UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of November 30, 2023, the registrant had
Table of Contents
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Page |
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1 |
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PART I. |
3 |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
24 |
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Item 4. |
24 |
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PART II. |
25 |
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Item 1. |
25 |
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Item 1A. |
25 |
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Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
26 |
Item 3. |
26 |
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Item 4. |
26 |
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Item 5. |
26 |
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Item 6. |
27 |
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28 |
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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 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. 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
1
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.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
JOANN Inc.
Consolidated Balance Sheets
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(Unaudited) |
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October 28, |
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October 29, |
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January 28, |
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(In millions) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, equipment and leasehold improvements, net |
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Operating lease assets |
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Goodwill, net |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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$ |
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Liabilities and Shareholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net |
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Long-term operating lease liabilities |
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Long-term deferred income taxes |
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Other long-term liabilities |
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Shareholders’ equity (deficit): |
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Common stock, stated value $ |
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Additional paid-in capital |
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Retained (deficit) |
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( |
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( |
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Accumulated other comprehensive income |
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Treasury stock at cost; |
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( |
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( |
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( |
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Total shareholders’ equity (deficit) |
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( |
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( |
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Total liabilities and shareholders’ equity (deficit) |
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$ |
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$ |
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$ |
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See notes to unaudited consolidated financial statements.
3
JOANN Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Thirteen Weeks Ended |
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Thirty-Nine Weeks Ended |
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October 28, |
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October 29, |
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October 28, |
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October 29, |
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(In millions except per share data) |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Selling, general and administrative expenses |
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Depreciation and amortization |
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Intangible asset impairment |
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Operating (loss) |
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( |
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( |
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( |
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( |
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Interest expense, net |
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Investment remeasurement |
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( |
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( |
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Gain on sale leaseback |
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( |
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( |
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(Loss) before income taxes |
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( |
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( |
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( |
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( |
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Income tax (benefit) |
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( |
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( |
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( |
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( |
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Loss from equity method investments |
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Net (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Foreign currency translation |
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( |
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( |
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( |
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Cash flow hedges |
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Income tax (provision) on cash flow hedges |
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( |
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( |
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( |
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( |
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Other comprehensive income |
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Comprehensive (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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(Loss) per common share: |
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Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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See notes to unaudited consolidated financial statements.
4
JOANN Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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Thirty-Nine Weeks Ended |
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October 28, |
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October 29, |
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(In millions) |
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Net cash provided by (used for) operating activities: |
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Net (loss) |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net (loss) to net cash (used for) |
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Non-cash operating lease expense |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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Stock-based compensation expense |
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Amortization of deferred financing costs and original issue discount |
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Investment remeasurement |
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( |
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Gain on sale leaseback |
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( |
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Loss on disposal and impairment of fixed assets |
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Intangible asset impairment |
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Loss on equity method investment |
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Changes in operating assets and liabilities: |
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(Increase) in inventories |
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( |
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( |
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(Increase) in prepaid expenses and other current assets |
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( |
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( |
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Increase in accounts payable |
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(Decrease) in accrued expenses |
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( |
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( |
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(Decrease) in operating lease liabilities |
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( |
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( |
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(Decrease) in other long-term liabilities |
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( |
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( |
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Other, net |
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( |
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Net cash (used for) operating activities |
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( |
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( |
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Net cash provided by (used for) investing activities: |
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Capital expenditures |
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( |
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( |
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Proceeds from sale leaseback |
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Other investing activities |
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( |
) |
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( |
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Net cash (used for) investing activities |
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( |
) |
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( |
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Net cash provided by (used for) financing activities: |
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Term loan payments |
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( |
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( |
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FILO proceeds |
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Borrowings on revolving credit facility |
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Payments on revolving credit facility |
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( |
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( |
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Principal payments on finance lease obligations |
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( |
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( |
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Proceeds from employee stock purchase plan and exercise of stock options |
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Payments of taxes related to the net issuance of team member stock awards |
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( |
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( |
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Dividends paid |
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( |
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Financing fees paid |
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( |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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( |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Cash paid (received) during the period for: |
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Interest |
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$ |
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$ |
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Income taxes, net of (refunds) |
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( |
) |
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( |
) |
See notes to unaudited consolidated financial statements.
5
JOANN Inc.
(Unaudited)
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Net |
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Treasury |
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Common |
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Additional |
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Treasury |
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Retained |
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Accumulated |
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Total |
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(In millions) |
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Balance, January 28, 2023 |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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$ |
( |
) |
|||||
Net (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
|
— |
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( |
) |
Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Vesting of restricted stock units |
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( |
) |
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— |
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( |
) |
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|
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— |
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|
|
— |
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|
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( |
) |
||
Balance, April 29, 2023 |
|
|
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|
$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||
Net (loss) |
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|
— |
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|
|
— |
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|
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— |
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|
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— |
|
|
|
— |
|
|
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( |
) |
|
|
— |
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( |
) |
Other comprehensive income |
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— |
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|
|
— |
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|
|
— |
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— |
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— |
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— |
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||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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( |
) |
|
|
|
— |
|
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( |
) |
|
|
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|
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— |
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— |
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|
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— |
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||
Employee stock purchase plan purchases |
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( |
) |
|
|
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— |
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( |
) |
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|
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|
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— |
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— |
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|||
Balance, July 29, 2023 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
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( |
) |
Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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|
||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance, October 28, 2023 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||
|
|
Net |
|
|
Treasury |
|
|
|
Common |
|
|
Additional |
|
|
Treasury |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||||
|
|
(In millions) |
|
||||||||||||||||||||||||||||||
Balance, January 29, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends – $ |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of restricted stock units |
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Balance, April 30, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends – $ |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Vesting of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Employee stock purchase plan purchases |
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance, July 30, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Net (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends – $ |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance, October 29, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See notes to unaudited consolidated financial statements.
6
JOANN Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1—Significant Accounting Policies
Nature of Operations
Basis of Presentation
The accompanying Consolidated Financial Statements and these notes are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. The Consolidated Financial Statements reflect all normal, recurring adjustments which management believes are necessary to present fairly the Company’s financial condition, results of operations and cash flows for all periods presented. The Consolidated Financial Statements, however, do not include all information necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying Consolidated Financial Statements and these notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
Consolidation
The Consolidated Financial Statements include the accounts of JOANN Inc. (the “Holding Company”), Needle Holdings LLC (“Needle Holdings”) and Jo-Ann Stores, LLC and its wholly-owned subsidiaries (collectively, “JOANN”). All of the entities referenced in the prior sentence hereinafter will be referred to collectively as the “Company” and are all controlled by affiliates of LGP. All intercompany accounts and transactions have been eliminated upon consolidation.
The Holding Company has no operating activities and is limited to the issuance of shares of common stock and stock-based awards, the repurchase of common shares, the issuance and repurchase of debt, the receipt and payment of dividends or distributions and the payment of interest expense. The authorized, issued and outstanding common shares and treasury shares shown on the Consolidated Balance Sheets are of the Holding Company. Likewise, Needle Holdings has no operating activities and is limited to the issuance of initial shares of common stock and stock-based awards and the payment of dividends or distributions.
Fiscal Periods
The Company’s fiscal year ends on the Saturday closest to January 31 and refers to the year in which the period ends (e.g., fiscal 2023 refers to the fiscal year ending January 28, 2023). Fiscal years consist of 52 weeks, unless noted otherwise. Fiscal 2024 consists of 53 weeks and ends February 3, 2024. The fiscal quarters ended October 28, 2023 and October 29, 2022 were both comprised of 13 weeks.
Seasonality
Typical of most retail companies, the Company’s business is seasonal, with the majority of revenues and operating profits generated in the second half of the fiscal year. Accordingly, earnings or losses for a particular interim period are not necessarily indicative of full-year results.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.
7
Recently Issued Accounting Guidance
There are no recently issued accounting pronouncements that the Company has not yet adopted which would have a material impact on the Consolidated Financial Statements.
Related Party Transactions
During the thirteen and thirty-nine weeks ended October 29, 2022, the Company paid dividends of $
Note 2—Financing
Long-term debt consisted of the following:
|
|
October 28, |
|
|
October 29, |
|
|
January 28, |
|
|||
|
|
(In millions) |
|
|||||||||
ABL Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Term Loan due 2028 |
|
|
|
|
|
|
|
|
|
|||
FILO Loan |
|
|
|
|
|
|
|
|
|
|||
Total debt |
|
|
|
|
|
|
|
|
|
|||
Less unamortized discount and debt costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total debt, net |
|
|
|
|
|
|
|
|
|
|||
Less current portion of debt |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
ABL Facility
On
On December 22, 2021, the Company entered into an agreement to amend various terms of the ABL Facility, which provides for senior secured financing of up to $
As further described under FILO Loans below, on March 10, 2023, the Company entered into a third amendment to the ABL Facility (the “Third Amendment"). As amended by the Third Amendment, the ABL Facility base rate loans bear an additional margin of
The Third Amendment also replaced the London Interbank Offered Rate ("LIBOR") as the interest rate benchmark under the credit agreement with the forward-looking term rate based on the Term Secured Overnight Financing Rate ("SOFR") as administered by the Federal Reserve Bank of New York. SOFR loans, previously Eurodollar rate loans, bear an additional margin of
8
of not less than $
As of October 28, 2023, there were $
FILO Loans
On March 10, 2023 (the “Closing Date”), the Company entered into the Third Amendment to the ABL Facility. The Third Amendment, among other things, adds a series of first-in last-out loans (the “FILO Loans”) in an aggregate amount of $
The FILO Loans and the revolving commitments under the credit agreement (the “Revolving Commitments”) mature on December 22, 2026. The FILO Loans will not amortize.
The Third Amendment also amends the credit agreement to (i) include certain trade receivables in the borrowing base, (ii) provide that loans drawn pursuant to the Revolving Commitments may be made at JOANN’s election as base rate loans or SOFR loans and (iii)
Other than the changes described above, all other material provisions of the credit agreement remain unchanged and as previously disclosed.
During the third quarter of fiscal 2024, the weighted average interest rate for borrowings under the FILO Loans due 2026 was
Term Loan Due 2028
On July 7, 2021, the Company entered into the Amendment No. 2 (“Amendment No. 2”) to the credit agreement, dated as of October 21, 2016. Amendment No. 2, among other things, provided for a new $
Covenants
9
For further details on the Company’s debt, see Note 2 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 28, 2023.
Note 3—Derivative Instruments
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates. The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company may selectively use derivative financial instruments to manage the risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.
