Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

þ

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

 

 

 

For the quarterly period ended APRIL 30, 2011

 

 

or

 

 

o

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

 

 

 

For the transition period from           to          

 

Commission File Number: 1-4365

 

OXFORD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Georgia

 

58-0831862

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

222 Piedmont Avenue, N.E., Atlanta, Georgia  30308

(Address of principal executive offices)           (Zip Code)

 

                              (404) 659-2424                              

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer £

Accelerated filer þ

Non-accelerated filer £

Smaller reporting company £

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Number of shares outstanding

Title of each class

 

as of June 3, 2011

Common Stock, $1 par value

 

16,507,870

 

 

 


Table of Contents

 

OXFORD INDUSTRIES, INC.

INDEX TO FORM 10-Q

For the first quarter of fiscal 2011

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Condensed Consolidated Statements of Operations (Unaudited)

4

Condensed Consolidated Balance Sheets (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

14

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. Controls and Procedures

28

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

28

Item 1A. Risk Factors

28

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

28

Item 3. Defaults Upon Senior Securities

29

Item 4. Reserved

29

Item 5. Other Information

29

Item 6. Exhibits

29

Signatures

29

 

2



Table of Contents

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

 

Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Important assumptions relating to these forward-looking statements include, among others, assumptions regarding the impact of economic conditions on consumer demand and spending, demand for our products, timing of shipments requested by our wholesale customers, expected pricing levels, competitive conditions, the timing and cost of planned capital expenditures, costs of products and raw materials we purchase, costs of labor, access to capital and/or credit markets, acquisition and disposition activities, expected outcomes of pending or potential litigation and regulatory actions and disciplined execution by key management. Forward-looking statements reflect our current expectations, based on currently available information, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for fiscal 2010, as updated by Part II, Item 1A. Risk Factors in this report and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

DEFINITIONS

 

Unless the context requires otherwise, the following terms, or words of similar import, have the following meanings:

 

Our, us or we: Oxford Industries, Inc. and its consolidated subsidiaries

 

SG&A: Selling, general and administrative expenses

 

Discontinued operations: References to discontinued operations represent the assets and operations of our former Oxford Apparel operating group which we sold in the fourth quarter of fiscal 2010, as discussed in our Annual Report on Form 10-K for fiscal 2010.

 

113/8% Senior Secured Notes: Our 11.375% senior secured notes due 2015, as described in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

 

SEC: U.S. Securities and Exchange Commission

 

Securities Exchange Act: the Securities Exchange Act of 1934, as amended

 

FASB: Financial Accounting Standards Board

 

U.S. GAAP: Generally accepted accounting principles in the United States

 

Fiscal 2011

 

52 weeks ending January 28, 2012

Fourth quarter fiscal 2011

 

13 weeks ending January 28, 2012

Third quarter fiscal 2011

 

13 weeks ending October 29, 2011

Second quarter fiscal 2011

 

13 weeks ending July 30, 2011

First quarter fiscal 2011

 

13 weeks ended April 30, 2011

Fiscal 2010

 

52 weeks ended January 29, 2011

Fourth quarter fiscal 2010

 

13 weeks ended January 29, 2011

Third quarter fiscal 2010

 

13 weeks ended October 30, 2010

Second quarter fiscal 2010

 

13 weeks ended July 31, 2010

First quarter fiscal 2010

 

13 weeks ended May 1, 2010

 

3


 


Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

 

 

 

First Quarter
Fiscal 2011

 

First Quarter
Fiscal 2010

 

Net sales

 

$208,308

 

 

$163,625

 

 

Cost of goods sold

 

90,648

 

 

73,918

 

 

Gross profit

 

117,660

 

 

89,707

 

 

SG&A

 

90,840

 

 

78,009

 

 

Amortization of intangible assets

 

298

 

 

240

 

 

Change in fair value of contingent consideration

 

600

 

 

 

 

 

 

91,738

 

 

78,249

 

 

Royalties and other operating income

 

4,791

 

 

3,513

 

 

Operating income

 

30,713

 

 

14,971

 

 

Interest expense, net

 

4,804

 

 

4,967

 

 

Earnings from continuing operations before income taxes

 

25,909

 

 

10,004

 

 

Income taxes

 

8,849

 

 

1,480

 

 

Earnings from continuing operations

 

17,060

 

 

8,524

 

 

 

 

 

 

 

 

 

 

Earnings from discontinued operations, net of taxes

 

1,040

 

 

3,973

 

 

Net earnings

 

$  18,100

 

 

$  12,497

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations, net of taxes per common share:

 

 

 

 

 

 

 

Basic

 

$      1.03

 

 

$      0.52

 

 

Diluted

 

$      1.03

 

 

$      0.52

 

 

Earnings from discontinued operations, net of taxes per common share:

 

 

 

 

 

 

 

Basic

 

$      0.06

 

 

$      0.24

 

 

Diluted

 

$      0.06

 

 

$      0.24

 

 

Net earnings per common share:

 

 

 

 

 

 

 

Basic

 

$      1.10

 

 

$      0.76

 

 

Diluted

 

$      1.10

 

 

$      0.76

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

16,515

 

 

16,491

 

 

Dilution

 

10

 

 

12

 

 

Diluted

 

16,525

 

 

16,503

 

 

Dividends declared per common share

 

$      0.13

 

 

$      0.11

 

 

 

See accompanying notes.

