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As Of Filer Filing For·On·As Docs:Size 12/07/23 Oxford Industries Inc. 10-Q 10/28/23 52:8.1M |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.68M
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3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
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11: R2 Condensed Consolidated Balance Sheets HTML 108K
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13: R4 Condensed Consolidated Statements of Operations HTML 84K
14: R5 Condensed Consolidated Statements of Comprehensive HTML 36K
Income
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16: R7 Basis of Presentation HTML 19K
17: R8 Operating Groups HTML 254K
18: R9 Revenue Recognition and Receivables HTML 51K
19: R10 Leases and Other Commitments HTML 30K
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21: R12 Shareholders' Equity HTML 238K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
| |
i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the quarterly period ended i October 28, 2023 |
| |
| or |
| |
i ☐ | 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: i 1-4365
i OXFORD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| | |
i Georgia |
| i 58-0831862 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
i 999 Peachtree Street, N.E., i Suite 688, i Atlanta, i Georgia i 30309
(Address of principal executive offices) (Zip Code)
( i 404) i 659-2424
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
i Common Stock, $1 par value | i OXM | i 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. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | |
i Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company i ☐ | Emerging growth company i ☐ |
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 i ☐ No ☒
As of December 1, 2023, there were i 15,625,096 shares of the registrant’s common stock outstanding.
OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For the Third Quarter of Fiscal 2023
2
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Such statements are subject to a number of risks, uncertainties and assumptions including, without limitation, demand for our products, which may be impacted by macroeconomic factors that may impact consumer discretionary spending and pricing levels for apparel and related products, many of which may be impacted by current inflationary pressures, rising interest rates, concerns about the stability of the banking industry or general economic uncertainty, and the effectiveness of measures to mitigate the impact of these factors; competitive conditions and/or evolving consumer shopping patterns; acquisition activities (such as the acquisition of Johnny Was), including our ability to integrate key functions, recognize anticipated synergies and minimize related disruptions or distractions to our business as a result of these activities; supply chain disruptions; costs and availability of labor and freight deliveries, including our ability to appropriately staff our retail stores and food and beverage locations; costs of products as well as the raw materials used in those products, as well as our ability to pass along price increases to consumers; energy costs; our ability to respond to rapidly changing consumer expectations; weather or natural disasters, including the ultimate impact of the recent wildfires on the island of Maui; the ability of business partners, including suppliers, vendors, wholesale customers, licensees, logistics providers and landlords, to meet their obligations to us and/or continue our business relationship to the same degree as they have historically; retention of and disciplined execution by key management and other critical personnel; cybersecurity breaches and ransomware attacks, as well as our and our third party vendors’ ability to properly collect, use, manage and secure business, consumer and employee data and maintain continuity of our information technology systems; the effectiveness of our advertising initiatives in defining, launching and communicating brand-relevant customer experiences; the level of our indebtedness, including the risks associated with heightened interest rates on the debt and the potential impact on our ability to operate and expand our business; changes in international, federal or state tax, trade and other laws and regulations, including the potential imposition of additional duties; the timing of shipments requested by our wholesale customers; fluctuations and volatility in global financial and/or real estate markets; the timing and cost of retail store and food and beverage location openings and remodels, technology implementations and other capital expenditures, including the timing, cost and successful implementation of changes to our distribution network; pandemics or other public health crises; expected outcomes of pending or potential litigation and regulatory actions; the increased consumer, employee and regulatory focus on environmental, social and governance issues; the regulation or prohibition of goods sourced, or containing raw materials or components, from certain regions and our ability to evidence compliance; access to capital and/or credit markets; factors that could affect our consolidated effective tax rate; the risk of impairment to goodwill and other intangible assets; and geopolitical risks, including those related to the ongoing war in Ukraine and the Israel-Hamas war. Forward-looking statements reflect our expectations at the time such forward-looking statements are made, based on information available at such time, and are not guarantees of performance.
Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I. Item 1A. Risk Factors contained in our Fiscal 2022 Form 10-K, and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
3
DEFINITIONS
As used in this report, unless the context requires otherwise, "our," "us" or "we" means Oxford Industries, Inc. and its consolidated subsidiaries; "SG&A" means selling, general and administrative expenses; "SEC" means the United States Securities and Exchange Commission; "FASB" means the Financial Accounting Standards Board; "ASC" means the FASB Accounting Standards Codification; "GAAP" means generally accepted accounting principles in the United States; "TBBC" means The Beaufort Bonnet Company; and “Fiscal 2022 Form 10-K” means our Annual Report on Form 10-K for Fiscal 2022. Additionally, the terms listed below reflect the respective period noted:
| | |
Fiscal 2024 | | 52 weeks ending February 1, 2025 |
Fiscal 2023 | | 53 weeks ending February 3, 2024 |
Fiscal 2022 | | 52 weeks ended January 28, 2023 |
Fiscal 2021 | | 52 weeks ended January 29, 2022 |
Fourth Quarter Fiscal 2023 | | 14 weeks ending February 3, 2024 |
Third Quarter Fiscal 2023 | | 13 weeks ended October 28, 2023 |
Second Quarter Fiscal 2023 | | 13 weeks ended July 29, 2023 |
First Quarter Fiscal 2023 | | 13 weeks ended April 29, 2023 |
Fourth Quarter Fiscal 2022 | | 13 weeks ended January 28, 2023 |
Third Quarter Fiscal 2022 | | 13 weeks ended October 29, 2022 |
Second Quarter Fiscal 2022 | | 13 weeks ended July 30, 2022 |
First Quarter Fiscal 2022 | | 13 weeks ended April 30, 2022 |
First Nine Months Fiscal 2023 | | 39 weeks ended October 28, 2023 |
First Nine Months Fiscal 2022 | | 39 weeks ended October 29, 2022 |
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par amounts)
(unaudited)
| | | | | | | | | |
|
| October 28, |
| January 28, |
| ||||
| | 2023 | | 2023 | | 2022 | |||
ASSETS | | | | | | | | | |
Current Assets | | | | | | | | | |
Cash and cash equivalents | | $ | i 7,879 | | $ | i 8,826 | | $ | i 14,976 |
Short-term investments | | | — | | | — | | | — |
Receivables, net | |
| i 60,101 | |
| i 43,986 | |
| i 62,230 |
Inventories, net | |
| i 157,524 | |
| i 220,138 | |
| i 171,639 |
Income tax receivable | | | i 19,454 | | | i 19,440 | | | i 19,740 |
Prepaid expenses and other current assets | |
| i 46,421 | |
| i 38,073 | |
| i 30,910 |
Total Current Assets | | $ | i 291,379 | | $ | i 330,463 | | $ | i 299,495 |
Property and equipment, net | |
| i 188,686 | |
| i 177,584 | |
| i 173,391 |
Intangible assets, net | |
| i 273,444 | |
| i 283,845 | |
| i 287,626 |
Goodwill | |
| i 124,230 | |
| i 120,498 | |
| i 116,268 |
Operating lease assets | | | i 246,399 | | | i 240,690 | | | i 237,078 |
Other assets, net | |
| i 38,018 | |
| i 35,585 | |
| i 26,459 |
Total Assets | | $ | i 1,162,156 | | $ | i 1,188,665 | | $ | i 1,140,317 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
| |
|
|
Current Liabilities | |
|
| |
|
| |
|
|
Accounts payable | | $ | i 68,565 | | $ | i 94,611 | | $ | i 72,932 |
Accrued compensation | |
| i 20,219 | |
| i 35,022 | |
| i 36,150 |
Current portion of operating lease liabilities | |
| i 65,224 | |
| i 73,865 | |
| i 62,349 |
Accrued expenses and other liabilities | |
| i 58,504 | |
| i 66,141 | |
| i 58,964 |
Total Current Liabilities | | $ | i 212,512 | | $ | i 269,639 | | $ | i 230,395 |
Long-term debt | |
| i 66,219 | |
| i 119,011 | |
| i 130,449 |
Non-current portion of operating lease liabilities | |
| i 226,238 | |
| i 220,709 | |
| i 225,921 |
Other non-current liabilities | |
| i 20,675 | |
| i 20,055 | |
| i 18,058 |
Deferred income taxes | |
| i 9,399 | |
| i 2,981 | |
| i 2,455 |
Shareholders’ Equity | |
| | |
| | |
| |
Common stock, $ i i i 1.00 / / par value per share | |
| i 15,625 | |
| i 15,774 | |
| i 15,815 |
Additional paid-in capital | |
| i 174,730 | |
| i 172,175 | |
| i 169,063 |
Retained earnings | |
| i 439,755 | |
| i 370,145 | |
| i 351,731 |
Accumulated other comprehensive loss | |
| ( i 2,997) | |
| ( i 1,824) | |
| ( i 3,570) |
Total Shareholders’ Equity | | $ | i 627,113 | | $ | i 556,270 | | $ | i 533,039 |
Total Liabilities and Shareholders’ Equity | | $ | i 1,162,156 | | $ | i 1,188,665 | | $ | i 1,140,317 |
See accompanying notes.
5
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | |
|
| Third Quarter |
| First Nine Months | | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | | ||||
Net sales | | $ | i 326,630 | | $ | i 313,033 | | $ | i 1,167,046 | | $ | i 1,029,044 | |
Cost of goods sold | |
| i 121,211 | |
| i 115,339 | |
| i 417,769 | |
| i 372,824 | |
Gross profit | | $ | i 205,419 | | $ | i 197,694 | | $ | i 749,277 | | $ | i 656,220 | |
SG&A | |
| i 194,822 | |
| i 175,027 | |
| i 603,202 | |
| i 495,574 | |
Royalties and other operating income | |
| i 3,863 | |
| i 4,648 | |
| i 16,360 | |
| i 18,018 | |
Operating income | | $ | i 14,460 | | $ | i 27,315 | | $ | i 162,435 | | $ | i 178,664 | |
Interest expense, net | |
| i 1,217 | |
| i 698 | |
| i 4,856 | |
| i 1,214 | |
Earnings before income taxes | | $ | i 13,243 | | $ | i 26,617 | | $ | i 157,579 | | $ | i 177,450 | |
Income tax expense | |
| i 2,461 | |
| i 6,951 | |
| i 36,806 | |
| i 43,764 | |
Net earnings | | $ | i 10,782 | | $ | i 19,666 | | $ | i 120,773 | | $ | i 133,686 | |
| | | | | | | | | | | | | |
Net earnings per share: | |
|
| |
|
| |
|
| |
|
| |
Basic | | $ | i 0.69 | | $ | i 1.25 | | $ | i 7.75 | | $ | i 8.36 | |
Diluted | | $ | i 0.68 | | $ | i 1.22 | | $ | i 7.57 | | $ | i 8.19 | |
Weighted average shares outstanding: | |
|
| |
|
| |
|
| |
| | |
Basic | |
| i 15,587 | |
| i 15,740 | |
| i 15,589 | |
| i 15,992 | |
Diluted | |
| i 15,787 | |
| i 16,139 | |
| i 15,947 | |
| i 16,333 | |
Dividends declared per share | | $ | i 0.65 | | $ | i 0.55 | | $ | i 1.95 | | $ | i 1.65 | |
See accompanying notes.
6
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | | | | | | | | | | | |
|
| Third Quarter |
| First Nine Months | | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | | ||||
Net earnings | | $ | i 10,782 | | $ | i 19,666 | | $ | i 120,773 | | $ | i 133,686 | |
Other comprehensive income (loss), net of taxes: | |
|
| |
|
| |
|
| |
|
| |
Net foreign currency translation adjustment | |
| ( i 888) | |
| ( i 450) | |
| ( i 1,173) | |
| ( i 98) | |
Comprehensive income | | $ | i 9,894 | | $ | i 19,216 | | $ | i 119,600 | | $ | i 133,588 | |
See accompanying notes.
7
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | |
| | First Nine Months | | ||||
|
| Fiscal 2023 |
| Fiscal 2022 | | ||
Cash Flows From Operating Activities: |
| |
|
| |
|
|
Net earnings | | $ | i 120,773 | | $ | i 133,686 | |
Adjustments to reconcile net earnings to cash flows from operating activities: | |
|
| |
|
| |
Depreciation | |
| i 35,476 | |
| i 31,126 | |
Amortization of intangible assets | |
| i 11,003 | |
| i 2,322 | |
Equity compensation expense | |
| i 11,034 | |
| i 7,796 | |
Gain on sale of assets | | | ( i 1,756) | | | — | |
Amortization and write-off of deferred financing costs | |
| i 465 | |
| i 258 | |
Deferred income taxes | |
| i 6,448 | |
| ( i 456) | |
Changes in operating assets and liabilities, net of acquisitions and dispositions: | |
|
| |
| | |
Receivables, net | |
| ( i 11,651) | |
| ( i 21,230) | |
Inventories, net | |
| i 61,598 | |
| ( i 31,332) | |
Income tax receivable | | | ( i 14) | | | ( i 12) | |
Prepaid expenses and other current assets | |
| ( i 8,337) | |
| ( i 5,644) | |
Current liabilities | |
| ( i 54,468) | |
| ( i 23,271) | |
Other balance sheet changes | |
| ( i 1,173) | |
| ( i 6,988) | |
Cash provided by operating activities | | $ | i 169,398 | | $ | i 86,255 | |
Cash Flows From Investing Activities: | |
|
| |
|
| |
Acquisitions, net of cash acquired | |
| ( i 3,320) | |
| ( i 263,656) | |
Purchases of property and equipment | |
| ( i 54,496) | |
| ( i 32,331) | |
Purchases of short-term investments | | | — | | | ( i 70,000) | |
Proceeds from short-term investments | | | — | | | i 234,837 | |
Proceeds from the sale of property, plant and equipment | | | i 2,125 | | | — | |
Other investing activities | |
| ( i 33) | |
| i 1,450 | |
Cash used in investing activities | | $ | ( i 55,724) | | $ | ( i 129,700) | |
Cash Flows From Financing Activities: | |
|
| |
|
| |
Repayment of revolving credit arrangements | |
| ( i 369,159) | |
| ( i 45,262) | |
Proceeds from revolving credit arrangements | |
| i 316,368 | |
| i 175,711 | |
Deferred financing costs paid | | | ( i 1,661) | | | — | |
Repurchase of common stock | | | ( i 20,045) | | | ( i 86,804) | |
Proceeds from issuance of common stock | |
| i 1,509 | |
| i 1,263 | |
Repurchase of equity awards for employee tax withholding liabilities | |
| ( i 9,941) | |
| ( i 3,166) | |
Cash dividends paid | |
| ( i 31,487) | |
| ( i 26,572) | |
Other financing activities | |
| — | |
| ( i 2,010) | |
Cash used in (provided by) financing activities | | $ | ( i 114,416) | | $ | i 13,160 | |
Net change in cash and cash equivalents | | $ | ( i 742) | | $ | ( i 30,285) | |
Effect of foreign currency translation on cash and cash equivalents | |
| ( i 205) | |
| i 402 | |
Cash and cash equivalents at the beginning of year | |
| i 8,826 | |
| i 44,859 | |
Cash and cash equivalents at the end of period | | $ | i 7,879 | | $ | i 14,976 | |
See accompanying notes.
