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
For the quarterly period ended April 29, 2017May 5, 2018 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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’sRegistrant'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 ☒. No ☐.
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 ☒. No ☐.
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"large accelerated filer”filer", “accelerated filer”"accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒ | Accelerated filer ☐ | |
Non-accelerated filer ☐ |
| |
Smaller reporting company ☐ | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐. No ☒.
The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 27, 2017June 1, 2018 was 49,048,248.49,799,176.
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Item 1 — Condensed Consolidated Financial Statements (unaudited) |
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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 and10‑Q or in other public filingsmaterials we have filed or will file with the Securities and press releasesExchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by the Company (as defined below)us) contains or may contain “forward-looking” informationforward‑looking statements (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk, including, but not limited to, statements regarding our future financial performance and uncertainty. Forward-lookingfinancial condition. Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. 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, margins, costs, earnings, number and costs of store openings, closings, remodels, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for clothing or rental product, economic conditions, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-lookingForward‑looking statements may be made by management orallyare based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.
Any forward‑looking statements that we make herein and in writing, including, but not limited 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 statementsfuture reports are not guarantees of future performance, and a variety of factors could cause actual results tomay differ materially from the anticipated or expected results expressedthose in or suggested by these forward-looking statements.such forward‑looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international macro-economicmacro‑economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans,plans; cost reduction initiatives store rationalization plans, profit improvement plans,and revenue enhancement strategies; the impact of the termination of our tuxedo rental license agreement with Macy’s; changes in demand for 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;strategies, including custom clothing; 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; the impact of cybersecurity threats or data breaches 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 28, 2017, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. Forward-lookingForward‑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-lookingforward‑looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, unlessexcept as required to do so by applicable law.
All However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this cautionary notice.section.
1
PART I – FINANCIAL INFORMATION
ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
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| April 29, |
| April 30, |
| January 28, |
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| May 5, |
| April 29, |
| February 3, |
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| 2017 |
| 2016 |
| 2017 |
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| 2018 |
| 2017 |
| 2018 |
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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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| $ | 93,166 |
| $ | 66,580 |
| $ | 103,607 |
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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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| 87,411 |
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| 84,016 |
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| 79,783 |
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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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| 843,671 |
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| 984,221 |
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| 851,931 |
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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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| 69,937 |
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| 69,288 |
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| 78,252 |
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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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| 1,094,185 |
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| 1,204,105 |
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| 1,113,573 |
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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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| 437,944 |
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| 467,661 |
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| 460,674 |
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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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| 128,744 |
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| 147,495 |
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| 123,730 |
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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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| 104,802 |
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| 117,585 |
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| 120,292 |
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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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| 167,320 |
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| 170,966 |
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| 168,987 |
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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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| 12,827 |
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| 6,423 |
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| 12,699 |
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TOTAL ASSETS |
| $ | 2,114,235 |
| $ | 2,276,821 |
| $ | 2,097,872 |
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| $ | 1,945,822 |
| $ | 2,114,235 |
| $ | 1,999,955 |
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LIABILITIES AND SHAREHOLDERS' DEFICIT |
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LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 171,886 |
| $ | 203,248 |
| $ | 177,380 |
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| $ | 192,878 |
| $ | 171,886 |
| $ | 145,106 |
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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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| 350,414 |
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| 303,602 |
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| 285,537 |
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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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| 1,740 |
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| 2,861 |
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| 6,121 |
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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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| 9,000 |
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| 13,379 |
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| 7,000 |
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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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| 554,032 |
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| 491,728 |
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| 443,764 |
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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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| 1,277,508 |
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| 1,574,486 |
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| 1,389,808 |
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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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| 151,503 |
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| 161,600 |
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| 164,191 |
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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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| 1,983,043 |
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| 2,227,814 |
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| 1,997,763 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' DEFICIT: |
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SHAREHOLDERS' (DEFICIT) EQUITY: |
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Preferred stock |
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| — |
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| — |
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| — |
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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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| 496 |
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| 490 |
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| 492 |
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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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| 494,849 |
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| 474,369 |
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| 491,648 |
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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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| (510,441) |
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| (546,230) |
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| (479,166) |
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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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| (22,125) |
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| (42,208) |
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| (10,782) |
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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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Total shareholders' (deficit) equity |
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| (37,221) |
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| (113,579) |
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| 2,192 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
| $ | 1,945,822 |
| $ | 2,114,235 |
| $ | 1,999,955 |
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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 29, 2017 |
| April 30, 2016 |
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| May 5, 2018 |
| April 29, 2017 |
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Net sales: |
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Retail clothing product |
| $ | 583,585 |
| $ | 615,668 |
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| $ | 613,644 |
| $ | 583,585 |
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Rental services |
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| 94,820 |
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| 99,831 |
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| 100,227 |
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| 94,820 |
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Alteration and other services |
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| 46,900 |
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| 50,743 |
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| 40,972 |
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| 46,900 |
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Total retail sales |
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| 725,305 |
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| 766,242 |
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| 754,843 |
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| 725,305 |
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Corporate apparel clothing product |
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| 57,601 |
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| 62,580 |
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| 63,121 |
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| 57,601 |
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Total net sales |
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| 782,906 |
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| 828,822 |
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| 817,964 |
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| 782,906 |
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Cost of sales: |
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Retail clothing product |
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| 252,879 |
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| 270,355 |
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| 276,220 |
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| 252,879 |
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Rental services |
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| 16,168 |
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| 15,884 |
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| 14,657 |
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| 16,168 |
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Alteration and other services |
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| 34,472 |
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| 36,150 |
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| 34,178 |
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| 34,472 |
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Occupancy costs |
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| 105,089 |
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| 110,135 |
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| 101,019 |
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| 105,089 |
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Total retail cost of sales |
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| 408,608 |
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| 432,524 |
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| 426,074 |
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| 408,608 |
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Corporate apparel clothing product |
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| 41,858 |
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| 44,457 |
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| 46,666 |
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| 41,858 |
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Total cost of sales |
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| 450,466 |
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| 476,981 |
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| 472,740 |
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| 450,466 |
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Gross margin: |
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Retail clothing product |
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| 330,706 |
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| 345,313 |
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| 337,424 |
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| 330,706 |
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Rental services |
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| 78,652 |
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| 83,947 |
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| 85,570 |
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| 78,652 |
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Alteration and other services |
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| 12,428 |
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| 14,593 |
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| 6,794 |
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| 12,428 |
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Occupancy costs |
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| (105,089) |
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| (110,135) |
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| (101,019) |
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| (105,089) |
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Total retail gross margin |
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| 316,697 |
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| 333,718 |
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| 328,769 |
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| 316,697 |
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Corporate apparel clothing product |
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| 15,743 |
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| 18,123 |
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| 16,455 |
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| 15,743 |
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Total gross margin |
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| 332,440 |
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| 351,841 |
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| 345,224 |
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| 332,440 |
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Advertising expense |
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| 42,252 |
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| 47,928 |
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| 41,233 |
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| 42,252 |
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Selling, general and administrative expenses |
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| 259,186 |
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| 272,918 |
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| 251,094 |
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| 259,186 |
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Operating income |
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| 31,002 |
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| 30,995 |
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| 52,897 |
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| 31,002 |
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Interest income |
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| 67 |
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| 13 |
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| 85 |
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| 67 |
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Interest expense |
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| (25,621) |
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| (26,502) |
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| (21,981) |
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| (25,621) |
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Gain on extinguishment of debt, net |
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| 715 |
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| — |
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(Loss) gain on extinguishment of debt, net |
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| (12,711) |
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| 715 |
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Earnings before income taxes |
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| 6,163 |
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| 4,506 |
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| 18,290 |
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| 6,163 |
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Provision for income taxes |
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| 4,324 |
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| 2,869 |
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| 4,381 |
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| 4,324 |
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Net earnings |
| $ | 1,839 |
| $ | 1,637 |
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| $ | 13,909 |
| $ | 1,839 |
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Net earnings per common share allocated to common shareholders: |
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Net earnings per common share: |
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Basic |
| $ | 0.04 |
| $ | 0.03 |
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| $ | 0.28 |
| $ | 0.04 |
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Diluted |
| $ | 0.04 |
| $ | 0.03 |
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| $ | 0.27 |
| $ | 0.04 |
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Weighted-average common shares outstanding: |
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Basic |
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| 48,808 |
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| 48,446 |
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| 49,458 |
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| 48,808 |
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Diluted |
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| 49,151 |
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| 48,621 |
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| 50,720 |
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| 49,151 |
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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 INCOME (LOSS) INCOME
(In thousands)
(Unaudited)
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| For the Three Months Ended |
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| For the Three Months Ended |
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| April 29, |
| April 30, |
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| May 5, |
| April 29, |
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| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Net earnings |
| $ | 1,839 |
| $ | 1,637 |
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| $ | 13,909 |
| $ | 1,839 |
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Currency translation adjustments |
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| 1,341 |
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| 16,429 |
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| (14,143) |
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| 1,341 |
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Unrealized (loss) gain on cash flow hedges, net of tax |
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| (3,466) |
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| 240 |
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Comprehensive (loss) income |
| $ | (286) |
| $ | 18,306 |
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Unrealized gain (loss) on cash flow hedges, net of tax |
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| 2,800 |
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| (3,466) |
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Comprehensive income (loss) |
| $ | 2,566 |
| $ | (286) |
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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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| April 29, |
| April 30, |
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| For the Three Months Ended |
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| 2017 |
| 2016 |
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| May 5, 2018 |
| April 29, 2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
| $ | 1,839 |
| $ | 1,637 |
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| $ | 13,909 |
| $ | 1,839 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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| 26,426 |
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| 30,306 |
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| 26,679 |
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| 26,426 |
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Rental product amortization |
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| 7,878 |
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| 8,304 |
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| 8,756 |
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| 7,878 |
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Gain on extinguishment of debt, net |
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| (715) |
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| — |
| |||||||
Loss (gain) on extinguishment of debt, net |
|
| 12,711 |
|
| (715) |
| |||||||
Amortization of deferred financing costs and discount on long-term debt |
|
| 1,849 |
|
| 1,916 |
|
|
| 1,333 |
|
| 1,849 |
|
Loss on disposition of assets |
|
| 1,437 |
|
| 9 |
|
|
| 3,618 |
|
| 1,437 |
|
Asset impairment charges |
|
| 2,867 |
|
| 1,162 |
|
|
| 269 |
|
| 2,867 |
|
Share-based compensation |
|
| 4,735 |
|
| 4,118 |
|
|
| 4,581 |
|
| 4,735 |
|
Deferred tax (benefit) expense |
|
| (269) |
|
| 3,539 |
| |||||||
Deferred tax expense (benefit) |
|
| 748 |
|
| (269) |
| |||||||
Deferred rent expense and other |
|
| 210 |
|
| 296 |
|
|
| 73 |
|
| 210 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (17,432) |
|
| (18,955) |
|
|
| (10,871) |
|
| (17,432) |
|
Inventories |
|
| (27,831) |
|
| (44,916) |
|
|
| (11,886) |
|
| (27,831) |
|
Rental product |
|
| (4,833) |
|
| (23,129) |
|
|
| (14,377) |
|
| (4,833) |
|
Other assets |
|
| 3,888 |
|
| 65,973 |
|
|
| 8,124 |
|
| 3,888 |
|
Accounts payable, accrued expenses and other current liabilities |
|
| 32,943 |
|
| 17,246 |
|
|
| 82,755 |
|
| 32,943 |
|
Income taxes payable |
|
| 1,529 |
|
| — |
|
|
| (4,301) |
|
| 1,529 |
|
Other liabilities |
|
| (1,170) |
|
| (1,071) |
|
|
| (1,893) |
|
| (1,170) |
|
Net cash provided by operating activities |
|
| 33,351 |
|
| 46,435 |
|
|
| 120,228 |
|
| 33,351 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (17,786) |
|
| (30,325) |
|
|
| (10,980) |
|
| (17,786) |
|
Proceeds from divestiture of business |
|
| 17,732 |
|
| — |
| |||||||
Acquisition of business, net of cash |
|
| (457) |
|
| — |
|
|
| — |
|
| (457) |
|
Proceeds from sales of property and equipment |
|
| 12 |
|
| 501 |
|
|
| — |
|
| 12 |
|
Net cash used in investing activities |
|
| (18,231) |
|
| (29,824) |
| |||||||
Net cash provided by (used in) investing activities |
|
| 6,752 |
|
| (18,231) |
| |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| (1,750) |
|
| (1,750) |
| |||||||
Payments on original term loan |
|
| (993,420) |
|
| (1,750) |
| |||||||
Proceeds from new term loan |
|
| 895,500 |
|
| — |
| |||||||
Payments on new term loan |
|
| (2,250) |
|
| — |
| |||||||
Proceeds from asset-based revolving credit facility |
|
| 137,650 |
|
| 204,014 |
|
|
| 1,500 |
|
| 137,650 |
|
Payments on asset-based revolving credit facility |
|
| (137,650) |
|
| (204,014) |
|
|
| (1,500) |
|
| (137,650) |
|
Repurchase and retirement of senior notes |
|
| (6,601) |
|
| — |
|
|
| (18,240) |
|
| (6,601) |
|
Deferred financing costs |
|
| (5,576) |
|
| — |
| |||||||
Cash dividends paid |
|
| (9,131) |
|
| (8,921) |
|
|
| (9,618) |
|
| (9,131) |
|
Proceeds from issuance of common stock |
|
| 467 |
|
| 434 |
|
|
| 3,649 |
|
| 467 |
|
Tax payments related to vested deferred stock units |
|
| (1,632) |
|
| (1,247) |
|
|
| (5,025) |
|
| (1,632) |
|
Net cash used in financing activities |
|
| (18,647) |
|
| (11,484) |
|
|
| (134,980) |
|
| (18,647) |
|
Effect of exchange rate changes |
|
| (782) |
|
| 1,322 |
|
|
| (2,441) |
|
| (782) |
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
| (4,309) |
|
| 6,449 |
| |||||||
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (10,441) |
|
| (4,309) |
| |||||||
Balance at beginning of period |
|
| 70,889 |
|
| 29,980 |
|
|
| 103,607 |
|
| 70,889 |
|
Balance at end of period |
| $ | 66,580 |
| $ | 36,429 |
|
| $ | 93,166 |
| $ | 66,580 |
|
See Notes to Condensed Consolidated Financial Statements.
5
1. Significant Accounting Policies
Basis of Presentation — The condensed consolidated financial statements herein include the accounts of Tailored Brands, Inc. and its subsidiaries (the “Company”"Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”"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 have 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 28, 2017.February 3, 2018.
Unless the context otherwise requires, “Company”"Company", “we”"we", “us”"us" and “our”"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”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, or cash flows, based on current information, except for those listed below.
