J.Jill, Inc. (JILL) FY 2025 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual 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 Annual Report titled “Risk Factors” and “Cautionary 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. References in this Annual Report to “Fiscal Year 2024” refer to the fiscal year ended February 1, 2025, references to the “Fiscal Year 2023” refer to the fiscal year ended February 3, 2024 and references to “Fiscal Year 2022” refer to the fiscal year ended January 28, 2023. Fiscal Years 2024 and 2022 are comprised of 52 weeks and Fiscal Year 2023 is comprised of 53 weeks.
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for Fiscal Years 2024 and 2023. For the discussion comparing the Fiscal Years 2023 and 2022, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal Year 2023 Form 10-K, which was filed with the United States Securities and Exchange Commission on April 4, 2024.
All references in this Annual Report to "J.Jill", "we", "our", "us", "the Company" or similar terms are to J.Jill, Inc. and its subsidiaries.
Overview
J.Jill is a national lifestyle brand that provides apparel, footwear and accessories designed to help its customers move through a full life with ease. The brand represents an easy, thoughtful and inspired style that celebrates the totality of all women and designs its products with its core brand ethos in mind: keep it simple and make it matter. J.Jill offers a high touch customer experience through over 250 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.
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 financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and non-GAAP measures, such as:
Net sales consist primarily of revenues, net of merchandise returns and discounts, generated from the sale of apparel and accessory merchandise through our retail stores (“Retail”) and through our 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.
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 three times more than single-channel customers.
Total company comparable sales include net sales from our retail stores that have been open for more than 52 weeks and from our Direct channel. This measure highlights the performance of existing stores open during the period, while excluding the impact of new store openings and closures. When a store in the total company comparable store base is temporarily closed for four or more days within a fiscal week, the store is excluded from the comparable store base; if it is temporarily closed for three or fewer days within a fiscal week, the store is included within the comparable store base. Certain of our competitors and other retailers may calculate total company comparable sales differently than we do. Our comparable sales are based on a 52-week period. The total company comparable sales calculation shifts the weeks in the fiscal year containing the fifty-third week to align like-for-like. As a result, the reporting of our total company comparable sales may not be comparable to sales data made available by other companies.
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. In
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connection with closing stores, we incur store-closing costs. Store-closing costs primarily consist of lease termination penalties and costs of transporting inventory and fixtures to other store locations. These pre-opening and store-closing costs are included in selling, general and administrative expenses and are generally incurred and expensed within 30 days of opening a new store or closing a 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 (“COGS”) consists of the direct costs of sold merchandise, which include customs, taxes, duties, commissions and inbound shipping costs, inventory shrinkage, and adjustments and reserves for excess, aged and obsolete inventory. COGS does not include distribution center costs and allocations of indirect costs, such as occupancy, depreciation, amortization, or labor and benefits. We review our inventory levels on an ongoing basis to identify slow-moving merchandise and use 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 COGS, and consequently gross profit, may not be comparable to those of other retailers, as inclusion of certain costs vary across the industry.
The variability in COGS is due to raw materials, transportation and freight costs. These costs fluctuate based on certain factors beyond our control, including labor conditions, inbound transportation or freight costs, energy prices, currency fluctuations and commodity prices. We place orders with merchandise suppliers in U.S. dollars and, as a result, are not exposed to significant foreign currency exchange risk.
Selling, general and administrative (“SG&A”) expenses include all operating costs not included in COGS. These expenses consist primarily of 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 consist of marketing expense, including catalog production and mailing costs, warehousing, distribution and outbound shipping costs, customer service operations, consulting and software services, natural disaster related costs, professional services and other administrative costs. Additionally, our outbound shipping costs may fluctuate due to surcharges from shipping vendors based on demand for shipping services.
With the exception of store selling expenses, certain marketing expenses and incentive compensation, SG&A expenses generally do not vary proportionately with net sales. As a result, SG&A expenses as a percentage of net sales are usually higher in lower-volume periods and lower in higher-volume periods.
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and Adjusted EBITDA Margin. Adjusted EBITDA, represents net income plus depreciation and amortization, income tax provision, interest expense, interest expense - related party, interest income, equity-based compensation expense, write-off of property and equipment, amortization of cloud-based software implementation costs, loss on extinguishment of debt, loss on debt refinancing, adjustment for exited retail stores, impairment of long-lived assets, loss due to hurricane, and other non-recurring items, primarily consisting of non-ordinary course professional fees, non-employee share-based payments, and legal settlements and 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.
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, 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.
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Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted EBITDA Margin
Fiscal Year Ended February 1, 2025 which is comprised of 52-weeks compared to Fiscal Year Ended February 3, 2024 which is comprised of 53-weeks and January 28, 2023 which is comprised of 52-weeks.
