J.Jill, Inc.: Form 10-Q for the period ended Nov 2, 2024

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q (the “Quarterly Report”). The following discussion contains forward-looking statements that reflect our plans, estimates and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

We operate on a 52- or 53-week fiscal year that ends on the Saturday that is closest to January 31. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ending February 1, 2025 (“Fiscal Year 2024”) is comprised of 52 weeks and fiscal year ended February 3, 2024 (“Fiscal Year 2023”) was comprised of 53 weeks.

All references in this Quarterly Report to “J.Jill,” “we,” “our,” “us,” “the Company” or similar terms are to J.Jill, Inc. and its subsidiaries.

Overview

J.Jill is a national lifestyle brand that provides apparel, footwear and accessories designed to help its customers move through a full life with ease. The brand represents an easy, thoughtful and inspired style that celebrates the totality of all women and designs its products with its core brand ethos in mind: keep it simple and make it matter. J.Jill offers a high touch customer experience through over 200 stores nationwide and a robust ecommerce platform. J.Jill is headquartered outside Boston.

Factors Affecting Our Operating Results

Various factors are expected to continue to affect our results of operations going forward, including the following:

Overall Economic Trends. Consumer purchases of clothing and other merchandise generally decline during recessionary periods and other periods when disposable income is adversely affected, and consequently our results of operations may be affected by general economic conditions. For example, reduced consumer confidence, lower availability, inflationary pressures and higher cost of consumer credit may reduce demand for our merchandise and may limit our ability to increase or sustain prices. The growth rate of the market could be affected by macroeconomic conditions in the United States and abroad. Additionally, the occurrence or reoccurrence of any significant pandemic, regional conflicts, or other geopolitical disruptions could impact our sales and business operations.

Consumer Preferences and Fashion Trends. Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to anticipate fashion trends. During periods in which we have successfully anticipated fashion trends, we have generally had more favorable results.

Competition. The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of competition and the ability of our competitors to more accurately predict fashion trends and otherwise attract customers through competitive pricing or other factors may impact our results of operations.

Our Strategic Initiatives. The ongoing implementation of strategic initiatives will continue to have an impact on our results of operations. These initiatives include our ecommerce platform and our initiative to upgrade and enhance our information systems, including the upgrade of our order management system. Although initiatives of this nature are designed to create growth in our business and continue improvement in our operating results, the timing of expenditures related to these initiatives, as well as the achievement of returns on our investments, may affect our results of operations in future periods.

Pricing and Changes in Our Merchandise Mix or Supply Chain Issues. Our product offering changes from period to period, as do the prices at which goods are sold and the margins we are able to earn from the sales of those goods. The levels at which we are able to price our merchandise are influenced by a variety of factors, including the quality of our products, cost of production, prices at which our competitors are selling similar products, sourcing and/or distributing product, and the willingness of our customers to pay for products.

Potential Changes in Tax Laws and/or Regulations. Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could adversely affect our business, financial condition and operating results. Additionally, any potential changes with respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries could adversely affect our business, as we source the majority of our merchandise from manufacturers located outside of the U.S.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of financial and operating metrics, including financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and non-GAAP measures, such as:

Net sales consist primarily of revenues, net of merchandise returns and discounts, generated from the sale of apparel and accessory merchandise through our retail stores (“Retail”) and through our website and catalog orders (“Direct”). Net sales also include shipping and handling fees collected from customers, royalty revenues and marketing reimbursements related to our private label credit card agreement. Retail revenue is recognized at the time of sale and Direct revenue is recognized upon shipment of merchandise to the customer.

Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers to omnichannel customers who, on average, spend three times more than single-channel customers.

Total company comparable sales include net sales from our retail stores that have been open for more than 52 weeks and from our Direct channel. This measure highlights the performance of existing stores open during the period, while excluding the impact of new store openings and closures. When a store in the total company comparable store base is temporarily closed for four or more days within a fiscal week, the store is excluded from the comparable store base; if it is temporarily closed for three or fewer days within a fiscal week, the store is included within the comparable store base. Certain of our competitors and other retailers may calculate total company comparable sales differently than we do. Our comparable sales are based on a 52-week period. The total company comparable sales calculation shifts the weeks in the fiscal year containing the fifty-third week to align like-for-like. As a result, the reporting of our total company comparable sales may not be comparable to sales data made available by other companies.

