10-Q

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 31, 2015
 
 
 
or
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from           to          
 
Commission File Number: 1-4365
 
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 x
Accelerated filer o
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 December 4, 2015
Common Stock, $1 par value
 
16,581,320


Table of Contents                                             

OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For the Third Quarter of Fiscal 2015
 
 
Page
 
 
 
 
 
 
 
 
 
 
 


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 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, 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, competitive conditions, timing of shipments requested by our wholesale customers, expected pricing levels, retention of and disciplined execution by key management, the timing and cost of store openings and of planned capital expenditures, weather, costs of products as well as the raw materials used in those products, costs of labor, acquisition and disposition activities, expected outcomes of pending or potential litigation and regulatory actions, access to capital and/or credit markets and the impact of foreign losses on our effective tax rate. 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 2014, as updated by Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the Second Quarter of Fiscal 2015, 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
 
As used in this report, unless the context requires otherwise, “our,” “us” or “we” means Oxford Industries, Inc. and its consolidated subsidiaries; “SG&A” means selling, general and administrative expenses; “SEC” means U.S. Securities and Exchange Commission; “FASB” means Financial Accounting Standards Board; “ASC” means the FASB Accounting Standards Codification; and “GAAP” means generally accepted accounting principles in the United States. Additionally, the terms listed below reflect the respective period noted:
Fiscal 2016
 
52 weeks ending January 28, 2017
Fiscal 2015
 
52 weeks ending January 30, 2016
Fiscal 2014
 
52 weeks ended January 31, 2015
Fourth Quarter Fiscal 2015
 
13 weeks ending January 30, 2016
Third Quarter Fiscal 2015
 
13 weeks ended October 31, 2015
Second Quarter Fiscal 2015
 
13 weeks ended August 1, 2015
First Quarter Fiscal 2015
 
13 weeks ended May 2, 2015
Fourth Quarter Fiscal 2014
 
13 weeks ended January 31, 2015
Third Quarter Fiscal 2014
 
13 weeks ended November 1, 2014
Second Quarter Fiscal 2014
 
13 weeks ended August 2, 2014
First Quarter Fiscal 2014
 
13 weeks ended May 3, 2014
First Nine Months Fiscal 2015
 
39 weeks ended October 31, 2015
First Nine Months Fiscal 2014
 
39 weeks ended November 1, 2014

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Table of Contents                                             

PART I.  FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except par amounts)
(unaudited)
 
October 31,
2015
 
January 31,
2015
 
November 1,
2014
ASSETS
 

 
 

 
 

Current Assets
 

 
 

 
 

Cash and cash equivalents
$
6,558

 
$
5,281

 
$
6,275

Receivables, net
60,344

 
64,587

 
70,269

Inventories, net
120,559

 
120,613

 
118,105

Prepaid expenses, net
26,570

 
19,941

 
25,278

Deferred tax assets
26,406

 
24,424

 
21,767

Assets related to discontinued operations, net

 
48,123

 
40,886

Total Current Assets
$
240,437

 
$
282,969

 
$
282,580

Property and equipment, net
183,482

 
146,039

 
143,480

Intangible assets, net
144,491

 
146,135

 
147,478

Goodwill
17,238

 
17,295

 
17,401

Other non-current assets, net
22,400

 
22,529

 
22,558

Assets related to discontinued operations, net

 
31,747

 
32,197

Total Assets
$
608,048

 
$
646,714

 
$
645,694

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

 
 

Current Liabilities
 

 
 

 
 

Accounts payable
$
63,855

 
$
72,785

 
$
59,620

Accrued compensation
28,820

 
27,075

 
22,881

Income tax payable

 
5,282

 
440

Other accrued expenses and liabilities
24,049

 
24,921

 
22,421

Contingent consideration

 
12,500

 
12,431

Liabilities related to discontinued operations
6,208

 
17,379

 
14,436

Total Current Liabilities
$
122,932

 
$
159,942

 
$
132,229

Long-term debt
68,744

 
104,842

 
143,516

Other non-current liabilities
66,936

 
56,287

 
54,138

Non-current deferred income taxes
29,507

 
29,467

 
28,800

Liabilities related to discontinued operations

 
5,571

 
6,142

Commitments and contingencies


 


 


Shareholders’ Equity
 

 
 

 
 

Common stock, $1.00 par value per share
16,582

 
16,478

 
16,473

Additional paid-in capital
123,698

 
119,052

 
117,622

Retained earnings
185,850

 
185,229

 
172,907

Accumulated other comprehensive loss
(6,201
)
 
(30,154
)
 
(26,133
)
Total Shareholders’ Equity
$
319,929

 
$
290,605

 
$
280,869

Total Liabilities and Shareholders’ Equity
$
608,048

 
$
646,714

 
$
645,694

 
See accompanying notes.

4

Table of Contents                                             

OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
 (unaudited)
 
Third Quarter Fiscal 2015
 
Third Quarter Fiscal 2014
 
First Nine Months Fiscal 2015
 
First Nine Months Fiscal 2014
Net sales
$
198,624

 
$
201,178

 
$
709,708

 
$
671,294

Cost of goods sold
90,735

 
97,313

 
296,340

 
290,786

Gross profit
$
107,889

 
$
103,865

 
$
413,368

 
$
380,508

SG&A
112,694

 
102,891

 
355,337

 
323,674

Change in fair value of contingent consideration

 
69

 

 
206

Royalties and other operating income
3,639

 
3,483

 
11,032

 
10,052

Operating (loss) income
$
(1,166
)
 
$
4,388

 
$
69,063

 
$
66,680

Interest expense, net
449

 
730

 
1,961

 
2,588

(Loss) earnings from continuing operations before income taxes
$
(1,615
)
 
$
3,658

 
$
67,102

 
$
64,092

Income taxes
(225
)
 
1,886

 
26,119

 
25,973

Net (loss) earnings from continuing operations
$
(1,390
)
 
$
1,772

 
$
40,983

 
$
38,119

Net loss, including loss on sale, of discontinued operations, net of taxes
(754
)
 
(1,846
)
 
(27,892
)
 
(8,155
)
Net (loss) earnings
$
(2,144
)
 
$
(74
)
 
$
13,091

 
$
29,964

Net (loss) earnings from continuing operations per share:
 

 
 

 
 

 
 

Basic
$
(0.08
)
 
$
0.11

 
$
2.49

 
$
2.32

Diluted
$
(0.08
)
 
$
0.11

 
$
2.48

 
$
2.32

Net loss, including loss on sale, of discontinued operations, net of taxes, per share:
 
 
 
 
 
 
 
Basic
$
(0.05
)
 
$
(0.11
)
 
$
(1.70
)
 
$
(0.50
)
Diluted
$
(0.05
)
 
$
(0.11
)
 
$
(1.69
)
 
$
(0.50
)
Net (loss) earnings per share:
 
 
 
 
 
 
 
Basic
$
(0.13
)
 
$

 
$
0.80

 
$
1.82

Diluted
$
(0.13
)
 
$

 
$
0.79

 
$
1.82

Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
16,457

 
16,435

 
16,451

 
16,426

Diluted
16,457

 
16,435

 
16,544

 
16,461

Dividends declared per share
$
0.25

 
$
0.21

 
$
0.75

 
$
0.63

 
See accompanying notes.


5

Table of Contents                                             

OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(unaudited)
 
 
Third Quarter Fiscal 2015
 
Third Quarter Fiscal 2014
 
First Nine Months Fiscal 2015
 
First Nine Months Fiscal 2014
Net (loss) earnings
$
(2,144
)
 
$
(74
)
 
$
13,091

 
$
29,964

Other comprehensive income, net of taxes:
 

 
 

 
 

 
 

Foreign currency translation (loss) gain
(57
)
 
(3,066
)
 
24,699

 
(2,957
)
Net unrealized income (loss) on cash flow hedges

 
634

 
(746
)
 
442

Total other comprehensive (loss) income, net of taxes
$
(57
)
 
$
(2,432
)
 
$
23,953

 
$
(2,515
)
Comprehensive (loss) income
$
(2,201
)
 
$
(2,506
)
 
$
37,044

 
$
27,449

 
See accompanying notes.


