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 July 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'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 accelerated filer", "accelerated filer" and "smaller reporting 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 August 26, 2017June 1, 2018 was 49,195,390.49,799,176.
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Item 1 — Condensed Consolidated Financial Statements (unaudited) |
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Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 — Quantitative and Qualitative Disclosures about Market Risk |
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Forward-Looking Statements
Certain information includedstatements made in this reportQuarterly Report on Form 10‑Q or in other materials we have filed or will file with the Securities and Exchange Commission ("SEC"(“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-lookingforward‑looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition. Words such as "expects," "anticipates," "envisions," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates,"“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-lookingForward‑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 are based upon management'smanagement’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-lookingforward‑looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward-lookingforward‑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. Please also see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended January 28, 2017, as the same may be updated from time to time in our subsequent filings with the SEC, 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'sCompany’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, except as required by applicable law. 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 SecuritesSecurities 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 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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| July 29, |
| July 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 |
| $ | 112,741 |
| $ | 11,430 |
| $ | 70,889 |
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| $ | 93,166 |
| $ | 66,580 |
| $ | 103,607 |
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Accounts receivable, net |
|
| 71,900 |
|
| 84,348 |
|
| 65,714 |
|
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| 87,411 |
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| 84,016 |
|
| 79,783 |
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Inventories |
|
| 944,783 |
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| 1,023,603 |
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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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| 55,432 |
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| 81,113 |
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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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| 1,184,856 |
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| 1,200,494 |
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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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| 459,530 |
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| 510,520 |
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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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| 139,397 |
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| 171,469 |
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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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| 119,880 |
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| 118,307 |
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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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| 170,113 |
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| 174,752 |
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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 |
|
| 5,948 |
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| 9,012 |
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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 |
| $ | 2,079,724 |
| $ | 2,184,554 |
| $ | 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 |
| $ | 140,156 |
| $ | 169,820 |
| $ | 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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| 276,616 |
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| 295,707 |
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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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| 6,310 |
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| 1,150 |
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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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| 8,750 |
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| 14,000 |
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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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| 431,832 |
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| 480,677 |
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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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| 1,532,255 |
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| 1,600,402 |
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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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| 162,313 |
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| 192,125 |
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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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| 2,126,400 |
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| 2,273,204 |
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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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| 491 |
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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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| 478,174 |
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| 461,143 |
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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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| (497,160) |
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| (519,068) |
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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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| (28,181) |
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| (31,211) |
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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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| (46,676) |
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| (88,650) |
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| (107,618) |
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT |
| $ | 2,079,724 |
| $ | 2,184,554 |
| $ | 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 |
| For the Six Months Ended |
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| For the Three Months Ended |
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| July 29, 2017 |
| July 30, 2016 |
| July 29, 2017 |
| July 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 |
| $ | 594,994 |
| $ | 615,946 |
| $ | 1,178,579 |
| $ | 1,231,614 |
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| $ | 613,644 |
| $ | 583,585 |
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Rental services |
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| 151,978 |
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| 165,009 |
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| 246,798 |
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| 264,840 |
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| 100,227 |
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| 94,820 |
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Alteration and other services |
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| 46,026 |
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| 49,226 |
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| 92,926 |
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| 99,969 |
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| 40,972 |
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| 46,900 |
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Total retail sales |
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| 792,998 |
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| 830,181 |
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| 1,518,303 |
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| 1,596,423 |
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| 754,843 |
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| 725,305 |
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Corporate apparel clothing product |
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| 57,760 |
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| 79,503 |
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| 115,361 |
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| 142,083 |
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| 63,121 |
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| 57,601 |
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Total net sales |
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| 850,758 |
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| 909,684 |
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| 1,633,664 |
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| 1,738,506 |
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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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| 248,630 |
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| 277,882 |
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| 501,509 |
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| 548,237 |
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| 276,220 |
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| 252,879 |
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Rental services |
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| 23,957 |
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| 27,101 |
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| 40,125 |
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| 42,985 |
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| 14,657 |
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| 16,168 |
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Alteration and other services |
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| 35,076 |
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| 34,409 |
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| 69,548 |
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| 70,559 |
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| 34,178 |
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| 34,472 |
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Occupancy costs |
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| 103,326 |
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| 108,615 |
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| 208,415 |
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| 218,750 |
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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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| 410,989 |
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| 448,007 |
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| 819,597 |
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| 880,531 |
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| 426,074 |
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| 408,608 |
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Corporate apparel clothing product |
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| 43,073 |
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| 51,373 |
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| 84,931 |
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| 95,830 |
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| 46,666 |
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| 41,858 |
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Total cost of sales |
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| 454,062 |
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| 499,380 |
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| 904,528 |
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| 976,361 |
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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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| 346,364 |
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| 338,064 |
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| 677,070 |
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| 683,377 |
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| 337,424 |
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| 330,706 |
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Rental services |
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| 128,021 |
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| 137,908 |
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| 206,673 |
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| 221,855 |
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| 85,570 |
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| 78,652 |
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Alteration and other services |
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| 10,950 |
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| 14,817 |
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| 23,378 |
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| 29,410 |
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| 6,794 |
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| 12,428 |
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Occupancy costs |
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| (103,326) |
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| (108,615) |
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| (208,415) |
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| (218,750) |
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| (101,019) |
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| (105,089) |
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Total retail gross margin |
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| 382,009 |
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| 382,174 |
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| 698,706 |
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| 715,892 |
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| 328,769 |
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| 316,697 |
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Corporate apparel clothing product |
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| 14,687 |
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| 28,130 |
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| 30,430 |
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| 46,253 |
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| 16,455 |
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| 15,743 |
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Total gross margin |
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| 396,696 |
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| 410,304 |
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| 729,136 |
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| 762,145 |
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| 345,224 |
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| 332,440 |
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Advertising expense |
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| 39,888 |
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| 44,963 |
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| 82,140 |
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| 92,891 |
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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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| 248,343 |
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| 305,709 |
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| 507,529 |
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| 578,628 |
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| 251,094 |
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| 259,186 |
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Operating income |
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| 108,465 |
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| 59,632 |
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| 139,467 |
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| 90,626 |
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| 52,897 |
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| 31,002 |
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Interest income |
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| 98 |
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| 37 |
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| 165 |
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| 50 |
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| 85 |
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| 67 |
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Interest expense |
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| (25,167) |
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| (25,876) |
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| (50,788) |
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| (52,377) |
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| (21,981) |
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| (25,621) |
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Gain (loss) on extinguishment of debt, net |
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| 3,281 |
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| (71) |
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| 3,996 |
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| (71) |
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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 |
|
| 86,677 |
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| 33,722 |
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| 92,840 |
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| 38,228 |
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| 18,290 |
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| 6,163 |
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Provision for income taxes |
|
| 28,206 |
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| 8,747 |
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| 32,530 |
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| 11,616 |
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| 4,381 |
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| 4,324 |
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Net earnings |
| $ | 58,471 |
| $ | 24,975 |
| $ | 60,310 |
| $ | 26,612 |
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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 |
| $ | 1.19 |
| $ | 0.51 |
| $ | 1.23 |
| $ | 0.55 |
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| $ | 0.28 |
| $ | 0.04 |
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Diluted |
| $ | 1.19 |
| $ | 0.51 |
| $ | 1.23 |
| $ | 0.55 |
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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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| 49,107 |
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| 48,609 |
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| 48,958 |
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| 48,527 |
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| 49,458 |
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| 48,808 |
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Diluted |
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| 49,172 |
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| 48,639 |
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| 49,162 |
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| 48,630 |
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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 |
| $ | 0.36 |
| $ | 0.36 |
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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)
(In thousands)
(Unaudited)
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| For the Three Months Ended |
| For the Six Months Ended |
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| For the Three Months Ended |
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| July 29, |
| July 30, |
| July 29, |
| July 30, |
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| May 5, |
| April 29, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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|
|
|
|
|
Net earnings |
| $ | 58,471 |
| $ | 24,975 |
| $ | 60,310 |
| $ | 26,612 |
|
| $ | 13,909 |
| $ | 1,839 |
|
Currency translation adjustments |
|
| 14,773 |
|
| (19,600) |
|
| 16,114 |
|
| (3,171) |
|
|
| (14,143) |
|
| 1,341 |
|
Unrealized (loss) gain on cash flow hedges, net of tax |
|
| (746) |
|
| 206 |
|
| (4,212) |
|
| 446 |
| |||||||
Comprehensive income |
| $ | 72,498 |
| $ | 5,581 |
| $ | 72,212 |
| $ | 23,887 |
| |||||||
Unrealized gain (loss) on cash flow hedges, net of tax |
|
| 2,800 |
|
| (3,466) |
| |||||||||||||
Comprehensive income (loss) |
| $ | 2,566 |
| $ | (286) |
|
See Notes to Condensed Consolidated Financial Statements.
4
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
| |||||||
|
| For the Six Months Ended |
|
|
|
|
|
|
|
| ||||
|
| July 29, |
| July 30, |
|
| For the Three Months Ended |
| ||||||
|
| 2017 |
| 2016 |
|
| May 5, 2018 |
| April 29, 2017 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 60,310 |
| $ | 26,612 |
|
| $ | 13,909 |
| $ | 1,839 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 53,407 |
|
| 60,275 |
|
|
| 26,679 |
|
| 26,426 |
|
Rental product amortization |
|
| 21,205 |
|
| 23,176 |
|
|
| 8,756 |
|
| 7,878 |
|
(Gain) loss on extinguishment of debt, net |
|
| (3,996) |
|
| 71 |
| |||||||
Loss (gain) on extinguishment of debt, net |
|
| 12,711 |
|
| (715) |
| |||||||
Amortization of deferred financing costs and discount on long-term debt |
|
| 3,661 |
|
| 3,798 |
|
|
| 1,333 |
|
| 1,849 |
|
Loss on disposition of assets |
|
| 1,381 |
|
| 49 |
|
|
| 3,618 |
|
| 1,437 |
|
Asset impairment charges |
|
| 2,867 |
|
| 3,864 |
|
|
| 269 |
|
| 2,867 |
|
Share-based compensation |
|
| 8,095 |
|
| 8,739 |
|
|
| 4,581 |
|
| 4,735 |
|
Deferred tax (benefit) expense |
|
| (242) |
|
| 1,890 |
| |||||||
Deferred tax expense (benefit) |
|
| 748 |
|
| (269) |
| |||||||
Deferred rent expense and other |
|
| 309 |
|
| (637) |
|
|
| 73 |
|
| 210 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (4,832) |
|
| (22,955) |
|
|
| (10,871) |
|
| (17,432) |
|
Inventories |
|
| 15,701 |
|
| (2,223) |
|
|
| (11,886) |
|
| (27,831) |
|
Rental product |
|
| (8,521) |
|
| (35,952) |
|
|
| (14,377) |
|
| (4,833) |
|
Other assets |
|
| 16,112 |
|
| 64,513 |
|
|
| 8,124 |
|
| 3,888 |
|
Accounts payable, accrued expenses and other current liabilities |
|
| (28,444) |
|
| (29,412) |
|
|
| 82,755 |
|
| 32,943 |
|
Income taxes payable |
|
| 4,964 |
|
| 1,150 |
|
|
| (4,301) |
|
| 1,529 |
|
Other liabilities |
|
| (1,448) |
|
| (2,654) |
|
|
| (1,893) |
|
| (1,170) |
|
Net cash provided by operating activities |
|
| 140,529 |
|
| 100,304 |
|
|
| 120,228 |
|
| 33,351 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (33,973) |
|
| (55,912) |
|
|
| (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 |
|
| 2,157 |
|
| 605 |
|
|
| — |
|
| 12 |
|
Net cash used in investing activities |
|
| (32,273) |
|
| (55,307) |
| |||||||
Net cash provided by (used in) investing activities |
|
| 6,752 |
|
| (18,231) |
| |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| (8,129) |
|
| (38,951) |
| |||||||
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 |
|
| 181,550 |
|
| 305,549 |
|
|
| 1,500 |
|
| 137,650 |
|
Payments on asset-based revolving credit facility |
|
| (181,550) |
|
| (305,549) |
|
|
| (1,500) |
|
| (137,650) |
|
Repurchase and retirement of senior notes |
|
| (45,167) |
|
| (5,546) |
|
|
| (18,240) |
|
| (6,601) |
|
Deferred financing costs |
|
| (5,576) |
|
| — |
| |||||||
Cash dividends paid |
|
| (18,033) |
|
| (17,676) |
|
|
| (9,618) |
|
| (9,131) |
|
Proceeds from issuance of common stock |
|
| 927 |
|
| 932 |
|
|
| 3,649 |
|
| 467 |
|
Tax payments related to vested deferred stock units |
|
| (1,644) |
|
| (1,258) |
|
|
| (5,025) |
|
| (1,632) |
|
Net cash used in financing activities |
|
| (72,046) |
|
| (62,499) |
|
|
| (134,980) |
|
| (18,647) |
|
Effect of exchange rate changes |
|
| 5,642 |
|
| (1,048) |
|
|
| (2,441) |
|
| (782) |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 41,852 |
|
| (18,550) |
| |||||||
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 |
| $ | 112,741 |
| $ | 11,430 |
|
| $ | 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") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.
Our business results historically 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", "we", "us" and "our" refer to Tailored Brands, Inc. and its subsidiaries.
