UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 2, 2019
Or
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
Commission File Number |
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Registrant, State of Incorporation Address and Telephone Number |
|
I.R.S. Employer Identification No. |
|
333-175075 |
|
|
|
22-2894486 |
J.CREW GROUP, INC.
(Incorporated in Delaware)
225 Liberty Street
New York, New York 10281
Telephone: (212) 209-2500
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
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Name of each exchange on which registered |
|
None |
|
N/A |
|
N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.* Yes ☐ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer |
|
☐ |
|
Accelerated Filer |
|
☐ |
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|||
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Non-Accelerated Filer |
|
☒ |
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Smaller Reporting Company |
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☐ |
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|||
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|
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Common Stock |
|
Outstanding at November 29, 2019 |
|
Common Stock, $.01 par value per share |
|
1,000 shares |
|
* |
The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, but is not required to file such reports under such sections. |
TABLE OF CONTENTS – FORM 10-Q
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Page |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets at November 2, 2019 and February 2, 2019 |
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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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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Item 3. |
37 |
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Item 4. |
38 |
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Item 1. |
39 |
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Item 1A. |
39 |
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Item 5. |
40 |
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Item 6. |
41 |
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2
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
J.CREW GROUP, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
|
|
|
November 2, 2019 |
|
|
February 2, 2019 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,956 |
|
|
$ |
25,738 |
|
|
Restricted cash |
|
|
— |
|
|
|
13,747 |
|
|
Accounts receivable, net |
|
|
44,158 |
|
|
|
40,342 |
|
|
Merchandise inventories, net |
|
|
484,496 |
|
|
|
390,470 |
|
|
Prepaid expenses and other current assets |
|
|
59,997 |
|
|
|
84,942 |
|
|
Refundable income taxes |
|
|
6,978 |
|
|
|
7,331 |
|
|
Total current assets |
|
|
624,585 |
|
|
|
562,570 |
|
|
Property and equipment, net |
|
|
231,489 |
|
|
|
243,620 |
|
|
Right-of-use lease assets |
|
|
493,073 |
|
|
|
— |
|
|
Intangible assets, net |
|
|
297,536 |
|
|
|
301,397 |
|
|
Goodwill |
|
|
107,900 |
|
|
|
107,900 |
|
|
Other assets |
|
|
4,172 |
|
|
|
6,164 |
|
|
Total assets |
|
$ |
1,758,755 |
|
|
$ |
1,221,651 |
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
274,027 |
|
|
$ |
259,705 |
|
|
Other current liabilities |
|
|
251,853 |
|
|
|
244,864 |
|
|
Borrowings under the ABL Facility |
|
|
217,900 |
|
|
|
70,800 |
|
|
Current portion of right-of-use lease liabilities |
|
|
116,338 |
|
|
|
— |
|
|
Due to Parent |
|
|
41,376 |
|
|
|
37,462 |
|
|
Interest payable |
|
|
8,368 |
|
|
|
23,866 |
|
|
Current portion of long-term debt |
|
|
21,600 |
|
|
|
32,070 |
|
|
Total current liabilities |
