10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended August 1, 2015 |
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| or |
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File Number: 1-4365
OXFORD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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| | |
Georgia | | 58-0831862 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309
(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 þ 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.
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Large accelerated filer x | Accelerated filer o | 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.
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| | Number of shares outstanding |
Title of each class | | as of August 28, 2015 |
Common Stock, $1 par value | | 16,584,243 |
OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For the Second Quarter of Fiscal 2015
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 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). Such statements are subject to a number of risks, uncertainties and assumptions including, without limitation, the impact of economic conditions on consumer demand and spending, particularly in light of general economic uncertainty that continues to prevail, demand for our products, competitive conditions, timing of shipments requested by our wholesale customers, expected pricing levels, retention of and disciplined execution by key management, the timing and cost of store openings and of planned capital expenditures, weather, costs of products as well as the raw materials used in those products, costs of labor, acquisition and disposition activities, expected outcomes of pending or potential litigation and regulatory actions, access to capital and/or credit markets, the ultimate impact of the Ben Sherman sale transaction on our business and operating results and the impact of foreign losses on our effective tax rate. 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 2014, 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
As used in this report, unless the context requires otherwise, “our,” “us” or “we” means Oxford Industries, Inc. and its consolidated subsidiaries; “SG&A” means selling, general and administrative expenses; “SEC” means U.S. Securities and Exchange Commission; “FASB” means Financial Accounting Standards Board; “ASC” means the FASB Accounting Standards Codification; and “GAAP” means generally accepted accounting principles in the United States. Additionally, the terms listed below reflect the respective period noted:
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Fiscal 2016 | | 52 weeks ending January 28, 2017 |
Fiscal 2015 | | 52 weeks ending January 30, 2016 |
Fiscal 2014 | | 52 weeks ended January 31, 2015 |
Fourth Quarter Fiscal 2015 | | 13 weeks ending January 30, 2016 |
Third Quarter Fiscal 2015 | | 13 weeks ending October 31, 2015 |
Second Quarter Fiscal 2015 | | 13 weeks ended August 1, 2015 |
First Quarter Fiscal 2015 | | 13 weeks ended May 2, 2015 |
Fourth Quarter Fiscal 2014 | | 13 weeks ended January 31, 2015 |
Third Quarter Fiscal 2014 | | 13 weeks ended November 1, 2014 |
Second Quarter Fiscal 2014 | | 13 weeks ended August 2, 2014 |
First Quarter Fiscal 2014 | | 13 weeks ended May 3, 2014 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par amounts)
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| | | | | | | | | | | |
| August 1, 2015 | | January 31, 2015 | | August 2, 2014 |
ASSETS | |
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| | |
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Current Assets: | |
| | |
| | |
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Cash and cash equivalents | $ | 13,661 |
| | $ | 5,281 |
| | $ | 6,416 |
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Receivables, net | 57,108 |
| | 64,587 |
| | 46,912 |
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Inventories, net | 104,786 |
| | 120,613 |
| | 107,866 |
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Prepaid expenses, net | 22,163 |
| | 19,941 |
| | 18,226 |
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Deferred tax assets | 27,248 |
| | 24,424 |
| | 21,995 |
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Assets related to discontinued operations, net | 49 |
| | 48,123 |
| | 48,923 |
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Total current assets | 225,015 |
| | 282,969 |
| | 250,338 |
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Property and equipment, net | 170,283 |
| | 146,039 |
| | 136,186 |
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Intangible assets, net | 145,010 |
| | 146,135 |
| | 148,264 |
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Goodwill | 17,254 |
| | 17,295 |
| | 17,444 |
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Other non-current assets, net | 22,753 |
| | 22,529 |
| | 23,535 |
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Assets related to discontinued operations, net | — |
| | 31,747 |
| | 33,312 |
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Total Assets | $ | 580,315 |
| | $ | 646,714 |
| | $ | 609,079 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | |
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Current Liabilities: | |
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| | |
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Accounts payable | $ | 48,337 |
| | $ | 72,785 |
| | $ | 52,447 |
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Accrued compensation | 30,538 |
| | 27,075 |
| | 23,656 |
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Income tax payable | 5,016 |
| | 5,282 |
| | 4,787 |
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Other accrued expenses and liabilities | 26,780 |
| | 24,921 |
| | 23,545 |
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Contingent consideration | — |
| | 12,500 |
| | 12,363 |
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Liabilities related to discontinued operations | 6,868 |
| | 17,379 |
| | 14,886 |
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Total current liabilities | 117,539 |
| | 159,942 |
| | 131,684 |
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Long-term debt | 45,000 |
| | 104,842 |
| | 106,516 |
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Other non-current liabilities | 63,420 |
| | 56,287 |
| | 50,221 |
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Non-current deferred income taxes | 29,700 |
| | 29,467 |
| | 29,309 |
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Liabilities related to discontinued operations | — |
| | 5,571 |
| | 5,862 |
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Commitments and contingencies |
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|
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Shareholders’ Equity: | |
| | |
| | |
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Common stock, $1.00 par value per share | 16,584 |
| | 16,478 |
| | 16,469 |
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Additional paid-in capital | 122,063 |
| | 119,052 |
| | 116,266 |
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Retained earnings | 192,153 |
| | 185,229 |
| | 176,453 |
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Accumulated other comprehensive loss | (6,144 | ) | | (30,154 | ) | | (23,701 | ) |
Total shareholders’ equity | 324,656 |
| | 290,605 |
| | 285,487 |
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Total Liabilities and Shareholders’ Equity | $ | 580,315 |
| | $ | 646,714 |
| | $ | 609,079 |
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See accompanying notes.
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
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| | | | | | | | | | | | | | | |
| Second Quarter Fiscal 2015 | | Second Quarter Fiscal 2014 | | First Half Fiscal 2015 | | First Half Fiscal 2014 |
Net sales | $ | 250,689 |
| | $ | 227,550 |
| | $ | 511,084 |
| | $ | 470,116 |
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Cost of goods sold | 99,603 |
| | 91,279 |
| | 205,605 |
| | 193,473 |
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Gross profit | 151,086 |
| | 136,271 |
| | 305,479 |
| | 276,643 |
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SG&A | 119,963 |
| | 109,943 |
| | 242,643 |
| | 220,783 |
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Change in fair value of contingent consideration | — |
| | 68 |
| | — |
| | 137 |
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Royalties and other operating income | 3,623 |
| | 3,299 |
| | 7,393 |
| | 6,569 |
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Operating income | 34,746 |
| | 29,559 |
| | 70,229 |
| | 62,292 |
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Interest expense, net | 737 |
| | 888 |
| | 1,512 |
| | 1,858 |
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Earnings from continuing operations before income taxes | 34,009 |
| | 28,671 |
| | 68,717 |
| | 60,434 |
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Income taxes | 12,959 |
| | 11,382 |
| | 26,344 |
| | 24,087 |
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Net earnings from continuing operations | 21,050 |
| | 17,289 |
| | 42,373 |
| | 36,347 |
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Net loss, including loss on sale, of discontinued operations, net of taxes | (23,070 | ) | | (2,220 | ) | | (27,138 | ) | | (6,309 | ) |
Net (loss) earnings | $ | (2,020 | ) | | $ | 15,069 |
| | $ | 15,235 |
| | $ | 30,038 |
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Net earnings from continuing operations per share: | |
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Basic | $ | 1.28 |
| | $ | 1.05 |
| | $ | 2.58 |
| | $ | 2.21 |
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Diluted | $ | 1.27 |
| | $ | 1.05 |
| | $ | 2.56 |
| | $ | 2.21 |
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Net loss, including loss on sale, of discontinued operations, net of taxes, per share: | | | | | | | |
Basic | $ | (1.40 | ) | | $ | (0.14 | ) | | $ | (1.65 | ) | | $ | (0.38 | ) |
Diluted | $ | (1.39 | ) | | $ | (0.13 | ) | | $ | (1.64 | ) | | $ | (0.38 | ) |
Net (loss) earnings per share: | | | | | | | |
Basic | $ | (0.12 | ) | | $ | 0.92 |
| | $ | 0.93 |
| | $ | 1.83 |
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Diluted | $ | (0.12 | ) | | $ | 0.92 |
| | $ | 0.92 |
| | $ | 1.83 |
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Weighted average shares outstanding: | |
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Basic | 16,451 |
| | 16,425 |
| | 16,448 |
| | 16,421 |
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Diluted | 16,547 |
| | 16,460 |
| | 16,536 |
| | 16,455 |
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Dividends declared per share | $ | 0.25 |
| | $ | 0.21 |
| | $ | 0.50 |
| | $ | 0.42 |
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See accompanying notes.
