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 2019
Form
10-K.
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 the 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. 21
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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 36% reduction in net sales in the First Nine Months of Fiscal 2020, a significant net loss in the First Nine Months 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 inMarch 2020 . We began reopening our stores and restaurants in early May with additional stores and restaurants reopening throughout the Second Quarter of Fiscal 2020. We have reopened substantially all of our direct to consumer locations in a phased approach in accordance with local government guidelines and with additional safety protocols. Substantially all locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently. Certain retail stores and restaurants, including several inHawaii andCalifornia , were required to close again for certain periods in the Third Quarter of Fiscal 2020 after local jurisdictions reinstated some previous closure requirements, and there can be no assurance that additional closures will not occur as a result of any resurgence of COVID-19 cases and/or additional government mandates or recommendations. Generally, locations with attached restaurants orMarlin Bars , in outdoor centers and in drivable resort vacation destinations have performed better than locations in indoor malls. 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 Nine Months 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 ongoing 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 filed for bankruptcy in 2020 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$287 million of availability pursuant to ourU.S. Revolving Credit Agreement as ofOctober 31, 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;
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? we worked with our wholesale customers to identify suitable changes to our
business arrangements;
we negotiated equitable rental arrangements with most of our retail and
? restaurant landlords, believing that the payment of rents for both the closure
and subsequent periods is inappropriate due to the impact of the COVID-19
pandemic, and are continuing those discussions with many landlords;
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. Lanier Apparel Exit In the Third Quarter of Fiscal 2020, we made the decision to exit ourLanier Apparel business, which is expected to be completed during the Second Half of Fiscal 2021. This decision is to further our stated business strategy, which is to develop and market compelling lifestyle brands, and takes into consideration the increased near-term challenges faced by the Lanier Apparel business as a result of the COVID-19 pandemic. In connection with the planned exit of our Lanier Apparel business, we recorded pre-tax charges of$10 million in the Lanier Apparel operating group during the Third Quarter of Fiscal 2020. These charges consist of (1)$6 million of inventory markdowns, the substantial majority of which reversed in Corporate and Other as part of LIFO accounting, (2)$2 million of operating lease asset impairment charges for leased space that we intend to vacate prior to the end of the lease term, (3)$1 million of employee charges, including severance and employee retention costs, (4)$1 million of non-cash fixed asset impairment charges, primarily related to leasehold improvements, and (5)$1 million of charges related to our Merida manufacturing facility, which ceased operations in the Third Quarter of Fiscal 2020. In addition to these charges incurred in the Third Quarter of Fiscal 2020, we currently expect to incur incremental Lanier Apparel exit charges totaling approximately$5 million through the Second Half of Fiscal 2021, which consists of additional employee charges for employees retained during the exit and the acceleration of certain post-exit contractual commitments. For additional information about our business and each of our operating groups, see Part I, Item 1. Business included in our Fiscal 2019 Form 10-K. 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 Fiscal
2019
Form 10-K.
Key Operating Results:
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The following table sets forth our consolidated operating results (in thousands,
except per share amounts) for the First Nine Months of Fiscal 2020 compared to
the First Nine Months of Fiscal 2019
First Nine Months
Fiscal 2020 Fiscal 2019
Net sales $ 527,466 $ 825,194
Operating (loss) income $ (107,224) $ 72,595
Net (loss) earnings $ (83,475) $ 53,161 Net (loss) earnings per diluted share$ (5.04) $
3.15
Weighted average shares outstanding -- diluted 16,576 16,896
The net loss per share in the First Nine Months of Fiscal 2020 compared to positive net earnings per share in the First Nine Months of Fiscal 2019 was primarily due to (1) the impact of COVID-19 on the operating results of each of our operating groups, (2) the$60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020, (3) the non-deductibility of certain goodwill impairment charges resulting in a lower effective tax rate on our loss in the First Nine Months of Fiscal 2020 than the effective tax rate on our income in the First Nine Months of Fiscal 2019, and (4)$10 million of charges related to the Lanier Apparel exit. 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 primarily resulting from the reversal of inventory markdowns recognized in the operating groups. 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 with additional safety protocols implemented. Certain retail stores and restaurants in some jurisdictions, includingHawaii andCalifornia , were required to close again for certain periods in the Third Quarter of Fiscal 2020 after local jurisdictions reinstated some previous closure requirements. Substantially all locations are experiencing reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations very differently. October 31, February 1, November 2, February 2, 2020 2020 2019 2019 Tommy Bahama retail stores 106 111 111 113 Tommy Bahama retail-restaurant locations 19 16 17 17 Tommy Bahama outlets 35 35 37 37 Total Tommy Bahama locations 160 162 165 167Lilly Pulitzer retail stores 59 61 63 62 Southern Tide retail stores 3
1 - -
Total Oxford locations 222 224 228 229
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 2020 COMPARED TO THIRD QUARTER OF FISCAL 2019
The discussion and tables below compare our statements of operations for the
Third Quarter of Fiscal 2020 to the Third 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.
