Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ

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

 

 

 

For the quarterly period ended OCTOBER 27, 2012

 

 

or

 

 

o

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

 

 

 

For the transition period from           to          

 

Commission File Number: 1-4365

 

OXFORD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Georgia

 

58-0831862

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309

(Address of principal executive offices)                               (Zip Code)

 

                            (404) 659-2424                              

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer £

Accelerated filer þ

Non-accelerated filer £

Smaller reporting company £

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Number of shares outstanding

Title of each class

 

as of November 30, 2012

Common Stock, $1 par value

 

16,572,583

 

 

 


Table of Contents

 

OXFORD INDUSTRIES, INC.

INDEX TO FORM 10-Q

For the third quarter of fiscal 2012

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets (Unaudited)

4

Condensed Consolidated Statements of Earnings (Unaudited)

5

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

6

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

33

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3. Defaults Upon Senior Securities

34

Item 4. Mine Safety Disclosures

34

Item 5. Other Information

34

Item 6. Exhibits

34

Signatures

35

 

2



Table of Contents

 

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). Important assumptions relating to these forward-looking statements include, among others, assumptions regarding the impact of economic conditions on consumer demand and spending, particularly in light of general economic uncertainty that continues to prevail, demand for our products, timing of shipments requested by our wholesale customers, expected pricing levels, competitive conditions, disciplined execution by key management, the timing and cost of store openings and of planned capital expenditures, costs of products and raw materials we purchase, costs of labor, acquisition and disposition activities, expected outcomes of pending or potential litigation and regulatory actions and access to capital and/or credit markets. Forward-looking statements reflect our current expectations, based on currently available information, 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 Annual Report on Form 10-K for fiscal 2011, as updated by Part II, Item 1A. Risk Factors in this report and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

DEFINITIONS

 

Unless the context requires otherwise, the following terms, or words of similar import, have the following meanings:

 

Our, us or we: Oxford Industries, Inc. and its consolidated subsidiaries

 

SG&A: Selling, general and administrative expenses

 

Discontinued operations: The assets and operations of our former Oxford Apparel operating group which we sold in the fourth quarter of fiscal 2010, as discussed in our Annual Report on Form 10-K for fiscal 2011

 

SEC: U.S. Securities and Exchange Commission

 

FASB: Financial Accounting Standards Board

 

U.S. GAAP: Generally accepted accounting principles in the United States

 

Fiscal 2013

 

52 weeks ending February 1, 2014

Fiscal 2012

 

53 weeks ending February 2, 2013

Fiscal 2011

 

52 weeks ended January 28, 2012

First nine months fiscal 2012

 

39 weeks ended October 27, 2012

First nine months fiscal 2011

 

39 weeks ended October 29, 2011

Fourth quarter fiscal 2012

 

14 weeks ending February 2, 2013

Third quarter fiscal 2012

 

13 weeks ended October 27, 2012

Second quarter fiscal 2012

 

13 weeks ended July 28, 2012

First quarter fiscal 2012

 

13 weeks ended April 28, 2012

Fourth quarter fiscal 2011

 

13 weeks ended January 28, 2012

Third quarter fiscal 2011

 

13 weeks ended October 29, 2011

Second quarter fiscal 2011

 

13 weeks ended July 30, 2011

First quarter fiscal 2011

 

13 weeks ended April 30, 2011

 

3



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par amounts)

 

 

 

October 27,
2012

 

January 28,
2012

 

October 29,
2011

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$   5,621

 

$   13,373

 

$   4,962

 

Receivables, net

 

68,920

 

59,706

 

66,372

 

Inventories, net

 

102,172

 

103,420

 

91,003

 

Prepaid expenses, net

 

21,251

 

19,041

 

17,425

 

Deferred tax assets

 

19,327

 

19,733

 

17,596

 

Total current assets

 

217,291

 

215,273

 

197,358

 

Property and equipment, net

 

123,841

 

93,206

 

91,121

 

Intangible assets, net

 

165,013

 

165,193

 

166,082

 

Goodwill

 

17,273

 

16,495

 

16,555

 

Other non-current assets, net

 

21,404

 

19,040

 

18,385

 

Total Assets

 

$544,822

 

$509,207

 

$489,501

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Trade accounts payable and other accrued expenses

 

$  78,550

 

$  89,149

 

$  78,209

 

Accrued compensation

 

21,705

 

23,334

 

21,748

 

Contingent consideration payable

 

2,500

 

2,500

 

 

Short-term debt and current maturities of long-term debt

 

6,955

 

2,571

 

3,279

 

Total current liabilities

 

109,710

 

117,554

 

103,236

 

Long-term debt, less current maturities

 

123,301

 

103,405

 

103,290

 

Non-current contingent consideration

 

9,945

 

10,645

 

12,545

 

Other non-current liabilities

 

43,107

 

38,652

 

41,328

 

Non-current deferred income taxes

 

31,459

 

34,882

 

30,738

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

Common stock, $1.00 par value per common share

 

16,572

 

16,522

 

16,499

 

Additional paid-in capital

 

103,603

 

99,670

 

98,434

 

Retained earnings

 

130,153

 

111,551

 

106,645

 

Accumulated other comprehensive loss

 

(23,028

)

(23,674

)

(23,214

)

Total shareholders’ equity

 

227,300

 

204,069

 

198,364

 

Total Liabilities and Shareholders’ Equity

 

$544,822

 

$509,207

 

$489,501

 

 

See accompanying notes.

 

4



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(in thousands, except per share amounts)

 

 

 

Third
Quarter
Fiscal

2012

 

Third
Quarter
Fiscal
2011

 

First
Nine Months
Fiscal
 2012

 

First
Nine Months
Fiscal
 2011

 

Net sales

 

$181,414

 

$170,280

 

$619,296

 

$559,234

 

Cost of goods sold

 

84,592

 

81,540

 

274,980

 

249,897

 

Gross profit

 

96,822

 

88,740

 

344,316

 

309,337

 

SG&A

 

94,146

 

85,161

 

295,656

 

264,947

 

Change in fair value of contingent consideration

 

600

 

600

 

1,800

 

1,800

 

Royalties and other operating income

 

3,844

 

3,837

 

12,166

 

12,650

 

Operating income

 

5,920

 

6,816

 

59,026

 

55,240

 

Interest expense, net

 

959

 

3,705

 

7,876

 

12,777

 

Loss on repurchase of senior secured notes

 

 

769

 

9,143

 

9,017

 

Earnings from continuing operations before income taxes

 

4,961

 

2,342

 

42,007

 

33,446

 

Income taxes

 

1,951

 

731

 

15,967

 

11,255

 

Earnings from continuing operations

 

3,010

 

1,611

 

26,040

 

22,191

 

 

 

 

 

 

 

 

 

 

 

Earnings from discontinued operations, net of taxes

 

 

13

 

 

137

 

Net earnings

 

$    3,010

 

$    1,624

 

$  26,040

 

$  22,328

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$      0.18

 

$      0.10

 

$      1.57

 

$      1.34

 

Diluted

 

$      0.18

 

$      0.10

 

$      1.57

 

$      1.34

 

Earnings from discontinued operations, net of taxes per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$         —

 

$         —

 

$         —

 

$      0.01

 

Diluted

 

$         —

 

$         —

 

$         —

 

$      0.01

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$      0.18

 

$      0.10

 

$      1.57

 

$      1.35

 

Diluted

 

$      0.18

 

$      0.10

 

$      1.57

 

$      1.35

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

16,580

 

16,502

 

16,555

 

16,510

 

Diluted

 

16,591

 

16,517

 

16,572

 

16,527

 

Dividends declared per common share

 

$      0.15

 

$      0.13

 

$      0.45

 

$      0.39

 

 

See accompanying notes.

 

5



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

 

 

 

Third Quarter
Fiscal 2012

 

Third Quarter
Fiscal 2011

 

First Nine
Months
Fiscal 2012

 

First Nine
Months
Fiscal 2011

 

Net earnings

 

$   3,010

 

$   1,624

 

$ 26,040

 

$ 22,328

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

1,031

 

(642

)

1,129

 

483

 

Net unrealized gain (loss) on forward foreign currency exchange contracts

 

(569

)

151

 

(458

)

122

 

Net unrealized gain (loss) on interest rate swap contract

 

(25

)

 

(25

)

 

Total other comprehensive income (loss), net of taxes

 

437

 

(491

)

646

 

605

 

Comprehensive income

 

$   3,447

 

$   1,133

 

$ 26,686

 

$ 22,933

 

 

See accompanying notes.

