SEC Filing | JOANN, Inc

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-40204

JOANN Inc.

(Exact name of registrant as specified in its charter)


Delaware	46-1095540
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5555 Darrow Road, Hudson, Ohio	44236
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (330) 656-2600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

JOAN

The Nasdaq Global Market

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 ☒ No ☐

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 ☒ No ☐

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.

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 new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 24, 2021, the registrant had 41,180,969 shares of common stock, par value $0.01 per share, outstanding.

Table of Contents


		Page
	FORWARD-LOOKING STATEMENTS	1
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of October 30, 2021 (Unaudited), October 31, 2020 (Unaudited) and January 30, 2021	2
	Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 (Unaudited)	3
	Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 (Unaudited)	4
	Consolidated Statements of Shareholders’ Equity (Deficit) for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	Signatures	27

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” “vision,” or “should,” or the negative thereof or other variations thereon or comparable terminology. Forward-looking statements include those we make regarding the following matters:



inflationary pressures, and their impact on our ability to control costs and on our customers level of discretionary income to spend on Creative Products;



our ability to anticipate and effectively respond to disruptions or inefficiencies in our distribution network, e-commerce fulfillment function and transportation system, including availability and cost of import and domestic freight;



the effects of potential changes to U.S. trade regulations and policies, including tariffs, on our business;



developments involving our competitors and our industry;



potential future impacts of the COVID-19 pandemic, including effects on supply chain costs and capacity;



our ability to timely identify or effectively respond to consumer trends, and the potential effects of that ability on our relationship with our customers, the demand for our products and our market share;



our expectations regarding the seasonality of our business;



our ability to manage the distinct risks facing our e-commerce business and maintain a relevant omni-channel experience for our customers;



our ability to maintain or negotiate favorable lease terms;



our ability to execute on our growth strategy to renovate and improve the performance of our existing locations;



our ability to attract and retain a qualified management team and other team members while controlling our labor costs;



the impact of our debt and lease obligations on our ability to raise additional capital to fund our operations and maintain flexibility in operating our business;



our reliance on and relationships with third party service providers;



our reliance on and relationships with foreign suppliers and their ability to supply us with adequate, timely, and cost-effective product supplies;



our ability, and our third party service providers’ ability, to maintain security and prevent unauthorized access to electronic and other confidential information;



the impacts of potential disruptions to our information systems, including our websites and mobile applications;



our ability to respond to risks associated with existing and future payment options;



our ability to maintain and enhance a strong brand image;



our ability to maintain adequate insurance coverage;



our status as a “controlled company” and control of us as a public company by affiliates of Leonard Green & Partners, L.P.;



the impact of evolving governmental laws and regulations and the outcomes of legal proceedings; and



the amount and timing of repurchases of our common stock, if any.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. Furthermore, the potential impact of the COVID-19 pandemic on our business operations and financial results and on the world economy as a whole may heighten the risks and uncertainties that affect our forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements included elsewhere in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

JOANN Inc.

Consolidated Balance Sheets


	(Unaudited)
	October 30, 2021			October 31, 2020			January 30, 2021
	(Dollars in millions)
Assets
Current assets:
Cash and cash equivalents	$	30.9		$	33.2		$	27.4
Inventories		744.3			697.7			555.9
Prepaid expenses and other current assets		82.6			68.7			71.5
Total current assets		857.8			799.6			654.8

Property, equipment and leasehold improvements, net		261.1			296.0			280.5
Operating lease assets		842.1			864.4			837.0
Goodwill, net		162.0			162.0			162.0
Intangible assets, net		372.1			378.9			377.2
Other assets		26.8			18.7			25.8
Total assets	$	2,521.9		$	2,519.6		$	2,337.3

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	311.3		$	328.9		$	250.1
Accrued expenses		128.6			138.3			171.3
Current portion of operating lease liabilities		176.7			184.2			187.2
Current portion of long-term debt		6.8			—			—
Total current liabilities		623.4			651.4			608.6

Long-term debt, net		853.8			921.6			786.3
Long-term operating lease liabilities		758.2			800.8			766.4
Long-term deferred income taxes		91.2			91.6			87.3
Other long-term liabilities		48.7			50.7			46.3

Shareholders’ equity:
Common stock, stated value $0.01 per share; 200,000,000 authorized; issued 44,080,177 shares at October 30, 2021 and 36,822,658 shares at October 31, 2020 and January 30, 2021		0.4			0.3			0.3
Additional paid-in capital		203.6			124.3			124.7
Retained deficit		(34.4	)		(107.3	)		(69.0	)
Accumulated other comprehensive income (loss)		1.1			(0.5	)		(0.3	)
Treasury stock at cost; 2,899,208 shares at October 30, 2021 and 1,920,278 at October 31, 2020 and January 30, 2021		(24.1	)		(13.3	)		(13.3	)
Total shareholders’ equity		146.6			3.5			42.4
Total liabilities and shareholders’ equity	$	2,521.9		$	2,519.6		$	2,337.3

See notes to unaudited consolidated financial statements.

