not
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒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 April 30, 201629, 2017 or
☐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 1-16097
TAILORED BRANDS, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas |
| 47-4908760 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation or Organization) |
| Identification Number) |
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6380 Rogerdale Road |
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Houston, Texas |
| 77072-1624 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(281) 776-7000
(Registrant’s telephone number, including area code)
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 x.☒. No o.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x.☒. No o.☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer | (Do not check if a smaller reporting company) | Smaller reporting 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 o..Yes ☐. No x.☒.
The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 27, 20162017 was 48,646,124.49,048,248.
Part and Item No. | Page | |
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PART I — Financial Information |
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Item 1 — Condensed Consolidated Financial Statements (unaudited) |
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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 — Quantitative and Qualitative Disclosures about Market Risk |
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Forward-Looking and Cautionary Statements
Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty. Forward-looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, earnings, margins, costs, earnings, number and costs of store openings, closings, remodels, relocations and expansions, profitability, capital expenditures, potential acquisitions, synergies from acquisitions, demand for clothing or rental product, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-looking statements may be made by management orally or in writing, including, but not limited to,to; in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended.
Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in executing our internal strategies and operating plans including new store and new market expansion plans, and cost reduction initiatives;initiatives, store rationalization plans;plans, profit improvement plans;plans, revenue enhancement strategies; the impact of openingthe termination of our tuxedo shops within Macy’s stores;rental license agreement with Macy’s; changes in demand for clothing;clothing or rental product; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies; advertising or marketing activities of competitors; and legal proceedings.
Forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies and third party approvals, many of which are beyond our control. Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K for the year ended January 30, 2016,28, 2017, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. Forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, unless required to do so by law.
All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.
1
PART I – FINANCIAL INFORMATION
ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| April 30, |
| May 2, |
| January 30, |
| |||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 36,429 |
| $ | 61,802 |
| $ | 29,980 |
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Accounts receivable, net |
| 83,333 |
| 83,169 |
| 63,890 |
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Inventories |
| 1,076,733 |
| 986,457 |
| 1,022,504 |
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Other current assets |
| 77,903 |
| 165,698 |
| 143,546 |
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Total current assets |
| 1,274,398 |
| 1,297,126 |
| 1,259,920 |
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PROPERTY AND EQUIPMENT, net |
| 521,144 |
| 560,141 |
| 521,824 |
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RENTAL PRODUCT, net |
| 174,240 |
| 146,050 |
| 157,460 |
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GOODWILL |
| 121,498 |
| 893,435 |
| 118,586 |
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INTANGIBLE ASSETS, net |
| 177,826 |
| 664,935 |
| 178,510 |
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OTHER ASSETS |
| 7,715 |
| 9,764 |
| 8,019 |
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TOTAL ASSETS |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
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LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 203,248 |
| $ | 233,066 |
| $ | 237,114 |
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Accrued expenses and other current liabilities |
| 311,044 |
| 291,284 |
| 256,762 |
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Current portion of long-term debt |
| 42,451 |
| 7,000 |
| 42,451 |
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Total current liabilities |
| 556,743 |
| 531,350 |
| 536,327 |
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LONG-TERM DEBT, net |
| 1,613,192 |
| 1,647,986 |
| 1,613,473 |
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DEFERRED TAXES AND OTHER LIABILITIES |
| 197,116 |
| 412,575 |
| 194,605 |
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Total liabilities |
| 2,367,051 |
| 2,591,911 |
| 2,344,405 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS’ (DEFICIT) EQUITY: |
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Preferred stock |
| — |
| — |
| — |
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Common stock |
| 486 |
| 485 |
| 485 |
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Capital in excess of par |
| 456,107 |
| 442,743 |
| 455,765 |
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(Accumulated deficit) retained earnings |
| (535,006 | ) | 538,716 |
| (524,876 | ) | |||
Accumulated other comprehensive (loss) income |
| (11,817 | ) | 789 |
| (28,486 | ) | |||
Treasury stock, at cost |
| — |
| (3,193 | ) | (2,974 | ) | |||
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Total shareholders’ (deficit) equity |
| (90,230 | ) | 979,540 |
| (100,086 | ) | |||
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TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
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|
| April 29, |
| April 30, |
| January 28, |
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| 2017 |
| 2016 |
| 2017 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 66,580 |
| $ | 36,429 |
| $ | 70,889 |
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Accounts receivable, net |
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| 84,016 |
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| 83,333 |
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| 65,714 |
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Inventories |
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| 984,221 |
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| 1,076,733 |
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| 955,512 |
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Other current assets |
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| 69,288 |
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| 77,903 |
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| 73,602 |
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Total current assets |
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| 1,204,105 |
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| 1,274,398 |
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| 1,165,717 |
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PROPERTY AND EQUIPMENT, net |
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| 467,661 |
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| 521,144 |
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| 484,165 |
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RENTAL PRODUCT, net |
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| 147,495 |
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| 174,240 |
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| 152,610 |
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GOODWILL |
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| 117,585 |
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| 121,498 |
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| 117,026 |
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INTANGIBLE ASSETS, net |
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| 170,966 |
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| 177,826 |
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| 171,659 |
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OTHER ASSETS |
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| 6,423 |
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| 7,715 |
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| 6,695 |
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TOTAL ASSETS |
| $ | 2,114,235 |
| $ | 2,276,821 |
| $ | 2,097,872 |
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LIABILITIES AND SHAREHOLDERS' DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 171,886 |
| $ | 203,248 |
| $ | 177,380 |
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Accrued expenses and other current liabilities |
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| 303,602 |
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| 311,044 |
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| 267,899 |
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Income taxes payable |
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| 2,861 |
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| — |
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| 1,262 |
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Current portion of long-term debt |
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| 13,379 |
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| 42,451 |
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| 13,379 |
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Total current liabilities |
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| 491,728 |
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| 556,743 |
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| 459,920 |
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LONG-TERM DEBT, net |
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| 1,574,486 |
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| 1,613,192 |
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| 1,582,150 |
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DEFERRED TAXES, net AND OTHER LIABILITIES |
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| 161,600 |
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| 197,116 |
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| 163,420 |
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Total liabilities |
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| 2,227,814 |
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| 2,367,051 |
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| 2,205,490 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' DEFICIT: |
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Preferred stock |
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| — |
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| — |
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| — |
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Common stock |
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| 490 |
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| 486 |
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| 487 |
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Capital in excess of par |
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| 474,369 |
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| 456,107 |
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| 470,801 |
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Accumulated deficit |
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| (546,230) |
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| (535,006) |
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| (538,823) |
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Accumulated other comprehensive loss |
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| (42,208) |
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| (11,817) |
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| (40,083) |
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Total shareholders' deficit |
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| (113,579) |
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| (90,230) |
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| (107,618) |
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TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT |
| $ | 2,114,235 |
| $ | 2,276,821 |
| $ | 2,097,872 |
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See Notes to Condensed Consolidated Financial Statements.
2
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
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| For the Three Months Ended |
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| For the Three Months Ended |
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| April 30, 2016 |
| May 2, 2015 |
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| April 29, 2017 |
| April 30, 2016 |
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Net sales: |
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Retail clothing product |
| $ | 615,668 |
| $ | 666,862 |
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| $ | 583,585 |
| $ | 615,668 |
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Rental services |
| 99,831 |
| 103,129 |
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| 94,820 |
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| 99,831 |
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Alteration and other services |
| 50,743 |
| 54,280 |
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| 46,900 |
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| 50,743 |
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Total retail sales |
| 766,242 |
| 824,271 |
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| 725,305 |
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| 766,242 |
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Corporate apparel clothing product |
| 62,580 |
| 60,818 |
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| 57,601 |
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| 62,580 |
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Total net sales |
| 828,822 |
| 885,089 |
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| 782,906 |
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| 828,822 |
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Cost of sales: |
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Retail clothing product |
| 270,355 |
| 294,384 |
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| 252,879 |
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| 270,355 |
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Rental services |
| 15,884 |
| 16,084 |
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| 16,168 |
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| 15,884 |
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Alteration and other services |
| 36,150 |
| 36,150 |
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| 34,472 |
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| 36,150 |
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Occupancy costs |
| 110,135 |
| 113,096 |
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| 105,089 |
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| 110,135 |
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Total retail cost of sales |
| 432,524 |
| 459,714 |
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| 408,608 |
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| 432,524 |
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Corporate apparel clothing product |
| 44,457 |
| 43,823 |
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| 41,858 |
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| 44,457 |
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Total cost of sales |
| 476,981 |
| 503,537 |
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| 450,466 |
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| 476,981 |
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Gross margin: |
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Retail clothing product |
| 345,313 |
| 372,478 |
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| 330,706 |
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| 345,313 |
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Rental services |
| 83,947 |
| 87,045 |
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| 78,652 |
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| 83,947 |
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Alteration and other services |
| 14,593 |
| 18,130 |
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| 12,428 |
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| 14,593 |
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Occupancy costs |
| (110,135 | ) | (113,096 | ) |
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| (105,089) |
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| (110,135) |
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Total retail gross margin |
| 333,718 |
| 364,557 |
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| 316,697 |
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| 333,718 |
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Corporate apparel clothing product |
| 18,123 |
| 16,995 |
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| 15,743 |
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| 18,123 |
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Total gross margin |
| 351,841 |
| 381,552 |
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| 332,440 |
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| 351,841 |
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Advertising expense |
| 47,928 |
| 50,656 |
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| 42,252 |
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| 47,928 |
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Selling, general and administrative expenses |
| 272,918 |
| 275,607 |
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| 259,186 |
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| 272,918 |
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Operating income |
| 30,995 |
| 55,289 |
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| 31,002 |
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| 30,995 |
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Interest income |
| 13 |
| 28 |
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| 67 |
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| 13 |
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Interest expense |
| (26,502 | ) | (26,483 | ) |
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| (25,621) |
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| (26,502) |
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Loss on extinguishment of debt |
| — |
| (12,675 | ) | |||||||||
Gain on extinguishment of debt, net |
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| 715 |
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| — |
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Earnings before income taxes |
| 4,506 |
| 16,159 |
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| 6,163 |
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| 4,506 |
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Provision for income taxes |
| 2,869 |
| 5,790 |
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| 4,324 |
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| 2,869 |
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Net earnings |
| $ | 1,637 |
| $ | 10,369 |
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| $ | 1,839 |
| $ | 1,637 |
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Net earnings per common share allocated to common shareholders: |
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Basic |
| $ | 0.03 |
| $ | 0.22 |
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| $ | 0.04 |
| $ | 0.03 |
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Diluted |
| $ | 0.03 |
| $ | 0.21 |
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| $ | 0.04 |
| $ | 0.03 |
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Weighted-average common shares outstanding: |
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Basic |
| 48,446 |
| 48,130 |
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| 48,808 |
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| 48,446 |
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Diluted |
| 48,621 |
| 48,429 |
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| 49,151 |
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| 48,621 |
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Cash dividends declared per common share |
| $ | 0.18 |
| $ | 0.18 |
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| $ | 0.18 |
| $ | 0.18 |
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See Notes to Condensed Consolidated Financial Statements.
3
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
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| For the Three Months Ended |
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| For the Three Months Ended |
|
| April 29, |
| April 30, |
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| April 30, |
| May 2, |
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| 2017 |
| 2016 |
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Net earnings |
| $ | 1,637 |
| $ | 10,369 |
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| $ | 1,839 |
| $ | 1,637 |
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Currency translation adjustments |
| 16,429 |
| 6,086 |
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| 1,341 |
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| 16,429 |
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Unrealized gain on cash flow hedge, net of tax |
| 240 |
| 374 |
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Comprehensive income |
| $ | 18,306 |
| $ | 16,829 |
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Unrealized (loss) gain on cash flow hedges, net of tax |
|
| (3,466) |
|
| 240 |
| |||||||
Comprehensive (loss) income |
| $ | (286) |
| $ | 18,306 |
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See Notes to Condensed Consolidated Financial Statements.
4
TAILORED BRANDS,, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| For the Three Months Ended |
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| For the Three Months Ended |
|
| April 29, |
| April 30, |
| ||||||
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| April 30, |
| May 2, |
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| 2017 |
| 2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
| $ | 1,637 |
| $ | 10,369 |
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| $ | 1,839 |
| $ | 1,637 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
| 30,306 |
| 31,906 |
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| 26,426 |
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| 30,306 |
| ||
Rental product amortization |
| 8,304 |
| 7,604 |
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| 7,878 |
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| 8,304 |
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Loss on extinguishment of debt |
| — |
| 12,675 |
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Amortization of deferred financing costs |
| 1,666 |
| 1,796 |
| |||||||||
Amortization of discount on long-term debt |
| 250 |
| 340 |
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Share-based compensation |
| 4,118 |
| 4,475 |
| |||||||||
Excess tax benefits from share-based plans |
| — |
| (981 | ) | |||||||||
Gain on extinguishment of debt, net |
|
| (715) |
|
| — |
| |||||||
Amortization of deferred financing costs and discount on long-term debt |
|
| 1,849 |
|
| 1,916 |
| |||||||
Loss on disposition of assets |
| 9 |
| 424 |
|
|
| 1,437 |
|
| 9 |
| ||
Asset impairment charges |
| 1,162 |
| — |
|
|
| 2,867 |
|
| 1,162 |
| ||
Deferred tax expense |
| 3,539 |
| 7,870 |
| |||||||||
Share-based compensation |
|
| 4,735 |
|
| 4,118 |
| |||||||
Deferred tax (benefit) expense |
|
| (269) |
|
| 3,539 |
| |||||||
Deferred rent expense and other |
| 296 |
| 1,116 |
|
|
| 210 |
|
| 296 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
| (18,955 | ) | (9,629 | ) |
|
| (17,432) |
|
| (18,955) |
| ||
Inventories |
| (44,916 | ) | (44,162 | ) |
|
| (27,831) |
|
| (44,916) |
| ||
Rental product |
| (23,129 | ) | (20,204 | ) |
|
| (4,833) |
|
| (23,129) |
| ||
Other assets |
| 65,973 |
| (6,124 | ) |
|
| 3,888 |
|
| 65,973 |
| ||
Accounts payable, accrued expenses and other current liabilities |
| 17,246 |
| 51,227 |
|
|
| 32,943 |
|
| 17,246 |
| ||
Income taxes payable |
|
| 1,529 |
|
| — |
| |||||||
Other liabilities |
| (1,071 | ) | 283 |
|
|
| (1,170) |
|
| (1,071) |
| ||
|
|
|
|
|
| |||||||||
Net cash provided by operating activities |
| 46,435 |
| 48,985 |
|
|
| 33,351 |
|
| 46,435 |
| ||
|
|
|
|
|
| |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
| (30,325 | ) | (30,384 | ) |
|
| (17,786) |
|
| (30,325) |
| ||
Acquisition of business, net of cash |
|
| (457) |
|
| — |
| |||||||
Proceeds from sales of property and equipment |
| 501 |
| — |
|
|
| 12 |
|
| 501 |
| ||
|
|
|
|
|
| |||||||||
Net cash used in investing activities |
| (29,824 | ) | (30,384 | ) |
|
| (18,231) |
|
| (29,824) |
| ||
|
|
|
|
|
| |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Payments on term loan |
| (1,750 | ) | (4,500 | ) |
|
| (1,750) |
|
| (1,750) |
| ||
Proceeds from asset-based revolving credit facility |
| 204,014 |
| 3,000 |
|
|
| 137,650 |
|
| 204,014 |
| ||
Payments on asset-based revolving credit facility |
| (204,014 | ) | (3,000 | ) |
|
| (137,650) |
|
| (204,014) |
| ||
Deferred financing costs |
| — |
| (3,566 | ) | |||||||||
Repurchase and retirement of senior notes |
|
| (6,601) |
|
| — |
| |||||||
Cash dividends paid |
| (8,921 | ) | (8,863 | ) |
|
| (9,131) |
|
| (8,921) |
| ||
Proceeds from issuance of common stock |
| 434 |
| 908 |
|
|
| 467 |
|
| 434 |
| ||
Tax payments related to vested deferred stock units |
| (1,247 | ) | (4,506 | ) |
|
| (1,632) |
|
| (1,247) |
| ||
Excess tax benefits from share-based plans |
| — |
| 981 |
| |||||||||
Repurchases of common stock |
| — |
| (277 | ) | |||||||||
|
|
|
|
|
| |||||||||
Net cash used in financing activities |
| (11,484 | ) | (19,823 | ) |
|
| (18,647) |
|
| (11,484) |
| ||
|
|
|
|
|
| |||||||||
Effect of exchange rate changes |
| 1,322 |
| 763 |
|
|
| (782) |
|
| 1,322 |
| ||
|
|
|
|
|
| |||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 6,449 |
| (459 | ) | |||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
| (4,309) |
|
| 6,449 |
| |||||||
Balance at beginning of period |
| 29,980 |
| 62,261 |
|
|
| 70,889 |
|
| 29,980 |
| ||
|
|
|
|
|
| |||||||||
Balance at end of period |
| $ | 36,429 |
| $ | 61,802 |
|
| $ | 66,580 |
| $ | 36,429 |
|
See Notes to Condensed Consolidated Financial Statements.
