10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 29, 2022

OR

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.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 December 9, 2022, the registrant had 40,786,993 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

2

 

Consolidated Statements of Comprehensive Income (Loss)

3

 

Consolidated Statements of Cash Flows

4

 

Consolidated Statements of Shareholders’ Equity

5

 

Notes to Consolidated Financial Statements

7

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,” “should,” or the negative thereof or other variations thereon or comparable terminology. Forward-looking statements include those we make regarding the following matters:

the impact of inflationary pressures and general economic conditions on our ability to control costs and on our customers level of discretionary income to spend on sewing, arts and crafts and select home décor products ("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;
our ability to maintain adequate liquidity, our level of indebtedness, the impact of lease obligations and the availability of capital, including our ability to raise additional capital, could limit our financial flexibility and cash flow necessary to fund working capital, planned capital expenditures, and other general corporate purposes or ongoing needs of our business;
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 for our store locations;
our ability to execute on our growth strategy to renovate and improve the performance of our existing store locations;
our ability to attract and retain a qualified management team and other team members while controlling our labor costs;
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 products for resale;
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. ("LGP");
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.

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

JOANN Inc.

Consolidated Balance Sheets

 

 

 

(Unaudited)

 

 

 

 

 

 

October 29,
2022

 

 

October 30,
2021

 

 

January 29,
2022

 

 

 

(In millions)

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27.5

 

 

$

30.9

 

 

$

22.5

 

Inventories

 

 

747.0

 

 

 

744.3

 

 

 

658.6

 

Prepaid expenses and other current assets

 

 

79.6

 

 

 

82.6

 

 

 

39.2

 

Total current assets

 

 

854.1

 

 

 

857.8

 

 

 

720.3

 

 

 

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

295.8

 

 

 

261.1

 

 

 

256.8

 

Operating lease assets

 

 

802.6

 

 

 

842.1

 

 

 

818.0

 

Goodwill, net

 

 

162.0

 

 

 

162.0

 

 

 

162.0

 

Intangible assets, net

 

 

369.3

 

 

 

372.1

 

 

 

370.3

 

Other assets

 

 

40.9

 

 

 

26.8

 

 

 

34.8

 

Total assets

 

$

2,524.7

 

 

$

2,521.9

 

 

$

2,362.2

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

270.3

 

 

$

311.3

 

 

$

253.8

 

Accrued expenses

 

 

123.4

 

 

 

128.6

 

 

 

142.4

 

Current portion of operating lease liabilities

 

 

162.4

 

 

 

176.7

 

 

 

173.8

 

Current portion of long-term debt

 

 

6.8

 

 

 

6.8

 

 

 

6.8

 

Total current liabilities

 

 

562.9

 

 

 

623.4

 

 

 

576.8

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

1,062.4

 

 

 

853.8

 

 

 

778.6

 

Long-term operating lease liabilities

 

 

735.5

 

 

 

758.2

 

 

 

733.0

 

Long-term deferred income taxes

 

 

89.3

 

 

 

91.2

 

 

 

87.7

 

Other long-term liabilities

 

 

31.3

 

 

 

48.7

 

 

 

36.3

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock, stated value $0.01 per share; 200.0 million authorized; issued 44.1 million shares at October 29, 2022, October 30, 2021 and January 29, 2022

 

 

0.4

 

 

 

0.4

 

 

 

0.4

 

Additional paid-in capital

 

 

208.4

 

 

 

203.6

 

 

 

203.3

 

Retained (deficit)

 

 

(148.1

)

 

 

(34.4

)

 

 

(24.9

)

Accumulated other comprehensive income

 

 

11.4

 

 

 

1.1

 

 

 

1.8

 

Treasury stock at cost; 3.3 million shares at October 29, 2022, 2.9 million shares at October 30, 2021 and 3.5 million shares at January 29, 2022

 

 

(28.8

)

 

 

(24.1

)

 

 

(30.8

)

Total shareholders’ equity

 

 

43.3

 

 

 

146.6

 

 

 

149.8

 

Total liabilities and shareholders’ equity

 

$

2,524.7

 

 

$

2,521.9

 

 

$

2,362.2

 

 

See notes to unaudited consolidated financial statements.