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.
Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, or cash flows, based on current information, except for those listed below.
In February 2016,August 2017, the Financial Accounting Standards Board ("FASB") issued issued Accounting Standards Update ("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 clarify the principles usedour business processes, systems and controls to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year. As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The guidance allows for either a full retrospective or a modified retrospective transition method. Based on our preliminary assessment, we determined thatsupport the adoption of ASU 2014-09 will impact the timing of revenue recognition related to our customer loyalty program and gift cards. Upon adoption, for our customer loyalty program, we will no longer use the incremental cost method approach, rather we will use a deferred revenue model. For income from breakage of gift cards, which is currently recognized as a reduction of selling, general and administrative expenses ("SG&A") when the redemption of the gift card is remote, the new guidance requires classification within net sales with breakage recognized proportionately over the expected redemption period. Additionally, under the new guidance, we expect to recognize allowances for estimated sales returns on a gross basis rather than net basis on the consolidated balance sheets. We are continuing ourassessment for ASU 2014-09, which may identify other impacts, and evaluating the transition methods for adoption and additional disclosure requirements.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's
During the first quarter of fiscal 2017, we reached an agreement with Macy's to wind down operations under the tuxedo rental license agreement established between Macy's and The Men's Wearhouse, Inc. ("The Men's Wearhouse") in 2015. The winding down of our tuxedo shops within Macy's is completewas completed in fiscal 2017 and all tuxedo shops within Macy'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 SG&A and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings. At July 29, 2017, $1.7 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.2017.
7
No charges were incurred under these initiatives for the three and six months ended July 29, 2017. A summary of the charges incurred in the three and six months ended July 30, 2016 incurred under these initiatives since inception is presented in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| For the Three Months Ended | For the Six Months Ended |
| ||
|
| July 30, 2016 | July 30, 2016 |
| ||
Lease termination costs |
| $ | 26,446 | $ | 28,337 |
|
Store asset impairment charges and accelerated depreciation, net of deferred rent |
|
| 1,164 |
| 3,174 |
|
Consulting costs |
|
| 6,825 |
| 11,777 |
|
Severance and employee-related costs |
|
| 406 |
| 4,162 |
|
Other costs |
|
| 174 |
| 726 |
|
Total pre-tax restructuring and other charges(1) |
| $ | 35,015 | $ | 48,176 |
|
(1) Consists of $36.4 million in SG&A offset by a $1.4 million reduction in cost of sales for the three months ended July 30, 2016. Of the total amount recorded for the three months ended July 30, 2016, $27.9 million relates to our retail segment and $7.1 million relates to shared services. Consists of $49.4 million included in SG&A offset by a $1.2 million reduction in cost of sales for the six months ended July 30, 2016. Of the total amount recorded for the six months ended July 30, 2016, $33.6 million relates to our retail segment and $14.6 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 |
|
| (504) |
|
| (3,434) |
|
| (60) |
|
| (25) |
|
| (4,023) |
|
Ending Balance, July 29, 2017 |
| $ | 482 |
| $ | 1,400 |
| $ | — |
| $ | — |
| $ | 1,882 |
|
In addition to the restructuring costs described above, for the three months ended July 30, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $2.0 million, of which $1.5 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings.
For the six months ended July 30, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $5.6 million, of which $4.6 million are included in SG&A and $1.0 million are included in cost of sales in the condensed consolidated statement of earnings.
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. ForIn the threefirst quarter of 2018 and six months ended July 29, 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used for the three and six months ended July 30, 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
8
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 Six Months Ended |
|
| For the Three Months Ended |
| ||||||||||||
|
| July 29, |
| July 30, |
| July 29, |
| July 30, |
|
| May 5, |
| April 29, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 58,471 |
| $ | 24,975 |
| $ | 60,310 |
| $ | 26,612 |
|
| $ | 13,909 |
| $ | 1,839 |
|
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
|
| — |
|
| (31) |
|
| — |
|
| (31) |
| |||||||
Net earnings allocated to common shareholders |
| $ | 58,471 |
| $ | 24,944 |
| $ | 60,310 |
| $ | 26,581 |
| |||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
| 49,107 |
|
| 48,609 |
|
| 48,958 |
|
| 48,527 |
|
|
| 49,458 |
|
| 48,808 |
|
Dilutive effect of share-based awards |
|
| 65 |
|
| 30 |
|
| 204 |
|
| 103 |
|
|
| 1,262 |
|
| 343 |
|
Diluted weighted-average common shares outstanding |
|
| 49,172 |
|
| 48,639 |
|
| 49,162 |
|
| 48,630 |
|
|
| 50,720 |
|
| 49,151 |
|
Net earnings per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net earnings per common share: |
|
|
|
|
|
|
| |||||||||||||
Basic |
| $ | 1.19 |
| $ | 0.51 |
| $ | 1.23 |
| $ | 0.55 |
|
| $ | 0.28 |
| $ | 0.04 |
|
Diluted |
| $ | 1.19 |
| $ | 0.51 |
| $ | 1.23 |
| $ | 0.55 |
|
| $ | 0.27 |
| $ | 0.04 |
|
For the three and six months ended JulyMay 5, 2018, and April 29, 2017, 2.5 million and 2.0 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively. For the three and six months ended July 30, 2016, 2.00.4 million and 1.6 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"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million original issue discount ("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's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "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,ratios. Should our total leverage ratio and secured leverage ratio have been above the maximumsexceed certain thresholds specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we werewould be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of July 29, 2017,May 5, 2018, our total leverage ratio and secured leverage ratio wereare below these thresholds and we believe these ratios will remain below the maximumsthresholds specified in the agreements but these ratios may increase abovefor the maximums specified in the agreements during the remainder of fiscal 2017. Currently, we believe our total leverage ratio and secured leverage ratio will remain below the maximums specified in the agreements during fiscal 2018 and beyond,foreseeable future, which will resultresults in the elimination of these additional restrictions. In addition, in accordance with the termsas a result of the Credit Facilities, we made a mandatory excess cash flow prepayment offerrefinancing of $4.6 million to theour Original Term Loan and amending of our ABL Facility, our
98
Loan lenders priorability to April 28, 2017. On May 2, 2017, the entire $4.6pay dividends on our common stock has increased from a maximum of $10.0 million prepayment was made together with normal principal and interest payments on the Term Loan.per quarter to a maximum of $15.0 million 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 1.23%1.93% at July 29, 2017,May 5, 2018, plus the applicable margin which is currentlyof 3.50%, resulting in a total interest rate of 4.73%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 July 29, 2017,May 5, 2018, the total notional amount under ourthese interest rate swaps is $540.0$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 July 29, 2017,May 5, 2018, the New Term Loan had a weighted average interest rate of 5.14%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") 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 July 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 sixthree months ended July 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 July 29, 2017,May 5, 2018, letters of credit totaling approximately $33.4$35.7 million were issued and outstanding. Borrowings available under the ABL Facility as of July 29, 2017May 5, 2018 were $466.6$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 secondfirst quarter of 2017,2018, we repurchased and retired $42.6$17.6 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.transactions. As a result, we recorded a net gainloss on extinguishment totaling $3.3$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.
10
earnings.
The net gain on extinguishment reflects a $4.0 million gain upon repurchase partially offset byfollowing table depicts the eliminationcumulative effect of unamortized deferred financing costs totaling $0.7 millionthe 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) |
|
The adoption of ASC 606 primarily impacted the timing of revenue recognition related to the Senior Notes.
For the six months ended July 29, 2017,our customer loyalty program, gift cards and e-commerce sales within our retail segment, as a resultdiscussed 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 repurchase and retirement ofcumulative adjustment to opening retained earnings. Also, for estimated sales returns, we now recognize allowances for estimated sales returns on a total of $50.0 million in face value of Senior Notes and our excess cash flow prepayment, we recordedgross basis rather than a net gainbasis on extinguishment totaling $4.0 million, which reflects a $4.8 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $0.8 million, which is included as a separate line in the condensed consolidated statement of earnings.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 July 29, 2017, July 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):
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 30, |
| January 28, |
| |||
|
| 2017 |
| 2016 |
| 2017 |
| |||
Term Loan (net of unamortized OID of $3.6 million at July 29, 2017, $4.6 million at July 30, 2016, and $4.1 million at January 28, 2017) |
| $ | 1,035,030 |
| $ | 1,045,686 |
| $ | 1,042,660 |
|
Senior Notes |
|
| 525,000 |
|
| 593,500 |
|
| 575,000 |
|
Less: Deferred financing costs related to the Term Loan and Senior Notes |
|
| (19,025) |
|
| (24,784) |
|
| (22,131) |
|
Total long-term debt, net |
|
| 1,541,005 |
|
| 1,614,402 |
|
| 1,595,529 |
|
Current portion of long-term debt |
|
| (8,750) |
|
| (14,000) |
|
| (13,379) |
|
Total long-term debt, net of current portion |
| $ | 1,532,255 |
| $ | 1,600,402 |
| $ | 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 Six Months Ended |
|
| For the Three Months Ended |
| ||||||||
|
| July 29, |
| July 30, |
|
| May 5, |
| April 29, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 51,052 |
| $ | 48,746 |
|
| $ | 13,380 |
| $ | 16,389 |
|
Cash paid (refunded) for income taxes, net |
| $ | 14,591 |
| $ | (52,547) |
| |||||||
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 $6.9$4.7 million and $11.8$7.1 million at JulyMay 5, 2018 and April 29, 2017, and July 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. Cash dividends declared of $9.4 million and $9.0 million at July 29, 2017 and July 30, 2016, respectively, are included in accrued expenses and other current liabilities.
7.8. Inventories
The following table provides details on our inventories as of JulyMay 5, 2018, April 29, 2017 July 30, 2016 and January 28, 2017February 3, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Finished goods |
| $ | 841,101 |
| $ | 929,428 |
| $ | 846,585 |
|
| $ | 749,746 |
| $ | 915,065 |
| $ | 739,668 |
|
Raw materials and merchandise components |
|
| 103,682 |
|
| 94,175 |
|
| 108,927 |
|
|
| 93,925 |
|
| 69,156 |
|
| 112,263 |
|
Total inventories |
| $ | 944,783 |
| $ | 1,023,603 |
| $ | 955,512 |
|
| $ | 843,671 |
| $ | 984,221 |
| $ | 851,931 |
|
9. Income Taxes
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 32.5%24.0% for the secondfirst quarter of 2018 from 70.2% for the first quarter of 2017. Our effective income tax rate for the first quarter of 2018 is lower than the effective income tax rate for the first quarter of 2017 primarily from 25.9%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.
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 the secondTax 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 2016 primarily due2018, there have been no updates to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.
provisional amount. While we have made a reasonable
1115
Our effective income tax rate increasedestimate of the impact of the Tax Reform Act, we are continuing to 35.0% forfinalize the first six months of 2017 from 30.4% for the first six months of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year. In addition, the effective income tax rate for the first six months of 2017 was impacted by $2.2 millionconsequences of tax deficiencies related toreform, including the vestingtemporary differences that existed on the date of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation. See Note 11 for additional information.enactment.