 

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OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

First
Nine Months
Fiscal 2012

 

First
Nine Months
Fiscal 2011

 

Cash Flows From Operating Activities:

 

 

 

 

 

Earnings from continuing operations

 

$ 26,040

 

$ 22,191

 

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

17,430

 

15,288

 

Amortization of intangible assets

 

769

 

897

 

Change in fair value of contingent consideration

 

1,800

 

1,800

 

Amortization of deferred financing costs and bond discount

 

846

 

1,286

 

Loss on repurchase of senior secured notes

 

9,143

 

9,017

 

Stock compensation expense

 

2,215

 

1,635

 

Deferred income taxes

 

(3,151

)

3,223

 

Changes in working capital, net of acquisitions and dispositions:

 

 

 

 

 

Receivables

 

(8,902

)

(16,080

)

Inventories

 

2,266

 

(5,511

)

Prepaid expenses

 

(2,541

)

(4,717

)

Current liabilities

 

(12,501

)

(8,690

)

Other non-current assets

 

(3,182

)

2,536

 

Other non-current liabilities

 

4,444

 

(3,441

)

Net cash provided by operating activities

 

34,676

 

19,434

 

Cash Flows From Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(4,313

)

(398

)

Purchases of property and equipment

 

(47,653

)

(22,448

)

Net cash used in investing activities

 

(51,966

)

(22,846

)

Cash Flows From Financing Activities:

 

 

 

 

 

Repayment of revolving credit arrangements

 

(149,266

)

(60,579

)

Proceeds from revolving credit arrangements

 

276,826

 

63,865

 

Repurchase of senior secured notes

 

(111,000

)

(52,175

)

Deferred financing costs paid

 

(1,524

)

 

Proceeds from issuance of common stock

 

1,768

 

2,017

 

Dividends on common stock

 

(7,438

)

(6,425

)

Net cash provided by (used in) financing activities

 

9,366

 

(53,297

)

Cash Flows from Discontinued Operations:

 

 

 

 

 

Net cash provided by discontinued operations

 

 

17,479

 

Net change in cash and cash equivalents

 

(7,924

)

(39,230

)

Effect of foreign currency translation on cash and cash equivalents

 

172

 

98

 

Cash and cash equivalents at the beginning of year

 

13,373

 

44,094

 

Cash and cash equivalents at the end of the period

 

$   5,621

 

$   4,962

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest, net

 

$   7,279

 

$   8,890

 

Cash paid for income taxes, including income taxes paid for discontinued operations

 

$ 20,904

 

$ 40,065

 

 

See accompanying notes.

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THIRD QUARTER OF FISCAL 2012

 

1.                                      Basis of Presentation:  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 U.S. GAAP.  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 the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.  The accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Annual Report on Form 10-K for fiscal 2011.

 

In May 2011, the FASB amended ASC 820 “Fair Value Measurements and Disclosures” in order to clarify existing guidance in U.S. GAAP, better align ASC 820 with International Accounting Standards and require additional fair value disclosures.  The amendments to ASC 820 were adopted by us in the first quarter of fiscal 2012, with all amendments applied prospectively with changes in measurements, if any, recognized in earnings in the first quarter of fiscal 2012. The adoption of the amendments to ASC 820 in the first quarter of fiscal 2012 did not have a material impact on our consolidated financial statements.

 

In July 2012, the FASB amended ASC 350 “Intangibles - Goodwill and Other.” This amendment is intended to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how we test those assets for impairment and to improve consistency in impairment testing among long-lived asset categories. The amendment provides us with the option first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other — General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. We also have the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. We will be able to resume performing the qualitative assessment in any subsequent period. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. We do not expect the adoption of the amendment to ASC 350 to have a material impact on our financial position, results of operations or cash flows.

 

2.                                      Inventories: The components of inventories as of the dates specified are summarized as follows (in thousands):

 

 

 

October 27,
2012

 

January 28,
2012

 

October 29,
2011

 

Finished goods

 

$146,044

 

$143,482

 

$126,570

 

Work in process

 

3,561

 

6,244

 

4,096

 

Fabric, trim and supplies

 

4,943

 

6,070

 

6,291

 

LIFO reserve

 

(52,376

)

(52,376

)

(45,954

)

Total

 

$102,172

 

$103,420

 

$  91,003

 

 

LIFO accounting adjustments, which we consider to include changes in the LIFO reserve as well as the impact of changes in inventory reserves related to lower of cost or market adjustments that do not exceed the LIFO reserve, were a credit of $0.4 million in the third quarter of fiscal 2012, a charge of $0.2 million in the third quarter of fiscal 2011, a credit of $0.5 million in the first nine months of fiscal 2012 and $0.0 million impact in the first nine months of fiscal 2011.

 

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3.                                      Operating Group Information:  Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Ben Sherman and Lanier Clothes, as disclosed in our Annual Report on Form 10-K for fiscal 2011. 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. The table below presents certain information (in thousands) about our operating groups, as well as Corporate and Other, which is a reconciling category for reporting purposes.

 

 

 

Third Quarter
Fiscal 2012

 

Third Quarter
Fiscal 2011

 

First Nine Months
Fiscal 2012

 

First Nine Months
Fiscal 2011

 

Net Sales

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$103,193

 

$  92,500

 

$371,790

 

$324,546

 

Lilly Pulitzer

 

26,939

 

16,668

 

93,475

 

71,364

 

Ben Sherman

 

19,781

 

25,191

 

57,234

 

65,505

 

Lanier Clothes

 

27,180

 

33,080

 

84,995

 

88,995

 

Corporate and Other

 

4,321

 

2,841

 

11,802

 

8,824

 

Total Net Sales

 

$181,414

 

$170,280

 

$619,296

 

$559,234

 

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$    4,511

 

$    4,012

 

$  12,793

 

$  11,277

 

Lilly Pulitzer

 

604

 

553

 

1,674

 

1,482

 

Ben Sherman

 

729

 

583

 

2,016

 

1,736

 

Lanier Clothes

 

107

 

106

 

298

 

322

 

Corporate and Other

 

526

 

473

 

1,418

 

1,368

 

Total Depreciation and Amortization

 

$    6,477

 

$    5,727

 

$  18,199

 

$  16,185

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$    3,366

 

$    4,624

 

$  45,511

 

$  45,381

 

Lilly Pulitzer

 

3,528

 

(363

)

21,949

 

12,264

 

Ben Sherman

 

(2,149

)

301

 

(6,352

)

(2,281

)

Lanier Clothes

 

2,402

 

4,331

 

8,845

 

11,319

 

Corporate and Other

 

(1,227

)

(2,077

)

(10,927

)

(11,443

)

Total Operating Income

 

5,920

 

6,816

 

59,026

 

55,240

 

Interest expense

 

959

 

3,705

 

7,876

 

12,777

 

Loss on repurchase of senior secured notes

 

 

769

 

9,143

 

9,017

 

Earnings from Continuing Operations Before Income Taxes

 

$    4,961

 

$    2,342

 

$  42,007

 

$  33,446

 

 

4.                                      Income Taxes: The income tax expense for each period presented reflects effective tax rates of 39.3%, 31.2%, 38.0% and 33.7% for the third quarter of fiscal 2012, the third quarter of fiscal 2011, the first nine months of fiscal 2012 and the first nine months of fiscal 2011, respectively. The effective tax rate for the third quarter of fiscal 2012 and the first nine months of fiscal 2012 were impacted by losses in foreign jurisdictions for which we were not able to recognize an income tax benefit and a greater proportion of our earnings being in higher tax jurisdictions, which offset favorable discrete items, including a reduction in income tax contingency reserves upon the expiration of the corresponding statute of limitations totaling approximately $2.1 million. The effective tax rate for the third quarter of fiscal 2011 and the first nine months of fiscal 2011 were impacted by certain favorable discrete items, including the reduction of income tax contingency reserves upon the expiration of the corresponding statute of limitations totaling $0.2 million for the third quarter and $0.6 million for the first nine months, as well as the recognition of an income tax benefit for losses in foreign jurisdictions. Additionally, the first nine months of fiscal 2012 and the first nine months of fiscal 2011 reflected the favorable benefit of reductions of enacted tax rates in certain jurisdictions, including the United Kingdom.