5
1. Significant Accounting Policies
Basis of Presentation — Effective January 31, 2016, Tailored Brands, Inc., a Texas corporation (“Tailored Brands”), became the successor reporting company to The Men’s Wearhouse, Inc. (“Men’s Wearhouse”), pursuant to a holding company reorganization (the “Reorganization”). Upon completion of the Reorganization, each issued and outstanding share of common stock of Men’s Wearhouse was automatically converted into one share of common stock of Tailored Brands, having the same designations, preferences, limitations, and relative rights and corresponding obligations as the shares of common stock of Men’s Wearhouse. In addition, as part of the Reorganization, Men’s Wearhouse’s treasury shares were canceled. The consolidated assets and liabilities of Tailored Brands and its subsidiaries immediately after the Reorganization were the same as the consolidated assets and liabilities of Men’s Wearhouse immediately prior to the Reorganization.
The condensed consolidated financial statements herein include the accounts of Tailored Brands, Inc. and its subsidiaries (the “Company”) and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.
Our business results historically has been seasonal in naturehave fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 30, 2016.28, 2017.
Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to Tailored Brands, Inc. and its subsidiaries.
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.
Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, financial condition, or cash flows, based on current information, except for those listed below.
In MarchFebruary 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years with early adoption permitted. We are currently evaluating ASU 2016-09 to determine if this guidance will have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The guidance is required to be adopted using the modified retrospective approach. We are currently evaluating the impact ASU 2016-02 will have on our financial position, results of operations and cash flows but expect that it will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers,, to clarify the principles used to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year. As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The guidance allows for either a full retrospective or a modified retrospective transition method. We are continuing to evaluate our method of adoption and the impact of this guidance, including recent amendments, interpretations and interpretations,additional disclosure requirements, may have on our financial position, results of operations and cash flows.
6
2. Termination of Tuxedo Rental License Agreement with Macy’s
During the first quarter of fiscal 2017, we reached an agreement with Macy’s to wind down operations under the tuxedo rental license agreement established between Macy’s and The Men’s Wearhouse, Inc. (“The Men’s Wearhouse”) in 2015. The winding down of our tuxedo shops within Macy’s has begun and we expect all tuxedo shops within Macy’s to close by the end of the second quarter of 2017.
As a result of the agreement, we incurred $17.2 million of termination-related costs, of which $14.6 million are cash charges. These costs include $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to our retail segment. Of the $17.2 million in termination-related costs, $15.8 million is recorded in selling, general and administrative (“SG&A”) expenses and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings. At April 29, 2017, $2.3 million of such costs are included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.
3. Restructuring and Other Charges
During the fourth quarter of fiscal 2015, we began implementing initiatives intended to reduce costs and improve operating performance. These initiatives includeincluded a store rationalization program which identified approximately 250 stores to be closed as well as a profit improvement program to drive operating efficiencies and improve our expense structure. The store rationalization program includesThese programs were substantially completed in fiscal 2016 and resulted in the closure of approximately 80 to 9075 Jos. A. Bank full line stores, the closure of all56 factory and outlet stores at Jos. A. Bank and Men’s Wearhouse (58 stores) and the closure of between 100 and 110102 Men’s Wearhouse and Tux stores primarily as the result of the rollout of our shops within Macy’s stores. We expect the store rationalization and profit improvement programs to be completed in fiscal 2016.
No charges were incurred under these initiatives in the first quarter of fiscal 2017. A summary of the charges incurred in the first quarter of fiscal 2016 along with cumulative charges incurred under these initiatives since inception, all of which relate to our retail segment, is presented in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
| |
|
| For the Three Months Ended |
| |
|
| April 30, 2016 |
| |
Consulting costs |
| $ | 4,952 |
|
Severance and employee-related costs |
|
| 3,756 |
|
Store asset impairment charges and accelerated depreciation, net of deferred rent |
|
| 2,010 |
|
Lease termination costs |
|
| 1,891 |
|
Other costs |
|
| 552 |
|
Total pre-tax restructuring and other charges(1) |
| $ | 13,161 |
|
|
| For the Three |
| Cumulative |
| ||
Store asset impairment charges and accelerated depreciation |
| $ | 2,010 |
| $ | 25,156 |
|
Inventory reserve charges |
| — |
| 11,008 |
| ||
Consulting costs |
| 4,952 |
| 5,870 |
| ||
Favorable lease impairment charges |
| — |
| 5,533 |
| ||
Severance and employee-related costs |
| 3,756 |
| 3,756 |
| ||
Lease termination costs |
| 1,891 |
| 1,891 |
| ||
Other costs |
| 552 |
| 1,410 |
| ||
Total pre-tax restructuring and other charges(1) |
| $ | 13,161 |
| $ | 54,624 |
|
(1)Consists of $13.0 million included in selling, general and administrative expenses (“SG&A”)&A and $0.2 million included in cost of sales for the three months ended April 30, 2016.
As of April 30, 2016, we estimate that cumulatively pre-tax restructuring and other charges related to these actions will approximate $100.0 million to $110.0 million, of which approximately $60.0 million to $65.0 million are estimated to be cash expenses. Included in the estimatecondensed consolidated statement of earnings. Of the total pre-tax charges are approximately:
· Approximately $50.0amount recorded in the table above, $5.7 million of lease termination costs;
· $40.0relates to our retail segment and $7.5 million relates to $45.0 million of inventory and long-lived and intangible asset impairment charges relating to store closures; and
·shared services. $10.0 to $15.0 million of consulting and severance costs.
The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):
|
| Severance and |
| Lease |
| Consulting |
| Other |
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning Balance, January 30, 2016 |
| $ | — |
| $ | — |
| $ | 918 |
| $ | 858 |
| $ | 1,776 |
| ||||||||||||||||
|
| Severance and |
| Lease |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Employee- |
| Termination |
| Consulting |
| Other |
|
|
|
| ||||||||||||||||||||
|
| Related Costs |
| Costs |
| Costs |
| Costs |
| Total |
| |||||||||||||||||||||
Beginning Balance, January 28, 2017 |
| $ | 986 |
| $ | 4,834 |
| $ | 60 |
| $ | 25 |
| $ | 5,905 |
| ||||||||||||||||
Charges, excluding non-cash items |
| 3,756 |
| 1,891 |
| 4,952 |
| 552 |
| 11,151 |
|
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Payments |
| (2,367 | ) | (159 | ) | (4,630 | ) | (1,209 | ) | (8,365 | ) |
|
| (171) |
|
| (2,728) |
|
| (60) |
|
| — |
|
| (2,959) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Ending Balance, April 30, 2016 |
| $ | 1,389 |
| $ | 1,732 |
| $ | 1,240 |
| $ | 201 |
| $ | 4,562 |
| ||||||||||||||||
Ending Balance, April 29, 2017 |
| $ | 815 |
| $ | 2,106 |
| $ | — |
| $ | 25 |
| $ | 2,946 |
|
In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $3.6 million and $5.8 million for the three months ended April 30, 2016 and May 2, 2015, respectively. For the three months ended April 30, 2016,of which $3.1 million of the integration costs are included in SG&A and $0.5 million are included in cost of goods soldsales in the condensed consolidated statement of earnings. For the three months ended May 2, 2015 all such costs are included in SG&A in the condensed consolidated statement
7
3.
4. Earnings perPer Share
Basic earnings per common share allocated to common shareholders is determined using the two-class method and is computed by dividing net earnings allocated to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share reflect the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.
The following table sets forth In the computationfirst quarter of basic and2017, the treasury stock method is used to calculate diluted earnings per common share allocated to common shareholders (in thousands, except per share amounts). while the two-class method was used in the first quarter of 2016.
Basic and diluted earnings per common share allocated to common shareholders are computed using the actual net earnings allocated to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes. As a result, it may not be possible to recalculate earnings per common share allocated to common shareholders in our condensed consolidated statement of earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings per common share allocated to common shareholders (in thousands, except per share amounts):
|
|
|
|
|
|
|
| |||||||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||
|
| April 30, |
| May 2, |
|
| April 29, |
| April 30, |
| ||||
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||
Total net earnings |
| $ | 1,637 |
| $ | 10,369 |
| |||||||
Net earnings |
| $ | 1,839 |
| $ | 1,637 |
| |||||||
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
| (2 | ) | (12 | ) |
|
| — |
|
| (2) |
| ||
Net earnings allocated to common shareholders |
| $ | 1,635 |
| $ | 10,357 |
|
| $ | 1,839 |
| $ | 1,635 |
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic weighted-average common shares outstanding |
| 48,446 |
| 48,130 |
|
|
| 48,808 |
|
| 48,446 |
| ||
Dilutive effect of share-based awards |
| 175 |
| 299 |
|
|
| 343 |
|
| 175 |
| ||
Diluted weighted-average common shares outstanding |
| 48,621 |
| 48,429 |
|
|
| 49,151 |
|
| 48,621 |
| ||
Net earnings per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic |
| $ | 0.03 |
| $ | 0.22 |
|
| $ | 0.04 |
| $ | 0.03 |
|
Diluted |
| $ | 0.03 |
| $ | 0.21 |
|
| $ | 0.04 |
| $ | 0.03 |
|
For the three months ended April 29, 2017 and April 30, 2016, and May 2, 2015, 1.21.6 million and 0.31.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.
4.5. Debt
On June 18,In 2014, The Men’sMen's Wearhouse Inc. entered into a term loan credit agreement that provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Term Loan were reduced by an $11.0 million original issue discount (“OID”), which is presented as a reduction of the outstanding balance on the Term Loan on the balance sheet and will be amortized to interest expense over the contractual life of the Term Loan. In addition, on June 18,in 2014, The Men’s Wearhouse Inc. issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).
The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements and as of April 30, 2016,29, 2017, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. Currently, we believe our total leverage ratio and secured leverage ratio will move below the maximums specified in the
8
agreements during fiscal 2018, which will result in the elimination of these additional restrictions. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $35.5$4.6 million to the Term Loan lenders prior to April 29, 2016. The28, 2017. On May 2, 2017, the entire $35.5$4.6 million prepayment was made subsequent totogether with normal principal and interest payments on the end of the quarter on May 2, 2016.
TAILORED BRANDS, INC. AND SUBSIDIARIESTerm Loan.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facilities
The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature onin June 18, 2021. The interest rate on the Term Loan is based on 3-month1-month LIBOR, which was approximately 0.64%1.00% at April 30, 2016. However, the29, 2017. The Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate. In April 2017, we entered into an additional interest rate (seeswap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At April 29, 2017, the total notional amount under our interest rate swaps is $550.0 million. See Note 12).14 for additional information on our interest rate swaps.
In April 2015, The Men’sMen's Wearhouse Inc. entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan, of June 18, 2021, or collateral and guarantees under the Term Loan. In connection with the Incremental Agreement, we incurred deferred financing costs of $3.6 million, which will be amortized over the life of the remaining term using the interest method. In addition, as a result of entering into the Incremental Agreement, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.
As a result of theour interest rate swapswaps and the Incremental Agreement, we have converted a majoritysignificant portion of the variable interest rate under the Term Loan to a fixed rate and, as of April 30, 2016,29, 2017, the Term Loan had a weighted average interest rate of 4.90%5.10%.
The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature that matures onin June 18, 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%. As of April 30, 2016,29, 2017, there were no borrowings outstanding under the ABL Facility. During the three months ended April 29, 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 million.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.claims and to secure inventory purchases. At April 30, 2016,29, 2017, letters of credit totaling approximately $21.4$31.9 million were issued and outstanding. Borrowings available under the ABL Facility as of April 30, 201629, 2017 were $438.5$468.1 million.
Senior Notes
The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company’sCompany's and each guarantor’sguarantor's present and future senior indebtedness. The Senior Notes will mature onin July 1, 2022. Interest on the Senior Notes is payable onin January 1 and July 1 of each year.
9
Long-Term Debt
Long-Term DebtDuring the first quarter of 2017, we repurchased and retired $7.4 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility. As a result, we recorded a net gain on extinguishment totaling $0.7 million, which is included as a separate line in the condensed consolidated statement of earnings. The net gain on extinguishment reflects a $0.8 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.1 million related to the Senior Notes. Subsequent to the end of the first quarter of 2017, we repurchased and retired an additional $17.5 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility and subsequently repaid.
The following table provides details on our long-term debt as of April 29, 2017, April 30, 2016 May 2, 2015 and January 30, 201628, 2017 (in thousands):
|
| April 30, |
| May 2, |
| January 30, |
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
| ||||||
Term Loan (net of unamortized OID of $5.1 million at April 30, 2016, $6.1 million at May 2, 2015 and $5.4 million at January 30, 2016 |
| $ | 1,082,392 |
| $ | 1,086,634 |
| $ | 1,083,891 |
| ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| |||||||||||||
Term Loan (net of unamortized OID of $3.9 million at April 29, 2017, $5.1 million at April 30, 2016, and $4.1 million at January 28, 2017 |
| $ | 1,041,147 |
| $ | 1,082,392 |
| $ | 1,042,660 |
| ||||||||||
Senior Notes |
| 600,000 |
| 600,000 |
| 600,000 |
|
|
| 567,570 |
|
| 600,000 |
|
| 575,000 |
| |||
Less: Deferred financing costs related to the Term Loan and Senior Notes |
| (26,749 | ) | (31,648 | ) | (27,967 | ) |
|
| (20,852) |
|
| (26,749) |
|
| (22,131) |
| |||
Total long-term debt, net |
| 1,655,643 |
| 1,654,986 |
| 1,655,924 |
|
|
| 1,587,865 |
|
| 1,655,643 |
|
| 1,595,529 |
| |||
Current portion of long-term debt |
| (42,451 | ) | (7,000 | ) | (42,451 | ) |
|
| (13,379) |
|
| (42,451) |
|
| (13,379) |
| |||
Total long-term debt, net of current portion |
| $ | 1,613,192 |
| $ | 1,647,986 |
| $ | 1,613,473 |
|
| $ | 1,574,486 |
| $ | 1,613,192 |
| $ | 1,582,150 |
|
5.
6. Supplemental Cash Flows
Supplemental disclosure of cash flow information is as follows (in thousands):
|
| For the Three Months Ended |
| ||||
|
| April 30, |
| May 2, |
| ||
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 13,676 |
| $ | 25,834 |
|
Cash (refunded) paid for income taxes, net |
| $ | (60,204 | ) | $ | 5,030 |
|
Schedule of noncash investing and financing activities:
|
|
|
| ||||
Cash dividends declared |
| $ | 9,025 |
| $ | 8,764 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| April 29, |
| April 30, |
| ||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 16,389 |
| $ | 13,676 |
|
Cash paid (refunded) for income taxes, net |
| $ | 1,483 |
| $ | (60,204) |
|
|
|
|
|
|
|
|
|
Schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
Cash dividends declared |
| $ | 9,246 |
| $ | 8,796 |
|
We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $9.9$7.1 million and $11.0$9.9 million at April 29, 2017 and April 30, 2016, and May 2, 2015, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.
6.7. Inventories
The following table provides details on our inventories as of April 29, 2017, April 30, 2016 May 2, 2015 and January 30, 201628, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| April 29, |
| April 30, |
| January 28, |
| |||||||||||||
|
| April 30, |
| May 2, |
| January 30, |
|
| 2017 |
| 2016 |
| 2017 |
| ||||||
Finished goods |
| $ | 1,018,401 |
| $ | 952,116 |
| $ | 919,623 |
|
| $ | 915,065 |
| $ | 1,018,401 |
| $ | 846,585 |
|
Raw materials and merchandise components |
| 58,332 |
| 34,341 |
| 102,881 |
|
|
| 69,156 |
|
| 58,332 |
|
| 108,927 |
| |||
|
|
|
|
|
|
|
| |||||||||||||
Total inventories |
| $ | 1,076,733 |
| $ | 986,457 |
| $ | 1,022,504 |
|
| $ | 984,221 |
| $ | 1,076,733 |
| $ | 955,512 |
|
10
8. Income Taxes
Our effective income tax rate increased to 70.2% for the first quarter of 2017 from 63.7% for the first quarter of 2016 from 35.8%2016. Our effective income tax rate for the first quarter of 20152017 is higher than the United States (“U.S”) statutory rate as well as the effective income tax rate for the first quarter of 2016 primarily dueas a result of $2.2 million of tax deficiencies related to low U.S. book income and the impactvesting of non-recurring true-up itemsstock-based awards recorded in the first quarter of 2016.
TAILORED BRANDS, INC. AND SUBSIDIARIES2017 resulting from the adoption of new accounting guidance related to stock-based compensation. See Note 11 for additional information.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)Additionally, we are currently undergoing several federal, foreign and state audits, however, we currently do not believe these audits will result in any material charge to tax expense in the future.