Additionally, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Prepaid expenses |
| $ | 45,718 |
| $ | 47,088 |
| $ | 47,057 |
|
| $ | 44,438 |
| $ | 44,584 |
| $ | 47,545 |
|
Tax receivable |
|
| 2,428 |
|
| 21,037 |
|
| 15,794 |
|
|
| 12,814 |
|
| 14,055 |
|
| 20,368 |
|
Other |
|
| 7,286 |
|
| 12,988 |
|
| 10,751 |
|
|
| 12,685 |
|
| 10,649 |
|
| 10,339 |
|
Total other current assets |
| $ | 55,432 |
| $ | 81,113 |
| $ | 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Customer deposits, prepayments and refunds payable |
| $ | 87,849 |
| $ | 72,411 |
| $ | 59,633 |
| ||||||||||
Loyalty program liabilities |
|
| 65,597 |
|
| 8,720 |
|
| 9,106 |
| ||||||||||
Accrued salary, bonus, sabbatical, vacation and other benefits |
| $ | 61,431 |
| $ | 64,580 |
| $ | 72,589 |
|
|
| 56,066 |
|
| 58,373 |
|
| 84,767 |
|
Customer deposits, prepayments and refunds payable |
|
| 54,043 |
|
| 47,993 |
|
| 28,384 |
| ||||||||||
Sales, value added, payroll, property and other taxes payable |
|
| 37,605 |
|
| 36,878 |
|
| 29,409 |
| ||||||||||
Unredeemed gift cards |
|
| 36,245 |
|
| 36,217 |
|
| 40,865 |
|
|
| 29,921 |
|
| 37,434 |
|
| 39,609 |
|
Sales, value added, payroll, property and other taxes payable |
|
| 33,472 |
|
| 34,589 |
|
| 31,188 |
| ||||||||||
Accrued workers compensation and medical costs |
|
| 27,009 |
|
| 30,786 |
|
| 31,609 |
|
|
| 24,639 |
|
| 27,194 |
|
| 25,244 |
|
Accrued dividends |
|
| 10,870 |
|
| 9,957 |
|
| 11,128 |
| ||||||||||
Accrued interest |
|
| 12,477 |
|
| 16,067 |
|
| 15,457 |
|
|
| 10,608 |
|
| 22,871 |
|
| 3,281 |
|
Accrued dividends |
|
| 10,456 |
|
| 9,307 |
|
| 9,842 |
| ||||||||||
Loyalty program reward certificates |
|
| 9,226 |
|
| 9,963 |
|
| 9,840 |
| ||||||||||
Accrued royalties |
|
| 4,515 |
|
| 7,545 |
|
| 3,720 |
|
|
| 4,009 |
|
| 1,806 |
|
| 5,032 |
|
Lease termination and other store closure costs |
|
| 3,135 |
|
| 20,918 |
|
| 4,834 |
|
|
| 297 |
|
| 4,106 |
|
| 427 |
|
Other |
|
| 24,607 |
|
| 17,742 |
|
| 19,571 |
|
|
| 22,953 |
|
| 23,852 |
|
| 17,901 |
|
Total accrued expenses and other current liabilities |
| $ | 276,616 |
| $ | 295,707 |
| $ | 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| ||||||
|
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| ||||||
Deferred and other income tax liabilities, net |
| $ | 90,957 |
| $ | 115,735 |
| $ | 92,079 |
|
| $ | 83,357 |
| $ | 90,772 |
| $ | 95,314 |
|
Deferred rent and landlord incentives |
|
| 60,467 |
|
| 63,367 |
|
| 61,215 |
|
|
| 58,957 |
|
| 60,542 |
|
| 60,136 |
|
Unfavorable lease liabilities |
|
| 3,760 |
|
| 6,141 |
|
| 4,693 |
|
|
| 2,631 |
|
| 4,224 |
|
| 2,910 |
|
Other |
|
| 7,129 |
|
| 6,882 |
|
| 5,433 |
|
|
| 6,558 |
|
| 6,062 |
|
| 5,831 |
|
Total deferred taxes, net and other liabilities |
| $ | 162,313 |
| $ | 192,125 |
| $ | 163,420 |
|
| $ | 151,503 |
| $ | 161,600 |
| $ | 164,191 |
|
1216
10.11. Accumulated Other Comprehensive (Loss) Income
The following table summarizes the components of accumulated other comprehensive (loss) income for the sixthree months ended July 29, 2017May 5, 2018 (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 |
|
| 16,114 |
|
| (5,482) |
|
| — |
|
| 10,632 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 1,270 |
|
| — |
|
| 1,270 |
|
Net current-period other comprehensive income (loss) |
|
| 16,114 |
|
| (4,212) |
|
| — |
|
| 11,902 |
|
BALANCE— July 29, 2017 |
| $ | (24,091) |
| $ | (4,294) |
| $ | 204 |
| $ | (28,181) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 sixthree months ended July 30, 2016April 29, 2017 (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 loss before reclassifications |
|
| (3,171) |
|
| (276) |
|
| — |
|
| (3,447) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 722 |
|
| — |
|
| 722 |
|
Net current-period other comprehensive (loss) income |
|
| (3,171) |
|
| 446 |
|
| — |
|
| (2,725) |
|
BALANCE— July 30, 2016 |
| $ | (29,830) |
| $ | (1,561) |
| $ | 180 |
| $ | (31,211) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 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 sixthree months ended JulyMay 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 six months ended July 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.
February 3, 2018.
1317
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") awards for the sixthree months ended July 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 |
| 428,881 |
| 507,528 |
|
| 11.35 |
|
| 11.36 |
|
| 433,556 |
| 241,754 |
|
| 28.55 |
|
| 28.55 |
|
Vested(1) |
| (449,248) |
| — |
|
| 25.49 |
|
| — |
|
| (298,352) |
| (131,074) |
|
| 27.70 |
|
| 23.45 |
|
Forfeited |
| (26,193) |
| (737) |
|
| 23.85 |
|
| 54.26 |
|
| (21,962) |
| (10,000) |
|
| 19.79 |
|
| 12.80 |
|
Non-Vested at July 29, 2017 |
| 1,015,405 |
| 1,030,739 |
| $ | 18.31 |
| $ | 19.93 |
| |||||||||||
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 six months ended July 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 July 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 July 29, 2017,May 5, 2018, we have unrecognized compensation expense related to non-vested DSUs of approximately $24.1$32.2 million, which is expected to be recognized over a weighted-average period of 1.71.9 years.
Stock Options
The following table summarizes the activity of stock options for the sixthree months ended July 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 |
| 550,804 |
|
| 11.36 |
|
| 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 July 29, 2017 |
| 1,703,698 |
| $ | 23.48 |
| ||||||
Exercisable at July 29, 2017 |
| 726,137 |
| $ | 33.22 |
| ||||||
Outstanding at May 5, 2018 |
| 1,559,666 |
| $ | 22.76 |
| ||||||
Exercisable at May 5, 2018 |
| 637,602 |
| $ | 32.00 |
|
14
The weighted-average grant date fair value of the 550,804206,734 stock options granted during the sixthree months ended July 29, 2017May 5, 2018 was $3.80$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 sixthree months ended July 29, 2017:May 5, 2018:
|
|
|
| |
|
| For the |
| |
|
|
| May 5, |
|
|
|
| 2018 |
|
Risk-free interest |
|
| ||
Expected lives |
| 5.0 years |
| |
Dividend yield |
|
| ||
Expected volatility |
|
|
As of July 29, 2017,May 5, 2018, we have unrecognized compensation expense related to non-vested stock options of approximately $4.2$4.4 million, which is expected to be recognized over a weighted-average period of 1.51.6 years.
18
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash Settled Awards
During the second quarter of 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 July 29, 2017,May 5, 2018, the liability associated with the cash settled awards was $0.9$6.5 million with $0.5$3.8 million recorded in accrued expenses and other current liabilities and $0.4$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 sixthree months ended July 29, 2017May 5, 2018 (in thousands):
|
|
|
|
|
|
|
|
| Cash Settled Awards |
| Cash Settled Awards | ||
Non-Vested at January 28, 2017 |
| $ | — | |||
Non-Vested at February 3, 2018 |
| $ | 8,353 | |||
Granted |
|
| 8,184 |
|
| — |
Vested |
|
| — |
|
| — |
Forfeited |
|
| (31) |
|
| (252) |
Non-Vested at July 29, 2017 |
| $ | 8,153 | |||
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 and six months ended July 29, 2017May 5, 2018 was $4.2 million and $9.0 million, respectively.$6.5 million. Share-based compensation expense recognized for the three and six months ended July 30, 2016April 29, 2017 was $4.6 million and $8.7 million, respectively.$4.7 million.
15
12.13. Goodwill and Other Intangible Assets
Goodwill
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the sixthree months ended July 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 |
|
| 1,173 |
|
| 986 |
|
| 2,159 |
|
Balance at July 29, 2017 |
| $ | 95,684 |
| $ | 24,196 |
| $ | 119,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 sixthree months ended July 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, |
| July 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 |
| $ | 16,076 |
| $ | 16,097 |
| $ | 15,966 |
|
| $ | 16,155 |
| $ | 16,040 |
| $ | 16,273 |
|
Favorable leases |
|
| 13,475 |
|
| 14,381 |
|
| 13,826 |
|
|
| 12,967 |
|
| 13,679 |
|
| 13,229 |
|
Customer relationships |
|
| 26,630 |
|
| 26,862 |
|
| 25,483 |
|
|
| 27,477 |
|
| 26,268 |
|
| 28,713 |
|
Total carrying amount |
|
| 56,181 |
|
| 57,340 |
|
| 55,275 |
|
|
| 56,599 |
|
| 55,987 |
|
| 58,215 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, tradenames and franchise agreements |
|
| (10,302) |
|
| (9,886) |
|
| (10,055) |
|
|
| (10,594) |
|
| (10,183) |
|
| (10,558) |
|
Favorable leases |
|
| (4,481) |
|
| (3,529) |
|
| (3,961) |
|
|
| (5,178) |
|
| (4,297) |
|
| (5,010) |
|
Customer relationships |
|
| (15,534) |
|
| (13,432) |
|
| (13,804) |
|
|
| (17,790) |
|
| (14,776) |
|
| (17,992) |
|
Total accumulated amortization |
|
| (30,317) |
|
| (26,847) |
|
| (27,820) |
|
|
| (33,562) |
|
| (29,256) |
|
| (33,560) |
|
Total amortizable intangible assets, net |
|
| 25,864 |
|
| 30,493 |
|
| 27,455 |
|
|
| 23,037 |
|
| 26,731 |
|
| 24,655 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradename |
|
| 144,249 |
|
| 144,259 |
|
| 144,204 |
|
|
| 144,283 |
|
| 144,235 |
|
| 144,332 |
|
Total intangible assets, net |
| $ | 170,113 |
| $ | 174,752 |
| $ | 171,659 |
|
| $ | 167,320 |
| $ | 170,966 |
| $ | 168,987 |
|
Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $2.1$1.0 million for the three and six months ended JulyMay 5, 2018 and April 29, 2017. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.2 million and $2.5 million for the three and six months ended and July 30, 2016.2017, respectively. Pre-tax amortization associated with intangible assets subject to amortization at July 29, 2017May 5, 2018 is estimated to be $2.1$3.0 million for the remainder of fiscal 2017,2018, $3.8 million for fiscal 2018,2019, $3.6 million for fiscal 2019, $3.42020, $3.5 million for fiscal 20202021 and $3.3$2.2 million for fiscal 2021.2022.
16
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 |
| ||||||||||
July 29, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
May 5, 2018— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 3 |
| $ | — |
| $ | 3 |
|
| $ | — |
| $ | 5,639 |
| $ | — |
| $ | 5,639 |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 6,170 |
| $ | — |
| $ | 6,170 |
|
| $ | — |
| $ | 83 |
| $ | — |
| $ | 83 |
| ||
January 28, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
February 3, 2018— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 460 |
| $ | — |
| $ | 460 |
|
| $ | — |
| $ | 4,019 |
| $ | — |
| $ | 4,019 |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 2,413 |
| $ | — |
| $ | 2,413 |
|
| $ | — |
| $ | 2,307 |
| $ | — |
| $ | 2,307 |
| ||
July 30, 2016— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
April 29, 2017— |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 1,734 |
| $ | — |
| $ | 1,734 |
|
| $ | — |
| $ | 937 |
| $ | — |
| $ | 937 |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative financial instruments |
| $ | — |
| $ | 2,557 |
| $ | — |
| $ | 2,557 |
|
| $ | — |
| $ | 5,293 |
| $ | — |
| $ | 5,293 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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'sentity’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'sUK’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.
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
17
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 sixthree months ended JulyMay 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.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 JulyMay 5, 2018, April 29, 2017, July 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 29, 2017 |
| July 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 |
| $ | 1,541,005 |
| $ | 1,465,502 |
| $ | 1,614,402 |
| $ | 1,555,785 |
| $ | 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 $19.0 million, $24.8 million and $22.1 million as of July 29, 2017, July 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 July 29, 2017,May 5, 2018, the notional amount totaled $260.0$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 July 29, 2017,May 5, 2018, the notional amount totaled $280.0$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 July 29, 2017,May 5, 2018, the fair value of the interest rate swaps was a liabilityan asset of $4.3$5.4 million with $2.7$1.0 million recorded in accrued expenses and other current liabilitiesassets and $1.6$4.4 million recorded in other liabilitiesassets in our condensed consolidated balance sheet. The effective portion of the swaps is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at July 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.
18
Over the next 12 months, $2.7$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 July 29, 2017,May 5, 2018, the fair value of these cash flow hedges was a liabilityan asset of $1.2$0.2 million recorded in accrued expenses and other current liabilitiesassets 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 July 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, $1.7$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) income into earnings within cost of sales.income.
In addition, 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.specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge ourthis foreign exchange risk. At May 5, 2018, the notional amount of these instruments totaled $13.1 million. We have not elected to apply hedge accounting to these derivative instruments. At July 29, 2017, the fair value ofAmounts related to these transactions were immaterial to our derivative instruments was a liability of $0.7 million included in accrued expenses and other current liabilities in our condensed consolidated balance sheet. financial statements.
For the three and six months ended July 29, 2017, we recognized net pre-tax losses of $0.8 million and $0.6 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges. For the three and six months ended July 30, 2016, we recognized net pre-tax gains of $2.7 million and $1.8 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.
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's Wearhouse/Men's Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men ("Moores") and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. 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's career and casual apparel, sportswear and accessories, including shoes, and children's apparel is offered at most of our K&G stores. Rental product is offered at our Men's Wearhouse/Men'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 (loss) 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.
