SECURITIES AND EXCHANGE COMMISSION
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ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 28, 20172023 |
or |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number: 1-4365
(Exact name of registrant as specified in its charter)
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Georgia | | 58-0831862 |
Georgia
(State or other jurisdiction of incorporation or organization) | | 58-0831862
(I.R.S. Employer Identification No.) |
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999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia30309 |
(Address of principal executive offices) (Zip Code) |
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Registrant’s telephone number, including area code: (404) 659-2424
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(404) 659-2424 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $1 par value | OXM | New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act: |
NONE |
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes
ý☒ No o☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o☐ No ý ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
ý☒ No o ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
ý☒ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ý | ☐ | ☐ | Smaller reporting company o | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o☐ No ý☒
As of July 29, 2016,2022, which is the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant (based upon the closing price for the common stock on the New York Stock Exchange on that date) was $928,252,209.$1,034,608,993. For purposes of this calculation only, shares of voting stock directly and indirectly attributable to executive officers, directors and holders of 10% or more of the registrant'sregistrant’s voting stock (based on Schedule 13G filings made as of or prior to July 29, 2016)2022) are excluded. This determination of affiliate status and the calculation of the shares held by any such person are not necessarily conclusive determinations for other purposes.
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date.
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Title of Each Class |
| | Number of Shares Outstanding
as of March 15, 2017
24, 2023 |
Common Stock, $1 par value | | 16,768,230 | 15,773,793 |
Documents Incorporated by Reference
Portions of our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to thefor our Annual Meeting of Shareholders of Oxford Industries, Inc. to be held on June 14, 201713, 2023 are incorporated by reference ininto Part III of this Form 10-K.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Such statements are subject to a number of risks, uncertainties and assumptions including, without limitation, competitive conditions,demand for our products, which may be impacted by competitive conditions and/or evolving consumer shopping patterns; themacroeconomic factors that may impact of economic conditions on consumer demanddiscretionary spending and spendingpricing levels for apparel and related products, particularly in lightmany of which may be impacted by current inflationary pressures, rising interest rates, concerns about the stability of the banking industry or general economic uncertainty; acquisition activities (such as our recent acquisition of Johnny Was), including our ability to integrate key functions, recognize anticipated synergies and minimize related disruptions or distractions to our business as a result of these activities; the impact of the coronavirus (COVID-19) pandemic on our business, operations and financial results; supply chain disruptions; costs and availability of labor and freight deliveries, including our ability to appropriately staff our retail stores and restaurants; costs of products as well as the raw materials used in those products, as well as our ability to pass along price increases to consumers; energy costs; our ability to be more hyper-digital and respond to rapidly changing consumer expectations; the ability of business partners, including suppliers, vendors, wholesale customers, licensees, logistics providers and landlords, to meet their obligations to us and/or continue our business relationship to the same degree; retention of and disciplined execution by key management and other critical personnel; cybersecurity breaches and ransomware attacks, as well as our and our third party vendors’ ability to properly collect, use, manage and secure business, consumer and employee data; the level of our indebtedness, including the risks associated with heightened interest rates on the debt and the potential impact on our ability to operate and expand our business; changes in international, federal or state tax, trade and other laws and regulations, including changes in corporate tax rates, quota restrictions or the potential imposition of safeguard controls; demand for our products;additional duties; the timing of shipments requested by our wholesale customers; expected pricing levels; retention ofweather; fluctuations and disciplined execution by key management;volatility in global financial and/or real estate markets; the timing and cost of retail store and food and beverage location openings and of plannedremodels, technology implementations and other capital expenditures; weather; costs of products as well as the raw materials used in those products; costs of labor; acquisition and disposition activities;store closures or other operating restrictions due to COVID-19, natural disaster or otherwise; expected outcomes of pending or potential litigation and regulatory actions; the increased consumer, employee and regulatory focus on environmental, social and governance issues; the regulation or prohibition of goods sourced, or containing raw materials or components, from certain regions and our ability to evidence compliance; access to capital and/or credit markets; our ability to timely recognize our expected synergies from any acquisitions we pursue; and factors that could affect our consolidated effective tax rate such asrate; the resultsrisk of foreign operations or stock based compensation.impairment to goodwill and other intangible assets; and geopolitical risks, including those related to the war between Russia and Ukraine. Forward-looking statements reflect our current expectations at the time such forward looking statements are made, based on currentlyinformation available information,at such time, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors and elsewhere in this report and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
SUMMARY OF RISKS AFFECTING OUR BUSINESS
Our business is subject to numerous risks. The following summary highlights some of the risks you should consider with respect to our business and prospects. This summary is not complete and the risks summarized below are not the only risks we face. You should review and carefully consider the risks and uncertainties described in more detail in Part I, Item 1A. Risk Factors, which includes a more complete discussion of the risks summarized below:
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Risks Related to our Industry and Macroeconomic Conditions |
| Our business and financial condition are heavily influenced by general economic and market conditions which are outside of our control. |
| The COVID-19 pandemic has had, and may in the future have, a material adverse effect on our business, revenues, financial condition and results of operations. |
| We operate in a highly competitive industry with significant pricing pressures and heightened customer expectations. |
| Failure to anticipate and adapt to changing fashion trends and consumer preferences could harm our reputation and financial performance. |
| Our operations and those of our suppliers, vendors and wholesale customers may be affected by changes in weather patterns, natural or man-made disasters, public health crises, war, terrorism or other catastrophes. |
Risks Related to our Business Strategy and Operations |
| Failure to maintain the reputation or value of our brands could harm our business operations and financial condition. |
| Our inability to execute our direct to consumer and portfolio-level strategies in response to shifts in consumer shopping behavior could adversely affect our financial results and operations. |
| We may be unable to grow our business through organic growth, which could have a material adverse effect on our business, financial condition, liquidity and results of operations. |
| The acquisition of new businesses is inherently risky, and we cannot be certain that we will realize the anticipated benefits of any acquisition. |
| The divestiture or discontinuation of businesses and product lines could result in unexpected liabilities and adversely affect our financial condition, cash flows and results of operations. |
| Our business could be harmed if we fail to maintain proper inventory levels. |
| We are subject to risks associated with leasing real estate for our retail stores and restaurants. |
| We make use of debt to finance our operations, which could expose us to risks that adversely affect our business, financial position and operating results. |
| The loss of one or more of our key wholesale customers, or a significant adverse change in a customer’s financial position, could negatively impact our net sales and profitability. |
Risks Related to Cybersecurity and Information Technology |
| Cybersecurity attacks and/or breaches of information security or privacy could disrupt our operations, cause us to incur additional expenses, expose us to litigation and/or cause us financial harm. |
| Our operations are reliant on information technology, and any interruption or other failure could have an adverse effect on our business or results of operations. |
| Reliance on outdated technology or failure to upgrade our information technology systems and capabilities could impair the efficient operation of our business and our ability to compete. |
| Remote work arrangements could inhibit our ability to effectively operate our business and result in enhanced cybersecurity risks. |
Risks Related to our Sourcing and Distribution Strategies |
| Our reliance on third party producers in foreign countries to meet our production demands exposes us to risks that could disrupt our supply chain, increase our costs and negatively impact our operations. |
| Our operations are dependent on the global supply chain, and the impact of supply chain constraints may adversely impact our business and operating results. |
| Any disruption or failure in our primary distribution facilities may materially adversely affect our business or operations. |
| Fluctuations and volatility in the cost and availability of raw materials, labor and freight may materially increase our costs. |
| Labor-related matters, including labor disputes, may adversely affect our operations. |
| Our geographic concentration of retail stores, restaurants and wholesale customers exposes us to certain regional risks. |
| Our international operations, including foreign sourcing, result in an exposure to fluctuations in foreign currency exchange rates. |
Risks Related to Regulatory, Tax and Financial Reporting Matters |
| Our business is subject to various federal, foreign, state and local laws and regulations, and the costs of compliance with, or the violation of, such laws and regulations could have an adverse effect on our costs or operations. |
| Changes in international trade regulation could increase our costs and/or disrupt our supply chain. |
| Any violation or perceived violation of our codes of conduct or environmental and social compliance programs, including by our manufacturers or vendors, could have a material adverse effect on our brands. |
| As a multi-national apparel company, we may experience fluctuations in our tax liabilities and effective tax rate. |
| Impairment charges for goodwill or intangible assets could have a material adverse impact on our financial results. |
| Any failure to maintain liquor licenses or comply with applicable regulations could adversely affect the profitability of our restaurant operations. |
General Risks |
| Our business depends on our senior management and other key personnel, and failure to successfully attract, retain and implement succession of our senior management and key personnel or to attract, develop and retain personnel to fulfill other critical functions may have an adverse effect on our operations and ability to execute our strategies. |
| We may be unable to protect our trademarks and other intellectual property. |
| We are subject to periodic litigation, which may cause us to incur substantial expenses or unexpected liabilities. |
| Our common stock price may be highly volatile, and we may be unable to meet investor and analyst expectations. |
| Other factors may have an adverse effect on our business, results of operations and financial condition. |
DEFINITIONS
As used in this report, unless the context requires otherwise, "our," "us" or "we" means Oxford Industries, Inc. and its consolidated subsidiaries; "SG&A" means selling, general and administrative expenses; "SEC" means U.S.the United States Securities and Exchange Commission; "FASB" means the Financial Accounting Standards Board; "ASC" means the FASB Accounting Standards Codification; "GAAP" means generally accepted accounting principles in the United States; and "discontinued operations""TBBC" means the assets and operations of our former Ben Sherman operating group which we sold in July 2015. Unless otherwise indicated, all references to assets, liabilities, revenues, expenses or other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group.The Beaufort Bonnet Company. Additionally, the
terms listed below reflect the respective period noted:
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Fiscal 2024 | |
Fiscal 2018 | 52 weeks ending February 2, 20191, 2025 | |
Fiscal 20172023 | | 53 weeks ending February 3, 20182024 | |
Fiscal 20162022 | | 52 weeks ended January 28, 20172023 | |
Fiscal 20152021 | | 52 weeks ended January 29, 2022 | |
Fiscal 2020 | | 52 weeks ended January 30, 20162021 | |
Fiscal 20142019 | 52 weeks ended January 31, 2015 |
Fiscal 2013 | 52 weeks ended February 1, 20142020 | |
Fiscal 2012 | 53 weeks ended February 2, 2013 |
Fourth quarter Fiscal 20172022 | 14 weeks ending February 3, 2018 |
Third quarter Fiscal 2017 | 13 weeks ending October 28, 2017 |
Second quarter Fiscal 2017 | 13 weeks ending July 29, 2017 |
First quarter Fiscal 2017 | 13 weeks ending April 29, 2017 |
Fourth quarter Fiscal 2016 | 13 weeks ended January 28, 20172023 | |
Third quarter Fiscal 20162022 | | 13 weeks ended October 29, 20162022 | |
Second quarter Fiscal 20162022 | | 13 weeks ended July 30, 20162022 | |
First quarter Fiscal 20162022 | | 13 weeks ended April 30, 20162022 | |
Fourth quarter Fiscal 20152021 | | 13 weeks ended January 30, 201629, 2022 | |
Third quarter Fiscal 20152021 | | 13 weeks ended October 31, 201530, 2021 | |
Second quarter Fiscal 20152021 | | 13 weeks ended August 1, 2015July 31, 2021 | |
First quarter Fiscal 20152021 | | 13 weeks ended May 2, 20151, 2021 | |
PART I
PART I
We are a globalleading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama®, Lilly Pulitzer® and Southern Tide®portfolio of lifestyle brands, other owned brands and licensed brands as well as private label apparel products. During Fiscal 2016, 92% of our net sales were from products bearing brands that we own and 66% of our net sales were through our direct to consumer channels of distribution. In Fiscal 2016, 96% of our consolidated net sales were to customers located in the United States, with the sales outside the United States consisting primarily of ourbrands: Tommy Bahama, products in CanadaLilly Pulitzer, Johnny Was, Southern Tide, TBBC and the Asia-Pacific region.
Duck Head.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 like Tommy Bahama, Lilly Pulitzer and Southern Tide that create an emotional connection with consumers can command greater loyalty and higher price points at retail and create licensing opportunities, which may drive higher earnings.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 it.
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 (including through rapidly shifting digital and social media vehicles); product fulfillment capabilities; and customer service. Our ability to compete successfully in styling and marketingthe apparel industry is directly related todependent on 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 fashion products each season.
season as well as certain core products that consumers expect from us.To further strengthen each lifestyle brand'sbrand’s connections with consumers, we directly communicate with consumers through electronicdigital and print media on a regular basis.basis with our loyal consumers, including the approximately 2.5 million who have transacted with us in the last year. We believe our ability to effectively communicate the images, lifestyle and products of our brands and create an emotional connection with consumers is critical to the success of the brands. Our advertising for our brands, often attempts to conveyas evidenced by our advertising which engages our consumers by conveying the lifestyle of the brand as well asbrand.
We believe the attraction of each of our lifestyle brands is a specific product.
direct result of years of maintaining appropriate quality and design, and appropriately restricting the distribution of our products. We
distributebelieve this approach to quality, design, distribution and communication has been critical in allowing us to achieve the current retail price points, high gross margins and success for our
owned lifestyle branded products primarilybrands.During Fiscal 2022, 80% of our consolidated net sales were through our direct to consumer channels consisting of distribution, which consist of our brand specific full-price retail stores, e-commerce websites and outlets, as well as our Tommy Bahama food and Lilly Pulitzerbeverage operations. During Fiscal 2022, the breakdown of our consolidated net sales by direct to consumer channel was as follows: full-price retail storesof $487 million, or 35%; e-commerce of $465 million, or 33%; food and our e-commerce sites for Tommy Bahama, Lilly Pulitzerbeverage of $109 million, or 8%; and Southern Tide, and through our wholesale distribution channels.outlet operations of $66 million, or 5%. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them a broad assortment of our current season products and immerse them in the theme of the lifestyle brand. We believe that presenting our products in a digital or physical setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands.
Our 128 Tommy Bahama257 full-price retail stores allow us the opportunity to carry a full line of current season merchandise, including apparel, accessories and 40 Lilly Pulitzerother products, all presented in an aspirational brand-specific atmosphere. We believe that our full-price retail stores provide high visibility for our brands and products and allow us to stay close to the preferences of our consumers,consumers. Further, we believe that our presentation of products and our strategy to operate the full-price retail stores with limited in-store promotional activities enhance the value and reputation of our lifestyle brands and, in turn, strengthen our business and relationships with key wholesale customers. While about one-half of our full-price retail stores are located in warm weather resort or travel-to destinations and states, we believe there are
opportunities for new stores in both warmer and colder climates, as we believe the more important consideration is whether the location attracts the affluent consumer that we are targeting.
Our brand-specific e-commerce business continues to grow. Our e-commerce business is very profitable as we have a high gross margin on e-commerce sales of approximately 70% while also providingaveraging in excess of $125 per order. Our high average order value and high gross margins allow us to absorb any incremental picking, packing and freight expense associated with operating an e-commerce business and still maintain a platform for long-term growth for the brands. Inhigh profit margin on e-commerce sales.
Additionally, our Tommy Bahama we also operate 17brand operates 21 food and beverage locations, including Marlin Bars and full-service restaurants, generally adjacent to a Tommy Bahama full-price retail store location, which we believe further enhance the brand's imagestore. These food and beverage locations provide us with consumers.
Additionally, our e-commerce websites, which represented 18% of our consolidated net sales in Fiscal 2016, provide the opportunity to increase revenues by reaching a larger population of consumers and atimmerse customers in the same time allow our brands to provide a broader range of products. Our e-commerce flash clearance sales on our websites and our 40ultimate Tommy Bahama experience as well as attract new customers to the Tommy Bahama brand. Both Tommy Bahama and Johnny Was operate brand-specific outlet stores, play an important role in overall brand andwhich are utilized for end of season inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and often at better prices than are typically available from third party off-price retailers.
clearance.The wholesale operationsremaining 20% of our lifestyle brandsnet sales were generated through our wholesale distribution channels, which complement our direct to consumer operations and provide access to a larger groupbase of consumers. Our wholesale operations consist of sales of products bearing the trademarks of our lifestyle brands to various specialty stores, better department stores, multi-branded e-commerce retailers and other retailers.
As we seek to maintain the integrity and continued success of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites, we intend to maintain controlled distribution with careful selection of the retailers through which we sell our products and generally target wholesale customers that follow this same approach in their stores. Oura limited promotions approach. We continue to value our long-standing relationships with our wholesale customers for our Tommy Bahama, Lilly Pulitzer and Southern Tide brands include better department stores and specialty stores, including Signature Stores for Lilly Pulitzer and Southern Tide. Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed brands, private labels and owned brands. Lanier Apparel's customers include department stores, discount and off-price retailers, warehouse clubs, national chains, specialty retailers and others throughoutare committed to working with them to enhance the United States.
Allsuccess of our
operating groupslifestyle brands within their stores.We operate in a highly competitive apparel markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small groupmarket that continues to evolve rapidly with the expanding application of apparel firms dominates the apparel industry, and our direct
competitors vary by operating group and distribution channel. We believe the principal competitive factors in the apparel industry are reputation, value, and image of brand names; design; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service. The apparel industry is cyclical and very dependent upon the overall level and focus of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. Often, negative economic conditions have a longer and more severe impact on the apparel industry than on other industries. We believe current global economic conditions and the resulting economic uncertainty continuetechnology to impact our business, and the apparel industry as a whole.
We believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion
retailing.retail. The application of technology, including the internet and mobile devices, to fashion retail provides consumers increasing access to multiple, responsive distribution platforms and an unprecedented ability to communicate directly with brands
retailers and
others.retailers. As a result, consumers have more information and
greater control over information they receive as well as broader, faster and cheaper access to goods than
they have ever
had before. This
along with the coming of age of the “millennial” generation, is revolutionizing the way that consumers shop for fashion and other
goods. The evidence is increasingly apparent with markedgoods, which continues to be evidenced by weakness
inand store closures for certain department stores and mall-based retailers,
decreaseduncertain consumer retail traffic
patterns, a more promotional retail environment, expansion of off-price and discount retailers, and
a shift from bricks and mortar to internet purchasing.This competitive and evolving environment requires that brands and retailers approach their operations, including marketing and advertising, very differently than they have historically and may result in increased operating costs and investments to generate growth or even maintain existing sales levels. While the competition and evolution present significant 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.
No single apparel firm or small group of apparel firms dominates the apparel industry, and our competitors vary by operating group and distribution channel. The apparel industry is cyclical and very dependent on the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional, domestic and international economic conditions change. Also, in recent years consumers have chosen to spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories.
Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries due, in part, to apparel purchases often being more of a discretionary purchase. The current macroenvironment, with heightened concerns about inflation, a global economic recession, geopolitical issues, the stability of the U.S. banking system, the availability and cost of credit and continued increases in interest rates, is creating a complex and challenging retail environment, which may impact our businesses and exacerbate some of the
inherent challenges to our operations. There remains significant uncertainty in the macroeconomic environment, and the impact of these and other factors could have a major effect on our businesses.
Investments and Opportunities
The evolution in the fashion retail industry presents significant risks, especially for traditional retailers and others who fail or are unable to adapt, but 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 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. Further, each of our brands aims to further enhance its customer-focused, dynamic, thriving, digitally-driven, mobile-centered, cross-channel personalized and seamless shopping experience that recognizes and serves customers in their brand discovery and purchasing habits of the future.
We believe there are ample opportunities to expand the reach of each of our lifestyle brands in the future, including the opening of new direct to consumer locations, e-commerce growth and wholesale operations expansion. In order to expand the reach and maximize the success of each of our brands, we believe we must continue to invest in the lifestyle brands to take advantage of their long-term growth opportunities. Future investments include capital expenditures primarily related to direct to consumer operations, such as technology enhancements, e-commerce initiatives and direct to consumer location build-outs for new, relocated or remodeled locations, as well as distribution center enhancements and administrative office expenditures. In addition to our capital investments, we must continue to invest in our SG&A expense infrastructure, including people, technology, advertising and other resources. While we believe that our investments will generate long-term benefits, the investments may have a short-term negative impact on our operating margin, particularly if there is insufficient sales growth to absorb the incremental costs in a particular year. Fiscal 2023 will be a particularly heavy year for both capital expenditures and SG&A, which is expected to decrease our operating margins from the levels achieved in Fiscal 2022.
Meanwhile, as we grow we must be very diligent in our effort to avoid compromising the integrity of our brands by becoming overly promotional or maintaining or growing internet purchases.
sales with wholesale customers that may not be aligned with our long-term strategy. This is particularly important with the challenges in the department store channel, which represented less than 10% of our consolidated net sales in Fiscal 2022.While we believe we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, we will continue to evaluate opportunities to add additional lifestyle brands, both large and small, to our portfolio if we identify appropriate targets that meet our investment criteria and/or take strategic measures to return capital to our shareholders as and when circumstances merit. For example, we acquired Johnny Was on September 19, 2022.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impact our business are described in Part I, Item 1A. Risk Factors of this report.
Investments and Opportunities
While evolution in the fashion retail industry presents significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers. We believe our brands have attributes that are 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 are well suited to succeed and thrive in the long term while managing the various challenges facing our industry.
Specifically, we believe our lifestyle brands have opportunities for long-term growth in their direct to consumer businesses. We anticipate increased sales in our e-commerce operations, which are expected to grow at a faster rate than bricks and mortar comparable full-price retail store sales. This growth can also be achieved through prudent expansion of bricks and mortar full-price retail store operations and modest comparable full-price retail store sales increases. Despite the changes in the retail environment, we expect there will continue to be desirable locations to increase our store count.
Our lifestyle brands also have an opportunity for modest sales increases in their wholesale businesses in the long term primarily from current customers adding to their existing door count and increasing their on-line business, increased sales to on-line retailers and the selective addition of new wholesale customers who generally follow a retail model with limited discounting; however, we must be diligent in our effort to avoid compromising the integrity of the brand by maintaining or growing sales with wholesale customers that may not be aligned with our long-term strategy. This is particularly important with the challenges in the department store channel, which represents about one-half of our consolidated wholesale sales, or 16% of our consolidated net sales. We also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs for existing and new customers.
We believe we must continue to invest in our lifestyle brands to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations such as technology enhancements, e-commerce initiatives, full-price retail store and restaurant build-out for new and relocated locations as well as remodels, and distribution center and administrative office expansion initiatives. Additionally, while we anticipate increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future sales growth, we remain focused on appropriately managing our operating expenses.
In the midst of the challenges in our industry, an important focus for us in Fiscal 2017 is advancing various initiatives to increase the profitability of the Tommy Bahama business. These initiatives generally focus on increasing gross margin and operating margin through efforts such as: product cost reductions; selective price increases; reducing inventory purchases; more rapidly clearing excess inventory; redefining our approach to inventory clearance; effectively managing controllable and discretionary operating expenses; taking a more conservative approach to full-price retail store and outlet openings and renewals; and continuing our efforts to reduce Asia-Pacific operating losses.
We continue to believe it is important to maintain a strong balance sheet and liquidity. We believe positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient
resources to fund future investments in our owned lifestyle brands. While we believe we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, we will continue to evaluate opportunities to add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria.
We believe that an attractive acquisition target would most likely be a lifestyle brand that has a strong emotional connection with its consumer and has a disciplined distribution model consisting of wholesale customers with limited discounting and/or a direct to consumer distribution model via e-commerce or full-price retail stores. Further, while our existing businesses are primarily apparel brands, we could also be interested in a company with a more significant concentration in accessories, footwear or other product categories. The acquisition of a premier lifestyle brand is a meticulous process as such a brand is not available very often, and we most likely would have stiff competition from both strategic and private equity firms.
Our business is primarily operated through our Tommy Bahama, Lilly Pulitzer, Lanier Apparel and Southern Tide operating groups. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand'sbrand’s direct to consumer, wholesale and licensing operations, as applicable.
With our acquisition of Johnny Was on September 19, 2022, our business is organized as our Tommy Bahama, Lilly Pulitzer, Johnny Was and Southern Tide each design, source, market and distribute apparel and related products bearing their respective trademarks andEmerging Brands operating groups. Operating results for periods prior to Fiscal 2022 also license their trademarks for other product categories, whileinclude the Lanier Apparel designs, sources and distributes branded and private label men's tailored clothing, sportswear and other products. Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments, other costs that are not allocated to the operating groups and operations of our other businesses which are not included in our operating groups, including our Lyons, Georgia distribution center operations. Our LIFO inventory pool does not correspond to our operating group, definitions; therefore, LIFO inventory accounting adjustments are not allocated to our operating groups.
which we exited in Fiscal 2021. For additional information about each of our reportable operating groups as well as Corporate and Other, see Part II, Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 2 toof our consolidated financial statements, each included in this report. The table below presents net sales and operatingcertain financial information about each of our operating groups, as well as Corporate and Other (in thousands).
| | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Net Sales (1) | | | | | | | | | |
Tommy Bahama | | $ | 880,233 | | $ | 724,305 | | $ | 419,817 |
Lilly Pulitzer | | | 339,266 | | | 298,995 | | | 231,078 |
Johnny Was (2) | | | 72,591 | | | — | | | — |
Emerging Brands | | | 116,484 | | | 90,053 | | | 58,200 |
Lanier Apparel (3) | | | — | | | 24,858 | | | 38,796 |
Corporate and Other | | | 2,954 | | | 3,868 | | | 942 |
Consolidated net sales | | $ | 1,411,528 | | $ | 1,142,079 | | | 748,833 |
Operating Income (Loss) (1) | | | | | | | | | |
Tommy Bahama | | $ | 172,761 | | $ | 111,733 | | $ | (53,310) |
Lilly Pulitzer | | | 67,098 | | | 63,601 | | | 27,702 |
Johnny Was (2) | | | (1,544) | | | — | | | — |
Emerging Brands (4) | | | 15,602 | | | 16,649 | | | (62,724) |
Lanier Apparel (3) | | | — | | | 4,888 | | | (26,654) |
Corporate and Other (5) | | | (35,143) | | | (31,368) | | | (8,863) |
Consolidated Operating Income | | $ | 218,774 | | $ | 165,503 | | | (123,849) |
|
| | | | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Net Sales | | |
| Tommy Bahama | $ | 658,911 |
| $ | 658,467 |
|
| Lilly Pulitzer | 233,294 |
| 204,626 |
|
| Lanier Apparel | 100,753 |
| 105,106 |
|
| Southern Tide | 27,432 |
| — |
|
| Corporate and Other | 2,198 |
| 1,091 |
|
| Total | $ | 1,022,588 |
| $ | 969,290 |
|
| Operating Income (Loss) | | |
| Tommy Bahama | $ | 44,101 |
| $ | 65,993 |
|
| Lilly Pulitzer | 51,995 |
| 42,525 |
|
| Lanier Apparel | 6,955 |
| 7,700 |
|
| Southern Tide | (282 | ) | — |
|
| Corporate and Other (1) | (12,885 | ) | (18,704 | ) |
| Total operating income | $ | 89,884 |
| $ | 97,514 |
|
| |
| (1) | The net sales and operating income (loss) of each operating group were negatively impacted by the COVID-19 pandemic starting in Fiscal 20162020. |
| (2) | Amount included for Johnny Was represents the post-acquisition period only. The operating income for Fiscal 2022 for Johnny Was includes $4 million of inventory step-up charges and $5 million of amortization of intangible assets. |
| (3) | In Fiscal 20152021, we exited our Lanier Apparel business, which had been focused on moderately priced tailored clothing and related products. The Lanier Apparel exit is discussed in more detail in Note 11 of our consolidated financial statements included in this report. |
| (4) | The operating loss for Emerging Brands in Fiscal 2020 included a $60 million impairment charge for goodwill and intangible assets of Southern Tide, with no such charges in Fiscal 2022 or Fiscal 2021. |
| (5) | The operating loss for Corporate and Other includedincludes a LIFO accounting credit of $5.9 million and a LIFOlast-in, first-out (“LIFO”) accounting charge of $0.3$3 million, charge of $16 million and credit of $9 million in Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. During Fiscal 2022 and Fiscal 2021, the operating loss for Corporate and Other also included $3 million of transaction expenses and integration costs associated with the Johnny Was acquisition and a gain on sale of an unconsolidated entity of $12 million, respectively. |
The table below presents the total assets of each of our operating groups (in thousands). |
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| Assets | | |
| Tommy Bahama | $ | 451,990 |
| $ | 458,234 |
|
| Lilly Pulitzer | 126,506 |
| 115,419 |
|
| Lanier Apparel | 30,269 |
| 35,451 |
|
| Southern Tide | 96,208 |
| — |
|
| Corporate and Other | (19,814 | ) | (26,414 | ) |
| Total | $ | 685,159 |
| $ | 582,690 |
|
Total assets for Corporate and Other include LIFO reserves of $58.0 million and $59.4 million as of January 28, 2017 and January 30, 2016, respectively.
Tommy Bahama designs, sources, markets and distributes men'smen’s and women'swomen’s sportswear and related products. The target consumersTommy Bahama’s typical consumer is older than 45 years old, has a household annual income in excess of Tommy Bahama are primarily affluent men$100,000, lives in or travels to warm weather and women age 35resort locations and older who embraceembraces a relaxed and casual approach to daily living. Tommy Bahama products can be found in our Tommy Bahama stores and on our Tommy Bahama e-commerce website, tommybahama.com, as well as inat better department stores, and independent specialty stores throughout the United States.and multi-branded e-commerce retailers. We also operate Tommy Bahama restaurantsfood and beverage locations and license the Tommy Bahama name for various product categories. During Fiscal 2016, 95%2022, 96% of Tommy Bahama'sBahama’s sales were to customers withinin the United States, with the remaining sales in Canada, Australia and Asia.
We believe thatCanada.In Fiscal 2022, we increased Tommy Bahama’s sales by 22% to $880 million and operating income by 55% to $173 million, or 19.6%. For comparison, the attraction of theFiscal 2022 operating margin for Tommy Bahama brand to our consumers is a reflectionwas considerably higher than the 15.4% operating margin generated in Fiscal 2021, as well as the 7.9% operating margin on $677 million of our efforts over many years of maintaining appropriate quality and design of our Tommy Bahama apparel, accessories and licensed products, limiting the distribution of Tommy Bahama products to a select tier of retailers, and effectively communicating the relaxed and casual Tommy Bahama lifestyle to consumers. We expect to continue to follow this approach for the brandnet sales generated in the future. We believe thatlast pre-pandemic year of Fiscal 2019. The significant improvement in operating results reflects the retail sales valueefforts of all Tommy Bahama branded products sold during Fiscal 2016, including our estimate of retail sales by our wholesale customers and other third party retailers, was approximately $1.2 billion.
We believe there is ample opportunity to expand the reach of the Tommy Bahama brand, while at the same time maintaining the select distribution that Tommy Bahama has historically maintained. We believe that in order to take advantage of opportunities for long-term growth, we must continue to invest in the Tommy Bahama brand. These investments include amounts associated with capital expenditures and ongoing expenses to enhance e-commerce and other technology capabilities; capital expenditures and pre-opening expenses of new stores and restaurants; the remodeling and relocation of existing stores and restaurants; and capital expenditures related to distribution and other facilities.
We believe there are opportunities for continued growth in the United States through direct to consumer expansion and wholesale channels of distribution. However, an important focusinitiative for us in Fiscal 2017 is advancing various initiativesrecent years to increase the profitability of the Tommy Bahama business. These initiatives generally focus on:operating
Increasing gross margins through product cost reductions and selective price increases10
group. While we made progress on this initiative prior to combat the shift of a greater proportion of our sales to periods of our marketing events;
Reducing inventory purchases and more rapidly clearing excess inventory to reduce clearance losses, particularly on women's products which are often costly to liquidate;
Redefining our approach to inventory clearance by marking down certain productsCOVID-19 pandemic, these efforts were really evident in our full-price retail stores during traditional end of season clearance periodsFiscal 2021 and Fiscal 2022 operating results. Maintaining the significantly higher post-pandemic operating income levels continues to be a focus area for the apparel retail industry, by selling additional amounts for certain product categories to third party off-price retailers if necessary, and by improving the presentation and offer in our outlet stores to increase sales and gross margins of products sold on clearance;
Effectively managing controllable and discretionary operating expenses including employment costs;
Taking a more conservative approach to full-price retail store and outlet openings and renewals given the ongoing decline in consumer traffic and related challenges; and
Continuing our efforts to reduce Asia-Pacific losses, with a targeted Fiscal 2017 Asia-Pacific loss of approximately $5 million compared to $7 million in Fiscal 2016.
In recent years we began expansionlong-term prospects of the Tommy Bahama brand into international markets. These efforts included the acquisition of the assets and operations of the Tommy Bahama business from our former licensees in Australia in Fiscal 2012 and Canada in Fiscal 2013. The licensees in each of these countries had developed a certain level of brand awareness, but we determined that after considering the potential direct to consumer and wholesale growth opportunities in those countries, it was appropriate for us to re-acquire the rights to the operations. We also commenced operations in Asia by opening retail store locations in Asia beginning in Fiscal 2012. The operations in Asia thus far have generated operating losses as we developed a significant Hong Kong-based team and infrastructure to support a larger Asia retail operation. The roll-out of retail stores in Asia was at a modest pace as we attempted to focus on improving store operations in Asia. As a lifestyle brand, we continue to believe it is appropriate that in certain key markets we initially set the tone for the brand rather than engaging a partner. However, in the future, we may engage a local partner to accelerate growth in certain markets.
Consistent with the prior year, our near term focus in the Asia-Pacific region remains on our direct to consumer operations in Australia and Japan while at the same time further reducing our infrastructure costs in Hong Kong to better align with the footprint of our current Asia retail operations. During Fiscal 2015 and Fiscal 2016, we closed our retail stores in Macau and Singapore and outlet stores in Hong Kong and Japan, with only one store remaining in Hong Kong. These closures result in our Asia-Pacific retail operations primarily consisting of stores in Australia and Japan. By focusing on Australia and Japan we believe we can do a better job of increasing brand awareness and sales by focusing our marketing spend in a location where the consumer has a variety of options for purchasing Tommy Bahama product, including our own retail stores, our wholesale customers' stores and, in the case of Japan, an in-country Tommy Bahama website. While we believe there are long-term opportunities for our Tommy Bahama operations in the Asia-Pacific region, we believe that the operating losses associated with these operations will continue to put downward pressure on our operating margin in the near future until we have sufficient sales to leverage the operating costs or have identified partners for jurisdictions which are not profitable.
Design, Sourcing, Marketing and Distribution
Tommy Bahama products are designed by product specific teams who focus on the target consumer. The design process includes feedback from buyers, consumers and sales agents, along with market trend research. Our Tommy Bahama apparel products generally incorporate fabrics made of cotton, silk, linen, nylon, leather, tencel and other natural and man-made fibers, or blends of two or more of these materials.
We operate a buying office located in Hong Kong to manage the production and sourcing of the substantial majority of our Tommy Bahama products. During Fiscal 2016, we utilized approximately 250 suppliers to manufacture our Tommy Bahama products. In Fiscal 2016, 73% of Tommy Bahama's product purchases were from manufacturers in China. The largest 10 suppliers of Tommy Bahama products provided 43% of the products acquired during Fiscal 2016, with no individual supplier providing greater than 10%.
We believe that advertising and marketing are an integral part of the long-term strategy for the Tommy Bahama brand, and we therefore devote significant resources to advertising and marketing. While the advertising for Tommy Bahama promotes our products, the primary emphasis is on brand image and brand lifestyle. Tommy Bahama's advertising attempts to engage individuals within the brand's consumer demographic and guide them on a regular basis to our retail stores, e-commerce websites or wholesale customers' stores in search of our products. The marketing of the Tommy Bahama brand includes email, internet and social media advertising and traditional media such as catalogs, print and other correspondence with customers, as well as moving media and trade show initiatives. As a lifestyle brand, we believe that it is very important that Tommy Bahama communicate regularly with consumers via the use of email, internet and social media about product offerings or other brand events in order to maintain and strengthen Tommy Bahama's connections with its consumers.
We also believe that highly visible full-price retail store locations with creative design, broad merchandise selection and brand appropriate visual presentation are key enticements for customers to visit our full-price retail stores and buy merchandise. We intend that our full-price retail stores enhance the shopping experience of our customers, which we believe will increase consumer brand loyalty. Marketing initiatives at our full-price retail stores may include special event promotions and a variety of public relations activities designed to create awareness of our products.
In addition, we utilize loyalty award cards, Flip-Side events and Friends & Family events to drive traffic to our stores and websites. These initiatives are effective in increasing traffic as the proportion of our sales that occur during our marketing initiatives have increased in recent years. We believe our traditional and electronic media communications increase the sales of our own full-price retail stores and e-commerce operations, as well as the sales of our products for our wholesale customers.
For certain of our wholesale customers, we also provide point-of-sale materials and signage to enhance the presentation of our products at their retail locations and/or participate in cooperative advertising programs.
We operate a Tommy Bahama distribution center in Auburn, Washington, which serves our North America direct to consumer and wholesale operations. Activities at the distribution center include receiving finished goods from suppliers,
inspecting the products and shipping the products to our Tommy Bahama stores, our wholesale customers and our e-commerce customers. We seek to maintain sufficient levels of Tommy Bahama inventory at the distribution center to support our direct to consumer operations, as well as pre-booked orders and some limited replenishment ordering for our wholesale customers. We use local third party distribution centers for our Asia-Pacific operations.
business.Direct to Consumer Operations
A key component of our Tommy Bahama growth strategy is to operate our ownretail stores, and e-commerce websites and food and beverage concepts, which we believe permits us to develop and build brand awareness by presenting our products in a setting specifically designed to showcase the aspirational lifestyle on which the products are based. Our Tommy Bahama direct to consumer channels, which consist of full-price retail store, e-commerce, food and restaurantbeverage and outlet store operations, in the aggregate, represented 77%83% of Tommy Bahama'sBahama’s net sales in Fiscal 2016. We expect the percentage of our Tommy Bahama sales which are direct to consumer sales will increase slightly in future years as we anticipate that the direct to consumer distribution channel will grow at a faster pace than the wholesale distribution channel. Retail2022. Full-price retail store, e-commerce, food and restaurantbeverage and outlet store net sales accounted for 50%39%, 16%24%, 13% and 11%7%, respectively, of Tommy Bahama'sBahama’s net sales in Fiscal 2016.
2022.Our direct to consumer strategy for the Tommy Bahama brand includes locating and operating full-price retail stores in upscale malls, lifestyle shopping centers, resort destinations and brand-appropriate street locations. Generally, we seek shopping areas and malls with high-profile or upscale consumer brands for our full-price retail stores. As of January 28, 2017, the majority of our Tommy Bahama full-price retail stores were in street-front locations or lifestyle centers with the remainder primarily in regional indoor malls. Our full-price retail stores allow us the opportunity to carry a full line of current season merchandise, including apparel, home products and accessories, all presented in an aspirational, island-inspired atmosphere designed to be relaxed, comfortable and unique. We believe that the Tommy Bahama full-price retail stores provide high visibility for the brand and products, and allow us to stay close to the preferences of our consumers. Further, we believe that our presentation of products and our strategy to operate the full-price retail stores with limited in-store promotional activities are good for the Tommy Bahama brand and, in turn, enhance business with our wholesale customers. Generally, we believe there are opportunities for full-price retail stores in both warmer and colder climates, as we believe the more important consideration is whether the location attracts the affluent consumer that we are targeting.
Disposal of discontinued or end of season inventory is an ongoing part of any apparel business and historically Tommy Bahama has utilized its outlet stores, supplemented by e-commerce flash clearance sales and sales to off-price retailers, to sell any excess inventory. Our Tommy Bahama outlet stores, which generated 10% of our total Tommy Bahama net sales in Fiscal 2016, are generally located in outlet shopping centers that include upscale retailers and serve an important role in overall inventory management by allowing us to sell discontinued and out-of-season products at better prices than are otherwise available from outside parties. We believe that this approach has helped us protect the integrity of the Tommy Bahama brand by allowing our full-price retail stores to limit promotional activity and controlling the distribution of discontinued and out-of-season product. To supplement the clearance items sold in Tommy Bahama outlets, approximately 20% of the product sold in our Tommy Bahama outlets was made specifically for our outlets. At this time and based on our anticipated proportion of clearance versus made-for items in our outlet stores, we anticipate that we would generally operate one outlet for approximately every three full-price retail stores.
In an effort to improve the profitability of our end of season clearance strategy for our products, in January 2017, we initiated selected initial markdowns in our full-price retail stores and on-line for end of season product for our women's, home and other products. We expect to continue that strategy and also plan to dispose of more end of season inventory for women's, home and other product categories through off-price retailers in the future than we have historically. These changes are expected to reduce the quantity of end of season product for those product categories that are transferred to our outlets in the future. We believe that reducing the amounts of these product categories, which were overrepresented in our outlets, will greatly improve the product offering and presentation in our outlet stores, which may ultimately improve the sales and profitability of our outlet stores and the profitability of our end of season clearance sales.
For Tommy Bahama's domestic full-price retail stores and retail-restaurant locations operating for the full Fiscal 2016 year, sales per gross square foot, excluding restaurant sales and restaurant space, were approximately $605 during Fiscal 2016, compared to $655 for stores operating for the full Fiscal 2015 year. The decrease in sales per square foot was primarily due to the negative comparable full-price retail store sales during Fiscal 2016. In Fiscal 2016, our domestic outlet stores generated approximately $355 of sales per square foot for outlets open for the entire 2016 fiscal year.
As of January 28, 2017 we operated 17 restaurants or Marlin Bar locations, generally adjacent to a Tommy Bahama full-price retail store location, which together we often refer to as islands. These retail-restaurant locations provide us with the opportunity to immerse customers in the ultimate Tommy Bahama experience. We do not anticipate that many of our retail locations will have an adjacent restaurant; however, in select high-profile, brand appropriate locations, such as Naples, Florida, Waikiki, Hawaii, and New York City, we have determined that an adjacent restaurant can further enhance the image of the
brand. The net sales per square foot in our domestic full-price retail stores which are adjacent to a restaurant are on average two times the sales per square foot of our other domestic full-price retail stores. We believe that the experience of a meal or drink in a Tommy Bahama restaurant may entice the customer to purchase additional Tommy Bahama merchandise and potentially provide a memorable consumer experience that further enhances the relationship between Tommy Bahama and the consumer. During the Fourth Quarter of Fiscal 2016, we opened our first Marlin Bar concept location in Coconut Point, Florida. The Marlin Bar concept, like our traditional restaurant, is adjacent to one of our retail locations and serves food and beverages, but in a smaller space and with food options more focused on small plate offerings rather than entrees. The initial results of the Marlin Bar, in both the restaurant and full-price retail store of the location, have been well received and have exceeded our expectations. We believe that with the smaller footprint, reduced labor requirements and lower required capital expenditure for build-out, the Marlin Bar concept provides us the long-term potential for opening retail-restaurant locations in sites that otherwise may not have been suitable or brand appropriate for one of our traditional retail-restaurant locations.
As of January 28, 2017, the total square feet of space utilized for our Tommy Bahama full-price retail store and outlet store operations was 0.6 million with another 0.1 million of total square feet utilized in our Tommy Bahama restaurant operations. The table below provides certain information regarding Tommy Bahama retail stores operated by us as of January 28, 2017. |
| | | | | | | | |
| | Full-Price Retail Stores | Outlet Stores | Retail-Restaurant
Locations (1) | Total |
| Florida | 20 |
| 4 |
| 6 |
| 30 |
|
| California | 15 |
| 5 |
| 3 |
| 23 |
|
| Texas | 7 |
| 4 |
| 1 |
| 12 |
|
| Hawaii | 4 |
| 1 |
| 3 |
| 8 |
|
| Nevada | 4 |
| 1 |
| 1 |
| 6 |
|
| Maryland | 3 |
| 2 |
| — |
| 5 |
|
| New York | 2 |
| 2 |
| 1 |
| 5 |
|
| Other states | 38 |
| 16 |
| 1 |
| 55 |
|
| Total domestic | 93 |
| 35 |
| 16 |
| 144 |
|
| Canada | 8 |
| 3 |
| — |
| 11 |
|
| Total North America | 101 |
| 38 |
| 16 |
| 155 |
|
| Australia | 8 |
| 2 |
| — |
| 10 |
|
| Japan | 1 |
| — |
| 1 |
| 2 |
|
| Other international | 1 |
| — |
| — |
| 1 |
|
| Total | 111 |
| 40 |
| 17 |
| 168 |
|
| Average square feet per store (2) | 3,400 |
| 4,600 |
| 4,300 |
| |
|
| Total square feet at year end | 380,000 |
| 185,000 |
| 75,000 |
| |
|
| |
(1) | Consists of 16 retail-restaurant locations of our traditional island format and one Marlin Bar retail-restaurant concept. |
| |
(2) | Average square feet for retail-restaurant locations consists of average retail space and excludes space used in the associated restaurant operations. |
The table below reflects the changes in store count for Tommy Bahama stores during Fiscal 2016. |
| | | | | | | | |
| | Full-Price Retail Stores | Outlet Stores | Retail-Restaurant
Locations | Total |
| Open as of beginning of fiscal year | 107 |
| 41 |
| 16 |
| 164 |
|
| Opened | 8 |
| — |
| — |
| 8 |
|
| Closed | (3 | ) | (1 | ) | — |
| (4 | ) |
| Retail store relocated/converted to Marlin Bar | (1 | ) | — |
| 1 |
| — |
|
| Open as of end of fiscal year | 111 |
| 40 |
| 17 |
| 168 |
|
During Fiscal 2017, we anticipate that the number of stores will remain comparable to our store count at the end of Fiscal 2016. Although we expect to open a handful of full-price retail stores during the year, including full-price retail stores in Delray Beach, Florida and Napa, California as well as a retail-restaurant location at Legacy West in Dallas, Texas, we also expect to opportunistically close certain under-performing locations through lease expirations during the year. In future years, we do not
anticipate as many closures as we expect in Fiscal 2017. Therefore, in future years, we anticipate that we will increase the number of our retail locations, but most likely at a more modest pace than our historical trend.
The operation of full-price retail stores, outlet stores and retail-restaurant locations requires a greater amount of initial capital investment than wholesale operations, as well as greater ongoing operating costs. We estimate that we will spend approximately $1.3 million on average in connection with the build-out of a domestic full-price retail store. However, individual locations, particularly those in urban locations, may require investments greater than these amounts depending on a variety of factors, including the location and size of the full-price retail store. The cost of a traditional Tommy Bahama retail-restaurant location and a Marlin Bar is significantly more than the cost of a full-price retail store and can vary significantly depending on a variety of factors. Historically, the cost of our retail-restaurant locations has been approximately $5 million; however, we have spent significantly more than that amount for certain locations, including New York City and Waikiki. For most of our retail stores and restaurants, the landlord provides certain incentives to fund a portion of our capital expenditures.
We also incur capital expenditures when a lease expires and we determine it is appropriate to relocate to a new location in the same vicinity as the previous store. The cost of store relocations is generally comparable to the costs of opening a new full-price retail store or outlet store. Additionally, we incur capital expenditure costs related to periodic remodels of existing stores, particularly when we renew or extend a lease beyond the original lease term, or otherwise determine that a remodel of a store is appropriate. When a lease expires we may decide to close the store rather than relocating the store to another location or renewing the lease. As we reach the expirations of more of our lease agreements in the near future, we anticipate that the capital expenditures for relocations and remodels, in the aggregate, may continue to increase in future periods.
In addition to our full-price retail stores and outlet stores, our direct to consumer approach includes various e-commerce websites, including the tommybahama.com website.
DuringOur Tommy Bahama e-commerce business, which generated $214 million of net sales in Fiscal
2016, e-commerce2022, has grown significantly over the last few years, including a 16% increase in net sales
represented 16% of Tommy Bahama's net sales.compared to Fiscal 2021. Our Tommy Bahama websites allow consumers to buy Tommy Bahama products directly from us via the internet. These websites also enable us to increase our database of consumer contacts, which allows us to communicate directly and frequently with consenting consumers. As we reach more customers in the future, we anticipate that our e-commerce distribution channel for Tommy Bahama will continue to grow at a faster pace than our
retail store or wholesale operations.Our direct to consumer strategy for the Tommy Bahama brand also includes locating and operating full-price retail stores in upscale malls, lifestyle shopping centers, resort destinations and brand-appropriate street locations. Generally, we seek to locate our full-price retail stores in shopping areas and malls that have high-profile or upscale consumer brand adjacencies. As of January 28, 2023, the majority of our Tommy Bahama full-price retail stores were in street-front locations or lifestyle centers with the remainder primarily in regional indoor malls, with a number of those regional indoor locations in resort travel destinations. We believe that we have opportunities for continued sales growth for Tommy Bahama, particularly in our women’s business, which represented 34% and 33% of sales in our direct to consumer operations in Fiscal 2022 and Fiscal 2021, respectively, with women’s swim representing about one-fourth of the women’s business. For Tommy Bahama’s domestic full-price retail stores and retail-food and beverage locations operating for the full Fiscal 2022 year, sales per gross square foot, excluding food and beverage sales and food and beverage space, were approximately $790, compared to approximately $645 in Fiscal 2021.
As of January 28, 2023, we operated 21 Tommy Bahama food and beverage locations including 13 restaurants and eight Marlin Bar locations, generally adjacent to a Tommy Bahama full-price retail store operationslocation. These retail-food and beverage locations, which generated approximately 25% of Tommy Bahama’s net sales in Fiscal 2022, provide us with the opportunity to immerse customers in the ultimate Tommy Bahama experience. We do not anticipate that the majority of our full-price retail locations will have an adjacent food and beverage location; however, we have determined that an adjacent food and beverage location can further enhance the image or wholesale operations. exposure of the brand in select, high-profile, brand appropriate locations. The net sales per square foot in our domestic full-price retail stores that are adjacent to a food and beverage location have historically been approximately twice the sales per square foot of our other domestic full-price retail stores. We believe that the customer immersing themselves into the Tommy Bahama lifestyle by having a meal or a drink at the Tommy Bahama food and beverage location and visiting the adjacent full-price retail store may entice the customer to purchase additional Tommy Bahama merchandise and potentially provide a memorable consumer experience that further enhances the relationship between Tommy Bahama and the consumer. The Marlin Bar concept, like our traditional restaurant locations, is adjacent to one of our full-price retail store locations and serves food and beverages, but in a smaller space and with food options more focused on small plate offerings rather than entrees. We believe that the smaller footprint, reduced labor requirements and lower required capital expenditure of the Marlin Bar concept provides us with the long-term potential for opening additional retail-food and beverage locations that are more in line with evolving customer trends toward fast casual dining, particularly with younger consumers.
Typically, at the end of the summer and holiday season, Tommy Bahama will conduct sales both in-store and online to move end of season product. Utilizing Tommy Bahama’s Enterprise Order Management (EOM) system, many
online orders will be fulfilled from retail stores, greatly reducing the amount of goods that ultimately get transferred from full-price retail stores to outlet stores. Tommy Bahama utilizes its outlet stores, which generated 7% of total Tommy Bahama sales in Fiscal 2022, and sales to off-price retailers to sell the remaining end of season or excess inventory. Our Tommy Bahama outlet stores are generally located in outlet shopping centers that include other upscale retailers and serve an important role in overall inventory management by often allowing us to sell discontinued and out-of-season products at better prices than are otherwise available from outside parties. We believe that this approach has helped us protect the integrity of the Tommy Bahama brand by allowing our full-price retail stores to limit promotional activity while controlling the distribution of discontinued and out-of-season product. To supplement the clearance items sold in Tommy Bahama outlets, we merchandise our Tommy Bahama outlets with certain made-for products. Currently, we operate one outlet store for approximately every four full-price retail stores.
The table below provides certain information regarding Tommy Bahama direct to consumer locations as of January 28, 2023.
| | | | | | | | |
| | Full-Price | | Retail‑Food & Beverage | | | | |
| | Retail Stores | | Locations (1) | | Outlet Stores | | Total |
Florida | | 18 | | 8 | | 5 | | 31 |
California | | 14 | | 4 | | 4 | | 22 |
Texas | | 6 | | 2 | | 4 | | 12 |
Hawaii | | 5 | | 4 | | 1 | | 10 |
Other states | | 42 | | 3 | | 14 | | 59 |
Total domestic | | 85 | | 21 | | 28 | | 134 |
Canada | | 6 | | — | | 2 | | 8 |
Total North America | | 91 | | 21 | | 30 | | 142 |
Australia | | 12 | | — | | 3 | | 15 |
Total | | 103 | | 21 | | 33 | | 157 |
Average square feet per store (2) | | 3,400 | | 4,300 | | 4,400 | | |
Total square feet at year end (2) | | 350,000 | | 90,000 | | 145,000 | | |
| (1) | Consists of 13 traditional format retail-restaurant locations and eight Marlin Bar locations. |
| (2) | Square feet for retail-food and beverage locations consists of retail square footage and excludes square feet used in the associated food and beverage operations. |
During Fiscal 2022, Florida, California, Hawaii and Texas represented 33%, 16%, 13% and 9%, respectively, of our Tommy Bahama direct to consumer retail and retail-food and beverage location sales. Including e-commerce sales, during Fiscal 2022, Florida, California, Hawaii and Texas represented 27%, 15%, 9% and 8%, respectively, of total Tommy Bahama direct to consumer sales.
The table below reflects the changes in store count for Tommy Bahama locations during Fiscal 2022.
| | | | | | | | |
| | Full-Price | | Retail‑Food & Beverage | | | | |
| | Retail Stores | | Locations | | Outlet Stores | | Total |
Open as of beginning of fiscal year | | 102 | | 21 | | 35 | | 158 |
Opened | | 2 | | — | | — | | 2 |
Closed | | (1) | | — | | (2) | | (3) |
Open as of end of fiscal year | | 103 | | 21 | | 33 | | 157 |
In future periods, we anticipate that many of our new Tommy Bahama store openings will be Marlin Bar locations that are either new locations or conversions of existing full-price retail stores. Currently, we have three Marlin Bar openings scheduled for Fiscal 2016, we held a select number of e-commerce flash clearance sales as a means of complementing our outlets in liquidating discontinued or out-of-season inventory. These sales represented 10%2023, including the conversion of Tommy Bahama e-commerce salesfull-price retail locations in Palm Beach Gardens, Florida and San Antonio, Texas as well as a new Marlin Bar in Winter Park, Florida. We also have other locations in the pipeline for openings in Fiscal 2016.2024 and beyond and anticipate opening as many as five Marlin Bar locations in Fiscal 2024, subject to lease negotiation, construction timing and other factors. We continue to look for other appropriate locations for full-price retail stores and Marlin Bars. In addition to the planned Marlin Bars, we also have
two full-price retail store relocations and a couple of other new locations in negotiation. We believe that in Fiscal 2023, we may close a limited number of locations, including certain outlets and full-price retail locations.
The construction of and relocation of retail stores requires a greater amount of initial capital investment than wholesale operations, as well as greater operating costs. In addition to new store openings, we also incur capital expenditure costs related to remodels or expansions of existing stores, particularly when we renew or extend a lease beyond the original lease term, or otherwise determine that a remodel of a store is appropriate. The cost of a Tommy Bahama Marlin Bar is significantly more than the cost of a full-price retail store and can vary significantly depending on a variety of factors. Historically, the cost to build out our Marlin Bar locations has been approximately $3 million and future locations may be more expensive than that amount. For most of our full-price retail stores and our Marlin Bar locations, the landlord often provides certain incentives to fund a portion of our capital expenditures.
Wholesale Operations
To complement our direct to consumer operations and have access to a larger group of consumers, we continue to maintain oura wholesale operationsbusiness for Tommy Bahama. Tommy Bahama'sBahama’s wholesale customers consist of sales toinclude better department stores, and specialty stores and multi-brand e-commerce retailers that generally follow a retail model approach with limited discounting. We value our long-standing relationships with our wholesale customers and are committed to working with them to enhance the success of the Tommy Bahama brand within their stores.
Wholesale sales for Tommy Bahama accounted for 23% of Tommy Bahama's net sales in Fiscal 2016. Approximately two-thirds of Tommy Bahama's wholesale business reflects sales to major department stores with the remaining wholesale sales primarily sales to specialty stores. Tommy Bahama men's products are available in more than 2,000 North America retail locations, while Tommy Bahama women's products are available in more than 1,000 North America retail locations. During Fiscal 2016, 18% of Tommy Bahama's net sales were to Tommy Bahama's ten largest wholesale customers, withWith its largest customer representing 6% of Tommy Bahama's net sales.
At the same time, we believe that the integrity and continued success of the Tommy Bahama brand, including its direct to consumer operations, is dependent, in part, upon controlled wholesalewide distribution
with careful selection of the retailers through which Tommy Bahama products are sold. As a result of our approach to limiting our wholesale customers,currently, we believe that sales growth in our
men'smen’s apparel wholesale business
which represented approximately 88% of Tommy Bahama's domestic wholesale sales in Fiscal 2016, may be somewhat
limited.limited in the long-term. However, we believe that we
may have opportunities for wholesale sales increases for our Tommy Bahama
women'swomen’s business
in the future, with its appeal evidenced by
women's product representing 28% of salesits performance in our full-price retail stores and e-commerce websites.
Overall, we anticipate thatWholesale sales for Tommy Bahama accounted for 17% of Tommy Bahama’s net sales in Fiscal 2022. Approximately 10% of Tommy Bahama’s net sales reflects sales to major department stores with our remaining wholesale sales primarily to specialty stores. During Fiscal 2022, 12% of Tommy Bahama’s net sales were to Tommy Bahama’s 10 largest wholesale customers, with its largest customer representing less than 5% of Tommy Bahama’s net sales.Tommy Bahama Resort
On November 14, 2022, Tommy Bahama entered into a licensing arrangement for the first Tommy Bahama resort. Pursuant to the licensing agreement, the Miramonte Resort & Spa in Indian Wells, California will be converted into the Tommy Bahama wholesale business will grow at a slower rate thanMiramonte Resort & Spa, with an anticipated completion date in late 2023. Upon conversion of the direct to consumer distribution channel.
We maintainproperty, Tommy Bahama apparel sales offices and showrooms in New York and Seattle,will earn royalty income calculated as well as other locations, to facilitate sales to our wholesale customers. Our Tommy Bahama wholesale operations utilize a sales force consisting of a combination of independent commissioned sales representatives and Tommy Bahama employees.
Licensing Operations
We believe licensing is an attractive business opportunity for the Tommy Bahama brand. For an established lifestyle brand, licensing typically requires modest additional investment but can yield high-margin income. It also affords the opportunity to enhance overall brand awareness and exposure. In evaluating a licensee for Tommy Bahama, we typically consider the candidate's experience, financial stability, sourcing expertise and marketing ability. We also evaluate the marketability and compatibility of the proposed licensed products with other Tommy Bahama products.
Our agreements with Tommy Bahama licensees are for specific geographic areas and expire at various dates in the future, and in limited cases include contingent renewal options. Generally, the agreements require minimum royalty payments as well as additional royalty payments and, in most cases, advertising payments and/or obligations to expend certain funds towards marketing the brand on an approved basis. Our license agreements generally provide us the right to approve all products, advertising and proposed channels of distribution. Third party license arrangements for our Tommy Bahama products include the following product categories: |
| | |
Men's and women's headwear | Watches | Outdoor furniture and related products |
Outerwear | Belts, leather goods and gifts | Indoor furniture |
Footwear | Handbags | Mattresses and box springs |
Men's socks | Luggage | Bedding and bath linens |
Sleepwear | Rugs | Table top accessories |
Shampoo, soap and bath amenities | Fragrances | Fabrics |
In addition to our licenses for the specific product categories listed above, we may enter into certain international distributor agreements which allow those parties to distribute Tommy Bahama apparel and other products on a wholesale and/or retail basis within certain countries or regions. As of January 28, 2017, we have agreements for distribution of Tommy Bahama products in the Middle East, Greater China and parts of Central and South America. Substantially all of the products sold by the distributors are identical to the products sold in our own Tommy Bahama stores. In addition to selling Tommy Bahama goods to wholesale accounts, the distributors may, in some cases, operate their own retail stores. None of these agreements are expected to impact the operating results of Tommy Bahama in the near term in a meaningful manner.
Seasonal Aspects of Business
Tommy Bahama's operating results are impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments or other factors affecting the business may vary from one year to the next, we do not believe that net sales or operating income (loss) for any particular quarter or the distribution of net sales and operating income (loss) for Fiscal 2016 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. The timing of Tommy Bahama's sales in the direct to consumer and wholesale distribution channels generally varies. Typically, the demand in the direct to consumer operations, including sales at our own stores and e-commerce site, for Tommy Bahama products in our principal markets is generally higher in the spring, summer and holiday seasons and lower in the fall season. However, wholesale product shipments are generally shipped prior to each of the retail selling seasons. The following table presents the percentage of net salesrevenues associated with the resort. The property will be managed and operating income (loss) for Tommy Bahamaoperated by quarter for Fiscal 2016:
|
| | | | | | | | |
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| Net sales | 25 | % | 28 | % | 19 | % | 28 | % |
| Operating income (loss) | 30 | % | 47 | % | (16 | )% | 39 | % |
a national commercial and hospitality real estate company with considerable experience in premier resort development and operations.Lilly Pulitzer
Lilly Pulitzer designs, sources, markets and distributes upscale collections of women'swomen’s and girl'sgirl’s dresses, sportswear and related products. The Lilly Pulitzer brand was originally created in the late 1950s by Lilly Pulitzer and is an affluent brand with a heritage and aesthetic based on the Palm Beach resort lifestyle. The brand is somewhat unique among women'swomen’s brands in that it has demonstrated multi-generational appeal, including among young women in college or recently graduated from college; young mothers with their daughters; and women who are not tied to the academic calendar. Lilly Pulitzer products can be found on our Lilly Pulitzer website, lillypulitzer.com, in our owned Lilly Pulitzer stores, and in Lilly Pulitzer Signature Stores, which are described below, and on our Lilly Pulitzer website, lillypulitzer.com, as well as in independent specialty stores and better department and independent specialty stores. During Fiscal 2016, 46%2022, 34%, 34% and 38%14% of Lilly Pulitzer'sPulitzer’s net sales were for women'swomen’s dresses, sportswear, and dresses,Luxletic apparel products, respectively, with the remaining sales consisting of Lilly Pulitzer accessories, including scarves, bags, jewelry and belts; children's apparel; footwear;belts, children’s apparel, swim, footwear and licensed products.
We believe that there is significant opportunity to expand the reachWe believe the attraction of the Lilly Pulitzer brand to our consumers is a reflection of years of maintaining appropriate quality and design of the Lilly Pulitzer apparel, accessories and licensed products, restricting the distribution of the Lilly Pulitzer products to a select tier of retailers and effectively communicating the message of Lilly Pulitzer's optimistic Palm Beach resort chic lifestyle. We believe this approach to quality, design, distribution and communication has been critical in allowing us to achieve the current retail price points for Lilly Pulitzer products. We believe that the retail sales value of all Lilly Pulitzer branded products sold during Fiscal 2016, including our estimate of retail sales by our wholesale customers and other third party retailers, exceeded $300 million.
Design, Sourcing, Marketing and Distribution
Lilly Pulitzer's products are developed by our dedicated design teams located at the Lilly Pulitzer headquarters in King of Prussia, Pennsylvania as well as in Palm Beach, Florida. Our Lilly Pulitzer design teams focus on the target consumer, and the design process combines feedback from buyers, consumers and our sales force, along with market trend research. Lilly Pulitzer apparel products are designed to incorporate various fiber types, including cotton, silk, linen and other natural and man-made fibers, or blends of two or more of these materials.
Lilly Pulitzer uses a combination of in-house employees in our King of Prussia and Hong Kong offices and third party buying agents primarily based in Asia to manage the production and sourcing of the Lilly Pulitzer apparel products. Through its buying agents and direct sourcing, Lilly Pulitzer used approximately 50 vendors, with the largest individual supplier providing 10%, and the largest 10 suppliers providing 59%, of the Lilly Pulitzer products acquired during Fiscal 2016. In Fiscal 2016, 56% of Lilly Pulitzer's product purchases were from manufacturers located in China.
We believe that advertising and marketing are an integral part of the long-term strategy of the Lilly Pulitzer brand, and we therefore devote significant resources to advertising and marketing. Lilly Pulitzer's advertising attempts to engage individuals within the brand's consumer demographic and guide them on a regular basis to our full-price retail stores, e-commerce websites and wholesale customers' stores in search of our products. The marketing of the Lilly Pulitzer brand includes email, internet and social media advertising as well as traditional media such as catalogs, print and other correspondence with customers and moving media and trade show initiatives. We believe that it is very important that a lifestyle brand effectively communicate with consumers on a regular basis via the use of electronic media and print correspondence about product offerings or other brand events in order to maintain and strengthen the brand's connections with consumers.
In addition to our ongoing Lilly Pulitzer marketing initiatives, on occasion we also enter into collaborations with others, including airlines and other retailers, to increase brand awareness or create additional brand excitement. Often these collaborations do not generate direct revenue for Lilly Pulitzer, but instead provide significant press or social media exposure and excitement for the brand that complement our ongoing advertising and marketing initiatives. We believe in today's environment it is important to continue to find new, creative ways to advertise and market in ways that differentiate the brand.
We believe that highly visible full-price retail store locations with creative design, broad merchandise selection and brand appropriate visual presentation are key enticements for customers to visit our full-price retail stores and buy merchandise. We believe that our full-price retail stores enhance the shopping experience of our customers, which will increase consumer brand loyalty. Marketing initiatives at certain of our full-price retail stores may include special event promotions and a variety of public relations activities designed to create awareness of our stores and products. At certain times during the year, an integral part of the marketing plan for Lilly Pulitzer includes certain gift with purchase programs where the consumer earns the right to a Lilly Pulitzer gift product if certain spending thresholds are achieved. We believe that our full-price retail store operations, as well as our traditional and electronic media communications and periodic collaborations with others, enhance brand awareness and increase the sales of Lilly Pulitzer products in all channels of distribution.
For certain of our wholesale customers, we also provide point-of-sale materials and signage to enhance the presentation of our branded products at their retail locations and/or participate in cooperative advertising programs.
Lilly Pulitzer operates a distribution center in King of Prussia, Pennsylvania. Activities at the distribution center include receiving finished goods from suppliers, inspecting the products and shipping the products to wholesale customers, Lilly Pulitzer full-price retail stores and our e-commerce customers. We seek to maintain sufficient levels of inventory at the
distribution center to support our direct to consumer operations, as well as pre-booked orders and some limited replenishment ordering for our wholesale customers.
Direct to Consumer Operations
Lilly Pulitzer’s direct to consumer distribution channel, which consists of e-commerce operations and full-price retail stores, represented 84% of Lilly Pulitzer’s net sales in Fiscal 2022. A key element of our Lilly Pulitzer strategy is the lillypulitzer.com website, which generated $172 million, or 51%, of Lilly Pulitzer’s net sales in Fiscal 2022. Another key component of our Lilly Pulitzer growthdirect to consumer strategy is to operate our own Lilly Pulitzer stores, and e-commerce website, which we believe permits us to develop and build brand awareness by presenting products in a setting specifically designed to showcase the aspirational lifestyle on which they are based. The distribution channels included in Lilly Pulitzer's direct to consumer strategy consist of full-price retail store and e-commerce operations and represented 68%33% of Lilly Pulitzer'sPulitzer’s net sales in both Fiscal 2016 and Fiscal 2015. We expect the percentage of our2022.
The Lilly Pulitzer sales which are direct to consumer sales will increase in futuree-commerce business has experienced double-digit percentage growth for many years, asand we anticipate that the retail andnet sales growth of the e-commerce components ofbusiness will remain strong in the future. We utilize the Lilly Pulitzer business will growwebsite as an effective means of liquidating discontinued or out-of-season inventory in a brand appropriate manner and at gross margins in excess of 40% via e-commerce flash clearance sales. These sales create a significant amount of excitement with loyal Lilly Pulitzer consumers, who are looking for an opportunity to purchase Lilly Pulitzer products at a faster rate thandiscounted price and are also important in attracting new consumers to the wholesale distribution channel.
Lilly Pulitzer brand. These e-commerce flash clearance sales typically run for three days during the summer clearance period in September and for two days during the post-holiday clearance period in January, allowing the Lilly Pulitzer website to generally remain full-price for the remaining 360 days of the year. During Fiscal 2022, 31% of Lilly Pulitzer’s e-commerce sales, or 16% of Lilly Pulitzer’s net sales, were e-commerce flash clearance sales.Our direct to consumerfull-price retail store strategy for the Lilly Pulitzer brand includes operating full-price retail stores in higher-end malls, lifestyle shopping centers and malls, resort destinations and brand-appropriate street locations. Sales at our full-price retail stores represented 36% of Lilly Pulitzer's net sales during Fiscal 2016. As of January 28, 2017, less than one-half2023, about 40% of theour Lilly Pulitzer full-price stores were located in outdoor regional lifestyle centers and approximately one-third of our Lilly Pulitzer stores were located in indoor regional malls, slightly more than one-third of the Lilly Pulitzer stores were located in outdoor regional lifestyle centers andwith the remaining locations were primarilyin resort or street locations. Each full-price retail store carries a wide range of merchandise, including apparel, footwearIn certain seasonal locations such as Nantucket and accessories, all presented in a manner intended to enhanceWatch Hill, our stores are only open during the Lilly Pulitzer image, brand awareness and acceptance. Our Lilly Pulitzer full-price retail stores allow us to present Lilly Pulitzer's full line of current season products. We believe our Lilly Pulitzer full-price retail stores provide high visibility for the brand and products and also enable us to stay close to the needs and preferences of consumers. We also believe that our presentation of products and our strategy to operate the full-price retail stores with limited promotional activities complement our business with our wholesale customers. Generally,resort season. Additionally, we believe there are opportunities for full-price retailmay open temporary pop-up stores in both warmer and colder climates, as we believe the more important consideration is whether the location attracts the affluent consumer that we are targeting.
certain locations.Lilly Pulitzer'sPulitzer’s full-price retail store sales per gross square foot for Fiscal 20162022 were approximately $840$765 for the full-price retail stores which were open the full Fiscal 20162022 year, as compared to approximately $835 for the Lilly Pulitzer stores open for the full$685 in Fiscal 2015 year. The increase in sales per gross square foot from the prior year was primarily due to the favorable impact of the Fiscal 2016 closure of one store which offset a 1% decrease in sales in full-price retail stores that were determined to be comparable stores for Fiscal 2016.2021. The table below provides certain information regarding Lilly Pulitzer full-price retail storesdirect to consumer locations as of January 28, 2017.
2023. |
| | |
| | |
Florida | 14
|
|
Texas | 4 |
Full-Price |
Other | 22 |
Retail Stores |
TotalFlorida | 40 |
20 |
Massachusetts | | 7 |
Virginia | | 5 |
North Carolina | | 4 |
Other | | 23 |
Total | | 59 |
Average square feet per store | 2,700 |
2,500 |
Total square feet at year-end | 110,000 |
145,000 |
During Fiscal 2022, 50% of Lilly Pulitzer’s full-price retail store sales were in stores located in Florida with no other state generating more than 10% of full-price retail store sales. Including e-commerce sales, during Fiscal 2022, Florida represented 33% of total Lilly Pulitzer direct to consumer sales.
The table below reflects the changes in storedirect to consumer location count for Lilly Pulitzer stores during Fiscal 2016.
2022. | | |
|
| Full-Price |
| Full-Price | Retail Stores |
Open as of beginning of fiscal year | 34 |
58 |
Opened | 7 |
3 |
Closed | (1 | )(2) |
Open as of end of fiscal year | 40 |
59 |
In Fiscal 2017,
Currently, we expect to open sixat least two new full-price retail stores in Fiscal 2023, including stores in St. Louis, Missouri, Raleigh,Delray Beach, Florida and Charlotte, North Carolina, Columbus, Ohio,Carolina. We are in the process of identifying sites or negotiating leases for additional locations. We continue to look for other appropriate locations and Watch Hill, Rhode Island. Subsequentanticipate returning to Fiscal 2017, we expect to open four to six full-price retail stores eacha pace of opening as many as five locations per year in the near future. At the same time, we may relocate or close a limited number of locations at lease expiration. The operationconstruction of full-priceand relocation of retail stores requires a greater amount of initial capital investment than wholesale operations, as well as greater ongoing operating costs. We anticipate that most future full-price retail store openings will generally be 2,500 square feet on average; however, many stores will be larger or smaller than 2,500 square feet with the determination of size of the store depending on a variety of criteria. To open a 2,500 square foot Lilly Pulitzer full-
price retail store, we anticipate capital expenditures of approximately $0.8 million on average. For most of our full-price retail stores, the landlord provides certain incentives to fund a portion of our capital expenditures.
In addition to new store openings, we also incur capital expenditure costs related to remodels expansions or downsizingexpansions of existing stores, particularly when we renew or extend a lease beyond the original lease term, or otherwise determine that a remodel of a store is appropriate. We may also incur capital expenditures if we determine it is appropriate to relocate a store to a new location. The cost of store relocations, if any, will generally be comparable to the cost of opening a new store. Alternatively, when a lease expires we may decide to close the store rather than relocating the store to another location or renewing the lease. As an example, in Fiscal 2016, we closed our East Hampton, New York store at the expiration of the lease agreement.
In addition to operating Lilly Pulitzer full-price retail stores, another key element of our direct to consumer strategy is the lillypulitzer.com website, which represented 32% of Lilly Pulitzer's net sales in Fiscal 2016 compared to 30% in Fiscal 2015. The Lilly Pulitzer e-commerce business has experienced significant growth in recent years, and we anticipate that the rate of growth of the e-commerce business will remain strong in the future.
We also utilize the Lilly Pulitzer website as an effective means of liquidating discontinued or out-of-season inventory in a brand appropriate manner. Usually, we have two e-commerce flash clearance sales per year, both of which are in typical industry end-of-season promotional periods. These sales are brand appropriate events that create a significant amount of excitement with loyal Lilly Pulitzer consumers, who are looking for an opportunity to purchase Lilly Pulitzer products at a discounted price. Each of these two e-commerce flash clearance sales are for a very limited number of days, allowing the Lilly Pulitzer website to remain full-price for the remainder of the year. During Fiscal 2016, approximately 39% of Lilly Pulitzer's e-commerce sales were e-commerce flash clearance sales.
