ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for Fiscal
2016
.
OVERVIEW
We are a global apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama®, Lilly Pulitzer® and Southern Tide® lifestyle brands, other owned brands and licensed brands as well as private label apparel products. During Fiscal 2016, 92% of our net sales were from products bearing brands that we own and 66% of our net sales were through our direct to consumer channels of distribution. In Fiscal 2016, 96% of our consolidated net sales were to customers located in the United States, with the sales outside the United States consisting primarily of our Tommy Bahama product sales in Canada and the Asia-Pacific region.
Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude. Furthermore, we believe lifestyle brands like Tommy Bahama, Lilly Pulitzer and Southern Tide that create an emotional connection with consumers can command greater loyalty and higher price points at retail and create licensing opportunities, which may drive higher earnings. We believe the attraction of a lifestyle brand depends on creating compelling product, effectively communicating the respective lifestyle brand message and distributing products to consumers where and when they want it.
Our ability to compete successfully in styling and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference, and presenting appealing products for consumers. Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated products each season.
To further strengthen each lifestyle brand's connections with consumers, we directly communicate with consumers through electronic and print media on a regular basis. We believe our ability to effectively communicate the images, lifestyle and products of our brands and create an emotional connection with consumers is critical to the success of the brands. Our advertising for our brands often attempts to convey the lifestyle of the brand as well as a specific product.
We distribute our owned lifestyle branded products primarily through our direct to consumer channels, consisting of our Tommy Bahama and Lilly Pulitzer retail stores and our e-commerce sites for Tommy Bahama, Lilly Pulitzer and Southern Tide, and through our wholesale distribution channels. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them a broad assortment of our current season products and immerse them in the theme of the lifestyle brand. We believe that presenting our products in a setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands. Our Tommy Bahama and Lilly Pulitzer full-price retail stores provide high visibility for our brands and products, and allow us to stay close to the preferences of our consumers, while also providing a platform for long-term growth for the brands. In Tommy Bahama, we also operate a limited number of restaurants, generally adjacent to a Tommy Bahama full-price retail store location, which we believe further enhance the brand's image with consumers.
Additionally, our e-commerce websites, which represented 18% of our consolidated net sales in Fiscal 2016, provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products. Our e-commerce flash clearance sales on our websites and our Tommy Bahama outlet stores play an important role in overall brand and inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and often at better prices than are typically available from third-party off-price retailers.
The wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger group of consumers. As we seek to maintain the integrity of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites, we generally target wholesale customers that follow this same approach in their stores. Our wholesale customers for our Tommy Bahama, Lilly Pulitzer and Southern Tide brands include better department stores and specialty stores, including Signature Stores for Lilly Pulitzer and Southern Tide.
Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed brands, private labels and owned brands. Lanier Apparel's customers include department stores, discount and off-price retailers, warehouse clubs, national chains, specialty retailers and others throughout the United States.
All of our operating groups operate in highly competitive apparel markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry, and our direct competitors vary by operating group and distribution channel. We believe the principal competitive factors in the apparel industry are reputation, value, and image of brand names; design; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service.
The apparel industry is cyclical and very dependent upon the overall level and focus of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. Often, negative economic conditions have a longer and more severe impact on the apparel industry than on other industries. We believe current global economic conditions and the resulting economic uncertainty continue to impact our business, and the apparel industry as a whole.
We believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion retailing. The application of technology, including the internet and mobile devices, to fashion retail provides consumers increasing access to multiple, responsive distribution platforms and an unprecedented ability to communicate directly with brands, retailers and others. As a result, consumers have more information and broader, faster and cheaper access to goods than ever before. This, along with the coming of age of the “millennial” generation, is revolutionizing the way that consumers shop for fashion and other goods. The evidence is increasingly apparent with marked weakness and store closures for department stores and mall-based retailers, decreased consumer retail traffic, a more promotional retail environment, expansion of off-price and discount retailers, and growing internet purchases.
While this evolution in the fashion retail industry presents significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers. We believe our brands have attributes that are true competitive advantages in this new retailing paradigm, and we are leveraging technology to serve our consumers when and where they want to be served. We continue to believe that our lifestyle brands are well suited to succeed and thrive in the long term while managing the various challenges facing our industry.
Specifically, we believe our lifestyle brands have opportunities for long-term growth in their direct to consumer businesses. We anticipate increased sales in our e-commerce operations, which are expected to grow at a faster rate than bricks and mortar comparable store sales. We also believe growth can be achieved through prudent expansion of bricks and mortar full-price retail store operations and modest comparable full-price retail store sales increases. Despite the changes in the retail environment, we expect there will continue to be desirable locations for additional stores.
Our lifestyle brands also have an opportunity for modest sales increases in their wholesale businesses in the long term primarily from current customers adding to their existing door count and increasing their on-line business, increased sales to on-line retailers, and the selective addition of new wholesale customers who generally follow a retail model with limited discounting; however, we must be diligent in our effort to avoid compromising the integrity of our brands by maintaining or growing sales with wholesale customers that may not be aligned with our long-term strategy. This is particularly important with the challenges in the department store channel, which represented about one-half of our consolidated wholesale sales, or 16% of our consolidated net sales in Fiscal 2016. We also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs for existing and new customers.
We believe we must continue to invest in our lifestyle brands to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations such as technology enhancements, e-commerce initiatives, retail store and restaurant build-out for new and relocated locations as well as remodels, and distribution center and administrative office expansion initiatives. Additionally, while we anticipate increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future sales growth, we remain focused on appropriately managing our operating expenses.
In the midst of the challenges in our industry, an important focus for us in Fiscal 2017 has been advancing various initiatives to increase the profitability of the Tommy Bahama business. These initiatives generally focus on increasing gross margin and operating margin through efforts such as: product cost reductions; selective price increases; reducing inventory purchases; redefining our approach to inventory clearance; effectively managing controllable and discretionary operating expenses; taking a more conservative approach to full-price retail store and outlet openings and renewals; and continuing our efforts to reduce Asia-Pacific operating losses.
We continue to believe it is important to maintain a strong balance sheet and liquidity. We believe positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient resources to fund future investments in our owned lifestyle brands. While we believe we have significant opportunities to appropriately
deploy our capital and resources in our existing lifestyle brands, we will continue to evaluate opportunities to add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impact our business are described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for Fiscal
2016
.