1923
Additional net sales information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Six Months Ended |
|
| For the Three Months Ended |
| ||||||||||||
|
| July 29, 2017 |
| July 30, 2016 |
| July 29, 2017 |
| July 30, 2016 |
|
| May 5, 2018 |
| April 29, 2017 |
| ||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MW(1) |
| $ | 458,751 |
| $ | 482,895 |
| $ | 878,818 |
| $ | 924,541 |
|
| $ | 447,809 |
| $ | 420,067 |
|
Jos. A. Bank |
|
| 174,325 |
|
| 186,040 |
|
| 341,553 |
|
| 364,490 |
|
|
| 169,076 |
|
| 167,228 |
|
K&G |
|
| 85,811 |
|
| 86,374 |
|
| 174,494 |
|
| 181,133 |
|
|
| 89,280 |
|
| 88,683 |
|
Moores |
|
| 65,312 |
|
| 66,454 |
|
| 106,125 |
|
| 109,683 |
|
|
| 46,127 |
|
| 40,813 |
|
MW Cleaners |
|
| 8,799 |
|
| 8,418 |
|
| 17,313 |
|
| 16,576 |
|
|
| 2,551 |
|
| 8,514 |
|
Total retail segment |
|
| 792,998 |
|
| 830,181 |
|
| 1,518,303 |
|
| 1,596,423 |
|
|
| 754,843 |
|
| 725,305 |
|
Total corporate apparel segment |
|
| 57,760 |
|
| 79,503 |
|
| 115,361 |
|
| 142,083 |
|
|
| 63,121 |
|
| 57,601 |
|
Total net sales |
| $ | 850,758 |
| $ | 909,684 |
| $ | 1,633,664 |
| $ | 1,738,506 |
|
| $ | 817,964 |
| $ | 782,906 |
|
(1) | MW includes Men's Wearhouse, Men's Wearhouse and Tux, tuxedo shops within Macy's and Joseph Abboud. |
The following table sets forth supplemental products and services sales information for the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Six Months Ended |
| ||||||||
|
| July 29, 2017 |
| July 30, 2016 |
| July 29, 2017 |
| July 30, 2016 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Men's tailored clothing product |
| $ | 341,182 |
| $ | 349,226 |
| $ | 673,812 |
| $ | 698,754 |
|
Men's non-tailored clothing product |
|
| 234,093 |
|
| 246,154 |
|
| 462,792 |
|
| 488,087 |
|
Women's clothing product |
|
| 18,100 |
|
| 18,468 |
|
| 37,927 |
|
| 40,314 |
|
Other |
|
| 1,619 |
|
| 2,098 |
|
| 4,048 |
|
| 4,459 |
|
Total retail clothing product |
|
| 594,994 |
|
| 615,946 |
|
| 1,178,579 |
|
| 1,231,614 |
|
Rental services |
|
| 151,978 |
|
| 165,009 |
|
| 246,798 |
|
| 264,840 |
|
Alteration services |
|
| 37,227 |
|
| 40,808 |
|
| 75,613 |
|
| 83,393 |
|
Retail dry cleaning services |
|
| 8,799 |
|
| 8,418 |
|
| 17,313 |
|
| 16,576 |
|
Total alteration and other services |
|
| 46,026 |
|
| 49,226 |
|
| 92,926 |
|
| 99,969 |
|
Corporate apparel clothing product |
|
| 57,760 |
|
| 79,503 |
|
| 115,361 |
|
| 142,083 |
|
Total net sales |
| $ | 850,758 |
| $ | 909,684 |
| $ | 1,633,664 |
| $ | 1,738,506 |
|
(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 Six Months Ended |
|
| For the Three Months Ended |
| ||||||||||||
|
| July 29, 2017 |
| July 30, 2016 |
| July 29, 2017 |
| July 30, 2016 |
|
| May 5, 2018 |
| April 29, 2017 |
| ||||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 155,221 |
| $ | 101,227 |
| $ | 228,646 |
| $ | 181,102 |
|
| $ | 98,721 |
| $ | 73,425 |
|
Corporate apparel |
|
| 2,103 |
|
| 11,920 |
|
| 4,078 |
|
| 13,974 |
|
|
| 1,583 |
|
| 1,975 |
|
Shared service expense |
|
| (48,859) |
|
| (53,515) |
|
| (93,257) |
|
| (104,450) |
|
|
| (47,407) |
|
| (44,398) |
|
Operating income |
|
| 108,465 |
|
| 59,632 |
|
| 139,467 |
|
| 90,626 |
|
|
| 52,897 |
|
| 31,002 |
|
Interest income |
|
| 98 |
|
| 37 |
|
| 165 |
|
| 50 |
|
|
| 85 |
|
| 67 |
|
Interest expense |
|
| (25,167) |
|
| (25,876) |
|
| (50,788) |
|
| (52,377) |
|
|
| (21,981) |
|
| (25,621) |
|
Gain (loss) on extinguishment of debt, net |
|
| 3,281 |
|
| (71) |
|
| 3,996 |
|
| (71) |
| |||||||
(Loss) gain on extinguishment of debt, net |
|
| (12,711) |
|
| 715 |
| |||||||||||||
Earnings before income taxes |
| $ | 86,677 |
| $ | 33,722 |
| $ | 92,840 |
| $ | 38,228 |
|
| $ | 18,290 |
| $ | 6,163 |
|
2024
16.17. Legal Matters
On March 29, 2016, a putative class action lawsuit was filed against the Company and its Chief Executive Officer, 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 (the "Class Period"). On May 26, 2017, Lead Plaintiff Strathclyde Pension Fund filed an Amended Complaint alleging that during the Class Period Defendants omitted facts about the Company's Jos. A. Bank's business, financial status, and operations, the omission of which rendered Defendants' statements about the Jos. A. Bank business false or misleading. The amended complaint also named Jon W. Kimmins, the Company's former Chief Financial Officer, and Mary Beth Blake, the Company's current Brand President, Jos. A. Bank, as additional named defendants. The Company filed a motion to dismiss 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 our Men's Wearhouse subsidiary in the United States District Court for the Central District of California (Case No. 2:16-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'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 parties filed cross-motions for summary judgment on what constitutes a “week” and the case is stayed pendingCourt recently issued an order granting the Court's decisionplaintiff’s motion and denying our motion on those motions.what period constitutes a “week.” We continue to 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 negligencemedical 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.
21
17.18. Condensed Consolidating Information
As discussed in Note 5, The Men's Wearhouse (the "Issuer") issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the "Parent") and certain of our U.S. subsidiaries (the "Guarantors"). Our foreign subsidiaries (collectively, the "Non-Guarantors") are not guarantors of the Senior Notes. Each of the Guarantors is 100% owned and all guarantees are joint and several. In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.
These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor's guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.
The tables in the following pages present the condensed consolidating financial information for the Parent, the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities.
22
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
July 29, 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 |
| $ | — |
| $ | 13,482 |
| $ | 1,924 |
| $ | 97,335 |
| $ | — |
| $ | 112,741 |
|
Accounts receivable, net |
|
| 7,380 |
|
| 18,103 |
|
| 430,884 |
|
| 102,613 |
|
| (487,080) |
|
| 71,900 |
|
Inventories |
|
| — |
|
| 186,831 |
|
| 403,875 |
|
| 354,077 |
|
| — |
|
| 944,783 |
|
Other current assets |
|
| 7,310 |
|
| 204,477 |
|
| 26,431 |
|
| 9,346 |
|
| (192,132) |
|
| 55,432 |
|
Total current assets |
|
| 14,690 |
|
| 422,893 |
|
| 863,114 |
|
| 563,371 |
|
| (679,212) |
|
| 1,184,856 |
|
Property and equipment, net |
|
| — |
|
| 218,122 |
|
| 204,641 |
|
| 36,767 |
|
| — |
|
| 459,530 |
|
Rental product, net |
|
| — |
|
| 116,525 |
|
| 4,894 |
|
| 17,978 |
|
| — |
|
| 139,397 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 45,210 |
|
| — |
|
| 119,880 |
|
Intangible assets, net |
|
| — |
|
| 24 |
|
| 156,307 |
|
| 13,782 |
|
| — |
|
| 170,113 |
|
Investments in subsidiaries |
|
| (16,512) |
|
| 1,436,555 |
|
| — |
|
| — |
|
| (1,420,043) |
|
| — |
|
Other assets |
|
| — |
|
| 4,790 |
|
| 897 |
|
| 6,861 |
|
| (6,600) |
|
| 5,948 |
|
Total assets |
| $ | (1,822) |
| $ | 2,205,069 |
| $ | 1,298,363 |
| $ | 683,969 |
| $ | (2,105,855) |
| $ | 2,079,724 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 26,528 |
| $ | 480,565 |
| $ | 60,420 |
| $ | 59,723 |
| $ | (487,080) |
| $ | 140,156 |
|
Accrued expenses and other current liabilities |
|
| 17,967 |
|
| 119,314 |
|
| 113,058 |
|
| 217,443 |
|
| (184,856) |
|
| 282,926 |
|
Current portion of long-term debt |
|
| — |
|
| 8,750 |
|
| — |
|
| — |
|
| — |
|
| 8,750 |
|
Total current liabilities |
|
| 44,495 |
|
| 608,629 |
|
| 173,478 |
|
| 277,166 |
|
| (671,936) |
|
| 431,832 |
|
Long-term debt, net |
|
| — |
|
| 1,532,255 |
|
| — |
|
| — |
|
| — |
|
| 1,532,255 |
|
Deferred taxes, net and other liabilities |
|
| 359 |
|
| 80,697 |
|
| 84,509 |
|
| 10,624 |
|
| (13,876) |
|
| 162,313 |
|
Shareholders' (deficit) equity |
|
| (46,676) |
|
| (16,512) |
|
| 1,040,376 |
|
| 396,179 |
|
| (1,420,043) |
|
| (46,676) |
|
Total liabilities and shareholders' (deficit) equity |
| $ | (1,822) |
| $ | 2,205,069 |
| $ | 1,298,363 |
| $ | 683,969 |
| $ | (2,105,855) |
| $ | 2,079,724 |
|
23
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
July 30, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men's |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 1,245 |
| $ | 1,813 |
| $ | 8,372 |
| $ | — |
| $ | 11,430 |
|
Accounts receivable, net |
|
| 7,373 |
|
| 18,217 |
|
| 256,591 |
|
| 28,754 |
|
| (226,587) |
|
| 84,348 |
|
Inventories |
|
| — |
|
| 198,656 |
|
| 686,178 |
|
| 138,769 |
|
| — |
|
| 1,023,603 |
|
Other current assets |
|
| 3,562 |
|
| 18,087 |
|
| 52,709 |
|
| 44,082 |
|
| (37,327) |
|
| 81,113 |
|
Total current assets |
|
| 10,935 |
|
| 236,205 |
|
| 997,291 |
|
| 219,977 |
|
| (263,914) |
|
| 1,200,494 |
|
Property and equipment, net |
|
| — |
|
| 254,315 |
|
| 219,595 |
|
| 36,610 |
|
| — |
|
| 510,520 |
|
Rental product, net |
|
| — |
|
| 142,198 |
|
| 11,066 |
|
| 18,205 |
|
| — |
|
| 171,469 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 43,637 |
|
| — |
|
| 118,307 |
|
Intangible assets, net |
|
| — |
|
| 132 |
|
| 158,351 |
|
| 16,269 |
|
| — |
|
| 174,752 |
|
Investments in subsidiaries |
|
| (82,294) |
|
| 1,394,831 |
|
| — |
|
| — |
|
| (1,312,537) |
|
| — |
|
Other assets |
|
| 1,498 |
|
| 6,457 |
|
| 935 |
|
| 7,922 |
|
| (7,800) |
|
| 9,012 |
|
Total assets |
| $ | (69,861) |
| $ | 2,040,298 |
| $ | 1,455,748 |
| $ | 342,620 |
| $ | (1,584,251) |
| $ | 2,184,554 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 7,008 |
| $ | 247,569 |
| $ | 98,318 |
| $ | 43,512 |
| $ | (226,587) |
| $ | 169,820 |
|
Accrued expenses and other current liabilities |
|
| 9,431 |
|
| 193,497 |
|
| 109,835 |
|
| 21,421 |
|
| (37,327) |
|
| 296,857 |
|
Current portion of long-term debt |
|
| — |
|
| 14,000 |
|
| — |
|
| — |
|
| — |
|
| 14,000 |
|
Total current liabilities |
|
| 16,439 |
|
| 455,066 |
|
| 208,153 |
|
| 64,933 |
|
| (263,914) |
|
| 480,677 |
|
Long-term debt, net |
|
| — |
|
| 1,600,402 |
|
| — |
|
| — |
|
| — |
|
| 1,600,402 |
|
Deferred taxes, net and other liabilities |
|
| 2,350 |
|
| 67,124 |
|
| 119,773 |
|
| 10,678 |
|
| (7,800) |
|
| 192,125 |
|
Shareholders' (deficit) equity |
|
| (88,650) |
|
| (82,294) |
|
| 1,127,822 |
|