 

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5.                                      Debt: The following table details our debt (in thousands) as of the dates specified:

 

 

 

October 27,
2012

 

January 28,
2012

 

October 29,
2011

 

$235 million U.S. Secured Revolving Credit Facility (“U.S. Revolving Credit Agreement”)(1)

 

$123,301

 

N/A

 

N/A

 

$175 million U.S. Secured Revolving Credit Facility (“Prior Revolving Credit Agreement”)(1)

 

N/A

 

$         —

 

$    1,621

 

£7 million Senior Secured Revolving Credit Facility (“U.K. Revolving Credit Agreement”)(2)

 

6,955

 

2,571

 

1,658

 

11.375% Senior Secured Notes (“113/8% Senior Secured Notes”)(3)(4)

 

N/A

 

105,000

 

105,000

 

Unamortized discount

 

 

(1,595

)

(1,710

)

Total debt

 

130,256

 

105,976

 

106,569

 

Short-term debt and current maturities of long-term debt

 

(6,955

)

(2,571

)

(3,279

)

Long-term debt, less current maturities

 

$123,301

 

$103,405

 

$103,290

 

 


(1)         The U.S. Revolving Credit Agreement, entered into in June 2012, amended and restated the Prior Revolving Credit Agreement, which was scheduled to mature in August 2013.  The U.S. Revolving Credit Agreement generally (i) is limited to a borrowing base consisting of specified percentages of eligible categories of assets; (ii) accrues interest, unused line fees and letter of credit fees based upon a pricing grid which is tied to average unused availability and/or utilization; (iii) requires periodic interest payments with principal due at maturity (June 2017); and (iv) is generally secured by a first priority security interest in the accounts receivable, inventory, general intangibles and eligible trademarks, investment property (including the equity interests of certain subsidiaries), deposit accounts, intercompany obligations, equipment, goods, documents, contracts, books and records and other personal property of Oxford Industries, Inc. and substantially all of its domestic subsidiaries.

 

(2)         The U.K. Revolving Credit Agreement generally (i) accrues interest at the bank’s base rate plus an applicable margin; (ii) requires interest payments monthly with principal payable on demand; and (iii) is collateralized by substantially all of the assets of our United Kingdom Ben Sherman subsidiaries.

 

(3)         In the second quarter of fiscal 2012, we redeemed all of the outstanding $105 million in aggregate principal amount of the 113/8% Senior Secured Notes, which were scheduled to mature in July 2015.  The redemption of the 113/8% Senior Secured Notes for $111.0 million, plus accrued interest, and the related write-off of approximately $1.7 million of unamortized deferred financing costs and $1.4 million of unamortized bond discount resulted in a loss on repurchase of senior notes of approximately $9.1 million.  The redemption of the 113/8% Senior Secured Notes satisfied and discharged all of our obligations with respect to the 113/8% Senior Secured Notes and the related indenture and was funded primarily through borrowings under our U.S. Revolving Credit Agreement.

 

(4)         In the second and third quarters of fiscal 2011, we repurchased, in privately negotiated transactions, $45.0 million in aggregate principal amount of the 113/8% Senior Secured Notes for $52.2 million, plus accrued interest. The repurchase of the 113/8% Senior Secured Notes and related write-off of approximately $1.8 million of unamortized deferred financing costs and bond discount resulted in a loss on repurchase of senior notes of approximately $9.0 million during the first nine months of fiscal 2011.

 

To the extent cash flow needs exceed cash flow provided by our operations we will have access, subject to their terms, to our lines of credit to provide funding for operating activities, capital expenditures and acquisitions, if any. Our credit facilities are also used to finance trade letters of credit for product purchases, which are drawn against our lines of credit at the time of shipment of the products and reduce the amounts available under our lines of credit and borrowing capacity under our credit facilities when issued. As of October 27, 2012, approximately $7.8 million of trade letters of credit and other limitations on availability in the aggregate were outstanding against our credit facilities. After considering these limitations and the amount of eligible assets in our borrowing base, as applicable, as of October 27, 2012, we had approximately $90.0 million and $1.4 million in unused availability under the U.S. Revolving Credit Agreement and the U.K. Revolving Credit Agreement, respectively, subject to the respective limitations on borrowings set forth in the U.S. Revolving Credit Agreement and the U.K. 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 to the unaudited condensed consolidated financial statements 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 Annual Report on Form 10-K for fiscal 2011.

 

OVERVIEW

 

We generate revenues and cash flow primarily through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our owned lifestyle brands as well as certain licensed and private label apparel products. We distribute our products through our direct to consumer channels, including our retail stores, e-commerce websites and restaurants, and our wholesale distribution channel, which includes better department stores, specialty stores, national chains, specialty catalogs and Internet retailers. In fiscal 2011, more than 90% of our consolidated net sales were to customers located in the United States, with the remainder primarily sales of our Ben Sherman products in the United Kingdom and Europe. We source substantially all of our products through third party manufacturers located outside of the United States and United Kingdom.

 

We operate in highly competitive domestic and international markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small group of apparel firms, dominate the apparel industry and our direct competitors vary by operating group. We believe that the principal competitive factors in the apparel industry are the reputation, value and image of brand names; design; consumer preference; price; quality; marketing; and customer service. We believe our ability to compete successfully in styling and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference, and presenting appealing products for consumers. In some instances, a retailer that is our customer may compete directly with us by offering certain of their own competing products, some of which may be sourced directly by our customer, in their own retail stores. Additionally, the apparel industry is cyclical and dependent upon the overall level of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. Often, negative economic conditions have a longer and more severe impact on the apparel and retail industry than the conditions have on other industries.

 

The global economic environment and resulting economic uncertainty that began in fiscal 2008 continue to impact each of our operating groups, and the apparel industry as a whole. Although some signs of economic improvements exist and declines in consumer spending in the United States have moderated, unemployment levels remain high, the retail environment remains highly promotional and a significant amount of economic uncertainty remains. The economies in the United Kingdom and Europe, which are important to our Ben Sherman operating group, continue to struggle.

 

While we anticipate sales of our products may continue to be negatively impacted as long as there is an elevated level of economic uncertainty, we believe that our Tommy Bahama and Lilly Pulitzer lifestyle brands have significant opportunities for long-term growth. We believe that these lifestyle brands have opportunities for growth in their direct to consumer businesses through expansion of our retail store operations as well as increases in same store and e-commerce sales. We also believe that these lifestyle brands provide an opportunity for moderate sales increases in their wholesale businesses primarily from current customers adding to their existing door count and the selective addition of new wholesale customers. The Ben Sherman lifestyle brand currently faces challenges due to its elevation of the distribution of the brand and the economic conditions in the United Kingdom and Europe as well as missteps in the merchandise mix during the third quarter of fiscal 2012. We believe that in the long-term Ben Sherman will have future growth opportunities if the elevation of the brand is successful and the economic conditions improve.

 

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Although the challenging economic conditions continue to have an impact on our business and the apparel industry as a whole, and we continue to focus on minimizing inventory markdown risk and promotional pressure, we were more aggressive in our inventory purchases for fiscal 2011 and fiscal 2012 and anticipate continuing this approach for fiscal 2013 as long as the economic conditions do not deteriorate. The second half of fiscal 2011 was impacted by pricing pressures on raw materials, fuel, transportation, labor and other costs necessary for the production and sourcing of apparel products and these pricing pressures continued to negatively impact cost of goods sold into the first half of fiscal 2012. The impact of these increased product costs began to moderate in the third quarter of fiscal 2012.

 

We continue to believe it is important to focus on maintaining a strong balance sheet and ample liquidity, and we believe that our strong balance sheet and liquidity coupled with positive cash flow from operations will provide us sufficient resources to fund future investments in our owned lifestyle brands. In the future, we may add additional lifestyle brands to our portfolio, if we identify appropriate lifestyle brands which meet our investment criteria; however, we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing owned lifestyle brands.

 

The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011:

 

 

 

First Nine Months

 

 

 

Fiscal 2012

 

Fiscal 2011

 

Net sales

 

$

619,296

 

$

559,234

 

Operating income

 

$

59,026

 

$

55,240

 

Earnings from continuing operations

 

$

26,040

 

$

22,191

 

Earnings from continuing operations per diluted common share

 

$

1.57

 

$

1.34

 

 

The primary reasons for the improvement in earnings from continuing operations were:

 

·                  An increase in net sales in both the Tommy Bahama and Lilly Pulitzer operating groups;

 

·                  Lower interest expense in the first nine months of fiscal 2012 due to (1) our borrowing at lower interest rates in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 due to our redemption of the remaining $105.0 million in aggregate principal amount of our 113/8% Senior Secured Notes in July 2012 and (2) the reduction in our average debt levels during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 primarily as a result of our repurchase of $45.0 million in aggregate principal amount of our 113/8% Senior Secured Notes during the second and third quarters of fiscal 2011; and

 

·                  The first nine months of fiscal 2012 not having any purchase accounting adjustments while the first nine months of fiscal 2011 included purchase accounting charges of $1.0 million.

