Item 1A. Risk Factors
The risks described below highlight some of the factors that could materially affect our operations. If any of these risks actually occurs, our business, financial condition, prospects and/or operating results may be adversely affected. These are not the only risks and uncertainties we face. Additional risks and uncertainties that we currently consider immaterial or are not presently known to us may also adversely affect our business.
Risks Related to our Industry and Macroeconomic Conditions
The COVID-19 pandemic has had, and may continue to have, a material adverse effect on our business, revenues, financial condition and results of operations.
Since 2020, the COVID-19 pandemic has created tremendous uncertainty in the global economy, disrupted consumer spending and global supply chains and has had an adverse impact on our business, revenues and results of operations. In Fiscal 2020, we experienced a net sales decline of 33% from Fiscal 2019 and incurred a net loss of $96 million.
At various points during Fiscal 2020, all of our stores and restaurants were closed temporarily, as were all of the stores operated by our wholesale customers. Even after reopening, these physical locations were impacted by state and local government restrictions on occupancy levels, indoor dining and health and safety measures, which negatively impacted customer traffic to our locations.
The continued operation of our stores and restaurants, as well as many of our business activities, is dependent on, among other things, our personnel who work at these and other designated locations. In the event that an employee tests positive for COVID-19, we have had to, and may in the future have to, temporarily close one or more stores, restaurants, offices or distribution centers for cleaning and/or due to the unavailability of impacted employees, which could negatively impact our operations.
We also rely on suppliers outside of the United States to manufacture our products. As a result of COVID-19 and the measures designed to contain the spread of the virus, our third party suppliers, who are concentrated in Asia, have been, and may in the future be, impacted by materials, capacity, capability or labor constraints. The failure to timely deliver products to us in accordance with our specifications negatively impacts our inventory levels and our ability to have fresh, in-season product available for sale, which may adversely impact our revenues. In addition, we engage freight forwarders, logistics providers and third party shipping vendors to deliver products to us, our retail locations and/or our customers. Service delays or disruptions, restrictions on services available to us or price increases imposed by these vendors due to increased demand or operational challenges has and will continue to exacerbate these challenges, which could also result in lost sales, returns, requests for refunds, cancellation of orders or lost sales, any or all of which could harm our reputation and relationships with our customers.
The full extent of the impact of the COVID-19 pandemic on our business will depend on future developments, which remain highly uncertain and difficult to predict, including the duration, severity and sustained geographic spread of the pandemic, additional waves of increased infections, the virulence and spread of different strains of the virus, and the extent to which associated prevention, containment, remediation and treatment efforts, including global vaccination programs and vaccine acceptance, are successful.
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Further, even after containment of the virus, any prolonged reduction in consumer traffic, consumer willingness to visit malls, shopping centers or domestic resort areas or levels of consumer discretionary spending would result in a further loss of revenues. Any of the negative impacts of the COVID-19 pandemic, alone or in combination with others, could exacerbate many of the other risk factors discussed in this report. Although we did see a rebound in consumer spending and customer traffic to our physical locations during Fiscal 2021, the full extent to which the COVID-19 pandemic will negatively affect our results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted.
Our business and financial condition are heavily influenced by general economic and market conditions which are outside of our control.
We are a consumer products company and are highly dependent on consumer discretionary spending and retail traffic patterns, particularly in the United States. The demand for apparel products changes as regional, domestic and international economic conditions change and may be significantly impacted by trends in consumer confidence and discretionary consumer spending patterns. These trends may be influenced by employment levels; recessions; increases in inflation and interest rates; fuel and energy costs; tax rates; personal debt levels; savings rates; stock market and housing market volatility; shifting social ideology; and general uncertainty about the future. The factors impacting consumer confidence and discretionary consumer spending patterns are outside of our control and difficult to predict, and, often, the apparel industry experiences longer periods of recession and greater declines than the general economy. In addition, as the growth in our direct to consumer operations continues to outpace our other operations, we may have increased exposure to certain risks associated with a volatile and unpredictable economic environment. Any decline in consumer confidence or change in discretionary consumer spending patterns could reduce our sales, increase our inventory levels, result in more promotional activities and/or lower our gross margins, any or all of which may adversely affect our business and financial condition.
We operate in a highly competitive industry with significant pricing pressures and heightened customer expectations.
We operate in a highly competitive industry in which the principal competitive factors are the reputation, value and image of brand names; design of differentiated, innovative or otherwise compelling product; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service. The highly competitive apparel industry is characterized by low barriers to entry, with new competition entering the marketplace regularly. There are numerous domestic and foreign apparel designers, distributors, importers, licensors and retailers, some of whom are also our customers. Some of these companies may be significantly larger or more diversified than us and/or have significantly greater financial resources than we do.
Competition in the apparel industry is particularly enhanced in the digital marketplace for our rapidly growing e-commerce businesses, where there are new entrants in the market, greater pricing pressure and heightened customer expectations and competitive pressure related to, among other things, customer engagement, delivery speed, shipping charges and return privileges. In addition, fast fashion, value fashion and off-price retailers have shifted customer expectations of pricing for well-known brands and have contributed to additional promotional pressure in recent years.
These and other competitive factors within the apparel industry may result in reduced sales, increased costs, lower prices for our products and/or decreased margins.
Failure to anticipate and adapt to changing fashion trends and consumer preferences could harm our reputation and financial performance.
We believe that our ability to compete successfully is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference and presenting appealing products for consumers when and where they seek it. Although certain of our products carry over from season to season, the apparel industry is subject to rapidly changing fashion trends and shifting consumer expectations, as evidenced by the recent acceleration of casualization trends in the apparel industry. The increasing shift to digital brand engagement and social media communication, as well as the attempted replication of our products by competitors, presents emerging challenges for our business. The apparel industry is also impacted by changing consumer preferences regarding spending categories generally, including shifts
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away from traditional consumer product spending and towards “experiential” spending and sustainable products. There can be no assurance that we will be able to successfully evaluate and adapt our products to align with evolving consumer preferences and changes in consumer demographics. Any failure on our part to develop and market appealing products could harm the reputation and desirability of our brands and products and/or result in weakened financial performance.
Our operations and those of our suppliers, vendors and wholesale customers may be affected by changes in weather patterns, natural or man-made disasters, public health crises, war, terrorism or other catastrophes.
Our sales volume and operations and the operations of third parties on whom we rely, including our suppliers, vendors, licensees and wholesale customers, may be adversely affected by unseasonable or severe weather conditions, natural or man-made disasters, public health crises, war, terrorist attacks, including heightened security measures and responsive military actions, or other catastrophes which may cause consumers to alter their purchasing habits or result in a disruption to our operations. Our business may also be adversely affected by instability, disruption or destruction, regardless of cause. These events may result in closures of our retail stores, restaurants, offices or distribution centers and/or declines in consumer traffic, which could have a material adverse effect on our business, results of operations or financial condition. Because of the seasonality of our business, the concentration of a significant proportion of our retail stores and wholesale customers in certain geographic regions, including a resort and/or coastal focus for most of our lifestyle brands, and the concentration of our sourcing and distribution center operations, the occurrence of such events could disproportionately impact our business, financial condition and operating results.
The Russian invasion of Ukraine in February 2022 and the financial and economic sanctions and other measures imposed by the European Union, the U.S., and other countries and organizations in response is creating, and may continue to create, market disruption and volatility and instability in the geopolitical environment. The extent to which this conflict escalates to other countries and the resulting impact on the global market, including consumer confidence and spending in the United States, remains uncertain. We cannot predict if this situation will result in broader economic and security concerns or in material implications for our business. This event could have a material adverse effect on our business and operations.
Risks Related to our Business Strategy and Operations
Failure to maintain the reputation or value of our brands could harm our business operations and financial condition.
Our success depends on the reputation and value of our brand names. The value of our brands could be diminished by actions taken by us or by our licensees, wholesale customers or others who have an interest in our brands. Actions that could cause harm to our brands include failing to respond to emerging fashion trends or meet consumer quality expectations; selling products bearing our brands through distribution channels that are inconsistent with customer expectations; becoming overly promotional; or setting up consumer expectations for promotional activity for our products. In addition, social media is a critical marketing and customer acquisition strategy in today’s technology-driven retail environment, and the value of our brands could be adversely affected if we do not effectively communicate our brand message through social media vehicles, including with respect to our social responsibility and sustainability initiatives. The significant concentration in our portfolio heightens the risks we face if one of our larger brands is adversely impacted by actions we or third parties take with respect to that brand.
The improper or detrimental actions of a licensee or wholesale customer, including a third party distributor in an international market, could also significantly impact the perception of our brands. While we enter into comprehensive license and similar collaborative agreements with third party licensees covering product design, product quality, brand standards, sourcing, social compliance, distribution, operations, manufacturing and/or marketing requirements and approvals, there can be no guarantee our brands will not be negatively impacted through our association with products or concepts outside of our core apparel products and by the market perception of the third parties with whom we associate. In addition, we cannot always control the marketing and promotion of our products by our wholesale customers, and actions by such parties that adversely affect the appeal of our products could diminish the value or reputation of one or more of our brands and have an adverse effect on our sales, gross margins and business operations.
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The appeal of our brands may also depend on the perceived success of our environmental, social and governance (“ESG”) initiatives and our commitments to operating our business in a socially responsible fashion. ESG risks include increased stakeholder focus on environmental sustainability matters, including packaging and waste, animal welfare and land use. ESG risks may also include increased pressure to expand our disclosures in these areas, make commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risks. The metrics we disclose may not meet stakeholder expectations and may impact our reputation and the value of our brands, and a failure to achieve progress on our metrics on a timely basis, or at all, could adversely affect our business and financial performance.
Our inability to execute our direct to consumer and portfolio-level strategies in response to shifts in consumer shopping behavior could adversely affect our financial results and operations.
One of our key long-term initiatives over the last several years has been to grow our branded businesses through distribution strategies that allow our consumers to access our brands whenever and wherever they choose to shop. Our ability to anticipate and transform our business in response to the manner in which consumers seek to transact business and access products requires us to introduce new retail, restaurant and other concepts in suitable locations; anticipate and implement innovations in sales and marketing technology to align with our consumers’ shopping preferences; invest in appropriate digital and other technologies; establish the infrastructure necessary to support growth; maintain brand specific websites and mobile applications that offer the functionality and security customers expect; and effectively enhance our advertising and marketing activities, including our social media presence, to maintain our current customers and attract and introduce new consumers to our brands and offerings.
Even prior to the emergence of the COVID-19 pandemic, the retail apparel market was evolving very rapidly in ways that are disruptive to traditional fashion retailers. These changes included sustained declines in bricks and mortar retail traffic; entry into the fashion retail space by large e-commerce retailers and others with significant financial resources and enhanced distribution capabilities; increased costs to attract and retain consumers; increased investment in technology and multi-channel distribution strategies by large, traditional bricks and mortar and big box retailers; ongoing emphasis on off-price and fast fashion channels of distribution, in particular those who offer brand label products at clearance; and increased appeal for consumers of products that incorporate sustainable materials and processes in the supply chain and/or otherwise reflect their social or personal values. In response, fashion retailers and competing brands have increasingly offered greater transparency for consumers in product pricing and engaged in increased promotional activities, both online and in-store. These trends accelerated during the COVID-19 pandemic and are likely to continue to evolve in ways that may not yet be evident.
In response to these evolving and rapidly changing trends in consumer shopping behavior, we have made and expect to continue to make significant capital investments in expanding our digital capabilities and technologies in three key areas: mobile technology; digital marketing; and the digital customer experience. Although we experienced significant growth in our e-commerce businesses during both Fiscal 2020 and Fiscal 2021, there is no assurance that we will realize a return on these investments or be successful in continuing to grow our e-commerce businesses over the long term.
Any inability on our part to effectively adapt to rapidly evolving consumer behavioral trends may result in lost sales, increase our costs and/or adversely impact our results of operations, financial condition, reputation and credibility.
We may be unable to grow our business through organic growth, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
A key component of our business strategy is organic growth in our brands. Organic growth may be achieved by, among other things, increasing sales in our direct to consumer channels; selling our products in new markets; increasing our market share in existing markets; expanding the demographic appeal of our brands; expanding our margins through product cost reductions, price increases or otherwise; expanding the customer reach of our brands through new and enhanced advertising initiatives; and increasing the product offerings and concepts within our various operating groups, such as the opening of additional Marlin Bars at Tommy Bahama and owned retail stores at Southern Tide and TBBC. Successful growth of our business is also subject to our ability to implement plans for expanding and/or maintaining our
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existing businesses at satisfactory levels. We may not be successful in achieving suitable organic growth, and our inability to grow our business may have a material adverse effect on our business, financial condition, liquidity and results of operations.
In addition, investments we make in technology, advertising and infrastructure, retail stores and restaurants, office and distribution center facilities, personnel and elsewhere may not yield the full benefits we anticipate, and sales growth may be outpaced by increases in operating costs, putting downward pressure on our operating margins and adversely affecting our results of operations. If we are unable to increase our revenues organically, we may be required to pursue other strategic initiatives, including reductions in costs and/or acquisitions, in order to grow our business. These initiatives may not be available to us on desirable terms, inhibiting our ability to increase profitability.
The acquisition of new businesses is inherently risky, and we cannot be certain that we will realize the anticipated benefits of any acquisition.
