2 0 1 9 A N N U A L R E P O R T
O U R V I S I O N
to be
the
brand
and
community
for
R E M A R K A B L E
W O M E N
O U R M I S S I O N
To create style and experiences
that inspire and fuel her sense of
confidence and well-being.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(cid:4)(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
For the fiscal year ended February 1, 2020
OR
Commission File Number 001-38026
J.Jill, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4 Batterymarch Park Quincy, MA
(Address of principal executive offices)
45-1459825
(I.R.S. Employer
Identification No.)
02169
(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
Common Stock, $0.01 par value
Trading symbol(s)
JILL
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
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 (cid:3) No (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
Non-accelerated filer
(cid:4)
(cid:3)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:4)
(cid:3)
(cid:3)
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
ff
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:31) No (cid:4)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the
shares of common stock on NYSE Stock Market on August 2, 2019, was $23,543,801.
The number of shares of registrant’s Common Stock outstanding as of June 15, 2020 was 44,774,201.
Documents Incorporated by Reference
Portions of Part II of this Form 10-K are incorporated by reference from the Registrant’s definitive proxy statement for its 2020 annual meeting of
shareholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year.
ff
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Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements, which involve risks and
uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology,
including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,”
“project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology.
All statements other than statements of historical facts contained in this Annual Report, including statements regarding our
strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of
management and expected market growth are forward-looking statements. The forward-looking statements are contained
principally in the sections entitled “Item 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and include, among other things, statements relating to:
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our strategy, outlook and growth prospects;
our operational and financial targets and dividend policy;
our planned expansion of the store base;
general economic trends and trends in the industry and markets; and
the competitive environment in which we operate.
These statements involve known and unknown risks, uncertainties and other important factors that may cause our
actual results, performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from
expectations include, but are not limited to:
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our ability to successfully expand and increase sales;
our ability to maintain and enhance a strong brand image;
our ability to successfully optimize our omnichannel operations and maintain a relevant and reliable omnichannel
experience;
our ability to generate adequate cash from our existing business to support our growth;
our ability to identify and respond to new and changing customer preferences;
our ability to compete effectively in an environment of intense competition;
our ability to contain the increase in the cost of shipping our merchandise, mailing catalogs, paper and printing;
our ability to acquire new customers in a cost-effective manner;
the success of the locations in which our stores are located and our ability to open and operate new retail stores
on a profitable basis;
our ability to adapt to changes in consumer spending and general economic conditions;
natural disasters, unusually adverse weather conditions, boycotts and unanticipated events;
pandemics or other public health crises, such as the novel coronavirus, or COVID-19, and adverse changes in
economic and market conditions related to such pandemics or other health crises;
our ability to take actions that are sufficient to eliminate the substantial doubt about our ability to continue as a
going concern;
our ability to work with lenders and others or otherwise pursue options to refinance following any event of
default under our credit facilities;
our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable
prices;
increases in costs of raw materials, distribution and sourcing costs and in the costs of labor and employment;
the susceptibility of the price and availability of our merchandise to international trade conditions;
failure of our suppliers and their manufacturing sources to use acceptable labor or other practices;
our dependence upon key executive management or our inability to hire or retain the talent required for our
business;
failure of our information technology systems to support our current and growing business;
disruptions in our supply chain and distribution and customer contact center;
our ability to protect our trademarks or other intellectual property rights;
infringement on the intellectual property of third parties;
our ability to maintain compliance with the listing requirements of the New York Stock Exchange (“NYSE”);
acts of war, terrorism or civil unrest;
the impact of governmental laws and regulations and the outcomes of legal proceedings;
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our ability to secure the personal information of our customers and employees and comply with applicable
security standards;
impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;
our failure to maintain adequate internal controls over our financial and management systems;
increased costs as a result of being a public company, particularly after we are no longer an “emerging growth
company”; and
other risks, uncertainties and factors set forth in this Annual Report, including those set forth under “Item 1A.
Risk Factors.”
These forward-looking statements reflect our views with respect to future events as of the date of this Annual Report
and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions
only as of the date of this Annual Report and, except as required by law, we undertake no obligation to update or review
publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of
this Annual Report. We anticipate that subsequent events and developments will cause our views to change. You should
read this Annual Report and the documents filed as exhibits to the Annual Report, completely and with the understanding that
our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may undertake. We
qualify all of our forward-looking statements by these cautionary statements.
EXPLANATORY NOTE
J.Jill relied on the Securities and Exchange Commission’s Order under Section 36 of the Securities Exchange Act of
1934 (the “Exchange Act”) Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public
Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”) to delay the filing of its Annual Report due to
circumstances related to the COVID-19 pandemic. In particular, the COVID-19 pandemic has caused significant disruptions
in J.Jill’s operations including limiting the management team’s access to J.Jill’s offices and causing the management team to
spend significant time addressing the pressing business and operational issues resulting from the COVID-19 pandemic,
leading to a delay in J.Jill’s ability to complete the Annual Report by the original due date of May 1, 2020. On April 28,
2020, J.Jill filed a Current Report on Form 8-K which stated that it expected to file its Annual Report no later than 45 days
after the original due date, in compliance with the provisions of the Order.
3
Item 1. Business
PART I
In this Annual Report, unless otherwise indicated or the context otherwise requires, references to the “Company,”
“J.Jill,” “we,” “us,” and “our” refer to J.Jill, Inc. and its consolidated subsidiaries. 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 2020” refer to the fiscal year ending January 30, 2021, “Fiscal Year 2019” refer to the fiscal year
ended February 1, 2020, references to “Fiscal Year 2018” refer to the fiscal year ended February 2, 2019, and references to
“Fiscal Year 2017” refer to the fiscal year ended February 3, 2018. Fiscal Years 2019 and 2018 are comprised of 52 weeks
and Fiscal Year 2017 is comprised of 53 weeks.
Company Overview
J.Jill 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 more than 280 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.
Brand
We have developed a differentiated brand image that encourages customers to build deep, personal connections with
our brand. Our brand promise to the J.Jill customer is to delight her with great wear-now product, to inspire her confidence
through J.Jill’s approach to dressing and to provide her with friendly, guiding service wherever and whenever she chooses to
shop. We use our key brand attributes - Naturally Authentic, Thoughtfully Engaging, Relaxed Femininity, Positive Energy
and Confident Simplicity - to guide brand messaging, which is consistently communicated to our customers, whether she
chooses to shop on our www.jjill.com website, in our retail stores or through our catalog.
Customer
While women of all ages are attracted to our brand, our targeted customer is 45 years and older, is college educated and
has an annual household income of approximately $150,000. She leads a busy, yet balanced life, as she works outside the
home, is involved in her community and has a family with children. She values comfort, ease and versatility in her wardrobe,
in addition to quality fabrics and thoughtful details. She is fashion conscious and looks to J.Jill to interpret current trends
relevant to her needs and lifestyle. She is tech savvy, but also loves the J.Jill store experience and frequently engages with us
across all channels.
As our customers increase their tenure with our brand, they tend to spend more and purchase more frequently.
Additionally, as we retain customers over time, they tend to migrate from single channel customers to more valuable
omnichannel customers. Omnichannel customers comprised 22% of our active customer base for Fiscal Year 2019, 22% for
Fiscal Year 2018, and 23% in Fiscal Year 2017.
Product
Our Products
Our products are marketed under the J.Jill brand name and sold primarily through our retail and direct channels. Our
diverse assortment of apparel spans knit and woven tops, bottoms and dresses as well as sweaters and outerwear. We also
offer a range of complementary footwear and accessories, including scarves, jewelry and hosiery. By presenting our
merchandise in clear product stories, we strive to uncomplicate fashion, providing comfortable, easy and versatile collections
that enable our customer to dress confidently for a broad range of occasions. Our products are available across the full range
of sizes including Misses, Petites, Women’s and Tall, and reflect a modern balance of style, quality, comfort and ease at
accessible price points. The core products of our assortment are designed and merchandised in-house, grounded with
essential yet versatile styles and fabrications that are typically represented across a season. Assortments are updated each
month with fresh colors, layering options, novelty and fashion. In addition to our core assortment, we have two sub-brands as
extensions of our brand aesthetic and our customer lifestyle needs:
4
Pure Jill: Our Pure Jill sub-brand reflects the art of understated ease. It is designed with a clear focus and minimalist
approach to style, and reflected in simple shapes, unstructured silhouettes, interesting textures, soft natural fabrics and artful
details.
Wearever: Our Wearever sub-brand consists of our refined rayon jersey knit collection that is designed for work, travel
and home. It has a foundational collection of versatile shapes and proportions, in solids and prints that mix easily to provide
endless options that work together. These soft knits are easy care and wrinkle-free, and always look great.
We also offer accessories in unique, versatile and wearable collections. These accessory collections are primarily
driven by scarves and jewelry and seamlessly complete our customer’s wardrobe.
Product Design and Development
We offer 12 merchandise collections that are introduced approximately every four weeks and designed and delivered to
provide a consistent flow of fresh products. All of our merchandise is designed in-house, and we create newness through the
use of different fabrics, colors, patterns and silhouettes. We introduce each collection simultaneously in our retail stores, on
our website and in our catalogs. We support each collection with sequenced floor sets, continuous website updates and
corresponding catalog editions in addition to coordinated marketing activities. Our new product development lifecycle
typically takes 48 weeks from design concept through delivery. We leverage customer feedback and purchasing data from
our customer database along with continual collaborative hindsighting to guide our product and merchandising decision
making. The close coordination between our teams ensures that our product and brand message is clearly communicated to
our customers across all channels.
Channel
Driven by our direct-to-consumer heritage, we have a well-diversified and profitable omnichannel platform. We strive
to deliver a seamless brand experience to our customer, wherever and whenever she chooses to shop across our retail stores,
website and catalogs. Our sales channels reinforce one another and drive traffic to each other, and we deliver a consistent
brand message by coordinating the release of our monthly product collection across channels, allowing our customers to
experience a uniform brand message. We believe that our customers’ buying decisions are influenced by this consistent
messaging and experience across sales channels. We consistently work towards migrating customers from a single-channel
customer to a more valuable, omnichannel customer over time.
Retail Channel
Our Stores
Our retail channel represented 56.3% of net sales for Fiscal Year 2019. As of February 1, 2020, we operated 287 stores
across 42 states with approximately half located in lifestyle centers and the remaining in premium malls; all our stores are
leased. Our stores range in size from approximately 2,000 to 6,000 square feet, and the average store is approximately 3,700
square feet.
Our store designs showcase our brand, while elevating and simplifying the J.Jill shopping experience. Our stores
provide a welcoming, easy-to-shop format that guides her through clearly merchandised product stories. With natural
materials, comfortable fabrics and elegant seating areas, the atmosphere is aspirational, yet attainable. When she cannot find
an item in-stock at her local store, our concierge service leverages our in-store ordering platform and ships products to her
home.
Site Selection
We believe our store model supports our store footprint in existing markets across the United States and simultaneously
enhances our direct channel sales by migrating single-channel customers to omnichannel customers. Potential new store
locations are evaluated on various factors, including customer demographics within a market, concentration of existing
customers, location of existing stores and center tenant quality and mix. We leverage our customer database, including
purchasing history and customer demographics when evaluating our retail store fleet and any potential new locations.
Generally, our stores are in high traffic locations with desirable demographic characteristics and favorable lease economics.
5
The following table shows new store openings since Fiscal Year 2015. The stores opened in the last three years were
primarily in lifestyle centers.
Store Open Year
Fiscal Year 2015
Fiscal Year 2016
Fiscal Year 2017
Fiscal Year 2018
Fiscal Year 2019
Direct Channel
Total Stores
Opened
Total Stores at
the End of the
Fiscal Year
15
15
9
13
11
261
275
276
282
287
Our direct channel, which represented 43.7% of total net sales for Fiscal Year 2019, consists of our website and catalog
orders. Within our direct channel, ecommerce represented approximately 92% of Fiscal Year 2019 direct channel net sales
and phone orders represented 8% of Fiscal Year 2019 direct channel net sales.
Our website, www.jjill.com, delivers to customers an engaging shopping experience by featuring updates on new
collections, guidance on how to wardrobe and wear our products and the ability to chat live with a sales representative.
Our website also provides customers with a broader range of colors and sizes than available in our stores. Additionally,
we leverage our website as an inventory clearance vehicle, which allows us to keep our retail store products fresh and
representative of our newest collection.
Competitive Strengths
Distinct, Well-Recognized Brand. The J.Jill brand represents an easy, thoughtful and inspired style that reflects the
confidence of remarkable women who live life with joy, passion and purpose. We have cultivated a differentiated brand and
through our commitment to our customer and our brand building activities, we have created significant brand trust and an
emotional connection with our customers.
Omnichannel Business. We have developed an omnichannel business model comprised of our retail stores and our
direct channel. Our retail and direct channels complement and drive traffic to one another, and we leverage our targeted
marketing initiatives to acquire new customers across channels. We consistently work towards migrating customers from a
single-channel customer to a more valuable, omnichannel customer over time.
Data-Centric Approach That Drives Consistent Profitability and Mitigates Risk. We believe we have industry-leading
data capture capabilities that allow us to match approximately 97% of transactions to an identifiable customer. We use our
extensive customer database to track and effectively analyze customer information (e.g., name, address, age, household
income and occupation) as well as contact history (e.g., catalog and email). We also have significant visibility into our
customers’ transaction behavior (e.g., orders, returns, order value, including purchases made across our channels). As such,
we can identify a single-channel customer who purchases a product through our website, our retail store or our catalogs, as
well as an omnichannel customer who purchases in more than one channel. We continually leverage this database and apply
our insights to operate our business as well as to acquire new customers and then create, build and maintain a relationship
with each customer to drive optimum value.
Affluent and Loyal Customer Base. We target an attractive demographic of affluent women 45 years and older. With
an average annual household income of approximately $150,000, our customer has significant spending power. Our private
label credit card program also drives customer loyalty and encourages spending. We believe we will continue to develop
long-term customer relationships that can drive profitable sales growth.
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Customer-Focused Product Assortment. Our customers strongly associate our product with a modern balance of style,
quality, comfort and ease suitable for a broad range of occasions at accessible price points. Our customer-focused assortment
spans a full range of sizes and is designed to provide easy wardrobing that is relevant to her lifestyle. Each year we offer 12
merchandise collections that are introduced approximately every four weeks and designed and delivered to provide a
consistent flow of fresh products. We create product newness through the use of different fabrics, colors, patterns and
silhouettes. We have an in-house, customer centric product design and development process that leverages our extensive
database of customer feedback and allows us to identify and incorporate changes in our customers’ preferences. We believe
our customer focused approach to product development and continual delivery of fresh, high quality products drives traffic,
frequency and conversion.
Highly Experienced Leadership Team. In Fiscal Year 2019, there were certain changes to our senior management
team, including the replacement of the President and Chief Executive Officer, Chief Financial Officer and the hiring of the
Senior Vice President of Design. Our leadership team has experience with leading global organizations and on average over
24 years of industry experience with significant expertise in merchandising, marketing, stores, ecommerce, human resources,
and finance.
Growth Strategy
Key drivers of our growth strategy include:
Grow Value of Our Customer Base. We have a significant opportunity to continue to attract new customers to our
brand and to grow the value of our active customer base across all channels. We believe that our target demographic of
women 45 years and older, is relatively underserved by media and the industry. We are refining our Brand Position to further
attract these remarkable women who do not define themselves by age, size, profession, nor confine themselves by artificial
boundaries or the expectations of others. We plan to continue positioning our marketing investment to acquire new
customers, reactivate lapsed customers, and retain existing customers. Through our various business initiatives, we believe
we will continue to attract new customers to our brand, migrate from single-channel to more profitable omnichannel
customers and increase overall customer spend.
Increase Direct Sales. Given our strong foundation and continued website enhancements, we believe we can leverage
our direct platform to broaden our customer reach and drive additional sales. We are undertaking initiatives to further
develop our website to provide a more personalized shopping experience with more features and services for our customers.
The website also provides enhanced capability to engage customers on mobile devices, improved access to product
information and the ability to better connect with the brand on social media.
Profitably Optimize Our Store Base. Based on our proven store economics, we believe that we have a healthy store
fleet and we will continuously evaluate new locations in lifestyle centers and premium malls.
Strengthen Omnichannel Capabilities. Our profitable store channel is enhanced by store associates who bridge the
experience between the channels by helping our customer access our on-line exclusive product, sign her up for emails,
encourage her to seek us out on Facebook, Instagram or Pinterest, and generally remind her that she can access us many
ways. Concurrently, we remain focused on driving traffic and engagement with our website. We plan to continue enhancing
the website with value-added services and growing our email file while optimizing our email contact strategy, including
increased personalization. We expect that these improvements will facilitate a more cohesive and seamless shopping
experience for our customer, wherever and whenever she chooses to shop. We plan to continue leveraging our insight into
customer attributes and behavior, which will guide strategic investments in our business.
Enhance Product Assortment. We believe there is an opportunity to improve our productivity by selectively enhancing
our assortment in certain product categories, including our Pure Jill and Wearever sub-brands, our Women’s and Petite’s
businesses, and accessories. We also believe we have the opportunity to continue to optimize our assortment architecture by
delivering the right mix and flow of fashion and basics to our channels. In addition, we expect to continue delivering high
quality customer focused product assortments across each of our channels, while strengthening visual merchandising and
maintaining a balance between newness and core staples.
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Marketing and Advertising
We leverage a variety of marketing and advertising vehicles to increase brand awareness, acquire new customers, drive
customer traffic across our channels, and strengthen and reinforce our brand image. These include promotional mailings,
email communications, digital and print advertisements and public relations initiatives. We leverage our customer database to
strategically optimize the value of our marketing investments across customer segments and channels. This enables us to
productively acquire new customers, effectively market to existing customers, increase customer retention levels and
reactivate lapsed customers.
Our catalogs are an integral part of our business along with digital and social media. As one of our primary marketing
vehicles, our catalogs promote and reinforce our brand image and drive customer acquisition and engagement across all of
our channels. As on our website and in our retail stores, our catalogs reflect our product offering in settings that align with
our merchandise segments, including our sub-brands, and provide guidance on styling and wardrobing. Our catalogs are
designed in-house, providing us greater creative control as well as effectively managing our production costs.
We reinforce a consistent brand message by coordinating the release of our monthly collection across our retail stores,
website and catalogs, allowing our customers to experience a uniform brand message wherever and whenever she chooses to
shop. We also engage in a wide range of other marketing and advertising strategies to promote our brand, including media
coverage in specialty publications and magazines.
We offer a private label credit card program through an agreement with Comenity Capital Bank (“ADS”), under which
they own the credit card receivables. All credit card holders receive invitations to exclusive customer events and promotions
including special purchase events four times per year, a special offer for her birthday, and a 5% discount when purchases are
made on the card. We promote the benefits of the credit card throughout our retail stores, our website and our catalogs
through banner ads, signage and customer service and selling associate representatives. Additionally, we leverage regional
print advertising to promote the card and its benefits to new and existing customers. We believe that our credit card program
encourages customer loyalty, repeat visits and additional spending. In Fiscal Year 2019, 55% of our gross sales were
generated by our credit card holders.
Sourcing and Supply Strategy
We outsource the manufacturing of our products. In order to efficiently source our products, we work primarily with
agents who represent suppliers and factories. In Fiscal Year 2019 approximately 80% of our products were sourced through
agents and 20% were sourced directly from suppliers and factories. We currently work with three primary agents that help us
identify quality suppliers and coordinate our manufacturing requirements. Additionally, the agents manage the development
of samples of merchandise produced in the factories, inspect finished merchandise, ensure the timely delivery of goods and
carry out other administrative and oversight functions on our behalf. We source the remainder of our products by interacting
directly with suppliers and factories both domestically and abroad.
Agents work with approximately 27 suppliers on our behalf. We source our merchandise globally from seven countries
with the top three by volume being China, India and Vietnam. No single supplier accounts for more than 20% of merchandise
purchased.
We have been evaluating our supply chain and product development processes, and are planning to evolve our go-to-
market calendar to ensure we offer relevant, wear-now product. We have no long-term merchandise supply contracts as we
typically transact business on an order-by-order basis to maintain flexibility. We believe our strong relationships with
suppliers have provided us with the ability to negotiate favorable pricing terms, further improving our overall cost structure
and profitability. Our dedicated sourcing team actively negotiates and manages product costs to deliver initial mark-up
objectives. The team further focuses on quality control to ensure that merchandise meets required technical specifications and
inspects the merchandise to ensure it meets our strict standards, including regular in-line inspections while goods are in
production. Upon receipt, merchandise is further inspected on a test basis for consistency in cut, size and color, as well as for
conformity with specifications and overall quality of manufacturing. Our sourcing team ensures that the customer has a
consistent product and satisfying brand experience regardless of product size, color or collection.
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8
Omnichannel Distribution and Customer Contact Center
We lease our 520,000 square foot distribution and customer contact center in Tilton, New Hampshire. The facility
manages the receipt, storage, sorting, packing and distribution of merchandise for our retail and direct channels. Retail stores
are replenished from this facility and shipped by third-party delivery services, providing our retail stores with a steady flow
of new inventory that helps to maintain product freshness. Our distribution system is designed to operate in an efficient and
cost-effective manner, including our ability to profitably support individual direct orders which we believe differentiates
ourselves from our competitors. In Fiscal Year 2019, the distribution center handled 41 million units, split between 20
million retail (49%) and 21 million direct (51%), and we believe this facility is sufficient to support our future growth.
The customer contact center is an extension of our brand, providing a consistent customer experience at every stage of
a purchase across all of our channels. In Fiscal Year 2019, we managed approximately 4.5 million customer interactions
through our in-house customer contact center in Tilton, New Hampshire. Our customer contact center is responsible for
nearly all live customer interactions, other than in retail stores, including order taking and further serves as an important
feedback loop in gathering customer responses to our brand, product and service. We continue to refine and improve our
contact center strategy and experience to support the constantly evolving digital landscape.
Information Systems
We use information systems to support business intelligence and processes across our sales channels. We continue to
invest in information systems and technology to enhance the customer experience and create operating efficiencies. We
utilize third-party providers for customer database and customer campaign management, ensuring efficient maintenance of
information in a secure, backed-up environment.
Seasonality
While the retail business is generally seasonal in nature, we have historically not experienced significant seasonal
fluctuations in our sales. Our merchandise offering drives consistent sales across seasons with no quarter contributing more
than 27% of total annual net sales in Fiscal Year 2019.
Competition
The women’s apparel industry is highly competitive. We compete with local, national and international retail chains
and department stores, specialty and discount stores, catalogs and internet businesses offering similar categories of
merchandise. We compete primarily on the basis of design, service, quality and value. We believe our distinct combination of
design, service, quality and value allows us to compete effectively and we believe we differentiate ourselves from
competitors based on the strength of our brand, our omnichannel platform, our strong data capabilities, our loyal customer
base, our customer-focused product assortment and our highly experienced leadership team. Our competitors range from
smaller, growing companies to considerably larger companies with substantially greater financial, marketing and other
resources.
Employees
As of February 1, 2020, we employed 1,400 full-time and 2,348 part-time employees. Of these employees, 315 are
employed in our headquarters in Quincy, Massachusetts, 3,025 are employed in our retail stores and 408 work in our
distribution and customer contact center and administrative office in Tilton, New Hampshire. The number of employees,
particularly part-time employees, fluctuates depending upon seasonal needs.
Our employees are not represented by a labor union and are not party to a collective bargaining agreement. We
consider our relations with our employees to be good.
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Intellectual Property
Our trademarks are important to our marketing efforts. We own or have the rights to use certain trademarks, service
marks and trade names that are registered with the U.S. Patent and Trademark Office or other foreign trademark registration
offices or exist under common law in the United States and other jurisdictions. Trademarks that are important in identifying
and distinguishing our products and services include, but are not limited to, J.Jill®, The J.Jill Wearever Collection® and Pure
Jill®. Our rights to some of these trademarks may be limited to select markets. We also own domain names, including
www.jjill.com.
Corporate Information
We were originally organized as Jill Intermediate LLC, a Delaware limited liability company, in February 2011. On
February 24, 2017, we completed transactions pursuant to which we converted into a Delaware corporation and changed our
name to J.Jill, Inc. Our principal executive office is located at 4 Batterymarch Park, Quincy, MA 02169, and our telephone
number is (617) 376-4300.
Item 1A. Risk Factors
Risks Related to Our Business and Industry
The coronavirus pandemic may continue to adversely affect our business operations, store traffic, employee availability,
financial condition, liquidity and cash flow.
The outbreak of the coronavirus (“COVID-19”) continues to have a significant negative impact in the United States
and globally, and related government and private sector responsive actions may adversely affect our business operations. It is
impossible to predict the ongoing effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving.
The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the
virus, especially when congregating in heavily populated areas, such as malls and shopping centers. In addition, as previously
announced, we temporarily closed all stores beginning March 18, 2020 in response to the escalating COVID-19 outbreak.
While we have begun reopening stores as guidance from government and health authorities permit there remains significant
uncertainty around the ongoing impact of COVID-19, as well as its impact on the U.S. economy, consumer willingness to
visit malls and shopping centers, and employee willingness to staff our stores as they reopen. In addition, a resurgence of
COVID-19 in the future could result in renewed precautions, such as store closings or other measures that would adversely
impact our business.
As previously disclosed, on March 16, 2020, we provided notice to the lenders under the ABL Facility to borrow an
aggregate principal amount of $33.0 million under the ABL Facility. We borrowed under the ABL Facility as a precautionary
measure to increase our cash position and preserve financial flexibility in light of the current uncertainty in the global markets
resulting from the COVID-19 outbreak.
The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain
and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions
taken to contain it or treat its impact.
The uncertainty created by recent events generate scenarios that raise substantial doubt about our ability to continue as
a going concern within one year after the date the financial statements are issued. See “— Substantial doubt exists as to our
ability to continue as a going concern.” Under the terms of both the ABL Facility and the Term Loan Agreement, the
inclusion of substantial doubt about the Company’s ability to continue as a going concern in the report of our independent
registered public accounting firm on our accompanying financial statements for the fiscal year ended February 1, 2020 results
in a violation of affirmative covenants under our ABL Facility and Term Loan Agreement., which could, among other things,
result in our lenders under the ABL Facility and Term Loan Agreement declaring the principal of and accrued interest on all
outstanding indebtedness immediately due and payable and terminating all remaining commitments and obligations under the
credit facilities.
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Substantial doubt exists as to our ability to continue as a going concern.
The consolidated financial statements included herein have been prepared on a going concern basis, which assumes
that we will continue to operate in the normal course of business. The temporary closure of our stores and continued impacts
of the COVID-19 pandemic are expected to have a material adverse effect on our results of operations, cash flows, financial
position and liquidity which will also result in a failure by us to comply with the financial covenants contained in our ABL
Facility and Term Loan Agreements. On May 15, 2020, the Company began reopening its stores and as of the issuance date,
approximately half of its stores have been reopened in accordance with local government guidelines. The Company expects
to continue reopening stores in a phased approach as more states reopen for retail. There is significant uncertainty around the
duration of these store closures and other business disruptions related to COVID-19. These factors along with the potential
impacts of the COVID-19 pandemic and how consumer shopping patterns will change during and after the pandemic raise
substantial doubt about the Company’s ability to continue as a going concern.
In response to the COVID-19 pandemic, we are taking aggressive and prudent actions to reduce expenses and defer
payment of accounts payables, lease liabilities and inventory purchases to preserve cash on hand. These actions include, but
are not limited to:
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temporary furlough of substantially all retail employees for the duration of store closures at their location and
subject to reduced staffing for a phase-in period upon reopening;
base salary reductions for our senior leadership team and suspension of pay raise for corporate employees;
extension of payment terms for all accounts payable other than those necessary to support our ecommerce
business;
withholding payment of approximately $12.0 million of rent for all of our retail locations beginning in April
2020 subject to discussion with our landlords;
extended payment terms with merchandising vendors;
eliminated one of our catalogs and are considering implementing this as a permanent change;
limiting investments in our ecommerce business to necessary website and supporting functions; and
suspension of nearly all capital expenditures.
Additionally, we borrowed $33.0 million under our ABL Facility in March 2020. We are seeking to amend our ABL
Facility to provide for further incremental borrowings. No assurances can be given as to when or if the Company will
succeed in obtaining the amendment. We also filed an income tax refund for $7.7 million with the IRS related to the
provision under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted in March 2020 that
provides numerous tax provisions and other stimulus measures, including temporary suspension of certain payment
requirements for the employer-paid portion of social security taxes, the creation of certain refundable employee retention
credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property.
The Company has elected to defer the employer-paid portion of social security taxes beginning with pay dates on and after
April 1, 2020. We continue to evaluate the provisions of the CARES Act and the ways in which it could assist our business
and improve our liquidity.
The Company was in compliance with financial covenants as of February 1, 2020. However, the inclusion of
substantial doubt about the Company’s ability to continue as a going concern in the report of our independent registered
public accounting firm on our accompanying financial statements for the fiscal year ended February 1, 2020 results in a
violation of affirmative covenants under our ABL Facility and Term Loan Agreement. If we are unable to obtain a waiver
from our lenders, our lenders could instruct the administrative agent under such credit facilities to exercise available remedies
including, declaring the principal of and accrued interest on all outstanding indebtedness immediately due and payable and
terminating all remaining commitments and obligations under the credit facilities. Although the lenders under our credit
facilities may waive the defaults or forbear the exercise of remedies, they are not obligated to do so. Failure to obtain such a
waiver would have a material adverse effect on the liquidity, financial condition and results of operations and may result in
filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a
restructuring plan.
There is significant uncertainty around the disruptions related to the COVID-19 pandemic and its impact on the global
economy. While our results of operations have been significantly impacted and we anticipate our future results will continue
to be adversely impacted, the extent to which the COVID-19 pandemic impacts our future results will depend on future
developments, which are highly uncertain and cannot be predicted with certainty, including new information which may
emerge concerning the severity of the COVID-19 pandemic in the United States, actions taken to contain it or treat its impact,
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any possible resurgence of COVID-19 that may occur after the initial outbreak subsides, and how quickly and to what extent
normal economic and operating conditions can resume.
Our business is sensitive to economic conditions and consumer spending.
We face numerous business risks relating to macroeconomic factors. The retail industry is cyclical and consumer
purchases of discretionary retail items, including our merchandise, generally decline during recessionary periods and other
times when disposable income is lower. Factors impacting discretionary consumer spending include general economic
conditions, wages and employment, consumer debt, reductions in net worth based on severe market declines, residential real
estate and mortgage markets, taxation, volatility of fuel and energy prices, interest rates, consumer confidence, political and
economic uncertainty and other macroeconomic factors. Deterioration in economic conditions or increasing unemployment
levels may reduce the level of consumer spending and inhibit consumers’ use of credit, which may adversely affect our
revenues and profits. In recessionary periods and other periods where disposable income is adversely affected, we may have
to increase the number of promotional sales or otherwise dispose of inventory for which we have previously paid to
manufacture, which could further adversely affect our profitability. It is difficult to predict when or for how long any of these
conditions can affect our business and a prolonged economic downturn could have a material adverse effect on our business,
financial condition and results of operations.
Our inability to anticipate and respond to changing customer preferences and shifts in fashion and industry trends in a
timely manner could have a material adverse effect on our business, financial condition and results of operations.
Our success largely depends on our ability to consistently gauge tastes and trends and provide a balanced assortment of
merchandise that satisfies customer demands in a timely manner. We enter into agreements to manufacture and purchase our
merchandise well in advance of the applicable selling season and our failure to anticipate, identify or react appropriately in a
timely manner to changes in customer preferences, tastes and trends and economic conditions could lead to, among other
things, missed opportunities, excess inventory or inventory shortages, markdowns and write-offs, all of which could
negatively impact our profitability and have a material adverse effect on our business, financial condition and results of
operations. Failure to respond to changing customer preferences and fashion trends could also negatively impact our brand
image with our customers and result in diminished brand loyalty.
Our inability to maintain our brand image, engage new and existing customers and gain market share could have a
material adverse effect on our growth strategy and our business, financial condition and results of operations.
Our ability to maintain our brand image and reputation is integral to our business, as well as the implementation of our
strategy to grow. Maintaining, promoting and growing our brand will depend largely on the success of our design,
merchandising and marketing efforts and our ability to provide a consistent, high-quality customer experience. Our
reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity and any negative
publicity about these types of concerns may reduce demand for our merchandise. While our brand enjoys a loyal customer
base, the success of our growth strategy depends, in part, on our ability to keep existing customers engaged as well as attract
new customers to shop our brand. If we experience damage to our reputation or loss of consumer confidence, we may not be
able to retain existing customers or acquire new customers, which could have a material adverse effect on our business,
financial condition and results of operations.
Our inability to manage our inventory levels and merchandise mix, including with respect to our omnichannel retail
operations, could have a material adverse effect on our business, financial condition and results of operations.
Customer demand is difficult to predict and the lead times required for a substantial portion of our merchandise make it
challenging to respond quickly to changes. Though we have the ability to source certain merchandise categories with shorter
lead times, we generally enter into contracts for a substantial portion of our merchandise well in advance of the applicable
selling season. Our business, financial condition and results of operations could be materially adversely affected if we are
unable to manage inventory levels and merchandise mix and respond to changes in customer demand patterns. Inventory
levels in excess of customer demand may result in lower than planned profitability. On the other hand, if we underestimate
demand for our merchandise, we may experience inventory shortages resulting in missed sales and lost revenues. Either of
these events could significantly affect our operating results and brand image and loyalty. Our profitability may also be
impacted by changes in our merchandise mix and changes in our pricing. These changes could have a material adverse effect
on our business, financial condition and results of operations.
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In addition, our omnichannel operations create additional complexities in our ability to manage inventory levels, as
well as certain operational issues in stores and on our website, including timely shipping and returns. Accordingly, our
success depends to a large degree on continually evolving the processes and technology that enable us to plan and manage
inventory levels and fulfill orders, address any related operational issues in store and on our website and further align
channels to optimize our omnichannel operations. If we are unable to successfully manage these complexities, it may have a
material adverse effect on our business, financial condition and results of operations.
Competitive pressures from other retailers as well as adverse structural developments in the retail sector may have a
material adverse effect on our business, financial condition and results of operations.
The women’s apparel industry is highly competitive. We compete with local, regional, national and international retail
chains and department stores, specialty and discount stores, catalogs, internet and ecommerce businesses offering similar
categories of merchandise. We face a variety of competitive challenges, including price pressure, anticipating and quickly
responding to changing customer demands or preferences, maintaining favorable brand recognition and effectively marketing
our merchandise to our customers in diverse demographic markets, sourcing merchandise efficiently and developing
merchandise assortments in styles that appeal to our customers in ways that favorably distinguish us from our competitors. In
addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and
electronic devices, may increase our competition. The internet and other new technologies facilitate competitive entry and
comparison shopping, and increased competition may reduce our sales and profits. We strive to offer an omnichannel
shopping experience for our customers that enhances their shopping experiences. Omnichannel retailing is constantly
evolving and we must keep pace with changing customer expectations and new developments by our competitors.
Furthermore, many of our competitors have advantages over us, including substantially greater financial, marketing and other
resources. Increased levels of promotional activity by our competitors, some of whom may be able to adopt more aggressive
pricing policies than we can, both on our website and in stores, may negatively impact our sales and profitability. There can
be no assurances that we will be able to compete successfully with these companies in the future. In addition to competing
for sales, we compete for favorable store locations, lease terms and qualified sales associates and professional staff.
Increased competition in these areas may result in higher costs and reduced profitability, which could have a material adverse
effect on our business, financial condition and results of operations.
We may be unable to accurately forecast our operating results and growth rate, which may adversely affect our reported
results.
We may not be able to accurately forecast our operating results and growth rate. We use a variety of factors in our
forecasting and planning processes, including historical results, recent history and assessments of economic and market
conditions, among other things. The growth rates in sales and profitability that we have experienced historically may not be
sustainable as our active customer base expands and we achieve higher market penetration rates, and our percentage growth
rates may decrease. The growth of our sales and profitability depends on the continued growth of demand for the
merchandise we offer. A softening of demand, whether caused by changes in customer preferences or a weakening of the
economy or other factors, may result in decreased net sales or growth. Furthermore, many of our expenses and investments
are fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in
our net sales results. Failure to accurately forecast our operating results and growth rate could cause our actual results to be
materially lower than anticipated, and if our growth rates decline as a result, investors’ perceptions of our business may be
adversely affected, and the market price of our common stock could decline.
