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 2020
Form
10-K.
OVERVIEW
Business Overview
We are a leading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of ourTommy Bahama ,Lilly Pulitzer and Southern Tide lifestyle brands and other brands.Tommy Bahama andLilly Pulitzer , in the aggregate, represent more than 85% of our net sales and 97% of our net sales were inthe 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, likeTommy Bahama ,Lilly Pulitzer and Southern Tide, 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; design of differentiated, innovative or otherwise compelling product; 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. We generate our net sales primarily through our direct to consumer channels of distribution, which consist of our brand-specific full-price retail stores, our brand-specific e-commerce websites, ourTommy Bahama food and beverage operations and ourTommy Bahama outlets. Our remaining net sales are 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 group of consumers, and the net sales of our Lanier Apparel operating group, which we are in the process of exiting. For additional information about our business and each of our operating groups, see Part I, Item 1. Business of our Fiscal 2020 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 2020 Form 10-K.
Industry 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 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. 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 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 capital investments to generate growth or even maintain current sales levels. Many of these changes in the industry were accelerated or exacerbated by the COVID-19 pandemic. While this competition and evolution present significant
risks,
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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 in this
retailing paradigm, 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.
COVID-19 Pandemic
The COVID-19 pandemic has had a significant effect on overall economic conditions and our operations and was the primary reason for a 33% reduction in net sales and a significant net loss in Fiscal 2020 after years of profitable operating results. While our mission remains the enhancement of long-term shareholder value, our focus during this crisis has been (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. Actions taken in Fiscal 2020 to mitigate the impact of the COVID-19 pandemic on our business, operations and liquidity are discussed in our Fiscal 2020 Form 10-K. Due to the COVID-19 pandemic, we saw reduced consumer traffic starting in earlyMarch 2020 and temporarily closed all our retail and restaurant locations. We began reopening our stores and restaurants in the Second Quarter of Fiscal 2020 in a phased approach in accordance with local government guidelines and with additional safety protocols. Some of our locations continue to experience reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations to varying degrees. 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 in outdoor centers or in drivable resort vacation destinations have performed better than locations in indoor malls during Fiscal 2020 and the First Half of Fiscal 2021. 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 COVID-19 pandemic. There remains 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. While the First Half of Fiscal 2021 saw a significant rebound in retail traffic in the strong consumer macro-economic environment, there can be no assurance that these short-term trends will continue. Thus, the ultimate impact of the pandemic and the extent of the recovery from the pandemic cannot be reasonably estimated at this time.
Lanier Apparel Exit
In the Third Quarter of Fiscal 2020, we decided to exit our Lanier Apparel business, a business which has been primarily 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 challenges faced by theLanier Apparel business, many of which were magnified by the COVID-19 pandemic. In connection with the exit of our Lanier Apparel business, which is expected to be completed in the Second Half of Fiscal 2021, we recorded pre-tax charges of$13 million in the Lanier Apparel operating group during the Second Half of Fiscal 2020, with an additional$1 million of net charges in the First Half of Fiscal 2021. The Lanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. In addition to the charges incurred through the First Half of Fiscal 2021, we currently expect to incur additional Lanier Apparel exit charges totaling approximately$1 million , which are expected to consist primarily of additional employee charges for employees retained during the exit. We expect to liquidate substantially all of the remaining Lanier Apparel inventory during the Third Quarter of Fiscal 2021. Key Operating Results: 18 Table of Contents The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First Half of Fiscal 2021 compared to the First Half of Fiscal 2020: First Half Fiscal 2021 Fiscal 2020 Net sales$ 594,434 $ 352,331 Operating income (loss)$ 102,889 $ (93,506) Net earnings (loss)$ 79,928 $ (72,871) Net earnings (loss) per diluted share$ 4.75 $
(4.40)
Weighted average shares outstanding -- diluted 16,825 16,580 The improved earnings per share in the First Half of Fiscal 2021 are primarily a result of (1) improved operating results in each of our operating groups as our operations continue to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020 and (2) the absence of impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2020. These favorable items were partially offset by a larger operating loss in Corporate and Other. The earnings per share of$4.75 for the First Half of Fiscal 2021 is higher than the earnings per share of$3.05 in the First Half of Fiscal 2019. The higher earnings per share compared to the First Half of Fiscal 2019 are primarily a result of increased operating income in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups partially offset by a larger operating loss in Corporate and Other. The increased operating income forTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily a result of improved gross margin and increased sales in each operating group. STORE COUNT The table below provides store count information for our brands as of the dates specified. The store count includes our permanent locations and excludes any pop-up or temporary store locations which have an initial lease term of 12 months or less. While all of our stores and restaurants were temporarily closed beginning inMarch 2020 due to the COVID-19 pandemic, as ofJuly 31, 2021 , substantially all of our locations have re-opened, albeit with some continuing to experience reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations to varying degrees. July 31, January 30, August 1, February 1, 2021 2021 2020 2020 Tommy Bahama retail stores 104 105 107 111 Tommy Bahama retail-restaurant locations 21 20 19 16 Tommy Bahama outlets 35 35 35 35 Total Tommy Bahama locations 160 160 161 162Lilly Pulitzer retail stores 59 59 59 61 Southern Tide retail stores 4
3 2 1
Total Oxford locations 223 222 222 224
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 2021 COMPARED TO SECOND QUARTER OF FISCAL 2020
The discussion and tables below compare our statements of operations for the
Second Quarter of Fiscal 2021 to the Second Quarter of Fiscal 2020, except as
otherwise noted. 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.
