UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 2, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 01-34219

 

DESTINATION XL GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

04-2623104

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

555 Turnpike Street

Canton, MA

02021

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 828-9300

 

Securities registered pursuant to Section 12(b) of the Act.

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

DXLG

NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of May 15, 2020, the registrant had 51,077,397 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

May 2, 2020

 

 

February 1, 2020

 

 

 

(Fiscal 2020)

 

 

(Fiscal 2019)

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,147

 

 

$

4,338

 

Accounts receivable

 

 

1,938

 

 

 

6,219

 

Inventories

 

 

108,325

 

 

 

102,420

 

Prepaid expenses and other current assets

 

 

4,963

 

 

 

10,883

 

Total current assets

 

 

141,373

 

 

 

123,860

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization

 

 

69,645

 

 

 

78,279

 

Operating lease right-of-use assets

 

 

165,528

 

 

 

186,413

 

Intangible assets

 

 

1,150

 

 

 

1,150

 

Other assets

 

 

609

 

 

 

1,215

 

Total assets

 

$

378,305

 

 

$

390,917

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

31,861

 

 

$

31,763

 

Accrued expenses and other current liabilities

 

 

15,925

 

 

 

18,123

 

Operating leases, current

 

 

41,780

 

 

 

41,176

 

Borrowings under credit facility

 

 

79,532

 

 

 

39,301

 

Total current liabilities

 

 

169,098

 

 

 

130,363

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

14,827

 

 

 

14,813

 

Operating leases, non-current

 

 

171,775

 

 

 

182,051

 

Other long-term liabilities

 

 

5,099

 

 

 

5,267

 

Total long-term liabilities

 

 

191,701

 

 

 

202,131

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized, 63,833,270 and 63,297,598 shares issued at May 2, 2020 and February 1, 2020, respectively

 

 

638

 

 

 

633

 

Additional paid-in capital

 

 

313,529

 

 

 

312,933

 

Treasury stock at cost, 12,755,873 shares at May 2, 2020 and February 1, 2020

 

 

(92,658

)

 

 

(92,658

)

Accumulated deficit

 

 

(197,780

)

 

 

(156,054

)

Accumulated other comprehensive loss

 

 

(6,223

)

 

 

(6,431

)

Total stockholders' equity

 

 

17,506

 

 

 

58,423

 

Total liabilities and stockholders' equity

 

$

378,305

 

 

$

390,917

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

 

May 2, 2020

 

 

May 4, 2019

 

 

 

 

(Fiscal 2020)

 

 

(Fiscal 2019)

 

 

 

 

 

Sales

 

$

57,227

 

 

$

112,973

 

 

Cost of goods sold including occupancy costs

 

 

44,013

 

 

 

63,560

 

 

Gross profit

 

 

13,214

 

 

 

49,413

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

32,112

 

 

 

44,611

 

 

CEO transition costs

 

 

 

 

 

702

 

 

Impairment of assets

 

 

16,335

 

 

 

 

 

Depreciation and amortization

 

 

5,732

 

 

 

6,338

 

 

Total expenses

 

 

54,179

 

 

 

51,651

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(40,965

)

 

 

(2,238

)

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(741

)

 

 

(864

)

 

 

 

 

 

 

 

 

 

 

 

Loss before provision (benefit) for income taxes

 

 

(41,706

)

 

 

(3,102

)

 

Provision (benefit) for income taxes

 

 

20

 

 

 

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(41,726

)

 

$

(3,081

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.82

)

 

$

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

50,758

 

 

 

49,602

 

 

Diluted

 

 

50,758

 

 

 

49,602

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

 

3


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

 

 

(Fiscal 2020)

 

 

(Fiscal 2019)

 

Net loss

 

$

(41,726

)

 

$

(3,081

)

 

 

 

 

 

 

 

 

 

Other comprehensive income before taxes:

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(34

)

 

 

(24

)

Pension plans

 

 

242

 

 

 

201

 

Other comprehensive income before taxes

 

 

208

 

 

 

177

 

Tax provision related to items of other comprehensive income

 

 

 

 

 

(51

)

Other comprehensive income, net of tax

 

 

208

 

 

 

126

 

Comprehensive loss

 

$

(41,518

)

 

$

(2,955

)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

4


 

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at February 1, 2020

 

 

63,297

 

 

$

633

 

 

$

312,933

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(156,054

)

 

$

(6,431

)

 

$

58,423

 

Board of directors compensation

 

 

93

 

 

 

1

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

149

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

452

 

Issuance of common stock, upon RSUs release

 

 

437

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred stock vested

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

242

 

 

 

242

 

Foreign currency, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,726

)

 

 

 

 

 

 

(41,726

)

