PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,524
|
|
|
$
|
30,695
|
|
Investments, at fair value
|
|
|
25,596
|
|
|
|
10,921
|
|
Accounts receivable, net
|
|
|
133,843
|
|
|
|
140,240
|
|
Inventories
|
|
|
129,293
|
|
|
|
151,251
|
|
Prepaid income taxes
|
|
|
|
|
|
|
1,647
|
|
Prepaid expenses and other current assets
|
|
|
5,718
|
|
|
|
6,462
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
320,974
|
|
|
|
341,216
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
57,511
|
|
|
|
61,835
|
|
Other intangible assets, net
|
|
|
186,425
|
|
|
|
187,051
|
|
Deferred income tax
|
|
|
446
|
|
|
|
334
|
|
Other assets
|
|
|
1,942
|
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
567,298
|
|
|
$
|
592,705
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,440
|
|
|
$
|
92,843
|
|
Accrued expenses and other liabilities
|
|
|
34,563
|
|
|
|
20,861
|
|
Accrued interest payable
|
|
|
400
|
|
|
|
1,450
|
|
Accrued income taxes payable
|
|
|
1,055
|
|
|
|
|
|
Unearned revenues
|
|
|
2,591
|
|
|
|
2,710
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
90,049
|
|
|
|
117,864
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated notes payable, net
|
|
|
49,780
|
|
|
|
49,673
|
|
Senior credit facility
|
|
|
7,917
|
|
|
|
22,504
|
|
Real estate mortgages
|
|
|
32,937
|
|
|
|
33,591
|
|
Other long-term liabilities
|
|
|
15,327
|
|
|
|
18,271
|
|
Deferred income taxes
|
|
|
36,759
|
|
|
|
37,115
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
142,720
|
|
|
|
161,154
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
232,769
|
|
|
|
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; 15,688,189 shares issued and
outstanding as of October 28, 2017 and 15,530,273 shares issued and outstanding as of January 28, 2017
|
|
|
157
|
|
|
|
155
|
|
Additional
paid-in-capital
|
|
|
150,173
|
|
|
|
147,300
|
|
Retained earnings
|
|
|
193,292
|
|
|
|
176,327
|
|
Accumulated other comprehensive loss
|
|
|
(9,093
|
)
|
|
|
(10,095
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
334,529
|
|
|
|
313,687
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
567,298
|
|
|
$
|
592,705
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
1
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
190,389
|
|
|
$
|
185,298
|
|
|
$
|
622,606
|
|
|
$
|
629,514
|
|
Royalty income
|
|
|
8,449
|
|
|
|
8,661
|
|
|
|
24,931
|
|
|
|
27,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
198,838
|
|
|
|
193,959
|
|
|
|
647,537
|
|
|
|
656,906
|
|
Cost of sales
|
|
|
124,760
|
|
|
|
122,856
|
|
|
|
405,891
|
|
|
|
416,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
74,078
|
|
|
|
71,103
|
|
|
|
241,646
|
|
|
|
240,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
65,172
|
|
|
|
72,846
|
|
|
|
204,783
|
|
|
|
215,434
|
|
Depreciation and amortization
|
|
|
3,586
|
|
|
|
3,534
|
|
|
|
10,550
|
|
|
|
10,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
68,758
|
|
|
|
76,380
|
|
|
|
215,333
|
|
|
|
226,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,320
|
|
|
|
(5,277
|
)
|
|
|
26,313
|
|
|
|
13,867
|
|
Interest expense
|
|
|
1,613
|
|
|
|
1,738
|
|
|
|
5,438
|
|
|
|
5,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
3,707
|
|
|
|
(7,015
|
)
|
|
|
20,875
|
|
|
|
8,215
|
|
Income tax provision (benefit)
|
|
|
492
|
|
|
|
(1,850
|
)
|
|
|
3,910
|
|
|
|
2,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,215
|
|
|
$
|
(5,165
|
)
|
|
$
|
16,965
|
|
|
$
|
5,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.21
|
|
|
$
|
(0.34
|
)
|
|
$
|
1.13
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.21
|
|
|
$
|
(0.34
|
)
|
|
$
|
1.11
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,115
|
|
|
|
14,991
|
|
|
|
15,066
|
|
|
|
14,920
|
|
Diluted
|
|
|
15,413
|
|
|
|
14,991
|
|
|
|
15,335
|
|
|
|
15,169
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
2
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(amounts in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
Net income (loss)
|
|
$
|
3,215
|
|
|
$
|
(5,165
|
)
|
|
$
|
16,965
|
|
|
$
|
5,520
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
|
|
(276
|
)
|
|
|
(2,342
|
)
|
|
|
1,276
|
|
|
|
(3,772
|
)
|
Unrealized gain on pension liability, net of tax
|
|
|
|
|
|
|
8,142
|
|
|
|
|
|
|
|
8,452
|
|
Unrealized gain (loss) on forward contract
|
|
|
47
|
|
|
|
255
|
|
|
|
(357
|
)
|
|
|
255
|
|
Unrealized gain (loss) on investments
|
|
|
5
|
|
|
|
(10
|
)
|
|
|
5
|
|
|
|
7
|
|
Reclassification adjustment, net of tax
|
|
|
86
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income
|
|
|
(138
|
)
|
|
|
6,045
|
|
|
|
1,002
|
|
|
|
4,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
3,077
|
|
|
$
|
880
|
|
|
$
|
17,967
|
|
|
$
|
10,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
3
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,965
|
|
|
$
|
5,520
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,793
|
|
|
|
11,013
|
|
Provision for bad debts
|
|
|
1,794
|
|
|
|
680
|
|
Amortization of debt issue cost
|
|
|
303
|
|
|
|
309
|
|
Amortization of premiums and discounts
|
|
|
78
|
|
|
|
42
|
|
Amortization of unrealized loss on pension liability
|
|
|
|
|
|
|
465
|
|
Pension settlement charge
|
|
|
|
|
|
|
8,300
|
|
Deferred income taxes
|
|
|
(468
|
)
|
|
|
1,221
|
|
Share-based compensation
|
|
|
4,768
|
|
|
|
5,104
|
|
Changes in operating assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
5,485
|
|
|
|
506
|
|
Inventories
|
|
|
22,959
|
|
|
|
69,012
|
|
Prepaid income taxes
|
|
|
1,684
|
|
|
|
17
|
|
Prepaid expenses and other current assets
|
|
|
792
|
|
|
|
402
|
|
Other assets
|
|
|
(118
|
)
|
|
|
121
|
|
Deferred pension obligation
|
|
|
|
|
|
|
(5,516
|
)
|
Accounts payable and accrued expenses
|
|
|
(28,675
|
)
|
|
|
(61,656
|
)
|
Accrued interest payable
|
|
|
(1,050
|
)
|
|
|
(993
|
)
|
Income taxes payable
|
|
|
1,043
|
|
|
|
|
|
Unearned revenues and other liabilities
|
|
|
(2,998
|
)
|
|
|
3,640
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
33,355
|
|
|
|
38,187
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5,571
|
)
|
|
|
(9,334
|
)
|
Purchases of investments
|
|
|
(36,972
|
)
|
|
|
(12,467
|
)
|
Proceeds from investment maturities
|
|
|
22,246
|
|
|
|
9,341
|
|
Proceeds from note receivable
|
|
|
250
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,047
|
)
|
|
|
(12,210
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings from senior credit facility
|
|
|
201,888
|
|
|
|
250,012
|
|
Payments on senior credit facility
|
|
|
(216,475
|
)
|
|
|
(273,933
|
)
|
Purchase of treasury stock
|
|
|
(937
|
)
|
|
|
(2,151
|
)
|
Payments for employee taxes on shares withheld
|
|
|
(980
|
)
|
|
|
(946
|
)
|
Payments on real estate mortgages
|
|
|
(650
|
)
|
|
|
(634
|
)
|
Payments on capital leases
|
|
|
(212
|
)
|
|
|
(196
|
)
|
Proceeds from exercise of stock options
|
|
|
24
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(17,342
|
)
|
|
|
