What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-09 compared with 2021-09-08 · 150 added, 126 removed, 230 unchanged (55% of the section changed)

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Accordingly, the results of Vilebrequin, KLH, KLNA and Fabco are, and will be, included in our financial statements for the quarter ended or ending closest to G-III’s fiscal quarter end.

For example, with respect to our results for the six-month period ended July 31, 2021, the results of Vilebrequin, KLH, KLNA and Fabco are included for the six-month period ended June 30, 2021.

For example, with respect to our results for the nine-month period ended October 31, 2021, the results of Vilebrequin, KLH, KLNA and Fabco are included for the nine-month period ended September 30, 2021.

We account for our investment in each of KLH and KLNA using the equity method of accounting.

Our recently acquired Sonia Rykiel subsidiary also reports results on a calendar year basis.

As this subsidiary was acquired after September 30, 2021, its results will begin being included in the Company’s results commencing with the quarter ending December 31, 2021.

The Company’s retail operations segment uses a 52/53-week fiscal year.

For fiscal 2022 and 2021, the three and six-month period for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on July 31, 2021 and August 1, 2020, respectively.

For fiscal 2022 and 2021, the three and nine-month period for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on October 30, 2021 and October 31, 2020, respectively.

Various statements contained in this Form 10-Q, in future filings by us with the SEC, in our press releases and in oral statements made from time to time by us or on our behalf constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

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● seasonal nature of our business and effect of unseasonable or extreme weather on our business;

● possible adverse effect of problems with our logistics and distribution systems;

● possible adverse effect of problems with our logistics and distribution systems and with disruptions to the worldwide supply chain;

● price, availability and quality of materials used in our products;

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Our own proprietary brands include DKNY, Donna Karan, Vilebrequin, G.H.

Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York and Wilsons Leather.

Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York, Wilsons Leather and Sonia Rykiel.

We sell products under an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto and Dockers.

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We also sell our products using digital channels through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business.

In addition, we sell to pure play online retail partners such as Amazon and Fanatics.

In addition, we sell to leading online retail partners such as Amazon and Fanatics.

We also distribute apparel and other products directly to consumers through our own DKNY and Karl Lagerfeld Paris retail stores, as well as through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

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Although our portfolio of brands is aimed at diversifying our risks in this regard, misjudging shifts in consumer preferences could have a negative effect on our business.

Our success in the future will depend on our ability to design

products that are accepted in the marketplace, source the manufacture of our products on a competitive basis, and continue to diversify our product portfolio and the markets we serve.

Our success in the future will depend on our ability to design products that are accepted in the marketplace, source the manufacture of our products on a competitive basis, and continue to diversify our product portfolio and the markets we serve.

We believe that consumers prefer to buy brands they know, and we have continually sought to increase the portfolio of name brands we can offer through different tiers of retail distribution, for a wide array of products at a variety of price points.

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It is our objective to continue to expand our product offerings and we are continually discussing new licensing opportunities with brand owners and seeking to acquire established brands.

Recent Developments

Inter Parfums

In September 2021, we entered into a long-term global licensing agreement with Inter Parfums, Inc.

for the creation, development and distribution of fragrances and fragrance-related products under the DKNY and Donna Karan brands.

Inter Parfums, Inc.

will become the exclusive licensee effective July 1, 2022 with the initial term of the license extending through December 31, 2032.

We believe the fragrance category enables our brands to connect more broadly with global consumers.

In October 2021, we purchased European luxury fashion brand Sonia Rykiel.

Sonia Rykiel was one of the leading figures of Parisian fashion who created the iconic brand.

We plan to accelerate the relaunch of the brand in France in the fall of 2022, and then expand into Europe and other areas.

We believe this purchase further enables us to expand into the luxury space and that there is untapped potential for this brand.

Sonia Rykiel is a wholly-owned operating subsidiary that reports results on a calendar year basis rather than the January 31 fiscal year basis used by the Company.

Accordingly, the results of Sonia Rykiel will be included in our consolidated financial statements beginning in the fourth quarter of fiscal 2022 ending January 31, 2022.

Change in Accounting Principle

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The cumulative adjustment as of February 1, 2021 was a decrease in both inventories and retained earnings of $0.3 million.

The change in accounting principle did not have a material effect on our condensed consolidated financial statements as of and for the three and six-month periods ended July 31, 2021.