8.9. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| April 30, |
| May 2, |
| January 30, |
|
| April 29, |
| April 30, |
| January 28, |
| ||||||
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2017 |
| ||||||
Prepaid expenses |
| $ | 41,995 |
| $ | 39,974 |
| $ | 42,166 |
|
| $ | 44,584 |
| $ | 46,245 |
| $ | 47,057 |
|
Tax receivable |
| 22,561 |
| 86,761 |
| 85,153 |
|
|
| 14,055 |
|
| 22,561 |
|
| 15,794 |
| |||
Current deferred tax assets |
| — |
| 23,631 |
| — |
| |||||||||||||
Other |
| 13,347 |
| 15,332 |
| 16,227 |
|
|
| 10,649 |
|
| 9,097 |
|
| 10,751 |
| |||
Total other current assets |
| $ | 77,903 |
| $ | 165,698 |
| $ | 143,546 |
|
| $ | 69,288 |
| $ | 77,903 |
| $ | 73,602 |
|
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| April 29, |
| April 30, |
| January 28, |
| |||||||||||||
|
| April 30, |
| May 2, |
| January 30, |
|
| 2017 |
| 2016 |
| 2017 |
| ||||||
Customer deposits, prepayments and refunds payable |
| $ | 67,497 |
| $ | 59,830 |
| $ | 25,218 |
|
| $ | 72,411 |
| $ | 67,497 |
| $ | 28,384 |
|
Accrued salary, bonus, sabbatical, vacation and other benefits |
| 63,774 |
| 69,922 |
| 75,373 |
|
|
| 58,373 |
|
| 63,774 |
|
| 72,589 |
| |||
Unredeemed gift cards |
|
| 37,434 |
|
| 37,712 |
|
| 40,865 |
| ||||||||||
Sales, value added, payroll, property and other taxes payable |
| 40,917 |
| 37,527 |
| 27,505 |
|
|
| 36,878 |
|
| 40,917 |
|
| 31,188 |
| |||
Unredeemed gift certificates |
| 37,712 |
| 37,071 |
| 40,884 |
| |||||||||||||
Accrued workers compensation and medical costs |
| 29,145 |
| 28,816 |
| 30,877 |
|
|
| 27,194 |
|
| 29,145 |
|
| 31,609 |
| |||
Accrued interest |
| 27,134 |
| 14,161 |
| 16,282 |
|
|
| 22,871 |
|
| 27,134 |
|
| 15,457 |
| |||
Accrued dividends |
|
| 9,957 |
|
| 9,025 |
|
| 9,842 |
| ||||||||||
Loyalty program reward certificates |
| 10,076 |
| 7,293 |
| 9,215 |
|
|
| 8,720 |
|
| 10,076 |
|
| 9,840 |
| |||
Cash dividends declared |
| 9,025 |
| 8,764 |
| 9,150 |
| |||||||||||||
Lease termination and other store closure costs |
|
| 4,106 |
|
| 1,732 |
|
| 4,834 |
| ||||||||||
Accrued royalties |
| 2,167 |
| — |
| 3,727 |
|
|
| 1,806 |
|
| 2,167 |
|
| 3,720 |
| |||
Accrued strategic professional fees |
| 325 |
| 4,888 |
| 737 |
| |||||||||||||
Other |
| 23,272 |
| 23,012 |
| 17,794 |
|
|
| 23,852 |
|
| 21,865 |
|
| 19,571 |
| |||
|
|
|
|
|
|
|
| |||||||||||||
Total accrued expenses and other current liabilities |
| $ | 311,044 |
| $ | 291,284 |
| $ | 256,762 |
|
| $ | 303,602 |
| $ | 311,044 |
| $ | 267,899 |
|
Deferred taxes, net and other liabilities consist of the following (in thousands):
|
| April 30, |
| May 2, |
| January 30, |
|
|
|
|
|
|
|
|
|
|
| |||
Deferred and other income tax liabilities |
| $ | 116,115 |
| $ | 331,728 |
| $ | 112,469 |
| ||||||||||
|
| April 29, |
| April 30, |
| January 28, |
| |||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| |||||||||||||
Deferred and other income tax liabilities, net |
| $ | 90,772 |
| $ | 116,115 |
| $ | 92,079 |
| ||||||||||
Deferred rent and landlord incentives |
| 66,192 |
| 62,737 |
| 66,075 |
|
|
| 60,542 |
|
| 66,192 |
|
| 61,215 |
| |||
Unfavorable lease liabilities |
| 7,465 |
| 11,062 |
| 8,279 |
|
|
| 4,224 |
|
| 7,465 |
|
| 4,693 |
| |||
Other |
| 7,344 |
| 7,048 |
| 7,782 |
|
|
| 6,062 |
|
| 7,344 |
|
| 5,433 |
| |||
Total deferred taxes and other liabilities |
| $ | 197,116 |
| $ | 412,575 |
| $ | 194,605 |
| ||||||||||
Total deferred taxes, net and other liabilities |
| $ | 161,600 |
| $ | 197,116 |
| $ | 163,420 |
|
11
9.
10. Accumulated Other Comprehensive (Loss) Income
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 29, 2017 (in thousands and net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Cash Flow |
| Pension |
|
|
|
| |||
|
| Translation |
| Hedges |
| Plan |
| Total |
| ||||
BALANCE— January 28, 2017 |
|
| (40,205) |
|
| (82) |
|
| 204 |
|
| (40,083) |
|
Other comprehensive income (loss) before reclassifications |
|
| 1,341 |
|
| (3,926) |
|
| — |
|
| (2,585) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 460 |
|
| — |
|
| 460 |
|
Net current-period other comprehensive income (loss) |
|
| 1,341 |
|
| (3,466) |
|
| — |
|
| (2,125) |
|
BALANCE— April 29, 2017 |
| $ | (38,864) |
| $ | (3,548) |
| $ | 204 |
| $ | (42,208) |
|
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 30, 2016 (in thousands and net of tax):
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — January 30, 2016 |
| $ | (26,659 | ) | $ | (2,007 | ) | $ | 180 |
| $ | (28,486 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss) before reclassifications |
| 16,429 |
| (125 | ) | — |
| 16,304 |
| ||||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| 365 |
| — |
| 365 |
| ||||
Net current-period other comprehensive income |
| 16,429 |
| 240 |
| — |
| 16,669 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — April 30, 2016 |
| $ | (10,230 | ) | $ | (1,767 | ) | $ | 180 |
| $ | (11,817 | ) |
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended May 2, 2015 (in thousands and net of tax):
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — January 31, 2015 |
| $ | (4,232 | ) | $ | (1,665 | ) | $ | 226 |
| $ | (5,671 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss) before reclassifications |
| 6,086 |
| (34 | ) | — |
| 6,052 |
| ||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| 408 |
| — |
| 408 |
| ||||
Net current-period other comprehensive income |
| 6,086 |
| 374 |
| — |
| 6,460 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — May 2, 2015 |
| $ | 1,854 |
| $ | (1,291 | ) | $ | 226 |
| $ | 789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Cash Flow |
| Pension |
|
|
|
| |||
|
| Translation |
| Hedges |
| Plan |
| Total |
| ||||
BALANCE— January 30, 2016 |
| $ | (26,659) |
| $ | (2,007) |
| $ | 180 |
| $ | (28,486) |
|
Other comprehensive income (loss) before reclassifications |
|
| 16,429 |
|
| (125) |
|
| — |
|
| 16,304 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 365 |
|
| — |
|
| 365 |
|
Net current-period other comprehensive income |
|
| 16,429 |
|
| 240 |
|
| — |
|
| 16,669 |
|
BALANCE— April 30, 2016 |
| $ | (10,230) |
| $ | (1,767) |
| $ | 180 |
| $ | (11,817) |
|
Amounts reclassified from other comprehensive (loss) income for the three months ended April 30, 2016 and May 2, 2015, respectively,29, 2017 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of earnings and changes in the fair value of cash flow hedges related to inventory purchases, which is recorded within cost of sales in the condensed consolidated statement of earnings. Amounts reclassified from other comprehensive (loss) income for the three months ended April 30, 2016 relate to changes in the fair value of our interest rate swap, which is recorded within interest expense in the condensed consolidated statement of earnings.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.11. Share-Based Compensation Plans
For a discussion of our share-based compensation plans, refer to Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017.
We accountDuring the first quarter of fiscal 2017, we adopted ASU No. 2016-09, Compensation-Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based awards in accordance with the authoritative guidance regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions, be recognized including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The recognition of excess tax benefits and deficiencies related to the vesting of stock-based awards in the statement of earnings and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. See Note 8 for additional information. In addition, upon adoption, we did not change our policy on accounting for forfeitures, which is to estimate the number of awards expected to be forfeited and adjusting the estimate as needed. Overall, the adoption of ASU 2016-09 did not have a material impact on our financial statements.
The amount of share-based compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period. Share-based compensation expense recognized for the three months ended April 29, 2017 and April 30, 2016 was $4.7 million and May 2, 2015 was $4.1 million, and $4.5 million, respectively.
12
Non-Vested Deferred Stock Units, Performance Units and Restricted Stock
The following table summarizes the activity of time-based and performance-based (collectively, “DSUs”) awards for the three months ended April 30, 2016:29, 2017:
|
| Units |
| Weighted-Average |
| ||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||
Non-Vested at January 30, 2016 |
| 478,106 |
| 168,656 |
| $ | 49.60 |
| $ | 47.87 |
|
Granted |
| 705,636 |
| 258,168 |
| 17.43 |
| 17.43 |
| ||
Vested (1) |
| (214,585 | ) | — |
| 49.26 |
| — |
| ||
Forfeited |
| (11,804 | ) | (59,943 | ) | 51.92 |
| 33.72 |
| ||
Non-Vested at April 30, 2016 |
| 957,353 |
| 366,881 |
| $ | 25.94 |
| $ | 28.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| ||||
|
| Units |
| Grant-Date Fair Value |
| ||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||
|
| Based |
| Based |
| Based |
| Based |
| ||
Non-Vested at January 28, 2017 |
| 1,061,965 |
| 523,948 |
| $ | 24.31 |
| $ | 28.28 |
|
Granted |
| — |
| — |
|
| — |
|
| — |
|
Vested(1) |
| (350,291) |
| — |
|
| 29.40 |
|
| — |
|
Forfeited |
| (11,596) |
| (737) |
|
| 23.76 |
|
| 54.26 |
|
Non-Vested at April 29, 2017 |
| 700,078 |
| 523,211 |
| $ | 21.77 |
| $ | 28.24 |
|
The following table summarizes the activity of restricted stock for the three months ended April 30, 2016:29, 2017:
|
| Shares |
| Weighted- |
|
|
|
|
|
|
| |
Non-Vested at January 30, 2016 |
| 33,157 |
| $ | 27.93 |
| ||||||
|
|
|
| Weighted- |
| |||||||
|
| Shares |
| Grant-Date |
| |||||||
Non-Vested at January 28, 2017 |
| 36,878 |
| $ | 15.56 |
| ||||||
Granted |
| 18,646 |
| 17.37 |
|
| — |
|
| — |
| |
Vested |
| — |
| — |
|
| (36,878) |
|
| 15.56 |
| |
Forfeited |
| — |
| — |
|
| — |
|
| — |
| |
Non-Vested at April 30, 2016 |
| 51,803 |
| $ | 24.13 |
| ||||||
Non-Vested at April 29, 2017 |
| — |
| $ | — |
|
Restricted stock awards receive non-forfeitable dividends, if any, when and if paid to shareholders of record at the payment date.
As of April 30, 2016,29, 2017, we have unrecognized compensation expense related to non-vested DSUs performance units, and shares of restricted stock of approximately $29.3$18.5 million, which is expected to be recognized over a weighted-average period of 1.81.5 years.
Stock Options
The following table summarizes the activity of stock options for the three months ended April 30, 2016:29, 2017:
|
| Shares |
| Weighted- |
| |
Outstanding at January 30, 2016 |
| 681,117 |
| $ | 39.65 |
|
Granted |
| 593,509 |
| 17.43 |
| |
Exercised |
| — |
| — |
| |
Forfeited |
| (3,051 | ) | 48.31 |
| |
Expired |
| — |
| — |
| |
Outstanding at April 30, 2016 |
| 1,271,575 |
| $ | 29.26 |
|
Exercisable at April 30, 2016 |
| 442,155 |
| $ | 36.55 |
|
The weighted-average grant date fair value of the 593,509 stock options granted during the three months ended April 30, 2016 was $5.18 per share. The following table summarizes the weighted-average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the three months ended April 30, 2016:
| |||
| |||
|
|
| |
|
| ||
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
| |
|
| Number of |
| Average |
| |
|
| Shares |
| Exercise Price |
| |
Outstanding at January 28, 2017 |
| 1,194,690 |
| $ | 29.70 |
|
Granted |
| — |
|
| — |
|
Exercised |
| — |
|
| — |
|
Forfeited |
| (1,553) |
|
| 52.27 |
|
Expired |
| (40,243) |
|
| 41.23 |
|
Outstanding at April 29, 2017 |
| 1,152,894 |
| $ | 29.27 |
|
Exercisable at April 29, 2017 |
| 716,137 |
| $ | 33.34 |
|
As of April 30, 2016,29, 2017, we have unrecognized compensation expense related to non-vested stock options of approximately $5.9$2.7 million, which is expected to be recognized over a weighted-average period of 1.61.3 years.
13
11.
12. Goodwill and Other Intangible Assets
Goodwill
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the three months ended April 30, 201629, 2017 are as follows (in thousands):
|
| Retail |
| Corporate |
| Total |
| |||
Balance at January 30, 2016 |
| $ | 93,201 |
| $ | 25,385 |
| $ | 118,586 |
|
Translation adjustment |
| 2,303 |
| 609 |
| 2,912 |
| |||
Balance at April 30, 2016 |
| $ | 95,504 |
| $ | 25,994 |
| $ | 121,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate |
|
|
|
| |
|
| Retail |
| Apparel |
| Total |
| |||
Balance at January 28, 2017 |
| $ | 94,511 |
| $ | 22,515 |
| $ | 117,026 |
|
Goodwill of acquired business |
|
| — |
|
| 695 |
|
| 695 |
|
Translation adjustment |
|
| (811) |
|
| 675 |
|
| (136) |
|
Balance at April 29, 2017 |
| $ | 93,700 |
| $ | 23,885 |
| $ | 117,585 |
|
The goodwill of acquired business resulted from an immaterial acquisition by our United Kingdom (“UK”) based operations. Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock. No additional impairment evaluation was considered necessary during the first three months ended April 30, 2016.29, 2017.
Intangible Assets
The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| April 29, |
| April 30, |
| January 28, |
| |||||||||||||
|
| April 30, |
| May 2, |
| January 30, |
|
| 2017 |
| 2016 |
| 2017 |
| ||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Trademarks and tradenames |
| $ | 16,361 |
| $ | 16,464 |
| $ | 16,292 |
| ||||||||||
Trademarks, tradenames and franchise agreements |
| $ | 16,040 |
| $ | 16,361 |
| $ | 15,966 |
| ||||||||||
Favorable leases |
| 14,562 |
| 24,400 |
| 14,675 |
|
|
| 13,679 |
|
| 14,562 |
|
| 13,826 |
| |||
Customer relationships |
| 29,661 |
| 84,960 |
| 29,129 |
|
|
| 26,268 |
|
| 29,661 |
|
| 25,483 |
| |||
Total carrying amount |
| 60,584 |
| 125,824 |
| 60,096 |
|
|
| 55,987 |
|
| 60,584 |
|
| 55,275 |
| |||
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Trademarks and tradenames |
| (9,857 | ) | (9,445 | ) | (9,728 | ) | |||||||||||||
Trademarks, tradenames and franchise agreements |
|
| (10,183) |
|
| (9,857) |
|
| (10,055) |
| ||||||||||
Favorable leases |
| (3,057 | ) | (2,636 | ) | (2,739 | ) |
|
| (4,297) |
|
| (3,057) |
|
| (3,961) |
| |||
Customer relationships |
| (14,213 | ) | (19,120 | ) | (13,459 | ) |
|
| (14,776) |
|
| (14,213) |
|
| (13,804) |
| |||
Total accumulated amortization |
| (27,127 | ) | (31,201 | ) | (25,926 | ) |
|
| (29,256) |
|
| (27,127) |
|
| (27,820) |
| |||
Total amortizable intangible assets, net |
| 33,457 |
| 94,623 |
| 34,170 |
|
|
| 26,731 |
|
| 33,457 |
|
| 27,455 |
| |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Trademarks and tradename, net |
| 144,369 |
| 570,312 |
| 144,340 |
| |||||||||||||
Trademarks and tradename |
|
| 144,235 |
|
| 144,369 |
|
| 144,204 |
| ||||||||||
Total intangible assets, net |
| $ | 177,826 |
| $ | 664,935 |
| $ | 178,510 |
|
| $ | 170,966 |
| $ | 177,826 |
| $ | 171,659 |
|
Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.3$1.0 million and $3.4$1.3 million for the three months ended April 29, 2017 and April 30, 2016, and May 2, 2015, respectively. Pre-tax amortization associated with intangible assets subject to amortization at April 30, 201629, 2017 is estimated to be $3.4$3.0 million for the remainder of fiscal 2016, $4.4 million for fiscal 2017, $4.1$3.7 million for fiscal 2018, $3.9$3.5 million for fiscal 2019, and $3.8$3.4 million for fiscal 2020.2020 and $3.3 million for fiscal 2021.