(27,843
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(137
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(4,171
|
)
|
|
|
(2,078
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
30,695
|
|
|
|
31,902
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
26,524
|
|
|
$
|
29,824
|
|
|
|
|
|
|
|
|
|
|
Continued
4
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,107
|
|
|
$
|
6,294
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,133
|
|
|
$
|
904
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
FINANCING AND INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment
|
|
$
|
173
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
5
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 Companys 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 in the opinion of management
are 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 Company has begun its initial assessment of the guidance. While the Company has not completed its evaluation, it expects that the adoption of this ASU will not have a material impact on the
Companys results of operations or the Companys 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 Companys results of operations or the Companys 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.
6
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 FASBs 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 tax benefits and tax deficiencies as
income tax expense or benefit as a discrete item. Given the Companys 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 Companys valuation allowance position. The effect on the condensed consolidating statement of cash flows for the six months ended
July 30, 2016, as a result of this adoption, was an increase of approximately $0.9 million in cash provided by operating activities, with a corresponding increase of approximately $0.9 million in cash used in financing activities from
the previously reported amounts.
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 FASBs new revenue standard, ASU
2014-09,
Revenue from Contracts with Customers,
specifically the standards 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
guidances 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 Companys results of
operations or the Companys 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 guidances 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 Companys results of operations or the Companys 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.
7
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 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.
In May 2017, the FASB issued ASU
No. 2017-09,
Compensation Stock Compensation (Topic718): Scope of Modification Accounting
, which amends the scope of modification accounting for share-based payment arrangements. This update provides guidance on the types of changes to
the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The guidance is
required to be applied prospectively to an award modified on or after the adoption date. The Company will apply this guidance to any future changes made to the terms or conditions, of share-based payment awards, after adoption. The adoption of this
ASU is not expected to have a material impact on the Companys results of operations or the Companys financial position.
In
July 2017, the FASB issued ASU
No. 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with
a Scope Exception,
which is intended to reduce the complexity of accounting for certain financial instruments with down round features and address the difficulty of accounting for certain financial instruments with characteristics of
liabilities and equity. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period.
The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In August 2017,
the FASB issued ASU
No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,
which simplifies the application of hedge accounting
guidance to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and
includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
8
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Trade accounts
|
|
$
|
145,547
|
|
|
$
|
151,370
|
|
Royalties
|
|
|
6,509
|
|
|
|
6,659
|
|
Other receivables
|
|
|
1,181
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
153,237
|
|
|
|
158,741
|
|
Less: allowances
|
|
|
(19,394
|
)
|
|
|
(18,501
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,843
|
|
|
$
|
140,240
|
|
|
|
|
|
|
|
|
|
|
4. INVENTORIES
Inventories are stated at the lower of cost (weighted moving average cost) or net realizable value. Cost principally consists of the purchase
price, customs, duties, freight, and commissions to buying agents.
Inventories consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
129,293
|
|
|
$
|
151,251
|
|
5. INVESTMENTS
The Companys investments at October 28, 2017 and January 28, 2017 include marketable securities and certificates of deposit
with maturity dates of less than one year. Marketable securities consist of corporate and government bonds. 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 October 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Estimated
Fair Value
|
|
|
|
(in thousands)
|
|
Marketable securities
|
|
$
|
16,907
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
16,899
|
|
Certificates of deposit
|
|
|
8,696
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
8,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
25,603
|
|
|
$
|
2
|
|
|
$
|
(9
|
)
|
|
$
|
25,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
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:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Furniture, fixtures and equipment
|
|
$
|
95,534
|
|
|
$
|
91,639
|
|
Buildings and building improvements
|
|
|
21,882
|
|
|
|
21,359
|
|
Vehicles
|
|
|
537
|
|
|
|
523
|
|
Leasehold improvements
|
|
|
47,633
|
|
|
|
48,799
|
|
Land
|
|
|
9,430
|
|
|
|
9,430
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
175,016
|
|
|
|
171,750
|
|
Less: accumulated depreciation and amortization
|
|
|
(117,505
|
)
|
|
|
(109,915
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,511
|
|
|
$
|
61,835
|
|
|
|
|
|
|
|
|
|
|
The above table of property and equipment includes assets held under capital leases as of:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Furniture, fixtures and equipment
|
|
$
|
810
|
|
|
$
|
810
|
|
Less: accumulated depreciation and amortization
|
|
|
(655
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 28, 2017 and October 29, 2016, depreciation and amortization
expense relating to property and equipment amounted to $3.5 million. For the nine months ended October 28, 2017 and October 29, 2016, depreciation and amortization expense relating to property and equipment amounted to
$10.2 million and $10.4 million, respectively. 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 October 28,
2017 and January 28, 2017.