Number of stores reflects all stores open at the end of a reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs include expenses incurred prior to opening a new store and primarily consist of payroll, travel, training, marketing, initial opening supplies and costs of transporting initial inventory and fixtures to retail stores, as well as occupancy costs incurred from the time of possession of a store site to the opening of that store. In connection with closing stores, we incur store-closing costs. Store-closing costs primarily consist of lease termination penalties and costs of transporting inventory and fixtures to other store locations. These pre-opening and store-closing costs are included in selling, general and administrative expenses and are generally incurred and expensed within 30 days of opening a new store or closing a store.

Gross profit is equal to our net sales less costs of goods sold. Gross profit as a percentage of our net sales is referred to as gross margin.

Costs of goods sold (“COGS”) consists of the direct costs of sold merchandise, which include customs, taxes, duties, commissions and inbound shipping costs, inventory shrinkage, adjustments and reserves for excess, aged and obsolete inventory. COGS does not include distribution center costs and allocations of indirect costs, such as occupancy, depreciation, amortization, or labor and benefits. We review our inventory levels on an ongoing basis to identify slow-moving merchandise and use markdowns to liquidate these products. Changes in the assortment of our products may also impact our gross profit. The timing and level of markdowns are driven by customer acceptance of our merchandise. The Company’s COGS, and consequently gross profit, may not be comparable to those of other retailers, as inclusion of certain costs vary across the industry.

The variability in COGS is due to raw materials, transportation and freight costs. These costs fluctuate based on certain factors beyond our control, including labor conditions, inbound transportation or freight costs, energy prices, currency fluctuations and commodity prices. We place orders with merchandise suppliers in U.S. dollars and, as a result, are not exposed to significant foreign currency exchange risk.

Selling, general and administrative (“SG&A”) expenses include all operating costs not included in COGS. These expenses consist primarily of all payroll and related expenses, occupancy costs, information systems costs and other operating expenses related to our stores and operations at our headquarters, including utilities, depreciation and amortization. These expenses also consist of marketing expense, including catalog production and mailing costs, warehousing, distribution and outbound shipping costs, customer service operations, consulting and software services, natural disasters, professional services and other administrative costs. Additionally, our outbound shipping costs may fluctuate due to surcharges from shipping vendors based on demand for shipping services.

With the exception of store selling expenses, certain marketing expenses and incentive compensation, SG&A expenses generally do not vary proportionately with net sales. As a result, SG&A expenses as a percentage of net sales are usually higher in lower-volume periods and lower in higher-volume periods.

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) and Adjusted EBITDA Margin. Adjusted EBITDA represents net income plus depreciation and amortization, income tax provision, interest expense, interest expense - related party, interest income, equity-based compensation expense, write-off of property and equipment, amortization of cloud-based software implementation costs, loss on extinguishment of debt, loss on debt refinancing, adjustment for exited retail stores, impairment of long-lived assets, loss due to hurricane, and other non-recurring items primarily consisting of outside legal and professional fees associated with certain non-recurring transactions and events. We present Adjusted EBITDA on a consolidated basis because management uses it as a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, securities analysts and other interested parties as a measure of our comparative operating performance from period to period. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and as such, use it internally to report results. Adjusted EBITDA margin represents, for any period, Adjusted EBITDA as a percentage of net sales.

While we believe that Adjusted EBITDA is useful in evaluating our business, Adjusted EBITDA is a non-GAAP financial measure that has limitations as an analytical tool. Adjusted EBITDA should not be considered an alternative to, or substitute for, net income, which is calculated in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces the usefulness of Adjusted EBITDA as a tool for comparison. We recommend that you review the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, and the calculation of the resultant Adjusted EBITDA margin below and not rely solely on Adjusted EBITDA or any single financial measure to evaluate our business.

Reconciliation of Net Income to Adjusted EBITDA and Calculation of Adjusted EBITDA Margin

The following table provides a reconciliation of net income to Adjusted EBITDA and the calculation of Adjusted EBITDA margin for the periods presented.