In February 2016,August 2017, the Financial Accounting Standards Board (“FASB”("FASB") issued issued Accounting Standards Update (“ASU”("ASU")ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends the existing hedge accounting model in order to enable entities to better portray the economics of their risk management activities in their financial statements. ASU 2017-12 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The guidance must be applied on a modified retrospective basis, while presentation and disclosure requirements set forth under ASU 2017-12 are required prospectively in all interim periods and fiscal years ending after the date of adoption. Early adoption of ASU 2017-12 is permitted. We are currently evaluating the impact ASU 2017-12 will have on our financial position, results of operations and 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.approach, with optional practical expedients. 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 significantconsiderable number of operating leases.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, We are in the process of implementing changes to clarifyour business processes, systems and controls to support the principles used to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective dateadoption 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 this guidance, including recent amendments, interpretations and additional disclosure requirements, may have on our financial position, results of operations and cash flows.2016-02 in fiscal 2019.
6
2. Divestiture of MW Cleaners
On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018. During the first quarter of fiscal 2018, we received cash proceeds of $17.7 million and recorded a loss on the divestiture totaling $3.6 million which is included within selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings, and relates to our retail segment.
We determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows. Accordingly, we have not presented the sale as a discontinued operation in the condensed consolidated financial statements.
3. Termination of Tuxedo Rental License Agreement with Macy’sMacy's
During the first quarter of fiscal 2017, we reached an agreement with Macy’sMacy's to wind down operations under the tuxedo rental license agreement established between Macy’sMacy's and The Men’sMen's Wearhouse, Inc. (“("The Men’s Wearhouse”Men's Wearhouse") in 2015. The winding down of our tuxedo shops within Macy’s has begunMacy's was completed in fiscal 2017 and we expect all tuxedo shops within Macy’s to close by the end ofMacy's closed in the second quarter of 2017.
As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million arewere cash charges. These costs includeincluded $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&A 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 suchAll termination-related 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 included a store rationalization program as well as a profit improvement program to drive operating efficiencies and improve our expense structure. These programs were substantially completedpaid in fiscal 2016 and resulted in the closure of 75 Jos. A. Bank full line stores, the closure of 56 factory and outlet stores at Jos. A. Bank and Men’s Wearhouse and the closure of 102 Men’s Wearhouse and Tux stores.
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 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 |
|
(1) Consists of $13.0 million in SG&A and $0.2 million included in cost of sales in the condensed consolidated statement of earnings. Of the total amount recorded in the table above, $5.7 million relates to our retail segment and $7.5 million relates to shared services.
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 |
|
|
|
|
|
|
|
|
|
| ||
|
| 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 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Payments |
|
| (171) |
|
| (2,728) |
|
| (60) |
|
| — |
|
| (2,959) |
|
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 for the three months ended April 30, 2016 of which $3.1 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings.
7
4. Earnings Per Share
Basic earnings per common share allocated to common shareholders is computed by dividing net earnings 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. In the first quarter of 2018 and 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used in the first quarter of 2016.share.
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 29, |
| April 30, |
|
| May 5, |
| April 29, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 1,839 |
| $ | 1,637 |
|
| $ | 13,909 |
| $ | 1,839 |
|
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
|
| — |
|
| (2) |
| |||||||
Net earnings allocated to common shareholders |
| $ | 1,839 |
| $ | 1,635 |
| |||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
| 48,808 |
|
| 48,446 |
|
|
| 49,458 |
|
| 48,808 |
|
Dilutive effect of share-based awards |
|
| 343 |
|
| 175 |
|
|
| 1,262 |
|
| 343 |
|
Diluted weighted-average common shares outstanding |
|
| 49,151 |
|
| 48,621 |
|
|
| 50,720 |
|
| 49,151 |
|
Net earnings per common share allocated to common shareholders: |
|
|
|
|
|
|
| |||||||
Net earnings per common share: |
|
|
|
|
|
|
| |||||||
Basic |
| $ | 0.04 |
| $ | 0.03 |
|
| $ | 0.28 |
| $ | 0.04 |
|
Diluted |
| $ | 0.04 |
| $ | 0.03 |
|
| $ | 0.27 |
| $ | 0.04 |
|
For the three months ended May 5, 2018, and April 29, 2017, and April 30, 2016, 1.60.4 million and 1.21.6 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.
5. Debt
In 2014, The Men's Wearhouse entered into a term loan credit agreement that providesprovided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”"ABL Facility", and together with the Original Term Loan, the “Credit Facilities”"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 Original Term Loan were reduced by an $11.0 million original issue discount (“OID”("OID"), which iswas presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and will be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men’sMen's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”"Senior Notes").
In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan. See Credit Facilities section below for additional information.
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 29, 2017,ratios. Should our total leverage ratio and secured leverage ratio were above the maximumsexceed certain thresholds specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currentlywould be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. Currently, we believeAs of May 5, 2018, our total leverage ratio and secured leverage ratio are below these thresholds and we believe these ratios will moveremain below the maximumsthresholds specified in the agreements for the foreseeable future, which results in the elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our
8
agreements during fiscal 2018, which will result in the eliminationability to pay dividends on our common stock has increased from a maximum of these additional restrictions. In addition, in accordance with the terms$10.0 million per quarter to a maximum of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6$15.0 million to the Term Loan lenders prior to April 28, 2017. On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.per quarter.
Credit Facilities
TheIn April 2018, we refinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.
As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”). Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.
The New Term Loan will bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). The margins for borrowings under the New Term Loan are 3.50% for LIBOR and 2.50% for the base rate. The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by a $4.5 million OID, which is guaranteed, jointly and severally, by Tailored Brands, Inc. and certainpresented as a reduction of our U.S. subsidiariesthe outstanding balance on the New Term Loan on the balance sheet and will mature inbe amortized to interest expense over the contractual life of the New Term Loan.
The New Term Loan extends the maturity date of the Original Term Loan from June 2021. 18, 2021 until April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.
The interest rate on the New Term Loan is based on 1-month LIBOR, which was approximately 1.00%1.93% at April 29, 2017. The Term Loan interest rate is subject to a LIBOR floor of 1% per annum,May 5, 2018, plus the applicable margin which is currentlyof 3.50%, resulting in a total interest rate of 4.50%5.43%. In January 2015, we entered into anWe have two interest rate swap agreement, in whichagreements where the variable rate paymentsrates due under a portion of the New Term Loan werehave been exchanged for a fixed rate. In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At April 29, 2017,May 5, 2018, the total notional amount under ourthese interest rate swaps is $550.0$400.0 million. SeePlease see Note 1415 for additional information on our interest rate swaps.
In 2015, The Men's Wearhouse 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, or collateral and guarantees under the Term Loan.
As a result of our interest rate swaps, and the Incremental Agreement, we have converted a significant portionapproximately 45% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, asrate. As of April 29, 2017,May 5, 2018, the New Term Loan had a weighted average interest rate of 5.10%5.45%.
TheIn connection with the refinancing of the New Term Loan, we incurred deferred financing costs of $5.6 million, which will be amortized over the life of the New Term Loan using the interest method. In addition, as a result of the refinancing, we recorded a loss on extinguishment of debt totaling $11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.
In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $500.0$550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in June 2019,October 2022, 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”("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effectiveNew York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest 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%1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50%1.25% to 2.00%1.75%, and a fee on unused commitments which ranges fromof 0.25% to 0.375%. As of April 29, 2017,
9
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
May 5, 2018, there were no borrowings outstanding under the ABL Facility. During the three months ended April 29, 2017,May 5, 2018, the maximum borrowing outstanding under the ABL Facility was $34.7$1.5 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, The Men’s Wearhouse and 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.
We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At April 29, 2017,May 5, 2018, letters of credit totaling approximately $31.9$35.7 million were issued and outstanding. Borrowings available under the ABL Facility as of April 29, 2017May 5, 2018 were $468.1$490.2 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's and each guarantor's present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable in January and July of each year.
Long-Term Debt
During the first quarter of 2018, we repurchased and retired $17.6 million in face value of Senior Notes through open market transactions. As a result, we recorded a net loss on extinguishment totaling $0.9 million, which is included as a separate line in the condensed consolidated statement of earnings. The net loss on extinguishment reflects a $0.6 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling $0.3 million related to the Senior Notes.
The following table provides details on our long-term debt as of May 5, 2018, April 29, 2017 and February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| May 5, |
| April 29, |
| February 3, |
| |||
|
| 2018 |
| 2017 |
| 2018 |
| |||
Term Loan (net of unamortized OID of $4.5 million at May 5, 2018, $3.9 million at April 29, 2017, and $3.0 million at February 3, 2018) |
| $ | 893,299 |
| $ | 1,041,147 |
| $ | 990,465 |
|
Senior Notes |
|
| 403,607 |
|
| 567,570 |
|
| 421,209 |
|
Less: Deferred financing costs related to the Term Loan and Senior Notes |
|
| (10,398) |
|
| (20,852) |
|
| (14,866) |
|
Total long-term debt, net |
|
| 1,286,508 |
|
| 1,587,865 |
|
| 1,396,808 |
|
Current portion of long-term debt |
|
| (9,000) |
|
| (13,379) |
|
| (7,000) |
|
Total long-term debt, net of current portion |
| $ | 1,277,508 |
| $ | 1,574,486 |
| $ | 1,389,808 |
|
6. Revenue Recognition
Adoption of ASC 606
Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings. The adoption had no impact to our previously reported results of operations or cash flows. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented.
910
Long-Term DebtThe following table depicts the cumulative effect of the changes made to our February 3, 2018 balance sheet for the adoption of ASU 606 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Reported |
|
|
| Adjusted |
| |||
|
| Balance at |
| Impact of |
| Balance at |
| |||
|
| February 3, |
| Adoption of |
| February 3, |
| |||
|
| 2018 |
| ASU 606 |
| 2018 |
| |||
Assets: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
| $ | 79,783 |
| $ | (303) |
| $ | 79,480 |
|
Inventories |
|
| 851,931 |
|
| (17,837) |
|
| 834,094 |
|
Other current assets |
|
| 78,252 |
|
| 2,753 |
|
| 81,005 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
| 285,537 |
|
| 32,378 |
|
| 317,915 |
|
Deferred taxes, net and other liabilities |
|
| 164,191 |
|
| (11,941) |
|
| 152,250 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
| (479,166) |
|
| (35,824) |
|
| (514,990) |
|
During
The adoption of ASC 606 primarily impacted the first quartertiming of 2017,revenue recognition related to our customer loyalty program, gift cards and e-commerce sales within our retail segment, as discussed in more detail below. In addition, for our corporate apparel segment, certain deferred revenue balances along with related inventory amounts were eliminated as part of the cumulative adjustment to opening retained earnings. Also, for estimated sales returns, we repurchased and retired $7.4 million in face value of Senior Notes through open market transactions, which were consummated via borrowingsnow recognize allowances for estimated sales returns on our ABL Facility. As a result, we recordedgross basis rather than a net gainbasis 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. balance sheets.
Revenues
The following table provides detailsdepicts the disaggregation of revenue by major source (in thousands):
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| May 5, 2018 |
| April 29, 2017 |
| ||
Net sales: |
|
|
|
|
|
|
|
Men's tailored clothing product |
| $ | 355,737 |
| $ | 332,630 |
|
Men's non-tailored clothing product |
|
| 235,606 |
|
| 228,699 |
|
Women's clothing product |
|
| 19,582 |
|
| 19,827 |
|
Other (1) |
|
| 2,719 |
|
| 2,429 |
|
Total retail clothing product |
|
| 613,644 |
|
| 583,585 |
|
Rental services |
|
| 100,227 |
|
| 94,820 |
|
Alteration services |
|
| 38,421 |
|
| 38,386 |
|
Retail dry cleaning services (2) |
|
| 2,551 |
|
| 8,514 |
|
Total alteration and other services |
|
| 40,972 |
|
| 46,900 |
|
Total retail sales |
|
| 754,843 |
|
| 725,305 |
|
Corporate apparel clothing product |
|
| 63,121 |
|
| 57,601 |
|
Total net sales |
| $ | 817,964 |
| $ | 782,906 |
|
(1)Other consists of franchise and licensing revenues and gift card breakage. Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period.
(2)On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information.
Please see Note 16 for additional information regarding our reporting segments.
11
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Retail Segment
For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and a provision for estimated sales returns. For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt by the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.
Loyalty Program
We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and do not expire. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance. We believe our loyalty program represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we will record our obligation for future point redemptions using a deferred revenue model. In prior periods, we used an incremental cost approach where we accrued the estimated costs of the anticipated certificate redemptions when the certificates were issued and charged such costs to cost of sales.
When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our long-term debtcondensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.
We account for points earned and certificates issued that will never be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.
Our estimate of April 29, 2017, April 30, 2016the expected expiration of points and January 28, 2017certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty program. For example, during fiscal 2018, we plan to test potential changes to our loyalty program in order to improve the effectiveness of the program.
Gift Card Breakage
Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed. Our gift cards do not have expiration dates. In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns. In prior periods, we recognized income from breakage of gift cards as a reduction of SG&A when the likelihood of redemption of the gift card was remote.
Sales Returns
Revenue from merchandise product sales and services is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was $7.8 million at May 5, 2018, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers. We also have a corresponding asset included in other current assets
12
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
that represents the right to recover products from customers associated with sales returns of $3.3 million at May 5, 2018. In prior periods, we recognized a provision for estimated sales returns on a net basis.
Corporate Apparel Segment
For our corporate apparel segment, we sell corporate clothing and uniforms to workforces under a contract or by purchase order. We transfer control and recognize revenue at a point in time, generally upon delivery of the product to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.
Contract Liabilities
The following table summarizes the opening and closing balances of our contract liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
| |||
|
| 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 |
|
| 567,570 |
|
| 600,000 |
|
| 575,000 |
|
Less: Deferred financing costs related to the Term Loan and Senior Notes |
|
| (20,852) |
|
| (26,749) |
|
| (22,131) |
|
Total long-term debt, net |
|
| 1,587,865 |
|
| 1,655,643 |
|
| 1,595,529 |
|
Current portion of long-term debt |
|
| (13,379) |
|
| (42,451) |
|
| (13,379) |
|
Total long-term debt, net of current portion |
| $ | 1,574,486 |
| $ | 1,613,192 |
| $ | 1,582,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
| Increase |
| Balance at |
| |||
|
| February 3, 2018 |
| (Decrease) |
| May 5, 2018 |
| |||
|
| As Adjusted |
|
|
|
|
|
|
| |
Contract liabilities |
| $ | 141,552 |
| $ | 46,791 |
| $ | 188,343 |
|
Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable. These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards. These amounts are included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our consolidated balance sheet. Please see Note 10 for additional information on our accrued expenses and other current liabilities.
The amount of revenue recognized in the first quarter of 2018 that was included in the opening contract liability balance was $41.7 million. This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions.
