JOANN Inc. (NASDAQ: JOAN) (“JOANN”), the nation’s category
leader in sewing and one of the fastest growing competitors in the
arts and crafts category, today reported results for its second
quarter ending July 30, 2022.
“I am pleased with the consistent improvement in
sales trends we experienced throughout the latest quarter. Despite
persistent inflationary pressures and an ongoing volatile operating
environment for discretionary categories, I am very encouraged by
the quality of inventory, our strong in-stock position, and
improving sales cadence as we head into the back half of the fiscal
year,” said JOANN President and Chief Executive Officer Wade
Miquelon. “We are focused on generating significant cost savings
and have taken actions to be cash flow generative over the balance
of fiscal 2023. The outlook for ocean freight expenses is set to
further improve and this remains our biggest cost reduction
opportunity over the next eighteen months. We also have made
significant reductions to merchandise receipts in our higher
exposed fashion and seasonal areas, while still investing in our
basic in-stocks for the back half of our year. Additionally, we are
very encouraged by the early season results in our Fall/Halloween
business, along with an acceleration we are seeing in our core
sewing business.”
Second Quarter Highlights:
- Net sales declined
by 6.8% compared to the same period last year to $463.3 million,
with total comparable sales decreasing 6.2% (reflecting a
sequential improvement from the first quarter of fiscal 2023). Our
revenue was slightly positive relative to pre-pandemic levels in
the second quarter of fiscal 2020.
- Gross profit of
$214.9 million on a GAAP basis decreased by 20% compared to the
second quarter of last year. After adjusting for $27.1 million of
excess ocean freight and related supply chain costs, adjusted gross
profit of $242.0 million declined by 9% compared to the same
quarter last year.
- Gross margin was
46.4% on a GAAP basis, a decrease of 730 basis points compared to
the second quarter last year. After adjusting for excess import
freight costs, gross margin of 52.2% decreased by 150 basis points
compared to the second quarter last year.
- Selling, general
and administrative expenses increased by 4.7% compared to the
second quarter of last year, primarily driven by increased
distribution costs associated with earlier arriving seasonal
merchandise and costs associated with our new multi-purpose
distribution center in West Jefferson, Ohio as well as inflationary
pressures in energy, commodity, and labor costs.
- Net loss of $56.9
million compared to net income of $5.2 million in the same quarter
last year.
- Loss in adjusted
EBITDA of $8.9 million compared to income of $23.5 million in the
same quarter last year.
- Our quarterly
dividend of $0.11 per share was paid to holders of JOANN common
stock on June 24, 2022.
Balance Sheet Highlights:
- Adjusted EBITDA for
Credit Agreement reporting was $185.2 million on a trailing
12-month basis, resulting in net debt to Adjusted EBITDA leverage
of 5.5x for Credit Agreement reporting.
- Long-term debt, net
was $1,102.1 million as of July 30, 2022 with cash and cash
equivalents of $21.5 million.
Webcast and Conference Call
Information: JOANN management will host a conference call
and webcast to discuss the results today, Thursday, September 1,
2022 at 5:00 p.m. ET. Participants can register through
this link for dial in details. The
live broadcast of JOANN’s conference call will be
available online at the Company's website, www.joann.com,
under the Investor Relations section, on September 1, 2022,
beginning at 5:00 p.m. ET. The online replay will follow shortly
after the call and will be available for one year.
