Perry Ellis International (PERY) 10-Q 2018 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 29, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-21764

PERRY ELLIS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Florida	59-1162998
(State or other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
3000 N.W. 107 Avenue Miami, Florida	33172
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (305) 592-2830

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 (§232.405 of this chapter) 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 definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth	☐

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 outstanding of the registrant’s common stock is 15,685,000 (as of June 1, 2017).

PERRY ELLIS INTERNATIONAL, INC.

INDEX

	PAGE
PART I: FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Balance Sheets (Unaudited) as of April  29, 2017 and January 28, 2017		1
Condensed Consolidated Statements of Income (Unaudited) for the three months ended April 29, 2017 and April 30, 2016		2
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended April 29, 2017 and April 30, 2016		3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 29, 2017 and April 30, 2016		4
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3:
Quantitative and Qualitative Disclosures About Market Risk		28
Item 4:
Controls and Procedures		29
PART II: OTHER INFORMATION
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6:
Exhibits		31

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

	April 29, 2017			January 28, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	26,404		$	30,695
Investments, at fair value		16,515			10,921
Accounts receivable, net		183,668			140,240
Inventories		139,632			151,251
Prepaid income taxes		—			1,647
Prepaid expenses and other current assets		6,287			6,462
Total current assets		372,506			341,216
Property and equipment, net		60,668			61,835
Other intangible assets, net		186,842			187,051
Deferred income tax		461			334
Other assets		2,278			2,269
TOTAL	$	622,755		$	592,705
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	60,224		$	92,843
Accrued expenses and other liabilities		27,537			20,861
Accrued interest payable		543			1,450
Accrued income taxes payable		1,748			—
Unearned revenues		2,896			2,710
Total current liabilities		92,948			117,864
Senior subordinated notes payable, net		49,709			49,673
Senior credit facility		64,128			22,504
Real estate mortgages		33,369			33,591
Unearned revenues and other long-term liabilities		19,281			18,271
Deferred income taxes		35,453			37,115
Total long-term liabilities		201,940			161,154
Total liabilities		294,888			279,018
Commitment and contingencies
Equity:
Preferred stock $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock $.01 par value; 100,000,000 shares authorized; 15,734,117 shares issued and outstanding as of April 29, 2017 and 15,530,273 shares issued and outstanding as of January 28, 2017		157			155
Additional paid-in-capital		148,784			147,300
Retained earnings		189,098			176,327
Accumulated other comprehensive loss		(10,172	)		(10,095	)
Total equity		327,867			313,687
TOTAL	$	622,755		$	592,705

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

	Three Months Ended
	April 29,		April 30,
	2017		2016
Revenues:
Net sales	$	233,823	$	250,875
Royalty income		8,267		10,419
Total revenues		242,090		261,294
Cost of sales		151,002		166,210
Gross profit		91,088		95,084
Operating expenses:
Selling, general and administrative expenses		71,199		69,934
Depreciation and amortization		3,468		3,467
Total operating expenses		74,667		73,401
Operating income		16,421		21,683
Interest expense		1,956		2,025
Net income before income taxes		14,465		19,658
Income tax provision		1,694		5,408
Net income	$	12,771	$	14,250
Net income per share:
Basic	$	0.85	$	0.96
Diluted	$	0.83	$	0.95
Weighted average number of shares outstanding
Basic		15,009		14,810
Diluted		15,303		15,060

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(amounts in thousands)

	Three Months Ended
	April 29,			April 30,
	2017			2016
Net income	$	12,771		$	14,250
Other Comprehensive income:
Foreign currency translation adjustments, net		279			1,663
Unrealized gain on pension liability, net of tax		—			155
Unrealized loss on forward contract		(362	)		—
Unrealized gain on investments		6			7
Total other comprehensive (loss) income		(77	)		1,825
Comprehensive income	$	12,694		$	16,075

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Three Months Ended
	April 29,			April 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,771		$	14,250
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		3,554			3,565
Provision for bad debts		759			404
Amortization of debt issue cost		101			103
Amortization of premiums and discounts		20			14
Amortization of unrealized (gain) loss on pension liability		—			155
Deferred income taxes		(1,789	)		406
Share-based compensation		1,843			1,336
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable, net		(43,816	)		(41,451	)
Inventories		11,910			30,226
Prepaid income taxes		1,737			1,878
Prepaid expenses and other current assets		331			1,194
Other assets		(72	)		16
Accounts payable and accrued expenses		(27,044	)		(53,081	)
Accrued interest payable		(907	)		(920	)
Income taxes payable		1,570			2,157
Unearned revenues and other liabilities		1,265			667
Deferred pension obligation		—			81
Net cash used in operating activities		(37,767	)		(39,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,901	)		(4,098	)
Purchase of investments		(10,256	)		(2,455	)
Proceeds from investments maturities		4,655			1,965
Net cash used in investing activities		(7,502	)		(4,588	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		98,764			123,995
Payments on senior credit facility		(57,140	)		(84,881	)
Payments on real estate mortgages		(220	)		(212	)
Payments on capital leases		(69	)		(64	)
Proceeds from exercise of stock options		23			—
Net cash provided by financing activities		41,358			38,838
Effect of exchange rate changes on cash and cash equivalents		(380	)		(199	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(4,291	)		(4,949	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		30,695			31,902
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	26,404		$	26,953

CONTINUED

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

	Three Months Ended
	April 29,		April 30,
	2017		2016
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	2,742	$	2,828
Income taxes	$	19	$	150
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Accrued purchases of property and equipment	$	208	$	39

See Notes to Unaudited Condensed Consolidated Financial Statements

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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying unaudited condensed consolidated financial statements of Perry Ellis International, Inc. and subsidiaries (“Perry Ellis” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the requirements of the Securities and Exchange Commission on Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows required by GAAP for annual financial statements. These condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2017, filed with the Securities and Exchange Commission on April 10, 2017.

The information presented reflects all adjustments, which are in the opinion of management of a normal and recurring nature, necessary for a fair presentation of the interim periods. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards (“IFRS”) that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, which requires inventory measured using any method other than last-in, first out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption, during the first quarter of fiscal 2018, of ASU No. 2015-11 did not have a material impact on the Company’s results of operations or the Company’s financial position.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),”which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach, and early adoption is permitted. The Company is currently evaluating the effect that the adoption will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which is part of the FASB’s Simplification Initiative. The updated guidance simplifies the accounting for share-based payment transactions. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2016-09 in the first quarter of fiscal 2018 using a modified retrospective approach. For the three months ended April 29, 2017, the Company recognized all excess

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tax benefits and tax deficiencies as income tax expense or benefit as a discrete item. Given the Company’s valuation allowance position, there was no net tax expense or benefit recognized as a result of the adoption of ASU 2016-09. Furthermore, there was no change to retained earnings with respect to excess tax benefits due to the Company’s valuation allowance position.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, which amends certain aspects of the FASB’s new revenue standard, ASU 2014-09, “Revenue from Contracts with Customers”,specifically the standard’s guidance on identifying performance obligations and the implementation guidance on licensing. The amendments clarify when promised goods or services are separately identifiable (i.e., distinct within the context of a contract), an important step in determining whether goods and services should be accounted for as separate performance obligations. In addition, the amendments allow entities to disregard goods or services that are immaterial in the context of a contract and provide an accounting policy election for accounting for certain shipping and handling activities. The amendments also clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property (IP), which will determine whether the entity recognizes revenue over time or at a point in time. The amendments revise the guidance to address how entities should apply the exception for sales- and usage-based royalties to licenses of IP, recognize revenue for licenses that are not separate performance obligations and evaluate different types of license restrictions (e.g., time-based, geography-based). The new guidance’s effective date and transition provisions are aligned with the requirements in the new revenue standard, which is not yet effective. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which amends certain aspects of the new revenue standard, ASU 2014-09,“Revenue from Contracts with Customers”. The amendments are intended to provide clarifying guidance in a few narrow areas such as collectability, contract modifications, completed contracts at transition, and non-cash considerations. The new guidance’s effective date and transition provisions are aligned with the requirements in the new revenue standard, which is not yet effective. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations or the Company’s financial position.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides guidance for the accounting for credit losses on instruments within its scope. The amendments guide on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendments require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments also require that credit losses on available-for-sale debt securities be presented as an allowance. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15,“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this update are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact of the future adoption of this standard on its consolidated Statements of Cash Flows.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains

7

unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption is permitted and should be in the first interim period if an entity issues interim financial statements. The Company has chosen to early adopt the provisions of ASU 2016-16 in the first quarter of fiscal 2018. The adoption of ASU 2016-16 resulted in a decrease to prepaid income taxes of $1.7 million and a decrease to deferred tax liabilities of $1.7 million.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of:

	April 29, 2017			January 28, 2017
	(in thousands)
Trade accounts	$	197,735		$	151,370
Royalties		6,105			6,659
Other receivables		1,257			712
Total		205,097			158,741
Less: Allowances		(21,429	)		(18,501	)
Total	$	183,668		$	140,240

4. INVENTORIES

Inventories are stated at the lower of cost (weighted moving average cost) or market. Cost principally consists of the purchase price, customs, duties, freight, and commissions to buying agents.

Inventories consisted of the following as of:

	April 29, 2017		January 28, 2017
	(in thousands)
Finished goods	$	139,632	$	151,251

5. INVESTMENTS

The Company’s investments include marketable securities and certificates of deposit at April 29, 2017 and January 28, 2017. Marketable securities are classified as available-for-sale and consist of corporate and government bonds with maturity dates less than one year. Certificates of deposit are classified as available-for-sale with maturity dates less than one year. Investments are stated at fair value. The estimated fair value of the marketable securities is based on quoted prices in an active market.

Investments consisted of the following as of April 29, 2017:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Marketable securities	$	12,031	$	—	$	(5	)	$	12,026
Certificates of deposit		4,490		—		(1	)		4,489
Total investments	$	16,521	$	—	$	(6	)	$	16,515

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Investments consisted of the following as of January 28, 2017:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Marketable securities	$	3,258	$	—	$	(8	)	$	3,250
Certificates of deposit		7,675		—		(4	)		7,671
Total investments	$	10,933	$	—	$	(12	)	$	10,921

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	April 29, 2017			January 28, 2017
	(in thousands)
Furniture, fixtures and equipment	$	92,879		$	91,639
Buildings and building improvements		21,623			21,359
Vehicles		523			523
Leasehold improvements		47,943			48,799
Land		9,430			9,430
Total		172,398			171,750
Less: accumulated depreciation and amortization		(111,730	)		(109,915	)
Total	$	60,668		$	61,835

The above table of property and equipment includes assets held under capital leases as of:

	April 29, 2017			January 28, 2017
	(in thousands)
Furniture, fixtures and equipment	$	810		$	810
Less: accumulated depreciation and amortization		(519	)		(452	)
Total	$	291		$	358

For the three months ended April 29, 2017 and April 30, 2016, depreciation and amortization expense relating to property and equipment amounted to $3.3 million for each of the periods. These amounts include amortization expense for leased property under capital leases.

7. OTHER INTANGIBLE ASSETS

Trademarks

Trademarks included in other intangible assets, net, are considered indefinite-lived assets and totaled $184.1 million at April 29, 2017 and January 28, 2017.

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Other

Other intangible assets represent customer lists as of:

	April 29, 2017			January 28, 2017
	(in thousands)
Customer lists	$	8,450		$	8,450
Less: accumulated amortization		(5,754	)		(5,545	)
Total	$	2,696		$	2,905

For the three months ended April 29, 2017 and April 30, 2016, amortization expense relating to customer lists amounted to approximately $0.2 million for each of the periods. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the table sets forth the estimated amortization expense for future periods based on recorded amounts as of January 28, 2017:

	(in thousands)
2018	$	835
2019		793
2020		734
2021		543

8. LETTER OF CREDIT FACILITIES

Borrowings and availability under letter of credit facilities consisted of the following as of:

	April 29, 2017			January 28, 2017
	(in thousands)
Total letter of credit facilities	$	30,000		$	30,000
Outstanding letters of credit		(10,788	)		(10,788	)
Total credit available	$	19,212		$	19,212

9. ADVERTISING AND RELATED COSTS

The Company’s accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising and related costs were approximately $4.0 million and $4.3 million for the three months ended April 29, 2017 and April 30, 2016, respectively, and are included in selling, general and administrative expenses.

10. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average shares of outstanding common stock. The calculation of diluted net income per share is similar to basic earnings per share except that the denominator includes potentially dilutive common stock. The potentially dilutive common stock included in the Company’s computation of diluted net income per share includes the effects of stock options, stock appreciation rights (“SARS”), and unvested restricted shares as determined using the treasury stock method.

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The following table sets forth the computation of basic and diluted income per share:

	Three Months Ended
	April 29, 2017		April 30, 2016
	(in thousands, except per share data)
Numerator:
Net income	$	12,771	$	14,250
Denominator:
Basic-weighted average shares		15,009		14,810
Dilutive effect: equity awards		294		250
Diluted-weighted average shares		15,303		15,060
Basic income per share	$	0.85	$	0.96
Diluted income per share	$	0.83	$	0.95
Antidilutive effect:(1)		392		804

⁽¹⁾ Represents weighted average of stock options to purchase shares of common stock, SARS and restricted stock that were not included in computing diluted income per share because their effects were antidilutive for the respective periods.

11. EQUITY

The following table reflects the changes in equity:

	Changes in Equity
	(in thousands)
Equity at January 30, 2017	$	313,687
Comprehensive income		12,694
Share transactions under employee equity compensation plans		1,486
Equity at April 29, 2017	$	327,867
Equity at January 30, 2016	$	291,481
Comprehensive income		16,075
Share transactions under employee equity compensation plans		454
Equity at April 30, 2016	$	308,010

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12. ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in accumulated other comprehensive loss by component, net of tax:

	Unrealized (Loss) Gain on Pension Liability		Foreign Currency Translation Adjustments, Net			Unrealized (Loss) Gain on Investments			Unrealized Gain on Forward Contract			Total
	(in thousands)
Balance, January 28, 2017	$	—	$	(9,902	)	$	(12	)	$	(181	)	$	(10,095	)
Other comprehensive loss (income) before reclassifications		—		279			6			(321	)		(36	)
Amounts reclassified from accumulated other comprehensive loss		—		—			—			(41	)		(41	)
Balance, April 29, 2017	$	—	$	(9,623	)	$	(6	)	$	(543	)	$	(10,172	)

	Unrealized (Loss) Gain on Pension Liability			Foreign Currency Translation Adjustments, Net			Unrealized Gain (Loss) on Investments			Total
	(in thousands)
Balance, January 30, 2016	$	(7,368	)	$	(7,131	)	$	(9	)	$	(14,508	)
Other comprehensive income before reclassifications		—			1,663			7			1,670
Amounts reclassified from accumulated other comprehensive income		155			—			—			155
Balance, April 30, 2016	$	(7,213	)	$	(5,468	)	$	(2	)	$	(12,683	)

A summary of the impact on the condensed consolidated statement of income line items is as follows:

	Statement of Operations Location	Three Months Ended
		April 29, 2017			April 30, 2016
Amortization of defined benefit pension items actuarial gains	Selling, general and administrative expenses	$	—		$	155
Forward contract gain reclassified from accumulated other comprehensive loss to income	Cost of goods sold		(41	)		—
Tax provision	Income tax provision		—			—
Total, net of tax		$	(41	)	$	155

13. DERIVATIVE FINANCIAL INSTRUMENT – Cash Flow Hedges

The Company has a risk management policy to manage foreign currency risk relating to inventory purchases by its subsidiaries that are denominated in foreign currencies. As such, the Company may employ hedging and derivative strategies to limit the effects of changes in foreign currency on its operating income and cash flows. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. The Company achieves this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. The Company does not use derivative instruments for trading or speculative purposes.