 

These items were partially offset by:

 

·                  A decrease in sales and operating results at both Ben Sherman and Lanier Clothes;

 

·                  An increase in SG&A, which was primarily due to (1) the incremental SG&A associated with the operation of retail stores opened in fiscal 2011 and fiscal 2012, (2) certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama international expansion, (3) higher SG&A to support the growing Tommy Bahama and Lilly Pulitzer businesses and (4) the rent charge associated with our Tommy Bahama New York location which opened in the fourth quarter of fiscal 2012; and

 

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·                  A higher effective tax rate in the first nine months of fiscal 2012 due to us not being able to recognize the income tax benefit of certain losses in foreign jurisdictions and having a greater proportion of our earnings in higher tax jurisdictions, which offset the impact of certain favorable discrete items in that period, while in the first nine months of fiscal 2011, we were able to recognize the income tax benefit of foreign jurisdiction losses as well as having the impact of certain favorable discrete items.

 

Amendment and Restatement of the U.S. Revolving Credit Agreement

 

On June 14, 2012, we entered into the U.S. Revolving Credit Agreement, which provides for a revolving credit facility of up to $235 million which may be used to refinance existing debt, to redeem our previously outstanding 113/8% Senior Secured Notes, to fund working capital, to fund future acquisitions and for general corporate purposes.

 

The U.S. Revolving Credit Agreement amended and restated the Prior Revolving Credit Agreement, which was entered into on August 15, 2008 and scheduled to mature in August 2013.  We believe that the covenants in the U.S. Revolving Credit Agreement are generally less restrictive and provide greater flexibility than those contained in the Prior Revolving Credit Agreement. In addition, the U.S. Revolving Credit Agreement allows us to include in our borrowing base certain amounts attributable to “eligible trademarks,” which amounts would not have been available for inclusion in the borrowing base under the Prior Revolving Credit Agreement.

 

The material terms of the U.S. Revolving Credit Agreement are described in note 4 in the unaudited condensed consolidated financial statements and the Financial Condition, Liquidity and Capital Resources section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in this report.

 

Redemption of 113/8% Senior Secured Notes

 

On July 16, 2012, we redeemed all of the outstanding $105 million in principal amount of the 113/8% Senior Secured Notes, which were scheduled to mature in July 2015.  The redemption of the 113/8% Senior Secured Notes at a premium of $6.0 million and the write-off of approximately $3.1 million of unamortized deferred financing costs and unamortized bond discount resulted in a loss on repurchase of senior notes of approximately $9.1 million.  The redemption of the 113/8% Senior Secured Notes satisfied and discharged all of our obligations with respect to the 113/8% Senior Secured Notes and the related indenture and was funded through borrowings under our U.S. Revolving Credit Agreement and cash on hand.

 

OPERATING GROUPS

 

Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Ben Sherman and Lanier Clothes. 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.

 

Tommy Bahama designs, sources and markets collections of men’s and women’s sportswear and related products. The target consumers of Tommy Bahama are primarily affluent men and women age 35 and older who embrace a relaxed and casual approach to daily living. Tommy Bahama® products can be found in our owned Tommy Bahama retail stores within and outside the United States and on our Tommy Bahama e-commerce website, www.tommybahama.com, as well as in better department stores and independent specialty stores throughout the United States and licensed Tommy Bahama retail stores outside the United States. We also operate Tommy Bahama restaurants and license the Tommy Bahama name for various product categories. As of October 27, 2012, we operated 110 owned Tommy Bahama retail stores, including 73 full-price stores, 13 restaurant-retail locations and 24 outlet stores. This store count includes both our 103 owned domestic and seven owned international retail store locations. The seven international stores include five retail stores in Australia which we acquired from our former licensee during the second quarter of fiscal 2012 as well as our Macau and Singapore stores opened in the first quarter and second quarter of fiscal 2012, respectively.

 

Lilly Pulitzer designs, sources and distributes upscale collections of women’s and girl’s dresses, sportswear and other products. Lilly Pulitzer was originally created in the late 1950’s and is an affluent brand with a heritage and aesthetic based on the Palm Beach resort lifestyle. The brand is somewhat unique among women’s brands in that it has demonstrated multi-generational appeal, including young women in college or recently graduated from college; young

 

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mothers with their daughters; and women who are not tied to the academic calendar. Lilly Pulitzer® products can be found in our owned Lilly Pulitzer stores, in Lilly Pulitzer Signature Stores and on our Lilly Pulitzer website, www.lillypulitzer.com, as well as in better department and independent specialty stores. We also license the Lilly Pulitzer name for various product categories. As of October 27, 2012, we operated 18 owned Lilly Pulitzer retail stores.

 

Ben Sherman is a London-based designer, marketer and distributor of men’s branded sportswear and related products. Ben Sherman was established in 1963 as an edgy shirt brand that was adopted by the “Mods” and has throughout its history been inspired by what is new and current in British art, music, culture and style. The brand has evolved into a British modernist lifestyle brand of apparel targeted at style conscious men ages 25 to 40 in multiple markets throughout the world. Ben Sherman® products can be found in better department stores, a variety of independent specialty stores and our owned and licensed Ben Sherman retail stores, as well as on Ben Sherman e-commerce websites. We also license the Ben Sherman name for various product categories. As of October 27, 2012, we operated 19 owned Ben Sherman international and domestic retail stores, including seven outlet stores.

 

Lanier Clothes designs, sources and markets branded and private label men’s tailored clothing, including suits, sportcoats, suit separates and dress slacks across a wide range of price points, with the majority of the business at moderate price points. Our Lanier Clothes branded products are sold under certain trademarks licensed to us by third parties including Kenneth Cole®, Dockers®, Geoffrey Beene® and Ike Behar®. Additionally, we design and market products for our owned Billy London®, Arnold Brant® and Oxford Republic® brands. In addition to the branded businesses, Lanier Clothes designs and sources certain private label tailored clothing products. Significant private label brands for which we produce tailored clothing include Lands’ End, Stafford, Alfani, Structure, and Kenneth Roberts. Our Lanier Clothes products are sold to national chains, department stores, specialty stores, specialty catalog retailers and discount retailers throughout the United States.

 

Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments, other costs that are not allocated to the operating groups and operations of our other businesses which are not included in our four operating groups. The operations that are included in Corporate and Other include our Oxford Golf business and our Lyons, Georgia distribution center.

 

For further information regarding our operating groups, see Note 3 to our unaudited condensed consolidated financial statements included in this report and Part I, Item 1. Business in our Annual Report on Form 10-K for fiscal 2011.

 

RESULTS OF OPERATIONS

 

THIRD QUARTER OF FISCAL 2012 COMPARED TO THIRD QUARTER OF FISCAL 2011

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of earnings both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. For purposes of the tables below, “NM” means not meaningful. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.

 

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Table of Contents

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Net sales

 

$ 181,414

 

100.0%

 

$ 170,280

 

100.0%

 

$ 11,134

 

6.5%

 

Cost of goods sold

 

84,592

 

46.6%

 

81,540

 

47.9%

 

3,052

 

3.7%

 

Gross profit

 

96,822

 

53.4%

 

88,740

 

52.1%

 

8,082

 

9.1%

 

SG&A

 

94,146

 

51.9%

 

85,161

 

50.0%

 

8,985

 

10.6%

 

Change in fair value of contingent consideration

 

600

 

0.3%

 

600

 

0.4%

 

 

 

Royalties and other operating income

 

3,844

 

2.1%

 

3,837

 

2.3%

 

7

 

0.2%

 

Operating income

 

5,920

 

3.3%

 

6,816

 

4.0%

 

(896

)

(13.1)%

 

Interest expense, net

 

959

 

0.5%

 

3,705

 

2.2%

 

(2,746

)

(74.1)%

 

Loss on repurchase of senior secured notes

 

 

—%

 

769

 

0.5%

 

(769

)

(100.0)%

 

Earnings from continuing operations before income taxes

 

4,961

 

2.7%

 

2,342

 

1.4%

 

2,619

 

111.8%

 

Income taxes

 

1,951

 

1.1%

 

731

 

0.4%

 

1,220

 

166.9%

 

Earnings from continuing operations

 

$     3,010

 

1.7%

 

$     1,611

 

0.9%

 

$ 1,399

 

86.9%

 

 

The discussion and tables below compare certain line items included in our statements of earnings for the third quarter of fiscal 2012 to the third quarter of fiscal 2011. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts.