(in thousands)

(a) Represents expenses associated with equity incentive instruments granted to our management and Board of Directors (the “Board”). Incentive instruments are accounted for as equity-classified awards with the related compensation expense recognized based on fair value at the date of the grant.

(b) Represents net gain or loss on the disposal of fixed assets.

(c) Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are included within Selling, general and administrative expenses. Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 28, 2023 has been restated to include such adjustments to Net income.

(d) Represents loss on the prepayment of a portion of the term loan (the “Term Loan Credit Agreement” and, such facility, the “Term Loan Facility”).

(e) Represents loss on the repayment of Priming Term Loan Credit Agreement (the “Priming Credit Agreement”) and the Subordinated Term Loan Credit Agreement (the “Subordinated Credit Agreement”).

(f) Represents non-cash gains associated with exiting store leases earlier than anticipated.

(g) Represents impairment of long-lived assets related to right of use assets and leasehold improvements.

(h) Represents loss on write-off of property and equipment and inventory at one store location due to hurricane.

(i) Represents items management believes are not indicative of ongoing operating performance, including non-ordinary course legal and professional fees.

Results of Operations

Thirteen weeks ended November 2, 2024 Compared to Thirteen weeks ended October 28, 2023

The following table summarizes our condensed consolidated results of operations for the periods indicated:

(in thousands)

Net Sales

Net sales for the thirteen weeks ended November 2, 2024 increased $0.4 million, or 0.3%, to $151.3 million from $150.9 million for the thirteen weeks ended October 28, 2023. At the end of those same periods, we operated 247 and 245 retail stores, respectively. The increase in net sales was primarily due to the impact of approximately $2.0 million from the calendar shift resulting from the fifty-third week in Fiscal Year 2023, and lower merchandise returns offset by higher promotional activities and lost sales due to hurricane for the thirteen weeks ended November 2, 2024. The total company comparable sales decreased by 0.8% compared to the thirteen weeks ended October 28, 2023.

Retail contributed 54.3% of our net sales in the thirteen weeks ended November 2, 2024 and 54.4% in the thirteen weeks ended October 28, 2023. Our Direct channel contributed 45.7% of our net sales in the thirteen weeks ended November 2, 2024 and 45.6% in the thirteen weeks ended October 28, 2023.

Gross Profit and Costs of Goods Sold

Gross profit for the thirteen weeks ended November 2, 2024 decreased $0.6 million, or 0.6%, to $108.0 million from $108.6 million for the thirteen weeks ended October 28, 2023. The gross margin for the thirteen weeks ended November 2, 2024 was 71.4% compared to 72.0% for the thirteen weeks ended October 28, 2023. The decrease in gross profit and gross margin for the thirteen weeks ended November 2, 2024 was primarily driven by an increase in promotional activities and increased freight costs due to higher ocean freight container shipping rates compared to the thirteen weeks ended October 28, 2023.

Selling, General and Administrative Expenses

SG&A expenses for the thirteen weeks ended November 2, 2024 increased $2.2 million, or 2.5%, to $88.6 million from $86.5 million for the thirteen weeks ended October 28, 2023. The increase was primarily driven by $1.4 million increase in compensation and related expenses, $0.7 million increase in outbound shipping costs, $0.4 million increase in marketing expenses, and $0.4 million of order management system implementation expenses, offset by a decrease in management incentive of $0.7 million.

For the thirteen weeks ended November 2, 2024, the Company recorded a loss due to hurricane of $0.3 million related to write-off of property and equipment and inventory.

As a percentage of net sales, SG&A expenses were 58.6% for the thirteen weeks ended November 2, 2024 and 57.3% for the thirteen weeks ended October 28, 2023.

Impairment of long-lived assets

For the thirteen weeks ended November 2, 2024, the Company recorded $0.1 million of impairment charges. The Company recorded an immaterial amount of impairment charges for the thirteen weeks ended October 28, 2023.

Interest Expense

Interest expense was $2.8 million and $6.5 million for the thirteen weeks ended November 2, 2024 and October 28, 2023, respectively. The decrease was due to a lower debt balance for the thirteen weeks ended November 2, 2024.

