TLRD Tailored Brands Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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Commission file number 1-16097

(281) 776-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒.  No ☐.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ .  No ☒.

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, a 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.

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 ⌧.

The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of shares of common stock on the New York Stock Exchange on August 3, 2019, was approximately $230.8 million.

The number of shares of common stock of the registrant outstanding on March 20, 2020 was 48,573,132.

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FORM 10-K REPORT INDEX

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Unless the context otherwise requires, references in this report to “Company,” “we,” “us,” and “our” refer to Tailored Brands, Inc. and its subsidiaries. References herein to years are to the Company’s 52-week or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. The periods presented in our financial statements are the fiscal years ended February 1, 2020 (“fiscal 2019”), February 2, 2019 (“fiscal 2018”), and February 3, 2018 (“fiscal 2017”). Each of these periods had 52 weeks except for fiscal 2017, which consisted of 53 weeks.

Forward-Looking and Cautionary Statements

Certain statements made in this Annual Report on Form 10-K or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition.  Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements.  Forward-looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, margins, costs, earnings, number and costs of store openings, closings, remodels, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for our retail clothing or rental products, economic conditions, market trends in the retail business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.

Any forward-looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key employees; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans; cost reduction initiatives and revenue enhancement strategies; store rationalization plans; changes to our capital allocation policy; changes in demand for our clothing or rental products; market trends in the retail or rental business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies, including polished casual and custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; public health crises, including the recent coronavirus outbreak; foreign currency fluctuations; government export and import policies, including the enactment of duties or tariffs; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and the impact of climate change.

Forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made.  We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

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Overview

We offer our products and services through our retail brands—Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and K&G in the United States and Moores in Canada—and through the internet at www.menswearhouse.com and www.josbank.com. Men’s Wearhouse, Moores and K&G each operate as a house of brands carrying a wide selection of exclusive and non-exclusive merchandise brands. Jos. A. Bank is a branded house where substantially all merchandise is sold under the exclusive Jos. A. Bank label.

As of February 1, 2020, we operated 1,450 stores in the U.S. and Canada. We also own and operate a factory located in New Bedford, Massachusetts that manufactures quality U.S. made tailored clothing consisting of designer suits (including custom suits), tuxedos, sport coats and slacks.

Men’s Wearhouse, Men’s Wearhouse and Tux and Moores

Men’s Wearhouse and Moores target the male consumer (18 to 65 years old) by providing superior, personalized customer service and offering a broad selection of exclusive and non-exclusive merchandise brands at regular and sale prices that we believe are competitive with specialty retailers and traditional department stores. Our merchandise includes suits, suit separates, sport coats, slacks, formalwear, polished casual, denim, sportswear, outerwear, dress shirts, shoes and accessories in classic, modern, slim and ultra-slim fits and in a wide range of sizes including a selection of “Big and Tall” product.

Although basic styles comprise our core offerings, each season’s merchandise reflects current fit, fabric style and color trends. The inventory mix at our Men’s Wearhouse and Moores stores primarily consists of business, formalwear and polished casual merchandise designed to meet the demand of our customers. Based on our experience, we believe that our assortment styling, breadth, quality and price, coupled with our in-store service, provide us with an advantage over our competitors with our target customer.

During fiscal 2016, we introduced a new collection of custom apparel consisting of suits, sport coats, slacks, shirts, tuxedos and vests, which are personalized according to a customer’s selection from a variety of attribute-value combinations. From fiscal 2017 through fiscal 2019, we experienced significant growth in sales for custom clothing.  See “Business Strategy” for additional information on our custom clothing business and other strategic initiatives for 2020 and beyond.

We also offer a full selection of special occasion offerings including tuxedo and suit rental product (collectively, “rental product”). We believe our rental product broadens our customer base by drawing first-time and younger customers into our stores.  We also offer our customers the opportunity to purchase suits for special occasions instead of renting product.  Regardless of whether our customer chooses to purchase or rent, we believe we are well-positioned to meet our customers’ special occasion needs.

At February 1, 2020, we operated 716 Men’s Wearhouse retail apparel stores in 50 states and the District of Columbia. These stores offer a full selection of retail merchandise and rental product. Men’s Wearhouse stores are primarily located in regional strip and specialty retail shopping centers or in freestanding buildings that enable our customers to park near the entrance of the store as we believe that men prefer direct and easy store access.

At February 1, 2020, we also operated another 44 stores in 20 states branded as Men’s Wearhouse and Tux. These stores are referred to as “rental stores” and offer a full selection of rental product and a limited selection of retail merchandise, and are located primarily in regional malls and lifestyle centers.  Over the last five years, we have closed over 110 Men’s Wearhouse and Tux stores, consistent with our strategy to serve special occasion customers primarily through our Men’s Wearhouse stores.

At February 1, 2020, we operated 126 Moores retail apparel stores in 10 Canadian provinces. Moores stores are primarily located in regional strip and specialty retail shopping centers and offer a full selection of retail merchandise and rental product.

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Jos. A. Bank

Jos. A. Bank targets the male consumer (25 to 65 years old) emphasizing superior, personalized customer service and offering high quality business, formalwear and business casual merchandise, substantially all of which is Jos. A. Bank branded product featuring our Reserve, Traveler and 1905 labels. Jos. A. Bank merchandise consists of suits, suit separates, sport coats, slacks, formalwear, business casual, denim, sportswear, outerwear, dress shirts, shoes and accessories in classic, modern, slim and ultra-slim fits and in a wide range of sizes including a selection of “Big and Tall” product.  Although the target gender and age of the Jos. A. Bank customer are similar to Men’s Wearhouse, we believe the Jos. A. Bank customer and the Men’s Wearhouse customer are differentiated by their style preferences.  

Our merchandising strategy is focused on classic styling with attention to detail in quality materials and workmanship. Based on our experience, we believe that our assortment styling, breadth, quality and price coupled with our in-store service, provides us with an advantage over our competitors with our target customer.

During fiscal 2016, we introduced custom apparel at Jos. A. Bank consisting of suits, sport coats, slacks, shirts, tuxedos and vests, which are personalized according to a customer’s selection from a variety of attribute-value combinations.  Similar to Men’s Wearhouse and Moores, we experienced significant growth in sales for custom clothing in fiscal 2017 through fiscal 2019.  See “Business Strategy” for additional information on our custom clothing business and other strategic initiatives for 2020 and beyond.

We also offer a full selection of special occasion rental product at Jos. A. Bank and believe our rental product offering provides the opportunity to broaden our customer base by drawing first-time and younger customers into our stores.  As is the case at Men’s Wearhouse, we believe Jos. A. Bank is well-positioned to meet its customers’ special occasion needs, through retail clothing offerings, rental product or custom offerings.

At February 1, 2020, we operated 474 Jos. A. Bank retail apparel stores in 42 states and the District of Columbia. Jos. A. Bank stores are primarily located in specialty retail centers. In addition, as of February 1, 2020, there are 14 franchise stores.

K&G

K&G stores offer a value-oriented superstore approach that we believe appeals to the more price-sensitive customer in the apparel market. K&G offers apparel and accessories comparable in quality to that of value-oriented department stores, at prices we believe are typically up to 60% below the regular prices charged by traditional department stores. K&G’s merchandising strategy emphasizes broad assortments across all major categories of both men’s and women’s career and casual apparel in a wide range of sizes including “Big and Tall” and “Women’s plus sizes” as well as tailored clothing, dress furnishings, sportswear, accessories, shoes and children’s apparel. This merchandise selection, which includes exclusive and non-exclusive merchandise brands, positions K&G to attract a wide range of customers in each of its markets.