8
OXFORD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THIRD QUARTER OF FISCAL 2023
i i1. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe the accompanying unaudited condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year due to the seasonality of our business.
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported as assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
iThe significant accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Fiscal 2022 Form 10-K. No recently issued guidance adopted in Fiscal 2023 had a material impact on our consolidated financial statements upon adoption or is expected to have a material impact in future periods. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Fiscal 2022 Form 10-K. Recent accounting pronouncements pending adoption are either not applicable or not expected to have a material impact on our consolidated financial statements.
/ i2. Operating Group Information: We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand’s direct to consumer, wholesale and licensing operations, as applicable. With our acquisition of Johnny Was on September 19, 2022, our business is organized as our Tommy Bahama, Lilly Pulitzer, Johnny Was and Emerging Brands operating groups.
Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, the elimination of any sales between operating groups, any other items that are not allocated to the operating groups, including LIFO inventory accounting adjustments, and the operations of our Lyons, Georgia distribution center and our Oxford America business, which we exited in Fiscal 2022.
9
The table below presents certain financial information (in thousands) about our operating groups, as well as Corporate and Other.
| | | | | | | | | | | | | |
|
| Third Quarter | | First Nine Months | | ||||||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| Fiscal 2023 |
| Fiscal 2022 | | ||||
Net sales |
| | |
| |
|
| |
|
| |
|
|
Tommy Bahama | | $ | i 170,144 | | $ | i 178,645 | | $ | i 655,022 | | $ | i 650,677 | |
Lilly Pulitzer | |
| i 76,290 | |
| i 84,053 | |
| i 265,089 | |
| i 264,763 | |
Johnny Was (1) | | | i 49,105 | | | i 22,661 | | | i 150,619 | | | i 22,661 | |
Emerging Brands | |
| i 31,155 | |
| i 26,912 | |
| i 96,726 | |
| i 88,588 | |
Corporate and Other | |
| ( i 64) | |
| i 762 | |
| ( i 410) | |
| i 2,355 | |
Consolidated net sales | | $ | i 326,630 | | $ | i 313,033 | | $ | i 1,167,046 | | $ | i 1,029,044 | |
| | | | | | | | | | | | | |
Depreciation and amortization | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | i 6,299 | | $ | i 6,576 | | $ | i 18,356 | | $ | i 20,110 | |
Lilly Pulitzer | |
| i 4,372 | |
| i 3,288 | |
| i 11,743 | |
| i 9,384 | |
Johnny Was (1) | | | i 4,684 | | | i 2,184 | | | i 14,593 | | | i 2,184 | |
Emerging Brands | |
| i 504 | |
| i 391 | |
| i 1,389 | |
| i 1,143 | |
Corporate and Other | |
| i 161 | |
| i 197 | |
| i 398 | |
| i 627 | |
Consolidated depreciation and amortization | | $ | i 16,020 | | $ | i 12,636 | | $ | i 46,479 | | $ | i 33,448 | |
| | | | | | | | | | | | | |
Operating income (loss) | |
|
| |
|
| |
|
| |
|
| |
Tommy Bahama | | $ | i 12,097 | | $ | i 18,984 | | $ | i 118,655 | | $ | i 130,508 | |
Lilly Pulitzer | | | i 6,769 | |
| i 12,688 | |
| i 49,851 | |
| i 60,358 | |
Johnny Was (1) | | | i 935 | | | i 117 | | | i 7,266 | | | i 117 | |
Emerging Brands | |
| i 3,709 | |
| i 3,729 | |
| i 10,650 | |
| i 15,456 | |
Corporate and Other | |
| ( i 9,050) | |
| ( i 8,203) | |
| ( i 23,987) | |
| ( i 27,775) | |
Consolidated operating income | |
| i 14,460 | |
| i 27,315 | | $ | i 162,435 | | $ | i 178,664 | |
Interest expense, net | |
| i 1,217 | |
| i 698 | |
| i 4,856 | |
| i 1,214 | |
Earnings before income taxes | | $ | i 13,243 | | $ | i 26,617 | | $ | i 157,579 | | $ | i 177,450 | |
| | | | | | | | | |
|
|
|
| ||||||
Assets |
| |
| | |
|
| |
|
Tommy Bahama (2) | | $ | i 563,564 | | $ | i 569,833 | | $ | i 544,947 |
Lilly Pulitzer (3) | |
| i 192,566 | |
| i 211,119 | |
| i 192,609 |
Johnny Was (4) | | | i 331,131 | | | i 334,603 | | | i 350,212 |
Emerging Brands (5) | |
| i 86,790 | |
| i 91,306 | |
| i 83,280 |
Corporate and Other (6) | |
| ( i 11,895) | |
| ( i 18,196) | |
| ( i 30,731) |
Consolidated Total Assets | | $ | i 1,162,156 | | $ | i 1,188,665 | | $ | i 1,140,317 |
| (1) | The Johnny Was business was acquired on September 19, 2022. Activities for the Third Quarter of Fiscal 2022 and First Nine Months of Fiscal 2022 for Johnny Was consist of six weeks of activity from the acquisition date through October 29, 2022. |
| (2) | Increase in Tommy Bahama total assets from October 29, 2022, includes increases in operating lease assets and property and equipment. |
| (3) | Change in Lilly Pulitzer total assets from October 29, 2022, includes decreases in operating lease assets and receivables partially offset by an increase in property and equipment. |
| (4) | Decrease in Johnny Was total assets from October 29, 2022, includes decreases in intangible assets and cash and cash equivalents. |
| (5) | Increase in Emerging Brands total assets from October 29, 2022, includes increases in operating lease assets. |
| (6) | Increase in Corporate and Other total assets from October 29, 2022, includes increases in prepaid taxes. |
10
The tables below quantify net sales, for each operating group and in total (in thousands), and the percentage of net sales by distribution channel for each operating group and in total, for each period presented. We have calculated all percentages below based on actual data, and percentages may not add to 100 due to rounding.
| | | | | | | | | | | | | | |
| | Third Quarter Fiscal 2023 |
| |||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Food & Beverage |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | i 170,144 |
| i 45 | % | i 21 | % | i 13 | % | i 21 | % | — | % |
Lilly Pulitzer | |
| i 76,290 |
| i 31 | % | i 58 | % | — | % | i 11 | % | — | % |
Johnny Was | | | i 49,105 | | i 39 | % | i 41 | % | — | % | i 20 | % | — | % |
Emerging Brands | |
| i 31,155 |
| i 12 | % | i 41 | % | — | % | i 47 | % | — | % |
Corporate and Other | |
| ( i 64) |
| — | % | — | % | — | % | — | % | NM | % |
Total | | $ | i 326,630 |
| i 37 | % | i 35 | % | i 7 | % | i 21 | % | — | % |
| | | | | | | | | | | | | | |
| | Third Quarter Fiscal 2022 |
| |||||||||||
|
| Net Sales |
| Retail |
| E-commerce |
| Food & Beverage |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | i 178,645 |
| i 44 | % | i 20 | % | i 13 | % | i 23 | % | — | % |
Lilly Pulitzer | |
| i 84,053 |
| i 27 | % | i 62 | % | — | % | i 11 | % | — | % |
Johnny Was (1) | | | i 22,661 | | i 38 | % | i 41 | % | — | | i 21 | % | — | % |
Emerging Brands | |
| i 26,912 |
| i 5 | % | i 40 | % | — | % | i 55 | % | — | % |
Corporate and Other | |
| i 762 |
| — | % | — | % | — | % | — | % | NM | % |
Total | | $ | i 313,033 |
| i 36 | % | i 34 | % | i 7 | % | i 22 | % | — | % |
| | | | | | | | | | | | | | |
| | First Nine Months 2023 |
| |||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Food & Beverage |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | i 655,022 |
| i 45 | % | i 23 | % | i 13 | % | i 19 | % | — | % |
Lilly Pulitzer | |
| i 265,089 |
| i 34 | % | i 51 | % | — | % | i 15 | % | — | % |
Johnny Was | | | i 150,619 | | i 38 | % | i 40 | % | — | % | i 22 | % | — | % |
Emerging Brands | |
| i 96,726 |
| i 10 | % | i 42 | % | — | % | i 48 | % | — | % |
Corporate and Other | |
| ( i 410) |
| — | % | — | % | — | % | — | % | NM | % |
Consolidated net sales | | $ | i 1,167,046 |
| i 38 | % | i 34 | % | i 7 | % | i 21 | % | — | % |
| | | | | | | | | | | | | | |
|
| First Nine Months 2022 |
| |||||||||||
|
| Net Sales |
| Retail |
| E‑commerce |
| Food & Beverage |
| Wholesale |
| Other |
| |
Tommy Bahama | | $ | i 650,677 |
| i 46 | % | i 23 | % | i 12 | % | i 19 | % | — | % |
Lilly Pulitzer | |
| i 264,763 |
| i 34 | % | i 49 | % | — | % | i 17 | % | — | % |
Johnny Was (1) | | | i 22,661 | | i 38 | % | i 41 | % | — | % | i 21 | % | — | % |
Emerging Brands | |
| i 88,588 |
| i 5 | % | i 39 | % | — | % | i 56 | % | — | % |
Corporate and Other | |
| i 2,355 |
| — | % | — | % | — | % | — | % | NM | % |
Consolidated net sales | | $ | i 1,029,044 |
| i 39 | % | i 31 | % | i 8 | % | i 21 | % | — | % |
| (1) | The Johnny Was business was acquired on September 19, 2022. Activities for the Third Quarter of Fiscal 2022 and First Nine Months of Fiscal 2022 for Johnny Was consist of six weeks of activity from the acquisition date through October 29, 2022. |
/
i3. Revenue Recognition and Receivables: Our revenue consists of direct to consumer sales, including our retail store, e-commerce and food and beverage operations, and wholesale sales, as well as royalty income, which is included in royalties and other operating income in our consolidated statements of operations. We recognize revenue when performance obligations under the terms of the contracts with our customers are satisfied. Our accounting policies related to revenue recognition for each type of contract with customers is described in the significant accounting policies described in our Fiscal 2022 Form 10-K.
11
The table below quantifies net sales by distribution channel (in thousands) for each period presented.
| | | | | | | | | | | | | |
|
| Third Quarter |
| First Nine Months |
| ||||||||
| | Fiscal 2023 |
| Fiscal 2022 |
| Fiscal 2023 |
| Fiscal 2022 | | ||||
Retail | | $ | i 121,804 | | $ | i 112,344 | | $ | i 449,546 | | $ | i 402,400 | |
E-commerce | |
| i 113,531 | |
| i 107,756 | |
| i 391,559 | |
| i 323,045 | |
Food & Beverage | |
| i 22,562 | |
| i 23,157 | |
| i 84,097 | |
| i 81,333 | |
Wholesale | |
| i 68,716 | |
| i 69,292 | |
| i 241,857 | |
| i 220,707 | |
Other | |
| i 17 | |
| i 484 | |
| ( i 13) | |
| i 1,559 | |
Net sales | | $ | i 326,630 | | $ | i 313,033 | | $ | i 1,167,046 | | $ | i 1,029,044 | |
An estimated sales return liability of $ i 8 million, $ i 12 million and $ i 9 million for expected direct to consumer returns is classified in accrued expenses and other liabilities in our consolidated balance sheet as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively. As of October 28, 2023, January 28, 2023, and October 29, 2022, prepaid expenses and other current assets included $ i 3 million, $ i 4 million and $ i 4 million, respectively, relating to the estimated value of inventory for expected direct to consumer and wholesale sales returns.
Substantially all amounts recognized in receivables, net represent trade receivables related to contracts with customers. In the ordinary course of our wholesale operations, we offer discounts, allowances and cooperative advertising support to and accept returns from certain of our wholesale customers for certain products. As of October 28, 2023, January 28, 2023, and October 29, 2022, reserve balances recorded as a reduction to receivables related to these items were $ i 3 million, $ i 4 million and $ i 5 million, respectively. As of October 28, 2023, January 28, 2023, and October 29, 2022, our provision for credit losses related to receivables included in our consolidated balance sheets was $ i 1 million, $ i 1 million and $ i 1 million, respectively.
Contract liabilities for gift cards purchased by consumers and merchandise credits received by customers but not yet redeemed, less any breakage income recognized to date, is included in accrued expenses and other liabilities in our consolidated balance sheet and totaled $ i 18 million, $ i 19 million and $ i 17 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively.
i4. Leases: For the Third Quarter of Fiscal 2023, operating lease expense was $ i 18 million and variable lease expense was $ i 10 million, resulting in total lease expense of $ i 28 million compared to $ i 25 million of total lease expense in the Third Quarter of Fiscal 2022. For the First Nine Months of Fiscal 2023, operating lease expense was $ i 53 million and variable lease expense was $ i 32 million, resulting in total lease expense of $ i 85 million compared to $ i 75 million of total lease expense in the First Nine Months of Fiscal 2022.
Cash paid for lease amounts included in the measurement of operating lease liabilities in the First Nine Months of Fiscal 2023 was $ i 61 million, while cash paid for lease amounts included in the measurement of operating lease liabilities in the First Nine Months of Fiscal 2022 was $ i 53 million.
The increase in lease expense and cash paid was primarily driven by the acquisition of Johnny Was.
/12
As of October 28, 2023, the stated lease liability payments for the fiscal years specified below were as follows (in thousands):
| | | |
|
| Operating lease | |
Remainder of 2023 | | $ | i 19,761 |
2024 | | | i 73,791 |
2025 | | | i 58,704 |
2026 | |
| i 52,989 |
2027 | |
| i 39,332 |
2028 | | | i 33,277 |
After 2028 | |
| i 63,417 |
Total lease payments | | $ | i 341,271 |
Less: Difference between discounted and undiscounted lease payments | |
| i 49,809 |
Present value of lease liabilities | | $ | i 291,462 |
/
i5. Income Taxes: For the Third Quarter of Fiscal 2023, our effective income tax rate was i 18.6%, which is lower than a more typical annual effective tax rate of approximately i 25% primarily due to the favorable utilization of research and development tax credits and adjustments to the US taxation on foreign earnings. For the Third Quarter of Fiscal 2022, our effective income tax rate was i 26.1%. Due to the lower earnings during our third quarters as compared to our other fiscal quarters, certain discrete or other items we recognize in the third quarter may have a more pronounced impact resulting in the effective tax rate of the third quarter not being indicative of the effective tax rate for the full fiscal year.
For the First Nine Months of Fiscal 2023, our effective income tax rate was i 23.4%, which is lower than a more typical annual effective tax rate of approximately i 25% primarily due to the significant benefit from the vesting of restricted stock awards at a price higher than the grant date fair value and the favorable utilization of research and development tax credits and adjustments to the US taxation on foreign earnings. For the First Nine Months of Fiscal 2022, our effective income tax rate was i 24.7%. The First Nine Months of Fiscal 2022 included the utilization of certain net operating loss carryforward amounts in certain state and foreign jurisdictions and other items.
