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 |
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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
As of May 31,November 30, 2019, there were 17,019,11717,040,004 shares of the registrant'sregistrant’s common stock outstanding.
OXFORD INDUSTRIES, INC.
For the
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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, demand for our products, which may be impacted by competitive conditions and/or evolving consumer shopping patterns; macroeconomic factors that may impact consumer spending for apparel and related products; the timing of shipments requested by our wholesale customers; weather; expected pricing levels; costs 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; 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 remodels as well as other capital expenditures; changes in international, federal or state tax, trade and other laws and regulations, including the possibility of the United States imposing significantly higher tariffs on apparel and related products manufactured in China; acquisition and disposition activities, including our ability to timely recognize expected synergies from 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. 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; and "TBBC" means The Beaufort Bonnet Company; 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 ended February 2, 2019 |
Fiscal 2017 | | 53 weeks ended February 3, 2018 |
Fourth Quarter Fiscal 2019 | | 13 weeks ending February 1, 2020 |
Third Quarter Fiscal 2019 | | 13 weeks |
Second Quarter Fiscal 2019 | | 13 weeks |
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 2019 | | 39 weeks ended November 2, 2019 |
First Nine Months Fiscal 2018 | | 39 weeks ended November 3, 2018 |
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ITEM 1. FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
(in thousands, except par amounts)
(unaudited)
May 4, 2019 | February 2, 2019 | May 5, 2018 | |||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 5,501 | $ | 8,327 | $ | 4,662 | |||||
Receivables, net | 85,857 | 69,037 | 81,274 | ||||||||
Inventories, net | 157,221 | 160,656 | 132,342 | ||||||||
Prepaid expenses and other current assets | 24,588 | 31,768 | 31,994 | ||||||||
Total Current Assets | $ | 273,167 | $ | 269,788 | $ | 250,272 | |||||
Property and equipment, net | 191,104 | 192,576 | 196,734 | ||||||||
Intangible assets, net | 175,883 | 176,176 | 178,111 | ||||||||
Goodwill | 66,597 | 66,621 | 66,577 | ||||||||
Operating lease assets | 294,131 | — | — | ||||||||
Other non-current assets, net | 23,543 | 22,093 | 25,037 | ||||||||
Total Assets | $ | 1,024,425 | $ | 727,254 | $ | 716,731 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | $ | 52,121 | $ | 81,612 | $ | 51,615 | |||||
Accrued compensation | 19,719 | 24,226 | 19,153 | ||||||||
Current operating lease liabilities | 53,683 | — | — | ||||||||
Other accrued expenses and liabilities | 40,778 | 36,371 | 40,421 | ||||||||
Total Current Liabilities | $ | 166,301 | $ | 142,209 | $ | 111,189 | |||||
Long-term debt | 33,182 | 12,993 | 72,244 | ||||||||
Non-current operating lease liabilities | 295,399 | — | — | ||||||||
Other non-current liabilities | 16,707 | 75,286 | 73,588 | ||||||||
Deferred taxes | 19,664 | 18,411 | 16,045 | ||||||||
Commitments and contingencies | |||||||||||
Shareholders’ Equity | |||||||||||
Common stock, $1.00 par value per share | 17,019 | 16,959 | 16,937 | ||||||||
Additional paid-in capital | 142,761 | 142,976 | 136,297 | ||||||||
Retained earnings | 338,875 | 323,515 | 295,086 | ||||||||
Accumulated other comprehensive loss | (5,483 | ) | (5,095 | ) | (4,655 | ) | |||||
Total Shareholders’ Equity | $ | 493,172 | $ | 478,355 | $ | 443,665 | |||||
Total Liabilities and Shareholders’ Equity | $ | 1,024,425 | $ | 727,254 | $ | 716,731 |
| | | | | | | | | |
|
| 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.
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OXFORD INDUSTRIES, INC.
(in thousands, except per share amounts)
(unaudited)
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||||
Net sales | $ | 281,973 | $ | 272,628 | ||||
Cost of goods sold | 116,204 | 108,482 | ||||||
Gross profit | $ | 165,769 | $ | 164,146 | ||||
SG&A | 139,814 | 139,720 | ||||||
Royalties and other operating income | 3,787 | 3,947 | ||||||
Operating income | $ | 29,742 | $ | 28,373 | ||||
Interest expense, net | 671 | 781 | ||||||
Earnings before income taxes | $ | 29,071 | $ | 27,592 | ||||
Income taxes | 7,414 | 7,025 | ||||||
Net earnings | $ | 21,657 | $ | 20,567 | ||||
Net earnings per share: | ||||||||
Basic | $ | 1.30 | $ | 1.24 | ||||
Diluted | $ | 1.29 | $ | 1.23 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 16,713 | 16,639 | ||||||
Diluted | 16,848 | 16,769 | ||||||
Dividends declared per share | $ | 0.37 | $ | 0.34 |
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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: | |
|
| |
|
| |
|
| |
|
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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)
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||||
Net earnings | $ | 21,657 | $ | 20,567 | ||||
Other comprehensive income (loss), net of taxes: | ||||||||
Net foreign currency translation adjustment | (388 | ) | (581 | ) | ||||
Comprehensive income | $ | 21,269 | $ | 19,986 |
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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: | |
|
| |
|
| |
|
| |
|
| |
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 Quarter Fiscal 2019 | First Quarter Fiscal 2018 | ||||||
Cash Flows From Operating Activities: | |||||||
Net earnings | $ | 21,657 | $ | 20,567 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation | 9,845 | 9,435 | |||||
Amortization of intangible assets | 292 | 691 | |||||
Equity compensation expense | 1,876 | 1,718 | |||||
Amortization of deferred financing costs | 106 | 106 | |||||
Deferred income taxes | 1,019 | 660 | |||||
Changes in working capital, net of acquisitions and dispositions: | |||||||
Receivables, net | (17,088 | ) | (13,795 | ) | |||
Inventories, net | 3,208 | (5,763 | ) | ||||
Prepaid expenses and other current assets | 1,811 | 3,402 | |||||
Current liabilities | (29,170 | ) | (23,429 | ) | |||
Other balance sheet changes | 356 | (736 | ) | ||||
Cash used in operating activities | $ | (6,088 | ) | $ | (7,144 | ) | |
Cash Flows From Investing Activities: | |||||||
Acquisitions, net of cash acquired | — | (302 | ) | ||||
Purchases of property and equipment | (8,282 | ) | (12,838 | ) | |||
Cash used in investing activities | $ | (8,282 | ) | $ | (13,140 | ) | |
Cash Flows From Financing Activities: | |||||||
Repayment of revolving credit arrangements | (77,323 | ) | (64,266 | ) | |||
Proceeds from revolving credit arrangements | 97,512 | 90,700 | |||||
Proceeds from issuance of common stock | 422 | 385 | |||||
Repurchase of equity awards for employee tax withholding liabilities | (2,453 | ) | (2,372 | ) | |||
Cash dividends declared and paid | (6,297 | ) | (5,758 | ) | |||
Other financing activities | (282 | ) | — | ||||
Cash provided by financing activities | $ | 11,579 | $ | 18,689 | |||
Net change in cash and cash equivalents | $ | (2,791 | ) | $ | (1,595 | ) | |
Effect of foreign currency translation on cash and cash equivalents | (35 | ) | (86 | ) | |||
Cash and cash equivalents at the beginning of year | 8,327 | 6,343 | |||||
Cash and cash equivalents at the end of the period | $ | 5,501 | $ | 4,662 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest, net | $ | 514 | $ | 635 | |||
Cash paid for income taxes | $ | 534 | $ | 334 |
| | | | | | | |
| | 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: | |
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|
| |
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: | |
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| |
|
| |
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 FISCAL
20191. 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,Accounting Standards Adopted in Fiscal 2019
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 are required to recognize (1) an 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. The guidance was adopted on the first day of the First Quarter of Fiscal 2019 using a modified retrospective approach. The modified retrospective approach allows us to apply the standard and related disclosures to the financial statements for the period of adoption and apply the previous guidance in the prior year comparative periods. The adoption of the new guidance had a material impact on our condensed consolidated balance sheet as a result of the non-cash recognition of operating lease assets and operating lease liabilities, but did not have a material impact on our consolidated statements of operations or cash flows. At adoption ofWe elected the revised lease accounting guidance, we elected to adopt thetransition relief package of transition practical expedients and, therefore,by applying previous accounting conclusions to all leases that existed prior to the adoption date. Therefore, we have not reassessed (1) whether exitingexisting or expired contracts contain a lease, (2) lease classification for existing or expired leases, or (3) the accounting for initial direct costs that were previously capitalized. We did not elect the practical expedient to use hindsight for leases existing at the adoption date. Refer to Note 5 for additional disclosures and information about accounting for leases.