Balance at May 2, 2020

 

 

63,833

 

 

$

638

 

 

$

313,529

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(197,780

)

 

$

(6,223

)

 

$

17,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Deficit

 

 

Income (Loss)

 

 

Total

 

Balance at February 2, 2019

 

 

62,242

 

 

$

622

 

 

$

310,393

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(153,534

)

 

$

(6,183

)

 

$

58,640

 

Board of directors compensation

 

 

36

 

 

 

 

 

 

142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

414

 

RSUs granted for achievement of performance-based compensation, reclassified from liability to equity

 

 

 

 

 

 

 

 

 

 

304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

304

 

Issuance of common stock, upon RSUs release

 

 

374

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes related to net share settlement of RSUs

 

 

(78

)

 

 

 

 

 

(192

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(192

)

Deferred stock vested

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accounting principle due to adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,276

 

 

 

 

 

 

 

5,276

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

150

 

Foreign currency, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

(24

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,081

)

 

 

 

 

 

 

(3,081

)

Balance at May 4, 2019

 

 

62,576

 

 

$

626

 

 

$

311,057

 

 

 

(12,755

)

 

$

(92,658

)

 

$

(151,339

)

 

$

(6,057

)

 

$

61,629

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

5


DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

May 2, 2020

 

 

May 4, 2019

 

 

 

(Fiscal 2020)

 

 

(Fiscal 2019)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(41,726

)

 

$

(3,081

)

Adjustments to reconcile net loss to net cash used for operating activities:

 

 

 

 

 

 

 

 

Amortization of deferred debt issuance costs

 

 

35

 

 

 

35

 

Impairment of assets

 

 

16,335

 

 

 

 

Depreciation and amortization

 

 

5,732

 

 

 

6,338

 

Stock compensation expense

 

 

452

 

 

 

414

 

Board of directors stock compensation

 

 

149

 

 

 

142

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,281

 

 

 

601

 

Inventories

 

 

(5,905

)

 

 

(5,509

)

Prepaid expenses and other current assets

 

 

5,920

 

 

 

(142

)

Other assets

 

 

606

 

 

 

(342

)

Accounts payable

 

 

98

 

 

 

(11,009

)

Operating leases, net

 

 

(1,327

)

 

 

(814

)

Accrued expenses and other liabilities

 

 

(1,461

)

 

 

(3,128

)

Net cash used for operating activities

 

 

(16,811

)

 

 

(16,495

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment, net

 

 

(1,590

)

 

 

(3,734

)

Net cash used for investing activities

 

 

(1,590

)

 

 

(3,734

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net borrowings under credit facility

 

 

40,214

 

 

 

22,336

 

Debt issuance costs associated with credit facility amendment

 

 

(4

)

 

 

 

Tax withholdings paid related to net share settlements of RSUs

 

 

 

 

 

(192

)

Net cash provided by financing activities

 

 

40,210

 

 

 

22,144

 

Net increase in cash and cash equivalents

 

 

21,809

 

 

 

1,915

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

4,338

 

 

 

4,868

 

End of period

 

$

26,147

 

 

$

6,783

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

6


DESTINATION XL GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

 

1. Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited Consolidated Financial Statements for the fiscal year ended February 1, 2020 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 19, 2020.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2020 and fiscal 2019 are 52-week periods ending on January 30, 2021 and February 1, 2020, respectively.

Impact of COVID-19 Pandemic on Business

 

On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease (“COVID-19”) as a global pandemic. The COVID-19 pandemic has had an adverse effect on the Company’s operations, employees, distribution and logistics, its vendors and customers.  All of the Company’s store locations were closed temporarily on March 17, 2020, with an initial expectation that they would reopen at the end of March.  However, as of May 2, 2020, all but three stores remain closed, with three additional stores open for curbside pickup. As the Company heads into the second quarter of fiscal 2020, it expects to gradually reopen stores in connection with state and local guidelines, and expects, although there can be no assurances, that the majority of its stores will be reopen by the end of June 2020. As of June 2, 2020, 201 of the Company’s 321 stores have opened.  

In response to the uncertainty that exists relating to the COVID-19 pandemic, the Company has taken significant precautionary measures to reduce expenses, preserve liquidity, and mitigate the adverse impact of the pandemic to the Company. The majority of the Company’s workforce was furloughed in March 2020 and 34 employees were laid-off in May 2020.  For the safety of its employees, non-furloughed employees at the Company’s headquarters will continue to work from home, where possible, until at least September 2020.  For roles that require employees to be on-site, such as its distribution center, the Company is providing protective equipment, practicing social distancing and increasing sanitizing standards.  The Company expects to bring furloughed associates back as store locations begin to open and respective sales levels return. In March 2020, the management team (director-level and above) took a temporary salary reduction ranging from 10%-20% and the Company’s non-employee directors suspended their second quarter fiscal 2020 compensation.  

