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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 May 4, 2019 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)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

TLRD

New York Stock Exchange

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒. No ☐.

 

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

 

Large accelerated filer  ☒

Accelerated filer  ☐

Non-accelerated filer  ☐

Smaller reporting company  ☐

Emerging growth 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 31, 2019 was 50,519,133.

 

 

 

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 May 4, 2019, May 5, 2018 and February 2, 2019 

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three Months Ended May 4, 2019 and May 5, 2018 

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended May 4, 2019 and May 5, 2018 

 

4

 

 

 

Condensed Consolidated Statements of Shareholders’ (Deficit) Equity for the Three Months Ended May 4, 2019 and May 5, 2018 

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 4, 2019 and May 5, 2018 

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements 

 

7

 

 

 

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

 

35

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk 

 

44

 

 

 

Item 4 — Controls and Procedures 

 

45

 

 

 

PART II — Other Information 

 

45

 

 

 

Item 1 — Legal Proceedings 

 

45

 

 

 

Item 6 — Exhibits 

 

45

 

 

 

SIGNATURES 

 

47

 

 

 

 

 

Table of Contents

Forward-Looking Statements

 

Certain statements made in this Quarterly Report on Form 10‑Q or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward‑looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition.  Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements.  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, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for clothing or rental product, economic conditions, 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 are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.

Any forward‑looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward‑looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions 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 formulating or executing our internal strategies and operating plans including new store and new market expansion plans; cost reduction initiatives and revenue enhancement strategies; changes in demand for clothing or rental product; market trends in the retail or rental business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies, including the enactment of duties or tariffs; the impact of the United Kingdom’s proposed exit from the European Union; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and the impact of climate change.

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, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

 

1

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PART I — FINANCIAL INFORMATION

 

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

May 4,

    

May 5,

    

February 2,

 

 

 

2019

 

2018

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,749

 

$

93,166

 

$

55,431

 

Accounts receivable, net

 

 

80,623

 

 

87,411

 

 

73,073

 

Inventories

 

 

874,412

 

 

843,671

 

 

830,426

 

Other current assets

 

 

49,904

 

 

69,937

 

 

70,712

 

Total current assets

 

 

1,034,688

 

 

1,094,185

 

 

1,029,642

 

PROPERTY AND EQUIPMENT, net

 

 

428,380

 

 

437,944

 

 

439,172

 

OPERATING LEASE RIGHT-OF-USE ASSETS

 

 

955,970

 

 

 —

 

 

 —

 

RENTAL PRODUCT, net

 

 

103,895

 

 

128,744

 

 

99,770

 

GOODWILL

 

 

78,964

 

 

104,802

 

 

79,491

 

INTANGIBLE ASSETS, net

 

 

156,614

 

 

167,320

 

 

163,901

 

OTHER ASSETS

 

 

6,942

 

 

12,827

 

 

8,514

 

TOTAL ASSETS

 

$

2,765,453

 

$

1,945,822

 

$

1,820,490

 

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

218,492

 

$

192,878

 

$

228,979

 

Accrued expenses and other current liabilities

 

 

316,821

 

 

350,414

 

 

282,029

 

Current portion of operating lease liabilities

 

 

183,011

 

 

 —

 

 

 —

 

Income taxes payable

 

 

15,923

 

 

1,740

 

 

15,968

 

Current portion of long-term debt

 

 

9,000

 

 

9,000

 

 

11,619

 

Total current liabilities

 

 

743,247

 

 

554,032

 

 

538,595

 

LONG-TERM DEBT, net

 

 

1,151,196

 

 

1,277,508

 

 

1,153,242

 

OPERATING LEASE LIABILITIES

 

 

804,895

 

 

 —

 

 

 —

 

DEFERRED TAXES, net AND OTHER LIABILITIES

 

 

70,161

 

 

151,503

 

 

125,022

 

Total liabilities

 

 

2,769,499

 

 

1,983,043

 

 

1,816,859

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' (DEFICIT) EQUITY:

