SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the quarterly period ended November |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File Number: 1-4365
OXFORD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Georgia | 58-0831862 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia30309
(Address of principal executive offices) (Zip Code)
(404) 659-2424
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $1 par value | OXM | New York Stock Exchange |
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
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
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.
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Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | 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
OXFORD INDUSTRIES, INC.
For the
Third Quarter of Fiscal2
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which typically are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Such statements are subject to a number of risks, uncertainties and assumptions including, without limitation, competitive conditions,demand for our products, which may be impacted by competitive conditions and/or evolving consumer shopping patterns; themacroeconomic factors that may impact of economic conditions on consumer demand and spending for apparel and related products; demand for ourcosts of products as well as the raw materials used in those products; expected pricing levels; costs of labor; the timing of shipments requested by our wholesale customers; expected pricing levels;changes, and the impact on our business operations of such changes, in international, federal or state tax, trade and other laws and regulations, including the imposition of additional duties, tariffs, taxes or other charges or barriers to trade resulting from ongoing trade developments with China and our ability to implement mitigating sourcing strategies; weather; retention of and disciplined execution by key management; the timing and cost of store and restaurant openings and of planned capital expenditures; weather; changes in international, federal or state tax, trade and other laws and regulations; costs of productsremodels as well as the raw materials used in those products; costs of labor;other capital expenditures; acquisition and disposition activities, including our ability to timely recognize our expected synergies from any acquisitions we pursue;acquisitions; expected outcomes of pending or potential litigation and regulatory actions; the impact of any restructuring initiatives we may undertake in one or more of our business lines; access to capital and/or credit markets; changes in accounting standards and related guidance; and factors that could affect our consolidated effective tax rate, including the impact of the recently enacted U.S. Tax Reform.rate. Forward-looking statements reflect our expectations at the time such forward looking statements are made, based on information available at such time, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for Fiscal
DEFINITIONS
As used in this report, unless the context requires otherwise, "our," "us" or "we" means Oxford Industries, Inc. and its consolidated subsidiaries; "SG&A" means selling, general and administrative expenses; "SEC" means the United States Securities and Exchange Commission; "FASB" means the Financial Accounting Standards Board; "ASC" means the FASB Accounting Standards Codification; "GAAP" means generally accepted accounting principles in the United States; "discontinued operations" means the assets and operations of our former Ben Sherman operating group which we sold in 2015; "TBBC" means The Beaufort Bonnet Company, which we acquired in December 2017; and "U.S. Tax Reform" means the United States Tax Cuts and Jobs Act as enacted on December 22, 2017.Company. Unless otherwise indicated, all references to assets,
3
liabilities, revenues, expenses or other information in this report reflect continuing operations. Additionally, the terms listed below reflect the respective period noted:
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Fiscal 2020 | 52 weeks ending January 30, 2021 | |
Fiscal 2019 | | 52 weeks ending February 1, 2020 |
Fiscal 2018 | | 52 weeks |
Fiscal 2017 | | 53 weeks ended February 3, 2018 |
Fourth Quarter Fiscal | | 13 weeks ending February |
Third Quarter Fiscal 2019 | | 13 weeks ended November 2, 2019 |
Second Quarter Fiscal 2019 | | 13 weeks ended August 3, 2019 |
First Quarter Fiscal 2019 | | 13 weeks ended May 4, 2019 |
Fourth Quarter Fiscal 2018 | | 13 weeks ended February 2, 2019 |
Third Quarter Fiscal 2018 | | 13 weeks ended November 3, 2018 |
Second Quarter Fiscal 2018 | | 13 weeks ended August 4, 2018 |
First Quarter Fiscal 2018 | | 13 weeks ended May 5, 2018 |
First Nine Months Fiscal | | 39 weeks ended |
First Nine Months Fiscal 2018 | | 39 weeks ended November 3, 2018 |
4
ITEM 1. FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
(in thousands, except par amounts)
(unaudited)
November 3, 2018 | February 3, 2018 | October 28, 2017 | |||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 7,413 | $ | 6,343 | $ | 6,077 | |||||
Receivables, net | 69,400 | 67,542 | 73,724 | ||||||||
Inventories, net | 138,150 | 126,812 | 127,301 | ||||||||
Prepaid expenses and other current assets | 36,937 | 35,421 | 27,619 | ||||||||
Total Current Assets | $ | 251,900 | $ | 236,118 | $ | 234,721 | |||||
Property and equipment, net | 194,228 | 193,533 | 191,038 | ||||||||
Intangible assets, net | 176,735 | 178,858 | 175,057 | ||||||||
Goodwill | 66,618 | 66,703 | 63,443 | ||||||||
Other non-current assets, net | 23,272 | 24,729 | 24,250 | ||||||||
Total Assets | $ | 712,753 | $ | 699,941 | $ | 688,509 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | $ | 64,429 | $ | 66,175 | $ | 59,230 | |||||
Accrued compensation | 25,426 | 29,941 | 24,434 | ||||||||
Other accrued expenses and liabilities | 34,984 | 36,802 | 30,542 | ||||||||
Liabilities related to discontinued operations | — | 2,092 | 3,709 | ||||||||
Total Current Liabilities | $ | 124,839 | $ | 135,010 | $ | 117,915 | |||||
Long-term debt | 32,211 | 45,809 | 72,131 | ||||||||
Other non-current liabilities | 73,434 | 74,029 | 73,487 | ||||||||
Deferred taxes | 16,922 | 15,269 | 16,829 | ||||||||
Liabilities related to discontinued operations | — | — | 972 | ||||||||
Commitments and contingencies | |||||||||||
Shareholders’ Equity | |||||||||||
Common stock, $1.00 par value per share | 16,956 | 16,839 | 16,833 | ||||||||
Additional paid-in capital | 140,876 | 136,664 | 134,561 | ||||||||
Retained earnings | 312,604 | 280,395 | 260,809 | ||||||||
Accumulated other comprehensive loss | (5,089 | ) | (4,074 | ) | (5,028 | ) | |||||
Total Shareholders’ Equity | $ | 465,347 | $ | 429,824 | $ | 407,175 | |||||
Total Liabilities and Shareholders’ Equity | $ | 712,753 | $ | 699,941 | $ | 688,509 |
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|
| November 2, |
| February 2, |
| November 3, | |||
| | 2019 | | 2019 | | 2018 | |||
ASSETS | | | | | | | | | |
Current Assets | | | | | | | | | |
Cash and cash equivalents | | $ | 21,568 | | $ | 8,327 | | $ | 7,413 |
Receivables, net | |
| 64,593 | |
| 69,037 | |
| 69,400 |
Inventories, net | |
| 154,229 | |
| 160,656 | |
| 138,150 |
Prepaid expenses and other current assets | |
| 28,438 | |
| 31,768 | |
| 36,937 |
Total Current Assets | | $ | 268,828 | | $ | 269,788 | | $ | 251,900 |
Property and equipment, net | |
| 190,537 | |
| 192,576 | |
| 194,228 |
Intangible assets, net | |
| 175,298 | |
| 176,176 | |
| 176,735 |
Goodwill | |
| 66,594 | |
| 66,621 | |
| 66,618 |
Operating lease assets | | | 287,977 | | | — | | | — |
Other non-current assets, net | |
| 23,850 | |
| 22,093 | |
| 23,272 |
Total Assets | | $ | 1,013,084 | | $ | 727,254 | | $ | 712,753 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
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Current Liabilities | |
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Accounts payable | | $ | 60,708 | | $ | 81,612 | | $ | 64,429 |
Accrued compensation | |
| 21,560 | |
| 24,226 | |
| 25,426 |
Current operating lease liabilities | |
| 49,901 | |
| — | |
| — |
Other accrued expenses and liabilities | |
| 31,949 | |
| 36,371 | |
| 34,984 |
Total Current Liabilities | | $ | 164,118 | | $ | 142,209 | | $ | 124,839 |
Long-term debt | |
| — | |
| 12,993 | |
| 32,211 |
Non-current operating lease liabilities | |
| 293,775 | |
| — | |
| — |
Other non-current liabilities | |
| 17,365 | |
| 75,286 | |
| 73,434 |
Deferred taxes | |
| 21,010 | |
| 18,411 | |
| 16,922 |
Commitments and contingencies | |
| — | |
| — | |
| — |
Shareholders’ Equity | |
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Common stock, $1.00 par value per share | |
| 17,040 | |
| 16,959 | |
| 16,956 |
Additional paid-in capital | |
| 147,448 | |
| 142,976 | |
| 140,876 |
Retained earnings | |
| 357,768 | |
| 323,515 | |
| 312,604 |
Accumulated other comprehensive loss | |
| (5,440) | |
| (5,095) | |
| (5,089) |
Total Shareholders’ Equity | | $ | 516,816 | | $ | 478,355 | | $ | 465,347 |
Total Liabilities and Shareholders’ Equity | | $ | 1,013,084 | | $ | 727,254 | | $ | 712,753 |
See accompanying notes.
5
OXFORD INDUSTRIES, INC.
(in thousands, except per share amounts)
(unaudited)
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | ||||||||||||
Net sales | $ | 233,662 | $ | 235,960 | $ | 808,931 | $ | 793,032 | |||||||
Cost of goods sold | 104,383 | 110,784 | 336,209 | 342,477 | |||||||||||
Gross profit | $ | 129,279 | $ | 125,176 | $ | 472,722 | $ | 450,555 | |||||||
SG&A | 128,687 | 127,091 | 414,747 | 393,193 | |||||||||||
Royalties and other operating income | 3,113 | 3,039 | 10,616 | 10,123 | |||||||||||
Operating income | $ | 3,705 | $ | 1,124 | $ | 68,591 | $ | 67,485 | |||||||
Interest expense, net | 489 | 683 | 1,872 | 2,355 | |||||||||||
Earnings before income taxes | $ | 3,216 | $ | 441 | $ | 66,719 | $ | 65,130 | |||||||
Income taxes | 1,355 | (631 | ) | 17,107 | 24,172 | ||||||||||
Net earnings | $ | 1,861 | $ | 1,072 | $ | 49,612 | $ | 40,958 | |||||||
Net earnings per share: | |||||||||||||||
Basic | $ | 0.11 | $ | 0.06 | $ | 2.98 | $ | 2.47 | |||||||
Diluted | $ | 0.11 | $ | 0.06 | $ | 2.95 | $ | 2.45 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 16,694 | 16,618 | 16,672 | 16,591 | |||||||||||
Diluted | 16,870 | 16,735 | 16,826 | 16,710 | |||||||||||
Dividends declared per share | $ | 0.34 | $ | 0.27 | $ | 1.02 | $ | 0.81 |
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| Third Quarter |
| First Nine Months | | ||||||||
| | Fiscal 2019 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2018 | | ||||
Net sales | | $ | 241,221 | | $ | 233,662 | | $ | 825,194 | | $ | 808,931 | |
Cost of goods sold | |
| 108,241 | |
| 104,383 | |
| 346,620 | |
| 336,209 | |
Gross profit | | $ | 132,980 | | $ | 129,279 | | $ | 478,574 | | $ | 472,722 | |
SG&A | |
| 134,231 | |
| 128,687 | |
| 417,448 | |
| 414,747 | |
Royalties and other operating income | |
| 3,845 | |
| 3,113 | |
| 11,469 | |
| 10,616 | |
Operating income | | $ | 2,594 | | $ | 3,705 | | $ | 72,595 | | $ | 68,591 | |
Interest expense, net | |
| 81 | |
| 489 | |
| 1,171 | |
| 1,872 | |
Earnings before income taxes | | $ | 2,513 | | $ | 3,216 | | $ | 71,424 | | $ | 66,719 | |
Income taxes | |
| 845 | |
| 1,355 | |
| 18,263 | |
| 17,107 | |
Net earnings | | $ | 1,668 | | $ | 1,861 | | $ | 53,161 | | $ | 49,612 | |
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Net earnings per share: | |
|
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Basic | | $ | 0.10 | | $ | 0.11 | | $ | 3.17 | | $ | 2.98 | |
Diluted | | $ | 0.10 | | $ | 0.11 | | $ | 3.15 | | $ | 2.95 | |
Weighted average shares outstanding: | |
|
| |
|
| |
|
| |
|
| |
Basic | |
| 16,773 | |
| 16,694 | |
| 16,748 | |
| 16,672 | |
Diluted | |
| 16,934 | |
| 16,870 | |
| 16,896 | |
| 16,826 | |
Dividends declared per share | | $ | 0.37 | | $ | 0.34 | | $ | 1.11 | | $ | 1.02 | |
See accompanying notes.
6
OXFORD INDUSTRIES, INC.
(in thousands)
(unaudited)
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | ||||||||||||
Net earnings | $ | 1,861 | $ | 1,072 | $ | 49,612 | $ | 40,958 | |||||||
Other comprehensive income (loss), net of taxes: | |||||||||||||||
Net foreign currency translation (loss) income | (150 | ) | (617 | ) | (1,015 | ) | 248 | ||||||||
Comprehensive income | $ | 1,711 | $ | 455 | $ | 48,597 | $ | 41,206 |
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|
| Third Quarter |
| First Nine Months | | ||||||||
| | Fiscal 2019 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2018 | | ||||
Net earnings | | $ | 1,668 | | $ | 1,861 | | $ | 53,161 | | $ | 49,612 | |
Other comprehensive income (loss), net of taxes: | |
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Net foreign currency translation adjustment | |
| 176 | |
| (150) | |
| (345) | |
| (1,015) | |
Comprehensive income | | $ | 1,844 | | $ | 1,711 | | $ | 52,816 | | $ | 48,597 | |
See accompanying notes.
7
OXFORD INDUSTRIES, INC.
(in thousands)
(unaudited)
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | ||||||
Cash Flows From Operating Activities: | |||||||
Net earnings | $ | 49,612 | $ | 40,958 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation | 29,878 | 29,779 | |||||
Amortization of intangible assets | 2,055 | 1,733 | |||||
Equity compensation expense | 5,510 | 4,616 | |||||
Amortization of deferred financing costs | 318 | 317 | |||||
Deferred income taxes | 1,501 | 3,376 | |||||
Changes in working capital, net of acquisitions and dispositions: | |||||||
Receivables, net | (2,286 | ) | (17,227 | ) | |||
Inventories, net | (14,346 | ) | 17,017 | ||||
Prepaid expenses and other current assets | 943 | (2,713 | ) | ||||
Current liabilities | (9,244 | ) | (14,217 | ) | |||
Other non-current assets, net | 1,113 | (241 | ) | ||||
Other non-current liabilities | (436 | ) | 1,880 | ||||
Cash provided by operating activities | $ | 64,618 | $ | 65,278 | |||
Cash Flows From Investing Activities: | |||||||
Acquisitions, net of cash acquired | (354 | ) | (5,055 | ) | |||
Purchases of property and equipment | (30,914 | ) | (26,356 | ) | |||
Cash used in investing activities | $ | (31,268 | ) | $ | (31,411 | ) | |
Cash Flows From Financing Activities: | |||||||
Repayment of revolving credit arrangements | (221,750 | ) | (199,765 | ) | |||
Proceeds from revolving credit arrangements | 208,152 | 180,387 | |||||
Proceeds from issuance of common stock | 1,170 | 1,071 | |||||
Repurchase of equity awards for employee tax withholding liabilities | (2,351 | ) | (2,206 | ) | |||
Cash dividends declared and paid | (17,286 | ) | (13,642 | ) | |||
Cash used in financing activities | $ | (32,065 | ) | $ | (34,155 | ) | |
Net change in cash and cash equivalents | $ | 1,285 | $ | (288 | ) | ||
Effect of foreign currency translation on cash and cash equivalents | (215 | ) | 33 | ||||
Cash and cash equivalents at the beginning of year | 6,343 | 6,332 | |||||
Cash and cash equivalents at the end of the period | $ | 7,413 | $ | 6,077 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest, net | $ | 1,598 | $ | 2,098 | |||
Cash paid for income taxes | $ | 16,133 | $ | 19,536 |
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| | First Nine Months | | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | | ||
Cash Flows From Operating Activities: |
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|
|
Net earnings | | $ | 53,161 | | $ | 49,612 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
| | |
|
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Depreciation | |
| 29,301 | |
| 29,878 | |
Amortization of intangible assets | |
| 878 | |
| 2,055 | |
Equity compensation expense | |
| 5,698 | |
| 5,510 | |
Amortization of deferred financing costs | |
| 298 | |
| 318 | |
Deferred income taxes | |
| 2,370 | |
| 1,501 | |
Changes in working capital, net of acquisitions and dispositions: | |
| | |
|
| |
Receivables, net | |
| 4,559 | |
| (2,286) | |
Inventories, net | |
| 6,203 | |
| (14,346) | |
Prepaid expenses and other current assets | |
| (2,348) | |
| 943 | |
Current liabilities | |
| (27,479) | |
| (9,244) | |
Other balance sheet changes | |
| 2,565 | |
| 677 | |
Cash provided by operating activities | | $ | 75,206 | | $ | 64,618 | |
Cash Flows From Investing Activities: | |
|
| |
|
| |
Acquisitions, net of cash acquired | |
| — | |
| (354) | |
Purchases of property and equipment | |
| (26,877) | |
| (30,914) | |
Cash used in investing activities | | $ | (26,877) | | $ | (31,268) | |
Cash Flows From Financing Activities: | |
|
| |
|
| |
Repayment of revolving credit arrangements | |
| (122,241) | |
| (221,750) | |
Proceeds from revolving credit arrangements | |
| 109,248 | |
| 208,152 | |
Deferred financing costs paid | | | (952) | | | — | |
Proceeds from issuance of common stock | |
| 1,307 | |
| 1,170 | |
Repurchase of equity awards for employee tax withholding liabilities | |
| (2,453) | |
| (2,351) | |
Cash dividends declared and paid | |
| (18,908) | |
| (17,286) | |
Other financing activities | |
| (1,033) | |
| — | |
Cash used in financing activities | | $ | (35,032) | | $ | (32,065) | |
Net change in cash and cash equivalents | | $ | 13,297 | | $ | 1,285 | |
Effect of foreign currency translation on cash and cash equivalents | |
| (56) | |
| (215) | |
Cash and cash equivalents at the beginning of year | |
| 8,327 | |
| 6,343 | |
Cash and cash equivalents at the end of the period | | $ | 21,568 | | $ | 7,413 | |
Supplemental disclosure of cash flow information: | |
|
| |
|
| |
Cash paid for interest, net | | $ | 1,162 | | $ | 1,598 | |
Cash paid for income taxes | | $ | 13,496 | | $ | 16,133 | |
See accompanying notes.
8
OXFORD INDUSTRIES, INC.
