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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 28, 2017~~May 4, 2019 or

☐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 1-16097

TAILORED BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

Texas		47-4908760
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

6380 Rogerdale Road
Houston, Texas		77072-1624
(Address of Principal Executive Offices)		(Zip Code)

(281) 776-7000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	TLRD	New York Stock Exchange

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 ☒. No ☐.

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒. No ☐.

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 emerging growth company. See ~~definition~~the definitions of ~~"large~~“large accelerated ~~filer", "accelerated filer"~~filer,” “accelerated filer,” “smaller reporting company,” and ~~"smaller reporting company"~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐ ~~(Do not check if a smaller reporting company)~~
Smaller reporting company ☐	Emerging ~~Growth Company~~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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐. No ☒.

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at ~~November 25, 2017~~May 31, 2019 was ~~49,243,027.~~50,519,133.

Table of Contents

REPORT INDEX


Part and Item No.		Page No.

PART I — Financial Information

Item 1 — Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of ~~October 28, 2017, October 29, 2016~~May 4, 2019, May 5, 2018 and ~~January 28, 2017~~February 2, 2019		2

Condensed Consolidated Statements of Earnings for the Three ~~and Nine~~ Months Ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016~~May 5, 2018		3

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three ~~and Nine~~ Months Ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016~~May 5, 2018		4

Condensed Consolidated Statements of ~~Cash Flows~~Shareholders’ (Deficit) Equity for the ~~Nine~~Three Months Ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016~~May 5, 2018		5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 4, 2019 and May 5, 2018		6

Notes to Condensed Consolidated Financial Statements		67

Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations		3135

Item 3 — Quantitative and Qualitative Disclosures about Market Risk		44

Item 4 — Controls and Procedures		4445

PART II — Other Information		45

Item 1 — Legal Proceedings		45

Item 6 — Exhibits		45

SIGNATURES		47

Table of Contents

Forward-Looking Statements

Certain ~~information included~~statements made in this ~~report~~Quarterly Report on Form 10‑Q or in other materials we have filed or will file with the Securities and Exchange Commission ~~("SEC"~~(“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain ~~forward-looking~~forward‑looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition. Words such as ~~"expects," "anticipates," "envisions," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates,"~~“expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. ~~Forward-looking~~Forward‑looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, margins, costs, earnings, number and costs of store openings, closings, remodels, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for clothing or rental product, economic conditions, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. ~~Forward-looking~~Forward‑looking statements are based upon ~~management's~~management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.

Any ~~forward-looking~~forward‑looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such ~~forward-looking~~forward‑looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international ~~macro-economic~~macro‑economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion ~~plans,~~plans; cost reduction initiatives ~~store rationalization plans, profit improvement plans,~~ and revenue enhancement strategies; ~~the impact of the termination of our tuxedo rental license agreement with Macy's;~~ changes in demand for clothing or rental product; market trends in the retail or rental business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise ~~strategies;~~strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import ~~policies;~~policies, including the enactment of duties or tariffs; the impact of the United Kingdom’s proposed exit from the European Union; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and ~~legal proceedings. Please also see "Item 1A. Risk Factors" in Part I~~the impact of our Annual Report on Form 10-K for the year ended January 28, 2017, as the same may be updated from time to time in our subsequent filings with the SEC, for a more complete discussion of these and other factors that might affect our performance and financial results.climate change.

~~Forward-looking~~Forward‑looking statements are intended to convey the ~~Company's~~Company’s expectations about the future, and speak only as of the date they are made. We undertake no obligation to publicly update or revise any ~~forward-looking~~forward‑looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms ~~10‑K, 10‑Q~~10-K, 10-Q and ~~8‑K~~8-K should be consulted. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

Table of Contents

PART I –— FINANCIAL INFORMATION

ITEM 1 –— CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	October 28,		October 29,		January 28,		May 4,		May 5,		February 2,
	2017		2016		2017		2019		2018		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	126,244	$	34,948	$	70,889	$	29,749	$	93,166	$	55,431
Accounts receivable, net		81,193		71,898		65,714		80,623		87,411		73,073
Inventories		973,001		1,047,915		955,512		874,412		843,671		830,426
Other current assets		53,566		60,190		73,602		49,904		69,937		70,712
Total current assets		1,234,004		1,214,951		1,165,717		1,034,688		1,094,185		1,029,642
PROPERTY AND EQUIPMENT, net		454,921		501,391		484,165		428,380		437,944		439,172
OPERATING LEASE RIGHT-OF-USE ASSETS								955,970		—		—
RENTAL PRODUCT, net		125,320		160,101		152,610		103,895		128,744		99,770
GOODWILL		119,125		116,026		117,026		78,964		104,802		79,491
INTANGIBLE ASSETS, net		169,072		172,337		171,659		156,614		167,320		163,901
OTHER ASSETS		8,859		10,323		6,695		6,942		12,827		8,514
TOTAL ASSETS	$	2,111,301	$	2,175,129	$	2,097,872	$	2,765,453	$	1,945,822	$	1,820,490
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	186,862	$	200,199	$	177,380	$	218,492	$	192,878	$	228,979
Accrued expenses and other current liabilities		281,533		280,658		267,899		316,821		350,414		282,029
Current portion of operating lease liabilities								183,011		—		—
Income taxes payable		21,224		917		1,262		15,923		1,740		15,968
Current portion of long-term debt		8,750		7,000		13,379		9,000		9,000		11,619
Total current liabilities		498,369		488,774		459,920		743,247		554,032		538,595
LONG-TERM DEBT, net		1,467,735		1,588,873		1,582,150		1,151,196		1,277,508		1,153,242
OPERATING LEASE LIABILITIES								804,895		—		—
DEFERRED TAXES, net AND OTHER LIABILITIES		160,197		175,179		163,420		70,161		151,503		125,022
Total liabilities		2,126,301		2,252,826		2,205,490		2,769,499		1,983,043		1,816,859
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
SHAREHOLDERS' (DEFICIT) EQUITY:
Preferred stock		—		—		—		—		—		—
Common stock		492		487		487		504		496		501
Capital in excess of par		485,299		466,817		470,801		507,039		494,849		505,157
Accumulated deficit		(469,463)		(499,663)		(538,823)		(470,411)		(510,441)		(468,048)
Accumulated other comprehensive loss		(31,328)		(45,338)		(40,083)		(41,178)		(22,125)		(33,979)
Total shareholders' deficit		(15,000)		(77,697)		(107,618)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	2,111,301	$	2,175,129	$	2,097,872
Total shareholders' (deficit) equity								(4,046)		(37,221)		3,631
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY							$	2,765,453	$	1,945,822	$	1,820,490

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016		May 4, 2019		May 5, 2018
Net sales:
Retail clothing product	$	575,203	$	575,046	$	1,753,782	$	1,806,660	$	594,779	$	613,644
Rental services		126,410		138,724		373,208		403,564		93,740		100,227
Alteration and other services		45,909		49,919		138,835		149,888		36,143		40,972
Total retail sales		747,522		763,689		2,265,825		2,360,112		724,662		754,843
Corporate apparel clothing product		63,296		83,245		178,657		225,328		56,725		63,121
Total net sales		810,818		846,934		2,444,482		2,585,440		781,387		817,964
Cost of sales:
Retail clothing product		247,293		247,978		748,802		796,215		268,644		276,220
Rental services		20,455		22,958		60,580		65,943		13,017		14,657
Alteration and other services		34,138		33,526		103,686		104,085		33,847		34,178
Occupancy costs		103,579		108,923		311,994		327,673		103,732		101,019
Total retail cost of sales		405,465		413,385		1,225,062		1,293,916		419,240		426,074
Corporate apparel clothing product		46,596		56,343		131,527		152,173		41,591		46,666
Total cost of sales		452,061		469,728		1,356,589		1,446,089		460,831		472,740
Gross margin:
Retail clothing product		327,910		327,068		1,004,980		1,010,445		326,135		337,424
Rental services		105,955		115,766		312,628		337,621		80,723		85,570
Alteration and other services		11,771		16,393		35,149		45,803		2,296		6,794
Occupancy costs		(103,579)		(108,923)		(311,994)		(327,673)		(103,732)		(101,019)
Total retail gross margin		342,057		350,304		1,040,763		1,066,196		305,422		328,769
Corporate apparel clothing product		16,700		26,902		47,130		73,155		15,134		16,455
Total gross margin		358,757		377,206		1,087,893		1,139,351		320,556		345,224
Advertising expense		38,664		45,656		120,804		138,547		45,043		41,233
Selling, general and administrative expenses		243,466		270,494		750,995		849,122		245,211		251,094
Operating income		76,627		61,056		216,094		151,682		30,302		52,897
Interest income		159		52		324		102		96		85
Interest expense		(24,412)		(25,476)		(75,200)		(77,853)		(18,663)		(21,981)
Gain on extinguishment of debt, net		2,539		1,808		6,535		1,737
Loss on extinguishment of debt, net										—		(12,711)
Earnings before income taxes		54,913		37,440		147,753		75,668		11,735		18,290
Provision for income taxes		18,021		9,007		50,551		20,623		4,593		4,381
Net earnings	$	36,892	$	28,433	$	97,202	$	55,045	$	7,142	$	13,909
Net earnings per common share allocated to common shareholders:
Net earnings per common share:
Basic	$	0.75	$	0.58	$	1.98	$	1.13	$	0.14	$	0.28
Diluted	$	0.75	$	0.58	$	1.97	$	1.13	$	0.14	$	0.27
Weighted-average common shares outstanding:
Basic		49,206		48,655		49,040		48,570		50,280		49,458
Diluted		49,430		48,812		49,251		48,691		50,587		50,720
Cash dividends declared per common share	$	0.18	$	0.18	$	0.54	$	0.54

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
	2017		2016		2017		2016		2019		2018

Net earnings	$	36,892	$	28,433	$	97,202	$	55,045	$	7,142	$	13,909
Currency translation adjustments		(5,257)		(15,075)		10,857		(18,246)		(1,585)		(14,143)
Unrealized gain (loss) on cash flow hedges, net of tax		2,110		948		(2,102)		1,394
Comprehensive income	$	33,745	$	14,306	$	105,957	$	38,193
Unrealized (loss) gain on cash flow hedges, net of tax										(5,614)		2,800
Comprehensive (loss) income									$	(57)	$	2,566

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)



							Accumulated
			Capital				Other		Total
	Common		in Excess		Accumulated		Comprehensive		Equity
	Stock		of Par		Deficit		Loss		(Deficit)
BALANCES —February 2, 2019	$	501	$	505,157	$	(468,048)	$	(33,979)	$	3,631
Net earnings		—		—		7,142		—		7,142
Other comprehensive loss		—		—		—		(7,199)		(7,199)
Cumulative adjustment upon ASC 842 adoption (see Note 12)		—		—		(402)		—		(402)
Cash dividends — $0.18 per share		—		—		(9,103)		—		(9,103)
Share-based compensation		—		2,398		—		—		2,398
Common stock issued — 306,505 shares		3		424		—		—		427
Tax payments related to vested deferred stock units		—		(940)		—		—		(940)
BALANCES — May 4, 2019	$	504	$	507,039	$	(470,411)	$	(41,178)	$	(4,046)



							Accumulated
			Capital				Other		Total
	Common		in Excess		Accumulated		Comprehensive		Equity
	Stock		of Par		Deficit		Loss		(Deficit)
BALANCES —February 3, 2018	$	492	$	491,648	$	(479,166)	$	(10,782)	$	2,192
Net earnings		—		—		13,909		—		13,909
Other comprehensive loss		—		—		—		(11,343)		(11,343)
Cumulative adjustment upon ASC 606 adoption (see Note 5)		—		—		(35,824)		—		(35,824)
Cash dividends — $0.18 per share		—		—		(9,360)		—		(9,360)
Share-based compensation		—		4,581		—		—		4,581
Common stock issued — 445,932 shares		4		3,645		—		—		3,649
Tax payments related to vested deferred stock units		—		(5,025)		—		—		(5,025)
BALANCES — May 5, 2018	$	496	$	494,849	$	(510,441)	$	(22,125)	$	(37,221)

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Nine Months Ended
	October 28,		October 29,		For the Three Months Ended
	2017		2016		May 4, 2019		May 5, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	97,202	$	55,045	$	7,142	$	13,909
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		78,929		87,838		26,695		26,679
Operating lease right-of-use asset amortization						49,969		—
Rental product amortization		32,779		35,982		8,348		8,756
Gain on extinguishment of debt, net		(6,535)		(1,737)
Loss on extinguishment of debt, net						—		12,711
Amortization of deferred financing costs and discount on long-term debt		5,391		5,650		486		1,333
Loss on disposition of assets		1,407		616		—		3,618
Asset impairment charges		2,867		4,293		184		269
Share-based compensation		14,850		13,958		2,398		4,581
Deferred tax benefit		(243)		(13,233)		1,599		748
Deferred rent expense and other		422		(1,281)
Other						85		73
Changes in operating assets and liabilities:
Accounts receivable		(13,192)		(13,273)		(7,504)		(10,871)
Inventories		(13,569)		(32,833)		(44,900)		(11,886)
Rental product		(6,554)		(37,817)		(12,831)		(14,377)
Other assets		16,632		84,844		(269)		8,124
Accounts payable, accrued expenses and other current liabilities		24,394		(4,314)		30,872		82,755
Income taxes payable		19,870		(2,065)		(28)		(4,301)
Other liabilities		(2,112)		(4,789)		(50,452)		(1,893)
Net cash provided by operating activities		252,538		176,884		11,794		120,228
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(55,956)		(80,550)		(21,691)		(10,980)
Acquisition of business, net of cash		(457)		—
Proceeds from sales of property and equipment		2,157		605
Net cash used in investing activities		(54,256)		(79,945)
Proceeds from divestiture of business						—		17,732
Net cash (used in) provided by investing activities						(21,691)		6,752
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		(9,879)		(40,701)
Payments on original term loan						—		(993,420)
Proceeds from new term loan						—		895,500
Payments on new term loan						(4,870)		(2,250)
Proceeds from asset-based revolving credit facility		235,900		520,550		399,500		1,500
Payments on asset-based revolving credit facility		(235,900)		(520,550)		(399,500)		(1,500)
Repurchase and retirement of senior notes		(106,731)		(21,924)		—		(18,240)
Deferred financing costs		(2,464)		—		—		(5,576)
Cash dividends paid		(26,895)		(26,438)		(9,590)		(9,618)
Proceeds from issuance of common stock		1,334		1,451		427		3,649
Tax payments related to vested deferred stock units		(1,682)		(1,258)		(940)		(5,025)
Net cash used in financing activities		(146,317)		(88,870)		(14,973)		(134,980)
Effect of exchange rate changes		3,390		(3,101)		(812)		(2,441)
INCREASE IN CASH AND CASH EQUIVALENTS		55,355		4,968
DECREASE IN CASH AND CASH EQUIVALENTS						(25,682)		(10,441)
Balance at beginning of period		70,889		29,980		55,431		103,607
Balance at end of period	$	126,244	$	34,948	$	29,749	$	93,166

See Notes to Condensed Consolidated Financial Statements.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation — The condensed consolidated financial statements herein include the accounts of Tailored Brands, Inc. and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. ~~Certain prior period amounts have been reclassified to conform to the current period presentation.~~

Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended ~~January 28, 2017.~~February 2, 2019.

Unless the context otherwise requires, "Company", "we", "us" and "our" refer to Tailored Brands, Inc. and its subsidiaries.

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States ~~("U.S. GAAP")~~ requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.

Recent Accounting Pronouncements Not Yet Adopted — We have considered all new accounting pronouncements not yet adopted and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, or cash flows, based on current information, except for those listed below.

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting ~~Standards Update ("ASU") No. 2016-02,~~ for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Leases.~~ . ASU ~~2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on~~2018-15 aligns the ~~balance sheet and disclosing key information about leasing arrangements. The main difference between previous U.S. GAAP and~~requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU ~~2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02~~2018-15 is effective for public companies for annual reporting periods beginning after December 15, ~~2018,~~2019, and interim periods within those fiscal years. Early adoption of ASU ~~2016-02~~2018-15 is permitted. ~~The guidance is required to be adopted using the modified retrospective approach.~~ We are currently evaluating the impact ASU ~~2016-02 will~~2018-15 may have on our financial position, results of operations ~~and~~or cash flows ~~but expect that it will result in a significant increase in our long-term assets and liabilities given we have a considerable number~~.

2. Divestiture of ~~operating leases.~~MW Cleaners

~~In May 2014,~~On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the ~~FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~ ~~to clarify~~transaction closed on March 3, 2018. During the ~~principles used to recognize revenue for all entities. In August 2015,~~first quarter of 2018, we received cash proceeds of $17.7 million and recorded a loss on the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year. As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The guidance allows for either a full retrospective or a modified retrospective transition method.

Based on our preliminary assessment, we determined that the adoption of ASU 2014-09 will impact the timing of revenue recognition related to our customer loyalty program and gift cards. Upon adoption, for our customer loyalty program, we will no longer use the incremental cost method approach, rather we will use a deferred revenue model. For income from breakage of gift cards,divestiture totaling $3.6 million, which is ~~currently recognized as a reduction of~~included within selling, general and administrative expenses ("(“SG~~&A"~~&A”) when the redemption of the gift card is remote, the new guidance requires classification within net sales with breakage recognized proportionately over the expected redemption period. Additionally, under the new guidance, we expect to recognize allowances for estimated sales returns on a gross basis rather than net basis onin the condensed consolidated ~~balance sheets.~~ statement of earnings, and relates to our retail segment. For fiscal 2018, the total loss on divestiture of MW Cleaners was $3.8 million.

We ~~are~~determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows. Accordingly, we have not presented the sale as a discontinued operation in the process of finalizing and quantifying the effects of the areas described above including additional disclosure requirements. We will adopt ASU 2014-09 on February 4, 2018, under the modified retrospective approach, which will result in a cumulative adjustment to retained earnings.condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~2. Termination of Tuxedo Rental License Agreement with Macy's~~

During the first quarter of fiscal 2017, we reached an agreement with Macy's to wind down operations under the tuxedo rental license agreement established between Macy's and The Men's Wearhouse, Inc. ("The Men's Wearhouse") in 2015. The winding down of our tuxedo shops within Macy's is complete and all tuxedo shops within Macy's closed in the second quarter of 2017.

As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million were cash charges. These costs included $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to our retail segment. Of the $17.2 million in termination-related costs, $15.8 million is recorded in SG&A and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings. At October 28, 2017, $0.4 million of such costs are included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

3. ~~Restructuring and Other Charges~~

During the fourth quarter of fiscal 2015, we began implementing initiatives intended to reduce costs and improve operating performance. These initiatives included a store rationalization program as well as a profit improvement program to drive operating efficiencies and improve our expense structure. These programs were substantially completed in fiscal 2016 and resulted in the closure of 75 Jos. A. Bank full line stores, the closure of 56 factory and outlet stores at Jos. A. Bank and Men's Wearhouse and the closure of 102 Men's Wearhouse and Tux stores.