 

4



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par amounts)

 

 

 

April 30,
2011

 

 

January 29,
2011

 

 

May 1,
2010

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$  47,033

 

 

$  44,094

 

 

$  18,823

 

 

Receivables, net

 

72,263

 

 

50,177

 

 

61,423

 

 

Inventories, net

 

62,843

 

 

85,338

 

 

45,790

 

 

Prepaid expenses, net

 

10,912

 

 

12,554

 

 

12,041

 

 

Deferred tax assets

 

16,266

 

 

19,005

 

 

15,397

 

 

Assets related to discontinued operations, net

 

33,409

 

 

57,745

 

 

51,372

 

 

Total current assets

 

242,726

 

 

268,913

 

 

204,846

 

 

Property and equipment, net

 

82,899

 

 

83,895

 

 

75,404

 

 

Intangible assets, net

 

167,573

 

 

166,680

 

 

136,015

 

 

Goodwill

 

16,185

 

 

16,866

 

 

 

 

Other non-current assets, net

 

21,716

 

 

22,117

 

 

17,369

 

 

Total Assets

 

$531,099

 

 

$558,471

 

 

$433,634

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Trade accounts payable and other accrued expenses

 

$  73,746

 

 

$  83,211

 

 

$  61,288

 

 

Accrued compensation

 

15,558

 

 

23,095

 

 

15,213

 

 

Income taxes payable

 

6,289

 

 

 

 

5,808

 

 

Short-term debt and current maturities of long-term debt

 

716

 

 

 

 

2,856

 

 

Liabilities related to discontinued operations

 

4,949

 

 

40,785

 

 

11,354

 

 

Total current liabilities

 

101,258

 

 

147,091

 

 

96,519

 

 

Long-term debt, less current maturities

 

147,228

 

 

147,065

 

 

146,572

 

 

Other non-current liabilities

 

55,048

 

 

55,441

 

 

47,825

 

 

Non-current deferred income taxes

 

30,231

 

 

28,846

 

 

28,192

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $1.00 par value per common share

 

16,511

 

 

16,511

 

 

16,526

 

 

Additional paid-in capital

 

96,679

 

 

96,597

 

 

93,131

 

 

Retained earnings

 

106,700

 

 

90,739

 

 

30,036

 

 

Accumulated other comprehensive loss

 

(22,556

)

 

(23,819

)

 

(25,167

)

 

Total shareholders’ equity

 

197,334

 

 

180,028

 

 

114,526

 

 

Total Liabilities and Shareholders’ Equity

 

$531,099

 

 

$558,471

 

 

$433,634

 

 

 

See accompanying notes.

 

5



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

First Quarter
Fiscal 2011

 

First Quarter
Fiscal 2010

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$ 17,060

 

 

$  8,524

 

 

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

4,809

 

 

4,310

 

 

Amortization of intangible assets

 

298

 

 

240

 

 

Change in fair value of contingent consideration

 

600

 

 

 

 

Amortization/write-off of deferred financing costs and bond discount

 

487

 

 

488

 

 

Stock compensation expense

 

864

 

 

1,578

 

 

Loss on sale of property and equipment

 

12

 

 

2

 

 

Deferred income taxes

 

3,819

 

 

(1,433

)

 

Changes in working capital:

 

 

 

 

 

 

 

Receivables

 

(20,962

)

 

(17,340

)

 

Inventories

 

23,003

 

 

11,824

 

 

Prepaid expenses

 

1,110

 

 

(1,679

)

 

Current liabilities

 

(13,631

)

 

5,052

 

 

Other non-current assets

 

756

 

 

(309

)

 

Other non-current liabilities

 

(1,009

)

 

(1,618

)

 

Net cash provided by operating activities

 

17,216

 

 

9,639

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(3,634

)

 

(1,540

)

 

Net cash used in investing activities

 

(3,634

)

 

(1,540

)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Repayment of revolving credit arrangements

 

(12,283

)

 

(22,350

)

 

Proceeds from revolving credit arrangements

 

12,978

 

 

25,233

 

 

Proceeds from issuance of common stock

 

939

 

 

115

 

 

Dividends on common stock

 

(2,142

)

 

(1,821

)

 

Net cash (used in) provided by financing activities

 

(508

)

 

1,177

 

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

Net operating cash flows (used in) provided by discontinued operations

 

(10,413

)

 

1,478

 

 

Net investing cash flows used in discontinued operations

 

 

 

(21

)

 

Net cash (used in) provided by discontinued operations

 

(10,413

)

 

1,457

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

2,661

 

 

10,733

 

 

Effect of foreign currency translation on cash and cash equivalents

 

278

 

 

(198

)

 

Cash and cash equivalents at the beginning of year

 

44,094

 

 

8,288

 

 

Cash and cash equivalents at the end of period

 

$ 47,033

 

 

$ 18,823

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest, net, including interest paid for discontinued operations

 

$      306

 

 

$      286

 

 

Cash paid for income taxes, including income taxes paid for discontinued operations

 

$ 27,344

 

 

$   3,404

 

 

 

See accompanying notes.

 

6


 


Table of Contents

 

OXFORD INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIRST QUARTER OF FISCAL 2011

 

1.                                      Basis of Presentation:  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP.  We believe the accompanying unaudited condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.  Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.  The accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Annual Report on Form 10-K for fiscal 2010.

 

Unless indicated otherwise, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Oxford Apparel operating group, as discussed in Note 6 to our unaudited condensed consolidated financial statements included in this report and Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010,

 

In May 2011, the FASB amended ASC 820 “Fair Value Measurements and Disclosures” in order to clarify existing guidance in U.S. GAAP, better align ASC 820 with International Accounting Standards and require additional fair value disclosures.  The amendments to ASC 820 become effective in fiscal 2012, with all amendments applied prospectively with any changes in measurements recognized in earnings in the period of adoption. We are currently assessing the impact of adopting the amendments to ASC 820.

 

2.                                      Inventories:  The components of inventories related to continuing operations as of the dates specified are summarized as follows (in thousands):

 

 

 

April 30,
2011

 

January 29,
2011

 

May 1,
2010

 

Finished goods

 

$

101,150

 

 

$

122,159

 

 

$

81,790

 

 

Work in process

 

3,639

 

 

5,744

 

 

5,001

 

 

Fabric, trim and supplies

 

4,008

 

 

3,389

 

 

3,437

 

 

LIFO reserve

 

(45,954

)

 

(45,954

)

 

(44,438

)

 

Total

 

$

62,843

 

 

$

85,338

 

 

$

45,790

 

 

 

3.                                      Comprehensive Income:  Other comprehensive income includes all changes in equity from non-owner sources, such as foreign currency translation adjustments and the net unrealized gain (loss) associated with forward foreign currency exchange contracts which qualify for hedge accounting. Comprehensive income, net of income taxes, is calculated as follows for the periods presented (in thousands):

 

 

 

First Quarter
Fiscal 2011

 

First Quarter
Fiscal 2010

 

Net earnings

 

$  18,100

 

$  12,497

 

Gain (loss) on foreign currency translation

 

1,768

 

(1,927

)

Net unrealized loss on forward foreign exchange contracts

 

(505

)

 

Comprehensive income

 

$  19,363

 

$  10,570

 

 

4.                                      Operating Group Information:  Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Ben Sherman and Lanier Clothes. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. All amounts included in this report reflect our changes in operating groups during fiscal 2010, as disclosed in our Annual Report on Form 10-K for fiscal 2010. The table below presents certain information about the continuing operations of our operating groups (in thousands).