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 Fiscal Year Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | February 1, 2025 | February 3, 2024 | January 28, 2023 | |||||||||
| Statements of Operations Data: | ||||||||||||
| Net income | $ | 39,483 | $ | 36,201 | $ | 42,175 | ||||||
| Add (Less): | ||||||||||||
| Depreciation and amortization | 21,337 | 22,931 | 25,761 | |||||||||
| Income tax provision | 14,498 | 13,164 | 16,499 | |||||||||
| Interest expense | 15,701 | 25,699 | 17,174 | |||||||||
| Interest expense - related party | — | 1,074 | 4,114 | |||||||||
| Interest income | (2,550 | ) | (2,790 | ) | (1,228 | ) | ||||||
| Adjustments: | ||||||||||||
| Equity-based compensation expense (a) | 6,510 | 3,762 | 3,505 | |||||||||
| Write-off of property and equipment (b) | 105 | 70 | 267 | |||||||||
| Amortization of cloud-based software implementation costs (c) | 882 | 620 | — | |||||||||
| Loss on extinguishment of debt (d) | 8,570 | — | — | |||||||||
| Loss on debt refinancing (e) | — | 12,702 | — | |||||||||
| Adjustment for exited retail stores (f) | (843 | ) | (767 | ) | (250 | ) | ||||||
| Impairment of long-lived assets (g) | 772 | 189 | 1,413 | |||||||||
| Loss due to hurricane (h) | 2 | — | — | |||||||||
| Other non-recurring items (i) | 2,673 | 2 | 7 | |||||||||
| Adjusted EBITDA | $ | 107,140 | $ | 112,857 | $ | 109,437 | ||||||
| Net sales | $ | 610,857 | $ | 608,043 | $ | 618,528 | ||||||
| Adjusted EBITDA margin | 17.5 | % | 18.6 | % | 17.7 | % |
(a)
Represents expenses associated with equity incentive instruments granted to our management and board of directors (the “Board”). Incentive instruments are accounted for as equity-classified awards with the related compensation expense recognized based on fair value at the date of the grant.
(b)
Represents the net gain or loss on the disposal of fixed assets.
(c)
Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are included within Selling, general and administrative expenses. Adjusted EBITDA for fiscal year ended February 3, 2024 has been restated to include such adjustments to Net income, and no adjustment was made for fiscal year ended January 28, 2023 as the amount was immaterial.
(d)
Represents loss on the prepayment of a portion of the term loan (the “Term Loan Credit Agreement” and, such facility, the “Term Loan Facility”).
(e)
Represents loss on the repayment of Priming Term Loan Credit Agreement (the “Priming Credit Agreement”) and the Subordinated Term Loan Credit Agreement (the “Subordinated Credit Agreement”).
(f)
Represents non-cash gains associated with exiting store leases earlier than anticipated.
(g)
Represents impairment of long-lived assets related to right-of-use assets and leasehold improvements.
(h)
Represents loss on write-off of property and equipment and inventory at one store location due to hurricane and insurance recovery received to date.
(i)
Represents items management believes are not indicative of ongoing operating performance, including non-ordinary course professional fees, non-employee share-based payments, and legal settlements and fees.
Items Affecting the Comparability of our Results of Operations
53rd week. The Company’s fiscal year ends on the Saturday, in January or February, nearest to the last day of January, resulting in an additional week of results every five or six years. Fiscal Year 2023 contained 53-weeks of operations whereas the Fiscal Years 2024 and 2022 contained 52-weeks of operations. The 53rd week added approximately $7.9 million to net sales and $2.2 million to Adjusted EBITDA for Fiscal Year 2023.
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Loss on extinguishment of debt. For Fiscal Year 2024, the Company recognized a loss on extinguishment of debt of $8.6 million related to the voluntary prepayment of a portion of the Term Loan Credit Agreement. No such loss was incurred by the Company during Fiscal Year 2023.
Loss on debt refinancing. For Fiscal Year 2023, the Company recognized a loss on debt refinancing of $12.7 million related to entering into a Term Loan Credit Agreement and the repayment of the Priming Credit Agreement and the Subordinated Credit Agreement. No such loss was incurred by the Company during Fiscal Year 2024.
Results of Operations
Fiscal Year Ended February 1, 2025 which is comprised of 52-weeks compared to Fiscal Year Ended February 3, 2024 which is comprised of 53-weeks.
