JOANN INC. 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
Our fiscal year ends on the Saturday closest to
JOANN Overview
Highlights for the Thirteen Weeks Ended
• Net sales increased 15.0% compared to the first quarter of fiscal 2021, to
$574.4 million , with total comparable sales increasing 15.0%.
• Gross margin increased 23.1% compared to the same period in the prior fiscal
year, to $302.7 million , at a rate to net sales of 52.7% compared to 49.2%
for the same period in the prior fiscal year.
• Net income was $15.1 million in the of first quarter fiscal 2022, compared
to a $23.6 million net loss in the same period in the prior fiscal year.
• Adjusted EBITDA increased 165.0% compared to the same period in the prior
fiscal year, to $57.5 million , or 10.0% as a percentage of net sales
compared to 4.3% as a percentage of net sales for the same fiscal period
last year.
• For the first quarter of fiscal 2022, we had diluted earnings per share of
$0.38 , compared to a diluted loss per share of $0.68 for the first quarter
of fiscal 2021.
• We successfully completed our initial public offering generating $77.0
million in net proceeds, which we used to repay all of the outstanding
borrowings and accrued interest under the Term Loan due 2024 totaling $72.7
million .
Effects of COVID-19 on Our Business
We continue to closely monitor the impact of the COVID-19 outbreak on all facets
of our business. We have taken actions to protect the safety of our team members
and customers and to manage the business through the resulting fluid and
challenging environment. Our steps to manage operation of our locations during
the pandemic have added costs to our business, some of which are non-recurring
in nature, including incremental labor hours and supplies to maintain sanitation
and social distancing protocols. These precautions may change from time to time
as local conditions and applicable health mandates change, and therefore, it is
possible we may be required to temporarily close locations or limit our
operations. As of
As the impact of the COVID-19 pandemic has begun to ease with approved vaccines being distributed and administered, certain states in which we operate have lifted mandatory mask mandates and relaxed social distancing requirements. In states where these
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mandates and requirements are still in place, we continue to require our team members and customers to follow the applicable guidance while entering, exiting, and shopping at our locations.
As the circumstances around the COVID-19 pandemic remain fluid, we continue to
actively monitor the pandemic's impact on the Company, including our financial
position, liquidity, results of operations and cash flows, while managing our
response to the crisis through collaboration with employees, customers,
suppliers, government authorities, health officials and other business partners.
Please see Part 1, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for
the fiscal year ended
Total Comparable Sales
Total comparable sales are an important measure throughout the retail industry. This measure allows us to evaluate how our location base and e-commerce business are performing by measuring the change in period-over-period net sales in locations that have been open for the applicable period. We define total comparable sales as net sales for 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, 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; to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; to compare our performance against that of other peer companies using similar measures; and because our credit facilities use measures similar to Adjusted EBITDA to measure our compliance with certain covenants.
We define Adjusted EBITDA as net income (loss) plus income tax provision (benefit), interest expense, net, debt related (gain) loss and depreciation and amortization, as 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 costs related to strategic initiatives, COVID-19 costs, technology development expense, stock-based compensation expense, loss on disposal and impairment of fixed and operating lease assets, sponsor management fees and other one-time costs. The further adjustments are itemized in the table below.
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:
• Adjusted EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect changes in our cash requirements for our
working capital needs;
• Adjusted EBITDA does not reflect the interest expense and the cash
requirements necessary to service interest or principal payments on our
debt;
• Adjusted EBITDA does not reflect cash requirements for replacement of
assets that are being depreciated and amortized;
• Adjusted EBITDA does not reflect non-cash compensation, which is a key
element of our overall long-term compensation;
• Adjusted EBITDA does not reflect the impact of certain cash charges or
cash receipts resulting from matters we do not find indicative of our
ongoing operations; and
• other companies in our industry may calculate Adjusted EBITDA differently
than we do.
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We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.
The following is a reconciliation of our net income (loss) to Adjusted EBITDA
for the periods presented:
Thirteen Weeks Ended
May 1, May 2,
(In millions) 2021 2020
Net income (loss) $ 15.1 $ (23.6 )
Income tax provision (benefit) 4.2 (12.1 )
Interest expense, net 13.2 22.7
Debt related gain (1) (0.1 ) (3.1 )
Depreciation and amortization (2) 20.6 19.9
Strategic initiatives (3) 0.3 1.1
COVID-19 costs (4) 1.3 10.7
Technology development expense (5) 1.8 1.1
Stock-based compensation expense 0.6 0.4
Loss on disposal and impairment of fixed and
operating lease assets - 3.4
Sponsor management fee (6) 0.4 0.8
Other (7) 0.1 0.4
Adjusted EBITDA $ 57.5 $ 21.7 (1) "Debt related gain" represents gains associated with debt repurchases below
par and write off of unamortized fees and original issue discount associated
with debt refinancings.
(2) "Depreciation and amortization" represents depreciation, amortization of
intangible assets and amortization of content costs.
(3) "Strategic initiatives" represents non-recurring costs, such as third-party
consulting costs and one-time start-up costs, that are not part of our
ongoing operations and are incurred to execute differentiated, project-based
strategic initiatives, including costs (i) to design a new prototype and
assortment optimization process for locations, (ii) related to our efforts to
initially evaluate and implement opportunities to offset the significant
costs incurred due to the new U.S. tariffs on merchandise produced in China ,
(iii) to start up a new technology product that would traditionally be
incurred by our vendors, (iv) to evaluate our opportunity in new potential
lines of business and (v) to analyze improved supply chain capabilities.
(4) "COVID-19 costs" represents premium pay for location team members, cleaning
and location capacity management labor, incremental seasonal clearance
associated with location closures, donations for our mask making initiative
and additional location cleaning supplies.
(5) "Technology development expense" represents one-time IT project management
and implementation expenses, such as temporary labor costs, third-party
consulting fees and user fees incurred during the development period of a new
software application, that are not part of our ongoing operations and are
typically redundant during the initial implementation of software
applications or other technology systems across different functional
operations of our business before they are in productive use.
(6) "Sponsor management fee" represents management fees paid to our sponsor, LGP
(or advisory affiliates thereof), in accordance with our management services
agreement. The management fee was discontinued upon the completion of our
initial public offering in March 2021 as LGP no longer provides managerial
services to us in any form.
(7) "Other" represents one-time severance, certain legal, executive leadership
transition and business transition expenses.
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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.
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