Our inability to successfully optimize our omnichannel operations and maintain a relevant and reliable omnichannel
experience for our customers could have an adverse effect on our growth strategy and our business, financial condition
and results of operations.
Growing our business through our omnichannel operations is key to our growth strategy. Our goal is to offer our
customers seamless access to our merchandise across our channels, including both our direct and retail channels.
Accordingly, our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to
appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their
shopping needs. Failure to enhance our technology and marketing efforts to align with our customers’ developing shopping
preferences could significantly impair our ability to meet our strategic business and financial goals. If we do not successfully
optimize our omnichannel operations or if they do not achieve their intended objectives, it could have a material adverse
effect on our business, financial condition and results of operations.
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We depend on our ecommerce business and failure to successfully manage this business and deliver a seamless
omnichannel shopping experience to our customers could have an adverse effect on our growth strategy and our business,
financial condition and results of operations.
Sales through our direct channel, of which our ecommerce business constitutes the vast majority, accounted for
approximately 43.7% of our total net sales for Fiscal Year 2019. Our business, financial condition and results of operations
are dependent on maintaining our ecommerce business and expanding this business is an important part of our strategy to
grow through our omnichannel operations. Dependence on our ecommerce business and the continued growth of our direct
and retail channels subjects us to certain risks, including:
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the failure to successfully implement new systems, system enhancements and internet platforms;
the failure of our technology infrastructure or the computer systems that operate our website and their related
support systems, causing, among other things, website downtimes, telecommunications issues or other technical
failures;
the reliance on third-party computer hardware/software providers;
rapid technological change;
liability for online content;
violations of federal, state, foreign or other applicable laws, including those relating to data protection;
credit card fraud;
cyber security and vulnerability to electronic break-ins and other similar disruptions; and
diversion of traffic and sales from our stores.
Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase
costs, diminish our growth prospects and damage the reputation of our brand, each of which could have a material adverse
effect on our business, financial condition and results of operations.
Our business depends on effective marketing and increasing customer traffic and the success of our direct channel
depends on customers’ use of our website and response to catalogs and digital marketing.
We have many initiatives in our marketing programs. If our competitors increase their spending on marketing, if our
marketing expenses increase, if our marketing becomes less effective than that of our competitors, or if we do not adequately
leverage technology and data analytics needed to generate concise competitive insight, we could experience a material
adverse effect on our business, financial condition and results of operations. A failure to sufficiently innovate or maintain
adequate and effective marketing strategies could inhibit our ability to maintain brand relevance and increase sales.
In particular, the level of customer traffic and volume of customer purchases through our direct channel, which
accounted for approximately 43.7% of our net sales for Fiscal Year 2019, is substantially dependent on our ability to provide
a content-rich and user-friendly website, widely distributed and informative catalogs, a fun, easy and hassle-free customer
experience and reliable delivery of our merchandise. If we are unable to maintain and increase customers’ use of our
ecommerce platform, and the volume of purchases declines, our business, financial condition and results of operations could
be adversely affected.
Customer response to our catalogs and digital marketing is substantially dependent on merchandise assortment,
merchandise availability and creative presentation, as well as the selection of customers to whom our catalogs are sent and to
whom our digital marketing is directed, changes in mailing strategies and the size of our mailings. Our maintenance of a
robust customer database has also been a key component of our overall strategy. If the performance of our website, catalogs
and email declines, or if our overall marketing strategy is not successful, it could have a material adverse effect on our
business, financial condition and results of operations.
We occupy our stores under long-term leases, which are subject to future increases in occupancy costs and which we may
be unable to renew or may limit our flexibility to move to new locations.
We lease all of our store locations, our corporate headquarters and our distribution and customer contact center. We
typically occupy our stores under operating leases with terms of up to ten years, which may include options to renew for
additional multi-year periods thereafter. We depend on cash flow from operations to pay our lease expenses. If our business
does not generate sufficient cash flow from operating activities to fund these expenses, we may not be able to service our
lease expenses, which could materially harm our business. In the future, we may not be able to negotiate favorable lease
terms. Our inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in
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desirable locations. If we are unable to renew our store leases, we may be forced to close or relocate a store, which could
subject us to significant construction and other costs. Closing a store, for even a brief period to permit relocation, would
reduce the revenue contribution of that store. Additionally, the revenue and profit, if any, generated at a relocated store may aa
not equal the revenue and profit generated at the previous location.
Long-term leases can limit our flexibility to move a store to a new location. Some of our leases have early cancellation
clauses, which permit the lease to be terminated if certain sales levels are not met in specific periods, whereas some of our
leases are non-cancelable. If an existing or future store is not profitable, and we have the right to close it, we may
nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the
base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the
contractual requirements for early cancellation under that lease. Our inability to enter into new leases or renew existing
leases on terms acceptable to us or be released from our obligations under leases for stores that we close could have a
material adverse effect on our business, financial condition and results of operations.
Our growth strategy depends in part on our ability to open and operate new retail stores on a profitable basis and if we are
not successful in implementing future retail store expansion, or if such new stores would negatively impact sales from our
existing stores or from our direct channel, our growth and profitability could be adversely impacted.dd
Our growth strategy depends in part on our ability to open and operate new retail stores on a profitable basis. We may
be unable to identify and open new retail locations in desirable places in the future. We compete with other retailers and
businesses for suitable retail locations. Local land use, local zoning issues, environmental regulations, governmental permits
and approvals and other regulations may affect our ability to find suitable retail locations and also influence the cost of
leasing them. We also may have difficulty negotiating real estate leases for new stores on acceptable terms. In addition,
construction, environmental, zoning and real estate delays may negatively affect retail location openings and increase costs
and capital expenditures. If we are unable to open new retail store locations in desirable places and on favorable terms, our
net sales and profits could be materially adversely affected.
As we expand our store base, our lease expense and our cash outlays for rent under the lease terms will increase. Such
growth will require that we continue to expand and improve our operating capabilities, including making investments in our
information technology and operational infrastructure, and expand, train and manage our employee base, and we may be
unable to do so. We primarily rely on cash flow generated from our operations to pay our lease expenses and to fund our
growth initiatives. It requires a significant investment to open a new retail store. If we open a large number of stores
relatively close in time, the cost of these retail store openings and lease expenses and the cost of continuing operations could
reduce our cash position. If our business does not generate sufficient cash flow from operating activities to fund these
expenses, we may not have sufficient cash available to address other aspects of our business or we may be unable to service
our lease expenses, which could materially harm our business.
As we increase the number of retail stores, our stores may become more highly concentrated in geographic regions we
already serve. As a result, the number of customers and related net sales at individual stores may decline and the payback
period may be increased. The growth in the number of our retail stores could also draw customers away from our direct
business and if our competitors open stores with similar formats, our retail store format may become less unique and may be
less attractive to customers as a shopping destination. If either of these events occurs, our business, financial condition and
results of operations could be materially adversely affected.
There can be no assurances that we will be able to achieve our store expansion goals, nor can there be any assurances
that our newly opened stores will achieve revenue or profitability levels comparable to those of our existing stores in the time
periods estimated by us. In addition, the substantial management time and resources which our retail store expansion strategy
requires may result in disruption to our existing business operations which may decrease our profitability. If our stores fail to
achieve, or are unable to sustain, acceptable revenue, profitability and cash flow levels, we may incur store asset impairment
charges, significant costs associated with closing those stores or both, which could have a material adverse effect on our
business, financial condition and results of operations.
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We rely on third-party service providers, such as Federal Express and the U.UU S. Postal Service, for the delivery of our
merchandise and our catalogs.
We primarily utilize Federal Express to support retail store shipping. We also use the U.S. Postal Service to deliver
millions of catalogs each year, and we depend on third parties to print and mail our catalogs. As a result, postal rate increases
and paper and printing costs will affect the cost of our catalog and promotional mailings. We rely on discounts from the
basic postal rate structure, such as discounts for bulk mailings and sorting. The operational and financial difficulties of the
U.S. Postal Service are well documented. Any significant and unanticipated increase in postage, shipping costs, reduction in
service, slow-down in delivery or increase in paper and printing costs could impair our ability to deliver merchandise and
catalogs in a timely or economically efficient manner and could adversely impact our profitability if we are unable to pass
such increases directly on to our customers or if we are unable to implement more efficient delivery and order fulfillment
systems, all of which could have a material adverse effect on our business, financial condition and results of operations.
Competitive pricing pressures with respect to shipping our merchandise to our customers may harm our business and
results of operations.
Historically, the shipping and handling fees we charge our direct customers are intended to recover the related shipping
and handling expenses. Online and omnichannel retailers are increasing their focus on delivery services, as customers are
increasingly seeking faster, guaranteed delivery times and low-price or free shipping. To remain competitive, we may be
required to offer discounted, free or other more competitive shipping options to our customers, which may result in declines
in our shipping and handling fees and increased shipping and handling expense. Declines in the shipping and handling fees
that we generate may have a material adverse effect on our profitability to the extent that our shipping and handling expense
is not declining proportionally, or if our shipping and handling expense would increase, which could have a material adverse
effect on our business, financial condition and results of operations.
We are subject to payment-related risks.
We accept payments using a variety of methods, including credit cards, debit cards, gift cards, cash and bank checks.
For existing and future payment methods we offer to our customers, we may become subject to additional regulations and
compliance requirements (including obligations to implement enhanced authentication processes that could result in
increased costs and reduce the ease of use of certain payment methods), as well as fraud. For certain payment methods,
including credit and debit cards, we pay interchange and other fees, which may increase over time, thereby raising our
operating costs and lowering profitability. We rely on third-party service providers for payment processing services,
including the processing of credit and debit cards. In each case, it could disrupt our business if these third-party service
providers become unwilling or unable to provide these services to us. We are also subject to payment card association
operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which
could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or
requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ and
others’ costs, subject to fines and higher transaction fees and/or lose our ability to accept credit and debit card payments from
our customers and process electronic funds transfers or facilitate other types of payments. Any of these developments could
have a material adverse effect on our business, financial condition and results of operations.
If we fail to acquire new customers in a cost-effective manner, it could have an adverse impact on our growth strategy as
we may not be able to increase net revenue or profit per active customer.
The success of our growth strategy depends in part on our ability to acquire new customers in a cost-effective manner.
In order to expand our active customer base, we must appeal to and acquire customers who identify with our brand. We have
made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire
additional customers. As our brand becomes more widely known in the market, future marketing campaigns may not result
in the acquisition of new customers at the same rate as past campaigns. There can be no assurances that the revenue from
new customers we acquire will ultimately exceed the cost of acquiring those customers.
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We use paid and non-paid advertising. Our paid advertising includes catalogs, paid search engine marketing, email,
display and other advertising. Our non-paid advertising efforts include search engine optimization and social media. We
obtain a significant amount of traffic via search engines and, therefore, rely on search engines such as Google, Yahoo! and
Bing. Search engines frequently update and change the logic that determines the placement and display of results of a user’s
search, such that the purchased or algorithmic placement of links to our site can be negatively affected. A major search
engine could change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and competitive
dynamics could impact the effectiveness of search engine marketing or search engine optimization. We also obtain traffic via
social networking websites or other channels used by our current and prospective customers. As ecommerce and social
networking continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to
develop or maintain these relationships on acceptable terms. Additionally, digital advertising costs may continue to rise and
as our usage of these channels expands, such costs may impact our ability to acquire new customers in a cost-effective
manner. If the level of usage of these channels by our active customer base does not grow as expected, we may suffer a
decline in customer growth or net sales. If we are unable to acquire new customers in a cost-effective manner, it could have a
material adverse effect on our business, financial condition and results of operations.
Interruptions in our foreign sourcing operations and the relationships with our suppliers and agents could disrupt
production, shipment or receipt of our merchandise, which would result in lost sales and increased costs.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-party suppliers for
the manufacturing of all of our merchandise, primarily through the use of agents. In Fiscal Year 2019, approximately 80% of
our products were sourced through agents and approximately 20% were sourced directly from suppliers and factories. Our
merchandise is manufactured to our specifications primarily by factories outside of the United States. Some of the factors
that might affect a supplier’s ability to ship orders of our merchandise in a timely manner or to meet our quality standards are
outside of our control, including inclement weather, natural disasters, political and financial instability, legal and regulatory
developments, strikes, health concerns regarding infectious diseases (such as the recent outbreak of the novel coronavirus),
and acts of terrorism. Inadequate labor conditions, health or safety issues in the factories where goods are produced can
negatively impact our brand’s reputation. Late delivery of merchandise or delivery of merchandise that does not meet our
quality standards could cause us to miss the delivery date requirements of our customers or delay timely delivery of
merchandise to our stores for those items. These events could cause us to fail to meet customer expectations, cause our
customers to cancel orders or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient quality to
our stores, which could result in lost sales.
We have no long-term merchandise supply contracts as we typically transact business on an order-by-order basis. If
we are unable to maintain the relationships with our suppliers and agents and are unexpectedly required to change suppliers
or agents, or if a key supplier or agent is unable or unwilling to supply acceptable merchandise in sufficient quantities on
acceptable terms, we could experience a significant disruption in the supply of merchandise. We could also experience
operational difficulties with our suppliers, such as reductions in the availability of production capacity, supply chain
disruptions, errors in complying with merchandise specifications, insufficient quality control, shortages of fabrics or other
raw materials, failures to meet production deadlines or increases in manufacturing costs.
We source our imported merchandise from six countries with the top three by volume including China, India, and the
Philippines. Approximately 90% of our products were sourced in southeast Asia in Fiscal Year 2019. Any event causing a
sudden disruption of manufacturing or imports from Asia or elsewhere, including the recent outbreak of the novel
coronavirus COVID-19 and the imposition of additional import restrictions, could materially harm our operations. For
example, the Trump Administration has imposed tariffs on certain foreign goods from a variety of countries and regions,
including China, and has raised the possibility of imposing additional tariff increases or expanding the tariffs to capture. In
response, many of these foreign governments, including China, have imposed retaliatory tariffs on goods that their countries
import from the United States. Although there has been a partial first phase trade deal between the United States and China,
there can be no certainty whether any further trade deals or relaxation or elimination of trade tariffs will occur or upon what
terms. Additionally, there can be no assurance that additional or new trade tensions and tariffs will not arise between various
trade partners, including, among others, the United States and China. These potential developments, market perceptions
concerning these and related issues and the attendant regulatory uncertainty regarding, for example, the posture of
governments with respect to international trade, could have a material adverse effect on global trade and economic growth
which, in turn, can adversely affect our business, financial condition and results of operations. In addition, many of our
imports are subject to existing or potential duties, tariffs or quotas that may limit the quantity of certain types of goods that
may be imported into the United States from countries in Asia or elsewhere. We compete with other companies for
production facilities and import quota capacity. While substantially all of our foreign purchases of our merchandise are
negotiated and paid for in U.S. dollars, the cost of our merchandise may be affected by fluctuations in the value of relevant
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foreign currencies. In addition, we are engaging in growing the amount of production carried out in other developing
countries. These countries may present other risks with regard to infrastructure available to support manufacturing, labor and
employee relations, political and economic stability, corruption, regulatory, environmental, health and safety compliance.
While we endeavor to monitor and audit facilities where our production is done, any significant events with factories we use
can adversely impact our reputation, brand and product delivery.
Furthermore, many of our suppliers rely on working capital financing to support their operations. To the extent any of
our suppliers are unable to obtain adequate credit or their borrowing costs increase, we may experience delays in obtaining
merchandise, our suppliers increasing their prices or our suppliers modifying payment terms in a manner that is unfavorable
to us.
If the recent outbreak of COVID-19 results in a prolonged period of travel, commercial and other similar restrictions,
or a delay in production or distribution operations at any or all of the Company’s suppliers’ facilities, we could experience
significant supply chain disruptions. We are monitoring the situation on a daily basis, but it is currently unknown whether the
outbreak will meaningfully disrupt the Company’s merchandise shipments or impact manufacturing at any of the Company’s
suppliers’ plants. If we experience significant supply chain disruptions, the Company may not be able to develop alternate
sourcing quickly on favorable terms, if at all, which could result in increased costs, loss of sales and a loss of customers, and
adversely impact our financial condition and results of operations.
The failure of our suppliers to comply with our social compliance program requirements could have a material adverse
effect on our reputation, business, financial condition and results of operations.
We require our third-party suppliers to comply with all applicable laws and regulations, as well as our Terms of
Engagement-Commitment to Ethical Sourcing, which cover many areas, including labor, health, safety, environmental and
other legal standards. We monitor compliance with these standards using third-party monitoring firms. Although we have an
active program to provide training for our third-party suppliers and monitor their compliance with these standards, we do not
control the suppliers or their practices. Any failure of our third-party suppliers to comply with our ethical sourcing standards
or labor or other local laws in the country of manufacture, or the divergence of a third-party supplier’s labor practices from
those generally accepted as ethical in the United States, could disrupt the shipment of merchandise to our stores, force us to
locate alternative manufacturing sources, reduce demand for our merchandise, damage our reputation and/or expose us to
potential liability for their wrongdoings. Any of these events could have a material adverse effect on our reputation,
business, financial condition and results of operations.
We rely on third parties to provide services in connection with certain aspects of our business, and any failure by these
third parties to perform their obligations could have an adverse effect on our business, financial condition and results of
operations.
We have entered into agreements with third parties that include, but are not limited to, logistics services, information
technology systems (including hosting our website), servicing certain customer calls, software development and support,
catalog production, select marketing services, distribution and employee benefits servicing. Services provided by third-party
suppliers could be interrupted as a result of many factors, such as acts of nature or contract disputes. Any failure by a third
party to provide services for which we have contracted on a timely basis or within expected service level and performance
standards could result in a disruption of our business and have an adverse effect on our business, financial condition and
results of operations.
Increases in the demand for, or the price of, cotton and other raw materials used to manufacture our merchandise or
other fluctuations in sourcing or distribution costs could increase our costs and negatively impact our profitability.
We believe that we have strong supplier relationships, and we work continuously with our suppliers to manage cost
increases. Our overall profitability depends, in part, on the success of our ability to mitigate rising costs or shortages of raw
materials used to manufacture our merchandise. Cotton and other raw materials used to manufacture our merchandise are
subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for
fabrics, weather, government regulations, economic climate and other unpredictable factors. In addition, our sourcing costs
may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations or other
unpredictable factors. The cost of labor at many of our third-party suppliers has been increasing in recent years, and we
believe it is unlikely that such cost pressures will abate.
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Most of our merchandise is shipped from our suppliers by ocean vessel. If a disruption occurs in the operation of ports
through which our merchandise is imported, we may incur increased costs related to air freight or use of alternative ports.
Shipping by air is significantly more expensive than shipping by ocean and our margins and profitability could be reduced.
Shipping to alternative ports could also lead to delays in receipt of our merchandise. We rely on third-party shipping
companies to deliver our merchandise to us. Failures by these shipping companies to deliver our merchandise to us or lack of
capacity in the shipping industry could lead to delays in receipt of our merchandise or increased expense in the delivery of
our merchandise. Any of these developments could have a material adverse effect on our business, financial condition and
results of operations.
Reductions in the volume of mall traffic or the closing of shopping malls as a result of changing economic conditions or
demographic patterns could significantly reduce our sales and leave us with unsold inventory.
A significant portion of our stores are currently located in shopping malls. Sales at stores located in malls are highly
dependent on the traffic in those malls and the ability of developers to generate traffic near our stores. In recent years, there
has been increased purchasing of merchandise online. This has adversely affected mall traffic. A continuation of this trend
could adversely impact the sales generated by our mall stores, which could have a material adverse effect on our business,
financial condition and results of operations.
Unseasonal or severe weather conditions may adversely affect our merchandise sales.
Our business is adversely affected by unseasonal weather conditions. Sales of certain seasonal apparel items are
dependent in part on the weather and may decline when weather conditions do not favor the use of this apparel. Severe
weather events may also impact our ability to supply our retail stores, deliver orders to customers on schedule and staff our
retail stores and distribution and customer contact center, which could have a material adverse effect on our business,
financial condition and results of operations.
Material damage to, or interruptions in, our information systems could have a material adverse effect on our business,
financial condition and results of operations, and we may be exposed to risks and costs associated with protecting the
integrity and security of our customers’ information.
We depend largely upon our information technology systems in the conduct of all aspects of our operations, including
to operate our website, process transactions, respond to customer inquiries, manage inventory, purchase, sell and ship goods
on a timely basis and maintain cost-efficient operations. Such systems are subject to damage or interruption from power
outages, computer and telecommunications failures, computer viruses, security breaches and natural disasters. Damage or
interruption to our information technology systems may require a significant investment to fix or replace the affected system,
and we may suffer interruptions in our operations in the interim. In addition, costs and potential problems and interruptions
associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of
existing systems could also disrupt or reduce the efficiency of our operations.
Additionally, a significant number of customer purchases across our omnichannel platform are made using credit cards,
and a significant number of our customer orders are placed through our website. We process, store and transmit large
amounts of data, including personal information, for our customers. From time to time, we may implement strategic
initiatives related to elevating our customer service experience, such as customer membership programs, where we collect
and maintain increasing amounts of customer data. We also handle and transmit sensitive information about our suppliers
and workforce, including social security numbers, bank account information and health and medical information. We depend
in part throughout our operations on the secure transmission of confidential information over public networks. In addition,
security breaches can also occur as a result of non-technical issues, including vandalism, catastrophic events and human
error. Our operations may further be impacted by security breaches that occur at third-party suppliers. Although we maintain
cyber-security insurance, there can be no assurances that our insurance coverage will be sufficient, or that insurance proceeds
will be paid to us in a timely manner.
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States and the federal government have enacted additional laws and regulations to protect consumers against identity
theft, including laws governing treatment of personally identifiable information. As the data privacy and security laws and
regulations evolve, we may be subject to more extensive requirements to protect the customer information that we process in
connection with the purchases of our merchandise. There can be no assurances that we will be able to operate our operations
in accordance with Payment Card Industry Data Security Standards (PCI DSS), other industry recommended practices or
applicable laws and regulations or any future security standards or regulations, or that meeting those standards will in fact
prevent a data breach. These laws have increased the costs of doing business and, if we fail to implement appropriate
safeguards or we fail to detect and provide prompt notice of unauthorized access as required by some of these laws, we could
be subject to potential claims for damages and other remedies.
If a third party is able to circumvent our security measures, they could destroy or steal valuable information or disrupt
our operations. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and often
are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. Any security breach could expose us to risks of data loss, fines, litigation and liability and could
seriously disrupt our operations and harm our reputation. In addition, we could be required to expend significant resources to
change our business practices or modify our service offerings in connection with the protection of personally identifiable
information, which could have a material adverse effect on our business, financial condition and results of operations.
The impact of privacy breaches at service providers could also severely damage our business and reputation.
We rely heavily on technology services provided by third parties for the successful operation of our business, including
electronic messaging, digital marketing efforts and the collection and retention of customer data and associate information.
We also rely on third parties to process credit card transactions, perform ecommerce and social media activities and retain
data relating to our financial position and results of operations, strategic initiatives and other important information. The
facilities and systems of our third-party service providers may be vulnerable to cyber-security breaches, acts of vandalism,
computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any actual or perceived
misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information by our third-
party service providers could severely damage our reputation and our relationship with our customers, associates and
investors as well as expose us to risks of litigation, liability or other penalties, all of which could have a material adverse
effect on our business, financial condition and results of operations.
The protection of our data, which includes both potential cyber-attacks as well as any potential failure to comply with data
protection laws and regulations, could subject us to sanctions and damages and could harm our reputation and business.
We collect and process personal data as part of our business. As a result, we are subject to U.S. data protection laws
and regulations at both the federal and state levels. The legislative and regulatory landscape for data protection continues to
evolve, and in recent years there has been an increasing focus on privacy and data security issues. The strategic use of our
customer data base, including interactions with our customers, marketing efforts and analysis of customer behavior, rely on
the collection, retention and use of customer data and may be affected by these laws and regulations and their interpretation
and enforcement. Alleged violations of laws, regulations or contractual obligations relating to privacy and data protection,
and any relevant claims, may expose us to potential liability, require us to expend significant resources in responding to and
defending such allegations and claims, and result in negative publicity and a loss of confidence in us by our customers, all of
which could have an adverse effect on our business, financial condition and results of operations. Further, it is unclear how
the laws and regulations relating to the collection, process and use of personal data will further develop in the United States,
and to what extent this may affect our operations in the future. Any failure to comply with data protection laws and
regulations, or future changes required to the way in which we use personal data could have a material adverse effect on our
business, financial condition and results of operations.
In addition, information security threats, particularly cyber security threats, could pose risks to the security of our
systems and networks, and the confidentiality, availability and integrity of our data. As techniques used in cyber-attacks
evolve, we may not be able to timely detect threats or anticipate and implement adequate security measures. Our information
technology systems and databases have been and will continue to be subject to computer viruses, malware attacks,
unauthorized user attempts, phishing and denial of service and other cyber-attacks. Any potential breach of our information
technology systems and databases could have a material adverse effect on our business, financial condition and results of
operations.
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Increased usage of social media poses reputational risks.
As use of social media becomes more prevalent, our susceptibility to risks related to social media increases. The
immediacy of social media precludes us from having real-time control over postings made regarding us via social media,
whether matters of fact or opinion. Information distributed via social media could result in immediate unfavorable publicity
for which we, like our competitors, do not have the ability to reverse. This unfavorable publicity could result in damage to
our reputation and therefore have a material adverse effect on our business, financial condition and results of operations.
We depend on our executive management and key personnel and may not be able to retain or replace these employees or
recruit additional qualified personnel, which could harm our business.
The loss of the services of any of our senior executives could have a material adverse effect on our business, financial
condition and results of operations, as we may not be able to find suitable management personnel to replace departing
executives on a timely basis. In addition, we believe that our future success will depend greatly on our continued ability to
attract and retain highly skilled and qualified personnel. There is a high level of competition for personnel in the retail
industry. Our inability to meet our staffing requirements in the future could impair our ability to increase revenue and could
otherwise harm our business.
Our failure to find store employees that reflect our brand image and embody our culture could adversely affect our
business, financial condition and results of operations.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of store employees,
including store managers, who understand and appreciate our culture and customers, and are able to adequately and
effectively represent this culture and establish credibility with our customers. The store employee turnover rate in the retail
industry is generally high. Labor shortages and excessive store employee turnover will result in higher employee costs
associated with finding, hiring and training new store employees. If we are unable to hire and retain store personnel capable
of consistently providing a high level of customer service, our ability to open new stores and operate existing stores may be
impaired and our performance and brand image may be negatively impacted. Competition for such qualified individuals and
wage increases by other retailers could require us to pay higher wages to attract a sufficient number of employees. We are
also dependent upon temporary personnel to adequately staff our stores and distribution and customer contact center, with
heightened dependence during busy periods such as the holiday season. There can be no assurances that there will be
sufficient sources of suitable temporary personnel to meet our demand. Any such failure to meet our staffing needs or any
material increases in employee turnover rates could have a material adverse effect on our business, financial condition and
results of operations.
Labor organizing and other activities could negatively impact us.
Currently, none of our employees are represented by a union. However, our employees have the right at any time to
form or affiliate with a union. Such organizing activities could lead to work slowdowns or stoppages, which could lead to
disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business,
financial condition and results of operations.
Increases in labor costs, including wages, could adversely affect our business, financial condition and results of
operations.
The labor costs associated with our retail stores and our distribution and customer contact center are subject to many
external factors, including unemployment levels, prevailing wage rates, minimum wage laws, potential collective bargaining
arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other
workplace regulation. From time to time, legislative proposals are made to increase the federal minimum wage in the United
States, as well as the minimum wage in a number of individual states and municipalities, and to reform entitlement programs,
such as health insurance and paid leave programs. As minimum wage rates increase or related laws and regulations change,
our labor costs may increase. Any increase in the cost of our labor could have an adverse effect on our business, financial
condition and results of operations or if we fail to pay such higher wages we could suffer increased employee turnover.
Increases in labor costs could force us to increase prices, which could adversely impact our sales. If competitive pressures or
other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could
have a material adverse effect on our business, financial condition and results of operations.
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We could be materially and adversely affected if our distribution and customer contact center is damaged or closed or if its
operations are diminished.dd
Our distribution and customer contact center is located in Tilton, New Hampshire. The distribution center manages the
receipt, storage, sorting, packing and distribution of merchandise to our stores and to our direct customers. Independent
third-party transportation companies then deliver merchandise from the distribution center to our stores or direct to our
customers. The customer contact center handles all customer interactions, other than those in retail stores, including phone
sales orders and service calls, emails and internet contacts. Any significant interruption in the operations of our Tilton
distribution and customer contact center, our third-party distribution, fulfillment or transportation providers, for any reason,
including natural disasters, accidents, inclement weather, technology system failures, work stoppages, slowdowns or strikes
or other unforeseen events and circumstances, such as the novel coronavirus outbreak, could delay or impair our ability to
receive orders and to distribute merchandise to our stores and/or our customers. This could lead to inventory issues,
increased costs, lower sales and a loss of loyalty to our brand, among other things, which could adversely affect our business,
financial condition and results of operations.
Inventory shrinkage could have a material adverse effect on our business, financial condition and results of operations.
We are subject to the risk of inventory loss and theft. Although our inventory shrinkage rates have not been material,
or fluctuated significantly in recent years, there can be no assurances that actual rates of inventory loss and theft in the future
will be within our estimates or that the measures we are taking will effectively reduce inventory shrinkage. Although some
level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory
shrinkage or incur increased security costs to combat inventory theft, it could have a material adverse effect on our business,
financial condition and results of operations.
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our trademarks and service marks are important to our success and our competitive position due to
their name recognition with our customers. We devote substantial resources to the establishment and protection of our
trademarks and service marks. We are not aware of any valid claims of infringement or challenges to our right to use any of
our trademarks and service marks. Nevertheless, there can be no assurances that the actions we have taken to establish and
protect our trademarks and service marks will be adequate to prevent imitation of our merchandise by others or to prevent
others from seeking to block sales of our merchandise as a violation of the trademarks, service marks and intellectual
property of others. Also, others may assert rights in, or ownership of, our trademarks and other intellectual property and we
may not be able to successfully resolve these types of conflicts to our satisfaction.
We may be subject to liability if we infringe upon the intellectual property rights of third parties.
Third parties may sue us for alleged infringement of their proprietary rights. The party claiming infringement might
have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote
significant management resources to defend against such litigation. If the party claiming infringement were to prevail, we
could be forced to discontinue the use of the related trademark or design and/or pay significant damages or enter into
expensive royalty or licensing arrangements with the prevailing party, assuming these royalty or licensing arrangements are
available at all on an economically feasible basis, which they may not be. We could also be required to pay substantial
damages. Such infringement claims could harm our brand. In addition, any payments we are required to make and any
injunction we are required to comply with as a result of such infringement could have a material adverse effect on our
business, financial condition and results of operations.
We are subject to laws and regulations in the jurisdictions in which we operate and changes to the regulatory environment
in which we operate or failure to comply with applicable laws and regulations could adversely affect our business,
financial condition and results of operations.
Our business requires compliance with many laws and regulations in the United States and abroad, including, without
limitation, labor and employment, tax, environmental, privacy, anti-bribery laws and regulations, trade laws and customs,
truth-in-advertising, ecommerce, consumer protection and zoning and occupancy laws and ordinances that regulate retailers
generally and/or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse
facilities. In addition, in the future, there may be new legal or regulatory requirements or more stringent interpretations of
applicable requirements, which could increase the complexity of the regulatory environment in which we operate and the
related cost of compliance. While it is our policy and practice to comply with all legal and regulatory requirements and our
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procedures and internal controls are designed to ensure such compliance, failure to achieve compliance could subject us to
lawsuits and other proceedings, and could also lead to damage awards, fines and penalties. Litigation matters may include,
among other things, government and agency investigations, employment, commercial, intellectual property, tort, advertising
and stockholder claims. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies.
The outcome of some of these legal proceedings, audits and other contingencies could require us to take, or refrain from
taking, actions which could negatively affect our operations or require us to pay substantial amounts of money adversely
affecting our business, financial condition and results of operations. Even a claim of an alleged violation of applicable laws
or regulations could negatively affect our reputation. Additionally, defending against these lawsuits and proceedings may be
necessary, which could result in substantial costs and diversion of management’s attention and resources, causing a material
adverse effect on our business, financial condition and results of operations. Any pending or future legal proceedings and
audits could have a material adverse effect on our business, financial condition and results of operations.
Changes in tax laws and regulations or in our operations may impact our effective tax rate and may adversely affect our
business, financial condition and operating results.
Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that
we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective
tax rate, which could adversely affect our business, financial condition and operating results. Changes in tax laws, such as
the U.S. Tax Cuts and Jobs Act, may result in uncertainty as to how tax laws will be applied to us and require us to perform
computations that were not required previously.
We source the majority of our merchandise from manufacturers located outside of the U.S., including a significant
amount from Asia. Developments in tax policy or trade relations, such as the disallowance of tax deductions for imported
merchandise or the imposition of tariffs on imported products, could have a material adverse effect on our business,
results of operations and liquidity. War, terrorism, civil unrest or other violence may negatively impact availability of
merchandise and/or otherwise adversely impact our business.
In the event of war, terrorism, civil unrest or other violence, our ability to obtain merchandise available for sale in our
—
stores or on our websites may be negatively impacted. A substantial portion of our merchandise is imported from other
countries, see “—Interruptions in our foreign sourcing operations and the relationships with our suppliers and agents could
disrupt production, shipment or receipt of our merchandise, which would result in lost sales and could increase our costs.” If
commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have
difficulty shipping merchandise to our distribution and customer contact center and stores, as well as fulfilling catalog and
website orders. In addition, our stores are located in public areas where large numbers of people typically gather. Terrorist
attacks, threats of terrorist attacks or civil unrest involving public areas could cause people not to visit areas where our stores
are located. Other types of violence in malls or in other public areas could lead to lower customer traffic in areas in which we
operate stores. If any of these events were to occur, we may be required to suspend operations in some or all of our stores,
which could have a material adverse effect on our business, financial condition and results of operations.
The terms of our term loan credit agreement and asset-based revolving credit facility restrict our operational and financial
flexibility, which could adversely affect our ability to respond to changes in our business and to manage our operations.
Our 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, the various lenders party thereto and Jefferies
Finance LLC as the administrative agent, as amended on May 27, 2016 by Amendment No. 1 thereto (the “Term Loan
Agreement”) and our ABL credit agreement, dated as of May 8, 2015, by and among Jill Holdings, Inc. (as successor to Jill
Holdings LLC), Jill Acquisition LLC, certain subsidiaries from time to time party thereto, the lenders party thereto and CIT
Finance LLC as the administrative agent and collateral agent, as amended on May 27, 2016 by Amendment No. 1 thereto, as
further amended on August 22, 2018 by Amendment No. 2 to reduce the frequency of borrowing base certificate submissions
as long as certain conditions are maintained and as further amended on June 12, 2019 by Amendment No. 3 to extend the
term date to May 8, 2023 (the “ABL Facility” and, together with the Term Loan, the “Credit Agreements”), each contain, and
any additional debt financing we may incur would likely contain, covenants that restrict our operations, including limitations
on our ability to grant liens, incur additional debt, pay dividends, cause our subsidiaries to pay dividends to us, make certain
investments and engage in certain merger, consolidation or asset sale transactions. A failure by us to comply with the
covenants contained in our Credit Agreements could result in an event of default under each respective Credit Agreement,
which could adversely affect our ability to respond to changes in our business and manage our operations. Upon the
occurrence of an event of default, the lenders could elect to declare all amounts outstanding to be immediately due and
payable and exercise other remedies as set forth in our Credit Agreements. If the indebtedness under our Credit Agreements
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were to be accelerated, our future financial condition could be materially adversely affected. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities.”
Changes to estimates related to our property, fixtures and equipment or operating results that are lower than our current
estimates at certain store locations may cause us to incur impairment charges on certain long-lived assets, which may
adversely affect our results of operations.
In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates
and projections with regard to individual store operations, as well as our overall performance, in connection with our
impairment analyses for long-lived assets. When impairment triggers are deemed to exist for any location, the estimated
undiscounted future cash flows are compared to its carrying value. If the carrying value exceeds the undiscounted cash
flows, an impairment charge equal to the difference between the carrying value and the fair value is recorded. The
projections of future cash flows used in these analyses require the use of judgment and a number of estimates and projections
of future operating results. If actual results differ from our estimates, additional charges for asset impairments may be
required in the future. If future impairment charges are significant, our reported operating results would be adversely
affected.
