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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended April 29, 2017 or

 

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

 

For the transition period from                   to                  

 

Commission file number 1-16097

 

TAILORED BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

47-4908760

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

6380 Rogerdale Road

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer  ☒

 

Accelerated filer  ☐

 

 

 

Non-accelerated filer  ☐

(Do not check if a smaller reporting company)

Smaller reporting company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 27,  2017 was 49,048,248.

 

 

 


 

Table of Contents

REPORT INDEX

 

 

 

 

Part and Item No.

 

Page No.

 

 

 

 

 

 

PART I — Financial Information

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of April 29, 2017,  April 30, 2016 and January 28, 2017

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three Months Ended April 29, 2017 and April 30, 2016 

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended April 29, 2017 and April 30, 2016 

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 29, 2017 and April 30, 2016 

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements 

 

6

 

 

 

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

 

26

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk 

 

34

 

 

 

Item 4 — Controls and Procedures 

 

34

 

 

 

PART II — Other Information 

 

 

 

 

 

Item 1 — Legal Proceedings 

 

35

 

 

 

Item 6 — Exhibits 

 

35

 

 

 

SIGNATURES 

 

36

 

 

 

 

 

 


 

Table of Contents

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  Forward-looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, margins, costs, earnings, number and costs of store openings, closings, remodels, relocations and expansions, capital expenditures, potential acquisitions, synergies from acquisitions, demand for clothing or rental product, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends.  Forward-looking statements may be made by management orally or in writing, including, but not limited to; in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended.

 

Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in executing our internal strategies and operating plans including new store and new market expansion plans, cost reduction initiatives, store rationalization plans, profit improvement plans, revenue enhancement strategies; the impact of the termination of our tuxedo rental license agreement with Macy’s; changes in demand for clothing or rental product; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies; advertising or marketing activities of competitors; and legal proceedings.

 

Forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies and third party approvals, many of which are beyond our control.  Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K for the year ended January 28, 2017, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. Forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made.  We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, unless required to do so by law.

 

All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.

 

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Table of Contents

PART I – FINANCIAL INFORMATION

 

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

April 29,

    

April 30,

    

January 28,

 

 

 

2017

 

2016

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,580

 

$

36,429

 

$

70,889

 

Accounts receivable, net

 

 

84,016

 

 

83,333

 

 

65,714

 

Inventories

 

 

984,221

 

 

1,076,733

 

 

955,512

 

Other current assets

 

 

69,288

 

 

77,903

 

 

73,602

 

Total current assets

 

 

1,204,105

 

 

1,274,398

 

 

1,165,717

 

PROPERTY AND EQUIPMENT, net

 

 

467,661

 

 

521,144

 

 

484,165

 

RENTAL PRODUCT, net

 

 

147,495

 

 

174,240

 

 

152,610

 

GOODWILL

 

 

117,585

 

 

121,498

 

 

117,026

 

INTANGIBLE ASSETS, net

 

 

170,966

 

 

177,826

 

 

171,659

 

OTHER ASSETS

 

 

6,423

 

 

7,715

 

 

6,695

 

TOTAL ASSETS

 

$

2,114,235

 

$

2,276,821

 

$

2,097,872

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

171,886

 

$

203,248

 

$

177,380

 

Accrued expenses and other current liabilities

 

 

303,602

 

 

311,044

 

 

267,899

 

Income taxes payable

 

 

2,861

 

 

 —

 

 

1,262

 

Current portion of long-term debt

 

 

13,379

 

 

42,451

 

 

13,379

 

Total current liabilities

 

 

491,728

 

 

556,743

 

 

459,920

 

LONG-TERM DEBT, net

 

 

1,574,486

 

 

1,613,192

 

 

1,582,150

 

DEFERRED TAXES, net AND OTHER LIABILITIES

 

 

161,600

 

 

197,116

 

 

163,420

 

Total liabilities

 

 

2,227,814

 

 

2,367,051

 

 

2,205,490

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' DEFICIT:

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

 

 —

 

Common stock

 

 

490

 

 

486

 

 

487

 

Capital in excess of par

 

 

474,369

 

 

456,107

 

 

470,801

 

Accumulated deficit

 

 

(546,230)

 

 

