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 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 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 consists 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 were 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
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. 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.
Many of these changes in the industry were accelerated or exacerbated by the
COVID-19 pandemic. While this competition and evolution presents significant
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risks, especially for traditional retailers who fail or are unable to adapt, we
believe it also presents a tremendous opportunity for brands and retailers to
capitalize on the changing consumer environment.
We believe our lifestyle brands have true competitive advantages 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
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 early
March 2020 and temporarily closed all our retail and restaurant locations with
all locations being closed for about half of the First Quarter of Fiscal 2020.
We began reopening our stores and restaurants in early May 2020 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.
Most 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, and locations in the southern
United States have performed better than locations in the northern United
States . 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 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. 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 such charges in the First Quarter 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 Quarter of Fiscal 2021, we currently expect to incur incremental Lanier Apparel exit charges totaling approximately$3 million , which are expected to consist of additional employee charges for employees retained during the exit and the acceleration of certain post-exit contractual commitments. Key Operating Results: 17 Table of Contents The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First Quarter of Fiscal 2021 compared to the First Quarter of Fiscal 2020 First Quarter Fiscal 2021 Fiscal 2020 Net sales$ 265,762 $ 160,343 Operating income (loss)$ 34,893 $ (85,489) Net earnings (loss)$ 28,468 $ (66,784) Net earnings (loss) per diluted share$ 1.70 $
(4.02)
Weighted average shares outstanding -- diluted 16,792 16,612 The improved earnings per share in the First Quarter of Fiscal 2021 are primarily a result of (1) the absence of impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2020, (2) improved operating results in each operating group resulting from higher sales and higher gross margin partially offset by higher SG&A and (3) a favorable effective tax rate in the First Quarter of Fiscal 2021. These favorable items were partially offset by a larger operating loss in Corporate and Other. The earnings per share of$1.70 is higher than the earnings per share of$1.29 in the First Quarter of Fiscal 2019. The higher earnings per share compared to the First Quarter of Fiscal 2019 are a result of higher gross margin, lower SG&A, increased royalty income and a lower effective tax rate partially offset by the impact of lower net sales. 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 12 months or less. 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 ,California andCanada , were required to close again for certain periods in Fiscal 2020 and early Fiscal 2021 after local jurisdictions reinstated some closure requirements. Most 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. May 1, January 30, May 2, February 1, 2021 2021 2020 2020 Tommy Bahama retail stores 104 105 110 111
Tommy Bahama retail-restaurant locations 21 20 18 16 Tommy Bahama outlets 35 35 35 35 Total Tommy Bahama locations 160 160 163 162Lilly Pulitzer retail stores 59 59 61 61 Southern Tide retail stores 4 3
1 1
Total Oxford locations 223 222 225 224
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 2021 COMPARED TO FIRST QUARTER OF FISCAL 2020
The discussion and tables below compare our statements of operations for the
First Quarter of Fiscal 2021 to the First Quarter of Fiscal 2020. 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:
First Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Net sales $ 265,762 100.0 % $ 160,343 100.0 % $ 105,419 65.7 %Cost of goods sold 99,177 37.3 % 66,269 41.3
% 32,908 49.7 % Gross profit$ 166,585 62.7 %$ 94,074 58.7 %$ 72,511 77.1 % SG&A 137,125 51.6 % 123,001 76.7 % 14,124 11.5 % Impairment of goodwill and intangible assets - - % 60,452 37.7 % (60,452) 100.0 % Royalties and other operating income 5,433 2.0 % 3,890 2.4 % 1,543 39.7 %