Interest Rate Swaps
In August 2021, the Company entered into an interest rate swap agreement with U.S. Bank N.A., which has a $
In May 2022, the Company entered into a second interest rate swap agreement with U.S. Bank N.A., which has a $
All of the Company's derivative financial instruments are eligible for netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's Consolidated Balance Sheet on a net basis. As of October 28, 2023, none of the netting arrangements involved collateral. The net fair value of the interest rate swaps as of October 28, 2023 was $
The Company designated its interest rate swaps as cash flow hedges and structured them to be highly effective. Unrealized gains and losses related to the fair value of the interest rate swaps are recorded to accumulated other comprehensive income (loss), net of tax. In the event of early termination of the interest rate swaps, the Company will receive from or pay to the counterparty the fair value of the interest rate swap agreements, and the unrealized gain or loss outstanding will be recognized in earnings.
The impacts of the Company’s derivative instruments on the accompanying Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 are presented in the table below:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
|
|
(In millions) |
|
|||||||||||||
Interest rate swap - $200M notional amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swap - $250M notional amount |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain recognized in other comprehensive income (loss), gross of income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
The components of interest expense, including the amount of gains and losses on derivative instruments and related hedged items, as reported on the Consolidated Statements of Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 are presented in the table below:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
|
|
(In millions) |
|
|||||||||||||
Interest expense on debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest (income) of derivatives |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Interest expense on debt and derivatives |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 4—Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and
Level 3 – Unobservable inputs in which there is little or no market data which require the reporting entity to develop its own assumptions.
The valuations of the Company's interest rate derivatives are measured as the present value of all expected future cash flows based on SOFR-based yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty which is a Level 2 fair value measurement.
Instrument |
|
Balance Sheet Location |
|
October 28, |
|
|
October 29, |
|
||
|
|
|
|
(In millions) |
|
|||||
Interest rate swaps - current |
|
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Interest rate swaps - long-term |
|
Other assets |
|
$ |
|
|
$ |
|
||
The fair values of cash and cash equivalents, accounts payable and borrowings on the Company’s ABL Facility approximated their carrying values because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements, they would be classified as Level 1 in the fair value hierarchy.
Long-term debt is presented at carrying value in the Company’s Consolidated Balance Sheets. The fair value of the Company’s Term Loan due 2028 was determined based on quoted market prices or recent trades of this debt instrument in less active markets. If the Company’s long-term debt was recorded at fair value, it would be classified as Level 2 in the fair value hierarchy.
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
|
|
(In millions) |
|
|||||||||||||
Term Loan due 2028 (a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
11
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). The fair values are determined based on either a market approach, an income approach, in which the Company utilizes internal cash flow projections over the life of the underlying assets discounted using a discount rate that is considered to be commensurate with the risk inherent in the Company’s current business model, or a combination of both. These measures of fair value and related inputs are considered a Level 3 approach under the fair value hierarchy.
The Company uses the end of the period when determining the timing of transfers between levels. There were no transfers between levels during the periods presented.
Note 5—Goodwill and Other Intangible Assets
The carrying amount of goodwill at October 28, 2023 and October 29, 2022 was as follows:
|
|
October 28, |
|
|
October 29, |
|
||
|
|
(In millions) |
|
|||||
Goodwill, gross |
|
$ |
|
|
$ |
|
||
Accumulated impairment |
|
|
( |
) |
|
|
( |
) |
Goodwill, net |
|
$ |
|
|
$ |
|
||
The carrying amount and accumulated amortization of identifiable intangible assets at October 28, 2023 and October 29, 2022 was as follows:
|
|
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
||||||||||
|
|
Estimated |
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
||||
|
|
|
|
(In millions) |
|
|||||||||||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
JOANN trade name |
|
— |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Joann.com domain name |
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Creativebug trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The Company recognized intangible asset amortization of $
Note 6—Income Taxes
Effective Tax Rate
The effective income tax rate for the third quarter of fiscal 2024 was
12
income tax purposes under Section 163(j) of the Code, along with related state law. As the anticipated additional valuation allowance is included in the Company’s annual estimated effective tax rate, a portion of the unfavorable valuation allowance impact is included in the net income tax benefit recorded during both the third quarter and first thirty-nine weeks of fiscal 2024.
The effective tax rate is subject to change based on the mix of income from different state jurisdictions, which have different tax rates, as well as the change in status or outcome of uncertain tax positions. The Company evaluates its effective tax rate on a quarterly basis and updates its estimate of the full-year effective rate as necessary.
Reserves for Uncertain Tax Positions
At the end of the third quarter of fiscal 2024, unrecognized tax benefits were $
Note 7—Loss Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed based upon the weighted-average number of common shares outstanding plus the dilutive effect of common share equivalents calculated using the treasury stock method. Treasury stock is excluded from the denominator in calculating both basic and diluted earnings (loss) per share. In periods in which a net loss has occurred, as is the case for fiscal 2024, the dilutive effect of equity-based awards is not recognized and thus not utilized in the calculation of diluted loss per share, because the effect of their inclusion would have been anti-dilutive.
The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share and the stock-based awards excluded from the calculation of diluted loss per share because their effect would have been antidilutive for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
|
|
(In millions except per share data) |
|
|||||||||||||
Net (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic (loss) per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted (loss) per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Antidilutive stock-based awards excluded from diluted calculation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Note 8—Segments and Disaggregated Revenue
The Company conducts its business activities and reports financial results as
13
The following table shows revenue by product category:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
|
|
(In millions) |
|
|||||||||||||
Sewing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Arts and Crafts and Home Décor |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 9—Commitments and Contingencies
The Company is involved in various litigation matters in the ordinary course of its business. The Company is not currently involved in any litigation that it expects, either individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.
Note 10—Gain on Sale Leaseback
During the third quarter of fiscal 2024, the Company completed a sale and leaseback transaction for its Hudson Facility for a sale price of $
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and the related notes thereto and the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. Some of the information included in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Cautionary Note Regarding Forward-Looking Statements” section in this Quarterly Report on Form 10-Q and the “Summary Risk Factors” and “Risk Factors” sections of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Our fiscal year ends on the Saturday closest to January 31 and refers to the year in which the period ends (e.g., fiscal 2023 refers to the year ended January 28, 2023). Fiscal years consist of 52 weeks, unless noted otherwise. Fiscal 2024 consists of 53 weeks and ends on February 3, 2024. The fiscal quarters ended October 28, 2023 and October 29, 2022 were both comprised of 13 weeks.
JOANN Overview
JOANN is the nation’s category leader in Sewing, with one of the largest assortments of arts and crafts products. As a well-established and trusted brand for 80 years, we believe we have a deep understanding of our customers, what inspires their creativity and what fuels their incredibly diverse projects. In order to best serve our customers, JOANN has transformed itself into a fully-integrated, digitally-connected omni-channel retailer that provides Creative Products to our customers whenever and however they want.
Highlights for the Thirteen Weeks Ended October 28, 2023
Total Comparable Sales
Total comparable sales are an important measure throughout the retail industry. This measure allows us to evaluate how our store location base and e-commerce business are performing by measuring the change in period-over-period net sales in store locations that have been open for the applicable period. We define total comparable sales as net sales for store locations that have been open for at least 13 months and have not been relocated, expanded or downsized in the last 13 months. In addition, total comparable sales include our e-commerce sales generated via joann.com (online sales for all products) and creativebug.com (online sales of digital videos for crafting projects). There may be variations in the way in which some of our competitors and other retailers calculate comparable sales. As a result, data in this Quarterly Report on Form 10-Q regarding our total comparable sales may not be comparable to similar data made available by other retailers.
Non-GAAP Financial Measures
Adjusted EBITDA
We present Adjusted EBITDA, which is not a recognized financial measure under GAAP. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation; supplementing GAAP measures of performance in the evaluation of the effectiveness of our business strategies; making budgeting decisions; and comparing our performance against that of other peer companies using similar measures.
15
We define Adjusted EBITDA as net income (loss) plus income tax provision (benefit), interest expense, net and depreciation and amortization, further adjusted to eliminate the impact of certain non-cash items and other items that we do not consider indicative of our ongoing operating performance, including other amortization, investment remeasurements, gain on sale leaseback, costs related to strategic initiatives, excess import freight costs, technology development expenses, stock-based compensation expense, gains and losses on disposal and impairment of fixed and operating lease assets, intangible asset impairment, gains and losses from equity method investments, non-recurring employee-related costs and other one-time costs. The excess import freight costs are directly attributable to surging market demand for shipping capacity as economies recovered from the COVID-19 pandemic, as well as actions taken by government and industry leaders designed to protect against further spread of the virus, which disrupted the efficient operation of domestic and international supply chains. These COVID-19 related conditions produced an imbalance of ocean freight capacity and related demand, as well as port congestion and other supply chain disruptions that added significant cost to our procurement of imported merchandise. These excess import freight costs included significantly higher rates paid per container to ocean carriers, as well as fees paid due to congested ports that we did not normally incur. In a normative operating environment, we would procure 70% to 80% of our needs for ocean freight under negotiated contract rates, with the balance procured in a brokered market, typically at no more than a 10% to 15% premium to our contract rates. Accordingly, we established a baseline cost (“standard cost”) assuming those contract capacities, established rates and typical premium in the brokered market for peak volume needs not covered under our contracts. The amount of excess import freight costs included as an adjustment to arrive at Adjusted EBITDA is calculated by subtracting, from our actual import freight costs, our standard cost for the applicable period. Negotiation of our current contract rates was finalized in the second quarter of fiscal 2023. We have been experiencing declines in overall ocean freight rates and a reduction in other fees associated with port congestion, which has positively impacted our cash payments and Adjusted EBITDA. We are identifying these COVID-19 related excess import freight costs as a separate line item in the table below due to their magnitude and to distinguish them from other COVID-19 related costs we have previously excluded in calculating Adjusted EBITDA.
Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.