Growth of our business through acquisitions of lifestyle brands that fit within our business model is a component of our long-term business strategy. The competitive climate for desirable acquisition candidates drives higher market multiples, and we may pay more to consummate an acquisition than the value we ultimately derive from the acquired business. Acquisitions may cause us to incur debt or make dilutive issuances of our equity securities, and may result in certain impairment or amortization charges in our statements of operations. In addition, we may not complete a potential acquisition for a variety of reasons but still incur material, unrecoverable costs in the preliminary stages of evaluating and pursuing an acquisition. Additionally, as a result of acquisitions, we may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence.
In addition, the benefits of an acquisition may not materialize to the extent or within the time periods anticipated. Integrating acquired businesses is a complex, time-consuming and expensive process. The integration process for newly acquired businesses could create a number of challenges and adverse consequences for us associated with the integration of product lines, support functions, employees, sales teams and outsourced manufacturers; employee turnover, including key management and creative personnel of the acquired business and our existing businesses; disruption in product cycles for newly acquired product lines; maintenance of acceptable standards, controls, procedures and policies; operating a business in new geographic territories; diversion of the attention of our management from other areas of our business; and the impairment of relationships with customers of the acquired and existing businesses. Furthermore, certain acquisitions may also be structured utilizing contingent consideration based on the acquired business’ post-acquisition results, and the principals from whom we acquired such a business, many of whom may continue to operate the business as our employees, may have differing interests than those of our shareholders because of such arrangements.
As the fashion retail environment evolves, our investment criteria for acquisitions has grown to include smaller brands and non-controlling investments in burgeoning brands seeking debt or equity financing. The limited operating history, less experienced management teams and less sophisticated systems, infrastructure and relationships generally associated with such brands may heighten the risks associated with acquisitions generally. Minority investments present additional risks, including the potential disproportionate distraction to our management team relative to the potential financial benefit; the potential for a conflict of interest; the damage to our reputation of associating with a brand which may take actions inconsistent with our values; and the financial risks associated with making an investment in an unproven business model.
The divestiture or discontinuation of businesses and product lines could result in unexpected liabilities and adversely affect our financial condition, cash flows and results of operations.
From time to time, we may also divest or discontinue businesses, product lines and/or wholesale relationships that do not align with our strategy or provide the returns that we expect or desire, such as our Fiscal 2021 exit of the Lanier Apparel business. Such dispositions and/or discontinuations may result in underutilization of our retained resources if the exited operations are not replaced with new lines of business, either internally or through acquisition. In addition, we may become responsible for unexpected liabilities, which could adversely affect our financial condition and results of operations.
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Our business could be harmed if we fail to maintain proper inventory levels.
Many factors, such as economic conditions, fashion trends, consumer preferences, the financial condition of our wholesale customers and weather, make it difficult to accurately forecast demand for our products. In order to meet the expected demand for our products in a cost-effective manner, we make commitments for production several months prior to our receipt of goods and typically without firm commitments from our customers. Depending on the demand for our products, we may be unable to sell the products we have ordered or that we have in our inventory, which may result in inventory markdowns, costs incurred to cancel inventory purchases or the sale of excess inventory at discounted prices and through off-price channels. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate the timing or extent of demand for our products or if we are unable to access our products when we need them, for example due to a third party manufacturer’s inability to source materials or produce goods in a timely fashion or as a result of delays in the delivery of products to us, issues which have been exacerbated by the COVID-19 pandemic, we may experience inventory shortages, which might result in lost sales, unfilled orders, negatively impacted customer relationships, and diminished brand loyalty, any of which could harm our business. These risks relating to inventory may also escalate as our direct to consumer sales, for which we do not have any advance purchase commitments, continue to increase as a proportion of our consolidated net sales.
We are subject to risks associated with leasing real estate for our retail stores and restaurants.
We lease all of our retail store and restaurant locations. Successful operation of our retail stores and restaurants depends, in part, on our ability to identify desirable, brand appropriate locations; the overall ability of the location to attract a consumer base sufficient to make sales volume profitable; our ability to negotiate satisfactory lease terms and employ qualified personnel; and our ability to timely construct and complete any build-out and open the location in accordance with our plans, which could be delayed due to supply chain constraints and/or labor or materials shortages. A decline in the volume of consumer traffic at our retail stores and restaurants, due to economic conditions, shifts in consumer shopping preferences or technology, a decline in the popularity of malls or lifestyle centers in general or at those in which we operate, the closing of anchor stores or other adjacent tenants or otherwise, all of which were exacerbated by the COVID-19 pandemic, could continue to have a negative impact on our sales, gross margin and results of operations. Our growth may be limited if we are unable to identify new locations with consumer traffic sufficient to support a profitable sales level or the local market reception to a new retail store opening is inconsistent with our expectations.
Our retail store and restaurant leases generally represent long-term financial commitments, with substantial costs at lease inception for a location’s design, leasehold improvements, fixtures and systems installation and recurring fixed costs. On an ongoing basis, we review the financial performance of our retail and restaurant locations in order to determine whether continued operation is appropriate. Even if we determine that it is desirable to exit a particular location, we may be unable to close an underperforming location due to continuous use clauses and/or because negotiating an early termination would be cost prohibitive. In addition, due to the fixed-cost structure associated with these operations, negative cash flows or the closure of a retail store or restaurant could result in impairment of leasehold improvements, impairment of operating lease assets and/or other long-lived assets, severance costs, lease termination costs or the loss of working capital, which could adversely impact our business and financial results. Furthermore, as each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could force us to close retail stores and/or restaurants in desirable locations.
Furthermore, a deterioration in the financial condition of shopping center operators or developers could, for example, limit their ability to invest in improvements and finance tenant improvements for us and other retailers and lead consumers to view these locations as less desirable. In addition, if our e-commerce businesses continue to grow, they may do so in part by attracting existing customers, rather than new customers, who choose to purchase products from us online through our websites rather than from our physical stores, thereby reducing the financial performance of our bricks-and-mortar operations, which could have a material adverse effect on our results of operations or financial condition.
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We may make use of debt to finance our operations, which could expose us to risks that adversely affect our business, financial position and operating results.
Our cash requirements vary as a result of the seasonality of our business, investments in our operations and working capital needs. The continued growth of our business depends on our access to sufficient funds. If the need arises in the future to finance expenditures in excess of those supported by our U.S. Revolving Credit Agreement, we may need to seek additional funding through debt or equity financing. Our ability to obtain that financing will depend on many factors, including prevailing market conditions, our financial condition and our ability to negotiate favorable terms and conditions. The terms of any such financing or our inability to secure such financing could adversely affect our ability to execute our strategies, and the negative covenants in our debt agreements, now or in the future, may increase our vulnerability to adverse economic and industry conditions and/or limit our flexibility in carrying out our business strategy and plans.
In addition, we have interest rate risk on indebtedness under our variable rate U.S. Revolving Credit Agreement. Our exposure to variable rate indebtedness may increase in the future, based on our debt levels and/or the terms of future financing arrangements. Further, an anticipated increase in the interest rate environment would require us to pay a greater amount towards interest if and when we access capital under our U.S. Revolving Credit Agreement or other financing arrangements.
The loss of one or more of our key wholesale customers, or a significant adverse change in a customer’s financial position, could negatively impact our net sales and profitability.
We generate a material percentage of our wholesale sales, which was 20% of our net sales in Fiscal 2021, from a few key customers. In Fiscal 2021, our largest customer represented 4% of our consolidated net sales. Over the last several years, department stores and other large retailers have faced increased competition from online competitors, declining sales and profitability and tightened credit markets, resulting in store closures, bankruptcies and financial restructurings. These challenges were exacerbated by the COVID-19 pandemic and resulting economic downturn. Restructuring of our customers’ operations, continued store closures or increased direct sourcing by customers could negatively impact our net sales and profitability.
We also extend credit to most of our key wholesale customers without requiring collateral, which results in a large amount of receivables from just a few customers. A significant adverse change in a customer’s financial position or ability to satisfy its obligations to us could cause us to limit or discontinue business with that customer, in some cases after we have already made product purchase commitments for inventory; require us to assume greater credit risk relating to that customer’s receivables; or limit our ability to collect amounts related to shipments to that customer. In addition, a decision by one or more of our key wholesale customers to terminate its relationship with us or to reduce its purchases from us or our licensees, whether motivated by competitive considerations, a change in desired product assortment, quality or style issues, financial difficulties, economic conditions or otherwise, could also adversely affect our business.
Risks Related to Cybersecurity and Information Technology
Cybersecurity attacks and/or breaches of information security or privacy could disrupt our operations, cause us to incur additional expenses, expose us to litigation and/or cause us financial harm.
Cybersecurity attacks continue to become increasingly sophisticated, and experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our assets, including confidential information, or disrupt our systems. We collect, use, store and transmit sensitive and confidential personal information of our customers, employees, suppliers and others as an ongoing part of our business operations, and we are regularly subject to attempts by attackers to gain unauthorized access to our networks, systems and data, or to obtain, change or destroy confidential information. In addition, customers may use devices or software that are beyond our control environment to purchase our products, which may provide additional avenues for attackers to gain access to confidential information.
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Despite our implementation of security measures, if an actual or perceived data security breach occurs, whether as a result of cybersecurity attacks, computer viruses, vandalism, ransomware, human error or otherwise, or if there are perceived vulnerabilities in our systems, the image of our brands and our reputation and credibility could be damaged, and, in some cases, our continued operations may be impaired or restricted. Ongoing and increasing costs to enhance cybersecurity protection and prevent, eliminate or mitigate vulnerabilities and comply with required security or other measures under state, federal and international laws, which may include deploying additional personnel and protection technologies, training employees and engaging third party experts and consultants, are significant. Although we have business continuity plans and other safeguards in place, our operations may be adversely affected by an actual or perceived data security breach. Costs to resolve any litigation or to investigate and remediate any actual or perceived breach could result in significant financial losses and expenses, as well as lost sales. While we continue to evolve and modify our business continuity plans, there can be no assurance in an escalating threat environment that they will be effective in avoiding disruption and business impacts.
As part of our routine operations, we also contract with third party service providers to store, process and transmit personal information of our customers and employees. Although we may contractually require that these providers implement reasonable security measures, we cannot control third parties and cannot guarantee that a security breach will not occur at their location or within their systems. Privacy breaches of confidential information stored or used by our third party service providers or disruptions in their systems may expose us to the same risks as a breach of our own systems, including negative publicity, potential out-of-pocket costs and adverse effects on our business and customer relationships.
Our operations are reliant on information technology, and any interruption or other failure could have an adverse effect on our business or results of operations.
The efficient operation of our business depends on information technology. This requires us to devote significant financial and employee resources to information technology initiatives and operations. Information systems are used in all stages of our operations and as a method of communication, both internally and with our customers, service providers and suppliers. Many of our information technology solutions are operated and/or maintained by third parties, including our use of cloud-based solutions. Additionally, each of our operating groups uses e-commerce websites, point-of-sale systems, enterprise order management systems, warehouse management systems and wholesale ordering systems to acquire, manage, sell and distribute goods. Our management also relies on information systems to provide relevant and accurate information in order to allocate resources, manage operations and forecast, account for and report our operating results. Service interruptions may occur as a result of a number of factors, including power outages, consumer traffic levels, computer viruses, sabotage, hacking or other unlawful activities by third parties, human error, disasters or failures to properly install, upgrade, integrate, protect, repair or maintain our various systems, networks and e-commerce websites. All of these events could have a material adverse effect on our financial condition and results of operations.
We similarly rely on the information technology resources of third parties, including logistics providers. In February 2022, Expeditors International of Washington Inc. announced that it was the subject of a targeted cyberattack, which resulted in a shutdown of its ability to conduct operations, resulting in a delay in the delivery of our products. In light of the current geopolitical environment, there are heightened risks that our information technology systems, as well as those of third parties on whom we rely in order to conduct our operations, could be compromised by threat actors.
Reliance on outdated technology or failure to upgrade our information technology systems and capabilities could impair the efficient operation of our business and our ability to compete.
Any failure to timely upgrade our technology systems and capabilities may impair our ability to market, sell and deliver products to our customers, efficiently conduct our operations, facilitate customer engagement in today’s digital marketplace and/or meet the needs of our management. We regularly evaluate upgrades or enhancements to our information systems to more efficiently and competitively operate our businesses, including periodic upgrades to digital commerce and marketing, warehouse management, guest relations, omnichannel and/or enterprise order management systems in our businesses. Digital commerce and marketing have continued to increase in importance to our business, and we have invested and will continue to invest significant capital in the digital strategies, systems, expertise and
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capabilities necessary for us to compete effectively in this arena. Upgrades to our systems may be expensive undertakings, may not be successful and/or could be abandoned, as we did in the Fourth Quarter of Fiscal 2020 with a Tommy Bahama information technology project. We may also experience difficulties during the implementation, upgrade or subsequent operation of our systems, including the risk of introducing cybersecurity vulnerabilities into our systems or the loss of certain functionality, information from our legacy systems and/or efficient interfaces with third party and continuing systems. Temporary processes or solutions, including manual operations, which may be required to be instituted in the short term could also significantly increase the risk of loss or corruption of data and information.
Remote work arrangements could inhibit our ability to effectively operate our business and result in enhanced cybersecurity risks.
The majority of our corporate and office employees continue to perform some or all of their duties on a remote basis, and we anticipate continuing to implement remote work arrangements for a substantial portion of our employees in the future. If remote work arrangements negatively impact the performance or management of our employees, whether as a result of technological challenges, unsuitable work environments or other limitations, our ability to carry out key functions and successfully manage our operations could be compromised. In addition, remote work arrangements could exacerbate our existing cybersecurity and privacy risks, including by introducing vulnerabilities in our systems due to the use of laptops, mobile devices and remote work environments. Cybersecurity attacks or data security incidents resulting from a failure to manage these risks could negatively impact our business and results of operations.
Risks Related to our Sourcing and Distribution Strategies
Our reliance on third party producers in foreign countries to meet our production demands exposes us to risks that could disrupt our supply chain, increase our costs and negatively impact our operations.
We source substantially all of our products from non-exclusive, third party producers located in foreign countries. Although we place a high value on long-term relationships with our suppliers, we do not have long-term supply contracts but instead conduct business on an order-by-order basis. Therefore, we compete with other companies for the production capacity of independent manufacturers. We also depend on the ability of these third party producers to secure a sufficient supply of raw materials, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity, and in some cases, the products we purchase and the raw materials that are used in our products are available only from one source or a limited number of sources. Although we monitor production in third party manufacturing locations, we cannot be certain that we will not experience operational difficulties with our manufacturers, such as the reduction of available production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. In addition, we may experience disruptions in our supply chain as we continue to diversify the jurisdictions from which we source products. Any such difficulties may impact our ability to deliver quality products to our customers on a timely basis, increase our costs, negatively impact our customer relationships and result in lower net sales and profits.
Our operations are dependent on the global supply chain, and the impact of supply chain constraints may adversely impact our business and operating results.
Starting in the latter part of Fiscal 2020 and continuing into the early part of Fiscal 2022, our operations have been, and are expected to be, impacted by supply chain constraints, labor shortages and raw material shortages, resulting in increased costs for raw materials, longer lead times, port congestion and increased freight costs caused, in part, by the COVID-19 pandemic, increased consumer demand, the uncertain economic environment, and other macroeconomic trends. As a result of these factors within the global supply chain, our gross margins were negatively impacted during Fiscal 2021. We also rely on logistics providers to transport our products to our distribution centers in the United States. During Fiscal 2021, international shipping to the United States was disrupted and delayed. Continued or additional delays in shipping may cause us to have to use more expensive air freight or other more costly methods to ship our products. Failure to adequately produce and timely ship our products to customers could lead to increased costs and lost sales, negatively impact our relationships with customers, and adversely impact our brand reputation.
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Any disruption or failure in our primary distribution facilities may materially adversely affect our business or operations.
We rely on our primary distribution facilities in order to support our direct to consumer and wholesale operations, meet customer fulfillment expectations, manage inventory, complete sales and achieve operating efficiencies. We may have a greater risk than our peers due to the concentration of our distribution facilities, as substantially all of our products for each operating group are distributed through one or two principal distribution centers. The primary distribution facilities that we operate are as follows: a distribution center in Auburn, Washington dedicated to our Tommy Bahama products; a distribution center in King of Prussia, Pennsylvania dedicated to our Lilly Pulitzer products; and a distribution center in Lyons, Georgia primarily dedicated to supporting all of our brands. Although we continue to enhance our enterprise order management capabilities to deliver products from other physical locations, our ability to effectively support our direct to consumer and wholesale operations, meet customer expectations, manage inventory and achieve objectives for operating efficiencies depends on the proper operation of these distribution facilities, each of which manages the receipt, storage, sorting, packing and distribution of finished goods.
If any of our primary distribution facilities were to shut down or otherwise become inoperable or inaccessible for any reason, including as a result of natural or man-made disasters, pandemics or epidemics (including, for example, the COVID-19 pandemic), human error, or cybersecurity attacks or computer viruses, or if we are unable to receive or ship the goods in a distribution center, as a result of a technology failure, labor shortages or otherwise, we could experience a substantial loss of inventory, a reduction in sales, higher costs, insufficient inventory at our retail stores to meet consumer expectations and longer lead times associated with the distribution of our products. In addition, for the distribution facilities that we operate, there are substantial fixed costs associated with these large, highly automated distribution centers, and we could experience reduced operating and cost efficiencies during periods of economic weakness. Any disruption to our distribution facilities or in their efficient operation could negatively affect our operating results and our customer relationships.
Fluctuations and volatility in the cost and availability of raw materials, labor and freight may materially increase our costs.
We and our third party suppliers rely on the availability of raw materials at reasonable prices. The principal fabrics used in our business are cotton, linens, wools, silk, other natural fibers, synthetics and blends of these materials. The prices paid for these fabrics depend on the market price for raw materials used to produce them. The cost of the materials and components that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, such as dyes and chemicals, and other costs, can fluctuate. We historically have not entered into any futures contracts to hedge commodity prices. In Fiscal 2021 and the early part of Fiscal 2022, the costs of raw materials, including cotton and oil, have rapidly increased, and we expect this inflationary pressure to continue during Fiscal 2022. These price increases could continue in future years.
Employment costs represented more than 40% of our consolidated SG&A in Fiscal 2021, and we have seen increases in the cost of labor in our retail, restaurant and distribution center operations as well as at many of our suppliers in recent years, which intensified during Fiscal 2021. Employment costs are affected by labor markets, as well as various federal, state and foreign laws governing matters such as minimum wage rates, overtime compensation and other requirements. In addition, in recent years, there has been significant political pressure and legislative action to increase the minimum wage rate in many of the jurisdictions in which we operate. We have also experienced increases in freight costs and distribution and logistics functions as a result of the COVID-19 pandemic and other factors and may continue to see such cost and capacity pressures, including as a result of the recent Russian invasion of Ukraine and related economic sanctions, which is expected to impact energy costs. Although we attempt to mitigate the effect of increases in our cost of goods sold, labor costs, occupancy costs, other operational costs and SG&A items through sourcing initiatives and by selectively increasing the prices of our products, we may be unable to fully pass on these costs to our customers, and material increases in our costs may reduce the profitability of our operations and/or adversely impact our results of operations.
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Labor-related matters, including labor disputes, may adversely affect our operations.
We may be adversely affected as a result of labor disputes in our own operations or in those of third parties with whom we work. Our business depends on our ability to source and distribute products in a timely manner, and our new retail store and restaurant growth is dependent on timely construction of our locations. While we are not subject to any organized labor agreements and have historically enjoyed good employee relations, there can be no assurance that we will not experience work stoppages or other labor problems in the future with our non-unionized employees. In addition, potential labor disputes at independent factories where our goods are produced, shipping ports or transportation carriers create risks for our business, particularly if a dispute results in work slowdowns, lockouts, strikes or other disruptions during our peak manufacturing, shipping and selling seasons. Further, we plan our inventory purchases and forecasts based on the anticipated timing of retail store and restaurant openings, which could be delayed as a result of a number of factors, including labor disputes among contractors engaged to construct our locations or within government licensing or permitting offices or the unavailability of qualified contractors due to labor shortages. Any potential labor dispute, either in our own operations or in those of third parties on whom we rely, could materially affect our costs, decrease our sales, harm our reputation or otherwise negatively affect our operations.
Our international operations, including foreign sourcing, result in an exposure to fluctuations in foreign currency exchange rates.
We are exposed to certain currency exchange risks in conducting business outside of the United States. The substantial majority of our product purchases are from foreign vendors and are denominated in U.S. dollars. If the value of the U.S. dollar decreases relative to certain foreign currencies in the future, then the prices that we negotiate for products could increase and we may be unable to pass this increase on to customers, which would negatively impact our margins. However, if the value of the U.S. dollar increases between the time a price is set and payment for a product, the price we pay may be higher than that paid for comparable goods by competitors that pay for goods in local currencies, and these competitors may be able to sell their products at more competitive prices. An increase in the value of the U.S. dollar compared to other currencies in which we have sales could also result in lower levels of sales and earnings reported in our consolidated statements of operations and lower gross margins. Additionally, currency fluctuations could also disrupt the business of our independent manufacturers by making their purchases of raw materials more expensive and difficult to finance.
Our geographic concentration of retail stores, restaurants and wholesale customers exposes us to certain regional risks.
Our operations and retail and restaurant locations are heavily concentrated in the United States and certain geographic areas within the United States, including Florida, California, Texas and Hawaii for our Tommy Bahama operations; Florida for our Lilly Pulitzer operations; and Florida for our Southern Tide operations, where six of seven total retail stores are anticipated to be open by the end of Fiscal 2022. Additionally, the wholesale sales for each of Tommy Bahama, Lilly Pulitzer and Southern Tide are also geographically concentrated, including in geographic areas where we have concentrations of our own retail store locations. Due to these concentrations, as well as our brands’ association with the resort lifestyle and destinations, we have heightened exposure to factors that impact these regions, including general economic conditions, weather patterns, natural disasters, public health crises, changing demographics and other factors.
Risks Related to Regulatory, Tax and Financial Reporting Matters
Our business is subject to various federal, foreign, state and local laws and regulations, and the costs of compliance with, or the violation of, such laws and regulations could have an adverse effect on our costs or operations.
We are subject to stringent standards, laws and other regulations, including those relating to health, product performance and safety, labor, employment, privacy and data security, anti-bribery, consumer protection, taxation, customs, logistics and other operational matters. These laws and regulations, in the United States and abroad, are complex and often vary widely by jurisdiction, making it difficult for us to ensure that we are currently or will in the future be compliant with all applicable laws and regulations in all the states and countries in which we operate. In
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addition to the local laws of the foreign countries in which we operate, we are subject to certain anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. If any of our international operations, or our employees or agents, violates such laws, we could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.
We may be required to make significant expenditures and devote significant time and management resources to comply with existing or future laws or regulations, and a violation of applicable laws and regulations by us, or any of our suppliers or licensees, may restrict our ability to import products, require a recall of our products, lead to fines or otherwise increase our costs, negatively impact our ability to attract and retain employees or materially limit our ability to operate our business. In addition, regardless of whether any allegations of violations of the laws and regulations governing our business are valid or whether we ultimately become liable, we may be materially affected by negative publicity as a result of such allegations.
In November 2021, the Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard (“ETS”) regulation requiring that all large employers, including us, require their employees to be fully vaccinated or tested for COVID-19 weekly. Certain local jurisdictions within the United States imposed similar requirements during Fiscal 2021 in response to the COVID-19 pandemic. Although OSHA withdrew the ETS regulation in January 2022, there can be no assurances that OSHA or state or local agencies will not attempt to impose similar regulations as a result of any resurgence of the COVID-19 virus or variants. If any such regulations go into effect on a widescale basis, it is difficult to predict the disruptions we may experience due to employee attrition and increased labor costs, which could materially adversely affect our business and operations.
In addition, the regulatory environment governing our use of individually identifiable data is complex, and compliance with new and modified state, federal and international privacy and security laws, such as the California Consumer Privacy Act of 2018, the California Privacy Rights Act of 2020 and similar laws being enacted in other states, may require us to modify our operations and/or incur costs to make necessary systems changes and implement new administrative processes. In addition, because we process and transmit payment card information, we are subject to the payment card industry data security standard and card brand operating rules, which provide for a comprehensive set of rules relating to the retention and/or transmission of payment card information. If we do not comply with the applicable standards, we may be subject to fines or restrictions on our ability to accept payment cards, which could have a material adverse effect on our operations.
Changes in international trade regulation could increase our costs and disrupt our supply chain.
Due to our international sourcing activities, we are exposed to risks associated with changes in the laws and regulations governing the importing and exporting of apparel products into and from the countries in which we operate. These risks include imposition of additional or new antidumping, countervailing or other duties, tariffs, taxes or quota restrictions; government-imposed restrictions as a result of public health issues, such as the COVID-19 pandemic; changes in customs procedures for importing apparel products; restrictions on the transfer of funds to or from foreign countries; and the issuance of sanctions and trade orders. Any of these factors may disrupt our supply chain, and we may be unable to offset any associated cost increases by shifting production to suitable manufacturers in other jurisdictions in a timely manner or at acceptable prices, and future regulatory actions or changes in international trade regulation may provide our competitors with a material advantage over us or render our products less desirable in the marketplace.
There have been periodic discussions, commentary and governmental actions regarding potentially significant changes to the United States’ trade policies and tariffs regarding China, from which we sourced 38% of our products in Fiscal 2021. It is unclear what changes might be considered or implemented, particularly in the current geopolitical environment, and what response to any such changes may be taken by other governments. Significant tariffs or other restrictions placed on Chinese imports and any related countermeasures that are taken by China could have an adverse effect on our financial condition or results of operations. In addition, the U.S. Customs and Border Protection has increasingly been enforcing laws related to the prevention of forced labor in importers’ supply chains, with a focus on commodities such as cotton, which is prevalent in our products. Any actions taken by customs officials to block products suspected of being manufactured with forced labor, whether or not accurate, could materially disrupt our supply chain, operations and financial results.
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Any violation or perceived violation of our codes of conduct or environmental and social compliance programs, including by our manufacturers or vendors, could have a material adverse effect on our brands.
We have a robust legal and social compliance program, including codes of conduct and vendor compliance standards. The reputation of our brands could be harmed if we or our third party manufacturers and vendors, substantially all of which are located outside the United States, fail to meet appropriate product safety, product quality and social compliance standards. Despite our efforts, we cannot ensure that our manufacturers and vendors will at all times conduct their operations in accordance with ethical practices or that the products we purchase will always meet our safety and quality control standards, and any failure to do so could disrupt our supply chain and adversely affect our business operations.
In Fiscal 2020 and Fiscal 2021, the U.S. Government issued withhold release orders in response to concerns regarding forced labor in the Xinjiang Uyghur Autonomous Region (the “XUAR”) of China. The XUAR is the source of significant amounts of cotton. Although we do not knowingly source any products from the XUAR and we have no known involvement with China’s Xinjiang Production and Construction Corporation (“XPCC”) or its affiliates, we could be subject to penalties, fines or sanctions if any of the factories from which we purchase goods is found or suspected to have dealings, directly or indirectly, with XPCC or entities with which it may be affiliated. Also, while we have diversified the jurisdictions from which we source products, our manufacturing operations remain concentrated in China, cotton is among the principal raw materials used in many of our goods and even the cotton used in our products manufactured outside of China largely originated in Chinese fabric mills. The presence or perception of forced labor in our supply chain in spite of our efforts to ensure that our third party manufacturers and vendors meet human rights and labor standards could result in adverse impacts on our business, including the detention of goods at U.S. points of entry, challenges in identifying replacement vendors and harm to our reputation.
Furthermore, consumers are increasingly attuned to the environmental and social impact of the products they purchase and companies with which they do business. A failure to effectively communicate our core principles with our customers and investors or respond to concerns raised with respect to our social responsibility and sustainability initiatives, including through our social media channels, could result in a negative public perception of our brands and products and negatively impact our business.
As a multi-national apparel company, we may experience fluctuations in our tax liabilities and effective tax rate.
As a multi-national apparel company, we are subject to income taxes in the United States and various foreign jurisdictions. We record our income tax liability based on an analysis and interpretation of local tax laws and regulations, which requires a significant amount of judgment and estimation. In addition, we may from time to time modify our operations in an effort to minimize our consolidated income tax expense. Our effective income tax rate in any particular period or in future periods may be affected by a number of factors, including a shift in the mix of revenues, income and/or losses among domestic and international sources during a year or over a period of years; changes in tax laws and regulations and/or international tax treaties; the outcome of income tax audits in various jurisdictions; the difference between the income tax deduction and the previously recognized income tax benefit related to the vesting of equity-based compensation awards; and the resolution of uncertain tax positions, any of which could adversely affect our effective income tax rate and profitability.
Further, changes to U.S. and foreign tax laws and compliance with new tax laws could have a material adverse effect on our tax expense, cash flows and operations. There have been recent proposals to, among other things, increase the U.S. corporate income tax rate, increase the tax rate on certain earnings of foreign subsidiaries and impose a minimum tax on worldwide book income, any or all of which could have a material adverse effect on our tax expense and cash flows. In addition, the Organization for Economic Cooperation and Development has published action plans that, if adopted by countries where we do business, could materially impact our tax obligations in those countries.
Impairment charges for goodwill or long-lived assets could have a material adverse impact on our financial results.
The carrying values of our goodwill and long-lived assets, including those recorded in connection with our acquisition of a business or our bricks and mortar operations, are subject to periodic impairment testing. Impairment
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testing of goodwill and long-lived assets requires us to make estimates about future performance and cash flows that are inherently uncertain and can be affected by numerous factors, including changes in economic conditions, income tax rates, our results of operations and competitive conditions in the industry. For example, in Fiscal 2020, we recognized $60 million of non-cash impairment charges for goodwill and intangible assets, which reflected the impact of COVID-19 on the operations, plans and strategy of the Southern Tide business. Future impairment charges may have a material adverse effect on our consolidated financial statements or results of operations.
Any failure to maintain liquor licenses or comply with applicable regulations could adversely affect the profitability of our restaurant operations.
The restaurant industry requires compliance with a variety of federal, state and local regulations. In particular, all of our Tommy Bahama restaurants and Marlin Bars serve alcohol and, therefore, maintain liquor licenses, which are becoming increasingly more expensive to obtain in various jurisdictions. Our ability to maintain our liquor licenses and other permits depends on our compliance with applicable laws and regulations. The loss of a liquor license or other critical permits would adversely affect the profitability of that restaurant. Additionally, as a participant in the restaurant industry, we face risks related to food quality, food-borne illness, injury, health inspection scores and labor relations. The negative impact of adverse publicity relating to allegations of actual or perceived violations at one of our restaurants may extend beyond the restaurant involved to affect some or all of our other restaurants, as well as the image of the Tommy Bahama brand as a whole.
General Risks
Our business depends on our senior management and other key personnel, and failure to successfully attract, retain and implement succession of our senior management and key personnel or to attract, develop and retain personnel to fulfill other critical functions may have an adverse effect on our operations and ability to execute our strategies.
Our senior management has substantial experience in the apparel and related industries, with our Chairman and Chief Executive Officer Mr. Thomas C. Chubb III having worked with our company for more than 30 years, including in various executive management capacities. Our success depends on disciplined execution at all levels of our organization, including our senior management, and continued succession planning. Competition for qualified personnel is intense, and we compete to attract and retain these individuals with other companies that may have greater financial resources than us. While we believe that we have depth within our management team, the unexpected loss of any of our senior management, or the unsuccessful integration of new leadership, could harm our business and financial performance. In addition, we may be unable to retain or recruit qualified personnel in key areas such as product design, sales, marketing (including individuals with key insights into digital and social media marketing strategies), distribution, technology, sourcing and other support functions, which could result in missed sales opportunities and harm to key business relationships.
In Fiscal 2021, in particular, the U.S. labor market experienced significant turnover, which has been commonly referred to as the Great Resignation. During Fiscal 2021, we experienced staffing shortages, higher turnover rates and challenges in recruiting and retaining qualified employees at all levels of our organization, which may continue in the future. Our inability or failure to recruit and retain personnel in key functions could adversely impact our business, financial performance, reputation, our ability to keep up with the needs of our customers and overall customer satisfaction.
In addition, we must attract, develop, and retain qualified field and distribution center personnel in order to operate our business efficiently. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels and prevailing wage rates. If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, particularly with the current challenges in the labor market, we may not achieve our objectives and our results of operations could be adversely impacted.
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We may be unable to protect our trademarks and other intellectual property.
We believe that our trademarks and other intellectual property rights have significant value and are important to our continued success and our competitive position due to their recognition by consumers and retailers. Substantially all of our consolidated net sales are attributable to branded products for which we own the trademark. Therefore, our success depends to a significant degree on our ability to protect and preserve our intellectual property. We rely on laws in the United States and other countries to protect our proprietary rights. However, we may not be able to sufficiently prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. We have also experienced inherent, expanding challenges with enforcing our intellectual property rights on third party e-commerce websites, especially those based in foreign jurisdictions. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm the reputation of our brands.
We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts. Despite these efforts, we regularly discover products that infringe our proprietary rights or that otherwise seek to mimic or leverage our intellectual property. Counterfeiting and other infringing activities typically increase as brand recognition increases, and association of our brands with inferior counterfeit reproductions or third party labels could adversely affect the integrity and reputation of our brands.
Additionally, there can be no assurance that the actions that we have taken will be adequate to prevent others from seeking to block sales of our products as violations of proprietary rights. As we extend our brands into new product categories and new product lines and expand the geographic scope of the sourcing, distribution and marketing of our brands’ products, we could become subject to litigation or challenge based on allegations of the infringement of intellectual property rights of third parties, including by various third parties who have acquired or claim ownership rights in some of our trademarks internationally. In the event a claim of infringement against us is successful or would otherwise affect our operations, we may be required to pay damages, royalties, license fees or other costs to continue to use intellectual property rights that we had been using, or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Litigation and other legal action of this type, regardless of whether it is successful, could result in substantial costs to us and diversion of the attention of our management and other resources.
We are subject to periodic litigation, which may cause us to incur substantial expenses or unexpected liabilities.
From time to time, we are involved in litigation matters, which may relate to consumer protection, employment practices, leasing arrangements, intellectual property infringement and contract disputes, and which may include a class action, and we are subject to various claims and pending or threatened lawsuits in the ordinary course of our business operations. Often, these cases raise complex factual and legal issues and, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. Regardless of the outcome or whether the claims have merit, legal proceedings may be expensive and require significant management time.
Our common stock price may be highly volatile, and we may be unable to meet investor and analyst expectations.
Our common stock, which is currently listed on the New York Stock Exchange, may be subject to extreme and unpredictable fluctuations in price. The market price of our common stock may decline if the results of our operations or projected results do not meet the expectations of securities analysts or our shareholders, investors are unreceptive to an announcement of changes in our business or our strategic initiatives or securities analysts who follow our company change their ratings or estimates of our future performance. Our stock price may also change suddenly as a result of other factors beyond our control, including general economic conditions, new or modified legislation impacting our industry, announcements by our competitors, or sales of our stock by existing shareholders.
The stock market has also experienced periods of general volatility which result in fluctuations in stock prices unrelated or disproportionate to operating performance. We cannot provide assurances that there will continue to be an active trading market for our stock, and the price of our common stock may also be affected by illiquidity or perceived
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illiquidity of our shares. In addition, although we have paid dividends in each quarter since we became a public company in July 1960, we may discontinue or reduce dividend payments based upon several factors, including the terms of our credit facility and applicable law, the need for funding for our strategic initiatives or other capital expenditures and our future cash needs. Any modification or suspension of dividends could cause our stock price to decline. We also may be subject, from time to time, to legal and business challenges or disruptions in the operation of our company due to actions instituted by activist shareholders or others.
In December 2021, our Board of Directors approved a $150 million share repurchase authorization. Pursuant to that authorization, we entered into a share repurchase plan that commenced during the latter part of the Fourth Quarter of Fiscal 2021. There can be no assurance that a share repurchase will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock, and short-term stock price fluctuations could reduce the plan’s effectiveness. Any failure to pay dividends or conduct share repurchases at expected levels, may negatively impact our reputation, investor confidence in us and negatively impact the price of our common stock.
Other factors may have an adverse effect on our business, results of operations and financial condition.
Other risks, many of which are beyond our ability to control or predict, could negatively impact our business and financial performance, including changes in social, political, labor, health and economic conditions; changes in the operations or liquidity of any of the parties with which we conduct our business, or in the access to capital markets for any such parties; increasing costs of customer acquisition, activation and retention; consolidation in the retail industry and other factors. Any of these risks, and others of which we are not aware or that we currently consider to be immaterial, could, individually or in the aggregate, have a material adverse effect on our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease and own space for our direct to consumer locations, distribution centers, and sales/administration offices in various locations. We believe that our existing properties are well maintained, are in good operating condition and will be adequate for our present level of operations. We also own one property located in Merida, Mexico that was previously used in our Lanier Apparel manufacturing operations.
In the ordinary course of business, we enter into lease agreements for our direct to consumer operations, including leases for retail, restaurant and Marlin Bar space. The leases have varying terms and expirations and may have provisions to extend, renew or terminate the lease agreement, among other terms and conditions. At times, we may determine that it is appropriate to close certain direct to consumer or other locations that no longer meet our investment criteria, by either not renewing the lease, exercising an early termination option, negotiating an early termination or otherwise. For existing leases in desirable locations, we anticipate that we will be able to extend our leases, to the extent that they expire in the near future, on terms that are satisfactory to us, or if necessary, locate substitute properties on acceptable terms. The terms and conditions of lease renewals or relocations may not be as favorable as existing leases.
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Details of the principal administrative, sales, distribution and manufacturing facilities used in our operations, including approximate square footage, are as follows:
Square Lease
Location Primary Use Operating Group Footage Expiration
Seattle, Washington Sales/administration Tommy Bahama 125,000 2026
Auburn, Washington Distribution center Tommy Bahama 335,000 2025
Greenville, South Carolina Sales/administration Southern Tide 14,000 2024
Atlanta, Georgia Sales/administration Corporate/Other 30,000 2024
Lyons, Georgia Distribution center Various 420,000 Owned
Item 3. Legal Proceedings
From time to time, we are a party to litigation and regulatory actions arising in the ordinary course of business. These actions may relate to trademark and other intellectual property, licensing arrangements, real estate, employee relations matters, importing or exporting regulations, taxation or other topics. We are not currently a party to any litigation or regulatory action or aware of any proceedings contemplated by governmental authorities that we believe could reasonably be expected to have a material impact on our financial position, results of operations or cash flows. However, our assessment of any litigation or other legal claims could potentially change in light of the discovery of additional factors not presently known or determinations by judges, juries, or others which are not consistent with our evaluation of the possible liability or outcome of such litigation or claims.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Dividend Information
Our common stock is listed and traded on the New York Stock Exchange under the symbol "OXM." As of March 28, 2022, there were 274 record holders of our common stock.
On March 21, 2022, our Board of Directors approved a cash dividend of $0.55 per share payable on April 29, 2022 to shareholders of record as of the close of business on April 14, 2022. This dividend is a 31% increase over the dividend paid in the Fourth Quarter of Fiscal 2021. Although we have paid dividends in each quarter since we became a public company in July 1960, we may discontinue or modify dividend payments at any time if we determine that other uses of our capital, including payment of outstanding debt, funding of acquisitions, funding of capital expenditures or repurchases of outstanding shares, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facility, other debt instruments or applicable law limit our ability to pay dividends. We may borrow to fund dividends or repurchase shares in the short term subject to the terms and conditions of our credit facility, other debt instruments and applicable law. All cash flow from operations will not be paid out as dividends in all periods. For details about limitations on our ability to pay dividends, see Note 5 of our consolidated financial statements and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in this report.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities during Fiscal 2021.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the Fourth Quarter of Fiscal 2021, we repurchased the following shares of our common stock:
Total Number of Dollar Value
Shares (000s) of Shares
Average Purchased as That May Yet be
Total Number Price Part of Publicly Purchased Under
of Shares Paid per Announced Plans the Plans or
Fiscal Month Purchased Share or Programs Programs
As disclosed in our Quarterly Report on Form 10-Q for the Third Quarter of Fiscal 2021, on December 7, 2021, our Board of Directors authorized us to spend up to $150 million to repurchase shares of our stock. This authorization superseded and replaced all previous authorizations to repurchase shares of our stock and has no automatic expiration. Pursuant to the Board of Directors’ authorization, we entered into a $100 million open market stock repurchase program (Rule 10b5-1 plan) to acquire shares of our stock, under which 91,000 shares of our stock were repurchased for $8 million in the Fourth Quarter of Fiscal 2021. As of January 29, 2022, $142 million of the authorization remained available for future repurchases of our common stock.
Additionally, subsequent to January 29, 2022 and through March 28, 2022, we repurchased an additional 343,000 shares of our common stock for $29 million under the same open market stock repurchase program resulting in $62 million remaining under the open market repurchase program and $112 million remaining under the Board of Directors’ authorization as of March 28, 2022.
Also, we have certain stock incentive plans as described in Note 8 to our consolidated financial statements included in this report, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the vesting of shares of our stock. No shares were repurchased from employees during the Fourth Quarter of Fiscal 2021.
Stock Price Performance Graph
The graph below reflects cumulative total shareholder return (assuming an initial investment of $100 and the reinvestment of dividends) on our common stock compared to the cumulative total return for a period of five years,
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beginning January 28, 2017 and ending January 29, 2022, of (1) The S&P SmallCap 600 Index and (2) The S&P 500 Apparel, Accessories and Luxury Goods.
INDEXED RETURNS
Base Period Years Ended
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations, cash flows, liquidity and capital resources compares Fiscal 2021 to Fiscal 2020, as well as Fiscal 2019 for some line items due to the significant negative impact of the COVID-19 pandemic on Fiscal 2020 and the significant recovery in Fiscal 2021, and should be read in conjunction with our consolidated financial statements contained in this report.
The results of operations, cash flows, liquidity and capital resources for Fiscal 2020 compared to Fiscal 2019 are not included in this report on Form 10-K. For a discussion of our results of operations, cash flows, liquidity and capital resources for Fiscal 2020 compared to Fiscal 2019 and certain other financial information related to Fiscal 2020 and Fiscal 2019, refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II. Item 7 of our 2020 Annual Report on Form 10-K, filed with the SEC on March 29, 2021, which is available on the SEC’s website at www.sec.gov and under the Investor Relations section of our website at www.oxfordinc.com.
OVERVIEW
Business Overview
We are a leading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer, Southern Tide, TBBC and Duck Head lifestyle brands. Our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers. We consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude. Furthermore, we believe lifestyle brands that create an emotional connection can command greater loyalty and higher price points and create licensing opportunities. We believe the attraction of a lifestyle brand depends on creating compelling product, effectively communicating the respective lifestyle brand message and distributing products to consumers where and when they want them. We believe the principal competitive factors in the apparel industry are the reputation, value, and image of brand names; design of differentiated, innovative or otherwise compelling product; consumer preference; price; quality; marketing; product fulfillment capabilities; and customer service. Our ability to compete successfully in the apparel industry is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference and presenting appealing products for consumers. Our design-led, commercially informed lifestyle brand operations strive to provide exciting, differentiated products each season.
Tommy Bahama and Lilly Pulitzer, in the aggregate, represented 90% of our consolidated net sales in Fiscal 2021. During Fiscal 2021, 80% of our consolidated net sales were through our direct to consumer channels of distribution, which consists of our brand specific full-price retail stores and e-commerce websites, Tommy Bahama food and beverage operations and Tommy Bahama outlets. The remaining 20% of our net sales was generated through our wholesale distribution channels. Our wholesale operations consist of net sales of products bearing our lifestyle brands, which complement our direct to consumer operations and provide access to a larger base of consumers, and the net sales of our Lanier Apparel operating group, which we exited in Fiscal 2021.
For additional information about our business and each of our operating groups, see Part I, Item 1. Business included in this report. Important factors relating to certain risks which could impact our business are described in Part I, Item 1A. Risk Factors of this report.
Industry Overview
We operate in a highly competitive apparel market that continues to evolve rapidly with the expanding application of technology to fashion retail. No single apparel firm or small group of apparel firms dominates the apparel industry, and our direct competitors vary by operating group and distribution channel. The apparel industry is cyclical and very dependent upon the overall level and focus of discretionary consumer spending, which changes as consumer preferences and regional, domestic and international economic conditions change. Further, negative economic conditions often have a longer and more severe impact on the apparel industry than on other industries. Also, in recent years prior to
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the COVID-19 pandemic consumers have chosen to spend less of their discretionary spending on certain product categories, including apparel, while spending more on services and other product categories.
The competitive and evolving environment requires that brands and retailers approach their operations, including marketing and advertising, very differently than historical practices and may result in increased operating costs and capital investments to generate growth or even maintain sales levels. While the competition and evolution presents significant risks, especially for traditional retailers who fail or are unable to adapt, we believe it also presents a tremendous opportunity for brands and retailers to capitalize on the changing consumer environment.
Many of the changes in the industry noted above were accelerated or exacerbated by the COVID-19 pandemic. Additionally, in Fiscal 2021 the United States economy, as well as the apparel retail industry and our own business operations, began experiencing very strong growth in consumer demand and also began encountering various challenges including labor shortages, supply chain disruptions and product and operating cost increases. These items have continued to impact the apparel retail industry and our business into Fiscal 2022. We, as well as others in our industry, have increased prices to attempt to offset these significant inflationary pressures.
We believe our lifestyle brands have true competitive advantages in this new retailing paradigm, and we continue to invest in and leverage technology to serve our consumers when and where they want to be served. We continue to believe that our lifestyle brands, with their strong emotional connections with consumers, are well suited to succeed and thrive in the long term while managing the various challenges facing our industry.
COVID-19 Pandemic
The COVID-19 pandemic has had a significant effect on overall economic conditions and our operations in Fiscal 2020 and Fiscal 2021.
In Fiscal 2020, due to the COVID-19 pandemic, we temporarily closed all our retail and restaurant locations, resulting in a reduction in net sales and a significant net loss after many years of profitable operating results. We began reopening our stores and restaurants in the Second Quarter of Fiscal 2020 in a phased approach in accordance with local government guidelines and with additional safety protocols. After reopening many of our locations, we continued to experience reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations to varying degrees. There can be no assurance that additional closures will not occur in the future as a result of any resurgence of COVID-19 cases and/or additional government mandates or recommendations. In addition, the shift from in-store shopping to online shopping accelerated in Fiscal 2020 resulting in strong growth in our e-commerce businesses.
During Fiscal 2020, we took several actions to mitigate the impact of the COVID-19 pandemic on our business, operations and liquidity, including furloughs, salary reductions, modifying arrangements with suppliers and wholesale customers, renegotiating rental arrangements with landlords, reducing our dividend and taking advantage of government relief programs.
In Fiscal 2021, the economic environment improved significantly with a significant rebound in retail traffic. This improved environment and exceptionally strong consumer demand drove record net earnings. There can be no assurance that these trends will continue for our business or the broader retail apparel market. There remains significant uncertainty as to the duration and severity of the pandemic as well as the associated impact of changes in consumer discretionary spending habits, supply chain and other business disruptions, operating cost increases and inflationary pressures, general economic conditions and restrictions on our ongoing operations that result from the COVID-19 pandemic. Thus, the ultimate impact of the pandemic on our business remains uncertain at this time.
Lanier Apparel Exit
In Fiscal 2020, we decided to exit our Lanier Apparel business, a business which had been focused on moderately priced tailored clothing and related products. This decision aligns with our stated business strategy of developing and marketing compelling lifestyle brands. It also took into consideration the increased macroeconomic
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challenges faced by the Lanier Apparel business, many of which were magnified by the COVID-19 pandemic. The exit of the Lanier Apparel business was completed in Fiscal 2021. In connection with the exit of the Lanier Apparel business, we recorded pre-tax charges of $13 million in the Lanier Apparel operating group during Fiscal 2020 and a pre-tax benefit of $2 million in Fiscal 2021. The Lanier Apparel exit charges are discussed in Note 11 in our consolidated financial statements included in this report.
In Fiscal 2021, Lanier Apparel’s net sales were $25 million and represented 2% of our consolidated net sales. In Fiscal 2020, Lanier Apparel’s net sales were $39 million and represented 5% of our consolidated net sales. We do not expect any revenues, or additional exit charges related to the Lanier Apparel business after Fiscal 2021.
Key Financial Information
The following table sets forth our consolidated operating results (in thousands, except per share amounts) for Fiscal 2021, Fiscal 2020 and Fiscal 2019:
Net earnings (loss) per diluted share $ 7.78 $ (5.77) $ 4.05
Earnings per share were $7.78 in Fiscal 2021 compared to a loss per share of $5.77 in Fiscal 2020. The higher earnings per share were primarily a result of (1) improved operating results in each of our operating groups as our operations continued to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020, (2) the absence of impairment charges related to goodwill and intangible assets in Fiscal 2021 after recognizing $60 million of impairment charges related to goodwill and intangible assets in Southern Tide in Fiscal 2020, (3) the absence of information technology project impairment charges in Fiscal 2021 after recognizing $15 million of such charges in Fiscal 2020, and (4) the $15 million favorable change from the impact of exit charges in Lanier Apparel. These favorable items were partially offset by (1) a larger operating loss in Corporate and Other, which in Fiscal 2021 included the net impact of a LIFO accounting charge of $16 million and a gain on sale of an unconsolidated entity of $12 million and (2) a lease termination charge of $5 million in Tommy Bahama in Fiscal 2021.
Earnings per share were $7.78 in Fiscal 2021 compared to earnings per share of $4.05 in Fiscal 2019. The higher earnings per share were primarily a result of (1) increased operating income in each of our Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel operating groups, and (2) a lower effective tax rate. These items were partially offset by (1) a larger operating loss in Corporate and Other, which in Fiscal 2021 included the net impact of LIFO accounting charge of $16 million and a gain on sale of an unconsolidated entity of $12 million and (2) a lease termination charge of $5 million in Tommy Bahama in Fiscal 2021.
During Fiscal 2021 and Fiscal 2020, we generated $198 million and $84 million of cash flows from operations, respectively, which exceeded our cash used for investing and financing activities resulting in cash and short-term investments of $210 million, and no outstanding debt, as of January 29, 2022. Our history of strong positive cash flows from operations, and our strong balance sheet provide adequate liquidity and position us very well to thrive in the post-pandemic retail environment.
OPERATING GROUPS
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, as applicable. Our business has historically been operated primarily through our Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel reportable operating groups. Tommy Bahama, Lilly Pulitzer and Southern Tide each design, source, market and distribute apparel and related products
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bearing their respective trademarks and license their trademarks for other product categories. For a more extensive description of our reportable operating groups and Corporate and Other, see Part I, Item 1. Business and Note 2 to our consolidated financial statements, both included in this report.
STORE COUNT
The table below provides store count information for our brands as of the dates specified. The store count includes our permanent locations and excludes any pop-up or temporary store locations which have an initial lease term of 12 months or less.
January 29, January 30, February 2, February 3,
Tommy Bahama retail-restaurant locations 21 20 16 17
Southern Tide retail stores 4 3 1 —
TBBC retail stores 1 — — —
RESULTS OF OPERATIONS
The following table sets forth the specified line items in our consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
Net earnings (loss) per share $ 7.78 $ (5.77) $ 4.05
Weighted average shares outstanding - diluted 16,869 16,576 16,914
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The following table presents the proportion of our consolidated net sales by distribution channel for each period presented. We have calculated all percentages below based on actual data, and percentages may not add to 100 due to rounding.
Restaurant 8 % 6 % 8 %
FISCAL 2021 COMPARED TO FISCAL 2020
The discussion and tables below compare certain line items included in our consolidated statements of operations for Fiscal 2021 to Fiscal 2020, except where indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts. We have calculated all percentages based on actual data, and percentage columns in tables may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.
Net Sales
Fiscal 2021 Fiscal 2020 $ Change % Change
Consolidated net sales were $1.142 billion in Fiscal 2021 compared to net sales of $749 million in Fiscal 2020. The 53% increase included increases in Tommy Bahama, Lilly Pulitzer, Southern Tide and Corporate and Other partially offset by a decrease in Lanier Apparel. In Fiscal 2021, our operations continued to recover from the impact of the COVID-19 pandemic, which resulted in temporary store closures and reduced traffic in Fiscal 2020, as consumers become increasingly more comfortable returning to physical shopping in both our direct to consumer locations and those of our wholesale accounts. The increase in net sales included increases in (1) full-price retail sales of $216 million, or 127%, (2) sales of our non-Lanier Apparel wholesale businesses of $72 million, or 54%, (3) full-price e-commerce sales of $63 million, or 23%, (4) restaurant sales of $48 million, or 99%, and (5) outlet sales of $25 million, or 79%. These increases were partially offset by (1) a decrease in e-commerce flash clearance sales of $17 million, or 35%, as the strong full-price selling in Fiscal 2021 resulted in less inventory available for e-commerce flash clearance sales, and (2) a decrease in Lanier Apparel sales of $14 million. The changes in net sales for each operating group and distribution channel were primarily driven by increased volume. The changes in net sales by operating group are discussed below.
Consolidated net sales were $1.142 billion in Fiscal 2021 compared to net sales of $1.123 billion in Fiscal 2019. Net sales increased in Tommy Bahama, Lilly Pulitzer, Southern Tide and Corporate and Other partially offset by the lower net sales in Lanier Apparel. The higher net sales, even with a $70 million decrease in Lanier Apparel, were primarily due to increases in our full-price direct to consumer businesses partially offset by reductions in our wholesale businesses, as wholesale accounts were conservative on initial inventory purchases for Fiscal 2021 and a reduction in Spring 2022 orders that shipped before the end of Fiscal 2021 as compared to Spring 2020 orders that shipped before the end of Fiscal 2019.The higher net sales relative to Fiscal 2019 included increases in (1) full-price e-commerce sales of $123 million, or 58%, with increases in each of our brands, (2) restaurant sales of $12 million, or 15%, resulting from the sales at additional Tommy Bahama Marlin Bars and increased sales in existing Tommy Bahama food and beverage locations and (3) full-price retail sales of $3 million, or 1%, with increases in Tommy Bahama and Southern Tide partially offset by a reduction in Lilly Pulitzer. These increases were partially offset by decreases in (1) Lanier Apparel
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sales of $70 million, (2) sales of our non-Lanier Apparel wholesale businesses of $32 million, or 14%, with reductions in Tommy Bahama, Lilly Pulitzer and Southern Tide partially offset by increases in our TBBC and Duck Head brands, (3) e-commerce flash clearance sales of $16 million, or 33%, and (4) outlet sales of $1 million, or 1%.
Tommy Bahama:
Tommy Bahama net sales increased $304 million, or 73%, in Fiscal 2021, with an increase in each channel of distribution, after a significant net sales decrease in Fiscal 2020 due to the COVID-19 pandemic. The increase in net sales in Tommy Bahama included increases in (1) full-price retail sales of $159 million, or 130%, (2) restaurant sales of $48 million, or 99%, including higher sales at our additional Tommy Bahama Marlin Bar locations as well as existing locations, (3) wholesale sales of $38 million, or 56%, (4) e-commerce sales of $34 million, or 23%, and (5) outlet sales of $25 million, or 81%. The following table presents the proportion of net sales by distribution channel for Tommy Bahama for each period presented.
Lilly Pulitzer:
Lilly Pulitzer net sales increased $68 million, or 29%, in Fiscal 2021 after a net sales decrease in Fiscal 2020 due to the COVID-19 pandemic. The increase in net sales in Lilly Pulitzer included increases in (1) retail sales of $54 million, or 116%, (2) full-price e-commerce sales of $20 million, or 20%, and (3) wholesale sales of $12 million, or 31%. These increases were partially offset by a $17 million, or 35%, decrease in e-commerce flash clearance sales as Lilly Pulitzer did not have as much end of season inventory for e-commerce flash clearance sales in Fiscal 2021 due to strong full-price sellthroughs during the year. The following table presents the proportion of net sales by distribution channel for Lilly Pulitzer for each period presented.
Southern Tide:
Southern Tide net sales increased $19 million, or 56%, in Fiscal 2021, with an increase in each channel of distribution, after a significant net sales decrease in Fiscal 2020 due to the COVID-19 pandemic. The increase in net sales in Southern Tide included increases in (1) wholesale sales of $14 million, or 62%, (2) e-commerce sales of $3 million, or 28%, and (3) retail sales of $2 million, primarily due to the sales of Southern Tide retail stores that opened during either Fiscal 2020 or Fiscal 2021. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented.
Retail 7 % 4 %
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Lanier Apparel:
Lanier Apparel net sales decreased $14 million in Fiscal 2021. We sold our remaining Lanier Apparel inventory and exited the Lanier Apparel business in Fiscal 2021. We do not expect any future net sales for Lanier Apparel.
Corporate and Other:
Corporate and Other net sales increased $15 million, or 63%, in Fiscal 2021, including increased sales in each of our TBBC, Duck Head and Lyons, Georgia distribution center businesses.
Gross Profit
The tables below present gross profit by operating group and in total for Fiscal 2021 and Fiscal 2020, as well as the change between those two periods and gross margin by operating group and in total. Our gross profit and gross margin, which is calculated as gross profit divided by net sales, may not be directly comparable to those of our competitors, as the statement of operations classification of certain expenses may vary by company.
Fiscal 2021 Fiscal 2020 $ Change % Change
Notable items included in amounts above:
LIFO adjustments in Corporate and Other $ 15,870 $ (9,220)
Lanier Apparel 49.3 % 0.8 %
Corporate and Other NM % NM %
Consolidated gross margin 61.8 % 55.4 %
The higher gross profit was primarily due to the higher net sales as well as improved gross margin, with gross margin improvement in each operating group. Gross margin was 61.8% in Fiscal 2021 compared to a gross margin of 55.4% in Fiscal 2020.
The improved consolidated gross margin in Fiscal 2021 was primarily due to (1) more full-price selling and fewer inventory markdowns, discounts, allowances and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of net sales, while wholesale sales and e-commerce flash clearance sales represented a lower proportion of net sales, in Fiscal 2021, (3) improved initial product margins, and (4) the favorable impact of Lanier Apparel exit charges in cost of goods sold. These items that favorably impacted gross margin were partially offset by (1) a $25 million unfavorable impact of LIFO accounting, with Fiscal 2021 including a $16 million LIFO accounting charge compared to a $9 million LIFO accounting credit in Fiscal 2020, and (2) increased freight costs, including rate increases impacting inbound products and e-commerce shipping costs, as well as increased air freight on inbound products.
During Fiscal 2021, LIFO accounting had a $16 million unfavorable impact on gross profit, primarily due to (1) a $9 million reduction in inventory markdown reserves related to the sale of inventory marked down in prior years as
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well as a reduction of the Lanier Apparel inventory markdown reserves recognized in association with the announced Lanier Apparel exit, that were not required upon the ultimate disposal of the remaining Lanier Apparel inventory, and (2) a $7 million increase in the LIFO reserve in Fiscal 2021. In Fiscal 2020, LIFO accounting had a $9 million favorable impact on gross profit primarily due to the increase in inventory markdowns recognized in the operating groups that were deferred as part of LIFO accounting.
Gross margin was 61.8% in Fiscal 2021 compared to a gross margin of 57.4% in Fiscal 2019, with improved gross margins in each operating group. The improved consolidated gross margin in Fiscal 2021 compared to Fiscal 2019 was primarily due to (1) more full-price selling and fewer inventory markdowns, discounts, allowances and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of net sales, while wholesale sales in our brands, Lanier Apparel sales and e-commerce flash clearance sales represented a lower proportion of net sales, in Fiscal 2021, (3) improved initial product margins and (4) the Fiscal 2021 reversal in cost of goods sold of previously recognized Lanier Apparel exit charges for estimated inventory markdowns. These items that favorably impacted gross margin were partially offset by (1) a $15 million unfavorable impact of LIFO accounting, with Fiscal 2021 including a $16 million LIFO accounting charge compared to a $1 million LIFO accounting charge in Fiscal 2019, and (2) increased freight costs, including rate increases impacting inbound products and e-commerce shipping costs, as well as increased air freight on inbound products.
Tommy Bahama:
The improved gross margin for Tommy Bahama was primarily due to (1) more full-price selling and fewer inventory markdowns, discounts and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of net sales, and wholesale sales represented a lower proportion of net sales, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by increased freight costs.
Lilly Pulitzer:
The improved gross margin for Lilly Pulitzer was primarily due to (1) more full-price selling and fewer inventory markdowns, discounts and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of net sales, and e-commerce flash clearance sales represented a lower proportion of net sales, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by increased freight costs.
Southern Tide:
The improved gross margin for Southern Tide was primarily due to (1) more full-price selling and fewer inventory markdowns, with the higher markdowns in the prior year more significantly impacting gross margin due to the much lower net sales in the prior period and (2) a change in sales mix as direct to consumer sales represented a larger proportion of net sales. These items that favorably impacted gross margin were partially offset by increased freight costs.
Lanier Apparel:
We exited the Lanier Apparel business in Fiscal 2021 and do not expect any gross profit related to the Lanier Apparel business in future periods. Fiscal 2021 included the net favorable impact of $3 million in cost of goods sold related to Lanier Apparel exit charges. These items included the net impact of a $4 million reduction in inventory markdowns as we disposed of the remaining Lanier Apparel inventory and $1 million of additional charges related to our Merida manufacturing facility. Fiscal 2020 included $7 million of Lanier Apparel exit charges including inventory markdowns and charges related to our Merida manufacturing facility. The recovery in the general retail environment in Fiscal 2021, which created significant unanticipated demand from Lanier Apparel’s wholesale customers, resulted in us being able to liquidate the remaining Lanier Apparel inventory in Fiscal 2021 at significantly better gross margins than we had previously estimated in Fiscal 2020. Refer to Note 11 in our consolidated financial statements included in this report for additional details about amounts related to the Lanier Apparel exit in Fiscal 2021 and Fiscal 2020.
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Corporate and Other:
The gross profit in Corporate and Other primarily reflects the gross profit of TBBC, Duck Head and the Lyons, Georgia distribution center as well as the impact of LIFO accounting adjustments. The primary driver for the lower gross profit was the $25 million net unfavorable impact of LIFO accounting with a $16 million LIFO accounting charge in Fiscal 2021 and a $9 million LIFO accounting credit in Fiscal 2020. The $25 million net unfavorable impact of LIFO accounting was partially offset by the higher gross profit resulting from the increased net sales in Corporate and Other. The LIFO accounting impact in Corporate and Other in each period includes the net impact of (1) a charge in Corporate and Other when inventory that had been marked down in an operating group in a prior period was ultimately sold, (2) a credit in Corporate and Other when inventory had been marked down in an operating group in the current period, but had not been sold as of period end and (3) the change in the LIFO reserve, if any.
SG&A
Fiscal 2021 Fiscal 2020 $ Change % Change
SG&A (as a % of net sales) 50.2 % 65.8 %
Notable items included in amounts above:
Tommy Bahama lease termination charge $ 4,850 $ —
Amortization of Southern Tide intangible assets $ 289 $ 288
Lanier Apparel exit charges in SG&A $ 3,788 $ 6,342
TBBC change in fair value of contingent consideration $ 1,188 $ 593
SG&A was $574 million in Fiscal 2021 compared to SG&A of $493 million in Fiscal 2020. The higher SG&A in Fiscal 2021 was primarily due to the impact the COVID-19 pandemic had on our operations in Fiscal 2020. The higher SG&A included (1) increased employment costs of $58 million, including increased incentive compensation totaling $19 million, (2) an $18 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, commissions and other expenses, (3) an $11 million increase in advertising expense, (4) a $10 million increase in administrative expenses including professional fees, travel and other items, and (5) an $8 million increase in occupancy expense, primarily resulting from the Tommy Bahama office and showroom lease termination charge of $5 million. These increases were partially offset by (1) Fiscal 2020 including a $15 million charge for the write off of costs associated with a Tommy Bahama information technology project that was abandoned and will not be implemented, with no such charges in Fiscal 2021, (2) a $7 million decrease in estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers and (3) a $2 million reduction in sample expense.
SG&A was $574 million in Fiscal 2021 compared to SG&A of $566 million in Fiscal 2019. The higher SG&A was primarily due to (1) a $14 million increase in incentive compensation, (2) an $8 million increase in advertising expense, (3) a $5 million Tommy Bahama office and showroom lease termination charge, (4) a $6 million increase in variable expenses, including credit card transaction fees, supplies, commissions, royalties, selling and shipping charges and other expenses, (5) a $6 million increase in administrative expenses including professional fees, travel and other items and (6) a $2 million increase in depreciation expense. These increases were partially offset by (1) an $18 million decrease in employment costs, excluding incentive compensation, resulting from employee headcount reduction and other initiatives implemented in Fiscal 2020 in response to the COVID-19 pandemic and the Lanier Apparel exit, (2) a $7 million reduction in occupancy expenses due to fewer stores and reduced occupancy amounts, (3) a $4 million reduction in travel expense, (4) a $2 million reduction in sample expense and (5) a $1 million reduction in estimated provisions for credit losses.
Impairment of goodwill and intangible assets
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There were no impairment charges for goodwill or intangible assets in Fiscal 2021. However, in Fiscal 2020, impairment charges for goodwill and intangible assets totaling $60 million were recognized in Southern Tide. In addition, in Fiscal 2020, a small impairment charge was recognized in Lanier Apparel related to a trademark acquired in a prior year that was not deemed recoverable. Refer to Note 4 in the consolidated financial statements included in this report for additional discussion about the impairment charges recognized in Fiscal 2020.
Royalties and other operating income
Fiscal 2021 Fiscal 2020 $ Change % Change
Notable items included in amounts above:
Gain on sale of Lanier Apparel distribution center $ (2,669) $ —
Royalties and other operating income in Fiscal 2021 included (1) a $12 million gain recognized on the sale of an interest in an unconsolidated entity and (2) a $3 million gain recognized on the sale of the Toccoa, Georgia distribution center which was previously utilized by the Lanier Apparel operating group. The remaining amounts included in royalties and other operating income in Fiscal 2021 and Fiscal 2020 primarily consist of income received from third parties from the licensing of our lifestyle brands. The increase in royalties to $18 million in Fiscal 2021 from $14 million in Fiscal 2020 was primarily due to higher royalty income in Tommy Bahama.
Operating income (loss)
Fiscal 2021 Fiscal 2020 $ Change % Change
Notable items included in amounts above:
LIFO adjustments in Corporate and Other $ 15,870 $ (9,220)
Tommy Bahama lease termination charge $ 4,850 $ —
Amortization of Southern Tide intangible assets $ 289 $ 288
Lanier Apparel intangible asset impairment charge $ — $ 207
Lanier Apparel exit charges in SG&A $ 3,788 $ 6,342
Gain on sale of Lanier Apparel distribution center $ (2,669) $ —
Gain on sale of investment in unconsolidated entity $ (11,586) $ —
TBBC change in fair value of contingent consideration $ 1,188 $ 593
Operating income was $166 million in Fiscal 2021 compared to an operating loss of $124 million in Fiscal 2020. The improved operating results were primarily due to (1) the improved operating results in each of our operating groups, (2) no impairment charges related to goodwill and intangible assets in Fiscal 2021 compared to $60 million of impairment charges related to goodwill and intangible assets in Fiscal 2020, (3) a decrease in Lanier Apparel exit
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charges in Fiscal 2021 compared to Fiscal 2020, and (4) Fiscal 2020 including the $15 million write off of an information technology project in Tommy Bahama, with no such charges in Fiscal 2021. These items were partially offset by (1) a higher operating loss of $18 million in Corporate and Other, including the net unfavorable impact of the LIFO accounting adjustments and a gain on sale of investment in unconsolidated entity, and (2) a $5 million lease termination charge in Tommy Bahama. Changes in operating income (loss) by operating group are discussed below.
Operating income was $166 million in Fiscal 2021 compared to $94 million in Fiscal 2019. The higher operating income was primarily due to higher gross margin, higher net sales, and the gain on the sale of our investment in an unconsolidated entity, partially offset by higher SG&A. Compared to Fiscal 2019, operating income in Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel each increased, while the operating loss of Corporate and Other increased. The higher operating income in Tommy Bahama, Lilly Pulitzer and Southern Tide each included higher gross margin and net sales, while the higher operating income in Lanier Apparel primarily resulted from the favorable impact in Fiscal 2021 of the Lanier Apparel exit in Fiscal 2021.
Tommy Bahama:
Fiscal 2021 Fiscal 2020 $ Change % Change
Operating income (loss) as % of net sales 15.4 % (12.7) %
Notable items included in amounts above:
Tommy Bahama lease termination charge $ 4,850 $ —
Tommy Bahama information technology project write-off $ — $ 15,473
The improved operating results for Tommy Bahama were due to higher sales, improved gross margin and increased royalty income partially offset by increased SG&A. The increased SG&A was primarily due to (1) $44 million of increased employment costs, including $8 million of increased incentive compensation, (2) $12 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (3) $10 million of higher occupancy costs, including the lease termination charge of $5 million, with the remainder of the increase primarily resulting from increased costs for utilities, maintenance and related expenses as direct to consumer locations were open for the full period in Fiscal 2021, and (4) $4 million of increased advertising expense. These increases were partially offset by (1) Fiscal 2020 including a $15 million charge related to the write off of an information technology project in Tommy Bahama that was abandoned in Fiscal 2020, with no such charge in Fiscal 2021 and (2) lower provisions for credit losses.
Lilly Pulitzer:
Fiscal 2021 Fiscal 2020 $ Change % Change
Gross margin 67.3 % 59.7 %
Operating income as % of net sales 21.3 % 12.0 %
Notable items included in amounts above:
The increased operating income for Lilly Pulitzer was primarily due to higher sales and improved gross margin partially offset by increased SG&A. The increased SG&A was primarily due to (1) $8 million of increased employment costs, including $3 million of increased incentive compensation, (2) $7 million of higher advertising expense, (3) $5 million of professional and other fees primarily related to various ongoing direct to consumer and brand initiatives, (4)
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$4 million of variable expenses related to the higher net sales, including credit card transaction fees, supplies and other expenses, (5) $2 million of increased depreciation expense and (6) $1 million of higher occupancy expense costs. These increases were partially offset by lower provisions for credit losses.
Southern Tide:
Fiscal 2021 Fiscal 2020 $ Change % Change
Gross margin 53.7 % 34.1 %
Operating income (loss) as % of net sales 18.4 % (186.9) %
Notable items included in amounts above:
Amortization of Southern Tide intangible assets $ 289 $ 288
The improved operating results for Southern Tide were primarily due to no impairment charges related to goodwill and intangible assets in Fiscal 2021 compared to $60 million of impairment charges in Fiscal 2020. Additionally, the operating results of Southern Tide improved due to higher net sales and higher gross margin, partially offset by increased SG&A. The increased SG&A included higher SG&A associated with the Southern Tide retail store operations, incentive compensation amounts, advertising expense and variable expenses partially offset by decreases in provisions for credit losses and sample expense.
Lanier Apparel:
Fiscal 2021 Fiscal 2020 $ Change % Change
Gross margin 49.3 % 0.8 %
Operating income (loss) as % of net sales 19.7 % (68.7) %
Notable items included in amounts above:
Lanier Apparel intangible asset impairment charge $ — $ 207
Lanier Apparel exit charges in SG&A $ 3,788 $ 6,342
Gain on sale of Lanier Apparel distribution center $ (2,669) $ —
We sold our remaining inventory and exited the Lanier Apparel business in Fiscal 2021. The improved operating results for Fiscal 2021 were primarily due to (1) Fiscal 2020 including $13 million of initial charges associated with the decision to exit the Lanier Apparel business, primarily consisting of inventory markdowns, charges related to the Lanier Apparel manufacturing facility in Merida, Mexico, operating lease asset impairment charges, employee charges, and fixed asset impairment charges, compared to a $2 million net favorable impact of Lanier Apparel exit charges in Fiscal 2021, (2) lower SG&A of $10 million in Lanier Apparel, excluding the Lanier Apparel exit charges, during the wind down phase in 2021 and (3) Fiscal 2020 including $3 million of estimated provisions for credit losses and other charges related to bankruptcies and credit exposure with respect to multiple customers compared to a $1 million reduction of provisions for credit losses in Fiscal 2021. These favorable items were partially offset by the lower net sales in Fiscal 2021. The $2 million net favorable impact of Lanier Apparel exit charges in Fiscal 2021 primarily consists of (1) a $4 million reduction in inventory markdown charges and (2) a $3 million gain on sale of the Lanier Apparel distribution center, which were partially offset by (1) $4 million of Lanier Apparel exit charges included in SG&A and (2) $1 million of exit charges related to the Lanier Apparel manufacturing facility in Merida, Mexico
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included in cost of goods sold. The Lanier Apparel exit charges are discussed in Note 11 in the unaudited condensed consolidated financial statements included in this report.
Corporate and Other:
Fiscal 2021 Fiscal 2020 $ Change % Change
Notable items included in amounts above:
LIFO adjustments in Corporate and Other $ 15,870 $ (9,220)
The lower operating results in Corporate and Other were primarily due to (1) the $25 million unfavorable impact of LIFO accounting resulting from a $16 million charge in Fiscal 2021 and a $9 million credit in Fiscal 2020 and (2) an increase in employment costs of $10 million, including higher incentive compensation of $7 million and additional employees at corporate and at our smaller brands. These unfavorable items were partially offset by (1) a $12 million gain on sale of our investment in an unconsolidated entity and (2) the gross profit impact of the higher net sales in Fiscal 2021.
Interest expense, net
Fiscal 2021 Fiscal 2020 $ Change % Change
The decreased interest expense in Fiscal 2021 was primarily due to the lack of debt outstanding in Fiscal 2021, while in Fiscal 2020, we had debt outstanding in order to maintain a certain level of cash on our balance sheet during the earlier stages of the COVID-19 pandemic. The interest expense in Fiscal 2021 primarily consisted of unused line fees and amortization of deferred financing fees associated with the U.S. Revolving Credit Agreement.
Income taxes
Fiscal 2021 Fiscal 2020 $ Change % Change
Effective tax rate 20.2 % 24.0 %
The income tax expense in Fiscal 2021 included the benefit of (1) the utilization of $3 million of benefits associated with certain capital losses to substantially offset a gain recognized on the sale of an unconsolidated entity in Fiscal 2021, (2) a $2 million net reduction in uncertain tax positions resulting from the settlement of those uncertain tax position amounts during the year, (3) a $1 million benefit of certain net operating losses to offset current year income and (4) a $1 million favorable impact of the finalization of the Fiscal 2020 income tax returns. These favorable items were partially offset by certain unfavorable permanent items which are not deductible for income tax purposes. The net impact of these items resulted in the 20% effective tax rate, which is lower than a more typical 24% to 25% annual effective tax rate.
The income tax benefit in Fiscal 2020 included (1) the benefit of the operating losses that were realized at a federal rate of 35% pursuant to the CARES Act provision allowing the carryback of the Fiscal 2020 loss amounts to pre-U.S. Tax Reform years and (2) as well as a favorable provision to return adjustment for our Fiscal 2019 returns. These favorable items were offset by (1) the non-deductibility of certain impairment charges which resulted in an estimated effective tax rate of 17% on the impairment charges, (2) the estimated book to tax timing differences and certain discrete non-deductible items, which reduced the amount of expenses expected to be deductible for income tax return purposes in
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Fiscal 2020 (3) an increase to the reserve for uncertain tax positions and (4) the impact of restricted stock awards vesting at a price lower than the grant date value.
Refer to Note 10 in our consolidated financial statements included in this report for additional information about our income tax expense for Fiscal 2021 and income tax benefit for Fiscal 2020.
Net earnings
Net earnings (loss) per diluted share $ 7.78 $ (5.77)
Weighted average shares outstanding - diluted 16,869 16,576
Earnings per share were $7.78 in Fiscal 2021 compared to a loss per share of $5.77 in Fiscal 2020. The higher earnings per share were primarily a result of (1) improved operating results in each of our operating groups as our operations continued to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020, (2) the absence of impairment charges related to goodwill and intangible assets in Fiscal 2021 after recognizing $60 million of impairment charges related to goodwill and intangible assets in Southern Tide in Fiscal 2020, (3) the absence of information technology project impairment charges in Fiscal 2021 after recognizing $15 million of such charges in Fiscal 2020, and (4) the $15 million favorable change from the impact of exit charges in Lanier Apparel. These favorable items were partially offset by (1) a larger operating loss in Corporate and Other, which in Fiscal 2021 included the net impact of a LIFO accounting charge of $16 million and a gain on sale of an unconsolidated entity of $12 million and (2) a lease termination charge of $5 million in Tommy Bahama in Fiscal 2021.
Earnings per share were $7.78 in Fiscal 2021 compared to earnings per share of $4.05 in Fiscal 2019. The higher earnings per share were primarily a result of (1) increased operating income in each of our Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel operating groups, and (2) a lower effective tax rate. These items were partially offset by (1) a larger operating loss in Corporate and Other, which in Fiscal 2021 included the net impact of LIFO accounting charge of $16 million and a gain on sale of an unconsolidated entity of $12 million and (2) a lease termination charge of $5 million in Tommy Bahama in Fiscal 2021.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is through our design, sourcing, marketing and distribution of branded apparel products bearing the trademarks of our Tommy Bahama, Lilly Pulitzer, Southern Tide, TBBC and Duck Head lifestyle brands. We distribute our products to our customers via direct to consumer and wholesale channels of distribution.
Our primary uses of cash flow include the purchase of branded apparel products from third party contract manufacturers outside of the United States, as well as our operating expenses, including employee compensation and benefits, operating lease commitments and other occupancy-related costs, marketing and advertising costs, distribution costs, information technology costs, other general and administrative expenses and the periodic payment of interest, if any. Additionally, we use our cash to fund capital expenditures and other investing activities, dividends, share repurchases and repayment of indebtedness, if any. In the ordinary course of business, we maintain certain levels of inventory, extend credit to our wholesale customers and pay our operating expenses. Thus, we require a certain amount of ongoing working capital to operate our business. Our need for working capital is typically seasonal with the greatest requirements generally in the fall and spring of each year. Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory levels and the success of our various products.
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our
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anticipated future cash flows from operating activities, as well as our $210 million of cash and short-term investments as of January 29, 2022, will provide sufficient cash over both the short and long term to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our lifestyle brands, direct to consumer initiatives, information technology projects and other strategic initiatives. Also, if cash inflows are less than cash outflows, we have access to amounts under our U.S. Revolving Credit Agreement, subject to its terms, which is described below.
Key Liquidity Measures
January 29, January 30,
($ in thousands) 2021 2021 $ Change % Change
Working capital ratio 1.77 1.32
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as of January 29, 2022, increased from January 30, 2021, primarily due to our short-term investments and cash balances, which increased $144 million in the aggregate as a result of our strong cash flow from operations exceeding our cash requirements for capital expenditure and financing activities. Current liabilities as of January 29, 2022, increased from January 30, 2021 primarily due to higher accrued compensation, accounts payable and accrued expenses and other liabilities. Changes in current assets and current liabilities are discussed below.
Balance Sheet
The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances as of January 29, 2022 as compared to January 30, 2021.
Current Assets:
January 29, January 30,
Cash and cash equivalents were $45 million as of January 29, 2022, compared to $66 million as of January 30, 2021. Short-term investments were $165 million as of January 29, 2022 with no short-term investments as of January 30, 2021. The increase in the short-term investments and cash, in the aggregate, was primarily due to our strong cash flows from operations exceeding our cash requirements for capital expenditures and financing activities.
The increase in receivables, net as of January 29, 2022 was primarily due to (1) reductions in wholesale accounts receivables allowances, with the decrease generally related to the exit of Lanier Apparel, (2) increased pre-payments for certain inventory, (3) increased credit card receivables and (4) reductions in provisions for credit losses. These items were partially offset by (1) lower wholesale trade receivables and (2) reductions in other receivables, including amounts due from landlords for certain tenant allowances.
Inventories, net, which is net of a $69 million and $62 million LIFO reserve in Fiscal 2021 and Fiscal 2020, respectively, decreased as of January 29, 2022 due to (1) lower inventories at Corporate and Other, primarily due to the impact of LIFO accounting, which deferred the recognition of markdowns previously recognized in the operating groups
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until the inventory was disposed in Fiscal 2021 and also included a $7 million increase in the LIFO reserve in Fiscal 2021, due to the current year inflation impact on LIFO accounting, (2) the disposal of the remaining Lanier Apparel inventory during Fiscal 2021 as we exited the business, and (3) lower inventory in Lilly Pulitzer. These decreases were partially offset by increased inventory in Tommy Bahama, TBBC, Southern Tide and Duck Head to support planned sales increases in Fiscal 2022. Inventory in transit as of January 29, 2022 increased significantly from January 30, 2021 due to the delayed receipt of certain product at our distribution centers, larger inventory purchases for Spring 2022 as compared Spring 2021 and the earlier Chinese New Year in 2022, which accelerated certain shipments. Sales in our operating groups generally outpaced inventory purchases during Fiscal 2021 due to exceptionally strong consumer demand.
Income tax receivable primarily relates to the income tax receivable associated with tax returns for Fiscal 2020, which included the carry back of operating losses to offset previous years taxable income, with the increase primarily due to the finalization of the Fiscal 2020 income tax returns.
Non-current Assets:
January 29, January 30,
Property and equipment, net as of January 29, 2022 decreased primarily due to depreciation expense and impairment charges during Fiscal 2021, which exceeded capital expenditures for the year. Operating lease assets as of January 29, 2022 decreased primarily due to the recognition of amortization related to existing operating leases, the termination or reduced term of certain operating leases and the impairment of certain operating lease assets which exceeded the increased operating lease assets associated with any new or extended operating lease agreements. The decrease in other assets, net as of January 29, 2022 was primarily due to (1) a $3 million decrease in investment in unconsolidated entities due to the sale of our ownership interest in an unconsolidated entity, (2) a reduction in certain deposit payments, and (3) a reduction in non-current deferred tax assets. These decreases in other non-current assets were partially offset by an increase in assets set aside for potential deferred compensation obligations.
Liabilities:
January 29, January 30,
Long-term debt — — — — %
Current liabilities increased as of January 29, 2022 primarily due to increases in (1) accrued compensation, which was primarily due to a $19 million increase in accrued incentive compensation after the annual bonus program was suspended in Fiscal 2020, partially offset by a $5 million reduction in FICA payable as the amounts allowed to be deferred pursuant to the CARES Act in the prior year were paid during Fiscal 2021 and a reduction in accrued compensation amounts associated with the exit from Lanier Apparel, (2) accounts payable, which was primarily due to increased payables associated with an increase in inventory in transit partially offset by reductions in other payables and outstanding ACH payments and checks, and (3) accrued expenses and other liabilities, which was primarily due to
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increases in estimated direct to consumer inventory returns, gift card liabilities, accrued percentage rent amounts, and the contingent consideration liability related to TBBC.
Non-current portion of operating lease liabilities as of January 29, 2022, decreased primarily due to the payment of operating lease liabilities and reductions in liabilities related to the termination or reduced term of certain operating leases, which exceeded operating lease liabilities associated with any new or extended operating lease agreements. Other non-current liabilities as of January 29, 2022 decreased primarily due to decreases in (1) uncertain tax positions and (2) non-current contingent consideration liabilities as all amounts are classified as current liabilities as of January 29, 2022, partially offset by an increase in deferred compensation liabilities. Deferred income taxes increased as of January 29, 2022 primarily due to timing differences associated with depreciation and amortization partially offset by timing differences associated with accrued compensation, other current liability amounts and inventories.
Statement of Cash Flows
The following table sets forth the net cash flows resulting in the change in our cash and cash equivalents (in thousands):
Cash and cash equivalents and short-term-investments, in the aggregate, were $210 million and $66 million at January 29, 2022 and January 30, 2021, respectively. The increase in the aggregate cash and short-term investments balance was primarily due to our strong cash flows from operations exceeding our capital expenditure and financing activities cash requirements. Changes in cash flows in Fiscal 2021 and the Fiscal 2020 related to operating activities, investing activities and financing activities are discussed below.
Operating Activities:
In Fiscal 2021 and Fiscal 2020, operating activities provided $198 million and $84 million of cash, respectively. The cash flow from operating activities for each year primarily consisted of net earnings (loss) for the relevant period adjusted, as applicable, for non-cash activities including depreciation, amortization, impairment, equity-based compensation, gain on sale of our interest in an unconsolidated entity, and gain on sale of property and equipment, as well as the net impact of changes in deferred taxes and operating assets and liabilities. In both Fiscal 2021 and Fiscal 2020, changes in operating assets and liabilities had a significant net favorable impact on cash flow from operations.
In Fiscal 2021, changes in operating assets and liabilities were primarily due to an increase in current liabilities and a decrease in inventories, which increased cash flow from operations, partially offset by an increase in receivables, which decreased cash flow from operations. In Fiscal 2020, changes in operating assets and liabilities were primarily due to a decrease in inventories and receivables and an increase in current liabilities, which increased cash flow from operations, partially offset by an increase in income tax receivables and a decrease in deferred tax liabilities, which decreased cash flow from operations.
Investing Activities:
In Fiscal 2021 and Fiscal 2020, investing activities used $182 million and $35 million of cash, respectively. During Fiscal 2021, we converted $165 million of cash on hand into short-term investments. On an ongoing basis, our cash flow used in investing activities primarily consists of our capital expenditures, which totaled $32 million and $29 million in Fiscal 2021 and Fiscal 2020, respectively. Additionally, in Fiscal 2021, we received $15 million of proceeds from the sale of our investment in an unconsolidated entity as well as $3 million of proceeds from the sale of Lanier Apparel’s Toccoa, Georgia distribution center, which is included in other investing activities. In Fiscal 2021 and Fiscal
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2020, we used certain amounts of cash, which are included in other investing activities, for investments in unconsolidated entities, including minority ownership interests or loans.
On an ongoing basis, our cash flow used in investing activities is expected to primarily consist of our capital expenditure investments associated with investments in information technology initiatives, including e-commerce capabilities; direct to consumer locations, including opening, relocating and remodeling; and facilities enhancements for distribution centers and offices. Additionally, cash flow from investing activities will include any amounts contributed to or received from or short-term investment accounts, if any.
Financing Activities:
In Fiscal 2021 and Fiscal 2020, financing activities used $38 million and $36 million of cash, respectively, which primarily consists of returning amounts to shareholders through dividends and share repurchases. During Fiscal 2021, we used cash flow from operations to pay $28 million of dividends and repurchase $11 million of shares, including repurchased shares of our stock pursuant to an open market stock repurchase program and of equity awards in respect of employee tax withholding liabilities. During Fiscal 2020, we used cash flow from operations to pay $17 million of dividends and repurchase $20 million of shares, including repurchased shares of our stock pursuant to an open market stock repurchase program and of equity awards in respect of employee tax withholding liabilities. Both Fiscal 2021 and Fiscal 2020 included certain amounts related to (1) the issuance of equity pursuant to our employee stock purchase plan and (2) the payment of contingent consideration or other deferred acquisition payment amounts, which are included in other financing activities.
Liquidity and Capital Resources
We have a long history of generating sufficient cash flows from operations to satisfy our cash requirements for our ongoing capital expenditure needs as well as payment of dividends and repayment of our debt. Thus, we believe our anticipated future cash flows from operating activities, as well as our $210 million of cash and short-term investments as of January 29, 2022, will provide sufficient cash flows over both the short and long term to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our lifestyle brands, direct to consumer initiatives, information technology projects and other strategic initiatives. Our capital needs depend on many factors including the results of our operations and cash flows, future growth rates, the need to finance inventory levels and the success of our various products.
To the extent cash flow needs, for acquisitions or otherwise, in the future exceed cash flow provided by our operations, as well as our cash and short-term investment amounts, we will have access, subject to its terms, to our $325 million U.S. Revolving Credit Agreement to provide funding for operating activities, capital expenditures and acquisitions, if any, and any other investing or financing activities. Our U.S. Revolving Credit Agreement is also used to establish collateral for certain insurance programs and leases and to finance trade letters of credit for certain product purchases, which reduce the amounts available under our line of credit when issued and, as of January 29, 2022, totaled $3 million.
During Fiscal 2021, we did not have any borrowings outstanding under our U.S. Revolving Credit Agreement. As of January 29, 2022, we had no borrowings outstanding and $322 million of unused availability under our U.S. Revolving Credit Agreement. Considering both the $322 million of unused availability under our U.S. Revolving Credit Agreement and our cash, cash equivalents and short-term investments in excess of the amounts available for inclusion in the borrowing base assets of $60 million, our total liquidity position totaled $382 million as of January 29, 2022.
Our cash, short-term investments and debt levels in future periods may not be comparable to historical amounts as we continue to assess, and possibly make changes to, our capital structure, including borrowings from additional credit facilities or sales of debt or equity securities in the future. Changes in our capital structure, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
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U.S. Revolving Credit Agreement
The U.S. Revolving Credit Agreement generally (1) is limited to a borrowing base consisting of specified percentages of eligible categories of assets, (2) accrues variable-rate interest, unused line fees and letter of credit fees based upon average utilization or unused availability, as applicable, (3) requires periodic interest payments with principal due at maturity (July 2024) and (4) is secured by a first priority security interest in substantially all of the assets of Oxford Industries, Inc. and its domestic subsidiaries, including accounts receivable, books and records, chattel paper, deposit accounts, equipment, certain general intangibles, inventory, investment property (including the equity interests of certain subsidiaries), negotiable collateral, life insurance policies, supporting obligations, commercial tort claims, cash and cash equivalents, eligible trademarks, proceeds and other personal property.
The U.S. Revolving Credit Agreement is subject to a number of affirmative covenants regarding the delivery of financial information, compliance with law, maintenance of property, insurance requirements and conduct of business. Also, the U.S. Revolving Credit Agreement is subject to certain negative covenants or other restrictions including, among other things, limitations on our ability to (1) incur debt, (2) guaranty certain obligations, (3) incur liens, (4) pay dividends to shareholders, (5) repurchase shares of our common stock, (6) make investments, (7) sell assets or stock of subsidiaries, (8) acquire assets or businesses, (9) merge or consolidate with other companies or (10) prepay, retire, repurchase or redeem debt.
Additionally, the U.S. Revolving Credit Agreement contains a financial covenant that applies only if excess availability under the agreement for three consecutive business days is less than the greater of (1) $23.5 million or (2) 10% of availability. In such case, our fixed charge coverage ratio as defined in the U.S. Revolving Credit Agreement must not be less than 1.0 to 1.0 for the immediately preceding 12 fiscal months for which financial statements have been delivered. This financial covenant continues to apply until we have maintained excess availability under the U.S. Revolving Credit Agreement of more than the greater of (1) $23.5 million or (2) 10% of availability for 30 consecutive days.
We believe that the affirmative covenants, negative covenants, financial covenants and other restrictions under the U.S. Revolving Credit Agreement are customary for those included in similar facilities entered into at the time we amended the U.S. Revolving Credit Agreement. During Fiscal 2021 and as of January 29, 2022, no financial covenant testing was required pursuant to our U.S. Revolving Credit Agreement as the minimum availability threshold was met at all times. As of January 29, 2022, we were compliant with all applicable covenants related to the U.S. Revolving Credit Agreement.
We anticipate that at the maturity of the U.S. Revolving Credit Agreement in July 2024, or as otherwise deemed appropriate, we will be able to refinance the facility or obtain other financing on terms available in the market at that time. The terms of any future financing arrangements may not be as favorable as the terms of the current agreement or current market terms.
The principal amount that will be outstanding and interest rate during any fiscal year will be dependent upon future events which are not known at this time. During Fiscal 2021, we paid $1 million of unused line fees, letter of credit fees and interest.