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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended July 31, 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 September 1, 2021, the registrant had 9,984,596 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

 

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

Controls and Procedures

 

24

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

25

Item 1A.

Risk Factors

 

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

Item 3.

Defaults Upon Senior Securities

 

25

Item 4.

Mine Safety Disclosures

 

25

Item 5.

Other Information

 

25

Item 6.

Exhibits

 

25

Exhibit Index

 

26

Signatures

 

27

 

 

 

 

1


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

J.Jill, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

 

July 31, 2021

 

 

January 30, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

18,101

 

 

$

4,407

 

Accounts receivable

 

 

5,506

 

 

 

7,793

 

Inventories, net

 

 

48,492

 

 

 

58,034

 

Prepaid expenses and other current assets

 

 

43,410

 

 

 

43,035

 

Total current assets

 

 

115,509

 

 

 

113,269

 

Property and equipment, net

 

 

63,991

 

 

 

73,906

 

Intangible assets, net

 

 

84,843

 

 

 

88,976

 

Goodwill

 

 

59,697

 

 

 

59,697

 

Operating lease assets, net

 

 

145,277

 

 

 

161,135

 

Other assets

 

 

157

 

 

 

199

 

Total assets

 

$

469,474

 

 

$

497,182

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

37,783

 

 

$

56,263

 

Accrued expenses and other current liabilities

 

 

49,009

 

 

 

43,854

 

Current portion of long-term debt

 

 

7,690

 

 

 

2,799

 

Current portion of operating lease liabilities

 

 

34,793

 

 

 

37,967

 

Borrowings under revolving credit facility

 

 

 

 

 

11,146

 

Total current liabilities

 

 

129,275

 

 

 

152,029

 

Long-term debt, net of discount and current portion

 

 

220,053

 

 

 

225,401

 

Long-term debt, net of discount - related party

 

 

4,301

 

 

 

3,311

 

Deferred income taxes

 

 

14,270

 

 

 

13,835

 

Operating lease liabilities, net of current portion

 

 

160,916

 

 

 

179,022

 

Warrants - related party (Note 8)

 

 

 

 

 

15,997

 

Derivative liability (Note 8)

 

 

 

 

 

2,436

 

Other liabilities

 

 

1,525

 

 

 

2,049

 

Total liabilities

 

 

530,340

 

 

 

594,080

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 50,000,000 shares authorized; 9,984,564 and 9,631,633 shares issued and outstanding at July 31, 2021 and January 30, 2021, respectively

 

 

100

 

 

 

97

 

Additional paid-in capital

 

 

208,348

 

 

 

129,363

 

Accumulated deficit

 

 

(269,314

)

 

 

(226,358

)

Total shareholders’ deficit

 

 

(60,866

)

 

 

(96,898

)

Total liabilities and shareholders’ deficit

 

$

469,474

 

 

$

497,182

 

 

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

 

2


Table of Contents

 

 

J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS (UNAUDITED)

(in thousands, except share and per share data)

 

 

 

 

 

For the Thirteen Weeks Ended

 

 

For the Twenty-Six Weeks Ended

 

 

 

July 31, 2021

 

 

August 1, 2020

 

 

July 31, 2021

 

 

August 1, 2020

 

Net sales

 

$

159,236

 

 

$

92,636

 

 

$

288,322

 

 

$

183,605

 

Costs of goods sold (exclusive of depreciation and amortization)

 

 

49,883

 

 

 

37,616

 

 

 

91,143

 

 

 

78,420

 

Gross profit

 

 

109,353

 

 

 

55,020

 

 

 

197,179

 

 

 

105,185

 

Selling, general and administrative expenses

 

 

85,846

 

 

 

77,737

 

 

 

164,985

 

 

 

165,645

 

Impairment of long-lived assets

 

 

 

 

 

(893

)

 

 

 

 

 

26,587

 

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

17,900

 

Impairment of intangible assets

 

 

 

 

 

 

 

 

 

 

 

6,620

 

Operating income (loss)

 

 

23,507

 

 

 

(21,824

)

 

 

32,194

 

 

 

(111,567

)

Fair value adjustment of derivative

 

 

625

 

 

 

 

 

 

2,775

 

 

 

 

Fair value adjustment of warrants - related party

 

 

38,338

 

 

 

 

 

 

56,984

 

 

 

 

Interest expense, net

 

 

4,217

 

 

 

4,244

 

 

 

8,563

 

 

 

8,887

 

Interest expense, net - related party

 