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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:
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 328,672 100.0 % $ 191,988 100.0 % $ 136,684 71.2 %
Cost of goods sold 119,046 36.2 % 87,251 45.4 % 31,795 36.4 %
Gross profit $ 209,626 63.8 % $ 104,737 54.6 % $ 104,889 100.1 %
SG&A 146,367 44.5 % 115,663 60.2 % 30,704 26.5 %
Royalties and other
operating income 4,737 1.4 % 2,909 1.5 % 1,828 62.8 %
Operating income (loss) $ 67,996 20.7 % $ (8,017) (4.2) % $ 76,013 NM %
Interest expense, net 211 0.1 % 676 0.4 % (465) (68.8) %
Earnings (loss) before
income taxes $ 67,785 20.6 % $ (8,693) (4.5) % $ 76,478 NM %
Income tax provision
(benefit) 16,325 5.0 % (2,606) (1.4) % 18,931 NM %
Net earnings (loss) $ 51,460 15.7 % $ (6,087) (3.2) % $ 57,547 NM %
Net Sales
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Tommy Bahama $ 208,833 $ 95,254 $ 113,579 119.2 %
Lilly Pulitzer 87,333 73,860 13,473 18.2 %
Southern Tide 14,587 8,812 5,775 65.5 %
Lanier Apparel 8,492 8,450 42 0.5 %
Corporate and Other 9,427 5,612 3,815 68.0 %
Consolidated net sales $ 328,672 $ 191,988 $ 136,684 71.2 %
Consolidated net sales increased $137 million , or 71%, in the Second Quarter of
Fiscal 2021, including increases in each operating group, as our operations
continue to recover from the impact of the COVID-19 pandemic, which resulted in
temporary store closures and reduced traffic in Fiscal 2020, and consumers
become increasingly more comfortable returning to physical shopping. The
increase in net sales included increases in (1) full-price retail sales of $84
million , or 248%, (2) wholesale sales of $28 million , or 80%, (3) restaurant
sales of $17 million , or 203%, (4) full-price e-commerce sales of $13 million ,
or 14%, and (5) outlet sales of $10 million , or 125%. These increases were
partially offset by a $15 million decrease in e-commerce flash clearance sales
as Lilly Pulitzer did not have an e-commerce flash clearance sale in the Second
Quarter of Fiscal 2021 after having an e-commerce flash clearance sale in the
Second Quarter of Fiscal 2020. The changes in net sales by operating group are
discussed below.
Consolidated net sales increased $27 million , or 9%, in the Second Quarter of
Fiscal 2021 compared to the $302 million of net sales in the Second Quarter of
Fiscal 2019. The higher sales compared to the Second Quarter of Fiscal 2019
include increases in Tommy Bahama , Lilly Pulitzer , Southern Tide and Corporate
and Other partially offset by lower sales in Lanier Apparel. The increase in net
sales included increases in (1) e-commerce sales of $34 million , or 49%, with
increases in each of our brands, (2) restaurant sales of $5 million , or 26%,
resulting from sales at additional Tommy Bahama Marlin Bars and increased sales
in existing Tommy Bahama food and beverage locations that have reopened, (3)
full-price retail sales of $2 million , or 1%, with an increase in Tommy Bahama
and Southern Tide partially offset by a decrease in Lilly Pulitzer , and (4)
outlet sales of $1 million , or 5%. These increases were partially offset by
decreases in (1) Lanier Apparel sales of $12 million , or 59%, and (2) wholesale
sales of our non-Lanier Apparel businesses of $3 million , or 6%, with reductions
in Tommy Bahama , Lilly Pulitzer and Southern Tide, partially offset by increases
in our smaller brands.
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The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
Second Quarter
Fiscal 2021 Fiscal 2020
Retail 41 % 22 %
E-commerce 32 % 56 %
Restaurant 8 % 4 %
Wholesale 19 % 18 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales increased $114 million , or 119%, in the Second Quarter of
Fiscal 2021. The increase in net sales in Tommy Bahama included increases in (1)
full-price retail sales of $60 million , or 255%, (2) restaurant sales of $17
million , or 203%, including higher sales at existing locations and sales at our
additional Tommy Bahama Marlin Bar locations, (3) wholesale sales of $17
million , or 186%, (4) outlet sales of $10 million , or 125%, and (5) e-commerce
sales of $9 million , or 20%. The following table presents the proportion of net
sales by distribution channel for Tommy Bahama for each period presented:
Second Quarter
Fiscal 2021 Fiscal 2020
Retail 48 % 33 %
E-commerce 27 % 48 %
Restaurant 12 % 9 %
Wholesale 13 % 10 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales increased $13 million , or 18%, in the Second Quarter of
Fiscal 2021. The increase in net sales in Lilly Pulitzer included increases in
(1) retail sales of $23 million , or 230%, (2) wholesale sales of $3 million , or
23%, with higher full-price and lower off-price wholesale sales, and (3)
full-price e-commerce sales of $2 million , or 6%. These increases were partially
offset by a $15 million decrease in e-commerce flash clearance sales as Lilly
Pulitzer did not have an e-commerce flash clearance sale in the Second Quarter
of Fiscal 2021 after having an e-commerce flash clearance sale in the Second
Quarter of Fiscal 2020. The following table presents the proportion of net sales
by distribution channel for Lilly Pulitzer for each period presented:
Second Quarter
Fiscal 2021 Fiscal 2020
Retail 38 % 14 %
E-commerce 46 % 71 %
Wholesale 16 % 15 %
Total 100 % 100 %
Southern Tide:
Southern Tide net sales increased $6 million , or 66%, in the Second Quarter of
Fiscal 2021, with increases in each channel of distribution. The increase in net
sales in Southern Tide included increases in (1) wholesale sales of $4 million ,
or 96%, (2) retail sales of $1 million resulting from additional Southern Tide
retail stores and (3) e-commerce sales of $1
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million, or 15%. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
Second Quarter
Fiscal 2021 Fiscal 2020
Retail 9 % 5 %
E-commerce 30 % 43 %
Wholesale 61 % 52 %
Total 100 % 100 %
Lanier Apparel:
Lanier Apparel net sales were comparable with the Second Quarter of Fiscal 2020
as we exit the Lanier Apparel business in Fiscal 2021. We expect to liquidate
substantially all of the remaining Lanier Apparel inventory during the Third
Quarter of Fiscal 2021.
Corporate and Other:
Corporate and Other net sales increased
Gross Profit
The tables below present gross profit by operating group and in total for the
Second Quarter of Fiscal 2021 and the Second Quarter of Fiscal 2020, as well as
the change between those two periods and gross margin by operating group and in
total. Gross margin is calculated as gross profit divided by net sales.