| 267,009 |
|
| (1,312,537) |
|
| (88,650) |
|
Total liabilities and shareholders' (deficit) equity |
| $ | (69,861) |
| $ | 2,040,298 |
| $ | 1,455,748 |
| $ | 342,620 |
| $ | (1,584,251) |
| $ | 2,184,554 |
|
24
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, net 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 |
|
25
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men's |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Three Months Ended July 29, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 457,870 |
| $ | 369,476 |
|
| 135,125 |
| $ | (111,713) |
| $ | 850,758 |
|
Cost of sales |
|
| — |
|
| 208,789 |
|
| 265,051 |
|
| 91,935 |
|
| (111,713) |
|
| 454,062 |
|
Gross margin |
|
| — |
|
| 249,081 |
|
| 104,425 |
|
| 43,190 |
|
| — |
|
| 396,696 |
|
Operating expenses |
|
| 779 |
|
| 134,389 |
|
| 138,023 |
|
| 28,904 |
|
| (13,864) |
|
| 288,231 |
|
Operating (loss) income |
|
| (779) |
|
| 114,692 |
|
| (33,598) |
|
| 14,286 |
|
| 13,864 |
|
| 108,465 |
|
Other income and expenses, net |
|
| — |
|
| — |
|
| 14,138 |
|
| (274) |
|
| (13,864) |
|
| — |
|
Interest income |
|
| 242 |
|
| 1,689 |
|
| 1,909 |
|
| 93 |
|
| (3,835) |
|
| 98 |
|
Interest expense |
|
| — |
|
| (27,018) |
|
| (206) |
|
| (1,778) |
|
| 3,835 |
|
| (25,167) |
|
Gain on extinguishment of debt, net |
|
| — |
|
| 3,281 |
|
| — |
|
| — |
|
| — |
|
| 3,281 |
|
(Loss) earnings before income taxes |
|
| (537) |
|
| 92,644 |
|
| (17,757) |
|
| 12,327 |
|
| — |
|
| 86,677 |
|
(Benefit) provision for income taxes |
|
| (167) |
|
| 30,215 |
|
| (6,205) |
|
| 4,363 |
|
| — |
|
| 28,206 |
|
(Loss) earnings before equity in net income of subsidiaries |
|
| (370) |
|
| 62,429 |
|
| (11,552) |
|
| 7,964 |
|
| — |
|
| 58,471 |
|
Equity in earnings of subsidiaries |
|
| 58,841 |
|
| (3,588) |
|
| — |
|
| — |
|
| (55,253) |
|
| — |
|
Net earnings (loss) |
| $ | 58,471 |
| $ | 58,841 |
| $ | (11,552) |
| $ | 7,964 |
| $ | (55,253) |
| $ | 58,471 |
|
Comprehensive income (loss) |
| $ | 72,498 |
| $ | 58,544 |
| $ | (11,552) |
| $ | 22,288 |
| $ | (69,280) |
| $ | 72,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 481,585 |
| $ | 431,149 |
| $ | 112,816 |
| $ | (115,866) |
| $ | 909,684 |
|
Cost of sales |
|
| — |
|
| 226,104 |
|
| 325,754 |
|
| 63,388 |
|
| (115,866) |
|
| 499,380 |
|
Gross margin |
|
| — |
|
| 255,481 |
|
| 105,395 |
|
| 49,428 |
|
| — |
|
| 410,304 |
|
Operating expenses |
|
| 863 |
|
| 157,776 |
|
| 176,067 |
|
| 30,881 |
|
| (14,915) |
|
| 350,672 |
|
Operating (loss) income |
|
| (863) |
|
| 97,705 |
|
| (70,672) |
|
| 18,547 |
|
| 14,915 |
|
| 59,632 |
|
Other income and expenses, net |
|
| — |
|
| — |
|
| 14,915 |
|
| — |
|
| (14,915) |
|
| — |
|
Interest income |
|
| — |
|
| 5 |
|
| 580 |
|
| 32 |
|
| (580) |
|
| 37 |
|
Interest expense |
|
| (5) |
|
| (26,355) |
|
| — |
|
| (96) |
|
| 580 |
|
| (25,876) |
|
Loss on extinguishment of debt |
|
| — |
|
| (71) |
|
| — |
|
| — |
|
| — |
|
| (71) |
|
(Loss) earnings before income taxes |
|
| (868) |
|
| 71,284 |
|
| (55,177) |
|
| 18,483 |
|
| — |
|
| 33,722 |
|
(Benefit) provision for income taxes |
|
| (221) |
|
| 17,608 |
|
| (13,736) |
|
| 5,096 |
|
| — |
|
| 8,747 |
|
(Loss) earnings before equity in net income of subsidiaries |
|
| (647) |
|
| 53,676 |
|
| (41,441) |
|
| 13,387 |
|
| — |
|
| 24,975 |
|
Equity in earnings of subsidiaries |
|
| 25,622 |
|
| (28,054) |
|
| — |
|
| — |
|
| 2,432 |
|
| — |
|
Net (loss) earnings |
| $ | 24,975 |
| $ | 25,622 |
| $ | (41,441) |
| $ | 13,387 |
| $ | 2,432 |
| $ | 24,975 |
|
Comprehensive (loss) income |
| $ | 5,581 |
| $ | 25,828 |
| $ | (41,441) |
| $ | (6,213) |
| $ | 21,826 |
| $ | 5,581 |
|
26
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men's |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Six Months Ended July 29, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 876,795 |
| $ | 741,740 |
| $ | 270,383 |
| $ | (255,254) |
| $ | 1,633,664 |
|
Cost of sales |
|
| — |
|
| 421,288 |
|
| 543,682 |
|
| 194,812 |
|
| (255,254) |
|
| 904,528 |
|
Gross margin |
|
| — |
|
| 455,507 |
|
| 198,058 |
|
| 75,571 |
|
| — |
|
| 729,136 |
|
Operating expenses |
|
| 1,682 |
|
| 290,172 |
|
| 271,555 |
|
| 54,856 |
|
| (28,596) |
|
| 589,669 |
|
Operating (loss) income |
|
| (1,682) |
|
| 165,335 |
|
| (73,497) |
|
| 20,715 |
|
| 28,596 |
|
| 139,467 |
|
Other income and expenses, net |
|
| — |
|
| — |
|
| 28,870 |
|
| (274) |
|
| (28,596) |
|
| — |
|
Interest income |
|
| 352 |
|
| 2,991 |
|
| 3,581 |
|
| 155 |
|
| (6,914) |
|
| 165 |
|
Interest expense |
|
| — |
|
| (54,212) |
|
| (320) |
|
| (3,170) |
|
| 6,914 |
|
| (50,788) |
|
Gain on extinguishment of debt, net |
|
| — |
|
| 3,996 |
|
| — |
|
| — |
|
| — |
|
| 3,996 |
|
(Loss) earnings before income taxes |
|
| (1,330) |
|
| 118,110 |
|
| (41,366) |
|
| 17,426 |
|
| — |
|
| 92,840 |
|
Provision (benefit) for income taxes |
|
| 1,778 |
|
| 38,684 |
|
| (13,957) |
|
| 6,025 |
|
| — |
|
| 32,530 |
|
(Loss) earnings before equity in net income of subsidiaries |
|
| (3,108) |
|
| 79,426 |
|
| (27,409) |
|
| 11,401 |
|
| — |
|
| 60,310 |
|
Equity in earnings of subsidiaries |
|
| 63,418 |
|
| (16,008) |
|
| — |
|
| — |
|
| (47,410) |
|
| — |
|
Net earnings (loss) |
| $ | 60,310 |
| $ | 63,418 |
| $ | (27,409) |
| $ | 11,401 |
| $ | (47,410) |
| $ | 60,310 |
|
Comprehensive (loss) income |
| $ | 72,212 |
| $ | 61,464 |
| $ | (27,409) |
| $ | 25,257 |
| $ | (59,312) |
| $ | 72,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 922,083 |
| $ | 834,376 |
| $ | 209,586 |
| $ | (227,539) |
| $ | 1,738,506 |
|
Cost of sales |
|
| — |
|
| 446,651 |
|
| 631,148 |
|
| 126,101 |
|
| (227,539) |
|
| 976,361 |
|
Gross margin |
|
| — |
|
| 475,432 |
|
| 203,228 |
|
| 83,485 |
|
| — |
|
| 762,145 |
|
Operating expenses |
|
| 1,580 |
|
| 306,263 |
|
| 332,980 |
|
| 59,296 |
|
| (28,600) |
|
| 671,519 |
|
Operating (loss) income |
|
| (1,580) |
|
| 169,169 |
|
| (129,752) |
|
| 24,189 |
|
| 28,600 |
|
| 90,626 |
|
Other income and expenses, net |
|
| — |
|
| — |
|
| 28,600 |
|
| — |
|
| (28,600) |
|
| — |
|
Interest income |
|
| 2 |
|
| 10 |
|
| 876 |
|
| 40 |
|
| (878) |
|
| 50 |
|
Interest expense |
|
| (5) |
|
| (53,042) |
|
| — |
|
| (208) |
|
| 878 |
|
| (52,377) |
|
Loss on extinguishment of debt, net |
|
| — |
|
| (71) |
|
| — |
|
| — |
|
| — |
|
| (71) |
|
(Loss) earnings before income taxes |
|
| (1,583) |
|
| 116,066 |
|
| (100,276) |
|
| 24,021 |
|
| — |
|
| 38,228 |
|
(Benefit) provision for income taxes |
|
| (424) |
|
| 32,152 |
|
| (26,781) |
|
| 6,669 |
|
| — |
|
| 11,616 |
|
(Loss) earnings before equity in net income of subsidiaries |
|
| (1,159) |
|
| 83,914 |
|
| (73,495) |
|
| 17,352 |
|
| — |
|
| 26,612 |
|
Equity in earnings (loss) of subsidiaries |
|
| 27,771 |
|
| (56,143) |
|
| — |
|
| — |
|
| 28,372 |
|
| — |
|
Net earnings (loss) |
|
| 26,612 |
|
| 27,771 |
|
| (73,495) |
|
| 17,352 |
|
| 28,372 |
|
| 26,612 |
|
Comprehensive income (loss) |
| $ | 23,887 |
| $ | 28,217 |
| $ | (73,495) |
| $ | 14,181 |
| $ | 31,097 |
| $ | 23,887 |
|
27
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash FlowsBalance Sheet
For the Six Months Ended July 29, 2017May 5, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men's |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities |
| $ | 18,750 |
| $ | 288,017 |
| $ | 17,196 |
| $ | (165,401) |
| $ | (18,033) |
| $ | 140,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (11,384) |
|
| (19,310) |
|
| (3,279) |
|
| — |
|
| (33,973) |
|
Acquisition of business, net of cash |
|
| — |
|
| — |
|
| — |
|
| (457) |
|
| — |
|
| (457) |
|
Intercompany activities |
|
| — |
|
| (192,824) |
|
| — |
|
| — |
|
| 192,824 |
|
| — |
|
Proceeds from sale of property and equipment |
|
| — |
|
| — |
|
| 2,157 |
|
| — |
|
| — |
|
| 2,157 |
|
Net cash used in investing activities |
|
| — |
|
| (204,208) |
|
| (17,153) |
|
| (3,736) |
|
| 192,824 |
|
| (32,273) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| — |
|
| (8,129) |
|
| — |
|
| — |
|
| — |
|
| (8,129) |
|
Proceeds from asset-based revolving credit facility |
|
| — |
|
| 181,550 |
|
| — |
|
| — |
|
| — |
|
| 181,550 |
|
Payments on asset-based revolving credit facility |
|
| — |
|
| (181,550) |
|
| — |
|
| — |
|
| — |
|
| (181,550) |
|
Repurchase and retirement of senior notes |
|
| — |
|
| (45,167) |
|
| — |
|
| — |
|
| — |
|
| (45,167) |
|
Intercompany activities |
|
| — |
|
| (18,033) |
|
| — |
|
| 192,824 |
|
| (174,791) |
|
| — |
|
Cash dividends paid |
|
| (18,033) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (18,033) |
|
Proceeds from issuance of common stock |
|
| 927 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 927 |
|
Tax payments related to vested deferred stock units |
|
| (1,644) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,644) |
|
Net cash (used in) provided by financing activities |
|
| (18,750) |
|
| (71,329) |
|
| — |
|
| 192,824 |
|
| (174,791) |
|
| (72,046) |
|
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| 5,642 |
|
| — |
|
| 5,642 |
|
Increase in cash and cash equivalents |
|
| — |
|
| 12,480 |
|
| 43 |
|
| 29,329 |
|
| — |
|
| 41,852 |
|
Cash and cash equivalents at beginning of period |
|
| — |
|
| 1,002 |
|
| 1,881 |
|
| 68,006 |
|
| — |
|
| 70,889 |
|
Cash and cash equivalents at end of period |
| $ | — |
| $ | 13,482 |
| $ | 1,924 |
| $ | 97,335 |
| $ | — |
| $ | 112,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
Accounts receivable, net |
|
| 7,358 |
|
| 28,480 |
|
| 437,481 |
|
| 149,697 |
|
| (539,000) |
|
| 84,016 |
|
Inventories |
|
| — |
|
| 212,146 |
|
| 438,670 |
|
| 333,405 |
|
| — |
|
| 984,221 |
|
Other current assets |
|
| 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 |
|
Property and equipment, net |
|
| — |
|
| 224,274 |
|
| 208,719 |
|
| 34,668 |
|
| — |
|
| 467,661 |
|
Rental product, net |
|
| — |
|
| 127,188 |
|
| 3,087 |
|
| 17,220 |
|
| — |
|
| 147,495 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 42,915 |
|
| — |
|
| 117,585 |
|
Intangible assets, net |
|
| — |
|
| 52 |
|
| 156,741 |
|
| 14,173 |
|
| — |
|
| 170,966 |
|
Investments in subsidiaries |
|
| (89,379) |
|
| 1,444,485 |
|
| — |
|
| — |
|
| (1,355,106) |
|
| — |
|
Other assets |
|
| — |
|
| 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 |
|
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 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 |
|