Operating income (loss)$ 34,893 13.1 %$ (85,489) (53.3) %$ 120,382 NM % Interest expense, net 252 0.1 % 658 0.4 % (406) (61.7) % Earnings (loss) before income taxes$ 34,641 13.0 %$ (86,147) (53.7) %$ 120,788 NM % Income tax provision (benefit) 6,173 2.3 % (19,363) (12.1) % 25,536 NM % Net earnings (loss)$ 28,468 10.7 %$ (66,784) (41.7) %$ 95,252 NM % Net Sales First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 156,698 $ 86,984 $ 69,714 80.1 %Lilly Pulitzer 73,576 49,149 24,427 49.7 % Southern Tide 15,466 8,301 7,165 86.3 % Lanier Apparel 12,019 10,725 1,294 12.1 % Corporate and Other 8,003 5,184 2,819 54.4 % Consolidated net sales$ 265,762 $ 160,343 $ 105,419 65.7 %
Consolidated net sales increased$105 million , or 66%, in the First Quarter 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 and consumers become increasingly more comfortable returning to physical shopping after our retail stores, restaurants and wholesale accounts were closed for approximately half of the First Quarter of Fiscal 2020 due to the impact of the COVID-19 pandemic. The increase in net sales included increases in (1) full-price retail sales of$40 million , or 99%, (2) wholesale sales of$25 million , or 52%, (3) e-commerce sales of$21 million , or 38%, (4) restaurant sales of$13 million , or 114%, and (5) outlet sales of$6 million , or 110%. The changes in net sales by operating group are discussed below. While we had substantial net sales growth in the First Quarter of Fiscal 2021 compared to the First Quarter of Fiscal 2020, net sales were$16 million , or 6%, lower than net sales in the First Quarter of Fiscal 2019 including decreases in (1) full-price retail sales of$15 million , or 15%, with reductions in bothTommy Bahama andLilly Pulitzer , (2) Lanier Apparel sales, substantially all of which is wholesale sales, of$14 million , or 54%, (3) sales for our non-Lanier Apparel wholesale businesses of$13 million , or 18%, with reductions inTommy Bahama ,Lilly Pulitzer and Southern Tide, and (4) outlet sales of$2 million , or 16%. These decreases were partially offset by increases in (1) e-commerce sales of$26 million , or 55%, with increases in each of our brands, and (2) restaurant sales of$2 million , or 7%, resulting from the additional sales of newTommy Bahama Marlin Bars exceeding lower sales in existingTommy Bahama food and beverage locations. The lower sales compared to the First Quarter of Fiscal 2019 include reductions in Lanier Apparel andTommy Bahama partially offset by higher sales in each of our other businesses. 19
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The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
First Quarter
Fiscal 2021 Fiscal 2020
Retail 34 % 28 %
E-commerce 28 % 34 %
Restaurant 10 % 7 %
Wholesale 28 % 31 %
Total 100 % 100 %
Tommy Bahama:
Tommy Bahama net sales increased $70 million , or 80%, in the First Quarter of
Fiscal 2021. The increase in net sales in Tommy Bahama included increases in (1)
full-price retail sales of $26 million , or 90%, (2) restaurant sales of $13
million , or 114%, including higher sales at existing locations and the impact of
our new Tommy Bahama Marlin Bar locations, (3) wholesale sales of $13 million ,
or 78%, with increases in both full-price and off-price wholesale sales, (4)
e-commerce sales of $11 million , or 47%, and (5) outlet store sales of $6
million , or 108%. The following table presents the proportion of net sales by
distribution channel for Tommy Bahama for each period presented:
First Quarter
Fiscal 2021 Fiscal 2020
Retail 42 % 39 %
E-commerce 23 % 28 %
Restaurant 16 % 13 %
Wholesale 19 % 20 %
Total 100 % 100 %
Lilly Pulitzer :
Lilly Pulitzer net sales increased $24 million , or 50%, in the First Quarter of
Fiscal 2021. The increase in net sales in Lilly Pulitzer included increases in
(1) retail sales of $14 million , or 116%, (2) e-commerce sales of $7 million , or
28%, and (3) wholesale sales of $4 million , or 32%, with increases in both
full-price and off-price wholesale sales. The following table presents the
proportion of net sales by distribution channel for Lilly Pulitzer for each
period presented:
First Quarter
Fiscal 2021 Fiscal 2020
Retail 35 % 24 %
E-commerce 42 % 50 %
Wholesale 23 % 26 %
Total 100 % 100 %
Southern Tide:
Southern Tide net sales increased $7 million , or 86%, in the First Quarter of
Fiscal 2021. The increase in net sales in Southern Tide included increases in
(1) wholesale sales of $5 million , or 81%, (2) e-commerce sales of $1 million ,
or
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69%, and (3) retail sales of
First Quarter
Fiscal 2021 Fiscal 2020
Retail 5 % 1 %
E-commerce 19 % 21 %
Wholesale 76 % 78 %
Total 100 % 100 %
Lanier Apparel:
Lanier Apparel net sales increased $1 million , or 12%, in the First Quarter of
Fiscal 2021 as wholesale accounts increased their purchases of tailored clothing
products.