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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:
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 175,135 100.0 % $ 241,221 100.0 % $ (66,086) (27.4) %
Cost of goods sold 78,866 45.0 % 108,241 44.9 % (29,375) (27.1) %
Gross profit $ 96,269 55.0 % $ 132,980 55.1 % $ (36,711) (27.6) %
SG&A 113,537 64.8 % 134,231 55.6 % (20,694) (15.4) %
Royalties and other
operating income 3,550 2.0 % 3,845 1.6 % (295) (7.7) %
Operating (loss) income $ (13,718) (7.8) % $ 2,594 1.1 % $ (16,312) NM %
Interest expense, net 339 0.2 % 81 0.0 % 258 318.5 %
(Loss) earnings before
income taxes $ (14,057) (8.0) % $ 2,513 1.0 % $ (16,570) NM %
Income tax (benefit)
provision (3,453) (2.0) % 845 0.4 % (4,298) NM %
Net (loss) earnings $ (10,604) (6.1) % $ 1,668 0.7 % $ (12,272) NM %
Net Sales
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 94,905 $ 127,023 $ (32,118) (25.3) %
Lilly Pulitzer 53,714 71,659 (17,945) (25.0) %
Lanier Apparel 10,810 28,758 (17,948) (62.4) %
Southern Tide 10,023 9,102 921 10.1 %
Corporate and Other 5,683 4,679 1,004 21.5 %
Consolidated net sales $ 175,135 $ 241,221 $ (66,086) (27.4) %
Consolidated net sales decreased$66 million , or 27%, in the Third 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, impacted by, among other things, reduced traffic after locations reopened and the temporary closures at some locations, while our e-commerce business has generated very strong growth. The decrease in net sales included decreases in (1) full-price retail sales of$32 million , or 45%, (2) wholesale sales of$28 million , or 37%, (3) restaurant sales of$5 million , or 30%, and (4) outlet sales of$4 million , or 33%. These decreases were partially offset by increased e-commerce sales of$4 million , or 6%, including a 51% increase in full-price e-commerce sales and a 41% decrease in e-commerce flash clearance sales. 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:
Third Quarter
Fiscal 2020 Fiscal 2019
Retail 27 % 35 %
E-commerce 38 % 26 %
Restaurant 7 % 7 %
Wholesale 28 % 32 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales decreased $32 million , or 25%, in the Third Quarter of
Fiscal 2020. The decrease in net sales in Tommy Bahama included decreases in (1)
full-price retail sales of $19 million , or 42%, primarily due to the impact of
COVID-19 on retail store operations as well as reduced store count, (2)
wholesale sales of $10 million , or
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32%, primarily due to lower full-price sales, (3) restaurant sales of$5 million , or 30%, and (4) outlet store sales of$5 million , or 35%. These decreases were partially offset by increased e-commerce sales of$7 million , or 38%. The following table presents the proportion of net sales by distribution channel forTommy Bahama for each period presented: Third Quarter Fiscal 2020 Fiscal 2019 Retail 37 % 46 % E-commerce 27 % 14 % Restaurant 13 % 14 % Wholesale 23 % 26 % Total 100 % 100 %Lilly Pulitzer :Lilly Pulitzer net sales decreased$18 million , or 25%, in the Third Quarter of Fiscal 2020. The decrease in net sales inLilly Pulitzer included decreases in (1) retail sales of$13 million , or 52%, primarily due to the impact of COVID-19 on retail store operations as well as reduced store count, (2) e-commerce flash clearance sales of$12 million , or 41%, as a portion ofLilly Pulitzer's semiannual e-commerce flash clearance sale, which has historically taken place entirely in the third quarter, was held in the Second Quarter of Fiscal 2020, and (3) wholesale sales of$1 million , or 10%, due to lower full-price sales partially offset by higher off-price sales. These decreases were partially offset by increased full-price e-commerce sales of$8 million , or 93%. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: Third Quarter Fiscal 2020 Fiscal 2019 Retail 22 % 35 % E-commerce 66 % 55 % Wholesale 12 % 10 % Total 100 % 100 % Lanier Apparel: Lanier Apparel net sales decreased$18 million , or 62% in the Third Quarter of Fiscal 2020 resulting from decreases in most of the replenishment, seasonal and other programs for the branded and private label businesses, including a large pants program for a warehouse club that did not repeat in Fiscal 2020.
Southern Tide:
Southern Tide net sales increased$1 million , or 10%, in the Third Quarter of Fiscal 2020 due to a$1 million , or 36%, increase in e-commerce sales and increased retail store sales resulting from the opening of three Southern Tide retail stores since the Fourth Quarter of Fiscal 2019. Wholesale sales were generally comparable as decreased full-price sales were offset by increased off-price sales as Southern Tide sold a significant amount of prior season inventory in the Third Quarter of Fiscal 2020. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented: Third Quarter Fiscal 2020 Fiscal 2019 Retail 4 % - % E-commerce 24 % 19 % Wholesale 72 % 81 % Total 100 % 100 % 26 Table of Contents 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
Third Quarter of Fiscal 2020 and the Third 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 directly comparable to those of our
competitors, as the statement of operations classification of certain expenses
may vary by company.
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 56,444 $ 76,467 $ (20,023) (26.2) %
Lilly Pulitzer 32,830 40,954 (8,124) (19.8) %
Lanier Apparel (4,978) 8,210 (13,188) NM %
Southern Tide 3,420 4,395 (975) (22.2) %
Corporate and Other 8,553 2,954 5,599 NM %
Consolidated gross profit $ 96,269 $ 132,980 $ (36,711) (27.6) %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ (5,645) $ (35)
Lanier Apparel exit charges in cost
of goods sold $ 6,415 $ -
Third Quarter
Fiscal 2020 Fiscal 2019
Tommy Bahama 59.5 % 60.2 %
Lilly Pulitzer 61.1 % 57.2 %
Lanier Apparel (46.0) % 28.5 %
Southern Tide 34.1 % 48.3 %
Corporate and Other NM % NM %
Consolidated gross margin 55.0 % 55.1 %
The decrease in consolidated gross profit in the Third 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 except for Lilly Pulitzer , as discussed below. During the Third Quarter of
Fiscal 2020, we recognized the negative impact of $7 million of inventory
markdowns, which were partially offset by a $6 million LIFO accounting credit.
