J.Jill, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first half of fiscal 2021, ended July 31, 2021; comparisons are to periods ended August 1, 2020. The filing’s reporting period is 2021, notwithstanding the request metadata’s “2020 Q2.” J.Jill operated 261 stores and an ecommerce business.
Financial performance
| Metric | 13 weeks ended July 31, 2021 | 26 weeks ended July 31, 2021 |
|---|---|---|
| Net sales | $159.2 million, up 71.9% | $288.3 million, up 57.0% |
| Gross profit / margin | $109.4 million / 68.7% | $197.2 million / 68.4% |
| Operating income | $23.5 million | $32.2 million |
| Net loss | $24.6 million | $43.0 million |
| Adjusted EBITDA / margin | $32.7 million / 20.5% | $49.6 million / 17.2% |
| Operating cash flow | $27.9 million for the first half |
First-half cash from investing was $1.3 million used, and cash from financing was $12.8 million used. Cash was $18.1 million at July 31, compared with $4.4 million at January 30. Gross margin improvement reflected stronger full-price sales and fewer promotions. Sales growth was also largely driven by stores reopening; all stores were open in the 2021 periods, unlike during much of the prior-year second quarter.
The first-half net loss included $60.8 million of noncash fair-value charges related to warrants and a derivative. These charges were driven by the rise in J.Jill’s stock price and materially affected reported earnings; they are not equivalent to operating expenses or cash outflows.
Debt, liquidity and balance sheet
- Debt carrying value was approximately $232.0 million at July 31; this included term, priming and subordinated facilities. The company had no borrowings under its $40 million asset-based revolver at quarter-end. The filing reports $32.1 million of available borrowing capacity in the debt note and $29.8 million of total availability in MD&A.
- On August 27, 2021, after quarter-end, J.Jill paid $25.0 million of priming-loan principal from operating cash flow to avoid additional PIK interest and fees.
- Total liabilities were $530.3 million, exceeding total assets of $469.5 million; shareholders’ deficit was $60.9 million. Operating lease liabilities totaled about $195.7 million, current and long-term combined.
- The company expected a tax refund in excess of $25 million, but the filing does not establish when it would be received.
Changes, outlook and notable disclosures
- Compared with the prior-year first half, sales increased 57.0%, gross margin rose from 57.3% to 68.4%, and operating cash flow improved from $17.3 million used to $27.9 million provided. The comparison is substantially affected by prior-year COVID-related store closures, markdowns and impairment charges.
- Prior-year first-half results included $52.0 million of asset impairment charges; none were recorded in the 2021 first half. SG&A was nearly flat year over year in dollars, but fell to 57.2% of sales from 90.2%.
- Management said its base forecast projected sufficient liquidity for the next 12 months, but warned that renewed COVID-19 disruption, store performance, customer demand and economic uncertainty could leave liquidity insufficient. The filing states that these risks raise substantial doubt about the company’s ability to continue as a going concern within one year of issuance.
- On May 31, the company issued 272,097 shares to priming lenders rather than repay $4.9 million of principal. Related penny warrants became exercisable for 3,820,748 common shares, creating potential dilution. Warrant and derivative liabilities totaling $78.2 million were reclassified to equity on that date because cash settlement was no longer possible.
- A second-quarter correction of prior-period inventory and cost-of-goods-sold errors increased COGS by $1.5 million ($1.1 million after tax). Management concluded it was not material to the affected financial statements.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no legal proceedings believed likely to have a material adverse effect.
Key investor verification points
- Confirm post-quarter liquidity after the $25 million priming-loan payment, the timing and receipt of the expected tax refund, and compliance with debt-facility covenants.
- Assess the going-concern warning against actual store trends, COVID-related developments and available revolver capacity; clarify the difference between the two reported availability figures.
- Evaluate warrant-related dilution and the impact of noncash fair-value adjustments when comparing GAAP losses with operating performance.
- Consider that sales and margin comparisons are heavily influenced by prior-year store closures, promotional activity and impairments.
- Review the inventory correction and future inventory valuation, impairment and cash-flow risks.