13
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Practical Expedients and Impact on Fiscal 2018 Results
Due to the short term nature of a significant portion of our contracts with customers, we have elected to apply the practical expedients under ASC 606 to: (1) not adjust the consideration for the effects of a significant financing component, (2) recognize incremental costs of obtaining a contract as expense when incurred and (3) not disclose the value of our unsatisfied performance obligations for contracts with an original expected duration of one year or less.
In accordance with ASC 606, the following tables reflect the impact on our fiscal 2018 condensed consolidated statement of earnings and balance sheet as if we had continued to apply accounting standards in effect last year (“Legacy GAAP”) (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Statement of Earnings |
| For the Three Months Ended May 5, 2018 |
| |||||||
|
| As |
| Amounts Under |
| Effect of Change |
| |||
|
| Reported |
| Legacy GAAP |
| Increase/(Decrease) |
| |||
Net sales: |
|
|
|
|
|
|
|
|
|
|
Total retail sales |
| $ | 754,843 |
| $ | 758,088 |
| $ | 3,245 |
|
Corporate apparel clothing product |
|
| 63,121 |
| $ | 66,502 |
| $ | 3,381 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Total retail cost of sales |
|
| 426,074 |
|
| 426,326 |
|
| 252 |
|
Total corporate apparel clothing product cost of sales |
|
| 46,666 |
|
| 49,475 |
|
| 2,809 |
|
Selling, general and administrative expenses |
|
| 251,094 |
|
| 250,757 |
|
| (337) |
|
Provision for income taxes |
|
| 4,381 |
|
| 5,316 |
|
| 935 |
|
Net earnings |
| $ | 13,909 |
| $ | 16,876 |
| $ | 2,967 |
|
Diluted net earnings per common share |
| $ | 0.27 |
| $ | 0.33 |
| $ | 0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| May 5, 2018 |
| |||||||
|
| As |
| Amounts Under |
| Effect of Change |
| |||
|
| Reported |
| Legacy GAAP |
| Increase/(Decrease) |
| |||
Assets: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
| $ | 87,411 |
| $ | 92,232 |
| $ | 4,821 |
|
Inventories |
|
| 843,671 |
|
| 857,857 |
|
| 14,186 |
|
Other current assets |
|
| 69,937 |
|
| 66,639 |
|
| (3,298) |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
| 350,414 |
|
| 294,129 |
|
| (56,285) |
|
Deferred taxes, net and other liabilities |
|
| 151,503 |
|
| 139,536 |
|
| (11,967) |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
| (510,441) |
|
| (471,649) |
|
| 38,792 |
|
6.
14
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Supplemental Cash Flows
Supplemental disclosure of cash flow information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| May 5, |
| April 29, |
| ||
|
| 2018 |
| 2017 |
| ||
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 13,380 |
| $ | 16,389 |
|
Cash paid for income taxes, net |
| $ | 2,128 |
| $ | 1,483 |
|
We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $4.7 million and $7.1 million at May 5, 2018 and $9.9 million at April 29, 2017, and April 30, 2016, 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.
7.8. Inventories
The following table provides details on our inventories as of May 5, 2018, April 29, 2017 April 30, 2016 and January 28, 2017February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Finished goods |
| $ | 915,065 |
| $ | 1,018,401 |
| $ | 846,585 |
|
| $ | 749,746 |
| $ | 915,065 |
| $ | 739,668 |
|
Raw materials and merchandise components |
|
| 69,156 |
|
| 58,332 |
|
| 108,927 |
|
|
| 93,925 |
|
| 69,156 |
|
| 112,263 |
|
Total inventories |
| $ | 984,221 |
| $ | 1,076,733 |
| $ | 955,512 |
|
| $ | 843,671 |
| $ | 984,221 |
| $ | 851,931 |
|
10
8. Income TaxesIn December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act are broad and complex, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Our federal income tax expense for fiscal 2018 is based on the new rate.
Our effective income tax rate increaseddecreased to 24.0% for the first quarter of 2018 from 70.2% for the first quarter of 2017 from 63.7% for the first quarter of 2016.2017. Our effective income tax rate for the first quarter of 20172018 is higherlower than the United States (“U.S”) statutory rate as well as the effective income tax rate for the first quarter of 20162017 primarily as a resultfrom enactment of the Tax Reform Act and anniversarying last year’s $2.2 million of tax deficiencies related to the vesting of stock-based awards recorded in the first quarter of 2017 resulting from the adoption of new accounting guidance related to stock-based compensation. See Note 11
Shortly after the Tax Reform Act was enacted, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for additional information.the Tax Reform Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.
At the end of fiscal 2017, we recorded a provisional discrete net tax benefit of $0.3 million related to the Tax Reform Act. During the first quarter of 2018, there have been no updates to this provisional amount. While we have made a reasonable
15
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
estimate of the impact of the Tax Reform Act, we are continuing to finalize the consequences of tax reform, including the temporary differences that existed on the date of enactment.
Additionally, we are currently undergoing several federal, foreign and state audits,audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.
9.10. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities
OtherThe following table provides details on our other current assets consistas of the followingMay 5, 2018, April 29, 2017 and February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Prepaid expenses |
| $ | 44,584 |
| $ | 46,245 |
| $ | 47,057 |
|
| $ | 44,438 |
| $ | 44,584 |
| $ | 47,545 |
|
Tax receivable |
|
| 14,055 |
|
| 22,561 |
|
| 15,794 |
|
|
| 12,814 |
|
| 14,055 |
|
| 20,368 |
|
Other |
|
| 10,649 |
|
| 9,097 |
|
| 10,751 |
|
|
| 12,685 |
|
| 10,649 |
|
| 10,339 |
|
Total other current assets |
| $ | 69,288 |
| $ | 77,903 |
| $ | 73,602 |
|
| $ | 69,937 |
| $ | 69,288 |
| $ | 78,252 |
|
AccruedThe following table provides details on our accrued expenses and other current liabilities consistas of the followingMay 5, 2018, April 29, 2017 and February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Customer deposits, prepayments and refunds payable |
| $ | 72,411 |
| $ | 67,497 |
| $ | 28,384 |
|
| $ | 87,849 |
| $ | 72,411 |
| $ | 59,633 |
|
Loyalty program liabilities |
|
| 65,597 |
|
| 8,720 |
|
| 9,106 |
| ||||||||||
Accrued salary, bonus, sabbatical, vacation and other benefits |
|
| 58,373 |
|
| 63,774 |
|
| 72,589 |
|
|
| 56,066 |
|
| 58,373 |
|
| 84,767 |
|
Sales, value added, payroll, property and other taxes payable |
|
| 37,605 |
|
| 36,878 |
|
| 29,409 |
| ||||||||||
Unredeemed gift cards |
|
| 37,434 |
|
| 37,712 |
|
| 40,865 |
|
|
| 29,921 |
|
| 37,434 |
|
| 39,609 |
|
Sales, value added, payroll, property and other taxes payable |
|
| 36,878 |
|
| 40,917 |
|
| 31,188 |
| ||||||||||
Accrued workers compensation and medical costs |
|
| 27,194 |
|
| 29,145 |
|
| 31,609 |
|
|
| 24,639 |
|
| 27,194 |
|
| 25,244 |
|
Accrued dividends |
|
| 10,870 |
|
| 9,957 |
|
| 11,128 |
| ||||||||||
Accrued interest |
|
| 22,871 |
|
| 27,134 |
|
| 15,457 |
|
|
| 10,608 |
|
| 22,871 |
|
| 3,281 |
|
Accrued dividends |
|
| 9,957 |
|
| 9,025 |
|
| 9,842 |
| ||||||||||
Loyalty program reward certificates |
|
| 8,720 |
|
| 10,076 |
|
| 9,840 |
| ||||||||||
Accrued royalties |
|
| 4,009 |
|
| 1,806 |
|
| 5,032 |
| ||||||||||
Lease termination and other store closure costs |
|
| 4,106 |
|
| 1,732 |
|
| 4,834 |
|
|
| 297 |
|
| 4,106 |
|
| 427 |
|
Accrued royalties |
|
| 1,806 |
|
| 2,167 |
|
| 3,720 |
| ||||||||||
Other |
|
| 23,852 |
|
| 21,865 |
|
| 19,571 |
|
|
| 22,953 |
|
| 23,852 |
|
| 17,901 |
|
Total accrued expenses and other current liabilities |
| $ | 303,602 |
| $ | 311,044 |
| $ | 267,899 |
|
| $ | 350,414 |
| $ | 303,602 |
| $ | 285,537 |
|
DeferredThe increase in loyalty program liabilities and the decrease in unredeemed gift cards is primarily driven by the adoption of ASC 606. Please see Note 6 for additional information.
The following table provides details on our deferred taxes, net and other liabilities consistas of the followingMay 5, 2018, April 29, 2017 and February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, |
| April 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Deferred and other income tax liabilities, net |
| $ | 90,772 |
| $ | 116,115 |
| $ | 92,079 |
|
| $ | 83,357 |
| $ | 90,772 |
| $ | 95,314 |
|
Deferred rent and landlord incentives |
|
| 60,542 |
|
| 66,192 |
|
| 61,215 |
|
|
| 58,957 |
|
| 60,542 |
|
| 60,136 |
|
Unfavorable lease liabilities |
|
| 4,224 |
|
| 7,465 |
|
| 4,693 |
|
|
| 2,631 |
|
| 4,224 |
|
| 2,910 |
|
Other |
|
| 6,062 |
|
| 7,344 |
|
| 5,433 |
|
|
| 6,558 |
|
| 6,062 |
|
| 5,831 |
|
Total deferred taxes, net and other liabilities |
| $ | 161,600 |
| $ | 197,116 |
| $ | 163,420 |
|
| $ | 151,503 |
| $ | 161,600 |
| $ | 164,191 |
|
1116
10.11. Accumulated Other Comprehensive (Loss) Income
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended May 5, 2018 (in thousands and net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Cash Flow |
| Pension |
|
|
|
| |||
|
| Translation |
| Hedges |
| Plan |
| Total |
| ||||
BALANCE— February 3, 2018 |
| $ | (11,116) |
| $ | 145 |
| $ | 189 |
| $ | (10,782) |
|
Other (loss) comprehensive income before reclassifications |
|
| (14,143) |
|
| 2,087 |
|
| — |
|
| (12,056) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
| — |
|
| 713 |
|
| — |
|
| 713 |
|
Net current-period other comprehensive (loss) income |
|
| (14,143) |
|
| 2,800 |
|
| — |
|
| (11,343) |
|
BALANCE— May 5, 2018 |
| $ | (25,259) |
| $ | 2,945 |
| $ | 189 |
| $ | (22,125) |
|
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 |
|
|
|
|
|
|
|
|
|
| |
|
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 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) |
|
Amounts reclassified from other comprehensive (loss) income for the three months ended May 5, 2018 and April 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.
11.12. Share-Based Compensation Plans
For a discussion of our share-based compensation plans, refer toplease see Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.
During 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 payment transactions, 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 $4.1 million, respectively. February 3, 2018.
1217
Non-Vested Deferred Stock Units and Performance Units and Restricted Stock
The following table summarizes the activity of time-based and performance-based awards (collectively, “DSUs”"DSUs") awards for the three months ended April 29, 2017:May 5, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
|
|
|
|
|
| Weighted-Average |
| ||||||||
|
| Units |
| Grant-Date Fair Value |
|
| Units |
| Grant-Date Fair Value |
| ||||||||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||||
|
| Based |
| Based |
| Based |
| Based |
|
| Based |
| Based |
| Based |
| Based |
| ||||
Non-Vested at January 28, 2017 |
| 1,061,965 |
| 523,948 |
| $ | 24.31 |
| $ | 28.28 |
| |||||||||||
Non-Vested at February 3, 2018 |
| 1,014,689 |
| 993,631 |
| $ | 18.13 |
| $ | 19.55 |
| |||||||||||
Granted |
| — |
| — |
|
| — |
|
| — |
|
| 433,556 |
| 241,754 |
|
| 28.55 |
|
| 28.55 |
|
Vested(1) |
| (350,291) |
| — |
|
| 29.40 |
|
| — |
|
| (298,352) |
| (131,074) |
|
| 27.70 |
|
| 23.45 |
|
Forfeited |
| (11,596) |
| (737) |
|
| 23.76 |
|
| 54.26 |
|
| (21,962) |
| (10,000) |
|
| 19.79 |
|
| 12.80 |
|
Non-Vested at April 29, 2017 |
| 700,078 |
| 523,211 |
| $ | 21.77 |
| $ | 28.24 |
| |||||||||||
Non-Vested at May 5, 2018 |
| 1,127,931 |
| 1,094,311 |
| $ | 19.57 |
| $ | 21.13 |
|
(1) | Includes |
The following table summarizes the activity of restricted stock for the three months ended April 29, 2017:
|
|
|
|
|
|
|
|
|
|
| Weighted- |
| |
|
| Shares |
| Grant-Date |
| |
Non-Vested at January 28, 2017 |
| 36,878 |
| $ | 15.56 |
|
Granted |
| — |
|
| — |
|
Vested |
| (36,878) |
|
| 15.56 |
|
Forfeited |
| — |
|
| — |
|
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 29, 2017,May 5, 2018, we have unrecognized compensation expense related to non-vested DSUs of approximately $18.5$32.2 million, which is expected to be recognized over a weighted-average period of 1.51.9 years.
Stock Options
The following table summarizes the activity of stock options for the three months ended April 29, 2017:May 5, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
| Weighted- |
| ||
|
| Number of |
| Average |
|
| Number of |
| Average |
| ||
|
| Shares |
| Exercise Price |
|
| Shares |
| Exercise Price |
| ||
Outstanding at January 28, 2017 |
| 1,194,690 |
| $ | 29.70 |
| ||||||
Outstanding at February 3, 2018 |
| 1,527,176 |
| $ | 21.97 |
| ||||||
Granted |
| — |
|
| — |
|
| 206,734 |
|
| 28.55 |
|
Exercised |
| — |
|
| — |
|
| (143,506) |
|
| 22.68 |
|
Forfeited |
| (1,553) |
|
| 52.27 |
|
| (22,651) |
|
| 12.80 |
|
Expired |
| (40,243) |
|
| 41.23 |
|
| (8,087) |
|
| 49.18 |
|
Outstanding at April 29, 2017 |
| 1,152,894 |
| $ | 29.27 |
| ||||||
Exercisable at April 29, 2017 |
| 716,137 |
| $ | 33.34 |
| ||||||
Outstanding at May 5, 2018 |
| 1,559,666 |
| $ | 22.76 |
| ||||||
Exercisable at May 5, 2018 |
| 637,602 |
| $ | 32.00 |
|
The weighted-average grant date fair value of the 206,734 stock options granted during the three months ended May 5, 2018 was $10.31 per share. The following table summarizes the weighted-average assumptions used to fair value the stock options at the date of grant using the Black-Scholes option model for the three months ended May 5, 2018:
For the Three Months Ended | ||||
May 5, | ||||
2018 | ||||
Risk-free interest rate | 2.67% | |||
Expected lives | 5.0 years | |||
Dividend yield | 4.35% | |||
Expected volatility | 56.34% |
As of April 29, 2017,May 5, 2018, we have unrecognized compensation expense related to non-vested stock options of approximately $2.7$4.4 million, which is expected to be recognized over a weighted-average period of 1.31.6 years.