At February 1, 2020, we operated 89 K&G stores in 27 states, 85 of which offer women’s career apparel, sportswear, accessories, shoes and children’s apparel. K&G stores are “destination” stores located primarily in second generation strip shopping centers that are easily accessible from major highways and thoroughfares.

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Business Strategy

To fulfill our mission of helping men feel and look their best, we believe we need to:

Offer Personalized Products and Services

In 2019, our custom clothing business increased to $276 million, or approximately 12% of retail clothing product net sales, compared to over $220 million in fiscal 2018.  Our custom clothing offerings are available at all Men’s Wearhouse, Jos. A. Bank and Moores locations with two initial price points: an entry-level offering and a premium offering.  

Our focus for the custom business has been on three key aspects that we believe are crucial to the customer: speed, selection and service.  We believe we have significant competitive advantages in these areas because we have:  (1) supply chain advantages with our owned factory that manufactures our premium custom clothing in the U.S. and strong relationships and scale advantages with foreign manufacturers for our entry level custom clothing, (2) a wide assortment of custom suit fabrics to create high-quality and unique products for our customers and (3) a convenient U.S. and Canada store footprint staffed by expert wardrobe consultants and tailors.

Further expanding our offerings of personalized products and services, in 2019, we announced partnerships with the National Football League and National Hockey League that enable us to offer fans the ability to customize their suits and sport coats with linings depicting their favorite team(s).  

Delivering personalized products and services extends beyond our custom clothing offerings.  Given the continuing trend in casualization of workplace and special occasion attire, we have accelerated and plan to continue to accelerate the evolution of our assortments to a mix that better reflects the way men dress for moments that matter. For example, in 2020,  we plan to expand our polished casual assortments with outfit completers to build head-to-toe looks for our customers, including spring sweaters and layering pieces, as well as grow our denim, casual fashion chino and performance pants business.

Provide Inspiring and Seamless Experiences In and Across Every Channel

We want our customers to be able to shop whenever, wherever and however they choose, and to have inspiring and seamless experiences in and across every channel.  

Our convenient U.S. and Canada store footprint continues to be a significant asset, yet we believe that the location, look, feel and functioning of our stores has not kept up with the evolving customer’s expectations.  As a result, we intend to make select investments in our store fleet to improve the customer experience.  For example, through the end of 2018, we installed 580 custom clothing fixtures across the Men’s Wearhouse, Jos. A. Bank and Moores stores to provide a better custom suit buying experience.  In 2019, we tested the impact of enhanced fixtures, in-store graphics and product presentation across our store fleet and are in the process of rolling out elements of these items to certain stores.  In 2020, we are testing the next-generation of store design with a new more modernized version of Men’s Wearhouse, featuring an open concept floorplan with less merchandise on the floor, distinct merchandising zones for polished casual and tailored clothing, an elevated rental and custom experience, a new shirt wall and cutting-edge technology to enable the sales process.

We continue to invest in initiatives that support our omni-channel strategies. In recent years, the Company has implemented ‘virtualized inventory’ that enables our customers to order items through our websites when not available at the store. We also ship online purchases from our stores to further enhance our customer’s online shopping experience and reduce delivery times.  In addition, we offer a guided shopping experience called “Look Finder” that provides customers with product recommendations.  In 2019, we focused on growing our e-commerce sales through a combination of traffic gains, feature enhancements and elevated merchandising and we saw accelerating growth throughout the year.  We plan to build on that success in 2020 with continued focus on improving the customer experience, elevating the assortment and

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leveraging marketing to drive more visitors to our sites. In addition, we believe we have the potential to significantly increase our online penetration, which is well below the general apparel industry. 

Beyond our store and e-commerce channels, we believe that marketing is an important element of the omni-channel experience. In recent years, we began evolving our marketing mix, dedicating a greater share of our marketing mix to digital channels to target a broader customer segment.  We believe this advertising strategy is the most effective means of both attracting potential new customers as well as reinforcing the positive attributes of our various brands with our existing customer base.  In 2019, we continued to shift our marketing mix away from traditional broadcast television and into broad-reach digital channels that are more relevant, more easily personalized, and whose performance is more easily measured.  

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Telling the Stories of our Brands Primarily Through Digital Channels

Historically, our advertising strategy was primarily focused on promotional messaging using channels such as television, email, digital (including social media), mobile and direct mail.  We believe that our target customers increasingly want to do business with brands that stand for more than just price.  

We expect to deploy marketing strategies to tell the stories of our brands with a focus on our offerings and customer service. This approach focuses on our in-store experience to promote a more engaged, personalized shopping experience that features our wardrobe consultants who help men create their personal style.  We intend to build customer loyalty by gaining a greater understanding of our customer’s needs, helping him meet those needs, and giving him confidence in the way he looks. In addition, we expect to strengthen our company reputation for social responsibility and grow brand affinity through various initiatives including merchandise donations and social cause campaigns that resonate with our target customers.

Customer Service and Loyalty

Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores sales teams are trained as consultants to provide customers with assistance and advice on their apparel needs, including product style, color coordination, fabric choice and garment fit. Wardrobe consultants are encouraged to offer guidance to the customer at each stage of the decision-making process, making every effort to earn the customer’s confidence and to create a professional relationship that will continue beyond the initial visit.

K&G stores are designed to allow customers to select and purchase apparel by themselves. For example, each merchandise category is clearly marked and organized by size, and suits are specifically tagged as a means of further assisting customers to easily select their styles and sizes. K&G employees are also available to assist customers with merchandise selection, including correct sizing.

Substantially all of our retail apparel stores offer tailoring services to facilitate timely alterations at a reasonable cost to customers. In addition, we utilize our regional tailor shops, which receive merchandise from stores, to perform tailoring services and return the merchandise to the store for customer pickup.

We offer our “Perfect Fit” loyalty program to our Men’s Wearhouse, Men’s Wearhouse and Tux and Moores customers and our “Bank Account” loyalty program for Jos. A. Bank customers.  Under these loyalty programs, customers receive points for purchases. Points are generally equivalent to dollars spent on a one-for-one basis. Upon reaching 500 points, customers are issued a $50 rewards certificate that they may use to make purchases at our stores or online. All customers who register for our loyalty programs are eligible to participate and earn points for purchases. We believe that the loyalty programs facilitate our ability to cultivate long-term relationships with our customers.

Purchasing and Distribution

For the Men’s Wearhouse, Jos. A. Bank and Moores brands and, to a lesser extent, our K&G brand, our vertical direct sourcing model with third-party manufacturers covers design, product development, manufacturing, testing, quality control, and all necessary logistics required to get merchandise from the factory to the sales floor. We purchase merchandise and rental product from a broad base of manufacturers and do not believe that the loss of any manufacturer would cause a significant negative impact to us. We have no material long-term merchandise manufacturing contracts and typically transact business on a purchase order-by-purchase order basis either directly with manufacturers and fabric mills or with trading companies. We have developed long term and reliable relationships with most of our direct manufacturers

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and fabric mills, which we believe provides stability, quality and price leverage. Furthermore, we work with trading companies that support our relationships with manufacturers for our direct-sourced merchandise and contract agent offices that provide administrative functions on our behalf. The agent offices provide all quality control inspections and ensure that our operating procedures manuals are adhered to by our manufacturers.