 

7



Table of Contents

 

 

 

First Quarter
Fiscal 2011

 

First Quarter
Fiscal 2010

 

Net Sales

 

 

 

 

 

Tommy Bahama

 

$

122,903

 

$

109,105

 

Lilly Pulitzer

 

29,873

 

 

Ben Sherman

 

19,421

 

22,154

 

Lanier Clothes

 

32,973

 

30,428

 

Corporate and Other

 

3,138

 

1,938

 

Total

 

$

208,308

 

$

163,625

 

Depreciation

 

 

 

 

 

Tommy Bahama

 

$

3,381

 

$

3,274

 

Lilly Pulitzer

 

354

 

 

Ben Sherman

 

525

 

536

 

Lanier Clothes

 

109

 

119

 

Corporate and Other

 

440

 

381

 

Total

 

$

4,809

 

$

4,310

 

Amortization of Intangible Assets

 

 

 

 

 

Tommy Bahama

 

$

129

 

$

173

 

Lilly Pulitzer

 

114

 

 

Ben Sherman

 

55

 

67

 

Lanier Clothes

 

 

 

Corporate and Other

 

 

 

Total

 

$

298

 

$

240

 

Operating Income (Loss)

 

 

 

 

 

Tommy Bahama

 

$

23,770

 

$

17,861

 

Lilly Pulitzer

 

7,015

 

 

Ben Sherman

 

(826

)

522

 

Lanier Clothes

 

4,725

 

4,359

 

Corporate and Other

 

(3,971

)

(7,771

)

Total Operating Income

 

30,713

 

14,971

 

Interest expense, net

 

4,804

 

4,967

 

Earnings From Continuing Operations Before Income Taxes

 

$

25,909

 

$

10,004

 

 

 

 

April 30,
2011

 

January 29,
2011

 

May 1,
2010

 

Total Assets

 

 

 

 

 

 

 

Tommy Bahama

 

$

274,252

 

$

274,140

 

$

265,148

 

Lilly Pulitzer

 

81,960

 

79,476

 

 

Ben Sherman

 

67,680

 

67,478

 

65,313

 

Lanier Clothes

 

32,283

 

35,530

 

40,712

 

Corporate and Other

 

41,515

 

44,102

 

11,089

 

Discontinued Operations

 

33,409

 

57,745

 

51,372

 

Total

 

$

531,099

 

$

558,471

 

$

433,634

 

 

5.                                      Business Combinations:  On December 21, 2010, we acquired the Lilly Pulitzer brand and operations, as described in Note 14 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010. As of April 30, 2011, we have not finalized our allocation of purchase price to the fair values of the acquired assets and liabilities, and we will revise our allocation through the one year period following the closing of the transaction, as appropriate, as we obtain new information about the fair values of these assets and liabilities, including the contingent consideration. During the first quarter of fiscal 2011, we did not record any significant adjustments to the initial purchase price allocation included in Note 14 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010.  As of April 30, 2011, the estimated fair value of the contingent consideration was approximately $11.3 million compared to $10.5 million as of the date of acquisition, with the change in fair value representing the passage of time from the date of acquisition as we approach the dates of the anticipated payments in the future.

 

8



Table of Contents

 

6.                                      Discontinued Operations:  On January 3, 2011, we sold substantially all of the assets and operations of our former Oxford Apparel operating group, as discussed in Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010. The results of operations and assets which were sold are reflected in discontinued operations in our consolidated financial statements. The following represents the major classes of assets and liabilities related to the discontinued operations included in our consolidated balance sheets as of the following dates (in thousands):

 

 

 

April 30,
2011

 

January 29,
2011

 

May 1,
2010

 

Receivables, net

 

$26,763

 

$48,564

 

$33,058

 

Inventories, net

 

6,627

 

9,162

 

10,529

 

Other current assets, net

 

19

 

19

 

245

 

Property and equipment, net

 

 

 

1,070

 

Other assets, net

 

 

 

6,470

 

Total assets

 

33,409

 

57,745

 

51,372

 

 

 

 

 

 

 

 

 

Total liabilities

 

4,949

 

40,785

 

11,354

 

Net assets

 

$28,460

 

$16,960

 

$40,018

 

 

Net sales, earnings from discontinued operations before income taxes and earnings from discontinued operations, net of income taxes are shown in the table below (in thousands):

 

 

 

First
Quarter
Fiscal 2011

 

First
Quarter
Fiscal 2010

 

Net sales

 

$2,189

 

$54,125

 

Earnings from discontinued operations before income taxes

 

$1,577

 

$  6,408

 

Earnings from discontinued operations, net of income taxes

 

$1,040

 

$  3,973

 

 

7.                                      Subsequent Event: In May 2011, we repurchased, in a privately negotiated transaction, $40.0 million in aggregate principal amount of our 113/8% Senior Secured Notes for approximately $46.6 million, plus accrued interest, using cash on hand. The repurchase of the 113/8% Senior Secured Notes and related write-off of approximately $1.6 million of unamortized deferred financing costs and discount resulted in a loss of approximately $8.2 million, which will be reflected in our consolidated financial statements for the second quarter of fiscal 2011. After completion of the transaction, $110.0 million aggregate principal amount of our 113/8% Senior Secured Notes remain outstanding.

