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Table of Contents

not

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 November 2, 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 November 29, 2019 was 48,422,534.

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 November 2, 2019, November 3, 2018 and February 2, 2019

2

Condensed Consolidated Statements of (Loss) Earnings for the Three and Nine Months Ended November 2, 2019 and November 3, 2018

3

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended November 2, 2019 and November 3, 2018

4

Condensed Consolidated Statements of Shareholders’ (Deficit) Equity for the Three and Nine Months Ended November 2, 2019 and November 3, 2018

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 2, 2019 and November 3, 2018

6

Notes to Condensed Consolidated Financial Statements

7

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

39

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

53

Item 4 — Controls and Procedures

53

PART II — Other Information

54

Item 1 — Legal Proceedings

54

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

54

Item 6 — Exhibits

54

SIGNATURES

56

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 our retail clothing or rental products, economic conditions, market trends in the retail 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 to our capital allocation policy; changes in demand for our retail clothing or rental products; 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; 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

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)

    

November 2,

    

November 3,

    

February 2,

 

2019

2018

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

21,193

$

56,293

$

32,671

Accounts receivable, net

 

42,056

 

34,637

 

34,686

Inventories

 

778,342

 

772,206

 

724,086

Other current assets

 

60,778

 

66,063

 

66,823

Current assets - discontinued operations

165,358

171,376

Total current assets

 

902,369

 

1,094,557

 

1,029,642

PROPERTY AND EQUIPMENT, net

 

405,000

 

416,061

 

424,316

OPERATING LEASE RIGHT-OF-USE ASSETS

 

908,505

 

 

RENTAL PRODUCT, net

 

92,785

 

102,540

 

99,770

GOODWILL

 

79,392

 

79,475

 

79,491

INTANGIBLE ASSETS, net

 

146,890

 

154,144

 

153,711

OTHER ASSETS

 

5,450

 

17,232

 

8,489

NON-CURRENT ASSETS - DISCONTINUED OPERATIONS

25,531

25,071

TOTAL ASSETS

$

2,540,391

$

1,889,540

$

1,820,490

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES:

Accounts payable

$

210,165

$

218,114

$

204,775

Accrued expenses and other current liabilities

 

250,706

 

290,422

 

268,698

Current portion of operating lease liabilities

 

184,422

 

 

Income taxes payable

 

9,928

 

12,360

 

13,478

Current portion of long-term debt

 

9,000

 

9,000

 

11,619

Current liabilities - discontinued operations

33,661

40,025

Total current liabilities

 

664,221

 

563,557

 

538,595

LONG-TERM DEBT, net

 

1,111,732

 

1,167,906

 

1,153,242

OPERATING LEASE LIABILITIES

 

754,956

 

 

DEFERRED TAXES, net AND OTHER LIABILITIES

 

73,968

 

144,138

 

119,545

NON-CURRENT LIABILITIES - DISCONTINUED OPERATIONS

4,452

5,477

Total liabilities

 

2,604,877

 

1,880,053

 

1,816,859

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' (DEFICIT) EQUITY:

Preferred stock

 

 

 

Common stock

 

507

 

501

 

501

Capital in excess of par

 

513,106

 

501,835

 

505,157

Accumulated deficit

 

(534,979)

 

(464,993)

 

(468,048)

Accumulated other comprehensive loss

 

(33,120)

 

(27,856)

 

(33,979)

Treasury stock, at cost

(10,000)

Total shareholders' (deficit) equity

 

(64,486)

 

9,487

 

3,631

TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

$

2,540,391

$

1,889,540

$

1,820,490

See Notes to Condensed Consolidated Financial Statements.

2

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS

(In thousands, except per share data)

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

    

November 2, 2019

    

November 3, 2018

    

November 2, 2019

    

November 3, 2018

 

Net sales:

    

    

    

    

    

Retail clothing product

$

573,854

$

588,447

$

1,749,533

$

1,807,879

Rental services

 

120,021

 

124,697

 

334,090

 

350,019

Alteration and other services

 

35,606

 

38,597

 

106,665

 

116,600

Total net sales

 

729,481

 

751,741

 

2,190,288

 

2,274,498

Cost of sales:

Retail clothing product

 

266,481

 

254,385

 

794,970

 

790,565

Rental services

 

16,041

 

17,319

 

48,831

 

51,342

Alteration and other services

 

33,151

 

33,022

 

100,612

 

100,949

Occupancy costs

 

105,780

 

101,521

 

314,097

 

304,312

Total cost of sales

 

421,453

 

406,247

 

1,258,510

 

1,247,168

Gross margin:

Retail clothing product

 

307,373

 

334,062

 

954,563

 

1,017,314

Rental services

 

103,980

 

107,378

 

285,259

 

298,677

Alteration and other services

 

2,455

 

5,575

 

6,053

 

15,651

Occupancy costs

 

(105,780)

 

(101,521)

 

(314,097)

 

(304,312)

Total gross margin

 

308,028

 

345,494

 

931,778

 

1,027,330

Advertising expense

 

34,031

 

37,116

 

111,527

 

116,241

Selling, general and administrative expenses

 

228,453

 

233,100

 

687,414

 

698,833

Operating income

45,544

75,278

132,837

212,256

Interest income

 

147

 

207

 

400

 

414

Interest expense

 

(17,572)

 

(18,757)

 

(54,493)

 

(61,602)

Loss on extinguishment of debt, net

(77)

(9,420)

(77)

(30,253)

Earnings before income taxes

 

28,042

 

47,308

 

78,667

 

120,815

Provision for income taxes

 

254

 

12,521

 

14,743

 

26,018

Net earnings from continuing operations

 

27,788

 

34,787

 

63,924

 