In the Third Quarter of Fiscal 2019, we recognized $1 million of inventory
markdowns and a minimal impact from LIFO accounting.
The decrease in gross margin forTommy Bahama was due to lower gross margin in both the direct to consumer and wholesale channels of distribution. The lower gross margin in the direct to consumer channel was primarily due to (1) a greater proportion of promotional sales in the Third Quarter of Fiscal 2020 as certain end of season sales and promotions historically held in the second quarter were moved to the third quarter in Fiscal 2020 and (2) a change in sales mix as e-commerce sales represented a greater proportion of direct to consumer sales in the Third Quarter of Fiscal 2020. The lower gross margin in the wholesale channel of distribution was primarily due to a change in sales mix as a greater proportion of wholesale sales were off-price sales. 27 Table of ContentsLilly Pulitzer :
The increase in gross margin forLilly Pulitzer was primarily due to (1) a change in sales mix with full-price direct to consumer sales representing a larger proportion of net sales as the e-commerce flash clearance sale was smaller in the Third Quarter of Fiscal 2020 as a portion of the e-commerce flash clearance sale occurred in the Second Quarter of Fiscal 2020, (2) higher gross margins in the full-price, direct to consumer channel of distribution, reflecting higher initial margins and the impact of no in-store clearance sale in the Third Quarter of Fiscal 2020 due to concerns about attracting large crowds in our stores during the COVID-19 pandemic, and (3) higher gross margins in the e-commerce flash clearance sale in the Third Quarter of Fiscal 2020.
Lanier Apparel:
The negative gross margin for Lanier Apparel was primarily due to (1)$6 million of Lanier Apparel exit charges in cost of goods sold, including inventory markdowns and charges related to our Merida manufacturing facility, as discussed in Note 9 in the unaudited condensed consolidated financial statements included in this report, and (2) lower gross margin on various programs due to the challenging tailored clothing 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, (2) more significant discounts and allowances in all channels of distribution, and (3) a change in sales mix as off-price wholesale sales represented a larger proportion of sales.
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$6 million net favorable impact of LIFO accounting with a LIFO accounting credit in the Third Quarter of Fiscal 2020 and a minimal LIFO accounting impact in the Third Quarter of Fiscal 2019 and (2) the gross profit resulting from higher net sales. 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 Third Quarter Fiscal 2020 Fiscal 2019 $ Change % Change SG&A$ 113,537 $ 134,231 $ (20,694) (15.4) % SG&A (as a % of net sales) 64.8 % 55.6 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 68 $ 80 Lanier Apparel exit charges in SG&A$ 3,701 $ - Amortization of Southern Tide intangible assets $ 72 $ 73
The lower SG&A in the Third Quarter of Fiscal 2020 was primarily due to (1) decreased employment costs of$16 million primarily due to reductions in our employment costs in response to COVID-19, including layoffs, reduced hours in direct to consumer operations or pay reductions, reductions in incentive compensation amounts, suspension of the company match for our 401(k) plan and employee credits related to employee retention partially offset by certain severance amounts, (2) a$3 million reduction in occupancy expenses primarily resulting from the impact of fewerTommy Bahama andLilly Pulitzer bricks and mortar locations, certain negotiated rent reductions and lower costs for utilities, maintenance and related expenses, (3) a$2 million decrease in certain variable expenses including selling, 28
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shipping, royalties and commission costs, (4) a$2 million decrease in travel expenses, (5) a$1 million reduction in advertising expenses, and (6) decreases in other expenses including administrative and general expenses. These decreases were partially offset by$4 million of Lanier Apparel exit charges in SG&A, as discussed in Note 9 in the unaudited condensed consolidated financial statements included in this report.
