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 Fiscal 2021
Form
10-K.
OVERVIEW
Business Overview
We are a leading branded apparel company that designs, sources, markets and
distributes products bearing the trademarks of our
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 can command greater loyalty and higher price points 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 the reputation, value, and image of brand names; the design of differentiated, innovative or otherwise compelling product; consumer preference; price; quality; marketing (including through rapidly shifting digital and social media vehicles); 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.Tommy Bahama andLilly Pulitzer , in the aggregate, represented 90% of our consolidated net sales in Fiscal 2021. During Fiscal 2021, 80% of our consolidated net sales were through our direct to consumer channels of distribution, which consist of our brand specific full-price retail stores and e-commerce websites,Tommy Bahama food and beverage operations andTommy Bahama outlets. The remaining 20% of our net sales was generated through 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 base of consumers. For additional information about our business and our operating groups in Fiscal 2021, see Part I, Item 1. Business of our Fiscal 2021 Form 10-K. Important factors relating to certain risks which could impact our business are described in Part II, Item 1A. Risk Factors of this report and Part I. Item 1A. Risk Factors of our Fiscal 2021 Form 10-K.
Industry and Recent Macroeconomic Conditions Overview
We operate in a highly competitive apparel market that continues 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 competitors vary by operating group and distribution channel.
The apparel industry is cyclical and very dependent on the overall level and
focus of discretionary consumer spending, which changes as consumer preferences
and regional, domestic and international economic conditions change and has
shifted towards services and away from other product categories in recent years.
Further, negative economic conditions often have a longer and more severe impact
on the apparel industry than on other industries.
This competitive and evolving environment requires that brands and retailers
approach their operations, including marketing and advertising, very differently
than historical practices and may result in increased operating costs and
investments to generate growth or even maintain sales levels. While the
competition and evolution present significant
19
Table of Contents
risks, especially for traditional retailers who 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. We believe our lifestyle brands have true competitive advantages, and we continue to invest in and leverage 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. The COVID-19 pandemic has had a significant effect on overall economic conditions and our operations in recent years and accelerated or exacerbated many of the changes in the industry. In Fiscal 2021, the economic environment improved significantly with a rebound in retail traffic starting inMarch 2021 and other improvements as the year progressed, although certain stores were closed for portions of Fiscal 2021, particularly in the First Quarter of Fiscal 2021. This exceptionally strong consumer demand, along with the strength of our brands, resulted in record earnings for us during Fiscal 2021 and the First Nine Months of Fiscal 2022. The strong earnings in recent periods are despite certain challenges in the retail apparel market, including labor shortages, supply chain disruptions and product and operating cost increases in Fiscal 2021 and Fiscal 2022. We, as well as others in our industry, have increased prices to attempt to offset inflationary pressures. There can be no assurance that the strong consumer demand of Fiscal 2021 and Fiscal 2022 will continue for our business or the broader retail apparel market. There remains significant uncertainty in the macroeconomic environment as to the impact of changing consumer discretionary spending habits, recent supply chain and other business disruptions, ongoing operating cost increase and other inflationary pressures, rising interest rates, the duration and severity of the pandemic and general economic conditions. Thus, the ultimate impact of these items on our business remains uncertain at this time.
Johnny Was Acquisition
OnSeptember 19, 2022 , we acquired the Johnny Was California lifestyle brand and related operations, which includes the design, sourcing, marketing and distribution of collections of affordable luxury, artisan-inspired bohemian apparel, accessories and home goods. Johnny Was products are sold through the Johnny Was website and retail stores as well as select department stores and specialty stores. The purchase price for the acquisition of Johnny Was totaled$270 million in cash, subject to adjustment based on net working capital as of the closing date of the acquisition. After giving effect to the preliminary estimated working capital adjustment, the purchase price paid at closing was$271 million . We used cash and short-term investments on hand and borrowings under ourU.S. Revolving Credit Agreement to finance the transaction. Refer to Note 7 included in the unaudited condensed consolidated financial statements included in this report for additional information about the acquisition of Johnny Was. In the 12 months endedOctober 29, 2022 , the Johnny Was business generated approximately$209 million of net sales. On an annual basis, we anticipate that gross margins, excluding the impact of any inventory step-up charges related to purchase accounting, will be approximately 65% and earnings before interest and taxes, excluding the impact of any inventory step-up charges and amortization of intangible assets, which have not been finalized at this time as we have not completed our assessment and allocation of fair value of the acquired assets and liabilities, will be in the mid to high teen percentage of net sales. We expect that the business will continue to grow as each channel of distribution grows. During the 12 months endedOctober 2022 , e-commerce, retail and wholesale represented 41%, 34% and 25%, respectively, of the net sales of Johnny Was. The financial information included in the results of operations discussion below for the Third Quarter of Fiscal 2022 and the First Nine Months of Fiscal 2022, includes the six weeks from theSeptember 19, 2022 acquisition through theOctober 29, 2022 quarter end only. Therefore, the amounts included in the results of operations below are not indicative of results for a full quarter or a nine month period. 20 Table of Contents Lanier Apparel Exit
In Fiscal 2021, we exited our Lanier Apparel business, a business which had been focused on moderately priced tailored clothing and related products. This decision aligns with our stated business strategy of developing and marketing compelling lifestyle brands. It also took into consideration the increased macroeconomic challenges faced by the Lanier Apparel business, many of which were magnified by the COVID-19 pandemic. The operating results of theLanier Apparel business in Fiscal 2021 largely reflect activities associated with the ongoing wind down of operations following the 2020 announcement that we would be exiting the business. In Fiscal 2021, Lanier Apparel's net sales were$25 million and represented 2% of our consolidated net sales. We do not expect any future net sales, operations or charges for Lanier Apparel. Refer to Note 11 in our consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2021 Form 10-K for additional information about the Lanier Apparel exit.
Key Operating Results:
The following table sets forth our consolidated operating results (in thousands,
except per share amounts) for the First Nine Months of Fiscal 2022 compared to
the First Nine Months of Fiscal 2021:
First Nine Months
Fiscal 2022 Fiscal 2021
Net sales $ 1,029,044 $ 842,163
Operating income $ 178,664 $ 133,496
Net earnings $ 133,686 $ 105,913
Net earnings per diluted share $ 8.19 $ 6.29
Weighted average shares outstanding - diluted 16,333 16,841
Net earnings per diluted share were$8.19 in the First Nine Months of Fiscal 2022 compared to$6.29 in the First Nine Months of Fiscal 2021. The 30% increase in net earnings per diluted share was primarily due to a 26% increase in net earnings as well as a 3% reduction in weighted average shares outstanding due to our share repurchase program which commenced in the Fourth Quarter of Fiscal 2021. The higher net earnings were primarily due to higher operating income inTommy Bahama partially offset by (1) the First Nine Months of Fiscal 2021 including a$12 million gain on sale of investment in an unconsolidated entity and (2) a higher effective tax rate in the First Nine Months of Fiscal 2022. STORE COUNT The table below provides information about the number of direct to consumer locations for our brands as of the dates specified. For acquired brands, locations are only included subsequent to the date of acquisition. The amounts below include our permanent locations and exclude any pop-up or temporary store locations which have an initial lease term of 12 months or less.October 29 , January
29,
2022 2022 2021 2021
Tommy Bahama retail stores 102 102 103 105
Tommy Bahama retail-restaurant locations 21 21 21 20 Tommy Bahama outlets 35 35 35 35 Total Tommy Bahama locations 158 158 159 160Lilly Pulitzer retail stores 59 58 59 59 Johnny Was retail stores 64 - - - Johnny Was outlets 2 - - - Total Johnny Was locations 66 - - - Southern Tide retail stores 5 4 4 3 TBBC retail stores 2 1 - - Total Oxford locations 290 221 222 222 21 Table of Contents OnSeptember 28, 2022 , Hurricane Ian made landfall inSouthwest Florida . The hurricane resulted in store closures at many of ourFlorida direct to consumer locations for a few days that week and caused significant property damage across the region. Substantially all of our direct to consumer locations returned to normal operating hours shortly after the hurricane. However, two of our locations inNaples, Florida , including a retail-restaurant location, suffered significantly greater damage as a result of the hurricane, resulting in those locations being closed for a longer period. Both of these locations reopened inNovember 2022 . We estimate that the impact of the hurricane on our net sales during the Third Quarter of Fiscal 2022 was approximately$3 million . While all of our direct to consumer locations have reopened, due to the significant damage to the region and the potential impact on tourism, consumer demand and retail traffic, there remains uncertainty about the ultimate impact of Hurricane Ian on our business during the next few months. RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 2022 COMPARED TO THIRD QUARTER OF FISCAL 2021
The discussion and tables below compare our statements of operations for the
Third Quarter of Fiscal 2022 to the Third Quarter of Fiscal 2021. 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,
including gross profit, 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. The table also includes
net earnings per diluted share and diluted weighted average shares outstanding
(in thousands), as well as the change and the percentage change for each of
these items as compared to the same period of the prior year.