In March 2020, as a proactive measure, the Company drew $30.0 million under its revolving facility in order to increase the Company’s cash position and preserve financial flexibility.  In addition, in April 2020 the Company entered into an amendment to its credit facility to, among other things, increase its borrowing base availability and permit the Company the ability to enter into promissory notes with its merchandise vendors.  See Note 3, Debt, for a discussion of the amendment. The Company has been in discussion with its landlords and has requested rent concessions on payments due during the pandemic. No rent concessions were agreed upon until the second quarter of fiscal 2020. See Note 4, Leases, for more discussion. Further, the Company has taken proactive steps to manage cash by substantially eliminating capital spend, negotiating deferred payment terms with vendors, reducing operating expenses and cancelling purchase orders for merchandise, where possible.  The Company intends to proceed cautiously and continue to take proactive steps to manage its liquidity.

Segment Information

The Company has three principal operating segments: its stores, direct and wholesales businesses.  The Company considers its stores and direct operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into one reportable segment, retail segment, consistent with its omni-channel business approach.   Due to

7


the immateriality of the wholesale segment’s revenues, profits and assets, its operating results are aggregated with the retail segment for both periods.

Intangibles

In fiscal 2018, the Company purchased the rights to the domain name “dxl.com.”  The domain name has a carrying value of $1.2 million and is considered an indefinite-lived asset.  Due to the significant impact of the COVID-19 pandemic on the Company’s business during the first quarter of fiscal 2020, the Company performed a qualitative review of the domain name as of May 2, 2020 and concluded that it was more likely than not that the intangible asset was not impaired and therefore no quantitative assessment was required.  As a result of the ongoing uncertainty surrounding the impact of the COVID-19 pandemic on the Company’s operations, it may be necessary to perform similar qualitative reviews at various points throughout fiscal 2020.

Accounts Payable

During the first quarter of fiscal 2020, the Company received extended payment terms with two of its merchandise vendors, by entering into short-term notes.  The short-term notes, totaling $2.0 million, have terms of less than one-year and accrue interest at an annual rate of 4.0%, with payments due monthly.  At May 2, 2020, the outstanding balance of the notes was $1.7 million and is included in Accounts Payable on the Consolidated Balance Sheet.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At May 2, 2020, the fair value approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

The fair value of the “dxl.com” domain name, an indefinite-lived asset, is measured on a non-recurring basis in connection with the Company’s annual impairment test and is classified within Level 3 of the valuation hierarchy. See Intangibles above.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

 

Accumulated Other Comprehensive Income (Loss) - (“AOCI”)

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for the three months ended May 2, 2020 and May 4, 2019, respectively, were as follows:

 

8


 

 

May 2, 2020

 

 

May 4, 2019

 

For the three months ended:

 

(in thousands)

 

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

 

Pension

Plans

 

 

Foreign

Currency

 

 

Total

 

Balance at beginning of the quarter

 

$

(6,478

)

 

$

47

 

 

$

(6,431

)

 

$

(5,521

)

 

$

(662

)

 

$

(6,183

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before

   reclassifications, net of taxes

 

 

77

 

 

 

(34

)

 

 

43

 

 

 

28

 

 

 

(24

)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income, net of taxes  (1)

 

 

165

 

 

 

 

 

 

165

 

 

 

122

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) for the period

 

 

242

 

 

 

(34

)

 

 

208

 

 

 

150

 

 

 

(24

)

 

 

126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of quarter

 

$

(6,236

)

 

$

13

 

 

$

(6,223

)

 

$

(5,371

)

 

$

(686

)

 

$

(6,057

)

 

 

(1)

Includes the amortization of the unrecognized loss on pension plans, which was charged to “Selling, General and Administrative” Expense on the Consolidated Statements of Operations for all periods presented. The amortization of the unrecognized loss, before tax, was $165,000 for each three-month period ended May 2, 2020 and May 4, 2019, respectively.  As a result of the adoption of ASU 2019-12, as discussed below, there was no tax provision for the three months of fiscal 2020.

Stock-based Compensation

All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.

The Company has outstanding performance stock units (PSUs) with a market condition.  The respective grant-date fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model.  The valuation included assumptions with respect to the Company’s historical volatility, risk-free rate and cost of equity.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

As a result of the significant impact of the COVID-19 pandemic on the Company’s business during the first quarter of fiscal 2020 and the continued uncertainty, the Company reassessed the recoverability of the carrying value for its long-lived assets as of May 2, 2020, assuming that its stores will gradually open throughout the second quarter of fiscal 2020 but that consumer retail spending will remain substantially curtailed for a period of time.  Due to uncertainty around the duration and extent of the pandemic’s impact on future cash flows, the Company’s projections were based on multiple probability-weighted scenarios.  Based on the results of that assessment, the Company recorded an impairment charge of $16.3 million for the first quarter of fiscal 2020.  The impairment charge included approximately $12.5 million for the write-down of certain right-of-use assets and $3.8 million for the write-down of property and equipment, related to stores where the carrying value exceeded fair value.