The change in accounting principle did not have a material effect on our condensed consolidated financial statements as of and for the three and nine-month periods ended October 31, 2021.

We report based on two segments:

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Trends Affecting Our Business

Impact of COVID-19 Pandemic

Impact of COVID-19

The COVID-19 pandemic has affected businesses around the world since the first quarter of fiscal 2021.

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The COVID-19 pandemic continues to impact the global economy.

In the first half of fiscal 2022, consumer demand increased year-over-year.

Even as businesses have reopened as governmental restrictions were loosened with respect to stay at home orders and various restrictions on the operation of retail businesses, the ultimate economic impact of the COVID-19 pandemic is uncertain.

The spread of the Delta variant could result in the reimposition of restrictions on commercial and social activities that would adversely impact our business.

While we expect significant improvements in

our results of operations for fiscal 2022 as compared to fiscal 2021, we expect that our business operations and results of operations, including our net sales, earnings and cash flows, will continue to be adversely impacted in fiscal 2022 as a result of the COVID-19 pandemic.

The continued impact of COVID-19 remains uncertain and cannot be predicted.

During the nine months ended October 31, 2021, consumer demand for apparel and accessories, as well as other consumer discretionary spending, increased as compared to the comparable quarters in fiscal 2021.

While businesses reopened as stay at home orders were lifted and various restrictions on the operation of retail businesses were loosened, the full economic impact of the COVID-19 pandemic remains uncertain.

The spread of additional variants could result in the reimposition of restrictions on commercial and social activities that would adversely impact our business.

We have experienced significant improvements in our results of operations for fiscal 2022 as compared to fiscal 2021 which we expect to continue through the remainder of fiscal 2022.

However, the COVID-19 pandemic could continue to adversely impact our business operations and results of operations.

The continued impact of the COVID-19 pandemic on our business operations remains uncertain and cannot be predicted.

The extent to which COVID-19 impacts our results will depend on continued developments in the public and private responses to the pandemic and the success and efficacy of efforts in the United States and around the world to vaccinate people against COVID-19.

New information may emerge concerning the severity of the outbreak and the spread of variants, including the Delta variant, of the COVID-19 virus in locations that are important to our business.

New information may emerge concerning the severity of the outbreak and the spread of variants, including the Delta and Omicron variants, of the COVID-19 virus in locations that are important to our business.

Actions taken to contain COVID-19 or treat its impact may change or become more restrictive if additional waves of infections occur.

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We also sell Karl Lagerfeld Paris products on our website, www.karllagerfeldparis.com.

In addition, we sell to pure play online retail partners such as Amazon and Fanatics and have made a minority investment in an e-commerce retailer.

In addition, we sell to leading online retail partners such as Amazon and Fanatics and have made a minority investment in an e-commerce retailer.

A number of retailers are experiencing financial difficulties, which in some cases have resulted in bankruptcies, liquidations and/or store closings.

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We continue to revise our product lines to satisfy the needs of our retail customers and consumers.

We are seeing significant acceleration in demand for day and occasion dresses, as well as career wear such as suit separates.

There has been an increase in demand for day and occasion dresses, as well as career wear such as suit separates, as businesses reopen offices and restrictions on social gatherings are loosened.

We are working diligently to satisfy this demand from our retail partners and consumers.

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We believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners.

The effects of the COVID-19 pandemic on the shipping industry have adversely affected our ability to ensure that we are able to import our product in a manner that allows for timely delivery to our customers.

Demand for container space has increased, as availability of container space had been reduced.

This has caused contractual shipping rates to increase.

Our shipping costs have also increased as we purchased needed container space on the secondary market at higher spot rates.

If we are unable to secure container space on a vessel due to the limited availability, we may experience delays in shipping product from our overseas suppliers to our customers.

Ports around the world are experiencing congestion, slowing transit times of product through ports of entry which affects our ability to timely receive and deliver product to our customers.

Inflationary pressures have impacted our industry.

During the current fiscal year, we have experienced inflationary pressures, most significantly related to our freight costs as discussed below under “Supply Chain” .

We expect inflationary pressures to continue to impact our business beyond fiscal 2022.

We have implemented selected price increases on our products.

We believe we can continue to do so in an effort to mitigate higher costs.

The impact of price increases on consumer demand and on our business and results of operations is uncertain.

The effects of the COVID-19 pandemic on the shipping industry have negatively impacted our ability to ensure that we are able to import our product in a manner that allows for timely delivery to our customers.