Other
Other intangible assets represent as of:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Customer lists
|
|
$
|
8,450
|
|
|
$
|
8,450
|
|
Less: accumulated amortization
|
|
|
(6,171
|
)
|
|
|
(5,545
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,279
|
|
|
$
|
2,905
|
|
|
|
|
|
|
|
|
|
|
10
For the three months ended October 28, 2017 and October 29, 2016, amortization expense
relating to customer lists amounted to $0.2 million and $0.3 million, respectively. For the nine months ended October 28, 2017 and October 29, 2016, amortization expense relating to customer lists amounted to $0.6 million
and $0.7 million, respectively. Other intangible assets are amortized over their estimated useful lives of 10 years. Assuming no impairment, the following 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:
|
|
|
|
|
|
|
|
|
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
(in thousands)
|
|
Total letter of credit facilities
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Outstanding letters of credit
|
|
|
(10,568
|
)
|
|
|
(10,788
|
)
|
|
|
|
|
|
|
|
|
|
Total credit available
|
|
$
|
19,432
|
|
|
$
|
19,212
|
|
|
|
|
|
|
|
|
|
|
9. ADVERTISING AND RELATED COSTS
The Companys accounting policy relating to advertising and related costs is to expense these costs in the period incurred. Advertising
and related costs were approximately $4.2 million for the three months ended October 28, 2017 and October 29, 2016 and $12.0 million and $12.2 million for the nine months ended October 28, 2017 and October 29,
2016, respectively, and are included in selling, general and administrative expenses.
10. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares of outstanding common stock. The
calculation of diluted net income (loss) 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 Companys computation of
diluted net income (loss) per share includes the effects of stock options, stock appreciation rights (SARS), and unvested restricted shares as determined using the treasury stock method.
11
The following table sets forth the computation of basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
(in thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,215
|
|
|
$
|
(5,165
|
)
|
|
$
|
16,965
|
|
|
$
|
5,520
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-weighted average shares
|
|
|
15,115
|
|
|
|
14,991
|
|
|
|
15,066
|
|
|
|
14,920
|
|
Dilutive effect: equity awards
|
|
|
298
|
|
|
|
|
|
|
|
269
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-weighted average shares
|
|
|
15,413
|
|
|
|
14,991
|
|
|
|
15,335
|
|
|
|
15,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.21
|
|
|
$
|
(0.34
|
)
|
|
$
|
1.13
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.21
|
|
|
$
|
(0.34
|
)
|
|
$
|
1.11
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive effect:
(1)
|
|
|
165
|
|
|
|
1,015
|
|
|
|
265
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 (loss)
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 28, 2017
|
|
$
|
313,687
|
|
Comprehensive income
|
|
|
17,967
|
|
Share transactions under employee equity compensation plans
|
|
|
3,812
|
|
Purchase of treasury stock
|
|
|
(937
|
)
|
|
|
|
|
|
Equity at October 28, 2017
|
|
$
|
334,529
|
|
|
|
|
|
|
Equity at January 30, 2016
|
|
$
|
291,481
|
|
Comprehensive income
|
|
|
10,462
|
|
Share transactions under employee equity compensation plans
|
|
|
4,163
|
|
Purchase of treasury stock
|
|
|
(2,151
|
)
|
|
|
|
|
|
Equity at October 29, 2016
|
|
$
|
303,955
|
|
|
|
|
|
|
12
The Board of Directors has authorized the Company 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, 2018. Although The Board of Directors allocated a maximum of $70 million to
carry out the program, the Company is not obligated to purchase any specific number of outstanding shares and reevaluates the program on an ongoing basis.
During the second quarter of fiscal 2018, the Company repurchased 50,000 shares of common stock at a cost of $0.9 million. During the
third quarter of fiscal 2018, the Company retired the 50,000 shares of treasury stock recorded at a cost of approximately $0.9 million. Accordingly, during the third quarter of fiscal 2018, the Company reduced additional paid in capital by
$0.9 million. There were no treasury shares outstanding as of January 28, 2017. Total purchases under the plan to date amount to approximately $61.7 million.
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
(Loss) Gain on
Forward Contract
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance, January 28, 2017
|
|
$
|
|
|
|
$
|
(9,902
|
)
|
|
$
|
(12
|
)
|
|
$
|
(181
|
)
|
|
$
|
(10,095
|
)
|
Other comprehensive loss (income) before reclassifications
|
|
|
|
|
|
|
1,276
|
|
|
|
5
|
|
|
|
(357
|
)
|
|
|
924
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 28, 2017
|
|
$
|
|
|
|
$
|
(8,626
|
)
|
|
$
|
(7
|
)
|
|
$
|
(460
|
)
|
|
$
|
(9,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 30, 2016
|
|
$
|
(7,368
|
)
|
|
$
|
(7,131
|
)
|
|
$
|
(9
|
)
|
|
|
|
|
|
$
|
(14,508
|
)
|
Other comprehensive loss (income) before reclassifications
|
|
|
(313
|
)
|
|
|
(3,772
|
)
|
|
|
7
|
|
|
|
255
|
|
|
|
(3,823
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
8,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 29, 2016
|
|
$
|
1,084
|
|
|
$
|
(10,903
|
)
|
|
$
|
(2
|
)
|
|
$
|
255
|
|
|
$
|
(9,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
A summary of the impact on the condensed consolidated statements of operations line items is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Statement of Operations Location
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
|
|
(in thousands)
|
|
Amortization of defined benefit pension items actuarial gains
|
|
Selling, general and administrative expenses
|
|
$
|
|
|
|
$
|
8,455
|
|
Forward contract loss reclassified from accumulated other comprehensive loss to income
|
|
Cost of goods sold
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of tax
|
|
|
|
$
|
86
|
|
|
$
|
8,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Statement of Operations Location
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
|
|
(in thousands)
|
|
Amortization of defined benefit pension items actuarial gains
|
|
Selling, general and administrative expenses
|
|
$
|
|
|
|
$
|
8,765
|
|
Forward contract gain reclassified from accumulated other comprehensive loss to income
|
|
Cost of goods sold
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of tax
|
|
|
|
$
|
78
|
|
|
$
|
8,765
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 October 28, 2017, there was no hedge ineffectiveness.
