United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 30, 2010.
or
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o |
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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 0-23874
Jos. A. Bank Clothiers, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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36-3189198 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer |
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Identification No.) |
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500 Hanover Pike, Hampstead, MD
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21074-2095 |
(Address of principal executive offices)
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(Zip Code) |
410-239-2700
(Registrants telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class |
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Outstanding as of November 23, 2010 |
Common Stock, $.01 par value
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27,622,054 |
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
2
Cautionary Statement
This Quarterly Report on Form 10-Q includes and incorporates by reference certain
statements that may be deemed to be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for certain forward-looking statements so long as such
information is identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to differ materially
from those projected in the information. When used in this Quarterly Report on Form 10-Q, the
words estimate, project, plan, will, anticipate, expect, intend, outlook,
may, believe, assume, and other similar expressions are intended to identify
forward-looking statements and information.
Actual results may differ materially from those forecast due to a variety of factors
outside of the Companys control that can affect the Companys operating results, liquidity
and financial condition. Such factors include risks associated with economic, weather, public
health and other factors affecting consumer spending, including negative changes to consumer
confidence and other recessionary pressures, higher energy and security costs, the successful
implementation of the Companys growth strategy, including the ability of the Company to
finance its expansion plans, the mix and pricing of goods sold, the effectiveness and
profitability of new concepts, the market price of key raw materials such as wool and cotton,
seasonality, merchandise trends and changing consumer preferences, the effectiveness of the
Companys marketing programs, the availability of suitable lease sites for new stores, doing
business on an international basis, the ability to source product from its global supplier
base, legal matters and other competitive factors. The identified risk factors and other
factors and risks that may affect the Companys business or future financial results are
detailed in the Companys filings with the Securities and Exchange Commission, including, but
not limited to, those described under Risk Factors in the Companys Annual Report on Form
10-K for fiscal year 2009 and Managements Discussion and Analysis of Financial Condition and
Results of Operations in this Quarterly Report on Form 10-Q. These cautionary statements
qualify all of the forward-looking statements the Company makes herein. The Company cannot
assure you that the results or developments anticipated by the Company will be realized or,
even if substantially realized, that those results or developments will result in the expected
consequences for the Company or affect the Company, its business or its operations in the way
the Company expects. The Company cautions you not to place undue reliance on these
forward-looking statements, which speak only as of their respective dates. The Company does
not undertake an obligation to update or revise any forward-looking statements to reflect
actual results or changes in the Companys assumptions, estimates or projections.
3
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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October 31, |
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October 30, |
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October 31, |
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October 30, |
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2009 |
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2010 |
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2009 |
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2010 |
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Net sales |
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$ |
161,309 |
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$ |
173,268 |
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$ |
490,969 |
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$ |
539,805 |
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Cost of goods sold |
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60,502 |
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62,429 |
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188,531 |
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197,320 |
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Gross profit |
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100,807 |
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110,839 |
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302,438 |
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342,485 |
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Operating expenses: |
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Sales and marketing,
including occupancy costs |
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67,450 |
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73,961 |
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200,079 |
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218,228 |
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General and administrative |
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14,043 |
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16,421 |
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43,514 |
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50,332 |
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Total operating expenses |
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81,493 |
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90,382 |
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243,593 |
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268,560 |
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Operating income |
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19,314 |
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20,457 |
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58,845 |
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73,925 |
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Other income (expense): |
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Interest income |
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101 |
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148 |
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262 |
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422 |
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Interest expense |
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(93 |
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(33 |
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(301 |
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(128 |
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Total other income (expense) |
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8 |
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115 |
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(39 |
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294 |
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Income before provision for income taxes |
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19,322 |
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20,572 |
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58,806 |
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74,219 |
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Provision for income taxes |
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7,594 |
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8,009 |
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23,111 |
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29,369 |
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Net income |
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$ |
11,728 |
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$ |
12,563 |
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$ |
35,695 |
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$ |
44,850 |
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Per share information: |
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Earnings per share: |
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Basic |
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$ |
0.43 |
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$ |
0.46 |
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$ |
1.30 |
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$ |
1.63 |
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Diluted |
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$ |
0.42 |
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$ |
0.45 |
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$ |
1.29 |
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$ |
1.61 |
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Weighted average shares outstanding: |
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Basic |
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27,438 |
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27,534 |
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27,437 |
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27,529 |
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Diluted |
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27,798 |
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27,849 |
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27,778 |
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27,831 |
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See accompanying notes.
4
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
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January 30, 2010 |
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October 30, 2010 |
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(Audited) |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
21,853 |
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$ |
98,507 |
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Short-term investments |
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169,736 |
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79,746 |
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Accounts receivable, net |
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5,860 |
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11,950 |
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Inventories: |
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Finished goods |
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209,443 |
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258,328 |
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Raw materials |
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8,878 |
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10,373 |
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Total inventories |
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218,321 |
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268,701 |
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Prepaid expenses and other current assets |
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16,035 |
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27,949 |
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Total current assets |
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431,805 |
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486,853 |
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NONCURRENT ASSETS: |
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Property, plant and equipment, net |
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124,139 |
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133,742 |
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Other noncurrent assets |
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420 |
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533 |
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Total assets |
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$ |
556,364 |
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$ |
621,128 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
18,225 |
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$ |
44,991 |
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Accrued expenses |
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85,256 |
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76,726 |
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Deferred tax liability current |
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5,064 |
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4,595 |
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Total current liabilities |
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108,545 |
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126,312 |
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NONCURRENT LIABILITIES: |
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Deferred rent |
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51,853 |
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50,205 |
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Deferred tax liability noncurrent |
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1,608 |
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2,532 |
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Other noncurrent liabilities |
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1,048 |
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878 |
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Total liabilities |
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163,054 |
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179,927 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY: |
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Common stock |
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183 |
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275 |
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Additional paid-in capital |
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83,249 |
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86,289 |
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Retained earnings |
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309,823 |
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354,582 |
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Accumulated other comprehensive income |
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55 |
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55 |
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Total stockholders equity |
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393,310 |
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441,201 |
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Total liabilities and stockholders equity |
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$ |
556,364 |
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$ |
621,128 |
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See accompanying notes.
5
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
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Nine Months Ended |
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October 31, 2009 |
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October 30, 2010 |
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Cash flows from operating activities: |
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Net income |
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$ |
35,695 |
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$ |
44,850 |
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Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
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Depreciation and amortization |
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16,533 |
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18,107 |
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Loss on disposals of property, plant and equipment |
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120 |
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150 |
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Non-cash equity compensation |
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701 |
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Increase (decrease) in deferred taxes |
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(200 |
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455 |
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Net (increase) in operating working capital and other components |
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(57,730 |
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(59,194 |
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Net cash provided by (used in) operating
activities |
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(5,582 |
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5,069 |
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Cash flows from investing activities: |
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Capital expenditures |
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(10,595 |
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(20,696 |
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Net maturities (purchases) of short-term investments |
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(64,879 |
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89,990 |
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Net cash provided by (used in) investing
activities |
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(75,474 |
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69,294 |
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Cash flows from financing activities: |
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Income tax benefit from exercise of stock options |
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57 |
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1,300 |
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Net proceeds from exercise of stock options |
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38 |
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1,012 |
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Fractional share payments |
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(21 |
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Net cash provided by financing activities |
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95 |
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2,291 |
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Net increase (decrease) in cash and cash equivalents |
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(80,961 |
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76,654 |
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Cash and cash equivalents beginning of period |
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122,875 |
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21,853 |
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Cash and cash equivalents end of period |
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$ |
41,914 |
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$ |
98,507 |
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See accompanying notes.
6
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Jos. A. Bank Clothiers, Inc. (the Company) is a nationwide designer, manufacturer,
retailer and direct marketer (through stores, catalog and Internet) of mens tailored and
casual clothing and accessories and is a retailer of tuxedo rental products. The condensed
consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. In the opinion of
management, the information contained herein reflects all adjustments necessary to make the
results of operations for the interim periods a fair statement of the operating results for
these periods. These adjustments are of a normal recurring nature.
The Company operates on a 52-53 week fiscal year ending on the Saturday closest to
January 31. The following fiscal years ended or will end on the dates indicated and will be
referred to herein by their fiscal year designations:
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Fiscal year 2005
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January 28, 2006 |
Fiscal year 2006
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February 3, 2007 |
Fiscal year 2007
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February 2, 2008 |
Fiscal year 2008
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January 31, 2009 |
Fiscal year 2009
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January 30, 2010 |
Fiscal year 2010
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January 29, 2011 |
Each fiscal year noted above consists of 52 weeks except fiscal year 2006, which
consisted of 53 weeks.