We are committed to corporate social responsibility and have long supported the work of international agencies and organizations that seek to implement internationally recognized standards for labor practices.  We have developed and implemented a Supplier Code of Conduct that sets forth the compliance requirements that all suppliers must agree to in order to do business with us. Our risk management department oversees our factory compliance efforts, and we also use the services of an outside audit company to conduct regular audits of factories we use.  We strive to work collaboratively with factories to positively influence them to embed compliance into their daily operations.  We also maintain standards and guidelines to prevent human trafficking and slavery, and our managers with direct responsibility for supply chain management have attended training, particularly with respect to mitigating these risks within the supply chain.  For additional information regarding our commitment to improving factory working conditions, please review our latest Sustainability Report, which is available on our website at ir.tailoredbrands.com/responsibility.

For fiscal 2019, approximately 66% of direct sourced merchandise for our retail brands was from Asia (18% from China) while 13% was sourced in the U.S. (primarily from our U.S. factory), 7% was sourced in Mexico and 14% was sourced in other regions.  By comparison, in fiscal 2018, approximately 72% of direct sourced merchandise was from Asia (23% from China) while 9% was sourced in Mexico, 8% was sourced in the U.S. (primarily from our U.S. factory) and 11% was sourced in other regions.  Substantially all of our foreign purchases are negotiated and paid for in U.S. dollars.

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We use a regional distribution center approach to leverage the geographic locations of our main distribution centers in Texas and Maryland, as well as the facilities described below.  Merchandise received into these regional distribution centers is either placed in back-stock or allocated to a store for shipping. In the majority of our larger markets, we also have separate hub distribution facilities or space within certain stores used as redistribution facilities for their respective areas. Merchandise for Moores is distributed to the stores from our distribution center in Cambridge, Ontario. The majority of merchandise for our K&G stores is direct shipped by suppliers to the stores with the remainder of K&G merchandise being managed via a third-party logistics firm.

Our rental product is located in six distribution facilities: our Houston, Texas distribution center and five additional distribution facilities located in the U.S. (four) and Canada (one). The five additional distribution facilities also receive limited quantities of retail product, primarily formalwear accessories, that is sold in our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores stores.

All retail merchandise and new rental product transported from suppliers to our distribution facilities is done so via common carrier or on a dedicated fleet of long-haul vehicles. This dedicated fleet is also used to transport product from our distribution centers to the hub facilities and a fleet of leased or owned smaller vehicles is used to transport product from the hub facilities to our stores within a given geographic region.

Competition

We compete against a broad spectrum of men’s clothing retailers and rental product providers. Our primary competitors include traditional department stores, other specialty men’s clothing stores, online retailers, online formalwear rental providers, off-price retailers, manufacturer-owned and independently-owned outlet stores, independently-owned formalwear rental stores, and all of their respective e-commerce channels. We believe that the principal competitive factors in the men’s apparel market are merchandise assortment, quality, value, garment fit, merchandise presentation, store location, seamless omni-channel experience and customer service, including on-site tailoring.

We believe that our merchandise offerings, including exclusive brands and custom clothing, and emphasis on customer service distinguish us from other retailers. Certain of our competitors (principally department stores) are larger and have substantially greater financial, marketing and other resources than we have and, therefore, they may have certain competitive advantages over us.

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Seasonality

Our sales and net earnings are subject to seasonal fluctuations and may vary by brand. Typically, our rental product revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point.  Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

Trademarks and Service Marks

We are the owner in the U.S. and selected other countries of the numerous trademarks and service marks we use including, without limitation, MEN’S WEARHOUSE, MW MEN’S WEARHOUSE (and design) and JOS. A. BANK, and of U.S. and foreign registrations for such marks.  Our rights in the MEN’S WEARHOUSE, JOS. A. BANK and other marks and their respective variations are a significant part of our business, as the marks have become well known through our use of the marks in connection with our retail and formalwear rental services and products (both in store and online) and our advertising campaigns.  We are also the owner of various other trademarks and service marks, and corresponding trademark registrations in the U.S., Canada and abroad under which our stores operate or which are used to label the products we sell or rent. We intend to maintain and protect our marks and the related registrations.

We are the licensee for certain designer labels on various products such as men’s suits, men’s formalwear or men’s shirts. We generally pay a royalty for the use of the label, based on cost for the relevant product or a percentage of related sales. We monitor the performance of these licensed labels compared to their cost and may elect to selectively terminate any license, as provided in the particular agreement.

Employees

At February 1, 2020, we had approximately 19,300 employees, consisting of approximately 17,600 in the U.S. and 1,700 in Canada, of which approximately 13,700 were full-time employees. Seasonality affects the number of part-time employees as well as the number of hours worked by full-time and part-time employees.

At February 1, 2020, approximately 650 of our employees at the factory located in New Bedford, Massachusetts are members of Unite Here, a New England based labor union. Our most recent collective bargaining agreement covering these employees expires in April 2022.  

Also, approximately 180 employees working in the Jos. A. Bank Hampstead, Maryland tailoring overflow shop and distribution centers are represented by the Mid-Atlantic Regional Joint Board, Local 806. The current union contract is scheduled to expire in February 2023.   Lastly, approximately 90 Jos. A. Bank sales associates in New York City and four surrounding New York counties are represented by Local 340, New York New Jersey Regional Joint Board, Workers United.  The current union contract is scheduled to expire in April 2020.  

We believe our relationship with our union and non-union employees is good and we have no reason to believe that we will experience any interruption in our business upon the expiration of these collective bargaining agreements.  At Tailored Brands, we strive every day to create a safe and inclusive workplace and work to create a culture that fosters the needs of our diverse employee family.

Sustainability

We recognize that our business operations rely heavily on people and impact the communities around us and our planet.  We are committed to social responsibility and environmental stewardship throughout the Company and endeavor to provide an inclusive workspace where everyone is treated with respect, nurture the communities in which we operate and be good citizens of our planet.  Our latest Sustainability Report is available on our website at ir.tailoredbrands.com/responsibility.

Available Information

Men’s Wearhouse began operations in 1973 as a partnership and was incorporated as Men’s Wearhouse under the laws of Texas in May 1974. Effective January 31, 2016, Tailored Brands became the successor reporting company to Men’s Wearhouse, pursuant to a holding company reorganization. Our principal corporate and executive offices are located at 6380 Rogerdale Road, Houston, Texas 77072-1624 (telephone number 281-776-7000) and at 6100 Stevenson Blvd., Fremont, California 94538-2490 (telephone number 510-657-9821), respectively.

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Our corporate website address is www.tailoredbrands.com. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. Through the investor relations section of our website, we provide free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). In addition, copies of the Company’s annual reports will be made available, free of charge, upon written request.

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temporary store closings, or to anticipate consumers’ willingness to visit our stores and employees’ willingness to staff our stores when they reopen.  As a result of our temporary store closures, we may incur impairments to certain long-lived assets in our stores, goodwill and our Jos. A. Bank tradename, which could have a material adverse impact on our results of operations.  In addition, social distancing measures or changes in consumer spending behaviors may continue to impact our stores after they resume normal operations and such actions could materially impact our results of operations.

Furthermore, in light of our store closures, we have taken certain actions with respect to some or all of our existing leases, including engaging with landlords to discuss rent reductions and/or rent deferrals, or discontinuing payment.  We expect to continue to explore and take these and similar actions, which may subject us to legal, reputational and financial risks.  