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 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 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 license their trademarks for other product categories, while Lanier Apparel designs, sources and distributes branded and private label men'smen’s tailored clothing, sportswear and other products. Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, the elimination of inter-segment sales and any other items that are not allocated to the operating groups, including LIFO accounting adjustments. Because our LIFO inventory pool does not correspond to our operating group definitions, LIFO inventory accounting adjustments are not allocated to the operating groups. Corporate and Other also includes the operations of other businesses which are not included in our operating groups, including the operations of TBBC and our Lyons, Georgia
The tablestable below presentpresents 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
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||||
Net sales | ||||||||
Tommy Bahama | $ | 164,730 | $ | 167,132 | ||||
Lilly Pulitzer | 72,595 | 68,627 | ||||||
Lanier Apparel | 26,589 | 19,909 | ||||||
Southern Tide | 14,134 | 13,472 | ||||||
Corporate and Other | 3,925 | 3,488 | ||||||
Total net sales | $ | 281,973 | $ | 272,628 | ||||
Depreciation and amortization | ||||||||
Tommy Bahama | $ | 6,840 | $ | 7,066 | ||||
Lilly Pulitzer | 2,683 | 2,479 | ||||||
Lanier Apparel | 140 | 141 | ||||||
Southern Tide | 134 | 125 | ||||||
Corporate and Other | 340 | 315 | ||||||
Total depreciation and amortization | $ | 10,137 | $ | 10,126 | ||||
Operating income (loss) | ||||||||
Tommy Bahama | $ | 15,192 | $ | 14,303 | ||||
Lilly Pulitzer | 15,252 | 15,826 | ||||||
Lanier Apparel | 1,182 | 362 | ||||||
Southern Tide | 2,517 | 2,487 | ||||||
Corporate and Other | (4,401 | ) | (4,605 | ) | ||||
Total operating income | $ | 29,742 | $ | 28,373 | ||||
Interest expense, net | 671 | 781 | ||||||
Earnings before income taxes | $ | 29,071 | $ | 27,592 |
The tables below quantify, for each operating group and in total, the amount of net sales (in thousands) and net sales by distribution channel (in thousands) and 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
First Quarter of Fiscal 2019 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 164,730 | 47% | 15% | 14% | 24% | —% | |
Lilly Pulitzer | 72,595 | 42% | 25% | —% | 33% | —% | ||
Lanier Apparel | 26,589 | —% | 1% | —% | 99% | —% | ||
Southern Tide | 14,134 | —% | 13% | —% | 87% | —% | ||
Corporate and Other | 3,925 | —% | 61% | —% | 30% | 9% | ||
Total | $ | 281,973 | 38% | 17% | 9% | 36% | —% | |
First Quarter of Fiscal 2018 | ||||||||
Net Sales | Retail | E-commerce | Restaurant | Wholesale | Other | |||
Tommy Bahama | $ | 167,132 | 46% | 15% | 15% | 24% | —% | |
Lilly Pulitzer | 68,627 | 44% | 24% | —% | 32% | —% | ||
Lanier Apparel | 19,909 | —% | —% | —% | 100% | —% | ||
Southern Tide | 13,472 | —% | 12% | —% | 88% | —% | ||
Corporate and Other | 3,488 | —% | 60% | —% | 23% | 17% | ||
Total | $ | 272,628 | 40% | 16% | 9% | 35% | —% |
3. Shareholders'Shareholders’ Equity:
| | | | | | | | | | | | | | | |
| | 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
First Quarter 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 | ||||
First Quarter 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 | 257 | — | — | 385 | ||||||||||
Compensation expense for equity awards | — | 1,718 | — | — | 1,718 | ||||||||||
Repurchase of shares | (30 | ) | (2,342 | ) | — | — | (2,372 | ) | |||||||
Cash dividends declared and paid | — | — | (5,758 | ) | — | (5,758 | ) | ||||||||
Cumulative effect of change in accounting standards | — | — | (118 | ) | — | (118 | ) | ||||||||
May 5, 2018 | $ | 16,937 | $ | 136,297 | $ | 295,086 | $ | (4,655 | ) | $ | 443,665 |
| | | | | | | | | | | | | | | |
| | 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. NoNaN amounts were reclassified from AOCI to our consolidated statements of operations for any period presented.
4. Revenue Recognition:
Our revenue consists of direct to consumer sales, including our retail store, e-commerce and restaurant operations, and wholesale sales, which are included in net sales in our consolidated statements of operations, as well as royalty income, which represents substantially all amounts included in royalties and other income in our consolidated statements of operations. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our accounting policies related to revenue recognition for each type of contract with customers, including a description of the related performance obligations, return rights, allowances, discounts, credit terms and other information, is described in the significant accounting policies described in our Annual Report on Form 10-K for Fiscal 2018.13
The table below quantifies the amount of net sales by distribution channel (in thousands) for each period presented.
First Quarter of Fiscal 2019 | First Quarter of Fiscal 2018 | |||||
Retail | $ | 108,006 | $ | 107,735 | ||
E-commerce | 47,989 | 44,522 | ||||
Restaurant | 23,601 | 25,293 | ||||
Wholesale | 101,926 | 94,376 | ||||
Other | 451 | 702 | ||||
Net sales | $ | 281,973 | $ | 272,628 |
| | | | | | | | | | | | | |
|
| 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 recognized in receivables, net represent receivables related to contracts with customers. In the ordinary course of our wholesale operations, we offer discounts, allowances and cooperative advertising support to some of our wholesale customers for certain products. We record thethese discounts, returns and allowances as a reduction to net sales in our consolidated statements of operations and as a reduction to receivables, net in our consolidated balance sheets. As of May 4,November 2, 2019, February 2, 2019 and May 5,November 3, 2018, reserve balances recorded as a reduction to receivables related to these items were $8$9 million, $7 million and $6$8 million, respectively
In addition to trade and other receivables, income tax receivables of $1 million, $1 million and $5$4 million and tenant allowances due from landlord of $1$2 million, $0 million and $1$0 million are included in receivables, net in our consolidated balance sheet as of May 4,November 2, 2019, February 2, 2019 and May 5,November 3, 2018, respectively. As of May 4,November 2, 2019, February 2, 2019 and May 5,November 3, 2018, prepaid expenses and other current assets included $3$4 million, $2 million and $3$2 million, respectively, representing the estimated value of inventory for wholesale and direct to consumer sales returns. We did 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 May 4,November 2, 2019, February 2, 2019 and May 5,November 3, 2018.
