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EXCEL - IDEA: XBRL DOCUMENT - BANK JOS A CLOTHIERS INC /DE/ | Financial_Report.xls |
EX-32.2 - EX-32.2 - BANK JOS A CLOTHIERS INC /DE/ | c17459exv32w2.htm |
EX-31.2 - EX-31.2 - BANK JOS A CLOTHIERS INC /DE/ | c17459exv31w2.htm |
EX-32.1 - EX-32.1 - BANK JOS A CLOTHIERS INC /DE/ | c17459exv32w1.htm |
EX-31.1 - EX-31.1 - BANK JOS A CLOTHIERS INC /DE/ | c17459exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011.
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 0-23874
Jos. A. Bank Clothiers, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 36-3189198 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer | |
Identification No.) | ||
500 Hanover Pike, Hampstead, MD | 21074-2095 | |
(Address of Principal Executive Offices) | (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)
(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 þ 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. (Check One):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if smaller reporting company) |
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:
Class | Outstanding as of May 25, 2011 | |
Common Stock, $.01 par value | 27,626,304 |
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
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 forecasted due to a variety of factors
outside of our control that can affect our 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 our growth strategy, including our ability to finance our 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 our marketing programs, the availability
of suitable lease sites for new stores, doing business on an international basis, the ability
to source product from our global supplier base, legal matters and other competitive factors.
The identified risk factors and other factors and risks that may affect our business or future
financial results are detailed in our filings with the Securities and Exchange Commission,
including, but not limited to, those described under Risk Factors in our Annual Report on
Form 10-K for fiscal year 2010 and in this Quarterly Report on Form 10-Q and Managements
Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly
Report on Form 10-Q. These risks should be carefully reviewed before
making any investment decision. These cautionary statements qualify all of the forward-looking statements
we make herein. We cannot assure you that the results or developments anticipated by us will
be realized or, even if substantially realized, that those results or developments will result
in the expected consequences for us or affect us, our business or our operations in the way we
expect. We caution you not to place undue reliance on these forward-looking statements, which
speak only as of their respective dates. We do not undertake an obligation to update or revise
any forward-looking statements to reflect actual results or changes in our assumptions,
estimates or projections.
3
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Unaudited Condensed Consolidated Financial Statements |
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In thousands, except per share information) | ||||||||
Net sales |
$ | 178,125 | $ | 193,270 | ||||
Cost of goods sold |
64,809 | 67,957 | ||||||
Gross profit |
113,316 | 125,313 | ||||||
Operating expenses: |
||||||||
Sales and marketing, including occupancy costs |
70,519 | 78,852 | ||||||
General and administrative |
16,736 | 17,424 | ||||||
Total operating expenses |
87,255 | 96,276 | ||||||
Operating income |
26,061 | 29,037 | ||||||
Other income (expense): |
||||||||
Interest income |
115 | 132 | ||||||
Interest expense |
(90 | ) | (3 | ) | ||||
Total other income (expense) |
25 | 129 | ||||||
Income before provision for income taxes |
26,086 | 29,166 | ||||||
Provision for income taxes |
10,278 | 11,356 | ||||||
Net income |
$ | 15,808 | $ | 17,810 | ||||
Per share information: |
||||||||
Earnings per share: |
||||||||
Basic |
$ | 0.57 | $ | 0.64 | ||||
Diluted |
$ | 0.57 | $ | 0.64 | ||||
Weighted average shares outstanding: |
||||||||
Basic |
27,527 | 27,622 | ||||||
Diluted |
27,818 | 27,928 |
See accompanying notes.
4
Table of Contents
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
January 29, 2011 | April 30, 2011 | |||||||
(In thousands) | ||||||||
(Audited) | (Unaudited) | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 80,979 | $ | 83,465 | ||||
Short-term investments |
189,789 | 168,954 | ||||||
Accounts receivable, net |
9,525 | 14,449 | ||||||
Inventories: |
||||||||
Finished goods |
222,251 | 245,771 | ||||||
Raw materials |
11,059 | 16,107 | ||||||
Total inventories |
233,310 | 261,878 | ||||||
Prepaid expenses and other current assets |
19,494 | 23,667 | ||||||
Total current assets |
533,097 | 552,413 | ||||||
NONCURRENT ASSETS: |
||||||||
Property, plant and equipment, net |
128,603 | 132,224 | ||||||
Other noncurrent assets |
337 | 310 | ||||||
Total assets |
$ | 662,037 | $ | 684,947 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 31,505 | $ | 46,755 | ||||
Accrued expenses |
88,165 | 76,370 | ||||||
Deferred tax liability current |
5,276 | 5,301 | ||||||
Total current liabilities |
124,946 | 128,426 | ||||||
NONCURRENT LIABILITIES: |
||||||||
Deferred rent |
49,279 | 49,754 | ||||||
Deferred tax liability noncurrent |
4,147 | 4,540 | ||||||
Other noncurrent liabilities |
989 | 1,055 | ||||||
Total liabilities |
179,361 | 183,775 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Common stock |
275 | 275 | ||||||
Additional paid-in capital |
86,792 | 87,478 | ||||||
Retained earnings |
395,531 | 413,341 | ||||||
Accumulated other comprehensive income |
78 | 78 | ||||||
Total stockholders equity |
482,676 | 501,172 | ||||||
Total liabilities and stockholders equity |
$ | 662,037 | $ | 684,947 | ||||
See accompanying notes.