12. Derivative Financial Instruments
14
Over the next 12 months, $2.1 million of the effective portion of the interest rate swap is expected to be reclassified from accumulated other comprehensive (loss) income into earnings. If, at any time, the interest rate swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.
13. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date |
|
|
|
| |||||||
|
| Using |
|
|
|
| |||||||
|
| Quoted Prices |
|
|
|
|
|
|
|
|
|
| |
|
| in Active |
| Significant |
|
|
|
|
|
|
| ||
|
| Markets for |
| Other |
| Significant |
|
|
|
| |||
|
| Identical |
| Observable |
| Unobservable |
|
|
|
| |||
|
| Instruments |
| Inputs |
| Inputs |
|
|
|
| |||
(in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
April 29, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 937 |
| $ | — |
| $ | 937 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 5,293 |
| $ | — |
| $ | 5,293 |
|
January 28, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 460 |
| $ | — |
| $ | 460 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 2,413 |
| $ | — |
| $ | 2,413 |
|
April 30, 2016— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 9 |
| $ | — |
| $ | 9 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| $ | — |
| $ | 3,295 |
| $ | — |
| $ | 3,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments are comprised of (1) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity’s functional currency, (2) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted revenues from our UK operations denominated in a currency different from the UK’s functional currency and (3) interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness. These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs. Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets. See Note 14 for further information regarding our derivative instruments.
15
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.
During the three months ended April 29, 2017, we incurred $2.9 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, primarily related to underperforming stores as well as long-lived assets related to our tuxedo rental license agreement with Macy’s. We estimated the fair value of the long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions, which we classify as Level 3 within the fair value hierarchy.
Fair Value of Financial Instruments
Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. Management estimates that, as of April 29, 2017, April 30, 2016, May 2, 2015, and January 30, 2016,28, 2017, the carrying value of cash, accounts receivable, accounts payable and accrued expenses andour financial instruments other current liabilitiesthan long-term debt approximated their fair value due to the highly liquid or short-term nature of these instruments.
The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy. Beginning in June 2015, theThe fair value of our Senior Notes is based on quoted prices in active markets, which we classify as a Level 1 input within the fair value hierarchy. In prior periods, the fair value of our Senior Notes was based on trading data in active markets, which we classified as a Level 2 input within the fair value hierarchy. The table below shows the fair value and carrying value of our long-term debt, including current portion (in thousands):
|
| April 30, 2016 |
| May 2, 2015 |
| January 30, 2016 |
| ||||||||||||
|
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term debt, including current portion |
| $ | 1,655,643 |
| $ | 1,583,132 |
| $ | 1,654,986 |
| $ | 1,737,050 |
| $ | 1,655,924 |
| $ | 1,410,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, 2017 |
| April 30, 2016 |
| January 28, 2017 |
| ||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||||
|
| Amount(1) |
| Fair Value |
| Amount(1) |
| Fair Value |
| Amount(1) |
| Fair Value |
| ||||||
Long-term debt, including current portion |
| $ | 1,587,865 |
| $ | 1,482,750 |
| $ | 1,655,643 |
| $ | 1,583,132 |
| $ | 1,595,529 |
| $ | 1,556,200 |
|
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $20.9 million, $26.7 million and $22.1 million as of April 29, 2017, April 30, 2016 and January 28, 2017, respectively. |
14. Segment ReportingDerivative Financial Instruments
As discussed in Note 5, in January 2015, we entered into an interest rate swap agreement on an initial notional amount of $520.0 million that matures in August 2018 with periodic interest settlements. At April 29, 2017, the notional amount totaled $290.0 million. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount. We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.
In addition, in April 2017, we entered into an interest rate swap agreement on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. Under this interest rate swap agreement, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.56% (including the first quarterapplicable margin of 2016, we revised our segment reporting presentation3.50%) on the outstanding notional amount. We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to reflect changes in howthe LIBOR benchmark interest rate.
At April 29, 2017, the fair value of the interest rate swaps was a liability of $3.8 million with $3.1 million recorded in accrued expenses and other current liabilities and $0.7 million in other liabilities in our condensed consolidated balance
16
sheet. The effective portion of the swaps is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at April 29, 2017. Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.
Over the next 12 months, $3.1 million of the effective portion of the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense. If, at any time, either interest rate swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.
Also, we managehave entered into derivative instruments to hedge our business, including resource allocation and performance assessment. Specifically, we are presenting expensesforeign exchange risk, specifically related to our shared services platform separate from the resultsBritish pound and Euro. We have designated these instruments as cash flow hedges of our operating segments to promote enhanced comparabilitythe variability in exchange rates for those foreign currencies. At April 29, 2017, the fair value of our operating segments. Previously, these shared servicecash flow hedges was a net liability of $0.7 million with $1.5 million recorded in accrued expenses were primarily includedand other current liabilities and $0.8 million recorded in other current assets in our retail segment. Comparable priorcondensed consolidated balance sheet. The effective portion of the hedges is reported as a component of accumulated other comprehensive (loss) income. Hedge ineffectiveness at April 29, 2017 was immaterial. Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period information has been recastthat the hedged item affects earnings. Over the next 12 months, $1.8 million of the effective portion of the cash flow hedges is expected to reflect our revised segment presentation.be reclassified from accumulated other comprehensive (loss) income into earnings within cost of sales.
15. Segment Reporting
Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.
The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses. Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, business casual, denim, sportswear, outerwear, dress and
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
casual shirts, shoes and accessories for men. Ladies’Women’s career and casual apparel, sportswear and accessories, including shoes, as well asand children’s apparel is also offered at most of our K&G stores. Tuxedo and suit rentals areRental product is offered at our Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank and Moores retail stores and tuxedo shops within Macy’s stores.
The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the U.S. and Dimensions, Alexandra, and Yaffy in the United Kingdom (“UK”). The twoUK and Twin Hill in the U.S., which provide corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment. The corporate apparel segment provides corporate clothing uniforms and workwear to workforces.
We measure segment profitability based on operating income, defined as income before interest expense, interest income, gain on extinguishment of debt, net and income taxes, before shared service expenses. Shared service expenses include costs incurred and directed primarily by our corporate offices that are not allocated to segments.
Net
17
Additional net sales by brand and reportable segment areinformation is as follows (in thousands):
|
| For the Three Months Ended |
| ||||
|
| April 30, 2016 |
| May 2, 2015 |
| ||
Net sales: |
|
|
|
|
| ||
MW(1) |
| $ | 441,646 |
| $ | 456,376 |
|
Jos. A. Bank |
| 178,450 |
| 216,062 |
| ||
K&G |
| 94,759 |
| 95,996 |
| ||
Moores |
| 43,229 |
| 47,520 |
| ||
MW Cleaners |
| 8,158 |
| 8,317 |
| ||
Total retail segment |
| 766,242 |
| 824,271 |
| ||
|
|
|
|
|
| ||
Dimensions and Alexandra (UK) |
| 53,542 |
| 52,240 |
| ||
Twin Hill |
| 9,038 |
| 8,578 |
| ||
Total corporate apparel segment |
| 62,580 |
| 60,818 |
| ||
|
|
|
|
|
| ||
Total net sales |
| $ | 828,822 |
| $ | 885,089 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| April 29, 2017 |
| April 30, 2016 |
| ||
Net sales: |
|
|
|
|
|
|
|
MW(1) |
| $ | 420,067 |
| $ | 441,646 |
|
Jos. A. Bank |
|
| 167,228 |
|
| 178,450 |
|
K&G |
|
| 88,683 |
|
| 94,759 |
|
Moores |
|
| 40,813 |
|
| 43,229 |
|
MW Cleaners |
|
| 8,514 |
|
| 8,158 |
|
Total retail segment |
|
| 725,305 |
|
| 766,242 |
|
Total corporate apparel segment |
|
| 57,601 |
|
| 62,580 |
|
Total net sales |
| $ | 782,906 |
| $ | 828,822 |
|
| (1) | MW includes Men’s Wearhouse, Men’s Wearhouse and Tux, tuxedo shops within Macy’s and Joseph Abboud. |
The following table sets forth supplemental products and services sales information for the Company (in thousands):
|
| For the Three Months Ended |
| ||||
|
| April 30, 2016 |
| May 2, 2015 |
| ||
Net sales: |
|
|
|
|
| ||
Men’s tailored clothing product |
| $ | 349,528 |
| $ | 386,336 |
|
Men’s non-tailored clothing product |
| 241,933 |
| 256,010 |
| ||
Ladies’ clothing product |
| 21,846 |
| 21,632 |
| ||
Other |
| 2,361 |
| 2,884 |
| ||
Total retail clothing product |
| 615,668 |
| 666,862 |
| ||
|
|
|
|
|
| ||
Rental services |
| 99,831 |
| 103,129 |
| ||
|
|
|
|
|
| ||
Alteration services |
| 42,585 |
| 45,963 |
| ||
Retail dry cleaning services |
| 8,158 |
| 8,317 |
| ||
Total alteration and other services |
| 50,743 |
| 54,280 |
| ||
|
|
|
|
|
| ||
Corporate apparel clothing product |
| 62,580 |
| 60,818 |
| ||
|
|
|
|
|
| ||
Total net sales |
| $ | 828,822 |
| $ | 885,089 |
|
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| April 29, 2017 |
| April 30, 2016 |
| ||
Net sales: |
|
|
|
|
|
|
|
Men's tailored clothing product |
| $ | 332,630 |
| $ | 349,528 |
|
Men's non-tailored clothing product |
|
| 228,699 |
|
| 241,933 |
|
Women's clothing product |
|
| 19,827 |
|
| 21,846 |
|
Other |
|
| 2,429 |
|
| 2,361 |
|
Total retail clothing product |
|
| 583,585 |
|
| 615,668 |
|
Rental services |
|
| 94,820 |
|
| 99,831 |
|
Alteration services |
|
| 38,386 |
|
| 42,585 |
|
Retail dry cleaning services |
|
| 8,514 |
|
| 8,158 |
|
Total alteration and other services |
|
| 46,900 |
|
| 50,743 |
|
Corporate apparel clothing product |
|
| 57,601 |
|
| 62,580 |
|
Total net sales |
| $ | 782,906 |
| $ | 828,822 |
|
Operating income by reportable segment, shared service expense, and the reconciliation to earnings before income taxes is as follows (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||
|
| April 30, 2016 |
| May 2, 2015 |
|
| April 29, 2017 |
| April 30, 2016 |
| ||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Retail |
| $ | 79,877 |
| $ | 95,306 |
|
| $ | 73,425 |
| $ | 79,877 |
|
Corporate apparel |
| 2,054 |
| 1,312 |
|
|
| 1,975 |
|
| 2,054 |
| ||
Shared service expense |
|
| (44,398) |
|
| (50,936) |
| |||||||
Operating income |
| 81,931 |
| 96,618 |
|
|
| 31,002 |
|
| 30,995 |
| ||
Shared service expense |
| (50,936 | ) | (41,329 | ) | |||||||||
Interest income |
| 13 |
| 28 |
|
|
| 67 |
|
| 13 |
| ||
Interest expense |
| (26,502 | ) | (26,483 | ) |
|
| (25,621) |
|
| (26,502) |
| ||
Loss on extinguishment of debt |
| — |
| (12,675 | ) | |||||||||
Gain on extinguishment of debt, net |
|
| 715 |
|
| — |
| |||||||
Earnings before income taxes |
| $ | 4,506 |
| $ | 16,159 |
|
| $ | 6,163 |
| $ | 4,506 |
|
As a result
18
|
| April 30, |
| May 2, |
| January 30, |
| |||
Segment assets: |
|
|
|
|
|
|
| |||
Retail |
| $ | 1,769,230 |
| $ | 2,969,047 |
| $ | 1,705,728 |
|
Corporate apparel |
| 238,293 |
| 212,145 |
| 211,820 |
| |||
Shared services(1) |
| 269,298 |
| 390,259 |
| 326,771 |
| |||
Total assets |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
|
(1) Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets.TAILORED BRANDS, INC. AND SUBSIDIARIES
15.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. Legal Matters
On March 29, 2016, Peter Makhlouf filed a putative class action lawsuit against the Company and its Chief Executive Officer (“CEO”("CEO"), Douglas S. Ewert, in the United States District Court for the Southern District of Texas (Case No. 4:16-cv-00838). The complaint attempts to allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons who purchased or otherwise acquired the Company’sCompany's securities between June 18, 2014 and December 9, 2015. In particular, the complaint alleges that the Company and its CEO made certain statements about the Company’sCompany's acquisition and subsequent integration of Jos. A. Bank that were false and misleading and omitted material facts. On March 23, 2017, the Court appointed Strathclyde Pension Fund lead plaintiff in this matter and the parties subsequently agreed on a case schedule through the motion to dismiss phase of this matter. We believe that the claims are without merit and are defending the lawsuit vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
On February 17, 2016, Anthony Oliver filed a putative class action lawsuit against the Company in the United States District Court for the Central District of California (Case No. 2:16-cv-01100-TJH-AS). The complaint attempts to allege claims under the Telephone Consumer Protection Act. In particular the complaint alleges that the Company sent unsolicited text messages to cellular telephones beginning October 1, 2013 to the present day. After we demonstrated that the Company had the plaintiff’s permission to send him texts, the plaintiff filed an amended complaint alleging the Company sent text messages exceeding the number plaintiff had agreed to receive each week. The Company filed a motion to dismiss on June 10, 2016. The court denied the motion to dismiss on February 13, 2017. We believe that the claims are without merit and intend to defend the lawsuit vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
On July 9, 2014, David Lucas and Eric Salerno, on behalf of themselves and all California residents similarly situated, filed a putative class action Complaint against Jos. A. Bank in the U.S. District Court for Southern California (Case No. ‘14CV1631LAB JLB). The Complaint alleges, among other things, that Jos. A. Bank violated the California Unfair Competition Law and the California Consumers Legal Remedies Act with its comparative price advertising, price discounts and free apparel promotions. The Complaint seeks, among other relief, certification of the case as a class action, permanent injunction, actual and compensatory damages, restitution including disgorgement of profits and unjust enrichment, costs and attorney fees. We believe that the claims are without merit and intend to vigorously defend the case. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
In addition, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16.17. Condensed Consolidating Information
As discussed in Note 4,5, The Men’s Wearhouse Inc. (the “Issuer”) issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the “Parent”"Parent") and certain of our U.S. subsidiaries (the “Guarantors”). Our Canadian and U.K. subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the Senior Notes. Each of the Guarantors is 100% owned and all guarantees are joint and several. In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.
These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor’s guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.
The tables in the following pages present the condensed consolidating financial information for the Parent, the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities. Certain of our current Guarantor subsidiaries did not exist and were created as part of the Reorganization. As a result, prior periods presented have been retrospectively adjusted and contain certain allocations to reflect our current organizational structure.