The Companys 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
14
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 items cash flows in determining the classification for the designated derivative instruments cash flows. The Company classifies derivative instrument cash flows from hedges of foreign
currency risk on the settlement of inventory as operating activities.
The Companys 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 Companys Hedging Instruments.
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated As Hedging Instruments
|
|
Balance sheet location
|
|
October 28,
2017
|
|
|
January 28,
2017
|
|
|
|
|
|
(in thousands)
|
|
Foreign currency forward exchange contract (inventory purchases)
|
|
Accounts Payable
|
|
$
|
460
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
460
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect and classification of the Companys Hedging Instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Derivatives Designated As Hedging
Instruments
|
|
Statement of Operations Location
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Foreign currency forward exchange contract (inventory purchases):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from accumulated other comprehensive loss to income
|
|
Cost of goods sold
|
|
$
|
86
|
|
|
$
|
|
|
|
$
|
78
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86
|
|
|
$
|
|
|
|
$
|
78
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional amounts outstanding of foreign exchange forward contracts were $11.8 million and
$15.0 million at October 28, 2017 and January 28, 2017, respectively. Such contracts expire through July 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 October 28, 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.
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 Companys U.S. federal income tax returns for fiscal 2011 through fiscal 2018 are open tax years. The Companys state tax filings are subject to varying statutes of limitations. The Companys unrecognized state tax benefits are
related to open tax years from fiscal 2006 through fiscal 2017, depending on each states particular statute of limitations. As of October 28, 2017, the examination by the Internal Revenue Service for the Companys fiscal 2011 through
2015 U.S. federal tax years is still ongoing. During the three months ended October 28, 2017, the Company received a revised Notice of Proposed Adjustment from the Internal Revenue Service, which proposed an adjustment to taxable income for
fiscal 2013 of $12.6 million, to which the Company agreed. Additionally, the Company engaged in conversations with the Internal Revenue Service to extend the years under audit to include fiscal 2014 and 2015, to allow for the carryback of
beneficial tax attributes. During fiscal 2017, the Company established a reserve of $1.1 million for this adjustment and associated interest. While the Company still believes its position would be sustained upon appeal or, if necessary, through
litigation, it has agreed to this adjustment based upon the desire to reach an ultimate resolution and limit the costs associated with continuing the examination. Furthermore, various other state and local income tax returns are also under
examination by taxing authorities.
15
The Company had a $1.2 million liability recorded for unrecognized tax benefits as of
January 28, 2017, which included interest and penalties of $0.3 million. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the three and nine months ended
October 28, 2017, the total amount of unrecognized tax benefits decreased by approximately $18,000 and increased by $5.0 million, respectively. The change to the total amount of the unrecognized tax benefit for the three months ended
October 28, 2017 included a decrease in interest and penalties of approximately $11,000 and for the nine months ended October 28, 2017 included an increase in interest and penalties of approximately $176,000. The amount of the unrecognized
tax benefits, if recognized, that would affect the Companys effective tax rate as of January 28, 2017 and October 28, 2017 is $1.2 million and $2.3 million, respectively.
The Company currently anticipates a resolution within the next twelve months for the unrecognized tax benefits relating to the Internal
Revenue Service Proposed Adjustment, but does not currently anticipate a resolution for any of the remaining unrecognized tax benefits as of October 28, 2017. The statute of limitations related to the Companys fiscal 2011 through 2015
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 asset; 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 Companys 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 through the nine months ended October 28, 2017, by itself that does not represent sufficient positive evidence that
the deferred tax assets will be realized to warrant removing the valuation allowances established against the U.S. deferred tax assets. Additionally, the Companys cumulative domestic pretax results for the past 36 months still remain in a loss
position. The Company would be able to remove the valuation allowances in future periods when positive evidence outweighs the negative evidence from the relevant look-back period. The Company believes that there is a reasonable possibility that
within the next twelve months, sufficient positive evidence may become available to allow it to reach the conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in
the recognition of certain deferred tax assets and a decrease to income tax expense in the period released. 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
In 2005, the Company adopted the 2005 Long-Term Incentive Compensation Plan (the 2005 Plan). The 2005 Plan allowed the Company to
grant options and other awards to purchase or receive up to an aggregate of 2,250,000 shares of the Companys common stock, reduced by any awards outstanding under the 2002 Stock Option Plan. On March 13, 2008, the Board of Directors
unanimously adopted an amendment and restatement of the 2005 Plan that increased the number of shares available for grants to an aggregate of 4,750,000 shares of common stock. On March 17, 2011, the Board of Directors unanimously adopted the
second amendment and restatement of the 2005 Plan, which increased the number of shares available for grants by an additional 500,000 shares to an aggregate of 5,250,000 shares of common stock. On May 20, 2015, the Board of Directors
unanimously adopted, subject to shareholder approval at the annual meeting, the Perry Ellis International, Inc. 2015 Long Term Incentive Compensation Plan, which is an amendment and restatement of the 2005 Plan (the 2015 Plan, and collectively
with the prior 2005 Plan, as amended, the Stock Plans). The 2015 Plan was approved by the shareholders at the Companys 2015 annual meeting.
The 2015 Plan extends the term of the 2005 Plan until July 17, 2025 as well as increases the number of shares of common stock reserved
for issuance by an additional 1,000,000 shares to an aggregate of 6,250,000 shares.
16
On March 16, 2017, the Board of Directors unanimously adopted an amendment and restatement
of the 2015 Plan (as amended and restated, the Amended Plan). The Amended Plan increases the number of shares available for grants by an additional 1,400,000 shares to an aggregate of 7,650,000 shares of common stock and makes other
clarifications and technical revisions designed primarily to improve administration and ensure compliance with recent changes in the law including Internal Revenue Code Section 409A. Other than the amendments noted above, the Amended Plan
generally contains the same features, terms and conditions as the 2015 Plan. The Amended Plan was approved by the shareholders at the Companys 2017 annual meeting.