The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America
(GAAP) for interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X and therefore do not include all of the information and footnotes
required by GAAP for comparable annual financial statements. Certain notes and other
information have been condensed or omitted from the interim financial statements presented in
this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in
conjunction with the Companys Annual Report on Form 10-K for fiscal year 2009.
2. |
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SIGNIFICANT ACCOUNTING POLICIES |
Cash and Cash Equivalents Cash and cash equivalents include bank deposit
accounts, money market accounts and other highly liquid investments with original maturities
of 90 days or less. At October 30, 2010, substantially all of the cash and cash equivalents
were invested in U.S. Treasury bills with original maturities of 90 days or less and overnight
federally-sponsored agency notes.
Short-term Investments Short-term investments consist of investments in
securities with maturities of less than one year, excluding investments with original
maturities of 90 days or less. At October 30, 2010, short-term investments consisted solely
of U.S. Treasury bills with remaining maturities ranging from three to seven months. These
investments are classified as held-to-maturity and their market values approximate their
carrying values.
Inventories The Company records inventory at the lower of cost or market
(LCM). Cost is determined using the first-in, first-out method. The Company capitalizes into
inventory certain warehousing and freight delivery costs associated with shipping its
merchandise to the point of sale. The Company periodically reviews quantities of inventories
on hand and compares these amounts to the expected sales of each product. The Company records
a charge to cost of goods sold for the amount required to reduce the carrying value of
inventory to net realizable value.
Vendor Rebates The Company receives credits from vendors in connection with
inventory purchases. The credits are separately negotiated with each vendor. Substantially
all of these credits are earned in one of two ways: a) as a fixed percentage of the purchase
price when an invoice is paid or b) as an agreed-upon amount in the month a new store is
opened. There are no contingent minimum purchase amounts, milestones or other contingencies
that are required to be met to earn the credits. The credits described in a) above are
recorded as a reduction to inventories in the
Consolidated Balance Sheets as the inventories are purchased and the credits described in
b) above are recorded as a reduction to inventories as new stores are opened. In both cases,
the credits are recognized as reductions to cost of goods sold as the related product is sold.
7
Landlord Contributions The Company typically receives reimbursement from
landlords for a portion of the cost of leasehold improvements for new stores and,
occasionally, for renovations and relocations. These landlord contributions are initially
accounted for as an increase to deferred rent and as an increase to prepaid expenses and other
current assets when the related store is opened. When collected, the Company records cash and
reduces the prepaid expenses and other current assets account. The collection of landlord
contributions is presented in the Condensed Consolidated Statements of Cash Flows as an
operating activity. The deferred rent is amortized over the lease term in a manner that is
consistent with the Companys policy to straight-line rent expense over the term of the lease.
The amortization is recorded as a reduction to sales and marketing expense which is consistent
with the classification of lease expense.
Gift Cards and Certificates The Company sells gift cards and gift certificates
to individuals and companies. The Companys incentive gift certificates are used by various
companies as a reward for achievement for their employees. The Company also redeems
proprietary gift cards and gift certificates marketed by third-party premium/incentive
companies. The Company records a liability when a gift card/certificate is purchased. As the
gift card/certificate is redeemed, the Company reduces the liability and records revenue.
Substantially all of the Companys gift cards/certificates do not have expiration dates and
they are all subject to state escheatment laws. Based on historical experience, gift
cards/certificates redemptions after the escheatment due date are remote and the Company
recognizes any income (also referred to as breakage) on these unredeemed gift
cards/certificates on a specific identification basis at that time.
Tuxedo Rental Products Revenues from tuxedo rental products are recognized on a
gross basis upon completion of the services to customers. When a customer orders a tuxedo
rental from the Company, an order is placed with a national distributor who delivers the
product to the Companys stores, typically within several days of intended use. The national
distributor owns the product.
Recently Issued Accounting Standards In June 2009, the Financial Accounting
Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for
financial statements issued for interim and annual periods ending after September 15, 2009. The
ASC is an aggregation of previously issued authoritative GAAP in one comprehensive set of
guidance organized by subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be
incorporated into the ASC through Accounting Standards Updates (ASU).
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(ASU 2009-13). ASU 2009-13 addresses revenue recognition of multiple-element sales
arrangements. It establishes a selling price hierarchy for determining the selling price of
each product or service, with vendor-specific objective evidence (VSOE) at the highest level,
third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest
level. It replaces fair value with selling price in revenue allocation guidance. It also
significantly expands the disclosure requirements for such arrangements. ASU 2009-13 is
effective prospectively for sales entered into or materially modified in fiscal years beginning
on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating
the impact ASU 2009-13 may have on its consolidated financial statements.
Recently Proposed Amendments to Accounting Standards In August 2010, the FASB
issued an exposure draft, Leases (the Exposure Draft), which would replace the existing
guidance in ASC 840, Leases. Under the Exposure Draft, a lessees rights and obligations
under all leases, including existing and new arrangements, would be recognized as assets and
liabilities, respectively, on the balance sheet. The comment period for the Exposure Draft ends
on December 15, 2010 and a final standard is expected to be issued in 2011. When and if the
proposed guidance becomes effective, it will likely have a significant impact on the Companys
consolidated financial statements. However, as the Exposure Draft is still in process, the
Company is unable to determine at this time the impact this proposed change in accounting may
have on its consolidated financial statements.
8
3. |
|
SUPPLEMENTAL CASH FLOW DISCLOSURE |
The net changes in operating working capital and other components consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
October 31, 2009 |
|
|
October 30, 2010 |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable |
|
$ |
(5,849 |
) |
|
$ |
(6,090 |
) |
(Increase) in inventories |
|
|
(42,612 |
) |
|
|
(50,380 |
) |
(Increase) in prepaids and other assets |
|
|
(46 |
) |
|
|
(11,978 |
) |
Increase in accounts payable |
|
|
3,921 |
|
|
|
26,766 |
|
(Decrease) in accrued expenses |
|
|
(11,800 |
) |
|
|
(15,694 |
) |
(Decrease) in deferred rent and other noncurrent liabilities |
|
|
(1,344 |
) |
|
|
(1,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) in operating working capital and other components |
|
$ |
(57,730 |
) |
|
$ |
(59,194 |
) |
|
|
|
|
|
|
|
Interest and income taxes paid were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
October 31, 2009 |
|
|
October 30, 2010 |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
226 |
|
|
$ |
100 |
|
Income taxes paid |
|
$ |
36,263 |
|
|
$ |
52,277 |
|
As of October 31, 2009 and October 30, 2010, included in Property, plant and equipment,
net and Accrued expenses in the Condensed Consolidated Balance Sheets are $3.2 million and
$7.8 million, respectively, of accrued property, plant and equipment additions that have been
incurred but not completely invoiced by vendors, and therefore, not paid by the respective
period-ends. The net changes in these amounts are excluded from payments for capital
expenditures and changes in accrued expenses in the Condensed Consolidated Statements of Cash
Flows.
Basic earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share is calculated
by dividing net income by the diluted weighted average common shares, which reflects the
potential dilution of common stock equivalents. The weighted average shares used to calculate
basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
October 31, |
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding for basic EPS |
|
|
27,438 |
|
|
|
27,534 |
|
|
|
27,437 |
|
|
|
27,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock
equivalents |
|
|
360 |
|
|
|
315 |
|
|
|
341 |
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding for diluted EPS |
|
|
27,798 |
|
|
|
27,849 |
|
|
|
27,778 |
|
|
|
27,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The Company uses the treasury stock method for calculating the dilutive effect of common
stock equivalents. For the nine months ended October 30, 2010 there were 63,600 restricted
stock units (representing whole units) that were anti-dilutive, which were excluded from the
calculation of diluted shares. For the quarter ended October 30, 2010 and the quarter and nine
months ended October 31, 2009, there were no anti-dilutive common stock equivalents.
On June 17, 2010, the Companys Board of Directors declared a stock split in the form of
a 50% stock dividend which was distributed on August 18, 2010 to stockholders of record as of
July 30, 2010. All share and per share amounts of common shares included in this Quarterly
Report on Form 10-Q have been adjusted to reflect this stock dividend.
Income taxes are accounted for under the asset and liability method in accordance with
FASB ASC 740, Income Taxes, (ASC 740), formerly SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the Consolidated Statements of Income in the period that includes the
enactment date.
