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 third quarter
ending October 29, 2022.
“Although we had a very good sell through during
Halloween and are encouraged by our recent momentum during Black
Friday and Cyber Monday, it’s clear that consumers are increasingly
pressured by inflation and are being more selective with their
purchases in the current holiday season, prioritizing household
essentials over many discretionary activities. As an organization,
we are taking very meaningful and pro-active steps to optimize our
cost structure while continuing to drive multiple growth
strategies,” commented JOANN’s President and Chief Executive
Officer Wade Miquelon. “As a result, we expect to emerge from the
current economic environment in a much stronger operating position.
The actions we’re taking are designed to deliver approximately $200
million of annualized cost savings over the next 18 months. We’ve
also made the decision to pause our quarterly dividend in order to
strengthen our liquidity and balance sheet. Overall, I believe that
we’re on the right path and executing very favorably based on the
factors within our control.”
Third Quarter Highlights:
- Net sales declined by 7.9% compared to the same period last
year to $562.8 million, with total comparable sales decreasing 8.0%
compared to last year and down 1.1% from Fiscal 2020. Omni-channel
sales declined at a more moderate rate of 4.4% compared to last
year and accounted for 11% of revenue in the third quarter, a
40-basis point increase in the penetration rate over last
year.
- Gross profit of $281.0 million on a GAAP basis decreased by
11.9% compared to the third quarter of last year. After
adjusting for $18.5 million of excess import freight costs,
adjusted gross profit of $299.5 million declined by 9.3% compared
to the same quarter last year.
- Gross margin was 49.9% on a GAAP basis, a decrease of 230 basis
points compared to the third quarter last year. After adjusting for
excess import freight costs, gross margin of 53.2% decreased by 80
basis points compared to the third quarter last year.
- Selling, general and administrative expenses increased by 4.4%
from the same period last year. Store labor costs were favorable
during the third quarter compared to last year. However, expenses
were negatively impacted by increased pre-opening and closing
costs, start-up costs for our new multi-purpose distribution
center, reductions to incentive compensation in the prior period,
and increased stock-based compensation expenses related to a change
in our retirement policy.
- Net loss of $17.5 million compared to net income of $22.8
million in the same quarter last year.
- Adjusted EBITDA of $40.2 million compared to $72.6 million in
the same quarter last year.
- Our quarterly dividend of $0.11 per share was paid to holders
of JOANN common stock on September 23, 2022. Since the inception of
our dividend in Fiscal 2022, we have returned $26.0 million in cash
dividends to shareholders and an additional $20.0 million through
share repurchases. In order to increase liquidity and overall
financial flexibility in response to near-term economic
uncertainty, the company is pausing its quarterly dividend at this
time.
Balance Sheet Highlights:
- Long-term debt, net was $1,062.4 million as of October 29, 2022
with cash and cash equivalents of $27.5 million.
- Inventory was $747.0 million, or roughly flat compared to last
year. In-transit inventory benefitted from improvement in supply
chain congestion.
Webcast and Conference Call
Information:JOANN management will host a conference call
and webcast to discuss the results today, Monday, December 12, 2022
at 5:00 p.m. ET. The toll-free number to call for the live
interactive teleconference is 1 (844) 481-2750 and the
international dial-in number is 1 (412) 317-0666. 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 December 12, 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 |
Thirty-Nine Weeks Ended |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions except per share data) |
|
Net sales |
$ |
562.8 |
|
|