|
|
931,462 |
|
|
|
668,767 |
|
|
Long-term debt, net |
|
|
1,663,806 |
|
|
|
1,673,282 |
|
|
Long-term right-of-use lease liabilities |
|
|
468,364 |
|
|
|
— |
|
|
Lease-related deferred credits, net |
|
|
— |
|
|
|
105,877 |
|
|
Deferred income taxes, net |
|
|
17,034 |
|
|
|
16,872 |
|
|
Other liabilities |
|
|
31,992 |
|
|
|
29,096 |
|
|
Total liabilities |
|
|
3,112,658 |
|
|
|
2,493,894 |
|
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value; 1,000 shares authorized, issued and outstanding |
|
|
— |
|
|
|
— |
|
|
Additional paid-in capital |
|
|
733,268 |
|
|
|
733,229 |
|
|
Accumulated other comprehensive loss |
|
|
(3,357 |
) |
|
|
(1,967 |
) |
|
Accumulated deficit |
|
|
(2,083,814 |
) |
|
|
(2,003,505 |
) |
|
Total stockholders’ deficit |
|
|
(1,353,903 |
) |
|
|
(1,272,243 |
) |
|
Total liabilities and stockholders’ deficit |
|
$ |
1,758,755 |
|
|
$ |
1,221,651 |
|
See notes to unaudited condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands)
|
|
|
For the Thirteen Weeks Ended November 2, 2019 |
|
|
For the Thirteen Weeks Ended November 3, 2018 |
|
||
|
Revenues: |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
567,458 |
|
|
$ |
564,585 |
|
|
Other |
|
|
58,179 |
|
|
|
57,615 |
|
|
Total revenues |
|
|
625,637 |
|
|
|
622,200 |
|
|
Cost of goods sold, including buying and occupancy costs |
|
|
371,095 |
|
|
|
383,762 |
|
|
Gross profit |
|
|
254,542 |
|
|
|
238,438 |
|
|
Selling, general and administrative expenses |
|
|
235,054 |
|
|
|
202,828 |
|
|
Impairment losses |
|
|
8,009 |
|
|
|
2,947 |
|
|
Income from operations |
|
|
11,479 |
|
|
|
32,663 |
|
|
Interest expense, net |
|
|
37,304 |
|
|
|
35,141 |
|
|
Loss before income taxes |
|
|
(25,825 |
) |
|
|
(2,478 |
) |
|
Provision (benefit) for income taxes |
|
|
(5,968 |
) |
|
|
3,218 |
|
|
Net loss |
|
$ |
(19,857 |
) |
|
$ |
(5,696 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Reclassification of losses on cash flow hedges, net of tax, to earnings |
|
|
1,735 |
|
|
|
308 |
|
|
Unrealized gain (loss) on cash flow hedges, net of tax |
|
|
(492 |
) |
|
|
343 |
|
|
Foreign currency translation adjustments |
|
|
(325 |
) |
|
|
(12 |
) |
|
Comprehensive loss |
|
$ |
(18,939 |
) |
|
$ |
(5,057 |
) |
See notes to unaudited condensed consolidated financial statements.
4
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands)
|
|
|
For the Thirty-nine Weeks Ended November 2, 2019 |
|
|
For the Thirty-nine Weeks Ended November 3, 2018 |
|
||
|
Revenues: |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,615,246 |
|
|
$ |
1,622,832 |
|
|
Other |
|
|
177,726 |
|
|
|
127,391 |
|
|
Total revenues |
|
|
1,792,972 |
|
|
|
1,750,223 |
|
|
Cost of goods sold, including buying and occupancy costs |
|
|
1,115,207 |
|
|
|
1,078,976 |
|
|
Gross profit |
|
|
677,765 |
|
|
|
671,247 |
|
|
Selling, general and administrative expenses |
|
|
632,824 |
|
|
|
596,323 |
|
|
Impairment losses |
|
|
12,889 |
|
|
|
9,813 |
|
|
Income from operations |
|
|
32,052 |
|
|
|
65,111 |
|
|
Interest expense, net |
|
|
111,949 |
|
|
|
102,524 |
|
|
Loss before income taxes |
|
|
(79,897 |
) |
|
|
(37,413 |
) |
|
Provision for income taxes |
|
|
412 |
|
|
|
8,302 |
|
|
Net loss |
|
$ |
(80,309 |
) |
|
$ |
(45,715 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Reclassification of losses on cash flow hedges, net of tax, to earnings |
|
|
2,539 |
|
|
|
1,669 |
|
|
Unrealized gain (loss) on cash flow hedges, net of tax |
|
|
(3,790 |
) |
|
|
2,560 |
|
|
Foreign currency translation adjustments |
|
|
(139 |
) |
|
|
(490 |
) |
|
Comprehensive loss |
|
$ |
(81,699 |
) |
|
$ |
(41,976 |
) |
See notes to unaudited condensed consolidated financial statements.