The following table sets forth our consolidated operating results from continuing operations (in thousands, except per share amounts) for the
First Quarter of Fiscal 2017
compared to the
First Quarter of Fiscal 2016
:
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Net sales
|
$
|
272,363
|
|
$
|
256,235
|
|
Operating income
|
$
|
29,959
|
|
$
|
32,006
|
|
Net earnings from continuing operations
|
$
|
17,197
|
|
$
|
20,177
|
|
Net earnings from continuing operations per diluted share
|
$
|
1.03
|
|
$
|
1.21
|
|
The lower net earnings from continuing operations per diluted share in the
First Quarter of Fiscal 2017
was primarily due to lower operating income and the higher effective tax rate in the
First Quarter of Fiscal 2017
. The higher effective tax rate was primarily due to the unfavorable tax impact of certain stock awards that vested during the
First Quarter of Fiscal 2017
while the
First Quarter of Fiscal 2016
was favorably impacted by the utilization of certain foreign operating loss carryforward amounts and the additional tax benefit of certain stock awards that vested during the
First Quarter of Fiscal 2016
. The lower operating income in the
First Quarter of Fiscal 2017
was due to the lower operating income in Lilly Pulitzer and Lanier Apparel as well as lower operating results in Corporate and Other. These items were partially offset by increased operating income in Tommy Bahama and in Southern Tide, which was not owned for the full quarter in the prior year.
COMPARABLE STORE SALES
We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include net sales from full-price retail stores and e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both our full-price retail stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channel. For our comparable store sales disclosures, we exclude (1) outlet store sales, warehouse sales and e-commerce flash clearance sales, as those clearance sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales, and (2) restaurant sales, as we do not currently believe that the inclusion of restaurant sales is meaningful in assessing our consolidated results of operations. Comparable store sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, we consider a comparable store to be, in addition to our e-commerce sites, a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel resulting in the store being closed for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space, (3) a relocation to a new space that was significantly different from the prior retail space, or (4) a closing or opening of a Tommy Bahama restaurant adjacent to the full-price retail store. For those stores which are excluded from comparable stores based on the preceding sentence, the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel, relocation or restaurant closing or opening. A store that is remodeled generally will continue to be included in our comparable store sales metrics as a store is not typically closed for a two week period during a remodel; however, in some cases a store may be closed for more than two weeks during a remodel. A store that is relocated generally will not be included in our comparable store sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location. Additionally, any stores that were closed during the prior fiscal year or current fiscal year, or which we expect to close or vacate in the current fiscal year, are excluded from the definition of comparable store sales.
Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies.
RESULTS OF OPERATIONS
FIRST
QUARTER OF FISCAL
2017
COMPARED TO
FIRST
QUARTER OF FISCAL
2016
The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
272,363
|
|
100.0
|
%
|
$
|
256,235
|
|
100.0
|
%
|
$
|
16,128
|
|
6.3
|
%
|
Cost of goods sold
|
112,953
|
|
41.5
|
%
|
104,771
|
|
40.9
|
%
|
8,182
|
|
7.8
|
%
|
Gross profit
|
$
|
159,410
|
|
58.5
|
%
|
$
|
151,464
|
|
59.1
|
%
|
$
|
7,946
|
|
5.2
|
%
|
SG&A
|
133,191
|
|
48.9
|
%
|
123,498
|
|
48.2
|
%
|
9,693
|
|
7.8
|
%
|
Royalties and other operating income
|
3,740
|
|
1.4
|
%
|
4,040
|
|
1.6
|
%
|
(300
|
)
|
(7.4
|
)%
|
Operating income
|
$
|
29,959
|
|
11.0
|
%
|
$
|
32,006
|
|
12.5
|
%
|
$
|
(2,047
|
)
|
(6.4
|
)%
|
Interest expense, net
|
930
|
|
0.3
|
%
|
614
|
|
0.2
|
%
|
316
|
|
51.5
|
%
|
Income from continuing operations before income taxes
|
$
|
29,029
|
|
10.7
|
%
|
$
|
31,392
|
|
12.3
|
%
|
$
|
(2,363
|
)
|
(7.5
|
)%
|
Income taxes
|
11,832
|
|
4.3
|
%
|
11,215
|
|
4.4
|
%
|
617
|
|
5.5
|
%
|
Net income from continuing operations
|
$
|
17,197
|
|
6.3
|
%
|
$
|
20,177
|
|
7.9
|
%
|
$
|
(2,980
|
)
|
(14.8
|
)%
|
Earnings from discontinued operations, net of taxes
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
Net income
|
$
|
17,197
|
|
6.3
|
%
|
$
|
20,177
|
|
NM
|
|
$
|
(2,980
|
)
|
(14.8
|
)%
|
The discussion and tables below compare certain line items included in our statements of operations for the
First Quarter of Fiscal 2017
to the
First Quarter of Fiscal 2016
. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. Unless otherwise indicated, all references to assets, liabilities, revenues, expenses or other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group.
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Tommy Bahama
|
$
|
172,496
|
|
$
|
162,719
|
|
$
|
9,777
|
|
6.0
|
%
|
Lilly Pulitzer
|
63,343
|
|
64,734
|
|
(1,391
|
)
|
(2.1
|
)%
|
Lanier Apparel
|
23,356
|
|
26,611
|
|
(3,255
|
)
|
(12.2
|
)%
|
Southern Tide
|
12,642
|
|
1,425
|
|
11,217
|
|
NM
|
|
Corporate and Other
|
526
|
|
746
|
|
(220
|
)
|
NM
|
|
Total net sales
|
$
|
272,363
|
|
$
|
256,235
|
|
$
|
16,128
|
|
6.3
|
%
|
Consolidated net sales increased
$16.1 million
, or
6.3%
, in the
First Quarter of Fiscal 2017
compared to the
First Quarter of Fiscal 2016
. The increase in consolidated net sales was primarily driven by (1) the
$11.2 million
of incremental net sales for Southern Tide, which was acquired on April 19, 2016, (2) an incremental net sales increase of $5.6 million associated with the operation of additional full-price retail stores in Tommy Bahama and Lilly Pulitzer, (3) a $2.1 million increase in restaurant sales in Tommy Bahama and (4) a $1.7 million, or 2%, increase in comparable store sales to $104.8 million in the
First Quarter of Fiscal 2017
from $103.1 million in the
First Quarter of Fiscal 2016
. These increases were partially offset by a net $4.3
million aggregate decrease in wholesale sales, consisting of declines in our Lilly Pulitzer and Lanier Apparel businesses partially offset by increases in Tommy Bahama.