2


 

JOANN Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

 

October 29,
2022

 

 

October 30,
2021

 

 

October 29,
2022

 

 

October 30,
2021

 

 

 

(In millions except per share data)

 

Net sales

 

$

562.8

 

 

$

611.0

 

 

$

1,524.1

 

 

$

1,682.3

 

Cost of sales

 

 

281.8

 

 

 

292.2

 

 

 

787.5

 

 

 

794.0

 

Selling, general and administrative expenses

 

 

269.0

 

 

 

257.6

 

 

 

786.6

 

 

 

754.5

 

Depreciation and amortization

 

 

19.9

 

 

 

19.6

 

 

 

59.9

 

 

 

60.1

 

Operating profit (loss)

 

 

(7.9

)

 

 

41.6

 

 

 

(109.9

)

 

 

73.7

 

Interest expense, net

 

 

18.1

 

 

 

11.8

 

 

 

42.5

 

 

 

39.8

 

Debt related loss, net

 

 

 

 

 

 

 

 

 

 

 

3.0

 

Investment remeasurement

 

 

(2.0

)

 

 

 

 

 

(1.0

)

 

 

 

Gain on sale leaseback

 

 

 

 

 

 

 

 

 

 

 

(24.5

)

Income (loss) before income taxes

 

 

(24.0

)

 

 

29.8

 

 

 

(151.4

)

 

 

55.4

 

Income tax provision (benefit)

 

 

(6.5

)

 

 

7.0

 

 

 

(41.9

)

 

 

12.3

 

Net income (loss)

 

$

(17.5

)

 

$

22.8

 

 

$

(109.5

)

 

$

43.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(0.1

)

 

 

 

 

 

(0.1

)

 

 

 

Cash flow hedges

 

 

13.9

 

 

 

1.4

 

 

 

13.0

 

 

 

1.8

 

Income tax (provision) on cash flow hedges

 

 

(3.5

)

 

 

(0.3

)

 

 

(3.3

)

 

 

(0.4

)

Other comprehensive income

 

 

10.3

 

 

 

1.1

 

 

 

9.6

 

 

 

1.4

 

Comprehensive income (loss)

 

$

(7.2

)

 

$

23.9

 

 

$

(99.9

)

 

$

44.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.43

)

 

$

0.55

 

 

$

(2.69

)

 

$

1.06

 

Diluted

 

$

(0.43

)

 

$

0.53

 

 

$

(2.69

)

 

$

1.02

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40.8

 

 

 

41.7

 

 

 

40.7

 

 

 

40.8

 

Diluted

 

 

40.8

 

 

 

43.1

 

 

 

40.7

 

 

 

42.1

 

 

See notes to unaudited consolidated financial statements.

3


 

JOANN Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Thirty-Nine Weeks Ended

 

 

 

October 29,
2022

 

 

October 30,
2021

 

 

 

(In millions)

 

Net cash provided by (used for) operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(109.5

)

 

$

43.1

 

Adjustments to reconcile net income (loss) to net cash (used for)
   operating activities:

 

 

 

 

 

 

Non-cash operating lease expense

 

 

127.0

 

 

 

120.8

 

Depreciation and amortization

 

 

59.9

 

 

 

60.1

 

Deferred income taxes

 

 

(1.7

)

 

 

3.4

 

Stock-based compensation expense

 

 

6.1

 

 

 

2.1

 

Amortization of deferred financing costs and original issue discount

 

 

1.5

 

 

 

2.0

 

Debt related loss, net

 

 

 

 

 

3.0

 

Investment remeasurement

 

 

(1.0

)

 

 

 

Gain on sale leaseback

 

 

 

 

 

(24.5

)