5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(unaudited)
(in thousands, except shares)
|
|
|
Common stock |
|
|
Additional paid-in |
|
|
Accumulated |
|
|
Accumulated other comprehensive |
|
|
Total stockholders’ |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
deficit |
|
|
income (loss) |
|
|
deficit |
|
||||||
|
Balance at February 3, 2018 |
|
|
1,000 |
|
|
$ |
— |
|
|
$ |
733,071 |
|
|
$ |
(1,883,426 |
) |
|
$ |
(2,603 |
) |
|
$ |
(1,152,958 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,925 |
) |
|
|
— |
|
|
|
(33,925 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
Reclassification of realized losses on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
996 |
|
|
|
996 |
|
|
Unrealized gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,418 |
|
|
|
2,418 |
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(331 |
) |
|
|
(331 |
) |
|
Balance at May 5, 2018 |
|
|
1,000 |
|
|
|
— |
|
|
|
733,117 |
|
|
|
(1,917,351 |
) |
|
|
480 |
|
|
|
(1,183,754 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,094 |
) |
|
|
— |
|
|
|
(6,094 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
74 |
|
|
|
— |
|
|
|
— |
|
|
|
74 |
|
|
Reclassification of realized losses on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
365 |
|
|
|
365 |
|
|
Unrealized loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(201 |
) |
|
|
(201 |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(147 |
) |
|
|
(147 |
) |
|
Balance at August 4, 2018 |
|
|
1,000 |
|
|
|
— |
|
|
|
733,191 |
|
|
|
(1,923,445 |
) |
|
|
497 |
|
|
|
(1,189,757 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,696 |
) |
|
|
— |
|
|
|
(5,696 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
|
Reclassification of realized losses on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
308 |
|
|
|
308 |
|
|
Unrealized gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
343 |
|
|
|
343 |
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
|
Balance at November 3, 2018 |
|
|
1,000 |
|
|
$ |
— |
|
|
$ |
733,148 |
|
|
$ |
(1,929,141 |
) |
|
$ |
1,136 |
|
|
$ |
(1,194,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2019 |
|
|
1,000 |
|
|
$ |
— |
|
|
$ |
733,229 |
|
|
$ |
(2,003,505 |
) |
|
$ |
(1,967 |
) |
|
$ |
(1,272,243 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,230 |
) |
|
|
— |
|
|
|
(16,230 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
Reclassification of realized gains on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(333 |
) |
|
|
(333 |
) |
|
Unrealized loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(666 |
) |
|
|
(666 |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
48 |
|
|
|
48 |
|
|
Balance at May 4, 2019 |
|
|
1,000 |
|
|
|
— |
|
|
|
733,233 |
|
|
|
(2,019,735 |
) |
|
|
(2,918 |
) |
|
|
(1,289,420 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44,222 |
) |
|
|
— |
|
|
|
(44,222 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
Reclassification of realized losses on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,137 |
|
|
|
1,137 |
|
|
Unrealized loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,632 |
) |
|
|
(2,632 |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
138 |
|
|
|
138 |
|
|
Balance at August 3, 2019 |
|
|
1,000 |
|
|
|
— |
|
|
|
733,250 |
|
|
|
(2,063,957 |
) |
|
|
(4,275 |
) |
|
|
(1,334,982 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,857 |
) |
|
|
— |
|
|
|
(19,857 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
Reclassification of realized losses on cash flow hedges, net of tax, to earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,735 |
|
|
|
1,735 |
|
|
Unrealized loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(492 |
) |
|
|
(492 |
) |
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(325 |
) |
|
|
(325 |
) |
|
Balance at November 2, 2019 |
|
|
1,000 |
|
|
$ |
— |
|
|
$ |
733,268 |
|
|
$ |
(2,083,814 |
) |
|
$ |
(3,357 |
) |
|
$ |
(1,353,903 |
) |
See notes to unaudited condensed consolidated financial statements.