Table 1.JOANN
Inc. Consolidated Statements of Income
(Loss)(Unaudited)
|
Thirteen Weeks Ended |
Twenty-Six Weeks Ended |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
|
|
|
(In millions except per share data) |
|
Net sales |
$ |
463.3 |
|
|
$ |
496.9 |
|
|
$ |
961.3 |
|
|
$ |
1,071.3 |
|
Cost of sales |
|
248.4 |
|
|
|
230.1 |
|
|
|
505.7 |
|
|
|
501.8 |
|
Gross profit |
|
214.9 |
|
|
|
266.8 |
|
|
|
455.6 |
|
|
|
569.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
258.5 |
|
|
|
247.0 |
|
|
|
517.6 |
|
|
|
496.9 |
|
Depreciation and
amortization |
|
19.9 |
|
|
|
20.1 |
|
|
|
40.0 |
|
|
|
40.5 |
|
Operating profit (loss) |
|
(63.5 |
) |
|
|
(0.3 |
) |
|
|
(102.0 |
) |
|
|
32.1 |
|
Interest expense, net |
|
13.2 |
|
|
|
14.8 |
|
|
|
24.4 |
|
|
|
28.0 |
|
Debt related loss, net |
|
— |
|
|
|
3.1 |
|
|
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
(24.5 |
) |
|
|
— |
|
|
|
(24.5 |
) |
Income (loss) before income taxes |
|
(76.7 |
) |
|
|
6.3 |
|
|
|
(127.4 |
) |
|
|
25.6 |
|
Income tax provision
(benefit) |
|
(19.8 |
) |
|
|
1.1 |
|
|
|
(35.4 |
) |
|
|
5.3 |
|
Net income (loss) |
$ |
(56.9 |
) |
|
$ |
5.2 |
|
|
$ |
(92.0 |
) |
|
$ |
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common
share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(1.40 |
) |
|
$ |
0.12 |
|
|
$ |
(2.26 |
) |
|
$ |
0.50 |
|
Diluted |
$ |
(1.40 |
) |
|
$ |
0.12 |
|
|
$ |
(2.26 |
) |
|
$ |
0.49 |
|
Weighted-average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
40.7 |
|
|
|
42.2 |
|
|
|
40.7 |
|
|
|
40.3 |
|
Diluted |
|
40.7 |
|
|
|
43.7 |
|
|
|
40.7 |
|
|
|
41.7 |
|
Table 2.JOANN
Inc. Consolidated Balance
Sheets(Unaudited)
|
July 30,2022 |
|
|
July 31,2021 |
|
|
|
|
|
(In millions) |
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
21.5 |
|
|
$ |
22.1 |
|
Inventories |
|
749.9 |
|
|
|
632.0 |
|
Prepaid expenses and other current assets |
|
78.5 |
|
|
|
78.2 |
|
Total current assets |
|
849.9 |
|
|
|
732.3 |
|
|
|
|
|
|
|
Property, equipment and leasehold
improvements, net |
|
285.5 |
|
|
|
263.4 |
|
Operating lease assets |
|
835.0 |
|
|
|
847.8 |
|
Goodwill, net |
|
162.0 |
|
|
|
162.0 |
|
Intangible assets, net |
|
371.5 |
|
|
|
373.8 |
|
Other assets |
|
27.5 |
|
|
|
25.5 |
|
Total assets |
$ |
2,531.4 |
|
|
$ |
2,404.8 |
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
272.3 |
|
|
$ |
266.2 |
|
Accrued expenses |
|
140.4 |
|
|
|
136.6 |
|
Current portion of operating lease liabilities |
|
159.0 |
|
|
|
175.0 |
|
Current portion of long-term debt |
|
6.8 |
|
|
|
6.8 |
|
Total current liabilities |
|
578.5 |
|
|
|
584.6 |
|
|
|
|
|
|
|
Long-term debt, net |
|
1,012.1 |
|
|
|
771.2 |
|
Long-term operating lease
liabilities |
|
771.3 |
|
|
|
771.8 |
|
Long-term deferred income
taxes |
|
86.8 |
|
|
|
87.5 |
|
Other long-term liabilities |
|
31.5 |
|
|
|
52.7 |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
Common stock, stated value $0.01 per share |
|
0.4 |
|
|
|
0.4 |
|
Additional paid-in capital |
|
204.5 |
|
|
|
202.8 |
|
Retained (deficit) |
|
(126.0 |
) |
|
|
(52.9 |
) |
Accumulated other comprehensive income |
|
1.1 |
|
|
|
— |
|
Treasury stock at cost |
|
(28.8 |
) |
|
|
(13.3 |
) |
Total shareholders’ equity |
|
51.2 |
|
|
|