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ 313,033 100.0 % $ 247,729 100.0 % $ 65,304 26.4 %
Cost of goods sold 115,339 36.8 % 95,191 38.4 % 20,148 21.2 %
Gross profit $ 197,694 63.2 % $ 152,538 61.6 % $ 45,156 29.6 %
SG&A 175,027 55.9 % 137,505 55.5 % 37,522 27.3 %
Royalties and other
operating income 4,648 1.5 % 15,574 6.3 % (10,926) (70.2) %
Operating income $ 27,315 8.7 % $ 30,607 12.4 % $ (3,292) (10.8) %
Interest expense, net 698 0.2 % 222 0.1 % 476 214.4 %
Earnings before income
taxes $ 26,617 8.5 % $ 30,385 12.3 % $ (3,768) (12.4) %
Income tax expense 6,951 2.2 % 4,400 1.8 % 2,551 58.0 %
Net earnings $ 19,666 6.3 % $ 25,985 10.5 % $ (6,319) (24.3) %
Net earnings per diluted
share $ 1.22 $ 1.54 $ (0.32) (20.8) %
Weighted average shares
outstanding - diluted 16,139 16,872 (733) (4.3) %
22
Table of Contents
Net Sales
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Tommy Bahama $ 178,645 $ 148,454 $ 30,191 20.3 %
Lilly Pulitzer 84,053 72,157 11,896 16.5 %
Johnny Was 22,661 - 22,661 100.0 %
Emerging Brands 26,912 22,082 4,830 21.9 %
Lanier Apparel - 4,232 (4,232) (100.0) %
Corporate and Other 762 804 (42) (5.2) %
Consolidated net sales $ 313,033 $ 247,729 $ 65,304 26.4 %
Consolidated net sales were $313 million in the Third Quarter of Fiscal 2022
compared to net sales of $248 million in the Third Quarter of Fiscal 2021, with
an increase in each brand and channel of distribution. The 26% increase in net
sales included double-digit percentage increases in each of our Tommy Bahama ,
Lilly Pulitzer and Emerging Brands operating groups as well as $23 million of
sales for Johnny Was, which was acquired during the Third Quarter of Fiscal
2022. These increases were partially offset by a $4 million decrease in sales
for Lanier Apparel, which we exited in Fiscal 2021. The higher net sales were
due to a combination of increased volume as well as price increases, which were
implemented in order to mitigate increased product and other costs. The Third
Quarter of Fiscal 2022 included the unfavorable impact of Hurricane Ian in
Southwest Florida , which we estimate reduced our net sales by approximately $3
million .
The increase in net sales by distribution channel consisted of the following:
an increase in full-price retail sales of
12% aggregate increase in full-price retail sales in
? Pulitzer and Emerging Brands driven primarily by increased consumer traffic and
average dollars per transaction partially offset by lower conversion rates, and
(2)
an increase in full-price e-commerce sales of
? (1)
aggregate increase in e-commerce sales in
Emerging Brands;
an increase in wholesale sales of
primarily due to higher order books as wholesale accounts increased their buys
? for Fiscal 2022 compared to Fiscal 2021, with
Johnny Was in the Third Quarter of Fiscal 2022 largely offset by
wholesale sales for Lanier Apparel in the Third Quarter of Fiscal 2021;
? an increase in e-commerce flash clearance sales of
? an increase in restaurant sales of
? an increase in outlet sales of
23
Table of Contents
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented. We have calculated all percentages below on actual data, and percentages may not add to 100 due to rounding.
Third Quarter
Fiscal 2022 Fiscal 2021
Retail 36 % 37 %
E-commerce 34 % 33 %
Restaurant 7 % 8 %
Wholesale 22 % 21 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales increased$30 million , or 20%, in the Third Quarter of Fiscal 2022, with an increase in each channel of distribution. The increase in net sales inTommy Bahama included increases in (1) wholesale sales of$14 million , or 53%, with this increase primarily due to higher order books as wholesale accounts increased their buys for Fiscal 2022 compared to Fiscal 2021, (2) full-price retail sales of$8 million , or 14%, (3) restaurant sales of$3 million , or 17%, with high single-digit percentage increases in locations open the full quarter of both periods as well as increased sales at theNew York and Palm Desert locations, which were not open the full quarter in the Third Quarter of Fiscal 2021, (4) e-commerce sales of$3 million , or 9%, and (5) outlet sales of$2 million , or 14%. The following table presents the proportion of net sales by distribution channel forTommy Bahama for each period presented: Third Quarter Fiscal 2022 Fiscal 2021 Retail 44 % 47 % E-commerce 20 % 22 % Restaurant 13 % 13 % Wholesale 23 % 18 % Total 100 % 100 %Lilly Pulitzer :Lilly Pulitzer net sales increased$12 million , or 16%, in the Third Quarter of Fiscal 2022, with an increase in each channel of distribution. The increase in net sales inLilly Pulitzer included increases in (1) e-commerce flash clearance sales of$9 million , or 45%, asLilly Pulitzer had increased levels of inventory available for the e-commerce flash clearance sales in Fiscal 2022 after having more limited end of season inventory in Fiscal 2021, (2) wholesale sales of$1 million , or 16%, (3) full-price e-commerce sales of$1 million , or 5%, and (4) retail sales of$1 million , or 4%. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: Third Quarter Fiscal 2022 Fiscal 2021 Retail 27 % 31 % E-commerce 62 % 58 % Wholesale 11 % 11 % Total 100 % 100 % Johnny Was: Johnny Was net sales were$23 million in the six weeks following theSeptember 19, 2022 acquisition through the end of the quarter. During the six-week period, e-commerce, retail and wholesale sales were 41%, 38% and 21% of the net sales of Johnny Was. As the net sales are for less than half the fiscal quarter, the
percentage of net sales by
24
Table of Contents
distribution channel are not indicative of the proportion of net sales for the full Third Quarter of Fiscal 2022 or any other fiscal quarter.
