OXFORD INDUSTRIES, INC.
The following discussion and analysis should be read in conjunction with our
unaudited condensed consolidated financial statements and the notes thereto
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 2019.
OVERVIEW
Business Overview
We are a leading apparel company that designs, sources, markets and distributes
products bearing the trademarks of our Tommy Bahama , Lilly Pulitzer and Southern
Tide lifestyle brands and other owned and licensed brands as well as private
label apparel products. During Fiscal 2019, 93% of our net sales were from
products bearing brands that we own and 97% of our net sales were in 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
consider lifestyle brands to be those brands that have a clearly defined and
targeted point of view inspired by an appealing lifestyle or attitude.
Furthermore, we believe lifestyle brands that create an emotional connection,
like Tommy Bahama , Lilly Pulitzer and Southern Tide, can command greater loyalty
and higher price points at retail and create licensing opportunities. We believe
the attraction of a lifestyle brand depends on creating compelling product,
effectively communicating the respective lifestyle brand message and
distributing products to consumers where and when they want them. We believe the
principal competitive factors in the apparel industry are reputation, value, and
image of brand names; design; consumer preference; price; quality; marketing;
product fulfillment capabilities; and customer service. Our ability to compete
successfully in the apparel industry is directly related to our proficiency in
foreseeing changes and trends in fashion and consumer preference and presenting
appealing products for consumers. Our design-led, commercially informed
lifestyle brand operations strive to provide exciting, differentiated products
each season.
During Fiscal 2019, 70% of our net sales were through our direct to consumer
channels of distribution, which consists of our brand-specific full-price retail
stores, our e-commerce websites, our Tommy Bahama food and beverage operations
and our Tommy Bahama outlets. The remaining 30% of our net sales are generated
from our wholesale distribution channels. Our wholesale operations consist of
net sales of products bearing our lifestyle brands, which complement our direct
to consumer operations and provide access to a larger group of consumers, and
the net sales of our Lanier Apparel operating group.
Industry Overview
Our operating groups operate in highly competitive apparel markets that continue to evolve rapidly with the expanding application of technology to fashion retail. No single apparel firm or small group of apparel firms dominates the apparel industry, and our direct competitors vary by operating group and distribution channel. The apparel industry is cyclical and very dependent upon the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional, domestic and international economic conditions change. Increasingly, consumers are choosing to spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries. The competitive and evolving environment may require that brands and retailers approach their operations, including marketing and advertising, very differently than historical practices and may result in increased operating costs and capital investments to generate growth or even maintain current sales levels. While this competition and evolution presents significant risks, especially for traditional retailerswho fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers to capitalize on the changing consumer environment. 20
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We believe our lifestyle brands have true competitive advantages in this new retailing paradigm, and we are leveraging technology to serve our consumers when and where they want to be served. We continue to believe that our lifestyle brands, with their strong emotional connections with consumers, are well suited to succeed and thrive in the long term while managing the various challenges facing our industry. COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization characterized the outbreak of a novel coronavirus (COVID-19) as a pandemic. COVID-19 has had a significant effect on overall economic conditions and our operations, and is the primary reason for a 40% reduction in net sales in the First Half of Fiscal 2020, a net loss in the First Half of Fiscal 2020 after many years of profitable operating results and an expected net loss for the full year of Fiscal 2020. While our mission remains the enhancement of long-term shareholder value, our focus during this crisis has been, and will continue to be, (1) the health and well-being of our employees, customers and communities, (2) protecting the reputation, value and image of our brands and (3) preserving liquidity. Due to the COVID-19 pandemic, we saw reduced consumer traffic starting in earlyMarch 2020 and temporarily closed all our retail and restaurant locations inNorth America onMarch 17, 2020 , with store closures inAustralia shortly thereafter. We began reopening our stores and restaurants in early May with additional stores and restaurants reopening throughout the Second Quarter of Fiscal 2020. However, while we have reopened most of our direct to consumer locations in a phased approach in accordance with local government guidelines and additional safety protocols, most locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently. Generally, locations with attached restaurants orMarlin Bars , in outdoor centers and in drivable resort vacation destinations have performed better than locations in indoor malls and locations in the Northeast andHawaii , which continue to have more stringent local requirements on retail operations or tourism. At the same time, the shift from in-store shopping to online shopping has accelerated during the COVID-19 pandemic resulting in strong growth in our e-commerce businesses during the First Half of Fiscal 2020. There is significant uncertainty as to the duration and severity of the pandemic as well as the associated business disruption, impact on discretionary spending and restrictions on our operations. Thus, the ultimate impact of the pandemic cannot be reasonably estimated at this time. However, the COVID-19 pandemic is expected to continue to have a material adverse impact on our business, results of operations, cash flows and financial condition for the foreseeable future due to the anticipated lower net sales from our bricks and mortar locations; reduced demand from our wholesale customers, several of which have filed for bankruptcy or are undergoing restructurings or closures; the uncertainty as to the continued strength of our brands' e-commerce websites during the pendency of the pandemic; overall changes in consumer confidence and consumer spending habits; any potential disruptions to our supply chain; and a slowdown in theU.S. and global economies. We have$257 million of availability pursuant to ourU.S. Revolving Credit Agreement and$97 million of cash, as ofAugust 1, 2020 . Considering this, among other factors, we believe we have adequate liquidity and the financial discipline to address the near-term challenges related to the COVID-19 pandemic. Actions we have taken to mitigate the impact of this pandemic on our business, operations and liquidity include:
? we furloughed and laid off a significant number of our retail, restaurant and
office employees;
certain salaried employees, including our Chief Executive Officer, Chief
? Financial Officer and other executives, took temporary reductions in base
salary during Fiscal 2020;
? our Board of Directors elected to reduce its cash retainers for Fiscal 2020;
? we worked with our suppliers to cancel, delay or suspend future product
deliveries;
? we worked with our wholesale customers to identify suitable changes to our
business arrangements;
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we have been actively negotiating with our retail and restaurant landlords for
? equitable rental arrangements, believing that the payment of rents for both the
closure and subsequent periods is inappropriate due to the impact of the COVID-19 pandemic;
under the CARES Act, we deferred the employer portion of FICA payments and
? obtained employee retention credits for certain compensation paid to employees
even while they were not working during the COVID-19 pandemic;
? we suspended, cancelled or deferred certain capital expenditures, reducing our
capital expenditure expectations for Fiscal 2020;
? we drew down certain amounts on our
our cash position and preserve financial flexibility; and
? our Board of Directors reduced the rate of our dividend payable in Fiscal 2020.
