10-K




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2016
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
(State or other jurisdiction of incorporation or organization)
 
58-0831862
(I.R.S. Employer Identification No.)
999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309
 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
 (404) 659-2424
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Name of each exchange on which registered
Common Stock, $1 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ý    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 ý    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
As of July 31, 2015, which is the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant (based upon the closing price for the common stock on the New York Stock Exchange on that date) was $1,352,175,805. For purposes of this calculation only, shares of voting stock directly and indirectly attributable to executive officers, directors and holders of 10% or more of the registrant's voting stock (based on Schedule 13G filings made as of or prior to July 31, 2015) are excluded. This determination of affiliate status and the calculation of the shares held by any such person are not necessarily conclusive determinations for other purposes.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Title of Each Class
 
Number of Shares Outstanding
as of March 15, 2016
Common Stock, $1 par value
 
16,601,249
Documents Incorporated by Reference
Portions of our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the Annual Meeting of Shareholders of Oxford Industries, Inc. to be held on June 15, 2016 are incorporated by reference in Part III of this Form 10-K.




Table of Contents
 
 
Page
 




CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Such statements are subject to a number of risks, uncertainties and assumptions including, without limitation, 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 operations on our consolidated 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 and elsewhere in this report and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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; "GAAP" means generally accepted accounting principles in the United States; and "Discontinued operations" means the assets and operations of our former Ben Sherman operating group which we sold in July 2015. Unless otherwise indicated, all references to assets, liabilities, revenues, expenses or other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group.
Additionally, the terms listed below reflect the respective period noted:
Fiscal 2017
53 weeks ending February 3, 2018
Fiscal 2016
52 weeks ending January 28, 2017
Fiscal 2015
52 weeks ended January 30, 2016
Fiscal 2014
52 weeks ended January 31, 2015
Fiscal 2013
52 weeks ended February 1, 2014
Fiscal 2012
53 weeks ended February 2, 2013
Fiscal 2011
52 weeks ended January 28, 2012
Fourth quarter Fiscal 2015
13 weeks ended 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

3



PART I

Item 1.    Business
BUSINESS AND PRODUCTS
Overview
We are a global apparel company that designs, sources, markets and distributes products bearing the trademarks of our owned Tommy Bahama® and Lilly Pulitzer® lifestyle brands, as well as certain licensed and private label apparel products. During Fiscal 2015, 91% of our net sales were from products bearing brands that we own, and 66% of our net sales were sales of our products through our direct to consumer channels of distribution. In Fiscal 2015, more than 95% of our consolidated net sales 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.
Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude.  Furthermore, we believe that lifestyle brands like Tommy Bahama and Lilly Pulitzer, that create an emotional connection with consumers, can command greater loyalty, higher price points at retail and create licensing opportunities, which may result in higher earnings. We believe that the attraction of a lifestyle brand to consumers is dependent on creating compelling product, effectively communicating the respective lifestyle brand message and distributing the product to the consumer where and when they want it. 
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.  Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated products each season.
In order to further strengthen each lifestyle brand's connections with consumers, we communicate regularly with consumers via the use of electronic and print media.  We believe that our ability to effectively communicate with consumers and create an emotional connection is critical to the success of the brands.
We distribute our owned lifestyle branded products through our direct to consumer channel, consisting of our retail stores and e-commerce sites, and our wholesale distribution channel. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them the full line of our current season products and provide an opportunity for consumers to be immersed in the theme of the lifestyle brand. We believe that presenting our products in a setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands. Our 123 Tommy Bahama and 34 Lilly Pulitzer full-price retail stores provide high visibility for our brands and products, and allow us to stay close to the preferences of our consumers, while also providing a platform for long-term growth for the brands. In Tommy Bahama, we also operate 16 restaurants, generally adjacent to Tommy Bahama full-price retail store locations, which we believe further enhance the brand's image with consumers.
Additionally, our e-commerce websites, which represented 17% of our consolidated net sales in Fiscal 2015, provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products. Our Tommy Bahama and Lilly Pulitzer e-commerce flash clearance sales on our websites, as well as our 41 Tommy Bahama outlet stores, play an important role in overall brand and inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and at better prices than are typically available from third parties.
The wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger group of consumers. As we seek to maintain the integrity of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites, we generally target select wholesale customers that follow this same approach in their stores. Our wholesale customers for our Tommy Bahama and Lilly Pulitzer brands include better department stores and specialty stores.
Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed brands, private label products and owned brands to department stores, national chains, warehouse clubs, discount retailers, specialty retailers and others throughout the United States.
All of our operating groups operate in highly competitive apparel markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry and our direct

4



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.

The apparel industry is cyclical and very 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 may have on other industries.  We believe the global economic conditions and resulting economic uncertainty that have prevailed in recent years continue to impact our business, and the apparel industry as a whole. Although some signs of economic improvements exist, the apparel retail environment remains increasingly more promotional.

Additionally, the apparel retail market is evolving as a result of shifting shopping patterns and technological advances, with e-commerce playing an increasingly important role and bricks and mortar retail stores playing a different role in consumers' journey to their ultimate purchase. The industry is also being impacted by the coming of age of the millenial generation whose values and approach to the marketplace are so different from past generations. We believe that our lifestyle brands are ideally suited to succeed and thrive in the long-term while managing the various challenges facing our industry.
Important factors relating to certain risks, many of which are beyond our ability to control or predict, which could impact our business are described in Part I, Item 1A. Risk Factors of this report.
Investments and Opportunities

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 bricks and mortar retail store operations, as we add additional retail store locations and attempt to increase comparable retail store sales, and higher sales in our e-commerce operations, which are likely to grow at a faster rate than comparable bricks and mortar retail store sales. We also believe that these lifestyle brands provide an opportunity for 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 also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs for existing and new customers.

We believe 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, e-commerce initiatives, technology enhancements and distribution center and administrative office expansion initiatives. Additionally, we anticipate increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future sales growth.

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 owned 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.

We believe that an attractive acquisition target would most likely be a lifestyle brand that has a strong emotional connection with its consumer and has a disciplined full-price distribution model consisting of wholesale customers who generally operate a full-price retail model and/or a direct to consumer distribution model via e-commerce or retail stores. Further, while both Tommy Bahama and Lilly Pulitzer are primarily apparel brands, we could also be interested in a company with a more significant footprint in accessories, footwear or other product categories. The acquisition of a premier lifestyle brand is a meticulous process as such a brand is not available very often, and we most likely would have stiff competition from both strategic and private equity firms.
Operating Groups
Our business primarily operates through our Tommy Bahama, Lilly Pulitzer and Lanier Apparel operating groups, each of which is described below. 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.


5



In Fiscal 2015, as a result of certain organizational and management reporting changes, our Oxford Golf operations, which were previously included in Corporate and Other, are considered part of and included in our Lanier Apparel operating group. For all periods presented, amounts for Lanier Apparel include the Oxford Golf operations, while amounts for Corporate and Other exclude those operations. 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 other businesses which are not included in our operating groups.

The table below presents net sales and operating information about our operating groups (in thousands).
 
Fiscal 2015
Fiscal 2014
Net Sales
 
 
Tommy Bahama
$
658,467

$
627,498

Lilly Pulitzer
204,626

167,736

Lanier Apparel
105,106

126,430

Corporate and Other
1,091

(1,339
)
Total
$
969,290

$
920,325

Operating Income (Loss)
 
 
Tommy Bahama
$
65,993

$
71,132

Lilly Pulitzer
42,525

32,190

Lanier Apparel
7,700

10,043

Corporate and Other (1)
(18,704
)
(20,546
)
Total operating income
$
97,514

$
92,819

(1)
The Fiscal 2015 and Fiscal 2014 operating loss for Corporate and Other included $0.3 million and $2.1 million, respectively, of LIFO accounting charges.
The table below presents the total assets of each of our operating groups (in thousands).
 
January 30, 2016
January 31, 2015
Assets
 
 
Tommy Bahama
$
458,234

$
420,083

Lilly Pulitzer
115,419

104,352

Lanier Apparel
35,451

41,455

Corporate and Other
(26,414
)
(23,353
)
Assets related to discontinued operations

79,870

Total
$
582,690

$
622,407

Total assets for Corporate and Other include LIFO reserves of $59.4 million and $58.6 million as of January 30, 2016 and January 31, 2015, respectively. For more details on each of our operating groups, see Note 2 of our consolidated financial statements and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, both included in this report. For financial information by geographic areas, see Note 2 of our consolidated financial statements, included in this report.
Tommy Bahama
Tommy Bahama designs, sources, markets and distributes 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 Tommy Bahama stores and on our Tommy Bahama e-commerce website, tommybahama.com, as well as in better department stores and independent specialty stores throughout the United States. We also operate Tommy Bahama restaurants and license the Tommy Bahama name for various product categories. During Fiscal 2015, 95% of Tommy Bahama's sales were to customers within the United States, with the remaining sales being in Canada, Australia and Asia.
We believe that the attraction of the Tommy Bahama brand to our consumers is a reflection of our efforts over many years of maintaining appropriate quality and design of our Tommy Bahama apparel, accessories and licensed products, limiting

6



the distribution of Tommy Bahama products to a select tier of retailers and effectively communicating the relaxed and casual Tommy Bahama lifestyle to consumers. We expect to continue to follow this approach for the brand in the future. We believe that the retail sales value of all Tommy Bahama branded products sold during Fiscal 2015, including our estimate of retail sales by our wholesale customers and other third party retailers, was approximately $1.2 billion.
We believe there is ample opportunity to expand the reach of the Tommy Bahama brand, while at the same time maintaining the select distribution that Tommy Bahama has historically maintained. We believe that in order to take advantage of opportunities for long-term growth, we must continue to invest in the Tommy Bahama brand both domestically and internationally. These investments include amounts associated with capital expenditures and pre-opening expenses of new stores and restaurants; the remodeling of existing stores and restaurants; capital expenditures and ongoing expenses to enhance e-commerce and other technology capabilities; and capital expenditures related to distribution and other facilities.
We believe there are abundant opportunities for continued growth in the United States through direct to consumer expansion as well as developing a more significant women's business in the long-term. During Fiscal 2015, Tommy Bahama's women's business represented 29% of Tommy Bahama's full-price direct to consumer sales but a much lower percentage of Tommy Bahama's wholesale sales. In recent years we began expansion of the Tommy Bahama brand into international markets. These efforts have included the acquisition of the assets and operations of the Tommy Bahama business from our former licensees in Australia in Fiscal 2012 and Canada in Fiscal 2013. The operations of these licensees in each of these countries had developed a certain level of brand awareness, but we determined that after considering the potential direct to consumer and wholesale growth opportunities in those countries, it was appropriate for us to re-acquire the rights to the operations.
We also commenced operations in Asia by opening retail store locations in Asia beginning in Fiscal 2012. The operations in Asia thus far have generated operating losses as we developed a significant Hong Kong-based team and infrastructure to support a larger Asia retail operation. The roll-out of retail stores in Asia has been at a modest pace as we have attempted to focus on improving store operations in Asia prior to engaging in a significant roll-out of additional stores. As a lifestyle brand which desires to remain primarily a full-price brand, we continue to believe it is appropriate that in certain key markets we initially set the tone for the brand rather than engaging a partner. However, in the future, we may engage a local partner to accelerate growth in markets that we have not yet entered, as well as in markets that we are currently operating.
Our near term focus in the Asia-Pacific region remains on our direct to consumer operations in Australia and Japan while at the same time further reducing our infrastructure costs in Hong Kong to better align with our current Asia retail operations. During Fiscal 2015, at the expiration of the respective leases, we closed our retail store in Macau and outlet store in Hong Kong, and we also plan on closing our store in Singapore in Fiscal 2016. These closures will result in our Asia-Pacific retail operations primarily consisting of stores in Australia and Japan. By focusing on Australia and Japan and increasing the store count in those locations, as appropriate, we believe we can do a better job of increasing brand awareness and sales by focusing our marketing spend in a location where the consumer has a variety of options for purchasing Tommy Bahama product, including our own retail stores, our wholesale customers' stores and, in the case of Japan, an in-country Tommy Bahama website. While we believe there are significant long-term opportunities for our Tommy Bahama operations in the Asia-Pacific region, we believe that the operating losses associated with these operations will continue to put downward pressure on our operating margin in the near future until we have sufficient sales to leverage the operating costs.
Design, Sourcing, Marketing and Distribution
Tommy Bahama products are designed by product specific teams who focus on the target consumer. The design process includes feedback from buyers, consumers and sales agents, along with market trend research. Our Tommy Bahama apparel products generally incorporate fabrics made of cotton, silk, linen, nylon, leather, tencel and other natural and man-made fibers, or blends of two or more of these materials.
We operate a buying office located in Hong Kong to manage the production and sourcing of the substantial majority of our Tommy Bahama products. During Fiscal 2015, we utilized more than 250 suppliers to manufacture our Tommy Bahama products. In Fiscal 2015, 77% of Tommy Bahama's product purchases were from manufacturers in China. The largest 10 suppliers of Tommy Bahama products provided 48% of the products acquired during Fiscal 2015, with no individual supplier providing greater than 10%.
We believe that advertising and marketing are an integral part of the long-term strategy of the Tommy Bahama brand, and we therefore devote significant resources to advertising and marketing. While the advertising for Tommy Bahama promotes our products, the primary emphasis is on brand image and brand lifestyle. We intend that Tommy Bahama's advertising will engage individuals within the brand's consumer demographic and guide them on a regular basis to our retail stores, e-commerce websites or wholesale customers' stores in search of our products. The marketing of the Tommy Bahama brand includes email, Internet and social media advertising and traditional media such as catalogs, print and other correspondence with customers, as well as moving media and trade show initiatives. As a lifestyle brand, we believe that it is very important that Tommy Bahama

7



communicate regularly with consumers via the use of email, Internet and social media about product offerings or other brand events in order to maintain and strengthen Tommy Bahama's connections with its consumers.
We also believe that highly visible retail store locations with creative design, broad merchandise selection and brand appropriate visual presentation are key enticements for customers to visit our retail stores and buy merchandise. We intend that our retail stores enhance the shopping experience of our customers, which we believe will increase consumer brand loyalty. Marketing initiatives at our retail stores may include special event promotions and a variety of public relations activities designed to create awareness of our products including promotional gift cards and "flip-side" events intended to drive traffic to our stores and websites. We believe our traditional and electronic media communications increase the sales of our own retail stores and e-commerce operations, as well as the sales of our products for our wholesale customers.
For certain of our wholesale customers, we also provide point-of-sale materials and signage to enhance the presentation of our products at their retail locations and/or participate in cooperative advertising programs.
We operate a Tommy Bahama distribution center in Auburn, Washington, which serves our North American direct to consumer and wholesale operations. Activities at the distribution center include receiving finished goods from suppliers, inspecting the products and shipping the products to our Tommy Bahama stores, our wholesale customers and our e-commerce customers. We seek to maintain sufficient levels of Tommy Bahama inventory at the distribution center to support our direct to consumer operations, as well as pre-booked orders and some limited replenishment ordering for our wholesale customers. We use local third party distribution centers for our Asia-Pacific operations.
Direct to Consumer Operations
A key component of our Tommy Bahama growth strategy is to operate our own stores and e-commerce websites, which we believe permits us to develop and build brand awareness by presenting our products in a setting specifically designed to showcase the aspirational lifestyle on which the products are based. Our Tommy Bahama direct to consumer channels, which consist of retail store, e-commerce and restaurant operations, in the aggregate, represented 76% of Tommy Bahama's net sales in Fiscal 2015. We expect the percentage of our Tommy Bahama sales which are direct to consumer sales will increase slightly in future years as we anticipate that the direct to consumer distribution channel will grow at a faster pace than the wholesale distribution channel. Retail store, e-commerce and restaurant net sales accounted for 50%, 15% and 11%, respectively, of Tommy Bahama's net sales in Fiscal 2015.
Our direct to consumer strategy for the Tommy Bahama brand includes locating and operating full-price retail stores in upscale malls, lifestyle shopping centers, resort destinations and brand appropriate street locations. Generally, we seek shopping areas and malls with high-profile or upscale consumer brands for our full-price retail stores. As of January 30, 2016, approximately 40% of our full-price Tommy Bahama retail locations were in regional malls, with the remainder primarily being stores in street-front locations or lifestyle centers. Our full-price retail stores allow us the opportunity to carry a full line of current season merchandise, including apparel, home products and accessories, all presented in an aspirational, island-inspired atmosphere designed to be relaxed, comfortable and unique. We believe that the Tommy Bahama retail stores provide high visibility for the brand and products, and allow us to stay close to the preferences of our consumers. Further, we believe that our presentation of products and our strategy to operate the retail stores as full-price stores with limited in-store promotional activities are good for the Tommy Bahama brand and, in turn, enhance business with our wholesale customers. Generally, we believe there are opportunities for retail stores in warmer and colder climates, as we believe the more important consideration is whether the location attracts the affluent consumer that we are targeting.
Our Tommy Bahama outlet stores, which generated 10% of our total Tommy Bahama net sales in Fiscal 2015, are generally located in outlet shopping centers that include upscale retailers and serve an important role in overall inventory management by allowing us to sell discontinued and out-of-season products at better prices than are otherwise available from outside parties. We believe that this approach helps us protect the integrity of the Tommy Bahama brand by allowing our full-price retail stores to limit promotional activity and controlling the distribution of discontinued and out-of-season product. To supplement the clearance items sold in Tommy Bahama outlets, approximately 20% of the product sold in our Tommy Bahama outlets was made specifically for our outlets. At this time and based on our anticipated proportion of clearance versus made-for items in our outlet stores, we anticipate that we would generally operate one outlet for approximately every three full-price stores.
For Tommy Bahama's domestic full-price retail stores and restaurant-retail locations operating for the full Fiscal 2015 year, sales per gross square foot, excluding restaurant sales and restaurant space, were approximately $655 during Fiscal 2015, compared to $680 for stores operating for the full Fiscal 2014 year. The decrease in sales per square foot was primarily due to Fiscal 2014 store openings having a lower sales per square foot than the overall average and unfavorable domestic comparable store sales for stores opened prior to Fiscal 2014. For international full-price retail stores and restaurant-retail locations located in Canada, Australia and Asia operating for the full Fiscal 2015 year, sales per gross square foot, excluding

8



restaurant sales and restaurant space, were approximately $410 during Fiscal 2015. In Fiscal 2015, our domestic outlet stores and international outlet stores generated approximately $380 and $255 of sales per square foot, respectively, for outlets open for the entire 2015 fiscal year.
As of January 30, 2016 we operated 16 restaurants, generally adjacent to a Tommy Bahama full-price retail store location, which together we often refer to as islands. These restaurant-retail locations provide us with the opportunity to immerse customers in the ultimate Tommy Bahama experience. We do not anticipate that many of our retail locations will have an adjacent restaurant; however, in select high-profile, brand appropriate locations, such as Naples and Jupiter, Florida, Waikiki, Hawaii, and New York City, we have determined that an adjacent restaurant can further enhance the image of the brand. The net sales per square foot in our domestic full-price retail stores which are adjacent to a restaurant are on average two times the sales per square foot of our domestic full-price retail stores not adjacent to a restaurant. We believe that the experience of a meal or drink in a Tommy Bahama restaurant may entice the customer to purchase additional Tommy Bahama merchandise and potentially provide a memorable consumer experience that further enhances the relationship between Tommy Bahama and the consumer.
As of January 30, 2016, the total square feet of space utilized for our Tommy Bahama full-price retail store and outlet store operations was 0.6 million with another 0.1 million of total square feet utilized in our Tommy Bahama restaurant operations. The table below provides certain information regarding Tommy Bahama retail stores operated by us as of January 30, 2016.
 