16
The following is a reconciliation of our net (loss) to Adjusted EBITDA for the periods presented:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
(In millions) |
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
Net (loss) |
|
$ |
(21.6 |
) |
|
$ |
(17.5 |
) |
|
$ |
(149.1 |
) |
|
$ |
(109.5 |
) |
Income tax (benefit) |
|
|
(10.9 |
) |
|
|
(6.5 |
) |
|
|
(30.2 |
) |
|
|
(41.9 |
) |
Interest expense, net |
|
|
28.4 |
|
|
|
18.1 |
|
|
|
80.5 |
|
|
|
42.5 |
|
Depreciation and amortization |
|
|
22.4 |
|
|
|
19.9 |
|
|
|
61.6 |
|
|
|
59.9 |
|
Other amortization (1) |
|
|
1.9 |
|
|
|
0.4 |
|
|
|
3.6 |
|
|
|
1.2 |
|
Investment remeasurement (2) |
|
|
— |
|
|
|
(2.0 |
) |
|
|
— |
|
|
|
(1.0 |
) |
Gain on sale leaseback (3) |
|
|
(12.1 |
) |
|
|
— |
|
|
|
(12.1 |
) |
|
|
— |
|
Strategic initiatives (4) |
|
|
6.5 |
|
|
|
0.9 |
|
|
|
16.4 |
|
|
|
4.6 |
|
Excess import freight costs (5) |
|
|
— |
|
|
|
18.5 |
|
|
|
4.2 |
|
|
|
74.5 |
|
Technology development expense (6) |
|
|
2.0 |
|
|
|
2.0 |
|
|
|
5.6 |
|
|
|
7.0 |
|
Stock-based compensation expense |
|
|
(0.2 |
) |
|
|
3.9 |
|
|
|
6.6 |
|
|
|
6.1 |
|
Loss on disposal and impairment of fixed and operating lease assets |
|
|
9.3 |
|
|
|
— |
|
|
|
12.7 |
|
|
|
1.1 |
|
Intangible asset impairment (7) |
|
|
1.7 |
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
Loss from equity method investments |
|
|
0.8 |
|
|
|
— |
|
|
|
4.5 |
|
|
|
— |
|
Non-recurring employee-related costs (8) |
|
|
7.2 |
|
|
|
0.9 |
|
|
|
10.7 |
|
|
|
1.7 |
|
Other (9) |
|
|
2.1 |
|
|
|
1.6 |
|
|
|
2.4 |
|
|
|
3.7 |
|
Adjusted EBITDA |
|
$ |
37.5 |
|
|
$ |
40.2 |
|
|
$ |
19.1 |
|
|
$ |
49.9 |
|
17
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated. The following discussion should be read in conjunction with our Consolidated Financial Statements and related notes.
Consolidated Income Data:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
(In millions) |
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
Net sales |
|
$ |
539.8 |
|
|
$ |
562.8 |
|
|
$ |
1,471.7 |
|
|
$ |
1,524.1 |
|
Gross profit |
|
|
282.1 |
|
|
|
281.0 |
|
|
|
763.1 |
|
|
|
736.6 |
|
SG&A expenses |
|
|
273.4 |
|
|
|
269.0 |
|
|
|
806.2 |
|
|
|
786.6 |
|
Operating (loss) |
|
|
(15.4 |
) |
|
|
(7.9 |
) |
|
|
(106.4 |
) |
|
|
(109.9 |
) |
Net (loss) |
|
|
(21.6 |
) |
|
|
(17.5 |
) |
|
|
(149.1 |
) |
|
|
(109.5 |
) |
Other Operational Data:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
(In millions) |
|
October 28, |
|
|
October 29, |
|
|
October 28, |
|
|
October 29, |
|
||||
Total (decrease) in comparable sales vs. prior year |
|
|
(4.1 |
)% |
|
|
(8.0 |
)% |
|
|
(3.5 |
)% |
|
|
(9.2 |
)% |
Gross margin |
|
|
52.3 |
% |
|
|
49.9 |
% |
|
|
51.9 |
% |
|
|
48.3 |
% |
SG&A expenses as a % of net sales |
|
|
50.6 |
% |
|
|
47.8 |
% |
|
|
54.8 |
% |
|
|
51.6 |
% |
Operating (loss) as a % of net sales |
|
|
(2.9 |
)% |
|
|
(1.4 |
)% |
|
|
(7.2 |
)% |
|
|
(7.2 |
)% |
Adjusted EBITDA (1) |
|
$ |
37.5 |
|
|
$ |
40.2 |
|
|
$ |
19.1 |
|
|
$ |
49.9 |
|
Adjusted EBITDA as a % of net sales |
|
|
6.9 |
% |
|
|
7.1 |
% |
|
|
1.3 |
% |
|
|
3.3 |
% |
Total store location count at end of period |
|
|
829 |
|
|
|
840 |
|
|
|
829 |
|
|
|
840 |
|
Comparison of the Thirteen Weeks ended October 28, 2023 and October 29, 2022
Net Sales
Net sales were $539.8 million for the thirteen weeks ended October 28, 2023, a decrease of $23.0 million or 4.1% compared to the same period in fiscal 2023. Total comparable sales for the thirteen weeks ended October 28, 2023 decreased 4.1% compared with a total comparable sales decrease of 8.0% in the same period in fiscal 2023. The total comparable sales decline was driven by a decrease in average ticket and transaction volume. On a category basis, net sales declines were most pronounced in our non-Halloween seasonal and craft technology businesses. Declines in our non-Halloween seasonal businesses were driven by strategic inventory receipt pullbacks in higher risk categories. In addition, the pull forward and earlier set of Halloween merchandise in the second quarter had an adverse timing impact on third quarter sales results. These unfavorable drivers were partially offset by positive results in our needle arts, fleece, and sewing technology businesses.
Gross Profit
Gross profit was $282.1 million for the thirteen weeks ended October 28, 2023, an increase of $1.1 million or 0.4% compared to the same period in fiscal 2023. Gross margin was 52.3% for the thirteen weeks ended October 28, 2023, an increase of 240 basis points compared to the same period in fiscal 2023. The increase in gross margin was primarily driven by declining carrier and fuel rates, both domestic and import, favorable product category mix due to strength in our core Sewing categories, and improved clearance activity. These favorable drivers were partially offset by the flowthrough of inflationary product cost increases, lower overall pricing driven by actions taken to optimize and rightsize average unit retail levels, increased shipping costs associated with growth in our e-commerce business and lower vendor allowances.
Selling, General and Administrative Expenses
SG&A expenses were $273.4 million for the thirteen weeks ended October 28, 2023, an increase of $4.4 million or 1.6% compared to the same period in fiscal 2023. This increase was primarily driven by severance and other up-front costs to implement our cost
18
reduction initiatives and asset impairment and disposal expenses, which we do not expect to continue at the same rate in future periods. Additionally, there were increases due to inflationary pressures on labor and other costs as well as increased general insurance and medical benefit expenses. These increases were partially offset by improved operating efficiencies, including savings generated through our new store labor operating model as well as optimized corporate headcount, favorable incentive and stock-based compensation activity, and lower store pre-opening and closing costs due to fewer store projects.
As a percentage of net sales, SG&A expenses for the thirteen weeks ended October 28, 2023 were 50.6%, an increase of 280 basis points compared to the same period in fiscal 2023. The increase as a percentage of sales was primarily driven by the factors described above, as well as the 4.1% decrease in net sales in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.
Interest Expense
Interest expense for the thirteen weeks ended October 28, 2023 was $28.4 million, an increase of $10.3 million compared to the same period in fiscal 2023. The increase in interest expense was primarily due to higher interest rates, as well as a higher average debt level during the third quarter of fiscal 2024 compared to the same period in fiscal 2023. The average debt level in the thirteen weeks ended October 28, 2023 was $1,144.6 million compared to $1,071.2 million in the thirteen weeks ended October 29, 2022. The weighted average interest rate, net of hedging instruments was 9.47% for the thirteen weeks ended October 28, 2023. The weighted average interest rate, excluding hedging instruments, was 9.97% and 6.41% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively.
We had $1,168.0 million of debt outstanding (face value) as of October 28, 2023, compared to $1,077.3 million as of October 29, 2022.
Income Taxes
The effective income tax rate for the third quarter of fiscal 2024 was 34.4%, an income tax benefit on a pre-tax book loss, compared to the rate for the third quarter of fiscal 2023, which was 27.1%, also an income tax benefit on a pre-tax book loss. The effective tax rate increased from the third quarter of fiscal 2023 to the third quarter of fiscal 2024 primarily because the Company, after considering updated information, including the filing of the fiscal 2023 federal income tax return, reduced the forecasted valuation allowance against a significant portion of the deferred tax asset relating to the disallowed interest expense deduction and related carryover under Section 163(j) of the Code, along with related state law. As the anticipated valuation allowance is included in the Company’s annual estimated effective tax rate, a portion of the unfavorable valuation allowance impact is included in the net income tax benefit recorded during the third quarter of fiscal 2024.
Net Loss
Net loss was $21.6 million for the thirteen weeks ended October 28, 2023, compared to net loss of $17.5 million during the same period in fiscal 2023. The increase in net loss was driven by the factors described above.
Adjusted EBITDA
Adjusted EBITDA (as defined above) was $37.5 million for the thirteen weeks ended October 28, 2023 compared to $40.2 million for the same period in fiscal 2023. The decrease was driven by the factors described above.
Comparison of the Thirty-Nine Weeks ended October 28, 2023 and October 29, 2022
Net Sales
Net sales were $1,471.7 million for the thirty-nine weeks ended October 28, 2023, a decline of $52.4 million or 3.4% compared to the same period in fiscal 2023. Total comparable sales for the thirty-nine weeks ended October 28, 2023 decreased 3.5% compared with a total comparable sales decrease of 9.2% in the same period in fiscal 2023. The total comparable sales decline was driven by a decrease in average ticket and transaction volume. On a category basis, net sales declines were most pronounced in our non-Halloween seasonal and craft technology businesses. Declines in our non-Halloween seasonal businesses were driven by strategic inventory receipt pullbacks in higher risk categories. These unfavorable drivers were partially offset by positive results in our needle arts, fleece, and Halloween merchandise businesses.
19
Gross Profit
Gross profit was $763.1 million for the thirty-nine weeks ended October 28, 2023, an increase of $26.5 million or 3.6% compared to the same period in fiscal 2023. Gross margin was 51.9% for the thirty-nine weeks ended October 28, 2023, an increase of 360 basis points compared to the same period in fiscal 2023. The increase in gross margin was primarily driven by declining carrier and fuel rates, both domestic and import, as well as favorable product category mix due to strength in our core Sewing categories. These favorable drivers were partially offset by the flowthrough of inflationary product cost increases.
Selling, General and Administrative Expenses
SG&A expenses were $806.2 million for the thirty-nine weeks ended October 28, 2023, an increase of $19.6 million or 2.5% compared to the same period in fiscal 2023. This increase was primarily driven by severance and other up-front costs to implement our cost reduction initiatives, inflationary pressures on labor and other costs, asset impairment and disposal expenses, increased general insurance expenses, and higher incentive and stock-based compensation costs. These increases were partially offset by improved operating efficiencies, including savings generated through our new store labor operating model as well as optimized corporate headcount and marketing spend, lower store pre-opening and closing costs due to fewer store projects, and lower medical benefit costs.
As a percentage of net sales, SG&A expenses for the thirty-nine weeks ended October 28, 2023, were 54.8%, an increase of 320 basis points compared to the same period in fiscal 2023. This increase was driven by the factors listed above as well as the 3.4% decrease in net sales in the first thirty-nine weeks of fiscal 2024 compared to the same period in fiscal 2023.