For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents at inception the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company will formally assess at

12

least quarterly whether the financial instruments used in hedging are “highly effective” at offsetting changes in cash flows of the related underlying exposures. For purposes of assessing hedge effectiveness, the Company uses the forward method, and assesses effectiveness based on the changes in both spot and forward points of the hedging instrument. If and when a derivative is no longer expected to be “highly effective,” hedge accounting is discontinued and hedge ineffectiveness, if any, is included in current period earnings. As of April 29, 2017, there was no hedge ineffectiveness.

The Company’s United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, the Company entered into foreign currency forward exchange contracts (the “Hedging Instruments”). These are formally designated and “highly effective” as cash flow hedges. The Company will hedge approximately 45% of its U.S. dollar denominated purchases. All changes in the Hedging Instruments’ fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. The Company records the foreign currency forward exchange contracts at fair value in its Consolidated Balance Sheets. The cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. The Company considers the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. The Company classifies derivative instrument cash flows from hedges of foreign currency risk on the settlement of inventory as operating activities.

The Company’s Hedging Instruments were classified within Level 2 of the fair value hierarchy. The following table summarizes the effects, fair value and balance sheet classification of the Company’s Hedging Instruments.

Derivatives Designated As Hedging Instruments	Balance sheet location	April 29, 2017		January 28, 2017
		(in thousands)
Foreign currency forward exchange contract (inventory purchases)	Accounts Payable	$	543	$	181
Total		$	543	$	181

The following table summarizes the effect and classification of the Company’s Hedging Instruments.

	Statement of Operations Location	Three Months Ended
Derivatives Designated As Hedging Instruments		April 29, 2017			April 30, 2016
		(in thousands)
Foreign currency forward exchange contract (inventory purchases):
Gain reclassified from accumulated other comprehensive loss to income	Cost of goods sold	$	(41	)	$	—
		$	(41	)

The notional amounts outstanding of foreign exchange forward contracts were $12.5 million and $15.0 million at April 29, 2017 and January 28, 2017, respectively. Such contracts expire through January 2018.

Accumulated other comprehensive loss included a net deferred loss for Hedging Instruments in the amount of $0.5 million and $0.2 million at April 29, 2017 and January 28, 2017, respectively. The net deferred loss will be reclassified from accumulated other comprehensive loss to costs of goods sold during the next twelve months when the inventory is sold.

13

14. INCOME TAXES

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company’s U.S. federal income tax returns for fiscal 2011 through fiscal 2017 are open tax years. The Company’s state tax filings are subject to varying statutes of limitations. The Company’s unrecognized state tax benefits are related to open tax years from fiscal 2006 through fiscal 2017, depending on each state’s particular statute of limitation. As of April 29, 2017, the examination by the Internal Revenue Service for the Company’s 2011, 2012, and 2013 U.S. federal tax years is still ongoing. During fiscal 2017, the Company received a Notice of Proposed Adjustment from the Internal Revenue Service, which proposed adjustments to taxable income for fiscal 2011, 2012 and 2013 of $6.1 million, $5.3 million and $6.8 million, respectively. The Company has not established uncertain tax position reserves related to this matter as the Company believes its positions will be sustained upon appeal or, if necessary, through litigation. Furthermore, various other state and local income tax returns are also under examination by taxing authorities.

The Company has a $1.2 million liability recorded for unrecognized tax benefits as of January 28, 2017, which includes interest and penalties of $0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. All of the unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. During the three months ended April 29, 2017, the total amount of unrecognized tax benefits increased by approximately $38,000. The change to the total amount of the unrecognized tax benefit for the three months ended April 29, 2017 included an increase in interest and penalties of approximately $16,000.

The Company does not currently anticipate a resolution within the next twelve months for any of the remaining unrecognized tax benefits as of April 29, 2017. The statute of limitations related to the Company’s fiscal 2011, 2012 and 2013 U.S. federal tax years has been extended as part of the examination and is not expected to lapse within the next twelve months.

At the end of fiscal 2017, the Company maintained a $38.6 million valuation allowance against its remaining domestic deferred tax assets; including, but not limited to, the federal net operating loss carryforward and the U.S. state net operating loss carryforwards, whose utilization is not restricted by factors beyond the Company’s control. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. An accumulation of recent pretax losses is considered strong negative evidence in that evaluation. Although the Company recognized pretax earnings in the first quarter of fiscal 2018, by itself that does not represent sufficient positive evidence that deferred tax assets will be realized to warrant removing the valuation allowances established against the U.S. deferred tax assets. Additionally, the Company’s cumulative pretax results for the past 36 months still remain in a loss position. The Company will be able to remove the valuation allowances in future periods when positive evidence outweighs the negative evidence from the relevant look-back period. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions, where supported by the evidence.

15. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED SHARES

During the three months ended April 29, 2017, the Company granted an aggregate of 72,307 shares of restricted stock to certain key employees, which vest primarily over a three-year period, at an estimated value of $1.5 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

During the three months ended April 29, 2017, the Company granted performance based restricted stock to certain key employees. Such stock generally vests 100% in April 2020, provided that each employee is still an employee of the Company on such date, and the Company has met certain performance criteria. A total of 154,401 shares of performance-based restricted stock were issued at an estimated value of $3.3 million.

During the three months ended April 29, 2017, the Company granted an aggregate of 10,953 shares of restricted stock units to a key employee, which vest primarily over a three-year period, at an estimated value of $0.2 million. This value is being recorded as compensation expense on a straight-line basis over the vesting period of the restricted stock.

14

During the three months ended April 29, 2017, a total of 77,655 shares of restricted stock vested, of which 25,241 shares were withheld to cover the employees’ statutory income tax requirements. The estimated value of the withheld shares was $0.5 million.

16. SEGMENT INFORMATION

The Company has four reportable segments: Men’s Sportswear and Swim, Women’s Sportswear, Direct-to-Consumer and Licensing. The Men’s Sportswear and Swim and Women’s Sportswear segments derive revenues from the design, import and distribution of apparel to department stores and other retail outlets, principally throughout the United States. The Direct-to-Consumer segment derives its revenues from the sale of the Company’s branded and licensed products through the Company’s retail stores and e-commerce platforms. The Licensing segment derives its revenues from royalties associated from the use of the Company’s brand names, principally Perry Ellis, Original Penguin, Laundry, Gotcha, Pro Player, Farah, Ben Hogan, and John Henry.

The Company allocates certain corporate selling, general and administrative expenses based primarily on the revenues generated by the segments.