On March 31, 2020, we announced that, after instituting enhanced social distancing and sanitation protocols that meet or exceed those recommended by the Centers for Disease Control and Prevention (“CDC”), our e-commerce fulfillment centers were reopened.  We will continue to monitor this ongoing situation, relying on recommendations from the CDC, the World Health Organization (“WHO”) and government officials to regularly evaluate the renewed operations at our e-commerce fulfillment centers and determine when currently closed stores will reopen.

Liquidity and Indebtedness Impacts

We have typically funded our operating costs, working capital requirements, repayment of our indebtedness and capital expenditures primarily with cash flow from operating activities as well as availability under our ABL Facility.  As reflected in our consolidated financial statements, as of February 1, 2020, we had $14.4 million of cash and cash equivalents, working capital of $206.4 million and long-term debt totaling $1.1 billion.   In addition, as of February 1, 2020, $50.0 million of borrowings were outstanding under our ABL Facility and letters of credit totaling approximately $26.6 million were also issued and outstanding.

On March 16, 2020, we drew down $260.0 million under the ABL Facility. In addition, after assessing the remaining availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.  We note these borrowings under the ABL Facility are proactive measures in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from COVID-19.  In addition, we are taking other measures to increase liquidity by eliminating or deferring most of our discretionary spending. For example, we are significantly reducing inventory purchases, capital expenditures, advertising spend and store and other general and administrative costs, including furloughing a significant portion of our employees and salary reductions. We are also engaging landlords to discuss possible rent reductions and/or rent deferrals. We cannot provide assurances that these measures will be successful, that our plans will not change or that circumstances will not change with regards to our ability to eliminate or defer discretionary spending.

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Our indebtedness contains customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios.  Specifically, our ABL Facility requires us to comply with a financial maintenance covenant under certain circumstances.  As a result of our $310.0 million in ABL borrowings during March 2020, the likelihood that this financial maintenance covenant may be triggered has increased and continued deterioration in operating results or other adverse factors could result in our being unable to comply with this financial maintenance covenant.  If we violate this covenant and are unable to obtain a waiver from our lenders, our debt under the ABL Facility would be in default and could be accelerated by our lenders. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under one agreement or instrument could result in a default under, and the acceleration of, our other indebtedness. In addition, the lenders under the Credit Facilities could proceed against the collateral securing that indebtedness.  An acceleration of the indebtedness under our Credit Facilities would cause a cross default under the indenture governing our Senior Notes.  There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.  If the effects of the COVID-19 pandemic are protracted and we are unable to increase liquidity and/or effectively address our debt position, we may be forced to scale back or terminate operations and/or seek protection under applicable bankruptcy laws.  This could result in a complete loss of shareholder value.

Risks Associated with our Business Strategy

As discussed in Item 1. Business, our overall business strategy is focused on several initiatives. If we cannot successfully execute our business strategy, our consolidated financial condition, results of operations and cash flows could be materially adversely impacted. There are numerous risks associated with this strategy including, but not limited to, the following:

Our success depends, in part, on our ability to meet the changing style preferences and shopping expectations of our customers and manage merchandise lead times.

Our success is dependent in part upon our ability to meet evolving customer expectations and gauge the tastes of our customers, and to provide merchandise that satisfies customer demand in a timely manner. As some of our businesses are seasonal, we must purchase and carry a significant amount of inventory prior to peak selling seasons.

Because of manufacturing lead times, we order merchandise well in advance of the applicable selling season. As a result, we are vulnerable to demand and pricing shifts. In addition, manufacturing lead times may make it more difficult for us to respond quickly to new or changing merchandise trends or consumer acceptance or rejection of our products. As a result, there could be a material adverse effect on our business, financial condition and results of operations if we fail to meet the changing preferences of our customers and manage merchandise lead times appropriately.

We believe our overall product mix makes our business less vulnerable to changes in merchandise trends than many fashion-forward and specialty apparel retailers; however, our sales and profitability depend upon our continued ability to effectively manage a variety of competitive challenges, including:

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Increased competition or our failure to meet these competitive challenges could result in price reductions, increased marketing expenditures and/or loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

Certain of our strategies, including product innovations and expanding our exclusive offerings, may present greater risks.

We are continuously assessing opportunities to improve store productivity and develop new store concepts and complementary products and services related to our retail and rental businesses, including product innovations and exclusive offerings. We may expend both capital and management resources on such business opportunities, which may or may not be successful. Additionally, any new concept is subject to certain risks, including customer acceptance, competition, product differentiation and the ability to obtain suitable sites. There can be no assurance that we will be able to develop and grow new concepts, including product innovations and exclusive offerings, to a point where they will become profitable or generate positive cash flow.

Our investments in omni-channel initiatives may not deliver the results we anticipate.

One of our strategic priorities is to further develop an omni-channel shopping experience for our customers to provide inspiring and seamless experiences in and across every channel including our store and e-commerce channels. These initiatives involve significant investments in information technology systems. If the implementation of our omni-channel initiatives is not successful, or we do not realize the return on our omni-channel investments that we anticipate, our operating results would be adversely affected.

We face challenges in managing our store fleet, including limited new store growth potential.

Our growth is dependent, in large part, on our ability to successfully manage our store fleet, including new stores, expansion or remodeling of existing stores, closure of underperforming stores and other investments in our store fleet.  We may continue opening new stores to increase our sales volume and profitability; however, we believe that our ability to increase the number of new stores in the U.S. and Canada may be limited. Therefore, we may be limited in our ability to increase our sales volume and profitability by increasing the number of our stores.

In addition, our ability to manage our store fleet will depend on our ability to obtain suitable locations, negotiate acceptable lease terms, achieve sufficient levels of cash flow to support investments in our store fleet, hire qualified employees and open and operate new stores on a timely and profitable basis. Further, the results achieved by our existing stores may not be indicative of the performance or market acceptance of stores in other locations and the opening of new stores in existing markets may adversely affect sales and/or profitability of established stores in those same markets.

Any future acquisitions or divestitures could result in operating difficulties and could harm our operating results.  

From time to time, we may evaluate potential acquisitions or divestitures that would further our strategic objectives.  Acquisitions are subject to a variety of risks, including risks associated with an ability to integrate acquired assets, systems or operations into our existing operations, diversion of management’s attention from core operational matters, higher costs, or unexpected difficulties or problems with acquired assets or entities, outdated or incompatible technologies, labor difficulties or an inability to realize anticipated synergies and efficiencies, whether within anticipated time frames or at all.

Divestitures are similarly subject to a variety of risks, including risks associated with difficulty in finding acquirers or alternative exit strategies on terms that are favorable to us, liabilities for activities of the divested business before the transaction, including litigation claims and disputes and the need to provide transition services to a divested business, which may result in the diversion of management resources and focus, and potential impairment charges.  

If any of these risks related to future acquisitions or divestitures are realized, our financial condition and results of operations may be adversely affected.

Risks Associated with General Economic Conditions

Numerous economic conditions, all of which are outside of our control, could negatively affect the level of consumer spending on the merchandise that we offer. If these economic conditions persist for a sustained period, our consolidated

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financial condition and results of operations could be materially adversely impacted. These economic conditions include, but are not limited to, the following:

Our business is particularly sensitive to economic conditions and consumer confidence.

Our performance is subject to changes in U.S., Canadian, and global economic and political conditions, particularly their impact on the level of consumer discretionary spending and consumer confidence. Some of the factors that may influence consumer spending include high levels of unemployment, increases in the cost of non-discretionary consumer goods, increases in consumer debt levels and applicable interest rates, political and regulatory uncertainty, uncertainties regarding future economic prospects or a decline in consumer confidence or credit availability. Consumer confidence may also be adversely affected by national and international security concerns such as war, terrorism, public health events or natural disasters (or the threat of any of these).  In addition, our reliance on certain external partners leaves us subject to certain risks should one or more of these external partners encounter financial distress, become insolvent or are otherwise unable to perform.