Interest Expense
Interest expense for the thirty-nine weeks ended October 28, 2023 was $80.5 million, an increase of $38.0 million compared to the same period in fiscal 2023. The increase was due to higher interest rates, as well as higher average debt levels during the first thirty-nine weeks of fiscal 2024. The average debt level in the thirty-nine weeks ended October 28, 2023 was $1,094.1 million compared to $981.5 million in the thirty-nine weeks ended October 29, 2022. The weighted average interest rate, net of hedging instruments was 9.34% for the thirty-nine weeks ended October 28, 2023. The weighted average interest rate, excluding hedging instruments, was 9.52% and 5.40% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.
We had $1,168.0 million of debt outstanding (face value) as of October 28, 2023 compared to $1,077.3 million as of October 29, 2022.
Income Taxes
The effective income tax rate for the first thirty-nine weeks of fiscal 2024 was 17.3%, which was an income tax benefit on a pre-tax book loss, compared to 27.7% for the first thirty-nine weeks of fiscal 2023, also an income tax benefit on a pre-tax book loss. The effective tax rate decreased from the first thirty-nine weeks of fiscal 2023 to the first thirty-nine weeks of fiscal 2024 because the Company continues to anticipate, beginning with the first quarter of fiscal 2024, the need to record a valuation allowance for the full year against a significant portion of the Company’s current year deferred tax asset relating to the future carryover of disallowed interest expense deductions for federal and state income tax purposes under Section 163(j) of the Code, along with related state law. As the anticipated additional valuation allowance is included in the Company’s annual estimated effective tax rate, a portion of the unfavorable valuation allowance impact is included in the net income tax benefit recorded during the first thirty-nine weeks of fiscal 2024.
Net Loss
Net loss was $149.1 million for the thirty-nine weeks ended October 28, 2023, an increase of $39.6 million compared to the same period in fiscal 2023. The increase in net loss was driven by the factors described above.
Adjusted EBITDA
Adjusted EBITDA (as defined above) decreased 61.7% to $19.1 million or 1.3% of net sales for the thirty-nine weeks ended October 28, 2023 compared to $49.9 million or 3.3% of net sales for the same period in fiscal 2023. Our decrease in Adjusted EBITDA of $30.8 million and decline of Adjusted EBITDA as a percentage of net sales of 200 basis points was driven primarily by lower total comparable sales in addition to an increase in our SG&A expenses.
20
Liquidity and Capital Resources
We have three principal sources of liquidity: cash and cash equivalents on hand, cash from operations and available borrowings under our ABL Facility. In addition, we may seek to obtain alternative sources of financing and working capital, including, among other sources, through the issuance of equity, incurrence of debt, utilization of trade credit, sale of assets or securitization of receivables. Any issuance of equity or debt may be for cash or in exchange for our outstanding securities or indebtedness. We believe that our cash and cash equivalents on hand, cash from operations and availability under our ABL Facility will be sufficient to cover our anticipated working capital, capital expenditure and debt service requirement needs for the next twelve months. However, we may be required to obtain additional financing in the future, and subject to market conditions, we may from time to time seek to amend, refinance, restructure or repurchase our outstanding indebtedness and/or raise additional equity financing. Any debt we incur in the future may have terms (including cash interest rate, financial covenants, and covenants limiting our operating flexibility or ability to obtain additional financings) that are not favorable to us, and any such additional equity financing may dilute the economic and/or voting interests of our existing stockholders, may be preferred in right of payment to our outstanding common stock or confer other privileges to the holders, and may contain financial or operational covenants that restrict our operating flexibility or ability to obtain additional financings. Furthermore, our failure to obtain any necessary financing could have a material and adverse effect on our results of operations, cash flows, financial condition and liquidity. See Part II. Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q set forth below. As of October 28, 2023, we were in compliance with all covenants under our debt facilities.
For the four quarters ended October 28, 2023, our ratio of consolidated net debt to Credit Facility Adjusted EBITDA, which is calculated in accordance with our credit facilities, was 5.68 to 1.0, and our ratio of consolidated senior secured net debt to Credit Facility Adjusted EBITDA was 5.68 to 1.0. We reference our ratio of consolidated net debt to Credit Facility Adjusted EBITDA and our ratio of consolidated senior secured net debt to Credit Facility Adjusted EBITDA because such ratios are calculated in accordance with our credit facilities and used to determine our compliance with certain covenants in our credit facilities, tested each quarter on the basis of the preceding four quarters. For example, we are permitted to prepay debt and make distributions on account of equity up to a certain amount under our Term Loan due 2028 if our ratio of consolidated net debt to Credit Facility Adjusted EBITDA for the prior four quarters as of the quarterly test is not greater than 4.90 to 1.0 and our ratio of consolidated senior secured net debt to Credit Facility Adjusted EBITDA for such period is not greater than 3.60 to 1.0. Additionally, our ratio of consolidated senior secured net debt to Credit Facility Adjusted EBITDA is measured once per year following the completion of our annual Consolidated Financial Statements and determines what percentage of our excess cash flow (as defined in our Term Loan due 2028) we are required to apply for the repayment of principal on our Term Loan due 2028, ranging from 50% of excess cash flow for ratios in excess of 2.50x to 0% of excess cash flow for ratios of less than 2.00x. Accordingly, we believe that our ratio of consolidated net debt to Credit Facility Adjusted EBITDA and our ratio of consolidated senior secured net debt to Credit Facility Adjusted EBITDA are material to an investor’s understanding of our financial condition and liquidity.
Our capital requirements are primarily for capital expenditures in connection with new store location openings, store location remodels, investments in information technology, investments in distribution centers and working capital requirements for seasonal inventory build. These requirements fluctuate during the year and reach their highest levels during the second and third fiscal quarters as we increase our inventory in preparation for our peak selling season during the months of September through December and complete most of our capital spending projects.
The following table provides a summary of our cash provided by (used for) operating, investing and financing activities for the thirty-nine weeks ended October 28, 2023 and October 29, 2022:
|
|
Thirty-Nine Weeks Ended |
|
|||||
(In millions) |
|
October 28, |
|
|
October 29, |
|
||
Net cash (used for) operating activities |
|
$ |
(150.9 |
) |
|
$ |
(173.6 |
) |
Net cash (used for) investing activities |
|
|
(4.5 |
) |
|
|
(84.7 |
) |
Net cash provided by financing activities |
|
|
163.5 |
|
|
|
263.4 |
|
Effect of exchange rate changes on cash |
|
|
— |
|
|
|
(0.1 |
) |
Net increase in cash and cash equivalents |
|
$ |
8.1 |
|
|
$ |
5.0 |
|
Net Cash Used for Operating Activities
Net cash used for operating activities was $150.9 million in the thirty-nine weeks ended October 28, 2023, compared to $173.6 million of net cash used for operating activities in the thirty-nine weeks ended October 29, 2022. The decrease in net cash used for operating activities was primarily due to declining carrier and fuel rates, both domestic and import, strategic inventory receipt reductions and the timing of vendor payments, partially offset by our total comparable sales decline.
21
Net Cash Used for Investing Activities
Cash used for investing activities in the first thirty-nine weeks of fiscal 2024 and 2023 consisted primarily of capital expenditures, the majority of which were focused on strategic initiatives including: new store location and fiscal 2023 distribution center openings, store location remodels and refreshes, and information technology investments, particularly those supporting our e-commerce and omni-channel platforms and other customer facing systems. We also incurred capital outlays for equipment and facility investments in our distribution centers, store locations, and corporate offices.
Capital expenditures for the thirty-nine weeks ended October 28, 2023 and October 29, 2022 are summarized as follows:
|
|
Thirty-Nine Weeks Ended |
|
|||||
(In millions) |
|
October 28, |
|
|
October 29, |
|
||
Store locations |
|
$ |
29.8 |
|
|
$ |
67.5 |
|
Distribution centers |
|
|
3.6 |
|
|
|
3.6 |
|
Information technology |
|
|
2.5 |
|
|
|
8.5 |
|
Other |
|
|
0.2 |
|
|
|
0.8 |
|
Total capital expenditures |
|
|
36.1 |
|
|
|
80.4 |
|
Landlord contributions |
|
|
(9.7 |
) |
|
|
(13.8 |
) |
Total capital expenditures, net of landlord contributions |
|
$ |
26.4 |
|
|
$ |
66.6 |
|
During the first thirty-nine weeks of fiscal 2023, we purchased the remaining outstanding stock of WeaveUp for $4.3 million. We had no such activity during the first thirty-nine weeks of fiscal 2024.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $163.5 million during the thirty-nine weeks ended October 28, 2023 compared with $263.4 million of net cash provided by financing activities in the same period in fiscal 2023.
Net cash provided by financing activities for the first thirty-nine weeks of fiscal 2024 was the result of net proceeds from our FILO Loans and borrowings on our ABL Facility. This inflow of cash was partially offset by principal payments on finance lease obligations and our Term Loan Due 2028. As of October 28, 2023, we had the ability to borrow an additional $72.1 million under the ABL Facility subject to the facility’s borrowing base calculation.
Net cash provided by financing activities for the first thirty-nine weeks of fiscal 2023 was the result of net borrowings on our ABL Facility. This inflow of cash was partially offset by dividend payments as well as principal payments on finance lease obligations and our Term Loan Due 2028.
Off-Balance Sheet Transactions
Our liquidity is currently not dependent on the use of off-balance sheet transactions other than letters of credit, which are typical in a retail environment.
Seasonality
Our business exhibits seasonality, which is typical for most retail companies. Our net sales are stronger in the second half of the year than the first half of the year. Net income is highest during the months of September through December, which aligns with our peak selling season. Working capital needed to finance our operations fluctuates during the year and reaches its highest levels during the second and third fiscal quarters as we increase our inventory in preparation for our peak selling season.
Critical Accounting Policies and Estimates
Accounting policies and estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of our financial statements and accompanying notes. For a description of our critical accounting policies and estimates, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
22
Goodwill and Other Indefinite Lived Intangible Assets
During the fiscal year ended January 28, 2023, we performed a quantitative impairment analysis of the indefinite lived intangible assets, as well as goodwill related to the JOANN reporting unit. For information related to the results of these assessments, see Part II, Item 8 "Notes to Consolidated Financial Statements, Note 8—Goodwill and Other Intangible Assets" in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. During the quarter ended October 28, 2023, we performed an evaluation of events occurring during the interim period and noted that no specific negative events occurred that would be considered a triggering event for goodwill or intangible asset impairment testing. However, given the inherent uncertainties resulting from global macroeconomic conditions, actual results may differ from management’s current estimates and could have an adverse impact on one or more of the assumptions used in our quantitative model prepared for the reporting unit, which could result in impairment charges in subsequent periods, particularly since the previously performed quantitative assessment estimated that the fair value of the reporting unit exceeded the carrying value by approximately $103.0 million, or 10.1%. Additionally, a mutually exclusive increase in the assumed discount rate by approximately 120 basis points, or a decrease in gross margin by approximately 50 basis points, or a 50 basis point increase in selling, general, and administrative as a percentage of revenue could require us to record impairment charges to goodwill. Lastly, if our operating results deteriorate or there is a meaningful increase in our discount rate, an impairment charge, on our JOANN trade name, could be recognized in future periods. Management intends to continue to assess triggering events that may necessitate additional qualitative or quantitative analyses in future periods. If we were to have impairment, it could have a material adverse effect on our consolidated statements of operations and balance sheets in the reporting period of the charge. For further information, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Goodwill and Other Indefinite Lived Intangible Assets” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. During the thirty-nine weeks ended October 28, 2023, there have been no material changes in our exposure to market risk.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this report, management, under the supervision and with the participation of the principal executive officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of October 28, 2023. Based on that evaluation, our principal executive officer and Chief Financial Officer have concluded that, as of October 28, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting that occurred during the thirty-nine weeks ended October 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable 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 that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
24
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The information required to be set forth under this heading is incorporated by reference from Note 9, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1.