137.0 |
|
Total liabilities and
shareholders’ equity |
$ |
2,531.4 |
|
|
$ |
2,404.8 |
|
Table 3.JOANN
Inc. Consolidated Statements of Cash
Flows(Unaudited)
|
Twenty-Six Weeks Ended |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
|
|
|
(In millions) |
|
Net cash provided by (used for)
operating activities: |
|
|
|
|
|
Net income (loss) |
$ |
(92.0 |
) |
|
$ |
20.3 |
|
Adjustments to reconcile net income (loss) to net cash (used
for)operating activities: |
|
|
|
|
|
Non-cash operating lease expense |
|
84.7 |
|
|
|
79.7 |
|
Depreciation and amortization |
|
40.0 |
|
|
|
40.5 |
|
Deferred income taxes |
|
(0.6 |
) |
|
|
— |
|
Stock-based compensation expense |
|
2.2 |
|
|
|
1.3 |
|
Amortization of deferred financing costs and original issue
discount |
|
1.0 |
|
|
|
1.5 |
|
Debt related loss, net |
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
1.0 |
|
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
(24.5 |
) |
Loss on disposal and impairment of fixed assets |
|
0.2 |
|
|
|
— |
|
Changes in operating assets and
liabilities: |
|
|
|
|
|
(Increase) in inventories |
|
(91.3 |
) |
|
|
(76.1 |
) |
(Increase) in prepaid expenses and other current assets |
|
(39.2 |
) |
|
|
(3.8 |
) |
Increase in accounts payable |
|
18.5 |
|
|
|
16.1 |
|
(Decrease) in accrued expenses |
|
(6.4 |
) |
|
|
(41.1 |
) |
(Decrease) in operating lease liabilities |
|
(78.2 |
) |
|
|
(97.4 |
) |
(Decrease) in other long-term liabilities |
|
(9.9 |
) |
|
|
(0.9 |
) |
Other, net |
|
3.9 |
|
|
|
(0.7 |
) |
Net cash (used for) operating
activities |
|
(166.1 |
) |
|
|
(82.1 |
) |
Net cash provided by (used for)
investing activities: |
|
|
|
|
|
Capital expenditures |
|
(50.7 |
) |
|
|
(28.6 |
) |
Proceeds from sale leaseback |
|
— |
|
|
|
48.1 |
|
Acquisitions |
|
(4.3 |
) |
|
|
— |
|
Other investing activities |
|
— |
|
|
|
(0.2 |
) |
Net cash provided by (used for)
investing activities |
|
(55.0 |
) |
|
|
19.3 |
|
Net cash provided by (used for)
financing activities: |
|
|
|
|
|
Term loan proceeds, net of original issue discount |
|
— |
|
|
|
671.6 |
|
Term loan payments |
|
(5.1 |
) |
|
|
(706.3 |
) |
Borrowings on revolving credit facility |
|
360.2 |
|
|
|
282.1 |
|
Payments on revolving credit facility |
|
(122.2 |
) |
|
|
(255.1 |
) |
Purchase and retirement of debt |
|
— |
|
|
|
(0.9 |
) |
Principal payments on finance lease obligations |
|
(4.9 |
) |
|
|
(2.9 |
) |
Issuance of common stock, net of underwriting commissions and
offering costs |
|
— |
|
|
|
76.9 |
|
Proceeds from employee stock purchase plan and exercise of stock
options |
|
1.1 |
|
|
|
— |
|
Payments of taxes related to the net issuance of team member stock
awards |
|
(0.1 |
) |
|
|
— |
|
Dividends paid |
|
(8.9 |
) |
|
|
(4.2 |
) |
Financing fees paid |
|
— |
|
|
|
(3.8 |
) |
Other, net |
|
— |
|
|
|
0.1 |
|
Net cash provided by financing
activities |
|
220.1 |
|
|
|
57.5 |
|
Net (decrease) in cash and cash
equivalents |
|
(1.0 |
) |
|
|
(5.3 |
) |
Cash and cash equivalents at
beginning of period |
|
22.5 |
|
|
|
27.4 |
|
Cash and cash equivalents at end
of period |
$ |
21.5 |
|
|
$ |
22.1 |
|
Cash paid during the period for: |
|
|
|
|
|
Interest |
$ |
22.7 |
|
|
$ |
27.3 |
|
Income taxes, net of refunds |