THIRD
QUARTER OF FISCAL1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe the accompanying unaudited condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented. The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported as assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.
The significant accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Annual Report on Form 10-K for Fiscal 2018, except for the adoption of the new lease accounting guidance in Fiscal 2019 as discussed below and in Note 5.
Accounting Standards Applicable to Future Periods
In February 2016, the FASB issued revised lease accounting guidance. The guidance requires companies to record substantially all leases, including operating leases, as assets and liabilities on the balance sheet. For these leases, we will beare required to recognize (1) a right of usean operating lease asset which will represent our right to use, or control the use of, a specified asset for a lease term and (2) a lease liability equal to our obligation to make lease payments arising from a lease, measured on a discounted basis. Also, the revised guidance requires additional qualitative and quantitative footnote disclosures in our consolidated financial statements. The guidance will be effective inwas adopted on the first day of the First Quarter of Fiscal 2019 with early adoption permitted. The guidance requires the use of theusing a modified retrospective transitionapproach. The modified retrospective approach which includes a number of optional practical expedients that companies may elect to apply. In March 2018, the FASB approved a new, optional transition method that will provide companies the option to use the effective date as the date of initial application on transition.
Recently Issued Accounting Standards Applicable to Future Periods
In June 2016, the FASB issued guidance, as amended, on the measurement of credit losses on financial instruments. This guidance amends the impairment model by requiring that companies use a forward-looking approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables. This guidance will be effective in Fiscal 2020 which will commence on February 2, 2020, with early adoption permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.
Recent accounting pronouncements pending adoption not discussed above or in our Annual Report on Form 10-K for Fiscal 2017 are either not applicable or will not have or are not expected to have a material impact on our consolidated financial statements.
2. Operating Group Information:
We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each9
Tommy Bahama, Lilly Pulitzer and Southern Tide each design, source, market and distribute apparel and related products bearing their respective trademarks and
The table below presents certain financial information (in thousands) about our operating groups, as well as Corporate and Other.
| | | | | | | | | | | | | |
|
| Third Quarter | | First Nine Months | | ||||||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| Fiscal 2019 |
| Fiscal 2018 | | ||||
Net sales |
| |
|
| |
|
| |
|
| |
|
|
Tommy Bahama | | $ | 127,023 | | $ | 123,130 | | $ | 480,623 | | $ | 482,990 | |
Lilly Pulitzer | |
| 71,659 | |
| 68,213 | |
| 219,809 | |
| 208,463 | |
Lanier Apparel | |
| 29,377 | |
| 29,037 | |
| 76,871 | |
| 72,806 | |
Southern Tide | |
| 9,102 | |
| 9,496 | |
| 35,704 | |
| 34,745 | |
Corporate and Other | |
| 4,060 | |
| 3,786 | |
| 12,187 | |
| 9,927 | |
Total net sales | | $ | 241,221 | | $ | 233,662 | | $ | 825,194 | | $ | 808,931 | |
| | | | | | | | | | | | | |
Depreciation and amortization | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | 7,073 | | $ | 7,131 | | $ | 20,820 | | $ | 22,457 | |
Lilly Pulitzer | |
| 2,554 | |
| 2,624 | |
| 7,618 | |
| 7,727 | |
Lanier Apparel | |
| 146 | |
| 144 | |
| 427 | |
| 424 | |
Southern Tide | |
| 135 | |
| 133 | |
| 404 | |
| 394 | |
Corporate and Other | |
| 285 | |
| 304 | |
| 910 | |
| 931 | |
Total depreciation and amortization | | $ | 10,193 | | $ | 10,336 | | $ | 30,179 | | $ | 31,933 | |
| | | | | | | | | | | | | |
Operating income (loss) | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | (7,739) | | $ | (5,141) | | $ | 30,671 | | $ | 29,783 | |
Lilly Pulitzer | |
| 10,988 | |
| 9,576 | |
| 46,689 | |
| 43,823 | |
Lanier Apparel | |
| 1,952 | |
| 2,261 | |
| 3,387 | |
| 3,448 | |
Southern Tide | |
| 526 | |
| 492 | |
| 4,877 | |
| 4,399 | |
Corporate and Other | |
| (3,133) | |
| (3,483) | |
| (13,029) | |
| (12,862) | |
Total operating income | |
| 2,594 | |
| 3,705 | | $ | 72,595 | | $ | 68,591 | |
Interest expense, net | |
| 81 | |
| 489 | |
| 1,171 | |
| 1,872 | |
Earnings before income taxes | | $ | 2,513 | | $ | 3,216 | | $ | 71,424 | | $ | 66,719 | |
10
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | ||||||||||||
Net sales | |||||||||||||||
Tommy Bahama | $ | 123,130 | $ | 123,895 | $ | 482,990 | $ | 483,971 | |||||||
Lilly Pulitzer | 68,213 | 59,244 | 208,463 | 192,045 | |||||||||||
Lanier Apparel | 29,037 | 43,110 | 72,806 | 84,314 | |||||||||||
Southern Tide | 9,496 | 9,217 | 34,745 | 31,254 | |||||||||||
Corporate and Other | 3,786 | 494 | 9,927 | 1,448 | |||||||||||
Total net sales | $ | 233,662 | $ | 235,960 | $ | 808,931 | $ | 793,032 | |||||||
Depreciation and amortization | |||||||||||||||
Tommy Bahama | $ | 7,131 | $ | 8,033 | $ | 22,457 | $ | 23,321 | |||||||
Lilly Pulitzer | 2,624 | 2,303 | 7,727 | 6,377 | |||||||||||
Lanier Apparel | 144 | 145 | 424 | 443 | |||||||||||
Southern Tide | 133 | 108 | 394 | 317 | |||||||||||
Corporate and Other | 304 | 355 | 931 | 1,054 | |||||||||||
Total depreciation and amortization | $ | 10,336 | $ | 10,944 | $ | 31,933 | $ | 31,512 | |||||||
Operating income (loss) | |||||||||||||||
Tommy Bahama | $ | (5,141 | ) | $ | (5,872 | ) | $ | 29,783 | $ | 32,082 | |||||
Lilly Pulitzer | 9,576 | 4,952 | 43,823 | 43,621 | |||||||||||
Lanier Apparel | 2,261 | 5,615 | 3,448 | 6,668 | |||||||||||
Southern Tide | 492 | 1,016 | 4,399 | 3,765 | |||||||||||
Corporate and Other | (3,483 | ) | (4,587 | ) | (12,862 | ) | (18,651 | ) | |||||||
Total operating income | $ | 3,705 | $ | 1,124 | $ | 68,591 | $ | 67,485 | |||||||
Interest expense, net | 489 | 683 | 1,872 | 2,355 | |||||||||||
Earnings before income taxes | $ | 3,216 | $ | 441 | $ | 66,719 | $ | 65,130 |
The tables below quantify, for each operating group and in total, the amount of net sales (in thousands) and net sales by distribution channel as a percentage of net sales for each period presented.
| | | | | | | | | | | | | | |
| | Third Quarter Fiscal 2019 |
| |||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 127,023 |
| 46 | % | 14 | % | 14 | % | 26 | % | — | % |
Lilly Pulitzer | |
| 71,659 |
| 35 | % | 55 | % | — | % | 10 | % | — | % |
Lanier Apparel | |
| 29,377 |
| — | % | 1 | % | — | % | 99 | % | — | % |
Southern Tide | |
| 9,102 |
| — | % | 19 | % | — | % | 81 | % | — | % |
Corporate and Other | |
| 4,060 |
| — | % | 57 | % | — | % | 36 | % | 7 | % |
Total | | $ | 241,221 |
| 35 | % | 26 | % | 7 | % | 32 | % | — | % |
| | | | | | | | | | | | | | |
| | Third Quarter Fiscal 2018 |
| |||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 123,130 |
| 46 | % | 14 | % | 13 | % | 27 | % | — | % |
Lilly Pulitzer | |
| 68,213 |
| 35 | % | 53 | % | — | % | 12 | % | — | % |
Lanier Apparel | |
| 29,037 |
| — | % | — | % | — | % | 100 | % | — | % |
Southern Tide | |
| 9,496 |
| — | % | 16 | % | — | % | 84 | % | — | % |
Corporate and Other | |
| 3,786 |
| — | % | 50 | % | — | % | 34 | % | 16 | % |
Total | | $ | 233,662 |
| 35 | % | 24 | % | 7 | % | 34 | % | — | % |
| | | | | | | | | | | | | | |
| | First Nine Months Fiscal 2019 | | |||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 480,623 |
| 48 | % | 18 | % | 13 | % | 21 | % | — | % |
Lilly Pulitzer | |
| 219,809 |
| 43 | % | 36 | % | — | % | 21 | % | — | % |
Lanier Apparel | |
| 76,871 |
| — | % | 1 | % | — | % | 99 | % | — | % |
Southern Tide | |
| 35,704 |
| — | % | 18 | % | — | % | 82 | % | — | % |
Corporate and Other | |
| 12,187 |
| — | % | 60 | % | — | % | 32 | % | 8 | % |
Total net sales | | $ | 825,194 |
| 39 | % | 22 | % | 8 | % | 31 | % | — | % |
| | | | | | | | | | | | | | |
|
| First Nine Months Fiscal 2018 | | |||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 482,990 |
| 48 | % | 17 | % | 13 | % | 22 | % | — | % |
Lilly Pulitzer | |
| 208,463 |
| 44 | % | 35 | % | — | % | 21 | % | — | % |
Lanier Apparel | |
| 72,806 |
| — | % | — | % | — | % | 100 | % | — | % |
Southern Tide | |
| 34,745 |
| — | % | 16 | % | — | % | 84 | % | — | % |
Corporate and Other | |
| 9,927 |
| — | % | 54 | % | — | % | 27 | % | 19 | % |
Total net sales | | $ | 808,931 |
| 40 | % | 20 | % | 8 | % | 32 | % | — | % |
11
3. Shareholders'Shareholders’ Equity: The following tables detail the changes (in thousands) in our common stock, additional paid-in capital ("APIC"), retained earnings and accumulated other comprehensive (loss) income ("AOCI"), for each period presented.
| | | | | | | | | | | | | | | |
| | First Nine Months Fiscal 2019 | |||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | |||||
February 2, 2019 |
| $ | 16,959 |
| $ | 142,976 |
| $ | 323,515 |
| $ | (5,095) |
| $ | 478,355 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 21,657 | |
| (388) | |
| 21,269 |
Shares issued under equity plans | |
| 91 | |
| 331 | |
| — | |
| — | |
| 422 |
Compensation expense for equity awards | |
| — | |
| 1,876 | |
| — | |
| — | |
| 1,876 |
Repurchase of shares | |
| (31) | |
| (2,422) | |
| — | |
| — | |
| (2,453) |
Cash dividends declared and paid | |
| — | |
| — | |
| (6,297) | |
| — | |
| (6,297) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
May 4, 2019 | | $ | 17,019 | | $ | 142,761 | | $ | 338,875 | | $ | (5,483) | | $ | 493,172 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 29,836 | |
| (133) | |
| 29,703 |
Shares issued under equity plans | |
| 16 | |
| 447 | |
| — | |
| — | |
| 463 |
Compensation expense for equity awards | |
| — | |
| 1,915 | |
| — | |
| — | |
| 1,915 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (6,304) | |
| — | |
| (6,304) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
August 3, 2019 | | $ | 17,035 | | $ | 145,123 | | $ | 362,407 | | $ | (5,616) | | $ | 518,949 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 1,668 | |
| 176 | |
| 1,844 |
Shares issued under equity plans | |
| 5 | |
| 418 | |
| — | |
| — | |
| 423 |
Compensation expense for equity awards | |
| — | |
| 1,907 | |
| — | |
| — | |
| 1,907 |
Repurchase of shares | |
| | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (6,307) | |
| — | |
| (6,307) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
November 2, 2019 | | $ | 17,040 | | $ | 147,448 | | $ | 357,768 | | $ | (5,440) | | $ | 516,816 |
12
Third Quarter Fiscal 2018 | |||||||||||||||
Common Stock | APIC | Retained Earnings | AOCI | Total | |||||||||||
August 4, 2018 | $ | 16,951 | $ | 138,613 | $ | 316,507 | $ | (4,939 | ) | $ | 467,132 | ||||
Net earnings and other comprehensive income | — | — | 1,861 | (150 | ) | 1,711 | |||||||||
Shares issued under equity plans | 5 | 351 | — | — | 356 | ||||||||||
Compensation expense for equity awards | — | 1,912 | — | — | 1,912 | ||||||||||
Repurchase of shares | — | — | — | — | — | ||||||||||
Cash dividends declared and paid | — | — | (5,764 | ) | — | (5,764 | ) | ||||||||
Cumulative effect of change in accounting standards | — | — | — | — | — | ||||||||||
November 3, 2018 | $ | 16,956 | $ | 140,876 | $ | 312,604 | $ | (5,089 | ) | $ | 465,347 | ||||
Third Quarter Fiscal 2017 | |||||||||||||||
Common Stock | APIC | Retained Earnings | AOCI | Total | |||||||||||
July 29, 2017 | $ | 16,827 | $ | 132,668 | $ | 264,282 | $ | (4,411 | ) | $ | 409,366 | ||||
Net earnings and other comprehensive income | — | — | 1,072 | (617 | ) | 455 | |||||||||
Shares issued under equity plans | 6 | 352 | — | — | 358 | ||||||||||
Compensation expense for equity awards | — | 1,541 | — | — | 1,541 | ||||||||||
Repurchase of shares | — | — | — | — | — | ||||||||||
Cash dividends declared and paid | — | — | (4,545 | ) | — | (4,545 | ) | ||||||||
Cumulative effect of change in accounting standards | — | — | — | — | — | ||||||||||
October 28, 2017 | $ | 16,833 | $ | 134,561 | $ | 260,809 | $ | (5,028 | ) | $ | 407,175 | ||||
First Nine Months Fiscal 2018 | |||||||||||||||
Common Stock | APIC | Retained Earnings | AOCI | Total | |||||||||||
February 3, 2018 | $ | 16,839 | $ | 136,664 | $ | 280,395 | $ | (4,074 | ) | $ | 429,824 | ||||
Net earnings and other comprehensive income | — | — | 49,612 | (1,015 | ) | 48,597 | |||||||||
Shares issued under equity plans | 147 | 1,023 | — | — | 1,170 | ||||||||||
Compensation expense for equity awards | — | 5,510 | — | — | 5,510 | ||||||||||
Repurchase of shares | (30 | ) | (2,321 | ) | — | — | (2,351 | ) | |||||||
Cash dividends declared and paid | — | — | (17,286 | ) | — | (17,286 | ) | ||||||||
Cumulative effect of change in accounting standards | — | — | (117 | ) | — | (117 | ) | ||||||||
November 3, 2018 | $ | 16,956 | $ | 140,876 | $ | 312,604 | $ | (5,089 | ) | $ | 465,347 | ||||
First Nine Months Fiscal 2017 | |||||||||||||||
Common Stock | APIC | Retained Earnings | AOCI | Total | |||||||||||
January 28, 2017 | $ | 16,769 | $ | 131,144 | $ | 233,493 | $ | (5,276 | ) | $ | 376,130 | ||||
Net earnings and other comprehensive income | — | — | 40,958 | 248 | 41,206 | ||||||||||
Shares issued under equity plans | 104 | 967 | — | — | 1,071 | ||||||||||
Compensation expense for equity awards | — | 4,616 | — | — | 4,616 | ||||||||||
Repurchase of shares | (40 | ) | (2,166 | ) | — | — | (2,206 | ) | |||||||
Cash dividends declared and paid | — | — | (13,642 | ) | — | (13,642 | ) | ||||||||
Cumulative effect of change in accounting standards | — | — | — | — | — | ||||||||||
October 28, 2017 | $ | 16,833 | $ | 134,561 | $ | 260,809 | $ | (5,028 | ) | $ | 407,175 |
| | | | | | | | | | | | | | | |
| | First Nine Months Fiscal 2018 | |||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | |||||
February 3, 2018 |
| $ | 16,839 |
| $ | 136,664 |
| $ | 280,395 |
| $ | (4,074) |
| $ | 429,824 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 20,567 | |
| (581) | |
| 19,986 |
Shares issued under equity plans | |
| 128 | |
| 236 | |
| — | |
| — | |
| 364 |
Compensation expense for equity awards | |
| — | |
| 1,718 | |
| — | |
| — | |
| 1,718 |
Repurchase of shares | |
| (30) | |
| (2,321) | |
| — | |
| — | |
| (2,351) |
Cash dividends declared and paid | |
| — | |
| — | |
| (5,759) | |
| — | |
| (5,759) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| (117) | |
| — | |
| (117) |
May 5, 2018 | | $ | 16,937 | | $ | 136,297 | | $ | 295,086 | | $ | (4,655) | | $ | 443,665 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 27,184 | |
| (284) | |
| 26,900 |
Shares issued under equity plans | |
| 14 | |
| 436 | |
| — | |
| — | |
| 450 |
Compensation expense for equity awards | |
| — | |
| 1,880 | |
| — | |
| — | |
| 1,880 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (5,763) | |
| — | |
| (5,763) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
August 4, 2018 | | $ | 16,951 | | $ | 138,613 | | $ | 316,507 | | $ | (4,939) | | $ | 467,132 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 1,861 | |
| (150) | |
| 1,711 |
Shares issued under equity plans | |
| 5 | |
| 351 | |
| — | |
| — | |
| 356 |
Compensation expense for equity awards | |
| — | |
| 1,912 | |
| — | |
| — | |
| 1,912 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (5,764) | |
| — | |
| (5,764) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
November 3, 2018 | | $ | 16,956 | | $ | 140,876 | | $ | 312,604 | | $ | (5,089) | | $ | 465,347 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 16,679 | |
| (6) | |
| 16,673 |
Shares issued under equity plans | |
| 3 | |
| 283 | |
| — | |
| — | |
| 286 |
Compensation expense for equity awards | |
| — | |
| 1,817 | |
| — | |
| — | |
| 1,817 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (5,768) | |
| — | |
| (5,768) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
February 2, 2019 | | $ | 16,959 | | $ | 142,976 | | $ | 323,515 | | $ | (5,095) | | $ | 478,355 |
Substantially all amounts included in AOCI in our consolidated balance sheets, as well as any related changes, for each period presented, reflect the net foreign currency translation adjustment related to our Tommy Bahama investments and operations in Canada, Australia and Japan.