The Company accounts for uncertainties in income taxes pursuant to ASC 740, formerly FASB
Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which clarifies
the accounting for uncertainty in income taxes recognized in the financial statements under
SFAS 109. The Company recognizes tax liabilities for uncertain income tax positions
(unrecognized tax benefits) pursuant to ASC 740 where an evaluation has indicated that it is
more likely than not that the tax positions will not be sustained in an audit. The Company
estimates the unrecognized tax benefits as the largest amount that is more than 50% likely to
be realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on
a quarterly basis or when new information becomes available to management. The reevaluations
are based on many factors, including but not limited to, changes in facts or circumstances,
changes in tax law, successfully settled issues under audit, expirations due to statutes of
limitations, and new federal or state audit activity. The Company also recognizes accrued
interest and penalties related to these unrecognized tax benefits which are included in the
provision for income taxes in the Condensed Consolidated Statements of Income.
The effective income tax rate for the third quarter of fiscal year 2010 was 38.9% as
compared with 39.3% for the third quarter of fiscal year 2009. For the first nine months of
fiscal year 2010, the effective tax rate was 39.6% as compared with 39.3% for the same period
of fiscal year 2009. The decrease for the third quarter of fiscal year 2010 was primarily
driven by reversals of unrecognized tax benefits due to expirations of statutes of
limitations, partially offset by higher state income taxes. The increase for the first nine
months of fiscal year 2010 was largely related to higher state income taxes. During the third
quarter of fiscal year 2010, the Company realigned its legal entity structure to more
appropriately reflect its operational organization. As a result, the Company anticipates that
it will incur lower state income tax liabilities beginning in fiscal year 2011 and thereafter,
assuming no significant changes to U.S. federal or state tax rules.
Significant changes to U.S. federal or state income tax rules could occur as part of
future legislation. Such changes could influence the Companys future income tax expense
and/or the timing of income tax deductions. The impact of such changes on the Companys
business operations and financial statements remains uncertain. However, as the possibility of
any enactment progresses, the Company will continue to monitor current developments and assess
the potential implications of these tax law changes on its business and consolidated financial
statements.
The Company files a federal income tax return and state and local income tax returns in
various jurisdictions. The Internal Revenue Service (IRS) has audited tax returns through
fiscal year 2008, including its examination of the tax returns for fiscal years 2007 and 2008
which was finalized in October 2010. No material adjustments were required to these tax
returns as a result of the examination by the IRS. For the years before fiscal year 2007, the
majority of the Companys state and local income tax returns are no longer subject to
examinations by taxing authorities.
10
The Company has two reportable segments: Stores and Direct Marketing. The Stores segment
includes all Company-owned stores excluding factory stores (Full-line Stores). The Direct
Marketing segment includes the Companys catalog call center and Internet operations. While
each segment offers a similar mix of mens clothing to the retail customer, the Stores segment
also provides complete alterations, while the Direct Marketing segment provides certain
limited alterations.
The accounting policies of the segments are the same as those described in the summary of
significant policies. The Company evaluates performance of the segments based on four wall
contribution, which excludes any allocation of overhead from the corporate office and the
distribution centers (except order fulfillment costs, which are allocated to Direct
Marketing), interest and income taxes.
The Companys segments are strategic business units that offer similar products to the
retail customer by two distinctively different methods. In the Stores segment, a typical
customer travels to the store and purchases mens clothing and/or alterations and takes the
purchases with him or her. The Direct Marketing customer receives a catalog in his or her home
and/or office and/or visits our Internet web sites and places an order by phone, mail, fax or
online. The merchandise is then shipped to the customer.
11
Segment data is presented in the following tables (In Thousands):
Three months ended October 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Stores |
|
|
Direct Marketing |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (a) |
|
$ |
154,881 |
|
|
$ |
14,494 |
|
|
$ |
3,893 |
|
|
$ |
173,268 |
|
Depreciation and amortization |
|
|
5,329 |
|
|
|
171 |
|
|
|
805 |
|
|
|
6,305 |
|
Operating income (loss) (b) |
|
|
31,571 |
|
|
|
5,570 |
|
|
|
(16,684 |
) |
|
|
20,457 |
|
Capital expenditures (c) |
|
|
5,533 |
|
|
|
254 |
|
|
|
2,438 |
|
|
|
8,225 |
|
Three months ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Stores |
|
|
Direct Marketing |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (a) |
|
$ |
145,759 |
|
|
$ |
12,618 |
|
|
$ |
2,932 |
|
|
$ |
161,309 |
|
Depreciation and amortization |
|
|
4,928 |
|
|
|
76 |
|
|
|
633 |
|
|
|
5,637 |
|
Operating income (loss) (b) |
|
|
29,075 |
|
|
|
5,262 |
|
|
|
(15,023 |
) |
|
|
19,314 |
|
Capital expenditures (c) |
|
|
2,504 |
|
|
|
449 |
|
|
|
229 |
|
|
|
3,182 |
|
Nine months ended October 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Stores |
|
|
Direct Marketing |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (a) |
|
$ |
484,477 |
|
|
$ |
45,468 |
|
|
$ |
9,860 |
|
|
$ |
539,805 |
|
Depreciation and amortization |
|
|
15,473 |
|
|
|
399 |
|
|
|
2,235 |
|
|
|
18,107 |
|
Operating income (loss) (b) |
|
|
109,656 |
|
|
|
18,051 |
|
|
|
(53,782 |
) |
|
|
73,925 |
|
Capital expenditures (c) |
|
|
12,873 |
|
|
|
1,173 |
|
|
|
6,650 |
|
|
|
20,696 |
|
Nine months ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
Stores |
|
|
Direct Marketing |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (a) |
|
$ |
440,570 |
|
|
$ |
41,961 |
|
|
$ |
8,438 |
|
|
$ |
490,969 |
|
Depreciation and amortization |
|
|
14,532 |
|
|
|
96 |
|
|
|
1,905 |
|
|
|
16,533 |
|
Operating income (loss) (b) |
|
|
87,431 |
|
|
|
17,284 |
|
|
|
(45,870 |
) |
|
|
58,845 |
|
Capital expenditures (c) |
|
|
8,404 |
|
|
|
1,295 |
|
|
|
896 |
|
|
|
10,595 |
|
|
|
|
(a) |
|
Stores net sales represent all Full-line Store sales. Direct Marketing net sales
represent catalog call center and Internet sales. Net sales from segments below the GAAP
quantitative thresholds are attributable primarily to three operating segments of the
Company. Those segments are factory stores, franchise stores and regional tailor shops.
None of these segments have ever met any of the quantitative thresholds for determining
reportable segments and are included in Corporate and Other. |
12
|
|
|
(b) |
|
Operating income (loss) for the Stores and Direct Marketing segments represents profit
before allocations of overhead from the corporate office and the distribution centers,
interest and income taxes (four wall contribution). Total Company shipping costs to
customers of approximately $2.2 million and $1.4 million for the third quarters of fiscal
years 2010 and 2009, respectively, and approximately $7.6 million and $5.1 million for the
first nine months of fiscal years 2010 and 2009, respectively, were recorded to Sales and
marketing, including occupancy costs in the Condensed Consolidated Statements of Income.
Operating income (loss) for Corporate and Other consists primarily of costs included in
general and administrative costs. Total operating income represents profit before interest
and income taxes. |
|
(c) |
|
Capital expenditures include payments for property, plant and equipment made for the
reportable segment. |
Massachusetts Laborers Annuity Fund (MLAF) was the lead plaintiff in a class action
filed in the United States District Court for the District of Maryland against the Company,
Robert N. Wildrick, R. Neal Black and David E. Ullman (Roy T. Lefkoe v. Jos. A. Bank
Clothiers, Inc., et al., Civil Action Number 1:06-cv-01892-WMN) (the Class Action). The
Class Action was initially instituted on July 24, 2006. On behalf of purchasers of the
Companys stock between December 5, 2005 and June 7, 2006 (the Class Period), the Class
Action purported to make claims under Sections 10(b) and 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, based on the Companys disclosures during the Class Period.
The Class Action sought unspecified damages, costs and attorneys fees.
In late October 2009, the Company and MLAF agreed to settle the Class Action for an
amount that was within the limits of the Companys insurance coverage. The settlement did not
have any impact on the Companys financial statements. The Stipulation of Settlement (the
Stipulation) entered into by the Company and MLAF included a statement that, at the time of
the settlement, the substantial discovery completed did not substantiate any of the claims
asserted against the individual defendants. By Order dated July 8, 2010 and filed on July 20,
2010, the court approved the settlement of the Class Action in accordance with the Stipulation
and dismissed the Class Action with prejudice.