Full-Price
Retail Stores
Outlet Stores
Restaurant-Retail
Locations
Total
Florida
19

4

5

28

California
16

5

3

24

Texas
6

4

1

11

Hawaii
4

1

3

8

Nevada
4

1

1

6

Maryland
3

2


5

New York
2

2

1

5

Other states
37

16

1

54

Total domestic
91

35

15

141

Canada
6

3


9

Total North America
97

38

15

150

Australia
7

2


9

Japan
1

1

1

3

Other international
2



2

Total
107

41

16

164

Average square feet per store (1)
3,400

4,500

4,300

 

Total square feet at year end
365,000

185,000

70,000

 

(1)
Average square feet for restaurant-retail locations consists of average retail space and excludes space used in the associated restaurant operations.
The table below reflects the changes in store count for Tommy Bahama stores during Fiscal 2015.
 
Full-Price
Retail Stores
Outlet Stores
Restaurant-Retail
Locations
Total
Open as of beginning of fiscal year
101

41

15

157

Opened during fiscal year
9

1

1

11

Closed during fiscal year
(3
)
(1
)

(4
)
Open as of end of fiscal year
107

41

16

164

In future years, we currently expect to open approximately seven to 10 retail locations per year, however, recently we have opened more than this stated pace. The operation of full-price retail stores, outlet stores and restaurant-retail locations requires a greater amount of initial capital investment than wholesale operations, as well as greater ongoing operating costs. We

9



estimate that we will spend approximately $1.0 million on average in connection with the build-out of a domestic full-price retail store. However, individual locations, particularly those in urban locations, may require investments greater than these amounts depending on a variety of factors, including the location and size of the store. The cost of a restaurant-retail location is significantly more than the cost of a retail store and can vary significantly depending on a variety of factors. Historically, the cost of our restaurant-retail locations has been approximately $5 million; however, we have spent significantly more than that amount for certain locations, including New York City and Waikiki. For most of our stores, the landlord provides certain incentives to fund a portion of our capital expenditures.
We also incur capital expenditures when a lease expires and we determine it is appropriate to relocate a store to a new location in the same vicinity as the previous store. The cost of store relocations is generally comparable to the costs of opening a new full-price retail store or outlet store. Additionally, we incur capital expenditure costs related to periodic remodels of existing stores, particularly when we renew or extend a lease beyond the original lease term, or otherwise determine that a remodel of a store is appropriate. When a lease expires we may decide to close the store rather than relocating the store to another location or renewing the lease. As we reach the expirations of more of our lease agreements in the near future, we anticipate that the capital expenditures for relocations and remodels, in the aggregate, may increase in future periods.
In addition to our full-price retail stores and outlet stores, our direct to consumer approach includes various e-commerce websites, including the tommybahama.com website and the tommybahama.jp website, which launched in February 2015. During Fiscal 2015, e-commerce sales represented 15% of Tommy Bahama's net sales. Our Tommy Bahama websites allow consumers to buy Tommy Bahama products directly from us via the Internet. These websites also enable us to increase our database of consumer contacts, which allows us to communicate directly and frequently with consenting consumers. As we reach more customers in the future, we anticipate that our e-commerce distribution channel for Tommy Bahama will continue to grow at a faster pace than our domestic retail store operations or wholesale operations. Also, we expect to continue to have a select number of e-commerce flash clearance sales, which represented 9% of Tommy Bahama e-commerce sales in Fiscal 2015, using our outlettommybahama.com website as a means of complementing our outlets in liquidating discontinued or out-of-season inventory, in a brand appropriate manner.
Wholesale Operations
To complement our direct to consumer operations and have access to a larger group of consumers, including those who may wish to shop at specialty stores or department stores, we continue to maintain our wholesale operations for Tommy Bahama. Tommy Bahama's wholesale customers consist of sales to better department stores and specialty stores that generally follow a full-price retail model approach with limited discounting. We value our long-standing relationships with our wholesale customers and are committed to working with them to enhance the success of the Tommy Bahama brand within their stores. We believe that the integrity and continued success of the Tommy Bahama brand, including its direct to consumer operations, is dependent, in part, upon controlled wholesale distribution with careful selection of the retailers through which Tommy Bahama products are sold.
As a result of this approach to limiting our wholesale customers, we believe that sales growth in our men's apparel wholesale business, which represented approximately 86% of Tommy Bahama's wholesale sales in Fiscal 2015, may be somewhat limited domestically. However, we believe that we have significant opportunities for wholesale sales increases for our Tommy Bahama women's business, which represented approximately 14% of Tommy Bahama's wholesale sales in Fiscal 2015. Overall, we expect that the Tommy Bahama wholesale business will grow at a slower rate than the direct to consumer distribution channel.
Wholesale sales for Tommy Bahama accounted for 24% of Tommy Bahama's net sales in Fiscal 2015. Approximately two-thirds of of Tommy Bahama's wholesale business reflects sales to major department stores with the remaining wholesale sales primarily being sales to specialty stores. Tommy Bahama products are available in more than 2,000 retail locations. During Fiscal 2015, 15% of Tommy Bahama's net sales were to Tommy Bahama's five largest wholesale customers, with its largest customer representing 6% of Tommy Bahama's net sales.
We maintain Tommy Bahama apparel sales offices and showrooms in New York and Seattle, as well as other locations, to facilitate sales to our wholesale customers. Our Tommy Bahama wholesale operations utilize a sales force predominantly consisting of independent commissioned sales representatives.
Licensing Operations
We believe licensing is an attractive business opportunity for the Tommy Bahama brand. For an established lifestyle brand, licensing typically requires modest additional investment but can yield high-margin income. It also affords the opportunity to enhance overall brand awareness and exposure. In evaluating a licensee for Tommy Bahama, we typically consider the candidate's experience, financial stability, sourcing expertise and marketing ability. We also evaluate the marketability and compatibility of the proposed licensed products with other Tommy Bahama products.

10



Our agreements with Tommy Bahama licensees are for specific geographic areas and expire at various dates in the future, and in limited cases include contingent renewal options. Generally, the agreements require minimum royalty payments as well as additional royalty payments and, in some cases, advertising payments and/or obligations to expend certain funds towards marketing the brand on an approved basis calculated as specified percentages of the licensee's net sales of the licensed products. Our license agreements generally provide us the right to approve all products, advertising and proposed channels of distribution. Third party license arrangements for our Tommy Bahama products include the following product categories:
Men's and women's headwear
Ceiling fans
Indoor furniture
Men's socks
Rugs
Outdoor furniture and related products
Mattresses
Fabrics
Bedding and bath linens
Sleepwear
Belts, leather goods and gifts
Table top accessories
Shampoo, soap and bath amenities
Luggage
Suncare products
 
Fragrances
 
In addition to our licenses for the specific product categories listed above, we may enter into certain international distributor agreements which allow those parties to distribute Tommy Bahama apparel and other products on a wholesale and/or retail basis within certain countries or regions. As of January 30, 2016, we have one such agreement for the Middle East. Substantially all of the products sold by the distributor are identical to the products sold in our own Tommy Bahama stores. In addition to selling Tommy Bahama goods to wholesale accounts, the distributor operates its own retail stores.
Seasonal Aspects of Business
Tommy Bahama's operating results are impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. The following table presents the percentage of net sales and operating income for Tommy Bahama by quarter for Fiscal 2015:
 
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Net sales
26
%
25
%
19
 %
30
%
Operating income (loss)
31
%
31
%
(10
)%
48
%
As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments or other factors affecting the business may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales and operating income for Fiscal 2015 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. For example, in Fiscal 2015, Tommy Bahama's operating results in the third quarter were negatively impacted by 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 as well as substantial pre-opening rent and set-up costs associated with the Waikiki restaurant-retail location which opened in late October 2015.
The timing of Tommy Bahama's sales in the direct to consumer and wholesale distribution channels generally varies. Typically, the demand in the direct to consumer operations, including sales at our own stores and e-commerce site, for Tommy Bahama products in our principal markets is generally higher in the spring, summer and holiday seasons and lower in the fall season. However, wholesale product shipments are generally shipped prior to each of the retail selling seasons. As the allocation of sales within a quarter is impacted by the seasonality of direct to consumer and wholesale sales, we have presented in the following table the proportion of net sales for each quarter represented by each distribution channel for Fiscal 2015, which may not necessarily be indicative of the allocation of sales within any particular quarter in future periods:
 
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Full-price retail stores and outlets
47
%
55
%
48
%
51
%
50
%
E-commerce
12
%
17
%
11
%
19
%
15
%
Restaurant
12
%
10
%
11
%
9
%
11
%
Wholesale
29
%
18
%
30
%
21
%
24
%
Total
100
%
100
%
100
%
100
%
100
%
Lilly Pulitzer

11



Lilly Pulitzer designs, sources, markets and distributes upscale collections of women's and girl's dresses, sportswear and related products. The Lilly Pulitzer brand was originally created in the late 1950's by Lilly Pulitzer and is an affluent brand with a heritage and aesthetic based on the Palm Beach resort lifestyle. The brand is somewhat unique among women's brands in that it has demonstrated multi-generational appeal, including young women in college or recently graduated from college; young mothers with their daughters; and women who are not tied to the academic calendar. Lilly Pulitzer products can be found in our owned Lilly Pulitzer stores, in Lilly Pulitzer Signature Stores, which are described below, and on our Lilly Pulitzer website, lillypulitzer.com, as well as in better department and independent specialty stores. During Fiscal 2015, 45% and 37% of Lilly Pulitzer's net sales were for women's sportswear and dresses, respectively, with the remaining sales consisting of Lilly Pulitzer accessories, including scarves, bags, jewelry and belts; children's apparel; footwear; and licensed products.
We believe that there is significant opportunity to expand the reach of the Lilly Pulitzer brand, while at the same time maintaining the exclusive distribution that Lilly Pulitzer has historically maintained. We believe that in order to take advantage of opportunities for long-term growth, we must continue to invest in the Lilly Pulitzer brand. These investments include amounts associated with opening and operating new stores, costs to enhance e-commerce and other technology capabilities and an increase in employment, advertising and other costs to support a growing business. While we believe that these investments will generate long-term benefits, the investments may have a short-term negative impact on Lilly Pulitzer's operating margin.
We believe the attraction of the Lilly Pulitzer brand to our consumers is a reflection of years of maintaining appropriate quality and design of the Lilly Pulitzer apparel, accessories and licensed products, restricting the distribution of the Lilly Pulitzer products to a select tier of retailers and effectively communicating the message of Lilly's optimistic Palm Beach resort chic lifestyle. We believe this approach to quality, design, distribution and communication has been critical in allowing us to achieve the current retail price points for Lilly Pulitzer products. We believe that the retail sales value of all Lilly Pulitzer branded products sold during Fiscal 2015, including our estimate of retail sales by our wholesale customers and other third party retailers, but excluding sales associated with the one-time Target collaboration in April 2015, exceeded $275 million.
Design, Sourcing, Marketing and Distribution
Lilly Pulitzer's products are developed by our dedicated design teams located at the Lilly Pulitzer headquarters in King of Prussia, Pennsylvania as well as Palm Beach, Florida. Our Lilly Pulitzer design teams focus on the target consumer, and the design process combines feedback from buyers, consumers and our sales force, along with market trend research. Lilly Pulitzer apparel products are designed to incorporate various fiber types, including cotton, silk, linen and other natural and man-made fibers, or blends of two or more of these materials.
Lilly Pulitzer uses a combination of in-house employees in our King of Prussia and Hong Kong offices and third party buying agents primarily based in Asia to manage the production and sourcing of the Lilly Pulitzer apparel products. Through its buying agents and direct sourcing, Lilly Pulitzer used approximately 50 suppliers, with the largest individual supplier providing 13%, and the largest 10 suppliers providing 62%, of the Lilly Pulitzer products acquired during Fiscal 2015. In Fiscal 2015, 61% of Lilly Pulitzer's product purchases were from manufacturers located in China.
We believe that advertising and marketing are an integral part of the long-term strategy of the Lilly Pulitzer brand, and we therefore devote significant resources to advertising and marketing. We intend that Lilly Pulitzer's advertising will engage individuals within the brand's consumer demographic and guide them on a regular basis to our retail stores, e-commerce websites and wholesale customers' stores in search of our products. The marketing of the Lilly Pulitzer brand includes email, Internet and social media advertising as well as traditional media such as catalogs, print and other correspondence with customers and moving media and trade show initiatives. We believe that it is very important that a lifestyle brand effectively communicate with consumers on a regular basis via the use of electronic media and print correspondence about product offerings or other brand events in order to maintain and strengthen the brand's connections with consumers.
In addition to our ongoing Lilly Pulitzer marketing initiatives, we were also extremely pleased with a specific one-time marketing program in Fiscal 2015. This initiative was a single delivery design collaboration with the Target Corporation where Lilly Pulitzer provided certain designs and prints to Target, and Target used those prints on a collection of 250 pieces spanning apparel, accessories and shoes for women and girls, as well as home accents, outdoor entertaining accessories, beach gear and travel essentials. This single delivery program launched in April 2015 in all domestic Target locations and on the Target website. Target highlighted the collaboration in its marketing materials in connection with the launch. We did not recognize any product sales related to this program; however, this marketing program provided a significant amount of national exposure and media impressions for the Lilly Pulitzer brand. We believe that this marketing exposure introduced the Lilly Pulitzer brand to new consumers both on the East Coast where the brand has a very strong brand recognition and also west of the Mississippi River, where Lilly Pulitzer generated less than 20% of its Fiscal 2015 e-commerce sales.
We believe that highly visible retail store locations with creative design, broad merchandise selection and brand appropriate visual presentation are key enticements for customers to visit our retail stores and buy merchandise. We intend that

12



our retail stores enhance the shopping experience of our customers, which we believe will increase consumer brand loyalty. Marketing initiatives at certain of our retail stores may include special event promotions and a variety of public relations activities designed to create awareness of our stores and products. At certain times during the year, an integral part of the marketing plan for Lilly Pulitzer includes certain gift with purchase programs where the consumer earns the right to a Lilly Pulitzer gift product if certain spending thresholds are achieved by the consumer. We believe that our retail store operations as well as our traditional and electronic media communications enhance brand awareness and increase the sales of Lilly Pulitzer products in all channels of distribution.
For certain of our wholesale customers, we also provide point-of-sale materials and signage to enhance the presentation of our branded products at their retail locations and/or participate in cooperative advertising programs.
Lilly Pulitzer operates a distribution center in King of Prussia, Pennsylvania for its operations. Activities at the distribution center include receiving finished goods from suppliers, inspecting the products and shipping the products to wholesale customers, Lilly Pulitzer full-price retail stores and our e-commerce customers. We seek to maintain sufficient levels of inventory at the distribution center to support our direct to consumer operations, as well as pre-booked orders and some limited replenishment ordering for our wholesale customers.
Direct to Consumer Operations
A key component of our Lilly Pulitzer growth strategy is to operate our own stores and e-commerce website which we believe permits us to develop and build brand awareness by presenting products in a setting specifically designed to showcase the aspirational lifestyle on which they are based. The distribution channels included in Lilly Pulitzer's direct to consumer strategy consist of full-price retail store and e-commerce operations and represented 68% of Lilly Pulitzer's net sales in Fiscal 2015, compared to 62% in Fiscal 2014. We expect the percentage of our Lilly Pulitzer sales which are direct to consumer sales will increase in future years as we anticipate that the full-price retail and e-commerce components of the Lilly Pulitzer business will continue to grow at a faster rate than the wholesale distribution channel.
Our direct to consumer strategy for the Lilly Pulitzer brand includes operating full-price retail stores in higher-end malls, lifestyle shopping centers, resort destinations and brand-appropriate street locations. Sales at our retail stores represented 38% of Lilly Pulitzer's net sales during Fiscal 2015. As of January 30, 2016, approximately one-half of the Lilly Pulitzer stores were located in indoor regional malls, approximately one-third of the Lilly Pulitzer stores were located in outdoor regional lifestyle centers and the remaining locations were primarily street locations. Each retail store carries a wide range of merchandise, including apparel, footwear and accessories, all presented in a manner intended to enhance the Lilly Pulitzer image, brand awareness and acceptance. Our Lilly Pulitzer retail stores allow us to present Lilly Pulitzer's full line of current season products. We believe our Lilly Pulitzer retail stores provide high visibility for the brand and products and also enable us to stay close to the needs and preferences of consumers. Also, we believe that our presentation of products and our strategy to operate the retail stores as full-price stores with limited promotional activities complement our business with our wholesale customers. Generally, we believe there are opportunities for retail stores in warmer and colder climates, as we believe the more important consideration is whether the location attracts the affluent consumer that we are targeting.
Lilly Pulitzer's retail store sales per gross square foot for Fiscal 2015 were approximately $835 for the retail stores which were open the full Fiscal 2015 year compared to approximately $730 for the Lilly Pulitzer stores open for the full Fiscal 2014 year. The increase in sales per gross square foot from the prior year was primarily due to higher comparable store sales. The table below provides certain information regarding Lilly Pulitzer retail stores as of January 30, 2016.
 
Number of
Full-Price
Retail Stores
Florida
12

New York
3

Other
19

Total
34

Average square feet per store
2,700

Total square feet at year-end
91,000


13



The table below reflects the changes in store count for Lilly Pulitzer stores during Fiscal 2015.
 