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
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| Second Quarter Fiscal 2015 | | Second Quarter Fiscal 2014 | | First Half Fiscal 2015 | | First Half Fiscal 2014 |
Net earnings | $ | (2,020 | ) | | $ | 15,069 |
| | $ | 15,235 |
| | $ | 30,038 |
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Other comprehensive income, net of taxes: | |
| | |
| | |
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Foreign currency translation gain | 23,520 |
| | 15 |
| | 24,756 |
| | 109 |
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Net unrealized (loss) income on cash flow hedges | (354 | ) | | 149 |
| | (746 | ) | | (192 | ) |
Total other comprehensive income (loss), net of taxes | 23,166 |
| | 164 |
| | 24,010 |
| | (83 | ) |
Comprehensive income | $ | 21,146 |
| | $ | 15,233 |
| | $ | 39,245 |
| | $ | 29,955 |
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See accompanying notes.
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
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| First Half Fiscal 2015 | | First Half Fiscal 2014 |
Cash Flows From Operating Activities: | |
| | |
|
Net earnings | $ | 15,235 |
| | $ | 30,038 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation | 16,818 |
| | 17,180 |
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Amortization of intangible assets | 1,013 |
| | 1,260 |
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Change in fair value of contingent consideration | — |
| | 137 |
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Amortization of deferred financing costs | 192 |
| | 192 |
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Loss on sale of discontinued operations | 20,437 |
| | — |
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Equity compensation expense | 2,458 |
| | 1,737 |
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Deferred income taxes | (1,413 | ) | | (967 | ) |
Changes in working capital, net of acquisitions and dispositions: | | | |
Receivables, net | 13,505 |
| | 18,452 |
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Inventories, net | 16,638 |
| | 2,839 |
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Prepaid expenses, net | (2,533 | ) | | (347 | ) |
Current liabilities | (15,733 | ) | | (10,248 | ) |
Other non-current assets, net | (790 | ) | | (568 | ) |
Other non-current liabilities | 6,904 |
| | 209 |
|
Net cash provided by operating activities | 72,731 |
| | 59,914 |
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Cash Flows From Investing Activities: | |
| | |
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Purchases of property and equipment | (41,425 | ) | | (19,576 | ) |
Proceeds from sale of discontinued operations | 59,336 |
| | — |
|
Net cash provided by (used in) investing activities | 17,911 |
| | (19,576 | ) |
Cash Flows From Financing Activities: | |
| | |
|
Repayment of revolving credit arrangements | (216,336 | ) | | (191,056 | ) |
Proceeds from revolving credit arrangements | 153,690 |
| | 157,867 |
|
Payment of contingent consideration | (12,500 | ) | | (2,500 | ) |
Proceeds from issuance of common stock, including excess tax benefits | 658 |
| | 564 |
|
Dividends paid | (8,313 | ) | | (6,931 | ) |
Net cash used in financing activities | (82,801 | ) | | (42,056 | ) |
Net change in cash and cash equivalents | 7,841 |
| | (1,718 | ) |
Effect of foreign currency translation on cash and cash equivalents | 539 |
| | (349 | ) |
Cash and cash equivalents at the beginning of year | 5,281 |
| | 8,483 |
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Cash and cash equivalents at the end of the period | $ | 13,661 |
| | $ | 6,416 |
|
Supplemental disclosure of cash flow information: | |
| | |
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Cash paid for interest, net | $ | 1,399 |
| | $ | 1,821 |
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Cash paid for income taxes | $ | 22,797 |
| | $ | 25,873 |
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See accompanying notes.
OXFORD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SECOND QUARTER OF FISCAL 2015
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1. | Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 GAAP for complete financial statements. 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 significant 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 2014. |
Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in these financial statements reflect continuing operations and exclude any amounts related to our former Ben Sherman operating group, which is classified as discontinued operations, as discussed in Note 4.
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2. | Operating Group Information: Our business is primarily operated through our Tommy Bahama, Lilly Pulitzer, and Lanier Clothes operating groups, each of which is described in our Annual Report on Form 10-K for Fiscal 2014. 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. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand's direct to consumer, wholesale and licensing operations. The tables below present certain information (in thousands) about our operating groups, as well as Corporate and Other, which is a reconciling category for reporting purposes. Beginning with the First Quarter of Fiscal 2015, amounts associated with our Ben Sherman operations, which were sold in the Second Quarter of Fiscal 2015, are classified as discontinued operations and therefore are excluded from the tables below. |
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| | | | | | | | | | | | | | | |
| Second Quarter Fiscal 2015 | | Second Quarter Fiscal 2014 | | First Half Fiscal 2015 | | First Half Fiscal 2014 |
Net sales | | | | | | | |
Tommy Bahama | $ | 165,842 |
| | $ | 157,789 |
| | $ | 338,511 |
| | $ | 316,148 |
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Lilly Pulitzer | 64,676 |
| | 46,568 |
| | 123,654 |
| | 96,939 |
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Lanier Clothes | 18,306 |
| | 21,318 |
| | 44,478 |
| | 50,064 |
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Corporate and Other | 1,865 |
| | 1,875 |
| | 4,441 |
| | 6,965 |
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Total net sales | $ | 250,689 |
| | $ | 227,550 |
| | $ | 511,084 |
| | $ | 470,116 |
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Depreciation and amortization | | | | | | | |
Tommy Bahama | $ | 6,546 |
| | $ | 6,764 |
| | $ | 13,467 |
| | $ | 13,422 |
|
Lilly Pulitzer | 1,353 |
| | 1,096 |
| | 2,634 |
| | 2,150 |
|
Lanier Clothes | 111 |
| | 67 |
| | 221 |
| | 134 |
|
Corporate and Other | 392 |
| | 627 |
| | 842 |
| | 1,258 |
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Total depreciation and amortization | $ | 8,402 |
| | $ | 8,554 |
| | $ | 17,164 |
| | $ | 16,964 |
|
Operating income (loss) | | | | | | | |
Tommy Bahama | $ | 20,142 |
| | $ | 21,758 |
| | $ | 40,916 |
| | $ | 41,620 |
|
Lilly Pulitzer | 19,515 |
| | 11,177 |
| | 37,258 |
| | 25,977 |
|
Lanier Clothes | 1,483 |
| | 1,537 |
| | 3,624 |
| | 4,275 |
|
Corporate and Other | (6,394 | ) | | (4,913 | ) | | (11,569 | ) | | (9,580 | ) |
Total operating income | $ | 34,746 |
| | $ | 29,559 |
| | $ | 70,229 |
| | $ | 62,292 |
|
Interest expense, net | 737 |
| | 888 |
| | 1,512 |
| | 1,858 |
|
Earnings from continuing operations before income taxes | $ | 34,009 |
| | $ | 28,671 |
| | $ | 68,717 |
| | $ | 60,434 |
|
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3. | Accumulated Other Comprehensive Loss: The following tables detail the changes in our accumulated other comprehensive loss by component (in thousands), net of related income taxes, for the periods specified: |
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| | | | | | | | | |
Second Quarter Fiscal 2015 | Foreign currency translation gain (loss) | Net unrealized gain (loss) on cash flow hedges | Accumulated other comprehensive income (loss) |
Beginning balance | $ | (29,664 | ) | $ | 354 |
| $ | (29,310 | ) |
Total other comprehensive income (loss), net of taxes | 23,520 |
| (354 | ) | 23,166 |
|
Ending balance | $ | (6,144 | ) | $ | — |
| $ | (6,144 | ) |
Second Quarter Fiscal 2014 | Foreign currency translation gain (loss) | Net unrealized gain (loss) on cash flow hedges | Accumulated other comprehensive income (loss) |
Beginning balance | $ | (23,189 | ) | $ | (676 | ) | $ | (23,865 | ) |
Total other comprehensive income, net of taxes | 15 |
| 149 |
| 164 |
|
Ending balance | $ | (23,174 | ) | $ | (527 | ) | $ | (23,701 | ) |
First Half Fiscal 2015 | Foreign currency translation gain (loss) | Net unrealized gain (loss) on cash flow hedges | Accumulated other comprehensive income (loss) |
Beginning balance | $ | (30,900 | ) | $ | 746 |
| $ | (30,154 | ) |
Total other comprehensive income (loss), net of taxes | 24,756 |
| (746 | ) | 24,010 |
|
Ending balance | $ | (6,144 | ) | $ | — |
| $ | (6,144 | ) |
First Half Fiscal 2014 | Foreign currency translation gain (loss) | Net unrealized gain (loss) on cash flow hedges | Accumulated other comprehensive income (loss) |
Beginning balance | $ | (23,283 | ) | $ | (335 | ) | $ | (23,618 | ) |
Total other comprehensive income (loss), net of taxes | 109 |
| (192 | ) | (83 | ) |
Ending balance | $ | (23,174 | ) | $ | (527 | ) | $ | (23,701 | ) |
The change in accumulated other comprehensive loss during the Second Quarter of Fiscal 2015 and the First Half of Fiscal 2015 resulted from the sale of our discontinued operations as the related amounts previously classified in accumulated other comprehensive loss were recognized in net loss from discontinued operations, net of taxes in our consolidated statement of operations. No material amounts of accumulated other comprehensive loss were reclassified from accumulated other comprehensive loss into our consolidated statements of operations during either the Second Quarter of Fiscal 2014 or the First Half of Fiscal 2014.