	Three Months Ended
	April 29, 2017			April 30, 2016
	(in thousands)
Revenues:
Men’s Sportswear and Swim	$	185,866		$	197,925
Women’s Sportswear		29,739			32,489
Direct-to-Consumer		18,218			20,461
Licensing		8,267			10,419
Total revenues	$	242,090		$	261,294
Depreciation and amortization:
Men’s Sportswear and Swim	$	1,851		$	1,897
Women’s Sportswear		795			614
Direct-to-Consumer		766			896
Licensing		56			60
Total depreciation and amortization	$	3,468		$	3,467
Operating income (loss):
Men’s Sportswear and Swim	$	15,515		$	16,942
Women’s Sportswear		(969	)		(351	)
Direct-to-Consumer		(4,101	)		(3,372	)
Licensing		5,976			8,464
Total operating income	$	16,421		$	21,683
Total interest expense		1,956			2,025
Total net income before income taxes	$	14,465		$	19,658

17. BENEFIT PLAN

The Company sponsored two qualified pension plans as a result of the Perry Ellis Menswear acquisition that occurred in June 2003. The plans were frozen and merged as of December 31, 2003.

During fiscal 2015, the Board of Directors resolved to terminate the pension plan. As of January 28, 2017, the Company satisfied the regulatory requirements prescribed by the Internal Revenue Service and the Pension Benefit Guaranty Corporation and the distribution of plan assets was completed.

15

The following table provides the components of net benefit cost for the plan during the first quarter of fiscal 2017:

	Three Months Ended
	April 30, 2016
	(in thousands)
Service cost	$	63
Interest cost		124
Expected return on plan assets		(87	)
Amortization of net gain		155
Net periodic benefit cost	$	255

18. FAIR VALUE MEASUREMENTS

Accounts receivable, accounts payable, accrued interest payable and accrued expenses. The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments.

Investments. (classified within Level 2 of the valuation hierarchy)—The carrying amounts of the available-for-sale investments are measured at fair value on a recurring basis in the consolidated balance sheets.

Real estate mortgages. (classified within Level 2 of the valuation hierarchy)—The carrying amounts of the real estate mortgages were approximately $34.2 million and $34.5 million at April 29, 2017 and January 28, 2017, respectively. The carrying values of the real estate mortgages at April 29, 2017 and January 28, 2017, approximate their fair values since the interest rates approximate market rates.

Senior credit facility. The carrying amount of the senior credit facility approximates fair value due to the frequent resets of its floating interest rate.

Senior subordinated notes payable. (classified within Level 2 of the valuation hierarchy)—The carrying amounts of the 7⁷/₈% senior subordinated notes payable were approximately $49.7 million at April 29, 2017 and January 28, 2017. The fair value of the 7⁷/₈% senior subordinated notes payable was approximately $50.1 million as of April 29, 2017 and January 28, 2017, based on quoted market prices.

See footnote 13 to the consolidated financial statements for disclosure of the fair value and line item caption of derivative instruments recorded in the consolidated balance sheets.

These estimated fair value amounts have been determined using available market information and appropriate valuation methods.

19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company and several of its subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions). The following are condensed consolidating financial statements, which present, in separate columns: Perry Ellis International, Inc., (Parent Only), the Guarantors on a combined, or where appropriate, consolidated basis, and the Non-Guarantors on a combined, or where appropriate, consolidated basis. Additional columns present eliminating adjustments and consolidated totals as of April 29, 2017 and January 28, 2017 and for the three months ended April 28, 2017 and April 30, 2016. The combined Guarantors are 100% owned subsidiaries of Perry Ellis International, Inc., and have fully and unconditionally guaranteed the senior subordinated notes payable on a joint and several basis.

16

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF APRIL 29, 2017

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	3,964	$	22,440	$	—		$	26,404
Investment, at fair value		—		—		16,515		—			16,515
Accounts receivable, net		—		155,542		28,126		—			183,668
Intercompany receivable, net		86,882		—		—		(86,882	)		—
Inventories		—		117,645		21,987		—			139,632
Prepaid income taxes		—		—		—		—			—
Prepaid expenses and other current assets		—		5,322		965		—			6,287
Total current assets		86,882		282,473		90,033		(86,882	)		372,506
Property and equipment, net		—		58,360		2,308		—			60,668
Other intangible assets, net		—		154,510		32,332		—			186,842
Deferred income taxes		—		—		461		—			461
Investment in subsidiaries		292,004		—		—		(292,004	)		—
Other assets		—		1,765		513		—			2,278
TOTAL	$	378,886	$	497,108	$	125,647	$	(378,886	)	$	622,755
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	52,460	$	7,764	$	—		$	60,224
Accrued expenses and other liabilities		—		22,677		4,860		—			27,537
Accrued interest payable		543		—		—		—			543
Income taxes payable		767		589		392		—			1,748
Unearned revenues		—		2,457		439		—			2,896
Intercompany payable, net		—		74,155		20,432		(94,587	)		—
Total current liabilities		1,310		152,338		33,887		(94,587	)		92,948
Senior subordinated notes payable, net		49,709		—		—		—			49,709
Senior credit facility		—		64,128		—		—			64,128
Real estate mortgages		—		33,369		—		—			33,369
Unearned revenues and other long-term liabilities		—		19,014		267		—			19,281
Deferred income taxes		—		35,453		—		—			35,453
Total long-term liabilities		49,709		151,964		267		—			201,940
Total liabilities		51,019		304,302		34,154		(94,587	)		294,888
Total equity		327,867		192,806		91,493		(284,299	)		327,867
TOTAL	$	378,886	$	497,108	$	125,647	$	(378,886	)	$	622,755

17

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

AS OF JANUARY 28, 2017

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	—	$	2,578	$	28,117	$	—		$	30,695
Investment, at fair value		—		—		10,921		—			10,921
Accounts receivable, net		—		116,874		23,366		—			140,240
Intercompany receivable, net		85,028		—		—		(85,028	)		—
Inventories		—		126,557		24,694		—			151,251
Prepaid income taxes		549		—		25		1,073			1,647
Prepaid expenses and other current assets		—		5,584		878		—			6,462
Total current assets		85,577		251,593		88,001		(83,955	)		341,216
Property and equipment, net		—		59,651		2,184		—			61,835
Other intangible assets, net		—		154,719		32,332		—			187,051
Deferred income taxes		—		—		334		—			334
Investment in subsidiaries		279,233		—		—		(279,233	)		—
Other assets		—		1,797		472		—			2,269
TOTAL	$	364,810	$	467,760	$	123,323	$	(363,188	)	$	592,705
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	—	$	79,600	$	13,243	$	—		$	92,843
Accrued expenses and other liabilities		—		15,543		5,318		—			20,861
Accrued interest payable		1,450		—		—		—			1,450
Income taxes payable		—		623		—		(623	)		—
Unearned revenues		—		2,353		357		—			2,710
Intercompany payable, net		—		77,398		15,614		(93,012	)		—
Total current liabilities		1,450		175,517		34,532		(93,635	)		117,864
Senior subordinated notes payable, net		49,673		—		—		—			49,673
Senior credit facility		—		22,504		—		—			22,504
Real estate mortgages		—		33,591		—		—			33,591
Unearned revenues and other long-term liabilities		—		17,945		326		—			18,271
Deferred income taxes		—		35,419		—		1,696			37,115
Total long-term liabilities		49,673		109,459		326		1,696			161,154
Total liabilities		51,123		284,976		34,858		(91,939	)		279,018
Total equity		313,687		182,784		88,465		(271,249	)		313,687
TOTAL	$	364,810	$	467,760	$	123,323	$	(363,188	)	$	592,705