|
0.3 |
|
|
|
12.9 |
|
Table 4.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted EBITDA(Unaudited)
|
Thirteen Weeks Ended |
Twenty-Six Weeks Ended |
|
|
July 30,2022 |
|
July 31,2021 |
|
July 30,2022 |
|
July 31,2021 |
|
|
|
|
|
(In millions) |
|
Net income (loss) |
$ |
(56.9 |
) |
$ |
5.2 |
|
$ |
(92.0 |
) |
$ |
20.3 |
|
Income tax provision
(benefit) |
|
(19.8 |
) |
|
1.1 |
|
|
(35.4 |
) |
|
5.3 |
|
Interest expense, net |
|
13.2 |
|
|
14.8 |
|
|
24.4 |
|
|
28.0 |
|
Depreciation and amortization
(1) |
|
20.2 |
|
|
20.2 |
|
|
40.8 |
|
|
40.8 |
|
Debt related loss, net
(2) |
|
— |
|
|
3.1 |
|
|
— |
|
|
3.0 |
|
Investment remeasurement
(3) |
|
— |
|
|
— |
|
|
1.0 |
|
|
— |
|
Gain on sale leaseback
(4) |
|
— |
|
|
(24.5 |
) |
|
— |
|
|
(24.5 |
) |
Strategic initiatives (5) |
|
1.6 |
|
|
0.5 |
|
|
3.7 |
|
|
0.8 |
|
Excess import freight costs
(6) |
|
27.1 |
|
|
— |
|
|
56.0 |
|
|
— |
|
Other COVID-19 costs (7) |
|
— |
|
|
— |
|
|
— |
|
|
1.3 |
|
Technology development expense
(8) |
|
2.9 |
|
|
1.8 |
|
|
5.0 |
|
|
3.6 |
|
Stock-based compensation
expense |
|
1.2 |
|
|
0.7 |
|
|
2.2 |
|
|
1.3 |
|
Loss on disposal and
impairment of fixed and operating lease assets |
|
1.1 |
|
|
— |
|
|
1.1 |
|
|
— |
|
Sponsor management fee
(9) |
|
— |
|
|
— |
|
|
— |
|
|
0.4 |
|
Other (10) |
|
0.5 |
|
|
0.6 |
|
|
2.9 |
|
|
0.7 |
|
Adjusted EBITDA |
$ |
(8.9 |
) |
$ |
23.5 |
|
$ |
9.7 |
|
$ |
81.0 |
|
(1) “Depreciation and
amortization” represents depreciation, amortization of intangible
assets and amortization of content and capitalized cloud-based
system implementation costs. (2) “Debt
related loss, net” represents losses and gains associated with debt
repurchases and the write off of unamortized fees and original
issue discount associated with debt
refinancings.(3) "Investment remeasurement"
represents a loss of $1.0 million as a result of a decrease in the
value of our previously held equity investment in WeaveUp, Inc. to
its fair value.(4) “Gain on sale leaseback”
represents the gain attributable to the sale leaseback of our
distribution center in Opelika,
Alabama.(5) “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.(6) As
discussed in greater detail below, "Excess import freight costs"
represents excess inbound freight costs (compared to our standard
costs based on recently negotiated carrier rates) due to increasing
freight rates, in particular the significant transitory impact of
constrained ocean freight capacity and incremental domestic
transportation costs incurred due to unprecedented congestion in
U.S. ports arising from surging market demand for shipping capacity
as economies begin to recover from the COVID-19
pandemic.(7) “Other COVID-19 costs”
represents costs incurred for store location cleaning and capacity
management labor, store location cleaning supplies and deep clean
services. (8) “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.(9) “Sponsor
management fee” represents management fees paid to our sponsor,
Leonard Green & Partners, L.P. ("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.(10) “Other”
represents the one-time impact of severance, certain legal matters,
executive leadership transition and business transition
activities.