The following table summarizes our consolidated results of operations for the periods indicated:
| For the Fiscal Year Ended | Change from Year Ended February 3, 2024 to Year Ended February 1, 2025 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | February 1, 2025 | February 3, 2024 | ||||||||||||||||||||||
| Dollars | % of Net Sales | Dollars | % of Net Sales | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 610,857 | 100.0 | % | $ | 608,043 | 100.0 | % | $ | 2,814 | 0.5 | % | ||||||||||||
| Costs of goods sold | 181,001 | 29.6 | % | 177,261 | 29.2 | % | 3,740 | 2.1 | % | |||||||||||||||
| Gross profit | 429,856 | 70.4 | % | 430,782 | 70.8 | % | (926 | ) | (0.2 | )% | ||||||||||||||
| Selling, general and administrative expenses | 353,382 | 57.9 | % | 344,543 | 56.7 | % | 8,839 | 2.6 | % | |||||||||||||||
| Impairment of long-lived assets | 772 | 0.1 | % | 189 | 0.0 | % | 583 | 308.5 | % | |||||||||||||||
| Operating income | 75,702 | 12.4 | % | 86,050 | 14.2 | % | (10,348 | ) | (12.0 | )% | ||||||||||||||
| Loss on extinguishment of debt | 8,570 | 1.4 | % | — | 0.0 | % | 8,570 | 100.0 | % | |||||||||||||||
| Loss on debt refinancing | — | 0.0 | % | 12,702 | 2.1 | % | (12,702 | ) | (100.0 | )% | ||||||||||||||
| Interest expense | 15,701 | 2.6 | % | 25,699 | 4.2 | % | (9,998 | ) | (38.9 | )% | ||||||||||||||
| Interest expense - related party | — | 0.0 | % | 1,074 | 0.2 | % | (1,074 | ) | (100.0 | )% | ||||||||||||||
| Interest income | (2,550 | ) | (0.4 | )% | (2,790 | ) | (0.5 | )% | 240 | 8.6 | % | |||||||||||||
| Income before provision for income taxes | 53,981 | 8.8 | % | 49,365 | 8.1 | % | 4,616 | 9.4 | % | |||||||||||||||
| Income tax provision | 14,498 | 2.4 | % | 13,164 | 2.2 | % | 1,334 | 10.1 | % | |||||||||||||||
| Net income | $ | 39,483 | 6.5 | % | $ | 36,201 | 6.0 | % | $ | 3,282 | 9.1 | % |
Net Sales
Net sales for Fiscal Year 2024 increased $2.8 million or 0.5%, to $610.9 million from $608.0 million for Fiscal Year 2023. The increase in net sales was due to total company comparable sales increase of 1.5% partially offset by the loss of the 53rd week included in Fiscal Year 2023.
Our Direct channel was responsible for 47.5% of our net sales in Fiscal Year 2024 compared to 46.8% in Fiscal Year 2023. Our Retail channel was responsible for 52.5% of our net sales in Fiscal Year 2024 and 53.2% in Fiscal Year 2023. We operated 252 and 244 retail stores at the end of these same periods, respectively.
Gross Profit and Cost of Goods Sold
Gross profit for Fiscal Year 2024 decreased $0.9 million, or 0.2%, to $429.9 million from $430.8 million for Fiscal Year 2023. The gross margin for Fiscal Year 2024 was 70.4% compared to 70.8% for Fiscal Year 2023, driven by an increase in promotional activities and increased freight costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Fiscal Year 2024 increased $8.8 million, or 2.6%, to $353.4 million from $344.5 million for Fiscal Year 2023. The increase is primarily driven by $3.0 million in professional fees, $2.7 million in stock-based compensation, $1.9 million in shipping, $1.6 million in telecommunication, $1.4 million in marketing and $1.2 million in compensation and benefits. The increase was partially offset by a decrease of $1.6 million in depreciation and amortization, $1.0 million in occupancy, and an increase of $0.5 million in capitalized payroll related to the order management system implementation.
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Impairment of long-lived assets
Impairment of long-lived assets for Fiscal Year 2024 increased by $0.6 million, or 308.5% to $0.8 million from $0.2 million for Fiscal Year 2023. Our Fiscal Year 2024 results include $0.5 million of impairment charges for long-lived assets (leasehold improvements, and furniture, fixtures and equipment), and our Fiscal Year 2023 results include $0.2 million of impairment charges for long-lived assets (leasehold improvements and furniture, fixtures and equipment).
Loss on Extinguishment of Debt
For Fiscal Year 2024, the Company recognized a loss on extinguishment of debt of $8.6 million related to the voluntary prepayment of a portion of the Term Loan Credit Agreement. No such loss was incurred by the Company during Fiscal Year 2023.
Loss on debt refinancing
For Fiscal Year 2023, the Company recognized a loss on debt refinancing of $12.7 million related to entering into a Term Loan Credit Agreement and the repayment of the Priming Credit Agreement and the Subordinated Credit Agreement. No such loss was incurred by the Company during Fiscal Year 2024.
Interest Expense
Interest expense was $15.7 million and $25.7 million for Fiscal Years 2024 and 2023, respectively. The decrease was primarily due to a lower debt balance for Fiscal Year 2024.
Interest expense consists of interest expense on the Term Loan Credit Agreement for Fiscal Year 2024, and, on the Company’s Term Loan Credit Agreement and Priming Credit Agreement prior to its repayment in full on April 5, 2023, for Fiscal Year 2023, and amortization of deferred costs related to the asset-based revolving credit facility agreement (the “ABL Credit Agreement” and, such facility, the “ABL Facility”) for Fiscal Years 2024 and 2023.
Interest Expense - Related Party
For Fiscal Year 2023, the Company incurred $1.1 million of Interest expense - related party associated with the Subordinated Credit Agreement, until it was repaid in full on April 5, 2023. The Company did not incur any Interest expense - related party during Fiscal Year 2024.