During the first and second quarters of fiscal 2018, the Company granted an aggregate of 72,307 and 10,681 shares of restricted stock to
certain key employees, which vest primarily over a three-year period, at an estimated value of $1.5 million and $0.2 million, respectively. This value is being recorded as compensation expense on a straight-line basis over the vesting
period of the restricted stock.
Also, during the second quarter of fiscal 2018, the Company awarded to five directors an aggregate of
28,995 shares of restricted stock. The restricted stock vests primarily over a
one-year
period, at an estimated value of $0.6 million. This value is being recorded as compensation expense on a
straight-line basis over the vesting period of the restricted stock.
During the first quarter of fiscal 2018, 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 first quarter
of fiscal 2018, the Company granted an aggregate of 10,953 shares of restricted stock units to a key employee that 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.
During the first, second and third quarters of fiscal
2018, a total of 77,655, 31,448 and 26,672 shares of restricted stock vested, of which 25,241, 11,259 and 9,691 shares were withheld to cover the employees statutory income tax requirements, respectively. The estimated value of the withheld
shares was $0.5 million, $0.2 million and $0.2 million, respectively.
16. SEGMENT INFORMATION
The Company has four reportable segments: Mens Sportswear and Swim, Womens Sportswear,
Direct-to-Consumer
and Licensing. The Mens Sportswear and Swim and Womens 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 Companys branded and licensed
products through the Companys retail stores and
e-commerce
platforms. The Licensing segment derives its revenues from royalties associated from the use of the Companys 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.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
(in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
141,549
|
|
|
$
|
135,717
|
|
|
$
|
482,881
|
|
|
$
|
478,790
|
|
Womens Sportswear
|
|
|
28,104
|
|
|
|
28,676
|
|
|
|
77,561
|
|
|
|
85,301
|
|
Direct-to-Consumer
|
|
|
20,736
|
|
|
|
20,905
|
|
|
|
62,164
|
|
|
|
65,423
|
|
Licensing
|
|
|
8,449
|
|
|
|
8,661
|
|
|
|
24,931
|
|
|
|
27,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
198,838
|
|
|
$
|
193,959
|
|
|
$
|
647,537
|
|
|
$
|
656,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
1,870
|
|
|
$
|
1,814
|
|
|
$
|
5,507
|
|
|
$
|
5,717
|
|
Womens Sportswear
|
|
|
939
|
|
|
|
729
|
|
|
|
2,600
|
|
|
|
2,107
|
|
Direct-to-Consumer
|
|
|
716
|
|
|
|
932
|
|
|
|
2,266
|
|
|
|
2,717
|
|
Licensing
|
|
|
61
|
|
|
|
59
|
|
|
|
177
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
3,586
|
|
|
$
|
3,534
|
|
|
$
|
10,550
|
|
|
$
|
10,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
(1)
|
|
$
|
3,450
|
|
|
$
|
(7,683
|
)
|
|
$
|
22,834
|
|
|
$
|
6,834
|
|
Womens Sportswear
|
|
|
(2,393
|
)
|
|
|
(1,289
|
)
|
|
|
(6,771
|
)
|
|
|
(4,746
|
)
|
Direct-to-Consumer
|
|
|
(2,543
|
)
|
|
|
(3,370
|
)
|
|
|
(8,604
|
)
|
|
|
(9,675
|
)
|
Licensing
|
|
|
6,806
|
|
|
|
7,065
|
|
|
|
18,854
|
|
|
|
21,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
5,320
|
|
|
$
|
(5,277
|
)
|
|
$
|
26,313
|
|
|
$
|
13,867
|
|
Total interest expense
|
|
|
1,613
|
|
|
|
1,738
|
|
|
|
5,438
|
|
|
|
5,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) before income taxes
|
|
$
|
3,707
|
|
|
$
|
(7,015
|
)
|
|
$
|
20,875
|
|
|
$
|
8,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Operating income (loss) for the Mens Sportswear and Swim segment for the three and nine months ended October 29, 2016, includes a settlement charge related
to the pension plan in the amount of $8.3 million. See footnote 17 to the consolidated financial statements for further information.
|
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.
The following table provides the components of net benefit cost for the plan during the three and nine months of fiscal 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
October 28,
2017
|
|
|
October 29,
2016
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
|
|
|
$
|
63
|
|
|
$
|
|
|
|
$
|
189
|
|
Interest cost
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
372
|
|
Expected return on plan assets
|
|
|
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
(261
|
)
|
Settlement
|
|
|
|
|
|
|
8,300
|
|
|
|
|
|
|
|
8,300
|
|
Amortization of net loss
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
|
|
|
$
|
8,555
|
|
|
$
|
|
|
|
$
|
9,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Settlement accounting, which accelerates recognition of a plans unrecognized net gain or
loss, is triggered if the lump sums paid during a year exceed the sum of the plans service and interest cost. Since the lump sums paid in fiscal 2017 exceeded that threshold, the Company recognized a settlement charge of $8.3 million in
anticipation of the plans termination in fiscal 2017.
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 $33.8 million and $34.5 million at October 28, 2017 and January 28, 2017, respectively. The carrying values of the real estate mortgages at October 28, 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 7
7
/
8
% senior
subordinated notes payable were approximately $49.8 million and $49.7 million at October 28, 2017 and January 28, 2017, respectively. The fair value of the 7
7
/
8
% senior subordinated notes payable was approximately $50.1 million as of October 28, 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.
Item 2: Managements 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 managements 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.
ForwardLooking Statements
We
caution readers that the forward-looking statements (statements which are not historical facts) in this quarterly report 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,
|
26
|
|
|
our ability to predict consumer preferences and changes in fashion trends and consumer acceptance of both new designs and newly introduced products,
|
|
|
|
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 Kingdoms 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 and nine months ended October 28, 2017 as compared to those we disclosed in Managements 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.