4. Revenue Recognition for Contracts with Customers
Third Quarter of Fiscal 2018 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 123,130 | 46% | 14% | 13% | 27% | —% | |
Lilly Pulitzer | 68,213 | 35% | 53% | —% | 12% | —% | ||
Lanier Apparel | 29,037 | —% | —% | —% | 100% | —% | ||
Southern Tide | 9,496 | —% | 16% | —% | 84% | —% | ||
Corporate and Other | 3,786 | —% | 50% | —% | 34% | 16% | ||
Total | $ | 233,662 | 35% | 24% | 7% | 34% | —% | |
Third Quarter of Fiscal 2017 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 123,895 | 47% | 11% | 13% | 29% | —% | |
Lilly Pulitzer | 59,244 | 35% | 53% | —% | 12% | —% | ||
Lanier Apparel | 43,110 | —% | —% | —% | 100% | —% | ||
Southern Tide | 9,217 | —% | 16% | —% | 84% | —% | ||
Corporate and Other | 494 | —% | —% | —% | —% | 100% | ||
Total | $ | 235,960 | 33% | 20% | 7% | 40% | —% | |
First Nine Months of Fiscal 2018 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 482,990 | 48% | 17% | 13% | 22% | —% | |
Lilly Pulitzer | 208,463 | 44% | 35% | —% | 21% | —% | ||
Lanier Apparel | 72,806 | —% | —% | —% | 100% | —% | ||
Southern Tide | 34,745 | —% | 16% | —% | 84% | —% | ||
Corporate and Other | 9,927 | —% | 54% | —% | 27% | 19% | ||
Total | $ | 808,931 | 40% | 20% | 8% | 32% | —% | |
First Nine Months of Fiscal 2017 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 483,971 | 49% | 14% | 13% | 24% | —% | |
Lilly Pulitzer | 192,045 | 38% | 33% | —% | 29% | —% | ||
Lanier Apparel | 84,314 | —% | —% | —% | 100% | —% | ||
Southern Tide | 31,254 | —% | 17% | —% | 83% | —% | ||
Corporate and Other | 1,448 | —% | —% | —% | —% | 100% | ||
Total | $ | 793,032 | 39% | 17% | 8% | 36% | —% |
13
The sales return allowance is recognized on a gross basis, with the recognition of a return liability fortable below quantifies the amount of net sales estimated to be returned and a return assetby distribution channel (in thousands) for the right to recover the product estimated to be returned by the customer, measured at the previous carryingeach period presented.
| | | | | | | | | | | | | |
|
| Third Quarter |
| First Nine Months |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 |
| Fiscal 2019 |
| Fiscal 2018 | | ||||
Retail | | $ | 83,636 | | $ | 80,624 | | $ | 324,892 | | $ | 322,940 | |
E-commerce | |
| 62,310 | |
| 56,392 | |
| 180,736 | |
| 164,277 | |
Restaurant | |
| 17,325 | |
| 16,329 | |
| 61,457 | |
| 63,089 | |
Wholesale | |
| 77,595 | |
| 79,654 | |
| 256,794 | |
| 256,432 | |
Other | |
| 355 | |
| 663 | |
| 1,315 | |
| 2,193 | |
Net sales | | $ | 241,221 | | $ | 233,662 | | $ | 825,194 | | $ | 808,931 | |
Substantially all amounts of the product. The value of inventory associated with a right to recover the goods returned are included in prepaid expenses and other current assets in our consolidated balance sheet as of November 3, 2018, whereas prior to Fiscal 2018 those amounts were included in inventories. The changes in the return liability are recognized in receivables, net sales in our consolidated statements of operations and the changes in the return asset are recognized in cost of goods sold in our consolidated statements of operations for all periods presented.
In addition to trade and other receivables, an income tax receivablereceivables of $1 million, $1 million and $4 million and $5tenant allowances due from landlord of $2 million, is$0 million and $0 million are included in receivables, net in our consolidated balance sheet as of November 2, 2019, February 2, 2019 and November 3, 2018, andrespectively. As of November 2, 2019, February 3, 2018, respectively, with no material income tax receivable as of October 28, 2017. Substantially all other amounts recognized in receivables, net as of those dates represent receivables related to contracts with customers. As of2, 2019 and November 3, 2018, prepaid expenses and other current assets includesincluded $4 million, $2 million and $2 million, respectively, representing the estimated value of inventory for wholesale and direct to consumer sales returns, which was recognized in inventories in prior years pursuant to the previous guidance. An estimated sales return liability of $2 million for expected direct to consumer returns is classified in other accrued expenses and liabilities in our consolidated balance sheet as of November 3, 2018.returns. We dodid not have any significant contract assets related to contracts with customers, other than receivables and the value of inventory associated with reserves for expected sales returns, as of November 2, 2019, February 2, 2019 and November 3, 2018.
An estimated sales return liability of $3 million, $3 million and $2 million for expected direct to consumer returns is classified in other accrued expenses and liabilities in our consolidated balance sheet as of November 2, 2019, February 2, 2019 and November 3, 2018, February 3, 2018 or October 28, 2017.
5. Leases: We enter into real estate lease agreements for retail, food and October 28, 2017, respectively. Gift
Substantially all of our leases are classified as long-term operating leases, which have not historically been recognized as assets and liabilities in our consolidated balance sheets. When a non-cancelable long-term operating lease includes fixed escalation clauses or lease incentives for rent holidays, rent expense is generally recognized on a straight-line basis over the initial term of the lease from the date that we take possession of the space and assumes that any termination options included in the lease will not be exercised. Contingent rents, including those based on a percentage of retail sales over stated levels, and rental payment increases based on a contingent future event have been recognized as the expense is incurred. The difference between the rents payable under the lease and the amount recognized on a straight-line basis has historically been recorded in other non-current liabilities in our consolidated balance sheets, with the exception of the amounts recognized in current lease liabilities. Also, any tenant improvement allowance amounts received from the landlord have historically been deferred as a liability in our consolidated balance sheets and then recognized in our consolidated statements of operations.operations as a reduction to rent
14
expense over the licenseterm of the lease agreement on a straight-line basis. Deferred rent in our owned brands, whichconsolidated balance sheets, including tenant improvement allowances and all amounts in non-current and current liabilities, as of February 2, 2019 was $61 million.
Pursuant to the revised lease accounting guidance adopted in Fiscal 2019, we determine if an arrangement is a lease at contract inception. Operating lease liabilities are generallyrecognized at the lease commencement date based on the greaterpresent value of lease payments over the lease term. The significant judgments in calculating the present value of lease obligations include determining the lease term and lease payment amounts, which are dependent upon our assessment of the likelihood of exercising any renewal or termination options that are at our discretion, as well as the discount rate applied to the unpaid lease payments. Operating leases are included in operating lease assets, current operating lease liabilities and non-current operating lease liabilities in our consolidated balance sheet. The operating lease asset at commencement reflects the operating lease liability reduced for any lease incentives, including tenant improvement allowances. Lease expense for operating leases is recognized on a straight-line basis over the lease term, which is consistent with the previous guidance. Variable rental payments based on a percentage of retail sales over contractual levels and variable incremental rental payments adjusted periodically for inflation are both recognized as incurred.
We account for the licensee's actual net salesunderlying operating lease asset at the individual lease level. Typically, we do not include any renewal or a contractuallytermination options at our discretion in the underlying lease term as the probability of exercise is not reasonably certain. The revised lease guidance requires us to discount unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, minimum royalty amount, are recognized over timeour incremental borrowing rate. As our leases typically do not provide an implicit rate, we use an estimated incremental borrowing rate based upon the guaranteed minimum royalty obligations and adjustedon information available at commencement date, or as sales data, or estimates thereof, is received from licensees. Royalty income represents substantially allof February 3, 2019 for any leases in place at adoption of the amountsrevised guidance. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Finance leases are not material to our consolidated financial statements.
Substantially all lease expense is included in royalties and other operating incomeSG&A in our consolidated statements of operations.
As of November 2, 2019, the required lease liability payments for the fiscal years specified below were as follows (in thousands):
| | | |
|
| Operating lease | |
Remainder of 2019 | | $ | 17,066 |
2020 | |
| 62,622 |
2021 | | | 65,589 |
2022 | |
| 61,399 |
2023 | |
| 58,279 |
2024 | | | 45,664 |
After 2024 | |
| 92,256 |
Total lease payments | | $ | 402,875 |
Less: Difference between discounted and undiscounted lease payments | |
| 59,199 |
Present value of lease liabilities | | $ | 343,676 |
15
Disclosures related to periods prior to adoption of revised accounting guidance
Total rent expense in Fiscal 2018 was $96 million, which includes minimum rents, sales taxes, real estate taxes, insurance and other operating expenses and contingent rents incurred under all leases. Payments for real estate taxes, sales taxes, insurance, other operating expenses and contingent percentage rent are included in rent expense, but are generally not included in the aggregate minimum rental commitments, as, in many cases, the amounts payable in future periods are not quantified in the lease agreement or may be dependent on future events. The total amount of such charges included in total rent expense above were $28 million in Fiscal 2018. AmountsAs of February 2, 2019, the aggregate minimum base rental commitments for all non-cancelable operating leases with original terms in excess of one year were $68 million, $66 million, $62 million, $59 million, and $51 million for each of the next five years and $124 million thereafter.
6. Debt: In July 2019, we amended our $325 million Fourth Amended and Restated Credit Agreement (as amended, the “U.S. Revolving Credit Agreement”) by entering into the First Amendment to the Fourth Amended and Restated Credit Agreement to (1) extend the maturity of the facility to July 2024, and (2) modify certain provisions including a reduction of interest rates on certain borrowings and a reduction in unused line fees. We had 0 amounts outstanding as of November 2, 2019 under the U.S. Revolving Credit Agreement, compared to borrowings of $13 million as of February 2, 2019 and borrowings of $32 million as of November 3, 2018,2018. The U.S. Revolving Credit Agreement generally (1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (2) accrues variable-rate interest, unused line fees and letter of credit fees based upon average unused availability or utilization, (3) requires periodic interest payments with principal due at maturity, and (4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
To the extent cash flow needs exceed cash flow provided by our operations we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any. Our U.S. Revolving Credit Agreement is also used to establish collateral for certain insurance programs and leases and to finance trade letters of credit for product purchases, which are included in current liabilitiesreduce the amounts available under our line of credit when issued. As of November 2, 2019, $3 million of letters of credit were outstanding under our U.S. Revolving Credit Agreement. After considering these limitations and the amount of eligible assets in our consolidated balance sheet, total $2 million. These amounts are expectedborrowing base, as of November 2, 2019, we had $313 million in unused availability under the U.S. Revolving Credit Agreement, subject to be paid in the Fourth Quarter of Fiscal 2018 or the First Quarter of Fiscal 2019.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for Fiscal
OVERVIEW
We are a global apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer and Southern Tide lifestyle brands and other owned and licensed brands as well as private label apparel products. During Fiscal 2017, 92%2018, 93% of our net sales were from products bearing brands that we own and 66%69% of our net sales were through our direct to consumer channels of distribution. In Fiscal 2017, 97%2018, 96% of our consolidated net sales were to customers located in the United States, with the sales outside the United States consisting primarily of our Tommy Bahama product sales in Canada and the Asia-Pacific region.
16
Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude. Furthermore, we believe lifestyle brands that create an emotional connection, like Tommy Bahama, Lilly Pulitzer and Southern Tide, can command greater loyalty and higher price points at retail and create licensing opportunities, which may drive higher earnings. We believe the attraction of a lifestyle brand depends on creating compelling product, effectively communicating the respective lifestyle brand message and distributing products to consumers where and when they want them.
Our ability to compete successfully in styling and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference and presenting appealing products for consumers. Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated products each season.
To further strengthen each lifestyle brand'sbrand’s connections with consumers, we directly communicate with consumers through digital and print media on a regular basis. We believe our ability to effectively communicate the images, lifestyle and products of our brands and create an emotional connection with consumers is critical to the success of our brands. Our advertisingAdvertising for our brands often attempts to convey the lifestyle of the brand as well as a specific product.
We distribute our owned lifestyle branded products primarily through our direct to consumer channels, consisting of our Tommy Bahama and Lilly Pulitzer retail stores and our e-commerce sites for Tommy Bahama, Lilly Pulitzer and Southern Tide, and through our wholesale distribution channels. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them a broad assortment of our current season products and immerse them in the theme of the lifestyle brand. We believe that presenting our products in a setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands. Our Tommy Bahama and Lilly Pulitzer full-price retail stores provide high visibility for our brands and products and allow us to stay close to the preferences of our consumers, while also providing a platform for long-term growth for the brands. In Tommy Bahama, we also operate a limited number of restaurants includingand Marlin Bars, generally adjacent to a Tommy Bahama full-price retail store location, which we believe further enhance the brand'sbrand’s image with consumers. Our e-commerce websites which represented 19% of our consolidated net sales in Fiscal 2017, provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products.
The wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger group of consumers. As we seek to maintain the integrity of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites, we generally target wholesale customers that follow this same approach in their stores. Our wholesale customers for our Tommy Bahama, Lilly Pulitzer and Southern Tide brands generally include various specialty stores, including Signature Stores for Lilly Pulitzer and Southern Tide, better department stores and multi-branded e-commerce retailers.
The disposal of discontinued, end of season or excess inventory is an ongoing part of any apparel business, and our operating groups have historically utilized a variety of methods to sell such inventory, including outlet stores in Tommy
All of our operating groups operate in highly competitive apparel markets in which numerous U.S. and foreign-based apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry, and our direct competitors vary by operating group and distribution channel. We believe the principal competitive factors in the apparel industry are reputation, value, and image of brand names; design; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service.
The apparel industry is cyclical and very dependent upon the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional, domestic and international economic conditions change.
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Increasingly, consumers are choosing to spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries. We believe the changes in consumer preferences for discretionary spending, the current global economic conditions and economic uncertainty continue to impact the business of each of our operating groups and the apparel industry as a whole.
Due to the imposition by the United States of higher tariffs on apparel and related products manufactured in China, our net sales, cost of goods sold, operating income and net earnings are expected to be impacted in the second half of Fiscal 2019 as well as in Fiscal 2020, to the extent that we are unable to offset the additional costs by moving product sourcing from China, successfully negotiating price reductions from third party manufacturers or increasing sales prices on select products. During Fiscal 2018, approximately 54% of our apparel and related products were from producers located in China. During Fiscal 2019, we have made progress in shifting production from China, particularly for goods to be received late in the fiscal year, resulting in our expectation that the proportion of products sourced from China in Fiscal 2019 will be slightly lower than in Fiscal 2018. We anticipate more meaningful reductions in the proportion of our apparel and related products sourced from China in Fiscal 2020.
We believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion retailing. The application of technology, including the internet and mobile devices, to fashion retail provides consumers increasing access to multiple, responsive distribution platforms and an unprecedented ability to communicate directly with brands and retailers. As a result, consumers have more information and greater control over information they receive as well as broader, faster and cheaper access to goods than ever before. This, along with the coming of age of the “millennial” generation, is revolutionizing the way that consumers shop for fashion and other goods. The evidence of the evolution is apparent withgoods, which continues to be evidenced by weakness and store closures for certain department stores and mall-based retailers, decreased consumer retail traffic, a more promotional retail environment, expansion of off-price and discount retailers, and a shift from bricks and mortar to internet purchasing. These changes may require that brands and retailers approach their operations, including marketing and advertising, very differently than historical practices.
While this evolution in the fashion retail industry presents significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers to capitalize on the changing consumer environment. We believe our brands have true competitive advantages in this new retailing paradigm, and we are leveraging technology to serve our consumers when and where they want to be served. We continue to believe that our lifestyle brands, with their strong emotional connections with consumers, are well suited to succeed and thrive in the long term while managing the various challenges facing our industry.
Specifically, we believe our lifestyle brands have opportunities for long-term growth in our direct to consumer businesses. We anticipate increased sales in our e-commerce operations, which are expected to grow at a faster rate than comparable sales through our bricks and mortar comparable store sales.locations. We also believe growth can be achieved through prudent expansion of bricks and mortar full-price retail store and restaurant operations and modest comparable full-price retail store and restaurant sales increases. Despite the changes in the retail environment, weWe expect there will continue to be desirable locations to add new retail stores to our portfolio, but at a measured and selective pace, and believe that an effective bricks and mortar retail strategy is an important component to the e-commerce operations for additional stores.
We believe our lifestyle brands have an opportunity for modest sales increases in their wholesale businesses in the long term. However, we must be diligent in our effort to avoid compromising the integrity of our brands by maintaining or growing sales with wholesale customers that may not be aligned with our long-term strategy. This is particularly important with the challenges in the department store channel, which represented approximately 14%12% of our consolidated net sales in Fiscal 2017,2018, compared to approximately 16%14% in Fiscal 2016.2017. The management of wholesale distribution for our lifestyle brands resulted in a decrease in wholesale sales in the First Nine Months of Fiscal 2018 and2018. While we anticipate modest growth in our wholesale sales in Fiscal 2019, there could result inbe additional reductions in wholesale sales in future periods,years, as we may decrease the amount of sales to certain wholesale accounts by reducingcould decrease if the number of doors that carry our product reducingdecreases, the volume sold for a particular door is reduced or exiting the account is exited altogether. We anticipate that sales increases in our wholesale businesses in the long term will stem primarily from certain current customers adding within their existing door count and increasing their online business; increased sales to online retailers; and our selective addition of new
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wholesale customers who generally present and merchandise our products in a way that is consistent with our full-price, direct to consumer distribution strategy. We also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs and licenses.
We believe we must continue to invest in our lifestyle brands to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations, such as technology enhancements, e-commerce initiatives and retail store and restaurant build-out for new, relocated or remodeled locations, as well as distribution center and administrative office expansion initiatives. Additionally, we anticipate increased advertising,
In the midst of the changes in our industry, an important initiative for us in Fiscal 2017 washas been to increase the profitability of the Tommy Bahama business. These initiatives generally focusedfocus on increasing gross margin and operating margin through efforts such as: product cost reductions; selective price increases; reducing inventory purchases; redefining our approach to inventory clearance; effectively managing controllable and discretionary operating expenses; taking a more conservative approach to retail store openings and lease renewals; and continuing our efforts to reduceimproving Asia-Pacific operating losses. Progress wasresults. While we have made progress on these initiatives in Fiscal 2017. In addition, inrecent years, improving the First Nine Months of Fiscal 2018, we made additional progress, including the reduction of Asia-Pacific losses with the restructuringprofitability of the Tommy Bahama Japan operations as discussed in Note 6.