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4. | Discontinued Operations: On July 17, 2015, we entered into a sale and purchase agreement with an unrelated party, Ben Sherman UK Acquisition Limited, pursuant to which we sold 100% of the equity interests of our Ben Sherman business, consisting of Ben Sherman Limited and its subsidiaries and Ben Sherman Clothing LLC, for £40.8 million. The final purchase price received by us is subject to adjustment based on, among other things, the actual debt and net working capital of the Ben Sherman business on the closing date, which is expected to be finalized during the Third Quarter of Fiscal 2015. The loss on our sale of the Ben Sherman business was estimated for purposes of our August 1, 2015 consolidated financial statements. We do not anticipate significant operations or earnings related to the discontinued operations subsequent to the Second Quarter of Fiscal 2015, with cash flow attributable to discontinued operations in future periods primarily limited to the post-closing purchase price adjustments and amounts associated with a lease obligation of the Ben Sherman business which we retained in connection with the transaction. Changes to the estimates included in our loss on sale of discontinued operations and liabilities related to discontinued operations as of August 1, 2015, including actual amounts payable in connection with the retained lease obligation, the estimated post-closing purchase price adjustment or accrued expenses related to the transaction, may result in an adjustment to our loss on the sale transaction. |
In connection with the Ben Sherman disposal transaction we, among other things, entered into a transitional services agreement with the purchaser pursuant to which we and our subsidiaries are providing, in exchange for various fees, certain transitional support services (primarily in the United States) to the purchaser in connection with its operation of the Ben Sherman business following the transaction. The duration of the transitional services vary but may continue for a period of up to 12 months following the date of the transaction.
We have not classified as discontinued operations any corporate or shared service expenses historically charged to Ben Sherman which we determined may not be eliminated as a result of its disposal. Recognizing these expenses as continuing operations in Corporate and Other reflects the uncertainty of whether there will be a reduction in such corporate or shared service expenses in the future as a result of the sale of Ben Sherman. Interest expense under our prior U.K. revolving credit agreement, which was satisfied in connection with the transaction, is the only interest expense included in discontinued operations in our consolidated financial statements as this represents the interest expense directly attributable to the discontinued operations.
The following represents major classes of assets and liabilities related to the discontinued operations included in our consolidated balance sheets as of the following dates (in thousands): |
| | | | | | | | | |
| August 1, 2015 | January 31, 2015 | August 2, 2014 |
Receivables, net | $ | — |
| $ | 14,517 |
| $ | 11,334 |
|
Inventories, net | — |
| 27,602 |
| 33,469 |
|
Other current assets, net | 49 |
| 6,004 |
| 4,110 |
|
Property and equipment, net | — |
| 9,037 |
| 7,788 |
|
Intangible assets, net | — |
| 21,635 |
| 24,311 |
|
Other non-current assets, net | — |
| 1,075 |
| 1,213 |
|
Total assets | $ | 49 |
| $ | 79,870 |
| $ | 82,225 |
|
| | | |
Accounts payable and other accrued expenses | $ | 6,868 |
| $ | 13,253 |
| $ | 12,923 |
|
Short-term debt | — |
| 4,126 |
| 1,963 |
|
Non-current liabilities | — |
| 1,826 |
| 1,610 |
|
Deferred income taxes | — |
| 3,745 |
| 4,252 |
|
Total liabilities | $ | 6,868 |
| $ | 22,950 |
| $ | 20,748 |
|
| | | |
Net (liabilities) assets | $ | (6,819 | ) | $ | 56,920 |
| $ | 61,477 |
|
Operating results of the discontinued operations are shown below (in thousands): |
| | | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | First Half Fiscal 2015 | First Half Fiscal 2014 |
Net sales | $ | 13,105 |
| $ | 18,696 |
| $ | 28,081 |
| $ | 33,779 |
|
Cost of goods sold | 8,824 |
| 9,552 |
| 17,414 |
| 17,679 |
|
Gross profit | 4,281 |
| 9,144 |
| 10,667 |
| 16,100 |
|
SG&A | 8,370 |
| 12,454 |
| 20,106 |
| 24,845 |
|
Royalties and other operating income | 789 |
| 576 |
| 1,919 |
| 1,747 |
|
Operating loss | (3,300 | ) | (2,734 | ) | (7,520 | ) | (6,998 | ) |
Interest expense, net | (27 | ) | 33 |
| 45 |
| 136 |
|
Loss from discontinued operations before income taxes | (3,273 | ) | (2,767 | ) | (7,565 | ) | (7,134 | ) |
Income taxes | (640 | ) | (547 | ) | (864 | ) | (825 | ) |
Loss from discontinued operations, net of taxes | (2,633 | ) | (2,220 | ) | (6,701 | ) | (6,309 | ) |
Loss on sale of discontinued operations, net of taxes | (20,437 | ) | — |
| (20,437 | ) | — |
|
Net loss from discontinued operations, net of taxes | $ | (23,070 | ) | $ | (2,220 | ) | $ | (27,138 | ) | $ | (6,309 | ) |
Certain information pertaining to depreciation and amortization as well as capital expenditures associated with our discontinued operations has been included below (in thousands): |
| | | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | First Half Fiscal 2015 | First Half Fiscal 2014 |
Depreciation and amortization (1) | $ | — |
| $ | 750 |
| $ | 667 |
| $ | 1,476 |
|
Capital expenditures | $ | 233 |
| $ | 438 |
| $ | 660 |
| $ | 796 |
|
(1) For Fiscal 2015, amounts reflect expense recognized prior to classification as held for sale, which occurred on March 24, 2015. No expense for depreciation or amortization was recognized in our consolidated statements of operations subsequent to qualifying as held for sale.
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 2014.
OVERVIEW
We generate revenues and cash flow primarily through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our owned lifestyle brands, as well as certain licensed and private label apparel products. We distribute our products through our direct to consumer channels, including our retail stores, e-commerce sites and restaurants, and our wholesale channel, which includes department stores, specialty stores, national chains, warehouse clubs, mass merchants and Internet retailers. In Fiscal 2014, more than 95% of our consolidated net sales, excluding the net sales of our discontinued operations, were to customers located in the United States, with the sales outside the United States primarily being sales of our Tommy Bahama products in Canada and the Asia-Pacific region. We source substantially all of our products through third party manufacturers located outside of the United States.
Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We believe that lifestyle branded products that create an emotional connection with consumers can command greater customer loyalty and higher price points at retail, resulting in higher earnings. A successful
lifestyle brand opens up greater opportunities for full-price direct to consumer operations as well as licensing opportunities in product categories beyond our core business. We strive to exploit the potential of our existing brands and products and, as suitable opportunities arise, we may acquire additional lifestyle brands that we believe fit within our business model.
We operate in highly competitive domestic and international markets in which numerous apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry and our competitors vary by operating group and distribution channel. We believe that the principal competitive factors in the apparel industry are the reputation, value and image of brand names; design; consumer preference; price; quality; marketing; and customer service. Our ability to compete successfully in design and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference, and presenting appealing products for consumers. In some instances, a retailer that is our customer may compete with us by offering certain of its own or other competitors' products in its retail stores.
The apparel industry is cyclical and dependent upon the overall level of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. Often, negative economic conditions have a longer and more severe impact on the apparel industry than these conditions have on other industries. We believe that the global economic conditions and economic uncertainty that have prevailed in recent years continue to impact our operating groups and the apparel industry as a whole, contributing to an apparel retail environment that has become increasingly more promotional. Additionally, in recent years our operations have been impacted by pricing pressures on raw materials, transportation, labor and other costs necessary for the production and sourcing of apparel products, most of which appear to be permanent cost increases.
We believe that our Tommy Bahama® and Lilly Pulitzer® lifestyle brands have significant opportunities for long-term growth in their direct to consumer businesses through expansion of retail store operations, as we add additional retail store locations and increase comparable store sales, and higher sales in e-commerce operations, which are likely to grow at a faster rate than comparable brick and mortar retail store sales. We also believe that these lifestyle brands provide an opportunity for moderate sales increases in their wholesale businesses in the long term primarily from current customers adding to their existing door count and the selective addition of new wholesale customers who generally follow a full-price retail model. We believe that we must continue to invest in our Tommy Bahama and Lilly Pulitzer lifestyle brands in order to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations such as retail store and restaurant build-out and remodels, technology enhancements and distribution center and administrative office expansion initiatives, as well as increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future net sales growth. We expect that the investments may continue to put downward pressure on our operating margins in the near future until we have sufficient sales to leverage the additional operating costs.