Also, we established management committees, reporting to our Chief Executive Officer to continue to monitor the COVID-19 pandemic and its impact and are taking the necessary measures to protect the health and safety of our employees and customers. For additional information about our business and each of our operating groups, see Part I, Item 1. Business included in our Annual Report on Form 10-K for Fiscal 2019. Important factors relating to certain risks which could impact our business, including those resulting from the COVID-19 pandemic, are described in Part II, Item 1A. Risk Factors of this report and Part I. Item 1A. Risk Factors of our Annual Report on Form 10-K for Fiscal 2019.
Key Operating Results:
The following table sets forth our consolidated operating results (in thousands,
except per share amounts) for the First Half of Fiscal 2020 compared to the
First Half of Fiscal 2019:
First Half
Fiscal 2020 Fiscal 2019
Net sales $ 352,331 $ 583,973
Operating (loss) income $ (93,506) $ 70,001
Net (loss) earnings $ (72,871) $ 51,493 Net (loss) earnings per diluted share$ (4.40) $
3.05
Weighted average shares outstanding - diluted 16,580 16,878 The net loss per share in the First Half of Fiscal 2020 compared to positive net earnings per share in the First Half of Fiscal 2019 was primarily due to (1) the impact of COVID-19 on the operating results of each of our operating groups, including charges for estimated credit losses, inventory markdowns and non-current asset impairments, (2) the$60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020 and (3) the non-deductibility of certain impairment charges resulting in a lower effective tax rate on our loss in the First Half of Fiscal 2020 than the effective tax rate on our income in the First Half of Fiscal 2019. These items were partially offset by the improved operating results in Corporate and Other, which were primarily due to the favorable impact of LIFO accounting. STORE COUNT The table below provides store count information forTommy Bahama ,Lilly Pulitzer and Southern Tide as of the dates specified. The table includes our permanent stores and excludes any pop-up or temporary store locations which have an initial lease term of less than 12 months. Due to the impact of the COVID-19 pandemic, all our stores and restaurants were closed beginning inMarch 2020 . We began reopening our stores and restaurants starting onMay 3, 2020 in a phased approach in accordance with local government guidelines and additional safety protocols implemented. 22 Table of Contents Most locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently. August 1, February 1, August 3, February 2, 2020 2020 2019 2019 Tommy Bahama retail stores 107 111 113 113 Tommy Bahama retail-restaurant locations 19 16 17 17 Tommy Bahama outlets 35 35 37 37 Total Tommy Bahama locations 161 162 167 167Lilly Pulitzer retail stores 59 61 63 62 Southern Tide retail stores 2
1 - -
Total Oxford locations 222 224 230 229
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 2020 COMPARED TO SECOND QUARTER OF FISCAL 2019
The discussion and tables below compare our statements of operations for the
Second Quarter of Fiscal 2020 to the Second Quarter of Fiscal 2019. Each dollar
and percentage change provided reflects the change between these fiscal periods
unless indicated otherwise. Each dollar and share amount included in the tables
is in thousands except for per share amounts. We have calculated all percentages
based on actual data, and percentage columns in tables may not add due to
rounding. 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.
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 as well as the dollar change and the percentage
change as compared to the same period of the prior year:
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 191,988 100.0 % $ 302,000 100.0 % $ (110,012) (36.4) %
Cost of goods sold 87,251 45.4 % 122,175 40.5 % (34,924) (28.6) %
Gross profit $ 104,737 54.6 % $ 179,825 59.5 % $ (75,088) (41.8) %
SG&A 115,663 60.2 % 143,403 47.5 % (27,740) (19.3) %
Royalties and other
operating income 2,909 1.5 % 3,837 1.3 % (928) (24.2) %
Operating (loss) income $ (8,017) (4.2) % $ 40,259 13.3 % $ (48,276) NM %
Interest expense, net 676 0.4 % 419 0.1 % 257 61.3 %
(Loss) earnings before
income taxes $ (8,693) (4.5) % $ 39,840 13.2 % $ (48,533) NM %
Income tax (benefit)
provision (2,606) (1.4) % 10,004 3.3 % (12,610) NM %
Net (loss) earnings $ (6,087) (3.2) % $ 29,836 9.9 % $ (35,923) NM %
Net Sales
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 95,254 $ 188,870 $ (93,616) (49.6) %
Lilly Pulitzer 73,860 75,555 (1,695) (2.2) %
Lanier Apparel 8,450 20,466 (12,016) (58.7) %
Southern Tide 8,812 12,468 (3,656) (29.3) %
Corporate and Other 5,612 4,641 971 20.9 %
Consolidated net sales $ 191,988 $ 302,000 $ (110,012) (36.4) %
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Consolidated net sales decreased $110 million , or 36%, in the Second Quarter of
Fiscal 2020, primarily due to the impact of the COVID-19 pandemic, which has had
a negative impact on our retail, wholesale and restaurant operations, each
including the impact of temporary closures and reduced traffic after locations
reopen, while our e-commerce business has generated very strong growth. The
decrease in net sales included decreases in (1) full-price retail sales of $83
million , or 71%, (2) wholesale sales of $43 million , or 55%, (3) restaurant
sales of $12 million , or 59%, and (4) outlet sales of $9 million , or 54%. These
decreases were partially offset by increased e-commerce sales of $36 million , or
52%, primarily due to more demand as consumers shifted to online shopping as
well as increased online marketing and promotional events, including e-commerce
flash clearance sales, to further engage consumers. The changes in net sales by
operating group are discussed below.