Royalties and other operating income
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % ChangeRoyalties and other operating income$ 3,550 $ 3,845 $
(295) (7.7) % 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 Third Quarter of Fiscal 2020 was due to reduced royalty income inLilly Pulitzer partially offset by increased royalty income inTommy Bahama . Operating income (loss) Third Quarter Fiscal 2020 Fiscal 2019 $ Change % Change Tommy Bahama$ (7,212) $ (7,739) $ 527 6.8 %Lilly Pulitzer 5,266 10,988 (5,722) (52.1) % Lanier Apparel (12,500) 1,971 (14,471) NM % Southern Tide (464) 526 (990) NM % Corporate and Other 1,192 (3,152) 4,344 NM % Consolidated Operating (Loss) Income$ (13,718) $ 2,594 $ (16,312) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ (5,645) $ (35) Lanier Apparel exit charges in cost of goods sold$ 6,415 $ -
Amortization of
-
Amortization of Southern Tide
intangible assets $ 72 $ 73
The lower operating results in the Third Quarter of Fiscal 2020 were primarily
due to the $10 million of Lanier Apparel exit charges, as discussed in Note 9 in
the unaudited condensed consolidated financial statements included in this
report, and the impact of COVID-19 on each operating group. These items were
partially offset by improved operating results in Corporate and Other, which was
primarily due to the favorable impact of LIFO accounting as the substantial
majority of inventory markdowns are reversed in Corporate and Other as part of
LIFO accounting. Changes in operating income (loss) by operating group arediscussed below.Tommy Bahama : Third Quarter Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 94,905 $ 127,023 $ (32,118) (25.3) % Gross profit$ 56,444 $ 76,467 $ (20,023) (26.2) % Gross margin 59.5 % 60.2 % Operating (loss) income$ (7,212) $ (7,739) $ 527 6.8 % Operating (loss) income as % of net sales (7.6) % (6.1) % The improved operating results forTommy Bahama in the Third Quarter of Fiscal 2020 were primarily due to a lower SG&A which offset the lower gross profit resulting from lower sales and lower gross margin. The lower SG&A was primarily due to (1)$14 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 rent reductions and lower costs for utilities, maintenance and related expenses, (3) a$2 million decrease in travel, general and administrative expenses, (4) a 29
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Lilly Pulitzer : Third Quarter Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 53,714 $ 71,659 $ (17,945) (25.0) % Gross profit$ 32,830 $ 40,954 $ (8,124) (19.8) % Gross margin 61.1 % 57.2 % Operating income$ 5,266 $ 10,988 $ (5,722) (52.1) % Operating income as % of net sales 9.8 % 15.3 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 68 $ 80 The lower operating income forLilly Pulitzer in the Third Quarter of Fiscal 2020 was primarily due to lower sales partially offset by lower SG&A and higher gross margin. The lower SG&A was primarily due to (1)$2 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 rent reductions and lower costs for utilities, maintenance and related expenses and (3) reductions in other amounts, including travel, general and administrative expenses. These decreases in SG&A were partially offset by$1 million of higher marketing expense. Lanier Apparel: Third Quarter Fiscal 2020 Fiscal 2019 $ Change % Change Net sales$ 10,810 $ 28,758 $ (17,948) (62.4) % Gross profit$ (4,978) $ 8,210 $ (13,188) NM % Gross margin (46.0) % 28.5 % Operating (loss) income$ (12,500) $ 1,971 $ (14,471) NM % Operating (loss) income as % of net sales (115.6) % 6.9 % Notable items included in amounts above: Lanier Apparel exit charges in cost of goods sold$ 6,415 $ - Lanier Apparel exit charges in SG&A$ 3,701 $ - In the Third Quarter of Fiscal 2020, we made the decision to exit ourLanier Apparel business, which is expected to be completed during the Second Half of Fiscal 2021. The lower operating results for Lanier Apparel in the Third Quarter of Fiscal 2020 were due to$10 million of Lanier Apparel exit charges, lower sales and lower gross margin. The Lanier Apparel exit charges primarily consist of inventory markdowns and charges related to our Merida manufacturing facility, which are included in cost of goods sold, as well as operating lease asset impairment charges, employee charges, and fixed asset impairment charges, which are included in SG&A. The Lanier Apparel exit charges are discussed in Note 9 in the unaudited condensed consolidated financial statements included in this report. The Lanier Apparel exit charges in SG&A generally offset reductions in SG&A for variable expenses, employment costs and other operating expenses.
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Southern Tide:
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 10,023 $ 9,102 $ 921 10.1 %
Gross profit $ 3,420 $ 4,395 $ (975) (22.2) %
Gross margin 34.1 % 48.3 %
Operating (loss) income $ (464) $ 526 $ (990) NM %
Operating (loss) income as % of
net sales (4.6) % 5.8 %
Notable items included in
amounts above:
Amortization of Southern Tide
intangible assets $ 72 $ 73
The lower operating results for Southern Tide in the Third Quarter of Fiscal
2020 were primarily due to lower gross margin which offset the impact of higher
sales with comparable SG&A. Lower SG&A for employment costs, advertising and
other operating expenses were generally offset by the increased SG&A associated
with the Southern Tide retail store operations.
Corporate and Other:
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 5,683 $ 4,679 $ 1,004 21.5 %
Gross profit $ 8,553 $ 2,954 $ 5,599 NM %
Operating income (loss) $ 1,192 $ (3,152) $ 4,344 NM %
Notable items included in
amounts above:
LIFO adjustments in Corporate
and Other $ (5,645) $ (35)
The improved operating results for Corporate and Other were primarily due to the
$6 million favorable impact of LIFO accounting, as well as higher net sales,
partially offset by increased SG&A expenses in Corporate and Other.
Interest expense, net
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Interest expense, net $ 339 $ 81 $ 258 318.5 %
The increased interest expense in the Third Quarter of Fiscal 2020 was primarily
due to higher levels of debt outstanding partially offset by interest income
earned on cash invested in money market accounts in the Third Quarter of Fiscal
2020.
Income tax (benefit) provision
Third Quarter
Fiscal 2020 Fiscal 2019 $ Change % Change
Income tax (benefit) provision $ (3,453) $ 845 $ (4,298) NM %
Effective tax rate 24.6 % 33.6 %
Income taxes were a tax benefit in the Third 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 Third Quarter of Fiscal 2019 resulting from
operating income. Due to the amount of loss and earnings in the Third Quarter of
Fiscal 2020 and the Third Quarter of Fiscal 2019, respectively, discrete items,
the results of our foreign operations or other items that impact our income
taxes resulted in a more significant impact on the effective tax rate as
compared to other periods.