 

8.                                      Consolidating Financial Data of Subsidiary Guarantors:  Our 113/8% Senior Secured Notes are guaranteed by substantially all of our wholly owned domestic subsidiaries (“Subsidiary Guarantors”). All guarantees are full and unconditional. For consolidated financial reporting purposes, non-guarantors consist of our subsidiaries which are organized outside the United States and certain domestic subsidiaries. We use the equity method with respect to our investment in subsidiaries included in other non-current assets in our condensed consolidating financial statements. Set forth below are our condensed consolidating balance sheets as of April 30, 2011, January 29, 2011 and May 1, 2010 (in thousands) as well as our condensed consolidating statements of operations for the first quarter of fiscal 2011 and fiscal 2010 (in thousands) and our condensed consolidating statements of cash flows for the first quarter of fiscal 2011 and fiscal 2010 (in thousands).

 

9



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

April 30, 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

Cash and cash equivalents

 

$ 40,734

 

$   1,255

 

$  5,044

 

$         —

 

$  47,033

 

Receivables, net

 

11,518

 

25,999

 

47,767

 

(13,021

)

72,263

 

Inventories, net

 

(20,728)

 

75,609

 

8,720

 

(758

)

62,843

 

Prepaid expenses and deferred tax assets

 

17,227

 

11,186

 

2,648

 

(3,883

)

27,178

 

Assets related to discontinued operations, net

 

33,409

 

 

 

 

33,409

 

Total current assets

 

82,160

 

114,049

 

64,179

 

(17,662

)

242,726

 

Property and equipment, net

 

7,017

 

71,578

 

4,304

 

 

82,899

 

Goodwill and intangible assets, net

 

 

158,618

 

25,140

 

 

183,758

 

Other non-current assets, net

 

602,112

 

143,219

 

4,153

 

(727,768

)

21,716

 

Total Assets

 

$691,289

 

$487,464

 

$97,776

 

$(745,430

)

$531,099

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  15,882

 

$  59,167

 

$35,838

 

$  (14,578

)

$96,309

 

Current liabilities related to discontinued operations

 

4,949

 

 

 

 

4,949

 

Long-term debt, less current maturities

 

147,228

 

 

 

 

147,228

 

Other non-current liabilities

 

330,114

 

(314,051

)

145,780

 

(106,795

)

55,048

 

Non-current deferred income taxes

 

(4,218

)

27,883

 

6,566

 

 

30,231

 

Total shareholders’/invested equity

 

197,334

 

714,465

 

(90,408

)

(624,057

)

197,334

 

Total Liabilities and Shareholders’ Equity

 

$691,289

 

$487,464

 

$97,776

 

$(745,430

)

$531,099

 

 

January 29, 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

Cash and cash equivalents

 

$  41,130

 

$       809

 

$    2,155

 

$          —

 

$  44,094

 

Receivables, net

 

10,969

 

3,431

 

44,897

 

(9,120

)

50,177

 

Inventories, net

 

(13,234

)

86,747

 

11,889

 

(64

)

85,338

 

Prepaid expenses and deferred tax assets

 

19,756

 

12,671

 

3,018

 

(3,886

)

31,559

 

Assets related to discontinued operations, net

 

46,418

 

324

 

11,003

 

 

57,745

 

Total current assets

 

105,039

 

103,982

 

72,962

 

(13,070

)

268,913

 

Property and equipment, net

 

7,182

 

72,323

 

4,390

 

 

83,895

 

Goodwill and intangible assets, net

 

 

159,543

 

24,003

 

 

183,546

 

Other non-current assets, net

 

579,130

 

143,459

 

4,101

 

(704,573

)

22,117

 

Total Assets

 

$691,351

 

$479,307

 

$105,456

 

$(717,643

)

$558,471

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  13,978

 

$  59,255

 

$  41,170

 

$    (8,097

)

$106,306

 

Current liabilities related to discontinued operations

 

32,379

 

 

8,406

 

 

40,785

 

Long-term debt, less current maturities

 

147,065

 

 

 

 

147,065

 

Other non-current liabilities

 

322,237

 

(301,271

)

143,113

 

(108,638

)

55,441

 

Non-current deferred income taxes

 

(4,336

)

26,944

 

6,332

 

(94

)

28,846

 

Total shareholders’/invested equity

 

180,028

 

694,379

 

(93,565

)

(600,814

)

180,028

 

Total Liabilities and Shareholders’ Equity

 

$691,351

 

$479,307

 

$105,456

 

$(717,643

)

$558,471

 

 

10



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

May 1, 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

Cash and cash equivalents

 

$  13,558

 

$       577

 

$  4,688

 

$          —

 

$  18,823

 

Receivables, net

 

14,756

 

17,815

 

36,542

 

(7,690

)

61,423

 

Inventories, net

 

(16,456

)

56,400

 

6,512

 

(666

)

45,790

 

Prepaid expenses and deferred tax assets, net

 

18,118

 

8,578

 

4,625

 

(3,883

)

27,438

 

Assets related to discontinued operations, net

 

39,560

 

6,649

 

5,163

 

 

51,372

 

Total current assets

 

69,536

 

90,019

 

57,530

 

(12,239

)

204,846

 

Property and equipment, net

 

8,143

 

62,007

 

5,254

 

 

75,404

 

Goodwill and intangible assets, net

 

 

112,708

 

23,307

 

 

136,015

 

Other non-current assets, net

 

500,030

 

142,826

 

4,048

 

(629,535

)

17,369

 

Total Assets

 

$577,709

 

$407,560

 

$90,139

 

$(641,774

)

$433,634

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  25,263

 

$  39,008

 

$28,567

 

$   (7,673

)

$  85,165

 

Current liabilities related to discontinued operations

 

5,972

 

 

5,382

 

 

11,354

 

Long-term debt, less current maturities

 

146,572

 

 

 

 

146,572

 

Other non-current liabilities

 

289,627

 

(277,231

)

143,959

 

(108,530

)

47,825

 

Non-current deferred income taxes

 

(4,251

)

25,863

 

6,580

 

 

28,192

 

Total shareholders’/invested equity

 

114,526

 

619,920

 

(94,349

)