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

 

 —

 

Common stock

 

 

504

 

 

496

 

 

501

 

Capital in excess of par

 

 

507,039

 

 

494,849

 

 

505,157

 

Accumulated deficit

 

 

(470,411)

 

 

(510,441)

 

 

(468,048)

 

Accumulated other comprehensive loss

 

 

(41,178)

 

 

(22,125)

 

 

(33,979)

 

Total shareholders' (deficit) equity

 

 

(4,046)

 

 

(37,221)

 

 

3,631

 

TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

$

2,765,453

 

$

1,945,822

 

$

1,820,490

 

 

See Notes to Condensed Consolidated Financial Statements.

2

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

 

 

    

May 4, 2019

    

May 5, 2018

 

Net sales:

 

 

    

    

 

    

 

Retail clothing product

 

$

594,779

 

$

613,644

 

Rental services

 

 

93,740

 

 

100,227

 

Alteration and other services

 

 

36,143

 

 

40,972

 

Total retail sales

 

 

724,662

 

 

754,843

 

Corporate apparel clothing product

 

 

56,725

 

 

63,121

 

Total net sales

 

 

781,387

 

 

817,964

 

Cost of sales:

 

 

 

 

 

 

 

Retail clothing product

 

 

268,644

 

 

276,220

 

Rental services

 

 

13,017

 

 

14,657

 

Alteration and other services

 

 

33,847

 

 

34,178

 

Occupancy costs

 

 

103,732

 

 

101,019

 

Total retail cost of sales

 

 

419,240

 

 

426,074

 

Corporate apparel clothing product

 

 

41,591

 

 

46,666

 

Total cost of sales

 

 

460,831

 

 

472,740

 

Gross margin:

 

 

 

 

 

 

 

Retail clothing product

 

 

326,135

 

 

337,424

 

Rental services

 

 

80,723

 

 

85,570

 

Alteration and other services

 

 

2,296

 

 

6,794

 

Occupancy costs

 

 

(103,732)

 

 

(101,019)

 

Total retail gross margin

 

 

305,422

 

 

328,769

 

Corporate apparel clothing product

 

 

15,134

 

 

16,455

 

Total gross margin

 

 

320,556

 

 

345,224

 

Advertising expense

 

 

45,043

 

 

41,233

 

Selling, general and administrative expenses

 

 

245,211

 

 

251,094

 

Operating income

 

 

30,302

 

 

52,897

 

Interest income

 

 

96

 

 

85

 

Interest expense

 

 

(18,663)

 

 

(21,981)

 

Loss on extinguishment of debt, net

 

 

 —

 

 

(12,711)

 

Earnings before income taxes

 

 

11,735

 

 

18,290

 

Provision for income taxes

 

 

4,593

 

 

4,381

 

Net earnings

 

$

7,142

 

$

13,909

 

Net earnings per common share:

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.28

 

Diluted

 

$

0.14

 

$

0.27

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

50,280

 

 

49,458

 

Diluted

 

 

50,587

 

 

50,720

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

May 4,

    

May 5,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net earnings

 

$

7,142

 

$

13,909

 

Currency translation adjustments

 

 

(1,585)

 

 

(14,143)

 

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

 

 

(5,614)

 

 

2,800

 

Comprehensive (loss) income

 

$

(57)

 

$

2,566

 

 

See Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

 

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Capital

 

 

 

Other

 

Total

 

 

 

Common

 

in Excess

 

Accumulated

 

Comprehensive

 

Equity

 

 

 

Stock

 

of Par

 

Deficit

 

Loss

 

(Deficit)

 

BALANCES —February 2, 2019

 

$

501

 

$

505,157

 

$

(468,048)

 

$

(33,979)

 

$

3,631

 

Net earnings

 

 

 —

 

 

 —

 

 

7,142

 

 

 —

 

 

7,142

 

Other comprehensive loss

 

 

 —

 

 

 —

 

 

 —

 

 

(7,199)

 

 

(7,199)

 

Cumulative adjustment upon ASC 842 adoption (see Note 12)