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
Second Quarter
Fiscal 2020 Fiscal 2019
Retail 22 % 44 %
E-commerce 56 % 23 %
Restaurant 4 % 7 %
Wholesale 18 % 26 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales decreased $94 million , or 50%, in the Second Quarter of
Fiscal 2020. The decrease in net sales in Tommy Bahama included decreases in (1)
full-price retail sales of $55 million , or 70%, primarily due to the impact of
COVID-19 on retail store operations as well as reduced store count, (2)
wholesale sales of $21 million , or 69%, (3) restaurant sales of $12 million , or
59%, and (4) outlet store sales of $9 million , or 54%. These decreases were
partially offset by increased e-commerce sales of $3 million , or 7%. The
following table presents the proportion of net sales by distribution channel for
Tommy Bahama for each period presented:
Second Quarter
Fiscal 2020 Fiscal 2019
Retail 33 % 50 %
E-commerce 48 % 23 %
Restaurant 9 % 11 %
Wholesale 10 % 16 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales decreased $2 million , or 2%, in the Second Quarter of
Fiscal 2020. The decrease in net sales in Lilly Pulitzer included decreases in
(1) retail sales of $28 million , or 73%, primarily due to the impact of COVID-19
on retail store operations as well as reduced store count and (2) wholesale
sales of $4 million , or 28%, due to lower full-price sales partially offset by
higher off-price sales. These decreases were partially offset by increased
e-commerce sales of $31 million , or 142%, with $15 million of that increase
resulting from e-commerce flash clearance sales in the Second
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Quarter of Fiscal 2020 with no comparable event in the Second Quarter of Fiscal 2019. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: Second Quarter Fiscal 2020 Fiscal 2019 Retail 14 % 51 % E-commerce 71 % 29 % Wholesale 15 % 20 % Total 100 % 100 % Lanier Apparel: Lanier Apparel net sales decreased$12 million , or 59% in the Second Quarter of Fiscal 2020 resulting from decreases in most of the replenishment, seasonal and other programs for the branded and private label businesses. These decreases were partially offset by$3 million of sales of masks and gowns.
Southern Tide:
Southern Tide net sales decreased$4 million , or 29%, in the Second Quarter of Fiscal 2020 due to a$5 million , or 53%, decrease in wholesale sales partially offset by a$1 million , or 39%, increase in e-commerce sales and increased retail store sales after opening our first Southern Tide retail store in the Fourth Quarter of Fiscal 2019 and our second store in the Second Quarter of Fiscal 2020. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented: Second Quarter Fiscal 2020 Fiscal 2019 Retail 5 % - % E-commerce 43 % 22 % Wholesale 52 % 78 % Total 100 % 100 % Corporate and Other:
Corporate and Other net sales increased
Gross Profit
The tables below present gross profit by operating group and in total for the
Second Quarter of Fiscal 2020 and the Second Quarter of Fiscal 2019, as well as
the change between those two periods and gross margin by operating group and in
total. Our gross profit and gross margin, which is calculated as gross profit
divided by net sales, may not be
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directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 53,586 $ 114,526 $ (60,940) (53.2) %
Lilly Pulitzer 44,053 51,817 (7,764) (15.0) %
Lanier Apparel 1,548 5,791 (4,243) (73.3) %
Southern Tide 2,975 6,141 (3,166) (51.6) %
Corporate and Other 2,575 1,550 1,025 66.1 %
Consolidated gross profit $ 104,737 $ 179,825 $ (75,088) (41.8) %
Notable items included in amounts above:
LIFO adjustments in Corporate and Other $ (388) $ 705
Second Quarter
Fiscal 2020 Fiscal 2019
Tommy Bahama 56.3 % 60.6 %
Lilly Pulitzer 59.6 % 68.6 %
Lanier Apparel 18.3 % 28.3 %
Southern Tide 33.8 % 49.3 %
Corporate and Other NM NM
Consolidated gross margin 54.6 % 59.5 %
The decrease in consolidated gross profit in the Second Quarter of Fiscal 2020
was primarily due to the lower net sales as well as lower gross margin. The
lower consolidated gross margin reflects lower gross margin in each operating
group as discussed below. During the Second Quarter of Fiscal 2020, we
recognized the negative impact of $3 million of inventory markdowns on lower
sales, which were partially offset by a $0.4 million LIFO accounting credit. In
the Second Quarter of Fiscal 2019, we recognized a small impact of inventory
markdowns and a $0.7 million LIFO accounting charge.
The decrease in gross margin forTommy Bahama was primarily driven by (1) lower gross margin in the full-price direct to consumer channel primarily due to a change in sales mix from retail store sales to e-commerce sales, which have a lower gross margin than retail sales, (2) increased inventory markdowns and promotional discounts in our off-price channels of distribution, (3) certain fixed asset and operating lease asset impairment charges in ourTommy Bahama sourcing operations related to the restructuring of ourTommy Bahama sourcing operations and (4) lower gross margin in the wholesale channel resulting from a change in sales mix as a greater proportion of wholesale sales were off-price wholesale sales.Lilly Pulitzer :
The decrease in gross margin forLilly Pulitzer was primarily due to (1) a change in sales mix as e-commerce flash clearance sales, which generate a gross margin of approximately 40%, and off-price wholesale sales represented a greater proportion of net sales, (2) increased promotions and discounting in each channel of distribution, (3) increased inventory markdowns and (4) the prior year including more gift card breakage income.
Lanier Apparel:
The decrease in gross margin for Lanier Apparel was primarily due to (1) an
increase in inventory markdown amounts on a lower sales volume, resulting in a
more significant impact on gross margin, and (2) lower gross margin on various
programs due to the challenging market.
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Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to (1)
increased inventory markdowns and (2) more significant discounts and allowances
in all channels of distribution. These items were partially offset by a change
in sales mix with direct to consumer sales representing a larger proportion of
net sales in the Second Quarter of Fiscal 2020.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the gross profit of TBBC, Duck Head and theLyons, Georgia distribution center as well as the impact of LIFO accounting adjustments. The primary drivers for the higher gross profit were (1) the$1 million net favorable impact of LIFO accounting with a LIFO accounting credit in the Second Quarter of Fiscal 2020 and a LIFO accounting charge in the Second Quarter of Fiscal 2019 and (2) the gross profit resulting from higher net sales, which was partially offset by lower gross margin. The LIFO accounting impact in Corporate and Other in each period primarily reflects (1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior period is ultimately sold or (2) a credit in Corporate and Other when inventory has been marked down to the estimated net realizable value in an operating group in the current period, but has not been sold as of period end. SG&A Second Quarter Fiscal 2020 Fiscal 2019 $ Change % Change SG&A$ 115,663 $ 143,403 $ (27,740) (19.3) % SG&A (as a % of net sales) 60.2 % 47.5 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 68 $ 80 Amortization of Southern Tide intangible assets $ 72 $ 73 Tommy Bahama Japan charges $ - $ 590 The lower SG&A in the Second Quarter of Fiscal 2020 was primarily due to (1) decreased employment costs of$23 million primarily due to the actions taken to reduce our employment cost in response to COVID-19 including the temporary furlough of substantially all retail and restaurant employees while direct to consumer operations were closed, layoffs or pay reductions for certain employees, reductions in incentive compensation amounts and elimination of the company match for our 401(k) plan, partially offset by certain severance amounts, (2) a$4 million reduction in occupancy expenses primarily resulting from the operation of fewerTommy Bahama andLilly Pulitzer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (3) a$3 million decrease in certain variable expenses including credit card transaction fees, supplies and commissions, (4) a$2 million decrease in travel expenses, (5) a$1 million reduction in advertising expenses, (6) a$1 million decrease inTommy Bahama Japan charges, which related to charges associated with the restructure and exit of ourTommy Bahama Japan operations, with no such charges in the Second Quarter of Fiscal 2020, and (7) decreases in other expenses including administrative and general expenses. These decreases were partially offset by (1)$4 million of increased estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers and (2) a$2 million increase in depreciation expense including impairment charges for certain retail store locations.