(525,571

)

114,526

 

Total Liabilities and Shareholders’ Equity

 

$577,709

 

$407,560

 

$90,139

 

$(641,774

)

$433,634

 

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

First Quarter Fiscal 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

35,721

 

$

159,001

 

$

21,692

 

$

(8,106

)

$

208,308

 

Cost of goods sold

 

24,435

 

62,641

 

8,269

 

(4,697

)

90,648

 

Gross profit

 

11,286

 

96,360

 

13,423

 

(3,409

)

117,660

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

10,314

 

73,189

 

12,478

 

(4,243

)

91,738

 

Royalties and other operating income

 

53

 

2,913

 

1,882

 

(57

)

4,791

 

Operating income

 

1,025

 

26,084

 

2,827

 

777

 

30,713

 

Interest (income) expense, net

 

4,427

 

(1,197

)

759

 

815

 

4,804

 

Income from equity investment

 

21,901

 

 

 

(21,901

)

 

Earnings from continuing operations before income taxes

 

18,499

 

27,281

 

2,068

 

(21,939

)

25,909

 

Income taxes (benefit)

 

1,273

 

7,336

 

254

 

(14

)

8,849

 

Earnings from continuing operations

 

17,226

 

19,945

 

1,814

 

(21,925

)

17,060

 

Earnings from discontinued operations, net of taxes

 

897

 

143

 

 

 

1,040

 

Net earnings

 

$

18,123

 

$

20,088

 

$

1,814

 

$

(21,925

)

$

18,100

 

 

11



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

First Quarter Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

32,579

 

$

116,929

 

$

20,821

 

$

(6,704

)

$

163,625

 

Cost of goods sold

 

22,299

 

46,884

 

8,483

 

(3,748

)

73,918

 

Gross profit

 

10,280

 

70,045

 

12,338

 

(2,956

)

89,707

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

13,056

 

58,013

 

11,312

 

(4,132

)

78,249

 

Royalties and other operating income

 

23

 

2,100

 

1,574

 

(184

)

3,513

 

Operating income

 

(2,753

)

14,132

 

2,600

 

992

 

14,971

 

Interest (income) expense, net

 

4,923

 

(1,041

)

682

 

403

 

4,967

 

Income from equity investment

 

11,260

 

 

 

(11,260

)

 

Earnings from continuing operations before income taxes

 

3,584

 

15,173

 

1,918

 

(10,671

)

10,004

 

Income taxes (benefit)

 

(5,310

)

6,066

 

518

 

206

 

1,480

 

Earnings from continuing operations

 

8,894

 

9,107

 

1,400

 

(10,877

)

8,524

 

Earnings from discontinued operations, net of taxes

 

3,222

 

817

 

(66

)

 

3,973

 

Net earnings

 

$

12,116

 

$

9,924

 

$

1,334

 

$

(10,877

)

$

12,497

 

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Quarter Fiscal 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

6,304

 

$

15,681

 

$

(3,269

)

$

(1,500

)

$

17,216

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(408

)

(3,203

)

(23

)

 

(3,634

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

 

 

695

 

 

695

 

Proceeds from issuance of common stock

 

939

 

 

 

 

939

 

Change in intercompany payable

 

8,245

 

(12,356

)

2,611

 

1,500

 

 

Dividends on common stock

 

(2,142

)

 

 

 

(2,142

)

Net cash provided by (used in) financing activities

 

7,042

 

(12,356

)

3,306

 

1,500

 

(508

)

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

 

(13,334

)

324

 

2,597

 

 

(10,413

)

Net change in Cash and Cash Equivalents

 

(396

)

446

 

2,611

 

 

2,661

 

Effect of foreign currency translation

 

 

 

278

 

 

278

 

Cash and Cash Equivalents at the Beginning of Period

 

41,130

 

809

 

2,155

 

 

44,094

 

Cash and Cash Equivalents at the End of Period

 

$

40,734

 

$

1,255

 

$

5,044

 

$

 

$

47,033

 

 

12



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Quarter Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(2,788

)

$

10,081

 

$

2,346

 

 

$

9,639

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(242

)

(1,028

)

(270

)

 

(1,540

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

 

 

2,883

 

 

2,883

 

Proceeds from issuance of common stock

 

115

 

 

 

 

115

 

Change in intercompany payable

 

10,463

 

(8,997

)

(1,466

)

 

 

Dividends on common stock

 

(1,821

)

 

 

 

(1,821

)

Net cash provided by (used in) financing activities

 

8,757

 

(8,997

)

1,417

 

 

1,177

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

 

1,898

 

18

 

(459

)

 

1,457

 

Net change in Cash and Cash Equivalents

 

7,625

 

74

 

3,034

 

 

10,733

 

Effect of foreign currency translation

 

 

 

(198

)

 

(198

)

Cash and Cash Equivalents at the Beginning of Period

 

5,933

 

503

 

1,852

 

 

8,288

 

Cash and Cash Equivalents at the End of Period

 

$

13,558

 

$

577

 

$

4,688

 

$

 

$

18,823

 

 

13



Table of Contents

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for fiscal 2010.

 

OVERVIEW

 

We generate revenues and cash flow primarily through the design, production, sale and distribution of branded consumer apparel for men, women and children and the licensing of company owned trademarks. Our principal markets and customers are located in the United States and, to a lesser extent, the United Kingdom. We source substantially all of our products through third party manufacturers located outside of the United States and United Kingdom. We distribute our products through our direct to consumer channels, including our retail stores, e-commerce websites and restaurants, as well as through our wholesale distribution channels, which include department stores, specialty stores, national chains, specialty catalogs, mass merchants and Internet retailers.

 

We believe the weak global economic conditions, which began in fiscal 2008, continue to impact our business and the apparel industry as a whole, although not as severely as in fiscal 2010. While we continue to focus on minimizing inventory markdown risk and promotional pressure, we have been more aggressive in our inventory purchases for fiscal 2011 than we were in the prior year. We anticipate continuing to purchase inventory more aggressively if the economic conditions continue to show improvement. Also, we believe that fiscal 2011 will be impacted by pricing pressures on raw materials, fuel, transportation and other costs necessary for the production and sourcing of apparel products, particularly in our Lanier Clothes and Ben Sherman businesses.