(535,006)

 

 

(538,823)

 

Accumulated other comprehensive loss

 

 

(42,208)

 

 

(11,817)

 

 

(40,083)

 

Total shareholders' deficit

 

 

(113,579)

 

 

(90,230)

 

 

(107,618)

 

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

$

2,114,235

 

$

2,276,821

 

$

2,097,872

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

April 29, 2017

    

April 30, 2016

 

Net sales:

 

 

    

    

 

    

 

Retail clothing product

 

$

583,585

 

$

615,668

 

Rental services

 

 

94,820

 

 

99,831

 

Alteration and other services

 

 

46,900

 

 

50,743

 

Total retail sales

 

 

725,305

 

 

766,242

 

Corporate apparel clothing product

 

 

57,601

 

 

62,580

 

Total net sales

 

 

782,906

 

 

828,822

 

Cost of sales:

 

 

 

 

 

 

 

Retail clothing product

 

 

252,879

 

 

270,355

 

Rental services

 

 

16,168

 

 

15,884

 

Alteration and other services

 

 

34,472

 

 

36,150

 

Occupancy costs

 

 

105,089

 

 

110,135

 

Total retail cost of sales

 

 

408,608

 

 

432,524

 

Corporate apparel clothing product

 

 

41,858

 

 

44,457

 

Total cost of sales

 

 

450,466

 

 

476,981

 

Gross margin:

 

 

 

 

 

 

 

Retail clothing product

 

 

330,706

 

 

345,313

 

Rental services

 

 

78,652

 

 

83,947

 

Alteration and other services

 

 

12,428

 

 

14,593

 

Occupancy costs

 

 

(105,089)

 

 

(110,135)

 

Total retail gross margin

 

 

316,697

 

 

333,718

 

Corporate apparel clothing product

 

 

15,743

 

 

18,123

 

Total gross margin

 

 

332,440

 

 

351,841

 

Advertising expense

 

 

42,252

 

 

47,928

 

Selling, general and administrative expenses

 

 

259,186

 

 

272,918

 

Operating income

 

 

31,002

 

 

30,995

 

Interest income

 

 

67

 

 

13

 

Interest expense

 

 

(25,621)

 

 

(26,502)

 

Gain on extinguishment of debt, net

 

 

715

 

 

 —

 

Earnings before income taxes

 

 

6,163

 

 

4,506

 

Provision for income taxes

 

 

4,324

 

 

2,869

 

Net earnings

 

$

1,839

 

$

1,637

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.03

 

Diluted

 

$

0.04

 

$

0.03

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

48,808

 

 

48,446

 

Diluted

 

 

49,151

 

 

48,621

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

April 29,

    

April 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,839

 

$

1,637

 

Currency translation adjustments

 

 

1,341

 

 

16,429

 

Unrealized (loss) gain on cash flow hedges, net of tax

 

 

(3,466)

 

 

240

 

Comprehensive (loss) income

 

$

(286)

 

$

18,306

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

April 29,

 

April 30,

 

 

    

2017

    

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net earnings

 

$

1,839

 

$

1,637

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,426

 

 

30,306

 

Rental product amortization

 

 

7,878

 

 

8,304

 

Gain on extinguishment of debt, net

 

 

(715)

 

 

 —

 

Amortization of deferred financing costs and discount on long-term debt

 

 

1,849

 

 

1,916

 

Loss on disposition of assets

 

 

1,437

 

 

 9

 

Asset impairment charges

 

 

2,867

 

 

1,162

 

Share-based compensation

 

 

4,735

 

 

4,118

 

Deferred tax (benefit) expense

 

 

(269)

 

 

3,539

 

Deferred rent expense and other

 

 

210

 

 

296

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(17,432)

 

 

(18,955)

 

Inventories

 

 

(27,831)

 

 

(44,916)

 

Rental product

 

 

(4,833)

 

 

(23,129)

 

Other assets

 

 

3,888

 

 

65,973

 

Accounts payable, accrued expenses and other current liabilities

 

 

32,943

 

 

17,246

 

Income taxes payable

 

 

1,529

 

 

 —

 

Other liabilities

 

 

(1,170)

 

 

(1,071)

 

Net cash provided by operating activities

 