Full-Price
Retail Stores
Open as of beginning of fiscal year
28

Opened during fiscal year
6

Open as of end of fiscal year
34

In Fiscal 2016, we expect to open six retail stores, and after Fiscal 2016, we expect to maintain a similar pace in the near future. The operation of full-price retail stores requires a greater amount of initial capital investment than wholesale operations, as well as greater ongoing operating costs. We anticipate that most future full-price retail store openings will generally be 2,500 square feet on average; however, many stores will be larger or smaller than 2,500 square feet with the determination of size of the store depending on a variety of criteria. To open a 2,500 square foot Lilly Pulitzer full-price retail store, we anticipate capital expenditures of approximately $0.8 million on average. For most of our retail stores, the landlord provides certain incentives to fund a portion of our capital expenditures.
In addition to new store openings, we also incur capital expenditure costs related to remodels of existing stores, particularly when we renew or extend a lease beyond the original lease term, or otherwise determine that a remodel of a store is appropriate. We may also incur capital expenditures if a lease expires, or otherwise, and we determine it is appropriate to relocate a store to a new location in the same vicinity as the previous store. The cost of store relocations, if any, will generally be comparable to the cost of opening a new store. Alternatively, when a lease expires we may decide to close the store rather than relocating the store to another location or renewing the lease. In the First Quarter of Fiscal 2016, we closed our East Hampton, New York store at the expiration of the lease agreement.
In addition to operating Lilly Pulitzer full-price retail stores, another key element of our direct to consumer strategy is the lillypulitzer.com website, which represented 30% of Lilly Pulitzer's net sales in Fiscal 2015 compared to 28% in Fiscal 2014. The Lilly Pulitzer e-commerce business has experienced significant growth in recent years and we anticipate that the rate of growth of the e-commerce business will remain strong in the future.
We also utilize the Lilly Pulitzer website as an effective means of liquidating discontinued or out-of-season inventory, which is an ongoing part of any apparel business, in a brand appropriate manner. Usually, we have two e-commerce flash clearance sales per year, both of which are in typical industry end of season promotional periods. These sales are brand appropriate events that create a significant amount of excitement with loyal Lilly Pulitzer consumers, who are looking for an opportunity to purchase Lilly Pulitzer products at a discounted price. Each of these two e-commerce flash clearance sales are for a very limited number of days, allowing the Lilly Pulitzer website to essentially remain full-price for the remainder of the year. During Fiscal 2015, approximately 30% of Lilly Pulitzer's e-commerce sales were e-commerce flash clearance sales.
Wholesale Operations
To complement our direct to consumer operations and have access to a larger group of consumers, including those who may wish to shop at a specialty store or department store, we continue to maintain our wholesale operations for Lilly Pulitzer. These wholesale operations are with better department stores and specialty stores that generally follow a full-price retail model approach with limited discounting. During Fiscal 2015, approximately 32% of Lilly Pulitzer's net sales were sales to wholesale customers. During Fiscal 2015 almost one-half of Lilly Pulitzer's wholesale sales were to Lilly Pulitzer's Signature Stores, as described below, while approximately one-third of Lilly Pulitzer's wholesale sales were to department stores. Lilly Pulitzer's net sales to its five largest wholesale customers represented 13% of Lilly Pulitzer's net sales in Fiscal 2015 with its largest customer representing 5% of Lilly Pulitzer's net sales.
An important part of Lilly Pulitzer's wholesale distribution is sales to Signature Stores. For these stores, we enter into agreements whereby we grant the other party the right to independently operate one or more stores as a Lilly Pulitzer Signature Store, subject to certain conditions, including designating substantially all the store specifically for Lilly Pulitzer products and adhering to certain trademark usage requirements. These agreements are generally for a two-year period. We sell products to these Lilly Pulitzer Signature Stores on a wholesale basis and do not receive royalty income associated with these sales. As of January 30, 2016, there were 71 Lilly Pulitzer Signature Stores.
Although we do not expect that the Lilly Pulitzer wholesale business will grow at the same pace as the direct to consumer distribution channel, we value our long-standing relationships with our wholesale customers and are committed to working with them to enhance the success of the Lilly Pulitzer brand within their stores. We believe that the integrity and continued success of the Lilly Pulitzer brand, including its direct to consumer operations, is dependent, in part, upon controlled wholesale distribution with careful selection of the retailers through which Lilly Pulitzer products are sold. Lilly Pulitzer products are available in more than 600 retail locations.

14



We maintain Lilly Pulitzer apparel sales offices and showrooms in Palm Beach, Florida; King of Prussia, Pennsylvania and New York City. Our wholesale operations for Lilly Pulitzer utilize a sales force consisting of salaried sales employees.
Licensing Operations
We license the Lilly Pulitzer trademark to licensees in categories beyond Lilly Pulitzer's core product categories. In the long-term, we believe licensing may be an attractive business opportunity for the Lilly Pulitzer brand, particularly once our direct to consumer presence has expanded. Once a brand is established, licensing requires modest additional investment but can yield high-margin income. It also affords the opportunity to enhance overall brand awareness and exposure. In evaluating a potential Lilly Pulitzer licensee, we consider the candidate's experience, financial stability, manufacturing performance and marketing ability. We also evaluate the marketability and compatibility of the proposed products with other Lilly Pulitzer brand products.
Our agreements with Lilly Pulitzer licensees are for specific geographic areas and expire at various dates in the future. Generally, the agreements require minimum royalty payments as well as royalty and advertising payments based on specified percentages of the licensee's net sales of the licensed products. Our license agreements generally provide us the right to approve all products, advertising and proposed channels of distribution.
Third party license arrangements for Lilly Pulitzer products include the following product categories: bedding and home fashions; home furnishing fabrics; stationery and gift products; and eyewear.
Seasonal Aspects of Business
Lilly Pulitzer's operating results are impacted by seasonality as the demand by specific product or style as well as demand by distribution channel may vary significantly depending on the time of year. The following table presents the percentage of net sales and operating income for Lilly Pulitzer by quarter for Fiscal 2015:
 
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Net sales
29
%
32
%
21
%
18
%
Operating income
42
%
46
%
12
%
%
As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments or other factors affecting the business may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales for Fiscal 2015 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years.
The timing of Lilly Pulitzer's sales in the direct to consumer and wholesale distribution channels generally varies. Typically, the demand in the direct to consumer operations, including sales for our own stores and e-commerce sites, for Lilly Pulitzer products in our principal markets is generally higher in the spring, summer and resort seasons and lower in the fall season. However, wholesale product shipments are generally shipped prior to each of the retail selling seasons. Further, in the third quarter of our fiscal year, which has not historically been a strong direct to consumer or wholesale quarter for Lilly Pulitzer, Lilly Pulitzer has held a significant e-commerce flash clearance sale which results in e-commerce sales representing a larger percentage of total sales than in other fiscal quarters. As the allocation of sales within a quarter is impacted by the seasonality of direct to consumer and wholesale sales, we have presented in the following table the proportion of net sales for each quarter represented by each distribution channel for Fiscal 2015, which may not necessarily be indicative of the allocation of sales by distribution channel in future periods:
 
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
Full-price retail stores
33
%
45
%
32
%
38
%
38
%
E-commerce
20
%
27
%
43
%
35
%
30
%
Wholesale
47
%
28
%
25
%
27
%
32
%
Total
100
%
100
%
100
%
100
%
100
%
Lanier Apparel
During Fiscal 2015, our former Lanier Clothes operating group and Oxford Golf business, which was previously included in Corporate and Other, were combined into our Lanier Apparel group. We believe that this combination of the two businesses provides additional opportunities for growth for each of the businesses in the future. The Lanier Clothes business, an efficient operator that excels in sourcing, production, logistics, distribution and tailored clothing design, lacked an appropriate level of

15



sportswear design expertise. At the same time the Oxford Golf business provides wonderful sportswear and golf designs for the Oxford Golf brand and private label customers, but lacked sufficient sales volume and relationships with large retailers. We believe the combination of the tailored clothing and Oxford Golf businesses provides excellent opportunities for the businesses to leverage their combined skills, which should allow for greater opportunities for sales growth and cost savings efficiencies in the future.
Lanier Apparel designs, sources and distributes branded and private label men's apparel, including tailored clothing, casual pants and sportswear, across a wide range of price points, with the majority of the business at moderate price points. The majority of our Lanier Apparel products are sold under certain trademarks licensed to us by third parties. Licensed brands include Kenneth Cole®, Dockers®, Geoffrey Beene® and Nick Graham®. Additionally, we design and market products for our owned Billy London® and Oxford Golf® brands. Sales of branded products represented approximately 68% of Lanier Apparel's net sales during Fiscal 2015.
In addition to these branded businesses, Lanier Apparel designs and sources private label apparel products for certain customers, including a large private label pants program for a warehouse club. For our large retail customers, the private label programs offer the customer product exclusivity at generally higher gross margins than they would achieve on branded products, while allowing us the opportunity to leverage our design, sourcing, production, logistics and distribution infrastructure. For other customers, we may perform any combination of design, sourcing, production, logistics or distribution services for a brand owner who will then distribute the product acquired from us to their wholesale customers. In these cases, the brand owner may have determined it is more efficient to outsource the functions to Lanier Apparel, may be a small company that lacks such expertise given the brand's size or may want to focus their energies on the design aspect of their brand.
Our Lanier Apparel products are sold to department stores, national chains, warehouse clubs, discount retailers, specialty retailers and others throughout the United States. Lanier Apparel's products are sold in more than 5,000 retail locations. In Lanier Apparel, we have long-standing relationships with some of the United States' largest retailers. During Fiscal 2015, Lanier' Apparel's three largest customers represented 18%, 16% and 13% of Lanier Apparel's net sales, while sales to Lanier Apparel's 10 largest customers represented 78% of Lanier Apparel's net sales. The amount and percentage of net sales attributable to an individual customer in future years may be different than Fiscal 2015 amounts as sales are not tied to long-term contracts.
As much of Lanier Apparel's private label sales are program based, where for each program or season Lanier Apparel must bid for a program, an individual customer could increase, decrease or discontinue its purchases from us at any time. Thus, significant fluctuations in Lanier Apparel's operating results from one year to the next may result, particularly if a program is not renewed, the customer decides to use another vendor, we determine that the return on the program is not acceptable to us, a new program is initiated, there is a significant increase in the volume of the program or otherwise. Additionally, in accordance with normal industry practice, as part of maintaining an ongoing relationship with certain customers, Lanier Apparel may be required to provide cooperative advertising or other incentives to the customer.
The moderate price point tailored clothing and sportswear markets are extremely competitive sectors with significant competition at retail and gross margin pressures due to retail sales price pressures as well as product cost increases. We believe that our Lanier Apparel business has historically excelled at bringing quality products to our customers at competitive prices and managing inventory risk appropriately while requiring minimal capital expenditure investments.
Design, Manufacturing, Sourcing, Marketing and Distribution
We believe that superior customer service and supply chain management, as well as the design of quality products, are all integral components of our strategy in the branded and private label tailored clothing and sportswear markets in which Lanier Apparel operates. Our Lanier Apparel design teams, which are located in New York City and Atlanta, focus on the target consumer for each brand and product. The design process combines feedback from buyers and sales agents along with market trend research and input from manufacturers. Our various Lanier Apparel products are manufactured from a variety of fibers, including wool, silk, linen, cotton and other natural fibers, as well as synthetics and blends of these materials.
Lanier Apparel manages production in Asia and Latin America through a combination of efforts from our Lanier Apparel offices in Atlanta and Hong Kong as well as with third party buying agents. Lanier Apparel's sourcing operations are also supplemented, as appropriate, by third party contractors who may provide certain sourcing functions or in-country quality assurance to further enhance Lanier Apparel's global sourcing operations. During Fiscal 2015, 74% of Lanier Apparel's product purchases were from manufacturers located in Vietnam. Lanier Apparel purchased goods from approximately 150 suppliers in Fiscal 2015. The 10 largest suppliers of Lanier Apparel provided 85% of the finished goods and raw materials Lanier Apparel acquired from third parties during Fiscal 2015, with 26% of our product purchases being from our largest third party supplier. In addition to purchasing products from third parties in Vietnam, India and other countries, Lanier Apparel operates a manufacturing facility, located in Merida, Mexico, which produced 13% of our Lanier Apparel products during Fiscal 2015.

16



The advertising efforts of Lanier Apparel are much more product specific than advertising for our owned lifestyle brands. For Lanier Apparel's branded products, advertising primarily consists of cooperative advertising with our larger customers, contributions to the licensor based on a specified percentage of our net sales to fund the licensor's general brand advertising initiatives and attending brand appropriate trade shows. As a provider of private label apparel, we are generally not responsible for advertising for private label brands.
For Lanier Apparel, we utilize a distribution center located in Toccoa, Georgia, a distribution center in Lyons, Georgia and certain third party distribution centers for our product shipments, where we receive goods from our suppliers, inspect those products and ship the goods to our customers. We seek to maintain sufficient levels of inventory to support programs for pre-booked orders and to meet customer demand for at-once ordering. For certain standard product styles, we maintain in-stock replenishment programs, providing shipment to customers within just a few days of receiving the order. These types of programs generally require higher inventory levels. Disposal of excess prior-season inventory is an ongoing part of our business and Lanier Apparel utilizes various off-price retailers to sell such products.
We maintain apparel sales offices and showrooms for our Lanier Apparel products in several locations, including New York City and Atlanta and employ a sales force consisting of a combination of salaried employees and independent sales reps. Lanier Apparel operates the billylondonuk.com, menstailoreddirect.com and oxfordgolf.com websites, where certain Lanier Apparel products may be purchased on-line directly by consumers. In addition, Lanier Apparel also ships certain products directly to consumers who purchase products from the websites of certain of its wholesale customers.
Seasonal Aspects of Business
Lanier Apparel's operating results are impacted by seasonality as the demand by specific product or style may vary significantly depending on the time of year. As a wholesale apparel business, in which product shipments generally occur prior to the retail selling seasons, the seasonality of Lanier Apparel generally reflects stronger spring and fall wholesale deliveries which typically occur in our first and third quarters; however, in some fiscal years this will not be the case due to much of Lanier Apparel's operations being program-driven businesses. The following table presents the percentage of net sales and operating income for Lanier Apparel by quarter for Fiscal 2015:
 
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Net sales
27
%
20
%
28
%
25
%
Operating income
24
%
14
%
39
%
23
%
The timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, the introduction of new programs, the loss of programs or customers or other factors affecting the business may vary significantly from one year to the next. Therefore, we do not believe that net sales or operating income of Lanier Apparel for any particular quarter or the distribution of net sales and operating income for Fiscal 2015 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years.
Corporate and Other
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 other businesses which are not included in our operating groups, including our Lyons, Georgia distribution center operations, which performs warehouse and distribution services for third parties, as well as our Lanier Apparel business. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to operating groups.
Discontinued Operations
Discontinued operations include the assets and operations of our former Ben Sherman operating group which we sold in July 2015. Unless otherwise indicated, all references to assets, liabilities, revenues, expenses and other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group. Refer to Note 12 in our consolidated financial statements included in this report for additional information about discontinued operations.
TRADEMARKS
As discussed above, we own trademarks, several of which are very important to our business. Generally, our significant trademarks are subject to registrations and pending applications throughout the world for use on apparel and, in some cases, apparel-related products, accessories, home furnishings and beauty products, as well as in connection with retail services. We

17



continue to evaluate our worldwide usage and registration of certain of our trademarks. In general, trademarks remain valid and enforceable as long as the trademarks are used in connection with our products and services in the relevant jurisdiction and the required registration renewals are filed. Important factors relating to risks associated with our trademarks include, but are not limited to, those described in Part I, Item 1A. Risk Factors.
PRODUCT SOURCING
We intend to maintain flexible, diversified, cost-effective sourcing operations that provide high-quality apparel products. Our operating groups, either internally or through the use of third party buying agents, source substantially all of our products from non-exclusive, third party producers located in foreign countries, with a significant concentration in Asia, or from our licensees for licensed products sold in our direct to consumer distribution channels. During Fiscal 2015, we sourced approximately 62% and 14% of our products from producers located in China and Vietnam, respectively, with no other country greater than 10%. Although we place a high value on long-term relationships with our suppliers and have used many of our suppliers for a number of years, generally we do not have long-term contracts with our suppliers. Instead, we conduct business on an order-by-order basis. Thus, we compete with other companies for the production capacity of independent manufacturers. We believe that this approach provides us with the greatest flexibility in identifying the appropriate manufacturers while considering quality, cost, timing of product delivery and other criteria while also utilizing the expertise of the manufacturers. During Fiscal 2015, no individual third party manufacturer supplied more than 10% of our product purchases.
We purchase substantially all of our products from third party producers as package purchases of finished goods, which are manufactured with oversight by us or our buying agents and to our design and fabric specifications. The use of contract manufacturers reduces the amount of capital investment required by us as operating manufacturing facilities can require a significant amount of capital investment. We depend upon the ability of third party producers to secure a sufficient supply of raw materials specified by us, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity rather than us providing or financing the costs of these items. We believe that purchasing substantially all of our products as package purchases allows us to reduce our working capital requirements as we are not required to purchase, or finance the purchase of, the raw materials or other production costs related to our product purchases until we take ownership of the finished goods, which typically occurs when the goods are shipped by the third party producers. In addition to purchasing products from third parties, our Lanier Apparel operating group operates our only owned manufacturing facility, which is located in Merida, Mexico and produced 2% of our total company, or 13% of our total Lanier Apparel, products during Fiscal 2015.
As the design, manufacture and transportation of apparel products for our brands may take as many as six months for each season, we typically make commitments months in advance of when products will arrive in our retail stores or our wholesale customers' stores. We continue to seek ways to reduce the time required from design and ordering to bringing products to our customer. As our merchandising departments must estimate our requirements for finished goods purchases for our own retail stores and e-commerce sites based on historical product demand data and other factors, and as purchases for our wholesale accounts must be committed to and purchased by us prior to the receipt of customer orders in some cases, we carry the risk that we have purchased more inventory than we will ultimately desire.
As part of our commitment to source our products in a lawful and responsible manner, each of our operating groups has implemented a code of conduct program applicable to vendors that we purchase goods from, which includes provisions related to abiding by applicable laws as well as compliance with other business or ethical standards, including related human rights, health, safety, working conditions, environmental and other requirements. We require that each of our vendors and licensees comply with the applicable code of conduct or substantially similar compliance standards. On an ongoing basis we assess vendors' compliance with the applicable code of conduct and applicable laws and regulations through audits performed by either our employees or our designated agents. This assessment of compliance by vendors is directed by our corporate leadership team. In the event we determine that a vendor is not abiding by our required standards, we work with the vendor to remediate the violation. If the violation is not satisfactorily remediated, we will discontinue use of the vendor.
IMPORT RESTRICTIONS AND OTHER GOVERNMENT REGULATIONS
We are exposed to certain risks as a result of our international operations as almost all of our merchandise is manufactured by foreign suppliers. During Fiscal 2015, we sourced approximately 62% of our products from producers located in China. Our imported products are subject to customs, trade and other laws and regulations governing their entry into the United States and other countries where we sell our products.
Substantially all of the merchandise we acquire is subject to duties which are assessed on the value of the imported product and represent a component of the cost of the goods we sell. Duty rates vary depending on the type of garment and its fiber content and are subject to change in future periods. In addition, while the World Trade Organization's member nations have eliminated quotas on apparel and textiles, the United States and other countries into which we import our products are still