Current portion of long-term debt |
|
| — |
|
| 13,379 |
|
| — |
|
| — |
|
| — |
|
| 13,379 |
|
Total current liabilities |
|
| 31,694 |
|
| 713,320 |
|
| 202,539 |
|
| 280,405 |
|
| (736,230) |
|
| 491,728 |
|
Long-term debt, net |
|
| — |
|
| 1,574,486 |
|
| — |
|
| — |
|
| — |
|
| 1,574,486 |
|
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) |
|
Total liabilities and shareholders' (deficit) equity |
| $ | (81,885) |
| $ | 2,279,480 |
| $ | 1,349,884 |
| $ | 672,268 |
| $ | (2,105,512) |
| $ | 2,114,235 |
|
29
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
February 3, 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 |
| $ | — |
| $ | 51,818 |
| $ | 2,180 |
| $ | 49,609 |
| $ | — |
| $ | 103,607 |
|
Accounts receivable, net |
|
| — |
|
| 23,712 |
|
| 368,328 |
|
| 58,573 |
|
| (370,830) |
|
| 79,783 |
|
Inventories |
|
| — |
|
| 207,504 |
|
| 445,126 |
|
| 199,301 |
|
| — |
|
| 851,931 |
|
Other current assets |
|
| 3,666 |
|
| 26,951 |
|
| 38,217 |
|
| 9,418 |
|
| — |
|
| 78,252 |
|
Total current assets |
|
| 3,666 |
|
| 309,985 |
|
| 853,851 |
|
| 316,901 |
|
| (370,830) |
|
| 1,113,573 |
|
Property and equipment, net |
|
| — |
|
| 203,204 |
|
| 220,979 |
|
| 36,491 |
|
| — |
|
| 460,674 |
|
Rental product, net |
|
| — |
|
| 103,664 |
|
| 3,658 |
|
| 16,408 |
|
| — |
|
| 123,730 |
|
Goodwill |
|
| — |
|
| 6,160 |
|
| 67,010 |
|
| 47,122 |
|
| — |
|
| 120,292 |
|
Intangible assets, net |
|
| — |
|
| — |
|
| 155,438 |
|
| 13,549 |
|
| — |
|
| 168,987 |
|
Investments in subsidiaries |
|
| 128,458 |
|
| 1,424,647 |
|
| — |
|
| — |
|
| (1,553,105) |
|
| — |
|
Other assets |
|
| — |
|
| 11,183 |
|
| 805 |
|
| 81,846 |
|
| (81,135) |
|
| 12,699 |
|
Total assets |
| $ | 132,124 |
| $ | 2,058,843 |
| $ | 1,301,741 |
| $ | 512,317 |
| $ | (2,005,070) |
| $ | 1,999,955 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 110,326 |
| $ | 281,838 |
| $ | 57,756 |
| $ | 66,016 |
| $ | (370,830) |
| $ | 145,106 |
|
Accrued expenses and other current liabilities |
|
| 14,061 |
|
| 87,597 |
|
| 155,813 |
|
| 34,187 |
|
| — |
|
| 291,658 |
|
Current portion of long-term debt |
|
| — |
|
| 7,000 |
|
| — |
|
| — |
|
| — |
|
| 7,000 |
|
Total current liabilities |
|
| 124,387 |
|
| 376,435 |
|
| 213,569 |
|
| 100,203 |
|
| (370,830) |
|
| 443,764 |
|
Long-term debt, net |
|
| — |
|
| 1,389,808 |
|
| — |
|
| — |
|
| — |
|
| 1,389,808 |
|
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 |
|
30
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Three Months Ended 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 29, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 418,925 |
| $ | 372,264 |
| $ | 135,258 |
| $ | (143,541) |
| $ | 782,906 |
|
Cost of sales |
|
| — |
|
| 212,499 |
|
| 278,631 |
|
| 102,877 |
|
| (143,541) |
|
| 450,466 |
|
Gross margin |
|
| — |
|
| 206,426 |
|
| 93,633 |
|
| 32,381 |
|
| — |
|
| 332,440 |
|
Operating expenses |
|
| 903 |
|
| 155,783 |
|
| 133,532 |
|
| 25,952 |
|
| (14,732) |
|
| 301,438 |
|
Operating (loss) income |
|
| (903) |
|
| 50,643 |
|
| (39,899) |
|
| 6,429 |
|
| 14,732 |
|
| 31,002 |
|
Other income and expenses, net |
|
| — |
|
| — |
|
| 14,732 |
|
| — |
|
| (14,732) |
|
| — |
|
Interest expense, net |
|
| 110 |
|
| (25,892) |
|
| 1,558 |
|
| (1,330) |
|
| — |
|
| (25,554) |
|
Gain on extinguishment of debt, net |
|
| — |
|
| 715 |
|
| — |
|
| — |
|
| — |
|
| 715 |
|
(Loss) earnings before income taxes |
|
| (793) |
|
| 25,466 |
|
| (23,609) |
|
| 5,099 |
|
| — |
|
| 6,163 |
|
Provision (benefit) for income taxes |
|
| 1,945 |
|
| 8,469 |
|
| (7,752) |
|
| 1,662 |
|
| — |
|
| 4,324 |
|
(Loss) earnings before equity in net income of subsidiaries |
|
| (2,738) |
|
| 16,997 |
|
| (15,857) |
|
| 3,437 |
|
| — |
|
| 1,839 |
|
Equity in earnings (loss) of subsidiaries |
|
| 4,577 |
|
| (12,420) |
|
| — |
|
| — |
|
| 7,843 |
|
| — |
|
Net earnings (loss) |
| $ | 1,839 |
| $ | 4,577 |
| $ | (15,857) |
| $ | 3,437 |
| $ | 7,843 |
| $ | 1,839 |
|
Comprehensive (loss) income |
| $ | (286) |
| $ | 2,920 |
| $ | (15,857) |
| $ | 2,969 |
| $ | 9,968 |
| $ | (286) |
|
31
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 5, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||||
Net cash provided by (used in) operating activities |
| $ | 10,994 |
| $ | 196,189 |
| $ | (10,744) |
| $ | (66,593) |
|
| (9,618) |
| $ | 120,228 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital expenditures |
|
| — |
|
| (3,238) |
|
| (6,338) |
|
| (1,404) |
|
| — |
|
| (10,980) |
| |||||||
Proceeds from divestiture of business |
|
| — |
|
| — |
|
| 17,732 |
|
| — |
|
| — |
|
| 17,732 |
| |||||||
Intercompany activities |
|
| — |
|
| (68,425) |
|
| — |
|
| — |
|
| 68,425 |
|
| — |
| |||||||
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 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 |
|
| — |
|
| 1,500 |
|
| — |
|
| — |
|
| — |
|
| 1,500 |
| |||||||
Payments on asset-based revolving credit facility |
|
| — |
|
| (1,500) |
|
| — |
|
| — |
|
| — |
|
| (1,500) |
| |||||||
Repurchase and retirement of senior notes |
|
| — |
|
| (18,240) |
|
| — |
|
| — |
|
| — |
|
| (18,240) |
| |||||||
Deferred financing costs |
|
| — |
|
| (5,576) |
|
| — |
|
| — |
|
| — |
|
| (5,576) |
| |||||||
Intercompany activities |
|
| — |
|
| (9,618) |
|
| — |
|
| 68,425 |
|
| (58,807) |
|
| — |
| |||||||
Cash dividends paid |
|
| (9,618) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,618) |
| |||||||
Proceeds from issuance of common stock |
|
| 3,649 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,649 |
| |||||||
Tax payments related to vested deferred stock units |
|
| (5,025) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,025) |
| |||||||
Net cash (used in) provided by financing activities |
|
| (10,994) |
|
| (133,604) |
|
| — |
|
| 68,425 |
|
| (58,807) |
|
| (134,980) |
| |||||||
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| (2,441) |
|
| — |
|
| (2,441) |
| |||||||
(Decrease) increase in cash and cash equivalents |
|
| — |
|
| (9,078) |
|
| 650 |
|
| (2,013) |
|
| — |
|
| (10,441) |
| |||||||
Cash and cash equivalents at beginning of period |
|
| — |
|
| 51,818 |
|
| 2,180 |
|
| 49,609 |
|
| — |
|
| 103,607 |
| |||||||
Cash and cash equivalents at end of period |
| $ | — |
| $ | 42,740 |
| $ | 2,830 |
| $ | 47,596 |
| $ | — |
| $ | 93,166 |
|
32
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the SixThree Months Ended July 30, 2016April 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 |
| ||||||||||||
Net cash provided by operating activities |
| $ | 18,002 |
| $ | 55,289 |
| $ | 22,725 |
| $ | 21,964 |
| $ | (17,676) |
| $ | 100,304 |
| |||||||||||||||||||
Net cash provided by (used in) operating activities |
| $ | 10,296 |
| $ | 174,399 |
| $ | 10,424 |
| $ | (152,637) |
| $ | (9,131) |
| $ | 33,351 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
| (29,922) |
|
| (23,753) |
|
| (2,237) |
|
| — |
|
| (55,912) |
|
|
| — |
|
| (6,333) |
|
| (9,982) |
|
| (1,471) |
|
| — |
|
| (17,786) |
|
Acquisition of business, net of cash |
|
| — |
|
| — |
|
| — |
|
| (457) |
|
| — |
|
| (457) |
| |||||||||||||||||||
Intercompany activities |
|
| — |
|
| 37,327 |
|
| — |
|
| — |
|
| (37,327) |
|
| — |
|
|
| — |
|
| (149,424) |
|
| — |
|
| — |
|
| 149,424 |
|
| — |
|
Proceeds from sale of property and equipment |
|
| — |
|
| — |
|
| 598 |
|
| 7 |
|
| — |
|
| 605 |
|
|
| — |
|
| — |
|
| 12 |
|
| — |
|
| — |
|
| 12 |
|
Net cash provided by (used in) investing activities |
|
| — |
|
| 7,405 |
|
| (23,155) |
|
| (2,230) |
|
| (37,327) |
|
| (55,307) |
| |||||||||||||||||||
Net cash used in investing activities |
|
| — |
|
| (155,757) |
|
| (9,970) |
|
| (1,928) |
|
| 149,424 |
|
| (18,231) |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on term loan |
|
| — |
|
| (38,951) |
|
| — |
|
| — |
|
| — |
|
| (38,951) |
| |||||||||||||||||||
Payments on original term loan |
|
| — |
|
| (1,750) |
|
| — |
|
| — |
|
| — |
|
| (1,750) |
| |||||||||||||||||||
Proceeds from asset-based revolving credit facility |
|
| — |
|
| 302,500 |
|
| — |
|
| 3,049 |
|
| — |
|
| 305,549 |
|
|
| — |
|
| 137,650 |
|
| — |
|
| — |
|
| — |
|
| 137,650 |
|
Payments on asset-based revolving credit facility |
|
| — |
|
| (302,500) |
|
| — |
|
| (3,049) |
|
| — |
|
| (305,549) |
|
|
| — |
|
| (137,650) |
|
| — |
|
| — |
|
| — |
|
| (137,650) |
|
Repurchase and retirement of senior notes |
|
| — |
|
| (5,546) |
|
| — |
|
| — |
|
| — |
|
| (5,546) |
|
|
| — |
|
| (6,601) |
|
| — |
|
| — |
|
| — |
|
| (6,601) |
|
Intercompany activities |
|
| — |
|
| (17,676) |
|
| — |
|
| (37,327) |
|
| 55,003 |
|
| — |
|
|
| — |
|
| (9,131) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| — |
|
Cash dividends paid |
|
| (17,676) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (17,676) |
|
|
| (9,131) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (9,131) |
|
Proceeds from issuance of common stock |
|
| 932 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 932 |
|
|
| 467 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 467 |
|
Tax payments related to vested deferred stock units |
|
| (1,258) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,258) |
|
|
| (1,632) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,632) |
|
Net cash used in financing activities |
|
| (18,002) |
|
| (62,173) |
|
| — |
|
| (37,327) |
|
| 55,003 |
|
| (62,499) |
| |||||||||||||||||||
Net cash (used in) provided by financing activities |
|
| (10,296) |
|
| (17,482) |
|
| — |
|
| 149,424 |
|
| (140,293) |
|
| (18,647) |
| |||||||||||||||||||
Effect of exchange rate changes |
|
| — |
|
| — |
|
| — |
|
| (1,048) |
|
| — |
|
| (1,048) |
|
|
| — |
|
| — |
|
| — |
|
| (782) |
|
| — |
|
| (782) |
|
Increase (decrease) in cash and cash equivalents |
|
| — |
|
| 521 |
|
| (430) |
|
| (18,641) |
|
| — |
|
| (18,550) |
|
|
| — |
|
| 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 |
| $ | — |
| $ | 1,245 |
| $ | 1,813 |
| $ | 8,372 |
| $ | — |
| $ | 11,430 |
|
| $ | — |
| $ | 2,162 |
| $ | 2,335 |
| $ | 62,083 |
| $ | — |
| $ | 66,580 |
|
2933
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We encourage you to read this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 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 1,400 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 of Operations" below for additional information and disclosures regarding our reportable segments.