An estimated sales return liability of $5$3 million, $3 million and $5$2 million for expected direct to consumer returns is classified in other accrued expenses and liabilities in our consolidated balance sheet as of May 4,November 2, 2019, February 2, 2019 and May 5,November 3, 2018, respectively. Contract liabilities for gift cards purchased by consumers and merchandise credits received by customers but not yet redeemed, less any breakage income recognized to date, is included in other accrued expenses and liabilities in our consolidated balance sheets and totaled $12$11 million, $12 million and $10 million as of May 4,November 2, 2019, February 2, 2019, and May 5,November 3, 2018, respectively.
5. Leases:
We enter into real estate lease agreements for retail, food and beverage, office and warehouse/distribution space, as well as leases for certain equipment. Our leases have varying terms and expirations andSubstantially 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
14
expense over the term of the lease agreement on a straight-line basis. Deferred rent in our consolidated 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 the First Quarter of Fiscal 2019, we determine if an arrangement is a lease at contract inception. Operating lease liabilities are recognized at the lease commencement date based on the present 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 underlying operating lease asset at the individual lease level. Typically, we do not include any renewal or termination 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 our unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate. As our leases typically do not provide an implicit rate, we use an estimated incremental borrowing rate based on information available at commencement date, or as of February 3, 2019 for any leases in place at adoption of the revised 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 SG&A in our consolidated statements of operations. For the FirstThird Quarter of Fiscal 2019, operating lease expense was $16 million and variable lease expense was $5$8 million,
As of May 4,November 2, 2019, the required lease liability payments for the fiscal years specified below were as follows (in 000s)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
Operating lease | |||
Remainder of 2019 | $ | 50,835 | |
2020 | 59,664 | ||
2021 | 62,349 | ||
2022 | 58,682 | ||
2023 | 55,150 | ||
2024 | 42,122 | ||
After 2024 | 80,852 | ||
Total lease payments | $ | 409,654 | |
Less: Difference between discounted and undiscounted lease payments | 60,572 | ||
Present value of lease liabilities | $ | 349,082 |
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. As of February 2, 2019, the aggregate minimum base rental commitments for all non-cancelable operating real property leases with original terms in excess of one year arewere $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. 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 reduce 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 borrowing base, as of November 2, 2019, we had $313 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
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 2018, 93% of our net sales were from products bearing brands that we own and 69% of our net sales were through our direct to consumer channels of distribution. In Fiscal 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.
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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. Advertising 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 and 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 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, Signature Stores for Lilly Pulitzer and Southern Tide, better department stores and multi-branded e-commerce retailers. Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed, private label and owned brands. Lanier Apparel'sApparel’s customers include department stores, discount and off-price retailers, warehouse clubs, national chains, specialty 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 Bahama, e-commerce flash sales in Lilly Pulitzer, and off-price retailers in each operating group. Our focus in disposing of the excess inventory for our lifestyle brands is to do so in a brand appropriate setting and achieve an acceptable margin.
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. Additionally, in
Due to the event thatimposition by the United States imposesof higher tariffs on apparel and related products manufactured in China, our net sales, cost of goods sold, operating income and net earnings wouldare 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, gettingsuccessfully negotiating price reductions from third party manufacturers to share in the cost increases or to successfully increaseincreasing sales prices on impactedselect products.
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, which iscontinues 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 and may result in increased operating costs and capital investments to generate growth or even maintain their current sales levels.
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 store 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. We expect there will continue to be desirable locations for additionalto add new retail stores to our portfolio, but at a more measured growth rate than prior years.
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 12% of our consolidated net sales in Fiscal 2018, compared to approximately 14% in Fiscal 2017. The management of wholesale distribution for our lifestyle brands resulted in a decrease in wholesale sales in Fiscal 2018. While we anticipate modest growth in our wholesale sales in Fiscal 2019, there could be additional reductions in wholesale sales in future years, as the amount of sales to certain wholesale accounts could decrease if the number of doors that carry our product decreases, the volume sold for a particular door is reduced or 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 employment and other administrative function costs to support ongoing business operations and fuel future sales growth.
In the midst of the changes in our industry, an important initiative for us in recent years 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.results. While we have made progress was made on these initiatives in recent years, we expect to make further progress on improving the profitability of the Tommy Bahama business in Fiscal 2019 and future years.
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. While we are actively exploring acquisition opportunities, investment opportunities for the 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 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 2018.
The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First QuarterNine Months of Fiscal 2019 compared to the First QuarterNine Months of Fiscal 2018:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||
Net sales | $ | 281,973 | $ | 272,628 | ||
Operating income | $ | 29,742 | $ | 28,373 | ||
Net earnings | $ | 21,657 | $ | 20,567 | ||
Net earnings per diluted share | $ | 1.29 | $ | 1.23 | ||
Weighted average shares outstanding - diluted | 16,848 | 16,769 |
| | | | | | |
|
| 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 QuarterNine Months of Fiscal 2019 was primarily due to higher operating income in Lilly Pulitzer, Tommy Bahama and in Lanier Apparel. These improved operating results were partially offset bySouthern Tide and lower operating income in Lilly Pulitzer.
COMPARABLE SALES
We often disclose comparable sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable 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 sales disclosures is a more meaningful way of reporting our comparable 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 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 sales disclosures is meaningful in assessing our consolidated results of operations. Comparable sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, comparable sales consists of sales through our e-commerce sites as well as throughand 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
Definitions and calculations of comparable sales differ among retail companies, and therefore comparable 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.
May 4, 2019 | February 2, 2019 | May 5, 2018 | February 3, 2018 | |
Tommy Bahama Full-Price Retail Stores | 113 | 113 | 111 | 110 |
Tommy Bahama Retail-Restaurant Locations | 17 | 17 | 18 | 18 |
Tommy Bahama Outlet Stores | 37 | 37 | 38 | 38 |
Total Tommy Bahama Retail Locations | 167 | 167 | 167 | 166 |
Lilly Pulitzer Full-Price Retail Stores | 63 | 62 | 59 | 57 |
Total Oxford Retail Locations | 230 | 229 | 226 | 223 |
| | | | | | | | |
| | 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 2019 COMPARED TO FIRSTTHIRD QUARTER OF FISCAL 2018
The discussion and tables below compare our statements of operations for the FirstThird Quarter of Fiscal 2019 to the FirstThird Quarter of Fiscal 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.
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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 the same period of the prior year.