 

Net Sales

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Tommy Bahama

 

$  103,193

 

$   92,500

 

$ 10,693 

 

11.6%

 

Lilly Pulitzer

 

26,939

 

16,668

 

10,271

 

61.6%

 

Ben Sherman

 

19,781

 

25,191

 

(5,410

)

(21.5)%

 

Lanier Clothes

 

27,180

 

33,080

 

(5,900

)

(17.8)%

 

Corporate and Other

 

4,321

 

2,841

 

1,480

 

52.1%

 

Total net sales

 

$  181,414

 

$ 170,280

 

$  11,134

 

6.5%

 

 

Consolidated net sales increased $11.1 million, or 6.5%, in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 primarily due to the increase in net sales at Tommy Bahama and Lilly Pulitzer, which were partially offset by decreased net sales at Lanier Clothes and Ben Sherman, each as discussed below. The third quarter is typically our lowest sales quarter of the fiscal year.

 

Tommy Bahama:

 

The 11.6% increase in net sales for Tommy Bahama was primarily driven by increased sales in both the direct to consumer and wholesale distribution channels with the largest increase in the direct to consumer business. The increased sales in the direct to consumer business resulted from net sales at additional retail stores operated during fiscal 2012, a significant increase in e-commerce sales and a low single digit percentage increase in comparable full-price retail store sales. Tommy Bahama apparel unit sales increased by 10.3% due to the higher volume in each distribution channel, and the average selling price per unit increased by 1.9%, primarily as a result of the higher proportion of net sales from the direct to consumer channel of distribution. As of October 27, 2012, Tommy Bahama operated 110 retail stores compared to 94 retail stores as of October 29, 2011.

 

Lilly Pulitzer:

 

The 61.6% increase in net sales for Lilly Pulitzer was driven by increased sales in both the direct to consumer distribution channel and the wholesale distribution channel. The increase in the direct to consumer channel included a significant increase in e-commerce sales, net sales at the additional retail stores operated during fiscal 2012 and a low double digit percentage increase in comparable retail store sales. The higher e-commerce sales benefitted from a very strong end of season flash e-commerce sale which generated approximately $6.1 million of sales in the third quarter of fiscal 2012 compared to approximately $2.0 million of end of season flash sales in the third quarter of fiscal 2011 and also benefitted from a healthy full-price ecommerce sales increase during the period. Unit sales increased by 63.8% due to

 

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the higher volume in each distribution channel, while the average selling price per unit decreased by 1.4% despite a greater percentage of Lilly Pulitzer sales being direct to consumer sales. The decreased selling price per unit primarily resulted from a change in product mix as sportswear and knit dresses, both of which generally sell at lower price points than woven dresses, represented a greater proportion of the Lilly Pulitzer business and the impact of the e-commerce sale which sold product at prices more in line with typical wholesale prices rather than full price direct to consumer prices. As of October 27, 2012, Lilly Pulitzer operated 18 retail stores compared to 16 retail stores as of October 29, 2011.

 

Ben Sherman:

 

Net sales for Ben Sherman decreased by 21.5% in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011. The decrease in net sales for Ben Sherman was primarily driven by a reduction in unit volume of 25.6% primarily attributable to (1) missteps in Ben Sherman’s merchandise assortment planning, which resulted in too much of the product offering in styles at the higher end of the price range, particularly in the current economic environment, (2) the difficult economic conditions in the United Kingdom and Europe and (3) our exit from certain moderate wholesale accounts in the United Kingdom. The reduction in units sold was partially offset by an increase in the average selling price per unit of 5.6%. The increase in average selling price per unit was primarily due to (1) a greater proportion of Ben Sherman’s sales being retail sales, which generally have higher selling prices, and (2) our strategy to improve the distribution of the brand in the United Kingdom by exiting certain moderate wholesale accounts and increasing product prices, which were partially offset by an unfavorable foreign currency translation impact resulting from a 0.5% change in average exchange rates between the two periods.

 

Lanier Clothes:

 

Net sales for Lanier Clothes decreased by 17.8% in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011.  This decrease resulted from a 16.1% decrease in unit sales, with decreases in both private label and branded businesses, and a 2.1% decrease in average selling price per unit primarily due to competitive factors and a change in sales mix. The decrease in unit sales was due in part to the prior year benefitting from initial shipments related to a new product launch and a slow-down in inventory intake on a replenishment program by a key customer in fiscal 2012.

 

Corporate and Other:

 

Corporate and Other net sales primarily consisted of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center. The increase in the net sales for Corporate and Other was primarily driven by the higher net sales in our Oxford Golf business during the third quarter of fiscal 2012.

 

Gross Profit

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Gross profit

 

$  96,822

 

$ 88,740

 

$ 8,082

 

9.1

%

Gross margin (gross profit as a % of net sales)

 

53.4

%

52.1

%

 

 

 

 

LIFO (credits) charges included in gross profit

 

$      (426

)

$      220

 

 

 

 

 

 

The 9.1% increase in gross profit in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 was primarily due to the 6.5% increase in net sales, as discussed above, and higher consolidated gross margins. The third quarter of fiscal 2012 experienced an increase in consolidated gross margins resulting, in part, from a change in our consolidated sales mix, the net favorable impact of LIFO accounting adjustments between the two periods and lower product cost pressures on our gross margins. During the third quarter of fiscal 2012, the changes in sales mix included an increased proportion of sales of the higher gross margin Tommy Bahama and Lilly Pulitzer brands and an increased proportion of sales being from the higher gross margin direct to consumer businesses rather than wholesale sales.

 

Certain of the year-over-year product cost pressures that impacted our operating groups during the second half of fiscal 2011 and the first half of fiscal 2012 began to ease in the third quarter of fiscal 2012 as the impact of certain of the higher product costs moderated. We expect that certain competitive factors impacting Lanier Clothes and Ben Sherman will persist, which may continue to negatively impact the gross margins in these operating groups. Our gross profit may not be directly comparable to those of our competitors, as statement of earnings classification of certain expenses may vary by company.

 

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SG&A

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

SG&A

 

$

94,146

 

$

85,161

 

 

$

8,985

 

10.6

%

SG&A (as % of net sales)

 

51.9

%

50.0

%

 

 

 

 

 

 

The increase in SG&A was primarily due to (1) certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama international expansion, (2) the incremental SG&A in the third quarter of fiscal 2012 associated with operating additional Tommy Bahama and Lilly Pulitzer retail stores, (3) the pre-opening rent charge associated with our Tommy Bahama New York location, which in accordance with U.S. GAAP was required to be recognized as an ongoing expense of the store from the time we took possession of the space and (4) higher SG&A to support the growing Tommy Bahama and Lilly Pulitzer businesses. The third quarter of fiscal 2012 included SG&A charges of approximately $5.1 million related to the Tommy Bahama international expansion and the Tommy Bahama New York store. The third quarter of fiscal 2011 included SG&A charges of $1.2 million related to international operations and the Tommy Bahama New York store. The increases in SG&A for Tommy Bahama and Lilly Pulitzer were partially offset by SG&A reductions in Ben Sherman and Lanier Clothes. SG&A for both the third quarter of fiscal 2012 and the third quarter of fiscal 2011 included charges of $0.3 million related to the amortization of intangible assets.

 

Change in fair value of contingent consideration

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Change in fair value of contingent consideration

 

$

600

 

$

600

 

 

$

 

%

 

Change in fair value of contingent consideration reflects the current period impact of the change in fair value of the contingent consideration obligation associated with the Lilly Pulitzer acquisition, as discussed in our Annual Report on Form 10-K for fiscal 2011. We anticipate that the change in contingent consideration for the full year of fiscal 2012 will be approximately $2.4 million; however, that amount could change significantly depending upon whether there are any changes in future periods to our assumptions about the probability of payment of the contingent consideration, appropriate discount rate or other factors.

 

Royalties and other operating income

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Royalties and other operating income

 

$

3,844

 

$

3,837

 

 

$

7

 

0.2

%

 

Royalties and other operating income in the third quarter of fiscal 2012 primarily reflects income received from third parties from the licensing of our Tommy Bahama, Ben Sherman and Lilly Pulitzer brands, which were comparable on a consolidated basis to the royalty income recognized in the third quarter of fiscal 2011.