To complement our direct to consumer operations and have access to a larger group of consumers, including those who may wish to shop at a specialty store or department store, we continue to maintain our wholesale operations for Lilly Pulitzer. These wholesale operations, which represented 16% of Lilly Pulitzer’s net sales in Fiscal 2022, are primarily with Signature Stores, independent specialty stores, better department stores and independent specialty storesmulti-branded e-commerce retailers that generally follow a retail model approach with limited discounting. During Fiscal 2016, approximately 32%2022, about one-third of Lilly Pulitzer's net sales were sales to wholesale customers. During Fiscal 2016, 40% of Lilly Pulitzer'sPulitzer’s wholesale sales were to Lilly Pulitzer'sPulitzer’s Signature Stores, as described below, while approximately one-third of Lilly Pulitzer'sPulitzer’s wholesale sales were to specialty stores and about one-fifth of Lilly Pulitzer’s wholesale sales, or less than 5% of Lilly Pulitzer’s net sales, were to department stores. The remaining wholesale sales were primarily to national accounts, including on-line retailers, and off-price retailers. Lilly Pulitzer'sPulitzer’s net sales to its ten10 largest wholesale customers represented 17%8% of Lilly Pulitzer'sPulitzer’s net sales in Fiscal 20162022 with its largest customer representing less than 5% of Lilly Pulitzer'sPulitzer’s net sales.
An important part of Lilly Pulitzer'sPulitzer’s wholesale distribution is sales to Signature Stores. For these stores, we enter into agreements whereby we grant the other party the right to independently operate one or more stores as a Lilly Pulitzer Signature Store, subject to certain conditions, including designating substantially all the storefloor space specifically for Lilly Pulitzer products and adhering to certain trademark usage requirements. These agreements are generally for a two-year period. We sell products to these Lilly Pulitzer Signature Stores on a wholesale basis and do not receive royalty income associated with these sales. As of January 28, 2017,2023, there were 6748 Lilly Pulitzer Signature Stores.
Johnny Was
On September 19, 2022, we acquired the Johnny Was California lifestyle brand and related operations, which includes the design, sourcing, marketing and distribution of collections of affordable luxury, artisan-inspired bohemian apparel, accessories and home goods. The Johnny Was brand was founded in 1987 and continues to transcend fashion trends with its beautifully crafted, globally inspired products and demonstrates a unique ability to combine and mix elevated fabrics, patterns, bespoke prints and artisanal embroidery that distinguishes its product in the marketplace. Johnny Was products can be found on the Johnny Was website, johnnywas.com, and in our full-price retail stores as well as select department stores and specialty stores. During the 12 months ended January 28, 2023, 90% of the net sales of Johnny Was were for women’s apparel, with the remaining sales consisting of Johnny Was accessories, including home products, shoes, scarves, handbags, and jewelry.
Although we do not expect that the Lilly Pulitzer wholesale business will grow at the same pace as the15
Direct to Consumer Operations
The Johnny Was direct to consumer distribution channel, we value our long-standing relationships with our wholesale customerswhich consists of e-commerce operations and are committed to working with them to enhance the successJohnny Was retail stores, represented 75% of the Lilly PulitzerJohnny Was net sales in the 12 months ended January 28, 2023. A key element of the Johnny Was strategy is the johnnywas.com website, which generated $83 million of net sales, or 40% of the net sales of Johnny Was, in the 12 months ended January 28, 2023. Another key component of our Johnny Was direct to consumer strategy is to operate our own Johnny Was stores, which represented 35% of the net sales of Johnny Was in the 12 months ended January 28, 2023.
The Johnny Was e-commerce business has experienced very strong growth in recent years, and we anticipate that the net sales growth of the e-commerce business will remain strong in the future. Our full-price retail store strategy for the Johnny Was brand within their stores.includes operating full-price retail stores in higher-end lifestyle shopping centers and malls, resort destinations and brand-appropriate street locations. As of January 28, 2023, about 70% of the Johnny Was full-price stores were located in lifestyle centers, open air shopping environments or street front locations with the remaining 30% of locations in indoor regional malls. Full-price retail store sales per gross square foot for Johnny Was for the 12 months ended January 28, 2023 were approximately $740 for the full-price retail stores which were open the full 12 months.
Our Johnny Was outlet stores are generally located in outlet shopping centers that include other upscale retailers and serve an important role in overall inventory management by often allowing us to sell discontinued and out-of-season products at better prices than are otherwise available from outside parties.
The table below provides certain information regarding Johnny Was direct to consumer locations as of January 28, 2023.
| | | | | | |
| | | | | | |
| | Full-Price | | | | |
| | Retail Stores | | Outlet Stores | | Total |
California | | 17 | | 1 | | 18 |
Florida | | 8 | | 1 | | 9 |
Texas | | 8 | | — | | 8 |
New York | | 3 | | — | | 3 |
Other states | | 29 | | — | | 29 |
Total | | 65 | | 2 | | 67 |
Average square feet per store | | 1,700 | | 1,300 | | |
Total square feet at year end | | 110,000 | | 2,500 | | |
During the 12 months ended January 28, 2023, 29%, 16% and 13% of the retail store sales of Johnny Was were in stores located in California, Texas and Florida, respectively. During the 12 months ended January 28, 2023, including e-commerce sales, California, Texas, and Florida represented 24%, 15% and 11%, respectively, of our total Johnny Was direct to consumer sales.
The table below reflects the changes in store count for Johnny Was during Fiscal 2022.
| | | | | | |
| | Full-Price | | | | |
| | Retail Stores | | Outlet Stores | | Total |
Open as of January 29, 2022 | | 56 | | 2 | | 58 |
Opened | | 5 | | — | | 5 |
Open as of September 19, 2022 acquisition date | | 61 | | 2 | | 63 |
Opened | | 4 | | — | | 4 |
Open as of end of fiscal year | | 65 | | 2 | | 67 |
Currently, we expect to open approximately 10 new full-price retail stores in Fiscal 2023. During Fiscal 2023, we anticipate opening full-price retail stores across the country including stores in Colorado, Idaho, Missouri, Oklahoma, North Carolina and New York as well as additional stores in California and Florida. We believe that in Fiscal 2023, we
may relocate or close a limited number of locations at lease expiration. The construction of and relocation of retail stores requires a greater amount of initial capital investment than wholesale operations, as well as greater ongoing operating costs. The cost to build-out a Johnny Was retail store is typically less than $0.5 million. In addition to new store openings, we also incur capital expenditure costs related to remodels or expansions of existing stores, particularly when we renew or extend a lease beyond the integrity and continued successoriginal lease term, or otherwise determine that a remodel of the Lilly Pulitzer brand, including itsa store is appropriate.
Wholesale Operations
To complement our direct to consumer operations is dependent, in part, upon controlled wholesale distribution with careful selectionand have access to a larger group of the retailers through which Lilly Pulitzer products are sold. Lilly Pulitzer apparel products are available in more than 250 locations of our wholesale customers.
Weconsumers, we maintain Lilly Pulitzer apparel sales offices and showrooms in Palm Beach, Florida, King of Prussia, Pennsylvania and New York City. Our wholesale operations for Lilly Pulitzer utilizeJohnny Was. These wholesale operations are primarily with better independent specialty and department stores and multi-branded e-commerce retailers that generally follow a sales force consistingretail model approach with limited discounting. During the 12 months ended January 28, 2023, 25% of salaried sales employees.
Licensing Operations
We license the Lilly Pulitzer trademark to licensees in categories beyond Lilly Pulitzer's core product categories. In the long term, we believe licensing may be an attractive business opportunity for the Lilly Pulitzer brand, particularly once our direct to consumer presence has expanded. Once a brand is established, licensing requires modest additional investment but can yield high-margin income. It also affords the opportunity to enhance overall brand awareness and exposure. In evaluating a potential Lilly Pulitzer licensee, we consider the candidate's experience, financial stability, manufacturing performance and marketing ability. We also evaluate the marketability and compatibility of the proposed products with other Lilly Pulitzer brand products.
Our agreements with Lilly Pulitzer licensees are for specific geographic areas and expire at various dates in the future. Generally, the agreements require minimum royalty payments as well as royalty and advertising payments based on specified percentages of the licensee's net sales of Johnny Was were sales to wholesale customers. During the licensed products. Our license agreements generally provide us12 months ended January 28, 2023, about 40% and 30% of the rightwholesale sales of Johnny Was were to approve all products, advertising and proposed channels of distribution.
Third party license arrangements for Lilly Pulitzer products include the following product categories: stationery and gift products; home furnishing fabrics; and eyewear.
Seasonal Aspects of Business
Lilly Pulitzer's operating results are impacted by seasonality as the demand by specific product or style as well as demand by distribution channel may vary significantly depending on the time of year. Typically, the demand in the direct to consumer operations, including sales for our ownspecialty stores and e-commerce sites, for Lilly Pulitzer products in our principal markets is generally higher in the spring, summer and resort seasons and lower in the fall season. However, wholesale product shipments are generally shipped prior to each of the retail selling seasons. Further, in the third and fourth quarters of our fiscal year, which have not historically been strong direct to consumer or wholesale quarters for Lilly Pulitzer, Lilly Pulitzer has held significant e-commerce flash clearance sales which partially offsets the impact of seasonality on Lilly Pulitzer's sales. As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, the magnitude of e-commerce flash clearance sales or other factors affecting the business may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales for Fiscal 2016 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. The following table presents the percentage of net sales and operating income for Lilly Pulitzer by quarter for Fiscal 2016:
|
| | | | | | | | |
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| Net sales | 28 | % | 30 | % | 22 | % | 20 | % |
| Operating income | 40 | % | 44 | % | 12 | % | 4 | % |
Lanier Apparel
Lanier Apparel designs, sources and distributes branded and private label men's apparel, including tailored clothing, casual pants and sportswear, across a wide range of price points, but primarily at moderate price points. The majority of our Lanier Apparel products are sold under certain trademarks licensed to us by third parties. Lanier Apparel's licensed brands for certain product categories include Kenneth Cole®, Dockers®, Geoffrey Beene®, Nick Graham® and Andrew Fezza®. Additionally, we design and market products for our owned Billy London®, Oxford® (formerly Oxford Golf®), Duck Head® and Strong SuitTM brands. Both Duck Head and Strong Suit were acquired during Fiscal 2016. Sales of branded products licensed to us or owned by us represented 75% of Lanier Apparel's net sales during Fiscal 2016.
In addition to these branded businesses, Lanier Apparel designs and sources private label apparel products for certain customers, including tailored clothing and pants programs for large department stores, warehouse clubs and other retailers. For our large retail customers, the private label programs offer the customer product exclusivity, generally at higher gross margins than they would achieve on branded products, while allowing us the opportunityrespectively. The remaining wholesale sales were primarily to leverage our design, sourcing, production, logistics and distribution infrastructure. For other customers, we may perform any combination of design, sourcing, production, logistics or distribution services for a brand owner who will then distribute the product acquired from us through their wholesale or direct to consumer operations. In these cases, the brand owner may have determined it is more efficient to outsource certain functions, may be a smaller company that lacks such functional expertise or may want to focus their energies on the other aspects of their brand. Lanier Apparel, as an efficient operator that excels in sourcing, production, logistics, distribution and design, can increase its profitability by providing valuable services and resources to these smaller companies which may also allow the third party to operate their business in a more cost-effective manner than if the third party performed all the functions in-house.
Our Lanier Apparel products are primarily sold through large retailers including department stores, discount and off-price retailers warehouse clubs, national chains, specialtyand retailers and others throughoutin countries outside of the United States. Lanier Apparel's products are sold in more than 5,000 retail locations. In Lanier Apparel, we have long-standing relationships with someNet sales to the 10 largest wholesale customers of Johnny Was represented 14% of the United States' largest retailers. During Fiscal 2016, Lanier Apparel's two largest customers represented 18% and 16%, respectively, of Lanier Apparel's net sales. Sales to Lanier Apparel's 10 largest customers represented 73% of Lanier Apparel's net sales during Fiscal 2016. The amount and percentage of net sales attributable to an individual customer in future years may be different than Fiscal 2016 as sales to wholesale customers are not tied to long-term contracts.
As much of Lanier Apparel's private label sales are program based, where Lanier Apparel must bid for a program on a case-by-case and season-by-season basis, an individual customer could increase, decrease or discontinue its purchases from us
at any time. Thus, significant fluctuations in Lanier Apparel's operating results from one year to the next may result, particularly if a program is not renewed, the customer decides to use another vendor, we determine that the return on the program is not acceptable to us, a new program is initiated, there is a significant increaseJohnny Was in the
volume12 months ended January 28, 2023 with its largest customer representing less than 5% of Johnny Was’ net sales.Emerging Brands
Emerging Brands, which was organized in Fiscal 2022, consists of the program or otherwise. Additionally, in accordance with normal industry practice, as part of maintaining an ongoing relationship with certain customers, Lanier Apparel may be required to provide cooperative advertising or other incentives to the customer.
The moderate price point tailored clothing and sportswear markets are extremely competitive sectors, with significant retail competition as well as gross margin pressures due to retail sales price pressures and production cost increases. We believe that our Lanier Apparel business has historically excelled at bringing quality products to our customers at competitive prices and managing inventory risk appropriately while requiring minimal capital expenditure investments.
Design, Manufacturing, Sourcing, Marketing and Distribution
We believe that superior customer service and supply chain management, as well as the design of quality products, are all integral componentsoperations of our strategy in the brandedsmaller, earlier stage Southern Tide, TBBC and private label tailored clothing and sportswear markets in which Lanier Apparel operates. Our Lanier Apparel design teams, which are primarily located in New York City and Atlanta, focus on the target consumer for each brand and product. The design process combines feedback from buyers and sales agents along with market trend research and input from manufacturers. Our various Lanier Apparel products are manufactured from a variety of fibers, including wool, silk, linen, cotton and other natural fibers, as well as synthetics and blends of these materials.
Lanier Apparel manages production in Asia and Latin America through a combination of efforts from our Lanier Apparel offices in Atlanta and Hong Kong as well as with third party buying agents. Lanier Apparel's sourcing operations are also supplemented, as appropriate, by third party contractors who may provide certain sourcing functions or in-country quality assurance to further enhance Lanier Apparel's global sourcing operations. During Fiscal 2016, 77% of Lanier Apparel's product purchases were from manufacturers located in Vietnam. Lanier Apparel purchased goods from approximately 150 suppliers in Fiscal 2016. The 10 largest suppliers of Lanier Apparel provided 85%Duck Head brands. Each of the finished goods and raw materials Lanier Apparel acquired from third parties during Fiscal 2016, with 31% of our product purchases acquired from Lanier Apparel's largest third party supplier. In addition to purchasing products from third parties, Lanier Apparel operates a manufacturing facility, locatedbrands included in Merida, Mexico, which produced 10% of our Lanier Apparel products during Fiscal 2016.
The advertising efforts of Lanier Apparel are much more product specific than advertising for our owned lifestyle brands. For Lanier Apparel's branded products, advertising primarily consists of cooperative advertising with our larger customers, contributions to the licensor based on a specified percentage of our net sales to fund the licensor's general brand advertising initiatives and attending brand appropriate trade shows. As a provider of private label apparel, we are generally not responsible for advertising for private label brands.
For Lanier Apparel, we utilize a distribution center located in Toccoa, Georgia, a distribution center in Lyons, Georgia and certain third party distribution centers for our product shipments, where we receive goods from our suppliers, inspect those products and ship the goods to our customers. We seek to maintain sufficient levels of inventory to support programs for pre-booked orders and to meet customer demand for at-once ordering. For certain standard product styles, we maintain in-stock replenishment programs, providing shipment to customers within just a few days of receiving the order. These types of programs generally require higher inventory levels. Lanier Apparel utilizes various off-price retailers to sell excess prior-season inventory.
We maintain apparel sales offices and showrooms for our Lanier Apparel products in several locations, including New York City and Atlanta and employ a sales force consisting of a combination of salaried employees and independent sales reps. Lanier Apparel operates a number of websites for certain of its businesses and also ships orders directly to consumers who purchase products from the websites of certain of its wholesale customers.
Seasonal Aspects of Business
Lanier Apparel's operating results are impacted by seasonality as the demand by specific product or style may vary significantly depending on the time of year. As a wholesale apparel business, in which product shipments generally occur prior to the retail selling seasons, the seasonality of Lanier Apparel generally reflects stronger spring and fall wholesale deliveries which typically occur in our first and third quarters; however, in some fiscal years this will not be the case due to much of Lanier Apparel's operations resulting from program-driven businesses. The timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, the introduction of new programs, the loss of programs or customers or other factors affecting the business may vary significantly from one year to the next. Therefore, we do not believe that net sales or operating income of Lanier Apparel for any particular quarter or the distribution of net sales and operating income for Fiscal 2016 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. The following table presents the percentage of net sales and operating income for Lanier Apparel by quarter for Fiscal 2016:
|
| | | | | | | | |
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| Net sales | 27 | % | 19 | % | 35 | % | 19 | % |
| Operating income | 41 | % | 1 | % | 53 | % | 5 | % |
Southern Tide
On April 19, 2016, we acquired Southern Tide, LLC, which owns the Southern Tide lifestyle apparel brand. Southern TideEmerging Brands designs, sources, markets and distributes
high-quality apparel
and related products bearing
its respective trademarks and is supported by Oxford’s emerging brands team that provides certain support functions to the
distinctive Skipjack logo.smaller brands, including marketing and advertising execution, analysis and other functions. The shared resources provide for operating efficiencies and enhanced knowledge sharing across the brands. We acquired Southern Tide
offers an extensive selection of men’s shirts, pants, shorts, outerwear, ties, swimwear, footwearin 2016, Duck Head in 2016 and
accessories,TBBC in 2017.The table below reflects the net sales (in thousands) for Fiscal 2022 by brand for each brand included in Emerging Brands.
| | | |
| | Fiscal 2022 |
Southern Tide | | $ | 62,769 |
TBBC | | | 44,911 |
Duck Head | | | 8,804 |
Total Emerging Brands net sales | | $ | 116,484 |
The brands distribute their products on their brand-specific e-commerce websites, southerntide.com, thebeaufortbonnetcompany.com and duckhead.com, as well as women's and youth collections. Launched in 2006, Southern Tide combines the modern design elementswholesale channels of today's youthful trends with lovedistribution for the Southern culture and lifestyle. Theeach brand has an appeal to all ages who have an appreciation for classic design, vibrant colors, a great fit and an affection for the coast. Southern Tide products can be found inthat may include independent specialty retailers, better department stores and brand specific Signature Stores. During Fiscal 2022, the majority of the sales of both Southern Tide Signature Stores as described below, and on our Southern Tide website, southerntide.com. During the period from the acquisition date in April 2016 through the end of Fiscal 2016, 77% of Southern Tide's salesDuck Head were wholesale sales, and 23%while the majority of Southern Tide'sTBBC sales were e-commerce sales.
Since the acquisition, we have emphasized the integration of the Southern Tide operations, as appropriate, into our infrastructure, including integrating Southern Tide into our existing corporate infrastructure for many back-office functions and services such as accounting, treasury, credit, human resources, information technology, insurance, product quality control, factory compliance and inbound/outbound logistics. Additionally, the inventory and distribution operations of Southern Tide were transferred from a third party distribution center to our Lyons, Georgia distribution center. Southern Tide has also began utilizing our Hong Kong-based sourcing operations for certain product categories starting in the Fall 2017 season. We believe that integrating these sourcing, distribution, administrative and back-office functions into our existing infrastructure allows the Southern Tide management team greater ability to focus on the consumer facing functions of the Southern Tide business, including design, sales and marketing, while also leveraging our existing expertise in certain areas, which we believe will allow for more efficient and effective operations for the Southern Tide business.
We believe that there is significant opportunity to expand the reach of the Southern Tide brand by increasing the specialty store, department store and Signature Store presence of the brand, as well as increasing e-commerce sales. However, this growth and expansion will be at a prudent pace as we believe that the integrity and success of the Southern Tide brand is dependent, in part, upon controlled wholesale distribution with careful selection of the retailers through which Southern Tide products are sold.
We believe that in order to take advantage of opportunities for long-term growth, we must continue to invest in the Southern Tide brand. In the near term, these investments will primarily consist of an increase in employment, advertising and other costs to support a growing wholesale business with specialty and department stores, increasing the number of Southern Tide Signature Stores and costs to enhance e-commerce and other technology capabilities. While we believe that these investments will generate long-term benefits, the investments may have a short-term negative impact on Southern Tide's operating margin given the current size of the Southern Tide business. We believe that the retail sales value of all Southern Tide branded products sold during the period from the acquisition date through the end of Fiscal 2016, including our estimate of retail sales by our wholesale customers and other third party retailers, exceeded $50 million.
Design, Sourcing, Marketing and Distribution
Southern Tide's products are developed by our dedicated design teams located at the Southern Tide headquarters in Greenville, South Carolina. Our Southern Tide design teams focus on the target consumer, and the design process combines feedback from buyers, consumers and our sales force, along with market trend research. Southern Tide apparel products are designed to incorporate various fiber types, including cotton and other natural and man-made fibers, or blends of two or more of these materials.
During the period from the acquisition date through the end of Fiscal 2016, Southern Tide primarily used third party buying agents for the production and sourcing of apparel products. Through its third party buying agents, Southern Tide used approximately 50 suppliers with the largest individual supplier providing 24% and three other suppliers each providing more than 10% of the Southern Tide products. The largest 10 suppliers of Southern Tide provided 81% of the Southern Tide products acquired, while 61% and 18% were sourced from China and Peru, respectively. Southern Tide currently is in the process of transitioning some of its product purchases from third party buying agents to our Hong Kong-based sourcing team. We believe that products can generally be sourced in a more cost effective manner through our existing internal sourcing operations than through third party buying agents.
We believe that advertising and marketing are an integral part of the long-term strategy for the Southern Tide brand, and we therefore devote significant resources to advertising and marketing. Southern Tide's advertising attempts to engage
individuals within the brand's consumer demographic and guide them on a regular basis to our e-commerce website and wholesale customers' stores in search of our products. The marketing of the Southern Tide brand includes email, internet and social media advertising as well as traditional media such as catalogs, print and other correspondence with customers and moving media and trade show initiatives. We believe that it is very important that a lifestyle brand effectively communicate with consumers on a regular basis via the use of electronic media and print correspondence about product offerings or other brand events in order to maintain and strengthen the brand's connections with consumers. For certain of our wholesale customers, we also provide point-of-sale materials and signage to enhance the presentation of our branded products at their retail locations and/or participate in cooperative advertising programs.
Southern Tide utilizes our owned distribution center in Lyons, Georgia for its warehouse and distribution center operations. Activities at the distribution center include receiving finished goods from suppliers, inspecting the products and shipping the products to wholesale customers and our e-commerce customers. We seek to maintain sufficient levels of inventory at the distribution center to support our direct to consumer operations, as well as pre-booked orders and some limited replenishment ordering for our wholesale customers.
Wholesale Operations
At this time, Southern Tide's business is predominantlysales.Also, a wholesale business with sales to independent specialty stores, department stores and Southern Tide Signature Stores. Southern Tide's wholesale operations provide an opportunity to grow our business and have access to a large group of consumers. During the period from the acquisition date through the end of Fiscal 2016, less than 10% of Southern Tide's sales were to department stores and less than 5% of sales were to Southern Tide Signature Stores. Southern Tide's net sales to its five largest wholesale customers represented 20% of Southern Tide's net sales in the period from the acquisition date through the end of Fiscal 2016, with its largest customer representing 6% of Southern Tide's net sales. Southern Tide products are available in more than 950 retail locations.
A component of Southern Tide's plans for growth in wholesale distribution is sales to Signature Stores. For these stores, we enter into agreements whereby we grant the other party the right to independently operate one or more stores as a Southern Tide Signature Store, subject to certain conditions, including designating substantially all the store specifically for Southern Tide products and adhering to certain trademark usage requirements. We sell products to these Southern Tide Signature Stores on a wholesale basis and do not receive royalty income associated with these sales. As of January 28, 2017, there were three Signature Stores located in Kiawah Island, South Carolina, Greenville, South Carolina and Naperville, Illinois. We anticipate entering into additional Signature Store arrangements in the future.
We maintain Southern Tide apparel sales offices and showrooms in Greenville, South Carolina. Our wholesale operations for Southern Tide utilize a sales force consisting of a combination of salaried sales employees and commissioned agents.
Direct to Consumer Operations
A key component of our Southern Tide and TBBC growth strategy is to expand our direct to consumer retail store operations which currently consistsafter both brands opened their first retail store locations in recent years. The table below provides certain information regarding the Emerging Brands direct to consumer locations as of January 28, 2023.
| | | | | | |
| | Southern Tide | | TBBC | | Total Emerging Brands |
Florida | | 5 | | 2 | | 7 |
North Carolina | | 1 | | — | | 1 |
South Carolina | | — | | 1 | | 1 |
Total | | 6 | | 3 | | 9 |
Average square feet per store | | 1,700 | | 1,400 | | |
Total square feet at year end | | 10,000 | | 4,200 | | |
The table below reflects the changes in direct to consumer location count for Emerging Brands during Fiscal 2022.
| | | | | | |
| | | | | | |
| | Southern Tide | | TBBC | | Total Emerging Brands |
Open as of beginning of fiscal year | | 4 | | 1 | | 5 |
Opened | | 2 | | 2 | | 4 |
Closed | | — | | — | | — |
Open as of end of fiscal year | | 6 | | 3 | | 9 |
During the First Quarter of Fiscal 2023, we acquired three Southern Tide website. In the future,Signature Stores located in Massachusetts, and during Fiscal 2023 we may open owned retail stores; however, we do not expect to open any owned retailat least five additional Southern Tide stores, with the majority of those in Florida, resulting in a planned store count increase of eight or more for Southern Tide during Fiscal 2023. Additionally, for TBBC, we anticipate opening two new stores during Fiscal 2017. The2023. We continue to look at additional opportunities for new full-price store locations for both Southern Tide website marketsand TBBC. The operation of full-price retail stores requires a full linegreater amount of merchandise, including apparel and accessories, all presented in a manner intended to enhance the Southern Tide image, brand awareness and acceptance. We believe our Southern Tide website enables us to stay close to the needs and preferences of consumers.
We also utilize the Southern Tide website as a means of liquidating discontinued or out-of-season inventory in a brand appropriate manner. During the year, we have a number of e-commerce flash clearance sales per year, which are typically in industry end of season promotional periods.
Licensing Operations
We currently license the Southern Tide trademark to a licensee for bed and bath product categories. The agreement requires minimum royalty paymentsinitial capital investment than wholesale operations, as well as
royalty and advertising payments and provides us the right to approve all products, advertising and proposed channels of distribution. In the long term, we believe licensing may be an attractive business opportunitygreater ongoing operating costs. We anticipate that most future retail store openings for Southern Tide
but opportunities mayand TBBC will generally be
somewhat limited untilapproximately 1,500 to 2,500 square feet; however, the
sales volume and distributiondetermination of actual size of the
Southern Tide brand expands. Once the brand is more fully established, licensing requires modest additional investment but can yield high-margin income.store will depend on a variety of criteria.Lanier Apparel
In Fiscal 2021, we exited our Lanier Apparel business, which had been focused on moderately priced tailored clothing and related products. This decision aligns with our stated business strategy of developing and marketing compelling lifestyle brands. It also affordstook into consideration the opportunity to enhance overall brand awareness and exposure.
Seasonal Aspectsincreased macroeconomic challenges faced by the Lanier Apparel business, many of Business
Southern Tide'swhich were magnified by the COVID-19 pandemic. The operating results are impacted by seasonality asof the demand by specific product or style as well as demand by distribution channel may vary significantly depending onLanier Apparel business in Fiscal 2021 largely consisted of activities associated with the timewind down of year. Asoperations following our Fiscal 2020 decision to exit the timingbusiness. Refer to Note 11 and Note 2 of certain unusual or non-recurring items, economic conditions, wholesale product shipments or other factors affectingour consolidated financial statements included in this report for additional information about the business may vary from one year to the next, we do not believe that net sales orLanier Apparel exit and Fiscal 2021 operating income for any particular quarter or the distribution of net sales
for Fiscal 2016 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. Typically, wholesale product shipments are generally shipped prior to each retail selling seasons.
results.Corporate and Other
Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, the elimination of inter-segment sales, LIFO inventory accounting adjustments,any other costsitems that are not allocated to the operating groups, and operations of other businesses which are not included in our operating groups, including our Lyons, Georgia distribution center operations (which performs warehouse and distribution services for third parties, as wellLIFO inventory accounting adjustments as our Southern Tide and Lanier Apparel businesses). Our LIFO inventory pool does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to operating groups.
Discontinued Operations
Discontinued operations includedefinitions, and the assets and operations of our former Ben Sherman operating groupLyons, Georgia distribution center and our Oxford America business, which we soldgenerated net sales of $1 million and was exited in July 2015. Unless otherwise indicated, all references to assets, liabilities, revenues, expensesFiscal 2022, and other informationour $8 million minority ownership interest in this report reflect continuing operationsa property in Indian Wells, California that will be converted into the Tommy Bahama Miramonte Resort and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group. Refer to Note 13 in our consolidated financial statements included in this report for additional information about discontinued operations.
Spa during Fiscal 2023.TRADEMARKS
We own trademarks, severalmany of which are very important and valuable to our business, including Tommy Bahama,Bahama®, Lilly PulitzerPulitzer®, Johnny Was®, Southern Tide®, The Beaufort Bonnet Company® and Southern Tide.Duck Head®. Generally, our significant trademarks are subject to registrations and pending applications throughout the world for use on apparel and, in some cases, apparel-related products, accessories, home furnishings and beauty products, as well as in connection
with retail services. We continue to evaluate our worldwide usage and registration of certain of our trademarks. In general, trademarks remain valid and enforceable as long as the trademarks are used in connection with our products and services in the relevant jurisdiction and the required registration renewals are filed. Important factors relating to risks associated with our trademarks include, but are not limited to, those described in Part I, Item 1A. Risk Factors.
ADVERTISING AND MARKETING
During Fiscal 2022, we incurred $82 million, or 6% of net sales, of advertising expense. Advertising and marketing are an integral part of the long-term strategy for our lifestyle brands, and we therefore devote significant resources to these efforts. Thus, we believe that it is very important that our brands communicate regularly with consumers about product offerings or other brand events in order to maintain and strengthen connections with consumers. Our advertising emphasizes the respective brand’s image and lifestyle and attempts to engage individuals within the target consumer demographic and guide them on a regular basis to our e-commerce websites, direct to consumer locations or wholesale customers’ stores and websites in search of our products.
We increasingly utilize digital marketing, social media and email, and continue to use traditional direct mail communications, to interact with our consumers. We vary our engagement tactics to elevate the consumer experience as we attract new consumers, drive conversion, build loyalty, activate consumer advocacy and address the transformation of consumer shopping behaviors. Our creative marketing teams design and produce imagery and content, social media strategies and email and print campaigns designed to inspire the consumer and drive traffic to the brand. We attempt to increase our brand awareness through a strategic emphasis on technology and the elevation of our digital presence which encompasses e-commerce, mobile e-commerce, digital media, social media and influencer marketing. In this environment where many people are digital-first consumers, we continue to enhance our approach to digital marketing and invest in analytical capabilities to promote a more personalized experience across our distribution channels. At the same time, we continue to innovate to better meet consumer online shopping preferences (e.g. loyalty, ratings and reviews and mobile phone applications) and build brand equity. The ongoing trend towards a digital first consumer that was accelerated as a result of the COVID-19 pandemic provided a catalyst for accelerating the implementation of new direct to consumer business models and consumer engagement programs, such as selling through social media.
Marketing initiatives in our direct to consumer operations may include special event promotions, including loyalty award card, Flip Side, Friends & Family and gift with purchase events and a variety of public relations activities designed to create awareness of our brands and products, drive traffic to our websites and stores, convert new consumers and increase demand and loyalty. Our various initiatives are effective in increasing online and in-store traffic resulting in the proportion of our sales that occur during our marketing initiatives increasing in recent years, which puts some downward pressure on our direct to consumer gross margins.
We believe that highly visible full-price retail stores with creative design, broad merchandise selection and brand appropriate visual presentation are key enticements for customers to visit and buy merchandise. We believe that full-price retail stores attract new consumers and enhance the shopping experience of our existing customers, which will increase consumer brand loyalty, our net sales and sales of our products by our wholesale customers.
Our marketing may also include sponsorships, collaborations, and co-branding initiatives, which may be for a particular cause or non-profit organization that is expected to resonate with target consumers. For certain of our wholesale customers, we may also provide point-of-sale materials and signage to enhance the presentation of our products at their retail locations and/or participate in cooperative advertising programs.
PRODUCT DESIGN
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 (including through rapidly shifting digital and social media vehicles); product fulfillment capabilities; and customer service. Our ability to compete successfully in the apparel industry is dependent on 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.
Each of our lifestyle brands’ products are designed and developed by dedicated brand-specific teams who focus on the target consumer for the respective brand. The design process includes feedback from buyers, consumers and sales agents, along with market trend research. Our apparel products generally incorporate fabrics made of cotton, silk, linen, nylon, leather, tencel and other natural and man-made fibers, or blends of two or more of these materials.
PRODUCT SOURCING
We intend to maintain flexible, diversified, cost-effective sourcing operations that provide high-quality apparel and related products. Our operating groups, either internally, using in-house employees located in the United States and/or Hong Kong, or through the use of third party buying agents, source virtuallymanage the production and sourcing of substantially all of our apparel and related products from non-exclusive, third party producers located in foreign countries, with a significant concentration in Asia, or from our licensees for licensed products sold in our direct to consumer distribution channels. During Fiscal 2016, we sourced approximately 58% and 16% of our products from producers located in China and Vietnam, respectively, with no other country greater than 10%. countries.
Although we place a high value on long-term relationships with our suppliers of apparel and related products and have used many of our suppliers for a number of years, generally we do not have long-term contracts with our suppliers. Instead, we conduct business on an order-by-order basis. Thus, we compete with other companies for the production capacity of independent manufacturers. We believe that this approach provides us with the greatest flexibility in identifying the appropriate manufacturers while considering quality, cost, timing of product delivery and other criteria and also utilizing the expertise of the manufacturers.criteria. During Fiscal 2016,2022, we purchased our products from more than 250 suppliers, with a significant concentration of suppliers in Asia. Our 10 largest suppliers provided approximately one-third of our product purchases. During Fiscal 2022, no individual third party manufacturer, suppliedlicensee or other supplier provided more than 10% of our product purchases in total. We generally acquire products sold in our food and beverage operations from various third party domestic suppliers, with a particular emphasis on procuring sustainably sourced food and locally grown produce.
During Fiscal 2022, approximately 36%, 23%, and 11% of our apparel and related products acquired directly by us or via buying agents, were from producers located in China, Vietnam and Peru, respectively, with no other country representing more than 10% of such purchases.
We expect that the percentage of our products sourced from producers located in China will increase to closer to 40% in Fiscal 2023, as Fiscal 2023 will include a full year of purchases for Johnny Was, which has a significantly higher concentration of production in China than our other brands. For the 12 months ended January 28, 2023, the percentage of products sourced from China for our Tommy Bahama, Lilly Pulitzer and Johnny Was operating groups were 40%, 23% and 92%, respectively. While we have and will continue to work on diversifying our supplier base and reducing the concentration of manufacturing from China in the future, the majority of fibers included in our apparel and other products currently originate in China even if the products are manufactured elsewhere.We purchase virtually all of our apparel and related products from third party producers, substantially all as package purchases of finished goods, whichgoods. These products are manufactured with oversight by us or our third party buying agents and to our design and fabric specifications. The use of contractthird party manufacturers reduces the amount of capital investment required by us, as operating manufacturing facilities can requirerequires a significant amount of capital investment.investment, labor and oversight. We depend upon the ability ofon third party producers to secure a sufficient supply of specified raw materials, specified by us, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity rather than us providing or financing the costs of these items.capacity. We believe that purchasing substantially all of our products as package purchases allows us to reduce our working capital requirements as we are not required to purchase, or finance the purchase of, the raw materials or other production costs related to our apparel and related product purchases until we take ownership of the finished goods, which typically occurs when the goods are shipped by the third party producers. In addition to purchasing products from third parties, our Lanier Apparel operating group operates our only owned manufacturing facility, which is located in Merida, Mexico and produced 2% of our total company, or 10% of our total Lanier Apparel, products during Fiscal 2016.
As the design, manufacture and transportation of apparel and related products for our brands may take as many as six months for each season, we typically make commitments months in advance of when products will arrive in our full-price retail stores or our wholesale customers'customers’ stores. We continue to seek ways to reduce the time required from design and ordering to bringing products to our customer. As our merchandising departments must estimate our requirements for finished goods purchases for our own full-price retail stores and e-commerce sites based on historical product demand data and other factors, and as purchases for our
wholesale accounts must be committed to and purchased by us prior to the receipt of
all wholesale customer orders, in some cases, we carry the risk that we have purchased more inventory than will ultimately be desired or that we will ultimately desire.
not have purchased sufficient inventory to satisfy demand, resulting in lost sales opportunities.As part of our commitment to source our products in a lawful, ethical and socially responsible manner, each of our operating groups has implemented a code of conduct program applicable to vendors from whom we purchase goods,apparel and related products, which includes provisions related to abiding by applicable laws as well as compliance with other business or ethical standards, including related human rights, health, safety, working conditions, environmental and other requirements. We require that each of our vendors and licensees comply with the applicable code of conduct or substantially similar compliance standards. All of our vendors from whom we purchase goods are also required by us to adhere to the United States Customs and Border Protection’s Customs-Trade Partnership Against Terrorism program, including standards relating to facility, procedural, personnel and cargo security.
On an ongoing basis we assess vendors'vendors’ compliance with the applicable code of conduct and applicable laws and regulations through audits performed by either our employees or our designated agents. This assessmentWe periodically review each tier 1 supplier’s compliance with our requirements and conduct social compliance audits more frequently depending on the severity of compliance by vendors is directed by our corporate leadership team.issues identified and the cooperation received during remediation. In the event we determine that a vendor is not abiding by our required standards, we work with the vendor to remediate the violation. If the violation is not satisfactorily remediated, we will discontinue use of the vendor.
CORPORATE RESPONSIBILITY
We believe that as a leading apparel company, we have a responsibility to reduce our environmental impact and make the world a better place for all people. Our Board is ultimately charged with overseeing the risks to our business on behalf of our shareholders, and we believe that our Board’s active involvement in oversight of environmental, social and governance (“ESG”) initiatives affords us tremendous benefits. We report routinely to our Board and/or various Board committees about ESG risks and strategies and communicate insights provided by our directors to our brands to assist in formulating ESG goals and initiatives. Within our Corporate team, at the end of Fiscal 2022, we created an enterprise-wide Corporate Responsibility Department reporting to our General Counsel which, with input from our Executive Leadership Team, will focus in the immediate future on assessing ESG opportunities within our industry, establishing baseline metrics and objectives which we expect to publish in the future and collaborating with our brands on potential opportunities to execute brand-specific ESG initiatives.
Reducing our Footprint
Our business operations – throughout the value chain – impact the environment, and we are committed to identifying and executing commercially viable environmental sustainability initiatives to further a safer, more sustainable world for the generations that follow us. Our brands are continuously working to improve sustainability in direct to consumer location design and operations, and we have also undertaken efforts to implement sustainability measures at our offices and distribution centers.
Increasing our use of sustainable materials is and will continue to be a key priority, and we are excited to introduce products crafted from sustainable materials. For example, in Fiscal 2022, we launched the Tommy Bahama Palm ModernTM line of women’s swimwear, made with 75% recycled nylon. At Southern Tide, we reintroduced the Shoreline shorts, beloved by customers for their versatility and comfort, in 100% recycled materials. Within our businesses, we also seek to use preferred materials that are more environmentally responsible than their conventional counterparts like LENZINGTM, ECOVEROTM Viscose and TENCELTM Modal and raw materials that are certified to the Global Organic Textile Standard or Global Recycled Standard.
Our operating groups also maintain and enforce restricted substances lists, which are informed by the American Apparel & Footwear Association Environmental Task Force restricted substances list, to ensure that the use of chemicals in our products complies with all applicable legal and safety requirements.
We participate in various trade initiatives and organizations to better inform ourselves about risks, opportunities and best practices. We are a proud member of the American Apparel & Footwear Association (AAFA), and all of our
brands are signatories to the “Commitment to Responsible Recruiting” sponsored by the AAFA and the Fair Labor Association. Our Tommy Bahama business is a member of the Sustainable Apparel Coalition, and within our organization, we have membership in Better Cotton and partnerships with the Forest Stewardship Council (FSC) and FSC-certified suppliers.
Empowering our People
We believe that our long-term success as an organization relies on recruiting, developing, promoting and rewarding the best and most talented people within our industry. Diversity and inclusion are key components of our corporate responsibility framework, and we are committed to creating a culture where people have a sense of belonging and purpose to maximize their fullest potential. For more information about our workforce and diversity and inclusion initiatives, please refer to Part I, Item 1, Business—Human Capital Management.
Enriching our Communities
Since our founding in 1942, we have prided ourselves on being model citizens for the communities in which we operate. We focus our community initiatives on programs that can impact a broad set of constituents where we operate. Our community partners include the United Way of Greater Atlanta, the Woodruff Arts Center and Grady Hospital, and each of our operating groups partners with organizations improving quality of life in the communities where our customers and employees live and work, such as the Garden of Hope and Courage, the Breast Cancer Research Foundation, Folds of Honor and the Kentucky Children’s Hospital.
In 2020, we announced the launch of the Oxford Educational Access Initiative to further our goal of reducing economic and racial inequality through access to education. We believe that every child, regardless of race or economic circumstance, deserves the chance to learn and be successful. Over the course of four years beginning in 2021, we have given and will continue to give an aggregate of $1 million to community organizations with innovative program models that address a broad spectrum of educational challenges that children in underserved communities face. Each of our brands has selected recipient organizations that are working to address disparities in educational access and barriers to success for children in our local communities.
IMPORT RESTRICTIONS AND OTHER GOVERNMENT REGULATIONS
We are exposed to certain risks as a result of our international operations as substantially all of our merchandise, as well as the products purchased by our licensing partners, is manufactured by foreign suppliers. During Fiscal 2016, we sourced approximately 58% of our products from producers located in China. Oursuppliers as discussed above. Products imported productsby us, or imported by others and ultimately sold to us, are subject to customs, trade and other laws and regulations governing their entry into the United States and other countries where we sell our products.
products, including various federal, state, local and foreign laws and regulations that govern any of our activities that may have adverse environmental, health and safety effects. Noncompliance with these laws and regulations may result in significant monetary penalties.Substantially all of the merchandise we acquire is subject to certain duties which are assessed on the value of the imported product andproduct. These amounts represent a component of the inventories we sell and are included in cost of goods sold in our consolidated statements of operations. We paid total duties of more than $57 million on products imported into the goods we sell.United States directly by us in Fiscal 2022, with the average duty rate on those products of approximately 17% of the value of the imported product in Fiscal 2022. Duty rates vary depending on the type of garment, and its fiber content and country of origin and are subject to change in future periods. In addition, while the World Trade Organization'sOrganization’s member nations have eliminated quotas on apparel and textiles, the United States and other countries into which we import our products are still allowed in certain circumstances to unilaterally impose "anti-dumping" or "countervailing" duties in response to threats to their comparable domestic industries.
Although we have not been materially inhibited from doing business insourcing products from desired markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and brands and enter into new markets. In addition, after the 2016 elections in the United States, there has been discussion ofrecent years the United States government implementing significant tax and trade reform, including disallowing deductibility of imported products, providing for a border adjustability tax mechanism for imports and other potential changes. There is a significant amount of uncertainty related to these topics; however ithas implemented additional duties on certain product categories across various industries. It is possible that the proposed changes, if implemented,additional duty increases could occur in future years, which could have a
significant unfavorable impact on the apparel retail industry and our cost of goods sold, operations, net sales, net earnings and cash flows. Our management regularly monitors proposed regulatory changes and the existing regulatory environment, including any impact on our operations or on our ability to import products.
As a result of these changes and increased costs of production in certain countries that unfavorably impact our cost of goods sold, we continue to make changes in our supply chain, including exiting certain factories and sourcing those products from a factory in a different foreign country.In addition, apparel and other related products sold by us are subject to stringent and complex product performance and security and safety standards, laws and other regulations. These regulations relate principally to product labeling, certification of product safety and importer security procedures. We believe that we are in material compliance with those regulations. Our licensed products and licensing partners are also generally subject to such regulation. Our agreements require our licensing partners to operate in compliance with all laws and regulations.
Important factors relating to risks associated with government regulations include those described in Part I, Item 1A. Risk Factors.
DISTRIBUTION CENTERS
We operate a number of distribution centers. Our Auburn, Washington, King of Prussia, Pennsylvania and Los Angeles, California distribution centers serve our Tommy Bahama, Lilly Pulitzer and Johnny Was operating groups, respectively. Additionally, a third party distribution center in Los Angeles, California provides distribution services for the Johnny Was e-commerce operations. Our Lyons, Georgia distribution center provides primary distribution services for our smaller Southern Tide, TBBC and Duck Head businesses, as well as certain distribution services for our Lilly Pulitzer and Tommy Bahama businesses.
Activities at the distribution centers include receiving finished goods from suppliers, inspecting the products and shipping the products to our retail store, e-commerce and wholesale customers, as applicable. We seek to maintain sufficient levels of inventory at the distribution centers to support our direct to consumer operations, as well as pre-booked, at-once and some in-stock replenishment orders for our wholesale customers. We use a local third party distribution center for our Tommy Bahama Australia operations.
In Fiscal 2022, 80% of our net sales were direct to consumer sales, which are filled on a current basis; accordingly, an order backlog is not material to our business.
INFORMATION TECHNOLOGIES
We believe that sophisticated information systems and functionality are important components of maintaining our competitive position and supporting continued growth of our businesses, particularly in the ever changingever-changing consumer shopping environment. Our information systems are designed to provide effective retail store, e-commerce, food and beverage and wholesale operations while emphasizing efficient point-of-sale, distribution center, design, sourcing, order processing, marketing, customer relationship management, accounting and other functions. We regularly evaluate the adequacy of our information technologies and upgrade or enhance our systems to gain operating efficiencies, to provide additional consumer access and to support our anticipated growth as well as other changes in our business. We believe that continuous upgrading and enhancements to our information systems with newer technology that offers greater efficiency, functionality and reporting capabilities is critical to our operations and financial condition. We plan to increase our investment in information technology initiatives in Fiscal 2023 compared to Fiscal 2022 levels which will result in increased capital expenditures and SG&A and decrease operating margin from the levels achieved in Fiscal 2022 in the near term but provide significant long term benefits to our business operations and financial success.
LICENSING AND OTHER DISTRIBUTION ARRANGEMENTS
We license certain of our trademarks, including the Tommy Bahama and Lilly Pulitzer names, to licensees in categories beyond our brands’ core product categories. We believe licensing is an attractive business opportunity for our larger lifestyle brands. Once a brand is more fully established, licensing typically requires modest additional investment but can yield high-margin income. It also affords the opportunity to enhance overall brand awareness and exposure. In
evaluating a licensee for our brands, we consider the candidate’s experience, financial stability, sourcing expertise and marketing ability. We also evaluate the marketability and compatibility of the proposed licensed products with the brand image and our own products.
Our agreements with our licensees are brand specific, relate to specific geographic areas and have expirations at various dates in the future, with contingent renewal options in limited cases. Generally, the agreements require minimum royalty payments as well as royalty payments based on specified percentages of the licensee’s net sales of the licensed products as well as certain obligations for advertising and marketing. Our license agreements generally provide us the right to approve all products, advertising and proposed channels of distribution.
We license the Tommy Bahama brand for a broad range of product categories including indoor furniture, outdoor furniture, beach chairs, bedding and bath linens, fabrics, leather goods and gifts, headwear, hosiery, sleepwear, shampoo, toiletries, fragrances, cigar accessories, distilled spirits, resort operations and other products. Third party license arrangements for Lilly Pulitzer products include stationery and gift products; home furnishing products; and eyewear.
In addition to our license arrangements for the specific product categories listed above, we may enter into certain international distributor agreements which allow third parties to distribute apparel and other products on a wholesale and/or retail basis within certain countries or regions. As of January 28, 2023, we have agreements for the distribution of Tommy Bahama products in the Middle East and parts of Latin America. The products sold by the distributors generally are identical to the products sold in our own Tommy Bahama stores. In addition to selling Tommy Bahama goods to wholesale accounts, the distributors may, in some cases, operate a limited number of their own retail stores. Additionally, we have arrangements for distribution of Johnny Was products in certain countries. None of our international distributor agreements are expected to generate growth that would materially impact our operating results in the near term.
SEASONAL ASPECTS OF BUSINESS
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. For details ofAs a result, our quarterly operating results and working capital requirements fluctuate significantly from quarter to quarter. Typically, the impact of seasonality on eachdemand for products for our larger brands is higher in the spring, summer and holiday seasons and lower in the fall season (the third quarter of our operating groups, seefiscal year). Thus, our third quarter historically has had the business discussion of each operating group above.
Aslowest net sales and net earnings compared to other quarters. Further, the timingimpact of certain unusual or non-recurring items, economic conditions, our e-commerce flash clearance sales, wholesale product shipments, weather, acquisitions or other factors affecting the retail businessour operations may vary from one year to the next,next. Therefore, due to the potential impact of these items and the September 2022 acquisition of Johnny Was, we do not believe that net sales or operating income for any particularby quarter or the distribution of net sales and operating income forin Fiscal 2016 are necessarily2022 is indicative of anticipated results for the full fiscal year or expected distribution in future years. Our third quarter has historically been our smallest net sales and operating income quarter and that result is expected to continue as we continue the expansionproportion of our retail store operations in the future. The following table presents our percentage of net sales and operating resultsamounts by quarter for Fiscal 2016:
|
| | | | | | | | |
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| Net sales | 25 | % | 28 | % | 22 | % | 25 | % |
| Operating income (loss) | 36 | % | 43 | % | — | % | 21 | % |
ORDER BACKLOG
As 66%future periods.HUMAN CAPITAL MANAGEMENT
Our key strategy is to own brands that make people happy, and we recognize that successful execution of our sales are directstrategy starts with people. We believe treating people fairly and with respect is key to consumer sales, which are not reflected in an order backlog,long-term success and, more importantly, is simply the order backlog for wholesale sales may be impacted by a variety of factors, we do not believe that order backlog information is necessarily indicative of salesright thing to be expected for future periods. Therefore, we believe the order backlog is not material for an understanding of our business taken as a whole. Further, as our sales continue to shift towards direct to consumer rather than wholesale sales, the order backlog will continue to be less meaningful as a measure of our future sales and results of operations.
EMPLOYEES
do.As of January 28, 2017,2023, we employed approximately 5,800 persons,6,000 individuals globally, more than 95% of whom approximately 85% were employed in the United States. Approximately 70% of our employees were retail store and restaurantfood and beverage employees. Our employee base fluctuates during the year, as we typically hire seasonal employees to support our retail store and food and beverage operations, primarily during the holiday selling season. None of our employees as of January 28, 2023 was represented by a union.
Commitment to our Core Values
Our actions are guided by our company’s core values:
| ● | Integrity – Build trust through honest relationships. Do the right thing. |
| ● | Respect – Have respect for oneself and for one another. Lead by example. Exercise humility. |
| ● | Inclusion – Root our relationships with one another in understanding, awareness and mutual respect. Value and embrace diversity. Welcome the respectful, open expression of differing ideas and perspectives. |
| ● | Accountability – Own our words, decisions and actions. Earn our reputation. |
| ● | Teamwork – Show up for each other. Solve problems through good and transparent communication. Know we are strongest when we work as a team. |
| ● | Curiosity – Improve and innovate. Simplify and streamline. Embrace change. Challenge ourselves. |
We believe that our adherence to these core values in everything we do as a company furthers our good relations with employees, suppliers and customers.
Commitment to Human Rights and our Code of Conduct
We are committed to respecting human rights in our business operations, including throughout our supply chain and product life cycle. As part of our supplier audit processes, we conduct human rights due diligence to identify risks and work to mitigate them, and our supplier codes of conduct set forth minimum social responsibility requirements to ensure that the human rights of all people in our value chain are respected. We do not tolerate harassment, discrimination, violence or retaliation of any kind.
Our Code of Conduct applies to all employees, officers and directors in our organization and addresses, among other topics, compliance with laws, avoiding conflicts of interest, gifts and entertainment, bribery and kickbacks, anti-discrimination and anti-harassment and reporting misconduct. Our General Counsel takes responsibility for reviewing and refreshing our Code of Conduct; educating our team members about our expectations; and, as applicable, enforcing the Code of Conduct. All employees at the time of hire are required to read and certify compliance with the Code of Conduct and are given an opportunity to ask questions.
Talent and Development
We are always looking for great people to join our team. We recognize that in order to remain competitive, we must attract, develop and retain top caliber employees in our design, marketing, merchandising, information technology and other functions, as well as in our direct to consumer locations and distribution centers. Competition for talented employees is intense.
In furtherance of attracting and retaining employees committed to our core values and business strategy, we maintain competitive compensation programs that include a variety of components, including competitive pay consistent with skill level, experience and knowledge, as well as comprehensive benefit plans consisting of health and welfare plans, retirement benefits and paid leave for our employee relationsbase in the United States.
In 2018, we launched an ongoing initiative to assess how well we are good.doing in managing performance, developing our people and putting our talent to its highest and best use across our company. Our aim is greater employee engagement and ultimately a more effective organization. As part of our commitment to our people, throughout our brands and businesses, we provide employees with training, growth and development opportunities, including on-the-job training, learning and development programs, and other educational programs. Outside of the United States, we work with outside partners familiar with the local markets and laws to ensure our rewards are competitive within that jurisdiction and support employee well-being.
Diversity & Inclusion
Our ongoing commitment to having the best people includes a commitment to equal opportunity. We believe in a diverse and inclusive workplace that respects and invites differing ideas and perspective. We have a number of
initiatives to ensure that our hiring, retention and advancement practices promote fair and equal opportunities across our workforce and ensure that we will have the best people in the industry to support our businesses going forward.
Our diversity and inclusion strategies begin at the recruiting stage, where we seek to attract and hire the most qualified candidates possible, without regard to race, ethnicity, national origin, gender, age, sexual orientation, genetics or other protected characteristics. We reinforce our values and goals through our Code of Conduct and other workplace policies, with an anonymous, confidential ethics hotline that allows our employees to voice concerns. We also seek to ensure that our pay and rewards programs and advancement opportunities are consistent with our culture of equality.
As of January 28, 2023, our domestic workforce, which comprised over 95% of our employee population, was self-disclosed as 34% male, 65% female and less than 1% undisclosed or choosing not to identify. Among our management employees, who comprise approximately 18% of our workforce, the self-disclosed figures were 29% male, 71% female and less than 1% undisclosed or choosing not to identify. As of January 28, 2023, the self-disclosed ethnicity of our domestic workforce was 60% white (not Hispanic or Latino) and 40% non-white, whereas for management employees, the self-disclosed ethnicity figures were 75% white (not Hispanic or Latino) and 25% non-white.
INFORMATION
Oxford Industries, Inc. is a Georgia corporation originally founded in 1942. Our corporate headquarters are located at 999 Peachtree Street, N.E., Ste. 688, Atlanta, Georgia 30309. Our internet address is oxfordinc.com. Copies of our annual report on Form 10-K, proxy statement, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website the same day that they are electronically filed with the SEC. We also use our website as a means of disclosing additional information, including for complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). The information on our website is not and should not be considered part of this Annual Report on Form 10-K and is not incorporated by reference in this document.
In addition, copies of our annual report on Form 10-K, excluding exhibits, are available without cost to our shareholders by writing to Investor Relations, Oxford Industries, Inc., 999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309.
The risks described below highlight some of the factors that could materially affect our operations. If any of these risks actually occurs, our business, financial condition, prospects and/or operating results may be adversely affected. These are not the only risks and uncertainties we face. We operate in a competitive and rapidly changing business environment, and additionalAdditional risks and uncertainties that we currently consider immaterial or are not presently known to us or that we currently consider immaterial may also adversely affect our business.
Risks Related to our Industry and Macroeconomic Conditions
Our business and financial condition are heavily influenced by general economic and market conditions which are outside of our control.
We are a consumer products company and are highly dependent on consumer discretionary spending and retail traffic patterns, particularly in the United States. The demand for apparel products changes as regional, domestic and international economic conditions change and may be significantly impacted by trends in consumer confidence and discretionary consumer spending patterns. These trends may be influenced by employment levels; recessions; inflation and increased interest rates; fuel and energy costs; tax rates; personal debt levels; savings rates; stock market and housing market volatility; shifting social ideology; and general uncertainty about the future. The factors impacting consumer confidence and discretionary consumer spending patterns are outside of our control and difficult to predict, and, often, the apparel industry experiences longer periods of recession and greater declines than the general economy.
In recent months, we have seen increased uncertainty about current and future economic conditions, which has led to heightened concerns about inflation, a global economic recession, geopolitical issues, the stability of the U.S. banking system, the availability and cost of credit and continued increases in interest rates. These conditions are creating a complex and challenging retail environment, which may impact consumer spending and consumer preferences. For instance, entering Fiscal 2023, these concerns have led to conservative purchase order decisions for future seasons by
many of our wholesale customers. A decline in consumer confidence or change in discretionary consumer spending patterns could reduce our sales, increase our inventory levels, result in more promotional activities and/or lower our gross margins, any or all of which may adversely affect our business and financial condition.
The COVID-19 pandemic has had, and may in the future have, a material adverse effect on our business, revenues, financial condition and results of operations.
Since 2020, the COVID-19 pandemic has created tremendous uncertainty and disruption in the global economy and has had an adverse impact on our business, revenues and results of operations. In Fiscal 2020, we experienced a net sales decline of 33% from Fiscal 2019 and incurred a net loss of $96 million. While our bricks and mortar operations largely resumed normal operations during most of Fiscal 2021 and Fiscal 2022, we did continue to experience temporary closures of our physical locations due to one or more employees testing positive for COVID-19, and our operations were impacted by various health and safety guidelines and restrictions imposed by state and local governments. There can be no assurance that distribution centers, restaurants and/or retail stores will not close in the future, including for extended periods, upon additional COVID-19 outbreaks, which may have a material adverse effect on our business, revenues, financial condition and results of operations.
We also rely on suppliers outside of the United States to manufacture our products. As a result of COVID-19 and the measures designed to contain the spread of the virus, our third party suppliers, who are concentrated in Asia, have been, and may in the future be, impacted by materials, capacity, capability or labor constraints. The failure to timely deliver products to us in accordance with our specifications negatively impacts our inventory levels and our ability to have fresh, in-season product available for sale, which may adversely impact our revenues. In addition, we engage freight forwarders, logistics providers and third party shipping vendors to deliver products to us, our retail locations and/or our customers. Service delays or disruptions, restrictions on services available to us or price increases imposed by these vendors due to increased demand or operational challenges has and may continue to exacerbate these challenges, which could also result in lost sales, returns, requests for refunds or cancellation of orders, any or all of which could harm our reputation and relationships with our customers.
The rapid development and fluidity of the pandemic prevents us from making any prediction as to its ultimate impact. The full extent of the impact of COVID-19 on our future revenues, operations, financial condition and results of operations continues to remain uncertain. Furthermore, other public health crises, including any outbreak of other diseases or pandemics, could negatively impact our business and results of operations.
We operate in a highly competitive industry which is evolving very rapidly; our ability to execute and/or transform our direct to consumerwith significant pricing pressures and portfolio-level strategies in light of shifts in consumer shopping behavior subjects us to risks that could adversely affect our financial results and operations.
heightened customer expectations.
We operate in a highly competitive industry in which the principal competitive factors are the reputation, value and image of brand names; design;design of differentiated, innovative or otherwise compelling product; consumer preference; price; quality; marketing;marketing (including through rapidly shifting digital and social media vehicles); product fulfillment capabilities; and customer service. The highly competitive apparel industry is characterized by low barriers to entry, with new competition entering the marketplace regularly. There are numerous domestic and foreign apparel designers, distributors, importers, licensors and retailers. Some of these companies may be significantly larger or more diversified than us and/or have significantly greater financial resources than we do.
Competition in the apparel industry is particularly enhanced in the digital marketplace for our rapidly growing e-commerce businesses, where there are new entrants in the market, greater pricing pressure and heightened customer expectations and competitive pressure related to, among other things, customer engagement, delivery speed, shipping charges and return privileges. In addition, fast fashion, value fashion and off-price retailers have shifted customer expectations of pricing for well-known brands and have contributed to additional promotional pressure in recent years.
These and other competitive factors within the apparel industry may result in reduced sales, increased costs, lower prices for our products and/or decreased margins.
Failure to anticipate and adapt to changing fashion trends and consumer preferences could harm our reputation and financial performance.
We believe that our ability to compete successfully is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference including the manner in which retail consumers seek to transact business and access products, and presenting appealing products for consumers when and where they seek it.
The highly competitive apparel industry has historically been characterized by low barriers Although certain of our products carry over from season to
entry and includes numerous domestic and foreign apparel designers, manufacturers, distributors, importers, licensors and retailers, some of whom are also our customers, and some of whom may be significantly larger, are more diversified and/or have significantly greater financial resources than we do. Competitive factors withinseason, the apparel industry
is subject to rapidly changing fashion trends and shifting consumer expectations. The increasing shift to digital brand engagement and social media communication, as well as the attempted replication of our products by competitors, presents emerging challenges for our business. The apparel industry is also impacted by changing consumer preferences regarding spending categories generally, including shifts away from traditional consumer product spending and towards “experiential” spending and sustainable products. There can be no assurance that we will be able to successfully evaluate and adapt our products to align with evolving trends. Any failure on our part to develop and market appealing products could harm the reputation and desirability of our brands and products and/or result in weakened financial performance.
Our operations and those of our suppliers, vendors and wholesale customers may be affected by changes in weather patterns, natural or man-made disasters, public health crises, war, terrorism or other catastrophes.
Our sales volume and operations and the operations of third parties on whom we rely, including our suppliers, vendors, licensees and wholesale customers, may be adversely affected by unseasonable or severe weather conditions, natural or man-made disasters, hurricanes, public health crises, war, terrorist attacks, including heightened security measures and responsive military actions, or other catastrophes which may cause consumers to alter their purchasing habits or result in a disruption to our operations. Our business may also be adversely affected by instability, disruption or destruction, regardless of cause. These events may result in reduced sales, increased costs, lower prices for our products and/or decreased margins.
One of our key initiatives has been to grow our branded businesses through distribution strategies that allow our consumers to access our brands whenever and wherever they choose to shop. Our success depends to a large degree on our ability to introduce new retail concepts and products; identify retail locations with the proper consumer demographics; establish the infrastructure necessary to support growth; source appropriate levels of inventory; hire and train qualified personnel; anticipate and implement innovations in sales and marketing technology to align with our consumers’ shopping preferences; and maintain brand specific websites and other social media presence that offer the functionality and security customers expect.
We believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion retailers:
Technology, including the internet and mobile devices, is providing consumers with unprecedented access to multiple, responsive distribution platforms, an unprecedented ability to communicate directly with brands, retailers and others and opportunities to shop for products shipped by retailers globally. As a result, consumers in today’s retail environment have more information, including transparency in product pricing and competitive offerings from competing brands, and broader, faster and cheaper access to goods than they have ever had before, which is revolutionizing the way that consumers shop for fashion and other goods.
Large e-commerce retailers, who have historically focused on commoditized product categories, are dedicating resources to enter the fashion retail space, resulting in increased competition from competitors with significant financial resources and enhanced distribution capabilities. As a result, many fashion brands are confronting the challenge of making their products available through these distribution channels while, at the same time, taking a cautious approach to ensure brand integrity.
At the same time, the bricks and mortar outlet mall, off-price and fast fashion channels of distribution, in particular off-price retailers carrying brand label products at clearance, have seen strong retail consumer traffic and strengthening comparable store sales, with consumers seeking bargains on fashion brands. Many of these retailers have announced plans for significant growth in door counts, adding traffic and pricing pressure to traditional retailers. In response, traditional fashion retailers have become promotional, both online and in-store, and have modified the merchandising of their outlet mall locations for greater consumer appeal and to find growth and profitability.
These changes in consumer shopping behavior patterns and the proliferation of smaller, e-commerce focused apparel brands have contributed to the challenges facing the traditional department store model. These traditional department stores are challenged to effectively service today’s consumer as a one-stop destination for fashion branded products, further exacerbating promotional pressure at the department stores and the decline in consumer retail traffic for mall-based retailers.
This evolution in the manner in which consumers transact business globally and our efforts to respond to these changes and execute our direct to consumer strategies could adversely affect our financial results and operations as a result of, among other things: investment in technology and infrastructure, which is extremely complex, in order to remain competitive (including investments to maintain modern technology and functionality similar to that provided by our competitors and expected by our customers); reliance on outdated technology that is not as appealing or functionally effective as those of our competitors; an inability to provide customer-facing technology systems, including mobile technology solutions, that function reliably and provide a convenient and consistent experience for our customers; our own e-commerce business and/or third party offers diverting sales from our bricks and mortar retail stores, where we have made substantial capital expenditures on leasehold improvements and have significant remaining long-term financial commitments; the decisions we make with respect to which wholesale customers we are willing to sell our products to in order to maintain a consistent brand message and pricing
strategy; our own promotional activity and pricing strategies; any failure to properly communicate our brand message or recreate the ambianceclosures of our retail stores, through social media;restaurants, offices or distribution centers and/or declines in consumer traffic, which could have a reliance on third party service providers for software, processing and similar services; liability for our online content; credit card fraud; and failure of computer systems, theft of personal consumer information and computer viruses. Additionally, the rapid dissemination of information and opinions in the current marketplace through social media and other platforms increases the challenges of responding to negative perceptions or commentary about our brands or products.
Any inabilitymaterial adverse effect on our part to properly manage these risks and effectively adapt to the evolving consumer shopping behavioral trends may result in lost sales and/or adversely impact ourbusiness, results of operations reputation and credibility.
Our success depends onor financial condition. Because of the
reputation and valueseasonality of our
brand names;business, the concentration of a significant proportion of our retail stores and wholesale customers in certain geographic regions, including a resort and/or coastal focus for most of our lifestyle brands, and the concentration of our sourcing and distribution center operations, the occurrence of such events could disproportionately impact our business, financial condition and operating results.
The ongoing war between Russia and Ukraine has adversely affected the global economy, resulted in heightened economic sanctions against Russia from the United States, the United Kingdom, the European Union, and the international community, and has resulted in geopolitical instability and market disruption. Although we do not have operations or generate revenues in the impacted regions, the geopolitical tensions related to the war could result in broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions and lower consumer demand, any failureof which could have a material adverse effect on our business and operations.
Risks Related to our Business Strategy and Operations
Failure to maintain the reputation or value of our brands and/or to offer innovative, fashionable and desirable products could adversely affectharm our business operations and financial condition.
Our success depends on the reputation and value of our brand names. The value of our brands could be diminished by actions taken by us or by our licensees, wholesale customers or others who have an interest in theour brands. Actions that could cause harm to our brands include failing to respond to emerging fashion trends or meet consumer quality expectations; selling products bearing our brands through distribution channels that are inconsistent with the retail channels in which our customers expect to find those brands;customer expectations; becoming overly promotional; or setting up consumer expectations for promotional activity for our products. We are becoming more reliant onIn addition, social media as one of ouris a critical marketing strategiesand customer acquisition and customer retention strategy in today’s technology-driven retail environment, and the value of our brands could be adversely affected if we do not effectively and accurately communicate our brand message through social media vehicles, including with respect to our social responsibility and environmental sustainability initiatives. The concentration in our portfolio heightens the risks we face if one of our larger brands is adversely impacted by actions we or third parties take with respect to that interfacebrand.
The improper or detrimental actions of a licensee or wholesale customer, including a third party distributor in an international market, or for example, the operator of the planned Tommy Bahama Miramonte Resort & Spa targeted
to open in late Fiscal 2023, which is an unproven concept with previously untested brand and operating standards, could also significantly impact the perception of our consumers in “real-time.”brands. While we enter into comprehensive license and similar collaborative agreements with third party licensees covering product design, product quality, brand standards, sourcing, social compliance, distribution, operations, manufacturing and/or marketing requirements and approvals, there can be no guarantee our brands will not be negatively impacted through our association with products or concepts outside of our core apparel products and by the market perception of the third parties with whom we associate. In addition, we cannot always control the marketing and promotion of our products by our wholesale customers, or other third parties, and actions by such parties that are inconsistent with our own marketing efforts or that otherwise adversely affect the appeal of our products could diminish the value or reputation of one or more of our brands and have an adverse effect on our sales, gross margins and business operations.
During Fiscal 2016, Tommy Bahama’s
The appeal of our brands may also depend on the perceived relevance and Lilly Pulitzer’ssuccess of our environmental, social and governance (“ESG”) initiatives and our commitments to operating our business in a socially responsible fashion. ESG risks include increased stakeholder focus on social and environmental sustainability matters, including forced labor, chemical use, energy and water use, packaging and waste, animal welfare and land use. ESG risks may also include increased pressure to expand our disclosures in these areas, make commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risks. The metrics we disclose may not meet stakeholder expectations and may impact our reputation and the value of our brands, and a failure to achieve progress on our metrics on a timely basis, or at all, could adversely affect our business and financial performance.
Our inability to execute our direct to consumer and portfolio-level strategies in response to shifts in consumer shopping behavior could adversely affect our financial results and operations.
One of our key long-term initiatives over the last several years has been to grow our branded businesses through distribution strategies that allow our consumers to access our brands whenever and wherever they choose to shop. Our ability to anticipate and transform our business in response to the manner in which consumers seek to transact business and access products requires us to introduce new retail, restaurant and other concepts in suitable locations; anticipate and implement innovations in sales and marketing technology to align with our consumers’ shopping preferences; invest in appropriate digital and other technologies; establish the infrastructure necessary to support growth; maintain brand specific websites and mobile applications that offer the functionality and security customers expect; and effectively enhance our advertising and marketing activities, including our social media presence, to maintain our current customers and attract and introduce new consumers to our brands and offerings.
For the last several years, the retail apparel market has been evolving very rapidly in ways that are disruptive to traditional fashion retailers. These changes included sustained declines in bricks and mortar retail traffic; entry into the fashion retail space by large e-commerce retailers and others with significant financial resources and enhanced distribution capabilities; increased costs to attract and retain consumers; increased investment in technology and multi-channel distribution strategies by large, traditional bricks and mortar and big box retailers; ongoing emphasis on off-price and fast fashion channels of distribution, in particular those who offer brand label products at clearance; and increased appeal for consumers of products that incorporate sustainable materials and processes in the supply chain and/or otherwise reflect their social or personal values. In response, fashion retailers and competing brands have increasingly offered greater transparency for consumers in product pricing and engaged in increased promotional activities, both online and in-store. These trends accelerated during the COVID-19 pandemic and are likely to continue to evolve in ways that may not yet be evident.
In response to these evolving and rapidly changing trends in consumer shopping behavior, we have made and expect to continue to make significant investments in expanding our digital capabilities and technologies in three key areas: mobile technology; digital marketing; and the digital customer experience. Although we have experienced significant growth in our e-commerce businesses in recent years, there is no assurance that we will realize a return on these investments, be successful in continuing to grow our e-commerce businesses over the long term or that any increase we may see in net sales represented 64%from our e-commerce business will not cannibalize, or be sufficient to offset any decreases in, net sales from bricks and 23%, respectively,mortar retail stores.
Any inability on our part to effectively adapt to rapidly evolving consumer behavioral trends may result in lost sales, increase our costs and/or adversely impact our results of operations, financial condition, reputation and credibility.
We may be unable to grow our business through organic growth, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
A key component of our consolidated net sales. The significant concentrationbusiness strategy is organic growth in our portfoliobrands. Organic growth may heightenbe achieved by, among other things, increasing sales in our direct to consumer channels; selling our products in new markets; increasing our market share in existing markets; expanding the risks we face if onedemographic appeal of theseour brands; expanding our margins through product cost reductions, price increases or otherwise; expanding the customer reach of our brands failsthrough new and enhanced advertising initiatives; and increasing the product offerings and concepts within our various operating groups, such as the opening of additional Marlin Bars at Tommy Bahama and owned retail stores at Southern Tide and TBBC. Successful growth of our business is also subject to meet our expectationsability to implement plans for expanding and/or maintaining our existing businesses at satisfactory levels. We may not be successful in achieving suitable organic growth, and our inability to grow our business may have a material adverse effect on our business, financial condition, liquidity and results of operations.
In addition, investments we make in technology, advertising and infrastructure, retail stores and restaurants, office and distribution center facilities, personnel and elsewhere may not yield the full benefits we anticipate, and sales growth may be outpaced by increases in operating costs, putting downward pressure on our operating margins and adversely affecting our results of operations. If we are unable to increase our revenues organically, we may be required to pursue other strategic initiatives, including reductions in costs and/or acquisitions, in order to grow our business. These initiatives may not be available to us on desirable terms, inhibiting our ability to increase profitability.
The acquisition of new businesses is adversely impactedinherently risky, and we cannot be certain that we will realize the anticipated benefits of any acquisition.
Growth of our business through acquisitions of lifestyle brands that fit within our business model is a key component of our long-term business strategy, as evidenced by actions we or third parties takeour acquisition of Johnny Was in September 2022. Johnny Was is an affordable luxury, artisan-inspired bohemian apparel, accessories and home goods brand that is exposed to similar industry, macroeconomic, operational, cybersecurity and information technology, sourcing, regulatory and other general risks as our other businesses.
Integrating an acquired business is a complex, time-consuming and expensive process and is even more challenging for a larger, rapidly growing business such as Johnny Was. The integration process could create a number of challenges and adverse consequences for us associated with respect to that brand or by competitive conditionsthe integration of product lines, support functions, employees, sales teams and outsourced manufacturers; employee turnover, including key management and creative personnel of the acquired business and our existing businesses; disruption in product cycles for newly acquired product lines; maintenance of acceptable standards, controls, procedures and policies; operating a business in new geographic territories; diversion of the attention of our management from other areas of our business; and the impairment of relationships with customers of the acquired and existing businesses. We are still relatively early in the apparel industry.
Although certainprocess of
our products carry over from season to season,integrating the
apparel industry is subject to rapidly changing fashion trendsoperations of Johnny Was, and
shifting consumer demands. Due to the competitive nature of the apparel industry, there can be no assurance that
we will not encounter unexpected costs or liabilities arising from the Johnny Was business or the integration process. As a result of these challenges or other factors, the benefits of an acquisition may not materialize to the extent or within the time periods anticipated.