We believe that certain macroeconomic factors, including lower retail store traffic and the evolving impact of digital technology on consumer shopping habits, continue to impact the sales in each of our direct to consumer and wholesale businesses. The changes in net sales by operating group are discussed below.
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Full-price retail stores and outlets
|
38
|
%
|
39
|
%
|
E-commerce
|
13
|
%
|
12
|
%
|
Restaurant
|
8
|
%
|
8
|
%
|
Wholesale
|
41
|
%
|
41
|
%
|
Total
|
100
|
%
|
100
|
%
|
Tommy Bahama:
The Tommy Bahama net sales increase of
$9.8 million
, or
6.0%
, was primarily driven by (1) a $3.8 million, or 5%, increase in comparable store sales to $75.0 million in the
First Quarter of Fiscal 2017
from $71.2 million in the
First Quarter of Fiscal 2016
, (2) an incremental net sales increase of $2.1 million associated with the operation of additional full-price retail stores, (3) a $2.1 million increase in restaurant sales primarily resulting from increased sales at existing restaurants and (4) a $1.9 million increase in wholesale sales reflecting higher off-price wholesale sales and lower full-price wholesale sales. Tommy Bahama's direct to consumer sales benefited from a 132 page Spring 2017 catalog, which presented the wide breadth of Tommy Bahama products in one place, as well as increased sales from its semiannual Friends & Family event in the
First Quarter of Fiscal 2017
.
As of
April 29, 2017
, we operated 169 Tommy Bahama stores globally, consisting of 112 full-price retail stores, 17 restaurant-retail locations and 40 outlet stores. As of
April 30, 2016
, we operated 166 Tommy Bahama stores consisting of 109 full-price retail stores, 16 restaurant-retail locations and 41 outlet stores. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Full-price retail stores and outlets
|
46
|
%
|
47
|
%
|
E-commerce
|
12
|
%
|
11
|
%
|
Restaurant
|
14
|
%
|
13
|
%
|
Wholesale
|
28
|
%
|
29
|
%
|
Total
|
100
|
%
|
100
|
%
|
Lilly Pulitzer:
The Lilly Pulitzer net sales decrease of
$1.4 million
, or
2.1%
, was primarily a result of (1) a $2.7 million decrease in wholesale sales resulting from lower full-price wholesale sales and (2) a $2.1 million, or 7%, decrease in comparable store sales to $29.8 million in the
First Quarter of Fiscal 2017
compared to $31.9 million in the
First Quarter of Fiscal 2016
with negative retail comparable store sales offsetting positive e-commerce comparable store sales. These sales decreases were partially offset by an incremental net sales increase of $3.4 million associated with the operation of additional full-price retail stores. The lower wholesale sales were primarily a result of lower sales to department stores as Lilly Pulitzer continues to manage its exposure to department stores. The decreased comparable store sales reflect reduced levels of in-store markdown inventory, fewer items at entry price points and lower traffic in stores. As of
April 29, 2017
, we operated 41 Lilly Pulitzer retail stores, compared to 34 retail stores as of
April 30, 2016
. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Full-price retail stores
|
37
|
%
|
35
|
%
|
E-commerce
|
20
|
%
|
19
|
%
|
Wholesale
|
43
|
%
|
46
|
%
|
Total
|
100
|
%
|
100
|
%
|
Lanier Apparel:
The decrease in net sales for Lanier Apparel of
$3.3 million
, or
12.2%
, was due to lower sales in both the tailored clothing and sportswear businesses. The sales decrease resulted from lower sales in certain programs including reductions in volume and exits from various programs. These reductions in sales were partially offset by higher sales in other businesses.
Southern Tide:
The increase in net sales for Southern Tide in the
First Quarter of Fiscal 2017
was primarily due to the
First Quarter of Fiscal 2017
including a full quarter of operations, while the
First Quarter of Fiscal 2016
only included the operations from the date of acquisition on April 19, 2016 through April 30, 2016. During the
First Quarter of Fiscal 2017
, approximately 88% of Southern Tide's net sales were wholesale sales with the remainder being e-commerce sales. We estimate that Southern Tide's net sales for Fiscal 2017 will be in excess of $40 million, with approximately 80% of the sales consisting of wholesale sales and the remainder consisting of e-commerce sales on the Southern Tide website.
Corporate and Other:
Corporate and Other net sales primarily consist of the net sales of our Lyons, Georgia distribution center to third party warehouse customers as well as the impact of the elimination of any intercompany sales between our operating groups.
Gross Profit
The table below presents gross profit by operating group and in total for the
First Quarter of Fiscal 2017
and the
First Quarter of Fiscal 2016
as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Tommy Bahama
|
$
|
105,157
|
|
$
|
98,792
|
|
$
|
6,365
|
|
6.4
|
%
|
Lilly Pulitzer
|
42,137
|
|
42,675
|
|
(538
|
)
|
(1.3
|
)%
|
Lanier Apparel
|
7,013
|
|
8,590
|
|
(1,577
|
)
|
(18.4
|
)%
|
Southern Tide
|
6,497
|
|
569
|
|
5,928
|
|
NM
|
|
Corporate and Other
|
(1,394
|
)
|
838
|
|
(2,232
|
)
|
NM
|
|
Total gross profit
|
$
|
159,410
|
|
$
|
151,464
|
|
$
|
7,946
|
|
5.2
|
%
|
LIFO charge (credit) included in Corporate and Other
|
$
|
1,707
|
|
$
|
(294
|
)
|
|
|
|
|
Inventory step-up charge included in Southern Tide
|
$
|
—
|
|
$
|
153
|
|
|
|
The increase in consolidated gross profit was primarily due to higher net sales, as discussed above, partially offset by the unfavorable impact of LIFO accounting. Changes in gross margin by operating group are discussed below. The table below presents gross margin by operating group and in total for the
First Quarter of Fiscal 2017
and the
First Quarter of Fiscal 2016
.