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Tommy Bahama $ 133,375 $ 53,586 $ 79,789 148.9 %
Lilly Pulitzer 61,865 44,053 17,812 40.4 %
Southern Tide 8,220 2,975 5,245 176.3 %
Lanier Apparel 5,766 1,548 4,218 272.5 %
Corporate and Other 400 2,575 (2,175) NM %
Consolidated gross profit $ 209,626 $ 104,737 $ 104,889 100.1 %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ 4,354 $ (388)
Lanier Apparel exit charges in cost
of goods sold $ (2,600) $ -
Second Quarter
Fiscal 2021 Fiscal 2020
Tommy Bahama 63.9 % 56.3 %
Lilly Pulitzer 70.8 % 59.6 %
Southern Tide 56.4 % 33.8 %
Lanier Apparel 67.9 % 18.3 %
Corporate and Other NM % NM %
Consolidated gross margin 63.8 % 54.6 %
The increase in consolidated gross profit in the Second Quarter of Fiscal 2021
was primarily due to the higher net sales as well as higher gross margin, with
gross margin improvement in each operating group. The higher consolidated gross
margin was primarily due to (1) more full-price selling and less inventory
markdowns, discounts, allowances and
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promotions in the Second Quarter of Fiscal 2021, (2) improved initial product margins, and (3) a change in sales mix asLilly Pulitzer e-commerce flash clearance sales and Lanier Apparel sales represented a smaller proportion of net sales. These items that favorably impacted gross margin were partially offset by a$5 million impact of LIFO accounting and increased freight rates associated with shipping our products from our vendors and shipping our products to our stores and e-commerce customers. During the Second Quarter of Fiscal 2021, we reduced inventory markdowns by$4 million , due, in part, to the sale of previously marked down inventory during the quarter and a$3 million reduction to Lanier Apparel inventory markdown reserves, which was offset by a$4 million LIFO accounting charge in Corporate and Other. In the Second Quarter of Fiscal 2020, we recognized$3 million of inventory markdowns and a minimal impact of LIFO accounting. The consolidated gross margin in the Second Quarter of Fiscal 2021 also exceeded the consolidated gross margin in the Second Quarter of Fiscal 2019 of 59.5%. The improved consolidated gross margin in the Second Quarter of Fiscal 2021 compared to the Second Quarter of Fiscal 2019 was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the Second Quarter of Fiscal 2021, (2) improved initial product margins and (3) a change in sales mix as direct to consumer sales represented a larger proportion of net sales in the Second Quarter of Fiscal 2021, while wholesale sales in our brands as well as Lanier Apparel sales represented a smaller proportion of net sales. The lower inventory markdowns in the Second Quarter of Fiscal 2021 included a$3 million reduction to Lanier Apparel inventory markdown reserves during the period. These items that favorably impacted gross margin were partially offset by an unfavorable impact of LIFO accounting, with the Second Quarter of Fiscal 2021 including a$4 million LIFO accounting charge compared to a$1 million LIFO accounting charge in the Second Quarter of Fiscal 2019 and increased freight rates.
The improved gross margin forTommy Bahama was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, with the amounts in the prior period having a more significant gross margin impact on the much lower net sales in that period, and (2) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight rates.Lilly Pulitzer :
The improved gross margin forLilly Pulitzer was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, (2) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs, and (3) a change in sales mix as full-price direct to consumer sales represented a larger proportion of sales in the Second Quarter of Fiscal 2021 as there were no e-commerce flash clearance sales in the Second Quarter of Fiscal 2021. These items that favorably impacted gross margin were partially offset by increased freight rates.
Southern Tide:
The improved gross margin for Southern Tide was primarily due to (1) more full-price selling and less inventory markdowns, with the higher amounts in the prior period having a more significant gross margin impact on the much lower net sales in that period, and (2) less off-price wholesale sales in the Second Quarter of Fiscal 2021. These items that favorably impacted gross margin were partially offset by increased freight rates.
Lanier Apparel:
The improved gross margin for Lanier Apparel in the Second Quarter of Fiscal 2021 was primarily due to a$3 million reduction in inventory markdowns in the Second Quarter of Fiscal 2021 as we have disposed of and anticipate disposing of the remaining Lanier Apparel inventory at higher gross margins than previously estimated. 23 Table of Contents 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 driver for the lower gross profit was the$5 million net unfavorable impact of LIFO accounting with a$4 million LIFO accounting charge in the Second Quarter of Fiscal 2021 and a$0 million LIFO accounting credit in the Second Quarter of Fiscal 2020. The unfavorable impact of LIFO accounting was partially offset by higher net sales in Corporate and Other. 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 was ultimately sold or (2) a credit in Corporate and Other when inventory had been marked down to the estimated net realizable value in an operating group in the current period but had not been sold as of period end. SG&A Second Quarter Fiscal 2021 Fiscal 2020 $ Change % Change SG&A$ 146,367 $ 115,663 $ 30,704 26.5 % SG&A (as a % of net sales) 44.5 % 60.2 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 Amortization of Southern Tide intangible assets $ 72 $ 72 Lanier Apparel exit charges in SG&A$ 2,414 $ - The higher SG&A in the Second Quarter of Fiscal 2021 included (1) increased employment costs of$25 million , including increased incentive compensation totaling$7 million and$1 million of Lanier Apparel exit charges consisting of stay bonus and severance amounts, (2) a$5 million increase in variable expenses associated with higher sales, including credit card transaction fees, supplies and other expenses, (3) a$4 million increase in advertising expense, (4) a$2 million increase in occupancy expense, primarily resulting from increased costs for utilities, maintenance and related expenses as direct to consumer locations were open for the full quarter in Fiscal 2021, and (5)$2 million of contract termination charges associated with the Lanier Apparel exit. These increases were partially offset by (1) a$4 million decrease in estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers and (2) a$2 million decrease in depreciation expense, as the prior year included certain leasehold improvement and other fixed asset impairment charges. SG&A for the Second Quarter of Fiscal 2021 increased by$3 million from the$143 million of SG&A in the Second Quarter of Fiscal 2019. The higher SG&A was primarily due to (1) a$6 million increase in incentive compensation, (2) a$3 million increase in advertising expense, with much of that increase related to digital marketing, (3) a$3 million increase in variable expense related to higher sales, including credit card transaction fees, supplies and other expenses, and (4)$2 million of contract termination charges associated with the Lanier Apparel exit. These increases were partially offset by (1) an$8 million decrease in employment costs, excluding incentive compensation, resulting from employee headcount reduction and other initiatives implemented in Fiscal 2020 in response to the COVID-19 pandemic, and (2) a$2 million reduction in occupancy costs primarily related to the operation of fewer retail store locations and the favorable impact of certain concessions with landlords that are amortized over the remaining lease term.
