UNITED STATES
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 August |
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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, Georgia 30309
(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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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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 ☐ No ☒
As of August 30, 2019,28, 2020, there were 17,034,92916,875,836 shares of the registrant’s common stock outstanding.
OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For the Second Quarter of Fiscal 20192020
2
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, the impact of the current coronavirus (COVID-19) pandemic (which among other things, may affect many of the following risks); demand for our products, which may be impacted by competitive conditions and/or evolving consumer shopping patterns; macroeconomic factors that may impact consumer discretionary 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 in international, federal or state tax, trade and other laws and regulations, including the potential imposition of additional duties; weather; fluctuations and volatility in global financial markets; 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, and the impact on our business operations of such changes, in international, federal or state tax, trade and other laws and regulations, including the potential imposition of additional duties, tariffs, taxes or other charges or barriers to trade resulting from ongoing trade developments with China and its impact on global markets, 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; the impact of the CARES Act and other legislation; changes in accounting standards and related guidance; and factors that could affect our consolidated effective tax rate.rate, including estimated Fiscal 2020 taxable losses eligible for carry back to pre-U.S. Tax Reform periods. Forward-looking statements reflect our expectations at the time such forward lookingforward-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,I. Item 1A. Risk Factors contained in our Annual Report on Form 10-K for Fiscal 2018,2019, as updated in Part II, Item 1A. Risk Factors contained in this report, and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
3
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. Unless otherwise indicated, all references to assets,
3
liabilities, revenues, expenses or other information in this report reflect continuing operations.Company; “CARES Act” means the Coronavirus Aid, Relief and Economic Security Act; and “U.S. Tax Reform” means the United States Tax Cuts and Jobs Act as enacted on December 22, 2017. Additionally, the terms listed below reflect the respective period noted:
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Fiscal 2021 | 52 weeks ending January 29, 2022 | |
Fiscal 2020 |
| 52 weeks ending January 30, 2021 |
Fiscal 2019 | | 52 weeks |
Fourth Quarter Fiscal | |
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Third Quarter Fiscal | |
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Second Quarter Fiscal 2020 | | 13 weeks ended |
First Quarter Fiscal 2020 | | 13 weeks ended May 2, 2020 |
Fourth Quarter Fiscal 2019 | | 13 weeks |
Third Quarter Fiscal 2019 | | 13 weeks |
Second Quarter Fiscal 2019 | | 13 weeks ended August 3, 2019 |
First Quarter Fiscal 2019 | | 13 weeks ended May 4, 2019 |
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4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | |
|
| August 3, |
| February 2, |
| August 4, |
| August 1, |
| February 1, |
| August 3, | ||||||
| | 2019 | | 2019 | | 2018 | | 2020 | | 2020 | | 2019 | ||||||
ASSETS | | | | | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 30,756 | | $ | 8,327 | | $ | 7,054 | | $ | 97,089 | | $ | 52,460 | | $ | 30,756 |
Receivables, net | |
| 59,176 | |
| 69,037 | |
| 69,724 | |
| 28,920 | |
| 58,724 | |
| 59,176 |
Inventories, net | |
| 152,672 | |
| 160,656 | |
| 123,924 | |
| 148,578 | |
| 152,229 | |
| 152,672 |
Prepaid expenses and other current assets | |
| 22,440 | |
| 31,768 | |
| 29,393 | |
| 23,830 | |
| 25,413 | |
| 22,440 |
Total Current Assets | | $ | 265,044 | | $ | 269,788 | | $ | 230,095 | | $ | 298,417 | | $ | 288,826 | | $ | 265,044 |
Property and equipment, net | |
| 189,410 | |
| 192,576 | |
| 195,378 | |
| 180,284 | |
| 191,517 | |
| 189,410 |
Intangible assets, net | |
| 175,591 | |
| 176,176 | |
| 177,418 | |
| 156,739 | |
| 175,005 | |
| 175,591 |
Goodwill | |
| 66,585 | |
| 66,621 | |
| 66,581 | |
| 23,866 | |
| 66,578 | |
| 66,585 |
Operating lease assets | | | 288,928 | | | — | | | — | | | 254,230 | | | 287,181 | | | 288,928 |
Other non-current assets, net | |
| 24,636 | |
| 22,093 | |
| 23,918 | |||||||||
Other assets, net | |
| 39,013 | |
| 24,262 | |
| 24,636 | |||||||||
Total Assets | | $ | 1,010,194 | | $ | 727,254 | | $ | 693,390 | | $ | 952,549 | | $ | 1,033,369 | | $ | 1,010,194 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
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Current Liabilities | |
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Accounts payable | | $ | 48,998 | | $ | 81,612 | | $ | 51,487 | | $ | 47,904 | | $ | 65,491 | | $ | 48,998 |
Accrued compensation | |
| 19,195 | |
| 24,226 | |
| 21,606 | |
| 14,332 | |
| 19,363 | |
| 19,195 |
Current operating lease liabilities | |
| 54,044 | |
| — | |
| — | |||||||||
Other accrued expenses and liabilities | |
| 41,882 | |
| 36,371 | |
| 37,828 | |||||||||
Current portion of operating lease liabilities | |
| 65,653 | |
| 50,198 | |
| 54,044 | |||||||||
Accrued expenses and other liabilities | |
| 45,812 | |
| 42,727 | |
| 41,882 | |||||||||
Total Current Liabilities | | $ | 164,119 | | $ | 142,209 | | $ | 110,921 | | $ | 173,701 | | $ | 177,779 | | $ | 164,119 |
Long-term debt | |
| — | |
| 12,993 | |
| 24,936 | |
| 65,000 | |
| — | |
| — |
Non-current operating lease liabilities | |
| 290,133 | |
| — | |
| — | |||||||||
Other non-current liabilities | |
| 17,077 | |
| 75,286 | |
| 74,649 | |||||||||
Deferred taxes | |
| 19,916 | |
| 18,411 | |
| 15,752 | |||||||||
Non-current portion of operating lease liabilities | |
| 255,935 | |
| 291,886 | |
| 290,133 | |||||||||
Other liabilities | |
| 18,471 | |
| 18,566 | |
| 17,077 | |||||||||
Deferred income taxes | |
| 7,892 | |
| 16,540 | |
| 19,916 | |||||||||
Commitments and contingencies | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Shareholders’ Equity | |
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Common stock, $1.00 par value per share | |
| 17,035 | |
| 16,959 | |
| 16,951 | |
| 16,876 | |
| 17,040 | |
| 17,035 |
Additional paid-in capital | |
| 145,123 | |
| 142,976 | |
| 138,613 | |
| 151,720 | |
| 149,426 | |
| 145,123 |
Retained earnings | |
| 362,407 | |
| 323,515 | |
| 316,507 | |
| 267,273 | |
| 366,793 | |
| 362,407 |
Accumulated other comprehensive loss | |
| (5,616) | |
| (5,095) | |
| (4,939) | |
| (4,319) | |
| (4,661) | |
| (5,616) |
Total Shareholders’ Equity | | $ | 518,949 | | $ | 478,355 | | $ | 467,132 | | $ | 431,550 | | $ | 528,598 | | $ | 518,949 |
Total Liabilities and Shareholders’ Equity | | $ | 1,010,194 | | $ | 727,254 | | $ | 693,390 | | $ | 952,549 | | $ | 1,033,369 | | $ | 1,010,194 |
See accompanying notes.
5
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | |
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| Second Quarter |
| First Half | | ||||||||
| | Fiscal 2019 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2018 | | ||||
Net sales | | $ | 302,000 | | $ | 302,641 | | $ | 583,973 | | $ | 575,269 | |
Cost of goods sold | |
| 122,175 | |
| 123,344 | |
| 238,379 | |
| 231,826 | |
Gross profit | | $ | 179,825 | | $ | 179,297 | | $ | 345,594 | | $ | 343,443 | |
SG&A | |
| 143,403 | |
| 146,340 | |
| 283,217 | |
| 286,060 | |
Royalties and other operating income | |
| 3,837 | |
| 3,556 | |
| 7,624 | |
| 7,503 | |
Operating income | | $ | 40,259 | | $ | 36,513 | | $ | 70,001 | | $ | 64,886 | |
Interest expense, net | |
| 419 | |
| 602 | |
| 1,090 | |
| 1,383 | |
Earnings before income taxes | | $ | 39,840 | | $ | 35,911 | | $ | 68,911 | | $ | 63,503 | |
Income taxes | |
| 10,004 | |
| 8,727 | |
| 17,418 | |
| 15,752 | |
Net earnings | | $ | 29,836 | | $ | 27,184 | | $ | 51,493 | | $ | 47,751 | |
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Net earnings per share: | |
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Basic | | $ | 1.78 | | $ | 1.63 | | $ | 3.08 | | $ | 2.87 | |
Diluted | | $ | 1.76 | | $ | 1.61 | | $ | 3.05 | | $ | 2.84 | |
Weighted average shares outstanding: | |
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Basic | |
| 16,760 | |
| 16,683 | |
| 16,736 | |
| 16,661 | |
Diluted | |
| 16,907 | |
| 16,840 | |
| 16,878 | |
| 16,804 | |
Dividends declared per share | | $ | 0.37 | | $ | 0.34 | | $ | 0.74 | | $ | 0.68 | |
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| Second Quarter |
| First Half | | ||||||||
| | Fiscal 2020 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2019 | | ||||
Net sales | | $ | 191,988 | | $ | 302,000 | | $ | 352,331 | | $ | 583,973 | |
Cost of goods sold | |
| 87,251 | |
| 122,175 | |
| 153,520 | |
| 238,379 | |
Gross profit | | $ | 104,737 | | $ | 179,825 | | $ | 198,811 | | $ | 345,594 | |
SG&A | |
| 115,663 | |
| 143,403 | |
| 238,664 | |
| 283,217 | |
Impairment of goodwill and intangible assets | | | — | | | — | | | 60,452 | | | — | |
Royalties and other operating income | |
| 2,909 | |
| 3,837 | |
| 6,799 | |
| 7,624 | |
Operating (loss) income | | $ | (8,017) | | $ | 40,259 | | $ | (93,506) | | $ | 70,001 | |
Interest expense, net | |
| 676 | |
| 419 | |
| 1,334 | |
| 1,090 | |
(Loss) earnings before income taxes | | $ | (8,693) | | $ | 39,840 | | $ | (94,840) | | $ | 68,911 | |
Income tax (benefit) provision | |
| (2,606) | |
| 10,004 | |
| (21,969) | |
| 17,418 | |
Net (loss) earnings | | $ | (6,087) | | $ | 29,836 | | $ | (72,871) | | $ | 51,493 | |
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Net (loss) earnings per share: | |
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Basic | | $ | (0.37) | | $ | 1.78 | | $ | (4.40) | | $ | 3.08 | |
Diluted | | $ | (0.37) | | $ | 1.76 | | $ | (4.40) | | $ | 3.05 | |
Weighted average shares outstanding: | |
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Basic | |
| 16,547 | |
| 16,760 | |
| 16,580 | |
| 16,736 | |
Diluted | |
| 16,547 | |
| 16,907 | |
| 16,580 | |
| 16,878 | |
Dividends declared per share | | $ | 0.25 | | $ | 0.37 | | $ | 0.50 | | $ | 0.74 | |
See accompanying notes.
6
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
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| Second Quarter |
| First Half | |
| Second Quarter |
| First Half | | ||||||||||||||||
| | Fiscal 2019 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2018 | | | Fiscal 2020 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2019 | | ||||||||
Net earnings | | $ | 29,836 | | $ | 27,184 | | $ | 51,493 | | $ | 47,751 | | |||||||||||||
Net (loss) earnings | | $ | (6,087) | | $ | 29,836 | | $ | (72,871) | | $ | 51,493 | | |||||||||||||
Other comprehensive income (loss), net of taxes: | |
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Net foreign currency translation adjustment | |
| (133) | |
| (284) | |
| (521) | |
| (865) | | |
| 933 | |
| (133) | |
| 342 | |
| (521) | |
Comprehensive income | | $ | 29,703 | | $ | 26,900 | | $ | 50,972 | | $ | 46,886 | | |||||||||||||
Comprehensive (loss) income | | $ | (5,154) | | $ | 29,703 | | $ | (72,529) | | $ | 50,972 | |
See accompanying notes.
7
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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| | First Half | | | First Half | | ||||||||
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| Fiscal 2019 |
| Fiscal 2018 | |
| Fiscal 2020 |
| Fiscal 2019 | | ||||
Cash Flows From Operating Activities: |
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Net earnings | | $ | 51,493 | | $ | 47,751 | | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
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Net (loss) earnings | | $ | (72,871) | | $ | 51,493 | | |||||||
Adjustments to reconcile net earnings (loss) to cash flows from operating activities: | |
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Depreciation | |
| 19,402 | |
| 20,224 | | |
| 23,092 | |
| 19,402 | |
Amortization of intangible assets | |
| 584 | |
| 1,373 | | |
| 559 | |
| 584 | |
Impairment of goodwill and intangible assets | | | 60,452 | | | — | | |||||||
Equity compensation expense | |
| 3,791 | |
| 3,598 | | |
| 3,566 | |
| 3,791 | |
Amortization of deferred financing costs | |
| 212 | |
| 212 | | |
| 172 | |
| 212 | |
Deferred income taxes | |
| 1,274 | |
| 330 | | |||||||
Changes in working capital, net of acquisitions and dispositions: | |
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Deferred income taxes (benefit) expense | |
| (8,648) | |
| 1,274 | | |||||||
Changes in operating assets and liabilities, net of acquisitions and dispositions: | |
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Receivables, net | |
| 10,131 | |
| (2,460) | | |
| 30,227 | |
| 10,131 | |
Inventories, net | |
| 7,680 | |
| 19 | | |
| 3,986 | |
| 7,680 | |
Prepaid expenses and other current assets | |
| 3,825 | |
| 8,494 | | |
| 1,584 | |
| 3,825 | |
Current liabilities | |
| (31,983) | |
| (23,366) | | |
| (3,609) | |
| (31,983) | |
Other balance sheet changes | |
| 858 | |
| 1,357 | | |
| (14,186) | |
| 858 | |
Cash provided by operating activities | | $ | 67,267 | | $ | 57,532 | | | $ | 24,324 | | $ | 67,267 | |
Cash Flows From Investing Activities: | |
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Acquisitions, net of cash acquired | |
| — | |
| (302) | | |||||||
Purchases of property and equipment | |
| (15,976) | |
| (22,349) | | |
| (13,722) | |
| (15,976) | |
Other investing activities | |
| (3,000) | |
| — | | |||||||
Cash used in investing activities | | $ | (15,976) | | $ | (22,651) | | | $ | (16,722) | | $ | (15,976) | |
Cash Flows From Financing Activities: | |
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Repayment of revolving credit arrangements | |
| (122,241) | |
| (165,928) | | |
| (170,312) | |
| (122,241) | |
Proceeds from revolving credit arrangements | |
| 109,248 | |
| 145,055 | | |
| 235,312 | |
| 109,248 | |
Deferred financing costs paid | | | (894) | | | — | | |||||||
Repurchase of common stock | | | (18,053) | | | (894) | | |||||||
Proceeds from issuance of common stock | |
| 885 | |
| 814 | | |
| 766 | |
| 885 | |
Repurchase of equity awards for employee tax withholding liabilities | |
| (2,453) | |
| (2,351) | | |
| (1,870) | |
| (2,453) | |
Cash dividends declared and paid | |
| (12,601) | |
| (11,522) | | |
| (8,429) | |
| (12,601) | |
Other financing activities | |
| (1,033) | |
| — | | |
| (459) | |
| (1,033) | |
Cash used in financing activities | | $ | (29,089) | | $ | (33,932) | | |||||||
Cash provided by (used in) financing activities | | $ | 36,955 | | $ | (29,089) | | |||||||
Net change in cash and cash equivalents | | $ | 22,202 | | $ | 949 | | | $ | 44,557 | | $ | 22,202 | |
Effect of foreign currency translation on cash and cash equivalents | |
| 227 | |
| (238) | | |
| 72 | |
| 227 | |
Cash and cash equivalents at the beginning of year | |
| 8,327 | |
| 6,343 | | |
| 52,460 | |
| 8,327 | |
Cash and cash equivalents at the end of the period | | $ | 30,756 | | $ | 7,054 | | | $ | 97,089 | | $ | 30,756 | |
Supplemental disclosure of cash flow information: | |
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Cash paid for interest, net | | $ | 971 | | $ | 1,211 | | |||||||
Cash paid for income taxes | | $ | 8,416 | | $ | 11,839 | |
See accompanying notes.
8
OXFORD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
SECOND QUARTER OF FISCAL 20192020
1. 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. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.
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. ResultsWe assessed certain accounting matters, including the carrying value of goodwill, intangible assets and long-lived assets, provisions for credit losses, inventory markdowns and the estimated effective tax rate, that require consideration of forecasted financial information based on information reasonably available to us as well as the uncertain future impacts of the novel coronavirus (COVID-19) pandemic. These assessments resulted in the recognition of certain charges in the First Half of Fiscal 2020, as discussed below. Future changes in the business environment, our expectations and assumptions as compared to the information at the time of this filing regarding the actual magnitude and duration of the COVID-19 pandemic and other factors could have a material impact on our consolidated financial statements in future periods.
COVID-19 Pandemic
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. COVID-19 had a significant effect on overall economic conditions and our operations, resulting in a significant net sales reduction and a net loss in the First Half of Fiscal 2020. While our mission remains the enhancement of long-term shareholder value, our focus during this crisis has been, and will continue to be, (1) the health and well-being of our employees, customers and communities, (2) protecting the reputation, value and image of our brands and (3) preserving liquidity.
Due to the COVID-19 pandemic, we saw reduced consumer traffic starting in early March 2020 and temporarily closed all our retail and restaurant locations in North America on March 17, 2020. Subsequent to those closures, we also temporarily closed all our retail locations in Australia. We began reopening our stores and restaurants in a phased approach on May 3, 2020 with additional stores and restaurants reopening throughout the Second Quarter of Fiscal 2020.
The COVID-19 pandemic is expected to continue to have a material adverse impact on our business, financial condition, results of operations and cash flows for the interim periods presentedforeseeable future, due to decreased consumer traffic in stores and restaurants; uncertainty as to the continued strength of our brands’ e-commerce websites during the pendency of the pandemic; overall changes in consumer confidence and consumer spending habits; reduced demand from our wholesale customers, several of which have filed for bankruptcy or are not necessarily indicativeundergoing restructurings and closures; any potential disruptions to our supply chain; and a slowdown in the U.S. and global economies.
For many reasons, including those identified above, the full magnitude of resultsthe COVID-19 pandemic continues to be expecteddifficult to predict at this time, and its ultimate duration and severity will depend on future developments. We believe that cash on hand and our credit facility provide adequate funds to support our operating, capital expenditure and debt service requirements for Fiscal 2020 and the near term. We could experience other potential adverse impacts in the future as a result of the COVID-19 pandemic including additional charges resulting from adjustments to the carrying amount of goodwill, intangible assets and long-lived assets, provisions for credit losses and inventory markdowns as well as potential changes to our estimated effective tax rate.
9
Due to the COVID-19 pandemic in the First Quarter of Fiscal 2020, net sales in each of our operating groups decreased from prior periods resulting in significantly lower operating results, including operating losses in each group other than Lilly Pulitzer. As a result of the COVID-19 impact on our First Quarter of Fiscal 2020 operating results, as well as lower operating results projected for future periods, we concluded that a goodwill impairment test triggering event had occurred during the First Quarter of Fiscal 2020 for the goodwill associated with our Lilly Pulitzer, Southern Tide and TBBC reporting units. Further, we determined that an intangible asset impairment test triggering event had occurred in the First Quarter of Fiscal 2020 for our full fiscal year.indefinite-lived Tommy Bahama, Lilly Pulitzer and Southern Tide trademarks. These goodwill and indefinite-lived intangible asset triggering events required the need for a quantitative interim impairment assessment in accordance with our accounting policies as described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for Fiscal 2019. These assessments in the First Quarter of Fiscal 2020 concluded that the fair values of the Southern Tide goodwill and indefinite-lived intangible assets as of May 2, 2020 did not exceed their respective carrying values, resulting in impairment charges as discussed in Note 4. These impairment charges, which totaled $60 million, were recorded in impairment of goodwill and intangible assets in our consolidated statements of operations in the First Quarter of Fiscal 2020. We determined there were no additional triggering events that occurred in the Second Quarter of Fiscal 2020 that would require an additional interim impairment test for our goodwill and intangible assets during the Second Quarter of Fiscal 2020.
In the First Quarter of Fiscal 2020, due to the lower operating results and lower projected operating results, we performed recoverability tests for certain other non-current assets, including property and equipment, finite-lived intangible assets and operating lease assets, and we determined that the amounts included in the asset group were recoverable, except for a small charge related to a finite-lived intangible asset in Lanier Apparel. In the Second Quarter of Fiscal 2020, due to changes in the planned use of certain assets, including notice of termination of certain retail store leases, we recognized impairment charges of $3 million for certain fixed assets and operating lease assets, with about half of the amounts included in SG&A and the remainder included in cost of goods sold in our consolidated statements of operations.