Item 1A. Risk Factors.
Except as set forth below, there have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended January 28, 2023 and Part I, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended July 29, 2023.
We may require additional capital to meet our financial obligations and support business growth, and this capital may not be available on acceptable terms or at all.
Based on our current plans and market conditions, we believe that our cash and cash equivalents on hand, cash flows generated from our operations and borrowing capacity under our credit facilities will be sufficient to satisfy our anticipated working capital, capital expenditure and debt service requirement needs for the next twelve months. However, we may be required to obtain additional financing in the future to address our liquidity needs, and subject to market conditions, we may from time to time seek to amend, refinance, restructure or repurchase our outstanding debt and/or raise additional equity financing to support our business and may require additional funds to respond to business challenges. If we raise additional funds through future issuances of equity, convertible debt or other equity-linked securities such as warrants, our existing shareholders could suffer significant dilution, and any new equity or equity-linked securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. In addition, any debt financing we secure in the future could require an increase in our aggregate interest expense and include restrictive financial or operational covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional debt or equity financing on terms favorable to us or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business and to respond to business challenges could be significantly impaired, and our business may be harmed. Furthermore, our failure to obtain any necessary financing could have a material and adverse effect on our results of operations, cash flows, financial condition and liquidity.
We are not currently in compliance with Nasdaq’s continued listing requirements. If we are unable to comply with Nasdaq’s continued listing requirements, our common stock could be delisted, which could adversely affect the price of our common stock, reduce our ability to raise additional capital and make it more difficult for holders of our common stock to sell their shares.
Our common stock is currently listed on the Nasdaq Global Market. The Nasdaq Stock Market LLC ("Nasdaq") has established certain quantitative criteria and qualitative standards that companies must meet to remain listed for trading on Nasdaq, and we are therefore subject to Nasdaq’s continued listing requirements, including requirements with respect to the market value of publicly-held shares, market value of listed shares, minimum bid price per share, and minimum stockholder’s equity, among others.
On July 20, 2023, the Company received a written notice (the “Market Value Notice”) from the Listing Qualifications Department of Nasdaq that the Company is not in compliance with the requirement to maintain a minimum market value of listed securities of at least $50 million (the “Market Value Standard”), because the market value of the Company’s common stock was less than $50 million for 30 consecutive business days. Also on July 20, 2023, the Company received a second written notice (the “Publicly Held Market Value Notice”) from the Listing Qualifications Department of Nasdaq that the Company is not in compliance with the requirement to maintain a minimum market value of publicly held listed securities of at least $15 million (the “Publicly Held Market Value Standard”), because the market value of the publicly held shares of the Company’s common stock was less than $15 million for 30 consecutive business days. Such notices provided that the Company has a period of 180 calendar days, or until January 16, 2024, to regain compliance under the Market Value Standard and the Publicly Held Market Value Standard, respectively. In addition, on October 19, 2023, the Company received a written notice (the “Bid Price Notice” and, collectively with the Market Value Notice and the Publicly Held Market Value Notice, the “Notices”) from the Listing Qualifications Department of Nasdaq that the Company is not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share (the “Bid Price Requirement”), because the closing bid price of the Company’s common stock was below $1.00 per share for 30 consecutive business days. The Bid Price Notice provided that the Company has a period of 180 calendar days, or until April 16, 2024, to regain compliance under the Bid Price Requirement. The Notices do not impact the listing of the common stock on The Nasdaq Global Market at this time.
25
If the Company fails to regain and maintain compliance with Nasdaq’s continued listing standards, our common stock will be subject to delisting from Nasdaq. The Company may, if appropriate, and if otherwise eligible to transfer, apply for a transfer to The Nasdaq Capital Market. While the Company is exercising diligent efforts to maintain the listing of the Company’s common stock on the Nasdaq Global Market, there can be no assurance that the Company will be able to regain and maintain compliance with the continued listing standards of the Nasdaq Global Market, be eligible to transfer to the Nasdaq Capital Market, or maintain compliance with the continued listing standards of the Nasdaq Capital Market. Any delisting of our common stock from Nasdaq could adversely affect the price of our common stock, reduce our ability to raise additional capital and make it more difficult for holders of our common stock to sell their shares. Furthermore, if our common stock were delisted from Nasdaq it could adversely affect our reputation and our ability to attract and retain employees by means of equity compensation and/or result in the loss of confidence by investors.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the Company’s fiscal quarter ended October 28, 2023, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
26
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
10.1#* |
|
|
10.2#* |
|
|
10.3#* |
|
General Release, dated September 13, 2023, by and between JOANN Inc. and Thomas Dryer. |
10.4#* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
# Management contract or compensatory plan or arrangement
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
JOANN Inc. |
|
|
|
Registrant |
|
|
|
|
|
Date: December 5, 2023 |
|
By: |
/s/ Scott Sekella |
|
|
|
Scott Sekella |
|
|
|
Executive Vice President, Chief Financial Officer and Member, Interim Office of the Chief Executive Officer |
|
|
|
(principal financial officer) |
28
EXHIBIT 10.1
JOANN INC.
2021 EQUITY INCENTIVE PLAN
(Amended and Restated Effective February 27, 2023)
STOCK OPTION GRANT NOTICE
Capitalized terms not specifically defined in this Stock Option Grant Notice (the “Grant Notice”) have the meanings given to them in the JOANN Inc. 2021 Equity Incentive Plan (amended and restated effective February 27, 2023, the “Plan”) of JOANN Inc. (the “Company”). The Company hereby grants to the participant listed below (“Participant”) the stock option described in this Grant Notice (the “Option”), subject to the terms and conditions of the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “Agreement”), both of which are incorporated into this Grant Notice by reference.
Participant: |
[NAME] |
|
|
Grant Date: |
[DATE] |
|
|
Exercise Price per Share: |
[PRICE] |
|
|
Shares Subject to the Option: |
[NUMBER] |
|
|
Final Expiration Date: |
[DATE] |
|
|
Vesting Commencement Date: |
[DATE] |
|
|
Vesting Schedule: |
[Subject to the Participant’s continued status as an Employee, Consultant or Non-Employee Director, the Option shall vest and become exercisable with respect to twenty-five percent (25%) of the Shares subject thereto (rounded down to the next whole number of Shares) on each of the first four (4) anniversaries of the Vesting Commencement Date, so that all of the Shares shall be vested on the fourth anniversary of the Vesting Commencement Date.][OTHER VESTING SCHEDULE PER GRANT] |
|
|
Type of Option |
☐ Incentive Stock Option |
☐ Non-Qualified Stock Option |
|
By Participant’s signature below or electronic acceptance or authentication in a form authorized by the Company, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or relating to the Option.
JOANN INC. |
PARTICIPANT |
By: |
By: |
Print Name: |
Print Name: |
Title: |
|
2
EXHIBIT A
STOCK OPTION AGREEMENT
GENERAL
A-1
GRANT OF OPTION
PERIOD OF EXERCISABILITY
A-2
A-3
A-4
EXERCISE OF OPTION
A-5
Notwithstanding any of the foregoing, the Administrator shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.
A-6
RESTRICTIVE COVENANTS
A-7
A-8
A-9
OTHER PROVISIONS
A-10
A-11
A-12
* * * * *
A-13
EXHIBIT 10.2
JOANN INC.
2021 EQUITY INCENTIVE PLAN
(Amended and Restated Effective February 27, 2023)
Restricted Stock Unit Grant Notice
Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the “Grant Notice”) have the meanings given to them in the JOANN Inc. 2021 Equity Incentive Plan (amended and restated effective February 27, 2023, the “Plan”) of JOANN Inc. (the “Company”). The Company hereby grants to the participant listed below (“Participant”) the Restricted Stock Units described in this Grant Notice (the “RSUs”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), both of which are incorporated into this Grant Notice by reference.
Participant: |
[NAME] |
Grant Date: |
[DATE] |
Number of Restricted Stock Units: |
[NUMBER] |
Vesting Commencement Date: |
[DATE] |
Vesting Schedule: |
Subject to the Participant’s continued status as an Employee, Consultant or Non-Employee Director, the RSUs shall vest and become exercisable with respect to 33% of the Shares subject thereto (rounded down to the next whole number of Shares) on each of the first three (3) anniversaries of the Vesting Commencement Date, so that all of the Shares shall be vested on the third anniversary of the Vesting Commencement Date. |
Withholding Tax Provisions: By accepting this Award electronically through the Plan service provider’s online grant acceptance policy, the Participant understands and agrees that as a condition of the grant of the RSUs hereunder, but subject to the last sentence of this paragraph, the Participant is required to accept the Company’s determination from time to time of the method(s) by which all applicable withholding obligations with respect to any taxable events arising in connection with the RSUs will be satisfied (the “Withholding Methods”). Such Withholding Methods may include, at the determination of the Company, some or all of the following: (1) cash, wire transfer of immediately available funds or check; (2) Shares or cash otherwise deliverable pursuant to the settlement of the RSUs or Shares held for such minimum period of time as may be established by the Administrator, in each case, having a fair market value on the date of delivery equal to the aggregate payments required; (3) payment from a broker-assisted market sale (as reasonably acceptable to the Company) with respect to Shares otherwise deliverable pursuant to the settlement of the RSUs; or (4) any other form of legal consideration acceptable to the Administrator in its sole discretion. The Withholding Methods will otherwise be conducted in accordance with Section 10.2 of the Plan (except that, for purposes of clarification, such determination of the Withholding Methods shall not be made by the Participant or subject to affirmative election on the part of the Participant). Notwithstanding anything in this paragraph to the contrary, if the Participant is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Withholding Methods applicable to these RSUs shall consist solely of the mandatory withholding of Shares or cash otherwise deliverable pursuant to the settlement of the RSUs having a fair market value on the date of delivery equal to the aggregate payments required.