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Table of Contents                                             

OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
 
First Nine Months Fiscal 2015
 
First Nine Months Fiscal 2014
Cash Flows From Operating Activities:
 

 
 

Net earnings
$
13,091

 
$
29,964

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
   Depreciation
25,438

 
25,881

   Amortization of intangible assets
1,490

 
1,883

   Change in fair value of contingent consideration

 
206

   Amortization of deferred financing costs
289

 
288

     Loss on sale of discontinued operations
20,437

 

   Equity compensation expense
3,758

 
2,848

   Deferred income taxes
(767
)
 
(630
)
   Changes in working capital, net of acquisitions and dispositions:
 
 
 
       Receivables, net
11,006

 
(5,377
)
       Inventories, net
808

 
(2,920
)
       Prepaid expenses, net
(6,888
)
 
(5,624
)
       Current liabilities
(11,071
)
 
(10,084
)
       Other non-current assets, net
593

 
195

       Other non-current liabilities
10,428

 
4,051

Net cash provided by operating activities
$
68,612

 
$
40,681

Cash Flows From Investing Activities:
 

 
 

Purchases of property and equipment
(63,217
)
 
(36,549
)
Proceeds from sale of discontinued operations
59,336

 

Investment in unconsolidated entity
(1,100
)
 

Net cash used in investing activities
$
(4,981
)
 
$
(36,549
)
Cash Flows From Financing Activities:
 

 
 

Repayment of revolving credit arrangements
(272,953
)
 
(244,242
)
Proceeds from revolving credit arrangements
234,051

 
250,338

Payment of contingent consideration
(12,500
)
 
(2,500
)
Proceeds from issuance of common stock, including excess tax benefits
991

 
812

Dividends paid
(12,474
)
 
(10,399
)
Net cash used in financing activities
$
(62,885
)
 
$
(5,991
)
Net change in cash and cash equivalents
$
746

 
$
(1,859
)
Effect of foreign currency translation on cash and cash equivalents
531

 
(349
)
Cash and cash equivalents at the beginning of year
5,281

 
8,483

Cash and cash equivalents at the end of the period
$
6,558

 
$
6,275

Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest, net
$
1,858

 
$
2,537

Cash paid for income taxes
$
32,141

 
$
37,658


See accompanying notes.

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Table of Contents                                             

OXFORD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THIRD QUARTER OF FISCAL 2015
 
1.
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 the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.  The significant 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 2014.

Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in these financial statements reflect continuing operations and exclude any amounts related to our former Ben Sherman operating group, which is classified as discontinued operations, as discussed in Note 4.

2.
Operating Group Information:   Our business is primarily operated through our Tommy Bahama, Lilly Pulitzer, and Lanier Clothes operating groups, each of which is described in our Annual Report on Form 10-K for Fiscal 2014. 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. The tables below present certain information (in thousands) about our operating groups, as well as Corporate and Other, which is a reconciling category for reporting purposes. Amounts associated with our Ben Sherman operations, which were sold in the Second Quarter of Fiscal 2015, are classified as discontinued operations and therefore are excluded from the tables below.
 
Third Quarter Fiscal 2015
 
Third Quarter Fiscal 2014
 
First Nine Months Fiscal 2015
 
First Nine Months Fiscal 2014
Net sales
 
 
 
 
 
 
 
Tommy Bahama
$
124,101

 
$
125,387

 
$
462,612

 
$
441,535

Lilly Pulitzer
44,050

 
36,045

 
167,704

 
132,984

Lanier Clothes
26,159

 
35,886

 
70,637

 
85,950

Corporate and Other
4,314

 
3,860

 
8,755

 
10,825

Total net sales
$
198,624

 
$
201,178

 
$
709,708

 
$
671,294

Depreciation and amortization
 
 
 
 
 
 
 
Tommy Bahama
$
7,189

 
$
6,768

 
$
20,656

 
$
20,190

Lilly Pulitzer
1,420

 
1,167

 
4,054

 
3,317

Lanier Clothes
111

 
106

 
332

 
240

Corporate and Other
371

 
500

 
1,213

 
1,758

Total depreciation and amortization
$
9,091

 
$
8,541

 
$
26,255

 
$
25,505

Operating income (loss)
 
 
 
 
 
 
 
Tommy Bahama
$
(6,289
)
 
$
374

 
$
34,627

 
$
41,994

Lilly Pulitzer
5,109

 
4,131

 
42,367

 
30,108

Lanier Clothes
3,041

 
3,417

 
6,665

 
7,692

Corporate and Other
(3,027
)
 
(3,534
)
 
(14,596
)
 
(13,114
)
Total operating (loss) income
$
(1,166
)
 
$
4,388

 
$
69,063

 
$
66,680

Interest expense, net
449

 
730

 
1,961

 
2,588

(Loss) earnings from continuing operations before income taxes
$
(1,615
)
 
$
3,658

 
$
67,102

 
$
64,092



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Table of Contents                                             

3.
Accumulated Other Comprehensive Loss: The following tables detail the changes in our accumulated other comprehensive loss by component (in thousands), net of related income taxes, for the periods specified:
Third Quarter Fiscal 2015
Foreign 
currency 
translation 
gain (loss)
Net unrealized 
gain (loss) on 
cash flow 
hedges
Accumulated 
other 
comprehensive 
income (loss)
Beginning balance
$
(6,144
)
$

$
(6,144
)
Total other comprehensive loss, net of taxes
(57
)

(57
)
Ending balance
$
(6,201
)
$

$
(6,201
)
Third Quarter Fiscal 2014
Foreign 
currency 
translation 
gain (loss)
Net unrealized 
gain (loss) on 
cash flow 
hedges
Accumulated 
other 
comprehensive 
income (loss)
Beginning balance
$
(23,174
)
$
(527
)
$
(23,701
)
Total other comprehensive (loss) income, net of taxes
(3,066
)
634

(2,432
)
Ending balance
$
(26,240
)
$
107

$
(26,133
)
First Nine Months Fiscal 2015
Foreign 
currency 
translation 
gain (loss)
Net unrealized 
gain (loss) on 
cash flow 
hedges
Accumulated 
other 
comprehensive 
income (loss)
Beginning balance
$
(30,900
)
$
746

$
(30,154
)
Total other comprehensive income (loss), net of taxes
24,699

(746
)
23,953

Ending balance
$
(6,201
)
$

$
(6,201
)
First Nine Months Fiscal 2014
Foreign 
currency 
translation 
gain (loss)
Net unrealized 
gain (loss) on 
cash flow 
hedges
Accumulated 
other 
comprehensive 
income (loss)
Beginning balance
$
(23,283
)
$
(335
)
$
(23,618
)
Total other comprehensive (loss) income, net of taxes
(2,957
)
442

(2,515
)
Ending balance
$
(26,240
)
$
107

$
(26,133
)

Substantially all the change in accumulated other comprehensive loss during the First Nine Months of Fiscal 2015 resulted from the sale of our discontinued operations as the related amounts previously classified in accumulated other comprehensive loss were recognized in net loss from discontinued operations, net of taxes in our consolidated statement of operations. No material amounts of accumulated other comprehensive loss were reclassified from accumulated other comprehensive loss into our consolidated statements of operations during the Third Quarter of Fiscal 2015, the Third Quarter of Fiscal 2014 or First Nine Months of Fiscal 2014.