During an actual or perceived economic downturn, fewer customers may shop with us and those who do shop may limit the amounts of their purchases. As a result, we could be required to take significant markdowns and/or increase our marketing and promotional expenses in response to the lower than anticipated levels of demand for our products. In addition, promotional and/or prolonged periods of deep discount pricing by our competitors could have a material adverse effect on our business.

We have experienced fluctuations in our sales and expect our sales to fluctuate in the future.

Our success over the long-term depends in large part on our ability to generate profitable sales.  For example, if sales at Men’s Wearhouse decrease for a sustained period of time (as was the case in fiscal 2019), the effect on our consolidated financial results would be more significant than if sales were to decrease at any of our other brands. We believe that a variety of factors affect our sales and comparable sales results including, but not limited to: consumer confidence and the level of consumer discretionary spending; changes in economic conditions and consumer disposable income; spending patterns and debt levels; government shutdowns; consumer credit availability; weather conditions; the timing of certain holiday seasons; the number and timing of new store openings; changes in the popularity of a retail center; the timing and level of promotional pricing or markdowns; store closings, refreshes, relocations and remodels; changes in fashion trends (including casualization of workplace attire and custom clothing) and our merchandise mix or other competitive factors. Comparable sales fluctuations may impact our ability to leverage our fixed direct expenses, including store rent and store asset depreciation, which may adversely affect our financial condition or results of operations.

Our business is subject to seasonality.

Our sales and net earnings are subject to seasonal fluctuations and may vary by brand. Our rental product revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point.  Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

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Risks Associated With Our Sourcing and Distribution Strategies

Our sourcing and distribution strategies are subject to numerous risks that could materially adversely impact our consolidated financial condition and results of operations. These risks include, but are not limited to, the following:

The loss of, or disruption in, our distribution centers could result in delays in the delivery of merchandise to our stores.

We rely on our distribution centers to manage the receipt, storage, sorting, packing and distribution of our merchandise.  As such, we depend on the overall effective management of our distribution center operations including adherence to shipping schedules and proper functioning of our information technology and inventory control systems.  Events such as disruptions in operations due to fire or other catastrophic events, government shutdowns, delays in customs clearances, software malfunctions, employee matters or shipping problems may result in delays in the delivery of merchandise to our stores or directly to customers.  For example, on March 19, 2020, in light of evolving government and citizen response to COVID-19, we announced the closure of our e-commerce fulfillment centers starting March 20, 2020 through at least March 28, 2020, which resulted in the disruption of and delayed deliveries to customers.  In addition, given our proximity

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to the Texas gulf coast, it is possible that a hurricane or tropical storm could damage the Houston, Texas distribution center, result in extended power outages or flood roadways into and around the distribution center, any of which would disrupt or delay deliveries to the Houston distribution center and to our stores.  

Although we have disaster recovery plans and maintain business interruption and property insurance, there can be no assurance that these plans will work as intended, that our insurance will be sufficient, or that insurance proceeds will be paid timely to us, in the event any of our distribution centers are damaged or shut down for any reason, or if we incur higher costs and longer lead times in connection with a disruption at one or more of our distribution centers.

Our business is global in scope and can be impacted by factors beyond our control.

As a result of our Canadian operations and our sourcing of merchandise and rental product from manufacturers located outside of the U.S., we face the possibility of greater losses from a number of risks inherent in doing business in international markets and from a number of factors that are beyond our control. Such factors that could harm our financial condition and results of operations include, among other things:

In addition, if we were unexpectedly required to change manufacturers or if a significant manufacturer were unable to supply acceptable merchandise in sufficient quantities on acceptable terms, particularly as it relates to custom clothing, we could experience a disruption in the supply of merchandise or may not be able to fulfill certain customer orders.

Failure of manufacturers to adhere to applicable laws and regulations including our internal policy requirements could harm our business.

We require our third-party manufacturers to operate in compliance with applicable laws and regulations and our internal policy requirements. Our business could be adversely affected if our suppliers do not comply with applicable legal requirements, our supplier policies and practices generally acceptable in the U.S. regarding social and ethical matters and acceptable labor and sourcing practices (collectively, “Supplier Requirements”).

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The violation of our Supplier Requirements by any of our suppliers could disrupt our supply chain. In addition, any such violation could damage our reputation, which may result in decreased customer traffic to our stores, websites and call center. In the event of any violations, we may decide that it is necessary or desirable to seek alternative suppliers, which could adversely affect our business, financial condition and results of operations.

Our business could be adversely affected by increased costs of the raw materials and other resources that are important to our business.

The raw materials used to manufacture our products are subject to availability constraints and price volatility caused by high demand for fabrics, catastrophic events, weather conditions, supply conditions, government regulations, economic climate and other unpredictable factors. In addition, our transportation and labor costs are subject to price volatility caused by the price of oil, supply of labor, labor disputes, governmental regulations, economic climate, public health crises and other unpredictable factors. Increases in demand for, or the price of, raw materials, distribution services and labor, including federal and state minimum wage rates, could have a material adverse effect on our business, financial condition and results of operations.

The increase in the costs of wool and other raw materials significant to the manufacture of apparel and the costs of manufacturing could materially affect our results of operations to the extent they cannot be mitigated through price increases and relocation to lower cost sources of supply or other cost reductions.

We source our products globally, therefore, we may be impacted by tariffs primarily with respect to certain products imported from foreign countries.

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Most of our merchandise is produced in foreign countries, making the price and availability of our merchandise susceptible to international trade risks, including the imposition of tariffs.  In recent years, the U.S. has imposed significant tariffs on certain goods imported from China and expressed a willingness to impose further tariffs on additional goods imported from China and other countries. Although we believe the impact of tariffs enacted to date was immaterial to our fiscal 2019 results, given the unpredictability of the imposition of future tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact of current or future tariffs on our ongoing operations and results is uncertain and could be significant, and we can provide no assurance that any strategies we implement to address the impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, sales or profitability are negatively affected by tariffs or other trade actions, our business, financial condition and results of operations may be materially adversely affected.

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Any significant interruption in delivery of raw materials could cause interruptions that may delay the manufacture of our products.

The principal raw material used to manufacture our products is fabric. We do not have any long-term agreements in place with fabric suppliers; therefore, there can be no assurance that any of such suppliers will continue to do business with us in the future. If a particular mill were to experience a delay due to fire or natural disaster and become unable to meet our supply needs, it could take a period of up to several months for us to arrange for and receive an alternate supply of such fabric. In addition, import and export delays caused, for example, by an extended strike at the port of entry, could prevent third-party manufacturers as well as our U.S. tailored clothing factory from receiving fabric or other raw materials shipped by suppliers. Therefore, if there is an unexpected loss of a supplier of fabric or other raw materials or a long interruption in shipments from any fabric or other raw material supplier, including delays related to public health crises (such as COVID-19), our business, financial condition and results of operations may be materially adversely affected.

Labor union disputes could impact our business.

Should a labor dispute arise at any one of our union work sites, anywhere along our supply chain, or at any shopping center where we have a store, we could experience shortages in product to sell in our stores or other operational disruptions.  