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
April 30, 2016
(in thousands)19
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
Accounts receivable, net |
| — |
| 17,235 |
| 293,596 |
| 35,703 |
| (263,201 | ) | 83,333 |
| ||||||
Inventories |
| — |
| 211,358 |
| 714,712 |
| 150,663 |
| — |
| 1,076,733 |
| ||||||
Other current assets |
| 9,769 |
| 41,038 |
| 18,629 |
| 8,467 |
| — |
| 77,903 |
| ||||||
Total current assets |
| 9,769 |
| 277,581 |
| 1,030,168 |
| 220,081 |
| (263,201 | ) | 1,274,398 |
| ||||||
Property, plant and equipment, net |
| — |
| 252,683 |
| 228,714 |
| 39,747 |
| — |
| 521,144 |
| ||||||
Rental product, net |
| — |
| 141,427 |
| 13,990 |
| 18,823 |
| — |
| 174,240 |
| ||||||
Goodwill |
| — |
| 6,160 |
| 68,510 |
| 46,828 |
| — |
| 121,498 |
| ||||||
Intangible assets, net |
| — |
| 159 |
| 159,051 |
| 18,616 |
| — |
| 177,826 |
| ||||||
Investments in subsidiaries |
| (88,520 | ) | 1,447,307 |
| — |
| — |
| (1,358,787 | ) | — |
| ||||||
Other assets |
| — |
| 6,637 |
| 952 |
| 8,226 |
| (8,100 | ) | 7,715 |
| ||||||
Total assets |
| $ | (78,751 | ) | $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088 | ) | $ | 2,276,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | — |
| $ | 310,830 |
| $ | 113,982 |
| $ | 41,637 |
| $ | (263,201 | ) | $ | 203,248 |
|
Accrued expenses and other current liabilities |
| 9,129 |
| 184,955 |
| 90,879 |
| 26,081 |
| — |
| 311,044 |
| ||||||
Current portion of long-term debt |
| — |
| 42,451 |
| — |
| — |
| — |
| 42,451 |
| ||||||
Total current liabilities |
| 9,129 |
| 538,236 |
| 204,861 |
| 67,718 |
| (263,201 | ) | 556,743 |
| ||||||
Long-term debt, net |
| — |
| 1,613,192 |
| — |
| — |
| — |
| 1,613,192 |
| ||||||
Deferred taxes and other liabilities |
| 2,350 |
| 69,046 |
| 122,428 |
| 11,392 |
| (8,100 | ) | 197,116 |
| ||||||
Shareholders’ (deficit) equity |
| (90,230 | ) | (88,520 | ) | 1,174,096 |
| 273,211 |
| (1,358,787 | ) | (90,230 | ) | ||||||
Total liabilities and shareholders’ (deficit) equity |
| $ | (78,751 | ) | $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088 | ) | $ | 2,276,821 |
|
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
January 30, 2016April 29, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 724 |
| $ | 2,243 |
| $ | 27,013 |
| $ | — |
| $ | 29,980 |
|
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
Accounts receivable, net |
| — |
| 23,067 |
| 392,944 |
| 29,845 |
| (381,966 | ) | 63,890 |
|
|
| 7,358 |
|
| 28,480 |
|
| 437,481 |
|
| 149,697 |
|
| (539,000) |
|
| 84,016 |
| ||||||
Inventories |
| — |
| 253,472 |
| 630,407 |
| 138,625 |
| — |
| 1,022,504 |
|
|
| — |
|
| 212,146 |
|
| 438,670 |
|
| 333,405 |
|
| — |
|
| 984,221 |
| ||||||
Other current assets |
| 19,037 |
| 79,964 |
| 36,308 |
| 8,237 |
| — |
| 143,546 |
|
|
| 136 |
|
| 229,333 |
|
| 33,392 |
|
| 10,933 |
|
| (204,506) |
|
| 69,288 |
| ||||||
Total current assets |
| 19,037 |
| 357,227 |
| 1,061,902 |
| 203,720 |
| (381,966 | ) | 1,259,920 |
|
|
| 7,494 |
|
| 472,121 |
|
| 911,878 |
|
| 556,118 |
|
| (743,506) |
|
| 1,204,105 |
| ||||||
Property, plant and equipment, net |
| — |
| 254,335 |
| 230,209 |
| 37,280 |
| — |
| 521,824 |
| |||||||||||||||||||||||||
Property and equipment, net |
|
| — |
|
| 224,274 |
|
| 208,719 |
|
| 34,668 |
|
| — |
|
| 467,661 |
| |||||||||||||||||||
Rental product, net |
| — |
| 124,468 |
| 16,224 |
| 16,768 |
| — |
| 157,460 |
|
|
| — |
|
| 127,188 |
|
| 3,087 |
|
| 17,220 |
|
| — |
|
| 147,495 |
| ||||||
Goodwill |
| — |
| 6,160 |
| 68,510 |
| 43,916 |
| — |
| 118,586 |
|
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 42,915 |
|
| — |
|
| 117,585 |
| ||||||
Intangible assets, net |
| — |
| 186 |
| 159,530 |
| 18,794 |
| — |
| 178,510 |
|
|
| — |
|
| 52 |
|
| 156,741 |
|
| 14,173 |
|
| — |
|
| 170,966 |
| ||||||
Investments in subsidiaries |
| (109,188 | ) | 1,439,187 |
| — |
| — |
| (1,329,999 | ) | — |
|
|
| (89,379) |
|
| 1,444,485 |
|
| — |
|
| — |
|
| (1,355,106) |
|
| — |
| ||||||
Other assets |
| — |
| 6,914 |
| 992 |
| 8,513 |
| (8,400 | ) | 8,019 |
|
|
| — |
|
| 5,200 |
|
| 949 |
|
| 7,174 |
|
| (6,900) |
|
| 6,423 |
| ||||||
Total assets |
| $ | (90,151 | ) | $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365 | ) | $ | 2,244,319 |
|
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | — |
| $ | 419,187 |
| $ | 153,717 |
| $ | 46,176 |
| $ | (381,966 | ) | $ | 237,114 |
|
| $ | 21,606 |
| $ | 553,773 |
| $ | 82,517 |
| $ | 52,990 |
| $ | (539,000) |
| $ | 171,886 |
|
Accrued expenses and other current liabilities |
| 7,602 |
| 154,014 |
| 75,676 |
| 19,470 |
| — |
| 256,762 |
|
|
| 10,088 |
|
| 146,168 |
|
| 120,022 |
|
| 227,415 |
|
| (197,230) |
|
| 306,463 |
| ||||||
Current portion of long-term debt |
| — |
| 42,451 |
| — |
| — |
| — |
| 42,451 |
|
|
| — |
|
| 13,379 |
|
| — |
|
| — |
|
| — |
|
| 13,379 |
| ||||||
Total current liabilities |
| 7,602 |
| 615,652 |
| 229,393 |
| 65,646 |
| (381,966 | ) | 536,327 |
|
|
| 31,694 |
|
| 713,320 |
|
| 202,539 |
|
| 280,405 |
|
| (736,230) |
|
| 491,728 |
| ||||||
Long-term debt, net |
| — |
| 1,613,473 |
| — |
| — |
| — |
| 1,613,473 |
|
|
| — |
|
| 1,574,486 |
|
| — |
|
| — |
|
| — |
|
| 1,574,486 |
| ||||||
Deferred taxes and other liabilities |
| 2,333 |
| 68,540 |
| 121,531 |
| 10,601 |
| (8,400 | ) | 194,605 |
|
|
| — |
|
| 81,053 |
|
| 84,719 |
|
| 10,004 |
|
| (14,176) |
|
| 161,600 |
| ||||||
Shareholders’ (deficit) equity |
| (100,086 | ) | (109,188 | ) | 1,186,443 |
| 252,744 |
| (1,329,999 | ) | (100,086 | ) | |||||||||||||||||||||||||
Total liabilities and shareholders’ (deficit) equity |
| $ | (90,151 | ) | $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365 | ) | $ | 2,244,319 |
| |||||||||||||||||||
Shareholders' (deficit) equity |
|
| (113,579) |
|
| (89,379) |
|
| 1,062,626 |
|
| 381,859 |
|
| (1,355,106) |
|
| (113,579) |
| |||||||||||||||||||
Total liabilities and shareholders' (deficit) equity |
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
20
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
May 2, 2015April 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 21,889 |
| $ | 4,798 |
| $ | 35,115 |
| $ | — |
| $ | 61,802 |
|
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
Accounts receivable, net |
| — |
| 22,121 |
| 376,837 |
| 37,016 |
| (352,805 | ) | 83,169 |
|
|
| — |
|
| 17,235 |
|
| 293,596 |
|
| 35,703 |
|
| (263,201) |
|
| 83,333 |
| ||||||
Inventories |
| — |
| 251,227 |
| 582,638 |
| 152,592 |
| — |
| 986,457 |
|
|
| — |
|
| 211,358 |
|
| 714,712 |
|
| 150,663 |
|
| — |
|
| 1,076,733 |
| ||||||
Other current assets |
| 22,672 |
| 90,661 |
| 43,234 |
| 9,131 |
| — |
| 165,698 |
|
|
| 9,769 |
|
| 41,038 |
|
| 18,629 |
|
| 8,467 |
|
| — |
|
| 77,903 |
| ||||||
Total current assets |
| 22,672 |
| 385,898 |
| 1,007,507 |
| 233,854 |
| (352,805 | ) | 1,297,126 |
|
|
| 9,769 |
|
| 277,581 |
|
| 1,030,168 |
|
| 220,081 |
|
| (263,201) |
|
| 1,274,398 |
| ||||||
Property, plant and equipment, net |
| — |
| 272,982 |
| 247,087 |
| 40,072 |
| — |
| 560,141 |
| |||||||||||||||||||||||||
Property and equipment, net |
|
| — |
|
| 252,683 |
|
| 228,714 |
|
| 39,747 |
|
| — |
|
| 521,144 |
| |||||||||||||||||||
Rental product, net |
| — |
| 112,303 |
| 15,474 |
| 18,273 |
| — |
| 146,050 |
|
|
| — |
|
| 141,427 |
|
| 13,990 |
|
| 18,823 |
|
| — |
|
| 174,240 |
| ||||||
Goodwill |
| — |
| 6,160 |
| 838,830 |
| 48,445 |
| — |
| 893,435 |
|
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 46,828 |
|
| — |
|
| 121,498 |
| ||||||
Intangible assets, net |
| — |
| 266 |
| 642,659 |
| 22,010 |
| — |
| 664,935 |
|
|
| — |
|
| 159 |
|
| 159,051 |
|
| 18,616 |
|
| — |
|
| 177,826 |
| ||||||
Investments in subsidiaries |
| 965,431 |
| 2,458,986 |
| — |
| — |
| (3,424,417 | ) | — |
|
|
| (88,520) |
|
| 1,447,307 |
|
| — |
|
| — |
|
| (1,358,787) |
|
| — |
| ||||||
Other assets |
| — |
| 34,279 |
| 8,800 |
| 9,417 |
| (42,732 | ) | 9,764 |
|
|
| — |
|
| 6,637 |
|
| 952 |
|
| 8,226 |
|
| (8,100) |
|
| 7,715 |
| ||||||
Total assets |
| $ | 988,103 |
| $ | 3,270,874 |
| $ | 2,760,357 |
| $ | 372,071 |
| $ | (3,819,954 | ) | $ | 3,571,451 |
|
| $ | (78,751) |
| $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088) |
| $ | 2,276,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | — |
| $ | 392,705 |
| $ | 144,006 |
| $ | 49,160 |
| $ | (352,805 | ) | $ | 233,066 |
|
| $ | — |
| $ | 310,830 |
| $ | 113,982 |
| $ | 41,637 |
| $ | (263,201) |
| $ | 203,248 |
|
Accrued expenses and other current liabilities |
| 8,563 |
| 173,491 |
| 85,246 |
| 23,984 |
| — |
| 291,284 |
|
|
| 9,129 |
|
| 184,955 |
|
| 90,879 |
|
| 26,081 |
|
| — |
|
| 311,044 |
| ||||||
Current portion of long-term debt |
| — |
| 7,000 |
| — |
| — |
| — |
| 7,000 |
|
|
| — |
|
| 42,451 |
|
| — |
|
| — |
|
| — |
|
| 42,451 |
| ||||||
Total current liabilities |
| 8,563 |
| 573,196 |
| 229,252 |
| 73,144 |
| (352,805 | ) | 531,350 |
|
|
| 9,129 |
|
| 538,236 |
|
| 204,861 |
|
| 67,718 |
|
| (263,201) |
|
| 556,743 |
| ||||||
Long-term debt, net |
| — |
| 1,647,986 |
| — |
| 33,432 |
| (33,432 | ) | 1,647,986 |
|
|
| — |
|
| 1,613,192 |
|
| — |
|
| — |
|
| — |
|
| 1,613,192 |
| ||||||
Deferred taxes and other liabilities |
| — |
| 84,261 |
| 326,135 |
| 11,479 |
| (9,300 | ) | 412,575 |
|
|
| 2,350 |
|
| 69,046 |
|
| 122,428 |
|
| 11,392 |
|
| (8,100) |
|
| 197,116 |
| ||||||
Shareholders’ equity |
| 979,540 |
| 965,431 |
| 2,204,970 |
| 254,016 |
| (3,424,417 | ) | 979,540 |
| |||||||||||||||||||||||||
Total liabilities and shareholders’ equity |
| $ | 988,103 |
| $ | 3,270,874 |
| $ | 2,760,357 |
| $ | 372,071 |
| $ | (3,819,954 | ) | $ | 3,571,451 |
| |||||||||||||||||||
Shareholders' (deficit) equity |
|
| (90,230) |
|
| (88,520) |
|
| 1,174,096 |
|
| 273,211 |
|
| (1,358,787) |
|
| (90,230) |
| |||||||||||||||||||
Total liabilities and shareholders' (deficit) equity |
| $ | (78,751) |
| $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088) |
| $ | 2,276,821 |
|
21
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
January 28, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 1,002 |
| $ | 1,881 |
| $ | 68,006 |
| $ | — |
| $ | 70,889 |
|
Accounts receivable, net |
|
| 7,376 |
|
| 15,499 |
|
| 476,742 |
|
| 56,777 |
|
| (490,680) |
|
| 65,714 |
|
Inventories |
|
| — |
|
| 230,264 |
|
| 438,167 |
|
| 287,081 |
|
| — |
|
| 955,512 |
|
Other current assets |
|
| 12,773 |
|
| 134,225 |
|
| 28,436 |
|
| 8,448 |
|
| (110,280) |
|
| 73,602 |
|
Total current assets |
|
| 20,149 |
|
| 380,990 |
|
| 945,226 |
|
| 420,312 |
|
| (600,960) |
|
| 1,165,717 |
|
Property and equipment, net |
|
| — |
|
| 232,090 |
|
| 216,248 |
|
| 35,827 |
|
| — |
|
| 484,165 |
|
Rental product, net |
|
| — |
|
| 131,287 |
|
| 3,369 |
|
| 17,954 |
|
| — |
|
| 152,610 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 42,356 |
|
| — |
|
| 117,026 |
|
Intangible assets, net |
|
| — |
|
| 78 |
|
| 157,270 |
|
| 14,311 |
|
| — |
|
| 171,659 |
|
Investments in subsidiaries |
|
| (109,788) |
|
| 1,425,622 |
|
| — |
|
| — |
|
| (1,315,834) |
|
| — |
|
Other assets |
|
| — |
|
| 5,615 |
|
| 959 |
|
| 7,321 |
|
| (7,200) |
|
| 6,695 |
|
Total assets |
| $ | (89,639) |
| $ | 2,181,842 |
| $ | 1,391,582 |
| $ | 538,081 |
| $ | (1,923,994) |
| $ | 2,097,872 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 15,352 |
| $ | 509,572 |
| $ | 82,337 |
| $ | 60,799 |
| $ | (490,680) |
| $ | 177,380 |
|
Accrued expenses and other current liabilities |
|
| 2,627 |
|
| 111,617 |
|
| 129,420 |
|
| 135,777 |
|
| (110,280) |
|
| 269,161 |
|
Current portion of long-term debt |
|
| — |
|
| 13,379 |
|
| — |
|
| — |
|
| — |
|
| 13,379 |
|
Total current liabilities |
|
| 17,979 |
|
| 634,568 |
|
| 211,757 |
|
| 196,576 |
|
| (600,960) |
|
| 459,920 |
|
Long-term debt, net |
|
| — |
|
| 1,582,150 |
|
| — |
|
| — |
|
| — |
|
| 1,582,150 |
|
Deferred taxes and other liabilities |
|
| — |
|
| 74,912 |
|
| 85,477 |
|
| 10,231 |
|
| (7,200) |
|
| 163,420 |
|
Shareholders' (deficit) equity |
|
| (107,618) |
|
| (109,788) |
|
| 1,094,348 |
|
| 331,274 |
|
| (1,315,834) |
|
| (107,618) |
|
Total liabilities and shareholders' (deficit) equity |
| $ | (89,639) |
| $ | 2,181,842 |
| $ | 1,391,582 |
| $ | 538,081 |
| $ | (1,923,994) |
| $ | 2,097,872 |
|
22
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||||||
Three Months Ended April 29, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net sales |
| $ | — |
| $ | 418,925 |
| $ | 372,264 |
| $ | 135,258 |
| $ | (143,541) |
| $ | 782,906 |
| |||||||||
Cost of sales |
|
| — |
|
| 212,499 |
|
| 278,631 |
|
| 102,877 |
|
| (143,541) |
|
| 450,466 |
| |||||||||
Gross margin |
|
| — |
|
| 206,426 |
|
| 93,633 |
|
| 32,381 |
|
| — |
|
| 332,440 |
| |||||||||
Operating expenses |
|
| 903 |
|
| 155,783 |
|
| 133,532 |
|
| 25,952 |
|
| (14,732) |
|
| 301,438 |
| |||||||||
Operating (loss) income |
|
| (903) |
|
| 50,643 |
|
| (39,899) |
|
| 6,429 |
|
| 14,732 |
|
| 31,002 |
| |||||||||
Other income and expenses, net |
|
| — |
|
| — |
|
| 14,732 |
|
| — |
|
| (14,732) |
|
| — |
| |||||||||
Interest income |
|
| 110 |
|
| 1,302 |
|
| 1,672 |
|
| 62 |
|
| (3,079) |
|
| 67 |
| |||||||||
Interest expense |
|
| — |
|
| (27,194) |
|
| (114) |
|
| (1,392) |
|
| 3,079 |
|
| (25,621) |
| |||||||||
Gain on extinguishment of debt, net |
|
| — |
|
| 715 |
|
| — |
|
| — |
|
| — |
|
| 715 |
| |||||||||
(Loss) earnings before income taxes |
|
| (793) |
|
| 25,466 |
|
| (23,609) |
|
| 5,099 |
|
| — |
|
| 6,163 |
| |||||||||
Provision (benefit) for income taxes |
|
| 1,945 |
|
| 8,469 |
|
| (7,752) |
|
| 1,662 |
|
| — |
|
| 4,324 |