 

We continue to believe it is important to focus on maintaining a strong balance sheet and ample liquidity. We believe that the measures we have taken in recent years have significantly enhanced our balance sheet and liquidity, while allowing us to acquire the Lilly Pulitzer brand and operations and continue to operate our businesses appropriately. We believe our strong balance sheet and liquidity will allow us to aggressively develop our lifestyle brands and maintain the financial flexibility to opportunistically enhance our capital structure and pursue desirable acquisitions, if any meet our investment criteria.

 

The apparel and retail industry is cyclical and dependent upon the overall level of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. The impact of negative economic conditions may have a longer and more severe impact on the apparel and retail industry than the same conditions have on other industries. Therefore, even if conditions improve in the general economy, the negative impact on the apparel and retail industry may continue.

 

The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010:

 

 

 

First Quarter
Fiscal 2011

 

First Quarter
Fiscal 2010

 

$ Change

 

% Change

Net sales

 

$208,308

 

$163,625

 

$ 44,683

 

27.3%

Operating income

 

$  30,713

 

$  14,971

 

$ 15,742

 

105.1%

Earnings from continuing operations

 

$  17,060

 

$    8,524

 

$   8,536

 

100.1%

Earnings from continuing operations per diluted common share

 

$      1.03

 

$      0.52

 

$     0.51

 

98.1%

Earnings from discontinued operations, net of taxes

 

$    1,040

 

$    3,973

 

$  (2,933

)

(73.8)%

Earnings from discontinued operations per diluted common share

 

$      0.06

 

$      0.24

 

$    (0.18

)

(75.0)%

Net earnings

 

$  18,100

 

$  12,497

 

$   5,603

 

NM

Net earnings per diluted common share

 

$      1.10

 

$      0.76

 

$     0.34

 

NM

Weighted average common shares outstanding—diluted

 

16,525

 

16,503

 

22

 

0.1%

 

14



Table of Contents

 

The primary reasons for the improvement in earnings from continuing operations were:

 

·                  An increase in net sales driven by the $29.9 million of net sales related to Lilly Pulitzer, which we acquired on December 21, 2010, and an increase in the direct to consumer channel of distribution at Tommy Bahama.

 

·                  Improved gross margins, which benefitted from the inclusion of Lilly Pulitzer and our other operating groups either increasing or maintaining gross margins. Gross margins were impacted in the first quarter of fiscal 2011 by LIFO accounting credits of $0.6 million compared to LIFO accounting charges of $0.7 million in the first quarter of fiscal 2010. Additionally, gross margins were negatively impacted by approximately $1.0 million of charges to cost of goods sold in Lilly Pulitzer resulting from the write-up of acquired inventory to fair value pursuant to the purchase method of accounting in connection with the sale of acquired inventory during the first quarter of fiscal 2011. We do not anticipate that there will be any such charges to cost of goods sold in future periods.

 

·                  Increased royalty income in Tommy Bahama and Ben Sherman resulting from increased sales during the first quarter of fiscal 2011 by existing licensees as well as the inclusion of royalty income associated with the Lilly Pulitzer business in the first quarter of fiscal 2011.

 

These items were partially offset by:

 

·                  The increase in SG&A which was primarily due to (1) the inclusion of $10.0 million of SG&A associated with the Lilly Pulitzer operations during the first quarter of fiscal 2011 and (2) the increased retail store operating costs as a result of the opening of additional Tommy Bahama retail stores subsequent to the first day of fiscal 2010.

 

·                  A $0.6 million charge related to the change in fair value of contingent consideration associated with the acquisition of the Lilly Pulitzer brand and operations.

 

Earnings from discontinued operations reflect substantially all of the operations related to our former Oxford Apparel operating group, which we sold in the fourth quarter of fiscal 2010. The operating results of the discontinued operations reflect substantially all of the normal operating activities of our former Oxford Apparel operating group in the first quarter of fiscal 2010, but only reflect certain wind-down and transition activities in the first quarter of fiscal 2011. We do not anticipate significant earnings or losses from our discontinued operations after the first half of fiscal 2011. Operations of our former Oxford Apparel operating group which were not sold are included in Corporate and Other.

 

SUBSEQUENT EVENT – REPURCHASE OF 11 3/8% SENIOR SECURED NOTES

 

In May 2011, we repurchased, in a privately negotiated transaction, $40.0 million in aggregate principal amount of our 113/8% Senior Secured Notes for approximately $46.6 million, plus accrued interest, using cash on hand. The repurchase of the 113/8% Senior Secured Notes and related write-off of approximately $1.6 million of unamortized deferred financing costs and discount resulted in a loss of approximately $8.2 million, which will be reflected in our consolidated financial statements for the second quarter of fiscal 2011. After completion of the transaction, $110.0 million aggregate principal amount of our 113/8% Senior Secured Notes remain outstanding.

 

OPERATING GROUPS

 

Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Ben Sherman and Lanier Clothes. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance.

 

Tommy Bahama designs, sources and markets collections of men’s and women’s sportswear and related products. The target consumers of Tommy Bahama are primarily affluent men and women age 35 and older who embrace a relaxed and casual approach to daily living. Tommy Bahama® products can be found in our owned and licensed Tommy Bahama retail stores and on our Tommy Bahama e-commerce website, as well as in certain department stores and independent specialty stores throughout the United States. We also license the Tommy Bahama name for various product categories and operate Tommy Bahama restaurants.

 

15



Table of Contents

 

Lilly Pulitzer designs, sources and distributes upscale collections of women’s and girl’s dresses, sportswear and other products. Lilly Pulitzer® was originally created in the late 1950’s and is an affluent brand with heritage and aesthetic based on the Palm Beach resort lifestyle. The brand is somewhat unique among women’s brands in that it has demonstrated multi-generational appeal, including: young women in college or recently graduated from college; young mothers with their daughters; and women who are not tied to the academic calendar. Lilly Pulitzer products can be found in our owned Lilly Pulitzer stores, in Lilly Pulitzer Signature Stores and on our Lilly Pulitzer website, as well as in certain department stores and a variety of independent specialty stores. We also license the Lilly Pulitzer name for various product categories.