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Tommy Bahama
|
61.0
|
%
|
60.7
|
%
|
Lilly Pulitzer
|
66.5
|
%
|
65.9
|
%
|
Lanier Apparel
|
30.0
|
%
|
32.3
|
%
|
Southern Tide
|
51.4
|
%
|
NM
|
|
Corporate and Other
|
NM
|
|
NM
|
|
Consolidated gross margin
|
58.5
|
%
|
59.1
|
%
|
On a consolidated basis, gross margin decreased in the
First Quarter of Fiscal 2017
, primarily as a result of the unfavorable impact of LIFO accounting in the
First Quarter of Fiscal 2017
. The improved gross margins in Tommy Bahama and Lilly Pulitzer were partially offset by the lower gross margin in Lanier Apparel.
Tommy Bahama:
The increase in gross margin for Tommy Bahama in the
First Quarter of Fiscal 2017
primarily resulted from a change in sales mix, as full-price direct to consumer sales represented a greater proportion of Tommy Bahama sales, as well as modest improvements in the full-price direct to consumer gross margin. These increases were partially offset by lower gross margins in the off-price direct to consumer and wholesale channels of distribution as Tommy Bahama continued to focus on liquidating prior season inventory.
Lilly Pulitzer:
The increase in gross margin for Lilly Pulitzer was primarily driven by a change in sales mix with full-price direct to consumer sales representing a greater proportion of Lilly Pulitzer sales.
Lanier Apparel:
The decrease in gross margin for Lanier Apparel for the
First Quarter of Fiscal 2017
resulted from lower gross margin across a number of programs including increased allowances for certain programs due to the higher promotional activity of certain customers in the challenging retail environment.
Southern Tide:
The increase in gross profit for Southern Tide in the
First Quarter of Fiscal 2017
was primarily due to the
First Quarter of Fiscal 2017
including a full quarter of operations, while the
First Quarter of Fiscal 2016
only included the operations from the date of acquisition on April 19, 2016 through April 30, 2016. The gross profit of Southern Tide for the
First Quarter of Fiscal 2016
included
$0.2 million
of incremental cost of goods sold associated with the step-up of inventory recognized at acquisition. All amounts related to the step-up of inventory were recognized during Fiscal 2016.
Corporate and Other:
The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of intercompany sales between our operating groups. The primary driver for the lower gross profit was the unfavorable impact of a
$1.7 million
LIFO accounting charge in the
First Quarter of Fiscal 2017
compared to a
$0.3 million
LIFO accounting credit in the
First Quarter of Fiscal 2016
.
SG&A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
SG&A
|
$
|
133,191
|
|
$
|
123,498
|
|
$
|
9,693
|
|
7.8
|
%
|
SG&A as % of net sales
|
48.9
|
%
|
48.2
|
%
|
|
|
|
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
|
$
|
370
|
|
$
|
370
|
|
|
|
Amortization of intangible assets included in Southern Tide
|
$
|
72
|
|
$
|
50
|
|
|
|
Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other
|
—
|
|
762
|
|
|
|
The increase in SG&A was primarily due to (1) $3.9 million of incremental SG&A in the
First Quarter of Fiscal 2017
associated with the Southern Tide business, (2) $3.0 million of incremental costs in the
First Quarter of Fiscal 2017
associated with additional retail stores, (3) a $2.2 million increase in incentive compensation, primarily resulting from improved Tommy Bahama results, and (4) a $2.0 million increase in brand advertising in Tommy Bahama, including the cost of the 132 page Spring 2017 catalog. These increases in SG&A were partially offset by the
First Quarter of Fiscal 2017
not including any transaction expenses associated with an acquisition after incurring
$0.8 million
of transaction expenses associated with the Southern Tide acquisition in the
First Quarter of Fiscal 2016
.
Royalties and other operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Royalties and other operating income
|
$
|
3,740
|
|
$
|
4,040
|
|
$
|
(300
|
)
|
(7.4
|
)%
|
Royalties and other operating income in the
First Quarter of Fiscal 2017
primarily reflects income received from third parties from the licensing of our Tommy Bahama, Lilly Pulitzer and Southern Tide brands. The
$0.3 million
decrease in royalties and other operating income resulted from decreased royalty income for both Tommy Bahama and Lilly Pulitzer.
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Tommy Bahama
|
$
|
16,038
|
|
$
|
13,318
|
|
$
|
2,720
|
|
20.4
|
%
|
Lilly Pulitzer
|
17,687
|
|
20,794
|
|
(3,107
|
)
|
(14.9
|
)%
|
Lanier Apparel
|
858
|
|
2,865
|
|
(2,007
|
)
|
(70.1
|
)%
|
Southern Tide
|
2,104
|
|
48
|
|
2,056
|
|
NM
|
|
Corporate and Other
|
(6,728
|
)
|
(5,019
|
)
|
(1,709
|
)
|
(34.1
|
)%
|
Total operating income
|
$
|
29,959
|
|
$
|
32,006
|
|
$
|
(2,047
|
)
|
(6.4
|
)%
|
LIFO charge (credit) included in Corporate and Other
|
$
|
1,707
|
|
$
|
(294
|
)
|
|
|
|
|
Inventory step-up charge included in Southern Tide
|
$
|
—
|
|
$
|
153
|
|
|
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
|
$
|
370
|
|
$
|
370
|
|
|
|
Amortization of intangible assets included in Southern Tide
|
$
|
72
|
|
$
|
50
|
|
|
|
|
|
Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other
|
—
|
|
762
|
|
|
|
The decrease in operating income in the
First Quarter of Fiscal 2017
was due to the lower operating income in Lilly Pulitzer and Lanier Apparel as well as lower operating results in Corporate and Other, primarily resulting from the unfavorable impact of LIFO accounting. These items were partially offset by increased operating income in Tommy Bahama and in Southern Tide, which was not owned for the full quarter in the prior year. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
172,496
|
|
$
|
162,719
|
|
$
|
9,777
|
|
6.0
|
%
|
Gross margin
|
61.0
|
%
|
60.7
|
%
|
|
|
|
|
Operating income
|
$
|
16,038
|
|
$
|
13,318
|
|
$
|
2,720
|
|
20.4
|
%
|
Operating income as % of net sales
|
9.3
|
%
|
8.2
|
%
|
|
|
|
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
|
$
|
370
|
|
$
|
370
|
|
|
|
The higher operating income for Tommy Bahama was primarily due to increased sales and higher gross margin, both as discussed above, partially offset by higher SG&A. The higher SG&A for the
First Quarter of Fiscal 2017
includes (1) $2.0 million of incremental brand advertising expense, (2) a $1.7 million increase in incentive compensation amounts and (3) $1.6 million of incremental SG&A associated with operating additional retail stores. These SG&A increases were partially offset by lower costs associated with certain wholesale sales and back-office operations.