4.
Discontinued Operations: On July 17, 2015, we entered into a sale and purchase agreement with an unrelated party, Ben Sherman UK Acquisition Limited, pursuant to which we sold 100% of the equity interests of our Ben Sherman business, consisting of Ben Sherman Limited and its subsidiaries and Ben Sherman Clothing LLC, for £40.8 million. The final purchase price received by us is subject to adjustment based on, among other things, the actual debt and net working capital of the Ben Sherman business on the closing date, which is expected to be finalized during the Fourth Quarter of Fiscal 2015. The loss on our sale of the Ben Sherman business was estimated for purposes of our October 31, 2015 consolidated financial statements. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in future periods primarily limited to the post-closing purchase price adjustments and amounts associated with a lease obligation of the Ben Sherman business which we retained in connection with the transaction. Changes to the estimates included in our loss on sale of discontinued operations and liabilities related to discontinued operations as of October 31, 2015, including actual amounts payable in connection with the retained lease obligation, the estimated post-closing purchase price adjustment or accrued expenses related to the transaction may result in an adjustment to our loss on the sale transaction or discontinued operations in future periods.

In connection with the Ben Sherman disposal transaction we, among other things, entered into a transitional services agreement with the purchaser pursuant to which we and our subsidiaries are providing, in exchange for various fees, certain transitional support services (primarily in the United States) to the purchaser in connection with its operation of

9

Table of Contents                                             

the Ben Sherman business following the transaction. The duration of the transitional services vary but may continue for a period of up to 12 months following the date of the transaction.

We have not classified as discontinued operations any corporate or shared service expenses historically charged to Ben Sherman which we determined may not be eliminated as a result of its disposal or any transitional services income amounts. Recognizing these expenses and income as continuing operations in Corporate and Other reflects the uncertainty of whether there will be a reduction in such corporate or shared service expenses in the future as a result of the sale of Ben Sherman. Interest expense under our prior U.K. revolving credit agreement, which was satisfied in connection with the transaction, is the only interest expense included in discontinued operations in our consolidated financial statements as this represents the interest expense directly attributable to the discontinued operations.

The following represents major classes of assets and liabilities related to the discontinued operations included in our consolidated balance sheets as of the following dates (in thousands):
 
October 31, 2015
January 31, 2015
November 1, 2014
Receivables, net
$

$
14,517

$
9,918

Inventories, net

27,602

27,685

Other current assets, net

6,004

3,285

Property and equipment, net

9,037

8,029

Intangible assets, net

21,635

23,015

Other non-current assets, net

1,075

1,155

Total assets
$

$
79,870

$
73,087

 
 
 
 
Accounts payable and other accrued expenses
$
6,208

$
13,253

$
10,393

Short-term debt

4,126

4,043

Non-current liabilities

1,826

1,537

Deferred income taxes

3,745

4,605

Total liabilities
$
6,208

$
22,950

$
20,578

 
 
 
 
Net (liabilities) assets
$
(6,208
)
$
56,920

$
52,509

Operating results of the discontinued operations are shown below (in thousands):
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Net sales
$

$
18,279

$
28,081

$
52,058

Cost of goods sold

9,198

17,414

26,877

Gross profit
$

$
9,081

$
10,667

$
25,181

SG&A
562

12,100

20,668

36,945

Royalties and other operating income

1,237

1,919

2,984

Operating loss
$
(562
)
$
(1,782
)
$
(8,082
)
$
(8,780
)
Interest expense, net

58

45

194

Loss from discontinued operations before income taxes
$
(562
)
$
(1,840
)
$
(8,127
)
$
(8,974
)
Income taxes
192

6

(672
)
(819
)
Loss from discontinued operations, net of taxes
$
(754
)
$
(1,846
)
$
(7,455
)
$
(8,155
)
Loss on sale of discontinued operations, net of taxes


(20,437
)

Net loss from discontinued operations, net of taxes
$
(754
)
$
(1,846
)
$
(27,892
)
$
(8,155
)

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Table of Contents                                             

Certain information pertaining to depreciation and amortization as well as capital expenditures associated with our discontinued operations has been included below (in thousands):
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Depreciation and amortization (1)
$

$
783

$
667

$
2,259

Capital expenditures
$

$
1,279

$
660

$
2,075

(1) For Fiscal 2015, amounts reflect expense recognized prior to classification as held for sale, which occurred on March 24, 2015. No expense for depreciation or amortization was recognized in our consolidated statements of operations subsequent to qualifying as held for sale.

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 2014.
 
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 sites and restaurants, and our wholesale channel, which includes department stores, specialty stores, national chains, warehouse clubs, mass merchants and Internet retailers. In Fiscal 2014, more than 95% of our consolidated net sales, excluding the net sales of our discontinued operations, were to customers located in the United States, with the sales outside the United States primarily being sales of our Tommy Bahama products in Canada and the Asia-Pacific region. We source substantially all of our products through third party manufacturers located outside of the United States.

Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We believe that lifestyle branded products that create an emotional connection with consumers can command greater customer loyalty and higher price points at retail, resulting in higher earnings. A successful lifestyle brand opens up greater opportunities for full-price direct to consumer operations as well as licensing opportunities in product categories beyond our core business. We strive to exploit the potential of our existing brands and products and, as suitable opportunities arise, we may acquire additional lifestyle brands that we believe fit within our business model.

We operate in highly competitive domestic and international markets in which numerous apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry and our competitors vary by operating group and distribution channel. 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. Our ability to compete successfully in design 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 with us by offering certain of its own or other competitors' products in its retail stores.

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 industry than these conditions have on other industries. We believe that the global economic conditions and economic uncertainty that have prevailed in recent years continue to impact our operating groups and the apparel industry as a whole, contributing to an apparel retail environment that has become increasingly more promotional. Additionally, in recent years our operations have been impacted by pricing pressures on raw materials, transportation, labor and other costs necessary for the production and sourcing of apparel products, most of which appear to be permanent cost increases.

We believe that our Tommy Bahama® and Lilly Pulitzer® lifestyle brands have significant opportunities for long-term growth in their direct to consumer businesses through expansion of retail store operations, as we add additional retail store locations and increase comparable store sales, and higher sales in e-commerce operations, which are likely to grow at a faster rate than comparable brick and mortar retail store sales. We also believe that these lifestyle brands provide an opportunity for

11

Table of Contents                                             

moderate sales increases in their wholesale businesses in the long term primarily from current customers adding to their existing door count and the selective addition of new wholesale customers who generally follow a full-price retail model. We believe that we must continue to invest in our Tommy Bahama and Lilly Pulitzer lifestyle brands in order to take advantage of their long-term growth opportunities. Investments include capital expenditures primarily related to the direct to consumer operations such as retail store and restaurant build-out and remodels, technology enhancements and distribution center and administrative office expansion initiatives, as well as increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future net sales growth. We expect that the investments may continue to put downward pressure on our operating margins in the near future until we have sufficient sales to leverage the additional operating costs.

We believe that there are opportunities for modest sales growth for Lanier Clothes through new product programs. However, we also believe that the tailored clothing environment will continue to be very challenging, which we believe will negatively impact net sales, operating income and operating margin, particularly in the near term.

We continue to believe that it is important to maintain a strong balance sheet and liquidity. We believe that positive cash flow from operations in the future coupled with the strength of our balance sheet and liquidity will provide us with sufficient resources to fund future investments in our lifestyle brands. While we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands, in the future, we may also add additional lifestyle brands to our portfolio if we identify appropriate targets which meet our investment criteria.
The following table sets forth our consolidated operating results from continuing operations (in thousands, except per share amounts) for the First Nine Months of Fiscal 2015 compared to the First Nine Months of Fiscal 2014:
 
First Nine Months of Fiscal 2015
First Nine Months of Fiscal 2014
Net sales
$
709,708

$
671,294

Operating income
$
69,063

$
66,680

Net earnings from continuing operations
$
40,983

$
38,119

Net earnings from continuing operations per diluted share
$
2.48

$
2.32


The increase in net earnings from continuing operations was primarily due to the higher operating income in Lilly Pulitzer partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a higher operating loss in Corporate and Other, each as discussed below.

Discontinued operations

The net loss from discontinued operations, net of taxes of $27.9 million in the First Nine Months of Fiscal 2015 was primarily due to the $20.4 million estimated loss on sale of the operations of Ben Sherman in the Second Quarter of Fiscal 2015. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in future periods primarily limited to the post-closing purchase price adjustments and amounts associated with a lease obligation of the Ben Sherman business which we retained in connection with the transaction.