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||||||
Net sales | $ | 281,973 | 100.0 | % | $ | 272,628 | 100.0 | % | $ | 9,345 | 3.4 | % | |||
Cost of goods sold | 116,204 | 41.2 | % | 108,482 | 39.8 | % | 7,722 | 7.1 | % | ||||||
Gross profit | $ | 165,769 | 58.8 | % | $ | 164,146 | 60.2 | % | $ | 1,623 | 1.0 | % | |||
SG&A | 139,814 | 49.6 | % | 139,720 | 51.2 | % | 94 | 0.1 | % | ||||||
Royalties and other operating income | 3,787 | 1.3 | % | 3,947 | 1.4 | % | (160 | ) | (4.1 | )% | |||||
Operating income | $ | 29,742 | 10.5 | % | $ | 28,373 | 10.4 | % | $ | 1,369 | 4.8 | % | |||
Interest expense, net | 671 | 0.2 | % | 781 | 0.3 | % | (110 | ) | (14.1 | )% | |||||
Earnings before income taxes | $ | 29,071 | 10.3 | % | $ | 27,592 | 10.1 | % | $ | 1,479 | 5.4 | % | |||
Income taxes | 7,414 | 2.6 | % | 7,025 | 2.6 | % | 389 | 5.5 | % | ||||||
Net earnings | $ | 21,657 | 7.7 | % | $ | 20,567 | 7.5 | % | $ | 1,090 | 5.3 | % |
| | | | | | | | | | | | | | | | | | |
|
| 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
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 164,730 | $ | 167,132 | $ | (2,402 | ) | (1.4 | )% | ||
Lilly Pulitzer | 72,595 | 68,627 | 3,968 | 5.8 | % | ||||||
Lanier Apparel | 26,589 | 19,909 | 6,680 | 33.6 | % | ||||||
Southern Tide | 14,134 | 13,472 | 662 | 4.9 | % | ||||||
Corporate and Other | 3,925 | 3,488 | 437 | 12.5 | % | ||||||
Total net sales | $ | 281,973 | $ | 272,628 | $ | 9,345 | 3.4 | % |
| | | | | | | | | | | | |
|
| 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 increased $9$8 million, or 3%, in the FirstThird Quarter of Fiscal 2019. The increase in consolidated net sales was primarily driven by (1) a $7 million net increase in wholesale sales, primarily driven by increased sales in Lanier Apparel, (2) a $2$6 million, or 2%6%, comparable sales increase to $128$91 million in the FirstThird Quarter of Fiscal 2019 from $126$85 million in the FirstThird Quarter of Fiscal 2018, with comparable sales increases in both Tommy Bahama and Lilly Pulitzer, (2) a $2 million increase in off-price direct to consumer sales including the Lilly Pulitzer e-commerce flash clearance sale, (3) an incremental net sales increase of $2 million associated with the operation of non-comp full-price retail stores. These increases in consolidated net sales were partially offset by (1)store operations primarily resulting from an increase at Lilly Pulitzer and (4) a $2$1 million decreaseincrease in restaurant sales in Tommy Bahama and (2)Bahama. These increases were partially offset by a $1$2 million net decrease in net sales through our off-price direct to consumer channels reflecting lower sales at Tommy Bahama outlets.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:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||
Retail | 38 | % | 40 | % |
E-commerce | 17 | % | 16 | % |
Restaurant | 9 | % | 9 | % |
Wholesale | 36 | % | 35 | % |
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 decreased $2increased $4 million, or 1%3%, in the FirstThird Quarter of Fiscal 2019. The decreaseincrease in Tommy Bahama net sales was primarily driven bydue to (1) a $2$3 million, decreaseor 6%, comparable sales increase to $58 million in restaurant sales primarily due to the closure of two restaurants in Fiscal 2018 and the remodel of one restaurant during the FirstThird Quarter of Fiscal 2019 from $55 million in the Third Quarter of Fiscal 2018 and (2) a $1 million increase in restaurant
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sales primarily reflecting the net impact of sales at remodeled, opened and closed restaurants, as well as lowerincreased sales in existing restaurants which wasrestaurants. These increases were partially offset by the impact of restaurant sales from a restaurant opened in Fiscal 2018, (2) a $2$1 million decrease in wholesale sales, reflecting lower full-price wholesale sales and (3) a $1 million decreasehigher off-price wholesale sales. Sales in outlet store sales. These decreasesoutlets and non-comp retail stores were partially offset by (1) a $1 million, or 2%,generally comparable sales increase to $81 million in the First Quarter of Fiscal 2019 from $80 million in the prior year period, and (2) an incremental net sales increase associated with the operation of non-comp full-price retail stores.period-over-period. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||
Retail | 47 | % | 46 | % |
E-commerce | 15 | % | 15 | % |
Restaurant | 14 | % | 15 | % |
Wholesale | 24 | % | 24 | % |
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 increased $4$3 million, or 6%5%, in the FirstThird Quarter of Fiscal 2019. The increase in Lilly Pulitzer net sales was primarily driven by (1) a $2 million increase in e-commerce flash clearance sales, with the September 2019 “After Party Sale” generating $31 million of net sales, (2) a $2 million, or 6%, comparable sales increase to $28 million in the Third Quarter of Fiscal 2019 from $27 million in the Third Quarter of Fiscal 2018, and (3) an incremental net sales increase of $2$1 million associated with the operation of non-comp full-price retail stores, (2)store operations. These increases were partially offset by a $2$1 million increasedecrease in wholesale sales reflecting higherlower full-price and off-price wholesale sales and (3) a 1% comparable sales increase with net sales of $42 million in both the First Quarter of Fiscal 2019 and the First Quarter of Fiscal 2018.sales. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||
Retail | 42 | % | 44 | % |
E-commerce | 25 | % | 24 | % |
Wholesale | 33 | % | 32 | % |
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 increase of $7 million, or 34%, was primarily due to1% in the Third Quarter of Fiscal 2019 reflects increases in certain programs, including increased sales in the private label, Cole Haan and Duck Head businesses. These increases were partially offset by decreased volume in various seasonal, in-stock and replenishment programs including initial shipments and a shift in timing into the first quarter for certain programs. These increases were partially offset by reductions in other businesses, including programs with customers who filed for bankruptcy in Fiscal 2018. While the Cole Haan and Duck Head businesses both had significantbranded businesses.
Southern Tide:
Southern Tide net sales growth ratesdecreased 4% in the FirstThird Quarter of Fiscal 2019 those businesses still represent a small proportion of Lanier Apparel's net sales. We expect net sales at Lanier Apparel for the full year Fiscal 2019 to increase in the high single-digit percentage range compared to the full year Fiscal 2018 net sales as the sales growth rate in the First Quarter of Fiscal 2019 is not indicative of planned sales in other quarters of Fiscal 2019.
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2019 |
| Fiscal 2018 | |
E-commerce |
| 19 | % | 16 | % |
Wholesale |
| 81 | % | 84 | % |
Total |
| 100 | % | 100 | % |
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First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||
E-commerce | 13 | % | 12 | % |
Wholesale | 87 | % | 88 | % |
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 sales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the FirstThird Quarter of Fiscal 2019 and the FirstThird Quarter of Fiscal 2018, as well as the change between those two periods and gross margin by operating group and in total for the First Quarter of Fiscal 2019 and the First Quarter of Fiscal 2018.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.