Risks Associated with Our Information Technology Systems

We rely on various information technology systems to manage our operations. Information technology systems are subject to numerous risks including unanticipated operating problems, system failures, rapid technological change, failure of the systems to operate as anticipated, reliance on third-party technologies, the lack of available expertise for legacy systems,

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network and software providers, computer viruses, telecommunication failures, data breaches, denial of service attacks, spamming, phishing attacks, and other similar disruptions, any of which could materially adversely impact our consolidated financial condition and results of operations. Additional risks include, but are not limited to, the following:

If we are unable to operate information systems and implement new technologies effectively, our business could be disrupted or our sales or profitability could be reduced.

The efficient operation of our business is dependent on our information systems, including our ability to operate them effectively and successfully implement new technologies, systems, controls and adequate disaster recovery systems. We also maintain multiple internet websites in the U.S. In addition, we must protect the confidentiality of our and our customers’ data. The failure of our information systems to perform as designed or our failure to implement and operate them effectively could disrupt our business or subject us to liability and thereby harm our profitability.

We are subject to data security risks, which could have an adverse effect on our results of operations and consumer confidence in our security measures.

Like all other retailers, we are subject to cybersecurity risks. Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, use, manipulation, exfiltration, or damage.  As part of our normal operations, we maintain and transmit confidential information as well as proprietary company information, including credit card information, and information about our customers, our employees and other third parties.  As a result, like other retailers, our business may be targeted more than other businesses because third parties may focus on the amount and type of personal and business information that we maintain and transmit.  To date, we believe cybersecurity incidents have not had a material adverse impact on our business. We may, however, experience them in the future, potentially with more frequency and/or sophistication and we may not be able to anticipate or prevent rapidly evolving types of cybersecurity incidents.

We are focused on safeguarding and protecting personal and business information, and we devote significant resources to maintain and regularly update our systems and processes including providing employee awareness training around cyber risks and security breaches.  However, while we have implemented measures reasonably designed to detect and prevent security breaches and cyber incidents, our systems or our third-party service providers’ systems may still be vulnerable to privacy and security incidents including attacks by unauthorized users, corruption by computer viruses or other malicious software code, emerging cybersecurity risks, inadvertent or intentional release of confidential or proprietary information, or other similar events.  The occurrence of any security breach involving the misappropriation, loss or other unauthorized disclosure of information about us or our customers, whether by us or by one of our third-party service providers, could, among other things:

Furthermore, the storage and transmission of such data is regulated at the international, federal, state and local levels. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes.  For example, the California Consumer Protection Act (“CCPA”), which became effective on January 1, 2020, imposes significant new requirements on how we collect, process and transfer personal data.  If we or our employees fail to comply with existing or future laws and regulations or experience a data security breach, our reputation could be damaged, possibly resulting in lost future business, and we could be subjected to fines, penalties, administrative orders and other legal risks as a result of a breach or non-compliance.  In addition, the CCPA may restrict our ability to use personal California user and subscriber

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information in connection with our various products, services and operations, which could adversely affect our business, financial condition and results of operations. 

Other Risks Affecting Our Business

Our business is subject to numerous other risks that could materially adversely impact our consolidated financial condition and results of operations. These risks include, but are not limited to, the following:

We may be negatively impacted by competition.

The men’s retail industry in which we operate is highly competitive with numerous participants. We compete with traditional department stores, other specialty men’s clothing stores, online retailers, online formalwear rental providers, off-price retailers, manufacturer-owned and independently-owned outlet stores, independently-owned formalwear rental stores, as well as their respective e-commerce channels. In addition, some of our primary competitors sell their products in stores that are located in the same shopping malls or retail centers as our stores, which results in competition for favorable site locations and lease terms in these shopping malls and retail centers. Increased competition or our failure to meet these competitive challenges could result in price reductions, increased marketing expenditures and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on our ability to attract and retain key employees.

Our success depends upon the personal efforts and abilities of our management team and other key employees, including our customer facing employees.  In 2019, we experienced a number of significant leadership changes including appointing a new Chief Executive Officer, the departures of our Brand President of Jos. A. Bank and our Chief Human Resources Officer and the creation of a new Chief Customer Officer role providing common leadership for our retail brands.  Although we believe we have a strong team with significant industry expertise, we face intense competition in hiring and retaining these employees and the extended loss of the services of key people could have a material adverse effect on our business, financial condition and results of operations.  In addition, our business is subject to employment laws and regulations, including minimum wage requirements, overtime pay, sick pay, paid time off and healthcare benefits.  The implementation of potential regulatory changes relating to these items, among other things, could result in increased labor costs to our business and negatively impact our operating results.

If we are unable to retain and motivate our current employees and attract talented new employees, our business, financial condition and results of operations could be adversely affected.

The occurrence of an event that impacts our reputation could have a material adverse effect on our brands.

Our ability to maintain our reputation is critical to our brands. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity and customer service. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product, labor, health and safety or environmental standards could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Public perception about our company as a whole, our products or our stores, whether justified or not, could impair our reputation, involve us in litigation, damage our brands and have a material adverse effect on our business. In addition, if our reputation is negatively affected by the actions of our employees or otherwise, our business, financial condition and results of operations could be adversely affected.  Failure to comply with local laws and regulations, to maintain an effective system of internal controls and provide accurate and timely financial statement information, or to prevent security breaches could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional time and resources to rebuild our reputation.

We may be unable to protect our trademarks and other intellectual property rights.

We believe that our trademarks and service marks, as described in Item 1. Business, are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to establishing and protecting our trademarks and service marks. We are not aware of any material claims of infringement or material challenges to our right to use any of our trademarks. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others from imitating our products or to prevent

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others from seeking to block sales of our products. Other parties may also claim that some of our products infringe on their trademarks, copyrights or other intellectual property rights. In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the U.S. Litigation regarding our trademarks and other intellectual property rights could adversely affect our business, financial condition and results of operations.

War, acts of terrorism, public health crises, or weather catastrophes could have a material adverse effect on our business.

In the event of war, acts of terrorism or the threat of terrorist attacks, public health crises, or weather catastrophes, consumer spending could significantly decrease for a sustained period. In addition, local authorities or shopping center management could close in response to any immediate security concern, public health concern or weather catastrophe such as hurricanes, floods, wildfires, earthquakes, or tornadoes. Similarly, war, acts of terrorism, threats of terrorist attacks, public health crises or a weather catastrophe could severely and adversely affect our offices, distribution centers, or our entire supply chain.

Certain provisions of our certificate of formation and our amended and restated bylaws, Texas law, and our short-term shareholder rights plan could prevent or delay a potential acquisition of control of our Company, which could decrease the trading price of our common stock.

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Our certificate of formation, amended and restated bylaws and the laws in the State of Texas contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the prospective acquirer and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. Texas law also imposes restrictions on mergers and other business combinations between us and any holder of 20% or more of our outstanding common stock. In March 2020, the Board of Directors adopted a short-term shareholder rights plan, which may cause substantial dilution to a person or group that attempts to acquire control of the Company on terms not approved by our Board of Directors.

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We believe that these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition of control. However, these provisions could apply even if an acquisition of control of the Company may be considered beneficial by some shareholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our shareholders.

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Our business could be adversely impacted as a result of actions by activist shareholders or others.

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We value constructive input from investors and regularly engages in dialogue with our shareholders regarding strategy and performance. The Board of Directors and management team are committed to acting in the best interests of all of our shareholders. There is no assurance that the actions taken by the Board of Directors and management in seeking to maintain constructive engagement with our shareholders will be successful, and we may be subject to formal or informal actions or requests from shareholders or others. Responding to such actions could be costly and time-consuming, divert attention of management and employees, and may have an adverse effect on our business, results of operations and cash flow and the market price of our common stock.