Congestion at ports of loading and ports of entry have caused significant changes to the itineraries of our steamship carriers and caused us to consider alternate service routes.

These alternate routes would require additional trucking for us and our customers.

Truck driver shortages, shortages of truck equipment such as the chassis that the containers are transported on, and the inability of ports to provide reliable pick uptimes, have also negatively impacted our ability to timely receive goods.

Contractual shipping rates have increased as a result of demand exceeding supply.

The increased cost is primarily due to purchasing needed container space on the secondary market at higher spot rates.

Terminals are also now imposing additional fees on importers not picking up containers on time, yet due to equipment and labor shortages this is often beyond the control of importers.

If we are unable to secure container space on a vessel due to limited availability, we may experience delays in shipping product from our overseas suppliers to our customers.

Furthermore, even when we are able to secure space, ports around the world are experiencing congestion, slowing transit times of product through ports of entry which negatively affects our ability to timely receive and deliver product to our retail partners and customers.

Our longstanding relationships with our steamship carriers have facilitated our ability to secure space on vessels as demand for apparel increases, although at rates that are significantly higher than in the past.

We believe that the strength of our portfolio of global power brands will allow us to selectively raise prices to largely offset higher freight costs.

These supply chain challenges increased during our second fiscal quarter and, as a result, the receipt of a significant amount of orders has been delayed until our third fiscal quarter.

We have not as yet experienced order cancellations as a result of these delays as there is significant demand for our products from our customers.

We anticipant the current supply chain conditions will continue to cause our freight costs to increase and delays in receipts during the second half of our fiscal 2022 year.

We have increased prices on certain of our products to partially offset higher freight and other costs.

We believe that the strength of our portfolio of global power brands will allow us to continue to raise prices in an effort to mitigate the effect of increased transportation and other costs.

These supply chain challenges continued during our third fiscal quarter and, as a result, the receipt of a significant amount of goods ordered has been delayed until our fourth fiscal quarter.

Although the risks of customer cancellations of orders exist, we have not as yet experienced order cancellations as a result of these delays due to the strong demand from our customers for our products.

We anticipate that the current supply chain challenges will continue to cause our freight costs to be higher than normal and continue to cause delays in receipt of goods, at least through the first half of fiscal 2023.

Results of Operations

Three months ended July 31, 2021 compared to three months ended July 31, 2020

Net sales for the three months ended July 31, 2021 increased to $483.1 million from $297.2 million in the same period last year.

Three months ended October 31, 2021 compared to three months ended October 31, 2020

Net sales for the three months ended October 31, 2021 increased to $1.02 billion from $826.6 million in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $467.0 million for the three months ended July 31, 2021 from $266.8 million in the comparable period last year.

This increase is primarily the result of a $62.2 million increase in net sales of Calvin Klein licensed products, a $43.8 million increase in net sales of our DKNY and Donna Karan products, a $20.5 million increase in net sales of Karl Lagerfeld Paris licensed products and a $15.4 million increase in net sales of Tommy Hilfiger licensed products.

Net sales of our wholesale operations segment increased to $1.01 billion for the three months ended October 31, 2021 from $783.0 million in the comparable period last year.

This increase is primarily the result of a $53.1 million increase in net sales of our DKNY and Donna Karan products, a $45.2 million increase in net sales of Tommy Hilfiger licensed products, a $37.9 million increase in net sales of Calvin Klein licensed products and a $24.7 million increase in net sales of Karl Lagerfeld Paris licensed products.

In the prior year period, we experienced a significant decrease in net sales across substantially all of our brands primarily due to the effects of restrictions that began in March 2020 on business and personal activities imposed by governments in connection with the COVID-19 pandemic.

As a result, most of our retail partners closed their stores in North America, beginning in mid-March, 2020.

Most of our retail partners began to reopen a majority of their stores in North America beginning in June 2020, however, a majority of these stores continued to operate under government mandated restrictions.

Most of our retail partners began to reopen a majority of their stores in North America beginning in June 2020.

However, a majority of these stores continued to operate under government mandated restrictions.

The governmental restrictions imposed in connection with the COVID-19 pandemic resulted in significant increases in unemployment, a reduction in business activity and a reduction in consumer spending on apparel and accessories, all of which contributed to the reduction of our net sales which occurred during the majority of fiscal 2021.