Royalties and other operating income
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % ChangeRoyalties and other operating income$ 2,909 $ 3,837 $
(928) (24.2) %
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Royalties and other operating income primarily reflects income received from
third parties from the licensing of our brands. The decreased royalties and
other income in the Second Quarter of Fiscal 2020 was primarily due to reduced
royalty income in Tommy Bahama .
Operating income (loss)
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ (12,712) $ 23,218 $ (35,930) NM %
Lilly Pulitzer 16,264 20,449 (4,185) (20.5) %
Lanier Apparel (6,134) 400 (6,534) NM %
Southern Tide (979) 1,834 (2,813) NM %
Corporate and Other (4,456) (5,642) 1,186 21.0 %
Consolidated Operating (Loss)
Income $ (8,017) $ 40,259 $ (48,276) NM %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ (388) $ 705
Amortization of Lilly Pulitzer
Signature Store intangible assets $ 68 $ 80
Amortization of Southern Tide
intangible assets $ 72 $ 73
Tommy Bahama Japan charges $ - $ 590
The lower operating results in the Second Quarter of Fiscal 2020 were primarily
due to the impact of COVID-19 on each operating group partially offset by
improved operating results in Corporate and Other, which was primarily due to
the favorable impact of LIFO accounting. Changes in operating income (loss) by
operating group are discussed below.
Tommy Bahama :
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 95,254 $ 188,870 $ (93,616) (49.6) %
Gross profit $ 53,586 $ 114,526 $ (60,940) (53.2) %
Gross margin 56.3 % 60.6 %
Operating (loss) income $ (12,712) $ 23,218 $ (35,930) NM %
Operating (loss) income as % of
net sales (13.3) % 12.3 %
Notable items included in
amounts above:
Tommy Bahama Japan charges $ - $ 590
The lower operating results for Tommy Bahama in the Second Quarter of Fiscal
2020 were primarily due to lower sales and lower gross margin partially offset
by lower SG&A. The lower SG&A was primarily due to (1) $17 million of lower
employment costs, (2) $3 million of lower variable costs such as credit card
transaction fees, commissions, shipping fees and supplies, (3) $3 million of
lower occupancy costs, primarily resulting from the operation of fewer bricks
and mortar locations, certain negotiated reductions and lower costs for
utilities, maintenance and related expenses, (4) a $2 million decrease in
advertising expense, (5) a $1 million reduction in Tommy Bahama Japan SG&A
charges, which related to charges associated with the restructure and exit of
our Tommy Bahama Japan operations, with no such charges in the Second Quarter of
Fiscal 2020, and (6) decreases in travel, general and administrative expenses.
These decreases were partially offset by a $2 million increase in depreciation
expense primarily consisting of fixed asset impairment charges related to
certain direct to consumer locations.
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Lilly Pulitzer :
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 73,860 $ 75,555 $ (1,695) (2.2) %
Gross profit $ 44,053 $ 51,817 $ (7,764) (15.0) %
Gross margin 59.6 % 68.6 %
Operating income $ 16,264 $ 20,449 $ (4,185) (20.5) %
Operating income as % of net sales 22.0 % 27.1 %
Notable items included in amounts
above:
Amortization of Lilly Pulitzer
Signature Store intangible assets $ 68 $ 80
The lower operating income for Lilly Pulitzer in the Second Quarter of Fiscal
2020 was primarily due to lower gross margin and lower sales partially offset by
lower SG&A. The lower SG&A was primarily due to (1) $4 million of lower
employment costs, (2) $1 million of lower occupancy costs, primarily resulting
from the operation of fewer bricks and mortar locations, certain negotiated
reductions and lower costs for utilities, maintenance and related expenses and
(3) reductions in other expenses, including travel. These decreases in SG&A were
partially offset by (1) $1 million of higher marketing expense and (2) increases
in other expenses including certain variable expenses related to e-commerce
sales and depreciation.
Lanier Apparel:
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 8,450 $ 20,466 $ (12,016) (58.7) %
Gross profit $ 1,548 $ 5,791 $ (4,243) (73.3) %
Gross margin 18.3 % 28.3 %
Operating (loss) income $ (6,134) $ 400 $ (6,534) NM %
Operating (loss) income as % of
net sales (72.6) % 2.0 %
The lower operating results for Lanier Apparel in the Second Quarter of Fiscal
2020 were due to lower sales, lower gross margin and higher SG&A. The higher
SG&A was primarily due to $3 million of increased estimated provisions for
credit losses and other charges related to bankruptcies and credit exposure with
respect to multiple Lanier Apparel customers. These increases were partially
offset by reductions in shipping and related expenses, other expenses including
advertising, travel, samples and administrative expenses and employment costs.
Southern Tide:
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 8,812 $ 12,468 $ (3,656) (29.3) %
Gross profit $ 2,975 $ 6,141 $ (3,166) (51.6) %
Gross margin 33.8 % 49.3 %
Operating (loss) income $ (979) $ 1,834 $ (2,813) NM %
Operating (loss) income as % of
net sales (11.1) % 14.7 %
Notable items included in
amounts above:
Amortization of Southern Tide
intangible assets $ 72 $ 73
The lower operating results for Southern Tide in the Second Quarter of Fiscal
2020 were primarily due to lower sales and lower gross margin partially offset
by lower SG&A. Lower SG&A for employment costs, advertising and other operating
expenses were partially offset by the increased SG&A associated with the
Southern Tide retail store operations.