 

Operating income (loss)

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Tommy Bahama

 

$

3,366

 

$

4,624

 

 

$

(1,258

)

(27.2)%

 

Lilly Pulitzer

 

3,528

 

(363

)

 

3,891

 

NM

 

Ben Sherman

 

(2,149

)

301

 

 

(2,450

)

NM

 

Lanier Clothes

 

2,402

 

4,331

 

 

(1,929

)

(44.5)%

 

Corporate and Other

 

(1,227

)

(2,077

)

 

850

 

40.9%

 

Total operating income

 

$

5,920

 

$

6,816

 

 

$

(896

)

(13.1)%

 

LIFO (credits) charges included in operating income

 

$

(426

)

$

220

 

 

 

 

 

 

Charge for increase in fair value of contingent consideration included in operating income

 

$

600

 

$

600

 

 

 

 

 

 

 

17



Table of Contents

 

Operating income, on a consolidated basis, decreased to $5.9 million in the third quarter of fiscal 2012 from $6.8 million in the third quarter of fiscal 2011. The 13.1% decrease in operating income was primarily due to the lower operating results in Ben Sherman and Lanier Clothes and SG&A increases in Tommy Bahama and Lilly Pulitzer related to expansion of these brands. These items were partially offset by higher net sales in Tommy Bahama and Lilly Pulitzer. Changes in operating income by operating group are discussed below.

 

Tommy Bahama:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

103,193

 

$

92,500

 

 

$

10,693

 

11.6

%

Operating income

 

$

3,366

 

$

4,624

 

 

$

(1,258

)

(27.2)

%

Operating income as % of net sales

 

3.3

%

5.0

%

 

 

 

 

 

 

The decrease in operating income for Tommy Bahama was primarily due to increased SG&A associated with (1) certain infrastructure, pre-opening retail store rent and other costs associated with Tommy Bahama’s international expansion, (2) operating additional retail stores during the third quarter of fiscal 2012, (3) the pre-opening rent charge associated with our Tommy Bahama New York location, which in accordance with U.S. GAAP is required to be recognized as an ongoing expense of the store from the time we took possession of the space and (4) higher SG&A to support the growing Tommy Bahama business. The additional SG&A costs were partially offset by the impact of the increased net sales of Tommy Bahama products in the third quarter of fiscal 2012.

 

The third quarter of fiscal 2012 included operating losses of approximately $4.0 million related to the Tommy Bahama international expansion and the Tommy Bahama New York store, compared to operating losses of $1.2 million related to the Tommy Bahama international expansion and the Tommy Bahama New York store in the third quarter of fiscal 2011. The $4.0 million operating loss related to the Tommy Bahama international expansion and the Tommy Bahama New York store reflect approximately $5.1 million of SG&A costs partially offset by approximately $1.1 million of gross margin related to sales in our international stores and royalty income during the third quarter of fiscal 2012.

 

Lilly Pulitzer:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

26,939

 

$

16,668

 

 

$

10,271

 

61.6%

 

Operating income (loss)

 

$

3,528

 

$

(363

)

 

$

3,891

 

NM

 

Operating income (loss) as % of net sales

 

13.1

%

(2.2

)%

 

 

 

 

 

Charge for increase in fair value of contingent consideration included in operating income

 

$

600

 

$

600

 

 

 

 

 

 

 

The improved operating results for Lilly Pulitzer were primarily due to increased net sales in each distribution channel. The increased net sales were partially offset by increased SG&A associated with the cost of operating additional retail stores during the third quarter of fiscal 2012 and higher SG&A to support the growing Lilly Pulitzer business. Both periods were impacted by a charge of $0.6 million for the change in the fair value of contingent consideration.

 

Ben Sherman:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

19,781

 

$

25,191

 

 

$

(5,410

)

(21.5)%

 

Operating income (loss)

 

$

(2,149

)

$

301

 

 

$

(2,450

)

NM

 

Operating income (loss) as % of net sales

 

(10.9

)%

1.2

%

 

 

 

 

 

 

The decline in operating results for Ben Sherman in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 was primarily due to the decreased sales, as discussed above, partially offset by decreased SG&A.

 

18



Table of Contents

 

Lanier Clothes:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

27,180

 

$

33,080

 

 

$

(5,900

)

(17.8)

%

Operating income

 

$

2,402

 

$

4,331

 

 

$

(1,929

)

(44.5)

%

Operating income as % of net sales

 

8.8

%

13.1

%

 

 

 

 

 

 

The decrease in operating income for Lanier Clothes was primarily the result of the lower sales and gross margins, partially offset by decreased SG&A. Gross margin pressures resulted from both competitive factors and product cost pressures.

 

Corporate and Other:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

4,321

 

$

2,841

 

 

$

1,480 

 

52.1

%

Operating loss

 

$

(1,227

)

$

(2,077

)

 

$

850 

 

40.9

%

LIFO (credits) charges included in operating loss

 

$

(426

)

$

220

 

 

 

 

 

 

 

The Corporate and Other operating results improved by $0.9 million from a loss of $2.1 million in the third quarter of fiscal 2011 to a loss of $1.2 million in the third quarter of fiscal 2012. The improved operating results for fiscal 2012 reflect the net impact of LIFO accounting, with credits of $0.4 million in the third quarter of fiscal 2012 and charges of $0.2 million in the third quarter of fiscal 2011 as well as better operating results in our Oxford Golf business.

 

Interest expense, net

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Interest expense, net

 

$

959

 

$

3,705

 

 

$

(2,746

)

(74.1)

%

 

Interest expense for the third quarter of fiscal 2012 decreased due to our borrowing at lower interest rates in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011. During the third quarter of fiscal 2012, substantially all of our borrowings were under our U.S. Revolving Credit Agreement, whereas substantially all of our borrowings in the third quarter of fiscal 2011 were from our 113/8% Senior Secured Notes. The change in the source of our borrowings resulted from our redemption of our 113/8% Senior Secured Notes in July 2012, which was funded with borrowings under our U.S. Revolving Credit Agreement and cash on hand. We anticipate that interest expense for the fourth quarter of fiscal 2012 will be approximately $1.0 million.

 

Loss on repurchase of senior secured notes

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Loss on repurchase of senior secured notes

 

$

 

$

769

 

 

$

(769

)

NM

 

 

In the third quarter of fiscal 2011, we repurchased in a privately negotiated transaction, $5.0 million in aggregate principal amount of our 113/8% Senior Secured Notes. The repurchase of the 113/8% Senior Secured Notes and related write-off of unamortized deferred financing costs and discount resulted in a loss of approximately $0.8 million in the third quarter of fiscal 2011. No loss on repurchase of senior secured notes was incurred in the third quarter of fiscal 2012 as we redeemed the remaining $105.0 million in aggregate principal amount of our 113/8% Senior Secured Notes in the second quarter of fiscal 2012.

 

Income taxes

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Income taxes

 

$

1,951

 

$

731

 

 

$

1,220 

 

166.9

%

Effective tax rate

 

39.3

%

31.2

%

 

 

 

 

 

 

19



Table of Contents

 

Income tax expense for the third quarter of fiscal 2012 increased compared to the third quarter of fiscal 2011, primarily due to higher earnings in the third quarter of fiscal 2012 as well as an increase in the effective tax rate.  Income taxes for the third quarter of fiscal 2012 were impacted by losses in foreign jurisdictions for which we were not able to recognize an income tax benefit and a greater proportion of our earnings being in jurisdictions with higher tax rates, which offset favorable discrete items during the period, including the reduction in income tax contingency reserves upon the expiration of the corresponding statute of limitations. Income taxes for the third quarter of fiscal 2011 were impacted by certain favorable discrete items, including the reduction of income tax contingency reserves upon the expiration of the corresponding statute of limitations, as well as the recognition of an income tax benefit for losses in foreign jurisdictions.

 

Net earnings

 

 

 

Third Quarter

 

 

Fiscal 2012

 

Fiscal 2011

Earnings from continuing operations

 

 

$

3,010

 

$

1,611

 

Earnings from continuing operations per diluted common share

 

 

$

0.18

 

$

0.10

 

Weighted average common shares outstanding-diluted

 

 

 

16,591

 

 

16,517

 

 

The increase in earnings from continuing operations for the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 was primarily due to (1) the higher sales in Tommy Bahama and Lilly Pulitzer, (2) lower interest expense due to our third quarter fiscal 2012 borrowings being primarily under our U.S. Revolving Credit Agreement compared to our third quarter fiscal 2011 borrowings being primarily our 113/8% Senior Secured Notes, and (3) the absence of any loss on repurchase of senior secured notes in the third quarter of fiscal 2012. These items were partially offset by (1) lower sales at Lanier Clothes and Ben Sherman, (2) higher SG&A in Tommy Bahama and Lilly Pulitzer to support the continued growth and expansion of these brands, and (3) a higher effective tax rate during the third quarter of fiscal 2012. The third quarter of each fiscal year is generally our lowest net sales and earnings quarter compared to the other quarters during our fiscal year.