COMPARABLE STORE SALES
 
We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include net sales from full-price stores and our e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that the inclusion of both our full-price stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results, given similar inventory planning, allocation and return policies, as well as our cross-channel marketing and other initiatives for the direct to consumer channel. For our comparable store sales disclosures, we exclude (1) outlet store sales, warehouse sales and e-commerce flash clearance sales, as those sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our full-price direct to consumer sales, and (2) restaurant sales, as we do not currently believe that the inclusion of restaurant sales is meaningful in assessing our consolidated results of operations. Comparable store sales information reflects net sales, including shipping and handling revenues, if any, associated with product sales.
 

12

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For purposes of our disclosures, we consider a comparable store to be, in addition to our e-commerce sites, a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods, and is not within the current fiscal year scheduled to have, (1) a remodel resulting in the store being closed 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, (3) a relocation to a new space that was significantly different from the prior retail space, or (4) a closing or opening of a Tommy Bahama restaurant adjacent to the retail store. For those stores which are excluded from comparable stores based on the preceding sentence, the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel, relocation or restaurant closing or opening. Generally, a store that is remodeled will continue to be included in our comparable store metrics as a store is not typically closed for a two week period during a remodel. However, a store that is relocated generally will not be included in our comparable store metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location. Additionally, any stores that were closed during the prior fiscal year or current fiscal year, or which we plan to close or vacate in the current fiscal year, are excluded from the definition of comparable stores.
 
Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store metrics disclosed by us may not be comparable to the metrics disclosed by other companies.

RESULTS OF OPERATIONS
 
THIRD QUARTER OF FISCAL 2015 COMPARED TO THIRD QUARTER OF FISCAL 2014
 
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. 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.
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net sales
$
198,624

100.0
 %
$
201,178

100.0
%
$
(2,554
)
(1.3
)%
Cost of goods sold
90,735

45.7
 %
97,313

48.4
%
(6,578
)
(6.8
)%
Gross profit
$
107,889

54.3
 %
$
103,865

51.6
%
$
4,024

3.9
 %
SG&A
112,694

56.7
 %
102,891

51.1
%
9,803

9.5
 %
Change in fair value of contingent consideration

 %
69

%
(69
)
(100.0
)%
Royalties and other operating income
3,639

1.8
 %
3,483

1.7
%
156

4.5
 %
Operating (loss) income
$
(1,166
)
(0.6
)%
$
4,388

2.2
%
$
(5,554
)
(126.6
)%
Interest expense, net
449

0.2
 %
730

0.4
%
(281
)
(38.5
)%
(Loss) earnings from continuing operations before income taxes
$
(1,615
)
(0.8
)%
$
3,658

1.8
%
$
(5,273
)
(144.1
)%
Income taxes
(225
)
(0.1
)%
1,886

0.9
%
(2,111
)
(111.9
)%
Net (loss) earnings from continuing operations
$
(1,390
)
(0.7
)%
$
1,772

0.9
%
$
(3,162
)
(178.4
)%
Net loss, including loss on sale, of discontinued operations, net of taxes
(754
)
NM

(1,846
)
NM

1,092

59.2
 %
Net (loss) earnings
$
(2,144
)
NM

$
(74
)
NM

$
(2,070
)
2,797.3
 %

The discussion and tables below compare certain line items included in our statements of operations for the Third Quarter of Fiscal 2015 to the Third Quarter of Fiscal 2014. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.


13

Table of Contents                                             

Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our Ben Sherman operating group, as discussed in Note 4 in our condensed consolidated financial statements included in this report.
 
Net Sales
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Tommy Bahama
$
124,101

$
125,387

$
(1,286
)
(1.0
)%
Lilly Pulitzer
44,050

36,045

8,005

22.2
 %
Lanier Clothes
26,159

35,886

(9,727
)
(27.1
)%
Corporate and Other
4,314

3,860

454

11.8
 %
Total net sales
$
198,624

$
201,178

$
(2,554
)
(1.3
)%
 
Consolidated net sales decreased $2.6 million, or 1.3%, in the Third Quarter of Fiscal 2015 compared to the Third Quarter of Fiscal 2014 reflecting net sales changes in each operating group, as discussed below. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
Full-price retail stores and outlets
37
%
34
%
E-commerce
17
%
15
%
Restaurant
7
%
6
%
Wholesale
39
%
45
%
Total
100
%
100
%

Tommy Bahama:
 
The Tommy Bahama net sales decrease of $1.3 million, or 1.0%, was primarily driven by (1) a $2.9 million decrease in wholesale sales, (2) a $2.3 million, or 5%, decrease in comparable store sales, which includes full-price retail stores and full-price e-commerce sales, to $48.6 million in the Third Quarter of Fiscal 2015 from $51.0 million in the Third Quarter of Fiscal 2014, and (3) a decrease of $0.5 million in outlet stores which were operated during all of Fiscal 2014 and Fiscal 2015. These decreases were partially offset by an incremental net sales increase of $3.7 million associated with the operation of additional full-price retail and outlet stores and a $0.6 million increase in restaurant sales primarily resulting from the operation of one additional restaurant. The decrease in wholesale sales was primarily due to lower off-price wholesale sales, while the lower comparable store sales in full-price stores and outlets were primarily driven by lower traffic.

As of October 31, 2015, we operated 164 Tommy Bahama stores globally, consisting of 107 full-price retail stores, 16 restaurant-retail locations and 41 outlet stores. As of November 1, 2014 we operated 150 Tommy Bahama stores consisting of 96 full-price retail stores, 14 restaurant-retail locations and 40 outlet stores.

The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
Full-price retail stores and outlets
48
%
47
%
E-commerce
11
%
11
%
Restaurant
11
%
10
%
Wholesale
30
%
32
%
Total
100
%
100
%
 
Lilly Pulitzer:

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Table of Contents                                             

 
The Lilly Pulitzer net sales increase of $8.0 million, or 22.2%, was primarily a result of (1) a $3.3 million, or 27%, increase in comparable store sales to $15.6 million in the Third Quarter of Fiscal 2015 compared to $12.3 million in the Third Quarter of Fiscal 2014, (2) an incremental net sales increase of $2.8 million associated with the operation of additional retail stores, (3) an increase in e-commerce flash clearance sales of $1.6 million to $13.4 million in the Third Quarter of Fiscal 2015 and (4) a $0.3 million increase in wholesale sales during the Third Quarter of Fiscal 2015. As of October 31, 2015, we operated 34 Lilly Pulitzer retail stores compared to 28 retail stores as of November 1, 2014.

The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
Full-price retail stores
32
%
26
%
E-commerce
43
%
44
%
Wholesale
25
%
30
%
Total
100
%
100
%
 
Lanier Clothes:
 
The decrease in net sales for Lanier Clothes of $9.7 million, or 27.1%, was primarily due to an $8.5 million decrease in net sales in the private label business. The lower sales in the private label business was primarily due to lower sales in a private label pants program reflecting lower volume. Additionally, both the branded and private label businesses were unfavorably impacted by the reduction in or exit from certain replenishment and other programs.
 
Corporate and Other:
 
Corporate and Other net sales in each period primarily consist of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center as well as the impact of the elimination of inter-company sales between operating groups. The higher sales in the Third Quarter of Fiscal 2015 primarily reflect an increase in Oxford Golf's private label business.
 
Gross Profit
 
The table below presents gross profit by operating group and in total for the Third Quarter of Fiscal 2015 and the Third Quarter of Fiscal 2014 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Tommy Bahama
$
72,557

$
72,779

$
(222
)
(0.3
)%
Lilly Pulitzer
25,939

20,850

5,089

24.4
 %
Lanier Clothes
7,504

8,572

(1,068
)
(12.5
)%
Corporate and Other
1,889

1,664

225

13.5
 %
Total gross profit
$
107,889

$
103,865

$
4,024

3.9
 %
LIFO credit included in Corporate and Other
$
(414
)
$
(426
)
 

 

 
The increase in consolidated gross profit was primarily driven by a change in sales mix as a greater proportion of consolidated net sales were Lilly Pulitzer sales. This change in sales mix offset the impact on gross profit from the decrease in consolidated net sales. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for the Third Quarter of Fiscal 2015 and Third Quarter of Fiscal 2014.