No charges were incurred under these initiatives for the three and nine months ended October 28, 2017. A summary of the charges incurred in the three and nine months ended October 29, 2016 incurred under these initiatives since inception is presented in the table below (amounts in thousands):

For the Three Months Ended
For the Nine Months Ended

October 29, 2016
October 29, 2016

Lease termination costs

$
8,667
$
37,004

Store asset impairment charges and accelerated depreciation, net of deferred rent

(844)

2,330

Consulting costs

1,806

13,583

Severance and employee-related costs

481

4,643

Other costs

839

1,565

Total pre-tax restructuring and other charges(1)

$
10,949
$
59,125

~~(1)~~ Consists of $12.4 million in SG&A offset by a $1.5 million reduction in cost of sales for the three months ended October 29, 2016. Of the total amount recorded for the three months ended October 29, 2016, $9.1 million relates to our retail segment and $1.8 million relates to shared services. Consists of $61.8 million included in SG&A offset by a $2.7 million reduction in cost of sales for the nine months ended October 29, 2016. Of the total amount recorded for the nine months ended October 29, 2016, $42.7 million relates to our retail segment and $16.4 million relates to shared services.

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):

Severance and

Lease

Employee-

Termination

Consulting

Other


Related Costs

Costs

Costs

Costs

Total

Beginning Balance, January 28, 2017

$
986

$
4,834

$
60

$
25

$
5,905

Charges, excluding non-cash items

—

—

—

—

—

Payments

(504)

(4,377)

(60)

(25)

(4,966)

Ending Balance, October 28, 2017

$
482

$
457

$
—

$
—

$
939

In addition to the restructuring costs described above, for the three months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $1.4 million, of which $0.9 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings.

For the nine months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $7.1 million, of which $5.5 million are included in SG&A and $1.6 million are included in cost of sales in the condensed consolidated statement of earnings.

4. Earnings Per Share

Basic earnings per common share ~~allocated to common shareholders~~ is computed by dividing net earnings by the weighted-average common shares outstanding during the period. Diluted earnings per common share ~~reflect the more dilutive earnings per common share amount~~is calculated using the treasury stock ~~method or the two-class~~ method. For the three and nine months ended October 28, 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used for the three and nine months ended October 29, 2016.

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Basic and diluted earnings per common share ~~allocated to common shareholders~~ are computed using the actual net earnings ~~allocated to common shareholders~~ and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes. As a result, it may not be possible to recalculate earnings per common share ~~allocated to common shareholders~~ in our condensed consolidated statement of earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings per common share ~~allocated to common shareholders~~ (in thousands, except per share amounts):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	October 28,		October 29,		October 28,		October 29,		May 4,		May 5,
	2017		2016		2017		2016		2019		2018
Numerator
Net earnings	$	36,892	$	28,433	$	97,202	$	55,045	$	7,142	$	13,909
Net earnings allocated to participating securities (restricted stock and deferred stock units)		—		(33)		—		(65)
Net earnings allocated to common shareholders	$	36,892	$	28,400	$	97,202	$	54,980
Denominator
Basic weighted-average common shares outstanding		49,206		48,655		49,040		48,570		50,280		49,458
Dilutive effect of share-based awards		224		157		211		121		307		1,262
Diluted weighted-average common shares outstanding		49,430		48,812		49,251		48,691		50,587		50,720
Net earnings per common share allocated to common shareholders:
Net earnings per common share:
Basic	$	0.75	$	0.58	$	1.98	$	1.13	$	0.14	$	0.28
Diluted	$	0.75	$	0.58	$	1.97	$	1.13	$	0.14	$	0.27

For the three ~~and nine~~ months ended ~~October 28, 2017, 2.2~~May 4, 2019 and May 5, 2018, 2.0 million and 2.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively. For the three and nine months ended October 29, 2016, 1.9 million and 1.70.4 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

5.4. Debt

In 2014, The Men's Wearhouse entered into a term loan credit agreement that ~~provides~~provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the ~~"Term~~"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million original issue discount ("OID"), which iswas presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and ~~will~~was to be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and in October 2018, amended its term loan to reduce the interest rate margin. See Credit Facilities section below for additional information.

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of May 4, 2019, our total leverage ratio and secured leverage ratio are below the thresholds specified in the agreements, which results in the elimination of these additional restrictions. In addition, ~~we are currently restricted on~~as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock ~~in excess~~has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter. ~~Since entering into these financing arrangements, our total leverage ratio and secured leverage ratio have been above the maximums specified in the~~

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

agreements, which was anticipated when we entered into these arrangements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements and we believe these ratios will remain below the maximums specified in the agreements during the remainder of fiscal 2017 and beyond, which will result in the elimination of these additional restrictions. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6 million to the Term Loan lenders prior to April 28, 2017. On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.

Credit Facilities

~~The~~In April 2018, we refinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan ~~is guaranteed, jointly~~consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and ~~severally,~~$400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.

As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”). Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.

The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by ~~Tailored Brands, Inc.~~a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and ~~certain~~was to be amortized to interest expense over the contractual life of ~~our U.S. subsidiaries~~the New Term Loan. The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points. As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated. In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will ~~mature in June 2021.~~ be amortized over the life of the New Term Loan using the interest method. The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.

The interest rate on the New Term Loan is based on 1-month LIBOR, which was ~~1.24%~~2.47% at ~~October 28, 2017,~~May 4, 2019, plus the applicable margin ~~which is currently 3.50%~~of 3.25%, resulting in a total interest rate of ~~4.74%~~5.72%. ~~In January 2015, we entered into~~We have two interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate, including an interest rate swap ~~agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate. In April 2017, we~~ entered into ~~an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate.~~during June 2018. At ~~October 28, 2017,~~May 4, 2019, the total notional amount under ~~our~~these interest rate swaps is ~~$490.0~~$710.0 million. ~~See~~Please see Note 1415 for additional information on our interest rate swaps.

In 2015, The Men's Wearhouse entered into Incremental Facility Agreement No. 1 (the "Incremental Agreement") resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan, or collateral and guarantees under the Term Loan.

As a result of our interest rate swaps, ~~and the Incremental Agreement, we have converted a significant portion~~80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of ~~October 28, 2017,~~May 4, 2019, the New Term Loan had a weighted average interest rate of ~~5.13%~~5.77%.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of ~~October 28, 2017, there~~May 4, 2019, $48.5 million in borrowings were ~~no borrowings~~ outstanding under the ABL ~~Facility.~~Facility at a weighted average interest rate of approximately 5.3%. During the ~~nine~~three months ended ~~October 28, 2017,~~May 4, 2019, the maximum borrowing outstanding under the ABL Facility was ~~$34.7~~$100.0 million.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At ~~October 28, 2017,~~May 4, 2019, letters of credit totaling approximately $38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of ~~October 28, 2017~~May 4, 2019 were ~~$511.3~~$424.9 million.

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, The Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company's and each guarantor's present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable inon January 1 and July 1 of each year.

We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes. Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.

During fiscal 2018, we completed a partial redemption of $175.0 million in face value of our Senior Notes. The Senior Notes were redeemed at a redemption price equal to $1,035 per $1,000 principal amount, plus accrued and unpaid interest.

Long-Term Debt

During the ~~third~~first quarter of ~~2017,~~2019, in accordance with the provisions of the New Term Loan, we ~~repurchased and retired $65.0~~made a mandatory excess cash flow payment of $2.6 million ~~in face value~~to the Term Loan lenders.

In connection with the April 2018 refinancing of ~~Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility. As a result,~~the New Term Loan, we recorded a ~~net gain~~loss on extinguishment of debt totaling ~~$2.5~~$11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan, which is included as a separate line in the condensed consolidated statement of earnings. ~~The~~In addition, during the first quarter of 2018, we repurchased and retired $17.6 million in face value of Senior Notes through open market repurchases. As a result, we recorded a net ~~gain~~loss on extinguishment ~~reflects~~totaling $0.9 million, consisting of a ~~$3.4~~$0.6 million ~~gain~~loss upon repurchase ~~partially offset by~~and the elimination of unamortized deferred financing costs totaling ~~$0.9~~$0.3 million related to the Senior Notes.

For the nine months ended October 28, 2017, as a result of the repurchase and retirement of a total of $115.0 million in face value of Senior Notes and our excess cash flow prepayment, we recorded a net gain on extinguishment totaling $6.5 million, which reflects a $8.2 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.7 million, which is included as a separate line in the condensed consolidated statement of earnings.

The following table provides details on our long-term debt as of ~~October 28, 2017, October 29, 2016~~May 4, 2019, May 5, 2018 and ~~January 28, 2017~~February 2, 2019 (in thousands):


	October 28,		October 29,		January 28,		May 4,		May 5,		February 2,
	2017		2016		2017		2019		2018		2019
Term Loan (net of unamortized OID of $3.4 million at October 28, 2017, $4.4 million at October 29, 2016, and $4.1 million at January 28, 2017)	$	1,033,514	$	1,044,173	$	1,042,660
Term Loan (net of unamortized OID of $0.0 million at May 4, 2019, $4.5 million at May 5, 2018, and $0.0 million at February 2, 2019)							$	886,130	$	893,299	$	891,000
Senior Notes		460,000		575,000		575,000		228,607		403,607		228,607
ABL Facility								48,500		—		48,500
Less: Deferred financing costs related to the Term Loan and Senior Notes		(17,029)		(23,300)		(22,131)		(3,041)		(10,398)		(3,246)
Total long-term debt, net		1,476,485		1,595,873		1,595,529		1,160,196		1,286,508		1,164,861
Current portion of long-term debt		(8,750)		(7,000)		(13,379)		(9,000)		(9,000)		(11,619)
Total long-term debt, net of current portion	$	1,467,735	$	1,588,873	$	1,582,150	$	1,151,196	$	1,277,508	$	1,153,242

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~6. Supplemental Cash Flows~~

5. Revenue Recognition

~~Supplemental disclosure~~Adoption of ~~cash flow information is as follows (in thousands):~~

For the Nine Months Ended

October 28,

October 29,

2017

2016

Cash paid for interest

$
66,628

$
62,450

Cash paid (refunded) for income taxes, net

$
17,798

$
(44,961)

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $7.1 million and $7.8 million at October 28, 2017 and October 29, 2016, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid. ASC 606

~~Cash dividends declared~~Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach. We recognized the cumulative effect of ~~$9.2 million and $9.0 million at October 28, 2017 and October 29, 2016, respectively, are included in accrued expenses and other current liabilities.~~

~~7. Inventories~~initially applying ASC 606 as an adjustment to the opening balance of retained earnings. The adoption had no impact to our previously reported results of operations or cash flows.

The following table ~~provides details on~~depicts the cumulative effect of the changes made to our ~~inventories as~~February 3, 2018 balance sheet for the adoption of ~~October 28, 2017, October 29, 2016 and January 28, 2017~~ASC 606 (in thousands):

October 28,

October 29,

January 28,


2017

2016

2017

Finished goods

$
873,030

$
963,036

$
846,585

Raw materials and merchandise components

99,971

84,879

108,927

Total inventories

$
973,001

$
1,047,915

$
955,512


	Reported				Adjusted
	Balance at		Impact of		Balance at
	February 3,		Adoption of		February 3,
	2018		ASC 606		2018
Assets:
Accounts receivable, net	$	79,783	$	(303)	$	79,480
Inventories		851,931		(17,837)		834,094
Other current assets		78,252		2,753		81,005
Liabilities:
Accrued expenses and other current liabilities		285,537		32,378		317,915
Deferred taxes, net and other liabilities		164,191		(11,941)		152,250
Equity:
Accumulated deficit		(479,166)		(35,824)		(514,990)

~~8. Income Taxes~~

~~Our effective income tax rate increased~~The adoption of ASC 606 primarily impacted the timing of revenue recognition related to ~~32.8% for the third quarter of 2017 from 24.1% for the third quarter of 2016 primarily due to higher U.S. income~~our customer loyalty program, gift cards and e-commerce sales within our retail segment, as ~~compared to income earned~~discussed in ~~foreign jurisdictions this year compared to last year.~~

Our effective income tax rate increased to 34.2% for the first nine months of 2017 from 27.3% for the first nine months of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.more detail below. In addition, for our corporate apparel segment, certain deferred revenue balances along with related inventory amounts were eliminated as part of the ~~effective income tax rate~~cumulative adjustment to opening retained earnings. Also, for estimated sales returns, we recognize allowances for estimated sales returns on a gross basis rather than a net basis on the first nine months of 2017 was impacted by $2.2 million of tax deficiencies related to the vesting of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation. See Note 11 for additional information.condensed consolidated balance sheets.

~~Additionally, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~9. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities~~

~~Other current assets consist of the following (in thousands):~~

October 28,

October 29,

January 28,


2017

2016

2017

Prepaid expenses

$
44,473

$
43,778

$
47,057

Tax receivable

506

4,697

15,794

Other

8,587

11,715

10,751

Total other current assets

$
53,566

$
60,190

$
73,602

~~Accrued expenses and other current liabilities consist of the following (in thousands):~~

October 28,

October 29,

January 28,

2017

2016

2017

Accrued salary, bonus, sabbatical, vacation and other benefits

$
79,753

$
70,631

$
72,589

Customer deposits, prepayments and refunds payable

37,822

29,371

28,384

Unredeemed gift cards

34,552

34,693

40,865

Sales, value added, payroll, property and other taxes payable

30,220

36,021

31,188

Accrued workers compensation and medical costs

27,860

30,818

31,609

Accrued interest

19,550

25,884

15,457

Loyalty program reward certificates

11,199

10,704

9,840

Accrued dividends

10,789

9,572

9,842

Accrued royalties

6,020

7,977

3,720

Lease termination and other store closure costs

1,027

6,442

4,834

Other

22,741

18,545

19,571

Total accrued expenses and other current liabilities

$
281,533

$
280,658

$
267,899

~~Deferred taxes, net and other liabilities consist of the following (in thousands):~~

October 28,

October 29,

January 28,


2017

2016

2017

Deferred and other income tax liabilities, net

$
91,760

$
102,243

$
92,079

Deferred rent and landlord incentives

60,040

61,641

61,215

Unfavorable lease liabilities

3,279

5,394

4,693

Other

5,118

5,901

5,433

Total deferred taxes, net and other liabilities

$
160,197

$
175,179

$
163,420

~~10. Accumulated Other Comprehensive (Loss) Income~~Revenues

The following table ~~summarizes~~depicts the ~~components~~disaggregation of ~~accumulated other comprehensive (loss) income~~revenue by major source (in thousands):


	For the Three Months Ended
	May 4, 2019		May 5, 2018
Net sales:
Men's tailored clothing product	$	342,955	$	355,737
Men's non-tailored clothing product		228,982		235,606
Women's clothing product		19,214		19,582
Other (1)		3,628		2,719
Total retail clothing product		594,779		613,644
Rental services		93,740		100,227
Alteration services		36,143		38,421
Retail dry cleaning services (2)		—		2,551
Total alteration and other services		36,143		40,972
Total retail sales		724,662		754,843
Corporate apparel clothing product		56,725		63,121
Total net sales	$	781,387	$	817,964

⁽¹⁾

Other consists of franchise and licensing revenues and gift card breakage. Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period.

⁽²⁾

On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information.

Please see Note 16 for additional information regarding our reporting segments.

Retail Segment

For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the ~~nine months ended October 28, 2017 (in thousands and~~merchandise, net of ~~tax):~~actual sales returns and an accrual for estimated sales returns. For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt by the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.

Loyalty Program

We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and, historically, did not expire. During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance. We believe our loyalty programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we record our obligation for future point redemptions using a deferred revenue model.

When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points

Foreign

Currency

Cash Flow

Pension


Translation

Hedges

Plan

Total

BALANCE— January 28, 2017

$
(40,205)

$
(82)

$
204

$
(40,083)

Other comprehensive income (loss) before reclassifications

10,857

(4,240)

—

6,617

Amounts reclassified from accumulated other comprehensive loss

—

2,138

—

2,138

Net current-period other comprehensive income (loss)

10,857

(2,102)

—

8,755

BALANCE— October 28, 2017

$
(29,348)

$
(2,184)

$
204

$
(31,328)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.

We account for points earned and certificates issued that will not be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

Our estimate of the expected usage of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty programs.

Gift Card Breakage

Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed. Our gift cards do not have expiration dates. In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns.

Sales Returns

Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was $6.4 million at May 4, 2019, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers. We also have a corresponding asset included in other current assets that represents the right to recover products from customers associated with sales returns of $3.3 million at May 4, 2019.

Corporate Apparel Segment

For our corporate apparel segment, we sell corporate clothing and uniforms to workforces under a contract or by purchase order. We transfer control and recognize revenue at a point in time, generally upon delivery of the product to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract Liabilities

The following table summarizes the opening and closing balances of our contract liabilities (in thousands):


	Balance at		Increase		Balance at
	February 2, 2019		(Decrease)		May 4, 2019
Contract liabilities	$	122,828	$	43,074	$	165,902


	Balance at		Increase		Balance at
	February 3, 2018		(Decrease)		May 5, 2018
	As Adjusted
Contract liabilities	$	141,552	$	46,791	$	188,343

Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable. These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards. These amounts are included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our condensed consolidated balance sheet. Please see Note 9 for additional information on our accrued expenses and other current liabilities.

The amount of revenue recognized for the three months ended May 4, 2019 and May 5, 2018 that was included in the respective opening contract liability balance was $52.2 million and $41.7 million, respectively. This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions.

6. Supplemental Cash Flows

Supplemental disclosure of cash flow information is as follows (in thousands):


	For the Three Months Ended
	May 4,		May 5,
	2019		2018

Cash paid for interest	$	13,763	$	13,380
Cash paid for income taxes, net	$	6,455	$	2,128

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $5.9 million and $4.7 million at May 4, 2019 and May 5, 2018, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid. Please see Note 12 for other cash flow disclosures related to leases.

7. Inventories

The following table provides details on our inventories as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Finished goods	$	745,607	$	749,746	$	682,610
Raw materials and merchandise components		128,805		93,925		147,816
Total inventories	$	874,412	$	843,671	$	830,426

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Income Taxes

Our effective income tax rate increased to 39.1% for the first quarter of 2019 from 24.0% for the first quarter of 2018 primarily due to an increase in the discrete tax expense related to the net excess shortfalls from share-based awards vesting in the first quarter of 2019.

Additionally, we are currently undergoing several tax audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.

9. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities

The following table provides details on our other current assets as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Prepaid expenses	$	33,850	$	44,438	$	56,361
Tax receivable		5,090		12,814		584
Other		10,964		12,685		13,767
Total other current assets	$	49,904	$	69,937	$	70,712

The decrease in prepaid expenses as of May 4, 2019, is due to the impact on prepaid rent resulting from the adoption of Accounting Standards Codification 842, Leases (“ASC 842”), effective February 3, 2019. Please see Note 12 for additional information.