 

33,351

 

 

46,435

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(17,786)

 

 

(30,325)

 

Acquisition of business, net of cash

 

 

(457)

 

 

 —

 

Proceeds from sales of property and equipment

 

 

12

 

 

501

 

Net cash used in investing activities

 

 

(18,231)

 

 

(29,824)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Payments on term loan

 

 

(1,750)

 

 

(1,750)

 

Proceeds from asset-based revolving credit facility

 

 

137,650

 

 

204,014

 

Payments on asset-based revolving credit facility

 

 

(137,650)

 

 

(204,014)

 

Repurchase and retirement of senior notes

 

 

(6,601)

 

 

 —

 

Cash dividends paid

 

 

(9,131)

 

 

(8,921)

 

Proceeds from issuance of common stock

 

 

467

 

 

434

 

Tax payments related to vested deferred stock units

 

 

(1,632)

 

 

(1,247)

 

Net cash used in financing activities

 

 

(18,647)

 

 

(11,484)

 

Effect of exchange rate changes

 

 

(782)

 

 

1,322

 

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(4,309)

 

 

6,449

 

Balance at beginning of period

 

 

70,889

 

 

29,980

 

Balance at end of period

 

$

66,580

 

$

36,429

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Significant Accounting Policies  

 

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

 

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

 

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

 

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

 

Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, or cash flows, based on current information, except for those listed below. 

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases.  ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption of ASU 2016-02 is permitted.  The guidance is required to be adopted using the modified retrospective approach.  We are currently evaluating the impact ASU 2016-02 will have on our financial position, results of operations and cash flows but expect that it will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities.  In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year.  As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016.  The guidance allows for either a full retrospective or a modified retrospective transition method.  We are continuing to evaluate our method of adoption and the impact this guidance, including recent amendments, interpretations and additional disclosure requirements, may have on our financial position, results of operations and cash flows.

 

 

 

 

 

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.  Termination of Tuxedo Rental License Agreement with Macy’s

 

During the first quarter of fiscal 2017, we reached an agreement with Macy’s to wind down operations under the tuxedo rental license agreement established between Macy’s and The Men’s Wearhouse, Inc. (“The Men’s Wearhouse”) in 2015. The winding down of our tuxedo shops within Macy’s has begun and we expect all tuxedo shops within Macy’s to close by the end of the second quarter of 2017. 

 

As a result of the agreement, we incurred $17.2 million of termination-related costs, of which $14.6 million are cash charges.  These costs include $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to our retail segment. Of the $17.2 million in termination-related costs,  $15.8 million is recorded in selling, general and administrative (“SG&A”) expenses and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings.  At April 29, 2017, $2.3 million of such costs are included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

 

3.  Restructuring and Other Charges

 

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

 

No charges were incurred under these initiatives in the first quarter of fiscal 2017.  A summary of the charges incurred in the first quarter of fiscal 2016 is presented in the table below (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

April 30, 2016

 

Consulting costs

 

$

4,952

 

Severance and employee-related costs

 

 

3,756

 

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

 

 

2,010

 

Lease termination costs

 

 

1,891

 

Other costs

 

 

552

 

Total pre-tax restructuring and other charges(1)

 

$

13,161

 

 

(1) Consists of $13.0 million in SG&A and $0.2 million included in cost of sales in the condensed consolidated statement of earnings. Of the total amount recorded in the table above, $5.7 million relates to our retail segment and $7.5 million relates to shared services.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and

 

Lease

 

 

 

 

 

 

 

 

 

 

 

 

Employee-

 

Termination

 

Consulting

 

Other

 

 

 

 

 

    

Related Costs

    

Costs

    

Costs

    

Costs

    

Total

 

Beginning Balance, January 28, 2017

 

$

986

 

$

4,834

 

$

60

 

$

25

 

$

5,905

 

Charges, excluding non-cash items

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Payments

 

 

(171)

 

 

(2,728)

 

 

(60)

 

 

 —

 

 

(2,959)

 

Ending Balance, April 29, 2017

 

$

815

 

$

2,106

 

$

 —

 

$

25

 

$

2,946

 

 

In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $3.6 million for the three months ended April 30, 2016 of which $3.1 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings. 