SecondFirst Quarter Discussion
We sawOur improved trendsfirst 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 ourretail segment comparable sales across all retail brands in the second quarter of 2017. We delivered greater profitability in the second quarter of 2017 compared to the second quarter of 2016 as a result of our focus on disciplined cost management and a more efficient operating structure. However, while we have several growth initiatives underway to increasethrough increased transactions and comparable sales, the retail environment remains challenging.
new customer acquisition. We are executing our plan to innovate the best men's specialty retailer of the future. Our custom suit business continuescontinue to grow our custom business and exemplifiesenhance our unique ability to deliver exclusivity, personalization and fit at unsurpassed value and convenience. We are advancing our omni-channel capabilitiesoffering with new services such as guided shopping, which makes it easystandard three-week delivery for men to find the perfect look.Made-in-America custom suits. In addition, we are reachingimproving our customers across all channels to let them know what we stand for – helping men love how they look.omni-channel experience, with the launch of live guidance on our e-commerce websites from expert in-store sales associates.
We remain focusedDuring the first quarter, we also continued to strengthen our balance sheet. In April 2018, we refinanced our term loan on operational excellencefavorable terms, extending its maturity to 2025, and fiscal discipline. Our rationalized store footprint and more efficient expense structure enable us to generate strong cash flow that we are deploying towards capital investment, dividend payment andreduced our total debt reduction.by $110 million.
Key operating metrics for the quarter ended July 29, 2017May 5, 2018 include:
· | Net sales |
· | Comparable sales increased |
· | Operating income was |
· | Diluted earnings per share |
Key liquidity metrics for the sixthree months ended July 29, 2017May 5, 2018 include:
· | Cash and cash equivalents at the end of the |
· | Cash provided by operating activities was |
· | Capital expenditures were |
· | We repaid |
· | Dividends paid totaled |
3034
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 |
| For the Six Months Ended |
| ||||||||
|
| July 29, |
| July 30, |
| July 29, |
| July 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Costs to terminate Macy's agreement (1) |
| $ | — |
| $ | — |
| $ | 17.2 |
| $ | — |
|
Restructuring and other charges(2) |
|
| — |
|
| 35.0 |
|
| — |
|
| 48.2 |
|
Integration costs related to Jos. A. Bank(3) |
|
| — |
|
| 2.0 |
|
| — |
|
| 5.6 |
|
Purchase accounting related charges for Jos. A. Bank |
|
| — |
|
| — |
|
| — |
|
| (0.6) |
|
Other |
|
| — |
|
| 2.4 |
|
| — |
|
| 2.7 |
|
Total (4) |
| $ | — |
| $ | 39.4 |
| $ | 17.2 |
| $ | 55.9 |
|
|
|
|
|
|
|
|
|
|
| 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 |
Store Data
The following table presents information with respect to retail apparel stores and tuxedo shops within Macy's stores in operation during each of the respective fiscal periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| For the Three Months Ended |
| For the Six Months Ended |
| For the Year Ended |
|
| For the Three Months Ended |
| For the Year Ended |
| |||||||
|
| July 29, |
| July 30, |
| July 29, |
| July 30, |
| January 28, |
|
| May 5, |
| April 29, |
| February 3, |
| |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Open at beginning of period: |
| 1,663 |
| 1,846 |
| 1,667 |
| 1,724 |
| 1,724 |
|
| 1,477 |
| 1,667 |
| 1,667 |
| |
Opened |
| 1 |
| 7 |
| 2 |
| 147 |
| 178 |
|
| 1 |
| 1 |
| 4 |
| |
Closed |
| (180) |
| (86) |
| (185) |
| (104) |
| (235) |
|
| (2) |
| (5) |
| (194) |
| |
Open at end of the period |
| 1,484 |
| 1,767 |
| 1,484 |
| 1,767 |
| 1,667 |
|
| 1,476 |
| 1,663 |
| 1,477 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Men's Wearhouse(3) |
| 718 |
| 710 |
| 718 |
| 710 |
| 716 |
| ||||||||
Men's Wearhouse and Tux |
| 54 |
| 135 |
| 54 |
| 135 |
| 58 |
| ||||||||
Tuxedo shops @ Macy's |
| — |
| 150 |
| — |
| 150 |
| 170 |
| ||||||||
Jos. A. Bank(4) |
| 496 |
| 557 |
| 496 |
| 557 |
| 506 |
| ||||||||
Men’s Wearhouse(2) |
| 720 |
| 717 |
| 719 |
| ||||||||||||
Men’s Wearhouse and Tux |
| 50 |
| 56 |
| 51 |
| ||||||||||||
Tuxedo shops @ Macy’s (1) |
| — |
| 170 |
| — |
| ||||||||||||
Jos. A. Bank (3) |
| 491 |
| 503 |
| 491 |
| ||||||||||||
Moores |
| 126 |
| 126 |
| 126 |
| 126 |
| 126 |
|
| 126 |
| 126 |
| 126 |
| |
K&G |
| 90 |
| 89 |
| 90 |
| 89 |
| 91 |
|
| 89 |
| 91 |
| 90 |
| |
|
| 1,484 |
| 1,767 |
| 1,484 |
| 1,767 |
| 1,667 |
|
| 1,476 |
| 1,663 |
| 1,477 |
|
(1) |
|
| All 170 tuxedo shops within Macy's stores were closed |
| Includes one Joseph Abboud store. |
| Excludes franchise stores. |
During the secondfirst quarter of 2017,2018, we opened one Men's Wearhouse store and closed 180two stores (all 170 tuxedo shops within Macy's stores, seven Jos. A. Bank stores, two(one Men's Wearhouse and Tux storesstore and one K&G store).
3135
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 significantly larger sales and net earnings generated in the fourth quarter, 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.
32
Results of Operations
For the Three Months Ended July 29, 2017May 5, 2018 Compared to the Three Months Ended July 30, 2016April 29, 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) |
|
| ||||
|
| July 29, |
| July 30, |
|
| May 5, |
| April 29, |
|
|
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 69.9 | % | 67.7 | % |
| 75.0 | % | 74.5 | % |
|
Rental services |
| 17.9 |
| 18.1 |
|
| 12.3 |
| 12.1 |
|
|
Alteration and other services |
| 5.4 |
| 5.4 |
|
| 5.0 |
| 6.0 |
|
|
Total retail sales |
| 93.2 |
| 91.3 |
|
| 92.3 |
| 92.6 |
|
|
Corporate apparel clothing product |
| 6.8 |
| 8.7 |
|
| 7.7 |
| 7.4 |
|
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
|
Cost of sales(2): |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 41.8 |
| 45.1 |
|
| 45.0 |
| 43.3 |
|
|
Rental services |
| 15.8 |
| 16.4 |
|
| 14.6 |
| 17.1 |
|
|
Alteration and other services |
| 76.2 |
| 69.9 |
|
| 83.4 |
| 73.5 |
|
|
Occupancy costs |
| 13.0 |
| 13.1 |
|
| 13.4 |
| 14.5 |
|
|
Total retail cost of sales |
| 51.8 |
| 54.0 |
|
| 56.4 |
| 56.3 |
|
|
Corporate apparel clothing product |
| 74.6 |
| 64.6 |
|
| 73.9 |
| 72.7 |
|
|
Total cost of sales |
| 53.4 |
| 54.9 |
|
| 57.8 |
| 57.5 |
|
|
Gross margin(2): |
|
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 58.2 |
| 54.9 |
|
| 55.0 |
| 56.7 |
|
|
Rental services |
| 84.2 |
| 83.6 |
|
| 85.4 |
| 82.9 |
|
|
Alteration and other services |
| 23.8 |
| 30.1 |
|
| 16.6 |
| 26.5 |
|
|
Occupancy costs |
| (13.0) |
| (13.1) |
|
| (13.4) |
| (14.5) |
|
|
Total retail gross margin |
| 48.2 |
| 46.0 |
|
| 43.6 |
| 43.7 |
|
|
Corporate apparel clothing product |
| 25.4 |
| 35.4 |
|
| 26.1 |
| 27.3 |
|
|
Total gross margin |
| 46.6 |
| 45.1 |
|
| 42.2 |
| 42.5 |
|
|
Advertising expense |
| 4.7 |
| 4.9 |
|
| 5.0 |
| 5.4 |
|
|
Selling, general and administrative expenses |
| 29.2 |
| 33.6 |
|
| 30.7 |
| 33.1 |
|
|
Operating income |
| 12.7 |
| 6.6 |
|
| 6.5 |
| 4.0 |
|
|
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
|
Interest expense |
| (3.0) |
| (2.8) |
|
| (2.7) |
| (3.3) |
|
|
Gain (loss) on extinguishment of debt, net |
| 0.4 |
| (0.0) |
| ||||||
(Loss) gain on extinguishment of debt, net |
| (1.6) |
| 0.1 |
|
| |||||
Earnings before income taxes |
| 10.2 |
| 3.7 |
|
| 2.2 |
| 0.8 |
|
|
Provision for income taxes |
| 3.3 |
| 1.0 |
|
| 0.5 |
| 0.6 |
|
|
Net earnings |
| 6.9 | % | 2.7 | % |
| 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. |
3336
Net Sales
Total net sales decreased $58.9increased $35.1 million, or 6.5%4.5%, to $850.8$818.0 million for the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 2016.2017.
Total retail sales decreased $37.2increased $29.5 million, or 4.5%4.1%, to $793.0$754.8 million for the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 20162017 primarily due to a $21.0$30.0 million decreaseincrease in retail clothing product revenues primarily reflecting the impact of last year's store closures,sales and a $13.0$5.4 million decreaseincrease in rental service revenues andoffset by a $3.2$5.9 million decrease in alteration and other services revenues.revenues primarily reflecting the impact of our divestiture of MW Cleaners. The net decreaseincrease in total retail sales is attributable to the following: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 is 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 2018 are compared with the 13-week period 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's Wearhouse resulted primarily from a decreasean increase in transactions andfor clothing, partially offset by a slight decrease in units per transaction, partially offset by an increase inwhile average unit retail (net selling prices). was 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. 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 and average unit retail.transaction. The increase at Moores resulted primarily from increases in both average unit retailtransactions and transactionsunits per transaction that more than offset a decrease in units per transaction. At Men's Wearhouse, rental service comparable sales decreased 2.1% primarily due to a decrease inaverage unit rentals as well as a slight decrease in rental rates.retail.
Total corporate apparel clothing product sales decreased $21.7increased $5.5 million for the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 20162017 primarily due to anniversarying last year's rollout of a large new uniform program as well as the impact of a weakerstronger British pound this year compared to last year of approximately $3.7$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 $13.6increased $12.8 million, or 3.3%3.8%, to $396.7$345.2 million in the secondfirst quarter of 20172018 as compared to the secondfirst quarter of 20162017 primarily as a result of lower corporate apparelhigher retail net sales. Total retail segment gross margin decreased $0.2increased $12.1 million in the secondfirst quarter of 20172018 compared to same period last year.year primarily due to the increase in sales.
For the retail segment, total gross margin as a percentage of related sales increaseddecreased slightly to 48.2%43.6% in the secondfirst quarter of 20172018 from 46.0%43.7% in the secondfirst quarter of 20162017. The decrease in retail segment gross margin was primarily due to increased promotional activities, mostly offset by lower occupancy costs as a resultpercent of anniversarying lower gross margins in last year's second quarter, driven by clearance activity in preparation of our closing of our factory/outlet stores.
sales.
3437
Occupancy costs, decreased $5.3 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, decreased $4.1 million primarily due to 13.0% for the secondclosure 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 2017 from 13.1% for2018 as compared to 14.5% in the secondfirst quarter of 2016.2017.
Corporate apparel gross margin decreased $13.4increased $0.7 million, or 47.8%4.5%, into $16.5 million for the secondfirst quarter of 2018 compared to the first quarter of 2017. For the corporate apparel segment, total gross margin as a percentage of related sales decreased to 25.4%26.1% in the secondfirst quarter of 2018 from 27.3% in the first quarter of 2017 from 35.4% in the second quarter of 2016 primarily due to the impactdeleveraging of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements withprocurement and distribution costs at our United Kingdom ("UK"(“UK”) customers.operations.
Advertising Expense
Advertising expense decreased to $39.9$41.2 million in the secondfirst quarter of 2018 from $42.3 million in the first quarter of 2017, from $45.0 million in the second quarter of 2016, a decrease of $5.1$1.0 million, or 11.3%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 decreased to 4.7%5.0% in the secondfirst quarter of 20172018 from 4.9%5.4% in the secondfirst quarter of 2016. 2017.