18

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 29, 2017

(amounts in thousands)

	Parent Only			Guarantors		Non- Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	—		$	206,686	$	27,137		$	—		$	233,823
Royalty income		—			5,386		2,881			—			8,267
Total revenues		—			212,072		30,018			—			242,090
Cost of sales		—			133,927		17,075			—			151,002
Gross profit		—			78,145		12,943			—			91,088
Operating expenses:
Selling, general and administrative expenses		—			61,599		9,600			—			71,199
Depreciation and amortization		—			3,210		258			—			3,468
Total operating expenses		—			64,809		9,858			—			74,667
Operating income		—			13,336		3,085			—			16,421
Interest expense		—			1,989		(33	)		—			1,956
Net income before income taxes		—			11,347		3,118			—			14,465
Income tax provision		—			1,325		369			—			1,694
Equity in earnings of subsidiaries, net		12,771			—		—			(12,771	)		—
Net income		12,771			10,022		2,749			(12,771	)		12,771
Other comprehensive loss		(77	)		—		(77	)		77			(77	)
Comprehensive income	$	12,694		$	10,022	$	2,672		$	(12,694	)	$	12,694

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2016

(amounts in thousands)

	Parent Only		Guarantors		Non- Guarantors			Eliminations			Consolidated
Revenues:
Net sales	$	—	$	224,905	$	25,970		$	—		$	250,875
Royalty income		—		7,214		3,205			—			10,419
Total revenues		—		232,119		29,175			—			261,294
Cost of sales		—		148,976		17,234			—			166,210
Gross profit		—		83,143		11,941			—			95,084
Operating expenses:
Selling, general and administrative expenses		—		61,433		8,501			—			69,934
Depreciation and amortization		—		3,191		276			—			3,467
Total operating expenses		—		64,624		8,777			—			73,401
Operating income		—		18,519		3,164			—			21,683
Interest expense		—		2,034		(9	)		—			2,025
Net income before income taxes		—		16,485		3,173			—			19,658
Income tax provision		—		4,466		942			—			5,408
Equity in earnings of subsidiaries, net		14,250		—		—			(14,250	)		—
Net income		14,250		12,019		2,231			(14,250	)		14,250
Other comprehensive income		1,825		155		1,670			(1,825	)		1,825
Comprehensive income	$	16,075	$	12,174	$	3,901		$	(16,075	)	$	16,075

19

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 29, 2017

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	445		$	(33,893	)	$	(4,319	)	$	—		$	(37,767	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(1,578	)		(323	)		—			(1,901	)
Purchase of investments		—			—			(10,256	)		—			(10,256	)
Proceeds from investments maturities		—			—			4,655			—			4,655
Intercompany transactions		(88	)		—			—			88			—
Net cash used in investing activities		(88	)		(1,578	)		(5,924	)		88			(7,502	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		—			98,764			—			—			98,764
Payments on senior credit facility		—			(57,140	)		—			—			(57,140	)
Payments on real estate mortgages		—			(220	)		—			—			(220	)
Payments on capital leases		—			(69	)		—			—			(69	)
Proceeds from exercise of stock options		23			—			—			—			23
Intercompany transactions		—			(4,478	)		4,946			(468	)		—
Net cash provided by financing activities		23			36,857			4,946			(468	)		41,358
Effect of exchange rate changes on cash and cash equivalents		(380	)		—			(380	)		380			(380	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			1,386			(5,677	)		—			(4,291	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			2,578			28,117			—			30,695
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	3,964		$	22,440		$	—		$	26,404

PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2016

(amounts in thousands)

	Parent Only			Guarantors			Non- Guarantors			Eliminations			Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	6,192		$	(40,153	)	$	(7,745	)	$	2,706		$	(39,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(3,742	)		(356	)		—			(4,098	)
Purchase of investments		—			—			(2,455	)		—			(2,455	)
Proceeds from investments maturities		—			—			1,965			—			1,965
Intercompany transactions		(5,993	)		—			—			5,993			—
Net cash used in investing activities		(5,993	)		(3,742	)		(846	)		5,993			(4,588	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility		—			123,995			—			—			123,995
Payments on senior credit facility		—			(84,881	)		—			—			(84,881	)
Payments on real estate mortgages		—			(212	)		—			—			(212	)
Payments on capital leases		—			(64	)		—			—			(64	)
Dividends paid to stockholder		—			—			2,706			(2,706	)		—
Intercompany transactions		—			7,681			(1,489	)		(6,192	)		—
Net cash provided by financing activities		—			46,519			1,217			(8,898	)		38,838
Effect of exchange rate changes on cash and cash equivalents		(199	)		—			(199	)		199			(199	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			2,624			(7,573	)		—			(4,949	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			775			31,127			—			31,902
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	3,399		$	23,554		$	—		$	26,953

20

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references to “Perry Ellis,” the “Company,” “we,” “us” or “our” include Perry Ellis International, Inc. and its subsidiaries. This management’s discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended January 28, 2017, filed with the Securities and Exchange Commission on April 10, 2017.

Forward-Looking Statements

We caution readers that the forward-looking statements (statements which are not historical facts) in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “proforma,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology. Such forward-looking statements include, but are not limited to, statements regarding Perry Ellis’ strategic operating review, growth initiatives and internal operating improvements intended to drive revenues and enhance profitability, the implementation of Perry Ellis’ profitability improvement plan and Perry Ellis’ plans to exit underperforming, low growth brands and businesses. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. These factors include:

• general economic conditions,

• a significant decrease in business from or loss of any of our major customers or programs,

• anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future retail and wholesale consolidation,

• recent and future economic conditions, including turmoil in the financial and credit markets,

• the effectiveness of our planned advertising, marketing and promotional campaigns,

• our ability to contain costs,

• disruptions in the supply chain, including, but not limited to those caused by port disruptions,

• disruptions due to weather patterns,

• our future capital needs and our ability to obtain financing,

• our ability to protect our trademarks,

• our ability to integrate acquired businesses, trademarks, trade names, and licenses,

• our ability to predict consumer preferences and changes in fashion trends and consumer acceptance of both new designs and newly introduced products,

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• the termination or non-renewal of any material license agreements to which we are a party,

• changes in the costs of raw materials, labor and advertising,

• our ability to carry out growth strategies including expansion in international and direct-to-consumer retail markets,

• the effectiveness of our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion,

• potential cyber risk and technology failures that could disrupt operations or result in a data breach,

• the level of consumer spending for apparel and other merchandise,

• our ability to compete,

• exposure to foreign currency risk and interest rates risk,

• the impact to our business resulting from the United Kingdom’s referendum vote to exit the European Union and the uncertainty surrounding the terms and conditions of such a withdrawal, as well as the related impact to global stock markets and currency exchange rates,

• possible disruption in commercial activities due to terrorist activity and armed conflict,

• actions of activist investors and the cost and disruption of responding to those actions, and

• other factors set forth in Perry Ellis’ filings with the Securities and Exchange Commission.

Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those risks and uncertainties detailed in Perry Ellis’ filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

Critical Accounting Policies

Included in the footnotes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended January 28, 2017 is a summary of all significant accounting policies used in the preparation of our consolidated financial statements. We follow the accounting methods and practices as required by accounting principles generally accepted in the United States of America (“GAAP”). In particular, our critical accounting policies and areas in which we use judgment are in the areas of revenue recognition, the estimated collectability of accounts receivable, the recoverability of obsolete or overstocked inventory, the impairment of long-lived assets that are our trademarks, the recoverability of deferred tax assets and the measurement of retirement related benefits. We believe that there have been no significant changes to our critical accounting policies during the three months ended April 29, 2017 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 28, 2017.