Emerging Brands:
Emerging Brands net sales increased$5 million , or 22%, in the Third Quarter of Fiscal 2022, with an increase in each of the TBBC, Duck Head and Southern Tide businesses comprising Emerging Brands. By brand, the increase in net sales included increases in (1) TBBC of$4 million , or 50%, (2) Duck Head of$1 million , or 57%, and (3) Southern Tide of$0 million , or 2%. By distribution channel, the$5 million increase included increases of (1)$3 million , or 44%, in e-commerce, (2)$1 million , or 8%, in wholesale, and (3)$0 million , or 46%, in the Southern Tide and TBBC retail businesses, as those brands continue to open new retail locations. The following table presents the proportion of net sales by distribution channel for Emerging Brands for each period presented: Third Quarter Fiscal 2022 Fiscal 2021 Retail 5 % 4 % E-commerce 40 % 34 % Wholesale 55 % 62 % Total 100 % 100 % Lanier Apparel:
There were no Lanier Apparel net sales in the Third Quarter of Fiscal 2022,
compared to
Corporate and Other:
Corporate and Other net sales primarily consist of net sales of our
Gross Profit
The tables below present gross profit by operating group and in total for the
Third Quarter of Fiscal 2022 and the Third Quarter of Fiscal 2021, as well as
the dollar change and percentage 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.
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Tommy Bahama $ 115,641 $ 91,773 $ 23,868 26.0 %
Lilly Pulitzer 52,993 48,668 4,325 8.9 %
Johnny Was 14,597 - 14,597 100.0 %
Emerging Brands 13,426 11,770 1,656 14.1 %
Lanier Apparel - 2,195 (2,195) (100.0) %
Corporate and Other 1,037 (1,868) 2,905 NM %
Consolidated gross profit $ 197,694 $ 152,538 $ 45,156 29.6 %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ (650) $ 2,197
Inventory step-up charge included in
Johnny Was $ 1,376 $ -
Lanier Apparel exit charges in cost
of goods sold $ - $ (684)
25
Table of Contents
Third Quarter
Fiscal 2022 Fiscal 2021
Tommy Bahama 64.7 % 61.8 %
Lilly Pulitzer 63.0 % 67.4 %
Johnny Was 64.4 % - %
Emerging Brands 49.9 % 53.3 %
Lanier Apparel - % 51.9 %
Corporate and Other NM % NM %
Consolidated gross margin 63.2 % 61.6 %
The increased gross profit of 30% was primarily due to the 26% increase in net
sales as well as increased consolidated gross margin. The higher gross margin
included (1) lower freight costs of $5 million , or 175 basis points, after
incurring $6 million , or 270 basis points of incremental freight costs in the
Third Quarter of Fiscal 2021, (2) a $3 million lower LIFO accounting charge in
the Third Quarter of Fiscal 2022 compared to the Third Quarter of Fiscal 2021,
(3) improved initial product margins, as certain sales prices were increased
more than the increased product costs, and (4) the lack of any Lanier Apparel
sales, which had lower gross margins than our branded businesses. These items
were partially offset by (1) the impact of the Lilly Pulitzer e-commerce flash
sale, which represented a larger proportion of net sales and had lower gross
margins in the Third Quarter of Fiscal 2022, (2) the $1 million inventory step
up charge related to the Johnny Was acquisition in the Third Quarter of Fiscal
2022, and (3) the lack of a favorable adjustment of Lanier Apparel exit charges
in cost of goods sold after a $1 million favorable adjustment of Lanier Apparel
exit charges in cost of goods sold in the Third Quarter of Fiscal 2021.
In the Third Quarter of Fiscal 2021, freight costs increased significantly from
prior periods, including rate increases for both ocean and air shipments as well
as the increased utilization of air freight on inbound products as we navigated
our need for inventory and the supply chain challenges. The increased inbound
freight rates, which have moderated somewhat from the peak, have continued into
Fiscal 2022. However, our use of air freight has decreased as we have placed
seasonal inventory purchases on an earlier timeline to reduce the risk of late
delivery of our products. These factors resulted in a significant negative
impact on our gross margin during the Second Half of Fiscal 2021, but not as
significant of a negative impact on our gross margin in the Second Half of
Fiscal 2022. In Fiscal 2022 freight costs are still elevated by approximately 50
to 100 basis points as compared to pre-pandemic levels.
The higher gross margin forTommy Bahama was primarily due to reduced freight costs in the Third Quarter of Fiscal 2022, after significantly higher freight costs were incurred in the Third Quarter of Fiscal 2021, as well as improved initial product margins. These items were partially offset by a change in sales mix with wholesale sales representing a higher proportion of net sales in the Third Quarter of Fiscal 2022.Lilly Pulitzer :
The lower gross margin forLilly Pulitzer was primarily due to (1) a change in sales mix with e-commerce flash clearance sales, which typically have gross margins in the low 40% range, representing a larger proportion of net sales and (2) lower gross margins on the e-commerce flash clearance sales, as the gross margin achieved in the Third Quarter of Fiscal 2021 was higher than typical due to less end of season inventory available in Fiscal 2021. This was partially offset by lower freight costs and improved initial product margins.
Johnny Was:
The Johnny Was gross profit and gross margin for the six weeks following theSeptember 19, 2022 acquisition through the end of the quarter was unfavorably impacted by the$1 million of incremental cost of goods sold resulting from the charge related to the step up of inventory to fair value at acquisition. Thus, we do not believe the gross profit or gross margin is indicative of the gross profit or gross margin for the Third Quarter of Fiscal 2022 or any other fiscal quarter for Johnny Was. On an annual basis, with no impact of inventory step-up charges, Johnny Was gross margins have historically been and are expected to be approximately 65%, after conforming to our accounting policy of classifying outbound freight charges in cost of goods sold rather than SG&A. 26 Table of Contents Emerging Brands: The lower gross margin for Emerging Brands was primarily due to more inventory markdowns and increased freight costs partially offset by a change in sales mix with direct to consumer sales representing a greater proportion of net sales.