Lilly Pulitzer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
63,343
|
|
$
|
64,734
|
|
$
|
(1,391
|
)
|
(2.1
|
)%
|
Gross margin
|
66.5
|
%
|
65.9
|
%
|
|
|
|
|
Operating income
|
$
|
17,687
|
|
$
|
20,794
|
|
$
|
(3,107
|
)
|
(14.9
|
)%
|
Operating income as % of net sales
|
27.9
|
%
|
32.1
|
%
|
|
|
|
|
The lower operating income in Lilly Pulitzer was primarily due to lower net sales and increased SG&A. The higher SG&A for the
First Quarter of Fiscal 2017
includes $1.4 million of incremental SG&A associated with the cost of operating additional retail stores and other increases in SG&A, including additional employee headcount to support the planned growth for the business.
Lanier Apparel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
23,356
|
|
$
|
26,611
|
|
$
|
(3,255
|
)
|
(12.2
|
)%
|
Gross margin
|
30.0
|
%
|
32.3
|
%
|
|
|
|
|
Operating income
|
$
|
858
|
|
$
|
2,865
|
|
$
|
(2,007
|
)
|
(70.1
|
)%
|
Operating income as % of net sales
|
3.7
|
%
|
10.8
|
%
|
|
|
|
|
The lower operating income for Lanier Apparel was primarily due to reduced sales and lower gross margin, both as discussed above, and higher SG&A. The SG&A increase primarily resulted from certain incremental infrastructure costs associated with the Strong Suit and Duck Head businesses, which were acquired in Fiscal 2016.
Southern Tide:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
12,642
|
|
$
|
1,425
|
|
$
|
11,217
|
|
NM
|
Gross margin
|
51.4
|
%
|
NM
|
|
|
|
|
Operating income
|
$
|
2,104
|
|
$
|
48
|
|
$
|
2,056
|
|
NM
|
Operating income as % of net sales
|
16.6
|
%
|
NM
|
|
|
|
Inventory step-up charge included in Southern Tide
|
$
|
—
|
|
$
|
153
|
|
|
|
Amortization of intangible assets included in Southern Tide
|
$
|
72
|
|
$
|
50
|
|
|
|
The increase in operating income for Southern Tide in the
First Quarter of Fiscal 2017
was primarily due to the
First Quarter of Fiscal 2017
including a full quarter of operations, while the
First Quarter of Fiscal 2016
only included the operations from the date of acquisition on April 19, 2016 through April 30, 2016.
Corporate and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Net sales
|
$
|
526
|
|
$
|
746
|
|
$
|
(220
|
)
|
NM
|
|
Operating loss
|
$
|
(6,728
|
)
|
$
|
(5,019
|
)
|
$
|
(1,709
|
)
|
(34.1
|
)%
|
LIFO charge (credit) included in Corporate and Other
|
$
|
1,707
|
|
$
|
(294
|
)
|
|
|
|
|
Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other
|
—
|
|
762
|
|
|
|
The lower operating results in Corporate and Other were primarily due to the net unfavorable impact of LIFO accounting and higher incentive compensation expense amounts partially offset by the
First Quarter of Fiscal 2017
not including any transaction expenses associated with an acquisition after incurring
$0.8 million
of transaction expenses associated with the Southern Tide acquisition in the
First Quarter of Fiscal 2016
.
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Interest expense, net
|
$
|
930
|
|
$
|
614
|
|
$
|
316
|
|
51.5
|
%
|
Interest expense for the
First Quarter of Fiscal 2017
increased from the prior year primarily due to higher average debt outstanding during the
First Quarter of Fiscal 2017
compared to the
First Quarter of Fiscal 2016
as well as higher interest rates in the
First Quarter of Fiscal 2017
. The higher average debt outstanding was primarily a result of borrowings used to fund the First Quarter of Fiscal 2016 acquisition of Southern Tide. Interest expense for the full year of Fiscal 2017 is expected to be $3.5 million.
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
$ Change
|
% Change
|
Income taxes
|
$
|
11,832
|
|
$
|
11,215
|
|
$
|
617
|
|
5.5
|
%
|
Effective tax rate
|
40.8
|
%
|
35.7
|
%
|
|
|
|
|
The effective tax rate for the
First Quarter of Fiscal 2017
was unfavorably impacted by certain stock awards that vested during the period which had a higher grant date fair value for accounting purposes than the vesting date fair value for tax deduction purposes, which increased income tax expense by $0.8 million. The effective tax rate for the
First Quarter of Fiscal 2016
was favorably impacted by the utilization of certain foreign operating loss carryforward amounts and the $0.3 million additional tax benefit of certain stock awards that vested during the
First Quarter of Fiscal 2016
. Our effective tax rate for the full year of Fiscal 2017 is expected to be approximately 39%.
Net earnings from continuing operations
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Net loss from continuing operations
|
$
|
17,197
|
|
$
|
20,177
|
|
Net loss from continuing operations per diluted share
|
$
|
1.03
|
|
$
|
1.21
|
|
Weighted average shares outstanding - diluted
|
16,695
|
|
16,617
|
|
The lower net earnings from continuing operations per diluted share in the
First Quarter of Fiscal 2017
was primarily due to lower operating income and the higher effective tax rate in the
First Quarter of Fiscal 2017
, as discussed above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer and Southern Tide lifestyle brands, other owned brands and licensed brands, as well as private label apparel products. Our primary uses of cash flow include the purchase of products in the operation of our business from third party contract manufacturers outside of the United States, as well as operating expenses including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, distribution costs, other general and administrative expenses and the payment of periodic interest payments related to our financing arrangements.