$ |
611.0 |
|
|
$ |
1,524.1 |
|
|
$ |
1,682.3 |
|
Cost of sales |
|
281.8 |
|
|
|
292.2 |
|
|
|
787.5 |
|
|
|
794.0 |
|
Gross profit |
|
281.0 |
|
|
|
318.8 |
|
|
|
736.6 |
|
|
|
888.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
269.0 |
|
|
|
257.6 |
|
|
|
786.6 |
|
|
|
754.5 |
|
Depreciation and
amortization |
|
19.9 |
|
|
|
19.6 |
|
|
|
59.9 |
|
|
|
60.1 |
|
Operating profit (loss) |
|
(7.9 |
) |
|
|
41.6 |
|
|
|
(109.9 |
) |
|
|
73.7 |
|
Interest expense, net |
|
18.1 |
|
|
|
11.8 |
|
|
|
42.5 |
|
|
|
39.8 |
|
Debt related loss, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
(2.0 |
) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.5 |
) |
Income (loss) before income taxes |
|
(24.0 |
) |
|
|
29.8 |
|
|
|
(151.4 |
) |
|
|
55.4 |
|
Income tax provision
(benefit) |
|
(6.5 |
) |
|
|
7.0 |
|
|
|
(41.9 |
) |
|
|
12.3 |
|
Net income (loss) |
$ |
(17.5 |
) |
|
$ |
22.8 |
|
|
$ |
(109.5 |
) |
|
$ |
43.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common
share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.43 |
) |
|
$ |
0.55 |
|
|
$ |
(2.69 |
) |
|
$ |
1.06 |
|
Diluted |
$ |
(0.43 |
) |
|
$ |
0.53 |
|
|
$ |
(2.69 |
) |
|
$ |
1.02 |
|
Weighted-average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
40.8 |
|
|
|
41.7 |
|
|
|
40.7 |
|
|
|
40.8 |
|
Diluted |
|
40.8 |
|
|
|
43.1 |
|
|
|
40.7 |
|
|
|
42.1 |
|
Table 2.JOANN
Inc. Consolidated Balance
Sheets(Unaudited)
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions) |
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
27.5 |
|
|
$ |
30.9 |
|
Inventories |
|
747.0 |
|
|
|
744.3 |
|
Prepaid expenses and other current assets |
|
79.6 |
|
|
|
82.6 |
|
Total current assets |
|
854.1 |
|
|
|
857.8 |
|
|
|
|
|
|
|
Property, equipment and leasehold
improvements, net |
|
295.8 |
|
|
|
261.1 |
|
Operating lease assets |
|
802.6 |
|
|
|
842.1 |
|
Goodwill, net |
|
162.0 |
|
|
|
162.0 |
|
Intangible assets, net |
|
369.3 |
|
|
|
372.1 |
|
Other assets |
|
40.9 |
|
|
|
26.8 |
|
Total assets |
$ |
2,524.7 |
|
|
$ |
2,521.9 |
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
270.3 |
|
|
$ |
311.3 |
|
Accrued expenses |
|
123.4 |
|
|
|
128.6 |
|
Current portion of operating lease liabilities |
|
162.4 |
|
|
|
176.7 |
|
Current portion of long-term debt |
|
6.8 |
|
|
|
6.8 |
|
Total current liabilities |
|
562.9 |
|
|
|
623.4 |
|
|
|
|
|
|
|
Long-term debt, net |
|
1,062.4 |
|
|
|
853.8 |
|
Long-term operating lease
liabilities |
|
735.5 |
|
|
|
758.2 |
|
Long-term deferred income
taxes |
|
89.3 |
|
|
|
91.2 |
|
Other long-term liabilities |
|
31.3 |
|
|
|
48.7 |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
Common stock, stated value $0.01 per share |
|
0.4 |
|
|
|
0.4 |
|
Additional paid-in capital |
|
208.4 |
|
|
|
203.6 |
|
Retained (deficit) |
|
(148.1 |
) |
|
|
(34.4 |
) |
Accumulated other comprehensive income |
|
11.4 |
|
|
|
1.1 |
|
Treasury stock at cost |
|
(28.8 |
) |
|
|
(24.1 |
) |
Total shareholders’ equity |
|
43.3 |
|
|
|
146.6 |
|
Total liabilities and
shareholders’ equity |
$ |
2,524.7 |
|
|
$ |
2,521.9 |
|
Table 3.JOANN
Inc. Consolidated Statements of Cash
Flows(Unaudited)
|
Thirty-Nine Weeks Ended |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions) |
|
Net cash provided by (used for)
operating activities: |
|
|
|
|
|
Net income (loss) |
$ |
(109.5 |
) |
|
$ |
43.1 |
|
Adjustments to reconcile net income (loss) to net cash (used
for)operating activities: |
|
|
|
|
|
Non-cash operating lease expense |
|
127.0 |
|
|
|
120.8 |
|
Depreciation and amortization |
|
59.9 |
|
|
|
60.1 |
|
Deferred income taxes |
|
(1.7 |
) |
|
|
3.4 |
|
Stock-based compensation expense |
|
6.1 |
|
|
|
2.1 |
|
Amortization of deferred financing costs and original issue
discount |
|
1.5 |
|
|
|
2.0 |
|
Debt related loss, net |
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
(1.0 |
) |
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
(24.5 |
) |
Loss (gain) on disposal and impairment of fixed assets |
|
0.3 |
|
|
|
(0.1 |
) |
Changes in operating assets and
liabilities: |
|
|
|
|
|
(Increase) in inventories |
|
(88.4 |
) |
|
|