 

FIRST NINE MONTHS OF FISCAL 2012 COMPARED TO FIRST NINE MONTHS OF FISCAL 2011

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of earnings both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. For purposes of the tables below, “NM” means not meaningful. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Net sales

 

$ 619,296

 

100.0%

 

 $ 559,234

 

100.0%

 

$ 60,062

 

10.7%

 

Cost of goods sold

 

274,980

 

44.4%

 

249,897

 

44.7%

 

25,083

 

10.0%

 

Gross profit

 

344,316

 

55.6%

 

309,337

 

55.3%

 

34,979

 

11.3%

 

SG&A

 

295,656

 

47.7%

 

264,947

 

47.4%

 

30,709

 

11.6%

 

Change in fair value of contingent consideration

 

1,800

 

0.3%

 

1,800

 

0.3%

 

––

 

––

 

Royalties and other operating income

 

12,166

 

2.0%

 

12,650

 

2.3%

 

(484

)

(3.8)%

 

Operating income

 

59,026

 

9.5%

 

55,240

 

9.9%

 

3,786

 

 6.9%

 

Interest expense, net

 

7,876

 

1.3%

 

12,777

 

2.3%

 

(4,901

)

(38.4)%

 

Loss on repurchase of senior secured notes

 

9,143

 

1.5%

 

9,017

 

1.6%

 

126

 

1.4%

 

Earnings from continuing operations before income taxes

 

42,007

 

6.8%

 

33,446

 

6.0%

 

8,561

 

25.6%

 

Income taxes

 

15,967

 

2.6%

 

11,255

 

2.0%

 

4,712

 

41.9%

 

Earnings from continuing operations

 

26,040

 

4.2%

 

22,191

 

4.0%

 

3,849

 

17.3%

 

 

20



Table of Contents

 

The discussion and tables below compare certain line items included in our statements of earnings for the first nine months of fiscal 2012 to the first nine months of fiscal 2011. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts.

 

Net Sales

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Tommy Bahama

 

$  371,790

 

$  324,546

 

$  47,244 

 

14.6%

 

Lilly Pulitzer

 

93,475

 

71,364

 

22,111

 

31.0%

 

Ben Sherman

 

57,234

 

65,505

 

(8,271

)

(12.6)%

 

Lanier Clothes

 

84,995

 

88,995

 

(4,000

)

(4.5)%

 

Corporate and Other

 

11,802

 

8,824

 

2,978

 

33.7%

 

Total net sales

 

$  619,296

 

$  559,234

 

$  60,062

 

10.7%

 

 

Consolidated net sales increased $60.1 million, or 10.7%, in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 primarily due to the increase in net sales at Tommy Bahama and Lilly Pulitzer, partially offset by the decrease in net sales at Ben Sherman and Lanier Clothes, each as discussed below.

 

Tommy Bahama:

 

The 14.6% increase in net sales for Tommy Bahama was primarily driven by increased sales in both the direct to consumer and wholesale distribution channels with the largest increase in the direct to consumer business. The increased sales in the direct to consumer business resulted from a significant increase in e-commerce sales, net sales at the additional retail stores operated during fiscal 2012 and a high single digit percentage increase in comparable full-price retail store sales for the first nine months of fiscal 2012. Tommy Bahama apparel unit sales increased by 12.8% due to the higher volume in each distribution channel, and the average selling price per unit increased by 3.0%, primarily as a result of the higher proportion of net sales from the direct to consumer channel of distribution. As of October 27, 2012, Tommy Bahama operated 110 retail stores compared to 94 retail stores as of October 29, 2011.

 

Lilly Pulitzer:

 

The 31.0% increase in net sales for Lilly Pulitzer was driven by increased sales in both the direct to consumer and wholesale distribution channels. The increases in the direct to consumer channel included a significant increase in e-commerce sales, sales at additional stores operated in fiscal 2012 and a low double digit percentage increase in comparable retail store sales. The higher e-commerce sales benefitted from a very strong end of season flash e-commerce sale which generated $6.1 million of sales in the first nine months of fiscal 2012 compared to $2.0 million of end of season flash sales in the first nine months of fiscal 2011 and also benefitted from increased full-price ecommerce sales during the nine month period. Unit sales increased by 37.9% due to the higher volume in each distribution channel, while the average selling price per unit decreased by 5.0% despite a greater percentage of Lilly Pulitzer sales being direct to consumer sales. The decreased selling price per unit resulted from a change in product mix as sportswear and knit dresses, both of which generally sell at lower price points than woven dresses, represented a greater proportion of the Lilly Pulitzer business and the impact of the e-commerce sale which sold product at prices more in line with typical wholesale prices rather than full price direct to consumer prices. As of October 27, 2012, Lilly Pulitzer operated 18 retail stores compared to 16 retail stores as of October 29, 2011.

 

Ben Sherman:

 

Net sales for Ben Sherman decreased by 12.6% in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The decrease in net sales for Ben Sherman was driven by a reduction in unit volume of 19.7% primarily attributable to (1) missteps in Ben Sherman’s merchandise assortment planning for the third quarter, which resulted in too much of the product offering in styles at the higher end of the price range, particularly in the current economic environment, (2) the difficult economic conditions in the United Kingdom and Europe and (3) our exit from certain moderate wholesale accounts in the United Kingdom. The reduction in units sold was partially offset by an increase in the average selling price per unit of 8.7%. The increase in average selling price per unit was primarily due to (1) a greater proportion of Ben Sherman’s sales being retail sales, which generally have higher selling prices, and (2) our strategy to improve the distribution of the brand in the United Kingdom by exiting certain moderate wholesale accounts and increasing product prices, which were partially offset by an unfavorable foreign currency translation impact resulting from a 1.9% change in average exchange rates between the two periods.

 

21



Table of Contents

 

Lanier Clothes:

 

Net sales for Lanier Clothes decreased by 4.5% in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011.  A decrease in unit sales of 8.4% was primarily driven by the decreased unit sales in the private label businesses, which was partially offset by an increase in unit sales of branded tailored clothing products. The decrease in unit sales in private label was primarily due to the first nine months of fiscal 2011 benefitting from initial shipments related to a new product launch, while the first nine months of fiscal 2012 were impacted by a slow-down in the inventory intake on a replenishment program by a key customer. The average selling price per unit increased 4.2% as a result of the change in product sales mix towards branded apparel, which generally has a higher average selling price per unit.

 

Corporate and Other:

 

Corporate and Other net sales primarily consisted of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center. The increase in the net sales for Corporate and Other was primarily driven by the higher net sales in our Oxford Golf business during the first nine months of fiscal 2012.

 

Gross Profit

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

Gross profit

 

$ 344,316

 

$ 309,337

 

$ 34,979 

 

11.3

%

Gross margin (gross profit as a % of net sales)

 

55.6

%

55.3

%

 

 

 

 

LIFO (credits) charges included in gross profit

 

$       (461

)

$            6

 

 

 

 

 

Purchase accounting charge related to write-up of acquired inventory included in gross profit

 

$          —

 

$        996

 

 

 

 

 

 

The 11.3% increase in gross profit in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 was primarily due to the 10.7% increase in net sales, as discussed above. The first nine months of fiscal 2012 experienced a modest increase in gross margins primarily resulting from a change in sales mix with an increase in the proportion of total sales at our higher gross margin Tommy Bahama and Lilly Pulitzer brands and a higher proportion of sales from our higher gross margin direct to consumer businesses. The first nine months of fiscal 2012 included LIFO accounting credits of $0.5 million while the first nine months of fiscal 2011 included purchase accounting charges of $1.0 million. The impact of these favorable items on gross margins in the first nine months of fiscal 2012 were partially offset by the higher product cost pressures during the first six months of fiscal 2012 compared to the first six months of fiscal 2011.

 

Certain of the year-over-year product cost pressures that impacted our operating groups during the second half of fiscal 2011 and the first half of fiscal 2012 began to ease in the third quarter of fiscal 2012 as the impact of certain of the higher product costs moderated. We expect that certain competitive factors impacting Lanier Clothes and Ben Sherman will persist, which may continue to negatively impact the gross margins in those operating groups. Our gross profit may not be directly comparable to those of our competitors, as statement of earnings classification of certain expenses may vary by company.