We believe that there are opportunities for modest sales growth for Lanier Clothes through new product programs. We also believe that the tailored clothing environment will continue to be very challenging, which we believe will negatively impact net sales, operating income and operating margin, particularly in the near term.
We continue to believe that it is important to maintain a strong balance sheet and liquidity. We believe that positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient resources to fund future investments in our lifestyle brands. While we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, in the future, we may also add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria.
The following table sets forth our consolidated operating results from continuing operations (in thousands, except per share amounts) for the First Half of Fiscal 2015 compared to the First Half of Fiscal 2014:
|
| | | | | | |
| First Half of Fiscal 2015 | First Half of Fiscal 2014 |
Net sales | $ | 511,084 |
| $ | 470,116 |
|
Operating income | $ | 70,229 |
| $ | 62,292 |
|
Net earnings from continuing operations | 42,373 |
| 36,347 |
|
Net earnings from continuing operations per diluted share | $ | 2.56 |
| $ | 2.21 |
|
The primary reasons for the higher net earnings from continuing operations in the First Half of Fiscal 2015 were higher operating income in Lilly Pulitzer, partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a larger operating loss in Corporate and Other, each as discussed below.
Discontinued operations
The net loss from discontinued operations, net of taxes of $27.1 million in the First Half of Fiscal 2015 was primarily due to the $20.4 million estimated loss on sale of the Ben Sherman operations in the Second Quarter of Fiscal 2015.
COMPARABLE STORE SALES
We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include net sales from full-price stores and our e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both our full-price stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channel. For our comparable store sales disclosures, we exclude (1) outlet store sales, warehouse sales and e-commerce flash clearance sales, as those sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our full-price direct to consumer sales, and (2) restaurant sales, as we do not currently believe that the inclusion of restaurant sales is meaningful in assessing our consolidated results of operations. Comparable store sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, we consider a comparable store to be, in addition to our e-commerce sites, a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel resulting in the store being closed for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space, (3) a relocation to a new space that was significantly different from the prior retail space, or (4) a closing or opening of a Tommy Bahama restaurant adjacent to the retail store. For those stores which are excluded from comparable stores based on the preceding sentence, the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel, relocation or restaurant closing or opening. Generally, a store that is remodeled will continue to be included in our comparable store metrics as a store is not typically closed for a two week period during a remodel. However, a store that is relocated generally will not be included in our comparable store metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location. Additionally, any stores that were closed during the prior fiscal year or current fiscal year, or which we plan to close or vacate in the current fiscal year, are excluded from the definition of comparable stores.
Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store metrics disclosed by us may not be comparable to the metrics disclosed by other companies.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 2015 COMPARED TO SECOND QUARTER OF FISCAL 2014
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.
|
| | | | | | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Net sales | $ | 250,689 |
| 100.0 | % | $ | 227,550 |
| 100.0 | % | $ | 23,139 |
| 10.2 | % |
Cost of goods sold | 99,603 |
| 39.7 | % | 91,279 |
| 40.1 | % | 8,324 |
| 9.1 | % |
Gross profit | 151,086 |
| 60.3 | % | 136,271 |
| 59.9 | % | 14,815 |
| 10.9 | % |
SG&A | 119,963 |
| 47.9 | % | 109,943 |
| 48.3 | % | 10,020 |
| 9.1 | % |
Change in fair value of contingent consideration | — |
| — | % | 68 |
| — | % | (68 | ) | (100.0 | )% |
Royalties and other operating income | 3,623 |
| 1.4 | % | 3,299 |
| 1.4 | % | 324 |
| 9.8 | % |
Operating income | 34,746 |
| 13.9 | % | 29,559 |
| 13.0 | % | 5,187 |
| 17.5 | % |
Interest expense, net | 737 |
| 0.3 | % | 888 |
| 0.4 | % | (151 | ) | (17.0 | )% |
Earnings from continuing operations before income taxes | 34,009 |
| 13.6 | % | 28,671 |
| 12.6 | % | 5,338 |
| 18.6 | % |
Income taxes | 12,959 |
| 5.2 | % | 11,382 |
| 5.0 | % | 1,577 |
| 13.9 | % |
Net earnings from continuing operations | $ | 21,050 |
| 8.4 | % | $ | 17,289 |
| 7.6 | % | $ | 3,761 |
| 21.8 | % |
Net loss, including loss on sale, of discontinued operations, net of taxes | (23,070 | ) | NM |
| (2,220 | ) | NM |
| $ | (20,850 | ) | (939.2 | )% |
Net (loss) earnings | $ | (2,020 | ) | NM |
| $ | 15,069 |
| NM |
| $ | (17,089 | ) | (113.4 | )% |
The discussion and tables below compare certain line items included in our statements of operations for the Second Quarter of Fiscal 2015 to the Second Quarter of Fiscal 2014. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our Ben Sherman operating group, as discussed in Note 4 in our condensed consolidated financial statements included in this report.
Net Sales
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 165,842 |
| $ | 157,789 |
| $ | 8,053 |
| 5.1 | % |
Lilly Pulitzer | 64,676 |
| 46,568 |
| 18,108 |
| 38.9 | % |
Lanier Clothes | 18,306 |
| 21,318 |
| (3,012 | ) | (14.1 | )% |
Corporate and Other | 1,865 |
| 1,875 |
| (10 | ) | (0.5 | )% |
Total net sales | $ | 250,689 |
| $ | 227,550 |
| $ | 23,139 |
| 10.2 | % |
Consolidated net sales increased $23.1 million, or 10.2%, in the Second Quarter of Fiscal 2015 compared to the Second Quarter of Fiscal 2014 reflecting net sales changes in each operating group, as discussed below. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
|
| | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 |
Full-price retail stores, outlets and warehouse sales | 48 | % | 47 | % |
E-commerce | 18 | % | 15 | % |
Restaurant | 7 | % | 7 | % |
Wholesale | 27 | % | 31 | % |
Total | 100 | % | 100 | % |
Tommy Bahama:
The Tommy Bahama net sales increase of $8.1 million, or 5.1%, was primarily driven by (1) an incremental net sales increase of $5.7 million associated with the operation of additional full-price retail and outlet stores, (2) a $2.4 million, or 3%, increase in comparable store sales, which includes full-price retail stores and full-price e-commerce sales, to $89.7 million in the Second Quarter of Fiscal 2015 from $87.4 million in the Second Quarter of Fiscal 2014, (3) a $1.3 million increase in restaurant sales resulting from the operation of one additional restaurant and increased sales in existing restaurants, (4) a $0.8 million increase in e-commerce flash clearance sales and (5) an increase of $0.3 million in outlet stores which were operated during all of Fiscal 2014 and Fiscal 2015. These increases in net sales were partially offset by a $2.4 million decrease in wholesale sales.
As of August 1, 2015, we operated 161 Tommy Bahama stores globally, consisting of 104 full-price retail stores, 15 restaurant-retail locations and 42 outlet stores. As of August 2, 2014 we operated 147 Tommy Bahama stores consisting of 94 full-price retail stores, 14 restaurant-retail locations and 39 outlet stores.
The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
|
| | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 |
Full-price retail stores and outlets | 55 | % | 54 | % |
E-commerce | 17 | % | 15 | % |
Restaurant | 10 | % | 10 | % |
Wholesale | 18 | % | 21 | % |
Total | 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $18.1 million, or 38.9%, was primarily a result of (1) a $10.8 million, or 41%, increase in comparable store sales to $37.3 million in the Second Quarter of Fiscal 2015 compared to $26.4 million in the Second Quarter of Fiscal 2014, (2) an incremental net sales increase of $3.4 million associated with retail stores opened in Fiscal 2014 and Fiscal 2015, (3) a $3.0 million increase in wholesale sales during the Second Quarter of Fiscal 2015 and (4) $0.9 million higher sales at the annual warehouse sale. As of August 1, 2015, we operated 33 Lilly Pulitzer retail stores compared to 26 retail stores as of August 2, 2014.
The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
|
| | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 |
Full-price retail stores and warehouse sales | 45 | % | 45 | % |
E-commerce | 27 | % | 22 | % |
Wholesale | 28 | % | 33 | % |
Total | 100 | % | 100 | % |
Lanier Clothes:
The decrease in net sales for Lanier Clothes of $3.0 million, or 14.1%, was due to a decrease in net sales in the branded business. The lower sales in the branded business was primarily due to the exit from or reduction in certain replenishment and other programs.
Corporate and Other:
Corporate and Other net sales in each period primarily consist of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center as well as the impact of the elimination of inter-company sales between operating groups. The comparable sales in the Second Quarter of Fiscal 2015 reflects a reduction in Oxford Golf's private label sales which was partially offset by the elimination of lower inter-company sales in the Second Quarter of Fiscal 2015.