Royalties and other operating income
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % ChangeRoyalties and other operating income$ 4,737 $ 2,909 $
1,828 62.8 % Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The increased royalties and other income in the Second Quarter of Fiscal 2021 was primarily due to increased royalty income inTommy Bahama . 24 Table of Contents Operating income (loss) Second Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 47,324 $ (12,712) $ 60,036 NM %Lilly Pulitzer 25,783 16,264 9,519 58.5 % Southern Tide 2,950 (979) 3,929 NM % Lanier Apparel 850 (6,134) 6,984 NM % Corporate and Other (8,911) (4,456) (4,455) NM % Consolidated Operating Income (Loss)$ 67,996 $ (8,017) $ 76,013 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 4,354 $ (388) Lanier Apparel exit charges in cost of goods sold$ (2,600) $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 Amortization of Southern Tide intangible assets $ 72 $ 72 Lanier Apparel exit charges in SG&A$ 2,414 $ - The improved operating results in the Second Quarter of Fiscal 2021 were due to the improved operating results in each of our operating groups. These improved results of our operating groups were partially offset by the higher operating loss in Corporate and Other. Changes in operating income (loss) by operating group are discussed below. Operating income in the Second Quarter of Fiscal 2021 of$68 million was$28 million higher than the$40 million of operating income in the Second Quarter of Fiscal 2019 primarily due to higher gross margin and higher net sales. Operating income increased in each operating group partially offset by a higher operating loss in Corporate and Other. Tommy Bahama: Second Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 208,833 $ 95,254 $ 113,579 119.2 % Gross profit$ 133,375 $ 53,586 $ 79,789 148.9 % Gross margin 63.9 % 56.3 % Operating income (loss)$ 47,324 $ (12,712) $ 60,036 NM % Operating income (loss) as % of net sales 22.7 % (13.3) % The improved operating results forTommy Bahama in the Second Quarter of Fiscal 2021 were due to higher sales, improved gross margin and increased royalty income partially offset by increased SG&A. The increased SG&A was primarily due to (1)$16 million of increased employment costs, including$3 million of increased incentive compensation, (2)$4 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies and other expenses, (3)$2 million of higher occupancy costs, primarily resulting from increased costs for utilities, maintenance and related expenses as direct to consumer locations were open for the full quarter in Fiscal 2021, (4)$1 million of increased advertising expense, including higher spend on digital advertising partially offset by lower spend on printed catalog advertising. These increases were partially offset by a$2 million decrease in depreciation expense as the prior year included certain leasehold improvement and other
fixed
asset impairment charges.
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Lilly Pulitzer :
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 87,333 $ 73,860 $ 13,473 18.2 %
Gross profit $ 61,865 $ 44,053 $ 17,812 40.4 %
Gross margin 70.8 % 59.6 %
Operating income $ 25,783 $ 16,264 $ 9,519 58.5 %
Operating income as % of net sales 29.5 % 22.0 %
Notable items included in amounts
above:
Amortization of Lilly Pulitzer
Signature Store intangible assets $ - $ 68
The increased operating income for Lilly Pulitzer in the Second Quarter of
Fiscal 2021 was primarily due to improved gross margin and higher sales
partially offset by increased SG&A. The increased SG&A was primarily due to (1)
$4 million of increased employment costs, including $1 million of increased
incentive compensation, (2) $3 million of higher advertising expense, and (3)
increases in variable and other expense items.
Southern Tide:
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 14,587 $ 8,812 $ 5,775 65.5 %
Gross profit $ 8,220 $ 2,975 $ 5,245 176.3 %
Gross margin 56.4 % 33.8 %
Operating income (loss) $ 2,950 $ (979) $ 3,929 NM %
Operating income (loss) as % of
net sales 20.2 % (11.1) %
Notable items included in
amounts above:
Amortization of Southern Tide
intangible assets $ 72 $ 72
The improved operating results for Southern Tide in the Second Quarter of Fiscal
2021 were primarily due to higher sales and higher gross margin, partially
offset by higher SG&A. The higher SG&A includes higher SG&A associated with the
Southern Tide retail store operations, advertising, incentive compensation
and
variable expenses.
Lanier Apparel:
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 8,492 $ 8,450 $ 42 0.5 %
Gross profit $ 5,766 $ 1,548 $ 4,218 272.5 %
Gross margin 67.9 % 18.3 %
Operating income (loss) $ 850 $ (6,134) $ 6,984 NM %
Operating income (loss) as % of
net sales 10.0 % (72.6) %
Notable items included in
amounts above:
Lanier Apparel exit charges in
cost of goods sold $ (2,600) $ -
Lanier Apparel exit charges in
SG&A $ 2,414 $ -
In the Third Quarter of Fiscal 2020, we decided to exit our Lanier Apparel business. The exit of the Lanier Apparel business is expected to be completed during the Second Half of Fiscal 2021, with substantially all remaining inventory sold during the Third Quarter of Fiscal 2021. The improved operating results for Lanier Apparel in the Second Quarter of Fiscal 2021 were primarily due to improved gross margin, as discussed above, and lower SG&A. The lower SG&A was primarily due to the Second Quarter of Fiscal 2020 including$3 million of estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple Lanier Apparel customers as well as reductions in substantially all SG&A expense categories during the wind down phase of the business. These reductions 26
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in costs were partially offset by$2 million of Lanier Apparel exit charges included in SG&A which primarily consists of$2 million of charges associated with the termination of a Lanier Apparel license agreement and$1 million of employee charges, including severance and employee retention costs. TheLanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. Corporate and Other: Second Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 9,427 $ 5,612 $ 3,815 68.0 % Gross profit $ 400$ 2,575 $ (2,175) NM % Operating loss$ (8,911) $ (4,456) $ (4,455) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 4,354 $ (388) The lower operating results for Corporate and Other were primarily due to the$5 million unfavorable impact of LIFO accounting resulting from a$4 million charge in the Second Quarter of Fiscal 2021 and a$0 million credit in the Second Quarter of Fiscal 2020. Additionally, Corporate and Other SG&A increased primarily due to (1) increased incentive compensation expense of$2 million and (2) increased SG&A associated with our smaller businesses included in Corporate and Other. These items were partially offset by increased net sales in each of the businesses included in Corporate and Other. Interest expense, net Second Quarter Fiscal 2021 Fiscal 2020 $ Change % Change
Interest expense, net $ 211 $ 676$ (465)
(68.8) % The decreased interest expense in the Second Quarter of Fiscal 2021 was primarily due to the lack of debt outstanding in the Second Quarter of Fiscal 2021, while in the Second Quarter of Fiscal 2020, we had debt outstanding in order to maintain a certain level of cash on our balance sheet during the earlier stages of the COVID-19 pandemic. The interest expense in the Second Quarter of Fiscal 2021 primarily consists of unused line fees and amortization of deferred financing fees associated with our$325 million Fourth Amended and Restated Credit Agreement (as amended, the "U.S. Revolving Credit Agreement") partially offset by interest income earned on our cash amounts.
Income tax provision (benefit)
Second Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Income tax provision (benefit) $ 16,325 $ (2,606) $ 18,931 NM %
Effective tax rate 24.1 % 30.0 %
The income tax expense in the Second Quarter of Fiscal 2021 included the benefit
of the impact of restricted stock awards vesting at a price higher than the
grant date value and the utilization of certain net operating loss carryforward
amounts in certain state and foreign jurisdictions.