 

 

 —

 

 

 —

 

 

(402)

 

 

 —

 

 

(402)

 

Cash dividends —  $0.18 per share

 

 

 —

 

 

 —

 

 

(9,103)

 

 

 —

 

 

(9,103)

 

Share-based compensation

 

 

 —

 

 

2,398

 

 

 —

 

 

 —

 

 

2,398

 

Common stock issued  — 306,505 shares

 

 

 3

 

 

424

 

 

 —

 

 

 —

 

 

427

 

Tax payments related to vested deferred stock units

 

 

 —

 

 

(940)

 

 

 —

 

 

 —

 

 

(940)

 

BALANCES — May 4, 2019

 

$

504

 

$

507,039

 

$

(470,411)

 

$

(41,178)

 

$

(4,046)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Capital

 

 

 

Other

 

Total

 

 

 

Common

 

in Excess

 

Accumulated

 

Comprehensive

 

Equity

 

 

 

Stock

 

of Par

 

Deficit

 

Loss

 

(Deficit)

 

BALANCES —February 3, 2018

 

$

492

 

$

491,648

 

$

(479,166)

 

$

(10,782)

 

$

2,192

 

Net earnings

 

 

 —

 

 

 —

 

 

13,909

 

 

 —

 

 

13,909

 

Other comprehensive loss

 

 

 —

 

 

 —

 

 

 —

 

 

(11,343)

 

 

(11,343)

 

Cumulative adjustment upon ASC 606 adoption (see Note 5)

 

 

 —

 

 

 —

 

 

(35,824)

 

 

 —

 

 

(35,824)

 

Cash dividends —  $0.18 per share

 

 

 —

 

 

 —

 

 

(9,360)

 

 

 —

 

 

(9,360)

 

Share-based compensation

 

 

 —

 

 

4,581

 

 

 —

 

 

 —

 

 

4,581

 

Common stock issued  — 445,932 shares

 

 

 4

 

 

3,645

 

 

 —

 

 

 —

 

 

3,649

 

Tax payments related to vested deferred stock units

 

 

 —

 

 

(5,025)

 

 

 —

 

 

 —

 

 

(5,025)

 

BALANCES — May 5, 2018

 

$

496

 

$

494,849

 

$

(510,441)

 

$

(22,125)

 

$

(37,221)

 

 

 

 

 

 

 

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

May 4, 2019

    

May 5, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net earnings

 

$

7,142

 

$

13,909

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,695

 

 

26,679

 

Operating lease right-of-use asset amortization

 

 

49,969

 

 

 —

 

Rental product amortization

 

 

8,348

 

 

8,756

 

Loss on extinguishment of debt, net

 

 

 —

 

 

12,711

 

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

 

 

486

 

 

1,333

 

Loss on disposition of assets

 

 

 —

 

 

3,618

 

Asset impairment charges

 

 

184

 

 

269

 

Share-based compensation

 

 

2,398

 

 

4,581

 

Deferred tax benefit

 

 

1,599

 

 

748

 

Other

 

 

85

 

 

73

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,504)

 

 

(10,871)

 

Inventories

 

 

(44,900)

 

 

(11,886)

 

Rental product

 

 

(12,831)

 

 

(14,377)

 

Other assets

 

 

(269)

 

 

8,124

 

Accounts payable, accrued expenses and other current liabilities

 

 

30,872

 

 

82,755

 

Income taxes payable

 

 

(28)

 

 

(4,301)

 

Other liabilities

 

 

(50,452)

 

 

(1,893)

 

Net cash provided by operating activities

 

 

11,794

 

 

120,228

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(21,691)

 

 

(10,980)

 

Proceeds from divestiture of business

 

 

 —

 

 

17,732

 

Net cash (used in) provided by investing activities

 

 

(21,691)

 

 

6,752

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Payments on original term loan

 

 

 —

 

 

(993,420)

 

Proceeds from new term loan

 

 

 —

 

 

895,500

 

Payments on new term loan

 

 

(4,870)