6
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
|
For the Thirty-nine Weeks Ended November 2, 2019 |
|
|
For the Thirty-nine Weeks Ended November 3, 2018 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(80,309 |
) |
|
$ |
(45,715 |
) |
|
Adjustments to reconcile to cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment |
|
|
59,415 |
|
|
|
67,385 |
|
|
Impairment losses |
|
|
12,889 |
|
|
|
9,813 |
|
|
Amortization of deferred financing costs and debt discount |
|
|
5,387 |
|
|
|
5,371 |
|
|
Amortization of intangible assets |
|
|
3,851 |
|
|
|
5,405 |
|
|
Reclassification of hedging losses to earnings |
|
|
2,539 |
|
|
|
2,274 |
|
|
Deferred income taxes |
|
|
162 |
|
|
|
3,695 |
|
|
Share-based compensation |
|
|
39 |
|
|
|
77 |
|
|
Foreign currency transaction gains |
|
|
(124 |
) |
|
|
(230 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(3,816 |
) |
|
|
(35,718 |
) |
|
Merchandise inventories, net |
|
|
(94,066 |
) |
|
|
(273,493 |
) |
|
Prepaid expenses and other current assets |
|
|
9,731 |
|
|
|
1,086 |
|
|
Other assets |
|
|
1,522 |
|
|
|
(1,683 |
) |
|
Accounts payable and other |
|
|
2,481 |
|
|
|
82,009 |
|
|
Federal and state income taxes |
|
|
789 |
|
|
|
4,069 |
|
|
Net cash used in operating activities |
|
|
(79,510 |
) |
|
|
(175,655 |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(52,483 |
) |
|
|
(35,519 |
) |
|
Net cash used in investing activities |
|
|
(52,483 |
) |
|
|
(35,519 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net borrowings under the ABL Facility |
|
|
147,100 |
|
|
|
148,500 |
|
|
Proceeds from Notes |
|
|
1,003 |
|
|
|
— |
|
|
Costs paid in connection with refinancings of debt |
|
|
— |
|
|
|
(74 |
) |
|
Principal repayments of Term Loan Facility |
|
|
(26,607 |
) |
|
|
(11,752 |
) |
|
Net cash provided by financing activities |
|
|
121,496 |
|
|
|
136,674 |
|
|
Effect of changes in foreign exchange rates on cash, cash equivalents and restricted cash |
|
|
(32 |
) |
|
|
(706 |
) |
|
Decrease in cash, cash equivalents and restricted cash |
|
|
(10,529 |
) |
|
|
(75,206 |
) |
|
Beginning balance |
|
|
39,485 |
|
|
|
107,066 |
|
|
Ending balance |
|
$ |
28,956 |
|
|
$ |
31,860 |
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
837 |
|
|
$ |
977 |
|
|
Interest paid |
|
$ |
121,106 |
|
|
$ |
106,971 |
|
See notes to unaudited condensed consolidated financial statements.
7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018
(Dollars in thousands, unless otherwise indicated)
1. Basis of Presentation
J.Crew Group, Inc. and its wholly owned subsidiaries (the “Company” or “Group”) were acquired (the “Acquisition”) on March 7, 2011 through a merger with a subsidiary of Chinos Holdings, Inc. (the “Parent”). The Parent was formed by investment funds affiliated with TPG Capital, L.P. (“TPG”) and Leonard Green & Partners, L.P. (“LGP” and, together with TPG, the “Sponsors”). Subsequent to the Acquisition, Group became an indirect, wholly owned subsidiary of Parent, which is owned by affiliates of the Sponsors, investors and members of management. Prior to March 7, 2011, the Company operated as a public company with its common stock traded on the New York Stock Exchange.
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019.
The Company’s fiscal year ends on the Saturday closest to January 31. All references to “fiscal 2019” represent the 52-week fiscal year that will end on February 1, 2020 and to “fiscal 2018” represent the 52-week fiscal year that ended February 2, 2019.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly in all material respects the Company’s financial position, results of operations and cash flows for the applicable interim periods. Certain prior year amounts have been reclassified to conform to current period presentation. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year as a whole.
Management is required to make estimates and assumptions about future events in preparing financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses at the date of the unaudited condensed consolidated financial statements. While management believes that past estimates and assumptions have been materially accurate, current estimates are subject to change if different assumptions as to the outcome of future events are made. Management evaluates estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on reasonable factors. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited condensed consolidated financial statements.