18



allowed in certain circumstances to unilaterally impose "anti-dumping" or "countervailing" duties in response to threats to their comparable domestic industries.
In addition, apparel and other products sold by us are subject to stringent and complex product performance and security and safety standards, laws and other regulations. These regulations relate principally to product labeling, certification of product safety and importer security procedures. We believe that we are in material compliance with those regulations. Our licensed products and licensing partners are also subject to such regulation. Our agreements require our licensing partners to operate in compliance with all laws and regulations.
Although we have not been materially inhibited from doing business in desired markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and brands and enter into new markets. Our management regularly monitors proposed regulatory changes and the existing regulatory environment, including any impact on our operations or on our ability to import products.
Important factors relating to risks associated with government regulations include, but are not limited to, those described in Part I, Item 1A. Risk Factors.
INFORMATION TECHNOLOGIES
We believe that sophisticated information systems and functionality are important components of maintaining our competitive position and supporting continued growth of our businesses, particularly in the ever changing consumer shopping environment. Our information systems are designed to provide effective retail store, e-commerce and wholesale operations while emphasizing efficient point-of-sale, distribution center, design, sourcing, order processing, marketing, customer relationship management, accounting and other functions. We regularly evaluate the adequacy of our information technologies and upgrade or enhance our systems to gain operating efficiencies, to provide additional consumer access and to support our anticipated growth as well as other changes in our business. We believe that continuous upgrading and enhancements to our information systems with newer technology that offers greater efficiency, functionality and reporting capabilities is critical to our operations and financial condition.
SEASONAL ASPECTS OF BUSINESS
Each of our operating groups is impacted by seasonality as the demand by specific product or style, as well as by distribution channel, may vary significantly depending on the time of year. For details of the impact of seasonality on each of our operating groups, see the business discussion of each operating group above. The following table presents our percentage of net sales and operating income by quarter for Fiscal 2015:
 
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Net sales
27
%
26
%
20
 %
27
%
Operating income (loss)
36
%
36
%
(1
)%
29
%
As the timing of certain unusual or non-recurring items, economic conditions, wholesale product shipments, weather or other factors affecting the retail business may vary from one year to the next, we do not believe that net sales or operating income for any particular quarter or the distribution of net sales and operating income for Fiscal 2015 are necessarily indicative of anticipated results for the full fiscal year or expected distribution in future years. As an example, the Third Quarter of Fiscal 2015 was unfavorably impacted by the 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 as well as pre-opening rent and set-up costs associated with the the Tommy Bahama Waikiki retail-restaurant location. Our third quarter has historically been our smallest net sales and operating income quarter and that result is expected to continue as we continue the expansion of our retail store operations in the future.
ORDER BACKLOG
As 66% of our sales are direct to consumer sales, which are not reflected in an order backlog, and the order backlog for wholesale sales may be impacted by a variety of factors, we do not believe that order backlog information is necessarily indicative of sales to be expected for future periods. Therefore, we believe the order backlog is not material for an understanding of our business taken as a whole. Further, as our sales continue to shift towards direct to consumer rather than wholesale sales, the order backlog will continue to be less meaningful as a measure of our future sales and results of operations.
EMPLOYEES

19



As of January 30, 2016, we employed approximately 5,500 persons, of whom approximately 90% were employed in the United States. Approximately 70% of our employees were retail store and restaurant employees. We believe our employee relations are good.
INFORMATION
Oxford Industries, Inc. is a Georgia corporation originally founded in 1942. Our corporate headquarters are located at 999 Peachtree Street, N.E., Ste. 688, Atlanta, Georgia 30309. Our Internet address is oxfordinc.com. Copies of our annual report on Form 10-K, proxy statement, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website the same day that they are electronically filed with the SEC. The information on our website is not and should not be considered part of this Annual Report on Form 10-K and is not incorporated by reference in this document.

In addition, copies of our annual report on Form 10-K, excluding exhibits, are available without cost to our shareholders by writing to Investor Relations, Oxford Industries, Inc., 999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309.

Item 1A.    Risk Factors
The risks described below highlight some of the factors that could materially affect our operations. If any of these risks actually occurs, our business, financial condition, prospects and/or operating results may be adversely affected. These are not the only risks and uncertainties we face. We operate in a competitive and rapidly changing business environment, and additional risks and uncertainties not presently known to us or that we currently consider immaterial may also adversely affect our business.

We operate in a highly competitive industry and our success depends on the reputation and value of our brand names and our ability to offer innovative and market appropriate products that respond to rapidly changing fashion trends; any failure to maintain the reputation or value of our brands, to offer innovative, fashionable and desirable brands and products and/or to appropriately respond to competitive factors within our industry could adversely affect our business operations and financial condition.

We operate in a highly competitive industry and our success depends on the reputation and value of our brand names. 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; product fulfillment capabilities; and customer service. We believe that our ability to compete successfully is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference, and presenting appealing products for consumers.

The value of our brands could be diminished by actions taken by us or by our wholesale customers or others who have an interest in the brands, including by failing to respond to emerging fashion trends or meet consumer quality expectations; by selling products bearing our brands through distribution channels that are inconsistent with the retail channels in which our customers expect to find those brands; by becoming overly promotional; or by setting up consumer expectations for promotional activity for our products. We are becoming more reliant on social media as one of our marketing strategies and the value of our brands could be adversely affected if we do not effectively communicate our brand message through social media vehicles that interface with our consumers on a regular basis. In addition, we cannot always control the marketing and promotion of our products by our wholesale customers or other third parties and actions by such parties that are inconsistent with our own marketing efforts or that otherwise adversely affect the appeal of our products could diminish the value or reputation of one or more of our brands and have an adverse effect on our sales and business operations.

During Fiscal 2015, Tommy Bahama’s and Lilly Pulitzer’s net sales represented 68% and 21%, respectively, of our consolidated net sales. The limited diversification in our portfolio may heighten the risks we face if one of our brands fails to meet our expectations and/or is adversely impacted by any actions we or third parties take with respect to that brand or by competitive conditions in the apparel industry.

Although certain of our products carry over from season to season, the apparel industry is subject to rapidly changing fashion trends and shifting consumer demands. Due to the competitive nature of the apparel industry, there can be no assurance that the demand for our products will not decline or that we will be able to successfully evaluate and adapt our products to align with consumer preferences and changes in consumer demographics. Any failure on our part to develop and market appealing products could result in weakened financial performance and/or harm the reputation and desirability of our brands and products.


20



The highly competitive apparel industry, characterized by low entry barriers, includes numerous domestic and foreign apparel designers, manufacturers, distributors, importers, licensors and retailers, some of whom are also our customers and/or are significantly larger, are more diversified and have significantly greater financial resources than we do. Certain of our competitors offer apparel for sale at lower initial price points than our products and/or at significant discounts, particularly in response to weak economic conditions, which has resulted, and may continue to result, in significant pricing pressure within the apparel industry. This has been exacerbated by structural headwinds in the department store and specialty retail sectors, where the growth of fast fashion and value fashion retailers and expansion of off-price retailers has shifted consumer expectations to lower priced products from traditional, well-known brands. Competitive factors within the apparel industry may result in reduced sales, increased costs, lower prices for our products and/or decreased margins.

We also license certain of our brands to third party licensees. While we enter into comprehensive license and similar collaborative agreements with third parties covering product design, product quality, sourcing, distribution, manufacturing and marketing requirements and approvals, there can be no guarantee our brands will not be negatively impacted through our association with products outside of our core apparel products, by the market perception of the third parties with whom we associate and/or due to the actions of a licensee. The improper or detrimental actions of a licensee could significantly impact the perception of our brands.

In addition, the reputation of our brands could be harmed if our third party manufacturers and vendors, substantially all of which are located outside the United States, fail to meet appropriate product safety, product quality and social compliance standards, including the terms of our applicable codes of conduct and vendor compliance standards. We cannot assure that our manufacturers and vendors will at all times conduct their operations in accordance with ethical practices or that the products we purchase will always meet our safety and quality control standards. Any violation of our applicable codes of conduct or local laws relating to labor conditions by our manufacturers or vendors or other actions or failures by us or such parties may result in negative public perception of our brands or products, as well as disrupt our supply chain, which may adversely affect our business operations.

The apparel industry is heavily influenced by general economic conditions, and a deterioration or worsening of consumer confidence or consumer purchases of discretionary products may adversely affect our business and financial condition, including as a result of adverse business conditions for third parties with whom we do business.

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. Demand for our products may be significantly impacted by trends in consumer confidence and discretionary consumer spending, which may be influenced by employment levels, recessions, fuel and energy costs, interest rates, tax rates and changes in tax laws, personal debt levels, stock market volatility, general political conditions, including the impact domestically and internationally of shifts in political conditions that may result from a change in presidential and/or congressional regime, and other factors. The factors impacting consumer confidence and discretionary consumer spending are outside of our control and difficult to predict, and, often, the apparel industry experiences longer periods of recession and greater declines than the general economy. Any deterioration or worsening of consumer confidence or discretionary consumer spending could reduce our sales and/or adversely affect our business and financial condition.

Additionally, significant changes in the operations or liquidity of any of the parties with which we conduct our business, including suppliers, customers, trademark licensees and lenders, among others, now or in the future, or in the access to capital markets for any such parties, could result in lower demand for our products, lower sales, higher costs or other disruptions in our business.

In response to technological advancements, retailers are shifting how they interact with their consumers and facilitate transactions, and our ability to execute our direct to consumer retail strategies in our branded businesses and/or the effect of the shift in the manner in which retail consumers transact business, subjects us to risks that could adversely affect our financial results and operations.

Certain of our brands distribute products through bricks and mortar retail stores and e-commerce websites and regularly communicate with consumers through social media and other methods of digital marketing. One of our key initiatives is to grow our branded businesses through retail strategies that allow our consumers to access our brands whenever and wherever they choose to shop. Our success depends to a large degree on our ability to introduce new retail concepts and products, locate new retail locations with the proper consumer demographics, establish the infrastructure necessary to support growth, source appropriate levels of inventory, hire and train qualified personnel, anticipate and implement innovations in sales and marketing technology to align with our consumers’ shopping preferences and maintain brand specific websites and other social media presence that offer the functionality and security customers expect.


21



In addition, in response to technological advancements, retail consumers have shifted their shopping behavior in recent years, with computers, tablets, mobile phones and other devices facilitating retail transactions anywhere in the world and allowing greater consumer transparency in product pricing and competitive offerings from other retailers. As a result, retailers have been forced to shift the way in which they do business, including development of applications for electronic devices; improvement of guest-facing technology; one-day or same-day delivery of products purchased online (including through the enhancement of inventory management systems and their interface with e-commerce websites, the development and more efficient use of additional distribution facilities, either owned or provided by a third party, and in-store enhancements that facilitate shipment of e-commerce transactions from traditional bricks and mortar retail locations); free shipping of e-commerce transactions; greater and more fluid inventory availability between online transactional businesses and bricks and mortar retail locations; and greater consistency in marketing and pricing strategies for online and traditional bricks and mortar retail operations, including with respect to the retail pricing strategies of a retailer’s own product offerings and those of its wholesale customers.

The continuing shift in the manner in which consumers transact business globally and our efforts to respond to these changes and execute our direct to consumer retail strategies could adversely affect our financial results and operations as a result of, among other things: investment in technology and infrastructure, which is extremely complex, in order to remain competitive (including investments to maintain modern technology and functionality similar to that provided by our competitors and expected by our customers); reliance on outdated technology that is not as appealing or functionally effective as those of our competitors; an inability to provide customer-facing technology systems, including mobile technology solutions, that function reliably and provide a convenient and consistent experience for our customers; our own e-commerce business and/or third party offers diverting sales from our bricks and mortar retail stores, where we have made substantial capital expenditures on leasehold improvements and have significant remaining long-term financial commitments, and rendering the traditional retail model more challenging financially; decision making with respect to the wholesale customers to whom we are willing to sell our products in order to maintain a consistent brand message and pricing strategy; our own promotional activity and pricing strategies; any failure to properly communicate our brand message or recreate the ambiance of our retail stores through social media; a reliance on third party service providers for software, processing and similar services; liability for our online content; credit card fraud; and failure of computer systems, theft of personal consumer information and computer viruses. The rapid dissemination of information and opinions in the current marketplace through social media and other platforms also increases the challenges of responding to negative perceptions or commentary about our brands or products. If we are unable to properly manage these risks and effectively respond to the behavioral shift in consumer expectations, we may lose sales and/or our reputation and credibility may be damaged.

Loss of one or more of our key wholesale customers, or a significant adverse change in a customer’s financial performance or financial position, could negatively impact our net sales and profitability.

We generate a significant percentage of our wholesale sales from a few key customers. For example, during Fiscal 2015, 46% of our consolidated wholesale sales or 16% of our consolidated net sales were to our five largest customers. Over the last several years, there have been significant levels of store closures by large retailers, increased prevalence and emphasis on private label products at large retailers, direct sourcing of products by large retailers, consolidation of a number of retailers and increased competition experienced by our wholesale customers from online competitors. A decrease in the number of stores that carry our products, restructuring of our customers’ operations, continued store closures by major department stores, direct sourcing and greater leverage by customers, realignment of customer affiliations or other factors could negatively impact our net sales and profitability.

We generally do not have long-term contracts with any of our wholesale customers. Instead, we rely on long-standing relationships with these customers, the appeal of our brands and our position within the marketplace. As a result, purchases generally occur on an order-by-order basis, and each relationship can generally be terminated by either party at any time. A decision by one or more of our key wholesale customers to terminate its relationship with us or to reduce its purchases from us, whether motivated by competitive considerations, quality or style issues, financial difficulties, economic conditions or otherwise, or our own decision to terminate or curtail our sales to a particular customer, for brand protection or otherwise, could adversely affect our net sales and profitability, as it would be difficult to immediately, if at all, replace this business with new customers, reduce our operating costs or increase sales volumes with other existing customers.

In addition, due to long product lead times, our product lines are typically designed and manufactured in anticipation of orders for sale. We make commitments for production in connection with these lines up to several months prior to the receipt of firm orders from customers, and if orders do not materialize or are canceled, we may incur expenses to terminate our production commitments or incur losses in order to dispose excess inventories. While we try to manage inventory risk by soliciting firm commitments from our wholesale customers, as the direct to consumer channels of distribution continue to represent a greater proportion of our consolidated net sales, our ability to mitigate the risks associated with our production commitments is tempered.


22



We also extend credit to most of our key wholesale customers without requiring collateral, which results in a large amount of receivables from just a few customers. At January 30, 2016, our five largest outstanding customer balances represented $28 million, or 48% of our consolidated receivables balance. Companies in the apparel industry, including some of our customers, may experience financial difficulties, including bankruptcies, restructurings and reorganizations, tightened credit markets and/or declining sales and profitability. A significant adverse change in a customer’s financial position could cause us to limit or discontinue business with that customer, require us to assume greater credit risk relating to that customer’s receivables or limit our ability to collect amounts related to shipments to that customer.

We rely to a large extent on third party producers in foreign countries to meet our production demands and failures by these producers to meet our requirements, the unavailability of suitable producers at reasonable prices and/or changes in international trade regulation may negatively impact our ability to deliver quality products to our customers on a timely basis, disrupt our supply chain or result in higher costs or reduced net sales.

We source substantially all of our products from non-exclusive, third party producers located in foreign countries, including sourcing approximately 62% of our product purchases from China during Fiscal 2015. Although we place a high value on long-term relationships with our suppliers, generally we do not have long-term supply contracts but, instead, conduct business on an order-by-order basis. Therefore, we compete with other companies for the production capacity of independent manufacturers. We regularly depend on the ability of third party producers to secure a sufficient supply of raw materials, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity, and in some cases, the products we purchase and the raw materials that are used in our products are available only from one source or a limited number of sources. Although we monitor production in third party manufacturing locations, we cannot be certain that we will not experience operational difficulties with our manufacturers, such as the reduction of availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. Such difficulties may negatively impact our ability to deliver quality products to our customers on a timely basis; given the production time and shipment time for goods for a particular season, if scheduled shipments from our suppliers are missed, there will not be time for another vendor to produce replacement goods. This would jeopardize our ability to service our customers and properly merchandise our direct to consumer channels, which may, in turn, have a negative impact on our customer relationships and result in lower net sales.

In addition, due to our sourcing activities, we are exposed to risks associated with changes in the laws and regulations governing the importing and exporting of apparel products into and from the countries in which we operate. These risks include changes in social, political, labor and economic conditions or terrorist acts that could result in the disruption of trade from the countries in which our manufacturers are located; the imposition of additional or new duties, tariffs, taxes, quota restrictions or other changes and shifts in sourcing patterns as a result of such changes; significant delays in the delivery of our products, due to security or other considerations; fluctuations in sourcing costs; the imposition of antidumping or countervailing duties; fluctuations in the value of the dollar against foreign currencies; changes in customs procedures for importing apparel products; and restrictions on the transfer of funds to or from foreign countries. We may not be able to offset any disruption or cost increases to our supply chain as a result of any of these factors by shifting production to suitable manufacturers in other jurisdictions in a timely manner or at acceptable prices, and future regulatory actions or changes in international trade regulation may provide our competitors with a material advantage over us.

Breaches of information security or privacy could damage our reputation or credibility and cause us financial harm.

As an ongoing part of our business operations, including direct to consumer transactions and marketing through various social media tools, we regularly collect and utilize sensitive and confidential personal information, including of our customers, employees and suppliers and including credit card information. The routine operation of our business involves the storage and transmission of customer personal information, preferences and credit card information, and we use social media and other online activities to connect with our customers. The regulatory environment governing our use of individually identifiable data of customers, employees and others is complex, and the security of personal information is a matter of public concern.

Cybersecurity attacks are becoming increasingly sophisticated, and experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or disrupt our systems. Despite our implementation of security measures, if an actual or perceived data security breach occurs, whether as a result of cybersecurity attacks, computer viruses, vandalism, human error or otherwise, the image of our brands and our reputation and credibility could be damaged. The costs to eliminate or alleviate cyber or other security problems and vulnerabilities, including to comply with security or other measures under state, federal and international laws governing the unauthorized disclosure of confidential information or to resolve any litigation, and to enhance cybersecurity protection through organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants could be significant and result in significant financial losses and expenses, as well as lost sales.

23




As part of our routine operations, we also contract with third party service providers to store, process and transmit personal information of our employees and customers. Although we contractually require that these providers implement reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur at their location or within their systems. Privacy breaches of confidential information stored or used by our third party service providers may expose us to negative publicity, as well as potential out-of-pocket costs which could materially adversely affect our business and customer relationships.

In addition, privacy and information security laws and requirements change frequently, and compliance with them or similar security standards, such as those created by the payment card industry, may require us to modify our operations and/or incur costs to make necessary systems changes and implement new administrative processes. Our failure to comply with these laws and regulations, or similar security standards, could lead to fines, penalties or adverse publicity.

Our business depends on our senior management and other key personnel, and the unsuccessful transition of key management responsibilities, the unexpected loss of individuals integral to our business, our inability to attract and retain qualified personnel in the future or our failure to successfully plan for and implement succession of our senior management and key personnel may have an adverse effect on our operations, business relationships and ability to execute our strategies.

Our senior management has substantial experience and expertise in the apparel and related industries, with our Chairman and Chief Executive Officer Mr. Thomas C. Chubb III having worked with our company for more than 25 years, including in various executive management capacities. Our success depends upon disciplined execution at all levels of our organization, including our senior management, and continued succession planning. Competition for qualified personnel in the apparel industry is intense, and we compete to attract and retain these individuals with other companies that may have greater financial resources than us. While we believe that we have depth within our management team, the unexpected loss of any of our senior management, or the unsuccessful integration of new leadership, could harm our business and financial performance.