| |||||||||
(Loss) earnings before equity in net income of subsidiaries |
|
| (2,738) |
|
| 16,997 |
|
| (15,857) |
|
| 3,437 |
|
| — |
|
| 1,839 |
| |||||||||
Equity in earnings of subsidiaries |
|
| 4,577 |
|
| (12,420) |
|
| — |
|
| — |
|
| 7,843 |
|
| — |
| |||||||||
Net earnings (loss) |
| $ | 1,839 |
| $ | 4,577 |
| $ | (15,857) |
| $ | 3,437 |
| $ | 7,843 |
| $ | 1,839 |
| |||||||||
Comprehensive (loss) income |
| $ | (286) |
| $ | 2,920 |
| $ | (15,857) |
| $ | 2,969 |
| $ | 9,968 |
| $ | (286) |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Three Months Ended April 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net sales |
| $ | — |
| $ | 440,498 |
| $ | 403,227 |
| $ | 96,770 |
| $ | (111,673) |
| $ | 828,822 |
| |||||||||
Cost of sales |
|
| — |
|
| 220,547 |
|
| 305,394 |
|
| 62,713 |
|
| (111,673) |
|
| 476,981 |
| |||||||||
Gross margin |
|
| — |
|
| 219,951 |
|
| 97,833 |
|
| 34,057 |
|
| — |
|
| 351,841 |
| |||||||||
Operating expenses |
|
| 717 |
|
| 148,487 |
|
| 156,913 |
|
| 28,415 |
|
| (13,686) |
|
| 320,846 |
| |||||||||
Operating (loss) income |
|
| (717) |
|
| 71,464 |
|
| (59,080) |
|
| 5,642 |
|
| 13,686 |
|
| 30,995 |
| |||||||||
Other income and expenses, net |
|
| — |
|
| — |
|
| 13,686 |
|
| — |
|
| (13,686) |
|
| — |
| |||||||||
Interest income |
|
| 2 |
|
| 5 |
|
| 307 |
|
| 8 |
|
| (309) |
|
| 13 |
| |||||||||
Interest expense |
|
| — |
|
| (26,688) |
|
| (11) |
|
| (112) |
|
| 309 |
|
| (26,502) |
| |||||||||
(Loss) earnings before income taxes |
|
| (715) |
|
| 44,781 |
|
| (45,098) |
|
| 5,538 |
|
| — |
|
| 4,506 |
| |||||||||
(Benefit) provision for income taxes |
|
| (203) |
|
| 14,544 |
|
| (13,045) |
|
| 1,573 |
|
| — |
|
| 2,869 |
| |||||||||
(Loss) earnings before equity in net income of subsidiaries |
|
| (512) |
|
| 30,237 |
|
| (32,053) |
|
| 3,965 |
|
| — |
|
| 1,637 |
| |||||||||
Equity in earnings (loss) of subsidiaries |
|
| 2,149 |
|
| (28,088) |
|
| — |
|
| — |
|
| 25,939 |
|
| — |
| |||||||||
Net earnings (loss) |
|
| 1,637 |
|
| 2,149 |
|
| (32,053) |
|
| 3,965 |
|
| 25,939 |
|
| 1,637 |
| |||||||||
Comprehensive income (loss) |
| $ | 18,306 |
| $ | 2,389 |
| $ | (32,053) |
| $ | 20,394 |
| $ | 9,270 |
| $ | 18,306 |
|
23
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended April 30, 201629, 2017
(in thousands)
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net sales |
| $ | — |
| $ | 440,498 |
| $ | 403,227 |
| $ | 96,770 |
| $ | (111,673 | ) | $ | 828,822 |
|
Cost of sales |
| — |
| 220,547 |
| 305,394 |
| 62,713 |
| (111,673 | ) | 476,981 |
| ||||||
Gross margin |
| — |
| 219,951 |
| 97,833 |
| 34,057 |
| — |
| 351,841 |
| ||||||
Operating expenses |
| 717 |
| 148,487 |
| 156,913 |
| 28,415 |
| (13,686 | ) | 320,846 |
| ||||||
Operating (loss) income |
| (717 | ) | 71,464 |
| (59,080 | ) | 5,642 |
| 13,686 |
| 30,995 |
| ||||||
Other income and expenses, net |
| — |
| — |
| 13,686 |
| — |
| (13,686 | ) | — |
| ||||||
Interest income |
| 2 |
| 5 |
| 307 |
| 8 |
| (309 | ) | 13 |
| ||||||
Interest expense |
| — |
| (26,688 | ) | (11 | ) | (112 | ) | 309 |
| (26,502 | ) | ||||||
(Loss) earnings before income taxes |
| (715 | ) | 44,781 |
| (45,098 | ) | 5,538 |
| — |
| 4,506 |
| ||||||
(Benefit) provision for income taxes |
| (203 | ) | 14,544 |
| (13,045 | ) | 1,573 |
| — |
| 2,869 |
| ||||||
(Loss) earnings before equity in net loss of subsidiaries |
| (512 | ) | 30,237 |
| (32,053 | ) | 3,965 |
| — |
| 1,637 |
| ||||||
Equity in earnings (loss) of subsidiaries |
| 2,149 |
| (28,088 | ) | — |
| — |
| 25,939 |
| — |
| ||||||
Net earnings (loss) |
| $ | 1,637 |
| $ | 2,149 |
| $ | (32,053 | ) | $ | 3,965 |
| $ | 25,939 |
| $ | 1,637 |
|
Comprehensive income (loss) |
| $ | 18,306 |
| $ | 2,389 |
| $ | (32,053 | ) | $ | 20,394 |
| $ | 9,270 |
| $ | 18,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities |
| $ | 10,296 |
| $ | 174,399 |
| $ | 10,424 |
| $ | (152,637) |
| $ | (9,131) |
| $ | 33,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (6,333) |
|
| (9,982) |
|
| (1,471) |
|
| — |
|
| (17,786) |
|
Acquisition of business, net of cash |
|
| — |
|
| — |
|
| — |
|
| (457) |
|
| — |
|
| (457) |
|
Intercompany activities |
|
| — |
|
| (149,424) |
|
| — |
|
| — |
|
| 149,424 |
|
| — |
|
Proceeds from sale of property and equipment |
|
| — |
|
| — |
|
| 12 |
|
| — |
|
| — |
|
| 12 |
|
Net cash used in investing activities |
|
| — |
|
| (155,757) |
|
| (9,970) |
|
| (1,928) |
|
| 149,424 |
|
| (18,231) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
|
Proceeds from asset-based revolving credit facility |
|
| — |
|
| 137,650 |
|
| — |
|
| — |
|
| — |
|
| 137,650 |
|
Payments on asset-based revolving credit facility |
|
| — |
|
| (137,650) |
|
| — |
|
| — |
|
| — |
|
| (137,650) |
|
Repurchase and retirement of senior notes |
|
| — |
|
| (6,601) |
|
| — |
|
| — |
|
| — |
|
| (6,601) |
|
Intercompany activities |
|
| — |
|
| (9,131) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| — |
|
Cash dividends paid |
|
| (9,131) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,131) |
|
Proceeds from issuance of common stock |
|
| 467 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 467 |
|
Tax payments related to vested deferred stock units |
|
| (1,632) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,632) |
|
Net cash (used in) provided by financing activities |
|
| (10,296) |
|
| (17,482) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| (18,647) |
|
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| (782) |
|
| — |
|
| (782) |
|
Increase (decrease) in cash and cash equivalents |
|
| — |
|
| 1,160 |
|
| 454 |
|
| (5,923) |
|
| — |
|
| (4,309) |
|
Cash and cash equivalents at beginning of period |
|
| — |
|
| 1,002 |
|
| 1,881 |
|
| 68,006 |
|
| — |
|
| 70,889 |
|
Cash and cash equivalents at end of period |
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
For the Three Months Ended May 2, 2015
(in thousands)24
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net sales |
| $ | — |
| $ | 455,494 |
| $ | 442,549 |
| $ | 99,761 |
| $ | (112,715 | ) | $ | 885,089 |
|
Cost of sales |
| — |
| 231,450 |
| 319,750 |
| 65,052 |
| (112,715 | ) | 503,537 |
| ||||||
Gross margin |
| — |
| 224,044 |
| 122,799 |
| 34,709 |
| — |
| 381,552 |
| ||||||
Operating expenses |
| 673 |
| 146,187 |
| 154,447 |
| 28,036 |
| (3,080 | ) | 326,263 |
| ||||||
Operating (loss) income |
| (673 | ) | 77,857 |
| (31,648 | ) | 6,673 |
| 3,080 |
| 55,289 |
| ||||||
Other income and expenses, net |
| — |
| 3,080 |
| — |
| — |
| (3,080 | ) | — |
| ||||||
Interest income |
| — |
| 556 |
| 818 |
| 24 |
| (1,370 | ) | 28 |
| ||||||
Interest expense |
| — |
| (27,097 | ) | (481 | ) | (275 | ) | 1,370 |
| (26,483 | ) | ||||||
Loss on extinguishment of debt |
| — |
| (12,675 | ) | — |
| — |
| — |
| (12,675 | ) | ||||||
(Loss) earnings before income taxes |
| (673 | ) | 41,721 |
| (31,311 | ) | 6,422 |
| — |
| 16,159 |
| ||||||
(Benefit) provision for income taxes |
| (272 | ) | 16,837 |
| (12,635 | ) | 1,860 |
| — |
| 5,790 |
| ||||||
(Loss) earnings before equity in net loss of subsidiaries |
| (401 | ) | 24,884 |
| (18,676 | ) | 4,562 |
| — |
| 10,369 |
| ||||||
Equity in earnings (loss) of subsidiaries |
| 10,770 |
| (14,114 | ) | — |
| — |
| 3,344 |
| — |
| ||||||
Net earnings (loss) |
| $ | 10,369 |
| $ | 10,770 |
| $ | (18,676 | ) | $ | 4,562 |
| $ | 3,344 |
| $ | 10,369 |
|
Comprehensive income (loss) |
| $ | 16,829 |
| $ | 11,144 |
| $ | (18,676 | ) | $ | 10,648 |
| $ | (3,116 | ) | $ | 16,829 |
|
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended April 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||
Net cash provided by (used in) operating activities |
| $ | 9,734 |
| $ | 34,076 |
| $ | 13,365 |
| $ | (1,819 | ) | $ | (8,921 | ) | $ | 46,435 |
|
| $ | 9,734 |
| $ | 34,076 |
| $ | 13,365 |
| $ | (1,819) |
| $ | (8,921) |
| $ | 46,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| — |
| (16,179 | ) | (12,878 | ) | (1,268 | ) | — |
| (30,325 | ) |
|
| — |
|
| (16,179) |
|
| (12,878) |
|
| (1,268) |
|
| — |
|
| (30,325) |
| ||||||
Proceeds from sale of property and equipment |
| — |
| — |
| 501 |
| — |
| — |
| 501 |
|
|
| — |
|
| — |
|
| 501 |
|
| — |
|
| — |
|
| 501 |
| ||||||
Net cash used in investing activities |
| — |
| (16,179 | ) | (12,377 | ) | (1,268 | ) | — |
| (29,824 | ) |
|
| — |
|
| (16,179) |
|
| (12,377) |
|
| (1,268) |
|
| — |
|
| (29,824) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments on term loan |
| — |
| (1,750 | ) | — |
| — |
| — |
| (1,750 | ) |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
| ||||||
Proceeds from asset-based revolving credit facility |
| — |
| 201,000 |
| — |
| 3,014 |
| — |
| 204,014 |
|
|
| — |
|
| 201,000 |
|
| — |
|
| 3,014 |
|
| — |
|
| 204,014 |
| ||||||
Payments on asset-based revolving credit facility |
| — |
| (201,000 | ) | — |
| (3,014 | ) | — |
| (204,014 | ) |
|
| — |
|
| (201,000) |
|
| — |
|
| (3,014) |
|
| — |
|
| (204,014) |
| ||||||
Intercompany activities |
|
| — |
|
| (8,921) |
|
| — |
|
| — |
|
| 8,921 |
|
| — |
| |||||||||||||||||||
Cash dividends paid |
| (8,921 | ) | — |
| — |
| — |
| — |
| (8,921 | ) |
|
| (8,921) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (8,921) |
| ||||||
Intercompany financing activities |
| — |
| (8,921 | ) | — |
| — |
| 8,921 |
| — |
| |||||||||||||||||||||||||
Proceeds from issuance of common stock |
| 434 |
| — |
| — |
| — |
| — |
| 434 |
|
|
| 434 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 434 |
| ||||||
Tax payments related to vested deferred stock units |
| (1,247 | ) | — |
| — |
| — |
| — |
| (1,247 | ) |
|
| (1,247) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,247) |
| ||||||
Net cash used in financing activities |
| (9,734 | ) | (10,671 | ) | — |
| — |
| 8,921 |
| (11,484 | ) |
|
| (9,734) |
|
| (10,671) |
|
| — |
|
| — |
|
| 8,921 |
|
| (11,484) |
| ||||||
Effect of exchange rate changes |
| — |
| — |
| — |
| 1,322 |
| — |
| 1,322 |
|
|
| — |
|
| — |
|
| — |
|
| 1,322 |
|
| — |
|
| 1,322 |
| ||||||
Increase (decrease) in cash and cash equivalents |
| — |
| 7,226 |
| 988 |
| (1,765 | ) | — |
| 6,449 |
|
|
| — |
|
| 7,226 |
|
| 988 |
|
| (1,765) |
|
| — |
|
| 6,449 |
| ||||||
Cash and cash equivalents at beginning of period |
| — |
| 724 |
| $ | 2,243 |
| $ | 27,013 |
| $ | — |
| $ | 29,980 |
|
|
| — |
|
| 724 |
|
| 2,243 |
|
| 27,013 |
|
| — |
|
| 29,980 |
| ||
Cash and cash equivalents at end of period |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 2, 2015
(in thousands)
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities |
| $ | 11,757 |
| $ | 36,993 |
| $ | 10,865 |
| $ | (1,767 | ) | $ | (8,863 | ) | $ | 48,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| — |
| (16,437 | ) | (10,924 | ) | (3,023 | ) | — |
| (30,384 | ) | ||||||
Net cash used in investing activities |
| — |
| (16,437 | ) | (10,924 | ) | (3,023 | ) | — |
| (30,384 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments on term loan |
| — |
| (4,500 | ) | — |
| — |
| — |
| (4,500 | ) | ||||||
Proceeds from asset-based revolving credit facility |
| — |
| 3,000 |
| — |
| — |
| — |
| 3,000 |
| ||||||
Payments on asset-based revolving credit facility |
| — |
| (3,000 | ) | — |
| — |
| — |
| (3,000 | ) | ||||||
Deferred financing costs |
| — |
| (3,566 | ) | — |
| — |
| — |
| (3,566 | ) | ||||||
Cash dividends paid |
| (8,863 | ) | — |
| — |
| — |
| — |
| (8,863 | ) | ||||||
Intercompany financing activities |
| — |
| (8,863 | ) | — |
| — |
| 8,863 |
| — |
| ||||||
Proceeds from issuance of common stock |
| 908 |
| — |
| — |
| — |
| — |
| 908 |
| ||||||
Tax payments related to vested deferred stock units |
| (4,506 | ) | — |
| — |
| — |
| — |
| (4,506 | ) | ||||||
Excess tax benefits from share-based plans |
| 981 |
| — |
| — |
| — |
| — |
| 981 |
| ||||||
Repurchases of common stock |
| (277 | ) | — |
| — |
| — |
| — |
| (277 | ) | ||||||
Net cash used in financing activities |
| (11,757 | ) | (16,929 | ) | — |
| — |
| 8,863 |
| (19,823 | ) | ||||||
Effect of exchange rate changes |
| — |
| — |
| — |
| 763 |
| — |
| 763 |
| ||||||
Increase (decrease) in cash and cash equivalents |
| — |
| 3,627 |
| (59 | ) | (4,027 | ) | — |
| (459 | ) | ||||||
Cash and cash equivalents at beginning of period |
| — |
| 18,262 |
| $ | 4,857 |
| $ | 39,142 |
| $ | — |
| $ | 62,261 |
| ||
Cash and cash equivalents at end of period |
| $ | — |
| $ | 21,889 |
| $ | 4,798 |
| $ | 35,115 |
| $ | — |
| $ | 61,802 |
|
25
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We encourage you to read this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 30, 2016.28, 2017. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 3031 in the following calendar year. For example, references to “2016”“2017” mean the 52-week53-week fiscal year ending January 28, 2017.February 3, 2018.
Executive Overview
Background
We are the largest specialty retailer of men’s suitsa leading authority on helping men dress for work, special occasions and the largest provider of rental producteveryday life. We serve our customers through an expansive omni-channel network that includes over 1,600 locations in the United States (“U.S.”) and Canada with 1,846 stores including tuxedo shops within Macy’s stores.as well as our branded e-commerce websites. Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities. Refer to Note 1415 of Notes to Condensed Consolidated Financial Statements and the discussion included in “Results of Operations” below for additional information and disclosures regarding our reportingreportable segments.
