J.Jill, Inc. — Form 10-Q Summary
Period clarification: Although the request metadata says 2019 Q2, this filing reports the thirteen and twenty-six weeks ended August 1, 2020, compared with periods ended August 3, 2019. The report was signed September 10, 2020. J.Jill is an omnichannel women’s apparel retailer with approximately 280 stores and an ecommerce business.
Financial performance
| Metric | 13 weeks ended Aug. 1, 2020 | Prior-year quarter | 26 weeks ended Aug. 1, 2020 | Prior-year half |
|---|---|---|---|---|
| Net sales | $92.6 million | $180.7 million | $183.6 million | $357.2 million |
| Gross profit / margin | $55.0 million / 59.4% | $105.3 million / 58.3% | $105.2 million / 57.3% | $221.6 million / 62.0% |
| Operating loss | $21.8 million | $94.8 million | $111.6 million | $84.0 million |
| Net loss | $19.0 million | $96.7 million | $89.3 million | $92.4 million |
| Adjusted EBITDA | $(6.5) million | $12.6 million | $(32.3) million | $34.1 million |
- Quarterly sales fell 48.7% year over year; first-half sales fell 48.6%, mainly because stores were temporarily closed during the pandemic. In the quarter, Retail contributed 28.4% of sales versus 57.4% a year earlier; Direct contributed 71.6% versus 42.6%.
- Quarterly gross margin increased year over year, partly due to a $2.4 million reduction in an accrual for potential product liabilities. First-half margin declined, reflecting promotions, markdowns, liquidation activity, and a $3.0 million accrual related to vendor liabilities for canceled orders.
- SG&A declined in dollars as the company cut staffing, pay, store hours, and marketing; however, it rose to 83.9% of quarterly sales and 90.2% of first-half sales due to the sharp revenue decline.
- First-half impairment charges totaled $51.1 million for long-lived assets, goodwill, and intangible assets. First-half results also included a $31.2 million income tax benefit, primarily reflecting expected CARES Act benefits.
Cash, debt, and liquidity
- Cash was $31.8 million at August 1, 2020, up from $21.5 million at February 1. First-half operating cash flow was negative $17.3 million, investing cash flow was negative $2.7 million, and financing cash flow was positive $30.3 million, principally from ABL borrowings.
- Debt included $236.2 million outstanding under the Term Loan and $31.8 million under the ABL Facility. Only $5.5 million of additional ABL borrowing capacity remained; letters of credit totaled $2.7 million. The Term Loan was classified as current because the company could not assure completion of its proposed restructuring.
- Total liabilities were $624.2 million against assets of $574.7 million, leaving shareholders’ equity of negative $49.6 million. The balance sheet included $227.5 million of operating lease liabilities.
- The company withheld approximately $17.1 million of rent payments, recorded in accrued liabilities, and extended payment terms with most vendors. It filed for a $6.9 million tax refund and had received $1.2 million by the filing.
Outlook, material risks, and unusual items
- Management stated that its current base forecast projected sufficient liquidity for the coming 12 months, but warned that renewed COVID-19 impacts, weak store performance, or reduced consumer spending could leave available liquidity insufficient. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
- The company breached financial and other covenants under its credit agreements. Lenders agreed to forbear from exercising remedies, with the latest extension through September 26, 2020. Without effective waivers or restructuring, lenders could accelerate debt and terminate commitments.
- On September 1, 2020, after the quarter-end, the company announced a Transaction Support Agreement with lenders holding more than 70% of Term Loan claims and a majority of shareholders. The proposed out-of-court transaction would waive past noncompliance, provide liquidity, and extend certain participating debt to May 2024, subject to required approvals. If the required 95% lender consent is not obtained, the parties agreed to a prepackaged Chapter 11 alternative, including additional financing. Completion was not assured.
- All stores had reopened by late June, subject to local requirements. Management reduced expenses and planned capital spending, cut approximately half of its catalogs, and continued to assess possible further store closures and asset impairments. No numerical revenue or earnings guidance was provided.
- Disclosure controls were deemed ineffective because of an unremediated material weakness in controls over goodwill and tradename impairment accounting. Management was implementing remediation steps.
- Other notable items include a $1.3 million noncash lease-liability gain associated with store exits in the quarter and a $2.4 million prior-year insurance gain related to inventory damaged in a cargo vessel fire.
Key facts investors should verify
- Whether the proposed restructuring obtained the required lender and shareholder approvals, and whether it proceeded out of court or through Chapter 11.
- Current forbearance status, ABL availability, debt maturities, covenant compliance, and the company’s ability to fund operations and meet obligations.
- Sales, cash generation, store performance, and customer demand after reopening, including any renewed pandemic-related restrictions.
- Whether the $6.9 million tax refund was collected and whether further impairments, lease concessions, or vendor liabilities arose.
- Progress remediating the material weakness and restoring effective disclosure controls.