Lanier Apparel:
There was no gross profit for Lanier Apparel in the Third Quarter of Fiscal 2022. The Third Quarter of Fiscal 2021 for Lanier Apparel included the gross profit impact of net sales as we were exiting the business, as well as a reduction in inventory markdowns associated with the exit of Lanier Apparel.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the impact of LIFO accounting adjustments and the gross profit of theLyons, Georgia distribution center and Oxford America businesses. The primary driver for the improved gross profit was the$3 million lower LIFO accounting charge. The LIFO accounting impact in Corporate and Other in each period includes the net impact of (1) a charge in Corporate and Other when inventory that had been marked down in an operating group in a prior period was ultimately sold, (2) a credit in Corporate and Other when inventory had been marked down in an operating group in the current period, but had not been sold as of period end and (3) the change in the LIFO reserve, if any. SG&A Third Quarter Fiscal 2022 Fiscal 2021 $ Change % Change SG&A$ 175,027 $ 137,505 $ 37,522 27.3 % SG&A (as a % of net sales) 55.9 % 55.5 % Notable items included in amounts above: Tommy Bahama lease termination charge $ -$ 4,850 Amortization of Johnny Was intangible assets$ 1,641 $ - TBBC change in fair value of contingent consideration $ - $ 786 Lanier Apparel exit charges in SG&A $ - $ 559 Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other$ 2,783 $ - SG&A was$175 million in the Third Quarter of Fiscal 2022 compared to SG&A of$138 million in the Third Quarter of Fiscal 2021, with approximately$14 million of the increase due to the SG&A of Johnny Was. The 27% increase in SG&A in the Third Quarter of Fiscal 2022 included the following, each of which reflects increases due to the acquisition of Johnny Was: (1) increased employment costs of$17 million , primarily due to increased head count, pay rate increases and other employment cost increases, particularly in our direct to consumer and distribution center operations, (2) a$7 million increase in advertising expense, (3) a$5 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (4) a$5 million increase in occupancy expenses, including increases in base rent amounts, percentage rent, occupancy related operating costs and other items, (5)$3 million of charges related to transaction expenses and integration costs associated with the Johnny Was acquisition, (6) a$3 million increase in administrative expenses including professional fees, travel and other items, (7) a$2 million increase in amortization of intangible assets and (8) a$1 million increase in depreciation expense. These items were partially offset by the absence of$5 million ofTommy Bahama lease termination charges,$1 million of TBBC change in fair value of contingent consideration and$1 million of Lanier Apparel exit charges in the Third Quarter of Fiscal 2022. 27 Table of Contents
Royalties and other operating income
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Royalties and other operating income $ 4,648 $ 15,574 $ (10,926) (70.2) %
Notable items included in amounts above:
Gain on sale of investment in unconsolidated entity $ - $(11,586)
Royalties and other operating income typically consists primarily of income received from third parties from the licensing of our brands, but the Third Quarter of Fiscal 2021 also included a$12 million gain on sale of investment in unconsolidated entity. Royalty income in the Third Quarter of Fiscal 2022 increased primarily due to increased royalty income in bothTommy Bahama andLilly Pulitzer . Operating income (loss) Third Quarter Fiscal 2022 Fiscal 2021 $ Change % Change Tommy Bahama$ 18,984 $ 5,531 $ 13,453 243.2 %Lilly Pulitzer 12,688 15,985 (3,297) (20.6) % Johnny Was 117 - 117 100.0 % Emerging Brands 3,729 4,103 (374) (9.1) % Lanier Apparel - 348 (348) (100.0) % Corporate and Other (8,203) 4,640 (12,843) NM % Consolidated operating income$ 27,315 $ 30,607 $ (3,292) (10.8) % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ (650) $ 2,197 Inventory step-up charge included in Johnny Was$ 1,376 $ - Lanier Apparel exit charges in cost of goods sold $ -$ (684) Tommy Bahama lease termination charge $ -$ 4,850 Amortization of Johnny Was intangible assets$ 1,641 $ - TBBC change in fair value of contingent consideration $ - $ 786 Lanier Apparel exit charges in SG&A $ - $ 559 Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other$ 2,783 $ - Gain on sale of investment in unconsolidated entity $ -$ (11,586) Operating income was$27 million in the Third Quarter of Fiscal 2022 compared to$31 million in the Third Quarter of Fiscal 2021. The decreased operating income was primarily due to the Third Quarter of Fiscal 2021 including a gain on sale of an investment in an unconsolidated entity, with no such gain in the Third Quarter of Fiscal 2022, and lower operating income inLilly Pulitzer . These items were partially offset by higher operating income inTommy Bahama . Changes in operating income (loss) by operating group are discussed below. 28 Table of Contents Tommy Bahama: Third Quarter Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 178,645 $ 148,454 $ 30,191 20.3 % Gross profit$ 115,641 $ 91,773 $ 23,868 26.0 % Gross margin 64.7 % 61.8 % Operating income$ 18,984 $ 5,531 $ 13,453 243.2 % Operating income as % of net sales 10.6 % 3.7 % Notable items included in amounts above:Tommy Bahama lease termination charge $ -$ 4,850 The increased operating income forTommy Bahama was due to higher sales, gross margin and royalty income partially offset by increased SG&A. The increased SG&A was primarily due to (1)$9 million of increased employment costs, with the majority of the increase in retail and restaurant operations, (2) a$2 million increase in occupancy expenses including increases in base rent amounts, percentage rent, occupancy related operating costs and other items, (3)$2 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, and (4) a$2 million increase in advertising expense. These SG&A increases were partially offset by the absence of$5 million ofTommy Bahama lease termination charges in the Third Quarter of Fiscal 2022.Lilly Pulitzer : Third Quarter Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 84,053 $ 72,157 $ 11,896 16.5 % Gross profit$ 52,993 $ 48,668 $ 4,325 8.9 % Gross margin 63.0 % 67.4 % Operating income$ 12,688 $ 15,985 $ (3,297) (20.6) % Operating income as % of net sales 15.1 % 22.2 %
The decreased operating income for
Johnny Was:
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ 22,661 $ - $ 22,661 100.0 %
Gross profit $ 14,597 $ - $ 14,597 100.0 %
Gross margin 64.4 % - %
Operating income $ 117 $ - $ 117 100.0 %
Operating income as % of net sales 0.5 % - %
Notable items included in amounts
above:
Inventory step-up charge included
in Johnny Was $ 1,376 $ -
Amortization of Johnny Was
intangible assets $ 1,641 $ -
Johnny Was operating income in the six weeks following the September 19, 2022
acquisition through the end of the quarter was negatively impacted by $1 million
of charges related to inventory step-up charges and $2 million of
29
Table of Contents
amortization of intangible assets. As the operating results are for less than
half the fiscal quarter, the operating results are not necessarily indicative of
the Johnny Was operating results of the Third Quarter of Fiscal 2022.
Emerging Brands:
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ 26,912 $ 22,082 $ 4,830 21.9 %
Gross profit $ 13,426 $ 11,770 $ 1,656 14.1 %
Gross margin 49.9 % 53.3 %
Operating income $ 3,729 $ 4,103 $ (374) (9.1) %
Operating income as % of net
sales 13.9 % 18.6 %
Notable items included in
amounts above:
TBBC change in fair value of
contingent consideration $ - $ 786
The decreased operating income for Emerging Brands was due to increased SG&A and
lower gross margin partially offset by higher net sales. The increased SG&A
included (1) higher SG&A associated with the Southern Tide and TBBC retail store
operations, including related employment costs and occupancy costs, (2)
increased variable expenses resulting from increased sales, (3) higher
advertising expense and (4) increased administrative expenses associated with
the Emerging Brands businesses. These increases in SG&A were partially offset by
the lack of a TBBC change in fair value of contingent consideration in the Third
Quarter of Fiscal 2022 after incurring a $1 million charge for TBBC change in
fair value of contingent consideration in the Third Quarter of Fiscal 2021.
Lanier Apparel:
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ - $ 4,232 $ (4,232) (100.0) %
Gross profit $ - $ 2,195 $ (2,195) (100.0) %
Gross margin - % 51.9 %
Operating income $ - $ 348 $ (348) (100.0) %
Operating income as % of net
sales - % 8.2 %
Notable items included in
amounts above:
Lanier Apparel exit charges in
cost of goods sold $ - $ (684)
Lanier Apparel exit charges in
SG&A $ - $ 559
There was no operating income for Lanier Apparel in the Third Quarter of Fiscal
2022. The Third Quarter of Fiscal 2021 for Lanier Apparel included the operating
income resulting from the net sales, cost of goods sold and SG&A as we were
exiting the Lanier Apparel business, including the net impact related to Lanier
Apparel exit charges.
30
Table of Contents
Corporate and Other:
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ 762 $ 804 $ (42) (5.2) %
Gross profit $ 1,037 $ (1,868) $ 2,905 NM %
Operating loss $ (8,203) $ 4,640 $ (12,843) NM %
Notable items included in
amounts above:
LIFO adjustments in Corporate
and Other $ (650) $ 2,197
Transaction expenses and
integration costs associated
with the Johnny Was acquisition $ 2,783 $ -
Gain on sale of investment in
unconsolidated entity $ - $ (11,586)
The lower operating results in Corporate and Other were primarily a result of
(1) the Third Quarter of Fiscal 2021 including a $12 million gain on sale of an
investment in an unconsolidated entity, (2) $3 million of transaction expenses
and integration costs associated with the Johnny Was acquisition and (3)
increased SG&A, including increased employment costs. The impact of these items
were partially offset by a $3 million favorable impact from LIFO accounting.