1318
12.Cash Settled Awards
During 2017, we granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common stock and includes a market condition. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled. Cash settled awards are classified as liabilities in the condensed consolidated balance sheets. At May 5, 2018, the liability associated with the cash settled awards was $6.5 million with $3.8 million recorded in accrued expenses and other current liabilities and $2.7 million recorded in other liabilities in the condensed consolidated balance sheets.
The following table summarizes the activity of cash settled awards for the three months ended May 5, 2018 (in thousands):
|
|
|
|
|
| Cash Settled Awards | |
Non-Vested at February 3, 2018 |
| $ | 8,353 |
Granted |
|
| — |
Vested |
|
| — |
Forfeited |
|
| (252) |
Non-Vested at May 5, 2018 |
| $ | 8,101 |
As of May 5, 2018, we have unrecognized compensation expense related to non-vested cash settled awards of approximately $4.4 million, which is expected to be recognized over a weighted-average period of 1.5 years.
Share-Based Compensation Expense
Share-based compensation expense, including cash settled awards, recognized for the three months ended May 5, 2018 was $6.5 million. Share-based compensation expense recognized for the three months ended April 29, 2017 was $4.7 million.
13. 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 29, 2017May 5, 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate |
|
|
|
| |
|
| Retail |
| Apparel |
| Total |
| |||
Balance at February 3, 2018 |
| $ | 94,305 |
|
| 25,987 |
| $ | 120,292 |
|
Goodwill of divested business (see Note 2) |
|
| (13,588) |
|
| — |
|
| (13,588) |
|
Translation adjustment |
|
| (839) |
|
| (1,063) |
|
| (1,902) |
|
Balance at May 5, 2018 |
| $ | 79,878 |
| $ | 24,924 |
| $ | 104,802 |
|
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 impairment evaluation was considered necessary during the first three months ended April 29, 2017.May 5, 2018.
19
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, tradenames and franchise agreements |
| $ | 16,040 |
| $ | 16,361 |
| $ | 15,966 |
|
| $ | 16,155 |
| $ | 16,040 |
| $ | 16,273 |
|
Favorable leases |
|
| 13,679 |
|
| 14,562 |
|
| 13,826 |
|
|
| 12,967 |
|
| 13,679 |
|
| 13,229 |
|
Customer relationships |
|
| 26,268 |
|
| 29,661 |
|
| 25,483 |
|
|
| 27,477 |
|
| 26,268 |
|
| 28,713 |
|
Total carrying amount |
|
| 55,987 |
|
| 60,584 |
|
| 55,275 |
|
|
| 56,599 |
|
| 55,987 |
|
| 58,215 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, tradenames and franchise agreements |
|
| (10,183) |
|
| (9,857) |
|
| (10,055) |
|
|
| (10,594) |
|
| (10,183) |
|
| (10,558) |
|
Favorable leases |
|
| (4,297) |
|
| (3,057) |
|
| (3,961) |
|
|
| (5,178) |
|
| (4,297) |
|
| (5,010) |
|
Customer relationships |
|
| (14,776) |
|
| (14,213) |
|
| (13,804) |
|
|
| (17,790) |
|
| (14,776) |
|
| (17,992) |
|
Total accumulated amortization |
|
| (29,256) |
|
| (27,127) |
|
| (27,820) |
|
|
| (33,562) |
|
| (29,256) |
|
| (33,560) |
|
Total amortizable intangible assets, net |
|
| 26,731 |
|
| 33,457 |
|
| 27,455 |
|
|
| 23,037 |
|
| 26,731 |
|
| 24,655 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradename |
|
| 144,235 |
|
| 144,369 |
|
| 144,204 |
|
|
| 144,283 |
|
| 144,235 |
|
| 144,332 |
|
Total intangible assets, net |
| $ | 170,966 |
| $ | 177,826 |
| $ | 171,659 |
|
| $ | 167,320 |
| $ | 170,966 |
| $ | 168,987 |
|
Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $1.3$1.0 million for the three months ended May 5, 2018 and April 29, 2017, and April 30, 2016, respectively. Pre-tax amortization associated with intangible assets subject to amortization at April 29, 2017May 5, 2018 is estimated to be $3.0 million for the remainder of fiscal 2017, $3.72018, $3.8 million for fiscal 2018,2019, $3.6 million for fiscal 2020, $3.5 million for fiscal 2019, $3.42021 and $2.2 million for fiscal 2020 and $3.3 million for fiscal 2021.2022.
14
13.14. 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.
20
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Fair Value Measurements at Reporting Date |
|
|
|
|
| Fair Value Measurements at Reporting Date |
|
|
|
| ||||||||||||||||
|
| Using |
|
|
|
|
| Using |
|
|
|
| ||||||||||||||||
|
| Quoted Prices |
|
|
|
|
|
|
|
|
|
|
| Quoted Prices |
|
|
|
|
|
|
|
|
|
| ||||
|
| in Active |
| Significant |
|
|
|
|
|
|
|
| in Active |
| Significant |
|
|
|
|
|
|
| ||||||
|
| Markets for |
| Other |
| Significant |
|
|
|
|
| Markets for |
| Other |
| Significant |
|
|
|
| ||||||||
|
| Identical |
| Observable |
| Unobservable |
|
|
|
|
| Identical |
| Observable |
| Unobservable |
|
|
|
| ||||||||
|
| Instruments |
| Inputs |
| Inputs |
|
|
|
|
| Instruments |
| Inputs |
| Inputs |
|
|
|
| ||||||||
(in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||||||
May 5, 2018— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Derivative financial instruments |
| $ | — |
| $ | 5,639 |
| $ | — |
| $ | 5,639 |
| |||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Derivative financial instruments |
| $ | — |
| $ | 83 |
| $ | — |
| $ | 83 |
| |||||||||||||||
February 3, 2018— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Derivative financial instruments |
| $ | — |
| $ | 4,019 |
| $ | — |
| $ | 4,019 |
| |||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Derivative financial instruments |
| $ | — |
| $ | 2,307 |
| $ | — |
| $ | 2,307 |
| |||||||||||||||
April 29, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 937 |
| $ | — |
| $ | 937 |
|
| $ | — |
| $ | 937 |
| $ | — |
| $ | 937 |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 5,293 |
| $ | — |
| $ | 5,293 |
|
| $ | — |
| $ | 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 UKUnited Kingdom (“UK”) operations denominated in a currency different from the UK’s functional currency, (3) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to intercompany loans denominated in a currency different from the operating entity’s functional currency and (3)(4) 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.inputs, primarily pricing models based on current market rates. Derivative financial instruments in an asset position are included within other current assets or other 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. SeePlease see Note 1415 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 May 5, 2018, we incurred $0.3 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, related to underperforming stores. 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
21
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 May 5, 2018, April 29, 2017, April 30, 2016, and January 28, 2017,February 3, 2018, the carrying value of our financial instruments, other than 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. The 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. The table below shows the fair value and carrying value of our long-term debt, including current portion (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 29, 2017 |
| April 30, 2016 |
| January 28, 2017 |
|
| May 5, 2018 |
| April 29, 2017 |
| February 3, 2018 |
| ||||||||||||||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||||||||||
|
| Amount(1) |
| Fair Value |
| Amount(1) |
| Fair Value |
| Amount(1) |
| Fair Value |
|
| 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 |
|
| $ | 1,286,508 |
| $ | 1,321,637 |
| $ | 1,587,865 |
| $ | 1,482,750 |
| $ | 1,396,808 |
| $ | 1,407,449 |
|
(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. | ||||||||||||||||||||||||||||||||||||||
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $10.4 million, $20.9 million and $14.9 million as of May 5, 2018, April 29, 2017 and February 3, 2018, respectively. |
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $10.4 million, $20.9 million and $14.9 million as of May 5, 2018, April 29, 2017 and February 3, 2018, respectively. |
14.15. Derivative Financial Instruments
As discussed in Note 5, inIn 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,May 5, 2018, the notional amount totaled $290.0$40.0 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. At May 5, 2018, the notional amount totaled $360.0 million. 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 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.
At April 29, 2017,May 5, 2018, the fair value of the interest rate swaps was a liabilityan asset of $3.8$5.4 million with $3.1$1.0 million recorded in accrued expenses and other current liabilitiesassets and $0.7$4.4 million recorded in other liabilitiesassets 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.May 5, 2018. 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$1.0 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, eitheran 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 have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. At May 5, 2018, the notional amount of the British pound and Euro instruments totaled $30.3 million
22
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
and $9.3 million, respectively. We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies. At April 29, 2017,May 5, 2018, the fair value of these cash flow hedges was a net liabilityan asset of $0.7 million with $1.5 million recorded in accrued expenses and other current liabilities and $0.8$0.2 million recorded in other current assets in our condensed 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, 2017May 5, 2018 was immaterial. 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, $1.8$1.1 million of the effective portion of the cash flow hedges is expected to be reclassified as expense into cost of sales from accumulated other comprehensive (loss) incomeincome.
In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar. As a result, from time to time, we may enter into earnings within costderivative instruments to hedge this foreign exchange risk. At May 5, 2018, the notional amount of sales.these instruments totaled $13.1 million. We have not elected to apply hedge accounting to these derivative instruments. Amounts related to these transactions were immaterial to our consolidated financial statements.
15.16. 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’sMen's Wearhouse/Men’sMen's Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”("Moores") and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. Prior to its divestiture, MW Cleaners iswas also aggregated in the retail segment as theseits operations havehad 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, formalwear, business casual, denim, sportswear, outerwear, dress shirts, shoes and accessories for men. Women’sWomen's career and casual apparel, sportswear and accessories, including shoes, and children’schildren's apparel is offered at most of our K&G stores. Rental product is offered at our Men’sMen's Wearhouse/Men’sMen's Wearhouse and Tux, Jos. A. Bank and Moores retail stores.
The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Dimensions, Alexandra, and Yaffy in the UK and Twin Hill in the U.S., which provide corporate apparel uniforms and workwear to workforces.
We measure segment profitability based on operating income, defined as income before interest expense, interest income, (loss) 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.
1723
Additional net sales information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||
|
| April 29, 2017 |
| April 30, 2016 |
|
| May 5, 2018 |
| April 29, 2017 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MW(1) |
| $ | 420,067 |
| $ | 441,646 |
|
| $ | 447,809 |
| $ | 420,067 |
|
Jos. A. Bank |
|
| 167,228 |
|
| 178,450 |
|
|
| 169,076 |
|
| 167,228 |
|
K&G |
|
| 88,683 |
|
| 94,759 |
|
|
| 89,280 |
|
| 88,683 |
|
Moores |
|
| 40,813 |
|
| 43,229 |
|
|
| 46,127 |
|
| 40,813 |
|
MW Cleaners |
|
| 8,514 |
|
| 8,158 |
|
|
| 2,551 |
|
| 8,514 |
|
Total retail segment |
|
| 725,305 |
|
| 766,242 |
|
|
| 754,843 |
|
| 725,305 |
|
Total corporate apparel segment |
|
| 57,601 |
|
| 62,580 |
|
|
| 63,121 |
|
| 57,601 |
|
Total net sales |
| $ | 782,906 |
| $ | 828,822 |
|
| $ | 817,964 |
| $ | 782,906 |
|
(1) | MW includes |
The following table sets forth supplemental products and services sales information for the Company (in thousands):
|
|
|
|
|
|
|
|
|
| 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 |
|
(2) | On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information. |
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 29, 2017 |
| April 30, 2016 |
|
| May 5, 2018 |
| April 29, 2017 |
| ||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 73,425 |
| $ | 79,877 |
|
| $ | 98,721 |
| $ | 73,425 |
|
Corporate apparel |
|
| 1,975 |
|
| 2,054 |
|
|
| 1,583 |
|
| 1,975 |
|
Shared service expense |
|
| (44,398) |
|
| (50,936) |
|
|
| (47,407) |
|
| (44,398) |
|
Operating income |
|
| 31,002 |
|
| 30,995 |
|
|
| 52,897 |
|
| 31,002 |
|
Interest income |
|
| 67 |
|
| 13 |
|
|
| 85 |
|
| 67 |
|
Interest expense |
|
| (25,621) |
|
| (26,502) |
|
|
| (21,981) |
|
| (25,621) |
|
Gain on extinguishment of debt, net |
|
| 715 |
|
| — |
| |||||||
(Loss) gain on extinguishment of debt, net |
|
| (12,711) |
|
| 715 |
| |||||||
Earnings before income taxes |
| $ | 6,163 |
| $ | 4,506 |
|
| $ | 18,290 |
| $ | 6,163 |
|
1824
16.17. Legal Matters
On March 29, 2016, Peter Makhlouf filed a putative class action lawsuit was filed against the Company and its Chief Executive Officer, ("CEO"), Douglas S. Ewert, in the United States District Court for the Southern District of Texas (Case No. 4:16-cv-00838). The complaint attemptsattempted 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's securities between June 18, 2014 and December 9, 2015. In particular,2015 (the "Class Period"). On May 26, 2017, Lead Plaintiff Strathclyde Pension Fund filed an Amended Complaint alleging that during the complaint alleges thatClass Period Defendants omitted facts about the CompanyCompany's Jos. A. Bank's business, financial status, and its CEO made certainoperations, the omission of which rendered Defendants' statements about the Company's acquisition and subsequent integration of Jos. A. Bank that werebusiness false or misleading. The amended complaint also named Jon W. Kimmins, the Company's former Chief Financial Officer, and misleading and omitted material facts. On March 23, 2017,Mary Beth Blake, the Court appointed Strathclyde Pension Fund lead plaintiff in this matter and the parties subsequently agreed onCompany's current Brand President, Jos. A. Bank, as additional named defendants. The Company filed a case schedule through the motion to dismiss phase of this matter.the amended complaint, which was fully briefed. In an Opinion and Order dated March 31, 2018, the Court granted our motion to dismiss and provided the plaintiff with 30 days to file a second amended complaint. On April 30, 2018 the plaintiff advised the Court and all parties that it was not going to file a second amended complaint. We believe that the claims are without meritthis matter is now concluded 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, thatas a result, will no longer be reporting on it will have a material adverse effect on our financial position, results of operations or cash flows.
in future Forms 10-Q and 10-K.