The income tax benefit in the Third Quarter of Fiscal 2020 reflects the benefit
of 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-
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U.S. Tax Reform tax years, which had a federal income tax rate of 35%. In the Third Quarter of Fiscal 2020, this benefit was offset by the impact of changes in estimated book to tax timing differences which may reduce the amount of expenses deductible for income tax return purposes in Fiscal 2020. Net earnings Third Quarter Fiscal 2020 Fiscal 2019 Net sales$ 175,135 $ 241,221 Operating (loss) income$ (13,718) $ 2,594 Net (loss) earnings$ (10,604) $ 1,668
Net (loss) earnings per diluted share$ (0.64) $
0.10
Weighted average shares outstanding -- diluted 16,568 16,934 The net loss per share in the Third Quarter of Fiscal 2020 compared to positive net earnings per share in the Third Quarter of Fiscal 2020 was primarily due to the$10 million of Lanier Apparel exit charges and the impact of COVID-19 on the operating results of each of our operating groups. 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 primarily resulting from the reversal of inventory markdowns recognized in the operating groups.
FIRST NINE MONTHS OF FISCAL 2020 COMPARED TO FIRST NINE MONTHS OF FISCAL 2019
The discussion and tables below compare our statements of operations for the
First Nine Months of Fiscal 2020 to the First Nine Months 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 Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 527,466 100.0 % $ 825,194 100.0 % $ (297,728) (36.1) %
Cost of goods sold 232,386 44.1 % 346,620 42.0 % (114,234) (33.0) %
Gross profit $ 295,080 55.9 % $ 478,574 58.0 % $ (183,494) (38.3) %
SG&A 352,201 66.8 % 417,448 50.6 % (65,247) (15.6) %
Impairment of goodwill and
intangible assets 60,452 11.5 % - - % 60,452 100.0 %
Royalties and other
operating income 10,349 2.0 % 11,469 1.4 % (1,120) (9.8) %Operating (loss) income$ (107,224) (20.3) %$ 72,595 8.8 %$ (179,819) NM % Interest expense, net 1,673 0.3 % 1,171 0.1 % 502 42.9 % (Loss) earnings before income taxes$ (108,897) (20.6) %$ 71,424 8.7 %$ (180,321) NM % Income tax (benefit) provision (25,422) (4.8) % 18,263 2.2 % (43,685) NM % Net (loss) earnings$ (83,475) (15.8) %$ 53,161 6.4 %$ (136,636) NM % Net Sales First Nine Months Fiscal 2020 Fiscal 2019 $ Change % Change Tommy Bahama$ 277,143 $ 480,623 $ (203,480) (42.3) %Lilly Pulitzer 176,723 219,809 (43,086) (19.6) % 32 Table of Contents Lanier Apparel 29,985 75,378 (45,393) (60.2) % Southern Tide 27,136 35,704 (8,568) (24.0) %
Corporate and Other 16,479 13,680 2,799 20.5 %
Consolidated net sales
Consolidated net sales decreased$298 million , or 36%, in the First Nine Months 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, impacted by, among other things, reduced traffic after locations reopen and temporary closures, while our e-commerce business has generated very strong growth. The decreases in net sales included decreases in (1) full-price retail sales of$169 million , or 60%, (2) wholesale sales of$124 million , or 48%, (3) restaurant sales of$29 million , or 47%, and (4) outlet sales of$21 million , or 49%. These decreases were partially offset by increased e-commerce sales of$46 million , or 25%, primarily due to more demand as consumers shifted to online shopping as well as increased online marketing and promotional events 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:
First Nine Months
Fiscal 2020 Fiscal 2019
Retail 26 % 39 %
E-commerce 43 % 22 %
Restaurant 6 % 8 %
Wholesale 25 % 31 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales decreased $203 million , or 42%, in the First Nine Months
of Fiscal 2020. The decrease in net sales in Tommy Bahama included decreases in
(1) full-price retail sales of $109 million , or 58%, primarily due to the impact
of COVID-19 on retail store operations as well as reduced store count, (2)
wholesale sales of $52 million , or 52%, including a decrease in full-price and
off-price sales, (3) restaurant sales of $29 million , or 47%, and (4) outlet
store sales of $22 million , or 50%. These decreases were partially offset by
increased e-commerce sales of $9 million , or 10%. The following table presents
the proportion of net sales by distribution channel for Tommy Bahama for each
period presented:
First Nine Months
Fiscal 2020 Fiscal 2019
Retail 36 % 48 %
E-commerce 34 % 18 %
Restaurant 12 % 13 %
Wholesale 18 % 21 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales decreased $43 million , or 20%, in the First Nine Months
of Fiscal 2020. The decrease in net sales in Lilly Pulitzer included decreases
in (1) retail sales of $60 million , or 64%, primarily due to the impact of
COVID-19 on retail store operations as well as reduced store count and (2)
wholesale sales of $16 million , or 34%, primarily due to lower full-price sales.