Inflation Reduction Act of 2022
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) into law. The IRA implemented a corporate alternative minimum tax, subject to certain thresholds being met, and a 1% excise tax on share repurchases effective beginning January 1, 2023. We do not currently expect that the tax-related provisions of the IRA will have a material effect on our reported results, cash flows or financial position. For the First Nine Months of Fiscal 2023, excise taxes included as part of the price of common stock repurchased during the period did not have a material effect on our reported results.
/ i6. Shareholders’ Equity: From time to time, we repurchase our common stock mainly through open market repurchase plans. During the Third Quarter of Fiscal 2023 and First Nine Months of 2023, we repurchased i 10,000 and i 196,000 shares of our common stock, respectively, as part of an open market repurchase program at a cost of $ i 1 million and $ i 20 million, respectively. The i 10,000 shares repurchased during the Third Quarter of Fiscal 2023 completed the open market repurchase program. During the Third Quarter of Fiscal 2022 and First Nine Months of Fiscal 2022, we repurchased i 146,000 and i 976,000 shares of our common stock, respectively, at a cost of $ i 14 million and $ i 87 million, respectively. The excise taxes included in the cost of shares repurchased during Fiscal 2023 was not material.
We also repurchase shares from our employees to cover employee tax liabilities related to the vesting of shares of our common stock. During the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, we repurchased $ i 10 million and $ i 3 million of shares, respectively, from our employees to cover employee tax liabilities related to the vesting of shares of our common stock.
/13
The following tables detail the changes (in thousands) in our common stock, additional paid-in capital ("APIC"), retained earnings and accumulated other comprehensive (loss) income ("AOCI"), for each period presented.
| | | | | | | | | | | | | | | |
| | Fiscal 2022 | |||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | |||||
| $ | i 16,805 | | $ | i 163,156 | | $ | i 331,175 | | $ | ( i 3,472) | | $ | i 507,664 | |
Comprehensive income | |
| — | |
| — | |
| i 57,408 | |
| i 477 | |
| i 57,885 |
Shares issued under equity plans | |
| i 5 | |
| i 387 | |
| — | |
| — | |
| i 392 |
Compensation expense for equity awards | |
| — | |
| i 2,725 | |
| — | |
| — | |
| i 2,725 |
Repurchase of shares | |
| ( i 526) | |
| ( i 3,131) | |
| ( i 42,375) | |
| — | |
| ( i 46,032) |
Dividends declared | |
| — | |
| — | |
| ( i 9,214) | |
| — | |
| ( i 9,214) |
| $ | i 16,284 | | $ | i 163,137 | | $ | i 336,994 | | $ | ( i 2,995) | | $ | i 513,420 | |
Comprehensive income | |
| — | |
| — | |
| i 56,612 | | | ( i 125) | |
| i 56,487 |
Shares issued under equity plans | |
| i 15 | |
| i 475 | |
| — | |
| — | |
| i 490 |
Compensation expense for equity awards | |
| — | |
| i 2,527 | |
| — | |
| — | |
| i 2,527 |
Repurchase of shares | |
| ( i 339) | |
| — | |
| ( i 29,475) | |
| — | |
| ( i 29,814) |
Dividends declared | |
| — | |
| — | |
| ( i 9,094) | |
| — | |
| ( i 9,094) |
| $ | i 15,960 | | $ | i 166,139 | | $ | i 355,037 | | $ | ( i 3,120) | | $ | i 534,016 | |
Comprehensive income | |
| — | |
| — | |
| i 19,666 | | | ( i 450) | |
| i 19,216 |
Shares issued under equity plans | |
| i 1 | |
| i 379 | |
| — | |
| — | |
| i 380 |
Compensation expense for equity awards | |
| — | |
| i 2,545 | |
| — | |
| — | |
| i 2,545 |
Repurchase of shares | |
| ( i 146) | |
| — | |
| ( i 13,977) | |
| — | |
| ( i 14,123) |
Dividends declared | |
| — | |
| — | |
| ( i 8,995) | |
| — | |
| ( i 8,995) |
| $ | i 15,815 | | $ | i 169,063 | | $ | i 351,731 | | $ | ( i 3,570) | | $ | i 533,039 | |
Comprehensive income | |
| — | |
| — | |
| i 32,049 | |
| i 1,746 | |
| i 33,795 |
Shares issued under equity plans | |
| i 5 | |
| i 332 | |
| — | |
| — | |
| i 337 |
Compensation expense for equity awards | |
| — | |
| i 2,780 | |
| — | |
| — | |
| i 2,780 |
Repurchase of shares | |
| ( i 46) | |
| — | |
| ( i 4,824) | |
| — | |
| ( i 4,870) |
Dividends declared | |
| — | |
| — | |
| ( i 8,811) | |
| — | |
| ( i 8,811) |
| $ | i 15,774 | | $ | i 172,175 | | $ | i 370,145 | | $ | ( i 1,824) | | $ | i 556,270 | |
| | | | | | | | | | | | | | | |
| | First Nine Months Fiscal 2023 | |||||||||||||
|
| Common Stock |
| APIC |
| Retained Earnings |
| AOCI |
| Total | |||||
| $ | i 15,774 | | $ | i 172,175 | | $ | i 370,145 | | $ | ( i 1,824) | | $ | i 556,270 | |
Comprehensive income | |
| — | |
| — | |
| i 58,538 | |
| ( i 604) | |
| i 57,934 |
Shares issued under equity plans | |
| i 6 | |
| i 596 | |
| — | |
| — | |
| i 602 |
Compensation expense for equity awards | |
| — | |
| i 3,259 | |
| — | |
| — | |
| i 3,259 |
Repurchase of shares | |
| — | |
| — | |
| — | |
| — | |
| — |
Dividends declared | |
| — | |
| — | |
| ( i 10,640) | |
| — | |
| ( i 10,640) |
| $ | i 15,780 | | $ | i 176,030 | | $ | i 418,043 | | $ | ( i 2,428) | | $ | i 607,425 | |
Comprehensive income | |
| — | |
| — | |
| i 51,453 | | | i 319 | |
| i 51,772 |
Shares issued under equity plans | |
| i 130 | |
| i 358 | |
| — | |
| — | |
| i 488 |
Compensation expense for equity awards | |
| — | |
| i 4,249 | |
| — | |
| — | |
| i 4,249 |
Repurchase of shares | |
| ( i 280) | |
| ( i 9,848) | |
| ( i 18,800) | |
| — | |
| ( i 28,928) |
Dividends declared | |
| — | |
| — | |
| ( i 10,377) | |
| — | |
| ( i 10,377) |
| $ | i 15,630 | | $ | i 170,789 | | $ | i 440,319 | | $ | ( i 2,109) | | $ | i 624,629 | |
Comprehensive income | |
| — | |
| — | |
| i 10,782 | | | ( i 888) | |
| i 9,894 |
Shares issued under equity plans | |
| i 5 | |
| i 415 | |
| — | |
| — | |
| i 420 |
Compensation expense for equity awards | |
| — | |
| i 3,526 | |
| — | |
| — | |
| i 3,526 |
Repurchase of shares | |
| ( i 10) | |
| — | |
| ( i 1,056) | |
| — | |
| ( i 1,066) |
Dividends declared | |
| — | |
| — | |
| ( i 10,290) | |
| — | |
| ( i 10,290) |
| $ | i 15,625 | | $ | i 174,730 | | $ | i 439,755 | | $ | ( i 2,997) | | $ | i 627,113 | |
14
Long-Term Stock Incentive Plan and Equity Compensation Expense
In recent years, we have granted a combination of service-based restricted share awards and awards based on relative total shareholder return ("TSR") to certain select employees.
Service-Based Restricted Share Awards
The table below summarizes the service-based restricted share awards, including both restricted shares and restricted share units, activity for the First Nine Months of Fiscal 2023:
i
| | | | | | |
|
| First Nine Months of Fiscal 2023 |
| |||
|
| |
| Weighted- |
| |
| | Number of | | average | | |
| | Shares or | | grant date | | |
| | Units | | fair value | | |
Awards outstanding at beginning of year | | i 212,945 | | $ | i 64 | |
Awards granted | | i 60,105 | | $ | i 115 | |
Awards vested, including awards repurchased from employees for employees’ tax liability | | ( i 111,095) | | $ | i 41 | |
Awards forfeited | | ( i 2,670) | | $ | i 80 | |
Awards outstanding on October 28, 2023 | | i 159,285 | | $ | i 99 | |
TSR-based Restricted Share Units
The table below summarizes the TSR-based restricted share unit activity at target for the First Nine Months of Fiscal 2023:
i
| | | | | | |
|
| First Nine Months of Fiscal 2023 |
| |||
|
| |
| Weighted- |
| |
| | | | average | | |
| | Number of | | grant date | | |
| | Share Units | | fair value | | |
TSR-based awards outstanding at beginning of year | | i 196,040 | | $ | i 89 | |
TSR-based awards granted | | i 74,605 | | $ | i 153 | |
TSR-based restricted shares earned and vested, including restricted share units repurchased from employees for employees’ tax liability | | ( i 76,340) | | $ | i 50 | |
TSR-based awards forfeited | | ( i 550) | | $ | i 113 | |
TSR-based awards outstanding on October 28, 2023 | | i 193,755 | | $ | i 129 | |
/
15
7. Business Combinations: On September 19, 2022, we acquired JW Holdings, LLC and its subsidiaries (collectively “Johnny Was”) (the “Acquisition”). We accounted for this transaction as a business combination, which generally requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date.
iThe final estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, were as follows (in thousands):
| | | | | | | | | |
|
| Provisional Amounts at | | Measurement Period Adjustments | | Final Amounts at | |||
Cash and cash equivalents | | $ | i 7,296 | | $ | — | | $ | i 7,296 |
Receivables | |
| i 8,777 | |
| — | |
| i 8,777 |
Inventories | |
| i 23,434 | |
| ( i 28) | |
| i 23,406 |
Prepaid expenses and other assets | |
| i 6,353 | |
| — | |
| i 6,353 |
Property and equipment | |
| i 21,108 | |
| ( i 947) | |
| i 20,161 |
Intangible assets | |
| i 134,640 | |
| — | |
| i 134,640 |
Goodwill | |
| i 96,637 | |
| i 2,599 | |
| i 99,236 |
Operating lease assets | | | i 54,859 | | | — | | | i 54,859 |
Accounts payable, accrued expenses and other liabilities | |
| ( i 34,777) | |
| i 699 | |
| ( i 34,078) |
Non-current portion of operating lease liabilities | | | ( i 47,009) | | | — | | | ( i 47,009) |
Purchase price | | $ | i 271,318 | | $ | i 2,323 | | $ | i 273,641 |
We made measurement-period adjustments, as shown in the table above, that increased the amount of provisional goodwill by $ i 3 million. Substantially all of the goodwill is deductible for income tax purposes.
iIntangible assets allocated in connection with our purchase price allocation consisted of the following (in thousands):
| | | | | |
|
| |
| Johnny Was | |
| | Useful life | | acquisition | |
Finite lived intangible assets acquired, primarily consisting of customer relationships |
| 8 - i 13 years | | $ | i 56,740 |
Trade names and trademarks |
| Indefinite | |
| i 77,900 |
| | | | $ | i 134,640 |
i The following unaudited pro forma information (in thousands, except per share data) shows the results of our operations for the Third Quarter of Fiscal 2022 and First Nine Months of 2022 as if the acquisition of Johnny Was had occurred at the beginning of Fiscal 2021. The information presented below is for illustrative purposes only, is not indicative of results that would have been achieved if the acquisition had occurred as of that date and is not intended to be a projection of future results of operations. The following unaudited pro forma information has been prepared from historical financial statements for Johnny Was and us for the periods presented, including without limitation, purchase accounting adjustments, but excluding any seller specific management/advisory or similar expenses and any synergies or operating cost reductions that may be achieved from the combined operations in the future.
| | | | | | | | | | | | |
|
| Third Quarter Fiscal 2022 |
| First Nine Months of Fiscal 2022 | ||||||||
| | Actual | | Pro Forma | | Actual | | Pro Forma | ||||
Net sales |
| $ | i 313,033 |
| $ | i 344,058 |
| $ | i 1,029,044 |
| $ | i 1,163,889 |
Earnings before income taxes | | $ | i 26,617 | | $ | i 34,444 | | $ | i 177,450 | | $ | i 196,700 |
Net earnings | | $ | i 19,666 | | $ | i 25,536 | | $ | i 133,686 | | $ | i 148,124 |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | i 1.25 | | $ | i 1.62 | | $ | i 8.36 | | $ | i 9.26 |
Diluted | | $ | i 1.22 | | $ | i 1.58 | | $ | i 8.19 | | $ | i 9.07 |
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i8. Debt: On March 6, 2023, we entered into a Second Amendment to the Fourth Amended and Restated Credit Agreement (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a revolving credit facility of up to $ i 325 million, which may be used to fund working capital, to fund future acquisitions and for general
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corporate purposes. The Revolving Credit Agreement amended and restated our Fourth Amended and Restated Credit Agreement (the “Prior Credit Agreement”). The Revolving Credit Agreement (1) extended the maturity of the facility from July 2024 to March 2028 and (2) modified certain provisions of the agreement. In other non-current assets, we capitalized debt issuance costs of $ i 2 million in connection with commitments upon entering into the Revolving Credit Agreement.
Pursuant to the Revolving Credit Agreement, the interest rate applicable to our borrowings under the Revolving Credit Agreement are based on either the Term Secured Overnight Financing Rate plus an applicable margin of i 135 to i 185 basis points or prime plus an applicable margin of i 25 to i 75 basis points.
The Revolving Credit Agreement generally (1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (2) accrues variable-rate interest (weighted average interest rate of i 7% as of October 28, 2023), unused line fees and letter of credit fees based upon average utilization or unused availability, as applicable, (3) requires periodic interest payments with principal due at maturity and (4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
We have issued standby letters of credit of $ i 6 million in the aggregate under the Revolving Credit Agreement as of October 28, 2023. Outstanding letters of credit under the Revolving Credit Agreement reduce the amount of borrowings available to us.
As of October 28, 2023, we had $ i 66 million of borrowings outstanding and $ i 253 million in unused availability under the Revolving Credit Agreement. Under the Prior Credit Agreement as of January 28, 2023, and October 29, 2022, we had $ i 119 million and $ i 130 million of borrowings outstanding, and $ i 199 million and $ i 160 million of unused availability, respectively.
Compliance with Covenants
The Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (1) incur debt, (2) guaranty certain obligations, (3) incur liens, (4) pay dividends to shareholders, (5) repurchase shares of our common stock, (6) make investments, (7) sell assets or stock of subsidiaries, (8) acquire assets or businesses, (9) merge or consolidate with other companies or (10) prepay, retire, repurchase or redeem debt.