In addition, the competitive climate for desirable acquisition candidates drives higher market multiples, and we may pay more to consummate an acquisition than the value we ultimately derive from the acquired business. Acquisitions may cause us to incur debt, as we did in connection with the Johnny Was acquisition, or make dilutive issuances of our equity securities, and may result in certain impairment or amortization charges in our statements of operations. In addition, we may not complete a potential acquisition for a variety of reasons but still incur material, unrecoverable costs in the preliminary stages of evaluating and pursuing an acquisition. Additionally, as a result of acquisitions, we may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence.
As the fashion retail environment evolves, our investment criteria for acquisitions has grown to include smaller brands and non-controlling investments in burgeoning brands seeking debt or equity financing. The limited operating history, less experienced management teams and less sophisticated systems, infrastructure and relationships generally associated with such brands may heighten the risks associated with acquisitions generally. Minority investments present additional risks, including the potential disproportionate distraction to our management team relative to the potential financial benefit; the potential for a conflict of interest; the damage to our reputation of associating with a brand which may take actions inconsistent with our values; and the financial risks associated with making an investment in an unproven business model.
The divestiture or discontinuation of businesses and product lines could result in unexpected liabilities and adversely affect our financial condition, cash flows and results of operations.
From time to time, we may also divest or discontinue businesses, product lines and/or wholesale relationships that do not align with our strategy or provide the returns that we expect or desire, such as our Fiscal 2021 exit of the Lanier Apparel business. Such dispositions and/or discontinuations may result in underutilization of our retained resources if the exited operations are not replaced with new lines of business, either internally or through acquisition. In addition, we may become responsible for unexpected liabilities, which could adversely affect our financial condition and results of operations.
Our business could be harmed if we fail to maintain proper inventory levels.
Many factors, such as economic conditions, fashion trends, consumer preferences, the financial condition of our wholesale customers and weather, make it difficult to accurately forecast demand for our products. In order to meet the expected demand for our products in a cost-effective manner, we make commitments for production several months prior to our receipt of goods and almost entirely without firm commitments from our customers. Depending on the demand for our products, will not declinewe may be unable to sell the products we have ordered or that we will be able to successfully evaluatehave in our inventory, which may result in inventory markdowns or the sale of excess inventory at discounted prices and adaptthrough off-price channels. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate the timing or extent of demand for our products or if we are unable to alignaccess our products when we need them, for example due to a third party manufacturer’s inability to source materials or produce goods in a timely fashion or as a result of delays in the delivery of products to us, issues which have been exacerbated by the COVID-19 pandemic, we may experience inventory shortages, which might result in lost sales, unfilled orders, negatively impacted customer relationships, and diminished brand loyalty, any of which could harm our business. These risks relating to inventory may also escalate as our direct to consumer sales, for which we do not have any advance purchase commitments, continue to increase as a proportion of our consolidated net sales.
We are subject to risks associated with leasing real estate for our retail stores and restaurants.
We lease all of our retail store and restaurant locations. Successful operation of our retail stores and restaurants depends, in part, on our ability to identify desirable, brand appropriate locations; the overall ability of the location to attract a consumer base sufficient to make sales volume profitable; our ability to negotiate satisfactory lease terms and employ qualified personnel; and our ability to timely construct and complete any build out and open the location in accordance with our plans, which could be delayed due to supply chain constraints, delays in permitting and government approval processes and/or labor or materials shortages. A decline in the volume of consumer traffic at our retail stores and restaurants, due to economic conditions, shifts in consumer shopping preferences or technology, a decline in the popularity of malls or lifestyle centers in general or at those in which we operate, the closing of anchor stores or other adjacent tenants or otherwise, could have a negative impact on our sales, gross margins and results of operations. Our growth may be limited if we are unable to identify new locations with consumer preferencestraffic sufficient to support a profitable sales level or the local market reception to a new retail store opening is inconsistent with our expectations.
Our retail store and changesrestaurant leases generally represent long-term financial commitments, with substantial costs at lease inception for a location’s design, leasehold improvements, fixtures and systems installation and recurring fixed costs. On an ongoing basis, we review the financial performance of our retail and restaurant locations in consumer demographics. Any failure on our partorder to develop and market appealing productsdetermine whether continued operation is appropriate. Even if we determine that it is desirable to exit a particular
location, we may be unable to close an underperforming location due to continuous use clauses and/or because negotiating an early termination would be cost prohibitive. In addition, due to the fixed-cost structure associated with these operations, negative cash flows or the closure of a retail store or restaurant could result in weakened financial performanceimpairment of leasehold improvements, impairment of operating lease assets and/or harmother long-lived assets, severance costs, lease termination costs or the reputation and desirabilityloss of our brands and products.
We also license certain of our brands to third party licensees, including in Tommy Bahama for purposes of retail and/or wholesale distribution of our apparel products in certain international markets. While we enter into comprehensive license and similar collaborative agreements with third parties covering product design, product quality, sourcing, distribution, manufacturing and marketing requirements and approvals, there can be no guarantee our brands will not be negatively impacted through our association with products outside of our core apparel products, by the market perception of the third parties with whom we associate and/or due to the actions of a licensee. The improper or detrimental actions of a licenseeworking capital, which could significantlyadversely impact the perception of our brands.
In addition, the reputation of our brands could be harmed if our third party manufacturers and vendors, substantially all of which are located outside the United States, fail to meet appropriate product safety, product quality and social compliance standards, including the terms of our applicable codes of conduct and vendor compliance standards. We cannot assure that our manufacturers and vendors will at all times conduct their operations in accordance with ethical practices or that the products we purchase will always meet our safety and quality control standards. Any violation of our applicable codes of conduct or local laws relating to labor conditions by our manufacturers or vendors or other actions or failures by us or such parties may result in negative public perception of our brands or products, as well as disrupt our supply chain, which may adversely affect our business operations.
The apparel industry is heavily influenced by general economic conditions, and a deterioration or worsening of consumer confidence or consumer purchases of discretionary products may adversely affect our business and financial
condition,results. Furthermore, as each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, including as a result of
adverse business conditionsshifts in how shopping center operators seek to merchandise the particular center’s lineup, which could force us to close retail stores and/or restaurants in desirable locations.
Furthermore, a deterioration in the financial condition of shopping center operators or developers could, for third parties with whom weexample, limit their ability to invest in improvements and finance tenant improvements for us and other retailers and lead consumers to view these locations as less desirable. In addition, if our e-commerce businesses continue to grow, they may do business.
We are a consumerso in part by attracting existing customers, rather than new customers, who choose to purchase products
company and are highly dependent on consumer discretionary spending and retail traffic patterns. The levels of demand for apparel products change as regional, domestic and international economic conditions change. Demand forfrom us online through our
products may be significantly impacted by trends in consumer confidence and discretionary consumer spending, which may be influenced by employment levels; recessions; fuel and energy costs; interest rates; tax rates and changes in tax laws; personal debt levels; stock market volatility; and general uncertainty aboutwebsites rather than from our physical stores, thereby reducing the
future. The factors impacting consumer confidence and discretionary consumer spending are outsidefinancial performance of our
controlbricks and
difficultmortar operations, which could have a material adverse effect on our results of operations or financial condition.
We make use of debt to predict, and, often, the apparel industry experiences longer periods of recession and greater declines than the general economy. Any deterioration or worsening of consumer confidence or discretionary consumer spendingfinance our operations, which could reduce our sales and/orexpose us to risks that adversely affect our business, financial position and financial condition.
Additionally, significant changesoperating results.
Our levels of debt vary as a result of the seasonality of our business, investments in our operations, acquisitions we undertake and working capital needs. As of January 28, 2023, we had $119 million of borrowings under our U.S. Revolving Credit Agreement, which was primarily driven by our acquisition of Johnny Was.
In the future, our debt levels may increase under our existing facility or potentially under new facilities, or the terms or forms of our financing arrangements may change. Our indebtedness under the U.S. Revolving Credit Agreement includes certain obligations and limitations, including the periodic payment of principal, interest and unused line fees, maintenance of certain covenants and certain other limitations. The negative covenants in the operationsU.S. Revolving Credit Agreement limits our ability to, among other things, incur debt, guaranty certain obligations, incur liens, pay dividends, repurchase common stock, make investments, sell assets or liquiditymake acquisitions. These obligations and limitations may increase our vulnerability to adverse economic and industry conditions, place us at a competitive disadvantage compared to any competitors that may be less leveraged and limit our flexibility in carrying out our business plans and planning for, or reacting to, change.
In addition, we are subject to interest rate risk on the indebtedness under our variable rate U.S. Revolving Credit Agreement, particularly in the current macroeconomic environment. An increase in the interest rate environment, such as the recent increases in interest rates implemented by the Federal Reserve, would require us to pay a greater amount towards interest on our borrowings.
The continued growth of our business depends on our access to sufficient funds. If the need arises in the future to finance expenditures in excess of those supported by our U.S. Revolving Credit Agreement, we may need to seek additional funding through debt or equity financing. Our ability to obtain that financing will depend on many factors, including prevailing market conditions, our financial condition and our ability to negotiate favorable terms and conditions. The terms of any ofsuch financing or our inability to secure such financing could adversely affect our ability to execute our strategies, and the parties with which we conductnegative covenants in our business, including suppliers, customers, trademark licensees and lenders, among others,debt agreements, now or in the future, may increase our vulnerability to adverse economic and industry conditions and/or limit our flexibility in the access to capital markets for any such parties, could result in lower demand forcarrying out our products, lower sales, higher costs or other disruptions in our business.
Lossbusiness strategy and plans.
The loss of one or more of our key wholesale customers, or a significant adverse change in a customer’s financial performance or financial position, could negatively impact our net sales and profitability.
We generate a significantmaterial percentage of our wholesale sales, which was 20% of our net sales in Fiscal 2022, from a few key customers. For example, during Fiscal 2016, 46% ofAlthough our consolidated wholesale sales, or 16%largest customer only represented 4% of our consolidated net sales werein Fiscal 2022, the failure to increase or maintain our five largest customers.sales with our key customers as much as we anticipate would have a negative
impact on our growth prospects and any decrease or loss of these customers’ business could result in a decrease in our net sales and operating income if we are unable to capture these sales through our direct to consumer operations or other wholesale accounts. Over the last several years, there have been significant levels of store closures by department stores and other large retailers particularly as the retail industry has transitioned more towards online and mobile transactions; increased prevalence and emphasis on private label products at large retailers; direct sourcing of products by large retailers; consolidation of a number of retailers; andhave faced increased competition experienced by our wholesale customers from online competitors. A decreasecompetitors, declining sales and profitability and tightened credit markets, resulting in the number of stores that carry our products, restructuringstore closures, bankruptcies and financial restructurings. Restructuring of our customers’ operations, continued store closures by major department stores,or increased direct sourcing and greater leverage by customers realignment of customer affiliations or other factors could negatively impact our net sales and profitability.
We generally do not have long-term contracts with our wholesale customers. Instead, we rely on long-standing relationships with these customers, the appeal of our brands and our position within the marketplace. As a result, purchases generally occur on an order-by-order basis, and each relationship can typically be terminated by either party at any time. A decision by one or more of our key wholesale customers to terminate its relationship with us or to reduce its purchases from us, whether motivated by competitive considerations, quality or style issues, financial difficulties, economic conditions or otherwise, could adversely affect our net sales and profitability, as it would be difficult to immediately, if at all, replace this business with new customers, reduce our operating costs or increase sales volumes with other existing customers. In addition, as department stores and other large retailers become more promotional, we may decide to terminate or curtail our sales to certain customers, for brand protection or otherwise, which could similarly impact our net sales and profitability.
We also extend credit to most of our key wholesale customers without requiring collateral, which results in a large amount of receivables from just a few customers. At January 28, 2017, our five largest outstanding customer balances represented $29 million, or 50% of our consolidated receivables balance. Companies in the apparel industry, including some of our customers, may experience financial difficulties, including bankruptcies, restructurings and reorganizations, tightened credit markets and/or declining sales and profitability. A significant adverse change in a customer’s financial position or ability to satisfy its obligations to us could cause us to limit or discontinue business with that customer, in some cases after we have already made product purchase commitments for inventory; require us to assume greater credit risk relating to that customer’s receivablesreceivables; or limit our ability to collect amounts related to shipments to that customer. In addition, a decision by one or more of our key wholesale customers to terminate its relationship with us or to reduce its purchases, whether motivated by competitive considerations, a change in desired product assortment, quality or style issues, financial difficulties, economic conditions or otherwise, could also adversely affect our business.
Risks Related to Cybersecurity and Information Technology
Cybersecurity attacks and/or breaches of information security or privacy could disrupt our operations, cause us to incur additional expenses, expose us to litigation and/or cause us financial harm.
Cybersecurity attacks continue to become increasingly sophisticated, and experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our assets, including confidential information, or disrupt our systems. We collect, use, store and transmit sensitive and confidential personal information of our customers, employees, suppliers and others as an ongoing part of our business operations, and we are regularly subject to attempts by attackers to gain unauthorized access to our networks, systems and data, or to obtain, change or destroy confidential information. In addition, customers may use devices or software that are beyond our control environment to purchase our products, which may provide additional avenues for attackers to gain access to confidential information.
Despite our implementation of security measures, if an actual or perceived data security breach occurs, whether as a result of cybersecurity attacks, computer viruses, vandalism, ransomware, human error or otherwise, or if there are perceived vulnerabilities in our systems, the image of our brands and our reputation and credibility could be damaged, and, in some cases, our continued operations may be impaired or restricted. Ongoing and increasing costs to enhance cybersecurity protection and prevent, eliminate or mitigate vulnerabilities and comply with required security or other measures under state, federal and international laws, which may include deploying additional personnel and protection technologies, training employees and engaging third party experts and consultants, are significant. Although we have business continuity plans and other safeguards in place, our operations may be adversely affected by an actual or perceived data security breach. Costs to resolve any litigation or to investigate and remediate any actual or perceived breach could result in significant financial losses and expenses, as well as lost sales. While we continue to evolve and modify our business continuity plans, there can be no assurance in an escalating threat environment that they will be effective in avoiding disruption and business impacts.
As part of our routine operations, we also contract with third party service providers to store, process and transmit personal information of our customers and employees. Although we may contractually require that these providers implement reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur at their location or within their systems. Privacy breaches of confidential information stored or used by our third party service providers or disruptions in their systems may expose us to the same risks as a breach of our own systems, including negative publicity, potential out-of-pocket costs and adverse effects on our business and customer relationships.
Our operations are reliant on information technology, and any interruption or other failure could have an adverse effect on our business or results of operations.
The efficient operation of our business depends on information technology. This requires us to devote significant financial and employee resources to information technology initiatives and operations. Information systems are used in all stages of our operations and as a method of communication, both internally and with our customers, service providers and suppliers. Many of our information technology solutions are operated and/or maintained by third parties, including our use of cloud-based solutions. Additionally, each of our operating groups uses e-commerce websites, point-of-sale systems, enterprise order management systems, warehouse management systems and wholesale ordering systems to acquire, manage, sell and distribute goods. Our management also relies on information systems to provide relevant and accurate information in order to allocate resources, manage operations and forecast, account for and report our operating results. Service interruptions may occur as a result of a number of factors, including power outages, consumer traffic levels, computer viruses, sabotage, hacking or other unlawful activities by third parties, human error, disasters or failures to properly install, upgrade, integrate, protect, repair or maintain our various systems, networks and e-commerce websites. All of these events could have a material adverse effect on our financial condition and results of operations. In light of the current geopolitical environment, there are heightened risks that our information technology systems, as well as those of third parties on whom we rely in order to conduct our operations, could be compromised by threat actors.
Reliance on outdated technology or failure to upgrade our information technology systems and capabilities could impair the efficient operation of our business and our ability to compete.
Any failure to timely upgrade our technology systems and capabilities may impair our ability to market, sell and deliver products to our customers, efficiently conduct our operations, facilitate customer engagement in today’s digital marketplace and/or meet the needs of our management. We relyregularly evaluate upgrades or enhancements to our information systems to more efficiently and competitively operate our businesses, including periodic upgrades to digital commerce and marketing, warehouse management, guest relations, omnichannel and/or enterprise order management systems in our businesses. Digital commerce and marketing have continued to increase in importance to our business, and we have invested and will continue to invest significant capital in the digital strategies, systems, expertise and capabilities necessary for us to compete effectively in this arena. Upgrades to our systems may be expensive undertakings, may not be successful and/or could be abandoned, as we did in the Fourth Quarter of Fiscal 2020 with a large extentTommy Bahama information technology project. We may also experience difficulties during the implementation, upgrade or subsequent operation of our systems, including the risk of introducing cybersecurity vulnerabilities into our systems or the loss of certain functionality, information from our legacy systems and/or efficient interfaces with third party and continuing systems. Temporary processes or solutions, including manual operations, which may be required to be instituted in the short term could also significantly increase the risk of loss or corruption of data and information. Additionally, if such upgraded information technology systems fail to operate or are unable to support our growth, our store operations and websites could be severely disrupted, and we could be required to make significant additional expenditures to remedy any such failure.
Remote work arrangements could inhibit our ability to effectively operate our business and result in enhanced cybersecurity risks.
We anticipate continuing to implement remote work arrangements for a substantial portion of our employees in the future. If remote work arrangements negatively impact the performance or management of our employees, whether as a result of technological challenges, unsuitable work environments or other limitations, our ability to carry out key functions and successfully manage our operations could be compromised. In addition, remote work arrangements could exacerbate our existing cybersecurity and privacy risks, including by introducing vulnerabilities in our systems due to the use of laptops, mobile devices and remote work environments. Cybersecurity attacks or data security incidents resulting from a failure to manage these risks could negatively impact our business and results of operations.
Risks Related to our Sourcing and Distribution Strategies
Our reliance on third party producers in foreign countries to meet our production demands and failures by these producersexposes us to meet our requirements, the unavailability of suitable producers at reasonable prices and/or changes in international trade regulation may negatively impact our ability to deliver quality products to our customers on a timely basis,risks that could disrupt our supply chain, or result in higherincrease our costs or reduced net sales.and negatively impact our operations.
We source substantially all of our products from non-exclusive, third party producers located in foreign countries, including sourcing approximately 58% and 16% of our product purchases from China and Vietnam, respectively, during Fiscal 2016.countries. Although we place a high value on long-term relationships with our suppliers, generally we do not have long-term supply contracts but instead conduct business on an order-by-order basis. Therefore, we compete with other companies for the production capacity of independent manufacturers. We also depend on the ability of these third party producers to secure a sufficient supply of raw materials, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity, and in some cases, the products we purchase and the raw materials that are used in our products are available only from one source or a limited number of sources. Although we monitor production in third party manufacturing
locations, we cannot be certain that we will not experience operational difficulties with our manufacturers, such as the reduction of availability ofavailable production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. SuchIn addition, we may experience disruptions in our supply chain as we continue to diversify the jurisdictions from which we source products. Any such difficulties may negatively impact our ability to deliver quality products to our customers on a timely basis. This would jeopardizebasis, increase our ability to service our customers and properly merchandise our direct to consumer channels, which may, in turn, have a negativecosts, negatively impact on our customer relationships and result in lower net sales.
In addition, duesales and profits.
Our operations are dependent on the global supply chain, and the impact of supply chain constraints may adversely impact our business and operating results.
Our operations in recent years have been, and may continue to our sourcing activities, we are exposed to risks associated with changesbe, impacted by supply chain constraints, labor shortages and raw material shortages, resulting in increased costs for raw materials, longer lead times, port congestion and increased freight costs caused, in part, by the lawsCOVID-19 pandemic, increased consumer demand, the uncertain economic environment, and regulations governing the importing and exporting of apparel products into and from the countries in which we operate. These risks include changes in social, political, labor and economic conditions or terrorist acts that could result in the disruption of trade from the countries in which our manufacturers are located; the imposition of additional or new duties, tariffs, taxes, quota restrictions or other changes and shifts in sourcing patterns asmacroeconomic trends. As a result of such changes; significant delaysthese factors within the global supply chain, our gross margins were negatively impacted during Fiscal 2021 and, to a lesser extent in the delivery ofFiscal 2022. We also rely on logistics providers to transport our products due to securityour distribution centers. Delays in shipping may cause us to have to use more expensive air freight or other considerations; fluctuations in sourcing costs; the imposition of antidumping or countervailing duties; fluctuations in the value of the dollar against foreign currencies; changes in customs procedures for importing apparel products;more costly methods to ship our products. Failure to adequately produce and restrictions on the transfer of fundstimely ship our products to or from foreign countries. We may not be ablecustomers could lead to offset anyincreased costs and lost sales, negatively impact our relationships with customers, and adversely impact our brand reputation.
Any disruption or cost increases to our supply chain as a result of any of these factors by shifting production to suitable manufacturers in other jurisdictions in a timely manner or at acceptable prices, and future regulatory actions or changes in international trade regulation may provide our competitors with a material advantage over us.
In this regard, the results of the November 2016 U.S. election have introduced greater uncertainty with respect to future trade regulations. For example, the new Presidential administration has suggested modifying existing trade agreements and/or imposing tariffs on foreign products. We cannot predict whether or not any of the foreign countries in which our products are produced will be subject to import restrictions or new or increased duties, taxes or other charges on imports. Trade restrictions, including increased tariffs, or more restrictive quotas including safeguard quotas, or anything similar, applicable to apparel items could affect the importation of apparel generally and increase the cost, or reduce the supply, of products we may be able to sell to our customers.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
As a global apparel company, we are subject to income taxes in the United States and various foreign jurisdictions. We record our income tax liability based on an analysis and interpretation of local tax laws and regulations, which requires a significant amount of judgment and estimation. In addition, we may from time to time modify our operations in an effort to minimize our global income tax exposure. Our effective income tax rate in any particular period or in future periods may be affected by a number of factors, including a shift in the mix of revenues, income and/or losses among domestic and international sources during a year or over a period of years; changes in tax laws and regulations and/or international tax treaties; the outcome of income tax audits in various jurisdictions; new expensing rules associated with stock compensation; and the resolution of uncertain tax positions, any of which could adversely affect our effective income tax rate and profitability.
Changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increasefailure in our tax expense. For example, in the United States, a number of proposals for broad reform of the corporate tax system are being discussed by legislators, including a border adjustability tax, increased taxes on imports and a limit on the ability of U.S. companies to defer U.S. tax on unrepatriated foreign earnings. In addition, policy statements by the new Presidential administration have introduced greater uncertainty with respect to future tax and trade regulations. Although we cannot accurately predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be issued, or the overall effect of any such changes on our effective tax rate, changes such as theseprimary distribution facilities may have a material adverse effect on our results of operations and cash flows.
Breaches of information security or privacy could damage our reputation or credibility and cause us financial harm.
As an ongoing part of our business operations, including direct to consumer transactions and marketing through various social media tools, we regularly collect and utilize sensitive and confidential personal information, including of our customers, employees and suppliers and including credit card information. The routine operation of our business involves the storage and transmission of customer personal information, preferences and credit card information, and we use social media and other online activities to connect with our customers. The regulatory environment governing our use of individually identifiable data of customers, employees and others is complex, and the security of personal information is a matter of public concern.
Cybersecurity attacks continue to become increasingly sophisticated, and experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or
disrupt our systems. Despite our implementation of security measures, if an actual or perceived data security breach occurs, whether as a result of cybersecurity attacks, computer viruses, vandalism, human error or otherwise, the image of our brands and our reputation and credibility could be damaged. The costs to eliminate or alleviate cyber or other security problems and vulnerabilities, including to comply with security or other measures under state, federal and international laws governing the unauthorized disclosure of confidential information or to resolve any litigation, and to enhance cybersecurity protection through organizational changes, deploying additional personnel and protection technologies, training employees and engaging third party experts and consultants could be significant and result in significant financial losses and expenses, as well as lost sales.
As part of our routine operations, we also contract with third party service providers to store, process and transmit personal information of our employees and customers. Although we contractually require that these providers implement reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur at their location or within their systems. Privacy breaches of confidential information stored or used by our third party service providers may expose us to negative publicity, as well as potential out-of-pocket costs which could materially adversely affect our business and customer relationships.
In addition, privacy and information security laws and requirements change frequently, and compliance with them or similar security standards, such as those created by the payment card industry, may require us to modify our operations and/or incur costs to make necessary systems changes and implement new administrative processes. Our failure to comply with these laws and regulations, or similar security standards, could lead to fines, penalties or adverse publicity.
Our business dependsoperations.
We rely on our senior management and other key personnel, and the unsuccessful transition of key management responsibilities, the unexpected loss of individuals integral to our business, our inability to attract and retain qualified personnel in the future or our failure to successfully plan for and implement succession of our senior
management and key personnel may have an adverse effect on our operations, business relationships and ability to execute our strategies.
Our senior management has substantial experience and expertise in the apparel and related industries, with our Chairman and Chief Executive Officer Mr. Thomas C. Chubb III having worked with our company for more than 25 years, including in various executive management capacities. Our success depends on disciplined execution at all levels of our organization, including our senior management, and continued succession planning. Competition for qualified personnel in the apparel industry is intense, and we compete to attract and retain these individuals with other companies that may have greater financial resources than us. While we believe that we have depth within our management team, the unexpected loss of any of our senior management, or the unsuccessful integration of new leadership, could harm our business and financial performance. In addition, we may be unable to retain or recruit qualified personnel in key areas such as product design, sales, marketing (including individuals with key insights into digital and social media marketing strategies), technology, sourcing and other support functions, which could result in missed sales opportunities and harm to key business relationships.
Our operations are reliant on information technology and any interruption or other failure, in particular at one of our principalprimary distribution facilities may impair our ability to provide products to our customers, efficiently conduct our operations and meet the needs of our management.
The efficient operation of our business is dependent on information technology. Information systems are used in all stages of our operations and as a method of communication with our customers, service providers and suppliers. Additionally, each of our operating groups utilizes e-commerce websites to sell goods directly to consumers. Our management also relies on information systems to provide relevant and accurate information in order to allocate resourcessupport our direct to consumer and forecastwholesale operations, meet customer fulfillment expectations, manage inventory, complete sales and report ourachieve operating results. Service interruptions may occur as a result of a number of factors, including power outages, consumer traffic levels, computer viruses, hacking or other unlawful activities by third parties, disasters or failures to properly install, upgrade, integrate, protect, repair or maintain our various systems and e-commerce websites. We regularly evaluate upgrades or enhancements to our information systems to more efficiently and competitively operate our businesses.efficiencies. We may experience difficulties during the implementation, upgrade or subsequent operation of our systems and/or not be equipped to address system problems. Any material disruption in our information technology systems, or any failure to timely, efficiently and effectively integrate new systems, could have an adverse effect on our business or results of operations.
We may additionally have a greater risk than our peers due to the concentration of our distribution facilities. The primary distribution facilities, that we operate are: a distribution center in Auburn, Washington foras substantially all of our Tommy Bahama products; aproducts for each operating group are distributed through one or two principal distribution center in King of Prussia, Pennsylvania for substantially all ofcenters. Although we continue to enhance our Lilly Pulitzer products; distribution centers in Toccoa, Georgia and Lyons, Georgia for substantially all ofenterprise order management capabilities to deliver products from other physical locations, our Lanier Apparel products; and a distribution center in Lyons, Georgia for substantially all of our Southern Tide products. Each of these distribution centers relies
on computer-controlled and automated equipment, which may be subjectability to a number of risks. Our ability toeffectively support our direct to consumer and wholesale operations, meet customer expectations, manage inventory and achieve objectives for operating efficiencies depends on the proper operation of these distribution facilities, each of which manages the receipt, storage, sorting, packing and distribution of finished goods.
If any of our primary distribution facilities were to shut down or otherwise become inoperable or inaccessible for any reason, including as a result of natural or man-made disasters, pandemics or epidemics, human error, or cybersecurity attacks or computer viruses, or otherwise, if our distribution facilities fail to upgrade their technological systems to ensure efficient operations or if we are unable to receive goods in a distribution center or to ship the goods in a distribution center, as a result of a technology failure, labor shortages or otherwise, we could experience a reduction in sales, a substantial loss of inventory, ora reduction in sales, higher costs, insufficient inventory at our retail stores to meet consumer expectations and longer lead times associated with the distribution of our products. In addition, for the distribution facilities that we operate, there are substantial fixed costs associated with these large, highly automated distribution centers, and we could experience reduced operating and cost efficiencies during periods of economic weakness. Any disruption to our distribution facilities or in their efficient operation could negatively affect our operating results and our customer relationships.
Our business is subject to various federal, foreign, state and local laws and regulations, and the costs of compliance with, or the violation of, such laws and regulations could have an adverse effect on our costs or operations.
In the United States, we are subject to stringent standards, laws and other regulations, including those relating to health, product performance and safety, labor, employment, privacy and data security, anti-bribery, consumer protection, taxation, customs, logistics and similar operational matters. In addition, operating in foreign jurisdictions, including those where we may operate retail stores, requires compliance with similar laws and regulations. These laws and regulations, in the United States and abroad, are complex and often vary widely by jurisdiction, making it difficult for us to ensure that we are currently or will in the future be compliant with all applicable laws and regulations. We may be required to make significant expenditures or modify our business practices to comply with existing or future laws or regulations, and unfavorable resolution to litigation or a violation of applicable laws and regulations by us, or any of our suppliers or licensees, may restrict our ability to import products, require a recall of our products, lead to fines or otherwise increase our costs, negatively impact our ability to attract and retain employees, materially limit our ability to operate our business or result in adverse publicity. Compliance with these laws and regulations requires us to devote time and management resources, and to update our processes and programs, in response to newly implemented or changing regulatory requirements, all of which could affect the manner in which we operate our business or adversely affect our results of operations.
In addition, like many retailers, we are impacted by trends in litigation, including class action litigation brought under various consumer protection and employment laws and are subject to various claims and pending or threatened lawsuits in the ordinary course of our business operations. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings, and regardless of the outcome or whether the claims have merit, legal proceedings may be expensive and require that our management devote significant time to defend.
Also, the restaurant industry requires compliance with a variety of federal, state and local regulations. In particular, all of our Tommy Bahama restaurants, as well as our recently launched Marlin Bar concept at Tommy Bahama, serve alcohol and, therefore, maintain liquor licenses. Our ability to maintain our liquor licenses depends on our compliance with applicable laws and regulations. The loss of a liquor license would adversely affect the profitability of that restaurant. Additionally, as a participant in the restaurant industry, we face risks related to food quality, food-borne illness, injury, health inspection scores and labor relations.
Regardless of whether any allegations of violations of the laws and regulations governing our business are valid or whether we ultimately become liable, we may be materially affected by negative publicity associated with these issues. For example, the negative impact of adverse publicity relating to allegations of violations at one of our restaurants may extend beyond the restaurant involved to affect some or all of the other restaurants, as well as the image of the Tommy Bahama brand as a whole.
Our business could be harmed if we fail to maintain proper inventory levels.
Many factors, such as economic conditions, fashion trends, consumer preferences, the financial condition of our wholesale customers and weather, make it difficult to accurately forecast demand for our products. In order to meet the expected demand for our products in a cost-effective manner, we make commitments for production several months prior to our receipt of these goods and often in advance of firm commitments, if any, from wholesale customers. Depending on the demand levels for our products, we may be unable to sell the products we have ordered or that we have in our inventory, which may
result in inventory markdowns, such as the $5 million of inventory markdowns recognized by Tommy Bahama in the Fourth Quarter of Fiscal 2016, or the sale of excess inventory at discounted prices and through off-price channels. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate demand for our products or if we are unable to access our products when we need them, for example due to a third party manufacturer’s inability to source materials or produce goods in a timely fashion or as a result of delays in the delivery of products to us, such as the delay in arrival of Lilly Pulitzer product during the Third Quarter of Fiscal 2016 as a result of the Hanjin shipping bankruptcy, we may experience inventory shortages, which might result in unfilled orders, negatively impact customer relationships, diminish brand loyalty and result in lost sales, any of which could harm our business.
We may be unable to grow our business through organic growth, and any failure to successfully execute this aspect of our business strategy may have a material adverse effect on our business, financial condition, liquidity and results of operations.
One key component of our business strategy is organic growth in our brands. Organic growth may be achieved by, among other things, increasing sales in our direct to consumer channels; selling our products in new markets, including international markets; increasing our market share in existing markets, including to existing wholesale customers; expanding the demographic appeal of our brands; expanding our margins through product cost reductions, price increases, or otherwise; and increasing the product offerings within our various operating groups. Successful growth of our business is subject to, among other things, our ability to implement plans for expanding and/or maintaining our existing businesses and categories within our businesses at satisfactory levels. We may not be successful in achieving suitable organic growth, and our inability to grow our business may have a material adverse effect on our business, financial condition, liquidity and results of operations.
In addition, investments we make in technology and infrastructure, retail stores and restaurants, office and distribution center facilities, personnel and elsewhere may not yield the full benefits we anticipate and/or sales growth may be outpaced by increases in operating costs, putting downward pressure on our operating margins and adversely affecting our results of operations. If we are unable to increase our sales growth targets organically, we may be required to pursue other strategic initiatives, including reductions in costs and/or acquisitions, in order to grow our business. These initiatives may not be available to us on desirable terms, inhibiting our ability to increase profitability.
The acquisition of new businesses and the divestiture or discontinuation of businesses and product lines have certain inherent risks, including, for example, strains on our management team and unexpected costs and other charges resulting from the transaction.
Growth of our business through acquisitions of lifestyle brands that fit within our business model is a component of our business strategy. For example, during Fiscal 2016, we acquired Southern Tide, LLC, which owns the Southern Tide lifestyle brand, and also acquired the Duck Head and Strong Suit brands. Acquisitions involve numerous risks, including: the competitive climate for desirable acquisition candidates, which drives market multiples; the benefits of the acquisition not materializing as planned or not materializing within the time periods or to the extent anticipated; our ability to manage the people and processes of an acquired business; difficulties in retaining key relationships with customers and suppliers; risks in entering geographic markets and/or product categories in which we have no or limited prior experience; and the possibility that we pay more to consummate an acquisition than the value we derive from the acquired business. Additionally, acquisitions may cause us to incur debt, assume other liabilities or make dilutive issuances of our equity securities.
As described in Note 1 in our consolidated financial statements included in this report, at the time of an acquisition, we estimate and record the fair value of purchased intangible assets, such as trademarks, reacquired rights and customer relationships, and record goodwill generally to the extent the cost to acquire a business exceeds our assessment of the net fair value of tangible and intangible assets. We test indefinite-lived intangible assets and goodwill for possible impairment as of the first day of the fourth quarter of each fiscal year, or at an interim date if indicators of impairment exist at that date. It is possible that we could have an impairment charge for goodwill or intangible assets in future periods if, among other things, economic conditions decline, our strategies for an acquired business change, the results of operations of an acquired business are less than anticipated at the time of acquisition or enterprise values of comparable publicly traded companies decline, resulting in an impairment of the goodwill and/or intangible assets associated with an acquired business. A future impairment charge for goodwill or intangible assets could have a material adverse effect on our consolidated financial position or results of operations.
As a result of acquisitions, we may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence. Although we may be entitled to indemnification against undisclosed liabilities from the sellers of the acquired business, our recourse may be limited and we cannot be certain that the indemnification, even if obtained, will be enforceable or collectible. Any of these liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
In addition, integrating acquired businesses is a complex, time-consuming and expensive process. The integration process for newly acquired businesses could create for us a number of challenges and adverse consequences associated with the integration of product lines, employees, sales teams and outsourced manufacturers; employee turnover, including key management and creative personnel of the acquired and existing businesses; disruption in product cycles for newly acquired product lines; maintenance of acceptable standards, controls, procedures and policies; operating business in new geographic territories; diversion of the attention of our management from other areas of our business; and the impairment of relationships with customers of the acquired and existing businesses. Merger and acquisition activity is inherently risky, and we cannot be certain that any acquisition will be successful and will not materially harm our business, operating results or financial condition.
From time to time, we also divest or discontinue businesses and/or product lines that do not align with our strategy or provide the returns that we expect or desire. For example, during Fiscal 2015, we sold the operations and assets of our former Ben Sherman operating group. Disposition transactions, as well as the discontinuation of business and/or product lines, may result in underutilization of our retained resources if the exited operations are not replaced with new lines of business, either internally or through acquisition. In addition, we may become responsible for unexpected liabilities, some of which may be triggered or increased by a purchaser’s operation of the disposed business following the transaction. Those liabilities combined with any other liabilities we contractually retain, individually or in the aggregate, could adversely affect our financial condition and results of operations.
We may be unable to protect our trademarks and other intellectual property.
We believe that our trademarks and other intellectual property, as well as certain contractual arrangements, including licenses, and other proprietary intellectual property rights, have significant value and are important to our continued success and our competitive position due to their recognition by retailers and consumers. In Fiscal 2016, 92% of our consolidated net sales were attributable to branded products for which we own the trademark. Therefore, our success depends to a significant degree on our ability to protect and preserve our intellectual property. We rely on laws in the United States and other countries to protect our proprietary rights. However, we may not be able to sufficiently prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm the reputation of our brands.
We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts. Despite these efforts, we regularly discover products that are counterfeit reproductions of our products, that otherwise infringe on our proprietary rights or that otherwise seek to mimic or leverage our intellectual property. These counterfeiting activities typically increase as brand recognition increases, especially in markets outside the United States. Counterfeiting of our brands could divert away sales, and association of our brands with inferior counterfeit reproductions could adversely affect the integrity and reputation of our brands.
Additionally, there can be no assurance that the actions that we have taken will be adequate to prevent others from seeking to block sales of our products as violations of proprietary rights. As we extend our brands into new product categories and new product lines and expand the geographic scope of our manufacture, distribution and marketing, we could become subject to litigation or challenge based on allegations of the infringement of intellectual property rights of third parties, including by various third parties who have acquired or claim ownership rights in some of our trademarks internationally. In the event a claim of infringement against us is successful or would otherwise affect our operations, we may be required to pay damages, royalties or license fees or other costs to continue to use intellectual property rights that we had been using, or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Litigation and other legal action of this type, regardless of whether it is successful, could result in substantial costs to us and diversion of the attention of our management and other resources.
Fluctuations and volatility in the cost and availability of raw materials, labor and freight may materially increase our costs.
We and our third party suppliers rely on the availability of raw materials at reasonable prices. The principal fabrics used in our business are cotton, linens, wools, silk, linen, leather, tencel, and other natural and man-made fibers, synthetics andor blends of
two or more of these materials. The prices paid for these fabrics depend on the market price for raw materials used to produce them. In addition, theThe cost of the materials and components that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, such as dyes and chemicals, and other costs, can fluctuate. In recent years, we have seen increases in the costs of certain raw materials as a result of weather-related supply disruptions, significant declines in U.S. inventory and a sharp rise in the futures market for cotton. We historically have not entered into any futures contracts to hedge commodity prices.
In
recent years,Fiscal 2021 and Fiscal 2022, we saw increased costs of raw materials, including cotton, that impacted our production costs. These price increases could continue in future years.
Employment costs represented more than 40% of our consolidated SG&A in Fiscal 2022, and we have also seen increases in the cost of labor in our retail, restaurant and distribution center operations as well as at many of our suppliers particularly within recent years, which intensified during the growth of the middle class in certain countries, as well as in freight costs. In China, for example, apparel manufacturers have experienced increased costs due to labor shortages and other factors, and these increased costs are often passed on to us. Although we attempt to mitigate the effect of increases in our cost of goods sold through sourcing initiatives and by selectively increasing the prices of our products, these product costing pressures, as well as other variable cost pressures, may materially increase our costs, and we may be unable to fully pass on these costs to our customers.
As of January 28, 2017, we had approximately 4,000 retail store and restaurant employees. The employment and employment-related costs associated with these employees are a significant component in the SG&A of our retail store and restaurant operations.last two years. Employment costs are affected by labor markets, as well as various federal, state and foreign laws governing matters such as minimum wage rates, overtime compensation and other requirements. For example,In addition, in recent years, there has been significant political pressure and legislative action to increase the minimum wage rate in many of the jurisdictions withinin which our stores are located.we operate. We have also experienced increases in freight costs and distribution and logistics functions and may continue to see such cost and capacity pressures. Although we have not thus far been materially affected by these legislative increases in minimum wage rates, anyattempt to mitigate the effect of increases in our employmentcost of goods sold, labor costs, as a resultoccupancy costs, other operational costs and SG&A items through sourcing initiatives and by selectively increasing the prices of continuedour products, we may be unable to fully pass on these costs to our customers, and material increases in minimum wage rates or otherwise, may materially increase our costs may reduce the profitability or expected profitability of continuing and prospective retail and restaurantour operations and/or adversely impact our results of operations.
We may not be successful in identifying locations and negotiating appropriate lease terms for retail stores and restaurants.
An integral part of our strategy has been to develop and operate retail stores and restaurants for certain of our lifestyle brands. Net sales from our retail stores and restaurants were 48% of our consolidated net sales during Fiscal 2016.
We lease all of our retail store and restaurant locations. Successful operation of our retail stores and restaurants depends, in part, on our ability to identify desirable, brand appropriate locations; the overall ability of the location to attract a consumer base sufficient to make store sales volume profitable; our ability to negotiate satisfactory lease terms and employ qualified personnel; and our ability to timely construct and complete any build-out and open the location in accordance with our plans. A decline in the volume of consumer traffic at our retail stores and restaurants, due to economic conditions, shifts in consumer shopping preferences or technology, a decline in the popularity of malls or lifestyle centers in general or at those in which we operate, the closing of anchor stores or other adjacent tenants or otherwise, could have a negative impact on our sales, gross margin and results of operations. In addition, as and when we seek to open new retail stores and restaurants, we compete with others for favorable locations, lease terms and desired personnel. Retail growth may be limited if we are unable to identify new locations with consumer traffic sufficient to support a profitable sales level or the local market reception to a new retail store opening is inconsistent with our expectations.
Our retail store and restaurant leases generally represent long-term financial commitments, with substantial costs at lease inception for a location’s design, leasehold improvements, fixtures and systems installation. Impairment testing of our retail stores’ long-lived assets requires us to make estimates about our future performance and cash flows that are inherently uncertain. These estimates can be affected by numerous factors, including changes in economic conditions, our results of operations, and competitive conditions in the industry. Due to the fixed-cost structure associated with our retail operations, negative cash flows or the closure of a retail store or restaurant could result in write-downs of inventory, impairment of leasehold improvements, impairment of other long-lived assets, severance costs, lease termination costs or the loss of working capital, which could adversely impact our business and financial results. For example, during the Fourth Quarter of Fiscal 2016, we recognized certain charges in connection with closing three Tommy Bahama retail stores, including outlets. These charges may increase as we continue to evaluate our retail operations.
In addition, our retail store and restaurant leases generally grant the third party landlord with discretion on a number of operational matters, such as store hours and construction of our improvements. The recent consolidation within the commercial real estate development, operation and/or management industries may reduce our leverage with those parties, thereby adversely affecting the terms of future leases for our retail stores and restaurants or making entering into long-term commitments with such parties cost prohibitive.
Our geographic concentration of retail stores and wholesale customers for certain of our brands exposes us to certain regional risks.
Our retail locations are heavily concentrated in certain geographic areas in the United States, including Florida and California for our Tommy Bahama retail stores (53 out of 144 domestic stores in these states as of January 28, 2017) and Florida and Texas for our Lilly Pulitzer retail stores (18 out of 40 stores as of January 28, 2017). Additionally, the wholesale sales for each of Tommy Bahama, Lilly Pulitzer and Southern Tide experience geographic concentration, including in geographic areas where we have concentrations of our own retail store locations. Due to this concentration, we have
heightened exposure to factors that impact these regions, including general economic conditions, weather patterns, natural disasters, changing demographics and other factors.
Our direct to consumer operations in international markets may continue to adversely impact our results of operations.
In recent years we began expansion of the Tommy Bahama brand into international markets. These efforts included the acquisition of the assets and operations of the Tommy Bahama business from former licensees in Australia in Fiscal 2012 and in Canada in Fiscal 2013. We also commenced operations in Asia by opening retail store locations in Asia beginning in Fiscal 2012. The operations in the Asia-Pacific region thus far have generated operating losses as we developed a significant Hong Kong-based team and infrastructure to support a larger Asia retail operation. Although we closed our retail stores in Macau and Singapore, as well as outlet stores in Hong Kong and Japan, during Fiscal 2015 and Fiscal 2016, we believe that the operating losses associated with our Tommy Bahama operations in the Asia-Pacific region will continue in the near-future, adversely impacting our results of operations and putting downward pressure on our operating margin, until we have sufficient sales to leverage the operating costs or have otherwise fully exited direct operations in unprofitable jurisdictions.
In addition, we have limited experience with regulatory environments and market practices related to international operations and there are risks associated with doing business in these markets, including lack of brand recognition in certain markets; understanding fashion trends and satisfying consumer tastes; understanding sizing and fitting in these markets; market acceptance of our products, which is difficult to assess immediately; establishing appropriate market-specific operational and logistics functions; managing compliance with the various legal requirements; staffing and managing foreign operations; fluctuations in currency exchange rates; obtaining governmental approvals that may be required to operate; potentially adverse tax implications; and maintaining proper levels of inventory. If we are unable to properly manage these risks or if our international efforts do not prove successful, our business, financial condition and results of operations could continue to be negatively impacted.
As we continue to explore long-term opportunities for our Tommy Bahama brand internationally while simultaneously seeking to reduce the operating losses associated with our Tommy Bahama operations in the Asia-Pacific region, we may elect to enter into retail license and/or wholesale distribution arrangements, or joint ventures, with third parties for certain markets. Any such arrangements are subject to a number of risks and uncertainties, including our reliance on the operational skill and expertise of a local operator, the ability of the joint venture or operator to manage its employees and appropriately represent our brands in those markets and any protective rights that we may be forced to grant to the third party, which could limit our ability to fully realize the anticipated benefits of such a relationship.
We are also subject to certain anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, in addition to the local laws of the foreign countries into which we enter. If any of our international operations, or our employees or agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.
We hold licenses for the use of other parties’ brand names, and we cannot guarantee our continued use of such brand names or the quality or salability of such brand names.
We have entered into license and design agreements to use certain trademarks and trade names, such as Kenneth Cole, Dockers, Geoffrey Beene, Nick Graham and Andrew Fezza, to market some of our products. During Fiscal 2016, sales of products bearing brands licensed to us accounted for 6% of our consolidated net sales and 60% of our Lanier Apparel net sales. When we enter into these license and design agreements, they generally provide for short contract durations (typically three to five years); these agreements often include options that we may exercise to extend the term of the contract but, when available, those option rights are subject to our satisfaction of certain contingencies (e.g., minimum sales thresholds) that may be difficult for us to satisfy. Competitive conditions for the right to use popular trademarks means that we cannot guarantee that we will be able to renew these licenses on acceptable terms upon expiration, that the terms of any renewal will not result in operating margin pressures or reduced profitability or that we will be able to acquire new licenses to use other desirable trademarks. The termination or expiration of a license agreement will cause us to lose the sales and any associated profits generated pursuant to such license, which could be material, and in certain cases could also result in an impairment charge for related assets.
Our license agreements generally require us to receive approval from the brand’s owner of all design and other elements of the licensed products we sell prior to production, as well as to receive approval from the brand owner of distribution channels in which we may sell and the manner in which we market and distribute licensed products. Any failure by us to comply with these requirements could result in the termination of the license agreement.
In addition to certain compliance obligations, all of our significant licenses provide minimum thresholds for royalty payments and advertising expenditures for each license year, which we must pay regardless of the level of our sales of the licensed products. If these thresholds are not met, our licensors may be permitted contractually to terminate these agreements or seek payment of minimum royalties even if the minimum sales are not achieved. In addition, our licensors produce their own products and license their trademarks to other third parties, and we are unable to control the quality of these goods. If licensors or others do not maintain the quality of these trademarks or if the brand image deteriorates, or the licensors otherwise change the parameters of design, pricing, distribution or marketing, our sales and any associated profits generated by such brands may decline.
We make use of debt to finance our operations, which exposes us to risks that could adversely affect our business, financial position and operating results.
Our levels of debt vary as a result of the seasonality of our business, investments in our operations and working capital needs. As of January 28, 2017, we had $91.5 million of borrowings outstanding under our U.S. Revolving Credit Agreement. In the future, our debt levels may increase under our existing facility or potentially under new facilities, or the terms or forms of our financing arrangements may change.
Our indebtedness includes, and any future indebtedness may include, certain obligations and limitations, including the periodic payment of principal and interest, maintenance of certain covenants and certain other limitations. The negative covenants in our debt agreements limit our ability to incur debt; guaranty certain obligations; incur liens; pay dividends; repurchase common stock; make investments, including the amount we may generally invest in, or use to support, our foreign operations; sell assets; make acquisitions; merge with other companies; or satisfy other debt. These obligations and limitations may increase our vulnerability to adverse economic and industry conditions, place us at a competitive disadvantage compared to our competitors that are less leveraged and limit our flexibility in carrying out our business plan and planning for, or reacting to, industry changes.
In addition, we have interest rate risk on indebtedness under our U.S. Revolving Credit Agreement. Our exposure to variable rate indebtedness may increase in the future, based on our debt levels and/or the terms of future financing arrangements. An increase in interest rates may require us to pay a greater amount of our funds from operations towards interest, even if the amount of borrowings outstanding remains the same. As a result, we may have to revise or delay our business plans, reduce or delay capital expenditures or otherwise adjust our plans for operations.
The continued growth of our business, whether organically, through acquisitions or otherwise, also depends on our access to sufficient funds. For example, we used borrowings under our U.S. Revolving Credit Agreement to finance the acquisition of Southern Tide during Fiscal 2016. We typically rely on cash flow from operations and borrowings under our U.S. Revolving Credit Agreement to fund our working capital, capital expenditures and investment activities. As of January 28, 2017, we had $185.5 million in unused availability under our U.S. Revolving Credit Agreement. If the need arises in the future to finance expenditures in excess of those supported by our operations and existing credit facilities, we may need to seek additional funding, whether through debt or equity financing. Our ability to obtain that financing will depend on many factors, including prevailing market conditions, our financial condition and, depending on the sources of financing, our ability to negotiate favorable terms and conditions. The terms of any such financing or our inability to secure such financing could adversely affect our ability to execute our strategies.
Labor-related matters, including labor disputes, may adversely affect our operations.
We may be adversely affected as a result of labor disputes in our own operations or in those of third parties with whom we work. Our business depends on our ability to source and distribute products in a timely manner, and our new retail store and restaurant growth is dependent on timely construction of our locations. While we are not subject to any organized labor agreements and have historically enjoyed good employee relations, there can be no assurance that we will not experience work stoppages or other labor problems in the future with our non-unionized employees. In addition, potential labor disputes at independent factories where our goods are produced, shipping ports or transportation carriers create risks for our business, particularly if a dispute results in work slowdowns, lockouts, strikes or other disruptions during our peak manufacturing, shipping and selling seasons. For example, a severe and prolonged disruption to ocean freight transportation, such as the disruption to West Coast port operations in 2014 and 2015 due to a port workers’ union dispute, delayed our receipt of product. Further, we plan our inventory purchases and forecasts based on the anticipated timing of retail store and restaurant openings, which could be delayed as a result of a number of factors, including labor disputes among contractors engaged to construct our locations or within government licensing or permitting offices.offices or the unavailability of qualified contractors due to labor shortages. Any potential labor dispute, either in our own operations or in those of third parties on whom we rely, could materially affect our costs, decrease our sales, harm our reputation or otherwise negatively affect our operations.
Our geographic concentration of retail stores, restaurants and wholesale customers exposes us to certain regional risks.
Our operations and retail and restaurant locations are heavily concentrated in the United States and certain geographic areas within the United States, including Florida, California, Texas and Hawaii for our Tommy Bahama operations; Florida for our Lilly Pulitzer operations; California for our Johnny Was operations; and Florida for our Emerging Brands operations. Additionally, the wholesale sales for our businesses are also geographically concentrated, including in geographic areas where we have concentrations of our own retail store locations. Due to these concentrations, as well as our brands’ association with the resort lifestyle and destinations, we have heightened exposure to factors that impact these regions, including general economic conditions, weather patterns, natural disasters, public health crises, changing demographics and other factors.
Our international operations, including foreign sourcing, result in an exposure to fluctuations in foreign currency exchange rates.
As a result of our international operations, we
We are exposed to certain currency exchange risks in conducting business outside of the United States. The substantial majoritySubstantially all of our orders for the production of apparel inproduct purchases are from foreign countries isvendors and are denominated in U.S. dollars. If the value of the U.S. dollar decreases relative to certain foreign currencies in the future, then the prices that we negotiate for products could increase and it is possible that we would notmay be ableunable to pass this increase on to customers, which would negatively impact our margins.
However, if the value of the U.S. dollar increases between the time a price is set and payment for a product, the price we pay may be higher than that paid for comparable goods by competitors that pay for goods in local currencies, and these competitors may be able to sell their products at more competitive prices. An increase in the value of the U.S. dollar compared to other currencies in which we have sales could also result in lower levels of sales and earnings reported in our consolidated statements of operations and lower gross margins. Additionally, currency fluctuations could also disrupt the business of our independent manufacturers by making their purchases of raw materials more expensive and difficult to finance.
Risks Related to Regulatory, Tax and Financial Reporting Matters
Our business is subject to various federal, foreign, state and local laws and regulations, and the costs of compliance with, or the violation of, such laws and regulations could have an adverse effect on our costs or operations.
We received U.S. dollars for 96% of ourare subject to stringent standards, laws and other regulations, including those relating to labor, employment, privacy and data security, consumer protection, marketing, health, product sales during Fiscal 2016, with the remaining sales primarily related to our retail operations in Canada, Australiaperformance, content and Japan. An increasesafety, anti-bribery, taxation, customs, logistics and other operational matters. These laws and regulations, in the value ofUnited States and abroad, are complex and often vary widely by jurisdiction, making it difficult for us to ensure that we are currently or will in the U.S. dollar compared to other currenciesfuture be compliant with all applicable laws and regulations in all the states and countries in which we have sales could result in lower levels of sales and earnings in our consolidated statements of operations, although the sales in foreign currencies could be equal to or greater than amounts in prior periods.operate. In addition to the extentlocal laws of the foreign countries in which we operate, we are subject to certain anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. If any of our international operations, or our employees or agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.
We may be required to make significant expenditures and devote significant time and management resources to comply with existing or future laws or regulations, and a stronger U.S. dollar increasesviolation of applicable laws and regulations by us, or any of our suppliers or licensees, may restrict our ability to import products, require a recall of our products, lead to fines or otherwise increase our costs, negatively impact our ability to attract and retain employees or materially limit our ability to operate our business. In addition, regardless of whether any allegations of violations of the laws and regulations governing our business are valid or whether we ultimately become liable, we may be materially affected by negative publicity as a result of such allegations.
In addition, the regulatory environment governing our use of individually identifiable data is complex, and compliance with new and modified state, federal and international privacy and security laws may require us to modify our operations and/or incur costs to make necessary systems changes and implement new administrative processes. In addition, because we process and transmit payment card information, we are subject to the payment card industry data security standard and card brand operating rules, which provide for a comprehensive set of rules relating to the retention and/or transmission of payment card information. If we do not comply with the applicable standards, we may be subject to fines or restrictions on our ability to accept payment cards, which could have a material adverse effect on our operations.
Changes in international trade regulation could increase our costs and/or disrupt our supply chain.
Due to our international sourcing activities, we are exposed to risks associated with changes in the laws and regulations governing the importing and exporting of apparel products into and from the countries in which we operate. These risks include imposition of additional or new antidumping, countervailing or other duties, tariffs, taxes or quota restrictions; government-imposed restrictions as a result of public health issues; changes in customs procedures for importing apparel products; restrictions on the transfer of funds to or from foreign countries; and the issuance of sanctions and trade orders. Any of these factors may disrupt our supply chain, and we may be unable to offset any associated cost increases by shifting production to suitable manufacturers in other jurisdictions in a timely manner or at acceptable prices, and future regulatory actions or changes in international trade regulation may provide our competitors with a material advantage over us or render our products less desirable in the marketplace.
There has been heightened trade tension between the United States and China, from which we sourced 36% of our products in Fiscal 2022 and from which Johnny Was has sourced more than 90% of its products in recent years, with multiple rounds of increased U.S. tariffs on China-imported goods implemented in 2018 and 2019. It is unclear what, if any, additional actions might be considered or implemented, particularly in the current geopolitical environment. Significant tariffs or other restrictions placed on Chinese imports and any related countermeasures that are soldtaken by China could have an adverse effect on our financial condition or results of operations.
Any violation or perceived violation of our codes of conduct or environmental and social compliance programs, including by our manufacturers or vendors, could have a material adverse effect on our brands.
We have a robust legal, social and environmental compliance program, including codes of conduct and vendor compliance standards. The reputation of our brands could be harmed if we or our third-party manufacturers and vendors, substantially all of which are located outside the United States, fail to meet appropriate product safety, product quality and social and environmental compliance standards. Despite our efforts, we cannot ensure that our manufacturers and vendors will at all times conduct their operations in another currency butaccordance with ethical practices or that the additional cost cannotproducts we purchase will always meet our safety and quality control standards, and any failure to do so could disrupt our supply chain and adversely affect our business operations.
The presence or perception of forced labor in our supply chain in spite of our efforts to ensure that our third party manufacturers and vendors meet human rights and labor standards could result in adverse impacts on our business, including the detention of goods at U.S. ports of entry, challenges in identifying replacement vendors and harm to our reputation. While we have diversified the jurisdictions from which we source products and product inputs, our manufacturing operations remain concentrated in China, cotton is among the principal raw materials used in many of our goods and even the cotton used in our products manufactured outside of China largely originates from Chinese fabric mills. Starting in Fiscal 2020, the U.S. Government issued withhold release orders in response to concerns regarding forced labor in the Xinjiang Uyghur Autonomous Region (the “XUAR”) of China. The XUAR is a globally significant source of cotton production, much of which is controlled by the Xinjiang Production and Construction Corporation (“XPCC”) and its affiliates. The Uyghur Forced Labor Prevention Act (“UFLPA”), which was enacted in 2021, created a rebuttable presumption that goods produced in whole or in part in the XUAR or connected with certain listed companies, including the XPCC and its affiliates, were produced using forced labor and are, therefore, barred from entry into the United States. Requirements for enhanced supply chain traceability, monitoring and risk screening, including pursuant to the UFLPA, have increased our compliance costs. Furthermore, while we do not knowingly source any products or product inputs from the XUAR, we have no known involvement with the XPCC, its affiliates or other entity list companies and we prohibit our suppliers from using forced labor, our supply chain is complex, and we may not have the ability to completely map and monitor it. We could be passed onsubject to penalties, fines or sanctions if any of the manufacturers from which we purchase goods is found or suspected to have dealings, directly or indirectly, with the XUAR or entity list companies, and any actions taken by customs officials to block the import of products suspected of being manufactured with forced labor, whether or not founded, could adversely impact our operations and financial results.
Furthermore, consumers are increasingly attuned to the environmental and social impact of the products they purchase and companies with which they do business. A failure to effectively convey our core principles to our customers and investors or to accurately communicate our gross margins will besocial responsibility and environmental sustainability initiatives and respond to concerns raised about them, including through our social media channels, could result in a negative public perception of our brands and products and negatively impacted.
impact our business.
As a multi-national apparel company, we may experience fluctuations in our tax liabilities and effective tax rate.
As a multi-national apparel company, we are subject to income taxes in the United States and various foreign jurisdictions. We record our income tax liability based on an analysis and interpretation of local tax laws and regulations, which requires a significant amount of judgment and estimation. In addition, we may from time to time modify our operations in an effort to minimize our consolidated income tax expense. Our operationseffective income tax rate in any particular period or in future periods may be affected by a number of factors, including a shift in the mix of revenues, income and/or losses among domestic and international sources during a year or over a period of years; changes in weather patterns, natural tax laws and regulations and/or man-made disasters, war, terrorisminternational tax treaties; the outcome of income tax audits in various jurisdictions; the difference
between the income tax deduction and the previously recognized income tax benefit related to the vesting of equity-based compensation awards; and the resolution of uncertain tax positions, any of which could adversely affect our effective income tax rate and profitability. Further, changes to U.S. and foreign tax laws and compliance with new tax laws could have a material adverse effect on our tax expense, cash flows and operations.
Impairment charges for goodwill or intangible assets could have a material adverse impact on our financial results.
The carrying values of our goodwill and intangible assets, including those recorded in connection with our acquisition of a business or our bricks and mortar operations, are subject to periodic impairment testing. In connection with our acquisition of Johnny Was, we preliminarily recognized $135 million of intangible assets and $97 million of goodwill associated with those operations. Impairment testing of goodwill and intangible assets requires us to make estimates about future performance and cash flows that are inherently uncertain and can be affected by numerous factors, including changes in economic conditions, income tax rates, our results of operations and competitive conditions in the industry. For example, in Fiscal 2020, we recognized $60 million of non-cash impairment charges for goodwill and intangible assets, which reflected the impact of COVID-19 on the operations, plans and strategy of the Southern Tide business. Future impairment charges may have a material adverse effect on our consolidated financial statements or results of operations.
Any failure to maintain liquor licenses or comply with applicable regulations could adversely affect the profitability of our restaurant operations.
The restaurant industry requires compliance with a variety of federal, state and local regulations. In particular, all of our Tommy Bahama restaurants and Marlin Bars serve alcohol and, therefore, maintain liquor licenses. Our ability to maintain our liquor licenses and other permits depends on our compliance with applicable laws and regulations. The loss of a liquor license or other catastrophes.
critical permits would adversely affect the profitability of that restaurant. Additionally, as a participant in the restaurant industry, we face risks related to food quality, food-borne illness, injury, health inspection scores and labor relations. The negative impact of adverse publicity relating to allegations of actual or perceived violations at one of our restaurants may extend beyond the restaurant involved to affect some or all of our other restaurants, as well as the image of the Tommy Bahama brand as a whole.
General Risks
Our sales volumebusiness depends on our senior management and other key personnel, and failure to successfully attract, retain and implement succession of our senior management and key personnel or to attract, develop and retain personnel to fulfill other critical functions may have an adverse effect on our operations and ability to execute our strategies.
Our senior management has substantial experience in the apparel and related industries, with our Chairman and Chief Executive Officer Mr. Thomas C. Chubb III having worked with our company for more than 30 years, including in various executive management capacities. Our success depends on disciplined execution at all levels of our organization, including our senior management, and continued succession planning. Competition for qualified personnel is intense, and we compete to attract and retain these individuals with other companies that may have greater financial resources than us. While we believe that we have depth within our management team, the unexpected loss of any of our senior management, or the unsuccessful integration of new leadership, could harm our business and financial performance. In addition, we may be adversely affected by unseasonableunable to retain or severe weather conditions, natural or man-made disasters, war, terrorist attacks, including heightened security measuresrecruit qualified personnel in key areas such as product design, sales, marketing (including individuals with key insights into digital and responsive military actions, orsocial media marketing strategies), distribution, technology, sourcing and other catastrophessupport functions, which could result in missed sales opportunities and harm to key business relationships.
During Fiscal 2021 and Fiscal 2022, we experienced staffing shortages, higher turnover rates and challenges in recruiting and retaining qualified employees at all levels of our organization, which may cause consumerscontinue in the future. Our inability or failure to alter their purchasing habits or result in a disruption to our operations. Because of the seasonality of our business, the concentration of a significant proportion of our retail storesrecruit and wholesale customers in certain geographic regions, the concentration of our sourcing operations and the concentration of our distribution operations, the occurrence of such eventsretain skilled personnel could disproportionatelyadversely impact our business, financial conditionperformance, reputation, ability to keep up with the needs of our customers and operating results.overall customer satisfaction.
We may be unable to protect our trademarks and other intellectual property.
We believe that our trademarks and other intellectual property rights have significant value and are important to our continued success and our competitive position due to their recognition by consumers and retailers. Substantially all of our consolidated net sales are attributable to branded products for which we own the trademark. Therefore, our success depends to a significant degree on our ability to protect and preserve our intellectual property. We rely on laws in the United States and other countries to protect our proprietary rights. However, we may not be able to sufficiently prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. We have also experienced inherent, expanding challenges with enforcing our intellectual property rights on third party e-commerce websites, especially those based in foreign jurisdictions. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm the reputation of our brands.
We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts. Despite these efforts, we regularly discover products that infringe our proprietary rights or that otherwise seek to mimic or leverage our intellectual property. Counterfeiting and other infringing activities typically increase as brand recognition increases, and association of our brands with inferior counterfeit reproductions or third party labels could adversely affect the integrity and reputation of our brands.
Additionally, there can be no assurance that the actions that we have taken will be adequate to prevent others from seeking to block sales of our products as violations of proprietary rights. As we extend our brands into new product categories and new product lines and expand the geographic scope of the sourcing, distribution and marketing of our brands’ products, we could become subject to litigation or challenge based on allegations of the infringement of intellectual property rights of third parties, including by various third parties who have acquired or claim ownership rights in some of our trademarks internationally. In the event a claim of infringement against us is successful or would otherwise affect our operations, we may be required to pay damages, royalties, license fees or other costs to continue to use intellectual property rights that we had been using, or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Litigation and other legal action of this type, regardless of whether it is successful, could result in substantial costs to us and diversion of the attention of our management and other resources.
We are subject to periodic litigation, which may cause us to incur substantial expenses or unexpected liabilities.
From time to time, we are involved in litigation matters, which may relate to employment practices, consumer protection, intellectual property infringement, product liability and contract disputes, and which may include a class action, and we are subject to various claims and pending or threatened lawsuits in the ordinary course of our business operations. Often, these cases raise complex factual and legal issues and, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. Regardless of the outcome or whether the claims have merit, legal proceedings may be expensive and require significant management time.
Our common stock price may be highly volatile, and we may be unable to meet investor and analyst expectations.
Our common stock, which is currently listed on the New York Stock Exchange, may be subject to extreme and unpredictable fluctuations in price. The market price of our common stock may decline if the results of our operations or projected results do not meet the expectations of securities analysts or our shareholders, investors are unreceptive to an announcement of changes in our business could be impactedor our strategic initiatives or securities analysts who follow our company change their ratings or estimates of our future performance. Our stock price may also change suddenly as a result of actionsother factors beyond our control, including general economic conditions, new or modified legislation impacting our industry, announcements by activist shareholdersour competitors, or others.sales of our stock by existing shareholders.
The stock market has also experienced periods of general volatility which result in fluctuations in stock prices unrelated or disproportionate to operating performance. We cannot provide assurances that there will continue to be an
active trading market for our stock, and the price of our common stock may also be affected by illiquidity or perceived illiquidity of our shares. In addition, although we have paid dividends in each quarter since we became a public company in July 1960, we may discontinue or reduce dividend payments based upon several factors, including the terms of our credit facility and applicable law, the need for funding for our strategic initiatives or other capital expenditures and our future cash needs. Any modification or suspension of dividends could cause our stock price to decline. We also may be subject, from time to time, to legal and business challenges or disruptions in the operation of our company due to actions instituted by activist shareholders or others. Responding to such actions could be costly and time-consuming,
Other factors may not align withhave an adverse effect on our business, strategiesresults of operations and financial condition.
Other risks, many of which are beyond our ability to control or predict, could divert the attention of our Board of Directors and senior management from the pursuit ofnegatively impact our business strategies. Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a changeand financial performance, including changes in social, political, labor, health and economic conditions; changes in the directionoperations or liquidity of any of the parties with which we conduct our business, or in the access to capital markets for any such parties; increasing costs of customer acquisition, activation and retention; consolidation in the retail industry; and other instabilityfactors. Any of these risks, and may affectothers of which we are not aware or that we currently consider to be immaterial, could, individually or in the aggregate, have a material adverse effect on our relationships with vendors, customers, prospectivebusiness, financial condition and current employees and others.
Item 1B.
Unresolved Staff CommentsWe lease and own space for our retail stores,direct to consumer locations, distribution centers, and sales/administration office space and manufacturing facilitiesoffices in various domestic and international locations. We believe that our existing properties are well maintained, are in good operating condition and will be adequate for our present level of operations.
We also own one property located in Merida, Mexico that was previously used in our Lanier Apparel manufacturing operations.In the ordinary course of business, we enter into lease agreements for our direct to consumer operations, including leases for full-price retail space. Most of the leases require us to pay specified minimum rent, as well as a portion of operating expenses, real estate taxesstore, food and insurance applicable to the property, plus a contingent rent based on a percentage of the store's net sales in excess of a specific threshold.beverage and outlet store space. The leases have varying terms and expirations and may have provisions to extend, renew or terminate the lease agreement, among other terms and conditions. Assets leased under operating leases are not recognized as assets and liabilities in our consolidated balance sheets. Periodically, we assess the operating results of each of our retail stores and restaurants to assess whether the location provides, or is expected to provide, an appropriate long-term return on investment, whether the location remains brand appropriate and other factors. As a result of this assessment,At times, we may determine that it is appropriate to close certain storesdirect to consumer or other locations that do not continue tono longer meet our investment criteria, by either not renew certain leases, exerciserenewing the lease, exercising an early termination option, or otherwise negotiatenegotiating an early
termination. termination or otherwise. For existing leases in desirable locations, we anticipate that we will be able to extend our retail leases, to the extent that they expire in the near future, on terms that are satisfactory to us, or if necessary, locate substitute properties on acceptable terms. The terms and conditions of lease renewals or relocations may not be as favorable as existing leases.
As of January 28, 2017, our 208 retail and restaurant locations utilized approximately 0.9 million square feet of leased space in the United States, Canada, Australia, Japan and Hong Kong. Each of our retail stores and restaurants is less than 20,000 square feet, and we do not believe that we are dependent upon any individual retail store or restaurant location for our business operations. Greater detail about the retail space used by each operating group is included in Part I, Item 1, Business included in this report.
As of January 28, 2017, we utilized approximately 1.6 million square feet of owned or leased distribution, manufacturing and administrative/sales facilities in the United States, Mexico and Hong Kong. In addition to our owned distribution facilities, we may utilize certain third party warehouse/distribution providers where we do not own or lease any space. Our distribution, manufacturing, administrative and sales facilities provide space for employees and functions used in support of our retail, wholesale and e-commerce operations.
Details of the principal administrative, sales distribution and manufacturingdistribution facilities used in our operations, including approximate square footage, are as follows:
| | | | | | | | |
| | | | | | Square | | Lease |
Location | | Primary Use | | Operating Group | | Footage | | Expiration |
Seattle, Washington | | Sales/administration | | Tommy Bahama | | 125,000 | | 2026 |
Auburn, Washington | | Distribution center | | Tommy Bahama | | 335,000 | | 2025 |
King of Prussia, Pennsylvania | | Sales/administration and distribution center | | Lilly Pulitzer | | 160,000 | | Owned |
Los Angeles, California | | Sales/administration | | Johnny Was | | 30,000 | | 2032 |
Los Angeles, California | | Administration and distribution center | | Johnny Was | | 70,000 | | 2025 |
Atlanta, Georgia | | Sales/administration | | Corporate/Other | | 30,000 | | 2024 |
Lyons, Georgia | | Distribution center | | Various | | 420,000 | | Owned |
|
| | | | | |
| Location | Primary Use | Operating Group | Square Footage | Lease Expiration |
| Seattle, Washington | Sales/administration | Tommy Bahama | 115,000 |
| 2026 |
| Auburn, Washington | Distribution center | Tommy Bahama | 325,000 |
| 2025 |
| King of Prussia, Pennsylvania | Sales/administration and distribution center | Lilly Pulitzer | 160,000 |
| Owned |
| Toccoa, Georgia | Distribution center | Lanier Apparel | 310,000 |
| Owned |
| Merida, Mexico | Manufacturing plant | Lanier Apparel | 80,000 |
| Owned |
| Greenville, South Carolina | Sales/administration | Southern Tide | 12,000 |
| 2017 |
| Atlanta, Georgia | Sales/administration | Corporate and Other and Lanier Apparel | 30,000 |
| 2023 |
| Lyons, Georgia | Sales/administration and distribution center | Corporate and Other, Lanier Apparel and Southern Tide | 420,000 |
| Owned |
| New York, New York | Sales/administration | Various | 40,000 |
| Various |
| Hong Kong | Sales/administration | Various | 20,000 |
| Various |
Item 3.
Legal ProceedingsFrom time to time, we are a party to litigation and regulatory actions arising in the ordinary course of business. These actions may relate to trademark and other intellectual property, employee relations matters, real estate, licensing arrangements, real estate, importing or exporting regulations, product safety requirements, taxation employee relation matters or other topics. We are not currently a party to any litigation or regulatory actions,action or aware of any proceedings contemplated by governmental authorities that we believe could reasonably be expected to have a material impact on our financial position, results of operations or cash flows. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of additional factors not presently known or determinations by judges, juries, or others which are not consistent with our evaluation of the possible liability or outcome of such litigation or claims.
Item 4.
Mine Safety Disclosures
Item 5.
Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket and Dividend Information
Our common stock is listed and traded on the New York Stock Exchange under the symbol "OXM." As of March 15, 2017,24, 2023, there were 289262 record holders of our common stock. The following table sets forth the high and low sale prices and quarter-end closing prices of our common stock as reported on the New York Stock Exchange for the quarters indicated. Additionally, the table indicates the dividends per share declared on shares of our common stock by
On March 21, 2023, our Board of Directors for each quarter.
|
| | | | | | | | | | | | |
| | High | Low | Close | Dividends |
| Fiscal 2016 | | | | |
| First Quarter | $ | 77.99 |
| $ | 58.28 |
| $ | 66.42 |
| $ | 0.27 |
|
| Second Quarter | $ | 67.15 |
| $ | 52.54 |
| $ | 57.18 |
| $ | 0.27 |
|
| Third Quarter | $ | 74.00 |
| $ | 55.14 |
| $ | 62.78 |
| $ | 0.27 |
|
| Fourth Quarter | $ | 76.19 |
| $ | 51.81 |
| $ | 54.07 |
| $ | 0.27 |
|
| Fiscal 2015 | | | | |
| First Quarter | $ | 80.93 |
| $ | 51.13 |
| $ | 78.11 |
| $ | 0.25 |
|
| Second Quarter | $ | 90.00 |
| $ | 73.36 |
| $ | 83.93 |
| $ | 0.25 |
|
| Third Quarter | $ | 91.24 |
| $ | 67.62 |
| $ | 72.82 |
| $ | 0.25 |
|
| Fourth Quarter | $ | 74.72 |
| $ | 54.79 |
| $ | 69.86 |
| $ | 0.25 |
|
Weapproved a cash dividend of $0.65 per share payable on April 28, 2023 to shareholders of record as of the close of business on April 14, 2023. Although we have paid dividends in each quarter since we became a public company in July 1960; however,1960, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facility, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends or repurchase shares in the short term based on our expectation of operating cash flows in future periods subject to the terms and conditions of our credit facility, other debt instruments and applicable law. All cash flow from operations will not necessarily be paid out as dividends in all periods.
or repurchases of our common stock. For details about limitations on our ability to pay dividends, see the discussion of our $325 million Fourth Amended and Restated Credit Agreement (as amended, the “U.S. Revolving Credit Agreement”) in Note 5 of our consolidated financial statements and Part II, Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in this report.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities during Fiscal 2016.