Interest expense, net
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Interest expense, net $ 698 $ 222 $ 476 214.4 %
The higher interest expense in the Third Quarter of Fiscal 2022 was primarily
due to borrowings pursuant to our U.S. Revolving Credit Agreement to fund a
portion of the acquisition of Johnny Was, while there was no debt outstanding in
the Third Quarter of Fiscal 2021. The interest expense for the Third Quarter of
Fiscal 2021 primarily consisted of unused line fees and amortization of deferred
financing fees associated with the U.S. Revolving Credit Agreement.
Income tax provision
Third Quarter
Fiscal 2022 Fiscal 2021 $ Change % Change
Income tax expense $ 6,951 $ 4,400 $ 2,551 58.0 %
Effective tax rate 26.1 % 14.5 %
The Third Quarter of Fiscal 2021 benefitted from the utilization of benefits
associated with certain capital losses to substantially offset the gain
recognized on the sale of an unconsolidated entity in the Third Quarter of
Fiscal 2021, resulting in the effective tax rate during the Third Quarter of
Fiscal 2021 being unusually low. Further, due to the lower earnings during the
third quarter as compared to our other fiscal quarters, certain discrete or
other items recognized in the third quarter may have a more pronounced impact
resulting in the effective tax rate of the third quarter not being indicative of
the effective tax rate for the full fiscal year. We expect our annual effective
tax rate for Fiscal 2022 to be between 24% and 25%.
31
Table of Contents
Net earnings
Third Quarter
Fiscal 2022 Fiscal 2021
Net sales $ 313,033 $ 247,729
Operating income $ 27,315 $ 30,607
Net earnings $ 19,666 $ 25,985 Net earnings per diluted share$ 1.22 $
1.54
Weighted average shares outstanding - diluted 16,139
16,872
Net earnings per diluted share were$1.22 in the Third Quarter of Fiscal 2022 compared to$1.54 in the Third Quarter of Fiscal 2021. The decreased net earnings per diluted share was primarily due to (1) the Third Quarter of Fiscal 2021 including a gain on sale of an investment in an unconsolidated entity in Corporate and Other, (2) lower operating income inLilly Pulitzer and (3) a higher effective tax rate. These items were partially offset by higher operating income inTommy Bahama .
FIRST NINE MONTHS OF FISCAL 2022 COMPARED TO FIRST NINE MONTHS OF FISCAL 2021
The discussion and tables below compare our statements of operations for the
First Nine Months of Fiscal 2022 to the First Nine Months of Fiscal 2021. 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, including gross profit, 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. The table also includes
net earnings per diluted share and diluted weighted average shares outstanding
(in thousands), as well as the change and the percentage change for each of
these items as compared to the same period of the prior year.
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Net sales $ 1,029,044 100.0 % $ 842,163 100.0 % $ 186,881 22.2 %
Cost of goods sold 372,824 36.2 % 313,414 37.2 % 59,410 19.0 %
Gross profit $ 656,220 63.8 % $ 528,749 62.8 % $ 127,471 24.1 %
SG&A 495,574 48.2 % 420,997 50.0 % 74,577 17.7 %
Royalties and other
operating income 18,018 1.8 % 25,744 3.1 % (7,726) (30.0) %
Operating income $ 178,664 17.4 % $ 133,496 15.9 % $ 45,168 33.8 %
Interest expense, net 1,214 0.1 % 685 0.1 % 529 77.2 %
Earnings before income
taxes $ 177,450 17.2 % $ 132,811 15.8 % $ 44,639 33.6 %
Income tax expense 43,764 4.3 % 26,898 3.2 % 16,866 62.7 %
Net earnings $ 133,686 13.0 % $ 105,913 12.6 % $ 27,773 26.2 %
Net earnings per diluted
share $ 8.19 $ 6.29 $ 1.90 30.2 %
Weighted average shares
outstanding - diluted 16,333 16,841 (508) (3.0) %
32
Table of Contents
Net Sales
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Tommy Bahama $ 650,677 $ 513,985 $ 136,692 26.6 %
Lilly Pulitzer 264,763 233,066 31,697 13.6 %
Johnny Was 22,661 - 22,661 100.0 %
Emerging Brands 88,588 67,336 21,252 31.6 %
Lanier Apparel - 24,743 (24,743) (100.0) %
Corporate and Other 2,355 3,033 (678) (22.4) %
Consolidated net sales $ 1,029,044 $ 842,163 $ 186,881 22.2 %
Consolidated net sales were $1,029 million in the First Nine Months of Fiscal
2022 compared to net sales of $842 million in the First Nine Months of Fiscal
2021. The 22% increase in net sales included double-digit percentage increases
in each of our Tommy Bahama , Lilly Pulitzer , and Emerging Brands operating
groups as well as $23 million of sales for Johnny Was, which was acquired during
the Third Quarter of Fiscal 2022. These increases were partially offset by a $25
million decrease in sales for Lanier Apparel, which we exited in Fiscal 2021. In
the First Nine Months of Fiscal 2021, and particularly in the First Quarter of
Fiscal 2021, consumer traffic and our operations had only partially rebounded
from the impacts of the COVID-19 pandemic as we still had certain store closures
and operating restrictions in certain regions, wholesale customer demand was
still soft and most of the consumer traffic improvement occurred after the First
Quarter of Fiscal 2021. The higher net sales were due to a combination of
increased volume as well as price increases, which were implemented in order to
mitigate increased product and other costs.
The increase in net sales by distribution channel consisted of the following:
an increase in full-price retail sales of
24% aggregate increase in full-price retail sales in
? Pulitzer and Emerging Brands driven primarily by increased consumer traffic and
average dollars per transaction partially offset by lower conversion rates, and
(2)
an increase in full-price e-commerce sales of
? (1) a 15% aggregate increase in e-commerce sales in
Pulitzer and Emerging Brands and (2)
in Johnny Was;
an increase in wholesale sales of
primarily due to (1) higher order books as wholesale accounts in
?
compared to Fiscal 2021 and (2)
offset by a reduction of
with no sales in the First Nine Months of Fiscal 2022;
? an increase in e-commerce flash clearance sales of
? an increase in restaurant sales of
? an increase in outlet sales of
The following table presents the proportion of our consolidated net sales, including the net sales of Johnny Was and Lanier Apparel, by distribution channel for each period presented. We have calculated all percentages below on actual data, and percentages may not add to 100 due to rounding.
33
Table of Contents
First Nine Months
Fiscal 2022 Fiscal 2021
Retail 39 % 38 %
E-commerce 31 % 31 %
Restaurant 8 % 8 %
Wholesale 21 % 22 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales increased $137 million , or 27%, in the First Nine Months
of Fiscal 2022, with an increase in each channel of distribution. The increase
in net sales in Tommy Bahama included increases in (1) full-price retail sales
of $56 million , or 29%, (2) wholesale sales of $37 million , or 44%, (3)
e-commerce sales of $26 million , or 21%, (4) restaurant sales of $11 million , or
15%, with low double-digit percentage increases in locations open the full
quarter of both periods as well as increased sales at the New York and Palm
Desert locations, which were not open the full quarter in the Third Quarter of
Fiscal 2021, and (5) outlet sales of $7 million , or 17%. The following table
presents the proportion of net sales by distribution channel for Tommy Bahama
for each period presented:
First Nine Months
Fiscal 2022 Fiscal 2021
Retail 46 % 46 %
E-commerce 23 % 24 %
Restaurant 12 % 14 %
Wholesale 19 % 16 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales increased $32 million , or 14%, in the First Nine Months
of Fiscal 2022, with an increase in each channel of distribution. The increase
in net sales in Lilly Pulitzer included increases in (1) e-commerce flash
clearance sales of $16 million , or 86%, as Lilly Pulitzer had increased levels
of inventory available for the e-commerce flash clearance sales in Fiscal 2022
after having more limited end of season inventory in Fiscal 2021, (2) retail
sales of $9 million , or 11%, (3) wholesale sales of $6 million , or 15%, with
higher full-price sales and lower off-price sales and (4) full-price e-commerce
sales of $1 million , or 1%. The following table presents the proportion of net
sales by distribution channel for Lilly Pulitzer for each period presented:
First Nine Months
Fiscal 2022 Fiscal 2021
Retail 34 % 35 %
E-commerce 49 % 48 %
Wholesale 17 % 17 %
Total 100 % 100 %
Johnny Was:
Johnny Was net sales were $23 million in the six weeks following the September
19, 2022 acquisition through the end of the quarter. During the six-week period
ecommerce, retail and wholesale sales were 41%, 38% and 21% of the net sales. As
the net sales are for less than half of one fiscal quarter, the percentage of
net sales by distribution channel are not indicative of the proportion of net
sales that are typical for the nine month period ended October 29, 2022 .