Additionally, the Revolving Credit Agreement contains a financial covenant that applies only if excess availability under the agreement for three consecutive business days is less than the greater of (1) $ i 23.5 million or (2) i 10% of availability. In such case, our fixed charge coverage ratio as defined in the Revolving Credit Agreement must not be less than i 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the Revolving Credit Agreement of more than the greater of (1) $ i 23.5 million or (2) i 10% of availability for 30 consecutive days.
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we amended the Revolving Credit Agreement. During Fiscal 2023 and as of October 28, 2023, no financial covenant testing was required pursuant to our Revolving Credit Agreement, or the Prior Credit Agreement, as applicable, as the minimum availability threshold was met at all times. As of October 28, 2023, we were compliant with all applicable covenants related to the Revolving Credit Agreement.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Fiscal 2022 Form 10-K.
OVERVIEW
Business Overview
We are a leading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, TBBC and Duck Head lifestyle brands.
Our business strategy is to drive excellence across a portfolio of lifestyle brands that create sustained, profitable growth. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude. Furthermore, we believe lifestyle brands that create an emotional connection can command greater loyalty and higher price points and create licensing opportunities. We believe the attraction of a lifestyle brand depends on creating compelling product, effectively communicating the respective lifestyle brand message and distributing products to consumers where and when they want them. We believe the principal competitive factors in the apparel industry are the reputation, value, and image of brand names; design of differentiated, innovative or otherwise compelling product; consumer preference; price; quality; marketing (including through rapidly shifting digital and social media vehicles); product fulfillment capabilities; and customer service. Our ability to compete successfully in the apparel industry is dependent on our proficiency in foreseeing changes and trends in fashion and consumer preference and presenting appealing products for consumers. Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated fashion products each season as well as certain core products that consumers expect from us.
On September 19, 2022, we acquired Johnny Was. Johnny Was products are sold through the Johnny Was website and full-price retail stores and outlets as well as select department stores and specialty stores. We continue to execute acquisition and integration activities in connection with the Johnny Was acquisition, such as investing in technology infrastructure. The financial information included in the results of operations discussion below for the Third Quarter of Fiscal 2022 and the First Nine Months of Fiscal 2022, includes only the six weeks from the September 19, 2022 acquisition through October 29, 2022. Therefore, the amounts included in the results of operations below for the Third Quarter of Fiscal 2022 and the First Nine Months of Fiscal 2022 are not indicative of results for a full quarter or a nine month period.
During Fiscal 2022, 80% of our consolidated net sales were through our direct to consumer channels of distribution, which consist of our brand specific full-price retail stores, e-commerce websites and outlets, as well as our Tommy Bahama food and beverage operations. The remaining 20% of our net sales was generated through our wholesale distribution channels, which complement our direct to consumer operations and provide access to a larger base of consumers. Our wholesale operations consist of sales of products bearing the trademarks of our lifestyle brands to various specialty stores, better department stores, Signature Stores, multi-branded e-commerce retailers and other retailers.
For additional information about our business and our operating groups, see Part I, Item 1. Business of our Fiscal 2022 Form 10-K. Important factors relating to certain risks which could impact our business are described in Part I. Item 1A. Risk Factors of our Fiscal 2022 Form 10-K.
Industry Overview
We operate in a highly competitive apparel market that continues to evolve rapidly with the expanding application of technology to fashion retail. No single apparel firm or small group of apparel firms dominates the apparel industry, and our competitors vary by operating group and distribution channel. The apparel industry is cyclical and very dependent on the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional,
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domestic and international economic conditions change. Also, in recent years consumers have chosen to spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries due, in part, to apparel purchases often being more of a discretionary purchase.
This competitive and evolving environment requires that brands and retailers approach their operations, including marketing and advertising, very differently than they have historically and may result in increased operating costs and investments to generate growth or even maintain existing sales levels. While the competition and evolution present significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers to capitalize on the changing consumer environment.
The current macroenvironment, with heightened concerns about continuing inflationary trends, a global economic recession, geopolitical issues, the availability and cost of credit and continued increases in interest rates, combined with heightened promotional activity in our industry, is creating a complex and challenging retail environment, which has impacted our businesses and financial results during Fiscal 2023 and exacerbated some of the inherent challenges to our operations. There remains significant uncertainty in the macroeconomic environment, and the impact of these and other factors could have a major effect on our businesses.
However, we believe our lifestyle brands have true competitive advantages, and we continue to invest in our brands’ direct to consumer initiatives and distribution capabilities while further leveraging technology to serve our consumers when and where they want to be served. We continue to believe that our lifestyle brands, with their strong emotional connections with consumers, are well suited to succeed and thrive in the long term while managing the various challenges facing our industry in the current environment.
Key Operating Results:
The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First Nine Months of Fiscal 2023 compared to the First Nine Months of Fiscal 2022:
| | | | | | |
|
| First Nine Months | ||||
|
| Fiscal 2023 | | Fiscal 2022 | ||
Net sales | | $ | 1,167,046 | | $ | 1,029,044 |
Operating income | | $ | 162,435 | | $ | 178,664 |
Net earnings | | $ | 120,773 | | $ | 133,686 |
Net earnings per diluted share | | $ | 7.57 | | $ | 8.19 |
Weighted average shares outstanding - diluted | |
| 15,947 | |
| 16,333 |
Net earnings per diluted share were $7.57 in the First Nine Months of Fiscal 2023 compared to $8.19 in the First Nine Months of Fiscal 2022. The 8% decrease in net earnings per diluted share included a 10% decrease in net earnings as well as a 2% reduction in weighted average shares outstanding due to open market share repurchases in Fiscal 2022 and Fiscal 2023. The decreased net earnings were primarily due to (1) lower operating income at Tommy Bahama, Lilly Pulitzer, and Emerging Brands and (2) increased interest expense. These decreases were partially offset by (1) the inclusion of the operating income of Johnny Was in the First Nine Months of 2023, (2) a lower operating loss at Corporate and Other and (3) a lower effective tax rate.
COMPARABLE SALES
We often disclose comparable sales to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable sales include net sales from our full-price retail stores and e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both full-price retail stores and e-commerce sites in the comparable sales disclosures is a more meaningful way of reporting our comparable sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channels. For our comparable sales disclosures, we exclude (1) outlet store sales and e-commerce flash clearance sales, as those clearance sales are used primarily to liquidate end of
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season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales, and (2) food and beverage sales, as we do not currently believe that the inclusion of food and beverage sales in our comparable sales disclosures is meaningful in assessing our branded apparel businesses. Comparable sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
For purposes of our disclosures, comparable sales consists of sales through e-commerce sites and any physical full-price retail stores that were owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel or other event which would result in a closure for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space or (3) a relocation to a new space that is significantly different from the prior retail space. For those stores which are excluded based on the preceding sentence, the stores continue to be excluded from comparable sales until the criteria for a new store is met subsequent to the remodel, relocation, or other event. A full-price retail store that is remodeled will generally continue to be included in our comparable sales metrics as a store is not typically closed for longer than a two-week period during a remodel; however, a full-price retail store that is relocated generally will not be included in our comparable sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year because the size or other characteristics of the store typically change significantly from the prior location. Any stores that were closed during the prior fiscal year or current fiscal year, or which we expect to close or vacate in the current fiscal year, as well as any pop-up or temporary store locations, are excluded from our comparable sales metrics.
Definitions and calculations of comparable sales differ among companies, and therefore comparable sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies.
DIRECT TO CONSUMER LOCATIONS
The table below provides information about the number of direct to consumer locations for our brands as of the dates specified. For Johnny Was, locations are only included subsequent to the date of acquisition. The amounts below include our permanent locations and exclude any pop-up or temporary store locations which have an initial lease term of 12 months or less.
| | | | | | | | |
| | October 28, | | January 28, | | October 29, | | |
|
| 2023 |
| 2023 |
| 2022 |
| 2022 |
Tommy Bahama full-price retail stores |
| 102 |
| 103 |
| 102 |
| 102 |
Tommy Bahama retail-food & beverage locations |
| 21 |
| 21 |
| 21 |
| 21 |
Tommy Bahama outlets |
| 34 |
| 33 |
| 35 |
| 35 |
Total Tommy Bahama locations |
| 157 |
| 157 |
| 158 |
| 158 |
Lilly Pulitzer full-price retail stores |
| 61 |
| 59 |
| 59 |
| 58 |
Johnny Was full-price retail stores | | 71 | | 65 | | 64 | | — |
Johnny Was outlets | | 2 | | 2 | | 2 | | — |
Total Johnny Was locations | | 73 | | 67 | | 66 | | — |
Southern Tide full-price retail stores | | 15 | | 6 | | 5 | | 4 |
TBBC full-price retail stores | | 3 | | 3 | | 2 | | 1 |
Total Oxford direct to consumer locations |
| 309 |
| 292 |
| 290 |
| 221 |
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022
The discussion and tables below compare our statements of operations for the Third Quarter of Fiscal 2023 to the Third Quarter of Fiscal 2022. Each dollar and percentage change provided reflects the change between these fiscal periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. We have calculated all percentages based on actual data, and percentage columns in tables may not add due to rounding. Individual line items of our consolidated statements of operations, including gross profit, may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
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The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to the same period of the prior year. The table also includes net earnings per diluted share and diluted weighted average shares outstanding (in thousands), as well as the change and the percentage change for each of these items as compared to the same period of the prior year.
| | | | | | | | | | | | | | | | | | |
|
| Third Quarter |
|
| | | | |
| |||||||||
| | Fiscal 2023 | | | Fiscal 2022 | | | $ Change |
| % Change | | |||||||
| | | | | | | | | | | | | | | | | | |
Net sales |
| $ | 326,630 |
| 100.0 | % | | $ | 313,033 | | 100.0 | % | | $ | 13,597 |
| 4.3 | % |
Cost of goods sold | |
| 121,211 |
| 37.1 | % | |
| 115,339 |
| 36.8 | % | |
| 5,872 |
| 5.1 | % |
Gross profit | | $ | 205,419 |
| 62.9 | % | | $ | 197,694 |
| 63.2 | % | | $ | 7,725 |
| 3.9 | % |
SG&A | |
| 194,822 |
| 59.6 | % | |
| 175,027 |
| 55.9 | % | |
| 19,795 |
| 11.3 | % |
Royalties and other operating income | |
| 3,863 |
| 1.2 | % | |
| 4,648 |
| 1.5 | % | |
| (785) |
| (16.9) | % |
Operating income | | $ | 14,460 |
| 4.4 | % | | $ | 27,315 |
| 8.7 | % | | $ | (12,855) |
| (47.1) | % |
Interest expense, net | |
| 1,217 |
| 0.4 | % | |
| 698 |
| 0.2 | % | |
| 519 |
| 74.4 | % |
Earnings before income taxes | | $ | 13,243 |
| 4.1 | % | | $ | 26,617 |
| 8.5 | % | | $ | (13,374) |
| (50.2) | % |
Income tax expense | |
| 2,461 |
| 0.8 | % | |
| 6,951 |
| 2.2 | % | |
| (4,490) |
| (64.6) | % |
Net earnings | | $ | 10,782 |
| 3.3 | % | | $ | 19,666 |
| 6.3 | % | | $ | (8,884) |
| (45.2) | % |
Net earnings per diluted share | | $ | 0.68 | | | | | $ | 1.22 | | | | | $ | (0.54) | | (44.3) | % |
Weighted average shares outstanding - diluted | | | 15,787 |
| | | | | 16,139 |
| | | | | (352) |
| (2.2) | % |
Net Sales
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | | |||||
| | Fiscal 2023 | | Fiscal 2022 |
| $ Change |
| % Change | | |||
Tommy Bahama | | $ | 170,144 | | $ | 178,645 | | $ | (8,501) |
| (4.8) | % |
Lilly Pulitzer | |
| 76,290 | |
| 84,053 | |
| (7,763) |
| (9.2) | % |
Johnny Was | | | 49,105 | |
| 22,661 | |
| 26,444 |
| NM | % |
Emerging Brands | |
| 31,155 | |
| 26,912 | |
| 4,243 |
| 15.8 | % |
Corporate and Other | |
| (64) | |
| 762 | |
| (826) |
| (108.4) | % |
Consolidated net sales | | $ | 326,630 | | $ | 313,033 | | $ | 13,597 |
| 4.3 | % |
Consolidated net sales were $327 million in the Third Quarter of Fiscal 2023 compared to net sales of $313 million in the Third Quarter of Fiscal 2022. The 4% increase in net sales included (1) a $26 million increase in sales for Johnny Was, which we owned for six out of the thirteen weeks of the Third Quarter of Fiscal 2022, and (2) increased sales in Emerging Brands. These increases were partially offset by decreased sales in Tommy Bahama and Lilly Pulitzer.
The increase in net sales by distribution channel consisted of the following:
| ● | an increase in full-price e-commerce sales of $9 million, or 11%, including (1) an $11 million increase in Johnny Was, (2) a $2 million increase in Emerging Brands and (3) a $1 million increase in Tommy Bahama. These increases were partially offset by a $5 million decrease in Lilly Pulitzer; |
| ● | an increase in full-price retail sales of $8 million, or 8%, including (1) a $10 million increase in Johnny Was, (2) a $2 million increase in Emerging Brands as we opened new retail locations and (3) a $1 million increase in Lilly Pulitzer. These increases were partially offset by a $5 million decrease in Tommy Bahama; |
| ● | an increase in outlet sales of $2 million, or 13%, including (1) a $1 million increase in Tommy Bahama and (2) a $1 million increase in Johnny Was; |
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| ● | a decrease in Lilly Pulitzer e-commerce flash clearance sales of $3 million, or 10%; |
| ● | a decrease in wholesale sales of $1 million, or 1%, including (1) a $4 million decrease in Tommy Bahama and (2) a $1 million decrease in Lilly Pulitzer. These decreases were partially offset by a $5 million increase in Johnny Was; and |
| ● | a decrease in food and beverage sales of $1 million, or 3%. |
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented. We have calculated all percentages below on actual data, and percentages may not add to 100 due to rounding.