Corporate and Other:
Corporate and Other net sales increased $3 million , or 54%, in the First Quarter
of Fiscal 2021 including increased sales in each of our smaller brands included
in Corporate and Other.
Gross Profit
The tables below present gross profit by operating group and in total for the
First Quarter of Fiscal 2021 and the First Quarter of Fiscal 2020, as well as
the change between those two periods and gross margin by operating group and in
total. Our gross profit and gross margin, which is calculated as gross profit
divided by net sales, may not be directly comparable to those of our
competitors, as the statement of operations classification of certain expenses
may vary by company.
First Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Tommy Bahama $ 101,533 $ 51,680 $ 49,853 96.5 %
Lilly Pulitzer 51,185 31,699 19,486 61.5 %
Southern Tide 8,238 1,539 6,699 435.3 %
Lanier Apparel 4,294 2,847 1,447 50.8 %
Corporate and Other 1,335 6,309 (4,974) NM %
Consolidated gross profit $ 166,585 $ 94,074 $ 72,511 77.1 %
Notable items included in amounts
above:
LIFO adjustments in Corporate and
Other $ 3,065 $ (3,254)
Lanier Apparel exit charges in cost
of goods sold $ 458 $ -
First Quarter
Fiscal 2021 Fiscal 2020
Tommy Bahama 64.8 % 59.4 %
Lilly Pulitzer 69.6 % 64.5 %
Southern Tide 53.3 % 18.5 %
Lanier Apparel 35.7 % 26.5 %
Corporate and Other NM % NM %
Consolidated gross margin 62.7 % 58.7 %
The increase in consolidated gross profit in the First Quarter of Fiscal 2021
was primarily due to the higher net sales as well as higher gross margin,
resulting from improved gross margins in each operating group. The higher
consolidated gross margin was primarily due to (1) less inventory markdowns,
discounts, allowances and promotions in the First
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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 First Quarter of Fiscal 2021, while both 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. During the First Quarter of Fiscal 2021, we reduced inventory markdowns by$2 million , due, in part, to the sale of certain marked down inventory during the quarter, which was offset by a$3 million LIFO accounting charge in Corporate and Other. In the First Quarter of Fiscal 2020, we recognized$4 million of inventory markdowns and a$3 million LIFO accounting credit. The consolidated gross margin in the First Quarter of Fiscal 2021 also exceeded the consolidated gross margin in the First Quarter of Fiscal 2019 of 58.8%. The improved consolidated gross margin in the First Quarter of Fiscal 2021 compared to the First Quarter of Fiscal 2019 was primarily due to (1) less inventory markdowns, discounts, allowances and promotions in the First 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 First Quarter of Fiscal 2021, while both 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, which did not have a significant impact on the First Quarter of Fiscal 2019.Tommy Bahama :
The increase in gross margin forTommy Bahama includes higher gross margin in both the direct to consumer and wholesale channels of distribution. The improved gross margin was primarily due to (1) 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, (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 direct to consumer sales represented a larger proportion of sales in the First Quarter of Fiscal 2021.
The increase in gross margin forLilly Pulitzer includes higher gross margins in both the direct to consumer and wholesale channels of distribution. The improved gross margin was primarily due to (1) 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, (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 direct to consumer sales represented a larger proportion of sales in the First Quarter of Fiscal 2021.
Southern Tide:
The increase in gross margin for Southern Tide was primarily due to (1) 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, (2) less off-price wholesale sales in the First Quarter of Fiscal 2021 and (3) a change in sales mix as direct to consumer sales represented a larger proportion of sales in the First Quarter of Fiscal 2021.
Lanier Apparel:
The increase in gross margin for Lanier Apparel in the First Quarter of Fiscal 2021 was primarily due to lower inventory markdowns in the First Quarter of Fiscal 2021.