Gross Profit
The table below presents gross profit by operating group and in total for the Second Quarter of Fiscal 2015 and the Second Quarter of Fiscal 2014 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 100,473 |
| $ | 97,468 |
| $ | 3,005 |
| 3.1 | % |
Lilly Pulitzer | 44,044 |
| 31,134 |
| 12,910 |
| 41.5 | % |
Lanier Clothes | 5,805 |
| 6,037 |
| (232 | ) | (3.8 | )% |
Corporate and Other | 764 |
| 1,632 |
| (868 | ) | (53.2 | )% |
Total gross profit | $ | 151,086 |
| $ | 136,271 |
| $ | 14,815 |
| 10.9 | % |
LIFO charge (credit) included in Corporate and Other | $ | 714 |
| $ | (168 | ) | |
| |
|
The increase in consolidated gross profit was primarily driven by higher net sales as discussed above. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for the Second Quarter of Fiscal 2015 and Second Quarter of Fiscal 2014.
|
| | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 |
Tommy Bahama | 60.6 | % | 61.8 | % |
Lilly Pulitzer | 68.1 | % | 66.9 | % |
Lanier Clothes | 31.7 | % | 28.3 | % |
Corporate and Other | NM |
| NM |
|
Consolidated gross margin | 60.3 | % | 59.9 | % |
On a consolidated basis, gross margin increased from the Second Quarter of Fiscal 2014, primarily as a result of (1) Lilly Pulitzer, which has higher gross margins than our other operating groups, representing a greater proportion of consolidated net sales, (2) direct to consumer sales representing a greater proportion of consolidated net sales and (3) improved gross margins in Lilly Pulitzer and Lanier Clothes. These favorable items were partially offset by the net unfavorable impact of LIFO accounting as compared to the prior period and lower gross margin in Tommy Bahama.
Tommy Bahama:
Tommy Bahama's gross margin in the Second Quarter of Fiscal 2015 decreased from the Second Quarter of Fiscal 2014. The reduction in gross margin reflected lower gross margins in both the direct to consumer and wholesale channels of distribution, which offset the favorable impact of a change in sales mix with direct to consumer sales representing a greater proportion of net sales. The lower direct to consumer gross margin was primarily due to a greater proportion of sales in our full-price stores and e-commerce website in the quarter occurring in connection with Tommy Bahama's loyalty card and flip-side
events, a greater proportion of total direct to consumer sales being outlet store and flash e-commerce sales and more significant in-store discounts in our outlet stores. The lower gross margin in the wholesale business was primarily a result of a greater proportion of wholesale sales being off-price sales.
Lilly Pulitzer:
The increase in gross margin for Lilly Pulitzer was primarily driven by a change in sales mix towards the direct to consumer channel of distribution, which typically has higher gross margins than the wholesale channel of distribution as well as higher gross margins in each channel of distribution.
Lanier Clothes:
The increase in gross margin for Lanier Clothes was primarily due to fewer allowances and markdowns associated with certain programs in the current year as well as a change in sales mix with a greater proportion of sales being higher gross margin programs.
Corporate and Other:
The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Oxford Golf and Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of inter-company sales between operating groups. The lower gross profit for Corporate and Other in the Second Quarter of Fiscal 2015 was primarily due to the net unfavorable impact of LIFO accounting. LIFO accounting resulted in a charge of $0.7 million in the Second Quarter of Fiscal 2015 compared to a credit of $0.2 million in the Second Quarter of Fiscal 2014.
SG&A
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
SG&A | $ | 119,963 |
| $ | 109,943 |
| $ | 10,020 |
| 9.1 | % |
SG&A as % of net sales | 47.9 | % | 48.3 | % | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 392 |
| $ | 454 |
| | |
The increase in SG&A was primarily due to (1) $4.5 million of incremental costs in the Second Quarter of Fiscal 2015 associated with additional Tommy Bahama retail stores and restaurants and Lilly Pulitzer stores, (2) costs to support the growing Tommy Bahama and Lilly Pulitzer businesses and (3) $1.1 million of increased incentive compensation in the Second Quarter of Fiscal 2015.
SG&A included $0.5 million of amortization of intangible assets in the Second Quarter of Fiscal 2015 compared to $0.6 million in the Second Quarter of Fiscal 2014. We anticipate that amortization of intangible assets for Fiscal 2015 will be approximately $2.0 million, with approximately $1.6 million of the amortization related to amortization of the intangible assets acquired as part of the Tommy Bahama Canada acquisition.
Royalties and other operating income
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Royalties and other operating income | $ | 3,623 |
| $ | 3,299 |
| $ | 324 |
| 9.8 | % |
Royalties and other operating income in the Second Quarter of Fiscal 2015 primarily reflect income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The $0.3 million increase in royalties and other income reflects increased royalty income for both Tommy Bahama and Lilly Pulitzer.
Operating income (loss)
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 20,142 |
| $ | 21,758 |
| $ | (1,616 | ) | (7.4 | )% |
Lilly Pulitzer | 19,515 |
| 11,177 |
| 8,338 |
| 74.6 | % |
Lanier Clothes | 1,483 |
| 1,537 |
| (54 | ) | (3.5 | )% |
Corporate and Other | (6,394 | ) | (4,913 | ) | (1,481 | ) | (30.1 | )% |
Total operating income | $ | 34,746 |
| $ | 29,559 |
| $ | 5,187 |
| 17.5 | % |
LIFO charge (credit) included in Corporate and Other | $ | 714 |
| $ | (168 | ) | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 392 |
| $ | 454 |
| | |
Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 68 |
| |
| |
|
The increase in operating income was primarily due to the higher operating income in Lilly Pulitzer, partially offset by lower operating income in Tommy Bahama and a higher operating loss in Corporate and Other. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Net sales | $ | 165,842 |
| $ | 157,789 |
| $ | 8,053 |
| 5.1 | % |
Gross margin | 60.6 | % | 61.8 | % | |
| |
|
Operating income | $ | 20,142 |
| $ | 21,758 |
| $ | (1,616 | ) | (7.4 | )% |
Operating income as % of net sales | 12.1 | % | 13.8 | % | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 392 |
| $ | 454 |
| | |
The decrease in operating income for Tommy Bahama was primarily due to lower gross margins and higher SG&A which were partially offset by higher sales. The higher SG&A was primarily due to (1) $3.4 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants, including set-up costs associated with new stores and restaurants and (2) higher costs to support the growing Tommy Bahama business.
Lilly Pulitzer:
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Net sales | $ | 64,676 |
| $ | 46,568 |
| $ | 18,108 |
| 38.9 | % |
Gross margin | 68.1 | % | 66.9 | % | |
| |
|
Operating income | $ | 19,515 |
| $ | 11,177 |
| $ | 8,338 |
| 74.6 | % |
Operating income as % of net sales | 30.2 | % | 24.0 | % | |
| |
|
Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 68 |
| |
| |
|
The increase in operating income in Lilly Pulitzer was primarily due to the higher net sales and gross margin. These items were partially offset by increased SG&A. The increased SG&A was primarily associated with (1) higher costs to support the growing business, reflecting increased infrastructure costs and advertising expense, (2) $1.2 million of incremental SG&A associated with the cost of operating additional retail stores and (3) $0.7 million of higher incentive compensation.
Lanier Clothes:
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Net sales | $ | 18,306 |
| $ | 21,318 |
| $ | (3,012 | ) | (14.1 | )% |
Gross margin | 31.7 | % | 28.3 | % | |
| |
|
Operating income | $ | 1,483 |
| $ | 1,537 |
| $ | (54 | ) | (3.5 | )% |
Operating income as % of net sales | 8.1 | % | 7.2 | % | |
| |
|
The lower operating income for Lanier Clothes was primarily due to the reduction in net sales generally offset by higher gross margins and lower SG&A.
Corporate and Other:
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Net sales | $ | 1,865 |
| $ | 1,875 |
| $ | (10 | ) | (0.5 | )% |
Operating loss | $ | (6,394 | ) | $ | (4,913 | ) | $ | (1,481 | ) | (30.1 | )% |
LIFO charge (credit) included in Corporate and Other | $ | 714 |
| $ | (168 | ) | |
| |
|
The lower operating results in Corporate and Other were primarily due to the net unfavorable impact of LIFO accounting in the Second Quarter of Fiscal 2015 compared to the Second Quarter of Fiscal 2014 and the lower operating results in Oxford Golf.
Interest expense, net
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Interest expense, net | $ | 737 |
| $ | 888 |
| $ | (151 | ) | (17.0 | )% |
Interest expense for the Second Quarter of Fiscal 2015 decreased from the prior year primarily due to lower average borrowings outstanding and lower borrowing rates during the Second Quarter of Fiscal 2015 compared to the Second Quarter of Fiscal 2014.