| | | | | |
|
| Third Quarter |
| ||
| | Fiscal 2023 |
| Fiscal 2022 | |
Retail |
| 37 | % | 36 | % |
E-commerce |
| 35 | % | 34 | % |
Food & beverage |
| 7 | % | 7 | % |
Wholesale |
| 21 | % | 22 | % |
Total |
| 100 | % | 100 | % |
Tommy Bahama:
Tommy Bahama net sales decreased $9 million, or 5%, in the Third Quarter of Fiscal 2023, with a decrease in (1) full-price retail sales of $5 million, or 8%, (2) wholesale sales of $4 million, or 11% and (3) food and beverage sales of $1 million, or 3%, primarily due to remodels of certain locations and the impact of the Maui wildfires. These decreases were partially offset by an increase in (1) outlet sales of $1 million, or 6%, and (2) e-commerce sales of $1 million, or 1%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 45 | % | 44 | % |
E-commerce |
| 21 | % | 20 | % |
Food & beverage |
| 13 | % | 13 | % |
Wholesale |
| 21 | % | 23 | % |
Total |
| 100 | % | 100 | % |
Lilly Pulitzer:
Lilly Pulitzer net sales decreased $8 million, or 9%, in the Third Quarter of Fiscal 2023, with a decrease in (1) full-price e-commerce sales of $5 million, or 19%, (2) e-commerce flash sales of $3 million, or 10% and (3) wholesale sales of $1 million, or 10%. These decreases were partially offset by an increase in retail sales of $1 million, or 3%. The increase in retail sales was partially driven by the participation of Lilly Pulitzer’s retail stores in the September 2023 flash clearance sale. Lilly Pulitzer’s retail stores did not participate in the flash sale during the Third Quarter of Fiscal 2022. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 31 | % | 27 | % |
E-commerce |
| 58 | % | 62 | % |
Wholesale |
| 11 | % | 11 | % |
Total |
| 100 | % | 100 | % |
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Johnny Was:
Johnny Was net sales were $49 million in the Third Quarter of Fiscal 2023. We owned Johnny Was for six out of the thirteen weeks of the Third Quarter of Fiscal 2022. The following table presents the proportion of net sales by distribution channel for Johnny Was for each period presented:
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 39 | % | 38 | % |
E-commerce |
| 41 | % | 41 | % |
Wholesale |
| 20 | % | 21 | % |
Total |
| 100 | % | 100 | % |
Emerging Brands:
Emerging Brands net sales increased $4 million, or 16%, in the Third Quarter of Fiscal 2023 with increased sales in Southern Tide and Duck Head partially offset by decreased sales at TBBC. By distribution channel, the $4 million increase included increases of (1) $2 million, or 196%, in retail sales as we opened new retail locations and (2) $2 million, or 18%, in e-commerce sales. The following table presents the proportion of net sales by distribution channel for Emerging Brands for each period presented:
| | | | | |
| | Third Quarter | | ||
|
| Fiscal 2023 |
| Fiscal 2022 | |
Retail | | 12 | % | 5 | % |
E-commerce |
| 41 | % | 40 | % |
Wholesale |
| 47 | % | 55 | % |
Total |
| 100 | % | 100 | % |
Corporate and Other:
Corporate and Other net sales primarily consist of net sales of our Lyons, Georgia distribution center business, our Oxford America business, which we exited in Fiscal 2022, and the elimination of any sales between operating groups.
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Gross Profit
The tables below present gross profit by operating group and in total for the Third Quarter of Fiscal 2023 and the Third Quarter of Fiscal 2022, as well as the dollar change and percentage change between those two periods, and gross margin by operating group and in total. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | | | ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Tommy Bahama | | $ | 111,194 | | $ | 115,641 | | $ | (4,447) |
| (3.8) | % |
Lilly Pulitzer | |
| 47,094 | |
| 52,993 | |
| (5,899) |
| (11.1) | % |
Johnny Was | |
| 33,775 | |
| 14,597 | |
| 19,178 |
| NM | % |
Emerging Brands | |
| 16,799 | |
| 13,426 | |
| 3,373 |
| 25.1 | % |
Corporate and Other | |
| (3,443) | |
| 1,037 | |
| (4,480) |
| NM | % |
Consolidated gross profit | | $ | 205,419 | | $ | 197,694 | | $ | 7,725 |
| 3.9 | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 3,529 | | $ | (650) | |
|
|
|
| |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
| | | | | |
|
| Third Quarter | | ||
| | Fiscal 2023 | | Fiscal 2022 | |
Tommy Bahama |
| 65.4 | % | 64.7 | % |
Lilly Pulitzer |
| 61.7 | % | 63.0 | % |
Johnny Was | | 68.8 | % | 64.4 | % |
Emerging Brands |
| 53.9 | % | 49.9 | % |
Corporate and Other |
| NM | % | NM | % |
Consolidated gross margin |
| 62.9 | % | 63.2 | % |
The increased gross profit of 4% was primarily due to the 4% increase in net sales. The decreased gross margin included (1) a $4 million higher LIFO accounting charge in the Third Quarter of Fiscal 2023 compared to the Third Quarter of Fiscal 2022 and (2) full-price e-commerce sales representing a lower proportion of net sales in Lilly Pulitzer. These decreases were partially offset by (1) increased sales and higher gross margins in Johnny Was, (2) higher gross margin in Emerging Brands resulting from lower inventory markdowns, (3) lower freight costs and (4) the lack of the $1 million inventory step up charge in cost of goods sold related to the Johnny Was acquisition in the Third Quarter of Fiscal 2022.
Tommy Bahama:
The higher gross margin for Tommy Bahama was primarily due to (1) lower freight costs, (2) a change in sales mix with wholesale sales representing a smaller proportion of net sales and (3) increased outlet gross margins.
Lilly Pulitzer:
The lower gross margin for Lilly Pulitzer was primarily due to (1) full-price e-commerce sales representing a lower proportion of net sales, (2) increased e-commerce shipping costs and (3) higher loyalty reward discounts driven by the new loyalty program implemented in 2023. These decreases were partially offset by increased initial product margins.
Johnny Was:
Gross margin for the Third Quarter of Fiscal 2023 was 68.8% compared to 64.4% for the Third Quarter of Fiscal 2022. The Johnny Was gross profit and gross margin for the Third Quarter of 2022 was unfavorably impacted by the $1
24
million of incremental cost of goods sold resulting from the charge related to the step up of inventory to fair value at acquisition.
Emerging Brands:
The higher gross margin for Emerging Brands was primarily due to a change in sales mix with direct to consumer sales representing a larger proportion of net sales. This increase was partially offset by lower gross margin on wholesale sales due to off-price wholesale sales of previously marked down inventory representing a greater proportion of wholesale sales.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the impact of LIFO accounting adjustments and the gross profit of the Lyons, Georgia distribution center and Oxford America businesses. The primary driver for the decreased gross profit was the $4 million higher LIFO accounting charge. The LIFO accounting impact in Corporate and Other in each period includes the net impact of (1) a charge in Corporate and Other when inventory that had been marked down in an operating group in a prior period was ultimately sold, (2) a credit in Corporate and Other when inventory had been marked down in an operating group in the current period, but had not been sold as of period end and (3) the change in the LIFO reserve, if any.
SG&A
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
SG&A | | $ | 194,822 | | $ | 175,027 | | $ | 19,795 |
| 11.3 | % |
SG&A (as a % of net sales) | |
| 59.6 | % |
| 55.9 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 3,463 | | $ | 1,641 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | — | | $ | 2,783 | | | | | | |
SG&A was $195 million in the Third Quarter of Fiscal 2023 compared to $175 million in the Third Quarter of Fiscal 2022, with approximately $18 million, or 93%, of the increase due to the SG&A of Johnny Was that we owned for six out of the thirteen weeks of the Third Quarter of Fiscal 2022. The 11% increase in total SG&A in the Third Quarter of Fiscal 2023 included the following, each of which includes the SG&A of Johnny Was: (1) increased employment costs of $10 million, primarily due to increased head count, pay rate increases and other employment cost increases, including in our direct to consumer and distribution center operations partially offset by lower incentive compensation amounts, (2) a $3 million increase in advertising expense, (3) a $3 million increase in occupancy expenses, (4) a $2 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (5) a $2 million increase in amortization of intangible assets and (6) a $2 million increase in depreciation expense. These increases were partially offset by a $4 million decrease in administrative expenses including professional fees, travel and other items.
Royalties and other operating income
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Royalties and other operating income | | $ | 3,863 | | $ | 4,648 | | $ | (785) |
| (16.9) | % |
Royalties and other operating income typically consists primarily of income received from third parties from the licensing of our brands. The decreased royalties and other operating income in the Third Quarter of Fiscal 2023 was primarily due to decreased royalty income in Tommy Bahama reflecting the lower sales of our licensing partners.
25
Operating income (loss)
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Tommy Bahama | | $ | 12,097 | | $ | 18,984 | | $ | (6,887) |
| (36.3) | % |
Lilly Pulitzer | |
| 6,769 | |
| 12,688 | |
| (5,919) |
| (46.7) | % |
Johnny Was | | | 935 | | | 117 | | | 818 |
| NM | % |
Emerging Brands | |
| 3,709 | |
| 3,729 | |
| (20) |
| (0.5) | % |
Corporate and Other | |
| (9,050) | |
| (8,203) | |
| (847) |
| NM | % |
Consolidated operating income | | $ | 14,460 | | $ | 27,315 | | $ | (12,855) |
| (47.1) | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 3,529 | | $ | (650) | |
|
|
|
| |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 3,463 | | $ | 1,641 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | — | | $ | 2,783 | | | | | | |
Operating income was $14 million in the Third Quarter of Fiscal 2023 compared to $27 million in the Third Quarter of Fiscal 2022. The decreased operating income included (1) lower operating income in Tommy Bahama, Lilly Pulitzer, and Emerging Brands and (2) a higher operating loss in Corporate and Other. These decreases were partially offset by the increased operating income of Johnny Was. Changes in operating income (loss) by operating group are discussed below.
Tommy Bahama:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Net sales | | $ | 170,144 | | $ | 178,645 | | $ | (8,501) |
| (4.8) | % |
Gross profit | | $ | 111,194 | | $ | 115,641 | | $ | (4,447) | | (3.8) | % |
Gross margin | |
| 65.4 | % |
| 64.7 | % |
|
|
|
| |
Operating income | | $ | 12,097 | | $ | 18,984 | | $ | (6,887) |
| (36.3) | % |
Operating income as % of net sales | |
| 7.1 | % |
| 10.6 | % |
|
|
|
| |
The decreased operating income for Tommy Bahama was due to (1) decreased net sales, (2) increased SG&A and (3) lower royalty income. These decreases were partially offset by higher gross margin. The increased SG&A was primarily due to $3 million in increased employment costs. This increase was partially offset by decreases in advertising expenses, variable expenses and administrative expenses including professional fees, travel and other items.
Lilly Pulitzer:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Net sales | | $ | 76,290 | | $ | 84,053 | | $ | (7,763) |
| (9.2) | % |
Gross profit | | $ | 47,094 | | $ | 52,993 | | $ | (5,899) | | (11.1) | % |
Gross margin | |
| 61.7 | % |
| 63.0 | % |
|
|
|
| |
Operating income | | $ | 6,769 | | $ | 12,688 | | $ | (5,919) |
| (46.7) | % |
Operating income as % of net sales | |
| 8.9 | % |
| 15.1 | % |
|
|
|
| |
The decreased operating income for Lilly Pulitzer was due to (1) decreased net sales, (2) lower gross margin and (3) lower royalty income. SG&A was comparable in the Third Quarter of 2023 and the Third Quarter of 2022 with a $1 million decrease in administrative expenses including professional fees, travel and other items offset by a $1 million increase in depreciation expenses.
26
Johnny Was:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Net sales | | $ | 49,105 | | $ | 22,661 | | $ | 26,444 |
| NM | % |
Gross profit | | $ | 33,775 | | $ | 14,597 | | $ | 19,178 | | NM | % |
Gross margin | |
| 68.8 | % |
| 64.4 | % |
|
|
|
| |
Operating income | | $ | 935 | | $ | 117 | | $ | 818 |
| NM | % |
Operating income as % of net sales | |
| 1.9 | % |
| 0.5 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 3,463 | | $ | 1,641 | | | | | | |
Operating income for the Third Quarter of Fiscal 2023 includes $3 million of amortization of intangible assets associated with the acquired operations of Johnny Was. In the Third Quarter of Fiscal 2022, the acquired operations of Johnny Was were negatively impacted by (1) $2 million of amortization of intangible assets and (2) $1 million of inventory step-up charges resulting from the acquisition.
Emerging Brands:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Net sales | | $ | 31,155 | | $ | 26,912 | | $ | 4,243 |
| 15.8 | % |
Gross profit | | $ | 16,799 | | $ | 13,426 | | $ | 3,373 | | 25.1 | % |
Gross margin | |
| 53.9 | % |
| 49.9 | % |
|
|
|
| |
Operating income | | $ | 3,709 | | $ | 3,729 | | $ | (20) |
| (0.5) | % |
Operating income as % of net sales | |
| 11.9 | % |
| 13.9 | % |
|
|
|
| |
| | | | | | | | | | | | |
The comparable operating income for Emerging Brands was primarily due to increased SG&A partially offset by higher sales and gross margin. The increased SG&A included (1) higher SG&A associated with new retail store operations, including related employment costs, occupancy costs and administrative expenses, (2) higher advertising expense and (3) increased variable expenses resulting from increased sales.
Corporate and Other:
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Net sales | | $ | (64) | | $ | 762 | | $ | (826) |
| (108.4) | % |
Gross profit | | $ | (3,443) | | $ | 1,037 | | $ | (4,480) | | NM | % |
Operating loss | | $ | (9,050) | | $ | (8,203) | | $ | (847) |
| NM | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 3,529 | | $ | (650) | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition | | $ | — | | $ | 2,783 | | | | | | |
The increased operating loss in Corporate and Other was primarily a result of a higher net LIFO accounting charge in the Third Quarter of Fiscal 2023. The higher LIFO accounting charge was partially offset by lower SG&A, including decreased incentive compensation amounts. The Third Quarter of Fiscal 2022 also included $3 million of transaction expenses and integration costs associated with the Johnny Was acquisition.
Interest expense, net
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Interest expense, net | | $ | 1,217 | | $ | 698 | | $ | 519 |
| 74.4 | % |
The higher interest expense in the Third Quarter of Fiscal 2023 was primarily due to a higher average outstanding debt balance during the Third Quarter of Fiscal 2023 than the Third Quarter of Fiscal 2022. We utilized debt to fund a
27
portion of the Johnny Was acquisition on September 19, 2022. There was no debt outstanding in the Third Quarter of Fiscal 2022 prior to the acquisition of Johnny Was.
Income tax
| | | | | | | | | | | | |
|
| Third Quarter |
| | | | |
| ||||
| | Fiscal 2023 |
| Fiscal 2022 | | $ Change |
| % Change | | |||
Income tax expense | | $ | 2,461 | | $ | 6,951 | | $ | (4,490) |
| (64.6) | % |
Effective tax rate | |
| 18.6 | % |
| 26.1 | % |
|
|
|
| |
For the Third Quarter of Fiscal 2023, our effective income tax rate was 18.6%, which is lower than a more typical annual effective tax rate of approximately 25% primarily due to the favorable utilization of research and development tax credits and adjustments to the US taxation on foreign earnings. For the Third Quarter of Fiscal 2022, our effective income tax rate was 26.1%. Due to the lower earnings during our third quarters as compared to our other fiscal quarters, certain discrete or other items we recognize in the third quarter may have a more pronounced impact resulting in the effective tax rate of the third quarter not being indicative of the effective tax rate for the full fiscal year.