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 103,507 | $ | 104,290 | $ | (783 | ) | (0.8 | )% | ||
Lilly Pulitzer | 45,481 | 45,505 | (24 | ) | (0.1 | )% | |||||
Lanier Apparel | 7,402 | 5,968 | 1,434 | 24.0 | % | ||||||
Southern Tide | 7,152 | 6,737 | 415 | 6.2 | % | ||||||
Corporate and Other | 2,227 | 1,646 | 581 | 35.3 | % | ||||||
Total gross profit | $ | 165,769 | $ | 164,146 | $ | 1,623 | 1.0 | % | |||
LIFO adjustments included in Corporate and Other | $ | 141 | $ | 287 | |||||||
Inventory step-up charges included in Corporate and Other | $ | — | $ | 157 |
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||
Tommy Bahama | 62.8 | % | 62.4 | % |
Lilly Pulitzer | 62.7 | % | 66.3 | % |
Lanier Apparel | 27.8 | % | 30.0 | % |
Southern Tide | 50.6 | % | 50.0 | % |
Corporate and Other | NM | NM | ||
Consolidated gross margin | 58.8 | % | 60.2 | % |
| | | | | | | | | | | | |
|
| 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 in the FirstThird Quarter of Fiscal 2019 was due to increased net sales as discussed above, partially offset by lower gross margin. The lower 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 Lanier Apparel sales, which typically have lower gross margins represented a larger proportion of our net sales in the First Quarter of Fiscal 2019 and (2) lower gross margins in Lilly Pulitzer and Lanier Apparel. These items were partially offset by the improved gross margin in Tommy Bahama and Southern Tide. Changes in gross margin by operating group is discussed below.
23
Lanier Apparel:
The decrease in gross margin for Lanier Apparel was primarily due to (1) a change in sales mix as private label sales, which typically have lower gross margins, represented a largergreater proportion of net sales forin the FirstThird Quarter of Fiscal 2019 (2) the First Quarter of Fiscal 2019 including more significant charges for certain customer allowance and other amounts and (3) continued gross margin pressures.
Southern Tide:
The increase in gross margin for Southern Tide was primarily due to a change in sales mix as e-commerce and full-price wholesale sales represented a greater proportion of net sales and off-price wholesale sales represented a lower proportion of net sales.
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 highergross profit associated with the increased net sales of TBBC, (2) the First Quarter of Fiscal 2018 including certain inventory step-up charges with no such charges in the First Quarter of Fiscal 2019 and (3) the net favorable impact of LIFO accounting in the First Quarter of Fiscal 2019 compared to the First Quarter of Fiscal 2018.TBBC. The LIFO accounting impact in Corporate and Other in each period primarily reflects (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 period 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 the inventory has not been sold as of period endend.
SG&A
| | | | | | | | | | | | |
|
| 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 higher SG&A in the Third Quarter of Fiscal 2019 was primarily due to (1) increases in SG&A to support the businesses, including increased salaries, wages, employee 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 locations. These increases were partially offset by a $2 million reduction in incentive compensation amounts.
Royalties and other operating income
| | | | | | | | | | | | |
|
| 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.
24
Operating income (loss)
| | | | | | | | | | | | |
|
| 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 decrease in operating income in the Third Quarter of Fiscal 2019 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. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
| | | | | | | | | | | | |
|
| 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 larger operating loss for Tommy Bahama was primarily due to higher SG&A and lower gross margin, partially offset by increased net sales and royalty income. The higher SG&A for the Third Quarter of Fiscal 2019 reflects increased salaries, wages, employee benefits, variable costs and other operating expenses in our ongoing operations, partially offset by lower incentive compensation amounts.
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
The increase in operating income in Lilly Pulitzer was primarily due to higher net sales, gross margin and royalty income partially offset by higher SG&A. The higher SG&A for 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.
Lanier Apparel:
| | | | | | | | | | | | |
|
| 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 decrease in operating income for Lanier Apparel was primarily due to higher SG&A, partially offset by the higher net sales. The higher 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.
Southern Tide:
| | | | | | | | | | | | |
|
| 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 increase in operating income for Southern Tide was primarily due to lower SG&A and higher gross margin partially offset by lower net sales. The lower SG&A in the Third Quarter of Fiscal 2019 was primarily due to decreased incentive compensation amounts.
Corporate and Other:
| | | | | | | | | | | | |
|
| 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 smaller operating loss in Corporate and Other was primarily due to the increased net sales.
Interest expense, net
| | | | | | | | | | | | |
|
| 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 2019 primarily due to lower average debt outstanding as well as higher interest income.
26
Income taxes
| | | | | | | | | | | | |
|
| 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 income during the third quarter as compared to the other quarters of our fiscal year. Thus, the effective tax rate for the third quarter is not indicative of the effective tax rate anticipated for the full year. Our effective tax rate for the full year of Fiscal 2019 is expected to be approximately 26%.
Net earnings
| | | | | | |
|
| 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 lower net earnings per diluted share in the Third Quarter of Fiscal 2019 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 a lower effective tax rate.
FIRST NINE MONTHS OF FISCAL 2019 COMPARED TO FIRST NINE MONTHS OF FISCAL 2018
The discussion and tables below compare our statements of operations for the First Nine Months of Fiscal 2019 to the First Nine Months of Fiscal 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.
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 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
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 2019. The increase in consolidated net sales was primarily driven by (1) a $14 million, or 4%, comparable sales increase to $388 million in the First Nine Months of Fiscal 2019 from $375 million in the First Nine Months of Fiscal 2018, with comparable sales increases in both Tommy Bahama and Lilly Pulitzer, and (2) an incremental net sales increase of $6 million associated with non-comp retail store operations, resulting from an increase at Lilly Pulitzer. These increases in net sales were partially offset by (1) a $2 million decrease in restaurant sales in Tommy Bahama, (2) a $1 million decrease in wholesale sales and (3) a $1 million decrease in off-price direct to consumer sales as the decrease in Tommy Bahama outlet sales was partially offset by increased Lilly Pulitzer e-commerce flash 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:
| | | | | |
|
| 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 certain 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 2019 from $245 million in the First Nine Months of Fiscal 2018. The net sales of non-comp retail stores were generally comparable 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 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 $11 million, or 5%, in the First Nine Months of Fiscal 2019 was primarily the result of (1) an incremental net sales increase of $6 million associated with non-comp retail store operations
28
including the operation of additional retail stores and increased gift card breakage income, (2) a $2 million increase in wholesale sales reflecting increases in both full-price and off-price wholesale sales, (3) a $2 million, or 2%, increase in comparable sales to $121 million in the First Nine Months of Fiscal 2019 from $119 million in the First Nine Months of Fiscal 2018, and (4) a $2 million increase in e-commerce flash clearance sales. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 43 | % | 44 | % |
E-commerce |
| 36 | % | 35 | % |
Wholesale |
| 21 | % | 21 | % |
Total |
| 100 | % | 100 | % |
Lanier Apparel:
The Lanier Apparel net sales increase of $4 million, or 6%, in the First Nine Months of Fiscal 2019 was primarily due to increased volume in various seasonal, in-stock and replenishment programs, including initial shipments for certain programs in the First 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 and customers, including programs with customers who filed for bankruptcy in Fiscal 2018, and (2) certain programs that had initial shipments in the First Nine Months of Fiscal 2018. While the Cole Haan and 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’s net sales.
Southern Tide:
The Southern Tide net sales increase of $1 million, or 3%, in the First Nine Months of Fiscal 2019 was due to higher sales in both the e-commerce and wholesale channels of distribution, with e-commerce growing at a faster pace than wholesale sales. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
| | | | | |
|
| 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 and our Lyons, Georgia distribution center operations. The increase in net sales was due to sales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the First Nine Months of Fiscal 2019 and the First Nine Months of Fiscal 2018, as well as the change between those two periods and gross margin by operating group and in total for 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 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 2019 was primarily due to increased sales partially offset by lower gross margin. The lower 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 with retail store and e-commerce sales representing a greater proportion of net sales and wholesale and outlet store sales representing a lower proportion of net sales and (2) the First Nine Months of Fiscal 2018 including certain Tommy Bahama Japan inventory markdown charges with no such charges in the First Nine Months of Fiscal 2019. These favorable items were partially offset by the impact of a greater proportion of net sales in the direct to consumer business being associated with promotional events, including our Friends and Family, loyalty award cards and other promotion events.