As we have previously announced, we introduced a new chief executive at Tommy Bahama at the beginning of fiscal 2016 and will officially have a new chief executive at Lilly Pulitzer starting in April 2016, with their predecessors retiring from their respective positions. Although the new executives at Tommy Bahama and Lilly Pulitzer have each been with their respective businesses for over 10 years and we believe that the transition of leadership was made according to carefully executed succession plans, any unsuccessful assumption of additional leadership responsibilities by either of these individuals or their respective teams, many of whom are taking on additional responsibilities, could materially adversely affect our operations, business relationships and ability to execute our strategies.

Our operations are reliant on information technology and any interruption or other failure, in particular at one of our principal distribution facilities, may impair our ability to provide products to our customers, efficiently conduct our operations, and meet the needs of our management.

The efficient operation of our business is dependent on information technology. Information systems are used in all stages of our operations and as a method of communication with our customers, service providers and suppliers. Additionally, each of our operating groups utilizes e-commerce websites to sell goods directly to consumers. Our management also relies on information systems to provide relevant and accurate information in order to allocate resources and forecast and report our operating results. Service interruptions may occur as a result of a number of factors, including power outages, consumer traffic levels, computer viruses, hacking or other unlawful activities by third parties, disasters, or failures to properly install, upgrade, integrate, protect, repair or maintain our various systems and e-commerce websites.

We regularly evaluate upgrades or enhancements to our information systems to more efficiently and competitively operate our businesses. We may experience difficulties during the implementation, upgrade or subsequent operation of our systems and/or not be equipped to address system problems. Any material disruption in our information technology systems, or any failure to timely, efficiently and effectively integrate new systems, could have an adverse affect on our business or results of operations.

We may additionally have a greater risk than our peers due to the concentration of our distribution facilities. The primary distribution facilities that we operate are: a distribution center in Auburn, Washington for our Tommy Bahama products; a distribution center in King of Prussia, Pennsylvania for our Lilly Pulitzer products; and distribution centers in Toccoa, Georgia and Lyons, Georgia for our Lanier Apparel products. Each of these distribution centers relies on computer-controlled and automated equipment, which may be subject to a number of risks. Our ability to support our direct to consumer operations, meet customer expectations, manage inventory and achieve objectives for operating efficiencies depends on the proper operation of these brand-focused distribution facilities, each of which manages the receipt, storage, sorting, packing and distribution of finished goods for one of our operating groups.


24



If any of our primary distribution facilities were to shut down or otherwise become inoperable or inaccessible for any reason, including as a result of natural or man-made disasters, cybersecurity attacks, computer viruses or otherwise, if our distribution facilities fail to upgrade their technological systems to ensure efficient operations, or if we are unable to receive goods in a distribution center or to ship the goods in a distribution center, as a result of a technology failure or otherwise, we could experience a reduction in sales, a substantial loss of inventory or higher costs, insufficient inventory at our retail stores to meet consumer expectations and longer lead times associated with the distribution of our products. In addition, for the distribution facilities that we operate, there are substantial fixed costs associated with these large, highly automated distribution centers, and we could experience reduced operating and cost efficiencies during periods of economic weakness. Any disruption to our distribution facilities or in their efficient operation could negatively affect our operating results and our customer relationships.

Our business is subject to various federal, foreign, state and local laws and regulations, and the costs of compliance with, or the violation of, such laws and regulations could have an adverse effect on our costs or operations.

In the United States, we are subject to stringent standards, laws and other regulations, including those relating to health, product performance and safety, labor, employment, including provisions relating to health insurance for our employees under the Patient Protection and Affordable Care Act, which was signed into law in 2010, privacy and data security, anti-bribery, consumer protection, taxation, customs, logistics and similar operational matters. In addition, operating in foreign jurisdictions, including those where we may operate retail stores, requires compliance with similar laws and regulations. These laws and regulations, in the United States and abroad, are complex and often vary widely by jurisdiction, making it difficult for us to ensure that we are currently or will in the future be compliant with all applicable laws and regulations. We may be required to make significant expenditures or modify our business practices to comply with existing or future laws or regulations, and unfavorable resolution to litigation or a violation of applicable laws and regulations by us, or any of our suppliers or licensees, may restrict our ability to import products, require a recall of our products, lead to fines or otherwise increase our costs, negatively impact our ability to attract and retain employees, materially limit our ability to operate our business or result in adverse publicity.

In addition, like many retailers, we are impacted by trends in litigation, including class action litigation brought under various consumer protection and employment laws and are subject to various claims and pending or threatened lawsuits in the ordinary course of our business operations. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings, and regardless of the outcome or whether the claims have merit, legal proceedings may be expensive and require our management devote significant time to defend.

Also, the restaurant industry requires compliance with a variety of federal, state and local regulations. In particular, all of our Tommy Bahama restaurants serve alcohol and, therefore, maintain liquor licenses. Our ability to maintain our liquor licenses depends on our compliance with applicable laws and regulations. The loss of a liquor license would adversely affect the profitability of a restaurant. Additionally, as a participant in the restaurant industry, we face risks related to food quality, food-borne illness, injury, health inspection scores and labor relations.

Regardless of whether any allegations of violations of the laws and regulations governing our business are valid or whether we ultimately become liable, we may be materially affected by negative publicity associated with these issues. For example, the negative impact of adverse publicity relating to allegations of violations at one of our restaurants may extend beyond the restaurant involved to affect some or all of the other restaurants, as well as the image of the Tommy Bahama brand as a whole.

Furthermore, as a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance with these regulations requires us to devote time and management resources to institute corporate processes and compliance programs and to update these processes and programs in response to newly implemented or changing regulatory requirements and could affect the manner in which we operate our businesses. We cannot provide assurance that we are or will be in compliance with all potentially applicable corporate regulations. We could be subject to a range of regulatory actions, fines or other sanctions or litigation, or our brand reputation could suffer, either as a result of a failure to comply with any of these regulations or our disclosures in response to these regulations.

The acquisition of new businesses and the divestiture or discontinuation of businesses and product lines have certain inherent risks, including, for example, strains on our management team and unexpected costs resulting from the transaction.
    
Growth of our business through acquisitions of lifestyle brands that fit within our business model is a component of our business strategy. Generally, acquisitions involve numerous risks, including: the current competitive climate for suitable acquisition candidates, which is driving market multiples; the benefits of the acquisition not materializing as planned or not materializing within the time periods or to the extent anticipated; our ability to manage the people and processes of an acquired business; difficulties in retaining key relationships with customers and suppliers; risks in entering geographic markets and/or product

25



categories in which we have no or limited prior experience; and the possibility that we pay more to consummate an acquisition than the value we derive from the acquired business.

As a result of acquisitions, we may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence. Although we may be entitled to indemnification against undisclosed liabilities from the sellers of the acquired business, our recourse may be limited and we cannot be certain that the indemnification, even if obtained, will be enforceable or collectible. Any of these liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

In addition, integrating acquired businesses is a complex, time-consuming and expensive process. The integration process for newly acquired businesses could create for us a number of challenges and adverse consequences associated with the integration of product lines, employees, sales teams and outsourced manufacturers; employee turnover, including key management and creative personnel of the acquired and existing businesses; disruption in product cycles for newly acquired product lines; maintenance of acceptable standards, controls, procedures and policies; operating business in new geographic territories; diversion of the attention of our management from other areas of our business; and the impairment of relationships with customers of the acquired and existing businesses. Merger and acquisition activity is inherently risky, and we cannot be certain that any acquisition will be successful and will not materially harm our business, operating results or financial condition.

Additionally, acquisitions may cause us to incur debt or make dilutive issuances of our equity securities; cause large one-time expenses; or create goodwill or other intangible assets that could result in significant impairment charges in the future. In connection with acquisitions, we would also make various estimates and assumptions in order to determine purchase price allocation and estimate the fair value of assets acquired and liabilities assumed. If our estimates or assumptions are not accurate, we may suffer losses that could be material.

From time to time, we also divest or discontinue businesses and/or product lines that do not align with our strategy or provide the returns that we expect or desire. For example, during Fiscal 2015, we sold the operations and assets of our former Ben Sherman operating group. Disposition transactions, as well as the discontinuation of business and/or product lines, may result in underutilization of our retained resources if the exited operations are not replaced with new lines of business, either internally or through acquisition. In addition, we may become responsible for unexpected liabilities, some of which may be triggered or increased by a purchaser’s operation of the disposed business following the transaction. Those liabilities, individually or in the aggregate, could adversely affect our financial condition and results of operations.

We may be unable to grow our business through organic growth, and any failure to successfully execute this aspect of our business strategy may have a material adverse effect on our business, financial condition, liquidity and results of operations.

One key component of our business strategy is organic growth in our Tommy Bahama and Lilly Pulitzer brands. Organic growth may be achieved by, among other things, increasing sales in our direct to consumer channels; selling our products in new markets, including international markets; increasing our market share in existing markets, including to existing wholesale customers; expanding the demographic appeal of our brands; and increasing the product offerings within our various operating groups, including, for example, our ongoing emphasis to develop and grow Tommy Bahama’s women’s business. Successful growth of our business is subject to, among other things, our ability to implement plans for expanding our existing businesses at satisfactory levels. We may not be successful in achieving suitable organic growth, and our inability to grow our business may have a material adverse effect on our business, financial condition, liquidity and results of operations.

In addition, we have and intend to continue to make significant investment in growing our Tommy Bahama and Lilly Pulitzer brands, which includes investment in technology and infrastructure; retail stores and restaurants; office and distribution center facilities; and personnel. These investments may not yield the full benefits we anticipate and/or sales growth may be outpaced by increases in operating costs, putting downward pressure on our operating margins and adversely affecting our results of operations.

We may be unable to protect our trademarks and other intellectual property.

We believe that our trademarks and other intellectual property, as well as certain contractual arrangements, including licenses, and other proprietary intellectual property rights, have significant value and are important to our continued success and our competitive position due to their recognition by retailers and consumers. In Fiscal 2015, 90% of our consolidated net sales were attributable to branded products for which we own the trademark. Therefore, our success depends to a significant degree on our ability to protect and preserve our intellectual property. We rely on laws in the United States and other countries to protect our proprietary rights. However, we may not be able to sufficiently prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United

26



States. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm the reputation of our brands.

From time to time, we discover products that are counterfeit reproductions of our products, that otherwise infringe on our proprietary rights or that otherwise seek to mimic or leverage our intellectual property. These activities typically increase as brand recognition increases, especially in markets outside the United States. Counterfeiting of our brands could divert away sales, and association of our brands with inferior counterfeit reproductions could adversely affect the integrity and reputation of our brands.

Additionally, there can be no assurance that the actions that we have taken will be adequate to prevent others from seeking to block sales of our products as violations of proprietary rights. As we extend our brands into new product categories and new product lines and expand the geographic scope of our distribution and marketing, we could become subject to litigation or challenge based on allegations of the infringement of intellectual property rights of third parties. In the event a claim of infringement against us is successful or would otherwise affect our operations, we may be required to pay damages, royalties or license fees or other costs to continue to use intellectual property rights that we had been using, or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Litigation and other legal action of this type, regardless of whether it is successful, could result in substantial costs to us and diversion of the attention of our management and other resources.

Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.

As a global apparel company, we are subject to income taxes in the United States and various foreign jurisdictions. We record our income tax liability based on an analysis and interpretation of local tax laws and regulations, which requires a significant amount of judgment and estimation. In addition, we may from time to time modify our operations in an effort to minimize our global income tax exposure. Our effective income tax rate in any particular period or in future periods may be affected by a number of factors, including among others a shift in the mix of revenues, income and/or losses among domestic and international sources during a year or over a period of years; changes in tax laws and regulations and/or international tax treaties; the outcome of income tax audits in various jurisdictions; the realization of any anticipated net operating loss carryforwards; and the resolution of uncertain tax positions, any of which could adversely affect our effective income tax rate and profitability.

In addition, a number of proposals for broad reform of the United States corporate tax system are under evaluation by various legislative and administrative bodies. Although it is not possible to accurately determine the overall effect of these recommendations and proposals on our effective tax rate, changes such as these may have a material adverse effect on our financial condition, results of operations or cash flows.

Fluctuations and volatility in the cost and availability of raw materials, labor and freight may materially increase our costs.

We and our third party suppliers rely on the availability of raw materials at reasonable prices. The principal fabrics used in our business are cotton, linens, wools, silk, other natural fibers, synthetics and blends of these materials. The prices paid for these fabrics depend on the market price for raw materials used to produce them. In addition, the cost of the materials that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, such as dyes and chemicals, and other costs, can fluctuate. In recent years, we have seen increases in the costs of certain raw materials, particularly cotton, as a result of weather-related supply disruptions, significant declines in U.S. inventory and a sharp rise in the futures market for cotton. We historically have not entered into any futures contracts to hedge commodity prices.

In recent years, we have also seen increases in the cost of labor at many of our suppliers, particularly with the growth of the middle class in certain countries, as well as in freight costs. In China, for example, apparel manufacturers have experienced increased costs due to labor shortages and other factors, and these increased costs are often passed on to us. Although we attempt to mitigate the effect of increases in our cost of goods sold through sourcing initiatives and by selectively increasing the prices of our products, these product costing pressures, as well as other variable cost pressures, may materially increase our costs, and we may be unable to fully pass on these costs to our customers.

We may not be successful in identifying locations and negotiating appropriate lease terms for retail stores and restaurants.

An integral part of our strategy has been to develop and operate retail stores and restaurants for certain of our lifestyle brands. Net sales from our retail stores and restaurants were 49% of our consolidated net sales during Fiscal 2015, and we expect to increase the number of our retail stores during Fiscal 2016 and in future years.

We lease all of our retail store and restaurant locations. Successful operation of our retail stores and restaurants depends, in part, on our ability to identify desirable, brand appropriate locations, the overall ability of the location to attract a consumer

27



base sufficient to make store sales volume profitable, our ability to negotiate satisfactory lease terms and employ qualified personnel, and our ability to timely construct and complete any build-out and open the location in accordance with our plans. We compete with others for these favorable store locations, lease terms and desired personnel. If we are unable to identify new locations with consumer traffic sufficient to support a profitable sales level or the local market reception to a new retail store opening is inconsistent with our expectations, retail growth may be limited. Further, any decline in the volume of consumer traffic at our retail stores and restaurants, whether because of general economic conditions, changes in consumer shopping preferences or technology, a decline in the popularity of malls or lifestyle centers in general or at those in which we operate, the closing of anchor stores or other adjacent tenants, or otherwise, could have a negative impact on our sales, gross margin, and results of operations.

Our retail store and restaurant leases generally represent long-term financial commitments, with substantial costs at lease inception for a location’s design, leasehold improvements, fixtures and systems installation. From time to time, we seek to downsize or close some of our retail store or restaurant operations, which may require a modification or termination of an existing lease; such actions may require payment of exit fees and/or result in fixed asset impairment charges, the amounts of which could be material.

In addition, our retail store and restaurant leases generally grant the third party landlord with discretion on a number of operational matters, such as store hours and construction of our improvements. The recent consolidation within the commercial real estate development, operation and/or management industries may reduce our leverage with those parties, thereby adversely affecting the terms of future leases for our retail stores and restaurants or making entering into long-term commitments with such parties cost prohibitive.

In recent years, we have expanded our Tommy Bahama direct to consumer operations into international markets; these efforts may continue to adversely impact our results of operations.

Starting in Fiscal 2012, we expanded our Tommy Bahama retail operations into international markets, specifically in the Asia-Pacific region and in Canada. While we continue to look for additional, brand-appropriate locations for retail stores in these markets, particularly in Australia and Canada in the near term, we have also undertaken exploratory efforts to identify suitable third party distribution partners in various international markets. Our Tommy Bahama international infrastructure has had, and will continue to have, a negative impact on our operating results until we are able to fully scale our infrastructure costs and generate sufficient sales and other income through those operations to offset the requisite infrastructure costs.

We have limited experience with regulatory environments and market practices related to international operations and there are risks associated with doing business in these markets, including lack of brand recognition in certain markets; understanding fashion trends and satisfying consumer tastes; understanding sizing and fitting in these markets; market acceptance of our products, which is difficult to assess immediately; establishing appropriate market-specific operational and logistics functions; managing compliance with the various legal requirements; staffing and managing foreign operations; fluctuations in currency exchange rates; obtaining governmental approvals that may be required to operate; potentially adverse tax implications; and maintaining proper levels of inventory. If we are unable to properly manage these risks or if our international efforts do not prove successful, our business, financial condition and results of operations could continue to be negatively impacted.

In addition, we are subject to certain anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, in addition to the local laws of the foreign countries into which we enter. If any of our international operations, or our employees or agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.

In the future, we may elect to operate in certain international markets through joint ventures with third parties or retail license and/or wholesale distribution arrangements with third parties. Any such arrangements are subject to a number of risks and uncertainties, including our reliance on the operational skill and expertise of a local operator, the ability of the joint venture or operator to manage its employees and appropriately represent our brands in those markets, and any protective rights that we may be forced to grant to the third party, which could limit our ability to fully realize the anticipated benefits of such a relationship.

Our geographical concentration of retail stores and wholesale customers for certain of our products exposes us to certain regional risks.

Our retail locations are heavily concentrated in certain geographic areas in the United States, including Florida and California for our Tommy Bahama retail stores (52 out of 141 domestic stores in these states as of January 30, 2016) and Florida for our Lilly Pulitzer retail stores (12 out of 34 stores as of January 30, 2016). Additionally, a significant portion of our wholesale sales for Tommy Bahama and Lilly Pulitzer products are concentrated in the same geographic areas as our own retail store locations

28



for these brands. Due to this concentration, we have heightened exposure to factors that impact these regions, including general economic conditions, weather patterns, natural disasters, changing demographics and other factors.

Our business could be harmed if we fail to maintain proper inventory levels.

We schedule production from third party manufacturers based on our expectations for the demand for our products. However, we may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory, which may result in inventory markdowns or the sale of excess inventory at discounted prices and through off-price channels. These events could significantly harm our operating results and impair the image of our brands. Conversely, we may not be in a position to order quality products from our manufacturers in a timely manner and/or we may experience inventory shortages as demand for our products increases, which might result in unfilled orders, negatively impact customer relationships, diminish brand loyalty and result in lost sales, any of which could harm our business.

We hold licenses for the use of other parties’ brand names, and we cannot guarantee our continued use of such brand names or the quality or salability of such brand names.