On November 12, 2009, Casey J. Stewart, a former employee of the Company, on behalf of
himself and all others similarly situated, filed a Complaint against the Company in the United
States District Court for the Northern District of California (Case number CV 09 5348 PJH)
alleging racial discrimination by the Company with respect to hiring and terms and conditions
of employment. Pursuant to a Motion to Transfer Venue filed by the Company, the case was
transferred to the United States District Court for the Eastern District of California (Case
number 2:10-cv-00481-GEB-DAD). On October 21, 2010, the parties filed a Stipulated Dismissal
of Complaint requesting the court to dismiss the Complaint with prejudice, each party to bear
its own fees and costs. By Order dated October 21, 2010, the court dismissed the case with
prejudice.
The Company is also a party to routine litigation matters that are incidental to its
business. From time to time, other legal matters in which the Company may be named as a
defendant are expected to arise in the normal course of the Companys business activities. The
resolution of the Companys litigation matters cannot be accurately predicted and there is no
estimate of costs or potential losses, if any. Accordingly, the Company cannot determine
whether its insurance coverage would be sufficient to cover such costs or potential losses, if
any, and has not recorded any provision for cost or loss associated with these actions. It is
possible that the Companys consolidated financial statements could be materially impacted in
a particular fiscal quarter or year by an unfavorable outcome or settlement of any of these
actions.
13
8. |
|
INCENTIVE STOCK OPTION AND OTHER EQUITY PLANS: |
On March 30, 2010, the Board of Directors approved, subject to stockholder approval, the
Jos. A. Bank Clothiers, Inc. 2010 Equity Incentive Plan (the Equity Incentive Plan). The
Equity Incentive Plan was approved by stockholders at the Companys 2010 annual meeting of
stockholders on June 17, 2010.
The principal purposes of the Equity Incentive Plan are to promote the interests of the
Company and its stockholders by providing employees, directors and consultants with
appropriate incentives and rewards to encourage them to enter into and continue in the employ
or service of the Company or its subsidiaries, to acquire a proprietary interest in the
long-term success of the Company and to reward the performance of individuals in fulfilling
their personal responsibilities for long-range and annual achievements. In addition, the
Equity Incentive Plan is designed to permit the grant of performance-based awards in
compliance with the requirements of Section 162(m) of the Internal Revenue Code (Section
162(m)). The Equity Incentive Plan reserves 1.5 million shares of the Companys common stock
for issuance pursuant to awards to be granted under the Equity Incentive Plan.
Under the Equity Incentive Plan, the Company may grant stock options, stock appreciation
rights, restricted stock, restricted stock units and stock and cash-based awards. The Company
accounts for awards under this plan in accordance with FASB ASC 718, Share-Based Payment
(ASC 718), which requires the compensation cost resulting from all share-based awards to be
recognized in the financial statements. The amount of compensation is measured based on the
grant-date fair value of the awards and is recognized over the vesting period of the awards.
During the second quarter of fiscal year 2010, the Company granted 86,100 restricted
stock units (representing whole units) under the Equity Incentive Plan to certain of its officers
and to the members of the Board of Directors with an aggregate grant date fair value of
approximately $3.4 million. The grants to the officers are intended to qualify under Section
162(m). The vesting of awards to both the officers and directors is subject to service
conditions being met, ranging from one to three years. Additionally, the vesting of awards to
officers is subject to performance conditions being met such as, among other things, the
attainment of certain annual earnings and performance goals in fiscal year 2010. For these
officer awards (which represents approximately $2.5 million of the aggregate grant date fair
value), the Company estimates the probability that such goals will be attained based on
results-to-date at each interim quarter-end and records compensation cost for these awards
based on the awards projected to vest.
9. |
|
RELATED PARTY TRANSACTION: |
On November 30, 2010, those members of the Board of Directors who are independent
directors in accordance with the Nasdaq Stock Market Rules met in executive session and
approved an amendment to that certain consulting agreement entered into by the Company and
Robert N. Wildrick on September 9, 2008 (the Consulting Agreement). The First Amendment to
Consulting Agreement extends the term of the Consulting Agreement from January 31, 2012 to
January 26, 2014. All other terms of the Consulting Agreement, including the fee of $0.8
million per year, remain unchanged.
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with
the Companys audited financial statements and notes thereto included in its Annual Report on
Form 10-K for fiscal year 2009.
On June 17, 2010, the Companys Board of Directors declared a stock split in the form of
a 50% stock dividend which was distributed on August 18, 2010 to stockholders of record as of
July 30, 2010. All share and per share amounts of common shares included in this Quarterly
Report on Form 10-Q have been adjusted to reflect this stock dividend.
Overview For the third quarter of fiscal year 2010, the Companys net income
was $12.6 million, an increase of 7.1% as compared with $11.7 million for the third quarter of
fiscal year 2009. The Company earned $0.45 per diluted share in the third quarter of fiscal
year 2010, as compared with $0.42 per diluted share in the third quarter of fiscal year 2009.
As such, diluted earnings per share increased 7.1% as compared with the prior year period.
The results of the third quarter of fiscal year 2010, as compared to the third quarter of
fiscal year 2009, were primarily driven by:
7.4% increase in net sales, driven by a 6.3% increase in the Stores segment
sales and a 14.9% increase in the Direct Marketing segment sales;
3.0% increase in comparable store sales;
150 basis point increase in gross profit margins mainly as a result of higher
initial mark-ups driven primarily by improved sourcing;
90 basis point increase in sales and marketing costs as a percentage of sales
driven primarily by higher other variable selling, advertising and marketing and
occupancy costs as a percentage of sales; and
80 basis point increase in general and administrative costs as a percentage of
sales driven primarily by higher professional fees and higher other corporate overhead
costs.
As of the end of the third quarter of fiscal year 2010, the Company had 499 stores,
consisting of 474 Company-owned Full-line Stores, 11 Company-owned factory stores, including 4
new factory concept stores, and 14 stores owned and operated by franchisees. The Company
opened 29 stores and closed 3 stores in the first nine months of fiscal year 2010. In the
past five years, the Company has opened over 200 stores. Specifically, there were 56 new
stores opened in fiscal year 2005, 52 new stores opened in fiscal year 2006, 48 new stores
opened in fiscal year 2007, 40 new stores opened in fiscal year 2008 and 14 new stores opened
in fiscal year 2009. The lower number of store openings in fiscal year 2009 compared to
previous years was due primarily to the impact of the national economic crisis that occurred
during late 2008 and into 2009, which included but was not limited to slowed development of
malls and retail centers which restricted the Companys ability to find suitable locations for
new stores.
The Company expects to open approximately 35 to 37 stores in fiscal year 2010, including
the 29 stores opened in the first nine months of fiscal year 2010. This range includes five
stores which the Company has opened under its new Company-owned factory store concept, of
which four were opened during the first nine months of fiscal year 2010. The increase in store
openings over fiscal year 2009 is primarily the result of the emergence of quality real estate
opportunities in the marketplace and the Companys desire to return to its more normal store
expansion pace. In the future, the Company believes that it can grow the chain to
approximately 600 Full-line Stores and 50 to 75 factory stores in the United States, depending
on the performance of the Company over the next several years and the development of the
factory store concept, among other factors.
Capital expenditures in fiscal year 2010 are expected to be approximately $31 to $33
million, primarily to fund the opening of approximately 35 to 37 new stores, the renovation
and/or relocation of several stores, the expansion of the Companys distribution and office
space, expenditures related to new business initiatives including tuxedo rentals and factory
stores and the implementation of various systems projects. The capital expenditures include
the cost of the construction of leasehold improvements for new stores and the renovation or
relocation of several stores, of which approximately $4 to $5 million is expected to be
reimbursed through landlord contributions.
15
For fiscal year 2010, the Company expects inventories to increase over fiscal year 2009
as a result of new store openings, sales growth and new business initiatives such as factory
stores.
Critical Accounting Policies and Estimates In preparing the consolidated
financial statements, a number of assumptions and estimates are made that, in the judgment of
management, are proper in light of existing general economic and company-specific
circumstances. For a detailed discussion of the application of these and other accounting
policies, see Note 1 to the Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for fiscal year 2009.
Inventory. The Company records inventory at the lower of cost or market (LCM). Cost is
determined using the first-in, first-out method. The estimated market value is based on
assumptions for future demand and related pricing. The Company reduces the carrying value of
inventory to net realizable value where cost exceeds estimated selling price less costs of
disposal.
Managements sales assumptions regarding sales below cost are based on the Companys
experience that most of the Companys inventory is sold through the Companys primary sales
channels, with virtually no inventory being liquidated through bulk sales to third parties.
The Companys LCM reserve estimates for inventory that have been made in the past have been
very reliable as a significant portion of its sales (over two-thirds in fiscal year 2009) are
of classic traditional products that are part of on-going programs and that bear low risk of
declines in value below cost. These products include items such as navy and gray suits, navy
blazers, white and blue dress shirts, etc. To limit the need to sell significant amounts of
product below cost, all product categories are closely monitored in an attempt to identify and
correct situations in which aging goals have not been, or are reasonably likely to not be,
achieved. In addition, the Companys strong gross profit margins enable the Company to sell
substantially all of its products above cost.