Interest Income
For Fiscal Year 2024, the Company earned interest on cash of $2.6 million, compared to $2.8 million for Fiscal Year 2023.
Income Tax Provision
The income tax provision for Fiscal Year 2024 was $14.5 million compared to $13.2 million for Fiscal Year 2023. Our effective tax rates were 26.9% and 26.7%, respectively. The effective tax rate during Fiscal Year 2024 differs from the federal statutory rate of 21.0% due primarily to the impacts of (i) state and local income taxes and (ii) executive compensation limitations. Refer to Note 14. Income Taxes to the consolidated financial statements for additional income tax information.
The effective tax rate for Fiscal Year 2023 differs from the federal statutory rate of 21.0% due primarily to the impacts of (i) state and local income taxes, (ii) executive compensation limitations, and (iii) valuation allowance changes.
Liquidity and Capital Resources
General
Our primary sources of liquidity and capital resources are cash and cash equivalents generated from operating activities and availability under our ABL Facility, so long as certain conditions related to the maturity of the Term Loan Credit Agreement are met. As of February 1, 2025, we had $35.4 million in cash and cash equivalents and $35.7 million of total availability under our $40.0 million ABL Facility. In addition, through our shelf registration statement on file with the SEC or through private transactions, and depending on conditions prevailing in the public and private capital markets, we may from time to time issue equity securities in one or more series in one or more offerings.
On June 14, 2024, the Company issued and sold 1,000,000 shares of its common stock. The shares were offered at an offering price of $31.00 per share, less underwriting discounts and commissions. The Company utilized the net proceeds from its sale of shares for repayment of its debt and general corporate purposes. See Note 15. Shareholders’ Equity to the
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consolidated financial statements included in this Annual Report for additional information on the Company’s common stock issuance.
During the third quarter of Fiscal Year 2024, the Company issued 3,572,664 shares of common stock following the exercise of 3,573,707 warrants (the “Warrants”) that were previously issued pursuant to a Warrant Agreement, dated as of October 2, 2020, by and between the Company and American Stock Transfer & Company LLC (the “Warrant Agreement”). The exercise price of the Warrants was net share settled as per the terms of the Warrant Agreement. Given the non-substantive exercise price of the Warrants in relation to the fair value of the common shares issued upon exercise, the exercise of these Warrants had no impact on net income per common share, both basic and diluted.
On December 6, 2024, the Board approved a share repurchase program (the “Share Repurchase Program”), under which the Company is authorized to repurchase up to $25.0 million of the Company’s common stock, over the next two years. Under the Share Repurchase Program, shares of the Company’s common stock may be purchased from time to time through open market or private transactions, block trades, or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations under the Exchange Act and share repurchase parameters determined by the Board. The timing and the number of shares repurchased are subject to the discretion of the Company and may be affected by market conditions and other factors. The Share Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be modified, suspended or terminated at any time.
We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under the ABL Facility and access to credit and capital markets, provide sufficient liquidity to meet the needs of our business operations, make voluntary prepayments, pay dividends, repurchase shares, and to satisfy our projected cash requirements for the next 12 months and the foreseeable future.
Credit Facilities
On April 5, 2023, the Company and Jill Acquisition LLC (the “Borrower”) entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among the lenders party thereto and Jefferies Finance LLC, as administrative and collateral agent. The Term Loan Credit Agreement provides for a secured term loan facility in an aggregate principal amount of $175.0 million with a maturity date of May 8, 2028 (the “Term Loan Facility”). Loans under the Term Loan Credit Agreement bear interest at the Borrower’s election at (1) Base Rate (as defined in the Term Loan Credit Agreement) plus 7.00% or (2) Adjusted Term SOFR (as defined in the Term Loan Credit Agreement) plus 8.00%, with Adjusted Term SOFR subject to a floor rate of 1.00%.
The Term Loan Facility was to be repaid in quarterly payments of $2.2 million from July 28, 2023 to May 2, 2025, and $3.3 million from August 1, 2025 to April 28, 2028 with the balance of the Term Loan Facility due upon maturity on May 8, 2028. However, as a result of the voluntary payments mentioned below there will be no quarterly payments required until the remaining balance is paid in full on maturity date. Additionally, the Term Loan Facility is subject to mandatory repayment, subject to certain exceptions, including (i) 100% of the net proceeds of any incurrence of debt other than debt permitted in the Term Loan Credit Agreement, (ii) 100% of the net cash proceeds of certain asset sales/insurance proceeds, subject to reinvestment rights and certain other exceptions, and (iii) 95 days after the last day of the Fiscal Year, an annual payment ranging from 25%-75%, based on the First Lien Net Leverage Ratio, of the annual Excess Cash Flow (“ECF”), less certain voluntary prepayments made during the year, as defined in the Term Loan Credit Agreement.
The Term Loan Facility may be voluntarily prepaid after the one-year anniversary but on or prior to the two-year anniversary, subject to a premium of 3.0% of the aggregate principal amount being prepaid, and after the two-year anniversary without premium.