2022.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the Fourth Quarter of Fiscal 2022, we repurchased the following shares of our common stock:
| | | | | | | | | |
| | | | | | | Total Number of | | Dollar Value |
| | | | | | | Shares | | (000s) of Shares |
| | | | Average | | Purchased as | | That May Yet be |
| | Total Number | | Price | | Part of Publicly | | Purchased Under |
| | of Shares | | Paid per | | Announced Plans | | the Plans or |
Fiscal Month | | Purchased | | Share | | or Programs | | Programs |
November (10/30/22 - 11/26/22) | | 40,132 | | $ | 103.27 | | 40,132 | | $ 50,726 |
December (11/27/22 - 12/31/22) | | 6,376 | | $ | 113.92 | | 6,376 | | $ 50,000 |
January (1/1/23 - 1/28/23) | | - | | $ | - | | - | | $ 50,000 |
Total | | 46,508 | | $ | 104.73 | | 46,508 | | $ 50,000 |
As disclosed in our Quarterly Report on Form 10-Q for the Third Quarter of Fiscal 2021, and in subsequent filings, on December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. Pursuant to the Board of Directors’ authorization, we entered into a $100 million open market stock repurchase program (Rule 10b5-1 plan) to acquire shares of our stock, under which we repurchased shares of our stock totaling: (1) $8 million in the Fourth Quarter of Fiscal 2021, (2) $43 million in the First Quarter of Fiscal 2022, (3) $30 million in the Second Quarter of Fiscal 2022, (4) $14 million in the Third Quarter of Fiscal 2022 and (5) $5 million in the Fourth Quarter of Fiscal 2022, which completed the purchases pursuant to the open market stock repurchase program. Over the life of the $100 million open market repurchase program we repurchased 1.1 million, or 6%, of our outstanding shares at the commencement of the program, for an average price of $90 per share.
After considering the repurchases during Fiscal 2021 and Fiscal 2022 as of January 28, 2023, there were no amounts remaining under the open market repurchase program and $50 million remaining under the Board of Directors’ authorization.
Also, we have certain stock incentive plans as described in Note 7 to8 of our consolidated financial statements included in this report, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the vesting of equity awards. Duringshares of our stock. No shares were repurchased from employees during the Fourth Quarter of Fiscal 2016, no shares were repurchased pursuant to these plans.
In March 2017, our Board of Directors authorized us to spend up to $50 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item 5 of Part II will appear in our definitive proxy statement under the heading "Equity Compensation Plan Information" and is incorporated herein by reference.
2022.Stock Price Performance Graph
The graph below reflects cumulative total shareholder return (assuming an initial investment of $100 and the reinvestment of dividends) on our common stock compared to the cumulative total return for a period of five years,
beginning January 28, 2012February 3, 2018 and ending January 28, 2017, of:
2023, of (1) The S&P SmallCap 600 Index;Index and
(2) The S&P 500 Apparel, Accessories and Luxury Goods.
| | | | | | | | | | | | |
| | INDEXED RETURNS |
| | Base Period | | Years Ended |
Company / Index | | 2/3/18 | | 2/2/19 | | 2/1/20 | | 1/30/21 | | 1/29/22 | | 1/28/23 |
Oxford Industries, Inc. | | 100 | | 99.19 | | 90.92 | | 87.29 | | 110.21 | | 163.46 |
S&P SmallCap 600 Index | | 100 | | 100.35 | | 107.00 | | 131.80 | | 142.77 | | 142.43 |
S&P 500 Apparel, Accessories & Luxury Goods | | 100 | | 93.20 | | 85.87 | | 83.98 | | 82.72 | | 60.32 |
Item 6. Reserved
|
| | | | | | | | | | | |
| | | INDEXED RETURNS |
| | Base | Years Ended |
| | Period | | | | | |
| Company / Index | 1/28/2012 | 2/2/2013 |
| 2/1/2014 |
| 1/31/2015 |
| 1/30/2016 |
| 1/28/2017 |
|
| Oxford Industries, Inc. | 100 | 102.03 |
| 156.90 |
| 117.90 |
| 149.31 |
| 117.62 |
|
| S&P SmallCap 600 Index | 100 | 116.02 |
| 147.38 |
| 156.45 |
| 149.12 |
| 201.31 |
|
| S&P 500 Apparel, Accessories & Luxury Goods | 100 | 92.94 |
| 107.86 |
| 111.82 |
| 93.69 |
| 79.82 |
|
Item 6. Selected Financial Data
Our selected financial data included in the table below reflects the acquisition of the Southern Tide operations and assets in April 2016 and the divestiture of the operations and assets of our former Ben Sherman operating group in July 2015,
resulting in the Ben Sherman operations being classified as discontinued operations in our consolidated statements of operations for all periods presented. Cash flow, capital expenditures, equity compensation, depreciation and amortization amounts below include amounts for both continuing and discontinued operations as our consolidated statements of cash flow are presented on a consolidated basis including continuing and discontinued operations.
|
| | | | | | | | | | | | | | | |
| | Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
| Fiscal 2013 |
| Fiscal 2012 |
|
| | (in millions, except per share amounts) |
| Net sales | $ | 1,022.6 |
| $ | 969.3 |
| $ | 920.3 |
| $ | 849.9 |
| $ | 773.6 |
|
| Cost of goods sold | 439.8 |
| 411.2 |
| 402.4 |
| 368.4 |
| 343.5 |
|
| Gross profit | 582.8 |
| 558.1 |
| 517.9 |
| 481.5 |
| 430.1 |
|
| SG&A | 507.1 |
| 475.0 |
| 439.1 |
| 399.1 |
| 362.7 |
|
| Royalties and other operating income | 14.2 |
| 14.4 |
| 13.9 |
| 13.9 |
| 10.7 |
|
| Operating income | 89.9 |
| 97.5 |
| 92.8 |
| 96.3 |
| 78.1 |
|
| Loss on repurchase of debt | — |
| — |
| — |
| — |
| 9.1 |
|
| Interest expense, net | 3.4 |
| 2.5 |
| 3.2 |
| 3.9 |
| 8.7 |
|
| Earnings from continuing operations before income taxes | 86.5 |
| 95.1 |
| 89.6 |
| 92.4 |
| 60.3 |
|
| Income taxes | 32.0 |
| 36.5 |
| 35.8 |
| 36.9 |
| 23.1 |
|
| Net earnings from continuing operations | 54.5 |
| 58.5 |
| 53.8 |
| 55.4 |
| 37.2 |
|
| (Loss) income, including loss on sale, from discontinued operations, net of taxes | (2.0 | ) | (28.0 | ) | (8.0 | ) | (10.1 | ) | (5.9 | ) |
| Net earnings | $ | 52.5 |
| $ | 30.6 |
| $ | 45.8 |
| $ | 45.3 |
| $ | 31.3 |
|
| Diluted earnings from continuing operations per share | $ | 3.27 |
| $ | 3.54 |
| $ | 3.27 |
| $ | 3.36 |
| $ | 2.24 |
|
| Diluted (loss) income, including loss on sale, from discontinued operations per share | $ | (0.12 | ) | $ | (1.69 | ) | $ | (0.49 | ) | $ | (0.62 | ) | $ | (0.36 | ) |
| Diluted net earnings per share | $ | 3.15 |
| $ | 1.85 |
| $ | 2.78 |
| $ | 2.75 |
| $ | 1.89 |
|
| Diluted weighted average shares outstanding | 16.6 |
| 16.6 |
| 16.5 |
| 16.5 |
| 16.6 |
|
| Dividends declared and paid | $ | 18.1 |
| $ | 16.6 |
| $ | 13.9 |
| $ | 11.9 |
| $ | 9.9 |
|
| Dividends declared and paid per share | $ | 1.08 |
| $ | 1.00 |
| $ | 0.84 |
| $ | 0.72 |
| $ | 0.60 |
|
| Total assets, at period-end | $ | 685.2 |
| $ | 582.7 |
| $ | 622.4 |
| $ | 606.9 |
| $ | 533.1 |
|
| Long-term debt at period-end | $ | 91.5 |
| $ | 44.0 |
| $ | 104.8 |
| $ | 137.6 |
| $ | 108.6 |
|
| Shareholders' equity, at period-end | $ | 376.1 |
| $ | 334.4 |
| $ | 290.6 |
| $ | 260.2 |
| $ | 229.8 |
|
| Cash provided by operating activities | $ | 118.6 |
| $ | 105.4 |
| $ | 95.4 |
| $ | 52.7 |
| $ | 67.1 |
|
| Capital expenditures | $ | 49.4 |
| $ | 73.1 |
| $ | 50.4 |
| $ | 43.4 |
| $ | 60.7 |
|
| Depreciation and amortization expense | $ | 42.2 |
| $ | 36.4 |
| $ | 37.6 |
| $ | 33.9 |
| $ | 26.3 |
|
| Equity compensation expense | $ | 6.4 |
| $ | 5.2 |
| $ | 4.1 |
| $ | 1.7 |
| $ | 2.8 |
|
| LIFO accounting (credit) charge | $ | (5.9 | ) | $ | 0.3 |
| $ | 2.1 |
| $ | — |
| $ | 4.0 |
|
| Book value per share at period-end | $ | 22.43 |
| $ | 20.14 |
| $ | 17.64 |
| $ | 15.85 |
| $ | 13.85 |
|
Item 7.
Management's Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our results of operations, cash flows, liquidity and capital resources compares Fiscal 2022 to Fiscal 2021 and should be read in conjunction with our consolidated financial statements contained in this report.
The results of operations, cash flows, liquidity and capital resources for Fiscal 2021 compared to Fiscal 2020 are not included in this report on Form 10-K. For a discussion of our results of operations, cash flows, liquidity and capital resources for Fiscal 2021 compared to Fiscal 2020 and certain other financial information related to Fiscal 2021 and Fiscal 2020, refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II. Item 7 of our 2021 Annual Report on Form 10-K, filed with the SEC on March 28, 2022, which is available on the SEC’s website at www.sec.gov and under the Investor Relations section of our website at www.oxfordinc.com.
OVERVIEW
Business Overview
We are a globalleading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of our portfolio of lifestyle brands: Tommy Bahama, Lilly Pulitzer, andJohnny Was, Southern Tide, lifestyle brands, other owned brandsTBBC and licensed brands as well as private label apparel products. During Fiscal 2016, 92% of our net sales were from products bearing brands that we own and 66% of our net sales were through our direct to consumer channels of distribution. In Fiscal 2015, 96% of our consolidated net sales were to customers located in the United States, with the sales outside the United States consisting primarily of our Tommy Bahama products in Canada and the Asia-Pacific region.
Duck Head.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 like Tommy Bahama, Lilly Pulitzer and Southern Tide that create an emotional connection with consumers can command greater loyalty and higher price points at retail and create licensing opportunities, which may drive higher earnings.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 it.
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 (including through rapidly shifting digital and social media vehicles); product fulfillment capabilities; and customer service. Our ability to compete successfully in styling and marketingthe apparel industry is directly related todependent on 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 fashion products each season.
To further strengthen each lifestyle brand's connections with consumers, we directly communicate with consumers through electronic and print media on a regular basis. We believe our ability to effectively communicate the images, lifestyle and products of our brands and create an emotional connection with consumers is critical to the success of the brands. Our advertising for our brands often attempts to convey the lifestyle of the brandseason as well as a specific product.
We distributecertain core products that consumers expect from us.During Fiscal 2022, 80% of our owned lifestyle branded products primarilyconsolidated net sales were through our direct to consumer channels consisting of distribution, which consist of our brand specific full-price retail stores, e-commerce websites and outlets, as well as our Tommy Bahama food and Lilly Pulitzer retail stores andbeverage operations. The remaining 20% of our e-commerce sites for Tommy Bahama, Lilly Pulitzer and Southern Tide, andnet sales was generated through our wholesale distribution channels. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them a broad assortment of our current season products and immerse them in the theme of the lifestyle brand. We believe that presenting our products in a setting specifically designed to showcase the lifestyle onchannels, which the brands are based enhances the image of our brands. Our Tommy Bahama and Lilly Pulitzer full-price retail stores provide high visibility for our brands and products, and allow us to stay close to the preferences of our consumers, while also providing a platform for long-term growth for the brands. In Tommy Bahama, we also operate a limited number of restaurants, generally adjacent to a Tommy Bahama full-price retail store location, which we believe further enhance the brand's image with consumers.
Additionally, our e-commerce websites, which represented 18% of our consolidated net sales in Fiscal 2016, provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products. Our e-commerce flash clearance sales on our websites and our Tommy Bahama outlet stores play an important role in overall brand and inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and often at better prices than are typically available from third party off-price retailers.
The wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger groupbase of consumers. As we seek to maintainOur wholesale operations consist of sales of products bearing the integritytrademarks of our lifestyle brands by limiting promotional activity in our full-price retailto various specialty stores, and e-commerce websites, we generally target wholesale customers that follow this same approach in their stores. Our wholesale customers for our Tommy Bahama, Lilly Pulitzer and Southern Tide brands include better department stores, and specialty stores, including Signature Stores, for Lilly Pulitzer and Southern Tide.
Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed brands, private labels and owned brands. Lanier Apparel's customers include department stores, discount and off-price retailers, warehouse clubs, national chains, specialtymulti-branded e-commerce retailers and others throughout the United States.
Allother retailers.For additional information about our business and each of our operating groups, see Part I, Item 1. Business included in this report. Important factors relating to certain risks which could impact our business are described in Part I, Item 1A. Risk Factors of this report.
Industry Overview
We operate in a highly competitive apparel markets in which numerous U.S.-based and foreign apparel firms compete.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. We believe the principal competitive factors in the apparel industry are reputation, value, and image of brand names; design; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service.
The apparel industry is cyclical and very dependent uponon the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional, domestic and international economic conditions change. Often,Also, in recent years consumers have chosen to
spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries. We believe current global
economic conditionsindustries due, in part, to apparel purchases often being more of a discretionary purchase.This competitive and the resulting economic uncertainty continue to impact our business,evolving environment requires that brands and the apparel industry as a whole.
We believe the retail apparel market is evolvingretailers approach their operations, including marketing and advertising, very rapidly and in ways that are having a disruptive impact on traditional fashion retailing. The application of technology, including the internet and mobile devices, to fashion retail provides consumers increasing access to multiple, responsive distribution platforms and an unprecedented ability to communicate directly with brands, retailers and others. As a result, consumers have more information and broader, faster and cheaper access to goodsdifferently than they have ever had before. This, along withhistorically and may result in increased operating costs and investments to generate growth or even maintain existing sales levels. While the coming of age of the “millennial” generation, is revolutionizing the way that consumers shop for fashioncompetition and other goods. The evidence is increasingly apparent with marked weakness in department stores and mall-based retailers, decreased consumer retail traffic, a more promotional retail environment, expansion of off-price and discount retailers, and growing internet purchases.
While this evolution
in the fashion retail industry presentspresent significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and
retailers. retailers to capitalize on the changing consumer environment. We believe our lifestyle brands have attributes that are true competitive advantages, in this new retailing paradigm and we are leveragingcontinue 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.
Specifically, we believeThe COVID-19 pandemic has had a significant effect on overall economic conditions and our lifestyle brands have opportunities for long-term growthoperations in their direct to consumer businesses. We anticipate increased sales in our e-commerce operations, which are expected to grow at a faster rate than bricksrecent years and mortar comparable full-price retail store sales. This growth can also be achieved through prudent expansionaccelerated or exacerbated many of bricks and mortar full-price retail store operations and modest comparable full-price retail store sales increases. Despite the changes in the industry. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries due, in part, to apparel purchases often being more of a discretionary purchase. The current macroenvironment, with heightened concerns about inflation, a global economic recession, geopolitical issues, the stability of the U.S. banking system, the availability and cost of credit and continued increases in interest rates, is creating a complex and challenging retail environment, we expect there will continuewhich may impact our businesses and exacerbate some of the inherent challenges to be desirable locations to increase our store count.
Our lifestyle brands also have an opportunity for modest sales increases in their wholesale businessesoperations. There remains significant uncertainty in the
long term primarily from current customers adding to their existing door count and increasing their on-line business, increased sales to on-line retailersmacroeconomic environment, and the
selective additionimpact of
new wholesale customers who generally followthese and other factors could have a
retail model with limited discounting; however,major effect on our businesses.Johnny Was Acquisition
On September 19, 2022, we must be diligent in our effort to avoid compromisingacquired the integrity ofJohnny Was California lifestyle brand and related operations, which includes the brand by maintaining or growing sales with wholesale customers that may not be aligned with our long-term strategy. This is particularly important with the challenges in the department store channel, which represents about one-half of our consolidated wholesale sales, or 16% of our consolidated net sales. We also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs for existing and new customers.
We believe we must continue to invest in our lifestyle brands to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations such as technology enhancements, e-commerce initiatives, full-price retail store and restaurant build-out for new and relocated locations as well as remodels,design, sourcing, marketing and distribution centerof collections of affordable luxury, artisan-inspired bohemian apparel, accessories and administrative office expansion initiatives. Additionally, while we anticipate increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future sales growth, we remain focused on appropriately managing our operating expenses.
In the midst of the challenges in our industry, an important focus for us in Fiscal 2017 is advancing various initiatives to increase the profitability of the Tommy Bahama business. These initiatives generally focus on increasing gross margin and operating margin through efforts such as: product cost reductions; selective price increases; reducing inventory purchases; more rapidly clearing excess inventory; redefining our approach to inventory clearance; effectively managing controllable and discretionary operating expenses; taking a more conservative approach to full-price retail store and outlet openings and renewals; and continuing our efforts to reduce Asia-Pacific operating losses.
We continue to believe it is important to maintain a strong balance sheet and liquidity. We believe positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient resources to fund future investments in our owned lifestyle brands. While we believe we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, we will continue to evaluate opportunities to add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impact our business are described in Part I, Item 1A. Risk Factors of this report.
The following table sets forth our consolidated operating results from continuing operations (in thousands, except per share amounts) for Fiscal 2016 compared to Fiscal 2015: |
| | | | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Net sales | $ | 1,022,588 |
| $ | 969,290 |
|
| Operating income | $ | 89,884 |
| $ | 97,514 |
|
| Net earnings from continuing operations | $ | 54,499 |
| $ | 58,537 |
|
| Net earnings from continuing operations per diluted share | $ | 3.27 |
| $ | 3.54 |
|
The primary reasons for the lower earnings from continuing operations per diluted share in Fiscal 2016 were the lower operating income in Tommy Bahama and increased interest expense partially offset by higher income in Lilly Pulitzer, improved operating results in Corporate and Other and a lower effective tax rate.
Southern Tide Acquisition
On April 19, 2016, we acquired Southern Tide, LLC, which owns the Southern Tide lifestyle apparel brand. Southern Tide carries an extensive selection of men’s shirts, pants, shorts, outerwear, ties, swimwear, footwear and accessories, as well as a women’s collection. The brand’shome goods. Johnny Was products are sold through
its wholesale operations to specialtythe Johnny Was website and full-price retail stores
and outlets as well as select department stores and
Southern Tide Signature Stores as well as through its direct to consumer operations on the Southern Tide website. specialty stores.The purchase price for the acquisition was $85of Johnny Was totaled $270 million in cash, subject to adjustment based on net working capital as of the closing date forof the acquisition. We used cash and short-term investments on hand and borrowings under our revolving credit facilityU.S. Revolving Credit Agreement to finance the transaction. ForRefer to Note 12 of our consolidated financial statements included in this report for additional information about the Southern Tide acquisition referof Johnny Was.
In the 12 months ended on January 28, 2023, the Johnny Was business generated approximately $207 million of net sales. We anticipate that gross margins in the future for Johnny Was will be approximately 65%, as we do not anticipate any subsequent inventory step-up charges related to Part I, Item 1. Businesspurchase accounting. We also anticipate Johnny Was’ earnings before interest and taxes will be in the high single digit percentage of net sales range, which includes $14 million of expected amortization of intangible assets in Fiscal 2023, or the mid teen percentage of net sales range absent the amortization of intangible assets. We expect that the business will continue to grow as each channel of distribution grows. During the 12 months ended on January 28, 2023, e-commerce, retail and wholesale represented 40%, 35% and 25%, respectively, of the net sales of Johnny Was.
The financial information included in the results of operations discussion below for Fiscal 2022, includes the 19 weeks from the September 19, 2022 acquisition date through January 28, 2023 only. Therefore, the amounts included in the results of operations below are not indicative of results for a full fiscal year.
Share Repurchase Program
As disclosed in our Quarterly Report on Form 10-Q for the Third Quarter of Fiscal 2021, and in subsequent filings, on December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. Pursuant to the Board of Directors’ authorization, we entered into a $100 million open market stock repurchase program (Rule 10b5-1 plan) to acquire shares of our stock, under which we repurchased shares of our stock totaling: (1) $8 million in the Fourth Quarter of Fiscal 2021, (2) $43 million in the First Quarter of Fiscal 2022, (3) $30 million in the Second Quarter of Fiscal 2022, (4) $14 million in the Third Quarter of Fiscal 2022, and (5) $5 million in the Fourth Quarter of Fiscal 2022, which completed the purchases pursuant to the open market stock repurchase program. Over the life of the $100 million open market repurchase program we repurchased 1.1 million, or 6%, of our outstanding shares at the commencement of the program for an average price of $90 per share.
After considering the repurchases during Fiscal 2021 and Fiscal 2022 as of January 28, 2023, there were no amounts remaining under the open market repurchase program and $50 million remaining under the Board of Directors’ authorization.
Lanier Apparel Exit
In Fiscal 2021, we exited our Lanier Apparel business, which had been focused on moderately priced tailored clothing and related products. This decision aligns with our stated business strategy of developing and marketing compelling lifestyle brands. It also took into consideration the increased macroeconomic challenges faced by the Lanier Apparel business, many of which were magnified by the COVID-19 pandemic. The operating results of the Lanier Apparel business in Fiscal 2021 largely consisted of activities associated with the wind down of operations following our Fiscal 2020 decision to exit the business. Refer to Note 11 and Note 2 toof our consolidated financial statements both included in this report.
OPERATING GROUPS
Our business isreport for additional information about the Lanier Apparel exit and Fiscal 2021 operating results.Key Operating Results
The following table sets forth our consolidated operating results (in thousands, except per share amounts) for Fiscal 2022 and Fiscal 2021:
| | | | | | |
| | Fiscal 2022 | | Fiscal 2021 |
Net sales | | $ | 1,411,528 | | $ | 1,142,079 |
Operating income | | $ | 218,774 | | $ | 165,503 |
Net earnings | | $ | 165,735 | | $ | 131,321 |
Net earnings per diluted share | | $ | 10.19 | | $ | 7.78 |
Weighted average shares outstanding - diluted | | | 16,259 | | | 16,869 |
Net earnings per diluted share were $10.19 in Fiscal 2022 compared to $7.78 in Fiscal 2021. The 31% increase in net earnings per diluted share was primarily operated throughdue to a 26% increase in net earnings as well as a 4% reduction in weighted average shares outstanding due to our share repurchase program which commenced in the Fourth Quarter of Fiscal 2021 and was completed in the Fourth Quarter of Fiscal 2022. The increased net earnings was primarily due to higher net sales and gross margin, partially offset by increased SG&A, a decrease in royalties and other income, a higher effective tax rate and increased interest expense. The increased net earnings include higher operating income in both Tommy Bahama and Lilly Pulitzer partially offset by a reduction in operating income in Lanier Apparel, a larger operating loss in Corporate and Southern TideOther, the operating groups. loss of Johnny Was and lower operating income in Emerging Brands. Each of these changes are discussed further below.
During Fiscal 2022 we generated $126 million of cash flows from operations, which exceeded our cash used for capital expenditures and dividends. With our long history of strong positive cash flows from operations exceeding cash requirements for capital expenditures and dividends and our strong balance sheet, we believe our anticipated future cash flows from operations will provide sufficient cash over both the short and the long term to satisfy our ongoing operating cash requirements, ample funds to continue to invest in our lifestyle brands, direct to consumer initiatives and
information technology projects, additional cash flow to repay outstanding debt and sufficient cash for other strategic initiatives.
OPERATING GROUPS
We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand'sbrand’s direct to consumer, wholesale and licensing operations, as applicable.
With our acquisition of Johnny Was on September 19, 2022, our business is organized as our Tommy Bahama, Lilly Pulitzer, Johnny Was and Southern Tide each design, source, market and distribute apparel and related products bearing their respective trademarks andEmerging Brands operating groups. Operating results for periods prior to Fiscal 2022 also license their trademarks for other product categories, whileinclude the Lanier Apparel designs, sources and distributes branded and private label men's tailored clothing, sportswear and other products. Corporate and Other isoperating group, which we exited in Fiscal 2021. For a reconciling category for reporting purposes and includesmore extensive description of our corporate offices, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments, other costs that are not allocated to thereportable operating groups and operations of our other businesses which are not included in our operating groups, including our Lyons, Georgia distribution center operations. Our LIFO inventory pool does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to our operating groups.
For additional information about each of our operating groups,Corporate and Other, see Part I, Item 1. Business and Note 2 toof our consolidated financial statements, both included in this report.
We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include net sales from our full-price retail stores and our e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both our full-price retail stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channel.channels. For our comparable store sales disclosures, we exclude (1) outlet store sales, warehouse sales and e-commerce flash clearance sales, as those clearance sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales, and (2) restaurantfood and beverage sales, as we do not currently believe that the inclusion of restaurantfood and beverage sales in our comparable sales disclosures is meaningful in assessing our consolidated results of operations.branded apparel businesses. Comparable store sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, we consider a comparable store to be, in addition to oursales consists of sales through e-commerce sites aand any physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel resultingor other event which would result in the store being closeda closure for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space or (3) a relocation to a new space that wasis significantly different from the prior retail space, or (4) a closing or opening of a Tommy Bahama restaurant adjacent to the full-price retail store.space. For those stores which are excluded from comparable stores based on the preceding sentence, the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel, relocation, or restaurant closing or opening.other event. A full-price retail store that is remodeled will generally will continue to be included in our comparable store sales metrics as a store is not typically closed for longer than a two weektwo-week period during a remodel; however, in some cases a store may be closed for more than two weeks during a remodel. Afull-price retail store that is relocated generally will not be included in our comparable store sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year asbecause the size or other characteristics of the store typically change significantly from the prior location. Additionally, anyAny stores that were closed during the prior fiscal year or current fiscal year, or which we planexpect to close or vacate in the current fiscal year, as well as any pop-up or temporary store locations, are excluded from the definition ofour comparable store sales.
sales metrics.Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies.
DIRECT TO CONSUMER LOCATIONS
The table below provides information about the number of direct to consumer locations for our brands as of the dates specified. For acquired businesses, locations are only included subsequent to the date of acquisition. The amounts below include our permanent locations and exclude any pop-up or temporary store locations which have an initial lease term of 12 months or less.
| | | | | | | | |
| | January 28, | | January 29, | | January 30, | | February 2, |
| | 2023 | | 2022 | | 2021 | | 2020 |
Tommy Bahama full-price retail stores | | 103 | | 102 | | 105 | | 111 |
Tommy Bahama retail-food & beverage locations | | 21 | | 21 | | 20 | | 16 |
Tommy Bahama outlets | | 33 | | 35 | | 35 | | 35 |
Total Tommy Bahama locations | | 157 | | 158 | | 160 | | 162 |
Lilly Pulitzer full-price retail stores | | 59 | | 58 | | 59 | | 61 |
Johnny Was full-price retail stores | | 65 | | — | | — | | — |
Johnny Was outlets | | 2 | | — | | — | | — |
Total Johnny Was locations | | 67 | | — | | — | | — |
Southern Tide full-price retail stores | | 6 | | 4 | | 3 | | 1 |
TBBC full-price retail stores | | 3 | | 1 | | — | | — |
Total Oxford direct to consumer locations | | 292 | | 221 | | 222 | | 224 |
RESULTS OF OPERATIONS
The following table sets forth the specified line items in our consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding.
|
| | | | | | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Net sales | $ | 1,022,588 |
| 100.0 | % | $ | 969,290 |
| 100.0 | % | $ | 920,325 |
| 100.0 | % |
| Cost of goods sold | 439,814 |
| 43.0 | % | 411,185 |
| 42.4 | % | 402,376 |
| 43.7 | % |
| Gross profit | 582,774 |
| 57.0 | % | 558,105 |
| 57.6 | % | 517,949 |
| 56.3 | % |
| SG&A | 507,070 |
| 49.6 | % | 475,031 |
| 49.0 | % | 439,069 |
| 47.7 | % |
| Royalties and other operating income | 14,180 |
| 1.4 | % | 14,440 |
| 1.5 | % | 13,939 |
| 1.5 | % |
| Operating income | 89,884 |
| 8.8 | % | 97,514 |
| 10.1 | % | 92,819 |
| 10.1 | % |
| Interest expense, net | 3,421 |
| 0.3 | % | 2,458 |
| 0.3 | % | 3,236 |
| 0.4 | % |
| Earnings from continuing operations before income taxes | 86,463 |
| 8.5 | % | 95,056 |
| 9.8 | % | 89,583 |
| 9.7 | % |
| Income taxes | 31,964 |
| 3.1 | % | 36,519 |
| 3.8 | % | 35,786 |
| 3.9 | % |
| Net earnings from continuing operations | $ | 54,499 |
| 5.3 | % | $ | 58,537 |
| 6.0 | % | $ | 53,797 |
| 5.8 | % |
| Loss from discontinued operations, net of taxes | (2,038 | ) | NM |
| (27,975 | ) | NM |
| (8,039 | ) | NM |
|
| Net earnings | $ | 52,461 |
| NM |
| $ | 30,562 |
| NM |
| $ | 45,758 |
| NM |
|
| Weighted average shares outstanding - diluted | 16,649 |
| | 16,559 |
| | 16,471 |
| |
Unless otherwise indicated, all references to assets, liabilities, revenues, expenses and other information in this report reflect continuing operations and exclude any amounts related to
| | | | | | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 | |
Net sales | | $ | 1,411,528 | | 100.0 | % | $ | 1,142,079 | | 100.0 | % | $ | 748,833 | | 100.0 | % |
Cost of goods sold | | | 522,673 | | 37.0 | % | | 435,861 | | 38.2 | % | | 333,626 | | 44.6 | % |
Gross profit | | | 888,855 | | 63.0 | % | | 706,218 | | 61.8 | % | | 415,207 | | 55.4 | % |
SG&A | | | 692,004 | | 49.0 | % | | 573,636 | | 50.2 | % | | 492,628 | | 65.8 | % |
Impairment of goodwill and intangible assets | | | — | | — | % | | — | | — | % | | 60,452 | | 8.1 | % |
Royalties and other operating income | | | 21,923 | | 1.6 | % | | 32,921 | | 2.9 | % | | 14,024 | | 1.9 | % |
Operating income (loss) | | | 218,774 | | 15.5 | % | | 165,503 | | 14.5 | % | | (123,849) | | (16.5) | % |
Interest expense, net | | | 3,049 | | 0.2 | % | | 944 | | 0.1 | % | | 2,028 | | 0.3 | % |
Earnings (loss) before income taxes | | | 215,725 | | 15.3 | % | | 164,559 | | 14.4 | % | | (125,877) | | (16.8) | % |
Income taxes (benefit) | | | 49,990 | | 3.5 | % | | 33,238 | | 2.9 | % | | (30,185) | | (4.0) | % |
Net earnings (loss) | | $ | 165,735 | | 11.7 | % | $ | 131,321 | | 11.5 | % | $ | (95,692) | | (12.8) | % |
| | | | | | | | | | | | | | | | |
Net earnings (loss) per share | | $ | 10.19 | | | | $ | 7.78 | | | | $ | (5.77) | | | |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding - diluted | | | 16,259 | | | | | 16,869 | | | | | 16,576 | | | |
The following table presents the discontinued operationsproportion of our former Ben Sherman operating group which we sold in Fiscal 2015. Referconsolidated net sales, including any net sales of Johnny Was and Lanier Apparel, by distribution channel for each period presented. We have calculated all percentages below on actual data, and percentages may not add to Note 13 in our consolidated financial statements included in this report for additional information about discontinued operations.100 due to rounding.
| | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 | |
Retail | | 39 | % | 39 | % | 27 | % |
E-commerce | | 33 | % | 32 | % | 43 | % |
Food & beverage | | 8 | % | 8 | % | 6 | % |
Wholesale | | 20 | % | 20 | % | 23 | % |
Total | | 100 | % | 100 | % | 100 | % |
FISCAL 20162022 COMPARED TO FISCAL 2015
2021The discussion and tables below compare certain line items included in our consolidated statements of operations for Fiscal 20162022 to Fiscal 2015. Each dollar and percentage change provided reflects the change between these periods unless2021, except where 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.
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Tommy Bahama | $ | 658,911 |
| $ | 658,467 |
| $ | 444 |
| 0.1 | % |
| Lilly Pulitzer | 233,294 |
| 204,626 |
| 28,668 |
| 14.0 | % |
| Lanier Apparel | 100,753 |
| 105,106 |
| (4,353 | ) | (4.1 | )% |
| Southern Tide | 27,432 |
| — |
| 27,432 |
| NM |
|
| Corporate and Other | 2,198 |
| 1,091 |
| 1,107 |
| NM |
|
| Total | $ | 1,022,588 |
| $ | 969,290 |
| $ | 53,298 |
| 5.5 | % |
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Tommy Bahama | | $ | 880,233 | | $ | 724,305 | | $ | 155,928 | | 21.5 | % |
Lilly Pulitzer | | | 339,266 | | | 298,995 | | | 40,271 | | 13.5 | % |
Johnny Was | | | 72,591 | | | — | | | 72,591 | | 100.0 | % |
Emerging Brands | | | 116,484 | | | 90,053 | | | 26,431 | | 29.4 | % |
Lanier Apparel | | | — | | | 24,858 | | | (24,858) | | (100.0) | % |
Corporate and Other | | | 2,954 | | | 3,868 | | | (914) | | (23.6) | % |
Consolidated net sales | | $ | 1,411,528 | | $ | 1,142,079 | | $ | 269,449 | | 23.6 | % |
Consolidated net sales increased $53.3 million, or 5.5%,were $1.4 billion in Fiscal 20162022 compared to Fiscal 2015. The increase in consolidated net sales was primarily driven by (1) the $27.4 million of net sales of Southern Tide, which was acquired on April 19, 2016, (2) an incremental$1.1 billion in Fiscal 2021. The 24% increase in net sales increaseincluded double-digit percentage increases in each of $20.2 million associated with the operation of additional full-price retail stores inour Tommy Bahama, and Lilly Pulitzer, (3) a $7.0 million net increase in direct to consumer clearance sales reflecting an increase in e-commerce flash clearance sales at Lilly Pulitzer, and decreases in outlet storeEmerging Brands operating groups as well as $73 million of sales at Tommy Bahama and (4) a $5.4 million increase in restaurant sales in Tommy Bahama.for Johnny Was, which we acquired during the Third Quarter of Fiscal 2022. These sales increases were partially offset by a $6.5$25 million or 2%, decrease in comparable store sales to $404.1 millionfor Lanier Apparel, which we exited in Fiscal 20162021. In Fiscal 2021, and particularly in the First Quarter of Fiscal 2021, consumer traffic and our operations had only partially rebounded from $410.6 millionthe impacts of the COVID-19 pandemic as we still had certain store closures and operating restrictions in certain regions, wholesale customer demand was still soft and most of the consumer traffic improvement occurred after the First Quarter of Fiscal 2021. The higher net sales in Fiscal 2015 reflecting2022 were due to a decreasecombination of increased volume as well as price increases, which were implemented during Fiscal 2022 in comparable store sales at Tommy Bahama of 3%order to mitigate increased product and another costs.
The increase in comparable store sales at Lilly Pulitzer of 2%. We believe that certain macroeconomic factors, including lower retail store traffic, the evolving impact of digital technology on consumer shopping habits and the 2016 election cycle, impacted the sales in each of our direct to consumer and wholesale businesses in Fiscal 2016. The changes in net sales by operating group are discussed below.
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
consisted of the following: | ● | an increase in full-price retail store sales of $101 million, or 26%, including (1) a 20% aggregate increase in full-price retail store sales in Tommy Bahama, Lilly Pulitzer and Emerging Brands driven primarily by increased consumer traffic and average dollars per transaction partially offset by lower conversion rates, and (2) $26 million of full-price retail store sales in Johnny Was; |
| ● | an increase in full-price e-commerce sales of $75 million, or 22%, including (1) a 13% aggregate increase in e-commerce sales in Tommy Bahama, Lilly Pulitzer and Emerging Brands and (2) $31 million of full-price e-commerce sales in Johnny Was; |
| ● | an increase in wholesale sales of $50 million, or 22%, with this increase primarily due to (1) higher order books as wholesale accounts bought more inventory in Tommy Bahama, Lilly Pulitzer and Emerging Brands for Fiscal 2022 compared to Fiscal 2021 and (2) $16 million of wholesale sales for Johnny Was offset by a reduction of $25 million of wholesale sales for Lanier Apparel, with no Lanier Apparel sales in Fiscal 2022; |
| ● | an increase in e-commerce flash clearance sales of $22 million, or 68%; |
| ● | an increase in food and beverage sales of $13 million, or 14%; and |
| ● | an increase in outlet sales of $9 million, or 16%, including $1 million of outlet sales in Johnny Was. |
|
| | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Full-price retail stores and outlets | 41 | % | 42 | % |
| E-commerce | 18 | % | 17 | % |
| Restaurant | 7 | % | 7 | % |
| Wholesale | 34 | % | 34 | % |
| Total | 100 | % | 100 | % |
50
The Tommy Bahama net sales increase of $0.4increased $156 million, or 0.1%22%, was primarily driven by (1)in Fiscal 2022, with an incrementalincrease in each channel of distribution. The increase in net sales increase of $12.4 million associated with the operation of additionalin Tommy Bahama included increases in (1) full-price retail storesstore sales of $62 million, or 22%, (2) wholesale sales of $43 million, or 41%, with higher full-price and (2) a $5.4off-price sales, (3) e-commerce sales of $30 million, increaseor 16%, (4) food and beverage sales of $13 million, or 14%, with low double-digit percentage increases in restaurant sales primarily resulting from the impact of a full year of operations of the Waikiki restaurant in Fiscal 2016 and a modest increase at restaurantslocations open for the full year in both periods as well as increased sales at the New York and Palm Desert locations, which were not open the full year in Fiscal 2021, and (5) outlet sales of Fiscal 2016 and Fiscal 2015. These sales increases were offset by (1) a $8.8$8 million, or 3%, decrease in comparable store sales to $302.5 million in Fiscal 2016 from $311.3 million in Fiscal 2015, (2) a $3.6 million decrease in net sales through our off-price direct to consumer clearance channels, primarily reflecting a decrease in sales in existing outlet stores, and (3) a $5.2 million decrease in wholesale sales. The decreases in the direct to consumer channels were primarily due to lower traffic in both our full-price retail stores and outlet stores. The decrease in wholesale sales reflects lower full-price wholesale sales reflecting the challenging environment of our wholesale department store and specialty store accounts.
As of January 28, 2017, we operated 168 Tommy Bahama stores globally, consisting of 111 full-price retail stores, 17 retail-restaurant locations and 40 outlet stores. As of January 30, 2016, we operated 164 Tommy Bahama stores consisting of 107 full-price retail stores, 16 retail-restaurant locations and 41 outlet stores.14%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
|
| | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Full-price retail stores and outlets | 50 | % | 50 | % |
| E-commerce | 16 | % | 15 | % |
| Restaurant | 11 | % | 11 | % |
| Wholesale | 23 | % | 24 | % |
| Total | 100 | % | 100 | % |
| | | | | |
| | Fiscal 2022 | | Fiscal 2021 | |
Retail | | 46 | % | 47 | % |
E-commerce | | 24 | % | 25 | % |
Food & beverage | | 13 | % | 13 | % |
Wholesale | | 17 | % | 15 | % |
Total | | 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $28.7increased $40 million, or 14.0%14%, was primarily a result of (1)in Fiscal 2022, with an incrementalincrease in the e-commerce flash, retail store and wholesale sales channels. The increase in net sales increase of $11.2 million associated with the operation of additional full-price retail stores, (2) a $10.7 million increase in Lilly Pulitzer included increases in (1) e-commerce flash clearance sales (3) an $8.2 million increase in wholesale sales primarily resulting from increased orders from existing wholesale customers and (4) a $2.2of $22 million, or 2%68%, increase in comparable store sales to $101.5 million in Fiscal 2016 compared to $99.3 million in Fiscal 2015. These sales increases were partially offset by a net $3.8 million decrease in warehouse sales as Lilly Pulitzer did not anniversary its June warehouse salehad increased levels of inventory available for the e-commerce flash clearance sales in 2016. AsFiscal 2022 after having more limited end of January 28, 2017, we operated 40 Lilly Pulitzerseason inventory in Fiscal 2021, (2) full-price retail stores, after opening six new stores, acquiring one former Signature Storestore sales of $11 million, or 11%, and closing one store during Fiscal 2016, compared to 34(3) wholesale sales of $8 million, or 16%, with higher full-price retail stores as of January 30, 2016.sales and lower off-price sales. Full-price e-commerce sales were generally consistent with the prior year amounts. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | |
| | Fiscal 2022 | | Fiscal 2021 | |
Retail | | 33 | % | 34 | % |
E-commerce | | 51 | % | 50 | % |
Wholesale | | 16 | % | 16 | % |
Total | | 100 | % | 100 | % |
Johnny Was:
Johnny Was net sales were $73 million in the 19 weeks from September 19, 2022 through the end of the fiscal year. As the net sales are for a period of less than a full year, the net sales and percentage of net sales by distribution channel are not necessarily indicative of the net sales or proportion of net sales that are typical for a full year. The following table presents the proportion of net sales by distribution channel for Johnny Was for the 19 week period ended January 28, 2023:
| | | | | |
|
| Fiscal 2022 |
| Fiscal 2021 |
|
Retail | | 36 | % | — | % |
E-commerce | | 42 | % | — | % |
Wholesale | | 22 | % | — | % |
Total | | 100 | % | — | % |
|
| | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Full-price retail stores and warehouse sales | 36 | % | 38 | % |
| E-commerce | 32 | % | 30 | % |
| Wholesale | 32 | % | 32 | % |
| Total | 100 | % | 100 | % |
Lanier Apparel:
The decreaseDuring the 12 months ended on January 28, 2023, retail, e-commerce and wholesale represented 35%, 40% and 25%, respectively, of the net sales of Johnny Was.
Emerging Brands:
Emerging Brands net sales increased $26 million, or 29%, in Fiscal 2022, with an increase in each of the TBBC, Southern Tide and Duck Head businesses comprising Emerging Brands. By brand, the increase in net sales included increases in (1) TBBC of $15 million, or 49%, to $45 million, (2) Southern Tide of $9 million, or 16%, to $63 million, and (3) Duck Head of $3 million, or 50%, to $9 million. By distribution channel, the $26 million increase included increases of (1) $14 million, or 39%, in e-commerce, (2) $10 million, or 20%, in wholesale, and (3) $2 million, or 60%, in the Southern Tide and TBBC retail businesses, as those brands continue to open new full-price retail locations. The following table presents the proportion of net sales by distribution channel for Emerging Brands for each period presented:
| | | | | |
| | Fiscal 2022 | | Fiscal 2021 | |
Retail | | 6 | % | 5 | % |
E-commerce | | 42 | % | 39 | % |
Wholesale | | 52 | % | 56 | % |
Total | | 100 | % | 100 | % |
Lanier Apparel:
There were no Lanier Apparel of $4.4 million, or 4.1%, was primarily due to lower sales of $6.5 million in the tailored clothing business partially offset by a $2.0 million increase in the sportswear business. The decreased sales in the tailored clothing business was primarily due to lower sales in certain programs including reductions in volume, shifts of timing and exits from various programs. These reductions in volume were partially offset by initial shipments and volume increases in other programs. The increased sales in the sportswear business were primarily due to increased volumes in private label sportswear programs.
Southern Tide:
The net sales of Southern Tide reflect the sales of Southern Tide for the period from the date of acquisition on April 19, 2016 through January 28, 2017. During the period from April 19, 2016 through January 28, 2017, 77% of Southern Tide's net sales were wholesale sales with the remainder of the sales consisting of e-commerce sales. We estimate that net sales in Fiscal 2017 will be2022, compared to $25 million of net sales in excess of $40 million, with about 75% to 80% of the sales consisting of wholesale sales and the remainder consisting of e-commerce sales on the Southern Tide website.
Fiscal 2021.Corporate and Other:
Corporate and Other net sales primarily consist of the net sales ofto third parties for our Lyons, Georgia distribution center to third party warehouse customersoperations as well as the impactnet sales of the elimination of intercompanyour Oxford America business, which we exited in Fiscal 2022. The decrease in net sales between our operating groups. Netwas primarily due to lower sales in Fiscal 2015 included the unfavorable impact of the elimination of intercompany sales between our operating groups with no meaningful impact of intercompany sales between our operating groups in Fiscal 2016.
Oxford America.Gross Profit
The tabletables below presentspresent gross profit by operating group and in total for Fiscal 20162022 and Fiscal 20152021, as well as the change between those two periods.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.
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Tommy Bahama | | $ | 567,557 | | $ | 459,575 | | $ | 107,982 | | 23.5 | % |
Lilly Pulitzer | | | 225,028 | | | 201,145 | | | 23,883 | | 11.9 | % |
Johnny Was | | | 44,765 | | | — | | | 44,765 | | 100.0 | % |
Emerging Brands | | | 53,012 | | | 47,667 | | | 5,345 | | 11.2 | % |
Lanier Apparel | | | — | | | 12,256 | | | (12,256) | | (100.0) | % |
Corporate and Other | | | (1,507) | | | (14,425) | | | 12,918 | | NM | % |
Consolidated gross profit | | $ | 888,855 | | $ | 706,218 | | $ | 182,637 | | 25.9 | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 2,667 | | $ | 15,870 | | | | | | |
Inventory step-up charge included in Johnny Was | | $ | 4,230 | | $ | — | | | | | | |
Reduction of Lanier Apparel exit charges in cost of goods sold | | $ | — | | $ | (2,826) | | | | | | |
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Tommy Bahama | $ | 386,650 |
| $ | 393,221 |
| $ | (6,571 | ) | (1.7 | )% |
| Lilly Pulitzer | 148,345 |
| 132,791 |
| 15,554 |
| 11.7 | % |
| Lanier Apparel | 29,490 |
| 30,460 |
| (970 | ) | (3.2 | )% |
| Southern Tide | 10,912 |
| — |
| 10,912 |
| NM |
|
| Corporate and Other | 7,377 |
| 1,633 |
| 5,744 |
| NM |
|
| Total gross profit | $ | 582,774 |
| $ | 558,105 |
| $ | 24,669 |
| 4.4 | % |
| LIFO (credit) charge included in Corporate and Other | $ | (5,884 | ) | $ | 254 |
| |
| |
|
| Inventory step-up charge included in Southern Tide | $ | 2,667 |
| $ | — |
| | |
| | | | | |
| | Fiscal 2022 | | Fiscal 2021 | |
Tommy Bahama | | 64.5 | % | 63.5 | % |
Lilly Pulitzer | | 66.3 | % | 67.3 | % |
Johnny Was | | 61.7 | % | — | % |
Emerging Brands | | 45.5 | % | 52.9 | % |
Lanier Apparel | | — | % | 49.3 | % |
Corporate and Other | | NM | % | NM | % |
Consolidated gross margin | | 63.0 | % | 61.8 | % |
The increase in consolidatedincreased gross profit of 26% was primarily due to higherthe 24% increase in net sales as well as increased consolidated gross margin. The higher gross margin in Fiscal 2022 included the benefit of (1) a $13 million lower LIFO accounting charge in Fiscal 2022 compared to Fiscal 2021 as discussed above,below, (2) lower incremental freight costs of $7 million as compared to Fiscal 2021 after incurring approximately 160 basis points of incremental freight in Fiscal 2021, but still 60 basis points of incremental freight in Fiscal 2022 as compared to pre-pandemic levels, (3) a change in sales mix with the exit of the lower gross margin Lanier Apparel business and addition of the higher gross margin Johnny Was business, and (4) improved initial product margins, as certain sales prices were increased more than the increased product costs. These items were partially offset by (1) the impact of the Lilly Pulitzer e-commerce flash sale, which represented a larger proportion of net sales and had lower gross margins in Fiscal 2022, (2) increased inventory markdowns in the Emerging Brands businesses, (3) the $4 million inventory step up charge related to the Johnny Was acquisition in Fiscal 2022, and (4) the absence of a favorable adjustment of Lanier Apparel exit charges in cost of goods sold after recognizing a $3 million favorable adjustment of Lanier Apparel exit charges in cost of goods sold in Fiscal 2021.
During Fiscal 2022, LIFO accounting had a $3 million unfavorable impact on gross profit, primarily due to an $8 million increase in the LIFO reserve in Fiscal 2022, which was partially offset by a $5 million increase in inventory markdowns, which are generally reversed in Corporate and Other as part of LIFO accounting. The favorable impact of these items was partially offset byinventory markdowns in Fiscal 2022 primarily related to the Emerging Brands business. During Fiscal 2021, LIFO accounting had a $16 million unfavorable impact of the inventory step-up charge included in Southern Tide and loweron gross margins in Tommy Bahama and Lilly Pulitzer, both as discussed below. The table below presents gross margin by operating group and in total for Fiscal 2016 and Fiscal 2015.
|
| | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Tommy Bahama | 58.7 | % | 59.7 | % |
| Lilly Pulitzer | 63.6 | % | 64.9 | % |
| Lanier Apparel | 29.3 | % | 29.0 | % |
| Southern Tide | 39.8 | % | NM |
|
| Corporate and Other | NM |
| NM |
|
| Consolidated gross margin | 57.0 | % | 57.6 | % |
On a consolidated basis, gross margin decreased in Fiscal 2016, primarily as a result of lower gross margins in Tommy Bahama and Lilly Pulitzer, partially offset by the net favorable impact of LIFO accounting
Tommy Bahama:
The decrease in Tommy Bahama's gross margin in Fiscal 2016 wasprofit, primarily due to
$5(1) a $9 million
charge resulting from a reduction in inventory markdown reserves related to the sale of inventory
markdownsmarked down in prior years as well as a reduction of the Lanier Apparel inventory markdown reserves and (2) a $7 million increase in the LIFO reserve in Fiscal 2021.In the Third Quarter and Fourth Quarter of Fiscal 2021, freight costs increased significantly from prior periods, including rate increases for both ocean and air shipments as well as the increased utilization of air freight on inbound products as we navigated our need for inventory and the supply chain challenges. The increased inbound freight rates and utilization of air freight moderated in Fiscal 2022 and returned closer to pre-pandemic levels in the Fourth Quarter of Fiscal 20162022 due to the easing of pricing pressures and a more accelerated timeline we implemented for certain women's, homeinventory purchases to reduce the risk of late delivery of our products.
Tommy Bahama:
The higher gross margin for Tommy Bahama was primarily due to reduced freight costs in Fiscal 2022, after significantly higher freight costs were incurred in the Third and other productsFourth Quarters of Fiscal 2021, as well as lower gross margin in both the direct to consumer and wholesale businesses. The inventory markdowns primarily resulted from a change in Tommy Bahama's approach to inventory clearance; starting in January 2017, Tommy Bahama intends to aggressively clear prior season inventoryimproved initial product margins. These items were partially offset by taking initial markdowns on certain product categories in its full-price retail stores and then clearing any remaining inventory through both its outlet stores and third party off-price retailers and by operating the outlet stores with lower inventory levels and with better merchandised assortments.
The lower gross margins in the direct to consumer channel primarily reflects lower gross margins in outlet store and e-commerce flash clearance sales which were primarily due to our efforts to drive traffic in our outlet stores, reduce inventory levels and dispose of prior season inventory during Fiscal 2016. The higher discounting in our off-price direct to consumer channel was focused on women's, home and other products as well as footwear, which we have transitioned to a third party licensee. Full-price retail store and e-commerce gross margins were also lower primarily due to a greater proportion of sales in Fiscal 2016 occurring in connection with our loyalty award card, Flip-Side and Friends & Family marketing events, which typically have lower gross margins than sales during non-promotional periods, and the impact of Tommy Bahama discounting certain end-of-season women, home and other product in store and on-line beginning in January 2017. The decrease in gross margin in the wholesale distribution channel was primarily due to a change in sales mix with off-pricewholesale sales representing a greaterhigher proportion of Tommy Bahama's wholesale sales in Fiscal 2016.
net sales.Lilly Pulitzer:
The decrease inlower gross margin for Lilly Pulitzer in Fiscal 2016 was primarily driven by thedue to (1) a change in sales mix aswith e-commerce flash clearance sales, representedwhich typically have gross margins in the low 40% range, representing a greaterlarger proportion of net sales during Fiscal 2016 and in-store markdowns were more significant(2) lower gross margins on the e-commerce flash clearance sales, as the gross margin achieved in Fiscal 2016.2021 was higher than typical e-commerce flash clearance sales gross margins due to less end of season inventory available in Fiscal 2021. The impact of the e-commerce flash clearance sales was partially offset by (1) reduced freight costs, (2) improved initial product margins and (3) better gross margin on wholesale off-price sales.
Lanier Apparel:
Johnny Was:
The increase inJohnny Was gross profit and gross margin for Lanier Apparelthe 19 weeks from September 19, 2022 through the end of the fiscal year was primarily due to the net favorable impact of in-stock program allowances and inventory markdowns in Fiscal 2016 as compared to Fiscal 2015.
Southern Tide:
The gross profit of Southern Tide for Fiscal 2016 includes the gross profit of Southern Tide for the period from the date of acquisition on April 19, 2016 through January 28, 2017, which wasunfavorably impacted by
$2.7$4 million of incremental cost of goods sold
associated withresulting from the
step-upcharge related to the step up of inventory
recognizedto fair value at acquisition.
Therefore,Thus, we do not
considerbelieve the gross profit or gross margin in the 19 week period is indicative of the gross profit or gross margin for
thisthe full year of Fiscal 2022 or any other fiscal period
for Johnny Was. On a going forward basis, Johnny Was gross margins are expected to be
indicative of expected gross profit, orapproximately 65%.Emerging Brands:
The lower gross margin for future periods. All amounts related to the step-up of inventory were recognized during Fiscal 2016, thus gross margin for Southern Tide is expected to be higher in future periods.
Corporate and Other:
The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of intercompany sales between our operating groups. The primary driver for the higher gross profit was that Fiscal 2016 was favorably impacted by a LIFO accounting credit of $5.9 million with no significant impact from LIFO accounting in Fiscal 2015. The LIFO accounting credit in Fiscal 2016Emerging Brands was primarily due to the LIFO accounting reversal of the significantmore inventory markdowns recognized in Tommy Bahama during Fiscal 2016.
SG&A
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| SG&A | $ | 507,070 |
| $ | 475,031 |
| $ | 32,039 |
| 6.7 | % |
| SG&A (as a % of net sales) | 49.6 | % | 49.0 | % | |
| |
|
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,491 |
| $ | 1,521 |
| | |
| Amortization of intangible assets included in Southern Tide | $ | 263 |
| $ | — |
| | |
| Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other | $ | 762 |
| $ | — |
| | |
| Distribution center integration charges | $ | 454 |
| $ | — |
| | |
The increase in SG&A was primarily due to (1) $16.9 million of incrementaland increased freight costs in Fiscal 2016 associated with additional Tommy Bahama full-price retail stores and restaurants and Lilly Pulitzer full-price retail stores, (2) $11.4 million of SG&A associated with Southern Tide, including amortization of intangible assets and distribution center integration costs, (3) an increase in brand advertising, marketing and other expenses in Tommy Bahama and Lilly Pulitzer to increase brand awareness and provide support for the brands, (4) increased depreciation expense of $2.2 million related to e-commerce operations and inventory/order management systems in Tommy Bahama and Lilly Pulitzer that were implemented in the First Quarter of Fiscal 2016, (5) asset impairment charges of $1.9 million primarily related to three outlet store closings and certain information technology assets, (6) an increase in severance expenses of $1.5 million and (6) $0.8 million of transaction expenses associated with the Southern Tide acquisition, which are included in Corporate and Other. These SG&A increases were partially offset by $8.0 million of lower incentive compensation, with decreases in each operating group as well as Corporate and Other.
SG&A included amortization of intangible assets of $2.2 million in Fiscal 2016 and $2.0 million in Fiscal 2015 with the increase primarily due to amortization related to the Southern Tide intangible assets. We anticipate that amortization of intangible assets for Fiscal 2017 will be approximately $2.2 million.
Royalties and other operating income
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Royalties and other operating income | $ | 14,180 |
| $ | 14,440 |
| $ | (260 | ) | (1.8 | )% |
Royalties and other operating income in Fiscal 2016 primarily reflects income received from third parties from the licensing of our Tommy Bahama, Lilly Pulitzer and Southern Tide brands. The decrease in royalty income for Fiscal 2016 reflects a decrease in royalty income from Lilly Pulitzer which was partially offset by an increase in royalty income from Tommy Bahama and the royalty income associated with the Southern Tide business.
Operating income (loss)
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Tommy Bahama | $ | 44,101 |
| $ | 65,993 |
| $ | (21,892 | ) | (33.2 | )% |
| Lilly Pulitzer | 51,995 |
| 42,525 |
| 9,470 |
| 22.3 | % |
| Lanier Apparel | 6,955 |
| 7,700 |
| (745 | ) | (9.7 | )% |
| Southern Tide | (282 | ) | — |
| (282 | ) | NM |
|
| Corporate and Other | (12,885 | ) | (18,704 | ) | 5,819 |
| 31.1 | % |
| Total operating income | $ | 89,884 |
| $ | 97,514 |
| $ | (7,630 | ) | (7.8 | )% |
| LIFO (credit) charge included in Corporate and Other | $ | (5,884 | ) | $ | 254 |
| |
| |
|
| Inventory step-up charge included in Southern Tide | $ | 2,667 |
| $ | — |
| | |
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,491 |
| $ | 1,521 |
| | |
| Amortization of intangible assets included in Southern Tide | $ | 263 |
| $ | — |
| |
| |
|
| Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other | $ | 762 |
| $ | — |
| | |
| Distribution center integration charges | $ | 454 |
| $ | — |
| | |
The decrease in operating income in Fiscal 2016 as compared to Fiscal 2015 was primarily due to the lower operating income in Tommy Bahama, including $7.1 million of inventory markdown, severance and store closing charges incurred in the Fourth Quarter of Fiscal 2016, and Lanier Apparel and the operating loss in Southern Tide. These items were partially offset by higher income in Lilly Pulitzer and improved operating results in Corporate and Other. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Net sales | $ | 658,911 |
| $ | 658,467 |
| $ | 444 |
| 0.1 | % |
| Gross margin | 58.7 | % | 59.7 | % | |
| |
|
| Operating income | $ | 44,101 |
| $ | 65,993 |
| $ | (21,892 | ) | (33.2 | )% |
| Operating income as % of net sales | 6.7 | % | 10.0 | % | |
| |
|
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,491 |
| $ | 1,521 |
| | |
The lower operating results for Tommy Bahama were primarily due to the lower gross margin, as discussed above, and higher SG&A in Fiscal 2016. The higher SG&A for Fiscal 2016 includes (1) $11.8 million of incremental SG&A associated with operating additional full-price retail stores and restaurants, (2) an increase in brand advertising, marketing and other expenses in Tommy Bahama to increase brand awareness and provide support for the brand, (3) $1.3 million of increased severance costs, (4) increased depreciation expense of $1.9 million related to e-commerce operations, which were primarily related to website upgrades implemented in the First Quarter of Fiscal 2016, and the Tommy Bahama office in Seattle, Washington, and (5) asset impairment charges of $0.9 million primarily related to outlet store closures. These SG&A increases were partially offset by $0.7 million of lower incentive compensation. Included in the gross margin impact and SG&A items above, we incurred charges of $7.1 million in the Fourth Quarter of Fiscal 2016 consisting of $4.7 million of inventory markdowns, $0.9 million of severance charges and $1.6 million of charges related to outlet store closings which are anticipated to improve future operating results.
Lilly Pulitzer:
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Net sales | $ | 233,294 |
| $ | 204,626 |
| $ | 28,668 |
| 14.0 | % |
| Gross margin | 63.6 | % | 64.9 | % | |
| |
|
| Operating income | $ | 51,995 |
| $ | 42,525 |
| $ | 9,470 |
| 22.3 | % |
| Operating income as % of net sales | 22.3 | % | 20.8 | % | |
| |
|
The increase in operating income in Lilly Pulitzer was primarily due to the higher net sales partially offset by the impact of the lower gross margin and higher SG&A. SG&A increased primarily due to (1) $5.2 million of incremental SG&A associated with operating additional Lilly Pulitzer full-price retail stores, (2) an increase in brand advertising, marketing and other expenses in Lilly Pulitzer to increase brand awareness and provide support for the brand, (3) increased depreciation expense of $1.1 million related to inventory/order management system upgrades implemented in the First Quarter of Fiscal 2016, and (4) other increases in SG&A, including additional employee headcount to support the growing business. These increases in SG&A were partially offset by a $5.4 million reduction in incentive compensation during Fiscal 2016, primarily resulting from the retirement of the former co-chief executive officers from the business in the First Quarter of Fiscal 2016.
Lanier Apparel:
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Net sales | $ | 100,753 |
| $ | 105,106 |
| $ | (4,353 | ) | (4.1 | )% |
| Gross margin | 29.3 | % | 29.0 | % | |
| |
|
| Operating income | $ | 6,955 |
| $ | 7,700 |
| $ | (745 | ) | (9.7 | )% |
| Operating income as % of net sales | 6.9 | % | 7.3 | % | |
| |
|
The decrease in operating income for Lanier Apparel was primarily due to lower sales partially offset by improved gross margin and lower SG&A, resulting from lower incentive compensation.
Southern Tide:
|
| | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Net sales | $ | 27,432 |
| $ | — |
| $ | 27,432 |
| NM |
| Gross margin | 39.8 | % | NA |
| |
| |
| Operating loss | $ | (282 | ) | $ | — |
| $ | (282 | ) | NM |
| Operating loss as % of net sales | (1.0 | )% | NA |
| | |
| Inventory step-up charge included in Southern Tide | $ | 2,667 |
| $ | — |
| | |
| Amortization of intangible assets included in Southern Tide | $ | 263 |
| $ | — |
| | |
| Distribution center integration charges | $ | 454 |
| $ | — |
| | |
The net sales, gross margin and operating loss of Southern Tide reflect the results of Southern Tide for the period from the date of acquisition on April 19, 2016 through January 28, 2017. We do not consider the results for this period to be indicative of expected results on an annual basis or for future periods. During Fiscal 2016, the operating results of Southern Tide were impacted by the $2.7 million of incremental cost of goods sold related to the step-up of inventory at acquisition, recognized in cost of goods sold as the acquired inventory was sold, $0.3 million of amortization of intangible assets and the $0.5 million of distribution center integration charges recognized during the Second Quarter of Fiscal 2016.
Corporate and Other:
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Net sales | $ | 2,198 |
| $ | 1,091 |
| $ | 1,107 |
| NM |
|
| Operating loss | $ | (12,885 | ) | $ | (18,704 | ) | $ | 5,819 |
| 31.1 | % |
| LIFO (credit) charge included in Corporate and Other | $ | (5,884 | ) | $ | 254 |
| |
| |
|
| Transaction expenses associated with the Southern Tide acquisition included in Corporate and Other | $ | 762 |
| $ | — |
| | |
The improved operating results in Corporate and Other were primarily due to the net favorable impact of LIFO accounting of $6.1 million and $0.9 million of lower incentive compensation amounts in Fiscal 2016. These favorable items were partially offset by the impact of $0.8 million of transaction expenses associated with the Southern Tide acquisition in the First Quarter of Fiscal 2016 and the prior year including a $0.9 million gain on the sale of real estate.
Interest expense, net
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Interest expense, net | $ | 3,421 |
| $ | 2,458 |
| $ | 963 |
| 39.2 | % |
Interest expense for Fiscal 2016 increased from the prior year primarily due to higher average borrowings outstanding during the year and the write off of approximately $0.3 million of deferred financing costs associated with our amendment and restatement of our revolving credit agreement. We anticipate that we will incur approximately $4 million of interest expense in Fiscal 2017 due to higher expected interest rates.
Income taxes
|
| | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Income taxes | $ | 31,964 |
| $ | 36,519 |
| $ | (4,555 | ) | (12.5 | )% |
| Effective tax rate | 37.0 | % | 38.4 | % | |
| |
|
Income tax expense for Fiscal 2016 decreased, reflecting lower earnings and a lower effective tax rate. The lower effective tax rate in Fiscal 2016 compared to Fiscal 2015 was primarily due to (1) improved operating results in our Hong Kong-based sourcing operations and Tommy Bahama Asia-Pacific retail operations resulting in the utilization of certain foreign net operating loss carryforwards, (2) the reversal of valuation allowances in certain foreign jurisdictions based on our assessment of the facts and circumstances related to our ability to realize those net operating loss carryforwards in future periods, (3) lower domestic earnings and (4) certain favorable discrete items, including the tax benefit associated with the vesting of certain restricted stock awards. Our effective tax rate for Fiscal 2017 is expected to be approximately 39%, reflecting an expected unfavorable impact on tax expense of stock awards with a grant date fair value of $78 per share that vest in April 2017 and the absence of operating loss carryforwards we may utilize in Fiscal 2017.
Net earnings from continuing operations
|
| | | | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Net earnings from continuing operations | $ | 54,499 |
| $ | 58,537 |
|
| Net earnings from continuing operations per diluted share | $ | 3.27 |
| $ | 3.54 |
|
| Weighted average shares outstanding - diluted | 16,649 |
| 16,559 |
|
The primary reasons for the lower earnings from continuing operations per diluted share in Fiscal 2016 were the lower operating income in Tommy Bahama and increased interest expense partially offset by higher income in Lilly Pulitzer, improved operating results in Corporate and Other and a lower effective tax rate.
Discontinued operations
|
| | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | $ Change | % Change |
| Loss from discontinued operations, net of taxes | $ | (2,038 | ) | $ | (27,975 | ) | $ | 25,937 |
| NM |
The loss from discontinued operations, net of taxes in Fiscal 2016 primarily reflects an additional loss related to the retained lease obligations of our discontinued operations primarily as a result of the default and failure to pay by a sub-tenant and an updated assessment of the anticipated losses considering anticipated sub-lease income to be earned, timing of obtaining a tenant, lease incentives and market rents. Fiscal 2015 reflects the loss on the sale of our former Ben Sherman business, which was sold in the Second Quarter of Fiscal 2015, as well as the operations of the discontinued operations prior to disposal and any charges related to the discontinued operations subsequent to disposal. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in the future primarily related to the amounts associated with certain retained lease obligations, which are estimated at $5.4 million as of January 28, 2017. The estimated lease liability represents our best estimate of the future net loss anticipated with respect to the
retained lease obligations; however, the ultimate loss remains uncertain as the amount of any sub-lease income is dependent upon negotiated terms of any sub-lease agreements entered into for the space and the ability of those sub-tenants to pay the sub-lease income or alternatively, dependent upon lease termination costs negotiated with the landlords in the future.
FISCAL 2015 COMPARED TO FISCAL 2014
The discussion and tables below compare certain line items included in our statements of operations for Fiscal 2015 and Fiscal 2014. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. 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.
Net Sales
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Tommy Bahama | $ | 658,467 |
| $ | 627,498 |
| $ | 30,969 |
| 4.9 | % |
| Lilly Pulitzer | 204,626 |
| 167,736 |
| 36,890 |
| 22.0 | % |
| Lanier Apparel | 105,106 |
| 126,430 |
| (21,324 | ) | (16.9 | )% |
| Corporate and Other | 1,091 |
| (1,339 | ) | 2,430 |
| NM |
|
| Total net sales | $ | 969,290 |
| $ | 920,325 |
| $ | 48,965 |
| 5.3 | % |
Consolidated net sales increased $49.0 million, or 5.3%, in Fiscal 2015 compared to Fiscal 2014 reflecting changes in net sales of each operating group, as discussed below. The 5.3% increase in consolidated net sales was primarily driven by (1) a $28.8 million, or 7%, increase in comparable store sales to $418.3 million in Fiscal 2015 from $389.5 million in Fiscal 2014, (2) an incremental net sales increase of $28.4 million associated with the operation of additional full-price retail stores, (3) a $5.4 million increase in restaurant sales resulting from the operation of additional restaurants and increased sales at existing restaurants, (4) a $5.2 million net increase in outlet store, e-commerce flash clearance and warehouse sales. These increases in net sales were partially offset by an $18.9 million decrease in wholesale sales including the $21.3 million decrease in Lanier Apparel. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
|
| | | | |
| | Fiscal 2015 | Fiscal 2014 |
| Full-price retail stores, outlets and warehouse sales | 42 | % | 40 | % |
| E-commerce, e-commerce flash clearance sales | 17 | % | 15 | % |
| Restaurant | 7 | % | 7 | % |
| Wholesale | 34 | % | 38 | % |
| Total | 100 | % | 100 | % |
Tommy Bahama:
The Tommy Bahama net sales increase of $31.0 million, or 4.9%, was primarily driven by (1) an incremental net sales increase of $18.0 million associated with the operation of additional full-price retail stores, (2) a $7.8 million, or 3%, increase in comparable store sales to $317.8 million in Fiscal 2015 from $310.0 million in Fiscal 2014, (3) a $5.4 million increase in restaurant sales resulting from the operation of two restaurants opened in Fiscal 2014 and Fiscal 2015 as well as increased sales in existing restaurants and (4) a $2.1 million increase in outlet store and flash clearance sales, including the impact of new outlets opened in Fiscal 2014 and Fiscal 2015. These increases in net sales were partially offset by a $2.9 million decrease in wholesale sales.
As of January 30, 2016, we operated 164 Tommy Bahama stores globally, consisting of 107 full-price retail stores, 16 retail-restaurant locations and 41 outlet stores. As of January 31, 2015 we operated 157 Tommy Bahama stores globally consisting of 101 full-price retail stores, 15 retail-restaurant locations and 41 outlet stores. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
|
| | | | |
| | Fiscal 2015 | Fiscal 2014 |
| Full-price retail stores and outlets | 50 | % | 50 | % |
| E-commerce, including e-commerce flash clearance sales | 15 | % | 14 | % |
| Restaurant | 11 | % | 10 | % |
| Wholesale | 24 | % | 26 | % |
| Total | 100 | % | 100 | % |
Lilly Pulitzer:
The Lilly Pulitzer net sales increase of $36.9 million, or 22.0%, was primarily a result of (1) a $21.1 million, or 27%, increase in comparable store sales to $100.5 million in Fiscal 2015 compared to $79.5 million in Fiscal 2014, (2) an incremental net sales increase of $10.4 million associated with the operation of additional full-price retail stores, (3) a $2.9 million increase in wholesale sales, (4) an increase in e-commerce flash clearance sales of $1.7 million to $18.4 million in Fiscal 2015, and (5) $0.9 million higher sales at the June warehouse sale. As of January 30, 2016, we operated 34 Lilly Pulitzer full-price retail stores compared to 28 full-price retail stores as of January 31, 2015. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
|
| | | | |
| | Fiscal 2015 | Fiscal 2014 |
| Full-price retail stores and warehouse sales | 38 | % | 34 | % |
| E-commerce, including e-commerce flash clearance sales | 30 | % | 28 | % |
| Wholesale | 32 | % | 38 | % |
| Total | 100 | % | 100 | % |
Lanier Apparel:
The decrease in net sales for Lanier Apparel of $21.3 million, or 16.9%, reflects a decrease in net sales in the private label and branded businesses for both tailored clothing and sportswear. The branded and private label businesses were unfavorably impacted by the reduction in or exit from certain replenishment and other programs.
Corporate and Other:
Corporate and Other net sales primarily consist of the net sales of our Lyons, Georgia distribution center as well as the impact of the elimination of intercompany sales between our operating groups, which exceeded net sales of our Lyons, Georgia distribution center in Fiscal 2014. The increase in Corporate and Other sales was primarily due to a smaller unfavorable impact of the elimination of intercompany sales in Fiscal 2015.
Gross Profit
The table below presents gross profit by operating group and in total for Fiscal 2015 and Fiscal 2014 as well as the change between those two periods. 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 statement of operations classification of certain expenses may vary by company.
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Tommy Bahama | $ | 393,221 |
| $ | 377,415 |
| $ | 15,806 |
| 4.2 | % |
| Lilly Pulitzer | 132,791 |
| 106,317 |
| 26,474 |
| 24.9 | % |
| Lanier Apparel | 30,460 |
| 34,159 |
| (3,699 | ) | (10.8 | )% |
| Corporate and Other | 1,633 |
| 58 |
| 1,575 |
| NM |
|
| Total gross profit | $ | 558,105 |
| $ | 517,949 |
| $ | 40,156 |
| 7.8 | % |
| LIFO charge included in Corporate and Other | $ | 254 |
| $ | 2,131 |
| |
| |
|
The increase in consolidated gross profit was primarily driven by higher net sales, as discussed above, as well as a change in sales mix as a greater proportion of consolidated net sales were sales at Lilly Pulitzer, which typically has higher gross margins than our other operating groups, and the net favorable impact of LIFO accounting in Fiscal 2015 as compared to
Fiscal 2014. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for Fiscal 2015 and Fiscal 2014.
|
| | | | |
| | Fiscal 2015 | Fiscal 2014 |
| Tommy Bahama | 59.7 | % | 60.1 | % |
| Lilly Pulitzer | 64.9 | % | 63.4 | % |
| Lanier Apparel | 29.0 | % | 27.0 | % |
| Corporate and Other | NM |
| NM |
|
| Consolidated gross margin | 57.6 | % | 56.3 | % |
On a consolidated basis, gross margin increased in Fiscal 2015, primarily as a result of (1) Lilly Pulitzer representing a greater proportion and Lanier Apparel representing a lower proportion of consolidated net sales, (2) direct to consumer sales, which typically provide a higher gross margin, representing a greater proportion of consolidated net sales, (3) improved gross margins in Lilly Pulitzer and Lanier Apparel and (4) the net favorable impact of LIFO accounting in Fiscal 2015 as compared to Fiscal 2014. These favorable items were partially offset by the lower gross margin in Tommy Bahama.
