

 

 

(700

)

 

 

(700

)

Surrender of shares to pay withholding taxes

 

 

(271

)

 

 

(137

)

Net cash provided by financing activities

 

 

10,927

 

 

 

32,163

 

Net change in cash

 

 

6,318

 

 

 

33,296

 

Cash:

 

 

 

 

 

 

 

 

Beginning of Period

 

 

4,407

 

 

 

21,527

 

End of Period

 

$

10,725

 

 

$

54,823

 

 

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

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J.Jill, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Description of Business

J.Jill, Inc., “J.Jill” or the “Company”, is a 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 more than 260 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our interim condensed consolidated financial statements are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”) associated with reporting of interim period financial information. We consistently applied the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (“2020 Form 10-K”) in preparing these unaudited interim condensed consolidated financial statements. In the opinion of management, these interim condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company. The consolidated balance sheet as of January 30, 2021 is derived from the audited consolidated balance sheet as of that date. The unaudited results of operations for the thirteen weeks ended May 1, 2021 are not necessarily indicative of future results or results to be expected for the full year ending January 29, 2022 (“Fiscal Year 2021”). You should read these statements in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K.

Prior year shares and per share amounts on the condensed consolidated statements of operations and comprehensive income and condensed consolidated statements of shareholders’ equity have been restated to reflect the reverse stock split on November 9, 2020.

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 condensed consolidated financial statements have been prepared assuming that it will continue as a going concern.

 

In December 2019, the COVID-19 pandemic (“COVID-19”) emerged and 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, during Fiscal Year 2020 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 ABL Facility (as defined below) and Term Loan (as defined below). 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 accompanying 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 Loan 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 consummated on an out-of-court basis on September 30, 2020. The Transaction resulted in a waiver of any past non-compliance with

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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.

 

While the retail industry has begun to recover, the Company could experience other potential impacts because 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, 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 and the timing of receipt of our expected tax refunds. 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 condensed consolidated financial statements have been issued.

 

In response to the impacts of COVID-19, we improved our financial flexibility by restructuring our debt with an extended maturity.  Additionally, we took actions to reduce expenses and we continue to manage working capital, primarily inventory levels and capital expenditures, to maximize cash on-hand.

Cost of Goods Sold 

Cost of goods sold (“COGS”) consist of all costs of sold merchandise (net of purchase discounts and vendor allowances).  These costs include:

 

Direct costs of purchased merchandise;

 

Adjustments to the carrying value of inventory related to realizability and shrinkage; and

 

Inbound freight to our distribution center.

Our COGS and Gross margin may not be comparable to other entities. Some entities, like us, exclude costs related to shipping products to their customers, as well as costs of their distribution network, buying function, store occupancy costs and depreciation and amortization expenses from COGS and include them in Selling, general and administrative expenses, whereas other entities include these costs in their COGS.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of:

 

Payroll and payroll-related expenses;

 

Store Occupancy expenses related to stores, distribution center and our headquarters location, including utilities;

 

Depreciation of property and equipment and amortization of intangibles;

 

Advertising expenses: print, digital and social media advertising and catalog production and distribution;

 

Information technology and communication costs;

 

Freight associated with shipping products to customers;

 

Insurance costs; and

 

Consulting and professional fees.

 

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes”. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2020, and interim periods within those annual periods. As an emerging growth company, the Company has elected to adopt the pronouncement following the effective date for private companies beginning with annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact that this standard will have on the condensed consolidated financial statements. The Company plans to adopt the pronouncement in Fiscal Year 2022.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform”, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The guidance is currently effective and may be applied

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prospectively at any point through December 31, 2022. The Company is assessing what impact this guidance will have on the Company’s condensed consolidated financial statements.

3. Revenues

Disaggregation of Revenue          

Net sales consists primarily of revenues, net of merchandise returns and discounts, generated from the sale of apparel and accessory merchandise through retail stores (“Retail”) and through its website and catalog orders (“Direct”). 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. Retail revenue is recognized at the time of sale and Direct revenue is recognized upon shipment of merchandise to the customer. The following table presents disaggregated revenues by source (in thousands):

 

 

 

For the Thirteen Weeks Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Retail

 

$

54,916

 

 

$

35,093

 

Direct

 

 

74,170

 

 

 

55,876

 

Net revenues

 

$

129,086

 

 

$

90,969

 

 

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):

 

 

 

May 1, 2021

 

 

January 30, 2021

 

Contract liabilities:

 

 

 

 

 

 

 

 

Signing bonus

 

$

329

 

 

$

471

 

Unredeemed gift cards

 

 

5,888

 

 

 

6,346

 

Total contract liabilities (1)

 

$

6,218

 

 

$

6,817

 

 

(1)

Included in Accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. The short-term portion of the signing bonus is included in Accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets.