By accepting this Award electronically through the Plan service provider’s online grant acceptance policy, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has reviewed the Agreement, the Plan and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Grant Notice, the Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions arising under the Plan, the Grant Notice or the Agreement.
JOANN INC. |
PARTICIPANT |
||
By: |
|
By: |
|
Print Name: |
|
Print Name: |
[NAME] |
Title: |
|
|
|
2
EXHIBIT A
TO RESTRICTED STOCK UNIT GRANT NOTICE
RESTRICTED STOCK UNIT AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of RSUs set forth in the Grant Notice.
general
award of restricted stock UNITS and DIVIDEND EQUIVALENTS
(a) In consideration of Participant’s past and/or continued employment with or service to any Participating Company and for other good and valuable consideration, effective as of the grant date set forth in the Grant Notice (the “Grant Date”), the Company has granted to Participant the number of RSUs set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustments as provided in Article 12 of the Plan. Each RSU represents the right to receive one Share at the times and subject to the conditions set forth herein. However, unless and until the RSUs have vested, Participant will have no right to the payment of any Shares subject thereto. Prior to the actual delivery of any Shares, the RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company.
(b) The Company hereby grants to Participant an Award of Dividend Equivalents with respect to each RSU granted pursuant to the Grant Notice for all ordinary cash dividends which are paid to all or substantially all holders of the outstanding shares of Stock between the Grant Date and the date when the applicable RSU is distributed or paid to Participant or is forfeited or expires. The Dividend Equivalents for each RSU shall be equal to the amount of cash that is paid for an applicable quarter as a dividend on one share of Stock. All such Dividend Equivalents shall be credited to Participant as of the date of payment of any such dividend. The Dividend Equivalents granted hereunder shall be paid in cash and subject to the same vesting, distribution/payment timing, adjustment and other provisions (other than payment in Shares) which apply to the underlying RSUs to which such Dividend Equivalents relate.
A-2
A-3
A-4
A-5
A-6
other provisions
A-7
A-8
A-9
EXHIBIT 10.3
GENERAL RELEASE
This General Release (this “Release”) is entered into by and between Thomas Dryer (“Officer”) and JOANN Inc. (the “Company”) (collectively, the “Parties”) as of the 13th day of September, 2023.
NOW, THEREFORE, and in consideration of the mutual promises contained herein, and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Employment Status. Officer’s employment with the Company terminated effective as of September 13, 2023.
2. Payments and Benefits. Following the effectiveness of the terms set forth herein, the Company shall provide Officer with certain benefits as provided in Section 1 of that certain Agreement between Jo-Ann Stores, LLC and Officer dated as of November 30, 2020 (the “Agreement”). In addition to the benefits provided in the Agreement, and subject to this Release becoming effective and irrevocable, (1) with respect to the grant of 13,643 service-based restricted stock units made to Officer in September 2022 for his service as Interim Chief Financial Officer (the “2022 RSUs”), the Company will waive the service requirement so that the 2022 RSUs will continue to become vested, if applicable, in such amounts and at such times as are set forth in the Grant Notice for the 2022 RSUs as if Officer had remained employed by the Company or at least one of its subsidiaries through the applicable anniversaries of the 2022 RSUs’ vesting commencement date; (2) Officer shall receive the lump sum of Two Thousand Dollars ($2,000.00), payable in accordance with the Company’s normal payroll practices in effect at the applicable time, commencing within fifteen (15) days after both Parties execute this Release; and (3) any October 2023 long-term incentive payments that Officer would otherwise have been eligible to receive under the Company’s applicable Long-Term Incentive Plans, provided that the Company makes payments under said plans to its current employees (it being understood that Officer shall not be eligible for any further payments under said plans). Except as described in the preceding sentence, such benefits shall be provided in accordance with the terms, and subject to the conditions, of the Agreement, including, but not limited to, the condition that this Release must become effective and irrevocable in accordance with its terms within twenty-eight (28) days after Officer’s Separation from Service (as defined in the Agreement). Officer agrees that the consideration set forth above is more than Officer is legally entitled to and reflects adequate consideration for the release of any potential claims that Officer may have arising from Officer’s employment and separation from employment with the Company.
3. No Liability. This Release does not constitute an admission by the Company, or its directors, managers, officers, employees, affiliates, or agents, or by Officer, of any unlawful acts or of any violation of federal, state or local laws.
4. Claims Released by Officer. In consideration of the payments and benefits described in Section 2 of this Release, and by signing this Release, Officer agrees on behalf of Officer and his agents, heirs, executors, administrators, and assigns to unconditionally release, acquit, and forever discharge the Company, its parents, subsidiaries, and affiliates, and each of their respective agents, directors, managers, officers, employees, partners, shareholders, members, representatives, successors, insurers, assigns, and all persons acting by, through, under or in concert with any of them (“Releasees”) from any and all actions, complaints, claims, liabilities, obligations, promises, agreements, damages, demands, losses, and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, rights under federal, state or local laws prohibiting discrimination (including but not limited to the Federal Age Discrimination in Employment Act (“ADEA”)) and claims for wrongful discharge, breach of contract, either oral or written, breach of any employment policy or any other claim against Releasees which Officer now has, heretofore had or at any time hereafter may have against Releasees arising prior to the date hereof
1
EXHIBIT 10.3
and arising out of or in connection with Officer’s employment or separation from employment with the Company.
Officer acknowledges and understands that this is a general release which releases the Releasees from any and all claims that Officer may have under federal, state or local laws or common law, including but not limited to claims arising under the ADEA, Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 1981 & 1981a, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Lilly Ledbetter Fair Pay Act of 2009, the Family and Medical Leave Act, Sarbanes-Oxley Act of 2002, the National Labor Relations Act, the Rehabilitation Act of 1973, the Worker Adjustment Retraining and Notification Act, the Uniformed Services Employment and Reemployment Rights Act, Federal Executive Order 11246, the Genetic Information Nondiscrimination Act, the Ohio Civil Rights Act, Ohio Revised Code 4112.01 et seq., and the Ohio Whistleblowers’ Protection Act. This Release does not apply to any claim that as a matter of law cannot be released, or to any rights or claims that may arise after the date Officer executes this Release. This Release does not apply to any claim that as a matter of law cannot be released, or to any rights or claims that may arise after the date Officer executes this Release, and nothing herein shall release the Company from any obligation under the Agreement.
Without limiting the foregoing, Officer represents that he understands that this Release specifically releases and waives any claims of age discrimination, known or unknown, that Officer may have against Releasees as of the date Officer signs this Release. This Release specifically includes a waiver of rights and claims under the ADEA. Officer acknowledges that as of the date he signs this Release, Officer may have certain rights or claims under the ADEA, and Officer voluntarily relinquishes any such rights or claims by signing this Release.
Nothing in this Release will prohibit Officer from cooperating with the Equal Employment Opportunity Commission (“EEOC”) or any similar state and local agencies in any future investigation against the Company, but Officer acknowledges that this Release will bar Officer from recovering any funds in any future proceeding, including any brought by the EEOC or any state and local agencies. Further, Officer specifically waives any right to receive any benefit or remedy as a consequence of filing a charge of discrimination with the EEOC or any similar state and local agencies. Notwithstanding the foregoing, Officer does not give up the right to any monetary award offered by the Securities and Exchange Commission pursuant to Section 21F of the Securities Exchange Act of 1934, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act or The Sarbanes-Oxley Act of 2002.
Officer and the Company further acknowledge and agree that nothing in this Release prevents Officer from instituting any action to challenge the validity of the release under the ADEA, to enforce the terms of this Release, or from enforcing rights, if any, under ERISA to recover any vested retirement benefits.
5. Admissibility. Officer and the Company agree that this Release may be introduced into evidence by a party in the event either party attempts to or actually commences any legal, equitable or administrative action, arbitration or other proceeding against the other party or any of its affiliated entities or any of the Releasees.
6. Confidentiality/Non-Disparagement/Restrictive Covenants. Except as permitted by the fourth paragraph of Section 4 above, Officer agrees not to divulge to third parties or use any confidential or Company proprietary information gathered or learned by Officer in the scope of his employment with the Company for a period of 15 years for all confidential or proprietary information and indefinitely for any information of the Company which could be considered a trade secret under 18 U.S.C. § 1839. Confidential information includes, but is not limited to, information in oral, written or recorded form regarding business plans, trade or business secrets, Company financial records, supplier contracts or relationships, or any other
2
EXHIBIT 10.3
information that the Company does not regularly disclose to the public. To the extent that Officer has any doubt, either now or in the future, as to whether information Officer possesses is confidential or Company proprietary, Officer should contact the Company’s Chief Legal Officer for clarification before divulging or using such information. Officer understands and agrees that divulging such information to third parties or Officer’s unauthorized use of it would cause serious competitive harm to the Company. Confidential information shall exclude: (a) information that is generally known by or available for use by the public, (b) information that was known by Officer prior to his employment with the Company (including its predecessor in interest, affiliates and subsidiaries) and was obtained, to the best of Officer’s knowledge, without violation of any obligation of confidentiality to Company, or (c) information that is required to be disclosed pursuant to applicable law or a court order. If information is required to be disclosed because of a court order, Officer must notify the Company’s Chief Legal Officer immediately.
Officer agrees that the terms of this Release are confidential and that Officer will not disclose any information concerning this Release to any person other than Officer’s immediate family members and professional advisors who also agree to keep said information confidential, not to disclose it to others and not to use such information for any purpose other than advising Officer with respect to Officer’s rights and obligations under this Release, except as permitted under the fourth paragraph of Section 4 above. Officer also may make such disclosures as are required by law. Any disclosure in violation of the foregoing is a material breach of this Release giving rise to an appropriate remedy as determined by a court of law or equity.
Officer agrees that he is prohibited from and will refrain from sharing all Company-related materials in Officer’s possession with those who have not been authorized to receive such information, including but not limited to any competitors or retailers selling crafts, fabrics or other product lines also sold by the Company.
Officer acknowledges that he remains subject to the restrictive covenants set forth in Section 13 of the Agreement.
Each Party covenants not to make any disparaging statements or comments about the other party to any person or entity by any medium, whether oral or written.
7. Governing Law. To the extent not preempted by the laws of the United States, the laws of the State of Ohio, applicable to contracts made and to be performed wholly within that state, shall be the controlling law in all matters relating to this Release.
8. Acknowledgement. Officer understands that the release set forth in Section 4 includes a release of any claims Officer may have under the ADEA against any of the Releasees that may have existed on or prior to the date upon which Officer signs this Release. Officer has read this Release, agrees that it sets forth the terms of the Parties’ agreement clearly and unambiguously, understands it, and voluntarily accepts its terms. The Company hereby advises Officer to seek the advice of legal counsel before entering into this Release. Officer acknowledges that Officer was given a period of twenty-one (21) calendar days within which to consider and execute this Release, and to the extent that Officer executes this Release before the expiration of the 21-day period, he does so knowingly and voluntarily and only after consulting his attorney.