27
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
|
|
|
Nine Months Ended
|
|
|
|
October 28,
|
|
|
October 29,
|
|
|
October 28,
|
|
|
October 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
141,549
|
|
|
$
|
135,717
|
|
|
$
|
482,881
|
|
|
$
|
478,790
|
|
Womens Sportswear
|
|
|
28,104
|
|
|
|
28,676
|
|
|
|
77,561
|
|
|
|
85,301
|
|
Direct-to-Consumer
|
|
|
20,736
|
|
|
|
20,905
|
|
|
|
62,164
|
|
|
|
65,423
|
|
Licensing
|
|
|
8,449
|
|
|
|
8,661
|
|
|
|
24,931
|
|
|
|
27,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
198,838
|
|
|
$
|
193,959
|
|
|
$
|
647,537
|
|
|
$
|
656,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 28,
|
|
|
October 29,
|
|
|
October 28,
|
|
|
October 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Reconciliation of operating income (loss) to EBITDA
|
|
|
|
|
Operating income (loss) by segment:
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
3,450
|
|
|
$
|
(7,683
|
)
|
|
$
|
22,834
|
|
|
$
|
6,834
|
|
Womens Sportswear
|
|
|
(2,393
|
)
|
|
|
(1,289
|
)
|
|
|
(6,771
|
)
|
|
|
(4,746
|
)
|
Direct-to-Consumer
|
|
|
(2,543
|
)
|
|
|
(3,370
|
)
|
|
|
(8,604
|
)
|
|
|
(9,675
|
)
|
Licensing
|
|
|
6,806
|
|
|
|
7,065
|
|
|
|
18,854
|
|
|
|
21,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
5,320
|
|
|
$
|
(5,277
|
)
|
|
$
|
26,313
|
|
|
$
|
13,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
1,870
|
|
|
$
|
1,814
|
|
|
$
|
5,507
|
|
|
$
|
5,717
|
|
Womens Sportswear
|
|
|
939
|
|
|
|
729
|
|
|
|
2,600
|
|
|
|
2,107
|
|
Direct-to-Consumer
|
|
|
716
|
|
|
|
932
|
|
|
|
2,266
|
|
|
|
2,717
|
|
Licensing
|
|
|
61
|
|
|
|
59
|
|
|
|
177
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
3,586
|
|
|
$
|
3,534
|
|
|
$
|
10,550
|
|
|
$
|
10,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
$
|
5,320
|
|
|
$
|
(5,869
|
)
|
|
$
|
28,341
|
|
|
$
|
12,551
|
|
Womens Sportswear
|
|
|
(1,454
|
)
|
|
|
(560
|
)
|
|
|
(4,171
|
)
|
|
|
(2,639
|
)
|
Direct-to-Consumer
|
|
|
(1,827
|
)
|
|
|
(2,438
|
)
|
|
|
(6,338
|
)
|
|
|
(6,958
|
)
|
Licensing
|
|
|
6,867
|
|
|
|
7,124
|
|
|
|
19,031
|
|
|
|
21,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total EBITDA
|
|
$
|
8,906
|
|
|
$
|
(1,743
|
)
|
|
$
|
36,863
|
|
|
$
|
24,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens Sportswear and Swim
|
|
|
3.8
|
%
|
|
|
(4.3
|
%)
|
|
|
5.9
|
%
|
|
|
2.6
|
%
|
Womens Sportswear
|
|
|
(5.2
|
%)
|
|
|
(2.0
|
%)
|
|
|
(5.4
|
%)
|
|
|
(3.1
|
%)
|
Direct-to-Consumer
|
|
|
(8.8
|
%)
|
|
|
(11.7
|
%)
|
|
|
(10.2
|
%)
|
|
|
(10.6
|
%)
|
Licensing
|
|
|
81.3
|
%
|
|
|
82.3
|
%
|
|
|
76.3
|
%
|
|
|
79.0
|
%
|
Total EBITDA margin
|
|
|
4.5
|
%
|
|
|
(0.9
|
%)
|
|
|
5.7
|
%
|
|
|
3.7
|
%
|
EBITDA consists of earnings before interest, 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. EBITDA and EBITDA margin are presented solely as a supplemental disclosure because management believes that they are common measures of operating performance in the apparel industry.
28
The following is a discussion of the results of operations for the three and nine month periods
ended October 28, 2017 of the fiscal year ending February 3, 2018 (fiscal 2018) compared with the three and nine month periods ended October 29, 2016 of the fiscal year ended January 28, 2017 (fiscal
2017).
Results of Operations - three and nine months ended October 28, 2017 compared to the three and nine months ended
October 29, 2016.
Net sales
. Mens Sportswear and Swim net sales for the three months ended October 28,
2017 were $141.5 million, an increase of $5.8 million, or 4.3%, from $135.7 million for the three months ended October 29, 2016. The net sales increase was attributed to strong sell through rates throughout the fall seasons. Of
particular strength were our core brands, specifically Perry Ellis, Original Penguin, Nike and golf lifestyle apparel businesses.
Mens Sportswear and Swim net sales for the nine months ended October 28, 2017 were $482.9 million, an increase of
$4.1 million, or 0.9%, from $478.8 million for the nine months ended October 29, 2016. This increase was a result of our strong sell through rates during the spring and fall season. This increase was attributed to Perry Ellis,
Original Penguin, golf lifestyle apparel business, Nike swim, and other core global brands.
Womens Sportswear net sales for the
three months ended October 28, 2017 were $28.1 million, a decrease of $0.6 million, or 2.1%, from $28.7 million for the three months ended October 29, 2016. The net sales decrease was attributed primarily to planned
reductions in the Laundry brand, offset by increases in Rafaella.
Womens Sportswear net sales for the nine months ended
October 28, 2017 were $77.6 million, a decrease of $7.7 million, or 9.1%, from $85.3 million for the nine months ended October 29, 2016. The net sales decrease was primarily due to planned reductions in the Laundry brand as
we work on the transition of the brand to a licensing partner. The decrease was partially offset by increases in the Rafaella brand.
Direct-to-Consumer
net sales for the three months ended October 28, 2017 were $20.7 million, a decrease of $0.2 million, or 0.9%, from $20.9 million for
the three months ended October 29, 2016. This decrease is attributed to the closure of ten stores, as well as the temporary closing of certain stores due to the effects of Hurricanes Harvey, Irma and Maria. This decrease was offset by a 3.7%
increase in comparable same store sales.
Direct-to-Consumer
net sales for the nine months ended
October 28, 2017 were $62.2 million, a decrease of $3.2 million, or 4.9%, from $65.4 million for the nine months ended October 29, 2016. Comparable same store sales remained flat. The decrease was driven by ten fewer stores
as compared to the prior period and the impact of the hurricanes as discussed above.