During the three months ended July 31, 2021, substantially all stores operated by our retail partners were open and governmental restrictions were eased in most regions of the United States due to the reduction of the severity of the COVID-19 pandemic.

During the three months ended October 31, 2021, substantially all stores operated by our retail partners were open and governmental restrictions were eased in most regions of the United States due to the reduction of the severity of the COVID-19 pandemic.

The lessening of COVID-19 restrictions has resulted in an increase in business activity which has contributed to an increase in consumer spending on apparel and accessories.

Governmental restrictions could be reimposed as a result of the spread of the Delta variant of COVID-19.

Net sales of our retail operations segment decreased to $27.3 million for the three months ended July 31, 2021 from $34.5 million in the same period last year.

Governmental restrictions could be reimposed as a result of the spread of additional variants of COVID-19.

Net sales of our retail operations segment decreased to $26.2 million for the three months ended October 31, 2021 from $58.0 million in the same period last year.

This decrease is primarily due to the significant reduction in our store count as a result of the restructuring of our retail operations segment that resulted in the closure of our Wilsons, G.H.

Bass and Calvin Klein Performance stores during fiscal 2021.

The number of retail stores operated by us decreased from 247 at July 31, 2020 to 50 at July 31, 2021.

The number of retail stores operated by us decreased from 202 at October 31, 2020 to 56 at October 31, 2021.

Wilsons and G.H.

Bass stores, which were closed by the end of fiscal 2021, contributed $19.7 million of net sales for the three months ended July 31, 2020.

Net sales from the remainder of our retail operations segment increased by $12.5 million during the three months ended July 31, 2021 compared to the same period last year.

Gross profit was $192.9 million, or 39.9% of net sales, for the three months ended July 31, 2021, compared to $134.7 million, or 45.3% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 38.3% in the three months ended July 31, 2021 compared to 46.3% in the same period last year.

In the prior year, the

gross profit percentage in our wholesale operations segment was positively impacted by the reversal of previously anticipated markdown accruals that were no longer necessary due to the reduction in sales to our retail customers, as well as a reversal of a portion of previously accrued royalty expense associated with royalty reductions that were provided by licensors.

The gross profit percentage in our retail operations segment was 51.9% for the three months ended July 31, 2021 compared to 32.5% for the same period last year.

The gross profit percentage in our retail operations segment was negatively impacted last year by the reduction of our net sales caused by COVID-19 related closures of our retail stores, increased promotional activity due to the COVID-19 pandemic and the restructuring of our retail operations segment which resulted in the liquidation of inventory.

Our wholesale and retail operating segments had gross profit percentages of 32.8% and 46.5%, respectively, for the three months ended July 31, 2019.

Both operating segments experienced increased gross profit percentages compared to the pre-pandemic quarter ended July 31, 2019 due to less promotional activity and strategic price increases in the current period, partially offset by increased freight costs.

Selling, general and administrative expenses increased to $146.8 million in the three months ended July 31, 2021 from $122.1 million in the same period last year.

The increase in expenses was primarily due to an increase of $29.7 million in compensation expense, primarily from bonus accruals and salaries.

As a result of the COVID-19 pandemic, the prior year’s period had no bonus accrual and salary expense declined as a result of employee furloughs, job eliminations and salary reductions.

The increase in expenses was also due to a $7.7 million increase in contractual advertising and a $6.2 million increase in third-party warehouse expenses both related to increased sales.

These increases were partially offset by a $17.0 million decrease in facility expenses and a $2.7 million decrease in professional fees primarily related to the retail restructuring that occurred in the prior year period.

Depreciation and amortization was $7.1 million for the three months ended July 31, 2021 compared to $9.7 million in the same period last year.

Bass stores, which were closed by the end of fiscal 2021, contributed $38.2 million of net sales in the three months ended October 31, 2020.

Net sales from the remainder of our retail operations segment, which consists of our DKNY and Karl Lagerfeld Paris stores, as well as the digital channels for DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

Bass, Andrew Marc and Wilsons Leather, increased by $6.4 million during the three months ended October 31, 2021 compared to the same period last year.

Gross profit was $347.5 million, or 34.2% of net sales, for the three months ended October 31, 2021, compared to $297.8 million, or 36.0% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 33.0% in the three months ended October 31, 2021 compared to 35.5% in the same period last year.