We continue to believe it is important to maintain a strong balance sheet and liquidity. We believe positive cash flow from operations, coupled with the strength of our balance sheet and liquidity, will provide us with sufficient resources to fund future investments in our owned lifestyle brands. While we believe we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, our strong cash flows from operations and ample borrowing capacity provide us the ability to continue to evaluate opportunities to add additional lifestyle brands to our portfolio in the future if we identify appropriate targets that meet our investment criteria. WithWhile we are actively exploring acquisition opportunities, investment opportunities for the evolving fashion retail environment,types of large brands with the attributes that we desire are not always available at an acceptable price. Therefore, our interest in acquiring smaller brands and earlier stage companies is evolving,has increased in recent years, particularly in businesses where we may have the opportunity to more fully integrate the brand into our existing infrastructure and shared services functions.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impact our business are described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for Fiscal 2017.
The following table sets forth our consolidated operating results from continuing operations (in thousands, except per share amounts) for the First Nine Months of Fiscal 20182019 compared to the First Nine Months of Fiscal 2017:
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||||
Net sales | $ | 808,931 | $ | 793,032 | ||
Operating income | $ | 68,591 | $ | 67,485 | ||
Net earnings | $ | 49,612 | $ | 40,958 | ||
Net earnings per diluted share | $ | 2.95 | $ | 2.45 |
| | | | | | |
|
| First Nine Months | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | ||
Net sales | | $ | 825,194 | | $ | 808,931 |
Operating income | | $ | 72,595 | | $ | 68,591 |
Net earnings | | $ | 53,161 | | $ | 49,612 |
Net earnings per diluted share | | $ | 3.15 | | $ | 2.95 |
Weighted average shares outstanding - diluted | |
| 16,896 | |
| 16,826 |
The higher net earnings per diluted share in the First Nine Months of Fiscal 20182019 was due to (1) the lower effective tax rate resulting from U.S. Tax Reform as discussed in Note 4, (2) the improved operating results in Corporate and Other, primarily due to the favorable impact of LIFO accounting and the operations of TBBC, (3) increased operating income in Southern Tide primarily due to higher net sales, (4) lower interest expense and (5) improved operating income in Lilly Pulitzer. These items were partially offset by (1) lower operating income in Lanier Apparel, primarily due to lower sales, and (2) lower operating income inPulitzer, Tommy Bahama primarily due to increased advertising expense and Tommy Bahama Japan restructuring charges as discussed in Note 6. Changes in operating results by group are discussed below.
COMPARABLE STORE SALES
We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include net sales from full-price retail stores and our e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both our
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full-price retail stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channel. For our comparable store sales disclosures, we exclude (1) outlet store sales, warehouse sales and e-commerce flash clearance sales, as those clearance sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales, and (2) restaurant sales, as we do not currently believe that the inclusion of restaurant sales in our comparable store sales disclosures is meaningful in assessing our consolidated results of operations. Comparable store sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, we consider a comparable store to be, in addition to oursales consists of sales through e-commerce sites aand any physical full-price retail store that was owned and open as of the beginning of the prior fiscal fiscal��year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel or other event resultingwhich would result in the store being closeda closure for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space or (3) a relocation to a new space that wasis significantly different from the prior retail space, or (4) a closing or opening of a Tommy Bahama restaurant adjacent to the full-price retail store.space. For those stores which are excluded from comparable stores based on the preceding sentence, the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel, relocation, restaurant closing or opening, or other event. A retail store that is remodeled will generally continue to be included in our comparable store sales metrics as a store is not typically closed for longer than a two-week period during a remodel; however, a retail store that is relocated generally will not be included in our comparable store sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year because the size or other characteristics of the store typically change significantly from the prior location. Any stores that were closed during the prior fiscal year or current fiscal year, or which we expect to close or vacate in the current fiscal year, are excluded from the definition of comparable store sales.
Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies.
STORE COUNT
The table below provides store count information for Tommy Bahama and Lilly Pulitzer as of the dates specified.
November 3, 2018 | February 3, 2018 | October 28, 2017 | January 28, 2017 | |
Tommy Bahama Full-Price Retail Stores (1) | 113 | 110 | 111 | 111 |
Tommy Bahama Retail-Restaurant Locations | 17 | 18 | 18 | 17 |
Tommy Bahama Outlet Stores | 38 | 38 | 38 | 40 |
Total Tommy Bahama Retail Locations | 168 | 166 | 167 | 168 |
Lilly Pulitzer Full-Price Retail Stores | 60 | 57 | 57 | 40 |
Total Oxford Retail Locations | 228 | 223 | 224 | 208 |
| | | | | | | | |
| | November 2, | | February 2, | | November 3, | | February 3, |
|
| 2019 |
| 2019 |
| 2018 |
| 2018 |
Tommy Bahama retail stores |
| 111 |
| 113 |
| 113 |
| 110 |
Tommy Bahama retail-restaurant locations |
| 17 |
| 17 |
| 17 |
| 18 |
Tommy Bahama outlets |
| 37 |
| 37 |
| 38 |
| 38 |
Total Tommy Bahama locations |
| 165 |
| 167 |
| 168 |
| 166 |
Lilly Pulitzer retail stores |
| 63 |
| 62 |
| 60 |
| 57 |
Total Oxford locations |
| 228 |
| 229 |
| 228 |
| 223 |
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 20182019 COMPARED TO THIRD QUARTER OF FISCAL 2017
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||||||
Net sales | $ | 233,662 | 100.0 | % | $ | 235,960 | 100.0 | % | $ | (2,298 | ) | (1.0 | )% | ||
Cost of goods sold | 104,383 | 44.7 | % | 110,784 | 47.0 | % | (6,401 | ) | (5.8 | )% | |||||
Gross profit | $ | 129,279 | 55.3 | % | $ | 125,176 | 53.0 | % | $ | 4,103 | 3.3 | % | |||
SG&A | 128,687 | 55.1 | % | 127,091 | 53.9 | % | 1,596 | 1.3 | % | ||||||
Royalties and other operating income | 3,113 | 1.3 | % | 3,039 | 1.3 | % | 74 | 2.4 | % | ||||||
Operating income | $ | 3,705 | 1.6 | % | $ | 1,124 | 0.5 | % | $ | 2,581 | 229.6 | % | |||
Interest expense, net | 489 | 0.2 | % | 683 | 0.3 | % | (194 | ) | (28.4 | )% | |||||
Earnings before income taxes | $ | 3,216 | 1.4 | % | $ | 441 | 0.2 | % | $ | 2,775 | 629.3 | % | |||
Income taxes | 1,355 | 0.6 | % | (631 | ) | (0.3 | )% | 1,986 | NM | ||||||
Net earnings | $ | 1,861 | 0.8 | % | $ | 1,072 | 0.5 | % | $ | 789 | 73.6 | % |
The discussion and tables below compare certain line items included in our statements of operations for the Third Quarter of Fiscal 20182019 to the Third Quarter of Fiscal 2017.2018. Each dollar and percentage change provided reflects the change between these fiscal periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. We have calculated all percentages based on actual data, and percentage columns in tables may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. Unless otherwise indicated, all references
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The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to assets, liabilities, revenues, expenses or other information in this report reflect continuing operations.
| | | | | | | | | | | | | | | | | | |
|
| Third Quarter |
|
| | | | |
| |||||||||
| | Fiscal 2019 | | | Fiscal 2018 | | | $ Change |
| % Change | | |||||||
| | | | | | | | | | | | | | | | | | |
Net sales |
| $ | 241,221 |
| 100.0 | % | | $ | 233,662 | | 100.0 | % | | $ | 7,559 |
| 3.2 | % |
Cost of goods sold | |
| 108,241 |
| 44.9 | % | |
| 104,383 |
| 44.7 | % | |
| 3,858 |
| 3.7 | % |
Gross profit | | $ | 132,980 |
| 55.1 | % | | $ | 129,279 |
| 55.3 | % | | $ | 3,701 |
| 2.9 | % |
SG&A | |
| 134,231 |
| 55.6 | % | |
| 128,687 |
| 55.1 | % | |
| 5,544 |
| 4.3 | % |
Royalties and other operating income | |
| 3,845 |
| 1.6 | % | |
| 3,113 |
| 1.3 | % | |
| 732 |
| 23.5 | % |
Operating income | | $ | 2,594 |
| 1.1 | % | | $ | 3,705 |
| 1.6 | % | | $ | (1,111) |
| (30.0) | % |
Interest expense, net | |
| 81 |
| 0.0 | % | |
| 489 |
| 0.2 | % | |
| (408) |
| (83.4) | % |
Earnings before income taxes | | $ | 2,513 |
| 1.0 | % | | $ | 3,216 |
| 1.4 | % | | $ | (703) |
| (21.9) | % |
Income taxes | |
| 845 |
| 0.4 | % | |
| 1,355 |
| 0.6 | % | |
| (510) |
| (37.6) | % |
Net earnings | | $ | 1,668 |
| 0.7 | % | | $ | 1,861 |
| 0.8 | % | | $ | (193) |
| (10.4) | % |
Net Sales
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 123,130 | $ | 123,895 | $ | (765 | ) | (0.6 | )% | ||
Lilly Pulitzer | 68,213 | 59,244 | 8,969 | 15.1 | % | ||||||
Lanier Apparel | 29,037 | 43,110 | (14,073 | ) | (32.6 | )% | |||||
Southern Tide | 9,496 | 9,217 | 279 | 3.0 | % | ||||||
Corporate and Other | 3,786 | 494 | 3,292 | NM | |||||||
Total net sales | $ | 233,662 | $ | 235,960 | $ | (2,298 | ) | (1.0 | )% |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | | |||||
| | Fiscal 2019 | | Fiscal 2018 |
| $ Change |
| % Change | | |||
Tommy Bahama | | $ | 127,023 | | $ | 123,130 | | $ | 3,893 |
| 3.2 | % |
Lilly Pulitzer | |
| 71,659 | |
| 68,213 | |
| 3,446 |
| 5.1 | % |
Lanier Apparel | |
| 29,377 | |
| 29,037 | |
| 340 |
| 1.2 | % |
Southern Tide | |
| 9,102 | |
| 9,496 | |
| (394) |
| (4.1) | % |
Corporate and Other | |
| 4,060 | |
| 3,786 | |
| 274 |
| 7.2 | % |
Total net sales | | $ | 241,221 | | $ | 233,662 | | $ | 7,559 |
| 3.2 | % |
Consolidated net sales decreased $2increased $8 million, or 1%3%, in the Third Quarter of Fiscal 2018.2019. The decreaseincrease in consolidated net sales was primarily driven by (1) a $16 million net decrease in wholesale sales, driven by a decrease in Lanier Apparel, and (2) a $1 million decrease in direct to consumer sales at comparable stores resulting from the calendar shift between Fiscal 2017 and Fiscal 2018. These decreases were partially offset by (1) a $5$6 million, or 7%6%, calendar-adjusted comparable store sales increase from $73to $91 million in the 13-week period ended November 4, 2017 to $79Third Quarter of Fiscal 2019 from $85 million in the Third Quarter of Fiscal 2018, reflecting strongwith comparable store sales increases in both Tommy Bahama and Lilly Pulitzer, (2) a $4$2 million increase in our off-price direct to consumer clearance channels,sales including an increase in the Lilly Pulitzer e-commerce flash clearance sales partially offset by slightly lower outlet store sales in Tommy Bahama,sale, (3) $3 million of e-commerce and wholesale sales for TBBC, which we acquired in the Fourth Quarter of Fiscal 2017 and (4) an incremental net sales increase of $2 million associated with the operation of non-comp full-price retail stores,store operations primarily resulting from an increase at Lilly Pulitzer and (4) a $1 million increase in Lilly Pulitzer. By way of comparison, onrestaurant sales in Tommy Bahama. These increases were partially offset by a fiscal period basis, consolidated comparable store sales increased 6%$2 million net decrease in the Third Quarter of Fiscal 2018 relative to the Third Quarter of Fiscal 2017.wholesale sales. The changes in net sales by operating group are discussed below.
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||
Full-price retail stores and outlets | 35 | % | 33 | % |
E-commerce | 24 | % | 20 | % |
Restaurant | 7 | % | 7 | % |
Wholesale | 34 | % | 40 | % |
Total | 100 | % | 100 | % |
| | | | | |
|
| Third Quarter |
| ||
| | Fiscal 2019 |
| Fiscal 2018 | |
Retail |
| 35 | % | 35 | % |
E-commerce |
| 26 | % | 24 | % |
Restaurant |
| 7 | % | 7 | % |
Wholesale |
| 32 | % | 34 | % |
Total |
| 100 | % | 100 | % |
Tommy Bahama:
Tommy Bahama net sales decrease of $1increased $4 million, or 1%3%, in the Third Quarter of Fiscal 2019. The increase in Tommy Bahama net sales was primarily driven by (1) a $2 million decrease in wholesale sales, including reductions in off-price wholesale sales, (2) a $1 million decrease in non-comp full-price retail stores, reflecting the net sales change for stores that were opened, closed or remodeled during Fiscal 2017 or Fiscal 2018 and (3) modestly lower sales in Tommy Bahama's off-price directdue to consumer channels and restaurants. These decreases were partially offset by (1) a $3 million, or 5%6%, comparable sales increase in calendar-adjusted comparable store sales from $54to $58 million in the 13-week period ended November 4, 2017 to $56Third Quarter of Fiscal 2019 from $55 million in the Third Quarter of Fiscal 2018 driven by strong growth in e-commerce sales, and (2) a $1 million increase in direct to consumerrestaurant
21
sales primarily reflecting the net impact of sales at remodeled, opened and closed restaurants, as well as increased sales in existing restaurants. These increases were partially offset by a $1 million decrease in wholesale sales, reflecting lower full-price wholesale sales and higher off-price wholesale sales. Sales in outlets and non-comp retail stores were generally comparable stores resulting from the calendar shift between Fiscal 2017 and Fiscal 2018. By way of comparison, on a fiscal period basis, Tommy Bahama comparable store sales increased 6% in the Third Quarter of Fiscal 2018 relative to the Third Quarter of Fiscal 2017.period-over-period. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||
Full-price retail stores and outlets | 46 | % | 47 | % |
E-commerce | 14 | % | 11 | % |
Restaurant | 13 | % | 13 | % |
Wholesale | 27 | % | 29 | % |
Total | 100 | % | 100 | % |
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 46 | % | 46 | % |
E-commerce |
| 14 | % | 14 | % |
Restaurant |
| 14 | % | 13 | % |
Wholesale |
| 26 | % | 27 | % |
Total |
| 100 | % | 100 | % |
Lilly Pulitzer:
Lilly Pulitzer net sales increase of $9increased $3 million, or 15%5%, in the Third Quarter of Fiscal 2019. The increase in Lilly Pulitzer net sales was primarily a result ofdriven by (1) a $5$2 million increase in e-commerce flash clearance sales, with the September 2018 sale2019 “After Party Sale” generating $29$31 million of net sales, (2) a $3$2 million, or 15%6%, comparable sales increase in calendar-adjusted comparable store sales from $18to $28 million in the 13-week period ended November 4, 2017 to $21Third Quarter of Fiscal 2019 from $27 million in the Third Quarter of Fiscal 2018, with increases in both e-commerce and retail store comparable store sales, (3) an incremental net sales increase of $3$1 million associated with the operation of non-comp full-price retail stores, including stores opened by Lilly Pulitzer and the Signature Stores acquired in Fiscal 2017, and (4) a $1 million increase in wholesale sales as increased sales to Signature Stores and specialty stores offset the decrease in sales to department stores.store operations. These increases were partially offset by a $2$1 million decrease in direct to consumerwholesale sales at comparable stores resulting from the calendar shift between Fiscal 2017reflecting lower full-price and Fiscal 2018. By way of comparison, on a fiscal period basis, Lilly Pulitzer comparable store sales increased 5% in the Third Quarter of Fiscal 2018 relative to the Third Quarter of Fiscal 2017.off-price wholesale sales. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||
Full-price retail stores | 35 | % | 35 | % |
E-commerce | 53 | % | 53 | % |
Wholesale | 12 | % | 12 | % |
Total | 100 | % | 100 | % |
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 35 | % | 35 | % |
E-commerce |
| 55 | % | 53 | % |
Wholesale |
| 10 | % | 12 | % |
Total |
| 100 | % | 100 | % |
Lanier Apparel:
The Lanier Apparel net sales decreaseincrease of $14 million, or 33%, was primarily due to (1) lower volume in various programs, including the impact of softness in the replenishment of certain programs, (2) the exit from certain programs, including the impact of customers who filed for bankruptcy in Fiscal 2018, (3) a shift in timing from the third quarter to the second and
Southern Tide:
Southern Tide net sales increasedecreased 4% in the Third Quarter of 3% wasFiscal 2019 due to increased sales in both the wholesale and e-commerce channels of distribution. The increasedlower wholesale sales reflectpartially offset by increased e-commerce sales. The lower wholesale sales to (1) Signature Stores, including those opened in the last year, (2) department stores and (3)primarily resulted from lower off-price retailers.wholesale sales. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2019 |
| Fiscal 2018 | |
E-commerce |
| 19 | % | 16 | % |
Wholesale |
| 81 | % | 84 | % |
Total |
| 100 | % | 100 | % |
22
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||
E-commerce | 16 | % | 16 | % |
Wholesale | 84 | % | 84 | % |
Total | 100 | % | 100 | % |
Corporate and Other:
Corporate and Other net sales primarily consist of the net sales of TBBC which include e-commerce and wholesale operations, and our Lyons, Georgia distribution center operations. The increase in net sales was primarily due to the December 2017 acquisition ofsales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the Third Quarter of Fiscal 20182019 and the Third Quarter of Fiscal 2017,2018, as well as the change between those two periods and gross margin by operating group and in total for the Third Quarter of Fiscal 2018 and the Third Quarter of Fiscal 2017.total. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 75,738 | $ | 74,279 | $ | 1,459 | 2.0 | % | |||
Lilly Pulitzer | 38,290 | 32,891 | 5,399 | 16.4 | % | ||||||
Lanier Apparel | 8,580 | 13,191 | (4,611 | ) | (35.0 | )% | |||||
Southern Tide | 4,475 | 4,884 | (409 | ) | (8.4 | )% | |||||
Corporate and Other | 2,196 | (69 | ) | 2,265 | NM | ||||||
Total gross profit | $ | 129,279 | $ | 125,176 | $ | 4,103 | 3.3 | % | |||
LIFO charge included in Corporate and Other | $ | (57 | ) | $ | 476 | ||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 |
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||
Tommy Bahama | 61.5 | % | 60.0 | % |
Lilly Pulitzer | 56.1 | % | 55.5 | % |
Lanier Apparel | 29.5 | % | 30.6 | % |
Southern Tide | 47.1 | % | 53.0 | % |
Corporate and Other | NM | NM | ||
Consolidated gross margin | 55.3 | % | 53.0 | % |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | | | ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Tommy Bahama | | $ | 76,467 | | $ | 75,738 | | $ | 729 |
| 1.0 | % |
Lilly Pulitzer | |
| 40,954 | |
| 38,290 | |
| 2,664 |
| 7.0 | % |
Lanier Apparel | |
| 8,628 | |
| 8,580 | |
| 48 |
| 0.6 | % |
Southern Tide | |
| 4,395 | |
| 4,475 | |
| (80) |
| (1.8) | % |
Corporate and Other | |
| 2,536 | |
| 2,196 | |
| 340 |
| 15.5 | % |
Total gross profit | | $ | 132,980 | | $ | 129,279 | | $ | 3,701 |
| 2.9 | % |
LIFO adjustments in Corporate and Other | | $ | (35) | | $ | (57) | |
|
|
|
| |
| | | | | | | |
|
|
|
| |
| | | | | |
|
| Third Quarter | | ||
| | Fiscal 2019 | | Fiscal 2018 | |
Tommy Bahama |
| 60.2 | % | 61.5 | % |
Lilly Pulitzer |
| 57.2 | % | 56.1 | % |
Lanier Apparel |
| 29.4 | % | 29.5 | % |
Southern Tide |
| 48.3 | % | 47.1 | % |
Corporate and Other |
| NM |
| NM | |
Consolidated gross margin |
| 55.1 | % | 55.3 | % |
The increase in consolidated gross profit on lower net sales, in the Third Quarter of Fiscal 20182019 was due to a higherincreased net sales partially offset by lower gross margin. The improvedlower consolidated gross margin reflects lower gross margin in Tommy Bahama and Lanier Apparel which was partially offset by (1) improved gross margin in Lilly Pulitzer and Southern Tide and (2) a change in sales mix as Tommy Bahama and Lilly Pulitzer represented a larger proportion of our net sales. Changes in gross margin by operating group are discussed below.
