J.Jill has earned the dubious distinction of joining a growing list of fashion retailers now on bankruptcy watch.
Already struggling to turn around a business on shaky ground, the women’s apparel chain is now grappling with cash-flow challenges in the wake of months-long store closures.
J.Jill’s comparable sales for fiscal 2019 tumbled 3.6 percent versus a 0.9 percent uptick for fiscal 2018 and a rise of 6.4 percent in the prior fiscal year, according to its 2019 annual report filed Monday with the Securities and Exchange Commission (SEC) for the period ended Feb. 1. Those numbers paint a troubling picture of the chain’s deteriorating sales activity.
Given that alarming trajectory, the company on Monday said it has entered into forbearance agreements with lenders under its asset-based lending and term loan credit facilities. The lenders have agreed not to do anything with respect to their rights or remedies until July 16, giving the retailer a bit of breathing room to explore its options.
Interim CEO Jim Scully said the agreements enable the ailing women’s wear chain to “continue to work with our lenders on a course of action that will resolve the company’s noncompliance and position the company to realize its long-term plans.”
Noncompliance with certain covenants as of May 2 has “led to substantial doubt about the company’s ability to continue as a going concern,” according to the SEC report. Failure to obtain waivers on the defaults or forbearance on the exercise of remedies may result in the filing of a Chapter 11 petition for bankruptcy court protection, it added.
J.Jill cited other potential risks, highlighting concerns over how its brick-and-mortar base will recover sales upon reopening, whether consumers will battle back against a sagging economy, and the threat of a second upsurge of coronavirus infections in the year ahead.
According to Raya Sokolyanska, retail credit analyst and vice president at Moody’s Investors Service, “J.Jill is among several apparel retailers that came into the coronavirus disruption already contending with their own turnarounds and competitive pressure.” The chain, she added, is “highly likely” to pursue a bankruptcy filing or debt restructuring, given its evaporating liquidity as a result of prolonged store closures, not to mention its losses on the earnings before interest, taxes, depreciation and amortization front.
J.Jill drew down $33 million from its revolving credit facility on March 16, just two days before it began shuttering stores, and then furloughed store associates on April 1 when it became clear that brick-and-mortar business would not be feasible amid the coronavirus crisis. Like many others in retail, J.Jill slashed base salaries for its executives and all exempt employees and skipped fees for the board of directors starting April 12.
Despite its uphill battle, Scully believes the company might be able to withstand the current malaise. “With our historically strong direct penetration of approximately 45 percent, we were able to continue to serve our customer and were pleased with the response we have seen to our new design team’s assortment,” he said of how J.Jill’s e-commerce business thrived during store shutdowns. An early read on business at the roughly 85 percent of stores that have reopened with robust health and safety protocols has “exceeded our expectations,” Scully added.
J.Jill said it ended the month of May with a cash balance of $60 million. While chief financial officer Mark Webb said the company’s cash balances offer sufficient reserves to meet its financial obligations, the SEC report indicates that if any risks pop up, the “current sources of liquidity and capital may not be sufficient to finance our continued operations for at least the next 12 months.”