 

 

(2,250)

 

Proceeds from asset-based revolving credit facility

 

 

399,500

 

 

1,500

 

Payments on asset-based revolving credit facility

 

 

(399,500)

 

 

(1,500)

 

Repurchase and retirement of senior notes

 

 

 —

 

 

(18,240)

 

Deferred financing costs

 

 

 —

 

 

(5,576)

 

Cash dividends paid

 

 

(9,590)

 

 

(9,618)

 

Proceeds from issuance of common stock

 

 

427

 

 

3,649

 

Tax payments related to vested deferred stock units

 

 

(940)

 

 

(5,025)

 

Net cash used in financing activities

 

 

(14,973)

 

 

(134,980)

 

Effect of exchange rate changes

 

 

(812)

 

 

(2,441)

 

DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(25,682)

 

 

(10,441)

 

Balance at beginning of period

 

 

55,431

 

 

103,607

 

Balance at end of period

 

$

29,749

 

$

93,166

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

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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.

 

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 February 2, 2019.

 

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 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 Not Yet Adopted — We have considered all new accounting pronouncements not yet adopted 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 August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption of ASU 2018-15 is permitted.  We are currently evaluating the impact ASU 2018-15 may have on our financial position, results of operations or cash flows.

2.  Divestiture of MW Cleaners

 

On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018.  During the first quarter of 2018, we received cash proceeds of $17.7 million and recorded a loss on the divestiture totaling $3.6 million, which is included within selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings, and relates to our retail segment.  For fiscal 2018, the total loss on divestiture of MW Cleaners was $3.8 million.

We determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows. Accordingly, we have not presented the sale as a discontinued operation in the condensed consolidated financial statements.

 

 

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Earnings Per Share    

 

Basic earnings per common share is computed by dividing net earnings by the weighted-average common shares outstanding during the period.  Diluted earnings per common share is calculated using the treasury stock method.  Basic and diluted earnings per common share are computed using the actual net earnings 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 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 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

May 4,

 

May 5,

 

 

    

2019

    

2018

 

Numerator

 

 

 

 

 

 

 

Net earnings

 

$

7,142

 

$

13,909

 

Denominator

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

50,280

 

 

49,458

 

Dilutive effect of share-based awards

 

 

307

 

 

1,262

 

Diluted weighted-average common shares outstanding

 

 

50,587

 

 

50,720

 

Net earnings per common share:

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.28

 

Diluted

 

$

0.14

 

$

0.27

 

 

For the three months ended May 4, 2019 and May 5, 2018, 2.0 million and 0.4 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

4.  Debt

 

In 2014, The Men's Wearhouse entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the "Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original 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 Original Term Loan were reduced by an $11.0 million original issue discount ("OID"), which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the Original 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").

 

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022.  In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and in October 2018, amended its term loan to reduce the interest rate margin.  See Credit Facilities section below for additional information. 

 

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.  Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of May 4, 2019, our total leverage ratio and secured leverage ratio are below the thresholds specified in the agreements, which results in the elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Credit Facilities

 

In April 2018, we refinanced our Original Term Loan.  Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum.  Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.

 

As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”).  Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0. 

 

The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018.  Proceeds from the New Term Loan were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the New Term Loan.  The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

 

The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%).  In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points.  As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated.  In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method.  The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.

 

The interest rate on the New Term Loan is based on 1-month LIBOR, which was 2.47% at May 4, 2019, plus the applicable margin of 3.25%, resulting in a total interest rate of 5.72%.  We have two interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate, including an interest rate swap entered into during June 2018.  At May 4, 2019, the total notional amount under these interest rate swaps is $710.0 million.  Please see Note 15 for additional information on our interest rate swaps.

 

As a result of our interest rate swaps, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of May 4, 2019, the New Term Loan had a weighted average interest rate of 5.77%.

 

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, 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 New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest 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 1.75%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%.  As of May 4, 2019, $48.5 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 5.3%. During the three months ended May 4, 2019, the maximum borrowing outstanding under the ABL Facility was $100.0 million.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At May 4, 2019, letters of credit totaling approximately $38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of May 4, 2019 were $424.9 million.