9. Revocation. Officer understands that he has a period of seven (7) calendar days following the execution of this Release during which Officer may revoke this Release by delivering written notice to the Company, and this Release shall not become effective or enforceable until such revocation period has expired. Officer understands that if he revokes this Release, it will be null and void in its entirety and Officer will not be entitled to any payments or benefits provided in Section 2.
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EXHIBIT 10.3
10. Miscellaneous. This Release is the complete understanding between Officer and the Company in respect of the subject matter of this Release and supersedes all prior agreements relating to Officer’s employment with the Company, except those provisions of the Agreement that survive the termination of Officer’s employment and agreements that Officer has entered into with the Company pertaining to confidentiality or ownership of intellectual property or Company proprietary information and the restrictive covenants referenced in Section 6 of this Release. Officer has not relied upon any representations, promises or agreements of any kind except those set forth herein and in the Agreement in signing this Release. In the event that any provision of this Release should be held to be invalid or unenforceable, each and all of the other provisions of this Release shall remain in full force and effect. If any provision of this Release is found to be invalid or unenforceable, such provision shall be modified as necessary to permit this Release to be upheld and enforced to the maximum extent permitted by law. Officer agrees to execute such other documents and take such further actions as reasonably may be required by the Company to carry out the provisions of this Release.
11. Counterparts. This Release may be executed by the Parties hereto in counterparts (including by means of facsimile or other electronic transmission), each of which shall be deemed an original, but all of which taken together shall constitute one original instrument.
IN WITNESS WHEREOF, the parties have executed this Release on the date first set forth above.
JOANN INC.
/s/ Ann Aber
Name: Ann Aber
Title: Senior Vice President, Chief Legal
Officer & Secretary
OFFICER
/s/ Thomas Dryer
Name: Thomas Dryer
Date: September 25, 2023
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EXHIBIT 10.4
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (this “Separation Agreement”), by and between JOANN Inc. (the “Company”) and Janet Duliga (“you” and similar words), sets forth certain terms of your separation from the Company and its subsidiaries (including certain requirements under your Agreement, dated as of October 30, 2020, with Jo-Ann Stores, LLC (“Jo-Ann LLC”) (the “Severance Agreement”)), including certain terms required in order for you to receive certain separation payments and benefits, as set forth in detail below.
By signing this Separation Agreement, you and the Company agree as follows:
You agree that, effective September 15, 2023 (the “Separation Date”), you will no longer serve as the Company’s Executive Vice President, Chief Administrative Officer and your employment with the Company and all of its subsidiaries is terminated. You further agree that your termination of employment on the Separation Date shall be treated as set forth in Section 2 of this Separation Agreement. You also agree that, as of the Separation Date, you will terminate from all other positions you hold (if any) as an officer, employee or director of the Company and the Company’s subsidiaries and affiliates, and that you will promptly execute any documents and take any actions as may be necessary or reasonably requested by the Company to effectuate or memorialize your termination from all positions with the Company and its subsidiaries and affiliates.
In consideration for you (a) signing this Separation Agreement, and (b) signing, no earlier than the Separation Date and no later than 45 days following the Separation Date, a general waiver and release of claims, substantially in the form attached hereto as Exhibit A (the “Release”), and letting the Release become effective as set forth in the Release:
By signing this Separation Agreement, you acknowledge that, subject to applicable law, you will continue to abide by the restrictive covenants to which you are subject, including as set forth in or applicable under the Equity Plans and Section 13 of the Severance Agreement, which expressly survive the termination of your employment without Cause pursuant to their terms.
Notwithstanding anything in this Separation Agreement, the Equity Plans, or the Severance Agreement to the contrary, nothing in such documents prevents you from providing, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by any governmental authorities regarding possible legal violations, and for purpose of clarity you are not prohibited from providing information voluntarily to the Securities and Exchange Commission pursuant to Section 21F of the Securities Exchange Act of 1934, as amended.
No Company policy or individual agreement between the Company and you shall prevent you from providing information to government authorities regarding possible legal violations, participating in investigations, testifying in proceedings regarding the Company’s past or future conduct, engaging in any future activities protected under the whistleblower statutes administered by any government agency (e.g., EEOC, NLRB, SEC, etc.) or receiving a monetary award from a government-administered whistleblower award program for providing information directly to a government agency. The Company nonetheless asserts and does not waive its attorney-client privilege over any information appropriately protected by privilege. By executing this Separation Agreement you represent that, as of the date you sign this Separation Agreement, no claims, lawsuits, or charges have been filed by you or on your behalf against the Company or any of its legal predecessors, successors, assigns, fiduciaries, parents, subsidiaries, divisions or other affiliates, or any of the foregoing’s respective past, present or future principals, partners, shareholders, directors, officers, employees, agents, consultants, attorneys, trustees, administrators, executors or representatives. You acknowledge and agree that you have in a timely manner received or waived all applicable notices required under the Severance Agreement, or otherwise, in connection with the termination of your employment with the Company. The Company agrees that this Separation Agreement does not extend to, release or modify any rights to indemnification or advancement of expenses to which you are entitled from the Company or its insurers under the Company’s certificate of incorporation, by-laws, or other corporate governing law or instruments or your indemnification agreement with the Company.
Nothing in this Separation Agreement or the Severance Agreement shall be binding upon the parties hereto to the extent it is void or unenforceable for any reason, including, without limitation, as a result of any law regulating competition or proscribing unlawful business practices; provided, however, that to the extent that any provision in this Separation Agreement or the Severance Agreement could be modified to render it enforceable under applicable law, it shall be deemed so modified and enforced to the fullest extent allowed by law.
You agree that in the event of any breach of any provision of the restrictive covenants described in Section 3 of this Separation Agreement, the Company will be entitled to equitable and/or injunctive relief and, because the damages for such a breach will be impossible or impractical to determine and will not therefore provide a full and adequate remedy, the Company or (as applicable) any and all past, present or future parents, subsidiaries and affiliates of the Company (the “JOANN Companies”) will also be entitled to
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specific performance by you. Except with respect to any clawback rights the Company may have with respect to equity or incentive awards under the Equity Plans, no amount owing to you under this Separation Agreement shall be subject to set-off or reduction by reason of any claims that the Company and its subsidiaries and affiliates have or may have against you. You will be entitled to recover actual damages if the Company materially breaches this Separation Agreement, including any material unexcused late or non-payment of any amounts owed under this Separation Agreement, or any material unexcused failure to provide any other benefits specified in this Separation Agreement. Failure by any party hereto to enforce any term or condition of this Separation Agreement at any time shall not preclude that party from enforcing that provision, or any other provision, at a later time.
You understand that your employment with the Company is terminated on the Separation Date. You agree that you will not seek or accept employment with any of the JOANN Companies, including assignment to or on behalf of the Company as an independent contractor or through any third party, and the JOANN Companies have no obligation to consider you for any future employment or assignment.
This Separation Agreement is important. You are advised to review it carefully and consult an attorney before signing it, as well as any other professional whose advice you value, such as an accountant or financial advisor. If you agree to the terms of this Separation Agreement, sign in the space below where your agreement is indicated. The payments and benefits specified in this Separation Agreement are contingent on your (a) signing this Separation Agreement and (b) signing the Release no earlier than the Separation Date and no later than 45 calendar days following the Separation Date, and not revoking the Release.
You affirm that you have returned, or will have returned within a reasonable time after the Separation Date, to the Company in reasonable working order all Company Property, as described more fully below. “Company Property” includes company-owned or leased motor vehicles, equipment, supplies and documents. Such documents may include but are not limited to customer lists, financial statements, cost data, price lists, invoices, forms, passwords, electronic files and media, mailing lists, contracts, reports, manuals, personnel files, correspondence, business cards, drawings, employee lists or directories, lists of vendors, photographs, maps, surveys, and the like, including copies, notes or compilations made there from, whether such documents are embodied on “hard copies” or contained on computer disk or any other medium. You further agree that you will not retain any copies or duplicates of any such Company Property.
You agree that you shall, without any additional compensation, respond to reasonable requests for information from the Company regarding matters that may arise in the Company’s business. You further agree to fully and completely cooperate with the Company, its advisors and its legal counsel with respect to any litigation that is pending against the Company and any claim or action that may be filed against the Company in the future. Such cooperation shall include making yourself available at reasonable times and places for interviews, reviewing documents, testifying in a deposition or a legal or administrative proceeding, and providing advice to the Company in preparing defenses to any pending or potential future claims against the Company. The Company agrees to (or to cause one of its affiliates to) pay/reimburse you for any approved travel expenses reasonably incurred as a result of your cooperation with the Company,
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with any such payments/reimbursements to be made in accordance with the Company's expense reimbursement policy as in effect from time to time.
You agree that you will not make or issue, or procure any person, firm, or entity to make or issue, any statement in any form, including written, oral and electronic communications of any kind, which conveys negative or adverse information concerning the Company, the JOANN Companies, or any and all past, present, or future related persons or entities, including but not limited to the Company’s and the JOANN Companies’ officers, directors, managers, employees, shareholders, agents, attorneys, successors and assigns, specifically including without limitation the Company and its subsidiaries and affiliates, their business, their actions or their officers or directors, to any person or entity, regardless of the truth or falsity of such statement. This Section 10 does not apply to truthful testimony compelled by applicable law or legal process.
By signing this Separation Agreement, you acknowledge that you will be solely responsible for any taxes which may be imposed on you as a result of the Severance Benefits, all amounts payable to you under this Separation Agreement will be subject to applicable tax withholding by the Company or its subsidiaries or affiliates, and the Company has not made any representations or guarantees regarding the tax result for you with respect to any income recognized by you in connection with this Separation Agreement or the Severance Benefits.
Although the Company will use its best efforts to avoid the imposition of taxation, interest and penalties under Section 409A of the U.S. Internal Revenue Code of 1986, as amended, the tax treatment of the benefits provided under this Separation Agreement is not warrantied or guaranteed. Neither the Company, its affiliates nor their respective directors, officers, employees or advisors shall be held liable for any taxes, interest, penalties or other monetary amounts owed by you (or any other individual claiming a benefit through you) as a result of this Separation Agreement.