15

Table of Contents                                             

 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
Tommy Bahama
58.5
%
58.0
%
Lilly Pulitzer
58.9
%
57.8
%
Lanier Clothes
28.7
%
23.9
%
Corporate and Other
NM

NM

Consolidated gross margin
54.3
%
51.6
%

On a consolidated basis, gross margin increased from the Third Quarter of Fiscal 2014, primarily as a result of (1) Lilly Pulitzer representing a greater proportion of consolidated net sales, (2) direct to consumer sales representing a greater proportion of consolidated net sales and (3) improved gross margins in each operating group.
 
Tommy Bahama:

Tommy Bahama's gross margin in the Third Quarter of Fiscal 2015 increased from the Third Quarter of Fiscal 2014. The increase in gross margin was primarily a result of a change in sales mix as full-price direct to consumer sales represented a greater proportion of Tommy Bahama's sales.

Lilly Pulitzer:
 
The increase in gross margin for Lilly Pulitzer was primarily driven by a change in sales mix towards the direct to consumer channel of distribution, which typically has higher gross margins than the wholesale channel of distribution, as well as higher gross margins in the direct to consumer channel of distribution.
 
Lanier Clothes:

The increase in gross margin for Lanier Clothes was primarily due to a change in sales mix reflecting a higher proportion of branded business sales in the Third Quarter of Fiscal 2015 as private label sales decreased more than branded sales decreased.

Corporate and Other:

The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Oxford Golf and Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of inter-company sales between operating groups. The higher gross profit for Corporate and Other in the Third Quarter of Fiscal 2015 was primarily due to the higher Oxford Golf sales, with no significant impact from LIFO accounting or consolidating adjustments. LIFO accounting was a credit of $0.4 million in both the Third Quarter of Fiscal 2015 and the Third Quarter of Fiscal 2014.
 
SG&A
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
SG&A
$
112,694

$
102,891

$
9,803

9.5
%
SG&A as % of net sales
56.7
%
51.1
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
373

$
445

 
 
 
The increase in SG&A was primarily due to (1) $5.6 million of incremental costs in the Third Quarter of Fiscal 2015 associated with additional Tommy Bahama retail stores and restaurants, including the Waikiki retail-restaurant location, and Lilly Pulitzer stores, (2) costs to support the growing Tommy Bahama and Lilly Pulitzer businesses and (3) $1.6 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington during the Third Quarter of Fiscal 2015.


16

Table of Contents                                             

SG&A included $0.5 million of amortization of intangible assets in the Third Quarter of Fiscal 2015 compared to $0.6 million in the Third Quarter of Fiscal 2014. We anticipate that amortization of intangible assets for Fiscal 2015 will be approximately $2.0 million, with approximately $1.5 million of the amortization related to the intangible assets acquired as part of the Tommy Bahama Canada acquisition.
 
Royalties and other operating income
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Royalties and other operating income
$
3,639

$
3,483

$
156

4.5
%
 
Royalties and other operating income in the Third Quarter of Fiscal 2015 primarily reflect income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The $0.2 million increase in royalties and other income reflects increased royalty income for both Lilly Pulitzer and Tommy Bahama.

Operating (loss) income
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Tommy Bahama
$
(6,289
)
$
374

$
(6,663
)
(1,781.6
)%
Lilly Pulitzer
5,109

4,131

978

23.7
 %
Lanier Clothes
3,041

3,417

(376
)
(11.0
)%
Corporate and Other
(3,027
)
(3,534
)
507

14.3
 %
Total operating (loss) income
$
(1,166
)
$
4,388

$
(5,554
)
(126.6
)%
LIFO credit included in Corporate and Other
$
(414
)
$
(426
)
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
373

$
445

 
 
Change in fair value of contingent consideration included in Lilly Pulitzer
$

$
69

 

 

 
The lower operating results in the Third Quarter of Fiscal 2015 were primarily due to the lower operating results in Tommy Bahama and Lanier Clothes, partially offset by improved operating results in Lilly Pulitzer and Corporate and Other. Changes in operating income (loss) by operating group are discussed below.
 
Tommy Bahama:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net sales
$
124,101

$
125,387

$
(1,286
)
(1.0
)%
Gross margin
58.5
 %
58.0
%
 

 

Operating (loss) income
$
(6,289
)
$
374

$
(6,663
)
(1,781.6
)%
Operating (loss) income as % of net sales
(5.1
)%
0.3
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
373

$
445

 
 
 
The lower operating results for Tommy Bahama were primarily due to higher SG&A and lower sales partially offset by higher gross margins. The higher SG&A was primarily due to (1) $4.2 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants, including pre-opening rent and set-up costs associated with new stores and restaurants, (2) higher costs to support the growing Tommy Bahama business and (3) $1.6 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington during the Third Quarter of Fiscal 2015. The operating loss for the Tommy Bahama Waikiki retail-restaurant location, which opened in late October 2015, was $1.3 million in the Third Quarter of Fiscal 2015, with the substantial majority of this loss consisting of pre-opening rent and set-up costs, which is included in the incremental SG&A associated with new locations above.

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Table of Contents                                             



Lilly Pulitzer:
 
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net sales
$
44,050

$
36,045

$
8,005

22.2
%
Gross margin
58.9
%
57.8
%
 

 

Operating income
$
5,109

$
4,131

$
978

23.7
%
Operating income as % of net sales
11.6
%
11.5
%
 

 

Change in fair value of contingent consideration included in Lilly Pulitzer
$

$
69

 

 


The increase in operating income in Lilly Pulitzer was primarily due to the higher net sales and gross margin. These items were partially offset by increased SG&A. The increased SG&A was primarily associated with (1) higher costs to support the growing business, reflecting increased infrastructure costs and advertising expense and (2) $1.4 million of incremental SG&A associated with the cost of operating additional retail stores.
 
Lanier Clothes:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net sales
$
26,159

$
35,886

$
(9,727
)
(27.1
)%
Gross margin
28.7
%
23.9
%
 

 

Operating income
$
3,041

$
3,417

$
(376
)
(11.0
)%
Operating income as % of net sales
11.6
%
9.5
%
 

 

 
The lower operating income for Lanier Clothes was primarily due to the reduction in net sales offset by higher gross margins and lower SG&A. The lower SG&A reflects decreases in certain variable and other expenses including royalty, advertising and distribution expenses.

Corporate and Other:
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net sales
$
4,314

$
3,860

$
454

11.8
%
Operating loss
$
(3,027
)
$
(3,534
)
$
507

14.3
%
LIFO credit included in Corporate and Other
$
(414
)
$
(426
)
 

 

 
The improved operating results in Corporate and Other were primarily due to the higher net sales in Oxford Golf and lower SG&A in Corporate and Other.
 
Interest expense, net
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Interest expense, net
$
449

$
730

$
(281
)
(38.5
)%
 
Interest expense for the Third Quarter of Fiscal 2015 decreased from the prior year primarily due to lower average borrowings outstanding during the Third Quarter of Fiscal 2015 compared to the Third Quarter of Fiscal 2014. The lower borrowings in the Third Quarter of Fiscal 2015 primarily resulted from the application of proceeds from the disposal of Ben

18

Table of Contents                                             

Sherman at the end of the Second Quarter of Fiscal 2015 to repay amounts previously outstanding under our U.S. Revolving Credit Agreement.