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 2018,2019, except for the adoption of the new lease accountingcredit losses and income tax guidance in Fiscal 2019 as discussed below and in Note 5.below.
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 of the revised lease accounting guidance, we elected to adopt the package of transition practical expedients and, therefore, have not reassessed (1) whether exiting 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 Periods2020
In June 2016, the FASB issued guidance, as amended, onrelated to the measurement of credit losses on financial instruments. This guidance amendsamended the impairmentprevious incurred loss model by requiring that companies use a forward-looking approach based oncurrent expected lossesloss approach to estimate credit losses on certain financial instruments, including trade receivables.and other receivables, as well as other financial assets and instruments. We estimate current expected credit losses based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions and anticipated trends. We adopted the guidance on the first day of Fiscal 2020 resulting in a charge to retained earnings of $0.5 million and a reduction to various asset amounts included in our consolidated balance sheet.
In December 2019, the FASB amended its guidance related to accounting for income taxes. This guidance will be effectiveamended and simplified the accounting for income taxes by removing certain exceptions in existing guidance to reduce complexity in certain areas. On the first day of Fiscal 2020, with earlywe adopted the provisions related to classification of franchise taxes partially based on income and changes in ownership of foreign equity method investments or foreign subsidiaries on a modified retrospective basis while we adopted the other provisions on a prospective basis. The adoption permitted. We are currently assessingof the impact that adopting thisnew guidance willdid not have a material impact on our consolidated financial statements.
Other recently issued guidance that was adopted in Fiscal 2020 did not have a material impact on our consolidated financial statements upon adoption.
10
Recently Issued Accounting Standards Applicable to Future Periods
Recent accounting pronouncements pending adoption not discussed above are either not applicable or 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 each brand’s direct to consumer, wholesale and licensing operations, as applicable. Our business is primarily operated through our Tommy Bahama, Lilly Pulitzer, Lanier Apparel and Southern Tide operating groups.
9
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’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 inventory 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, Duck Head and our Lyons, Georgia distribution center. As a result of certain organizational and management reporting changes in the First Quarter of Fiscal 2020, our Duck Head operations, which were previously included in Lanier Apparel, are considered part of and included in Corporate and Other. All prior period amounts for Lanier Apparel and Corporate and Other have been restated to conform to the presentation in the current period.
The table below presents certain financial information (in thousands) about our operating groups, as well as Corporate and Other. For a more extensive description of our operating groups, see Part I, Item 1. Business included in our Annual Report on Form 10-K for Fiscal 2018.
The table below presents certain financial information (in thousands) about our operating groups, as well as Corporate and Other.
| | | | | | | | | | | | | |
|
| Second Quarter | | First Half | | ||||||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| Fiscal 2019 |
| Fiscal 2018 | | ||||
Net sales |
| |
|
| |
|
| |
|
| |
|
|
Tommy Bahama | | $ | 188,870 | | $ | 192,728 | | $ | 353,600 | | $ | 359,860 | |
Lilly Pulitzer | |
| 75,555 | |
| 71,623 | |
| 148,150 | |
| 140,250 | |
Lanier Apparel | |
| 20,905 | |
| 23,860 | |
| 47,494 | |
| 43,769 | |
Southern Tide | |
| 12,468 | |
| 11,777 | |
| 26,602 | |
| 25,249 | |
Corporate and Other | |
| 4,202 | |
| 2,653 | |
| 8,127 | |
| 6,141 | |
Total net sales | | $ | 302,000 | | $ | 302,641 | | $ | 583,973 | | $ | 575,269 | |
| | | | | | | | | | | | | |
Depreciation and amortization | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | 6,907 | | $ | 8,260 | | $ | 13,747 | | $ | 15,326 | |
Lilly Pulitzer | |
| 2,381 | |
| 2,624 | |
| 5,064 | |
| 5,103 | |
Lanier Apparel | |
| 141 | |
| 139 | |
| 281 | |
| 280 | |
Southern Tide | |
| 135 | |
| 136 | |
| 269 | |
| 261 | |
Corporate and Other | |
| 285 | |
| 312 | |
| 625 | |
| 627 | |
Total depreciation and amortization | | $ | 9,849 | | $ | 11,471 | | $ | 19,986 | | $ | 21,597 | |
| | | | | | | | | | | | | |
Operating income (loss) | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | 23,218 | | $ | 20,621 | | $ | 38,410 | | $ | 34,924 | |
Lilly Pulitzer | |
| 20,449 | |
| 18,421 | |
| 35,701 | |
| 34,247 | |
Lanier Apparel | |
| 253 | |
| 825 | |
| 1,435 | |
| 1,187 | |
Southern Tide | |
| 1,834 | |
| 1,420 | |
| 4,351 | |
| 3,907 | |
Corporate and Other | |
| (5,495) | |
| (4,774) | |
| (9,896) | |
| (9,379) | |
Total operating income | |
| 40,259 | |
| 36,513 | | $ | 70,001 | | $ | 64,886 | |
Interest expense, net | |
| 419 | |
| 602 | |
| 1,090 | |
| 1,383 | |
Earnings before income taxes | | $ | 39,840 | | $ | 35,911 | | $ | 68,911 | | $ | 63,503 | |
2019.
1011
| | | | | | | | | | | | | |
|
| Second Quarter | | First Half | | ||||||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| Fiscal 2020 |
| Fiscal 2019 | | ||||
Net sales |
| |
|
| |
|
| |
|
| |
|
|
Tommy Bahama | | $ | 95,254 | | $ | 188,870 | | $ | 182,238 | | $ | 353,600 | |
Lilly Pulitzer | |
| 73,860 | |
| 75,555 | |
| 123,009 | |
| 148,150 | |
Lanier Apparel | |
| 8,450 | |
| 20,466 | |
| 19,175 | |
| 46,620 | |
Southern Tide | |
| 8,812 | |
| 12,468 | |
| 17,113 | |
| 26,602 | |
Corporate and Other | |
| 5,612 | |
| 4,641 | |
| 10,796 | |
| 9,001 | |
Consolidated net sales | | $ | 191,988 | | $ | 302,000 | | $ | 352,331 | | $ | 583,973 | |
| | | | | | | | | | | | | |
Depreciation and amortization | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | 9,194 | | $ | 6,907 | | $ | 16,994 | | $ | 13,747 | |
Lilly Pulitzer | |
| 3,015 | |
| 2,381 | |
| 5,331 | |
| 5,064 | |
Lanier Apparel | |
| 247 | |
| 141 | |
| 349 | |
| 281 | |
Southern Tide | |
| 169 | |
| 135 | |
| 313 | |
| 269 | |
Corporate and Other | |
| 333 | |
| 285 | |
| 664 | |
| 625 | |
Consolidated depreciation and amortization | | $ | 12,958 | | $ | 9,849 | | $ | 23,651 | | $ | 19,986 | |
| | | | | | | | | | | | | |
Operating income (loss) | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | (12,712) | | $ | 23,218 | | $ | (36,074) | | $ | 38,410 | |
Lilly Pulitzer | |
| 16,264 | |
| 20,449 | |
| 20,410 | |
| 35,701 | |
Lanier Apparel | |
| (6,134) | |
| 400 | |
| (8,771) | |
| 1,767 | |
Southern Tide | |
| (979) | |
| 1,834 | |
| (64,345) | |
| 4,351 | |
Corporate and Other | |
| (4,456) | |
| (5,642) | |
| (4,726) | |
| (10,228) | |
Consolidated operating (loss) income | |
| (8,017) | |
| 40,259 | | $ | (93,506) | | $ | 70,001 | |
Interest expense, net | |
| 676 | |
| 419 | |
| 1,334 | |
| 1,090 | |
(Loss) earnings before income taxes | | $ | (8,693) | | $ | 39,840 | | $ | (94,840) | | $ | 68,911 | |
| | | | | | | | | |
|
| August 1, 2020 |
| February 1, 2020 |
| August 3, 2019 | |||
Assets |
| |
| | |
|
| |
|
Tommy Bahama (1) | | $ | 605,448 | | $ | 668,197 | | $ | 655,836 |
Lilly Pulitzer (2) | |
| 191,099 | |
| 199,913 | |
| 208,121 |
Lanier Apparel (3) | |
| 31,740 | |
| 43,533 | |
| 43,545 |
Southern Tide (4) | |
| 32,918 | |
| 99,667 | |
| 98,036 |
Corporate and Other (5) | |
| 91,344 | |
| 22,059 | |
| 4,656 |
Consolidated Total Assets | | $ | 952,549 | | $ | 1,033,369 | | $ | 1,010,194 |
(1) | Decrease in Tommy Bahama total assets from February 1, 2020 was primarily due to lower operating lease assets, receivables, fixed assets and inventories. Decrease in Tommy Bahama total assets from August 3, 2019 was primarily due to the same reasons except that inventories increased from August 3, 2019. |
(2) | Decrease in Lilly Pulitzer total assets from February 1, 2020 was primarily due to lower operating lease assets and fixed assets. Decrease in Lilly Pulitzer total assets from August 3, 2019 was primarily due to lower inventories, operating lease assets and fixed assets. |
(3) | Decrease in Lanier Apparel total assets from February 1, 2020 and August 3, 2019 was primarily due to lower receivables. |
(4) | Decrease in Southern Tide total assets from February 1, 2020 and August 3, 2019 was primarily due to the $60 million impairment charge for goodwill and intangible assets as well as lower inventories and receivables. |
(5) | Increase in Corporate and Other total assets from February 1, 2020 and August 3, 2019 was primarily due to increased cash and cash equivalents, as well as increased non-current income tax receivables, investments in unconsolidated entities and inventories. |
12
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.
| | | | | | | | | | | | | | |
| | Second Quarter Fiscal 2020 |
| |||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 95,254 |
| 33 | % | 48 | % | 9 | % | 10 | % | — | % |
Lilly Pulitzer | |
| 73,860 |
| 14 | % | 71 | % | — | % | 15 | % | — | % |
Lanier Apparel | |
| 8,450 |
| — | % | 1 | % | — | % | 99 | % | — | % |
Southern Tide | |
| 8,812 |
| 5 | % | 43 | % | — | % | 52 | % | — | % |
Corporate and Other | |
| 5,612 |
| — | % | 78 | % | — | % | 16 | % | 6 | % |
Total | | $ | 191,988 |
| 22 | % | 56 | % | 4 | % | 18 | % | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter Fiscal 2019 |
| | Second Quarter Fiscal 2019 |
| ||||||||||||||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
| ||
Tommy Bahama | | $ | 188,870 |
| 50 | % | 23 | % | 11 | % | 16 | % | — | % | | $ | 188,870 |
| 50 | % | 23 | % | 11 | % | 16 | % | — | % |
Lilly Pulitzer | |
| 75,555 |
| 51 | % | 29 | % | — | % | 20 | % | — | % | |
| 75,555 |
| 51 | % | 29 | % | — | % | 20 | % | — | % |
Lanier Apparel | |
| 20,905 |
| — | % | 2 | % | — | % | 98 | % | — | % | |
| 20,466 |
| — | % | — | % | — | % | 100 | % | — | % |
Southern Tide | |
| 12,468 |
| — | % | 22 | % | — | % | 78 | % | — | % | |
| 12,468 |
| — | % | 22 | % | — | % | 78 | % | — | % |
Corporate and Other | |
| 4,202 |
| — | % | 62 | % | — | % | 29 | % | 9 | % | |
| 4,641 |
| — | % | 61 | % | — | % | 31 | % | 8 | % |
Total | | $ | 302,000 |
| 44 | % | 23 | % | 7 | % | 26 | % | — | % | | $ | 302,000 |
| 44 | % | 23 | % | 7 | % | 26 | % | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter Fiscal 2018 |
| | First Half Fiscal 2020 |
| ||||||||||||||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Restaurant |
| Wholesale |
| Other |
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
| ||
Tommy Bahama | | $ | 192,728 |
| 50 | % | 21 | % | 11 | % | 18 | % | — | % | | $ | 182,238 |
| 35 | % | 39 | % | 11 | % | 15 | % | — | % |
Lilly Pulitzer | |
| 71,623 |
| 52 | % | 27 | % | — | % | 21 | % | — | % | |
| 123,009 |
| 18 | % | 62 | % | — | % | 20 | % | — | % |
Lanier Apparel | |
| 23,860 |
| — | % | — | % | — | % | 100 | % | — | % | |
| 19,175 |
| — | % | — | % | — | % | 100 | % | — | % |
Southern Tide | |
| 11,777 |
| — | % | 20 | % | — | % | 80 | % | — | % | |
| 17,113 |
| 3 | % | 32 | % | — | % | 65 | % | — | % |
Corporate and Other | |
| 2,653 |
| — | % | 51 | % | — | % | 22 | % | 27 | % | |
| 10,796 |
| — | % | 70 | % | — | % | 24 | % | 6 | % |
Total | | $ | 302,641 |
| 45 | % | 21 | % | 7 | % | 27 | % | — | % | ||||||||||||||
Consolidated net sales | | $ | 352,331 |
| 25 | % | 45 | % | 6 | % | 24 | % | — | % |
| | | | | | | | | | | | | | |
| | First Half Fiscal 2019 | | |||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | 353,600 |
| 49 | % | 19 | % | 13 | % | 19 | % | — | % |
Lilly Pulitzer | |
| 148,150 |
| 46 | % | 27 | % | — | % | 27 | % | — | % |
Lanier Apparel | |
| 47,494 |
| — | % | 1 | % | — | % | 99 | % | — | % |
Southern Tide | |
| 26,602 |
| — | % | 17 | % | — | % | 83 | % | — | % |
Corporate and Other | |
| 8,127 |
| — | % | 62 | % | — | % | 29 | % | 9 | % |
Total net sales | | $ | 583,973 |
| 41 | % | 20 | % | 8 | % | 31 | % | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| First Half Fiscal 2018 | |
| First Half Fiscal 2019 |
| ||||||||||||||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
|
| Net Sales |
| Retail |
| E‑commerce |
| Restaurant |
| Wholesale |
| Other |
| ||
Tommy Bahama | | $ | 359,860 |
| 49 | % | 18 | % | 13 | % | 20 | % | — | % | | $ | 353,600 |
| 49 | % | 19 | % | 13 | % | 19 | % | — | % |
Lilly Pulitzer | |
| 140,250 |
| 48 | % | 26 | % | — | % | 26 | % | — | % | |
| 148,150 |
| 46 | % | 27 | % | — | % | 27 | % | — | % |
Lanier Apparel | |
| 43,769 |
| — | % | — | % | — | % | 100 | % | — | % | |
| 46,620 |
| — | % | — | % | — | % | 100 | % | — | % |
Southern Tide | |
| 25,249 |
| — | % | 16 | % | — | % | 84 | % | — | % | |
| 26,602 |
| — | % | 17 | % | — | % | 83 | % | — | % |
Corporate and Other | |
| 6,141 |
| — | % | 56 | % | — | % | 23 | % | 21 | % | |
| 9,001 |
| — | % | 62 | % | — | % | 29 | % | 9 | % |
Total net sales | | $ | 575,269 |
| 42 | % | 19 | % | 8 | % | 31 | % | — | % | ||||||||||||||
Consolidated net sales | | $ | 583,973 |
| 41 | % | 20 | % | 8 | % | 31 | % | — | % |
3. Revenue Recognition and Receivables: Our revenue consists of direct to consumer sales, including our retail store, e-commerce and restaurant operations, and wholesale sales, as well as royalty income, which is 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 2019.
1113
The table below quantifies the amount of net sales by distribution channel (in thousands) for each period presented.
| | | | | | | | | | | | | |
|
| Second Quarter |
| First Half |
| ||||||||
| | Fiscal 2020 |
| Fiscal 2019 |
| Fiscal 2020 |
| Fiscal 2019 | | ||||
Retail | | $ | 41,783 | | $ | 133,250 | | $ | 87,286 | | $ | 241,256 | |
E-commerce | |
| 106,789 | |
| 70,437 | |
| 160,483 | |
| 118,426 | |
Restaurant | |
| 8,528 | |
| 20,531 | |
| 20,291 | |
| 44,132 | |
Wholesale | |
| 34,489 | |
| 77,273 | |
| 83,547 | |
| 179,199 | |
Other | |
| 399 | |
| 509 | |
| 724 | |
| 960 | |
Net sales | | $ | 191,988 | | $ | 302,000 | | $ | 352,331 | | $ | 583,973 | |
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 these 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 August 1, 2020, February 1, 2020 and August 3, 2019, reserve balances recorded as a reduction to receivables related to these items were $9 million, $9 million and $7 million, respectively.
We extend credit to certain wholesale customers based on an evaluation of the customer’s financial capacity and condition, usually without requiring collateral. In circumstances where we become aware of a specific wholesale customer’s inability to meet its financial obligations, a specific provision for credit losses is taken as a reduction to accounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected. Such amounts are ultimately written off at the time that the amounts are not considered collectible. For all other wholesale customer receivable amounts, we recognize estimated provisions for credit losses based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions, anticipated trends and the risk characteristics of the receivables, each of which is subjective and requires certain assumptions. As discussed in Note 1, during Fiscal 2020, we estimated these losses using the current expected loss approach including consideration of the expected impact of the ongoing COVID-19 pandemic on our receivables, while in Fiscal 2019, we estimated these losses using the incurred loss model under the previous guidance. We include such charges for credit losses and write-offs in SG&A in our consolidated statements of operations and as a reduction to receivables, net in our consolidated balance sheets. As of August 1, 2020, February 1, 2020 and August 3, 2019, our provision for credit losses related to receivables was $4 million, $1 million and $1 million, respectively. Provisions for credit losses expense for the Second Quarter of Fiscal 2020 and the First Half of Fiscal 2020 was $2 million and $4 million, respectively. Provisions for credit losses expense for both the Second Quarter of Fiscal 2019 and the First Half of Fiscal 2019 were $0 million.
Substantially all amounts recognized in receivables, net represent trade receivables related to contracts with customers. In addition to trade and other receivables, income tax receivables of $1 million, $1 million and $1 million and tenant allowances due from landlord of $2 million, $1 million and $2 million are included in receivables, net in our consolidated balance sheet as of August 1, 2020, February 1, 2020 and August 3, 2019, respectively. As of August 1, 2020, February 1, 2020 and August 3, 2019, prepaid expenses and other current assets included $6 million, $3 million and $2 million, respectively, representing the estimated value of inventory for expected wholesale and direct to consumer sales returns. We did not have any significant contract assets related to contracts with customers, other than trade receivables and the value of inventory associated with expected sales returns, as of August 1, 2020, February 1, 2020 and August 3, 2019.
An estimated sales return liability of $12 million, $3 million and $5 million for expected direct to consumer returns is classified in other accrued expenses and liabilities in our consolidated balance sheet as of August 1, 2020, February 1, 2020 and August 3, 2019, 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 accrued expenses and other liabilities in our consolidated balance sheets and totaled $12 million, $12 million and $11 million as of August 1, 2020, February 1, 2020, and August 3, 2019, respectively.
4. Intangible Assets and Goodwill: As discussed in Note 1, the COVID-19 pandemic has had, and is expected to continue to have, a significant negative impact on each of our operating groups. Thus, certain goodwill and
14
indefinite-lived intangible asset impairment testing was required in the First Quarter of Fiscal 2020 and resulted in significant impairment charges in Southern Tide as shown in the tables below.