We have entered into license and design agreements to use certain trademarks and trade names, such as Kenneth Cole, Dockers, Geoffrey Beene and Nick Graham, to market some of our products. During Fiscal 2015, sales of products bearing brands licensed to us accounted for 6% of our consolidated net sales and 53% of our Lanier Apparel net sales. When we enter into these license and design agreements, they generally provide for short contract durations (typically three to five years); these agreements often include options that we may exercise to extend the term of the contract but, when available, those option rights are subject to our satisfaction of certain contingencies (e.g., minimum sales thresholds) that may be difficult for us to satisfy. Competitive conditions for the right to use popular trademarks means that we cannot guarantee that we will be able to renew these licenses on acceptable terms upon expiration, that the terms of any renewal will not result in operating margin pressures or reduced profitability, or that we will be able to acquire new licenses to use other desirable trademarks. The termination or expiration of a license agreement will cause us to lose the sales and any associated profits generated pursuant to such license, which could be material, and in certain cases could also result in an impairment charge for related assets.

Our license agreements generally require us to receive approval from the brand’s owner of all design and other elements of the licensed products we sell prior to production, as well as to receive approval from the brand owner of distribution channels in which we may sell and the manner in which we market and distribute licensed products. Any failure by us to comply with these requirements could result in the termination of the license agreement.

In addition to certain compliance obligations, all of our significant licenses provide minimum thresholds for royalty payments and advertising expenditures for each license year, which we must pay regardless of the level of our sales of the licensed products. If these thresholds are not met, our licensors may be permitted contractually to terminate these agreements or seek payment of minimum royalties even if the minimum sales are not achieved. In addition, our licensors produce their own products and license their trademarks to other third parties, and we are unable to control the quality of these goods that others produce. If licensors or others do not maintain the quality of these trademarks or if the brand image deteriorates, or the licensors otherwise change the parameters of design, pricing, distribution or marketing, our sales and any associated profits generated by such brands may decline.

We make use of debt to finance our operations, which exposes us to risks that could adversely affect our business, financial position and operating results.

Our levels of debt vary as a result of the seasonality of our business, investments in our operations and working capital needs. As of January 30, 2016, we had $44.0 million of borrowings outstanding under our U.S. Revolving Credit Agreement. In the future, our debt levels may increase under our existing facilities or potentially under new facilities, or the terms or forms of our financing arrangements may change.

Our indebtedness includes, and any future indebtedness may include, certain obligations and limitations, including the periodic payment of principal and interest, maintenance of certain covenants and certain other limitations. The negative covenants in our debt agreements limit our ability to incur debt, guaranty certain obligations, incur liens, pay dividends, repurchase common stock, make investments, including the amount we may generally invest in, or use to support, our foreign operations, sell assets, make acquisitions, merge with other companies, or satisfy other debt. These obligations and limitations may increase our vulnerability to adverse economic and industry conditions, place us at a competitive disadvantage compared to our competitors that are less leveraged and limit our flexibility in carrying out our business plan and planning for, or reacting to, changes in the industry in which we operate.


29



In addition, we have interest rate risk on indebtedness under our U.S. Revolving Credit Agreement. Our exposure to variable rate indebtedness may increase in the future, based on our debt levels and/or the terms of future financing arrangements. An increase in interest rates may require us to pay a greater amount of our funds from operations towards interest, even if the amount of borrowings outstanding remains the same. As a result, we may have to revise or delay our business plans, reduce or delay capital expenditures or otherwise adjust our plans for operations.

The continued growth of our business, including the completion of potentially desirable acquisitions, also depends on our access to sufficient funds. We typically rely on cash flow from operations and borrowings under our U.S. Revolving Credit Agreement to fund our working capital, capital expenditures and investment activities. As of January 30, 2016, we had $185.9 million in unused availability under our U.S. Revolving Credit Agreement. If the need arises in the future to finance expenditures in excess of those supported by our operations and existing credit facilities, we may need to seek additional funding, whether through debt or equity financing. Our ability to obtain that financing will depend on many factors, including prevailing market conditions, our financial condition and, depending on the sources of financing, our ability to negotiate favorable terms and conditions. The terms of any such financing or our inability to secure such financing could adversely affect our ability to execute our strategies.

Labor-related matters, including labor disputes, may adversely affect our operations.

We may be adversely affected as a result of labor disputes in our own operations or in those of third parties with whom we work. Our business depends on our ability to source and distribute products in a timely manner, and our new retail store and restaurant growth is dependent on timely construction of our locations. While we are not subject to any organized labor agreements and have historically enjoyed good employee relations, there can be no assurance that we will not experience work stoppages or other labor problems in the future with our non-unionized employees. In addition, potential labor disputes at independent factories where our goods are produced, shipping ports, or transportation carriers create risks for our business, particularly if a dispute results in work slowdowns, lockouts, strikes or other disruptions during our peak manufacturing, shipping and selling seasons. For example, a severe and prolonged disruption to ocean freight transportation, such as the disruption to West Coast port operations in 2014 and 2015 due to a port workers’ union dispute, delayed our receipt of product. Further, we plan our inventory purchases and forecasts based on the anticipated timing of retail store and restaurant openings, which could be delayed as a result of a number of factors, including labor disputes among contractors engaged to construct our locations or within government licensing or permitting offices. Any potential labor dispute, either in our own operations or in those of third parties on whom we rely, could materially affect our costs, decrease our sales, harm our reputation or otherwise negatively affect our operations.

Our international operations, including foreign sourcing and retail operations, result in an exposure to fluctuations in foreign currency exchange rates.

As a result of our international operations, we are exposed to certain risks in conducting business outside of the United States. The substantial majority of our orders for the production of apparel in foreign countries is denominated in U.S. dollars. If the value of the U.S. dollar decreases relative to certain foreign currencies in the future, then the prices that we negotiate for products could increase, and it is possible that we would not be able to pass this increase on to customers, which would negatively impact our margins. However, if the value of the U.S. dollar increases between the time a price is set and payment for a product, the price we pay may be higher than that paid for comparable goods by competitors that pay for goods in local currencies, and these competitors may be able to sell their products at more competitive prices. Additionally, currency fluctuations could also disrupt the business of our independent manufacturers by making their purchases of raw materials more expensive and difficult to finance.

We received U.S. dollars for more than 95% of our product sales during Fiscal 2015. An increase in the value of the U.S. dollar compared to other currencies in which we have sales could result in lower levels of sales and earnings in our consolidated statements of operations, although the sales in foreign currencies could be equal to or greater than amounts in prior periods. In addition, to the extent that a stronger U.S. dollar increases costs, and the products are sold in another currency but the additional cost cannot be passed on to our customers, our gross margins will be negatively impacted.

Our operations may be affected by changes in weather patterns, natural or man-made disasters, war, terrorism or other catastrophes.

Our sales volume and operations may be adversely affected by unseasonable or severe weather conditions, natural or man-made disasters, war, terrorist attacks, including heightened security measures and responsive military actions, or other catastrophes which may cause consumers to alter their purchasing habits or result in a disruption to our operations. Because of the seasonality of our business, the concentration of a significant proportion of our retail stores and wholesale customers in certain

30



geographic regions, the concentration of our sourcing operations and the concentration of our distribution operations, the occurrence of such events could disproportionately impact our business, financial condition and operating results.

Our business could be impacted as a result of actions by activist shareholders or others.

We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others. Responding to such actions could be costly and time-consuming, may not align with our business strategies and could divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with vendors, customers and other third parties.

Item 1B.    Unresolved Staff Comments
None.
Item 2.    Properties
We lease and own space for our retail stores, distribution centers, sales/administration office space and manufacturing facilities in various domestic and international locations. We believe that our existing properties are well maintained, are in good operating condition and will be adequate for our present level of operations.
In the ordinary course of business, we enter into lease agreements for retail space. Most of the leases require us to pay specified minimum rent, as well as a portion of operating expenses, real estate taxes and insurance applicable to the property, plus a contingent rent based on a percentage of the store's net sales in excess of a specific threshold. The leases have varying terms and expirations and may have provisions to extend, renew or terminate the lease agreement, among other terms and conditions. Assets leased under operating leases are not recognized as assets and liabilities in our consolidated balance sheets. Periodically, we assess the operating results of each of our retail stores and restaurants to assess whether the location provides, or is expected to provide, an appropriate long-term return on investment, whether the location remains brand appropriate and other factors. As a result of this assessment, we may determine that it is appropriate to close certain stores that do not continue to meet our investment criteria, not renew certain leases, exercise an early termination option, or otherwise negotiate an early termination. For existing leases in desirable locations, we anticipate that we will be able to extend our retail leases, to the extent that they expire in the near future, on terms that are satisfactory to us, or if necessary, locate substitute properties on acceptable terms. We also believe that there are sufficient retail spaces available for the continued expansion of our retail store footprint in the near future.
As of January 30, 2016, our retail and restaurant operations utilized approximately 0.9 million square feet of leased space in the United States, Canada, Australia and Asia. Each of our retail stores and restaurants is less than 20,000 square feet, and we do not believe that we are dependent upon any individual retail store or restaurant location for our business operations. Greater detail about the retail space used by each operating group is included in Part I, Item 1, Business included in this report.
As of January 30, 2016, we utilized approximately 1.5 million square feet of owned or leased distribution, manufacturing and administrative/sales facilities in the United States, Mexico and Hong Kong. In addition to our owned distribution facilities, we may utilize certain third party warehouse/distribution providers where we do not own or lease any space. Our distribution, manufacturing, administrative and sales facilities provide space for employees and functions used in support of our retail, wholesale and e-commerce operations.
Details of the principal administrative, sales, distribution and manufacturing facilities used in our operations, including approximate square footage, are as follows:

31



Location
Primary Use
Operating Group
Square
Footage
Lease
Expiration
Seattle, Washington
Sales/administration
Tommy Bahama
110,000

2026
Auburn, Washington
Distribution center
Tommy Bahama
325,000

2025
King of Prussia, Pennsylvania
Sales/administration and distribution center
Lilly Pulitzer
160,000

Owned
Toccoa, Georgia
Distribution center
Lanier Apparel
310,000

Owned
Merida, Mexico
Manufacturing plant
Lanier Apparel
80,000

Owned
Atlanta, Georgia
Sales/administration
Corporate and Other and Lanier Apparel
30,000

2023
Lyons, Georgia
Sales/administration and distribution center
Corporate and Other and Lanier Apparel
420,000

Owned
New York, New York
Sales/administration
Various
40,000

Various
Hong Kong
Sales/administration
Various
20,000

Various

Item 3.    Legal Proceedings
From time to time, we are a party to litigation and regulatory actions arising in the ordinary course of business. We are not currently a party to litigation or regulatory actions, or aware of any proceedings contemplated by governmental authorities, that we believe could reasonably be expected to have a material impact on our financial position, results of operations or cash flows.
Item 4.    Mine Safety Disclosures
Not applicable.

32



PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Dividend Information
Our common stock is listed and traded on the New York Stock Exchange under the symbol "OXM." As of March 15, 2016, there were 285 record holders of our common stock. The following table sets forth the high and low sale prices and quarter-end closing prices of our common stock as reported on the New York Stock Exchange for the quarters indicated. Additionally, the table indicates the dividends per share declared on shares of our common stock by our Board of Directors for each quarter.
 
High
Low
Close
Dividends
Fiscal 2015
 
 
 
 
First Quarter
$
80.93

$
51.13

$
78.11

$
0.25

Second Quarter
$
90.00

$
73.36

$
83.93

$
0.25

Third Quarter
$
91.24

$
67.62

$
72.82

$
0.25

Fourth Quarter
$
74.72

$
54.79

$
69.86

$
0.25

Fiscal 2014
 
 
 
 
First Quarter
$
82.84

$
64.17

$
65.74

$
0.21

Second Quarter
$
72.63

$
58.53

$
59.39

$
0.21

Third Quarter
$
66.18

$
58.11

$
61.25

$
0.21

Fourth Quarter
$
67.13

$
50.13

$
55.94

$
0.21

We have paid dividends in each quarter since we became a public company in July 1960; however, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, repurchases of outstanding shares, funding of acquisitions or funding of capital expenditures, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facilities, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends in the short-term based on our expectation of operating cash flows in future periods subject to the terms and conditions of our credit facilities or other debt instruments and applicable law. All cash flow from operations will not necessarily be paid out as dividends in all periods.
For details about limitations on our ability to pay dividends, see Note 5 of our consolidated financial statements and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, both contained in this report.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities during Fiscal 2015.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We have certain stock incentive plans as described in Note 7 to our consolidated financial statements included in this report, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the vesting of previously restricted shares. We did not repurchase any of our common shares pursuant to these plans during the fourth quarter of Fiscal 2015.
In Fiscal 2012, our Board of Directors authorized us to spend up to $50 million to repurchase shares of our common stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our common stock and has no automatic expiration. As of January 30, 2016, no shares of our common stock had been repurchased pursuant to this authorization.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item 5 of Part II will appear in our definitive proxy statement under the heading "Equity Compensation Plan Information" and is incorporated herein by reference.


33



Stock Price Performance Graph
The graph below reflects cumulative total shareholder return (assuming an initial investment of $100 and the reinvestment of dividends) on our common stock compared to the cumulative total return for a period of five years, beginning January 29, 2011 and ending January 30, 2016, of:
The S&P SmallCap 600 Index; and

The S&P 500 Apparel, Accessories and Luxury Goods.



 
 
INDEXED RETURNS
 
Base
Years Ending
 
Period
 
 
 
 
 
Company / Index
1/29/11
1/28/12
2/02/13
2/01/14
1/31/15
1/30/16
Oxford Industries, Inc.
100
209.28
213.53
328.36
246.75
312.49
S&P SmallCap 600 Index
100
108.94
126.39
160.56
170.44
162.45
S&P 500 Apparel, Accessories & Luxury Goods
100
142.80
132.71
154.02
159.68
133.78



34



Item 6.   Selected Financial Data
Our selected financial data included in the table below reflects the divestiture of the operations and assets of our former Ben Sherman operating group in Fiscal 2015, resulting in those operations being classified as discontinued operations in our consolidated statements of operations for all periods presented. Cash flow, capital expenditures, equity compensation, depreciation and amortization amounts below include amounts for both continuing and discontinued operations as our consolidated statements of cash flow are presented on a consolidated basis including continuing and discontinued operations.
 
Fiscal 2015

Fiscal 2014

Fiscal 2013

Fiscal 2012

Fiscal 2011

 
(in millions, except per share amounts)
Net sales
$
969.3

$
920.3

$
849.9

$
773.6

$
667.5

Cost of goods sold
411.2

402.4

368.4

343.5

301.0

Gross profit
558.1

517.9

481.5

430.1

366.5

SG&A
475.0

439.1

399.1

362.7

307.0

Royalties and other operating income
14.4

13.9

13.9

10.7

10.0

Operating income
97.5

92.8

96.3

78.1

69.5

Loss on repurchase of debt



(9.1
)
(9.0
)
Interest expense, net
2.5

3.2

3.9

8.7

16.1

Earnings from continuing operations before income taxes
95.1

89.6

92.4

60.3

44.4

Income taxes
36.5

35.8

36.9

23.1

15.6

Net earnings from continuing operations
58.5

53.8

55.4

37.2

28.9

(Loss) income, including loss on sale, from discontinued operations, net of taxes
(28.0
)
(8.0
)
(10.1
)
(5.9
)
0.5

Net earnings
$
30.6

$
45.8

$
45.3

$
31.3

$
29.4

Diluted earnings from continuing operations per share
$
3.54

$
3.27

$
3.36

$
2.24

$
1.75

Diluted (loss) income, including loss on sale, from discontinued operations per share
$
(1.69
)
$
(0.49
)
$
(0.62
)
$
(0.36
)
$
0.03

Diluted net earnings per share
$
1.85

$
2.78

$
2.75

$
1.89

$
1.78

Diluted weighted average shares outstanding
16.6

16.5

16.5

16.6

16.5

Dividends declared and paid
$
16.6

$
13.9

$
11.9

$
9.9

$
8.6

Dividends declared and paid per share
$
1.00

$
0.84

$
0.72

$
0.60

$
0.52

Total assets, at period-end
$
582.7

$
622.4

$
606.9

$
533.1

$
489.5

Long-term debt at period-end
$
44.0

$
104.8

$
137.6

$
108.6

$
103.4

Shareholders' equity, at period-end
$
334.4

$
290.6

$
260.2

$
229.8

$
204.1

Cash provided by operating activities
$
105.4

$
95.4

$
52.7

$
67.1

$
44.2

Capital expenditures
$
73.1

$
50.4

$
43.4

$
60.7

$
35.3

Depreciation and amortization expense
$
36.4

$
37.6

$
33.9

$
26.3

$
27.2

Equity compensation expense
$
5.2

$
4.1

$
1.7

$
2.8

$
2.2

LIFO accounting charge
$
0.3

$
2.1

$

$
4.0

$
5.8

Book value per share at period-end
$
20.14

$
17.64

$
15.85

$
13.85

$
12.35


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our operations, cash flows, liquidity and capital resources should be read in conjunction with our consolidated financial statements contained in this report.



35



OVERVIEW
We are a global apparel company that designs, sources, markets and distributes products bearing the trademarks of our owned Tommy Bahama® and Lilly Pulitzer® lifestyle brands, as well as certain licensed and private label apparel products. During Fiscal 2015, 91% of our net sales were from products bearing brands that we own, and 66% of our net sales were sales of our products through our direct to consumer channels of distribution. In Fiscal 2015, more than 95% of our consolidated net sales 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.
Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude.  Furthermore, we believe that lifestyle brands like Tommy Bahama and Lilly Pulitzer, that create an emotional connection with consumers, can command greater loyalty, higher price points at retail and create licensing opportunities, which may result in higher earnings. We believe that the attraction of a lifestyle brand to consumers is dependent on creating compelling product, effectively communicating the respective lifestyle brand message and distributing the product to the consumer where and when they want it. 
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.  Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated products each season.
In order to further strengthen each lifestyle brand's connections with consumers, we communicate regularly with consumers via the use of electronic and print media.  We believe that our ability to effectively communicate with consumers and create an emotional connection is critical to the success of the brands.
We distribute our owned lifestyle branded products through our direct to consumer channel, consisting of our retail stores and e-commerce sites, and our wholesale distribution channel. Our direct to consumer operations provide us with the opportunity to interact directly with our customers, present to them the full line of our current season products and provide an opportunity for consumers to be immersed in the theme of the lifestyle brand. We believe that presenting our products in a setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands. Our 123 Tommy Bahama and 34 Lilly Pulitzer full-price retail stores provide high visibility for our brands and products, and allow us to stay close to the preferences of our consumers, while also providing a platform for long-term growth for the brands. In Tommy Bahama, we also operate 16 restaurants, generally adjacent to a Tommy Bahama full-price retail store locations, which we believe further enhance the brand's image with consumers.
Additionally, our e-commerce websites, which represented 17% of our consolidated net sales in Fiscal 2015, provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products. Our Tommy Bahama and Lilly Pulitzer e-commerce flash clearance sales on our websites, as well as our 41 Tommy Bahama outlet stores, play an important role in overall brand and inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and at better prices than are typically available from third parties.
The wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger group of consumers. As we seek to maintain the integrity of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites, we generally target select wholesale customers that follow this same approach in their stores. Our wholesale customers for our Tommy Bahama and Lilly Pulitzer brands include better department stores and specialty stores.
Within our Lanier Apparel operating group, we sell tailored clothing and sportswear products under licensed brands, private label products and owned brands to department stores, national chains, warehouse clubs, discount retailers, specialty retailers and others throughout the United States.
All of our operating groups operate in highly competitive apparel markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small group of apparel firms dominates the apparel industry and our direct competitors vary by operating group and distribution channel. We believe 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.