First Quarter Discussion
After a tough February 2017, our first quarter comparable sales improved as the quarter progressed. We conductare gaining traction on our retail segment asinitiatives of engaging more customers across all channels, strengthening our omni-channel experience and increasing sales of custom clothing. These initiatives support our strategy to innovate the best men’s specialty store of the future by providing our customers with an unmatched level of convenience, authority and personalization. We are committed to a specialty apparel retailer offering suits, suit separates, sport coats, slacks,balanced approach of investing in the business casual, sportswear, outerwear, dresswhile maintaining discipline in our management of inventory, expense and casual shirts, shoescapital, and accessories, primarily for men. We offer our productsfinding opportunities to unlock additional cash flow.
During the first quarter of fiscal 2017, we reached an agreement with Macy’s to wind down operations under the tuxedo rental license agreement established between Macy’s and services through multiple brands and channels including The Men’s Wearhouse/Men’s Wearhouse, and TuxInc. (“The Men’s Wearhouse”), Jos. A. Bank, Moores Clothing for Men (“Moores”), K&G, Joseph Abboud in 2015. The winding down of our tuxedo shops within Macy’s has begun and we expect all tuxedo shops within Macy’s to close by the Internetend of the second quarter of fiscal 2017. The agreement eliminates the risk of extended future operating losses and enables us to focus on our rental business at www.menswearhouse.com, www.josbank.com and www.josephabboud.com. Our stores are located throughout the United States (“U.S.”), Puerto Rico and Canada and carry a wide selection of exclusive and non-exclusive merchandise brands. Tuxedo and suit rentals are offered at our Men’s Wearhouse, Jos. A. Bank and Moores retail stores and tuxedo shops within Macy’s stores. In addition, we offer our customers alteration services and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel. We also conduct retail dry cleaning, laundry and heirlooming operations through MW Cleaners in Texas.Moores.
We operate two corporate apparel providers. Our UK-based operations,As a result of the largest provideragreement, we incurred $17.2 million of corporate apparel in the UK, operate under the Dimensions, Alexandra, and Yaffy brands. Our operations in the U.S. operate under the Twin Hill brand.termination-related costs, of which $14.6 million are cash charges. These operations provide corporate clothing uniforms and workwear to workforces through multiple channels including managed corporate accounts, catalogs and the internet at www.dimensions.co.uk and www.alexandra.co.uk.
In the first quarter of 2016, we revised our segment reporting presentation to reflect changes in how we manage our business, including resource allocation and performance assessment. Specifically, we are presenting expensescosts include $12.3 million related to our shared services platform separate from the resultscontract termination, $1.4 million of our operating segmentsrental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to promote enhanced comparability of our operating segments. Previously, these shared service expenses were primarily included in our retail segment. Comparable prior period information has been recast to reflect our revised segment presentation.
First Quarter Discussion
Our first quarter results were mixed as we navigated the difficult consumer and retail environment and cycled a strong performance in last year’s first quarter. While our net sales decline of 6.4% was slightly below our expectation, our focus on lowering operating expenses brought operating income and earnings per share in-line with our plan. Men’s Wearhouse reported a modestly below-plan comparable sales decline of 3.5% while our Jos. A. Bank comparable sales decline of 16.0% was better than our expectation, despite anniversarying significant Buy-One-Get-Three Free events in the same period last year. In May 2016, Men’s Wearhouse posted a comparable sales increase in the mid-single-digit range and Jos. A. Bank and Moores also saw improving trends.
Importantly, we are making progress on our transition plan for Tailored Brands. We are executing on our profit improvement program, organizational realignment, store base rationalization, and cost reductions. We remain committed to stabilizing, resizing, and rebuilding the founding of the Jos. A. Bank business to a base from which we can profitably grow on a go-forward basis.
Key operating metrics for the quarter ended April 30, 201629, 2017 include:
| · | Net sales decrease of 5.5% |
· | Comparable sales increased 3.5% at Jos. A. Bank while comparable sales decreased 3.1% at Men’s Wearhouse, 5.3% at Moores and 7.4% at K&G. |
· | Operating income was $31.0 million for the first quarter of 2017 which was flat compared to the first quarter of fiscal 2016. |
· | Diluted earnings per share of $0.04 compared to diluted earnings per share of $0.03 in the first quarter of fiscal 2016. |
Key liquidity metrics for the quarter ended April 30, 201629, 2017 include:
· | Cash provided by operating activities was $33.4 million for the first three months of fiscal 2017 compared to $46.4 million for the first three months of fiscal 2016. |
· | Capital expenditures were $17.8 million for the first three months of fiscal 2017 compared to $30.3 million for the first three months of fiscal 2016. |
· | We repaid $1.8 million on our term loan, repurchased and retired $7.4 million in face value of senior notes and had no borrowings outstanding on our revolving credit facility as of April 29, 2017. |
· | Dividends paid totaled $9.1 million for the three months ended April 29, 2017. |
· Cash provided by operating activities was $46.4 million compared to $49.0 million for the prior comparable period.
· Capital expenditures were $30.3 million in the first quarter
26
· We repaid $1.8 million on our term loan and had no borrowings outstanding on our ABL facility as of April 30, 2016.
· Dividends paid totaled $8.9 million for the quarter ended April 30, 2016.
Items Affecting Comparability of Results
The comparability of our results has been impacted by certain items, including costs to terminate our tuxedo rental license agreement with Macy’s, restructuring and other costs consisting of costs related to our profit improvement and store rationalization programs and integration costs for Jos. A. Bank. A summary of the effect of these items on pretax income for each applicable period is presented below (dollars in millions):
|
| For the Quarter |
| ||||
|
| April 30, |
| May 2, |
| ||
|
|
|
|
|
| ||
Restructuring and other charges(1) |
| $ | 13.2 |
| $ | — |
|
Integration costs related to Jos. A. Bank(2) |
| 3.6 |
| 5.8 |
| ||
Purchase accounting adjustment for the step up of Jos. A. Bank inventory |
| — |
| 0.7 |
| ||
Other purchase accounting related charges |
| (0.6 | ) | 2.4 |
| ||
Loss on extinguishment of debt related to Jos. A. Bank financing arrangements |
| — |
| 12.7 |
| ||
Separation costs with a former executive |
| — |
| 3.7 |
| ||
Other |
| 0.3 |
| — |
| ||
|
|
|
|
|
| ||
Total |
| $ | 16.5 |
| $ | 25.3 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| April 29, |
| April 30, |
| ||
|
| 2017 |
| 2016 |
| ||
Costs to terminate Macy's agreement (1) |
| $ | 17.2 |
| $ | — |
|
Restructuring and other charges(2) |
|
| — |
|
| 13.2 |
|
Integration costs related to Jos. A. Bank(3) |
|
| — |
|
| 3.6 |
|
Purchase accounting related charges for Jos. A. Bank |
|
| — |
|
| (0.6) |
|
Other |
|
| — |
|
| 0.3 |
|
Total (4) |
| $ | 17.2 |
| $ | 16.5 |
|
(1) | See Note 2 to the condensed consolidated financial statements for additional information. |
(2) | See Note 3 to the condensed consolidated financial statements for additional information. |
(3) | For the three months ended April 30, 2016, integration costs related to Jos. A. Bank included $1.7 million of severance costs. |
(4) | For the three months ended April 29, 2017, $15.8 million is included in selling, general and administrative expenses (“SG&A”) and $1.4 million is included in cost of sales. For the three months ended April 30, 2016, $16.4 million is included in SG&A and $0.1 million is included in cost of sales. |
(1) Consists of $5.0 million of consulting costs, $3.8 million of severance and employee-related costs, $2.0 million of store asset impairment charges and accelerated depreciation, $1.9 million of lease termination costs and $0.5 million of other costs.
(2) For the quarter ended April 30, 2016, integration costs related to Jos. A. Bank include $1.7 million of severance costs. For the quarter ended May 2, 2015, integration costs include $3.8 million of severance and employee-related costs.
Store Data
The following table presents information with respect to retail apparel stores and tuxedo shops within Macy’s stores in operation during each of the respective fiscal periods:
|
| For the Three Months |
| For the Year |
| ||
|
| April 30, |
| May 2, |
| January 30, |
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,724 |
| 1,758 |
| 1,758 |
|
Opened (1)(2) |
| 140 |
| 8 |
| 42 |
|
Closed |
| (18 | ) | (8 | ) | (76 | ) |
Open at end of the period |
| 1,846 |
| 1,758 |
| 1,724 |
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 716 |
| 702 |
| 714 |
|
Men’s Wearhouse and Tux |
| 153 |
| 207 |
| 160 |
|
Tuxedo shops @ Macy’s |
| 148 |
| — |
| 12 |
|
Jos. A. Bank(3) |
| 615 |
| 636 |
| 625 |
|
Moores |
| 125 |
| 124 |
| 124 |
|
K&G |
| 89 |
| 89 |
| 89 |
|
|
| 1,846 |
| 1,758 |
| 1,724 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Year Ended |
| ||
|
| April 29, |
| April 30, |
| January 28, |
|
|
| 2017 |
| 2016 |
| 2017 |
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,667 |
| 1,724 |
| 1,724 |
|
Opened (1) |
| 1 |
| 140 |
| 178 |
|
Closed |
| (5) |
| (18) |
| (235) |
|
Open at end of the period |
| 1,663 |
| 1,846 |
| 1,667 |
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 717 |
| 716 |
| 716 |
|
Men’s Wearhouse and Tux |
| 56 |
| 153 |
| 58 |
|
Tuxedo shops @ Macy’s |
| 170 |
| 148 |
| 170 |
|
Jos. A. Bank(3) |
| 503 |
| 615 |
| 506 |
|
Moores |
| 126 |
| 125 |
| 126 |
|
K&G |
| 91 |
| 89 |
| 91 |
|
|
| 1,663 |
| 1,846 |
| 1,667 |
|
| (1) | Includes 136 and 158 tuxedo shops within Macy’s stores opened in the three months ended April 30, 2016 and in the year ended January 28, 2017, respectively. |
(2) | Includes one Joseph Abboud store opened in 2015. |
(3) | Excludes franchise stores. |
During the first quarter of 2016,2017, we opened 140 stores/tuxedo shops (136one Men’s Wearhouse store and closed five stores (three Jos. A. Bank stores and two Men’s Wearhouse and Tux stores). In addition, we expect all 170 tuxedo shops within Macy’s stores two Men’s Wearhouse stores, one Jos. A. Bank store and one Moores store). We closed 18 stores (11 Jos. A. Bank stores and seven Men’s Wearhouse and Tux stores).to close in the second quarter of 2017.
27
Seasonality
Our sales and net earnings are subject to seasonal fluctuations. Our rental service revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is considered the seasonal low point. In addition, Jos. A. Bank has historicallygenerally experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have historicallygenerally resulted in sales and net earnings generated in the fourth quarter, which are significantly larger as compared to the other three quarters. This trend did not occur in the fourth quarter of 2015 as a result of our decision to change the brand’s promotional cadence. We currently expect this trend to resume in the future. With respect to our corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results. Because of these fluctuations, in our sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.
Results of Operations
For the Three Months Ended April 29, 2017 Compared to the Three Months Ended April 30, 2016 Compared to the Three Months Ended May 2, 2015
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
| |||||
|
| For the Three Months |
|
| For the Three Months Ended(1) |
| ||||
|
| April 30, |
| May 2, |
|
| April 29, |
| April 30, |
|
|
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 74.3 | % | 75.3 | % |
| 74.5 | % | 74.3 | % |
Rental services |
| 12.0 |
| 11.7 |
|
| 12.1 |
| 12.0 |
|
Alteration and other services |
| 6.1 |
| 6.1 |
|
| 6.0 |
| 6.1 |
|
Total retail sales |
| 92.4 |
| 93.1 |
|
| 92.6 |
| 92.4 |
|
Corporate apparel clothing product |
| 7.6 |
| 6.9 |
|
| 7.4 |
| 7.6 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Cost of sales (2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 43.9 |
| 44.1 |
|
| 43.3 |
| 43.9 |
|
Rental services |
| 15.9 |
| 15.6 |
|
| 17.1 |
| 15.9 |
|
Alteration and other services |
| 71.2 |
| 66.6 |
|
| 73.5 |
| 71.2 |
|
Occupancy costs |
| 14.4 |
| 13.7 |
|
| 14.5 |
| 14.4 |
|
Total retail cost of sales |
| 56.5 |
| 55.8 |
|
| 56.3 |
| 56.5 |
|
Corporate apparel clothing product |
| 71.0 |
| 72.1 |
|
| 72.7 |
| 71.0 |
|
Total cost of sales |
| 57.5 |
| 56.9 |
|
| 57.5 |
| 57.5 |
|
Gross margin (2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 56.1 |
| 55.9 |
|
| 56.7 |
| 56.1 |
|
Rental services |
| 84.1 |
| 84.4 |
|
| 82.9 |
| 84.1 |
|
Alteration and other services |
| 28.8 |
| 33.4 |
|
| 26.5 |
| 28.8 |
|
Occupancy costs |
| (14.4 | ) | (13.7 | ) |
| (14.5) |
| (14.4) |
|
Total retail gross margin |
| 43.5 |
| 44.2 |
|
| 43.7 |
| 43.5 |
|
Corporate apparel clothing product |
| 29.0 |
| 27.9 |
|
| 27.3 |
| 29.0 |
|
Total gross margin |
| 42.5 |
| 43.1 |
|
| 42.5 |
| 42.5 |
|
Advertising expense |
| 5.8 |
| 5.7 |
|
| 5.4 |
| 5.8 |
|
Selling, general and administrative expenses |
| 32.9 |
| 31.1 |
|
| 33.1 |
| 32.9 |
|
Operating income |
| 3.7 |
| 6.3 |
|
| 4.0 |
| 3.7 |
|
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.2 | ) | (3.0 | ) |
| (3.3) |
| (3.2) |
|
Loss on extinguishment of debt |
| — |
| (1.4 | ) | |||||
Gain on extinguishment of debt, net |
| 0.1 |
| — |
| |||||
Earnings before income taxes |
| 0.5 |
| 1.8 |
|
| 0.8 |
| 0.5 |
|
Provision for income taxes |
| 0.4 |
| 0.7 |
|
| 0.6 |
| 0.4 |
|
Net earnings |
| 0.2 | % | 1.2 | % |
| 0.2 | % | 0.2 | % |
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
(2) | Calculated as a percentage of related sales. |
28
(1)Percentage line items may not sum to totals due to the effectTable of rounding.Contents
(2)Calculated as a percentage of related sales.
Net Sales
Total net sales decreased $56.3$45.9 million, or 6.4%5.5%, to $828.8$782.9 million for the first quarter of 20162017 as compared to the first quarter of 2015.2016.
Total retail sales decreased $58.0$40.9 million, or 7.0%5.3%, to $766.2$725.3 million for the first quarter of 20162017 as compared to the first quarter of 2015 primarily2016 due to a $51.2$32.1 million decrease in clothing product revenues, primarily at our Jos. A. Bank and Men’s Wearhouse brands, a $3.3$5.0 million decrease in rental service revenuesservices revenue and a $3.5$3.8 million decrease in alteration and other services revenues. The net decrease in total retail sales is attributable to the following:further described below:
(in millions) |
| Amount Attributed to | |
$ | (14.7 | ) | 3.5% decrease in comparable sales at Men’s Wearhouse. |
(30.2 | ) | 16.0% decrease in comparable sales at Jos. A. Bank. | |
(1.7 | ) | 3.9% decrease in comparable sales at Moores(1). | |
0.2 |
| 0.2% increase in comparable sales at K&G. | |
(4.7 | ) | Decrease in non-comparable sales. | |
(2.4 | ) | Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | |
(4.5 | ) | Other. | |
$ | (58.0 | ) | Decrease in total retail sales. |
| ||||
(in millions) | Amount Attributed to | |||
$ | (12.7) | 3.1% decrease in comparable sales at Men's Wearhouse. | ||
5.3 | 3.5% increase in comparable sales at Jos. A. Bank. | |||
(6.6) | 7.4% decrease in comparable sales at K&G. | |||
(2.2) | 5.3% decrease in comparable sales at Moores(1). | |||
(20.8) | Decrease in non-comparable sales (primarily due to closed stores). | |||
(0.4) | Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | |||
(3.5) | Other (primarily decrease in alteration revenues). | |||
$ | (40.9) | Decrease in total retail sales. |
| (1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
Comparable sales exclude the net sales of a store for any month of one period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales. We operate our business using an omnichannelomni-channel approach and do not differentiate e-commerce sales from our other channels. In addition, as a result of our decision to close all factory stores at Jos. A. Bank, we have excluded the results of these stores from our comparable sales calculation for Jos. A. Bank.