Goodwill and identifiable intangible assets represent a significant portion of our total assets and any impairment of these
assets could adversely affect our results of operations.
Our goodwill and indefinite-lived intangible assets, which consist of goodwill from the controlling interest in the
company held by JJill Holdings, Inc. and JJill Topco Holdings, LP, and our trade name, represented a significant portion of
our total assets as of February 1, 2020. Accounting rules require the evaluation of our goodwill and indefinite-lived
intangible assets for impairment at least annually, or more frequently when events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. Such indicators are based on market conditions and the operational
performance of our business.
To test goodwill for impairment, we may initially use 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 our management
concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting
unit’s carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any
impairment. We also have the option to bypass the qualitative assessment and proceed directly to the quantitative
assessment. The quantitative assessment 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 model, which involves significant estimates and assumptions, including preparation of revenue and profitability
growth forecasts, selection of a discount rate, and selection of a terminal year multiple. The estimates of fair value of
reporting units are based on the best information available as of the date of the assessment. 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.
a
To test our other indefinite-lived assets for impairment, which consists of our trade name, we determine 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. If in conducting an
impairment evaluation we determine that the carrying value of an asset exceeded its fair value, we would be required to
record a non-cash impairment charge for the difference between the carrying value and the fair value of the asset. If a
significant amount of our goodwill and identifiable intangible assets were deemed to be impaired, our business, financial
condition and results of operations could be materially adversely affected.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to
complex accounting matters could significantly affect our financial results or financial condition.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and
interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue
recognition, business combinations, impairment of goodwill, indefinite-lived intangible assets and long-lived assets,
inventory and equity-based compensation, are highly complex and involve many subjective assumptions, estimates and
judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could
significantly change our reported or expected financial performance or financial condition.
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Risks Related to Ownership of Our Common Stock
We are an “emerging growth company,” and are taking advantage of reduced disclosure requirements applicable to
“emerging growth companies,” which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act,
and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions
from various reporting requirements applicable to other public companies but not to “emerging growth companies.” These
exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-
Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common
stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a
result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our
stock price may be more volatile.
We will continue to incur significant costs and devote substantial management time as a result of operating as a public
company, particularly after we are no longer an “emerging growth company.”
As a public company, we will continue to incur significant legal, accounting and other expenses. For example, we are
required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and
Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange
Commission, and the NYSE, our stock exchange, including the establishment and maintenance of effective disclosure and
financial controls and changes in corporate governance practices. Compliance with these requirements will result in
significant legal and financial compliance costs and will make some activities more time consuming and costly. In addition,
our management and other personnel will need to divert attention from operational and other business matters to devote
substantial time to these public company requirements.
However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to
take advantage of these reporting exemptions until we are no longer an “emerging growth company.”
Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such
time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or
revised accounting standards and, therefore, while we are an “emerging growth company” we will not be subject to new or
revised accounting standards at the same time that they become applicable to other public companies that are not “emerging
growth companies”. Accordingly, we will incur additional costs in connections with complying with the accounting standards
applicable to public companies at such time or times as they become applicable to us.
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to
comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large
accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
If we are unable to design, implement and maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act, it could have a material adverse effect on our business and stock price.
As a public company, we have significant requirements for enhanced financial reporting and internal controls. The
process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react
to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a
system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to
maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting
obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our operating
results. In addition, we are required, pursuant to Section 404A of the Sarbanes-Oxley Act, to furnish a report by management
on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure
25
of any material weaknesses identified by our management in our internal control over financial reporting. Testing and
maintaining internal controls may divert our management’s attention from other matters that are important to our business.
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act.
A material weakness was identified in our internal control over financial reporting which, if not remediated, could
adversely affect our business, reputation and stock price.
Management has identified a material weakness in our internal control over financial reporting as a result of which
management has concluded that our internal control over financial reporting and our disclosure controls and procedures were
not effective as of February 1, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. The Company did not appropriately design and
maintain controls related to the accounting for goodwill and indefinite-lived intangible asset impairments. Specifically, the
Company did not design and maintain control activities over the review of the carrying value of reporting units or assets used
in the analysis. We have taken and are taking certain remedial steps to improve our internal control over financial reporting.
For further discussion of the material weakness identified and our remedial efforts, see Item 9A, Controls and Procedures.
If we are unable to successfully remediate our existing material weakness or any future material weaknesses or other
deficiencies in our internal control over financial reporting, the accuracy and timing of our financial reporting may be
adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness, and our ability to
complete acquisitions may be adversely affected; we may be unable to maintain compliance with applicable securities laws,
The NYSE listing requirements, and the covenants under our debt instruments regarding the timely filing of periodic reports;
we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; we
may suffer defaults, accelerations, or cross-accelerations under our debt instruments to the extent we are unable to obtain
waivers from the required creditors or counterparties or are unable to cure any breaches; and our stock price may decline.
We are a “controlled company” within the meaning of the NYSE rules and, as a result, qualify for and intend to rely on
exemptions from certain corporate governance requirements.
TowerBrook Capital Partners LP controls a majority of the voting power of our outstanding voting stock, and as a
result we are a controlled company within the meaning of the NYSE corporate governance standards. Under the NYSE rules,
a company of which more than 50% of the voting power is held by another person or group of persons acting together is a
controlled company and may elect not to comply with certain corporate governance requirements, including the requirements
that:
•
•
•
•
a majority of the board of directors consist of independent directors;
the nominating and corporate governance committee be composed entirely of independent directors with a
written charter addressing the committee’s purpose and responsibilities;
the compensation committee be composed entirely of independent directors with a written charter addressing the
committee’s purpose and responsibilities; and
there be an annual performance evaluation of the nominating and corporate governance and compensation
committees.
These requirements do not apply to us as long as we remain a controlled company. Accordingly, you may not have the
same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the
NYSE.
We continue to be controlled by TowerBrook, and TowerBrook’s interests may conflict with our interests and the interests
of other stockholders.
TowerBrook owns approximately 60% of our common stock. As a result, TowerBrook will have effective control over
the outcome of votes on all matters requiring approval by our stockholders, including entering into significant corporate
transactions such as mergers, tender offers and the sale of all or substantially all of our assets and issuance of additional debt
or equity. In addition, as long as TowerBrook beneficially owns at least 50% of our common stock, the Stockholders
Agreement provides TowerBrook with veto rights with respect to certain material matters. The interests of TowerBrook and
its affiliates could conflict with or differ from our interests or the interests of our other stockholders. For example, the
concentration of ownership held by TowerBrook could delay, defer or prevent a change of control of our company or impede
a merger, takeover or other business combination which may otherwise be favorable for us. Additionally, TowerBrook is in
26
the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that
compete, directly or indirectly with us. TowerBrook may also pursue acquisition opportunities that may be complementary
to our business, and as a result, those acquisition opportunities may not be available to us. So long as TowerBrook continues
to directly or indirectly own a significant amount of our equity, even if such amount is less than 50%, TowerBrook will
continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.
Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate
opportunities.
Our certificate of incorporation provides for the allocation of certain corporate opportunities between us and
TowerBrook. Under these provisions, neither TowerBrook, its portfolio companies, funds or other affiliates, nor any of their
officers, directors, agents, stockholders, members or partners have any duty to refrain from engaging, directly or indirectly, in
the same business activities, similar business activities or lines of business in which we operate. For instance, a director of
our company who also serves as a director, officer, partner or employee of TowerBrook or any of its portfolio companies,
funds or other affiliates may pursue certain acquisitions or other opportunities that may be complementary to our business
and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could
have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate
opportunities are allocated by TowerBrook to itself or its portfolio companies, funds or other affiliates instead of to us.
Provisions in our organizational documents and Delaware law may discourage our acquisition by a third party.
Our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval.
If the board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition,
some provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control
of us, even if the change of control would be beneficial to our stockholders.
Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) affects the ability of an “interested
stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder
becomes an “interested stockholder.” We have elected in our certificate of incorporation not to be subject to Section 203 of
the DGCL. Nevertheless, our certificate of incorporation contains provisions that have the same effect as Section 203 of the
DGCL, except that it provides that affiliates of TowerBrook and their transferees will not be deemed to be “interested
stockholders,” regardless of the percentage of our voting stock owned by them, and will therefore not be subject to such
restrictions. These charter provisions may limit the ability of third parties to acquire control of our company.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from
our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely
dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The
agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or
other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Credit Facilities.” The deterioration of the earnings from, or other available assets of, our
subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.
Future sales of our common stock in the public market, or the perception in the public market that such sales may occur,
could reduce our stock price.
We have 44,288,127 outstanding shares of common stock as of February 1, 2020. The number of outstanding shares of
common stock includes 31,222,347 shares, including shares controlled by TowerBrook, that are “restricted securities,” as
defined under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and eligible for sale in the
public market subject to the requirements of Rule 144. Sales of significant amounts of stock in the public market could
adversely affect prevailing market prices of our common stock.
27
There can be no assurances that a viable public market for our common stock will be maintained.dd
An active, liquid and orderly trading market for our common stock may not be maintained. Active, liquid and orderly
trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders.
We cannot predict the extent to which investor interest in our common stock will lead to the maintenance of an active trading
market on the NYSE or otherwise or how liquid that market might continue to be. If an active public market for our common
stock is not sustained, it may be difficult for you to sell your shares at a price that is attractive to you or at all.
Our stock price has been and may continue to be volatile.
The market price of our common stock could vary significantly as a result of a number of factors, some of which are
beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of
your investment in our common stock. The following factors could affect our stock price:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our operating and financial performance;
quarterly variations in the rate of growth (if any) of our financial indicators, such as net income per share, net
income and revenues;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
strategic actions by our competitors;
changes in operating performance and the stock market valuations of other companies;
announcements related to litigation;
our failure to meet revenue or earnings estimates made by research analysts or other investors;
changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by
equity research analysts;
speculation in the press or investment community;
sales of our common stock by us or our stockholders, or the perception that such sales may occur;
changes in accounting principles, policies, guidance, interpretations or standards;
additions or departures of key management personnel;
actions by our stockholders;
general market conditions;
domestic and international economic, legal and regulatory factors unrelated to our performance; and
the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the
future.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common
stock. Securities class action litigation has often been instituted against companies following periods of volatility in the
overall market and in the market price of a company’s securities. In Fiscal Year 2017, we, certain of our officers and
directors, and the underwriters of our initial public offering were named as defendants in securities class actions purportedly
brought on behalf of purchasers of our common stock. Any future securities class actions, if instituted against us, could result
in substantial costs, divert our management’s attention and resources and harm our business, financial condition and results
of operations.
If we cannot regain compliance with the NYSE’s continuing listing requirements and rules, the NYSE may delist
our common stock, which could negatively affect our company, the price of our common stock and your ability to sell our
common stock.
On March 6, 2020, we received notice from the NYSE informing us that we were no longer in compliance with the
NYSE continued listing standards set forth in Section 802.01B of the NYSE’s Listed Company Manual due to the fact that
our average global market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same
time, our shareholders’ equity was less than $50 million.
28
In accordance with the NYSE listing requirements, we have submitted a plan that demonstrates how we expect to
return to compliance with Section 802.01B. We received notification on June 5, 2020 that our submitted plan was accepted
by the NYSE. There can be no assurances that the Company will maintain compliance with the plan. If we are unable to
comply with the plan or we are unable to meet the continued listing standards by November 15, 2021, we will be subject to
the prompt initiation of NYSE suspension and delisting procedures.
On March 24, 2020, we received notice from the NYSE informing us that we were no longer in compliance with the
NYSE continued listing standards set forth in Section 802.01C of the NYSE’s Listed Company Manual due to the fact that
our average closing share price over a consecutive 30 trading-day period was less than $1. The Company has until December
3, 2020 to regain compliance with the minimum share price requirement.
If we are unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to delisting. A
delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of
our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively
impact our ability to raise equity financing; decreasing the amount of news and analyst coverage of us; and limiting our
ability to issue additional securities or obtain additional financing in the future. In addition, delisting from the NYSE may
negatively impact our reputation and, consequently, our business.
If securities or industry analysts do not publish research or reports about our business or publish negative reports, our
stock price could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities
analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading
volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock or if our
operating results do not meet their expectations, our stock price could decline.
The issuance by us of additional shares of common stock or convertible securities may dilute your ownership of us and
could adversely affect our stock price.
We have filed registration statements with the SEC on Form S-8 providing for the registration of 6,701,818 shares of
our common stock issued or reserved for issuance to our employees. Subject to the satisfaction of vesting conditions, shares
registered under the registration statements on Form S-8 will be available for resale immediately in the public market without
restriction. From time to time in the future, we may also issue additional shares of our common stock or securities
convertible into common stock pursuant to a variety of transactions, including acquisitions. The issuance by us of additional
shares of our common stock or securities convertible into our common stock would dilute your ownership of us and the sale
of a significant amount of such shares in the public market could adversely affect prevailing market prices of our common
stock.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or
series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our
common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more
classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we
might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of
specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation
preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
Our designation of the Delaware Court of Chancery as the exclusive forum for certain types of stockholder legal
proceedings could limit our stockholders’ ability to obtain a more favorable forum.
Our certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive
forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting
a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (iv) any action
asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of
29
Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity
purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented
to, the provisions of our certificate of incorporation described in the preceding sentence. This choice of forum provision may
limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers, employees or agents, which may discourage such lawsuits against us and such persons. See “Description of Capital
Stock—Forum Selection.” Alternatively, if a court were to find these provisions of our certificate of incorporation
inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur
additional costs that we do not currently anticipate associated with resolving such matters in other jurisdictions, which could
adversely affect our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Quincy, Massachusetts. Our principal executive offices are leased under a lease agreement
expiring in December 2026, with options to renew thereafter. Our 520,000 square foot distribution and customer contact
center, located in Tilton, New Hampshire, supports both our retail and direct channels and is leased under a lease agreement
expiring in September 2030, with options to renew thereafter. We consider these properties to be in good condition and
believe that our facilities are adequate for operations and provide sufficient capacity to meet our anticipated future
requirements.
As of February 1, 2020, we operated 287 stores in 42 states. Of these stores, approximately half are located in lifestyle
centers and half in premium malls. The average size of our stores is approximately 3,700 square feet. All of our retail stores
are leased from third parties and new stores historically have had terms of ten years. The weighted-average remaining lease
term is 7.2 years. A portion of our leases have options to renew for periods up to five years. Generally, store leases contain
standard provisions concerning the payment of rent, events of default and the rights and obligations of each party. Rent due
under the leases is generally comprised of annual base rent plus a contingent rent payment based on the store’s sales in excess
of a specified threshold. Some of the leases also contain early termination options, which can be exercised by us or the
landlord under certain conditions. The leases also generally require us to pay real estate taxes, insurance and certain common
area costs. We renegotiate with landlords to obtain more favorable terms as opportunities arise.
The current terms of our leases expire as follows:
Fiscal Years Lease Terms Expire
2020 – 2022
2023 – 2025
2026 – 2028
2029 and later
Number of Stores
79
95
73
40
30
The table below sets forth the number of retail stores by state that we operated as of February 1, 2020.
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Number
of Stores
6
6
3
29
7
9
1
13
10
1
15
2
3
2
State
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
NNebraska
NNevada
NNew Hampshire
NNew Jersey
NNew Mexico
Number
of Stores
2
5
1
7
13
10
8
2
5
2
2
1
14
1
State
NNew York
NNorth Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Number
of Stores
12
9
10
3
5
13
1
5
9
18
2
11
5
4
Item 3. Legal Proceedings
We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse
effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters
when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Item 4. Mine Safety Disclosures
Not applicable.
31
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock began trading publicly on the New York Stock Exchange (“NYSE”) under the symbol “JILL” on
March 9, 2017. Prior to that time, there was no public market for our common stock.
The following table sets forth the high and low sales prices of our common stock as reported on the NYSE for the
Fiscal Year 2019 and 2018 quarters ended, respectively:
First
Second
Third
Fourth
Holders of Record
Fiscal Year 2019
High
Low
Fiscal Year 2018
High
Low
$
$
$
$
6.31
5.49
2.58
2.12
$
$
$
$
4.53
1.24
1.46
0.92
$
$
$
$
9.10
9.62
8.90
6.56
$
$
$
$
4.17
4.91
4.84
4.54
As of February 1, 2020, there were approximately 13 holders of record of our common stock. This number does not
include beneficial owners whose shares are held of record by banks, brokers and other financial institutions.
Dividends
Since its initial public offering, the Company had not declared or paid any cash dividend as of February 2, 2019. On
April 1, 2019, the Company paid a special cash dividend of approximately $50.2 million to the shareholders of J.Jill, Inc.
On June 6, 2016, Jill Intermediate LLC, our predecessor entity prior to our conversion to a Delaware corporation, paid
a $70.0 million dividend to the partners of JJill Topco Holdings.
The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend
upon such factors as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial
condition, restrictions in our debt agreements, including our Term Loan Agreement and ABL Facility, and any other factors
deemed relevant by our board of directors. As a holding company, our ability to pay dividends depends on our receipt of cash
dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of restrictions on
their ability to pay dividends to us under our Term Loan Agreement, our ABL Facility and under future indebtedness that we
or they may incur. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources—Credit Facilities.”
32
Performance Graph
The following graph shows a comparison from March 9, 2017 (the date our common stock commenced trading on the
NYSE) through February 1, 2020 of the cumulative total return for our common stock, the S&P 500 Index and an S&P Retail
Index. The graph assumes $100 was invested in each of the Company’s common stock, the S&P 500 Index and the S&P
Retail Index as of the market close on March 9, 2017. Such returns are based on historical results and are not intended to
suggest future performance.
Comparison Cumulative Total Return
160
140
120
100
80
60
40
20
-
3/9/2017
4/29/2017
7/29/2017
10/29/2017
2/4/2018
5/5/2018
8/4/2018
11/3/2018
2/2/2019
5/4/2019
8/3/2019
11/2/2019
2/1/2020
J.Jill, Inc.
S&P 500
SPDR S&P Retail
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding our equity compensation plans is set forth in Item 12, Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matters.
33
Item 6. Selected Financial Data
The following tables present our selected consolidated financial and other data as of and for the periods indicated. As
more fully described below, the periods are presented as “Predecessor” or “Successor”, depending on whether they relate to
periods preceding or periods succeeding the acquisition of all of our outstanding equity interests on May 8, 2015. The
selected consolidated statements of operations data for the fiscal years ended February 1, 2020 (Successor), February 2, 2019
(Successor), February 3, 2018 (Successor) and the selected consolidated balance sheet data as of February 1, 2020
(Successor) and February 2, 2019 (Successor) are derived from our audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. We have derived the selected consolidated statements of operations data for
the fiscal years May 8, 2015 to January 30, 2016 (Successor), from February 1, 2015 to May 7, 2015 (Predecessor), and the
fiscal year ended January 30, 2016 (Successor) and the consolidated balance sheet data as of January 28, 2017 (Successor)
and January 30, 2016 (Successor) from our audited consolidated financial statements, which are not included in this Annual
Report on Form 10-K. Our historical audited results are not necessarily indicative of the results that should be expected in
any future period.
The Company's fiscal year ends on the Saturday, in January or February, nearest the last day of January, resulting in an
additional week of results every five or six years. All fiscal years for which financial information is set forth below contained
52 weeks, except for the fiscal year ended February 3, 2018, which contained 53 weeks.
On May 8, 2015, an investment vehicle of investment funds affiliated with TowerBrook Capital Partners L.P. acquired
all of our outstanding equity interests through the newly formed entities JJill Holdings, Inc. (“JJill Holdings”) and JJill Topco
Holdings, LP (“JJill Topco Holdings”). We refer to such acquisition and the related financing transactions as the
“Acquisition.” As a result of the Acquisition and related change in control, JJill Holdings applied purchase accounting as of
May 8, 2015. We elected to push down the effects of the Acquisition to our consolidated financial statements.
For purposes of presenting a comparison of our Fiscal Years 2019, 2018, 2017 and 2016 results, in addition to
standalone results for the 2015 Successor Period and 2015 Predecessor Period, we have also presented supplemental
unaudited pro forma consolidated financial and other data for the fiscal year ended January 30, 2016. The unaudited pro
forma consolidated statement of operations for the fiscal year ended January 30, 2016 has been derived from the historical
audited statements of operations included in our Fiscal Year 2017 Annual Report on Form 10-K, and represents the addition
of the 2015 Successor Period and the 2015 Predecessor Period and gives effect to certain transactions, as described in our
Fiscal Year 2017 Annual Report on Form 10-K. We believe that this presentation provides meaningful information about our
results of operations on a period to period basis. The unaudited pro forma consolidated statement of operations is presented
for illustrative purposes and does not purport to represent what the results of operations would actually have been if the
transactions had occurred as of the date indicated or what the results of operations would be for any future periods.
34
The selected historical financial data presented below does not purport to project our financial position or results of
operations for any future date or period and should be read together with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and our consolidated financial statements and related notes thereto included
elsewhere in this Annual Report on Form 10-K.
Successor
For the
Fiscal
Year
Ended
February
1, 2020
For the
Fiscal
Year
Ended
February
2, 2019
For the
Fiscal
Year
Ended
February
3, 2018
For the
Fiscal
Year
Ended
January
28, 2017
$
691,345
262,766
428,579
409,069
119,428
12,100
—
(112,018)
19,571
(131,589)
(3,022)
$ (128,567)
$
$
(2.94)
(2.94)
$
$
$
$
706,262
245,982
460,280
399,042
—
—
—
61,238
19,064
42,174
11,649
30,525
0.71
0.69
$
$
$
$
698,145
234,065
464,080
394,893
—
—
—
69,187
19,261
49,926
(5,439)
55,365
1.32
1.27
$
$
$
$
639,056
211,117
427,939
368,525
—
—
—
59,414
18,670
40,744
16,669
24,075
0.55
0.55
For the
Period
from
May 8,
2015 to
January
30, 2016
$
$
$
$
420,094
155,091
265,003
246,482
—
—
8,560
9,961
11,893
(1,932)
2,322
(4,254)
(0.10)
(0.10)
Predecessor
For the
Period
from
February
1,
2015 to
May 7, 2015
Pro Forma
(1)
For the
Fiscal Year
Ended
January
30, 2016
$
$
141,921
44,232
97,689
80,151
—
—
13,341
4,197
4,599
(402)
1,499
(1,901)
(0.04)
(0.04)
$
$
$
$
$
$
562,015
188,852
373,163
331,752
—
—
—
41,411
16,893
24,518
10,223
14,295
0.33
0.33
43,749,32
4
43,749,32
4
42,771,31
6
44,239,75
1
41,926,15
7
43,571,74
6
43,747,94
4
43,747,94
4
43,747,94
4
43,747,94
4
43,747,944
43,747,944
43,747,944
43,747,944
$
65,480
$
103,471
$
113,476
$
106,220
$
59,699
$
23,672
$
81,955
9.5%
14.7%%
16.3%
16.6%
14.2%
16.7%
14.6%%
(in thousands,
except share and
per share data)
Statements of Operations Data:
NNet sales
Costs of goods sold
Gross profit
Selling, general and administrative expense
s
Impairment of goodwill
Impairment of indefinite-lived intangible
assets
Acquisition-related expenses
Operating (loss) income
Interest expense, net
Income before provision for income taxes
Income tax (benefit) provision
NNet income (loss)
Net income per common share
attributable to common shareholders (1):
Basic
Diluted
Weighted average number of common
shares outstanding (1):
Basic
Diluted
Other Financial Data:
Adjusted EBITDA(2)
Adjusted EBITDA margin(3)
35
(in thousands)
Balance Sheet data (at end of period):
Cash
NNet operating assets and liabilities (4)
Total assets
Current and non-current portions of long-term
debt, net of discount and debt issuance cost
Total equity
February 1,
2020
February 2,
2019
February 3,
2018
January 28,
2017
January 30,
2016
$
$
21,527
(18,217)
633,988
233,999
$
66,204
8,772
626,988
240,263
$
$
25,978
3,769
597,557
241,680
13,468
6,414
568,305
267,239
27,505
3,477
582,032
239,978
38,565
213,795
179,316
122,864
166,571
(1) Refer to the Company’s “Management Discussion and Analysis of Financial Condition and Results of Operations
Supplemental Unaudited Pro Forma Consolidated Financial Information” derived from our audited consolidated
financial statements included in our Fiscal Year 2017 Annual Report on Form 10-K for information regarding our
presentation of the pro forma fiscal year ended January 30, 2016. Pro forma adjustments do not impact the
weighted average number of basic or diluted common shares outstanding during the period. Accordingly, basic
and diluted EPS for the pro forma fiscal year ended January 30, 2016 is impacted only as a result of pro forma
adjustments to net income attributable to common shareholders.
(2) Adjusted EBITDA represents net income plus interest expense, income tax (benefit) provision, depreciation and
amortization, the amortization of the step-up to fair value of merchandise inventory resulting from the application
of a purchase accounting adjustment related to the Acquisition, certain Acquisition-related expenses, sponsor fees,
equity-based compensation expense, goodwill and indefinite-lived intangible assets impairment, write-off of
property and equipment and other non-recurring expenses, primarily consisting of outside legal and professional
fees associated with certain non-recurring transactions and events. We present Adjusted EBITDA on a
consolidated basis because our 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. Adjusted EBITDA is not a measurement
of financial performance under GAAP. It should not be considered an alternative to net income as a measure of our
operating performance or any other measure of performance derived in accordance with GAAP. In addition,
Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or
nonrecurring items, or affected by similar nonrecurring items. Adjusted EBITDA has limitations as an analytical
tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as
reported under GAAP. Our definition and calculation of Adjusted EBITDA is not necessarily comparable to other
similarly titled measures used by other companies due to different methods of calculation. We recommend that you
review the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial
measure, under “Management Discussion and Analysis of Financial Condition and Result of Operations -
Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted EBITDA Margin” and not rely
solely on Adjusted EBITDA or any single financial measure to evaluate our business.
(3) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales. We recommend that you review
the calculation of Adjusted EBITDA margin, under “Management Discussion and Analysis of Financial Condition
and Result of Operations Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted
EBITDA Margin.”
(4) Net operating assets and liabilities consist of current assets excluding cash, less current liabilities excluding the
current portion of long-term debt.
36
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 on Form 10-K, as well as the information presented under
“Selected Financial Data.” 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 on Form 10-K 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. Fiscal Year 2019,
2018, and 2017 ended on February 1, 2020, February 2, 2019, and February 3, 2018, respectively. 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. Fiscal Years 2019 and 2018 were each comprised of 52 weeks while Fiscal Year 2017 was comprised of 53
weeks.
Overview
J.Jill 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 more than 280 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.
Factors Affecting Our Operating Results
Various factors are expected to continue to affect our results of operations going forward, including the following:
Overall Economic Trends. Consumer purchases of clothing and other merchandise generally decline during
recessionary periods and other periods when disposable income is adversely affected, and consequently our results of
operations may be affected by general economic conditions. For example, reduced consumer confidence and lower
availability and higher cost of consumer credit may reduce demand for our merchandise and may limit our ability to increase
or sustain prices. The growth rate of the market could be affected by macroeconomic conditions in the United States.
Consumer Preferences and Fashion Trends. Our ability to maintain our appeal to existing customers and attract new
customers depends on our ability to anticipate fashion trends. During periods in which we have successfully anticipated
fashion trends, we have generally had more favorable results.
Competition. The retail industry is highly competitive and retailers compete based on a variety of factors, including
design, quality, price and customer service. Levels of competition and the ability of our competitors to more accurately
predict fashion trends and otherwise attract customers through competitive pricing or other factors may impact our results of
operations.
Our Strategic Initiatives. The ongoing implementation of strategic initiatives will continue to have an impact on our
results of operations. These initiatives include our ecommerce site, which was re-platformed in Fiscal Year 2017, and our
ongoing initiatives to upgrade and enhance our information systems. Although initiatives of this nature are designed to create
growth in our business and continuing improvement in our operating results, the timing of expenditures related to these
initiatives, as well as the achievement of returns on our investments, may affect our results of operation in future periods.
Pricing and Changes in Our Merchandise Mix. Our product offering changes from period to period, as do the prices at
which goods are sold and the margins we are able to earn from the sales of those goods. The levels at which we are able to
price our merchandise are influenced by a variety of factors, including the quality of our products, cost of production, prices
at which our competitors are selling similar products and the willingness of our customers to pay for products.
Potential Changes in Tax Laws and/or Regulations. Changes in tax laws in any of the multiple jurisdictions in which
we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate,
could adversely affect our business, financial condition and operating results. Additionally, any potential changes with
respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries
could adversely affect our business, as we source the majority of our merchandise from manufacturers located outside of the
U.S.
37
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 GAAP
and non-GAAP measures, including the following:
Net sales consists primarily of revenues, net of merchandise returns and discounts, generated from the sale of apparel
and accessory merchandise through our retail channel and direct channel. 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. Revenue from our retail channel is recognized at the time of sale and revenue from our direct channel 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 nearly three times more than single-channel customers.
Total company comparable sales includes net sales from our full-price 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 remodeling or other reasons, it is included in total company comparable sales only using the full weeks
it was open. Beginning in Fiscal Year 2020, the sales from our direct channel included in total company comparable sales
will exclude shipping and handling revenue. The exclusion of shipping and handling revenue will provide investors better
visibility to the underlying product performance in our comparable year-over-year sales. Certain of our competitors and other
retailers may calculate total company comparable sales differently than we do. As a result, the reporting of our total company
comparable sales may not be comparable to sales data made available by other companies.
The following table provides a reconciliation of our total company comparable sales for the periods presented;
February 1, 2020
For the Fiscal Year Ended
February 2, 2019
February 3, 2018
As Reported
As Adjusted
-3.6%
-3.2%
0.9%
1.1%
6.4%
6.8%
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 store
locations, as well as occupancy costs incurred from the time of possession of a store site to the opening of that store. These
pre-opening costs are included in selling, general and administrative expenses and are generally incurred and expensed within
30 days of opening a new store.
t
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 includes the direct costs of sold merchandise, inventory shrinkage, and adjustments and
reserves for excess, aged and obsolete inventory. We review our inventory levels on an ongoing basis to identify slow-
moving merchandise and use product 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.
Certain of our competitors and other retailers may report costs of goods sold differently than we do. As a result, the reporting
of our gross profit and gross margin may not be comparable to other companies.
d
The primary drivers of the costs of goods sold are raw materials, which fluctuate based on certain factors beyond our
control, including labor conditions, transportation or freight costs, energy prices, currency fluctuations and commodity prices.
We place orders with merchandise suppliers in United States dollars and, as a result, are not exposed to significant foreign
currency exchange risk.
Selling, general and administrative expenses include all operating costs not included in costs of goods sold. These
expenses include 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 include marketing expense, including catalog production and mailing costs, warehousing, distribution and
shipping costs, customer service operations, consulting and software services, professional services and other administrative
costs.
38
Our historical revenue growth has been accompanied by increased selling, general and administrative expenses. The
most significant increases were in occupancy costs associated with retail store expansion, and in marketing and payroll
investments.
Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA, represents net income plus net interest
expense, provision (benefit) for income taxes, depreciation and amortization, equity-based compensation expense, goodwill
and indefinite-lived intangible assets impairment, impairment and write-off of property and equipment, and other non-
recurring expenses, primarily consisting of outside legal and professional 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 (loss), 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 and calculation of Adjusted
EBITDA and Adjusted EBITDA margin to net income, the most directly comparable GAAP financial measure, below and
not rely solely on Adjusted EBITDA or any single financial measure to evaluate our business.
Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted EBITDA Margin
The following table provides a reconciliation of net income to Adjusted EBITDA and the calculation of Adjusted
EBITDA margin for the periods presented:
(in thousands)
Statements of Operations Data:
NNet income
Interest expense, net
Income tax provision (benefit)
Depreciation and amortization
Equity-based compensation expense
Write-off of property and equipment(a)
Impairment of goodwill and indefinite-lived intangible
assets
Impairment of long lived assets(b)
Special bonus
Other non-recurring expenses(c)
Adjusted EBITDA
NNet sales
Adjusted EBITDA margin
For the Fiscal
Year Ended
February 1, 2020
For the Fiscal
Year Ended
February 2, 2019
For the Fiscal
Year Ended
February 3, 2018
$
$
$
(128,567) $
19,571
(3,022)
37,925
3,972
151
131,528
2,325
—
1,597
65,480 $
691,345 $
9.5%
30,525 $
19,064
11,649
36,749
4,010
128
—
—
—
1,346
103,471 $
706,262 $
14.7%
55,365
19,261
(5,439)
35,052
782
586
—
2,164
624
5,081
113,476
698,145
16.3%
(a) Represents the net gain or loss on the disposal of fixed assets.
(b) Represents the impairment of assets and change in use of a right-of-use asset taken in Fiscal Year 2019 and the
impairment of assets in Fiscal Year 2017 associated with three underperforming retail locations.
(c) Represents items management believes are not indicative of ongoing operating performance. These expenses are
primarily composed of a gain from insurance proceeds, restructuring costs and expenses related to a CEO
transition, including the acceleration of equity based compensation expense in Fiscal Year 2019. In Fiscal Year
2018, these expenses include costs related to a CEO transition. Finally, in Fiscal Year 2017 these expenses were
comprised of legal and professional fees associated with the initial public offering completed March 14, 2017 and
subsequent transition to a public company.
39
Factors Affecting the Comparability of our Results of Operations
On February 24, 2017, we completed a conversion from a Delaware limited liability company named Jill Intermediate
LLC into a Delaware corporation and changed our name to J.Jill, Inc. In conjunction with the conversion, all of our
outstanding equity interests converted into shares of common stock. Accordingly, all historical earnings per share amounts
presented in the accompanying consolidated statements of operations and comprehensive income and the related notes to the
consolidated financial statements have been adjusted retroactively to reflect our conversion from a limited liability company
to a corporation.
Following our conversion from a limited liability company to a corporation, J.Jill, Inc. merged with and into its direct
parent company, JJill Holdings, on February 24, 2017, with J.Jill, Inc. continuing as the surviving entity. JJill Holdings did
not have operations of its own, except for buyer transaction costs of $8.6 million incurred to execute the Acquisition.
On May 27, 2016, we entered into an agreement to amend our Term Loan Agreement to borrow an additional $40.0
million. The other terms and conditions of the Term Loan Agreement remained substantially unchanged, as discussed in
“Liquidity and Capital Resources—Credit Facilities.” We used the additional loan proceeds, along with cash on hand, to fund
a $70.0 million dividend to the partners of JJill Topco Holdings, which was approved by the members of Jill Intermediate
LLC and the board of directors of JJill Topco Holdings on May 27, 2016.
On January 31, 2020, January 18, 2017 and June 1, 2017, we made voluntary prepayments of $5.0 million, $10.1
million and $20.2 million, respectively, including accrued interest, on our Term Loan. On December 15, 2017, we
repurchased $5.0 million of our Term Loan on the open market at 98% of par value.
Results of Operations
Fiscal Year Ended February 1, 2020 compared to Fiscal Year ended February 2, 2019.
The following table summarizes our consolidated results of operations for the periods indicated:
For the Fiscal Year
Ended February 1,
2020
For the Fiscal Year
Ended February 2,
2019
% of
Net
Sales
Dollars
100.0% $706,262
38.0% 245,982
62.0% 460,280
Dollars
$ 691,345
262,766
428,579
% of
Net
Sales
Change Year-over-Year
$ Change % Change
100.0% $ (14,917)
34.8%
16,784
(31,701)
65.2%
409,069
119,428
59.2% 399,042
-
17.3%
56.5%
-
10,027
119,428
12,100
(112,018)
19,571
1.8%
(16.2)%
2.8%
-
61,238
19,064
(131,589)
(3,022)
$ (128,567)
42,174
(19.0)%
11,649
(0.4)%
(18.6)% $ 30,525
-
12,100
8.7% (173,256)
507
2.7%
6.0% (173,763)
(14,671)
1.6%
4.3% $ (159,092)
(2.1)%
6.8%
(6.9)%
2.5%
-
-
(282.9)%
2.7%
(412.0)%
(125.9)%
(521.2)%
(in thousands)
Net sales
Costs of goods sold
Gross profit
Selling, general and administrative
expenses
Impairment of goodwill
Impairment of indefinite-lived intangible
assets
Operating income
Interest expense, net
Income before provision for income
taxes
(Benefit) provision for income taxes
Net income
Net Sales
Net sales for fiscal year ended February 1, 2020 (“Fiscal Year 2019”) decreased $14.9 million or 2.1%, to $691.3
million from $706.3 million for fiscal year ended February 2, 2019 (“Fiscal Year 2018”). This decrease correlates with a
3.6% decrease in total company comparable sales, with a decrease in sales per customer partially offset by a 0.4% increase in
our active customer base.