 

529

 

 

 

 

 

 

990

 

 

 

 

Loss before provision (benefit) for income taxes

 

 

(20,202

)

 

 

(26,068

)

 

 

(37,118

)

 

 

(120,454

)

Income tax provision (benefit)

 

 

4,446

 

 

 

(7,034

)

 

 

5,838

 

 

 

(31,151

)

Net loss and total comprehensive loss

 

$

(24,648

)

 

$

(19,034

)

 

$

(42,956

)

 

$

(89,303

)

Per share data (Note 8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.98

)

 

$

(2.13

)

 

$

(3.88

)

 

$

(10.01

)

Diluted

 

$

(1.98

)

 

$

(2.13

)

 

$

(3.88

)

 

$

(10.01

)

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,450,351

 

 

 

8,953,431

 

 

 

11,058,351

 

 

 

8,917,807

 

Diluted

 

 

12,450,351

 

 

 

8,953,431

 

 

 

11,058,351

 

 

 

8,917,807

 

 

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

 

 

 

3


Table of Contents

 

 

J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ 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

)

Vesting of restricted stock units

 

 

1,075

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(318

)

 

 

 

 

 

(19

)

 

 

 

 

 

(19

)

Withholding tax on net share settlement of equity-based compensation plans

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Equity-based compensation

 

 

 

 

 

 

 

 

649

 

 

 

 

 

 

649

 

Shares issued to Priming lenders (See Note 8)

 

 

272,097

 

 

 

2

 

 

 

5,210

 

 

 

 

 

 

5,212

 

Reclass of warrants to equity (See Note 8)

 

 

 

 

 

 

 

 

72,981

 

 

 

 

 

 

72,981

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(24,648

)

 

 

(24,648

)

Balance, July 31, 2021

 

 

9,984,564

 

 

$

100

 

 

$

208,348

 

 

$

(269,314

)

 

$

(60,866

)

 

 

 

 

 

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

)

Vesting of restricted stock units

 

 

7,961

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares to pay withholding taxes

 

 

(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

)

 

 

 

 

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

 

 

4


Table of Contents

 

 

J.Jill, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

For the Twenty-Six Weeks Ended

 

 

 

July 31, 2021

 

 

August 1, 2020

 

Net loss

 

$

(42,956

)

 

$

(89,303

)

Operating activities:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,869

 

 

 

17,307

 

Impairment of goodwill and intangible assets

 

 

 

 

 

24,520

 

Impairment of long-lived assets

 

 

 

 

 

26,587

 

Adjustment for exited retail stores

 

 

(710

)

 

 

(402

)

Loss on disposal of fixed assets

 

 

716

 

 

 

256

 

Noncash interest expense, net

 

 

1,933

 

 

 

812

 

Noncash change in fair value of derivative

 

 

2,775

 

 

 

-

 

Noncash change in fair value of warrants - related party

 

 

56,984

 

 

 

-

 

Equity-based compensation

 

 

1,092

 

 

 

1,291

 

Deferred rent incentives

 

 

(673

)

 

 

(91

)

Deferred income taxes

 

 

100

 

 

 

(14,749

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,288

 

 

 

2,403

 

Inventories

 

 

9,543

 

 

 

8,385

 

Prepaid expenses and other current assets

 

 

(375

)

 

 

(21,838

)

Accounts payable

 

 

(18,465

)

 

 

1,108

 

Accrued expenses

 

 

4,933

 

 

 

27,810

 

Operating lease assets and liabilities

 

 

(4,129

)

 

 

(772

)

Other noncurrent assets and liabilities

 

 

(63

)

 

 

(664

)

Net cash provided by (used in) operating activities

 

 

27,862

 

 

 

(17,340

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,326

)

 

 

(2,675

)

Net cash used in investing activities

 

 

(1,326

)

 

 

(2,675

)

Financing activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

52,670

 

 

 

33,000

 

Repayments of revolving credit facility

 

 

(63,816

)

 

 

(1,200

)

Repayments on debt

 

 

(1,399

)

 

 

(1,399

)

Surrender of shares to pay withholding taxes

 

 

(297

)

 

 

(151

)

Net cash (used in) provided by financing activities

 

 

(12,842

)

 

 

30,250

 

Net change in cash

 

 

13,694

 

 

 

10,235

 

Cash:

 

 

 

 

 

 

 

 

Beginning of Period

 

 

4,407

 

 

 

21,527

 

End of Period

 

$

18,101

 

 

$

31,762

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Noncash financing activity:

 

 

 

 

 

 

 

 

Reclass of warrant and derivative liabilities to equity (Note 8)

 

$

78,193

 

 

$

 

 

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 261 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our interim condensed consolidated financial statements are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”) associated with reporting of interim period financial information. We consistently applied the accounting policies described in our Annual Report on Form 10-K (the “2020 Annual Report”) for the fiscal year ended January 30, 2021 (“Fiscal Year 2020”) 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 and twenty-six weeks ended July 31, 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 2020 Annual Report.