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$6 million net unfavorable impact of LIFO accounting with a$3 million LIFO accounting charge in the First Quarter of Fiscal 2021 and a$3 million LIFO accounting credit in the First Quarter of Fiscal 2020. The unfavorable impact of LIFO accounting was partially offset by higher net sales. The LIFO accounting impact in Corporate and Other 22
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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 Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
SG&A $ 137,125 $ 123,001 $ 14,124 11.5 %
SG&A (as a % of net sales) 51.6 % 76.7 %
Notable items included in amounts
above:
Amortization of Lilly Pulitzer
Signature Store intangible assets $ - $ 68
Amortization of Southern Tide
intangible assets $ 72 $ 72
Lanier Apparel exit charges in SG&A $ 815 $ -
The higher SG&A in the First Quarter of Fiscal 2021 was primarily due to (1)
increased employment costs of $13 million , including increased incentive
compensation totaling $10 million and the $1 million Lanier Apparel exit charges
primarily consisting of stay bonus and severance amounts and (2) a $5 million
increase in variable expenses related to higher sales, including credit card
transaction fees, supplies, commissions and other expenses. These increases were
partially offset by (1) a $3 million reduction in bad debt expense, (2) a $1
million decrease in depreciation expense, as the prior year included certain
retail store impairment charges, (3) a $1 million reduction in advertising
expense and (4) a $1 million decrease in product samples.
SG&A for the First Quarter of Fiscal 2021 decreased by $3 million from the $140
million of SG&A in the First Quarter of Fiscal 2019. The lower SG&A was
primarily due to (1) a $5 million decrease in employment costs resulting from
reductions in employee headcount that were implemented in Fiscal 2020 in
response to the COVID-19 pandemic, (2) a $1 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, (3) a $1
million reduction in travel expense, (4) a $1 million decrease in advertising
expense and (5) a $1 million reduction in variable expenses, including supplies,
commissions, shipping and other expenses. These decreases were partially offset
by a $7 million increase in incentive compensation.
Impairment of goodwill and intangible assets
There were no impairment charges for goodwill or intangible assets in the First Quarter of Fiscal 2021. However, in the First Quarter of Fiscal 2020, impairment charges for goodwill and intangible assets totaling$60 million were recognized in Southern Tide. In addition, in the First Quarter 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 Quarter
Fiscal 2021 Fiscal 2020 $ Change % ChangeRoyalties and other operating income$ 5,433 $ 3,890 $
1,543 39.7 % 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 Quarter of Fiscal 2021 was primarily due to increased royalty income inTommy Bahama . 23 Table of Contents Operating income (loss) First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 20,660 $ (23,362) $ 44,022 NM %Lilly Pulitzer 19,945 4,146 15,799 381.1 % Southern Tide 3,253 (63,366) 66,619 NM % Lanier Apparel 855 (2,637) 3,492 NM % Corporate and Other (9,820) (270) (9,550) NM % Consolidated Operating Income (Loss)$ 34,893 $ (85,489) $ 120,382 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 3,065 $ (3,254) Lanier Apparel exit charges in cost of goods sold $ 458 $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 Amortization of Southern Tide intangible assets $ 72 $ 72 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 Lanier Apparel exit charges in SG&A $ 815 $ - Lanier Apparel intangible asset impairment charge $ - $ 207 The improved operating results in the First Quarter of Fiscal 2021 were primarily due to (1) no impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2020 and (2) the higher net sales and improved gross margin in each operating group. These items were partially offset by (1) increased SG&A and (2) the unfavorable impact of LIFO accounting. Changes in operating income (loss) by operating group are discussed below. Operating income in the First Quarter of Fiscal 2021 exceeded the$30 million of operating income in the First Quarter of Fiscal 2019 primarily due to higher gross margin, lower SG&A and increased royalty income which offset the impact of lower net sales. Operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide each increased from the First Quarter of Fiscal 2019, which was partially offset by a higher operating loss in Corporate and Other and lower operating income in Lanier Apparel. Tommy Bahama: First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 156,698 $ 86,984 $ 69,714 80.1 % Gross profit$ 101,533 $ 51,680 $ 49,853 96.5 % Gross margin 64.8 % 59.4 % Operating income (loss)$ 20,660 $ (23,362) $ 44,022 NM % Operating income (loss) as % of net sales 13.2 % (26.9) % The improved operating results forTommy Bahama in the First Quarter of Fiscal 2021 were primarily due to higher sales and improved gross margin partially offset by increased SG&A. The increased SG&A was primarily due to (1)$7 million of increased employment costs, including$3 million of increased incentive compensation, (2)$3 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies, commissions and other expenses, and (3)$1 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. These increases were partially offset by (1) a$2 million decrease in advertising expense, reflecting less spend on printed catalog advertising partially offset by increased spend on digital advertising, (2) a$1 million decrease in provisions for credit losses and (3) a$1 million decrease in depreciation expense as the prior year included certain impairment charges related to retail store locations. 