Lilly Pulitzer:
The decrease in gross margin for Lilly Pulitzer reflects (1) a greater proportion of off-price wholesale sales, which had lower gross margins in the First Nine Months of Fiscal 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 the impact of higher gift card breakage income.
Lanier Apparel:
The gross margin for Lanier Apparel was comparable as gross margin changes in various programs and sales mix generally offset.
30
Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to the prior year including an insurance recovery on certain inventory partially offset by a change in sales mix as e-commerce sales represented a greater proportion of net sales.
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 increased gross profit primarily reflects the impact of higher net sales in TBBC partially offset by the unfavorable impact of LIFO accounting in the First Nine Months of Fiscal 2019 compared to the First Nine Months of Fiscal 2018. The LIFO accounting impact in Corporate and Other in each period primarily reflects (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 period is ultimately sold.
SG&A
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
SG&A | $ | 139,814 | $ | 139,720 | $ | 94 | 0.1 | % | |||
SG&A as % of net sales | 49.6 | % | 51.2 | % | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | — | $ | 385 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 80 | $ | 95 | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
| | | | | | | | | | | | |
|
| 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 comparableincrease in SG&A in the First QuarterNine Months of Fiscal 2019 was primarily reflectsdue to (1) 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 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 advertising expense.
Royalties and other operating income
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Royalties and other operating income | $ | 3,787 | $ | 3,947 | $ | (160 | ) | (4.1 | )% |
| | | | | | | | | | | | |
|
| 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 brands. The lowerincrease in royalties and other income in the First QuarterNine Months of Fiscal 2019 primarily reflects decreased royalty income in Tommy Bahama partially offset by increased royalty income in both Tommy Bahama and Lilly Pulitzer.
31
Operating income (loss)
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Tommy Bahama | $ | 15,192 | $ | 14,303 | $ | 889 | 6.2 | % | |||
Lilly Pulitzer | 15,252 | 15,826 | (574 | ) | (3.6 | )% | |||||
Lanier Apparel | 1,182 | 362 | 820 | 226.5 | % | ||||||
Southern Tide | 2,517 | 2,487 | 30 | 1.2 | % | ||||||
Corporate and Other | (4,401 | ) | (4,605 | ) | 204 | 4.4 | % | ||||
Total operating income | $ | 29,742 | $ | 28,373 | $ | 1,369 | 4.8 | % | |||
LIFO adjustments included in Corporate and Other | $ | 141 | $ | 287 | |||||||
Inventory step-up charges included in Corporate and Other | $ | — | $ | 157 | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | — | $ | 385 | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 80 | $ | 95 | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
| | | | | | | | | | | | |
|
| 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 QuarterNine Months of Fiscal 2019 was primarily due to higher sales partially offset by higher SG&A and lower gross margins and royalty income, each as discussed above.margin. On an operating group basis, the increase in operating income was primarily due toreflects increased operating income in Lilly Pulitzer, Tommy Bahama and Lanier Apparel,Southern Tide partially offset by a larger operating loss in Corporate and Other and lower operating income in Lilly Pulitzer.Lanier Apparel. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Net sales | $ | 164,730 | $ | 167,132 | $ | (2,402 | ) | (1.4 | )% | ||
Gross profit | $ | 103,507 | $ | 104,290 | $ | (783 | ) | (0.8 | )% | ||
Gross margin | 62.8 | % | 62.4 | % | |||||||
Operating income | $ | 15,192 | $ | 14,303 | $ | 889 | 6.2 | % | |||
Operating income as % of net sales | 9.2 | % | 8.6 | % | |||||||
Amortization of Tommy Bahama Canadian intangible assets | $ | — | $ | 385 |
| | | | | | | | | | | | |
|
| 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 increase in operating income forin Tommy Bahama was primarily due to higher gross margin and lower SG&A whichand increased royalty income, partially offset the impact ofby lower net sales. The lower SG&A for the First QuarterNine Months of Fiscal 2019 includedreflects (1) $2a $4 million of lowerdecrease in advertising expense, (2) $1a $4 million of lower SG&A associated with non-comp retail stores and restaurants, including the impact of the closure of the retail-restaurant locationreduction in Japan,incentive compensation and (3) lower amortization of intangible assets.a $3 million reduction in restructuring charges related to the Tommy Bahama Japan operations. These decreases were partially offset by increased salaries and wages, occupancyemployee benefits, variable costs and other operating expenses in our ongoing direct to consumer and wholesale operations.
32
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Net sales | $ | 72,595 | $ | 68,627 | $ | 3,968 | 5.8 | % | |||
Gross profit | $ | 45,481 | $ | 45,505 | $ | (24 | ) | (0.1 | )% | ||
Gross margin | 62.7 | % | 66.3 | % | |||||||
Operating income | $ | 15,252 | $ | 15,826 | $ | (574 | ) | (3.6 | )% | ||
Operating income as % of net sales | 21.0 | % | 23.1 | % | |||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | $ | 80 | $ | 95 |
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 decreaseincrease in operating income in Lilly Pulitzer was primarily reflectsdue to increased net sales and royalty income partially offset by lower gross margin and higher SG&A, which offset the impact of the higher net sales.&A. The higher SG&A forin the First QuarterNine Months of Fiscal 2019 included (1) $1SG&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 and (2) SG&A increases to support the planned growth of the business, including additional employment costs.
Lanier Apparel:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Net sales | $ | 26,589 | $ | 19,909 | $ | 6,680 | 33.6 | % | |||
Gross profit | $ | 7,402 | $ | 5,968 | $ | 1,434 | 24.0 | % | |||
Gross margin | 27.8 | % | 30.0 | % | |||||||
Operating income | $ | 1,182 | $ | 362 | $ | 820 | 226.5 | % | |||
Operating income as % of net sales | 4.4 | % | 1.8 | % |
| | | | | | | | | | | | |
|
| 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 increasedecrease in operating income forin Lanier Apparel was primarily due to the higher net sales,SG&A partially offset by lower gross margin andthe impact of higher SG&A.net sales. The higher SG&A forincrease in the First QuarterNine Months of Fiscal 2019 was primarily due to higher sales-related variable expenses, including royalties, shipping andincreased royalty expense, as well as higher advertising costs.
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Net sales | $ | 14,134 | $ | 13,472 | $ | 662 | 4.9 | % | |||
Gross profit | $ | 7,152 | $ | 6,737 | $ | 415 | 6.2 | % | |||
Gross margin | 50.6 | % | 50.0 | % | |||||||
Operating income | $ | 2,517 | $ | 2,487 | $ | 30 | 1.2 | % | |||
Operating income as % of net sales | 17.8 | % | 18.5 | % | |||||||
Amortization of Southern Tide intangible assets | $ | 72 | $ | 72 |
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 SG&A. The highernet sales and lower SG&A includedpartially 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 expensescosts associated with the higher sales and increased compensation and other costs to support future growth of the business.