Table 5.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted Net Income (Loss)(Unaudited)
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
|
|
|
(In millions except per share data) |
|
Net income (loss) |
$ |
(56.9 |
) |
|
$ |
5.2 |
|
|
$ |
(92.0 |
) |
|
$ |
20.3 |
|
Debt related loss, net |
|
— |
|
|
|
3.1 |
|
|
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
(24.5 |
) |
|
|
— |
|
|
|
(24.5 |
) |
Strategic initiatives |
|
1.6 |
|
|
|
0.5 |
|
|
|
3.7 |
|
|
|
0.8 |
|
Excess import freight
costs |
|
27.1 |
|
|
|
— |
|
|
|
56.0 |
|
|
|
— |
|
Other COVID-19 costs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
Technology development
expense |
|
2.9 |
|
|
|
1.8 |
|
|
|
5.0 |
|
|
|
3.6 |
|
Stock-based compensation
expense |
|
1.2 |
|
|
|
0.7 |
|
|
|
2.2 |
|
|
|
1.3 |
|
Loss on disposal and
impairment of fixed and operating lease assets |
|
1.1 |
|
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
Sponsor management fee |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
Other |
|
0.5 |
|
|
|
0.6 |
|
|
|
2.9 |
|
|
|
0.7 |
|
Tax impact of adjustments
(11) |
|
(8.1 |
) |
|
|
4.3 |
|
|
|
(19.6 |
) |
|
|
3.2 |
|
Adjusted net income
(loss) |
$ |
(30.6 |
) |
|
$ |
(8.3 |
) |
|
$ |
(39.7 |
) |
|
$ |
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share |
$ |
(1.40 |
) |
|
$ |
0.12 |
|
|
$ |
(2.26 |
) |
|
$ |
0.49 |
|
Adjusted diluted earnings
(loss) per share |
$ |
(0.75 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.98 |
) |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding - basic |
|
40.7 |
|
|
|
42.2 |
|
|
|
40.7 |
|
|
|
40.3 |
|
Weighted-average shares
outstanding - diluted |
|
40.7 |
|
|
|
43.7 |
|
|
|
40.7 |
|
|
|
41.7 |
|
(11) “Tax impact of
adjustments” represents the tax effect of the total adjustments
based on our forecasted effective tax rate, before discrete
adjustments, for fiscal 2023 and fiscal 2022.
Table 6.JOANN
Inc. Reconciliation of Gross Profit to Adjusted
Gross Profit(Unaudited)
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
July 30,2022 |
|
|
July 31,2021 |
|
|
|
|
|
|
|
|
(In millions) |
|
Net sales |
$ |
463.3 |
|
|
$ |
496.9 |
|
|
$ |
961.3 |
|
|
$ |
1,071.3 |
|
Cost of sales |
|
248.4 |
|
|
|
230.1 |
|
|
|
505.7 |
|
|
|
501.8 |
|
Gross profit |
|
214.9 |
|
|
|
266.8 |
|
|
|
455.6 |
|
|
|
569.5 |
|
Excess import freight
costs |
|
27.1 |
|
|
|
— |
|
|
|
56.0 |
|
|
|
— |
|
Adjusted gross profit |
$ |
242.0 |
|
|
$ |
266.8 |
|
|
$ |
511.6 |
|
|
$ |
569.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross margin |
|
52.2 |
% |
|
|
53.7 |
% |
|
|
53.2 |
% |
|
|
53.2 |
% |
Table 7.JOANN
Inc. Reconciliation of Net Cash Used for Operating
Activities to Credit Facility Adjusted
EBITDA(Unaudited)
(In millions) |
|
Four Quarters Ended July 30,
2022 |
|
Net
cash used for operating activities |
|
$ |
(107.6 |
) |
Non-cash operating lease
expense |
|
|
(167.6 |
) |
Depreciation and
amortization |
|
|
(79.6 |
) |
Deferred income taxes |
|
|
1.0 |
|
Stock-based compensation
expense |
|
|
(3.4 |
) |
Amortization of deferred
financing costs and original issue discount |
|
|
(2.0 |
) |
Debt related loss, net |
|
|
(0.3 |
) |
Investment remeasurement |
|
|
(1.0 |
) |
Loss on disposal and impairment
of fixed assets |
|
|
(1.1 |
) |
Change in operating assets and
liabilities |
|
|
306.0 |
|
Net (loss) |
|
$ |
(55.6 |
) |
Income tax benefit |
|
|
(27.7 |
) |
Interest expense, net |
|
|
47.6 |
|
Depreciation and amortization
(1) |
|
|
80.8 |
|
Debt related loss, net |
|
|
0.3 |
|
Investment remeasurement |
|
|
1.0 |
|
Strategic initiatives |
|
|
6.6 |
|
Excess import freight costs |
|
|
102.6 |
|
Other COVID-19 costs |
|
|
0.2 |
|
Technology development
expense |
|
|
10.4 |
|
Stock-based compensation
expense |
|
|
3.4 |
|
Loss on disposal and impairment
of fixed and operating lease assets |
|
|
2.2 |
|
Other |
|
|
(0.6 |
) |
Adjusted EBITDA |
|
$ |
171.2 |
|
Pre-opening and closing costs