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Fluctuations in exchange rates may cause us to experience currency exchange losses.

We are subject to exposure from fluctuations in U.S. dollar/Canadian dollar (“CAD”) exchange rates as a result of our direct sourcing programs and our operations in Canada.  Moores, our Canadian subsidiary, conducts most of its business in CAD but purchases a significant portion of its merchandise in U.S. dollars. Historically, the exchange rate between CAD and U.S. dollars has fluctuated. A decline in the value of the CAD as compared to the U.S. dollar may adversely impact our Canadian operations as the revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets as expressed in U.S. dollars may decline. We utilize foreign currency hedging contracts related to our merchandise purchases to limit exposure to changes in U.S. dollar/CAD exchange rates; however, these hedging activities may not adequately protect our Canadian operations from exchange rate risk.

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Compliance with ever-changing legal, regulatory and corporate governance requirements and standards for accounting could result in increased administrative expenses or litigation and could adversely impact our business, results of operations and reported financial results.

Our policies, procedures and internal controls are designed to help us comply with all applicable laws, regulations, accounting and reporting requirements, including those imposed by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Affordable Care Act, the payment card industry (PCI), the Public Company Accounting Oversight Board, the SEC and the NYSE. In addition, our business is subject to laws, rules and regulations promulgated by international, national, state and local authorities, including laws, rules and regulations relating to privacy, use of consumer information, credit cards and advertising. All of these laws, rules and regulations and their interpretation are subject to change and often their application may be unclear. As a result, from time to time, we are subject to inquiries, investigations, and/or litigation, including class action lawsuits, and administrative actions related to compliance with these laws, rules and regulations.

Shareholder activism, the current political environment, financial reform legislation and instances of government intervention and regulatory reform has led, and may continue to lead, to substantial new regulations and compliance obligations. Any changes in regulations, the imposition of additional regulations or the enactment of any new legislation that affects employment and labor, trade, product safety, transportation and logistics, health care, or privacy,  among other things, may increase the complexity of the regulatory environment in which we operate and the related cost of compliance.

Failure to comply with the various laws and regulations, as well as changes in laws and regulations, could have an adverse impact on our reputation, financial condition or results of operations.

Legislative or regulatory initiatives related to climate change concerns may negatively affect our business.

Concern over climate change may result in new or additional legal, legislative, and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation, and utility increases, which could adversely affect our business.  There is also increased focus, including by investors, customers, and other stakeholders on these and other sustainability matters, including the use of plastic, energy, waste, and worker safety. Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to sustainability matters, which could adversely affect our business, results of operations, financial position and cash flows.

Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.

We are subject to taxation in the U.S. and numerous foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for estimates of probable settlements of foreign and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are evaluated. In addition, our effective tax rate in any given financial reporting period may be materially impacted by changes in the mix and level of earnings or losses by taxing jurisdictions or by changes to existing accounting rules or regulations.

For example, in 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) significantly changed how the U.S. taxes corporations.  In the future, the U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered. Any new interpretations or guidance on the Tax Reform Act could have a material impact on our results of operations, financial position and cash flows.  

Changes to accounting standards and estimates could materially impact our results of operations, financial position and cash flows.

Generally accepted accounting principles and the related authoritative guidance for many aspects of our business, including revenue recognition, inventories, goodwill and intangible assets, leases and income taxes, are complex, continually evolving and involve subjective judgments. For example, recently adopted authoritative guidance for lease accounting resulted in a significant increase in our assets and liabilities given we have a considerable number of operating leases. These and other future changes in accounting rules or changes in the underlying estimates, assumptions or judgments by our management could have a material impact on our results of operations, financial position and cash flows.

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We could incur losses due to impairment on long-lived assets, goodwill and intangible assets.

Under generally accepted accounting principles, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Identifiable intangible assets with an indefinite useful life, including goodwill, are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred.  In the future, significant negative industry or general economic trends (including the impact of COVID-19), unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations or a significant sustained decline in the market price of our common stock may result in additional impairments to our goodwill, intangible assets and other long-lived assets. Any reduction in or impairment of the value of long-lived assets, goodwill or intangible assets will result in a charge against earnings, which could have a material adverse impact on our reported results of operations and financial condition.

Our advertising, marketing and promotional activities have been the subject of review by state regulators and subject to lawsuits.

In the past we have been, and may from time to time in the future be, required to respond to inquiries from State Attorneys General related to our advertising practices.  These advertising practices have also been, and continue to be, the subject of class action litigation.  In addition, it is possible that the advertising, marketing and promotional activities of all our brands may be reviewed by state or other regulators or become the subject of litigation. Although we endeavor to monitor and comply with all applicable laws and regulations to ensure that all advertising, marketing and promotional activities comply with all applicable legal requirements, many of the applicable legal requirements involve subjective judgments. It is possible that any resolution we may reach with any governmental authority or the results of any litigation may materially impact our current or future planned marketing program and could have an adverse impact on our business.

We are subject to various proceedings, lawsuits, disputes, and claims, from time to time, which could adversely affect our results of operations, financial position and cash flows.

As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of business.  Many of these Actions raise complex factual and legal issues and are subject to numerous uncertainties.  Actions are filed against us from time to time and include commercial, securities, intellectual property, customer, employment and data privacy claims, including class action lawsuits.  Current Actions are in various procedural stages and some are covered in whole or in part by insurance.  We cannot predict with assurance the outcome of any of the Actions brought against us and an adverse result in any Actions could have an adverse impact on our financial results.  

Rights of our shareholders may be negatively affected if we issue any of the shares of preferred stock which our Board of Directors has authorized for issuance.

We have available for issuance 2,000,000 shares of preferred stock, par value $.01 per share. Our Board is authorized to issue any or all of this preferred stock, in one or more series, without any further action on the part of shareholders. The rights of our shareholders may be negatively affected if we issue a series of preferred stock in the future that has preference over our common stock with respect to the payment of dividends or distribution upon our liquidation, dissolution or winding up. See Note 15 of the consolidated financial statements for more information.

Our stock price is volatile and may decline regardless of our operating performance.

The market price of our common stock has fluctuated substantially in the past and may continue to do so in the future.  Future announcements or management discussions concerning us or our competitors, sales and profitability results, quarterly variations in operating results or comparable sales, changes in earnings estimates by analysts or others, among other factors, could cause the market price of our common stock to fluctuate substantially. In addition, broad market and industry factors may adversely impact the market price of our common stock regardless of our actual operating performance.

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Risks Associated with Our Indebtedness

There are numerous risks associated with our indebtedness including, but not limited to, the following:

Our current level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Credit Facilities or the indenture governing the Senior Notes.

As of February 1, 2020, we have $881.6 million outstanding our on Term Loan Facility (the “Term Loan”), which matures on April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.  In October 2017, we amended our then existing $500.0 million asset-based revolving facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022 (the amended “ABL Facility”)  (the ABL Facility together with the Term Loan, the “Credit Facilities”).  Also, as of February 1, 2020, $173.8 million of our 7.0% Senior Notes due 2022 (the “Senior Notes”) are outstanding.  In summary, as of February 1, 2020, our total indebtedness is approximately $1.1 billion. In addition, as of February 1, 2020, we had up to $400.5 million of additional borrowing availability under the ABL Facility, excluding letters of credit totaling approximately $26.6 million issued and outstanding. Subsequent to February 1, 2020, in response to COVID-19 and as a proactive measure, on March 16, 2020, we executed a borrowing of $260.0 million under our ABL Facility.  In addition, after assessing the remaining availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.  