40
Our direct channel was responsible for 43.7% of our net sales in Fiscal Year 2019 compared to 41.6% in Fiscal Year
2018. Our retail channel was responsible for 56.3% of our net sales in Fiscal Year 2019 and 58.4% in Fiscal Year 2018. We
operated 287 and 282 retail stores at the end of these same periods, respectively.
Gross Profit and Cost of Goods Sold
Gross profit for Fiscal Year 2019 decreased $31.7 million, or 6.9%, to $428.6 million from $460.3 million for Fiscal
Year 2018. The gross margin for the Fiscal Year 2019 was 62.0% compared to 65.2% for Fiscal Year 2018, largely driven by
added promotions, markdowns, and liquidation actions to clear certain goods in Fiscal Year 2019.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Fiscal Year 2019 increased $10.0 million, or 2.5%, to $409.1 million
from $399.0 million for Fiscal Year 2018. The increase is driven by a $11.5 million increase in sales related expenses
including $3.7 million in store expenses and $7.8 million in direct fulfilment and shipping expense, $4.9 million in
technology and depreciation & amortization expense, $2.6 million of non-recurring expense including a gain from insurance
proceeds, restructuring costs, expense related to a CEO transition and impairment of assets and change in use of a right of use
asset and $0.2 million in leadership recruiting and compensation expense. These increases were partially offset by savings of
$4.7 million in marketing and $4.3 million in general & administrative expense driven by cost reduction actions taken in
Fiscal Year 2019.
Interest Expense, net
Interest expense, net consists of interest expense on the Term Loan, partially offset by interest earned on cash. Interest
expense for Fiscal Year 2019 increased by $0.5 million, or 2.7%, to $19.6 million from $19.1 million for Fiscal Year 2018.
The increase was driven by higher interest rates in the first half of Fiscal Year 2019 and lower interest income from cash
balances following the payment of the special dividend paid in the first quarter of Fiscal Year 2019.
Provision for Income Taxes
The income tax benefit for Fiscal Year 2019 was $3.0 million compared to a provision for income taxes of $11.6
million for Fiscal Year 2018. Our effective tax rates were 2.3% and 27.6%, respectively.
Fiscal Year Ended February 2, 2019, which is comprised of 52 weeks, compared to the 53-week period ended
February 3, 2018.
The following table summarizes our consolidated results of operations for the periods indicated:
For the Fiscal Year
Ended
February 2, 2019
For the Fiscal Year
Ended
February 3, 2018
Change Year-over-Year
(in thousands)
Net sales
Costs of goods sold
Gross profit
Selling, general and administrative
expenses
Operating income
Interest expense, net
Income before provision for
income taxes
Provision (benefit) for income taxes
Net income
Dollars
$706,262
245,982
460,280
399,042
61,238
19,064
42,174
11,649
$ 30,525
$ Change % Change
% of Net
Sales
Dollars
100.0% $ 698,145
34.8% 234,065
65.2% 464,080
% of Net
Sales
100.0% $
33.5%
66.5%
56.5% 394,893
8.7% 69,187
2.7% 19,261
56.6%
9.9%
2.8%
8,117
11,917
(3,800)
4,149
(7,949)
(197)
1.2%
5.1%
(0.8)%
1.1%
(11.5)%
(1.0)%
(15.5)%
(314.2)%
(44.9)%
6.0% 49,926
(5,439)
1.6%
4.3% $ 55,365
7.2%
(0.8)%
7.9% $
(7,752)
17,088
(24,840)
41
Net Sales
Net sales for fiscal year ended February 2, 2019 (“Fiscal Year 2018”) increased $8.1 million, or 1.2%, to $706.3
million, from $698.1 million for fiscal year ended February 3, 2018 (“Fiscal Year 2017”). This increase was primarily due to
a 0.9% increase in total company comparable sales, which reflects a 4.2% increase in our active customer base.
Our direct channel was responsible for 41.6% of our net sales in Fiscal Year 2018 compared to 43.1% in Fiscal Year
2017. Our retail channel was responsible for 58.4% of our net sales in Fiscal Year 2018 and 56.9% in Fiscal Year 2017. We
operated 282 and 276 retail stores at the end of these same periods, respectively.
Gross Profit and Cost of Goods Sold
Gross profit for Fiscal Year 2018 decreased $3.8 million, or 0.8% to $460.3 million, from $464.1 million for Fiscal
Year 2017. The gross margin for Fiscal Year 2018 was 65.2% compared to 66.5% for Fiscal Year 2017, largely driven by
added promotions, markdowns, and liquidation actions to clear certain goods largely in the first half of Fiscal Year 2018.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Fiscal Year 2018 increased $4.1 million, or 1.1%, to $399.0 million
from $394.9 million for Fiscal Year 2017. The increase was driven by a $4.0 million increase in marketing as well as
increases of $1.8 million in technology and $1.7 million in depreciation and amortization. This is partially offset by savings
of $2.4 million in compensation and $1.1 million in sales related expenses. As a percentage of net sales, selling, general and
administrative expenses were 56.5% for Fiscal Year 2018 as compared to 56.6% for Fiscal Year 2017.
Interest Expense, net
Interest expense, net consists of interest expense on the Term Loan, partially offset by interest earned on cash. Interest
expense for Fiscal Year 2018 decreased by $0.2 million, or 1.0%, to $19.1 million from $19.3 million for Fiscal Year 2017.
The decrease was driven by the lower balance of the Term Loan due to voluntary prepayments totaling $25.0 million during
Fiscal Year 2017, and interest earned on cash which were partially offset by higher interest rates.
Provision for Income Taxes
The provision for income taxes was $11.6 million for Fiscal Year 2018 compared to an income tax benefit of $5.4
million for Fiscal Year 2017. Our effective tax rates were 27.6% and 10.9%, respectively. The U.S. Tax Cuts and Jobs Act
(“TCJA”) enacted in December 2017, significantly reduced the federal corporate income tax rate and required the Company
to revalue its deferred income tax liabilities based on the lower enacted federal corporate income tax rate, resulting in a one-
time benefit of $24.0 million recorded in the fourth quarter of Fiscal Year 2017.
Liquidity and Capital Resources
General
Our primary sources of liquidity and capital resources are cash generated from operating activities and availability
under our ABL credit agreement, dated as of May 8, 2015, by and among Jill Holdings LLC, Jill Acquisition LLC, certain
subsidiaries from time to time party thereto, the lenders party thereto and CIT Finance LLC as the administrative agent and
collateral agent, as amended on May 27, 2016 by Amendment No. 1 thereto. The ABL credit agreement was further amended
on August 22, 2018 by Amendment No. 2 to reduce the frequency of borrowing base certificate submissions as long as
certain conditions are met. The ABL credit agreement was further amended on June 12, 2019 by Amendment No. 3 to extend
the maturity of the ABL credit agreement to an initial maturity of May 8, 2023 so long as certain conditions related to the
maturity of the term loan are met. On March 16, 2020, we provided notice to the lenders to borrow an aggregate principal
amount of $33.0 million under the ABL Facility. Our primary requirements for liquidity and capital are working capital and
general corporate needs, including 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 and the costs of operating as a public company. The COVID-19 global pandemic and
resulting store closures have had a material adverse effect on our operations, cash flows and liquidity. We have made
significant progress reducing cash expenditures and maximizing cash receipts from our direct to consumer business channel
such that our current base forecast projects sufficient liquidity over the coming 12 months. However, considerable risk
42
remains related to the performance of stores upon reopening, the resilience of the customer in an uncertain economic climate,
and the possibility of a resurgence of COVID-19 related market impacts in the coming 12 months. If one or more of these
risks materialize, we believe that our current sources of liquidity and capital may not be sufficient to finance our continued
operations for at least the next 12 months.
As discussed above, our liquidity has been materially adversely impacted by the COVID-19 pandemic. Subsequent to
February 1, 2020, we borrowed $33.0 million under our ABL facility. We are seeking to amend our ABL Facility to provide
for further incremental borrowings. No assurances can be given as to when or if the Company will succeed in obtaining the
amendment. We have also filed an income tax refund for $7.7 million with the IRS related to the provision under the
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted in March 2020 that provides numerous tax
provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer-
paid portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections
from prior tax legislation for tax depreciation of certain qualified improvement property. The Company has elected to defer
the employer-paid portion of social security taxes beginning with pay dates on and after April 1, 2020. We continue to
evaluate the provisions of the CARES Act and the ways in which it could assist our business and improve our liquidity.
The Company was in compliance with financial covenants as of February 1, 2020. However, as a result of the COVID-
19 pandemic, the Company’s revenues, results of operations, and cash flows have been materially adversely impacted, and
will also result in a failure by us to comply with the financial covenants contained in our ABL Facility and Term Loan
Agreements for the period ended May 2, 2020. This has led to substantial doubt about the Company’s ability to continue as a
going concern. The inclusion of substantial doubt about the Company’s ability to continue as a going concern in the report of
our independent registered public accounting firm on our accompanying financial statements for the fiscal year ended
February 1, 2020 results in a violation of affirmative covenants under our ABL Facility and Term Loan Agreements. As a
result of the violation of affirmative covenants, lenders could exercise available remedies including, declaring the principal of
and accrued interest on all outstanding indebtedness immediately due and payable and terminating all remaining
commitments and obligations under the credit facilities. If we are unable to obtain a waiver from our lenders, our lenders
could instruct the administrative agent under such credit facilities to exercise available remedies including, declaring the
principal of and accrued interest on all outstanding indebtedness immediately due and payable and terminating all remaining
commitments and obligations under the credit facilities. Although the lenders under our credit facilities may waive the
defaults or forbear the exercise of remedies, they are not obligated to do so. Failure to obtain such a waiver would have a
material adverse effect on the liquidity, financial condition and results of operations and may result in filing a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan. The
Company could experience other potential impacts as a result of the COVID-19 pandemic, including, but not limited to,
additional charges from potential adjustments to the carrying amount of its inventory, goodwill impairment charges, right-of-
use assets, and long-lived asset impairment charges. Actual results may differ materially from the Company’s current
estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the duration of the
disruption to its business. Our future operating performance and our ability to service or extend our indebtedness will be
subject to future economic conditions and to financial, business, and other factors, many of which are beyond our control.
Capital expenditures were $18.2 million in Fiscal Year 2019 compared to $24.7 million during Fiscal Year 2018 and
$38.4 million during Fiscal Year 2017. The decrease in capital expenditures for Fiscal Year 2019 was due primarily to a
decrease in spending on store investments and technology projects.
Cash Flow Analysis
The following table shows our cash flows information for the periods presented:
(in thousands)
NNet cash provided by operating activities
NNet cash used in investing activities
NNet cash used in financing activities
Net Cash provided by Operating Activities
For the Fiscal
Year Ended
February 1, 2020
32,653
$
(18,222)
(59,108)
For the Fiscal
Year Ended
February 2, 2019
67,503
$
(24,710)
(2,567)
For the Fiscal
Year Ended
February 3, 2018
76,354
$
(38,372)
(25,472)
Net cash provided by operating activities during Fiscal Year 2019 was $32.7 million. Key elements of cash provided by
operating activities were (i) net loss of $(128.6) million, (ii) adjustments to reconcile net income to net cash provided by
operating activities of $166.0 million, primarily driven by $133.9 million of impairment related to goodwill, indefinite-lived
43
intangible assets and long-lived assets, $37.9 million of depreciation and amortization, and $4.6 million of equity-based
compensation, partially offset by a decrease of $10.8 million from changes in deferred income taxes, and (iii) a decrease in
net operating assets and liabilities of $4.8 million.
Net cash provided by operating activities during Fiscal Year 2018 was $67.5 million. Key elements of cash provided by
operating activities were (i) net income of $30.5 million, (ii) adjustments to reconcile net income to net cash provided by
operating activities of $38.0 million, primarily driven by depreciation and amortization, and (iii) a decrease in net operating
assets and liabilities of $1.1 million, primarily driven by an increase in prepaid expenses.
Net cash provided by operating activities during Fiscal Year 2017 was $76.4 million. Key elements of cash provided by
operating activities were (i) net income of $55.4 million, (ii) adjustments to reconcile net income to net cash provided by
operating activities of $14.8 million, primarily driven by depreciation and amortization partially offset by the revaluation of
deferred income tax liabilities, and (iii) an increase in net operating assets and liabilities of $6.2 million, primarily driven by
an increase in other noncurrent liabilities.
Net Cash used in Investing Activities
Net cash used in investing activities during Fiscal Year 2019 was $18.2 million, representing purchases of property and
equipment related to the opening of new stores, remodeling of existing stores and upgrading our information systems.
Net cash used in investing activities during Fiscal Year 2018 was $24.7 million, representing purchases of property and
equipment related to new store openings, remodeling existing stores and upgrading our information systems, including our
merchandising system.
Net cash used in investing activities during Fiscal Year 2017 was $38.4 million, representing purchases of property and
equipment related to new store openings, remodeling existing stores and upgrading our information systems, including the re-
platforming of our ecommerce site and implementation of a merchandise financial planning system.
Net Cash used in Financing Activities
Net cash used in financing activities during Fiscal Year 2019 was $59.1 million, including $50.2 million for the special
dividend and $7.8 million of repayments on long-term debt including a voluntary pre-payment of $5.0 million on January 31,
2020.
Net cash used in financing activities during Fiscal Year 2018 was $2.6 million, which was primarily the repayment of
long-term debt.
Net cash used in financing activities during Fiscal Year 2017 was $25.5 million, consisting of payments on our Term
Loan. Included in this amount is $25.0 million of voluntary prepayments.
Dividends
On April 1, 2019 the Company paid a special cash dividend of $50.2 million to the shareholders of J.Jill, Inc. The
Company did not pay any dividends in Fiscal Years 2018 or 2017.
Credit Facilities
As described above, we entered into our Term Loan Agreement and ABL Facility in connection with the Acquisition.
Concurrently, we repaid the principal and interest balances outstanding under our previous credit facilities, as required by the
respective agreements upon a change-in-control transaction. At February 1, 2020 and February 2, 2019 there were no loan
amounts outstanding under the ABL Facility. At those same dates, the Company had outstanding letters of credit in
the amounts of $1.7 million and $1.8 million, respectively, and had a maximum additional borrowing capacity of $38.3
million and $38.2 million, respectively. The following describes the credit facilities entered into in connection with the
Acquisition.
On May 8, 2015, we entered into the seven-year Term Loan Agreement of $250.0 million in conjunction with the
Acquisition. Obligations under the Term Loan Agreement are guaranteed by all of our current and future domestic restricted
44
subsidiaries, subject to certain exceptions. Our borrowings under the Term Loan Agreement are secured by (i) first-priority
t
liens on substantially all assets other than the ABL Priority Collateral (as defined below) and (ii) second-priority liens on the
ABL Priority Collateral, in each case subject to permitted liens and certain exceptions. The Term Loan Agreement contains
certain terms and conditions which require us to comply with financial and other covenants, including certain restrictions on
our ability to incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends,
cause our subsidiaries to pay dividends to us, consolidate or merge with other entities or undergo a change in control, make
advances, investments and loans and modify our organizational documents. The financial covenants requiring us to comply
with a maximum leverage ratio and limiting our capital expenditures are considered by us to be the covenants which are
currently the most restrictive. The maximum leverage ratio covenant requires us not to exceed, with respect to the four
quarter period ending February 1, 2020, a ratio of consolidated debt (net of unrestricted cash) to Adjusted EBITDA (subject
to certain adjustments under the Term Loan Agreement) of 3.0 to 1.0. The Term Loan Agreement contains a financial
covenant limiting our capital expenditures to $27.5 million for the fiscal year ended February 1, 2020 and each fiscal year
thereafter plus additional amounts as permitted. The Term Loan Agreement prohibits our ability to pay dividends to our
shareholders and the ability of our subsidiaries to pay dividends to us, subject to certain exceptions. We may pay dividends,
and our subsidiaries may pay dividends to us, if our leverage ratio would not exceed 2.5 to 1.0 after giving effect thereto. We
may also pay dividends up to the amount of our retained excess cash flow, plus certain other amounts, if our leverage ratio
would not exceed 3.25 to 1.0 after giving effect thereto. The Term Loan Agreement contains certain events of default. If a
default occurs and is not cured within an applicable cure period or is not waived, our obligations under the Term Loan
Agreement may be accelerated. The Term Loan Agreement allows us to elect, at our own option, the applicable interest rate
for borrowings under the Term Loan Agreement using a LIBOR or Base Rate variable interest rate plus an applicable margin.
LIBOR loans under the Term Loan Agreement accrue interest at a rate equal to LIBOR plus 5.00%, with a minimum LIBOR
per annum of 1.00%. Base Rate loans under the Term Loan Agreement accrue interest at a rate equal to (i) the highest of
(a) the prime rate, (b) the Federal Funds Effective Rate plus 0.50%, (c) LIBOR with a one-month interest period plus 1.00%
and (d) 2.00%. As of February 1, 2020 and February 2, 2019, we were in compliance with all financial covenants under our
Term Loan Agreement.
On May 27, 2016, we entered into an agreement to amend our Term Loan Agreement to borrow an additional
$40.0 million in additional loans to permit certain dividends and to make certain adjustments to the financial covenant. The
other terms and conditions of the Term Loan Agreement remained substantially unchanged.
On May 8, 2015, we also entered into the ABL Facility, our five-year secured $40.0 million asset-based revolving
credit facility. Obligations under the ABL Facility are guaranteed by all of our current and future domestic restricted
subsidiaries, subject to certain exceptions. Our borrowings under the ABL Facility are secured by (i) first-priority liens on
accounts, inventory and certain other assets (the “ABL Priority Collateral”) and (ii) second-priority liens on substantially all
other assets, in each case subject to permitted liens and certain exceptions. The ABL Facility provides for a calculated
borrowing base of up to (i) 90% of the net amount of eligible credit card receivables, plus (ii) 85% of the net book value of
eligible accounts receivable, plus (iii) the lesser of (A) 100% of the value of eligible inventory and (B) 90% of the net orderly
liquidation value of eligible inventory, plus (iv) the least of (A) 100% of the value of eligible in-transit inventory, (B) 90% of
the net orderly liquidation value of eligible in-transit inventory and (C) the in-transit maximum amount (the in-transit
maximum amount is an amount not to exceed $12.5 million during the 1st and 3rd calendar quarters and $10.0 million during
the 2nd and 4th calendar quarters), minus (v) the sum of certain reserves established from time to time by the administrative
agent under the ABL Facility.
The ABL Facility allows us to elect, at our own option, the applicable interest rate for borrowings under the ABL
Facility using a LIBOR or Base Rate variable interest rate plus an applicable margin. LIBOR loans under the ABL Facility
accrue interest at a rate equal to LIBOR plus a spread ranging from 1.50% to 1.75%, subject to availability. Base Rate loans
under the ABL Facility accrue interest at a rate equal to (i) the highest of (a) the prime rate, (b) the overnight Federal Funds
Effective Rate plus 0.50%, (c) LIBOR with a one-month interest period plus 1.00% and (d) 2.00%, plus (ii) a spread ranging
from 0.50% to 0.75%, subject to availability. Principal is payable upon maturity of the ABL Facility on its term date. On June
12, 2019 this ABL Facility was amended to extend the term date to May 8, 2023. The ABL Facility also requires the payment
of monthly fees based on the average quarterly unused portion of the commitment, as well as a fee on the balance of the
outstanding letters of credit.
The ABL Facility contains certain terms and conditions which require us to comply with financial and other covenants,
including certain restrictions on the ability to incur additional indebtedness, create liens, enter into transactions with affiliates,
transfer assets, pay dividends, consolidate or merge with other entities, undergo a change in control, make advances,
investments and loans or modify our organizational documents. The ABL Facility contains a financial covenant requiring us
to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0, with the ratio being Adjusted EBITDA (subject to certain
45
adjustments under the ABL Facility) to fixed charges. The ABL Facility prohibits our ability to pay dividends to our
shareholders and the ability of our subsidiaries to pay dividends to us, subject to certain exceptions. We may pay dividends,
and our subsidiaries may pay dividends to us, if our fixed charge coverage ratio is at least 1.0 to 1.0 and our availability under
the ABL Facility exceeds certain thresholds after giving effect thereto. The ABL Facility contains certain events of default. If
a default occurs and is not cured within an applicable cure period or is not waived, our obligations under the ABL Facility
may be accelerated. As of February 1, 2020 and February 2, 2019, we were in compliance with all financial covenants under
our ABL Facility.
As of February 1, 2020 and February 2, 2019, there were no loan amounts outstanding under the ABL Facility. As of
those same dates, we had outstanding letters of credit in the amounts of $1.7 million and $1.8 million, respectively. Based on
the borrowing terms of the ABL Facility, the maximum additional borrowing capacity was $38.3 million as of February 1,
2020 and $38.2 million as of February 2, 2019.
On January 31, 2020 and June 1, 2017, we made voluntary prepayments of $5.0 million and $20.2 million,
respectively, including accrued interest, on our Term Loan. On December 15, 2017 we repurchased $5.0 million of our Term
Loan on the open market at 98% of par value.
Contractual Obligations
We enter into long-term contractual obligations and commitments in the normal course of business. As of February 1,
2020 our outstanding contractual cash obligations were due during the periods presented below.
(in thousands)
Long-Term Debt Obligations
Principal payment obligations(1)
Interest expense on long-term debt(2)
Operating Lease Obligations(3)
Purchase Obligations(4)
Total
Payments Due by Period
Total
$ 237,579
36,606
307,206
113,476
$ 694,867
Less than 1
year
$
2,799
16,215
44,688
113,476
$ 177,178
1 - 3 years
3 - 5 years
More than 5
years
$ 234,780
20,391
89,866
—
$ 345,037
$
— $
74,758
—
$ 74,758
$
—
—
97,894
—
97,894
(1) Amounts assume that the Term Loan is paid upon maturity, and the ABL Facility remains undrawn as of February
1, 2020, which may or may not reflect future events.
(2) Assumes an interest rate of 6.78% per annum, consistent with the interest rate as of February 1, 2020.
(3) Assumes the base lease term and any additional options that are reasonably certain to be exercised at lease
commencement in our outstanding operating lease arrangements as of February 1, 2020.
(4) Purchase obligations represent purchase commitments on inventory that are short-term and are typically made six
to nine months in advance of planned receipt. It also includes commitments related to certain selling, general and
administrative expenses that are generally for periods of a year or less.
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 on Form 10-K, 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.
46
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 gift card
breakage and estimated merchandise returns; accounting for business combinations; estimating the value of inventory;
impairment assessments for goodwill and other indefinite-lived intangible assets, and long-lived assets; and estimating
equity-based compensation expense. 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 to our audited consolidated financial statements presented elsewhere in this Annual Report on Form 10-K for
additional information regarding our critical accounting policies).
Revenue Recognition
Revenue is primarily derived from the sale of apparel and accessory merchandise through our retail channel and direct
channel, which includes website and catalog phone orders. Revenue also includes shipping and handling fees collected from
customers. The criteria to recognize revenue is met when control of the promised goods or services are transferred to
customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those
goods or services. Revenue from our retail channel is recognized at the time of sale and revenue from our direct channel is
recognized upon shipment of merchandise to the customer.
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 assets, and accrued expenses and other current liabilities, respectively, in the consolidated balance sheet. 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.
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
outstanding gift cards that will ultimately not be redeemed (“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.
The Company recognizes revenues from shipments to customers before the shipping and handling activities occur and
will accrue those related costs. Shipping and handling costs are recorded in selling, general and administrative expenses.
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, net of reserves for inventory. Cost is calculated using the weighted average method of accounting, and
includes the cost to purchase merchandise from our manufacturers, duties, commissions and inbound freight.
In the normal course of business, we record inventory reserves based on past and projected sales performance, as well
as 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 and
outlet 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 varies based on many factors. Accordingly, estimates of future sales
prices requires management judgment based on historical experience, assessment of current conditions and assumptions
about future transactions. In addition, we conduct physical inventory counts to determine and record actual shrinkage.
Estimates for shrinkage are recorded between physical counts, based on actual shrinkage experience. Actual shrinkage can
vary from these estimates. When observed differences are identified, we adjust our inventory balances accordingly. We
believe our assumptions are reasonable, and monitor actual results to adjust estimates and inventory balances on an ongoing
basis. We have not made significant changes to our assumptions during the periods presented in our consolidated financial
47
statements included elsewhere in this Annual Report on Form 10-K, and estimates have not varied significantly from
historically recorded amounts.
Asset Impairment Assessments
Goodwill
We evaluate goodwill annually at year end to determine whether the carrying value reflected on the balance sheet is
recoverable, and more frequently if events or circumstances indicate that the fair value of a reporting unit is less than its
carrying value. 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.
We may assess our goodwill for impairment initially using a qualitative approach (“step zero”) 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
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.
For the fourth quarters of Fiscal Years 2018 and 2017 we performed a step zero test. During Fiscal Year 2019, we also
performed a step one test in the second and fourth quarter which resulted in impairments to our goodwill. Our tests for
impairment of goodwill resulted in a determination that the fair value of each reporting unit exceeded the carrying value of its
net assets during Fiscal Years 2018 and 2017. 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 potential impairment at least annually during the fourth fiscal quarter, or 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.
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.
48
We assessed the carrying value of intangible assets as described above and determined that impairment losses were
required during Fiscal Year 2019. 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.
There were no impairment losses required in Fiscal Years 2018 or 2017.
Long-Lived Assets
Long-lived assets include definite-lived intangible assets subject to amortization and property and equipment. Long-
lived assets obtained in a business combination are recorded at the acquisition-date fair value, while property and equipment
purchased in the normal course of business is recorded at cost.
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 Years 2019 and 2017, the Company recorded impairment charges of $2.3 million and $2.2 million,
respectively, associated with the assets of underperforming retail locations. The impairment charge was calculated using a
discounted cash flow model and was recorded in selling, general and administrative in the Company’s consolidated statement
of operations and comprehensive income. During Fiscal Year 2018, the Company did not record any impairment charges
associated with property and equipment.
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.
The impact of COVID-19 could have a material adverse effect on financial positions, results of operations and liquidity
which could impact projected results and result in future impairments of goodwill, indefinite-lived intangibles and long-lived
assets including right of use assets.
Equity-based Compensation
Following our initial public offering (“IPO”) on March 9, 2017, the Company accounts for equity-based compensation
using the grant-date market price of our common stock and the Black-Scholes option pricing model. The Company
recognizes equity-based compensation expense in the periods in which the employee or director is required to provide
service, which is generally over the vesting period of the individual equity instruments.
Previous to our IPO on March 9, 2017, JJill Topco Holdings maintained an Incentive Equity Plan that allowed JJill
Topco Holdings to grant incentive units to certain of our directors and senior executives, by granting Class A Common
Interests (“Common Interests”). We accounted for equity-based compensation for JJill Topco Holdings’ Common Interests
by recognizing the fair value of equity-based compensation as an expense within selling, general and administrative expenses
in our consolidated statements of operations and comprehensive income as the costs are deemed to be for our benefit. Fair
value of the awards was determined at the date of grant using an option pricing model. Use of an option pricing model
required that we made assumptions as to the volatility of JJill Topco Holdings’ Common Interests, the expected dividend
yield, the expected term and the risk-free interest rate that approximates the expected term. All key assumptions and inputs
are the responsibility of management and we believe they were reasonable.
49
JJill Topco Holdings’ Common Interests were not publicly traded. As there was no public market for JJill Topco
Holdings’ Common Interests, the estimated fair value of the Common Interests was determined by JJill Topco Holdings’
board of directors as of the respective grant date of each Common Interest, with input from management, considering as one
of the factors the most recently available third-party valuations of common stock and JJill Topco Holdings’ board of
directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have
changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed
in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and
Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. JJill Topco Holdings’
Common Interests valuation was prepared using the option-pricing method (“OPM”), which uses market approaches to
estimate the enterprise value. The OPM treats common interests and preferred stock as call options on the total equity value
of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a
company’s securities changes. Under this method, the common interest has value only if the funds available for distribution
to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a
sale. In addition to considering these valuations, JJill Topco Holdings’ board of directors considered various objective and
subjective factors to determine the fair value of JJill Topco Holdings’ Common Interest as of each grant date, including:
•
•
•
•
our financial position, including cash on hand, and our historical and forecasted performance and operating
results;
external market conditions affecting our industry;
the lack of an active market for JJill Topco Holdings’ Common Interests and preferred stock; and
the likelihood of achieving a liquidity event, such as an IPO or sale of our company in light of prevailing market
conditions.
The assumptions underlying these valuations represented management’s best estimates, which involved inherent
uncertainties and the application of management judgment.
Jumpstart Our Business Startups Act of 2012 (JOBS Act)
In April 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce
certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not
to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised
accounting standards, and, as a result, we will comply with new or revised accounting standards on the relevant dates on
which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act
provides that our decision not to take advantage of the extended transition period is irrevocable.
We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not required to, among
other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404B of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-
emerging growth public companies under the Dodd-Frank Act, (iii) comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board (United States) regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion
and analysis) and (iv) disclose certain executive compensation-related items, such as the correlation between executive
compensation and performance and comparisons of the chief executive officer’s compensation to median employee
compensation. We may remain an “emerging growth company” until the last day of the fiscal year following the fifth
anniversary of the completion of our initial public offering on March 9, 2017. However, if certain events occur prior to the
end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue equals or exceeds
$1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an
“emerging growth company” prior to the end of such five-year period.
Recent Accounting Pronouncements
See Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
information regarding recently issued accounting pronouncements.
50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under the Term Loan Agreement and ABL Facility,
which bear interest at variable rates equal to LIBOR plus a margin as defined in the respective agreements described above.
As of February 1, 2020, there was no outstanding balance under the ABL Facility, and $1.7 million letters of credit
outstanding. The undrawn borrowing availability under the ABL Facility was $38.3 million and the amount outstanding
under the Term Loan Agreement had decreased to $237.6 million as a result of scheduled payments and $5 million of
voluntary prepayments. We currently do not engage in any interest rate hedging activity and we have no intention to do so in
the foreseeable future. Based on the interest rate on the ABL Facility at February 1, 2020, and the schedule of outstanding
borrowings under our Term Loan Agreement, a 10% change in our current interest rate would affect net income by $1.8
million during Fiscal Year 2019.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to
accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of
inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our
business will not be affected in the future by inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those
financial statements is found in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information
required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on
Form-10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the
end of the period covered by this Annual Report on Form-10-K our disclosure controls and procedures were not effective to
provide such reasonable assurance. This determination is based on the material weakness in our internal control over
financial reporting described below.
51
Management’s Annual Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the
supervision of, the company's principal executive and principal financial officers and effected by the company’s board of
directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
and includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of February
1, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).
k
A material weakness, as defined in Exchange Act Rule 12b-2, is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified a material weakness in the control activities environment component of internal control as the
Company did not appropriately design and maintain controls related to the accounting for goodwill and tradename
impairment. Specifically, control activities were not designed and maintained over the review of the carrying value of
reporting units or assets used in the goodwill and tradename impairment valuation analysis.
The material weakness resulted in audit adjustments in goodwill that were recorded to our consolidated financial
statements as of and for the year ended February 1, 2020 and could result in material misstatements to our annual or interim
consolidated financial statements that would not be prevented or detected on a timely basis.
Because of this material weakness, management concluded that the Company did not maintain effective internal
control over financial reporting as of February 1, 2020.
52
Management’s Plan for Remediation of the Material Weakness
In response to the material weaknesses described above, with the oversight of the Audit Committee of our Board of
Directors, management is currently evaluating our policies and procedures related to the accounting for goodwill and
tradename and plans to design and implement adequate internal controls to ensure that the determination of the carrying value
of the business unit is properly accounted for and reviewed.
The remediation efforts are intended both to address the identified material weakness and to enhance our overall
financial control environment. Management is committed to continuous improvement of the Company’s internal control over
financial reporting and will continue to diligently review the Company’s internal control over financial reporting.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm due to the exemption afforded to the Company by the JOBS Act.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the
desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are
resource constraints and our management is required to apply judgment in evaluating the benefits of possible controls and
procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
Changes to Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended
February 1, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
Not applicable.
53
August 2017
NN/A
NN/A
February 2017
February 2017
April 2019
February 2017
February 2017
February 2017
February 2017
NN/A
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following table sets forth certain information about our directors and executive officers as of February 1, 2020.
Kelly Mooney resigned from our Board of Directors and from all committees of the Board of Directors on which she served,
effective as of April 5, 2020.
Age
Position(s) with J.Jill, Inc.
Director Since
Interim Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
Chief Marketing and Brand Development Officer
Name
James Scully
Mark Webb
Brian Beitler
Michael Eck
Marka Hansen
P. Kelly Mooney
Travis Nelson
Michael Rahamim
Michael Recht
Andrew Rolfe
Deanna Steele
54
47
46
57 Director
66 Director
56 Director
48 Director
67
39 Director
53 Director
49
Chairman of the Board of Directors
Executive Vice President, Chief Information and Digital Officer
Information about our Board of Directors
In accordance with our certificate of incorporation and our by-laws, a majority of our Board of Directors may fix the
number of directors, which is currently set at seven. Each director is to hold office until his or her successor is duly elected
and qualified or until his or her earlier death, resignation, disqualification or removal. At any meeting of our Board of
Directors, the presence in person of a majority of the total number of directors then in office will constitute a quorum for all
purposes. Pursuant to Stockholders Agreement, dated as of March 14, 2017 (the “Stockholders Agreement”), TI IV JJill
Holdings, LP (“TI IV”) currently has the ability to designate as nominees five directors.
Biographies of Directors
James Scully was appointed as Interim Chief Executive Officer of J.Jill in December 2019 and has served as a director
of J.Jill since August 2017. Mr. Scully is a private investor and business consultant. Previously, he served as Avon Products,
Inc.’s Executive Vice President and Chief Operating Officer from January 2016 to September 2017. He also served as
Executive Vice President and Chief Financial Officer at Avon from March 2015 to December 2016. Prior to his role at Avon,
Mr. Scully served as the Chief Operating Officer of the J. Crew Group, Inc., a specialty apparel and accessories retailer. Mr.
Scully served as J. Crew’s Executive Vice President and Chief Financial Officer from September 2005 to May 2012 and
Chief Administrative Officer from April 2008 to April 2013. His responsibilities at J. Crew included all aspects of Finance
(Accounting, Financial Planning and Analysis, Treasury and Investor Relations) as well as Operations (Information
Technology, Global Supply Chain, Production/Sourcing, Legal, Real Estate, Planning and Construction, Loss Prevention and
Facilities). Prior to joining J. Crew in 2005, Mr. Scully served in key roles at Saks Incorporated from 1997 to 2005, most
recently serving as Executive Vice President-Human Resources and Strategic Planning. During his tenure at Saks
Incorporated, Mr. Scully also held the positions of Senior Vice President-Strategic and Financial Planning, and Senior Vice
President-Treasurer. Mr. Scully currently serves as a director of BHCosmetics Services, LLC. Mr. Scully began his career at
Connecticut National Bank and later became Senior Vice President-Corporate Finance at NationsBank (now Bank of
America). Mr. Scully was selected to serve on our Board of Directors because of his extensive experience in leadership
positions in the retail industry.
k
Michael Eck has served as a director of J.Jill since our conversion to a corporation in February 2017 and served on our
Board of Directors of our former parent company since November 2016. Mr. Eck was the Global Head of the Consumer and
Retail Investment Banking Group at Morgan Stanley from 2008 until his retirement in 2014. Prior to that, Mr. Eck worked at
Citigroup from 1993 to 2008, where he was the Global Head of the Consumer and Retail Banking Group, and at Credit
Suisse First Boston from 1987 to 1993. In January 2016, Mr. Eck joined M. Klein and Company, a global strategic advisory
firm, as a Senior Advisor. From December 1, 2017 to December 31, 2018 Mr. Eck served as the Interim Chief Executive
Officer of The Johnson Controls Hall of Fame Village, a company developing a multi-use destination attraction and media
platform in association with the Pro Football Hall of Fame. In February 2020, Mr. Eck became a member of the Board of
54
Directors of Churchill Capital Corp III, a Special Purpose Acquisition Company listed on the NYSE under the symbol
“CCXX.” From 2015 to April 2018 he served as an independent Board member and Chairman of the Audit Committee of
Blue Buffalo Pet Products, Inc., a publicly-held leading natural pet food company, until Blue Buffalo Pet Products, Inc. was
acquired by General Mills Inc. in April 2018. Mr. Eck is also the co-founder and board member of Steer for Student Athletes.