33
Corporate and Other:
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Net sales | $ | 3,925 | $ | 3,488 | $ | 437 | 12.5 | % | |||
Gross profit | $ | 2,227 | $ | 1,646 | $ | 581 | 35.3 | % | |||
Operating loss | $ | (4,401 | ) | $ | (4,605 | ) | $ | 204 | 4.4 | % | |
LIFO adjustments included in Corporate and Other | $ | 141 | $ | 287 | |||||||
Inventory step-up charges included in Corporate and Other | $ | — | $ | 157 |
| | | | | | | | | | | | |
|
| 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 improvedlarger operating resultsloss in Corporate and Other werewas primarily due to (1) the net favorableunfavorable impact of LIFO accounting and inventory step-up charges and (2) thepartially offset by higher operating income of TBBC. These items were partially offset by increased SG&A in our Corporate and Other operations.
Interest expense, net
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Interest expense, net | $ | 671 | $ | 781 | $ | (110 | ) | (14.1 | )% |
| | | | | | | | | | | | |
|
| 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 QuarterNine Months of Fiscal 2019 primarily due to lower average debt outstanding during the First Quarter of Fiscal 2019 partially offset byas well as higher interest rates and higher unused line fees in the First Quarter of Fiscal 2019.
Income taxes
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | $ Change | % Change | ||||||||
Income taxes | $ | 7,414 | $ | 7,025 | $ | 389 | 5.5 | % | |||
Effective tax rate | 25.5 | % | 25.5 | % |
| | | | | | | | | | | | |
|
| 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 benefit of certain stock awards that vested during the period.period, the results of our foreign operations and other items. Our effective tax rate for Fiscal 2019 is expected to be approximately 26%.
Net earnings
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||
Net sales | $ | 281,973 | $ | 272,628 | ||
Operating income | $ | 29,742 | $ | 28,373 | ||
Net earnings | $ | 21,657 | $ | 20,567 | ||
Net earnings per diluted share | $ | 1.29 | $ | 1.23 | ||
Weighted average shares outstanding - diluted | 16,848 | 16,769 |
| | | | | | |
|
| 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 QuarterNine Months of Fiscal 2019 was primarily due to higher operating income in Lilly Pulitzer, Tommy Bahama and Lanier Apparel. These improved operating results were partially offset bySouthern Tide and lower operating income in Lilly Pulitzer.
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 $325 million Fourth Amended and Restated Credit Agreement ("U.S. Revolving Credit Agreement"),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 May 4,November 2, 2019, we had $6$22 million of cash and cash equivalents on hand, as well as $33 million ofno borrowings outstanding and $274$313 million of availability under our U.S. Revolving Credit Agreement. Generally, we anticipate that excess cash, if any, will be used to repay any debt outstanding on our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated future positive cash flow from operating activities provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives.
Key Liquidity Measures
($ in thousands) | May 4, 2019 | February 2, 2019 | May 5, 2018 | February 3, 2018 | ||||||||
Total current assets | $ | 273,167 | $ | 269,788 | $ | 250,272 | $ | 236,118 | ||||
Total current liabilities | $ | 166,301 | $ | 142,209 | $ | 111,189 | $ | 135,010 | ||||
Working capital | $ | 106,866 | $ | 127,579 | $ | 139,083 | $ | 101,108 | ||||
Working capital ratio | 1.64 | 1.90 | 2.25 | 1.75 | ||||||||
Debt to total capital ratio | 6 | % | 3 | % | 14 | % | 10 | % |
| | | | | | | | | | | | | |
|
| 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. Current assets increased from May 5,November 3, 2018 to May 4,November 2, 2019 primarily due to increased inventories.inventories and increased cash partially offset by lower prepaid expenses and other current assets and receivables. Current liabilities increased primarily due to the impact of the revised lease accounting guidance which required the recognition of $54$50 million of current operating lease liabilities at May 4,November 2, 2019, as discussed in Note 5 to the unaudited condensed consolidated financial statements included in this report.report, partially offset by reductions in accounts payable, accrued compensation and other accrued expenses and 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 $33$0 million at May 4,November 2, 2019 and $72$32 million at May 5,November 3, 2018, while shareholders’ equity was $493$517 million at May 4,November 2, 2019 and $444$465 million at May 5,November 3, 2018. The decrease in debt since May 5,November 3, 2018 was primarily due to $97$107 million of cash flow from operations which was partially offset by cash payments of $32$33 million for capital expenditures and $24$25 million for dividends. Shareholders'dividends, resulting in $22 million of cash and cash equivalents on hand as of 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 May 5,November 3, 2018 to May 4,November 2, 2019.
35
Current Assets:
May 4, 2019 | February 2, 2019 | May 5, 2018 | February 3, 2018 | |||||||||
Cash and cash equivalents | $ | 5,501 | $ | 8,327 | $ | 4,662 | $ | 6,343 | ||||
Receivables, net | 85,857 | 69,037 | 81,274 | 67,542 | ||||||||
Inventories, net | 157,221 | 160,656 | 132,342 | 126,812 | ||||||||
Prepaid expenses and other current assets | 24,588 | 31,768 | 31,994 | 35,421 | ||||||||
Total current assets | $ | 273,167 | $ | 269,788 | $ | 250,272 | $ | 236,118 |
| | | | | | | | | | | | |
|
| 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 May 4,November 2, 2019 and May 5, 2018 represent typicalcompared to $7 million as of November 3, 2018. 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 increasedecrease in receivables, net as of May 4,November 2, 2019 was primarily due to higher wholesale sales in the First Quarter of Fiscal 2019 resulting in higher trade accounts receivables partially offset by a $4 million reduction in income tax receivables reflecting the collection of certain income tax receivable amounts.
Inventories, net, which is net of a $62 million LIFO reserve in both periods, increased as of May 4,November 2, 2019 due to increases in inventories in each operating group.Tommy Bahama, Southern Tide and Corporate and Other partially offset by reductions in Lilly Pulitzer and Lanier Apparel. The increased inventory waslevels are primarily due to (1) increased inventory levels in Lanier Apparel due to less inventory than optimal in the prior year, (2) increased inventory in Tommy Bahama in certain core product categories in the direct to consumer operations, and (3) increased inventory to support planned sales growth and to increase base inventory levels in the Second Quarter of Fiscal 2019.certain key item programs and product categories. We believe that inventory levels in each operating group are appropriate to support anticipated sales. Prepaid expenses and other current assets decreased as of FebruaryNovember 2, 2019 primarily as a result of lower prepaid rent expense due to the adoption of the revised lease accounting guidance, which resulted in the classification of prepaid rent toin operating lease assets in our consolidated balance sheet, as well as lower prepaid advertising.
Non-current Assets:
May 4, 2019 | February 2, 2019 | May 5, 2018 | February 3, 2018 | |||||||||
Property and equipment, net | $ | 191,104 | $ | 192,576 | $ | 196,734 | $ | 193,533 | ||||
Intangible assets, net | 175,883 | 176,176 | 178,111 | 178,858 | ||||||||
Goodwill | 66,597 | 66,621 | 66,577 | 66,703 | ||||||||
Operating lease assets | 294,131 | — | — | — | ||||||||
Other non-current assets, net | 23,543 | 22,093 | 25,037 | 24,729 | ||||||||
Total non-current assets | $ | 751,258 | $ | 457,466 | $ | 466,459 | $ | 463,823 |
| | | | | | | | | | | | |
|
| 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 May 4,November 2, 2019 decreased primarily as a result of depreciation expense during the twelve12 months ended May 4,November 2, 2019, partially offset by capital expenditures during the same period. The decrease in intangible assets, net as of May 4,November 2, 2019 was primarily due to amortization of intangible assets in the twelve12 months ended May 4,November 2, 2019. The operating lease lease assets amount as of May 4,November 2, 2019 is a result of the adoption of the revised lease accounting guidance during the First QuarterFiscal 2019.