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Corporate and Other:
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 5,612 $ 4,641 $ 971 20.9 %
Gross profit $ 2,575 $ 1,550 $ 1,025 66.1 %
Operating loss $ (4,456) $ (5,642) $ 1,186 21.0 %
Notable items included in
amounts above:
LIFO adjustments in Corporate
and Other $ (388) $ 705
The smaller operating loss for Corporate and Other was primarily due to the$1 million favorable impact of LIFO accounting, as well as higher net sales and lower SG&A, which was primarily due to lower employment costs in Corporate
and
Other.
Interest expense, net
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Interest expense, net $ 676 $ 419 $ 257 61.3 %
The increased interest expense in the Second Quarter of Fiscal 2020 was
primarily due to higher levels of debt outstanding partially offset by interest
income of cash invested in money market accounts in the Second Quarter of Fiscal
2020.
Income tax (benefit) provision
Second Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Income tax (benefit) provision $ (2,606) $ 10,004 $ (12,610) NM %
Effective tax rate 30.0 % 25.1 %
Income taxes were a tax benefit in the Second Quarter of Fiscal 2020 resulting
from an operating loss and the impact of certain items as noted below, as
compared to a tax expense in the Second Quarter of Fiscal 2019 resulting from
operating income. The income tax benefit in the Second Quarter of Fiscal 2020
reflects the benefit on the operating losses including the favorable impact of
the CARES Act, which provides for the carry back of our Fiscal 2020 net
operating losses to pre-U.S. Tax Reform tax years, which had a federal income
tax rate of 35%. This benefit was partially offset by the impact of changes in
estimated book to tax timing differences and certain discrete non-deductible
items.
Net earnings
Second Quarter
Fiscal 2020 Fiscal 2019
Net sales $ 191,988 $ 302,000
Operating (loss) income $ (8,017) $ 40,259
Net (loss) earnings $ (6,087) $ 29,836 Net (loss) earnings per diluted share$ (0.37) $
1.76
Weighted average shares outstanding - diluted 16,547 16,907
The net loss per share in the Second Quarter of Fiscal 2020 compared to positive
net earnings per share in the Second Quarter of Fiscal 2019 was primarily due to
the impact of COVID-19 on the operating results of each of our operating groups,
including charges for estimated credit losses, inventory markdowns and
non-current asset impairments. These items were partially offset by the improved
operating results in Corporate and Other, which were primarily due to the
favorable impact of LIFO accounting.
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FIRST HALF OF FISCAL 2020 COMPARED TO FIRST HALF OF FISCAL 2019
The discussion and tables below compare our statements of operations for the
First Half of Fiscal 2020 to the First Half of Fiscal 2019. Each dollar
and percentage change provided reflects the change between these fiscal periods
unless indicated otherwise. Each dollar and share amount included in the tables
is in thousands except for per share amounts. We have calculated all percentages
based on actual data, and percentage columns in tables may not add due to
rounding. 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.
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 as well as the dollar change and the percentage
change as compared to the same period of the prior year:
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 352,331 100.0 % $ 583,973 100.0 % $ (231,642) (39.7) %
Cost of goods sold 153,520 43.6 % 238,379 40.8 % (84,859) (35.6) %
Gross profit $ 198,811 56.4 % $ 345,594 59.2 % $ (146,783) (42.5) %
SG&A 238,664 67.7 % 283,217 48.5 % (44,553) (15.7) %
Impairment of goodwill and
intangible assets 60,452 17.2 % - - % 60,452 100.0 %
Royalties and other
operating income 6,799 1.9 % 7,624 1.3 % (825) (10.8) %Operating (loss) income$ (93,506) (26.5) %$ 70,001 12.0 %$ (163,507) NM % Interest expense, net 1,334 0.4 % 1,090 0.2 % 244 22.4 % (Loss) earnings before income taxes$ (94,840) (26.9) %$ 68,911 11.8 %$ (163,751) NM % Income tax (benefit) provision (21,969) (6.2) % 17,418 3.0 % (39,387) NM % Net (loss) earnings$ (72,871) (20.7) %$ 51,493 8.8 %$ (124,364) NM % Net Sales First Half Fiscal 2020 Fiscal 2019 $ Change % Change Tommy Bahama$ 182,238 $ 353,600 $ (171,362) (48.5) %Lilly Pulitzer 123,009 148,150 (25,141) (17.0) % Lanier Apparel 19,175 46,620 (27,445) (58.9) % Southern Tide 17,113 26,602 (9,489) (35.7) % Corporate and Other 10,796 9,001 1,795 19.9 % Consolidated net sales$ 352,331 $ 583,973 $ (231,642) (39.7) %
Consolidated net sales decreased$232 million , or 40%, in the First Half of Fiscal 2020 primarily due to the impact of the COVID-19 pandemic, which has had a negative impact on our retail, wholesale and restaurant operations, each including the impact of temporary closures and reduced traffic after locations reopen, while our e-commerce business has generated very strong growth. The decreases in net sales included decreases in (1) full-price retail sales of$137 million , or 65%, (2) wholesale sales of$96 million , or 53%, (3) restaurant sales of$24 million , or 54%, and (4) outlet sales of$17 million , or 57%. These decreases were partially offset by increased e-commerce sales of$42 million , or 36%, primarily due to more demand as consumers shifted to online shopping as well as increased online marketing and promotional events, including e-commerce flash clearance sales, to further engage consumers. The changes in net sales by operating group are discussed below. 31
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The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
First Half
Fiscal 2020 Fiscal 2019
Retail 25 % 41 %
E-commerce 45 % 20 %
Restaurant 6 % 8 %
Wholesale 24 % 31 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales decreased $171 million , or 49%, in the First Half of
Fiscal 2020. The decrease in net sales in Tommy Bahama included decreases in (1)
full-price retail sales of $90 million , or 64%, primarily due to the impact of
COVID-19 on retail store operations as well as reduced store count, (2)
wholesale sales of $42 million , or 61%, (3) restaurant sales of $24 million , or
54%, and (4) outlet store sales of $17 million , or 57%. These decreases were
partially offset by increased e-commerce sales of $2 million , or 3%. The
following table presents the proportion of net sales by distribution channel for
Tommy Bahama for each period presented:
First Half
Fiscal 2020 Fiscal 2019
Retail 35 % 49 %
E-commerce 39 % 19 %
Restaurant 11 % 13 %
Wholesale 15 % 19 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales decreased $25 million , or 17%, in the First Half of
Fiscal 2020. The decrease in net sales in Lilly Pulitzer included decreases in
(1) retail sales of $47 million , or 68%, primarily due to the impact of COVID-19
on retail store operations as well as reduced store count and (2) wholesale
sales of $15 million , or 39%, due to lower full-price sales. These decreases
were partially offset by increased e-commerce sales of $37 million , or 93%, with
$15 million of that increase resulting from e-commerce flash clearance sales in
the First Half of Fiscal 2020 with no comparable event in the First Half of
Fiscal 2019. The following table presents the proportion of net sales by
distribution channel for Lilly Pulitzer for each period presented:
First Half
Fiscal 2020 Fiscal 2019
Retail 18 % 46 %
E-commerce 62 % 27 %
Wholesale 20 % 27 %
Total 100 % 100 %
Lanier Apparel:
Lanier Apparel net sales decreased $27 million , or 59% in the First Half of
Fiscal 2020 resulting from decreases in most of the replenishment, seasonal and
other programs for the branded and private label businesses. These decreases
were partially offset by $3 million of sales of masks and gowns.