24 Table of ContentsLilly Pulitzer : First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 73,576 $ 49,149 $ 24,427 49.7 % Gross profit$ 51,185 $ 31,699 $ 19,486 61.5 % Gross margin 69.6 % 64.5 % Operating income$ 19,945 $ 4,146 $ 15,799 381.1 % Operating income as % of net sales 27.1 % 8.4 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 The increased operating income forLilly Pulitzer in the First Quarter 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)$2 million of increased employment costs, including$1 million of increased incentive compensation, (2)$1 million of higher advertising expense, and (3)$1 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies and other expenses. These increases were partially offset by a$1 million decrease in provisions for credit losses. Southern Tide: First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 15,466 $ 8,301 $ 7,165 86.3 % Gross profit$ 8,238 $ 1,539 $ 6,699 435.3 % Gross margin 53.3 % 18.5 % Operating income (loss)$ 3,253 $ (63,366) $ 66,619 NM % Operating income (loss) as % of net sales 21.0 % (763.4) % Notable items included in amounts above: Amortization of Southern Tide intangible assets $ 72 $ 72 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 The improved operating results for Southern Tide in the First Quarter of Fiscal 2021 were primarily due to no impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2021 compared to$60 million of impairment charges in the First Quarter 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 and variable expenses partially offset by a decrease in provisions for credit losses. 25 Table of Contents Lanier Apparel: First Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 12,019 $ 10,725 $ 1,294 12.1 % Gross profit$ 4,294 $ 2,847 $ 1,447 50.8 % Gross margin 35.7 % 26.5 %
Operating income (loss) $ 855$ (2,637) $ 3,492 NM % Operating income (loss) as % of net sales 7.1 % (24.6) % Notable items included in amounts above: Lanier Apparel exit charges in cost of goods sold $ 458 $
-
Lanier Apparel exit charges in SG&A $ 815 $
-
Lanier Apparel intangible asset impairment charge $ - $
207
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 Quarter of Fiscal 2021 were due to higher gross margin, lower SG&A and higher sales. The lower SG&A includes reductions in almost all SG&A categories as substantially all expenses for Lanier Apparel have been reduced during the ongoing wind down phase of the business. These reductions in costs were partially offset by$1 million of Lanier Apparel exit charges included in SG&A which primarily consists 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 Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 8,003 $ 5,184 $ 2,819 54.4 % Gross profit$ 1,335 $ 6,309 $ (4,974) NM % Operating loss$ (9,820) $ (270) $ (9,550) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 3,065 $ (3,254) The lower operating results for Corporate and Other were primarily due to the$6 million unfavorable impact of LIFO accounting resulting from a$3 million charge in the First Quarter of Fiscal 2021 and a$3 million credit in the First Quarter of Fiscal 2020. Additionally, Corporate and Other SG&A increased primarily due to (1) increased incentive compensation expense of$3 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 Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Interest expense, net $ 252 $ 658$ (406) (61.7) % The decreased interest expense in the First Quarter of Fiscal 2021 was primarily due to the lack of debt outstanding in the First Quarter of Fiscal 2021, while in the First 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 First 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"). 26
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Income tax (benefit) provision
First Quarter
Fiscal 2021 Fiscal 2020 $ Change % Change
Income tax provision (benefit) $ 6,173 $ (19,363) $ 25,536 NM %
Effective tax rate 17.8 % 22.5 %
The income tax expense in the First Quarter 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 quarter 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 2019 and Fiscal 2018.
The income tax benefit in the First 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 (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 Quarter
Fiscal 2021 Fiscal 2020
Net sales $ 265,762 $ 160,343
Operating income (loss) $ 34,893 $ (85,489)
Net earnings (loss) $ 28,468 $ (66,784)
Net earnings (loss) per diluted share $ 1.70 $ (4.02)
Weighted average shares outstanding -- diluted 16,792 16,612 The improved earnings per share in the First Quarter of Fiscal 2021 are primarily a result of (1) the absence of impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Quarter of Fiscal 2020, (2) improved operating results in each operating group resulting from higher sales and higher gross margin partially offset by higher SG&A and (3) a favorable effective tax rate in the First Quarter of Fiscal 2021. These favorable items were partially offset by a larger operating loss in Corporate and Other. The earnings per share of$1.70 for the First Quarter of Fiscal 2021 is higher than the earnings per share of$1.29 in the First Quarter of Fiscal 2019. The higher earnings per share compared to the First Quarter of Fiscal 2019 are a result of higher gross margin, lower SG&A, increased royalty income and a lower effective tax rate partially offset by the impact of lower net sales. 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 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 products in the operation of our business from third party contract 27 Table of Contents
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 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 and in our Fiscal 2020 Form 10-K. 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. As ofMay 1, 2021 , we had$92 million of cash and cash equivalents on hand, with no borrowings outstanding under ourU.S. Revolving Credit Agreement. As ofMay 1, 2021 , under ourU.S. Revolving Credit Agreement, we had$322 million of unused availability, which includes the majority of our cash and cash equivalents as eligible assets. We believe our future cash flow from operating activities, cash on hand and borrowings under ourU.S. Revolving Credit Agreement will provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives in both the
near
term and long term.