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Liabilities:
May 4, 2019 | February 2, 2019 | May 5, 2018 | February 3, 2018 | |||||||||
Total current liabilities | $ | 166,301 | $ | 142,209 | $ | 111,189 | $ | 135,010 | ||||
Long-term debt | 33,182 | 12,993 | 72,244 | 45,809 | ||||||||
Non-current operating lease liabilities | 295,399 | — | — | — | ||||||||
Other non-current liabilities | 16,707 | 75,286 | 73,588 | 74,029 | ||||||||
Deferred taxes | 19,664 | 18,411 | 16,045 | 15,269 | ||||||||
Total liabilities | $ | 531,253 | $ | 248,899 | $ | 273,066 | $ | 270,117 |
| | | | | | | | | | | | |
|
| 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 as of May 4,November 2, 2019 primarily due to the $54$50 million of current lease liabilities recognized as of May 4,November 2, 2019, as a result of the adoption of the revised lease accounting guidance during the First Quarter of Fiscal 2019.2019 partially offset by reductions in accrued compensation, accounts payable and other accrued expenses and liabilities. The decrease in long-term debt since May 5,November 3, 2018 was primarily due to $97$107 million of cash flow from operations which was partially offset by cash payments of $32$33 million for capital expenditures and $24$25 million for dividends.
The non-current operating lease liabilities amount as of May 4,November 2, 2019 is a result of the adoption of the revised lease accounting guidance during the First Quarter of Fiscal 2019. Other non-current liabilities decreased as of May 4,November 2, 2019 primarily due to the amount as of May 5,November 3, 2018 including $60 million of deferred rent and deferred rent tenant improvement allowance liabilities which were classified as operating lease assets as of May 4,November 2, 2019, as a result of the adoption of the revised lease accounting guidance during the First Quarter of Fiscal 2019, which2019. This reduction was partially offset by increases in the amounts for deferred compensation liabilities and the fair value of contingent consideration.
Deferred taxes increased as of May 4,November 2, 2019 primarily due to timing differences associated with depreciation, amortization and prepaid expenses partially offset by timing differences associated with inventories.
Statement of Cash Flows
The following table sets forth the net cash flows, including continuing and discontinued operations, for the First QuarterNine Months of Fiscal 2019 and the First QuarterNine Months of Fiscal 2018 (in thousands):
First Quarter Fiscal 2019 | First Quarter Fiscal 2018 | |||||
Cash used in operating activities | $ | (6,088 | ) | $ | (7,144 | ) |
Cash used in investing activities | (8,282 | ) | (13,140 | ) | ||
Cash provided by financing activities | 11,579 | 18,689 | ||||
Net change in cash and cash equivalents | $ | (2,791 | ) | $ | (1,595 | ) |
| | | | | | | |
| | 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 $6$22 million and $5$7 million at May 4,November 2, 2019 and May 5,November 3, 2018, respectively. Changes in cash flows in the First QuarterNine Months of Fiscal 2019 and the First QuarterNine Months of Fiscal 2018 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In the First QuarterNine Months of Fiscal 2019 and the First QuarterNine Months of Fiscal 2018, operating activities used $6provided $75 million and $7$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 QuarterNine Months of Fiscal 2019 and the First QuarterNine Months of Fiscal 2018, working capital account changes had an unfavorable impact on cash flow from operations. In the First QuarterNine Months of Fiscal 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, and an increase in receivables, which reduced cash flow from operations, and a decreasepartially offset by decreases in inventories and receivables, which increased cash flow from
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operations. In the First QuarterNine Months of Fiscal 2018, the more significant changes in working capital were an increase in inventories and a decrease in current liabilities, an increase in receivables and an increase in inventories, which reduced cash flow from operations.
Investing Activities:
In the First QuarterNine Months of Fiscal 2019 and the First QuarterNine Months of Fiscal 2018, investing activities used $8$27 million and $13$31 million, respectively, of cash. Ourcash, which primarily consisted of capital expenditures. On an ongoing basis, our cash flow used in investing activities on an ongoing basis typicallyprimarily consists of our capital expenditure investments in our existing brands and acquisitions of new businesses. Our capital expenditures primarily consist of costs associated with information technology initiatives, including e-commerce capabilities; opening, relocating and remodeling retail stores and restaurants; and facilities enhancements for distribution centers and offices.
Financing Activities:
In the First Quarter of Fiscal 2019, we paid $8 million for capital expenditures compared to $13 million in the First Quarter of Fiscal 2018.
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 or if we have no outstanding debt we anticipate investing the excess cash in short term investments.
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 $33 millionno amounts outstanding as of May 4,November 2, 2019 under our U.S. Revolving Credit Agreement compared to $72 million of borrowings outstanding as of May 5, 2018.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 4.7% as of May 4, 2019), 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 May 4,November 2, 2019, $5$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 May 4,November 2, 2019, we had $274$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 fixed charge coverage ratio as defined in the U.S. Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the U.S. Revolving Credit Agreement of more than the greater of (i) $23.5 million or (ii) 10% of availability for 30 consecutive days.
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 FirstThird Quarter of Fiscal 2019 and as of May 4,November 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 May 4,November 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 May 4,November 2, 2019 have not changed materially from the contractual obligations outstanding at February 2, 2019, as disclosed in our Annual Report on Form 10-K for Fiscal 2018 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 2019, including the $8$27 million incurred in the First QuarterNine Months of Fiscal 2019, are expected to be in a range of $45 million to $50approximately $40 million. These expenditures are expected to consist primarily of costs associated with information technology initiatives, including e-commerce capabilities; new retail stores and Marlin Bars; and 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, direct 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, 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 2018. There have not been any significant changes to the application of our critical accounting policies and estimates during the First QuarterNine Months of Fiscal 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 2018.
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 2018.
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 2018 are necessarily indicative of anticipated results for Fiscal 2019 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 2018:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||
Net sales | 25 | % | 27 | % | 21 | % | 27 | % |
Operating income | 31 | % | 40 | % | 4 | % | 25 | % |
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 2018. There have not been any significant changes in our exposure to these risks during the First QuarterNine Months of Fiscal 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.
Changes in Internal Control over Financial Reporting
There were no otherhave not been any changes in our internal control over financial reporting during the FirstThird Quarter of Fiscal 2019 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 trademark and other intellectual property, licensing arrangements, real estate, importing or exporting regulations, taxation, employee relation 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 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 may also adversely affect our business. The risks described in our Annual Report on Form 10-K for Fiscal 2018 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. |
Fiscal Month | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | ||||||
February (2/3/19 - 3/2/19) | — | $ | — | — | — | |||||
March (3/3/19 - 4/6/19) | — | $ | — | — | — | |||||
April (4/7/19 - 5/4/19) | 30,942 | $ | 79.26 | — | — | |||||
Total | 30,942 | $ | 79.26 | — | — |
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 May 4, 2019, 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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