In addition, he previously served as a Board member of USA Ultimate and as a member of the Senior Advisory Board of
Shopkick. Mr. Eck received his Masters in Management from Northwestern University and his B.S. in Business from the
McIntire School of Commerce at the University of Virginia. He was selected to serve on our Board of Directors because of
his extensive knowledge of corporate strategy, corporate financing and accounting, capital investment and operations and the
consumer sector.
Marka Hansen has served as a director of J.Jill since our conversion to a corporation in February 2017 and served on
the board of directors of our former parent company since May 2015. Ms. Hansen previously served as a Retail Consultant at
Stitch Fix, Inc. from February 2013 to August 2013. Prior to that, she was the President of Gap North America from February
2007 until February 2011. Ms. Hansen served as the President of Banana Republic, LLC, a division of The Gap, from June
2003 until February 2007, and served in various leadership positions at The Gap after joining the company in 1987. Ms.
Hansen served as a director of True Religion Apparel, Inc., from September 2013 until October 2017. She currently serves as
a director of Stitch Fix, Inc. and The Orvis Company, Inc. She received her B.A. in Liberal Studies from Loyola Marymount
University. Ms. Hansen was selected to serve on our Board of Directors because of her extensive experience in leadership
positions in the retail industry.
Travis Nelson has served as a director of J.Jill since our conversion to a corporation in February 2017 and previously
he served on the board of directors of our former parent company since May 2015. Since March 2018, Mr. Nelson has served
as the Managing Member of Eclipse Investors LLC, an independent investment management firm. Mr. Nelson served as a
Managing Director at TowerBrook, our principal stockholder, from July 2005 until January 2018 and currently serves as a
member of TowerBrook’s Management Advisory Board. Prior to joining TowerBrook, Mr. Nelson co-founded Pacific
Partners LLC (“Pacific Partners”), a private equity firm specializing in software and technology services investments and
served as a Managing Director from 2000 to 2005. Prior to Pacific Partners, Mr. Nelson served as an investment professional
at Oak Hill Capital Management and Freeman Spogli & Co., working on private investments in a wide range of companies,
and served as a consultant to the CEO of NetJets. Mr. Nelson began his career as an investment banker at Goldman Sachs.
Mr. Nelson earned his B.A. from DePauw University and received his M.B.A. from the Stanford Graduate School of
Business. He was selected to serve on our Board of Directors because of his broad business and investment experience,
including extensive experience in corporate finance and mergers and acquisitions.
Michael Rahamim has served as Chairman of the Board of Directors of J.Jill since our conversion to a corporation in
February 2017 and served as Chairman of the Board of Directors of our former parent company since May 2015. From
January 2011 through January 2014, Mr. Rahamim served as the Executive Chairman of Phase Eight (Fashion & Designs)
Limited (“Phase Eight”), a portfolio company of TowerBrook, our principal stockholder, and remained Chairman of the
Board until January 2015, when Phase Eight was sold. Mr. Rahamim has over 20 years of experience in the fashion retail
industry. In 1992, Mr. Rahamim developed the UK franchise of Kookai S.A., a French high fashion business, and introduced
the Sandro and Maje French high fashion brands to the UK. Mr. Rahamim has previously worked in soft commodities and
financial futures and was one of the founding seat holders on the London International Financial Futures Exchange. He
qualified as a Chartered Accountant in 1977. Mr. Rahamim currently serves as a director of Kaporal Jeans and has served as a
director of Whistles Limited from March 2009 until April 2016. He is also a member of the Senior Advisory Board of
TowerBrook. Mr. Rahamim was selected to serve on our Board of Directors because of his extensive understanding of the
International fashion retail industry through his experience in leadership positions and his investments with other retailers.
Michael Recht has served as a director of J.Jill since our conversion to a corporation in February 2017 and served on
t
our Board of Directors of our former parent company since May 2015. Mr. Recht is a Managing Director at TowerBrook, our
principal stockholder, where he has worked since August 2013. From August 2010 to August 2013, Mr. Recht was a Senior
Associate with the Retail & Consumer team at Apax Partners LLP (“Apax”). Prior to joining Apax, Mr. Recht was an
Associate at Thoma Cressey Bravo where he focused on investments in the consumer products and services sector. Prior to
that, Mr. Recht was a member of the Technology & Defense teams at CIBC World Markets. He currently serves as a director
of Wilton Industries, Inc and as a manager at KeHe Distributors Holdings, LLC. He received his M.B.A. from the Kellogg
School of Management at Northwestern University and his B.A. from Williams College. Mr. Recht was selected to serve on
our Board of Directors because of his broad finance experience, particularly in the retail and consumer products industry.
55
Andrew Rolfe has served as a director of J.Jill since our conversion to a corporation in February 2017 and served on
the Board of Directors of our former parent company since May 2015. Mr. Rolfe has served as a Managing Director and the
Head of Private Equity, USA of TowerBrook, our principal stockholder, since January 2011. Mr. Rolfe is also the Chairman
of the Portfolio Committee and a member of the Management Committee at TowerBrook. Prior to joining TowerBrook, Mr.
Rolfe served as President of The Gap Inc.’s International Division from November 2003 until February 2006, where he also
served as a member of the Executive Leadership Team. Mr. Rolfe has also held roles as the Chairman and Chief Executive
Officer of Pret A Manger (Europe) Ltd and the Chief Executive Officer of Booker Foodservice. He previously served as a
director of True Religion Apparel, Inc. and Wilton Industries, Inc.. He currently serves as a director of Kaporal Jeans and
Beverages & More, Inc and as a manager of KeHe Distributors Holdings, LLC. Mr. Rolfe received his M.B.A. from Harvard
Business School and his B.A. from Oxford University. He was selected to serve on our Board of Directors because of his
extensive experience in leadership positions in the retail industry.
Selection of Nominees for our Board of Directors
The Nominating, Governance and Corporate Responsibility Committee of our Board of Directors has the responsibility
of identifying individuals qualified to become members of our Board of Directors, consistent with criteria approved by our
Board of Directors. The committee also recommends to our Board of Directors for approval director nominees, consistent
with our director qualification criteria and any obligations under our contractual arrangements, including the Stockholders
Agreement.
With respect to director nominee procedures, the Nominating, Governance and Corporate Responsibility Committee
utilizes a broad approach for identification of director nominees and may seek recommendations from our directors, officers
or stockholders, or it may choose to engage a search firm. In evaluating and determining whether to ultimately recommend a
person as a candidate for election as a director, the Nominating, Governance and Corporate Responsibility Committee
considers the qualifications set forth in our corporate governance guidelines, including the highest personal and professional
ethics, integrity and values, demonstrated business acumen, experience and ability to use sound judgment to contribute to
effective oversight of our business or financial affairs, strategic planning, diversity and independence from management. It
also takes into account specific characteristics and expertise that it believes will enhance the diversity of knowledge,
expertise, background and personal characteristics of our Board of Directors. The Nominating, Governance and Corporate
Responsibility Committee may engage a third party to conduct or assist with the evaluation. Ultimately, the Nominating,
Governance and Corporate Responsibility Committee seeks to recommend to our Board of Directors those nominees whose
specific qualities, experience and expertise will augment our current Board of Directors’ composition and whose past
experience evidences that they will: (1) dedicate sufficient time, energy and attention to ensure the diligent performance of
Board of Directors duties; (2) comply with the duties and responsibilities set forth in our corporate governance guidelines and
in our by-laws; (3) comply with all duties of care, loyalty and confidentiality applicable to them as directors of publicly
traded corporations organized in our jurisdiction of incorporation; and (4) adhere to our Code of Conduct and Ethics,
including, but not limited to, the policies on conflicts of interest expressed therein.
The Nominating, Governance and Corporate Responsibility Committee considers stockholder recommendations of
qualified nominees when such recommendations are submitted in accordance with the procedures described in our by-laws.
Each notice of nomination submitted in this manner must contain the information specified in our by-laws, including, but not
limited to, information with respect to the beneficial ownership of our common stock or derivative securities that have a
value associated with our common stock held by the proposing stockholder and its associates and any voting or similar
agreement the proposing stockholder has entered into with respect to our common stock. To be timely, the notice must be
received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the
date of the prior year’s annual meeting of stockholders. If the annual meeting of stockholders is advanced by more than 30
days, or delayed by more than 60 days, from the anniversary of the preceding year’s annual meeting of stockholders, or if no
annual meeting of stockholders was held in the preceding year, notice by the stockholder, to be timely, must be received no
earlier than the 120th day prior to the annual meeting of stockholders and no later than the later of (1) the 90th day prior to
the annual meeting of stockholders and (2) the tenth day following the day on which we notify stockholders of the date of the
annual meeting of stockholders, either by mail or other public disclosure. See our by-laws for additional information
regarding stockholder nominees.
56
Information Regarding Meetings of our Board and Committees
During Fiscal Year 2019, our Board of Directors held 12 meetings, and its three permanent committees, the Audit
Committee, Compensation Committee, and Nominating, Governance and Corporate Responsibility Committee, collectively
held 22 meetings. In June of 2019, our Board of Directors established the Finance Committee (a temporary committee of the
Board of Directors) and dissolved such committee in December 2019. The duties and responsibilities of the Finance
Committee were absorbed by the Board of Directors.
All of our directors attended at least 75% of the aggregate of all meetings of our Board of Directors and the committees
on which he or she served during Fiscal Year 2019. Under our corporate governance guidelines, a copy of which is available
in the Investors—Corporate Governance—Governance Documents section of our website at www.jjill.com, members of our
Board of Directors are expected to participate in the annual meeting.
Board Committees
Committees of our Board of Directors
In March 2017, our Board of Directors adopted written charters for each of its permanent committees, all of which are
available in the Investors—Corporate Governance—Governance Documents section of our website at www.jjill.com.
Pursuant to the Stockholders Agreement, TI IV has the right to designate the members of the committees of our Board of
Directors in proportion to the number of director nominees TI IV is entitled to designate to our Board of Directors. The
following table provides membership information of our directors in each committee of our Board as of February 1, 2020.
Michael Eck
Marka Hansen
P. Kelly Mooney(1)
Travis Nelson
Michael Rahamim
Michael Recht
Andrew Rolfe
James Scully
= Member
Audit
Committee
Compensation
Committee
—
—
—
—
—
—
—
—
—
Nominating,
Governance
and
Corporate
Responsibility
Committee
—
—
—
(1) Kelly Mooney served on our Audit Committee and our Nominating, Governance and Corporate Responsibility
Committee until April 5, 2020.
Audit Committee
Our Audit Committee consists of Michael Eck, Travis Nelson and Michael Rahamim. Our Board of Directors has
determined that Mr. Eck qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of
Regulation S-K. Our Board of Directors has determined that Mr. Eck, Mr. Nelson and Mr. Rahamim are independent within
the meaning of the NYSE listing rules and meet the additional test for independence for Audit Committee members imposed
by SEC regulation and the NYSE listing rules. As of the date of this Annual Report on Form 10-K, our Audit Committee is
fully independent and is in compliance with the applicable SEC and NYSE rules and regulations. Kelly Mooney served on
our Audit Committee and met the same independence requirements during 2019 fiscal year.
57
Our Audit Committee met 11 times during our 2019 fiscal year. Our Audit Committee assists our Board of Directors in
monitoring the audit of our financial statements, our independent registered public accounting firm’s qualifications and
independence, the performance of our internal audit function and systems of internal controls, our independent auditors and
our compliance with legal and regulatory requirements. The Audit Committee has direct responsibility for the appointment,
compensation, retention (including termination) and oversight of our independent auditors, and our independent auditors
report directly to the Audit Committee. The Audit Committee also reviews and approves related party transactions as
required by the applicable NYSE rules.
Compensation Committee
Our Compensation Committee consists of Marka Hansen, Michael Rahamim, Michael Recht and Andrew Rolfe.
Because we are a controlled company under the NYSE listing rules, our Compensation Committee is not required to be fully
independent. Our Compensation Committee met six times during our 2019 fiscal year. Our Compensation Committee is
responsible for reviewing and recommending policies relating to the compensation and benefits of our directors and
employees, including our Chief Executive Officer and other executive officers.
The Compensation Committee has the sole authority to retain and terminate any compensation consultant to assist in
the evaluation of employee compensation and to approve the consultant’s fees and the other terms and conditions of the
consultant’s retention. The Compensation Committee may form and delegate authority to subcommittees where appropriate,
provided that the subcommittees are composed entirely of directors who satisfy the applicable independence requirement of
our Corporate Governance Guidelines and the NYSE listing rules, subject to any applicable controlled company or other
exemption.
The Compensation Committee has engaged the services of Pearl Meyer & Partners LLC (“Pearl Meyer”) as its outside
independent compensation consultant. Pearl Meyer provides general executive compensation consulting services to the
Compensation Committee and advises it on a range of executive and director compensation matters including plan design,
competitive market assessments, trends, best practices and technical and regulatory developments. Pearl Meyer provides
services to the Compensation Committee related only to executive and director compensation, and provides no other services
to the Compensation Committee or the Company.
In accordance with the Compensation Committee’s charter, our Chief Executive Officer may not be present during
voting or deliberations of the Committee regarding his or her compensation and the Committee reserves the right to request
any executive officer present during voting or deliberations of the Committee regarding such executive officer’s
compensation to recuse himself or herself.
Nominating, Governance and Corporate Responsibility Committee
Our Nominating, Governance and Corporate Responsibility Committee consists of Marka Hansen, Travis Nelson,
Michael Rahamim and Andrew Rolfe. In addition, Kelly Mooney served on our Nominating, Governance and Corporate
Responsibility Committee during 2019 fiscal year. Because we are a controlled company under the NYSE listing rules, our
Nominating, Governance and Corporate Responsibility Committee is not required to be fully independent. Our Nominating,
Governance and Corporate Responsibility Committee met five times during our 2019 fiscal year. Our Nominating,
Governance and Corporate Responsibility Committee is responsible for selecting or recommending that our Board of
Directors select candidates for election to our Board of Directors, developing and recommending to our Board of Directors
corporate governance guidelines that are applicable to us and overseeing Board of Director and management evaluations. Our
Nominating, Governance and Corporate Responsibility Committee is also responsible for reviewing and providing guidance
to us on corporate responsibility and sustainability issues.
Board Leadership Structure and Board’s Role in Risk Oversight
Our Corporate Governance Guidelines provide that the roles of the Chairman of the Board of Directors and Chief
Executive Officer may be combined or separated. Our Board of Directors believes that the Company and its stockholders are
best served by maintaining flexibility to have any director serve as Chairman and therefore believes that a permanent policy
on whether the Chairman of the Board of Directors and the Chief Executive Officer positions should be separated or
combined is not appropriate.
58
As of the date hereof, Mr. Scully serves as our Interim Chief Executive Officer and Mr. Rahamim serves as our
Chairman of the Board of Directors. Our Board of Directors believes that this leadership structure, separating the Chairman
and Interim Chief Executive Officer roles, is appropriate for the Company at this time, since it allows Mr. Scully to focus on
the operational leadership and strategic direction of the Company. At the same time, Mr. Rahamim can focus on leadership of
the Board of Directors, including calling and presiding over Board meetings and executive sessions of the independent
directors, preparing meeting agendas in collaboration with the Interim Chief Executive Officer and serving as a liaison and
supplemental channel of communication between independent directors and the Interim Chief Executive Officer.
Our Board of Directors has an oversight role, as a whole and also at the committee level, in overseeing management of
our risks. The Audit Committee regularly reviews information regarding our credit, liquidity and operations, as well as the
risks associated with each. The Compensation Committee is responsible for overseeing the management of risks relating to
its employee compensation plans and arrangements, and the Audit Committee oversees the management of financial risks.
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire
Board of Directors is regularly informed through committee reports about such risks.
Executive Sessions of our Board of Directors
In order to promote open discussion among non-management directors, and as required under applicable NYSE rules,
the non-management members of our Board of Directors meet in regularly scheduled executive sessions at least quarterly
without management directors or any other members of the Company’s management present. In addition, the independent
members of our Board of Directors meet in a regularly scheduled executive session at least annually. Our Chairman of our
Board of Directors, Michael Rahamim, presides at all regularly scheduled executive sessions.
Biographies of Executive Officers
James Scully See Mr. Scully’s biography above under the hearing “Biographies of Directors.”
Mark Webb has served as J.Jill’s Executive Vice President, Chief Financial Officer since May 1, 2019. Before joining
J.Jill, Mr. Webb served as Senior Vice President, Chief Financial Planning & Analysis and Treasury Officer at Hudson’s
Bay Company since January 2018. He previously served as Senior Vice President, Chief Financial Officer, Gap Brand and
Intermix, at Gap, Inc. from February 2013 to April 2017. Mr. Webb received his BSBA in Accounting and Finance from the
University of Arizona.
Brian Beitler has served as J.Jill’s Chief Marketing and Brand Development Officer since September 2018. Before
r
joining J.Jill, Mr. Beitler was Chairman of the Executive Board of the Global Retail Marketing Association, an organization
that provides education and events for C-level executives in retail, restaurant, hospitality, financial and insurance services
from November 2017 to August 2018. He previously served as Chief Marketing Officer of the Plus Fashion Segment (Lane
Bryant & Catherine’s), a division of Ascena Retail Group, from 2014 to October 2017. Prior to that Mr. Beitler was Chief
Marketing Officer at David’s Bridal, Inc. from 2010 to 2014. Before David’s Bridal, he was Senior Vice President of
Marketing for Kohl’s department store and led all aspects of marketing strategy. He has also previously held senior
leadership roles at Bath and Body Works, Toys R Us, and Mattel. He received his M.B.A. from Brigham Young University
and received a Bachelor’s Degree in Marketing from the University of Utah.
Deanna Steele has served as J.Jill’s Executive Vice President and Chief Information and Digital Officer since July
2019. Before joining J.Jill, Ms. Steele served as Chief Information Officer at Ingram Content Group from February 2017 to
May 2019. She previously served as Chief Information Officer at Ascena Retail Group from 2013 to February 2017. During
her tenure at Ascena Retail Group, Ms. Steele’s duties included overseeing Lane Bryant, Catherine’s Stores and Justice
brands. Ms. Steele also previously served as a director of Women in Technology Tennessee, TechBridge and Circle of
Friends. She received her Bachelor’s in Science from Pepperdine University.
Family Relationships
There is no family relationship between any director or executive officer of the Company.
Legal Proceedings
During the past ten years none of our directors or executive officers was involved in any legal proceedings described in
subparagraph (f) of Item 401 of Regulation S-K.
59
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers, directors, and persons who beneficially own more
than 10% of a registered class of our common stock or other equity securities to file with the SEC certain reports of
ownership and reports of changes in ownership of our securities. Executive officers, directors and stockholders who hold
more than 10% of our outstanding common stock are required by the SEC to furnish us with copies of all required forms filed
under Section 16(a). Based solely on a review of this information and written representations from these persons that no other
reports were required, we believe that, during the prior fiscal year, all of our executive officers, directors, and to our
knowledge, 10% stockholders complied with the filing requirements of Section 16(a) of the Exchange Act, except that a
Form 3 of Ms. Steele filed on March 24, 2020, a Form 4 filed on March 24, 2020, reporting a grant of an aggregate of 35,226
restricted stock units, a Form 4 of Mr. Eck filed on June 12, 2019 reporting purchases of an aggregate of 30,000 shares of our
common stock and a Form 4 of Mr. Rahamim filed on March 19, 2020 reporting purchases of an aggregate of 150,000 of our
common stock, were filed late due to administrative oversight.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of Conduct and Ethics that applies to all of our directors, officers and
employees and is intended to comply with the relevant listing requirements for a code of conduct as well as qualify as a “code
of ethics” as defined by the rules of the SEC. The Code of Conduct and Ethics contains general guidelines for conducting our
business consistent with the highest standards of business ethics. We intend to disclose any future amendments to certain
provisions of our Code of Conduct and Ethics, or waivers of such provisions applicable to any principal executive officer,
principal financial officer, principal accounting officer and controller, or persons performing similar functions, and our
directors, on our website at www.jjill.com . The Code of Conduct and Ethics is available on our website under Governance
Documents in the Investor Relations—Corporate Governance section of our website at www.jjill.com.
Communications with our Board of Directors from Stockholders or Other Interested Parties
Any stockholder or other interested party may contact our Board of Directors as a group, our independent directors as a
group, or any individual director by sending written correspondence to them in care of our Secretary and General Counsel at
our principal executive offices at 4 Batterymarch Park, Quincy, Massachusetts 02169. Such communication will be
forwarded to the intended recipient(s). We currently do not intend to have our Secretary and General Counsel screen this
correspondence, but we may change this policy if directed by our Board of Directors due to the nature or volume of the
correspondence., and is incorporated herein by reference.
Item 11. Executive Compensation
Director Compensation
Non-employee members of our Board of Directors, (other than Andrew Rolfe and Michael Recht), are compensated for
a full year of service as follows; directors who serve less than a full year are entitled to a pro-rated portion of the applicable
compensation.
a
Board Position
Chairman of the Board
Board Member (other than the Chairman of the Board)
Finance Committee Chair
Audit Committee Chair
Other Committee Chair
Audit Committee Member
Other Committee Member
Annual
Cash
Retainer
($)
80,000
50,000
80,000
20,000
10,000
7,500
5,000
Annual
Equity
Award
Value
($)
100,000
100,000
n/a
n/a
n/a
n/a
n/a
Members of our Board of Directors also receive reimbursement of expenses for travel to Board of Directors and Board
Committee meetings.
60
Director Compensation Table
The following table sets forth the total compensation paid to each of our non-employee directors (other than Andrew
Rolfe and Michael Recht) for the fiscal year ended February 1, 2020.
Name(1)
Michael Rahamim
Marka Hansen
Michael Eck
James S. Scully(4)
Travis Nelson(5)
Kelly Mooney(6)
Fees
Earned
or Paid in
Cash(2)
($)
90,000
65,000
70,000
97,500
62,500
46,072
Stock
Awards(3)
($)
123,003
123,003
123,003
123,003
100,003
75,002
Total
($)
213,003
188,003
193,003
220,503
162,503
121,074
(1) Andrew Rolfe and Michael Recht, each of whom was an employee or partner of TowerBrook as of February 1,
2020, did not receive any compensation in respect of their services to our Board of Directors.
(2) Amounts set forth in the Fees Earned or Paid in Cash column represent the aggregate dollar amount of all fees
earned or paid in cash for services as a director, including annual retainer fees and committee and/or chairmanship
fees.
(3) Amounts set forth in the Stock Awards column represent the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. In fiscal 2019, Messrs. Rahamim, Hansen, Eck, Scully,and Nelson each
received a grant of 19,570 Restricted Stock Units (“RSUs”) on March 22, 2019 and a grant of 4,167 Dividend
Equivalent Units (DEUs) on April 1, 2019. Ms. Mooney received a pro-rated grant of 13,915 RSUs on April 2,
2019.
(4) The compensation shown above reflects compensation earned by Mr. Scully prior to his appointment as our
Interim President and Chief Executive Officer.
(5) Fees for Travis Nelson in fiscal 2019 were paid to Eclipse Investors, LLC.
(6) Ms. Mooney resigned from our Board of Directors and from all committees of the Board of Directors on which she
served, effective as of April 5, 2020.
The following table provides information about the outstanding equity awards held by our members of our Board of
Directors as of February 1, 2020.
Name(1)
Michael Rahamim(2)
Marka Hansen(2)
Michael Eck
Travis Nelson
Kelly Mooney
James Scully
Number of
Restricted
Stock Units
or Restricted
Shares that
Have Not
Vested ($)
72,044(3)
37,061(4)
19,570(5)
19,570 (5)
13,915(6)
19,570(5)
(1) Andrew Rolfe and Michael Recht, each of whom was an employee or partner of TowerBrook as of February 2,
2019, do not directly hold any equity awards, whether in the form of restricted shares or RSUs.
61
(2) In connection with the acquisition of our business by investment funds affiliated with TowerBrook on May 8,
2015, Mr. Rahamim and Ms. Hansen were issued Class A Common Interests of JJill Topco Holdings, LP (“Topco”
and such interests, “Common Interests”). In connection with the IPO, Topco was liquidated and a distribution was
made to each of Mr. Rahamim and Ms. Hansen in respect of his or her Common Interests consisting of (i) fully
vested shares and (ii) restricted shares subject to vesting conditions consistent with the schedule previously
applicable to the Common Interests.
(3) The award of 52,474 restricted shares is scheduled to vest on May 8, 2020. The award of 19,570 RSUs is
scheduled to vest on March 22, 2020.
(4) The award of 17,491 restricted shares is scheduled to vest on May 8, 2020. The award of 19,570 RSUs is
scheduled to vest on March 22, 2020.
(5) This award of RSUs is scheduled to vest on March 22, 2020.
(6) This award of RSUs is scheduled to vest on April 2, 2020.
Executive Compensation
Summary Compensation Table
The following summary compensation table sets forth information regarding the compensation paid to, awarded to, or
earned by our Interim Chief Executive Officer, our Former President and Chief Executive Officer and our two other most
highly compensated executive officers, for services rendered in all capacities during the years ended February 2, 2019, and
February 1, 2020.
Name and Principal Position
James Scully(6)
Interim Chief Executive Officer
Linda Heasley (7)
Former President and Chief Executive
Officer
Mark Webb (8)Executive Vice
President,Chief Financial Officer2019
Executive Vice President, Chief
Financial Officer
Brian Beitler
Executive Vice President, Chief
Marketing and Brand Development
Officer
Fiscal
Year
2019
Salary(1)
($)
193,846
Bonus(2)
($)
100,000
Stock
Awards(3)
($)
223,200
2019
754,616
1,967,965
—
—
Option
Awards(3)
($)
Non-Equity
Incentive Plan
Compensation(4)
($)
2018
726,923
— 4,091,696
1,753,114
2019
456,923
418,462
906,003
2019
515,415
254,558
2018
205,962
123,577
510,002
—
—
—
All Other
Compensation(5)
($)
0
Total
($)
517,046
247,778
2,970,358
158,334
6,730,067
165,358
1,946,746
142,314
937,141
39,396
878,937
—
—
—
—
—
—
(1) Amounts set forth in the Salary column reflect the amount actually paid to each named executive for Fiscal Years
2018 and 2019 and includes the effect of any mid-year adjustments to their base salaries, if applicable. As of the
end of fiscal year 2019, the annual base salary rates for Mr. Webb, and Mr. Beitler were $600,000, and $516,400,
respectively. Mr. Scully became Interim CEO on December 5, 2019, receiving $100,000 per month as base salary.
The amounts reported above reflect his base salary as Interim CEO from December 5, 2019 through the end of our
fiscal year, February 1, 2020.
(2) Amounts shown in the Bonus column for fiscal year 2019 represent the following: Mr. Scully sign-on bonus
($100,000 ) and Mr. Webb sign-on bonus ($100,000 ) and guaranteed bonus for fiscal year 2019 ($318,462).
Amounts shown in the Bonus column for fiscal year 2018 for Mr. Beitler represents his guaranteed annual bonus
for fiscal year 2018 of no less than $123,577, which was paid to him as a sign-on bonus pursuant to his offer letter.
(3) Represents the aggregate grant date fair value of RSUs granted during the year in accordance with the Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation
(disregarding any forfeiture assumptions). These amounts do not correspond to the actual value that may be
realized by our NEOs for these awards. The NEOs were granted awards during fiscal year 2019 as follows: for Mr.
Scully, 180,000 RSUs on December 5, 2019, for Ms. Heasley, 195,695 RSUs on March 22, 2019; for Mr. Webb,
62
128,677 RSUs on May 1, 2019 and 200,000 RSUs on December 12, 2019; for Mr. Beitler, 35,226 RSUs on March
22, 2019 and 13,506 Dividend Equivalent Units on April 1, 2019. The NEOs were granted awards during fiscal
year 2018 as follows: for Ms. Heasley, 835,040 RSUs on April 16, 2018 and 796,870 options on April 16, 2018;
for Mr. Beitler, 86,441 RSUs on September 10, 2018. See Note 14 to our consolidated financial statements and
“Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Significant Estimates-Equity-based Compensation” included in our Annual Report on Form 10-K for
the assumptions made in determining these values.
(4) The Company's Annual Incentive Plan for fiscal year 2019 was measured based on the Company's adjusted
EBITDA. Threshold and target adjusted EBITDA performance goals were established along with their
corresponding payout opportunities. To the extent that actual adjusted EBITDA exceeds the target performance
goal, the payout for fiscal year 2019 is capped at a payout multiplier of 2.0x. The annual target bonus (as a % of
base salary) for each of Messrs. Webb and Beitler under the Company's Annual Incentive Plan for fiscal year 2019
was 70% and 60%, respectively. The following table outlines the adjusted EBITDA performance objectives and
the payout multiplier for fiscal year 2019:
Adjusted
EBITDA
Payout Multiplier
/ Bonus Pool
Increment
Below
Threshold
Threshold
< $103.5
million
$103.5
million
No payout
0.25x
Below
Target
>$103.5
million,
but < $114.5
million
$0.36 added to
the bonus pool
for every $1.00
of adjusted
EBITDA
generated
Target
$114.5
million
Above Threshold but
Above
Target
> $114.5
million
but < $118.1
million
$0.48 added to
the bonus pool
for every $1.00
of adjusted
EBITDA
generated
1.0x
Well Above
Target
> $118.1
million
$0.21 added to
the bonus pool
for every $1.00
of adjusted
EBITDA
generated
In fiscal year 2019, the Company achieved an adjusted EBITDA of $65.48 million (which did not exceed the adjusted
EBITDA threshold, resulting in no payout of cash bonuses).
(1) Amounts shown in the All Other Compensation column for fiscal year 2019 represent the following: For Mr.
Scully, ($0); for Ms. Heasley, 401(k)-matching contribution ($8,400), severance payments ($145,385),
Relocation & Related Tax Gross-ups ($38,117), vacation payout ($55,385), and subsidized COBRA premiums of
$491; for Mr. Webb, 401(k)-matching contribution ($4,327), Relocation & Related Tax Gross-ups ($161,032);
for Mr. Beitler, 401(k)-matching contribution ($9,641), Relocation & Related Tax Gross-ups ($132,072),
reimbursement for business use of mobile device ($600)
(2)
Prior to Mr. Scully’s appointment as Interim CEO on December 5, 2019, he received compensation for his role
as a director on our Board of Directors. The amounts reported above are those that relate to his service as Interim
CEO. Mr. Scully’s compensation for services as a director are reported on the Director Compensation Table.
(3) Ms. Heasley stepped down as our President and Chief Executive Officer and as a director on our Board of
Directors, effective December 4, 2019.
(4) Mr. Webb received a grant of 128,677 RSUs on May 1, 2019 per the terms of his offer letter, and received a
grant of 200,000 RSUs on December 12, 2019.
Employment Agreements
We have entered into employment agreements with each of our named executive officers. In addition to customary
terms and provisions, the employment agreements set forth the annual base salary, target bonus percentage, equity grants,
terms of severance and eligibility for employee benefits
63
Offer Letter Agreement with James Scully, Our Interim President and Chief Executive Officer
We entered into an offer letter, which became effective on December 4, 2019, as amended March 4, 2020, with Mr.
Scully, which provides that he will serve as Interim President and Chief Executive Officer effective on December 5, 2019
until the earlier of the date that a permanence Chief Executive Officer commences employment and the date that is 180 days
from the start date (the “Initial Term”), and thereafter may be extended on a month-to-month basis. Pursuant to his offer
letter agreement, Mr. Scully is entitled to the following compensation: (i) monthly cash compensation of $100,000; (ii) a
sign-on bonus of $100,0000; (iii) up to $10,000 per month in travel expenses for travel to Quincy, Massachusetts; (iv) an
annual bonus for fiscal year 2020 with a target bonus of $1.2 million (prorated for any partial year of service beginning on
March 4, 2020); provided, that the actual amount of Mr. Scully’s annual bonus in respect of the Company’s 2020 fiscal year
will not be less than $300,000, and (v) reimbursement of up to $17,500 in legal fees related to the negotiation of the offer
letter amendment and related arrangements. In addition, the Company also granted a sign-on equity award of 180,000
restricted stock units to Mr. Scully on December 5, 2019 which will vest on the last day of the Initial Term.
Employment and Separation Agreements with Linda Heasley, Our Former President and Chief Executive Officer
We entered into an employment agreement with Ms. Heasley, which provided for the following compensation: (i) an
annual base salary of $900,000; (ii) eligibility to receive an annual bonus with a target of 100% of her base salary; (iii) up to
$150,000 in aggregate moving and housing expenses for up to 12 months related to Ms. Heasley’s relocation from Atlanta,
Georgia to Quincy, Massachusetts; and (iv) reimbursement of up to $20,000 in legal and consulting fees related to the
negotiation of her employment agreement and related arrangements. In addition, the Company also agreed to grant a sign-on
equity award to Ms. Heasley on her start date with a grant date fair market value of $6,000,000. Seventy percent of the award
was granted in the form of RSUs and 30% of the award was granted in the form of stock options. In addition, Ms. Heasley is
entitled to reimbursement for expenses reasonably incurred in connection with an annual physical with a provider of her
choice and up to $25,000 of professional fees incurred in connection with income tax planning and return preparation per
year.
On December 4, 2019, the Company entered into a separation agreement with Ms. Heasley, which provides that Ms.
Heasley’s departure from the Company will be treated as a “termination of employment by the Company without Cause” for
all purposes under her employment agreement. The separation agreement also provides that Ms. Heasley will make herself
reasonably available as may be requested by the Chief Executive Officer or our Board of Directors from time to time to
cooperate with matters that pertain to her past employment with the Company.
Ms. Heasley’s employment with the Company terminated, effective as of December 4, 2019. See “Estimated Payments
Upon Termination of Employment of Change in Control” for a discussion of Ms. Heasley’s payments received in connection
with her termination of employment.
Offer Letter Agreement with Mark Webb, Our Chief Financial Officer
We are party to an offer letter, which became effective on April12, 2019, with Mr. Webb, to serve as Executive Vice
President, Chief Financial Officer. Pursuant to the terms of the offer letter Mr Webb is entitled to the following
compensation (i) an annual base salary of $600,000(cid:7) (ii) a one-time sign-on bonus of $100,000(cid:7) and (iii) eligibility to receive
an annual bonus with a target of 70% of Mr. Webb’s base salary and up to 200% of his target bonus for exceptional
performance (with a guaranteed bonus for fiscal year 2019 of no less than $318,462, which represents his target bonus
prorated for the partial year of employment). In addition, the Company also agreed to grant a sign-on equity award in the
form of restricted stock units to Mr. Webb on his start date with a grant date fair market value of $700,000., which vest in
equal installments on each of the first four anniversaries of the date of grant. Mr. Webb will also receive in a guaranteed
Annual Incentive Plan payment of $319,846, which represents his prorated bonus for fiscal 2019 at the target of 70%.
Mr. Webb’s offer letter includes customary terms and conditions, including confidentiality and assignment of
intellectual property provisions, a 12-month post-employment prohibition on competition, a 12-month post-employment
prohibition on solicitation of customers, and a 12-month post-employment prohibition on solicitation of employees, agents,
or contract workers with whom Mr. Webb had material business contact during the course of her employment.
Mr. Webb is also entitled to severance upon certain terminations of employment, as described below under “Potential
Payments Upon Termination of Employment or Change in Control.”
64
Employment Agreement with Brian Beitler, Our Executive Vice President, Chief Marketing and Brand Development
Officer
We are party to an offer letter, which became effective on August 2, 2018, with Brian Beitler to serve as Executive
Vice President, Chief Marketing and Brand Development Officer. The offer letter provides that Mr. Beitler will report to the
Chief Executive Officer.