Tommy Bahama:
The decrease in gross margin for Tommy Bahama was primarily driven by (1) lower gross margin in the wholesale business reflecting a larger proportion of off-price wholesale sales as well as lower gross margins on wholesale sales and (2) lower gross margin in the direct to consumer business as a greater proportion of sales were associated with Tommy Bahama promotional events including our Friends and Family, Boracay pant and loyalty award card events.
Lilly Pulitzer:
The increase in gross margin for Lilly Pulitzer was primarily due to (1) a change in sales mix as Lilly Pulitzerdirect to consumer sales represented a larger proportion of net sales and (2) improved gross margin in the full-price direct to consumer, e-commerce flash clearance sale and wholesale channels of distribution.
23
Lanier Apparel:
The decrease in gross margin for Lanier Apparel was primarily due to a change in sales mix as a greater proportion and Lanier Apparel represented a lower proportion, of net sales in the Third Quarter of Fiscal 2018, (2) improved gross margins in Tommy Bahama, (3) the Third Quarter of Fiscal 2017 including inventory step-up charges in Lilly Pulitzer, with no such charges in the Third Quarter of Fiscal 2018, and (4) the Third Quarter of Fiscal 2017 including a LIFO accounting charge, with a small LIFO accounting credit in the Third Quarter of Fiscal 2018. These favorable items that impacted consolidated gross margin2019 were partially offset by (1) lower gross margins in related to private label programs.
Southern Tide and Lanier Apparel and (2) a change in sales mix within Lilly Pulitzer as e-commerce flash clearance sales represented a greater proportion of Lilly Pulitzer net sales.
The increase in gross margin for Tommy BahamaSouthern Tide was driven by (1) improved gross margins in both the directprimarily due to consumer and wholesale businesses, reflecting progress in our initiatives to improve initial gross margins, including selective price increases as well as product cost reductions, and improved gross margins on off-price sales, and (2) a change in sales mix as e-commerce sales represented a greater proportion of Tommy Bahamanet sales in the Third Quarter of Fiscal 2018.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects (1) the gross profit of TBBC, (2) the gross profit of our Lyons, Georgia distribution center and (3) the impact of LIFO accounting adjustments. The primary driver for the improvedhigher gross profit was (1) the Third Quarter of Fiscal 2018 including the gross profit associated with the increased net sales of TBBC and (2) the net favorable impact of LIFO accounting in the Third Quarter of Fiscal 2018 compared to the Third Quarter of Fiscal 2017.TBBC. The LIFO accounting impact in Corporate and Other in each period primarily reflects the sale of(1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior periodsperiod is ultimately sold or (2) a credit in Corporate and Other when inventory has been marked down to the estimated net realizable value in an operating group in the current period, but generally reversed in Corporate and Otherthe inventory has not been sold as part of LIFO accounting.
SG&A
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
SG&A | $ | 128,687 | $ | 127,091 | $ | 1,596 | 1.3 | % | |||
SG&A as % of net sales | 55.1 | % | 53.9 | % | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 378 | $ | 391 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 93 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
SG&A | | $ | 134,231 | | $ | 128,687 | | $ | 5,544 |
| 4.3 | % |
SG&A (as a % of net sales) | |
| 55.6 | % |
| 55.1 | % |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 378 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | | | | | | |
The increase inhigher SG&A in the Third Quarter of Fiscal 20182019 was primarily due to (1) $1 million of incrementalincreases in SG&A associated with TBBC and (2)to support the businesses, including increased salaries, and wages, occupancyemployee benefits, variable costs and other operating expenses in our ongoing operations, (2) a $1 million increase in advertising expense and (3) incremental SG&A associated with the cost of operating additional direct to consumer and wholesale operations.locations. These increases in SG&A were partially offset by $1a $2 million of lowerreduction in incentive compensation amounts.
Royalties and other operating income
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Royalties and other operating income | $ | 3,113 | $ | 3,039 | $ | 74 | 2.4 | % |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Royalties and other operating income | | $ | 3,845 | | $ | 3,113 | | $ | 732 |
| 23.5 | % |
Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The increased royalties and other income in the Third Quarter of Fiscal 2019 reflects increased royalty income in both Tommy Bahama and Lilly Pulitzer and Southern Tide brands.Pulitzer.
24
Operating income (loss)
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | (5,141 | ) | $ | (5,872 | ) | $ | 731 | 12.4 | % | |
Lilly Pulitzer | 9,576 | 4,952 | 4,624 | 93.4 | % | ||||||
Lanier Apparel | 2,261 | 5,615 | (3,354 | ) | (59.7 | )% | |||||
Southern Tide | 492 | 1,016 | (524 | ) | (51.6 | )% | |||||
Corporate and Other | (3,483 | ) | (4,587 | ) | 1,104 | 24.1 | % | ||||
Total operating income | $ | 3,705 | $ | 1,124 | $ | 2,581 | 229.6 | % | |||
LIFO charge included in Corporate and Other | $ | (57 | ) | $ | 476 | ||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 378 | $ | 391 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 93 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Tommy Bahama | | $ | (7,739) | | $ | (5,141) | | $ | (2,598) |
| (50.5) | % |
Lilly Pulitzer | |
| 10,988 | |
| 9,576 | |
| 1,412 |
| 14.7 | % |
Lanier Apparel | |
| 1,952 | |
| 2,261 | |
| (309) |
| (13.7) | % |
Southern Tide | |
| 526 | |
| 492 | |
| 34 |
| 6.9 | % |
Corporate and Other | |
| (3,133) | |
| (3,483) | |
| 350 |
| 10.0 | % |
Total Operating Income | | $ | 2,594 | | $ | 3,705 | | $ | (1,111) |
| (30.0) | % |
LIFO adjustments in Corporate and Other | | $ | (35) | | $ | (57) | |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 378 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | | | | | | |
| | | | | | | | | | | | |
The higherdecrease in operating income in the Third Quarter of Fiscal 2018 and the Third Quarter of Fiscal 20172019 was primarily due to higher SG&A and lower gross margin, partially offset by the impact of higher net sales. On an operating group basis, the decrease in operating income reflects lower operating results in Tommy Bahama and Lanier Apparel partially offset by improved operating results in Lilly Pulitzer and Corporate and Other and Tommy Bahama, partially offset by lower operating income in Lanier Apparel and Southern Tide.Other. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 123,130 | $ | 123,895 | $ | (765 | ) | (0.6 | )% | ||
Gross margin | 61.5 | % | 60.0 | % | |||||||
Operating income | $ | (5,141 | ) | $ | (5,872 | ) | $ | 731 | 12.4 | % | |
Operating income as % of net sales | (4.2 | )% | (4.7 | )% | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 378 | $ | 391 |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 127,023 | | $ | 123,130 | | $ | 3,893 |
| 3.2 | % |
Gross profit | | $ | 76,467 | | $ | 75,738 | | $ | 729 | | 1.0 | % |
Gross margin | |
| 60.2 | % |
| 61.5 | % |
|
|
|
| |
Operating income | | $ | (7,739) | | $ | (5,141) | | $ | (2,598) |
| (50.5) | % |
Operating income as % of net sales | |
| (6.1) | % |
| (4.2) | % |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 378 | | | | | | |
| | | | | | | |
|
|
|
| |
The improvedlarger operating resultsloss for Tommy Bahama werewas primarily due to improvedhigher SG&A and lower gross margin, partially offset by a modest increase inincreased net sales and royalty income. The higher SG&A and lower net sales. The increased SG&A primarilyfor the Third Quarter of Fiscal 2019 reflects increased salaries, and wages, occupancyemployee benefits, variable costs and other operating expenses in our ongoing direct to consumer and wholesale operations, partially offset by lower SG&A in non-comp direct to consumer retail locations.
Lilly Pulitzer:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 71,659 | | $ | 68,213 | | $ | 3,446 |
| 5.1 | % |
Gross profit | | $ | 40,954 | | $ | 38,290 | | $ | 2,664 | | 7.0 | % |
Gross margin | |
| 57.2 | % |
| 56.1 | % |
|
|
|
| |
Operating income | | $ | 10,988 | | $ | 9,576 | | $ | 1,412 |
| 14.7 | % |
Operating income as % of net sales | |
| 15.3 | % |
| 14.0 | % |
|
|
|
| |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | |
25
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 68,213 | $ | 59,244 | $ | 8,969 | 15.1 | % | |||
Gross margin | 56.1 | % | 55.5 | % | |||||||
Operating income | $ | 9,576 | $ | 4,952 | $ | 4,624 | 93.4 | % | |||
Operating income as % of net sales | 14.0 | % | 8.4 | % | |||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 93 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 |
The higherincrease in operating income in Lilly Pulitzer was primarily due to higher net sales, and improved gross margin which wereand royalty income partially offset by higher SG&A. The higher SG&A was primarily duefor the Third Quarter of Fiscal 2019 included (1) SG&A increases to support the planned growth of the business, including additional employment costs, (2) a $1 million increase in advertising expense, and (3) $1 million of incremental SG&A associated with the cost of operating additional retail stores, as well as increases in employment costs, which were partially offset by the Third Quarter of Fiscal 2017 including transaction and integration costs associated with Lilly Pulitzer Signature Store acquisitions. The Third Quarter of Fiscal 2017 included $2 million of inventory step-up charges, transaction and integration costs and amortization associated with the acquisition of 12 Signature Stores in Fiscal 2017, with no such amounts in the Third Quarter of Fiscal 2018.
Lanier Apparel:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 29,037 | $ | 43,110 | $ | (14,073 | ) | (32.6 | )% | ||
Gross margin | 29.5 | % | 30.6 | % | |||||||
Operating income | $ | 2,261 | $ | 5,615 | $ | (3,354 | ) | (59.7 | )% | ||
Operating income as % of net sales | 7.8 | % | 13.0 | % |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 29,377 | | $ | 29,037 | | $ | 340 |
| 1.2 | % |
Gross profit | | $ | 8,628 | | $ | 8,580 | | $ | 48 | | 0.6 | % |
Gross margin | |
| 29.4 | % |
| 29.5 | % |
|
|
| | |
Operating income | | $ | 1,952 | | $ | 2,261 | | $ | (309) |
| (13.7) | % |
Operating income as % of net sales | |
| 6.6 | % |
| 7.8 | % |
|
|
|
| |
The lowerdecrease in operating income for Lanier Apparel was primarily due to the lower sales and gross margin,higher SG&A, partially offset by reducedthe higher net sales. The higher SG&A. The reduced SG&A for the Third Quarter of Fiscal 2019 was primarily due to increased selling, shipping and advertising expenses partially offset by lower incentive compensation amounts and lower sales-related variable expenses, including royalties, shipping and advertising.
Southern Tide:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 9,496 | $ | 9,217 | $ | 279 | 3.0 | % | |||
Gross margin | 47.1 | % | 53.0 | % | |||||||
Operating income | $ | 492 | $ | 1,016 | $ | (524 | ) | (51.6 | )% | ||
Operating income as % of net sales | 5.2 | % | 11.0 | % | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 9,102 | | $ | 9,496 | | $ | (394) |
| (4.1) | % |
Gross profit | | $ | 4,395 | | $ | 4,475 | | $ | (80) | | (1.8) | % |
Gross margin | |
| 48.3 | % |
| 47.1 | % |
|
|
|
| |
Operating income | | $ | 526 | | $ | 492 | | $ | 34 |
| 6.9 | % |
Operating income as % of net sales | |
| 5.8 | % |
| 5.2 | % |
|
|
|
| |
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | |
|
|
|
| |
The lowerincrease in operating income for Southern Tide was primarily due to lower SG&A and higher gross margin as discussed above, partially offset by higherlower net sales.
Corporate and Other:
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 3,786 | $ | 494 | $ | 3,292 | NM | ||||
Operating loss | $ | (3,483 | ) | $ | (4,587 | ) | $ | 1,104 | 24.1 | % | |
LIFO charge included in Corporate and Other | $ | (57 | ) | $ | 476 |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 4,060 | | $ | 3,786 | | $ | 274 |
| 7.2 | % |
Gross profit | | $ | 2,536 | | $ | 2,196 | | $ | 340 | | 15.5 | % |
Operating loss | | $ | (3,133) | | $ | (3,483) | | $ | 350 |
| 10.0 | % |
LIFO adjustments in Corporate and Other | | $ | (35) | | $ | (57) | |
|
|
| | |
The improvedsmaller operating resultsloss in Corporate and Other werewas primarily due to (1) the impact of LIFO accounting and (2) the operating income of TBBC.
Interest expense, net
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | ||||||||
Interest expense, net | $ | 489 | $ | 683 | $ | (194 | ) | (28.4 | )% |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Interest expense, net | | $ | 81 | | $ | 489 | | $ | (408) |
| (83.4) | % |
Interest expense decreased in the Third Quarter of Fiscal 20182019 primarily due to lower average debt outstanding during the Third Quarter of Fiscal 2018 partially offset byas well as higher interest rates and higher unused line fees in the Third Quarterincome.
26
Income taxes
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | $ Change | % Change | |||||||
Income taxes | $ | 1,355 | $ | (631 | ) | $ | 1,986 | NM | ||
Effective tax rate | 42.1 | % | (143.1 | )% |
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Income taxes | | $ | 845 | | $ | 1,355 | | $ | (510) |
| (37.6) | % |
Effective tax rate | |
| 33.6 | % |
| 42.1 | % |
|
|
|
| |
The net impact of discrete items, the results of our foreign operations or other items that impact our income taxes often results in a more significant or unusual impact on the effective tax rate in the third quarter of our fiscal year given the significantly lower operating resultsincome during the third quarter as compared to the other quarters of theour fiscal year. Thus, the effective tax rate for the third quarter is not indicative of the effective tax rate anticipated for the full year. Tax expense and the effective tax rate for the Third Quarter of Fiscal 2017 included the $1 million net favorable impact of discrete items, primarily related to the impact of certain prior year tax items, with no such discrete items in the Third Quarter of Fiscal 2018.
Net earnings
Third Quarter Fiscal 2018 | Third Quarter Fiscal 2017 | |||||
Net sales | $ | 233,662 | $ | 235,960 | ||
Operating income | $ | 3,705 | $ | 1,124 | ||
Net earnings | $ | 1,861 | $ | 1,072 | ||
Net earnings per diluted share | $ | 0.11 | $ | 0.06 | ||
Weighted average shares outstanding - diluted | 16,870 | 16,735 |
| | | | | | |
|
| Third Quarter | ||||
| | Fiscal 2019 |
| Fiscal 2018 | ||
Net sales | | $ | 241,221 | | $ | 233,662 |
Operating income | | $ | 2,594 | | $ | 3,705 |
Net earnings | | $ | 1,668 | | $ | 1,861 |
Net earnings per diluted share | | $ | 0.10 | | $ | 0.11 |
Weighted average shares outstanding - diluted | |
| 16,934 | |
| 16,870 |
The higherlower net earnings per diluted share in the Third Quarter of Fiscal 20182019 was primarily due to lower operating results in Tommy Bahama and Lanier Apparel. These lower operating results were partially offset by improved operating results in Lilly Pulitzer and Corporate and Other, lower interest expense and Tommy Bahama, partially offset bya lower operating income in Lanier Apparel and Southern Tide as well as less favorable income taxes for the quarter, each as discussed above. Due to the seasonality of our business operations, our third quarter has historically been our smallest net sales, operating income and net earnings quarter in each fiscal year.