On February 17, 2016, Anthony Oliver filed a putative class action lawsuit against the Companyour Men's Wearhouse subsidiary in the United States District Court for the Central District of California (Case No. 2:16-cv-01100-TJH-AS)16-cv-01100). 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’splaintiff'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 Companyparties filed cross-motions for summary judgment on what constitutes a “week” and the Court recently issued an order granting the plaintiff’s motion to dismissand denying our motion on June 10, 2016. The court denied the motionwhat period constitutes a “week.” We continue 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 August 2, 2017, two American Airlines employees, Thor Zurbriggen and Dena Catan, filed a putative class action lawsuit against our Twin Hill subsidiary in the United States District Court for the Northern District of Illinois (Case No. 1:17-cv-05648). The complaint attempts to allege claims for strict liability, negligence, and medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding nine additional named plaintiffs, adding American Airlines, Inc. as a defendant, and adding claims for civil battery and intentional infliction of emotional distress. On November 17, 2017, the Company filed a motion to dismiss the plaintiffs’ claims and the motion remains pending before the Court. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. 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 April 4, 2018, Juliette Onody and numerous other American Airlines employees filed a second class action lawsuit against our Twin Hill subsidiary and four related American Airlines entities in the United States District Court for the Northern District of Illinois (Case No. 1:18-cv-02303). The complaint contains the same substantive factual allegations against Twin Hill as the Zurbriggen case noted above and asserts identical claims for battery, intentional infliction of emotional distress, strict liability, negligence, and medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. Additionally, the same counsel represents the plaintiffs in both cases. On April 13, 2018, the Company filed an unopposed motion to stay this case in its entirety pending the motions to dismiss in the Zurbriggen case and the Court granted that motion on April 16, 2018. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range
25
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 27, 2017, Heather Poole and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17876798). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On December 11, 2017, the Company filed a demurrer to Plaintiff’s complaint. On or about February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint ruling that the plaintiffs did not allege enough facts to state a claim against Twin Hill. Plaintiffs filed an amended complaint on April 10, 2018 and again on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. On May 10, 2018, Twin Hill removed the case to United States District Court for the Northern District of California (Case No. 3:18-cv-2758). Plaintiffs filed a motion to remand the case to state court and Twin Hill intends to file an opposition to the motion to remand. Twin Hill and Tailored Brands have until July 9, 2018 to respond to Plaintiffs’ amended complaint. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. 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 October 30, 2017, Melodie Agnello, Denise Mumma, and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17880635). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On December 11, 2017, the Company filed a demurrer to plaintiff’s complaint. On or about February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint ruling that the plaintiffs did not allege enough facts to state a claim against Twin Hill. Plaintiffs filed an amended complaint on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. On May 10, 2018, Twin Hill removed the case to United States District Court for the Northern District of California (Case No. 3:18-cv-2756). Plaintiffs filed a motion to remand the case to state court and Twin Hill intends to file an opposition to the motion to remand. Twin Hill and Tailored Brands have until July 9, 2018 to respond to Plaintiffs’ amended complaint. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. 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 April 27, 2018, Alexandra Hughes, and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary and Tailored Brands in the Superior Court for the State of California for the County of Alameda (Case No. RG18902727). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On May 10, 2018, Twin Hill removed the case to United States District Court for the Northern District of California (Case No. 4:18-cv-2762). Plaintiffs filed a motion to remand the case to state court and Twin Hill intends to file an opposition to the motion to remand. Twin Hill and Tailored Brands have until July 9, 2018 to respond to Plaintiffs’ complaint. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. 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 April 27, 2018, Rosemary Mackonochie, and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary and Tailored Brands in the Superior Court for the State of California for the County of Alameda
26
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Case No. RG18902720). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On May 10, 2018, Twin Hill removed the case to United States District Court for the Northern District of California (Case No. 4:18-cv-2761). Plaintiffs filed a motion to remand the case to state court and Twin Hill intends to file an opposition to the motion to remand. Twin Hill and Tailored Brands have until July 9, 2018 to respond to Plaintiffs’ complaint. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. 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.
17.18. Condensed Consolidating Information
As discussed in Note 5, The Men’sMen's Wearhouse (the “Issuer”"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") and certain of our U.S. subsidiaries (the “Guarantors”"Guarantors"). Our Canadian and U.K.foreign subsidiaries (collectively, the “Non-Guarantors”"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’sguarantor'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.
1927
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
May 5, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 42,740 |
| $ | 2,830 |
| $ | 47,596 |
| $ | — |
| $ | 93,166 |
|
Accounts receivable, net |
|
| — |
|
| 32,045 |
|
| 305,987 |
|
| 82,311 |
|
| (332,932) |
|
| 87,411 |
|
Inventories |
|
| — |
|
| 175,630 |
|
| 482,648 |
|
| 185,393 |
|
| — |
|
| 843,671 |
|
Other current assets |
|
| 2,784 |
|
| 15,505 |
|
| 47,364 |
|
| 4,284 |
|
| — |
|
| 69,937 |
|
Total current assets |
|
| 2,784 |
|
| 265,920 |
|
| 838,829 |
|
| 319,584 |
|
| (332,932) |
|
| 1,094,185 |
|
Property and equipment, net |
|
| — |
|
| 196,932 |
|
| 206,794 |
|
| 34,218 |
|
| — |
|
| 437,944 |
|
Rental product, net |
|
| — |
|
| 102,286 |
|
| 10,127 |
|
| 16,331 |
|
| — |
|
| 128,744 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 53,422 |
|
| 45,220 |
|
| — |
|
| 104,802 |
|
Intangible assets, net |
|
| — |
|
| — |
|
| 154,960 |
|
| 12,360 |
|
| — |
|
| 167,320 |
|
Investments in subsidiaries |
|
| 97,019 |
|
| 1,381,326 |
|
| — |
|
| — |
|
| (1,478,345) |
|
| — |
|
Other assets |
|
| — |
|
| 11,450 |
|
| 668 |
|
| 81,544 |
|
| (80,835) |
|
| 12,827 |
|
Total assets |
| $ | 99,803 |
| $ | 1,964,074 |
| $ | 1,264,800 |
| $ | 509,257 |
| $ | (1,892,112) |
| $ | 1,945,822 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 116,382 |
| $ | 255,384 |
| $ | 82,563 |
| $ | 71,481 |
| $ | (332,932) |
| $ | 192,878 |
|
Accrued expenses and other current liabilities |
|
| 14,868 |
|
| 172,654 |
|
| 125,516 |
|
| 39,116 |
|
| — |
|
| 352,154 |
|
Current portion of long-term debt |
|
| — |
|
| 9,000 |
|
| — |
|
| — |
|
| — |
|
| 9,000 |
|
Total current liabilities |
|
| 131,250 |
|
| 437,038 |
|
| 208,079 |
|
| 110,597 |
|
| (332,932) |
|
| 554,032 |
|
Long-term debt, net |
|
| — |
|
| 1,277,508 |
|
| — |
|
| — |
|
| — |
|
| 1,277,508 |
|
Deferred taxes, net and other liabilities |
|
| 5,774 |
|
| 152,509 |
|
| 46,910 |
|
| 27,145 |
|
| (80,835) |
|
| 151,503 |
|
Shareholders' (deficit) equity |
|
| (37,221) |
|
| 97,019 |
|
| 1,009,811 |
|
| 371,515 |
|
| (1,478,345) |
|
| (37,221) |
|
Total liabilities and shareholders' (deficit) equity |
| $ | 99,803 |
| $ | 1,964,074 |
| $ | 1,264,800 |
| $ | 509,257 |
| $ | (1,892,112) |
| $ | 1,945,822 |
|
28
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
April 29, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
| 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 |
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
Accounts receivable, net |
|
| 7,358 |
|
| 28,480 |
|
| 437,481 |
|
| 149,697 |
|
| (539,000) |
|
| 84,016 |
|
|
| 7,358 |
|
| 28,480 |
|
| 437,481 |
|
| 149,697 |
|
| (539,000) |
|
| 84,016 |
|
Inventories |
|
| — |
|
| 212,146 |
|
| 438,670 |
|
| 333,405 |
|
| — |
|
| 984,221 |
|
|
| — |
|
| 212,146 |
|
| 438,670 |
|
| 333,405 |
|
| — |
|
| 984,221 |
|
Other current assets |
|
| 136 |
|
| 229,333 |
|
| 33,392 |
|
| 10,933 |
|
| (204,506) |
|
| 69,288 |
|
|
| 136 |
|
| 229,333 |
|
| 33,392 |
|
| 10,933 |
|
| (204,506) |
|
| 69,288 |
|
Total current assets |
|
| 7,494 |
|
| 472,121 |
|
| 911,878 |
|
| 556,118 |
|
| (743,506) |
|
| 1,204,105 |
|
|
| 7,494 |
|
| 472,121 |
|
| 911,878 |
|
| 556,118 |
|
| (743,506) |
|
| 1,204,105 |
|
Property and equipment, net |
|
| — |
|
| 224,274 |
|
| 208,719 |
|
| 34,668 |
|
| — |
|
| 467,661 |
|
|
| — |
|
| 224,274 |
|
| 208,719 |
|
| 34,668 |
|
| — |
|
| 467,661 |
|
Rental product, net |
|
| — |
|
| 127,188 |
|
| 3,087 |
|
| 17,220 |
|
| — |
|
| 147,495 |
|
|
| — |
|
| 127,188 |
|
| 3,087 |
|
| 17,220 |
|
| — |
|
| 147,495 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 42,915 |
|
| — |
|
| 117,585 |
|
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 42,915 |
|
| — |
|
| 117,585 |
|
Intangible assets, net |
|
| — |
|
| 52 |
|
| 156,741 |
|
| 14,173 |
|
| — |
|
| 170,966 |
|
|
| — |
|
| 52 |
|
| 156,741 |
|
| 14,173 |
|
| — |
|
| 170,966 |
|
Investments in subsidiaries |
|
| (89,379) |
|
| 1,444,485 |
|
| — |
|
| — |
|
| (1,355,106) |
|
| — |
|
|
| (89,379) |
|
| 1,444,485 |
|
| — |
|
| — |
|
| (1,355,106) |
|
| — |
|
Other assets |
|
| — |
|
| 5,200 |
|
| 949 |
|
| 7,174 |
|
| (6,900) |
|
| 6,423 |
|
|
| — |
|
| 5,200 |
|
| 949 |
|
| 7,174 |
|
| (6,900) |
|
| 6,423 |
|
Total assets |
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 21,606 |
| $ | 553,773 |
| $ | 82,517 |
| $ | 52,990 |
| $ | (539,000) |
| $ | 171,886 |
|
| $ | 21,606 |
| $ | 553,773 |
| $ | 82,517 |
| $ | 52,990 |
| $ | (539,000) |
| $ | 171,886 |
|
Accrued expenses and other current liabilities |
|
| 10,088 |
|
| 146,168 |
|
| 120,022 |
|
| 227,415 |
|
| (197,230) |
|
| 306,463 |
|
|
| 10,088 |
|
| 146,168 |
|
| 120,022 |
|
| 227,415 |
|
| (197,230) |
|
| 306,463 |
|
Current portion of long-term debt |
|
| — |
|
| 13,379 |
|
| — |
|
| — |
|
| — |
|
| 13,379 |
|
|
| — |
|
| 13,379 |
|
| — |
|
| — |
|
| — |
|
| 13,379 |
|
Total current liabilities |
|
| 31,694 |
|
| 713,320 |
|
| 202,539 |
|
| 280,405 |
|
| (736,230) |
|
| 491,728 |
|
|
| 31,694 |
|
| 713,320 |
|
| 202,539 |
|
| 280,405 |
|
| (736,230) |
|
| 491,728 |
|
Long-term debt, net |
|
| — |
|
| 1,574,486 |
|
| — |
|
| — |
|
| — |
|
| 1,574,486 |
|
|
| — |
|
| 1,574,486 |
|
| — |
|
| — |
|
| — |
|
| 1,574,486 |
|
Deferred taxes and other liabilities |
|
| — |
|
| 81,053 |
|
| 84,719 |
|
| 10,004 |
|
| (14,176) |
|
| 161,600 |
| |||||||||||||||||||
Deferred taxes, net and other liabilities |
|
| — |
|
| 81,053 |
|
| 84,719 |
|
| 10,004 |
|
| (14,176) |
|
| 161,600 |
| |||||||||||||||||||
Shareholders' (deficit) equity |
|
| (113,579) |
|
| (89,379) |
|
| 1,062,626 |
|
| 381,859 |
|
| (1,355,106) |
|
| (113,579) |
|
|
| (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 |
|
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
2029
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
April 30, 2016February 3, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
| 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 |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
| $ | — |
| $ | 51,818 |
| $ | 2,180 |
| $ | 49,609 |
| $ | — |
| $ | 103,607 |
|
Accounts receivable, net |
|
| — |
|
| 17,235 |
|
| 293,596 |
|
| 35,703 |
|
| (263,201) |
|
| 83,333 |
|
|
| — |
|
| 23,712 |
|
| 368,328 |
|
| 58,573 |
|
| (370,830) |
|
| 79,783 |
|
Inventories |
|
| — |
|
| 211,358 |
|
| 714,712 |
|
| 150,663 |
|
| — |
|
| 1,076,733 |
|
|
| — |
|
| 207,504 |
|
| 445,126 |
|
| 199,301 |
|
| — |
|
| 851,931 |
|
Other current assets |
|
| 9,769 |
|
| 41,038 |
|
| 18,629 |
|
| 8,467 |
|
| — |
|
| 77,903 |
|
|
| 3,666 |
|
| 26,951 |
|
| 38,217 |
|
| 9,418 |
|
| — |
|
| 78,252 |
|
Total current assets |
|
| 9,769 |
|
| 277,581 |
|
| 1,030,168 |
|
| 220,081 |
|
| (263,201) |
|
| 1,274,398 |
|
|
| 3,666 |
|
| 309,985 |
|
| 853,851 |
|
| 316,901 |
|
| (370,830) |
|
| 1,113,573 |
|
Property and equipment, net |
|
| — |
|
| 252,683 |
|
| 228,714 |
|
| 39,747 |
|
| — |
|
| 521,144 |
|
|
| — |
|
| 203,204 |
|
| 220,979 |
|
| 36,491 |
|
| — |
|
| 460,674 |
|
Rental product, net |
|
| — |
|
| 141,427 |
|
| 13,990 |
|
| 18,823 |
|
| — |
|
| 174,240 |
|
|
| — |
|
| 103,664 |
|
| 3,658 |
|
| 16,408 |
|
| — |
|
| 123,730 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 46,828 |
|
| — |
|
| 121,498 |
|
|
| — |
|
| 6,160 |
|
| 67,010 |
|
| 47,122 |
|
| — |
|
| 120,292 |
|
Intangible assets, net |
|
| — |
|
| 159 |
|
| 159,051 |
|
| 18,616 |
|
| — |
|
| 177,826 |
|
|
| — |
|
| — |
|
| 155,438 |
|
| 13,549 |
|
| — |
|
| 168,987 |
|
Investments in subsidiaries |
|
| (88,520) |
|
| 1,447,307 |
|
| — |
|
| — |
|
| (1,358,787) |
|