excluding loss on disposal of fixed assets |
|
|
14.0 |
|
Credit Facility Adjusted EBITDA |
|
$ |
185.2 |
|
(1) Includes amortization of content and capitalized cloud-based
system implementation costs.
Non-GAAP Financial Measures
Adjusted EBITDA
JOANN presents Adjusted EBITDA, which is not a
recognized financial measure under accounting principles generally
accepted in the United States of America (“GAAP”), because it
believes it assists investors and analysts in comparing JOANN’s
performance across reporting periods on a consistent basis by
excluding items that management does not believe are indicative of
JOANN’s core operating performance. Management believes Adjusted
EBITDA is helpful in highlighting trends in JOANN’s 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. JOANN also uses Adjusted EBITDA in
connection with establishing discretionary annual incentive
compensation; supplementing GAAP measures of performance in the
evaluation of the effectiveness of its business strategies; making
budgeting decisions; comparing its performance against that of
other peer companies using similar measures; and because its credit
facilities use measures similar to Adjusted EBITDA to measure its
compliance with certain covenants.
JOANN defines Adjusted EBITDA as net income
(loss) plus income tax provision (benefit), interest expense, net
and depreciation and amortization, as further adjusted to eliminate
the impact of certain non-cash items and other items that
management does not consider indicative of JOANN's ongoing
operating performance, including debt related gains and losses,
investment remeasurements, sale leaseback gains, costs related to
strategic initiatives, COVID-19 costs, technology development
expenses, stock-based compensation expense, losses on disposal and
impairment of fixed and operating lease assets, sponsor management
fees and other one-time costs. JOANN's adjustments for COVID-19
related costs include, as a separate line item, excess import
freight costs. The excess import freight costs are directly
attributable to surging market demand for shipping capacity as
economies begin to recover 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 have disrupted
the efficient operation of domestic and international supply
chains. These COVID-19 related conditions have produced an
imbalance of ocean freight capacity and related demand, as well as
port congestion and other supply chain disruptions that are adding
significant cost to JOANN’s procurement of imported merchandise.
JOANN believes that these excess import freight costs include
significantly higher rates paid per container to ocean carriers, as
well as fees paid due to congested ports that JOANN does not
normally incur. In a normative operating environment, JOANN would
procure 70% to 80% of its needs for ocean freight under negotiated
contract rates, with the balance procured in a brokered market,
typically at no more than a 10% - 15% premium to its contract
rates. Accordingly, JOANN 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 its contracts. Negotiation of JOANN’s current
contract rates were finalized in the second quarter of fiscal 2023.
While we have started to see a decline in overall ocean freight
rates and a reduction in other fees associated with port
congestion, these savings will begin to be realized in the back
half of fiscal 2023, along with a reduction in expense recognition
heading into fiscal 2024. The amount of excess import freight costs
included as an adjustment to arrive at Adjusted EBITDA is
calculated by subtracting, from its actual import freight costs,
its standard cost for the applicable period. JOANN is identifying
these COVID-19 related excess import freight costs as a separate
line item in the table above due to their magnitude and to
distinguish them from other COVID-19 related costs JOANN has
previously excluded in calculating Adjusted EBITDA.
Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for analysis of JOANN’s results as reported under GAAP.
Some of these limitations include:
- Adjusted EBITDA
does not reflect JOANN's cash expenditures or future requirements
for capital expenditures or contractual commitments;
- Adjusted EBITDA
does not reflect changes in JOANN's cash requirements for its
working capital needs;
- Adjusted EBITDA
does not reflect the interest expense and the cash requirements
necessary to service interest and principal payments on JOANN's
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
JOANN’s overall long-term incentive compensation;
- Adjusted EBITDA
does not reflect the impact of certain cash charges or cash
receipts resulting from matters JOANN does not find indicative of
its ongoing operations; and
- other companies in
JOANN’s industry may calculate Adjusted EBITDA differently than it
does, limiting its usefulness as a comparative measure.
JOANN compensates for these limitations by
relying primarily on JOANN’s GAAP results and using Adjusted EBITDA
only as supplemental information.
Adjusted Net Income (Loss) and Adjusted
Diluted Earnings (Loss) per Share
JOANN presents adjusted net income (loss) and
adjusted diluted earnings (loss) per share, which are not
recognized financial measures under GAAP, because it believes these
additional key measures assist investors and analysts in comparing
JOANN’s performance across reporting periods on a consistent basis
by excluding items that management does not believe are indicative
of JOANN’s core operating performance. Management believes that
adjusted net income (loss) and adjusted diluted earnings (loss) per
share are helpful in highlighting trends in JOANN’s core operating
performance compared to other measures, which can differ
significantly depending on long-term strategic decisions regarding
capital structure and capital investments. JOANN also uses adjusted
net income (loss) and adjusted diluted earnings (loss) per share to
supplement GAAP measures of performance in the evaluation of the
effectiveness of its business strategies; to make budgeting
decisions; and to compare its performance against that of other
peer companies using similar measures.
JOANN defines adjusted net income (loss) as net
income (loss) adjusted to eliminate the impact of certain non-cash
items and other items that management does not consider indicative
of its ongoing operating performance, including debt related gains
and losses, investment remeasurements, sale leaseback gains, costs
related to strategic initiatives, COVID-19 costs, technology
development expenses, stock-based compensation expense, losses on
disposal and impairment of fixed and operating lease assets,
sponsor management fees and other one-time costs. The adjustments
are itemized in the table above. Adjusted diluted earnings (loss)
per share is defined as adjusted net income (loss) divided by the
weighted-average number of common shares outstanding assuming
dilution in periods in which there is an adjusted net income.
Adjusted Gross Profit and Adjusted Gross
Margin
JOANN presents adjusted gross profit and
adjusted gross margin, which are not recognized financial measures
under GAAP, because it believes they assist investors and analysts
in comparing JOANN’s performance across reporting periods on a
consistent basis by excluding items that management does not
believe are indicative of JOANN’s core operating performance.
JOANN defines adjusted gross profit as gross
profit excluding excess import freight costs and adjusted gross
margin as adjusted gross profit divided by net sales.
Credit Facility Adjusted
EBITDA
JOANN presents Credit Facility Adjusted EBITDA
because it is a measure that is calculated in accordance with
JOANN’s asset-based revolving credit facility agreement, as
amended, and senior secured term loan facility (collectively
“Credit Facilities”) and used to determine compliance with certain
ratios in the Credit Facilities, tested each quarter on the basis
of the preceding four quarters. Accordingly, management believes
that Credit Facility Adjusted EBITDA is material to an investor’s
understanding of JOANN’s financial condition and liquidity.