Additionally, we use cash for the funding of capital expenditures, dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay certain operating expenses. Thus, we require a certain amount of working capital to operate our business. If cash inflows are less than cash outflows, we have access to amounts under our U.S. Revolving Credit Agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities, and cash on hand.
As of
April 29, 2017
, we had
$6.6 million
of cash and cash equivalents on hand, with
$93.3 million
of borrowings outstanding and
$194.4 million
of availability under our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated future positive cash flow from operating activities provide us with sufficient cash flow to satisfy our ongoing cash requirements and ample opportunity to continue to invest in our brands and our direct to consumer initiatives.
Key Liquidity Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
April 29, 2017
|
January 28, 2017
|
April 30, 2016
|
January 30, 2016
|
Total current assets
|
$
|
236,982
|
|
$
|
231,628
|
|
$
|
255,550
|
|
$
|
216,796
|
|
Total current liabilities, including liabilities related to discontinued operations
|
$
|
119,309
|
|
$
|
131,396
|
|
$
|
109,370
|
|
$
|
128,899
|
|
Working capital
|
$
|
117,673
|
|
$
|
100,232
|
|
$
|
146,180
|
|
$
|
87,897
|
|
Working capital ratio
|
1.99
|
|
1.76
|
|
2.34
|
|
1.68
|
|
Debt to total capital ratio
|
19
|
%
|
20
|
%
|
30
|
%
|
12
|
%
|
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets decreased from
April 30, 2016
to
April 29, 2017
primarily due to a $16.6 million reduction in inventories. Current liabilities increased from
April 30, 2016
to
April 29, 2017
reflecting increases in various line items associated with ongoing operations as well as a $3.1 million increase in liabilities related to discontinued operations. Changes in current assets and current liabilities are discussed below.
For the ratio of debt to total capital, debt is defined as short-term and long-term debt, and total capital is defined as debt plus shareholders' equity. Debt was
$93.3 million
at
April 29, 2017
and
$152.9 million
at
April 30, 2016
, while shareholders’ equity was
$388.4 million
at
April 29, 2017
and
$352.4 million
at
April 30, 2016
. The decrease in debt since
April 30, 2016
was primarily due to
$130.5 million
of cash flow from operations which was partially offset by
$47.4 million
of capital expenditures and the payment of
$18.1 million
of dividends. Shareholders' equity
increased from
April 30, 2016
, primarily as a result of net earnings less dividends paid. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances from
April 30, 2016
to
April 29, 2017
.
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
January 28, 2017
|
April 30, 2016
|
January 30, 2016
|
Cash and cash equivalents
|
$
|
6,554
|
|
$
|
6,332
|
|
$
|
6,974
|
|
$
|
6,323
|
|
Receivables, net
|
79,042
|
|
58,279
|
|
81,493
|
|
59,065
|
|
Inventories, net
|
127,061
|
|
142,175
|
|
143,641
|
|
129,136
|
|
Prepaid expenses
|
24,325
|
|
24,842
|
|
23,442
|
|
22,272
|
|
Total current assets
|
$
|
236,982
|
|
$
|
231,628
|
|
$
|
255,550
|
|
$
|
216,796
|
|
Cash and cash equivalents as of
April 29, 2017
and
April 30, 2016
represent typical cash amounts maintained on an ongoing basis in our operations, which generally ranges from $5 million to $10 million at any given time. Any excess cash is generally used to repay amounts outstanding under our U.S. Revolving Credit Agreement. The decrease in receivables, net as of
April 29, 2017
was primarily due to lower wholesale sales in Lanier Apparel and Lilly Pulitzer during the First Quarter of Fiscal 2017.
Inventories, net as of
April 29, 2017
decreased from
April 30, 2016
as a result of lower inventory levels in Tommy Bahama, Lanier Apparel and Southern Tide partially offset by higher inventory levels in Corporate and Other and Lilly Pulitzer. Tommy Bahama's inventory decreased primarily due to Tommy Bahama's focus on managing inventory buys, sale of a greater amount of prior season inventory units through outlet stores and off-price wholesale channels, and certain inventory markdowns recognized in the Fourth Quarter of Fiscal 2016. The reduced inventory in Lanier Apparel represents a lower inventory level than the prior year due to the timing of receipt of inventory in transit, the transition from certain programs to new programs and the exit from certain replenishment programs. Southern Tide's inventory decreased primarily due to the prior year including a $3 million inventory step-up from cost to fair value at acquisition which was recognized in cost of goods sold during Fiscal 2016. The increase in inventory in Corporate and Other was primarily due to the impact of LIFO accounting including the reversal of inventory markdowns. We believe that inventory levels in each operating group are appropriate to support the anticipated sales for the Second Quarter of Fiscal 2017.
Non-current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
January 28, 2017
|
April 30, 2016
|
January 30, 2016
|
Property and equipment, net
|
$
|
192,734
|
|
$
|
193,931
|
|
$
|
185,971
|
|
$
|
184,094
|
|
Intangible assets, net
|
174,603
|
|
175,245
|
|
185,416
|
|
143,738
|
|
Goodwill
|
60,002
|
|
60,015
|
|
50,058
|
|
17,223
|
|
Other non-current assets, net
|
24,258
|
|
24,340
|
|
21,800
|
|
20,839
|
|
Total non-current assets
|
$
|
451,597
|
|
$
|
453,531
|
|
$
|
443,245
|
|
$
|
365,894
|
|
Property and equipment, net as of
April 29, 2017
increased from
April 30, 2016
primarily as a result of capital expenditures in the twelve months ended
April 29, 2017
partially offset by depreciation expense during the same period. The decrease in intangible assets, net and the increase in goodwill at
April 29, 2017
were primarily due to the consolidated balance sheet as of
April 30, 2016
including provisional amounts related to the First Quarter of Fiscal 2016 acquisition of Southern Tide, which were finalized in the Fourth Quarter of Fiscal 2016 as disclosed in Note 12 to our consolidated financial statements contained in our Annual Report on Form 10-K for Fiscal
2016
. The increase in other non-current assets, net as of
April 29, 2017
was primarily due to an increase in asset balances set aside for potential deferred compensation plan obligations and deferred financing costs paid in Fiscal 2016.