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.

Going Concern

 

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements - Going Concern,” we are required to evaluate whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of issuance of the financial statements. As discussed in our Annual Report on Form 10-K for the Fiscal Year ended January 30, 2021 (“2021 Form 10-K”), during 2020 our revenues, results of operations, cash flows and financing arrangements were materially adversely impacted by the COVID-19 pandemic.  As a result, despite the fact that conditions had significantly improved by April 12, 2021 and that we had taken substantial actions to improve our liquidity and financial performance, due to remaining risks and uncertainties relating to the future impacts of COVID-19, we concluded at the time that our liquidity and capital may not be sufficient to finance our continued operations for at least the next 12 months.

 

In response to the impacts of COVID-19, we immediately took actions to improve our liquidity and financial flexibility by restructuring our debt with an extended maturity. We also took actions to reduce expenses, and, to maximize cash on hand, we continue to closely manage working capital (primarily inventory levels) and capital expenditures.  Additionally, on August 27, 2021 we made a $25 million debt payment, which was generated by operating cash flows, in order to avoid additional fees and interest that would have commenced if the payment was not made (see Note 13).  

 

While the Company and the retail industry in general have recovered significantly and current projections are favorable, we still could experience potential negative COVID-19 impacts including, but not limited to, additional charges from potential adjustments to the carrying amount of our 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, and emergence of severe variants, with its potential for future business disruption and the related impacts on the U.S. economy. If one or more of these risks materialize, we believe it is still possible that our current liquidity and capital could be impacted and may not be sufficient to finance our continued operations for at least the next year. 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.

 

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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.

 

Out-of-Period Item

During the second quarter of Fiscal Year 2021, the Company recorded an adjustment to correct prior period overstatements of inventory and understatements of COGS totaling $1.5 million ($1.1 million after taxes).  The errors were primarily caused by an overstatement of inventory transferred from certain locations.  Management evaluated the impacts of the out-of-period adjustment to correct the errors for the thirteen and twenty-six weeks ended July 31, 2021 and for prior periods, both individually and in the aggregate, and concluded that the adjustment was not material to the Company’s consolidated annual or interim financial statements for all impacted periods.

 

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 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.

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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

 

 

For the Twenty-Six Weeks Ended

 

 

 

July 31, 2021

 

 

August 1, 2020

 

 

July 31, 2021

 

 

August 1, 2020

 

Retail

 

$

85,428

 

 

$

26,304

 

 

$

140,344

 

 

$

61,397

 

Direct

 

 

73,808

 

 

 

66,332

 

 

 

147,978

 

 

 

122,208

 

Net revenues

 

$

159,236

 

 

$

92,636

 

 

$

288,322

 

 

$

183,605

 

 

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):

 

 

 

July 31, 2021

 

 

January 30, 2021

 

Contract liabilities:

 

 

 

 

 

 

 

 

Signing bonus

 

$

294

 

 

$

365

 

Unredeemed gift cards

 

 

5,485

 

 

 

6,818

 

Total contract liabilities (1)

 

$

5,779

 

 

$

7,183

 

 

(1)

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.  The long-term portion of the signing bonus is included in Other long-term liabilities on the Company’s condensed consolidated balance sheets.

For the thirteen and twenty-six weeks ended July 31, 2021, the Company recognized approximately $2.6 million and $5.0   million, respectively, of revenue related to gift card redemptions and breakage. For the thirteen and twenty-six weeks ended August 1, 2020, the Company recognized approximately $1.8 million and $4.0 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.

4. Asset Impairments

Long-lived Asset Impairments

The Company did not record any impairments on long-lived assets during the twenty-six weeks ended July 31, 2021.

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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.  During the second quarter of Fiscal Year 2020, the Company recorded a $1.3 million non-cash gain on the operating leases liabilities due to its decision to close certain retail stores. Approximately $0.9 million of the benefit related to leases that were included in the impairment on right-of-use assets recorded in the first quarter of Fiscal Year 2020; therefore, the benefit was recorded as a reduction of the previously recorded impairment. See Note 12 for additional information.