 

SG&A

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

$ Change

 

% Change

 

SG&A

 

$ 295,656

 

$ 264,947

 

$ 30,709 

 

11.6

%

SG&A (as % of net sales)

 

47.7

%

47.4

%

 

 

 

 

 

The increase in SG&A was primarily due to (1) the incremental SG&A in the first nine months of fiscal 2012 associated with operating additional Tommy Bahama and Lilly Pulitzer retail stores, (2) certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama international expansion, (3) the pre-opening rent charge associated with our Tommy Bahama New York location, which in accordance with U.S. GAAP was required to be recognized as an ongoing expense of the store at the time we took possession of the space and (4) higher SG&A to support the growing Tommy Bahama and Lilly Pulitzer businesses. The first nine months of fiscal 2012 included SG&A charges of approximately $11.6 million, compared to $2.0 million related to the Tommy Bahama international expansion and the Tommy Bahama New York store in the first nine months of fiscal 2011. The increases in SG&A in Tommy Bahama and Lilly Pulitzer were partially offset by reductions in SG&A in Lanier Clothes during

 

22



Table of Contents

 

the first nine months of fiscal 2012. SG&A for the first nine months of fiscal 2012 and the first nine months of fiscal 2011 included charges of $0.8 million and $0.9 million, respectively, related to the amortization of intangible assets.

 

Change in fair value of contingent consideration

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Change in fair value of contingent consideration

 

$

1,800

 

$

1,800

 

 

$

 

%

 

Change in fair value of contingent consideration reflects the current period impact of the change in fair value of the contingent consideration obligation associated with the Lilly Pulitzer acquisition, as discussed in our Annual Report on Form 10-K for fiscal 2011. We anticipate that the change in contingent consideration for the full year of fiscal 2012 will be approximately $2.4 million; however, that amount could change significantly depending upon whether there are any changes in future periods to our assumptions about the probability of payment of the contingent consideration, appropriate discount rate or other factors.

 

Royalties and other operating income

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Royalties and other operating income

 

$

12,166

 

$

12,650

 

 

$

(484

)

(3.8

)%

 

The decrease in royalties and other operating income was primarily due to lower royalty income in the Ben Sherman and Tommy Bahama businesses, partially offset by increased royalty income at Lilly Pulitzer during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011.

 

Operating income (loss)

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Tommy Bahama

 

$

45,511

 

$

45,381

 

 

$

130

 

0.3

%

Lilly Pulitzer

 

21,949

 

12,264

 

 

9,685

 

79.0

%

Ben Sherman

 

(6,352

)

(2,281

)

 

(4,071

)

(178.5)

%

Lanier Clothes

 

8,845

 

11,319

 

 

(2,474

)

(21.9)

%

Corporate and Other

 

(10,927

)

(11,443

)

 

516

 

4.5

%

Total operating income

 

$

59,026

 

$

55,240

 

 

$

3,786

 

6.9

%

LIFO (credits) charges included in operating income

 

$

(461

)

$

6

 

 

 

 

 

 

Purchase accounting charge related to write-up of acquired inventory included in operating income

 

$

 

$

996

 

 

 

 

 

 

Charge for increase in fair value of contingent consideration included in operating income

 

$

1,800

 

$

1,800

 

 

 

 

 

 

 

Operating income, on a consolidated basis, increased to $59.0 million in the first nine months of fiscal 2012 from $55.2 million in the first nine months of fiscal 2011. The 6.9% increase in operating income was primarily due to (1) higher net sales in Lilly Pulitzer and Tommy Bahama and (2) the first nine months of fiscal 2011 including an approximate $1.0 million charge for the write-up of acquired inventory at Lilly Pulitzer. These positive items were partially offset by lower operating results in Ben Sherman and Lanier Clothes and the SG&A increases in Tommy Bahama and Lilly Pulitzer related to the expansion of these brands. Changes in operating income by operating group are discussed below.

 

Tommy Bahama:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

371,790

 

$

324,546

 

 

$

47,244

 

14.6

%

Operating income

 

$

45,511

 

$

45,381

 

 

$

130

 

0.3

%

Operating income as % of net sales

 

12.2

%

14.0

%

 

 

 

 

 

 

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The increase in operating income for Tommy Bahama was primarily due to higher sales in Tommy Bahama for the first nine months of fiscal 2012. The impact of the higher sales was partially offset by increased SG&A associated with (1) operating additional retail stores, (2) certain infrastructure, pre-opening retail store rent and other costs associated with Tommy Bahama’s international expansion, (3) the pre-opening rent charge associated with our Tommy Bahama New York location, which in accordance with U.S. GAAP is required to be recognized as an ongoing expense of the store at the time we took possession of the space and (4) higher SG&A to support the growing Tommy Bahama business.

 

The first nine months of fiscal 2012 and the first nine months of fiscal 2011 included operating losses of approximately $9.8 million and $1.9 million, respectively, related to the Tommy Bahama international expansion and the Tommy Bahama New York store, which opened in the fourth quarter of fiscal 2012.  The $9.8 million operating loss attributable to the Tommy Bahama international expansion and the Tommy Bahama New York store reflect approximately $11.6 million of SG&A costs partially offset by approximately $1.8 million of gross margin related to sales in our international stores and royalty income during the first nine months of fiscal 2012.

 

Lilly Pulitzer:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

93,475

 

$

71,364

 

 

$

22,111

 

31.0

%

Operating income

 

$

21,949

 

$

12,264

 

 

$

9,685

 

79.0

%

Operating income as % of net sales

 

23.5

%

17.2

%

 

 

 

 

 

Purchase accounting charge related to write-up of acquired inventory included in operating income

 

$

 

$

996

 

 

 

 

 

 

Charge for increase in fair value of contingent consideration included in operating income

 

$

1,800

 

$

1,800

 

 

 

 

 

 

 

The increase in operating income for Lilly Pulitzer was primarily due to increased net sales and the absence of the $1.0 million purchase accounting charge which was incurred in the first nine months of fiscal 2011. The increased net sales were partially offset by increased SG&A associated with the cost of operating additional retail stores during the first nine months of fiscal 2012 and higher SG&A to support the growing Lilly Pulitzer business. The $1.0 million of purchase accounting charges to cost of goods sold in the first nine months of fiscal 2011 resulted from the write-up of acquired inventory to fair value pursuant to the purchase method of accounting. Both periods were impacted by a charge of $1.8 million for the change in the fair value of contingent consideration.

 

Ben Sherman:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

57,234

 

$

65,505

 

 

$

(8,271

)

(12.6)

%

Operating loss

 

$

(6,352

)

$

(2,281

)

 

$

(4,071

)

(178.5)

%

Operating loss as % of net sales

 

(11.1

)%

(3.5

)%

 

 

 

 

 

 

The decline in operating results for Ben Sherman in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 was primarily due to (1) lower net sales, as discussed above, and (2) lower royalty income. These items were partially offset by improved gross margins in the Ben Sherman business in the first nine months of fiscal 2012.

 

Lanier Clothes:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

84,995

 

$

88,995

 

 

$

(4,000

)

(4.5)

%

Operating income

 

$

8,845

 

$

11,319

 

 

$

(2,474

)

(21.9)

%

Operating income as % of net sales

 

10.4

%

12.7

%

 

 

 

 

 

 

The decrease in operating income for Lanier Clothes was primarily the result of decreased net sales and gross margin erosion, partially offset by decreased SG&A. The gross margin erosion resulted from both competitive factors and cost pressures, which continued to impact the operating results of Lanier Clothes.

 

24



Table of Contents

 

Corporate and Other:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change

 

% Change

 

Net sales

 

$

11,802

 

$

8,824

 

 

$

2,978

 

33.7

%

Operating loss

 

$

(10,927

)

$

(11,443

)

 

$

516

 

4.5

%

LIFO (credits) charges included in operating loss

 

$

(461

)

$

6

 

 

 

 

 

 

 

The Corporate and Other operating results improved by $0.5 million from a loss of $11.4 million in the first nine months of fiscal 2011 to a loss of $10.9 million in the first nine months of fiscal 2012. The improvement in operating results for the first nine months of fiscal 2012 reflects the net impact of LIFO accounting, with credits of $0.5 million in the first nine months of fiscal 2012 and charges of $0.0 million in the first nine months of fiscal 2011.

 

Interest expense, net

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2012

 

Fiscal 2011

 

 

$ Change