Interest Income

For the thirteen weeks ended November 2, 2024, the Company earned interest on cash of $0.5 million, compared to $0.7 million for the thirteen weeks ended October 28, 2023.

Income Tax Provision

The income tax provision was $4.5 million for the thirteen weeks ended November 2, 2024 compared to $4.7 million for the thirteen weeks ended October 28, 2023, while our effective tax rates for the same periods were 26.8% and 28.9%, respectively. The effective tax rate during the thirteen weeks ended November 2, 2024 is lower primarily due to the impact of state and local income taxes and executive compensation limitations.

Thirty-nine weeks ended November 2, 2024 Compared to Thirty-nine weeks ended October 28, 2023

The following table summarizes our condensed consolidated results of operations for the periods indicated:

(in thousands)

Net Sales

Net sales for the thirty-nine weeks ended November 2, 2024 increased $10.3 million, or 2.2%, to $468.0 million from $457.8 million for the thirty-nine weeks ended October 28, 2023. At the end of those same periods, we operated 247 and 245 retail stores, respectively. The increase in net sales was primarily due to total company comparable sales increase of 1.4% and the impact of approximately $2.0 million from the calendar shift compared to the thirty-nine weeks ended October 28, 2023.

Retail contributed 53.4% of our net sales in the thirty-nine weeks ended November 2, 2024 and 54.7% in the thirty-nine weeks ended October 28, 2023. Our Direct channel contributed 46.6% of our net sales in the thirty-nine weeks ended November 2, 2024 and 45.3% in the thirty-nine weeks ended October 28, 2023.

Gross Profit and Costs of Goods Sold

Gross profit for the thirty-nine weeks ended November 2, 2024 increased $5.8 million, or 1.8%, to $335.1 million from $329.3 million for the thirty-nine weeks ended October 28, 2023. The gross margin for the thirty-nine weeks ended November 2, 2024 was 71.6% compared to 71.9% for the thirty-nine weeks ended October 28, 2023. The increase in gross profit and gross margin for the thirty-nine weeks ended November 2, 2024 was primarily driven by an increase in net sales of 2.2%, partially offset by higher promotional activities and increased freight costs due to higher ocean freight container shipping rates compared to the thirty-nine weeks ended October 28, 2023.

Selling, General and Administrative Expenses

SG&A expenses for the thirty-nine weeks ended November 2, 2024 increased $10.4 million, or 4.1%, to $264.1 million from $253.7 million for the thirty-nine weeks ended October 28, 2023. The increase was primarily driven by a $2.9 million increase in compensation, benefits and management incentive expense, $2.2 million increase in marketing costs, $1.9 million increase in equity based compensation expense, $1.6 million increase in outbound shipping costs, $1.3 million increase in professional services, $1.2 million increase in information systems costs mainly due to the upgrade of our order management system, partially offset by lower depreciation and amortization of $0.8 million compared to the thirty-nine weeks ended October 28, 2023.

For the thirty-nine weeks ended November 2, 2024, the Company recorded a loss due to hurricane of $0.3 million related to write-off of property and equipment and inventory.

As a percentage of net sales, SG&A expenses were 56.4% for the thirty-nine weeks ended November 2, 2024 compared to 55.4% for the thirty-nine weeks ended October 28, 2023.

Impairment of long-lived assets

For the thirty-nine weeks ended November 2, 2024, the Company recorded noncash impairment charges of $0.4 million primarily related to leasehold improvements at certain store locations. The Company recorded an immaterial amount of impairment charges for the thirty-nine weeks ended October 28, 2023.

Loss on Extinguishment of Debt

For the thirty-nine weeks ended November 2, 2024, the Company recognized a loss on extinguishment of debt of $8.6 million related to the voluntary prepayment of a portion of the Term Loan Credit Agreement. No such loss was incurred by the Company during the thirty-nine weeks ended October 28, 2023.

Loss on Debt Refinancing

During the thirty-nine weeks ended October 28, 2023, the Company recognized a loss on debt refinancing of $12.7 million related to entering into the Term Loan Credit Agreement and the repayment of the Priming Credit Agreement and the Subordinated Credit Agreement. No such loss was incurred by the Company during the thirty-nine weeks ended November 2, 2024.