To calculate the estimated market value of its inventory, the Company periodically
performs a detailed review of all of its major inventory classes and stock-keeping units and
performs an analytical evaluation of aged inventory on a quarterly basis. Semi-annually, the
Company compares the on-hand units and season-to-date unit sales (including actual selling
prices) to the sales trend and estimated prices required to sell the units in the future,
which enables the Company to estimate the amount which may have to be sold below cost.
Substantially all of the units sold below cost are sold in the Companys factory stores,
through the Companys Internet web site or on clearance at the Full-line Stores, typically
within 24 months of purchase. The Companys costs in excess of selling price for units sold
below cost totaled $1.4 million and $1.2 million in fiscal year 2008 and fiscal year 2009,
respectively. The Company reduces the carrying amount of its current inventory value for
product in its inventory that may be sold below its cost. If the amount of inventory which is
sold below its cost differs from the estimate, the Companys inventory valuation adjustment
could change.
Asset Valuation. Long-lived assets, such as property, plant and equipment subject to
depreciation, are reviewed for impairment to determine whether events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of the asset
exceeds the estimated fair value of the asset. The asset valuation estimate is principally
dependent on the Companys ability to generate profits at both the Company and store levels.
These levels are principally driven by the sales and gross profit trends that are closely
monitored by the Company. While the Company performs a quarterly review of its long-lived
assets to determine if an impairment exists, the fourth quarter is typically the most
significant quarter to make such a determination since it provides the best indication of
performance trends in the individual stores. There were no asset valuation charges in either
the first nine months of fiscal year 2010 or the first nine months of fiscal year 2009.
Lease Accounting. The Company uses a consistent lease period (generally, the initial
non-cancelable lease term plus renewal option periods provided for in the lease that can be
reasonably assured) when calculating amortization of leasehold improvements and in determining
straight-line rent expense and classification of its leases as either an operating lease or a
capital lease. The lease term and straight-line rent expense commence on the date when the
Company takes possession and has the right to control the use of the leased premises. Funds
received from the lessor intended to reimburse the Company for the costs of leasehold
improvements are recorded as a deferred rent resulting from a lease incentive and amortized
over the lease term as a reduction to rent expense.
16
While the Company has taken reasonable care in preparing these estimates and making these
judgments, actual results could and probably will differ from these estimates. Management
believes any difference in the actual results from the estimates will not have a material
effect upon the Companys financial position or results of operations. These estimates, among
other things, were discussed by management with the Companys Audit Committee.
Recently Issued Accounting Standards In June 2009, the Financial Accounting Standards
Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The ASC is an
aggregation of previously issued authoritative GAAP in one comprehensive set of guidance
organized by subject area. In accordance with the ASC, references to previously issued
accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be
incorporated into the ASC through Accounting Standards Updates (ASU).
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(ASU 2009-13). ASU 2009-13 addresses revenue recognition of multiple-element sales
arrangements. It establishes a selling price hierarchy for determining the selling price of
each product or service, with vendor-specific objective evidence (VSOE) at the highest level,
third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest
level. It replaces fair value with selling price in revenue allocation guidance. It also
significantly expands the disclosure requirements for such arrangements. ASU 2009-13 is
effective prospectively for sales entered into or materially modified in fiscal years beginning
on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating
the impact ASU 2009-13 may have on its consolidated financial statements.
Recently Proposed Amendments to Accounting Standards In August 2010, the FASB issued an
exposure draft, Leases (the Exposure Draft), which would replace the existing guidance in
ASC 840, Leases. Under the Exposure Draft, a lessees rights and obligations under all
leases, including existing and new arrangements, would be recognized as assets and liabilities,
respectively, on the balance sheet. The comment period for the Exposure Draft ends on
December 15, 2010 and a final standard is expected to be issued in 2011. When and if the
proposed guidance becomes effective, it will likely have a significant impact on the Companys
consolidated financial statements. However, as the Exposure Draft is still in process, the
Company is unable to determine at this time the impact this proposed change in accounting may
have on its consolidated financial statements.
Results of Operations
The following table is derived from the Companys Condensed Consolidated Statements of
Income and sets forth, for the periods indicated, the items included in the Condensed
Consolidated Statements of Income expressed as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Sales |
|
|
Percentage of Net Sales |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
October 31, |
|
|
October 30, |
|
|
October 31, |
|
|
October 30, |
|
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
37.5 |
|
|
|
36.0 |
|
|
|
38.4 |
|
|
|
36.6 |
|
Gross profit |
|
|
62.5 |
|
|
|
64.0 |
|
|
|
61.6 |
|
|
|
63.4 |
|
Sales and marketing expenses |
|
|
41.8 |
|
|
|
42.7 |
|
|
|
40.8 |
|
|
|
40.4 |
|
General and administrative expenses |
|
|
8.7 |
|
|
|
9.5 |
|
|
|
8.9 |
|
|
|
9.3 |
|
Total operating expenses |
|
|
50.5 |
|
|
|
52.2 |
|
|
|
49.6 |
|
|
|
49.8 |
|
Operating income |
|
|
12.0 |
|
|
|
11.8 |
|
|
|
12.0 |
|
|
|
13.7 |
|
Total other income |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Income before provision for income taxes |
|
|
12.0 |
|
|
|
11.9 |
|
|
|
12.0 |
|
|
|
13.7 |
|
Provision for income taxes |
|
|
4.7 |
|
|
|
4.6 |
|
|
|
4.7 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
7.3 |
% |
|
|
7.3 |
% |
|
|
7.3 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Net sales increased 7.4% to $173.3 million in the third quarter of
fiscal year 2010, as compared with $161.3 million in the third quarter of fiscal year 2009.
Net sales for the first nine months of fiscal year 2010 increased 9.9% to $539.8 million, as
compared with $491.0 million in the first nine months of 2009. The sales increases were
primarily related to increases in Stores sales of 6.3% and 10.0% for the third quarter and
first nine months of fiscal year 2010, respectively, including comparable store sales
increases of 3.0% and 7.6% for the third quarter and first nine months of fiscal year 2010,
respectively. Comparable store sales include merchandise and tuxedo rental sales generated in
all Company-owned stores that have been open for at least thirteen full months. The 3.0%
increase in comparable store sales for the third quarter of fiscal year 2010 was led by
increased traffic (as measured by number of transactions), partially offset by lower dollars
per transaction. The 7.6% increase in comparable store sales for the first nine months of
fiscal year 2010 was led by increased traffic and higher items per transaction, partially
offset by lower dollars per transaction.
17
Direct Marketing sales increased 14.9% and 8.4% for the third quarter and the first nine
months of fiscal year 2010, respectively, driven primarily by increases in sales in the
Internet channel, which represents the major portion of this reportable segment. The increases
in the Internet channel were primarily the result of higher website traffic. Additionally, the
third quarter of fiscal year 2010 was negatively impacted by a decrease in catalog call center
sales, while the first nine months were positively impacted by an increase in sales through
the catalog call center.
Of the major product categories, other tailored clothing (particularly sportcoats,
blazers and dress pants) and dress shirts generated strong unit sales growth during the third
quarter and first nine months of fiscal year 2010, while the sportswear category grew more
modestly during these periods. Unit sales growth in the suits category was slightly negative
during the third quarter while the category experienced modest growth during the first nine
months of fiscal 2010.
The following table summarizes store opening and closing activity during the respective
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
October 31, 2009 |
|
|
October 30, 2010 |
|
|
October 31, 2009 |
|
|
October 30, 2010 |
|
|
|
|
|
|
|
Square |
|
|
|
|
|
|
Square |
|
|
|
|
|
|
Square |
|
|
|
|
|
|
Square |
|
|
|
Stores |
|
|
Feet* |
|
|
Stores |
|
|
Feet* |
|
|
Stores |
|
|
Feet* |
|
|
Stores |
|
|
Feet* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at the
beginning of the period |
|
|
467 |
|
|
|
2,121 |
|
|
|
487 |
|
|
|
2,188 |
|
|
|
460 |
|
|
|
2,091 |
|
|
|
473 |
|
|
|
2,131 |
|
Stores opened |
|
|
3 |
|
|
|
10 |
|
|
|
12 |
|
|
|
52 |
|
|
|
10 |
|
|
|
40 |
|
|
|
29 |
|
|
|
118 |
|
Stores closed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at the
end of the period |
|
|
470 |
|
|
|
2,131 |
|
|
|
499 |
|
|
|
2,240 |
|
|
|
470 |
|
|
|
2,131 |
|
|
|
499 |
|
|
|
2,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Square feet is presented in thousands and excludes the square footage of the Companys
franchise stores. |
Gross profit The Companys gross profit represents net sales less cost of
goods sold. Cost of goods sold primarily includes the cost of merchandise, the cost of
tailoring and freight from vendors to the distribution center and from the distribution center
to the stores. This gross profit classification may not be comparable to the classification
used by certain other entities. Some entities include distribution (including depreciation),
store occupancy, buying and other costs in cost of goods sold. Other entities (including the
Company) exclude such costs from gross profit, including them instead in general and
administrative and/or sales and marketing expenses.