Income taxes
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Income taxes
$
(225
)
$
1,886

$
(2,111
)
(111.9
)%
Effective tax rate
13.9
%
51.6
%
 

 

 
The effective tax rate from continuing operations for both periods, as compared to a typical statutory tax rate, reflect the net impact of (1) certain items which do not fluctuate with earnings, (2) the impact of changes in expected earnings projections for the year by jurisdiction and (3) certain discrete items. The net impact of these items often results in a more significant or unusual impact on the effective tax rate in the third quarter given the significantly lower operating results during the third quarter as compared to the other quarters of the fiscal year. Thus, the effective tax rate for the third quarter is generally not indicative of the effective tax rate anticipated for the full year. Our effective tax rate for the full year of Fiscal 2015 is expected to be approximately 38%.

Net (loss) earnings from continuing operations
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
Net (loss) earnings from continuing operations
$
(1,390
)
$
1,772

Net (loss) earnings from continuing operations per diluted share
$
(0.08
)
$
0.11

Weighted average shares outstanding - diluted
16,457

16,435

 
The primary reasons for the lower operating results from continuing operations per diluted share in the Third Quarter of Fiscal 2015 were lower operating results in Tommy Bahama and Lanier Clothes, partially offset by improved operating results in Lilly Pulitzer and Corporate and Other, each as discussed above.

The third quarter of our fiscal year has historically been our smallest sales, gross margin and operating income quarter of our fiscal year. This is generally due to seasonality as certain of our retail stores typically do not earn an operating profit during the third quarter due to the lower retail sales. As we add more retail stores, the additional stores likely will put additional downward pressure on our earnings during the third quarter in future years. Thus as the retail store operations of our brands continue to represent a larger proportion of our business, the operating results gap between the strong first, second and fourth quarters and the smaller third quarter is expected to widen.

Discontinued operations
 
Third Quarter Fiscal 2015
Third Quarter Fiscal 2014
$ Change
% Change
Net loss from discontinued operations, net of taxes
$
(754
)
$
(1,846
)
$
1,092

59.2
%
 
The lower net loss from discontinued operations, net of taxes in the Third Quarter of Fiscal 2015 was primarily due to the disposal of Ben Sherman during the Second Quarter of Fiscal 2015. Therefore, the Third Quarter of Fiscal 2015 reflects the impact of changes in (1) foreign currency exchange rates on inter-company amounts associated with the discontinued operations that were settled late in the Third Quarter of Fiscal 2015, (2) certain wind-down and post-transaction obligations, and (3) accruals for any retained liabilities, while the Third Quarter of Fiscal 2014 reflects the operating activities of Ben Sherman. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in future periods primarily limited to the post-closing purchase price adjustments and amounts associated with a lease obligation of the Ben Sherman business which we retained in connection with the transaction.



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Table of Contents                                             

FIRST NINE MONTHS OF FISCAL 2015 COMPARED TO FIRST NINE MONTHS OF FISCAL 2014
 
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. 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.
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Net sales
$
709,708

100.0
%
$
671,294

100.0
%
$
38,414

5.7
 %
Cost of goods sold
296,340

41.8
%
290,786

43.3
%
5,554

1.9
 %
Gross profit
$
413,368

58.2
%
$
380,508

56.7
%
$
32,860

8.6
 %
SG&A
355,337

50.1
%
323,674

48.2
%
31,663

9.8
 %
Change in fair value of contingent consideration

%
206

%
(206
)
(100.0
)%
Royalties and other operating income
11,032

1.6
%
10,052

1.5
%
980

9.7
 %
Operating income
$
69,063

9.7
%
$
66,680

9.9
%
$
2,383

3.6
 %
Interest expense, net
1,961

0.3
%
2,588

0.4
%
(627
)
(24.2
)%
Earnings from continuing operations before income taxes
$
67,102

9.5
%
$
64,092

9.5
%
$
3,010

4.7
 %
Income taxes
26,119

3.7
%
25,973

3.9
%
146

0.6
 %
Net earnings from continuing operations
$
40,983

5.8
%
$
38,119

5.7
%
$
2,864

7.5
 %
Net loss, including loss on sale, of discontinued operations, net of taxes
(27,892
)
NM

(8,155
)
NM

(19,737
)
(242.0
)%
Net earnings
$
13,091

NM

$
29,964

NM

$
(16,873
)
(56.3
)%

The discussion and tables below compare certain line items included in our statements of operations for the First Nine Months of Fiscal 2015 to the First Nine Months of Fiscal 2014. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.

Unless otherwise indicated, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our Ben Sherman operating group, as discussed in Note 4 in our condensed consolidated financial statements included in this report.
 
Net Sales
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Tommy Bahama
$
462,612

$
441,535

$
21,077

4.8
 %
Lilly Pulitzer
167,704

132,984

34,720

26.1
 %
Lanier Clothes
70,637

85,950

(15,313
)
(17.8
)%
Corporate and Other
8,755

10,825

(2,070
)
(19.1
)%
Total net sales
$
709,708

$
671,294

$
38,414

5.7
 %
 
Consolidated net sales increased $38.4 million, or 5.7%, in the First Nine Months of Fiscal 2015 compared to the First Nine Months of Fiscal 2014 reflecting changes in net sales of each operating group, as discussed below. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:

20

Table of Contents                                             

 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Full-price retail stores, outlets and warehouse sales
42
%
39
%
E-commerce
16
%
14
%
Restaurant
7
%
7
%
Wholesale
35
%
40
%
Total
100
%
100
%

Tommy Bahama:
 
The Tommy Bahama net sales increase of $21.1 million, or 4.8%, was primarily driven by (1) an incremental net sales increase of $16.4 million associated with the operation of additional full-price retail and outlet stores, (2) a $5.7 million, or 3%, increase in comparable store sales, which includes full-price retail stores and full-price e-commerce sales, to $216.3 million in the First Nine Months of Fiscal 2015 from $210.7 million in the First Nine Months of Fiscal 2014, (3) a $3.9 million increase in restaurant sales resulting from the operation of one additional restaurant and increased sales in existing restaurants and (4) a $1.0 million increase in e-commerce flash clearance sales. These increases in net sales were partially offset by a $5.3 million decrease in wholesale sales and a decrease of $0.6 million in outlet stores which were operated during all of Fiscal 2014 and Fiscal 2015.

As of October 31, 2015, we operated 164 Tommy Bahama stores globally, consisting of 107 full-price retail stores, 16 restaurant-retail locations and 41 outlet stores. As of November 1, 2014 we operated 150 Tommy Bahama stores consisting of 96 full-price retail stores, 14 restaurant-retail locations and 40 outlet stores.

The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Full-price retail stores and outlets
50
%
49
%
E-commerce
14
%
13
%
Restaurant
11
%
10
%
Wholesale
25
%
28
%
Total
100
%
100
%
 
Lilly Pulitzer:
 
The Lilly Pulitzer net sales increase of $34.7 million, or 26.1%, was primarily a result of (1) an $18.9 million, or 30%, increase in comparable store sales to $82.2 million in the First Nine Months of Fiscal 2015 compared to $63.3 million in the First Nine Months of Fiscal 2014, (2) an incremental net sales increase of $8.1 million associated with the operation of additional retail stores, (3) a $5.2 million increase in wholesale sales during the First Nine Months of Fiscal 2015, (4) an increase in e-commerce flash clearance sales of $1.6 million to $13.4 million in the First Nine Months of Fiscal 2015, and (5) $0.9 million higher sales at the June warehouse sale. As of October 31, 2015, we operated 34 Lilly Pulitzer retail stores compared to 28 retail stores as of November 1, 2014.

The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Full-price retail stores and warehouse sales
37
%
35
%
E-commerce
29
%
26
%
Wholesale
34
%
39
%
Total
100
%
100
%

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Table of Contents                                             

 
Lanier Clothes:
 
The decrease in net sales for Lanier Clothes of $15.3 million, or 17.8%, reflects a decrease in net sales in both the private label and branded businesses. Both the branded and private label businesses were unfavorably impacted by the reduction in or exit from certain replenishment and other programs.
 