(188.4 |
) |
(Increase) in prepaid expenses and other current assets |
|
(39.3 |
) |
|
|
(11.0 |
) |
Increase in accounts payable |
|
16.5 |
|
|
|
61.2 |
|
(Decrease) in accrued expenses |
|
(16.4 |
) |
|
|
(45.4 |
) |
(Decrease) in operating lease liabilities |
|
(120.6 |
) |
|
|
(144.6 |
) |
(Decrease) in other long-term liabilities |
|
(13.1 |
) |
|
|
(6.0 |
) |
Other, net |
|
5.1 |
|
|
|
0.7 |
|
Net cash (used for) operating
activities |
|
(173.6 |
) |
|
|
(123.6 |
) |
Net cash provided by (used for)
investing activities: |
|
|
|
|
|
Capital expenditures |
|
(80.4 |
) |
|
|
(42.9 |
) |
Proceeds from sale leaseback |
|
— |
|
|
|
48.1 |
|
Other investing activities |
|
(4.3 |
) |
|
|
(0.2 |
) |
Net cash provided by (used for)
investing activities |
|
(84.7 |
) |
|
|
5.0 |
|
Net cash provided by (used for)
financing activities: |
|
|
|
|
|
Term loan proceeds, net of original issue discount |
|
— |
|
|
|
671.6 |
|
Term loan payments |
|
(5.1 |
) |
|
|
(708.0 |
) |
Borrowings on revolving credit facility |
|
544.1 |
|
|
|
429.9 |
|
Payments on revolving credit facility |
|
(256.1 |
) |
|
|
(318.9 |
) |
Purchase and retirement of debt |
|
— |
|
|
|
(0.9 |
) |
Principal payments on finance lease obligations |
|
(7.1 |
) |
|
|
(5.4 |
) |
Issuance of common stock, net of underwriting commissions and
offering costs |
|
— |
|
|
|
76.9 |
|
Purchase of common stock |
|
— |
|
|
|
(10.8 |
) |
Proceeds from employee stock purchase plan and exercise of stock
options |
|
1.1 |
|
|
|
— |
|
Payments of taxes related to the net issuance of team member stock
awards |
|
(0.1 |
) |
|
|
— |
|
Dividends paid |
|
(13.4 |
) |
|
|
(8.4 |
) |
Financing fees paid |
|
— |
|
|
|
(3.9 |
) |
Net cash provided by financing
activities |
|
263.4 |
|
|
|
122.1 |
|
Effect of exchange rate changes
on cash |
|
(0.1 |
) |
|
|
— |
|
Net increase in cash and cash
equivalents |
|
5.0 |
|
|
|
3.5 |
|
Cash and cash equivalents at
beginning of period |
|
22.5 |
|
|
|
27.4 |
|
Cash and cash equivalents at end
of period |
$ |
27.5 |
|
|
$ |
30.9 |
|
Cash paid (received) during the period for: |
|
|
|
|
|
Interest |
$ |
39.6 |
|
|
$ |
38.6 |
|
Income taxes, net of refunds |
|
(6.6 |
) |
|
|
17.2 |
|
Table 4.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted EBITDA(Unaudited)
|
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions) |
|
Net income (loss) |
$ |
(17.5 |
) |
|
$ |
22.8 |
|
|
$ |
(109.5 |
) |
|
$ |
43.1 |
|
Income tax provision
(benefit) |
|
(6.5 |
) |
|
|
7.0 |
|
|
|
(41.9 |
) |
|
|
12.3 |
|
Interest expense, net |
|
18.1 |
|
|
|
11.8 |
|
|
|
42.5 |
|
|
|
39.8 |
|
Depreciation and amortization
(1) |
|
20.3 |
|
|
|
19.8 |
|
|
|
61.1 |
|
|
|
60.6 |
|
Debt related loss, net
(2) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
Investment remeasurement
(3) |
|
(2.0 |
) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
Gain on sale leaseback
(4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.5 |
) |
Strategic initiatives (5) |
|
0.9 |
|
|
|
0.6 |
|
|
|
4.6 |
|
|
|
1.4 |
|
Excess import freight costs
(6) |
|
18.5 |
|
|
|
11.3 |
|
|
|
74.5 |
|
|
|
11.3 |
|
Other COVID-19 costs (7) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
Technology development expense
(8) |
|
2.0 |
|
|
|
2.6 |
|
|
|
7.0 |
|
|
|
6.2 |
|
Stock-based compensation
expense |
|
3.9 |
|
|
|
0.8 |
|
|
|
6.1 |
|
|
|
2.1 |
|
Loss (gain) on disposal and
impairment of fixed and operating lease assets |
|
— |
|
|
|
(0.1 |
) |
|
|
1.1 |
|
|
|
(0.1 |
) |
Sponsor management fee
(9) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
Other (10) |
|
2.5 |
|
|
|
(4.0 |
) |
|
|
5.4 |
|
|
|
(3.3 |
) |
Adjusted EBITDA |
$ |
40.2 |
|
|
$ |
72.6 |
|
|
$ |
49.9 |
|
|
$ |
153.6 |
|
(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 net 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 gains and losses associated with our
equity investments without readily determinable fair values.(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 recovered 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, employee recruitment, employee transition
and business transition activities.