The following table provides details on our accrued expenses and other current liabilities as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Customer deposits, prepayments and refunds payable	$	85,985	$	87,849	$	40,620
Accrued salary, bonus, sabbatical, vacation and other benefits		54,528		56,066		81,503
Loyalty program liabilities		44,893		65,597		44,434
Sales, value added, payroll, property and other taxes payable		37,821		37,605		25,547
Unredeemed gift cards		28,352		29,921		32,178
Accrued workers compensation and medical costs		22,357		24,639		23,974
Accrued dividends		9,993		10,870		10,480
Accrued interest		6,241		10,608		1,828
Accrued royalties		1,270		4,009		1,286
Other		25,381		23,250		20,179
Total accrued expenses and other current liabilities	$	316,821	$	350,414	$	282,029

The following table provides details on our deferred taxes, net and other liabilities as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Deferred and other income tax liabilities, net	$	52,948	$	83,357	$	53,479
Deferred rent and landlord incentives		—		58,957		57,505
Unfavorable lease liabilities		—		2,631		1,797
Other		17,213		6,558		12,241
Total deferred taxes, net and other liabilities	$	70,161	$	151,503	$	125,022
The elimination of deferred rent and landlord incentives and unfavorable lease liabilities is due to the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

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(Unaudited)

10. Accumulated Other Comprehensive (Loss) Income

The following table summarizes the components of accumulated other comprehensive (loss) income for the ~~nine~~three months ended ~~October 29, 2016~~May 4, 2019 (in thousands and net of tax):

Foreign

Currency

Cash Flow

Pension


Translation

Hedges

Plan

Total

BALANCE— January 30, 2016

$
(26,659)

$
(2,007)

$
180

$
(28,486)

Other comprehensive (loss) income before reclassifications

(18,246)

354

—

(17,892)

Amounts reclassified from accumulated other comprehensive loss

—

1,040

—

1,040

Net current-period other comprehensive (loss) income

(18,246)

1,394

—

(16,852)

BALANCE— October 29, 2016

$
(44,905)

$
(613)

$
180

$
(45,338)


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— February 2, 2019	$	(29,820)	$	(4,314)	$	155	$	(33,979)
Other comprehensive loss before reclassifications		(1,585)		(5,098)		—		(6,683)
Amounts reclassified from accumulated other comprehensive loss		—		(516)		—		(516)
Net current-period other comprehensive loss		(1,585)		(5,614)		—		(7,199)
BALANCE— May 4, 2019	$	(31,405)	$	(9,928)	$	155	$	(41,178)

The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended May 5, 2018 (in thousands and net of tax):


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— February 3, 2018	$	(11,116)	$	145	$	189	$	(10,782)
Other comprehensive (loss) income before reclassifications		(14,143)		2,087		—		(12,056)
Amounts reclassified from accumulated other comprehensive income		—		713		—		713
Net current-period other comprehensive (loss) income		(14,143)		2,800		—		(11,343)
BALANCE— May 5, 2018	$	(25,259)	$	2,945	$	189	$	(22,125)

Amounts reclassified from other comprehensive (loss) income for the ~~nine~~three months ended ~~October 28, 2017~~May 4, 2019 and May 5, 2018 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of earnings and changes in the fair value of cash flow hedges related to inventory purchases, which is recorded within cost of sales in the condensed consolidated statement of earnings. Amounts reclassified from other comprehensive (loss) income for the nine months ended October 29, 2016 relate to changes in the fair value of our interest rate swap, which is recorded within interest expense in the condensed consolidated statement of earnings.

11. Share-Based Compensation Plans

For a discussion of our share-based compensation plans, ~~refer to~~please see Note 1314 in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2017.~~February 2, 2019.

~~During the first quarter~~Table of ~~fiscal 2017, we adopted ASU No. 2016-09,~~ Contents

~~Compensation-Stock Compensation~~. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The recognition of excess tax benefits and deficiencies ~~related to the vesting of stock-based awards~~ in the statement of earnings and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. See Note 8 for additional information. In addition, upon adoption, we did not change our policy on accounting for forfeitures, which is to estimate the number of awards expected to be forfeited and adjusting the estimate as needed. Overall, the adoption of ASU 2016-09 did not have a material impact on our financial statements. TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Non-Vested Deferred Stock Units and Performance Units ~~and Restricted Stock~~

The following table summarizes the activity of time-based and performance-based awards (collectively, "DSUs") for the ~~nine~~three months ended ~~October 28, 2017:~~May 4, 2019:


			Weighted-Average						Weighted-Average
	Units		Grant-Date Fair Value				Units		Grant-Date Fair Value
	Time-	Performance-	Time-		Performance-		Time-	Performance-	Time-		Performance-
	Based	Based	Based		Based		Based	Based	Based		Based
Non-Vested at January 28, 2017	1,061,965	523,948	$	24.31	$	28.28
Non-Vested at February 2, 2019							939,086	336,906	$	22.60		$	18.59
Granted	472,708	542,528		11.48		11.45	—	—		—			—
Vested(1)	(455,925)	—		25.38		—	(326,826)	(28,686)		22.43			17.43
Forfeited	(51,271)	(41,942)		20.78		22.26	(55,406)	(23,755)		22.88			18.94
Non-Vested at October 28, 2017	1,027,477	1,024,534	$	18.10	$	19.61
Non-Vested at May 4, 2019							556,854	284,465	$	22.77		$	18.68

⁽¹⁾

Includes ~~125,806~~121,995 shares relinquished for tax payments related to vested DSUs for the ~~nine~~three months ended ~~October 28, 2017.~~May 4, 2019.

As of May 4, 2019, we have unrecognized compensation expense related to non-vested DSUs of $11.7 million, which is expected to be recognized over a weighted-average period of 1.4 years.

Stock Options and Stock Appreciation Rights (“SARs”)

The following table summarizes the activity of stock options for the three months ended May 4, 2019:




		Weighted-
	Number of	Average
	Shares	Exercise Price
Outstanding at February 2, 2019	1,252,072	$	23.64
Granted	3,042,310		7.62
Exercised	—		—
Forfeited	(30,286)		17.47
Expired	(32,271)		33.79
Outstanding at May 4, 2019	4,231,825	$	12.09
Exercisable at May 4, 2019	818,982	$	26.46

During the first quarter of 2019, we granted SARs, which vest ratably over a period of three years, and will be settled in stock. Each vested SAR entitles the holder to the right of the difference between the value of our common stock on the date of exercise and the common stock price on the date of grant. We use the Black-Scholes option pricing model to estimate the fair value of SARs on the date of grant.

The following table summarizes the activity of SARs for the three months ended May 4, 2019:



		Weighted-
	Number of	Average
	Shares	Exercise Price
Outstanding at February 2, 2019	—	$	—
Granted	414,476		7.62
Exercised	—		—
Forfeited	—		—
Expired	—		—
Outstanding at May 4, 2019	414,476	$	7.62
Exercisable at May 4, 2019	—	$	—

1417

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The ~~following table summarizes the activity of restricted stock for the nine months ended October 28, 2017:~~

Weighted-
Average

Shares

Grant-Date
Fair Value

Non-Vested at January 28, 2017

36,878

$
15.56

Granted

—

—

Vested

(36,878)

15.56

Forfeited

—

—

Non-Vested at October 28, 2017

—

$
—

~~Restricted stock awards receive non-forfeitable dividends, if any, when and if paid to shareholders of record at the payment date.~~

As of October 28, 2017, we have unrecognized compensation expense related to non-vested DSUs of approximately $22.0 million, which is expected to be recognized over a weighted-average period of 1.6 years.

~~Stock Options~~

~~The following table summarizes the activity of stock options for the nine months ended October 28, 2017:~~

Weighted-

Number of

Average

Shares

Exercise Price

Outstanding at January 28, 2017

1,194,690

$
29.70

Granted

630,083

11.54

Exercised

—

—

Forfeited

(50,856)

16.25

Expired

(40,243)

41.23

Outstanding at October 28, 2017

1,733,674

$
23.23

Exercisable at October 28, 2017

736,137

$
33.33

~~The~~ weighted-average grant date fair value of the ~~630,083~~3,042,310 stock options and 414,476 SARs granted during the ~~nine~~three months ended ~~October 28, 2017~~May 4, 2019 was ~~$3.86~~$3.01 per share. The following table summarizes the weighted-average assumptions used to fair value the stock options and SARs at the date of grant using the Black-Scholes option model for the ~~nine~~three months ended ~~October 28, 2017:~~May 4, 2019:


		For the ~~Nine~~Three Months Ended
		~~October 28,~~May 4,
		~~2017~~2019
Risk-free interest ~~rates~~rate		~~1.75%~~2.39%
Expected lives		5.0 years
Dividend yield		~~4.69%~~4.34%
Expected volatility		~~55.12%~~62.32%

As of ~~October 28, 2017,~~May 4, 2019, we have unrecognized compensation expense related to non-vested stock options and SARs of ~~approximately $3.7~~$12.1 million, which is expected to be recognized over a weighted-average period of ~~1.4~~1.9 years.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Cash Settled Awards

~~During 2017, we~~We have granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common ~~stock and includes a market condition.~~stock. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled. Cash settled awards are classified as liabilities in the condensed consolidated balance sheets. At ~~October 28, 2017,~~May 4, 2019, the liability associated with the cash settled awards was ~~$2.3~~$3.4 million with ~~$1.4~~$2.1 million recorded in accrued expenses and other current liabilities and ~~$0.9~~$1.3 million recorded in other liabilities in the condensed consolidated balance sheets.

The following table summarizes the activity of cash settled awards, based on their initial grant date values, for the ~~nine~~three months ended ~~October 28, 2017~~May 4, 2019 (in thousands):


		Cash Settled Awards		Cash Settled Awards
Non-Vested at January 28, 2017		$	—
Non-Vested at February 2, 2019				$	5,072
Granted	��		8,377		4,237
Vested			—		—
Forfeited			(149)		(199)
Non-Vested at October 28, 2017		$	8,228
Non-Vested at May 4, 2019				$	9,110

As of May 4, 2019, we have unrecognized compensation expense related to non-vested cash settled awards of $4.7 million, which is expected to be recognized over a weighted-average period of 1.8 years.

Share-Based Compensation Expense

Share-based compensation expense, including cash settled awards, recognized for the three ~~and nine~~ months ended ~~October 28, 2017~~May 4, 2019 and May 5, 2018, was ~~$8.2~~$1.9 million and ~~$17.2~~$6.5 million, respectively. Share-based compensation expense recognized for the three and nine months ended October 29, 2016 was $5.2 million and $14.0 million, respectively. There were no cash settled awards granted during 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Leases

Adoption of ASC 842

Effective February 3, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), and all related amendments (“ASC 842”) using the modified retrospective approach. As part of the adoption, we made the following elections:

We elected the package of practical expedients under which we did not reassess our prior conclusions about lease identification, lease classification and initial direct costs.

We elected to not separate lease and non-lease components for all leases.

We elected to exempt leases with an initial term of twelve months or less from balance sheet recognition.

We elected the land easement practical expedient under which we did not reassess whether existing land easements not accounted for as leases under previous guidance are or contain leases under ASC 842.

We did not elect the hindsight practical expedient for all leases.

In addition, in July 2018, the FASB approved an optional transition method that removed the requirement to restate prior period financial statements upon adoption of the standard with a cumulative-effect adjustment to retained earnings in the period of adoption and we elected to apply this transition method. As a result, the comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of ASC 842 had no impact to our previously reported results of operations or cash flows.

The following table depicts the cumulative effect of the changes made to our February 2, 2019 balance sheet for the adoption of ASC 842 effective on February 3, 2019 (in thousands):


	Reported				Adjusted
	Balance at		Impact of		Balance at
	February 2,		Adoption of		February 3,
	2019		ASC 842		2019
Assets:
Other current assets	$	70,712	$	(20,754)	$	49,958

Operating lease right-of-use assets		—		896,270		896,270
Intangible assets, net		163,901		(6,682)		157,219

Current Liabilities:
Accrued expenses and other current liabilities		282,029		(151)		281,878
Current portion of operating lease liabilities		—		183,726		183,726

Noncurrent Liabilities:
Operating lease liabilities		—		745,116		745,116
Deferred taxes, net and other liabilities		125,022		(59,455)		65,567

Equity:
Accumulated deficit		(468,048)		(402)		(468,450)

The adoption of ASC 842 primarily resulted in the recognition of operating lease liabilities totaling $928.8 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, with $183.7 million within current liabilities and $745.1 million in noncurrent liabilities. In addition, we recorded corresponding right-of-use assets totaling $896.3 million based upon the operating lease liabilities adjusted for favorable lease intangible assets, previously included within intangible assets, net and deferred rent and unfavorable lease liabilities, previously included

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(Unaudited)

within deferred taxes, net and other liabilities. In addition, we recorded a $0.4 million cumulative effect of initially applying ASC 842 as an adjustment to the opening balance of accumulated deficit.

Lease Information

We lease store locations, office and warehouse facilities, vehicles and equipment under various non-cancelable operating leases expiring in various years through 2030.

Substantially all of our stores are leased, generally for five to ten year initial terms. Certain store leases include one or more options to renew, with renewal terms that range from one to ten years. Management uses its judgment to determine if a renewal option is reasonably certain of being exercised including consideration of the significant investment related to the identification, opening and operation of these store locations. In addition, under our real estate leases, we pay costs such as real estate taxes and common area maintenance and certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. These costs are generally considered variable lease payments, and are recognized when deemed probable of payment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, we sublease certain real estate to third parties. Amounts related to subleases were immaterial to the condensed consolidated financial statements.

Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments. Operating lease right-of-use assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, lease incentives and impairment of operating lease right-of-use assets. To determine the present value of the lease payments, we estimated our incremental borrowing rate based on our current credit rating as well as comparisons to comparable borrowing rates of similarly-rated companies.

The components of lease cost are as follows (in thousands):


	For the Three Months Ended
	May 4, 2019
Operating lease cost	$	62,904
Variable lease cost		19,261
Total lease cost	$	82,165

Operating lease expense is recognized on a straight-line basis over the lease term. Total lease costs for stores and our distribution network are included in cost of sales while other total lease costs are included in SG&A expenses.

Supplemental balance sheet information related to operating leases consists of the following (in thousands):


	May 4, 2019
Operating lease right-of-use assets	$	955,970

Current portion of operating lease liabilities	$	183,011
Noncurrent portion operating lease liabilities		804,895
Total operating lease liabilities	$	987,906

Lease term and discount rate for operating leases were as follows:


		May 4, 2019
Weighted average remaining lease term		4.2 years

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Weighted average discount rate

5.29%

Supplemental disclosures of cash flow information consists of the following (in thousands):


	For the Three Months Ended
	May 4, 2019
Cash paid for operating leases	$	63,656
Operating lease assets obtained in exchange for operating lease liabilities	$	1,005,762

At May 4, 2019, we have approximately $987.9 million of non-cancelable operating lease commitments and no finance leases. The following table summarizes the undiscounted annual future minimum lease payments, as of May 4, 2019, for each of the next five years and in the aggregate (in thousands):


	Operating Leases
Year 1	$	233,838
Year 2		243,151
Year 3		212,209
Year 4		168,647
Year 5		123,415
Thereafter		172,641
Total lease payments	$	1,153,901
Less: Interest		(165,995)
Present value of lease liabilities	$	987,906

As of May 4, 2019, we executed certain real estate leases that had not yet commenced with lease liabilities totaling $4.6 million which are not reflected in the above table. These leases are expected to commence during fiscal 2019.

Disclosures Related to Periods Prior to Adoption of ASC 842

As previously disclosed in our 2018 Annual Report on Form 10-K and under the accounting standards then in effect, minimum future rental payments under non-cancelable leases as of February 2, 2019 for each of the next five years and in the aggregate are as follows (in thousands):



Fiscal Year	Operating Leases
2019	$	239,711
2020		209,596
2021		175,962
2022		134,208
2023		88,187
Thereafter		141,084
Total lease payments	$	988,748

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. Goodwill and Other Intangible Assets

Goodwill

~~Goodwill allocated to our reportable segments and changes~~Changes in the net carrying amount of goodwill, all of which relates to our retail segment, for the ~~nine~~three months ended ~~October 28, 2017~~May 4, 2019 are as follows (in thousands):

Corporate


Retail

Apparel

Total

Balance at January 28, 2017

$
94,511

$
22,515

$
117,026

Goodwill of acquired business

—

695

695

    Translation adjustment

433

971

1,404

Balance at October 28, 2017

$
94,944

$
24,181

$
119,125



	Total
Balance at February 2, 2019	$	79,491
Translation adjustment		(527)
Balance at May 4, 2019	$	78,964

~~The goodwill of acquired business resulted from an immaterial acquisition by our United Kingdom ("UK") based operations.~~ Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock. No impairment evaluation was considered necessary during the first ~~nine~~three months ended ~~October 28, 2017.~~May 4, 2019.

Intangible Assets

The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Amortizable intangible assets:
Carrying amount:
Trademarks, tradenames and franchise agreements	$	16,074	$	16,155	$	16,067
Favorable leases		—		12,967		11,844
Customer relationships		26,623		27,477		26,553
Total carrying amount		42,697		56,599		54,464
Accumulated amortization:
Trademarks, tradenames and franchise agreements		(10,877)		(10,594)		(10,796)
Favorable leases		—		(5,178)		(5,162)
Customer relationships		(19,455)		(17,790)		(18,851)
Total accumulated amortization		(30,332)		(33,562)		(34,809)
Total amortizable intangible assets, net		12,365		23,037		19,655
Indefinite-lived intangible assets:
Trademarks and tradename		144,249		144,283		144,246
Total intangible assets, net	$	156,614	$	167,320	$	163,901

The elimination of favorable leases is due to the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

Amortization expense associated with intangible assets subject to amortization totaled $0.6 million and $1.0 million for the three months ended May 4, 2019 and May 5, 2018. Amortization associated with intangible assets subject to amortization at May 4, 2019 is estimated to be $1.9 million for the remainder of fiscal 2019, $2.5 million for fiscal 2020, $2.5 million for fiscal 2021, $1.4 million for fiscal 2022 and $0.3 million for fiscal 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Intangible Assets~~

~~The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):~~

October 28,

October 29,

January 28,


2017

2016

2017

Amortizable intangible assets:

Carrying amount:

Trademarks, tradenames and franchise agreements

$
16,074

$
15,897

$
15,966

Favorable leases

13,475

14,381

13,826

Customer relationships

26,612

24,750

25,483

Total carrying amount

56,161

55,028

55,275

Accumulated amortization:

Trademarks, tradenames and franchise agreements

(10,404)

(9,930)

(10,055)

Favorable leases

(4,856)

(4,045)

(3,961)

Customer relationships

(16,078)

(12,891)

(13,804)

Total accumulated amortization

(31,338)

(26,866)

(27,820)

Total amortizable intangible assets, net

24,823

28,162

27,455

Indefinite-lived intangible assets:

Trademarks and tradename

144,249

144,175

144,204

Total intangible assets, net

$
169,072

$
172,337

$
171,659

Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $3.1 million for the three and nine months ended October 28, 2017. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.2 million and $3.7 million for the three and nine months ended and October 29, 2016. Pre-tax amortization associated with intangible assets subject to amortization at October 28, 2017 is estimated to be $1.1 million for the remainder of fiscal 2017, $3.8 million for fiscal 2018, $3.6 million for fiscal 2019, $3.5 million for fiscal 2020 and $3.4 million for fiscal 2021.