2. Revenue Recognition
Overview
The Company generates revenue from three sources: (i) customers who shop in its brick-and-mortar stores, (ii) customers who shop on its websites and (iii) wholesale customers who buy and resell its merchandise. The Company recognizes revenue at (i) the point-of-sale in brick-and-mortar stores, (ii) the date of receipt by a customer in the e-commerce business and (iii) the time ownership is transferred in the wholesale business.
8
A summary of disaggregated revenue is as follows:
|
|
|
For the Thirteen Weeks Ended |
|
|
For the Thirty-nine Weeks Ended |
|
||||||||||
|
|
|
November 2, 2019 |
|
|
November 3, 2018 |
|
|
November 2, 2019 |
|
|
November 3, 2018 |
|
||||
|
J.Crew |
|
$ |
415,802 |
|
|
$ |
430,857 |
|
|
$ |
1,190,962 |
|
|
$ |
1,251,611 |
|
|
Madewell |
|
|
151,656 |
|
|
|
133,728 |
|
|
|
424,284 |
|
|
|
371,221 |
|
|
Other revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
47,538 |
|
|
|
46,798 |
|
|
|
145,678 |
|
|
|
95,152 |
|
|
Shipping and handling fees |
|
|
7,784 |
|
|
|
8,094 |
|
|
|
24,633 |
|
|
|
24,221 |
|
|
Other |
|
|
2,857 |
|
|
|
2,723 |
|
|
|
7,415 |
|
|
|
8,018 |
|
|
Total revenues |
|
$ |
625,637 |
|
|
$ |
622,200 |
|
|
$ |
1,792,972 |
|
|
$ |
1,750,223 |
|
Accounts Receivable
A summary of accounts receivable with respect to the Company’s wholesale customers is as follows:
|
|
|
November 2, 2019 |
|
|
February 2, 2019 |
|
||
|
Accounts receivable |
|
$ |
44,283 |
|
|
$ |
40,439 |
|
|
Less allowance for doubtful accounts |
|
|
(125 |
) |
|
|
(97 |
) |
|
Accounts receivable, net |
|
$ |
44,158 |
|
|
$ |
40,342 |
|
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from a customer and has a future performance obligation to transfer merchandise to the customer. The Company’s contract liabilities include (i) unredeemed gift cards and (ii) unredeemed loyalty program rewards.
With respect to unredeemed gift cards, the Company is obligated to transfer merchandise in the future when a holder uses a gift card to make a purchase. The contract liability for gift cards is increased when customers purchase cards, and decreased when (i) a customer redeems the card or (ii) the Company estimates the gift card will go unredeemed (referred to as “breakage”). All of the Company’s gift cards do not have an expiration date, and are classified as a current liability.
With respect to unredeemed loyalty program rewards, the Company is obligated to transfer merchandise to the customer upon accumulating points to certain thresholds. The contract liability for loyalty program rewards is increased as certain customers make qualifying purchases, and decreased when (i) a reward is redeemed for merchandise or (ii) the Company estimates that points will expire and go unredeemed.
Rollforwards of the liabilities for gift cards and loyalty program awards are as follows:
|
|
|
Unredeemed Gift Cards |
|
|||||||||||||
|
|
|
For the Thirteen Weeks Ended |
|
|
For the Thirty-nine Weeks Ended |
|
||||||||||
|
|
|
November 2, 2019 |
|
|
November 3, 2018 |
|
|
November 2, 2019 |
|
|
November 3, 2018 |
|
||||
|
Balance at beginning of period |
|
$ |
33,243 |
|
|
$ |
27,931 |
|
|
$ |
36,167 |
|
|
$ |
32,665 |
|
|
Issuance of cards |
|
|
13,921 |
|
|
|
12,552 |
|
|
|
40,809 |
|
|
|
40,046 |
|
|
Redemption of cards |
|
|
(12,644 |
) |
|
|
(12,584 |
) |
|
|
(41,175 |
) |
|
|
(42,929 |
) |
|
Recognition of estimated breakage |
|
|
(804 |
) |
|
|
(840 |
) |
|
|
(2,421 |
) |
|
|
(2,628 |
) |
|
Other |
|
|
13 |
|
|
|
111 |
|
|
|
349 |
|
|
|
16 |
|
|
Balance at end of period |
</ | |||||||||||||||