 

Ben Sherman is a London-based designer, marketer and distributor of men’s branded sportswear and related products. Ben Sherman® was established in 1963 as an edgy, “Mod”-inspired shirt brand and has evolved into a British lifestyle brand of apparel targeted at style conscious men ages 25 to 40 in multiple markets throughout the world. Ben Sherman products can be found in certain department stores, a variety of independent specialty stores and our owned and licensed Ben Sherman retail stores, as well as on Ben Sherman e-commerce websites. We also license the Ben Sherman name for various product categories.

 

Lanier Clothes designs and markets branded and private label men’s tailored clothing including suits, sportcoats, suit separates and dress slacks across a wide range of price points. Certain Lanier Clothes products are sold using trademarks licensed to us by third parties, including Kenneth Cole®, Dockers®, and Geoffrey Beene®. Lanier Clothes also offers branded products under our Billy London® and Arnold Brant® trademarks. In addition to the branded businesses, Lanier Clothes designs and sources private label products for certain customers. Significant private label brands include Stafford, Lands’ End, Alfani, Structure and Kenneth Roberts. Our Lanier Clothes products are sold to national chains, department stores, specialty stores, specialty catalog retailers and discount retailers throughout the United States.

 

Corporate and Other is a reconciling category for reporting purposes and includes our corporate office, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments, other costs that are not allocated to the operating groups and operations of our other businesses which are not included in our four operating groups. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to operating groups. The operations of businesses that are included in Corporate and Other include our Oxford Golf business and our Lyons, Georgia distribution center operations that were previously allocated to our former Oxford Apparel operating group.

 

For further information regarding our operating groups, see Note 4 to our unaudited condensed consolidated financial statements included in this report and Part I, Item 1. Business in our Annual Report on Form 10-K for fiscal 2010.

 

RESULTS OF OPERATIONS

 

FIRST QUARTER OF FISCAL 2011 COMPARED TO FIRST QUARTER OF FISCAL 2010

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. For purposes of the tables below, “NM” means not meaningful. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. In accordance with U.S. GAAP, net sales, cost of goods sold, gross profit, SG&A, amortization of intangible assets, change in fair value of contingent consideration, royalties and other operating income, operating income, interest expense, net, earnings from continuing operations before income taxes, income taxes and earnings from continuing operations reflect continuing operations only, and all discontinued operations are reflected in earnings from discontinued operations, net.

 

16



Table of Contents

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

Net sales

 

$208,308

 

100.0%

 

$163,625

 

100.0%

 

$44,683

 

27.3%

 

Cost of goods sold

 

90,648

 

43.5%

 

73,918

 

45.2%

 

16,730

 

22.6%

 

Gross profit

 

117,660

 

56.5%

 

89,707

 

54.8%

 

27,953

 

31.2%

 

SG&A

 

90,840

 

43.6%

 

78,009

 

47.7%

 

12,831

 

16.4%

 

Amortization of intangible assets

 

298

 

0.1%

 

240

 

0.1%

 

58

 

24.2%

 

Change in fair value of contingent consideration

 

600

 

0.3%

 

 

 

600

 

NM

 

Royalties and other operating income

 

4,791

 

2.3%

 

3,513

 

2.1%

 

1,278

 

36.4%

 

Operating income

 

30,713

 

14.7%

 

14,971

 

9.1%

 

15,742

 

105.1%

 

Interest expense, net

 

4,804

 

2.3%

 

4,967

 

3.0%

 

(163)

 

(3.3)%

 

Earnings from continuing operations before income taxes

 

25,909

 

12.4%

 

10,004

 

6.1%

 

15,905

 

159.0%

 

Income taxes

 

8,849

 

4.2%

 

1,480

 

0.9%

 

7,369

 

497.9%

 

Earnings from continuing operations

 

17,060

 

8.2%

 

8,524

 

5.2%

 

8,536

 

100.1%

 

Earnings from discontinued operations, net of taxes

 

1,040

 

NM

 

3,973

 

NM

 

(2,933)

 

NM

 

Net earnings

 

$  18,100

 

NM

 

$ 12,497

 

NM

 

$  5,603

 

NM

 

 

The discussion and tables below compare certain line items included in our statements of operations for the first quarter of fiscal 2011 to the first quarter of fiscal 2010. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts.

 

Net Sales

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

 

Fiscal 2010

 

 

$ Change

 

 

% Change

 

Tommy Bahama

 

$122,903

 

 

$109,105

 

 

$13,798

 

 

12.6

%

 

Lilly Pulitzer

 

29,873

 

 

 

 

29,873

 

 

NM

 

 

Ben Sherman

 

19,421

 

 

22,154

 

 

(2,733

)

 

(12.3

)%

 

Lanier Clothes

 

32,973

 

 

30,428

 

 

2,545

 

 

8.4

%

 

Corporate and Other

 

3,138

 

 

1,938

 

 

1,200

 

 

61.9

%

 

Total net sales

 

$208,308

 

 

$163,625

 

 

$44,683

 

 

27.3

%

 

 

Consolidated net sales increased $44.7 million, or 27.3%, in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010 primarily due to the net sales related to the Lilly Pulitzer business and the increase in net sales at Tommy Bahama, each as discussed below.

 

Tommy Bahama:

 

The increase in net sales for Tommy Bahama was primarily due to improved comparable retail store sales, higher e-commerce sales and sales at retail stores opened subsequent to the first day of fiscal 2010. Tommy Bahama unit sales increased 5.7% and the apparel average selling price per unit increased by 6.9%, primarily as a result of the higher sales volume in the direct to consumer channel of distribution. As of April 30, 2011, we operated 89 Tommy Bahama retail stores compared to 84 stores as of May 1, 2010.