The proceeds from the Term Loan Credit Agreement, combined with a portion of the Company’s existing cash on hand, were used to repay in full the outstanding balance of $225.4 million, inclusive of $3.6 million interest, under the Priming Term Loan Credit Agreement (the “Priming Credit Agreement”) and the Subordinated Term Loan Credit Agreement (the “Subordinated Credit Agreement”). All security interests and liens incurred in connection with the Priming Credit Agreement and Subordinated Credit Agreement have been released. The prepayment of the Priming Credit Agreement and Subordinated Credit Agreement was in accordance with the terms of such agreements.
On May 10, 2023, the Company entered into Amendment No. 6 to our ABL Credit Agreement, by and among the Company, J.Jill Gift Card Solutions, the other guarantors party thereto, the other lenders party thereto, and CIT Finance LLC, as the administrative agent and collateral agent. This amendment extended the maturity date of the ABL Credit Agreement from May 8, 2024 to May 10, 2028 (or 180 days prior to the maturity date of the Company’s Term Loan Credit Agreement if the maturity date of such Term Loan Facility has not been extended to a date that is at least 180 days after the maturity date of the ABL Credit Agreement). The other terms and conditions of the ABL Facility remain substantially unchanged.
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On December 1, 2023, the Company entered into Amendment No. 7 (the “ABL Amendment”) to the ABL Credit Agreement, by and among the Company, Jill Acquisition LLC, J.Jill Gift Card Solutions, Inc. (collectively, the “Borrowers”), the other guarantors party thereto, the other lenders party thereto, and CIT Finance LLC, as the administrative agent and collateral agent. The ABL Amendment made a technical revision for administrative purposes which removed the requirement for a Borrower’s non-negotiable bill of lading, non-negotiable sea waybill or other similar shipping document (each a “Non-Negotiable Document”) to state on its face that the inventory that is subject to such Non-Negotiable Document is subject to the lien of the administrative agent. In connection with removing this requirement, a $500,000 in transit inventory reserve amount will be applied to eligible in transit inventory on the borrowing base certificate during any period in which excess liability is less than $5.0 million. This increase in the reserve decreases the borrowing base by the same amount during an in-transit inventory reserve period.
The Credit Agreements include customary negative covenants, including covenants limiting the ability of the Company to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and purchases, pay dividends and distributions, enter into transactions with affiliates, and make payments in respect of junior indebtedness. Each of the Term Loan Credit Agreement and the ABL Credit Agreement also has certain financial covenants (see Note 9. Debt to the audited consolidated financial statements included in this Annual Report).
On May 10, 2024, the Company made a voluntary principal prepayment of $58.2 million on the Term Loan Credit Agreement, in lieu of the previously expected ECF payment of $26.6 million. The expected ECF payment was rejected by the lenders as permitted under the provisions of the Term Loan Credit Agreement. On June 21, 2024, the Company made an additional voluntary principal prepayment of $27.2 million (See Note 15. Shareholders’ Equity, Common Stock Issuance, for additional information). Together with the required quarterly payments, the Company has repaid $94.2 million in principal under the Term Loan Credit Agreement in Fiscal Year 2024. In connection with the voluntary principal prepayments, the Company paid a $2.6 million premium, amounting to 3% on the aggregate principal amount being prepaid, and $1.6 million towards interest, in accordance with the provisions of the Term Loan Credit Agreement.
In connection with the voluntary principal prepayments discussed above, for Fiscal Year 2024, the Company recognized a loss on extinguishment of debt of approximately $8.6 million, consisting of $6.0 million of accelerated amortization of the discount and fees and $2.6 million of prepayment premium, in its consolidated statements of operations and comprehensive income. As of February 1, 2025, the remaining Term Loan Facility principal balance was $74.3 million, which is to be repaid upon maturity on May 8, 2028. The remaining unamortized discount and fees of $4.9 million will continue to be amortized over the remaining term through maturity. See Note 9. Debt to the consolidated financial statements included in this Annual Report for additional information.
For Fiscal Year 2024, the Company would be required to make an ECF payment of $11.8 million prior to May 7, 2025 under the terms of the Term Loan Credit Agreement. However, the voluntary principal prepayments discussed above satisfied the ECF payment requirement and, accordingly, no ECF payment is required.
As of February 1, 2025, the Company is in compliance with all such covenants.