Net earnings
| | | | | | |
|
| Third Quarter | ||||
| | Fiscal 2023 |
| Fiscal 2022 | ||
Net sales | | $ | 326,630 | | $ | 313,033 |
Operating income | | $ | 14,460 | | $ | 27,315 |
Net earnings | | $ | 10,782 | | $ | 19,666 |
Net earnings per diluted share | | $ | 0.68 | | $ | 1.22 |
Weighted average shares outstanding - diluted | |
| 15,787 | |
| 16,139 |
Net earnings per diluted share were $0.68 in the Third Quarter of Fiscal 2023 compared to $1.22 in the Third Quarter of Fiscal 2022 reflecting (1) increased SG&A, (2) decreased gross margin, (3) increased interest expense and (4) decreased royalties and other operating income. These decreases were partially offset by (1) higher sales, (2) a decreased effective income tax rate and (3) share repurchases as noted above.
FIRST NINE MONTHS OF FISCAL 2023 COMPARED TO FIRST NINE MONTHS OF FISCAL 2022
The discussion and tables below compare our statements of operations for the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022. Each dollar and percentage change provided reflects the change between these fiscal periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. We have calculated all percentages based on actual data, and percentage columns in tables may not add due to rounding. Individual line items of our consolidated statements of operations, including gross profit, may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to the same period of the prior year. The table also includes net earnings per diluted share and diluted
28
weighted average shares outstanding (in thousands), as well as the change and the percentage change for each of these items as compared to the same period of the prior year.
| | | | | | | | | | | | | | | | | | |
|
| First Nine Months |
|
| | | | |
| |||||||||
| | Fiscal 2023 | | | Fiscal 2022 | | | $ Change |
| % Change | | |||||||
Net sales | | $ | 1,167,046 | | 100.0 | % | | $ | 1,029,044 |
| 100.0 | % | | $ | 138,002 | | 13.4 | % |
Cost of goods sold | |
| 417,769 |
| 35.8 | % | |
| 372,824 |
| 36.2 | % | |
| 44,945 |
| 12.1 | % |
Gross profit | | $ | 749,277 |
| 64.2 | % | | $ | 656,220 |
| 63.8 | % | | $ | 93,057 |
| 14.2 | % |
SG&A | |
| 603,202 |
| 51.7 | % | |
| 495,574 |
| 48.2 | % | |
| 107,628 |
| 21.7 | % |
Royalties and other operating income | |
| 16,360 |
| 1.4 | % | |
| 18,018 |
| 1.8 | % | |
| (1,658) |
| (9.2) | % |
Operating income | | $ | 162,435 |
| 13.9 | % | | $ | 178,664 |
| 17.4 | % | | $ | (16,229) |
| (9.1) | % |
Interest expense, net | |
| 4,856 |
| 0.4 | % | |
| 1,214 |
| 0.1 | % | |
| 3,642 |
| 300.0 | % |
Earnings before income taxes | | $ | 157,579 |
| 13.5 | % | | $ | 177,450 |
| 17.2 | % | | $ | (19,871) |
| (11.2) | % |
Income tax expense | |
| 36,806 |
| 3.2 | % | |
| 43,764 |
| 4.3 | % | |
| (6,958) |
| (15.9) | % |
Net earnings | | $ | 120,773 |
| 10.3 | % | | $ | 133,686 |
| 13.0 | % | | $ | (12,913) |
| (9.7) | % |
Net earnings per diluted share | | $ | 7.57 | | | | | $ | 8.19 | | | | | $ | (0.62) | | (7.6) | % |
Weighted average shares outstanding - diluted | | | 15,947 |
| | | | | 16,333 |
| | | | | (386) |
| (2.4) | % |
Net Sales
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
| | Fiscal 2023 | | Fiscal 2022 | | $ Change | | % Change | | |||
Tommy Bahama | | $ | 655,022 | | $ | 650,677 | | $ | 4,345 |
| 0.7 | % |
Lilly Pulitzer | |
| 265,089 | |
| 264,763 | |
| 326 |
| 0.1 | % |
Johnny Was | | | 150,619 | |
| 22,661 | |
| 127,958 |
| NM | % |
Emerging Brands | |
| 96,726 | |
| 88,588 | |
| 8,138 |
| 9.2 | % |
Corporate and Other | |
| (410) | |
| 2,355 | |
| (2,765) |
| (117.4) | % |
Consolidated net sales | | $ | 1,167,046 | | $ | 1,029,044 | | $ | 138,002 |
| 13.4 | % |
Consolidated net sales were $1,167 million in the First Nine Months of Fiscal 2023 compared to net sales of $1,029 million in the First Nine Months of Fiscal 2022. The 13% increase in net sales included (1) a $128 million increase in sales for Johnny Was, which was acquired during the Third Quarter of Fiscal 2022, and (2) increases in each operating group.
The increase in net sales by distribution channel consisted of the following:
| ● | an increase in full-price e-commerce sales of $63 million, or 22%, including (1) a $52 million increase in e-commerce sales in Johnny Was, (2) a $5 million increase in Tommy Bahama and (3) a $6 million increase in Emerging Brands; |
| ● | an increase in full-price retail sales of $42 million, or 12%, including (1) a $45 million increase in retail sales in Johnny Was and (2) a $5 million increase in Emerging Brands as we opened new retail locations. These increases were partially offset by (1) a $7 million decrease in Tommy Bahama and (2) a $1 million decrease in Lilly Pulitzer; |
| ● | an increase in wholesale sales of $21 million, or 10%, including (1) a $28 million increase in wholesale sales in Johnny Was and (2) a $2 million increase in Tommy Bahama. These increases were partially offset by (1) a $5 million decrease in Lilly Pulitzer and (2) a $3 million decrease in Emerging Brands; |
| ● | an increase in Lilly Pulitzer e-commerce flash clearance sales of $6 million, or 17%; |
| ● | an increase in outlet sales of $5 million, or 10%, including (1) a $3 million increase in outlet sales in Johnny Was and (2) a $2 million increase in Tommy Bahama; and |
29
| ● | an increase in food and beverage sales of $3 million, or 3%. |
The following table presents the proportion of our consolidated net sales by distribution channel for each period presented. We have calculated all percentages below on actual data, and percentages may not add to 100 due to rounding.
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 38 | % | 39 | % |
E-commerce |
| 34 | % | 31 | % |
Food & beverage |
| 7 | % | 8 | % |
Wholesale |
| 21 | % | 21 | % |
Total |
| 100 | % | 100 | % |
Tommy Bahama:
Tommy Bahama net sales increased $4 million, or 1%, in the First Nine Months of Fiscal 2023, with an increase in (1) e-commerce sales of $5 million, or 3%, (2) food and beverage sales of $3 million, or 3%, (3) wholesale sales of $2 million, or 2%, and (4) outlet sales of $2 million, or 4%. These increases were partially offset by a decrease in full-price retail sales of $7 million, or 3%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 45 | % | 46 | % |
E-commerce |
| 23 | % | 23 | % |
Food & beverage |
| 13 | % | 12 | % |
Wholesale |
| 19 | % | 19 | % |
Total |
| 100 | % | 100 | % |
Lilly Pulitzer:
Lilly Pulitzer net sales in the First Nine Months of Fiscal 2023 were comparable to the First Nine Months of Fiscal 2022. Increases included (1) e-commerce flash clearance sales of $6 million, or 17%, and (2) increased full-price e-commerce sales. These increases were partially offset by decreased (1) wholesale sales of $5 million, or 11% and (2) retail sales of $1 million, or 1%. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 34 | % | 34 | % |
E-commerce |
| 51 | % | 49 | % |
Wholesale |
| 15 | % | 17 | % |
Total |
| 100 | % | 100 | % |
30
Johnny Was:
Johnny Was net sales were $151 million during the First Nine Months of Fiscal 2023. We owned Johnny Was for six out of the thirty-nine weeks of the First Nine Months of Fiscal 2022. The following table presents the proportion of net sales by distribution channel for Johnny Was for each period presented:
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail |
| 38 | % | 38 | % |
E-commerce |
| 40 | % | 41 | % |
Wholesale |
| 22 | % | 21 | % |
Total |
| 100 | % | 100 | % |
Emerging Brands:
Emerging Brands net sales increased $8 million, or 9%, in the First Nine Months of Fiscal 2023 with increased sales in all brands. By distribution channel, the $8 million increase included increases of (1) $6 million, or 17%, in e-commerce and (2) $5 million, or 114%, in retail sales as we opened new retail locations. These increases were partially offset by a $3 million, or 6%, decrease in wholesale sales that includes the impact of the acquisition and conversion of three former Southern Tide Signature Store operations to company owned retail stores. The following table presents the proportion of net sales by distribution channel for Emerging Brands for each period presented:
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Retail | | 10 | % | 5 | % |
E-commerce |
| 42 | % | 39 | % |
Wholesale |
| 48 | % | 56 | % |
Total |
| 100 | % | 100 | % |
Corporate and Other:
Corporate and Other net sales primarily consist of net sales of our Lyons, Georgia distribution center business, our Oxford America business, which we exited in Fiscal 2022, and the elimination of any sales between operating groups.
31
Gross Profit
The tables below present gross profit by operating group and in total for the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, as well as the dollar change and percentage change between those two periods, and gross margin by operating group and in total. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
| | | | | | | | | | | | |
|
| First Nine Months |
| | | | |
| ||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 424,730 | | $ | 419,781 | | $ | 4,949 |
| 1.2 | % |
Lilly Pulitzer | |
| 178,489 | |
| 179,841 | |
| (1,352) |
| (0.8) | % |
Johnny Was | |
| 103,285 | |
| 14,597 | |
| 88,688 |
| NM | % |
Emerging Brands | |
| 48,224 | |
| 43,901 | |
| 4,323 |
| 9.8 | % |
Corporate and Other | |
| (5,451) | |
| (1,900) | |
| (3,551) |
| NM | % |
Consolidated gross profit | | $ | 749,277 | | $ | 656,220 | | $ | 93,057 |
| 14.2 | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 6,287 | | $ | 3,087 | |
|
|
|
| |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
| | | | | |
|
| First Nine Months |
| ||
|
| Fiscal 2023 |
| Fiscal 2022 |
|
Tommy Bahama |
| 64.8 | % | 64.5 | % |
Lilly Pulitzer |
| 67.3 | % | 67.9 | % |
Johnny Was | | 68.6 | % | 64.4 | % |
Emerging Brands |
| 49.9 | % | 49.6 | % |
Corporate and Other |
| NM | % | NM | % |
Consolidated gross margin |
| 64.2 | % | 63.8 | % |
The increased gross profit of 14% was primarily due to the 13% increase in net sales as well as increased consolidated gross margin. The higher gross margin included (1) the 68.6% gross margin of Johnny Was, (2) reduced freight costs, (3) improved initial product margins, as certain sales prices were increased more than the increased product costs during the last year and (4) the lack of the $1 million inventory step up charge in cost of goods sold related to the Johnny Was acquisition in the First Nine Months of Fiscal 2022. These increases were partially offset by (1) increased e-commerce flash clearance sales in Lilly Pulitzer, (2) increased sales during the loyalty award, Flip Side marketing, and end of season clearance events in Tommy Bahama and (3) $3 million in higher LIFO accounting charges in the First Nine Months of Fiscal 2023 compared to the First Nine Months of Fiscal 2022.
Tommy Bahama:
The higher gross margin for Tommy Bahama was primarily due to (1) reduced freight costs and (2) improved initial product margins. These increases were partially offset by increased sales during the loyalty award, Flip Side marketing, and end of season clearance events in Tommy Bahama.
Lilly Pulitzer:
The lower gross margin for Lilly Pulitzer was primarily due to a change in sales mix with flash clearance sales representing a larger proportion of net sales. This decrease was partially offset by (1) an increase in initial product margins, (2) a change in sales mix with wholesale sales representing a lower proportion of Lilly Pulitzer net sales and (3) lower freight costs.
Johnny Was:
Gross margin for the First Nine Months of Fiscal 2023 was 68.6%.
32
Emerging Brands:
The higher gross margin for Emerging Brands was primarily due to a change in sales mix with direct to consumer sales representing a greater proportion of net sales. This increase was partially offset by lower gross margin on wholesale sales due to off-price wholesale sales of previously marked down inventory representing a greater proportion of wholesale sales.
Corporate and Other:
The gross profit in Corporate and Other primarily reflects the impact of LIFO accounting adjustments, which was a charge of $6 million and $3 million in the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, respectively, and the gross profit of the Lyons, Georgia distribution center and Oxford America businesses. The LIFO accounting impact in Corporate and Other in each period includes the net impact of (1) a charge in Corporate and Other when inventory that had been marked down in an operating group in a prior period was ultimately sold, (2) a credit in Corporate and Other when inventory had been marked down in an operating group in the current period, but had not been sold as of period end and (3) the change in the LIFO reserve, if any.
SG&A
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
SG&A | | $ | 603,202 | | $ | 495,574 | | $ | 107,628 |
| 21.7 | % |
SG&A (as a % of net sales) | |
| 51.7 | % |
| 48.2 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 10,389 | | $ | 1,641 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | — | | $ | 2,783 | | | | | | |
SG&A was $603 million in the First Nine Months of Fiscal 2023 compared to $496 million in the First Nine Months of Fiscal 2022, with approximately $82 million, or 76%, of the increase due to the SG&A of Johnny Was. The 22% increase in total SG&A in the First Nine Months of Fiscal 2023 included the following, each of which includes the SG&A of Johnny Was: (1) increased employment costs of $35 million, primarily due to increased head count, pay rate increases and other employment cost increases, including in our direct to consumer and distribution center operations partially offset by lower incentive compensation amounts, (2) a $22 million increase in advertising expense, (3) a $15 million increase in occupancy expenses, (4) a $14 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (5) a $9 million increase in amortization of intangible assets primarily due to the acquisition of Johnny Was in the Third Quarter of Fiscal 2022, (6) a $7 million increase in administrative expenses including professional fees, travel and other items and (7) a $4 million increase in depreciation expense.
Royalties and other operating income
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Royalties and other operating income | | $ | 16,360 | | $ | 18,018 | | $ | (1,658) |
| (9.2) | % |
Notable items included in amounts above: | | | | | | | | | | | | |
Gain on sale of Merida manufacturing facility | | $ | (1,756) | | $ | — | | | | | | |
Royalties and other operating income typically consists primarily of income received from third parties from the licensing of our brands. The decreased royalties and other operating income in the First Nine Months of Fiscal 2023 was primarily due to decreased royalty income in Tommy Bahama reflecting the lower sales of our licensing partners. This decrease was partially offset by a $2 million gain recorded in the First Nine Months of Fiscal 2023 on the sale of the
33
Merida manufacturing facility in Mexico previously operated by our Lanier Apparel operating group, which we exited in Fiscal 2021.