Key Liquidity Measures
May 1, January 30, May 2, February 1,
($ in thousands) 2021 2021 2020 2020
Total current assets $ 308,739 $ 258,316 $ 423,692 $ 288,826
Total current liabilities $ 225,090 $ 196,252 $ 153,127 $ 177,779
Working capital $ 83,649 $ 62,064 $ 270,565 $ 111,047
Working capital ratio 1.37 1.32 2.77 1.62Debt to total capital ratio - % - % 32 %
- %
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofMay 1, 2021 , decreased fromMay 2, 2020 due to decreased cash, with higher cash atMay 2, 2020 resulting from the draw down of amounts from ourU.S. Revolving Credit Agreement as a precautionary measure due to COVID-19, and inventories partially offset by increased receivables. Current liabilities as ofMay 1, 2021 increased fromMay 2, 2020 primarily due to higher accounts payable, accrued expenses and other liabilities and accrued compensation partially offset by a decrease in current portion of operating lease liabilities. 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. There was no debt outstanding atMay 1, 2021 and$208 million of debt outstanding atMay 2, 2020 , while shareholders' equity was$428 million atMay 1, 2021 and$439 million atMay 2, 2020 . The decrease in debt sinceMay 2, 2020 was primarily due to the payment of all outstanding borrowings by using cash on hand and cash flow generated by operating activities. Due to the uncertainty associated with the COVID-19 pandemic, we borrowed a significant amount of cash during Fiscal 2020 as a precautionary measure. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, the ultimate impact of the COVID-19 pandemic and other factors. The amounts involved may be material.
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances as ofMay 1, 2021 as compared toMay 2, 2020 . 28 Table of Contents Current Assets: May 1, January 30, May 2, February 1, 2021 2021 2020 2020 Cash and cash equivalents$ 92,086 $ 66,013 $ 181,775 $ 52,460 Receivables, net 67,658 30,418 50,265 57,862 Inventories, net 108,810 123,543 169,495 152,229 Income tax receivable 17,830 17,975 790 862
Prepaid expenses and other current assets 22,355 20,367
21,367 25,413 Total current assets$ 308,739 $ 258,316 $ 423,692 $ 288,826 Cash and cash equivalents were$92 million as ofMay 1, 2021 compared to$182 million as ofMay 2, 2020 . Due to the uncertainty associated with the COVID-19 pandemic, we borrowed a certain amount of cash during Fiscal 2020, including as ofMay 2, 2020 , as a precautionary measure. Subsequent toMay 2, 2020 , we repaid all of our outstanding debt with cash on hand and cash flow generated from operating activities. Any cash that is not used to repay amounts outstanding under ourU.S. Revolving Credit Agreement is generally invested in money market investment accounts. The increase in receivables, net as ofMay 1, 2021 was primarily due to (1) increased credit card receivables resulting from higher direct to consumer transactions in the last week of the quarter, (2) higher trade receivables resulting from higher wholesale sales during the quarter, (3) a reduction in accounts receivable allowances, and (4) increased royalty receivables. Inventories, net, which is net of a$62 million LIFO reserve in the First Quarter of Fiscal 2021 and a$63 million LIFO reserve in the First Quarter of Fiscal 2020, decreased as ofMay 1, 2021 due to lower inventories in each operating group, partially offset by increased inventory in Corporate and Other due to the impact of LIFO accounting which requires the reversal of certain inventory markdowns recognized in the operating groups.Tommy Bahama ,Lilly Pulitzer and Southern Tide each decreased inventories significantly due to reduced inventory purchases for each seasonal buy subsequent to the onset of the COVID-19 pandemic, cancellations of inventory purchases, and liquidation of excess prior season inventory, as well as net sales in the First Quarter of Fiscal 2021 exceeding our sales expectations. The decrease in inventory in Lanier Apparel is due to ceasing substantially all manufacturing and sourcing of inventory purchases during the COVID-19 pandemic and selling on hand inventory as we exit the business during Fiscal 2021. Income tax receivable increased as ofMay 1, 2021 due to the expected income tax receivable for the benefit of the Fiscal 2020 operating losses, which we expect to carry back to offset prior
year
taxable income.