In the prior year, the gross profit percentage in our wholesale operations segment was positively impacted by the reversal of previously anticipated markdown accruals that were no longer necessary due to the reduction in sales to our retail customers.

The gross profit percentage in our retail operations segment was 49.8% for the three months ended October 31, 2021 compared to 33.9% for the same period last year.

The gross profit percentage in our retail operations segment was negatively impacted last year by the reduction of our net sales caused by COVID-19 related closures of our retail stores, increased promotional activity to compensate for the decreased demand resulting from the COVID-19 pandemic and the restructuring of our retail operations segment which resulted in the liquidation of inventory.

Our wholesale and retail operating segments had gross profit percentages of 33.2% and 49.3%, respectively, for the three months ended October 31, 2019.

Both operating segments experienced slightly decreased gross profit percentages compared to the pre-pandemic quarter ended October 31, 2019 as increased freight costs more than offset a reduction in promotional activity and strategic price increases in the current period.

Selling, general and administrative expenses increased to $182.4 million in the three months ended October 31, 2021 from $177.6 million in the same period last year.

The increase in expenses was primarily due to a $9.1 million increase in contractual advertising and a $2.8 million increase in third-party warehouse expenses, both related to increased sales.

The increase in expenses was also due to an increase of $7.0 million in compensation expense, primarily from bonus accruals relating to operating results which were reduced in the prior year period as a result of the effect of the COVID-19 pandemic on our operating results.

These increases were partially offset by a $9.2 million decrease in facility expenses, a $4.2 million decrease in bad debt expense and a $0.9 million decrease in professional fees.

Depreciation and amortization was $7.0 million for the three months ended October 31, 2021 compared to $10.2 million in the same period last year.

This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other income was $2.0 million in the three months ended July 31, 2021 compared to $1.9 million for the same period last year.

We recorded $0.4 million of foreign currency losses during the three months ended July 31, 2021 compared to foreign currency income of $1.5 million during the same period last year and $1.8 million in income from unconsolidated affiliates during the three months ended July 31, 2021 compared to $0.4 million in income from unconsolidated affiliates in the same period last year.

In addition, the prior year period also experienced higher deprecation and amortization due to write-offs taken in connection with the reduction of retail store count from 202 at October 31, 2020 to 56 at October 31, 2021 and store asset disposals as a result of the retail restructuring.

Other income was $0.9 million in the three months ended October 31, 2021 compared to $0.2 million for the same period last year.

The increase is primarily due to other income of $1.2 million resulting from the change in fair value of certain equity investments during the three months ended October 31, 2021.

We also recorded $1.1 million of foreign currency losses during the three months ended October 31, 2021 compared to foreign currency losses of $0.3 million during the same period last year.

In addition, we recorded other income of $0.2 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief.

Interest and financing charges, net, for the three months ended July 31, 2021 were $12.6 million compared to $9.2 million for the same period last year.

The increase is primarily due to the senior secured notes outstanding in the current quarter having a higher principal balance and interest rate than the term loan that was outstanding in the prior year period.

Income tax expense was $9.2 million for the three months ended July 31, 2021 compared to an income tax benefit of $3.7 million for the same period last year.

Our effective tax rate increased to 32.6% in the current year’s quarter from 19.6% in last year’s comparable quarter.

The prior year’s rate was positively impacted by the carryback of net operating losses for U.S.

federal income tax purposes to a taxable year with a 35% federal tax rate compared to the current federal tax rate of 21%.

In addition, due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, we used a discrete effective tax rate method to calculate taxes last year.

We returned to our historical practice of using an annual effective tax rate based on full fiscal year income in the current year.

Six months ended July 31, 2021 compared to six months ended July 31, 2020

Net sales for the six months ended July 31, 2021 increased to $1.0 billion from $702.3 million in the same period last year.

We recorded $0.5 million in income from unconsolidated affiliates during the each of the three months ended October 31, 2021 and 2020.

Interest and financing charges, net, for the three months ended October 31, 2021 were $12.4 million compared to $18.7 million for the same period last year.

Income tax expense was $40.2 million for the three months ended October 31, 2021 compared to $28.4 million for the same period last year.

Our effective tax rate decreased to 27.4% in the current year’s quarter from 31.0% in last year’s comparable quarter.

The tax rate in last year’s quarter was impacted by a change in the methodology used to calculate our provision for income taxes.

Historically, we calculated our provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period.

Due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, we used a discrete effective tax rate method to calculate taxes in the first and second quarters of fiscal 2021.