Royalty income
. Royalty income for the three
months ended October 28, 2017 was $8.4 million, a decrease of $0.3 million, or 3.4%, from $8.7 million for the three months ended October 29, 2016. Royalty income for the nine months ended October 28, 2017 was
$24.9 million, a decrease of $2.5 million, or 9.1%, from $27.4 million for the nine months ended October 29, 2016. For the three and nine months ended October 28, 2017 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.
Gross profit.
Gross profit was $74.1 million for the three months ended October 28, 2017, an increase of $3.0 million,
or 4.2%, from $71.1 million for the three months ended October 29, 2016. This increase was attributed to a strong sales performance by our core brands coupled with strong inventory management.
Gross profit was $241.6 million for the nine months ended October 28, 2017, an increase of $1.6 million, or 0.7%, from
$240.0 million for the nine months ended October 29, 2016. This increase was attributed to the sales increases 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 37.3% for the three months ended October 28,
2017, as compared to 36.7% for the three months ended October 29, 2016 which represents an expansion of 60 basis points. The expansion was driven by stronger product margins in our Original Penguin and the
Direct-to-Consumer
businesses.
29
For the nine months ended October 28, 2017, gross profit margins were 37.3% as a percentage
of total revenue, as compared to 36.5% for the nine months ended October 29, 2016, an increase of 80 basis points. The increase was attributed to the disciplined management of inventory across all channels, increased sales of higher margin core
brands and efficiencies achieved within our supply chain infrastructure. Additionally, our
Direct-to-Consumer
gross profit margin increased due to improved 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 October 28, 2017 were $65.2 million, a decrease of $7.6 million, or 10.4%, from $72.8 million for the three months ended October 29, 2016. The decrease was attributed
primarily to expenses of $8.3 million associated with the termination of our defined pension plan during the three months ended October 29, 2016, partially offset by an increase in certain unplanned legal fees of $0.5 million during
the three months ended October 28, 2017.
Selling, general and administrative expenses for the nine months ended October 28,
2017 were $204.8 million, a decrease of $10.6 million, or 4.9%, from $215.4 million for the nine months ended October 29, 2016. The decrease was attributed primarily to reduced employee expenses resulting from our continued focus
on our core infrastructure, the pension expense as explained above, and, a required acceleration of compensation costs relating to the new contract for our executive chairman during three months ended July 30, 2016.
EBITDA.
Mens Sportswear and Swim EBITDA margin for the three months ended October 28, 2017, increased 810 basis points to
3.8%, from (4.3%) for the three months ended October 29, 2016. The EBITDA margin was unfavorably impacted by the settlement charge related to the termination of our defined benefit plan in the amount of $8.3 million during the three months
ended October 29, 2016. Such expense did not occur during the three months ended October 28, 2017.
Mens Sportswear and
Swim EBITDA margin for the nine months ended October 28, 2017, increased 330 basis points to 5.9%, from 2.6% for the nine months ended October 29, 2016. The EBITDA margin was favorably impacted by sourcing efficiencies and the strong sales
performance of our core brands, specifically our Perry Ellis, Original Penguin, Nike and golf apparel businesses.
Womens Sportswear
EBITDA margin for the three months ended October 28, 2017 decreased 320 basis points to (5.2%) from (2.0%) for the three months ended October 29, 2016. The EBITDA margin was unfavorably impacted by the decrease in net sales described
above. As a result of this decrease in net sales, we were not able to realize favorable leverage in selling, general and administrative expenses.
Womens Sportswear EBITDA margin for the nine months ended October 28, 2017 decreased 230 basis points to (5.4%) from (3.1%) for the
nine months ended October 29, 2016. The EBITDA margin was unfavorably impacted by the decrease in net sales described above. As a result of this decrease in net sales, we were not able to realize favorable leverage in selling, general and
administrative expenses.
Direct-to-Consumer
EBITDA margin
for the three months ended October 28, 2017, increased 290 basis points to (8.8%), from (11.7%) for the three months ended October 29, 2016. The EBITDA margin was favorably impacted by the product sales mix as we focus on being less
dependent on everyday promotions.
Direct-to-Consumer
EBITDA margin for the nine months ended October 28, 2017 increased 40 basis points to (10.2)%, from (10.6%) for the nine months ended October 29, 2016. The EBITDA margin was favorably impacted by the product sales mix as we focus on being
less dependent on everyday promotions and thus increased our gross profit margin and achieved favorable leverage in selling, general and administrative expenses.
Licensing EBITDA margin for the three months ended October 28, 2017, decreased 100 basis points to 81.3%, from 82.3% for the three months
ended October 29, 2016. The EBITDA margin was unfavorably impacted by the decrease in royalty income described above.
Licensing
EBITDA margin for the nine months ended October 28, 2017, decreased 270 basis points to 76.3%, from 79.0% for the nine months ended October 29, 2016. The EBITDA margin was unfavorably impacted by the decrease in royalty income described
above.
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Depreciation and amortization
. Depreciation and amortization for the three months ended
October 28, 2017, was $3.6 million, an increase of $0.1 million, or 2.9%, from $3.5 million for the three months ended October 29, 2016. The increase was attributed to depreciation related to our capital expenditures,
primarily in fixtures, made during fiscal 2018.
Depreciation and amortization for the nine months ended October 28, 2017, was
$10.6 million, a decrease of $0.1 million, or 0.9%, from $10.7 million for the nine months ended October 29, 2016. The decrease is primarily reflected in the
Direct-to-Consumer
segment as a result of ten store closures since the second half of fiscal 2017.
Interest expense
. Interest expense for the three months ended October 28, 2017, was $1.6 million, a decrease of
$0.1 million, or 5.9%, from $1.7 million for the three months ended October 29, 2016. Interest expense for the nine months ended October 28, 2017, was $5.4 million, a decrease of $0.3 million, or 5.3%, from
$5.7 million for the nine months ended October 29, 2016. These decreases were attributed to the lower average amount borrowed on our credit facility as compared to the prior year periods.