~~13.~~14. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis


	Fair Value Measurements at Reporting Date
	Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
May 4, 2019—
Assets:
Derivative financial instruments	$	—	$	1,864	$	—	$	1,864
Liabilities:
Derivative financial instruments	$	—	$	14,803	$	—	$	14,803
May 5, 2018—
Assets:
Derivative financial instruments	$	—	$	5,639	$	—	$	5,639
Liabilities:
Derivative financial instruments	$	—	$	83	$	—	$	83
February 2, 2019—
Assets:
Derivative financial instruments	$	—	$	3,074	$	—	$	3,074
Liabilities:
Derivative financial instruments	$	—	$	9,307	$	—	$	9,307

At May 4, 2019, derivative financial instruments are comprised of (1) interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness, (2) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity’s functional currency and (3) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted revenues from our UK operations denominated in a currency different from the UK’s functional currency.

These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs, primarily pricing models based on current market rates. Derivative financial instruments in an asset position are included within other current assets or other assets in the condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets. Please see Note 15 for further information regarding our derivative instruments.

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(Unaudited)

Assets and Liabilities that are Measured at Fair Value on a ~~Recurring Basis~~

Fair Value Measurements at Reporting Date

Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Instruments

Inputs

Inputs

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Total

October 28, 2017—









Assets:

Derivative financial instruments

$
—

$
235

$
—

$
235

Liabilities:

Derivative financial instruments

$
—

$
2,198

$
—

$
2,198

January 28, 2017—

Assets:

Derivative financial instruments

$
—

$
460

$
—

$
460

Liabilities:

Derivative financial instruments

$
—

$
2,413

$
—

$
2,413

October 29, 2016—









Assets:

Derivative financial instruments

$
—

$
753

$
—

$
753

Liabilities:

Derivative financial instruments

$
—

$
2,520

$
—

$
2,520

Derivative financial instruments are comprised of (1) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity's functional currency, (2) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted revenues from our UK operations denominated in a currency different from the UK's functional currency and (3) interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness. These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs. Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets. See Note 14 for further information regarding our derivative instruments.

~~Assets and Liabilities that are Measured at Fair Value on a~~ Non-Recurring Basis

Long-lived assets, such as property and equipment, ~~goodwill~~ and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.

During the ~~nine~~three months ended ~~October 28, 2017,~~May 4, 2019 and May 5, 2018, we incurred ~~$2.9~~$0.2 million and $0.3 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, ~~primarily~~ related to underperforming ~~stores as well as long-lived assets related to our now-terminated tuxedo rental license agreement with Macy's.~~ stores.

We estimated the fair value of the long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions, which we classify as Level 3 within the fair value hierarchy.

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and ~~long-term debt.~~our Term Loan and Senior Notes. Management estimates that, as of ~~October 28, 2017, October 29, 2016,~~May 4, 2019, May 5, 2018, and ~~January 28, 2017,~~February 2, 2019, the carrying value of our financial instruments, other than ~~long-term debt,~~our Term Loan and Senior Notes, approximated their fair value due to the highly liquid or short-term nature of these instruments.We believe that the borrowings under our ABL Facility approximate their fair value because interest rates are adjusted on a short-term basis.

The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy. The fair value of our Senior Notes is based on quoted prices in active markets, which we classify as a Level 1 input within the fair value hierarchy. The table below shows the fair value and carrying value of our long-term debt, including current portion (in thousands):

October 28, 2017

October 29, 2016

January 28, 2017

Carrying

Estimated

Carrying

Estimated

Carrying

Estimated


Amount(1)

Fair Value

Amount(1)

Fair Value

Amount(1)

Fair Value

Long-term debt, including current portion

$
1,476,485

$
1,461,283

$
1,595,873

$
1,556,661

$
1,595,529

$
1,556,200

(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $17.0 million, $23.3 million and $22.1 million as of October 28, 2017, October 29, 2016 and January 28, 2017, respectively.


	May 4, 2019				May 5, 2018				February 2, 2019
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount(1)		Fair Value		Amount(1)		Fair Value		Amount(1)		Fair Value
Term Loan and Senior Notes, including current portion	$	1,111,696	$	1,076,471	$	1,286,508	$	1,321,637	$	1,116,361	$	1,120,296

(1) The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $3.0 million, $10.4 million and $3.2 million as of May 4, 2019, May 5, 2018 and February 2, 2019, respectively.

~~14.~~15. Derivative Financial Instruments

~~As discussed in Note 5, in January 2015,~~Effective February 3, 2019, we ~~entered into~~adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The adoption of ASU 2017-12 did not have an ~~interest rate swap agreement~~impact on ~~an initial notional amount~~our financial position, results of $520.0 million that matures in August 2018 with periodic interest settlements. At October 28, 2017, the notional amount totaled $200.0 million. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount. We have designated the interest rate swap as aoperations or cash ~~flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.~~flows.

In ~~addition, in~~ April 2017, we entered into an interest rate swap ~~agreement~~contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At ~~October 28, 2017,~~May 4, 2019, the notional amount totaled ~~$290.0~~$330.0 million. Under this interest rate swap ~~agreement,~~contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of ~~5.56%~~5.31% (including the applicable margin of ~~3.50%~~3.25%) on the outstanding notional amount. ~~We have designated the~~

In June 2018, we entered into an interest rate swap ~~as a cash flow hedge~~contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At May 4, 2019, the ~~variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.~~

At October 28, 2017, the fair value of the interest rate swaps was a net liability of $1.8 million with $1.9 million recorded in accrued expenses and other current liabilities offset by $0.1 million recorded in other assets in our condensed consolidated balance sheet. The effective portion of the swaps is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at October 28, 2017. Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.

~~Over the next 12 months, $1.~~8 million of the effective portion of the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense. If, at any time, eithernotional amount totaled $380.0 million. Under this interest rate swap ~~is determined to be ineffective, in whole or in part, due to changes in the interest~~contract, we receive a floating rate ~~swap or underlying debt agreements, the fair value~~based on 1-month LIBOR and pay a fixed rate of ~~the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for~~6.18% (including the applicable ~~period~~.margin of 3.25%) on the outstanding notional amount.

~~Also, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.~~ We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies. At October 28, 2017, the fair value of these cash flow hedges was a liability of $0.2 million recorded in accrued expenses and other current liabilities in our condensed consolidated balance sheet. The effective portion of the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~hedges~~

We have designated each interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark rate and the fair value of the swaps is reported as a component of accumulated other comprehensive (loss) income. ~~Hedge ineffectiveness at October 28, 2017 was immaterial. Changes~~For both swaps, changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings. Over the next 12 months, ~~$1.5~~$0.9 million of the ~~effective portion~~amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense.

We also utilize derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. At May 4, 2019, the notional amount of the British pound and Euro instruments totaled $24.7 million and $7.8 million, respectively, and mature at various times through December 2019. We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies. The fair value of these hedges is reported as a component of accumulated other comprehensive (loss) income and changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings. Over the next 12 months, $0.7 million of the amounts related to these cash flow hedges is expected to be reclassified as expense into cost of sales from accumulated other comprehensive (loss) income.

In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge this foreign exchange risk. At May 4, 2019, the notional amount of these instruments totaled $5.7 million. We have not elected to apply hedge accounting to these derivative instruments. ~~At October 28, 2017, the fair value of~~Amounts related to these transactions were immaterial to our condensed consolidated financial statements.

The following table provides details on our derivative instruments ~~was an asset of $0.1 million included in other assets in our condensed consolidated balance sheet.~~

~~For the three and nine months ended October 28, 2017, we recognized net pre-tax gains of $0.7 million and $0.2 million, respectively, in cost of sales~~recorded in the condensed consolidated ~~statement~~balance sheets as of ~~earnings for~~May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4, 2019			May 5, 2018			February 2, 2019
	Balance	Estimated		Balance	Estimated		Balance	Estimated
	Sheet Location	Fair Value		Sheet Location	Fair Value		Sheet Location	Fair Value
Interest rate contracts	Other current assets	$	1,154	Other current assets	$	1,018	Other current assets	$	1,610
Interest rate contracts	Other assets		489	Other assets		4,341	Other assets		1,355
Foreign exchange contracts	Other current assets		221	Other current assets		280	Other current assets		109
Total assets		$	1,864		$	5,639		$	3,074

Interest rate contracts	Accrued expenses and other current liabilities	$	2,084	Accrued expenses and other current liabilities	$	—	Accrued expenses and other current liabilities	$	1,625
Interest rate contracts	Deferred taxes, net and other liabilities		12,719	Deferred taxes, net and other liabilities		—	Deferred taxes, net and other liabilities		7,605
Foreign exchange contracts	Accrued expenses and other current liabilities		—	Accrued expenses and other current liabilities		83	Accrued expenses and other current liabilities		77
Total liabilities		$	14,803		$	83		$	9,307

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides details on our derivative ~~financial~~ instruments ~~not designated as cash flow hedges. For the three and nine months ended October 29, 2016, we recognized net pre-tax gains of $0.4 million and $2.3 million, respectively, in cost of sales~~recorded in the condensed consolidated ~~statement~~statements of earnings and comprehensive (loss) income for ~~our derivative financial instruments not designated as cash flow hedges.~~the three months ended May 4, 2019 and May 5, 2018 (in thousands):


	Amount of Gain/(Loss) Recognized in Other Comprehensive Loss, net of tax				Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings	Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings
	For the Three Months Ended					For the Three Months Ended
	May 4, 2019		May 5, 2018			May 4, 2019		May 5, 2018
Derivatives in Cash Flow Hedging Relationships:
Interest rate contracts	$	(5,195)	$	1,040	Interest expense	$	14	$	154
Foreign exchange contracts		97		1,047	Cost of sales		(530)		559
Total	$	(5,098)	$	2,087		$	(516)	$	713

~~15.~~16. Segment Reporting

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

The retail segment includes the results from our four retail merchandising brands: Men's Wearhouse/Men's Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men ("Moores") and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. Prior to its divestiture, MW Cleaners iswas also aggregated in the retail segment as ~~these~~its operations ~~have~~did not ~~had~~have a significant effect on our revenues or expenses. Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, formalwear, business casual, denim, sportswear, outerwear, dress shirts, shoes and accessories for men. Women's career and casual apparel, sportswear and accessories, including shoes, and children's apparel is offered at most of our K&G stores. Rental product is offered at our Men's Wearhouse/Men's Wearhouse and Tux, Jos. A. Bank and Moores retail stores.

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Dimensions, Alexandra, and Yaffy in the UK and Twin Hill in the U.S., which provide corporate apparel uniforms and workwear to workforces.

We measure segment profitability based on operating income, defined as income before interest expense, interest income, ~~gain~~loss on extinguishment of debt, net and income taxes, before shared service expenses. Shared service expenses include costs incurred and directed primarily by our corporate offices that are not allocated to segments.

Additional net sales information is as follows (in thousands):


	For the Three Months Ended
	May 4, 2019		May 5, 2018
Net sales:
Men's Wearhouse(1)	$	427,772	$	447,809
Jos. A. Bank		166,886		169,076
K&G		87,697		89,280
Moores		42,307		46,127
MW Cleaners(2)		—		2,551
Total retail segment		724,662		754,843
Total corporate apparel segment		56,725		63,121
Total net sales	$	781,387	$	817,964

⁽¹⁾

Consists of Men's Wearhouse, Men's Wearhouse and Tux and Joseph Abboud.

⁽²⁾

On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Additional net sales information is as follows (in thousands):~~

For the Three Months Ended

For the Nine Months Ended


October 28, 2017

October 29, 2016

October 28, 2017

October 29, 2016

Net sales:









MW(1)

$
448,955

$
461,806

$
1,327,773

$
1,386,347

Jos. A. Bank

162,685

165,992

504,238

530,482

K&G

69,604

70,874

244,098

252,007

Moores

57,607

56,520

163,732

166,203

MW Cleaners

8,671

8,497

25,984

25,073

Total retail segment

747,522

763,689

2,265,825

2,360,112

Total corporate apparel segment

63,296

83,245

178,657

225,328

Total net sales

$
810,818

$
846,934

$
2,444,482

$
2,585,440

⁽¹⁾

~~MW includes Men's Wearhouse, Men's Wearhouse and Tux, tuxedo shops within Macy's and Joseph Abboud.~~

~~The following table sets forth supplemental products and services sales information for the Company (in thousands):~~

For the Three Months Ended

For the Nine Months Ended


October 28, 2017

October 29, 2016

October 28, 2017

October 29, 2016

Net sales:









Men's tailored clothing product

$
330,618

$
326,741

$
1,004,430

$
1,025,495

Men's non-tailored clothing product

227,520

230,146

690,312

718,233

Women's clothing product

14,795

15,626

52,722

55,940

Other

2,270

2,533

6,318

6,992

Total retail clothing product

575,203

575,046

1,753,782

1,806,660

Rental services

126,410

138,724

373,208

403,564

Alteration services

37,238

41,422

112,851

124,815

Retail dry cleaning services

8,671

8,497

25,984

25,073

Total alteration and other services

45,909

49,919

138,835

149,888

Corporate apparel clothing product

63,296

83,245

178,657

225,328

Total net sales

$
810,818

$
846,934

$
2,444,482

$
2,585,440

Operating income by reportable segment, shared service expense, and the reconciliation to earnings before income taxes is as follows (in thousands):


	For the Three Months Ended
	May 4, 2019		May 5, 2018
Operating income:
Retail	$	78,191	$	98,721
Corporate apparel		580		1,583
Shared service expense		(48,469)		(47,407)
Operating income		30,302		52,897
Interest income		96		85
Interest expense		(18,663)		(21,981)
Loss on extinguishment of debt, net		—		(12,711)
Earnings before income taxes	$	11,735	$	18,290

Total assets by reportable segment and shared services are as follows (in thousands):

For the Three Months Ended

For the Nine Months Ended


October 28, 2017

October 29, 2016

October 28, 2017

October 29, 2016

Operating income:









Retail

$
123,628

$
97,629

$
352,273

$
278,732

Corporate apparel

3,072

10,314

7,150

24,288

Shared service expense

(50,073)

(46,887)

(143,329)

(151,338)

Operating income

76,627

61,056

216,094

151,682

Interest income

159

52

324

102

Interest expense

(24,412)

(25,476)

(75,200)

(77,853)

Gain on extinguishment of debt, net

2,539

1,808

6,535

1,737

Earnings before income taxes

$
54,913

$
37,440

$
147,753

$
75,668


	May 4,		May 5,		February 2,
	2019		2018		2019
Segment assets:
Retail	$	2,253,710	$	1,423,995	$	1,375,902
Corporate apparel		187,775		205,715		175,488
Shared services (1)		323,968		316,112		269,100
Total assets (2)	$	2,765,453	$	1,945,822	$	1,820,490

⁽¹⁾

Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets.

⁽²⁾

The increase in total assets, as of May 4, 2019, is related to the recognition of operating lease right-of-use assets resulting from the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~16.~~17. Legal Matters

On March 29, 2016, a putative class action lawsuit was filed against the Company and its Chief Executive Officer, Douglas S. Ewert, in the United States District Court for the Southern District of Texas (Case No. 4:16-cv-00838). The complaint attempts to allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons who purchased or otherwise acquired the Company's securities between June 18, 2014 and December 9, 2015 (the "Class Period"). On May 26, 2017, Lead Plaintiff Strathclyde Pension Fund filed an Amended Complaint alleging that during the Class Period Defendants omitted facts about the Company's Jos. A. Bank's business, financial status, and operations, the omission of which rendered Defendants' statements about the Jos. A. Bank business false or misleading. The amended complaint also named Jon W. Kimmins, the Company's former Chief Financial Officer, and Mary Beth Blake, the Company's current Brand President, Jos. A. Bank, as additional named defendants. We believe that the claims are without merit and are defending the lawsuit vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On February 17, 2016, Anthony Oliver filed a putative class action lawsuit against our Men's Wearhouse subsidiary in the United States District Court for the Central District of California (Case No. 2:16-cv-01100). The complaint attempts to allege claims under the Telephone Consumer Protection Act. In particular the complaint alleges that the Company sent unsolicited text messages to cellular telephones beginning October 1, 2013 to the present day. After we demonstrated that the Company had the plaintiff's permission to send him texts, the plaintiff filed an amended complaint alleging the Company sent text messages exceeding the number plaintiff had agreed to receive each week. The parties filed cross-motions for summary judgment on what constitutes a “week” and the ~~case is stayed pending~~Court recently issued an order granting the ~~Court's decision~~plaintiff’s motion and denying our motion on ~~those motions. We believe that~~what period constitutes a “week.” On or about August 17, 2018, we entered into a settlement agreement for an immaterial amount consisting of a combination of cash and coupons. The Court approved the ~~claims are without merit~~settlement and ~~intend to defend the lawsuit vigorously. The range of loss, if any, is not reasonably estimable at~~we consider this ~~time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.~~ matter closed.

On August 2, 2017, two American Airlines employees, Thor Zurbriggen and Dena Catan, filed a putative class action lawsuit against our Twin Hill subsidiary in the United States District Court for the Northern District of Illinois (Case No. 1:17-cv-05648). The complaint ~~attempts to allege~~alleged claims for strict liability, negligence, and ~~negligence~~medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding nine additional named plaintiffs, adding American Airlines, Inc. as a defendant, and adding claims for civil battery and intentional infliction of emotional distress. Plaintiffs filed a Seconded Amended Complaint on October 4, 2018 on behalf of 39 named plaintiffs, adding PSA Airlines, Inc. and Envoy Air Inc. as defendants, adding new factual allegations and adding a new claim of fraud against American. The Second Amended Complaint included plaintiffs

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

from the Onody (Case No. 1:18-cv-02303) and Joy (Case No. 1:18-cv-05808) matters we reported in prior filings. As a result, on October 16, 2018, the judge dismissed the separate Onody and Joy matters. We have timely answered the Second Amended Complaint and the matter will proceed in due course. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On September 27, 2017, Heather Poole and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17876798). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On December 11, 2017, the Company filed a demurrer to Plaintiff’s complaint. On February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint. Plaintiffs filed an amended complaint on April 10, 2018 and again on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. This case was consolidated for pretrial purposes only with other complaints containing identical allegations, including the Agnello, Hughes, Mackonochie and Wagoner cases that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

On October 30, 2017, Denise Mumma and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17880635). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

In addition, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

~~17.~~18. Condensed Consolidating Information

As discussed in Note 5,4, The Men's Wearhouse (the "Issuer") issued $600.0 million in aggregate principal amount of ~~7.00%~~ Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the "Parent") and certain of our U.S. subsidiaries (the "Guarantors"). Our foreign subsidiaries (collectively, the "Non-Guarantors") are not guarantors of the Senior Notes. Each of the Guarantors is 100% owned and all guarantees are joint and several. In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.

These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor's guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.

The tables in the following pages present the condensed consolidating financial information for the Parent, the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities.