Emerging Brands:
Emerging Brands net sales increased$21 million , or 32%, in the First Nine Months of Fiscal 2022, with an increase in each of the TBBC, Southern Tide and Duck Head businesses comprising Emerging Brands. By brand, the increase in net sales included increases in (1) TBBC of$12 million , or 59%, to$31 million , (2) Southern Tide of$7 million , or 17%, to$51 million , and (3) Duck Head of$2 million , or 51%, to$7 million . By distribution channel, the$21 million 34
Table of Contents
increase included increases of (1)$10 million , or 40%, in e-commerce, (2)$9 million , or 24%, in wholesale, and (3)$2 million , or 69%, in the Southern Tide and TBBC retail businesses, as those brands continue to open new retail locations. The following table presents the proportion of net sales by distribution channel for Emerging Brands for each period presented: First Nine Months Fiscal 2022 Fiscal 2021 Retail 5 % 4 % E-commerce 39 % 37 % Wholesale 56 % 59 % Total 100 % 100 % Lanier Apparel:
There were no Lanier Apparel net sales in the First Nine Months of Fiscal 2022,
compared to
Corporate and Other:
Corporate and Other net sales primarily consist of net sales of ourLyons, Georgia distribution center business as well as our Oxford America business, which we exited in Fiscal 2022. The decrease in net sales was primarily due to lower sales in Oxford America.
Gross Profit
The tables below present gross profit by operating group and in total for the
First Nine Months of Fiscal 2022 and the First Nine Months of Fiscal 2021, as
well as the dollar change and percentage 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 Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Tommy Bahama $ 419,781 $ 326,681 $ 93,100 28.5 %
Lilly Pulitzer 179,841 161,718 18,123 11.2 %
Johnny Was 14,597 - 14,597 100.0 %
Emerging Brands 43,901 36,278 7,623 21.0 %
Lanier Apparel - 12,255 (12,255) (100.0) %
Corporate and Other (1,900) (8,183) 6,283 NM %
Consolidated gross profit $ 656,220 $ 528,749 $ 127,471 24.1 %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ 3,087 $ 9,616
Inventory step-up charge included in
Johnny Was $ 1,376 $ -
Lanier Apparel exit charges in cost
of goods sold $ - $ (2,826)
First Nine Months
Fiscal 2022 Fiscal 2021
Tommy Bahama 64.5 % 63.6 %
Lilly Pulitzer 67.9 % 69.4 %
Johnny Was 64.4 % - %
Emerging Brands 49.6 % 53.9 %
Lanier Apparel - % 49.5 %
Corporate and Other NM % NM %
Consolidated gross margin 63.8 % 62.8 %
35
Table of Contents
The increased gross profit of 24% was primarily due to the 22% increase in net sales as well as increased consolidated gross margin. The higher gross margin included (1) a$7 million lower LIFO accounting charge in the First Nine Months of Fiscal 2022 compared to the First Nine Months of Fiscal 2021, (2) the lack of any Lanier Apparel sales, which had lower gross margins than our branded businesses, (3) improved initial product margins, as certain sales prices were increased more than the increased product costs, and (4) lower freight costs of$1 million , after incurring approximately 100 basis points of incremental freight costs in the First Nine Months of Fiscal 2021. These items were partially offset by (1) the impact of theLilly Pulitzer e-commerce flash sale, which represented a larger proportion of net sales and had lower gross margins in the First Nine Months of Fiscal 2022, (2) the lack of a favorable adjustment of Lanier Apparel exit charges in cost of goods sold after a$3 million favorable adjustment of Lanier Apparel exit charges in cost of goods sold in the First Nine Months of Fiscal 2021 and (3) the$1 million inventory step up charge related to the Johnny Was acquisition in the Third Quarter of Fiscal 2022. In the Third Quarter of Fiscal 2021, freight costs increased significantly from prior periods, including rate increases for both ocean and air shipments as well as the increased utilization of air freight on inbound products as we navigated our need for inventory and the supply chain challenges. The increased inbound freight rates, which have moderated somewhat from the peak, have continued into Fiscal 2022. However, our use of air freight has decreased as we have placed seasonal inventory purchases on an earlier timeline to reduce the risk of late delivery of our products. These factors resulted in a significant negative impact on our gross margin during the Second Half of Fiscal 2021, but not as significant of a negative impact on our gross margin in the Second Half of Fiscal 2022. In Fiscal 2022 freight costs are still elevated by approximately 50 to 100 basis points as compared to pre-pandemic levels.
The higher gross margin forTommy Bahama was primarily due to reduced freight costs in the First Nine Months of Fiscal 2022, after significantly higher freight costs were incurred in the Third Quarter of Fiscal 2021, as well as improved initial product margins. These items were partially offset by (1) a change in sales mix with wholesale sales representing a higher proportion of net sales, (2) the impact of a higher proportion ofTommy Bahama direct to consumer sales occurring during periodic Friends and Family, loyalty award card,Flip Side marketing or end of season clearance events, and (3) increased food costs in our food and beverage business.
The lower gross margin forLilly Pulitzer was primarily due to (1) a change in sales mix with e-commerce flash clearance sales, which typically have gross margins in the low 40% range, representing a larger proportion of net sales and (2) lower gross margins on the e-commerce flash clearance sales, as the gross margin achieved in the Third Quarter of Fiscal 2021 was higher than typical e-commerce flash clearance sales gross margins due to less end of season inventory available in Fiscal 2021. This was partially offset by lower freight costs and improved initial product margins.
Johnny Was:
The Johnny Was gross profit and gross margin for the six weeks following theSeptember 19, 2022 acquisition through the end of the quarter was unfavorably impacted by$1 million of incremental cost of goods sold resulting from the charge related to the step up of inventory to fair value at acquisition. Thus, we do not believe the gross profit or gross margin in the six week period is indicative of the gross profit or gross margin for the First Nine Months of Fiscal 2022 or any other fiscal period for Johnny Was. On an annual basis, with no impact of inventory step-up charges, Johnny Was gross margins have historically been and are expected to be approximately 65%, after conforming to our accounting policy of classifying outbound freight charges in cost of goods sold rather than SG&A. Emerging Brands: The lower gross margin for Emerging Brands was primarily due to more inventory markdowns and increased freight costs partially offset by a change in sales mix with direct to consumer sales representing a greater proportion of net sales.
Lanier Apparel:
There was no gross profit for Lanier Apparel in the First Nine Months of Fiscal
2022. The First Nine Months of Fiscal 2021 for Lanier Apparel included the gross
profit impact of net sales as we were exiting the business, as well as a
reduction in inventory markdowns associated with the exit of Lanier Apparel.