Pursuant to the terms of his offer letter, as amended, Mr. Beitler is entitled to a base salary equal to $510,000 per year
and a target bonus of at least 60% of his annual base salary and up to 200% of his target bonus for exceptional performance,
and eligibility to participate in, and receive grants of equity awards under, the Company’s equity compensation plans. The
Company also agreed to pay Mr. Beitler a guaranteed annual bonus for fiscal year 2018 of no less than $123,577 for fiscal
2018, which represented his target bonus, prorated for the partial year of employment and subsequently amended his offer
letter to pay this amount as a sign-on bonus in November of 2018. The offer letter provided that Mr. Beitler would be
entitled to participate in all of our benefit plans and programs (including four weeks of vacation).
Mr. Beitler’s offer letter includes customary terms and conditions, including confidentiality and assignment of
intellectual property provisions, a 12-month post-employment prohibition on competition, a 12-month post-employment
prohibition on solicitation of customers, and a 12-month post-employment prohibition on solicitation of employees, agents,
or contract workers with whom Mr. Bietler had material business contact during the course of her employment.
Mr. Beitler is also entitled to severance upon certain terminations of employment, as described below under “Potential
Payments Upon Termination of Employment or Change in Control.”
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about the outstanding equity awards held by our named executive officers as
of February 1, 2020.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
—
199,217.50
—
—
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price
($)
—
—
—
3.75
—
—
Name
James Scully
Linda Heasley
Mark Webb
Brian Beitler
Market
Value of
Restricted
Shares or
Units of
Stock that
Have Not
Vested(1)
($)
214,200
—
153,126
238,000
77,148
41,919
16,072
Option
Expiration
Date
3/4/2020(3)
Number of
Shares
that have
not Vested
(#)
180,000(2)
—
— 128,677(4)
200,000(5)
64,831(6)
35,226(7)
13,506(8)
—
(1) The market value of the restricted shares and RSUs shown above is based on the $1.19 closing market price of our
common stock on January 31, 2020.
(2) The award of RSUs vests on the earlier of (i) the date that a permanent (non-interim) Chief Executive Officer
commences employment and (ii) the date that is 90 days from December 5, 2019.
(3) The vested portion of Ms. Heasley's options may be exercised for 90 days following her termination of
employment with the Company.
(4) This award of RSUs vests 25% on each of the first four anniversaries of May 1, 2019
65
(5) This award of RSUs vests 25% on each of the first four anniversaries of December 12, 2019.
(6) This award of RSUs vests with respect to 21,610.25 RSUs on each of September 10, 2020, September 10, 2021
and September 10, 2022.
(7) This award of RSUs vests 25% on each of the first four anniversaries of March 22, 2019.
(8) This award is for the Dividend Equivalent Units issued on April 1, 2019. The DEUs vest with respect to 4,502
RSUs on each of September 10, 2020, September 10, 2021 and September 10, 2022.
Retirement Benefits
We sponsor a 401(k) plan, which is a qualified retirement plan offered to all eligible employees, including our named
executive officers, and which permits eligible employees to elect to defer a portion of their compensation on a pre-tax basis.
Pursuant to the terms of the 401(k) plan, we provide a company match of 50% of a named executive’s contributions to the
plan, up to a maximum of 6% of such executive’s eligible annual compensation. We do not maintain any defined benefit
pension plans or any nonqualified deferred compensation plans.
Potential Payments Upon Termination of Employment or Change in Control
Mark Webb
Termination without “Cause” and/or “Good Reason” Resignation: The Company’s offer letter with Mr. Webb
provides that, upon a termination of employment by us without “cause” or a resignation Mr. Webb for “good reason,” then
upon the execution of an irrevocable release of claims and continued compliance with the terms of the restrictive covenants
set forth in his offer letter, Mr. Webb would be entitled to:
•
•
•
•
payment of any accrued benefits including accrued base salary and benefits(cid:7)
any unpaid annual bonus earned but not yet paid for the fiscal year preceding the fiscal year in which
employment was terminated;
base salary continuation for a period of 12 months following the date of termination(cid:7) and
medical and dental coverage continuation for 12 months following the date of termination with the costs of the
premiums shared in the same proportion as before the termination of such executive’s employment (unless such
coverage is otherwise obtained through a new employer).
If the severance payments and vesting described above would be a “parachute payment” resulting in a lost tax
deduction for the Company under Section 280G of the Code and excise tax to the executive under Section 4999 of the Code,
such payments and vesting would be reduced to the extent necessary to avoid the imposition of any excise tax or loss in tax
deduction.
Pursuant to the terms of the RSU award agreement, if such termination occurs within 12 months following a change in
control, he is entitled to full acceleration of his outstanding RSUs.
Termination without “Good Reason” and/or Death/Disability. Mr. Webb’s offer letter provides that, upon termination
of employment due to death or disability or resignation without “good reason,” Mr. Webb will be entitled to accrued base
salary, any unpaid annual bonus earned but not yet paid for the fiscal year preceding the fiscal year in which employment was
terminated and benefits through the date of termination.
All other terminations of employment: Mr. Webb’s offer letter provides that, upon any other termination of
employment, Mr. Webb will be entitled only to accrued base salary and benefits through the date of termination.
66
Brian Beitler
Termination without “Cause” and/or “Good Reason” Resignation: The Company’s offer letter with Mr. Beitler
provides that, upon a termination of employment by us without “cause” or a resignation Mr. Beitler for “good reason,” then
upon the execution of an irrevocable release of claims and continued compliance with the terms of the restrictive covenants
set forth in his offer letter, Mr. Beitler would be entitled to:
•
•
•
•
payment of any accrued benefits including accrued base salary and benefits(cid:7)
any unpaid annual bonus earned but not yet paid for the fiscal year preceding the fiscal year in which
employment was terminated;
base salary continuation for a period of 12 months following the date of termination(cid:7) and
medical and dental coverage continuation for 12 months following the date of termination with the costs of the
premiums shared in the same proportion as before the termination of such executive’s employment (unless such
coverage is otherwise obtained through a new employer).
If the severance payments and vesting described above would be a “parachute payment” resulting in a lost tax
deduction for the Company under Section 280G of the Code and excise tax to the executive under Section 4999 of the Code,
such payments and vesting would be reduced to the extent necessary to avoid the imposition of any excise tax or loss in tax
deduction.
Pursuant to the terms of the RSU award agreement, if such termination occurs within 12 months following a change in
control, he is entitled to full acceleration of his outstanding RSUs.
Termination without “Good Reason” and/or Death/Disability. Mr Beitler’s offer letter provides that, upon termination
of employment due to death or disability or resignation without “good reason,” Mr. Beitler will be entitled to accrued base
salary, any unpaid annual bonus earned but not yet paid for the fiscal year preceding the fiscal year in which employment was
terminated and benefits through the date of termination.
All other terminations of employment: Mr Beitler’s offer letter provides that, upon any other termination of
employment, Mr. Beitler will be entitled only to accrued base salary and benefits through the date of termination.
Definitions of “Cause” and “Good Reason” and “Change in Control”
Messrs. Webb and Beitler’s offer letters defined “cause” generally as such executive’s (i) breach of any material
provisions of his or her employment agreement or offer letter(cid:7) (ii) failure to follow a lawful directive of his or her reporting
officer(cid:7) (iii) negligence in the performance or nonperformance of any of his or her duties or responsibilities(cid:7) (iv) dishonesty,
fraud, or willful misconduct with respect to our business or affairs(cid:7) (v) conviction of or plea of no contest to any
misdemeanor involving theft, fraud, dishonesty, or act of moral turpitude or to any felony(cid:7) or (vi) use of alcohol or drugs in a
manner that materially interferes with the performance of his or her duties.
Messrs. Webb and Beitler’s offer letter defined “good reason” generally as (i) a reduction in such executive’s title
below the level of Executive Vice President, as applicable(cid:7) (ii) a material reduction in his or her base salary(cid:7) or (iii) a
relocation of their principal work location outside of the Quincy, Massachusetts area. Ms. Heasley’s employment agreement
defined “good reason” generally as: (i) a material diminution in her duties or responsibilities; (ii) (A) she is not the senior
most executive officer of our Company, (B) she does not report directly to the Board of Directors or (C) any officer does not
report to her; (iii) a reduction in her title below the title of Chief Executive Officer; (iv) a material reduction in her base
salary; (v) the relocation of her principal work location outside of the Quincy, Massachusetts, area or (vi) any other material
breach of the employment agreement.
67
A change in control, as defined in the 2017 Plan and the employment and equity arrangements, generally means (i) the
acquisition by any person of beneficial ownership of 50% or more (on a fully diluted basis) of either (A) the then outstanding
shares of common stock of the Company or (B) the combined voting power of the then outstanding voting securities of the
Company entitled to vote in the election of directors, but excluding acquisitions by the Company, TI IV and its permitted
transferees or any of their respective affiliates or by any employee benefit plan sponsored by the Company or any of its
affiliates, (ii) a change in the composition of our Board of Directors such that members of our Board of Directors during any
consecutive 12- month period cease to constitute a majority of our Board of Directors, (iii) the approval by the shareholders of
the Company of a plan of complete dissolution or liquidation of the Company, or (iv) the consummation of a reorganization,
recapitalization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the
Company or sale, transfer or other disposition of all or substantially all of the business or assets of the Company to an entity tt
that is not an affiliate of the Company, unless immediately following such transaction.
Estimated Payments Upon Termination of Employment or Change in Control
The description below shows the severance payments and benefits that each named executive officer would, if
applicable, have received had his or her employment been terminated, (1) due to his or her resignation without “good reason”
or (2) by us without “cause” or pursuant to a resignation with “good reason,” whether prior to or following a “change in
control.” The amounts (other than for Ms. Heasley) are calculated as if the date of termination and, as applicable, the change
in control, occurred on February 1, 2020.
James Scully
•
On a termination for any reason prior to the end of the Initial Term, Mr. Scully would be entitled to $106,154,
which represents his monthly cash compensation through March 4, 2020, the end of the Initial Term.
Linda Heasley
•
Ms. Heasley stepped down from her position as President and Chief Executive Officer on December 4, 2019, her
departure was treated as a “termination without Cause” and pursuant to her separation agreement with the
Company she was entitled to $1,155,187, which represents the sum of (i) $900,000 in base salary continuation
for a period of 12 months following the date of termination, (ii) $13,077 in continued medical and dental
coverage for a period of 12 months following the date of termination, (iii) reimbursement for expenses she
reasonably incurred in connection with one annual physical and up to $25,000 of professional fees incurred in
connection with income tax planning and return preparation for 2019 and (iv) $217,110 in respect of the
acceleration of equity awards that otherwise vested on April 16, 2020. No bonus payable based on actual results.
Mark Webb
•
Termination without “Cause” and/or “Good Reason” Resignation: $618,339, which represents the sum of (x)
$600,000 in base salary continuation for a period of 12 months following the date of termination and (y) $18,339
in continued medical and dental coverage for a period of 12 months following the date of termination. In the
event that such termination were to occur within 12 months following a change in control, Mr. Webb would be
entitled to an additional $391,126 in respect of the acceleration of his then-unvested RSUs.
Brian Beitler
•
Termination without “Cause” and/or “Good Reason” Resignation: $527,463, which represents the sum of (i)
$510,000 in base salary continuation for a period of 12 months following the date of termination and (ii) $17,463
in continued medical and dental coverage for a period of 12 months following the date of termination. In the
event that such termination were to occur within 12 months following a change in control, Mr. Beitler would be
entitled to an additional $135,139 in respect of the acceleration of his then-unvested RSUs.
68
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee in Fiscal Year 2019 was, at any time during Fiscal Year 2019 or
at any other time, an officer or employee of the Company. None of our executive officers serves, or in the past has served, as
a member of the Board of Directors or compensation committee of any entity, or other committee serving an equivalent
function, of any entity that has one or more executive officers who serve as members of our Board of Directors or our
compensation committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock as of
February 1, 2020 unless otherwise noted below for the following:
•
•
•
•
each person, or group of affiliated persons, who we know to beneficially own more than 5% of our common
stock;
each of our named executive officers;
each of our directors; and
all of our executive officers and directors as a group.
The percentage of ownership is based on 42,288,127 shares of common stock outstanding as of February 1, 2020.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or investment power with respect to such
securities. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the
shares beneficially owned by them, subject to applicable community property laws. Unless otherwise indicated, the address
of each person or entity named in the table below is c/o J.Jill, Inc., 4 Batterymarch Park, Quincy, Massachusetts 02169.
5% Stockholders
Entities affiliated with TowerBrook1
NNamed Executive Officers and Directors
James Scully
Mark Webb
Brian Beitler
Michael Eck
Marka Hansen
Kelly Mooney2
Travis Nelson
Michael Rahamim3
Michael Recht
Andrew Rolfe
Linda Heasley4
All directors and executive officers as a group
Shares
Beneficially
Owned
25,770,647
189,293.67
—
43,434.08
85,065.67
142,390.67
16,850
—
374,950.67
—
—
210,195.63
1,062,180.39
Percentage of
Shares
Beneficially
Owned
58.9%
*
*
*
*
*
*
*
*
—
—
*
58.9%
* Represents beneficial ownership of less than 1% of shares outstanding.
1
The shares are held directly by TI IV JJill Holdings, LP. The general partner of TI IV JJill Holdings, LP is TI IV JJ
GP, LLC. The sole member of TI IV JJ GP, LLC is TowerBrook Investors IV (Onshore), L.P. The general partner
of TowerBrook Investors IV (Onshore), L.P. is TowerBrook Investors GP IV, L.P., and its ultimate general partner
is TowerBrook Investors, Ltd. The natural persons that have voting or investment power over shares of common
stock beneficially owned by TowerBrook Investors GP IV, L.P. and TowerBrook Investors, Ltd. are Neal
Moszkowski and Ramez Sousou. The address of each of the entities and natural persons identified in this footnote
is c/o TowerBrook Capital Partners L.P., 65 East 55th Street, 19th Floor, New York, New York 10022.
69
2 Ms. Mooney served on our Board of Directors until April 5, 2020.
3
Includes 106,291 shares directly held by Mr. Rahamim’s spouse.
4 Ms. Heasley was our President and Chief Executive Officer and a member of our Board of Directors until
December 4, 2019.1
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than compensation arrangements for our named executive officers and directors, we describe below each
transaction or series of similar transactions, since February 2, 2019, to which we were a party or will be a party, in which:
•
•
the amounts involved exceeded or will exceed $120,000; and
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the
immediate family of the foregoing persons, had or will have a direct or indirect material interest.
Compensation arrangements for our named executive officers and directors are described in the sections entitled
“Executive Compensation—Executive Compensation” and “Executive Compensation—Director Compensation.”
Indemnification arrangements for our named executive officers and directors are described below under “—
Indemnification Agreements.”
Policies and Procedures for Related Party Transactions
We have adopted a written Related Person Transaction Policy (the “policy”), which sets forth our policy with respect to
the review, approval, ratification and disclosure of all related person transactions by our Audit Committee. In accordance
with the policy, our Audit Committee has overall responsibility for the implementation and compliance with the policy.
For purposes of the policy, a “related person transaction” is a transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved
exceeded, exceeds or will exceed $120,000 and in which any related person (as defined in the policy) had, has or will have a
direct or indirect material interest. A “related person transaction” does not include any employment relationship or
transaction involving an executive officer and any related compensation resulting solely from that employment relationship
that has been reviewed and approved by our Board of Directors or Compensation Committee.
The policy requires that notice of a proposed related person transaction be provided to our legal department prior to
entering into such transaction. If our legal department determines that such transaction is a related person transaction, the
proposed transaction will be submitted to our Audit Committee for consideration at its next meeting. Under the policy, only
our Audit Committee will be permitted to approve those related person transactions that are in, or not inconsistent with, our
best interests and the best interests of our stockholders. In the event we become aware of a related person transaction that has
not been previously reviewed, approved or ratified under the policy and that is ongoing or is completed, the transaction will
be submitted to our Audit Committee so that it may determine whether to ratify, rescind or terminate the related person
transaction.
1 Note to Draft: 199,218 shares of common stock issuable upon exercise of stock options to be included to the extent
exercised.
70
The policy also provides that our Audit Committee will review certain previously approved or ratified related person
transactions that are ongoing to determine whether the related person transaction remains in our best interests and the best
interests of our stockholders. Additionally, we will make periodic inquiries of directors and executive officers with respect to
any potential related person transaction of which they may be a party or of which they may be aware.
Stockholders Agreement
In connection with our IPO, on March 14, 2017 we entered into a Stockholders Agreement with TI IV, which, as
further described below, contains certain rights for TI IV.
Consent Rights
For so long as TI IV beneficially owns at least 50% of our common stock, TI IV will have prior approval rights over
the following transactions:
•
•
•
•
•
•
•
•
•
•
•
•
Any increase or decrease in the size of our Board of Directors;
Any incurrence of indebtedness (other than (i) debt existing as of the date of the Stockholders Agreement or
refinancing thereof, (ii) capital leases approved by our Board of Directors and (iii) intercompany debt) in excess
of $10.0 million(cid:7)
Any authorization, creation (by way of reclassification, merger, consolidation or otherwise) or issuance of equity
securities (including preferred stock) other than issuances (i) pursuant to an equity compensation plan, (ii) by a
subsidiary to us or another wholly owned subsidiary or (iii) upon conversion of convertible securities or exercise
of options or warrants outstanding as of the date of the Stockholders Agreement or issued in compliance with the
Stockholders Agreement(cid:7)
Any redemption or repurchase of our equity securities, other than (i) from any director, officer, independent
contractor or employee in connection with the termination of the employment or services of such director, officer
or employee as contemplated by the applicable equity compensation plan or award agreement or (ii) pursuant to
an offer made pro rata to all stockholders party to the Stockholders’ Agreement(cid:7)
Any material acquisition of the assets or equity interests of any other entity in any single transaction or series of
related transactions(cid:7)
Any fundamental changes to the nature of our business that involve the entry into any new line of business(cid:7)
The adoption, approval or issuance of any “poison pill,” stockholder or similar rights plan by us or our
subsidiaries or any amendment of such plan(cid:7)
Any amendment, restatement or modification of our certificate of incorporation or by-laws(cid:7)
Any payment or declaration of any dividend or other distribution on any of our equity securities or entering into a
recapitalization transaction the primary purpose of which is to pay a dividend, other than dividends required to be
made pursuant to the terms of any outstanding preferred stock(cid:7)
Appointment or removal of the chairperson of our Board of Directors(cid:7)
The consummation of a change of control or entry into any contract or agreement the effect of which would be a
change of control(cid:7) and
Our or any of our subsidiaries’ entry into any voluntary liquidation, dissolution or commencement of bankruptcy
or insolvency proceedings, the adoption of a plan with respect to any of the foregoing or the decision not to
oppose any similar proceeding commenced by a third party.
The effect of the Stockholders Agreement will be that TI IV may maintain control over our significant corporate
transactions even if it holds less than a majority of our common stock.
Composition of our Board of Directors
The Stockholders Agreement also provides TI IV with certain rights with respect to the designation of directors to
serve on our Board of Directors. As set forth in the Stockholder’s Agreement, for so long as TI IV beneficially owns at least
50% of our common stock, it is entitled to designate for nomination a majority of our Board of Directors. When TI IV
beneficially owns less than 50% of our common stock but owns at least 10% of our common stock, TI IV is entitled to
designate for nomination a number of directors in proportion to its ownership of our common stock, rounded up to the nearest
whole person. When TI IV owns less than 10% of our common stock but owns at least 5% of our common stock, TI IV is
entitled to designate for nomination the greater of (i) a number of directors in proportion to its ownership of our common
stock, rounded up to the nearest whole person, and (ii) one director.
71
Registration Rights Agreement
In connection with our IPO, we entered into a registration rights agreement on March 14, 2017 that provides TI IV an
unlimited number of “demand” registrations and customary “piggyback” registration rights, and provides certain members of
our management with customary “piggyback” registration rights. The registration rights agreement also provides that we will
pay certain expenses relating to such registrations and indemnify the registration rights holders against certain liabilities
which may arise under the Securities Act.
Services Agreement
We are party to a services agreement with TowerBrook, pursuant to which TowerBrook has performed and will
perform management support advisory services, planning and finance services for us. Under the services agreement, we
agreed to pay and reimburse reasonable out of pocket expenses to TowerBrook for conducting these advisory services. In
Fiscal Year 2019, we reimbursed TowerBrook $51,127 in relation to these services.
Indemnification Agreements
We have entered into customary indemnification agreements with our executive officers and directors that provide, in
general, that we will provide them with customary indemnification in connection with their service to us or on our behalf.
These indemnification agreements require us, among other things, to indemnify our directors and officers against
liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful
misconduct. These indemnification agreements also require us to advance any expenses incurred by the directors or officers
as a result of any proceeding against them as to which they could be indemnified and to obtain directors’ and officers’
insurance, if available on reasonable terms.
Director Independence
We are a “controlled company” for the purposes of the NYSE’s rules and corporate governance standards because
more than 50% of the voting power of our common stock is owned by TI IV. As a “controlled company,” we may elect not to
comply with certain NYSE corporate governance requirements, including those that would otherwise require our Board of
Directors to have a majority of independent directors and require that we either establish Compensation and Nominating and
Corporate Governance Committees, each comprised entirely of independent directors, or otherwise ensure that the
compensation of our executive officers and nominees for directors are determined or recommended to our Board of Directors
by the independent members of our Board of Directors.
Our Board of Directors has determined that Michael Eck, Marka Hansen, Travis Nelson and Michael Rahamim are
“independent directors,” as defined by the applicable NYSE rules. Our Board of Directors has also determined that Kelly
Mooney, who served as a director until April 5, 2020, was independent.
Item 14. Principal Accounting Fees and Services
PwC has audited our annual financial statements or those of our predecessor, Jill Intermediate LLC, since 2009.
72
Summary of Fees
The Audit Committee has adopted a policy for the pre-approval of all audit and permitted non-audit services that may
be performed by our independent registered public accounting firm. Under the policy, the Audit Committee must give prior
approval for any amount or type of service within four categories—audit, audit-related, tax services or, to the extent
permitted by law, other services—that the independent auditor provides. Prior to the annual engagement, the Audit
Committee may grant general pre-approval for independent auditor services within these four categories. During the year,
circumstances may arise when it may become necessary to engage the independent auditor for additional services not
contemplated in the original pre-approval and, in those instances, such service will require separate pre-approval by the Audit
Committee if it is to be provided by the independent auditor. For any pre-approval, the Audit Committee will consider
whether such services are consistent with the SEC’s rules on auditor independence, whether the auditor is best-positioned to
provide the most cost-effective and efficient service and whether the service might enhance our ability to manage or control
risk or improve audit quality. The Audit Committee may delegate to one or more of its members authority to approve a
request for pre-approval, provided the member reports any approval so given to the Audit Committee at its next scheduled
meeting. All fees incurred subsequent to our IPO were pre-approved by the Audit Committee.
The following table summarizes the aggregate fees billed for professional services rendered by PwC to us for the fiscal
years ended February 2, 2019 and February 1, 2020. A description of these various fees and services follows the table.
Name
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Audit Fees
Fiscal 2018
Fiscal 2019
$
$
$
933,890
100,100
—
—
1,033,990
$
$
1,202,349
—
—
—
1,202,349
The aggregate fees billed to us by PwC in Fiscal Year 2018 and Fiscal Year 2019 reflected as audit fees above consist
of fees billed related to the audit of our annual consolidated financial statements included in our annual report on Form 10-K
and the review of our quarterly consolidated financial statements included in our quarterly reports on Form 10-Q.
Audit-Related Fees
The aggregate fees billed to us by PwC in Fiscal Year 2018 and Fiscal Year 2019 reflected as audit-related fees above
consist of aggregate fees for accounting consultations and other services that were reasonably related to the performance of
audits or reviews of our consolidated financial statements and were not reported above under “Audit Fees.” These services
include accounting consultations concerning financial accounting and reporting standards.
73
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements.
PART IV
See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part
of this report.
(a)(2) Financial Statement Schedules.
All schedules have been omitted because they are not required or because the required information is given in the
Consolidated Financial Statements or Notes thereto set forth below beginning on page F-1.
(a)(3) Exhibits.
The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on
Form 10-K.
Exhibit
Number
Exhibit Index
Exhibit Description
3.1
3.2
4.1*
10.1
10.2
10.3†
10.4
10.5
10.6
10.7
Certificate of Incorporation of J.Jill, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Form 10-
K, filed on April 28, 2017 (File No. 001-38026)).
Bylaws of J.Jill, Inc. (incorporated by reference from Exhibit 3.2 to the Company’s Form 10-K, filed on April 28,
2017 (File No. 001-38026)).
Description of the Registrant’s Securities Registered pursuant to Section 12 of the Securities Exchange Act of
1934
Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Amendment No. 1 to the
Company’s Registration Statement on Form S-1, filed on February 27, 2017 (File No. 333-215993)).
Registration Rights Agreement, dated as of March 14, 2017 (incorporated by reference from Exhibit 10.2 to the
Company’s Form 10-K, filed on April 28, 2017 (File No. 001-38026)).
J.Jill, Inc. 2017 Omnibus Equity Incentive Plan, as amended (incorporated by reference from Exhibit 99.1 to the
Company’s Registration Statement on Form S-8, filed on June 14, 2018 (File No. 333-225642)).
Term Loan Credit Agreement, dated as of May 8, 2015, among Jill Holdings LLC, Jill Acquisition LLC, the
various lenders party thereto from time to time and Jefferies Finance LLC, as the administrative agent
(incorporated by reference from Exhibit 10.4 to the Company’s Registration Statement on Form S-1, filed on
February 10, 2017 (File No. 333-215993)).
Amendment No. 1 to Term Loan Credit Agreement, dated as of May 27, 2016, among Jill Acquisition LLC, Jill
Intermediate LLC, the lenders party thereto and Jefferies LCC as the administrative agent (incorporated by
reference from Exhibit 10.5 to the Company’s Registration Statement on Form S-1, filed on February 10, 2017
(File No. 333-215993)).
ABL Credit Agreement, dated as of May 8, 2015, among Jill Holdings LLC, Jill Acquisition LLC, certain
subsidiaries of Jill Acquisition LLC from time to time party thereto, the lenders party thereto and CIT Finance
LLC, as the administrative agent and collateral agent (incorporated by reference from Exhibit 10.6 to the
Company’s Registration Statement on Form S-1, filed on February 10, 2017 (File No. 333-215993)).
Amendment No. 1 to ABL Credit Agreement, dated as of May 27, 2016, among Jill Acquisition LLC, Jill
Intermediate LLC, certain subsidiaries of Jill Acquisition LLC from time to time party thereto, the lenders party
thereto and CIT Finance LLC, as the administrative agent and collateral agent (incorporated by reference from
Exhibit 10.7 to the Company’s Registration Statement on Form S-1, filed on February 10, 2017 (File No. 333-
215993)).
74
Exhibit
Number
10.8
10.9
10.10
10.11†
10.12†
10.13
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
Exhibit Description
Services Agreement, dated as of May 8, 2015, by and between Jill Acquisition LLC and TowerBrook Capital
Partners L.P (incorporated by reference from Exhibit 10.8 to the Company’s Registration Statement on Form S-1,
filed on February 10, 2017 (File No. 333-215993)).
Lease Agreement, dated as of September 30, 2010, by and between Cole JJ Tilton NH, LLC and Jill Acquisition
LLC (incorporated by reference from Exhibit 10.12 to the Company’s Registration Statement on Form S-1, filed
on February 10, 2017 (File No. 333-215993)).
Stockholders Agreement, dated as of March 14, 2017 (incorporated by reference from Exhibit 10.13 to the
Company’s Form 10-K, filed on April 28, 2017 (File No. 001-38026)).
Form of Stock Option Award Agreement for Vice Presidents and Above under the J.Jill, Inc. 2017 Omnibus
Equity Incentive Plan. (incorporated by reference from Exhibit 10.14 to the Company’s Form 10-K, filed on April
13, 2018 (File No. 001-38026)).
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the J.Jill, Inc. 2017 Omnibus
Equity Incentive Plan (incorporated by reference from Exhibit 10.15 to Amendment No. 1 to the Company’s
Registration Statement on Form S-1, filed on February 27, 2017 (File No. 333-215993)).
Amended and Restated Agreement of Limited Partnership of JJill Topco Holdings, LP, dated as of May 8, 2015
(incorporated by reference from Exhibit 10.16 to Amendment No. 1 to the Company’s Registration Statement on
Form S-1, filed on February 27, 2017 (File No. 333-215993)).
JJill Topco Holdings, LP Incentive Equity Plan (incorporated by reference from Exhibit 10.17 to Amendment No.
1 to the Company’s Registration Statement on Form S-1, filed on February 27, 2017 (File No. 333-215993)).
Form of Grant Agreement under the JJill Topco Holdings, LP Incentive Equity Plan (incorporated by reference
from Exhibit 10.18 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, filed on February
27, 2017 (File No. 333-215993)).
J.Jill, Inc. Employee Stock Purchase Plan. (incorporated by reference from Exhibit 10.19 to the Company’s Form
10-K, filed on April 13, 2018 (File No. 001-38026)).
Form of Restricted Stock Unit Award Agreement for Vice Presidents and Above under the J.Jill, Inc. 2017
Omnibus Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K, filed
on April 11, 2018 (File No. 001-38026)).
Retirement Agreement, dated as of March 13, 2018, by and between Paula Bennett and J.Jill, Inc. (incorporated
by reference from Exhibit 10.21 to the Company’s Form 10-K, filed on April 13, 2018 (File No. 001-38026)).
Offer Letter, dated as of August 2, 2018, by and between Brian Beitler and J.Jill, Inc. (incorporated by reference
from Exhibit 10.23 to the Company’s Form 10-K, filed on April 8, 2019 (File No. 001-38026)).
Amendment to Offer Letter, dated as of November 8, 2018, by and between Brian Beitler and J.Jill, Inc.
(incorporated by reference from Exhibit 10.24 to the Company’s Form 10-K, filed on April 8, 2019 (File No. 001-
38026)).
Separation Agreement, dated as of November 27, 2018, by and between David Biese and J.Jill, Inc. (incorporated
by reference from Exhibit 10.25 to the Company’s Form 10-K, filed on April 8, 2019 (File No. 001-38026))
Offer Letter, dated as of April 12, 2019, by and between Mark Webb and J.Jill, Inc. (incorporated by reference
from Exhibit 10.1 to the Company’s Form 10-Q, filed on June 11, 2019 (File No. 001-38026)).
10.23*†
Separation Agreement with Linda Heasley, dated as of December 4, 2019, by and between Linda Heasley and
J.Jill, Inc.
10.24*† Offer Letter, dated as of December 4, 2019, by and between James Scully and J.Jill, Inc.
10.25*† Restricted Stock Unit Award Agreement under the J.Jill, Inc. 2017 Omnibus Equity Incentive Plan, dated
December 5, 2019, by and between James Scully and J.Jill, Inc.
10.26*† Amendment to Offer Letter, dated as of March 5, 2020, by and between James Scully and J.Jill, Inc.
75
Exhibit
Number
10.27
21.1
23.1*
31.1*
31.2*
32.1*
32.2*
Exhibit Description
Election of Director – Shelley Milano (incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K,
filed on June 10, 2020 (File No. 001-38026))
Subsidiaries of J.Jill, Inc. (incorporated by reference from Exhibit 21.1 to the Company’s Form 10-K, filed on
April 28, 2017 (File No. 001-30826)).
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101*
XBRL Interactive Data Files
Filed herewith.
*
† Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None
76
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: June 15, 2020
J.Jill, Inc.
By:
/s/ James Scully
James Scully
Interim Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below
by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ James Scully
James Scully
/s/ Mark Webb
Mark Webb
/s/ Michael Rahamim
Michael Rahamim
/s/ Andrew Rolfe
Andrew Rolfe
/s/ Travis Nelson
Travis Nelson
/s/ Marka Hansen
Marka Hansen
/s/ Michael Recht
Michael Recht
/s/ Michael Eck
Michael Eck
Shelley Milano
Interim Chief Executive Officer
(Principal Executive Officer)
June 15, 2020
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
AAccounting Officer)
June 15, 2020
Chairman of the Board of Directors
June 15, 2020
June 15, 2020
June 15, 2020
June 15, 2020
June 15, 2020
June 15, 2020
June 15, 2020
Director
Director
Director
Director
Director
Director
77
J.Jill, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ........................................................................................... F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019................................................................ F-3
Consolidated Statements of Operations and Comprehensive Income for the Fiscal Year Ended February 1, 2020,
February 2, 2019 and February 3, 2018
F-4
Consolidated Statements of Shareholders’ / Members’ Equity for the Fiscal Year Ended February 1, 2020,
February 2, 2019 and February 3, 2018................................................................................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Year Ended February 1, 2020, February 2, 2019 and
February 3, 2018 ...................................................................................................................................................... F-6
Notes to Consolidated Financial Statements ................................................................................................................ F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of J.Jill, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of J.Jill, Inc. and its subsidiaries (the “Company”) as of
February 1, 2020 and February 2, 2019, and the related consolidated statements of operations and comprehensive income, of
shareholders' / members' equity and of cash flows for each of the three years in the period ended February 1, 2020, including
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of February 1, 2020 and
February 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February
1, 2020 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, as a result of the COVID-19 pandemic, the
Company has closed all of its stores and offices. This has had a material adverse effect on the Company’s revenues, results
of operations, and cash flows, and will result in the Company’s failure to be in compliance with certain debt covenants. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in fiscal year 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 15, 2020
We have served as the Company's auditor since 2009.
F-2
J.Jill, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
February 1, 2020
February 2,
2019
Assets
Current assets:
Cash
Accounts receivable
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease assets, net
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current portion of long-term debt
Current portion of operating lease liabilities
Total current liabilities
Long-term debt, net of discount and current portion
Operating lease liabilities, net of current portion
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies (see Note 11)
Shareholders' Equity
Common stock, par value $0.01 per share; 250,000,000 shares authorized;
44,288,127 and 43,672,418 shares issued and outstanding at February 1,
2020 and February 2, 2019, respectively
Additional paid-in capital
Accumulated (deficit) earnings
Total shareholders' equity
Total liabilities and shareholders' equity
$
$
$
$
$
$
$
21,527
6,568
72,599
22,256
122,950
107,645
112,814
77,597
211,332
1,650
633,988
43,053
42,712
2,799
33,875
122,439
231,200
208,800
31,034
1,950
595,423
443
125,076
(86,954)
38,565
633,988
$
66,204
4,007
77,349
27,734
175,294
118,044
136,177
197,026
—
447
626,988
55,012
45,306
2,799
—
103,117
237,464
—
41,842
30,770
413,193
437
121,635
91,723
213,795
626,988
The accompanying notes are an integral part of these consolidated financial statements.
F-3
J.Jill, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(in thousands, except share and per share data)
NNet sales
Costs of goods sold
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Impairment of indefinite-lived intangible assets
Operating (loss) income
Interest expense, net
(Loss) income before provision for income taxes
Income tax (benefit) provision
Net (loss) income and total comprehensive
income
Net (loss) income per common share attributable
to common shareholders:
Basic
Diluted
Weighted average number of common shares
outstanding:
Basic
Diluted
$
$
$
$
For the Fiscal Year
Ended February 1,
2020
For the Fiscal Year
Ended February 2,
2019
For the Fiscal Year
Ended
February 3, 2018
$
691,345
262,766
428,579
409,069
119,428
12,100
(112,018)
19,571
(131,589)
(3,022)
$
706,262
245,982
460,280
399,042
-
-
61,238
19,064
42,174
11,649
698,145
234,065
464,080
394,893
-
-
69,187
19,261
49,926
(5,439)
(128,567) $
30,525
$
55,365
(2.94) $
(2.94) $
0.71
0.69
$
$
1.32
1.27
43,749,324
43,749,324
42,771,316
44,239,751
41,926,157
43,571,746
The accompanying notes are an integral part of these consolidated financial statements.