 

Lilly Pulitzer:

 

We acquired the Lilly Pulitzer brand and operations on December 21, 2010. Therefore, our consolidated operating results for the first quarter of fiscal 2010 did not include any operating activities for Lilly Pulitzer. Net sales for Lilly Pulitzer for the first quarter of fiscal 2011 were $29.9 million. By way of comparison, the Lilly Pulitzer brand and operations generated $24.1 million of net sales during the first quarter of fiscal 2010. The $29.9 million of net sales in the first quarter of fiscal 2011 reflects increases in each of the wholesale, retail and e-commerce channels of distribution.

 

17



Table of Contents

 

Ben Sherman:

 

The decrease in net sales for Ben Sherman was primarily due to a 33.0% reduction in unit sales resulting from the reduced sales at certain moderate department stores as we continue to implement our strategy to improve the wholesale distribution of the brand to higher tier department stores in the United Kingdom and the first quarter of fiscal 2010 including sales of our previously exited women’s and footwear businesses.  The first quarter of fiscal 2010 included sales, the majority of which was off-price sales, of $1.6 million associated with the previously exited women’s and footwear businesses with no such sales in the first quarter of fiscal 2011. These decreases were partially offset by a 5.2% increase in the average exchange rate of the British pound sterling versus the United States dollar during the first quarter of fiscal 2011 compared to the average exchange rate for the first quarter of fiscal 2010. The average selling price per unit increased by 30.8% in the first quarter of fiscal 2011 as the average selling price per unit in the first quarter of fiscal 2010 was negatively impacted by the off-price sales associated with the exited women’s and footwear businesses and as the first quarter of fiscal 2011 had a greater proportion of retail sales.

 

Lanier Clothes:

 

The increase in net sales for Lanier Clothes was primarily due to increased net sales in branded tailored clothing products. The increase in unit sales of 6.2% was driven by increased sales in the branded businesses partially offset by lower sales in the private label businesses. The average selling price per unit increased 2.2% as a result of the change in sales mix as our branded tailored clothing products typically have a higher average selling price than private label products.

 

Corporate and Other:

 

Corporate and Other net sales primarily consisted of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center. The increase in the net sales for Corporate and Other was primarily driven by the higher net sales in our Oxford Golf business during the first quarter of fiscal 2011.

 

Gross Profit

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

Gross profit

 

$

117,660

 

$

89,707

 

$ 27,953

 

31.2%

 

Gross margin (gross profit as a % of net sales)

 

56.5

%

54.8

%

 

 

 

 

LIFO (credits) charges included in gross profit

 

$

(602

)

$

651

 

 

 

 

 

Write-up of acquired inventory included in gross profit

 

$

996

 

$

 

 

 

 

 

 

The increase in gross profit was primarily due to higher net sales, as discussed above, and increased gross margins. The increase in gross margins was primarily due to changes in the sales mix for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. The changes in sales mix included (1) the inclusion of Lilly Pulitzer operating results, (2) direct to consumer sales, which generally have higher gross margins than wholesale sales, making up a larger proportion of Tommy Bahama sales and (3) the impact of LIFO accounting which included $0.6 million of credits in the first quarter of fiscal 2011 and $0.7 million of charges in the first quarter of fiscal 2010. These positive items were partially offset by the negative impact on our gross profit of approximately $1.0 million of charges to cost of goods sold in Lilly Pulitzer resulting from the write-up of acquired inventory to fair value pursuant to the purchase method of accounting in connection with the sale of acquired inventory in the first quarter of fiscal 2011. This write-up was recognized as an increase to cost of goods sold as the inventory was sold in the ordinary course of business. We do not anticipate that there will be any such charges to cost of goods sold in future periods.  Our gross profit may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.

 

SG&A

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

SG&A

 

$ 90,840

 

$ 78,009

 

$ 12,831

 

16.4%

 

SG&A (as % of net sales)

 

43.6

%

47.7

%

 

 

 

 

 

The increase in SG&A was primarily due to the first quarter of fiscal 2011 including (1) $10.0 million of SG&A associated with Lilly Pulitzer in the first quarter of fiscal 2011, (2) the incremental SG&A associated with the costs of operating Tommy Bahama retail stores which opened subsequent to the first day of fiscal 2010 and (3) other increases in SG&A, during the first quarter of fiscal 2011. The decrease in SG&A as a percentage of net sales results from an increase in our direct to consumer sales not requiring a proportionate increase in SG&A as certain SG&A costs do not fluctuate with sales levels.

 

18



Table of Contents

 

Amortization of Intangible Assets

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

Amortization of intangible assets

 

$ 298

 

$ 240

 

$ 58

 

24.2%

 

 

Amortization of intangible assets reflects the amortization of acquired intangible assets for Tommy Bahama, Lilly Pulitzer and Ben Sherman. We anticipate that amortization of intangible assets for the full year fiscal 2011 will be approximately $1.2 million.

 

Change in fair value of contingent consideration

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

Change in fair value of contingent consideration

 

$ 600

 

$

 

$ 600

 

NM

 

 

The increase in the change in fair value of contingent consideration is due to the contingent consideration associated with our acquisition of the Lilly Pulitzer brand and operations, as discussed in our Annual Report on Form 10-K for fiscal 2010. Prior to the acquisition of the Lilly Pulitzer brand and operations, we did not have any contingent consideration arrangements requiring adjustment to fair value. We anticipate that the change in fair value of contingent consideration due only to the passage of time will be approximately $2.4 million for the full year of fiscal 2011; however, this estimated full year charge will change if we alter any assumptions related to estimated fair value of the contingent consideration computed as of the acquisition date. The change in assumptions, if any, could result in a material change to our consolidated financial statements.

 

Royalties and other operating income

 

 

 

First Quarter

 

 

 

 

 

 

 

Fiscal 2011

 

Fiscal 2010

 

$ Change

 

% Change

 

Royalties and other operating income

 

$ 4,791

 

$ 3,513

 

$ 1,278

 

36.4%

 

 

The increase in royalties and other operating income was primarily due to increased royalty income in Tommy Bahama and Ben Sherman as well as royalty income associated with the recently acquired Lilly Pulitzer business.

 

Operating income (loss)

 

 

 

First Quarter