36
Table of Contents
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the impact of LIFO
accounting adjustments and the gross profit of the Lyons, Georgia distribution
center and Oxford America businesses. The primary driver for the improved gross
profit was the $7 million lower LIFO accounting charge. The LIFO accounting
impact in Corporate and Other in each period includes the net impact of (1) a
charge in Corporate and Other when inventory that had been marked down in an
operating group in a prior period was ultimately sold, (2) a credit in Corporate
and Other when inventory had been marked down in an operating group in the
current period, but had not been sold as of period end and (3) the change in the
LIFO reserve, if any.
SG&A
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
SG&A $ 495,574 $ 420,997 $ 74,577 17.7 %
SG&A (as a % of net sales) 48.2 % 50.0 %
Notable items included in amounts
above:
Tommy Bahama lease termination charge $ - $ 4,850
Amortization of Johnny Was intangible
assets $ 1,641 $ -
TBBC change in fair value of
contingent consideration $ - $ 786
Lanier Apparel exit charges in SG&A $ - $ 3,788
Transaction expenses and integration
costs associated with the Johnny Was
acquisition included in Corporate and
Other $ 2,783 $ -
SG&A was $496 million in the First Nine Months of Fiscal 2022 compared to SG&A
of $421 million in the First Nine Months of Fiscal 2021. The increase includes
the net impact of approximately $14 million of SG&A associated with Johnny Was
in the First Nine Months of Fiscal 2022 and $10 million of SG&A and exit charges
of Lanier Apparel in the First Nine Months of Fiscal 2021, which are reflected
in the changes in each category noted in the following paragraph, as applicable.
The 18% increase in SG&A in the First Nine Months of Fiscal 2022 included (1)
increased employment costs of $35 million , primarily due to increased head
count, pay rate increases and other employment cost increases, particularly in
our direct to consumer and distribution center operations, (2) a $14 million
increase in advertising expense, (3) an $11 million increase in variable
expenses related to higher sales, including credit card transaction fees,
supplies, commissions, royalties and other expenses, (4) a $7 million increase
in occupancy expenses, including increases in base rent amounts, percentage
rent, occupancy related operating costs and other items, (5) a $5 million
increase in administrative expenses including professional fees, travel and
other items, (6) $3 million of charges related to transaction expenses and
integration costs associated with the Johnny Was acquisition, (7) a $2 million
increase in depreciation expense, and (8) a $2 million increase in amortization
of intangible assets expense. These items were partially offset by the absence
of $5 million of Tommy Bahama lease termination charges, $4 million of Lanier
Apparel exit charges and $1 million of TBBC change in fair value of contingent
consideration in the First Nine Months of Fiscal 2022.
Royalties and other operating income
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Royalties and other operating
income $ 18,018 $ 25,744 $ (7,726) (30.0) %
Notable items included in
amounts above:
Gain on sale of investment in
unconsolidated entity $ - $ (11,586)
37
Table of Contents
Royalties and other operating income typically consists primarily of income received from third parties from the licensing of our brands, but the First Nine Months of Fiscal 2021 also included a$12 million gain on sale of investment in unconsolidated entity. Royalty income in the First Nine Months of Fiscal 2022 increased primarily due to increased royalty income in bothTommy Bahama andLilly Pulitzer . Operating income (loss) First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Tommy Bahama$ 130,508 $ 73,515 $ 56,993 77.5 %Lilly Pulitzer 60,358 61,713 (1,355) (2.2) % Johnny Was 117 - 117 100.0 % Emerging Brands 15,456 13,565 1,891 13.9 % Lanier Apparel - 2,053 (2,053) (100.0) % Corporate and Other (27,775) (17,350) (10,425) NM % Consolidated operating income$ 178,664 $ 133,496 $ 45,168 33.8 % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 3,087 $ 9,616 Inventory step-up charge included in Johnny Was$ 1,376 $ - Lanier Apparel exit charges in cost of goods sold $ -$ (2,826) Tommy Bahama lease termination charge $ -$ 4,850 Amortization of Johnny Was intangible assets$ 1,641 $ - TBBC change in fair value of contingent consideration $ - $ 786 Lanier Apparel exit charges in SG&A $ -$ 3,788 Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other$ 2,783 $ - Gain on sale of investment in unconsolidated entity $ -$ (11,586) Operating income was$179 million in the First Nine Months of Fiscal 2022 compared to$133 million in the First Nine Months of Fiscal 2021. The increased operating income was primarily due to higher net sales, gross margin and royalty income partially offset by increased SG&A. By operating group, the increased operating income was due to higher operating income inTommy Bahama partially offset by the lower operating results in Corporate and Other, which included a$12 million gain on sale of investment in unconsolidated entity in the First Nine Months of Fiscal 2021, as well as other smaller changes in our other operating groups. Changes in operating income (loss) by operating group are
discussed below.Tommy Bahama : First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 650,677 $ 513,985 $ 136,692 26.6 % Gross profit$ 419,781 $ 326,681 $ 93,100 28.5 % Gross margin 64.5 % 63.6 % Operating income$ 130,508 $ 73,515 $ 56,993 77.5 % Operating income as % of net sales 20.1 % 14.3 % Notable items included in amounts above:Tommy Bahama lease termination charge $ -$ 4,850 The increased operating income forTommy Bahama was primarily due to higher sales, gross margin and royalty income partially offset by increased SG&A. The increased SG&A was primarily due to (1)$25 million of increased employment costs, with the majority of the increase in retail and restaurant operations, (2)$8 million of increased 38 Table of Contents variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (3) a$4 million increase in advertising expense, (4) a$4 million increase in occupancy expenses including increases in base rent amounts, percentage rent, occupancy related operating costs and other items and (5) a$1 million increase in administrative expenses including professional fees, travel and other items. These SG&A increases were partially offset by (1) the absence of$5 million ofTommy Bahama lease termination charges in the Third Quarter of Fiscal 2022 and (2) a$1 million reduction in depreciation expense.Lilly Pulitzer : First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 264,763 $ 233,066 $ 31,697 13.6 % Gross profit$ 179,841 $ 161,718 $ 18,123 11.2 % Gross margin 67.9 % 69.4 % Operating income$ 60,358 $ 61,713 $ (1,355) (2.2) % Operating income as % of net sales 22.8 % 26.5 % The lower operating income forLilly Pulitzer was primarily due to increased SG&A and lower gross margin partially offset by higher sales and royalty income. The increased SG&A was primarily due to (1)$7 million of increased advertising expense, (2)$4 million of increased employment costs, (3)$3 million of higher depreciation expense, (4)$2 million of variable expenses related to higher net sales including credit card transaction fees, supplies and other expenses, and (5)$2 million of professional and other fees, primarily related to various ongoing direct to consumer and brand initiatives. Johnny Was: First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 22,661 $ -$ 22,661 100.0 % Gross profit$ 14,597 $ -$ 14,597 100.0 % Gross margin 64.4 % - %