Intangible assets by category are summarized below (in thousands):
| | | | | | | | | |
|
| August 1, |
| February 1, |
| August 3, | |||
| | 2020 |
| 2020 | | 2019 | |||
Intangible assets with finite lives | | $ | 51,929 | | $ | 51,929 | | $ | 51,929 |
Accumulated amortization and impairment | |
| (42,690) | |
| (41,924) | |
| (41,338) |
Total intangible assets with finite lives, net | |
| 9,239 | |
| 10,005 | |
| 10,591 |
| | | | | | | | | |
Intangible assets with indefinite lives: | |
|
| |
|
| |
|
|
Tommy Bahama Trademarks | | $ | 110,700 | | $ | 110,700 | | $ | 110,700 |
Lilly Pulitzer Trademarks | |
| 27,500 | |
| 27,500 | |
| 27,500 |
Southern Tide Trademarks | |
| 9,300 | |
| 26,800 | |
| 26,800 |
Total intangible assets, net | | $ | 156,739 | | $ | 175,005 | | $ | 175,591 |
Intangible assets by operating group and in total, for Fiscal 2019 and the First Half of Fiscal 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Tommy |
| Lilly |
| Lanier |
| Southern |
| Corporate |
| | | |||||
| | Bahama | | Pulitzer | | Apparel | | Tide | | and Other | | Total | ||||||
Balance February 2, 2019 | | $ | 110,700 | | $ | 29,216 | | $ | 246 | | $ | 29,401 | | $ | 6,613 | | $ | 176,176 |
Impairment | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Amortization | |
| — | |
| (475) | |
| (31) | |
| (291) | |
| (374) | |
| (1,171) |
Balance, February 1, 2020 | |
| 110,700 | |
| 28,741 | |
| 215 | |
| 29,110 | |
| 6,239 | |
| 175,005 |
Impairment | |
| — | |
| — | |
| (207) | |
| (17,500) | |
| — | |
| (17,707) |
Amortization | |
| — | |
| (213) | |
| (8) | |
| (144) | |
| (194) | |
| (559) |
Balance, August 1, 2020 | | $ | 110,700 | | $ | 28,528 | | $ | — | | $ | 11,466 | | $ | 6,045 | | $ | 156,739 |
Goodwill, by operating group and in total, for Fiscal 2019 and the First Half of Fiscal 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | |
|
| Tommy |
| Lilly |
| Southern |
| Corporate |
| | | ||||
| | Bahama | | Pulitzer | | Tide | | and Other | | Total | |||||
Balance February 2, 2019 | | $ | 754 | | $ | 19,522 | | $ | 42,745 | | $ | 3,600 | | $ | 66,621 |
Impairment | |
| — | |
| — | |
| — | |
| — | |
| — |
Other, including foreign currency | |
| (43) | |
| — | |
| — | |
| — | |
| (43) |
Balance, February 1, 2020 | |
| 711 | |
| 19,522 | |
| 42,745 | |
| 3,600 | |
| 66,578 |
Impairment | |
| — | |
| — | |
| (42,745) | |
| — | |
| (42,745) |
Other, including foreign currency | |
| 33 | |
| — | |
| — | |
| — | |
| 33 |
Balance, August 1, 2020 | | $ | 744 | | $ | 19,522 | | $ | — | | $ | 3,600 | | $ | 23,866 |
5. Debt: We had $65 million of indebtedness outstanding as of August 1, 2020 under our $325 million Fourth Amended and Restated Credit Agreement (as amended, the “U.S. Revolving Credit Agreement”), compared to borrowings of $0 million as of each of February 1, 2020 and August 3, 2019. 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 1.2% as of August 1, 2020), 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 (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,
15
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 August 1, 2020, $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 August 1, 2020, we had $257 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
6. Leases: In the ordinary course of business, 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 and may have provisions to extend, renew or terminate the lease agreement at our discretion, among other provisions. Our real estate lease terms are typically for a period of ten years or less and typically require monthly rent payments with specified rent escalations periodically during the lease term. Our real estate leases usually provide for payments of our pro rata share of real estate taxes, insurance and other operating expenses applicable to the property, and certain of our leases require payment of sales taxes on rental payments. Also, our retail and restaurant leases often provide for contingent rent payments based on sales if certain sales thresholds are achieved. For many of our real estate lease agreements, we obtain lease incentives from the landlord for tenant improvement or other allowances. Our lease agreements do not include any material residual value guarantees or material restrictive financial covenants.
Substantially all of our leases are classified as long-term operating leases. 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 future lease payments. The operating lease asset at commencement represents the amount of the operating lease liability reduced for any lease incentives, including tenant improvement allowances. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term. Variable rental payments for real estate taxes, sales taxes, insurance, other operating expenses and contingent rent based on a percentage of net sales or adjusted periodically for inflation are not included in lease expense used to calculate the present value of lease obligations recognized in our consolidated balance sheet, but instead are recognized as incurred.
We account for the underlying operating lease at the individual lease level. Typically, we do not include any renewal or termination options at our discretion in the underlying lease term at the time of lease commencement as the probability of exercise is not reasonably certain. The lease guidance requires us to discount future lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, our estimated incremental borrowing rate. As our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on information available at commencement date. Our estimated incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis over the lease term to borrow an amount equal to the lease payments.
During the First Quarter of Fiscal 2020, the FASB provided for an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of the COVID-19 pandemic. The practical expedient only applies if a lease is modified to allow for a rental concession and (1) the revised consideration is substantially the same as, or less than, the original consideration in the lease agreement, (2) the reduction in lease payments relates to payments due on or before June 30, 2021, and (3) no other substantive changes have been made to the terms of the leases. The practical expedient provides that, if the above conditions are met for the lease agreement, the lessee is not required to assess whether the eligible rent concessions are lease modifications. We have elected to apply the practical expedient for all eligible lease concessions resulting in the rent concession being
16
recorded as an adjustment to variable lease payments and recognized in our statement of operations in that period. The amounts of concessions recognized in our consolidated statement of operations pursuant to this practical expedient in the First Half of Fiscal 2020 were not material. For leases that do not meet the criteria for the practical expedient, we account for the amendment and concession as a lease modification requiring lease remeasurement.
Substantially all lease expense is included in SG&A in our consolidated statements of operations. For the Second Quarter of Fiscal 2020, operating lease expense, which includes amounts used in determining the operating lease liability and operating lease asset, was $16 million and variable lease expense was $8 million, resulting in total lease expense of $24 million compared to $24 million of total lease expense in the Second Quarter of Fiscal 2019. For the First Half of Fiscal 2020, operating lease expense was $32 million and variable lease expense was $16 million resulting in total lease expense of $48 million, compared to $49 million of total lease expense in the First Half of Fiscal 2019. As of August 1, 2020, the weighted-average remaining operating lease term was 6.2 years and the weighted-average discount rate for operating leases was 4.4%. Cash paid for lease amounts included in the measurement of operating lease liabilities in the First Half of Fiscal 2020 was $21 million, while cash paid for lease amounts included in the measurement of operating lease liabilities in the First Half of Fiscal 2019 was $35 million.
As of August 1, 2020, the stated lease liability payments for the fiscal years specified below were as follows (in thousands):
| | | |
|
| Operating lease | |
Remainder of 2020 | | $ | 46,686 |
2021 | | | 67,104 |
2022 | | | 63,195 |
2023 | |
| 56,472 |
2024 | |
| 43,110 |
2025 | | | 29,263 |
After 2025 | |
| 62,599 |
Total lease payments | | $ | 368,429 |
Less: Difference between discounted and undiscounted lease payments | |
| 46,841 |
Present value of lease liabilities | | $ | 321,588 |
7. Income Taxes: Our effective income tax rate for the Second Quarter of Fiscal 2020 and the First Half of Fiscal 2020 was a benefit of 30.0% and a benefit of 23.2%, respectively. Our effective tax rate for the Second Quarter of Fiscal 2019 and the First Half of Fiscal 2019 was an expense of 25.1% and an expense of 25.3%, respectively. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for all periods presented include a variety of factors, including those discussed in the following paragraph, as well as the impact of state income taxes, the impact of foreign operations rate differential, valuation allowances and other carry-forwards, the deductibility of certain charges and changes in enacted tax regulations, each as applicable. On March 27, 2020, the CARES Act was signed into law, with applicable provisions reflected in our financial statements upon enactment. This law included several taxpayer favorable provisions which impact us, including allowing the carryback of net operating losses to periods prior to U.S. Tax Reform, accelerated depreciation of certain leasehold improvement costs and relaxed interest expense limitations, as well as non-income tax benefits including deferral of employer FICA payments and an employee retention credit.
The income tax benefit in the First Half of Fiscal 2020 reflects the benefit on the operating losses including the favorable impact of the CARES Act, which provides for the carry back of our Fiscal 2020 net operating losses to pre-U.S. Tax Reform tax years, which had a federal income tax rate of 35%. This benefit was offset by certain unfavorable items including (1) the non-deductibility of certain goodwill impairment charges, resulting in an estimated effective income tax benefit rate of approximately 17% on the impairment charges, and (2) restricted stock which vested in the period with a vesting date price lower than the grant date price.
17
3.8. Shareholders’ Equity: The following tables detail the changes (in thousands) in our common stock, additional paid-in capital ("APIC"), retained earnings and accumulated other comprehensive (loss) income ("AOCI"), for each period presented.
��
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First Half Fiscal 2019 | | Fiscal 2019 | ||||||||||||||||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total |
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | ||||||||||
February 2, 2019 |
| $ | 16,959 |
| $ | 142,976 |
| $ | 323,515 |
| $ | (5,095) |
| $ | 478,355 |
| $ | 16,959 |
| $ | 142,976 |
| $ | 323,515 |
| $ | (5,095) |
| $ | 478,355 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 21,657 | |
| (388) | |
| 21,269 | |||||||||||||||
Comprehensive income | |
| — | |
| — | |
| 21,657 | |
| (388) | |
| 21,269 | |||||||||||||||
Shares issued under equity plans | |
| 91 | |
| 331 | |
| — | |
| — | |
| 422 | |
| 91 | |
| 331 | |
| — | |
| — | |
| 422 |
Compensation expense for equity awards | |
| — | |
| 1,876 | |
| — | |
| — | |
| 1,876 | |
| — | |
| 1,876 | |
| — | |
| — | |
| 1,876 |
Repurchase of shares | |
| (31) | |
| (2,422) | |
| — | |
| — | |
| (2,453) | |
| (31) | |
| (2,422) | |
| — | |
| — | |
| (2,453) |
Cash dividends declared and paid | |
| — | |
| — | |
| (6,297) | |
| — | |
| (6,297) | |
| — | |
| — | |
| (6,297) | |
| — | |
| (6,297) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
May 4, 2019 | | $ | 17,019 | | $ | 142,761 | | $ | 338,875 | | $ | (5,483) | | $ | 493,172 | | $ | 17,019 | | $ | 142,761 | | $ | 338,875 | | $ | (5,483) | | $ | 493,172 |
Net earnings and other comprehensive income | |
| — | |
| — | |
| 29,836 | |
| (133) | |
| 29,703 | |||||||||||||||
Comprehensive income | |
| — | |
| — | |
| 29,836 | |
| (133) | |
| 29,703 | |||||||||||||||
Shares issued under equity plans | |
| 16 | |
| 447 | |
| — | |
| — | |
| 463 | |
| 16 | |
| 447 | |
| — | |
| — | |
| 463 |
Compensation expense for equity awards | |
| — | |
| 1,915 | |
| — | |
| — | |
| 1,915 | |
| — | |
| 1,915 | |
| — | |
| — | |
| 1,915 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (6,304) | |
| — | |
| (6,304) | |
| — | |
| — | |
| (6,304) | |
| — | |
| (6,304) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
August 3, 2019 | | $ | 17,035 | | $ | 145,123 | | $ | 362,407 | | $ | (5,616) | | $ | 518,949 | | $ | 17,035 | | $ | 145,123 | | $ | 362,407 | | $ | (5,616) | | $ | 518,949 |
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 | |||||||||||||||
Comprehensive income | |
| — | |
| — | |
| 15,332 | |
| 779 | |
| 16,111 | |||||||||||||||
Shares issued under equity plans | |
| 4 | |
| 327 | |
| — | |
| — | |
| 331 | |||||||||||||||
Compensation expense for equity awards | |
| — | |
| 1,922 | |
| — | |
| — | |
| 1,922 | |||||||||||||||
Repurchase of shares | |
| (4) | |
| (271) | |
| — | |
| — | |
| (275) | |||||||||||||||
Cash dividends declared and paid | |
| — | |
| — | |
| (6,307) | |
| — | |
| (6,307) | |||||||||||||||
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — | |||||||||||||||
February 1, 2020 | | $ | 17,040 | | $ | 149,426 | | $ | 366,793 | | $ | (4,661) | | $ | 528,598 |
| | | | | | | | | | | | | | | |
| | First Half 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 |
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. NaN amounts were reclassified from AOCI to our consolidated statements of operations for any period presented.
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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.
The table below quantifies the amount of net sales by distribution channel (in thousands) for each period presented.
| | | | | | | | | | | | | |
|
| Second Quarter |
| First Half |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 |
| Fiscal 2019 |
| Fiscal 2018 | | ||||
Retail | | $ | 133,250 | | $ | 134,581 | | $ | 241,256 | | $ | 242,316 | |
E-commerce | |
| 70,437 | |
| 63,363 | |
| 118,426 | |
| 107,885 | |
Restaurant | |
| 20,531 | |
| 21,467 | |
| 44,132 | |
| 46,760 | |
Wholesale | |
| 77,273 | |
| 82,402 | |
| 179,199 | |
| 176,778 | |
Other | |
| 509 | |
| 828 | |
| 960 | |
| 1,530 | |
Net sales | | $ | 302,000 | | $ | 302,641 | | $ | 583,973 | | $ | 575,269 | |
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 these 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 August 3, 2019, February 2, 2019 and August 4, 2018, reserve balances recorded as a reduction to receivables related to these items were $7 million, $7 million and $7 million, respectively.
In addition to trade and other receivables, income tax receivables of $1 million, $1 million and $6 million and tenant allowances due from landlord of $2 million, $0 million and $2 million are included in receivables, net in our consolidated balance sheet as of August 3, 2019, February 2, 2019 and August 4, 2018, respectively. As of August 3, 2019, February 2, 2019 and August 4, 2018, prepaid expenses and other current assets included $2 million, $2 million and $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 August 3, 2019, February 2, 2019 and August 4, 2018.
An estimated sales return liability of $5 million, $3 million and $4 million for expected direct to consumer returns is classified in other accrued expenses and liabilities in our consolidated balance sheet as of August 3, 2019, February 2, 2019 and August 4, 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 $11 million, $12 million and $10 million as of August 3, 2019, February 2, 2019, and August 4, 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 and may have provisions to extend, renew or terminate the lease agreement at our discretion, among other terms and conditions. Our retail and restaurant leases typically provide for contingent rent based on sales if certain sales thresholds are achieved. Most of our leases provide for payments of real estate taxes, insurance and other operating expenses applicable to the property, and certain of our leases require payment of sales taxes on rental payments. Payments for real estate taxes, sales taxes, insurance and other operating expenses are not included in lease expense. Our lease agreements do not include any material residual value guarantees or material restrictive financial covenants.
Substantially all of our leases are classified as long-term operating leases, which have not historically been recognized as assets and liabilities in our consolidated balance sheets. When a non-cancelable long-term operating
13
lease includes fixed escalation clauses or lease incentives for rent holidays, rent expense is generally recognized on a straight-line basis over the initial term of the lease from the date that we take possession of the space and assumes that any termination options included in the lease will not be exercised. Contingent rents, including those based on a percentage of retail sales over stated levels, and rental payment increases based on a contingent future event have been recognized as the expense is incurred. The difference between the rents payable under the lease and the amount recognized on a straight-line basis has historically been recorded in other non-current liabilities in our consolidated balance sheets, with the exception of the amounts recognized in current lease liabilities. Also, any tenant improvement allowance amounts received from the landlord have historically been deferred as a liability in our consolidated balance sheets and then recognized in our consolidated statements of operations as a reduction to rent 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 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 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 Second Quarter of Fiscal 2019, operating lease expense was $16 million and variable lease expense was $8 million, resulting in total lease expense of $24 million. For the First Half of Fiscal 2019, operating lease expense was $33 million and variable lease expense was $17 million, resulting in total lease expense of $49 million. As of August 3, 2019, the weighted-average remaining operating lease term was seven years and the weighted-average discount rate for operating leases was 5%. Cash paid for lease amounts included in the measurement of operating lease liabilities in the Second Quarter of Fiscal 2019 and the First Half of Fiscal 2019 was $17 million and $35 million, respectively.
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| | | | | | | | | | | | | | | |
| | First Half Fiscal 2020 | |||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | |||||
February 1, 2020 |
| $ | 17,040 |
| $ | 149,426 |
| $ | 366,793 |
| $ | (4,661) |
| $ | 528,598 |
Comprehensive loss | |
| — | |
| — | |
| (66,784) | |
| (591) | |
| (67,375) |
Shares issued under equity plans | |
| 56 | |
| 350 | |
| — | |
| — | |
| 406 |
Compensation expense for equity awards | |
| — | |
| 1,682 | |
| — | |
| — | |
| 1,682 |
Repurchase of shares | |
| (378) | |
| (1,824) | |
| (17,721) | |
| — | |
| (19,923) |
Cash dividends declared and paid | |
| — | |
| — | |
| (4,194) | |
| — | |
| (4,194) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| (499) | |
| — | |
| (499) |
May 2, 2020 | | $ | 16,718 | | $ | 149,634 | | $ | 277,595 | | $ | (5,252) | | $ | 438,695 |
Comprehensive loss | |
| — | |
| — | |
| (6,087) | |
| 933 | |
| (5,154) |
Shares issued under equity plans | |
| 158 | |
| 202 | |
| — | |
| — | |
| 360 |
Compensation expense for equity awards | |
| — | |
| 1,884 | |
| — | |
| — | |
| 1,884 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends declared and paid | |
| — | |
| — | |
| (4,235) | |
| — | |
| (4,235) |
Cumulative effect of change in accounting standards | |
| — | |
| — | |
| — | |
| — | |
| — |
August 1, 2020 | | $ | 16,876 | | $ | 151,720 | | $ | 267,273 | | $ | (4,319) | | $ | 431,550 |
During the First Quarter of Fiscal 2020, we repurchased 0.3 million shares of our common stock under an open market stock repurchase program (Rule 10b5-1 plan) and repurchased 0.1 million shares of our common stock pursuant to our stock incentive plans. During the Second Quarter of Fiscal 2020, we granted 0.1 million service-based restricted shares of our common stock, subject to the recipient remaining an employee through the July 2023 vesting date, which are included in common stock in the table above. Additionally, during the Second Quarter of Fiscal 2020, we granted 0.1 million restricted share units, subject to the recipient remaining an employee through July 2023 and the satisfaction of certain performance metrics, which are not included in common stock in the table above. Our stock incentive plans are described in Note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for Fiscal 2019.
As of August 3, 2019, the required lease liability paymentsend of the Second Quarter of Fiscal 2020 and the First Half of Fiscal 2020, there were 0.4 million of restricted shares and restricted share units outstanding that were excluded from the diluted earnings per share calculation because we incurred a net loss for the fiscal years specified belowperiod and their inclusion would be anti-dilutive. NaN restricted shares or restricted share units were as follows (in thousands):excluded from the diluted earnings per share calculation in the Second Quarter of Fiscal 2019 or the First Half of Fiscal 2019.
| | | |
|
| Operating lease | |
Remainder of 2019 | | $ | 34,369 |
2020 | |
| 60,608 |
2021 | | | 63,487 |
2022 | |
| 59,825 |
2023 | |
| 56,639 |
2024 | | | 43,981 |
After 2024 | |
| 86,588 |
Total lease payments | | $ | 405,497 |
Less: Difference between discounted and undiscounted lease payments | |
| 61,320 |
Present value of lease liabilities | | $ | 344,177 |
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 leases with original terms in excess of one year were $68 million, $66 million, $62 million, $59 million, and $51 million for each of the next five years and $124 million thereafter.
6. Debt: In July 2019, we amended our $325 million Fourth Amended and Restated Credit Agreement (as amended, the “U.S. Revolving Credit Agreement”) by entering into the First Amendment to the Fourth Amended and Restated Credit Agreement to (1) extend the maturity of the facility to July 2024, and (2) modify certain provisions including a reduction of interest rates on certain borrowings and a reduction in unused line fees. We had 0 amounts outstanding as of August 3, 2019 under the U.S. Revolving Credit Agreement, compared to $25 million of borrowings outstanding as of August 4, 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 August 3, 2019, $5 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 August 3, 2019, we had $311 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
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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 2018.2019.
OVERVIEW
Business Overview
We are a globalleading 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 2018,2019, 93% of our net sales were from products bearing brands that we own and 69%97% 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.States.
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.opportunities. 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.
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. Our ability to compete successfully in styling and marketingthe apparel industry 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’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 productsDuring Fiscal 2019, 70% 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 primarilynet sales were through our direct to consumer channels consisting of distribution, which consists of our brand-specific full-price retail stores, our e-commerce websites, our Tommy Bahama food and Lilly Pulitzer retail storesbeverage operations and our e-commerce sites for Tommy Bahama Lilly Pulitzer and Southern Tide, and throughoutlets. The remaining 30% of our net sales are generated from 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 restaurants and Marlin Bars, generally adjacent to a Tommy Bahama full-price retail store location, which we believe further enhance the brand’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 consist of net sales of products bearing our lifestyle brands, which complement our direct to consumer operations and provide access to a larger group of consumers. As we seek to maintainconsumers, and the integritynet sales 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
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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’s customers include department stores, discount and off-price retailers, warehouse clubs, national chains, specialty stores and multi-branded e-commerce retailers.group.
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.Industry Overview
All of ourOur operating groups operate in highly competitive apparel markets in which numerous U.S. and foreign-based apparel firms compete.that continue to evolve rapidly with the expanding application of technology to fashion retail. 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. 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
The competitive and economic uncertainty continue to impact the business of each of our operating groups and the apparel industry as a whole.
Due to the imposition by the United States of higher tariffs on apparel and related products manufactured in China, our net sales, cost of goods sold, operating income and net earnings are expected to be impacted in the second half of Fiscal 2019 as well as in Fiscal 2020, to the extent that we are unable to offset the additional costs by moving product sourcing from China, successfully negotiating price reductions from third party manufacturers or increasing sales prices on select products. During Fiscal 2018, approximately 54% of our apparel and related products were from producers located in China. During Fiscal 2019, we have made progress in shifting production from China, particularly for goods to be received late in the fiscal year, resulting in our expectation that the proportion of products sourced from China in Fiscal 2019 will be slightly lower than in Fiscal 2018. We anticipate more meaningful reductions in the proportion of our apparel and related products sourced from China in Fiscal 2020.
We believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion retailing. The application of technology, including the internet and mobile devices, to fashion retail provides consumers increasing access to multiple, responsive distribution platforms and an unprecedented ability to communicate directly with brands and retailers. As a result, consumers have more information and greater control over information they receive as well as broader, faster and cheaper access to goods than ever before. This, along with the coming of age of the “millennial” generation, is revolutionizing the way that consumers shop for fashion and other goods, which continues to be evidenced by weakness and store closures for certain department stores and mall-based retailers, decreased consumer retail traffic, a more promotional retail environment expansion of off-price and discount retailers, and a shift from bricks and mortar to internet purchasing. These changes may require that brands and retailers approach their operations, including marketing and advertising, very differently than historical practices and may result in increased operating costs and capital investments to generate growth or even maintain their current sales levels.
While this competition and 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.
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We believe our lifestyle 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.
COVID-19 Pandemic
In March 2020, the World Health Organization characterized the outbreak of a novel coronavirus (COVID-19) as a pandemic. COVID-19 has had a significant effect on overall economic conditions and our operations, and is the primary reason for a 40% reduction in net sales in the First Half of Fiscal 2020, a net loss in the First Half of Fiscal 2020 after many years of profitable operating results and an expected net loss for the full year of Fiscal 2020. While our mission remains the enhancement of long-term shareholder value, our focus during this crisis has been, and will continue to be, (1) the health and well-being of our employees, customers and communities, (2) protecting the reputation, value and image of our brands and (3) preserving liquidity.
Due to the COVID-19 pandemic, we saw reduced consumer traffic starting in early March 2020 and temporarily closed all our retail and restaurant locations in North America on March 17, 2020, with store closures in Australia shortly thereafter. We began reopening our stores and restaurants in early May with additional stores and restaurants reopening throughout the Second Quarter of Fiscal 2020. However, while we have reopened most of our direct to consumer locations in a phased approach in accordance with local government guidelines and additional safety protocols, most locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently. Generally, locations with attached restaurants or Marlin Bars, in outdoor centers and in drivable resort vacation destinations have performed better than locations in indoor malls and locations in the Northeast and Hawaii, which continue to have more stringent local requirements on retail operations or tourism. At the same time, the shift from in-store shopping to online shopping has accelerated during the COVID-19 pandemic resulting in strong growth in our e-commerce businesses during the First Half of Fiscal 2020.
There is significant uncertainty as to the duration and severity of the pandemic as well as the associated business disruption, impact on discretionary spending and restrictions on our operations. Thus, the ultimate impact of the pandemic cannot be reasonably estimated at this time. However, the COVID-19 pandemic is expected to continue to have a material adverse impact on our business, results of operations, cash flows and financial condition for the foreseeable future due to the anticipated lower net sales from our bricks and mortar locations; reduced demand from our wholesale customers, several of which have filed for bankruptcy or are undergoing restructurings or closures; the uncertainty as to the continued strength of our brands’ e-commerce websites during the pendency of the pandemic; overall changes in consumer confidence and consumer spending habits; any potential disruptions to our supply chain; and a slowdown in the U.S. and global economies.
We have $257 million of availability pursuant to our U.S. Revolving Credit Agreement and $97 million of cash, as of August 1, 2020. Considering this, among other factors, we believe we have adequate liquidity and the financial discipline to address the near-term challenges related to the COVID-19 pandemic. Actions we have taken to mitigate the impact of this pandemic on our business, operations and liquidity include:
● | we furloughed and laid off a significant number of our retail, restaurant and office employees; |
● | certain salaried employees, including our Chief Executive Officer, Chief Financial Officer and other executives, took temporary reductions in base salary during Fiscal 2020; |
● | our Board of Directors elected to reduce its cash retainers for Fiscal 2020; |
● | we worked with our suppliers to cancel, delay or suspend future product deliveries; |
● | we worked with our wholesale customers to identify suitable changes to our business arrangements; |
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● | we have been actively negotiating with our retail and restaurant landlords for equitable rental arrangements, believing that the payment of rents for both the closure and subsequent periods is inappropriate due to the impact of the COVID-19 pandemic; |
● | under the CARES Act, we deferred the employer portion of FICA payments and obtained employee retention credits for certain compensation paid to employees even while they were not working during the COVID-19 pandemic; |
● | we suspended, cancelled or deferred certain capital expenditures, reducing our capital expenditure expectations for Fiscal 2020; |
● | we drew down certain amounts on our U.S. Revolving Credit Agreement to increase our cash position and preserve financial flexibility; and |
● | our Board of Directors reduced the rate of our dividend payable in Fiscal 2020. |
Specifically,Also, 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 to add new retail storesestablished management committees, reporting to our portfolio, but at a measured and selective pace, and believe that an effective bricks and mortar retail strategy is an important component to the e-commerce operations for long-term success in today’s retail apparel environment.
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 current customers adding within their existing door count and increasing their online business; increased sales to online retailers; and our selective addition of new 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 was to increase the profitability of the Tommy Bahama business. These initiatives generally focused 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 reduce Asia-Pacific operating losses. While we have made progress 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 abilityChief Executive Officer to continue to evaluate opportunitiesmonitor the COVID-19 pandemic and its impact and are taking the necessary measures to addprotect the health and safety of our employees and customers.
For 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. Currently, the market for desirable lifestyle brands, both large and small, is very competitive and the expectations of sellers are high relative to the historical operating results and opportunities of the brand.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impactinformation about our business are described inand each of our operating groups, see Part I, Item 1A. Risk Factors1. Business included in our Annual Report on Form 10-K for Fiscal 2018.
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The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First Half of Fiscal 20192020 compared to the First Half of Fiscal 20182019:
| | | | | | | | | | | | |
|
| First Half |
| First Half | ||||||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| Fiscal 2020 |
| Fiscal 2019 | ||||
Net sales | | $ | 583,973 | | $ | 575,269 | | $ | 352,331 | | $ | 583,973 |
Operating income | | $ | 70,001 | | $ | 64,886 | ||||||
Net earnings | | $ | 51,493 | | $ | 47,751 | ||||||
Net earnings per diluted share | | $ | 3.05 | | $ | 2.84 | ||||||
Operating (loss) income | | $ | (93,506) | | $ | 70,001 | ||||||
Net (loss) earnings | | $ | (72,871) | | $ | 51,493 | ||||||
Net (loss) earnings per diluted share | | $ | (4.40) | | $ | 3.05 | ||||||
Weighted average shares outstanding - diluted | |
| 16,878 | |
| 16,804 | |
| 16,580 | |
| 16,878 |
The highernet loss per share in the First Half of Fiscal 2020 compared to positive net earnings per diluted share in the First Half of Fiscal 2019 was primarily due to higher(1) the impact of COVID-19 on the operating results of each of our operating groups, including charges for estimated credit losses, inventory markdowns and non-current asset impairments, (2) the $60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020 and (3) the non-deductibility of certain impairment charges resulting in a lower effective tax rate on our loss in the First Half of Fiscal 2020 than the effective tax rate on our income in each operating group and lower interest expense.the First Half of Fiscal 2019. These items were partially offset by lowerthe improved operating results in Corporate and Other, and a higher effective tax rate.
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 e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both 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 usedwhich were 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 e-commerce sites and any physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel or other event which would result in a closure for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space or (3) a relocation to a new space that is significantly different from the prior retail space. For those stores which are excluded based on the preceding sentence, the stores continue to be excluded from comparable sales until the criteria for a new store is met subsequent to the remodel, relocation, or other event. A retail store that is remodeled will generally continue to be included in our comparable sales metrics as a store is not typically closed for longer than a two-week period during a remodel; however, a retail store that is relocated generally will not be included in our comparable sales metrics until that store has been open in the relocated space for the entiretyfavorable impact of the prior fiscal year because the size or other characteristics of the store typically change significantly from the prior location. Any stores that were closed during the prior fiscal year or current fiscal year, or which we expect to close or vacate in the current fiscal year, are excluded from our comparable sales.
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.LIFO accounting.
19
STORE COUNT
The table below provides store count information for Tommy Bahama, and Lilly Pulitzer and Southern Tide as of the dates specified. The table includes our permanent stores and excludes any pop-up or temporary store locations which have an initial lease term of less than 12 months. Due to the impact of the COVID-19 pandemic, all our stores and restaurants were closed beginning in March 2020. We began reopening our stores and restaurants starting on May 3, 2020 in a phased approach in accordance with local government guidelines and additional safety protocols implemented.
22
Most locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently.
| | | | | | | | | | | | | | | | |
| | August 3, | | February 2, | | August 4, | | February 3, | | August 1, | | February 1, | | August 3, | | February 2, |
|
| 2019 |
| 2019 |
| 2018 |
| 2018 |
| 2020 |
| 2020 |
| 2019 |
| 2019 |
Tommy Bahama retail stores |
| 113 |
| 113 |
| 111 |
| 110 |
| 107 |
| 111 |
| 113 |
| 113 |
Tommy Bahama retail-restaurant locations |
| 17 |
| 17 |
| 18 |
| 18 |
| 19 |
| 16 |
| 17 |
| 17 |
Tommy Bahama outlets |
| 37 |
| 37 |
| 38 |
| 38 |
| 35 |
| 35 |
| 37 |
| 37 |
Total Tommy Bahama locations |
| 167 |
| 167 |
| 167 |
| 166 |
| 161 |
| 162 |
| 167 |
| 167 |
Lilly Pulitzer retail stores |
| 63 |
| 62 |
| 60 |
| 57 |
| 59 |
| 61 |
| 63 |
| 62 |
Southern Tide retail stores | | 2 | | 1 | | — | | — | ||||||||
Total Oxford locations |
| 230 |
| 229 |
| 227 |
| 223 |
| 222 |
| 224 |
| 230 |
| 229 |
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 20192020 COMPARED TO SECOND QUARTER OF FISCAL 20182019
The discussion and tables below compare our statements of operations for the Second Quarter of Fiscal 20192020 to the Second Quarter of Fiscal 2018.2019. 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.
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.year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
|
| | | | |
|
| Second Quarter |
|
| | | | |
| ||||||||||||||||||
| | Fiscal 2019 | | | Fiscal 2018 | | | $ Change |
| % Change | | | Fiscal 2020 | | | Fiscal 2019 | | | $ Change |
| % Change | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales |
| $ | 302,000 |
| 100.0 | % | | $ | 302,641 | | 100.0 | % | | $ | (641) |
| (0.2) | % |
| $ | 191,988 |
| 100.0 | % | | $ | 302,000 | | 100.0 | % | | $ | (110,012) |
| (36.4) | % |
Cost of goods sold | |
| 122,175 |
| 40.5 | % | |
| 123,344 |
| 40.8 | % | |
| (1,169) |
| (0.9) | % | |
| 87,251 |
| 45.4 | % | |
| 122,175 |
| 40.5 | % | |
| (34,924) |
| (28.6) | % |
Gross profit | | $ | 179,825 |
| 59.5 | % | | $ | 179,297 |
| 59.2 | % | | $ | 528 |
| 0.3 | % | | $ | 104,737 |
| 54.6 | % | | $ | 179,825 |
| 59.5 | % | | $ | (75,088) |
| (41.8) | % |
SG&A | |
| 143,403 |
| 47.5 | % | |
| 146,340 |
| 48.4 | % | |
| (2,937) |
| (2.0) | % | |
| 115,663 |
| 60.2 | % | |
| 143,403 |
| 47.5 | % | |
| (27,740) |
| (19.3) | % |
Royalties and other operating income | |
| 3,837 |
| 1.3 | % | |
| 3,556 |
| 1.2 | % | |
| 281 |
| 7.9 | % | |
| 2,909 |
| 1.5 | % | |
| 3,837 |
| 1.3 | % | |
| (928) |
| (24.2) | % |
Operating income | | $ | 40,259 |
| 13.3 | % | | $ | 36,513 |
| 12.1 | % | | $ | 3,746 |
| 10.3 | % | ||||||||||||||||||
Operating (loss) income | | $ | (8,017) |
| (4.2) | % | | $ | 40,259 |
| 13.3 | % | | $ | (48,276) |
| NM | % | ||||||||||||||||||
Interest expense, net | |
| 419 |
| 0.1 | % | |
| 602 |
| 0.2 | % | |
| (183) |
| (30.4) | % | |
| 676 |
| 0.4 | % | |
| 419 |
| 0.1 | % | |
| 257 |
| 61.3 | % |
Earnings before income taxes | | $ | 39,840 |
| 13.2 | % | | $ | 35,911 |
| 11.9 | % | | $ | 3,929 |
| 10.9 | % | ||||||||||||||||||
Income taxes | |
| 10,004 |
| 3.3 | % | |
| 8,727 |
| 2.9 | % | |
| 1,277 |
| 14.6 | | ||||||||||||||||||
Net earnings | | $ | 29,836 |
| 9.9 | % | | $ | 27,184 |
| 9.0 | % | | $ | 2,652 |
| 9.8 | % | ||||||||||||||||||
(Loss) earnings before income taxes | | $ | (8,693) |
| (4.5) | % | | $ | 39,840 |
| 13.2 | % | | $ | (48,533) |
| NM | % | ||||||||||||||||||
Income tax (benefit) provision | |
| (2,606) |
| (1.4) | % | |
| 10,004 |
| 3.3 | % | |
| (12,610) |
| NM | % | ||||||||||||||||||
Net (loss) earnings | | $ | (6,087) |
| (3.2) | % | | $ | 29,836 |
| 9.9 | % | | $ | (35,923) |
| NM | % |
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
| Second Quarter |
| | | | | ||||||||||
| | Fiscal 2019 | | Fiscal 2018 |
| $ Change |
| % Change | | | Fiscal 2020 | | Fiscal 2019 |
| $ Change |
| % Change | | ||||||
Tommy Bahama | | $ | 188,870 | | $ | 192,728 | | $ | (3,858) |
| (2.0) | % | | $ | 95,254 | | $ | 188,870 | | $ | (93,616) |
| (49.6) | % |
Lilly Pulitzer | |
| 75,555 | |
| 71,623 | |
| 3,932 |
| 5.5 | % | |
| 73,860 | |
| 75,555 | |
| (1,695) |
| (2.2) | % |
Lanier Apparel | |
| 20,905 | |
| 23,860 | |
| (2,955) |
| (12.4) | % | |
| 8,450 | |
| 20,466 | |
| (12,016) |
| (58.7) | % |
Southern Tide | |
| 12,468 | |
| 11,777 | |
| 691 |
| 5.9 | % | |
| 8,812 | |
| 12,468 | |
| (3,656) |
| (29.3) | % |
Corporate and Other | |
| 4,202 | |
| 2,653 | |
| 1,549 |
| 58.4 | % | |
| 5,612 | |
| 4,641 | |
| 971 |
| 20.9 | % |
Total net sales | | $ | 302,000 | | $ | 302,641 | | $ | (641) |
| (0.2) | % | ||||||||||||
Consolidated net sales | | $ | 191,988 | | $ | 302,000 | | $ | (110,012) |
| (36.4) | % |
2023
Consolidated net sales decreased $1$110 million, or 36%, in the Second Quarter of Fiscal 2019.2020, primarily due to the impact of the COVID-19 pandemic, which has had a negative impact on our retail, wholesale and restaurant operations, each including the impact of temporary closures and reduced traffic after locations reopen, while our e-commerce business has generated very strong growth. The decrease in consolidated net sales was primarily driven byincluded decreases in (1) a $5full-price retail sales of $83 million, net decrease inor 71%, (2) wholesale sales primarily driven by reductions in sales at Tommy Bahama and Lanier Apparel, (2) a $2of $43 million, decrease in Tommy Bahama outlet store sales, andor 55%, (3) a $1 million decrease in restaurant sales in Tommy Bahama.of $12 million, or 59%, and (4) outlet sales of $9 million, or 54%. These decreases were partially offset by (1) a $5increased e-commerce sales of $36 million, or 3%52%, comparableprimarily due to more demand as consumers shifted to online shopping as well as increased online marketing and promotional events, including e-commerce flash clearance sales, increase to $168 million in the Second Quarter of Fiscal 2019 from $163 million in the Second Quarter of Fiscal 2018 and (2) an incremental net sales increase of $2 million associated with non-comp retail store operations primarily resulting from an increase at Lilly Pulitzer.further engage consumers. 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:
| | | | | | | | | | |
|
| Second Quarter |
|
| Second Quarter |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | | Fiscal 2020 |
| Fiscal 2019 | |
Retail |
| 44 | % | 45 | % |
| 22 | % | 44 | % |
E-commerce |
| 23 | % | 21 | % |
| 56 | % | 23 | % |
Restaurant |
| 7 | % | 7 | % |
| 4 | % | 7 | % |
Wholesale |
| 26 | % | 27 | % |
| 18 | % | 26 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
Tommy Bahama:
Tommy Bahama net sales decreased $4$94 million, or 2%50%, in the Second Quarter of Fiscal 2019.2020. The decrease in net sales in Tommy Bahama netincluded decreases in (1) full-price retail sales wasof $55 million, or 70%, primarily driven by (1) a $3 million decrease indue to the impact of COVID-19 on retail store operations as well as reduced store count, (2) wholesale sales reflecting decreases in both full-priceof $21 million, or 69%, (3) restaurant sales of $12 million, or 59%, and off-price wholesale sales, (2) a $2 million decrease in(4) outlet store sales primarily due to lower sales in existing outlet stores and the net sales impact of fewer outlet store locations, (3) a $1$9 million, decrease in restaurant sales primarily reflecting lower sales in existing restaurants and the Third Quarter of Fiscal 2018 closure of the Ginza, Japan restaurant and (4) a net sales decrease of $1 million associated with the operation of non-comp retail stores.or 54%. These decreases were partially offset by aincreased e-commerce sales of $3 million, or 3%, comparable sales increase to $111 million in the Second Quarter of Fiscal 2019 from $109 million in the Second Quarter of Fiscal 2018.7%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
| | | | | | | | | | |
| | Second Quarter | | | Second Quarter | | ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail |
| 50 | % | 50 | % |
| 33 | % | 50 | % |
E-commerce |
| 23 | % | 21 | % |
| 48 | % | 23 | % |
Restaurant |
| 11 | % | 11 | % |
| 9 | % | 11 | % |
Wholesale |
| 16 | % | 18 | % |
| 10 | % | 16 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
Lilly Pulitzer:
Lilly Pulitzer net sales increased $4decreased $2 million, or 6%2%, in the Second Quarter of Fiscal 2019.2020. The increasedecrease in net sales in Lilly Pulitzer netincluded decreases in (1) retail sales wasof $28 million, or 73%, primarily driven by (1) an incremental net sales increasedue to the impact of $3 million associated with non-compCOVID-19 on retail store operations including the operation of additional retail storesas well as reduced store count and increased gift card breakage income, (2) a $1 million increase in wholesale sales reflecting higherof $4 million, or 28%, due to lower full-price wholesale sales partially offset by lowerhigher off-price wholesale sales and (3) a 1% comparable sales increase reflecting comparablesales. These decreases were partially offset by increased e-commerce sales of $51$31 million, or 142%, with $15 million of that increase resulting from e-commerce flash clearance sales in both the Second
2124
Quarter of Fiscal 2019 and2020 with no comparable event in the Second Quarter of Fiscal 2018.2019. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | | | | | | |
| | Second Quarter | | | Second Quarter | | ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail |
| 51 | % | 52 | % |
| 14 | % | 51 | % |
E-commerce |
| 29 | % | 27 | % |
| 71 | % | 29 | % |
Wholesale |
| 20 | % | 21 | % |
| 15 | % | 20 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
Lanier Apparel:
The Lanier Apparel net sales decreasedecreased $12 million, or 59% in the Second Quarter of Fiscal 2020 resulting from decreases in most of the replenishment, seasonal and other programs for the branded and private label businesses. These decreases were partially offset by $3 million of sales of masks and gowns.
Southern Tide:
Southern Tide net sales decreased $4 million, or 12%29%, in the Second Quarter of Fiscal 2019 was primarily2020 due to decreased volumea $5 million, or 53%, decrease in various seasonal, in-stockwholesale sales partially offset by a $1 million, or 39%, increase in e-commerce sales and replenishment programs, including initial shipments for a warehouse club programincreased retail store sales after opening our first Southern Tide retail store in the Fourth Quarter of Fiscal 2019 and our second store in the Second Quarter of Fiscal 2018 that did not repeat in the Second Quarter of Fiscal 2019. These decreases were partially offset by increases in other programs.