The income tax benefit in the Second Quarter of Fiscal 2020 included the benefit
of the operating losses that will be realized at a rate of 35% pursuant to the
CARES Act provision allowing the carryback of the Fiscal 2020 loss amounts to
pre-U.S. Tax Reform years, offset by the impact of changes in estimated book to
tax timing differences and certain discrete non-deductible items.
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Net earnings
Second Quarter
Fiscal 2021 Fiscal 2020
Net sales $ 328,672 $ 191,988
Operating income (loss) $ 67,996 $ (8,017)
Net earnings (loss) $ 51,460 $ (6,087)
Net earnings (loss) per diluted share $ 3.05 $ (0.37)
Weighted average shares outstanding -- diluted 16,859 16,547 The improved earnings per share in the Second Quarter of Fiscal 2021 are primarily a result of improved operating results in each of our operating groups as our operations continued to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020. These favorable items were partially offset by a larger operating loss in Corporate and Other. The earnings per share of$3.05 for the Second Quarter of Fiscal 2021 is higher than the earnings per share of$1.76 in the Second Quarter of Fiscal 2019. The higher earnings per share compared to the Second Quarter of Fiscal 2019 are primarily a result of increased operating income in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups partially offset by a higher operating loss in Corporate and Other. The increased operating income forTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily a result of improved gross margin and increased sales in each operating group, while the higher operating loss in Corporate and Other was primarily due to the unfavorable impact of LIFO accounting.
FIRST HALF OF FISCAL 2021 COMPARED TO FIRST HALF OF FISCAL 2020
The discussion and tables below compare our statements of operations for the
First Half of Fiscal 2021 to the First Half of Fiscal 2020, except as otherwise
noted. 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:
First Half
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 594,434 100.0 % $ 352,331 100.0 % $ 242,103 68.7 %Cost of goods sold 218,223 36.7 % 153,520 43.6
% 64,703 42.1 % Gross profit$ 376,211 63.3 %$ 198,811 56.4 %$ 177,400 89.2 % SG&A 283,492 47.7 % 238,664 67.7 % 44,828 18.8 % Impairment of goodwill and intangible assets - - % 60,452 17.2 % (60,452) (100.0) % Royalties and other operating income 10,170 1.7 % 6,799 1.9 % 3,371 49.6 %
Operating income (loss)$ 102,889 17.3 %$ (93,506) (26.5) %$ 196,395 NM % Interest expense, net 463 0.1 % 1,334 0.4 % (871) (65.3) % Earnings (loss) before income taxes$ 102,426 17.2 %$ (94,840) (26.9) %$ 197,266 NM % Income tax provision (benefit) 22,498 3.8 % (21,969) (6.2) % 44,467 NM % Net earnings (loss)$ 79,928 13.4 %$ (72,871) (20.7) %$ 152,799 NM % 28 Table of Contents Net Sales First Half Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 365,531 $ 182,238 $ 183,293 100.6 %Lilly Pulitzer 160,909 123,009 37,900 30.8 % Southern Tide 30,053 17,113 12,940 75.6 % Lanier Apparel 20,511 19,175 1,336 7.0 % Corporate and Other 17,430 10,796 6,634 61.4 % Consolidated net sales$ 594,434 $ 352,331 $ 242,103 68.7 %
Consolidated net sales increased$242 million , or 69%, in the First Half of Fiscal 2021, including increases in each channel of distribution and each operating group, as our operations continue to recover from the impact of the COVID-19 pandemic which resulted in temporary store closures and reduced traffic in Fiscal 2020, and consumers become increasingly more comfortable returning to physical shopping. The increase in net sales included increases in (1) full-price retail sales of$124 million , or 168%, (2) wholesale sales of$53 million , or 63%, (3) full-price e-commerce sales of$33 million , or 23%, (4) restaurant sales of$31 million , or 152%, and (5) outlet sales of$16 million , or 118%. These increases were partially offset by a$15 million decrease in e-commerce flash clearance sales asLilly Pulitzer did not have an e-commerce flash clearance sale in the First Half of Fiscal 2021 after having an e-commerce flash clearance sale in the First Half of Fiscal 2020. The changes in net sales by operating group are discussed below. While we had substantial net sales growth in the First Half of Fiscal 2021 compared to the First Half of Fiscal 2020, net sales were$10 million , or 2%, higher than the$584 million of net sales in the First Half of Fiscal 2019. The higher net sales compared to the First Half of Fiscal 2019 include increases inTommy Bahama ,Lilly Pulitzer , Southern Tide and Corporate and Other partially offset by lower sales in Lanier Apparel. The higher net sales included increases in (1) full-price e-commerce sales of$61 million , or 51%, with increases in each of our brands, and (2) restaurant sales of$7 million , or 16%, resulting from the sales at additionalTommy Bahama Marlin Bars and increased sales in existingTommy Bahama food and beverage locations that have reopened. These increases were partially offset by decreases in (1) Lanier Apparel sales of$26 million , or 56%, (2) sales of our non-Lanier Apparel wholesale businesses of$17 million , or 13%, with reductions inTommy Bahama ,Lilly Pulitzer and Southern Tide, partially offset by increases in our smaller brands, (3) full-price retail sales of$13 million , or 6%, with reductions in bothTommy Bahama andLilly Pulitzer resulting from lower sales in existing locations as well as fewer locations, partially offset by an increase in Southern Tide, and (4) outlet sales of$1 million , or 4%.