F-4
J.Jill, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ / MEMBERS’ EQUITY
(in thousands, except common share and unit data)
Balance, January 28, 2017
Other equity transactions
Corporate conversion
Issuance of common stock
Vesting of restricted stock
Equity-based compensation
NNet income
Balance, February 3, 2018
Adoption of ASU 2014-09(1)
Vesting of restricted stock
Forfeiture of restricted stock
awards
Common stock issued under
employee stock purchase plan
Equity-based compensation
NNet income
Balance, February 2, 2019
Adoption of ASU 2016-02(1)
Special cash dividend
($1.15 per share)
Vesting of restricted stock
Shares withheld for net-share
settlement of equity-based
compensation
Forfeitable dividend
Forfeiture of restricted stock
awards
Common stock issued under
employee stock purchase plan
Equity-based compensation
NNet loss
Balance, February 1, 2020
Common Units
Common Stock
Amount
Units
Amount
Shares
1,000,000 $
—
(1,000,000)
—
—
—
—
— $
—
—
— $
—
—
—
—
—
— 43,747,944
4,846
—
—
—
—
—
— 43,752,790 $
—
—
—
13,326
Total
Shareholders'
/ Members’
Equity
Additional
Paid-in
Capital
Accumulate
d (Deficit)
Earnings
Contributed
Capital
6,121 $ 122,864
— $
— $ 116,743 $
305
—
—
305
—
— (117,048) 117,048
—
(437)
—
437
—
—
—
—
782
782
—
—
—
55,365
—
—
— $117,393 $ 61,486 $ 179,316
437 $
(288)
—
—
1
—
1
—
—
—
—
—
55,365
(288)
—
—
—
—
— (142,542)
(2)
—
—
—
(2)
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
48,844
—
—
—
—
—
— 43,672,418
—
—
—
—
—
993,668
— (348,619)
—
—
— (168,772)
139,432
—
—
—
—
—
— 44,288,127
1
—
—
437
—
—
10
(3)
—
(2)
1
—
—
443
232
—
4,010
—
—
—
— 121,635
—
—
—
—
30,525
91,723
44
233
4,010
30,525
213,795
44
—
—
— (50,154)
—
(10)
(50,154)
—
— (1,404)
115
—
—
2
—
—
—
134
4,604
—
—
—
— 125,076
—
—
— (128,567)
(86,954)
(1,407)
115
—
135
4,604
(128,567)
38,565
(1) See Note 3 for additional detail regarding the adoption of new accounting standards.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
J.Jill, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Net income
Operating activities:
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization
Impairment of goodwill and indefinite-lived intangible assets
Impairment of long-lived assets
Gain on extinguishment of debt
Loss on disposal of fixed assets
Gain on liquidation of inventory
Noncash amortization of deferred financing and debt
discount costs
Equity-based compensation
Deferred rent incentives
Deferred income taxes
Changes in operating assets and liabilities
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Operating lease assets and liabilities
Other noncurrent asset and liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Net cash used in investing activities
Financing activities:
Repayments on long-term debt
Proceeds from employee stock purchases
Special dividend paid to shareholders
Payments of withholding tax on net-share settlement of equity-based
compensation plans
Forfeitable dividend
Receivable from related party
Net cash used in financing activities
Net change in cash
Cash:
Beginning of Period
End of Period
Supplemental cash flow information:
Cash paid for interest
Cash paid for taxes
NNoncash investing and financing activities:
Capital expenditures financed with the ending balance in accounts
payable and accrued expenses
For the Fiscal
Year Ended
February 1, 2020
$
(128,567)
For the Fiscal
Year Ended
February 2, 2019
30,525
$
For the Fiscal
Year Ended
February 3, 2018
55,365
$
37,916
131,528
2,325
—
151
(1,274)
1,756
4,604
(177)
(10,824)
(2,561)
4,024
2,517
(11,337)
31
2,861
(320)
32,653
(18,222)
(18,222)
(7,799)
134
(50,154)
(1,403)
114
—
(59,108)
(44,677)
66,204
21,527
18,107
7,187
1,334
$
$
36,743
—
—
—
128
—
1,602
4,010
(135)
(4,319)
726
3,242
(7,639)
471
(1,595)
—
3,744
67,503
(24,710)
(24,710)
(2,799)
232
—
—
—
—
(2,567)
40,226
25,978
66,204
17,996
23,092
1,935
$
$
35,040
—
2,164
(100)
586
—
2,570
782
985
(27,248)
(882)
(13,950)
(2,607)
15,322
1,272
—
7,055
76,354
(38,372)
(38,372)
(27,699)
—
—
—
—
2,227
(25,472)
12,510
13,468
25,978
16,390
20,521
2,404
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
J.Jill, Inc.
Notes to Consolidated Financial Statements
1. General
J.Jill 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 more than 280 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.
J.Jill, Inc. was formed on February 24, 2017, when the Company converted from a Delaware limited liability company
named Jill Intermediate LLC (“Intermediate”) into a Delaware corporation named J.Jill, Inc. In conjunction with the
conversion, all of Intermediate’s outstanding equity interests converted into 43,747,944 shares of common stock.
Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes
thereto have been adjusted retroactively, where applicable, to reflect this conversion.
Intermediate had one class of equity interests, all of which were held by JJill Holdings, Inc. (“Holdings”), its former
direct parent company, and JJill Topco Holdings, LP (“Topco”), the direct parent company of Holdings. In conjunction with
the Company’s conversion into a Delaware corporation, JJill Holdings and JJill Topco Holdings each received shares of
common stock in proportion to the percentage of Intermediate’s equity interests held by them prior to the conversion.
Following the Company’s conversion into a Delaware corporation, Holdings, the Company’s former direct parent,
merged with and into J.Jill, Inc., and J.Jill, Inc. was the surviving entity to such merger (“Parent Merger”). The Company’s
consolidated financial statements were retroactively restated to reflect the Parent Merger as of the earliest date that common
control existed in the period in which the Parent Merger occurred.
In connection with the conversion, J.Jill, Inc. continues to hold all assets of Intermediate and assumed all of its
liabilities and obligations. J.Jill, Inc. is a holding company, and Jill Acquisition LLC, its wholly-owned subsidiary, remains
the operating company for the business assets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“GAAP”).
The Company uses a 52 to 53-week fiscal year ending on the Saturday 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. The Fiscal Years of 2019 and 2018 had 52-weeks of operations and Fiscal Year 2017 had 53-weeks of operations.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-
15, “Presentation of Financial Statements - Going Concern”, the Company’s management evaluated whether there are
conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the
financial statements’ issuance date. The following matters raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the financial statements are issued. The Company’s consolidated financial
statements have been prepared assuming that it will continue as a going concern.
F-7
COVID-19 Pandemic: In December 2019, COVID-19 emerged and has subsequently spread worldwide. The World
Health Organization declared COVID-19 a pandemic on March 11, 2020 resulting in federal, state and local governments and
private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home
orders and advisories and quarantining of people who may have been exposed to the virus. After close monitoring and taking
into consideration the guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19,
effective March 18, 2020, the Company closed all of its stores and its offices with employees working remotely where
possible. Our distribution center and online business continue to operate; however, the Company continues to monitor
developments, including government requirements and recommendations at the national, state, and local level to evaluate
possible closure of our distribution center and extensions to all or part of our store closures.
As a result, the Company’s revenues, results of operations and cash flows have been materially adversely impacted
which will also result in a failure by us to comply with the financial covenants contained in our ABL Facility and Term Loan
Agreements. Additionally, the inclusion of substantial doubt about the Company’s ability to continue as a going concern in
the report of our independent registered public accounting firm on our accompanying financial statements for the fiscal year
ended February 1, 2020 results in a violation of affirmative covenants under our ABL Facility and Term Loan Agreement. As
a result, lenders could exercise available remedies including, declaring the principal of and accrued interest on all outstanding
indebtedness immediately due and payable and terminating all remaining commitments and obligations under the credit
facilities. The Company could experience other potential impacts as a result of the COVID-19 pandemic, including, but not
limited to, additional charges from potential adjustments to the carrying amount of its inventory, goodwill impairment
charges, right-of-use assets, and long-lived asset impairment charges. Actual results may differ materially from the
Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on
the duration of the disruption to its business. These events contribute to conditions that raise substantial doubt about the
Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Under the
terms of the ABL and Term Loan credit agreements, substantial doubt about the Company’s ability to continue as a going
concern is considered an event of default which allows the lenders to call the debt in advance of maturity.
In response to the COVID-19 pandemic, we are taking aggressive and prudent actions to reduce expenses and defer
payment of accounts payables and inventory purchases to preserve cash on-hand. These actions include, but are not limited
to:
•
•
•
•
•
•
•
•
temporary furlough of substantially all retail employees for the duration of store closures at their location and
subject to reduced staffing for a phase-in period upon reopening;
base salary reductions for our senior leadership team and suspension of pay raise for corporate employees;
extension of payment terms for all accounts payable other than those necessary to support our ecommerce
business;
withholding payment of approximately $12.0 million of rent at all of our retail locations, beginning in April
2020, subject to discussion with our landlords;
extended payment terms with merchandising vendors;
eliminated one of our catalogs and are considering implementing this as a permanent change;
limiting investments in our ecommerce business to necessary website and supporting functions; and
suspension of nearly all capital expenditures.
Additionally, we borrowed $33.0 million under our ABL Facility in March 2020. We are seeking to amend our ABL
Facility to provide for further incremental borrowings. No assurances can be given as to when or if the Company will
succeed in obtaining the amendment. We have also filed an income tax refund for $7.7 million with the IRS related to the
provision under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted in March 2020 that
provides numerous tax provisions and other stimulus measures, including temporary suspension of certain payment
requirements for the employer-paid portion of social security taxes, the creation of certain refundable employee retention
credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property.
The Company has elected to defer the employer-paid portion of social security taxes beginning with pay dates on and after
April 1, 2020. We continue to evaluate the provisions of the CARES Act and the ways in which it could assist our business
and improve our liquidity.
On May 15, 2020, the Company began reopening its stores and as of the issuance date, approximately half of its stores
have been reopened in accordance with local government guidelines. The Company expects to continue reopening stores in a
phased approach as more states reopen for retail. There is significant uncertainty around the duration of these store closures
F-8
and other business disruptions related to COVID-19, as well as its impact on the U.S. economy, consumer willingness to visit
malls and shopping centers, and employee willingness to staff our stores as they continue to reopen.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make
estimates and judgments that affect reported amounts of assets, liabilities, shareholders’ equity, net sales and expenses, and
the disclosure of contingent assets and liabilities. Significant estimates relied upon in preparing these consolidated financial
statements include, but are not limited to, revenue recognition, including merchandise returns and accounting for gift card
breakage; estimating the fair value of inventory and inventory reserves; impairment assessments of goodwill, intangible
assets, and other long-lived assets; and equity-based compensation. As a result of the COVID-19 pandemic, the Company
considered relevant impacts to its estimates related to merchandise returns reserve, estimating the fair value of inventory and
inventory reserves; impairment assessments of goodwill, intangible assets, and other long-lived assets and there may be
changes to those estimates in future periods. Actual results could differ from those estimates, and such differences could be
material.
Principles of Consolidation
The accompanying consolidated financial statements include the assets, liabilities and results of operations of the
Company and its subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial
statements.
Segment Reporting
The Company determined its operating segments on the same basis that it assesses performance and makes operating
decisions. The Company’s operating segments consist of its retail and direct channels, which have been aggregated into one
reportable segment.
All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled.
The Company does not have sales outside the United States, nor does any customer represent more than 10% of total
revenues for any period presented.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting. Under this method,
acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their
acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired
and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets
acquired and liabilities assumed involves the use of significant estimates and assumptions.
Accounts Receivable
The Company’s accounts receivable relate primarily to payments due from banks for credit and debit transactions for
approximately 2 to 5 days of sales. These receivables do not bear interest.
Inventories
Inventory consists of finished goods held for sale. Inventory is stated at the lower of cost or net realizable value, net of
reserves. Cost is calculated using the weighted average method of accounting, and includes the cost to purchase merchandise
from the Company’s manufacturers plus duties, tariffs, inbound freight and commissions. The net realizable value of the
Company’s inventory is estimated based on historical experience, current and forecasted demand, and market conditions. The
allowance for excess and obsolete inventory requires management to make assumptions and to apply judgment regarding a
number of factors, including past and projected sales performance and current inventory levels. As of February 1, 2020 and
February 2, 2019, an inventory reserve of $3.8 million and $2.6 million has been recorded, respectively. The Company sells
excess inventory in its stores and on-line at www.jjill.com. In limited cases, inventory liquidators are utilized.
Inventory from domestic suppliers is recorded when it is received at the distribution center. Inventory from foreign
suppliers is recorded when goods are cleared for export on board the ship at the port of shipment.
F-9
Property and Equipment
Property and equipment purchases are recorded at cost. Property and equipment is presented net of accumulated
depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful lives of the
improvements. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments
and major improvements that significantly enhance the value and increase the estimated useful life of the asset are capitalized
and depreciated over the new estimated useful life. The carrying amounts of assets sold or retired and the related accumulated
depreciation are eliminated in the year of disposal, and any resulting gains or losses are included in the accompanying
consolidated statements of operations and comprehensive income.
Estimated useful lives of property and equipment asset categories are as follows:
Furniture, fixtures and equipment
Computer software and hardware
Leasehold improvements
5-7 years
3-5 years
Shorter of estimated useful life or lease term
Capitalized Interest
The cost of interest that is incurred in connection with ongoing construction projects is capitalized using a weighted
average interest rate. These costs are included in property and equipment and amortized over the useful life of the related
property or equipment.
Long-lived Assets
The carrying value of long-lived assets, including amortizable identifiable intangible assets, and asset groups are
evaluated whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions
that may indicate impairment include, but are not limited to, 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 a significant decrease in its physical
condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset
group. A potential impairment has occurred if the projected future undiscounted cash flows expected to result from the use
and eventual disposition of the asset or asset group are less than the carrying value of the asset or asset group. The estimate of
cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in
operation. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment charge is recorded equal to
the excess of the asset or asset group’s carrying value over its fair value. Fair value is measured based on a projected
discounted cash flow model using a discount rate the Company believes is commensurate with the market participant rate.
The fair value measurement includes the fair value of the right of use asset and will not be written down below the asset’s fair
value. Any impairment charge would be recognized within operating expenses.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but are reviewed for impairment at least annually, or
more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments
regarding indicators of potential impairment are based on market conditions and operational performance of the business.
At each fiscal year-end, the Company performs an impairment analysis of goodwill. The Company may assess its
goodwill for impairment initially using a qualitative approach (“step zero”) 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 its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s
carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any
impairment. The Company may also elect to initially perform a quantitative analysis instead of starting with step zero. The
quantitative assessment requires comparing the fair value of a reporting unit to its carrying value, including goodwill. The
Company estimates fair value using the income approach. The income approach uses a discounted cash flow model, which
involves significant estimates and assumptions, including preparation of revenue and profitability growth forecasts, selection
of a discount rate, and selection of a terminal year multiple.
F-10
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. An
impairment charge is recorded within the Company’s consolidated statement of operations and comprehensive income.
At each year end, the Company also performs an impairment analysis of its indefinite-lived intangible assets.
Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair
value. The Company measures the fair value of its trade name using the relief from royalty method. The most significant
estimates and assumptions inherent in this approach are the preparation of revenue forecasts, selection of royalty and discount
rates and a terminal year multiple. These assumptions are classified as Level 3 inputs.
Revenue Recognition
Revenue is primarily derived from the sale of apparel and accessory merchandise through our retail channel and direct
channel, which includes website and catalog phone orders. Revenue also includes shipping and handling fees collected from
customers. Topic 606 requires entities to recognize revenue when control of the promised goods or services are transferred to
customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those
goods or services. Revenue from our retail channel is recognized at the time of sale and revenue from our direct channel is
recognized upon shipment of merchandise to the customer.
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 assets, and accrued expenses and other current liabilities, respectively, in the consolidated balance sheet. 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.
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
outstanding gift cards that will ultimately not be redeemed (“gift card breakage”) and will not be escheated under statutory
state 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.
The Company recognizes revenues from shipments to customers before the shipping and handling activities occur and
will accrue those related costs. Shipping and handling costs are recorded in selling, general and administrative expenses.
Costs of Goods Sold
The Company’s costs of goods sold includes 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. Costs of goods sold does not include distribution center costs and allocations of indirect costs, such as occupancy,
depreciation, amortization, or labor and benefits.
Advertising Costs
The Company incurs costs to produce, print, and distribute its catalogs. Catalog costs are capitalized as incurred and
expensed when the catalog is mailed to the customer (the first time the advertising occurs). Advertising expenses were $32.6
million, $38.5 million, and $39.2 million for the Fiscal Years 2019, 2018, and 2017, respectively. The costs are included in
selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive
income.
Other advertising costs are recorded as incurred. Other advertising costs recorded were $26.3 million, $23.8 million,
and $20.9 million for the Fiscal Years 2019, 2018, and 2017, respectively. The costs are included in selling, general and
administrative expenses in the accompanying consolidated statements of operations and comprehensive income.
F-11
Operating Leases
The Company determines if an arrangement is a lease at inception. Lease agreements will typically exist with lease and
non-lease components, which are generally accounted for separately.
The Company recognizes operating lease liabilities equal to the present value of the lease payments and operating lease
assets representing the right to use the underlying asset for the lease term. The lease expense for lease payments is recognized
on a straight-line basis over the lease term.
As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the
information available at lease commencement in determining the present value of lease payments. The operating lease assets
include any lease payments made prior to lease commencement and are reduced by any lease incentives.
Under Topic 842, for any new leases entered into, the Company will assess if it is reasonably certain to exercise lease
options to extend or terminate the lease for inclusion (or exclusion) in the lease term when the Company measures the lease
liability. The depreciable life of any assets and leasehold improvements are limited by the expected lease term.
Certain of the Company’s retail operating leases include variable rental payments based on a percentage of retail sales
over contractual levels. Variable rental payments are recognized in the consolidated statement of operations and
comprehensive income in the period in which the obligation for those payments are incurred. If such variable operating leases
arise that include incentives from landlords in the form of cash, the Company will record the full amount of the incentive
when specific performance criteria are met as a deferred liability. The deferred liability is amortized into income as a
reduction of rent expense over the term of the applicable lease, including options to extend if they are reasonably certain to be
exercised. The Company recognized those liabilities to be amortized within a year as a current liability and those greater than
a year as a long-term liability. For purposes of recognizing these incentives and rental expenses on a straight-line basis, the
Company uses the date it obtains the legal right to use and control the lease asset to begin amortization, which is generally
when the Company takes possession of the asset.
Debt Issuance Costs
The Company defers costs directly associated with acquiring third-party financing. Debt issuance costs are deferred
and amortized using the effective interest rate method over the term of the related long-term debt agreement and the straight-
line method for the revolving credit agreement. Debt issuance costs related to long-term debt are reflected as a direct
deduction from the carrying amount of the debt on the Company’s balance sheet. From time-to-time the Company could
make prepayments on the long-term debt and a portion of the debt issuance costs associated with the prepayment would be
accelerated and expensed at that time.
Income Taxes
The Company accounts for income taxes using the asset and liability method and elected to be taxed as a C
corporation. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of
temporary differences between the financial statement carrying values and their respective tax basis, using enacted tax rates
expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax
assets and liabilities are recorded in the provision for income taxes. The Company evaluates the realizability of its deferred
tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets
will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits
expected, scheduling of anticipated reversals of taxable temporary differences, and considering prudent and feasible tax
planning strategies.
The Company records liabilities for uncertain income tax positions based on a two-step process. The first step is
recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being
sustained upon examination based on the technical merits of the position, including resolution of any related appeals or
litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no
tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the
second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount
that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may
differ from the estimates. In future periods, changes in facts, circumstances and new information may require the Company to
F-12
change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and
measurement estimates are recorded in income tax expense and liability in the period in which such changes occur.
Any interest or penalties incurred are recorded in the selling, general, and administrative expenses line item of the
accompanying consolidated statements of operations and comprehensive income. The Company incurred immaterial amounts
of interest expense and penalties related to income taxes for Fiscal Years 2019, 2018 and 2017.
Fair Value of Financial Instruments
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.
Valuation techniques used to measure fair value requires the Company to maximize the use of observable inputs and
minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following
three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered
unobservable:
Level 1:
Quoted prices in active markets for identical assets or liabilities.
Level 2:
Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active
markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than
quoted prices that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.
Level 3:
Unobservable inputs for the asset or liability that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. These are valued based on management’s estimates and
assumptions that market participants would use in pricing the asset or liability.
As of February 1, 2020 the Company had no assets or liabilities that were measured at fair value for reporting purposes
on a recurring basis. The fair value of the Company’s debt, as measured through the level 2 measurements, was
approximately $200.5 million and $242.2 million at February 1, 2020 and February 2, 2019, respectively.
The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable,
accounts payable and any amounts drawn on its revolving credit facilities, consisting primarily of instruments without
extended maturities, based on management’s estimates, approximates their fair value due to the short-term maturities of these
instruments.
Comprehensive Income
Comprehensive income is a measure of net income and all other changes in equity that result from transactions other
than with equity holders and would normally be recorded in the consolidated statements of shareholders’ equity and the
consolidated statements of comprehensive income. The Company’s management has determined that net income is the only
component of the Company’s comprehensive income. Accordingly, there is no difference between net income and
comprehensive income.
Equity-based Compensation
The Company accounts for equity-based compensation for employees and directors by recognizing the fair value of
equity-based compensation as an expense in the calculation of net income, based on the grant-date fair value. The Company
recognizes equity-based compensation expense in the periods in which the employee or director is required to provide
service, which is generally over the vesting period of the individual equity instruments. The fair value of the equity-based
awards is determined using the Black-Scholes option pricing model or the stock price on the date of grant.
F-13
All of the equity-based awards granted by the Company during the Fiscal Years 2019, 2018, and 2017 were considered
equity-classified awards and compensation expense for these awards was recognized in selling, general, and administrative
expenses in the consolidated statement of operations and comprehensive income. Forfeitures were recorded as they occurred.
Earnings Per Share
Basic net income per common share attributable to common shareholders is calculated by dividing net income
attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted
net income per common share attributable to common shareholders is calculated by dividing net income attributable to
common shareholders by the diluted weighted average number of common shares outstanding for the period. There were no
potentially dilutive securities outstanding during Fiscal Year 2019. There were 1.5 million and 1.6 million dilutive securities
outstanding during the Fiscal Years 2018 and 2017, respectively.
Credit Card Agreement
The Company has an arrangement with a third party to provide a private label credit card to its customers through
August 2023, and will automatically renew thereafter for successive two year terms. The Company does not bear the credit
risk associated with the private label credit card at any point prior to the termination of the agreement, at which point the
Company would be obligated to purchase the receivables. If the arrangement is terminated prior to September 7, 2021 and
other criteria are met, the Company is obligated to pay a purchase price premium. The potential impact of the purchase
obligation cannot be reasonably estimated, and therefore, has not been recorded.
The Company receives royalty payments through its private label credit card agreement. The royalty payments are
recognized as revenue when they are received. Royalty payments recognized were $5.6 million, $5.6 million, and $4.7
million for the Fiscal Years 2019, 2018 and 2017, respectively.
The Company also receives reimbursements for costs of marketing programs related to the private label credit card,
which are recorded as revenue as earned and the costs incurred are recorded as operating expenses in selling, general and
administrative expenses in the accompanying consolidated statements of operations and comprehensive income.
Reimbursements for costs of marketing programs of $1.9 million, $2.4 million and $1.3 million were recognized in revenue
in Fiscal Years 2019, 2018 and 2017, respectively.
The credit card agreement provides a signing bonus to the Company, which is recognized into revenue over the life of
the agreement.
Employee Benefit Plan
The Company has a 401(k) retirement plan under third-party administration covering all eligible employees who meet
certain age and employment requirements pursuant to Section 401(k) of the Internal Revenue Code. Subject to certain dollar
limits, eligible employees may contribute a portion of their pretax annual compensation to the plan, on a tax-deferred basis.
The plan operates on a calendar year basis. The Company may, at its discretion, make elective contributions of up to 50% of
the first 6% of the gross salary of the employee, which vests over a five-year period. Discretionary contributions made by the
Company for the Fiscal Years 2019, 2018 and 2017 were $1.5 million, $1.5 million, and $1.1 million, respectively.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of cash
held in financial institutions and accounts receivable. The Company considers the credit risk associated with these financial
instruments to be minimal. Cash is held by financial institutions with high credit ratings and the Company has not historically
sustained any credit losses associated with its cash balances. The Company evaluates the credit risk associated with accounts
receivable to determine if an allowance for doubtful accounts is necessary. As of February 1, 2020 and February 2, 2019, the
Company determined that no allowance for doubtful accounts was necessary.
F-14
3. Accounting Standards
Recently Adopted Accounting Standards
In July 2018, the FASB issued ASU 2018-09 – Codification Improvements, which facilitates amendments to a variety
of topics to clarify, correct errors in, or make minor improvements to the accounting standards codification. The effective
date of the standard is dependent on the facts and circumstances of each amendment. Some amendments do not require
transition guidance and will be effective upon the issuance of this standard. The standard was adopted as of February 3, 2019,
and
it had no material impact on the consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07 – Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. The Company adopted the standard as of February 3,
2019, and it had no impact on the consolidated financial statements and related disclosures.
The Company adopted ASU 2016-02- Leases (Topic 842) and related amendments, as of February 3, 2019, using the
modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at
adoption with a cumulative adjustment to retained earnings. The Company elected the package of practical expedients which
permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease
classification for any expired or existing leases, and (3) any initial direct costs for any expired or existing leases as of the
effective date.
The Company applied a portfolio approach to effectively account for the operating lease liabilities and operating lease
assets; the Company did not have financing leases. The Company excludes leases with an initial term of 12 months or less
from the application of Topic 842. The Company did not elect the hindsight practical expedient; therefore, upon adoption, the
Company used the remaining lease term of the current lease, option or extension.
Adoption of the new standard resulted in the recording of operating lease assets and operating lease liabilities of $223.3
million and $250.5 million, respectively, on the Company’s consolidated balance sheet as of February 3, 2019. The
difference between the approximate value of the operating lease assets and liabilities is attributable to deferred rent, deferred
rent incentives, leasehold interests and prepaid rent. There was no material impact on the Company’s consolidated statement
of operations and comprehensive income or consolidated statements of cash flows. The Company’s comparative periods
continue to be presented and disclosed in accordance with legacy guidance in Topic 840.
In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (Topic 606), which supersedes
the revenue recognition requirements in FASB ASC Topic 605 – Revenue Recognition. The new guidance established
principles for reporting revenue and cash flows arising from an entity’s contracts with customers.
The Company adopted ASU 2014-09 and related amendments, collectively known as Accounting Standards
Codification 606 (“Topic 606”) as of February 4, 2018 on a modified retrospective basis applied to contracts which were not
completed as of February 4, 2018. As part of the adoption of Topic 606, Topic 340-20 – Capitalized Advertising Costs was
superseded and therefore, the Company transitioned to ASC 720-35 – Advertising Costs for reporting on costs of advertising.
Results for reporting periods beginning after February 4, 2018 are presented under Topic 606 and Topic 720, while prior
period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605 and
Topic 340. The Company recorded a cumulative reduction to opening retained earnings of $0.3 million. The impact on
opening retained earnings was a $0.8 million decrease from the acceleration of prepaid catalog expenses offset by a $0.5
million increase from the recognition of direct revenues previously deferred under Topic 605. Effective February 4, 2018, the
Company changed its consolidated balance sheet presentation for expected sales returns and recorded a $5.0 million return
asset and a corresponding increase to the return liability to present the sales reserve gross in accordance with Topic 606. In
addition, as of the date of adoption of Topic 606, the Company will present reimbursements of costs of marketing programs
related to the private label credit card gross in the consolidated statement of operations and comprehensive income with no
impact to opening retained earnings.
F-15
Recently Issued Accounting Pronouncements
In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements (Topic 808), which clarifies the
interaction between Topic 808 and Topic 606, Revenue from Contracts with Customers. The provisions of ASU 2018-18 are
effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company will
be required to adopt this standard in the first quarter of Fiscal Year 2020. This standard is not expected to have a material
impact on the consolidated financial statements and related disclosures.
In September 2018, the FASB issued ASU 2018-15 – Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract. The amendment is intended to address aspects of the guidance issued in the amendments in ASU 2015-05 –
Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a
Cloud Computing Arrangement. ASU 2018-15 intends to improve an entities ability to evaluate the accounting for fees paid
by a customer in a cloud computing arrangement that is a service contract. The provisions of ASU 2018-15 are effective for
fiscal years beginning after December 15, 2019. The Company plans to adopt these standards using a prospective approach
and is evaluating the impact that adopting ASU 2018-15 will have on its consolidated financial statements and related
disclosures.
4. Revenues
Disaggregation of Revenue
The Company sells its products directly to consumers and the Company earns royalties and other reimbursements
under its credit card agreement. The following table presents revenues disaggregated by revenue source (in thousands):
Retail
Direct
Net revenues
For the Fiscal Year Ended
February 1, 2020
For the Fiscal Year Ended
February 2, 2019
For the Fiscal Year Ended
February 3, 2018(1)
$
$
389,521
301,824
691,345
$
$
412,640
293,622
706,262
$
$
397,353
300,792
698,145
(1) As previously noted, prior period amounts have not been adjusted under the modified retrospective method.
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):
Contract liabilities:
Signing bonus
Unredeemed gift cards
Total contract liabilities(1)
February 1, 2020
February 2, 2019
$
$
506
7,264
7,770
$
$
647
7,081
7,728
(1) Included in accrued expenses and other current liabilities on the Company's consolidated balance sheet. The short
term portion of the signing bonus is included in accrued expenses on the Company’s consolidated balance sheet.
For the Fiscal Years 2019, 2018, 2017, the Company recognized approximately $12.8 million, $12.4 million and $12.2
million of revenue related to gift card redemptions and breakage, respectively. 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 during the
period.
F-16
Performance Obligations
The Company has a remaining performance obligation of $0.5 million for a signing bonus related to the private label
credit card agreement. The Company will recognize revenue over the remaining life of the contract as follows (in thousands):
Signing bonus
Fiscal Year 2020
141
$
Fiscal Year 2021
$
141 $
Thereafter
224
This disclosure does not include revenue related to performance obligations from unredeemed gift cards, as
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.
Other Income
The Company filed an insurance claim as a result of a cargo vessel fire on or about January 8, 2019, where contents of
two containers carried J.Jill inventory. In July 2019, it was determined that the inventory onboard the cargo vessel was
nonsalable and the insurance claim was settled for $3.3 million. The Company recorded a gain of $2.4 million on insurance
proceeds in selling, general and administrative expenses in the consolidated statement of operations and comprehensive
income (loss) for the fiscal year ended February 1, 2020.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include the following (in thousands):
Prepaid rent
Prepaid catalog costs
Prepaid store supplies
Returns reserve asset
Income tax receivable
Other prepaid expenses
Other current assets
Total prepaid expenses and other current assets
6. Goodwill and Other Intangible Assets
Goodwill
February 1, 2020
February 2, 2019
$
$
2,494
2,590
2,102
5,134
3,298
4,477
2,161
22,256
$
$
5,947
3,032
1,931
4,295
3,923
5,070
3,536
27,734
The balance of goodwill was $77.6 million at February 1, 2020 and $197.0 million at February 2, 2019.
During the second quarter of Fiscal Year 2019, the Company reduced comparable sales outlook that led to a reduced
full year forecast of earnings for Fiscal Year 2019. The Company concluded that these factors, as well as the decrease in
stock price represented indicators of impairment and required the Company to test goodwill and indefinite-lived intangible
assets for impairment during the second quarter of Fiscal Year 2019 (the “Q2 Impairment Test”).
F-17
The Company performed the Q2 Impairment Test using a quantitative approach with the assistance of an independent
valuation firm. The Q2 Impairment Test was performed using the income approach (or discounted cash flows method) for
goodwill and the relief-from-royalty method for indefinite-lived intangible assets. The estimated fair values of goodwill and
indefinite-lived intangible asset were below carrying values resulting in an $88.4 million impairment of goodwill and a $7.0
million impairment of the Company’s tradename (indefinite-lived intangible asset).
In addition, during the fourth quarter of Fiscal Year 2019, the Company updated sales guidance, the CEO departed and
there was a decline in stock price. The Company noted that all these occurrences were an indication of a triggering event and
resulted in the Company testing goodwill and indefinite lived intangible assets for impairment (the “Q4 Impairment Test”).
The Company performed the Q4 Impairment Test using a quantitative approach with the assistance of an independent
valuation firm. The Q4 Impairment Test was performed using the income approach (or discounted cash flows method) for
goodwill and the relief-from-royalty method for indefinite-lived intangible assets. The estimated fair values of goodwill and
indefinite-lived intangible asset were below the updated carrying values resulting in a $31.0 million impairment of goodwill
and a $5.1 million impairment of the Company’s tradename (indefinite-lived intangible asset).
Finally, the Company performed their annual impairment assessment (the “Annual Impairment Test”) after the Q4
Impairment Test was completed. The Company chose to forego the step zero impairment analysis and instead performed a
quantitative impairment test using an income approach, in determining the fair values of the reporting units and tradename
compared to their respective carrying values. As a result of the impairment assessments performed, the fair values of the
reporting units and tradename exceeded their respective carrying values.
While the results of the Annual Impairment Test did not indicate any additional impairment, the Company is at risk of
future impairment in Fiscal Year 2020 as a result of triggering events. Additionally, due to the impairments recorded during
the current year, no material amount of cushion exists between the fair values and respective carrying values of the reporting
units and tradename. As such, a change in forecasted discounted cash flows driven by changes in relevant assumptions, may
result in further impairment charges.
During Fiscal Year 2018, the Company performed a step zero impairment analysis and determined goodwill and
indefinite-lived intangibles were not impaired based on a qualitative analysis.
Intangible Assets
A summary of intangible assets as of February 1, 2020 and February 2, 2019 is as follows (in thousands):
Weighted
Average
Useful
Life
(Years)
February 1, 2020
February 2, 2019
Gross
Accumulated
Amortization
Net Book
Value
Gross
Accumulated
Amortization
Net Book
Value
N/A
$ 46,000 $
— $ 46,000 $ 58,100 $
— $ 58,100
Indefinite-lived:
Trade name (1)
Definite-lived:
Customer relationships
13.2
Total intangible assets
(1) The gross value of the Company's trade name was impaired $12.1 million in FY 2019
134,200
78,077
$ 180,200 $ (67,386) $ 112,814 $ 192,300 $ (56,123) $ 136,177
(56,123)
(67,386)
134,200
66,814
The definite-lived intangible assets are amortized over the period the Company expects to receive the related economic
benefit, which for customer lists is based upon estimated future net cash inflows. The estimated useful lives of intangible
assets are as follows:
Asset
Customer lists
Amortization Method
Pattern of economic benefit
Estimated Useful Life
9 - 16 years
F-18
Total amortization expense for these amortizable intangible assets was $11.3 million, $12.8 million, and $14.5 million
for the Fiscal Years 2019, 2018, and 2017, respectively.
The estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total
7. Property and Equipment
Estimated
Amortization
Expense
$
$
10,015
9,005
8,094
7,373
5,312
27,015
66,814
Property and equipment at February 1, 2020 and February 2, 2019 consist of the following (in thousands):
Leasehold improvements
Furniture, fixtures and equipment
Computer hardware and software
Total property and equipment, gross
Accumulated depreciation
Construction in progress
Property and equipment, net
February 1,
2020
107,853 $
50,880
51,996
210,729
(106,543)
104,186
3,459
107,645 $
$
$
February 2,
2019
98,117
47,164
43,668
188,949
(81,192)
107,757
10,287
118,044
Construction in progress is primarily comprised of leasehold improvements, furniture, fixtures and equipment related to
unopened retail stores and costs incurred related to the implementation of certain computer software. Capitalized software,
subject to amortization, included in property and equipment at February 1, 2020 and February 2, 2019 had a cost basis of
approximately $38.7 million and $33.2 million, respectively, and accumulated amortization of $20.6 million and $14.3
million, respectively.
Total depreciation expense was $26.6 million, $24.4 million, and $21.1 million, for the Fiscal Years 2019, 2018, and
2017, respectively.
During the Fiscal Years 2019 and 2017, the Company recorded impairment charges of $2.3 million and $2.2 million,
respectively, associated with the assets of underperforming retail locations. The impairment charge was calculated using a
discounted cash flow model and was recorded in selling, general and administrative in the Company’s consolidated statement
of operations and comprehensive income. During the Fiscal Year 2018, the Company did not record any impairment charges
associated with property and equipment.
The Company capitalized interest in connection with construction in progress of $0.3 million, $0.4 million and $0.6
million for the Fiscal Years 2019, 2018, 2017, respectively.