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

4.  Earnings Per Share    

 

Basic earnings per common share allocated to common shareholders is computed by dividing net earnings by the weighted-average common shares outstanding during the period.  Diluted earnings per common share reflect the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.  In the first quarter of 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used in the first quarter of 2016.

 

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

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

April 29,

 

April 30,

 

 

    

2017

    

2016

 

Numerator

 

 

 

 

 

 

 

Net earnings

 

$

1,839

 

$

1,637

 

Net earnings allocated to participating securities (restricted stock and deferred stock units)

 

 

 —

 

 

(2)

 

Net earnings allocated to common shareholders

 

$

1,839

 

$

1,635

 

Denominator

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

48,808

 

 

48,446

 

Dilutive effect of share-based awards

 

 

343

 

 

175

 

Diluted weighted-average common shares outstanding

 

 

49,151

 

 

48,621

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.03

 

Diluted

 

$

0.04

 

$

0.03

 

 

For the three months ended April 29, 2017 and April 30, 2016,  1.6 million and 1.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

5.  Debt    

 

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

 

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements and as of April 29, 2017, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness.  Currently, we believe our total leverage ratio and secured leverage ratio will move below the maximums specified in the

8


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

agreements during fiscal 2018, which will result in the elimination of these additional restrictions.  In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6 million to the Term Loan lenders prior to April 28, 2017.  On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.

 

Credit Facilities

 

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature in June 2021.  The interest rate on the Term Loan is based on 1-month LIBOR, which was approximately 1.00% at April 29, 2017.  The Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%.  In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate.  In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate.  At April 29, 2017, the total notional amount under our interest rate swaps is $550.0 million.  See Note 14 for additional information on our interest rate swaps.

 

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

 

As a result of our interest rate swaps and the Incremental Agreement, we have converted a significant portion of the variable interest rate under the Term Loan to a fixed rate and, as of April 29, 2017, the Term Loan had a weighted average interest rate of 5.10%.  

 

The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature that matures in June 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices:  (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%. As of April 29, 2017, there were no borrowings outstanding under the ABL Facility.  During the three months ended April 29, 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 million.

 

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At April 29, 2017, letters of credit totaling approximately $31.9 million were issued and outstanding. Borrowings available under the ABL Facility as of April 29, 2017 were $468.1 million.

 

Senior Notes

 

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

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Long-Term Debt

 

During the first quarter of 2017, we repurchased and retired $7.4 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.  As a result, we recorded a net gain on extinguishment totaling $0.7 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net gain on extinguishment reflects a $0.8 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.1 million related to the Senior Notes.  Subsequent to the end of the first quarter of 2017, we repurchased and retired an additional $17.5 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility and subsequently repaid. 

 

The following table provides details on our long-term debt as of April 29, 2017, April 30, 2016 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

April 29,

 

April 30,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Term Loan (net of unamortized OID of $3.9 million at April 29, 2017, $5.1 million at April 30, 2016, and $4.1 million at January 28, 2017

 

$

1,041,147

 

$

1,082,392

 

$

1,042,660

 

Senior Notes

 

 

567,570

 

 

600,000

 

 

575,000

 

Less: Deferred financing costs related to the Term Loan and Senior Notes

 

 

(20,852)

 

 

(26,749)

 

 

(22,131)

 

Total long-term debt, net

 

 

1,587,865

 

 

1,655,643

 

 

1,595,529

 

Current portion of long-term debt

 

 

(13,379)

 

 

(42,451)

 

 

(13,379)

 

Total long-term debt, net of current portion

 

$

1,574,486

 

$

1,613,192

 

$

1,582,150

 

 

 

6.  Supplemental Cash Flows 

 

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

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

April 29,

 

April 30,

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

16,389

 

$

13,676

 

Cash paid (refunded) for income taxes, net

 

$

1,483

 

$

(60,204)

 

 

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

Cash dividends declared

 

$

9,246

 

$

8,796

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $7.1 million and $9.9 million at April 29, 2017 and April 30, 2016, respectively.  Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.

