J.Jill, Inc. — Form 10-Q Summary
Reporting period: The filing covers the thirteen and thirty-nine weeks ended October 31, 2020, compared with periods ended November 2, 2019. Although the request metadata says 2019 Q3, the filing itself is for fiscal 2020 Q3. J.Jill operates an apparel retail and direct-to-consumer business; it had 276 stores at quarter-end.
Financial performance
| Metric | Thirteen weeks ended Oct. 31, 2020 | Prior comparable quarter | Thirty-nine weeks ended Oct. 31, 2020 | Prior comparable period |
|---|---|---|---|---|
| Net sales | $117.2m | $166.1m | $300.8m | $523.3m |
| Gross profit / margin | $69.0m / 58.9% | $106.9m / 64.4% | $174.2m / 57.9% | $328.5m / 62.8% |
| Operating income (loss) | ($24.1m) | $9.0m | ($135.7m) | ($75.0m) |
| Net income (loss) | ($23.2m) | $2.4m | ($112.5m) | ($90.0m) |
| Adjusted EBITDA | ($1.6m) | $19.6m | ($33.9m) | $53.7m |
| Operating cash flow | Not presented for the quarter alone | ($20.4m) | $17.7m |
Quarterly sales fell 29.4%; year-to-date sales fell 42.5%. Store closures and weaker apparel demand were major factors. Direct sales rose to $74.2m from $71.3m in the quarter, while retail sales declined to $43.0m from $94.7m. Direct represented 63.3% of quarterly sales versus 43.0% a year earlier. Management attributed lower gross margin primarily to actions to clear excess inventory. SG&A declined in dollars but rose to 78.6% of quarterly sales, reflecting lower revenue and ongoing costs.
Year-to-date GAAP results include $52.0m of impairment charges, compared with $97.5m in the prior-year period. The company recorded $38.5m of year-to-date income tax benefit, principally reflecting CARES Act-related benefits and other tax items. The quarter included $13.3m of non-recurring SG&A expenses; the year-to-date amount was $23.0m, primarily restructuring legal and advisory costs and COVID-related costs.
Liquidity, debt and balance sheet
- At October 31, 2020, cash was $9.2m, and reported total liquidity was $53.0m, including $37.3m of ABL availability. No ABL borrowings were outstanding; letters of credit were $2.7m.
- Cash decreased from $21.5m at February 1, 2020. Year-to-date investing cash outflow was $3.0m, mainly capital expenditures; financing provided $11.1m.
- Debt carrying value was approximately $231.3m, excluding operating lease liabilities. Facilities included a $230.5m-principal priming loan, a $15.0m-principal subordinated facility, and approximately $5.0m principal remaining under the existing term loan. The $40m ABL facility matures in 2023; the priming and subordinated facilities mature in 2024.
- The September 2020 out-of-court restructuring waived prior covenant defaults, refinanced most existing term debt, added subordinated financing and extended the maturity of substantially all prior debt. The subordinated facility carries a high stated rate: LIBOR plus 12% or Base Rate plus 11%, at the company’s election.
- Total assets were $537.3m and total liabilities $607.8m, leaving a shareholders’ deficit of $70.5m. Operating lease liabilities were $222.8m.
Material changes, outlook and risks
- COVID-19 led to temporary store closures beginning in March 2020; all stores had reopened by late June, subject to local restrictions. The company cut expenses and capital spending, extended vendor payment terms, negotiated rent concessions, and reduced catalog circulation.
- Management said its base forecast projected sufficient liquidity for the next 12 months, but the filing states that substantial doubt about the company’s ability to continue as a going concern remained. A renewed pandemic impact, weak store performance or reduced customer spending could make available liquidity insufficient.
- The priming facility generally requires at least $15m weekly liquidity and a minimum $25m principal paydown by August 30, 2021; failure to meet specified paydown thresholds triggers additional PIK interest and fees. Debt agreements also impose leverage and capital-spending limits.
- The company had withheld approximately $11.2m of rent for certain locations as of quarter-end while negotiating lease terms. About half of leases had concessions agreed; negotiations continued for others.
- CARES Act-related tax refunds totaled $6.9m filed, of which $5.9m had been received. The company also deferred the employer-paid portion of Social Security taxes, with payments due in 2021 and 2022.
- No formal financial guidance was provided. Risks include COVID-19 and recession effects, inventory and demand uncertainty, debt and liquidity requirements, potential NYSE delisting if listing conditions are not maintained, and possible further asset impairments. The company regained compliance with the NYSE share-price standard after a 1-for-5 reverse stock split effective November 9, 2020; it still faced a separate market-capitalization and equity compliance plan.
- Management stated disclosure controls were effective and that a previously reported material weakness in impairment controls had been remediated.
Most important facts for investors to verify
- Whether sales and cash generation recover as stores operate amid ongoing COVID-19 and consumer-demand uncertainty.
- Whether liquidity remains above required thresholds and the company can make the required 2021 priming-loan paydown without triggering higher costs.
- Progress on landlord negotiations, including the treatment and payment timing of withheld rent.
- Whether future operating results support asset valuations and avoid additional material impairments.
- NYSE compliance status and the potential dilution from lender shares and warrants issued in the restructuring.