94,797

Loss from discontinued operations, net of tax

 

(117,378)

 

(20,912)

 

(112,106)

 

(17,775)

Net (loss) earnings

$

(89,590)

$

13,875

$

(48,182)

$

77,022

Net earnings from continuing operations per common share:

Basic

$

0.56

$

0.70

$

1.27

$

1.90

Diluted

$

0.56

$

0.69

$

1.27

$

1.87

Net loss from discontinued operations per common share:

Basic

$

(2.36)

$

(0.42)

$

(2.23)

$

(0.36)

Diluted

$

(2.35)

$

(0.41)

$

(2.23)

$

(0.35)

Net (loss) earnings per common share:

Basic

$

(1.80)

$

0.28

$

(0.96)

$

1.55

Diluted

$

(1.80)

$

0.27

$

(0.96)

$

1.52

Weighted-average common shares outstanding:

Basic

 

49,803

 

50,000

 

50,210

 

49,766

Diluted

 

49,905

 

50,722

 

50,372

 

50,764

See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

For the Three Months Ended

 

For the Nine Months Ended

    

November 2,

    

November 3,

    

November 2,

    

November 3,

 

2019

2018

 

2019

2018

Net (loss) earnings

 

$

(89,590)

 

$

13,875

$

(48,182)

$

77,022

Currency translation adjustments

 

3,223

 

(4,056)

 

(5,691)

 

(26,023)

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

 

(2,656)

 

4,980

 

(20,335)

 

8,949

Release of cumulative foreign currency translation adjustment to loss from discontinued operations

26,885

26,885

Comprehensive (loss) income

 

$

(62,138)

 

$

14,799

$

(47,323)

$

59,948

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

Treasury

Total

 

Common

in Excess

Accumulated

Comprehensive

Stock, at

Equity

Stock

of Par

Deficit

Loss

Cost

(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 14)

(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)

Net earnings

 

34,266

 

34,266

Other comprehensive loss

 

(19,394)

 

(19,394)

Cash dividends — $0.18 per share

 

(9,247)

 

(9,247)

Share-based compensation

 

2,644

 

2,644

Common stock issued — 155,210 shares

 

2

450

 

452

Tax payments related to vested deferred stock units

 

(112)

 

(112)

BALANCES — August 3, 2019

$

506

$

510,021

$

(445,392)

$

(60,572)

$

$

4,563

Net loss

 

(89,590)

 

(89,590)

Other comprehensive income

 

567

 

567

True-up to cash dividends

3

3

Release of cumulative foreign currency translation adjustment to loss from discontinued operations

 

26,885

 

26,885

Share-based compensation

 

2,811

 

2,811

Common stock issued — 116,839 shares

 

1

340

 

341

Tax payments related to vested deferred stock units

 

(66)

 

(66)

Treasury stock repurchased — 2,336,852 shares

 

 

 

 

 

(10,000)

 

(10,000)

BALANCES — November 2, 2019

$

507

$

513,106

$

(534,979)

$

(33,120)

$

(10,000)

$

(64,486)

Accumulated

 

Capital

Other

Treasury

Total

 

Common

in Excess

Accumulated

Comprehensive

Stock, at

Equity

Stock

of Par

Deficit

Loss

Cost

(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 6)

(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)

Net earnings

 

49,238

 

49,238

Other comprehensive loss

 

(6,655)

 

(6,655)

Cash dividends — $0.18 per share

 

(9,174)

 

(9,174)

Share-based compensation

 

4,835

 

4,835

Common stock issued — 178,647 shares

 

2

462

 

464

Tax payments related to vested deferred stock units

 

(1,476)

 

(1,476)

BALANCES — August 4, 2018

$

498

$

498,670

$

(470,377)

$

(28,780)

$

$

11

Net earnings

 

13,875

 

13,875

Other comprehensive loss

 

924

 

924

Cash dividends — $0.18 per share

 

(8,491)

 

(8,491)

Share-based compensation

 

2,140

 

2,140

Common stock issued — 183,431 shares

 

3

2,034

 

2,037

Tax payments related to vested deferred stock units

 

(1,009)

 

(1,009)

BALANCES — November 3, 2018

$

501

$

501,835

$

(464,993)

$

(27,856)

$

$

9,487

5

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the Nine Months Ended

 

    

November 2, 2019

    

November 3, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) earnings

$

(48,182)

$

77,022

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Depreciation and amortization

 

79,394

 

78,088

Non-cash lease expense

 

147,602

 

Rental product amortization

 

29,739

 

30,720

Goodwill impairment charge

 

 

23,991

Loss on extinguishment of debt, net

77

30,253

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

1,431

2,936

Loss on divestiture of business

82,808

3,766

Loss on release of cumulative foreign currency translation adjustment

26,885

Loss on disposition of assets

 

1,942

 

4,833

Asset impairment charges

 

1,185

 

504

Share-based compensation

 

7,853

 

11,555

Deferred tax benefit

 

(1,540)

 

(2,956)

Other

 

67

 

395

Changes in operating assets and liabilities:

Accounts receivable

 

1,078

 

(5,661)

Inventories

 

(55,116)

 

(49,739)

Rental product

 

(25,798)

(14,665)

Other assets

 

(16,804)

 

10,560

Accounts payable, accrued expenses and other current liabilities

 

(13,076)

 

70,924

Income taxes payable

(5,239)

10,313

Other liabilities

 

(148,744)

 

(5,022)

Net cash provided by operating activities

 

65,562

 

277,817

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

 

(63,408)

 

(46,927)

Proceeds from divestiture of business, net

45,034

17,755

Net cash used in investing activities

 

(18,374)

 

(29,172)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on original term loan

(993,420)

Proceeds from new term loan