Income taxes
. The income tax expense for the three months ended October 28, 2017, was $0.5 million, an increase of
$2.4 million, as compared to a tax benefit of $1.9 million for the three months ended October 29, 2016. For the three months ended October 28, 2017, our effective tax rate was 13.3% as compared to 26.4% for the three months ended
October 29, 2016. The income tax expense for the nine months ended October 28, 2017, was $3.9 million, an increase of $1.2 million, as compared to $2.7 million for the nine months ended October 29, 2016. For the nine
months ended October 28, 2017, our effective tax rate was 18.7% as compared to 32.8% for the nine months ended October 29, 2016. These increases in tax expense were attributed to the net impact of the increase in the reserve for uncertain
tax positions associated with our Internal Revenue Service examination in the amount of $1 million. The overall change in the effective tax rate for both periods 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 (loss).
Net income (loss) for the three months ended October 28, 2017, was $3.2 million, an increase of
$8.4 million, or 161.5%, as compared to ($5.2) million for the three months ended October 29, 2016. Net income for the nine months ended October 28, 2017, was $17.0 million, an increase of $11.5 million, or 209.1%, as
compared to $5.5 million for the nine months ended October 29, 2016. These 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 for next year as we continue
to expand internationally. As of October 28, 2017, our total working capital was $230.9 million as compared to $223.4 million at January 28, 2017 and $213.5 million as of October 29, 2016. We believe that our cash flows
from operations and availability under our senior credit facility and remaining letter of credit facility 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 October 28, 2017, to be indefinitely reinvested and, accordingly,
no United States income taxes have been provided thereon. As of October 28, 2017, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $23.3 million. We have not, nor do we anticipate the need to,
repatriate these funds to the United States to satisfy our domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
Net cash provided by operating activities was $33.4 million for the nine months ended October 28, 2017, as compared to cash provided
by operating activities of $38.2 million for the nine months ended October 29, 2016.
The cash provided by operating activities
for the nine months ended October 28, 2017, was primarily attributable to a decreased inventory of $23.0 million, due to improved inventory management, a decrease in accounts receivable of $5.5 million, as well as a decrease in
prepaid income taxes, and prepaid expenses of $1.7 million and $0.8 million, respectively. Additionally, cash was provided by an increase in income taxes payable of $1.0 million. This was partially offset by a decrease in accounts
payable and accrued expenses of $28.7 million, a decrease in unearned revenues of $3.0 million and a decrease in accrued interest payable of $1.1 million. Our inventory turnover ratio increased to 3.9 as compared to 3.8 in the prior
period because of our continued focus on inventory management.
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The cash provided by operating activities for the nine months ended October 29, 2016, was
primarily attributable to decreased inventory of $69.0 million due to improved inventory management. This was partially offset by a decrease in accounts payable and accrued expenses of $61.7 million, as well as a reduction in deferred
pension obligation of $5.5 million due to our funding of our pension in anticipation of its termination and a reduction in accrued interest of $1.0 million.
Net cash used in investing activities was $20.0 million for the nine months ended October 28, 2017, as compared to cash used in
investing activities of $12.2 million for the nine months ended October 29, 2016. The net cash used in investing activities during the first nine months of fiscal 2018 primarily reflected the purchase of investments of $37.0 million
and the purchase of property and equipment of $5.6 million primarily for leasehold improvements and store fixtures; offset by the proceeds from the maturities of investments in the amount of $22.2 million and proceeds from notes receivable
of $0.3 million.
We anticipate capital expenditures during the remainder of fiscal 2018 of $4.0 million to $5.0 million in
new leasehold improvements, technology, systems, retail stores, and other expenditures.
Net cash used in investing activities was
$12.2 million for the nine months ended October 29, 2016. The net cash used in investing activities during the first nine months of fiscal 2017 primarily reflected the purchase of investments of $12.5 million and the purchase of
property and equipment of $9.3 million primarily for leasehold improvements and store fixtures; partially offset by proceeds from the maturities of investments of $9.3 million.
Net cash used in financing activities was $17.3 million for the nine months ended October 28, 2017, as compared to
$27.8 million for the nine months ended October 29, 2016. The net cash used during the first nine months of fiscal 2018 primarily reflected net payments on our senior credit facility of $14.6 million, purchases of treasury stock of
$0.9 million, payments for employee taxes on shares withheld upon vesting of $1.0 million, payments of $0.7 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by the proceeds from
exercises of stock options of $24,000.
Net cash used in financing activities was $27.8 million for the nine months ended
October 29, 2016. The net cash used during the first nine months of fiscal 2017 primarily reflected net payments on our senior credit facility of $23.9 million, purchases of treasury stock of $2.2 million, payments for employee taxes
on shares withheld upon vesting of $0.9 million, payments of $0.6 million on our mortgage loans and payments on capital leases of $0.2 million; partially offset by the proceeds from exercises of stock options of $5,000.
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, 2018. 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.
During the second quarter of fiscal 2018,
we repurchased 50,000 shares of common stock at a cost of $0.9 million. During the third quarter of fiscal 2018, we retired 50,000 shares of treasury stock recorded at a cost of approximately $0.9 million. Accordingly, during the third
quarter of fiscal 2018, we reduced additional paid in capital by $0.9 million. There were no treasury shares outstanding as of January 28, 2017. Total purchases under the plan to date amount to approximately $61.7 million.
Acquisitions
None.
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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 net 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 $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 October 28, 2017 and January 28, 2017, the balance of the 7
7
/
8
% senior subordinated notes totaled $49.8 million and $49.7 million, respectively, net of debt issuance costs in the
amount of $0.2 million and $0.3 million, respectively.
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 indentures 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 our senior credit facility, letter of credit facilities and real estate mortgages
resulting in all of our debt obligations becoming immediately due and payable, which we may not be able to satisfy.
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 October 28, 2017 and January 28, 2017, we had outstanding borrowings of $7.9 million and $22.5 million under the Credit Facility, respectively.
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 the 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 7
7
/
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, and (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.
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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 October 28, 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 October 28, 2017 and January 28, 2017, there was $19.4 million and $19.2 million, respectively, 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 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 October 28, 2017, the balance of the real estate mortgage loan totaled $21.0 million, net of discount, of which $552,000 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 loan 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 October 28, 2017, the balance of the real estate mortgage loan totaled $12.8 million, net of discount, of which approximately
$336,000 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.
34
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 and nine
months ended October 28, 2017.