FIRST NINE MONTHS OF FISCAL 20182019 COMPARED TO FIRST NINE MONTHS OF FISCAL 2017
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||||||
Net sales | $ | 808,931 | 100.0 | % | $ | 793,032 | 100.0 | % | $ | 15,899 | 2.0 | % | |||
Cost of goods sold | 336,209 | 41.6 | % | 342,477 | 43.2 | % | (6,268 | ) | (1.8 | )% | |||||
Gross profit | $ | 472,722 | 58.4 | % | $ | 450,555 | 56.8 | % | $ | 22,167 | 4.9 | % | |||
SG&A | 414,747 | 51.3 | % | 393,193 | 49.6 | % | 21,554 | 5.5 | % | ||||||
Royalties and other operating income | 10,616 | 1.3 | % | 10,123 | 1.3 | % | 493 | 4.9 | % | ||||||
Operating income | $ | 68,591 | 8.5 | % | $ | 67,485 | 8.5 | % | $ | 1,106 | 1.6 | % | |||
Interest expense, net | 1,872 | 0.2 | % | 2,355 | 0.3 | % | (483 | ) | (20.5 | )% | |||||
Earnings before income taxes | $ | 66,719 | 8.2 | % | $ | 65,130 | 8.2 | % | $ | 1,589 | 2.4 | % | |||
Income taxes | 17,107 | 2.1 | % | 24,172 | 3.0 | % | (7,065 | ) | (29.2 | )% | |||||
Net earnings | $ | 49,612 | 6.1 | % | $ | 40,958 | 5.2 | % | $ | 8,654 | 21.1 | % |
The discussion and tables below compare certain line items included in our statements of operations for the First Nine Months of Fiscal 20182019 to the First Nine Months of Fiscal 2017.2018. Each dollar and percentage change provided reflects the change between these fiscal periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. We have calculated all percentages based on actual data, and percentage columns may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. Unless otherwise indicated, all references
The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to assets, liabilities, revenues, expenses or other information in this report reflect continuing operations.the same period of the prior year.
| | | | | | | | | | | | | | | | | | |
|
| First Nine Months |
|
| | | | |
| |||||||||
| | Fiscal 2019 | | | Fiscal 2018 | | | $ Change |
| % Change | | |||||||
Net sales | | $ | 825,194 | | 100.0 | % | | $ | 808,931 |
| 100.0 | % | | $ | 16,263 | | 2.0 | % |
Cost of goods sold | |
| 346,620 |
| 42.0 | % | |
| 336,209 |
| 41.6 | % | |
| 10,411 |
| 3.1 | % |
Gross profit | | $ | 478,574 |
| 58.0 | % | | $ | 472,722 |
| 58.4 | % | | $ | 5,852 |
| 1.2 | % |
SG&A | |
| 417,448 |
| 50.6 | % | |
| 414,747 |
| 51.3 | % | |
| 2,701 |
| 0.7 | % |
Royalties and other operating income | |
| 11,469 |
| 1.4 | % | |
| 10,616 |
| 1.3 | % | |
| 853 |
| 8.0 | % |
Operating income | | $ | 72,595 |
| 8.8 | % | | $ | 68,591 |
| 8.5 | % | | $ | 4,004 |
| 5.8 | % |
Interest expense, net | |
| 1,171 |
| 0.1 | % | |
| 1,872 |
| 0.2 | % | |
| (701) |
| (37.4) | % |
Earnings before income taxes | | $ | 71,424 |
| 8.7 | % | | $ | 66,719 |
| 8.2 | % | | $ | 4,705 |
| 7.1 | % |
Income taxes | |
| 18,263 |
| 2.2 | % | |
| 17,107 |
| 2.1 | % | |
| 1,156 |
| 6.8 | % |
Net earnings | | $ | 53,161 |
| 6.4 | % | | $ | 49,612 |
| 6.1 | % | | $ | 3,549 |
| 7.2 | % |
27
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 482,990 | $ | 483,971 | $ | (981 | ) | (0.2 | )% | ||
Lilly Pulitzer | 208,463 | 192,045 | 16,418 | 8.5 | % | ||||||
Lanier Apparel | 72,806 | 84,314 | (11,508 | ) | (13.6 | )% | |||||
Southern Tide | 34,745 | 31,254 | 3,491 | 11.2 | % | ||||||
Corporate and Other | 9,927 | 1,448 | 8,479 | NM | |||||||
Total net sales | $ | 808,931 | $ | 793,032 | $ | 15,899 | 2.0 | % |
Net Sales
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
| | Fiscal 2019 | | Fiscal 2018 | | $ Change | | % Change | | |||
Tommy Bahama | | $ | 480,623 | | $ | 482,990 | | $ | (2,367) |
| (0.5) | % |
Lilly Pulitzer | |
| 219,809 | |
| 208,463 | |
| 11,346 |
| 5.4 | % |
Lanier Apparel | |
| 76,871 | |
| 72,806 | |
| 4,065 |
| 5.6 | % |
Southern Tide | |
| 35,704 | |
| 34,745 | |
| 959 |
| 2.8 | % |
Corporate and Other | |
| 12,187 | |
| 9,927 | |
| 2,260 |
| 22.8 | % |
Total net sales | | $ | 825,194 | | $ | 808,931 | | $ | 16,263 |
| 2.0 | % |
Consolidated net sales increased $16 million, or 2%, in the First Nine Months of Fiscal 2018.2019. The increase in consolidated net sales was primarily driven by (1) a $17$14 million, or 5%4%, calendar-adjusted comparable store sales increase from $335to $388 million in the 39-week period ended November 4, 2017 to $353First Nine Months of Fiscal 2019 from $375 million in the First Nine Months of Fiscal 2018, driven by strongwith comparable store sales increases in both Tommy Bahama and Lilly Pulitzer, and (2) an incremental net sales increase of $15$6 million associated with the operation of non-comp full-price retail stores, primarilystore operations, resulting from an increase at Lilly Pulitzer. These increases in Lilly Pulitzer, (3) $8net sales were partially offset by (1) a $2 million of e-commerce and wholesale sales for TBBC, which we acquired in the Fourth Quarter of Fiscal 2017, (4) a $3 million increasedecrease in restaurant sales in Tommy Bahama, (2) a $1 million decrease in wholesale sales and (5)(3) a $2$1 million increasedecrease in net sales through our off-price direct to consumer channels reflecting an increasesales as the decrease in Tommy Bahama outlet sales was partially offset by increased Lilly Pulitzer e-commerce flash clearance sales partially offset by lower sales at Tommy Bahama outlets. These increases in consolidated net sales were partially offset by a $31 million net decrease in wholesale sales, consisting of decreases in Lilly Pulitzer, Lanier Apparel and Tommy Bahama partially offset by increases in Southern Tide. By way of comparison, on a fiscal period basis, consolidated comparable store sales also increased 5% in the First Nine Months of Fiscal 2018 relative to the First Nine Months of Fiscal 2017.sales. The changes in net sales by operating group are discussed below.
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||
Full-price retail stores and outlets | 40 | % | 39 | % |
E-commerce | 20 | % | 17 | % |
Restaurant | 8 | % | 8 | % |
Wholesale | 32 | % | 36 | % |
Total | 100 | % | 100 | % |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 39 | % | 40 | % |
E-commerce |
| 22 | % | 20 | % |
Restaurant |
| 8 | % | 8 | % |
Wholesale |
| 31 | % | 32 | % |
Total |
| 100 | % | 100 | % |
Tommy Bahama:
Tommy Bahama net sales decreased $2 million, or 1%, in the First Nine Months of Fiscal 2019 due to (1) a $6 million decrease in wholesale sales primarily reflecting decreased full-price wholesale sales, (2) a $2 million decrease in restaurant sales primarily due to the net impact of $1certain restaurant closures, remodels and openings since the beginning of Fiscal 2018 as well as lower sales at existing restaurant locations and (3) a $2 million decrease in outlet store sales due to lower sales at existing outlet stores and the net sales impact of outlet store closures. These decreases were partially offset by a $7 million, or 3%, increase in comparable sales to $252 million in the First Nine Months of Fiscal 2018 compared to the First Nine Months of Fiscal 2017 was primarily due to (1) an $11 million decrease in wholesale sales, including lower full-price wholesale sales, as Tommy Bahama continues to manage its exposure to department stores by reducing department store door count, and lower off-price wholesale sales, as Tommy Bahama disposed of a more significant amount of aged inventory in the First Nine Months of Fiscal 2017, (2) a $2 million decrease in outlet store sales, reflecting lower sales at existing outlets and the impact of Fiscal 2017 outlet closures, and (3) a $1 million decrease in non-comp full-price retail store sales, reflecting the net sales change for stores that were opened, closed or remodeled since the beginning of Fiscal 2017. These decreases were partially offset by (1) a $10 million, or 4%, increase in calendar-adjusted comparable store sales2019 from $240 million in the 39 week period ended November 4, 2017 to $249$245 million in the First Nine Months of Fiscal 2018, driven by strong growth in e-commerce2018. The net sales (2) a $3 million increase in restaurant sales resulting from increased sales at existing restaurants and the net impact of new restaurants opened, closed or remodeled since the beginning of Fiscal 2017 and (3) a $1 million increase in direct to consumer sales atnon-comp retail stores were generally comparable stores resulting from the calendar shift between Fiscal 2017 and Fiscal 2018. By way of comparison, on a fiscal period basis, Tommy Bahama comparable store sales also increased 4% in the First Nine Months of Fiscal 2018 relative to the First Nine Months of Fiscal 2017.period-over-period. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||
Full-price retail stores and outlets | 48 | % | 49 | % |
E-commerce | 17 | % | 14 | % |
Restaurant | 13 | % | 13 | % |
Wholesale | 22 | % | 24 | % |
Total | 100 | % | 100 | % |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 48 | % | 48 | % |
E-commerce |
| 18 | % | 17 | % |
Restaurant |
| 13 | % | 13 | % |
Wholesale |
| 21 | % | 22 | % |
Total |
| 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $16$11 million, or 9%5%, in the First Nine Months of Fiscal 2019 was primarily the result of (1) an incremental net sales increase of $16$6 million associated with non-comp retail store operations
28
including the operation of non-comp full-priceadditional retail stores including stores opened by Lilly Pulitzer and the 12 Signature Stores acquiredincreased gift card breakage income, (2) a $2 million increase in Fiscal 2017, (2) an $8wholesale sales reflecting increases in both full-price and off-price wholesale sales, (3) a $2 million, or 9%2%, increase in calendar-adjusted comparable store sales from $91to $121 million in the 39-week period ended November 4, 2017 to $98First Nine Months of Fiscal 2019 from $119 million in the First Nine Months of Fiscal 2018, with
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||
Full-price retail stores | 44 | % | 38 | % |
E-commerce | 35 | % | 33 | % |
Wholesale | 21 | % | 29 | % |
Total | 100 | % | 100 | % |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 43 | % | 44 | % |
E-commerce |
| 36 | % | 35 | % |
Wholesale |
| 21 | % | 21 | % |
Total |
| 100 | % | 100 | % |
Lanier Apparel:
The decrease inLanier Apparel net sales for Lanier Apparelincrease of $12$4 million, or 14%6%, in the First Nine Months of Fiscal 2019 was primarily due to (1) lowerincreased volume in various seasonal, in-stock and replenishment programs, including the impact of softnessinitial shipments for certain programs in the replenishmentFirst Nine Months of Fiscal 2019. These increases were partially offset by (1) decreased sales in other programs, including lower volume for programs resulting from the exit of certain programs (2) the exit from certainand customers, including programs including the impact ofwith customers who filed for bankruptcy in Fiscal 2018, (3) a shift in timing from the third quarter to the fourth quarter forand (2) certain shipments, including significant warehouse club shipmentsprograms that occurred in the Third Quarter of Fiscal 2017, and (4) the prior year includinghad initial shipments in certain private label and branded programs. These decreases were partially offset by increased volume in other programs, including initial shipmentsthe First Nine Months of Fiscal 2018. While the Cole Haan licensed tailored clothing. The timingand Duck Head businesses both had significant sales growth rates in the First Nine Months of Fiscal 2019, those business still represent a small proportion of Lanier Apparel programs, including warehouse club shipments, can vary significantly from year to year. For the full year, we expectApparel’s net sales.
Southern Tide:
The Southern Tide net sales at Lanier Apparel in Fiscal 2018 to be modestly lower than Fiscal 2017 net sales.
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||
E-commerce | 16 | % | 17 | % |
Wholesale | 84 | % | 83 | % |
Total | 100 | % | 100 | % |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
E-commerce |
| 18 | % | 16 | % |
Wholesale |
| 82 | % | 84 | % |
Total |
| 100 | % | 100 | % |
Corporate and Other:
Corporate and Other net sales primarily consist of the net sales of TBBC which include e-commerce and wholesale operations, and our Lyons, Georgia distribution center operations. The increase in net sales was primarily due to the December 2017 acquisition ofsales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the First Nine Months of Fiscal 20182019 and the First Nine Months of Fiscal 2017,2018, as well as the change between those two periods and gross margin by operating group and in total for the First Nine Months of Fiscal 2018 and the First Nine Months of Fiscal 2017.those periods. Our gross profit and gross margin, which is calculated as gross profit divided by net
29
sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 295,982 | $ | 289,428 | $ | 6,554 | 2.3 | % | |||
Lilly Pulitzer | 132,877 | 121,657 | 11,220 | 9.2 | % | ||||||
Lanier Apparel | 20,893 | 26,354 | (5,461 | ) | (20.7 | )% | |||||
Southern Tide | 17,307 | 15,849 | 1,458 | 9.2 | % | ||||||
Corporate and Other | 5,663 | (2,733 | ) | 8,396 | NM | ||||||
Total gross profit | $ | 472,722 | $ | 450,555 | $ | 22,167 | 4.9 | % | |||
LIFO charge included in Corporate and Other | $ | 109 | $ | 3,748 | |||||||
Tommy Bahama Japan inventory markdown charges in cost of goods sold | $ | 461 | $ | — | |||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 | |||||||
Inventory step-up charges for TBBC included in Corporate and Other | $ | 157 | $ | — |
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||
Tommy Bahama | 61.3 | % | 59.8 | % |
Lilly Pulitzer | 63.7 | % | 63.3 | % |
Lanier Apparel | 28.7 | % | 31.3 | % |
Southern Tide | 49.8 | % | 50.7 | % |
Corporate and Other | NM | NM | ||
Consolidated gross margin | 58.4 | % | 56.8 | % |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | | |
| ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 294,500 | | $ | 295,982 | | $ | (1,482) |
| (0.5) | % |
Lilly Pulitzer | |
| 138,252 | |
| 132,877 | |
| 5,375 |
| 4.0 | % |
Lanier Apparel | |
| 22,055 | |
| 20,893 | |
| 1,162 |
| 5.6 | % |
Southern Tide | |
| 17,688 | |
| 17,307 | |
| 381 |
| 2.2 | % |
Corporate and Other | |
| 6,079 | |
| 5,663 | |
| 416 |
| 7.3 | % |
Total gross profit | | $ | 478,574 | | $ | 472,722 | | $ | 5,852 |
| 1.2 | % |
LIFO adjustments in Corporate and Other | | $ | 810 | | $ | 109 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
| | | | | | | | | | | | |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Tommy Bahama |
| 61.3 | % | 61.3 | % |
Lilly Pulitzer |
| 62.9 | % | 63.7 | % |
Lanier Apparel |
| 28.7 | % | 28.7 | % |
Southern Tide |
| 49.5 | % | 49.8 | % |
Corporate and Other |
| NM |
| NM | |
Consolidated gross margin |
| 58.0 | % | 58.4 | % |
The increase in consolidated gross profit in the First Nine Months of Fiscal 20182019 was primarily due to increased sales andpartially offset by lower gross margin. The improvedlower consolidated gross margin was primarily due to lower gross margin in Lilly Pulitzer and a change in sales mix as Lanier Apparel sales, which typically have lower gross margins than our other businesses, represented a higher proportion of our net sales.
Tommy Bahama:
The gross margin for Tommy Bahama was comparable reflecting (1) a change in sales mix resulting from higherwith retail store and e-commerce sales representing a greater proportion of net sales in Lilly Pulitzer, Corporate and Otherwholesale and Southern Tide andoutlet store sales representing a lower proportion of net sales in Lanier Apparel, (2) improved gross margins in Tommy Bahama, (3) the First Nine Months of Fiscal 2018 including a small LIFO accounting charge compared to the First Nine Months of Fiscal 2017 including a LIFO accounting charge of $4 million, and (4) the First Nine Months of Fiscal 2017 including inventory step-up charges in Lilly Pulitzer of $1 million, with only a small charge in the First Nine Months of Fiscal 2018. These favorable items that impacted consolidated gross margin were partially offset by (1) lower gross margins in Lanier Apparel and Southern Tide and (2) the First Nine Months of Fiscal 2018 including certain Tommy Bahama Japan inventory markdown charges and inventory step-up charges for TBBC.
Lilly Pulitzer:
The decrease in gross margin for Lilly Pulitzer reflects (1) a largergreater proportion of Lilly Pulitzer netoff-price wholesale sales, which had lower gross margins in the First Nine Months of Fiscal 2018.2019, and (2) higher costs associated with gift with purchase and other promotional events resulting in lower gross margin in the full-price direct to consumer business. These unfavorable items were partially offset by lower gross margins in both the direct to consumer and the wholesale channelsimpact of distribution.
Lanier Apparel:
The decrease in gross margin for Lanier Apparel was primarily due to (1) the First Nine Months of Fiscal 2018 including more significant charges for certain customer allowance, cooperative advertising and other amounts related to certain replenishment and other programs, with the First Nine Months of Fiscal 2017 including certain favorable customer allowance items, and (2) the First Nine Months of Fiscal 2018 facingcomparable as gross margin pressures.changes in various programs and sales mix generally offset.
30
Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to (1) higherthe prior year including an insurance recovery on certain inventory markdowns, (2) increased wholesale customer discounts and allowances, including allowances for co-op advertising and fixtures and (3)partially offset by a change in sales mix as Signature Stores, department stores and off-price wholesalee-commerce sales represented a greater proportion of sales in the First Nine Months of Fiscal 2018. These unfavorable items were partially offset by an insurance recovery on certain inventory in Fiscal 2018.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects (1) the gross profit of TBBC, (2) the gross profit of our Lyons, Georgia distribution center and (3) the impact of LIFO accounting adjustments. The primary driver for the improvedincreased gross profit was (1)primarily reflects the First Nine Monthsimpact of Fiscal 2018 includinghigher net sales in TBBC partially offset by the gross profit of TBBC and (2) the net favorableunfavorable impact of LIFO accounting in the First Nine Months of Fiscal 20182019 compared to the First Nine Months of Fiscal 2017.2018. The LIFO accounting impact in Corporate and Other in each period primarily reflects the sale of(1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior periodsperiod is ultimately sold or (2) a credit in Corporate and Other when inventory has been marked down to the estimated net realizable value in an operating group in the current period, but generally reversed in Corporate and Otherthe inventory has not been sold as part of LIFO accounting.