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
First Half
Fiscal 2021 Fiscal 2020
Retail 38 % 25 %
E-commerce 30 % 45 %
Restaurant 9 % 6 %
Wholesale 23 % 24 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales increased $183 million , or 101%, in the First Half of
Fiscal 2021. The increase in net sales in Tommy Bahama included increases in (1)
full-price retail sales of $85 million , or 165%, (2) wholesale sales of $31
million , or 116%, with increases in both full-price and off-price sales, (3)
restaurant sales of $31 million , or 152%, including higher sales at existing
locations and sales at our additional Tommy Bahama Marlin Bar locations,
partially offset by lower sales at the Tommy Bahama New York restaurant which
has not yet reopened, (4) e-commerce sales of
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$20 million , or 29%, and (5) outlet store sales of$16 million , or 118%. The following table presents the proportion of net sales by distribution channel forTommy Bahama for each period presented: First Half Fiscal 2021 Fiscal 2020 Retail 45 % 35 % E-commerce 25 % 39 % Restaurant 14 % 11 % Wholesale 16 % 15 % Total 100 % 100 %Lilly Pulitzer :Lilly Pulitzer net sales increased$38 million , or 31%, in the First Half of Fiscal 2021. The increase in net sales inLilly Pulitzer included increases in (1) retail sales of$37 million , or 169%, (2) full-price e-commerce sales of$9 million , or 14%, and (3) wholesale sales of$7 million , or 27%, with increases in both full-price and off-price wholesale sales. These increases were partially offset by a$15 million decrease in e-commerce flash clearance sales asLilly Pulitzer did not have an e-commerce flash clearance sale in the First Half of Fiscal 2021 after having an e-commerce flash clearance sale in the First Half of Fiscal 2020. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: First Half Fiscal 2021 Fiscal 2020 Retail 37 % 18 % E-commerce 44 % 62 % Wholesale 19 % 20 % Total 100 % 100 % Southern Tide: Southern Tide net sales increased$13 million , or 76%, in the First Half of Fiscal 2021. The increase in net sales in Southern Tide included increases in (1) wholesale sales of$10 million , or 87%, (2) e-commerce sales of$2 million , or 32%, and (3) retail sales of$2 million , primarily due to the sales at additional Southern Tide retail stores. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented: First Half Fiscal 2021 Fiscal 2020 Retail 6 % 3 % E-commerce 25 % 32 % Wholesale 69 % 65 % Total 100 % 100 % Lanier Apparel: Lanier Apparel net sales increased$1 million , or 7%, in the First Half of Fiscal 2021 as we exit the Lanier Apparel business in Fiscal 2021. We expect to liquidate substantially all of the remaining Lanier Apparel inventory during the Third Quarter of Fiscal 2021.
Corporate and Other:
Corporate and Other net sales increased$7 million , or 61%, in the First Half of Fiscal 2021 including increased sales in each of our smaller brands included in Corporate and Other. 30 Table of Contents Gross Profit
The tables below present gross profit by operating group and in total for the First Half of Fiscal 2021 and the First Half of Fiscal 2020, as well as the change between those two periods and gross margin by operating group and in total. Gross margin is calculated as gross profit divided by net sales.
First Half
Fiscal 2021 Fiscal 2020 $ Change % Change
Tommy Bahama $ 234,908 $ 105,267 $ 129,641 123.2 %
Lilly Pulitzer 113,050 75,752 37,298 49.2 %
Southern Tide 16,458 4,514 11,944 264.6 %
Lanier Apparel 10,060 4,395 5,665 128.9 %
Corporate and Other 1,735 8,883 (7,148) NM %
Consolidated gross profit $ 376,211 $ 198,811 $ 177,400 89.2 %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ 7,419 $ (3,642)
Lanier Apparel exit charges in cost
of goods sold $ (2,142) $ -
First Half
Fiscal 2021 Fiscal 2020
Tommy Bahama 64.3 % 57.8 %
Lilly Pulitzer 70.3 % 61.6 %
Southern Tide 54.8 % 26.4 %
Lanier Apparel 49.0 % 22.9 %
Corporate and Other NM % NM %
Consolidated gross margin 63.3 % 56.4 %
The increase in consolidated gross profit in the First Half of Fiscal 2021 was primarily due to the higher net sales as well as higher gross margin, with gross margin improvement in each operating group. The higher consolidated gross margin was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the First Half of Fiscal 2021, (2) improved initial product margins and (3) a change in sales mix asLilly Pulitzer e-commerce flash clearance sales and Lanier Apparel sales represented a smaller proportion of net sales. These items that favorably impacted gross margin were partially offset by an$11 million unfavorable impact of LIFO accounting and increased freight rates associated with shipping our products from our vendors and shipping our products to our stores and e-commerce customers. During the First Half of Fiscal 2021, we reduced inventory markdowns by$6 million , due, in part, to the sale of previously marked down inventory and a$3 million reduction to Lanier Apparel inventory markdown reserves, which was offset by a$7 million LIFO accounting charge in Corporate and Other. In the First Half of Fiscal 2020, we recognized$7 million of inventory markdowns and a$4 million LIFO accounting credit. The consolidated gross margin in the First Half of Fiscal 2021 also exceeded the consolidated gross margin in the First Half of Fiscal 2019 of 59.2%. The improved consolidated gross margin in the First Half of Fiscal 2021 compared to the First Half of Fiscal 2019 was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the First Half of Fiscal 2021, (2) improved initial product margins and (3) a change in sales mix as direct to consumer sales represented a larger proportion of net sales in the First Half of Fiscal 2021, while wholesale sales in our brands and Lanier Apparel represented a smaller proportion of net sales. These items that favorably impacted gross margin were partially offset by an unfavorable impact of LIFO accounting, with the First Half of Fiscal 2021 including a$7 million LIFO accounting charge compared to a$1 million LIFO accounting charge in the First Half of Fiscal 2019 and increased freight rates.
The improved gross margin forTommy Bahama was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, with the amounts in the prior period having a more significant gross margin impact on the much lower net sales in that period, and (2) improved initial product margin reflecting a combination of 31 Table of Contents
increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight rates.
The improved gross margin forLilly Pulitzer was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, (2) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs, and (3) a change in sales mix as full-price direct to consumer sales represented a larger proportion of sales in the First Half of Fiscal 2021 as there were no e-commerce flash clearance sales in the First Half of Fiscal 2021. These items that favorably impacted gross margin were partially offset by increased freight rates.
Southern Tide:
The improved gross margin for Southern Tide was primarily due to (1) more full-price selling and less inventory markdowns, with the higher amounts in the prior period having a more significant gross margin impact on the much lower net sales in that period, and (2) less off-price wholesale sales in the First Half of Fiscal 2021. These items that favorably impacted gross margin were partially offset by increased freight rates.
Lanier Apparel:
The improved gross margin for Lanier Apparel in the First Half of Fiscal 2021 was primarily due to a$3 million reduction in inventory markdowns in the First Half of Fiscal 2021 as we have disposed of and anticipate disposing of the remaining Lanier Apparel inventory at higher gross margins than previously estimated.