Interest Expense

Interest expense was $13.0 million and $18.8 million for the thirty-nine weeks ended November 2, 2024 and October 28, 2023, respectively. The decrease was primarily due to a lower debt balance for the thirty-nine weeks ended November 2, 2024.

Interest expense consists of interest expense on the Term Loan Credit Agreement for the thirty-nine weeks ended November 2, 2024, and, on the Company’s Term Loan Credit Agreement, Priming Credit Agreement prior to repayment in full on April 5, 2023, and asset-based revolving credit facility agreement (the “ABL Credit Agreement” and, such facility, the “ABL Facility”) for the thirty-nine weeks ended October 28, 2023.

Interest Expense - Related Party

For the thirty-nine weeks ended October 28, 2023, the Company incurred $1.1 million of Interest expense - related party associated with the Subordinated Credit Agreement, until it was repaid in full on April 5, 2023. The Company did not incur any Interest expense - related party during the thirty-nine weeks ended November 2, 2024.

Interest Income

For the thirty-nine weeks ended November 2, 2024, the Company earned interest on cash of $2.0 million, compared to $1.8 million for the thirty-nine weeks ended October 28, 2023.

Income Tax Provision

The income tax provision was $13.8 million for the thirty-nine weeks ended November 2, 2024 compared to $13.3 million for the thirty-nine weeks ended October 28, 2023, while our effective tax rates for the same periods were 27.1% and 29.8%, respectively. The effective tax rate during the thirty-nine weeks ended November 2, 2024 is lower primarily due to the impact of state and local income taxes and executive compensation limitations.

Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash and cash equivalents generated from operating activities and availability under our ABL Facility, so long as certain conditions related to the maturity of the Term Loan Credit Agreement are met. As of November 2, 2024, we had $38.8 million in cash and $35.7 million of total availability under our ABL Facility. In addition, through our shelf registration statement on file with the SEC or through private transactions, and depending on conditions prevailing in the public and private capital markets, we may from time to time issue equity securities in one or more series in one or more offerings.

On June 14, 2024, the Company issued and sold 1,000,000 shares of its common stock. The shares were offered at an offering price of $31.00 per share, less underwriting discounts and commissions. The Company utilized the net proceeds from its sale of shares for repayment of its debt and general corporate purposes. See Note 8. Shareholders’ Equity to the condensed consolidated financial statements included in this Quarterly Report for additional information on the Company’s common stock issuance.

During the third quarter of Fiscal Year 2024, the Company issued 3,572,664 shares of common stock following the exercise of 3,573,707 warrants (the “Warrants”) that were previously issued pursuant to a Warrant Agreement, dated as of October 2, 2020, by and between the Company and American Stock Transfer & Company LLC (the “Warrant Agreement”). The exercise price of the Warrants was net share settled as per the terms of the Warrant Agreement. Given the non-substantive exercise price of the Warrants in relation to the fair value of the common shares issued upon exercise, the exercise of these Warrants had no impact on net income per common share, both basic and diluted.

Subsequent to November 2, 2024, on December 6, 2024, the Board approved a share repurchase program (the “Share Repurchase Program”), under which the Company is authorized to repurchase up to $25.0 million of the Company’s common stock, over the next two years. Under the Share Repurchase Program, shares of the Company’s common stock may be purchased from time to time through open market or private transactions, block trades, or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations under the Exchange Act. The timing and the number of shares repurchased are subject to the discretion of the Company and may be affected by market conditions and other factors. The Share Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be modified, suspended or terminated at any time.

We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under the ABL Facility and access to credit and capital markets, provide sufficient liquidity to meet the needs of our business operations, make voluntary prepayments, pay dividends, repurchase shares, and to satisfy our projected cash requirements for the next 12 months and the foreseeable future.

Credit Facilities

The Company is party to a secured $175.0 million Term Loan Credit Agreement, with a maturity date of May 8, 2028.