SG&A
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
SG&A | $ | 414,747 | $ | 393,193 | $ | 21,554 | 5.5 | % | |||
SG&A as % of net sales | 51.3 | % | 49.6 | % | |||||||
Tommy Bahama Japan restructuring charges in SG&A | $ | 3,206 | $ | — | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 1,141 | $ | 1,134 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 281 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 | |||||||
Amortization of Southern Tide intangible assets | $ | 216 | $ | 216 |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
SG&A | | $ | 417,448 | | $ | 414,747 | | $ | 2,701 |
| 0.7 | % |
SG&A (as a % of net sales) | |
| 50.6 | % |
| 51.3 | % |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 1,141 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 240 | | $ | 281 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 218 | | $ | 216 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | |
The increase in SG&A in the First Nine Months of Fiscal 20182019 was primarily due to (1) increased advertising expense of $8 million, with much of the increased spending focused on consumer acquisition initiatives in the First Half of Fiscal 2018, (2) $5 million of incremental costs in the First Nine Months of Fiscal 2018 associated with additional retail stores and restaurants, (3) $3 million of Tommy Bahama Japan restructuring charges, including lease termination fees, premises reinstatement costs, non-cash impairment charges and severance amounts, as discussed in Note 6, (4) $3 million of incremental SG&A associated with TBBC and (5) other increases in SG&A to support the businesses, including increased salaries, and wages, occupancyemployee benefits, variable costs and other operating expenses in our ongoing direct to consumeroperations, and wholesale operations.(2) $2 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants. These increases in SG&A were partially offset by (1) a $5 million reduction in incentive compensation expense, (2) a $3 million decrease in advertising expense, (3) a $3 million reduction in restructuring charges related to the Tommy Bahama Japan operations and (4) a $1 million decrease in amortization of lower incentive compensation amounts.
Royalties and other operating income
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Royalties and other operating income | $ | 10,616 | $ | 10,123 | $ | 493 | 4.9 | % |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Royalties and other operating income | | $ | 11,469 | | $ | 10,616 | | $ | 853 |
| 8.0 | % |
Royalties and other operating income primarily reflects income received from third parties from the licensing of our Tommy Bahama, Lilly Pulitzer and Southern Tide brands. The increase in royalties and other income in the First Nine Months of Fiscal 2018 primarily2019 reflects increased royalty income in both Tommy Bahama and Lilly Pulitzer.
31
Operating income (loss)
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 29,783 | $ | 32,082 | $ | (2,299 | ) | (7.2 | )% | ||
Lilly Pulitzer | 43,823 | 43,621 | 202 | 0.5 | % | ||||||
Lanier Apparel | 3,448 | 6,668 | (3,220 | ) | (48.3 | )% | |||||
Southern Tide | 4,399 | 3,765 | 634 | 16.8 | % | ||||||
Corporate and Other | (12,862 | ) | (18,651 | ) | 5,789 | 31.0 | % | ||||
Total operating income | $ | 68,591 | $ | 67,485 | $ | 1,106 | 1.6 | % | |||
LIFO charge included in Corporate and Other | $ | 109 | $ | 3,748 | |||||||
Tommy Bahama Japan inventory markdown charges in cost of goods sold | $ | 461 | $ | — | |||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 | |||||||
Inventory step-up charges for TBBC included in Corporate and Other | $ | 157 | $ | — | |||||||
Tommy Bahama Japan restructuring charges in SG&A | $ | 3,206 | $ | — | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 1,141 | $ | 1,134 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 281 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 | |||||||
Amortization of Southern Tide intangible assets | $ | 216 | $ | 216 |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 30,671 | | $ | 29,783 | | $ | 888 |
| 3.0 | % |
Lilly Pulitzer | |
| 46,689 | |
| 43,823 | |
| 2,866 |
| 6.5 | % |
Lanier Apparel | |
| 3,387 | |
| 3,448 | |
| (61) |
| (1.8) | % |
Southern Tide | |
| 4,877 | |
| 4,399 | |
| 478 |
| 10.9 | % |
Corporate and Other | |
| (13,029) | |
| (12,862) | |
| (167) |
| (1.3) | % |
Total Operating Income | | $ | 72,595 | | $ | 68,591 | | $ | 4,004 |
| 5.8 | % |
LIFO adjustments in Corporate and Other | | $ | 810 | | $ | 109 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 1,141 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 240 | | $ | 281 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 218 | | $ | 216 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | |
The increase in operating income in the First Nine Months of Fiscal 20182019 was primarily due to higher sales and gross margins partially offset by higher SG&A including increased advertising spend and Tommy Bahama Japan restructuring charges as discussed in Note 6.lower gross margin. On an operating group basis, the increase in operating income was primarily due to improvedreflects increased operating resultsincome in Lilly Pulitzer, Tommy Bahama and Southern Tide partially offset by a larger operating loss in Corporate and Other partially offset byand lower operating income in Lanier Apparel and Tommy Bahama.Apparel. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 482,990 | $ | 483,971 | $ | (981 | ) | (0.2 | )% | ||
Gross margin | 61.3 | % | 59.8 | % | |||||||
Operating income | $ | 29,783 | $ | 32,082 | $ | (2,299 | ) | (7.2 | )% | ||
Operating income as % of net sales | 6.2 | % | 6.6 | % | |||||||
Tommy Bahama Japan inventory markdown charges in cost of goods sold | $ | 461 | $ | — | |||||||
Tommy Bahama Japan restructuring charges in SG&A | $ | 3,206 | $ | — | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | 1,141 | $ | 1,134 |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 480,623 | | $ | 482,990 | | $ | (2,367) |
| (0.5) | % |
Gross profit | | $ | 294,500 | | $ | 295,982 | | $ | (1,482) | | (0.5) | % |
Gross margin | |
| 61.3 | % |
| 61.3 | % |
|
|
|
| |
Operating income | | $ | 30,671 | | $ | 29,783 | | $ | 888 |
| 3.0 | % |
Operating income as % of net sales | |
| 6.4 | % |
| 6.2 | % |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 1,141 | |
|
|
|
| |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | |
|
|
|
| |
The lowerincrease in operating income forin Tommy Bahama was primarily due to higherlower SG&A which offset the favorable impact of higher gross margin. Theand increased SG&A included (1) $6 million of increased advertising expense, with much of the increased advertising spend focused on consumer acquisition initiatives, (2) $3 million of Tommy Bahama Japan restructuring charges as discussed in Note 6 and (3) increased salaries and wages, occupancy and other operating expenses in our ongoing direct to consumer and wholesale operations. These increases in SG&A wereroyalty income, partially offset by $4 million of lower incentive compensation amounts in the First Nine Months of Fiscal 2018.
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 208,463 | $ | 192,045 | $ | 16,418 | 8.5 | % | |||
Gross margin | 63.7 | % | 63.3 | % | |||||||
Operating income | $ | 43,823 | $ | 43,621 | $ | 202 | 0.5 | % | |||
Operating income as % of net sales | 21.0 | % | 22.7 | % | |||||||
Inventory step-up charges included in Lilly Pulitzer | $ | — | $ | 1,086 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 281 | $ | 90 | |||||||
Transaction/integration costs associated with Lilly Pulitzer Signature Store acquisitions | $ | — | $ | 563 |
32
Lilly Pulitzer:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 219,809 | | $ | 208,463 | | $ | 11,346 |
| 5.4 | % |
Gross profit | | $ | 138,252 | | $ | 132,877 | | $ | 5,375 | | 4.0 | % |
Gross margin | |
| 62.9 | % |
| 63.7 | % |
|
|
| | |
Operating income | | $ | 46,689 | | $ | 43,823 | | $ | 2,866 |
| 6.5 | % |
Operating income as % of net sales | |
| 21.2 | % |
| 21.0 | % |
|
|
|
| |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 240 | | $ | 281 | | | | | | |
The increase in operating income in Lilly Pulitzer was primarily due to increased net sales and royalty income partially offset by lower gross margin and higher SG&A. The higher SG&A in the First Nine Months of Fiscal 2019 included (1) SG&A increases to support the planned growth of the business, including additional employment costs, (2) $2 million of incremental SG&A associated with the cost of operating additional retail stores including the 12 Signature Stores acquired in Fiscal 2017, (2) $3 million of increased advertising expense and (3) SG&A increases to support the planned growth of the business, including additional employment cost.
Lanier Apparel:
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 72,806 | $ | 84,314 | $ | (11,508 | ) | (13.6 | )% | ||
Gross margin | 28.7 | % | 31.3 | % | |||||||
Operating income | $ | 3,448 | $ | 6,668 | $ | (3,220 | ) | (48.3 | )% | ||
Operating income as % of net sales | 4.7 | % | 7.9 | % |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 76,871 | | $ | 72,806 | | $ | 4,065 |
| 5.6 | % |
Gross profit | | $ | 22,055 | | $ | 20,893 | | $ | 1,162 | | 5.6 | % |
Gross margin | |
| 28.7 | % |
| 28.7 | % |
|
|
|
| |
Operating income | | $ | 3,387 | | $ | 3,448 | | $ | (61) |
| (1.8) | % |
Operating income as % of net sales | |
| 4.4 | % |
| 4.7 | % |
|
|
|
| |
The lowerdecrease in operating income forin Lanier Apparel was primarily due to the lower sales and lower gross margin,higher SG&A partially offset by reduced SG&A.the impact of higher net sales. The reduced SG&A was primarily due to lower sales-related variable expenses, including royalties, shipping and advertising, as well as lower incentive compensation amounts.
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 34,745 | $ | 31,254 | $ | 3,491 | 11.2 | % | |||
Gross margin | 49.8 | % | 50.7 | % | |||||||
Operating income | $ | 4,399 | $ | 3,765 | $ | 634 | 16.8 | % | |||
Operating income as % of net sales | 12.7 | % | 12.0 | % | |||||||
Amortization of Southern Tide intangible assets | $ | 216 | $ | 216 |
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Net sales | $ | 9,927 | $ | 1,448 | $ | 8,479 | NM | ||||
Operating loss | $ | (12,862 | ) | $ | (18,651 | ) | $ | 5,789 | 31.0 | % | |
LIFO charge included in Corporate and Other | $ | 109 | $ | 3,748 | |||||||
Inventory step-up charges for TBBC included in Corporate and Other | $ | 157 | $ | — |
Southern Tide:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 35,704 | | $ | 34,745 | | $ | 959 |
| 2.8 | % |
Gross profit | | $ | 17,688 | | $ | 17,307 | | $ | 381 | | 2.2 | % |
Gross margin | |
| 49.5 | % |
| 49.8 | % |
|
|
| | |
Operating income | | $ | 4,877 | | $ | 4,399 | | $ | 478 |
| 10.9 | % |
Operating income as % of net sales | |
| 13.7 | % |
| 12.7 | % |
|
|
|
| |
Amortization of Southern Tide intangible assets | | $ | 218 | | $ | 216 | |
|
|
|
| |
The increase in operating income in Southern Tide was primarily due to higher net sales and (4) improvedlower SG&A partially offset by lower gross margin. The SG&A decrease in the First Nine Months of Fiscal 2019 was primarily due to lower incentive compensation amounts partially offset by increased advertising expense, variable costs associated with the higher sales and other costs to support future growth of the business.
33
Corporate and Other:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 12,187 | | $ | 9,927 | | $ | 2,260 |
| 22.8 | % |
Gross profit | | $ | 6,079 | | $ | 5,663 | | $ | 416 | | 7.3 | % |
Operating loss | | $ | (13,029) | | $ | (12,862) | | $ | (167) |
| (1.3) | % |
LIFO adjustments in Corporate and Other | | $ | 810 | | $ | 109 | |
|
|
| | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
The larger operating resultsloss in our Lyons, Georgia distribution center operations.
Interest expense, net
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Interest expense, net | $ | 1,872 | $ | 2,355 | $ | (483 | ) | (20.5 | )% |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Interest expense, net | | $ | 1,171 | | $ | 1,872 | | $ | (701) |
| (37.4) | % |
Interest expense decreased in the First Nine Months of Fiscal 20182019 primarily due to lower average debt outstanding during the First Nine Months of Fiscal 2018 partially offset byas well as higher interest rates and higher unused line fees in the First Nine Months of Fiscal 2018.
Income taxes
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | $ Change | % Change | ||||||||
Income taxes | $ | 17,107 | $ | 24,172 | $ | (7,065 | ) | (29.2 | )% | ||
Effective tax rate | 25.6 | % | 37.1 | % |
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Income taxes | | $ | 18,263 | | $ | 17,107 | | $ | 1,156 |
| 6.8 | % |
Effective tax rate | |
| 25.6 | % |
| 25.6 | % |
|
|
|
| |
Both periods include the favorable impactbenefit of certain stock awards that vested during the period, the results of our foreign operations and other discrete items, while in the First Nine Months of Fiscal 2017 the various discrete items related to certain stock awards that vested and other discrete items generally offset in the aggregate.
Net earnings
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||||
Net sales | $ | 808,931 | $ | 793,032 | ||
Operating income | $ | 68,591 | $ | 67,485 | ||
Net earnings | $ | 49,612 | $ | 40,958 | ||
Net earnings per diluted share | $ | 2.95 | $ | 2.45 | ||
Weighted average shares outstanding - diluted | 16,826 | 16,710 |
| | | | | | |
|
| First Nine Months | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | ||
Net sales | | $ | 825,194 | | $ | 808,931 |
Operating income | | $ | 72,595 | | $ | 68,591 |
Net earnings | | $ | 53,161 | | $ | 49,612 |
Net earnings per diluted share | | $ | 3.15 | | $ | 2.95 |
Weighted average shares outstanding - diluted | |
| 16,896 | |
| 16,826 |
The higher net earnings per diluted share in the First Nine Months of Fiscal 20182019 was due to (1) the lower effective tax rate resulting from U.S. Tax Reform as discussed in Note 4, (2) the improved operating results in Corporate and Other, primarily due to the favorable impact of LIFO accounting and the operations of TBBC, (3) increased operating income in Southern Tide primarily due to higher net sales, (4) lower interest expense and (5) improved operating income in Lilly Pulitzer. These items were partially offset by (1) lower operating income in Lanier Apparel, primarily due to lower sales, and (2) lower operating income inPulitzer, Tommy Bahama primarily due to increased advertising expense and Tommy Bahama Japan restructuring charges as discussed in Note 6.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer and Southern Tide lifestyle brands, other owned and licensed brands, and private label apparel products. Our primary uses of cash flow include the purchase of products in the operation of our business from third party contract manufacturers outside of the United States, as well as operating expenses, including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, distribution costs, other general and administrative expenses and the payment of periodic interest payments related to our financing arrangements.
34
Additionally, we use cash for the funding of capital expenditures, dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay our operating expenses. Thus, we require a certain amount of working capital to operate our business. If cash inflows are less than cash outflows, we have access to amounts under our U.S. Revolving Credit Agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities, and cash on hand.
As of November 3, 2018,2, 2019, we had $7$22 million of cash and cash equivalents on hand, with $32 million ofno borrowings outstanding and $225$313 million of availability under our U.S. Revolving Credit Agreement. Generally, we anticipate that excess cash, if any, will be used to repay any debt outstanding on our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated future positive cash flow from operating activities provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, and our direct to consumer initiatives and other strategic initiatives.
Key Liquidity Measures
($ in thousands) | November 3, 2018 | February 3, 2018 | October 28, 2017 | January 28, 2017 | ||||||||
Total current assets | $ | 251,900 | $ | 236,118 | $ | 234,721 | $ | 231,628 | ||||
Total current liabilities | $ | 124,839 | $ | 135,010 | $ | 117,915 | $ | 131,396 | ||||
Working capital | $ | 127,061 | $ | 101,108 | $ | 116,806 | $ | 100,232 | ||||
Working capital ratio | 2.02 | 1.75 | 1.99 | 1.76 | ||||||||
Debt to total capital ratio | 6 | % | 10 | % | 15 | % | 20 | % |
| | | | | | | | | | | | | |
|
| November 2, |
| February 2, |
| November 3, |
| February 3, |
| ||||
($ in thousands) | | 2019 | | 2019 | | 2018 | | 2018 | | ||||
Total current assets | | $ | 268,828 | | $ | 269,788 | | $ | 251,900 | | $ | 236,118 | |
Total current liabilities | | $ | 164,118 | | $ | 142,209 | | $ | 124,839 | | $ | 135,010 | |
Working capital | | $ | 104,710 | | $ | 127,579 | | $ | 127,061 | | $ | 101,108 | |
Working capital ratio | |
| 1.64 | |
| 1.90 | |
| 2.02 | |
| 1.75 | |
Debt to total capital ratio | |
| — | % |
| 3 | % |
| 6 | % |
| 10 | % |
Our working capital ratio is calculated by dividing total current assets by total current liabilities, each including any assets or liabilities related to discontinued operations.liabilities. Current assets increased from October 28, 2017 to November 3, 2018 primarilyto November 2, 2019 due to increases inincreased inventories and prepaid expensesincreased cash partially offset by lower prepaid expenses and other current assets and receivables. Current liabilities increased primarily due to higherthe impact of the revised lease accounting guidance which required the recognition of $50 million of current operating lease liabilities at November 2, 2019, as discussed in Note 5 to the unaudited condensed consolidated financial statements included in this report, partially offset by reductions in accounts payable, accrued compensation and other accrued expenses and liabilities at November 3, 2018 compared to October 28, 2017, partially offset by lower liabilities related to discontinued operations.liabilities. Changes in current assets and current liabilities are discussed below.
For the ratio of debt to total capital, debt is defined as short-term and long-term debt, and total capital is defined as debt plus shareholders'shareholders’ equity. Debt was $0 million at November 2, 2019 and $32 million at November 3, 2018, and $72 million at October 28, 2017, while shareholders’ equity was $517 million at November 2, 2019 and $465 million at November 3, 2018 and $407 million at October 28, 2017.2018. The decrease in debt since October 28, 2017November 3, 2018 was primarily due to $118$107 million of cash flow from operations which was partially offset by $43cash payments of $33 million offor capital expenditures the payment ofand $25 million for dividends, resulting in $22 million of dividendscash and payments related to various acquisitionscash equivalents on hand as of $11 million. Shareholders'November 2, 2019. Shareholders’ equity
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances from October 28, 2017November 3, 2018 to November 3, 2018.2, 2019.
35
November 3, 2018 | February 3, 2018 | October 28, 2017 | January 28, 2017 | |||||||||
Cash and cash equivalents | $ | 7,413 | $ | 6,343 | $ | 6,077 | $ | 6,332 | ||||
Receivables, net | 69,400 | 67,542 | 73,724 | 58,279 | ||||||||
Inventories, net | 138,150 | 126,812 | 127,301 | 142,175 | ||||||||
Prepaid expenses and other current assets | 36,937 | 35,421 | 27,619 | 24,842 | ||||||||
Total current assets | $ | 251,900 | $ | 236,118 | $ | 234,721 | $ | 231,628 |
Current Assets:
| | | | | | | | | | | | |
|
| November 2, |
| February 2, |
| November 3, |
| February 3, | ||||
| | 2019 | | 2019 | | 2018 | | 2018 | ||||
Cash and cash equivalents | | $ | 21,568 | | $ | 8,327 | | $ | 7,413 | | $ | 6,343 |
Receivables, net | |
| 64,593 | |
| 69,037 | |
| 69,400 | |
| 67,542 |
Inventories, net | |
| 154,229 | |
| 160,656 | |
| 138,150 | |
| 126,812 |
Prepaid expenses and other current assets | |
| 28,438 | |
| 31,768 | |
| 36,937 | |
| 35,421 |
Total current assets | | $ | 268,828 | | $ | 269,788 | | $ | 251,900 | | $ | 236,118 |
Cash and cash equivalents were $22 million as of November 2, 2019 compared to $7 million as of November 3, 2018 and October 28, 2017 represent typical2018. Typical cash amounts maintained on an ongoing basis in our operations which generally rangesrange from $5 million to $10 million at any given time.time if we have debt outstanding. Any excess cash is generally used to repay any amounts outstanding under our U.S. Revolving Credit Agreement.Agreement, and if cash flow from operations exceeds amounts required to pay any outstanding debt amounts, capital expenditures and dividends, cash outstanding may exceed the typical cash amounts. The decrease in receivables, net as of November 3, 20182, 2019 was primarily due to lower wholesale tradea $4 million reduction in income tax receivables primarily resulting from lower wholesale salesreflecting the collection of certain income tax receivable amounts.