5
Table of Contents
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 15,808 | $ | 17,810 | ||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||
Depreciation and amortization |
5,856 | 6,246 | ||||||
Loss on disposals of property, plant and equipment |
23 | 61 | ||||||
Non-cash equity compensation |
| 558 | ||||||
Increase (decrease) in deferred taxes |
(813 | ) | 418 | |||||
Net (increase) in operating working capital and other components |
(22,147 | ) | (37,978 | ) | ||||
Net cash (used in) operating activities |
(1,273 | ) | (12,885 | ) | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(3,978 | ) | (5,592 | ) | ||||
Proceeds from maturities of short-term invenstments |
64,922 | 179,814 | ||||||
Payments to acquire short-term investments |
(34,875 | ) | (158,979 | ) | ||||
Net cash provided by investing activities |
26,069 | 15,243 | ||||||
Cash flows from financing activities: |
||||||||
Income tax benefit from exercise of stock options |
| 61 | ||||||
Net proceeds from exercise of stock options |
| 67 | ||||||
Net cash provided by financing activities |
| 128 | ||||||
Net increase in cash and cash equivalents |
24,796 | 2,486 | ||||||
Cash and cash equivalents beginning of period |
21,853 | 80,979 | ||||||
Cash and cash equivalents end of period |
$ | 46,649 | $ | 83,465 | ||||
See accompanying notes.
6
Table of Contents
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | BASIS OF PRESENTATION |
Jos. A. Bank Clothiers, Inc. 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 Jos. A. Bank Clothiers, Inc. and its wholly-owned
subsidiaries (collectively referred to as we, our or us). 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.
We operate 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:
Fiscal year 2006 |
February 3, 2007 | |||
Fiscal year 2007 |
February 2, 2008 | |||
Fiscal year 2008 |
January 31, 2009 | |||
Fiscal year 2009 |
January 30, 2010 | |||
Fiscal year 2010 |
January 29, 2011 | |||
Fiscal year 2011 |
January 28, 2012 |
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 our Annual Report on Form 10-K for fiscal year 2010.
2. | 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 April 30, 2011, 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 remaining maturities of less than one year, excluding investments with
original maturities of 90 days or less. At April 30, 2011, short-term investments consisted
solely of U.S. Treasury bills with remaining maturities ranging from one to three months.
These investments are classified as held-to-maturity and their market values approximate their
carrying values.
Inventories We record inventory at the lower of cost or market (LCM). Cost
is determined using the first-in, first-out method. We capitalize into inventory certain
warehousing and freight delivery costs associated with shipping our merchandise to the point
of sale. We periodically review quantities of inventories on hand and compare these amounts to
the expected sales of each product. We record a charge to cost of goods sold for the amount
required to reduce the carrying value of inventory to net realizable value.
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Table of Contents
Landlord Contributions We typically receive 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, we record cash and reduce 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 our 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 We sell gift cards and gift certificates to
individuals and companies. Our incentive gift certificates are used by various companies as a
reward for achievement for their employees. We also redeem proprietary gift cards and gift
certificates marketed by third-party premium/incentive companies. We record a liability when a
gift card/certificate is purchased. As the gift card/certificate is redeemed, we reduce the
liability and record revenue. Substantially all of our 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
we recognize 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 us, an order is placed with a national distributor who delivers the product to our
stores, typically within several days of intended use. The national distributor owns the
product.
Equity Compensation We account for our equity awards 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. The vesting of awards to both the officers and
directors is subject to service conditions being met, currently ranging from one to three years.
Additionally, the vesting of awards to officers is subject to performance conditions being met
in the fiscal year that the awards are granted such as, among other things, the attainment of
certain annual earnings and performance goals. For these officer awards, we estimate the
probability that such goals will be attained based on results-to-date at each interim
quarter-end and record compensation cost for these awards based on the awards projected to
vest. Share-based compensation expense recognized for the first quarter of fiscal year 2011
related to equity awards issued under the Jos. A. Bank Clothiers, Inc. 2010 Equity Incentive
Plan (Equity Incentive Plan) was $0.5 million and the tax benefit recognized related to this
compensation was $0.2 million. There was no share based compensation expense in the first
quarter of fiscal year 2010 as the Equity Incentive Plan was not yet effective.
Recently Issued Accounting Standards 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 adoption of ASU 2009-13 for fiscal year 2011 will not have a material
impact on our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (ASU 2011-04). ASU
2011-04 is intended to create consistency between U.S. GAAP and International Financial
Reporting Standards (IFRS) on the definition of fair value and on the guidance on how to
measure fair value and on what to disclose about fair value measurements. ASU 2011-04 will be
effective for financial statements issued for fiscal periods beginning after December 15, 2011,
with early adoption prohibited for public entities. We are currently evaluating the impact ASU
2011-04 will have on our consolidated financial statements.
8
Table of Contents
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
ended on December 15, 2010 and a final standard is expected to
be issued in 2011. If
the proposed guidance becomes effective on the terms currently
proposed by FASB, it will likely have a significant negative impact on
our consolidated financial statements. However, as the final standard has not yet been issued,
we are unable to determine at this time the impact this proposed change in accounting may have
on our consolidated financial statements.
3. | SUPPLEMENTAL CASH FLOW DISCLOSURE |
The net changes in operating working capital and other components consist of the
following:
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In Thousands) | ||||||||
(Increase) in accounts receivable |
$ | (9,621 | ) | $ | (4,924 | ) | ||
(Increase) in inventories |
(3,881 | ) | (28,568 | ) | ||||
(Increase) in prepaids and other assets |
(372 | ) | (4,146 | ) | ||||
Increase in accounts payable |
12,476 | 15,250 | ||||||
(Decrease) in accrued expenses |
(19,612 | ) | (16,131 | ) | ||||
Increase (decrease) in deferred rent and other noncurrent liabilities |
(1,137 | ) | 541 | |||||
Net (increase) in operating working capital and other components |
$ | (22,147 | ) | $ | (37,978 | ) | ||
Interest and income taxes paid were as follows:
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In Thousands) | ||||||||
Interest paid |
$ | 86 | $ | 2 | ||||
Income taxes paid |
$ | 26,585 | $ | 23,460 |
As of May 1, 2010 and April 30, 2011, included in Property, plant and equipment, net
and Accrued expenses in the Condensed Consolidated Balance Sheets are $4.6 million and $6.1
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 increases in these amounts of $4.0 million and $4.4 million for the
first quarter of fiscal years 2010 and 2011, respectively, are excluded from payments for
capital expenditures and changes in accrued expenses in the Condensed Consolidated Statements
of Cash Flows as these changes are non-cash items.
9
Table of Contents
4. | EARNINGS PER SHARE |
Basic earnings per share (EPS) is calculated by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted EPS 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 EPS are as follows:
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In thousands) | ||||||||
Weighted average shares
outstanding for basic EPS |
27,527 | 27,622 | ||||||
Dilutive effect of common stock
equivalents |
291 | 306 | ||||||
Weighted average shares
outstanding for diluted EPS |
27,818 | 27,928 | ||||||
We use the treasury method for calculating the dilutive effect of common stock
equivalents. For the quarters ended May 1, 2010 and April 30, 2011, there were no
anti-dilutive common stock equivalents.
On June 17, 2010, our 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.
5. | INCOME TAXES |
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.
We account 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. We
recognize 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. We estimate the unrecognized tax benefits as
the largest amount that is more than 50% likely to be realized upon ultimate settlement. We
re-evaluate these uncertain tax positions on a quarterly basis or when new information becomes
available to management. The re-evaluations are based on many factors, including but not
limited to, changes in facts or circumstances, changes in tax law, settled issues
as a result of audits, expirations due to statutes of limitations, and new federal or state audit
activity. We also recognize accrued interest and penalties related to these unrecognized tax
benefits. Changes in these accrued items are included in the provision for income taxes in the
Condensed Consolidated Statements of Income.
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The effective income tax rate for the first quarter of fiscal year 2011 was 38.9% as compared with 39.4% for the first quarter of fiscal year 2010. The rate decrease for the first quarter of fiscal year 2011 was primarily driven by lower state income taxes. We anticipate that this lower state income tax rate will continue for the remainder of fiscal year 2011, 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 our future income tax expense and/or the timing of income tax deductions. The impact of such changes on our business operations and financial statements remains uncertain. However, as the possibility of any enactment progresses, we will continue to monitor current developments and assess the potential implications of these tax law changes on our business and consolidated financial statements. | ||
We file 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 our state and local income tax returns are no longer subject to examinations by taxing authorities. |
6. | SEGMENT REPORTING |
We have two reportable segments: Stores and Direct Marketing. The Stores segment includes all Company-owned stores excluding Outlet and Factory stores (Full-line Stores). The Direct Marketing segment includes catalog and Internet. 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. We evaluate 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. | ||
Our 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 our merchandise and/or alterations and takes their purchases with them. 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. |
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Segment data is presented in the following tables: |
Three months ended April 30, 2011
Corporate and | ||||||||||||||||
Stores | Direct Marketing | Other | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net sales (a) |
$ | 169,855 | $ | 18,724 | $ | 4,691 | $ | 193,270 | ||||||||
Depreciation and amortization |
5,212 | 177 | 857 | 6,246 | ||||||||||||
Operating income (loss) (b) |
38,769 | 7,541 | (17,273 | ) | 29,037 | |||||||||||
Capital expenditures (c) |
4,931 | 8 | 653 | 5,592 |
Three months ended May 1, 2010
Corporate and | ||||||||||||||||
Stores | Direct Marketing | Other | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net sales (a) |
$ | 159,812 | $ | 15,336 | $ | 2,977 | $ | 178,125 | ||||||||
Depreciation and amortization |
5,069 | 115 | 672 | 5,856 | ||||||||||||
Operating income (loss) (b) |
37,855 | 6,321 | (18,115 | ) | 26,061 | |||||||||||
Capital expenditures (c) |
2,404 | 47 | 1,527 | 3,978 | ||||||||||||
(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 our two other operating segments. Those segments are Outlet and Factory stores and Franchise stores. These segments have never met any of the quantitative thresholds for determining reportable segments and are included in Corporate and Other. | ||
(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 $2.9 million and $2.3 million for the first quarter of fiscal years 2011 and 2010, 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 and operating income or loss related to the Outlet and Factory stores and the Franchise stores operating segments. 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. |
7. | LEGAL MATTERS |
We are a party to routine litigation matters that are incidental to our business. From time to time, other legal matters in which we may be named as a defendant are expected to arise in the normal course of our business activities. The resolution of our litigation matters cannot be accurately predicted and there is no estimate of costs or potential losses, if any. Accordingly, we cannot determine whether our insurance coverage, if any, would be sufficient to cover such costs or potential losses, if any, and we have not recorded any provision for cost or loss associated with these actions. It is possible that our 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. |
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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
our audited financial statements and notes thereto included in our Annual Report on Form 10-K
for fiscal year 2010.
On June 17, 2010, our 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 first quarter of fiscal year 2011, our net income was $17.8
million, an increase of 12.7% as compared with $15.8 million for the first quarter of fiscal
year 2010. We earned $0.64 per diluted share in the first quarter of fiscal year 2011 as
compared with $0.57 per diluted share in the first quarter of fiscal year 2010. As such,
diluted earnings per share increased 12.3% as compared with the prior year period. The
results of the first quarter of fiscal year 2011, as compared to the first quarter of fiscal
year 2010, were primarily driven by:
| 8.5% increase in net sales, driven by a 22.1% increase in the Direct Marketing segment sales and a 6.3% increase in the Stores segment sales; | ||
| 0.1% increase in comparable store sales as we are testing our customers response to higher retail prices which helped to increase gross profit margins during the quarter; comparable store sales increased by 10.4% during the first quarter of fiscal year 2010; | ||
| 120 basis point increase in gross profit margins mainly as a result of higher initial mark-ups driven primarily by retail price increases in certain product categories and improved sourcing; | ||
| 120 basis point increase in sales and marketing costs as a percentage of sales driven primarily by higher other variable selling (including increased shipping costs to customers), occupancy and Stores and Direct Marketing payroll and benefits costs as a percentage of sales; and | ||
| 40 basis point decrease in general and administrative costs as a percentage of sales due primarily to lower corporate compensation costs (which include total company performance-based incentive compensation other than commissions) and group medical costs as a percentage of sales. |
As of the end of the first quarter of fiscal year 2011, we had 515 stores, consisting of
489 Company-owned Full-line Stores, 12 Company-owned Outlet and Factory stores and 14 stores
owned and operated by franchisees. We opened 9 stores in the first three months of fiscal
year 2011. In the past five years, we have opened 190 stores. Specifically, there were 52 new
stores opened in fiscal year 2006, 48 new stores opened in fiscal year 2007, 40 new stores
opened in fiscal year 2008, 14 new stores opened in fiscal year 2009 and 36 new stores opened
in fiscal year 2010. 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 our ability to find suitable locations for new
stores.
We expect to open approximately 40 to 50 stores in fiscal year 2011, including the 9
stores opened in the first three months of fiscal year 2011. This range also includes 10 to 12
Factory stores which we plan to open under our new Factory store concept. We opened our first
5 Factory stores in fiscal year 2010. In the future, we believe that the chain can be grown to
approximately 600 Full-line Stores and 50 to 75 Factory stores in the United States, depending
on our performance over the next several years and the development of the Factory store
concept, among other factors.
Capital expenditures in fiscal year 2011 are expected to be approximately $33 to $38
million, primarily to fund the opening of approximately 40 to 50 new stores, the renovation
and/or relocation of several stores, the expansion of our distribution space 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 $4.5 to $5.5 million is expected to be reimbursed
through landlord contributions.
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For fiscal year 2011, we expect total inventories to increase at a rate higher than
experienced in recent years primarily as a result of a) the replenishment of units sold in
fiscal 2010, b) new store openings, c) continued sales growth, d) higher inventory sourcing
costs, and e) a larger buildup of core product inventory levels in anticipation that future
costs of certain products will continue to remain at higher levels. From the end of first
quarter of fiscal year 2010 to the end of the first quarter of fiscal year 2011, inventory
increased $39.7 million or 17.9%.
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 our Annual Report on Form
10-K for fiscal year 2010.
While we have 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 our financial position or results of operations. These estimates, among other
things, were discussed by management with our Audit Committee.
Inventory. We record 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. We reduce 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 our experience
that most of our inventory is sold through our primary sales channels, with virtually no
inventory being liquidated through bulk sales to third parties. Our LCM estimates for
inventory that have been made in the past have been very reliable as a significant portion of
our sales (over two-thirds in fiscal year 2010) are of classic traditional products that are
part of on-going programs and that bear low risk of write-down 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, our strong gross profit
margins enable us to sell substantially all of our products above cost.
To calculate the estimated market value of our inventory, we periodically perform a
detailed review of all of our major inventory classes and stock-keeping units and perform an
analytical evaluation of aged inventory on a quarterly basis. Semi-annually, we compare 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 us to
estimate the amount which may have to be sold below cost. Substantially all of the units sold
below cost are sold in our Outlet and Factory stores, through the Internet websites and
catalogs or on clearance at the Full-line Stores, typically within 24 months of purchase. Our
costs in excess of selling price for units sold below cost totaled $1.2 million and $1.8
million in fiscal year 2009 and fiscal year 2010, respectively. We reduce the carrying amount
of our current inventory value for product in inventory that may be sold below our cost. If
the amount of inventory which is sold below our cost differs from the estimate, our 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 our 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 our ability to generate profits at both the Company and store levels. These
levels are principally driven by the sales and gross profit trends that we closely monitor.
While we perform a quarterly review of our long-lived assets to determine if 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 quarter of fiscal year 2011
or the first quarter of fiscal year 2010.
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Lease Accounting. We use 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 a lease as either an operating lease or a
capital lease. The lease term and straight-line rent expense commence on the date when we take
possession and have the right to control the use of the leased premises. Funds received from
the lessor intended to reimburse us for the costs of leasehold improvements are recorded as a
deferred rent resulting from a lease incentive and are amortized over the lease term as a
reduction to rent expense.
Recently Issued Accounting Standards. 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 adoption of ASU 2009-13 for fiscal year 2011 will not have a material impact on our
consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (ASU 2011-04). ASU
2011-04 is intended to create consistency between U.S. GAAP and International Financial
Reporting Standards (IFRS) on the definition of fair value and on the guidance on how to
measure fair value and on what to disclose about fair value measurements. ASU 2011-04 will be
effective for financial statements issued for fiscal periods beginning after December 15, 2011,
with early adoption prohibited for public entities. We are currently evaluating the impact ASU
2011-04 will have on our 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 ended on December
15, 2010 and a final standard is expected to be issued in 2011. If the proposed
guidance becomes effective on the terms currently proposed by FASB,
it will likely have a significant negative impact on our
consolidated financial statements. However, as the final standard has not yet been issued, we
are unable to determine at this time the impact this proposed change in accounting may have on
our consolidated financial statements.
Results of Operations
The following table is derived from our 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 | ||||||||
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of goods sold |
36.4 | 35.2 | ||||||
Gross profit |
63.6 | 64.8 | ||||||
Sales and marketing expenses |
39.6 | 40.8 | ||||||
General and administrative expenses |
9.4 | 9.0 | ||||||
Total operating expenses |
49.0 | 49.8 | ||||||
Operating income |
14.6 | 15.0 | ||||||
Total other income |
| 0.1 | ||||||
Income before provision for income taxes |
14.6 | 15.1 | ||||||
Provision for income taxes |
5.8 | 5.9 | ||||||
Net income |
8.9 | % | 9.2 | % | ||||
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Net Sales Net sales increased 8.5% to $193.3 million in the first quarter of
fiscal year 2011, as compared with $178.1 million in the first quarter of fiscal year 2010. The
total sales increase included an increase in the Stores segment sales of 6.3% for the first
quarter of fiscal year 2011 driven largely by the new stores opened in fiscal year 2010.
Comparable store sales increased 0.1% for the first quarter of fiscal year 2011 as we are
testing our customers response to higher retail prices which helped to increase gross profit
margins during the quarter. Comparable stores sales increased 10.4% for the first quarter of
fiscal year 2010. 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 0.1%
increase in comparable store sales for the first quarter of fiscal year 2011 was impacted by
increased traffic (as measured by number of transactions), primarily offset by lower dollars per
transaction and items per transaction.
Direct Marketing segment sales increased 22.1% for the first quarter of fiscal year 2011,
driven primarily by increases in sales in the Internet channel, which represents the primary
portion of this reportable segment. The increases in the Internet channel were primarily the
result of higher website traffic, partially offset by lower conversion rates. The Internet
channel also benefited from the new Big and Tall website related to our Big and Tall product
offerings launched during fiscal year 2010. Additionally, the first quarter of fiscal year
2011 was negatively impacted by a decrease in catalog call center sales. The ongoing trend for
customers receiving catalogs is to place their orders over the Internet rather than place
their orders through the call center.
Of the major product categories, suits and dress shirts generated strong unit sales
growth. Other tailored clothing (which includes sportcoats, blazers and dress pants) unit
sales were flat and sportswear units sales declined.
The following table summarizes store opening and closing activity during the respective
periods.
Three Months Ended | ||||||||||||||||
May 1, 2010 | April 30, 2011 | |||||||||||||||
Square | Square | |||||||||||||||
Stores | Feet* | Stores | Feet* | |||||||||||||
Stores open at the
beginning of the period |
473 | 2,131 | 506 | 2,282 | ||||||||||||
Stores opened |
3 | 11 | 9 | 43 | ||||||||||||
Stores closed |
| | | | ||||||||||||
Stores open at the
end of the period |
476 | 2,142 | 515 | 2,325 | ||||||||||||
* | Square feet are presented in thousands and exclude the square footage of our franchise stores. |
Gross profit Our gross profit represents net sales less cost of goods sold.
Cost of goods sold primarily includes the cost of merchandise, 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 us) exclude such costs from
gross profit, including them instead in general and administrative and/or sales and marketing
expenses.
Gross profit totaled $125.3 million or 64.8% of net sales in the first quarter of fiscal
year 2011, as compared with $113.3 million or 63.6% of net sales in the first quarter of
fiscal year 2010, an increase in gross profit dollars of
approximately $12.0 million and an increase in the
gross profit margin (gross profit as a percent of net sales) of 120 basis points. The
increase in the gross profit margin was mainly the result of higher initial mark-ups as
compared to the prior year period, driven primarily by retail price increases in certain
product categories and improved sourcing from fiscal year 2010.
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As stated in our Annual Report on Form 10-K for fiscal year 2010, we are subject to
certain risks that may affect our gross profit, including risks of doing business on an
international basis, increased costs of raw materials and other resources and changes in
economic conditions. We expect to continue to be subject to these gross profit risks in the
future. Specifically, with respect to the costs of raw materials, our products are
manufactured using several key raw materials, most notably wool and cotton. In recent months,
the prices of cotton, wool and other production inputs have increased significantly. We expect
these prices to continue to remain at these elevated levels in fiscal year 2011, which will
have a significant impact on our product costs and potentially have a negative impact on our
gross profit margin. Additionally, our gross profit margin may be negatively impacted during
the development phase of some of our new business initiatives such as the tuxedo rental
business and the Factory store concept.
Sales and Marketing Expenses Sales and marketing expenses consist primarily of
a) Full-line Store, Outlet and 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 $78.9 million or 40.8% of sales in the
first quarter of fiscal year 2011 from $70.5 million or 39.6% of sales in the first quarter of
fiscal year 2010. The increase as a percentage of sales for the first quarter of fiscal year
2011 was driven primarily by higher other variable selling (including
increased shipping costs to customers), occupancy and Stores and Direct
Marketing payroll and benefits costs as a percentage of sales.
The increase in sales and marketing expenses relates primarily to the opening of 42 new
stores and the closing of three stores since the end of the first quarter of fiscal year 2010
and sales growth. For the first quarter of fiscal year 2011, the increase of approximately
$8.4 million consists of a) $2.6 million related to additional occupancy costs, b) $2.4
million related to additional other variable selling costs, including increased shipping costs
to customers, c) $2.3 million related to additional Stores and Direct Marketing payroll and
benefits costs, and d) $1.1 million related to advertising and marketing expenses. We expect
sales and marketing expenses to increase for the remainder of fiscal year 2011 as compared to
fiscal year 2010 primarily as a result of opening new stores (approximately 40 to 50 stores)
in fiscal year 2011, the full year operation of stores that were opened during fiscal year
2010, 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 $17.4
million and $16.7 million for the first quarter of fiscal years 2011 and 2010, respectively.
As a percent of net sales, G&A expenses were 9.0% and 9.4% for the first quarter of fiscal
years 2011 and 2010, respectively. The decrease as a percentage of sales for the first quarter
of fiscal year 2011 was driven primarily by lower corporate compensation costs (which include
total company performance-based incentive compensation other than commissions) and group
medical costs as a percentage of sales.
For the first quarter of fiscal year 2011, the increase of approximately $0.7 million was
due to a) $0.6 million of higher other corporate overhead costs, b) $0.5 million of higher
distribution center costs, and c) $0.4 million of lower corporate compensation (which include
total company performance-based incentive compensation other than commissions) and group
medical 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 first quarter of fiscal
year 2011 was $0.1 million of income, compared to less than $0.1 million of income for the
first quarter of fiscal year 2010. The improvement over fiscal year 2010 was due primarily to
the absence of unused line of credit fees in fiscal year 2011 as a result of the expiration of our credit
facility in the first quarter of fiscal year 2010. Higher average cash and cash equivalents
and short-term investment balances during the fiscal year 2011 period also contributed to the
increase.
Income Taxes The effective income tax rate for the first quarter of fiscal
year 2011 was 38.9% as compared with 39.4% for the first quarter of fiscal year 2010. The
rate decrease for the first quarter of fiscal year 2011 was primarily driven by lower state
income taxes. We anticipate that this lower state income tax rate will continue for the
remainder of fiscal year 2011, 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 our future income tax expense and/or the
timing of income tax deductions. The impact of such changes on our business operations and
financial statements remains uncertain. However, as the possibility of any enactment
progresses, we will continue to monitor current developments and assess the potential
implications of these tax law changes on our business and consolidated financial statements.
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We file 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
our state and local income tax returns are no longer subject to examinations by taxing
authorities.
Seasonality Our 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 our increased marketing efforts during this peak selling time have resulted
in sales and profits generated during the fourth quarter becoming a larger 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 2008, 2009 and 2010, we generated approximately 36%, 36%
and 37%, respectively, of our annual net sales and approximately 52%, 50% and 48%,
respectively, of our annual net income.
Liquidity and Capital Resources Our principal sources of liquidity are our
cash from operations, cash and cash equivalents and short-term investments. These sources of
liquidity are used for our ongoing cash requirements. During the past several years and
through the first quarter of fiscal year 2010, we maintained a $100 million credit facility
with a maturity date of April 30, 2010. Based on our cash and short-term investment positions,
and projected cash needs and market conditions, we 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 our sources and uses of funds as reflected in the
Condensed Consolidated Statements of Cash Flows:
Three Months Ended | ||||||||
May 1, 2010 | April 30, 2011 | |||||||
(In Thousands) | ||||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | (1,273 | ) | $ | (12,885 | ) | ||
Investing activities |
26,069 | 15,243 | ||||||
Financing activities |
| 128 | ||||||
Net increase in cash and cash equivalents |
$ | 24,796 | $ | 2,486 | ||||
Our 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. Our 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 April 30, 2011, our
cash and cash equivalents balance was $83.5 million and our short-term investments were $168.9
million, for a total of $252.4 million, as compared with a cash and cash equivalents balance
of $46.6 million and short-term investment of $139.7 million, for a total of $186.3 million at
May 1, 2010. Our cash and cash equivalents balance was $81.0 million and short-term
investments were $189.8 million, for a total of $270.8 million at the end of fiscal year 2010.
We had no debt outstanding at April 30, 2011, May 1, 2010 or at the end of fiscal year 2010.
The significant changes in sources and uses of funds through April 30, 2011 are discussed
below.
Cash used in our operating activities of $12.9 million in the first quarter of fiscal
year 2011 was primarily impacted by an increase in operating working capital and other
operating items of $38.0 million, partially offset by net income of $17.8 million and
depreciation and amortization of $6.2 million. The increase in operating working capital and
other operating items included the following:
| an increase in inventory of $28.6 million primarily as a result of the replenishment of units sold in fiscal 2010, new store openings, continued sales growth and higher inventory sourcing costs; | ||
| an increase in accounts receivable of $4.9 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 first quarter of fiscal year 2011 as compared with the end of fiscal year 2010; | ||
| an increase in prepaid and other assets of $4.1 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 2011; |
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| a reduction in accrued expenses totaling $16.1 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 2010; and | ||
| an increase in accounts payable of $15.3 million due primarily to the timing of payments to vendors. |
Accounts payable represent all short-term liabilities for which we have received a vendor
invoice prior to the end of the reporting period. 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.
For fiscal year 2011, we expect total inventories to increase at a rate higher than
experienced in recent years primarily as a result of a) the replenishment of units sold in
fiscal 2010, b) new store openings, c) continued sales growth, d) higher inventory sourcing
costs, and e) a larger buildup of core product inventory levels in anticipation that future
costs of certain products will continue to remain at higher levels.
Cash provided by investing activities of $15.2 million for the first quarter of fiscal
year 2011 relates to $20.8 million of net maturities of short-term investments, partially
offset by $5.6 million of payments for capital expenditures, as described below.
For fiscal year 2011, we expect to spend approximately $33 to $38 million on capital
expenditures, primarily to fund the opening of approximately 40 to 50 new stores, the
renovation and/or relocation of several stores, the expansion of our distribution space 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 $4.5 to
$5.5 million is expected to be reimbursed through landlord contributions. These amounts are
typically paid by the landlords after we complete construction and receive the appropriate
lien waivers from contractors.
We spent approximately $5.6 million on capital expenditures in the first quarter of
fiscal year 2011 primarily related to payments for the stores opened or being constructed
during the first quarter of the fiscal year. In addition, capital expenditures for the period
include payments for property, plant and equipment additions accrued at year-end fiscal year
2010 related to stores opened in fiscal year 2010. For the stores opened, renovated and
relocated in the first quarter of fiscal year 2011, we negotiated approximately $2.1 million
of landlord contributions. The table below summarizes the landlord contributions that were
negotiated and collected related to the stores opened, renovated and relocated in fiscal years
2011 and 2010.
Amounts | ||||||||||||||||
Amounts | Collected | Amounts | ||||||||||||||
Collected in | YTD in | Outstanding | ||||||||||||||
Negotiated | Fiscal Year | Fiscal Year | April 30, | |||||||||||||
Amounts | 2010 | 2011 | 2011 | |||||||||||||
(In Thousands ) | ||||||||||||||||
Full Fiscal Year 2010 Store Openings, Renovations and
Relocations (36 Stores) |
$ | 5,382 | $ | 2,599 | $ | 723 | $ | 2,060 | ||||||||
First Quarter of Fiscal Year 2011 Store Openings, Renovations and
Relocations (11 Stores) |
2,062 | | 624 | 1,438 | ||||||||||||
$ | 7,444 | $ | 2,599 | $ | 1,347 | $ | 3,498 | |||||||||
The outstanding amounts of the landlord contributions for the stores opened,
renovated and relocated in fiscal year 2010 and fiscal year 2011 are primarily expected to be
received within the next 12 months.
Management believes that our cash from operations, existing cash and cash equivalents and
short-term investments will be sufficient to fund our planned capital expenditures and
operating expenses through at least the next 12 months.
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Off-Balance Sheet Arrangements We have no off-balance sheet arrangements other
than our operating lease agreements.
Effects of Inflation and Changing Prices
Inflation and changing prices could have a material adverse impact on our operations,
financial condition and results of operations, especially with respect to our product costs
which are largely driven by cotton and wool prices and other production inputs such as labor
costs which are largely tied to the labor markets and economies of the various countries in
which our vendors are located. In general, we will attempt, over time, to increase prices to
largely counteract the increasing costs due to inflation. However there is no assurance that
our customers will accept such higher prices, especially over a short-term period.
Disclosures about Contractual Obligations and Commercial Commitments
Our principal commitments are non-cancellable operating leases in connection with our
retail stores, certain tailoring facilities and equipment and inventory purchase commitments.
Under the terms of certain of the retail store leases, we are 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 our contractual cash obligations and other
commercial commitments for the periods indicated, including amounts paid in the first quarter
of fiscal year 2011 unless otherwise indicated.
Payments Due by Fiscal Year | ||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||
2011 | 2012-2014 | 2015-2016 | Beyond 2016 | Total(f) | ||||||||||||||||
Operating leases (a) (b) |
$ | 63,480 | $ | 168,103 | $ | 71,738 | $ | 63,731 | $ | 367,052 | ||||||||||
Inventory Purchase Commitments (c) |
314,953 | | | | 314,953 | |||||||||||||||
Related Party Agreement (d) |
825 | 1,650 | | | 2,475 | |||||||||||||||
License agreement (e) |
165 | 495 | 165 | | 825 |
(a) | Includes various lease agreements signed prior to April 30, 2011 for stores to be opened and equipment placed in service subsequent to April 30, 2011. | |
(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 2012 for which purchase orders have been issued or other commitments have been made to vendors as of April 30, 2011. | |
(d) | Relates to consulting agreement with our 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 us to produce golf and other apparel under his name. | |
(f) | Obligations related to unrecognized tax benefits and related penalties and interest of $0.9 million have been excluded from the above table as the amount to be settled in cash and the specific payment dates are not known. |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
At April 30, 2011, we were not a party to any derivative financial instruments. We do
business with all of our product vendors in U.S. currency and do not have direct foreign
currency risk. However, a devaluation of the U.S. dollar against the foreign currencies of
our suppliers could have a material adverse effect on our product costs and resulting gross
profit. We currently invest substantially all of our 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 our 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 $2.2 million in fiscal year 2010.
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 our
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 our Chief Executive Officer (the CEO) and
Chief Financial Officer (the CFO), does not expect that our 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 our
Control Systems express only reasonable assurance of the conclusions reached.
Disclosure Controls and Procedures. We maintain disclosure controls and procedures that
are designed to ensure that information required to be disclosed in our 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 April 30, 2011, of our disclosure controls and procedures (as defined in Rules
13a15(e) and 15d15(e) under the Exchange Act). Based on that evaluation, the CEO and CFO
have concluded that our disclosure controls and procedures were effective as of April 30,
2011.
Changes in Internal Control over Financial Reporting. There were no changes in our
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 our
last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
We are a party to routine litigation matters that are incidental to our business. From
time to time, other legal matters in which we may be named as a defendant are expected to
arise in the normal course of our business activities. The resolution of our litigation
matters cannot be accurately predicted and there is no estimate of costs or potential losses,
if any. Accordingly, we cannot determine whether our insurance coverage, if any, would be
sufficient to cover such costs or potential losses, if any, and we have not recorded any
provision for cost or loss associated with these actions. It is possible that our 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 our Annual Report
on Form 10-K for fiscal year 2010, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form 10-K are not the
only risks facing us. Additional risks and uncertainties, including those not currently known
to us or that we currently deem to be immaterial also could materially adversely affect our
business, financial condition and/or operating results. There have been no material changes in
our risk factors from those disclosed in our Annual Report on Form 10-K for fiscal year 2010
except for the following:
Our advertising, marketing and promotional activities are highly regulated. |
Our operations are subject to various federal and state consumer protection laws and
regulations related to our advertising, marketing and promotional activities. We continue to
be subject to a consent decree mandating certain advertising practices relating to sales
promotions (the Assurance of Discontinuance). We have received from the New York Attorney
Generals office a letter dated April 25, 2011, requesting certain documents needed to
evaluate our compliance with New York state law and the Assurance of Discontinuance. We
endeavor to monitor and comply with all applicable laws and regulations (including the
Assurance of Discontinuance) to ensure that our advertising, marketing and promotional
activities comply with all applicable legal requirements, many of which involve subjective
judgments. Any changes in such laws or regulations, or how the laws or regulations are
enforced (including further action by the New York Attorney General), or any failure to comply
with such laws or regulations could have a material adverse effect on our business, financial
condition and results of operations.
Item 6. | Exhibits |
Exhibits
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. | |
101. | The following financial information from Jos. A. Bank Clothiers, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Condensed Consolidated Financial Statements.** | |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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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: June 1, 2011 | /s/ DAVID E. ULLMAN | |||
David E. Ullman | ||||
Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) |
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Exhibit Index
Exhibits
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. | |
101. | The following financial information from Jos. A. Bank Clothiers, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to Condensed Consolidated Financial Statements. ** | |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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