2328

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~October 28, 2017~~May 4, 2019

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	20,224	$	1,941	$	104,079	$	—	$	126,244	$	—	$	2,183	$	2,181	$	25,385	$	—	$	29,749
Accounts receivable, net		7,414		19,518		287,688		35,137		(268,564)		81,193		—		30,420		198,709		73,193		(221,699)		80,623
Inventories		—		198,429		458,603		315,969		—		973,001		—		158,236		508,423		207,753		—		874,412
Other current assets		7,275		87,450		26,185		7,889		(75,233)		53,566		—		11,821		28,760		20,823		(11,500)		49,904
Total current assets		14,689		325,621		774,417		463,074		(343,797)		1,234,004		—		202,660		738,073		327,154		(233,199)		1,034,688
Property and equipment, net		—		207,432		212,213		35,276		—		454,921		—		188,799		205,847		33,734		—		428,380
Operating lease right-of-use assets														—		497,803		393,007		65,160		—		955,970
Rental product, net		—		107,222		2,327		15,771		—		125,320		—		80,358		9,576		13,961		—		103,895
Goodwill		—		6,160		68,510		44,455		—		119,125		—		6,160		52,128		20,676		—		78,964
Intangible assets, net		—		—		155,884		13,188		—		169,072		—		—		146,984		9,630		—		156,614
Investments in subsidiaries		77,901		1,308,676		—		—		(1,386,577)		—		161,131		1,218,358		—		—		(1,379,489)		—
Other assets		—		7,780		821		6,558		(6,300)		8,859		—		6,091		596		4,755		(4,500)		6,942
Total assets	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301	$	161,131	$	2,200,229	$	1,546,211	$	475,070	$	(1,617,188)	$	2,765,453
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	87,758	$	189,756	$	81,409	$	96,503	$	(268,564)	$	186,862	$	153,249	$	124,061	$	89,060	$	73,821	$	(221,699)	$	218,492
Accrued expenses and other current liabilities		18,911		139,577		109,718		102,508		(67,957)		302,757		4,973		211,236		87,843		40,192		(11,500)		332,744
Current portion of operating lease liabilities														—		96,742		72,403		13,866		—		183,011
Current portion of long-term debt		—		8,750		—		—		—		8,750		—		9,000		—		—		—		9,000
Total current liabilities		106,669		338,083		191,127		199,011		(336,521)		498,369		158,222		441,039		249,306		127,879		(233,199)		743,247
Long-term debt, net		—		1,467,735		—		—		—		1,467,735		—		1,151,196		—		—		—		1,151,196
Operating lease liabilities														—		426,659		325,652		52,584		—		804,895
Deferred taxes, net and other liabilities		921		79,172		83,342		10,338		(13,576)		160,197		6,955		20,204		28,785		18,717		(4,500)		70,161
Shareholders' (deficit) equity		(15,000)		77,901		939,703		368,973		(1,386,577)		(15,000)		(4,046)		161,131		942,468		275,890		(1,379,489)		(4,046)
Total liabilities and shareholders' (deficit) equity	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301	$	161,131	$	2,200,229	$	1,546,211	$	475,070	$	(1,617,188)	$	2,765,453

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~October 29, 2016~~May 5, 2018

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	5,435	$	1,984	$	27,529	$	—	$	34,948	$	—	$	42,740	$	2,830	$	47,596	$	—	$	93,166
Accounts receivable, net		7,373		17,112		455,368		31,140		(439,095)		71,898		—		32,045		305,987		82,311		(332,932)		87,411
Inventories		—		253,482		459,159		335,274		—		1,047,915		—		175,630		482,648		185,393		—		843,671
Other current assets		7,102		22,155		42,995		6,963		(19,025)		60,190		2,784		15,505		47,364		4,284		—		69,937
Total current assets		14,475		298,184		959,506		400,906		(458,120)		1,214,951		2,784		265,920		838,829		319,584		(332,932)		1,094,185
Property and equipment, net		—		249,797		217,156		34,438		—		501,391		—		196,932		206,794		34,218		—		437,944
Rental product, net		—		139,386		3,677		17,038		—		160,101		—		102,286		10,127		16,331		—		128,744
Goodwill		—		6,160		68,510		41,356		—		116,026		—		6,160		53,422		45,220		—		104,802
Intangible assets, net		—		105		157,788		14,444		—		172,337		—		—		154,960		12,360		—		167,320
Investments in subsidiaries		(67,257)		1,375,395		—		—		(1,308,138)		—		97,019		1,381,326		—		—		(1,478,345)		—
Other assets		3,257		6,004		939		7,623		(7,500)		10,323		—		11,450		668		81,544		(80,835)		12,827
Total assets	$	(49,525)	$	2,075,031	$	1,407,576	$	515,805	$	(1,773,758)	$	2,175,129	$	99,803	$	1,964,074	$	1,264,800	$	509,257	$	(1,892,112)	$	1,945,822
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	16,216	$	337,499	$	99,597	$	185,982	$	(439,095)	$	200,199	$	116,382	$	255,384	$	82,563	$	71,481	$	(332,932)	$	192,878
Accrued expenses and other current liabilities		9,617		143,023		105,446		42,514		(19,025)		281,575		14,868		172,654		125,516		39,116		—		352,154
Current portion of long-term debt		—		7,000		—		—		—		7,000		—		9,000		—		—		—		9,000
Total current liabilities		25,833		487,522		205,043		228,496		(458,120)		488,774		131,250		437,038		208,079		110,597		(332,932)		554,032
Long-term debt, net		—		1,588,873		—		—		—		1,588,873		—		1,277,508		—		—		—		1,277,508
Deferred taxes, net and other liabilities		2,339		65,893		104,512		9,935		(7,500)		175,179		5,774		152,509		46,910		27,145		(80,835)		151,503
Shareholders' (deficit) equity		(77,697)		(67,257)		1,098,021		277,374		(1,308,138)		(77,697)		(37,221)		97,019		1,009,811		371,515		(1,478,345)		(37,221)
Total liabilities and shareholders' (deficit) equity	$	(49,525)	$	2,075,031	$	1,407,576	$	515,805	$	(1,773,758)	$	2,175,129	$	99,803	$	1,964,074	$	1,264,800	$	509,257	$	(1,892,112)	$	1,945,822

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~January 28, 2017~~February 2, 2019

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	1,002	$	1,881	$	68,006	$	—	$	70,889	$	—	$	970	$	1,496	$	52,965	$	—	$	55,431
Accounts receivable, net		7,376		15,499		476,742		56,777		(490,680)		65,714		—		23,954		264,884		82,204		(297,969)		73,073
Inventories		—		230,264		438,167		287,081		—		955,512		—		149,923		461,153		219,350		—		830,426
Other current assets		12,773		134,225		28,436		8,448		(110,280)		73,602		—		30,699		37,969		7,314		(5,270)		70,712
Total current assets		20,149		380,990		945,226		420,312		(600,960)		1,165,717		—		205,546		765,502		361,833		(303,239)		1,029,642
Property and equipment, net		—		232,090		216,248		35,827		—		484,165		—		194,290		209,814		35,068		—		439,172
Rental product, net		—		131,287		3,369		17,954		—		152,610		—		81,809		3,426		14,535		—		99,770
Goodwill		—		6,160		68,510		42,356		—		117,026		—		6,160		52,128		21,203		—		79,491
Intangible assets, net		—		78		157,270		14,311		—		171,659		—		—		153,712		10,189		—		163,901
Investments in subsidiaries		(109,788)		1,425,622		—		—		(1,315,834)		—		160,057		1,234,005		—		—		(1,394,062)		—
Other assets		—		5,615		959		7,321		(7,200)		6,695		—		7,590		665		5,059		(4,800)		8,514
Total assets	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872	$	160,057	$	1,729,400	$	1,185,247	$	447,887	$	(1,702,101)	$	1,820,490
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	15,352	$	509,572	$	82,337	$	60,799	$	(490,680)	$	177,380	$	142,701	$	201,799	$	69,485	$	112,963	$	(297,969)	$	228,979
Accrued expenses and other current liabilities		2,627		111,617		129,420		135,777		(110,280)		269,161		6,697		146,683		109,654		40,233		(5,270)		297,997
Current portion of long-term debt		—		13,379		—		—		—		13,379		—		11,619		—		—		—		11,619
Total current liabilities		17,979		634,568		211,757		196,576		(600,960)		459,920		149,398		360,101		179,139		153,196		(303,239)		538,595
Long-term debt, net		—		1,582,150		—		—		—		1,582,150		—		1,153,242		—		—		—		1,153,242
Deferred taxes, net and other liabilities		—		74,912		85,477		10,231		(7,200)		163,420		7,028		56,000		45,069		21,725		(4,800)		125,022
Shareholders' (deficit) equity		(107,618)		(109,788)		1,094,348		331,274		(1,315,834)		(107,618)
Total liabilities and shareholders' (deficit) equity	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872
Shareholders' equity														3,631		160,057		961,039		272,966		(1,394,062)		3,631
Total liabilities and shareholders' equity													$	160,057	$	1,729,400	$	1,185,247	$	447,887	$	(1,702,101)	$	1,820,490

2631

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of Earnings (Loss)

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Three Months Ended October 28, 2017
Three Months Ended May 4, 2019
Net sales	$	—	$	447,936	$	404,531	$	242,893	$	(284,542)	$	810,818	$	—	$	426,123	$	413,108	$	176,599	$	(234,443)	$	781,387
Cost of sales		—		227,612		317,262		191,729		(284,542)		452,061		—		228,071		326,923		140,280		(234,443)		460,831
Gross margin		—		220,324		87,269		51,164		—		358,757		—		198,052		86,185		36,319		—		320,556
Operating expenses		917		135,740		134,433		27,465		(16,425)		282,130		844		139,646		134,833		28,648		(13,717)		290,254
Operating (loss) income		(917)		84,584		(47,164)		23,699		16,425		76,627		(844)		58,406		(48,648)		7,671		13,717		30,302
Other income and expenses, net		—		—		16,425		—		(16,425)		—		—		—		13,717		—		(13,717)		—
Interest expense, net		(129)		(27,789)		1,543		2,122		—		(24,253)
Gain on extinguishment of debt, net		—		2,539		—		—		—		2,539
Interest (expense) income, net														(1,155)		(18,479)		1,475		(408)		—		(18,567)
(Loss) earnings before income taxes														(1,999)		39,927		(33,456)		7,263		—		11,735
(Benefit) provision for income taxes														(466)		8,067		(5,081)		2,073		—		4,593
(Loss) earnings before equity in net income of subsidiaries														(1,533)		31,860		(28,375)		5,190		—		7,142
Equity in earnings (loss) of subsidiaries														8,675		(23,185)		—		—		14,510		—
Net earnings (loss)													$	7,142	$	8,675	$	(28,375)	$	5,190	$	14,510	$	7,142
Comprehensive (loss) income													$	(57)	$	3,494	$	(28,375)	$	3,172	$	21,709	$	(57)


Three Months Ended May 5, 2018
Net sales													$	—	$	446,247	$	381,421	$	127,667	$	(137,371)	$	817,964
Cost of sales														—		224,973		290,943		94,195		(137,371)		472,740
Gross margin														—		221,274		90,478		33,472		—		345,224
Operating expenses														882		137,273		138,395		28,443		(12,666)		292,327
Operating (loss) income														(882)		84,001		(47,917)		5,029		12,666		52,897
Other income and expenses, net														—		—		12,666		—		(12,666)		—
Interest (expense) income, net														(764)		(23,666)		2,014		520		—		(21,896)
Loss on extinguishment of debt, net														—		(12,711)		—		—		—		(12,711)
(Loss) earnings before income taxes		(1,046)		59,334		(29,196)		25,821		—		54,913		(1,646)		47,624		(33,237)		5,549		—		18,290
(Benefit) provision for income taxes		(337)		19,267		(9,441)		8,532		—		18,021		(658)		11,073		(8,011)		1,977		—		4,381
(Loss) earnings before equity in net income of subsidiaries		(709)		40,067		(19,755)		17,289		—		36,892		(988)		36,551		(25,226)		3,572		—		13,909
Equity in earnings (loss) of subsidiaries		37,601		(2,466)		—		—		(35,135)		—		14,897		(21,654)		—		—		6,757		—
Net earnings (loss)	$	36,892	$	37,601	$	(19,755)	$	17,289	$	(35,135)	$	36,892	$	13,909	$	14,897	$	(25,226)	$	3,572	$	6,757	$	13,909
Comprehensive income (loss)	$	33,745	$	39,114	$	(19,755)	$	12,629	$	(31,988)	$	33,745	$	2,566	$	16,091	$	(25,226)	$	(8,965)	$	18,100	$	2,566


Three Months Ended October 29, 2016
Net sales	$	—	$	460,432	$	466,476	$	105,474	$	(185,448)	$	846,934
Cost of sales		—		230,110		361,117		63,949		(185,448)		469,728
Gross margin		—		230,322		105,359		41,525		—		377,206
Operating expenses		974		146,398		153,439		29,662		(14,323)		316,150
Operating (loss) income		(974)		83,924		(48,080)		11,863		14,323		61,056
Other income and expenses, net		—		—		14,323		—		(14,323)		—
Interest expense, net		(8)		(25,830)		517		(103)		—		(25,424)
Gain on extinguishment of debt, net		—		1,808		—		—		—		1,808
(Loss) earnings before income taxes		(982)		59,902		(33,240)		11,760		—		37,440
(Benefit) provision for income taxes		(247)		14,763		(8,119)		2,610		—		9,007
(Loss) earnings before equity in net income of subsidiaries		(735)		45,139		(25,121)		9,150		—		28,433
Equity in earnings (loss) of subsidiaries		29,168		(15,971)		—		—		(13,197)		—
Net earnings (loss)	$	28,433	$	29,168	$	(25,121)	$	9,150	$	(13,197)	$	28,433
Comprehensive income (loss)	$	14,306	$	30,116	$	(25,121)	$	(5,925)	$	930	$	14,306

2732

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

~~Condensed Consolidating Statement of Earnings (Loss)~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor


Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Nine Months Ended October 28, 2017

Net sales

$
—

$
1,324,731

$
1,146,271

$
513,276

$
(539,796)

$
2,444,482

Cost of sales

—

648,900

860,944

386,541

(539,796)

1,356,589

Gross margin

—

675,831

285,327

126,735

—

1,087,893

Operating expenses

2,599

425,912

405,988

82,321

(45,021)

871,799

Operating (loss) income

(2,599)

249,919

(120,661)

44,414

45,021

216,094

Other income and expenses, net

—

—

45,295

(274)

(45,021)

—

Interest expense, net

223

(79,010)

4,804

(893)

—

(74,876)

Gain on extinguishment of debt, net

—

6,535

—

—

—

6,535

(Loss) earnings before income taxes

(2,376)

177,444

(70,562)

43,247

—

147,753

Provision (benefit) for income taxes

1,441

57,951

(23,398)

14,557

—

50,551

(Loss) earnings before equity in net income of subsidiaries

(3,817)

119,493

(47,164)

28,690

—

97,202

Equity in earnings (loss) of subsidiaries

101,019

(18,474)

—

—

(82,545)

—

Net earnings (loss)

$
97,202

$
101,019

$
(47,164)

$
28,690

$
(82,545)

$
97,202

Comprehensive (loss) income

$
105,957

$
100,578

$
(47,164)

$
37,886

$
(91,300)

$
105,957

Nine Months Ended October 29, 2016

Net sales

$
—

$
1,382,515

$
1,300,852

$
315,060

$
(412,987)

$
2,585,440

Cost of sales

—

676,761

992,265

190,050

(412,987)

1,446,089

Gross margin

—

705,754

308,587

125,010

—

1,139,351

Operating expenses

2,554

452,661

486,419

88,958

(42,923)

987,669

Operating (loss) income

(2,554)

253,093

(177,832)

36,052

42,923

151,682

Other income and expenses, net

—

—

42,923

—

(42,923)

—

Interest expense, net

(11)

(78,862)

1,393

(271)

—

(77,751)

Gain on extinguishment of debt, net

—

1,737

—

—

—

1,737

(Loss) earnings before income taxes

(2,565)

175,968

(133,516)

35,781

—

75,668

(Benefit) provision for income taxes

(671)

46,915

(34,900)

9,279

—

20,623

(Loss) earnings before equity in net income of subsidiaries

(1,894)

129,053

(98,616)

26,502

—

55,045

Equity in earnings (loss) of subsidiaries

56,939

(72,114)

—

—

15,175

—

Net earnings (loss)

55,045

56,939

(98,616)

26,502

15,175

55,045

Comprehensive income (loss)

$
38,193

$
58,333

$
(98,616)

$
8,256

$
32,027

$
38,193

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Nine Months Ended October 28, 2017~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor


Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net cash provided by (used in) operating activities

$
27,243

$
404,404

$
34,049

$
(186,263)

$
(26,895)

$
252,538

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

—

(15,413)

(36,146)

(4,397)

—

(55,956)

Acquisition of business, net of cash

—

—

—

(457)

—

(457)

Intercompany activities

—

(223,800)

—

—

223,800

—

Proceeds from sale of property and equipment

—

—

2,157

—

—

2,157

Net cash used in investing activities

—

(239,213)

(33,989)

(4,854)

223,800

(54,256)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on term loan

—

(9,879)

—

—

—

(9,879)

Proceeds from asset-based revolving credit facility

—

235,900

—

—

—

235,900

Payments on asset-based revolving credit facility

—

(235,900)

—

—

—

(235,900)

Repurchase and retirement of senior notes

—

(106,731)

—

—

—

(106,731)

Deferred financing costs

—

(2,464)

—

—

—

(2,464)

Intercompany activities

—

(26,895)

—

223,800

(196,905)

—

Cash dividends paid

(26,895)

—

—

—

—

(26,895)

Proceeds from issuance of common stock

1,334

—

—

—

—

1,334

Tax payments related to vested deferred stock units

(1,682)

—

—

—

—

(1,682)

Net cash (used in) provided by financing activities

(27,243)

(145,969)

—

223,800

(196,905)

(146,317)

Effect of exchange rate changes

—

—

—

3,390

—

3,390

Increase in cash and cash equivalents

—

19,222

60

36,073

—

55,355

Cash and cash equivalents at beginning of period

—

1,002

1,881

68,006

—

70,889

Cash and cash equivalents at end of period

$
—

$
20,224

$
1,941

$
104,079

$
—

$
126,244

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended May 4, 2019

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	10,103	$	133,345	$	12,909	$	(134,973)	$	(9,590)	$	11,794

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(7,742)		(12,224)		(1,725)		—		(21,691)
Intercompany activities		—		(121,430)		—		(11,500)		132,930		—
Net cash used in investing activities		—		(129,172)		(12,224)		(13,225)		132,930		(21,691)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on new term loan		—		(4,870)		—		—		—		(4,870)
Proceeds from asset-based revolving credit facility		—		399,500		—		—		—		399,500
Payments on asset-based revolving credit facility		—		(399,500)		—		—		—		(399,500)
Intercompany activities		—		1,910		—		121,430		(123,340)		—
Cash dividends paid		(9,590)		—		—		—		—		(9,590)
Proceeds from issuance of common stock		427		—		—		—		—		427
Tax payments related to vested deferred stock units		(940)		—		—		—		—		(940)
Net cash (used in) provided by financing activities		(10,103)		(2,960)		—		121,430		(123,340)		(14,973)
Effect of exchange rate changes		—		—		—		(812)		—		(812)
Increase (decrease) in cash and cash equivalents		—		1,213		685		(27,580)		—		(25,682)
Cash and cash equivalents at beginning of period		—		970		1,496		52,965		—		55,431
Cash and cash equivalents at end of period	$	—	$	2,183	$	2,181	$	25,385	$	—	$	29,749