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Southern Tide:
Southern Tide net sales decreased$9 million , or 36%, in the First Half of Fiscal 2020 due to an$11 million , or 50%, decrease in wholesale sales partially offset by a$1 million , or 20%, increase in e-commerce sales and increased retail store sales after opening our first Southern Tide retail store in the Fourth Quarter of Fiscal 2019 and our second store in the Second Quarter of Fiscal 2020. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented: First Half Fiscal 2020 Fiscal 2019 Retail 3 % - % E-commerce 32 % 17 % Wholesale 65 % 83 % Total 100 % 100 %
Corporate and Other:
Corporate and Other net sales increased
Gross Profit
The tables below present gross profit by operating group and in total for the
First Half of Fiscal 2020 and the First Half of Fiscal 2019, as well as the
change between those two periods and gross margin by operating group and in
total. Our gross profit and gross margin, which is calculated as gross profit
divided by net sales, may not be directly comparable to those of our
competitors, as the statement of operations classification of certain expenses
may vary by company.
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 105,267 $ 218,033 $ (112,766) (51.7) %
Lilly Pulitzer 75,752 97,298 (21,546) (22.1) %
Lanier Apparel 4,395 13,016 (8,621) (66.2) %
Southern Tide 4,514 13,293 (8,779) (66.0) %
Corporate and Other 8,883 3,954 4,929 124.7 %
Consolidated gross profit $ 198,811 $ 345,594 $ (146,783) (42.5) %
Notable items included in amounts above:
LIFO adjustments in Corporate and Other $ (3,642) $ 845
First Half
Fiscal 2020 Fiscal 2019
Tommy Bahama 57.8 % 61.7 %
Lilly Pulitzer 61.6 % 65.7 %
Lanier Apparel 22.9 % 27.9 %
Southern Tide 26.4 % 50.0 %
Corporate and Other NM NM
Consolidated gross margin 56.4 % 59.2 %
The decrease in consolidated gross profit in the First Half of Fiscal 2020 was primarily due to the lower net sales. The lower consolidated gross margin reflects lower gross margin in each operating group as discussed below. During the First Half of Fiscal 2020, we recognized the negative impact of$7 million of inventory markdowns on lower sales which were partially offset by a$4 million LIFO accounting credit. In the First Half of Fiscal 2019, we recognized a small impact of inventory markdowns and a$1 million LIFO accounting charge. 33 Table of ContentsTommy Bahama : The decrease in gross margin forTommy Bahama was primarily driven by (1) lower gross margin in the full-price direct to consumer channel primarily due to a change in sales mix from retail store sales to e-commerce sales, which have a lower gross margin than retail sales, (2) increased inventory markdowns and promotional discounts in our off-price channels of distribution, (3) certain fixed asset and operating lease asset impairment charges in ourTommy Bahama sourcing operations related to the restructuring of ourTommy Bahama sourcing operations and (4) lower gross margin in the wholesale channel resulting from a change in sales mix as a greater proportion of wholesale sales were off-price wholesale sales.Lilly Pulitzer :
The decrease in gross margin forLilly Pulitzer was primarily due to (1) a change in sales mix as e-commerce flash clearance sales, which generate a gross margin of approximately 40%, and off-price wholesale sales represented a greater proportion of net sales, (2) increased promotions and discounting in each channel of distribution and (3) increased inventory markdowns.
Lanier Apparel:
The decrease in gross margin for Lanier Apparel was primarily due to (1) an increase in inventory markdown amounts on a lower sales volume, resulting in a more significant impact on gross margin, and (2) lower gross margin on various programs due to the challenging market.
Southern Tide:
The decrease in gross margin for Southern Tide was primarily due to (1) increased inventory markdowns and lower profitability on off-price sales related to excess inventory and (2) more significant discounts and allowances in all channels of distribution. These items were partially offset by a change in sales mix with direct to consumer sales representing a larger proportion of net sales in the First Half of Fiscal 2020.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the gross profit of TBBC, Duck Head and theLyons, Georgia distribution center as well as the impact of LIFO accounting adjustments. The primary drivers for the higher gross profit were (1) the$4 million net favorable impact of LIFO accounting with a LIFO accounting credit in the First Half of Fiscal 2020 and a LIFO accounting charge in the First Half of Fiscal 2019 and (2) the gross profit resulting from the higher net sales, which was partially offset by lower gross margin. The LIFO accounting impact in Corporate and Other in each period primarily reflects (1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior period is ultimately sold or (2) a credit in Corporate and Other when inventory has been marked down to the estimated net realizable value in an operating group in the current period, but has not been sold as of period end. 34 Table of Contents SG&A First Half Fiscal 2020 Fiscal 2019 $ Change % Change SG&A$ 238,664 $ 283,217 $ (44,553) (15.7) % SG&A (as a % of net sales) 67.7 % 48.5 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 136 $ 160 Amortization of Southern Tide intangible assets $ 144 $ 145 Tommy Bahama Japan charges $ - $ 590 The lower SG&A in the First Half of Fiscal 2020 was primarily due to (1) decreased employment costs of$34 million primarily due to the actions taken to reduce our employment cost in response to COVID-19, including the temporary furlough of substantially all retail and restaurant employees while direct to consumer operations were closed, layoffs or pay reductions for certain employees, reductions in incentive compensation amounts and elimination of the company match for our 401(k) plan, partially offset by certain severance amounts, (2) a$6 million reduction in certain variable expenses including credit card transaction fees, commissions and other variable expenses, (3) a$6 million reduction in occupancy expenses primarily resulting from the operation of fewerTommy Bahama andLilly Pulitzer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (4) a$3 million decrease in travel expenses, (5) a$1 million reduction in advertising expenses, (6) a$1 million decrease inTommy Bahama Japan charges, which related to charges associated with the restructure and exit of ourTommy Bahama Japan operations, with no such charges in the First Half of Fiscal 2020 and (7) decreases in administrative and general expenses. These decreases were partially offset by (1)$6 million of increased estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers and (2) a$3 million increase in depreciation expense including impairment charges for certain retail locations.