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Results of Operations

The following table sets forth, for the periods indicated, selected financial data expressed by segments and includes a reconciliation of EBITDA to operating income by segment, the most directly comparable GAAP financial measure:

	Three Months Ended
	April 29, 2017			April 30, 2016
	(in thousands)
Revenues by segment:
Men’s Sportswear and Swim	$	185,866		$	197,925
Women’s Sportswear		29,739			32,489
Direct-to-Consumer		18,218			20,461
Licensing		8,267			10,419
Total revenues	$	242,090		$	261,294
	Three Months Ended
	April 29, 2017			April 30, 2016
	(in thousands)
Reconciliation of operating income to EBITDA
Operating income (loss) by segment:
Men’s Sportswear and Swim	$	15,515		$	16,942
Women’s Sportswear		(969	)		(351	)
Direct-to-Consumer		(4,101	)		(3,372	)
Licensing		5,976			8,464
Total operating income	$	16,421		$	21,683
Add:
Depreciation and amortization
Men’s Sportswear and Swim	$	1,851		$	1,897
Women’s Sportswear		795			614
Direct-to-Consumer		766			896
Licensing		56			60
Total depreciation and amortization	$	3,468		$	3,467
EBITDA by segment:
Men’s Sportswear and Swim	$	17,366		$	18,839
Women’s Sportswear		(174	)		263
Direct-to-Consumer		(3,335	)		(2,476	)
Licensing		6,032			8,524
Total EBITDA	$	19,889		$	25,150
EBITDA margin by segment
Men’s Sportswear and Swim		9.3	%		9.5	%
Women’s Sportswear		(0.6	%)		0.8	%
Direct-to-Consumer		(18.3	%)		(12.1	%)
Licensing		73.0	%		81.8	%
Total EBITDA margin		8.2	%		9.6	%

EBITDA consists of earnings before interest, cost on early extinguishment of debt, depreciation and amortization, and income taxes. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, and does not represent cash flow from operations. The most directly comparable GAAP financial measure, presented above, is operating income by segment. EBITDA and EBITDA margin by segment are presented solely as a supplemental disclosure because management believes that they are a common measure of operating performance in the apparel industry.

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The following is a discussion of the results of operations for the three month period ended April 29, 2017 of the fiscal year ending February 3, 2018 (“fiscal 2018”) compared with the three month period ended April 30, 2016 of the fiscal year ended January 28, 2017 (“fiscal 2017”).

Results of Operations—three months ended April 29, 2017 compared to the three months ended April 30, 2016.

Net sales. Men’s Sportswear and Swim net sales for the three months ended April 29, 2017 were $185.9 million, a decrease of $12.0 million, or 6.1%, from $197.9 million for the three months ended April 30, 2016. The net sales decrease was attributed primarily to our customer’s preference to receive product closer to their needs. The decrease was partially offset by increases in our golf lifestyle apparel business, Nike swim, and other core global brands.

Women’s Sportswear net sales for the three months ended April 29, 2017 were $29.7 million, a decrease of $2.8 million, or 8.6%, from $32.5 million for the three months ended April 30, 2016. The net sales decrease was primarily due to planned reductions in Laundry as we work on the re-launch of the brand. The decrease was partially offset by increases in Rafaella driven by the earlier timing of spring shipments.

Direct-to-Consumer net sales for the three months ended April 29, 2017 were $18.2 million, a decrease of $2.3 million, or 11.2%, from $20.5 million for the three months ended April 30, 2016. The decrease was driven by a retail stores sales decline of 1.9% in comparable same store sales for the direct-to-consumer business, coupled with ten fewer stores as compared to the prior period.

Royalty income. Royalty income for the three months ended April 29, 2017 was $8.3 million, a decrease of $2.1 million, or 20.2%, from $10.4 million for the three months ended April 30, 2016. Royalty income decreases were attributed to the transition of two of our licensed partners; one brought in-house and one to a new licensing partnership. For the remainder of the year, we anticipate even royalty income, compared to prior quarter periods.

Gross profit. Gross profit was $91.1 million for the three months ended April 29, 2017, a decrease of $4.0 million, or 4.2%, from $95.1 million for the three months ended April 30, 2016. This decrease is attributed to the sales reductions described above and the factors described within the gross profit margin section below.

Gross profit margin. As a percentage of total revenue, gross profit margins were 37.6% for the three months ended April 29, 2017, as compared to 36.4% for the three months ended April 30, 2016, an increase of 120 basis points. The increase is attributed to the disciplined management of inventory across channels, increased sales of higher margin core brands and efficiencies garnered within our supply chain infrastructure. Additionally our direct-to-consumer gross profit margin increased due to pricing strategies and a move away from highly promotional events.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended April 29, 2017 were $71.2 million, an increase of $1.3 million, or 1.9%, from $69.9 million for the three months ended April 30, 2016. The increase is attributed to $1.0 million of unanticipated compensation costs that are not expected to continue. Other than these costs, selling, general and administrative expenses were substantial the same as the prior year’s amount.

EBITDA. Men’s Sportswear and Swim EBITDA margin for the three months ended April 29, 2017 decreased by 20 basis points to 9.3% from 9.5% for the three months ended April 30, 2016. The EBITDA margin was essentially flat from last year. Despite the reduction in sales as mentioned above, we were able to increase our gross profit margin and realize favorable leverage in selling, general and administrative expenses, more specifically in advertising expenses.

Women’s Sportswear EBITDA margin for the three months ended April 29, 2017 decreased 140 basis points to (0.6%), from 0.8% for the three months ended April 30, 2016. The EBITDA margin was unfavorably impacted by the decrease in net sales described above. As a result of this decrease in revenue, we were not able to realize favorable leverage in selling, general and administrative expenses.

Direct-to-Consumer EBITDA margin for the three months ended April 29, 2017 decreased 620 basis points to (18.3%), from (12.1%) for the three months ended April 30, 2016. The decrease was attributable to the decrease of revenue from our stores, as described above.

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Licensing EBITDA margin for the three months ended April 29, 2017 decreased to 73.0%, from 81.8% for the three months ended April 30, 2016. The EBITDA margin was unfavorably impacted by the decrease in royalty income described above.

Depreciation and amortization. Depreciation and amortization for the three months ended April 29, 2017 and April 30, 2016 remained flat at $3.5 million.

Interest expense. Interest expense for the three months ended April 29, 2017 and April 30, 2016 remained flat at $2.0 million.

Income taxes. The income tax expense for the three months ended April 29, 2017, was $1.7 million, a decrease of $3.7 million, as compared to $5.4 million for the three months ended April 30, 2016. For the three months ended April 29, 2017, our effective tax rate was 11.7% as compared to 27.5% for the three months ended April 30, 2016. The overall change in the effective tax rate is attributed to the current year impact of the valuation allowance on domestic taxes and a change in the ratio of income between domestic and foreign operations, of which the domestic operations are taxed at higher statutory tax rates.

Net income. Net income for the three months ended April 29, 2017 was $12.8 million, a decrease of $1.5 million, or 10.5%, as compared to $14.3 million for the three months ended April 30, 2016. The changes in operating results were due to the items described above.