Southern Tide:
The Southern Tide net sales increase of $1 million, or 6%, in the Second Quarter of Fiscal 2019 was due to increased sales in both the e-commerce and wholesale channels of distribution, with e-commerce growing at a faster pace than wholesale during the quarter. The increased wholesale sales reflect increased sales to department stores and Signature Stores, including those that opened in Fiscal 2018, partially offset by lower off-price wholesale sales.2020. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
| | | | | | | | | | |
| | Second Quarter | | | Second Quarter | | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | |
| Fiscal 2020 |
| Fiscal 2019 | |
Retail | | 5 | % | — | % | |||||
E-commerce |
| 22 | % | 20 | % |
| 43 | % | 22 | % |
Wholesale |
| 78 | % | 80 | % |
| 52 | % | 78 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
Corporate and Other:
Corporate and Other net sales primarily consistincreased $1 million, or 21%, in the Second Quarter of the net sales of TBBC and our Lyons, Georgia distribution center operations. The increase in net sales was primarilyFiscal 2020 due to increased net sales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the Second Quarter of Fiscal 20192020 and the Second Quarter of Fiscal 2018,2019, as well as the change between those two periods and gross margin by operating group and in total. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be
2225
directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | | |
| Second Quarter |
| | | | | | ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Tommy Bahama | | $ | 114,526 | | $ | 115,954 | | $ | (1,428) |
| (1.2) | % | | $ | 53,586 | | $ | 114,526 | | $ | (60,940) |
| (53.2) | % |
Lilly Pulitzer | |
| 51,817 | |
| 49,082 | |
| 2,735 |
| 5.6 | % | |
| 44,053 | |
| 51,817 | |
| (7,764) |
| (15.0) | % |
Lanier Apparel | |
| 6,025 | |
| 6,345 | |
| (320) |
| (5.0) | % | |
| 1,548 | |
| 5,791 | |
| (4,243) |
| (73.3) | % |
Southern Tide | |
| 6,141 | |
| 6,095 | |
| 46 |
| 0.8 | % | |
| 2,975 | |
| 6,141 | |
| (3,166) |
| (51.6) | % |
Corporate and Other | |
| 1,316 | |
| 1,821 | |
| (505) |
| (27.7) | % | |
| 2,575 | |
| 1,550 | |
| 1,025 |
| 66.1 | % |
Total gross profit | | $ | 179,825 | | $ | 179,297 | | $ | 528 |
| 0.3 | % | ||||||||||||
Consolidated gross profit | | $ | 104,737 | | $ | 179,825 | | $ | (75,088) |
| (41.8) | % | ||||||||||||
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
LIFO adjustments in Corporate and Other | | $ | 705 | | $ | (122) | |
|
|
|
| | | $ | (388) | | $ | 705 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | | ||||||||||||
| | | | | | | |
|
|
|
| | | | | | | | |
|
|
|
| |
| | | | | | | | | | |
|
| Second Quarter | |
| Second Quarter | | ||||
| | Fiscal 2019 | | Fiscal 2018 | | | Fiscal 2020 | | Fiscal 2019 | |
Tommy Bahama |
| 60.6 | % | 60.2 | % |
| 56.3 | % | 60.6 | % |
Lilly Pulitzer |
| 68.6 | % | 68.5 | % |
| 59.6 | % | 68.6 | % |
Lanier Apparel |
| 28.8 | % | 26.6 | % |
| 18.3 | % | 28.3 | % |
Southern Tide |
| 49.3 | % | 51.8 | % |
| 33.8 | % | 49.3 | % |
Corporate and Other |
| NM |
| NM | |
| NM |
| NM | |
Consolidated gross margin |
| 59.5 | % | 59.2 | % |
| 54.6 | % | 59.5 | % |
The increasedecrease in consolidated gross profit in the Second Quarter of Fiscal 20192020 was primarily due to an improved gross margin, which offset the impact of lower net sales.sales as well as lower gross margin. The improvedlower consolidated gross margin reflects increasedlower gross margin in Tommy Bahama, Lilly Pulitzer and Lanier Appareleach operating group as well as a change indiscussed below. During the Second Quarter of Fiscal 2020, we recognized the negative impact of $3 million of inventory markdowns on lower sales, mix as wholesale sales, including Lanier Apparel sales which typically have lower gross margins, represented a lower proportion of our net sales. These favorable changes were partially offset by the net unfavorable impact ina $0.4 million LIFO accounting credit. In the Second Quarter of Fiscal 2019, we recognized a small impact of inventory markdowns and a $0.7 million LIFO accounting and the Tommy Bahama Japan inventory markdown charges incurred in the Second Quarter of Fiscal 2018. Changes in gross margin by operating group are discussed below.charge.
Tommy Bahama:
The increasedecrease in gross margin for Tommy Bahama was primarily driven by (1) lower gross margin in the full-price direct to consumer channel primarily due to a change in sales mix from retail store sales to e-commerce sales, which have a lower gross margin than retail sales, (2) increased inventory markdowns and promotional discounts in our off-price channels of distribution, (3) certain fixed asset and operating lease asset impairment charges in our Tommy Bahama sourcing operations related to the restructuring of our Tommy Bahama sourcing operations and (4) lower gross margin in the wholesale channel resulting from a change in sales mix as retail store and e-commerce sales represented a greater proportion of netwholesale sales whilewere off-price wholesale and outlet store sales represented a lower proportion of net sales and (2) the Second Quarter of Fiscal 2018 including certain Tommy Bahama Japan inventory markdown charges with no such charges in the Second Quarter of Fiscal 2019.sales.
Lilly Pulitzer:
The increasedecrease in gross margin for Lilly Pulitzer was primarily due to (1) a change in sales mix as direct to consumere-commerce flash clearance sales, which generate a gross margin of approximately 40%, and off-price wholesale sales represented a largergreater proportion of net sales, (2) increased promotions and discounting in each channel of distribution, (3) increased inventory markdowns and (4) the favorable impact of higherprior year including more gift card breakage income. These favorable items were partially offset by higher costs associated with gift with purchase and other promotion events.
Lanier Apparel:
The increasedecrease in gross margin for Lanier Apparel was primarily due to (1) an increase in inventory markdown amounts on a changelower sales volume, resulting in sales mix as a greater proportion of sales in the Second Quarter of Fiscal 2019 were related to highermore significant impact on gross margin, and (2) lower gross margin on various programs whiledue to the Second Quarter of Fiscal 2018 included more sales related to a warehouse club program.challenging market.
2326
Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to the prior year including an insurance recovery on certain(1) increased inventory markdowns and (2) more significant discounts and allowances in all channels of distribution. These items were partially offset by a change in sales mix as e-commerce and full-price wholesalewith direct to consumer sales representedrepresenting a greaterlarger proportion of net sales and off-price sales represented a lower proportionin the Second Quarter of net sales.Fiscal 2020.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects (1) the gross profit of TBBC, (2)Duck Head and the gross profit of our Lyons, Georgia distribution center and (3)as well as the impact of LIFO accounting adjustments. The primary driverdrivers for the lowerhigher gross profit waswere (1) the unfavorable$1 million net favorable impact of LIFO accounting with a LIFO accounting credit in the Second Quarter of Fiscal 2020 and a LIFO accounting charge in the Second Quarter of Fiscal 2019 compared toand (2) the Second Quarter of Fiscal 2018.gross profit resulting from higher net sales, which was partially offset by lower gross margin. 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 end.
SG&A
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
SG&A | | $ | 143,403 | | $ | 146,340 | | $ | (2,937) |
| (2.0) | % | | $ | 115,663 | | $ | 143,403 | | $ | (27,740) |
| (19.3) | % |
SG&A (as a % of net sales) | |
| 47.5 | % |
| 48.4 | % |
|
|
|
| | |
| 60.2 | % |
| 47.5 | % |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 378 | | | | | | | ||||||||||||
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | | | $ | 68 | | $ | 80 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | | | | | | | | $ | 72 | | $ | 73 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | | ||||||||||||
Tommy Bahama Japan charges | | $ | — | | $ | 590 | | | | | | |
The lower SG&A in the Second Quarter of Fiscal 20192020 was primarily due to (1) a $3decreased employment costs of $23 million reductionprimarily due to the actions taken to reduce our employment cost in response to COVID-19 including the temporary furlough of substantially all retail and restaurant employees while direct to consumer operations were closed, layoffs or pay reductions for certain employees, reductions in incentive compensation amounts and elimination of the company match for our 401(k) plan, partially offset by certain severance amounts, (2) a $4 million reduction in occupancy expenses primarily resulting from the operation of fewer Tommy Bahama and Lilly Pulitzer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (3) a $3 million decrease in certain variable expenses including credit card transaction fees, supplies and commissions, (4) a $2 million decrease in travel expenses, (5) a $1 million reduction in restructuringadvertising expenses, (6) a $1 million decrease in Tommy Bahama Japan charges, which related to charges associated with the restructure and exit of our Tommy Bahama Japan operations, with no such charges in the Second Quarter of Fiscal 2020, and (3) a $2 million reduction(7) decreases in advertising expense.other expenses including administrative and general expenses. These decreases were partially offset by (1) increases in SG&A to support the businesses, including$4 million of increased salaries and wages, occupancyestimated provisions for credit losses and other operating expenses in our ongoing directcharges related to consumerbankruptcies and wholesale operationscredit exposure with respect to multiple customers and (2) $1a $2 million of incremental SG&A associated with the operation of additional direct to consumerincrease in depreciation expense including impairment charges for certain retail store locations.
Royalties and other operating income
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Royalties and other operating income | | $ | 3,837 | | $ | 3,556 | | $ | 281 |
| 7.9 | % | | $ | 2,909 | | $ | 3,837 | | $ | (928) |
| (24.2) | % |
27
Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The increaseddecreased royalties and other income in the Second Quarter of Fiscal 2019 reflects increased2020 was primarily due to reduced royalty income in both Tommy Bahama and Lilly Pulitzer.Bahama.
24
Operating income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Tommy Bahama | | $ | 23,218 | | $ | 20,621 | | $ | 2,597 |
| 12.6 | % | | $ | (12,712) | | $ | 23,218 | | $ | (35,930) |
| NM | % |
Lilly Pulitzer | |
| 20,449 | |
| 18,421 | |
| 2,028 |
| 11.0 | % | |
| 16,264 | |
| 20,449 | |
| (4,185) |
| (20.5) | % |
Lanier Apparel | |
| 253 | |
| 825 | |
| (572) |
| (69.3) | % | |
| (6,134) | |
| 400 | |
| (6,534) |
| NM | % |
Southern Tide | |
| 1,834 | |
| 1,420 | |
| 414 |
| 29.2 | % | |
| (979) | |
| 1,834 | |
| (2,813) |
| NM | % |
Corporate and Other | |
| (5,495) | |
| (4,774) | |
| (721) |
| (15.1) | % | |
| (4,456) | |
| (5,642) | |
| 1,186 |
| 21.0 | % |
Total Operating Income | | $ | 40,259 | | $ | 36,513 | | $ | 3,746 |
| 10.3 | % | ||||||||||||
Consolidated Operating (Loss) Income | | $ | (8,017) | | $ | 40,259 | | $ | (48,276) |
| NM | % | ||||||||||||
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
LIFO adjustments in Corporate and Other | | $ | 705 | | $ | (122) | |
|
|
|
| | | $ | (388) | | $ | 705 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | | ||||||||||||
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 378 | | | | | | | ||||||||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | | | $ | 68 | | $ | 80 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | | | | | | | | $ | 72 | | $ | 73 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Tommy Bahama Japan charges | | $ | — | | $ | 590 | | | | | | |
The increase inlower operating incomeresults in the Second Quarter of Fiscal 20192020 were primarily due to the impact of COVID-19 on each operating group partially offset by improved operating results in Corporate and Other, which was primarily due to lower SG&A and an improved gross margin, each as discussed above. On an operating group basis, the increase in operating income reflects increased operating income in Tommy Bahama, Lilly Pulitzer and Southern Tide, partially offset by lower operating income in Lanier Apparel and a larger operating loss in Corporate and Other.favorable impact of LIFO accounting. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Net sales | | $ | 188,870 | | $ | 192,728 | | $ | (3,858) |
| (2.0) | % | | $ | 95,254 | | $ | 188,870 | | $ | (93,616) |
| (49.6) | % |
Gross profit | | $ | 114,526 | | $ | 115,954 | | $ | (1,428) | | (1.2) | % | | $ | 53,586 | | $ | 114,526 | | $ | (60,940) | | (53.2) | % |
Gross margin | |
| 60.6 | % |
| 60.2 | % |
|
|
|
| | |
| 56.3 | % |
| 60.6 | % |
|
|
|
| |
Operating income | | $ | 23,218 | | $ | 20,621 | | $ | 2,597 |
| 12.6 | % | ||||||||||||
Operating income as % of net sales | |
| 12.3 | % |
| 10.7 | % |
|
|
|
| | ||||||||||||
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | | ||||||||||||
Amortization of Tommy Bahama Canada intangible assets | | $ | — | ��� | $ | 378 | | | | | | | ||||||||||||
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | | ||||||||||||
| | | | | | | |
|
|
|
| | ||||||||||||
Operating (loss) income | | $ | (12,712) | | $ | 23,218 | | $ | (35,930) |
| NM | % | ||||||||||||
Operating (loss) income as % of net sales | |
| (13.3) | % |
| 12.3 | % |
|
|
|
| | ||||||||||||
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
Tommy Bahama Japan charges | | $ | — | | $ | 590 | | | | | | |
The increase inlower operating incomeresults for Tommy Bahama wasin the Second Quarter of Fiscal 2020 were primarily due to lower SG&Asales and improvedlower gross margin partially offset by lower net sales.SG&A. The lower SG&A was primarily due to (1) $17 million of lower employment costs, (2) $3 million of lower variable costs such as credit card transaction fees, commissions, shipping fees and supplies, (3) $3 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (4) a $2 million decrease in advertising expense, (5) a $1 million reduction in Tommy Bahama Japan SG&A charges, which related to charges associated with the restructure and exit of our Tommy Bahama Japan operations, with no such charges in the Second Quarter of Fiscal 2019 reflects (1) a $3 million reduction2020, and (6) decreases in restructuring charges related to the Tommy Bahama Japan operations, (2) a $2 million reduction in incentive compensation amounts,travel, general and (3) $2 million of lower advertising expense.administrative expenses. These decreases were partially offset by increased salaries and wages, occupancy and other operating expensesa $2 million increase in our ongoing operations.depreciation expense primarily consisting of fixed asset impairment charges related to certain direct to consumer locations.
2528
Lilly Pulitzer:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Net sales | | $ | 75,555 | | $ | 71,623 | | $ | 3,932 |
| 5.5 | % | | $ | 73,860 | | $ | 75,555 | | $ | (1,695) |
| (2.2) | % |
Gross profit | | $ | 51,817 | | $ | 49,082 | | $ | 2,735 | | 5.6 | % | | $ | 44,053 | | $ | 51,817 | | $ | (7,764) | | (15.0) | % |
Gross margin | |
| 68.6 | % |
| 68.5 | % |
|
|
|
| | |
| 59.6 | % |
| 68.6 | % |
|
|
|
| |
Operating income | | $ | 20,449 | | $ | 18,421 | | $ | 2,028 |
| 11.0 | % | | $ | 16,264 | | $ | 20,449 | | $ | (4,185) |
| (20.5) | % |
Operating income as % of net sales | |
| 27.1 | % |
| 25.7 | % |
|
|
|
| | |
| 22.0 | % |
| 27.1 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 80 | | $ | 93 | | | | | | | | $ | 68 | | $ | 80 | | | | | | |
The increase inlower operating income infor Lilly Pulitzer in the Second Quarter of Fiscal 2020 was primarily due to higher netlower gross margin and lower sales partially offset by lower SG&A. The lower SG&A was primarily due to (1) $4 million of lower employment costs, (2) $1 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses and (3) reductions in other expenses, including travel. These decreases in SG&A were partially offset by (1) $1 million of higher marketing expense and (2) increases in other expenses including certain variable expenses related to e-commerce sales and depreciation.
Lanier Apparel:
| | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
| ||||
| | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | |||
Net sales | | $ | 8,450 | | $ | 20,466 | | $ | (12,016) |
| (58.7) | % |
Gross profit | | $ | 1,548 | | $ | 5,791 | | $ | (4,243) | | (73.3) | % |
Gross margin | |
| 18.3 | % |
| 28.3 | % |
|
|
| | |
Operating (loss) income | | $ | (6,134) | | $ | 400 | | $ | (6,534) |
| NM | % |
Operating (loss) income as % of net sales | |
| (72.6) | % |
| 2.0 | % |
|
|
|
| |
The lower operating results for Lanier Apparel in the Second Quarter of Fiscal 2020 were due to lower sales, lower gross margin and higher SG&A. The higher SG&A for the Second Quarter of Fiscal 2019 included (1) $1was primarily due to $3 million of incremental SG&A associatedincreased estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with the cost of operating additional retail stores, and (2) SG&A increasesrespect to support the planned growth of the business, including additional employment costs.multiple Lanier Apparel customers. These increases in SG&A were partially offset by a reductionreductions in shipping and related expenses, other expenses including advertising, expense.
Lanier Apparel:
| | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Net sales | | $ | 20,905 | | $ | 23,860 | | $ | (2,955) |
| (12.4) | % |
Gross profit | | $ | 6,025 | | $ | 6,345 | | $ | (320) | | (5.0) | % |
Gross margin | |
| 28.8 | % |
| 26.6 | % |
|
|
| | |
Operating income | | $ | 253 | | $ | 825 | | $ | (572) |
| (69.3) | % |
Operating income as % of net sales | |
| 1.2 | % |
| 3.5 | % |
|
|
|
| |
The decrease in operating income for Lanier Apparel was primarily due to lower net salestravel, samples and higher SG&A, partially offset by the higher gross margin. The higher SG&A for the Second Quarter of Fiscal 2019 was primarily due to increased advertisingadministrative expenses and sales-related variable expenses.employment costs.
Southern Tide:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Net sales | | $ | 12,468 | | $ | 11,777 | | $ | 691 |
| 5.9 | % | | $ | 8,812 | | $ | 12,468 | | $ | (3,656) |
| (29.3) | % |
Gross profit | | $ | 6,141 | | $ | 6,095 | | $ | 46 | | 0.8 | % | | $ | 2,975 | | $ | 6,141 | | $ | (3,166) | | (51.6) | % |
Gross margin | |
| 49.3 | % |
| 51.8 | % |
|
|
|
| | |
| 33.8 | % |
| 49.3 | % |
|
|
|
| |
Operating income | | $ | 1,834 | | $ | 1,420 | | $ | 414 |
| 29.2 | % | ||||||||||||
Operating income as % of net sales | |
| 14.7 | % |
| 12.1 | % |
|
|
|
| | ||||||||||||
Operating (loss) income | | $ | (979) | | $ | 1,834 | | $ | (2,813) |
| NM | % | ||||||||||||
Operating (loss) income as % of net sales | |
| (11.1) | % |
| 14.7 | % |
|
|
|
| | ||||||||||||
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
Amortization of Southern Tide intangible assets | | $ | 73 | | $ | 72 | |
|
|
|
| | | $ | 72 | | $ | 73 | |
|
|
|
| |
The increase inlower operating incomeresults for Southern Tide was primarily due to higher sales and lower SG&A partially offset by lower gross margin. The lower SG&A in the Second Quarter of Fiscal 2019 was2020 were primarily due to decreased incentive compensation amountslower sales and lower gross margin partially offset by lower SG&A. Lower SG&A for employment costs, advertising and other expense reductions.operating expenses were partially offset by the increased SG&A associated with the Southern Tide retail store operations.
2629
Corporate and Other:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Net sales | | $ | 4,202 | | $ | 2,653 | | $ | 1,549 |
| 58.4 | % | | $ | 5,612 | | $ | 4,641 | | $ | 971 |
| 20.9 | % |
Gross profit | | $ | 1,316 | | $ | 1,821 | | $ | (505) | | (27.7) | % | | $ | 2,575 | | $ | 1,550 | | $ | 1,025 | | 66.1 | % |
Operating loss | | $ | (5,495) | | $ | (4,774) | | $ | (721) |
| (15.1) | % | | $ | (4,456) | | $ | (5,642) | | $ | 1,186 |
| 21.0 | % |
Notable items included in amounts above: | | | | | | | | | | | | | ||||||||||||
LIFO adjustments in Corporate and Other | | $ | 705 | | $ | (122) | |
|
|
| | | | $ | (388) | | $ | 705 | |
|
|
| | |
The largersmaller operating loss infor Corporate and Other was primarily due to the unfavorable$1 million favorable impact of LIFO accounting.accounting, as well as higher net sales and lower SG&A, which was primarily due to lower employment costs in Corporate and Other.
Interest expense, net
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
|
| Second Quarter |
| | | | |
| ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | ||||||
Interest expense, net | | $ | 419 | | $ | 602 | | $ | (183) |
| (30.4) | % | | $ | 676 | | $ | 419 | | $ | 257 |
| 61.3 | % |
InterestThe increased interest expense decreasedin the Second Quarter of Fiscal 2020 was primarily due to higher levels of debt outstanding partially offset by interest income of cash invested in money market accounts in the Second Quarter of Fiscal 2020.