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2017
|
January 28, 2017
|
April 30, 2016
|
January 30, 2016
|
Total current liabilities
|
$
|
119,309
|
|
$
|
131,396
|
|
$
|
109,370
|
|
$
|
128,899
|
|
Long-term debt
|
93,289
|
|
91,509
|
|
152,905
|
|
43,975
|
|
Other non-current liabilities
|
69,370
|
|
70,002
|
|
67,551
|
|
67,188
|
|
Deferred taxes
|
16,183
|
|
13,578
|
|
12,323
|
|
3,657
|
|
Non-current liabilities related to discontinued operations
|
2,022
|
|
2,544
|
|
4,278
|
|
4,571
|
|
Total liabilities
|
$
|
300,173
|
|
$
|
309,029
|
|
$
|
346,427
|
|
$
|
248,290
|
|
Current liabilities as of
April 29, 2017
increased compared to
April 30, 2016
due to (1) a $3.7 million increase in other accrued expenses and liabilities reflecting increases in various deferred revenue and accrued expense amounts, (2) a $3.1 million increase in liabilities related to discontinued operations as all amounts recognized were classified in non-current liabilities in the prior year, (3) a $1.6 million increase in accrued compensation primarily reflecting higher accrued bonus amounts in Tommy Bahama and (4) a $1.5 million increase in accounts payable. The decrease in debt since
April 30, 2016
was primarily due to
$130.5 million
of cash flow from operations which was partially offset by
$47.4 million
of capital expenditures and the payment of
$18.1 million
of dividends. Other non-current liabilities increased as of
April 29, 2017
compared to
April 30, 2016
primarily due to increases in deferred rent liabilities, including tenant improvement allowances from landlords. The increase in deferred taxes was primarily due to timing differences associated with depreciation and amortization recognized for tax and book purposes partially offset by a Fourth Quarter Fiscal 2016 reduction of $2 million of the provisional deferred tax amount associated with the Southern Tide acquisition.
Non-current liabilities related to discontinued operations as of
April 29, 2017
decreased primarily as a result of certain amounts as of
April 29, 2017
classified as current liabilities related to discontinued operations rather than non-current liabilities related to discontinued operations, which was partially offset by an increase in total liabilities related to discontinued operations recognized in the Fourth Quarter of Fiscal 2016. The aggregate amount included in current and non-current liabilities related to discontinued operations represents our best estimate of the future net loss anticipated with respect to certain retained lease obligations; however, the ultimate loss to be recognized remains uncertain as the amount of any sub-lease income is dependent upon a variety of factors including anticipated future sublease income and market rental amounts.
Statement of Cash Flows
The following table sets forth the net cash flows, including continuing and discontinued operations, for the
First Quarter of Fiscal 2017
and
First Quarter of Fiscal 2016
(in thousands):
|
|
|
|
|
|
|
|
|
First Quarter Fiscal 2017
|
First Quarter Fiscal 2016
|
Cash provided by operating activities
|
$
|
13,611
|
|
$
|
1,697
|
|
Cash used in investing activities
|
(8,770
|
)
|
(104,483
|
)
|
Cash (used in) provided by financing activities
|
(4,592
|
)
|
103,165
|
|
Net change in cash and cash equivalents
|
$
|
249
|
|
$
|
379
|
|
Cash and cash equivalents on hand were
$6.6 million
and
$7.0 million
at
April 29, 2017
and
April 30, 2016
, respectively. Changes in cash flows in the
First Quarter of Fiscal 2017
and the
First Quarter of Fiscal 2016
related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In the
First Quarter of Fiscal 2017
and
First Quarter of Fiscal 2016
, operating activities provided
$13.6 million
and
$1.7 million
of cash, respectively. The cash flow from operating activities was primarily the result of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization and equity-based compensation as well as the net impact of changes in deferred taxes and our working capital accounts. As a result of the seasonality of our business, working capital account changes had an unfavorable impact on cash flow from operations in both the
First Quarter of Fiscal 2017
and the
First Quarter of Fiscal 2016
. In the
First Quarter of Fiscal 2017
, the more significant changes in working capital accounts were an increase in receivables, net and a decrease in current liabilities, each of which decreased cash flow from operations, which were partially offset by a decrease in inventories which increased cash flow from operations. During the
First Quarter of Fiscal 2016
, the more significant changes in working capital accounts were a decrease in current liabilities and an increase in receivables, net each of which decreased cash flow from operations.
Investing Activities:
During the
First Quarter of Fiscal 2017
, investing activities used
$8.8 million
of cash, while in the
First Quarter of Fiscal 2016
, investing activities used
$104.5 million
of cash. In the
First Quarter of Fiscal 2017
, we paid
$8.5 million
for capital expenditures compared to
$10.6 million
in the
First Quarter of Fiscal 2016
. During the
First Quarter of Fiscal 2016
we paid
$91.9 million
for the acquisition of Southern Tide and
$2.0 million
for the final working capital settlement associated with our Ben Sherman discontinued operations.
Financing Activities:
During the
First Quarter of Fiscal 2017
, financing activities used
$4.6 million
of cash while in the
First Quarter of Fiscal 2016
financing activities provided
$103.2 million
of cash. In the
First Quarter of Fiscal 2017
, we increased debt primarily for the purpose of funding our capital expenditures, payment of dividends and payment of employee taxes associated with the vesting of certain restricted share awards, which in the aggregate exceeded our cash flow from operations. During the
First Quarter of Fiscal 2016
, we increased debt primarily for the purpose of purchasing the Southern Tide business, funding our capital expenditures, payment of dividends and the payment of employee taxes associated with the vesting of certain restricted share awards, which in the aggregate exceeded our cash flow from operations. During the
First Quarter of Fiscal 2017
and the
First Quarter of Fiscal 2016
, we paid
$4.6 million
and
$4.5 million
of dividends, respectively.