| — |
|
|
| 128,458 |
|
| 1,424,647 |
|
| — |
|
| — |
|
| (1,553,105) |
|
| — |
|
Other assets |
|
| — |
|
| 6,637 |
|
| 952 |
|
| 8,226 |
|
| (8,100) |
|
| 7,715 |
|
|
| — |
|
| 11,183 |
|
| 805 |
|
| 81,846 |
|
| (81,135) |
|
| 12,699 |
|
Total assets |
| $ | (78,751) |
| $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088) |
| $ | 2,276,821 |
|
| $ | 132,124 |
| $ | 2,058,843 |
| $ | 1,301,741 |
| $ | 512,317 |
| $ | (2,005,070) |
| $ | 1,999,955 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | — |
| $ | 310,830 |
| $ | 113,982 |
| $ | 41,637 |
| $ | (263,201) |
| $ | 203,248 |
|
| $ | 110,326 |
| $ | 281,838 |
| $ | 57,756 |
| $ | 66,016 |
| $ | (370,830) |
| $ | 145,106 |
|
Accrued expenses and other current liabilities |
|
| 9,129 |
|
| 184,955 |
|
| 90,879 |
|
| 26,081 |
|
| — |
|
| 311,044 |
|
|
| 14,061 |
|
| 87,597 |
|
| 155,813 |
|
| 34,187 |
|
| — |
|
| 291,658 |
|
Current portion of long-term debt |
|
| — |
|
| 42,451 |
|
| — |
|
| — |
|
| — |
|
| 42,451 |
|
|
| — |
|
| 7,000 |
|
| — |
|
| — |
|
| — |
|
| 7,000 |
|
Total current liabilities |
|
| 9,129 |
|
| 538,236 |
|
| 204,861 |
|
| 67,718 |
|
| (263,201) |
|
| 556,743 |
|
|
| 124,387 |
|
| 376,435 |
|
| 213,569 |
|
| 100,203 |
|
| (370,830) |
|
| 443,764 |
|
Long-term debt, net |
|
| — |
|
| 1,613,192 |
|
| — |
|
| — |
|
| — |
|
| 1,613,192 |
|
|
| — |
|
| 1,389,808 |
|
| — |
|
| — |
|
| — |
|
| 1,389,808 |
|
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 |
| |||||||||||||||||||
Deferred taxes, net and other liabilities |
|
| 5,545 |
|
| 164,142 |
|
| 46,641 |
|
| 28,998 |
|
| (81,135) |
|
| 164,191 |
| |||||||||||||||||||
Shareholders' equity |
|
| 2,192 |
|
| 128,458 |
|
| 1,041,531 |
|
| 383,116 |
|
| (1,553,105) |
|
| 2,192 |
| |||||||||||||||||||
Total liabilities and shareholders' equity |
| $ | 132,124 |
| $ | 2,058,843 |
| $ | 1,301,741 |
| $ | 512,317 |
| $ | (2,005,070) |
| $ | 1,999,955 |
|
2130
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 |
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||||||||||||||||||||||||
Three Months Ended May 5, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Net sales |
| $ | — |
| $ | 446,247 |
| $ | 381,421 |
| $ | 127,667 |
| $ | (137,371) |
| $ | 817,964 |
| ||||||||||||||||||||||||||||
Cost of sales |
|
| — |
|
| 224,973 |
|
| 290,943 |
|
| 94,195 |
|
| (137,371) |
|
| 472,740 |
| ||||||||||||||||||||||||||||
Gross margin |
|
| — |
|
| 221,274 |
|
| 90,478 |
|
| 33,472 |
|
| — |
|
| 345,224 |
| ||||||||||||||||||||||||||||
Operating expenses |
|
| 882 |
|
| 137,273 |
|
| 138,395 |
|
| 28,443 |
|
| (12,666) |
|
| 292,327 |
| ||||||||||||||||||||||||||||
Operating (loss) income |
|
| (882) |
|
| 84,001 |
|
| (47,917) |
|
| 5,029 |
|
| 12,666 |
|
| 52,897 |
| ||||||||||||||||||||||||||||
Other income and expenses, net |
|
| — |
|
| — |
|
| 12,666 |
|
| — |
|
| (12,666) |
|
| — |
| ||||||||||||||||||||||||||||
Interest expense, net |
|
| (764) |
|
| (23,666) |
|
| 2,014 |
|
| 520 |
|
| — |
|
| (21,896) |
| ||||||||||||||||||||||||||||
Loss on extinguishment of debt, net |
|
| — |
|
| (12,711) |
|
| — |
|
| — |
|
| — |
|
| (12,711) |
| ||||||||||||||||||||||||||||
(Loss) earnings before income taxes |
|
| (1,646) |
|
| 47,624 |
|
| (33,237) |
|
| 5,549 |
|
| — |
|
| 18,290 |
| ||||||||||||||||||||||||||||
(Benefit) provision for income taxes |
|
| (658) |
|
| 11,073 |
|
| (8,011) |
|
| 1,977 |
|
| — |
|
| 4,381 |
| ||||||||||||||||||||||||||||
(Loss) earnings before equity in net income of subsidiaries |
|
| (988) |
|
| 36,551 |
|
| (25,226) |
|
| 3,572 |
|
| — |
|
| 13,909 |
| ||||||||||||||||||||||||||||
Equity in earnings (loss) of subsidiaries |
|
| 14,897 |
|
| (21,654) |
|
| — |
|
| — |
|
| 6,757 |
|
| — |
| ||||||||||||||||||||||||||||
Net earnings (loss) |
| $ | 13,909 |
| $ | 14,897 |
| $ | (25,226) |
| $ | 3,572 |
| $ | 6,757 |
| $ | 13,909 |
| ||||||||||||||||||||||||||||
Comprehensive income (loss) |
| $ | 2,566 |
| $ | 16,091 |
| $ | (25,226) |
| $ | (8,965) |
| $ | 18,100 |
| $ | 2,566 |
| ||||||||||||||||||||||||||||
|
| 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 |
|
| $ | — |
| $ | 418,925 |
| $ | 372,264 |
| $ | 135,258 |
| $ | (143,541) |
| $ | 782,906 |
| |||||||||
Cost of sales |
|
| — |
|
| 212,499 |
|
| 278,631 |
|
| 102,877 |
|
| (143,541) |
|
| 450,466 |
|
|
| — |
|
| 212,499 |
|
| 278,631 |
|
| 102,877 |
|
| (143,541) |
|
| 450,466 |
| |||||||||
Gross margin |
|
| — |
|
| 206,426 |
|
| 93,633 |
|
| 32,381 |
|
| — |
|
| 332,440 |
|
|
| — |
|
| 206,426 |
|
| 93,633 |
|
| 32,381 |
|
| — |
|
| 332,440 |
| |||||||||
Operating expenses |
|
| 903 |
|
| 155,783 |
|
| 133,532 |
|
| 25,952 |
|
| (14,732) |
|
| 301,438 |
|
|
| 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 |
|
|
| (903) |
|
| 50,643 |
|
| (39,899) |
|
| 6,429 |
|
| 14,732 |
|
| 31,002 |
| |||||||||
Other income and expenses, net |
|
| — |
|
| — |
|
| 14,732 |
|
| — |
|
| (14,732) |
|
| — |
|
|
| — |
|
| — |
|
| 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) |
| ||||||||||||||||||||||||||||
Interest expense, net |
|
| 110 |
|
| (25,892) |
|
| 1,558 |
|
| (1,330) |
|
| — |
|
| (25,554) |
| ||||||||||||||||||||||||||||
Gain on extinguishment of debt, net |
|
| — |
|
| 715 |
|
| — |
|
| — |
|
| — |
|
| 715 |
|
|
| — |
|
| 715 |
|
| — |
|
| — |
|
| — |
|
| 715 |
| |||||||||
(Loss) earnings before income taxes |
|
| (793) |
|
| 25,466 |
|
| (23,609) |
|
| 5,099 |
|
| — |
|
| 6,163 |
|
|
| (793) |
|
| 25,466 |
|
| (23,609) |
|
| 5,099 |
|
| — |
|
| 6,163 |
| |||||||||
Provision (benefit) for income taxes |
|
| 1,945 |
|
| 8,469 |
|
| (7,752) |
|
| 1,662 |
|
| — |
|
| 4,324 |
|
|
| 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 |
|
|
| (2,738) |
|
| 16,997 |
|
| (15,857) |
|
| 3,437 |
|
| — |
|
| 1,839 |
| |||||||||
Equity in earnings of subsidiaries |
|
| 4,577 |
|
| (12,420) |
|
| — |
|
| — |
|
| 7,843 |
|
| — |
| ||||||||||||||||||||||||||||
Equity in earnings (loss) of subsidiaries |
|
| 4,577 |
|
| (12,420) |
|
| — |
|
| — |
|
| 7,843 |
|
| — |
| ||||||||||||||||||||||||||||
Net earnings (loss) |
| $ | 1,839 |
| $ | 4,577 |
| $ | (15,857) |
| $ | 3,437 |
| $ | 7,843 |
| $ | 1,839 |
|
| $ | 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) |
|
| $ | (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 |
|
2331
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended April 29, 2017May 5, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| 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 |
| $ | 10,296 |
| $ | 174,399 |
| $ | 10,424 |
| $ | (152,637) |
| $ | (9,131) |
| $ | 33,351 |
|
| $ | 10,994 |
| $ | 196,189 |
| $ | (10,744) |
| $ | (66,593) |
|
| (9,618) |
| $ | 120,228 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital expenditures |
|
| — |
|
| (6,333) |
|
| (9,982) |
|
| (1,471) |
|
| — |
|
| (17,786) |
|
|
| — |
|
| (3,238) |
|
| (6,338) |
|
| (1,404) |
|
| — |
|
| (10,980) |
| |||||||
Acquisition of business, net of cash |
|
| — |
|
| — |
|
| — |
|
| (457) |
|
| — |
|
| (457) |
| ||||||||||||||||||||||||||
Proceeds from divestiture of business |
|
| — |
|
| — |
|
| 17,732 |
|
| — |
|
| — |
|
| 17,732 |
| ||||||||||||||||||||||||||
Intercompany activities |
|
| — |
|
| (149,424) |
|
| — |
|
| — |
|
| 149,424 |
|
| — |
|
|
| — |
|
| (68,425) |
|
| — |
|
| — |
|
| 68,425 |
|
| — |
| |||||||
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) |
| ||||||||||||||||||||||||||
Net cash (used in) provided by investing activities |
|
| — |
|
| (71,663) |
|
| 11,394 |
|
| (1,404) |
|
| 68,425 |
|
| 6,752 |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Payments on term loan |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
| ||||||||||||||||||||||||||
Payments on original term loan |
|
| — |
|
| (993,420) |
|
| — |
|
| — |
|
| — |
|
| (993,420) |
| ||||||||||||||||||||||||||
Proceeds from new term loan |
|
| — |
|
| 895,500 |
|
| — |
|
| — |
|
| — |
|
| 895,500 |
| ||||||||||||||||||||||||||
Payments on new term loan |
|
| — |
|
| (2,250) |
|
| — |
|
| — |
|
| — |
|
| (2,250) |
| ||||||||||||||||||||||||||
Proceeds from asset-based revolving credit facility |
|
| — |
|
| 137,650 |
|
| — |
|
| — |
|
| — |
|
| 137,650 |
|
|
| — |
|
| 1,500 |
|
| — |
|
| — |
|
| — |
|
| 1,500 |
| |||||||
Payments on asset-based revolving credit facility |
|
| — |
|
| (137,650) |
|
| — |
|
| — |
|
| — |
|
| (137,650) |
|
|
| — |
|
| (1,500) |
|
| — |
|
| — |
|
| — |
|
| (1,500) |
| |||||||
Repurchase and retirement of senior notes |
|
| — |
|
| (6,601) |
|
| — |
|
| — |
|
| — |
|
| (6,601) |
|
|
| — |
|
| (18,240) |
|
| — |
|
| — |
|
| — |
|
| (18,240) |
| |||||||
Deferred financing costs |
|
| — |
|
| (5,576) |
|
| — |
|
| — |
|
| — |
|
| (5,576) |
| ||||||||||||||||||||||||||
Intercompany activities |
|
| — |
|
| (9,131) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| — |
|
|
| — |
|
| (9,618) |
|
| — |
|
| 68,425 |
|
| (58,807) |
|
| — |
| |||||||
Cash dividends paid |
|
| (9,131) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,131) |
|
|
| (9,618) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,618) |
| |||||||
Proceeds from issuance of common stock |
|
| 467 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 467 |
|
|
| 3,649 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,649 |
| |||||||
Tax payments related to vested deferred stock units |
|
| (1,632) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,632) |
|
|
| (5,025) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,025) |
| |||||||
Net cash (used in) provided by financing activities |
|
| (10,296) |
|
| (17,482) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| (18,647) |
|
|
| (10,994) |
|
| (133,604) |
|
| — |
|
| 68,425 |
|
| (58,807) |
|
| (134,980) |
| |||||||
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| (782) |
|
| — |
|
| (782) |
|
|
| — |
|
| — |
|
| — |
|
| (2,441) |
|
| — |
|
| (2,441) |
| |||||||
Increase (decrease) in cash and cash equivalents |
|
| — |
|
| 1,160 |
|
| 454 |
|
| (5,923) |
|
| — |
|
| (4,309) |
| ||||||||||||||||||||||||||
(Decrease) increase in cash and cash equivalents |
|
| — |
|
| (9,078) |
|
| 650 |
|
| (2,013) |
|
| — |
|
| (10,441) |
| ||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period |
|
| — |
|
| 1,002 |
|
| 1,881 |
|
| 68,006 |
|
| — |
|
| 70,889 |
|
|
| — |
|
| 51,818 |
|
| 2,180 |
|
| 49,609 |
|
| — |
|
| 103,607 |
| |||||||
Cash and cash equivalents at end of period |
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
| $ | — |
| $ | 42,740 |
| $ | 2,830 |
| $ | 47,596 |
| $ | — |
| $ | 93,166 |
|
2432
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-Guarantor |
|
|
|
|
|
|
|
| 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 |
|
| $ | 10,296 |
| $ | 174,399 |
| $ | 10,424 |
| $ | (152,637) |
| $ | (9,131) |
| $ | 33,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (16,179) |
|
| (12,878) |
|
| (1,268) |
|
| — |
|
| (30,325) |
|
|
| — |
|
| (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 |
|
| — |
|
| — |
|
| 501 |
|
| — |
|
| — |
|
| 501 |
|
|
| — |
|
| — |
|
| 12 |
|
| — |
|
| — |
|
| 12 |
|
Net cash used in investing activities |
|
| — |
|
| (16,179) |
|
| (12,377) |
|
| (1,268) |
|
| — |
|
| (29,824) |
|
|
| — |
|
| (155,757) |
|
| (9,970) |
|
| (1,928) |
|
| 149,424 |
|
| (18,231) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
| |||||||||||||||||||
Payments on original term loan |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
| |||||||||||||||||||
Proceeds from asset-based revolving credit facility |
|
| — |
|
| 201,000 |
|
| — |
|
| 3,014 |
|
| — |
|
| 204,014 |
|
|
| — |
|
| 137,650 |
|
| — |
|
| — |
|
| — |
|
| 137,650 |
|
Payments on asset-based revolving credit facility |
|
| — |
|
| (201,000) |
|
| — |
|
| (3,014) |
|
| — |
|
| (204,014) |
|
|
| — |
|
| (137,650) |
|
| — |
|
| — |
|
| — |
|
| (137,650) |
|
Repurchase and retirement of senior notes |
|
| — |
|
| (6,601) |
|
| — |
|
| — |
|
| — |
|
| (6,601) |
| |||||||||||||||||||
Intercompany activities |
|
| — |
|
| (8,921) |
|
| — |
|
| — |
|
| 8,921 |
|
| — |
|
|
| — |
|
| (9,131) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| — |
|
Cash dividends paid |
|
| (8,921) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (8,921) |
|
|
| (9,131) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,131) |
|
Proceeds from issuance of common stock |
|
| 434 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 434 |
|
|
| 467 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 467 |
|
Tax payments related to vested deferred stock units |
|
| (1,247) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,247) |
|
|
| (1,632) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,632) |
|
Net cash used in financing activities |
|
| (9,734) |
|
| (10,671) |
|
| — |
|
| — |
|
| 8,921 |
|
| (11,484) |
| |||||||||||||||||||
Net cash (used in) provided by financing activities |
|
| (10,296) |
|
| (17,482) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| (18,647) |
| |||||||||||||||||||
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| 1,322 |
|
| — |
|
| 1,322 |
|
|
| — |
|
| — |
|
| — |
|
| (782) |
|
| — |
|
| (782) |
|
Increase (decrease) in cash and cash equivalents |
|
| — |
|
| 7,226 |
|
| 988 |
|
| (1,765) |
|
| — |
|
| 6,449 |
|
|
| — |
|
| 1,160 |
|
| 454 |
|
| (5,923) |
|
| — |
|
| (4,309) |
|
Cash and cash equivalents at beginning of period |
|
| — |
|
| 724 |
|
| 2,243 |
|
| 27,013 |
|
| — |
|
| 29,980 |
|
|
| — |
|
| 1,002 |
|
| 1,881 |
|
| 68,006 |
|
| — |
|
| 70,889 |
|
Cash and cash equivalents at end of period |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
2533
ITEM 2 - MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We encourage you to read this “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations” (“Operations" ("MD&A”&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 28, 2017.February 3, 2018. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to “2017”"2018" mean the 53-week52-week fiscal year ending February 3, 2018.2, 2019.