Liquidity and Capital Resources

We rely principally on cash flow from operations and borrowings under our senior credit facility to finance our operations, acquisitions, and capital expenditures. We believe that our working capital requirements will increase slightly for this year as we continue to expand internationally. As of April 29, 2017, our total working capital was $279.6 million as compared to $223.4 million as of January 28, 2017 and $274.5 million as of April 30, 2016. We believe that our cash flows from operations and availability under our senior credit facility and remaining letter of credit facilities are sufficient to meet our working capital needs and capital expenditure needs over the next year.

We consider the undistributed earnings of our foreign subsidiaries as of April 29, 2017, to be indefinitely reinvested and, accordingly, no United States income taxes have been provided thereon. As of April 29, 2017, the amount of cash and short-term investments associated with indefinitely reinvested foreign earnings was approximately $22.4 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Net cash used in operating activities was $37.8 million for the three months ended April 29, 2017, as compared to cash used in operating activities of $39.0 million for the three months ended April 30, 2016.

The cash used in operating activities for three months ended April 29, 2017, is primarily attributable to an increase in accounts receivable of $43.8 million and a decrease in accounts payable and accrued expenses of $27.0 million. These decreases were partially offset by a decrease in inventory of $11.9 million associated with strong inventory management, a decrease in prepaid income taxes of $1.7 million, an increase in income taxes payable of $1.6 million and an increase in unearned revenue and other liabilities of $1.3 million. Our inventory turnover ratio increased to 3.9 as compared to 3.6 in the prior period because of our continued focus on inventory management.

The cash used in operating activities for three months ended April 30, 2016, is primarily attributable to an increase in accounts receivable of $41.5 million and a decrease in accounts payable and accrued expenses of $53.1 million; which was partially offset by a decrease in inventory of $30.2 million associated with strong inventory management, an increase in income taxes payable of $2.2 million, a decrease in prepaid expenses and other current assets of $1.2 million, and a decrease in prepaid income taxes of $1.9 million. Our inventory turnover ratio remained constant at 3.6 as compared to the prior period because of our continued tight inventory management.

Net cash used in investing activities was $7.5 million for the three months ended April 29, 2017, as compared to cash used in investing activities of $4.6 million for the three months ended April 30, 2016. The net cash used in investing activities during the first three months of fiscal 2018 primarily reflects the purchase of investments of $10.3 million and the purchase of property and equipment of $1.9 million primarily for leaseholds and store fixtures; partially offset by the proceeds from the maturities of investments in the amount of $4.7 million.

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We anticipate capital expenditures during the remainder of fiscal 2018 of $15.0 million to $16.0 million in new leasehold improvements, technology, systems, retail stores, and other expenditures.

Net cash used in investing activities was $4.6 million for the three months ended April 30, 2016. The net cash used in investing activities during the first three months of fiscal 2017 primarily reflects the purchase of property and equipment of $4.1 million primarily for leaseholds and the purchase of investments of $2.5 million; partially offset by the proceeds from the maturities of investments in the amount of $2.0 million.

Net cash provided by financing activities was $41.4 million for the three months ended April 29, 2017, as compared to net cash provided by financing activities of $38.8 million for the three months ended April 30, 2016. The net cash provided during the first three months of fiscal 2018 primarily reflects net borrowings on our senior credit facility of $41.6 million; which was partially offset by $0.2 million in payments on our mortgage loans and payments on capital leases of $0.07 million.

Net cash provided by financing activities was $38.8 million for the three months ended April 30, 2016. The net cash provided during the first three months of fiscal 2017 primarily reflects net borrowings on our senior credit facility of $39.1 million; which was partially offset by $0.2 million in payments on our mortgage loans.

Our Board of Directors has authorized us to purchase, from time to time and as market and business conditions warrant, up to $70 million of our common stock for cash in the open market or in privately negotiated transactions through October 31, 2017. Although our Board of Directors allocated a maximum of $70 million to carry out the program, we are not obligated to purchase any specific number of outstanding shares and will reevaluate the program on an ongoing basis.

There have been no open market purchases during fiscal 2018. Total purchases under the plan to date amount to approximately $60.8 million.

Acquisitions

None.

7 ⁷/₈% $150 Million Senior Subordinated Notes Payable

In March 2011, we issued $150 million 7 ⁷/₈% senior subordinated notes, due April 1, 2019. The proceeds of this offering were used to retire the $150 million 8 ⁷/₈% senior subordinated notes due September 15, 2013 and to repay a portion of the outstanding balance on the senior credit facility. The proceeds to us were $146.5 million yielding an effective interest rate of 8.0%.

On April 6, 2015, we elected to call for the partial redemption of $100 million of our $150 million 7 ⁷/₈% senior subordinated notes due 2019 and a notice of redemption was sent to all registered holders of the senior subordinated notes. The redemption terms provided for the payment of a redemption premium of 103.938% of the principal amount redeemed. On May 6, 2015, we completed the redemption of the $100 million of our senior subordinated notes. We incurred debt extinguishment costs of approximately $5.1 million in connection with the redemption, including the redemption premium as well as the write-off of note issuance costs. At April 29, 2017 and January 28, 2017, the balance of the 7 ⁷/₈% senior subordinated notes totaled $49.7 million, net of debt issuance costs in the amount of $0.3 million

Certain Covenants. The indenture governing the senior subordinated notes contains certain covenants which restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness in certain circumstances, pay dividends or make other distributions on, redeem or repurchase capital stock, make investments or other restricted payments, create liens on assets to secure debt, engage in transactions with affiliates, and effect a consolidation or merger. We are not aware of any non-compliance with any of our covenants in this indenture. We could be materially harmed if we violate any covenants because the indenture’s trustee could declare the outstanding notes, together with accrued interest, to be immediately due and payable, which we may not be able to satisfy. In addition, a violation could also constitute a cross-default under the senior credit facility, the letter of credit facilities and the real estate mortgages resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

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Senior Credit Facility

On April 22, 2015, we amended and restated our existing senior credit facility (the “Credit Facility”), with Wells Fargo Bank, National Association, as agent for the lenders, and Bank of America, N.A., as syndication agent. The Credit Facility provides a revolving credit facility of up to an aggregate amount of $200 million. The Credit Facility has been extended through April 30, 2020 (“Maturity Date”). In connection with this amendment and restatement, we paid fees in the amount of $0.6 million. These fees will be amortized over the term of the Credit Facility as interest expense. At April 29, 2017, we had outstanding borrowings of $64.1 million under the Credit Facility. At January 28, 2017, we had outstanding borrowings of $22.5 million under the Credit Facility.

Certain Covenants. The Credit Facility contains certain financial and other covenants, which, among other things, require us to maintain a minimum fixed charge coverage ratio if availability falls below certain thresholds. We are not aware of any non-compliance with any of our covenants in this Credit Facility. These covenants may restrict our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness and liens in certain circumstances, redeem or repurchase capital stock, make certain investments or sell assets. We may pay cash dividends subject to certain restrictions set forth in the covenants including, but not limited to, meeting a minimum excess availability threshold and no occurrence of a default. We could be materially harmed if we violate any covenants, as the lenders under the Credit Facility could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we are unable to repay those amounts, the lenders could proceed against our assets and the assets of our subsidiaries that are borrowers or guarantors. In addition, a covenant violation that is not cured or waived by the lenders could also constitute a cross-default under certain of our other outstanding indebtedness, such as the indenture relating to our 7⁷ / ₈ % senior subordinated notes due April 1, 2019, our letter of credit facilities, or our real estate mortgage loans. A cross-default could result in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy. Additionally, our Credit Facility includes a subjective acceleration clause if a “material adverse change” in our business occurs. We believe that the likelihood of the lender exercising this right is remote.