By signing this Separation Agreement, you acknowledge that you are doing so freely, knowingly and voluntarily. You acknowledge that in signing this Separation Agreement you have relied only on the promises written in this Separation Agreement and not on any other promise made by the Company or JOANN Companies. This Separation Agreement is not, and will not be considered, an admission of liability or of a violation of any applicable contract, law, rule, regulation, or order of any kind. This Separation Agreement and the Release contain the entire agreement between the Company, other JOANN Companies and you regarding your departure from the Company, except that all post-employment covenants contained in the Severance Agreement or Equity Plans remain in full force and effect. The Severance Benefits are in full satisfaction of any severance benefits under the Severance Agreement and the Equity Plans, and of any other compensation arrangements between you and the Company or the JOANN Companies. This Separation Agreement may not be altered, modified, waived or amended except by a written document signed by a duly authorized representative of the Company and you. Except as otherwise explicitly provided, this Separation Agreement will be interpreted and enforced in accordance with the laws of the state of Ohio, and the parties hereto, including their successors and assigns, consent to the jurisdiction of the state and federal courts of Ohio. The headings in this document are for reference only, and shall not in any way affect the meaning or interpretation of this Separation Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, you and the Company have executed this Separation Agreement as of the dates set forth below.
JANET DULIGA
/s/ Janet Duliga_______________________
Date: September 15, 2023
JOANN INC.
By: /s/ Ann Aber_____________________
Name: Ann Aber
Title: Senior Vice President, Chief Legal
Officer & Secretary
Date: September 15, 2023
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EXHIBIT 10.4
Exhibit A
Release
This Release (this “Release”) is entered into by and between Janet Duliga (“Executive”) and JOANN Inc. (the “Company”) (collectively, the “Parties”) as of the __xx___ day of September, 2023.
NOW, THEREFORE, and in consideration of the mutual promises contained herein, and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Employment Status. Executive’s employment with the Company terminated effective as of September 15, 2023.
2. Payments and Benefits. Following the effectiveness of the terms set forth herein, the Company shall provide Executive with certain benefits as provided in that certain Separation Agreement and Release between the Company and Executive dated as of September 15, 2023 (the “Separation Agreement”), which modifies Section 1 of that certain Agreement between Jo-Ann Stores, LLC and Executive dated as of October 30, 2020 (the “Agreement”). Such benefits shall be provided in accordance with the terms, and subject to the conditions, of the Separation Agreement. Executive agrees that the consideration set forth above reflects adequate consideration for the release of any potential claims that Executive may have arising from Executive’s employment and separation from employment with the Company.
3. No Liability. This Release does not constitute an admission by the Company, or its directors, managers, officers, employees, affiliates or agents, or Executive, of any unlawful acts or of any violation of federal, state or local laws.
4. Claims Released by Executive. In consideration of the payments and benefits described in Section 2 of this Release, and by signing this Release, Executive agrees on behalf of Executive and her agents, heirs, executors, administrators and assigns to unconditionally release, acquit and forever discharge the Company, its parents, subsidiaries and affiliates, and each of their respective agents, directors, managers, officers, employees, partners, shareholders, members, representatives, successors, insurers, assigns and all persons acting by, through, under or in concert with any of them (“Releasees”) from any and all actions, complaints, claims, liabilities, obligations, promises, agreements, damages, demands, losses, and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, including, but not limited to, rights under federal, state or local laws prohibiting discrimination (including but not limited to the Federal Age Discrimination in Employment Act) and claims for wrongful discharge, breach of contract, either oral or written, breach of any employment policy or any other claim against Releasees which Executive now has, heretofore had or at any time hereafter may have against Releasees arising prior to the date hereof and arising out of or in connection with Executive’s employment or separation from employment with the Company.
Executive acknowledges and understands that this is a general release which releases the Releasees from any and all claims that Executive may have under federal, state or local laws or common law, including but not limited to claims arising under the Age Discrimination in Employment Act (the “ADEA”), Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 1981 & 1981a, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Lilly Ledbetter Fair Pay Act of 2009, the Family and Medical Leave Act, Sarbanes-Oxley Act of 2002, the National Labor Relations Act, the Rehabilitation Act of 1973, the Worker Adjustment Retraining and Notification Act, the Uniformed Services Employment and Reemployment Rights Act, Federal Executive Order 11246, the Genetic Information Nondiscrimination Act, the Ohio Civil Rights Act, Ohio Revised Code 4112.01 et seq., and the Ohio Whistleblowers’ Protection Act. This Release does not apply to any claim that as a matter of law cannot be released, or to any rights or
claims that may arise after the date Executive executes this Release, and nothing herein shall release the Company from any obligation under the Agreement. Further, nothing herein prevents Executive from instituting any action to challenge the validity of this Agreement under the ADEA
Without limiting the foregoing, Executive represents that she understands that this Release specifically releases and waives any claims of age discrimination, known or unknown, that Executive may have against Releasees as of the date Executive signs this Release. This Release specifically includes a waiver of rights and claims under the ADEA. Executive acknowledges that as of the date she signs this Release, Executive may have certain claims under the ADEA and Executive voluntarily relinquishes any such claims by signing this Release.
Nothing in this Release will prohibit Executive from cooperating with the Equal Employment Opportunity Commission (“EEOC”) or any similar state and local agencies in any future investigation against the Company, but Executive acknowledges that this Release will bar Executive from recovering any funds in any future proceeding, including any brought by the EEOC or any state and local agencies. Further, Executive specifically waives any right to receive any benefit or remedy as a consequence of filing a charge of discrimination with the EEOC or any similar state and local agencies. Notwithstanding the foregoing, Executive does not give up the right to any monetary award offered by the Securities and Exchange Commission pursuant to Section 21F of the Securities Exchange Act of 1934, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act or The Sarbanes-Oxley Act of 2002.
Executive and the Company agree that this Release may be introduced into evidence by a party in the event either party attempts to or actually commences any legal, equitable or administrative action, arbitration or other proceeding against the other party or any of its affiliated entities or any of the Releasees.
5. Confidentiality/Non-Disparagement/Restrictive Covenants. Executive agrees not to divulge to third parties or use any confidential or Company proprietary information gathered or learned by Executive in the scope of her employment with the Company. Confidential information includes, but is not limited to, information in oral, written or recorded form regarding business plans, trade or business secrets, Company financial records, supplier contracts or relationships, or any other information that the Company does not regularly disclose to the public. To the extent that Executive has any doubt, either now or in the future, as to whether information Executive possesses is confidential or Company proprietary, Executive should contact the undersigned for clarification before divulging or using such information. Executive understands and agrees that divulging such information to third parties or Executive’s unauthorized use of it would cause serious competitive harm to the Company. Confidential information shall exclude: (a) information that is generally known by or available for use by the public, (b) information that was known by Executive prior to her employment with the Company (including its predecessor in interest, affiliates and subsidiaries), or (c) information that is required to be disclosed pursuant to applicable law or a court order. If information is required to be disclosed because of a court order, Executive must notify the Company’s Chief Legal Officer immediately.
Executive agrees that the terms of this Release are confidential and that Executive will not disclose any information concerning this Release to any person other than Executive’s immediate family members and professional advisors who also agree to keep said information confidential, not to disclose it to others and not to use such information for any purpose other than advising Executive with respect to Executive’s rights and obligations under this Release. Executive also may make such disclosures as are required by law. Any disclosure in violation of the foregoing is a material breach of this Release giving rise to an appropriate remedy as determined by a court of law or equity.
Executive agrees that she is prohibited from and will refrain from sharing all Company-related materials in Executive’s possession with those who have not been authorized to receive such information, including but not limited to any competitors or retailers selling crafts, fabrics or other product lines also sold by the Company.
Executive acknowledges that she remains subject to the restrictive covenants referenced in Section 13 of the Agreement.
Each Party covenants not to make any disparaging statements or comments about the other parties to any person or entity by any medium, whether oral or written.
6. Governing Law. To the extent not preempted by the laws of the United States, the laws of the State of Ohio, applicable to contracts made and to be performed wholly within that state, shall be the controlling law in all matters relating to this Release.
7. Acknowledgment. Executive has read this Release, understands it, and voluntarily accepts its terms. Executive is hereby advised by the Company to seek the advice of legal counsel before entering into this Release. Executive acknowledges that she was given a period of forty-five (45) calendar days within which to consider and execute this Release, and to the extent that she executes this Release before the expiration of the 45-day period, she does so knowingly and voluntarily and only after consulting her attorney.
8. Revocation. Executive understands that she has a period of seven (7) calendar days following the execution of this Release during which Executive may revoke this Release by delivering written notice to the Company, and this Release shall not become effective or enforceable until such revocation period has expired. Executive understands that if she revokes this Release, it will be null and void in its entirety and Executive will not be entitled to any payments or benefits provided in Section 2.
9. Miscellaneous. This Release (and the Separation Agreement) is the complete understanding between Executive and the Company in respect of the subject matter of this Release and supersedes all prior agreements relating to Executive’s employment with the Company, except those provisions of the Agreement that survive the termination of Executive’s employment and agreements that Executive has entered into with the Company pertaining to confidentiality or ownership of intellectual property or Company proprietary information. Executive has not relied upon any representations, promises or agreements of any kind except those set forth herein and in the Agreement in signing this Release. In the event that any provision of this Release should be held to be invalid or unenforceable, each and all of the other provisions of this Release shall remain in full force and effect. If any provision of this Release is found to be invalid or unenforceable, such provision shall be modified as necessary to permit this Release to be upheld and enforced to the maximum extent permitted by law. Executive agrees to execute such other documents and take such further actions as reasonably may be required by the Company to carry out the provisions of this Release.
10. Counterparts. This Release may be executed by the Parties hereto in counterparts (including by means of facsimile or other electronic transmission), each of which shall be deemed an original, but all of which taken together shall constitute one original instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Parties have executed this Release on the date first set forth above.
EXECUTIVE
[exhibit copy not for signature]
Janet Duliga
JOANN INC.
By: [exhibit copy not for signature]
Name:
Title:
Exhibit B
Severance and Other Benefits
Severance benefits under the Separation Agreement and the Severance Agreement, which severance benefits will consist of the following:
Exhibit 31.1
CERTIFICATION
I, Christopher DiTullio, certify that:
Date: December 5, 2023 |
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By: |
/s/ Christopher DiTullio |
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Christopher DiTullio |
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Executive Vice President, Chief Customer Officer and Member, Interim Office of the Chief Executive Officer |
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(principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, Scott Sekella, certify that:
Date: December 5, 2023 |
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By: |
/s/ Scott Sekella |
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Scott Sekella |
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Executive Vice President, Chief Financial Officer and Member, Interim Office of the Chief Executive Officer |
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(principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of JOANN Inc. (the “Company”) for the period ended October 28, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher DiTullio, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
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Date: December 5, 2023 |
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By: |
/s/ Christopher DiTullio |
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Christopher DiTullio |
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Executive Vice President, Chief Customer Officer and Member, Interim Office of the Chief Executive Officer |
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(principal executive officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of JOANN Inc. (the “Company”) for the period ended October 28, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Sekella, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
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Date: December 5, 2023 |
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By: |
/s/ Scott Sekella |
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Scott Sekella |
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Executive Vice President, Chief Financial Officer and Member, Interim Office of the Chief Executive Officer |
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(principal financial officer) |