Executive Overview
Background
We are athe leading authority on helpingspecialty retailer of men’s tailored clothing and the largest men’s formalwear provider in the United States (“U.S.”) and Canada and help men dress for work and special occasions and everyday life.occasions. We serve our customers through an expansive omni-channel network that includes over 1,6001,400 locations in the United States (“U.S.”) and Canada as well as our branded e-commerce websites. websites at www.menswearhouse.com, www.josbank.com, and www.josephabboud.com.
On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018. Please see Note 2 to the condensed consolidated financial statements for additional information.
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 toPlease see Note 1516 of Notes to Condensed Consolidated Financial Statements and the discussion included in “Results"Results of Operations”Operations" below for additional information and disclosures regarding our reportable segments.
First Quarter Discussion
After a tough February 2017, ourOur improved first quarter results reflect continued execution on our growth strategies. Our brand campaigns are resonating with new and existing customers, helping drive a 2.1% increase in retail segment comparable sales improved as the quarter progressed.through increased transactions and new customer acquisition. We continue to grow our custom business and enhance our offering with standard three-week delivery for Made-in-America custom suits. In addition, we are gaining traction on our initiatives of engaging more customers across all channels, strengtheningimproving our omni-channel experience, and increasingwith the launch of live guidance on our e-commerce websites from expert in-store 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 balanced approach of investing in the business while maintaining discipline in our management of inventory, expense and capital, and finding opportunities to unlock additional cash flow.associates.
During the first quarter, of fiscal 2017, we reached an agreement with Macy’salso continued 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 ofstrengthen our tuxedo shops within Macy’s has begunbalance sheet. In April 2018, we refinanced our term loan on favorable terms, extending its maturity to 2025, and we expect all tuxedo shops within Macy’s to closereduced our total debt by the end 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 Men’s Wearhouse, Jos. A. Bank and Moores.
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.$110 million.
Key operating metrics for the quarter ended April 29, 2017May 5, 2018 include:
· | Net sales |
· | Comparable sales increased |
· | Operating income was |
· | Diluted earnings per share were $0.27 for the first quarter of |
Key liquidity metrics for the quarterthree months ended April 29, 2017May 5, 2018 include:
· | Cash and cash equivalents at the end of the first quarter of 2018 were $93.2 million, an increase of $26.6 million compared to the end of the first quarter of 2017. |
· | Cash provided by operating activities was $120.2 million for the first three months of 2018 compared to $33.4 million for the first three months of |
· | Capital expenditures were $11.0 million for the first three months of 2018 compared to $17.8 million for the first three months of fiscal |
· | We repaid |
· | Dividends paid totaled |
2634
Items Affecting Comparability of Results
The comparability of our results has been impacted by certain items, including in the first quarter of 2018, a loss on extinguishment related to the refinancing of our Term Loan and a loss related to the divestiture of MW Cleaners. In the first quarter of 2017, these items consisted of 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.Macy's. A summary of the effect of these items on pretax income for each applicable period is presented below (dollars in millions):
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| ||||
|
| May 5, |
| April 29, |
| ||
|
| 2018 |
| 2017 |
| ||
Loss on divestiture of MW Cleaners (1) |
| $ | 3.6 |
| $ | — |
|
Costs to terminate Macy's agreement (2) |
|
| — |
|
| 17.2 |
|
Loss on extinguishment of debt related to refinancing of Term Loan (3) |
|
| 11.9 |
|
| — |
|
Total (4) |
| $ | 15.5 |
| $ | 17.2 |
|
(1) |
|
(2) |
|
(3) |
|
(4) | For the three months ended May 5, 2018, consists of $3.6 million included in selling, general and administrative expenses ("SG&A") and $11.9 million included in loss on extinguishment of debt. For the three months ended April 29, 2017, $15.8 million is included in |
Store Data
The following table presents information with respect to retail apparel stores and tuxedo shops within Macy’sMacy's stores in operation during each of the respective fiscal periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Year Ended |
|
| For the Three Months Ended |
| For the Year Ended |
| ||||
|
| April 29, |
| April 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
|
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,667 |
| 1,724 |
| 1,724 |
|
| 1,477 |
| 1,667 |
| 1,667 |
|
Opened |
| 1 |
| 140 |
| 178 |
|
| 1 |
| 1 |
| 4 |
|
Closed |
| (5) |
| (18) |
| (235) |
|
| (2) |
| (5) |
| (194) |
|
Open at end of the period |
| 1,663 |
| 1,846 |
| 1,667 |
|
| 1,476 |
| 1,663 |
| 1,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 717 |
| 716 |
| 716 |
|
| 720 |
| 717 |
| 719 |
|
Men’s Wearhouse and Tux |
| 56 |
| 153 |
| 58 |
|
| 50 |
| 56 |
| 51 |
|
Tuxedo shops @ Macy’s |
| 170 |
| 148 |
| 170 |
|
| — |
| 170 |
| — |
|
Jos. A. Bank(3) |
| 503 |
| 615 |
| 506 |
|
| 491 |
| 503 |
| 491 |
|
Moores |
| 126 |
| 125 |
| 126 |
|
| 126 |
| 126 |
| 126 |
|
K&G |
| 91 |
| 89 |
| 91 |
|
| 89 |
| 91 |
| 90 |
|
|
| 1,663 |
| 1,846 |
| 1,667 |
|
| 1,476 |
| 1,663 |
| 1,477 |
|
(1) |
|
(2) | Includes one Joseph Abboud |
(3) | Excludes franchise stores. |
During the first quarter of 2017,2018, we opened one Men’sMen's Wearhouse store and closed fivetwo stores (three Jos. A. Bank stores and two Men’s(one Men's Wearhouse and Tux stores)store and one K&G store). In addition, we expect all 170 tuxedo shops within Macy’s stores to close in the second quarter of 2017.
2735
Seasonality
Our sales and net earnings are subject to seasonal fluctuations.fluctuations and may vary by brand. Our rental serviceproduct revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point. In addition, Jos. A. Bank has generally experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have generally resulted in sales and net earnings generated in the fourth quarter, which are significantly larger as compared to the other three quarters. With respect to 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, 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, 2017May 5, 2018 Compared to the Three Months Ended April 30, 201629, 2017
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended(1) |
|
| For the Three Months Ended(1) |
|
| ||||
|
| April 29, |
| April 30, |
|
| May 5, |
| April 29, |
|
|
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 74.5 | % | 74.3 | % |
| 75.0 | % | 74.5 | % |
|
Rental services |
| 12.1 |
| 12.0 |
|
| 12.3 |
| 12.1 |
|
|
Alteration and other services |
| 6.0 |
| 6.1 |
|
| 5.0 |
| 6.0 |
|
|
Total retail sales |
| 92.6 |
| 92.4 |
|
| 92.3 |
| 92.6 |
|
|
Corporate apparel clothing product |
| 7.4 |
| 7.6 |
|
| 7.7 |
| 7.4 |
|
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
|
Cost of sales(2): |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 43.3 |
| 43.9 |
|
| 45.0 |
| 43.3 |
|
|
Rental services |
| 17.1 |
| 15.9 |
|
| 14.6 |
| 17.1 |
|
|
Alteration and other services |
| 73.5 |
| 71.2 |
|
| 83.4 |
| 73.5 |
|
|
Occupancy costs |
| 14.5 |
| 14.4 |
|
| 13.4 |
| 14.5 |
|
|
Total retail cost of sales |
| 56.3 |
| 56.5 |
|
| 56.4 |
| 56.3 |
|
|
Corporate apparel clothing product |
| 72.7 |
| 71.0 |
|
| 73.9 |
| 72.7 |
|
|
Total cost of sales |
| 57.5 |
| 57.5 |
|
| 57.8 |
| 57.5 |
|
|
Gross margin(2): |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 56.7 |
| 56.1 |
|
| 55.0 |
| 56.7 |
|
|
Rental services |
| 82.9 |
| 84.1 |
|
| 85.4 |
| 82.9 |
|
|
Alteration and other services |
| 26.5 |
| 28.8 |
|
| 16.6 |
| 26.5 |
|
|
Occupancy costs |
| (14.5) |
| (14.4) |
|
| (13.4) |
| (14.5) |
|
|
Total retail gross margin |
| 43.7 |
| 43.5 |
|
| 43.6 |
| 43.7 |
|
|
Corporate apparel clothing product |
| 27.3 |
| 29.0 |
|
| 26.1 |
| 27.3 |
|
|
Total gross margin |
| 42.5 |
| 42.5 |
|
| 42.2 |
| 42.5 |
|
|
Advertising expense |
| 5.4 |
| 5.8 |
|
| 5.0 |
| 5.4 |
|
|
Selling, general and administrative expenses |
| 33.1 |
| 32.9 |
|
| 30.7 |
| 33.1 |
|
|
Operating income |
| 4.0 |
| 3.7 |
|
| 6.5 |
| 4.0 |
|
|
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
|
Interest expense |
| (3.3) |
| (3.2) |
|
| (2.7) |
| (3.3) |
|
|
Gain on extinguishment of debt, net |
| 0.1 |
| — |
| ||||||
(Loss) gain on extinguishment of debt, net |
| (1.6) |
| 0.1 |
|
| |||||
Earnings before income taxes |
| 0.8 |
| 0.5 |
|
| 2.2 |
| 0.8 |
|
|
Provision for income taxes |
| 0.6 |
| 0.4 |
|
| 0.5 |
| 0.6 |
|
|
Net earnings |
| 0.2 | % | 0.2 | % |
| 1.7 | % | 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. |
2836
Net Sales
Total net sales decreased $45.9increased $35.1 million, or 5.5%4.5%, to $782.9$818.0 million for the first quarter of 20172018 as compared to the first quarter of 2016.2017.
Total retail sales decreased $40.9increased $29.5 million, or 5.3%4.1%, to $725.3$754.8 million for the first quarter of 20172018 as compared to the first quarter of 20162017 primarily due to a $32.1$30.0 million decreaseincrease in retail clothing product revenues,sales and a $5.0$5.4 million decreaseincrease in rental services revenue andservice revenues offset by a $3.8$5.9 million decrease in alteration and other services revenues.revenues primarily reflecting the impact of our divestiture of MW Cleaners. The decreaseincrease in total retail sales is further described below:
|
| |||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
|
|
|
|
|
(in millions) |
| Amount Attributed to | |
$ | 13.2 |
| 3.2% increase in comparable sales at Men's Wearhouse. |
| 1.8 |
| 1.2% increase in comparable sales at Jos. A. Bank. |
| (1.4) |
| 1.7% decrease in comparable sales at K&G. |
| 0.8 |
| 1.8% increase in comparable sales at Moores(1). |
| 20.7 |
| Increase in non-comparable sales (primarily due to calendar shift of 53rd week). |
| 1.9 |
| Increase in net sales resulting from change in U.S./Canadian dollar exchange rate. |
| (7.5) |
| Other (primarily resulting from divestiture of MW Cleaners). |
$ | 29.5 |
| Increase in total retail sales. |
(1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
Comparable sales exclude theis defined as net sales from stores open at least twelve months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. Due to the 53-week to 52-week calendar shift, comparable sales for the first quarter of a store for any month of one2018 are compared with the 13-week period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales.ended May 6, 2017. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.
The decreaseincrease in comparable sales at Men’sMen's Wearhouse resulted primarily from an increase in transactions for clothing, partially offset by a decrease in transactions partially offset by an increase inunits per transaction, while average unit retail (net selling prices) while units per transaction were essentiallywas flat. Although total rental service revenues increased in the first quarter of 2018 due to the Easter holiday shift resulting in an earlier prom season, rental service comparable sales at Men’s Wearhouse decreased 3.9% primarily reflecting a continued shift to purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily from an increase in transactions and units per transaction that more than offset a decrease in average unit retail while units per transaction were essentially flat.retail. The decrease at K&G resulted primarily from lower transactions and a decrease in average unit retail partially offset by an increase in units per transaction. The increase at Moores resulted primarily from increases in both transactions and units per transaction andthat more than offset a decrease in average unit retail. The decrease at Moores resulted from decreases in both average unit retail and transactions while units per transaction were flat. At Men’s Wearhouse, rental service comparable sales decreased 0.9% primarily due to a decrease in unit rentals.