Gross profit totaled $110.8 million or 64.0% of net sales in the third quarter of fiscal
year 2010, as compared with $100.8 million or 62.5% of net sales in the third quarter of
fiscal year 2009, an increase in gross profit dollars of $10.0 million and an increase in the
gross profit margin (gross profit as a percent of net sales) of 150 basis points. Gross
profit totaled $342.5 million or 63.4% of net sales for the first nine months of fiscal year
2010, as compared with $302.4 million or 61.6% of net sales for the first nine months of
fiscal year 2009, an increase in gross profit dollars of $40.1 million and an increase in the
gross profit margin of 180 basis points. The increases in the gross profit margin were mainly
the result of higher initial mark-ups as compared to the prior year period, driven primarily
by improved sourcing. In addition, the improvement in gross margins was due in part to a
change in the product mix with a lower proportion of clearance items sold as compared to
fiscal year 2009. As stated in the Companys Annual Report on Form 10-K for fiscal year 2009,
the Company is subject to certain risks that may affect its gross profit, including risks of
doing business on an international basis, increased costs of raw materials and other resources
and changes in economic conditions. The Company expects to continue to be subject to these
gross profit risks in the future. Specifically, with respect to the costs of raw materials,
the Companys products are manufactured using several key raw materials, most notably wool and
cotton. In recent months the prices of cotton and other production inputs have increased
significantly. The Company expects these prices to continue to remain at these elevated levels
in fiscal year 2011, which will have a significant impact on the Companys product costs and
potentially have a negative impact on its gross profit margin. Additionally, the Companys
gross profit margin may be negatively impacted during the development phase of some of its new
business initiatives such as the newly-launched tuxedo rental business and the factory store
concept.
18
Sales and Marketing Expenses Sales and marketing expenses consist primarily of
a) Full-line Store, factory store and Direct Marketing occupancy, payroll and benefits,
selling and other variable selling costs (which include such costs as shipping costs to
customers and credit card processing fees) and b) total Company advertising and marketing
expenses. Sales and marketing expenses increased to $74.0 million or 42.7% of sales in the
third quarter of
fiscal year 2010 from $67.5 million or 41.8% of sales in the third quarter of fiscal year
2009. Sales and marketing expenses increased to $218.2 million or 40.4% of sales in the first
nine months of fiscal year 2010 from $200.1 million or 40.8% of sales in the first nine months
of fiscal year 2009. The increase as a percentage of sales for the third quarter of fiscal
year 2010 was driven primarily by higher other variable selling, advertising and marketing and
occupancy costs as a percentage of sales. The decrease as a percentage of sales for the first
nine months of fiscal year 2010 was driven primarily by the leveraging of occupancy costs and
Stores and Direct Marketing payroll and benefits costs, partially offset by higher other
variable selling and advertising and marketing costs as a percentage of sales.
The increase in sales and marketing expenses relates primarily to the opening of 33 new
stores and the closing of four stores since the end of the third quarter of fiscal year 2009
and sales growth. For the third quarter of fiscal year 2010, the increase of approximately
$6.5 million consists of a) $2.3 million related to additional occupancy costs, b) $1.7
million related to additional Stores and Direct Marketing payroll and benefits costs, c) $1.4
million related to advertising and marketing expenses, and d) $1.1 million related to
additional other variable selling costs, largely increased shipping costs to customers. For
the first nine months of fiscal year 2010, the increase of approximately $18.1 million
consists of a) $5.9 million related to additional Stores and Direct Marketing payroll and
benefits costs, b) $4.2 million related to advertising and marketing expenses, c) $4.2 million
related to additional occupancy costs, and d) $3.8 million related to additional other
variable selling costs, largely increased shipping costs to customers. The Company expects
sales and marketing expenses to increase for the remainder of fiscal year 2010 as compared to
fiscal year 2009 primarily as a result of opening new stores (approximately 35 to 37 stores)
in fiscal year 2010, the full year operation of stores that were opened during fiscal year
2009, an increase in advertising expenditures, driven both by volume and price increases, and
costs related to new business initiatives.
General and Administrative Expenses General and administrative expenses
(G&A), which consist primarily of corporate and distribution center costs, were $16.4
million and $14.0 million for the third quarter of fiscal year 2010 and the third quarter of
fiscal year 2009, respectively. G&A expenses were $50.3 million for the first nine months of
fiscal year 2010 compared to $43.5 million for the first nine months of fiscal year 2009. As
a percent of net sales, G&A expenses were 9.5% and 8.7% for the third quarters of fiscal years
2010 and 2009, respectively, and 9.3% and 8.9% for the first nine months of fiscal years 2010
and 2009, respectively. The increases as a percentage of sales were driven primarily by higher
professional fees and higher other corporate overhead costs.
For the third quarter of fiscal year 2010, the increase of approximately $2.4 million was
due to a) $0.7 million of higher corporate compensation costs (which include all company
incentive compensation) and group medical costs, b) $0.5 million of higher professional fees,
c) $0.7 million of higher other corporate overhead costs, and d) $0.5 million of higher
distribution center costs. For the first nine months of fiscal year 2010, the increase of
approximately $6.8 million was due to a) $2.5 million of higher corporate compensation costs
and group medical costs, b) $1.3 million of higher professional fees, c) $2.1 million of
higher other corporate overhead costs, and d) $0.9 million of higher distribution center
costs. Growth in the Stores and Direct Marketing segments may result in further increases in
G&A expenses in the future.
Other Income (Expense) Other income (expense) for the third quarter and the
first nine months of fiscal year 2010 were $0.1 million and $0.3 million of income,
respectively, compared to less than $0.1 million of income for the third quarter and less than
$0.1 million of expense for the first nine months of fiscal year 2009. The improvements over
fiscal year 2009 were due primarily to higher average cash and cash equivalents and short-term
investment balances during the fiscal year 2010 period and lower financing fees in fiscal year
2010 due to the expiration of the Companys credit facility in the first quarter of fiscal
year 2010.
Income Taxes The effective income tax rate for the third quarter of fiscal year
2010 was 38.9% as compared with 39.3% for the third quarter of fiscal year 2009. For the
first nine months of fiscal year 2010, the effective tax rate was 39.6% as compared with 39.3%
for the same period of fiscal year 2009. The decrease for the third quarter of fiscal year
2010 was primarily driven by reversals of unrecognized tax benefits due to expirations of
statutes of limitations, partially offset by higher state income taxes. The increase for the
first nine months of fiscal year 2010 was largely related to higher state income taxes. During
the third quarter of fiscal year 2010, the Company realigned its legal entity structure to
more appropriately reflect its operational organization. As a result, the Company anticipates
that it will incur lower state income tax liabilities beginning in fiscal year 2011 and
thereafter, assuming no significant changes to U.S. federal or state tax rules.
19
Significant changes to U.S. federal or state income tax rules could occur as part of
future legislation. Such changes could influence the Companys future income tax expense
and/or the timing of income tax deductions. The impact of such changes on the Companys
business operations and financial statements remains uncertain. However, as the possibility of
any enactment progresses, the Company will continue to monitor current developments and assess
the potential implications of these tax law changes on its business and consolidated financial
statements.
The Company files a federal income tax return and state and local income tax returns in
various jurisdictions. The Internal Revenue Service (IRS) has audited tax returns through
fiscal year 2008, including its examination of the tax returns for fiscal years 2007 and 2008
which was finalized in October 2010. No material adjustments were
required to these tax returns as a result of the examination by the IRS. For the years
before fiscal year 2007, the majority of the Companys state and local income tax returns are
no longer subject to examinations by taxing authorities.
Seasonality The Companys net sales, net income and inventory levels fluctuate
on a seasonal basis and therefore the results for one quarter are not necessarily indicative
of the results that may be achieved for a full fiscal year. The increased customer traffic
during the holiday season and the Companys increased marketing efforts during this peak
selling time have resulted in sales and profits generated during the fourth quarter being a
substantial portion of annual sales and profits as compared to the other three quarters.