Operating income $ 117 $ -$ 117 100.0 % Operating income as % of net sales 0.5 % - % Notable items included in amounts above: Inventory step-up charge included in Johnny Was$ 1,376 $ - Amortization of Johnny Was intangible assets$ 1,641 $ - Johnny Was operating income in the six weeks fromSeptember 19, 2022 through the end of the fiscal quarter onOctober 29, 2022 included$1 million of inventory step-up charges and$2 million of amortization of intangible assets, which negatively impacted the operating income of Johnny Was. As the operating results for Johnny Was are for only six weeks, the operating results for this period are not indicative of the Johnny Was operating results for the First Nine Months of Fiscal 2022. 39 Table of Contents Emerging Brands: First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 88,588 $ 67,336 $ 21,252 31.6 % Gross profit$ 43,901 $ 36,278 $ 7,623 21.0 % Gross margin 49.6 % 53.9 % Operating income$ 15,456 $ 13,565 $ 1,891 13.9 % Operating income as % of net sales 17.4 % 20.1 % Notable items included in amounts above: TBBC change in fair value of contingent consideration $ - $ 786 The increased operating income for Emerging Brands was primarily due to higher net sales partially offset by increased SG&A and lower gross margin. The increased SG&A included (1) higher SG&A associated with the Southern Tide and TBBC retail store operations, including related employment costs and occupancy costs, (2) increased variable expenses resulting from increased sales, (3) higher advertising expense and (4) increased administrative expenses associated with the Emerging Brands businesses. These increases in SG&A were partially offset by the lack of a TBBC change in fair value of contingent consideration in the First Nine Months of Fiscal 2022 after incurring a$1 million charge for TBBC change in fair value of contingent consideration in the First Nine Months of Fiscal 2021. Lanier Apparel: First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales $ -$ 24,743 $ (24,743) (100.0) % Gross profit $ -$ 12,255 $ (12,255) (100.0) % Gross margin - % 49.5 % Operating income $ -$ 2,053 $ (2,053) (100.0) % Operating income as % of net sales - % 8.3 % Notable items included in amounts above: Lanier Apparel exit charges in cost of goods sold $ -$ (2,826) Lanier Apparel exit charges in SG&A $ -$ 3,788 There was no operating income for Lanier Apparel in the First Nine Months of Fiscal 2022. The First Nine Months of Fiscal 2021 for Lanier Apparel included the operating income resulting from the net sales, cost of goods sold and SG&A as we were exiting the Lanier Apparel business, including the net impact related to Lanier Apparel exit charges. Corporate and Other: First Nine Months Fiscal 2022 Fiscal 2021 $ Change % Change Net sales$ 2,355 $ 3,033 $ (678) (22.4) % Gross profit$ (1,900) $ (8,183) $ 6,283 NM % Operating loss$ (27,775) $ (17,350) $ (10,425) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 3,087 $ 9,616 Transaction expenses and integration costs associated with the Johnny Was acquisition$ 2,783 $ - Gain on sale of investment in unconsolidated entity $ -$ (11,586) The lower operating results in Corporate and Other were primarily a result of (1) the First Nine Months of Fiscal 2021 including a$12 million gain on sale of an investment in an unconsolidated entity, with no such gain in the First 40
Table of Contents
Nine Months of Fiscal 2022, (2)$3 million of transaction expenses and integration costs associated with the Johnny Was acquisition and (3) increased SG&A, including increased employment costs and other operating expenses. The impact of these items was partially offset by a$7 million favorable impact
from
LIFO accounting.
Interest expense, net
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Interest expense, net $ 1,214 $ 685 $ 529 77.2 %
The higher interest expense in the First Nine Months of Fiscal 2022 was
primarily due to borrowings pursuant to our U.S. Revolving Credit Agreement to
fund a portion of the acquisition of Johnny Was, while there was no debt
outstanding in the First Nine Months of Fiscal 2021. The interest expense for
the First Nine Months of Fiscal 2021 primarily consisted of unused line fees and
amortization of deferred financing fees associated with the U.S. Revolving
Credit Agreement.
Income tax provision
First Nine Months
Fiscal 2022 Fiscal 2021 $ Change % Change
Income tax expense $ 43,764 $ 26,898 $ 16,866 62.7 %
Effective tax rate 24.7 % 20.3 %
Both the First Nine Months of Fiscal 2022 and the First Nine Months of Fiscal
2021 benefitted from the favorable impact of certain items that resulted in a
lower tax rate than the more typical annual effective tax rate. The income tax
expense in both the First Nine Months of Fiscal 2022 and the First Nine Months
of Fiscal 2021 included the benefit of the utilization of certain net operating
loss carryforward amounts in certain state and foreign jurisdictions, the
recognition of certain tax credit amounts and the vesting of restricted stock
awards at a price higher than the grant date fair value. These favorable items
were partially offset by certain unfavorable permanent items which are not
deductible for income tax purposes. Additionally, and more significantly, the
income tax expense in the First Nine Months of Fiscal 2021 included the benefit
of a $2 million net reduction in uncertain tax positions resulting from the
settlement of those uncertain tax position amounts in the First Quarter of
Fiscal 2021 and the utilization of benefits associated with certain capital
losses to substantially offset the gain recognized on the sale of an
unconsolidated entity in the Third Quarter of Fiscal 2021.
We expect our annual effective tax rate for Fiscal 2022 to be between 24% and
25%.
Net earnings
First Nine Months
Fiscal 2022 Fiscal 2021
Net sales $ 1,029,044 $ 842,163
Operating income $ 178,664 $ 133,496
Net earnings $ 133,686 $ 105,913
Net earnings per diluted share $ 8.19 $ 6.29
Weighted average shares outstanding - diluted 16,333 16,841
Net earnings per diluted share were$8.19 in the First Nine Months of Fiscal 2022 compared to$6.29 in the First Nine Months of Fiscal 2021. The 30% increase in net earnings per diluted share was primarily due to a 26% increase in net earnings as well as a 3% reduction in weighted average shares outstanding due to our share repurchase program which commenced in the Fourth Quarter of Fiscal 2021. The higher net earnings were primarily due to higher operating 41
Table of Contents
income inTommy Bahama partially offset by (1) the First Nine Months of Fiscal 2021 including a$12 million gain on sale of investment in an unconsolidated entity and (2) a higher effective tax rate in the First Nine Months of Fiscal 2022. 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 , Johnny Was, Southern Tide, TBBC and Duck Head lifestyle brands. We primarily distribute our products to our customers via direct to consumer channels of distribution, but we also distribute our products via wholesale channels of distribution. Our primary uses of cash flow include the purchase of our branded apparel products from third party contract manufacturers located outside ofthe United States , as well as operating expenses, including employee compensation and benefits, operating lease commitments and other occupancy-related costs, marketing and advertising costs, information technology costs, distribution costs, other general and administrative expenses and the periodic payment of interest, if any. Additionally, we use our cash to fund capital expenditures and other investing activities, dividends, share repurchases and repayment of indebtedness, if any. 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 ongoing working capital to operate our business. Our need for working capital is typically seasonal with the greatest working capital requirements to support our larger spring, summer and holiday direct to consumer seasons. Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory levels and the success of our various products. We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities will provide (1) sufficient cash over both the short and long term to satisfy our ongoing operating cash requirements, (2) ample opportunity to continue to invest in our lifestyle brands, direct to consumer initiatives and information technology projects, (3) additional cash flow to repay outstanding debt and (4) sufficient cash for other strategic initiatives. Also, 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. Key Liquidity Measures October 29, January 29, October 30, January 30, ($ in thousands) 2022 2022 2021 2021 Total current assets$ 299,495 $ 400,335 $ 366,953 $ 258,316 Total current liabilities$ 230,395 $ 226,166
$ 207,172 $ 196,252 Working capital$ 69,100 $ 174,169 $ 159,781 $ 62,064 Working capital ratio 1.30 1.77 1.77 1.32
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofOctober 29, 2022 , decreased fromOctober 30, 2021 primarily due to the decrease in cash and cash equivalents and short-term investments, which was used to fund a portion of the Johnny Was acquisition purchase price, partially offset by increased inventories, receivables and prepaid expenses and other current assets, including the assets related to Johnny Was. Current liabilities as ofOctober 29, 2022 increased fromOctober 30, 2021 primarily due to the current liabilities associated with Johnny Was. Changes in current assets and current liabilities are discussed below.
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 of
42
Table of Contents
© Edgar Online, source