These decreases were partially offset by increased e-commerce sales of $33
million , or 42%, including a 63% increase in full-price e-commerce sales and a
7% increase in e-commerce flash sales to
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First Nine Months
Fiscal 2020 Fiscal 2019
Retail 19 % 43 %
E-commerce 64 % 36 %
Wholesale 17 % 21 %
Total 100 % 100 %
Lanier Apparel:
Lanier Apparel net sales decreased $45 million , or 60% in the First Nine Months
of Fiscal 2020 resulting from decreases in most of the replenishment, seasonal
and other programs for the branded and private label businesses, including a
large pants program for a warehouse club that did not repeat in Fiscal 2020.
These decreases were partially offset by $3 million of sales of COVID-19 related
personal protective equipment such as masks and gowns.
Southern Tide:
Southern Tide net sales decreased$9 million , or 24%, in the First Nine Months of Fiscal 2020 due to an$11 million , or 38%, decrease in wholesale sales partially offset by a$2 million , or 24%, increase in e-commerce sales and a$1 million increase in retail store sales resulting from the opening of three Southern Tide retail stores since the Fourth Quarter of Fiscal. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented: First Nine Months Fiscal 2020 Fiscal 2019 Retail 3 % - % E-commerce 29 % 18 % Wholesale 68 % 82 % 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 Nine Months of Fiscal 2020 and the First Nine Months 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.
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Tommy Bahama $ 161,711 $ 294,500 $ (132,789) (45.1) %
Lilly Pulitzer 108,582 138,252 (29,670) (21.5) %
Lanier Apparel (583) 21,226 (21,809) NM %
Southern Tide 7,934 17,688 (9,754) (55.1) %
Corporate and Other 17,436 6,908 10,528 NM %
Consolidated gross profit $ 295,080 $ 478,574 $ (183,494) (38.3) %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ (9,287) $ 810
Lanier Apparel exit charges in cost
of goods sold $ 6,415 $ -
First Nine Months
Fiscal 2020 Fiscal 2019
Tommy Bahama 58.3 % 61.3 %
Lilly Pulitzer 61.4 % 62.9 %
Lanier Apparel (1.9) % 28.2 %
Southern Tide 29.2 % 49.5 %
Corporate and Other NM % NM %
Consolidated gross margin 55.9 % 58.0 %
The decrease in consolidated gross profit in the First Nine Months of Fiscal
2020 was due to the lower net sales and lower gross margin. The lower
consolidated gross margin reflects lower gross margin in each operating group as
discussed below. During the First Nine Months of Fiscal 2020, we recognized the
negative impact of $14 million of inventory markdowns which were partially
offset by a $9 million LIFO accounting credit. In the First Nine Months of
Fiscal 2019, we recognized $2 million of inventory markdowns and a $1 million
LIFO accounting charge.
Tommy Bahama:
The decrease in gross margin for Tommy 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 as a greater proportion of sales were related to promotion
events, (2) 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 as well as increased inventory markdowns, and (3) certain fixed asset and
operating lease asset impairment charges related to the restructuring of our
Tommy Bahama sourcing operations.
The decrease in gross margin for
Lanier Apparel:
The negative gross margin for Lanier Apparel was primarily due to (1) the$6 million of Lanier Apparel exit charges in cost of goods sold, including inventory markdowns and charges related to our Merida manufacturing facility, as discussed in Note 9 in the unaudited condensed consolidated financial statements included in this report, (2) an increase in inventory markdowns in the First Half of Fiscal 2020, and (3) lower gross margin on various programs due to the challenging tailored clothing market. Each of these items had a more significant gross margin impact on the lower sales volume of the First Nine Months of Fiscal 2020. 35 Table of Contents 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 Nine Months 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$10 million net favorable impact of LIFO accounting with a LIFO accounting credit in the First Nine Months of Fiscal 2020 and a LIFO accounting charge in the First Nine Months of Fiscal 2019 and (2) the gross profit resulting from the higher net sales. 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 First Nine Months Fiscal 2020 Fiscal 2019 $ Change % Change SG&A$ 352,201 $ 417,448 $ (65,247) (15.6) % SG&A (as a % of net sales) 66.8 % 50.6 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ 204 $ 240 Amortization of Southern Tide intangible assets $ 216 $ 218 Lanier Apparel exit charges in SG&A$ 3,701 $ - Tommy Bahama Japan charges $ - $ 590
The lower SG&A in the First Nine Months of Fiscal 2020 was primarily due to (1) decreased employment costs of$50 million primarily due to reductions in 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, reduced hours or pay reductions for certain employees, reductions in incentive compensation amounts, suspension of the company match for our 401(k) plan and employee retention credits, partially offset by certain severance amounts, (2) a$9 million reduction in certain variable expenses including credit card transaction fees, shipping costs, commissions, supplies and other variable expenses, (3) a$9 million reduction in occupancy expenses primarily resulting from fewerTommy Bahama andLilly Pulitzer bricks and mortar locations, certain negotiated rent reductions and lower costs for utilities, maintenance and related expenses, (4) a$4 million decrease in travel expenses, (5) a$2 million reduction in advertising expenses, and (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 Nine Months of Fiscal 2020. 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, (2) Lanier Apparel exit charges in SG&A of$4 million consisting of operating lease asset impairment charges, employee charges, and fixed asset impairment charges, as discussed in Note 9 in the unaudited condensed consolidated financial statements included in this report, and (3) a$3 million increase in depreciation expense including impairment charges for certain retail locations. 36
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Impairment of goodwill and intangible assets
In the First Nine Months 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 Nine Months of Fiscal 2020. There were no impairment charges for goodwill or intangible assets in the prior year period.