Table 5.JOANN
Inc. Reconciliation of Net Income (Loss) to
Adjusted Net Income (Loss)(Unaudited)
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions except per share data) |
|
Net income (loss) |
$ |
(17.5 |
) |
|
$ |
22.8 |
|
|
$ |
(109.5 |
) |
|
$ |
43.1 |
|
Debt related loss, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
Investment remeasurement |
|
(2.0 |
) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
Gain on sale leaseback |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.5 |
) |
Strategic initiatives |
|
0.9 |
|
|
|
0.6 |
|
|
|
4.6 |
|
|
|
1.4 |
|
Excess import freight
costs |
|
18.5 |
|
|
|
11.3 |
|
|
|
74.5 |
|
|
|
11.3 |
|
Other COVID-19 costs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
Technology development
expense |
|
2.0 |
|
|
|
2.6 |
|
|
|
7.0 |
|
|
|
6.2 |
|
Stock-based compensation
expense |
|
3.9 |
|
|
|
0.8 |
|
|
|
6.1 |
|
|
|
2.1 |
|
Loss (gain) on disposal and
impairment of fixed and operating lease assets |
|
— |
|
|
|
(0.1 |
) |
|
|
1.1 |
|
|
|
(0.1 |
) |
Sponsor management fee |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
Other |
|
2.5 |
|
|
|
(4.0 |
) |
|
|
5.4 |
|
|
|
(3.3 |
) |
Tax impact of adjustments
(11) |
|
(6.0 |
) |
|
|
(2.7 |
) |
|
|
(25.6 |
) |
|
|
0.5 |
|
Adjusted net income
(loss) |
$ |
2.3 |
|
|
$ |
31.3 |
|
|
$ |
(37.4 |
) |
|
$ |
41.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share |
$ |
(0.43 |
) |
|
$ |
0.53 |
|
|
$ |
(2.69 |
) |
|
$ |
1.02 |
|
Adjusted diluted earnings
(loss) per share |
$ |
0.06 |
|
|
$ |
0.73 |
|
|
$ |
(0.92 |
) |
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding - basic |
|
40.8 |
|
|
|
41.7 |
|
|
|
40.7 |
|
|
|
40.8 |
|
Weighted-average shares
outstanding - diluted |
|
40.8 |
|
|
|
43.1 |
|
|
|
40.7 |
|
|
|
42.1 |
|
(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 |
|
|
Thirty-Nine Weeks Ended |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
October 29,2022 |
|
|
October 30,2021 |
|
|
(In millions) |
|
Net sales |
$ |
562.8 |
|
|
$ |
611.0 |
|
|
$ |
1,524.1 |
|
|
$ |
1,682.3 |
|
Cost of sales |
|
281.8 |
|
|
|
292.2 |
|
|
|
787.5 |
|
|
|
794.0 |
|
Gross profit |
|
281.0 |
|
|
|
318.8 |
|
|
|
736.6 |
|
|
|
888.3 |
|
Excess import freight
costs |
|
18.5 |
|
|
|
11.3 |
|
|
|
74.5 |
|
|
|
11.3 |
|
Adjusted gross profit |
$ |
299.5 |
|
|
$ |
330.1 |
|
|
$ |
811.1 |
|
|
$ |
899.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross margin |
|
53.2 |
% |
|
|
54.0 |
% |
|
|
53.2 |
% |
|
|
53.5 |
% |
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, gains and 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 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
JOANN’s 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 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. 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.
Negotiation of JOANN’s current contract rates were finalized in the
second quarter of fiscal 2023. JOANN has started to see a decline
in overall ocean freight rates and a reduction in other fees
associated with port congestion, which has positively impacted
JOANN’s cash payments. However, a reduction in expense recognition
will not occur until the fourth quarter of fiscal 2023, along with
continued reductions in expense recognition in fiscal 2024. 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 or 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
- Adjusted EBITDA may be calculated differently by other
companies in JOANN’s industry, such that its usefulness may be
limited 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, gains and
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.
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,”
“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: the impact of inflationary
pressures and general economic conditions on JOANN’s ability to
control costs and on its customers level of discretionary income to
spend on sewing, arts and crafts and select home décor 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; JOANN’s ability to
maintain adequate liquidity, its level of indebtedness, the impact
of lease obligations and the availability of capital, including its
ability to raise additional capital, could limit JOANN's financial
flexibility and cash flow necessary to fund working capital,
planned capital expenditures, and other general corporate purposes
or ongoing needs of its business; 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; 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 products 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 840 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:
Ajay Jain
ajay.jain@joann.com
330-463-8585
Corporate Communications:
Amanda Hayes
amanda.hayes@joann.com
216-296-5887
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