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of Cash Flows

For the ~~Nine~~Three Months Ended ~~October 29, 2016~~May 5, 2018

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	26,245	$	153,072	$	36,198	$	(12,193)	$	(26,438)	$	176,884	$	10,994	$	196,189	$	(10,744)	$	(66,593)	$	(9,618)	$	120,228

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(40,273)		(37,055)		(3,222)		—		(80,550)		—		(3,238)		(6,338)		(1,404)		—		(10,980)
Proceeds from divestiture of business														—		—		17,732		—		—		17,732
Intercompany activities		—		(19,025)		—		—		19,025		—		—		(68,425)		—		—		68,425		—
Proceeds from sale of property and equipment		—		—		598		7		—		605
Net cash used in investing activities		—		(59,298)		(36,457)		(3,215)		19,025		(79,945)
Net cash (used in) provided by investing activities														—		(71,663)		11,394		(1,404)		68,425		6,752

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		—		(40,701)		—		—		—		(40,701)
Payments on original term loan														—		(993,420)		—		—		—		(993,420)
Proceeds from new term loan														—		895,500		—		—		—		895,500
Payments on new term loan														—		(2,250)		—		—		—		(2,250)
Proceeds from asset-based revolving credit facility		—		517,500		—		3,050		—		520,550		—		1,500		—		—		—		1,500
Payments on asset-based revolving credit facility		—		(517,500)		—		(3,050)		—		(520,550)		—		(1,500)		—		—		—		(1,500)
Repurchase and retirement of senior notes		—		(21,924)		—		—		—		(21,924)		—		(18,240)		—		—		—		(18,240)
Deferred financing costs														—		(5,576)		—		—		—		(5,576)
Intercompany activities		—		(26,438)		—		19,025		7,413		—		—		(9,618)		—		68,425		(58,807)		—
Cash dividends paid		(26,438)		—		—		—		—		(26,438)		(9,618)		—		—		—		—		(9,618)
Proceeds from issuance of common stock		1,451		—		—		—		—		1,451		3,649		—		—		—		—		3,649
Tax payments related to vested deferred stock units		(1,258)		—		—		—		—		(1,258)		(5,025)		—		—		—		—		(5,025)
Net cash (used in) provided by financing activities		(26,245)		(89,063)		—		19,025		7,413		(88,870)		(10,994)		(133,604)		—		68,425		(58,807)		(134,980)
Effect of exchange rate changes		—		—		—		(3,101)		—		(3,101)		—		—		—		(2,441)		—		(2,441)
Increase (decrease) in cash and cash equivalents		—		4,711		(259)		516		—		4,968
(Decrease) increase in cash and cash equivalents														—		(9,078)		650		(2,013)		—		(10,441)
Cash and cash equivalents at beginning of period		—		724		2,243		27,013		—		29,980		—		51,818		2,180		49,609		—		103,607
Cash and cash equivalents at end of period	$	—	$	5,435	$	1,984	$	27,529	$	—	$	34,948	$	—	$	42,740	$	2,830	$	47,596	$	—	$	93,166

3034

Table of Contents

ITEM 2 -— MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We encourage you to read this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended ~~January 28, 2017.~~February 2, 2019. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to ~~"2017"~~"2019" mean the ~~53-week~~52-week fiscal year ending February ~~3, 2018.~~1, 2020.

Executive Overview

Background

We are ~~the~~a leading specialty retailer of men’s ~~suits~~tailored clothing, and the largest men’s formalwear provider in the United States (“U.S.”) and ~~Canada and~~Canada. We help men ~~love the way they~~ look ~~for work~~ and ~~special occasions.~~feel their best by offering a broad selection of clothing including suits, suit separates, sport coats, slacks, formalwear, business casual, denim, sportswear, outerwear, dress shirts, shoes and accessories. We serve our customers through an expansive omni-channel network that includes over 1,400 ~~locations~~stores in the U.S. and Canada as well as our branded e-commerce ~~websites.~~ websites at www.menswearhouse.com, www.josbank.com, and www.josephabboud.com.

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities. ~~Refer to~~Please see Note 1516 of Notes to Condensed Consolidated Financial Statements and the discussion included in "Results of Operations" below for additional information and disclosures regarding our reportable segments.

~~Third~~First Quarter Discussion

InDuring the ~~third~~first quarter of ~~2017, we posted positive~~2019, comparable sales atfor all retail brands were negative, primarily reflecting challenging weather conditions in February and the Easter shift, which resulted in a later prom season and consequently, lower rental revenues. Although our Jos. A. Bank ~~and sequential~~brand saw improving trends during the first quarter, Men’s Wearhouse comparable sales ~~improvement at~~did not improve primarily due to continued traffic headwinds. We are already implementing and continue to explore new strategies to improve the comparable sales trend across our retail portfolio.

In addition, during the first quarter, we made progress on our strategic initiatives. Our custom business posted another strong quarter as we continued to respond to our customers’ demand for personalized products and services that help men look their best in the moments that matter. Our e-commerce team executed a robust portfolio of user experience and personalization tests, a number of which generated improvement. Finally, as we seek an optimized creative mix between promotional and storytelling advertising and an enhanced channel mix between broadcast and digital, we launched new brand campaigns for both Men’s Wearhouse and ~~K&G, resulting in our second consecutive quarter of positive comparable sales for our retail segment.~~

We launched new marketing campaigns to build awareness about the solutions we provide to men of all shapes and sizes which we believe is bringing new customers into our stores where we provide them with superior service and selection, including custom suiting at a highly competitive price. We continued to grow our custom business and enhance our omni-channel capabilities, both online and in-store. These initiativesJos. A. Bank that are ~~part of our strategy to deliver a superior customer experience in order to increase market share and drive long-term sustainable growth.~~

We also continued to make progress toward strengthening our balance sheet. During the third quarter, we repurchased and retired $65.0 million face value of senior notes, resulting in year-to-date repurchases of $115.0 million. We remain committed to a balanced capital allocation strategy, investing to support our growth initiatives, returning cash to shareholders through our dividend and using excess free cash flow to reduce debt.being leveraged across channels.

Key operating metrics for the quarter ended ~~October 28, 2017~~May 4, 2019 include:

Net sales decreased ~~4.3%~~4.5% primarily due to ~~the impact of last year's store closures as well as the anniversarying of last year’s rollout of~~ a ~~large new uniform program for our corporate apparel segment.~~decrease in retail segment comparable sales.

Comparable sales ~~increased 4.9%~~decreased 4.5% at Men’s Wearhouse, 0.7% at Jos. A. Bank, ~~while comparable sales decreased 1.0%~~0.5% at ~~Men's Wearhouse, 2.6%~~K&G and 4.6% at ~~Moores and 0.6% at K&G.~~Moores. Overall, comparable sales for our retail segment ~~increased 0.1%~~decreased 3.2%.

Operating income was ~~$76.6~~$30.3 million for the ~~third~~first quarter of ~~2017~~2019 compared to operating income of ~~$61.1~~$52.9 million in the ~~third~~first quarter of ~~2016.~~2018.

Diluted earnings per share were ~~$0.75~~$0.14 for the ~~third~~first quarter of ~~2017~~2019 compared to diluted earnings per share of ~~$0.58~~$0.27 in the ~~third~~first quarter of ~~2016.~~2018.

Key liquidity metrics for the ~~nine~~three months ended ~~October 28, 2017~~May 4, 2019 include:

Cash and cash equivalents at the end of the ~~third~~first quarter of ~~2017~~2019 were ~~$126.2~~$29.7 million, ~~an increase~~a decrease of ~~$91.3~~$63.4 million compared to the end of the ~~third~~first quarter of ~~2016.~~2018 primarily resulting from the decrease in comparable sales as well as the impact of the Easter shift.

Cash provided by operating activities was ~~$252.5~~$11.8 million for the first ~~nine~~three months of ~~2017~~2019 compared to ~~$176.9~~$120.2 million for the first ~~nine~~three months of ~~2016.~~2018, reflecting lower net earnings, an increase in inventories due to the decrease in comparable sales and unfavorable timing fluctuations in accounts payable, accrued liabilities and other current liabilities.

Capital expenditures were ~~$56.0~~$21.7 million for the first ~~nine~~three months of ~~fiscal 2017~~2019 compared to ~~$80.6~~$11.0 million for the first ~~nine~~three months of ~~fiscal 2016.~~2018.

We ~~repaid $9.9~~had $48.5 million ~~on our term loan, repurchased and retired $115.0 million in face value~~ of ~~senior notes and had no~~ borrowings outstanding on our revolving credit facility as of ~~October 28, 2017.~~May 4, 2019.

Dividends paid totaled ~~$26.9~~$9.6 million for the ~~nine~~first three months ~~ended October 28, 2017.~~of 2019.

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Items Affecting Comparability of Results

The following table depicts the effect on pretax income for certain items that have impacted the comparability of our results ~~has been impacted by certain items, including costs to terminate our tuxedo rental license agreement with Macy's, restructuring~~in 2019 and other costs consisting of costs related to our profit improvement and store rationalization programs and integration costs for Jos. A. Bank. A summary of the effect of these items on pretax income for each applicable period is presented below2018 (dollars in millions):

For the Three Months Ended

For the Nine Months Ended

October 28,

October 29,

October 28,

October 29,


2017

2016

2017

2016

Costs to terminate Macy's agreement (1)

$
—

$
—

$
17.2

$
—

Restructuring and other charges(2)

—

10.9

—

59.1

Integration costs related to Jos. A. Bank(3)

—

1.4

—

7.1

Purchase accounting related charges for Jos. A. Bank

—

—

—

(0.6)

Other

—

—

—

2.6

Total (4)

$
—

$
12.3

$
17.2

$
68.2


	For the Three Months Ended
	May 4,		May 5,
	2019		2018
Costs related to multi-year cost savings and operational excellence programs (1)	$	4.4	$	—
Loss on extinguishment of debt related to refinancing of Term Loan (2)		—		11.9
Loss on divestiture of MW Cleaners (3)		—		3.6
Total (4)	$	4.4	$	15.5

⁽¹⁾

~~See Note 2 to the condensed consolidated financial statements for additional information.~~Consists of $3.1 million in consulting costs, $1.1 million in severance costs and $0.2 million in lease termination costs.

⁽²⁾

~~See~~Please see Note 34 to the condensed consolidated financial statements for additional information.

⁽³⁾

~~For~~Please see Note 2 to the three months ended October 29, 2016, integration costs related to Jos. A. Bank included $0.1 million of severance costs. For the nine months ended October 29, 2016, integration costs related to Jos. A. Bank included $2.0 million of severance costs.condensed consolidated financial statements for additional information.

⁽⁴⁾

For the three months ended ~~October 29, 2016, consists~~May 4, 2019, $0.2 million is included in cost of ~~$13.3~~sales and $4.2 million is included in selling, general and administrative expenses ("SG&A") ~~offset by a $1.0 million reduction in cost of sales.~~. For the ~~nine~~three months ended ~~October 28, 2017, $15.8~~May 5, 2018, $3.6 million is included in SG&A and ~~$1.4~~$11.9 million is included in ~~cost~~loss on extinguishment of ~~sales. For the nine months ended October 29, 2016, includes $69.9 million in SG&A offset by a $1.7 million reduction in cost of sales.~~debt.

Update on 2019 Initiatives

As discussed above, during the first quarter of 2019, we have been focused on initiatives to address three customer needs: delivering personalized products and services, creating inspiring and seamless experiences in and across every channel and building brands that stand for something more than just price. Addressing these areas is critical and will require incremental investments in people, analytics and technology.

Also, we have completed the first phase of a comprehensive review of our operations including an assessment of SG&A expenses and business processes across the organization to identify cost savings opportunities. We are moving forward on several initiatives that we believe will generate cost savings in the latter half of fiscal 2019. However, many of the identified opportunities require additional testing and review to ensure we continue to deliver a superior customer experience and, therefore, we have developed a timeline to complete this review later in 2019.

In addition, we are committed to an ongoing evaluation of our portfolio of businesses and maximizing value for our shareholders. Such an evaluation may result in the consideration of a range of options related to our corporate apparel business, some of which could result in additional non-cash losses in future periods.

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Store Data

The following table presents information with respect to retail apparel stores ~~and tuxedo shops within Macy's stores~~ in operation during each of the respective fiscal periods:


	For the Three Months Ended		For the Nine Months Ended		For the Year Ended	For the Three Months Ended		For the Year Ended
	October 28,	October 29,	October 28,	October 29,	January 28,	May 4,	May 5,	February 2,
	2017	2016	2017	2016	2017	2019	2018	2019

Open at beginning of period:	1,484	1,767	1,667	1,724	1,724	1,464	1,477	1,477
Opened ~~(1)~~	2	26	4	173	178	—	1	3
Closed ~~(2)~~	(6)	(83)	(191)	(187)	(235)	(2)	(2)	(16)
Open at end of the period	1,480	1,710	1,480	1,710	1,667	1,462	1,476	1,464

Men’s Wearhouse(3)	720	713	720	713	716
Men’s Wearhouse(1)						720	720	720
Men’s Wearhouse and Tux	51	61	51	61	58	46	50	46
Tuxedo shops @ Macy’s	—	170	—	170	170
Jos. A. Bank(4)	493	550	493	550	506
Jos. A. Bank (2)						482	491	484
Moores	126	126	126	126	126	126	126	126
K&G	90	90	90	90	91	88	89	88
	1,480	1,710	1,480	1,710	1,667	1,462	1,476	1,464

⁽¹⁾

~~Includes 158 tuxedo shops within Macy's stores opened in the nine months ended October 29, 2016 and in the year ended January 28, 2017.~~

⁽²⁾

~~All 170 tuxedo shops within Macy's stores were closed during the second quarter of 2017.~~

⁽³⁾

Includes one Joseph Abboud store.

⁽⁴⁾⁽²⁾

Excludes franchise stores.

During the ~~third~~first quarter of ~~2017,~~2019, we ~~opened~~closed two ~~Men's Wearhouse stores and closed six stores (three~~ Jos. A. Bank ~~stores and three Men's Wearhouse and Tux stores).~~stores.

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Seasonality

Our sales and net earnings are subject to seasonal ~~fluctuations. Our~~fluctuations and may vary by brand. Typically, our rental ~~service~~product revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point. In addition, Jos. A. Bank has generally experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have generally resulted in significantly larger sales and net earnings generated in the fourth quarter, as compared to the other three quarters. With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results. Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

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Results of Operations

For the Three Months Ended ~~October 28, 2017~~May 4, 2019 Compared to the Three Months Ended ~~October 29, 2016~~May 5, 2018

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:


	For the Three Months Ended(1)				For the Three Months Ended(1)
	October 28,		October 29,		May 4,		May 5,
	2017		2016		2019		2018
Net sales:
Retail clothing product	70.9	%	67.9	%	76.1	%	75.0	%
Rental services	15.6		16.4		12.0		12.3
Alteration and other services	5.7		5.9		4.6		5.0
Total retail sales	92.2		90.2		92.7		92.3
Corporate apparel clothing product	7.8		9.8		7.3		7.7
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	43.0		43.1		45.2		45.0
Rental services	16.2		16.5		13.9		14.6
Alteration and other services	74.4		67.2		93.6		83.4
Occupancy costs	13.9		14.3		14.3		13.4
Total retail cost of sales	54.2		54.1		57.9		56.4
Corporate apparel clothing product	73.6		67.7		73.3		73.9
Total cost of sales	55.8		55.5		59.0		57.8
Gross margin(2):
Retail clothing product	57.0		56.9		54.8		55.0
Rental services	83.8		83.5		86.1		85.4
Alteration and other services	25.6		32.8		6.4		16.6
Occupancy costs	(13.9)		(14.3)		(14.3)		(13.4)
Total retail gross margin	45.8		45.9		42.1		43.6
Corporate apparel clothing product	26.4		32.3		26.7		26.1
Total gross margin	44.2		44.5		41.0		42.2
Advertising expense	4.8		5.4		5.8		5.0
Selling, general and administrative expenses	30.0		31.9		31.4		30.7
Operating income	9.5		7.2		3.9		6.5
Interest income	0.0		0.0		0.0		0.0
Interest expense	(3.0)		(3.0)		(2.4)		(2.7)
Gain on extinguishment of debt, net	0.3		0.2
Loss on extinguishment of debt, net					—		(1.6)
Earnings before income taxes	6.8		4.4		1.5		2.2
Provision for income taxes	2.2		1.1		0.6		0.5
Net earnings	4.5	%	3.4	%	0.9	%	1.7	%

⁽¹⁾

Percentage line items may not sum to totals due to the effect of rounding.

⁽²⁾

Calculated as a percentage of related sales.

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Net Sales

Total net sales decreased ~~$36.1~~$36.6 million, or ~~4.3%~~4.5%, to ~~$810.8~~$781.4 million for the ~~third~~first quarter of ~~2017~~2019 as compared to the ~~third~~first quarter of ~~2016.~~2018.

Total retail sales decreased ~~$16.2~~$30.2 million, or ~~2.1%~~4.0%, to ~~$747.5~~$724.7 million for the ~~third~~first quarter of ~~2017~~2019 as compared to the ~~third~~first quarter of ~~2016~~2018 primarily due to a ~~$12.3~~$18.9 million decrease in clothing product sales, driven by a decrease in comparable sales at all of our retail brands, a $6.5 million decrease in rental service revenues ~~partially~~primarily reflecting a later prom season this year and the ~~impact of last year’s store closures~~continuing trend to purchase suits for special occasions, and a ~~$4.0~~$4.8 million decrease in alteration and other services ~~revenues.~~revenues primarily reflecting the impact of our divestiture of MW Cleaners. The decrease in total retail sales is further described below:


(in millions)		Amount Attributed to
$	~~(4.3)~~(19.1)	~~1.0%~~4.5% decrease in comparable sales at Men's Wearhouse.
	~~7.1~~(1.0)	~~4.9% increase~~0.7% decrease in comparable sales at Jos. A. Bank.
	(0.4)	~~0.6%~~0.5% decrease in comparable sales at K&G.
	~~(1.5)~~(1.9)	~~2.6%~~4.6% decrease in comparable sales at Moores(1).
	~~(14.9)~~(2.4)	Decrease in non-comparable ~~sales (primarily due to closed stores).~~sales.
	~~2.6~~(1.9)	~~Increase~~Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.
	~~(4.8)~~(3.5)	Other (primarily ~~decrease in alteration revenues)~~resulting from divestiture of MW Cleaners).
$	~~(16.2)~~(30.2)	Decrease in total retail sales.

⁽¹⁾

Comparable sales percentages for Moores are calculated using Canadian dollars.

Comparable sales is defined as net sales from stores open at least twelve months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.