Cash Flow Analysis
The following table shows our cash flows information for the periods presented:
| For the Fiscal Year Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | February 1, 2025 | February 3, 2024 | January 28, 2023 | |||||||||
| Net cash provided by operating activities | $ | 65,036 | $ | 63,313 | $ | 74,425 | ||||||
| Net cash used in investing activities | (17,755 | ) | (16,934 | ) | (15,067 | ) | ||||||
| Net cash used in financing activities | (74,026 | ) | (71,260 | ) | (8,262 | ) |
Net Cash provided by Operating Activities
Net cash provided by operating activities during Fiscal Year 2024 increased $1.7 million compared to Fiscal Year 2023. The increase during Fiscal Year 2024 was driven by higher net income of $3.3 million and changes in operating assets and liabilities of $5.1 million, partially offset by lower adjustments to reconcile net income to net cash from operations of $6.7 million. The higher change in operating assets and liabilities was driven by higher cash inflows relating to timing of payments for accounts payable of $8.9 million, changes in accrued expenses and other current liabilities of $5.4 million mainly due to lower interest expense and management incentive accruals, and operating lease assets and liabilities of $3.3 million due mainly to new leases. These increases were partially offset by increased payments for inventories of $5.4 million mainly due to the calendar shift timing and the strategy to ship goods approximately one week early to offset delays related to the re-routing of shipping lanes away from the Red Sea, timing of payments related to other noncurrent assets and liabilities
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of $5.1 million driven mainly by higher software-as-a-service implementation expenditures related to the order management system, and accounts receivable of $2.0 million.
Net cash provided by operating activities during Fiscal Year 2024 was $65.0 million. Key elements of cash provided by operating activities were (i) net income of $39.5 million, (ii) adjustments to reconcile net income to net cash provided by operating activities of $36.4 million, primarily driven by $21.3 million of depreciation and amortization and the loss on extinguishment of debt $8.6 million, and Equity-based compensation $6.5 million, and (iii) uses of cash of $10.8 million for net operating assets and liabilities.
Net cash provided by operating activities during Fiscal Year 2023 was $63.3 million. Key elements of cash provided by operating activities were (i) net income of $36.2 million, (ii) adjustments to reconcile net income to net cash provided by operating activities of $43.1 million, primarily driven by $22.9 million of depreciation and amortization, and the loss of debt refinancing of $12.7 million, and (iii) the use of cash from net operating assets and liabilities of $16.0 million, primarily driven by accounts payable and operating lease assets and liabilities, partially offset by changes in merchandise inventory and prepaid expenses and other current assets.
Net Cash used in Investing Activities
Net cash used in investing activities during Fiscal Year 2024 was $17.8 million, an increase of $0.8 million as compared to Fiscal Year 2023, representing investments in stores, offset by a decrease in software and technology-related investments, and capital projects at the Company’s distribution center.
Net Cash used in Financing Activities
Net cash used in financing activities during Fiscal Year 2024 increased by $2.8 million as compared to the prior year. The change was primarily driven by the proceeds from issuance of the Term Loan in the prior year offset by the principal repayments on the Priming Term Loan and Subordinated Term Loan as compared to the principal repayments on the Term Loan in the current year, partially offset by the proceeds from the issuance of common stock.
Net cash used in financing activities during Fiscal Year 2024 was $74.0 million, which was driven by principal repayments and prepayment premium on the Term Loan and dividends paid to common shareholders, partially offset by proceeds from the issuance of common stock, net of underwriting costs.
Net cash used in financing activities during Fiscal Year 2023 was $71.3 million, which was driven by the full repayment of the previously existing Priming and Subordinated Credit Agreements offset by the proceeds from issuance of the Term Loan.
Dividends
During the fiscal year ended February 1, 2025, the Company declared and paid dividends of $2.9 million to stockholders of the Company’s common stock. While dividends are generally recorded as a reduction to Retained earnings, since the Company has an accumulated deficit, dividends are recorded as a reduction to Additional paid-in capital. For the fiscal year ended February 3, 2024, no dividend was declared or paid.
The Company intends to pay cash dividends quarterly in the future, subject to market conditions and at the discretion of the Board. Our ability to pay dividends in the future is based on a number of factors, such as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements and the ability of our operating subsidiaries to pay dividends to us as a holding company.
Share Repurchase
On December 6, 2024, the Board approved a share repurchase program (the “Share Repurchase Program”), under which the Company is authorized to repurchase up to $25.0 million of the Company’s common stock over the next two years. Under the Share Repurchase Program, shares of the Company’s common stock may be purchased from time to time through open market or private transactions, block trades, or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations under the Exchange Act and share repurchase parameters determined by the Board. The timing and the number of shares repurchased are subject to the discretion of the Company and may be affected by market conditions and other factors. The Share Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be modified, suspended or terminated at any time.
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Capitalization
The Company’s long-term debt consisted of the following:
| Carrying Value of Debt | |||
|---|---|---|---|
| February 1, 2025 | |||
| Term Loan Facility (principal of $74,288) | $ | 69,419 | |
| Less: Current portion | — | ||
| Net long-term debt | $ | 69,419 |
The Company had no short-term borrowings under the Company’s ABL Facility as of February 1, 2025. The Company had outstanding letters of credit in the amount of $4.3 million and had a maximum additional borrowing capacity of $35.7 million as of February 1, 2025.
Future Cash Requirements
We enter into contractual obligations in the ordinary course of business that may require future cash payments. Such obligations include merchandise inventories, marketing, including catalog production and distribution, payroll, store occupancy costs and capital expenditures associated with opening new stores, remodeling existing stores and upgrading information systems. The notes to the financial statements included elsewhere in this Annual Report provide additional information.