There was no material impairment of long-lived assets in the first three months of fiscal 2019.

Leases

The Company adopted ASU 2016-02, “Leases (Topic 842)” in the first quarter of fiscal 2019 on a modified retrospective basis and applied the new standard to all leases through a cumulative-effect adjustment to beginning accumulated deficit.  

9


Under ASC 842, the Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those right-of use assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date to determine the present value of future payments.

The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For stores leases with an initial term of 5 years, the Company evaluates each lease independently and, only when the Company considers it reasonably certain that it will exercise an option to extend, will the associated payment of that option be included in the measurement of the right-of-use asset and lease liability. Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. Renewal options were not considered for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year term. At the end of the initial term, the Company will have the opportunity to extend this lease for six additional successive periods of five years. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term.

For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.  Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.

See Note 4 ‘‘Leases’’ for additional information.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” This guidance amends several aspects of the measurement of credit losses on financial instruments, including trade receivables. Topic 326 replaces the existing incurred credit loss model with an impairment model (known as the current expected credit loss ("CECL") model), which is based on expected losses rather than incurred losses. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this standard in the first quarter of fiscal 2020 and it did not have a material impact on the Company’s Consolidated Financial Statements.  

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance modifies the disclosure requirements on fair value measurements in Topic 820 by removing disclosures regarding transfers between Level 1 and Level 2 of the fair value hierarchy, by modifying the measurement uncertainty disclosure, and by requiring additional disclosures for Level 3 fair value measurements, among others. The Company adopted this standard in the first quarter of fiscal 2020 with new disclosures adopted on a prospective basis. The standard did not have a material impact on the Company’s Consolidated Financial Statements and related disclosures.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. In the first quarter of fiscal 2020, the Company elected early adoption of ASU 2019-12. The provisions related to intra period tax allocation and interim recognition of enactment of tax laws are being adopted on a prospective basis. The effect of the adoption of ASU 2019-12 was not material to the Company's Consolidated Financial Statements.  

Recently Issued Accounting Pronouncements

No new accounting pronouncements, issued or effective during the first three months of fiscal 2020, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

 


10


2. Revenue Recognition

The Company operates as a retailer of big and tall men’s clothing, which includes stores, direct and wholesale.  Revenue is recognized by the operating segment that initiates a customer’s order.  Store sales are defined as sales that originate and are fulfilled directly at the store level.  Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Wholesale sales are defined as sales made to wholesale customers pursuant to the terms of each customer’s contract with the Company.  Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.

 

̶

Revenue from the Company’s store operations is recorded upon purchase of merchandise by customers, net of an allowance for sales returns, which is estimated based upon historical experience.

 

̶

Revenue from the Company’s direct operations is recognized at the time a customer order is delivered, net of an allowance for sales returns, which is estimated based upon historical experience.

 

̶

Revenue from the Company’s wholesale operations is recognized at the time the wholesale customer takes physical receipt of the merchandise, net of any identified discounts in accordance with each individual order. For the first three months of fiscal 2020 and fiscal 2019, chargebacks were immaterial.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as “breakage”.  Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $1.2 million and $2.7 million at May 2, 2020 and February 1, 2020, respectively.

Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise.  Over 90% of the Company’s customers participate in the loyalty program. Under ASC 606, Revenue from Contracts with Customers, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are expected to redeem or expire.  The cycle of earning and redeeming loyalty points is generally under one year in duration.  The loyalty accrual, net of breakage, was $1.9 million and $1.0 million at May 2, 2020 and February 1, 2020, respectively.

Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations.

Disaggregation of Revenue

As noted above under Segment Information in Note 1, the Company’s business consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses.  The operating results from the wholesale segment, which were immaterial, have been aggregated with this reportable segment, but the revenues are separately reported below. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors:

 

 

For the three months ended

 

 

 

 

(in thousands)

 

May 2, 2020

 

 

 

 

May 4, 2019

 

 

 

 

Store sales

 

$

32,327

 

 

58.6

%

$

86,715

 

 

78.4

%

Direct sales

 

 

22,882

 

 

41.4

%

 

23,833

 

 

21.6

%

Retail segment

 

$

55,209

 

 

 

 

$

110,548

 

 

 

 

Wholesale segment