F-19
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities include the following (in thousands):
Accrued payroll and benefits
Accrued returns reserve
Gift certificates redeemable
Accrued professional fees
Taxes, other than income taxes
Accrued occupancy
Other accrued employee costs
Other
Total accrued expenses and other current liabilities
February 1, 2020
February 2, 2019
$
$
4,034
12,822
7,265
1,673
2,594
1,136
2,219
10,969
42,712
$
$
3,599
10,849
7,081
2,901
3,132
3,995
4,510
9,239
45,306
The following table reflects the changes in the accrued returns reserve for the Fiscal Years 2019, 2018, and 2017 (in
thousands):
Accrued returns reserve
Fiscal Year Ended Year Ended February 3, 2018
Fiscal Year Ended Year Ended February 2, 2019
Fiscal Year Ended Year Ended February 1, 2020
9. Restructuring Costs
Beginning
of Period
$
6,883
7,663
10,849
Charged to
Expenses
$ 131,322
134,887
138,355
Deductions
$ (130,542)
(131,700)
(136,382)
End of
Period
7,663
10,849
12,822
In July 2019, the Company implemented a restructuring plan (the “2019 Restructuring Plan”) focused on cost reduction
initiatives designed to execute against long-term strategies. The 2019 Restructuring Plan included headcount reductions
primarily at the Company’s corporate headquarters in Quincy, Massachusetts and at the facility in Tilton, New Hampshire.
As a result of the 2019 Restructuring Plan, the Company recorded $1.6 million of restructuring costs in selling, general
and administrative expenses in the consolidated statements of operations and comprehensive income. All restructuring costs
have been incurred in the second quarter of Fiscal Year 2019 and payments are anticipated to be complete in the fourth
quarter of Fiscal Year 2020, ending on January 30, 2021.
The following table summarizes the activity of the restructuring costs discussed above and related accruals recorded in
accrued other and other current liabilities on the consolidated balance sheet (in thousands):
Employee separation costs
Other
Total restructuring costs
10. Debt
February 3, 2019
$
$
Charges
Incurred
Cash
Payments
Adjustments
February 1,
2020
1,402
195
1,597
$
$
1,186
156
1,342
$
$
— $
—
— $
216
39
255
— $
—
— $
The components of the Company’s outstanding Term Loan were as follows (in thousands):
Term loan
Discount on debt and debt issuance costs
Less: Current portion
Net long-term debt
February 1, 2020
February 2, 2019
$
$
237,579
(3,580)
(2,799)
231,200
$
$
245,378
(5,115)
(2,799)
237,464
On January 31, 2020, the Company made a voluntary prepayment of $5.0 million on the Term Loan.
F-20
The Company recorded interest expense of $20.1 million, $19.9 million and $19.3 million in the Fiscal Years 2019,
2018, and 2017, respectively.
Term Loan Credit Agreement
On May 8, 2015, the Company entered into a Term Loan Agreement in conjunction with the Acquisition. The seven-
year Term Loan Agreement provides for borrowings of $250.0 million. The Company can elect, at its option, the applicable
interest rate for borrowings under the Term Loan Agreement using a LIBOR or Base Rate variable interest rate plus an
applicable margin. LIBOR loans under the Term Loan Agreement accrue interest at a rate equal to LIBOR plus 5.00%, with a
minimum LIBOR per annum of 1.00%. Base Rate loans under the Term Loan Agreement accrue interest at a rate equal to (i)
the greatest of (a) the financial institution’s prime rate, (b) the Federal Funds Effective Rate plus 0.50%, or (c) LIBOR, with a h
minimum LIBOR of 1.00% plus 1.00%, and (d) 2.00%.
On May 27, 2016, the Company entered into an agreement to amend (the “Term Loan Amendment”) our Term Loan
n
Agreement to borrow an additional $40.0 million in additional loans to permit certain dividends and to make certain
n
adjustments to the financial covenant. The other terms and conditions of the Term Loan remained substantially unchanged.
Current borrowings under the Term Loan Agreement accrue interest at a rate equal to LIBOR plus 5.00%, with a
minimum LIBOR per annum of 1.00%, and are payable on a quarterly basis. The rate per annum was 6.93 - 7.75% in Fiscal
Years 2019, 6.78 – 7.53% in Fiscal Year 2018 and 6.04 - 6.78% in Fiscal Year 2017. Repayments of $0.7 million are payable
quarterly, beginning on October 31, 2015 and continuing until maturity on May 8, 2022, when the remaining outstanding
principal balance of $231.3 million is due.
The Company incurred $11.3 million of debt issuance costs in connection with the Term Loan Agreement and Term
Loan Amendment. These fees are presented as a direct reduction from the carrying amount of the long-term debt on the
consolidated balance sheet. During the Fiscal Years 2019, 2018 and 2017, $1.5 million, $1.4 million and $2.2 million of the
debt issuance cost was amortized to interest expense, respectively.
Borrowings under the Term Loan Agreement are collateralized by all of the assets of the Company. In connection with
the Term Loan Agreement, the Company is subject to various financial reporting, financial and other covenants, including
maintaining specific liquidity measurements. Affirmative covenants include providing timely quarterly and annual financial
statements and prompt notification of the occurrence of any event of default or any other event, change or circumstance that
has had, or could reasonably be expected to have, a material adverse effect as defined in the Term Loan Agreement. In
addition, there are negative covenants, including certain restrictions on the Company’s ability to: incur additional
indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with
other entities, undergo a change in control, make advances, investments and loans, or modify its organizational documents.
As of February 1, 2020 and February 2, 2019, the Company was in compliance with all financial covenants.
Asset-Based Revolving Credit Agreement
On May 8, 2015, the Company entered into a five-year secured $40.0 million asset-based revolving credit facility
agreement (the “ABL Facility”). The ABL Facility had an initial maturity of May 8, 2020. On June 12, 2019 this ABL
Facility was amended to extend the term date to May 8, 2023.
Under the terms of this agreement, the ABL Facility provides for borrowings up to (i) 90% of eligible credit card
receivables, plus (ii) 85% of eligible accounts receivable, plus (iii) the lesser of (a) 100% of the value of eligible inventory at
such time and (b) 90% of the net orderly liquidation value of eligible inventory at such time, plus (iv) the lesser of (a) 100%
of the value of eligible in-transit inventory at such time, (b) 90% of the net orderly liquidation value of eligible in-transit
inventory at such time and (c) the in-transit maximum amount (the in-transit maximum amount is not to exceed $12.5 million
during the 1st and 3
established by the lender, as defined in the ABL Facility.
d
rd calendar quarters and $10.0 million during the 2
th calendar quarters), less (v) certain reserves
d
nd and 4
rr
t
The ABL Facility consists of revolving loans and swing line loans. Borrowings classified as revolving loans under the
ABL Facility may be maintained as either LIBOR or Base Rate loans, each of which has a variable interest rate plus an
applicable margin. Borrowings classified as swing line loans under the ABL Facility are Base Rate loans. LIBOR loans under
the ABL Facility accrue interest at a rate equal to LIBOR plus a spread of 2.00% from May 8, 2015 to August 31, 2015, and
thereafter ranging from 1.50% to 1.75%, depending on borrowing amounts. Base Rate loans under the ABL Facility accrue
interest at a rate equal to (i) the greatest of (a) the financial institution’s prime rate, (b) the overnight Federal Funds Effective
ff
F-21
Rate plus 0.50%, (c) LIBOR plus 1.00%, and (d) 2.00%, plus (ii) a spread of 1.00% from May 8, 2015 to August 31, 2015,
and thereafter ranging from 0.50% to 0.75%, depending on borrowing amounts.
Interest on each LIBOR loan is payable on the last day of each interest period and no more than quarterly, and interest
on each Base Rate loan is payable in arrears on the last business day of April, July, October and January. For both LIBOR
and Base Rate loans, interest is payable periodically upon repayment, conversion or maturity, with interest periods ranging
between 30 to 180 days at the election of the Company, or 12 months with the consent of all lenders.
The ABL Facility also requires the quarterly payment, in arrears, of a commitment fee. The commitment fee is payable
in an amount equal to 0.375% from May 8, 2015 to July 1, 2016, and thereafter at an amount equal to (i) 0.375% for each
calendar quarter during which historical excess availability is greater than 50% of availability, and (ii) 0.25% for each
calendar quarter during which historical excess availability is less than or equal to 50% of availability.
During the fiscal year ended February 1, 2020 and February 2, 2019, there were no amounts drawn or outstanding
under the ABL Facility. Based on the terms of the agreement and the increase for the letters of credit, the Company’s
available borrowing capacity under the ABL Facility as of February 1, 2020 and February 2, 2019 was $38.3 million and
$38.2 million, respectively.
The Company incurred $1.1 million of debt issuance costs in connection with the related ABL Facility, which were
capitalized and are included in other assets on the consolidated balance sheet. In the Fiscal Years 2019, 2018, and 2017, $0.2
million of the debt issuance cost were amortized to interest expense, in each of the respective periods.
Borrowings under the ABL Facility are collateralized by a first lien on accounts receivable and inventory. In
connection with the ABL Facility, the Company is subject to various financial reporting, financial and other covenants,
including maintaining specific liquidity measurements. Affirmative covenants include providing timely quarterly and annual
financial statements and prompt notification of the occurrence of any event of default or any other event, change or
circumstance that has had, or could reasonably be expected to have, a material adverse effect as defined in the ABL Facility.
In addition, there are negative covenants, including certain restrictions on the Company’s ability to: incur additional
indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with
other entities, undergo a change in control, make advances, investments and loans or modify its organizational documents. As
of February 1, 2020 and February 2, 2019, the Company was in compliance with all financial covenants.
The Term Loan Agreement and the ABL Facility contain provisions on the occurrence of a default event. In the event
of a payment default that is not cured within five business days or is not waived, or a covenant default that is not cured within
30 business days or is not waived, the Company’s obligations under these credit facilities may be accelerated. In addition, a
2.00% interest surcharge will be imposed during events of default.
F-22
Letters of Credit
As of February 1, 2020 and February 2, 2019, there were outstanding letters of credit of $1.7 million and $1.8 million,
respectively, which reduced the availability under the ABL Facility. As of February 1, 2020, the maximum commitment for
letters of credit was $10.0 million. Letters of credit accrue interest at a rate equal to revolving loans maintained as Base Rate
loans under the ABL facility. In addition, a 2.00% interest surcharge will be imposed during events of default. The Company
primarily used letters of credit to secure payment of workers’ compensation claims. Letters of credit are generally obtained
for a one-year term and automatically renew annually, and would only be drawn upon if the Company fails to comply with its
contractual obligations.
Payments of Debt Obligations Due by Period
As of February 1, 2020, minimum future principal amounts payable under the Company’s Term Loan Agreement are
as follows (in thousands):
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total
11. Commitments and Contingencies
Legal Proceedings
$
$
2,799
2,799
231,981
—
—
—
237,579
We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse
effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters
when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.
Concentration Risk
An adverse change in the Company’s relationships with its key suppliers, or loss of the supply of one of the Company’s
key products for any reason, could have a material effect on the business and results of operations of the Company. Two
suppliers accounted for approximately 21.4% of the Company’s purchases during Fiscal Year 2019.
Other Commitments
The Company enters into other cancelable and noncancelable commitments. Typically, these commitments are for less
than one year in duration and are principally for the procurement of inventory. Preliminary commitments with the Company’s
merchandise vendors are made approximately six months in advance of the planned receipt date.
12. Operating Leases
As of February 1, 2020, the Company leased certain retail stores, a distribution center, and office space. As of that
same date, the Company did not have any financing leases and no operating leases contained any material residual value
guarantees or material restrictive covenants. Certain of the Company’s retail operating leases include variable rental
payments based on a percentage of retail sales over contractual levels and month-to-month leases.
Some retail leases include one or more options to renew, with renewal terms that can extend the lease term from one to
fifteen years. The Company’s distribution center has renewal terms that can extend the lease term up to twenty years. The
exercise of lease renewal options is at the Company’s sole discretion. As of February 1, 2020, the Company included options
to renew that are reasonably certain to be exercised in the operating lease assets and liabilities.
F-23
As described in Note 3, the Company adopted Topic 842 as of February 3, 2019. Under this guidance the Company did
not record any deferred lease liabilities as of February 1, 2020. The Company maintained a tenant incentive liability of $1.2
million as of February 1, 2020, related to certain variable retail leases. Under legacy guidance, Topic 840, the Company
recorded a deferred lease liability of $11.9 million and maintained a tenant improvement incentive liability of $19.1 million
as of February 2, 2019.
The components of lease expense were as follows (in thousands):
Lease Cost
Operating lease cost
Variable lease cost
Total lease cost
Classification
SG&A Expenses
SG&A Expenses
For the Fiscal Year Ended February
1, 2020
$
$
47,482
3,434
50,916
For the fiscal year ended February 1, 2020, total common area maintenance expense was $14.4 million. For the fiscal
year ended February 2, 2019, total rental expense was $46.5 million, and common area maintenance expense was $14.1
million, exclusive of contingent rental expense recorded of $2.2 million.
The Company used an incremental borrowing rate on February 3, 2019, for operating leases that commenced prior to
that date. The incremental borrowing rate is estimated based upon (1) the financial condition and credit rating of the
Company and its peers, (2) the term of the lease, (3) the nature of the underlying asset, and (4) the relative economic
environment.
For the fiscal year ended February 1, 2020, operating lease liabilities arising from obtaining operating lease assets were
$21.0 million.
For the fiscal year ended February 1, 2020, the total cash paid for amounts included in the measurement of operating
lease liabilities was $48.0 million.
Lease Term and Discount Rate
Weighted-average remaining lease term (in years)
Operating leases
Weighted-average discount rate
Operating leases
Maturities of lease liabilities as of February 1, 2020 were as follows (in thousands):
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Less: Imputed interest
Present value of lease liabilities
February 1, 2020
7.2
6.5%
Operating Leases(1)
$
$
44,688
47,009
42,857
39,760
34,998
97,894
64,531
242,675
(1) There were no operating leases with legally binding minimum lease payments for leases signed but for which the
Company has not taken possession.
F-24
Under Topic 840, future minimum rental payments required under all non-cancellable operating lease obligations as of
February 2, 2019 were as follows (in thousands):
Fiscal Year
2019
2020
2021
2022
2023
Thereafter
Total
13. Income Taxes
$
$
49,399
46,512
43,872
39,369
36,459
110,376
325,987
The (benefit) provision for income taxes for the Fiscal Years 2019, 2018, and 2017 consists of the following (in
thousands):
Current
U.S. Federal
State and local
Total current
Deferred tax benefit
U.S. Federal
State and local
Total deferred tax benefit
Total income tax provision (benefit)
For the Fiscal
Year Ended
February 1, 2020
For the Fiscal
Year Ended
February 2, 2019
For the Fiscal
Year Ended
February 3, 2018
$
$
$
5,636
2,165
7,801
(8,681)
(2,142)
(10,823)
(3,022) $
11,634
4,334
15,968
(3,513)
(806)
(4,319)
11,649
$
$
17,510
4,299
21,809
(28,374)
1,126
(27,248)
(5,439)
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows for the periods
presented:
Federal statutory income tax rate
State income taxes, net of federal tax effect
Goodwill impairment
Tax rate changes
Acquisition-related costs
NNondeductible equity-based compensation expense
Charitable contributions
Tax return to provision adjustments
Other
Effective tax rate
For the Fiscal
Year Ended
February 1,
2020
For the Fiscal
Year Ended
February 2,
2019
For the Fiscal
Year Ended
February 3, 2018
21.0%
0.3%
(19.1)%
0.0%
0.0%
0.1%
0.1%
0.0%
(0.1)%
2.3%
21.0%
6.3%
0.0%
0.0%
0.0%
0.3%
(0.6)%
0.1%
0.5%
27.6%
33.8%
4.7%
0.0%
(48.3)%
1.2%
0.2%
(1.7)%
(1.2)%
0.4%
(10.9)%
F-25
The components of deferred tax assets (liabilities) were as follows (in thousands):
Deferred tax assets
Accrued expenses
Start-up costs
Lease liabilities
Total deferred tax assets
Deferred tax liabilities
Inventory
Lease assets
Fixed assets
Intangible assets
Prepaid expenses
Total deferred tax liabilities
Net deferred tax liabilities
February 1,
2020
February 2,
2019
$
$
5,384 $
618
64,068
70,070
6,755
681
-
7,436
(2,496)
(54,721)
(15,341)
(27,826)
(720)
(101,104)
(31,034) $
(1,921)
-
(13,413)
(33,137)
(807)
(49,278)
(41,842)
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“TCJA”) legislation was signed. Pursuant to the enactment of
the aforementioned legislation, the Company re-measured its existing deferred tax assets and liabilities based on a 21% tax
rate; the current rate at which they are expected to reverse in the future. Also in December 2017, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act
(“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond
one year of the enactment date. In Fiscal Year 2017, the Company recorded provisional amounts for certain enactment-date
effects of TCJA by applying the guidance in SAB 118 because it had not yet completed the enactment-date accounting for
these effects. During Fiscal Year 2018, the Company completed the analysis and accounting for all enactment-date income
tax effects of TCJA and found no adjustments were necessary for the provisional amounts recorded as of February 3, 2018.
The Company had no federal or state tax credit carryforwards as of February 1, 2020 and February 2, 2019 and had no
federal and an immaterial amount of state net operating loss carryforwards for the same respective periods.
The Company has considered the need for a valuation allowance based on the more likely than not criterion. In
determining the need for a valuation allowance, management makes assumptions and applies judgment, including forecasting
future earnings and considering the reversals of existing deferred tax liabilities. Based on this analysis, management
determined that no valuation allowance was required. The Company performed an analysis of its current and historical tax
positions and determined that no material uncertain tax positions exist. Therefore, there is no liability for uncertain tax
positions as of February 1, 2020 and February 2, 2019.
The Company’s income tax returns are periodically examined by the Internal Revenue Service (the “IRS”). In prior
years, the IRS completed an exam of the 2015 Successor period. On December 12, 2017, at the conclusion of the
examination, the Company received a Revenue Agent’s Report, proposing an increase to our U.S. taxable income which
resulted in an additional federal tax payment of $1.1 million, subject to interest. The federal tax payment was offset by a
deferred tax asset. The Company agreed with the proposed adjustments and settled through payment of the assessment on
January 31, 2018. The IRS also completed an examination of the Fiscal Year 2013 income tax return, without adjustment.
For federal and state income tax purposes, the Company’s tax years remain open under statute from Fiscal Year 2016 to the
present.
J.Jill, Inc. is the parent entity required to file the consolidated income tax return for federal purposes and several state
jurisdictions, which include subsidiary entities, Jill Acquisition LLC and J.Jill Gift Card Solutions, Inc. The Company has
allocated its share of the parent entity’s federal and combined state income tax accrual, or benefit, in accordance with an
intercompany tax allocation policy, which is based on the separate return method.
F-26
14. Earnings Per Share
The following table summarizes the computation of basic and diluted net income per common share for the Fiscal
Years 2019, 2018, and 2017 (in thousands, except share and per share data):
NNumerator
Net income attributable to common shareholders:
$
(128,567) $
30,525
$
55,365
For the Fiscal
Year Ended
February 1, 2020
For the Fiscal
Year Ended
February 2, 2019
For the Fiscal
Year Ended
February 3, 2018
DDenominator
Weighted average number of common shares
outstanding, basic:
Dilutive effect of stock options and restricted shares:
Weighted average number of common shares
outstanding, diluted:
NNet income per common share attributable to
common shareholders, basic:
NNet income per common share attributable to
common shareholders, diluted:
43,749,324
—
42,771,316
1,468,435
41,926,157
1,645,589
43,749,324
44,239,751
43,571,746
$
$
(2.94) $
(2.94) $
0.71
0.69
$
$
1.32
1.27
The weighted average common shares for the diluted earnings per share calculation exclude the impact of outstanding
equity awards if the assumed proceeds per share of the award is in excess of the related fiscal period’s average price of the
Company’s common stock. Such awards are excluded because they would have an anti-dilutive effect. There were 3,025,275
and 922,425 and 318,875 such awards excluded for the Fiscal Years 2019, 2018 and 2017, respectively.
15. Equity-Based Compensation
On May 8, 2015, Topco established an Incentive Equity Plan (the “Plan”), which allows Topco to grant Topco Class A
Common Interests (“Common Interests”) to certain directors, senior executives and key employees of the Company. The Plan
is administered by Topco’s board of directors, along with input from the Company’s Chief Executive Officer. Grant date fair
value, vesting and any other restrictions are determined at the discretion of Topco’s board of directors.
Common Interests granted to employees of the Company are classified as equity awards and are generally subject to a
five-year vesting period, with either a monthly or annual cliff vest. The Plan also contains a fair value repurchase feature,
allowing Topco to repurchase vested Common Interests upon termination of employment. The Common Interests contain
provisions for accelerated vesting upon an approved sale of the Partnership or the termination of employment. If termination
of employment is without cause, as defined in the Grant Agreement, all then-unvested units are forfeited and vested interests
are subject to repurchase. If termination of employment is for cause, as defined in the Grant Agreement, all vested and
unvested units will be forfeited.
The Plan allowed Topco to grant up to 32,683,677 of its Class A Common Interests. As of February 3, 2018, there were
no Common Interests authorized and available for future issuance. Topco did not grant any Common Interests to
nonemployees.
During Fiscal Year 2017, at the time of the IPO, the total issued unvested Common Interests under the Plan were
converted to 2,385,001 restricted share awards (“RSAs”) under the Plan. The RSA terms are the same as the Common
Interests. During Fiscal Year 2019, there were 168,772 RSAs forfeited and there were no repurchases. During Fiscal Year
2018, there were 142,542 RSAs forfeited and there were no repurchases. There were no repurchased or forfeited RSAs during
Fiscal Year 2017.
In conjunction with the IPO, on March 9, 2017, the Company established the J.Jill, Inc. Omnibus Equity Incentive Plan
(the “2017 Plan”), which reserves common stock for issuance upon exercise of options, or in respect of granted awards. The
2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”). The Committee has
the authority to determine the type, size and terms and conditions of awards to be granted and to grant such awards.
F-27
During Fiscal Year 2017, the Committee granted restricted stock units (“RSUs”) under the 2017 Plan, which generally
vest one year from the grant date. During Fiscal Year 2018, the Committee granted RSUs under the 2017 Plan, which vest
25% each year, over four years from the grant date. The grant-date fair value of RSUs is recognized as expense on a straight-
line basis over the requisite service period, which is generally the vesting period. The fair market value of RSUs is
determined based on the market price of the Company’s shares on the date of the grant.
During Fiscal Year 2019, the Committee approved an employment inducement award granting 302,644 RSUs. During
Fiscal Year 2018, the Committee approved an employment inducement award granting 835,040 RSUs and 796,870 non-
qualified stock options. The RSUs and non-qualified stock options vest 25% each year over four years from the grant date.
The RSUs and non-qualified stock options follow the terms under the 2017 Plan.
The following table summarizes restricted stock activity during Fiscal Year 2019, inclusive of inducement awards:
Unvested units outstanding at February 2, 2019
Granted
Vested
Forfeited
Unvested units outstanding at February 1, 2020
Number of
Units
2,883,395
2,431,479
(1,238,838)
(1,630,677)
2,445,359
$
$
Weighted-
Average
Grant
Date Fair
Value
3.21
4.18
4.08
4.57
2.55
As of February 1, 2020, there was $6.2 million of total unrecognized compensation expense related to unvested
restricted stock, which is expected to be recognized over a weighted-average service period of 2.5 years. The weighted-
average grant date fair value per share of restricted stock granted during Fiscal Years 2019, 2018, and 2017, was $4.18,
$4.79, and $12.63, respectively. The total fair value of restricted stock vested during Fiscal Years 2019, 2018, and 2017 was
$5.1 million, $0.9 million, and $0.5 million, respectively.
The 2017 Plan has 4,567,264 shares of common stock reserved for issuance to awards granted by the Committee. As of
February 1, 2020, there were an aggregate of 1,874,981 shares authorized and available for future issuance.
During Fiscal Year 2017, the Committee granted stock options under the 2017 Plan. Stock options are granted to
purchase ordinary shares at prices as determined by the Committee, but in no event shall the exercise price be less than the
fair market value of the common stock at the time of grant. Options generally vest in equal installments over a four-year
period. Options expire not more than 10 years from the date of grant. The grant date fair value of options is recognized as an
expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are
recorded as incurred.
The following table summarizes stock option activity during Fiscal Year 2019, inclusive of inducement awards:
Options outstanding at February 3, 2018
Granted
Exercised
Forfeited
Options outstanding at February 2, 2019
Granted
Exercised
Forfeited
Options outstanding at February 1, 2020
Options exercisable at February 1, 2020
Number of
Units
265,116
796,870
—
(12,435)
1,049,551
—
—
(945,097)
104,454
52,227
$
$
$
$
F-28
Weighted-
Average
Grant
Date Fair
Value
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms
(years)
Aggregate-
Intrinsic
Value(1)
(thousands)
—
—
—
—
749.1
—
—
—
—
—
$
— $
—
—
—
9.0
—
—
—
7.3
7.3
$
$
6.05
2.20
—
6.03
3.13
—
—
2.81
6.03
6.03
$
$
$
$
$
13.26
4.90
—
13.12
6.91
—
—
5.08
11.97
11.97
(1) The intrinsic value is the amount by which the market price at the end of the period of the underlying share of
stock exceeds the exercise price of the stock option.
As of February 1, 2020, there was $0.2 million of unrecognized compensation cost related to non-vested stock options.
This cost is expected to be recognized over a weighted average period of 1.3 years. There were no stock options granted
during Fiscal Year 2019. The weighted-average grant date fair value per share of stock options granted during Fiscal Years
2018 and 2017 was $2.20 and $6.05, respectively.
The Company historically has been a private company and lacks certain company-specific historical and implied
volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a publicly
traded group of peer companies. Due to the lack of relevant historical data, the simplified approach was used to determine the
expected term of the options. The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at the
time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield
for options granted in Fiscal Year 2018 was based on the fact that the Company had not paid any cash dividends as of
February 2, 2019.
The fair values of options are estimated using the Black-Scholes option-pricing model with the following assumptions:
Risk-free rate
Expected term (in years)
Expected volatility
Expected dividend yield
February 2, 2019
2.14%
6.25
41.81%
0.00%
The Company established an Employee Stock Purchase Plan (the “Purchase Plan”) during Fiscal Year 2017, under
which a maximum of 200,000 shares of common stock may be purchased by eligible employees as defined by the Purchase
Plan. As of February 1, 2020, there were 11,724 shares authorized and available for future issuance under the Purchase Plan.
The Purchase Plan provides for one “purchase period” each year, commencing on January 1 of each year and
continuing through December 31. Shares are purchased through an accumulation of payroll deductions (no more than 10% of
compensation, as defined) for the number of whole shares determined by dividing the balance in the employee’s account on
the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The
purchase price for shares is the lower of 85% of the fair market value of the common stock at the beginning of the purchase
period, or 85% of such value at the end of the purchase period.
The fair value of shares purchased under the Purchase Plan are estimated using the Black-Scholes option-pricing model
with the following assumptions:
Risk-free rate
Expected term (in years)
Expected volatility
Expected dividend yield
February 1, 2020
1.59%
1.00
45.11%
0.00%
February 2, 2019
2.63%
1.00
42.54%
0.00%
The weighted average grant date fair value of the one-year option inherent in the Purchase Plan was approximately
$0.38 and $1.74 during the Fiscal Years 2019 and 2018, respectively.
During Fiscal Year 2019, the Company recognized $0.1 million of proceeds from 139,432 purchases of common stock
through the Purchase Plan.
Equity-based compensation expense for all award types of $4.6 million, $4.0 million, and $0.8 million was recorded as
a selling, general and administrative expense in the consolidated statement of operations and comprehensive income during
the Fiscal Years 2019, 2018, and 2017, respectively.
F-29
Special Dividend
On March 6, 2019, the Company’s Board of Directors declared a special cash dividend (the “Special Dividend”) of
$1.15 per share payable to shareholders of record as of March 19, 2019, of which $50.2 million was paid on April 1, 2019 to
shareholders.
In connection with the Special Dividend, pursuant to anti-dilution provisions in the 2017 Omnibus Equity Incentive
Plan (the “2017 Plan”), the Company adjusted outstanding equity awards in order to prevent dilution of such awards.
Accordingly, the Company adjusted the number of outstanding unvested restricted stock units (“RSUs”) as of the payment
date of the dividend with an additional number of RSUs (“Dividend Equivalent Units” or “DEUs”) equal to the quotient
obtained by dividing (x) the product of the number of unvested RSUs as of the record date by the amount of the dividend per
share, by (y) the fair market value of share on the payment date of the Special Dividend. The DEUs will follow the same
vesting pattern as the RSUs. For holders of outstanding options as of March 19, 2019, the option strike price on such options
was reduced by the per share amount of the Special Dividend. Holders of unvested Restricted Stock Awards (“RSAs”)
received a forfeitable $1.15 per share dividend on unvested RSAs as of March 19, 2019.
16. Related Party Transactions
During the Fiscal Years 2019, 2018 and 2017, the Company incurred an immaterial amount of related party expenses.
Related party expenses are included in operating expenses in the consolidated statements of operations and comprehensive
income.
17. Barter Arrangement
The Company entered into a bartering arrangement with Evergreen Trading, a vendor, where the Company provided
inventory in exchange for media credits. During Q3 of Fiscal Year 2019, the Company exchanged $3.3 million of inventory
for certain media credits. To account for the exchange, the Company recorded the transfer of the inventory asset as a
reduction of inventory offset by a $2.5 million decrease in reserves and an increase to a prepaid media asset of $2.0 million
which is included in “Prepaid and other current assets” and “Other assets” on the accompanying consolidated balance sheet.
A gain of $1.3 million was recorded upon shipment of the inventory. The Company had $2.0 million of unused media credits
remaining as of February 1, 2020 that will be used over seven years.
The Company accounted for this barter transactions under ASC Topic No. 606 “Revenue from Contract with
Customers.” Barter transactions with commercial substance are recorded at the estimated fair value of the products received.
Revenue associated with barter transaction is recorded at the time of the exchange of the related assets.
F-30
18. Subsequent Events
ABL and Term Loan Default
ABL Facility and Term Loan Agreement. In addition, as a result of COVID-19
The Company was in compliance with financial covenants as of February 1, 2020. However, the inclusion of
f
substantial doubt about the Company’s ability to continue as a going concern in the report of our independent registered
d
public accounting firm on our accompanying financial statements for the fiscal year ended February 1, 2020 results in a
public accounting firm on our accompanying financial statements for the fiscal year ended February 1, 2020 results in a
violation of affirmative covenants under our
related store closures, the Company was unable to meet the non-financial and financial covenants for the period ended May 2,
2020. If we are unable to obtain a waiver from our lenders, our lenders could instruct the administrative agent under such
credit facilities to exercise available remedies including, declaring the principal of and accrued interest on all outstanding
indebtedness immediately due and payable and terminating all remaining commitments and obligations under the credit
t
facilities. Although the lenders under our credit facilities may waive the defaults or forebear the exercise of remedies, they
y
are not obligated to do so. Failure to obtain such a waiver would have a material adverse effect on the liquidity, financial
condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United
d
States Bankruptcy Code in order to implement a restructuring plan. Our future operating performance and our ability to
service or extend our indebtedness will be subject to future economic conditions and to financial, business, and other factors,
many of which are beyond our control. We are seeking to amend our ABL Facility to provide for further incremental
borrowings. N
borrowings. No assurances can be given as to when or if the Company will succeed in obtaining the amendment.
ABL Draw down
On March 16, 2020, the Company elected to draw down $
33.0 million from its
as a precautionary
ABL Facility as a precautionary
measure in order to increase our cash position, preserve financial flexibility and maintain liquidity in response to the COVID-
19 outbreak. After the draw down the Company’s available borrowing capacity under the ABL Facility is $5.3 million. The
Company has no intention to draw down any additional amount from the ABL Facility. We intend to hold the proceeds from
m
the incremental borrowing on our balance sheet and, in accordance with the terms of the ABL Facility, may use the proceeds
in the future for working capital, general corporate or other purposes permitted thereunder.
Asset Impairments
As discussed in Note 2, the Company expects the COVID-19 pandemic to have a material adverse effect on results of
f
operations, financial position and liquidity arising after the fiscal year ended February 1, 2020. The outbreak is having an
n
impact on the global economy, resulting in rapidly changing market and economic conditions, which may impact the
Company.
During the first quarter of Fiscal Year 2020, the Company evaluated the changes in facts and circumstances and
d
general market declines resulting from the COVID-19 pandemic, including their impact on its current operating results and
d
whether an impairment triggering event has occurred on its indefinite-lived intangible assets, long-lived assets (including
finite-lived intangible assets) and goodwill. Subsequent to year end and through the date of this filing, the Company has
experienced a significant decline in its net sales as its retail locations were closed. As a result, management has concluded
d
that there was a goodwill, indefinite-lived intangible assets and long-lived asset impairment triggering event for the Company
y
in the first quarter of Fiscal Year 2020, which resulted in management performing an impairment evaluation of its goodwill,
intangible and other long-lived asset balances. The Company expects to record a material impairment amount in Q1 of Fiscal
Year 2020.
F-31
19. Quarterly Financial Data (unaudited)
The following table sets forth our historical consolidated statements of income for each of the eight fiscal quarters
through the year ended February 1, 2020. This unaudited quarterly information has been prepared on the same basis as our
annual audited consolidated financial statements, consisting of only normal recurring adjustments that we consider necessary
to fairly present the financial information for the fiscal quarters presented below.
Fiscal Year 2018
Thirteen weeks ended
August 4,
2018
November 3,
2018
May 5,
2018
Fiscal Year 2019
Thirteen weeks ended
February 2,
2019
May 4, 2019
August 3,
2019
November 2,
2019
February 1,
2020
(in thousands, unaudited)
Net sales
$
Costs of goods sold
Gross profit
Selling, general and
administrative expenses
Impairment of goodwill
Impairment of indefinite-
lived intangible assets
Operating income
Interest expense, net
Income before provision
(benefit) for income taxes
Income tax provision
(benefit)
Net income
NNet income per common
share attributable to
common shareholders:
181,541 $
61,200
120,341
100,294
179,713 $
63,058
116,655
97,365
174,106 $
58,643
115,463
101,589
170,902 $
63,081
107,821
99,794
176,452 $
60,196
116,256
105,445
180,744 $
75,403
105,341
104,698
166,085 $
59,137
106,948
97,972
-
-
-
-
-
-
20,047
4,817
15,230
19,290
4,853
14,437
13,874
4,698
9,176
3,972
3,952
2,488
-
-
8,027
4,696
3,331
1,237
-
-
88,428
7,000
10,811
5,007
5,804
(94,785)
5,019
(99,804)
-
-
8,976
4,826
4,150
1,438
(3,069)
1,763
(3,154)
$
11,258 $
10,485 $
6,688 $
2,094 $
4,366 $
(96,735) $
2,387 $
(38,585)
168,064
68,030
100,034
100,954
31,000
5,100
(37,020)
4,719
(41,739)
Basic
Diluted
$
$
0.27 $
0.26 $
0.24 $
0.23 $
0.16 $
0.15 $
0.05 $
0.05 $
0.10 $
0.10 $
(2.21) $
(2.21) $
0.05 $
0.05 $
(0.88)
(0.88)
Weighted average number of
common shares outstanding:
Basic
Diluted
42,216,331 42,855,366 42,953,173 43,060,392 43,327,519 43,793,348
43,407,414 44,716,193 44,475,793 44,359,599 44,478,153 43,793,348
43,838,667 44,017,340
43,950,702 44,017,340
F-32
B O A R D O F D I R E C T O R S
Michael Rahamim, Chairman
Michael Eck
Marka Hansen
Shelley Milano
Travis Nelson
Michael Recht
Andrew Rolfe
James Scully
A N N U A L M E E T I N G
The annual meeting will be held on Wednesday, September 16, 2020
at 4 Batterymarch Park, Quincy, MA 02169
at 8:00 a.m.
IN V E S T O R I N F O R M A T I O N
Shareholders are advised to review f inancial information and other disclosures contained in
its 2019 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statement
and other SEC f ilings, as well as press releases and earnings announcements by accessing
the Company’s website at http://investors.j jill.com.
I N V E S T O R I N Q U I R I E S S H O U L D B E D I R E C T E D T O :
BY EMAIL: investors@j jill.com
BY TELEPHONE: (203) 682-8200