We believe our sources of liquidity, namely operating cash flows and ABL Facility capacity will continue to be adequate to meet our contractual obligations, working capital and capital expenditure requirements, finance anticipated expansion and strategic initiatives, and fund debt maturities for the foreseeable future. We may also engage in capital markets transactions from time to time subject to the discretion of our Board. We expect capital expenditures in the next twelve months to support opening of new stores, store design/ remodels, and system upgrades and maintenance projects.
Off Balance Sheet Arrangements
We are not a party to any off balance sheet arrangements.
Critical Accounting Policies and Significant Estimates
Our discussion of results of operations and financial condition is based upon the consolidated financial statements included elsewhere in this Annual Report, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions about future events that affect the classification and amounts reported in our consolidated financial statements and accompanying notes, including revenue and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are based on our historical results as well as management’s judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could vary materially from estimates based on assumptions used in the preparation of our consolidated financial statements.
The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for outstanding gift cards that will ultimately not be redeemed (“gift card breakage”) and estimated merchandise returns; estimating the value of inventory; and impairment assessments for goodwill and other indefinite-lived intangible assets, and long-lived assets; estimating of incurred but not reported (“IBNR”) claims. Management evaluates its policies and assumptions on an ongoing basis. Our significant accounting policies related to these accounts in the preparation of our consolidated financial statements are described below (see Note 2. Summary of Significant Accounting Policies to our audited consolidated financial statements presented elsewhere in this Annual Report for additional information regarding our critical accounting policies).
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Sales Return Reserve
The Company has a return policy where merchandise returns will be accepted within 90 days of the original purchase date. At the time of sale, the Company records an estimated sales reserve for merchandise returns based on historical prior returns experience and expected future returns. The estimated sales reserve is recorded as a return asset (and corresponding adjustment to cost of goods sold) for the cost of inventory and a return liability for the amount to settle the return with a customer (and a corresponding adjustment to revenue). The return asset and return liability are recorded in Prepaid expenses and other current assets, and Accrued expenses and other current liabilities, respectively, in the consolidated balance sheets. The Company collects and remits sales and use taxes in all states in which retail and direct sales occur and taxes are applicable. These taxes are reported on a net basis and are thereby excluded from revenue.
Gift Cards
The Company sells gift cards without expiration dates to customers. The Company does not charge administrative fees on unused gift cards. Proceeds from the sale of gift cards are recorded as a contract liability until the customer redeems the gift card or when the likelihood of redemption is remote. Based on historical experience, the Company estimates the value of gift card breakage and will not be escheated under statutory unclaimed property laws. This gift card breakage is recognized as revenue over the time period established by the Company’s historical gift card redemption pattern.
Merchandise Inventory
Inventory consists of finished goods merchandise held for sale to our customers. Inventory is stated at the lower of cost or net realizable value. Cost is calculated using the weighted average method of accounting, and includes the cost to purchase merchandise from our manufacturers, duties, tariffs, inbound freight and commissions.
In the normal course of business, we record inventory reserves by applying estimates, based on past and projected sales performance, to the inventory on hand. The carrying value of inventory is reduced to estimated net realizable value when factors indicate that merchandise will not be sold on terms sufficient to recover its cost.
We monitor inventory levels, sales trends and sales forecasts to estimate and record reserves for excess, slow-moving and obsolete inventory. We utilize internal channels, including sales catalogs, the internet, and price reductions in retail stores to liquidate excess inventory. In some cases, external channels such as inventory liquidators are utilized. The prices obtained through these off-price selling methods vary based on many factors. Accordingly, estimates of future sales prices require management judgment based on historical experience, assessment of current conditions and assumptions about future transactions. We have not made significant changes to our assumptions during the periods presented in our consolidated financial statements included elsewhere in this Annual Report, and estimates have not varied significantly from historically recorded amounts.
Asset Impairment Assessments
Goodwill
We evaluate goodwill for impairment on an annual basis on the last day of our eleventh fiscal month beginning Fiscal Year 2023 and at the end of each fiscal year prior to Fiscal 2023, or more frequently between annual tests when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that this change in the impairment assessment date does not represent a material change to the Company’s method of applying an accounting principle, and therefore does not delay, accelerate, or avoid an impairment charge. See Note 2. Summary of Significant Accounting Policies to our audited consolidated financial statements presented elsewhere in this Annual Report for additional information.
Our two reporting units applicable to goodwill impairment assessments are defined as our Direct and Retail sales channels. Examples of impairment indicators that would trigger an impairment assessment of goodwill between annual evaluations include, among others, macro-economic conditions, competitive environment, industry conditions, changes in our profitability and cash flows, and changes in sales trends or customer demand.
The Company’s policy is to perform a quantitative analysis of goodwill every three years. During those years when a quantitative assessment is not performed initially, we assess our goodwill for impairment using a qualitative approach to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on assessment of relevant events, facts and circumstances, that it is more likely than not that a reporting unit’s fair value is greater than its carrying value, no further impairment testing is required.
