OXFORD INDUSTRIES INC - Quarter Report: 2013 May (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

Commission File Number: 1-4365

 

OXFORD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

999 Peachtree Street, N.E., Suite 688, Atlanta, Georgia 30309

(Address of principal executive offices)                               (Zip Code)

 

                            (404) 659-2424                              

(Registrant’s telephone number, including area code)

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 ¨

 

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.

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

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OXFORD INDUSTRIES, INC.

INDEX TO FORM 10-Q

For the first quarter of fiscal 2013

 

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)	4
Condensed Consolidated Statements of Earnings (Unaudited)	5
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3. Defaults Upon Senior Securities	28
Item 4. Mine Safety Disclosures	28
Item 5. Other Information	28
Item 6. Exhibits	29
Signatures	29

 

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

 

Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Important assumptions relating to these forward-looking statements include, among others, assumptions regarding the impact of economic conditions on consumer demand and spending, particularly in light of general economic uncertainty that continues to prevail, demand for our products, timing of shipments requested by our wholesale customers, expected pricing levels, competitive conditions, retention of and disciplined execution by key management, the timing and cost of store openings and of planned capital expenditures, costs of products as well as the raw materials used in those products, costs of labor, acquisition and disposition activities, expected outcomes of pending or potential litigation and regulatory actions, access to capital and/or credit markets and the impact of foreign losses on our effective tax rate. Forward-looking statements reflect our current expectations, based on currently available information, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for fiscal 2012, as updated by Part II, Item 1A. Risk Factors in this report and those described from time to time in our future reports filed with the SEC. We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

DEFINITIONS

 

As used in this report, unless the context requires otherwise, “our,” “us” or “we” means Oxford Industries, Inc. and its consolidated subsidiaries; “SG&A” means selling, general and administrative expenses; “SEC” means U.S. Securities and Exchange Commission; “FASB” means Financial Accounting Standards Board; “ASC” means the FASB Accounting Standards Codification; and “GAAP” means generally accepted accounting principles in the United States. Additionally, the terms listed below reflect the respective period noted:

 

Fiscal 2014		52 weeks ending January 31, 2015
Fiscal 2013		52 weeks ending February 1, 2014
Fiscal 2012		53 weeks ended February 2, 2013
Fourth quarter fiscal 2013		13 weeks ending February 1, 2014
Third quarter fiscal 2013		13 weeks ending November 2, 2013
Second quarter fiscal 2013		13 weeks ending August 3, 2013
First quarter fiscal 2013		13 weeks ended May 4, 2013
Fourth quarter fiscal 2012		14 weeks ended February 2, 2013
Third quarter fiscal 2012		13 weeks ended October 27, 2012
Second quarter fiscal 2012		13 weeks ended July 28, 2012
First quarter fiscal 2012		13 weeks ended April 28, 2012

 

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PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par amounts)

 

		May 4, 2013		February 2, 2013		April 28, 2012
ASSETS
Current Assets:
Cash and cash equivalents		$   28,325		$     7,517		$     5,679
Receivables, net		82,196		62,805		86,705
Inventories, net		95,798		109,605		85,996
Prepaid expenses, net		21,508		19,511		15,530
Deferred tax assets		20,686		22,952		19,339
Total current assets		248,513		222,390		213,249
Property and equipment, net		135,613		128,882		97,270
Intangible assets, net		163,813		164,317		165,673
Goodwill		17,267		17,275		16,495
Other non-current assets, net		23,209		23,206		22,302
Total Assets		$ 588,415		$ 556,070		$ 514,989
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued expenses		$   77,783		$   90,850		$   76,377
Accrued compensation		14,651		25,472		16,703
Contingent consideration current liability		—		—		2,500
Short-term debt		5,825		7,944		6,023
Total current liabilities		98,259		124,266		101,603
Long-term debt		159,294		108,552		106,991
Non-current contingent consideration		14,519		14,450		11,245
Other non-current liabilities		46,340		44,572		39,446
Non-current deferred income taxes		35,498		34,385		33,614
Commitments and contingencies
Shareholders’ Equity:
Common stock, $1.00 par value per common share		16,387		16,595		16,541
Additional paid-in capital		111,882		104,891		101,090
Retained earnings		131,120		132,944		127,079
Accumulated other comprehensive loss		(24,884	)	(24,585	)	(22,620	)
Total shareholders’ equity		234,505		229,845		222,090
Total Liabilities and Shareholders’ Equity		$ 588,415		$ 556,070		$ 514,989

 

See accompanying notes.

 

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OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(in thousands, except per share amounts)

 

		First Quarter Fiscal 2013		First Quarter Fiscal 2012
Net sales		$ 234,203		$ 230,953
Cost of goods sold		100,128		101,739
Gross profit		134,075		129,214
SG&A		113,025		100,808
Change in fair value of contingent consideration		69		600
Royalties and other operating income		5,080		4,982
Operating income		26,061		32,788
Interest expense, net		936		3,603
Net earnings before income taxes		25,125		29,185
Income taxes		11,502		11,183
Net earnings		$   13,623		$   18,002
Net earnings per share:
Basic		$       0.82		$       1.09
Diluted		$       0.82		$       1.09
Weighted average common shares outstanding:
Basic		16,586		16,531
Diluted		16,611		16,552
Dividends declared per common share		$       0.18		$       0.15

 

See accompanying notes.

 

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OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

 

		First Quarter Fiscal 2013		First Quarter Fiscal 2012
Net earnings		$ 13,623		$ 18,002
Other comprehensive income (loss), net of taxes
Foreign currency translation (loss) gain		(661	)	1,269
Net unrealized (loss) gain on cash flow hedges		362		(215	)
Total other comprehensive income (loss), net of taxes		(299	)	1,054
Comprehensive income		$ 13,324		$ 19,056

 

See accompanying notes.

 

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OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

		First Quarter Fiscal 2013		First Quarter Fiscal 2012
Cash Flows From Operating Activities:
Net earnings		$ 13,623		$ 18,002
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation		7,015		5,772
Amortization of intangible assets		211		256
Change in fair value of contingent consideration		69		600
Amortization of deferred financing costs and bond discount		108		376
Stock compensation expense		782		761
Deferred income taxes		3,443		(1,050	)
Changes in working capital, net of acquisitions and dispositions:
Receivables		(19,707	)	(26,638	)
Inventories		13,600		17,889
Prepaid expenses		(2,002	)	2,263
Current liabilities		(17,376	)	(19,798	)
Other non-current assets		(124	)	(2,326	)
Other non-current liabilities		1,772		781
Excess tax benefits related to stock-based compensation		(5,994	)	—
Net cash used in operating activities		(4,580	)	(3,112	)
Cash Flows From Investing Activities:
Purchases of property and equipment		(13,860	)	(9,633	)
Net cash used in investing activities		(13,860	)	(9,633	)
Cash Flows From Financing Activities:
Repayment of revolving credit arrangements		(67,428	)	(64,886	)
Proceeds from revolving credit arrangements		116,171		71,670
Proceeds from issuance of common stock, including excess tax benefits		6,214		680
Repurchase of restricted stock for employee tax withholding liabilities		(12,637	)	—
Dividends on common stock		(3,024	)	(2,475	)
Net cash provided by financing activities		39,296		4,989
Net change in cash and cash equivalents		20,856		(7,756	)
Effect of foreign currency translation on cash and cash equivalents		(48	)	62
Cash and cash equivalents at the beginning of year		7,517		13,373
Cash and cash equivalents at the end of the period		$ 28,325		$   5,679
Supplemental disclosure of cash flow information:
Cash paid for interest, net		$      860		$        82
Cash paid (refunded) for income taxes		$   1,113		$     (351	)

 

See accompanying notes.

 

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OXFORD INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FIRST QUARTER OF FISCAL 2013

 

1.                                      Basis of Presentation:  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.  We believe the accompanying unaudited condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.  Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.  The accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Annual Report on Form 10-K for fiscal 2012.

 

2.                                      Inventories: The components of inventories as of the dates specified are summarized in the following table (in thousands):

 

		May 4, 2013		February 2,  2013		April 28, 2012
Finished goods		$ 143,193		$ 154,593		$ 127,833
Work in process		4,447		6,028		4,378
Fabric, trim and supplies		4,605		5,431		6,161
LIFO reserve		(56,447	)	(56,447	)	(52,376	)
Total		$   95,798		$ 109,605		$   85,996

 

LIFO accounting adjustments, which we consider to include changes in the LIFO reserve as well as the impact of changes in inventory reserves related to lower of cost or market adjustments that do not exceed the LIFO reserve, were a charge of less than $0.1 million in the first quarter of fiscal 2013 and a charge of $0.2 million in the first quarter of fiscal 2012.

 

3.                                      Operating Group Information:   Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Lanier Clothes and Ben Sherman, as disclosed in our Annual Report on Form 10-K for fiscal 2012. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand’s direct to consumer, wholesale and licensing operations. The tables below present certain information (in thousands) about our operating groups, as well as Corporate and Other, which is a reconciling category for reporting purposes.

 

		First Quarter Fiscal 2013		First Quarter Fiscal 2012
Net Sales
Tommy Bahama		$ 150,426		$ 141,134
Lilly Pulitzer		39,449		35,633
Lanier Clothes		27,260		33,007
Ben Sherman		12,236		17,352
Corporate and Other		4,832		3,827
Total Net Sales		$ 234,203		$ 230,953
Depreciation and Amortization
Tommy Bahama		5,150		4,321
Lilly Pulitzer		663		506
Lanier Clothes		103		97
Ben Sherman		725		674
Corporate and Other		585		430
Total Depreciation and Amortization		$     7,226		$     6,028

 

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		First Quarter Fiscal 2013		First Quarter Fiscal 2012
Operating Income (Loss)
Tommy Bahama		$ 21,381		$ 25,564
Lilly Pulitzer		11,033		11,012
Lanier Clothes		2,461		4,046
Ben Sherman		(4,824	)	(2,740	)
Corporate and Other		(3,990	)	(5,094	)
Total Operating Income		26,061		32,788
Interest expense		936		3,603
Net earnings Before Income Taxes		$ 25,125		$ 29,185

 

4.                                      Income Taxes: Income tax expense reflects effective tax rates of 45.8% and 38.3% for the first quarter of fiscal 2013 and the first quarter of fiscal 2012, respectively. The effective tax rate for the first quarter of fiscal 2013 was impacted unfavorably by losses in foreign jurisdictions for which we were not able to recognize an income tax benefit.

 

5.                                      Accumulated Other Comprehensive Loss: The following tables detail the changes in our accumulated other comprehensive loss by component (in thousands), net of related income taxes, for the periods specified:

 

First Quarter of Fiscal 2013		Foreign  currency  translation  gain (loss)		Net unrealized  gain (loss) on  cash flow  hedges		Accumulated  other  comprehensive  loss
Beginning balance		$ (23,986	)	$ (599	)	$ (24,585	)
Other comprehensive (loss) income before reclassifications		(661	)	332		(329	)
Amounts reclassified from accumulated other comprehensive income (loss) for gains realized		—		30		30
Total other comprehensive (loss) income, net of taxes		(661	)	362		(299	)
Ending balance		$ (24,647	)	$ (237	)	$ (24,884	)

 

First Quarter of Fiscal 2012		Foreign  currency  translation  gain (loss)		Net unrealized  gain (loss) on  cash flow  hedges		Accumulated  other  comprehensive  loss
Beginning balance		$ (24,157	)	$ 483		$ (23,674	)
Other comprehensive income (loss) before reclassifications		1,269		(389	)	880
Amounts reclassified from accumulated other comprehensive income (loss) for gains realized		—		174		174
Total other comprehensive income (loss), net of taxes		1,269		(215	)	1,054
Ending balance		$ (22,888	)	$ 268		$ (22,620	)

 

Substantially all of the amounts reclassified from accumulated comprehensive loss included in the tables above relate to the gain (loss) on forward foreign currency exchange contracts. When forward foreign currency exchange contracts are settled, the resulting gain (loss) is reclassified from accumulated other comprehensive income to inventory in our consolidated balance sheet and then ultimately recognized in net earnings as cost of goods sold as the inventory is sold. The amounts reclassified from accumulated other comprehensive income relating to the gain (loss) on our interest rate swap agreements, if any, are recognized as interest expense in our consolidated statement of earnings.

 

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6.                                      Subsequent Event: On May 6, 2013, we acquired the business operations relating to the Tommy Bahama business in Canada from our former licensee. As part of the acquisition, we reacquired the rights pursuant to the license agreement. We also acquired nine Tommy Bahama retail store operations and a wholesale business.  As of May 4, 2013, cash and cash equivalents on our balance sheet included $18.7 million which we had borrowed under our revolving credit agreement to fund the acquisition, pay transaction costs and provide amounts for initial working capital needs for the operations and development of the acquired business.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for fiscal 2012.

 

OVERVIEW

 

We generate revenues and cash flow primarily through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our owned lifestyle brands, as well as certain licensed and private label apparel products. We distribute our products through our direct to consumer channels, including our retail stores, e-commerce sites and restaurants, and our wholesale distribution channel, which includes better department stores, specialty stores, national chains, specialty catalogs, mass merchants and Internet retailers. In fiscal 2012, more than 90% of our consolidated net sales were to customers located in the United States, with the remainder primarily being sales of our Ben Sherman® products in the United Kingdom and Europe. We source substantially all of our products through third party manufacturers located outside of the United States and United Kingdom.

 

Our business strategy is to develop and market compelling lifestyle brands and products that are “fashion right” and evoke a strong emotional response from our target consumers. We strive to exploit the potential of our existing brands and products and, as suitable opportunities arise, we may acquire additional lifestyle brands that we believe fit within our business model. We believe that lifestyle branded products that create an emotional connection with our target consumers can command greater customer loyalty and higher price points at retail, resulting in higher earnings. We also believe a successful lifestyle brand opens up greater opportunities for direct to consumer and licensing operations.

 

We operate in highly competitive domestic and international markets in which numerous U.S.-based and foreign apparel firms compete. No single apparel firm or small group of apparel firms, dominate the apparel industry and our direct competitors vary by operating group and distribution channel. We believe that the principal competitive factors in the apparel industry are the reputation, value and image of brand names; design; consumer preference; price; quality; marketing; and customer service. We believe that our ability to compete successfully in styling and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference, and presenting appealing products for consumers. In some instances, a retailer that is our customer may compete directly with us by offering certain of their own competing products, some of which may be sourced directly by our customer, in their own retail stores. Additionally, the apparel industry is cyclical and dependent upon the overall level of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. Often, negative economic conditions have a longer and more severe impact on the apparel and retail industry than the conditions have on other industries.

 

We believe the global economic conditions and resulting economic uncertainty that has prevailed in recent years continue to impact each of our operating groups, and the apparel industry as a whole. Although some signs of economic improvements exist in the United States, the retail environment remains promotional and economic uncertainty remains. Further, the economies of the United Kingdom and Europe, which are important to our Ben Sherman operating group, continue to struggle more than the economy in the United States. We anticipate that sales of our products may continue to be negatively impacted as long as there is an elevated level of economic uncertainty. Additionally, we were impacted in recent periods by pricing pressures on raw materials, fuel, transportation, labor and other costs necessary for the production and sourcing of apparel products, which continues in fiscal 2013.

 

We believe that our Tommy Bahama® and Lilly Pulitzer® lifestyle brands have significant opportunities for long-term growth in their direct to consumer businesses through expansion of our retail store operations as we add additional retail store locations and with increases in same store and e-commerce sales, with e-commerce likely to grow at a faster rate than retail store operations. We also believe that these lifestyle brands provide an opportunity for moderate sales increases in their wholesale businesses in the long-term primarily from our current customers adding to their existing door count and the selective addition of new wholesale customers. We believe that in order to take advantage of opportunities for long-term growth for the brands, we must continue to invest in our Tommy Bahama and Lilly Pulitzer lifestyle brands.

 

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We believe that the tailored clothing environment will continue to be very challenging, with competition and costing pressures negatively impacting operating income in Lanier Clothes in the near term. The Ben Sherman lifestyle brand currently faces challenges due to our ongoing elevation of the distribution of the brand, the sluggish economic conditions in the United Kingdom and Europe and missteps in the merchandise mix in our own retail stores. We believe that in the long-term Ben Sherman will have opportunities to improve its operating results if the elevation of the brand is successful and the economic conditions in the United Kingdom and Europe improve.

 

We continue to believe that it is important to maintain a strong balance sheet and ample liquidity. We believe that our positive cash flow from operations coupled with the strength of our balance sheet and liquidity will provide us with ample resources to fund future investments in our lifestyle brands. In the future, we may add additional lifestyle brands to our portfolio, if we identify appropriate targets which meet our investment criteria; however, we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands.

 

The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012:

 

		First Quarter
		Fiscal 2013		Fiscal 2012
Net sales		$ 234,203		$ 230,953
Operating income		$   26,061		$   32,788
Net earnings		$   13,623		$   18,002
Net earnings per diluted share		$       0.82		$       1.09

 

The primary reasons for the lower earnings in the first quarter of fiscal 2013 were:

 

·                  An increase in SG&A for Tommy Bahama and Lilly Pulitzer which was primarily due to (1) the SG&A associated with the operation and pre-opening expenses of domestic retail stores opened in fiscal 2012 and fiscal 2013, (2) certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama Asia-Pacific expansion and (3) higher SG&A to support the growing Tommy Bahama and Lilly Pulitzer businesses;

 

·                  A decrease in net sales and operating results at both Lanier Clothes and Ben Sherman; and

 

·                  A higher effective tax rate in fiscal 2013 primarily due to our inability to recognize the income tax benefit of losses in foreign jurisdictions.

 

These items were partially offset by:

 

·                  An increase in net sales in both the Tommy Bahama and Lilly Pulitzer operating groups;

 

·                  A $2.7 million reduction in interest expense in the first quarter of fiscal 2013 to $0.9 million due to our borrowing at lower interest rates in fiscal 2013 compared to the first quarter of fiscal 2012 as a result of our July 2012 redemption of the remaining $105 million in aggregate principal amount of our 11 3/8% senior secured notes, using borrowings under our U.S. Revolving Credit Agreement; and

 

·                  A $0.5 million reduction in the change in fair value of contingent consideration.

 

OPERATING GROUPS

 

Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Lanier Clothes and Ben Sherman. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operating group structure reflects a brand-focused management approach, emphasizing operational coordination and resource allocation across each brand’s direct to consumer, wholesale and licensing operations.

 

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Tommy Bahama designs, sources, markets and distributes men’s and women’s sportswear and related products. The target consumers of Tommy Bahama are primarily affluent men and women age 35 and older who embrace a relaxed and casual approach to daily living. Tommy Bahama products can be found in our owned Tommy Bahama stores within and outside the United States and on our Tommy Bahama e-commerce website, tommybahama.com, as well as in better department stores and independent specialty stores throughout the United States and licensed Tommy Bahama stores in the United Arab Emirates. We also operate Tommy Bahama restaurants and license the Tommy Bahama name for various product categories. As of May 4, 2013, we operated 121 owned Tommy Bahama retail stores, including 80 full-price stores, 15 restaurant-retail locations and 26 outlet stores. This store count includes 111 owned domestic and 10 owned Asia-Pacific retail store locations, but excludes the nine retail stores located in Canada which we subsequently acquired on May 6, 2013.

 

Lilly Pulitzer designs, sources and distributes upscale collections of women’s and girl’s dresses, sportswear and related products. Lilly Pulitzer was originally created in the late 1950’s and is an affluent brand with a heritage and aesthetic based on the Palm Beach resort lifestyle. The brand is somewhat unique among women’s brands in that it has demonstrated multi-generational appeal, including young women in college or recently graduated from college; young mothers with their daughters; and women who are not tied to the academic calendar. Lilly Pulitzer products can be found in our owned Lilly Pulitzer stores, in Lilly Pulitzer Signature Stores and on our Lilly Pulitzer website, lillypulitzer.com, as well as in better department and independent specialty stores. We also license the Lilly Pulitzer name for various product categories. As of May 4, 2013, we operated 21 owned Lilly Pulitzer retail stores.

 

Lanier Clothes designs, sources and markets branded and private label men’s tailored clothing, including suits, sportcoats, suit separates and dress slacks across a wide range of price points, with the majority of the business at moderate price points. Substantially all of our Lanier Clothes branded products are sold under certain trademarks licensed to us by third parties. Licensed brands included Kenneth Cole®, Dockers®, Geoffrey Beene® and Ike Behar®. Additionally, we design and market products for our owned Billy London®, Arnold Brant® and Oxford Republic® brands. In addition to the branded businesses, which represented 73% of Lanier Clothes net sales in fiscal 2012, Lanier Clothes designs and sources private label tailored clothing products for certain customers. Our Lanier Clothes products are sold to national chains, department stores, specialty stores, specialty catalog retailers and discount retailers throughout the United States.

 

Ben Sherman is a London-based designer, marketer and distributor of men’s branded sportswear and related products. Ben Sherman was established in 1963 as an edgy shirt brand that was adopted by the “Mods” and has throughout its history been inspired by what is new and current in British art, music, culture and style. The brand has evolved into a British modernist lifestyle brand of apparel targeted at style conscious men ages 25 to 40 in multiple markets throughout the world. Ben Sherman products can be found in better department stores, a variety of independent specialty stores and our owned and licensed Ben Sherman retail stores, as well as on Ben Sherman e-commerce websites. We also license the Ben Sherman name for various product categories. As of May 4, 2013 we operated 19 owned Ben Sherman international and domestic retail stores, including 12 full-price retail stores and seven outlets.

 

Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments, other costs that are not allocated to the operating groups and operations of our other businesses which are not included in our four operating groups. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to operating groups.  The operations that are included in Corporate and Other include our Oxford Golf business and our Lyons, Georgia distribution center.

 

For further information regarding our operating groups, see Note 3 to our unaudited condensed consolidated financial statements included in this report and Part I, Item 1. Business in our Annual Report on Form 10-K for fiscal 2012.

 

COMPARABLE STORE SALES

 

We often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods. Our disclosures of comparable store sales include sales from full-price stores and our e-commerce sites, excluding sales associated with e-commerce flash clearance sales. We believe that given the

 

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similar nature and process of inventory planning, allocation and return policy, as well as our cross-channel marketing, and other initiatives, for the direct to consumer channel, the inclusion of our e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results. For our comparable store sales disclosures, we exclude (1) outlet store sales and amounts related to e-commerce flash clearance sales, as those sales are used primarily to liquidate end of season inventory, which may vary significantly depending on the level of end of season inventory on hand and generally occurs at lower gross margins than our full-price direct to consumer sales and (2) restaurant sales as we do not believe that the inclusion of restaurant sales is meaningful in assessing our consolidated operations. Thus, the comparable store metrics disclosed by us reflect comparable full-price retail stores and e-commerce sites, excluding e-commerce flash clearance sales, in total, unless specified otherwise.

 

For purposes of our disclosures, we consider a comparable store to be, in addition to our e-commerce sites, a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not during the relevant periods, and is not within the current fiscal year scheduled to, have (1) a remodel resulting in the store being closed for an extended period of time (which we define as a period of two weeks or longer), (2) a greater than 15% change in the size of the retail space due to expansion, reduction or relocation to a new retail space or (3) a relocation to a new space that was significantly different from the prior retail space. For those stores which are excluded from comparable stores based on the preceding sentence, we treat those stores as new store openings. Generally, a store that is remodeled will continue to be included in our comparable store metrics as a store is not typically closed for a two week period during a remodel. However, a store that is relocated generally will not be included in our comparable store metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location. Additionally, any stores that were closed during the prior fiscal year or which we plan to close or vacate in the current fiscal year are excluded from the definition of comparable stores.

 

Definitions and calculations of comparable store sales differ among companies in the apparel retail industry, and therefore comparable store metrics disclosed by us may not be comparable to the metrics disclosed by other companies.

 

RESULTS OF OPERATIONS

 

FIRST QUARTER OF FISCAL 2013 COMPARED TO FIRST QUARTER OF FISCAL 2012

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of earnings both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding.

 

		First Quarter
		Fiscal 2013				Fiscal 2012				$ Change		% Change
Net sales		$ 234,203		100.0	%	$ 230,953		100.0	%	$  3,250		1.4%
Cost of goods sold		100,128		42.8	%	101,739		44.1	%	(1,611	)	(1.6)%
Gross profit		134,075		57.2	%	129,214		55.9	%	4,861		3.8%
SG&A		113,025		48.3	%	100,808		43.6	%	12,217		12.1%
Change in fair value of contingent consideration		69		0.0	%	600		0.3	%	(531	)	(88.5)%
Royalties and other operating income		5,080		2.2	%	4,982		2.2	%	98		2.0%
Operating income		26,061		11.1	%	32,788		14.2	%	(6,727	)	(20.5)%
Interest expense, net		936		0.4	%	3,603		1.6	%	(2,667	)	(74.0)%
Net earnings before income taxes		25,125		10.7	%	29,185		12.6	%	(4,060	)	(13.9)%
Income taxes		11,502		4.9	%	11,183		4.8	%	319		2.9%
Net earnings		$   13,623		5.8	%	$   18,002		7.8	%	$ (4,379	)	(24.3)%

 

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The discussion and tables below compare certain line items included in our statements of earnings for the first quarter of fiscal 2013 to the first quarter of fiscal 2012. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.

 

Net Sales

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Tommy Bahama		$ 150,426		$ 141,134		$ 9,292		6.6%
Lilly Pulitzer		39,449		35,633		3,816		10.7%
Lanier Clothes		27,260		33,007		(5,747	)	(17.4)%
Ben Sherman		12,236		17,352		(5,116	)	(29.5)%
Corporate and Other		4,832		3,827		1,005		26.3%
Total net sales		$ 234,203		$ 230,953		$ 3,250		1.4%

 

Consolidated net sales increased $3.3 million, or 1.4%, in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 primarily due to the increase in net sales at Tommy Bahama and Lilly Pulitzer, which were partially offset by decreased net sales at Lanier Clothes and Ben Sherman, each as discussed below.

 

Tommy Bahama:

 

The Tommy Bahama sales increase of $9.3 million, or 6.6%, was primarily driven by (1) a 10% increase in comparable store sales, which includes full price retail stores and e-commerce sales, to $63.6 million in the first quarter of fiscal 2013 compared to $57.8 million in the first quarter of fiscal 2012, (2) a net sales increase of $5.4 million associated with domestic retail stores and outlet stores opened during fiscal 2012 and fiscal 2013, (3) a net sales increase associated with our Tommy Bahama operations in Australia and Asia of $2.1 million and (4) an increase in restaurant sales. These increases in sales were partially offset by (1) a $3.8 million sales decrease in the wholesale business, which included a shift in the timing of shipments, in part due to the impact of the 53rd week in fiscal 2012, which resulted in more spring 2013 product being shipped during fiscal 2012 as compared to the prior year and (2) lower sales in outlet stores that were opened prior to fiscal 2012. Tommy Bahama’s apparel unit sales increased by 5.1% due to the higher volume in the direct to consumer distribution channel, and the average selling price per apparel unit increased by 1.3% as sales in the direct to consumer channel of distribution, which generally have a higher sales price per unit than wholesale sales, represented a greater proportion of Tommy Bahama net sales in the first quarter of fiscal 2013. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented:

 

		First Quarter
		Fiscal 2013		Fiscal 2012
Full-price retail stores and outlet stores		46	%	43	%
E-Commerce		11	%	9	%
Restaurant		12	%	12	%
Wholesale		31	%	36	%
Total		100	%	100	%

 

Lilly Pulitzer:

 

The Lilly Pulitzer sales increase of $3.8 million, or 10.7%, was primarily driven by (1) a wholesale sales increase of $1.8 million reflecting an increase in full-price and off-price wholesale sales, (2) a net sales increase of $1.5 million associated with retail stores opened in fiscal 2012 and fiscal 2013 and (3) a 3% increase in comparable store sales to $13.8 million in the first quarter of fiscal 2013 compared to $13.4 million in the first quarter of fiscal 2012. Lilly Pulitzer’s average selling price per apparel unit increased by 7.0% while unit sales increased by 4.0%. The increased selling price per unit primarily resulted from a higher proportion of direct to consumer sales in the first quarter of fiscal 2013.  The increase in units sold was driven by increased units in all channels of distribution. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented:

 

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		First Quarter
		Fiscal 2013		Fiscal 2012
Full-price retail stores		26	%	24	%
E-Commerce		15	%	16	%
Wholesale		59	%	60	%
Total		100	%	100	%

 

Lanier Clothes:

 

The decrease in net sales for Lanier Clothes of $5.7 million, or 17.4%, was primarily due to the decrease in sales in both the branded and private label distribution channels. The decrease in sales was primarily due to the timing of wholesale orders as well as our exit from certain programs. These factors resulted in a 14.7% decrease in unit sales. A decrease in average selling price per unit of 3.2% was primarily due to continued pricing pressures in the tailored clothing business as well as a change in product mix.

 

Ben Sherman:

 

Net sales for Ben Sherman decreased by $5.1 million, or 29.5%, in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, primarily due to a $5.0 million decline in wholesale sales, with direct to consumer net sales generally being comparable in the first quarter of fiscal 2013 and the first quarter of fiscal 2012 as sales at new stores and e-commerce sales offset sales decreases at existing stores. The decrease in net sales for Ben Sherman was primarily driven by a reduction in unit volume of 34.8% primarily attributable to (1) our exit from certain wholesale accounts in the United Kingdom and the United States and (2) the difficult economic conditions that persist in the United Kingdom and Europe. The direct to consumer operations of Ben Sherman continued to be negatively impacted by the missteps in Ben Sherman’s merchandise assortment planning that began in the second half of fiscal 2012, and, particularly in the current economic environment, resulted in too much product offering in styles at the higher end of the price range which gave rise to more promotions in our retail stores in order to sell inventory on hand.

 

The reduction in units sold was partially offset by an increase in the average selling price per unit of 8.2%. The increase in average selling price per unit reflects a greater proportion of Ben Sherman’s sales being direct to consumer sales. The change in sales mix that positively impacted average selling price per unit was partially offset by a 3.5% unfavorable foreign currency translation change in the average exchange rates between the two periods. The following table presents the proportion of net sales by distribution channel for Ben Sherman for each period presented:

 

		First Quarter
		Fiscal 2013		Fiscal 2012
Wholesale		53	%	66	%
Direct to Consumer		47	%	34	%
Total		100	%	100	%

 

Corporate and Other:

 

Corporate and Other net sales primarily consisted of the net sales of our Oxford Golf business and our Lyons, Georgia distribution center. The increase in the net sales for Corporate and Other was primarily driven by the higher net sales in our Oxford Golf business during the first quarter of fiscal 2013.

 

Gross Profit

 

The first table below presents gross profit by operating group and in total for the first quarter of fiscal 2013 and the first quarter of fiscal 2012 as well as the change between those two periods. The second table presents gross margin, which is calculated as gross profit divided by net sales, by operating group and in total for the first quarter of fiscal 2013 and the first quarter of fiscal 2012. Our gross profit and gross margin may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.

 

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		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Tommy Bahama		$   93,131		$   86,131		$ 7,000		8.1%
Lilly Pulitzer		24,894		23,083		1,811		7.8%
Lanier Clothes		7,947		10,049		(2,102	)	(20.9)%
Ben Sherman		6,305		8,989		(2,684	)	(29.9)%
Corporate and Other		1,798		962		836		86.9%
Total		$ 134,075		$ 129,214		$ 4,861		3.8%
LIFO charges included in Corporate and Other		$          28		$        223

 

		First Quarter
		Fiscal 2013		Fiscal 2012
Tommy Bahama		61.9%		61.0%
Lilly Pulitzer		63.1%		64.8%
Lanier Clothes		29.2%		30.4%
Ben Sherman		51.5%		51.8%
Corporate and Other		NM		NM
Total		57.2%		55.9%

 

The increase in consolidated gross profit was primarily due to higher net sales in Tommy Bahama and Lilly Pulitzer partially offset by the lower sales in Ben Sherman and Lanier Clothes, each as discussed above. Additionally, gross profit was also impacted by the changes in gross margin by operating group, as discussed below.

 

On a consolidated basis, the increase in gross margins from the first quarter of fiscal 2012 to the first quarter of fiscal 2013 was primarily due to a change in the sales mix. The change in sales mix in the first quarter of fiscal 2013 included (1) Tommy Bahama and Lilly Pulitzer, which typically have higher gross margins than our other operating groups, representing a greater proportion of our consolidated net sales and (2) direct to consumer sales, which generally have higher gross margins than wholesale sales, making up a larger proportion of the Tommy Bahama, Lilly Pulitzer and Ben Sherman sales. These items, which positively impacted gross margins, were partially offset by the negative impact of gross margin pressures at Lanier Clothes and more significant promotions at Ben Sherman during the first quarter of fiscal 2013.

 

The higher gross margin at Tommy Bahama was primarily due to the change in the proportion of sales in each distribution channel as sales in the direct to consumer distribution channel, which typically have higher gross margins than the wholesale distribution channel, represented a greater proportion of Tommy Bahama’s net sales in the first quarter of fiscal 2013.

 

The decrease in gross margin for Lilly Pulitzer from the first quarter of fiscal 2012 to the first quarter of fiscal 2013 was primarily due to approximately $0.8 million of off-price wholesale sales that occurred in the first quarter of fiscal 2013, whereas similar off-price sales in fiscal 2012 occurred in the second quarter of fiscal 2012. The gross margin impact of these off-price sales exceeded the positive impact of the change in sales mix towards direct to consumer sales.

 

The decrease in gross margin at Lanier Clothes was primarily the result of continuing gross margin pressures, including both competitive factors and higher product costs that continue to impact the tailored clothing business as well as a shift in product mix.

 

The decrease in gross margin at Ben Sherman reflects (1) heavier promotions in the direct to consumer business, (2) a higher proportion of off-price sales and (3) the competitive factors resulting from the difficult economic conditions that persist in the United Kingdom and Europe. The heavier promotions and the higher proportion of off-price sales, which were necessary measures to appropriately manage inventory levels, primarily resulted from the merchandising misstep in the second half of fiscal 2012 and the impact of the economic environment. These negative factors offset the positive gross margin impact of the shift towards direct to consumer sales representing a larger proportion of the Ben Sherman business in the first quarter of fiscal 2013.

 

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The gross profit in Corporate and Other in each period primarily reflects the impact on gross profit of our Oxford Golf and Lyons, Georgia distribution center operations offset by the impact of LIFO accounting adjustments. The LIFO accounting charge was less than $0.1 million in the first quarter of fiscal 2013 compared to a charge of $0.2 million in the first quarter of fiscal 2012.

 

SG&A

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
SG&A		$ 113,025		$ 100,808		$ 12,217		12.1	%
SG&A (as % of net sales)		48.3	%	43.6	%

 

The increase in SG&A was primarily due to (1) $5.7 million of incremental SG&A in the first quarter of fiscal 2013 associated with operating additional domestic Tommy Bahama and Lilly Pulitzer stores, (2) $4.3 million of incremental SG&A associated with certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama Asia-Pacific expansion, (3) higher costs, consisting primarily of employment and advertising expenses, to support the growing Tommy Bahama and Lilly Pulitzer businesses, including support functions for direct to consumer operations and (4) transaction costs associated with our acquisition of the business operations relating to the Tommy Bahama business in Canada from our former licensee. The increases in SG&A for Tommy Bahama and Lilly Pulitzer were partially offset by modest SG&A reductions in Lanier Clothes, Ben Sherman and Corporate and Other.

 

Change in fair value of contingent consideration

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Change in fair value of contingent consideration		$ 69		$ 600		$ (531	)	(88.5	)%

 

Change in the fair value of contingent consideration reflects the current period impact of the change in the fair value of the contingent consideration obligation associated with the Lilly Pulitzer acquisition, as discussed in our Annual Report on Form 10-K for fiscal 2012. The decrease in change in fair value of contingent consideration in the first quarter of fiscal 2013 was primarily due to the significant increase in the fair value of the contingent consideration recognized in the fourth quarter of fiscal 2012 which resulted from our assessment of greater certainty that the full amount of the contingent consideration will be paid in the future. This change in fair value results in charges now reflecting a lower discount rate associated with the obligation than the discount rate used in prior periods. We anticipate that the charge for the change in the fair value of the contingent consideration for the full 2013 fiscal year will be $0.3 million.

 

Royalties and other operating income

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Royalties and other operating income		$ 5,080		$ 4,982		$ 98		2.0	%

 

Royalties and other operating income in the first quarter of fiscal 2013 primarily reflect income received from third parties from the licensing of our Tommy Bahama, Ben Sherman and Lilly Pulitzer brands, which were comparable on a consolidated basis to the royalty income recognized in the first quarter of fiscal 2012 with slightly higher royalty income in Tommy Bahama and Lilly Pulitzer being offset by a decrease in Ben Sherman royalty income.

 

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Operating income (loss)

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Tommy Bahama		$ 21,381		$ 25,564		$ (4,183	)	(16.4)%
Lilly Pulitzer		11,033		11,012		21		0.2%
Lanier Clothes		2,461		4,046		(1,585	)	(39.2)%
Ben Sherman		(4,824	)	(2,740	)	(2,084	)	(76.1)%
Corporate and Other		(3,990	)	(5,094	)	1,104		21.7%
Total operating income		$ 26,061		$ 32,788		$ (6,727	)	(20.5)%
LIFO charges included in operating income of Corporate and Other		$        28		$      223
Change in fair value of contingent consideration included in operating income of Lilly Pulitzer		$        69		$      600

 

Operating income, on a consolidated basis, was $26.1 million in the first quarter of fiscal 2013 compared to $32.8 million in the first quarter of fiscal 2012. The 20.5% decrease in operating income was primarily due to the lower operating income of Tommy Bahama, Ben Sherman and Lanier Clothes, partially offset by a lower operating loss in Corporate and Other.  Changes in operating income by operating group are discussed below.

 

Tommy Bahama:

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Net sales		$ 150,426		$ 141,134		$  9,292		6.6%
Gross margin		61.9	%	61.0	%
Operating income		$   21,381		$   25,564		$ (4,183	)	(16.4)%
Operating income as % of net sales		14.2	%	18.1	%

 

The decrease in operating income for Tommy Bahama was primarily due to the higher SG&A which out- paced the increase in net sales and the expanded gross margins, each as discussed above. The increased SG&A was primarily associated with (1) operating additional domestic retail stores in fiscal 2013 which resulted in $4.9 million of additional SG&A, (2) $4.3 million of incremental SG&A associated with certain infrastructure, pre-opening retail store rent and other costs related to the Tommy Bahama Asia-Pacific expansion, (3) higher SG&A, consisting primarily of employment costs and advertising costs, to support the growing Tommy Bahama business and (4) transaction costs associated with our acquisition of the business operations relating to the Tommy Bahama business in Canada from our former licensee.

 

The higher SG&A associated with our Asia-Pacific operations, partially offset by gross profit of our Asia-Pacific stores, resulted in an operating loss associated with our Asia-Pacific operations of $4.4 million in the first quarter of fiscal 2013 compared to an operating loss associated with our Asia-Pacific operations of $1.8 million in the first quarter of fiscal 2012. We anticipate as the year progresses that the operating losses related to our Asia-Pacific operations will moderate, resulting in the operating losses in fiscal 2013 being comparable to the $10.4 million of losses incurred in fiscal 2012. However, the rate of the losses should be lower by the end of fiscal 2013 as compared to fiscal 2012 as we will have more Asia-Pacific stores operating at the end of fiscal 2013 than we did at the end of fiscal 2012 to provide operating income to offset the Asia-Pacific infrastructure.

 

Lilly Pulitzer:

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Net sales		$ 39,449		$ 35,633		$ 3,816		10.7%
Gross margin		63.1	%	64.8	%
Operating income		$ 11,033		$ 11,012		$      21		0.2%
Operating income as % of net sales		28.0	%	30.9	%
Change in fair value of contingent consideration included in operating income		$        69		$      600

 

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The fiscal 2013 operating income for Lilly Pulitzer was comparable with the fiscal 2012 operating income. Increased net sales and the $0.5 million lower charge for the change in fair value of contingent consideration were offset by increased SG&A and reduced gross margins, each as discussed above. The increased SG&A was primarily associated with (1) higher costs, consisting primarily of employment expenses, to support the growing Lilly Pulitzer business and (2) $0.8 million of incremental SG&A associated with the cost of operating additional retail stores during fiscal 2013.

 

Lanier Clothes:

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Net sales		$ 27,260		$ 33,007		$ (5,747	)	(17.4)%
Gross margin		29.2	%	30.4	%
Operating income		$   2,461		$   4,046		$ (1,585	)	(39.2)%
Operating income as % of net sales		9.0	%	12.3	%

 

The decrease in operating income for Lanier Clothes was primarily the result of the lower sales and gross margins, each as discussed above, partially offset by lower SG&A resulting from lower employment and advertising costs.

 

Ben Sherman:

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Net sales		$ 12,236		$ 17,352		$ (5,116	)	(29.5)%
Gross margin		51.5	%	51.8	%
Operating loss		$  (4,824	)	$  (2,740	)	$ (2,084	)	(76.1)%
Operating loss as % of net sales		(39.4	)%	(15.8	)%

 

The decline in operating results for Ben Sherman was primarily due to the significant decrease in sales and slightly lower gross margin, each as discussed above, and lower royalty income. These factors that negatively impacted the operating results were partially offset by reduced SG&A in Ben Sherman.

 

Corporate and Other:

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Net sales		$   4,832		$   3,827		$ 1,005		26.3%
Operating loss		$ (3,990	)	$ (5,094	)	$ 1,104		21.7%
LIFO charges included in operating loss		$        28		$      223

 

The Corporate and Other operating results improved by $1.1 million from a loss of $5.1 million in fiscal 2012 to a loss of $4.0 million in fiscal 2013. The improvement in operating results was primarily due to (1) the higher sales of the Oxford Golf and Lyons, Georgia distribution center, (2) reduced SG&A in our corporate operations and (3) a $0.2 million reduction in the charge from LIFO accounting.

 

Interest expense, net

 

		First Quarter
		Fiscal 2013		Fiscal 2012		$ Change		% Change
Interest expense, net		$ 936		$ 3,603		$ (2,667	)	(74.0)%

 

Interest expense for the first quarter of fiscal 2013 decreased primarily due to our borrowing at lower interest rates in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012.  During the first quarter of fiscal 2013, substantially all of our borrowings were under our U.S. Revolving Credit Agreement, whereas substantially all of our borrowings in the first quarter of fiscal 2012 were from our previously outstanding senior secured notes, which had a coupon rate of 113/8%. The change in the source of our borrowings resulted from our redemption of the remaining outstanding senior secured notes in July 2012, which was primarily funded with borrowings under our U.S. Revolving Credit Agreement. We anticipate that interest expense for fiscal 2013 will be approximately $4.5 million.

 

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