Tommy Bahama:
The reduction in gross margin for Tommy Bahama reflected lower gross margins in both the direct to consumer and wholesale channels of distribution, which offset the favorable impact of a change in sales mix with direct to consumer sales representing a greater proportion of net sales.
The lower direct to consumerLanier Apparel:
There was no gross margin was primarily due to a greater proportion of sales in our full-price retail stores and e-commerce website occurring in connection with Tommy Bahama's loyalty award card, Flip-Side and Friends & Family events and more significant in-store discounts in our outlet stores. The lower gross margin in the wholesale business was primarily a result of more significant discounts and allowances, particularly for wholesale off-price sales.
Lilly Pulitzer:
The increase in gross margin for Lilly Pulitzer was primarily driven by a change in sales mix towards the direct to consumer channel of distribution and an increase in gross margins of the direct to consumer businesses.
Lanier Apparel:
The increase in gross marginprofit for Lanier Apparel was primarily due to a change in sales mix with a greater proportion of sales consisting of higherFiscal 2022. Fiscal 2021 for Lanier Apparel included the gross margin branded business programs, in both the tailored clothing and sportswear businesses, which was partially offset by theprofit impact of more significantnet sales as we were exiting the business, as well as the favorable impact of a reduction in inventory markdowns in Fiscal 2015.
associated with the Lanier Apparel exit.Corporate and Other:
The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Lyons, Georgia distribution center operations, (2)includes the impact of LIFO accounting adjustments, the sales of the Lyons, Georgia distribution center operations to third parties and the sales of the Oxford America business. The primary driver for the improved gross profit was the $13 million lower LIFO accounting charge. The LIFO accounting impact in Corporate and Other in each period includes the net impact of (1) a charge in Corporate and Other when inventory that had been marked down in an operating group in a prior period was ultimately sold, (2) a credit in Corporate and Other when inventory had been marked down in an operating group in the current period, but had not been sold as of period end and (3) the impact of certain consolidating adjustments, includingchange in the elimination of intercompany sales between our operating groups. The higher gross profit for Corporate and Other was due to the lower impact of LIFO accounting in Fiscal 2015.
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| SG&A | $ | 475,031 |
| $ | 439,069 |
| $ | 35,962 |
| 8.2 | % |
| SG&A as % of net sales | 49.0 | % | 47.7 | % | |
| |
|
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,521 |
| $ | 1,764 |
| | |
| Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 275 |
| | |
The increase in
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
SG&A | | $ | 692,004 | | $ | 573,636 | | $ | 118,368 | | 20.6 | % |
SG&A (as a % of net sales) | | | 49.0 | % | | 50.2 | % | | | | | |
Notable items included in amounts above: | | | | | | | | | | | | |
Tommy Bahama lease termination charge | | $ | — | | $ | 4,850 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 5,194 | | $ | — | | | | | | |
TBBC change in fair value of contingent consideration | | $ | — | | $ | 1,188 | | | | | | |
Lanier Apparel exit charges in SG&A | | $ | — | | $ | 3,788 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | 2,783 | | $ | — | | | | | | |
SG&A was primarily due$692 million in Fiscal 2022 compared to (1) $19.9SG&A of $574 million in Fiscal 2021. The increase includes the net impact of approximately $46 million of incremental costs in Fiscal 2015SG&A associated with additional Tommy Bahama full-price retail stores and restaurants,Johnny Was, including the Waikiki retail-restaurant location, and Lilly Pulitzer stores, (2) costs to support the growing Lilly Pulitzer and Tommy Bahama businesses, (3) $2.7 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington and (4) $1.1 million of additional equity compensation expense. SG&A included $1.9$5 million of amortization of intangible assets, in Fiscal 2015 compared to $2.32022, and $10 million of SG&A associated with Lanier Apparel, including $4 million of Lanier Apparel exit charges, in Fiscal 2014.2021. These amounts for Johnny Was and Lanier Apparel are included in the changes in each category noted in the following paragraph, as applicable.
The 21% increase in SG&A in Fiscal 2022 included (1) increased employment costs of $54 million, including increases in retail store, food and beverage and distribution center operations and other functions, as well as higher stock compensation, employee benefits and bonus amounts, (2) a $22 million increase in advertising expense, (3) an $18 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies,
commissions, royalties and other expenses, (4) a $12 million increase in occupancy expenses, including increases in percentage rent, occupancy related operating costs and base rent, (5) a $5 million increase in amortization of intangible assets expense, due to the amortization associated with Johnny Was, (6) $3 million of higher travel expenses, (7) $3 million of charges related to transaction expenses and integration costs associated with the Johnny Was acquisition, (8) a $3 million increase in administrative expenses including professional fees and other items, and (9) a $2 million increase in depreciation expense. These items were partially offset by the absence of $5 million of Tommy Bahama lease termination charges and $1 million of TBBC change in fair value of contingent consideration incurred in Fiscal 2021.
Royalties and other operating income
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Royalties and other operating income | $ | 14,440 |
| $ | 13,939 |
| $ | 501 |
| 3.6 | % |
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Royalties and other operating income | | $ | 21,923 | | $ | 32,921 | | $ | (10,998) | | (33.4) | % |
Notable items included in amounts above: | | | | | | | | | | | | |
Gain on sale of Lanier Apparel distribution center | | $ | — | | $ | (2,669) | | | | | | |
Gain on sale of investment in unconsolidated entity | | $ | — | | $ | (11,586) | | | | | | |
Royalties and other operating income primarily reflecttypically consist of royalty income received from third parties from the licensing of our Tommy Bahamabrands, but Fiscal 2021 also included a $12 million gain on sale of investment in unconsolidated entity and Lilly Pulitzer brands. The $0.5a $3 million increasegain on the sale of the Lanier Apparel distribution center in royalties and otherToccoa, Georgia. Royalty income reflectsin Fiscal 2022 increased by $4 million primarily due to increased royalty income forin both Tommy Bahama and Lilly Pulitzer.
Operating income
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Tommy Bahama | | $ | 172,761 | | $ | 111,733 | | $ | 61,028 | | 54.6 | % |
Lilly Pulitzer | | | 67,098 | | | 63,601 | | | 3,497 | | 5.5 | % |
Johnny Was | | | (1,544) | | | — | | | (1,544) | | 100.0 | % |
Emerging Brands | | | 15,602 | | | 16,649 | | | (1,047) | | (6.3) | % |
Lanier Apparel | | | — | | | 4,888 | | | (4,888) | | (100.0) | % |
Corporate and Other | | | (35,143) | | | (31,368) | | | (3,775) | | NM | % |
Consolidated operating income | | $ | 218,774 | | $ | 165,503 | | $ | 53,271 | | 32.2 | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 2,667 | | $ | 15,870 | | | | | | |
Inventory step-up charge included in Johnny Was | | $ | 4,230 | | $ | — | | | | | | |
Reduction of Lanier Apparel exit charges in cost of goods sold | | $ | — | | $ | (2,826) | | | | | | |
Tommy Bahama lease termination charge | | $ | — | | $ | 4,850 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 5,194 | | $ | — | | | | | | |
TBBC change in fair value of contingent consideration | | $ | — | | $ | 1,188 | | | | | | |
Lanier Apparel exit charges in SG&A | | $ | — | | $ | 3,788 | | | | | | |
Gain on sale of Lanier Apparel distribution center | | $ | — | | $ | (2,669) | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | 2,783 | | $ | — | | | | | | |
Gain on sale of investment in unconsolidated entity | | $ | — | | $ | (11,586) | | | | | | |
Operating income (loss)
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Tommy Bahama | $ | 65,993 |
| $ | 71,132 |
| $ | (5,139 | ) | (7.2 | )% |
| Lilly Pulitzer | 42,525 |
| 32,190 |
| 10,335 |
| 32.1 | % |
| Lanier Apparel | 7,700 |
| 10,043 |
| (2,343 | ) | (23.3 | )% |
| Corporate and Other | (18,704 | ) | (20,546 | ) | 1,842 |
| 9.0 | % |
| Total operating income | $ | 97,514 |
| $ | 92,819 |
| $ | 4,695 |
| 5.1 | % |
| LIFO charge included in Corporate and Other | $ | 254 |
| $ | 2,131 |
| |
| |
|
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,521 |
| $ | 1,764 |
| | |
| Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 275 |
| |
| |
|
was $219 million in Fiscal 2022 compared to $166 million in Fiscal 2021. The increase inincreased operating income was primarily due to higher net sales and gross margin offset by increased SG&A and lower royalties and other operating income. By operating group, the increased operating income was due to higher operating income in Tommy Bahama and Lilly Pulitzer and a lower operating loss in Corporate and Other, partially offset by lower operating income (loss) in Tommy Bahamaour other operating groups as well as Corporate and Lanier Apparel.Other. Changes in operating income (loss) by operating group are discussed below.
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Net sales | $ | 658,467 |
| $ | 627,498 |
| $ | 30,969 |
| 4.9 | % |
| Gross margin | 59.7 | % | 60.1 | % | |
| |
|
| Operating income | $ | 65,993 |
| $ | 71,132 |
| $ | (5,139 | ) | (7.2 | )% |
| Operating income as % of net sales | 10.0 | % | 11.3 | % | |
| |
|
| Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition | $ | 1,521 |
| $ | 1,764 |
| | |
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | 880,233 | | $ | 724,305 | | $ | 155,928 | | 21.5 | % |
Gross profit | | $ | 567,557 | | $ | 459,575 | | $ | 107,982 | | 23.5 | % |
Gross margin | | | 64.5 | % | | 63.5 | % | | | | | |
Operating income | | $ | 172,761 | | $ | 111,733 | | $ | 61,028 | | 54.6 | % |
Operating income as % of net sales | | | 19.6 | % | | 15.4 | % | | | | | |
Notable items included in amounts above: | | | | | | | | | | | | |
Tommy Bahama lease termination charge | | $ | — | | $ | 4,850 | | | | | | |
The lowerincreased operating income for Tommy Bahama was primarily due to the higher SG&A and lowersales, gross margin partially offset by higher sales. The higher SG&A reflects (1) $15.1 million of incremental SG&A associated with the cost of operating additional full-price retail stores and restaurants, including pre-opening rent and set-up costs associated with new stores and restaurants, (2) $2.7 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington during the Third Quarter of Fiscal 2015 and (3) higher costs to support the growing Tommy Bahama business. These higher SG&A amounts were partially offset by reductions in other SG&A accounts, including incentive compensation. The operating loss for the Tommy Bahama Waikiki retail-restaurant location prior to opening in late October 2015 was $2.1 million, with the substantial majority of this loss consisting of pre-opening rent and set-up costs, which are included in the incremental SG&A amount associated with new locations above. Fiscal 2015 included an operating loss of $8.3 million related to our Tommy Bahama Asia-Pacific expansion compared to an operating loss of $10.3 million in Fiscal 2014.
Lilly Pulitzer:
|
| | | | | | | | | | | |
| | Fiscal 2015 |
| Fiscal 2014 |
| $ Change | % Change |
| Net sales | $ | 204,626 |
| $ | 167,736 |
| $ | 36,890 |
| 22.0 | % |
| Gross margin | 64.9 | % | 63.4 | % | |
| |
|
| Operating income | $ | 42,525 |
| $ | 32,190 |
| $ | 10,335 |
| 32.1 | % |
| Operating income as % of net sales | 20.8 | % | 19.2 | % | |
| |
|
| Change in fair value of contingent consideration included in Lilly Pulitzer | $ | — |
| $ | 275 |
| |
| |
|
The increase in operatingroyalty income
in Lilly Pulitzer was primarily due to the higher net sales and gross margin. These items were partially offset by increased SG&A. The increased SG&A was primarily
associated withdue to (1)
$32 million of increased employment costs, including increases in retail store and food and beverage operations and other functions, as well as higher
costsincentive compensation amounts, (2) $9 million of increased variable expenses related to
support the growing business, reflecting increased infrastructurehigher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (3) a $5 million increase in advertising expense, (4) a $4 million increase in occupancy expenses including increases in percentage rent, occupancy related operating costs and
base rent, (5) a $4 million increase in administrative expenses including professional fees, foreign currency expense and other items, and (6) $1 million higher travel expenses. These SG&A increases were partially offset by (1) the absence of $5 million of Tommy Bahama lease termination charges in Fiscal 2022 and (2) a $2 million reduction in depreciation expense.Lilly Pulitzer:
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | 339,266 | | $ | 298,995 | | $ | 40,271 | | 13.5 | % |
Gross profit | | $ | 225,028 | | $ | 201,145 | | $ | 23,883 | | 11.9 | % |
Gross margin | | | 66.3 | % | | 67.3 | % | | | | | |
Operating income | | $ | 67,098 | | $ | 63,601 | | $ | 3,497 | | 5.5 | % |
Operating income as % of net sales | | | 19.8 | % | | 21.3 | % | | | | | |
The increased operating income for Lilly Pulitzer was primarily due to higher sales and royalty income partially offset by increased SG&A and lower gross margin. The increased SG&A was primarily due to (1) $7 million of increased advertising expense, (2) $4.8$6 million of incrementalincreased employment costs, with increased headcount, salaries and wages partially offset by lower incentive compensation amounts, (3) $4 million of increased variable expenses related to higher net sales including credit card transaction fees, supplies and other expenses, (4) $1 million of higher depreciation expense, (5) $1 million of increased occupancy expenses and (6) $1 million of higher travel expenses.
Johnny Was:
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | 72,591 | | $ | — | | $ | 72,591 | | 100.0 | % |
Gross profit | | $ | 44,765 | | $ | — | | $ | 44,765 | | 100.0 | % |
Gross margin | | | 61.7 | % | | — | % | | | | | |
Operating loss | | $ | (1,544) | | $ | — | | $ | (1,544) | | 100.0 | % |
Operating loss as % of net sales | | | (2.1) | % | | — | % | | | | | |
Notable items included in amounts above: | | | | | | | | | | | | |
Inventory step-up charge included in Johnny Was | | $ | 4,230 | | $ | — | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 5,194 | | $ | — | | | | | | |
The Johnny Was operating loss in the 19 weeks from September 19, 2022 through the end of the fiscal year included $4 million of inventory step-up charges as well as $5 million of amortization of intangible assets, which
negatively impacted the operating results of Johnny Was. As the operating results for Johnny Was are for only 19 weeks and include the non-recurring impact of the inventory step-up charges in Fiscal 2022, the operating results for this period are not indicative of the Johnny Was operating results for the full year of Fiscal 2022 or future periods.
Emerging Brands:
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | 116,484 | | $ | 90,053 | | $ | 26,431 | | 29.4 | % |
Gross profit | | $ | 53,012 | | $ | 47,667 | | $ | 5,345 | | 11.2 | % |
Gross margin | | | 45.5 | % | | 52.9 | % | | | | | |
Operating income | | $ | 15,602 | | $ | 16,649 | | $ | (1,047) | | (6.3) | % |
Operating income as % of net sales | | | 13.4 | % | | 18.5 | % | | | | | |
Notable items included in amounts above: | | | | | | | | | | | | |
TBBC change in fair value of contingent consideration | | $ | — | | $ | 1,188 | | | | | | |
The lower operating income for Emerging Brands was primarily due to lower gross margin and higher SG&A partially offset by higher net sales. The increased SG&A included (1) higher SG&A associated with the cost of operating additionalSouthern Tide and TBBC full-price retail storesstore operations expansion, including related employment, occupancy and other retail operating costs, (2) increased variable expenses resulting from increased sales, (3) $1.0higher advertising expense and (4) increased administrative expenses associated with the growing Emerging Brands businesses. These increases in SG&A were partially offset by the absence of a TBBC change in fair value of contingent consideration in Fiscal 2022 after incurring a $1 million charge for TBBC change in fair value of highercontingent consideration in Fiscal 2021 and lower incentive compensation.
compensation amounts in Fiscal 2022.Lanier Apparel:
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Net sales | $ | 105,106 |
| $ | 126,430 |
| $ | (21,324 | ) | (16.9 | )% |
| Gross margin | 29.0 | % | 27.0 | % | |
| |
|
| Operating income | $ | 7,700 |
| $ | 10,043 |
| $ | (2,343 | ) | (23.3 | )% |
| Operating income as % of net sales | 7.3 | % | 7.9 | % | |
| |
|
The lower
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | — | | $ | 24,858 | | $ | (24,858) | | (100.0) | % |
Gross profit | | $ | — | | $ | 12,256 | | $ | (12,256) | | (100.0) | % |
Gross margin | | | — | % | | 49.3 | % | | | | | |
Operating income | | $ | — | | $ | 4,888 | | $ | (4,888) | | (100.0) | % |
Operating income as % of net sales | | | — | % | | 19.7 | % | | | | | |
Notable items included in amounts above: | | | | | | | | | | | | |
Reduction of Lanier Apparel exit charges in cost of goods sold | | $ | — | | $ | (2,826) | | | | | | |
Lanier Apparel exit charges in SG&A | | $ | — | | $ | 3,788 | | | | | | |
Gain on sale of Lanier Apparel distribution center | | $ | — | | $ | (2,669) | | | | | | |
There was no operating income for Lanier Apparel was primarily due toin Fiscal 2022. Fiscal 2021 for Lanier Apparel included the reduction inoperating income resulting from the net sales, partially offset by higher gross margincost of goods sold and lower SG&A.&A as we were exiting the Lanier Apparel business, as well as a $3 million gain on sale of the Lanier Apparel distribution center and the net charge related to Lanier Apparel exit charges of $1 million. The lower SG&A primarily reflects decreasesLanier Apparel exit charges are discussed in certain variable and other expenses including royalty, advertising and distribution expenses.Note 11 of our consolidated financial statements included in this report.
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Net sales | $ | 1,091 |
| $ | (1,339 | ) | $ | 2,430 |
| NM |
|
| Operating loss | $ | (18,704 | ) | $ | (20,546 | ) | $ | 1,842 |
| 9.0 | % |
| LIFO charge included in Corporate and Other | $ | 254 |
| $ | 2,131 |
| |
| |
|
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Net sales | | $ | 2,954 | | $ | 3,868 | | $ | (914) | | (23.6) | % |
Gross profit | | $ | (1,507) | | $ | (14,425) | | $ | 12,918 | | NM | % |
Operating loss | | $ | (35,143) | | $ | (31,368) | | $ | (3,775) | | NM | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 2,667 | | $ | 15,870 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition | | $ | 2,783 | | $ | — | | | | | | |
Gain on sale of investment in unconsolidated entity | | $ | — | | $ | (11,586) | | | | | | |
The improvedlower operating results in Corporate and Other were primarily due to the lower LIFO accounting charge in(1) Fiscal 2015 and2021 including a $0.9$12 million gain on sale of real estate, which werean investment in an unconsolidated entity, with no such gain in Fiscal 2022, (2) $3 million of transaction expenses and integration costs associated with the Johnny Was acquisition and (3) increased SG&A of $3 million, including increased employment costs, insurance costs and other operating expenses. The impact of these items was partially offset by higher incentive compensation amounts.
a $13 million favorable impact of LIFO accounting as well as a $2 million reduction in estimated provisions for preference payment exposure.Interest expense, net
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Interest expense, net | $ | 2,458 |
| $ | 3,236 |
| $ | (778 | ) | (24.0 | )% |
Interest
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Interest expense, net | | $ | 3,049 | | $ | 944 | | $ | 2,105 | | 223.0 | % |
The higher interest expense forin Fiscal 2015 decreased from the prior year2022 was primarily due to lower average debt outstanding, particularly in second halfborrowings pursuant to our U.S. Revolving Credit Agreement to fund a portion of Fiscal 2015, and lower borrowing rates during Fiscal 2015. The lower averagethe September 2022 acquisition of Johnny Was. There was no debt outstanding in the secondFiscal 2021, with interest expense primarily consisting of unused line fees and amortization of deferred financing fees. During Fiscal 2023, we expect interest expense to be between $5 million and $6 million, with about half of that interest expense in the first quarter. We expect to significantly reduce debt levels after the first quarter of Fiscal 2015 was primarily2023.
Income taxes
| | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | $ Change | | % Change | |
Income tax expense | | $ | 49,990 | | $ | 33,238 | | $ | 16,752 | | 50.4 | % |
Effective tax rate | | | 23.2 | % | | 20.2 | % | | | | | |
Both Fiscal 2022 and Fiscal 2021 benefitted from the net favorable impact of certain items that resulted in a resultlower tax rate than the more typical annual effective tax rate of between 25% and 26%. Thus, the effective tax rates for Fiscal 2022 and Fiscal 2021 are not indicative of the useeffective tax rate expected in future periods. Refer to Note 10 of proceeds from the July 2015 sale of Ben Shermanour consolidated financial statements included in this report for debt repayment.
Income taxes
|
| | | | | | | | | | | |
| | Fiscal 2015 | Fiscal 2014 | $ Change | % Change |
| Income taxes | $ | 36,519 |
| $ | 35,786 |
| $ | 733 |
| 2.0 | % |
| Effective tax rate | 38.4 | % | 39.9 | % | |
| |
|
Incomeour income tax rate reconciliation and other information about our income tax expense for Fiscal
2015 increased, reflecting higher earnings partially offset by a lower effective2022 and Fiscal 2021.The income tax rate. The lower effective tax rateexpense in Fiscal 2015 compared2022 included the benefit of the reversal of $2 million of valuation allowances associated with net operating loss carry-forward amounts, the utilization of net operating loss carry-forward amounts to Fiscal 2014 primarily resulted from improved operating results in our Hong-Kong based sourcing and Tommy Bahama Asia-Pacific retail operations.
Net earnings from continuing operations
|
| | | | | | |
| | Fiscal 2015 | Fiscal 2014 |
| Net earnings from continuing operations | $ | 58,537 |
| $ | 53,797 |
|
| Net earnings from continuing operations per diluted share | $ | 3.54 |
| $ | 3.27 |
|
| Weighted average shares outstanding - diluted | 16,559 |
| 16,471 |
|
The higher net earnings in Fiscal 2015 primarily resulted from (1) higher operatingoffset current year income in
Lilly Pulitzer, (2)certain jurisdictions, a
lower operating loss in Corporatefavorable provision to return adjustment and
Other, (3) lower interest expense and (4) a lower effective tax rate.the impact of the vesting of employee stock awards. These favorable items were partially offset by
(1)various unfavorable items related to non-deductible amounts associated with executive compensation, changes in the fair value of life insurance policies associated with our deferred compensation plans and other items, which were more significant in Fiscal 2022 than Fiscal 2021.The income tax expense in Fiscal 2021 included the utilization of benefits associated with certain capital losses to substantially offset the gain recognized on the sale of an investment in an unconsolidated entity, the benefit of a $2 million net reduction in uncertain tax positions resulting from the settlement of those uncertain tax position amounts, the
utilization of net operating loss carry-forward amounts to offset current year income in certain jurisdictions, a favorable provision to return adjustment and the impact of the vesting of employee stock awards. These favorable items were partially offset by various unfavorable items related to non-deductible amounts associated with executive compensation and other items.
We expect our annual effective tax rate for Fiscal 2023 to be between 25% and 26% before any discrete income tax items that may be recognized in Fiscal 2023 as a result of restricted share units vesting in July 2023, or otherwise.
Net earnings
| | | | | | |
| | Fiscal 2022 | | Fiscal 2021 |
Net sales | | $ | 1,411,528 | | $ | 1,142,079 |
Operating income | | $ | 218,774 | | $ | 165,503 |
Net earnings | | $ | 165,735 | | $ | 131,321 |
Net earnings per diluted share | | $ | 10.19 | | $ | 7.78 |
Weighted average shares outstanding - diluted | | | 16,259 | | | 16,869 |
Net earnings per diluted share were $10.19 in Fiscal 2022 compared to $7.78 in Fiscal 2021. The 31% increase in net earnings per diluted share was primarily due to a 26% increase in net earnings as well as a 4% reduction in weighted average shares outstanding due to our share repurchase program which commenced in the Fourth Quarter of Fiscal 2021 and was completed in the Fourth Quarter of Fiscal 2022. The increased net earnings was primarily due to higher net sales and gross margin, partially offset by increased SG&A, a decrease in royalties and other income, a higher effective tax rate and increased interest expense. The increased net earnings include higher operating income in both Tommy Bahama and Lilly Pulitzer partially offset by a reduction in operating income in Lanier Apparel, a larger operating loss in Corporate and Other, the operating loss of Johnny Was and lower operating income in Tommy Bahama and (2) lower operating income in Lanier Apparel.
Discontinued operations
Net loss from discontinued operations, net of taxes was $28.0 million in Fiscal 2015 compared to a net loss from discontinued operations, net of taxes of $8.0 million in Fiscal 2014 with the larger net loss primarily due to the $20.5 million loss on sale of the Ben Sherman operations, which was completed in the Second Quarter of Fiscal 2015.
Emerging Brands.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 our Tommy Bahama, Lilly Pulitzer, andJohnny Was, Southern Tide, TBBC and Duck Head lifestyle brands, as well as certain licensed and private label products. brands. We primarily distribute our products to our customers via direct to consumer channels of distribution, but we also distribute our products via wholesale channels of distribution.
Our primary uses of cash flow include the purchase of products in the operation of our businessbranded apparel products from third party contract manufacturerssuppliers located outside of the United States, as well as operating expenses, including employee compensation and benefits, operating lease commitments and other occupancy-related costs, marketing and advertising costs, information technology costs, variable expenses, distribution costs, other general and administrative expenses and the periodic payment of periodic interest payments related to our financing arrangements.interest. Additionally, we use our cash for the funding ofto fund capital expenditures and other investing activities, dividends, share repurchases and repayment of indebtedness.indebtedness, if any. In the ordinary course of business, we maintain certain levels of inventory, and extend credit to our wholesale customers.customers and pay our operating expenses. Thus, we require a certain amount of ongoing working capital to operate our business. IfOur need for working capital is typically seasonal with the greatest working capital requirements to support our larger spring, summer and holiday direct to consumer seasons. Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory levels and the success of our various products.
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities will provide (1) sufficient cash over both the short and long term to satisfy our ongoing operating cash requirements, (2) ample funds to continue to invest in our lifestyle brands, direct to consumer initiatives and information technology projects, (3) additional cash flow to repay outstanding debt and (4) sufficient cash for other strategic initiatives. Also, if cash inflows are less than cash outflows, we have access to amounts under our U.S.$325 million Fourth Amended and Restated Credit Agreement (as amended, the “U.S. Revolving Credit Agreement,Agreement”), subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including cash flow from operations, borrowings under our current or additional credit facilities, sales
As of January 28, 2017, we had $6.3 million of cash and cash equivalents on hand, with $91.5 million of borrowings outstanding and $185.5 million of availability under our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated future positive cash flow from operating activities provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands and our direct to consumer initiatives.
Key Liquidity Measures
|
| | | | | | | | | | | |
| ($ in thousands) | January 28, 2017 | January 30, 2016 | $ Change | % Change |
| Total Current Assets | $ | 231,628 |
| $ | 216,796 |
| $ | 14,832 |
| 6.8 | % |
| Total Current Liabilities | 131,396 |
| 128,899 |
| 2,497 |
| 1.9 | % |
| Working capital | $ | 100,232 |
| $ | 87,897 |
| $ | 12,335 |
| 14.0 | % |
| Working capital ratio | 1.76 |
| 1.68 |
| |
| |
|
| Debt to total capital ratio | 20 | % | 24 | % | |
| |
|
Working Capital
| | | | | | | | | | | | |
| | January 28, | | January 29, | | | | | | |
($ in thousands) | | 2023 | | 2022 | | $ Change | | % Change | |
Total current assets | | $ | 330,463 | | $ | 400,335 | | $ | (69,872) | | (17.5) | % |
Total current liabilities | | $ | 269,639 | | $ | 226,166 | | | 43,473 | | 19.2 | % |
Working capital | | $ | 60,824 | | $ | 174,169 | | $ | (113,345) | | (65.1) | % |
Working capital ratio | | | 1.23 | | | 1.77 | | | | | | |
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets increasedas of January 28, 2023 decreased from January 30, 2016 to January 28, 201729, 2022 primarily due to the $22.9 milliondecrease in cash and cash equivalents and short-term investments, which was used to fund a portion of the Johnny Was acquisition purchase price, partially offset by increased inventories, receivables and prepaid expenses and other current assets, including the assets related to the Southern Tide business, partially offset by lower current assets in our other operating groups.Johnny Was. Current liabilities as of January 28, 2017 was comparable2023 increased from January 29, 2022 primarily due to the current liabilities associated with Johnny Was as of January 30, 2016 reflecting increases in accounts payable,well as increased current liabilities associated with our other accrued expenses and liabilities and liabilities related to discontinued operations partially offset by a decrease in accrued compensation.businesses. Changes in current assets and current liabilities are discussed below.
For the ratio of debt to total capital, debt is defined as short-term and long-term debtBalance Sheet
The following tables set forth certain information included in continuing operations, and total capital is definedour consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances as debt plus shareholders' equity. Debt was $91.5 million atof January 28, 20172023 as compared to January 29, 2022.
Current Assets:
| | | | | | | | | | | | |
| | January 28, | | January 29, | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | |
Cash and cash equivalents | | $ | 8,826 | | $ | 44,859 | | $ | (36,033) | | (80.3) | % |
Short-term investments | | | — | | | 164,890 | | | (164,890) | | 100.0 | % |
Receivables, net | | | 43,986 | | | 31,588 | | | 12,398 | | 39.2 | % |
Inventories, net | | | 220,138 | | | 117,709 | | | 102,429 | | 87.0 | % |
Income tax receivable | | | 19,440 | | | 19,728 | | | (288) | | (1.5) | % |
Prepaid expenses and other current assets | | | 38,073 | | | 21,561 | | | 16,512 | | 76.6 | % |
Total current assets | | $ | 330,463 | | $ | 400,335 | | $ | (69,872) | | (17.5) | % |
Cash and $44.0cash equivalents were $9 million at January 30, 2016, while shareholders’ equity was $376.1 million atas of January 28, 20172023, compared to $45 million as of January 29, 2022. There were no short-term investments as of January 28, 2023, compared to $165 million as of January 29, 2022. The decrease in both cash and $334.4 million atcash equivalents and short-term investments from January 30, 2016. The increase in debt since January 30, 201629, 2022 was primarily due to the paymentuse of $95.0 million relatedcash and short-term investments to acquisitions, $49.4fund a portion of the Johnny Was acquisition purchase price, with the remainder funded via borrowings pursuant to our U.S. Revolving Credit Agreement.
The increased receivables, net as of January 28, 2023 included $7 million of capital expendituresreceivables associated with Johnny Was. Additionally, receivables in our other businesses increased primarily due to higher wholesale sales in the Fourth Quarter of Fiscal 2022.
Inventories, net, which is net of a $76 million and $69 million LIFO reserve as of January 28, 2023 and January 29, 2022, respectively, increased as of January 28, 2023, with increased inventory in each brand, and included inventories of $20 million associated with Johnny Was. The increase in inventories of our existing brands was primarily due to (1) inventory in Fiscal 2021 generally at lower than optimal levels, when a stronger than anticipated rebound in consumer demand outpaced inventory purchases, (2) increases resulting from the paymentearlier receipt of $18.1 millioninventory in Fiscal 2022 to mitigate supply chain risks, (3) anticipated sales growth in each of dividends whichour brands for Fiscal 2023 and (4) increased product costs. The inventory increases in our brands were partially offset by $118.6the impact of LIFO accounting of $3 million, including the net impact of an $8 million increase in the LIFO reserve and a $5 million increase in inventory markdowns as of January 28, 2023.
Income tax receivable primarily relates to the income tax receivable associated with tax returns for Fiscal 2020, which included the carry back of operating losses to offset taxable income from previous years. The increase in prepaid expenses and other current assets as of January 28, 2023 included (1) an increase in prepaid income taxes of $6 million, (2) an increase in prepaid expenses and other assets in our existing businesses, including prepaid expenses related to software and license arrangements, advertising, supplies and other items, and (3) the prepaid expenses and other current assets associated with Johnny Was.
Non-current Assets:
| | | | | | | | | | | | |
| | January 28, | | January 29, | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | |
Property and equipment, net | | $ | 177,584 | | $ | 152,447 | | $ | 25,137 | | 16.5 | % |
Intangible assets, net | | | 283,845 | | | 155,307 | | | 128,538 | | 82.8 | % |
Goodwill | | | 120,498 | | | 23,869 | | | 96,629 | | 404.8 | % |
Operating lease assets | | | 240,690 | | | 195,100 | | | 45,590 | | 23.4 | % |
Other assets, net | | | 35,585 | | | 30,584 | | | 5,001 | | 16.4 | % |
Total non-current assets | | $ | 858,202 | | $ | 557,307 | | $ | 300,895 | | 54.0 | % |
Property and equipment, net as of January 28, 2023 increased primarily due to the addition of $21 million of property and equipment associated with Johnny Was as well as capital expenditures exceeding depreciation expense during Fiscal 2022. Intangible assets, net and goodwill as of January 28, 2023, increased primarily due to $129 million of intangible assets and $97 million of goodwill associated with Johnny Was. Operating lease assets as of January 28, 2023 increased primarily due to the operating lease assets associated with Johnny Was of $54 million. This increase in operating lease assets was partially offset by the net impact of the recognition of amortization related to existing operating leases and a reduced lease term of certain operating leases which exceeded the operating lease assets associated with new or extended operating leases in our existing businesses. The increase in other assets, net as of January 28, 2023, was primarily due to an increase in investments in unconsolidated entities partially offset by a reduction in assets set aside for potential deferred compensation obligations.
Liabilities:
| | | | | | | | | | | | |
| | January 28, | | January 29, | | | | | | |
| | 2023 | | 2022 | | $ Change | | % Change | |
Total current liabilities | | $ | 269,639 | | $ | 226,166 | | $ | 43,473 | | 19.2 | % |
Long-term debt | | | 119,011 | | | — | | | 119,011 | | — | % |
Non-current portion of operating lease liabilities | | | 220,709 | | | 199,488 | | | 21,221 | | 10.6 | % |
Other non-current liabilities | | | 20,055 | | | 21,413 | | | (1,358) | | (6.3) | % |
Deferred income taxes | | | 2,981 | | | 2,911 | | | 70 | | 2.4 | % |
Total liabilities | | $ | 632,395 | | $ | 449,978 | | $ | 182,417 | | 40.5 | % |
Current liabilities increased as of January 28, 2023 primarily due to current liabilities of $30 million associated with Johnny Was as well as increases in accounts payable, current portion of operating lease liabilities, accrued compensation and accrued expenses and other liabilities of our existing businesses.
The long-term debt of $119 million as of January 28, 2023, was primarily due to borrowing certain amounts to fund a portion of the acquisition of Johnny Was. Non-current portion of operating lease liabilities as of January 28, 2023, increased primarily due to $45 million of non-current operating lease liability amounts associated with Johnny Was. This increase in non-current portion of operating lease liabilities was partially offset by the net impact of the payment of operating lease liabilities and reductions in liabilities related to the termination or reduced term of certain operating leases which exceeded the operating lease liabilities associated with new or extended operating leases. Other non-current liabilities as of January 28, 2023 decreased primarily due to decreases in deferred compensation liabilities.
Statement of Cash Flows
The following table sets forth the net cash flows resulting in the change in our cash and cash equivalents (in thousands):
| | | | | | | | | |
| | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Cash provided by operating activities | | $ | 125,610 | | $ | 198,006 | | $ | 83,850 |
Cash used in investing activities | | | (151,747) | | | (181,572) | | | (34,651) |
Cash used in financing activities | | | (11,527) | | | (38,175) | | | (35,848) |
Net change in cash and cash equivalents | | $ | (37,664) | | $ | (21,741) | | $ | 13,351 |
Cash and cash equivalents were $9 million as of January 28, 2023, compared to $45 million as of January 29, 2022. There were no short-term investments as of January 28, 2023, compared to $165 million as of January 29, 2022. The decrease in cash and cash equivalents and short-term investments from January 29, 2022 was due to the use of cash and short-term investments to fund the acquisition of Johnny Was, with the remainder of the purchase price funded via borrowings pursuant to our U.S. Revolving Credit Agreement. Changes in cash flows in Fiscal 2022 and Fiscal 2021 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In Fiscal 2022 and Fiscal 2021, operating activities provided $126 million and $198 million of cash, respectively. The cash flow from operating activities for each period primarily consisted of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization, equity-based compensation, gains on sale of assets and other non-cash items as well as the net impact of changes in deferred income taxes and operating assets and liabilities. In Fiscal 2022, changes in operating assets and liabilities had a significant net unfavorable impact on cash flow from operations, while in Fiscal 2021 the changes in operating assets and liabilities had a significant net favorable impact on cash flow from operations.
In Fiscal 2022, the net change in operating assets and liabilities was primarily due to an increase in inventories, a decrease in other non-current liabilities, including operating lease liabilities, and an increase in prepaid expenses and other current assets, all of which decreased cash flow from operations, partially offset by a decrease in non-current assets, including operating lease assets, and an increase in current liabilities, which both increased cash flow from operations. Shareholders'In Fiscal 2021, changes in operating assets and liabilities were primarily due to an increase in current liabilities, a decrease in non-current assets including operating lease assets, and a decrease in inventories, all of which increased cash flow from operations, partially offset by a decrease in non-current liabilities, including operating lease liabilities, which decreased cash flow from operations.
Investing Activities:
In Fiscal 2022 and Fiscal 2021, investing activities used $152 million and $182 million of cash, respectively. On an ongoing basis, our cash flow used in investing activities is expected to primarily consist of costs associated with investments in information technology initiatives, including e-commerce capabilities; direct to consumer operations, including opening, relocating and remodeling locations; and facilities enhancements for distribution centers and offices. Capital expenditures were $47 million and $32 million in Fiscal 2022 and Fiscal 2021, respectively.
During Fiscal 2022, we paid $264 million for the acquisition of Johnny Was. We also converted $165 million of short-term investments into cash to fund a portion of the Johnny Was acquisition. In Fiscal 2022, other investing activities included the net impact of an $8 million investment in an unconsolidated entity which has an ownership interest in the property that is being converted into the Tommy Bahama Miramonte Resort & Spa in Fiscal 2023, the collection of a $2 million loan from a small apparel brand and the receipt of $1 million of proceeds from the sale of an office building in Lyons, Georgia.
During Fiscal 2021, we converted $165 million of cash on hand into short-term investments and received $15 million of proceeds from the sale of our investment in an unconsolidated entity. We also received $3 million of proceeds from the sale of Lanier Apparel’s Toccoa, Georgia distribution center, and made a loan of $2 million to a small apparel brand, both of which are included in other investing activities.
Financing Activities:
In Fiscal 2022 and Fiscal 2021, financing activities used $12 million and $38 million of cash, respectively. During Fiscal 2022, we used cash to repurchase $95 million of shares, consisting of repurchased shares of our stock pursuant to an open market stock repurchase program and equityincreased awards in respect of employee tax withholding liabilities, to pay $35 million of dividends and to pay $2 million of contingent consideration for the final contingent consideration payment related to the TBBC acquisition, which is included in other financing activities. In Fiscal 2022, we borrowed $119 million under our U.S. Revolving Credit Agreement to fund our investing and financing activities that exceeded cash flow from operations.
In Fiscal 2021, we used cash flow from operations to pay $28 million of dividends, repurchase $11 million of shares, consisting of repurchased shares of our stock pursuant to an open market stock repurchase program and equity awards in respect of employee tax withholding liabilities, and pay $1 million of contingent consideration, which is included in other financing activities.
To the extent our net cash requirements exceed our net cash flows, we may borrow amounts from our U.S. Revolving Credit Agreement, like we did during Fiscal 2022. Alternatively, if net cash requirements are less than our net cash flows, we may repay amounts outstanding on our U.S. Revolving Credit Agreement, if any.
Liquidity and Capital Resources
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities will provide (1) sufficient cash over both the short and long term to satisfy our ongoing operating cash requirements, (2) ample funds to continue to invest in our lifestyle brands, direct to consumer initiatives and information technology projects, (3) additional cash flow to repay outstanding debt and (4) sufficient cash for other strategic initiatives.
Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory and the success of our various products. To the extent cash flow needs in the future exceed cash flow provided by our operations, we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any, and any other investing or financing activities. Our U.S. Revolving Credit Agreement may also be used to establish collateral for certain insurance programs and leases and to finance trade letters of credit for certain product purchases, which reduce the amounts available under our line of credit when issued and totaled $7 million as of January 30, 2016, primarily28, 2023. As of January 28, 2023, after considering our borrowings, letters of credit and available assets, we had $199 million of unused availability under our U.S. Revolving Credit Agreement.
Our cash and debt, as a result of net earnings less dividends paid. Our debtwell as availability, levels and ratio of debt to total capital in future periods maywill not be comparable to historical amounts, asparticularly after the completion of the acquisition of Johnny Was in September 2022. Further, we continue to assess, and may possibly make changes to, our capital structure.structure, which we may achieve by borrowing from additional credit facilities, selling debt or equity securities or repurchasing additional shares of our stock in the future. Changes in our capital structure, in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions 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). As a resultWe anticipate that at the maturity of our acquisition of Southern Tide during the First Quarter of Fiscal 2016, a number of line items in our balance sheet increasedU.S. Revolving Credit Agreement, or as discussed below. Below each table are explanations for any significant changesotherwise deemed appropriate we will be able to refinance the facility or obtain other financing on terms available in the balances from January 30, 2016 to January 28, 2017.market at that time. The terms of any future financing arrangements may not be as favorable as the terms of the current agreement or current market terms.
|
| | | | | | | | | | | |
| | January 28, 2017 | January 30, 2016 | $ Change | % Change |
| Cash and cash equivalents | $ | 6,332 |
| $ | 6,323 |
| $ | 9 |
| 0.1 | % |
| Receivables, net | 58,279 |
| 59,065 |
| (786 | ) | (1.3 | )% |
| Inventories, net | 142,175 |
| 129,136 |
| 13,039 |
| 10.1 | % |
| Prepaid expenses | 24,842 |
| 22,272 |
| 2,570 |
| 11.5 | % |
| Total Current Assets | $ | 231,628 |
| $ | 216,796 |
| $ | 14,832 |
| 6.8 | % |
Cash and cash equivalents as$325 Million U.S. Revolving Credit Agreement
As of January 28, 20172023, we had $119 million of borrowings and January 30, 2016 include typical cash amounts maintained on an ongoing basis in our operations, which generally ranges from $5$199 million to $10 million at any given time. Any excess cash is generally used to repay amounts outstandingof availability under our U.S. Revolving Credit Agreement. The decrease in receivables, net as of January 28, 2017 was primarily due to a decrease in receivables in our Lanier Apparel business reflectingOn March 6, 2023, we amended the lower sales in that business during the Fourth Quarter of Fiscal 2016, which was partially offset by the receivables related to the Southern Tide business.
Inventories, net as of January 28, 2017 increased from January 30, 2016 as a result of inventories related to the Southern Tide business. Inventories in our other businesses decreased year over year as lower inventories in Tommy Bahama were partially offset by higher inventories in Lilly Pulitzer and Corporate and Other. The lower inventories in Tommy Bahama reflect Tommy Bahama's focus on managing inventory buys on a total operating group basis, sale of a greater amount of inventory units through outlet stores and off-price wholesale channels during Fiscal 2016 and certain inventory markdowns.The increase in inventory in Corporate and Other was primarily due to the impact of LIFO accounting including
the reversal of inventory markdowns. Prepaid expenses increased at January 28, 2017 primarily as a result of a $4.4 million increase in prepaid taxes as well as higher prepaid advertising and the prepaid expenses associated with the Southern Tide business which were partially offset by lower prepaid rent as of January 28, 2017 due to the timing of payment of rent amounts as February 2017 rent payments generally had not been paid as of January 28, 2017, but substantially all February 2016 rent payments had been made as of January 30, 2016.
|
| | | | | | | | | | | |
| | January 28, 2017 | January 30, 2016 | $ Change | % Change |
| Property and equipment, net | $ | 193,931 |
| $ | 184,094 |
| $ | 9,837 |
| 5.3 | % |
| Intangible assets, net | 175,245 |
| 143,738 |
| 31,507 |
| 21.9 | % |
| Goodwill | 60,015 |
| 17,223 |
| 42,792 |
| 248.5 | % |
| Other non-current assets, net | 24,340 |
| 20,839 |
| 3,501 |
| 16.8 | % |
| Total non-current assets, net | $ | 453,531 |
| $ | 365,894 |
| $ | 87,637 |
| 24.0 | % |
Property and equipment, net as of January 28, 2017 increased from January 30, 2016 primarily as a result of capital expenditures partially offset by depreciation expense. The increase in intangible assets, net and goodwill at January 28, 2017 were primarily due to the acquisition of the Southern Tide business, partially offset by amortization of intangible assets. The increase in other non-current assets, net as of January 28, 2017 was primarily due to an increase in asset balances set aside for potential deferred compensation plan obligations, non-current deferred tax assets due to the reversal of certain foreign operating loss carryforwards and deferred financing costs paid during Fiscal 2016.
|
| | | | | | | | | | | |
| | January 28, 2017 | January 30, 2016 | $ Change | % Change |
| Total Current Liabilities | $ | 131,396 |
| $ | 128,899 |
| $ | 2,497 |
| 1.9 | % |
| Long-term debt | 91,509 |
| 43,975 |
| 47,534 |
| 108.1 | % |
| Other non-current liabilities | 70,002 |
| 67,188 |
| 2,814 |
| 4.2 | % |
| Deferred taxes | 13,578 |
| 3,657 |
| 9,921 |
| 271.3 | % |
| Liabilities related to discontinued operations | 2,544 |
| 4,571 |
| (2,027 | ) | (44.3 | )% |
| Total liabilities | $ | 309,029 |
| $ | 248,290 |
| $ | 60,739 |
| 24.5 | % |
Current liabilities as of January 28, 2017 were comparable to January 30, 2016 reflecting an $8.5 million increase in accounts payable and a $3.9 million increase in other accrued expenses and liabilities and a $0.5 million increase in liabilities related to discontinued operations partially offset by a $10.4 million decrease in accrued compensation. The increase in accounts payable was primarily due to an increase in payables related to imports in transit due to the timing of the Chinese New Year holiday, while the decrease in accrued compensation was due to a decrease in accrued bonus for each operating group as well as Corporate and Other.
The increase in debt as of January 28, 2017 was primarily due to the payment of $95.0 million related to acquisitions, $49.4 million of capital expenditures and the payment of $18.1 million of dividends which were partially offset by $118.6 million of cash flow from operations. Other non-current liabilities increased as of January 28, 2017 compared to January 30, 2016 primarily due to increases in deferred rent liabilities.
Deferred taxes increased as of January 28, 2017 compared to January 30, 2016 primarily due to the impact of purchase accounting on the basis differences for the acquired assets of Southern Tide and timing differences associated with depreciation, amortization, accrued compensation and inventories. Non-current liabilities related to discontinued operations as of January 28, 2017 decreased primarily as a result of certain amounts now being classified as current liabilities, and included in total current liabilities, rather than non-current liabilities related to discontinued operations. The aggregate amount included in current and non-current liabilities related to discontinued operations represents our best estimate of the future net loss anticipated with respect to certain retained lease obligations as discussed in Note 13 to our consolidated financial statements; however, the ultimate loss to be recognized remains uncertain as the amount of any sub-lease income is dependent upon a variety of factors including anticipated future sublease income and market rental amounts.
Statement of Cash Flows
The following table sets forth the net cash flows, including continuing and discontinued operations, resulting in the change in our cash and cash equivalents (in thousands): |
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Cash provided by operating activities | $ | 118,565 |
| $ | 105,373 |
| $ | 95,409 |
|
| Cash used in investing activities | (146,491 | ) | (13,946 | ) | (50,355 | ) |
| Cash provided by (used in) financing activities | 27,367 |
| (91,466 | ) | (47,619 | ) |
| Net change in cash and cash equivalents | $ | (559 | ) | $ | (39 | ) | $ | (2,565 | ) |
Cash and cash equivalents on hand were $6.3 million and $6.3 million at January 28, 2017 and January 30, 2016, respectively. Changes in cash flows in Fiscal 2016 and Fiscal 2015 related to operating activities, investing activities and financing activities are discussed below.
Fiscal 2016 Compared to Fiscal 2015
Operating Activities:
In Fiscal 2016 and Fiscal 2015, operating activities provided $118.6 million and $105.4 million of cash, respectively. The cash flow from operating activities was primarily the result of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization, equity-based compensation and loss on sale of discontinued operations as well as the net impact of changes in deferred taxes and our working capital accounts. Working capital account changes, as well as deferred taxes, had a favorable impact on cash flow from operations in both Fiscal 2016 and Fiscal 2015. In Fiscal 2016 the more significant changes in working capital accounts were a decrease in receivables, net and inventories, each of which increased cash flow from operations partially offset by the impact of an increase in other non-current assets and an increase in prepaid expenses. During Fiscal 2015 the more significant changes in working capital accounts were a decrease in receivables and an increase in non-current liabilities, each of which increased cash flow from operations, partially offset by increases in inventories and prepaid expenses each of which decreased cash flow from operations.
Investing Activities:
During Fiscal 2016, investing activities used $146.5 million of cash, while in Fiscal 2015, investing activities used $13.9 million of cash. In Fiscal 2016, we paid $95.0 million of cash for acquisitions, consisting of $92.0 million for the acquisition of Southern Tide and $3.1 million for certain acquisitions in our Lanier Apparel operating group, $49.4 million for capital expenditures and $2.0 million for the final working capital settlement associated with our Ben Sherman discontinued operations. The capital expenditures in Fiscal 2016 primarily consisted of opening, relocating and remodeling full-price retail stores and restaurants, information technology initiatives, including e-commerce capabilities, and facility enhancements for distribution centers and office locations. During Fiscal 2015, we used $73.1 million of cash for capital expenditures which primarily related to costs associated with new full-price retail stores and restaurants; facility enhancements, including the build-out of Tommy Bahama's new office in Seattle and the acquisition of additional distribution center space for our Lilly Pulitzer business; information technology initiatives, including e-commerce enhancements; and full-price retail store remodeling. Additionally, during Fiscal 2015, we received $59.3 million of proceeds for the sale of our Ben Sherman business. Other investing activities in Fiscal 2015 include the net impact of a $1.1 million investment of cash in an unconsolidated entity, partially offset by the $0.9 million proceeds from the sale of real estate.
Financing Activities:
During Fiscal 2016, financing activities provided $27.4 million of cash while in Fiscal 2015 financing activities used $91.5 million of cash. In Fiscal 2016, we increased debt primarily for the purpose of purchasing the Southern Tide business, funding our capital expenditures and payment of dividends, which in the aggregate exceeded our cash flow from operations. During Fiscal 2015, we decreased debt as cash provided by our operating activities and the proceeds from the sale of Ben Sherman exceeded our cash requirements for capital expenditures, contingent consideration payments and dividends. During Fiscal 2016 and Fiscal 2015, we paid $18.1 million and $16.6 million of dividends, respectively. In Fiscal 2015, we also paid $12.5 million for the final payment for the contingent consideration arrangement related to the Lilly Pulitzer acquisition.
We anticipate that cash flow provided by or used in financing activities in the future will be dependent upon whether our cash flow from operating activities exceeds our capital expenditures, dividend payments and any other investing or financing activities. Generally, we anticipate that excess cash, if any, will be used to repay debt on our U.S. Revolving Credit Agreement.
Fiscal 2015 ComparedAgreement by entering into the Second Amendment to Fiscal 2014
Operating Activities:
In Fiscal 2015 and Fiscal 2014, operating activities provided $105.4 million and $95.4 million of cash, respectively. The cash flow from operating activities was primarily the result of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization, equity-based compensation and loss on sale of discontinued operations as well as the net impact of changes in our working capital accounts. In Fiscal 2015 the more significant changes in working capital accounts were a decrease in receivables and an increase in non-current liabilities, each of which increased cash flow from operations, partially offset by increases in inventories and prepaid expenses each of which decreased cash flow from operations. In Fiscal 2014 the more significant changes in working capital were increases in current liabilities and non-current liabilities, each of which increased cash flow from operations, partially offset by increases in receivables and inventories, each of which decreased cash flow from operations.
Investing Activities:
During Fiscal 2015 and Fiscal 2014, investing activities used $13.9 million and $50.4 million of cash, respectively. In Fiscal 2015, we used $73.1 million of cash for capital expenditures and received $59.3 million of proceeds for the sale of our Ben Sherman business. Other investing activities in Fiscal 2015 include the net impact of a $1.1 million investment of cash in an unconsolidated entity, partially offset by the $0.9 million proceeds from the sale of real estate. In Fiscal 2014, investing cash flow activities consisted of purchases of property and equipment, which were primarily related to costs associated with new full-price retail stores, information technology initiatives and full-price retail store and restaurant remodeling.
Financing Activities:
During Fiscal 2015 and Fiscal 2014, financing activities used $91.5 million and $47.6 million of cash, respectively. In Fiscal 2015, we decreased debt as cash provided by our operating activities and the proceeds from the sale of Ben Sherman exceeded our cash requirements for capital expenditures, contingent consideration payments and dividends. In Fiscal 2014, we also decreased debt as cash provided by our operating activities exceeded our cash needs for capital expenditures, dividends and contingent consideration payments. In Fiscal 2015, we paid dividends of $16.6 million and $12.5 million for the final payment for the contingent consideration arrangement related to the Lilly Pulitzer acquisition, while in Fiscal 2014 we paid dividends of $13.9 million and contingent consideration of $2.5 million.
Liquidity and Capital Resources
We had $91.5 million outstanding as of January 28, 2017 under our $325 million Fourth Amended and Restated Credit Agreement
("U.S. Revolving Credit Agreement") compared to,
$44.0 million of borrowings outstanding as of January 30, 2016 under our Third Amended and Restated Credit Agreement ("Prior Credit Agreement"). On May 24, 2016, the U.S. Revolving Credit Agreement amended and restated the Prior Credit Agreement to (i) increase the borrowing capacity of the facility, (ii)among other things, (1) extend the maturity of the facility
from July 2024 to March 2028 and
(iii)(2) modify certain
other provisions
and restrictions of the
Prioragreement. Pursuant to the amended agreement, the interest rate applicable to our borrowings under the U.S. Revolving Credit
Agreement. Agreement will be based on either the Term Secured Overnight Financing Rate plus an applicable margin of 135 to 185 basis points or prime plus an applicable margin of 35 to 85 basis points.The U.S. Revolving Credit Agreement generally (i)(1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (ii)(2) accrues variable-rate interest (weighted average borrowinginterest rate of 2.3%6% as of January 28, 2017)2023), unused line fees and letter of credit fees based upon average utilization or unused availability, or utilization, (iii)as applicable, (3) requires periodic interest payments with principal due at maturity (May 2021) and (iv)(4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and substantially all of its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
To the extent cash flow needs exceed cash flow provided by our operations we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any. Our credit facility is also used to finance trade letters of credit for product purchases, which reduce the amounts available under our line of credit when issued. As of January 28, 2017, $4.7 million of letters of credit were outstanding against our U.S. Revolving Credit Agreement. After considering these limitations and the amount of eligible assets in our borrowing base, as applicable, as of January 28, 2017, we had $185.5 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
Covenants, Other Restrictions and Prepayment Penalties
The U.S. Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the U.S. Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (i)(1) incur debt, (ii)(2) guaranty certain obligations, (iii)(3) incur liens, (iv)(4) pay dividends to shareholders, (v)(5) repurchase shares of our common stock, (vi)(6) make investments, (vii)(7) sell assets or stock of subsidiaries, (viii)(8) acquire assets or businesses, (ix)(9) merge or consolidate with other companies or (x)(10) prepay, retire, repurchase or redeem debt.
Additionally, the U.S. Revolving Credit Agreement contains a financial covenant that applies only if excess availability under the agreement for three consecutive business days is less than the greater of (i)(1) $23.5 million or (ii)(2) 10% of availability. In such case, our fixed charge coverage ratio as defined in the U.S. Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the U.S. Revolving Credit Agreement of more than the greater of (i)(1) $23.5 million or (ii)(2) 10% of availability for 30 consecutive days.
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the U.S. Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we entered intoamended the U.S. Revolving Credit Agreement. During Fiscal 20162022 and as of January 28, 2017,2023, no financial covenant testing was required pursuant to our U.S. Revolving Credit Agreement or Prior Credit Agreement as the minimum availability threshold was met at all times. As of January 28, 2017,2023, we were compliant with all applicable covenants related to the U.S. Revolving Credit Agreement.
Other Liquidity Items:
We anticipate thatOperating Lease Commitments:
In the ordinary course of business, we will be ableenter into long-term real estate lease agreements for our direct to satisfyconsumer locations, which include both retail store and food and beverage locations, and office and warehouse/distribution space, as well as leases for certain equipment. Our real estate leases have varying terms and expirations and may have provisions to extend, renew or terminate the lease agreement at our ongoing cash requirements, which generally consistdiscretion, among other provisions. Our real estate lease terms are typically for a period of working capital10 years or less and typically require monthly rent payments with specified rent escalations during the lease term. Our real estate leases usually provide for payments of our pro rata share of real estate taxes, insurance and other operating activity needs, capital expenditures, interestexpenses applicable to the property, and certain of our leases require payment of sales taxes on rental payments. Also, our direct to consumer location leases often provide for contingent rent payments based on sales if certain sales thresholds are achieved. Base rent amounts specified in the
leases are included in determining the operating lease liabilities included in our consolidated balance sheet, while amounts for real estate taxes, sales tax, insurance, other operating expenses and contingent rent applicable to the properties pursuant to the respective leases are not included in determining the operating lease liabilities included in our consolidated balance sheets.
These leases require us to make a substantial amount of cash payments on our debt and dividends, if any, primarily from positive cash flow from operations supplemented by borrowingsan annual basis. Base rent amounts required to be paid in the future over the remaining lease terms under our U.S. Revolving Credit Agreement. Our needexisting leases as of January 28, 2023, totaled $336 million, including $83 million, $66 million, $50 million, $43 million and $30 million of required payments in each of the next five years. Additionally, amounts for working capital is typically seasonal withreal estate taxes, sales tax, insurance, other operating expenses and contingent rent applicable to the greatest requirements generallyproperties pursuant to the respective operating leases are required to be paid in the fall and spring of each year. Our capital needs will depend on many factors including our growth rate,future, but the need to finance inventory levels and the success of our various products. We anticipate that at the maturity of the U.S. Revolving Credit Agreement or as otherwise deemed appropriate, we will be able to refinance the facility or obtain other financing on terms availableamounts payable in future periods are, in most cases, not quantified in the market at that time. The terms of any future financing arrangementslease agreement or are dependent on factors which may not be known at this time. Such amounts incurred in Fiscal 2022 totaled $43 million.
Refer to Note 1 and Note 6 of our consolidated financial statements for additional disclosures about our operating lease agreements and related commitments.
Capital Expenditures:
Our anticipated capital expenditures for Fiscal 2023 are expected to be approximately $90 million, as favorablecompared to $47 million in Fiscal 2022. The planned increase is primarily due to increased investment in our various technology systems initiatives, the commencement of a significant multi-year project at our Lyons, Georgia distribution center to modernize the operations into a more efficient e-commerce distribution center for our brands, increased Marlin Bar openings, the addition of Johnny Was, which is increasing its store count by 10 or more stores this year and increases in store openings in our other brands. Our capital expenditure amounts in future years will fluctuate from the amounts incurred in prior years depending on the investments we believe appropriate for that year to support future expansion of our businesses.
Dividends:
On March 21, 2023, our Board of Directors approved a cash dividend of $0.65 per share payable on April 28, 2023 to shareholders of record as the terms of the current agreement or current market terms.
Weclose of business on April 14, 2023. This dividend amount is an 18% increase over the dividend paid in the Fourth Quarter of Fiscal 2022.Although we have paid dividends in each quarter since we became a public company in July 1960. However,1960, including $35 million in total, or $2.20 per common share, in Fiscal 2022, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our U.S. Revolving Credit Agreement,credit facility, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends or repurchase shares in the short term based on our expectation of operating cash flows in future periods subject to the terms and conditions of the U.S. Revolving Credit Agreement,our credit facility, other debt instruments and applicable law. All cash flow from operations will not be paid out as dividends in all periods.dividends. For details about limitations on our ability to pay dividends, see the discussion of theour U.S. Revolving Credit Agreement above.above and in Note 5 of our consolidated financial statements contained in this report.
Share Repurchases:
As disclosed in our Quarterly Report on Form 10-Q for the Third Quarter of Fiscal 2021, and in subsequent filings, on December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. Pursuant to the Board of Directors’ authorization, we entered into a $100 million open market stock repurchase program (Rule 10b5-1 plan) to acquire shares of our stock, under which we repurchased shares of our stock totaling: (1) $8 million in the Fourth Quarter of Fiscal 2021, (2) $43 million in the First Quarter of Fiscal 2022, (3) $30 million in the Second Quarter of Fiscal 2022, (4) $14 million in the Third Quarter of Fiscal 2022, and (5) $5 million in the Fourth Quarter of Fiscal 2022, which completed the purchases pursuant to the open market stock repurchase
Contractual Obligations65
The following table summarizes
program. Over the life of the $100 million open market repurchase program we repurchased 1.1 million, or 6% of our contractual cash obligations,outstanding shares at the commencement of the program for an average price of $90 per share.
After considering the repurchases during Fiscal 2021 and Fiscal 2022, as of January 28, 2017, by future period (in thousands):
|
| | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | Less Than 1 year | 1-3 Years | 3-5 Years | More Than 5 Years | Total |
| Contractual Obligations: | | | | | |
| U.S. Revolving Credit Agreement (1) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Operating leases (2) | 66,226 |
| 121,924 |
| 110,295 |
| 175,985 |
| 474,430 |
|
| Minimum royalty and advertising payments pursuant to royalty agreements | 5,885 |
| 9,070 |
| 7,596 |
| — |
| 22,551 |
|
| Letters of credit | $ | 4,717 |
| — |
| — |
| — |
| 4,717 |
|
| Other (3)(4)(5) | — |
| — |
| — |
| — |
| — |
|
| Total | $ | 76,828 |
| $ | 130,994 |
| $ | 117,891 |
| $ | 175,985 |
| $ | 501,698 |
|
| |
(1) | Principal and interest amounts payable in future periods on our U.S. Revolving Credit Agreement have been excluded from the table above, as the amount that will be outstanding and interest rate during any fiscal year will be dependent upon future events which are not known at this time. During Fiscal 2016, we paid $2.6 million of interest. |
| |
(2) | Amounts to be paid in future periods for real estate taxes, insurance, other operating expenses and contingent rent applicable to the properties pursuant to the respective operating leases have been excluded from the table above, as the amounts payable in future periods are, in most cases, not quantified in the lease agreements and are dependent on factors which are not known at this time. Such amounts incurred in Fiscal 2016 totaled $23.9 million. |
| |
(3) | Amounts totaling $10.9 million of deferred compensation obligations, which are included in other non-current liabilities in our consolidated balance sheet as of January 28, 2017, have been excluded from the table above, due to the uncertainty of the timing of the payment of these obligations, which are generally at the discretion of the individual employees or upon the death of the individual, respectively. |
| |
(4) | An environmental reserve liability of $1.2 million, which is included in other non-current liabilities in our consolidated balance sheet as of January 28, 2017 and discussed in Note 6 to our consolidated financial statements included in this report, has been excluded from the above table, as we were not contractually obligated to incur these costs as of January 28, 2017 and the timing of payment, if any, is uncertain. |
| |
(5) | Non-current deferred taxes, which is the net amount of deferred tax liabilities and deferred tax assets, of $13.6 million included in our consolidated balance sheet as of January 28, 2017 and discussed in Note 8 to our consolidated financial statements included in this report have been excluded from the above table, as deferred income tax liabilities are calculated based on temporary differences between the tax basis and book basis of assets and liabilities, which will result in taxable amounts in future years when the amounts are settled at their reported financial statement amounts. As the results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods, scheduling deferred income tax amounts by period could be misleading. |
Our anticipated capital expenditures for Fiscal 2017, which are excluded from2023, there were no amounts remaining under the table above as we are generally not contractually obligated to pay these amounts asopen market repurchase program and $50 million remaining under the Board of January 28, 2017, are expected to be approximately $55 million. These expenditures are expected to consist primarily of costs associated with information technology initiatives, including e-commerce capabilities; opening, relocating and remodeling full-price retail stores and restaurants; and facilities enhancements. Our capital expenditure amounts in future years may increase or decrease from the amounts incurred in prior years or the amount expected for Fiscal 2017 depending on the information technology initiatives, full-price retail store and restaurant openings, relocations and remodels and other infrastructure requirements deemed appropriate for that year to support future expansion of our businesses.
Off Balance Sheet Arrangements
Directors’ authorization.Other Liquidity Items:
We have not entered into agreements which meet the SEC'sSEC’s definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments to or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATESThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP in a consistent manner. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of GAAP requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including those discussed below. We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that we have appropriately applied our critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies, below, our consolidated statements of operations could be materially misstated.
A detailed summary of significant accounting policies is included in Note 1 toof our consolidated financial statements contained in this report. The following is a brief discussion of the more significant estimates, assumptions and judgments we use or the amounts most sensitive to change from outside factors.
Revenue Recognition and Accounts Receivable
Our revenue consists of direct to consumer sales, which includesincluding our retail store, e-commerce and restaurantfood and beverage operations, and wholesale sales, as well as wholesale sales. We consider revenue realized or realizable and earned when the following criteria are met: (1) persuasive evidence of an agreement exists, (2) delivery has occurred, (3) our price to the buyerroyalty income, which is fixed or determinable and (4) collectibility is reasonably assured.
An area of judgment affecting reported revenues and net earnings involves estimating sales reserves, which represent a portion of revenues not expected to be realized. We record our revenues net of estimated discounts, allowances, co-operative advertising, operational chargebacks and returns, as appropriate. As certain allowancesincluded in royalties and other deductionsincome in our consolidated statements of operations. We recognize revenue when performance obligations under the terms of the contracts with our customers are not finalized until the end of a season, program or other eventsatisfied, which may not have occurred yet,generally occurs when we estimate such discounts and allowances on an ongoing basis. Significant considerations in determiningdeliver our estimates for discounts, allowances, operational chargebacks and returns for wholesale customers may include historical and current trends, agreements with customers, projected seasonal results, an evaluation of current economic conditions, specific program or product expectations and retailer performance. Actual discounts and allowancesproducts to our wholesale customers have not differed materially from our estimates in prior periods. As of January 28, 2017, our total reserves for discounts, returns and allowances for our wholesale businesses were $9.3 million and, therefore, if the allowances changed by 10% it would have had a pre-tax impact of $0.9 million on earnings in Fiscal 2016. The substantial majority of these reserves relate to our Lanier Apparel business as of January 28, 2017.
As direct to consumer
products may be returned after the dateand wholesale customers.In our direct to consumer operations, which represented 80% of original purchase by the consumer, we mustour consolidated net sales in Fiscal 2022, consumers have certain rights to return product within a specified period and are eligible for certain point of sale discounts. We make estimates of reserves for products which were sold prior to the balance sheet date but that we anticipate may be returned by the consumer subsequent to that date. The determination of direct to consumer return reserve amounts requires judgment and consideration of historical and current trends, evaluation of current economic trends and other factors. Our historical estimates of direct to consumer return reserves have not differed materially from actual results. As of January 28, 2017,2023, our direct to consumer return reserve liability was $3.0 million.$12 million compared to $11 million as of January 29, 2022. A 10% change in the direct to consumer sales return reserve as of January 28, 20172023 would have had a $0.3an impact of less than $1 million pre-tax impact on net earnings in Fiscal 2016.
For2022.In the ordinary course of our wholesale receiveables,operations, we offer discounts, allowances and cooperative advertising support to some of our wholesale accounts for certain products. As certain allowances, other deductions and returns are not finalized until the end of a season, program or other event which may not have occurred yet, we estimate such discounts, allowances and returns on an ongoing basis to estimate the consideration from the customer that we expect to
ultimately receive. Significant considerations in determining our estimates for these amounts for wholesale customers may include historical and current trends, agreements with customers, projected seasonal or program results, an evaluation of current economic conditions, specific program or product expectations and retailer performance. As of January 28, 2023, our total reserves for discounts, returns and allowances for our wholesale businesses were $4 million compared to $3 million as of January 29, 2022. If these allowances changed by 10% it would have had an impact of less than $1 million on net earnings in Fiscal 2022.
We extend credit to certain wholesale customers based on an evaluation of the customer’s financial capacity and condition, usually without requiring collateral. We recognize estimated reservesprovisions for bad debtscredit losses based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions, and anticipated trends, and the risk characteristics of the receivables, each of which is subjective and requires certain assumptions. Actual charges for uncollectible amounts have not differed materially from our estimates in prior periods. As of both January 28, 2017,2023 and January 29, 2022, our allowanceprovision for doubtful accountscredit losses for our wholesale receivables was $0.8 million, and therefore, if$1 million. If the allowanceprovision for doubtful accountscredit losses changed by 10% it would have had a pre-taxan impact of $0.1less than $1 million on net earnings in Fiscal 2016. While the amounts deemed uncollectible have not been significant in recent years if, in the future, amounts due from significant customer(s) were deemed to be uncollectible as a result of events that occur subsequent to January 28, 2017 this could result in a material charge to our consolidated statements of operations in future periods.
For operating group reporting, our inventory is carried at the lower of the first-in, first-out (FIFO) method(“FIFO”) cost or market. We continually evaluate the composition of our inventories substantially all of which is finished goods inventory, for identification of distressed inventory. In performing this evaluation we consider slow-turning products, an indication of lack of consumer acceptance of particular products, prior seasons' fashion products and current levels of replenishment program products as compared to future sales estimates.inventory at least quarterly. We estimate the amount of goods that we will not be able to sell in the normal course of business and write down the value of these goods as necessary. As the amount to be ultimately realized for the goods is not necessarily known at period end, we must utilizeuse certain assumptions considering historical experience, inventory quantity, quality, age and mix, historical sales trends, future sales projections, consumer and retailer preferences, market trends, general economic conditions and our anticipated plans to sell the inventory. Also, we provide an allowance for shrinkage, as appropriate, for the period between the last count and each balance sheet date. Historically, our estimates of inventory markdowns and inventory shrinkage have not varied significantly from actual results.
For consolidated financial reporting, $133.8$204 million, or 94%93%, of our inventories arewere valued at the lower of the last-in, first-out (LIFO) method(“LIFO”) cost or market after deducting the $58.1$76 million LIFO reserve as of January 28, 2017.2023. The remaining $8.4$16 million of our inventories arewere valued at the lower of FIFO cost or market as of January 28, 2017.2023. LIFO reserves are based on the Producer Price Index (PPI)(“PPI”) as published by the United States Department of Labor. We write down inventories valued at the lower of LIFO cost or market when LIFO cost exceeds market value. We deem LIFO accounting adjustments to not only include changes in the LIFO reserve, but also changes in markdown reserves which are considered in LIFO accounting. As our LIFO inventory pool does not correspond to our operating group definitions, LIFO inventory accounting adjustments are not
allocated to the respective operating groups. Thus, the impact of accounting for inventories on the LIFO method is reflected in Corporate and Other for operating group reporting purposes.
As of January 28, 2017,2023, we had recorded a reserve of $2.2$4 million related to inventory on the lower of FIFO cost or market method and for inventory on the lower of LIFO cost or market method with markdowns in excess of our LIFO reserve. A 10% change in the amount of such markdowns would have a pre-taxhad an impact of $0.2less than $1 million on net earnings in Fiscal 2016.2022. A change in the markdowns of our inventory valued at the lower of LIFO cost or market method that is not marked down in excess of our LIFO reserve typically would not be expected to have a material impact on our consolidated financial statements. A change in inventory levels, the mix of inventory by category or the mix by inventory category,PPI at the end of future fiscal years compared to inventory balancesamounts as of January 28, 20172023 could result in a material impact on our consolidated financial statements as such a change may erode portions of our earlier base year layers for purposes of making our annual LIFO computation. Additionally, a change in the PPI as published by the United States Department of Labor as compared to the indexes as of January 28, 2017 could result in a material impact on our consolidated financial statements as inflation or deflation would change the amount of our LIFO reserve.
future.Given the significant amount of uncertaintiesuncertainty surrounding the year-end LIFO calculation, including the estimate of year-end inventory balances, the proportion of inventory in each inventory category and the year-end PPI, we have not typically do not adjustadjusted our LIFO reserve in the first three quarters of a fiscal year. ThisHowever, due to the significant levels of inflation throughout Fiscal 2022, we did recognize an adjustment to the LIFO reserve in each quarter of Fiscal 2022. Our policy of typically not adjusting the LIFO reserve at interim periods may result in significant LIFO accounting adjustments in the fourth quarter of the fiscal year resulting from the year over year changes in inventory levels, the PPI and markdown reserves.year. We do recognize on a quarterly basischanges in markdown reserves during each of the first three quartersquarter of the fiscal year changes in markdown reserves as those amounts can be estimated on a quarterlyan interim basis.
Accounting for business combinations requires that assets and liabilities, including inventories, are recorded at fair value at acquisition. In accordance with GAAP, the definition of fair value of inventories acquired generally will equal the expected sales price less certain costs associated with selling the inventory, which may exceed the actual cost of producing the acquired inventories. Based on the inventory turn of the acquired inventories, amounts are recognized as additional cost of goods sold in the periods subsequent to the acquisition as the acquired inventory is sold in the ordinary course of business. In determining the fair value of the acquired inventory, as well as the appropriate period to recognize the charge in our consolidated statements of operations as the acquired inventory is sold, we must make certain assumptions regarding costs incurred prior to acquisition for the acquired inventory, an appropriate profit allowance, estimates of the costs to sell the inventory and the timing of the sale of the acquired inventory. Such estimates involve significant uncertainty, and the use of different assumptions could have a material impact on our consolidated financial statements.
Goodwill and Intangible Assets, net
The cost of each acquired business is allocated to the individual tangible and intangible assets acquired and liabilities assumed or incurred as a result of thean acquisition based on their estimated fair values. The assessment of the estimated fair values of assets and liabilities acquired requires us to make certain assumptions regarding the useabout a number of the acquired assets, anticipated cash flows, probabilities of cash flows, discount rates and otheruncertain factors. In most of our acquisitions, significantOur intangible assets and goodwill were acquired resulting in $175.2 million of intangible assets and $60.0 million of goodwill in our consolidated balance sheet as of January 28, 2017.