Operating income (loss)
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Tommy Bahama | | $ | 118,655 | | $ | 130,508 | | $ | (11,853) |
| (9.1) | % |
Lilly Pulitzer | |
| 49,851 | |
| 60,358 | |
| (10,507) |
| (17.4) | % |
Johnny Was | | | 7,266 | | | 117 | | | 7,149 |
| NM | % |
Emerging Brands | |
| 10,650 | |
| 15,456 | |
| (4,806) |
| (31.1) | % |
Corporate and Other | |
| (23,987) | |
| (27,775) | |
| 3,788 |
| NM | % |
Consolidated operating income | | $ | 162,435 | | $ | 178,664 | | $ | (16,229) |
| (9.1) | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 6,287 | | $ | 3,087 | |
|
|
|
| |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 10,389 | | $ | 1,641 | | | | | | |
Transaction expenses and integration costs associated with the Johnny Was acquisition included in Corporate and Other | | $ | — | | $ | 2,783 | | | | | | |
Gain on sale of Merida manufacturing facility | | $ | (1,756) | | $ | — | | | | | | |
Operating income was $162 million in the First Nine Months of Fiscal 2023 compared to $179 million in the First Nine Months of Fiscal 2022. The decreased operating income included lower operating income in Tommy Bahama, Lilly Pulitzer and Emerging Brands. These decreases were partially offset by (1) the operating income of Johnny Was and (2) a lower operating loss in Corporate and Other.
Tommy Bahama:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 655,022 | | $ | 650,677 | | $ | 4,345 |
| 0.7 | % |
Gross profit | | $ | 424,730 | | $ | 419,781 | | $ | 4,949 | | 1.2 | % |
Gross margin | |
| 64.8 | % |
| 64.5 | % |
|
|
|
| |
Operating income | | $ | 118,655 | | $ | 130,508 | | $ | (11,853) |
| (9.1) | % |
Operating income as % of net sales | |
| 18.1 | % |
| 20.1 | % |
|
|
|
| |
The decreased operating income for Tommy Bahama was primarily due to (1) increased SG&A and (2) lower royalty income. These decreases were partially offset by higher sales and gross margin. The increased SG&A was primarily due to (1) $9 million of increased employment costs, (2) a $3 million increase in advertising expense, (3) $2 million of increased variable expenses and (4) a $2 million increase in occupancy expenses. These increases were partially offset by a $1 million decrease in administrative expenses including professional fees, travel and other items.
34
Lilly Pulitzer:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 265,089 | | $ | 264,763 | | $ | 326 |
| 0.1 | % |
Gross profit | | $ | 178,489 | | $ | 179,841 | | $ | (1,352) | | (0.8) | % |
Gross margin | |
| 67.3 | % |
| 67.9 | % |
|
|
| | |
Operating income | | $ | 49,851 | | $ | 60,358 | | $ | (10,507) |
| (17.4) | % |
Operating income as % of net sales | |
| 18.8 | % |
| 22.8 | % |
|
|
|
| |
The decreased operating income for Lilly Pulitzer was due to (1) increased SG&A and (2) lower gross margin. The increased SG&A was primarily due to (1) $2 million in increased advertising expense, (2) $2 million of increased employment costs, (3) $2 million of increased variable expenses and (4) $2 million of increased depreciation.
Johnny Was:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 150,619 | | $ | 22,661 | | $ | 127,958 |
| NM | % |
Gross profit | | $ | 103,285 | | $ | 14,597 | | $ | 88,688 | | NM | % |
Gross margin | |
| 68.6 | % |
| 64.4 | % |
|
|
| | |
Operating income | | $ | 7,266 | | $ | 117 | | $ | 7,149 |
| NM | % |
Operating income as % of net sales | |
| 4.8 | % |
| 0.5 | % |
|
|
|
| |
Notable items included in amounts above: | | | | | | | | | | | | |
Inventory step-up charge included in Johnny Was | | $ | — | | $ | 1,376 | | | | | | |
Amortization of Johnny Was intangible assets | | $ | 10,389 | | $ | 1,641 | | | | | | |
Operating income for the First Nine Months of Fiscal 2023 represents the acquired operations of Johnny Was that were negatively impacted by (1) $10 million of amortization of intangible assets and (2) $1 million of costs associated with the implementation of a new e-commerce platform.
Emerging Brands:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Net sales | | $ | 96,726 | | $ | 88,588 | | $ | 8,138 |
| 9.2 | % |
Gross profit | | $ | 48,224 | | $ | 43,901 | | $ | 4,323 | | 9.8 | % |
Gross margin | |
| 49.9 | % |
| 49.6 | % |
|
|
| | |
Operating income | | $ | 10,650 | | $ | 15,456 | | $ | (4,806) |
| (31.1) | % |
Operating income as % of net sales | |
| 11.0 | % |
| 17.4 | % |
|
|
|
| |
The decreased operating income for Emerging Brands was due to increased SG&A. This decrease was partially offset by (1) higher sales and (2) higher gross margin. The increased SG&A included (1) higher SG&A associated with new retail store operations, including related employment costs, occupancy costs and administrative expenses, (2) higher advertising expense and (3) increased variable expenses resulting from increased sales.
35
Corporate and Other:
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Net sales | | $ | (410) | | $ | 2,355 | | $ | (2,765) |
| (117.4) | % |
Gross profit | | $ | (5,451) | | $ | (1,900) | | $ | (3,551) | | NM | % |
Operating loss | | $ | (23,987) | | $ | (27,775) | | $ | 3,788 |
| NM | % |
Notable items included in amounts above: | | | | | | | | | | | | |
LIFO adjustments in Corporate and Other | | $ | 6,287 | | $ | 3,087 | |
|
|
| | |
Transaction expenses and integration costs associated with the Johnny Was acquisition | | $ | — | | $ | 2,783 | | | | | | |
Gain on sale of Merida manufacturing facility | | $ | (1,756) | | $ | — | | | | | | |
The improved operating results in Corporate and Other were primarily a result of (1) decreased SG&A, including decreased incentive compensation amounts and (2) a $2 million gain on the sale of the Merida manufacturing facility in Mexico. The First Nine Months of Fiscal 2022 also included $3 million of transaction expenses and integration costs associated with the Johnny Was acquisition. These increases were partially offset by a higher net LIFO accounting charge in the First Nine Months of Fiscal 2023 relative to the First Nine Months of Fiscal 2022.
Interest expense, net
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Interest expense, net | | $ | 4,856 | | $ | 1,214 | | $ | 3,642 |
| 300.0 | % |
The higher interest expense in the First Nine Months of Fiscal 2023 was primarily due to a higher average outstanding debt balance during the First Nine Months of Fiscal 2023 than the First Nine Months of Fiscal 2022. We utilized debt to fund a portion of the Johnny Was acquisition on September 19, 2022. There was no debt outstanding in Fiscal 2022 prior to the acquisition of Johnny Was.
Income tax
| | | | | | | | | | | | |
|
| First Nine Months |
| | | |
| |||||
|
| Fiscal 2023 |
| Fiscal 2022 |
| $ Change |
| % Change |
| |||
Income tax expense | | $ | 36,806 | | $ | 43,764 | | $ | (6,958) |
| (15.9) | % |
Effective tax rate | |
| 23.4 | % |
| 24.7 | % |
|
|
|
| |
Both the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022 benefited from the net favorable impact of certain items that resulted in a lower effective tax rate than the more typical annual effective tax rate of approximately 25%.
The income tax expense in the First Nine Months of Fiscal 2023 included the benefit of the vesting of restricted stock awards at a price higher than the grant date fair value and the favorable utilization of research and development tax credits and adjustments to the US taxation on foreign earnings. The First Nine Months of Fiscal 2022 benefited from the utilization of certain net operating loss carryforward amounts in certain state and foreign jurisdictions and certain other items.
36
Net earnings
| | | | | | |
|
| First Nine Months | ||||
|
| Fiscal 2023 |
| Fiscal 2022 | ||
Net sales | | $ | 1,167,046 | | $ | 1,029,044 |
Operating income | | $ | 162,435 | | $ | 178,664 |
Net earnings | | $ | 120,773 | | $ | 133,686 |
Net earnings per diluted share | | $ | 7.57 | | $ | 8.19 |
Weighted average shares outstanding - diluted | |
| 15,947 | |
| 16,333 |
Net earnings per diluted share were $7.57 in the First Nine Months of Fiscal 2023 compared to $8.19 in the First Nine Months of Fiscal 2022 reflecting the (1) increased SG&A, (2) increased interest expense and (3) decreased royalties and other operating income. These decreases were partially offset by (1) higher sales and gross margin, (2) a decreased effective income tax rate and (3) share repurchases as noted above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, TBBC and Duck Head lifestyle brands. We primarily distribute our products to our customers via direct to consumer channels of distribution, but we also distribute our products via wholesale channels of distribution.
Our primary uses of cash flow include the purchase of our branded apparel products from third party suppliers located outside of the United States, as well as operating expenses, including employee compensation and benefits, operating lease commitments and other occupancy-related costs, marketing and advertising costs, information technology costs, variable expenses, distribution costs, other general and administrative expenses and the periodic payment of interest. Additionally, we use our cash to fund capital expenditures and other investing activities, dividends, share repurchases and repayment of indebtedness, if any. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay our operating expenses. Thus, we require a certain amount of ongoing working capital to operate our business. Our need for working capital is typically seasonal with the greatest working capital requirements to support our larger spring, summer and holiday direct to consumer seasons. Our capital needs depend on many factors including the results of our operations and cash flows, anticipated growth rates, the need to finance inventory levels and the success of our various products.
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities will provide (1) sufficient cash over both the short and long term to satisfy our ongoing operating cash requirements, (2) ample funds to continue to invest in our businesses, (3) additional cash flow to repay outstanding debt and (4) sufficient cash for other strategic initiatives. Also, if cash inflows are less than cash outflows, we have access to amounts under our $325 million Revolving Credit Agreement, subject to its terms, which is described below.
Working Capital
| | | | | | | | | | | | | |
|
| October 28, |
| January 28, |
| October 29, |
| January 29, |
| ||||
($ in thousands) | | 2023 | | 2023 | | 2022 | | 2022 | | ||||
Total current assets | | $ | 291,379 | | $ | 330,463 | | $ | 299,495 | | $ | 400,335 | |
Total current liabilities | | $ | 212,512 | | $ | 269,639 | | $ | 230,395 | | $ | 226,166 | |
Working capital | | $ | 78,867 | | $ | 60,824 | | $ | 69,100 | | $ | 174,169 | |
Working capital ratio | |
| 1.37 | |
| 1.23 | |
| 1.30 | |
| 1.77 | |
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as of October 28, 2023, decreased from October 29, 2022 primarily due to (1) decreased inventories of $14 million, (2) decreased
37
cash and cash equivalents of $7 million and (3) decreased receivables of $2 million. These decreases were partially offset by an increase in prepaid expenses and other current assets of $16 million. Current liabilities as of October 28, 2023 decreased from October 29, 2022 primarily due to (1) decreased accrued incentive compensation of $14 million and (2) decreased accounts payable of $4 million.
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances as of October 28, 2023 as compared to October 29, 2022.
Current Assets:
| | | | | | | | | | | | | |
|
| October 28, |
| January 28, |
| October 29, |
|
| |||||
| | 2023 | | 2023 | | 2022 | | 2022 | | ||||
Cash and cash equivalents | | $ | 7,879 | | $ | 8,826 | | $ | 14,976 | | $ | 44,859 | |
Short-term investments | | | — | | | — | | | — | | | 164,890 | |
Receivables, net | |
| 60,101 | |
| 43,986 | |
| 62,230 | |
| 31,588 | |
Inventories, net | |
| 157,524 | |
| 220,138 | |
| 171,639 | |
| 117,709 | |
Income tax receivable | | | 19,454 | | | 19,440 | | | 19,740 | | | 19,728 | |
Prepaid expenses and other current assets | |
| 46,421 | |
| 38,073 | |
| 30,910 | |
| 21,561 | |
Total current assets | | $ | 291,379 | | $ | 330,463 | | $ | 299,495 | | $ | 400,335 | |
Cash and cash equivalents were $8 million as of October 28, 2023, compared to $15 million as of October 29, 2022. The cash and cash equivalents balance as of October 28, 2023 represents typical cash amounts maintained on an ongoing basis in our operations, which generally ranges from $5 million to $10 million at any given time. Any excess cash is generally used to repay amounts outstanding under our U.S. Revolving Credit Agreement. The cash and cash equivalents balance as of October 29, 2022 included cash balances acquired during the acquisition of Johnny Was on September 19, 2022.
The decreased receivables, net as of October 28, 2023, was primarily due to lower wholesale trade receivables primarily resulting from lower wholesale sales in Tommy Bahama and Lilly Pulitzer in the Third Quarter of Fiscal 2023.
Inventories, net, included a $79 million and $75 million LIFO reserve as of October 28, 2023, and October 29, 2022, respectively. Inventories decreased in all operating groups primarily due to continuing initiatives to focus on closely managing inventory purchases and reducing on-hand inventory levels. We believe that inventory levels in all operating groups are appropriate to support anticipated sales plans.
The increase in prepaid expenses and other current assets as of October 28, 2023 was primarily due to an increase in prepaid taxes resulting from the timing of tax payments.
Non-current Assets:
| | | | | | | | | | | | | |
|
| October 28, |
| January 28, |
| October 29, |
|
| |||||
| | 2023 | | 2023 | | 2022 | | 2022 | | ||||
Property and equipment, net | | $ | 188,686 | | $ | 177,584 | | $ | 173,391 | | $ | 152,447 | |
Intangible assets, net | |
| 273,444 | |
| 283,845 | |
| 287,626 | |
| 155,307 | |
Goodwill | |
| 124,230 | |
| 120,498 | |
| 116,268 | |
| 23,869 | |
Operating lease assets | | | 246,399 | | | 240,690 | | | 237,078 | | | 195,100 | |
Other assets, net | |
| 38,018 | |
| 35,585 | |
| 26,459 | |
| 30,584 | |
Total non-current assets | | $ | 870,777 | | $ | 858,202 | | $ | 840,822 | | $ | 557,307 | |
Property and equipment, net as of October 28, 2023, increased primarily due to the capital expenditures exceeding depreciation during the 12 months ended October 28, 2023.
38
Intangible assets, net as of October 28, 2023, decreased primarily due to the amortization of intangible assets acquired in the acquisition of Johnny Was. Goodwill increased due to measurement period adjustments related to the acquisition of Johnny Was and the acquisition of three former Southern Tide signature stores.
Operating lease assets as of October 28, 2023, increased primarily due to the addition of new leased locations, or the extension of existing leased locations, exceeding the recognition of amortization related to existing operating leases and the termination or reduced term of certain operating leases. The increase in other assets, net as of October 28, 2023, was primarily due to an increase in equity investments in unconsolidated entities including the $8 million investment in Fiscal 2022 in the entity that owns the Tommy Bahama resort.