Total corporate apparel clothing product sales decreased $5.0increased $5.5 million for the first quarter of 20172018 as compared to the first quarter of 20162017 primarily due to the impact of a weakerstronger British pound this year compared to last year of approximately $6.9$5.3 million.
Gross Margin
Procurement 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 sales while others, like us, include all or a portion of such costs in cost of sales 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 $19.4increased $12.8 million, or 5.5%3.8%, to $332.4$345.2 million in the first quarter of 20172018 as compared to the first quarter of 2016.2017 primarily as a result of higher retail net sales. Total retail segment gross margin decreased $17.0increased $12.1 million or 5.1%, in the first quarter of 20172018 compared to the same period last year primarily due to lower sales across our retail brands.the increase in sales.
For the retail segment, total gross margin as a percentage of retailrelated sales increased from 43.5%decreased slightly to 43.6% in the first quarter of 2016 to2018 from 43.7% in the first quarter of 2017 driven2017. The decrease in retail segment gross margin was primarily due to increased promotional activities, mostly offset by leveraginglower occupancy costs as a percent of procurement and distribution costs.sales.
37
Occupancy costs, decreased $5.0 million primarily 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 14.4%decreased $4.1 million primarily due to the closure of our tuxedo shops within Macy’s in 2017 and the impact of our divestiture of MW Cleaners. Occupancy costs as a percentage of retail sales decreased to 13.4% in the first quarter of 20162018 as compared to 14.5% in the first quarter of 2017.
Corporate apparel gross margin increased $0.7 million, or 4.5%, to $16.5 million for the first quarter of 2017, primarily due to deleveraging from lower sales.
29
Corporate apparel gross margin decreased $2.4 million, or 13.1%, in the first quarter of 2017 as2018 compared to the first quarter of 2016.2017. For the corporate apparel segment, total gross margin as a percentage of related sales decreased from 29.0%to 26.1% in the first quarter of 2016 to2018 from 27.3% in the first quarter of 2017 primarily due to the impactdeleveraging of unfavorable currency fluctuations on previously negotiated pricing arrangements withprocurement and distribution costs at our United Kingdom (“UK”) customers.operations.
Advertising Expense
Advertising expense decreased to $41.2 million in the first quarter of 2018 from $42.3 million in the first quarter of 2017, from $47.9 million in the first quarter of 2016, a decrease of $5.7$1.0 million, or 11.8%2.4%. 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 wasdecreased to 5.0% in the first quarter of 2018 from 5.4% in the first quarter of 2017 compared to 5.8% in the first quarter of 2016.2017.
Selling, General and Administrative Expenses
SG&A expenses decreased to $251.1 million in the first quarter of 2018 from $259.2 million in the first quarter of 2017, from $272.9 million in the first quarter of 2016, a decrease of $13.7$8.1 million, or 5.0%3.1%. As a percentage of total net sales, these expenses increased from 32.9%decreased to 30.7% in the first quarter of 2016 to2018 from 33.1% in the first quarter of 2017. The components of this 0.2% increase2.4% net decrease in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
|
|
|
|
|
|
% |
| 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 millions |
| Attributed to | |
1.5 |
| $ | (12.2) |
| Decrease in restructuring and other items as a percentage of sales to 0.5% in the first quarter of 2018 from 2.0% in the first quarter of 2017. In the first quarter of 2018, these costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. For the first quarter of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. |
0.9 |
|
| (2.8) |
| Store salaries decreased $2.8 million primarily due to store closures and decreased as a percentage of sales to 12.6% in the first quarter of 2018 from 13.5% in the first quarter of 2017. |
— |
|
| 6.9 |
| Other SG&A expenses as a percentage of sales was 17.7% in both the first quarters of 2018 and 2017. Other SG&A expenses increased $6.9 million primarily due to higher employee-related benefit costs as well as increased incentive compensation expense. |
2.4 |
| $ | (8.1) |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales increased from 26.9%decreased to 25.1% in the first quarter of 2016 to2018 from 27.8% in the first quarter of 2017 primarily due to deleverage resulting from lower retail sales. Retail segment2017. SG&A expenses decreased $5.0$12.2 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts partially offset byanniversarying last year’s costs to terminate the Macy’s agreement.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 24.9%to 22.9% in the first quarter of 2016 to2018 from 23.2% in the first quarter of 2017.2017 primarily due to leverage on higher sales. Corporate apparel segment SG&A expenses decreased $2.2increased $1.1 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 decreased from 6.1%increased to 5.8% in the first quarter of 2016 to2018 from 5.7% in the first quarter of 2017. Shared service SG&A expenses decreased $6.5increased $3.0 million primarily due to decreases inhigher employee-related benefit costs associated with last year’s profit improvement program.and increased incentive compensation expense.
Net (Loss) Gain on Extinguishment of Debt
Net loss on extinguishment of debt was $12.7 million in the first quarter of 2018 compared to a net gain on extinguishment of debt of $0.7 million in the first quarter of 2017. The $13.4 million change was primarily driven by the elimination of unamortized deferred financing costs and original issue discount (“OID”) related to the refinancing of our Term Loan totaling $11.9 million during the first quarter of 2018.
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Provision for Income Tax
In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act are broad and complex, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Our federal income tax expense for fiscal 2018 is based on the new rate.
Our effective income tax rate increaseddecreased to 24.0% for the first quarter of 2018 from 70.2% for the first quarter of 2017 from 63.7% for the first quarter of 2016.2017. Our effective income tax rate for the first quarter of 20172018 is higherlower than the United States (“U.S”) statutory rate as well as the effective income tax rate for the first quarter of 20162017 primarily as a resultfrom enactment of the Tax Reform Act and anniversarying last year’s $2.2 million of tax deficiencies related to the vesting of stock-based awards recorded in the first quarter of 2017 resulting from the adoption of new accounting guidance related to stock-based compensation.
For the first quartersquarter of 2017 and 2016,2018, the statutory tax rates in U.S., Canada, UK and the UKHong Kong were approximately 21%, 26%, 19% and 16.5% respectively. In addition, we recorded a Canadian withholding tax of 5% based on the removal of the permanent reinvestment representation in the fourth quarter of 2017. For the first quarter of 2017, the statutory tax rates in U.S., Canada, UK and Hong Kong were approximately 35%, 26%, 20%, and 16.5% respectively. For the first quarters of 20172018 and 2016,2017, tax expense for our operations in foreign jurisdictions totaled $1.7$2.0 million and $1.6$1.7 million, respectively.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including finalization of provisional items with respect to the Tax Reform Act, and our geographic mix of earnings and changes in tax laws. Currently, we expect our effective tax rate in future periods to be lower thanclose to the statutory U.S. combined federal and state tax rate, based on the expected geographic mix of earnings. or approximately 25%.
In addition, if our financial results in fiscal 20172018 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 $13.9 million for the first quarter of 2018 compared with net earnings of $1.8 million for the first quarter of 2017 compared with net earnings of $1.6 million for the first quarter of 2016.2017.
Liquidity and Capital Resources
At April 29, 2017, April 30, 2016 and January 28, 2017, cash and cash equivalents totaled $66.6 million, $36.4 million and $70.9 million, respectively, and working capital totaled $712.4 million, $717.7 million and $705.8 million, respectively. Our primary sources of working capital are cash flows from operations and available borrowings under our financing arrangements,revolving credit agreement, as described below. The following table provides details on our cash and cash equivalents and working capital position as of May 5, 2018, April 29, 2017 and February 3, 2018 (in thousands)
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Cash and cash equivalents |
| $ | 93,166 |
| $ | 66,580 |
| $ | 103,607 |
Working capital |
| $ | 540,153 |
| $ | 712,377 |
| $ | 669,809 |
In 2014, The Men’sMen's Wearhouse entered into a term loan credit agreement that providesprovided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”"ABL Facility", and together with the Original Term Loan, the “Credit Facilities”"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 Original Term Loan were reduced by an $11.0 million OID, which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men’sMen's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”"Senior Notes").
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In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan. See Credit Facilities section below for additional information.
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 29, 2017,ratios. Should our total leverage ratio and secured leverage ratio were above the maximumsexceed certain thresholds specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currentlywould be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. Currently, we believeAs of May 5, 2018, our total leverage ratio and secured leverage ratio are below these thresholds and we believe these ratios will moveremain below the maximumsthresholds specified in the agreements during fiscal 2018,for the foreseeable future, which will resultresults in the elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.
Credit Facilities
In April 2018, we refinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.
As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”). Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.
The New Term Loan will bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). The margins for borrowings under the New Term Loan are 3.50% for LIBOR and 2.50% for the base rate. The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by a $4.5 million OID, which is presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and will be amortized to interest expense over the contractual life of the New Term Loan.
The New Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certainextends the maturity date of our U.S. subsidiaries and will mature inthe Original Term Loan from June 2021. 18, 2021 until April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.
The interest rate on the New Term Loan is based on 1-month LIBOR, which was approximately 1.00%1.93% at April 29, 2017. The Term Loan interest rate is subject to a LIBOR floor of 1% per annum,May 5, 2018, plus the applicable margin which is currentlyof 3.50%, resulting in a total interest rate of 4.50%5.43%. In January 2015, we entered into anWe have two interest rate swap agreement, in whichagreements where the variable rate paymentsrates due under a portion of the New Term Loan werehave been exchanged for a fixed rate. In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At April 29, 2017,May 5, 2018, the total notional amount under ourthese interest rate swaps is $550.0$400.0 million.
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In 2015, The Men’s Wearhouse 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 Please see Note 15 for additional information on our interest 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, or collateral and guarantees under the Term Loan.swaps.
As a result of our interest rate swaps, and the Incremental Agreement, we have converted a significant portionapproximately 45% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, asrate. As of April 29, 2017,May 5, 2018, the New Term Loan had a weighted average interest rate of 5.10%5.45%.
TheIn October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $500.0$550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in June 2019,October 2022, 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”("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effectiveNew York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest 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%1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50%1.25% to 2.00%1.75%, and a fee on unused commitments which ranges fromof 0.25% to 0.375%. As of April 29, 2017,May 5, 2018, there were no borrowings outstanding under the ABL Facility.
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We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At April 29, 2017,May 5, 2018, letters of credit totaling approximately $31.9$35.7 million were issued and outstanding. Borrowings available under the ABL Facility as of April 29, 2017May 5, 2018 were $468.1$490.2 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 ofThe Men’s Wearhouse and 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 in July 2022. Interest on the Senior Notes is payable in January and July of each year.
Cash Flow Activities
Operating activities — Net cash provided by operating activities was $33.4$120.2 million and $46.4$33.4 million for the first three months of 20172018 and 2016,2017, respectively. The $13.1$86.9 million decreaseincrease was driven by a decrease in other assetsfavorable fluctuations related to prioraccounts payable primarily due to timing of vendor payments for inventory, higher net earnings compared to last year income tax refunds partially offset by lower inventory purchases primarily resulting from our store rationalization efforts and a plannedan expected reduction in rental productinventory purchases.
Investing activities — Net cash used inprovided by investing activities was $18.2 million and $29.8$6.8 million for the first three months of 2017 and 2016, respectively.2018 compared to net cash used in investing activities of $18.2 million for the first three months of 2017. The $11.6net change of $25.0 million decrease was primarily driven by a decrease in capital expenditures primarily due to$17.7 million of proceeds from the prior year openingdivestiture of tuxedo shops within Macy’s.MW Cleaners.
Financing activities — Net cash used in financing activities was $18.6$135.0 million and $11.5$18.6 million for the first three months of 20172018 and 2016,2017, respectively. The $7.2$116.3 million increase primarily reflects the impact of the repurchase of $7.4 million in face value of our Senior Notes.additional debt repayments this year compared to last year.
Share repurchase program — In March 2013, the Board of Directors (the “Board”"Board") approved a share repurchase program for our common stock. At April 29, 2017,May 5, 2018, the remaining balance available under the Board’sBoard's authorization was $48.0 million. During the first quartersthree months of 20172018 and 2016,2017, no shares were repurchased in open market transactions under the Board’sBoard's authorization.
Dividends — Cash dividends paid were approximately $9.1$9.6 million and $8.9$9.1 million for the first three months of 20172018 and 2016,2017, respectively. During each of the quarters ended May 5, 2018 and April 29, 2017, and April 30, 2016, 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, dividend payments, operating leases and various other commitments and obligations, as they arise.
During the coursefirst three months of the first quarter of 2017,2018, we borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling $34.7$1.5 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 approximately $90.0$100.0 million for 2017.2018. This amount includes the anticipated costs to open four Men’sapproximately six Men's Wearhouse stores and to relocate or remodel approximately 10 to 15 stores.six stores across our retail brands. The balance of the capital expenditures for 20172018 will be used for point-of-salestore refreshes and other enhancements of our store fleet, investments in computer equipment and systems, store remodeling, distribution facilities improvements, and investment in other corporate assets.
Additionally, market conditions may produce attractive opportunities for us to make acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We may use cash on hand, together with cash flow from
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operations, borrowings under our Credit Facilities and issuances of debt or equity securities, to take advantage of any acquisition opportunities.
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, and capital expenditures.
Contractual Obligations
ThereOther than the repayment of debt discussed in Note 5 to the condensed consolidated financial statements, 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 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.February 3, 2018.
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 28, 2017.February 3, 2018 except as discussed below.
Loyalty Program Accounting
Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”). As a result, we no longer use the incremental cost method approach but will record our obligation for future point redemptions using a deferred revenue model.
We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and do not expire. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance.
When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.
We account for points earned and certificates issued that will never be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.
Our estimate of the expected expiration of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty program. For example, during fiscal 2018, we plan to test potential changes to our loyalty program in order to improve the effectiveness of the program.
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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 5 and Note 1415 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 29, 2017, 94%May 5, 2018, 62% of our total debt was at a fixed rate with the remainder at a variable rate. As a result, we believe our interest rate risk is substantially mitigated. At April 29, 2017,May 5, 2018, the effect of one percentage point change in interest rates would result in an approximate $1.0$5.0 million change in annual interest expense on our Term Loan.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’sCompany's management, with the participation of the Company’sCompany's principal executive officer (“CEO”("CEO") and principal financial officer (“CFO”("CFO"), evaluated the effectiveness of the Company’sCompany'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”"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’sCompany'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’sSEC's rules and forms and (ii) accumulated and communicated to the Company’sCompany'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’sCompany's internal control over financial reporting that occurred during the fiscal first quarter ended April 29, 2017May 5, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
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For a description of our legal proceedings, see Note 1617 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 37.45.
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Exhibit | Exhibit Index | |||
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31.1 | — | |||
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32.1 | — | |||
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101.1 | — | The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10‑Q for the three months ended May 5, 2018 formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements. |
†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.
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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. | |
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| Executive Vice President, Chief Financial Officer and Treasurer |
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†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.
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