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 driver for the lower gross profit was the$11 million net unfavorable impact of LIFO accounting with a$7 million LIFO accounting charge in the First Half of Fiscal 2021 and a$4 million LIFO accounting credit in the First Half of Fiscal 2020. The unfavorable impact of LIFO accounting was partially offset by 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 was ultimately sold or (2) a credit in Corporate and Other when inventory had been marked down to the estimated net realizable value in an operating group in the current period but had not been sold as of period end. SG&A First Half Fiscal 2021 Fiscal 2020 $ Change % Change SG&A$ 283,492 $ 238,664 $ 44,828 18.8 % SG&A (as a % of net sales) 47.7 % 67.7 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 136 Amortization of Southern Tide intangible assets $ 144 $ 144 Lanier Apparel exit charges in SG&A$ 3,229 $ - The higher SG&A in the First Half of Fiscal 2021 was primarily due to the impact of the COVID-19 pandemic on our operations in the First Half of Fiscal 2020. The higher SG&A included (1) increased employment costs of$36 million , including increased incentive compensation totaling$16 million and$2 million ofLanier Apparel exit charges primarily consisting of stay bonus and severance amounts, (2) a$9 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, and other expenses, (3) a$4 million increase in advertising expense, (4) a$3 million increase in occupancy expense, primarily resulting from increased costs for utilities, 32
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maintenance and related expenses as direct to consumer locations were open for the full period in Fiscal 2021 and (5)$2 million of contract termination charges associated with the Lanier Apparel exit. These increases were partially offset by (1) a$6 million decrease in estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers, and (2) a$3 million decrease in depreciation expense, as the prior year included certain leasehold improvement and other fixed asset impairment charges. SG&A for the First Half of Fiscal 2021 was comparable to the$283 million of SG&A in the First Half of Fiscal 2019. The comparable SG&A includes (1) a$10 million decrease in employment cost, excluding incentive compensation, resulting from employee headcount reduction and other initiatives implemented in Fiscal 2020 in response to the COVID-19 pandemic, (2) a$4 million reduction in occupancy expenses due to fewer stores and the favorable impact of certain concessions with landlords that are amortized over the remaining lease term, and (3) a$3 million reduction in travel expense. These decreases were partially offset by (1) a$12 million increase in incentive compensation, (2) a$4 million increase in variable expenses, including credit card transaction fees, supplies and other expenses, (3) a$2 million increase in advertising expense, and (4)$2 million of contract termination charges associated with the Lanier Apparel exit.
Impairment of goodwill and intangible assets
There were no impairment charges for goodwill or intangible assets in the First Half of Fiscal 2021. However, in the First Half of Fiscal 2020, impairment charges for goodwill and intangible assets totaling$60 million were recognized in Southern Tide. In addition, in the First Half of Fiscal 2020, 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 4 in the notes to the consolidated financial statements in our Fiscal 2020 Form 10-K for additional information about the impairment charges.
Royalties and other operating income
First Half
Fiscal 2021 Fiscal 2020 $ Change % ChangeRoyalties and other operating income$ 10,170 $ 6,799 $
3,371 49.6 % Royalties and other operating income primarily reflects income received from third parties from the licensing of our brands. The increased royalties and other income in the First Half of Fiscal 2021 was primarily due to increased royalty income inTommy Bahama partially offset by decreased royalty income
inLilly Pulitzer . 33 Table of Contents Operating income (loss) First Half Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 67,984 $ (36,074) $ 104,058 NM %Lilly Pulitzer 45,728 20,410 25,318 124.0 % Southern Tide 6,203 (64,345) 70,548 NM % Lanier Apparel 1,705 (8,771) 10,476 NM % Corporate and Other (18,731) (4,726) (14,005) NM % Consolidated Operating Income (Loss)$ 102,889 $ (93,506) $ 196,395 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 7,419 $ (3,642) Lanier Apparel exit charges in cost of goods sold$ (2,142) $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 136 Amortization of Southern Tide intangible assets $ 144 $ 144 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 Lanier Apparel intangible asset impairment charge $ - $ 207 Lanier Apparel exit charges in SG&A$ 3,229 $ - The improved operating results in the First Half of Fiscal 2021 were due to (1) the improved operating results in each of our operating groups and (2) no impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2020. These items were partially offset by a higher operating loss in Corporate and Other. Changes in operating income (loss) by operating group are discussed below. Operating income in the First Half of Fiscal 2021 of$196 million exceeded the$70 million of operating income in the First Half of Fiscal 2019 primarily due to higher gross margin, net sales and royalty income. Operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide each increased from the First Half of Fiscal 2019, which was partially offset by a higher operating loss in Corporate and Other. Tommy Bahama: First Half Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 365,531 $ 182,238 $ 183,293 100.6 % Gross profit$ 234,908 $ 105,267 $ 129,641 123.2 % Gross margin 64.3 % 57.8 % Operating income (loss)$ 67,984 $ (36,074) $ 104,058 NM % Operating income (loss) as % of net sales 18.6 % (19.8) %
The improved operating results forTommy Bahama in the First Half of Fiscal 2021 were due to higher sales, improved gross margin and increased royalty income partially offset by increased SG&A. The increased SG&A was primarily due to (1)$22 million of increased employment costs, including$7 million of increased incentive compensation, (2)$6 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies, and other expenses, and (3)$2 million of higher occupancy costs, primarily resulting from increased costs for utilities, maintenance and related expenses as direct to consumer locations were open for the full period in Fiscal 2021. These increases were partially offset by a$2 million decrease in depreciation expense as the prior year included certain leasehold improvement and other fixed asset impairment charges. 34 Table of ContentsLilly Pulitzer : First Half Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 160,909 $ 123,009 $ 37,900 30.8 % Gross profit$ 113,050 $ 75,752 $ 37,298 49.2 % Gross margin 70.3 % 61.6 % Operating income$ 45,728 $ 20,410 $ 25,318 124.0 % Operating income as % of net sales 28.4 % 16.6 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 136 The increased operating income forLilly Pulitzer in the First Half of Fiscal 2021 was primarily due to higher sales and improved gross margin partially offset by increased SG&A. The increased SG&A was primarily due to (1)$6 million of increased employment costs, including$3 million of increased incentive compensation, (2)$4 million of higher advertising expense, and (3)$2 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies and other expenses. Southern Tide: First Half Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 30,053 $ 17,113 $ 12,940 75.6 % Gross profit$ 16,458 $ 4,514 $ 11,944 264.6 % Gross margin 54.8 % 26.4 % Operating income (loss)$ 6,203 $ (64,345) $ 70,548 NM % Operating income (loss) as % of net sales 20.6 % (376.0) % Notable items included in amounts above: Amortization of Southern Tide intangible assets $ 144 $ 144 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 The improved operating results for Southern Tide in the First Half of Fiscal 2021 were primarily due to no impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2021 compared to$60 million of impairment charges in the First Half of Fiscal 2020. Additionally, the operating results of Southern Tide improved due to higher sales and higher gross margin, partially offset by higher SG&A. The higher SG&A includes higher SG&A associated with the Southern Tide retail store operations, incentive compensation amounts, advertising expense and variable expenses partially offset by a decrease in
provisions for credit losses.