 

7.  Inventories 

 

The following table provides details on our inventories as of April 29, 2017, April 30, 2016 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 29,

 

April 30,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Finished goods

 

$

915,065

 

$

1,018,401

 

$

846,585

 

Raw materials and merchandise components

 

 

69,156

 

 

58,332

 

 

108,927

 

Total inventories

 

$

984,221

 

$

1,076,733

 

$

955,512

 

 

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Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Income Taxes 

 

Our effective income tax rate increased to 70.2% for the first quarter of 2017 from 63.7% for the first quarter of 2016.  Our effective income tax rate for the first quarter of 2017 is higher than the United States (“U.S”) statutory rate as well as the effective income tax rate for the first quarter of 2016 primarily as a result of $2.2 million of tax deficiencies related to the vesting of stock-based awards recorded in the first quarter of 2017 resulting from the adoption of new accounting guidance related to stock-based compensation.  See Note 11 for additional information.

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 29,

 

April 30,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Prepaid expenses

 

$

44,584

 

$

46,245

 

$

47,057

 

Tax receivable

 

 

14,055

 

 

22,561

 

 

15,794

 

Other

 

 

10,649

 

 

9,097

 

 

10,751

 

Total other current assets

 

$

69,288

 

$

77,903

 

$

73,602

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

    

April 29,

    

April 30,

    

January 28,

 

 

 

2017

 

2016

 

2017

 

Customer deposits, prepayments and refunds payable

 

$

72,411

 

$

67,497

 

$

28,384

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

 

58,373

 

 

63,774

 

 

72,589

 

Unredeemed gift cards

 

 

37,434

 

 

37,712

 

 

40,865

 

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

 

 

36,878

 

 

40,917

 

 

31,188

 

Accrued workers compensation and medical costs

 

 

27,194

 

 

29,145

 

 

31,609

 

Accrued interest

 

 

22,871

 

 

27,134

 

 

15,457

 

Accrued dividends

 

 

9,957

 

 

9,025

 

 

9,842

 

Loyalty program reward certificates

 

 

8,720

 

 

10,076

 

 

9,840

 

Lease termination and other store closure costs

 

 

4,106

 

 

1,732

 

 

4,834

 

Accrued royalties

 

 

1,806

 

 

2,167

 

 

3,720

 

Other

 

 

23,852

 

 

21,865

 

 

19,571

 

Total accrued expenses and other current liabilities

 

$

303,602

 

$

311,044

 

$

267,899

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 29,

    

April 30,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Deferred and other income tax liabilities, net

 

$

90,772

 

$

116,115

 

$

92,079

 

Deferred rent and landlord incentives

 

 

60,542

 

 

66,192

 

 

61,215

 

Unfavorable lease liabilities

 

 

4,224

 

 

7,465

 

 

4,693

 

Other

 

 

6,062

 

 

7,344

 

 

5,433

 

Total deferred taxes, net and other liabilities

 

$

161,600

 

$

197,116

 

$

163,420

 

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10.  Accumulated Other Comprehensive (Loss) Income 

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 29, 2017 (in thousands and net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Cash Flow

 

Pension

 

 

 

 

 

    

Translation

    

Hedges

    

Plan

    

Total

 

BALANCE— January 28, 2017

 

 

(40,205)

 

 

(82)

 

 

204

 

 

(40,083)

 

Other comprehensive income (loss) before reclassifications

 

 

1,341

 

 

(3,926)

 

 

 —

 

 

(2,585)

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 —

 

 

460

 

 

 —

 

 

460

 

Net current-period other comprehensive income (loss)

 

 

1,341

 

 

(3,466)

 

 

 —

 

 

(2,125)

 

BALANCE— April 29, 2017

 

$

(38,864)

 

$

(3,548)

 

$

204

 

$

(42,208)

 

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 30, 2016 (in thousands and net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Cash Flow

 

Pension

 

 

 

 

 

     

Translation

    

Hedges

    

Plan

    

Total

 

BALANCE— January 30, 2016

 

$

(26,659)

 

$

(2,007)

 

$

180

 

$

(28,486)

 

Other comprehensive income (loss) before reclassifications

 

 

16,429

 

 

(125)

 

 

 

 

16,304

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 —

 

 

365

 

 

 

 

365

 

Net current-period other comprehensive income

 

 

16,429

 

 

240

 

 

 —

 

 

16,669

 

BALANCE— April 30, 2016

 

$

(10,230)

 

$

(1,767)

 

$

180

 

$

(11,817)

 

 

Amounts reclassified from other comprehensive (loss) income for the three months ended April 29, 2017 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of earnings and changes in the fair value of cash flow hedges related to inventory purchases, which is recorded within cost of sales in the condensed consolidated statement of earnings.  Amounts reclassified from other comprehensive (loss) income for the three months ended April 30, 2016 relate to changes in the fair value of our  interest rate swap, which is recorded within interest expense in the condensed consolidated statement of earnings.