The decrease in comparable sales at Men’s Wearhouse resulted primarily from decreaseda decrease in transactions partially offset by an increase in average transactions per store andunit retail (net selling prices) while units sold per transaction that more than offset increased average unit retails (net selling prices).were essentially flat. The decreaseincrease at Jos. A. Bank resulted primarily from decreasedan increase in transactions that more than offset a decrease in average transactionsunit retail while units per storetransaction were essentially flat. The decrease at K&G resulted from lower transactions partially offset by higheran increase in units per transaction and higher rental revenue. The increase at K&G resulted from increased units sold per transaction offset by decreased average transactions per store while average unit retails were flat.retail. The decrease at Moores resulted from decreaseddecreases in both average unit retail and transactions per store andwhile units sold per transaction partially offset by increased average unit retails.were flat. At Men’s Wearhouse, rental service comparable sales decreased 4.8%0.9% primarily due to a decrease in unit rentals partially offset by an increase in rental rates.rentals.
Total corporate apparel clothing product sales increased $1.8decreased $5.0 million for the first quarter of 20162017 as compared to the first quarter of 2015. UK corporate apparel sales increased $1.3 million2016 primarily due mainly to higher sales from existing customer programs partially offset by the impact of a weaker British pound Sterling this year compared to last year. U.S. corporate apparel sales increased $0.5 million primarily due to increased sales from existing customer programs.year of approximately $6.9 million.
Gross Margin
BuyingProcurement and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods soldsales while others, like us, include all or a portion of such costs in cost of goods soldsales and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.
Our total gross margin decreased $29.7$19.4 million, or 7.8%5.5%, to $351.8$332.4 million in the first quarter of 20162017 as compared to the first quarter of 2015.2016. Total retail segment gross margin decreased $30.8$17.0 million, or 8.5%5.1%, from the same prior year quarter to $333.7 million in the first quarter of 2016. As2017 compared to the same period last year primarily due to lower sales across our retail brands.
For the retail segment, total gross margin as a percentage of relatedretail sales retail segment gross margin decreasedincreased from 44.2% in the first quarter of 2015 to 43.5% in the first quarter of 2016 to 43.7% in the first quarter of 2017 driven primarily by deleveragingleveraging of occupancy costs from lower sales.procurement and distribution costs.
Occupancy costs decreased $3.0$5.0 million while occupancyprimarily due to our store rationalization efforts. Occupancy costs as a percentage of retail sales, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, increased from 13.7%14.4% in the first quarter of 2016 to 14.4%14.5% for the first quarter of 2016 compared to the first quarter of 2015,2017, primarily due to deleveraging resulting from lower retail sales.
29
Corporate apparel gross margin increased $1.1decreased $2.4 million, or 6.6%13.1%, in the first quarter of 2017 as compared to the first quarter of 2016. For the corporate apparel segment, total gross margin as a percentage of related sales increaseddecreased from 27.9% in the first quarter of 2015 to 29.0% in the first quarter of 2016 to 27.3% in the first quarter of 2017 primarily due to changes in the sales mix.impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our United Kingdom (“UK”) customers.
Advertising Expense
Advertising expense decreased to $42.3 million in the first quarter of 2017 from $47.9 million in the first quarter of 2016, from $50.7 million in the first quarter of 2015, a decrease of $2.7$5.7 million, or 5.4%11.8%. The decrease in advertising expense was driven primarily by reductions in television advertising reflecting a mix shift to digital advertising, as well as the timing of marketing campaigns that will launch later in 2017. As a percentage of total net sales, advertising expense increased from 5.7%was 5.4% in the first quarter of 20152017 compared to 5.8% in the first quarter of 2016 primarily due to deleveraging resulting from lower sales.2016.
Selling, General and Administrative Expenses
SG&A expenses decreased to $259.2 million in the first quarter of 2017 from $272.9 million in the first quarter of 2016, from $275.6 million in the first quarter of 2015, a decrease of $2.7$13.7 million or 1.0%5.0%. As a percentage of total net sales, these expenses increased from 31.1% in the first quarter of 2015 to 32.9% in the first quarter of 2016 primarily reflecting deleveraging from lower sales.to 33.1% in the first quarter of 2017. The components of this 1.8% net0.2% increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
% |
| in millions |
| Attributed to | |
0.9 |
| $ | 6.8 |
| Increase in restructuring, integration and other items as a percentage of sales from 1.1% in the first quarter of 2015 to 2.0% in the first quarter of 2016. For the first quarter of 2016, these costs totaled $16.4 million, related primarily to restructuring and other costs and Jos. A. Bank integration costs. For the first quarter of 2015, these costs totaled $9.6 million, related primarily separation costs for a former executive and integration costs related to Jos. A. Bank. |
0.8 |
| (0.1 | ) | Store salaries decreased $0.1 million but increased as a percentage of sales from 12.6% in the first quarter of 2015 to 13.4% in the first quarter of 2016 primarily due to deleverage resulting from lower retail sales. | |
0.1 |
| (9.4 | ) | Increase in other SG&A expenses as a percentage of sales from 17.5% in the first quarter of 2015 to 17.6% in the first quarter of 2016. Other SG&A expenses decreased $9.4 million primarily due to cost reduction initiatives and a decrease in amortization of intangible assets as a result of the impairment charges recorded in the fourth quarter of 2015. | |
1.8 | % | $ | (2.7 | ) | Total |
|
|
|
|
|
|
% |
| in millions |
| Attributed to | |
— |
| $ | (0.6) |
| Restructuring, integration and other items as a percentage of sales was 2.0% in the first quarter of 2017 and 2016. For the first quarter of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. For the first quarter of 2016, these costs totaled $16.4 million, related primarily to restructuring and other costs and Jos. A. Bank integration costs. |
0.1 |
|
| (5.7) |
| Store salaries decreased $5.7 million primarily due to our store rationalization efforts yet increased as a percentage of sales from 13.4% in the first quarter of 2016 to 13.5% in the first quarter of 2017 primarily due to deleverage resulting from lower retail sales. |
0.1 |
|
| (7.4) |
| Increase in other SG&A expenses as a percentage of sales from 17.6% in the first quarter of 2016 to 17.7% in the first quarter of fiscal 2017. Other SG&A expenses decreased $7.4 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts. |
0.2 |
| $ | (13.7) |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales increased from 26.6% in the first quarter of 2015 to 26.9% in the first quarter of 2016.2016 to 27.8% in the first quarter of 2017 primarily due to deleverage resulting from lower retail sales. Retail segment SG&A expenses decreased $12.7$5.0 million primarily due to cost reduction initiatives.decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts partially offset by costs to terminate the Macy’s agreement.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 25.0% in the first quarter of 2015 to 24.9% in the first quarter of 2016.2016 to 23.2% in the first quarter of 2017. Corporate apparel segment SG&A expenses increased $0.4decreased $2.2 million.
Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A. Shared service SG&A expenses as a percentage of total net sales increaseddecreased from 4.7% in the first quarter of 2015 to 6.1% in the first quarter of 2016.2016 to 5.7% in the first quarter of 2017. Shared service SG&A expenses increased $9.6decreased $6.5 million primarily due to decreases in costs associated with ourlast year’s profit improvement program.
30
Provision for Income Tax
Our effective income tax rate increased to 70.2% for the first quarter of 2017 from 63.7% for the first quarter of 2016 from 35.8%2016. Our effective income tax rate for the first quarter of 20152017 is higher than the United States (“U.S”) statutory rate as well as the effective income tax rate for the first quarter of 2016 primarily dueas a result of $2.2 million of tax deficiencies related to low U.S. book income and the impactvesting of non-recurring true-up itemsstock-based awards recorded in the first quarter of 2016.2017 resulting from the adoption of new accounting guidance related to stock-based compensation.
For the first quarterquarters of 20162017 and 2015,2016, the statutory tax rates in Canada and the UK were approximately 26% and 20%, respectively, which favorably impacted our effective tax rate.respectively. For the first quarterquarters of 20162017 and 2015,2016, tax expense for our operations in foreign jurisdictions totaled $1.6$1.7 million and $2.7$1.6 million, respectively.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws. Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings. In addition, if our financial results in fiscal 20162017 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several federal, foreign and state audits, however, we currently do not believe these audits will result in any material charge to tax expense in the future.
Net Earnings
Net earnings were $1.8 million for the first quarter of 2017 compared with net earnings of $1.6 million for the first quarter of 2016 compared with net earnings of $10.4 million for the first quarter of 2015.2016.
Liquidity and Capital Resources
At April 29, 2017, April 30, 2016 May 2, 2015 and January 30, 2016,28, 2017, cash and cash equivalents totaled $66.6 million, $36.4 million $61.8 million and $30.0$70.9 million, respectively, and working capital totaled $712.4 million, $717.7 million $765.8 million and $723.6$705.8 million, respectively. Our primary sources of working capital are cash flows from operations and available borrowings under our financing arrangements, as described below.
On June 18,In 2014, The Men’s Wearhouse Inc. entered into a term loan credit agreement that provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. In addition, on June 18,in 2014, The Men’s Wearhouse Inc. issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).
The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements and as of April 30, 2016,29, 2017, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. In addition,Currently, we believe our total leverage ratio and secured leverage ratio will move below the maximums specified in accordance with the termsagreements during fiscal 2018, which will result in the elimination of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $35.5 million to the Term Loan lenders prior to April 29, 2016. The entire $35.5 million prepayment was made subsequent to the end of the quarter on May 2, 2016.these additional restrictions.
The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature onin June 18, 2021. The interest rate on the Term Loan is based on 3-month1-month LIBOR, which was approximately 0.64%1.00% at April 30, 2016. However, the29, 2017. The Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement, to swap variable-rate interestin which the variable rate payments due under a portion of the Term Loan were exchanged for fixed-rate interest payments on a notional amount of $520.0 million, effective in February 2015. Thefixed rate. In April 2017, we entered into an additional interest rate swap agreement matures in August 2018 and has periodic interest settlements. Under thisto exchange variable rate payments under a portion of the Term Loan for a fixed rate. At April 29, 2017, the total notional amount under our interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.swaps is $550.0 million.
31
In April 2015, The Men’s Wearhouse Inc. entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of ourthe Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan, of June 18, 2021, or collateral and guarantees under the existing Term Loan.
As a result of theour interest rate swapswaps and the Incremental Agreement, we have converted a majoritysignificant portion of the variable interest rate under the Term Loan to a fixed rate and, as of April 30, 2016,29, 2017, the Term Loan had a weighted average interest rate of 4.90%5.10%.
The ABL Facility provides for a senior secured asset-based revolving credit facility of $500.0 million, with possible future increases to $650.0 million withunder an expansion feature whichthat matures onin June 18, 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%. As of April 29, 2017, there were no borrowings outstanding under the ABL Facility.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except forclaims and to secure inventory purchases. At April 29, 2017, letters of credit totaling approximately $21.4$31.9 million were issued and outstanding, no amounts were drawn on the ABL Facility as of April 30, 2016 and we have approximately $438.5 million of borrowing availabilityoutstanding. Borrowings available under the ABL Facility as of April 30, 2016.29, 2017 were $468.1 million.
The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.
The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes will mature onin July 1, 2022. Interest on the Senior Notes is payable onin January 1 and July 1 of each year.
Cash Flow Activities
Operating activities — Net cash provided by operating activities was $46.4$33.4 million and $49.0$46.4 million for the first three months of 20162017 and 2015,2016, respectively. The $2.6$13.1 million decrease was driven by fluctuations in accounts payable, accrued expenses and other current liabilities and a decrease in net earnings after adjusting for non-cash items partially offset by changes in other assets related to prior year income tax refunds.refunds partially offset by lower inventory purchases primarily resulting from our store rationalization efforts and a planned reduction in rental product purchases.
Investing activities — Net cash used in investing activities was $29.8$18.2 million and $30.4$29.8 million for the first three months of 2017 and 2016, and 2015, respectively. The $11.6 million decrease was driven by a decrease in capital expenditures primarily due to the prior year opening of tuxedo shops within Macy’s.
Financing activities — Net cash used in financing activities was $11.5$18.6 million and $19.8$11.5 million for the first three months of 20162017 and 2015,2016, respectively. The $8.3$7.2 million decreaseincrease primarily reflects a decreasethe impact of the repurchase of $7.4 million in required repayments on our Term Loan as well as deferred financing costs related to the refinancing of $400.0 millionface value of our Term Loan last year.Senior Notes.
Share repurchase program — The In March 2013, the Board of Directors (the “Board”) had previously approved a $200.0 million share repurchase program for our common stock. At April 29, 2017, the remaining balance available under the Board’s authorization was $48.0 million. During the first three monthsquarters of 20162017 and 2015,2016, no shares were repurchased in open market transactions under the Board’s March 2013 authorization. At April 30, 2016, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.
Dividends — For each of Cash dividends paid were approximately $9.1 million and $8.9 million for the first three months of 2017 and 2016, and 2015, cash dividends paid totaled $8.9 million.respectively. During each of the quarters ended April 29, 2017 and April 30, 2016, and May 2, 2015, we declared quarterly dividends of $0.18 per share.
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Future Sources and Uses of Cash
Our primary uses of cash are to finance working capital requirements of our operations and to repay our indebtedness. In addition, we will use cash to fund capital expenditures, income taxes, costs related to our store rationalization and profit improvement programs including lease termination payments, dividend payments, operating leases and various other commitments and obligations, as they arise.
During the course of the first quarter of 2017, we borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling $34.7 million. In addition, subsequent to the end of the first quarter of 2017, we repurchased and retired $17.5 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility and subsequently repaid.
Capital expenditures are anticipated to be in the range of $110.0 to $120.0approximately $90.0 million for 2016.2017. This amount includes the anticipated costs to open 166 shops within Macy’s stores, 15 to 20four Men’s Wearhouse stores three Moores stores, two Jos. A. Bank stores and two K&G stores and to expand and/relocate or relocateremodel approximately 810 to 12 existing Men’s Wearhouse stores, four to eight existing Jos. A. Bank stores and one existing K&G store. During15 stores. The balance of the first three months of 2016, we opened 140 stores/tuxedo shops (136 tuxedo shops within Macy’s stores, two Men’s Wearhouse stores, one Jos. A. Bank store and one Moores store). Capitalcapital expenditures for 20162017 will also include integration projectsbe used for Jos. A. Bank, point-of-sale and other computer equipment and systems, store remodeling, distribution facilities and investment in other corporate assets. The actual amount of future capital expenditures will depend in part on the number of new stores opened and the terms on which new stores are leased and the timing of our Jos. A. Bank integration projects, as well as on industry trends consistent with our anticipated operating plans.
Current and future domestic and global economic conditions could negatively affect our future operating results as well as our existing cash and cash equivalents balances. In addition, conditions in the financial markets could limit our access to further capital resources, if needed, and could increase associated costs. We believe based on our current business plan that our existing cash and cash flows from operations and availability under our ABL Facility will be sufficient to fund our operating cash requirements, repayment of current indebtedness costs related to our store rationalization and profit improvement plans including lease termination payments, planned store openings, relocations and remodels, other capital expenditures and integration costs associated with Jos. A. Bank.expenditures.
Contractual Obligations
There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017, except for the impact of terminating the tuxedo rental license agreement with Macy's. As a result of the termination of the tuxedo rental license agreement with Macy’s, our total other contractual obligations decreased by $114.9 million.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements requires the appropriate application of accounting policies in accordance with generally accepted accounting principles. In many instances, this also requires management to make estimates and assumptions about future events that affect the amounts and disclosures included in our financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under our current business model. However, because future events and conditions and their effects cannot be determined with certainty, actual results will differ from our estimates and such differences could be material to our financial statements. There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in foreign currency exchange rates and changes in interest rates.
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries. In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity. Our risk management policy is to hedge a portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts. In addition, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.
As the foreign exchange forward contracts are with financial institutions, we are exposed to credit risk in the event of nonperformance by these parties but due to the creditworthiness of these major financial institutions, full performance is anticipated.
As discussed in Note 45 and Note 1214 of the Notes to the Condensed Consolidated Financial Statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our indebtedness. As of April 30, 2016, 86%29, 2017, 94% of our total debt was at a fixed rate with the remainder at a variable rate. In addition, due to the existence ofAs a LIBOR floor of 1% per annum on the portion of our debt subject to a variable rate,result, we believe our interest rate risk is substantially mitigated. At April 30, 2016,29, 2017, the effect of one percentage point change in interest rates would result in an approximate $2.4$1.0 million change in annual interest expense on our Term Loan.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal first quarter ended April 30, 201629, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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For a description of our legal proceedings, see Note 1516 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Exhibits filed with this quarterly report on Form 10-Q are incorporated herein by reference as set forth in the Index to Exhibits on page 35.37.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June TAILORED BRANDS, INC. By /s/ Jack P. Calandra Executive Vice President, Chief Financial Officer 9, 20168, 2017JON W. KIMMINSJACK P. CALANDRAJon W. KimminsTreasurer and Principal Financial OfficerTreasurer
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Exhibit |
| Exhibit Index | ||
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10.1 |
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10.2 | — | Form of Deferred Stock Unit Award Agreement (for non‑employee directors) under the Tailored Brands, Inc. 2016 Long-Term Incentive Plan (filed herewith). | ||
31.1 |
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| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). |
31.2 |
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| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). |
32.1 |
| — |
| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). † |
32.2 |
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| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). † |
101.1 |
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| The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10-Q for the three months ended April |
†This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.