If management’s assessment of qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative assessment is performed. We also have the option to bypass the qualitative assessment described above and proceed directly to the quantitative assessment. The quantitative assessment
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requires comparing the fair value of a reporting unit to its carrying value, including goodwill. We estimate the fair value of reporting units using the income approach. The income approach uses a discounted cash flow analysis, which involves significant estimates and assumptions, including preparation of revenue and profitability growth forecasts, selection of the discount rate and the terminal year multiple.
If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. If the carrying amount exceeds the reporting unit’s fair value, a goodwill impairment charge is recognized for the amount in excess, not to exceed the total amount of goodwill allocated to that reporting unit.
During Fiscal Years 2024, 2023 and 2022 we did not record any impairment to our goodwill. During Fiscal Year 2023, we performed a quantitative assessment of goodwill. This analysis contains uncertainties because it requires us to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates and assumptions, we may be exposed to future impairment losses that could be material.
Indefinite-Lived Intangible Assets
Our trade name has been assigned an indefinite life as we currently anticipate that it will contribute cash flows to us indefinitely. Our trade name is reviewed at least annually to determine whether events and circumstances continue to support an indefinite, useful life.
We evaluate our trade name for impairment on an annual basis on the last day of our eleventh fiscal month beginning Fiscal Year 2023 and at the end of each fiscal year prior to Fiscal 2023, or more frequently between annual tests whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Conditions that may indicate impairment include, but are not limited to, significant loss of market share to a competitor, the identification of other impaired assets within a reporting unit, loss of key personnel that negatively and materially has an adverse effect on our operations, the disposition of a significant portion of a reporting unit or a significant adverse change in business climate or regulations.
The Company’s policy is to perform a quantitative analysis of its indefinite-lived intangible assets every three years. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. We measure the fair value of our trade name using the relief-from-royalty method, which estimates the present value of royalty income that could be hypothetically earned by licensing the brand name to a third party over the remaining useful life. The most significant estimates and assumptions inherent in this approach are the preparation of revenue forecasts, selection of the royalty and discount rates, and selection of the terminal year multiple.
We did not record any impairment losses related to the trade name during Fiscal Years 2024, 2023 and 2022. During Fiscal Year 2023, we performed a quantitative assessment of our trade name. This analysis contains uncertainties because it requires us to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates and assumptions, we may be exposed to future impairment losses that could be material.
Long-Lived Assets
Long-lived assets include definite-lived intangible assets (our customer list) subject to amortization, property and equipment and operating lease assets. Long-lived assets obtained in a business combination are recorded at the acquisition-date fair value, property and equipment purchased in the normal course of business is recorded at cost and operating lease assets are recorded at the present value of the lease payments.
We assess the carrying value of long-lived assets for potential impairment whenever indicators exist that the carrying value of an asset group might not be recoverable. Indicators of impairment include, among others, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an asset is being used or in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset group.
When indicators of potential impairment exist, we compare the sum of estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset group to the carrying value of the asset group. If the carrying value of an asset group exceeds the sum of estimated undiscounted future cash flows, we record an impairment loss in the amount required to reduce carrying value of the asset group to fair value. We estimate the fair value of an asset group based on the present value of estimated future cash flows, calculated by discounting the cash flow projections used in the previous step.
During Fiscal Year 2024, we assessed the carrying values of right-of-use assets and property and equipment as described above. During Fiscal Year 2024, the Company recorded noncash impairment charges of $0.5 million related to
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leasehold improvements at certain store locations driven by the actual performance at these locations and $0.3 million related to a right-of-use asset driven by revised sublease assumptions of one floor of the corporate headquarters located in Quincy, Massachusetts that was vacated in July 2019. During Fiscal Year 2023, the Company recorded impairment charges of $0.2 million related to leasehold improvements at certain store locations driven by the actual performance at these locations. During Fiscal Year 2022, the Company recorded impairment charges of $0.6 million related primarily to a right-of-use asset relating to revised sublease assumptions of one floor of the corporate headquarters located in Quincy, Massachusetts that was vacated in July 2019 and $0.8 million due to the Company’s revised outlook on future cash flows at certain store locations.
Determining the fair value of long-lived assets requires management judgment and relies upon the use of significant estimates and assumptions, including future sales, our margins and cash flows, current and future market conditions, discount rates applied, useful lives and other factors. We believe our assumptions are reasonable based on available information. Changes in assumptions and estimates used in the impairment analysis, or future results that vary from assumptions used in the analysis, could affect the estimated fair value of long-lived intangible assets and could result in impairment charges in a future period.
Self-Insured Group Health Insurance Reserves
In January 2025, the Company transitioned to a self-insured group health insurance program up to certain stop-loss limits. Such costs are accrued based on known claims and an estimation of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates.
Recent Accounting Pronouncements
See Note 3. Accounting Standards to our audited consolidated financial statements included elsewhere in this Annual Report for information regarding recently issued accounting pronouncements.
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