Seasonality is also impacted by growth as more new stores have historically been opened in the
second half of the year. During the fourth quarters of fiscal years 2007, 2008 and 2009, the
Company generated approximately 35%, 36% and 36%, respectively, of its annual net sales and
approximately 53%, 52% and 50%, respectively, of its annual net income.
Liquidity and Capital Resources The Companys principal sources of liquidity
are its cash from operations, cash and cash equivalents and short-term investments. These
sources of liquidity are used for the Companys ongoing cash requirements. During the past
several years and through the first quarter of fiscal year 2010, the Company maintained a $100
million credit facility with a maturity date of April 30, 2010. Based on the Companys cash
and short-term investment positions, and projected cash needs and market conditions, the
Company elected not to negotiate a renewal or replacement of the credit facility. As a result,
the credit facility expired on April 30, 2010 in accordance with its terms.
The following table summarizes the Companys sources and uses of funds as reflected in
the Condensed Consolidated Statements of Cash Flows (In Thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
October 31, 2009 |
|
|
October 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(5,582 |
) |
|
$ |
5,069 |
|
Investing activities |
|
|
(75,474 |
) |
|
|
69,294 |
|
Financing activities |
|
|
95 |
|
|
|
2,291 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
$ |
(80,961 |
) |
|
$ |
76,654 |
|
|
|
|
|
|
|
|
The Companys cash and cash equivalents consist primarily of U.S. Treasury bills with
original maturities of 90 days or less and overnight federally-sponsored agency notes. The
Companys short-term investments consist of U.S. Treasury bills with remaining maturities of
less than one year, excluding investments with original maturities of 90 days or less. At
October 30, 2010, the Companys cash and cash equivalents balance was $98.5 million and its
short-term investments were $79.8 million, for a total of $178.3 million, as compared with a
cash and cash equivalents balance of $41.9 million and short-term investment of $64.9 million,
for a total of $106.8 million at October 31, 2009. The Companys cash and cash equivalents
balance was $21.9 million and short-term investments were $169.7 million, for a total of
$191.6 million at the end of fiscal year 2009. The Company had no debt outstanding at October
30, 2010, October 31, 2009 or at the end of fiscal year 2009. The significant changes in
sources and uses of funds through October 30, 2010 are discussed below.
20
Cash provided by the Companys operating activities of $5.1 million in the first nine
months of fiscal year 2010 was primarily impacted by net income of $44.9 million and
depreciation and amortization of $18.1 million, partially offset by an increase in operating
working capital and other operating items of $59.2 million. The increase in operating working
capital and other operating items included the following:
an increase in inventory of $50.4 million related largely to the buildup for
the fourth quarter holiday sales season, in addition to new store openings and the
launch of its factory store initiative;
an increase in accounts receivable of $6.1 million due primarily to higher
credit card receivables from transactions through American Express, MasterCard and Visa
as a result of increased sales near the end of the third quarter of fiscal year 2010 as
compared with the end of the fourth quarter of fiscal year 2009;
an increase in prepaid and other assets of $12.0 million due primarily to an
increase in prepaid income taxes and an increase in landlord contributions as a result
of the new store openings during 2010;
a reduction in accrued expenses totaling $15.7 million (excluding accrued
property, plant and equipment) related primarily to the payment of income taxes and
incentive compensation that had been accrued at the end of fiscal year 2009; and
an increase in accounts payable of $26.8 million due primarily to the timing of
payments to vendors.
Accrued expenses represent all other short-term liabilities related to, among other
things, vendors from whom invoices have not been received, employee compensation, federal and
state income taxes and unearned gift cards and gift certificates. Accounts payable represent
all short-term liabilities for which the Company has received a vendor invoice prior to the
end of the reporting period.
Cash provided by investing activities of $69.3 million for the first nine months of
fiscal year 2010 relates to $90.0 million of net maturities of short-term investments,
partially offset by approximately $20.7 million of payments for capital expenditures, as
described below.
For fiscal year 2010, the Company expects to spend approximately $31 to $33 million on
capital expenditures, primarily to fund the opening of approximately 35 to 37 new stores, the
renovation and/or relocation of several stores, the expansion of the Companys distribution
and office space, expenditures related to new business initiatives including tuxedo rentals
and factory stores and the implementation of various systems projects. The capital
expenditures include the cost of the construction of leasehold improvements for new stores and
several stores to be renovated or relocated, of which approximately $4 to $5 million is
expected to be reimbursed through landlord contributions. These amounts are typically paid by
the landlords after the completion of construction by the Company and the receipt of
appropriate lien waivers from contractors. The Company spent approximately $20.7 million on
capital expenditures in the first nine months of fiscal year 2010 largely related to partial
payments for the 29 stores opened during the first nine months of the fiscal year, plus
expenditures related to the expansion of its distribution and office space and expenditures
related to the tuxedo rental initiative. In addition, capital expenditures for the period
include payments for property, plant and equipment additions accrued at year-end fiscal year
2009 related to stores opened in fiscal year 2009. For the stores opened and renovated in the
first nine months of fiscal year 2010, the Company negotiated approximately $3.6 million of
landlord contributions. The table below summarizes the landlord contributions that were
negotiated and collected related to the stores opened in fiscal years 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts |
|
|
|
|
|
|
|
|
|
|
Amounts |
|
|
Collected |
|
|
Amounts |
|
|
|
|
|
|
|
Collected in |
|
|
YTD in |
|
|
Outstanding |
|
|
|
Negotiated |
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
October 30, |
|
|
|
Amounts |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(In Thousands ) |
|
Full Fiscal Year 2009 Store
Openings (14 Stores) |
|
$ |
2,829 |
|
|
$ |
2,170 |
|
|
$ |
649 |
|
|
$ |
10 |
|
First Nine Months of Fiscal Year 2010
Store Openings (29 Stores) |
|
|
3,648 |
|
|
|
|
|
|
|
1,041 |
|
|
|
2,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,477 |
|
|
$ |
2,170 |
|
|
$ |
1,690 |
|
|
$ |
2,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The outstanding amounts of the landlord contributions for the stores opened and renovated
in fiscal year 2009 and fiscal year 2010 are primarily expected to be received within the next
12 months.
For fiscal year 2010, the Company expects inventories to increase over fiscal year 2009
to support new store openings, sales growth and new business initiatives such as factory
stores.
Management believes that the Companys cash from operations, existing cash and cash
equivalents and short-term investments will be sufficient to fund its planned capital
expenditures and operating expenses through at least the next 12 months.
Off-Balance Sheet Arrangements The Company has no off-balance sheet
arrangements other than its operating lease agreements.
Disclosures about Contractual Obligations and Commercial Commitments
The Companys principal commitments are non-cancellable operating leases in connection
with its retail stores, certain tailoring facilities and equipment and inventory purchase
commitments. Under the terms of certain of the retail store leases, the Company is required
to pay a base annual rent, plus a contingent amount based on sales (contingent rent). In
addition, many of these leases include scheduled rent increases. Base annual rent and
scheduled rent increases are included in the contractual obligations table below for operating
leases, as these are the only rent-related commitments that are determinable at this time.
The following table reflects a summary of the Companys contractual cash obligations and
other commercial commitments for the periods indicated, including amounts paid in the first
nine months of fiscal year 2010 unless otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year |
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond |
|
|
|
|
|
|
2010 |
|
|
2011-2013 |
|
|
2014-2015 |
|
|
2015 |
|
|
Total (f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (a) (b) |
|
$ |
57,299 |
|
|
$ |
175,150 |
|
|
$ |
81,094 |
|
|
$ |
77,490 |
|
|
$ |
391,033 |
|
Inventory Purchase Commitments
(c) |
|
|
78,791 |
|
|
|
208,476 |
|
|
|
|
|
|
|
|
|
|
|
287,267 |
|
Related Party Agreement (d) |
|
|
825 |
|
|
|
2,475 |
|
|
|
|
|
|
|
|
|
|
|
3,300 |
|
License agreement (e) |
|
|
165 |
|
|
|
495 |
|
|
|
330 |
|
|
|
|
|
|
|
990 |
|
|
|
|
(a) |
|
Includes various lease agreements for stores to be opened and equipment placed in
service subsequent to October 30, 2010. |
|
(b) |
|
Excludes contingent rent and other lease costs. |
|
(c) |
|
Represents the value of expected future inventory purchases
for receipts out to the end of fiscal year 2011 for which purchase
orders have been issued or other commitments have been made to vendors as
of October 30, 2010. |
|
(d) |
|
Relates to consulting agreement with the Companys current Chairman of the Board to
consult on matters of strategic planning and initiatives. |
|
(e) |
|
Related to an agreement with David Leadbetter, a golf professional, which allows
the Company to produce golf and other apparel under his name. |
|
(f) |
|
Obligations related to unrecognized tax benefits and related penalties and interest
of $0.7 million have been excluded from the above table as the amount to be settled in
cash and the specific payment dates are not known. |
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At October 30, 2010, the Company was not a party to any derivative financial instruments.
The Company does business with all of its product vendors in U.S. currency and does not have
direct foreign currency risk. However, a devaluation of the U.S. dollar against the foreign
currencies of its suppliers could have a material adverse effect on the Companys product
costs and resulting gross profit. The Company currently invests substantially all of its
excess cash in short-term investments, primarily in U.S. Treasury bills with original
maturities of less than one year, overnight federally-sponsored agency notes and money market
accounts, where returns effectively reflect current interest rates. As a result, market
interest rate changes may impact the Companys net interest income or expense. The impact will
depend on variables such as the magnitude of rate changes and the level of excess cash
balances. A 100 basis point change in interest rates would have changed net interest income
by approximately $1.4 million in fiscal year 2009.
Item 4. Controls and Procedures
Limitations on Control Systems. Because of their inherent limitations, disclosure
controls and procedures and internal control over financial reporting (collectively, Control
Systems) may not prevent or detect all failures or misstatements of the type sought to be
avoided by Control Systems. Also, projections of any evaluation of the effectiveness of the
Companys Control Systems to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management, including the Companys Chief Executive
Officer (the CEO) and Chief Financial Officer (the CFO), does not expect that the
Companys Control Systems will prevent all errors or all fraud. A Control System, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the Control System are met. Further, the design of a Control System must reflect
the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all Control Systems, no
evaluation can provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. Reports by management, including the CEO and CFO,
on the effectiveness of the Companys Control Systems express only reasonable assurance of the
conclusions reached.
Disclosure Controls and Procedures. The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed in the
Companys reports under the Securities Exchange Act of 1934, as amended (the Exchange Act),
is recorded, processed, summarized, and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to
management, including the CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosure.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness,
as of October 30, 2010, of the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and
CFO have concluded that the Companys disclosure controls and procedures were effective as of
October 30, 2010.
Changes in Internal Control over Financial Reporting. There were no changes in the
Companys internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Section 240.13a-15 of the Exchange Act that occurred
during the Companys last fiscal quarter (the Companys fourth quarter in the case of an
annual report) that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Massachusetts Laborers Annuity Fund (MLAF) was the lead plaintiff in a class action
filed in the United States District Court for the District of Maryland against the Company,
Robert N. Wildrick, R. Neal Black and David E. Ullman (Roy T. Lefkoe v. Jos. A. Bank
Clothiers, Inc., et al., Civil Action Number 1:06-cv-01892-WMN) (the Class Action). The
Class Action was initially instituted on July 24, 2006. On behalf of purchasers of the
Companys stock between December 5, 2005 and June 7, 2006 (the Class Period), the Class
Action purported to make claims under Sections 10(b) and 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934, based on the Companys disclosures during the Class Period.
The Class Action sought unspecified damages, costs and attorneys fees.
In late October 2009, the Company and MLAF agreed to settle the Class Action for an
amount that was within the limits of the Companys insurance coverage. The settlement did not
have any impact on the Companys financial statements. The Stipulation of Settlement (the
Stipulation) entered into by the Company and MLAF included a statement that, at the time of
the settlement, the substantial discovery completed did not substantiate any of the claims
asserted against the individual defendants. By Order dated July 8, 2010 and filed on July 20,
2010, the court approved the settlement of the Class Action in accordance with the Stipulation
and dismissed the Class Action with prejudice.
On November 12, 2009, Casey J. Stewart, a former employee of the Company, on behalf of
himself and all others similarly situated, filed a Complaint against the Company in the United
States District Court for the Northern District of California (Case number CV 09 5348 PJH)
alleging racial discrimination by the Company with respect to hiring and terms and conditions
of employment. Pursuant to a Motion to Transfer Venue filed by the Company, the case was
transferred to the United States District Court for the Eastern District of California (Case
number 2:10-cv-00481-GEB-DAD). On October 21, 2010, the parties filed a Stipulated Dismissal
of Complaint requesting the court to dismiss the Complaint with prejudice, each party to bear
its own fees and costs. By Order dated October 21, 2010, the court dismissed the case with
prejudice.
The Company is also a party to routine litigation matters that are incidental to its
business. From time to time, other legal matters in which the Company may be named as a
defendant are expected to arise in the normal course of the Companys business activities. The
resolution of the Companys litigation matters cannot be accurately predicted and there is no
estimate of costs or potential losses, if any. Accordingly, the Company cannot determine
whether its insurance coverage would be sufficient to cover such costs or potential losses, if
any, and has not recorded any provision for cost or loss associated with these actions. It is
possible that the Companys consolidated financial statements could be materially impacted in
a particular fiscal quarter or year by an unfavorable outcome or settlement of any of these
actions.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully
consider the factors discussed under the caption Item 1A. Risk Factors in the Companys
Annual Report on Form 10-K for fiscal year 2009, which could materially affect the Companys
business, financial condition or future results. The risks described in the Companys Annual
Report on Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties, including those not currently known to the Company or that the Company
currently deems to be immaterial also could materially adversely affect the Companys
business, financial condition and/or operating results. In light of
recent increases in the prices of cotton and other production inputs,
we have updated the risk factors from our Annual Report on Form 10-K
for fiscal year 2009 as set forth below. There have been no material changes in
our risk factors from those disclosed in our Annual Report on Form
10-K for fiscal year 2009 except for the following:
Our business could be adversely affected by increased costs of the raw materials
and other resources that are important to our business.
Our products are manufactured using several key raw materials, including wool and cotton, which are subject
to fluctuations in price and availability. The prices for these raw materials can be volatile due to the demand
for fabrics, weather conditions, supply conditions, government regulations, economic, climate and other
unpredictable factors. We purchase the raw materials for approximately 11% of our finished products. Five
vendors accounted for over 83% of the raw materials purchased directly by us in fiscal year 2009. The remainder
of our finished products are purchased as finished units, with the vendor responsible for the acquisition of the
raw materials. Some of these finished unit vendors purchase raw materials from the same suppliers as the
Company. Changes in raw materials costs, such as wool and cotton, to the vendors or to us may impact the
long-term cost of our finished products. Specifically, as set in this Quarterly Report on Form 10-Q under
Managements Discussion and Analysis of Financial Condition and Results of Operations, in recent months the
prices of cotton and other production inputs have increased significantly. The Company expects these prices to
continue to remain at these elevated levels in 2011, which will have a significant impact on the Companys
product costs and potentially have a negative impact on its gross profit margin. Fuel costs and labor costs
could also have an adverse impact on our vendors manufacturing costs and on our freight and other costs. Any
significant fluctuations in price or availability of our raw materials and other resources or any significant
increase in the price or decrease in the availability of the raw materials and other resources that are
important to our business could have a material adverse impact on our business, financial condition and results
of operations.
24
Item 5. Other Information
On November 30, 2010, those members of the Board of Directors who are independent
directors in accordance with the Nasdaq Stock Market Rules met in executive session and
approved an amendment to that certain consulting agreement entered into by the Company and
Robert N. Wildrick on September 9, 2008 (the Consulting Agreement). As Mr. Wildrick is the
Chairman of the Board and the amendment constitutes a related party transaction, generally the
Audit Committee would have been responsible for evaluating the transaction. The Board instead
met in executive session in order to increase the number of independent directors who
participated in the decision. The First Amendment to Consulting Agreement extends the term of
the Consulting Agreement from January 31, 2012 to January 26, 2014. All other terms of the
Consulting Agreement as disclosed in the Companys Current Report on Form 8-K filed on
September 12, 2008 remain unchanged.
Item 6. Exhibits
|
|
|
|
|
Exhibits |
|
|
|
|
|
|
10.1 |
|
|
First Amendment, dated November 30, 2010, to Consulting Agreement, dated as of September 9, 2008,
between Jos. A Bank Clothiers, Inc. and Robert N. Wildrick. |
|
31.1 |
|
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
|
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Jos. A. Bank Clothiers, Inc.
(Registrant)
|
|
Dated: December 1, 2010 |
/s/ DAVID E. ULLMAN
|
|
|
David E. Ullman |
|
|
Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer) |
|
25
Exhibit Index
|
|
|
|
|
Exhibits |
|
|
|
|
|
|
10.1 |
|
|
First Amendment, dated November 30, 2010, to Consulting Agreement, dated as of September 9, 2008,
between Jos. A Bank Clothiers, Inc. and Robert N. Wildrick. |
|
31.1 |
|
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
|
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
26