The decrease in comparable sales at Men's Wearhouse resulted primarily from ~~lower rental services revenue while~~a decrease in both transactions for clothing and units per transaction partially offset by an increase in average unit retail (net selling prices). Rental service comparable sales ~~for clothing increased slightly~~at Men��s Wearhouse decreased 6.0%, primarily reflecting a later prom season this year due to the Easter shift and the continuing trend to purchase suits for special occasions. The decrease at Jos. A. Bank resulted primarily from a decrease in both units per transaction and transactions partially offset by an increase in average unit retail. The decrease at K&G resulted from a decrease in both transactions and units per transaction partially offset by ~~a decrease~~an increase in average unit retail (net selling prices). At Men's Wearhouse, rental service comparable sales decreased 4.3% primarily reflecting a consumer shift to purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily from an increase in transactions and average unit retail that more than offset a decrease in units per transaction. The decrease at K&G resulted primarily from lower transactions partially offset by increases in average unit retail and units per transaction.retail. The decrease at Moores resulted primarily from ~~decreases~~a decrease in both transactions and units per transaction ~~and transactions that more than~~partially offset by an increase in average unit retail.

Total corporate apparel clothing product sales decreased ~~$19.9~~$6.4 million for the ~~third~~first quarter of ~~2017~~2019 as compared to the ~~third~~first quarter of ~~2016~~2018 primarily due to ~~anniversarying last year's rollout of a large new uniform program partially offset by~~lower replenishment demand in the U.S. as well as the impact of a ~~stronger~~weaker British pound this year compared to last year of approximately ~~$1.1~~$3.2 million.

Gross Margin

Procurement and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of sales while others, like us, include all or a portion of such costs in cost of sales and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.

Our total gross margin decreased ~~$18.4~~$24.7 million, or ~~4.9%~~7.1%, to ~~$358.8~~$320.6 million in the ~~third~~first quarter of ~~2017~~2019 as compared to the ~~third~~first quarter of ~~2016~~2018 primarily as a result of lower ~~corporate apparel net~~ sales. Total retail segment gross margin decreased ~~$8.2~~$23.3 million in the ~~third~~first quarter of ~~2017~~2019 compared to same period last ~~year primarily due to lower sales.~~year.

For the retail segment, total gross margin as a percentage of related sales decreased ~~slightly~~ to ~~45.8%~~42.1% in the ~~third~~first quarter of ~~2017~~2019 from ~~45.9%~~43.6% in the ~~third~~first quarter of ~~2016.~~2018 primarily due to deleveraging of occupancy costs as a percent of sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related ~~rent, common area maintenance,~~operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, ~~decreased $5.3~~increased $2.7 million primarily due to ~~our~~the impact of store ~~rationalization efforts in 2016.~~refreshes and other enhancements of our

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store fleet. Occupancy costs as a percentage of retail sales ~~decreased~~increased to ~~13.9% for~~14.3% in the ~~third~~first quarter of ~~2017 from 14.3% for~~2019 as compared to 13.4% in the ~~third~~first quarter of ~~2016.~~2018.

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Corporate apparel gross margin decreased ~~$10.2~~$1.3 million, or ~~37.9%~~8.0%, into $15.1 million for the ~~third~~first quarter of ~~2017.~~2019 compared to the first quarter of 2018. For the corporate apparel segment, total gross margin as a percentage of related sales ~~decreased~~increased to ~~26.4%~~26.7% in the ~~third~~first quarter of ~~2017~~2019 from ~~32.3%~~26.1% in the ~~third~~first quarter of ~~2016~~2018 primarily due to the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our United Kingdom ("UK") customers.customer mix.

Advertising Expense

Advertising expense ~~decreased~~increased to ~~$38.7~~$45.0 million in the ~~third~~first quarter of ~~2017~~2019 from ~~$45.7~~$41.2 million in the ~~third~~first quarter of ~~2016, a decrease~~2018, an increase of ~~$7.0~~$3.8 million, or ~~15.3%. The decrease in advertising expense was driven primarily by reductions in television advertising~~9.2%, reflecting ~~a shift~~the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to ~~digital advertising, as well as the timing of marketing spend.~~support planned tests. As a percentage of total net sales, advertising expense ~~decreased~~increased to ~~4.8%~~5.8% in the ~~third~~first quarter of ~~2017~~2019 from ~~5.4%~~5.0% in the ~~third~~first quarter of ~~2016.~~2018.

Selling, General and Administrative Expenses

SG&A expenses decreased to ~~$243.5~~$245.2 million in the ~~third~~first quarter of ~~2017~~2019 from ~~$270.5~~$251.1 million in the ~~third~~first quarter of ~~2016,~~2018, a decrease of ~~$27.0~~$5.9 million, or ~~10.0%~~2.3%. As a percentage of total net sales, these expenses ~~decreased~~increased to ~~30.0%~~31.4% in the ~~third~~first quarter of ~~2017~~2019 from ~~31.9%~~30.7% in the ~~third~~first quarter of ~~2016.~~2018. The components of this ~~1.9%~~0.7% net ~~decrease~~increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
(1.6)

$
(13.3)

Decrease in restructuring, integration and other items as a percentage of sales from 1.6% in the third quarter of 2016 to 0.0% in the third quarter of fiscal 2017.  In the third quarter of 2017, we incurred no such costs.  In the third quarter of 2016, these costs totaled $13.3 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.3)

(7.4)

Store salaries decreased $7.4 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.2% in the third quarter of 2017 from 12.5% in the third quarter of 2016.
—

(6.3)

Other SG&A expenses as a percentage of sales was flat at 17.8% from the third quarter of 2016  to the third quarter of 2017. Other SG&A expenses decreased $6.3 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts partially offset by increased incentive compensation expense.
(1.9)

$
(27.0)

Total


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses asdecreased $6.7 million primarily due to lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, ~~decreased~~SG&A expenses increased to ~~24.1%~~25.2% in the ~~third~~first quarter of ~~2017~~2019 from ~~27.2%~~25.1% in the ~~third~~first quarter of ~~2016. SG&A expenses decreased $27.4 million~~2018 primarily due to ~~decreases in store-related costs resulting~~deleveraging from ~~our store rationalization efforts as well as a decrease in restructuring and other costs, primarily related to last year's lease termination costs.~~lower sales.

In the corporate apparel segment, SG&A expenses asdecreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to ~~21.0%~~25.0% in the ~~third~~first quarter of ~~2017~~2019 from ~~19.4%~~22.9% in the ~~third~~first quarter of ~~2016~~2018 primarily due to deleveraging from lower sales. ~~Corporate apparel segment SG&A expenses decreased $2.9 million.~~

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG~~&A. Shared service SG~~&A ~~expenses as~~and increased $1.1 million. As a percentage of total net sales, SG&A expenses increased to 6.2% in the ~~third~~first quarter of ~~2017~~2019 from ~~5.5%~~5.8% in the ~~third~~first quarter of ~~2016~~2018 primarily due to deleveraging from lower sales. ~~Shared service SG&A expenses increased $3.2 million primarily due to increased incentive compensation expense.~~

Net ~~Gain~~Loss on Extinguishment of Debt

~~Net gain~~There was no net loss on extinguishment of debt for the first quarter of 2019. For the first quarter of 2018, net loss on extinguishment of debt was ~~$2.5~~$12.7 million inand consisted of the ~~third quarter~~eliminated of ~~2017 compared to $1.8 million in the third quarter of 2016. Net gains on extinguishment of debt relate~~unamortized deferred financing costs and original issue discount (“OID”) related to the ~~repurchasing~~refinancing of our ~~senior notes.~~Term Loan totaling $11.9 million with the remainder related to open market repurchases of our Senior Notes.

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Provision for Income Tax

Our effective income tax rate increased to ~~32.8%~~39.1% for the ~~third~~first quarter of ~~2017~~2019 from ~~24.1%~~24.0% for the ~~third~~first quarter of ~~2016~~2018 primarily due to ~~higher U.S. income as compared~~an increase in the discrete tax expense related to ~~income earned~~the net excess shortfalls from share-based awards vesting in ~~foreign jurisdictions this year compared to last year.~~the first quarter of 2019.

For the ~~third quarter~~first quarters of ~~2017,~~2019 and 2018, the statutory tax rates in U.S., Canada, UK and ~~the UK~~Hong Kong were approximately 21%, 26%, 19% and ~~19%~~16.5%, respectively. For the ~~third quarter~~first quarters of ~~2016, the statutory tax rate in Canada~~2019 and ~~the UK were approximately 26% and 20%, respectively. For the third quarter of 2017 and 2016,~~2018, tax expense for our operations in foreign jurisdictions totaled ~~$6.2~~$2.4 million and ~~$2.7~~$2.0 million, respectively.

Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws. ~~Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings.~~

In addition, if our financial results in fiscal ~~2017~~2019 generate a loss or certain deferred tax liabilities decrease, we may need to establish aadditional valuation ~~allowance~~allowances on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several ~~federal, foreign and state audits;~~tax audits, however, we currently do not believe these audits will result in any material ~~change~~charge to tax expense in the future.

~~Net Earnings~~Gross Margin

Our total gross margin decreased $24.7 million, or 7.1%, to $320.6 million in the first quarter of 2019 as compared to the first quarter of 2018 primarily as a result of lower sales. Total retail segment gross margin decreased $23.3 million in the first quarter of 2019 compared to same period last year.

For the retail segment, total gross margin as a percentage of related sales decreased to 42.1% in the first quarter of 2019 from 43.6% in the first quarter of 2018 primarily due to deleveraging of occupancy costs as a percent of sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, increased $2.7 million primarily due to the impact of store refreshes and other enhancements of our

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store fleet. Occupancy costs as a percentage of retail sales increased to 14.3% in the first quarter of 2019 as compared to 13.4% in the first quarter of 2018.

Corporate apparel gross margin decreased $1.3 million, or 8.0%, to $15.1 million for the first quarter of 2019 compared to the first quarter of 2018. For the corporate apparel segment, total gross margin as a percentage of related sales increased to 26.7% in the first quarter of 2019 from 26.1% in the first quarter of 2018 primarily due to customer mix.

Advertising Expense

Advertising expense increased to $45.0 million in the first quarter of 2019 from $41.2 million in the first quarter of 2018, an increase of $3.8 million, or 9.2%, reflecting the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to support planned tests. As a percentage of total net sales, advertising expense increased to 5.8% in the first quarter of 2019 from 5.0% in the first quarter of 2018.

Selling, General and Administrative Expenses

SG&A expenses decreased to $245.2 million in the first quarter of 2019 from $251.1 million in the first quarter of 2018, a decrease of $5.9 million, or 2.3%. As a percentage of total net sales, these expenses increased to 31.4% in the first quarter of 2019 from 30.7% in the first quarter of 2018. The components of this 0.7% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses decreased $6.7 million primarily due to lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, SG&A expenses increased to 25.2% in the first quarter of 2019 from 25.1% in the first quarter of 2018 primarily due to deleveraging from lower sales.

In the corporate apparel segment, SG&A expenses decreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to 25.0% in the first quarter of 2019 from 22.9% in the first quarter of 2018 primarily due to deleveraging from lower sales.

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A and increased $1.1 million. As a percentage of total net sales, SG&A expenses increased to 6.2% in the first quarter of 2019 from 5.8% in the first quarter of 2018 primarily due to deleveraging from lower sales.

Net ~~earnings were $36.9 million~~Loss on Extinguishment of Debt

There was no net loss on extinguishment of debt for the ~~third~~first quarter of ~~2017 compared with net earnings of $28.4 million for~~2019. For the ~~third~~first quarter of ~~2016.~~2018, net loss on extinguishment of debt was $12.7 million and consisted of the eliminated of unamortized deferred financing costs and original issue discount (“OID”) related to the refinancing of our Term Loan totaling $11.9 million with the remainder related to open market repurchases of our Senior Notes.

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~~For the Nine Months Ended October 28, 2017 Compared to the Nine Months Ended October 29, 2016~~

Provision for Income Tax

~~The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:~~

For the Nine Months Ended(1)

October 28,

October 29,


2017

2016

Net sales:

Retail clothing product

71.7
%
69.9
%
Rental services

15.3

15.6

Alteration and other services

5.7

5.8

Total retail sales

92.7

91.3

Corporate apparel clothing product

7.3

8.7

Total net sales

100.0
%
100.0
%
Cost of sales(2):

Retail clothing product

42.7

44.1

Rental services

16.2

16.3

Alteration and other services

74.7

69.4

Occupancy costs

13.8

13.9

Total retail cost of sales

54.1

54.8

Corporate apparel clothing product

73.6

67.5

Total cost of sales

55.5

55.9

Gross margin(2):

Retail clothing product

57.3

55.9

Rental services

83.8

83.7

Alteration and other services

25.3

30.6

Occupancy costs

(13.8)

(13.9)

Total retail gross margin

45.9

45.2

Corporate apparel clothing product

26.4

32.5

Total gross margin

44.5

44.1

Advertising expense

4.9

5.4

Selling, general and administrative expenses

30.7

32.8

Operating income

8.8

5.9

Interest income

0.0

0.0

Interest expense

(3.1)

(3.0)

Gain on extinguishment of debt, net

0.3

0.1

Earnings before income taxes

6.0

2.9

Provision for income taxes

2.1

0.8

Net earnings

4.0
%
2.1
%

⁽¹⁾

~~Percentage line items may not sum to totals due to the effect of rounding.~~

⁽²⁾

~~Calculated as a percentage of related sales.~~

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~~Net Sales~~

~~Total net sales decreased $141.0 million, or 5.5%,~~Our effective income tax rate increased to ~~$2,444.5 million~~39.1% for the first ~~nine months~~quarter of ~~2017 as compared to the first nine months of 2016.~~

~~Total retail sales decreased $94.3 million, or 4.0%, to $2,265.8 million~~2019 from 24.0% for the first ~~nine months~~quarter of ~~2017 as compared to the first nine months of 2016~~2018 primarily due to a $52.9 million decrease in clothing product revenues primarily reflecting the impact of last year's store closures, a $30.4 million decrease in rental services revenue and an $11.1 million decrease in alteration and other services revenues. The decrease in total retail sales is further described below:


~~(in millions)~~		~~Amount Attributed to~~
$	~~(26.7)~~	~~2.1% decrease in comparable sales at Men's Wearhouse.~~
	~~24.1~~	~~5.4% increase in comparable sales at Jos. A. Bank.~~
	~~(8.4)~~	~~3.5% decrease in comparable sales at K&G.~~
	~~(3.4)~~	~~2.2% decrease in comparable sales at Moores(1)~~.
	~~(68.8)~~	~~Decrease in non-comparable sales (primarily due to closed stores).~~
	~~0.8~~	~~Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.~~
	~~(11.9)~~	~~Other (primarily decrease in alteration revenues).~~
$	~~(94.3)~~	~~Decrease in total retail sales.~~

⁽¹⁾

~~Comparable sales percentages for Moores are calculated using Canadian dollars.~~

Comparable sales is defined as net sales from stores open at least twelve months at period end and includes e-commerce sales. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.

~~The decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in transactions partially offset by~~ an increase in ~~average unit retail while units per transaction were flat. At Men's Wearhouse, rental service comparable sales decreased 2.5% primarily reflecting a consumer shift~~the discrete tax expense related to ~~purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily~~the net excess shortfalls from ~~an increase~~share-based awards vesting in transactions partially offset by a decrease in units per transaction and average unit retail. The decrease at K&G resulted from lower transactions partially offset by an increase in units per transaction and average unit retail. The decrease at Moores resulted from a decrease in units per transaction partially offset by an increase in average unit retail while transactions were essentially flat. the first quarter of 2019.

~~Total corporate apparel clothing product sales decreased $46.7 million for~~For the first ~~nine months~~quarters of ~~2017 as compared to~~2019 and 2018, the statutory tax rates in U.S., Canada, UK and Hong Kong were approximately 21%, 26%, 19% and 16.5%, respectively. For the first ~~nine months~~quarters of ~~2016 primarily due to anniversarying last year's rollout of a large new uniform program as well as the impact of a weaker British pound this year compared to last year of approximately $9.4 million.~~ 2019 and 2018, tax expense for our operations in foreign jurisdictions totaled $2.4 million and $2.0 million, respectively.

Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws.

In addition, if our financial results in fiscal 2019 generate a loss or certain deferred tax liabilities decrease, we may need to establish additional valuation allowances on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several tax audits, however, we currently do not believe these audits will result in any material charge to tax expense in the future.

Gross Margin

Our total gross margin decreased ~~$51.5~~$24.7 million, or ~~4.5%~~7.1%, to ~~$1,087.9~~$320.6 million in the first ~~nine months~~quarter of ~~2017~~2019 as compared to the first ~~nine months~~quarter of ~~2016.~~2018 primarily as a result of lower sales. Total retail segment gross margin decreased ~~$25.4~~$23.3 million ~~or 2.4%,~~ in the first ~~nine months~~quarter of ~~2017~~2019 compared to ~~the~~ same period last ~~year primarily due to lower sales.~~year.

For the retail segment, total gross margin as a percentage of ~~retail~~related sales ~~increased~~decreased to ~~45.9%~~42.1% in the first ~~nine months~~quarter of ~~2017~~2019 from ~~45.2%~~43.6% in the first ~~nine months~~quarter of ~~2016 driven~~2018 primarily due to deleveraging of occupancy costs as a ~~result~~percent of ~~anniversarying lower gross margins last year, driven by clearance activity in preparation of our closing of our factory/outlet stores.~~ sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related ~~rent, common area maintenance,~~operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, ~~decreased $15.7~~increased $2.7 million primarily due to ~~our~~the impact of store ~~rationalization efforts in 2016.~~refreshes and other enhancements of our

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store fleet. Occupancy costs as a percentage of retail sales ~~decreased from 13.9%~~increased to 14.3% in the first ~~nine months~~quarter of ~~2016~~2019 as compared to ~~13.8%~~13.4% in the first ~~nine months~~quarter of ~~2017.~~2018.

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Corporate apparel gross margin decreased ~~$26.0~~$1.3 million, or ~~35.6%~~8.0%, into $15.1 million for the first ~~nine months~~quarter of ~~2017 as~~2019 compared to the first ~~nine months~~quarter of ~~2016.~~2018. For the corporate apparel segment, total gross margin as a percentage of related sales ~~decreased~~increased to ~~26.4%~~26.7% in the first ~~nine months~~quarter of ~~2017~~2019 from ~~32.5%~~26.1% in the first ~~nine months~~quarter of ~~2016~~2018 primarily due to ~~the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our UK customers.~~customer mix.

Advertising Expense

Advertising expense ~~decreased~~increased to ~~$120.8~~$45.0 million in the first ~~nine months~~quarter of ~~2017~~2019 from ~~$138.5~~$41.2 million in the first ~~nine months~~quarter of ~~2016, a decrease~~2018, an increase of ~~$17.7~~$3.8 million, or ~~12.8%. The decrease in advertising expense was driven primarily by reductions in television advertising~~9.2%, reflecting ~~a shift~~the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to ~~digital advertising, as well as the timing of marketing spend.~~support planned tests. As a percentage of total net sales, advertising expense ~~was 4.9%~~increased to 5.8% in the first ~~nine months~~quarter of ~~2017 compared to 5.4%~~2019 from 5.0% in the first ~~nine months~~quarter of ~~2016.~~2018.