JOANN Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2021			October 31, 2020			October 30, 2021			October 31, 2020
	(Dollars in millions except per share data)
Net sales	$	611.0		$	714.1		$	1,682.3		$	1,921.5
Cost of sales		292.2			339.6			794.0			949.8
Selling, general and administrative expenses		257.6			292.5			754.5			818.2
Depreciation and amortization		19.6			20.3			60.1			59.8
Operating profit		41.6			61.7			73.7			93.7
Interest expense, net		11.8			14.0			39.8			55.0
Debt related (gain) loss		—			(3.0	)		3.0			(152.9	)
Gain on sale leaseback		—			—			(24.5	)		—
Income before income taxes		29.8			50.7			55.4			191.6
Income tax provision		7.0			3.0			12.3			17.6
Net income	$	22.8		$	47.7		$	43.1		$	174.0

Other comprehensive income:
Cash flow hedges		1.4			0.1			1.8			0.5
Income tax provision on cash flow hedges		(0.3	)		—			(0.4	)		(0.1	)
Other comprehensive income		1.1			0.1			1.4			0.4
Comprehensive income	$	23.9		$	47.8		$	44.5		$	174.4

Earnings per common share:
Basic	$	0.55		$	1.37		$	1.06		$	4.99
Diluted	$	0.53		$	1.32		$	1.02		$	4.88
Weighted-average common shares outstanding:
Basic		41,744,842			34,902,380			40,763,153			34,902,380
Diluted		43,080,708			36,263,172			42,142,550			35,666,429

See notes to unaudited consolidated financial statements.

JOANN Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	Thirty-Nine Weeks Ended
	October 30, 2021			October 31, 2020
	(Dollars in millions)
Net cash (used for) provided by operating activities:
Net income	$	43.1		$	174.0
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Non-cash operating lease expense		120.8			113.2
Depreciation and amortization		60.1			59.8
Deferred income taxes		3.4			0.5
Stock-based compensation expense		2.1			1.1
Amortization of deferred financing costs and original issue discount		2.0			2.9
Debt related loss (gain)		3.0			(152.9	)
Gain on sale leaseback		(24.5	)		—
(Gain) loss on disposal and impairment of fixed and operating lease assets		(0.1	)		2.1
Changes in operating assets and liabilities:
Increase in inventories		(188.4	)		(48.0	)
Increase in prepaid expenses and other current assets		(11.0	)		(21.6	)
Increase in accounts payable		61.2			101.8
(Decrease) increase in accrued expenses		(45.4	)		26.5
Decrease in operating lease liabilities		(144.6	)		(87.7	)
(Decrease) increase in other long-term liabilities		(6.0	)		13.1
Other, net		0.7			1.0
Net cash (used for) provided by operating activities		(123.6	)		185.8
Net cash provided by (used for) investing activities:
Capital expenditures		(42.9	)		(28.7	)
Proceeds from sale leaseback		48.1			—
Proceeds from sales of other fixed assets		—			0.5
Other investing activities		(0.2	)		—
Net cash provided by (used for) investing activities		5.0			(28.2	)
Net cash provided by (used for) financing activities:
Term loan proceeds, net of original issue discount		671.6			—
Term loan payments		(708.0	)		(2.3	)
Borrowings on revolving credit facility		429.9			464.5
Payments on revolving credit facility		(318.9	)		(421.0	)
Purchase and retirement of debt		(0.9	)		(188.4	)
Principal payments on finance lease obligations		(5.4	)		(1.7	)
Issuance of common stock, net of underwriting commissions and offering costs		76.9			—
Purchase of common stock		(10.8	)		—
Dividends paid		(8.4	)		—
Financing fees paid		(3.9	)		—
Other, net		—			0.1
Net cash provided by (used for) financing activities		122.1			(148.8	)
Net increase in cash and cash equivalents		3.5			8.8
Cash and cash equivalents at beginning of period		27.4			24.4
Cash and cash equivalents at end of period	$	30.9		$	33.2
Cash paid during the period for:
Interest	$	38.6		$	48.7
Income taxes, net of refunds		17.2			41.7

See notes to unaudited consolidated financial statements.

JOANN Inc.

Consolidated Statements of Shareholders’ Equity (Deficit)

(Unaudited)


	Thirteen Weeks Ended
	Net Common Shares			Treasury Shares		Common Stock Par Value		Additional Paid-In Capital		Treasury Stock			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity (Deficit)
	(Shares in thousands)					(Dollars in millions)
Balance, August 1, 2020		34,902.4			1,920.3	$	0.3	$	124.0	$	(13.3	)	$	(155.0	)	$	(0.6	)	$	(44.6	)
Net income		—			—		—		—		—			47.7			—			47.7
Other comprehensive income		—			—		—		—		—			—			0.1			0.1
Stock-based compensation		—			—		—		0.3		—			—			—			0.3
Balance, October 31, 2020		34,902.4			1,920.3	$	0.3	$	124.3	$	(13.3	)	$	(107.3	)	$	(0.5	)	$	3.5

Balance, July 31, 2021		42,159.9			1,920.3	$	0.4	$	202.8	$	(13.3	)	$	(52.9	)	$	—		$	137.0
Net income		—			—		—		—		—			22.8			—			22.8
Other comprehensive income		—			—		—		—		—			—			1.1			1.1
Dividends – $0.10 per share		—			—		—		—		—			(4.3	)		—			(4.3	)
Purchase of common stock		(978.9	)		978.9		—		—		(10.8	)		—			—			(10.8	)
Stock-based compensation		—			—		—		0.8		—			—			—			0.8
Balance, October 30, 2021		41,181.0			2,899.2	$	0.4	$	203.6	$	(24.1	)	$	(34.4	)	$	1.1		$	146.6


	Thirty-Nine Weeks Ended
	Net Common Shares		Treasury Shares		Common Stock Par Value		Additional Paid-In Capital		Treasury Stock			Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity (Deficit)
	(Shares in thousands)				(Dollars in millions)
Balance, February 1, 2020		34,902.4		1,920.3	$	0.3	$	123.2	$	(13.3	)	$	(281.3	)	$	(0.9	)	$	(172.0	)
Net income		—		—		—		—		—			174.0			—			174.0