 

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, The Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors. 

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 on January 1 and July 1 of each year.

 

We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes.  Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.

During fiscal 2018, we completed a partial redemption of $175.0 million in face value of our Senior Notes.  The Senior Notes were redeemed at a redemption price equal to $1,035 per $1,000 principal amount, plus accrued and unpaid interest.

 

Long-Term Debt

 

During the first quarter of 2019, in accordance with the provisions of the New Term Loan, we made a mandatory excess cash flow payment of $2.6 million to the Term Loan lenders.

 

In connection with the April 2018 refinancing of the New Term Loan, we recorded a loss on extinguishment of debt totaling $11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.  In addition, during the first quarter of 2018, we repurchased and retired $17.6 million in face value of Senior Notes through open market repurchases.  As a result, we recorded a net loss on extinguishment totaling $0.9 million, consisting of a $0.6 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling $0.3 million related to the Senior Notes.

 

The following table provides details on our long-term debt as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 4,

 

May 5,

 

February 2,

 

 

    

2019

    

2018

    

2019

 

Term Loan (net of unamortized OID of $0.0 million at May 4, 2019, $4.5 million at May 5, 2018, and $0.0 million at February 2, 2019)

 

$

886,130

 

$

893,299

 

$

891,000

 

Senior Notes

 

 

228,607

 

 

403,607

 

 

228,607

 

ABL Facility

 

 

48,500

 

 

 —

 

 

48,500

 

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

 

 

(3,041)

 

 

(10,398)

 

 

(3,246)

 

Total long-term debt, net

 

 

1,160,196

 

 

1,286,508

 

 

1,164,861

 

Current portion of long-term debt

 

 

(9,000)

 

 

(9,000)

 

 

(11,619)

 

Total long-term debt, net of current portion

 

$

1,151,196

 

$

1,277,508

 

$

1,153,242

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

5.  Revenue Recognition

 

Adoption of ASC 606

 

Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach.  We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings.  The adoption had no impact to our previously reported results of operations or cash flows. 

 

The following table depicts the cumulative effect of the changes made to our February 3, 2018 balance sheet for the adoption of ASC 606 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported

 

 

 

Adjusted

 

 

 

Balance at

 

Impact of

 

Balance at

 

 

 

February 3,

 

Adoption of

 

February 3,

 

 

    

2018

    

ASC 606

    

2018

 

Assets:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

79,783

 

$

(303)

 

$

79,480

 

Inventories

 

 

851,931

 

 

(17,837)

 

 

834,094

 

Other current assets

 

 

78,252

 

 

2,753

 

 

81,005

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

 

285,537

 

 

32,378

 

 

317,915

 

Deferred taxes, net and other liabilities

 

 

164,191

 

 

(11,941)

 

 

152,250

 

Equity:

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(479,166)

 

 

(35,824)

 

 

(514,990)

 

 

The adoption of ASC 606 primarily impacted the timing of revenue recognition related to our customer loyalty program, gift cards and e-commerce sales within our retail segment, as discussed in more detail below.  In addition, for our corporate apparel segment, certain deferred revenue balances along with related inventory amounts were eliminated as part of the cumulative adjustment to opening retained earnings.  Also, for estimated sales returns, we recognize allowances for estimated sales returns on a gross basis rather than a net basis on the condensed consolidated balance sheets.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Revenues

 

The following table depicts the disaggregation of revenue by major source (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

    

May 4, 2019

    

May 5, 2018

 

Net sales:

 

 

    

 

 

    

 

Men's tailored clothing product

 

$

342,955

 

$

355,737

 

Men's non-tailored clothing product

 

 

228,982

 

 

235,606

 

Women's clothing product

 

 

19,214

 

 

19,582

 

Other (1)

 

 

3,628

 

 

2,719

 

Total retail clothing product

 

 

594,779

 

 

613,644

 

Rental services

 

 

93,740

 

 

100,227

 

Alteration services

 

 

36,143

 

 

38,421

 

Retail dry cleaning services (2)

 

 

 —

 

 

2,551

 

Total alteration and other services

 

 

36,143

 

 

40,972

 

Total retail sales

 

 

724,662

 

 

754,843

 

Corporate apparel clothing product

 

 

56,725

 

 

63,121

 

Total net sales

 

$

781,387

 

$

817,964

 


(1)

Other consists of franchise and licensing revenues and gift card breakage.  Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period.