 

11.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans, refer to Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

 

During the first quarter of fiscal 2017, we adopted ASU No. 2016-09, Compensation-Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The recognition of excess tax benefits and deficiencies related to the vesting of stock-based awards in the statement of earnings and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods.  See Note 8 for additional information.  In addition, upon adoption, we did not change our policy on accounting for forfeitures, which is to estimate the number of awards expected to be forfeited and adjusting the estimate as needed.  Overall, the adoption of ASU 2016-09 did not have a material impact on our financial statements. 

 

The amount of share-based compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period.  Share-based compensation expense recognized for the three months ended April 29, 2017 and April 30, 2016  was $4.7 million and $4.1 million, respectively.  

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

The following table summarizes the activity of time-based and performance-based (collectively, “DSUs”) awards for the three months ended April 29, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

Units

 

Grant-Date Fair Value

 

 

 

Time-

 

Performance-

 

Time-

 

Performance-

 

 

    

Based

    

Based

    

Based

    

Based

 

Non-Vested at January 28, 2017

 

1,061,965

 

523,948

 

$

24.31

 

$

28.28

 

Granted

 

 —

 

 —

 

 

 —

 

 

 —

 

Vested(1)

 

(350,291)

 

 —

 

 

29.40

 

 

 —

 

Forfeited

 

(11,596)

 

(737)

 

 

23.76

 

 

54.26

 

Non-Vested at April 29, 2017

 

700,078

 

523,211

 

$

21.77

 

$

28.24

 


(1)

Includes 121,993 shares relinquished for tax payments related to vested DSUs for the three months ended April 29, 2017.

 

The following table summarizes the activity of restricted stock for the three months ended April 29, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-
Average

 

 

    

Shares

    

Grant-Date
Fair Value

 

Non-Vested at January 28, 2017

 

36,878

 

$

15.56

 

Granted

 

 —

 

 

 —

 

Vested

 

(36,878)

 

 

15.56

 

Forfeited

 

 —

 

 

 —

 

Non-Vested at April 29, 2017

 

 —

 

$

 —

 

 

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

 

As of April 29, 2017, we have unrecognized compensation expense related to non-vested DSUs of approximately $18.5 million, which is expected to be recognized over a weighted-average period of 1.5 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the three months ended April 29, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

Number of

 

Average

 

 

    

Shares

    

Exercise Price

 

Outstanding at January 28, 2017

 

1,194,690

 

$

29.70

 

Granted

 

 —

 

 

 —

 

Exercised

 

 —

 

 

 —

 

Forfeited

 

(1,553)

 

 

52.27

 

Expired

 

(40,243)

 

 

41.23

 

Outstanding at April 29, 2017

 

1,152,894

 

$

29.27

 

Exercisable at April 29, 2017

 

716,137

 

$

33.34

 

 

As of April 29, 2017, we have unrecognized compensation expense related to non-vested stock options of approximately $2.7 million, which is expected to be recognized over a weighted-average period of 1.3 years.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the three months ended April 29, 2017 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

    

Retail

    

Apparel

    

Total

 

Balance at January 28, 2017

 

$

94,511

 

$

22,515

 

$

117,026

 

Goodwill of acquired business

 

 

 —

 

 

695

 

 

695

 

    Translation adjustment

 

 

(811)

 

 

675

 

 

(136)

 

Balance at April 29, 2017

 

$

93,700

 

$

23,885

 

$

117,585

 

 

The goodwill of acquired business resulted from an immaterial acquisition by our United Kingdom (“UK”) based operations. Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock. No impairment evaluation was considered necessary during the first three months ended April 29, 2017.

 

Intangible Assets 

 

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