Selling, General and Administrative Expenses
SG&A expenses decreased to $248.3$251.1 million in the secondfirst quarter of 2018 from $259.2 million in the first quarter of 2017, from $305.7 million in the second quarter of 2016, a decrease of $57.4$8.1 million, or 18.8%3.1%. As a percentage of total net sales, these expenses decreased to 29.2%30.7% in the secondfirst quarter of 20172018 from 33.6%33.1% in the secondfirst quarter of 2016.2017. The components of this 4.4%2.4% 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 | |
(4.4) |
| $ | (40.2) |
| Decrease in restructuring, integration and other items as a percentage of sales from 4.4% in fiscal 2016 to 0.0% in fiscal 2017. For fiscal 2017, we incurred no such costs. For fiscal 2016, these costs totaled $40.2 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs. |
(0.4) |
|
| (10.9) |
| Store salaries decreased $10.9 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.0% in the second quarter of 2017 from 12.4% in the second quarter of 2016. |
0.4 |
|
| (6.3) |
| Increase in other SG&A expenses as a percentage of sales to 17.1% in the second quarter of 2017 from 16.7% in the second quarter of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $6.3 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts. |
(4.4) |
| $ | (57.4) |
| 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 decreased to 23.6%25.1% in the secondfirst quarter of 20172018 from 28.5%27.8% in the secondfirst quarter of 2016.2017. SG&A expenses decreased $49.2$12.2 million primarily due to decreases in store-relatedanniversarying last year’s costs resulting from our store rationalization efforts as well asto terminate the impact of last year's lease termination costs.Macy’s agreement.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales increaseddecreased to 21.2%22.9% in the secondfirst quarter of 2018 from 23.2% in the first quarter of 2017 from 19.8% in the second quarter of 2016 primarily due to deleveraging from lowerleverage on higher sales. Corporate apparel segment SG&A expenses decreased $3.5increased $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 decreasedincreased to 5.8% in the first quarter of 2018 from 5.7% in the secondfirst quarter of 2017 from 5.9% in the second quarter of 2016.2017. Shared service SG&A expenses decreased $4.7increased $3.0 million primarily due to decreaseshigher employee-related benefit costs 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 associated with last year's profit improvement program.
and original issue discount (“OID”) related to the refinancing of our Term Loan totaling $11.9 million during the first quarter of 2018.
3538
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 32.5%24.0% for the secondfirst quarter of 2018 from 70.2% for the first quarter of 2017. Our effective income tax rate for the first quarter of 2018 is lower than the effective income tax rate for the first quarter of 2017 primarily from 25.9% forenactment of the secondTax 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 2016 primarily due2017 resulting from the adoption of new accounting guidance related to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.stock-based compensation.
For the second quartersfirst quarter 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 second quarterfirst quarters of 20172018 and 2016,2017, tax expense for our operations in foreign jurisdictions totaled $4.4$2.0 million and $5.1$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;audits, however, we currently do not believe these audits will result in any material changecharge to tax expense in the future.
Net Earnings
Net earnings were $58.5$13.9 million for the secondfirst quarter of 20172018 compared with net earnings of $25.0 million for the second quarter of 2016.
36
For the Six Months Ended July 29, 2017 Compared to the Six Months Ended July 30, 2016
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
| For the Six Months Ended(1) |
| ||
|
| July 29, |
| July 30, |
|
|
| 2017 |
| 2016 |
|
Net sales: |
|
|
|
|
|
Retail clothing product |
| 72.1 | % | 70.8 | % |
Rental services |
| 15.1 |
| 15.2 |
|
Alteration and other services |
| 5.7 |
| 5.8 |
|
Total retail sales |
| 92.9 |
| 91.8 |
|
Corporate apparel clothing product |
| 7.1 |
| 8.2 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
Cost of sales(2): |
|
|
|
|
|
Retail clothing product |
| 42.6 |
| 44.5 |
|
Rental services |
| 16.3 |
| 16.2 |
|
Alteration and other services |
| 74.8 |
| 70.6 |
|
Occupancy costs |
| 13.7 |
| 13.7 |
|
Total retail cost of sales |
| 54.0 |
| 55.2 |
|
Corporate apparel clothing product |
| 73.6 |
| 67.5 |
|
Total cost of sales |
| 55.4 |
| 56.2 |
|
Gross margin(2): |
|
|
|
|
|
Retail clothing product |
| 57.4 |
| 55.5 |
|
Rental services |
| 83.7 |
| 83.8 |
|
Alteration and other services |
| 25.2 |
| 29.4 |
|
Occupancy costs |
| (13.7) |
| (13.7) |
|
Total retail gross margin |
| 46.0 |
| 44.8 |
|
Corporate apparel clothing product |
| 26.4 |
| 32.5 |
|
Total gross margin |
| 44.6 |
| 43.8 |
|
Advertising expense |
| 5.0 |
| 5.3 |
|
Selling, general and administrative expenses |
| 31.1 |
| 33.3 |
|
Operating income |
| 8.5 |
| 5.2 |
|
Interest income |
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.1) |
| (3.0) |
|
Gain (loss) on extinguishment of debt, net |
| 0.2 |
| (0.0) |
|
Earnings before income taxes |
| 5.7 |
| 2.2 |
|
Provision for income taxes |
| 2.0 |
| 0.7 |
|
Net earnings |
| 3.7 | % | 1.5 | % |
|
|
|
|
37
Net Sales
Total net sales decreased $104.8 million, or 6.0%, to $1,633.7$1.8 million for the first six monthsquarter of 2017 as compared to the first six months of 2016.2017.
Total retail sales decreased $78.1 million, or 4.9%, to $1,518.3 million for the first six months of 2017 as compared to the first six months of 2016 due to a $53.0 million decrease in clothing product revenues primarily reflecting the impact of last year's store closures, an $18.0 million decrease in rental services revenue and a $7.0 million decrease in alteration and other services revenues. The decrease in total retail sales is further described below:
|
| |||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
|
|
|
Comparable sales is defined as net sales from stores open at least twelve months at period end and includes e-commerce sales. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.
The decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in transactions and a slight decrease in units per transaction partially offset by an increase in average unit retail. 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. The decrease at K&G resulted from lower transactions partially offset by an increase in units per transaction and average unit retail. The decrease at Moores resulted from a decrease in units per transaction partially offset by a slight increase in average unit retail while transactions were essentially flat. At Men's Wearhouse, rental service comparable sales decreased 1.6% primarily due to a decrease in unit rentals as well as a slight decrease in rental rates.
Total corporate apparel clothing product sales decreased $26.7 million for the first six months of 2017 as compared to the first six months of 2016 primarily due to anniversarying last year's rollout of a large new uniform program as well as the impact of a weaker British pound this year compared to last year of approximately $10.6 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 $33.0 million, or 4.3%, to $729.1 million in the first six months of 2017 as compared to the first six months of 2016. Total retail segment gross margin decreased $17.2 million, or 2.4%, in the first six months of 2017 compared to the same period last year primarily due to lower sales across our retail brands.
For the retail segment, total gross margin as a percentage of retail sales increased to 46.0% in the first six months of 2017 from 44.8% in the first six months of 2016 driven primarily as a result of anniversarying lower gross margins in last year's second quarter, driven by clearance activity in preparation of our closing of our factory/outlet stores.
Occupancy costs decreased $10.3 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, was flat at 13.7% for both the first six months of 2017 and 2016.
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Corporate apparel gross margin decreased $15.8 million, or 34.2%, in the first six months of 2017 as compared to the first six months of 2016. For the corporate apparel segment, total gross margin as a percentage of related sales decreased to 26.4% in the first six months of 2017 from 32.5% in the first six months of 2016 primarily due to the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our UK customers.
Advertising Expense
Advertising expense decreased to $82.1 million in the first six months of 2017 from $92.9 million in the first six months of 2016, a decrease of $10.8 million, or 11.6%. 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 was 5.0% in the first six months of 2017 compared to 5.3% in the first six months of 2016.
Selling, General and Administrative Expenses
SG&A expenses decreased to $507.5 million in the first six months of 2017 from $578.6 million in the first six months of 2016, a decrease of $71.1 million or 12.3%. As a percentage of total net sales, these expenses decreased to 31.1% in the first six months of 2017 from 33.3% in the first six months of 2016. The components of this 2.2% decrease in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
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% |
| in millions |
| Attributed to | |
(2.3) |
| $ | (40.8) |
| Decrease in restructuring, integration and other items as a percentage of sales to 1.0% in the first six months of 2017 from 3.3% in the first six months of 2016. For the first six months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. For the first six months of 2016, these costs totaled $56.6 million related primarily to restructuring and other costs. |
(0.2) |
|
| (16.7) |
| Store salaries decreased $16.7 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.7% in the first six months of 2017 from 12.9% in the first six months of 2016. |
0.3 |
|
| (13.6) |
| Increase in other SG&A expenses as a percentage of sales to 17.4% in the first six months of 2017 from 17.1% in the first six months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $13.6 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts. |
(2.2) |
| $ | (71.1) |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreased to 25.6% in the first six months of 2017 from 27.7% in the first six months of 2016. SG&A expenses decreased $54.1 million primarily due to decreases in store-related costs resulting from our store rationalization efforts as well as the impact of last year's lease termination costs partially offset by costs to terminate the Macy's agreement in 2017.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales increased to 22.2% in the first six months of 2017 from 22.1% in the first six months of 2016 primarily due to deleverage from lower sales. Corporate apparel segment SG&A expenses decreased $5.8 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 to 5.7% in the first six months of 2017 from 6.0% in the first six months of 2016. Shared service SG&A expenses decreased $11.2 million primarily due to decreases in costs associated with last year's profit improvement program.
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Provision for Income Tax
Our effective income tax rate increased to 35.0% for the first six months of 2017 from 30.4% for the first six months of 2016 primarily as a result of $2.2 million of tax deficiencies related to the vesting of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation.
For the first six months of 2017 and 2016, the statutory tax rates in Canada and the UK were approximately 26% and 20%, respectively. For the first six months of 2017 and 2016, tax expense for our operations in foreign jurisdictions totaled $6.0 million and $6.6 million, respectively.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws. Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings. In addition, if our financial results in fiscal 2017 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 change to tax expense in the future.
Net Earnings
Net earnings were $60.3 million for the first six months of 2017 compared with net earnings of $26.6 million for the first six months of 2016.
Liquidity and Capital Resources
At July 29, 2017, July 30, 2016 and January 28, 2017, cash and cash equivalents totaled $112.7 million, $11.4 million and $70.9 million, respectively, and working capital totaled $753.0 million, $719.8 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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|
| May 5, |
| April 29, |
| February 3, | |||
|
| 2018 |
| 2017 |
| 2018 | |||
Cash and cash equivalents |
| $ | 93,166 |
| $ | 66,580 |
| $ | 103,607 |
Working capital |
| $ | 540,153 |
| $ | 712,377 |
| $ | 669,809 |
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"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the 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's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "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,ratios. Should our total leverage ratio and secured leverage ratio have been above the maximumsexceed certain thresholds specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we werewould be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of July 29, 2017,May 5, 2018, our total leverage ratio and secured leverage ratio wereare below these thresholds and we believe these ratios will remain below the maximumsthresholds specified in the agreements but these ratios may increase abovefor the maximums specified in the agreements during the remainder of fiscal 2017. Currently, we believe our total leverage ratio and secured leverage ratio will remain below the maximums specified in the agreements during fiscal 2018 and beyond,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 1.23%1.93% at July 29, 2017,May 5, 2018, plus the applicable margin which is currentlyof 3.50%, resulting in a total interest rate of 4.73%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 July 29, 2017,May 5, 2018, the total notional amount under ourthese interest rate swaps is $540.0$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 July 29, 2017,May 5, 2018, the New Term Loan had a weighted average interest rate of 5.14%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") 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 July 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 July 29, 2017,May 5, 2018, letters of credit totaling approximately $33.4$35.7 million were issued and outstanding. Borrowings available under the ABL Facility as of July 29, 2017May 5, 2018 were $466.6$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 $140.5$120.2 million and $100.3$33.4 million for the first sixthree months of 20172018 and 2016,2017, respectively. The $40.2$86.9 million increase was driven by favorable fluctuations related to accounts payable primarily due to timing of vendor payments for inventory, higher net earnings compared to last year as well as a plannedand an expected reduction in rental product purchases and a decrease in inventory purchases, primarily resulting from our store rationalization efforts, partially offset by a decrease in other assets related to prior year income tax refunds.purchases.
Investing activities — Net cash provided by investing activities was $6.8 million for the first three months of 2018 compared to net cash used in investing activities was $32.3 million and $55.3of $18.2 million for the first sixthree months of 2017 and 2016, respectively.2017. The $23.0net 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 and last year's distribution center expansion project.MW Cleaners.
Financing activities — Net cash used in financing activities was $72.0$135.0 million and $62.5$18.6 million for the first sixthree months of 20172018 and 2016,2017, respectively. The $9.5$116.3 million increase primarily reflects the impact of additional debt repayments this year compared to last year.
Share repurchase program — In March 2013, the Board of Directors (the "Board") approved a share repurchase program for our common stock. At July 29, 2017,May 5, 2018, the remaining balance available under the Board's authorization was $48.0 million. During the first sixthree months of 20172018 and 2016,2017, no shares were repurchased in open market transactions under the Board's authorization.
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Dividends — Cash dividends paid were approximately $18.0$9.6 million and $17.7$9.1 million for the first sixthree months of 20172018 and 2016,2017, respectively. During each of the quarters ended JulyMay 5, 2018 and April 29, 2017, and July 30, 2016, we declared quarterly dividends of $0.18 per share.
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 course of the first sixthree months 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.
Capital expenditures are anticipated to be approximately $90.0$100.0 million for 2017.2018. This amount includes the anticipated costs to open fourapproximately 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 store refreshes point-of-sale and other enhancements of our store fleet, investments in computer equipment and systems, 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
41
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. 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 July 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 July 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's management, with the participation of the Company's principal executive officer ("CEO") and principal financial officer ("CFO"), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the fiscal secondfirst quarter ended July 29, 2017May 5, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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For a description of our legal proceedings, see Note 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 45.
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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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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: | TAILORED BRANDS, INC. | |
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| By | /s/ JACK P. CALANDRA |
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| Jack P. Calandra |
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| Executive Vice President, Chief Financial Officer and Treasurer |
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