(2)

On March 3, 2018, we completed the divestiture of our MW Cleaners business.  Please see Note 2 for additional information.

 

Please see Note 16 for additional information regarding our reporting segments.

 

Retail Segment

For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and an accrual for estimated sales returns.  For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt by the customer.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.   

 

Loyalty Program

 

We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and, historically, did not expire.  During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019.  Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance.  We believe our loyalty programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer.  Therefore, we record our obligation for future point redemptions using a deferred revenue model. 

 

When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.

 

We account for points earned and certificates issued that will not be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

 

Our estimate of the expected usage of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty programs. 

 

Gift Card Breakage

 

Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed.  Our gift cards do not have expiration dates.  In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns. 

 

Sales Returns

 

Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was $6.4 million at May 4, 2019, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers.  We also have a corresponding asset included in other current assets that represents the right to recover products from customers associated with sales returns of $3.3 million at May 4, 2019. 

 

Corporate Apparel Segment

 

For our corporate apparel segment, we sell corporate clothing and uniforms to workforces under a contract or by purchase order.  We transfer control and recognize revenue at a point in time, generally upon delivery of the product to the customer.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.  Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Contract Liabilities

 

The following table summarizes the opening and closing balances of our contract liabilities (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Increase

 

Balance at

 

 

    

February 2, 2019

    

(Decrease)

    

May 4, 2019

 

Contract liabilities

 

$

122,828

 

$

43,074

 

$

165,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Increase

 

Balance at

 

 

    

February 3, 2018

    

(Decrease)

    

May 5, 2018

 

 

 

As Adjusted

 

 

 

 

 

 

 

Contract liabilities

 

$

141,552

 

$

46,791

 

$

188,343

 

 

Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable.  These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards.  These amounts are included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our condensed consolidated balance sheet.  Please see Note 9 for additional information on our accrued expenses and other current liabilities.

 

The amount of revenue recognized for the three months ended May 4, 2019 and May 5, 2018 that was included in the respective opening contract liability balance was $52.2 million and $41.7 million, respectively.  This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions.

 

 

6.  Supplemental Cash Flows

 

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

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

 

May 4,

 

May 5,

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

13,763

 

$

13,380

 

Cash paid for income taxes, net

 

$

6,455

 

$

2,128

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $5.9 million and $4.7 million at May 4, 2019 and May 5, 2018, 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.   Please see Note 12 for other cash flow disclosures related to leases.

 

7.  Inventories

 

The following table provides details on our inventories as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 4,

 

May 5,

 

February 2,

 

 

    

2019

    

2018

    

2019

 

Finished goods

 

$

745,607

 

$

749,746

 

$

682,610

 

Raw materials and merchandise components

 

 

128,805

 

 

93,925

 

 

147,816

 

Total inventories

 

$

874,412

 

$

843,671

 

$

830,426

 

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Income Taxes

 

Our effective income tax rate increased to 39.1% for the first quarter of 2019 from 24.0% for the first quarter of 2018 primarily due to an increase in the discrete tax expense related to the net excess shortfalls from share-based awards vesting in the first quarter of 2019.

 

Additionally, we are currently undergoing several tax 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 

 

The following table provides details on our other current assets as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 4,

 

May 5,

 

February 2,

 

 

    

2019

    

2018

    

2019

 

Prepaid expenses

 

$

33,850

 

$

44,438

 

$

56,361

 

Tax receivable

 

 

5,090

 

 

12,814

 

 

584

 

Other

 

 

10,964