Liabilities:
| | | | | | | | | | | | | |
|
| October 28, |
| January 28, |
| October 29, |
|
| |||||
| | 2023 | | 2023 | | 2022 | | 2022 | | ||||
Total current liabilities | | $ | 212,512 | | $ | 269,639 | | $ | 230,395 | | $ | 226,166 | |
Long-term debt | |
| 66,219 | |
| 119,011 | |
| 130,449 | |
| — | |
Non-current portion of operating lease liabilities | |
| 226,238 | |
| 220,709 | |
| 225,921 | |
| 199,488 | |
Other non-current liabilities | |
| 20,675 | |
| 20,055 | |
| 18,058 | |
| 21,413 | |
Deferred income taxes | | | 9,399 | | | 2,981 | | | 2,455 | | | 2,911 | |
Total liabilities | | $ | 535,043 | | $ | 632,395 | | $ | 607,278 | | $ | 449,978 | |
Current liabilities decreased as of October 28, 2023 primarily due to decreases in accrued incentive compensation and decreases in accounts payable, which was primarily due to decreased payables associated with lower inventory in transit. The reduction in long-term debt was the result of continuing initiatives to pay down our long-term debt balance. Deferred income taxes increased as of October 28, 2023 due to timing differences related to property and equipment and lease related liabilities.
Statement of Cash Flows
The following table sets forth the net cash flows for the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022 (in thousands):
| | | | | | | |
| | First Nine Months | | ||||
|
| Fiscal 2023 |
| Fiscal 2022 | | ||
Cash provided by operating activities | | $ | 169,398 | | $ | 86,255 | |
Cash used in investing activities | |
| (55,724) | |
| (129,700) | |
Cash used in (provided by) financing activities | |
| (114,416) | |
| 13,160 | |
Net change in cash and cash equivalents | | $ | (742) | | $ | (30,285) | |
Changes in cash flows in the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, operating activities provided $169 million and $86 million of cash, respectively. The cash flow from operating activities for each period primarily consisted of net earnings for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization of intangible assets, equity-based compensation, gain on sale of assets, and other non-cash items as well as the net impact of changes in deferred income taxes and operating assets and liabilities.
In the First Nine Months of Fiscal 2023, the net change in operating assets and liabilities was primarily due to a decrease in inventories that increased cash flow from operations, partially offset by a decrease in current liabilities and an increase in receivables that decreased cash flow from operations. In the First Nine Months of Fiscal 2022, the net change in operating assets and liabilities was primarily due to an increase in inventories and receivables and a decrease in current liabilities that decreased cash flow from operations.
39
Investing Activities:
In the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, investing activities used $56 million and $130 million of cash, respectively. On an ongoing basis, our cash flow used in investing activities primarily consists of our capital expenditures, which totaled $54 million and $32 million in the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, respectively. In addition to our capital expenditures in the First Nine Months of Fiscal 2023, we paid $3 million in the aggregate for a working capital settlement associated with the acquisition of Johnny Was and the acquisition of three former Southern Tide Signature Stores. We also received $2 million from the sale of the Merida manufacturing facility in Mexico. During the First Nine Months of Fiscal 2022, we paid $264 million for the September 19, 2022 acquisition of Johnny Was and also converted $165 million of short-term investments into cash to fund a portion of the acquisition.
On an ongoing basis, our cash flow used in investing activities is expected to primarily consist of our capital expenditure investments in (1) direct to consumer operations, including opening, relocating and remodeling locations, (2) facilities enhancements for distribution centers and offices and (3) information technology initiatives, including e-commerce capabilities.
Financing Activities:
In the First Nine Months of Fiscal 2023 and the First Nine Months of Fiscal 2022, financing activities used $114 million and provided $13 million of cash, respectively. In the First Nine Months of Fiscal 2023, we repurchased $30 million of shares, including repurchased shares of our stock pursuant to an open market stock repurchase program and equity awards in respect of employee tax withholding liabilities; paid $31 million of dividends; and paid $2 million in deferred financing costs associated with the amendment of the Revolving Credit Agreement. In the First Nine Months of Fiscal 2022, we repurchased $90 million of shares, including repurchased shares of our stock pursuant to an open market stock repurchase program and of equity awards in respect of employee tax withholding liabilities; paid $27 million of dividends; and paid $2 million of contingent consideration for the final contingent consideration payment related to the TBBC acquisition.
If net cash requirements are less than our net cash flows, we may repay amounts outstanding on our Revolving Credit Agreement, if any, consistent with our net repayment of $53 million of long-term debt in the First Nine Months of Fiscal 2023. Alternatively, to the extent we are in a net debt position, and our net cash requirements exceed our net cash flows, we may borrow amounts from our Revolving Credit Agreement.
Liquidity and Capital Resources
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities will provide (1) sufficient cash over both the short and long term to satisfy our ongoing operating cash requirements, (2) ample funds to continue to invest in our lifestyle brands, direct to consumer initiatives and information technology projects, (3) additional cash flow to repay outstanding debt and (4) sufficient cash for other strategic initiatives.
Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory and the success of our various products. To the extent cash flow needs in the future exceed cash flow provided by our operations, we will have access, subject to its terms, to our Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any, and any other investing or financing activities.
Our cash and debt, as well as availability, levels in future periods will not be comparable to historical amounts, particularly after the completion of the acquisition of Johnny Was in September 2022. We anticipate our debt will be further reduced during the Fourth Quarter of Fiscal 2023 following the reduction of long-term debt by $53 million in the First Nine Months of Fiscal 2023. Further, we continue to assess, and may possibly make changes to, our capital structure, which we may achieve by borrowing from additional credit facilities, selling debt or equity securities or repurchasing
40
additional shares of our stock in the future. Changes in our capital structure, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
$325 Million Revolving Credit Agreement
On March 6, 2023, we amended the Revolving Credit Agreement to, among other things, mature in March 2028. As of October 28, 2023, we had borrowings of $66 million, issued standby letters of credit of $6 million, and availability of $253 million under the Revolving Credit Agreement.
Pursuant to the Revolving Credit Agreement, the interest rate applicable to our borrowings under the Revolving Credit Agreement are based on either the Term Secured Overnight Financing Rate plus an applicable margin of 135 to 185 basis points or prime plus an applicable margin of 25 to 75 basis points.
The Revolving Credit Agreement generally (1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (2) accrues variable-rate interest (weighted average interest rate of 7% as of October 28, 2023), unused line fees and letter of credit fees based upon average utilization or unused availability, as applicable, (3) requires periodic interest payments with principal due at maturity and (4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
The Revolving Credit Agreement is subject to several affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (1) incur debt, (2) guaranty certain obligations, (3) incur liens, (4) pay dividends to shareholders, (5) repurchase shares of our common stock, (6) make investments, (7) sell assets or stock of subsidiaries, (8) acquire assets or businesses, (9) merge or consolidate with other companies or (10) prepay, retire, repurchase or redeem debt.
Additionally, the Revolving Credit Agreement contains a financial covenant that applies only if excess availability under the agreement for three consecutive business days is less than the greater of (1) $23.5 million or (2) 10% of availability. In such a case, our fixed charge coverage ratio as defined in the Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the Revolving Credit Agreement of more than the greater of (1) $23.5 million or (2) 10% of availability for 30 consecutive days.
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we amended the Revolving Credit Agreement. During Fiscal 2023 and as of October 28, 2023, no financial covenant testing was required pursuant to our Revolving Credit Agreement or the Prior Credit Agreement, as applicable, as the minimum availability threshold was met at all times. As of October 28, 2023, we were compliant with all applicable covenants related to the Revolving Credit Agreement.
Operating Lease Commitments:
Refer to Note 4 in our unaudited condensed consolidated financial statements included in this report for additional information about our operating lease commitments as of October 28, 2023.
Dividends:
On December 4, 2023, our Board of Directors approved a cash dividend of $0.65 per share payable on February 2, 2024 to shareholders of record as of the close of business on January 19, 2024. Although we have paid dividends each
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quarter since we became a public company in July 1960, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facility, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends or repurchase shares in the short term subject to the terms and conditions of our credit facility, other debt instruments and applicable law. All cash flow from operations will not be paid out as dividends.
Capital Expenditures:
Our anticipated capital expenditures for Fiscal 2023, including the $54 million incurred in the First Nine Months of Fiscal 2023, are expected to be approximately $80 million, as compared to $47 million for Fiscal 2022. The planned increase in capital expenditures includes spend associated with new brick and mortar locations and relocations and remodels of existing locations resulting in a year-over-year net increase of full price stores of approximately 25 by the end of Fiscal 2023. The spend associated with these brick and mortar locations represents about one-half of the planned capital expenditure amount for 2023. Additionally, we will continue with our investments in our various technology systems initiatives, including e-commerce and omnichannel capabilities, data management and analytics, customer data and insights, cybersecurity, automation including artificial intelligence and infrastructure. Finally, we anticipate spend associated with a multi-year Southeastern United States distribution center enhancement project to ensure best-in-class direct-to-consumer throughput capabilities for our brands.
Other Liquidity Items:
Our contractual obligations as of October 28, 2023 except for the decreased debt outstanding, as discussed above, have not changed materially from the contractual obligations outstanding at January 28, 2023, as disclosed in our Fiscal 2022 Form 10-K. We have not entered into agreements which meet the SEC’s definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP in a consistent manner. The preparation of these financial statements requires the selection and application of accounting policies. Further, the application of GAAP requires us to make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe it is possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that we have appropriately applied our critical accounting policies. However, in the event that inappropriate assumptions or methods were used relating to the critical accounting policies, our consolidated statements of operations could be materially misstated.
Our critical accounting policies and estimates are discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2022 Form 10-K. There have not been any significant changes to our critical accounting policies and estimates during the First Nine Months of Fiscal 2023. A detailed summary of significant accounting policies is included in Note 1 to our consolidated financial statements contained in our Fiscal 2022 Form 10-K.
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SEASONAL ASPECTS OF OUR BUSINESS
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. As a result, our quarterly operating results and working capital requirements fluctuate significantly from quarter to quarter. Typically, the demand for products for our larger brands is higher in the spring, summer and holiday seasons and lower in the fall season (the third quarter of our fiscal year). Thus, our third quarter historically has had the lowest net sales and net earnings compared to other quarters. Further, the impact of certain unusual or non-recurring items, economic conditions, our e-commerce flash clearance sales, wholesale product shipments, weather, acquisitions or other factors affecting our operations may vary from one year to the next. Therefore, due to the potential impact of these items, we do not believe that net sales or operating income in the First Nine Months of Fiscal 2023 is indicative of the expected proportion of amounts by quarter for future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain interest rate, foreign currency, commodity and inflation risks as discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Fiscal 2022 Form 10-K. There have not been any material changes in our exposure to these risks during the First Nine Months of Fiscal 2023 other than our decreased exposure to interest rates resulting from our decreased borrowings relative to January 28, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our company, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act during the Third Quarter of Fiscal 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to litigation and regulatory actions arising in the ordinary course of business. These actions may relate to trademark and other intellectual property, employee relations matters, real estate, licensing arrangements, importing or exporting regulations, product safety requirements, taxation or other topics. We are not currently a party to any litigation or regulatory action or aware of any proceedings contemplated by governmental authorities that we believe could reasonably be expected to have a material impact on our financial position, results of operations or cash flows. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of additional factors not presently known or determinations by judges, juries, or others which are not consistent with our evaluation of the possible liability or outcome of such litigation or claims.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks. Investors should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Fiscal 2022 Form 10-K, which could materially affect our business, financial condition or operating results. We operate in a competitive and rapidly changing business environment and additional risks and uncertainties that
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we currently consider immaterial or not presently known to us may also adversely affect our business. The risks described in our Fiscal 2022 Form 10-K are not the only risks facing our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| (a) | During the Third Quarter of Fiscal 2023, we did not make any unregistered sales of equity securities. |
| (c) | During the Third Quarter of Fiscal 2023, we repurchased the following shares of our common stock: |
| | | | | | | | | |
| | | | | | | Total Number of | | Dollar Value |
| | | | | | | Shares | | (000s) of Shares |
| | | | Average | | Purchased as | | That May Yet be | |
| | Total Number | | Price | | Part of Publicly | | Purchased Under | |
| | of Shares | | Paid per | | Announced Plans | | the Plans or | |
Fiscal Month |
| Purchased |
| Share |
| or Programs |
| Programs | |
August (7/30/23 - 8/26/23) | | 9,905 | | $ | 106.84 | | 9,905 | | $ 30,000 |
September (8/27/23 - 9/30/23) | | - | | $ | - | | - | | $ 30,000 |
October (10/1/23 - 10/28/23) | | - | | $ | - | | - | | $ 30,000 |
Total | | 9,905 | | $ | 106.84 | | 9,905 | | $ 30,000 |
On December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration.
Pursuant to the Board of Directors’ authorization, we entered into a $20 million open market stock repurchase program (Rule 10b5-1 plan) to acquire shares of our stock. During the Second Quarter of Fiscal 2023 and the Third Quarter of Fiscal 2023, we repurchased 186,000 and 10,000 shares, respectively, of our common stock for $19 million and $1 million, respectively. After considering the repurchases during the Third Quarter of Fiscal 2023, there was no amount remaining under the open market repurchase program and $30 million remaining under the Board of Directors’ authorization as of October 28, 2023.
Also, we have certain stock incentive plans as described in Note 8 to our consolidated financial statements included in our Fiscal 2022 Form 10-K, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the vesting of shares of our stock. We repurchased $10 million of shares from employees during the Second Quarter of Fiscal 2023, with no such repurchases of shares from employees in the Third Quarter of Fiscal 2023.
ITEM 5. OTHER INFORMATION
During the Third Quarter of Fiscal 2023, none of our directors or officers i adopted or i terminated a “ i Rule 10b5-1 trading arrangement” or a “ i non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
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ITEM 6. EXHIBITS
| | |
3.1 |
| |
3.2 | | |
31.1 | | |
31.2 | | |
32 | | Section 906 Certification by Principal Executive Officer and Principal Financial Officer.* |
101.INS | | XRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
101.SCH | | XBRL Taxonomy Extension Schema Document* |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document* |
104 | | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
OXFORD INDUSTRIES, INC. | | |
| | |
| (Registrant) | |
| | |
| | |
| | |
| Executive Vice President, Chief Financial Officer and Chief Operating Officer | |
| (Authorized Signatory) | |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/1/25 | ||||
| 2/3/24 | ||||
| 2/2/24 | ||||
| 1/19/24 | ||||
| Filed on: | 12/7/23 | |||
| 12/4/23 | ||||
| 12/1/23 | ||||
| 10/29/23 | ||||
| For Period end: | 10/28/23 | |||
| 7/29/23 | 10-Q | |||
| 4/29/23 | 10-Q | |||
| 3/6/23 | 8-K | |||
| 1/29/23 | ||||
| 1/28/23 | 10-K, 5, ARS | |||
| 1/1/23 | ||||
| 10/29/22 | 10-Q | |||
| 9/19/22 | 3, 8-K | |||
| 8/16/22 | ||||
| 7/30/22 | 10-Q | |||
| 4/30/22 | 10-Q | |||
| 1/29/22 | 10-K, 5 | |||
| 12/7/21 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/18/20 Oxford Industries Inc. 8-K:5,9 8/14/20 13:303K Globenewswire Inc./FA 9/01/17 Oxford Industries Inc. 10-Q 7/29/17 32:2.6M |