Our intangibles assets primarily consist of trademarks, reacquired rightsas well as customer relationships and customer relationships.reacquired
rights. Goodwill is recognized as the amount by which the cost to acquire a company or group of assetsbusiness exceeds the fair value of assets acquired less any liabilities assumed at acquisition. See Note 4 in our consolidated financial statements included in this report for further details about our various intangible assets and goodwill amounts.
The fair values and useful lives of theseour acquired intangible assets and goodwill are estimated based on our assessment as well as independent third party appraisals, in some cases. Such valuations, whichAt acquisition, as well as any subsequent impairment tests, assumptions and estimates about various items with significant uncertainty are dependent upon a number of uncertain factors, may include a discounted cash flow analysis of anticipated revenues and expenses or cost savings resulting fromrequired to determine the acquired intangible asset using an estimate of a risk-adjusted market-based cost of capital as the discount rate. The valuationfair value of intangible assets and goodwill requiresgoodwill. When determining the fair value, significant judgment due to the variety of uncertain factors, includingassumptions may include our planned use of the intangible assetsasset as well as estimates of net sales, royalty income, operating income, growth rates, royalty rates for the trademarks, a risk-adjusted market based cost of capital as the discount rates and income tax rates, among other factors. Our fair value assessment may also consider any comparable market transactions. The use of different assumptions related to these uncertain factors at acquisition could result in a material change to the amounts of intangible assets and goodwill initially recorded at acquisition, which could result in a material impact on our consolidated financial statements.
Trademarks with indefinite lives, which totaled $225 million as of January 28, 2023, and goodwill, which totaled $120 million as of January 28, 2023, are not amortized but instead evaluated, either qualitatively or quantitatively, for impairment annually as of the first day of theour fourth quarter, of our fiscal year or more frequently if events or circumstances indicate that the intangible asset or goodwill might be impaired. The evaluationassessment of the recoverabilityfair value of trademarks with indefinite lives and goodwill often includes valuationsassessments based on a discounted cash flow analysis. This analysis which is typically
similar to the analysis performed at acquisition. This approach isacquisition and dependent upon a number of uncertain factors, including those used in the initial valuation of the intangible assets and goodwillat acquisition as listed above. Such estimates involve significant uncertainty, and if our plans or anticipated results change, the impact on our financial statements could be significant. If this analysis indicates an impairment of a trademark with an indefinite useful life or goodwill, the amount of the impairment is recognized in the consolidated financial statements based on the amount that the carrying value of the intangible asset or goodwill exceeds the estimated fair value ofvalue. While we have the asset.
Amortization of intangible assets with finite lives, which primarily consist of reacquired rights and customer relationships, is recognized over their estimated useful lives using the straight line method of amortization or another method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. We amortize our intangible assets with finite livesoption for periods of up to 20 years. The determination of an appropriate useful lifea qualitative test, we performed a quantitative test for amortization is based on the remaining contractual period, as applicable, our plans for the intangible asset as well as factors outside of our control, including customer attrition. Intangible assets with finite lives are reviewed for impairment periodically if events or changes in circumstances indicate that the carrying amount may not be recoverable. If expected future discounted cash flows from operations are less than their carrying amounts, an asset is determined to be impaired and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. Amortization related to intangible assets with finite lives totaled $2.2 million during Fiscal 2016 and is anticipated to be approximately $2.2 millioneach test date in Fiscal 2017.
Intangible asses2022, Fiscal 2021 and
goodwill acquired in recent transactions are naturally more susceptible to impairment, primarily due to the fact that they are recorded at fair value based on recent operating plans and macroeconomic conditions present at the time of acquisition. Consequently ifFiscal 2020.If our operating results, plans for the acquired business and/or macroeconomic conditions, anticipated results or other assumptions change after an acquisition, it could result in the impairment of the acquired assets. Aintangible assets or goodwill. Also, a change in macroeconomic conditions may not only impact the estimated operating cash flows used in our cash flow models but may also impact other assumptions used in our analysis, including but not limited to, the risk-adjusted market-based cost of capital and/or discount rates. Additionally,
During Fiscal 2020, we are requiredrecognized impairment charges for goodwill and intangible assets of Southern Tide of $60 million, resulting in the impairment of all goodwill for Southern Tide and the majority of the indefinite-lived intangible assets for Southern Tide. As noted above, the use of different assumptions related to ensure that assumptions used to determinethe estimated fair value in our analyses are consistent withof the assumptions a hypothetical market participant would use. Therefore the cost of capital discount rates used in our analyses may increase or decrease based on market conditions and trends regardless of whether our actual cost of capital changed. As we acquired Southern Tide amounts could have resulted in Fiscal 2016a different fair value and recorded a significant amount of intangible assets and goodwill related to this acquisition the assets recognized are more sensitive to changesdifferent impairment charge or charges in assumptions than our other intangible assets and goodwill amounts.
different periods. In Fiscal
2016, Fiscal 20152022 and Fiscal
2014,2021, no impairment charges related to intangible assets or goodwill were
recognized.recognized based on our impairment tests in those periods.Indefinite-lived intangible assets and goodwill that have been recently acquired or impaired are typically much more sensitive to changes in assumptions than other intangible asset and goodwill amounts as those amounts have recently been recorded at or adjusted to fair value. Accordingly, the $78 million of indefinite-lived trademarks and $97 million of goodwill associated with Johnny Was, which was acquired in Fiscal 2023, have the least excess of fair value over book value as of January 28, 2023. Thus, if the Johnny Was business does not achieve the anticipated growth and operating income in future years or if interest rates or tax rates increase, the Johnny Was intangible assets and/or goodwill could be determined to be impaired in the future.
Intangible assets with finite lives totaled $58 million as of January 28, 2023 and primarily consist of customer relationships, certain trademarks and reacquired rights. These assets are amortized over their estimated useful lives and reviewed for impairment periodically if events or changes in circumstances indicate that the carrying amount may not be recoverable. If the assets are determined to not be recoverable on an undiscounted cash flow basis and the expected future discounted cash flows of the asset group are less than the carrying amount, an asset group is impaired and a loss is recorded for the amount by which the carrying value of the asset group exceeds its fair value.
Other Fair Value Measurements
For many assets and liabilities, the determination of fair value may not require the use of many assumptions or other estimates. However, in some cases the assumptions or inputs associated with the determination of fair value as of a measurement date may require the use of many assumptions andwhich may be internally derived or otherwise unobservable. These assumptions may include the planned use of the assets, anticipated cash flows, probabilities of cash flows, discount rates and other factors. We utilizeuse certain market-based and internally derived information and make assumptions about the information in (1) determining the fair values of assets and liabilities acquired as part of a business combination, as well asincluding the acquisition of Johnny Was in other circumstances,Fiscal 2022, (2) adjusting previously recordedrecognized assets and liabilities to fair value at each balance sheet date, including the fair value of any contingent consideration obligations and any lease loss obligations incurred, and(3) assessing recognized assets for impairment, including intangible assets, goodwill and other non-current assets.
From time to time, we may recognize asset impairment or other charges related to certain lease assets, property and equipment as discussed above.
As noted above,or other amounts associated with us exiting direct to consumer locations, office space or otherwise. In these cases, we must determine the cost of each acquired business is allocatedimpairment charge related to the individual tangibleasset group if the assets are determined to not be recoverable on an undiscounted cash flow basis and intangible assets acquired and liabilities assumed or incurred as a resultthe expected future discounted cash flows of the acquisition based on itsasset group are less than the carrying amount. While estimated fair value. The assessmentcash outflows can be determined, in certain cases, if there is an underlying lease, the timing and amount of estimated cash inflows for any sublease rental income and other costs are often uncertain, particularly if there is not a sub-lease agreement in place. Also, we could subsequently negotiate a lease termination agreement that would differ from the estimated fair valuesamount. Thus, our estimate of assets and liabilities acquired requires usan impairment charge related to make certain assumptions regarding the use of the acquired assets, anticipated cash flows, probabilities of cash flows, discount rates and other factors. To the extentan asset group could change significantly as we obtain better information to revise the allocation becomes available during the allocation period the allocation of the purchase price will be adjusted. Should information become available after the allocation period indicating that adjustments to the allocation are appropriate, those adjustments will be included in operating results.
For the determination of fair value for assets and liabilities acquired as part of a business combination, adjusting previously recorded assets and liabilities to fair value at each balance sheet date and assessing, and possibly adjusting, recognized assets for impairment, the assumptions, or the timing of changes in these assumptions, that we make regarding the valuation of these assets could differ significantly from the assumptions made by other parties. The use of different assumptions could result in materially different valuations for the respective assets and liabilities, which would impact our consolidated financial statements.
future periods.In connection with certain acquisitions, including the acquisition of TBBC in 2017, we have entered into contingent consideration arrangements, which are recognized at fair value at acquisition and each subsequent balance sheet date, to compensate the sellers if certain targets are achieved. For aThe valuation of these contingent consideration arrangement, if any, as of the date of acquisition we must determine the fair value of the contingent consideration which would estimate the discounted fair value of any expected
payments. Such valuationamounts requires assumptions regarding the anticipated cash flows,amounts and probabilities of cash flows, discount rates and other factors, each requiring a significant amount of judgment. Subsequent to the date of acquisition, we are required to periodically adjust the liability for the contingent consideration to reflect the fair value of the contingent consideration by reassessing any valuation assumptions as of the balance sheet date.
From time to time, we may recognize certain obligations related to certain leased space associated with exiting retail or office space. In these cases, we must determine the net loss related to the space if the anticipated cash outflows for the space exceed the estimated cash inflows related to the space. While estimated cash outflows are generally known since there is an underlying lease, the estimated cash inflows for sublease rental income and other costs are often very subjective if there is not a sub-lease agreement in place at that time since those amounts are dependent upon many factors including, but not limited to, whether a sub-tenant will be obtained, the time required to obtain the sub-tenant as well as the rent payments and any tenant allowances agreed with the sub-tenant as part of the future lease negotiations. Also, it is possible that we could negotiate a lease termination in the future that would differ from the amount of the required payments pursuant to the lease agreement.
As of January 30, 2016, we have amounts in non-current liabilities related to discontinued operations totaling $5.4 million related to retained leases associated with our former Ben Sherman operations. In Fiscal 2016 we took a charge of $2.8 million related to these retained lease obligations based on our updated assessment of the losses associated with the retained lease obligations. As we do not currently have a sub-lease tenant identified for the spaces or negotiated lease terminations with landlords, we have made certain assumptions about the estimated cash inflows that could partially offset cash outflows for the in-place leases. Our estimate of the liability related to the lease could change significantly as we obtain better information in the future or if our current assumptions do not materialize. The assumptions made by another party related to such leases could be different than the assumptions made by us. See Note 13Income Taxes
Income taxes included in our consolidated financial statements includedare determined using the asset and liability method, in this reportwhich income taxes are recognized based on amounts of income tax payable or refundable in the current year as well as the impact of any items that are recognized in different periods for further discussionconsolidated financial statement reporting purposes and tax return reporting purposes. Significant judgment is required in determining our income tax provision as there are many transactions and calculations where the ultimate tax outcome is uncertain and tax laws and regulations are often complex and subject to interpretation and judgment. These uncertainties relate to the recognition or changes to the realizability of discontinued operations and the related lease obligations.
Income Taxes
We recognize deferred tax assets,
to the extent we believeloss carry-forwards, valuation allowances, uncertain tax positions and other matters. Our assessment of these
assets are more likely than not to be realized. In making such a determination, we consider all available positiveincome tax matters requires our consideration of taxable income and
negative evidence, includingother items for historical periods, projected future taxable income, projected future reversals of existing
taxable temporarytiming differences,
projected future taxable income, taxable income in carryback years, tax-planningtax planning strategies and
resultsother information.The use of recent operations. Valuation allowances are established when we determine that it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
Valuation allowances, which total $4.1 million as of January 28, 2017, are analyzed periodically and adjusted as events occur or circumstances change that would indicate adjustments to the valuation allowances are appropriate. Valuation allowance amounts could have a material impact on our consolidated statements of operations in the future ifdifferent assumptions related to valuation allowances changed significantly. Additionally, the timing of recognition ofincome tax matters above, as well as a valuation allowance or any reversal of a valuation allowance requires a significant amount of judgment to assess all the positive and negative evidence, particularly when operating resultsshift in the respective jurisdiction have changed or are expected to change from losses to income or from income to losses. As realization of deferred tax assets and liabilities is dependent upon future taxable income in specificearnings among jurisdictions, changes in tax laws, andenacted rates and shifts in the amount of taxable income among state and foreign jurisdictions may have a significant impact on the amount of benefit ultimately realized for deferred tax assets and liabilities.
As a global company, we are subject to income taxes in a number of domestic and foreign jurisdictions. Therefore, our income tax provision involves many uncertainties due to not only the timing differences of income for financial statement reporting and tax return reporting, but also the application of complex tax laws and regulations, which are subject to interpretation and management judgment. The use of different assumptions or a change in our assumptions related to book to tax timing differences, our determination of whether foreign investments or earnings are permanently reinvested, the ability to realize uncertain tax positions, the appropriateness of valuation allowances, a reduction in valuation allowances or other considerations, transfer pricing practices, the impact of our tax planning strategies and the jurisdictions or significance of earnings in future periods each could have a significant impact on our income tax rate. Additionally, factors impacting income taxes including changes in tax laws or interpretations, court case decisions, statute of limitation expirations or audit settlements, each could have a significant impact on our income tax rate. The ultimate resolution of our income tax matter uncertainties may differ significantly from the anticipated resolution included in our current assumptions and estimates, which could have a significant impact on our financial statements. An increase in our consolidated income tax expense rate from 37.0%23.2% to 38.0%24.2% during Fiscal 20162022 would have reduced net earnings by $0.9$2 million.
Income tax expense recorded during interim periods is generally based on the expected tax rate for the year, considering projections of earnings and book to tax differences as of the balance sheet date, subject to certain limitations associated with separate foreign jurisdiction losses in interim periods. The tax rate ultimately realized for the year may increase or decrease due to actual operating results or book to tax differences varying from the amounts on which our interim calculations were based. Any changes in assumptions related to the need for a valuation allowance, the ability to realize an uncertain tax position, changes in enacted tax rates, the expected operating results in total or by jurisdiction for the year, or other assumptions are accounted for in the period in which the change occurs. As certain of our foreign operations are in a loss position and
realization of a future benefit for the losses is uncertain, a significant variance in losses in such jurisdictions from our expectations can have a significant impact on our expected annual tax rate. The recognition of the benefit of losses expected to be realized may be limited in an interim period and may require adjustments to tax expense in the interim period that yield an effective tax rate for the interim period that is not representative of the expected tax rate for the full year.
See Note 8 in10 of our consolidated financial statements included in this report for further discussion of income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 inof our consolidated financial statements included in this report for a discussion of recent accounting pronouncements issued by the FASB that we have not yet adopted that are expected to possiblymay have a material effect on our financial position, results of operations or cash flows.flows in the future.
SEASONALITY
SEASONALITY
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. For information regarding the impact of seasonality impact on individual operating groups and for our total company,business operations, see Part I, Item 1, Business, included in this report.
Item 7A.
Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risk in the ordinary course of business from changes in interest rates, foreign currency exchange rates and commodity prices. In recent years, we have not used financial instruments to mitigate our exposure to these risks, and we do not use financial instruments for trading or other speculative purposes. However, we could use financial instruments to mitigate our exposure to these risks in the future.
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our indebtedness,U.S. Revolving Credit Agreement when we have any borrowings outstanding, which could impact our financial condition and results of operations in future periods. We may attempt to limit the impact of interest rate changes on earnings and cash flow, primarily through a mix of variable-rate and fixed-rate debt, although at times all of our debt may be either variable-rate or fixed-rate debt. Further at times, we may enter into interest rate swap arrangements related to certain of our variable-rate debt in order to fix the interest rate if we determine that our exposure to interest rate changes is higher than optimal. Our assessment also considers our need for flexibility in our borrowing arrangements resulting from the seasonality of our business, anticipated future cash flows and our expectations about the risk of future interest rate changes, among other factors. We continuously monitor interest rates to consider the sources and terms of our borrowing facilities in order to determine whether we have achieved our interest rate management objectives. We do not enter into debt agreements or interest rate hedging transactions on a speculative basis.
As of January 28, 2017, all of our $91.5 million of debt outstanding was subject to variable interest rates. Our U.S. Revolving Credit Agreement accrues interest based on variable interest rates while providing the necessary borrowing flexibility we require due to the seasonality of our business and our need to fund certain product purchases with trade letters of credit.
DuringAdditionally, for the amounts of unused credit under the U.S. Revolving Credit Agreement we pay unused line fees, which are based on a specified percentage of the unused line amounts.As of January 28, 2023, we had $119 million of borrowings outstanding under our U.S. Revolving Credit Agreement, after borrowing amounts to fund the Johnny Was acquisition in September 2022. We do not consider that amount to necessarily be indicative of the average borrowings outstanding expected for Fiscal 2016,2023 due to our expectation that we will reduce debt levels during Fiscal 2023, particularly after the first quarter. Our expected cash flows from operations is expected to be sufficient to fund our planned capital expenditures and dividends as well as allow for the repayment of some of our outstanding debt in Fiscal 2023. As of March 24, 2023, the weighted average interest expenserate on our borrowings was $3.4 million. Based6%, which includes borrowings pursuant to arrangements based on the average amountTerm Secured Overnight Financing Rate or the lender’s prime rate plus an applicable margin. Using the $119 million of variable-rate debt outstanding in Fiscal 2016,as of January 28, 2023 as an example, a 100 basis point increase in interest rates would have increased ourincrease interest expense by $1.0less than $1 million. To the extent that the amounts outstanding under our variable-rate lines of credit increase or decrease, our
Foreign Currency Risk
We have exposure to foreign currency exchange rate changes in interest rates would also change.
We anticipate that our average borrowings for Fiscal 2017 will generally be comparable to our average borrowings for Fiscal 2016 as Fiscal 2017 will includeincluding the full year impact of the borrowings associated withre-measurement of transaction amounts into the April 2016 Southern Tide acquisition partially offset byrespective functional currency and the impacttranslation of our cash flow from operations. Interest rates in theforeign subsidiary financial markets increased in Fiscal 2016 and there are indications that interest rates may increase further in Fiscal 2017 which would increase our borrowing rates. Accordingly,statements into U.S. dollars. Also, although we anticipate that our interest expense will be higher in Fiscal 2017 than Fiscal 2016.
Foreign Currency Risk
To the extent that we have assets, liabilities, revenues or expenses, denominated in foreign currencies that are not hedged, we are subject to foreign currency transaction and translation gains and losses. As of January 28, 2017, our foreign currency exchange risk exposure primarily results from transactions of our businesses operating outside of the United States, which is primarily related to (1) our Tommy Bahama operations in Canada, Australia and Japan purchasing goods in United States dollars or other currencies which are not the functional currency of the business and (2) certain other transactions, including intercompany transactions.
Less than 5% of our net sales in Fiscal 2016 were denominated in currencies other than the United States dollar, whilepurchase substantially all of our inventoryproduct purchases including goods for operations in Canada, Japan and Australia, from contract manufacturers throughout the world arepursuant to a U.S. dollar denominated in United States dollars. Purchase prices for our products may be impacted byarrangement, future product costs could increase as a result of fluctuations in the exchange rate between the United StatesU.S. dollar and the local currencies of the contract
manufacturers, which may have the effectour suppliers.With 97% of increasing our cost of goods soldconsolidated net sales in the future even though our inventory is purchased on a United States, dollar arrangement. Additionally, to the extent that the exchange rate between the United States dollar and the currency that the inventory will be sold in (e.g. the Canadian dollar, Australian dollar or Japanese Yen) changes, the gross margins of those businesses could be impacted significantly, particularly if we are not able to increase sales prices to our customers.
We may enter into short-term forward foreign currency exchange contracts in the ordinary course of business to mitigate a portion of the risk associated with foreign currency exchange rate fluctuations related to purchases of inventory or selling goods in currencies other than the functional currencies by certain of our foreign operations. As of January 28, 2017, we were not a party to any foreign currency forward exchange contracts. Due to the limited magnitude and the uncertainty about timing of cash flows provided by or used in the Tommy Bahama operations in Canada, Australia and Japan, we have not historically entered into forward foreign currency exchange contract for these operations. However, it may be appropriate in the future to enter into hedging arrangements for these operations. At this time, we do not anticipate that the impact of foreign currency changes on Tommy Bahama's internationalour foreign operations would have a material impact on Tommy Bahama'sour consolidated net sales, operating income or our consolidated net earnings in Fiscal 2017 given the proportion of Tommy Bahama's operations in international markets.
In addition tonear term. Our foreign currency risks related to specific transactions listed above, we also have foreign currency exposureexchange rate risk associated with translating theis discussed in Foreign Currency in Note 1 of our consolidated financial statements of our foreign operations with a functional currency other than the United States dollar into United States dollars for financial reporting purposes. A strengthening United States dollar could resultincluded in lower levels of sales and earnings in our consolidated statements of operations in future periods although the sales and earnings in the foreign currencies could be equal to or greater than amounts as reported in the prior year. Alternatively, if foreign operations have operating losses, then a strengthening United States dollar could result in lower losses although the losses in foreign currencies could be equal to or greater than amounts as previously reported.
We view our foreign investments as long term and we generally do not hedge such foreign investments. Also, we do not hold or issue any derivative financial instruments related to foreign currency exposure for speculative purposes.
this report.Commodity and Inflation Risk
We are affected by inflation and changing prices through the purchase of full-package finished goods from contract manufacturers,suppliers, who manufacture products consisting of various raw material components.components, including fabrics made of cotton, silk, linen, nylon, leather, tencel and other natural and man-made fibers, or blends of two or more of these materials. Inflation/deflation risks are managed by each operating group, through, when possible, through negotiating product prices in advance, selective price increases productivity improvements and cost containment initiatives. We have not historically entered into significant long-term sales or purchase contracts or engaged in hedging activities with respect to our commodity risk.risks.
Item 8.
Financial Statements and Supplementary Data
OXFORD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except par amounts)
OXFORD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except par amounts)
|
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| ASSETS | | |
| Current Assets | | |
| Cash and cash equivalents | $ | 6,332 |
| $ | 6,323 |
|
| Receivables, net | 58,279 |
| 59,065 |
|
| Inventories, net | 142,175 |
| 129,136 |
|
| Prepaid expenses | 24,842 |
| 22,272 |
|
| Total Current Assets | $ | 231,628 |
| $ | 216,796 |
|
| Property and equipment, net | 193,931 |
| 184,094 |
|
| Intangible assets, net | 175,245 |
| 143,738 |
|
| Goodwill | 60,015 |
| 17,223 |
|
| Other non-current assets, net | 24,340 |
| 20,839 |
|
| Total Assets | $ | 685,159 |
| $ | 582,690 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | |
| Current Liabilities | | |
| Accounts payable | $ | 76,825 |
| $ | 68,306 |
|
| Accrued compensation | 19,711 |
| 30,063 |
|
| Other accrued expenses and liabilities | 32,000 |
| 28,136 |
|
| Liabilities related to discontinued operations | 2,860 |
| 2,394 |
|
| Total Current Liabilities | $ | 131,396 |
| $ | 128,899 |
|
| Long-term debt | 91,509 |
| 43,975 |
|
| Other non-current liabilities | 70,002 |
| 67,188 |
|
| Deferred taxes | 13,578 |
| 3,657 |
|
| Liabilities related to discontinued operations | 2,544 |
| 4,571 |
|
| Commitments and contingencies |
|
|
| Shareholders' Equity | | |
| Common stock, $1.00 par value per share | 16,769 |
| 16,601 |
|
| Additional paid-in capital | 131,144 |
| 125,477 |
|
| Retained earnings | 233,493 |
| 199,151 |
|
| Accumulated other comprehensive loss | (5,276 | ) | (6,829 | ) |
| Total Shareholders' Equity | $ | 376,130 |
| $ | 334,400 |
|
| Total Liabilities and Shareholders' Equity | $ | 685,159 |
| $ | 582,690 |
|
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
ASSETS | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 8,826 | | $ | 44,859 |
Short-term investments | | | — | | | 164,890 |
Receivables, net | | | 43,986 | | | 31,588 |
Inventories, net | | | 220,138 | | | 117,709 |
Income tax receivable | | | 19,440 | | | 19,728 |
Prepaid expenses and other current assets | | | 38,073 | | | 21,561 |
Total Current Assets | | $ | 330,463 | | $ | 400,335 |
Property and equipment, net | | | 177,584 | | | 152,447 |
Intangible assets, net | | | 283,845 | | | 155,307 |
Goodwill | | | 120,498 | | | 23,869 |
Operating lease assets | | | 240,690 | | | 195,100 |
Other assets, net | | | 35,585 | | | 30,584 |
Total Assets | | $ | 1,188,665 | | $ | 957,642 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current Liabilities | | | | | | |
Accounts payable | | $ | 94,611 | | $ | 80,753 |
Accrued compensation | | | 35,022 | | | 30,345 |
Current portion of operating lease liabilities | | | 73,865 | | | 61,272 |
Accrued expenses and other liabilities | | | 66,141 | | | 53,796 |
Total Current Liabilities | | $ | 269,639 | | $ | 226,166 |
Long-term debt | | | 119,011 | | | — |
Non-current portion of operating lease liabilities | | | 220,709 | | | 199,488 |
Other non-current liabilities | | | 20,055 | | | 21,413 |
Deferred income taxes | | | 2,981 | | | 2,911 |
Shareholders’ Equity | | | | | | |
Common stock, $1.00 par value per share | | | 15,774 | | | 16,805 |
Additional paid-in capital | | | 172,175 | | | 163,156 |
Retained earnings | | | 370,145 | | | 331,175 |
Accumulated other comprehensive loss | | | (1,824) | | | (3,472) |
Total Shareholders’ Equity | | $ | 556,270 | | $ | 507,664 |
Total Liabilities and Shareholders’ Equity | | $ | 1,188,665 | | $ | 957,642 |
See accompanying notes.
OXFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ and shares in thousands, except per share amounts) |
| | | | | | | | | |
| | Fiscal
2016 | Fiscal
2015 | Fiscal
2014 |
| Net sales | $ | 1,022,588 |
| $ | 969,290 |
| $ | 920,325 |
|
| Cost of goods sold | 439,814 |
| 411,185 |
| 402,376 |
|
| Gross profit | $ | 582,774 |
| $ | 558,105 |
| $ | 517,949 |
|
| SG&A | 507,070 |
| 475,031 |
| 439,069 |
|
| Royalties and other operating income | 14,180 |
| 14,440 |
| 13,939 |
|
| Operating income | $ | 89,884 |
| $ | 97,514 |
| $ | 92,819 |
|
| Interest expense, net | 3,421 |
| 2,458 |
| 3,236 |
|
| Earnings from continuing operations before income taxes | $ | 86,463 |
| $ | 95,056 |
| $ | 89,583 |
|
| Income taxes | 31,964 |
| 36,519 |
| 35,786 |
|
| Net earnings from continuing operations | $ | 54,499 |
| $ | 58,537 |
| $ | 53,797 |
|
| Loss from discontinued operations, net of taxes | (2,038 | ) | (27,975 | ) | (8,039 | ) |
| Net earnings | $ | 52,461 |
| $ | 30,562 |
| $ | 45,758 |
|
| | | | |
| Net earnings from continuing operations per share: | | | |
| Basic | $ | 3.30 |
| $ | 3.56 |
| $ | 3.27 |
|
| Diluted | $ | 3.27 |
| $ | 3.54 |
| $ | 3.27 |
|
| Loss from discontinued operations, net of taxes, per share: | | | |
| Basic | $ | (0.12 | ) | $ | (1.70 | ) | $ | (0.49 | ) |
| Diluted | $ | (0.12 | ) | $ | (1.69 | ) | $ | (0.49 | ) |
| Net earnings per share: | | | |
| Basic | $ | 3.18 |
| $ | 1.86 |
| $ | 2.79 |
|
| Diluted | $ | 3.15 |
| $ | 1.85 |
| $ | 2.78 |
|
| Weighted average shares outstanding: | | | |
| Basic | 16,522 |
| 16,456 |
| 16,429 |
|
| Diluted | 16,649 |
| 16,559 |
| 16,471 |
|
| Dividends declared per share | $ | 1.08 |
| $ | 1.00 |
| $ | 0.84 |
|
OXFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ and shares in thousands, except per share amounts)
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Net sales | | $ | 1,411,528 | | $ | 1,142,079 | | $ | 748,833 |
Cost of goods sold | | | 522,673 | | | 435,861 | | | 333,626 |
Gross profit | | $ | 888,855 | | $ | 706,218 | | $ | 415,207 |
SG&A | | | 692,004 | | | 573,636 | | | 492,628 |
Impairment of goodwill and intangible assets | | | — | | | — | | | 60,452 |
Royalties and other operating income | | | 21,923 | | | 32,921 | | | 14,024 |
Operating income (loss) | | $ | 218,774 | | $ | 165,503 | | $ | (123,849) |
Interest expense, net | | | 3,049 | | | 944 | | | 2,028 |
Earnings (loss) before income taxes | | $ | 215,725 | | $ | 164,559 | | $ | (125,877) |
Income tax expense (benefit) | | | 49,990 | | | 33,238 | | | (30,185) |
Net earnings (loss) | | $ | 165,735 | | $ | 131,321 | | $ | (95,692) |
| | | | | | | | | |
Net earnings (loss) per share: | | | | | | | | | |
Basic | | $ | 10.42 | | $ | 7.90 | | $ | (5.77) |
Diluted | | $ | 10.19 | | $ | 7.78 | | $ | (5.77) |
Weighted average shares outstanding: | | | | | | | | | |
Basic | | | 15,902 | | | 16,631 | | | 16,576 |
Diluted | | | 16,259 | | | 16,869 | | | 16,576 |
Dividends declared per share | | $ | 2.20 | | $ | 1.63 | | $ | 1.00 |
See accompanying notes.
OXFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in thousands) |
| | | | | | | | | |
| | Fiscal
2016 | Fiscal
2015 | Fiscal
2014 |
| Net earnings | $ | 52,461 |
| $ | 30,562 |
| $ | 45,758 |
|
| Other comprehensive income, net of taxes: | | | |
| Foreign currency translation adjustment | 1,553 |
| 24,071 |
| (7,617 | ) |
| Net (loss) gain on cash flow hedges | — |
| (746 | ) | 1,081 |
|
| Total other comprehensive income (loss), net of taxes | $ | 1,553 |
| $ | 23,325 |
| $ | (6,536 | ) |
| Comprehensive income | $ | 54,014 |
| $ | 53,887 |
| $ | 39,222 |
|
OXFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Net earnings (loss) | | $ | 165,735 | | $ | 131,321 | | $ | (95,692) |
Other comprehensive income (loss), net of taxes: | | | | | | | | | |
Net foreign currency translation adjustment | | | 1,648 | | | 192 | | | 997 |
Comprehensive income (loss) | | $ | 167,383 | | $ | 131,513 | | $ | (94,695) |
See accompanying notes.
OXFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ in thousands) |
| | | | | | | | | | | | | | | |
| | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total |
| February 1, 2014 | $ | 16,416 |
| $ | 114,021 |
| $ | 153,344 |
| $ | (23,618 | ) | $ | 260,163 |
|
| Net earnings and other comprehensive loss | — |
| — |
| 45,758 |
| (6,536 | ) | 39,222 |
|
| Shares issued under equity plans | 62 |
| 928 |
| — |
| — |
| 990 |
|
| Compensation expense for equity awards | — |
| 4,103 |
| — |
| — |
| 4,103 |
|
| Cash dividends declared and paid | — |
| — |
| (13,873 | ) | — |
| (13,873 | ) |
| January 31, 2015 | $ | 16,478 |
| $ | 119,052 |
| $ | 185,229 |
| $ | (30,154 | ) | $ | 290,605 |
|
| Net earnings and other comprehensive income | — |
| — |
| 30,562 |
| 23,325 |
| 53,887 |
|
| Shares issued under equity plans | 123 |
| 1,184 |
| — |
| — |
| 1,307 |
|
| Compensation expense for equity awards | — |
| 5,241 |
| — |
| — |
| 5,241 |
|
| Cash dividends declared and paid | — |
| — |
| (16,640 | ) | — |
| (16,640 | ) |
| January 30, 2016 | $ | 16,601 |
| $ | 125,477 |
| $ | 199,151 |
| $ | (6,829 | ) | $ | 334,400 |
|
| Net earnings and other comprehensive income | — |
| — |
| 52,461 |
| 1,553 |
| 54,014 |
|
| Shares issued under equity plans | 196 |
| 1,061 |
| — |
| — |
| 1,257 |
|
| Compensation expense for equity awards | — |
| 6,445 |
| — |
| — |
| 6,445 |
|
| Repurchase of shares | (28 | ) | (1,839 | ) | — |
| ��� |
| (1,867 | ) |
| Cash dividends declared and paid | — |
| — |
| (18,119 | ) | — |
| (18,119 | ) |
| January 28, 2017 | $ | 16,769 |
| $ | 131,144 |
| $ | 233,493 |
| $ | (5,276 | ) | $ | 376,130 |
|
OXFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($ in thousands)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | |
| | | | | Additional | | | | | Other | | | |
| | Common | | Paid-In | | Retained | | Comprehensive | | | |
| | Stock | | Capital | | Earnings | | (Loss) Income | | Total |
February 1, 2020 | | $ | 17,040 | | $ | 149,426 | | $ | 366,793 | | $ | (4,661) | | $ | 528,598 |
Net earnings and other comprehensive income | | | — | | | — | | | (95,692) | | | 997 | | | (94,695) |
Shares issued under equity plans | | | 227 | | | 1,151 | | | — | | | — | | | 1,378 |
Compensation expense for equity awards | | | — | | | 7,755 | | | — | | | — | | | 7,755 |
Repurchase of shares | | | (378) | | | (1,824) | | | (17,721) | | | — | | | (19,923) |
Cash dividends declared and paid | | | — | | | — | | | (16,886) | | | — | | | (16,886) |
Cumulative effect of change in accounting standard | | | — | | | — | | | (499) | | | — | | | (499) |
January 30, 2021 | | $ | 16,889 | | $ | 156,508 | | $ | 235,995 | | $ | (3,664) | | $ | 405,728 |
Net earnings and other comprehensive income (loss) | | | — | | | — | | | 131,321 | | | 192 | | | 131,513 |
Shares issued under equity plans | | | 41 | | | 1,411 | | | — | | | — | | | 1,452 |
Compensation expense for equity awards | | | — | | | 8,186 | | | — | | | — | | | 8,186 |
Repurchase of shares | | | (125) | | | (2,949) | | | (8,268) | | | — | | | (11,342) |
Cash dividends declared and paid | | | — | | | — | | | (27,873) | | | — | | | (27,873) |
Cumulative effect of change in accounting standard | | | — | | | — | | | — | | | — | | | — |
January 29, 2022 | | $ | 16,805 | | $ | 163,156 | | $ | 331,175 | | $ | (3,472) | | $ | 507,664 |
Net earnings and other comprehensive income | | | — | | | — | | | 165,735 | | | 1,648 | | | 167,383 |
Shares issued under equity plans | | | 26 | | | 1,573 | | | — | | | — | | | 1,599 |
Compensation expense for equity awards | | | — | | | 10,577 | | | — | | | — | | | 10,577 |
Repurchase of shares | | | (1,057) | | | (3,131) | | | (90,651) | | | — | | | (94,839) |
Cash dividends declared and paid | | | — | | | — | | | (36,114) | | | — | | | (36,114) |
Cumulative effect of change in accounting standard | | | — | | | — | | | — | | | — | | | — |
January 28, 2023 | | $ | 15,774 | | $ | 172,175 | | $ | 370,145 | | $ | (1,824) | | $ | 556,270 |
See accompanying notes.
OXFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) |
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Cash Flows From Operating Activities: | | | |
| Net earnings | $ | 52,461 |
| $ | 30,562 |
| $ | 45,758 |
|
| Adjustments to reconcile net earnings to cash provided by operating activities: | | | |
| Depreciation | 40,069 |
| 34,476 |
| 35,165 |
|
| Amortization of intangible assets | 2,150 |
| 1,951 |
| 2,481 |
|
| Equity compensation expense | 6,445 |
| 5,241 |
| 4,103 |
|
| Change in fair value of contingent consideration | — |
| — |
| 275 |
|
| Amortization of deferred financing costs | 693 |
| 385 |
| 385 |
|
| Loss on sale of discontinued operations | — |
| 20,517 |
| — |
|
| Gain on sale of property and equipment | — |
| (853 | ) | — |
|
| Deferred income taxes | 7,880 |
| (361 | ) | (3,217 | ) |
| Changes in working capital, net of acquisitions and dispositions, if any: | | | |
| Receivables, net | 7,377 |
| 11,371 |
| (5,672 | ) |
| Inventories, net | 4,222 |
| (8,058 | ) | (7,101 | ) |
| Prepaid expenses | (1,799 | ) | (2,641 | ) | (1,646 | ) |
| Current liabilities | 434 |
| (553 | ) | 18,314 |
|
| Other non-current assets, net | (2,086 | ) | 1,819 |
| 37 |
|
| Other non-current liabilities | 719 |
| 11,517 |
| 6,527 |
|
| Cash provided by operating activities | $ | 118,565 |
| $ | 105,373 |
| $ | 95,409 |
|
| Cash Flows From Investing Activities: | | | |
| Acquisitions, net of cash acquired | (95,046 | ) | — |
| — |
|
| Purchases of property and equipment | (49,415 | ) | (73,082 | ) | (50,355 | ) |
| Proceeds from sale of discontinued operations | (2,030 | ) | 59,336 |
| — |
|
| Other investing activities | — |
| (200 | ) | — |
|
| Cash used in investing activities | $ | (146,491 | ) | $ | (13,946 | ) | $ | (50,355 | ) |
| Cash Flows From Financing Activities: | | | |
| Repayment of revolving credit arrangements | (430,995 | ) | (345,485 | ) | (352,784 | ) |
| Proceeds from revolving credit arrangements | 478,529 |
| 281,852 |
| 320,548 |
|
| Deferred financing costs paid | (1,438 | ) | — |
| — |
|
| Payment of contingent consideration amounts earned | — |
| (12,500 | ) | (2,500 | ) |
| Proceeds from issuance of common stock | 1,257 |
| 1,307 |
| 990 |
|
| Repurchase of stock awards for employee tax withholding liabilities | (1,867 | ) | — |
| — |
|
| Cash dividends declared and paid | (18,119 | ) | (16,640 | ) | (13,873 | ) |
| Cash provided by (used in) financing activities | $ | 27,367 |
| $ | (91,466 | ) | $ | (47,619 | ) |
| Net change in cash and cash equivalents | $ | (559 | ) | $ | (39 | ) | $ | (2,565 | ) |
| Effect of foreign currency translation on cash and cash equivalents | 568 |
| 1,081 |
| (637 | ) |
| Cash and cash equivalents at the beginning of year | 6,323 |
| 5,281 |
| 8,483 |
|
| Cash and cash equivalents at the end of year | $ | 6,332 |
| $ | 6,323 |
| $ | 5,281 |
|
| Supplemental disclosure of cash flow information: | | | |
| Cash paid for interest, net | $ | 2,626 |
| $ | 2,301 |
| $ | 3,297 |
|
| Cash paid for income taxes | $ | 29,872 |
| $ | 35,369 |
| $ | 41,806 |
|
OXFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Cash Flows From Operating Activities: | | | | | | | | | |
Net earnings (loss) | | $ | 165,735 | | $ | 131,321 | | $ | (95,692) |
Adjustments to reconcile net earnings to cash flows from operating activities: | | | | | | | | | |
Depreciation | | | 41,503 | | | 39,062 | | | 38,975 |
Amortization of intangible assets | | | 6,102 | | | 880 | | | 1,111 |
Impairment of goodwill and intangible assets | | | — | | | — | | | 60,452 |
Impairment of property and equipment | | | 1,430 | | | 1,656 | | | 19,828 |
Equity compensation expense | | | 10,577 | | | 8,186 | | | 7,755 |
Gain on sale of investment in unconsolidated entity | | | — | | | (11,586) | | | — |
Gain on sale of property and equipment | | | (600) | | | (2,669) | | | — |
Amortization of deferred financing costs | | | 344 | | | 344 | | | 344 |
Change in fair value of contingent consideration | | | — | | | 1,188 | | | 593 |
Deferred income taxes | | | (1,867) | | | 4,054 | | | (18,332) |
Changes in operating assets and liabilities, net of acquisitions and dispositions: | | | | | | | | | |
Receivables, net | | | (1,966) | | | (15) | | | 28,406 |
Inventories, net | | | (78,966) | | | 5,378 | | | 29,355 |
Income tax receivable | | | 288 | | | (1,753) | | | (17,113) |
Prepaid expenses and other current assets | | | (12,793) | | | (889) | | | 5,087 |
Current liabilities | | | 8,635 | | | 27,585 | | | 17,611 |
Other non-current assets, net | | | 14,233 | | | 37,534 | | | 53,819 |
Other non-current liabilities | | | (27,045) | | | (42,270) | | | (48,349) |
Cash provided by operating activities | | $ | 125,610 | | $ | 198,006 | | $ | 83,850 |
Cash Flows From Investing Activities: | | | | | | | | | |
Acquisitions, net of cash acquired | | | (263,648) | | | — | | | — |
Purchases of property and equipment | | | (46,668) | | | (31,894) | | | (28,924) |
Purchases of short-term investments | | | (70,000) | | | (165,000) | | | — |
Proceeds from short-term investments | | | 234,852 | | | — | | | — |
Proceeds from sale of investment in unconsolidated entity | | | — | | | 14,586 | | | — |
Other investing activities | | | (6,283) | | | 736 | | | (5,727) |
Cash used in investing activities | | $ | (151,747) | | $ | (181,572) | | $ | (34,651) |
Cash Flows From Financing Activities: | | | | | | | | | |
Repayment of revolving credit arrangements | | | (145,894) | | | — | | | (280,963) |
Proceeds from revolving credit arrangements | | | 264,905 | | | — | | | 280,963 |
Repurchase of common stock | | | (91,674) | | | (8,359) | | | (18,053) |
Proceeds from issuance of common stock | | | 1,599 | | | 1,452 | | | 1,378 |
Repurchase of equity awards for employee tax withholding liabilities | | | (3,166) | | | (2,983) | | | (1,870) |
Cash dividends paid | | | (35,287) | | | (27,536) | | | (16,844) |
Other financing activities | | | (2,010) | | | (749) | | | (459) |
Cash used in financing activities | | $ | (11,527) | | $ | (38,175) | | $ | (35,848) |
Net change in cash and cash equivalents | | $ | (37,664) | | $ | (21,741) | | $ | 13,351 |
Effect of foreign currency translation on cash and cash equivalents | | | 1,631 | | | 587 | | | 202 |
Cash and cash equivalents at the beginning of year | | | 44,859 | | | 66,013 | | | 52,460 |
Cash and cash equivalents at the end of period | | $ | 8,826 | | $ | 44,859 | | $ | 66,013 |
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies
PrincipalDescription of Business Activity
We are a globalleading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama®, Lilly Pulitzer®, Johnny Was®, Southern Tide®, The Beaufort Bonnet Company® and Southern Tide®Duck Head® lifestyle brands, other owned brands and licensed brands as well as private label apparel products.brands. We distribute our owned lifestyle branded products through our direct to consumer channel,channels, consisting of our brand specific full-price retail stores, e-commerce websites and e-commerce sites,outlet stores, and our wholesale distribution channel, which includes sales to various specialty stores, Signature Stores, better department stores, multi-branded e-commerce websites and specialty stores.other retailers. Additionally, we operate Tommy Bahama food and beverage locations, including Marlin Bars and full-service restaurants, generally adjacent to selecteda Tommy Bahama full-price retail stores. Our brandedstore.
On September 19, 2022, we acquired the Johnny Was lifestyle apparel brand and private label apparel products ofits related assets and operations, which is discussed in further detail in Note 12. Also, in Fiscal 2021, we exited our Lanier Apparel are distributed through department stores, national chains, warehouse clubs, specialty stores, specialty catalogs and internet retailers.
Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in our consolidated financial statements reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group,business, as discussed in Note 13.
11. Additionally, refer to Note 2 for certain financial information about the Johnny Was and Lanier Apparel operating groups.Recent Macroeconomic Conditions
The COVID-19 pandemic has had a significant effect on overall economic conditions and our operations in recent years and accelerated or exacerbated many of the changes in the industry. In Fiscal 2021, the economic environment improved significantly with a rebound in retail traffic starting in March 2021 and other improvements as the year progressed, although certain stores were closed for portions of Fiscal 2021, particularly in the First Quarter of Fiscal 2021. This exceptionally strong consumer demand, along with the strength of our brands, resulted in record earnings for us during both Fiscal 2021 and Fiscal 2022. The strong earnings in recent periods are despite certain challenges in the retail apparel market, including labor shortages, supply chain disruptions and product and operating cost increases in Fiscal 2021 and Fiscal 2022. We, as well as others in our industry, have increased prices to attempt to offset inflationary pressures.
Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries due, in part, to apparel purchases often being more of a discretionary purchase. The current macroenvironment, with heightened concerns about inflation, a global economic recession, geopolitical issues, the stability of the U.S. banking system, the availability and cost of credit and continued increases in interest rates, is creating a complex and challenging retail environment, which may impact our businesses and exacerbate some of the inherent challenges to our operations. There remains significant uncertainty in the macroeconomic environment, and the impact of these and other factors could have a major effect on our businesses.
Fiscal Year
We operate and report on a 52/53 week53-week fiscal year. Our fiscal year ends on the Saturday closest to January 31.31 and is designated by the calendar year in which the fiscal year commences. As used in our consolidated financial statements, the terms Fiscal 2014,2020, Fiscal 2015,2021, Fiscal 20162022 and Fiscal 20172023 reflect the
52 weeks ended January 31, 2015; 52 weeks ended January 30, 2016; 2021; 52 weeks ended January 29, 2022; 52 weeks ended January 28, 2017;2023; and 53 weeks ending February 3, 2018,2024, respectively.Principles of Consolidation
Our consolidated financial statements include the accounts of Oxford Industries, Inc. and any other entities in which we have a controlling financial interest, including our wholly-owned domestic and foreign subsidiaries, or variable interest entities for which we are the primary beneficiary, if any. Generally, we consolidate businesses that in which
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
we controlhave a controlling financial interest which may be evidenced through ownership of a majority voting interest. However, there are situations in which consolidation is required even though the usual condition of consolidation (ownership of a majority voting interest) does not apply. In determining whether a controlling financial interest exists, we consider ownership of voting interests, as well asor other rights of the investors which might indicate which investor isthat we are the primary beneficiary.beneficiary of the entity. The primary beneficiary has both the power to direct the activities of the entity that most significantly impact the entity'sentity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. The results of operations of acquired businesses are included in our consolidated statements of operations from the respective dates of the acquisitions.
We account for investments in which we exercise significant influence, but do not control via voting rights and were determined to not be the primary beneficiary, using the equity method of accounting. Generally, we determine that we exercise significant influence over a corporation or a limited liability company when we own 20% or more or 3% or more, respectively, of the voting interests unless the facts and circumstances of that investment do not indicate that we have the ability to exhibit significant influence. Under the equity method of accounting, original investments are recorded at cost, and are subsequently adjusted for our contributions to, distributions from and share of income or losses of the entity. Our investments accounted for using the equity method of accounting are included in other non-current assets in our consolidated balance sheets, while the income or loss related to our investments accounted for using the equity method of accounting is included in royalties and other operating income in our consolidated statements of operations.
All significant intercompany accounts and transactions are eliminated in consolidation.
The cost of each acquired business is allocated to the individual tangible and intangible assets acquired and liabilities assumed or incurred as a result of an acquisition based on their estimated fair values.values pursuant to the acquisition method of accounting. The assessment of the estimated fair values of assets and liabilities acquired requires us to make certain assumptions regarding the use of the acquired assets, anticipated cash flows, probabilities of cash flows, discount rates and other factors. Thefactors, many of which involve a significant amount of uncertainty. Additionally, the definition of fair value of inventories acquired as part of a business combination generally will equal the expected sales price less certain costs associated with selling the inventory, which may exceed the actual cost of the acquired inventories, resulting in an inventory step-up to fair value at acquisition, which would be recognized in our consolidated statements of operations as the acquired inventory is sold.
Our estimates of the purchase price allocation of a business combination may be revised during an allocationa measurement period as necessary when, and if, information becomes available to revise the fair values of the assets acquired and the liabilities assumed. Actual fair values ultimately assigned to the acquired assets and liabilities when final information is available may materially differ from our preliminary estimates during the measurement period. The allocation period willmay not exceed
one year from the date of the acquisition. Should information become available after the allocation period indicating that an adjustment to the purchase price allocation is appropriate, that adjustment will be included
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
in our consolidated statements of operations.
The results of operations of acquired businesses are included in our consolidated statements of operations from the respective dates of the acquisitions. Transaction costs related to business combinations are included in SG&A in our consolidated statements of operations as incurred.
Refer to Note 12 for additional disclosuresinformation related to business combinations.
the Fiscal 2022 acquisition of Johnny Was, including disclosures about the allocation of the preliminary purchase price to the estimated fair values of the acquired assets and liabilities.Revenue Recognition and Accounts Receivable
ReceivablesOur revenue consists of direct to consumer sales, including our retail store, e-commerce and food and beverage operations, and wholesale sales, as well as royalty income, which is included in royalties and other income in our consolidated statements of operations. Revenue is recognized at an amount that reflects the consideration expected to be received for those goods and services pursuant to a five-step approach: (1) identify the contracts with the customer; (2) identify the separate performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. The table below quantifies the amount of net sales by distribution channel (in thousands) for each period presented.
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Retail | | $ | 552,696 | | $ | 443,015 | | $ | 202,071 |
E-commerce | | | 465,446 | | | 369,300 | | | 323,900 |
Food & beverage | | | 109,225 | | | 96,244 | | | 48,428 |
Wholesale | | | 281,938 | | | 231,536 | | | 173,209 |
Other | | | 2,223 | | | 1,984 | | | 1,225 |
Net sales | | $ | 1,411,528 | | $ | 1,142,079 | | $ | 748,833 |
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied, which generally occurs when we deliver our products to our direct to consumer and wholesale customers. Control of the product is generally transferred upon providing the product to consumers in our bricks and mortar retail stores and food and beverage locations, upon physical delivery of the products to consumers in our e-commerce operations and upon shipment from our distribution center to customers in our wholesale operations. Once control is transferred to the customer, we have completed our performance obligations related to the contract and have an unconditional right to consideration for the products sold as outlined in the contract. Our receivables resulting from contracts with customers in our direct to consumer operations are generally collected within a few days, upon settlement of the credit card transaction, while our receivables resulting from contracts with our customers in our wholesale operations are generally due within one quarter, in accordance with established credit terms. All of our performance obligations under the terms of our contracts with customers in our direct to consumer and wholesale operations have an expected original duration of one year or less. We only recognize revenue to the extent that it is probable that we will not have a significant reversal of revenue in a future period. Our revenue, including any freight income, is recognized net of applicable taxes in our consolidated statements of operations, consists ofoperations.
In our direct to consumer sales, which includeoperations, consumers have certain rights to return product within a specified period and are eligible for certain point of sale discounts; thus retail store, e-commerce and restaurantfood and sales, and wholesale sales. We consider revenue realized or realizable and earned when the following criteria are met: (1) persuasive evidence of an agreement exists, (2) delivery has occurred, (3) our price to the buyer is fixed or determinable and (4) collectibility is reasonably assured.
Retail store, e-commerce and restaurant revenues are recognized at the time of sale to consumers, which is at the time of purchase for retail and restaurant transactions and the time of delivery to consumers for e-commerce sales. Each of these types of transactions requires payment at the time of the transaction, which is typically made via a credit card and collected by us upon settlement of the credit card transaction within a few days. Retail store, e-commerce and restaurantbeverage revenues are recorded net of estimated returns and discounts, as applicable.
For The sales
withinreturn allowance is based on historical direct to consumer return rates and current trends and is recognized on a gross basis as a return liability for the amount of sales estimated to be returned and a return asset for the right to recover the product estimated to be returned by the customer. The value of inventory associated with a right to recover the goods returned in our direct to consumer operations is included in prepaid expenses and other current assets in our consolidated balance sheets. The changes in the return liability are recognized in net sales and the changes in the return asset are recognized in cost of goods sold in our consolidated statements of operations. An estimated sales return liability of $12 million and $11 million for expected direct to consumer returns is classified in accrued expenses and other liabilities in our consolidated balance sheet as of January 28, 2023 and January 29, 2022, respectively.In the ordinary course of our wholesale operations, we consider a submitted purchase order oroffer discounts, allowances and cooperative advertising support to some form of electronic communication from the customer requesting shipment of the goods to be persuasive evidence of an agreement. For substantially all of our wholesale sales, our productscustomers for certain products. Some of these arrangements are considered sold and delivered atwritten agreements, while others may be implied by customary practices or expectations in the time of shipment. For certain transactions in which the goods do not pass through our owned or third party distribution centers and title and the risks and rewards of ownership pass at the time the goods leave the foreign port, revenue is recognized at that time.
In the normal course of business we offer certain discounts or allowances to our wholesale customers. Wholesale sales are recorded net of such discounts and allowances, as well as advertising support not specifically relating to the reimbursement for actual advertising expenses by our customers, operational chargebacks and provisions for estimated returns.industry. As certain allowances, and other deductions and returns are not finalized until the end of a season, program or other event which may not have occurred yet, we estimate such discounts, allowances and allowancesreturns on an ongoing basis.basis to estimate the consideration from the customer that we expect to ultimately receive. Significant considerations in determining our estimates for discounts, allowances, operational chargebacks and returns for wholesale customers may include historical and current trends, agreements with customers, projected seasonal or program results, an evaluation of current economic conditions, specific program or product expectations and retailer performance. We record the discounts, returns, allowances and allowancesoperational chargebacks as a reduction to net sales in our consolidated statements of operations and as a reduction to receivables, net in our consolidated balance sheets, with the estimated value of inventory expected to be returned in prepaid expenses and other current assets in our consolidated balance sheets. As of January 28, 20172023 and January 30, 2016,29, 2022, reserve balances recorded as a reduction to wholesale receivables related to these items were $9.3$4 million and $8.4$3 million, respectively.
We extend credit to certain wholesale customers based on an evaluation of the customer'scustomer’s financial capacity and condition, usually without requiring collateral. In circumstances where we become aware of a specific wholesale customer'scustomer’s inability to meet its financial obligations, a specific reserveprovision for bad debtcredit losses is taken as a reduction to accounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected. Such amounts are ultimately written off at the time that the amounts are not considered collectible. For all otherour wholesale customers,customer receivable amounts not specifically provided for, we recognize estimated reservesprovisions for bad debtscredit losses, using the current expected loss model based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions, and anticipated trends eachand the risk characteristics of the receivables. Provisions for credit loss expense, which is subjective and requires certain assumptions. We include such charges and write-offsincluded in SG&A in our consolidated statements of operations, for Fiscal 2022, Fiscal 2021 and asFiscal 2020 were a reduction tocredit of less than $1 million, a credit of $1 million and a charge of $4 million, respectively,
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
while write-offs of credit losses for Fiscal 2022, Fiscal 2021 and Fiscal 2020 were less than $1 million, less than $1 million and $2 million, respectively. As of both January 28, 2023 and January 29, 2022, receivables, net in our consolidated balance sheets. Assheet included a provision for credit losses related to trade receivables of $1 million.
In addition to trade receivables, tenant allowances due from landlord of $2 million and $1 million are included in receivables, net in our consolidated balance sheet, as of January 28, 20172023 and January 30, 2016, bad debt reserve balances were $0.829, 2022, respectively. Substantially all other amounts recognized in receivables, net represent trade receivables related to contracts with customers, including receivables from wholesale customers, credit card receivables related to our direct to consumer operations, and receivables from licensing partners. As of both January 28, 2023 and January 29, 2022, prepaid expenses and other current assets included $4 million representing the estimated value of inventory for expected direct to consumer and $0.5 million, respectively.
wholesale sales returns in the aggregate. We did not have any significant contract assets related to contracts with customers, other than trade receivables and the value of inventory associated with expected sales returns, as of January 28, 2023 and January 29, 2022.In addition to our estimated expected return amounts, contract liabilities related to contracts with our customers include gift cards and merchandise credits issued by us as well as unredeemed loyalty program award points. Gift cards and merchandise credits issued by us are redeemable on demand by the holder, do not have an expiration date and do not incur administrative fees. Historically, substantially all gift cards and merchandise credits are redeemed within one year of issuance. Gift cards and merchandise credits are recorded as a liability until they areour performance obligation is satisfied, which occurs when redeemed by the consumer, at which point revenue is recognized. WeHowever, we recognize estimated breakage income for certain gift cards and merchandise credits using the redemption recognition method, subject to applicable laws in certain states, using the redemption recognition method or in some cases when we determine that the likelihood of the redemption of the gift cards and merchandise credits is remote. Deferred revenuestates. Contract liabilities for gift cards purchased by consumers and merchandise credits received by customers but not yet redeemed, less any breakage income recognized to date, is included in other accrued expenses and other liabilities in our consolidated balance sheets and totaled $9.5$19 million and $8.5$16 million as of January 28, 20172023 and January 30, 2016,29, 2022, respectively. Gift card breakage income, which was not material in any period presented, is included in net sales in our consolidated statements of operations.
operations, was $1 million in each of Fiscal 2022, Fiscal 2021 and Fiscal 2020.In Fiscal 2021, each of our brands in our Emerging Brands operating group initiated brand specific loyalty award programs. These programs allow consumers to earn loyalty points associated with the brand. These programs are primarily spend-based loyalty programs, with varying terms and conditions for each respective brand’s program. The consumer earns points which, depending on the program, allows the consumer to (1) achieve a specified status with the brand, which provides the consumer with benefits, such as early access to events, free shipping or other benefits, for a specified period, and/or (2) earn a monetary reward by accumulating loyalty points that can be redeemed in association with future purchases from the brand. As loyalty points are earned, we defer revenue, based on the estimated fair value of the loyalty points, with a corresponding liability in accrued expenses and other liabilities in our consolidated balance sheets. The loyalty points liability is generally recognized as revenue when the loyalty points are redeemed or expire. Deferred revenue associated with the loyalty programs totaled $1 million as of both January 28, 2023 and January 29, 2022.
Royalties from the license of our owned brands whichare recognized over the time that licensees are provided access to utilize our trademarks (i.e. symbolic intellectual property) and benefit from such access through their sales of licensed products. Payments are generally baseddue quarterly, and depending on the greatertime of receipt, may be recorded as a percentage of the licensee's actual net sales or a contractually determined minimum royalty amount, are recordedliability until recognized as revenue. Royalty income is based upon the contractually guaranteed minimum
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
levels royalty obligations and adjusted as sales data, or estimates thereof, is received from licensees. In some cases, we may receive initial payments forlicensees, when the grant of license rights, which are recognized as revenue over the termrelated royalties based on a percentage of the license agreement.licensee’s sales exceed the contractually determined minimum royalty amount. Royalty income, was $14.0 million, $14.2 million and $13.7 million during Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively, andwhich is included in royalties and other operating income in our consolidated statements of operations.operations, were $22 million, $18 million and $14 million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We include in cost of goods sold all(1) the cost paid to the suppliers for the acquired product, (2) sourcing, procurement and procurementother costs and expenses incurred prior to or in association with the receipt of finished goods at our distribution facilities, as well asand (3) freight from our warehousedistribution facilities to our own retail stores, e-commerce consumers and wholesale customers and e-commerce consumers.customers. The costs prior to receipt at our distribution facilities include product cost, inbound freight charges, duties and other import costs, purchasing costs, internal transfer costs,brokers’ fees, consolidators’ fees, insurance, direct labor, manufacturing overhead, insurance, duties, brokers' fees, consolidators' fees and depreciation and amortization expense associated with our manufacturing, sourcing operations. We generally classify amounts billed to customers for freight in net sales and procurementclassify freight costs for shipments to customers in cost of goods sold in our consolidated statements of operations.
Our gross marginsprofit and gross margin may not be directly comparable to those of our competitors, as statement of operations classifications of certain expenses may vary by company.
We include in SG&A costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of inspection, stocking, warehousing, picking and packing, and all costs associated with the operations of our e-commerce sites, retail stores, e-commerce sites, restaurantsfood and beverage locations and concessions, such as labor, lease commitments and other occupancy costs, store and restaurantdirect to consumer location pre-opening costs (including rent, marketing, store set-up costs and training expenses), depreciation and other fees.amounts. SG&A also includes product design costs, selling costs, royalty costs,expense, provision for credit losses, advertising, promotion and marketing expenses, professional fees, supplies, travel, other general and administrative expenses, our corporate overhead costs and amortization of intangible assets.
Distribution network costs, including costs associated with preparing goods to ship to customers and our costs to operate our distribution facilities, as well as shipping and handling, are included as a component of SG&A. We consider distribution network costs to be the costs associated with operating our distribution centers, as well as the costs paid to third parties who perform those services for us. In Fiscal 2016,2022, Fiscal 20152021 and Fiscal 2014,2020, distribution network costs including shipping and handling, included in SG&A totaled $23.6$36 million, $21.6$28 million and $19.8$26 million, respectively. We generally classify amounts billed to customers for shipping and handling fees in net sales, and classify outbound shipping costs in cost of goods sold in our consolidated statements of operations.
All costs associated with advertising, promotion and marketing of our products are expensed in SG&A during the period when the advertisement is first shown. Costs associated with cooperative advertising programs under which we agree to make general contributions to our wholesale customers'customers’ advertising and promotional funds are generally recorded as a reduction to net sales as recognized. If we negotiate an advertising plan and share in the cost for an advertising plan that is for specific ads run for products purchased by the customer from us, and the customer is required to provide proof that the advertisement was run, such costs are generally recognized as SG&A.sales. Advertising, promotion and marketing expenses, included in SG&Aexcluding employment costs for our advertising and marketing employees, for Fiscal 2016,2022, Fiscal 20152021 and Fiscal 20142020 were $42.6$82 million, $34.5$60 million and $32.2$50 million, respectively. Prepaid advertising, promotion and marketing expenses included in prepaid expenses and other current assets in our consolidated balance sheets as of January 28, 20172023 and January 30, 201629, 2022 were $3.7$6 million and $2.5$4 million, respectively.
RoyaltiesRoyalty expense related to our license of third party brands, which are generally based on the greater of a percentage of our actual net sales for the brandlicensed product or a contractually determined minimum royalty amount, are recorded based upon theany guaranteed minimum levels and adjusted based on our net sales of the brandedlicensed products, as appropriate. In some cases, we may be required to make certain up-front payments for the license rights, which are deferred and recognized as royalty expense over the term of the license agreement. Royalty expenses recognized as SG&A in Fiscal 2016,2022, Fiscal 20152021 and Fiscal 20142020 were $4.8$4 million, $4.6$6 million and $5.3$6 million, respectively.
As of January 28, 2023, we do not have any royalty agreements with material guaranteed minimum royalty amounts for future periods as future royalty amounts are generally dependent on our future sales of the specified licensed products.Cash and Cash Equivalents
We consider cash equivalents to be short-term investments with original maturities of three months or less for purposes of our consolidated statements of cash flows. As of January 28, 2023 and January 29, 2022, our cash and cash equivalents included $1 million and $37 million, respectively, of money market fund investments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. SummarySupplemental Cash Flow Information
During Fiscal 2022, Fiscal 2021 and Fiscal 2020, cash paid for income taxes was $56 million, $34 million and $6 million, respectively. During Fiscal 2022, Fiscal 2021 and Fiscal 2020, cash paid for interest, net of Significant Accounting Policies (Continued)
interest income was $3 million, $1 million and $2 million, respectively. Non-cash investing activities included capital expenditures incurred but not yet paid at period end, which were included in accounts payable in our consolidated balances sheets, of $3 million, $3 million and $1 million as of Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. Additionally, during Fiscal 2022, Fiscal 2021 and Fiscal 2020, we recorded a non-cash net increase in operating lease assets and corresponding operating lease liability amounts of $47 million, $18 million and $2 million, respectively, related to the net impact of new, modified and terminated operating lease amounts, excluding any operating lease amounts recognized in the opening balance sheet of an acquired business.Short-Term Investments
As of January 28, 2023 and January 29, 2022, we had $0 million and $165 million, respectively, of short-term investments on our consolidated balance sheet, generally consisting of highly liquid corporate and U.S. Treasury securities, which were expected to be liquidated within one year. We classify these short-term investments as trading securities, and accordingly, the investments are recorded at fair value, based on Level 1 measurements, with the gains or losses recognized in our consolidated statements of operations in royalties and other income.
Inventories, net
Substantially all of our inventories are finished goods inventories of apparel, accessories footwear and other related products. Inventories are valued at the lower of cost or market.
For operating group reporting, inventory is carried at the lower of FIFO cost or market. We continually evaluate the composition of our inventories for identification of distressed inventory.inventory at least quarterly. In performing this evaluation, we consider slow-turning products, an indication of lack of consumer acceptance of particular products, prior-seasons'prior-seasons’ fashion products, broken assortments, discontinued products and current levels of replenishment program products as compared to expected sales. We estimate the amount of goods that we will not be able to sell in the normal course of business and write down the value of these goods as necessary. Asnecessary based on various assumptions about the amountamounts we ultimately expect to be ultimately realizedrealize for the goods is not necessarily known at period end, we must utilize certain assumptions considering historical experience, inventory quantity, quality, age and mix, historical sales trends, future sales projections, consumer and retailer preferences, market trends, general economic conditions and our plans to sell the inventory.inventories. Also, we provide an allowance for shrinkage, as appropriate, for the period between the last physical inventory count and each balance sheet date.
For consolidated financial reporting, as of January 28, 20172023 and January 30, 2016, $133.829, 2022, $204 million, or 94%93%, and $120.9$103 million, or 94%88%, respectively, of our inventories were valued at the lower of LIFO cost or market after deducting our LIFO accounting reserve. The remaining $8.4$16 million and $8.3$14 million of our inventories were valued at the lower of FIFO cost or market as of January 28, 20172023 and January 30, 2016,29, 2022, respectively. Generally, for consolidated financial reporting, inventories of our domestic operations are valued at the lower of LIFO cost or market, and our inventories of our international operations are valued at the lower of FIFO cost or market. Our LIFO reserves are based on the estimated Producer Price Index as published by the United States Department of Labor. We write down inventories valued at the lower of LIFO cost or market when LIFO cost exceeds market value. We deem LIFO accounting adjustments to not only include changes in the LIFO reserve, but also includes changes in markdown reserves which are considered in LIFO accounting.reserves. As our LIFO inventory pool does not correspond to our operating group definitions, LIFO inventory accounting adjustments are not allocated to the respectiveour operating groups. Thus, the impact of accounting for inventories on the LIFO method is reflected in Corporate and Other for operating group reporting purposes included in Note 2.
There were no material LIFO inventory layer liquidations that had a material impact on our net earnings in Fiscal 2016,2022, Fiscal 20152021 or Fiscal 2014.2020. As of January 28, 20172023 and January 30, 2016,29, 2022, the LIFO reservesreserve included in our consolidated balance sheets were $58.0sheet was $76 million and $59.4$69 million, respectively.
Accounting for business combinations requires that assets and liabilities, including inventories, are recorded at fair value at acquisition. In accordance with GAAP, the definition81
Property and Equipment, net
Property and equipment, including leasehold improvements that are reimbursed by landlords as a tenant improvement allowance and any assets under capital leases, if any, is carried at cost less accumulated depreciation. Additions are capitalized while repair and maintenance costs are charged to our consolidated statements of operations as incurred. Depreciation is calculated using both straight-line and accelerated methods generally over the estimated useful lives of the assets as follows:
| | |
| | |
Leasehold improvements | | Lesser of remaining life of the asset or lease term |
Furniture, fixtures, equipment and technology | | 2 – 15 years |
Buildings and improvements | | 7 – 40 years |
Property and equipment is reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. Events that would typically resultrecoverable, as discussed in such an assessment would include a change in the estimated useful lifeImpairment of the assets, including a change in our plans of the anticipated period of operating a leased retail store or restaurant location, the discontinued use of an assetLong-Lived Assets, other than Goodwill and other factors. This review includes the evaluation of any under-performing stores and assessing the recoverability of the carrying value of the assets related to the store. We calculate the fair value of long-lived assets using the age-life method. If the estimated fair value is less than the carrying amount of the asset, an asset is determined to be impaired and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value.
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Intangible Assets with Indefinite Lives below.Substantially all of our depreciation expense is included in SG&A in our consolidated statements of operations, withoperations. Cost of goods sold includes the only depreciation included elsewhere within our consolidated statements of operations reflecting depreciation associated with our manufacturing, sourcing and procurement processes, which is includedoperations. Depreciation expense as disclosed in cost of goods sold. During Fiscal 2016, $1.9 million ofNote 2 includes any property and equipment impairment charges were recognized related to information technology assets and outlet store assets. No material impairment of fixed assets was recognized in Fiscal 2015 or Fiscal 2014. Depreciation by operating group, as discussed in Note 2, and in our consolidated statements of cash flows includes any fixed asset impairment charges.
and GoodwillAt acquisition, we estimate and record the fair value of purchased intangible assets, which primarily consist of trademarks, as well as customer relationships and reacquired rights and customer relationships.rights. The fair values and useful lives of these intangible assets are estimated based on our assessment as well as independent third party appraisals in some cases. Such valuations,Additionally, at acquisition we must determine whether the intangible asset has an indefinite or finite life and account for it accordingly. Refer to Note 4 for additional details about intangible assets.
Goodwill is recognized as the amount by which the cost to acquire a business exceeds the fair value of identified tangible and intangible assets acquired, net of assumed liabilities. Thus, the amount of goodwill recognized in connection with a business combination depends on the fair values assigned to the individual assets acquired and liabilities assumed in a business combination. Goodwill is allocated to the respective reporting unit at the time of acquisition. As of January 28, 2023, substantially all of our goodwill included in our consolidated balance sheet, including the goodwill of Johnny Was, is deductible for income tax purposes. Refer to Note 4 for additional information about our goodwill amounts.
At acquisition, as well as any subsequent impairment tests, assumptions and estimates about various items with significant uncertainty are dependent upon a numberrequired to determine the fair value of uncertain factors,intangible assets and goodwill. When determining the fair value of intangible assets, including trademarks, customer relationships and other items, significant assumptions may include a discounted cash flow analysisour planned use of anticipated revenues and expenses or cost savings resulting from the acquired intangible asset using an estimateas well as estimates of net sales, royalty income, operating income, growth rates, royalty rates for the trademarks, a risk-adjusted, market-basedmarket based cost of capital asfor the discount rate. Any costs associated with extending or renewing recognized intangible assets are generally expensed as incurred.
rates and income tax rates, among other factors. Our fair value assessment may also consider any comparable market transactions.Intangible assets with indefinite lives, which primarily consistconsists of trademarks, and goodwill are not amortized but instead evaluated for impairment annually or more frequently if events or circumstances indicate that the intangible asset or goodwill might be impaired. The evaluation ofThis analysis is typically similar to the recoverability of trademarks with indefinite lives includes valuations based on a discounted cash flow analysis utilizing the relief from royalty method, among other considerations. Like the initial valuation, the evaluation of recoverability isperformed at acquisition and dependent upon a number of uncertain factors, which require certain assumptionsincluding those used in the initial valuation at acquisition as listed above. We have the option to be made by us, including estimatesfirst assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset or goodwill is impaired to determine whether it is necessary to perform the quantitative impairment test. We also have the option to bypass the qualitative assessment entirely for any indefinite-lived intangible asset or
goodwill in any period and proceed directly to performing the quantitative impairment test. We test, either quantitatively or qualitatively, intangible assets with an indefinite life and goodwill for impairment as of the trademark, discount ratesfirst day of the fourth quarter of our fiscal year, or at an interim date if indicators of impairment exist at that interim date. For each impairment test of intangible assets with an indefinite life and income tax rates, among other factors. goodwill in Fiscal 2022, Fiscal 2021 and Fiscal 2020, we bypassed the qualitative test option and instead performed a quantitative test.
If an annual or interim analysis indicates an impairment of a trademarkan intangible asset with an indefinite useful life or goodwill, the amount of the impairment is recognized in our consolidated financial statements based on the amount that the carrying value exceeds the estimated fair value of the asset.
We have the option to first assess qualitative factors to determine whether it is more likely than not thatasset for an indefinite-lived intangible asset is impaired as a basiswith an indefinite life or the reporting unit for determining whether it is necessarygoodwill. An impairment charge related to perform the quantitative impairment test. We also have the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. Bypassing the qualitative assessment in any period does not prohibit us from performing the qualitative assessment in any subsequent period.
We test, either quantitatively or qualitatively, our Southern Tide intangible assets with an indefinite lives for impairment aslife totaling $18 million and goodwill of $43 million, which are included in the first day of the fourth quarter of our fiscal year, or at an interim date if indicators of impairment exist at that date. No impairment of intangible assets with indefinite livesEmerging Brands operating group, was recognized in the First Quarter of Fiscal 2020.There were no other impairment charges during any period presented.
We recognize amortization of intangibleFiscal 2022, Fiscal 2021 or Fiscal 2020.Intangible assets with finite lives which primarily consist of reacquired rights and customer relationships, certain trademarks and reacquired rights. These assets are amortized over the estimated useful liveslife of the intangible assetsasset using the straight line method or a method of amortization that reflects the pattern in which the economic benefits of the intangible assetsasset are consumed or otherwise realized.realized or the straight line method. Certain of our intangible assets with finite lives may be amortized over periods of up to
20 years in some cases.years. The determination of an appropriate useful life for amortization considers our plans for the intangible assets, the remaining contractual period of the reacquired right, as applicable, our plans for the intangible assets and factors that may be outside of our control, including expected customer attrition. Amortization of intangible assets is included in SG&A in our consolidated statements of operations. Intangible assets with finite lives are reviewed periodically for impairment periodically if events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. If expected future discounted cash flows resulting from therecoverable, as discussed below under Impairment of Long-Lived Assets, other than Goodwill and Intangible Assets with Indefinite Lives.Any costs associated with extending or renewing recognized intangible assets are less than their carrying amounts, an asset is determined to be impaired and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value.