Income tax (benefit) provision
| | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
| ||||
| | Fiscal 2020 |
| Fiscal 2019 | | $ Change |
| % Change | | |||
Income tax (benefit) provision | | $ | (2,606) | | $ | 10,004 | | $ | (12,610) |
| NM | % |
Effective tax rate | |
| 30.0 | % |
| 25.1 | % |
|
|
|
| |
Income taxes were a tax benefit in the Second Quarter of Fiscal 2020 resulting from an operating loss and the impact of certain items as noted below, as compared to a tax expense in the Second Quarter of Fiscal 2019 primarily due to lower average debt outstanding duringresulting from operating income. The income tax benefit in the Second Quarter of Fiscal 20192020 reflects the benefit on the operating losses including the favorable impact of the CARES Act, which provides for the carry back of our Fiscal 2020 net operating losses to pre-U.S. Tax Reform tax years, which had a federal income tax rate of 35%. This benefit was partially offset by higher interest rates and higher unused line fees.
Income taxes
| | | | | | | | | | | | |
|
| Second Quarter |
| | | | |
| ||||
| | Fiscal 2019 |
| Fiscal 2018 | | $ Change |
| % Change | | |||
Income taxes | | $ | 10,004 | | $ | 8,727 | | $ | 1,277 |
| 14.6 | % |
Effective tax rate | |
| 25.1 | % |
| 24.3 | % |
|
|
|
| |
The higher effective tax rate was primarily due to the Second Quarter of Fiscal 2018 including the impact of more significant favorablechanges in estimated book to tax timing differences and certain discrete non-deductible items.
Net earnings
| | | | | | | | | | | | |
|
| Second Quarter |
| Second Quarter | ||||||||
| | Fiscal 2019 |
| Fiscal 2018 | | Fiscal 2020 |
| Fiscal 2019 | ||||
Net sales | | $ | 302,000 | | $ | 302,641 | | $ | 191,988 | | $ | 302,000 |
Operating income | | $ | 40,259 | | $ | 36,513 | ||||||
Net earnings | | $ | 29,836 | | $ | 27,184 | ||||||
Net earnings per diluted share | | $ | 1.76 | | $ | 1.61 | ||||||
Operating (loss) income | | $ | (8,017) | | $ | 40,259 | ||||||
Net (loss) earnings | | $ | (6,087) | | $ | 29,836 | ||||||
Net (loss) earnings per diluted share | | $ | (0.37) | | $ | 1.76 | ||||||
Weighted average shares outstanding - diluted | |
| 16,907 | |
| 16,840 | |
| 16,547 | |
| 16,907 |
The highernet loss per share in the Second Quarter of Fiscal 2020 compared to positive net earnings per diluted share in the Second Quarter of Fiscal 2019 was primarily due to higherthe impact of COVID-19 on the operating income in Tommy Bahama, Lilly Pulitzerresults of each of our operating groups, including charges for estimated credit losses, inventory markdowns and Southern Tide and lower interest expense.non-current asset impairments. These improved operating resultsitems were partially offset by lowerthe improved operating income in Lanier Apparel, a larger operating lossresults in Corporate and Other, andwhich were primarily due to the favorable impact of a higher effective tax rate.LIFO accounting.
30
FIRST HALF OF FISCAL 20192020 COMPARED TO FIRST HALF OF FISCAL 20182019
The discussion and tables below compare our statements of operations for the First Half of Fiscal 20192020 to the First Half of Fiscal 2018.2019. 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.
27
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.year:
| | | | | | | | | | | | | | | | | | |
|
| First Half |
|
| | | | |
| |||||||||
| | Fiscal 2019 | | | Fiscal 2018 | | | $ Change |
| % Change | | |||||||
Net sales | | $ | 583,973 | | 100.0 | % | | $ | 575,269 |
| 100.0 | % | | $ | 8,704 | | 1.5 | % |
Cost of goods sold | |
| 238,379 |
| 40.8 | % | |
| 231,826 |
| 40.3 | % | |
| 6,553 |
| 2.8 | % |
Gross profit | | $ | 345,594 |
| 59.2 | % | | $ | 343,443 |
| 59.7 | % | | $ | 2,151 |
| 0.6 | % |
SG&A | |
| 283,217 |
| 48.5 | % | |
| 286,060 |
| 49.7 | % | |
| (2,843) |
| (1.0) | % |
Royalties and other operating income | |
| 7,624 |
| 1.3 | % | |
| 7,503 |
| 1.3 | % | |
| 121 |
| 1.6 | % |
Operating income | | $ | 70,001 |
| 12.0 | % | | $ | 64,886 |
| 11.3 | % | | $ | 5,115 |
| 7.9 | % |
Interest expense, net | |
| 1,090 |
| 0.2 | % | |
| 1,383 |
| 0.2 | % | |
| (293) |
| (21.2) | % |
Earnings before income taxes | | $ | 68,911 |
| 11.8 | % | | $ | 63,503 |
| 11.0 | % | | $ | 5,408 |
| 8.5 | % |
Income taxes | |
| 17,418 |
| 3.0 | % | |
| 15,752 |
| 2.7 | % | |
| 1,666 |
| 10.6 | % |
Net earnings | | $ | 51,493 |
| 8.8 | % | | $ | 47,751 |
| 8.3 | % | | $ | 3,742 |
| 7.8 | % |
| | | | | | | | | | | | | | | | | | |
|
| First Half |
|
| | | | |
| |||||||||
| | Fiscal 2020 | | | Fiscal 2019 | | | $ Change |
| % Change | | |||||||
Net sales | | $ | 352,331 | | 100.0 | % | | $ | 583,973 |
| 100.0 | % | | $ | (231,642) | | (39.7) | % |
Cost of goods sold | |
| 153,520 |
| 43.6 | % | |
| 238,379 |
| 40.8 | % | |
| (84,859) |
| (35.6) | % |
Gross profit | | $ | 198,811 |
| 56.4 | % | | $ | 345,594 |
| 59.2 | % | | $ | (146,783) |
| (42.5) | % |
SG&A | |
| 238,664 |
| 67.7 | % | |
| 283,217 |
| 48.5 | % | |
| (44,553) |
| (15.7) | % |
Impairment of goodwill and intangible assets | |
| 60,452 |
| 17.2 | % | |
| — |
| — | % | |
| 60,452 |
| 100.0 | % |
Royalties and other operating income | |
| 6,799 |
| 1.9 | % | |
| 7,624 |
| 1.3 | % | |
| (825) |
| (10.8) | % |
Operating (loss) income | | $ | (93,506) |
| (26.5) | % | | $ | 70,001 |
| 12.0 | % | | $ | (163,507) |
| NM | % |
Interest expense, net | |
| 1,334 |
| 0.4 | % | |
| 1,090 |
| 0.2 | % | |
| 244 |
| 22.4 | % |
(Loss) earnings before income taxes | | $ | (94,840) |
| (26.9) | % | | $ | 68,911 |
| 11.8 | % | | $ | (163,751) |
| NM | % |
Income tax (benefit) provision | |
| (21,969) |
| (6.2) | % | |
| 17,418 |
| 3.0 | % | |
| (39,387) |
| NM | % |
Net (loss) earnings | | $ | (72,871) |
| (20.7) | % | | $ | 51,493 |
| 8.8 | % | | $ | (124,364) |
| NM | % |
Net Sales
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
| | Fiscal 2019 | | Fiscal 2018 | | $ Change | | % Change | | |||
Tommy Bahama | | $ | 353,600 | | $ | 359,860 | | $ | (6,260) |
| (1.7) | % |
Lilly Pulitzer | |
| 148,150 | |
| 140,250 | |
| 7,900 |
| 5.6 | % |
Lanier Apparel | |
| 47,494 | |
| 43,769 | |
| 3,725 |
| 8.5 | % |
Southern Tide | |
| 26,602 | |
| 25,249 | |
| 1,353 |
| 5.4 | % |
Corporate and Other | |
| 8,127 | |
| 6,141 | |
| 1,986 |
| 32.3 | % |
Total net sales | | $ | 583,973 | | $ | 575,269 | | $ | 8,704 |
| 1.5 | % |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
| | Fiscal 2020 | | Fiscal 2019 | | $ Change | | % Change | | |||
Tommy Bahama | | $ | 182,238 | | $ | 353,600 | | $ | (171,362) |
| (48.5) | % |
Lilly Pulitzer | |
| 123,009 | |
| 148,150 | |
| (25,141) |
| (17.0) | % |
Lanier Apparel | |
| 19,175 | |
| 46,620 | |
| (27,445) |
| (58.9) | % |
Southern Tide | |
| 17,113 | |
| 26,602 | |
| (9,489) |
| (35.7) | % |
Corporate and Other | |
| 10,796 | |
| 9,001 | |
| 1,795 |
| 19.9 | % |
Consolidated net sales | | $ | 352,331 | | $ | 583,973 | | $ | (231,642) |
| (39.7) | % |
Consolidated net sales increased $9decreased $232 million, or 2%40%, in the First Half of Fiscal 2019.2020 primarily due to the impact of the COVID-19 pandemic, which has had a negative impact on our retail, wholesale and restaurant operations, each including the impact of temporary closures and reduced traffic after locations reopen, while our e-commerce business has generated very strong growth. The increasedecreases in consolidated net sales was primarily driven byincluded decreases in (1) a $7full-price retail sales of $137 million, or 3%65%, comparable sales increase to $296 million in the First Half of Fiscal 2019 from $289 million in the First Half of Fiscal 2018, with comparable sales increases in both Tommy Bahama and Lilly Pulitzer, (2) an incremental net sales increase of $4 million associated with non-comp retail store operations, resulting from an increase at Lilly Pulitzer, and (3) a $2 million increase in wholesale sales reflecting increases in Lilly Pulitzer, Lanier Apparelof $96 million, or 53%, (3) restaurant sales of $24 million, or 54%, and Southern Tide.(4) outlet sales of $17 million, or 57%. These increases in net salesdecreases were partially offset by (1) a $3increased e-commerce sales of $42 million, decrease in restaurantor 36%, primarily due to more demand as consumers shifted to online shopping as well as increased online marketing and promotional events, including e-commerce flash clearance sales, in Tommy Bahama and (2) a $2 million decrease in outlet store sales in Tommy Bahama.to further engage consumers. The changes in net sales by operating group are discussed below.
31
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
| | | | | | | | | | |
|
| First Half |
|
| First Half |
| ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail |
| 41 | % | 42 | % |
| 25 | % | 41 | % |
E-commerce |
| 20 | % | 19 | % |
| 45 | % | 20 | % |
Restaurant |
| 8 | % | 8 | % |
| 6 | % | 8 | % |
Wholesale |
| 31 | % | 31 | % |
| 24 | % | 31 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
Tommy Bahama:
The Tommy Bahama net sales decrease of $6decreased $171 million, or 2%49%, in the First Half of Fiscal 2019 reflects (1) a $5 million2020. The decrease in wholesalenet sales reflectingin Tommy Bahama included decreases in both(1) full-price and off-price wholesaleretail sales (2) a $3of $90 million, decrease in restaurant salesor 64%, primarily due to the net impact of certain restaurant closures, remodels and openings since the beginning of Fiscal 2018COVID-19 on retail store operations as well as lowerreduced store count, (2) wholesale sales at existingof $42 million, or 61%, (3) restaurant locationssales of $24 million, or 54%, and (3) a $2 million decrease in(4) outlet store sales due to lower sales at existing outlet stores and the net sales impact of outlet store closures.$17 million, or 57%. These decreases were partially offset by a $4increased e-commerce sales of $2 million, or 2%, increase in comparable sales to $193 million in the First Half of Fiscal 2019
28
from $189 million in the First Half of Fiscal 2018.3%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
| | | | | |
|
| First Half |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 49 | % | 49 | % |
E-commerce |
| 19 | % | 18 | % |
Restaurant |
| 13 | % | 13 | % |
Wholesale |
| 19 | % | 20 | % |
Total |
| 100 | % | 100 | % |
| | | | | |
|
| First Half |
| ||
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail |
| 35 | % | 49 | % |
E-commerce |
| 39 | % | 19 | % |
Restaurant |
| 11 | % | 13 | % |
Wholesale |
| 15 | % | 19 | % |
Total |
| 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $8decreased $25 million, or 6%17%, in the First Half of Fiscal 2019 was primarily the result of (1) an incremental2020. The decrease in net sales increasein Lilly Pulitzer included decreases in (1) retail sales of $5$47 million, associated with non-compor 68%, primarily due to the impact of COVID-19 on retail store operations including the operation of additional retail storesas well as reduced store count and increased gift card breakage income, (2) a $3 million increase in wholesale sales reflecting increases in both full-price and off-price wholesale sales and (3) a $1of $15 million, or 1%39%, due to lower full-price sales. These decreases were partially offset by increased e-commerce sales of $37 million, or 93%, with $15 million of that increase in comparableresulting from e-commerce flash clearance sales to $93 million in the First Half of Fiscal 2019 from $92 million2020 with no comparable event in the First Half of Fiscal 2018.2019. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | |
|
| First Half |
| ||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
Retail |
| 46 | % | 48 | % |
E-commerce |
| 27 | % | 26 | % |
Wholesale |
| 27 | % | 26 | % |
Total |
| 100 | % | 100 | % |
| | | | | |
|
| First Half |
| ||
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail |
| 18 | % | 46 | % |
E-commerce |
| 62 | % | 27 | % |
Wholesale |
| 20 | % | 27 | % |
Total |
| 100 | % | 100 | % |
Lanier Apparel:
The Lanier Apparel net sales increase of $4decreased $27 million, or 9%59% in the First Half of Fiscal 2020 resulting from decreases in most of the replenishment, seasonal and other programs for the branded and private label businesses. These decreases were partially offset by $3 million of sales of masks and gowns.
32
Southern Tide:
Southern Tide net sales decreased $9 million, or 36%, in the First Half of Fiscal 2019 was primarily2020 due to increased volumean $11 million, or 50%, decrease in various seasonal, in-stock and replenishment programs, including initial shipments for certain programs in the First Half of Fiscal 2019. These increases werewholesale sales partially offset by decreaseda $1 million, or 20%, increase in e-commerce 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 certain programs that had initial shipmentsincreased retail store sales after opening our first Southern Tide retail store in the First Half of Fiscal 2018. While the Cole Haan and Duck Head businesses both had significant sales growth rates in the First HalfFourth Quarter of Fiscal 2019 those business still represent a small proportion of Lanier Apparel’s net sales. We expectand our second store in the net sales at Lanier Apparel for the remainderSecond Quarter of Fiscal 2019 to grow at a more modest rate than the sales growth rate achieved for the First Half of Fiscal 2019.
Southern Tide:
The Southern Tide net sales increase of $1 million, or 5%, in the First Half of Fiscal 2019 was due to increased sales in both the wholesale and e-commerce channels of distribution, with e-commerce growing at a faster pace than wholesale sales. The increased wholesale sales reflect increased sales to department stores and Signature Stores, including those that opened in Fiscal 2018.2020. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
| | | | | | | | | | |
|
| First Half |
|
| First Half |
| ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Retail | | 3 | % | — | % | |||||
E-commerce |
| 17 | % | 16 | % |
| 32 | % | 17 | % |
Wholesale |
| 83 | % | 84 | % |
| 65 | % | 83 | % |
Total |
| 100 | % | 100 | % |
| 100 | % | 100 | % |
29
Corporate and Other:
Corporate and Other net sales primarily consistincreased $2 million, or 20%, in the First Half of the net sales of TBBC and our Lyons, Georgia distribution center operations. The increase in net sales wasFiscal 2020 primarily due to increased net sales growth in TBBC.
Gross Profit
The tables below present gross profit by operating group and in total for the First Half of Fiscal 20192020 and the First Half of Fiscal 2018,2019, as well as the change between those two periods and gross margin by operating group and in total for those periods.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 Half |
| | | | |
| ||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 218,033 | | $ | 220,244 | | $ | (2,211) |
| (1.0) | % |
Lilly Pulitzer | |
| 97,298 | |
| 94,587 | |
| 2,711 |
| 2.9 | % |
Lanier Apparel | |
| 13,427 | |
| 12,313 | |
| 1,114 |
| 9.0 | % |
Southern Tide | |
| 13,293 | |
| 12,832 | |
| 461 |
| 3.6 | % |
Corporate and Other | |
| 3,543 | |
| 3,467 | |
| 76 |
| 2.2 | % |
Total gross profit | | $ | 345,594 | | $ | 343,443 | | $ | 2,151 |
| 0.6 | % |
LIFO adjustments in Corporate and Other | | $ | 845 | | $ | 166 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
|
| First Half |
|
| First Half |
| | | | |
| ||||||
|
| Fiscal 2019 |
| Fiscal 2018 |
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Tommy Bahama |
| 61.7 | % | 61.2 | % | | $ | 105,267 | | $ | 218,033 | | $ | (112,766) |
| (51.7) | % |
Lilly Pulitzer |
| 65.7 | % | 67.4 | % | |
| 75,752 | |
| 97,298 | |
| (21,546) |
| (22.1) | % |
Lanier Apparel |
| 28.3 | % | 28.1 | % | |
| 4,395 | |
| 13,016 | |
| (8,621) |
| (66.2) | % |
Southern Tide |
| 50.0 | % | 50.8 | % | |
| 4,514 | |
| 13,293 | |
| (8,779) |
| (66.0) | % |
Corporate and Other |
| NM |
| NM | | |
| 8,883 | |
| 3,954 | |
| 4,929 |
| 124.7 | % |
Consolidated gross margin |
| 59.2 | % | 59.7 | % | ||||||||||||
Consolidated gross profit | | $ | 198,811 | | $ | 345,594 | | $ | (146,783) |
| (42.5) | % | |||||
Notable items included in amounts above: | | | | | | | | | | | | | |||||
LIFO adjustments in Corporate and Other | | $ | (3,642) | | $ | 845 | |
|
|
|
| | |||||
| | | | | | | | | | | | |
| | | | | |
|
| First Half |
| ||
|
| Fiscal 2020 |
| Fiscal 2019 |
|
Tommy Bahama |
| 57.8 | % | 61.7 | % |
Lilly Pulitzer |
| 61.6 | % | 65.7 | % |
Lanier Apparel |
| 22.9 | % | 27.9 | % |
Southern Tide |
| 26.4 | % | 50.0 | % |
Corporate and Other |
| NM |
| NM | |
Consolidated gross margin |
| 56.4 | % | 59.2 | % |
The increasedecrease in consolidated gross profit in the First Half of Fiscal 20192020 was primarily due to increased sales partially offset bythe lower gross margin.net sales. The lower consolidated gross margin was primarily due toreflects lower gross marginsmargin in Lilly Pulitzereach operating group as discussed below. During the First Half of Fiscal 2020, we recognized the negative impact of $7 million of inventory markdowns on lower sales which were partially offset by a $4 million LIFO accounting credit. In the First Half of Fiscal 2019, we recognized a small impact of inventory markdowns and a change in sales mix as Lanier Apparel sales, which typically have lower gross margins than our other businesses, represented a higher proportion$1 million LIFO accounting charge.
33
Tommy Bahama:
The increasedecrease in gross margin for Tommy Bahama was primarily driven by (1) lower gross margin in the full-price direct to consumer channel primarily due to (1) a change in sales mix withfrom retail store andsales to e-commerce sales, representingwhich have a lower gross margin than retail sales, (2) increased inventory markdowns and promotional discounts in our off-price channels of distribution, (3) certain fixed asset and operating lease asset impairment charges in our Tommy Bahama sourcing operations related to the restructuring of our Tommy Bahama sourcing operations and (4) lower gross margin in the wholesale channel resulting from a change in sales mix as a greater proportion of netwholesale sales andwere off-price wholesale and outlet store sales representing a lower proportion of net sales and (2) the First Half of Fiscal 2018 including certain Tommy Bahama Japan inventory markdown charges with no such charges in the First Half of Fiscal 2019.sales.
Lilly Pulitzer:
The decrease in gross margin for Lilly Pulitzer reflectswas primarily due to (1) a change in sales mix as e-commerce flash clearance sales, which generate a gross margin of approximately 40%, and off-price wholesale sales represented a greater proportion of wholesalenet sales, including(2) increased off-price sales, which had lower gross marginspromotions and discounting in the First Halfeach channel of Fiscal 2019,distribution and (2) higher costs associated with gift with purchase and other promotion events. These unfavorable items were partially offset by the impact of higher gift card breakage income.(3) increased inventory markdowns.
30
Lanier Apparel:
The increasedecrease in gross margin for Lanier Apparel was primarily due to (1) an increase in inventory markdown amounts on a changelower sales volume, resulting in sales mix as a greater proportion of sales in the First Half of Fiscal 2019 were related to highermore significant impact on gross margin, and (2) lower gross margin on various programs due in part to the First Half of Fiscal 2018 including more sales related to a warehouse club program.challenging market.
Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to the prior year including an insurance recovery(1) increased inventory markdowns and lower profitability on certainoff-price sales related to excess inventory and (2) more significant discounts and allowances in all channels of distribution. These items were partially offset by a change in sales mix as e-commercewith direct to consumer sales representedrepresenting a greaterlarger proportion of net sales.sales in the First Half of Fiscal 2020.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects (1) the gross profit of TBBC, (2)Duck Head and the gross profit of our Lyons, Georgia distribution center and (3)as well as the impact of LIFO accounting adjustments. The increasedprimary drivers for the higher gross profit primarily reflectswere (1) the impact of higher sales in TBBC partially offset by the unfavorable$4 million net favorable impact of LIFO accounting with a LIFO accounting credit in the First Half of Fiscal 2020 and a LIFO accounting charge in the First Half of Fiscal 2019 compared toand (2) the First Half of Fiscal 2018.gross profit resulting from the higher net sales, which was partially offset by lower gross margin. 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 end.
34
SG&A
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
SG&A | | $ | 283,217 | | $ | 286,060 | | $ | (2,843) |
| (1.0) | % |
SG&A (as a % of net sales) | |
| 48.5 | % |
| 49.7 | % |
|
|
|
| |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 763 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 160 | | $ | 188 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 145 | | $ | 144 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
SG&A | | $ | 238,664 | | $ | 283,217 | | $ | (44,553) |
| (15.7) | % |
SG&A (as a % of net sales) | |
| 67.7 | % |
| 48.5 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 136 | | $ | 160 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 144 | | $ | 145 | | | | | | |
Tommy Bahama Japan charges | | $ | — | | $ | 590 | |
|
|
|
| |
The decrease inlower SG&A in the First Half of Fiscal 20192020 was primarily due to (1) decreased employment costs of $34 million primarily due to the actions taken to reduce our employment cost in response to COVID-19, including the temporary furlough of substantially all retail and restaurant employees while direct to consumer operations were closed, layoffs or pay reductions for certain employees, reductions in incentive compensation amounts and elimination of the company match for our 401(k) plan, partially offset by certain severance amounts, (2) a $5$6 million reduction in certain variable expenses including credit card transaction fees, commissions and other variable expenses, (3) a $6 million reduction in occupancy expenses primarily resulting from the operation of fewer Tommy Bahama and Lilly Pulitzer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (4) a $3 million decrease in advertising expense, (2)travel expenses, (5) a $3$1 million reduction in restructuringadvertising expenses, (6) a $1 million decrease in Tommy Bahama Japan charges, which related to charges associated with the restructure and exit of our Tommy Bahama Japan operations, with no such charges in the First Half of Fiscal 2020 and (3) a $3 million reduction(7) decreases in incentive compensation expense.administrative and general expenses. These decreases were partially offset by (1) increases in SG&A to support the businesses, including$6 million of increased salaries and wages, occupancyestimated provisions for credit losses and other operating expenses in our ongoing directcharges related to consumerbankruptcies and wholesale operationscredit exposure with respect to multiple customers and (2) $1a $3 million increase in depreciation expense including impairment charges for certain retail locations.
Impairment of incremental SG&A associated withgoodwill and intangible assets
In the costFirst Half of operatingFiscal 2020, impairment charges for goodwill and intangible assets totaling $60 million were recognized in Southern Tide. The impairment charges for Southern Tide primarily reflect the impact of COVID-19 on the operations, plans and strategy of the Southern Tide business. In addition, a small impairment charge was recognized in Lanier Apparel related to a trademark acquired in a prior year that was not deemed recoverable. Refer to Note 1 and Note 4 in the unaudited condensed consolidated financial statements included in this report for additional retail stores and restaurants.discussion regarding the impairment charges recognized in the First Half of Fiscal 2020. There were no impairment charges for goodwill or intangible assets in the prior year period.
Royalties and other operating income
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Royalties and other operating income | | $ | 7,624 | | $ | 7,503 | | $ | 121 |
| 1.6 | % |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Royalties and other operating income | | $ | 6,799 | | $ | 7,624 | | $ | (825) |
| (10.8) | % |
Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The increase indecreased royalties and other income in the First Half of Fiscal 2019 reflects increased2020 was due to lower royalty income in both Tommy Bahama and Lilly Pulitzer.
3135
Operating income (loss)
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 38,410 | | $ | 34,924 | | $ | 3,486 |
| 10.0 | % |
Lilly Pulitzer | |
| 35,701 | |
| 34,247 | |
| 1,454 |
| 4.2 | % |
Lanier Apparel | |
| 1,435 | |
| 1,187 | |
| 248 |
| 20.9 | % |
Southern Tide | |
| 4,351 | |
| 3,907 | |
| 444 |
| 11.4 | % |
Corporate and Other | |
| (9,896) | |
| (9,379) | |
| (517) |
| (5.5) | % |
Total Operating Income | | $ | 70,001 | | $ | 64,886 | | $ | 5,115 |
| 7.9 | % |
LIFO adjustments in Corporate and Other | | $ | 845 | | $ | 166 | |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 763 | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 160 | | $ | 188 | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 145 | | $ | 144 | | | | | | |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | | | | | | |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | (36,074) | | $ | 38,410 | | $ | (74,484) |
| NM | % |
Lilly Pulitzer | |
| 20,410 | |
| 35,701 | |
| (15,291) |
| (42.8) | % |
Lanier Apparel | |
| (8,771) | |
| 1,767 | |
| (10,538) |
| NM | % |
Southern Tide | |
| (64,345) | |
| 4,351 | |
| (68,696) |
| NM | % |
Corporate and Other | |
| (4,726) | |
| (10,228) | |
| 5,502 |
| 53.8 | % |
Consolidated Operating (Loss) Income | | $ | (93,506) | | $ | 70,001 | | $ | (163,507) |
| NM | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | (3,642) | | $ | 845 | |
|
|
|
| |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 136 | | $ | 160 | | | | | | |
Lanier Apparel impairment charge | | $ | 207 | | $ | — | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 144 | | $ | 145 | | | | | | |
Southern Tide impairment charge | | $ | 60,245 | | $ | — | | | | | | |
Tommy Bahama Japan charges | | $ | — | | $ | 590 | | | | | | |
The increase inlower operating incomeresults in the First Half of Fiscal 20192020 were primarily due to (1) the impact of COVID-19 on each operating group and (2) the $60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020. These items were partially offset by improved operating results in Corporate and Other, which was primarily due to higher sales and lower SG&A partially offset by lower gross margin. On an operating group basis, the increase in operating income reflects increased operating income in each operating group and a larger operating loss in Corporate and Other.favorable impact of LIFO accounting. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 353,600 | | $ | 359,860 | | $ | (6,260) |
| (1.7) | % |
Gross profit | | $ | 218,033 | | $ | 220,244 | | $ | (2,211) | | (1.0) | % |
Gross margin | |
| 61.7 | % |
| 61.2 | % |
|
|
|
| |
Operating income | | $ | 38,410 | | $ | 34,924 | | $ | 3,486 |
| 10.0 | % |
Operating income as % of net sales | |
| 10.9 | % |
| 9.7 | % |
|
|
|
| |
Tommy Bahama Japan inventory markdown charges | | $ | — | | $ | 461 | | | | | | |
Amortization of Tommy Bahama Canada intangible assets | | $ | — | | $ | 763 | |
|
|
|
| |
Tommy Bahama Japan restructuring SG&A charges | | $ | 590 | | $ | 3,206 | |
|
|
|
| |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 182,238 | | $ | 353,600 | | $ | (171,362) |
| (48.5) | % |
Gross profit | | $ | 105,267 | | $ | 218,033 | | $ | (112,766) | | (51.7) | % |
Gross margin | |
| 57.8 | % |
| 61.7 | % |
|
|
|
| |
Operating (loss) income | | $ | (36,074) | | $ | 38,410 | | $ | (74,484) |
| NM | % |
Operating (loss) income as % of net sales | |
| (19.8) | % |
| 10.9 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Tommy Bahama Japan charges | | $ | — | | $ | 590 | |
|
|
|
| |
The increase inlower operating income inresults for Tommy Bahama wasin the First Half of Fiscal 2020 were primarily due to lower SG&Asales and higherlower gross margin partially offset by lower net sales.SG&A. The lower SG&A was primarily due to (1) $26 million of lower employment costs, (2) $5 million of lower variable costs such as credit card transaction fees, commissions, shipping fees and supplies, (3) $5 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (4) a $2 million decrease in advertising expense, (5) a $1 million decrease in travel expense, (6) a $1 million decrease in Tommy Bahama Japan charges, which related to charges associated with the restructure and exit of our Tommy Bahama Japan operations, with no such charges in the First Half of Fiscal 2019 reflects (1) a $4 million decrease2020 and (7) decreases in advertising expense, (2) a $3 million reduction in restructuring charges related to the Tommy Bahama Japan operations,other general and (3) a $2 million reduction in incentive compensation.administrative expenses. These decreases were partially offset by a $3 million increase in depreciation expense including impairment charges for certain direct to consumer locations and increased salaries and wages, occupancy and other operating expenses in our ongoing operations.provisions for credit losses.
3236
Lilly Pulitzer:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 148,150 | | $ | 140,250 | | $ | 7,900 |
| 5.6 | % |
Gross profit | | $ | 97,298 | | $ | 94,587 | | $ | 2,711 | | 2.9 | % |
Gross margin | |
| 65.7 | % |
| 67.4 | % |
|
|
| | |
Operating income | | $ | 35,701 | | $ | 34,247 | | $ | 1,454 |
| 4.2 | % |
Operating income as % of net sales | |
| 24.1 | % |
| 24.4 | % |
|
|
|
| |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 160 | | $ | 188 | | | | | | |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 123,009 | | $ | 148,150 | | $ | (25,141) |
| (17.0) | % |
Gross profit | | $ | 75,752 | | $ | 97,298 | | $ | (21,546) | | (22.1) | % |
Gross margin | |
| 61.6 | % |
| 65.7 | % |
|
|
| | |
Operating income | | $ | 20,410 | | $ | 35,701 | | $ | (15,291) |
| (42.8) | % |
Operating income as % of net sales | |
| 16.6 | % |
| 24.1 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Amortization of Lilly Pulitzer Signature Store intangible assets | | $ | 136 | | $ | 160 | | | | | | |
The increase inlower operating income infor Lilly Pulitzer in the First Half of Fiscal 2020 was primarily due to increasedlower sales and lower gross margin partially offset by lower SG&A. The lower SG&A was primarily due to (1) $5 million of lower employment costs, (2) $2 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses and (3) reductions in other expenses including travel and certain administrative expenses. These decreases in SG&A were partially offset by (1) $1 million of higher marketing expense and (2) increases in other expenses including provisions for credit losses.
Lanier Apparel:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 19,175 | | $ | 46,620 | | $ | (27,445) |
| (58.9) | % |
Gross profit | | $ | 4,395 | | $ | 13,016 | | $ | (8,621) | | (66.2) | % |
Gross margin | |
| 22.9 | % |
| 27.9 | % |
|
|
|
| |
Operating (loss) income | | $ | (8,771) | | $ | 1,767 | | $ | (10,538) |
| NM | % |
Operating (loss) income as % of net sales | |
| (45.7) | % |
| 3.8 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Lanier Apparel impairment charge | | $ | 207 | | $ | — | | | | | | |
The lower operating results for Lanier Apparel in the First Half of Fiscal 2020 were due to lower sales, lower gross margin and higher SG&A. The higher SG&A was primarily due to $4 million of increased estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple Lanier Apparel customers. These increases were partially offset by a reduction in shipping and related expenses, other expenses including advertising, travel, samples and administrative costs and employment costs.
Southern Tide:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 17,113 | | $ | 26,602 | | $ | (9,489) |
| (35.7) | % |
Gross profit | | $ | 4,514 | | $ | 13,293 | | $ | (8,779) | | (66.0) | % |
Gross margin | |
| 26.4 | % |
| 50.0 | % |
|
|
| | |
Operating (loss) income | | $ | (64,345) | | $ | 4,351 | | $ | (68,696) |
| NM | % |
Notable items included in amounts above: | | | | | | | | | | | | |
Amortization of Southern Tide intangible assets | | $ | 144 | | $ | 145 | |
|
|
|
| |
Southern Tide impairment charge | | $ | 60,245 | | $ | — | | | | | | |
The lower operating results for Southern Tide in the First Half of Fiscal 2019 included (1) $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. These increases in SG&A2020 were partially offset by a $1 million reduction in advertising expense.
Lanier Apparel:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 47,494 | | $ | 43,769 | | $ | 3,725 |
| 8.5 | % |
Gross profit | | $ | 13,427 | | $ | 12,313 | | $ | 1,114 | | 9.0 | % |
Gross margin | |
| 28.3 | % |
| 28.1 | % |
|
|
|
| |
Operating income | | $ | 1,435 | | $ | 1,187 | | $ | 248 |
| 20.9 | % |
Operating income as % of net sales | |
| 3.0 | % |
| 2.7 | % |
|
|
|
| |
The increase in operating income in Lanier Apparel was primarily due to higher sales partially offset by higher SG&A. The SG&A increasethe significant impairment charge for goodwill and intangible assets in the First HalfQuarter of Fiscal 2019 was primarily due to higher sales-related variable expenses2020 as well as increased advertising expense.
Southern Tide:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 26,602 | | $ | 25,249 | | $ | 1,353 |
| 5.4 | % |
Gross profit | | $ | 13,293 | | $ | 12,832 | | $ | 461 | | 3.6 | % |
Gross margin | |
| 50.0 | % |
| 50.8 | % |
|
|
| | |
Operating income | | $ | 4,351 | | $ | 3,907 | | $ | 444 |
| 11.4 | % |
Operating income as % of net sales | |
| 16.4 | % |
| 15.5 | % |
|
|
|
| |
Amortization of Southern Tide intangible assets | | $ | 145 | | $ | 144 | |
|
|
|
| |
The increase in operating income in Southern Tide was primarily due to higherlower sales and gross margin partially offset by lower gross margin.SG&A. Lower SG&A was comparable between periods as increasedfor employment costs, advertising expense, variable expenses associated with the higher sales and other costs to support future growth of the businessexpenses were offset by lower incentive compensation amounts.
3337
partially offset by the SG&A associated with the Southern Tide retail store operations and increased provisions for credit losses.
Corporate and Other:
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 8,127 | | $ | 6,141 | | $ | 1,986 |
| 32.3 | % |
Gross profit | | $ | 3,543 | | $ | 3,467 | | $ | 76 | | 2.2 | % |
Operating loss | | $ | (9,896) | | $ | (9,379) | | $ | (517) |
| (5.5) | % |
LIFO adjustments in Corporate and Other | | $ | 845 | | $ | 166 | |
|
|
| | |
Inventory step-up charges in Corporate and Other | | $ | — | | $ | 157 | | | | | | |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 10,796 | | $ | 9,001 | | $ | 1,795 |
| 19.9 | % |
Gross profit | | $ | 8,883 | | $ | 3,954 | | $ | 4,929 | | 124.7 | % |
Operating loss | | $ | (4,726) | | $ | (10,228) | | $ | 5,502 |
| 53.8 | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | (3,642) | | $ | 845 | |
|
|
| | |
The largersmaller operating loss infor Corporate and Other was primarily due to the unfavorable$4 million favorable impact of LIFO accounting, partially offset byas well as higher operating income of TBBC.net sales and lower SG&A, which was primarily due to lower employment costs in Corporate and Other.
Interest expense, net
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Interest expense, net | | $ | 1,090 | | $ | 1,383 | | $ | (293) |
| (21.2) | % |
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Interest expense, net | | $ | 1,334 | | $ | 1,090 | | $ | 244 |
| 22.4 | % |
InterestThe increased interest expense decreasedin the First Half of Fiscal 2020 was primarily due to higher levels of debt outstanding partially offset by interest income of cash invested in money market accounts in the First Half of Fiscal 2020.
Income tax (benefit) provision
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2020 |
| Fiscal 2019 |
| $ Change |
| % Change |
| |||
Income tax (benefit) provision | | $ | (21,969) | | $ | 17,418 | | $ | (39,387) |
| NM | % |
Effective tax rate | |
| 23.2 | % |
| 25.3 | % |
|
|
|
| |
Income taxes were a tax benefit in the First Half of Fiscal 2020 resulting from an operating loss and the impact of certain discrete and other items as noted below, as compared to a tax expense in the First Half of Fiscal 2019 primarily due to lower average debt outstanding duringresulting from operating income. The income tax benefit in the First Half of Fiscal 20192020 reflects the benefit on the operating losses including the favorable impact of the CARES Act, which provides for the carry back of our Fiscal 2020 net operating losses to pre-U.S. Tax Reform tax years, which had a federal income tax rate of 35%. This benefit was partially offset by higher interest ratescertain unfavorable items including (1) the non-deductibility of certain impairment charges, resulting in an estimated effective income tax benefit rate of approximately 17% on the impairment charges, and higher unused line fees.(2) restricted stock which vested in the period with a vesting date price lower than the grant date price.
Income taxesNet earnings
| | | | | | | | | | | | |
|
| First Half |
| | | |
| |||||
|
| Fiscal 2019 |
| Fiscal 2018 |
| $ Change |
| % Change |
| |||
Income taxes | | $ | 17,418 | | $ | 15,752 | | $ | 1,666 |
| 10.6 | % |
Effective tax rate | |
| 25.3 | % |
| 24.8 | % |
|
|
|
| |
| | | | | | |
|
| First Half | ||||
|
| Fiscal 2020 |
| Fiscal 2019 | ||
Net sales | | $ | 352,331 | | $ | 583,973 |
Operating (loss) income | | $ | (93,506) | | $ | 70,001 |
Net (loss) earnings | | $ | (72,871) | | $ | 51,493 |
Net (loss) earnings per diluted share | | $ | (4.40) | | $ | 3.05 |
Weighted average shares outstanding - diluted | |
| 16,580 | |
| 16,878 |
Both periods include the favorable benefit of certain stock awards that vested during the period andThe net loss per share in the First Half of Fiscal 2018 also includes certain other favorable discrete items. Our effective tax rate for Fiscal 2019 is expected2020 compared to be approximately 26%.
Net earnings
| | | | | | |
|
| First Half | ||||
|
| Fiscal 2019 |
| Fiscal 2018 | ||
Net sales | | $ | 583,973 | | $ | 575,269 |
Operating income | | $ | 70,001 | | $ | 64,886 |
Net earnings | | $ | 51,493 | | $ | 47,751 |
Net earnings per diluted share | | $ | 3.05 | | $ | 2.84 |
Weighted average shares outstanding - diluted | |
| 16,878 | |
| 16,804 |
The higherpositive net earnings per diluted share in the First Half of Fiscal 2019 was primarily due to higher(1) the impact of COVID-19 on the operating results of each of our operating groups including charges for estimated credit losses, inventory markdowns and non-current asset
38
impairments, (2) the $60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020 and (3) the non-deductibility of certain impairment charges resulting in a lower effective tax rate on our loss in the First Half of Fiscal 2020 than the effective tax rate on our income in each operating group and lower interest expense.the First Half of Fiscal 2019. These items were partially offset by a largerthe improved operating lossresults in Corporate and Other, and a higher effective tax rate.which were primarily due to the favorable impact of LIFO accounting.
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. We distribute our products to our customers via direct to consumer and wholesale channels of distribution. 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
34
costs, distribution costs, other general and administrative expenses and the payment of periodic interest and other payments related to our financing arrangements.
Additionally, we use cash for the funding of capital expenditures, dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay our operating expenses. Thus, we require a certain amount of working capital to operate our business.
If cash inflows are less than cash outflows, we have access to amounts under our U.S. Revolving Credit Agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities, and cash on hand.
As of August 3, 2019,1, 2020, we had $31$97 million of cash and cash equivalents on hand, nowith $65 million of borrowings outstanding and $311$257 million of unused availability under our U.S. Revolving Credit Agreement. Generally, we anticipate that excess cash, if any, will be used to repay any debt outstanding on our U.S. Revolving Credit Agreement. We believe our balance sheetU.S. Revolving Credit Agreement and anticipated futurecash and cash equivalents on hand will provide sufficient liquidity to fund operating cash flow needs and other ongoing cash requirements during the COVID-19 pandemic in Fiscal 2020 until we return to generating positive cash flow from operating activities provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives.operations.