Royalties and other operating income
First Nine Months
Fiscal 2020 Fiscal 2019
$ Change % Change
Royalties and other operating income
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 Nine Months of Fiscal 2020 was due to lower royalty income in bothTommy Bahama andLilly Pulitzer . Operating income (loss) First Nine Months Fiscal 2020 Fiscal 2019 $ Change % Change Tommy Bahama$ (43,286) $ 30,671 $ (73,957) NM %Lilly Pulitzer 25,676 46,689 (21,013) (45.0) % Lanier Apparel (21,271) 3,738 (25,009) NM % Southern Tide (64,809) 4,877 (69,686) NM % Corporate and Other (3,534) (13,380) 9,846 NM % Consolidated Operating (Loss) Income$ (107,224) $ 72,595 $ (179,819) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ (9,287) $ 810 Lanier Apparel exit charges in cost of goods sold$ 6,415 $ -
Amortization of
-
Lanier Apparel intangible asset
impairment charge $ 207 $ -
Amortization of Southern Tide
intangible assets $ 216 $ 218
Southern Tide goodwill and
intangible asset impairment charge $ 60,245 $ -
Tommy Bahama Japan charges $ - $ 590
The lower operating results in the First Nine Months of Fiscal 2020 were
primarily due to (1) the impact of COVID-19 on each operating group, (2) the $60
million Southern Tide impairment charge recognized in the First Quarter of
Fiscal 2020 and (3) the $10 million of Lanier Apparel exit charges incurred in
the Third 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 due to the reversal of inventory markdowns
recognized in the operating groups. Changes in operating income (loss) by
operating group are discussed below.
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Tommy Bahama:
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 277,143 $ 480,623 $ (203,480) (42.3) %
Gross profit $ 161,711 $ 294,500 $ (132,789) (45.1) %
Gross margin 58.3 % 61.3 %
Operating (loss) income $ (43,286) $ 30,671 $ (73,957) NM %
Operating (loss) income as % of
net sales (15.6) % 6.4 %
Notable items included in
amounts above:
Tommy Bahama Japan charges $ - $ 590
The lower operating results for Tommy Bahama in the First Nine Months 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) $40 million of lower
employment costs, (2) $7 million of lower occupancy costs, primarily resulting
from the operation of fewer bricks and mortar locations, certain negotiated rent
reductions and lower costs for utilities, maintenance and related expenses, (3)
$7 million of lower variable costs such as credit card transaction fees,
commissions, shipping fees and supplies, (4) a $3 million decrease in
advertising expense, (5) a $2 million decrease in travel expense, (6) a $1
million decrease in Tommy Bahama Japan charges, which related to charges
associated with the restructure and exit of our Tommy Bahama Japan operations,
with no such charges in the First Nine Months 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.
Lilly Pulitzer :
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 176,723 $ 219,809 $ (43,086) (19.6) %
Gross profit $ 108,582 $ 138,252 $ (29,670) (21.5) %
Gross margin 61.4 % 62.9 %
Operating income $ 25,676 $ 46,689 $ (21,013) (45.0) %
Operating income as % of net sales 14.5 % 21.2 %
Notable items included in amounts
above:
Amortization of Lilly Pulitzer
Signature Store intangible assets $ 204 $ 240
The lower operating income for Lilly Pulitzer in the First Nine Months 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) $8 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 rent
reductions and lower costs for utilities, maintenance and related expenses, (3)
a $1 million decrease in travel expenses, and (4) reductions in other general
and administrative expenses. These decreases in SG&A were partially offset by
(1) $2 million of higher marketing expense and (2) increases in other expenses
including provisions for credit losses.
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Lanier Apparel:
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 29,985 $ 75,378 $ (45,393) (60.2) %
Gross profit $ (583) $ 21,226 $ (21,809) NM %
Gross margin (1.9) % 28.2 %
Operating (loss) income $ (21,271) $ 3,738 $ (25,009) NM %
Operating (loss) income as % of
net sales (70.9) % 5.0 %
Notable items included in
amounts above:
Lanier Apparel exit charges in
cost of goods sold $ 6,415 $ -
Lanier Apparel exit charges in
SG&A $ 3,701 $ -
Lanier Apparel intangible asset
impairment charge $ 207 $ -
In the Third Quarter of Fiscal 2020, we made the decision to exit our Lanier
Apparel business, which is expected to be completed during the Second Half of
Fiscal 2021. The lower operating results for Lanier Apparel in the First Nine
Months of Fiscal 2020 were due to lower sales, $10 million of charges related to
the Lanier Apparel exit, and lower gross margin. The Lanier Apparel exit charges
primarily consist of inventory markdowns and charges related to our Merida
manufacturing facility, which are included in cost of goods sold, as well as
operating lease asset impairment charges, employee charges, and fixed asset
impairment charges, which are included in SG&A. These Lanier Apparel exit
charges are discussed in Note 9 in the unaudited condensed consolidated
financial statements included in this report. Absent these Lanier Apparel exit
charges, SG&A was comparable as $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 were generally offset by reductions
in variable expenses, employment costs and other operating expenses.