Impairment of goodwill and intangible assets
In the First Half of Fiscal 2020, impairment charges for goodwill and intangible assets totaling$60 million were recognized in Southern Tide. The impairment charges for Southern Tide primarily reflect the impact of COVID-19 on the operations, plans and strategy of the Southern Tide business. In addition, a small impairment charge was recognized in Lanier Apparel related to a trademark acquired in a prior year that was not deemed recoverable. Refer to Note 1 and Note 4 in the unaudited condensed consolidated financial statements included in this report for additional discussion regarding the impairment charges recognized in the First Half of Fiscal 2020. There were no impairment charges for goodwill or intangible assets in the prior year period.
Royalties and other operating income
First Half
Fiscal 2020 Fiscal 2019 $ Change % ChangeRoyalties and other operating income$ 6,799 $ 7,624 $
(825) (10.8) % Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The decreased royalties and other income in the First Half of Fiscal 2020 was due to lower royalty income in bothTommy Bahama andLilly Pulitzer . 35 Table of Contents Operating income (loss) First Half Fiscal 2020 Fiscal 2019 $ Change % Change Tommy Bahama$ (36,074) $ 38,410 $ (74,484) NM %Lilly Pulitzer 20,410 35,701 (15,291) (42.8) % Lanier Apparel (8,771) 1,767 (10,538) NM % Southern Tide (64,345) 4,351 (68,696) NM % Corporate and Other (4,726) (10,228) 5,502 53.8 % Consolidated Operating (Loss) Income$ (93,506) $ 70,001 $ (163,507) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ (3,642) $ 845
Amortization of
-
Amortization of Southern Tide
intangible assets $ 144 $ 145
Southern Tide impairment charge $ 60,245 $ -
Tommy Bahama Japan charges $ - $ 590
The lower operating results in the First Half of Fiscal 2020 were primarily due to (1) the impact of COVID-19 on each operating group and (2) the$60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020. These items were partially offset by improved operating results in Corporate and Other, which was primarily due to the favorable impact of LIFO accounting. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama : First Half Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 182,238 $ 353,600 $ (171,362) (48.5) % Gross profit$ 105,267 $ 218,033 $ (112,766) (51.7) % Gross margin 57.8 % 61.7 % Operating (loss) income$ (36,074) $ 38,410 $ (74,484) NM % Operating (loss) income as % of net sales (19.8) % 10.9 % Notable items included in amounts above: Tommy Bahama Japan charges $ - $ 590 The lower operating results forTommy Bahama in the First Half of Fiscal 2020 were primarily due to lower sales and lower gross margin partially offset by lower SG&A. The lower SG&A was primarily due to (1)$26 million of lower employment costs, (2)$5 million of lower variable costs such as credit card transaction fees, commissions, shipping fees and supplies, (3)$5 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses, (4) a$2 million decrease in advertising expense, (5) a$1 million decrease in travel expense, (6) a$1 million decrease inTommy Bahama Japan charges, which related to charges associated with the restructure and exit of ourTommy Bahama Japan operations, with no such charges in the First Half of Fiscal 2020 and (7) decreases in other general and administrative expenses. These decreases were partially offset by a$3 million increase in depreciation expense including impairment charges for certain direct to consumer locations and increased provisions for credit losses. 36 Table of ContentsLilly Pulitzer : First Half Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 123,009 $ 148,150 $ (25,141) (17.0) % Gross profit$ 75,752 $ 97,298 $ (21,546) (22.1) % Gross margin 61.6 % 65.7 % Operating income$ 20,410 $ 35,701 $ (15,291) (42.8) % Operating income as % of net sales 16.6 % 24.1 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 136 $ 160 The lower operating income forLilly Pulitzer in the First Half of Fiscal 2020 was primarily due to lower sales and lower gross margin partially offset by lower SG&A. The lower SG&A was primarily due to (1)$5 million of lower employment costs, (2)$2 million of lower occupancy costs, primarily resulting from the operation of fewer bricks and mortar locations, certain negotiated reductions and lower costs for utilities, maintenance and related expenses and (3) reductions in other expenses including travel and certain administrative expenses. These decreases in SG&A were partially offset by (1)$1 million of higher marketing expense and (2) increases in other expenses including provisions for credit losses. Lanier Apparel: First Half Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 19,175 $ 46,620 $ (27,445) (58.9) % Gross profit$ 4,395 $ 13,016 $ (8,621) (66.2) % Gross margin 22.9 % 27.9 % Operating (loss) income$ (8,771) $ 1,767 $ (10,538) NM % Operating (loss) income as % of net sales (45.7) % 3.8 % Notable items included in amounts above: Lanier Apparel impairment charge $ 207 $ - The lower operating results for Lanier Apparel in the First Half of Fiscal 2020 were due to lower sales, lower gross margin and higher SG&A. The higher SG&A was primarily due to$4 million of increased estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple Lanier Apparel customers. These increases were partially offset by a reduction in shipping and related expenses, other expenses including advertising, travel, samples and administrative costs and employment costs.