35
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Lanier Apparel:
First Half
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 20,511 $ 19,175 $ 1,336 7.0 %
Gross profit $ 10,060 $ 4,395 $ 5,665 128.9 %
Gross margin 49.0 % 22.9 %
Operating income (loss) $ 1,705 $ (8,771) $ 10,476 NM %
Operating income (loss) as % of
net sales 8.3 % (45.7) %
Notable items included in
amounts above:
Lanier Apparel exit charges in
cost of goods sold $ (2,142) $ -
Lanier Apparel intangible asset
impairment charge $ - $ 207
Lanier Apparel exit charges in
SG&A $ 3,229 $ -
In the Third Quarter of Fiscal 2020, we decided to exit our Lanier Apparel business. The exit of the Lanier Apparel business is expected to be completed during the Second Half of Fiscal 2021. The improved operating results forLanier Apparel in the First Half of Fiscal 2021 were primarily due to higher gross margin and lower SG&A. The lower SG&A was primarily due to the First Half of Fiscal 2020 including$3 million of estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple Lanier Apparel customers as well as reductions in substantially all SG&A expense categories during the wind down phase of the business. These reductions in costs were partially offset by$3 million of Lanier Apparel exit charges included in SG&A which primarily consists of$2 million of charges associated with the termination of a Lanier Apparel license agreement and$2 million of employee charges, including severance and employee retention costs. The Lanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. Corporate and Other: First Half Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 17,430 $ 10,796 $ 6,634 61.4 % Gross profit$ 1,735 $ 8,883 $ (7,148) NM % Operating loss$ (18,731) $ (4,726) $ (14,005) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 7,419 $ (3,642) The lower operating results for Corporate and Other were primarily due to the$11 million unfavorable impact of LIFO accounting resulting from a$7 million charge in the First Half of Fiscal 2021 and a$4 million credit in the First Half of Fiscal 2020. Additionally, Corporate and Other SG&A increased primarily due to (1) increased incentive compensation expense of$5 million and (2) increased SG&A associated with our smaller businesses included in Corporate and Other. These items were partially offset by increased net sales in each of the businesses included in Corporate and Other. Interest expense, net First Half Fiscal 2021 Fiscal 2020 $ Change % Change Interest expense, net $ 463$ 1,334 $ (871) (65.3) % The decreased interest expense in the First Half of Fiscal 2021 was primarily due to the lack of debt outstanding in the First Half of Fiscal 2021, while in the First Half of Fiscal 2020, we had debt outstanding in order to maintain a certain level of cash on our balance sheet during the earlier stages of the COVID-19 pandemic. The interest expense in the First Half of Fiscal 2021 primarily consists of unused line fees and amortization of deferred financing fees associated with our$325 million Fourth Amended and Restated Credit Agreement (as amended, the "U.S. Revolving Credit Agreement") partially offset by interest income earned on our cash. 36
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Income tax provision (benefit)
First Half
Fiscal 2021 Fiscal 2020 $ Change % Change
Income tax provision (benefit) $ 22,498 $ (21,969) $ 44,467 NM %
Effective tax rate 22.0 % 23.2 %
The income tax expense in the First Half 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 during the period as well as
other favorable items including the recognition of certain tax credit amounts,
the impact of restricted stock awards vesting at a price higher than the grant
date value, and the utilization of certain net operating loss carryforward
amounts in certain state and foreign jurisdictions. These favorable items were
partially offset by certain unfavorable permanent items which are not deductible
for income tax purposes. The net impact of these items results in a lower
effective tax rate than the more typical 25% to 26% annual effective tax rate of
Fiscal 2018 and Fiscal 2019, respectively.
The income tax benefit in the First Half of Fiscal 2020 included the benefit of
the operating losses that will be realized at a rate of 35% pursuant to the
CARES Act provision allowing the carryback of the Fiscal 2020 loss amounts to
pre-U.S. Tax Reform years, offset by (1) the non-deductibility of certain
impairment charges which resulted in an estimated effective tax rate of 17% on
the impairment charges, and (2) the impact of restricted stock awards vesting at
a price lower than the grant date value.
Income tax expense is also discussed in Note 5 in the unaudited condensed consolidated financial statements included in this report.
Net earnings
First Half
Fiscal 2021 Fiscal 2020
Net sales $ 594,434 $ 352,331
Operating income (loss) $ 102,889 $ (93,506)
Net earnings (loss) $ 79,928 $ (72,871)
Net earnings (loss) per diluted share $ 4.75 $ (4.40)
Weighted average shares outstanding -- diluted 16,825 16,580 The improved earnings per share in the First Half of Fiscal 2021 are primarily a result of (1) improved operating results in each of our operating groups as our operations continue to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020 and (2) the absence of impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Half of Fiscal 2020. These favorable items were partially offset by a larger operating loss in Corporate and Other. The earnings per share of$4.75 for the First Half of Fiscal 2021 is higher than the earnings per share of$3.05 in the First Half of Fiscal 2019. The higher earnings per share compared to the First Half of Fiscal 2019 are primarily a result of increased operating income in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups partially offset by a higher operating loss in Corporate and Other. The increased operating income forTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily a result of improved gross margin and increased sales in each operating group. 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 and 37
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our other brands. 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 branded apparel products 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 periodic payment of interest, if any, and other payments related to our financing arrangements. Additionally, we use cash for the funding of capital expenditures and other investing activities, 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. We believe our future cash flow from operating activities, our$180 million of cash and cash equivalents asJuly 31, 2021 , and, if necessary, borrowings under ourU.S. Revolving Credit Agreement will provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives in both the near term and long term. We may fund future cash requirements through various methods, including cash on hand, cash flow from operations, borrowings under our current or additional credit facilities, and sales of debt or equity securities. Key Liquidity Measures July 31, January 30, August 1, February 1, ($ in thousands) 2021 2021 2020 2020 Total current assets$ 349,046 $ 258,316 $ 298,417 $ 288,826 Total current liabilities$ 220,184 $ 196,252 $ 173,701 $ 177,779 Working capital$ 128,862 $ 62,064 $ 124,716 $ 111,047 Working capital ratio 1.59 1.32 1.72 1.62
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofJuly 31, 2021 , increased fromAugust 1, 2020 due to increased cash and receivables partially offset by lower inventories. Current liabilities as ofJuly 31, 2021 increased fromAugust 1, 2020 primarily due to higher accrued expenses and other liabilities, accrued compensation and accounts payable partially offset by a decrease in current portion of operating lease liabilities.
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 ofJuly 31, 2021 as compared toAugust 1, 2020 .
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