No impairment of intangible assets with finite lives was recognized during any period presented.Goodwill, net
Goodwill is recognizedgenerally expensed as the amount by which the cost to acquire a company or group of assets exceeds the fair value of tangible and intangible assets acquired less any liabilities assumed at acquisition. Thus, the amount of goodwill recognized in connection with a business combination is dependent upon the fair values assigned to the individual assets acquired and liabilities assumed in a business combination. Goodwill is allocated to the respective reporting unit at the time of acquisition.
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
Goodwill is not amortized but instead is evaluated for impairment annually or more frequently if events or circumstances indicate that the goodwill might be impaired.
We test, either qualitatively or as a two-step quantitative evaluation, goodwill for impairment as of the first day of the fourth quarter of our fiscal year or when impairment indicators exist. The qualitative factors that we use to determine the likelihood of goodwill impairment, as well as to determine if an interim test is appropriate, include: (a) macroeconomic conditions, (b) industry and market considerations, (c) cost factors, (d) overall financial performance, (e) other relevant entity-specific events, (f) events affecting a reporting unit, (g) a sustained decrease in share price, or (h) other factors as appropriate. In the event we determine that we will bypass the qualitative impairment option or if we determine that a quantitative test is appropriate, the quantitative test includes valuations of each applicable underlying business using fair value techniques and market comparables, which may include a discounted cash flow analysis or an independent appraisal. Significant estimates, some of which may be very subjective, considered in such a discounted cash flow analysis are future cash flow projections of the business, the discount rate, which estimates the risk-adjusted market based cost of capital, income tax rates and other assumptions. The estimates and assumptions included in the two-step evaluation of the recoverability of goodwill involve significant uncertainty, and if our plans or anticipated results change, the impact on our financial statements could be significant.
If an annual or interim analysis indicates an impairment of goodwill balances, the impairment is recognized in our consolidated financial statements. No impairment of goodwill was recognized during any period presented.
incurred.Prepaid Expenses and Other Non-Current Assets, net
Amounts included in prepaid expenses and other current assets primarily consist of prepaid operating expenses, including rent,subscriptions, maintenance and other services contracts, advertising, insurance, samples taxes, maintenance contracts, insurance, retailand direct to consumer supplies advertisingas well as the estimated value of inventory for anticipated direct to consumer and royalties.wholesale sales returns. Other non-current assets primarily consist of assets set aside for potential deferred compensation liabilities related to our deferred compensation plan, as discussed below,equity investments in unconsolidated entities, assets related to certain investments in officers'officers’ life insurance policies, security deposits investments in unconsolidated entities and amounts placed into escrow accounts, deferred financing costs related to our revolving credit agreement.
Officers'and non-current deferred tax assets.Officers’ life insurance policies that are owned by us, which are included in other non-current assets, net, are recorded at their cash surrender value, less any outstanding loans associated with the life insurance policies that are payable to the life insurance company with which the policy is outstanding. As of both January 28, 20172023 and January 30, 2016, the officers'29, 2022, officers’ life insurance policies, net, recorded in our consolidated balance sheets totaled $5.1 million and $4.9 million, respectively.
$4 million.Deferred financing costs for our revolving credit agreementsagreement are included in other non-current assets, net in our consolidated financial statements. Deferred financing costs are amortized on a straight-line basis, which approximates the effective interest method over the lifeterm of the related debt. Amortization expense and write-off of deferred financing costs which areis included in interest expense in our consolidated statements of operations, was $0.7 million, $0.4 million and $0.4 million during Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.operations. Unamortized deferred financing costs included in other non-current assets, net totaled $1.8$1 million and $1.1 million atas of both January 28, 20172023 and January 30, 2016, respectively.29, 2022.
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have a non-qualified deferred compensation plan offered to a select group of highly compensated employees and our non-employee directors. The plan provides participants with the opportunity to defer a portion of their cash compensation in a given plan year, of which a percentage may be matched by us in accordance with the terms of the plan. We make contributions to rabbi trusts or other investments to provide a source of funds for satisfying these deferred compensation liabilities. Investments held for our deferred compensation plan consist of insurance contracts and are recorded based on valuations which generally incorporate unobservable factors. A changeRealized and unrealized gains and losses on the deferred compensation plan investments are recorded in the value of the underlying assets would substantially be offset by a changeSG&A in the liability to the participant resulting in an immaterial net impact on our consolidated financial statements.statements of operations and substantially offset the changes in deferred compensation liabilities to participants resulting from changes in market values. These securities approximate the participant-directed investment selections underlying the deferred compensation liabilities.
The total value of the assets set aside for potential deferred compensation liabilities whichas of January 28, 2023 and January 29, 2022 was $16 million and $17 million, respectively. Substantially all of these amounts are held in a rabbi trust and included in other non-current assets, net as of January 28, 2017 and January 30, 2016 was $11.0 million and $9.6 million, respectively, substantially all of which are held in a rabbi trust.our consolidated balance sheet. Substantially all the assets set aside for potential deferred compensation liabilities are life insurance policies recorded at their cash surrender value, less any outstanding loans associated with the life insurance policies that are payable to the life insurance company with which the policy is outstanding. The liabilities associated with the non-
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
qualifiednon-qualified deferred compensation plan are included in other non-current liabilities in our consolidated balance sheets and totaled
$10.9$15 million and
$10.6$17 million at January 28,
20172023 and January
30, 2016,29, 2022, respectively.
Equity Investments in Unconsolidated Entities
We account for equity investments in which we exercise significant influence, but do not control via voting rights and were determined to not be the primary beneficiary of, using the equity method of accounting. Generally, we determine that we exercise significant influence over a corporation or a limited liability company when we own 20% or more or 3% or more, respectively, of the voting interests, unless the facts and circumstances of that investment indicate that we do not have the ability to exhibit significant influence. Under the equity method of accounting, original investments are recorded at cost, and are subsequently adjusted for our contributions to, distributions from and share of income or losses of the entity. We account for equity investments in which we do not control or exercise significant influence using the fair value method of accounting unless there is not a readily determinable fair value for the equity investment. If there is no readily determinable fair value for such equity investment, we account for the equity investment using the alternative measurement method of cost adjusted for impairment and any identified observable price changes of the investment.
Equity investments accounted for using the equity method of accounting, fair value method of accounting, or alternative measurement method are included in other non-current assets in our consolidated balance sheets, while the income or loss related to such investments is included in royalties and other operating income in our consolidated statements of operations. During Fiscal 2022, we paid $8 million for equity investments in entities accounted for using the equity method of accounting. During Fiscal 2020, we paid $6 million, in the aggregate, for equity investments in entities accounted for using either the equity method of accounting or the alternative measurement method. These payments in Fiscal 2022 and Fiscal 2020 are included in other investing activities in our consolidated statements of cash flows.
As of January 28, 2023 and January 29, 2022, our consolidated balance sheet included equity investments accounted for using the equity method of accounting, fair value and alternative measurement method totaling, in the aggregate, $11 million and $3 million, respectively. The equity investments in unconsolidated entities included in our consolidated balance sheet represents substantially all of our exposure or loss related to these investments, as there are no meaningful obligations to fund additional amounts or losses related to these investments. These investments include (1) our minority ownership interest in a property in Indian Wells, California that will be converted into the Tommy
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OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Bahama Miramonte Resort and Spa during Fiscal 2023, and (2) our minority ownership interests in smaller apparel lifestyle brands, in which we generally have an ownership interest of approximately 10% as of January 28, 2023. During Fiscal 2022, Fiscal 2021 and Fiscal 2020 we recognized amounts related to these investments in royalties and other income of a loss of $1 million, income of $12 million and a loss of less than $1 million, respectively. In Fiscal 2021, our minority ownership interests in an unconsolidated entity was redeemed upon that entity consummating a change in control transaction, resulting in proceeds to us of $15 million and a gain on sale of $12 million.
Impairment of Long-Lived Assets, other than Goodwill and Intangible Assets with Indefinite Lives
We assess our long-lived assets other than goodwill and intangible assets with indefinite lives for impairment whenever events indicate that the carrying amount of the asset or asset group may not be fully recoverable. This recoverability and impairment assessment is performed for a specific asset or asset group and includes any property and equipment, operating lease assets, intangible assets with finite lives and other non-current assets included in the asset group. Events that would typically result in such an assessment would include a change in the estimated useful life of the assets, including a change in our plans of the anticipated period of operating a leased direct to consumer location, the decision to vacate a leased space before lease expiration, the abandonment of an asset or other factors. These events may also result in a change in the determination of the assets included in an asset group for impairment testing. To analyze recoverability, we consider undiscounted net future cash flows over the remaining life of the asset or asset group. If the amounts are determined to not be recoverable an impairment is recognized resulting in the write-down of the asset or asset group and a corresponding charge to our consolidated statements of operations. Impairment losses are measured based on the difference between the carrying amount and the estimated fair value of the assets. For any assets impaired during Fiscal 2022, Fiscal 2021 and Fiscal 2020, there was no significant fair value at the date of impairment testing.
During Fiscal 2022, Fiscal 2021 and Fiscal 2020, we recognized $1 million, $2 million and $20 million, respectively, of property and equipment impairment charges, which were primarily included in SG&A. During Fiscal 2020, these charges primarily related to a $15 million write-off of previously capitalized costs associated with a Tommy Bahama information technology project that was abandoned in Fiscal 2020, $2 million of charges related to retail store assets due to retail store closures in Tommy Bahama and Lilly Pulitzer, $1 million of charges related to office leasehold improvements resulting from the Lanier Apparel exit and $1 million of charges related to office leasehold improvements associated with the 2020 restructuring of Tommy Bahama’s international sourcing operations.
During Fiscal 2022, we did not recognize any operating lease asset impairment charges. During Fiscal 2021 and Fiscal 2020, we recognized $5 million and $4 million, respectively, of operating lease asset impairment charges, which were primarily included in SG&A. During Fiscal 2021, these charges primarily related to our Tommy Bahama New York office and showroom lease, which was vacated in Fiscal 2021 and provides the landlord the ongoing right to terminate the lease. During Fiscal 2020, these charges primarily related to $3 million of charges related to certain office leases resulting from the Lanier Apparel exit and $1 million of charges related to an office lease associated with the 2020 restructuring of Tommy Bahama’s international sourcing operations.
As disclosed in Note 4, we recognized an impairment charge of less than $1 million of an intangible asset with a finite life in Lanier Apparel in Fiscal 2020. No impairment of intangible assets with finite lives was recognized during Fiscal 2022 or Fiscal 2021.
Accounts Payable, Accrued Compensation and Other Accrued Expenses and Other Liabilities
Liabilities for accounts payable, accrued compensation and other accrued expenses and other liabilities are carried at cost, which reflectsapproximates the fair value of the consideration expected to be paid in the future for goods and services received, whether or not billed to us.us as of the balance sheet date. Accruals for employeemedical insurance and workers'workers’ compensation, which are included in other accrued expenses and other liabilities in our consolidated balance sheets, include estimated settlements for known claims, as well as accruals for estimates of incurred but not reported claims based on our claims experience and statistical trends.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Legal and Other Contingencies
We are subject to certain litigation, claims and assessments in the ordinary course of business. The claims and assessments may relate, among other things, to disputes about trademarks and other intellectual property, employee relations matters, real estate, and contracts, as well as labor, employment, environmental, customs and tax matters.licensing arrangements, importing or exporting regulations, product safety requirements, taxation or other topics. For those matters where it is probable that we have incurred a loss and the loss, or range of loss, can be reasonably estimated, we have recorded reserves in other accrued expenses and other liabilities or other non-current liabilities in our consolidated financial statements for the estimated loss and related expenses, such as legal fees. In other instances, because of the uncertainties related to both the probable outcome or amount or range of loss, we are unable to make a reasonable estimate of a liability, if any, and therefore have not recorded a reserve. As additional information becomes available or as circumstances change, we adjust our assessment and estimates of such liabilities accordingly. Additionally, for any potential gain contingencies, we do not recognize the gain until the period that all contingencies have been resolved and the amounts are realizable. We believe the outcome of outstanding or pending matters, individually and in the aggregate, will not have a material impact on our consolidated financial statements, based on information currently available.
In connection with acquisitions, we may enter into contingent consideration arrangements, which provide for the payment of additional purchase price consideration to the sellers if certain performance criteria are achieved during a specified period. We must recognize the fair value of the contingent consideration based on its estimated fair value at the date of acquisition. Such valuation requires assumptions regarding anticipated cash flows, probabilities of cash flows, discount rates and other factors. Each of these assumptions may involve a significant amount of uncertainty. Subsequent to the date of acquisition, we must periodically adjust the liability for the contingent consideration to reflect the fair value of the contingent consideration by reassessing our valuation assumptions as of that date. A change in assumptions related to contingent consideration amounts could have a material impact on our consolidated financial statements. Any change in the fair value of the contingent consideration is recognized in SG&A in our consolidated statements of operations.
As part of our acquisition of the Lilly Pulitzer brand and operations on December 21, 2010, we entered into a contingent consideration arrangement whereby we were obligated to pay up to $20 millionA change in cash in the aggregate, over the
four years following the closing of the acquisition, based on Lilly Pulitzer's achievement of certain earnings targets. As a result of Lilly Pulitzer exceeding the earnings targets specified in the contingent consideration agreement, the maximum $20 million amount was earned in full. A summary of the fair value of the contingent consideration of $1 million and $1 million associated with the 2017 acquisition of TBBC was recognized in our consolidated statements of operations in Fiscal 2021 and Fiscal 2020, respectively. As of January 28, 2023 and January 29, 2022, $0 million and $2 million, respectively, of contingent consideration related to the TBBC acquisition was recognized as a liability including currentin our consolidated balance sheet. In the aggregate, $4 million was earned by the sellers pursuant to the four year contingent consideration arrangement, which ended on January 29, 2022, with the final payment of $2 million paid in Fiscal 2022. One of the sellers of TBBC is an employee and non-current amounts, is as follows (in thousands): |
| | | | | | | | | |
| | Fiscal 2016 |
| Fiscal 2015 |
| Fiscal 2014 |
|
| Balance at beginning of year | $ | — |
| $ | 12,500 |
| $ | 14,725 |
|
| Change in fair value of contingent consideration | — |
| — |
| 275 |
|
| Contingent consideration payments made to sellers during the year | — |
| (12,500 | ) | (2,500 | ) |
| Balance at end of year | $ | — |
| $ | — |
| $ | 12,500 |
|
continues to manage the operations of TBBC.Other Non-current Liabilities
Amounts included in other non-current liabilities primarily consist of deferred rentcompensation amounts and amounts related to our operating lease agreements as discussed below and deferred compensation as discussed above.
uncertain tax positions.Leases
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1. Summary of Significant Accounting Policies (Continued)
In the ordinary course of business, we enter into real estate lease agreements for our direct to consumer locations, which include both retail restaurant,and food and beverage locations, office and warehouse/distribution space, as well as leases for certain equipment. TheOur real estate leases have varying terms and expirations and frequentlymay have provisions to extend, renew or terminate the lease agreement at our discretion, among other provisions. Our real estate lease terms are typically for a period of ten years or less and conditions, as negotiated. We assesstypically require monthly rent payments with specified rent escalations during the lease at inceptionterm. Our real estate leases usually provide for payments of our pro rata share of real estate taxes, insurance and determine whetherother operating expenses applicable to the property, and certain of our leases require payment of sales taxes on rental payments. Also, our direct to consumer location leases often provide for contingent rent payments based on sales if certain sales thresholds are achieved. For many of our real estate lease qualifiesagreements, we obtain lease incentives from the landlord for tenant improvement or other allowances. Our lease agreements do not include any material residual
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value guarantees or material restrictive financial covenants. Substantially all of our leases are classified as long-term operating leases.
For our leases, we recognize operating lease liabilities equal to our obligation to make lease payments arising from the leases on a capitaldiscounted basis and operating lease assets which represent our right to use, or operating lease. Assets leased under capital leases, if any, andcontrol the relateduse of, a specified asset for a lease term. Operating lease liabilities, which are included in current portion of operating lease liabilities and non-current portion of operating lease liabilities in our consolidated balance sheets, are recognized at the lease commencement date based on the present value of lease payments over the lease term. The significant judgments in propertycalculating the present value of lease obligations include determining the lease term and equipment and long-term debt, respectively. Assets leased underlease payment amounts, which are dependent upon our assessment of the likelihood of exercising any renewal or termination options that are at our discretion, as well as the discount rate applied to the future lease payments. The operating leaseslease assets, which are not recognized asincluded in operating lease assets and liabilities in our consolidated balance sheets.
When a non-cancelablesheets, at commencement represent the amount of the operating lease
includesliability reduced for any lease incentives, including tenant improvement allowances. Typically, we do not include any renewal or termination options at our discretion in the underlying lease term at the time of lease commencement as the probability of exercise generally is not reasonably certain. Variable rental payments for real estate taxes, sales tax, insurance, other operating expenses and contingent rent based on a percentage of net sales or adjusted periodically for inflation are not included in lease expense used to calculate the present value of lease obligations recognized in our consolidated balance sheet, but instead are recognized as incurred.Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, even if there are fixed escalation clauses, lease incentives for rent holidays, or landlord build-out-related allowances, rent expense is generally recognized on a straight-line basis over the initial term of the leaseother similar items from the date that we take possession of the space and does not assume that any termination options included in thespace. Substantially all of our lease will be exercised. The amount by which rents payable under the lease differs from the amount recognized on a straight-line basis is recorded in other non-current liabilities in our consolidated balance sheets. Deferred rent as of January 28, 2017 and January 30, 2016 was $57.3 million and $54.6 million, respectively. Contingent rents, including those based on a percentage of retail sales over stated levels, and rental payment increases based on a contingent future event are recognized as the expense is incurred.
If we vacate leased space and determine that we do not plan to use the space in the future, we recognize a loss for any future rent payments, less any anticipated future sublease income and adjusted for any deferred rent amounts included in our consolidated balance sheet on that date. Additionally, for any lease that we terminate and agree to a lease termination payment, we recognizerecognized in SG&A in our consolidated statements of
operationsoperations.We account for the underlying operating lease at the individual lease level. The lease guidance requires us to discount future lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, our estimated incremental borrowing rate. As our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on information available at the applicable commencement date. Our estimated incremental borrowing rate for a losslease is the rate of interest we estimate we would have to pay on a collateralized basis over the lease term to borrow an amount equal to the lease payments.
During the First Quarter of Fiscal 2020, the FASB provided for an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of the COVID-19 pandemic. The practical expedient only applies if a lease is modified to allow for a rental concession and (1) the revised consideration is substantially the same as, or less than, the original consideration in the lease agreement, (2) the reduction in lease payments relates to payments due on or before June 30, 2021, and (3) no other substantive changes have been made to the terms of the leases. The practical expedient provides that, if the above conditions are met for the lease termination payment atagreement, the timelessee is not required to assess whether the eligible rent concessions are lease modifications. We have elected to apply the practical expedient for all eligible lease modifications resulting in the rent concession being recorded as an adjustment to variable lease payments and recognized in our consolidated statement of operations in that period. The amounts of concessions recognized immediately in our consolidated statement of operations pursuant to this practical expedient in Fiscal 2021 and Fiscal 2020 was $1 million and $4 million, respectively. For lease modifications that do not meet the criteria for the practical expedient, we account for the amendment and concession as a lease modification requiring lease remeasurement with the concession recognized as a reduction to the operating lease asset and recognized in our consolidated statements of operations over the remaining term of the respective lease agreement. The amount of concessions agreed to in Fiscal 2021 and Fiscal 2020 that were recognized as reductions of the operating lease asset and will be recognized in future periods over the remaining lease term as a reduction to rent expense was $3 million and $4 million, respectively. There were no concession amounts recognized immediately or initially recognized as reductions of the operating lease asset during Fiscal 2022 pursuant to this practical expedient.
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Foreign Currency Transactions and Translation
We are exposed to foreign currency exchange risk when we generate net sales or incur expenses in currencies other than the functional currency of the respective operations. The resulting assets and liabilities denominated in amounts other than the respective functional currency are re-measured into the respective functional currency at the rate of exchange in effect on the balance sheet date, and income and expenses are re-measured at the average rates of exchange prevailing during the relevant period. The impact of any such re-measurement is recognized in our consolidated statements of operations in that period. Net gains (losses)losses (gains) included in our consolidated statements of operations related to foreign currency transactions recognized in Fiscal 2016,2022, Fiscal 20152021 and Fiscal 20142020 were not material to our consolidated financial statements.
$2 million, $1 million and $0 million, respectively.Additionally, the financial statements of our operations for which the functional currency is a currency other than the United StatesU.S. dollar are translated into United StatesU.S. dollars at the rate of exchange in effect on the balance sheet date for the balance sheet and at the average rates of exchange prevailing during the relevant period for the statements of operations. The impact of such translation is recognized in accumulated other comprehensive income (loss) in our consolidated balance sheets and included in other comprehensive income (loss) in our consolidated statements of comprehensive income resulting in no impact on net earnings for the relevant period.
Derivative Financial Instruments
Derivative financial instruments, if any, are measured at their fair values in We view our consolidated balance sheets. Fair values of any derivative financial instruments are determined by us based on dealer quotes, which may be based on a variety of factors including observableforeign investments as long term, and unobservable inputs. Unrealized gains and losses are recognized as prepaid expenses or accrued expenses, respectively. The accounting for changes in the fair value of derivative instruments depends on whether the derivative has been designated and qualifies for hedge accounting. The criteria used to determine if a derivative financial instrument qualifies for hedge accounting treatment are whether an appropriate hedging instrument has been identified and designated to reduce a specific exposure and whether there is a high correlation between changes in the fair value of the hedging instrument and the identified exposure based on the nature of the hedging relationship. Based on the nature of the hedging relationship, a qualifying derivative is designated for accounting purposes as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign business.
We may formally document hedging instruments and hedging relationships at the inception of each contract. Further, we assess both at the inception of a contract and on an ongoing basis whether the hedging instrument is effective in offsetting the risk of the hedged transaction. For any derivative financial instrument that is designated and qualifies for hedge accounting
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Note 1. Summary of Significant Accounting Policies (Continued)
treatment and has not been settled as of period-end, the unrealized gains (losses) on the outstanding derivative financial instrument is recognized, to the extent the hedge relationship has been effective, as a component of comprehensive income in our consolidated statements of comprehensive income and accumulated other comprehensive income (loss) in our consolidated balance sheets. For any financial instrument that is not designated as a hedge for accounting purposes, or for any ineffective portion of a hedge, the unrealized gains (losses) on the outstanding derivative financial instrument is included in net earnings. Cash flows related to hedging transactions are classified in our consolidated statements of cash flows and consolidated statements of operations in the same category as the items hedged. Wegenerally do not use derivative financial instruments for trading or speculative purposes.
Foreign Currency Risk Management
hedge such foreign investments.As of January 28, 2017,2023, our foreign currency exchange risk exposure primarily results from our businesses operating outside of the United States, which are primarily related to (1) our Tommy Bahama operations in Canada Australia and JapanAustralia purchasing goods in United StatesU.S. dollars or other currencies which are not the functional currency of the business and (2) certain other transactions, including intercompany transactions. We mayDuring Fiscal 2022, Fiscal 2021 and Fiscal 2020, we did not enter into short-term forward foreign currency exchange contracts in the ordinary course of business to mitigate a portion of the risk associated with foreign currency exchange rate fluctuations related to purchases of inventory or selling goods in currencies other than the functional currencies by certain of our foreign operations. As of January 28, 2017, weand were not a party to any forward foreign currency exchange contracts.
Interest Rate Risk Management
As all of January 28, 2017,our indebtedness is variable-rate debt, we are exposed to market risk from changes in interest rates onrates. If we determine that our variable-rate indebtedness under our U.S. Revolving Credit Agreement. Weexposure to interest rate changes is higher than we believe is appropriate, we may attempt to limit the impact of interest rate changes on earnings and cash flow primarily through a mix of variable-rate and fixed-rate debt although at times all of our debt may be either variable-rate or fixed-rate debt. At times we may enterby entering into interest rate swap arrangements related to certainarrangements. Our assessment of our variable-rate debt in order to fix the interest rate if we determine that ourappropriate levels of exposure to changes in interest rate changes is higher than optimal. Our assessmentrates also considers our need for flexibility in our borrowing arrangements resulting from the significant seasonality of our business and cash flows, anticipated future cash flows and our expectations about the risk of future interest rate changes, among other factors. We continuously monitor interest ratesDuring Fiscal 2022, Fiscal 2021 and Fiscal 2020, we did not enter into and were not a party to consider the sources and terms of our borrowing facilities in order to determine whether we have achieved our interest rate management objectives. As of January 28, 2017, we do not have any interest rate swap agreements.
Fair value, in accordance with GAAP, is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Valuation techniques include the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques may be based upon either observable andor unobservable inputs.
The three levels of inputs used to measure fair value pursuant to the guidance are as follows:
(1) Level 1—Quoted prices in active markets for identical assets or liabilities.
liabilities; (2) Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
data; and (3) Level 3—Unobservable inputs that are supported by little or no market activity and
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that are significant to the fair value of the assets or liabilities, which includesinclude certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
OurAs of January 28, 2023, our financial instruments consist primarily of our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities and debt. Given their short-term nature, the carrying amounts of cash and cash equivalents, receivables,
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Note 1. Summary of Significant Accounting Policies (Continued)
accounts payable,
and accrued expenses
and other current liabilities generally approximate their fair values.
The fair values of any cash and cash equivalents invested on an overnight basis in money market funds, as well as short-term investments, are based upon the quoted prices in active markets provided by the holding financial institutions, which are considered Level 1 inputs in the fair value hierarchy. Additionally, we believe the carrying amounts of our variable-rate borrowings,
if any, approximate fair value.
Additionally, weWe have determined that our operating lease assets, property and equipment, intangible assets, goodwill and goodwill, for which the book values are disclosedcertain other non-current assets included in Notes 3 and 4,our consolidated balance sheets are non-financial assets measured at fair value on a non-recurring basis. We have determined that our approaches for determining fair values of our property and equipment, intangibleeach of these non-current assets and goodwillare generally are based on Level 3 inputs.
Additionally, for any contingent consideration fair value amounts, we have determined that our approaches for determining fair value during the performance period are generally based on Level 3 inputs during the contingent consideration period.In the First Quarter of Fiscal 2020, in determining the $9 million fair value, and resulting carrying value, of the Southern Tide trade name in our interim impairment test, which utilized the relief from royalty valuation method, we used certain Level 3 inputs. The significant unobservable inputs used in determining the fair value of the Southern Tide trade name as of the First Quarter of Fiscal 2020 included: (a) a double-digit percentage decrease in sales for the remainder of Fiscal 2020 as compared to the comparable prior year sales amounts, reflecting the anticipated impact of the COVID-19 pandemic during the remainder of Fiscal 2020; a double-digit percentage increase for sales in Fiscal 2021, reflecting an anticipated partial recovery from the COVID-19 pandemic; and high single-digit percentage growth rates for sales subsequent to Fiscal 2021, with the growth rate in future periods ultimately decreasing to a low single-digit percentage in the long term, and (b) a required rate of return for the intangible asset of 13%.
Equity Compensation
We have certain equity compensation plans as described in Note 7,8, which provide for the ability to grant restricted shares, restricted share units, options and other equity awards to our employees and non-employee directors. We recognize compensation expense related to equity awards to employees and non-employee directors in SG&A in our consolidated statements of operations based on theirthe fair valuesvalue of the awards on the grant date. The fair valuesvalue of restricted sharesshare awards that are service and restricted share unitsperformance-based are determined based on the fair value of our common stock on the grant date, regardless of whether the awards are performance or service based.
Using thedate. The fair value
method, compensation expense, withof restricted share awards that are market-based (e.g. relative total shareholder return (“TSR”)) are determined based on a
corresponding entryMonte Carlo simulation model, which models multiple TSR paths for our common stock as well as the comparator group, as applicable, to
additional paid-in capital, is recognized related toevaluate and determine the
equity awards overestimated fair value of the
specified service and performance period, as applicable. restricted share award.For awards with specified service requirements, the fair value of the equity awards granted to employees is recognized over the respectiverequisite service period. For performance-based awards (e.g. awards based on our earnings per share), during the performance period we assess expected performance versus the predetermined performance goals and adjust the cumulative equity compensation expense to reflect the relative expected performance achievement. The equity compensation expensefair value of the performance-based awards, if earned, is recognized on a straight-line basis over the aggregate performance period and any additional required service period. NoFor market-based awards (e.g. TSR-based awards) with specified service requirements that are equal to or longer than the market-based specification period, the fair value of the awards granted to employees is recognized over the requisite service period, regardless of whether, and to the extent to which, the market condition is ultimately satisfied. The impact of stock award forfeitures on compensation expense is recognized at the time of forfeiture as no estimate of future stock award forfeitures areis considered in our calculation of compensation expense as the impactfor our service-based, performance-based or market-based awards.
Comprehensive Income and Accumulated Other Comprehensive Loss
Comprehensive income (loss) consists of net earnings and specified components of other comprehensive income (loss). Other comprehensive income (loss) includes changes in assets and liabilities that are not included in net earnings pursuant to GAAP, such as foreign currency translation adjustments between the functional and the netreporting currencies and certain unrealized gain (loss) associated with cash flow hedges which qualify for hedge accounting,gains (losses), if any. These amounts ofFor us, other comprehensive income for each period presented primarily consists of the impact of the foreign currency translation of our international operations. These other comprehensive income (loss) amounts are deferred in accumulated other comprehensive income (loss),loss, which is included in shareholders'shareholders’ equity in our consolidated balance sheets.
As of January 28, 2023, the amounts included in accumulated other comprehensive loss in our consolidated balance sheet primarily consist of the net foreign currency translation adjustment related to our Tommy Bahama operations in Canada and Australia. No material amounts of accumulated other comprehensive loss were reclassified from accumulated other comprehensive loss into our consolidated statements of operations during Fiscal 2022, Fiscal 2021 or Fiscal 2020.Dividends
Dividends are accrued at the time declared by our Board of Directors and typically paid within the same fiscal quarter.
Certain restricted share units, as described in Note 8, earn dividend equivalents which are accrued at the time of dividend declaration by the Board of Directors in accrued expenses and other liabilities, but only paid if the restricted share units are ultimately earned. Dividends accrued related to these restricted share units, which are included in accrued expenses and other current liabilities in our consolidated balance sheet, were $1 million and less than $1 million, as of January 28, 2023 and January 29, 2022, respectively.Share Repurchases
From time to time, we may repurchase shares of our stock under an open market repurchase program or otherwise. We account for share repurchases for open market transactions by charging the excess of repurchase price over the par value entirely to retained earnings based on the trade settlement date.
Concentration of Credit Risk and Significant Customers
We are exposed to concentrations of credit risk as a result of our receivables balances, for which the total exposure is limited to the amount recognized in our consolidated balance sheets. We sell our merchandise to wholesale customers operating in a number of retail distribution channels in the United States and other countries. We extend credit to certain wholesale customers based on an evaluation of the customer'scustomer’s credit history and financial capacity and condition, usually without requiring collateral. Credit risk is impacted by conditions or occurrences within the economy and the retail industry and is principally dependent on each customer'scustomer’s financial condition. Additionally,As of January 28, 2023, one customer represented 16% and another customer represented 11% of our receivables, net included in our consolidated balance sheet.
No individual customer represented greater than 10% of our consolidated net sales in Fiscal 2022, Fiscal 2021 or Fiscal 2020. However, a decision by the controlling owner of a group of stores or any significant customer to decrease the amount of merchandise purchased from us or to cease carrying our products could have an adverse effect on our results of operations in future periods. No individual customer represented greater than 10% of our consolidated net sales in Fiscal 2016, Fiscal 2015 or Fiscal 2014. As of January 28, 2017, three customers each represented 13% of our receivables included in our consolidated balance sheet.
Income taxes included in our consolidated financial statements are determined using the asset and liability method. Under this method, income taxes are recognized based on amounts of income taxes payable or refundable in the current year as well as the impact of any items that are recognized in different periods for consolidated financial
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statement reporting and tax return reporting purposes. Prepaid income taxes and income taxes payable are recognized in prepaid expenses and other accrued expenses and liabilities, respectively, in our consolidated balance sheets.
As certain amounts are recognized in different periods
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Note 1. Summary of Significant Accounting Policies (Continued)
for consolidated financial statement and tax return reporting purposes, financial statement and tax bases of assets and liabilities differ, resulting in the recognition of deferred tax assets and liabilities. The deferred tax assets and liabilities reflect the estimated future tax effects attributable to these differences, as well as the impact of net operating loss, capital loss and federal and state credit carry-backs and carry-forwards, each as determined under enacted tax laws andat rates expected to apply in the period in which such amounts are expected to be realized or settled.
We account for the effect of changes in tax laws or rates in the period of enactment.We recognize deferred tax assets to the extent we believe these assets areit is more likely than not tothat these assets will be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, taxable income in carrybackany carry-back years, tax-planning strategies, and recent results of recent operations.
Valuation allowances are established when we determine that it is more-likely-than-notmore likely than not that some portion or all of a deferred tax asset will not be realized.
Valuation allowances are analyzed periodically and adjusted as events occur or circumstances change that would indicate adjustments to the valuation allowances are appropriate. If we determine that we will be ableare more likely than not to realize our deferred tax assets in the future in excess of their net recorded amount, we will reduce the deferred tax asset valuation allowance, which will reduce income tax expense. As realization of deferred tax assets and liabilities is dependent upon future taxable income in specific jurisdictions, changes in tax laws and rates and shifts in the amount of taxable income among state and foreign jurisdictions may have a significant impact on the amount of benefit ultimately realized for deferred tax assets and liabilities. We account for the effect of changes in tax laws or rates in the period of enactment.
We utilizeAlso, we use a two-step approach for evaluating uncertain tax positions. Under the two-step method, recognition occurs when we conclude that a tax position, based solely on technical merits, is more-likely-than-notmore likely than not to be sustained upon examination. The second step, measurement, is only addressed if step one has been satisfied. The tax benefit recorded is measured as the largest amount of benefit determined on a cumulative probability basis that is more-likely-than-notmore likely than not to be realized upon ultimate settlement. Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the more-likely-than-notmore likely than not threshold or are resolved through negotiationsettlement or litigation with the relevant taxing authority, or upon expiration of the statute of limitations.limitations or otherwise. Alternatively, de-recognition of a tax position that was previously recognized occurs when we subsequently determine that a tax position no longer meets the more-likely-than-notmore likely than not threshold of being sustained. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. As of January 28, 2017 and January 30, 2016 and during Fiscal 2016, Fiscal 2015 and Fiscal 2014, we did not have any material unrecognized tax benefit amounts, including any related potential penalty or interest expense, or material changes in such amounts.
In the case of foreign subsidiaries, there are certain exceptions to the requirement that deferred tax liabilities be recognized for the difference in the financial statement and tax bases of assets. WhenIf we consider the investment to be essentially permanent in duration and the financial statement basis of the investment in a foreign subsidiary, excluding undistributed earnings, exceeds the tax basis in such investment, the deferred tax liability is not recognized if management considers the investment to be essentially permanent in duration.recognized. Further, deferred tax liabilities are not required to be recognized for undistributed earnings of foreign subsidiaries when management considerswe consider those earnings to be permanently reinvested outside the United States
. We consider substantially allStates. While distributions of our investments inforeign subsidiary earnings are generally not subject to federal tax, there are other possible tax impacts, including state taxes and undistributedforeign withholding tax, that must be considered if the earnings of our foreign subsidiariesare not considered to be permanently reinvested outsidereinvested. Further, a gain realized upon the sale of a foreign subsidiary, if any, is not exempt from federal tax and consideration must therefore be given to the impact of differences in the book and tax basis of foreign subsidiaries not arising from earnings when determining whether a liability must be recorded if the investment is not considered permanently reinvested.Additionally, United States astax regulations currently include certain tax provisions including a tax on global intangible low-taxed income (“GILTI”), disallowance of January 28, 2017deductions for certain payments (the base erosion anti-abuse tax, or “BEAT”) and thereforecertain deductions enacted for certain foreign-derived intangible income (“FDII”). While the calculations for GILTI, BEAT and FDII are complex calculations, these provisions did not have not recorded a deferred tax liabilitymaterial impact on these amounts in our consolidated financial statements.
We generally receive a United States income tax benefit upon the vesting of shares granted to employees. The benefit is equal to the difference, multiplied by the appropriateeffective tax rate betweenin Fiscal 2022, Fiscal 2021 and Fiscal 2020. We recognize the fair valueimpact of the share and the taxes payable by the employee at the time of vesting of a restricted share award. We record the tax benefit associated with the vesting of share awards granted to employeesGILTI as a reduction to income taxes payable. Prior to Fiscal 2016, to the extent the tax benefit related to the valueperiod cost.
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Note 1. SummaryOn March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law, with applicable provisions reflected in our financial statements upon enactment. This law included several taxpayer favorable provisions which impacted us, including allowing the carry-back of Significant Accounting Policies (Continued)
our Fiscal 2020 net operating losses to years prior to the enactment of the United States Tax Cuts and Jobs Act in 2017 (“U.S. Tax Reform”), resulting in an increased benefit for those losses, accelerated depreciation of certain leasehold improvement costs, relaxed interest expense limitations and certain non-income tax benefits including deferral of employer FICA payments and an employee retention credit. Substantially all of the income tax receivable in our consolidated balance sheets as of January 28, 2023 and January 29, 2022 relates to the carry-back of our Fiscal 2020 net operating losses to prior years.We file income tax returns in the United States and various state, local and foreign jurisdictions. Our federal, state, local and foreign income tax returns filed for the years ended on or before February 2, 2013,prior to Fiscal 2019, with limited exceptions, are no longer subject to examination by tax authorities.
Earnings (Loss) Per Share
Basic net earnings from continuing operations, net earnings from discontinued operations and net earnings per share amounts are calculated by dividing the respectivenet earnings amount by the weighted average shares outstanding during the period. Shares repurchased, if any, are removed from the weighted average number of shares outstanding upon repurchase and delivery.
based on the trade settlement date.Diluted net earnings from continuing operations, net earnings from discontinued operations and net earnings per share amounts are calculated similarly to the amounts above, except that the weighted average shares outstanding in the diluted calculationsnet earnings per share calculation also includesinclude the potential dilution using the treasury stock method that could occur if dilutive securities, including restricted share awards options or other dilutive awards, were converted to shares. The treasury stock method assumes that shares are issued for any restricted share awards, options or other dilutive awards that are "in the money," and that we use the proceeds received to repurchase shares at the average market value of our shares for the respective period. For purposes of the treasury stock method, proceeds consist of cash to be paid and future compensation expense to be recognized.
recognized and any cash to be paid. Performance-based and market-based restricted share units are included in the computation of diluted shares only to the extent that the underlying performance or market conditions (1) have been satisfied as of the end of the reporting period or (2) if the measurement criteria has been satisfied and the result would be dilutive, even if the contingency period has not ended as of the end of the reporting period.In periods that we incur a loss, we exclude restricted shares or restricted share unit awards as including the awards would be anti-dilutive. During Fiscal 2020, there were 0.4 million restricted shares and restricted share units outstanding that were excluded from the diluted earnings (loss) per share calculation. No restricted shares or restricted share units were excluded from the diluted earnings per share calculation for Fiscal 2022 or Fiscal 2021.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported as assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Changes to our estimates and assumptions could have a material impact on our consolidated financial statements.Accounting Standards Adopted in Fiscal 2016
In March 2016, the FASB2022No recently issued an update to the accounting guidance on equity compensation with the intent of simplifying and improving the accounting and statement of cash flow presentation for income taxes at settlement, forfeitures, and settlements for withholding taxes. We early adopted this guidance in Fiscal 2016 resulting in no2022 had a material impact on our consolidated financial statements in Fiscal 2016. This guidance was adopted prospectively with no adjustmentsupon adoption or is expected to prior periods. This guidance may have a material impact on our effective tax rate and income tax expense in future periods, depending in part on whether significant restricted stock awards vest and if the priceperiods.
Recently Issued Accounting Standards Applicable to Future Years
In May 2014, the FASB issued guidance which provides a single, comprehensiveRecent accounting model for revenue arising from contracts with customers. This guidance has been revised and clarified through various supplementalpronouncements pending adoption guidance subsequentare either not applicable or not expected to May 2014. This new revenue recognition guidance supersedes most of the existing revenue recognition guidance which specifies that revenue is recognized when risks and rewards transfer to a customer. Under the new guidance, revenue will be recognized pursuant to a five-step approach to revenue recognition: (1) identify the contracts with the customer; (2) identify the separate performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. The new guidance also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flow arising from customer contracts, including significant judgments and changes in judgments. The new guidance is effective for us beginning in Fiscal 2018, and may be applied via the full retrospective method to all prior periods presented or through the modified retrospective method as a cumulative adjustment to the opening retained earnings balance at the date of initial adoption. We have not finalized our determination of our adoption method. We have initiated a review of revenue streams including retail, e-commerce, wholesale and royalty income to evaluate the impact of the adoption of the revised guidance on our consolidated financial statements, but have not completed the assessment of the impact of adopting the new guidance on our consolidated financial statements.
In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet. For these leases we will be required to recognize a right to use asset and lease liability for the obligation created by the leases. This guidance will be effective in 2019 with early adoption permitted. The guidance requires the use of the modified retrospective transition approach. We are in process of evaluating the
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Note 1. Summary of Significant Accounting Policies (Continued)
impact of the new guidance on our consolidated financial statements, but considering our in-place operating leases, we anticipate that the new lease guidance will have a significant impact on our consolidated balance sheet for the recognition of the lease related assets and liabilities.
In June 2016, the FASB issued revised guidance on the measurement of credit losses on financial instruments, which amends the impairment model by requiring companies to use a forward-looking approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables. This guidance will be effective in 2020 with early adoption permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.
In October 2016, the FASB issued revised guidance on the recognition of current and deferred income taxes for intra-entity asset transfers. The revised guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. This guidance will be effective in 2018 with early adoption permitted. The guidance requires the use of the modified retrospective method of adoption which results in a cumulative adjustment to retained earnings as of the beginning of the period of adoption. We are currently assessing the impact that adopting the guidance will have on our consolidated financial statements.
In January 2017, the FASB issued revised guidance on the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. The single quantitative step test requires companies to compare the fair value of a reporting unit with its carrying amount and record an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. This guidance will be effective in 2020 with early adoption permitted for goodwill impairment testing dates after January 1, 2017.
In January 2017, the FASB issued new guidance that provides a more narrow framework to be used in evaluating whether a set of assets and activities constitute a business. The guidance will be effective in Fiscal 2018 with early adoption permitted. We expect that we will apply this guidance to any future business combination. Thematerial impact on our consolidated financial statements will depend on the facts and circumstances of any specific future transactions.
statements.
Our business is primarily operated through our Tommy Bahama, Lilly Pulitzer, Lanier Apparel and Southern Tide operating groups. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand'sbrand’s direct to consumer, wholesale and licensing operations, as applicable.
With our acquisition of Johnny Was on September 19, 2022, our business is organized as our Tommy Bahama, Lilly Pulitzer, Johnny Was and Emerging Brands operating groups. Results for periods prior to Fiscal 2022 also include the Lanier Apparel operating group, which we exited in Fiscal 2021.Tommy Bahama, Lilly Pulitzer and Southern TideJohnny Was each design, source, market and distribute apparel and related products bearing their respective trademarks and alsomay license their trademarks for other product categories,categories. The Emerging Brands operating group, which was organized in Fiscal 2022, consists of the operations of our smaller, earlier stage Southern Tide, TBBC and Duck Head brands. In prior years, Southern Tide was reported as a separate operating group, while Lanier Apparelboth TBBC and Duck Head were included in Corporate and Other. All prior year amounts have been restated to conform to the current year presentation.
Each of the brands included in Emerging Brands designs, sources, markets and distributes brandedapparel and private label men's tailored clothing, sportswearrelated products bearing its respective trademarks and is supported by Oxford’s emerging brands team that provides certain support functions to the smaller brands, including marketing and advertising execution, analysis and other products. functions. The shared resources provide for operating efficiencies and enhanced knowledge sharing across the brands.
Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, the elimination of inter-segment sales, LIFO inventory accounting adjustments,any other costsitems that are not allocated to the operating groups, and operations ofincluding LIFO inventory accounting adjustments as our other businesses which are not included in our operating groups, including our Lyons, Georgia distribution center operations. Our LIFO inventory pool does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated todefinitions, and the operations of our operating groups.Lyons, Georgia distribution center and our Oxford America business, which we exited in Fiscal 2022.
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tables below present certain financial information (in thousands) about our reportable operating groups, as well as Corporate and Other. Amounts associated with our Ben Sherman operations, which were sold in Fiscal 2015, are classified as discontinued
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Net sales | | | | | | | | | |
Tommy Bahama | | $ | 880,233 | | $ | 724,305 | | $ | 419,817 |
Lilly Pulitzer | | | 339,266 | | | 298,995 | | | 231,078 |
Johnny Was (1) | | | 72,591 | | | — | | | — |
Emerging Brands | | | 116,484 | | | 90,053 | | | 58,200 |
Lanier Apparel (2) | | | — | | | 24,858 | | | 38,796 |
Corporate and Other | | | 2,954 | | | 3,868 | | | 942 |
Consolidated net sales | | $ | 1,411,528 | | $ | 1,142,079 | | $ | 748,833 |
| | | | | | | | | |
Depreciation and amortization | | | | | | | | | |
Tommy Bahama | | $ | 26,807 | | $ | 27,830 | | $ | 46,698 |
Lilly Pulitzer | | | 12,784 | | | 11,678 | | | 9,965 |
Johnny Was (1) | | | 7,199 | | | — | | | — |
Emerging Brands | | | 1,582 | | | 1,298 | | | 1,175 |
Lanier Apparel (2) | | | — | | | 107 | | | 1,239 |
Corporate and Other | | | 663 | | | 685 | | | 837 |
Consolidated depreciation and amortization | | $ | 49,035 | | $ | 41,598 | | $ | 59,914 |
| | | | | | | | | |
Operating income (loss) | | | | | | | | | |
Tommy Bahama | | $ | 172,761 | | $ | 111,733 | | $ | (53,310) |
Lilly Pulitzer | | | 67,098 | | | 63,601 | | | 27,702 |
Johnny Was (1) | | | (1,544) | | | — | | | — |
Emerging Brands (3) | | | 15,602 | | | 16,649 | | | (62,724) |
Lanier Apparel (2) | | | — | | | 4,888 | | | (26,654) |
Corporate and Other (4) | | | (35,143) | | | (31,368) | | | (8,863) |
Consolidated operating income (loss) | | | 218,774 | | | 165,503 | | | (123,849) |
Interest expense, net | | | 3,049 | | | 944 | | | 2,028 |
Earnings (loss) before income taxes | | $ | 215,725 | | $ | 164,559 | | $ | (125,877) |
| (1) | Amount included for Johnny Was represents the post-acquisition period only. |
| (2) | In Fiscal 2021, we exited our Lanier Apparel business, which is discussed in more detail in Note 11. |
| (3) | The operating loss for Emerging Brands in Fiscal 2020 included a $60 million impairment charge for goodwill and intangible assets of Southern Tide, with no such charges in Fiscal 2022 or Fiscal 2021. |
| (4) | The operating loss for Corporate and Other included a LIFO accounting charge of $3 million, charge of $16 million and credit of $9 million in Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. During Fiscal 2022 and Fiscal 2021, the operating loss for Corporate and Other also included $3 million of transaction expenses and integration costs associated with the Johnny Was acquisition and a gain on sale of an unconsolidated entity of $12 million, respectively. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Operating Groups (Continued)
operations as disclosed in Note 13 and therefore excluded from the tables below. |
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Net Sales | | | |
| Tommy Bahama | $ | 658,911 |
| $ | 658,467 |
| $ | 627,498 |
|
| Lilly Pulitzer | 233,294 |
| 204,626 |
| 167,736 |
|
| Lanier Apparel | 100,753 |
| 105,106 |
| 126,430 |
|
| Southern Tide | 27,432 |
| — |
| — |
|
| Corporate and Other | 2,198 |
| 1,091 |
| (1,339 | ) |
| Total | $ | 1,022,588 |
| $ | 969,290 |
| $ | 920,325 |
|
| Depreciation and Amortization of Intangible Assets | | | |
| Tommy Bahama | $ | 31,796 |
| $ | 28,103 |
| $ | 27,412 |
|
| Lilly Pulitzer | 7,968 |
| 5,644 |
| 4,616 |
|
| Lanier Apparel | 478 |
| 456 |
| 350 |
|
| Southern Tide | 390 |
| — |
| — |
|
| Corporate and Other | 1,451 |
| 1,557 |
| 2,186 |
|
| Total | $ | 42,083 |
| $ | 35,760 |
| $ | 34,564 |
|
| Operating Income (Loss) | | | |
| Tommy Bahama | $ | 44,101 |
| $ | 65,993 |
| $ | 71,132 |
|
| Lilly Pulitzer | 51,995 |
| 42,525 |
| 32,190 |
|
| Lanier Apparel | 6,955 |
| 7,700 |
| 10,043 |
|
| Southern Tide | (282 | ) | — |
| — |
|
| Corporate and Other | (12,885 | ) | (18,704 | ) | (20,546 | ) |
| Total operating income | 89,884 |
| 97,514 |
| 92,819 |
|
| Interest expense, net | 3,421 |
| 2,458 |
| 3,236 |
|
| Earnings Before Income Taxes | $ | 86,463 |
| $ | 95,056 |
| $ | 89,583 |
|
| | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Purchases of Property and Equipment | | | | | | | | | |
Tommy Bahama | | $ | 17,019 | | $ | 12,887 | | $ | 19,666 |
Lilly Pulitzer | | | 23,990 | | | 17,305 | | | 7,059 |
Johnny Was | | | 1,655 | | | — | | | — |
Emerging Brands | | | 3,176 | | | 1,405 | | | 1,708 |
Lanier Apparel | | | — | | | 5 | | | 21 |
Corporate and Other | | | 828 | | | 292 | | | 470 |
Purchases of Property and Equipment | | $ | 46,668 | | $ | 31,894 | | $ | 28,924 |
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Total Assets | | | | | | |
Tommy Bahama (1) | | $ | 569,833 | | $ | 531,678 |
Lilly Pulitzer (2) | | | 211,119 | | | 176,757 |
Johnny Was (3) | | | 334,603 | | | — |
Emerging Brands (4) | | | 91,306 | | | 66,825 |
Lanier Apparel (5) | | | — | | | 207 |
Corporate and Other (6) | | | (18,196) | | | 182,175 |
Total Assets | | $ | 1,188,665 | | $ | 957,642 |
|
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Purchases of Property and Equipment | | | |
| Tommy Bahama | $ | 34,191 |
| $ | 54,490 |
| $ | 35,782 |
|
| Lilly Pulitzer | 14,142 |
| 17,197 |
| 7,335 |
|
| Lanier Apparel | 295 |
| 206 |
| 1,740 |
|
| Southern Tide | 27 |
| — |
| — |
|
| Corporate and Other | 760 |
| 529 |
| 1,208 |
|
| Total | $ | 49,415 |
| $ | 72,422 |
| $ | 46,065 |
|
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Operating Groups (Continued)
| (1) | Increase in Tommy Bahama total assets includes increases in inventories, receivables and prepaid expenses partially offset by reduction in non-current assets, including operating lease assets and property and equipment. |
| (2) | Increase in Lilly Pulitzer total assets includes increases in inventories, property and equipment, receivables and prepaid expenses partially offset by reductions in operating lease assets. |
| (3) | The Johnny Was business was acquired on September 19, 2022. |
| (4) | Increase in Emerging Brands total assets includes increases in inventories and non-current assets, including operating lease assets and property and equipment. |
| (5) | Decrease in Lanier Apparel total assets is due to the exit of the Lanier Apparel business during Fiscal 2021. |
| (6) | Decrease in Corporate and Other total assets includes reductions in short-term investments, cash and cash equivalents, which were used to fund a portion of the acquisition purchase price for Johnny Was, and reductions in inventories, primarily due to the impact of LIFO accounting, and reductions in non-current assets, including operating lease assets. |
|
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| Total Assets | | |
| Tommy Bahama | $ | 451,990 |
| $ | 458,234 |
|
| Lilly Pulitzer | 126,506 |
| 115,419 |
|
| Lanier Apparel | 30,269 |
| 35,451 |
|
| Southern Tide | 96,208 |
| — |
|
| Corporate and Other | (19,814 | ) | (26,414 | ) |
| Total | $ | 685,159 |
| $ | 582,690 |
|
Net book value of our property and equipment and net sales by geographic area isare presented in the tables below (in thousands):
|
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| United States | $ | 186,549 |
| $ | 178,390 |
|
| Other foreign (1) | 7,382 |
| 5,704 |
|
| Total | $ | 193,931 |
| $ | 184,094 |
|
(1). The
net book value of our property and equipment outside of the United Statesother foreign amounts primarily
relatesrelate to
property and equipment associated with our Tommy Bahama operations in Canada
Australia and
Japan.Australia.
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Net Book Value of Property and Equipment | | | | | | |
United States | | $ | 174,044 | | $ | 149,352 |
Other foreign | | | 3,540 | | | 3,095 |
| | $ | 177,584 | | $ | 152,447 |
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Net Sales | | | | | | | | | |
United States | | $ | 1,372,278 | | $ | 1,112,384 | | $ | 728,308 |
Other foreign | | | 39,250 | | | 29,695 | | | 20,525 |
| | $ | 1,411,528 | | $ | 1,142,079 | | $ | 748,833 |
The tables below quantify net sales, recognized by geographic area is presented belowfor each operating group and in total (in thousands):
|
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| United States | $ | 986,062 |
| $ | 932,878 |
| $ | 885,271 |
|
| Other foreign (1) | 36,526 |
| 36,412 |
| 35,054 |
|
| Total | $ | 1,022,588 |
| $ | 969,290 |
| $ | 920,325 |
|
(1) The, and the percentage of net sales
outsideby distribution channel for each operating group and in total, for each period presented, except that the amounts included for Johnny Was represent the post-acquisition period only. We have calculated all percentages below based on actual data, and percentages may not add to 100 due to rounding.
| | | | | | | | | | | | | | |
| | Fiscal 2022 | |
| | Net Sales | | Retail | | E‑commerce | | Food & Beverage | | Wholesale | | Other | |
Tommy Bahama | | $ | 880,233 | | 46 | % | 24 | % | 13 | % | 17 | % | — | % |
Lilly Pulitzer | | | 339,266 | | 33 | % | 51 | % | — | % | 16 | % | — | % |
Johnny Was | | | 72,591 | | 36 | % | 42 | % | — | % | 22 | % | — | % |
Emerging Brands | | | 116,484 | | 6 | % | 42 | % | — | % | 52 | % | — | % |
Lanier Apparel | | | — | | — | % | — | % | — | % | — | % | — | % |
Corporate and Other | | | 2,954 | | — | % | — | % | — | % | 43 | % | 57 | % |
Consolidated net sales | | $ | 1,411,528 | | 39 | % | 33 | % | 8 | % | 20 | % | — | % |
| | | | | | | | | | | | | | |
| | Fiscal 2021 | |
| | Net Sales | | Retail | | E‑commerce | | Food & Beverage | | Wholesale | | Other | |
Tommy Bahama | | $ | 724,305 | | 47 | % | 25 | % | 13 | % | 15 | % | — | % |
Lilly Pulitzer | | | 298,995 | | 34 | % | 50 | % | — | % | 16 | % | — | % |
Johnny Was | | | — | | — | % | — | % | — | % | — | % | — | % |
Emerging Brands | | | 90,053 | | 5 | % | 39 | % | — | % | 56 | % | — | % |
Lanier Apparel | | | 24,858 | | — | % | — | % | — | % | 100 | % | — | % |
Corporate and Other | | | 3,868 | | — | % | — | % | — | % | 61 | % | 39 | % |
Consolidated net sales | | $ | 1,142,079 | | 39 | % | 32 | % | 8 | % | 20 | % | — | % |
| | | | | | | | | | | | | | |
| | Fiscal 2020 | |
| | Net Sales | | Retail | | E‑commerce | | Food & Beverage | | Wholesale | | Other | |
Tommy Bahama | | $ | 419,817 | | 37 | % | 36 | % | 11 | % | 16 | % | — | % |
Lilly Pulitzer | | | 231,078 | | 20 | % | 64 | % | — | % | 16 | % | — | % |
Johnny Was | | | — | | — | % | — | % | — | % | — | % | — | % |
Emerging Brands | | | 58,200 | | 3 | % | 45 | % | — | % | 52 | % | — | % |
Lanier Apparel | | | 38,796 | | — | % | — | % | — | % | 100 | % | — | % |
Corporate and Other | | | 942 | | — | % | — | % | — | % | — | % | 100 | % |
Consolidated net sales | | $ | 748,833 | | 27 | % | 43 | % | 6 | % | 23 | % | — | % |
Note 3. Property and Equipment, Net
Property and equipment, carried at cost,net, is summarized as follows (in thousands):
|
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| Land | $ | 3,166 |
| $ | 3,166 |
|
| Buildings and improvements | 34,986 |
| 31,461 |
|
| Furniture, fixtures, equipment and technology | 185,498 |
| 167,230 |
|
| Leasehold improvements | 223,253 |
| 208,472 |
|
| Subtotal | 446,903 |
| 410,329 |
|
| Less accumulated depreciation and amortization | (252,972 | ) | (226,235 | ) |
| Total property and equipment, net | $ | 193,931 |
| $ | 184,094 |
|
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Land | | $ | 3,090 | | $ | 3,135 |
Buildings and improvements | | | 32,495 | | | 32,090 |
Furniture, fixtures, equipment and technology | | | 278,589 | | | 242,759 |
Leasehold improvements | | | 255,955 | | | 233,988 |
| | | 570,129 | | | 511,972 |
Less accumulated depreciation and amortization | | | (392,545) | | | (359,525) |
Property and equipment, net | | $ | 177,584 | | $ | 152,447 |
Note 4. Intangible Assets and Goodwill
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4. Intangible Assets and Goodwill (Continued)
Intangible assets by category are summarized below (in thousands):
|
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| Intangible assets with finite lives | $ | 46,030 |
| $ | 38,897 |
|
| Accumulated amortization | (35,785 | ) | (33,359 | ) |
| Total intangible assets with finite lives, net | 10,245 |
| 5,538 |
|
| | | |
| Intangible assets with indefinite lives: | | |
| Trademarks | 165,000 |
| 138,200 |
|
| Total intangible assets, net | $ | 175,245 |
| $ | 143,738 |
|
The changes in carrying amount of intangible | | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Intangible assets with finite lives | | $ | 108,513 | | $ | 51,929 |
Accumulated amortization and impairment | | | (50,068) | | | (44,122) |
Total intangible assets with finite lives, net | | | 58,445 | | | 7,807 |
| | | | | | |
Intangible assets with indefinite lives: | | | | | | |
Tommy Bahama Trademark | | $ | 110,700 | | $ | 110,700 |
Lilly Pulitzer Trademark | | | 27,500 | | | 27,500 |
Johnny Was Trademark | | | 77,900 | | | — |
Southern Tide Trademark | | | 9,300 | | | 9,300 |
Total intangible assets with indefinite lives | | $ | 225,400 | | $ | 147,500 |
| | | | | | |
Total intangible assets, net | | $ | 283,845 | | $ | 155,307 |
Intangible assets, by operating group and in total, for Fiscal 2016,2020, Fiscal 20152021 and Fiscal 20142022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Tommy | | Lilly | | Johnny | | Emerging | | Lanier | | Corporate | | | |
| | Bahama | | Pulitzer | | Was | | Brands | | Apparel | | and Other | | Total |
Balance, February 1, 2020 | | $ | 110,700 | | $ | 28,741 | | $ | — | | $ | 35,349 | | $ | 215 | | $ | — | | $ | 175,005 |
Acquisition | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Impairment | | | — | | | — | | | — | | | (17,500) | | | (207) | | | — | | | (17,707) |
Amortization | | | — | | | (424) | | | — | | | (679) | | | (8) | | | — | | | (1,111) |
Balance January 30, 2021 | | $ | 110,700 | | $ | 28,317 | | $ | — | | $ | 17,170 | | $ | — | | $ | — | | $ | 156,187 |
Acquisition | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Impairment | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Amortization | | | — | | | (220) | | | — | | | (660) | | | — | | | — | | | (880) |
Balance, January 29, 2022 | | $ | 110,700 | | $ | 28,097 | | $ | — | | $ | 16,510 | | $ | — | | $ | — | | $ | 155,307 |
Acquisition | | | — | | | — | | | 134,640 | | | — | | | — | | | — | | | 134,640 |
Impairment | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Amortization | | | — | | | (238) | | | (5,194) | | | (670) | | | — | | | — | | | (6,102) |
Balance, January 28, 2023 | | $ | 110,700 | | $ | 27,859 | | $ | 129,446 | | $ | 15,840 | | $ | — | | $ | — | | $ | 283,845 |
|
| | | | | | | | | | | | | | | |
| | Tommy Bahama | Lilly Pulitzer | Lanier Apparel | Southern Tide | Total |
| Balance, February 1, 2014 | $ | 119,858 |
| $ | 29,310 |
| $ | — |
| $ | — |
| $ | 149,168 |
|
| Amortization | (2,004 | ) | (278 | ) | — |
| — |
| (2,282 | ) |
| Other, including foreign currency changes | (752 | ) | — |
| — |
| — |
| (752 | ) |
| Balance, January 31, 2015 | 117,102 |
| 29,032 |
| — |
| — |
| 146,134 |
|
| Amortization | (1,688 | ) | (238 | ) | — |
| — |
| (1,926 | ) |
| Other, including foreign currency changes | (470 | ) | — |
| — |
| — |
| (470 | ) |
| Balance, January 30, 2016 | 114,944 |
| 28,794 |
| — |
| — |
| 143,738 |
|
| Acquisition | — |
| — |
| 3,137 |
| 30,240 |
| 33,377 |
|
| Amortization | (1,599 | ) | (199 | ) | (89 | ) | (263 | ) | (2,150 | ) |
| Other, including foreign currency changes | 280 |
| — |
| — |
| — |
| 280 |
|
| Balance, January 28, 2017 | $ | 113,625 |
| $ | 28,595 |
| $ | 3,048 |
| $ | 29,977 |
| $ | 175,245 |
|
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Based on the current estimated useful lives assigned to our intangible assets, amortization expense for each of the next five years is expected to be $2.2$15 million, $1.5$11 million, $0.6$8 million, $0.6$6 million and $0.6$4 million.
The changes in the carrying amount of goodwillGoodwill, by operating group and in total, for Fiscal 2016,2020, Fiscal 20152021 and Fiscal 2014 are2022 is as follows (in thousands):
|
| | | | | | | | | | | | |
| | Tommy Bahama | Lilly Pulitzer | Southern Tide | Total |
| Balance, February 1, 2014 | $ | 904 |
| $ | 16,495 |
| $ | — |
| $ | 17,399 |
|
| Other, including foreign currency changes | (103 | ) | — |
| — |
| $ | (103 | ) |
| Balance, January 31, 2015 | 801 |
| 16,495 |
| — |
| 17,296 |
|
| Other, including foreign currency changes | (73 | ) | — |
| | $ | (73 | ) |
| Balance, January 30, 2016 | 728 |
| 16,495 |
| — |
| 17,223 |
|
| Acquisition | — |
| — |
| 42,745 |
| $ | 42,745 |
|
| Other, including foreign currency changes | 47 |
| — |
| — |
| $ | 47 |
|
| Balance, January 28, 2017 | $ | 775 |
| $ | 16,495 |
| $ | 42,745 |
| $ | 60,015 |
|
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | |
| | Tommy | | Lilly | | Johnny | | Emerging | | Corporate | | | |
| | Bahama | | Pulitzer | | Was | | Brands | | and Other | | Total |
Balance, February 1, 2020 | | $ | 711 | | $ | 19,522 | | $ | — | | $ | 46,345 | | $ | — | | $ | 66,578 |
Acquisition | | | — | | | — | | | — | | | — | | | — | | | — |
Impairment | | | — | | | — | | | — | | | (42,745) | | | — | | | (42,745) |
Other, including foreign currency | | | 77 | | | — | | | — | | | — | | | — | | | 77 |
Balance January 30, 2021 | | $ | 788 | | $ | 19,522 | | $ | — | | $ | 3,600 | | $ | — | | $ | 23,910 |
Acquisition | | | — | | | — | ��� | | — | | | — | | | — | | | — |
Impairment | | | — | | | — | | | — | | | — | | | — | | | — |
Other, including foreign currency | | | (41) | | | — | | | — | | | — | | | — | | | (41) |
Balance, January 29, 2022 | | $ | 747 | | $ | 19,522 | | $ | — | | $ | 3,600 | | $ | — | | $ | 23,869 |
Acquisition | | | — | | | — | | | 96,637 | | | — | | | — | | | 96,637 |
Impairment | | | — | | | — | | | — | | | — | | | — | | | — |
Other, including foreign currency | | | (8) | | | — | | | — | | | — | | | — | | | (8) |
Balance, January 28, 2023 | | $ | 739 | | $ | 19,522 | | $ | 96,637 | | $ | 3,600 | | $ | — | | $ | 120,498 |
No impairment was required based on our annual tests for impairment of goodwill and intangible assets with indefinite lives performed as of the first day of the Fourth Quarter of Fiscal 2022, Fiscal 2021 or Fiscal 2020. As discussed in Note 4. Intangible Assets1, starting in Fiscal 2020 the COVID-19 pandemic had a significant negative impact on each of our operating groups. Thus, certain goodwill and Goodwill (Continued)
The goodwillindefinite-lived intangible asset impairment testing was required in the First Quarter of Fiscal 2020, which resulted in significant impairment charges related to Southern Tide, which is included in our Emerging Brands operating group, as shown in the balance sheet for Tommy Bahamatables above. Impairment of goodwill and Lilly Pulitzer is deductible for tax purposes, while the majority of the goodwillintangible assets are included in the balance sheetimpairment of goodwill and intangible assets in our consolidated statements of operations. No interim impairment tests were required for Southern Tide is deductible for tax purposes.
any other interim periods of Fiscal 2022, Fiscal 2021 or Fiscal 2020.
Note 5. Debt
We had $91.5 million outstanding asAs of January 28, 20172023 and January 29, 2022, we had $119 million and no amounts outstanding, respectively, under our $325 million Fourth Amended and Restated Credit Agreement ("(as amended, the “U.S. Revolving Credit Agreement”). On March 6, 2023, we amended the U.S. Revolving Credit Agreement") comparedAgreement by entering into the Second Amendment to $44.0 million of borrowings outstanding as of January 30, 2016 under our Thirdthe Fourth Amended and Restated Credit Agreement ("Prior Credit Agreement"). On May 24, 2016, the U.S. Revolving Credit Agreement amended and restated the Prior Credit Agreement to, (i) increase the borrowing capacity of the facility, (ii)among other things, (1) extend the maturity of the facility from July 2024 to March 2028 and (iii)(2) modify certain other provisions and restrictions of the Prioragreement. Pursuant to the amended agreement, the interest rate applicable to our borrowings under the U.S. Revolving Credit Agreement. Agreement will be based on either the Secured Overnight Financing Rate plus an applicable margin of 135 to 185 basis points or prime plus an applicable margin of 35 to 85 basis points.
The U.S. Revolving Credit Agreement generally (i)(1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (ii)(2) accrues variable-rate interest (weighted average borrowinginterest rate of 2.3%6% as of January 28, 2017)2023), unused line fees and letter of credit fees based upon average utilization or unused availability, or utilization, (iii)as applicable, (3) requires periodic interest payments with principal due at maturity (May 2021) and (iv)(4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and substantially all of its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property. The May 24, 2016 amendment and restatement resulted in a write off
To the extent cash flow needs in the future exceed cash flow provided by our operations, we will have access, subject to its terms, to our U.S. Revolving Credit Agreement to provide funding for operating activities, as well as any capital expenditures, acquisitions, and acquisitions, if any.other investing or financing activities. Our credit facility isU.S. Revolving Credit Agreement may also be used to establish collateral for certain insurance programs and leases and to finance trade letters of credit for certain product purchases, which reduce the amounts available under our line of credit when issued. As of January 28, 2017, $4.72023, $7 million of letters of credit were outstanding againstunder our U.S. Revolving Credit Agreement. After considering these limitations and the amount of eligible assets in our borrowing base, as applicable, as of January 28, 2017,2023, we had $185.5$199 million in unused availability under the U.S. Revolving Credit Agreement, subject to certain limitations on borrowings.
Covenants, Other Restrictions and Prepayment Penalties
The U.S. Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the U.S. Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (i)(1) incur debt, (ii)(2) guaranty certain obligations, (iii)(3) incur liens, (iv)(4) pay dividends to shareholders, (v)(5) repurchase shares of our common stock, (vi)(6) make investments, (vii)(7) sell assets or stock of subsidiaries, (viii)(8) acquire assets or businesses, (ix)(9) merge or consolidate with other companies or (x)(10) prepay, retire, repurchase or redeem debt.
Additionally, the U.S. Revolving Credit Agreement contains a financial covenant that applies only if excess availability under the agreement for three consecutive business days is less than the greater of (i)
$23.5(1) $23.5 million or (ii) (2) 10% of availability. In such case, our fixed charge coverage ratio as defined in the U.S. Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the U.S. Revolving Credit Agreement of more than the greater of (i) $23.5(1) $23.5 million or (ii) (2) 10% of availability for 30 consecutive days.We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the U.S. Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we entered intoamended the U.S. Revolving Credit Agreement. During Fiscal 20162022 and as of January 28, 2017,2023, no financial covenant testing was required pursuant to our U.S. Revolving Credit Agreement or Prior Credit Agreement as the minimum availability threshold was met at all times. As of January 28, 2017,2023, we were compliant with all applicable covenants related to the U.S. Revolving Credit Agreement.
Note 6. CommitmentsLeases and Contingencies
We haveOther CommitmentsFor Fiscal 2022, operating lease agreements for retail space, restaurants, warehouses and sales and administrative offices as well as equipment with varying terms. Total rent expense, which includes minimum rents, real estate taxes, insuranceamounts used in determining the operating lease liability and otheroperating lease asset was $61 million and variable lease expense was $43 million, resulting in total lease expense of $104 million. For Fiscal 2021, operating lease expense, which includes amounts used in determining the operating lease liability and operating lease asset was $58 million and variable lease expense was $35 million, resulting in total lease expense of $93 million. For Fiscal 2020, operating lease expense was $64 million and variable lease expense was $30 million, resulting in total lease expense of $93 million. As of January 28, 2023 and January 29, 2022, the weighted-average remaining operating lease term was six years and five years, respectively, and the weighted-average discount rate for operating leases was 4.7% and 3.8%, respectively. Cash paid for lease amounts included in the measurement of operating lease liabilities in Fiscal 2022, Fiscal 2021 and Fiscal 2020 was $75 million, $70 million and $63 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. Commitments and Contingencies (Continued)
As of January 28, 2023, the required lease liability payments, which include base rent amounts but excludes payments for real estate taxes, sales taxes, insurance, other operating expenses and contingent rents incurred under all leases was $87.8 million, $82.6 million and $72.8 million in Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively. Most of our leases provide for payments of real estate taxes, insurance and other operating expenses applicable to the property and most of our retail leases also provide for contingent rent based on retail sales. Payments for real estate taxes, insurance, other operating expenses and contingent percentage rent are included in rent expense above, but are generally not included in the aggregate minimum rental commitments below, as, in many cases, the amounts payable in future periods are not quantified in the lease agreement and are dependent on future events. The total amount of such charges included in total rent expense above were $23.9 million, $22.1 million and $19.3 million in Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively, which includes $1.1 million, $1.0 million and $0.9 million of contingent percentage rent during Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.
As of January 28, 2017, the aggregate minimum base rental commitments for all non-cancelable operating real property leases with original terms in excess of one year are $66.2 million, $62.5 million, $59.4 million, $56.4 million, $53.9 million for each of the next five years and $175.0 million thereafter.
As of January 28, 2017, we are also obligated under certain apparel license and design agreements, to make future minimum royalty and advertising payments of $5.9 million, $4.7 million, $4.4 million, $4.3 million, $3.3 million for each of the next five years and none thereafter. These amounts do not include amounts, if any, that exceed the minimums required pursuant to the agreements.
During the 1990s, we discovered the presence of hazardous waste on one of our properties. We believe that remedial action will be required, including continued investigation, monitoring and treatment of groundwater and soil, although the timing of such remedial action is uncertain. As of January 28, 2017 and January 30, 2016, the reserve for the remediation of this site was $1.2 million and $1.2 million, respectively, which is included in other non-current liabilities in our consolidated balance sheets. The amount recorded represents our estimate of the costs, on an undiscounted basis, to clean up the site, based on currently available information. This estimate may change in future periodsfiscal years specified below were as more information on the remediation activities required and timing of those activities become known. No material amounts related to this reserve were recorded in the statements of operations in Fiscal 2016, Fiscal 2015 or Fiscal 2014.
During Fiscal 2016, we collected and recognized a benefit of $1.9 million in connection with settlements of certain outstanding economic loss claims filed pursuant to the Deepwater Horizon Economic and Property Damages Settlement Program. Additionally, in Fiscal 2016, we recognized a charge of $1.3 million related to an assertion of underpaid customs duties concerning the method used to determine the dutiable value of imported inventory. The charge reflects the full amount of the assessment through January 28, 2017. We have appealed this assessment in accordance with the standard procedures of the relevant customs authorities. The charge may be adjusted or reversed as the matter progresses and additional information becomes available, but the outcome is subject to risk and uncertainty. Both of these matters were recognized in cost of goods sold in Tommy Bahama.
follows (in thousands): | | | |
| | Operating lease |
2023 | | | 82,744 |
2024 | | | 66,153 |
2025 | | | 50,079 |
2026 | | | 42,917 |
2027 | | | 29,762 |
After 2027 | | | 64,261 |
Total lease payments | | $ | 335,916 |
Less: Difference between discounted and undiscounted lease payments | | | 41,342 |
Present value of lease liabilities | | $ | 294,574 |
Note 7. Shareholders'Shareholders’ Equity
We had
60 million shares of $1.00$1.00 par value per share common stock authorized for issuance as of January 28, 20172023 and January 30, 2016. We29, 2022. As of January 28, 2023 and January 29, 2022, we had 16.816 million shares and 16.617 million shares, respectively, of common stock issued and outstanding.Dividends
During Fiscal 2022, Fiscal 2021 and Fiscal 2020, we paid $35 million, $28 million and $17 million, respectively, of dividends to our shareholders. Although we have paid dividends in each quarter since we became a public company in July 1960, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facility, other debt instruments or applicable law limit our ability to pay dividends.