Selling, General and Administrative Expenses

SG&A expenses decreased to ~~$751.0~~$245.2 million in the first ~~nine months~~quarter of ~~2017~~2019 from ~~$849.1~~$251.1 million in the first ~~nine months~~quarter of ~~2016,~~2018, a decrease of ~~$98.1~~$5.9 million, or ~~11.6%~~2.3%. As a percentage of total net sales, these expenses ~~decreased~~increased to 31.4% in the first quarter of 2019 from 30.7% in the first ~~nine months~~quarter of ~~2017 from 32.8% in the first nine months of 2016.~~2018. The components of this ~~2.1% decrease~~0.7% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
(2.1)

$
(54.1)

Decrease in restructuring, integration and other items as a percentage of sales to 0.6% in the first nine months of 2017 from 2.7% in the first nine months of 2016.  For the first nine months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement.  For the first nine months of 2016, these costs totaled $69.9 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.2)

(24.0)

Store salaries decreased $24.0 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.6% in the first nine months of 2017 from 12.8% in the first nine months of 2016.
0.2

(20.0)

Increase in other SG&A expenses as a percentage of sales to 17.5% in the first nine months of 2017 from 17.3% in the first nine months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $20.0 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(2.1)

$
(98.1)

Total


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses asdecreased $6.7 million primarily due to lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, ~~decreased~~SG&A expenses increased to 25.2% in the first quarter of 2019 from 25.1% in the first ~~nine months~~quarter of ~~2017 from 27.6% in the first nine months of 2016. SG&A expenses decreased $81.5 million~~2018 primarily due to ~~decreases in store-related costs resulting~~deleveraging from our store rationalization efforts as well as a decrease in restructuring and other costs, primarily related to last year's lease termination costs partially offset by costs to terminate the Macy's agreement in 2017.lower sales.

In the corporate apparel segment, SG&A expenses asdecreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to ~~21.8%~~25.0% in the first ~~nine months~~quarter of ~~2017~~2019 from ~~21.1%~~22.9% in the first ~~nine months~~quarter of ~~2016~~2018 primarily due to ~~deleverage~~deleveraging from lower sales. ~~Corporate apparel segment SG&A expenses decreased $8.6 million primarily due to the impact of a weaker British pound this year compared to last year.~~

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG~~&A. Shared service SG~~&A ~~expenses as~~and increased $1.1 million. As a percentage of total net sales, ~~was flat at 5.9%~~SG&A expenses increased to 6.2% in the first ~~nine months~~quarter of ~~2017 compared to~~2019 from 5.8% in the first ~~nine months~~quarter of ~~2016. Shared service SG&A expenses decreased $8.0 million~~2018 primarily due to ~~decreases in costs associated with last year's profit improvement program partially offset by increased incentive compensation expense.~~deleveraging from lower sales.

Net ~~Gain~~Loss on Extinguishment of Debt

~~Net gain~~There was no net loss on extinguishment of debt for the first quarter of 2019. For the first quarter of 2018, net loss on extinguishment of debt was ~~$6.5~~$12.7 million inand consisted of the ~~first nine months~~eliminated of ~~2017 compared to $1.7 million in the first nine months of 2016. Net gains on extinguishment of debt primarily relate~~unamortized deferred financing costs and original issue discount (“OID”) related to the ~~repurchasing~~refinancing of our ~~senior notes.~~Term Loan totaling $11.9 million with the remainder related to open market repurchases of our Senior Notes.

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Provision for Income Tax

Our effective income tax rate increased to ~~34.2%~~39.1% for the first ~~nine months~~quarter of ~~2017~~2019 from ~~27.3%~~24.0% for the first ~~nine months~~quarter of ~~2016~~2018 primarily due to ~~higher U.S. income as compared to income earned~~an increase in ~~foreign jurisdictions this year compared to last year as well as~~ the ~~recognition of $2.2 million of~~discrete tax ~~deficiencies~~expense related to the net excess shortfalls from share-based awards vesting in the first quarter of ~~stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation.~~ 2019.

For the first ~~nine months~~quarters of ~~2017,~~2019 and 2018, the statutory tax rates in U.S., Canada, UK and ~~the UK~~Hong Kong were approximately 21%, 26%, 19% and ~~19%~~16.5%, respectively. For the first ~~nine months~~quarters of ~~2016, the statutory tax rate in Canada~~2019 and ~~the UK were approximately 26% and 20%, respectively. For the first nine months of 2017 and 2016,~~2018, tax expense for our operations in foreign jurisdictions totaled ~~$12.2~~$2.4 million and ~~$9.3~~$2.0 million, respectively.

Net Earnings

Net earnings were ~~$97.2~~$7.1 million for the first ~~nine months~~quarter of ~~2017~~2019 compared with net earnings of ~~$55.0~~$13.9 million for the first ~~nine months~~quarter of ~~2016.~~2018.

Liquidity and Capital Resources

Our primary sources of working capital are cash flows from operations and available borrowings under our revolving credit agreement, as described below. The following table provides details on our cash and cash equivalents and working capital position as of~~October 28, 2017, October 29, 2016~~ May 4, 2019, May 5, 2018 and ~~January 28, 2017 (in thousands):~~February 2, 2019:


	May 4,		May 5,		February 2,
	2019		2018		2019
Cash and cash equivalents	$	29,749	$	93,166	$	55,431
Working capital	$	291,441	$	540,153	$	491,047

October 28,

October 29,

January 28,


2017

2016

2017
Cash and cash equivalents

$
126,244

$
34,948

$
70,889
Working capital

$
735,635

$
726,177

$
705,797

The decrease in working capital from May 4, 2019 compared to February 2, 2019 is primarily due to the adoption of new accounting guidance related to leases, specifically the current portion of operating lease liabilities totaling $183.0 million. Please see Note 12 of the Notes to the Condensed Consolidated Financial Statements for additional information.

In 2014, The Men's Wearhouse entered into a term loan credit agreement that ~~provides~~provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the ~~"Term~~"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million OID, which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

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elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.

Credit Facilities

In April 2018, we refinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.

The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the New Term Loan. The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points. As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated. In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method. The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.

The interest rate on the New Term Loan is based on 1-month LIBOR, which was 2.47% at May 4, 2019, plus the applicable margin of 3.25%, resulting in a total interest rate of 5.72%. We have two interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate, including an interest rate swap entered into during June 2018. At May 4, 2019, the total notional amount under these interest rate swaps is $710.0 million. Please see Note 15 for additional information on our interest rate swaps.

As a result of our interest rate swaps, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of May 4, 2019, the New Term Loan had a weighted average interest rate of 5.77%.

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of May 4, 2019, $48.5 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 5.3%.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At ~~October 28, 2017,~~May 4, 2019, letters of credit totaling approximately $38.7 million were issued and outstanding. ~~As of October 28, 2017, there were no borrowings outstanding under the ABL Facility.~~ Borrowings available under the ABL Facility as of ~~October 28, 2017~~May 4, 2019 were ~~$511.3~~$424.9 million.

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The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. In addition, we are currently restricted on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements, our total leverage ratio and secured leverage ratio have been above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements and we believe these ratios will remain below the maximums specified in the agreements during the remainder of fiscal 2017 and beyond, which will result in the elimination of these additional restrictions.

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature in June 2021. The interest rate on the Term Loan is based on 1-month LIBOR, which was 1.24% at October 28, 2017, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.74%. In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate. In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At October 28, 2017, the total notional amount under our interest rate swaps is $490.0 million.

As a result of our interest rate swaps and the Incremental Agreement, we have converted a significant portion of the variable interest rate under the Term Loan to a fixed rate and, as of October 28, 2017, the Term Loan had a weighted average interest rate of 5.13%.

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, ~~certain of~~The Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.

Cash Flow Activities

Operating activities — Net cash provided by operating activities was ~~$252.5~~$11.8 million and ~~$176.9~~$120.2 million for the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively. The ~~$75.7~~$108.4 million ~~increase~~decrease was driven by ~~higher~~lower net earnings, ~~compared to last year, planned reductions~~an increase in ~~rental product and inventory purchases,~~inventories primarily ~~resulting from our store rationalization efforts, as well as timing of income tax payments, partially offset by a~~reflecting the decrease in comparable sales at Men’s Wearhouse, and fluctuations in accounts payable, accrued expenses and other ~~assets related~~current liabilities primarily due to ~~prior year income tax refunds.~~timing.

Investing activities — Net cash used in investing activities was ~~$54.3 million and $79.9~~$21.7 million for the first ~~nine~~three months of ~~2017 and 2016, respectively.~~2019 compared to net cash provided by investing activities of $6.8 million for the first three months of 2018. The ~~$25.7~~net change of $28.4 million ~~decrease~~ was primarily driven by ~~a decrease~~$17.7 million of net proceeds from the divestiture of MW Cleaners and an increase in capital expenditures ~~primarily due~~resulting from projects that shifted from fiscal 2018 to ~~last year's investments to expand our distribution capacity.~~fiscal 2019.

Financing activities — Net cash used in financing activities was ~~$146.3~~$15.0 million and ~~$88.9~~$135.0 million for the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively. The ~~$57.4~~$120.0 million ~~increase~~decrease primarily reflects the impact of ~~additional~~a reduction in debt repayments this year compared to last year.

Share repurchase program — In March 2013, the Board of Directors (the "Board") approved a share repurchase program for our common stock. At ~~October 28, 2017,~~May 4, 2019, the remaining balance available under the Board's authorization was $48.0 million. During the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, no shares were repurchased in open market transactions under the Board's authorization.

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Dividends — Cash dividends paid were ~~$26.9 million and $26.4~~$9.6 million for the first ~~nine~~three months of ~~2017~~2019 and ~~2016,~~2018, respectively. During each of the quarters ended ~~October 28, 2017~~May 4, 2019 and ~~October 29, 2016,~~May��5, 2018, we declared quarterly dividends of $0.18 per share.

Future Sources and Uses of Cash

Our primary uses of cash are to finance working capital requirements of our operations and to repay our indebtedness. In addition, we will use cash to fund capital expenditures, income taxes, dividend payments, operating leases and various other commitments and obligations, as they arise.

During the ~~course of the~~ first ~~nine~~three months of ~~2017,~~2019, we borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling ~~$34.7~~$100.0 million.

~~Capital expenditures are anticipated to be approximately $90.0 million~~The Company has not yet finalized its outlook for ~~2017. This amount includes the anticipated costs to open four Men's Wearhouse stores and to relocate or remodel approximately 10 stores. The balance of the~~ capital expenditures for ~~2017~~fiscal 2019 but continues to expect a moderate increase in capital expenditures compared to fiscal 2018. Capital expenditures will ~~be used~~include costs for store refreshes ~~point-of-sale~~ and other ~~computer equipment and systems, distribution facilities~~enhancements of our store fleet, investments in technology, and investment in other corporate assets.

Additionally, market conditions may produce attractive opportunities for us to make acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We may use cash on hand, together with cash flow from operations, borrowings under our Credit Facilities and issuances of debt or equity securities, to take advantage of any acquisition opportunities.

Current and future domestic and global economic conditions could negatively affect our future operating results as well as our existing cash and cash equivalents balances. In addition, conditions in the financial markets could limit our access to further capital resources, if needed, and could increase associated costs. We believe based on our current business plan that

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our existing cash and cash flows from operations and availability under our ABL Facility will be sufficient to fund our operating cash requirements, repayment of current indebtedness, and capital expenditures.

Contractual Obligations

There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2017. As a result of the termination of the tuxedo rental license agreement with Macy's, our total other contractual obligations decreased by $114.9 million.~~February 2, 2019.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements requires the appropriate application of accounting policies in accordance with generally accepted accounting principles. In many instances, this also requires management to make estimates and assumptions about future events that affect the amounts and disclosures included in our financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under our current business model. However, because future events and conditions and their effects cannot be determined with certainty, actual results will differ from our estimates and such differences could be material to our financial statements. ~~There~~Other than the adoption of the new lease accounting standard as discussed in Note 12 of the Notes to the Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2017.~~February 2, 2019.

~~Table~~Other Matters

During 2018, the U.S. imposed tariffs on certain goods imported from China and expressed a willingness to impose further tariffs on additional goods imported from China. For tariffs enacted through the first quarter of ~~Contents~~2019, we believe the impact has been immaterial to our results of operations. Additionally, on May 5, 2019, the U.S. announced the possibility of tariffs on other categories of U.S. imports from China that, if enacted, could have a more significant impact on our results of operations. To mitigate this risk, we have been reducing the penetration of Chinese-made direct-sourced product and also successfully completed negotiations with our vendors who have agreed to absorb the majority of any impact for production that remains in China. As a result, currently, we believe that additional tariffs on goods imported from China would have a minimal impact on our results of operations for fiscal 2019.

ITEM 3 -— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in foreign currency exchange rates and changes in interest rates.

We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries. In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity. Our risk management policy is to hedge a portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts. In addition, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.

As the foreign exchange forward contracts are with financial institutions, we are exposed to credit risk in the event of nonperformance by these parties but due to the creditworthiness of these major financial institutions, full performance is anticipated.

As discussed in Note 54 and Note 1415 of the Notes to the Condensed Consolidated Financial Statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our ~~indebtedness.~~New Term Loan. As of ~~October 28, 2017, 90%~~May 4, 2019, 80% of ~~our total debt was at~~the variable interest rate under the New Term Loan has been converted to a fixed ~~rate with the remainder at a variable~~ rate. ~~As a result, we believe our interest rate risk is substantially mitigated.~~ At ~~October 28, 2017,~~May 4, 2019, the effect of one percentage point change in interest rates would result in an approximate ~~$1.5~~$1.8 million change in annual interest expense on our New Term Loan.

In addition, borrowings under our ABL Facility bear a floating rate of interest. As of May 4, 2019, the outstanding borrowings under the ABL Facility were $48.5 million. At May 4, 2019, the effect of a one percentage point change

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in interest rates would result in an approximate $0.5 million change in annual interest expense on our ABL borrowings.

ITEM 4 -— CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's principal executive officer ("CEO") and principal financial officer ("CFO"), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

During the fiscal first quarter ended May 4, 2019, we adopted new guidance for lease accounting. We implemented changes to our internal controls related to leases, including the development of new accounting policies, enhanced contract review requirements and information technology systems to assist in the ongoing application and related disclosures for the new guidance.

There were no other changes in the Company's internal control over financial reporting that occurred during the fiscal ~~third~~first quarter ended ~~October 28, 2017~~May 4, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

For a description of our legal proceedings, see Note 1617 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

ITEM 6 — EXHIBITS

Exhibits filed with this quarterly report on Form 10-Q are incorporated herein by reference as set forth in the Index to Exhibits on page 46.

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EXHIBIT INDEX

Exhibit Number		Exhibit Index

10.1	—	Letter Agreement by and between Tailored Brands, Inc. and Dinesh S. Lathi dated April 19, 2019 and effective March 27, 2019 (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K (Amendment No. 2) filed with the Commission on April 26, 2019).
10.2	—	Amendment No. 23 to ABL Facility, ~~(including Annex A),~~ dated as of ~~October 25, 2017,~~April 30, 2019, by and among the Company, and the other Co-Borrowers, the U.S. ABL Administrative Agent, the Canadian ~~ABL~~ Administrative Agent and the ABL Lenders (filed herewith).
10.3	—	Amendment No. 2 to the Tailored Brands, Inc. 2016 Long-Term Incentive Plan, dated June 4, 2019 (filed herewith).
10.4	—	Form of Cash-Based Award Agreement, (for executives, including named executive officers) under the Tailored Brands, Inc. 2016 Long-Term Incentive Plan, as amended (filed herewith).
31.1	—	Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith).
31.2	—	Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith).
32.1	—	Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). †
32.2	—	Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). †
101.1	—	The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10‑Q for the three ~~and nine~~ months ended ~~October 28, 2017~~May 4, 2019 formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income; (iv) the Condensed Consolidated Statements of Shareholders’ (Deficit) Equity; (v) the Condensed Consolidated Statements of Cash Flows; and ~~(v)~~(vi) the Notes to Condensed Consolidated Financial Statements.

†This exhibit will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: ~~December 7, 2017~~June 13, 2019	TAILORED BRANDS, INC.


	By	/s/ JACK P. CALANDRA
		Jack P. Calandra
		Executive Vice President, Chief Financial Officer and Treasurer


	Severance and		Lease
	Employee-		Termination		Consulting		Other
	Related Costs		Costs		Costs		Costs		Total
Beginning Balance, January 28, 2017	$	986	$	4,834	$	60	$	25	$	5,905
Charges, excluding non-cash items		—		—		—		—		—
Payments		(504)		(4,377)		(60)		(25)		(4,966)
Ending Balance, October 28, 2017	$	482	$	457	$	—	$	—	$	939


		Weighted- Average
	Shares	Grant-Date Fair Value
Non-Vested at January 28, 2017	36,878	$	15.56
Granted	—		—
Vested	(36,878)		15.56
Forfeited	—		—
Non-Vested at October 28, 2017	—	$	—


			Corporate
	Retail		Apparel		Total
Balance at January 28, 2017	$	94,511	$	22,515	$	117,026
Goodwill of acquired business		—		695		695
Translation adjustment		433		971		1,404
Balance at October 28, 2017	$	94,944	$	24,181	$	119,125


	October 28, 2017				October 29, 2016				January 28, 2017
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount(1)		Fair Value		Amount(1)		Fair Value		Amount(1)		Fair Value
Long-term debt, including current portion	$	1,476,485	$	1,461,283	$	1,595,873	$	1,556,661	$	1,595,529	$	1,556,200
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $17.0 million, $23.3 million and $22.1 million as of October 28, 2017, October 29, 2016 and January 28, 2017, respectively.


	For the Nine Months Ended(1)
	October 28,		October 29,
	2017		2016
Net sales:
Retail clothing product	71.7	%	69.9	%
Rental services	15.3		15.6
Alteration and other services	5.7		5.8
Total retail sales	92.7		91.3
Corporate apparel clothing product	7.3		8.7
Total net sales	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	42.7		44.1
Rental services	16.2		16.3
Alteration and other services	74.7		69.4
Occupancy costs	13.8		13.9
Total retail cost of sales	54.1		54.8
Corporate apparel clothing product	73.6		67.5
Total cost of sales	55.5		55.9
Gross margin(2):
Retail clothing product	57.3		55.9
Rental services	83.8		83.7
Alteration and other services	25.3		30.6
Occupancy costs	(13.8)		(13.9)
Total retail gross margin	45.9		45.2
Corporate apparel clothing product	26.4		32.5
Total gross margin	44.5		44.1
Advertising expense	4.9		5.4
Selling, general and administrative expenses	30.7		32.8
Operating income	8.8		5.9
Interest income	0.0		0.0
Interest expense	(3.1)		(3.0)
Gain on extinguishment of debt, net	0.3		0.1
Earnings before income taxes	6.0		2.9
Provision for income taxes	2.1		0.8
Net earnings	4.0	%	2.1	%


%	in millions		Attributed to
(2.1)	$	(54.1)	Decrease in restructuring, integration and other items as a percentage of sales to 0.6% in the first nine months of 2017 from 2.7% in the first nine months of 2016. For the first nine months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. For the first nine months of 2016, these costs totaled $69.9 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.2)		(24.0)	Store salaries decreased $24.0 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.6% in the first nine months of 2017 from 12.8% in the first nine months of 2016.
0.2		(20.0)	Increase in other SG&A expenses as a percentage of sales to 17.5% in the first nine months of 2017 from 17.3% in the first nine months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $20.0 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(2.1)	$	(98.1)	Total