Borrowing Base. Borrowings under the Credit Facility are limited to a borrowing base calculation, which generally restricts the outstanding balance to the sum of (a) 87.5% of eligible receivables plus (b) 87.5% of eligible foreign accounts up to $1.5 million plus (c) the lesser of (i) the inventory loan limit, which equals 80% of the maximum credit under the Credit Facility at the time, (ii) a maximum of 70.0% of eligible finished goods inventory with an inventory limit not to exceed $125 million, or 90.0% of the net recovery percentage (as defined in the Credit Facility) of eligible inventory.

Interest. Interest on the outstanding principal balance drawn under the Credit Facility accrues at the prime rate and at the rate quoted by the agent for Eurodollar loans. The margin adjusts quarterly, in a range of 0.50% to 1.00% for prime rate loans and 1.50% to 2.00% for Eurodollar loans, based on the previous quarterly average of excess availability plus excess cash on the last day of the previous quarter.

Security. As security for the indebtedness under the Credit Facility, we granted to the lenders a first priority security interest (subject to liens permitted under the Credit Facility to be senior thereto) in substantially all of our existing and future assets, including, without limitation, accounts receivable, inventory, deposit accounts, general intangibles, equipment and capital stock or membership interests, as the case may be, of certain subsidiaries, and real estate, but excluding our non-U.S. subsidiaries and all of our trademark portfolio.

Letter of Credit Facilities

As of April 29, 2017, we maintained one U.S. dollar letter of credit facility totaling $30.0 million. Each documentary letter of credit is secured primarily by the consignment of merchandise in transit under that letter of credit and certain subordinated liens on our assets.

At April 29, 2017 and January 28, 2017, there was $19.2 million available under the existing letter of credit facilities.

Real Estate Mortgage Loans

In November 2016, we paid off our existing real estate mortgage loan and refinanced our main administrative office, warehouse and distribution facility in Miami with a $21.7 million mortgage loan. The loan is

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due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $112,000, based on a 25-year amortization with the outstanding principal due at maturity. At April 29, 2017, the balance of the real estate mortgage loan totaled $21.3 million, net of discount, of which $541,000 is due within one year.

In June 2006, we entered into a mortgage loan for $15 million secured by our Tampa facility. The loan was due on January 23, 2019. In January 2014, we amended the mortgage loan to modify the interest rate. The interest rate was reduced to 3.25% per annum and the terms were restated to reflect new monthly payments of principal and interest of approximately $68,000, based on a 20-year amortization, with the outstanding principal due at maturity.

In November 2016, we amended the mortgage to increase the amount to $13.2 million. The loan is due on November 22, 2026. The interest rate is 3.715% per annum. Monthly payments of principal and interest approximate $68,000, based on a 25-year amortization with the outstanding principal due at maturity. At April 29, 2017, the balance of the real estate mortgage loan totaled $13.0 million, net of discount, of which approximately $330,000 is due within one year.

We used the excess funds generated from the new mortgage loans described above to pay down our senior credit facility.

The real estate mortgage loans contain certain covenants. We are not aware of any non-compliance with any of the covenants. If we violate any covenants, the lender under the real estate mortgage loans could declare all amounts outstanding thereunder to be immediately due and payable, which we may not be able to satisfy. A covenant violation could constitute a cross-default under our senior credit facility, our letter of credit facilities and the indenture relating to our senior subordinated notes resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.

Off-Balance Sheet Arrangements

We are not a party to any “off-balance sheet arrangements,” as defined by applicable GAAP and SEC rules.

Effects of Inflation and Foreign Currency Fluctuations

We do not believe that inflation or foreign currency fluctuations significantly affected our results of operations for the three months ended April 29, 2017.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The market risk inherent in our financial statements represents the potential changes in the fair value, earnings or cash flows arising from changes in interest rates or foreign currency. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposure, including interest rate and foreign currency.

Cash Flow Hedges

Our United Kingdom subsidiary is exposed to foreign currency risk from inventory purchases. In order to mitigate the financial risk of settlement of inventory at various prices based on movement of the U.S. dollar against the British pound, we entered into foreign currency forward exchange contracts (the “Hedging Instruments”). These contracts are formally designated and “highly effective” as cash flow hedges.

All changes in the Hedging Instruments’ fair value associated with inventory purchases are recorded in equity as a component of accumulated other comprehensive income until the underlying hedged item is reclassified to earnings. We record the hedging instruments at fair value in our Consolidated Balance Sheet. The cash flows from such hedges are presented in the same category in our Consolidated Statement of Cash Flows as the items being hedged.

The notional amounts outstanding of foreign exchange forward contracts were $12.5 million and $15.0 million at April 29, 2017 and January 28, 2017, respectively. Such contracts expire through January 2018.

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Accumulated other comprehensive loss included a net deferred loss for Hedging Instruments in the amount of $0.5 million and $0.2 million at April 29, 2017 and January 28, 2017, respectively. The net deferred loss will be reclassified from accumulated other comprehensive loss to costs of goods sold during the next twelve months when the inventory is sold.

The total gain relating to hedging instruments reclassified to earnings during the first quarter of fiscal 2018 was $41,000. There was no gain or loss relating to hedging instruments reclassified to earnings during the first quarter of fiscal 2017.

Commodity Price Risk

We are exposed to market risks for the pricing of cotton and other fibers, which may impact fabric prices. Fabric is a portion of the overall product cost, which includes various components. We manage our fabric prices by using a combination of different strategies including the utilization of sophisticated logistics and supply chain management systems, which allow us to maintain maximum flexibility in our global sourcing of products. This provides us with the ability to re-direct our sourcing of products to the most cost-effective jurisdictions. In addition, we may modify our product offerings to our customers based on the availability of new fibers, yield enhancement techniques and other technological advances that allow us to utilize more cost effective fibers. Finally, we also have the ability to adjust our price points of such products, to the extent market conditions allow. These factors, along with our foreign-based sourcing offices, allow us to procure product from lower cost countries or capitalize on certain tariff-free arrangements, which help mitigate any commodity price increases that may occur. We have not historically managed, and do not currently intend to manage, commodity price exposures by using derivative instruments.

Other

We have a risk management policy to manage foreign currency risk relating to inventory purchases by our subsidiaries which are denominated in foreign currencies. As such, we may employ hedging and derivative strategies to limit the effects of changes in foreign currency on our operating income and cash flows. However, we consider our current exposure to foreign exchange risk as not significant.

Item 4: Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Securities Exchange Act. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 29, 2017 in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Other than the changes noted above there have been no other changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs
April 2, 2017 to April 29, 2017		25,241	(1)	$	21.12		—	$	9,215,045

⁽¹⁾ Represents shares withheld to pay statutory income taxes resulting from vesting of restricted shares.

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Item 6. Exhibits

Index to Exhibits

Exhibit Number	Exhibit Description	Where Filed
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed herewith.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed herewith.
32.1	Certification of Principal Executive Officer pursuant to Section 1350	Filed herewith.
32.2	Certification of Principal Financial Officer pursuant to Section 1350	Filed herewith.
101.INS	XBRL Instance Document	Filed herewith.
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith.
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith.
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Perry Ellis International, Inc.
June 6, 2017	By: /S/ DAVID RATTNER
	David Rattner, Chief Financial Officer
	(Principal Financial Officer)

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