Share Repurchases
During Fiscal 2022, Fiscal 2021 and Fiscal 2020, we repurchased $92 million, $8 million and $18 million, respectively in open market transactions. Additionally, during Fiscal 2022, Fiscal 2021 and Fiscal 2020, we purchased $3 million, $3 million and $2 million, respectively, of shares from our employees to cover employee tax liabilities related to the vesting of shares of our stock.
On December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock in open market transactions. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. Through January 28, 2023, we repurchased in open market transactions 1.1 million shares of our common stock for $100 million, an average price of $90 per share, pursuant to the Board of Directors’ December 7, 2021 authorization. As of January 28, 2023, $50 million of the authorization remained available for future repurchases of our common stock.
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred Stock
We had 30 million shares of $1.00 par value preferred stock authorized for issuance as of January 28, 2023 and January 29, 2022. No preferred shares were issued or outstanding as of January 28, 2017 and2023 or January 30, 2016, respectively.
29, 2022.Note 8. Equity Compensation
Long-Term Stock Incentive Plan
and Equity Compensation ExpenseAs of January 28, 2017, 1.0 million2023, shares were available for issuance under our Long-Term Stock Incentive Plan (the "Long-Term“Long- Term Stock Incentive Plan"Plan”). were less than 1 million shares, which includes the additional shares approved for grant under the Long-Term Stock Incentive Plan by shareholders in June 2022. The Long-Term Stock Incentive Plan allows us to grant equity-based awards to employees and non-employee directors in the form of, among other things, stock options, stock appreciation rights, restricted shares and/or restricted share units.
No additional grantsshares are available under any predecessor plans. RestrictedThe specific provisions of restricted share awards are evidenced by agreements with the employee as determined by the compensation committee of our Board of Directors. Restricted shares and restricted share unit awardsunits granted to officers and other key employees in recent years generally vest
three or four years from the date of grant if (1) the performance or market threshold, if any, was met and (2) the employee is still employed by us on the vesting date. The employee generally is restricted from transferring or selling any restricted shares or restricted share units and forfeits the awards upon the termination of employment prior to the end of the vesting period. The restricted share awards granted during Fiscal 2022 include certain clauses related to accelerated vesting upon the occurrence of qualifying retirement, death or disability of the employee prior to the vesting date, while the restricted share awards granted in prior years did not include such clauses.In recent years, we have granted a combination of service-based restricted share awards and awards based on total shareholder return (“TSR”) to certain of our employees. As of January 28, 2023, there was $15 million of unrecognized compensation expense related to the unvested service-based and TSR-based restricted share awards included in the tables below, which have been granted to employees but have not yet vested. As of January 28, 2023, the weighted average remaining life of the outstanding awards was one year.
Service-Based and Performance-Based Restricted Share Awards
During Fiscal 2022, we granted service-based restricted share unit awards, while in prior years we granted service-based restricted shares. At the time that service-based restricted sharesshare unit awards are granted, the employee is generally, subject to the terms of the respective agreement, entitled to dividend equivalents, payable at the time of payment of any dividends paid on our common stock as long as the awards are outstanding, but do not have any voting rights. Whereas, at the time that service-based restricted share awards were issued, the shareholder is generally, subject to the terms of the
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Shareholders' Equity (Continued)
respective agreement, be entitled to the same dividend and voting rights as other holders of our common stock as long as the restricted shares are outstanding. In Fiscal 2019, we granted 42,000 performance-based awards, which were issued to employees as restricted shares in Fiscal 2020 upon satisfaction of the specified earnings per share performance requirements. At the time that restricted share units are issued, the recipient may, subject to the terms of the respective agreement, earn non-forfeitable dividend equivalents equal to the dividend paid per share to holders of our common stock, but does not obtain voting rights associated with the restricted share units. The employee generally is restricted from transferring or selling any restricted shares or restricted share units, and generally forfeitsstill had a service requirement until the awards upon the terminationApril 2022 vesting date.
The table below summarizes the service-based restricted share awards, including both restricted shares and restricted share units, and performance-based award activity for officers and other key employees (in shares) during Fiscal 2016,2022, Fiscal 2015,2021, and Fiscal 2014:
|
| | | | | | | | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| | Number of Shares | Weighted- average grant date fair value | Number of Shares | Weighted- average grant date fair value | Number of Shares | Weighted- average grant date fair value |
| Restricted share awards outstanding at beginning of fiscal year | 175,886 |
| $ | 67 |
| 91,172 |
| $ | 59 |
| 56,521 |
| $ | 47 |
|
| Service-based restricted share awards granted/issued | 44,437 |
| $ | 73 |
| 23,637 |
| $ | 60 |
| 35,641 |
| $ | 78 |
|
| Performance-based restricted share awards issued related to prior year performance awards | 87,009 |
| $ | 58 |
| 87,153 |
| $ | 78 |
| — |
| $ | — |
|
| Restricted share awards vested, including restricted shares repurchased from employees for employees' tax liability | (58,711 | ) | $ | 51 |
| (4,645 | ) | $ | 64 |
| — |
| $ | — |
|
| Restricted shares forfeited | (19,939 | ) | 67 |
| (21,431 | ) | 70 |
| (990 | ) | $ | 78 |
|
| Restricted shares outstanding at end of fiscal year | 228,682 |
| $ | 69 |
| 175,886 |
| $ | 67 |
| 91,172 |
| $ | 59 |
|
2020 (which do not include the TSR-based Restricted Share Unit activity described below):
| | | | | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
| | | | Weighted- | | | | Weighted- | | | | Weighted- |
| | Number of | | average | | Number of | | average | | Number of | | average |
| | Shares or | | grant date | | Shares | | grant date | | Shares | | grant date |
| | Units | | fair value | | or Units | | fair value | | or Units | | fair value |
Awards outstanding at beginning of year | | 238,889 | | $ | 61 | | 308,369 | | $ | 61 | | 251,924 | | $ | 68 |
Awards granted | | 67,965 | | $ | 89 | | 42,855 | | $ | 89 | | 131,425 | | $ | 40 |
Performance-based awards issued related to prior year EPS-based performance awards | | — | | $ | — | | — | | $ | — | | 42,438 | | $ | 76 |
Awards vested, including awards repurchased from employees for employees’ tax liability | | (83,324) | | $ | 77 | | (81,283) | | $ | 77 | | (114,003) | | $ | 56 |
Awards forfeited | | (10,585) | | $ | 62 | | (31,052) | | $ | 62 | | (3,415) | | $ | 62 |
Awards outstanding at end of year | | 212,945 | | $ | 64 | | 238,889 | | $ | 61 | | 308,369 | | $ | 61 |
The following table summarizes information about the unvested service-based restricted share awards, including both restricted shares and restricted share units, as of January 28, 2017. The unvested2023.
| | | | | |
| | Number of | | Average |
| | Unvested | | Fair Value |
| | Share | | on |
Description | | Awards | | Date of Grant |
Service-based restricted shares with July 2023 vesting date | | 111,665 | | $ | 41 |
Service-based restricted shares with May 2024 vesting date | | 35,755 | | $ | 89 |
Service-based restricted share units with May 2025 vesting date | | 65,525 | | $ | 89 |
Total service-based awards outstanding at end of year | | 212,945 | | $ | 64 |
Additionally, during the First Quarter of Fiscal 2023, we granted 0.1 million of service-based restricted share awardsunits, subject to the recipient remaining an employee through the May 2026 vesting date.
TSR-based Restricted Share Units
The table below summarizes the TSR-based restricted share unit activity for officers and other key employees (in units) during Fiscal 2022, Fiscal 2021, and Fiscal 2020:
| | | | | | | | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
| | | | Weighted- | | | | Weighted- | | | | Weighted- |
| | | | average | | | | average | | | | average |
| | Number of | | grant date | | Number of | | grant date | | Number of | | grant date |
| | Share Units | | fair value | | Share Units | | fair value | | Share Units | | fair value |
TSR-based awards outstanding at beginning of year | | 130,440 | | $ | 78 | | 83,345 | | $ | 50 | | — | | $ | — |
TSR-based awards granted | | 66,525 | | $ | 111 | | 56,750 | | $ | 117 | | 83,345 | | $ | 50 |
TSR-based awards forfeited | | (925) | | $ | 115 | | (9,655) | | $ | 68 | | — | | $ | — |
TSR-based awards outstanding at end of year | | 196,040 | | $ | 89 | | 130,440 | | $ | 78 | | 83,345 | | $ | 50 |
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The restricted share units granted in the table above are at target. The TSR-based restricted share units are subject to (1) our achievement of a specified TSR-based ranking by us relative to a comparator group during a period of approximately three years from the date of grant and (2) generally the recipient remaining an employee through the vesting date which is approximately three years from the date of grant. The number of shares ultimately earned, which will be settled in shares of our common stock on the vesting date, subjectwill be between 0% and 200% of the restricted share units at target. These TSR-based restricted share units are entitled to dividend equivalents for dividends declared on our common stock prior to the employee still being an employee at that time.
|
| | | | | | |
| Grant | Number of Unvested Share Awards | Average Market Price on Date of Grant | Vesting Date |
| Fiscal 2014 Service-based Restricted Share Awards | 24,751 |
| $ | 78 |
| April 2017 |
| Fiscal 2014 Performance-based Restricted Share Awards | 65,196 |
| $ | 78 |
| April 2017 |
| Fiscal 2015 Performance-based Restricted Share Awards | 73,361 |
| $ | 58 |
| April 2018 |
| Fiscal 2016 Service-based Restricted Share Awards | 31,594 |
| $ | 76 |
| April 2019 |
| Other Service-based Restricted Share Awards | 33,780 |
| $ | 60 |
| April 2018 - April 2020 |
| Total | 228,682 |
| | |
Restricted shares pursuant to performance-based awardsvesting date, which are not issued until approved by our compensation committee following completionpayable after vesting of the performance period. During Fiscal 2016, approximately 30,000 restricted shares, were earned by recipients relatedsolely for the number of shares ultimately earned. These TSR-based restricted share units do not have any voting rights prior to the Fiscal 2016 performance period and issued in Fiscal 2017; however these awards were not included in
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Shareholders' Equity (Continued)
the tables above as the awards had not been issuedvesting date.
The following table summarizes information about unvested TSR-based restricted share units as of January 28, 2017. The grant date fair value of these 30,000 awards was $76 per share, and the awards vest in April 2019.
As of January 28, 2017, there was $7.1 million of unrecognized compensation expense related to the unvested restricted share awards, which have been granted to employees but have not yet vested, including the Fiscal 2016 performance-based awards issued in2023.
| | | | | |
| | | | |
| | Unvested | | | Fair Value |
| | TSR-Based | | on |
Description | | Share/Unit | | Date of Grant |
TSR-based restricted share units (at target) with July 2023 vesting date | | 76,340 | | $ | 50 |
TSR-based restricted share units (at target) with May 2024 vesting date | | 53,500 | | $ | 117 |
TSR-based restricted share units (at target) with May 2025 vesting date | | 66,200 | | $ | 111 |
Total TSR-based restricted share units outstanding at end of year | | 196,040 | | $ | 89 |
Additionally, during the First Quarter of Fiscal 2017.
2023, we granted 0.1 million of TSR-based restricted share units at target, subject to (1) our achievement of a specified TSR-based ranking by Oxford relative to a comparator group during a period of approximately three years from the date of grant and (2) the recipient remaining an employee through the May 2026 vesting date. The number of shares ultimately earned will be between 0% and 200% of the restricted share units at target.
Director Share Awards
In addition to shares granted to employees, we grant restricted sharesshare awards to our non-employee directors for a portion of each non-employee director'sdirector’s annual compensation. The non-employee directors must complete certain service requirements; otherwise, the restricted shares are subject to forfeiture. On the date of issuance, the non-employee directors are entitled to the same dividend and voting rights as other holders of our common stock. The non-employee directors are restricted from transferring or selling the restricted shares prior to the end of the vesting period.
Employee Stock Purchase Plan
There were 0.4less than 1 million shares of our common stock authorized for issuance under our Employee Stock Purchase Plan ("ESPP") as of January 28, 2017.2023. The ESPP allows qualified employees to purchase shares of our common stock on a quarterly basis, based on certain limitations, through payroll deductions. The shares purchased pursuant to the ESPP are not subject to any vesting or other restrictions. On the last day of each calendar quarter, the accumulated payroll deductions are applied toward the purchase of our common stock at a price equal to 85% of the closing market price on that date. Equity compensation expense related to the employee stock purchase plan recognized was $0.2 million, $0.2 million and $0.2less than $1 million in each of Fiscal 2016,2022, Fiscal 20152021 and Fiscal 2014, respectively.
Preferred Stock
We had 30 million shares of $1.00 par value preferred stock authorized for issuance as of January 28, 2017 and January 30, 2016. No preferred shares were issued or outstanding as of January 28, 2017 or January 30, 2016.
Accumulated Other Comprehensive Income (loss)
The following table details the changes in our accumulated other comprehensive loss by component (in thousands), net of related income taxes during Fiscal 2016, Fiscal 2015 and Fiscal 2014.
|
| | | | | | | | | |
| | Foreign
currency
translation
gain (loss) | Net unrealized
gain (loss) on
cash flow
hedges | Accumulated
other
comprehensive
income (loss) |
| Balance, February 1, 2014 | $ | (23,283 | ) | $ | (335 | ) | $ | (23,618 | ) |
| Other comprehensive (loss) income, net of taxes | (7,617 | ) | 1,081 |
| (6,536 | ) |
| Balance, January 31, 2015 | (30,900 | ) | 746 |
| (30,154 | ) |
| Other comprehensive income (loss), net of taxes | 24,071 |
| (746 | ) | 23,325 |
|
| Balance, January 30, 2016 | (6,829 | ) | — |
| (6,829 | ) |
| Other comprehensive income, net of taxes | 1,553 |
| — |
| 1,553 |
|
| Balance, January 28, 2017 | $ | (5,276 | ) | $ | — |
| $ | (5,276 | ) |
Substantially all of the change in accumulated other comprehensive income (loss) during Fiscal 2015 resulted from the sale of our discontinued operations as the related amounts previously classified in accumulated other comprehensive loss were recognized in net loss from discontinued operations, net of taxes in our consolidated statement of operations. Substantially all of the change in accumulated other comprehensive income (loss) in Fiscal 2016 and Fiscal 2014 resulted from changes in foreign currency exchange rates between certain functional and reporting currencies in the respective period. No material amounts of accumulated other comprehensive loss were reclassified from accumulated other comprehensive loss into our consolidated statements of operations during Fiscal 2016 or Fiscal 2014. Substantially all of the remaining balance in
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Shareholders' Equity (Continued)
accumulated other comprehensive income (loss) as of January 28, 2017 relates to our Tommy Bahama operations in Canada, Japan and Australia with changes during Fiscal 2016 reflecting the changes in foreign currency exchange rates between the local currency and the United States dollar during that period.
Note 8. Income Taxes
The following table summarizes our distribution between domestic and foreign earnings (loss) before income taxes and the provision (benefit) for income taxes (in thousands):
|
| | | | | | | | | |
| | Fiscal
2016 | Fiscal
2015 | Fiscal
2014 |
| Earnings from continuing operations before income taxes: | | | |
| Domestic | $ | 84,843 |
| $ | 96,512 |
| $ | 94,607 |
|
| Foreign | 1,620 |
| (1,456 | ) | (5,024 | ) |
| Earnings from continuing operations before income taxes | $ | 86,463 |
| $ | 95,056 |
| $ | 89,583 |
|
| | | | |
| Income taxes: | | | |
| Current: | | | |
| Federal | $ | 19,704 |
| $ | 33,205 |
| $ | 33,552 |
|
| State | 4,475 |
| 4,789 |
| 4,865 |
|
| Foreign | 599 |
| 138 |
| 516 |
|
| | 24,778 |
| 38,132 |
| 38,933 |
|
| Deferred—primarily Federal | 8,108 |
| (1,508 | ) | (3,071 | ) |
| Deferred—Foreign | (922 | ) | (105 | ) | (76 | ) |
| Income taxes | $ | 31,964 |
| $ | 36,519 |
| $ | 35,786 |
|
Reconciliations of the United States federal statutory income tax rates and our effective tax rates are summarized as follows: |
| | | | | | |
| | Fiscal
2016 | Fiscal
2015 | Fiscal
2014 |
| Statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
| State income taxes—net of federal income tax benefit | 3.8 | % | 3.3 | % | 3.0 | % |
| Impact of foreign operations rate differential (1) | (0.4 | )% | 0.6 | % | 1.1 | % |
| Valuation allowance against foreign losses and other carry-forwards (2) | (0.6 | )% | 0.3 | % | 0.8 | % |
| Other, net | (0.8 | )% | (0.8 | )% | — | % |
| Effective tax rate for continuing operations | 37.0 | % | 38.4 | % | 39.9 | % |
(1) Impact of foreign operations rate differential primarily reflects the rate differential between the United States and the respective foreign jurisdictions for any foreign income or losses, and the impact of any permanent differences.
(2) Valuation allowance against foreign losses and other carry-forwards primarily reflects the valuation allowance recorded due to our inability to recognize an income tax benefit related to certain operating loss carry-forwards and deferred tax assets during the period. The benefit in Fiscal 2016 was due to the utilization of certain operating loss carryforward benefits against current year earnings and changes in our assessment of the likelihood of recognition of certain foreign operating loss carryforwards.
Deferred tax assets and liabilities included in our consolidated balance sheets are comprised of the following (in thousands):
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8. Income Taxes (Continued)
|
| | | | | | |
| | January 28,
2017 | January 30,
2016 |
| Deferred Tax Assets: | | |
| Inventories | $ | 14,886 |
| $ | 16,610 |
|
| Accrued compensation and benefits | 11,817 |
| 14,287 |
|
| Receivable allowances and reserves | 2,561 |
| 2,601 |
|
| Deferred rent and lease obligations | 6,671 |
| 5,981 |
|
| Operating loss and other carry-forwards | 3,691 |
| 3,455 |
|
| Other, net | 3,960 |
| 2,559 |
|
| Deferred tax assets | 43,586 |
| 45,493 |
|
| Deferred Tax Liabilities: | | |
| Depreciation and amortization | (5,360 | ) | (2,689 | ) |
| Acquired intangible assets | (46,524 | ) | (41,683 | ) |
| Deferred tax liabilities | (51,884 | ) | (44,372 | ) |
| Valuation allowance | (4,115 | ) | (4,553 | ) |
| Net deferred tax liability | $ | (12,413 | ) | $ | (3,432 | ) |
As of January 28, 2017 and January 30, 2016 our operating loss and other carry-forwards primarily relate to our operations in Canada, Hong Kong and Japan, as well as certain states. The majority of these operating loss carry-forwards allow for carry-forward of at least 15 years. Substantially all of our valuation allowance of $4.1 million and $4.6 million as of January 28, 2017 and January 30, 2016, respectively, relates to the foreign and state operating loss carry-forwards and deferred tax assets in those jurisdictions. The recent history of operating losses in certain jurisdictions is considered significant negative evidence against the realizability of these tax benefits. The amount of the valuation allowance considered necessary, however, could change in the future if our operating results or estimates of future taxable operating results changes, particularly if, in future years, objective evidence in the form of cumulative losses is no longer present in certain jurisdictions. Alternatively, if we generate operating losses in future periods in certain jurisdictions, we may determine it is necessary to increase valuation allowances for certain deferred tax assets.
No deferred tax liabilities related to our original investments in our foreign subsidiaries and foreign earnings, if any, were recorded at either balance sheet date, as substantially all our original investments and earnings related to our foreign subsidiaries are considered permanently reinvested outside of the United States. Further, because the financial basis in each foreign entity does not exceed the tax basis by an amount exceeding undistributed earnings, no additional United States tax would be due if the original investment were to be repatriated in the future. As of January 28, 2017 and January 30, 2016, we had undistributed earnings of foreign subsidiaries of $4.4 million and $4.7 million, respectively, which were considered permanently reinvested. These undistributed earnings could become subject to United States taxes if they are remitted as dividends or as a result of certain other types of intercompany transactions, but the amount of taxes payable upon remittance would not be significant after considering any foreign tax credits.
Accounting for income taxes requires that we offset all deferred tax liabilities and assets within each particular tax jurisdiction and present them as a single amount in our consolidated balance sheets, with all net deferred tax assets or deferred tax liabilities by jurisdiction recognized as non-current deferred tax assets or deferred tax liabilities in our consolidated balance sheets. The amounts of deferred income taxes included in the following line items in our consolidated balance sheets are as follows (in thousands):
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8. Income Taxes (Continued)
|
| | | | | | |
| | January 28,
2017 | January 30,
2016 |
| Assets: | | |
| Deferred tax assets | $ | 1,165 |
| $ | 225 |
|
| Liabilities: | | |
| Deferred tax liabilities | (13,578 | ) | (3,657 | ) |
| Net deferred tax liability | $ | (12,413 | ) | $ | (3,432 | ) |
2020.Note 9. Defined Contribution Plans
We have a tax-qualified voluntary defined contribution retirement savings plan covering substantially all full-time United States employees and other similar plans covering certain foreign employees. If aan eligible participant decideselects to contribute, a portion of the contribution ismay be matched by us. Additionally, we incur certain charges related to our non-qualified deferred compensation plan as discussed in Note 1. Realized and unrealized gains and losses on the deferred compensation plan investments are recorded in SG&A in our consolidated statements of operations and substantially offset the changes in deferred compensation liabilities to participants resulting from changes in market values. Our aggregate expense under these defined contribution and non-qualified deferred compensation plans in Fiscal 2016, Fiscal 2015 and Fiscal 2014 was $3.5 million, $3.3 million and $2.9 million, respectively.2022,
Note 10. Related Party Transactions
SunTrust
Mr. E. Jenner Wood, III, one of our directors, served as Corporate Executive Vice President of SunTrust Banks, Inc. ("SunTrust") until his retirement at the end of 2016. We maintain a syndicated credit facility under which SunTrust serves as agent and lender, and a SunTrust affiliate acted as lead arranger and book runner in connection with our Fiscal 2016 refinancing of our U.S. Revolving Credit Agreement. The services provided and fees paid to SunTrust in connection with such services for each period are set forth below (in thousands): |
| | | | | | | | | |
| Service | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Interest and agent fees for our credit facility | $ | 1,190 |
| $ | 459 |
| $ | 606 |
|
| Cash management services | $ | 92 |
| $ | 90 |
| $ | 92 |
|
| Lead arranger, book runner and upfront fees | $ | 657 |
| $ | — |
| $ | — |
|
| Other | $ | 10 |
| $ | 56 |
| $ | 9 |
|
Our credit facilities were entered into in the ordinary course of business. Our aggregate payments to SunTrust and its subsidiaries for these services did not exceed 1% of our gross revenues during the periods presented or 1% of SunTrust's gross revenues during its fiscal years ended December 31, 2016, December 31, 2015 and December 31, 2014.
Contingent Consideration Agreement
In connection with our acquisition of the Lilly Pulitzer brand and operations in December 2010, we entered into a contingent consideration agreement pursuant to which the beneficial owners of the Lilly Pulitzer brand and operations prior to the acquisition were entitled to earn up to an additional $20 million in cash, in the aggregate, over the four years following the closing of the acquisition based on Lilly Pulitzer's achievement of certain earnings targets. The potential contingent consideration was comprised of: (1) four individual performance periods, consisting of the period from the date of our acquisition through the end of Fiscal 2011, Fiscal 2012, Fiscal 2013 and Fiscal 2014, in respect of which the prior owners of the Lilly Pulitzer brand and operations were entitled to receive up to $2.5 million for each performance period; and (2) a cumulative performance period consisting of the period from the date of our acquisition through the end of Fiscal 2014, in respect of which the prior owners of the Lilly Pulitzer brand and operations were entitled to receive up to $10 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal 2021 and Fiscal 2020 was $5 million, $4 million and $1 million, respectively. The increase in Fiscal 2022 was primarily due to an increase in the company match percentage for our defined contribution plan. The lower amount in Fiscal 2020 was primarily due to the suspension of the company match for our defined contribution plan during Fiscal 2020 to reduce our expenses during the COVID-19 pandemic.
Note 10. Related Party Transactions (Continued)
Mr. Scott A. Beaumont, one ofIncome TaxesThe following table summarizes our former executive officers who was appointed CEO, Lilly Pulitzer Group, in connection with our acquisitiondistribution between domestic and foreign earnings (loss) before income taxes and the provision (benefit) for income taxes (in thousands):
| | | | | | | | | |
| | Fiscal | | Fiscal | | Fiscal |
| | 2022 | | 2021 | | 2020 |
Earnings (loss) before income taxes: | | | | | | | | | |
Domestic | | $ | 206,944 | | $ | 161,233 | | $ | (129,129) |
Foreign | | | 8,781 | | | 3,326 | | | 3,252 |
Earnings (loss) before income taxes | | $ | 215,725 | | $ | 164,559 | | $ | (125,877) |
| | | | | | | | | |
Income taxes: | | | | | | | | | |
Current: | | | | | | | | | |
Federal | | $ | 41,776 | | $ | 24,998 | | $ | (11,498) |
State | | | 8,835 | | | 3,780 | | | (1,060) |
Foreign | | | 1,191 | | | 409 | | | 735 |
| | | 51,802 | | | 29,187 | | | (11,823) |
Deferred—Domestic | | | 71 | | | 4,155 | | | (17,780) |
Deferred—Foreign | | | (1,883) | | | (104) | | | (582) |
Income taxes | | $ | 49,990 | | $ | 33,238 | | $ | (30,185) |
Reconciliations of the Lilly Pulitzer brandUnited States federal statutory income tax rates and operations, together with various trusts for the benefitour effective tax rates are summarized as follows:
| | | | | | | |
| | Fiscal | | Fiscal | | Fiscal | |
| | 2022 | | 2021 | | 2020 | |
Statutory federal income tax rate | | 21.0 | % | 21.0 | % | 21.0 | % |
State income taxes—net of federal income tax benefit | | 3.6 | % | 3.7 | % | 3.6 | % |
Impact of foreign operations rate differential | | 0.1 | % | 0.1 | % | (0.2) | % |
Impairment of non-deductible Southern Tide goodwill | | — | % | — | % | (3.7) | % |
Change in reserve for uncertain tax positions | | 0.2 | % | (1.0) | % | (2.5) | % |
Rate benefit from NOL carry-back to pre-U.S. Tax Reform periods due to the CARES Act | | — | % | — | % | 5.5 | % |
Impact of valuation allowances related to operating losses | | (1.6) | % | (0.8) | % | (0.9) | % |
Impact of valuation allowances related to capital losses | | — | % | 1.2 | % | — | % |
Impact of capital losses | | — | % | (2.9) | % | — | % |
Other, net | | (0.1) | % | (1.1) | % | 1.2 | % |
Effective tax rate for continuing operations | | 23.2 | % | 20.2 | % | 24.0 | % |
Note 11. Summarized Quarterly Data (unaudited)
Each of our fiscal quarters consists of thirteen week periods, beginning on the first day after the end of the prior fiscal quarter, except that the fourth quarter in a year with 53 weeks (such as Fiscal 2017) includes 14 weeks. Following is a summary of our Fiscal 2016 and Fiscal 2015, quarterly results (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total |
| Fiscal 2016 | | | | | |
| Net sales | $ | 256,235 |
| $ | 282,996 |
| $ | 222,308 |
| $ | 261,049 |
| $ | 1,022,588 |
|
| Gross profit | $ | 152,132 |
| $ | 165,706 |
| $ | 118,279 |
| $ | 146,657 |
| $ | 582,774 |
|
| Operating income (loss) | $ | 32,006 |
| $ | 38,689 |
| $ | (327 | ) | $ | 19,516 |
| $ | 89,884 |
|
| Net earnings (loss) from continuing operations | $ | 20,177 |
| $ | 23,875 |
| $ | (1,598 | ) | $ | 12,045 |
| $ | 54,499 |
|
| Loss from discontinued operations, net of taxes | $ | — |
| $ | — |
| $ | — |
| $ | (2,038 | ) | $ | (2,038 | ) |
| Net earnings (loss) | $ | 20,177 |
| $ | 23,875 |
| $ | (1,598 | ) | $ | 10,007 |
| $ | 52,461 |
|
| Net earnings (loss) from continuing operations per share: | | | | | |
| Basic | $ | 1.22 |
| $ | 1.45 |
| $ | (0.10 | ) | $ | 0.73 |
| $ | 3.30 |
|
| Diluted | $ | 1.21 |
| $ | 1.44 |
| $ | (0.10 | ) | $ | 0.72 |
| $ | 3.27 |
|
| Loss from discontinued operations, net of taxes, per share: | | | | | |
| Basic | $ | — |
| $ | — |
| $ | — |
| $ | (0.12 | ) | $ | (0.12 | ) |
| Diluted | $ | — |
| $ | — |
| $ | — |
| $ | (0.12 | ) | $ | (0.12 | ) |
| Net earnings (loss) per share: | | | | | |
| Basic | $ | 1.22 |
| $ | 1.45 |
| $ | (0.10 | ) | $ | 0.61 |
| $ | 3.18 |
|
| Diluted | $ | 1.21 |
| $ | 1.44 |
| $ | (0.10 | ) | $ | 0.60 |
| $ | 3.15 |
|
| Weighted average shares outstanding: | | | | | |
| Basic | 16,503 |
| 16,515 |
| 16,531 |
| 16,537 |
| 16,522 |
|
| Diluted | 16,617 |
| 16,623 |
| 16,531 |
| 16,689 |
| 16,649 |
|
| Fiscal 2015 | | | | | |
| Net sales | $ | 260,394 |
| $ | 250,689 |
| $ | 198,624 |
| $ | 259,583 |
| $ | 969,290 |
|
| Gross profit | $ | 154,392 |
| $ | 151,086 |
| $ | 107,889 |
| $ | 144,738 |
| $ | 558,105 |
|
| Operating income | $ | 35,483 |
| $ | 34,746 |
| $ | (1,166 | ) | $ | 28,451 |
| $ | 97,514 |
|
| Net earnings from continuing operations | $ | 21,323 |
| $ | 21,050 |
| $ | (1,390 | ) | $ | 17,554 |
| $ | 58,537 |
|
| Loss from discontinued operations, net of taxes | $ | (4,068 | ) | $ | (23,070 | ) | $ | (754 | ) | $ | (83 | ) | $ | (27,975 | ) |
| Net earnings (loss) | $ | 17,255 |
| $ | (2,020 | ) | $ | (2,144 | ) | $ | 17,471 |
| $ | 30,562 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11. Summarized Quarterly Data (unaudited) (Continued)
|
| | | | | | | | | | | | | | | |
| Net earnings from continuing operations per share: | | | | | |
| Basic | $ | 1.30 |
| $ | 1.28 |
| $ | (0.08 | ) | $ | 1.07 |
| $ | 3.56 |
|
| Diluted | $ | 1.29 |
| $ | 1.27 |
| $ | (0.08 | ) | $ | 1.06 |
| $ | 3.54 |
|
| (Loss) earnings from discontinued operations, net of taxes, per share: | | | | | |
| Basic | $ | (0.25 | ) | $ | (1.40 | ) | $ | (0.05 | ) | $ | (0.01 | ) | $ | (1.70 | ) |
| Diluted | $ | (0.25 | ) | $ | (1.39 | ) | $ | (0.05 | ) | $ | (0.01 | ) | $ | (1.69 | ) |
| Net earnings (loss) per share: | | | | | |
| Basic | $ | 1.05 |
| $ | (0.12 | ) | $ | (0.13 | ) | $ | 1.06 |
| $ | 1.86 |
|
| Diluted | $ | 1.04 |
| $ | (0.12 | ) | $ | (0.13 | ) | $ | 1.05 |
| $ | 1.85 |
|
| Weighted average shares outstanding: | | | | | |
| Basic | 16,445 |
| 16,451 |
| 16,457 |
| 16,466 |
| 16,456 |
|
| Diluted | 16,525 |
| 16,547 |
| 16,457 |
| 16,600 |
| 16,559 |
|
The sumDeferred tax assets and liabilities included in our consolidated balance sheets are comprised of the quarterlyfollowing (in thousands):
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Deferred Tax Assets: | | | | | | |
Inventories | | $ | 20,561 | | $ | 16,947 |
Accrued compensation and benefits | | | 9,637 | | | 9,058 |
Receivable allowances and reserves | | | 2,580 | | | 2,814 |
Operating lease liabilities | | | 71,871 | | | 59,711 |
Operating loss and other carry-forwards | | | 757 | | | 3,675 |
Other, net | | | 4,901 | | | 3,529 |
Deferred tax assets | | | 110,307 | | | 95,734 |
Deferred Tax Liabilities: | | | | | | |
Operating lease assets | | | (66,145) | | | (51,909) |
Depreciation and amortization | | | (15,289) | | | (12,427) |
Acquired intangible assets | | | (26,030) | | | (26,792) |
Deferred tax liabilities | | | (107,464) | | | (91,128) |
Valuation allowance | | | (2,448) | | | (6,050) |
Net deferred tax asset (liability) | | $ | 395 | | $ | (1,444) |
The majority of our valuation allowance of $2 million as of January 28, 2023 relate to our capital loss carry-forwards. As of January 29, 2022, the majority of our valuation allowance of $6 million related to operating loss carry-forwards and deferred tax assets in the jurisdictions with operating losses as well as our capital loss carry-forwards. The positive operating results in Fiscal 2022, as well as the positive net earnings (loss) per share amounts may not equalin the amountsmost recent three-year cumulative period, are considered significant positive evidence about the realizability of our operating loss carry-forwards in certain jurisdictions, and in Fiscal 2022 resulted in the utilization or reversal of the substantial majority of our valuation allowances related to our operating loss carry-forward amounts. The short carry-forward period for the full year duecapital losses, which can only offset qualifying capital gain income, continue to rounding.be considered significant negative evidence against the future realizability of these capital loss tax benefits. The Fourth Quarteramount of Fiscal 2016the valuation allowance could change in the future if our operating results or estimates of future taxable operating results changes.
Certain amounts of foreign earnings are subject to U.S. federal tax currently pursuant to the GILTI rules regardless of whether those earnings are distributed, and Fiscal 2015actual distributions of foreign earnings are generally no longer subject to U.S. federal tax. We continue to assert that our investments in substantially all of our foreign subsidiaries and substantially all of the related earnings are permanently reinvested outside the United States. We believe that any other taxes such as foreign withholding or U.S. state tax payable would be immaterial if we were to repatriate the foreign earnings. Therefore, we have not recorded any deferred tax liabilities related to these foreign investments and earnings in our consolidated balance sheets as of January 28, 2023 and January 29, 2022.
Accounting for income taxes requires that we offset deferred tax liabilities and assets within each tax jurisdiction and present the net deferred tax amount for each jurisdiction as a net deferred tax amount in our consolidated balance sheets. The amounts of deferred income taxes included a LIFO accounting creditin our consolidated balance sheets are as follows (in thousands):
| | | | | | |
| | January 28, | | January 29, |
| | 2023 | | 2022 |
Assets: | | | | | | |
Deferred tax assets | | $ | 3,376 | | $ | 1,467 |
Liabilities: | | | | | | |
Deferred tax liabilities | | | (2,981) | | | (2,911) |
Net deferred tax asset (liability) | | $ | 395 | | $ | (1,444) |
ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the changes in the gross amount of unrecognized tax benefits, which are included in other non-current liabilities, is as follows (in thousands):
| | | | | | | | | |
| | Fiscal 2022 | | Fiscal 2021 | | Fiscal 2020 |
Balance of unrecognized tax benefits at beginning of year | | $ | 3,390 | | $ | 5,261 | | $ | 1,212 |
Increase related to prior period tax positions | | | 110 | | | 10 | | | 303 |
Decrease related to prior period tax positions | | | — | | | — | | | (1) |
Increase related to current period tax positions | | | 646 | | | 527 | | | 3,960 |
Decrease related to settlements with taxing authorities | | | — | | | (2,305) | | | — |
Decrease related to lapse of statute of limitations | | | (482) | | | (103) | | | (213) |
Balance of unrecognized tax benefits at end of year | | $ | 3,664 | | $ | 3,390 | | $ | 5,261 |
Approximately $1 million of our uncertain tax positions as of January 28, 2023, if recognized, would reduce the future effective tax rate in the period settled. The total amount of unrecognized tax benefits relating to our tax positions is subject to change based on future events including, but not limited to, settlements of ongoing audits and assessments and the expiration of applicable statutes of limitation. We expect that the balance of the gross unrecognized tax benefits may decrease during Fiscal 2023. However, the ultimate occurrence, outcomes, and timing of such events could differ from our current expectations. Interest and penalties associated with unrecognized tax positions are recorded within income tax expense in our consolidated statements of operations. During each of Fiscal 2022, Fiscal 2021 and Fiscal 2020, we recognized less than $1 million of interest and penalties associated with unrecognized tax positions in our consolidated statements of operations.
Note 11. Lanier Apparel Exit
In Fiscal 2021, we exited our Lanier Apparel business, which had been focused on moderately priced tailored clothing and related products. The Lanier Apparel exit aligns with our stated business strategy of developing and marketing compelling lifestyle brands. It also took into consideration the increased macroeconomic challenges faced by the Lanier Apparel business, many of which were magnified by the COVID-19 pandemic.
In connection with the Fiscal 2020 decision to exit the Lanier Apparel business, we recorded pre-tax charges of $13 million in the Lanier Apparel operating group during Fiscal 2020. These charges consisted of (1) $6 million of estimated inventory markdown charges, the substantial majority of which were reversed in Corporate and Other as part of LIFO accounting as the inventory had not been sold as of January 30, 2021, (2) $3 million of employee charges, including severance and employee retention costs, (3) $3 million of operating lease asset impairment charges for leased office space, (4) $1 million of non-cash fixed asset impairment charges, primarily related to leasehold improvements, and (5) $1 million of charges related to our Merida manufacturing facility, which ceased operations in Fiscal 2020.
During Fiscal 2021, we recognized in the Lanier Apparel operating group a benefit of $2 million related to the Lanier Apparel exit primarily consisting of (1) $4 million of reductions in inventory markdowns previously recognized, of which the substantial majority of this amount was reversed in Corporate and Other as part of LIFO accounting and (2) a $3 million gain on the sale of Lanier Apparel’s Toccoa, Georgia distribution center. These items were partially offset by (1) $2 million of severance and employee retention costs, (2) $2 million of termination charges related to certain license agreements and (3) $1 million of additional charges related to the Merida manufacturing facility.
For each of Fiscal 2021 and Fiscal 2020, the estimated inventory markdown charges and manufacturing facility charges are included in cost of goods sold in Lanier Apparel, while the charges for operating lease asset impairments, employee charges, and fixed asset impairments are included in SG&A in Lanier Apparel. The gain on sale of the Toccoa, Georgia distribution center in Fiscal 2021 is included in royalties and other income in Lanier Apparel.
We do not expect to incur any additional Lanier Apparel exit charges. Substantially all of the cumulative accrued employee charges, termination charges related to contractual commitments and charges related to the Merida
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
manufacturing facility have been paid. As of January 28, 2023, future lease amounts totaling $2 million related to the Lanier Apparel office leases that were previously impaired and vacated are expected to be paid through 2024 over the remaining terms of the respective leases, with no other anticipated significant future cash requirements related to the Lanier Apparel business.
Note 12. Business Combinations
On AprilSeptember 19, 2016,2022, we acquired Southern Tide,100% of the ownership interests in JW Holdings, LLC whichand its subsidiaries (collectively “Johnny Was”). Johnny Was owns the Southern TideJohnny Was California lifestyle brand and its related operations including the design, sourcing, marketing and distribution of collections of affordable luxury, artisan-inspired bohemian apparel, brand. Southern Tide carries an extensive selection of men’s shirts, pants, shorts, outerwear, ties, swimwear, footwearaccessories and accessories, as well as a women’s collection. The brand’shome goods. Johnny Was products are sold through its wholesale operations to specialty storesthe Johnny Was website and departmentretail stores as well as select department stores and specialty stores. We believe that the acquisition of Johnny Was further advances our strategic goal of owning a diversified portfolio of lifestyle brands and provides future growth opportunities for our business. Information about the operating results of Johnny Was for the 19 week period from the acquisition date through its direct to consumer operations on the Southern Tide website.
end of the fiscal year are included in the operating group information included in Note 2.This acquisition was accounted for under the acquisition method of accounting for business combinations. The preliminary purchase price for the acquisition of Southern Tide was $85Johnny Was totaled $270 million in cash, subject to adjustment based on net working capital as of the closing date of the acquisition. After giving effect to the finalestimated working capital adjustment, paid in Fiscal 2016, the purchase price paid at closing was $92.0$271 million, net ofincluding acquired cash of $2.4$7 million. We used cash and short-term investments on hand and borrowings under our revolving credit facilityU.S. Revolving Credit Agreement to financefund the transaction. As of January 28, 2023, we have accrued an additional $2 million as an estimate of the finalization of the working capital estimate, which we anticipate finalizing and paying during Fiscal 2023. There are no contingent consideration arrangements associated with this transaction. Transaction and integration costs related to this acquisition, which primarily consist of representation and warranty insurance, integration costs, due diligence costs, legal fees and other costs, totaled $0.8approximately $3 million and are included in SG&A in our consolidated statements of operations in Fiscal 2022. These costs are included in Corporate and Other in Fiscal 2016.
The following table summarizes ourthe financial information included in Note 2.Our allocation of the purchase price for the Southern Tide acquisition (in thousands):
|
| | | |
| | Southern Tide acquisition (1) |
| Cash and cash equivalents | $ | 2,423 |
|
| Receivables | 6,616 |
|
| Inventories (2) | 16,251 |
|
| Prepaid expenses | 740 |
|
| Property and equipment | 220 |
|
| Intangible assets | 30,240 |
|
| Goodwill | 42,745 |
|
| Other non-current assets | 344 |
|
| Accounts payable, accrued expenses and other liabilities | (3,473 | ) |
| Deferred taxes | (1,812 | ) |
| Purchase price | $ | 94,294 |
|
| | |
(1) In the Fourth Quarter of Fiscal 2016, we completed our estimated valuation of assets and liabilities acquired as part of the Southern Tide acquisition, including intangible assets and inventories, resulting in changes to the
estimated fair values previously disclosed for intangible assets, inventories, deferred taxes and goodwill. The table above reflects the revised estimates of fair value for the assets and liabilities. The revised estimated fair values of the acquired assets and liabilities,
resulted in reductions to finite-livedincluding intangible assets,
of $3.2 millioncustomer relationships, operating lease amounts, property and
indefinite-lived intangible assets of $7.5 million, deferred taxes of $2.2 million, inventories, net of $0.4 millionequipment, working capital amounts, liabilities and other
smaller changes resultingamounts, is preliminary as of January 28, 2023. Our estimates of the allocation of preliminary purchase price will be revised during the one year allocation period, as appropriate, as we obtain additional information about the fair values of these acquired assets and liabilities and finalize our valuation estimates. Changes in
a net increasefuture periods to
goodwillthe preliminary amounts allocated to the various acquired assets and liabilities could be material. The following table summarizes our preliminary allocation of
$9.2 million. The net impact to amounts previously recorded in our consolidated statements of operationsthe purchase price for the
first, second and third quartersJohnny Was acquisition (in thousands):
(2) Includes a step-up of acquired inventory from cost to fair value of $2.7 million. This step-up amount was recognized in Fiscal 2016 in cost of goods sold in our consolidated statement of operations. | | | |
| | Johnny Was acquisition |
Cash and cash equivalents | | $ | 7,296 |
Receivables | | | 8,777 |
Inventories (1) | | | 23,434 |
Prepaid expenses and other assets | | | 6,353 |
Property and equipment | | | 21,108 |
Intangible assets | | | 134,640 |
Goodwill | | | 96,637 |
Operating lease assets | | | 54,859 |
Accounts payable, accrued expenses and other liabilities | | | (34,777) |
Non-current portion of operating lease liabilities | | | (47,009) |
Purchase price | | $ | 271,318 |
| (1) | Includes an estimate for the step-up of acquired inventory from cost to fair value of $4 million pursuant to the purchase method of accounting, which was recognized in our consolidated statement of operations in Fiscal 2022 as acquired inventory was sold. |
Goodwill represents the amount by which the cost to acquire Southern TideJohnny Was exceeds the fair value of individual acquired assets less liabilities of the business at acquisition. We acquired tradenames and trademarks as well as customer relationships as part of the acquisition. We used the relief from royalty method to estimate the fair value of trademarks and tradenames and the multi-period excess earnings method under the income approach to estimate the fair value of customer relationships. Intangible assets allocated in connection with our preliminary purchase price allocation consisted of the following (in thousands):
|
| | | | |
| | Useful life | Southern Tide acquisition |
| Finite lived intangible assets acquired, primarily consisting of customer relationships | 5 - 20 years | $ | 3,440 |
|
| Trade names and trademarks | Indefinite | 26,800 |
|
| | | $ | 30,240 |
|
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12. Business Combinations (Continued)
Pro Forma Information (unaudited)
| | | | | |
| | | | Johnny Was |
| | Useful life | | acquisition |
Finite lived intangible assets acquired, primarily consisting of customer relationships | | 8 - 13 years | | $ | 56,740 |
Trade names and trademarks | | Indefinite | | | 77,900 |
| | | | $ | 134,640 |
The consolidated pro forma information presented below (in thousands, except per share data) gives effect to the AprilSeptember 19, 20162022 acquisition of Southern TideJohnny Was as if the acquisition had occurred as of the beginning of Fiscal 2015.2021. The information presented below is for illustrative purposes only, is not indicative of results that would have been achieved if the acquisition had occurred as of the beginning of Fiscal 20152021 and is not intended to be a projection of future results of operations. The consolidated pro forma statements of operations haveinformation has been prepared from ourhistorical financial statements for Johnny Was and Southern Tide's historical statements of operationsus for the periods presented, including without limitation, purchase accounting adjustments, but excluding any seller specific management/advisory or similar expenses and any synergies or operating cost reductions that may be achieved from the combined operations in the future.
|
| | | | | | |
| | Fiscal 2016 | Fiscal 2015 |
| Net sales | $ | 1,034,369 |
| $ | 1,007,330 |
|
| Earnings from continuing operations before income taxes | $ | 92,212 |
| $ | 95,963 |
|
| Earnings from continuing operations | $ | 58,035 |
| $ | 58,609 |
|
| Earnings from continuing operations per share: | | |
| Basic | $ | 3.51 |
| $ | 3.59 |
|
| Diluted | $ | 3.49 |
| $ | 3.57 |
|
| | | | | | | |
| | | Fiscal 2022 | | Fiscal 2021 |
Net sales | | | $ | 1,546,371 | | $ | 1,327,875 |
Earnings before income taxes | | | $ | 237,919 | | $ | 169,832 |
Net earnings | | | $ | 182,380 | | $ | 135,276 |
Earnings per share: | | | | | | | |
Basic | | | $ | 11.47 | | $ | 8.02 |
Diluted | | | $ | 11.22 | | $ | 8.13 |
The Fiscal 20162022 pro forma information above includes amortization of acquired intangible assets, but excludes the transaction expenses and integration costs associated with the transaction and the $4 million of incremental cost of goods sold associated with the step-up of inventory at acquisition that werewas recognized by us in our Fiscal 20162022 consolidated statement of operations. The Fiscal 20152021 pro forma information above includes amortization of acquired intangible assets, transaction expenses and integration costs associated with the transaction and the $4 million of
Table of Contents
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
incremental cost of goods sold associated with the step-up of inventory at acquisition. Additionally, the pro forma adjustments for each period prior to the date ofSeptember 2022 acquisition reflect an estimate of incremental interest expense associated with additional borrowings and income tax expense that would have been incurred subsequent to the acquisition.
We believe that the acquisition of Southern Tide further advances our strategic goal of owning a diversified portfolio of lifestyle brands. The acquisition provides strategic benefits through growth opportunities and further diversification of our business.
In addition to the Southern Tide acquisition, Lanier Apparel completed two acquisitions resulting in total cash payments of $3.1 million during Fiscal 2016. Assets acquired in these acquisitions primarily consisted of intangible assets, as disclosed in Note 4, and inventory.
OXFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13. Discontinued Operations
On July 17, 2015, we sold 100% of the equity interests of our Ben Sherman business, consisting of Ben Sherman Limited and its subsidiaries and Ben Sherman Clothing LLC, for £40.8 million before any working capital or other purchase price adjustments. The final purchase price received by us was subject to adjustment based on, among other things, the actual debt and net working capital of the Ben Sherman business on the closing date, which was finalized during February 2016. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in the future primarily limited to amounts associated with certain retained lease obligations. The estimated lease liability of $5.4 million as of January 28, 2017 represents our best estimate of the future net loss anticipated with respect to certain retained lease obligations; however, the ultimate loss remains uncertain as the amount of any sub-lease income is dependent upon negotiated terms of any sub-lease agreements entered into for the space and the ability of those sub-tenants to pay the sub-lease income or, alternatively, dependent upon lease termination costs negotiated with the landlords in the future. In Fiscal 2016, we incurred an additional loss related to the retained lease obligations primarily as a result of the default and failure to pay by a sub-tenant and an updated assessment of the anticipated losses considering anticipated sub-lease income to be earned, timing of obtaining a tenant, lease incentives and market rents.
We have not classified as discontinued operations any corporate or shared service expenses historically charged to Ben Sherman which we determined may not be eliminated as a result of its disposal or offset by any transitional services income amounts. Recognizing these expenses and income as continuing operations in Corporate and Other reflected the uncertainty of whether there would be a reduction in such corporate or shared service expenses in the future as a result of the sale of Ben Sherman as well as the uncertainty regarding the term of any transitional services income. Interest expense under our prior U.K. revolving credit agreement, which was satisfied in connection with the transaction, is the only interest expense included in discontinued operations in our consolidated financial statements as this represents the interest expense directly attributable to the discontinued operations.
The following represents major classes of assets and liabilities related to the discontinued operations included in our consolidated balance sheets as of the following dates (in thousands): |
| | | | | | |
| | January 28, 2017 | January 30, 2016 |
| Current liabilities | $ | (2,860 | ) | $ | (2,394 | ) |
| Non-current liabilities | (2,544 | ) | (4,571 | ) |
| Net (liabilities) assets | $ | (5,404 | ) | $ | (6,965 | ) |
Operating results of the discontinued operations are shown below (in thousands): |
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Net sales | $ | — |
| $ | 28,081 |
| $ | 77,481 |
|
| Cost of goods sold | — |
| 17,414 |
| 40,751 |
|
| Gross profit | $ | — |
| $ | 10,667 |
| $ | 36,730 |
|
| SG&A | 2,928 |
| 20,698 |
| 50,130 |
|
| Royalties and other operating income | — |
| 1,919 |
| 4,184 |
|
| Operating loss | $ | (2,928 | ) | $ | (8,112 | ) | $ | (9,216 | ) |
| Interest expense, net | — |
| 146 |
| 247 |
|
| Loss from discontinued operations before income taxes | $ | (2,928 | ) | $ | (8,258 | ) | $ | (9,463 | ) |
| Income taxes | (890 | ) | (800 | ) | (1,424 | ) |
| Loss from discontinued operations, net of taxes | $ | (2,038 | ) | $ | (7,458 | ) | $ | (8,039 | ) |
| Loss on sale of discontinued operations, net of taxes | — |
| (20,517 | ) | — |
|
| Net loss from discontinued operations, net of taxes | $ | (2,038 | ) | $ | (27,975 | ) | $ | (8,039 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 13. Discontinued Operations (Continued)
Certain information pertaining to depreciation and amortization as well as capital expenditures associated with our discontinued operations, which is included in our consolidated statements of cash flows, has been included below (in thousands): |
| | | | | | | | | |
| | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 |
| Depreciation and amortization | $ | 136 |
| $ | 667 |
| $ | 3,082 |
|
| Capital expenditures | $ | — |
| $ | 660 |
| $ | 4,290 |
|
Valuation and Qualifying Accounts
| | | | | | | | | | | | | | | |
Column A | | Column B | | Column C | | | | | Column D | | Column E |
| | | | | Additions | | Charged | | | | | | |
| | Balance at | | Charged to | | to Other | | Deductions | | Balance at |
| | Beginning | | Costs and | | Accounts– | | – | | End of |
Description | | of Period | | Expenses | | Describe | | Describe | | Period |
|
| | (In thousands) |
Fiscal 2022 | | | | | | | | | | | | | | | |
Deducted from asset accounts: | | | | | | | | | | | | | | | |
Accounts receivable reserves (1) | | $ | 3,412 | | $ | 2,868 | | $ | 541 | (3) | $ | (2,789) | (4) | $ | 4,032 |
Provision for credit losses (2) | | $ | 1,311 | | $ | (262) | | $ | 200 | (3) | $ | (19) | (5) | $ | 1,230 |
Fiscal 2021 | | | | | | | | | | | | | | | |
Deducted from asset accounts: | | | | | | | | | | | | | | | |
Accounts receivable reserves (1) | | $ | 6,418 | | $ | (1,140) | | $ | — | | $ | (1,866) | (4) | $ | 3,412 |
Provision for credit losses (2) | | $ | 2,580 | | $ | (1,190) | | $ | — | | $ | (79) | (5) | $ | 1,311 |
Fiscal 2020 | | | | | | | | | | | | | | | |
Deducted from asset accounts: | | | | | | | | | | | | | | | |
Accounts receivable reserves (1) | | $ | 8,766 | | $ | 5,629 | | $ | — | | $ | (7,977) | (4) | $ | 6,418 |
Provision for credit losses (2) | | $ | 555 | | $ | 4,052 | | $ | — | | $ | (2,027) | (5) | $ | 2,580 |
|
| | | | | | | | | | | | | | | | |
| Column A | Column B | Column C | | | Column D | | Column E |
| Description | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Charged to Other Accounts– Describe | | Deductions– Describe | | Balance at End of Period |
| | (In thousands) |
| Fiscal 2016 | | | | | | | |
| Deducted from asset accounts: | | | | | | | |
| Accounts receivable reserves(1) | $ | 8,402 |
| $ | 10,032 |
| 153 |
| (3) | $ | (9,286 | ) | (4) | $ | 9,301 |
|
| Allowance for doubtful accounts(2) | 454 |
| 506 |
| 80 |
| (3) | (229 | ) | (5) | $ | 811 |
|
| Fiscal 2015 | | | | | | | |
| Deducted from asset accounts: | | | | | | | |
| Accounts receivable reserves(1) | $ | 8,265 |
| $ | 10,288 |
| — |
| | $ | (10,151 | ) | (4) | $ | 8,402 |
|
| Allowance for doubtful accounts(2) | 571 |
| 8 |
| — |
| | (125 | ) | (5) | $ | 454 |
|
| Fiscal 2014 | | | | | | | |
| Deducted from asset accounts: | | | | | | | |
| Accounts receivable reserves(1) | $ | 8,343 |
| $ | 9,952 |
| — |
| | $ | (10,030 | ) | (4) | $ | 8,265 |
|
| Allowance for doubtful accounts(2) | 374 |
| 392 |
| — |
| | (195 | ) | (5) | $ | 571 |
|
| |
| (1) | Accounts receivable reserves includeincludes estimated reserves for allowances, returns and discounts related to our wholesale operations as discussed in our significant accounting policy disclosure for Revenue"Revenue Recognition and Accounts ReceivableReceivables" in Note 1 of our consolidated financial statements. |
| |
| (2) | AllowanceProvision for doubtful accountscredit losses consists of amounts reserved for our estimate of a customer'swholesale customer’s inability to meet its financial obligations as discussed in our significant accounting policy disclosure for Revenue"Revenue Recognition and Accounts ReceivableReceivables" in Note 1 of our consolidated financial statements. |
| |
| (3) | Addition due to business combinationsthe acquisition of Johnny Was in Fiscal 2016.September 2022. |
| |
| (4) | Principally consists of amounts written off related to customer allowances, returns and discounts. |
| |
| (5) | Principally consists of accounts written off as uncollectible. |
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Shareholders of Oxford Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Oxford Industries, Inc. (the Company) as of January 28, 20172023 and January 30, 2016, and29, 2022, the related consolidated statements of operations, comprehensive income, shareholders'shareholders’ equity and cash flows for each of the three years in the period ended January 28, 2017. Our audits also included2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects,to the consolidated financial position of Oxford Industries, Inc. at January 28, 2017statements and January 30, 2016, and the consolidated results of its operations and its cash flows for each(2) involved our especially challenging, subjective or complex judgments. The communication of the three yearscritical audit matter does not alter in the period ended January 28, 2017, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basicconsolidated financial statements, taken as a whole, presents fairly in all material respectsand we are not, by communicating the information set forth therein.critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
We also have audited, in accordance with the standards
| the relief from royalty method and multi-period excess earnings method under the income approach to measure trade names and trademarks and customer relationships, respectively. The fair value measure was sensitive to underlying assumptions including certain assumptions that form the basis of the forecasted results (e.g., future EBITA margins, terminal growth rate, and royalty rate). The significant assumptions are forward-looking and could be affected by future economic and market conditions. |
Fair Value of Intangible Assets Acquired in the Johnny Was Business Combination |
Description of the Matter How We Addressed the Matter in Our Audit | As disclosed in Note 12 to the consolidated financial statements, the Company completed the acquisition of JW Holdings, LLC and its subsidiaries (Johnny Was) on September 19, 2022 for an aggregate net purchase price of $271 million. This acquisition was accounted for under the acquisition method of accounting for business combinations. The Company allocated the net purchase price to the assets acquired and the liabilities assumed based on their respective fair values as of the date of acquisition, including intangible assets of $134.6 million. Of the intangible assets acquired, the largest were trade names and trademarks and customer relationships of $77.9 million and $56.7 million, respectively. Auditing the Company's valuation of trade names and trademarks and customer relationships was complex and required significant auditor judgment due to the significant estimation uncertainty in evaluating certain assumptions required to estimate the fair value. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair value of the trade names and trademarks and customer relationships to assumptions about the future cash flows that the Company expects to generate from the acquired business. The Company used the relief from royalty method and multi-period excess earnings method under the income approach to measure trade names and trademarks and customer relationships, respectively. The fair value measure was sensitive to underlying assumptions including certain assumptions that form the basis of the forecasted results (e.g., operating income, growth rates and royalty rates). The significant assumptions are forward-looking and could be affected by future economic and market conditions. We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant controls over the Company’s process for estimating the fair value of trade names and trademarks and customer relationships, including controls over management's review of the significant assumptions, including the operating income, growth rates and royalty rates, used in the valuation of these intangible assets and review of the valuation models. To test the estimated fair value of the trade names and trademarks and customer relationships, we performed audit procedures that included, among others, evaluating the Company's valuation methodologies and evaluating the significant assumptions used by the Company. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. Our testing also included comparing the significant assumptions used to the historical results of the acquired business and to other guideline companies within the same industry. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value of the intangible assets resulting from changes in the assumptions. |
We have served as the Company's auditor since 2002.
Atlanta, Georgia
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A.
Controls and ProceduresEvaluation of Disclosure Controls and Procedures
Our company, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
effective.Changes in and Evaluation of Internal Control over Financial Reporting
There have not been anyOn September 19, 2022, we completed the acquisition of Johnny Was. We continue integrating the Johnny Was business processes, information technology systems and other components into our operations and internal controls over financial reporting, resulting in certain changes into our internal controlcontrols over financial reporting during the fourth quarterFourth Quarter of Fiscal 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2022.Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting is supported by a program of appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written code of conduct.
On September 19, 2022, we completed our acquisition of Johnny Was. The results of operations of Johnny Was are included in our consolidated financial statements from the date of acquisition. As permitted by the SEC, we have elected to exclude Johnny Was from our assessment of the effectiveness of our internal control over financial reporting as of January 28, 2023. Net sales of Johnny Was represent 5% of net sales as reported in our consolidated financial statements for Fiscal 2022.
We assessed the effectiveness of our internal control over financial reporting as of January 28, 2017.2023. In making this assessment, management used the updated framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)("COSO") in Internal Control—Integrated Framework (2013). Based on this assessment, we believe that our internal control over financial reporting was effective as of January 28, 2017.2023.Ernst & Young LLP, our independent registered public accounting firm, has audited our internal control over financial reporting as of January 28, 2017,2023, and its report thereon is included herein.
| | |
| | |
/s/ THOMAS C. CHUBB III | | /s/ K. SCOTT GRASSMYER |
Chairman, Chief Executive Officer and President (Principal Executive Officer) | | Executive Vice President, — Finance, Chief Financial Officer and Controller Chief Operating Officer(Principal Financial Officer) |
| | |
March 27, 20172023 | | March 27, 20172023 |
Limitations on the Effectiveness of Controls
Because of their inherent limitations, our disclosure controls and procedures and our internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that a control system'ssystem’s objectives will be met.
Report of Independent Registered Public Accounting Firm
The
To the Shareholders and the Board of Directors and Shareholders of Oxford Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Oxford Industries, Inc.’s internal control over financial reporting as of January 28, 2017,2023, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Oxford Industries, Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 28, 2023, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of JW Holdings, LLC and its subsidiaries (Johnny Was), which is included in the 2022 consolidated financial statements of the Company and constituted 5% of net sales for the year then ended January 28, 2023. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Johnny Was.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Oxford Industries, Inc. as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended January 28, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated March 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Oxford Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 28, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of January 28, 2017 and January 30, 2016, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended January 28, 2017 of Oxford Industries, Inc. and our report dated March 27, 2017 expressed an unqualified opinion thereon.
Item 9B. Other Information
None.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10.
Directors, Executive Officers and Corporate GovernanceThe following table sets forth certain information concerning the members of our Board of Directors:
|
| |
Name | Principal Occupation |
Helen Ballard | Ms. Ballard is the owner of Helen Ballard LLC, a home furnishing product design business. |
Thomas C. Chubb III | Mr. Chubb is our Chairman, Chief Executive Officer and President. |
Thomas C. Gallagher | Mr. Gallagher is Chairman of the Board of Directors of Genuine Parts Company, a distributor of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. |
Virginia A. Hepner | Ms. Hepner is President and Chief Executive Officer of the Woodruff Arts Center, one of the world’s largest arts centers. |
John R. Holder | Mr. Holder is Chairman and Chief Executive Officer of Holder Properties, a full-service commercial and residential real estate developer. |
J. Reese Lanier | Mr. Lanier was self-employed in farming and related businesses until his retirement in 2009. |
Dennis M. Love | Mr. Love served as Chairman of Printpack Inc., a manufacturer of flexible and specialty rigid packaging, until his retirement in January 2017. |
Clarence H. Smith | Mr. Smith is Chairman of the Board, President and Chief Executive Officer of Haverty Furniture Companies, Inc., a home furnishings retailer. |
Clyde C. Tuggle | Mr. Tuggle is Senior Vice President and Chief Public Affairs and Communications Officer of The Coca-Cola Company. |
E. Jenner Wood III | Mr. Wood served as Corporate Executive Vice President of SunTrust Banks, Inc. until his retirement at the end of 2016. |
The following table sets forth certain information concerning our executive officers:
|
| |
Name | Position Held |
Thomas C. Chubb III | Chairman, Chief Executive Officer and President |
Thomas E. Campbell | Executive Vice President - Law and Administration, General Counsel and Secretary |
K. Scott Grassmyer | Executive Vice President - Finance, Chief Financial Officer and Controller |
J. Wesley Howard, Jr. | President, Lanier Apparel |
Michelle M. Kelly | CEO, Lilly Pulitzer Group |
Douglas B. Wood | CEO, Tommy Bahama Group |
Additional information required by this Item 10 of Part III will appear in our definitive proxy statement under the headings "Corporate Governance and Board Matters—Directors," "Executive Officers," "Common Stock Ownership by Management and Certain Beneficial Owners—Section 16(a) Beneficial Ownership Reporting Compliance," "Corporate Governance and Board Matters—Website Information," "Additional Information—Submission of Director Candidates by Shareholders," and "Corporate Governance and Board Matters—Board Meetings and Committees of our Board of Directors," and is incorporated herein by reference.
Item 11.
Executive CompensationThe information required by this Item 11 of Part III will appear in our definitive proxy statement under the headings "Corporate Governance and Board Matters—Director Compensation," "Executive Compensation," "Nominating, Compensation & Governance Committee Report" and "Compensation Committee Interlocks and Insider Participation" and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item 12 of Part III will appear in our definitive proxy statement under the headings "Equity Compensation Plan Information" and "Common Stock Ownership by Management and Certain Beneficial Owners" and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item 13 of Part III will appear in our definitive proxy statement under the headings "Certain Relationships and Related Transactions" and "Corporate Governance and Board Matters—Director Independence" and is incorporated herein by reference.
Item 14.
Principal Accounting Fees and ServicesOur independent registered public accounting firm is Ernst & Young LLP, Atlanta, Georgia, Auditor Firm ID 42.
The information required by this Item 14 of Part III will appear in our definitive proxy statement under the heading "Audit-Related Matters—Fees Paid to Independent Registered Public Accounting Firm" and "Audit-Related Matters—Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors" and is incorporated herein by reference.
Item 15.
Exhibits, Financial Statement Schedules | (a) | 1. Financial Statements |
(a) 1. Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this report:
| ● | Consolidated Balance Sheets as of January 28, 2023 and January 29, 2022. |
| ● | Consolidated Statements of Operations for Fiscal 2022, Fiscal 2021 and Fiscal 2020. |
| ● | Consolidated Statements of Comprehensive Income for Fiscal 2022, Fiscal 2021 and Fiscal 2020. |
| ● | Consolidated Statements of Shareholders’ Equity for Fiscal 2022, Fiscal 2021 and Fiscal 2020. |
| ● | Consolidated Statements of Cash Flows for Fiscal 2022, Fiscal 2021 and Fiscal 2020. |
| ● | Notes to Consolidated Financial Statements for Fiscal 2022, Fiscal 2021 and Fiscal 2020. |
Consolidated Balance Sheets as of January 28, 2017 and January 30, 2016.
Consolidated Statements of Operations for Fiscal 2016, Fiscal 2015 and Fiscal 2014.
Consolidated Statements of Comprehensive Income for Fiscal 2016, Fiscal 2015 and Fiscal 2014.
Consolidated Statements of Shareholders' Equity for Fiscal 2016, Fiscal 2015 and Fiscal 2014.
Consolidated Statements of Cash Flows for Fiscal 2016, Fiscal 2015 and Fiscal 2014.
Notes to Consolidated Financial Statements for Fiscal 2016, Fiscal 2015 and Fiscal 2014.
2. Financial Statement Schedules
| ● | Schedule II—Valuation and Qualifying Accounts |
Schedule II—Valuation and Qualifying Accounts
All other schedules for which provisions are made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.
| |
2.1 | | |
2.1 |
| Unit Purchase Agreement, fordated September 19, 2022 by and among JW Holdings, LLC, the Salesellers named therein, Oxford Industries, Inc. and Purchase of the Entire Issued ShareEndeavour Capital of Ben Sherman Limited and 100% of the Limited Liability Company Interests in Ben Sherman Clothing LLC, dated July 17, 2015, between the Company and Ben Sherman UK Acquisition Limited. Incorporated by reference toFund VI, L.P. as sellers’ representative (filed as Exhibit 2.12.2 to the Company'sCompany’s Form 8-K filed on July 22, 2015.September 19, 2022) |
2.23.1 |
| Membership Interest and Stock Purchase Agreement, dated April 19, 2016, by and among S/T Group Blocker, Inc.; GCP Southern Tide Coinvest, Inc.; S/T Group Holdings, LLC; the Sellers identified therein; Brazos Equity GP III, as the Sellers' Representative; and Oxford of South Carolina, Inc. Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed on April 20, 2016. |
3.1 |
| Restated Articles of Incorporation of Oxford Industries, Inc. Incorporated by reference to(filed as Exhibit 3.1 to the Company'sCompany’s Form 10-Q for the fiscal quarter ended AugustJuly 29, 2003.2017) |
3.2 |
| Bylaws of Oxford Industries, Inc., as amended. Incorporated by reference toamended (filed as Exhibit 3.2 to the Company'sCompany’s Form 8-K filed on August 18, 2020) |
4.1 | Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.1 to the Company’s Form 10-K for the fiscal year ended February 1, 2014.2020) |
10.1 |
| Amended and Restated Long-Term Stock Incentive Plan, effective as of March 24, 2015.Incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the fiscal year ended January 31, 2015.† |
10.2 |
| Form of Oxford Industries, Inc. Performance Equity Award Agreement (Fiscal 2014 Performance-Based). Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on April 4, 2014.† |
10.3 |
| Form of Oxford Industries, Inc. Restricted Stock Award Agreement. Incorporate by reference to Exhibit 10.2 to the Company's Form 8-K filed April 4, 2014.†
|
10.4 |
| Form of Oxford Industries, Inc. Performance Equity Award Agreement (Fiscal 2015 Performance Based). Incorporated by reference to the Company's Form 10-K for the fiscal year ended January 30, 2016.† |
10.5 |
| Oxford Industries, Inc. Deferred Compensation Plan (as amended and restated effective June 13, 2012). Incorporated by reference to (filed as Exhibit 10.1 to the Company'sCompany’s Form 10-Q for the fiscal quarter ended October 27, 2012.2012)† |
10.610.2 |
| |
10.710.3 |
| Second Amendment to Oxford Industries, Inc. Executive Performance IncentiveDeferred Compensation Plan (as amended and restated, effective March 27, 2013). Incorporated by reference to Appendix A to the Company's Proxy Statement for its Annual Meeting of Shareholders held June 19, 2013, filed on May 17, 2013.†dated December 22, 2022†* |
10.810.4 |
| Fourth Amended and Restated Credit Agreement, dated as of May 24, 2016, by and among Oxford Industries, Inc.; Tommy Bahama Group, Inc.; the Persons party thereto from time to time as Guarantors, the financial institutions party thereto as lenders, the financial institutions party thereto as Exhibit 2.1; Issuing Banks; and SunTrust Robinson Humphrey, Inc. as a Joint Lead Arranger and a Joint Bookrunner; JPMorgan Chase Bank, N.A. as a Joint Lead Arranger, a Joint Bookrunner, and the Syndication Agent; and Bank of America, N.A. and KeyBank National Association, as the Co-Documentation Agents. Incorporated by reference toAgents (filed as Exhibit 10.1 to the Company'sCompany’s Form 8-K filed on May 24, 2016.2016) |
10.910.5 |
| Fourth Amended and Restated Pledge and Security Agreement, dated as of May 24, 2016, among Oxford Industries, Inc.; Tommy Bahama Group, Inc.; the additional entities grantor thereto, as Grantors, and Truist Bank f/k/a SunTrust Bank, as administrative agent. Incorporated by reference toagent (filed as Exhibit 10.2 to the Company'sCompany’s Form 8-K filed on May 24, 2016.2016) |
2110.6 |
| ListFirst Amendment to Fourth Amended and Restated Credit Agreement, dated as of Subsidiaries.*July 31, 2019, by and among Oxford Industries, Inc., Tommy Bahama Group, Inc., the Persons party thereto from time to time as guarantors, the financial institutions party thereto from time to time as lenders, and Truist Bank f/k/a SunTrust Bank, as administrative agent (filed as Exhibit 10.1 to the Company’s Form 8-K filed on August 1, 2019) |
2310.7 |
Second Amendment to Fourth Amended and Restated Credit Agreement, dated as of March 6, 2023, by and among Oxford Industries, Inc., Tommy Bahama Group, Inc., the Persons party thereto from time to time as guarantors, the financial institutions party thereto from time to time as lenders, and Truist Bank, as administrative agent (filed as Exhibit 99.1 to the Company’s Form 8-K filed on March 7, 2023) |
10.8 | Form of Oxford Industries, Inc. Restricted Stock Award Agreement (filed as Exhibit 10.1 to the Company’s Form 8-K filed on June 29, 2020)† |
10.8 | Form of Oxford Industries, Inc. Performance-Based Restricted Share Unit Award Agreement (filed as Exhibit 10.2 to the Company’s Form 8-K filed on June 29, 2020)† |
10.9 | Oxford Industries, Inc. Amended and Restated Long-Term Stock Incentive Plan † * |
21 | Subsidiaries of Oxford Industries, Inc.* |
23 | Consent of Independent Registered Public Accounting Firm.*Firm* |
24 |
| PowersPower of Attorney.Attorney* |
31.1 |
| Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*2002* |
31.2 |
| Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*2002* |
32 |
| Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002.*2002* |
101INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
101SCH |
| XBRL Taxonomy Extension Schema Document |
101CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
|
| |
* | Filed herewith |
† | Management contract or compensation plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report. |
* Filed herewith
† Management contract or compensation plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.
We agree to file upon request of the SEC a copy of all agreements evidencing long-term debt omitted from this report pursuant to Item 601(b)(4)(iii) of Regulation S-K.
Item 16. Form 10-K Summary
None.
Shareholders may obtain copies119
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | |
| | |
| Oxford Industries, Inc. |
| By: | /s/ THOMAS C. CHUBB III |
| |
Chairman, Chief Executive Officer and President
|
2023Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature |
| Capacity |
| Date |
Signature | Capacity | Date | | |
| | |
/s/ THOMAS C. CHUBB III | | | | |
Thomas C. Chubb III | | Chairman of the Board of Directors, Chief Executive Officer and President (Principal (Principal Executive Officer) | | March 27, 20172023 |
/s/ K. SCOTT GRASSMYER | | | | |
K. Scott Grassmyer | | Executive Vice President, — Finance, Chief Financial Officer and Controller (PrincipalChief Operating Officer (Principal Financial Officer and Principal Accounting Officer) | | March 27, 20172023 |
* | | | | |
Helen Ballard | Director | Director | | March 27, 20172023 |
* | | | | |
Thomas C. Gallagher | Director | March 27, 2017 |
* | | |
Virginia A. Hepner | Director | Director | | March 27, 20172023 |
* | | | | |
John R. Holder | Director | Director | | March 27, 20172023 |
* | | | | |
J. ReeseStephen S. Lanier | Director | Director | | March 27, 20172023 |
* | | | | |
Dennis M. Love | Director | Director | | March 27, 20172023 |
* | | | | |
Milford W. McGuirt | | Director | | March 27, 2023 |
* | | | | |
Clarence H. Smith | Director | Director | | March 27, 20172023 |
* | | | | |
Clyde C. Tuggle | Director | Director | | March 27, 20172023 |
* | | | | |
E. Jenner Wood III | Director | Director | | March 27, 20172023 |
* | | | | |
*ByCarol B. Yancey | | Director | | March 27, 2023 |
/s/ THOMAS E. CAMPBELL | | | | |
| | | | |
Thomas E. Campbell
| | | | |
/s/ SURAJ A. PALAKSHAPPA | | | | |
Suraj A. Palakshappa | | | | |
as Attorney-in-Fact | | | | |