Non-current Assets:
May 1, January 30, May 2, February 1,
2021 2021 2020 2020
Property and equipment, net
191,517
Intangible assets, net 155,967 156,187 157,015 175,005
Goodwill 23,930 23,910 23,802 66,578
Operating lease assets 221,647 233,775 274,778 287,181
Other assets, net 33,146 33,714 29,615 24,262
Total non-current assets $ 592,243 $ 607,318 $ 673,778 $ 744,543
Property and equipment, net as of May 1, 2021 decreased primarily due to
depreciation expense and impairment charges for certain property and equipment
during the 12 months ended May 1, 2021 , exceeding capital expenditures during
the same period. Operating lease assets as of May 1, 2021 decreased primarily
due to the recognition of amortization related to existing operating leases, the
termination or reduced term of certain operating leases and the impairment of
certain operating lease asset amounts exceeding the increased operating lease
assets associated with any new or extended operating lease agreements. The
increase in other assets, net was primarily due to an increase in investment in
unconsolidated entities due to the acquisition of a minority ownership interest
in two entities, and an increase in assets set aside for potential deferred
compensation obligations partially offset by a reduction in a non-current income
tax receivable related to Fiscal 2020 operating losses, which are classified as
a current income tax receivable as of May 1, 2021 .
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Liabilities:
May 1, January 30, May 2, February 1,
2021 2021 2020 2020
Total current liabilities $ 225,090 $ 196,252 $ 153,127 $ 177,779
Long-term debt - - 207,618 -
Non-current portion of operating
lease liabilities 226,358 239,963 271,810 291,886
Other non-current liabilities 21,270 23,691 17,101 18,566
Deferred income taxes 363 - 9,119 16,540
Total liabilities $ 473,081 $ 459,906 $ 658,775 $ 504,771 Current liabilities increased as ofMay 1, 2021 primarily due to increases in accounts payable, accrued expenses and other liabilities and accrued compensation partially offset by a reduction in the current portion of operating lease liabilities. The increase in accounts payable was primarily due to the timing of payment of certain operating expenses, inventory purchases and other payable items. The increase in accrued expenses and other liabilities was primarily due to (1) expected direct to consumer inventory returns, (2) income taxes payable, (3) sales tax payable, (4) royalties and advertising expense amounts, and (5) duties payable. The increase in accrued compensation was primarily due to a$10 million increase in accrued incentive compensation amounts after the annual bonus program was suspended in Fiscal 2020, an increase in accrued FICA amounts for deferred FICA payments allowable pursuant to the CARES Act and increased accrued payroll as a significant number of our employees were furloughed and not working as ofMay 2, 2020 . The lower current portion of operating lease liabilities was primarily due to the balance as ofMay 2, 2020 including certain rent amounts for April andMay 2020 , as the rent amounts had not been paid as ofMay 2, 2020 . The decrease in long-term debt sinceMay 2, 2020 was primarily due to payment of all outstanding debt amounts using cash on hand and cash flow from operations. As ofMay 2, 2020 , we had borrowed debt to maintain certain amounts of cash on our balance sheet during the COVID-19 pandemic. Non-current portion of operating lease liabilities as ofMay 1, 2021 decreased primarily due to the payment of operating lease liabilities, classification of certain unpaid amounts while negotiating with landlords regarding operating lease liabilities and reductions in liabilities related to the termination or reduced term of certain operating leases exceeding operating lease liabilities associated with any new or extended operating lease agreements. Deferred income taxes decreased as ofMay 1, 2021 primarily due to timing differences associated with inventories, other current liability amounts, accrued compensation amounts, operating lease payable amounts and changes in return reserves partially offset by timing differences associated with amortization of intangible assets and depreciation.
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