Loss (gain) on disposal and impairment of fixed and operating lease assets

 

 

0.3

 

 

 

(0.1

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) in inventories

 

 

(88.4

)

 

 

(188.4

)

(Increase) in prepaid expenses and other current assets

 

 

(39.3

)

 

 

(11.0

)

Increase in accounts payable

 

 

16.5

 

 

 

61.2

 

(Decrease) in accrued expenses

 

 

(16.4

)

 

 

(45.4

)

(Decrease) in operating lease liabilities

 

 

(120.6

)

 

 

(144.6

)

(Decrease) in other long-term liabilities

 

 

(13.1

)

 

 

(6.0

)

Other, net

 

 

5.1

 

 

 

0.7

 

Net cash (used for) operating activities

 

 

(173.6

)

 

 

(123.6

)

Net cash provided by (used for) investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(80.4

)

 

 

(42.9

)

Proceeds from sale leaseback

 

 

 

 

 

48.1

 

Other investing activities

 

 

(4.3

)

 

 

(0.2

)

Net cash provided by (used for) investing activities

 

 

(84.7

)

 

 

5.0

 

Net cash provided by (used for) financing activities:

 

 

 

 

 

 

Term loan proceeds, net of original issue discount

 

 

 

 

 

671.6

 

Term loan payments

 

 

(5.1

)

 

 

(708.0

)

Borrowings on revolving credit facility

 

 

544.1

 

 

 

429.9

 

Payments on revolving credit facility

 

 

(256.1

)

 

 

(318.9

)

Purchase and retirement of debt

 

 

 

 

 

(0.9

)

Principal payments on finance lease obligations

 

 

(7.1

)

 

 

(5.4

)

Issuance of common stock, net of underwriting commissions and offering costs

 

 

 

 

 

76.9

 

Purchase of common stock

 

 

 

 

 

(10.8

)

Proceeds from employee stock purchase plan and exercise of stock options

 

 

1.1

 

 

 

 

Payments of taxes related to the net issuance of team member stock awards

 

 

(0.1

)

 

 

 

Dividends paid

 

 

(13.4

)

 

 

(8.4

)

Financing fees paid

 

 

 

 

 

(3.9

)

Net cash provided by financing activities

 

 

263.4

 

 

 

122.1

 

Effect of exchange rate changes on cash

 

 

(0.1

)

 

 

 

Net increase in cash and cash equivalents

 

 

5.0

 

 

 

3.5

 

Cash and cash equivalents at beginning of period

 

 

22.5

 

 

 

27.4

 

Cash and cash equivalents at end of period

 

$

27.5

 

 

$

30.9

 

Cash paid (received) during the period for:

 

 

 

 

 

 

Interest

 

$

39.6

 

 

$

38.6

 

Income taxes, net of refunds

 

 

(6.6

)

 

 

17.2

 

 

See notes to unaudited consolidated financial statements.

4


 

JOANN Inc.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

 

 

 

 

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

 

 

 

(In millions)

 

Balance, January 29, 2022

 

 

40.6

 

 

 

3.5

 

 

 

$

0.4

 

 

$

203.3

 

 

$

(30.8

)

 

$

(24.9

)

 

$

1.8

 

 

$

149.8

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35.1

)

 

 

 

 

 

(35.1

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.5

 

 

 

3.5

 

Dividends – $0.11 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4.5

)

 

 

 

 

 

(4.5

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

1.0

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

0.3

 

 

 

 

 

 

 

 

 

0.4

 

Vesting of restricted stock units

 

 

0.1

 

 

 

(0.1

)

 

 

 

 

 

 

(0.7

)

 

 

0.6

 

 

 

 

 

 

 

 

 

(0.1

)

Balance, April 30, 2022

 

 

40.7

 

 

 

3.4

 

 

 

$

0.4

 

 

$

203.7

 

 

$

(29.9

)

 

$

(64.5

)

 

$

5.3

 

 

$