The apparel industry is cyclical and very 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 may have on other industries.  We believe the global economic conditions and resulting economic uncertainty that have prevailed in recent years continue to impact our

36



business, and the apparel industry as a whole. Although some signs of economic improvements exist, the apparel retail environment remains increasingly more promotional.

Additionally, the apparel retail market is evolving as a result of shifting shopping patterns and technological advances, with e-commerce playing an increasingly important role and bricks and mortar retail stores playing a different role in consumers' journey to their ultimate purchase. The industry is also being impacted by the coming of age of the millenial generation whose values and approach to the marketplace are so different from past generations. We believe that our lifestyle brands are ideally suited to succeed and thrive in the long-term while managing the various challenges facing our industry.

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 bricks and mortar retail store operations, as we add additional retail store locations and attempt to increase comparable retail store sales, and higher sales in our e-commerce operations, which are likely to grow at a faster rate than comparable bricks and mortar retail store sales. We also believe that these lifestyle brands provide an opportunity for 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 also believe that there are opportunities for modest sales growth for Lanier Apparel in the future through new product programs for existing and new customers.

We believe 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, e-commerce initiatives, technology enhancements and distribution center and administrative office expansion initiatives. Additionally, we anticipate increased employment, advertising and other costs in key functions to support the ongoing business operations and fuel future sales growth.

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 owned 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 Fiscal 2015 compared to Fiscal 2014:
 
Fiscal 2015
Fiscal 2014
Net sales
$
969,290

$
920,325

Operating income
$
97,514

$
92,819

Net earnings from continuing operations
$
58,537

$
53,797

Net earnings from continuing operations per diluted share
$
3.54

$
3.27

The higher net earnings from continuing operations in Fiscal 2015 primarily resulted from (1) higher operating income in Lilly Pulitzer reflecting higher net sales and gross margins partially offset by higher SG&A associated with expanding operations, (2) a lower operating loss in Corporate and Other reflecting a lower LIFO accounting charge, (3) lower interest expense and (4) lower effective tax rate. These favorable items were partially offset by (1) lower operating income in Tommy Bahama reflecting higher SG&A associated with the expanding operations and lower gross margin, partially offset by the impact of higher net sales and (2) lower operating income in Lanier Apparel reflecting the impact of lower sales partially offset by a higher gross margin.

Discontinued operations
Discontinued operations include the assets and operations of our former Ben Sherman operating group which we sold in July 2015. Unless otherwise indicated, all references to assets, liabilities, revenues, expenses and other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group. Net loss from discontinued operations, net of taxes was $28.0 million in Fiscal 2015 compared to a net loss from discontinued operations, net of taxes of $8.0 million in Fiscal 2014 with the larger net loss primarily due to the $20.5 million loss on sale of the Ben Sherman operations. 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 paid in the First Quarter of Fiscal 2016 and amounts associated with certain lease obligations related to the Ben Sherman business which we retained in connection with the transaction. Refer to

37



Note 12 in our consolidated financial statements included in this report for additional information about discontinued operations.

OPERATING GROUPS
Our business primarily operates through our Tommy Bahama, Lilly Pulitzer and Lanier Apparel operating groups. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand's direct to consumer, wholesale and licensing operations. For a description of each of our operating groups, see Part I, Item 1. Business and Note 2 to our consolidated financial statements, both included in this report.

In Fiscal 2015, as a result of certain organizational and management reporting changes, our Oxford Golf operations, which were previously included in Corporate and Other, are considered part of and included in our Lanier Apparel operating group. For all periods presented, amounts for Lanier Apparel include the Oxford Golf operations, while amounts for Corporate and Other exclude those operations. 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 other businesses which are not included in our operating groups.

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.
 
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. A store that is remodeled generally will continue to be included in our comparable store sales metrics as a store is not typically closed for a two week period during a remodel; however, in some cases a store may be closed for more than two weeks during a remodel. A store that is relocated generally will not be included in our comparable store sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year 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 store sales.
 
Definitions and calculations of comparable store sales differ among retail companies, and therefore comparable store sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies.




38



RESULTS OF OPERATIONS
The following table sets forth the specified line items in our consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding.
 
Fiscal 2015
Fiscal 2014
Fiscal 2013
Net sales
$
969,290

100.0
%
$
920,325

100.0
%
$
849,879

100.0
%
Cost of goods sold
411,185

42.4
%
402,376

43.7
%
368,399

43.3
%
Gross profit
558,105

57.6
%
517,949

56.3
%
481,480

56.7
%
SG&A
475,031

49.0
%
439,069

47.7
%
399,104

47.0
%
Royalties and other operating income
14,440

1.5
%
13,939

1.5
%
13,936

1.6
%
Operating income
97,514

10.1
%
92,819

10.1
%
96,312

11.3
%
Interest expense, net
2,458

0.3
%
3,236

0.4
%
3,940

0.5
%
Earnings from continuing operations before income taxes
95,056

9.8
%
89,583

9.7
%
92,372

10.9
%
Income taxes
36,519

3.8
%
35,786

3.9
%
36,944

4.3
%
Net earnings from continuing operations
$
58,537

6.0
%
$
53,797

5.8
%
$
55,428

6.5
%
Loss from discontinued operations, net of taxes
(27,975
)
NM

(8,039
)
NM

(10,137
)
NM

Net earnings
$
30,562

NM

$
45,758

NM

$
45,291

NM


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

Unless otherwise indicated, all references to assets, liabilities, revenues, expenses and other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Ben Sherman operating group. Refer to Note 12 in our consolidated financial statements included in this report for additional information about discontinued operations.
 
Net Sales
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Tommy Bahama
$
658,467

$
627,498

$
30,969

4.9
 %
Lilly Pulitzer
204,626

167,736

36,890

22.0
 %
Lanier Apparel
105,106

126,430

(21,324
)
(16.9
)%
Corporate and Other
1,091

(1,339
)
2,430

NM

Total net sales
$
969,290

$
920,325

$
48,965

5.3
 %
 
Consolidated net sales increased $49.0 million, or 5.3%, in Fiscal 2015 compared to Fiscal 2014 reflecting changes in net sales of each operating group, as discussed below. The 5.3% increase in consolidated net sales was primarily driven by (1) a $28.8 million, or 7%, increase in comparable store sales which includes full-price retail stores and full-price e-commerce sales to $418.3 million in Fiscal 2015 from $389.5 million in Fiscal 2014, (2) an incremental net sales increase of $28.4 million associated with the operation of additional full-price stores, (3) a $5.4 million increase in restaurant sales resulting from the operation of additional restaurants and increased sales at existing restaurants, (4) a $5.2 million net increase in outlet store, e-commerce flash clearance and warehouse sales. These increases in net sales were partially offset by an $18.9 million decrease in wholesale sales including the $21.3 million decrease in Lanier Apparel. The following table presents the proportion of our consolidated net sales by distribution channel for each period presented:

39



 
Fiscal 2015
Fiscal 2014
Full-price retail stores, outlets and warehouse sales
42
%
40
%
E-commerce, including full-price and flash clearance sales
17
%
15
%
Restaurant
7
%
7
%
Wholesale
34
%
38
%
Total
100
%
100
%

Tommy Bahama:
 
The Tommy Bahama net sales increase of $31.0 million, or 4.9%, was primarily driven by (1) an incremental net sales increase of $18.0 million associated with the operation of additional full-price retail stores, (2) a $7.8 million, or 3%, increase in comparable store sales to $317.8 million in Fiscal 2015 from $310.0 million in Fiscal 2014, (3) a $5.4 million increase in restaurant sales resulting from the operation of two restaurants opened in Fiscal 2014 and Fiscal 2015 as well as increased sales in existing restaurants and (4) a $2.1 million increase in outlet store and flash clearance sales, including the impact of new outlets opened in Fiscal 2014 and Fiscal 2015. These increases in net sales were partially offset by a $2.9 million decrease in wholesale sales.

As of January 30, 2016, we operated 164 Tommy Bahama stores globally, consisting of 107 full-price retail stores, 16 restaurant-retail locations and 41 outlet stores. As of January 31, 2015 we operated 157 Tommy Bahama stores globally consisting of 101 full-price retail stores, 15 restaurant-retail locations and 41 outlet stores. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
 
Fiscal 2015
Fiscal 2014
Full-price retail stores and outlets
50
%
50
%
E-commerce, including full-price and flash clearance sales
15
%
14
%
Restaurant
11
%
10
%
Wholesale
24
%
26
%
Total
100
%
100
%
 
Lilly Pulitzer:
 
The Lilly Pulitzer net sales increase of $36.9 million, or 22.0%, was primarily a result of (1) a $21.1 million, or 27%, increase in comparable store sales to $100.5 million in Fiscal 2015 compared to $79.5 million in Fiscal 2014, (2) an incremental net sales increase of $10.4 million associated with the operation of additional retail stores, (3) a $2.9 million increase in wholesale sales in Fiscal 2015, (4) an increase in e-commerce flash clearance sales of $1.7 million to $18.4 million in Fiscal 2015, and (5) $0.9 million higher sales at the June warehouse sale. As of January 30, 2016, we operated 34 Lilly Pulitzer retail stores compared to 28 retail stores as of January 31, 2015. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
 
Fiscal 2015
Fiscal 2014
Full-price retail stores and warehouse sales
38
%
34
%
E-commerce, including full-price and flash clearance sales
30
%
28
%
Wholesale
32
%
38
%
Total
100
%
100
%
 
Lanier Apparel:
 
The decrease in net sales for Lanier Apparel of $21.3 million, or 16.9%, reflects a decrease in net sales in the private label and branded businesses for both tailored clothing and sportswear. The branded and private label businesses were unfavorably impacted by the reduction in or exit from certain replenishment and other programs.
 
Corporate and Other:
 
Corporate and Other net sales primarily consist of the net sales of our Lyons, Georgia distribution center as well as the impact of the elimination of intercompany sales between our operating groups, which exceeded net sales of our Lyons,

40



Georgia distribution center in Fiscal 2014. The increase in Corporate and Other sales was primarily due to a smaller unfavorable impact of the elimination of intercompany sales in Fiscal 2015.
 
Gross Profit
 
The table below presents gross profit by operating group and in total for Fiscal 2015 and Fiscal 2014 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Tommy Bahama
$
393,221

$
377,415

$
15,806

4.2
 %
Lilly Pulitzer
132,791

106,317

26,474

24.9
 %
Lanier Apparel
30,460

34,159

(3,699
)
(10.8
)%
Corporate and Other
1,633

58

1,575

NM

Total gross profit
$
558,105

$
517,949

$
40,156

7.8
 %
LIFO charge included in Corporate and Other
254

2,131

 

 

 
The increase in consolidated gross profit was primarily driven by higher net sales, as discussed above, as well as a change in sales mix as a greater proportion of consolidated net sales were Lilly Pulitzer sales, which typically has higher gross margins than our other operating groups, and the net favorable impact of LIFO accounting in Fiscal 2015 as compared to Fiscal 2014. In addition to the impact of the changes in net sales, gross profit on a consolidated basis and for each operating group was impacted by the change in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for Fiscal 2015 and Fiscal 2014.
 
Fiscal 2015
Fiscal 2014
Tommy Bahama
59.7
%
60.1
%
Lilly Pulitzer
64.9
%
63.4
%
Lanier Apparel
29.0
%
27.0
%
Corporate and Other
NM

NM

Consolidated gross margin
57.6
%
56.3
%

On a consolidated basis, gross margin increased in Fiscal 2015, primarily as a result of (1) Lilly Pulitzer representing a greater proportion and Lanier Apparel representing a lower proportion of consolidated net sales, (2) direct to consumer sales, which typically provide a higher gross margin, representing a greater proportion of consolidated net sales, (3) improved gross margins in Lilly Pulitzer and Lanier Apparel and (4) the net favorable impact of LIFO accounting in Fiscal 2015 as compared to Fiscal 2014. These favorable items were partially offset by the lower gross margin in Tommy Bahama.
 
Tommy Bahama:

The reduction in gross margin for Tommy Bahama reflected lower gross margins in both the direct to consumer and wholesale channels of distribution, which offset the favorable impact of a change in sales mix with direct to consumer sales representing a greater proportion of net sales. The lower direct to consumer gross margin was primarily due to a greater proportion of sales in our full-price stores and e-commerce website 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 more significant discounts and allowances, particularly for wholesale off-price sales.

Lilly Pulitzer:
 
The increase in gross margin for Lilly Pulitzer was primarily driven by a change in sales mix towards the direct to consumer channel of distribution and an increase in gross margins of the full-price direct to consumer businesses.
 
Lanier Apparel:


41



The increase in gross margin for Lanier Apparel was primarily due to a change in sales mix with a greater proportion of sales being higher gross margin branded business programs, in both the tailored clothing and sportswear businesses, which was partially offset by the impact of more significant inventory markdowns in Fiscal 2015.

Corporate and Other:

The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of intercompany sales between our operating groups. The higher gross profit for Corporate and Other was primarily due to the lower impact of LIFO accounting in Fiscal 2015.
 
SG&A
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
SG&A
$
475,031

$
439,069

$
35,962

8.2
%
SG&A as % of net sales
49.0
%
47.7
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,521

$
1,764

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

$
275

 
 
 
The increase in SG&A was primarily due to (1) $19.9 million of incremental costs in 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 Lilly Pulitzer and Tommy Bahama businesses, (3) $2.7 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington and (4) $1.1 million of additional equity compensation expense. SG&A included $1.9 million of amortization of intangible assets in Fiscal 2015 compared to $2.3 million in Fiscal 2014. We anticipate that amortization of intangible assets will be approximately $1.7 million in Fiscal 2016.

Royalties and other operating income
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Royalties and other operating income
$
14,440

$
13,939

$
501

3.6
%
 
Royalties and other operating income primarily reflect income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The $0.5 million increase in royalties and other income reflects increased royalty income for both Tommy Bahama and Lilly Pulitzer.

Operating income (loss)
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Tommy Bahama
$
65,993

$
71,132

$
(5,139
)
(7.2
)%
Lilly Pulitzer
42,525

32,190

10,335

32.1
 %
Lanier Apparel
7,700

10,043

(2,343
)
(23.3
)%
Corporate and Other
(18,704
)
(20,546
)
1,842

9.0
 %
Total operating income
$
97,514

$
92,819

$
4,695

5.1
 %
LIFO charge included in Corporate and Other
$
254

$
2,131

 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,521

$
1,764

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

$
275

 

 

 
The increase in operating income was primarily due to the higher operating income in Lilly Pulitzer and a lower operating loss in Corporate and Other, partially offset by lower operating income in Tommy Bahama and Lanier Apparel. Changes in operating income (loss) by operating group are discussed below.

42



 
Tommy Bahama:
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Net sales
$
658,467

$
627,498

$
30,969

4.9
 %
Gross margin
59.7
%
60.1
%
 

 

Operating income
$
65,993

$
71,132

$
(5,139
)
(7.2
)%
Operating income as % of net sales
10.0
%
11.3
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,521

$
1,764

 
 
 
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) $15.1 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) $2.7 million of increased occupancy costs associated with duplicate rent expense, moving costs and higher rent structure related to the relocation of Tommy Bahama's office in Seattle, Washington during the Third Quarter of Fiscal 2015 and (3) higher costs to support the growing Tommy Bahama business. These higher SG&A amounts were partially offset by reductions in other SG&A accounts, including incentive compensation. The operating loss for the Tommy Bahama Waikiki retail-restaurant location prior to opening in late October 2015 was $2.1 million, with the substantial majority of this loss consisting of pre-opening rent and set-up costs, which are included in the incremental SG&A amount associated with new locations above. Fiscal 2015 included an operating loss of $8.3 million related to our Tommy Bahama Asia-Pacific expansion compared to an operating loss of $10.3 million in Fiscal 2014.

Lilly Pulitzer:
 
Fiscal 2015

Fiscal 2014

$ Change
% Change
Net sales
$
204,626

$
167,736

$
36,890

22.0
%
Gross margin
64.9
%
63.4
%
 

 

Operating income
$
42,525

$
32,190

$
10,335

32.1
%
Operating income as % of net sales
20.8
%
19.2
%
 

 

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

$
275

 

 


The increase in 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, (2) $4.8 million of incremental SG&A associated with the cost of operating additional retail stores and (3) $1.0 million of higher incentive compensation.
 
Lanier Apparel:
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Net sales
$
105,106

$
126,430

$
(21,324
)
(16.9
)%
Gross margin
29.0
%
27.0
%
 

 

Operating income
$
7,700

$
10,043

$
(2,343
)
(23.3
)%
Operating income as % of net sales
7.3
%
7.9
%
 

 

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

Corporate and Other:

43



 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Net sales
$
1,091

$
(1,339
)
$
2,430

NM

Operating loss
$
(18,704
)
$
(20,546
)
$
1,842

9.0
%
LIFO charge included in Corporate and Other
$
254

$
2,131

 

 

 
The improved operating results in Corporate and Other were primarily due to the lower LIFO accounting charge in Fiscal 2015 and a $0.9 million gain on sale of real estate, which were partially offset by higher incentive compensation amounts.
 
Interest expense, net
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Interest expense, net
$
2,458

$
3,236

$
(778
)
(24.0
)%
 
Interest expense for Fiscal 2015 decreased from the prior year primarily due to lower average debt outstanding, particularly in second half of Fiscal 2015, and lower borrowing rates during Fiscal 2015. The lower average debt outstanding in the second half of Fiscal 2015 was primarily a result of the use of proceeds from the July 2015 sale of Ben Sherman for debt repayment.

Income taxes
 
Fiscal 2015
Fiscal 2014
$ Change
% Change
Income taxes
$
36,519

$
35,786

$
733

2.0
%
Effective tax rate
38.4
%
39.9
%
 

 

 
Income tax expense for Fiscal 2015 increased, reflecting higher earnings partially offset by a lower effective tax rate. The lower effective tax rate in Fiscal 2015 compared to Fiscal 2014 primarily resulted from improved operating results in our Hong-Kong based sourcing and Tommy Bahama Asia-Pacific retail operations. Our effective tax rate for Fiscal 2016 is estimated to be approximately 37.5% reflecting our expectation that our operating results in our sourcing operations and Tommy Bahama Asia-Pacific retail operations will continue to improve.

Net earnings from continuing operations
 
Fiscal 2015
Fiscal 2014
Net earnings from continuing operations
$
58,537

$
53,797

Net earnings from continuing operations per diluted share
$
3.54

$
3.27

Weighted average shares outstanding - diluted
16,559

16,471

 
The higher net earnings in Fiscal 2015 primarily resulted from (1) higher operating income in Lilly Pulitzer, (2) a lower operating loss in Corporate and Other, (3) lower interest expense and (4) lower effective tax rate. These favorable items were partially offset by (1) lower operating income in Tommy Bahama and (2) lower operating income in Lanier Apparel.