JOANN defines Credit Facility Adjusted EBITDA as
Adjusted EBITDA (as defined above) plus pre-opening and closing
costs excluding loss on disposal of fixed assets, which is
calculated consistently with the calculation of Adjusted EBITDA
under the Credit Facilities.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. JOANN intends 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”). Readers can
generally identify forward-looking statements by the use of
forward-looking terminology such as “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,”
“might,” “plan,” “potential,” “predict,” “seek,” “vision,” or
“should,” or the negative thereof or other variations thereon or
comparable terminology. Many factors could affect JOANN’s actual
financial results and cause them to vary materially from the
expectations contained in forward-looking statements, including
those set forth in this document. These risks, uncertainties, and
factors include, among other things: inflationary pressures and
their impact on JOANN’s ability to control costs and on its
customers level of discretionary income to spend on Creative
Products; JOANN’s ability to anticipate and effectively respond to
disruptions or inefficiencies in its distribution network,
e-commerce fulfillment function and transportation system,
including availability and cost of import and domestic freight; the
effects of potential changes to U.S. trade regulations and
policies, including tariffs, on JOANN’s business; developments
involving JOANN’s competitors and its industry; potential future
impacts of the COVID-19 pandemic, including effects on supply chain
costs and capacity; JOANN’s ability to timely identify or
effectively respond to consumer trends, and the potential effects
of that ability on its relationship with its customers, the demand
for JOANN’s products and its market share; JOANN’s expectations
regarding the seasonality of its business; JOANN’s ability to
manage the distinct risks facing its e-commerce business and
maintain a relevant omni-channel experience for its customers;
JOANN’s ability to maintain or negotiate favorable lease terms for
its store locations; JOANN’s ability to execute on its growth
strategy to renovate and improve the performance of its
existing store locations; JOANN’s ability to attract and retain a
qualified management team and other team members while controlling
its labor costs; the impact of JOANN’s debt and lease obligations
on its ability to raise additional capital to fund its operations
and maintain flexibility in operating its business; JOANN’s
reliance on and relationships with third party service providers;
JOANN’s reliance on and relationships with foreign suppliers and
their ability to supply it with adequate, timely and cost-effective
product for resale; JOANN’s ability, and its third party service
providers’ ability, to maintain security and prevent unauthorized
access to electronic and other confidential information; the
impacts of potential disruptions to JOANN’s information systems,
including its websites and mobile applications; JOANN’s ability to
respond to risks associated with existing and future payment
options; JOANN’s ability to maintain and enhance a strong brand
image; JOANN’s ability to maintain adequate insurance coverage;
JOANN’s status as a “controlled company” and control of JOANN as a
public company by affiliates of Leonard Green & Partners, L.P.;
the impact of evolving governmental laws and regulations and the
outcomes of legal proceedings; and the amount and timing of
repurchases of JOANN’s common stock, if any.
The preceding list is not intended to be an
exhaustive list of all of JOANN’s forward-looking statements. JOANN
has based these forward-looking statements on its current
expectations, assumptions, estimates and projections. While JOANN
believes 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 JOANN’s control. Furthermore, the
potential impact of the COVID-19 pandemic on JOANN’s business
operations and financial results and on the world economy as a
whole may heighten the risks and uncertainties that affect JOANN’s
forward-looking statements. Given these risks and uncertainties,
Readers are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included
elsewhere in this document are not guarantees of future performance
and JOANN’s actual results of operations, financial condition and
liquidity and the development of the industry in which it operates
may differ materially from the forward-looking statements included
elsewhere in this document. In addition, even if JOANN’s results of
operations, financial condition and liquidity and events in the
industry in which it operates are consistent with the
forward-looking statements included elsewhere in this document,
they may not be predictive of results or developments in future
periods. Any forward-looking statement that JOANN makes in this
document speaks only as of the date of such statement. Except as
required by law, JOANN does 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
document.
About JOANN
For more than 75 years, JOANN has inspired
creativity in the hearts, hands, and minds of its customers. From a
single storefront in Cleveland, Ohio, the nation’s category leader
in sewing and fabrics and one of the fastest growing competitors in
the arts and crafts industry has grown to include 843 store
locations across 49 states and robust e-commerce business. With the
goal of helping every customer find their creative Happy Place,
JOANN serves as a convenient single source for all of the supplies,
guidance and inspiration needed to achieve any project or
passion.
Investor Relations Contact:
Ajay Jain
ajay.jain@joann.com
330-463-8585
Corporate Communications:
Amanda Hayes
amanda.hayes@joann.com
216-296-5887
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