Our indebtedness could have important consequences, including:

Despite our indebtedness level, we will still be able to incur significant additional amounts of debt, which could exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the Credit Facilities and the indenture governing the Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase. In addition, the Credit Facilities and the indenture governing the Senior Notes will not prevent us from incurring obligations that do not constitute indebtedness under those agreements.

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We may not be able to generate sufficient cash to service all of our indebtedness and fund our working capital and capital expenditures, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on our indebtedness will depend upon our future operating performance and on our ability to generate cash flow in the future, which is subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings, including borrowings under the ABL Facility, will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures or to dispose of material assets or operations, seek additional equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Facilities and the indenture that governs the Senior Notes contain restrictions on our ability to dispose of assets and use the proceeds from any such disposition.

In addition, we rely on our subsidiaries to generate cash. Accordingly, repayment of our indebtedness, is dependent, to a certain extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Each of our subsidiaries are distinct legal entities and they do not have any obligation to pay amounts due on the Senior Notes or to make funds available for that purpose (other than the subsidiary guarantors in connection with their guarantees) or other obligations in the form of loans, distributions or otherwise. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness or to fund our and our subsidiaries’ other cash obligations.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, the holders of the Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under the Credit Facilities could declare all outstanding amounts under such facilities due and payable and, with respect to the ABL Facility, terminate their commitments to loan money, and, in each case, foreclose against the assets securing the borrowings under the Credit Facilities, and we could be forced into bankruptcy or liquidation.

If our indebtedness is accelerated, we may need to refinance all or a portion of our indebtedness before maturity. There can be no assurance that we will be able to refinance any of our indebtedness, including the Credit Facilities, on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.

The agreements and instruments governing our debt impose restrictions that may limit our operating and financial flexibility.

The Credit Facilities and the indenture governing the Senior Notes contain a number of significant restrictions and covenants that may limit our ability to:

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These covenants could have the effect of limiting our flexibility in planning for or reacting to changes in our business and the markets in which we compete. In addition, the ABL Facility requires us to comply with a financial maintenance covenant under certain circumstances.  As a result of our $310.0 million borrowings in March 2020, the likelihood that this financial maintenance covenant may be triggered has increased and continued deterioration in operating results or other adverse factors could result in our being unable to comply with the financial covenants contained in the ABL Facility, if applicable. If we violate this covenant and are unable to obtain a waiver from our lenders, our debt under the ABL Facility would be in default and could be accelerated by our lenders. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under one agreement or instrument could result in a default under, and the acceleration of, our other indebtedness. In addition, the lenders under the Credit Facilities could proceed against the collateral securing that indebtedness.

If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, on terms that are acceptable to us, or at all. If our debt is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these covenants may also cause us to take actions that make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.

We are exposed to interest rate risk through our variable rate borrowings under the Credit Facilities. Borrowings under such facilities bear interest at a variable rate, based on a LIBOR rate, plus an applicable margin. Interest rates are currently at historically low levels but may increase. Should interest rates increase, our debt service obligations on the variable rate indebtedness increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.  Currently, we are exposed to interest rate risk on our Term Loan and borrowings on our ABL Facility. To partially mitigate such interest rate risk, we entered into interest rate swaps to exchange variable interest rate payments for fixed interest rate payments for a portion of the outstanding Term Loan balance. At February 1, 2020, the notional amount of the interest rate swaps totaled $705.0 million. As of February 1, 2020, approximately 80% of our Term Loan was at a fixed rate with the remainder at a variable rate.  As a result, we believe our interest rate risk is substantially mitigated.  After considering the impact of these interest rate swaps, at February 1, 2020, the effect of a one percentage point change in interest rates would result in an approximate $1.8 million change in annual interest expense on our Term Loan. At February 1, 2020, assuming all capacity under the ABL Facility is fully drawn, each one percentage point change in interest rates would result in an approximate $5.5 million change in annual interest expense.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect our results of operations.

On July 27, 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Since the initial publication of SOFR in 2018, daily changes in SOFR have at times been more volatile than daily changes in comparable benchmark or market rates.

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Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain, which also may impact the accounting for our existing interest rate swaps.  If LIBOR rates are no longer available, we may incur significant expenses in effecting the transition and may be subject to disputes or litigation related to our Credit Facilities over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations. We will continue to monitor developments with respect to the phasing out of LIBOR and will work to minimize the impact of any LIBOR transition. 

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We own or lease properties in various parts of the U.S. and Canada to facilitate the distribution of retail and rental product to our stores. Total owned and leased space for distribution is approximately 3.2 million square feet and 2.0 million square feet, respectively.

In addition, we have primary office locations in Houston, Texas, Fremont, California, New York, New York and Hampstead, Maryland with additional satellite offices in other parts of the U.S. and Canada. We lease approximately 0.4 million square feet and own approximately 0.3 million square feet of office space.

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and offices, and we implemented the temporary layoff of all Canadian store employees and a significant portion of Canadian employees in our Canadian distribution network and offices.  Furthermore, in light of our store closures, we have taken certain actions with respect to some or all of our existing leases, including engaging with landlords to discuss rent reductions and/or rent deferrals, or discontinuing payment.  

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Effective March 29, 2020, the base salary of our Chief Executive Officer will be reduced by 50%.  The base salary of all other named executive officers and other executives directly reporting to our Chief Executive Officer will be reduced by 25%.  In addition, the base salaries of other members of our senior management team will be also be reduced.  The Board of Directors has also agreed to a 50% reduction in its retainer fees.  Effective April 5, 2020, all employees with a base salary in excess of $100,000 will have their salaries reduced by 10%.

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On March 31, 2020, we announced that, after instituting enhanced social distancing and sanitation protocols that meet or exceed those recommended by the Centers for Disease Control and Prevention (“CDC”), our e-commerce fulfillment centers were reopened.  We will continue to monitor this ongoing situation, relying on recommendations from the CDC, the World Health Organization (“WHO”) and government officials to regularly evaluate the renewed operations at our e-commerce fulfillment centers and determine when currently closed facilities will reopen.

While we cannot reasonably estimate the impact of COVID-19 on our financial position, results of operations and cash flows, we do expect such impact to be significantly negative. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As events are rapidly changing, additional impacts may arise that we are not aware of currently.

Key Performance Indicators

We consider a variety of operational and financial measures in assessing the performance of our business.  The key measures we use to determine how our business is performing are net sales, comparable sales, gross margin, operating income and earnings per share.  

Comparable sales is defined as net sales (excluding alteration and other services sales) from stores open at least 12 months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. While our customers may engage with us through multiple channels, we operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.  

We believe that comparable sales is a useful measure as it allows management and investors to evaluate the sales performance of our business while eliminating the impact of new and closed stores.  Management uses comparable sales to evaluate the effectiveness of our selling and merchandising strategies and to compare our performance against that of other peer companies using similar measures.

Definitions and calculations of comparable sales differ among companies in the retail industry; therefore comparable sales metrics disclosed by us may not be comparable to similar data disclosed by other retailers.  

Key Metrics for Fiscal 2019

Key operating metrics for continuing operations for the year ended February 1, 2020 include:

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Key liquidity metrics for the year ended February 1, 2020 include: