MANAGEMENT DISCUSSION AND ANALYSIS OF OXFORD INDUSTRIES INC. OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Fiscal 2020
Form 10-K. OVERVIEW Business Overview
We are a leading branded apparel company that designs, sources, markets and distributes products bearing the trademarks of ourTommy Bahama ,Lilly Pulitzer and Southern Tide lifestyle brands and other brands.Tommy Bahama andLilly Pulitzer , in the aggregate, represent more than 85% of our net sales and 97% of our net sales are inthe United States . 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, likeTommy Bahama ,Lilly Pulitzer and Southern Tide, 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. We generate our net sales primarily through our direct to consumer channels of distribution, which consist of our brand-specific full-price retail stores, our brand-specific e-commerce websites, ourTommy Bahama food and beverage operations and ourTommy Bahama outlets. Our remaining net sales are 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 group of consumers, and the net sales of our Lanier Apparel operating group, which we exited during Fiscal 2021. For additional information about our business and each of our operating groups, see Part I, Item 1. Business of our Fiscal 2020 Form 10-K. Important factors relating to certain risks which could impact our business are described in Part II, Item 1A. Risk Factors of this report and Part I. Item 1A. Risk Factors of our Fiscal 2020 Form 10-K.
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. 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 current sales levels. Many of these changes in the industry were accelerated or exacerbated by the COVID-19 pandemic. While this competition and evolution present significant
risks, 18 Table of Contents 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. We believe our lifestyle brands have true competitive advantages in this 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 and was the primary reason for a 33% reduction in net sales and a significant net loss in Fiscal 2020 after years of profitable operating results. While our mission remains the enhancement of long-term shareholder value, our focus during this crisis has been (1) the health and well-being of our employees, customers and communities, (2) protecting the reputation, value and image of our brands and (3) preserving liquidity. Actions taken in Fiscal 2020 to mitigate the impact of the COVID-19 pandemic on our business, operations and liquidity are discussed in our Fiscal 2020 Form 10-K. Due to the COVID-19 pandemic, we saw reduced consumer traffic starting inMarch 2020 and temporarily closed all our retail and restaurant locations. 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. Some of our locations continue 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 during the COVID-19 pandemic resulting in strong growth in our e-commerce businesses during the COVID-19 pandemic. While the First Nine Months of Fiscal 2021 saw a significant rebound in retail traffic in the strong consumer macro-economic environment, there can be no assurance that these short-term trends will continue. There remains significant uncertainty as to the duration and severity of the pandemic as well as the associated business disruption, impact on discretionary spending and restrictions on our ongoing operations. Thus, the ultimate impact of the pandemic on our business is uncertain, at this time.
Lanier clothing outlet
In the Third Quarter of 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 challenges faced by theLanier Apparel business, many of which were magnified by the COVID-19 pandemic. The exit of the Lanier Apparel business was effectively complete as ofOctober 30, 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 the Second Half of Fiscal 2020, with an additional$1 million of net charges in the First Nine Months of Fiscal 2021. The Lanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. We do not expect to incur any additional Lanier Apparel exit charges subsequent toOctober 30, 2021 . Key Operating Results: 19 Table of Contents The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the First Nine Months of Fiscal 2021 compared to the First Nine Months of Fiscal 2020: First Nine Months Fiscal 2021 Fiscal 2020 Net sales$ 842,163 $ 527,466 Operating income (loss)$ 133,496 $ (107,224) Net earnings (loss)$ 105,913 $ (83,475) Net earnings (loss) per diluted share$ 6.29 $
(5.04)
Weighted average shares outstanding -- diluted 16,841 16,576 The improved earnings per share in the First Nine Months of Fiscal 2021 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 the First Nine Months of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Nine Months of Fiscal 2020, and (3) the lower exit charges in Lanier Apparel. These favorable items were partially offset by a larger operating loss in Corporate and Other, which in the First Nine Months of Fiscal 2021 included the net unfavorable impact of LIFO accounting of$19 million and a gain on sale of an unconsolidated entity of$12 million . Compared to the earnings per share in the First Nine Months of Fiscal 2019 of$3.15 , earnings per share increased significantly to$6.29 in the First Nine Months of Fiscal 2021. The higher earnings per share compared to the First Nine Months of Fiscal 2019 were primarily a result of (1) increased operating income in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups, (2) a lower operating loss in Corporate and Other, and (3) a lower effective tax rate. These items were partially offset by lower operating income inLanier Apparel. The higher operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily due to higher net sales and gross margin partially offset by higher SG&A. 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. While all of our stores and restaurants were temporarily closed beginning inMarch 2020 due to the COVID-19 pandemic, as ofOctober 30, 2021 , substantially all of our locations have re-opened, albeit with some continuing to experience reduced traffic, limited operating hours and capacity, seating and other limitations, with such factors impacting individual locations to varying degrees. October 30, January 30, October 31, February 1, 2021 2021 2020 2020
Tommy Bahama retail stores 103 105 106 111 Tommy Bahama retail-restaurant locations 21 20 19 16 Tommy Bahama outlets 35 35 35 35 Total Tommy Bahama locations 159 160 160 162Lilly Pulitzer retail stores 59 59 59 61 Southern Tide retail stores 4
3 3 1 Total Oxford locations 222 222 222 224 RESULTS OF OPERATIONS THIRD QUARTER OF FISCAL 2021 COMPARED TO THIRD QUARTER OF FISCAL 2020 The discussion and tables below compare our statements of operations for the Third Quarter of Fiscal 2021 to the Third Quarter of Fiscal 2020. Each dollar and percentage change provided reflects the change between these fiscal periods unless 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 20
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due to rounding. The individual items in our consolidated statements of income, including gross margin, may not be directly comparable to those of our competitors, as the classification of certain expenses may vary from company to company.
The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to the same period of the prior year: Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 247,729 100.0 %$ 175,135 100.0 %$ 72,594 41.5 % Cost of goods sold 95,191 38.4 % 78,866 45.0 % 16,325 20.7 % Gross profit$ 152,538 61.6 %$ 96,269 55.0 %$ 56,269 58.4 % SG&A 137,505 55.5 % 113,537 64.8 % 23,968 21.1 % Royalties and other operating income 15,574 6.3 % 3,550 2.0 % 12,024 338.7 % Operating income (loss)$ 30,607 12.4 %$ (13,718) (7.8) %$ 44,325 NM % Interest expense, net 222 0.1 % 339 0.2 % (117) (34.5) % Earnings (loss) before income taxes$ 30,385 12.3 %$ (14,057) (8.0) %$ 44,442 NM % Income tax provision (benefit) 4,400 1.8 % (3,453) (2.0) % 7,853 NM % Net earnings (loss)$ 25,985 10.5 %$ (10,604) (6.1) %$ 36,589 NM % Net Sales Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 148,454 $ 94,905 $ 53,549 56.4 %Lilly Pulitzer 72,157 53,714 18,443 34.3 % Southern Tide 13,151 10,023 3,128 31.2 % Lanier Apparel 4,232 10,810 (6,578) (60.9) % Corporate and Other 9,735 5,683 4,052 71.3 % Consolidated net sales$ 247,729 $ 175,135 $ 72,594 41.5 %
Consolidated net sales increased$73 million , or 42%, in the Third Quarter of Fiscal 2021, including increases in each channel of distribution and ongoing operating group. 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, and consumers have become increasingly more comfortable returning to physical shopping in Fiscal 2021. The increase in net sales included increases in (1) full-price retail sales of$41 million , or 106%, (2) full-price e-commerce sales of$15 million , or 32%, (3) wholesale sales of our non-Lanier Apparel businesses of$10 million , or 26%, (4) restaurant sales of$8 million , or 62%, (5) outlet sales of$4 million , or 49%, and (6) e-commerce flash clearance sales of$1 million , or 4%. These increases were partially offset by a decrease in Lanier Apparel sales of$7 million . The changes in net sales by operating group are discussed below. Compared to the$241 million of net sales in the Third Quarter of Fiscal 2019, consolidated net sales increased$7 million , or 3%, in the Third Quarter of Fiscal 2021. The higher sales compared to the Third Quarter of Fiscal 2019 include increases inTommy Bahama ,Lilly Pulitzer , Southern Tide and Corporate and Other partially offset by lower sales in Lanier Apparel of$25 million . The increase in net sales included increases in (1) e-commerce sales of$32 million , or 100%, with increases in each of our brands, (2) full-price retail sales of$9 million , or 13%, driven by an increase inTommy Bahama and Southern Tide partially offset by a decrease inLilly Pulitzer , and (3) restaurant sales of$2 million , or 14%, resulting from sales at additionalTommy Bahama Marlin Bars and increased sales in existingTommy Bahama food and beverage locations. These increases were partially offset by decreases in (1) Lanier Apparel sales of$25 million , and (2) e-commerce flash clearance sales of$12 million , or 38%. Wholesale sales of our non-Lanier Apparel businesses and our outlet stores each decreased by less than$1 million from the Third Quarter of Fiscal 2019. 21
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The following table shows the share of our consolidated sales by distribution channel for each period presented:
Third Quarter Fiscal 2021 Fiscal 2020 Retail 37 % 27 % E-commerce 33 % 38 % Restaurant 8 % 7 % Wholesale 21 % 28 % Total 100 % 100 % Tommy Bahama:Tommy Bahama net sales increased$54 million , or 56%, in the Third Quarter of Fiscal 2021. The increase in net sales inTommy Bahama included increases in (1) full-price retail sales of$30 million , or 115%, (2) restaurant sales of$8 million , or 62%, including higher sales at our additionalTommy Bahama Marlin Bar locations as well as existing locations, (3) e-commerce sales of$7 million , or 29%, (4) outlet sales of$4 million , or 49%, and (5) wholesale sales of$4 million , or 18%. The following table presents the proportion of net sales by distribution channel forTommy Bahama for each period presented: Third Quarter Fiscal 2021 Fiscal 2020 Retail 47 % 37 % E-commerce 22 % 27 % Restaurant 13 % 13 % Wholesale 18 % 23 % Total 100 % 100 %Lilly Pulitzer :Lilly Pulitzer net sales increased$18 million , or 34%, in the Third Quarter of Fiscal 2021. The increase in net sales inLilly Pulitzer included increases in (1) retail sales of$10 million , or 84%, (2) full-price e-commerce sales of$6 million , or 35%, (3) wholesale sales of$2 million , or 24%, and (4) e-commerce flash clearance sales of$1 million , or 4%. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: Third Quarter Fiscal 2021 Fiscal 2020 Retail 31 % 22 % E-commerce 58 % 66 % Wholesale 11 % 12 % Total 100 % 100 % Southern Tide: Southern Tide net sales increased$3 million , or 31%, in the Third Quarter of Fiscal 2021, with increases in each channel of distribution. The increase in net sales in Southern Tide included increases in (1) wholesale sales of$2 million , or 31%, (2) retail sales of$1 million resulting from additional Southern Tide retail stores and (3) e-commerce sales of 22
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15%. The following table presents the proportion of net sales by distribution channel for Southern Tide for each period presented:
Third Quarter Fiscal 2021 Fiscal 2020 Retail 7 % 4 % E-commerce 21 % 24 % Wholesale 72 % 72 % Total 100 % 100 % Lanier Apparel:
Lanier Apparel’s net sales decreased by
Companies and others:
Increase in corporate net sales and others
Gross Profit The tables below present gross profit by operating group and in total for the Third Quarter of Fiscal 2021 and the Third Quarter of Fiscal 2020, as well as the change between those two periods and gross margin by operating group and in total. Gross margin is calculated as gross profit divided by net sales. Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 91,773 $ 56,444 $ 35,329 62.6 %Lilly Pulitzer 48,668 32,830 15,838 48.2 % Southern Tide 7,031 3,420 3,611 105.6 % Lanier Apparel 2,195 (4,978) 7,173 NM % Corporate and Other 2,871 8,553 (5,682) NM % Consolidated gross profit$ 152,538 $ 96,269 $ 56,269 58.4 % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 2,197 $ (5,645) Lanier Apparel exit charges in cost of goods sold$ (684) $ 6,415 Third Quarter Fiscal 2021 Fiscal 2020 Tommy Bahama 61.8 % 59.5 %Lilly Pulitzer 67.4 % 61.1 % Southern Tide 53.5 % 34.1 % Lanier Apparel 51.9 % (46.0) % Corporate and Other NM % NM % Consolidated gross margin 61.6 % 55.0 % The increase in consolidated gross profit in the Third Quarter of Fiscal 2021 was primarily due to the higher net sales and higher gross margin, with gross margin improvement in each operating group. The higher consolidated gross margin was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the Third Quarter of Fiscal 2021, (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 23 Table of Contents flash clearance sales represented a lower proportion of net sales, in the Third Quarter of Fiscal 2021, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by an$8 million unfavorable impact of LIFO accounting and increased freight costs, including rate increases impacting inbound products and e-commerce shipping costs, as well as increased air freight on inbound products. During the Third Quarter of Fiscal 2021, we reduced inventory markdown reserves by$1 million , due, in part, to the sale of previously marked down inventory during the quarter and a$1 million reduction to Lanier Apparel inventory markdown reserves, which was offset by a$2 million LIFO accounting charge in Corporate and Other. In the Third Quarter of Fiscal 2020, we recognized$7 million of inventory markdowns, which were partially offset by a$6 million LIFO accounting credit. Compared to the 55.1% gross margin in the Third Quarter of Fiscal 2019, the consolidated gross margin increased 650 basis points to 61.6% in the Third Quarter of Fiscal 2021. The improved consolidated gross margin in the Third Quarter of Fiscal 2021 was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the Third Quarter of Fiscal 2021, (3) 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 smaller proportion of net sales, in the Third Quarter of Fiscal 2021, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by an unfavorable impact of LIFO accounting, with the Third Quarter of Fiscal 2021 including a$2 million LIFO accounting charge compared to a minimal impact of LIFO accounting in the Third Quarter of Fiscal 2019, and increased freight costs, including rate increases impacting inbound products and e-commerce shipping costs, as well as increased air freight on inbound products, in the Third Quarter of Fiscal 2021.
The improved gross margin forTommy Bahama was primarily due to (1) more full-price selling and less 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 and outlet store sales represented a lower proportion of net sales, in the Third Quarter of Fiscal 2021, and (3) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight costs.
The improved gross margin forLilly Pulitzer was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of sales and e-commerce flash clearance sales represented a smaller proportion of net sales in the Third Quarter of Fiscal 2021, and (3) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight costs.
South tide:
The improved gross margin for Southern Tide was primarily due to more full-price selling and less inventory markdowns, discounts and promotions. These items that favorably impacted gross margin were partially offset by increased freight costs.
Lanier Clothing:
The improved gross margin for Lanier Apparel in the Third Quarter of Fiscal 2021 was primarily due to the Third Quarter of Fiscal 2020 including$6 million of inventory markdowns while the Third Quarter of Fiscal 2021 included a$1 million reduction in inventory markdowns as we disposed of the remaining Lanier Apparel inventory at higher gross margins than previously estimated. 24 Table of Contents Corporate and Other:
The gross profit in Corporate and Other primarily reflects the gross profit of TBBC, Duck Head and theLyons, Georgia distribution center as well as the impact of LIFO accounting adjustments. The primary driver for the lower gross profit was the$8 million net unfavorable impact of LIFO accounting with a$2 million LIFO accounting charge in the Third Quarter of Fiscal 2021 and a$6 million LIFO accounting credit in the Third Quarter of Fiscal 2020. The unfavorable impact of LIFO accounting was partially offset by higher net sales in Corporate and Other. The LIFO accounting impact in Corporate and Other in each period primarily reflects (1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior period was ultimately sold or (2) a credit in Corporate and Other when inventory had been marked down to the estimated net realizable value in an operating group in the current period but had not been sold as of period end. SG&A Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change SG&A$ 137,505 $ 113,537 $ 23,968 21.1 % SG&A (as a % of net sales) 55.5 % 64.8 % Notable items included in amounts above: Tommy Bahama lease termination charge$ 4,850 $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 Amortization of Southern Tide intangible assets $ 73 $ 72
Lanier Apparel Exit Fee in SG&A $ 559
TBBC change in fair value of contingent consideration
$ 786 $ - The higher SG&A in the Third Quarter of Fiscal 2021 included (1) increased employment costs of$11 million , with much of that increase primarily due to the impact of COVID-19 on the prior year, (2) a$5 million lease termination charge related to aTommy Bahama office and showroom lease, (3) a$5 million increase in advertising expense, (3) a$3 million increase in administrative expenses including professional fees, supplies and travel, (4) a$2 million increase in credit card transaction fees, and (5) a$1 million charge for change in the fair value of contingent consideration. These increases were partially offset by the Third Quarter of Fiscal 2021 including$3 million less of Lanier Apparel exit charges than the amount included in the prior year. Compared to the$134 million of SG&A in the Third Quarter of Fiscal 2019, SG&A increased by$3 million in the Third Quarter of Fiscal 2021. The higher SG&A was primarily due to (1) a$5 million charge for a lease termination charge related to aTommy Bahama office and showroom lease, (2) a$4 million increase in advertising expense, (3) a$3 million increase in administrative expenses including professional fees, supplies and travel and (4) a$1 million charge for change in fair value of contingent consideration. These increases were partially offset by (1) a$5 million decrease in employment costs, including the reductions at Lanier Apparel, (2) a$2 million reduction in occupancy expenses, including the impact of fewer direct to consumer leases in the Third Quarter of Fiscal 2021, and (3) a$1 million reduction in selling expenses including royalties.
Royalties and other operating income
Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change
Royalties and other operating income$ 15,574 $ 3,550 $ 12,024 338.7 % Notable items included in amounts above: Gain on sale of investment in unconsolidated entity$ (11,586) $
- Royalties and other operating income in the Third Quarter of Fiscal 2021 included a$12 million gain recognized on the sale of an interest in an unconsolidated entity. The remaining amounts in royalties and other operating income in the Third Quarter of Fiscal 2021 and the Third Quarter of Fiscal 2020 primarily consist of income received from third 25
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parts of the licensing of our brands, with the increase over the previous period mainly due to higher royalty revenues in
Operating income (loss) Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 5,531 $ (7,212) $ 12,743 NM %Lilly Pulitzer 15,985 5,266 10,719 203.6 % Southern Tide 2,690 (464) 3,154 NM % Lanier Apparel 348 (12,500) 12,848 NM % Corporate and Other 6,053 1,192 4,861 NM % Consolidated Operating Income (Loss)$ 30,607 $ (13,718) $ 44,325 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 2,197 $ (5,645) Lanier Apparel exit charges in cost of goods sold$ (684) $ 6,415 Tommy Bahama lease termination charge$ 4,850 $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 Amortization of Southern Tide intangible assets $ 73 $ 72
Lanier Apparel Exit Fee in SG&A $ 559
Gain on the sale of an investment in an unconsolidated entity
$ (11,586) $ - TBBC change in fair value of contingent consideration $ 786 $ - The improved operating results in the Third Quarter of Fiscal 2021 were primarily due to (1) the improved operating results in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups, (2) the Third Quarter of Fiscal 2021 including$10 million less of Lanier Apparel exit charges, and (3) improved operating results in Corporate and Other, including the net impact of a gain on the sale of an interest in an unconsolidated entity and LIFO accounting. The improved operating results inTommy Bahama were unfavorably impacted by a$5 million lease termination charge. Changes in operating income (loss) by operating group are discussed below. Compared to the$3 million of operating income in the Third Quarter of Fiscal 2019, operating income in the Third Quarter of Fiscal 2021 increased by$28 million to$31 million . This increase was primarily due to higher gross margin, the gain on sale of our investment in an unconsolidated entity, higher sales and a lower effective tax rate. Compared to the Third Quarter of Fiscal 2019, operating results improved inTommy Bahama ,Lilly Pulitzer , Southern Tide and Corporate and Other, which were partially offset by lower operating income
in Lanier Apparel.Tommy Bahama : Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 148,454 $ 94,905 $ 53,549 56.4 % Gross profit$ 91,773 $ 56,444 $ 35,329 62.6 % Gross margin 61.8 % 59.5 % Operating income (loss)$ 5,531 $ (7,212) $ 12,743 NM % Operating income (loss) as % of net sales 3.7 % (7.6) % Notable items included in amounts above:Tommy Bahama lease termination charge$ 4,850 $ - The improved operating results forTommy Bahama in the Third Quarter of Fiscal 2021 were due to higher sales, and improved gross margin partially offset by increased SG&A. The increased SG&A was primarily due to (1)$10 million of increased employment costs, with much of that increase primarily due to the impact of COVID-19 on the prior year, (2)$5 million of increased occupancy cost primarily due to the Tommy Bahama office and showroom lease 26
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termination charge, (3)$3 million of increased advertising expense, and (4)$3 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies and other expenses.Lilly Pulitzer : Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 72,157 $ 53,714 $ 18,443 34.3 % Gross profit$ 48,668 $ 32,830 $ 15,838 48.2 % Gross margin 67.4 % 61.1 % Operating income$ 15,985 $ 5,266 $ 10,719 203.6 % Operating income as % of net sales 22.2 % 9.8 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 68 The increased operating income forLilly Pulitzer in the Third Quarter of Fiscal 2021 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)$1 million of increased employment costs, with much of that increase primarily due to the impact of COVID-19 on the prior year, (2)$1 million of higher advertising expense, (3)$1 million of credit card transaction fees and supplies and (4) increases in other expense items. Southern Tide: Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 13,151 $ 10,023 $ 3,128 31.2 % Gross profit$ 7,031 $ 3,420 $ 3,611 105.6 % Gross margin 53.5 % 34.1 % Operating income (loss)$ 2,690 $ (464) $ 3,154 NM % Operating income (loss) as % of net sales 20.5 % (4.6) % Notable items included in amounts above: Amortization of Southern Tide intangible assets $ 73 $ 72 The improved operating results for Southern Tide in the Third Quarter of Fiscal 2021 were primarily due to higher gross margin and higher sales, partially offset by higher SG&A. The higher SG&A includes higher SG&A associated with the Southern Tide retail store operations, advertising and variable expenses. Lanier Apparel: Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 4,232 $ 10,810 $ (6,578) (60.9) % Gross profit$ 2,195 $ (4,978) $ 7,173 NM % Gross margin 51.9 % (46.0) % Operating income (loss) $ 348$ (12,500) $ 12,848 NM % Operating income (loss) as % of net sales 8.2 % (115.6) % Notable items included in amounts above: Lanier Apparel exit charges in cost of goods sold$ (684) $ 6,415 Lanier Apparel exit charges in SG&A $ 559$ 3,701 27 Table of Contents We sold our remaining Lanier Apparel inventory and exited the Lanier Apparel business in the Third Quarter of Fiscal 2021. The improved operating results for Lanier Apparel in the Third Quarter of Fiscal 2021 were primarily due to the Third Quarter of Fiscal 2020 including$10 million of initial charges associated with the decision to exit the Lanier Apparel business and the Third Quarter of Fiscal 2021 having lower SG&A after reducing the Lanier Apparel infrastructure over the past year. The Lanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. We do not anticipate any significant cash requirements of Lanier Apparel in future periods. Corporate and Other: Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 9,735 $ 5,683 $ 4,052 71.3 % Gross profit$ 2,871 $ 8,553 $ (5,682) NM % Operating income$ 6,053 $ 1,192 $ 4,861 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 2,197 $ (5,645) Gain on sale of investment in unconsolidated entity$ (11,586) $ - TBBC change in fair value of contingent consideration $ 786 $ - The improved operating results for Corporate and Other were primarily due to (1) the Third Quarter of Fiscal 2021 including a$12 million gain on sale of our investment in an unconsolidated entity and (2) higher sales. These items were partially offset by (1) the$8 million unfavorable impact of LIFO accounting resulting from a$2 million charge in the Third Quarter of Fiscal 2021 and a$6 million credit in the Third Quarter of Fiscal 2020 and (2) a$1 million charge for the change in fair value of contingent consideration included in SG&A.
Interest expense, net Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change Interest expense, net $ 222 $ 339$ (117) (34.5) % The decreased interest expense in the Third Quarter of Fiscal 2021 was primarily due to the lack of debt outstanding in the Third Quarter of Fiscal 2021, while in the Third Quarter of 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 the Third Quarter of Fiscal 2021 primarily consists of unused line fees and amortization of deferred financing fees associated with our$325 million Fourth Amended and Restated Credit Agreement (as amended, the "U.S. Revolving Credit Agreement").
Income tax provision (benefit)
Third Quarter Fiscal 2021 Fiscal 2020 $ Change % Change
Income tax provision (benefit)$ 4,400 $ (3,453) $
7,853 NM % Effective tax rate 14.5 % 24.6 % The income tax expense in the Third Quarter of Fiscal 2021 included the utilization of benefits associated with certain capital losses to substantially offset a gain recognized on the sale of an unconsolidated entity in the Third Quarter of Fiscal 2021. The income tax benefit in the Third Quarter of Fiscal 2020 included the benefit of the operating losses that were realized at a 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, offset by the impact of changes in estimated book to tax timing differences and certain discrete non-deductible items. 28 Table of Contents Net earnings Third Quarter Fiscal 2021 Fiscal 2020 Net sales$ 247,729 $ 175,135 Operating income (loss)$ 30,607 $ (13,718) Net earnings (loss)$ 25,985 $ (10,604) Net earnings (loss) per diluted share$ 1.54 $
(0.64)
Weighted average shares outstanding -- diluted 16,872 16,568 The improved earnings per share in the Third Quarter of Fiscal 2021 were primarily a result of (1) improved operating results in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups as our operations continued to recover from the unfavorable impact the COVID-19 pandemic had on Fiscal 2020, (2) the$12 million gain on the sale of an investment in an unconsolidated entity in the Third Quarter of Fiscal 2021, which was included in Corporate and Other, (3) the improved results in Lanier Apparel due to lower exit charges recognized in the Third Quarter of Fiscal 2021 and (4) a lower effective tax rate. These favorable items were partially offset by the unfavorable impact of LIFO accounting in Corporate and Other. Compared to the earnings per share in the Third Quarter of Fiscal 2019 of$0.10 , earnings per share increased significantly to$1.54 . The higher earnings per share compared to the Third Quarter of Fiscal 2019 were primarily a result of (1) improved operating results in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups, including higher gross margin, sales and SG&A, (2) the improved operating results in Corporate and Other, primarily due to the gain on the sale of an investment in an unconsolidated entity partially offset by the impact of LIFO accounting, and (3) a lower effective tax rate. These items were partially offset by lower operating results in Lanier Apparel, which we exited in Fiscal 2021. The higher operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily due to higher net sales and gross margin partially offset by higher SG&A.
FIRST NINE MONTHS OF FISCAL 2021 COMPARED TO THE FIRST NINE MONTHS OF FISCAL 2020
The discussion and tables below compare our statements of operations for the First Nine Months of Fiscal 2021 to the First Nine Months of Fiscal 2020, except as otherwise noted. Each dollar and percentage change provided reflects the change between these fiscal periods unless 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, including gross profit, may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. 29
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The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales as well as the dollar change and the percentage change as compared to the same period of the prior year: First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 842,163 100.0 %$ 527,466 100.0 %$ 314,697 59.7 %
Cost of goods sold 313,414 37.2 % 232,386 44.1
% 81,028 34.9 % Gross profit$ 528,749 62.8 %$ 295,080 55.9 %$ 233,669 79.2 % SG&A 420,997 50.0 % 352,201 66.8 % 68,796 19.5 % Impairment of goodwill and intangible assets - - % 60,452 11.5 % (60,452) (100.0) % Royalties and other operating income 25,744 3.1 % 10,349 2.0 % 15,395 148.8 %
Operating income (loss)$ 133,496 15.9 %$ (107,224) (20.3) %$ 240,720 NM % Interest expense, net 685 0.1 % 1,673 0.3 % (988) (59.1) % Earnings (loss) before income taxes$ 132,811 15.8 %$ (108,897) (20.6) %$ 241,708 NM % Income tax provision (benefit) 26,898 3.2 % (25,422) (4.8) % 52,320 NM % Net earnings (loss)$ 105,913 12.6 %$ (83,475) (15.8) %$ 189,388 NM % Net Sales First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 513,985 $ 277,143 $ 236,842 85.5 %Lilly Pulitzer 233,066 176,723 56,343 31.9 % Southern Tide 43,204 27,136 16,068 59.2 % Lanier Apparel 24,743 29,985 (5,242) (17.5) % Corporate and Other 27,165 16,479 10,686 64.8 % Consolidated net sales$ 842,163 $ 527,466 $ 314,697 59.7 % Consolidated net sales increased$315 million , or 60%, in the First Nine Months of Fiscal 2021, including increases in each ongoing operating group. 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, and consumers become increasingly more comfortable returning to physical shopping. The increase in net sales included increases in (1) full-price retail sales of$165 million , or 146%, (2) sales of our non-Lanier Apparel wholesale businesses of$61 million , or 60%, (3) full-price e-commerce sales of$49 million , or 25%, (4) restaurant sales of$38 million , or 118%, and (5) outlet sales of$20 million , or 90%. These increases were partially offset by (1) a decrease in e-commerce flash clearance sales of$14 million , or 42%, as the strong full-price selling in Spring and Summer resulted in less inventory available for the e-commerce flash clearance sale, and (2) a decrease in Lanier Apparel sales of$5 million . The changes in net sales by operating group are discussed below. Compared to the net sales of$825 million in the First Nine Months of Fiscal 2019, net sales increased by$17 million , or 2%, in the First Nine Months of Fiscal 2021 even with a$51 million decrease in Lanier Apparel, which we exited in Fiscal 2021. The higher net sales compared to the First Nine Months of Fiscal 2019 include increases inTommy Bahama ,Lilly Pulitzer , Southern Tide and Corporate and Other partially offset by the lower sales in Lanier Apparel. The higher net sales included increases in (1) full-price e-commerce sales of$92 million , or 62%, with increases in each of our brands, and (2) restaurant sales of$9 million , or 15%, resulting from the sales at additionalTommy Bahama Marlin Bars and increased sales in existingTommy Bahama food and beverage locations. These increases were partially offset by decreases in (1)Lanier Apparel sales of$51 million , (2) sales of our non-Lanier Apparel wholesale businesses of$17 million , or 10%, with reductions inTommy Bahama andLilly Pulitzer , partially offset by increases in our smaller brands, (3) e-commerce flash clearance sales of$12 million , or 38%, (4) full-price retail sales of$4 million , or 1%, with a reduction inLilly Pulitzer partially offset by increases inTommy Bahama and Southern Tide, and (5) outlet sales of$1 million , or 3%. 30 Table of Contents
The following table shows the share of our consolidated sales by distribution channel for each period presented:
First Nine Months Fiscal 2021 Fiscal 2020 Retail 38 % 26 % E-commerce 31 % 43 % Restaurant 8 % 6 % Wholesale 22 % 25 % Total 100 % 100 % Tommy Bahama:Tommy Bahama net sales increased$237 million , or 86%, in the First Nine Months of Fiscal 2021, with an increase in each channel of distribution. The increase in net sales inTommy Bahama included increases in (1) full-price retail sales of$116 million , or 148%, (2) restaurant sales of$38 million , or 118%, including higher sales at our additional Tommy Bahama Marlin Bar locations as well as existing locations, (3) wholesale sales of$35 million , or 71%, (4) e-commerce sales of$28 million , or 29%, and (5) outlet sales of$20 million , or 91%. The following table presents the proportion of net sales by distribution channel forTommy Bahama for each period presented: First Nine Months Fiscal 2021 Fiscal 2020 Retail 46 % 36 % E-commerce 24 % 34 % Restaurant 14 % 12 % Wholesale 16 % 18 % Total 100 % 100 %Lilly Pulitzer :Lilly Pulitzer net sales increased$56 million , or 32%, in the First Nine Months of Fiscal 2021. The increase in net sales inLilly Pulitzer included increases in (1) retail sales of$47 million , or 139%, (2) full-price e-commerce sales of$15 million , or 19%, and (3) wholesale sales of$8 million , or 27%. These increases were partially offset by a$14 million , or 42%, decrease in e-commerce flash clearance sales asLilly Pulitzer did not have as much end of season inventory for e-commerce flash clearance sales in Fiscal 2021 due to higher full-price sales than planned. The following table presents the proportion of net sales by distribution channel forLilly Pulitzer for each period presented: First Nine Months Fiscal 2021 Fiscal 2020 Retail 35 % 19 % E-commerce 48 % 64 % Wholesale 17 % 17 % Total 100 % 100 % Southern Tide: Southern Tide net sales increased$16 million , or 59%, in the First Nine Months of Fiscal 2021. The increase in net sales in Southern Tide included increases in (1) wholesale sales of$12 million , or 65%, (2) e-commerce sales of$2 31
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million, or 27%, and (3) retail sales of
First Nine Months Fiscal 2021 Fiscal 2020 Retail 7 % 3 % E-commerce 23 % 29 % Wholesale 70 % 68 % Total 100 % 100 % Lanier Apparel:
Lanier Apparel net sales declined
Companies and others:
Corporate and Other net sales increased$11 million , or 65%, in the First Nine Months of Fiscal 2021 including increased sales in each of our smaller brands included in Corporate and Other.
Gross profit
The tables below present gross profit by operating group and in total for the First Nine Months of Fiscal 2021 and the First Nine Months of Fiscal 2020, as well as the change between those two periods and gross margin by operating group and in total. Gross margin is calculated as gross profit divided by net sales. First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 326,681 $ 161,711 $ 164,970 102.0 %Lilly Pulitzer 161,718 108,582 53,136 48.9 % Southern Tide 23,489 7,934 15,555 196.1 % Lanier Apparel 12,255 (583) 12,838 NM % Corporate and Other 4,606 17,436 (12,830) NM % Consolidated gross profit$ 528,749 $ 295,080 $ 233,669 79.2 % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 9,616 $ (9,287) Lanier Apparel exit charges in cost of goods sold$ (2,826) $ 6,415 First Nine Months Fiscal 2021 Fiscal 2020 Tommy Bahama 63.6 % 58.3 %Lilly Pulitzer 69.4 % 61.4 % Southern Tide 54.4 % 29.2 % Lanier Apparel 49.5 % (1.9) % Corporate and Other NM % NM % Consolidated gross margin 62.8 % 55.9 % The increase in consolidated gross profit in the First Nine Months of Fiscal 2021 was primarily due to the higher net sales as well as higher gross margin, with gross margin improvement in each operating group. The higher consolidated gross margin was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the First Nine Months of Fiscal 2021, (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 the First Nine Months of Fiscal 2021, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by a$19 million unfavorable impact of LIFO accounting and increased freight costs, including rate increases impacting
inbound 32 Table of Contents
products and e-commerce shipping costs, as well as increased air freight on inbound products. During the First Nine Months of Fiscal 2021, we reduced inventory markdown reserves by$7 million , due, in part, to the sale of previously marked down inventory and a$4 million reduction in Lanier Apparel inventory markdown reserves, which was offset by a$10 million LIFO accounting charge in Corporate and Other. In the First Nine Months of Fiscal 2020, we recognized the negative impact of$14 million of changes in inventory markdowns reserves which were partially offset by a$9 million LIFO accounting credit. Compared to the 58.0% gross margin in the First Nine Months of Fiscal 2019, the consolidated gross margin in the First Nine Months of Fiscal 2021 increased by 480 basis points to 62.8%. The improved consolidated gross margin in the First Nine Months of Fiscal 2021 compared to the First Nine Months of Fiscal 2019 was primarily due to (1) more full-price selling and less inventory markdowns, discounts, allowances and promotions in the First Nine Months of Fiscal 2021, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of net sales, while wholesale sales, Lanier Apparel sales and e-commerce flash clearance sales represented a lower proportion of net sales, in the First Nine Months of Fiscal 2021, and (3) improved initial product margins. These items that favorably impacted gross margin were partially offset by an unfavorable impact of LIFO accounting, with the First Nine Months of Fiscal 2021 including a$10 million LIFO accounting charge compared to a$1 million LIFO accounting charge in the First Nine Months of Fiscal 2019 and increased freight costs, including rate increases impacting inbound products and e-commerce shipping costs, as well as increased air freight on inbound products in the First Nine Months of Fiscal 2021.
The improved gross margin forTommy Bahama was primarily due to (1) more full-price selling and less 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 and outlet store sales represented a lower proportion of net sales, in the First Nine Months of Fiscal 2021, and (3) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight costs.
The improved gross margin forLilly Pulitzer was primarily due to (1) more full-price selling and less inventory markdowns, discounts and promotions, (2) a change in sales mix as full-price direct to consumer sales represented a larger proportion of sales, and e-commerce flash clearance sales and wholesale sales represented a lower proportion of net sales, and (3) improved initial product margin reflecting a combination of increased sales prices and reductions in product costs. These items that favorably impacted gross margin were partially offset by increased freight costs.
South tide:
The improved gross margin for Southern Tide was primarily due to more full-price selling and less inventory markdowns, with the higher markdowns in the prior period more significantly impacting gross margin on much lower net sales in the prior period. These items that favorably impacted gross margin were partially offset by increased freight costs.
Lanier Clothing:
The improved gross margin for Lanier Apparel in the First Nine Months of Fiscal 2021 was primarily due to the First Nine Months of Fiscal 2020 including$6 million of inventory markdowns while the First Nine Months of Fiscal 2021 included a$4 million reduction in inventory markdowns as we disposed of the remaining Lanier Apparel inventory at higher gross margins than previously estimated.
Companies and others:
The gross profit in Corporate and Other primarily reflects the gross profit of TBBC, Duck Head and theLyons, Georgia distribution center as well as the impact of LIFO accounting adjustments. The primary driver for the lower gross 33
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profit was the$19 million net unfavorable impact of LIFO accounting with a$10 million LIFO accounting charge in the First Nine Months of Fiscal 2021 and a$9 million LIFO accounting credit in the First Nine Months of Fiscal 2020. The unfavorable impact of LIFO accounting was partially offset by higher net sales. The LIFO accounting impact in Corporate and Other in each period primarily reflects (1) a charge in Corporate and Other when inventory that had been marked down to the estimated net realizable value in an operating group in a prior period was ultimately sold or (2) a credit in Corporate and Other when inventory had been marked down to the estimated net realizable value in an operating group in the current period but had not been sold as of period end. SG&A First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change SG&A$ 420,997 $ 352,201 $ 68,796 19.5 % SG&A (as a % of net sales) 50.0 % 66.8 % Notable items included in amounts above: Tommy Bahama lease termination charge$ 4,850 $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 204 Amortization of Southern Tide intangible assets $ 217 $ 216
Lanier Apparel exit charge in selling and administration costs
TBBC change in fair value of contingent consideration
$ 786 $ - The higher SG&A in the First Nine Months of Fiscal 2021 was primarily due to the impact of the COVID-19 pandemic on our operations in the First Nine Months of Fiscal 2020. The higher SG&A included (1) increased employment costs of$47 million , including increased incentive compensation totaling$17 million , (2) a$12 million increase in variable expenses related to higher sales, including credit card transaction fees, supplies, commissions and other expenses, (3) an$8 million increase in advertising expense, (4) a$6 million increase in occupancy expense, primarily resulting from the Tommy Bahama office and showroom lease termination charge of$5 million , and (5) a$3 million increase in administrative expenses including professional fees, travel and other items. These increases were partially offset by (1) 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 (2) a$3 million decrease in depreciation expense, as the prior year included certain leasehold improvement and other fixed asset impairment charges. Compared to the$418 million of SG&A in the First Nine Months of Fiscal 2019, SG&A increased by$3 million in the First Nine Months of Fiscal 2021. The higher SG&A included (1) a$13 million increase in incentive compensation, (2) a$6 million increase in advertising expense, (3) a$5 million Tommy Bahama office and showroom lease termination charge, (4) a$5 million increase in variable expenses, including credit card transaction fees, supplies, commissions, selling and shipping charges and other expenses, (5)$4 million of Lanier Apparel exit charges in SG&A and (6) other increases in administrative and other expenses. 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$6 million reduction in occupancy expenses due to fewer stores and reduced occupancy amounts, (3) a$4 million reduction in travel expense, and (4) a$2 million reduction in samples expense.
Impairment of goodwill and intangible assets
There were no impairment charges for goodwill or intangible assets in the First Nine Months of Fiscal 2021. However, in the First Nine Months of Fiscal 2020, impairment charges for goodwill and intangible assets totaling$60 million were recognized in Southern Tide. In addition, in the First Nine Months of 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 notes to the consolidated financial statements in our Fiscal 2020 Form 10-K for additional information about the impairment charges. 34
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Royalties and other operating income
First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Royalties and other operating income$ 25,744 $ 10,349 $ 15,395 148.8 % Notable items included in amounts above: Gain on sale of investment in unconsolidated entity$ (11,586) $ - Royalties and other operating income in the First Nine Months of Fiscal 2021 included a$12 million gain recognized on the sale of an interest in an unconsolidated entity. The remaining amounts in royalties and other operating income in the First Nine Months of Fiscal 2021 and the First Nine Months of Fiscal 2020 primarily consist of income received from third parties from the licensing of our brands, with the increase from the prior period primarily due to higher royalty income inTommy Bahama . Operating income (loss) First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Tommy Bahama$ 73,515 $ (43,286) $ 116,801 NM %Lilly Pulitzer 61,713 25,676 36,037 140.4 % Southern Tide 8,893 (64,809) 73,702 NM % Lanier Apparel 2,053 (21,271) 23,324 NM % Corporate and Other (12,678) (3,534) (9,144) NM % Consolidated Operating Income (Loss)$ 133,496 $ (107,224) $ 240,720 NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 9,616 $ (9,287) Lanier Apparel exit charges in cost of goods sold$ (2,826) $ 6,415 Tommy Bahama lease termination charge$ 4,850 $ - Amortization ofLilly Pulitzer Signature Store intangible assets $ -$ 204 Amortization of Southern Tide intangible assets $ 217$ 216 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 Lanier Apparel intangible asset impairment charge $ -$ 207
Lanier Apparel exit charge in selling and administration costs
Gain on the sale of an investment in an unconsolidated entity
$ (11,586) $ - TBBC change in fair value of contingent consideration $ 786 $ -
The improved operating results in the First Nine Months of Fiscal 2021 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 the First Nine Months of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Nine Months of Fiscal 2020 and (3) a$9 million decrease in Lanier Apparel exit charges the First Nine Months of Fiscal 2021. These items were partially offset by (1) a higher operating loss in Corporate and Other and (2) a$5 million lease termination charge inTommy Bahama . Changes in operating income (loss) by operating group are discussed below. Compared to the$73 million of operating income in the First Nine Months of Fiscal 2019, operating income in the First Nine Months of Fiscal 2021 increased by$61 million . The improved operating results include higher gross margin, higher net sales, the gain on the sale of our investment in an unconsolidated entity, and a lower effective tax rate. Compared to the First Nine Months of Fiscal 2019, operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide each increased, while the operating income of Lanier Apparel decreased and the operating loss of Corporate and 35
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Other improved. The higher operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily due to higher gross margin and net sales partially offset by higher SG&A.Tommy Bahama : First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 513,985 $ 277,143 $ 236,842 85.5 % Gross profit$ 326,681 $ 161,711 $ 164,970 102.0 % Gross margin 63.6 % 58.3 % Operating income (loss)$ 73,515 $ (43,286) $ 116,801 NM % Operating income (loss) as % of net sales 14.3 % (15.6) % Notable items included in amounts above:Tommy Bahama lease termination charge$ 4,850 $ -
The improved operating results forTommy Bahama in the First Nine Months of Fiscal 2021 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)$32 million of increased employment costs, including$7 million of increased incentive compensation, (2)$9 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies, commissions, royalties and other expenses, (3)$7 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)$2 million of increased advertising expense. These increases were partially offset by a$2 million decrease in depreciation expense as the prior year included certain leasehold improvement and other fixed asset impairment charges.Lilly Pulitzer : First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 233,066 $ 176,723 $ 56,343 31.9 % Gross profit$ 161,718 $ 108,582 $ 53,136 48.9 % Gross margin 69.4 % 61.4 % Operating income$ 61,713 $ 25,676 $ 36,037 140.4 % Operating income as % of net sales 26.5 % 14.5 % Notable items included in amounts above: Amortization ofLilly Pulitzer Signature Store intangible assets $ - $ 204 The increased operating income forLilly Pulitzer in the First Nine Months of Fiscal 2021 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)$7 million of increased employment costs, including$3 million of increased incentive compensation, (2)$5 million of higher advertising expense, (3)$3 million of increased variable expenses related to higher sales, including credit card transaction fees, supplies and other expenses, (4)$1 million of higher occupancy expense costs and (5) other increases in operating expenses. 36 Table of Contents Southern Tide: First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 43,204 $ 27,136 $ 16,068 59.2 % Gross profit$ 23,489 $ 7,934 $ 15,555 196.1 % Gross margin 54.4 % 29.2 % Operating income (loss)$ 8,893 $ (64,809) $ 73,702 NM % Operating income (loss) as % of net sales 20.6 % (238.8) % Notable items included in amounts above: Amortization of Southern Tide intangible assets $ 217 $ 216 Southern Tide goodwill and intangible asset impairment charge $ -$ 60,245 The improved operating results for Southern Tide in the First Nine Months of Fiscal 2021 were primarily due to no impairment charges related to goodwill and intangible assets in the First Nine Months of Fiscal 2021 compared to$60 million of impairment charges in the First Nine Months of Fiscal 2020. Additionally, the operating results of Southern Tide improved due to higher sales and higher gross margin, partially offset by higher SG&A. The higher SG&A includes higher SG&A associated with the Southern Tide retail store operations, incentive compensation amounts, advertising expense and variable expenses partially offset by a decrease in provisions for credit losses. Lanier Apparel: First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 24,743 $ 29,985 $ (5,242) (17.5) % Gross profit$ 12,255 $ (583) $ 12,838 NM % Gross margin 49.5 % (1.9) % Operating income (loss)$ 2,053 $ (21,271) $ 23,324 NM % Operating income (loss) as % of net sales 8.3 % (70.9) % Notable items included in amounts above: Lanier Apparel exit charges in cost of goods sold$ (2,826) $ 6,415 Lanier Apparel intangible asset impairment charge $ - $ 207 Lanier Apparel exit charges in SG&A$ 3,788 $ 3,701 We sold our remaining inventory and exited the Lanier Apparel business in the First Nine Months of Fiscal 2021.The improved operating results for the First Nine Months of Fiscal 2021 were primarily due to (1) the First Nine Months of Fiscal 2020 including$10 million of initial charges associated with the decision to exit the Lanier Apparel business compared to$1 million ofLanier Apparel exit charges in the First Nine Months of Fiscal 2021, (2) the First Nine Months of Fiscal 2020 including$3 million of estimated provisions for credit losses compared to a$1 million reduction of provisions for credit losses in the First Nine Months of Fiscal 2021 and (3) lower SG&A in Lanier Apparel, excluding the Lanier Apparel exit charges, during the wind down phase in 2021. TheLanier Apparel exit charges are discussed in Note 7 in the unaudited condensed consolidated financial statements included in this report. 37 Table of Contents Corporate and Other: First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Net sales$ 27,165 $ 16,479 $ 10,686 64.8 % Gross profit$ 4,606 $ 17,436 $ (12,830) NM % Operating loss$ (12,678) $ (3,534) $ (9,144) NM % Notable items included in amounts above: LIFO adjustments in Corporate and Other$ 9,616 $ (9,287) Gain on sale of investment in unconsolidated entity$ (11,586) $ - TBBC change in fair value of contingent consideration $ 786 $ - The lower operating results in the First Nine Months of Fiscal 2021 for Corporate and Other were primarily due to (1) the$19 million unfavorable impact of LIFO accounting resulting from a$10 million charge in the First Nine Months of Fiscal 2021 and a$9 million credit in the First Nine Months of Fiscal 2020 and (2) an increase in employment costs of$8 million , including higher incentive compensation of$5 million . 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 the First Nine Months of Fiscal 2021. These items were partially offset by increased net sales in each of the businesses included in Corporate and Other. Interest expense, net First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Interest expense, net $ 685$ 1,673 $ (988) (59.1) %
The decreased interest expense in the First Nine Months of Fiscal 2021 was primarily due to the lack of debt outstanding in the First Nine Months of Fiscal 2021, while in the First Nine Months of 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 the First Nine Months of Fiscal 2021 primarily consists of unused line fees and amortization of deferred financing fees associated with theU.S. Revolving Credit Agreement.
Income tax provision (benefit)
First Nine Months Fiscal 2021 Fiscal 2020 $ Change % Change Income tax provision (benefit)$ 26,898 $ (25,422) $ 52,320 NM % Effective tax rate 20.3 % 23.3 %
The income tax expense in the First Nine Months of Fiscal 2021 included the benefit of a$2 million net reduction in uncertain tax positions resulting from the settlement of those uncertain tax position amounts during the period and the utilization of benefits associated with certain capital losses to substantially offset a gain recognized on the sale of an unconsolidated entity in the Third Quarter of Fiscal 2021. These favorable items were partially offset by certain unfavorable permanent items which are not deductible for income tax purposes. The net impact of these items results in a lower effective tax rate than a more typical 25% annual effective tax rate. The income tax benefit in the First Nine Months of Fiscal 2020 included the benefit of the operating losses that were realized at a rate of 35% pursuant to the CARES Act provision allowing the carryback of the Fiscal 2020 loss amounts to pre-U.S. Tax Reform years, offset by (1) the non-deductibility of certain impairment charges which resulted in an estimated effective tax rate of 17% on the impairment charges, (2) the estimated book to tax timing differences and certain discrete non-deductible items, which reduced the amount of expenses expected to be deductible for income tax return purposes in Fiscal 2020 and (3) the impact of restricted stock awards vesting at a price lower than the grant date value. 38 Table of Contents
Income tax expense is also discussed in Note 5 to the unaudited condensed consolidated financial statements included in this report.
Net earnings First Nine Months Fiscal 2021 Fiscal 2020 Net sales$ 842,163 $ 527,466 Operating income (loss)$ 133,496 $ (107,224) Net earnings (loss)$ 105,913 $ (83,475) Net earnings (loss) per diluted share$ 6.29 $
(5.04)
Weighted average shares outstanding -- diluted 16,841 16,576 The improved earnings per share in the First Nine Months of Fiscal 2021 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 the First Nine Months of Fiscal 2021 after recognizing$60 million of impairment charges related to goodwill and intangible assets in the First Nine Months of Fiscal 2020, and (3) the lower exit charges in Lanier Apparel. These favorable items were partially offset by a larger operating loss in Corporate and Other, which in the First Nine Months of Fiscal 2021 included the net impact of LIFO accounting of$19 million and a gain on sale of an unconsolidated entity of$12 million . Compared to the earnings per share in the First Nine Months of Fiscal 2019 of$3.15 , earnings per share increased significantly to$6.29 in the First Nine Months of Fiscal 2021. The higher earnings per share compared to the First Nine Months of Fiscal 2019 were primarily a result of (1) increased operating income in each of ourTommy Bahama ,Lilly Pulitzer and Southern Tide operating groups, (2) a lower operating loss in Corporate and Other, and (3) a lower effective tax rate. These items were partially offset by lower operating income inLanier Apparel. The higher operating income inTommy Bahama ,Lilly Pulitzer and Southern Tide were primarily due to higher net sales and gross margin partially offset by higher SG&A. 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 ourTommy Bahama ,Lilly Pulitzer and Southern Tide lifestyle brands and our other 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 ofthe United States , as well as operating expenses, including employee compensation and benefits, occupancy-related costs, marketing and advertising costs, distribution costs, other general and administrative expenses and the periodic payment of interest, if any, and other payments related to our financing arrangements. Additionally, we may use cash for the funding of capital expenditures and other investing activities, dividends, share repurchases and repayment of indebtedness. 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. We believe our future cash flow from operating activities, as well as our$188 million of cash and short-term investments asOctober 30, 2021 , will provide sufficient cash flow to satisfy our ongoing cash requirements as well as ample opportunity to continue to invest in our brands, direct to consumer initiatives and other strategic initiatives in both the near term and long term. 39 Table of Contents Key Liquidity Measures October 30, January 30, October 31, February 1, ($ in thousands) 2021 2021 2020 2020 Total current assets$ 366,953 $ 258,316 $ 262,463 $ 288,826 Total current liabilities$ 207,172 $ 196,252
$ 176,389 $ 177,779 Working capital$ 159,781 $ 62,064 $ 86,074 $ 111,047 Working capital ratio 1.77 1.32 1.49 1.62
Our working capital ratio is calculated by dividing total current assets by total current liabilities. Current assets as ofOctober 30, 2021 , increased fromOctober 31, 2020 primarily due to increased short-term investments, which resulted from positive net cash flows, partially offset by lower inventories. Current liabilities as ofOctober 30, 2021 increased fromOctober 31, 2020 due to higher accrued compensation, accounts payable and accrued expenses and other liabilities. Balance Sheet
The following tables present certain information included in our consolidated balance sheets (in thousands). Below each table are explanations of any significant variation in the balances at the
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