Southern Tide:
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 27,136 $ 35,704 $ (8,568) (24.0) %
Gross profit $ 7,934 $ 17,688 $ (9,754) (55.1) %
Gross margin 29.2 % 49.5 %
Operating (loss) income $ (64,809) $ 4,877 $ (69,686) NM %
Operating (loss) income as % of
net sales (238.8) % 13.7 %
Notable items included in
amounts above:
Amortization of Southern Tide
intangible assets $ 216 $ 218
Southern Tide goodwill and
intangible asset impairment
charge $ 60,245 $ -
The lower operating results for Southern Tide in the First Nine Months of Fiscal
2020 were primarily due to the $60 million impairment charge for goodwill and
intangible assets in the First Quarter of Fiscal 2020 as well as lower sales and
lower gross margin partially offset by lower SG&A. Lower SG&A for employment
costs, advertising and other expenses were partially offset by the SG&A
associated with the Southern Tide retail store operations and increased
provisions for credit losses.
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Corporate and Other:
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Net sales $ 16,479 $ 13,680 $ 2,799 20.5 %
Gross profit $ 17,436 $ 6,908 $ 10,528 NM %
Operating loss $ (3,534) $ (13,380) $ 9,846 NM %
Notable items included in
amounts above:
LIFO adjustments in Corporate
and Other $ (9,287) $ 810
The smaller operating loss for Corporate and Other was primarily due to the$10 million favorable impact of LIFO accounting and higher sales partially offset by lower gross margins, excluding the impact of LIFO accounting, and higher SG&A. Interest expense, net First Nine Months Fiscal 2020 Fiscal 2019 $ Change % Change Interest expense, net$ 1,673 $ 1,171 $ 502 42.9 %
The increased interest expense in the First Nine Months of Fiscal 2020 was primarily due to higher levels of debt outstanding partially offset by interest income earned on cash invested in money market accounts in the First Nine Months of Fiscal 2020.
Income tax (benefit) provision
First Nine Months
Fiscal 2020 Fiscal 2019 $ Change % Change
Income tax (benefit) provision $ (25,422) $ 18,263 $ (43,685) NM %
Effective tax rate 23.3 % 25.6 %
Income taxes were a tax benefit in the First Nine Months 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 Nine Months of
Fiscal 2019 resulting from operating income.
The income tax benefit in the First Nine Months of Fiscal 2020 reflects the
benefit of 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, (2) the estimated book to tax timing differences and certain discrete
non-deductible items, which may reduce the amount of expenses deductible for
income tax return purposes in Fiscal 2020 and (3) restricted stock which vested
in the period with a vesting date price lower than the grant date price.
Net earnings
First Nine Months
Fiscal 2020 Fiscal 2019
Net sales $ 527,466 $ 825,194
Operating (loss) income $ (107,224) $ 72,595
Net (loss) earnings $ (83,475) $ 53,161 Net (loss) earnings per diluted share$ (5.04) $
3.15
Weighted average shares outstanding -- diluted 16,576 16,896
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The net loss per share in the First Nine Months of Fiscal 2020 compared to positive net earnings per share in the First Nine Months of Fiscal 2019 was primarily due to (1) the impact of COVID-19 on the operating results of each of our operating groups, (2) the$60 million Southern Tide impairment charge recognized in the First Quarter of Fiscal 2020, (3) the non-deductibility of certain goodwill impairment charges resulting in a lower effective tax rate on our loss in the First Nine Months of Fiscal 2020 than the effective tax rate on our income in the First Nine Months of Fiscal 2019 and (4)$10 million of charges related to the Lanier Apparel exit. These items were partially offset by the improved operating results in Corporate and Other, which was primarily due to the favorable impact of LIFO accounting resulting from the reversal of inventory markdowns recognized in the operating groups. 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 ofOctober 31, 2020 , we had$53 million of cash and cash equivalents on hand, with$35 million of borrowings outstanding under ourU.S. Revolving Credit Agreement. As ofOctober 31, 2020 , we had$287 million of unused availability under ourU.S. Revolving Credit Agreement. We believe ourU.S. Revolving Credit Agreement and anticipated future positive cash flow from operating activities will provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives. Key Liquidity Measures October 31, February 1, November 2, February 2, ($ in thousands) 2020 2020 2019 2019 Total current assets$ 262,463 $ 288,826 $ 268,828 $ 269,788 Total current liabilities$ 176,389 $ 177,779 $ 164,118 $ 142,209 Working capital$ 86,074 $ 111,047 $ 104,710 $ 127,579 Working capital ratio 1.49 1.62 1.64 1.90 Debt to total capital ratio 8 % - %
- % 3 %
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofOctober 31, 2020 , decreased fromNovember 2, 2019 due to decreased receivables, prepaid expenses and inventories offset by increased cash and cash equivalents. Current liabilities as ofOctober 31, 2020 increased fromNovember 2, 2019 primarily due to higher current operating lease liabilities and other accrued expenses partially offset by lower accounts payable and 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$35 million atOctober 31, 2020 and$0 million atNovember 2, 2019 , while shareholders' equity was$419 million atOctober 31, 2020 and$517 million atNovember 2, 2019 . The increase in debt 41
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sinceNovember 2, 2019 was primarily due to borrowings to maintain certain amounts of cash on our balance sheet during the COVID-19 pandemic, resulting in$53 million of cash and cash equivalents on hand as ofOctober 31, 2020 . Additionally, the change in debt reflects the impact of$69 million of cash flow from operations which was offset by cash payments of$35 million for capital expenditures and other investing activities,$19 million for dividends and$20 million for share repurchases. Shareholders' equity decreased fromNovember 2, 2019 , primarily due to net losses, dividends paid and shares 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 of
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