Southern Tide:
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 17,113 $ 26,602 $ (9,489) (35.7) %
Gross profit $ 4,514 $ 13,293 $ (8,779) (66.0) %
Gross margin 26.4 % 50.0 %
Operating (loss) income $ (64,345) $ 4,351 $ (68,696) NM %
Notable items included in
amounts above:
Amortization of Southern Tide
intangible assets $ 144 $ 145
Southern Tide impairment charge $ 60,245 $ -
The lower operating results for Southern Tide in the First Half of Fiscal 2020
were primarily due to the significant impairment charge for goodwill and
intangible assets in the First Quarter of Fiscal 2020 as well as lower sales and
gross margin partially offset by lower SG&A. Lower SG&A for employment costs,
advertising and other expenses were
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partially offset by the SG&A associated with the Southern Tide retail store operations and increased provisions for credit losses.
Corporate and Other:
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 10,796 $ 9,001 $ 1,795 19.9 %
Gross profit $ 8,883 $ 3,954 $ 4,929 124.7 %
Operating loss $ (4,726) $ (10,228) $ 5,502 53.8 %
Notable items included in
amounts above:
LIFO adjustments in Corporate
and Other $ (3,642) $ 845
The smaller operating loss for Corporate and Other was primarily due to the$4 million favorable impact of LIFO accounting, as well as higher net sales and lower SG&A, which was primarily due to lower employment costs in Corporate
and
Other.
Interest expense, net
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Interest expense, net $ 1,334 $ 1,090 $ 244 22.4 %
The increased interest expense in the First Half of Fiscal 2020 was primarily
due to higher levels of debt outstanding partially offset by interest income of
cash invested in money market accounts in the First Half of Fiscal 2020.
Income tax (benefit) provision
First Half
Fiscal 2020 Fiscal 2019 $ Change % Change
Income tax (benefit) provision $ (21,969) $ 17,418 $ (39,387) NM %
Effective tax rate 23.2 % 25.3 %
Income taxes were a tax benefit in the First Half of Fiscal 2020 resulting from an operating loss and the impact of certain discrete and other items as noted below, as compared to a tax expense in the First Half of Fiscal 2019 resulting from operating income. The income tax benefit in the First Half of Fiscal 2020 reflects the benefit on the operating losses including the favorable impact of the CARES Act, which provides for the carry back of our Fiscal 2020 net operating losses to pre-U.S. Tax Reform tax years, which had a federal income tax rate of 35%. This benefit was partially offset by certain unfavorable items including (1) the non-deductibility of certain impairment charges, resulting in an estimated effective income tax benefit rate of approximately 17% on the impairment charges, and (2) restricted stock which vested in the period with a vesting date price lower than the grant date price. Net earnings First Half Fiscal 2020 Fiscal 2019 Net sales$ 352,331 $ 583,973 Operating (loss) income$ (93,506) $ 70,001 Net (loss) earnings$ (72,871) $ 51,493
Net (loss) earnings per diluted share$ (4.40) $
3.05
Weighted average shares outstanding - diluted 16,580 16,878
The net loss per share in the First Half of Fiscal 2020 compared to positive net
earnings per share in the First Half of Fiscal 2019 was primarily due to (1) the
impact of COVID-19 on the operating results of each of our operating groups
including charges for estimated credit losses, inventory markdowns and
non-current asset
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impairments, (2) the$60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020 and (3) the non-deductibility of certain impairment charges resulting in a lower effective tax rate on our loss in the First Half of Fiscal 2020 than the effective tax rate on our income in the First Half of Fiscal 2019. These items were partially offset by the improved operating results in Corporate and Other, which were primarily due to the favorable impact of LIFO accounting. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Our primary source of revenue and cash flow is through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of ourTommy Bahama ,Lilly Pulitzer and Southern Tide lifestyle brands, other owned and licensed brands, and private label apparel products. We distribute our products to our customers via 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 from third party contract manufacturers outside ofthe United States , as well as operating expenses, including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, distribution costs, other general and administrative expenses and the payment of interest and other payments related to our financing arrangements. Additionally, we use cash for the funding of capital expenditures, dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay our operating expenses. Thus, we require a certain amount of working capital to operate our business. If cash inflows are less than cash outflows, we have access to amounts under ourU.S. Revolving Credit Agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities, and cash on hand. As ofAugust 1, 2020 , we had$97 million of cash and cash equivalents on hand, with$65 million of borrowings outstanding and$257 million of unused availability under ourU.S. Revolving Credit Agreement. We believe ourU.S. Revolving Credit Agreement and cash and cash equivalents on hand will provide sufficient liquidity to fund operating cash flow needs and other ongoing cash requirements during the COVID-19 pandemic in Fiscal 2020 until we return to generating positive cash flow from operations. Key Liquidity Measures August 1, February 1, August 3, February 2, ($ in thousands) 2020 2020 2019 2019 Total current assets$ 298,417 $ 288,826 $ 265,044 $ 269,788 Total current liabilities$ 173,701 $ 177,779 $ 164,119 $ 142,209 Working capital$ 124,716 $ 111,047 $ 100,925 $ 127,579 Working capital ratio 1.72 1.62 1.61 1.90
Debt to total capital ratio 13 % - % - %
3 %
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofAugust 1, 2020 , increased fromAugust 3, 2019 primarily due to increased cash balances partially offset by lower receivables. Current liabilities as ofAugust 1, 2020 increased fromAugust 3, 2019 primarily due to higher current operating lease liabilities and other accrued expenses partially offset by lower accrued compensation. For the ratio of debt to total capital, debt is defined as short-term and long-term debt, and total capital is defined as debt plus shareholders' equity. Debt was$65 million atAugust 1, 2020 and$0 million atAugust 3, 2019 , while shareholders' equity was$432 million atAugust 1, 2020 and$519 million atAugust 3, 2019 . The increase in debt sinceAugust 3, 2019 was primarily due to borrowing to maintain certain amounts of cash on our balance sheet during the COVID-19 pandemic, resulting in$97 million of cash and cash equivalents on hand as ofAugust 1, 2020 . Additionally, the change in debt reflects the net impact of$79 million of cash flow from operations offset by cash payments of$38 million for capital expenditures and other investing activities,$21 million for dividends and$20 million for share repurchases. Shareholders' equity decreased fromAugust 3, 2019 , primarily due to net losses, dividends paid and shares 39
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repurchased during the 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, the ultimate impact of the COVID-19 pandemic 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 as ofAugust 1, 2020 as compared toAugust 3, 2019 .
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