For the thirteen weeks ended May 1, 2021 and May 2, 2020, the Company recognized approximately $2.4 million and $2.2 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 and earned during the period.

Performance Obligations

The Company has a remaining performance obligation of $0.3 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.

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.

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4. Asset Impairments

Long-lived Asset Impairments

In the first 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 COVID-19 had on our results of operations, particularly with our store fleet.  The Company incurred impairment charges of $6.7 million on leasehold improvements and $20.8 million on the right-of-use asset.  The Company did not record any impairments of long-lived assets in the first quarter of Fiscal Year 2021.

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. The Company incurred impairment charges of $17.9 million on goodwill, $4.0 million on trade name and $2.6 million on customer relationships. All stores were open in the first quarter of Fiscal Year 2021 and the Company did not record any impairments of goodwill and other intangible assets in the first quarter of Fiscal Year 2021.

The Company performed the impairment tests in the first quarter of Fiscal Year 2020 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. Key assumptions included future revenue growth and profitability trends over a period of 5-10 years with a terminal value, a discount rate based on an estimated weighted average cost of capital within a range of 23.5% to 34% and royalty rates within a range of 1% to 4%. These assumptions are classified as Level 3 inputs.

The following table displays a rollforward of the carrying amount of goodwill from February 1, 2020 to May 1, 2021 (in thousands):

 

Goodwill at February 1, 2020

 

$

77,597

 

Impairment losses

 

 

(17,900

)

Balance, May 2, 2020

 

 

59,697

 

Impairment losses

 

 

 

Balance, January 30, 2021

 

 

59,697

 

Impairment losses

 

 

 

Balance, May 1, 2021

 

$

59,697

 

 

The accumulated goodwill impairment losses as of May 1, 2021 are $137.3 million.

 

A summary of intangible assets as of May 1, 2021 and January 30, 2021 is as follows (in thousands):

 

 

 

 

May 1, 2021

 

 

 

Weighted Average Useful Life (Years)

 

Gross

 

 

Accumulated Amortization

 

 

Accumulated Impairment

 

 

Carrying Amount

 

Indefinite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Trade name

 

N/A

 

$

58,100

 

 

$

-

 

 

$

24,100

 

 

$

34,000

 

Definite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Customer relationships

 

13.2

 

 

134,200

 

 

 

78,671

 

 

 

2,620

 

 

 

52,909

 

Total intangible assets

 

 

 

$

192,300

 

 

$

78,671

 

 

$

26,720

 

 

$

86,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 30, 2021

 

 

 

Weighted Average Useful Life (Years)

 

Gross

 

 

Accumulated Amortization

 

 

Accumulated Impairment

 

 

Carrying Amount

 

Indefinite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Trade name

 

N/A

 

$

58,100

 

 

$

-

 

 

$

24,100

 

 

$

34,000

 

Definite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Customer relationships

 

13.2

 

 

134,200

 

 

 

76,604

 

 

 

2,620

 

 

 

54,976

 

Total intangible assets

 

 

 

$

192,300

 

 

$

76,604

 

 

$

26,720

 

 

$

88,976

 

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Total amortization expense for these amortizable intangible assets was $2.1 million and $2.4 million for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively.

The estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):

Fiscal Year

 

Estimated

Amortization

Expense

 

2021

 

$

8,264

 

2022

 

 

7,523

 

2023

 

 

6,942

 

2024

 

 

5,231

 

2025

 

 

4,693

 

Thereafter

 

 

22,323

 

Total

 

$

54,976

 

 

5. Debt

The components of the Company’s outstanding long-term debt were as follows (in thousands):

 

 

Carrying Value of Debt

 

 

 

May 1, 2021

 

 

January 30, 2021

 

Term Loan (principal of $4,992 and $5,007, respectively)

 

$

4,958

 

 

$

4,904

 

Priming Loan (principal of $229,088 and $229,773, respectively)

 

 

223,011

 

 

 