Income taxes
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Income taxes | $ | 12,959 |
| $ | 11,382 |
| $ | 1,577 |
| 13.9 | % |
Effective tax rate | 38.1 | % | 39.7 | % | |
| |
|
Income tax expense for the Second Quarter of Fiscal 2015 increased, reflecting higher earnings partially offset by a lower effective tax rate. The lower effective tax rate in the Second Quarter of Fiscal 2015 compared to the Second Quarter of Fiscal 2014 primarily resulted from higher domestic earnings and reductions in foreign losses. Our effective tax rate for the full year of Fiscal 2015 is expected to generally be comparable to the effective tax rate incurred in the First Half of Fiscal 2015.
Net earnings from continuing operations
|
| | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 |
Net earnings from continuing operations | $ | 21,050 |
| $ | 17,289 |
|
Net earnings from continuing operations per diluted share | $ | 1.27 |
| $ | 1.05 |
|
Weighted average shares outstanding - diluted | 16,547 |
| 16,460 |
|
The primary reasons for the higher net earnings from continuing operations in the Second Quarter of Fiscal 2015 were higher operating income in Lilly Pulitzer, partially offset by lower operating income in Tommy Bahama and a larger operating loss in Corporate and Other, each as discussed above.
Discontinued operations
|
| | | | | | | | | | | |
| Second Quarter Fiscal 2015 | Second Quarter Fiscal 2014 | $ Change | % Change |
Loss from discontinued operations, net of taxes | $ | (2,633 | ) | $ | (2,220 | ) | $ | (413 | ) | (18.6 | )% |
Loss on sale of discontinued operations, net of taxes | $ | (20,437 | ) | $ | — |
| $ | (20,437 | ) | (100.0 | )% |
Net loss from discontinued operations, net of taxes | $ | (23,070 | ) | $ | (2,220 | ) | $ | (20,850 | ) | (939.2 | )% |
The larger net loss from discontinued operations, net of taxes in the Second Quarter of Fiscal 2015 was primarily due to the loss on sale of the Ben Sherman operations in the Second Quarter of Fiscal 2015.
FIRST HALF OF FISCAL 2015 COMPARED TO FIRST HALF OF FISCAL 2014
The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding.
|
| | | | | | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Net sales | $ | 511,084 |
| 100.0 | % | $ | 470,116 |
| 100.0 | % | $ | 40,968 |
| 8.7 | % |
Cost of goods sold | 205,605 |
| 40.2 | % | 193,473 |
| 41.2 | % | 12,132 |
| 6.3 | % |
Gross profit | 305,479 |
| 59.8 | % | 276,643 |
| 58.8 | % | 28,836 |
| 10.4 | % |
SG&A | 242,643 |
| 47.5 | % | 220,783 |
| 47.0 | % | 21,860 |
| 9.9 | % |
Change in fair value of contingent consideration | — |
| — | % | 137 |
| — | % | (137 | ) | (100.0 | )% |
Royalties and other operating income | 7,393 |
| 1.4 | % | 6,569 |
| 1.4 | % | 824 |
| 12.5 | % |
Operating income | 70,229 |
| 13.7 | % | 62,292 |
| 13.3 | % | 7,937 |
| 12.7 | % |
Interest expense, net | 1,512 |
| 0.3 | % | 1,858 |
| 0.4 | % | (346 | ) | (18.6 | )% |
Earnings from continuing operations before income taxes | 68,717 |
| 13.4 | % | 60,434 |
| 12.9 | % | 8,283 |
| 13.7 | % |
Income taxes | 26,344 |
| 5.2 | % | 24,087 |
| 5.1 | % | 2,257 |
| 9.4 | % |
Net earnings from continuing operations | 42,373 |
| 8.3 | % | 36,347 |
| 7.7 | % | $ | 6,026 |
| 16.6 | % |
Net loss, including loss on sale, of discontinued operations, net of taxes | (27,138 | ) | NM |
| (6,309 | ) | NM |
| $ | (20,829 | ) | (330.1 | )% |
Net (loss) earnings | $ | 15,235 |
| NM |
| $ | 30,038 |
| NM |
| $ | (14,803 | ) | (49.3 | )% |
The discussion and tables below compare certain line items included in our statements of operations for the First Half of Fiscal 2015 to the First Half of Fiscal 2014. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our Ben Sherman operating group, as discussed in Note 4 in our condensed consolidated financial statements included in this report.
Net Sales
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 338,511 |
| $ | 316,148 |
| $ | 22,363 |
| 7.1 | % |
Lilly Pulitzer | 123,654 |
| 96,939 |
| 26,715 |
| 27.6 | % |
Lanier Clothes | 44,478 |
| 50,064 |
| (5,586 | ) | (11.2 | )% |
Corporate and Other | 4,441 |
| 6,965 |
| (2,524 | ) | (36.2 | )% |
Total net sales | $ | 511,084 |
| $ | 470,116 |
| $ | 40,968 |
| 8.7 | % |
Consolidated net sales increased $41.0 million, or 8.7%, in the First Half of Fiscal 2015 compared to the First Half of Fiscal 2014 reflecting net sales changes in each operating group, as discussed below. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
|
| | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 |
Full-price retail stores, outlets and warehouse sales | 44 | % | 42 | % |
E-commerce | 15 | % | 13 | % |
Restaurant | 7 | % | 7 | % |
Wholesale | 34 | % | 38 | % |
Total | 100 | % | 100 | % |
Tommy Bahama:
The Tommy Bahama net sales increase of $22.4 million, or 7.1%, was primarily driven by (1) an incremental net sales increase of $12.6 million associated with the operation of additional full-price retail and outlet stores, (2) an $8.0 million, or 5%, increase in comparable store sales, which includes full-price retail stores and full-price e-commerce sales, to $167.7 million in the First Half of Fiscal 2015 from $159.7 million in the First Half of Fiscal 2014, (3) a $3.3 million increase in restaurant sales resulting from the operation of one additional restaurant and increased sales in existing restaurants and (4) a $0.8 million increase in e-commerce flash clearance sales. These increases in net sales were partially offset by a $2.4 million decrease in wholesale sales.
As of August 1, 2015, we operated 161 Tommy Bahama stores globally, consisting of 104 full-price retail stores, 15 restaurant-retail locations and 42 outlet stores. As of August 2, 2014 we operated 147 Tommy Bahama stores consisting of 94 full-price retail stores, 14 restaurant-retail locations and 39 outlet stores.
The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
|
| | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 |
Full-price retail stores and outlets | 51 | % | 50 | % |
E-commerce | 14 | % | 13 | % |
Restaurant | 11 | % | 11 | % |
Wholesale | 24 | % | 26 | % |
Total | 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $26.7 million, or 27.6%, was primarily a result of (1) a $15.6 million, or 31%, increase in comparable store sales to $66.6 million in the First Half of Fiscal 2015 compared to $51.0 million in the First Half of Fiscal 2014, (2) an incremental net sales increase of $5.3 million associated with retail stores opened in Fiscal 2014 and Fiscal 2015, (3) a $4.9 million increase in wholesale sales during the First Half of Fiscal 2015 and (4) $0.9 million higher sales
at the annual warehouse sale. As of August 1, 2015, we operated 33 Lilly Pulitzer retail stores compared to 26 retail stores as of August 2, 2014.
The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
|
| | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 |
Full-price retail stores and warehouse sales | 40 | % | 38 | % |
E-commerce | 23 | % | 20 | % |
Wholesale | 37 | % | 42 | % |
Total | 100 | % | 100 | % |
Lanier Clothes:
The decrease in net sales for Lanier Clothes of $5.6 million, or 11.2%, was primarily due to a decrease in net sales in the branded business partially offset by an increase in a private label pants program for a warehouse club. The lower sales in the branded business was primarily due to the exit from or reduction in certain replenishment and other programs.
Corporate and Other:
Corporate and Other net sales in each period primarily consist of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center as well as the impact of the elimination of inter-company sales between operating groups. The decrease in sales in the First Half of Fiscal 2015 was primarily due to a reduction in Oxford Golf's private label sales.
Gross Profit
The table below presents gross profit by operating group and in total for the First Half of Fiscal 2015 and the First Half of Fiscal 2014 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 205,706 |
| $ | 194,234 |
| $ | 11,472 |
| 5.9 | % |
Lilly Pulitzer | 84,149 |
| 64,317 |
| 19,832 |
| 30.8 | % |
Lanier Clothes | 13,251 |
| 14,382 |
| (1,131 | ) | (7.9 | )% |
Corporate and Other | 2,373 |
| 3,710 |
| (1,337 | ) | (36.0 | )% |
Total gross profit | $ | 305,479 |
| $ | 276,643 |
| $ | 28,836 |
| 10.4 | % |
LIFO charge (credit) included in Corporate and Other | $ | 384 |
| $ | (47 | ) | |
| |
|
The increase in consolidated gross profit was primarily driven by higher net sales as discussed above. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for the First Half of Fiscal 2015 and First Half of Fiscal 2014.
|
| | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 |
Tommy Bahama | 60.8 | % | 61.4 | % |
Lilly Pulitzer | 68.1 | % | 66.3 | % |
Lanier Clothes | 29.8 | % | 28.7 | % |
Corporate and Other | NM |
| NM |
|
Consolidated gross margin | 59.8 | % | 58.8 | % |
On a consolidated basis, gross margin increased in the First Half of Fiscal 2015, primarily as a result of (1) Lilly Pulitzer, which has higher gross margins than our other operating groups, representing a greater proportion of consolidated net sales, (2) direct to consumer sales representing a greater proportion of consolidated net sales and (3) improved gross margins in Lilly Pulitzer and Lanier Clothes. These favorable items were partially offset by the lower gross margin in Tommy Bahama and the net unfavorable impact of LIFO accounting as compared to the prior period.
Tommy Bahama:
Tommy Bahama's gross margin in the First Half of Fiscal 2015 decreased from the First Half of Fiscal 2014. The reduction in gross margin reflected lower gross margins in both the direct to consumer and wholesale channels of distribution, which offset the favorable impact of a change in sales mix with direct to consumer sales representing a greater proportion of net sales. The lower direct to consumer gross margin was primarily due to a greater proportion of sales in our full-price stores and e-commerce website in the period occurring in connection with Tommy Bahama's Friends and Family, loyalty card and flip-side events, a greater proportion of total direct to consumer sales being outlet store and flash e-commerce sales and more significant in-store discounts in our outlet stores. The lower gross margin in the wholesale business was primarily a result of a greater proportion of wholesale sales being off-price sales.
Lilly Pulitzer:
The increase in gross margin for Lilly Pulitzer was primarily driven by (1) a change in sales mix towards the direct to consumer channel of distribution, which typically has higher gross margins than the wholesale channel of distribution, (2) higher gross margins in each channel of distribution and (3) fewer off-price sales in the current year.
Lanier Clothes:
The increase in gross margin for Lanier Clothes was primarily due to fewer markdowns associated with certain programs in the current year as well as a change in sales mix with a greater proportion of sales being higher gross margin programs.
Corporate and Other:
The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Oxford Golf and Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of inter-company sales between operating groups. The lower gross profit for Corporate and Other in the First Half of Fiscal 2015 was primarily due to the impact of lower sales and the net unfavorable impact of LIFO accounting. LIFO accounting resulted in a charge of $0.4 million in the First Half of Fiscal 2015 compared to a credit of less than $0.1 million in the First Half of Fiscal 2014.
SG&A
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
SG&A | 242,643 |
| 220,783 |
| $ | 21,860 |
| 9.9 | % |
SG&A as % of net sales | 47.5 | % | 47.0 | % | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 786 |
| $ | 897 |
| | |
The increase in SG&A was primarily due to (1) costs to support the growing Tommy Bahama and Lilly Pulitzer businesses, (2) $8.8 million of incremental costs in the First Half of Fiscal 2015 associated with additional Tommy Bahama retail stores and restaurants and Lilly Pulitzer stores and (3) $3.4 million of increased incentive compensation in the First Half of Fiscal 2015.
SG&A included $1.0 million of amortization of intangible assets in the First Half of Fiscal 2015 compared to $1.2 million in the First Half of Fiscal 2014. We anticipate that amortization of intangible assets for Fiscal 2015 will be approximately $2.0 million, with approximately $1.6 million of the amortization related to amortization of the intangible assets acquired as part of the Tommy Bahama Canada acquisition.
Royalties and other operating income
|
| | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Royalties and other operating income | 7,393 |
| 6,569 |
| $ | 824 |
| 12.5 | % |
Royalties and other operating income in the First Half of Fiscal 2015 primarily reflect income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The $0.8 million increase in royalties and other income reflects increased royalty income for both Tommy Bahama and Lilly Pulitzer.
Operating income (loss)
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Tommy Bahama | $ | 40,916 |
| $ | 41,620 |
| $ | (704 | ) | (1.7 | )% |
Lilly Pulitzer | 37,258 |
| 25,977 |
| 11,281 |
| 43.4 | % |
Lanier Clothes | 3,624 |
| 4,275 |
| (651 | ) | (15.2 | )% |
Corporate and Other | (11,569 | ) | (9,580 | ) | (1,989 | ) | (20.8 | )% |
Total operating income | $ | 70,229 |
| $ | 62,292 |
| $ | 7,937 |
| 12.7 | % |
LIFO charge (credit) included in Corporate and Other | $ | 384 |
| $ | (47 | ) | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 786 |
| $ | 897 |
| | |
Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 137 |
| |
| |
|
The increase in operating income was primarily due to the higher operating income in Lilly Pulitzer partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a higher operating loss in Corporate and Other. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Net sales | $ | 338,511 |
| $ | 316,148 |
| $ | 22,363 |
| 7.1 | % |
Gross margin | 60.8 | % | 61.4 | % | |
| |
|
Operating income | $ | 40,916 |
| $ | 41,620 |
| $ | (704 | ) | (1.7 | )% |
Operating income as % of net sales | 12.1 | % | 13.2 | % | |
| |
|
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 786 |
| $ | 897 |
| | |
The lower operating income for Tommy Bahama was primarily due to the lower gross margin and higher SG&A partially offset by higher sales. The higher SG&A reflects (1) $6.8 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants, including set-up costs associated with new stores and restaurants and (2) higher costs to support the growing Tommy Bahama business.
Lilly Pulitzer:
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Net sales | $ | 123,654 |
| $ | 96,939 |
| $ | 26,715 |
| 27.6 | % |
Gross margin | 68.1 | % | 66.3 | % | |
| |
|
Operating income | $ | 37,258 |
| $ | 25,977 |
| $ | 11,281 |
| 43.4 | % |
Operating income as % of net sales | 30.1 | % | 26.8 | % | |
| |
|
Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 137 |
| |
| |
|
The increase in operating income in Lilly Pulitzer was primarily due to the higher net sales and gross margin. These items were partially offset by increased SG&A. The increased SG&A was primarily associated with (1) higher costs to support the growing business, reflecting increased infrastructure costs and advertising expense, (2) $2.0 million of incremental SG&A associated with the cost of operating additional retail stores and (3) $1.6 million of higher incentive compensation.
Lanier Clothes:
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Net sales | $ | 44,478 |
| $ | 50,064 |
| $ | (5,586 | ) | (11.2 | )% |
Gross margin | 29.8 | % | 28.7 | % | |
| |
|
Operating income | $ | 3,624 |
| $ | 4,275 |
| $ | (651 | ) | (15.2 | )% |
Operating income as % of net sales | 8.1 | % | 8.5 | % | |
| |
|
The lower operating income for Lanier Clothes was primarily due to the reduction in net sales partially offset by higher gross margin and lower SG&A.
Corporate and Other:
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Net sales | $ | 4,441 |
| $ | 6,965 |
| $ | (2,524 | ) | (36.2 | )% |
Operating loss | $ | (11,569 | ) | $ | (9,580 | ) | $ | (1,989 | ) | (20.8 | )% |
LIFO charge (credit) included in Corporate and Other | $ | 384 |
| $ | (47 | ) | |
| |
|
The lower operating results in Corporate and Other were primarily due to the lower net sales in Oxford Golf's private label business, higher incentive compensation expense and the net unfavorable impact of LIFO accounting in the First Half of Fiscal 2015 compared to the First Half of Fiscal 2014.
Interest expense, net
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Interest expense, net | $ | 1,512 |
| $ | 1,858 |
| $ | (346 | ) | (18.6 | )% |
Interest expense for the First Half of Fiscal 2015 decreased from the prior year primarily due to lower average borrowings outstanding and lower borrowing rates during the First Half of Fiscal 2015 compared to the First Half of Fiscal 2014.
Income taxes
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Income taxes | $ | 26,344 |
| $ | 24,087 |
| $ | 2,257 |
| 9.4 | % |
Effective tax rate | 38.3 | % | 39.9 | % | |
| |
|
Income tax expense for the First Half of Fiscal 2015 increased, reflecting higher earnings partially offset by a lower effective tax rate. The lower effective tax rate in the First Half of Fiscal 2015 compared to the First Half of Fiscal 2014 primarily resulted from higher domestic earnings and reductions in foreign losses. Our effective tax rate for the full year of Fiscal 2015 is expected to generally be comparable to the effective tax rate incurred in the First Half of Fiscal 2015.