On May 10, 2024, the Company made a voluntary principal prepayment of $58.2 million on the Term Loan Credit Agreement, in lieu of the previously expected excess cash flow payment of $26.6 million. The expected excess cash flow payment was rejected by the lenders as permitted under the provisions of the Term Loan Credit Agreement. On June 21, 2024, the Company made an additional voluntary principal prepayment of $27.2 million (See Note 8. Shareholders’ Equity, Common Stock Issuance, for additional information). Together with the required quarterly payments, the Company has repaid $92.0 million in principal under the Term Loan Credit Agreement in Fiscal Year 2024. In connection with the voluntary principal prepayments, the Company paid a $2.6 million premium, amounting to 3% on the aggregate principal amount being prepaid, and $1.6 million towards interest, in accordance with the provisions of the Term Loan Credit Agreement.

In connection with the voluntary principal prepayments discussed above, for the thirty-nine weeks ended November 2, 2024, the Company recognized a loss on extinguishment of debt of approximately $8.6 million, consisting of $6.0 million of accelerated amortization of the discount and fees and $2.6 million of prepayment premium, in its condensed consolidated statements of operations and comprehensive income. As of November 2, 2024, the remaining Term Loan Facility principal balance was $76.5 million, which is to be repaid in one quarterly principal payment of $2.2 million prior to January 31, 2025, with the remaining balance of $74.3 million to be paid upon maturity on May 8, 2028. The remaining unamortized discount and fees of $5.2 million will continue to be amortized over the remaining term through maturity. See Note 5. Debt to the condensed consolidated financial statements included in this Quarterly Report for additional information.

There were no short-term borrowings outstanding under the Company’s ABL Facility as of November 2, 2024 and February 3, 2024. At November 2, 2024 and February 3, 2024, the Company had outstanding letters of credit in the amount of $4.3 million and $5.8 million, respectively, and had a maximum additional borrowing capacity of $35.7 million and $34.2 million, respectively.

As of November 2, 2024, the Company is in compliance with all covenants contained in its outstanding debt arrangements.

Cash Flow Analysis

The following table shows our cash flows information for the periods presented:

(in thousands)

Net cash provided by operating activities

Net cash provided by operating activities increased by $0.3 million during the thirty-nine weeks ended November 2, 2024 compared to the thirty-nine weeks ended October 28, 2023. The increase during the thirty-nine weeks ended November 2, 2024 was driven by higher net income of $5.8 million, and a higher change in operating assets and liabilities of $0.4 million offset by lower adjustments to reconcile net income to net cash from operations of $5.9 million. The higher change in operating assets and liabilities was driven primarily by changes in accrued expenses and other current liabilities of $8.2 million, mainly consisting of management incentives of $3.1 million, and the timing of payments relating to income taxes of $2.2 million, interest on debt and corporate expenses of $2.1 million, payroll of $1.9 million, and other net expenses, partially offset by lower sales returns reserve of $1.2 million. The higher change in operating assets and liabilities was partially offset by timing of payments relating to other noncurrent assets and liabilities of $2.7 million, inventory of $2.5 million, and accounts receivable of $2.3 million.

Net cash provided by operating activities during the thirty-nine weeks ended November 2, 2024 was $56.9 million. Key elements of cash provided by operating activities were (i) net income of $37.2 million, (ii) adjustments to reconcile net income to net cash provided by operating activities of $29.2 million, primarily driven by depreciation and amortization, loss on extinguishment of debt and equity-based compensation, and (iii) uses of cash totaling $9.5 million for net operating assets and liabilities.

Net cash provided by operating activities during the thirty-nine weeks ended October 28, 2023 was $56.7 million. Key elements of cash provided by operating activities were (i) net income of $31.4 million, (ii) adjustments to reconcile net income to net cash provided by operating activities of $35.2 million, primarily driven by loss on debt refinancing and depreciation and amortization, and (iii) uses of cash totaling $9.9 million for net operating assets and liabilities.

Net cash used in investing activities

Net cash used in investing activities during the thirty-nine weeks ended November 2, 2024 and October 28, 2023 was $10.0 million and $10.8 million, respectively, representing purchases of property and equipment related investments in stores and software and technology related investments.