223,296

 

Subordinated Facility (principal and paid-in kind interest of $16,181 and $15,666, respectively)

 

 

3,772

 

 

 

3,311

 

Less: Current portion

 

 

(2,799

)

 

 

(2,799

)

Net long-term debt

 

$

228,942

 

 

$

228,712

 

Term Loan

The Company is party to a term loan credit agreement, dated as of May 8, 2015, by and among Jill Holdings, Inc. (as successor to Jill Holdings LLC), Jill Acquisition LLC, a wholly-owned subsidiary of us, and the various lenders party thereto, as amended on May 27, 2016 by Amendment No. 1 thereto, as further amended by Amendment No. 2 thereto (the “Term Loan”).

Priming Loan

The Company is party to a senior secured priming term loan facility, dated August 31, 2020 (the “Priming Loan” and, the lenders thereunder, the “Priming Lenders”).

Asset-Based Revolving Credit Agreement

The Company is party to a secured $40.0 million asset-based revolving credit facility agreement (the “ABL Facility”) with a maturity date of May 8, 2023.

The Company had short-term borrowings of $23.0 million and $11.1 million under the Company’s ABL Facility as of May 1, 2021 and January 30, 2021, respectively. The Company’s available borrowing capacity under the ABL Facility as of May 1, 2021 and January 30, 2021 was $14.1 million and $23.8 million, respectively. As of May 1, 2021 and January 30, 2021, there were outstanding letters of credit of $2.9 million which reduced the availability under the ABL Facility. As of May 1, 2021, the maximum commitment for letters of credit was $10.0 million.

6. Fair Value Measurements

Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets

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and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.

 

Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These are valued based on management’s estimates and assumptions that market participants would use in pricing the asset or liability.

The following table presents the carrying value and fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of May 1, 2021 (in thousands):

 

 

 

 

 

 

Fair Value

 

 

 

Carrying Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Recurring fair value measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Warrants

 

$

34,642

 

 

$

-

 

 

$

34,642

 

 

$

-

 

     Derivative liability

 

 

4,586

 

 

 

-

 

 

 

4,586

 

 

 

-

 

Total recurring fair value measurements

 

$

39,228

 

 

$

-

 

 

$

39,228

 

 

$

-

 

Financial instruments not carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Total debt

 

$

231,741

 

 

$

-

 

 

$

225,820

 

 

$

-

 

Total financial instruments not carried at fair value

 

$

231,741

 

 

$

-

 

 

$

225,820

 

 

$

-

 

 

 

The following table presents the carrying value and fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of January 30, 2021 (in thousands):

 

 

 

 

 

 

Fair Value

 

 

 

Carrying Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Recurring fair value measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Warrants

 

$

15,997

 

 

$

-

 

 

$

15,997

 

 

$

-

 

     Derivative liability

 

 

2,436

 

 

 

-

 

 

 

2,436

 

 

 

-

 

Total recurring fair value measurements

 

$

18,433

 

 

$

-

 

 

$

18,433

 

 

$

-

 

Financial instruments not carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Total debt

 

$

231,511

 

 

$

-

 

 

$

220,010

 

 

$

-

 

Total financial instruments not carried at fair value

 

$

231,511

 

 

$

-

 

 

$

220,010

 

 

$

-

 

 

The Company determines the fair value of its financial assets and liabilities using the following methodologies:

 

 

Warrants - The fair value is determined based on a pricing model that uses share prices from actively quoted stock markets that are readily accessible and observable.

 

Derivative Liability - The fair value is determined using an option pricing model with a Monte Carlo simulation. Key assumptions include the Company’s stock price, 90.6% volatility, 0.01% risk-free rate and 0.0% dividend yield.

 

Debt - These debt instruments include the Term Loan, Priming Loan and subordinated term loan. The debt instruments are recorded at cost, net of debt issuance costs and any related discount. The fair value of the debt instruments is obtained based on observable market prices quoted on public exchanges for similar instruments.

 

The methodology used by the Company to determine the fair value of its financial assets and liabilities at May 1, 2021, is the same as that used at January 30, 2021.

The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, accounts payable and any amounts drawn on its revolving credit facilities, consisting primarily of instruments without extended maturities, based on management’s estimates, approximates their fair value due to the short-term maturities of these instruments.

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Assets and Liabilities with Recurring Fair Value Measurements - Certain assets and liabilities may be measured at fair value on an ongoing basis. We did not elect to apply the fair value option for recording financial assets and financial liabilities. Other than the warrants, derivative liability and total debt, we do not have any assets or liabilities which we measure at fair value on a recurring basis.

Assets and Liabilities with Nonrecurring Fair Value Measurements - Certain assets and liabilities are not measured at fair value on an ongoing basis. These assets and liabilities, which include long-lived assets, goodwill, and intangible assets, are subject to fair value adjustment in certain circumstances. From time to time, the fair value is determined on these assets as part of related impairment tests. Other than impairment accounting adjustments, no adjustments to fair value or fair value measurements were required for non-financial assets and liabilities for all periods presented. See Note 4, Assets Impairments, for additional information.

7. Income Taxes

The Company recorded an income tax provision of $1.4 million for the thirteen weeks ended May 1, 2021, and an income tax benefit of $24.1 million during the thirteen weeks ended May 2, 2020. The effective tax rate was (8.2%) for the thirteen weeks ended May 1, 2021, and 25.6% for the thirteen weeks ended May 2, 2020.

The effective tax rate for the thirteen weeks ended May 1, 2021 differs from the federal statutory rate of 21% primarily due to the nondeductible fair value adjustment of the warrants and the Priming Loan embedded derivative, the impact of executive compensation limitations and the impact of state and local income taxes. The effective tax rate for the thirteen weeks ended May 2, 2020 differs from the federal statutory rate of 21% primarily due to the impact on the effective tax rate from goodwill impairment, which has no associated tax benefit, which was partially offset by a benefit from the CARES Act as well as the impact of state income taxes.

8. 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

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Numerator

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders:

 

$

(18,308

)

 

$

(70,269

)

Denominator

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic:

 

 

9,666,353

 

 

 

8,882,183

 

Dilutive effect of stock options and restricted shares:

 

 

 

 

 

 

Weighted average number of common shares outstanding, diluted:

 

 

9,666,353

 

 

 

8,882,183

 

Net loss per common share attributable to common shareholders, basic:

 

$

(1.89

)

 

$

(7.91

)

Net loss per common share attributable to common shareholders, diluted:

 

$

(1.89

)

 

$

(7.91

)

 

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 due to the Company having a net loss for the thirteen weeks ended May 1, 2021 and May 2, 2020. There were 130,812 antidilutive shares for the thirteen weeks ended May 1, 2021, and 520,521 antidilutive shares for the thirteen weeks ended May 2, 2020, of such awards excluded. The 3,720,109 penny warrants that were issued during the third quarter of Fiscal Year 2020 were excluded from the calculation of earnings per share for the thirteen weeks ended May 1, 2021 because the effect of including them would have been antidilutive.  Additionally, the potential shares to be issued to the priming lenders under the May 31, 2021 option and related share exercise ratio impact on penny warrants due to the antidilution provisions, were also excluded from the calculation of earnings per share for the thirteen weeks ended May 1, 2021 because the effect of including them would have been antidilutive.

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9. Equity-Based Compensation

Equity-based compensation expense was $0.4 million for the thirteen weeks ended May 1, 2021, and $0.7 million for the thirteen weeks ended May 2, 2020.

10. Related Party Transactions

On September 30, 2020, the Company entered into the Subordinated Facility, with a group of lenders that includes certain affiliates of TowerBrook and our Chairman of the board of directors. In accordance with the Subordinated Facility, the Company issued penny warrants to the Subordinated Lenders.  For the thirteen weeks ended May 1, 2021, the Company incurred $0.5 million and $18.6 million, respectively, of Interest expense, net – related party and Fair value adjustment of warrants – related party associated with the Subordinated Facility in the condensed consolidated statements of operations and comprehensive income. For both the thirteen weeks ended May 1, 2021 and May 2, 2020, the Company incurred an immaterial amount of other related party transactions.

11. Commitments and Contingencies

 

Legal Proceedings

The Company is subject to various legal proceedings that arise in the ordinary course of business. Although the outcome of such proceedings cannot be predicted with certainty, management does not believe that the Company is presently party to any legal proceedings the resolution of which management believes would have a material adverse effect on the Company’s business, financial condition, operating results or cash flows. The Company establishes reserves for specific legal matters when the Company determines that the likelihood of an unfavorable outcome is probable, and the loss is reasonably estimable.

12. Operating Leases

 

During the thirteen weeks ended May 1, 2021, the Company recorded non-cash gains of $0.7 million associated with exiting store leases earlier than expected and non-cash gains of $0.6 million related to favorable lease renegotiations.

During the thirteen weeks ended May 2, 2020, the Company reduced the net carrying value of right-of-use 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 recognized non-cash impairment charges associated with right-of-use assets of $20.8 million during the thirteen weeks end May 2, 2020.

13. Subsequent Event

  On May 31, 2021, and within the terms of the Priming Loan, the Company chose to issue 272,097 additional shares of Common Stock to the Priming Lenders with a value of approximately $4.6 million based upon the preceding 5-day volume weighted average share price rather than repay $4.9 million of principal. As a result of this choice and because of the antidilution provision under the warrant agreement, the penny warrants are exercisable into 3,820,748 shares of common stock for an aggregate exercise price of $186 thousand. The Company will recognize approximately $0.6 million and $38.3 million of non-cash charges recorded within Fair value adjustments – derivative and Fair value adjustments – warrants, respectively, in the condensed consolidated statements of operations and comprehensive income during the second quarter of Fiscal 2021.  Additionally, the resulting derivative and warrants liabilities will be reclassed to Common stock and Additional paid-in capital.

    

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q (the “Quarterly Report”). 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 Fiscal Year 2021 and fiscal year ended January 30, 2021 (“Fiscal Year 2020”) are both comprised of 52 weeks.

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, 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 more than 260 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.

Following the significant impacts on Fiscal 2020 from the COVID-19 pandemic, we achieved significant improvements in sales growth and gross margin expansion in the first quarter of Fiscal 2021 due to our store reopenings and our focus on driving full price sales as customer traffic trends improved. The pandemic began to affect our business in the first quarter of Fiscal Year 2020 as our stores were temporarily shut beginning in mid-March 2020 and remained closed through portions of the second quarter of Fiscal Year 2020.

The COVID-19 global pandemic and resulting temporary store closures and changes in customer behavior toward in-store shopping have had a material adverse effect on our operations, cash flows and liquidity. We have made significant progress reducing cash expenditures and maximizing cash receipts from our direct-to-consumer business channel such that our current base forecast projects sufficient liquidity over the coming 12 months; however, considerable risk remains related to the performance of stores, the resilience of the customer in an uncertain economic climate, the possibility of a prolonged market impact from COVID-19 in the coming 12 months and the timing of receipt of our expected tax refunds. If one or more of these risks materialize, we believe that our current sources of liquidity and capital may not be sufficient to finance our continued operations for at least the next 12 months.

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, 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 trends, we have generally had more favorable results.

Competition. 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. The ongoing implementation of strategic initiatives will continue to have an impact on our results of operations.  These initiatives include our ecommerce platform and our initiative to upgrade and enhance our information systems. 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 operations in future periods.

Pricing and Changes in Our Merchandise Mix. 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.

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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.

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 average, spend nearly three times more than single-channel customers.

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 retail stores, 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 liquidate 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. The Company’s cost of goods sold, and consequently gross profit, may not be comparable to those of other retailers, as inclusion of certain costs vary across the industry.

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, information systems 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 represents net (loss) income plus net interest expense, provision (benefit) for income taxes, depreciation and amortization, equity-based compensation expense, goodwill and indefinite-lived intangible assets impairment, write-off of property and equipment and other non-recurring expenses, primarily consisting of outside legal and professional fees associated with certain non-recurring transactions and events. 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. Adjusted EBITDA margin represents, for any period, Adjusted EBITDA as a percentage of net sales.

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While we believe that Adjusted 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 of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, and the calculation of the resultant Adjusted EBITDA margin below and not rely solely on Adjusted EBITDA or any single financial measure to evaluate our business.

Reconciliation of Net Loss 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

 

(in thousands)

 

May 1, 2021

 

 

May 2, 2020

 

Statements of Operations Data:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,308

)

 

$

(70,269

)

Fair value adjustment of derivative

 

 

2,150

 

 

 

 

Fair value adjustment of warrants - related party (a)

 

 

18,646

 

 

 

 

Interest expense, net

 

 

4,346

 

 

 

4,643

 

Interest expense, net - related party

 

 

461

 

 

 

 

Income tax provision (benefit)

 

 

1,392

 

 

 

(24,117

)

Depreciation and amortization