Key Liquidity Measures
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| August 3, |
| February 2, |
| August 4, |
| February 3, |
|
| August 1, |
| February 1, |
| August 3, |
| February 2, |
| ||||||||
($ in thousands) | | 2019 | | 2019 | | 2018 | | 2018 | | | 2020 | | 2020 | | 2019 | | 2019 | | ||||||||
Total current assets | | $ | 265,044 | | $ | 269,788 | | $ | 230,095 | | $ | 236,118 | | | $ | 298,417 | | $ | 288,826 | | $ | 265,044 | | $ | 269,788 | |
Total current liabilities | | $ | 164,119 | | $ | 142,209 | | $ | 110,921 | | $ | 135,010 | | | $ | 173,701 | | $ | 177,779 | | $ | 164,119 | | $ | 142,209 | |
Working capital | | $ | 100,925 | | $ | 127,579 | | $ | 119,174 | | $ | 101,108 | | | $ | 124,716 | | $ | 111,047 | | $ | 100,925 | | $ | 127,579 | |
Working capital ratio | |
| 1.61 | |
| 1.90 | |
| 2.07 | |
| 1.75 | | |
| 1.72 | |
| 1.62 | |
| 1.61 | |
| 1.90 | |
Debt to total capital ratio | |
| — | % |
| 3 | % |
| 5 | % |
| 10 | % | |
| 13 | % |
| — | % |
| — | % |
| 3 | % |
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as of August 1, 2020, increased from August 4, 2018 to August 3, 2019 primarily due to increased inventories and increased cash balances partially offset by lower receivables and lower prepaid expenses.receivables. Current liabilities as of August 1, 2020 increased from August 3, 2019 primarily due to the impact of the revised lease accounting guidance which required the recognition of $54 million ofhigher current operating lease liabilities at August 3, 2019, as discussed in Note 5 to the unaudited condensed consolidated financial statements included in this report. Changes in current assets and current liabilities are discussed below.other accrued expenses partially offset by lower accrued compensation.
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’ equity. Debt was $65 million at August 1, 2020 and $0 million at August 3, 2019, and $25while shareholders’ equity was $432 million at August 4, 2018, while shareholders’ equity was1, 2020 and $519 million at August 3, 2019 and $467 million at August 4, 2018.2019. The decreaseincrease in debt since August 4, 20183, 2019 was primarily due to $106 millionborrowing to maintain certain amounts of cash flow from operations which was partially offset by cash payments of $31 million for capital expenditures and $24 million for dividends,on our balance sheet during the COVID-19 pandemic, resulting in $31$97 million of cash and cash equivalents on hand as of August 3, 2019.1, 2020. Additionally, the change in debt reflects the net impact of $79 million of cash flow from operations offset by cash payments of $38 million for capital expenditures and other investing activities, $21 million for dividends and $20 million for share repurchases. Shareholders’ equity increaseddecreased from August 4, 2018,3, 2019, primarily as a resultdue to net losses, dividends paid and shares
39
repurchased during the period. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, the ultimate impact of the COVID-19 pandemic and other factors. The amounts involved may be material.
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 fromas of August 4, 20181, 2020 as compared to August 3, 2019.
35
Current Assets:
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| August 3, |
| February 2, |
| August 4, |
| February 3, |
| August 1, |
| February 1, |
| August 3, |
| February 2, |
| ||||||||
| | 2019 | | 2019 | | 2018 | | 2018 | | 2020 | | 2020 | | 2019 | | 2019 | | ||||||||
Cash and cash equivalents | | $ | 30,756 | | $ | 8,327 | | $ | 7,054 | | $ | 6,343 | | $ | 97,089 | | $ | 52,460 | | $ | 30,756 | | $ | 8,327 | |
Receivables, net | |
| 59,176 | |
| 69,037 | |
| 69,724 | |
| 67,542 | |
| 28,920 | |
| 58,724 | |
| 59,176 | |
| 69,037 | |
Inventories, net | |
| 152,672 | |
| 160,656 | |
| 123,924 | |
| 126,812 | |
| 148,578 | |
| 152,229 | |
| 152,672 | |
| 160,656 | |
Prepaid expenses and other current assets | |
| 22,440 | |
| 31,768 | |
| 29,393 | |
| 35,421 | |
| 23,830 | |
| 25,413 | |
| 22,440 | |
| 31,768 | |
Total current assets | | $ | 265,044 | | $ | 269,788 | | $ | 230,095 | | $ | 236,118 | | $ | 298,417 | | $ | 288,826 | | $ | 265,044 | | $ | 269,788 | |
Cash and cash equivalents were $97 million as of August 1, 2020 compared to $31 million as of August 3, 2019 compared to $7 million as of August 4, 2018. Typical cash2019. Cash amounts maintained on an ongoing basis in our operations generally range from $5 million to $10 million at any given time if we have debt outstanding.outstanding; however, due to the uncertainty associated with the COVID-19 pandemic, we borrowed a certain amount of cash during Fiscal 2020 as a precautionary measure. Any excess cash that is generallynot used to repay any amounts outstanding under our U.S. Revolving Credit 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.
is generally invested in money market investment accounts. The decrease in receivables, net as of August 3, 20191, 2020 was primarily due to lower trade receivables resulting from lower wholesale sales induring the Second Quarterquarter, a higher provision for credit losses and increased wholesale customer allowances as of Fiscal 2019 resulting in lower trade accounts receivables and a $5 million reduction in income tax receivables reflecting the collection of certain income tax receivable amounts.August 1, 2020.
Inventories, net, which is net of a $62 million LIFO reserve in both periods, increaseddecreased as of August 3, 2019 due to increases1, 2020 as inventory decreased in inventories in each operating group to support planned sales growthLilly Pulitzer, Southern Tide and to increase baseLanier Apparel, while inventory levels in certain programs and product categories. The higher inventory levels reflect (1) increased inventory levels in Tommy Bahama including increasesincreased. Each operating group has recognized increased estimated loss provisions as of August 1, 2020 relative to August 3, 2019 for inventory expected to be sold for less than cost, which are generally reversed in certain core product categoriesCorporate and Other as part of LIFO accounting resulting in the direct to consumer operations, and (2) increased inventory in Lanier Apparel due to less inventory than optimal in the prior year for certain replenishmentCorporate and other programs. We believe that inventory levels in each operating group are appropriate to support anticipated sales.
Other. Prepaid expenses and other current assets decreasedincreased as of August 3, 20191, 2020 primarily as a result of lower prepaid rent expense due to the adoption of the revised lease accounting guidance, which resultedhigher expected inventory returns in the classification ofboth our wholesale and direct to consumer operations and prepaid rent in operating lease assets in our consolidated balance sheet, as well asinsurance, partially offset by lower prepaid advertising and other prepaid amounts.samples.
Non-current Assets:
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| August 3, |
| February 2, |
| August 4, |
| February 3, |
| August 1, |
| February 1, |
| August 3, |
| February 2, |
| ||||||||
| | 2019 | | 2019 | | 2018 | | 2018 | | 2020 | | 2020 | | 2019 | | 2019 | | ||||||||
Property and equipment, net | | $ | 189,410 | | $ | 192,576 | | $ | 195,378 | | $ | 193,533 | | $ | 180,284 | | $ | 191,517 | | $ | 189,410 | | $ | 192,576 | |
Intangible assets, net | |
| 175,591 | |
| 176,176 | |
| 177,418 | |
| 178,858 | |
| 156,739 | |
| 175,005 | |
| 175,591 | |
| 176,176 | |
Goodwill | |
| 66,585 | |
| 66,621 | |
| 66,581 | |
| 66,703 | |
| 23,866 | |
| 66,578 | |
| 66,585 | |
| 66,621 | |
Operating lease assets | | | 288,928 | | | — | | | — | | | — | | | 254,230 | | | 287,181 | | | 288,928 | | | — | |
Other non-current assets, net | |
| 24,636 | |
| 22,093 | |
| 23,918 | |
| 24,729 | |||||||||||||
Other assets, net | |
| 39,013 | |
| 24,262 | |
| 24,636 | |
| 22,093 | | ||||||||||||
Total non-current assets | | $ | 745,150 | | $ | 457,466 | | $ | 463,295 | | $ | 463,823 | | $ | 654,132 | | $ | 744,543 | | $ | 745,150 | | $ | 457,466 | |
Property and equipment, net as of August 3, 20191, 2020 decreased primarily as a result ofdue to depreciation expense during the twelve12 months ended August 3, 2019, partially offset by1, 2020, exceeding capital expenditures during the same period. The decrease in intangible assets, net and goodwill as of August 3, 20191, 2020 was primarily due to amortization of intangible assetsthe impairment charges in Southern Tide in the 12 months ended August 3, 2019. The operatingFirst Quarter of Fiscal 2020, as discussed in Note 1 and Note 4 in our unaudited condensed consolidated financial statements included in this report. Operating lease assets amount as of August 3, 2019 is a result1, 2020 decreased primarily due to the recognition of the adoption of the revised lease accounting guidance during Fiscal 2019.amortization
3640
related to existing operating leases and the termination or reduced term of certain operating leases exceeding increased operating lease assets associated with new or extended operating lease agreements that commenced during the last 12 months. The increase in other assets, net was primarily due to the balance as of August 1, 2020 including a $12 million income tax receivable associated with our Fiscal 2020 net operating losses expected to be applied against prior year income tax returns and a $3 million investment in an unconsolidated entity.
Liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| August 3, |
| February 2, |
| August 4, |
| February 3, |
| August 1, |
| February 1, |
| August 3, |
| February 2, |
| ||||||||
| | 2019 | | 2019 | | 2018 | | 2018 | | 2020 | | 2020 | | 2019 | | 2019 | | ||||||||
Total current liabilities | | $ | 164,119 | | $ | 142,209 | | $ | 110,921 | | $ | 135,010 | | $ | 173,701 | | $ | 177,779 | | $ | 164,119 | | $ | 142,209 | |
Long-term debt | |
| — | |
| 12,993 | |
| 24,936 | |
| 45,809 | |
| 65,000 | |
| — | |
| — | |
| 12,993 | |
Non-current operating lease liabilities | |
| 290,133 | |
| — | |
| — | |
| — | |||||||||||||
Other non-current liabilities | |
| 17,077 | |
| 75,286 | |
| 74,649 | |
| 74,029 | |||||||||||||
Deferred taxes | | | 19,916 | | | 18,411 | | | 15,752 | | | 15,269 | |||||||||||||
Non-current portion of operating lease liabilities | |
| 255,935 | |
| 291,886 | |
| 290,133 | |
| — | | ||||||||||||
Other liabilities | |
| 18,471 | |
| 18,566 | |
| 17,077 | |
| 75,286 | | ||||||||||||
Deferred income taxes | | | 7,892 | | | 16,540 | | | 19,916 | | | 18,411 | | ||||||||||||
Total liabilities | | $ | 491,245 | | $ | 248,899 | | $ | 226,258 | | $ | 270,117 | | $ | 520,999 | | $ | 504,771 | | $ | 491,245 | | $ | 248,899 | |
Current liabilities increased as of August 3, 20191, 2020 primarily due to the $54 millionhigher current portion of currentoperating lease liabilities, recognized as certain prior period rent amounts were withheld during the pendency of August 3, 2019, as a result of the adoption of the revised lease accounting guidance during Fiscal 2019.discussions with real property landlords, and accrued expenses and other liabilities, including higher expected direct to consumer inventory returns and other accrued expenses partially offset by lower income tax payable amounts. These increases were partially offset by lower accrued compensation, primarily due to lower incentive compensation amounts. The decreaseincrease in long-term debt since August 4, 20183, 2019 was primarily due to $106 millionus borrowing certain amounts of cash flow from operations which was partially offset byto maintain on our balance sheet during the COVID-19 pandemic. Additionally, long-term debt reflects the net impact of operating cash payments of $31 million forflows, capital expenditures, dividends and $24 million for dividends.share repurchases as discussed above.
The non-currentNon-current portion of operating lease liabilities amount as of August 3, 2019 is a result1, 2020 decreased primarily due to the payment of operating lease liabilities and reductions in liabilities related to the adoptiontermination or reduced term of certain operating leases exceeding operating lease liabilities associated with new or extended operating lease agreements that commenced in the revised lease accounting guidance during Fiscal 2019. Other non-current liabilitieslast 12 months. Deferred income taxes decreased as of August 3, 2019 primarily due to the amount as of August 4, 2018 including $61 million of deferred rent and deferred rent tenant improvement allowance liabilities which were classified as operating lease assets as of August 3, 2019, as a result of the adoption of the revised lease accounting guidance during Fiscal 2019. This reduction was partially offset by increases in amounts for deferred compensation liabilities and fair value of contingent consideration.
Deferred taxes increased as of August 3, 20191, 2020 primarily due to timing differences associated with depreciation, amortization and prepaid expensesimpairment of intangible assets and depreciation 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 Half of Fiscal 20192020 and the First Half of Fiscal 20182019 (in thousands):
| | | | | | | | | | | | | | |
| | First Half | | | First Half | | ||||||||
|
| Fiscal 2019 |
| Fiscal 2018 | |
| Fiscal 2020 |
| Fiscal 2019 | | ||||
Cash provided by operating activities | | $ | 67,267 | | $ | 57,532 | | | $ | 24,324 | | $ | 67,267 | |
Cash used in investing activities | |
| (15,976) | |
| (22,651) | | |
| (16,722) | |
| (15,976) | |
Cash used in financing activities | |
| (29,089) | |
| (33,932) | | |||||||
Cash provided by (used in) financing activities | |
| 36,955 | |
| (29,089) | | |||||||
Net change in cash and cash equivalents | | $ | 22,202 | | $ | 949 | | | $ | 44,557 | | $ | 22,202 | |
Cash and cash equivalents on hand were $31$97 million and $7$31 million at August 3, 20191, 2020 and August 4, 2018,3, 2019, respectively. Changes in cash flows in the First Half of Fiscal 20192020 and the First Half of Fiscal 20182019 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In the First Half of Fiscal 20192020 and the First Half of Fiscal 2018,2019, operating activities provided $24 million and $67 million and $58 million, respectively, of cash.cash, respectively. The cash flow from operating activities for each period was primarily the result of net earnings (loss) for the relevant period adjusted, as applicable, for non-cash activities including depreciation,
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amortization, impairment and equity-based compensation, as well as the net impact of changes in deferred taxes and our working capital accounts.operating assets and liabilities. In boththe First Half of Fiscal 2020, changes in operating assets and liabilities had a favorable impact on cash flow from operations, and in the First Half of Fiscal 2019, changes in operating assets and liabilities had an unfavorable impact on cash flow from operations.
In the First Half of Fiscal 2018, working capital account2020, the more significant changes hadin operating assets and liabilities were a decrease in receivables, which increased cash flow from operations, partially offset by an unfavorable impact onchange in other balance sheet changes, which was primarily related to the recognition of a $12 million income tax receivable associated with our Fiscal 2020 net operating losses expected to be applied against prior year income tax returns, which decreased cash flow from operations. In the First Half of Fiscal 2019, the more significant changes in working capital,operating assets and liabilities, after considering the non-cash impact of certain reclassifications that resulted from the adoption of the revised lease accounting guidance, were a decrease in current liabilities, which reduced cash flow from operations, partially offset by decreases in inventories, receivables and prepaid expenses, which increased cash flow from operations. In the First Half
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of Fiscal 2018, the more significant changes in working capital were a decrease in current liabilities, which reduced cash flow from operations, partially offset by a reduction in prepaid expenses, which increased cash flow from operations.
Investing Activities:
In the First Half of Fiscal 20192020 and the First Half of Fiscal 2018,2019, investing activities used $17 million and $16 million and $22 million, respectively, of cash. Ourcash, respectively. On an ongoing basis, our cash flow used in investing activities on an ongoing basis primarily 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. In addition to our capital expenditures, in the First Half of Fiscal 2020, we invested $3 million for a minority interest in an unconsolidated entity, which operates a branded apparel business.
Financing Activities:
In the First Half of Fiscal 20192020 and the First Half of Fiscal 2018,2019, financing activities provided $37 million and used $29 million and $34 million, respectively, of cash.cash, respectively. During the First Half of Fiscal 20192020, we increased debt in order to maintain certain cash amounts on our balance sheet during the COVID-19 pandemic as well as to fund the impact of our cash flows from operations, share repurchases, capital expenditures and dividends. In the First Half of Fiscal 2018,2019, we decreased debt and increased cash as our cash flow from operations was greater than our capital expenditures and payment of dividends.
During the First Half of Fiscal 2019 and2020, we repurchased $18 million of shares of our common stock pursuant to an open market stock repurchase program, which was suspended on March 17, 2020. During the First Half of Fiscal 2018 we paid $13 million2020 and $12 million of dividends, respectively. Also, during the First Half of Fiscal 2019, we paid $1$8 million forand $13 million in dividends, respectively. Both the paymentFirst Half of Fiscal 2020 and the First Half of Fiscal 2019 included certain amounts related to previous acquisitions includingthe issuance of equity pursuant to our employee stock purchase plan and the repurchase of equity awards for employee tax withholding liabilities resulting from the vesting of equity awards during the period. Both the First Half of Fiscal 2020 and the First Half of Fiscal 2019 included certain amounts, which are included in other financing activities, related to the payment of certain holdback and contingent consideration amounts.or other deferred acquisition payment amounts, which are included in other financing activities.
If we are in a debt position, weWe may borrow or pay down debt depending on whether our cash flow from operating activities exceeds our capital expenditures, dividend payments, acquisitions and any other investing or financing activities. Generally, we anticipate that excess cash, if any, will be used to repay any debt on our U.S. Revolving Credit Agreement.
Liquidity and Capital Resources
In July 2019, we amended the U.S. Revolving Credit Agreement by entering into the First Amendment However, due to the Fourth Amended and Restated Credit Agreementuncertainty related to (1) extend the maturityCOVID-19 pandemic, we expect to concurrently hold a certain amount of the facility to July 2024, and (2) modifycash on hand as well as a certain provisions including a reductionamount of interest rates on certain borrowings and a reduction in unused line fees. We had no amounts outstanding as of August 3, 2019debt under our U.S. Revolving Credit Agreement compared to $25in Fiscal 2020. If we have cash and cash equivalents in excess of cash required for our ongoing operations, we will generally invest the excess cash in short term money market investments.
Liquidity and Capital Resources
As of August 1, 2020, we had $97 million of cash and cash equivalents on hand, with $65 million of borrowings outstanding asand $257 million of August 4, 2018. unused availability under our U.S. Revolving Credit Agreement. We believe our U.S. Revolving Credit Agreement will provide ample liquidity to fund operating cash flow needs and other ongoing cash
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requirements during the COVID-19 pandemic in Fiscal 2020 until we return to generating positive cash flow from operations.
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 1.2% as of August 1, 2020), 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 (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 August 3, 2019, $51, 2020, $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 August 3, 2019, we had $311 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 only 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 Second Quarter of Fiscal 20192020 and as of August 3, 2019,1, 2020, 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 August 3, 2019,1, 2020, we were compliant with all applicable 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.Agreement and positive cash flows from operations in the long term. 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 the results of our operations and cash flows in the COVID-19 environment and beyond, future growth rate,rates, 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
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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.
On September 2, 2020, our Board of Directors approved a cash dividend of $0.25 per share payable on October 30, 2020 to shareholders of record as of the close of business on October 16, 2020. 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 August 3, 20191, 2020 have not changed materially from the contractual obligations outstanding at February 2, 2019,1, 2020, as disclosed in our Annual Report on Form 10-K for Fiscal 20182019 filed with the SEC, other than changes in amounts outstanding under our U.S. Revolving Credit Agreement and operating lease liabilities, as discussed above.
Our anticipated capital expenditures for Fiscal 2019,2020, including the $16$14 million incurred in the First Half of Fiscal 2019,2020, are expected to be approximately $30 million in a rangeFiscal 2020. Due to the uncertainty of $45 millionthe COVID-19 pandemic, we have deferred and/or cancelled certain capital expenditures that were originally planned for Fiscal 2020. However, we have continued with certain projects, including various direct to $50 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.consumer location openings. Our capital expenditure amounts in future years
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may increase or decrease will fluctuate 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.estimates. 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 2018.2019. There have not been any significant changes to the application of our critical accounting policies and estimates during the First Half of Fiscal 2019.
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2020. 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 2018.2019.
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 the historical operating results of 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.
2019. 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 20182019 are necessarily indicative of anticipated results for Fiscal 20192020 or expected distribution in future years. Our third quarter has historically beenyears, particularly in light of the COVID-19 pandemic impact on our smallest net sales andFiscal 2020 operating income quarter and that result is expected to continue.results.
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 2018.2019. There have not been any significantmaterial changes in our exposure to these risks during the First Half of Fiscal 2019.2020.
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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 have not been any changes in our internal control over financial reporting during the Second Quarter of Fiscal 20192020 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, employee relations matters, 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 considerThere have been no material changes to the risk factors discusseddescribed in Part I,I. Item 1A. Risk Factors in our Annual Report on Form 10-K for Fiscal 2018, which could materially affect2019, other than as set forth in Part II. Item 1A. Risk Factors in our business, financial condition or operating results.Quarterly Report on Form 10-Q for the First Quarter of Fiscal 2020. 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 2018 are not the only risks facing our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | During the Second Quarter of Fiscal |
We have certain stock incentive plans as described in Note |
InAs disclosed in our Annual Report on Form 10-K for Fiscal 2017 and subsequent annual and quarterly reports, 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 August 1, 2020, $32 million of the authorization remains available for future repurchases of our stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
| | |
3.1 |
| |
3.2 | | |
10.1 | | |
10.2 | | |
31.1 | | |
31.2 | | |
32 | | Section 906 Certification by Principal Executive Officer and Principal Financial Officer.* |
101.INS | | XRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
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.
| | |
September | 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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