Inventories, net, which is net of a $62 million LIFO reserve in Lanier Apparelboth periods, increased as of November 2, 2019 due to increases in the Third Quarter of Fiscal 2018,inventories in Tommy Bahama, Southern Tide and Corporate and Other partially offset by a $4 million income tax receivable as of November 3, 2018 with no meaningful income tax receivable as of October 28, 2017.
Non-current Assets:
November 3, 2018 | February 3, 2018 | October 28, 2017 | January 28, 2017 | |||||||||
Property and equipment, net | $ | 194,228 | $ | 193,533 | $ | 191,038 | $ | 193,931 | ||||
Intangible assets, net | 176,735 | 178,858 | 175,057 | 175,245 | ||||||||
Goodwill | 66,618 | 66,703 | 63,443 | 60,015 | ||||||||
Other non-current assets, net | 23,272 | 24,729 | 24,250 | 24,340 | ||||||||
Total non-current assets | $ | 460,853 | $ | 463,823 | $ | 453,788 | $ | 453,531 |
| | | | | | | | | | | | |
|
| November 2, |
| February 2, |
| November 3, |
| February 3, | ||||
| | 2019 | | 2019 | | 2018 | | 2018 | ||||
Property and equipment, net | | $ | 190,537 | | $ | 192,576 | | $ | 194,228 | | $ | 193,533 |
Intangible assets, net | |
| 175,298 | |
| 176,176 | |
| 176,735 | |
| 178,858 |
Goodwill | |
| 66,594 | |
| 66,621 | |
| 66,618 | |
| 66,703 |
Operating lease assets | | | 287,977 | | | — | | | — | | | — |
Other non-current assets, net | |
| 23,850 | |
| 22,093 | |
| 23,272 | |
| 24,729 |
Total non-current assets | | $ | 744,256 | | $ | 457,466 | | $ | 460,853 | | $ | 463,823 |
Property and equipment, net as of November 3, 2018 increased2, 2019 decreased primarily as a result of capital expenditures indepreciation expense during the twelve12 months ended November 3, 2018,2, 2019, partially offset by depreciation expensecapital expenditures during the same period. The increasesdecrease in intangible assets, net and goodwill atas of November 3, 2018 were2, 2019 was primarily due to the acquisition of TBBC during December 2017, as disclosed in Note 12 to our consolidated financial statements contained in our Annual Report on Form 10-K for Fiscal 2017, partially offset by the amortization of intangible assets in the twelve12 months ended November 3, 2018.
November 3, 2018 | February 3, 2018 | October 28, 2017 | January 28, 2017 | |||||||||
Total current liabilities | $ | 124,839 | $ | 135,010 | $ | 117,915 | $ | 131,396 | ||||
Long-term debt | 32,211 | 45,809 | 72,131 | 91,509 | ||||||||
Other non-current liabilities | 73,434 | 74,029 | 73,487 | 70,002 | ||||||||
Deferred taxes | 16,922 | 15,269 | 16,829 | 13,578 | ||||||||
Non-current liabilities related to discontinued operations | — | — | 972 | 2,544 | ||||||||
Total liabilities | $ | 247,406 | $ | 270,117 | $ | 281,334 | $ | 309,029 |
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Liabilities:
| | | | | | | | | | | | |
|
| November 2, |
| February 2, |
| November 3, |
| February 3, | ||||
| | 2019 | | 2019 | | 2018 | | 2018 | ||||
Total current liabilities | | $ | 164,118 | | $ | 142,209 | | $ | 124,839 | | $ | 135,010 |
Long-term debt | |
| — | |
| 12,993 | |
| 32,211 | |
| 45,809 |
Non-current operating lease liabilities | |
| 293,775 | |
| — | |
| — | |
| — |
Other non-current liabilities | |
| 17,365 | |
| 75,286 | |
| 73,434 | |
| 74,029 |
Deferred taxes | | | 21,010 | | | 18,411 | | | 16,922 | | | 15,269 |
Total liabilities | | $ | 496,268 | | $ | 248,899 | | $ | 247,406 | | $ | 270,117 |
Current liabilities increased primarily due to (1) higher accounts payableas of November 2, 2019 primarily due to the timing$50 million of paymentcurrent lease liabilities recognized as of certainNovember 2, 2019, as a result of the adoption of the revised lease accounting guidance during Fiscal 2019 partially offset by reductions in accrued compensation, accounts payable amounts, (2) higherand other accrued expenses and liabilities resulting from higher deferred rent amounts, duties payable, sales tax payable and gift card liabilities and (3) higher accrued compensation amounts resulting from the timing of payment of bi-weekly employee salaries at quarter end due to the 53 week Fiscal 2017 shifting the relationship between pay periods and fiscal periods partially offset by lower incentive compensation amounts. These increases were partially offset by the payment of all liabilities related to discontinued operations.liabilities. The decrease in long-term debt as ofsince November 3, 2018 was primarily due to cash flows during the twelve months ended November 3, 2018, including $118$107 million of cash flow from operations which was partially offset by cash payments of $43$33 million for capital expenditures $22and $25 million for dividends and $11 million for various acquisitions.
The non-current operating lease liabilities amount as of November 2, 2019 is a result of the adoption of the revised lease accounting guidance during Fiscal 2019. Other non-current liabilities decreased as of November 2, 2019 primarily due to the amount as of November 3, 2018 and October 28, 2017 primarily due to the $12including $60 million impact on depreciation expense timing differences resulting from a cost segregation analysis completed in Fiscal 2017, which was offset by the $12 million impact of the revaluation of deferred tax amounts resulting from U.S. Tax Reform in Fiscal 2017. Thererent and deferred rent tenant improvement allowance liabilities which were no current or non-current liabilities related to discontinued operationsclassified as operating lease assets as of November 3, 20182, 2019, as a result of negotiated lease terminations in Fiscal 2017 for the remaining lease agreements, with the final satisfactionadoption of the liabilityrevised lease accounting guidance during Fiscal 2019. This reduction was partially offset by increases in amounts for deferred compensation liabilities and fair value of contingent consideration.
Deferred taxes increased as of November 2, 2019 primarily due to timing differences associated with the lease obligations completed in February 2018. We do not anticipate cash flows or earnings related to the discontinued operations in future periods as we have satisfied all obligations related to these lease agreements.
Statement of Cash Flows
The following table sets forth the net cash flows, including continuing and discontinued operations, for the First Nine Months of Fiscal 20182019 and the First Nine Months of Fiscal 20172018 (in thousands):
First Nine Months Fiscal 2018 | First Nine Months Fiscal 2017 | |||||
Cash provided by operating activities | $ | 64,618 | $ | 65,278 | ||
Cash used in investing activities | (31,268 | ) | (31,411 | ) | ||
Cash used in financing activities | (32,065 | ) | (34,155 | ) | ||
Net change in cash and cash equivalents | $ | 1,285 | $ | (288 | ) |
| | | | | | | |
| | First Nine Months | | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | | ||
Cash provided by operating activities | | $ | 75,206 | | $ | 64,618 | |
Cash used in investing activities | |
| (26,877) | |
| (31,268) | |
Cash used in financing activities | |
| (35,032) | |
| (32,065) | |
Net change in cash and cash equivalents | | $ | 13,297 | | $ | 1,285 | |
Cash and cash equivalents on hand were $7$22 million and $6$7 million at November 2, 2019 and November 3, 2018, and October 28, 2017, respectively. Changes in cash flows in the First Nine Months of Fiscal 20182019 and the First Nine Months of Fiscal 20172018 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In boththe First Nine Months of Fiscal 2019 and the First Nine Months of Fiscal 2018, and the First Nine Months of Fiscal 2017, operating activities provided $75 million and $65 million, respectively, of cash. The cash flow from operating activities for each period was primarily the result of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization and equity-based compensation, as well as the net impact of changes in deferred taxes and our working capital accounts. In both the First Nine Months of Fiscal 20182019 and the First Nine Months of Fiscal 2017,2018, working capital account changes had an unfavorable impact on cash flow from operations, but the unfavorable impact was more significant inoperations. In the First Nine Months of Fiscal 2018.2019, the more significant changes in working capital, after considering the non-cash impact of certain reclassifications that resulted from the adoption of the revised lease accounting guidance, were a decrease in current liabilities, which reduced cash flow from operations, partially offset by decreases in inventories and receivables, which increased cash flow from
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operations. In the First Nine Months of Fiscal 2018, the more significant changes in working capital were an increase in inventories and a decrease in current liabilities, which reduced cash flow from operations.
Investing Activities:
In the First Nine Months of Fiscal 2017, the more significant changes in working capital accounts were an increase in receivables2019 and a decrease in current liabilities, which reduced cash flow from operations, partially offset by a reduction in inventories, which increased cash flow from operations.
Financing Activities:
In the First Nine Months of Fiscal 2018, we paid $31 million for capital expenditures compared to $26 million in the First Nine Months of Fiscal 2017. In the First Nine Months of Fiscal 2017 we paid $5 million for acquisitions consisting of the acquisition of certain Lilly Pulitzer Signature Stores as well as working capital settlements related to other recent acquisitions, while in2019 and the First Nine Months of Fiscal 2018, we paid certain small amounts consisting of working capital and other related settlements associated with recent acquisitions.
If we are in a debt position, we may borrow or used in financing activities in the future will be dependent uponpay down debt depending on whether our cash flow from operating activities exceeds our capital expenditures, dividend payments, acquisitions and any other investing or financing activities. Generally, we anticipate that excess cash, if any, will be used to repay any debt on our U.S. Revolving Credit Agreement.
Liquidity and Capital Resources
In July 2019, we amended the U.S. Revolving Credit Agreement by entering into the First Amendment to the Fourth Amended and Restated Credit Agreement ("to (1) extend the maturity of the facility to July 2024, and (2) modify certain provisions including a reduction of interest rates on certain borrowings and a reduction in unused line fees. We had no amounts outstanding as of November 2, 2019 under our U.S. Revolving Credit Agreement") compared to $72 million of borrowings outstanding as of October 28, 2017.Agreement. The U.S. Revolving Credit Agreement generally (1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (2) accrues variable-rate interest, (weighted average borrowing rate of 3.9% as of November 3, 2018), unused line fees and letter of credit fees based upon average unused availability or utilization, (3) requires periodic interest payments with principal due at maturity (May 2021)(July 2024) and (4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
To the extent cash flow needs exceed cash flow provided by our operations we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any. Our U.S. Revolving Credit Agreement is also used to establish collateral for certain insurance programs and leases and to finance trade letters of credit for product purchases, which reduce the amounts available under our line of credit when issued. As of November 3, 2018, $52, 2019, $3 million of letters of credit were outstanding againstunder our U.S. Revolving Credit Agreement. After considering these limitations and the amount of eligible assets in our borrowing base, as applicable, as of November 3, 2018,2, 2019, we had $225$313 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
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Covenants and Other Restrictions:
The U.S. Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the U.S. Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (1) incur debt, (2) guaranty certain obligations, (3) incur liens, (4) pay dividends to shareholders, (5) repurchase shares of our common stock, (6) make investments, (7) sell assets or stock of subsidiaries, (8) acquire assets or businesses, (9) merge or consolidate with other companies or (10) prepay, retire, repurchase or redeem debt.
Additionally, the U.S. Revolving Credit Agreement contains a financial covenant that applies if excess availability under the agreement for three consecutive business days is less than the greater of (i) $23.5 million or (ii) 10% of availability. In such case, our
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the U.S. Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we entered intoamended the U.S. Revolving Credit Agreement. During the First Nine MonthsThird Quarter of Fiscal 20182019 and as of November 3, 2018,2, 2019, no financial covenant testing was required pursuant to our U.S. Revolving Credit Agreement as the minimum availability threshold was met at all times. As of November 3, 2018,2, 2019, we were compliant with all covenants related to the U.S. Revolving Credit Agreement.
Other Liquidity Items:
We anticipate that we will be able to satisfy our ongoing cash requirements, which generally consist of working capital and other operating activity needs, capital expenditures, interest payments on our debt and dividends, if any, primarily from positive cash flow from operations supplemented by borrowings under our U.S. Revolving Credit Agreement. Our need for working capital is typically seasonal with the greatest requirements generally in the fall and spring of each year. Our capital needs will depend on many factors including our growth rate, the need to finance inventory levels and the success of our various products. We anticipate that at the maturity of the U.S. Revolving Credit Agreement or as otherwise deemed appropriate, we will be able to refinance the facility or obtain other financing on terms available in the market at that time. The terms of any future financing arrangements may not be as favorable as the terms of the current agreement or current market terms.
Although we have paid dividends in each quarter since we became a public company in July 1960, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facility, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends in the short term based on our expectation of operating cash flows in future periods subject to the terms and conditions of our credit facility, other debt instruments and applicable law. All cash flow from operations will not be paid out as dividends in all periods. For details about limitations on our ability to pay dividends, see the discussion of the U.S. Revolving Credit Agreement above.
Our contractual obligations as of November 3, 20182, 2019 have not changed materially from the contractual obligations outstanding at February 3, 2018,2, 2019, as disclosed in our Annual Report on Form 10-K for Fiscal 20172018 filed with the SEC, other than changes in amounts outstanding under our U.S. Revolving Credit Agreement, as discussed above.
Our anticipated capital expenditures for Fiscal 2018,2019, including the $31$27 million incurred in the First Nine Months of Fiscal 2018,2019, are expected to be approximately $45 million compared to $39 million in Fiscal 2017.$40 million. These expenditures are expected to consist primarily of costs associated with information technology initiatives, including e-commerce capabilities; opening, relocating and remodeling full-pricenew retail stores and restaurants;Marlin Bars; and facilities enhancements.investments to remodel existing retail stores and restaurants. Our capital expenditure amounts in future years may
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increase or decrease from the amounts incurred in prior years depending on the information technology initiatives, full-price retail store and restaurantdirect to consumer location openings, relocations and remodels and other infrastructure requirements deemed appropriate for that year to support future expansion of our businesses.
Off Balance Sheet Arrangements
We have not entered into agreements which meet the SEC’s definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments to or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of GAAP requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our estimates.estimates, including those discussed below. We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that we have appropriately applied our critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies, our consolidated statements of operations could be misstated.
Our critical accounting policies and estimates are discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for Fiscal 2017.2018. There have not been any significant changes to the application of our critical accounting policies and estimates during the First Nine Months of Fiscal 2018, except for changes in our revenue recognition policy as disclosed in Note 5.2019. A detailed summary of significant accounting policies is included in Note 1 to our consolidated financial statements contained in our Annual Report on Form 10-K for Fiscal 2017.
SEASONAL ASPECTS OF OUR BUSINESS
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. For details of the impact of seasonality on each of our operating groups, see the business discussion for each operating group in Part I, Item 1, Business in our Annual Report on Form 10-K for Fiscal 2017.
As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, weather or other factors affecting our operations may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales and operating income for Fiscal 20172018 are necessarily indicative of anticipated results for Fiscal 20182019 or expected distribution in future years. Our third quarter has historically been our smallest net sales and operating income quarter and that result is expected to continue. The following table presents our percentage of net sales and operating results by quarter for Fiscal 2017:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||
Net sales | 25 | % | 26 | % | 22 | % | 27 | % |
Operating income | 35 | % | 42 | % | 1 | % | 22 | % |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain interest rate, foreign currency, commodity and inflation risks as discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for Fiscal 2017.2018. There have not been any significant changes in our exposure to these risks during the First Nine Months of Fiscal 2018.2019.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our company, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the Third Quarter of Fiscal 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to litigation and regulatory actions arising in the ordinary course of business. These actions may relate to trademarkstrademark and other intellectual property, licensing arrangements, real estate, importing or exporting regulations, taxation, employee relationsrelation matters or other topics. We are not currently a party to any litigation or regulatory action or aware of any proceedings contemplated by governmental authorities that we believe could reasonably be expected to have a material impact on our financial position, results of operations or cash flows. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of additional factors not presently known or determinations by judges, juries, or others which are not consistent with our evaluation of the possible liability or outcome of such litigation or claims.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks. Investors should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for Fiscal 2017,2018, which could materially affect our business, financial condition or operating results. We operate in a competitive and rapidly changing business environment, and additional risks and uncertainties that we currently consider immaterial or are not presently known to us or that we currently consider immaterial may also adversely affect our business. The risks described in our Annual Report on Form 10-K for Fiscal 20172018 are not the only risks facing our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | During the Third Quarter of Fiscal 2019, we did not sell any unregistered equity securities. |
(b) | We have certain stock incentive plans as described in Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for Fiscal 2018, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the vesting of shares of our stock. During the Third Quarter of Fiscal 2019, no shares were repurchased pursuant to these plans. |
In March 2017, our Board of Directors authorized us to spend up to $50 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. As of November 3, 2018, no shares of our stock had been repurchased pursuant to this authorization.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
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ITEM 6. EXHIBITS
| | |
3.1 | ||
Restated Articles of Incorporation of Oxford Industries, Inc. (filed as Exhibit 3.1 to the | ||
3.2 | | Bylaws of Oxford Industries, Inc., as |
31.1 | | |
31.2 | | |
32 | | |
101.INS | | XRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL |
101.SCH | | XBRL Taxonomy Extension Schema Document* |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document* |
104 | | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | * Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
December 12, 2019 | ||
OXFORD INDUSTRIES, INC. | | |
| | |
| (Registrant) | |
| | |
| /s/ K. Scott Grassmyer | |
| K. Scott Grassmyer | |
| Executive Vice President - Finance, Chief Financial Officer and Controller | |
| (Authorized Signatory) | |
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