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 half 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 during the thirteen and twenty-six weeks ended August 1, 2020. All stores were open during the twenty-six weeks ended July 31, 2021 and the Company did not record any impairments on goodwill or other intangible assets for this period.

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 34.0% 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 July 31, 2021 (in thousands):

 

Goodwill at February 1, 2020

 

$

77,597

 

Impairment losses (first quarter)

 

 

(17,900

)

Balance, January 30, 2021

 

 

59,697

 

Impairment losses

 

 

 

Balance, July 31, 2021

 

$

59,697

 

 

The accumulated goodwill impairment losses as of July 31, 2021 are $137.3 million.

 

A summary of intangible assets as of July 31, 2021 and January 30, 2021 is as follows (in thousands):

 

 

 

 

July 31, 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

 

 

 

80,737

 

 

 

2,620

 

 

 

50,843

 

Total intangible assets

 

 

 

$

192,300

 

 

$

80,737

 

 

$

26,720

 

 

$

84,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 $2.0 million and $4.9 million for the thirteen weeks ended July 31, 2021 and August 1, 2020, respectively, and $4.1 million and $7.3 million for the twenty-six weeks ended July 31, 2021 and August 1, 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

 

$

4,131

 

2022

 

 

7,523

 

2023

 

 

6,942

 

2024

 

 

5,231

 

2025

 

 

4,693

 

Thereafter

 

 

22,323

 

Total

 

$

50,843

 

 

 

5. Debt

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

 

 

Carrying Value of Debt

 

 

 

July 31, 2021

 

 

January 30, 2021

 

Term Loan (principal of $4,978 and $5,007, respectively)

 

$

4,951

 

 

$

4,904

 

Priming Loan (principal of $228,403 and $229,773, respectively)

 

 

222,792

 

 

 

223,296

 

Subordinated Facility (principal and paid-in kind interest of $16,713 and $15,666, respectively)

 

 

4,301

 

 

 

3,311

 

Less: Current portion

 

 

(7,690

)

 

 

(2,799

)

Net long-term debt

 

$

224,354

 

 

$

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”). The Priming Loan provides for a principal paydown of at least $25.0 million by August 30, 2021; otherwise, there will be a paid-in-kind (“PIK”) interest rate increase and a PIK fee based on the level of payment below the $25.0 million. See Note 13.

In accordance with the Priming Credit Agreement, the Company issued to the Priming Lenders 656,717 shares, as adjusted for the Company’s 1-for-5 stock split that occurred during the fourth quarter of Fiscal Year 2020, of the Company’s Common Stock (the “Equity Consideration”).  On May 31, 2021, the Company had the choice (the “May 31, 2021 Option”) to either (i) repay $4.9 million in aggregate principal amount of the loans under the Priming Credit Agreement, together with accrued and unpaid interest thereon or (ii) issue additional shares of Common Stock to the Priming Lenders in an amount equal to the greater of (I) 9.79% of the fully diluted shares of Common Stock as of October 1, 2020 less 656,717 shares and (II) a number of shares of Common Stock with an aggregate value of $0.5 million at the time of such issuance; provided, that the Priming Lenders shall not receive on such date shares of Common Stock having a value greater than $4.75 million (based on the volume-weighted average stock price of the preceding five trading days) at the time of such issuance.  The May 31, 2021 Option was considered an embedded derivative within the Priming Loan that was required to be adjusted to fair value each period while it was outstanding, with the adjustment being recorded in income. 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 $5.2 million (based on the value of those shares as of close on that date).  

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Subordinated Facility

On September 30, 2020, in accordance with the TSA, the Company entered into a subordinated facility, with the Subordinated Lenders (as defined below), that provides for a secured term loan facility in an aggregate principal amount equal to $15.0 million with an additional incremental capacity subject to certain customary conditions (the “Subordinated Facility”). The Subordinated Lenders are a group of related parties 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. See Note 8 for additional information regarding the warrants.

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.

During the thirteen weeks ended July 31, 2021, the company paid down the outstanding short-term borrowings under the ABL Facility.  The Company had short-term borrowings of $11.1 million under the Company’s ABL Facility as of January 30, 2021. The Company’s available borrowing capacity under the ABL Facility as of July 31, 2021 and January 30, 2021 was $32.1 million and $23.8 million, respectively. As of July 31, 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 July 31, 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.