Discontinued operations
 
Net loss from discontinued operations, net of taxes was $28.0 million in Fiscal 2015 compared to a net loss from discontinued operations, net of taxes of $8.0 million in Fiscal 2014 with the larger net loss primarily due to the $20.5 million loss on sale of the Ben Sherman operations, which was completed in the Second Quarter of Fiscal 2015. 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 paid in the First Quarter of Fiscal 2016 and amounts associated with certain lease obligations related to the Ben Sherman business which we retained in connection with the transaction.
FISCAL 2014 COMPARED TO FISCAL 2013
The discussion and tables below compare certain line items included in our consolidated statements of operations for Fiscal 2014 to Fiscal 2013. Each dollar and percentage change provided reflects the change between these periods unless

44



indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
 
Net Sales
 
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Tommy Bahama
$
627,498

$
584,941

$
42,557

7.3
 %
Lilly Pulitzer
167,736

137,943

29,793

21.6
 %
Lanier Apparel
126,430

127,421

(991
)
(0.8
)%
Corporate and Other
(1,339
)
(426
)
(913
)
(214.3
)%
Total
$
920,325

$
849,879

$
70,446

8.3
 %
 
Consolidated net sales increased 8.3% reflecting the net sales increases in Tommy Bahama and Lilly Pulitzer, as discussed below. Further, as direct to consumer sales grew at a faster rate than wholesale sales, net sales in the direct to consumer channel of distribution represented a greater percentage of consolidated net sales during Fiscal 2014 as presented below:
 
Fiscal 2014
Fiscal 2013
Full-price retail stores, outlets and warehouse sales
40
%
40
%
E-commerce, including full-price and flash clearance sales
15
%
13
%
Restaurant
7
%
7
%
Wholesale
38
%
40
%
Total
100
%
100
%
 
Tommy Bahama:
 
The Tommy Bahama net sales increase of 7.3% was primarily driven by (1) an incremental net sales increase of $21.8 million associated with the operation of additional retail stores, including the Canadian retail stores acquired in the Second Quarter of Fiscal 2013, (2) a $9.9 million, or 4%, increase in comparable store sales, which includes full-price retail stores and full-price e-commerce sales, to $288.6 million in Fiscal 2014 from $278.7 million in Fiscal 2013, (3) a $6.4 million increase in wholesale sales reflecting higher levels of off-price wholesale sales in Fiscal 2014 and the inclusion of the wholesale sales of Tommy Bahama Canada for the full year in Fiscal 2014, (4) $4.6 million of additional e-commerce flash clearance sales resulting in $8.1 million for the fiscal year, and (5) a $3.4 million increase in restaurant sales primarily resulting from higher sales in existing restaurants. These increases in net sales were partially offset by a $3.3 million decrease in net sales in outlet stores which were operated during all of Fiscal 2013 and Fiscal 2014.

As of January 31, 2015, we operated 157 Tommy Bahama stores globally, consisting of 101 full-price retail stores, 15 restaurant-retail locations and 41 outlet stores. As of February 1, 2014, we operated 141 Tommy Bahama stores consisting of 91 full-price retail stores, 14 restaurant-retail locations and 36 outlet stores. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:
 
Fiscal 2014
Fiscal 2013
Full-price retail stores and outlets
50
%
51
%
E-commerce, including full-price and flash clearance sales
14
%
13
%
Restaurant
10
%
10
%
Wholesale
26
%
26
%
Total
100
%
100
%

Lilly Pulitzer:
 
The Lilly Pulitzer net sales increase of 21.6% reflects an increase in each channel of distribution including (1) an $11.1 million, or 19%, increase in comparable store sales, to $70.1 million in Fiscal 2014 compared to $59.0 million in Fiscal 2013, (2) an incremental net sales increase of $8.9 million associated with retail stores opened in Fiscal 2013 or Fiscal 2014,

45



(3) an increase in e-commerce flash clearance sales of $5.2 million to $16.7 million and (4) a $4.5 million increase in wholesale sales. As of January 31, 2015, we operated 28 Lilly Pulitzer retail stores compared to 23 retail stores as of February 1, 2014. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:
 
Fiscal 2014
Fiscal 2013
Full-price retail stores and warehouse sales
34
%
32
%
E-commerce, including full-price and e-commerce flash clearance sales
28
%
25
%
Wholesale
38
%
43
%
Total
100
%
100
%

Lanier Apparel:
 
Lanier Apparel net sales decreased 0.8% reflecting a decrease in the Oxford Golf business sales of $4.4 million due to a reduction in private label sales and Fiscal 2013 including a significant initial shipment of Oxford Golf branded product that did not anniversary in Fiscal 2014, which was partially offset by a $3.5 million increase in net sales in the private label business of our tailored clothing operations. The increase in the private label business of our tailored clothing operations was driven by an increase in the pants program for a warehouse club customer, which began in the Fourth Quarter of Fiscal 2013 and more than offset decreases in other private label Lanier Clothes programs. The decreases in the other private label business of our tailored clothing operations and of our Oxford Golf programs was primarily due to lower volume and the exit from some seasonal and replenishment programs.

Corporate and Other:
 
Corporate and Other net sales primarily consist of the net sales of our Lyons, Georgia distribution center as well as the impact of the elimination of intercompany sales between our operating groups, which exceeded net sales of our Lyons, Georgia distribution center in both Fiscal 2014 and Fiscal 2013. The decrease in Corporate and Other sales was primarily due to a larger unfavorable impact of the elimination of intercompany sales in Fiscal 2014.
 
Gross Profit
 
The table below presents gross profit by operating group and in total for Fiscal 2014 and Fiscal 2013 as well as the change between those two periods. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Tommy Bahama
$
377,415

$
358,930

$
18,485

5.2
 %
Lilly Pulitzer
106,317

84,845

21,472

25.3
 %
Lanier Apparel
34,159

36,396

(2,237
)
(6.1
)%
Corporate and Other
58

1,309

(1,251
)
NM

Total gross profit
$
517,949

$
481,480

$
36,469

7.6
 %
LIFO charge (credit) included in Corporate and Other
$
2,131

$
(27
)
 
 
Inventory step-up charge included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$

$
707

 
 
 
The increase in consolidated gross profit was primarily due to the higher net sales as discussed above. In addition to the impact of higher net sales, gross profit on a consolidated basis and for each operating group was impacted by changes in sales mix and gross margin within each operating group, as discussed below. The table below presents gross margin by operating group and in total for Fiscal 2014 and Fiscal 2013.

46



 
Fiscal 2014
Fiscal 2013
Tommy Bahama
60.1
%
61.4
%
Lilly Pulitzer
63.4
%
61.5
%
Lanier Apparel
27.0
%
28.6
%
Corporate and Other
NM

NM

Consolidated gross margin
56.3
%
56.7
%
 
On a consolidated basis, gross margin decreased primarily as a result of lower gross margin in Tommy Bahama and Lanier Apparel as well as the $2.1 million net unfavorable impact of LIFO accounting in Fiscal 2014 as compared to Fiscal 2013. These unfavorable items were partially offset by (1) improved gross margins in Lilly Pulitzer, (2) the favorable impact of a greater proportion of net sales being from our direct to consumer channels of distribution and (3) Fiscal 2013 including a $0.7 million inventory step-up charge associated with the Tommy Bahama Canada acquisition with no inventory step-up charge in Fiscal 2014.

Tommy Bahama:

The lower gross margin at Tommy Bahama primarily reflected a change in sales mix with outlet stores, e-commerce flash clearance sales and off-price wholesale sales representing a greater proportion of Tommy Bahama's net sales and lower gross margins in our outlet store, e-commerce flash clearance and wholesale sales. The lower gross margins in our outlet stores resulted from more in-outlet store discounts in order to move excess spring inventory and drive traffic. The decrease in wholesale gross margins primarily resulted from more significant discounts on certain wholesale sales as well as a larger amount of off-price wholesale sales. Fiscal 2013 included a $0.7 million inventory step-up charge associated with the Tommy Bahama Canada acquisition.

Lilly Pulitzer:

The higher gross margin in Lilly Pulitzer was primarily driven by (1) a change in sales mix toward the direct to consumer channel of distribution, which typically has higher gross margins than the wholesale channel of distribution, and (2) higher gross margins in both the direct to consumer and wholesale channels of distribution. The higher gross margins in the direct to consumer business reflects less promotional activity. These favorable items were partially offset by the gross margin impact of the increase in e-commerce flash clearance sales in Fiscal 2014.
 
Lanier Apparel:

The lower gross margin for Lanier Apparel was primarily due to a change in sales mix with private label programs representing a greater proportion of net sales of Lanier Apparel. Private label programs, including a warehouse club pants program, generally have lower gross margins than branded product programs.

Corporate and Other:

The gross profit in Corporate and Other in each period primarily reflects (1) the gross profit of our Lyons, Georgia distribution center operations, (2) the impact of LIFO accounting adjustments and (3) the impact of certain consolidating adjustments, including the elimination of intercompany sales between our operating groups. The lower gross profit for Corporate and Other was primarily due to the impact of the $2.1 million net unfavorable impact of LIFO accounting in Fiscal 2014 as compared to Fiscal 2013, partially offset by a more significant favorable impact from certain consolidating adjustments.
 
SG&A
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
SG&A
$
439,069

$
399,104

$
39,965

10.0
%
SG&A (as a % of net sales)
47.7
%
47.0
%
 

 

Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,764

$
1,377

 
 
Change in fair value of contingent consideration included in Lilly Pulitzer
$
275

$
275

 
 

47



 
The increase in SG&A was primarily due to (1) higher costs to support the growing Tommy Bahama and Lilly Pulitzer businesses, including increased employment expense, infrastructure costs and advertising expense, (2) $13.7 million of incremental costs associated with additional Tommy Bahama retail stores and restaurants and Lilly Pulitzer stores, (3) $7.5 million of increased incentive compensation, reflecting increases in Lilly Pulitzer, Corporate and Other and Tommy Bahama and (4) $2.4 million of additional equity-based compensation primarily resulting from equity awards granted in Fiscal 2014. SG&A included $2.3 million of amortization of intangible assets in Fiscal 2014 compared to $2.0 million in Fiscal 2013, with the increase primarily due to the Tommy Bahama Canada acquisition in the Second Quarter of Fiscal 2013.

Royalties and other operating income
 
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Royalties and other operating income
$
13,939

$
13,936

$
3

%
Gain on sale of real estate included in Corporate and Other
$

$
1,611

 
 
 
Royalties and other operating income primarily reflects income received from third parties from the licensing of our Tommy Bahama and Lilly Pulitzer brands. The comparable royalties and other operating income reflects higher royalty income for both Tommy Bahama and Lilly Pulitzer in Fiscal 2014, which offsets the impact of Fiscal 2013 including a $1.6 million gain on sale of real estate with no such gain in Fiscal 2014.

Operating income (loss)
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Tommy Bahama
$
71,132

$
72,207

$
(1,075
)
(1.5
)%
Lilly Pulitzer
32,190

25,951

6,239

24.0
 %
Lanier Apparel
10,043

11,904

(1,861
)
(15.6
)%
Corporate and Other
(20,546
)
(13,750
)
(6,796
)
(49.4
)%
Total operating income
$
92,819

$
96,312

$
(3,493
)
(3.6
)%
LIFO charge (credit) included in Corporate and Other
$
2,131

$
(27
)
 

 

Inventory step-up charge included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$

$
707

 
 
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,764

$
1,377

 

 

Change in fair value of contingent consideration included in Lilly Pulitzer
$
275

$
275

 
 
Gain on sale of real estate included in Corporate and Other
$

$
1,611

 
 

Operating income, on a consolidated basis, was $92.8 million in Fiscal 2014 compared to $96.3 million in Fiscal 2013. The 3.6% decrease in operating income was primarily due to the lower operating results in Corporate and Other, Lanier Apparel and Tommy Bahama partially offset by improved operating results in Lilly Pulitzer. Changes in operating income by operating group are discussed below.
 
Tommy Bahama:
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Net sales
$
627,498

$
584,941

$
42,557

7.3
 %
Gross margin
60.1
%
61.4
%
 

 

Operating income
$
71,132

$
72,207

$
(1,075
)
(1.5
)%
Operating income as % of net sales
11.3
%
12.3
%
 

 

Inventory step-up charge included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$

$
707

 
 
Amortization of intangible assets included in Tommy Bahama associated with Tommy Bahama Canada acquisition
$
1,764

$
1,377

 
 
 

48



The decrease in operating income for Tommy Bahama was primarily due to a lower gross margin and higher SG&A partially offset by the impact of higher net sales and higher royalty income. The higher SG&A reflects (1) $9.4 million of incremental SG&A associated with the cost of operating additional retail stores and restaurants, including set-up costs associated with new stores and restaurants, (2) higher costs to support the growing Tommy Bahama business, including infrastructure, employment and advertising costs, (3) $2.3 million of higher incentive compensation, including equity-based compensation, and (4) $0.4 million of additional amortization of intangible assets associated with Tommy Bahama Canada, which were partially offset by Fiscal 2013 including a $0.7 million inventory step-up charge associated with the Tommy Bahama Canada acquisition. Fiscal 2014 included an operating loss of $10.3 million related to our Tommy Bahama Asia-Pacific expansion compared to an operating loss of $11.9 million in Fiscal 2013.
 
Lilly Pulitzer:
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Net sales
$
167,736

$
137,943

$
29,793

21.6
%
Gross margin
63.4
%
61.5
%
 

 

Operating income
$
32,190

$
25,951

$
6,239

24.0
%
Operating income as % of net sales
19.2
%
18.8
%
 

 

Change in fair value of contingent consideration included in Lilly Pulitzer
$
275

$
275

 

 


The increase in operating income in Lilly Pulitzer was primarily due to the favorable impact of higher net sales, higher gross margin and higher royalty and other income. These items were partially offset by increased SG&A. The increased SG&A was primarily associated with (1) $5.5 million of higher incentive compensation, including equity-based compensation, (2) higher SG&A to support the growing business, reflecting employment and infrastructure costs as well as higher advertising expense, and (3) $4.2 million of incremental SG&A associated with the cost of operating additional retail stores.

Lanier Apparel:
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Net sales
$
126,430

$
127,421

$
(991
)
(0.8
)%
Gross margin
27.0
%
28.6
%
 

 

Operating income
$
10,043

$
11,904

$
(1,861
)
(15.6
)%
Operating income as % of net sales
7.9
%
9.3
%
 

 

 
The lower operating income reflects the net impact of lower gross margin and lower sales.
 
Corporate and Other:
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Net sales
$
(1,339
)
$
(426
)
$
(913
)
(214.3
)%
Operating loss
$
(20,546
)
$
(13,750
)
$
(6,796
)
(49.4
)%
LIFO charge (credit) included in Corporate and Other
$
2,131

$
(27
)
 
 
Gain on sale of real estate included in Corporate and Other
$

$
1,611

 

 

 
The lower operating results in Corporate and Other were primarily due to (1) $2.4 million of higher incentive compensation expense, (2) a $2.1 million net unfavorable impact of LIFO accounting in Fiscal 2014 as compared to Fiscal 2013, (3) Fiscal 2013 including a gain on sale of real estate of $1.6 million, and (4) Fiscal 2013 benefiting from certain favorable changes in accruals.
 
Interest expense, net
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Interest expense, net
$
3,236

$
3,940

$
(704
)
(17.9
)%
 

49



Interest expense decreased primarily due to lower borrowing rates and lower average debt outstanding in Fiscal 2014. During Fiscal 2014, substantially all of our borrowings were under our U.S. Revolving Credit Agreement.

Income taxes
 
Fiscal 2014
Fiscal 2013
$ Change
% Change
Income taxes
$
35,786

$
36,944

$
(1,158
)
(3.1
)%
Effective tax rate
39.9
%
40.0
%
 

 


Income tax expense decreased primarily due to lower earnings. The high effective tax rates for both periods, as compared to a typical statutory tax rate, reflect the unfavorable impact of foreign losses for which we were not able to recognize an income tax benefit.

Net earnings
 
Fiscal 2014
Fiscal 2013
Net earnings from continuing operations
$
53,797

$
55,428

Net earnings from continuing operations per diluted share
$
3.27

$
3.36

Weighted average shares outstanding - diluted
16,471

16,482

 
The primary reasons for the lower net earnings from continuing operations in Fiscal 2014 were (1) a larger operating loss in Corporate and Other, (2) lower operating income in Lanier Apparel and (3) lower operating income in Tommy Bahama. These unfavorable items were partially offset by (1) higher operating income in Lilly Pulitzer, (2) lower income taxes and (3) lower interest expense.

Discontinued operations
 
The net loss from discontinued operations, net of taxes was $8.0 million in Fiscal 2014 compared to a net loss from discontinued operations, net of taxes of $10.1 million in Fiscal 2013. The lower net loss from discontinued operations was primarily due to increased net sales partially offset by lower gross margin and lower royalty income.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our Tommy Bahama and Lilly Pulitzer lifestyle brands, as well as certain licensed and private label products. 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 U.S. 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 January 30, 2016, we had $6.3 million of cash and cash equivalents on hand, with $44.0 million of borrowings outstanding and $185.9 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

50



($ in thousands)
January 30, 2016
January 31, 2015
$ Change
% Change
Total Current Assets
$
216,796

$
258,545

$
(41,749
)
(16.1
)%
Total Current Liabilities
128,899

159,942

(31,043
)
(19.4
)%
Working capital
$
87,897

$
98,603

$
(10,706
)
(10.9
)%
Working capital ratio
1.68

1.62

 

 

Debt to total capital ratio
12
%
27
%
 

 


Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets decreased from January 31, 2015 to January 30, 2016 primarily due to the disposal of the discontinued operations during the Second Quarter of Fiscal 2015. The January 31, 2015 balance sheet included $48.1 million of current assets related to discontinued operations with no current assets related to discontinued operations as of January 30, 2016. This decrease was partially offset by increased inventories related to continuing operations to support our growing businesses. Current liabilities decreased primarily due to (1) the $12.5 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 $17.4 million to $2.4 million. 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 $44.0 million at January 30, 2016 and $104.8 million at January 31, 2015, while shareholders’ equity was $334.4 million at January 30, 2016 and $290.6 million at January 31, 2015. The decrease in debt primarily resulted from the $59.3 million of proceeds related to the disposal of Ben Sherman and positive cash flows from operations which, in the aggregate, exceeded the cash paid for capital expenditures, dividends and contingent consideration. Shareholders' equity increased from January 31, 2015, primarily as a result of net earnings less dividends paid and the change in accumulated other comprehensive loss. 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) and calculations of changes in the information included in our consolidated balance sheets. Below each table are explanations for any significant changes in the balances at January 30, 2016 compared to January 31, 2015.
Current Assets:
 
January 30, 2016
January 31, 2015
$ Change
% Change
Cash and cash equivalents
$
6,323

$