We anticipate that cash flow provided by or used in financing activities in the future will be dependent upon whether our cash flow from operating activities exceeds our capital expenditures, dividend payments and any other investing or financing activities. Generally, we anticipate that excess cash, if any, will be used to repay debt on our U.S. Revolving Credit Agreement.
Liquidity and Capital Resources
We had
$93.3 million
outstanding as of
April 29, 2017
under our $325 million Fourth Amended and Restated Credit Agreement ("U.S. Revolving Credit Agreement") compared to
$152.9 million
of borrowings outstanding as of
April 30, 2016
under our Third Amended and Restated Credit Agreement ("Prior Credit Agreement"). On May 24, 2016, the U.S. Revolving Credit Agreement amended and restated the Prior Credit Agreement to (i) increase the borrowing capacity of the facility, (ii) extend the maturity of the facility and (iii) modify certain other provisions and restrictions of the Prior Credit Agreement. The U.S. Revolving Credit Agreement generally (i) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (ii) accrues variable-rate interest (weighted average borrowing rate of 2.5% as of
April 29, 2017
), unused line fees and letter of credit fees based upon average unused availability or utilization, (iii) requires periodic interest payments with principal due at maturity (May 2021) and (iv) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and substantially all of its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
To the extent cash flow needs exceed cash flow provided by our operations we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any. Our credit facility is also used to finance trade letters of credit for product purchases, which reduce the amounts available under our line of credit when issued. As of
April 29, 2017
,
$4.5 million
of letters of credit were outstanding against our U.S. Revolving Credit Agreement. After considering these limitations and the amount of eligible assets in our borrowing base, as applicable, as of
April 29, 2017
, we had
$194.4 million
in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
Covenants and Other Restrictions:
The U.S. Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the U.S. Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (i) incur debt, (ii) guaranty certain obligations, (iii) incur liens, (iv) pay dividends to shareholders, (v) repurchase shares of our common stock, (vi) make investments, (vii) sell assets or stock of subsidiaries, (viii) acquire assets or businesses, (ix) merge or consolidate with other companies or (x) prepay, retire, repurchase or redeem debt.
Additionally, the U.S. Revolving Credit Agreement contains a financial covenant that applies if excess availability under the agreement for three consecutive days is less than the greater of (i) $23.5 million or (ii) 10% of availability. In such case, our fixed charge coverage ratio as defined in the U.S. Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the U.S. Revolving Credit Agreement of more than the greater of (i) $23.5 million or (ii) 10% of availability for 30 consecutive days.
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the U.S. Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we entered into the U.S. Revolving Credit Agreement. During the
First Quarter of Fiscal 2017
and as of
April 29, 2017
, no financial covenant testing was required pursuant to our U.S. Revolving Credit Agreement as the minimum availability threshold was met at all times. As of
April 29, 2017
, we were compliant with all covenants related to the U.S. Revolving Credit Agreement.
Other Liquidity Items:
We anticipate that we will be able to satisfy our ongoing cash requirements, which generally consist of working capital and other operating activity needs, capital expenditures, interest payments on our debt and dividends, if any, primarily from positive cash flow from operations supplemented by borrowings under our U.S. Revolving Credit Agreement. Our need for working capital is typically seasonal with the greatest requirements generally in the fall and spring of each year. Our capital needs will depend on many factors including our growth rate, the need to finance inventory levels and the success of our various products. We anticipate that at the maturity of the U.S. Revolving Credit Agreement or as otherwise deemed appropriate, we will be able to refinance the facility or obtain other financing on terms available in the market at that time. The terms of any future financing arrangements may not be as favorable as the terms of the current agreement or current market terms.
We have paid dividends in each quarter since we became a public company in July 1960. However, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our U.S. Revolving Credit Agreement, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends in the short term based on our expectation of operating cash flows in future periods subject to the terms and conditions of the U.S. Revolving Credit Agreement, other debt instruments and applicable law. All cash flow from operations will not be paid out as dividends in all periods. For details about limitations on our ability to pay dividends, see the discussion of the U.S. Revolving Credit Agreement above.
Our contractual obligations as of
April 29, 2017
have not changed materially from the contractual obligations outstanding at
January 28, 2017
, as disclosed in our Annual Report on Form 10-K for Fiscal
2016
filed with the SEC, other than changes in amounts outstanding under our U.S. Revolving Credit Agreement as discussed above.
Our anticipated capital expenditures for Fiscal
2017
, including the
$8.5 million
incurred in the
First Quarter of Fiscal 2017
, are expected to be approximately $50 million to $55 million compared to $49.4 million in Fiscal
2016
. These expenditures are expected to consist primarily of costs associated with information technology initiatives, including e-commerce capabilities, opening, relocating or remodeling retail stores and restaurants and facility enhancements. Our capital expenditure amounts in future years may increase or decrease from the amounts incurred in prior years or the amount expected for Fiscal 2017 depending on the information technology initiatives, retail store and restaurant openings, relocations and remodels and other infrastructure requirements to support future expansion of our businesses.
Off Balance Sheet Arrangements
We have not entered into agreements which meet the SEC’s definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments to or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP in a consistent manner. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of GAAP requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including those discussed below. We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that we have appropriately applied our critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies, our consolidated statements of operations could be misstated.
Our critical accounting policies and estimates are discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for Fiscal
2016
. There have not been any significant changes to the application of our critical accounting policies and estimates during the
First Quarter of Fiscal 2017
.
Additionally, a detailed summary of significant accounting policies is included in Note 1 to our consolidated financial statements contained in our Annual Report on Form 10-K for Fiscal
2016
.
SEASONAL ASPECTS OF OUR BUSINESS
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. For details of the impact of seasonality on each of our operating groups see the business discussion for each operating group discussed in Part I, Item 1, Business in our Annual Report on Form 10-K for Fiscal
2016
. As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, weather or other factors affecting the business may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales and operating income for Fiscal
2016
are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. Our third quarter has historically been our smallest net sales and operating income quarter and that result is expected to continue as we continue the expansion of our direct to consumer operations in the future. The following table presents our percentage of net sales and operating income from continuing operations by quarter for Fiscal
2016
:
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Net sales
|
25
|
%
|
28
|
%
|
22
|
%
|
25
|
%
|
Operating income (loss)
|
36
|
%
|
43
|
%
|
—
|
%
|
21
|
%
|