Corporate and Other:
 
Corporate and Other net sales in each period primarily consist of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center as well as the impact of the elimination of inter-company sales between operating groups. The decrease in sales in the First Nine Months of Fiscal 2015 was primarily due to a reduction in Oxford Golf's private label sales programs during the First Quarter and Second Quarter of Fiscal 2015.
 
Gross Profit
 
The table below presents gross profit by operating group and in total for the First Nine Months of Fiscal 2015 and the First Nine Months of Fiscal 2014 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Tommy Bahama
$
278,263

$
267,013

$
11,250

4.2
 %
Lilly Pulitzer
110,088

85,167

24,921

29.3
 %
Lanier Clothes
20,755

22,954

(2,199
)
(9.6
)%
Corporate and Other
4,262

5,374

(1,112
)
(20.7
)%
Total gross profit
$
413,368

$
380,508

$
32,860

8.6
 %
LIFO credit included in Corporate and Other
$
(30
)
$
(473
)
 

 

 
The increase in consolidated gross profit was primarily driven by higher net sales, as discussed above, as well as a change in sales mix as a greater proportion of consolidated net sales were Lilly Pulitzer sales, which typically has higher gross margins than our other operating groups. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for the First Nine Months of Fiscal 2015 and First Nine Months of Fiscal 2014.

 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Tommy Bahama
60.2
%
60.5
%
Lilly Pulitzer
65.6
%
64.0
%
Lanier Clothes
29.4
%
26.7
%
Corporate and Other
NM

NM

Consolidated gross margin
58.2
%
56.7
%

On a consolidated basis, gross margin increased in the First Nine Months of Fiscal 2015, primarily as a result of (1) Lilly Pulitzer representing a greater proportion of consolidated net sales, (2) direct to consumer sales representing a greater proportion of consolidated net sales and (3) improved gross margins in Lilly Pulitzer and Lanier Clothes. These favorable items were partially offset by the lower gross margin in Tommy Bahama.
 
Tommy Bahama:

Tommy Bahama's gross margin in the First Nine Months of Fiscal 2015 decreased slightly from the First Nine Months of Fiscal 2014. The reduction in gross margin reflected lower gross margins in both the direct to consumer and

22

Table of Contents                                             

wholesale channels of distribution, which offset the favorable impact of a change in sales mix with direct to consumer sales representing a greater proportion of net sales. The lower direct to consumer gross margin was primarily due to a greater proportion of sales in our full-price stores and e-commerce website in the period occurring in connection with Tommy Bahama's Friends and Family, loyalty card and flip-side events and more significant in-store discounts in our outlet stores. The lower gross margin in the wholesale business was primarily a result of a greater proportion of wholesale sales being off-price sales in the First Quarter and Second Quarter of Fiscal 2015.

Lilly Pulitzer:
 
The increase in gross margin for Lilly Pulitzer was primarily driven by (1) a change in sales mix towards the direct to consumer channel of distribution, which typically has higher gross margins than the wholesale channel of distribution, (2) higher gross margins in each channel of distribution and (3) fewer off-price sales in the current year.
 
Lanier Clothes:

The increase in gross margin for Lanier Clothes was primarily due to a change in sales mix with a greater proportion of sales being higher gross margin branded business programs.

Corporate and Other:

The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Oxford Golf and Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of inter-company sales between operating groups. The lower gross profit for Corporate and Other in the First Nine Months of Fiscal 2015 was primarily due to the impact of lower sales and the net unfavorable impact of LIFO accounting. LIFO accounting resulted in no significant impact in the First Nine Months of Fiscal 2015 compared to a credit of $0.5 million in the First Nine Months of Fiscal 2014.
 
SG&A
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
SG&A
$
355,337

$
323,674

$
31,663

9.8
%
SG&A as % of net sales
50.1
%
48.2
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,159

$
1,343

 
 
 
The increase in SG&A was primarily due to (1) $14.4 million of incremental costs in the First Nine Months of Fiscal 2015 associated with additional Tommy Bahama retail stores and restaurants, including the Waikiki retail-restaurant location, and Lilly Pulitzer stores, (2) costs to support the growing Tommy Bahama and Lilly Pulitzer businesses, (3) $2.7 million of increased incentive compensation in the First Nine Months of Fiscal 2015 and (4) $1.8 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington. SG&A included $1.5 million of amortization of intangible assets in the First Nine Months of Fiscal 2015 compared to $1.7 million in the First Nine Months of Fiscal 2014.

 
Royalties and other operating income
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Royalties and other operating income
$
11,032

$
10,052

$
980

9.7
%
 
Royalties and other operating income in the First Nine Months of Fiscal 2015 primarily reflect income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The $1.0 million increase in royalties and other income reflects increased royalty income for both Tommy Bahama and Lilly Pulitzer.

Operating income (loss)

23

Table of Contents                                             

 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Tommy Bahama
$
34,627

$
41,994

$
(7,367
)
(17.5
)%
Lilly Pulitzer
42,367

30,108

12,259

40.7
 %
Lanier Clothes
6,665

7,692

(1,027
)
(13.4
)%
Corporate and Other
(14,596
)
(13,114
)
(1,482
)
(11.3
)%
Total operating income
$
69,063

$
66,680

$
2,383

3.6
 %
LIFO credit included in Corporate and Other
$
(30
)
$
(473
)
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,159

$
1,343

 
 
Change in fair value of contingent consideration included in Lilly Pulitzer
$

$
206

 

 

 
The increase in operating income was primarily due to the higher operating income in Lilly Pulitzer partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a higher operating loss in Corporate and Other. Changes in operating income (loss) by operating group are discussed below.
 
Tommy Bahama:
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Net sales
$
462,612

$
441,535

$
21,077

4.8
 %
Gross margin
60.2
%
60.5
%
 

 

Operating income
$
34,627

$
41,994

$
(7,367
)
(17.5
)%
Operating income as % of net sales
7.5
%
9.5
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,159

$
1,343

 
 
 
The lower operating income for Tommy Bahama was primarily due to the higher SG&A and lower gross margin partially offset by higher sales. The higher SG&A reflects (1) $10.9 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants, including pre-opening rent and set-up costs associated with new stores and restaurants, (2) higher costs to support the growing Tommy Bahama business and (3) $1.8 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington during the Third Quarter of Fiscal 2015. The operating loss for the Tommy Bahama Waikiki retail-restaurant location, which opened in late October 2015, was $2.1 million in the First Nine Months of Fiscal 2015, with the substantial majority of this loss consisting of pre-opening rent and set-up costs, which is included in the incremental SG&A associated with new locations above.

Lilly Pulitzer:
 
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Net sales
$
167,704

$
132,984

$
34,720

26.1
%
Gross margin
65.6
%
64.0
%
 

 

Operating income
$
42,367

$
30,108

$
12,259

40.7
%
Operating income as % of net sales
25.3
%
22.6
%
 

 

Change in fair value of contingent consideration included in Lilly Pulitzer
$

$
206

 

 


The increase in operating income in Lilly Pulitzer was primarily due to the higher net sales and gross margin. These items were partially offset by increased SG&A. The increased SG&A was primarily associated with (1) higher costs to support

24

Table of Contents                                             

the growing business, reflecting increased infrastructure costs and advertising expense, (2) $3.4 million of incremental SG&A associated with the cost of operating additional retail stores and (3) $1.4 million of higher incentive compensation.
 
Lanier Clothes:
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Net sales
$
70,637

$
85,950

$
(15,313
)
(17.8
)%
Gross margin
29.4
%
26.7
%
 

 

Operating income
$
6,665

$
7,692

$
(1,027
)
(13.4
)%
Operating income as % of net sales
9.4
%
8.9
%
 

 

 
The lower operating income for Lanier Clothes was primarily due to the reduction in net sales partially offset by higher gross margin and lower SG&A. The lower SG&A reflects decreases in certain variable and other expenses including royalty, advertising and distribution expenses.