Net earnings from continuing operations
|
| | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 |
Net earnings from continuing operations | $ | 42,373 |
| $ | 36,347 |
|
Net earnings from continuing operations per diluted share | $ | 2.56 |
| $ | 2.21 |
|
Weighted average shares outstanding - diluted | 16,536 |
| 16,455 |
|
The primary reasons for the higher net earnings from continuing operations in the First Half of Fiscal 2015 were higher operating income in Lilly Pulitzer, partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a larger operating loss in Corporate and Other, each as discussed above.
Discontinued operations
|
| | | | | | | | | | | |
| First Half Fiscal 2015 | First Half Fiscal 2014 | $ Change | % Change |
Loss from discontinued operations, net of taxes | $ | (6,701 | ) | $ | (6,309 | ) | $ | (392 | ) | (6.2 | )% |
Loss on sale of discontinued operations, net of taxes | $ | (20,437 | ) | $ | — |
| $ | (20,437 | ) | (100.0 | )% |
Net loss from discontinued operations, net of taxes | $ | (27,138 | ) | $ | (6,309 | ) | $ | (20,829 | ) | (330.1 | )% |
The larger net loss from discontinued operations, net of taxes in the First Half of Fiscal 2015 was primarily due to the loss on sale of the Ben Sherman operations in the Second Quarter of Fiscal 2015.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is the sale and distribution of apparel and other related products through our direct to consumer and wholesale channels of distribution. Our primary uses of cash flow include the purchase of products in the operation of our business, as well as operating expenses including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, other general and administrative expenses and the payment of periodic interest payments related to our financing arrangements. Additionally, we use cash for the funding of capital expenditures and dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory and extend credit to our wholesale customers. Thus, we require a certain amount of working capital to operate our business. If cash inflows are less than cash outflows, we have access to amounts under our revolving credit agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities and cash on hand.
As of August 1, 2015, we had $13.7 million of cash and cash equivalents on hand, with $45.0 million of borrowings outstanding and $182.1 million of availability under our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated positive cash flow from operating activities in the future provide us with ample opportunity to continue to invest in our brands and our direct to consumer initiatives in future periods.
Key Liquidity Measures
|
| | | | | | | | | | | | |
($ in thousands) | August 1, 2015 | January 31, 2015 | August 2, 2014 | February 2, 2014 |
Total current assets | $ | 225,015 |
| $ | 282,969 |
| $ | 250,338 |
| $ | 271,032 |
|
Total current liabilities | $ | 117,539 |
| $ | 159,942 |
| $ | 131,684 |
| $ | 133,046 |
|
Working capital | $ | 107,476 |
| $ | 123,027 |
| $ | 118,654 |
| $ | 137,986 |
|
Working capital ratio | 1.91 |
| 1.77 |
| 1.90 |
| 2.04 |
|
Debt to total capital ratio | 12 | % | 27 | % | 27 | % | 35 | % |
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets decreased from August 2, 2014 to August 1, 2015 primarily due to the disposal of the discontinued operations during the Second Quarter of Fiscal 2015 partially offset by increases in other current assets. The August 2, 2014 balance sheet included $48.9 million of current assets related to discontinued operations with no meaningful current assets related to discontinued operations as of August 1, 2015. Current liabilities decreased primarily due to (1) the $12.4 million reduction in contingent consideration and (2) the disposal of the discontinued operations during the Second Quarter of Fiscal 2015, resulting in a decrease in current liabilities related to discontinued operations from $14.9 million to $6.9 million, which were partially offset by increases in other current liabilities. Changes in current assets and current liabilities are discussed below.
For the ratio of debt to total capital, debt is defined as short-term and long-term debt included in continuing operations, and total capital is defined as debt plus shareholders' equity. Debt was $45.0 million at August 1, 2015 and $106.5 million at August 2, 2014, while shareholders’ equity was $324.7 million at August 1, 2015 and $285.5 million at August 2, 2014. The decrease in debt primarily resulted from the $59.3 million of proceeds related to the disposal of Ben Sherman as the net impact of positive cash flows from continuing operations were generally offset by the cash paid for capital expenditures, dividends and contingent consideration during the period. Shareholders' equity increased from August 2, 2014, primarily as a result of net earnings and the impact of shares issued pursuant to our stock plans less dividends paid and the change in accumulated other comprehensive loss during that period. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances from August 2, 2014 to August 1, 2015.
Current Assets:
|
| | | | | | | | | | | | |
| August 1, 2015 | January 31, 2015 | August 2, 2014 | February 2, 2014 |
Cash and cash equivalents | $ | 13,661 |
| $ | 5,281 |
| $ | 6,416 |
| $ | 8,483 |
|
Receivables, net | 57,108 |
| 64,587 |
| 46,912 |
| 61,325 |
|
Inventories, net | 104,786 |
| 120,613 |
| 107,866 |
| 117,090 |
|
Prepaid expenses, net | 22,163 |
| 19,941 |
| 18,226 |
| 19,030 |
|
Deferred tax assets | 27,248 |
| 24,424 |
| 21,995 |
| 20,375 |
|
Assets related to discontinued operations, net | 49 |
| 48,123 |
| 48,923 |
| 44,729 |
|
Total current assets | $ | 225,015 |
| $ | 282,969 |
| $ | 250,338 |
| $ | 271,032 |
|
Cash and cash equivalents as of August 1, 2015 was higher than our typical cash amounts maintained on an ongoing basis in our operations, which generally ranges from $5 million to $10 million at any given time. Any excess cash is typically used to repay amounts outstanding under our revolving credit agreements, but due to the receipt of cash late in the quarter and cash in foreign locations, certain cash amounts were not utilized to reduce outstanding debt until after quarter end.
The increase in receivables, net as of August 1, 2015 was primarily a result of higher receivables due from landlords reflecting the more significant leasehold improvement build out costs which had not been reimbursed as of quarter end, as well as higher credit card receivables. Inventories, net as of August 1, 2015 decreased from August 2, 2014 primarily as a result of lower inventories in Lanier Clothes reflecting lower anticipated sales and lower inventory levels in certain replenishment
programs, which were partially offset by increased inventories in Tommy Bahama and Lilly Pulitzer to support anticipated sales increases, particularly in the direct to consumer channels of distribution. The increase in prepaid expenses, net at August 1, 2015 from August 2, 2014 was primarily due to an increase in prepaid income taxes as well as the growth in our business and the timing of payment and recognition of the related expense for certain prepaid items including rent, advertising and samples.
Deferred tax assets increased from August 2, 2014 primarily reflecting the impact of higher incentive compensation amounts, changes in certain reserves and a change in timing differences associated with inventory, due in part to a significant LIFO accounting charge in the Fourth Quarter of Fiscal 2014. The decrease in assets related to discontinued operations, net reflects our disposition of the Ben Sherman discontinued operations during the Second Quarter of Fiscal 2015.
Non-current Assets:
|
| | | | | | | | | | | | |
| August 1, 2015 | January 31, 2015 | August 2, 2014 | February 2, 2014 |
Property and equipment, net | $ | 170,283 |
| $ | 146,039 |
| $ | 136,186 |
| $ | 133,321 |
|
Intangible assets, net | 145,010 |
| 146,135 |
| 148,264 |
| 149,169 |
|
Goodwill | 17,254 |
| 17,295 |
| 17,444 |
| 17,399 |
|
Other non-current assets, net | 22,753 |
| 22,529 |
| 23,535 |
| 23,121 |
|
Assets related to discontinued operations, net | — |
| 31,747 |
| 33,312 |
| 33,263 |
|
Total non-current assets | $ | 355,300 |
| $ | 363,745 |
| $ | 358,741 |
| $ | 356,273 |
|
The increase in property and equipment, net at August 1, 2015 from August 2, 2014 primarily reflects capital expenditures in the twelve months ended August 1, 2015 partially offset by depreciation expense subsequent to August 2, 2014 as well as the impact of changes in foreign currency exchange rates during that period. The decrease in intangible assets, net at August 1, 2015 was primarily due to the amortization of intangible assets subsequent to August 2, 2014, as well as the impact of foreign currency exchange rates on certain intangible assets. The decrease in assets related to discontinued operations, net reflects our disposition of the Ben Sherman discontinued operations in the Second Quarter of Fiscal 2015.
Liabilities:
|
| | | | | | | | | | | | |
| August 1, 2015 | January 31, 2015 | August 2, 2014 | February 2, 2014 |
Total current liabilities | $ | 117,539 |
| $ | 159,942 |
| $ | 131,684 |
| $ | 133,046 |
|
Long-term debt | 45,000 |
| 104,842 |
| 106,516 |
| 137,592 |
|
Non-current contingent consideration | — |
| — |
| — |
| 12,225 |
|
Other non-current liabilities | 63,420 |
| 56,287 |
| 50,221 |
| 49,811 |
|
Non-current deferred income taxes | 29,700 |
| 29,467 |
| 29,309 |
| 28,016 |
|
Non-current liabilities related to discontinued operations | — |
| 5,571 |
|