Net cash used in financing activities

Net cash used in financing activities was $70.3 million for the thirty-nine weeks ended November 2, 2024 compared to $68.9 million for the thirty-nine weeks ended October 28, 2023. Net cash used in financing activities for the thirty-nine weeks ended November 2, 2024 primarily consisted of voluntary prepayments under the Term Loan Credit Agreement partially offset by the proceeds from the issuance of common stock. Net cash used in financing activities for the thirty-nine weeks ended October 28, 2023 consisted of repayment of the previously existing Priming and Subordinated Credit Agreements offset by the proceeds from the issuance of the Term Loan Credit Agreement.

Dividends

During the thirteen weeks ended November 2, 2024, the Board of Directors (the “Board”) declared a quarterly cash dividend payment of $0.07 per share of common stock (the “Dividend”). The Dividend was payable on October 2, 2024 to stockholders of record of issued and outstanding shares of the Company’s common stock as of September 18, 2024. During the thirteen and thirty-nine weeks ended November 2, 2024, the Company paid $1.0 million and $1.8 million, respectively, in dividends. While dividends are generally recorded as a reduction to Retained earnings, since the Company has an accumulated deficit, dividends are recorded as a reduction to Additional paid-in capital.

The Company did not pay any dividends during the thirteen and thirty-nine weeks ended October 28, 2023.

The Company intends to pay cash dividends quarterly in the future, subject to market conditions and at the discretion of the Board. Our ability to pay dividends in the future is based on a number of factors such as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements and the ability of our operating subsidiaries to pay dividends to us as a holding company.

Subsequent to November 2, 2024, on December 4, 2024, the Board declared a cash dividend of $0.07 per share, payable on January 9, 2025 to stockholders of record of issued and outstanding shares of the Company’s common stock as of December 26, 2024.

Contractual Obligations

The Company’s contractual obligations consist primarily of debt obligations, interest payments, operating leases and purchase orders for merchandise inventory. These contractual obligations impact the Company’s short-term and long-term liquidity and capital resource needs.

Contingencies

We are subject to various legal proceedings that arise in the ordinary course of business. Although the outcome of such proceedings cannot be predicted with certainty, management does not believe that we are presently party to any legal proceedings the resolution of which management believes would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters, including legal costs, when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Critical Accounting Policies and Significant Estimates

The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our condensed consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for gift card breakage and estimated merchandise returns; estimating the value of inventory; impairment assessments for goodwill and other indefinite-lived intangible assets, and long-lived assets. Management evaluates its policies and assumptions on an ongoing basis.

Our significant accounting policies related to these accounts in the preparation of our condensed consolidated financial statements are described under the heading “Management Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the “2023 Annual Report”). As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates previously described in our 2023 Annual Report. See Note 2. Summary of Significant Accounting Policies to the condensed consolidated financial statements included in this Quarterly Report for additional information regarding changes in our estimates.

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.

These forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. All written and oral forward-looking statements made in connection with this Quarterly Report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Risk Factors set forth in our 2023 Annual Report, our Quarterly Report on Form 10-Q for the quarter ended August 28, 2024 (the “Second Quarter Form 10-Q”) and other cautionary statements included therein and herein.

These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report. We anticipate that subsequent events and developments will cause our views to change. We qualify all of our forward-looking statements by these cautionary statements.

Market Risk

There have been no material changes in our exposure to market risk during the third quarter of Fiscal Year 2024. For a discussion of the Company’s exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in the Company’s 2023 Annual Report.

Subsequent to November 2, 2024, on December 4, 2024, the Board declared a cash dividend of $0.07 per share, payable on January 9, 2025 to all stockholders of record as of December 26, 2024. The Company intends to pay cash dividends quarterly in the future, subject to market conditions and the discretion and approval by the Board of any such dividends.

The Company’s management, including its Chief Executive Officer and Chief Financial and Operating Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Operating Officer concluded as of November 2, 2024, that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Quarterly Report has been recorded, processed, summarized and reported when required and the information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial and Operating Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes to the Company’s internal control over financial reporting that occurred during the third quarter of Fiscal Year 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Factors that could cause our actual results to differ materially from those in this report are described under the heading “Risk Factors” in our 2023 Annual Report and the Second Quarter Form 10-Q. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in our 2023 Annual Report or Second Quarter Form 10-Q. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations and we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.