Corporate and Other:
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Net sales
$
8,755

$
10,825

$
(2,070
)
(19.1
)%
Operating loss
$
(14,596
)
$
(13,114
)
$
(1,482
)
(11.3
)%
LIFO credit included in Corporate and Other
$
(30
)
$
(473
)
 

 

 
The lower operating results in Corporate and Other were primarily due to the lower net sales in Oxford Golf's private label business, higher incentive compensation expense and the net unfavorable impact of LIFO accounting in the First Nine Months of Fiscal 2015 compared to the First Nine Months of Fiscal 2014.
 
Interest expense, net
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Interest expense, net
$
1,961

$
2,588

$
(627
)
(24.2
)%
 
Interest expense for the First Nine Months of Fiscal 2015 decreased from the prior year primarily due to lower average borrowings outstanding, particularly in Third Quarter of Fiscal 2015, and lower borrowing rates during the First Nine Months of Fiscal 2015 compared to the First Nine Months of Fiscal 2014

Income taxes
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Income taxes
$
26,119

$
25,973

$
146

0.6
%
Effective tax rate
38.9
%
40.5
%
 

 

 
Income tax expense for the First Nine Months of Fiscal 2015 increased, reflecting higher earnings and offset by a lower effective tax rate. The lower effective tax rate in the First Nine Months of Fiscal 2015 compared to the First Nine Months of Fiscal 2014 primarily resulted from higher domestic earnings and reductions in foreign losses. Our effective tax rate for the full year of Fiscal 2015 is expected to be approximately 38%.

Net earnings from continuing operations

25

Table of Contents                                             

 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
Net earnings from continuing operations
$
40,983

$
38,119

Net earnings from continuing operations per diluted share
$
2.48

$
2.32

Weighted average shares outstanding - diluted
16,544

16,461

 
The increase in net earnings from continuing operations was primarily due to the higher operating income in Lilly Pulitzer partially offset by lower operating income in Tommy Bahama and Lanier Clothes and a higher operating loss in Corporate and Other, each as discussed above.

Discontinued operations
 
First Nine Months Fiscal 2015
First Nine Months Fiscal 2014
$ Change
% Change
Loss from discontinued operations, net of taxes
$
(7,455
)
$
(8,155
)
$
700

8.6
 %
Loss on sale of discontinued operations, net of taxes
$
(20,437
)
$

$
(20,437
)
(100.0
)%
Net loss from discontinued operations, net of taxes
$
(27,892
)
$
(8,155
)
$
(19,737
)
(242.0
)%
 
The larger net loss from discontinued operations, net of taxes in the First Nine Months of Fiscal 2015 was primarily due to the Second Quarter 2015 loss on sale of the Ben Sherman operations partially offset by a lower loss from discontinued operations, net of taxes. We do not anticipate significant operations or earnings related to the discontinued operations in future periods, with cash flow attributable to discontinued operations in future periods primarily limited to the post-closing purchase price adjustments and amounts associated with a lease obligation of the Ben Sherman business which we retained in connection with the transaction.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is the sale and distribution of apparel and other related products through our direct to consumer and wholesale channels of distribution. Our primary uses of cash flow include the purchase of products in the operation of our business, as well as operating expenses including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, other general and administrative expenses and the payment of periodic interest payments related to our financing arrangements. Additionally, we use cash for the funding of capital expenditures and dividends and repayment of indebtedness. In the ordinary course of business, we maintain certain levels of inventory and extend credit to our wholesale customers. Thus, we require a certain amount of working capital to operate our business. If cash inflows are less than cash outflows, we have access to amounts under our revolving credit agreement, subject to its terms, which is described below. We may seek to finance our future cash requirements through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities, sales of debt or equity securities and cash on hand.
 
As of October 31, 2015, we had $6.6 million of cash and cash equivalents on hand, with $68.7 million of borrowings outstanding and $161.6 million of availability under our U.S. Revolving Credit Agreement. We believe our balance sheet and anticipated future positive cash flow from operating activities provide us with ample opportunity to continue to invest in our brands and our direct to consumer initiatives.
 
Key Liquidity Measures
($ in thousands)
October 31, 2015
January 31, 2015
November 1, 2014
February 2, 2014
Total current assets
$
240,437

$
282,969

$
282,580

$
271,032

Total current liabilities
$
122,932

$
159,942

$
132,229

$
133,046

Working capital
$
117,505

$
123,027

$
150,351

$
137,986

Working capital ratio
1.96

1.77

2.14

2.04

Debt to total capital ratio
18
%
27
%
34
%
35
%


26

Table of Contents                                             

Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets decreased from November 1, 2014 to October 31, 2015 primarily due to the disposal of the discontinued operations during the Second Quarter of Fiscal 2015. The November 1, 2014 balance sheet included $40.9 million of current assets related to discontinued operations with no current assets related to discontinued operations as of October 31, 2015. Current liabilities decreased primarily due to (1) the $12.4 million reduction in contingent consideration and (2) the disposal of the discontinued operations during the Second Quarter of Fiscal 2015, resulting in a decrease in current liabilities related to discontinued operations from $14.4 million to $6.2 million, which were partially offset by increases in other current liability amounts. Changes in current assets and current liabilities are discussed below.
 
For the ratio of debt to total capital, debt is defined as short-term and long-term debt included in continuing operations, and total capital is defined as debt plus shareholders' equity. Debt was $68.7 million at October 31, 2015 and $143.5 million at November 1, 2014, while shareholders’ equity was $319.9 million at October 31, 2015 and $280.9 million at November 1, 2014. The decrease in debt primarily resulted from the $59.3 million of proceeds related to the disposal of Ben Sherman and the net impact of positive cash flows from continuing operations which exceeded the cash paid for capital expenditures, dividends and contingent consideration during the period. Shareholders' equity increased from November 1, 2014, primarily as a result of net earnings less dividends paid and the change in accumulated other comprehensive loss during that period. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
 
Balance Sheet
 
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances from November 1, 2014 to October 31, 2015.
 
Current Assets:
 
October 31, 2015
January 31, 2015
November 1, 2014
February 2, 2014
Cash and cash equivalents
$
6,558

$
5,281

$
6,275

$
8,483

Receivables, net
60,344

64,587

70,269

61,325

Inventories, net
120,559

120,613

118,105

117,090

Prepaid expenses, net
26,570

19,941

25,278

19,030

Deferred tax assets
26,406

24,424

21,767

20,375

Assets related to discontinued operations, net

48,123

40,886

44,729

Total current assets
$
240,437

$
282,969

$
282,580

$
271,032

 
Cash and cash equivalents as of October 31, 2015 and November 1, 2014 include 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 generally is used to repay amounts outstanding under our revolving credit agreement. The decrease in receivables, net as of October 31, 2015 was primarily a result of lower wholesale sales in the last two months of the Third Quarter of Fiscal 2015 as compared to the last two months of the Third Quarter of Fiscal 2014, which was partially offset by higher receivables due from landlords reflecting the more significant leasehold improvement build out costs which had not been reimbursed as of October 31, 2015. Inventories, net as of October 31, 2015 increased from November 1, 2014 primarily as a result of an increase in Tommy Bahama inventories partially offset by lower inventories in Lilly Pulitzer. We believe that inventory levels in each operating group are appropriate to support anticipated sales levels for the Fourth Quarter of Fiscal 2015.

Deferred tax assets increased from November 1, 2014 primarily reflecting the impact of higher incentive compensation amounts, changes in certain reserves and a change in timing differences associated with inventory, due in part to a significant LIFO accounting charge in the Fourth Quarter of Fiscal 2014. The decrease in assets related to discontinued operations, net reflects our disposition of the Ben Sherman discontinued operations during the Second Quarter of Fiscal 2015.
 
Non-current Assets:

27

Table of Contents                                             

 
October 31, 2015
January 31, 2015
November 1, 2014
February 2, 2014
Property and equipment, net
$
183,482

$
146,039

$
143,480

$
133,321

Intangible assets, net
144,491

146,135

147,478

149,169

Goodwill
17,238

17,295

17,401

17,399

Other non-current assets, net
22,400

22,529

22,558