During the third quarter of fiscal 2021, we returned to the historical practice of using an annual effective tax rate based on full fiscal year income.

Nine months ended October 31, 2021 compared to nine months ended October 31, 2020

Net sales for the nine months ended October 31, 2021 increased to $2.02 billion from $1.53 billion in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $978.5 million for the six months ended July 31, 2021 from $645.7 million in the comparable period last year.

Net sales of our wholesale operations segment increased to $1.99 billion for the nine months ended October 31, 2021 from $1.43 billion in the comparable period last year.

This increase is primarily the result of a $147.7 million increase in net sales of Calvin Klein licensed products, a $139.6 million increase in net sales of our DKNY and Donna Karan products, a $88.3 million increase in net sales of Tommy Hilfiger licensed products and a $50.9 million increase in net sales of Karl Lagerfeld Paris licensed products.

activities imposed by governments in connection with the COVID-19 pandemic.

As a result, most of our retail partners closed their stores in North America, beginning in mid-March 2020.

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During the six months ended July 31, 2021, substantially all stores operated by our retail partners were open and governmental restrictions were eased in most regions of the United States due to the reduction of the severity of the COVID-19 pandemic.

During the nine months ended October 31, 2021, substantially all stores operated by our retail partners were open

and governmental restrictions were eased in most regions of the United States due to the reduction of the severity of the COVID-19 pandemic.

The lessening of COVID-19 restrictions has resulted in an increase in business activity which has contributed to an increase in consumer spending on apparel and accessories.

Governmental restrictions could be reimposed as a result of the spread of the Delta variant of COVID-19.

Net sales of our retail operations segment decreased to $46.7 million for the six months ended July 31, 2021 from $68.4 million in the same period last year.

Governmental restrictions could be reimposed as a result of the spread of additional variants of COVID-19.

Net sales of our retail operations segment decreased to $72.9 million for the nine months ended October 31, 2021 from $126.4 million in the same period last year.

This decrease is primarily due to the significant reduction in our store count as a result of the restructuring of our retail operations segment that resulted in the closure of our Wilsons, G.H.

Bass and Calvin Klein Performance stores during fiscal 2021.

The number of retail stores operated by us decreased from 247 at July 31, 2020 to 50 at July 31, 2021.

The number of retail stores operated by us decreased from 202 at October 31, 2020 to 56 at October 31, 2021.

Wilsons and G.H.

Bass stores, which were closed by the end of fiscal 2021, contributed $39.0 million of net sales for the six months ended July 31, 2020.

Net sales from the remainder of our retail operations segment increased by $17.3 million during the six months ended July 31, 2021 compared to the same period last year.

Gross profit was $388.3 million, or 38.7% of net sales, for the six months ended July 31, 2021, compared to $259.1 million, or 36.9% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 37.2% in the six months ended July 31, 2021 compared to 36.5% in the same period last year.

The gross profit in the current year period was positively impacted by less promotional activity and strategic price increases, partially offset by increased freight costs.

The gross profit percentage in our retail operations segment was 51.3% for the six months ended July 31, 2021 compared to 34.2% for the same period last year.

Bass stores, which were closed by the end of fiscal 2021, contributed $77.1 million of net sales in the nine months ended October 31, 2020.

Net sales from the remainder of our retail operations segment increased by $23.6 million during the nine months ended October 31, 2021 compared to the same period last year.

Gross profit was $735.9 million, or 36.5% of net sales, for the nine months ended October 31, 2021, compared to $556.8 million, or 36.4% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 35.1% in the nine months ended October 31, 2021 compared to 36.0% in the same period last year.

The gross profit in the prior year period was positively impacted by the reversal of previously anticipated markdown accruals that were no longer necessary due to the reduction in sales to our retail customers.

The gross profit in the current year period benefitted from less promotional activity and strategic price increases, partially offset by increased freight costs.

The gross profit percentage in our retail operations segment was 50.7% for the nine months ended October 31, 2021 compared to 34.0% for the same period last year.

Our wholesale and retail operating segments had gross profit percentages of 33.8% and 45.8%, respectively, for the six months ended July 31, 2019.

Both operating segments experienced increased gross profit precentages compared to the pre-pandemic period ended July 31, 2019 due to less promotional activity and strategic price increases in the current period, partially offset by increased freight costs.

Selling, general and administrative expenses increased to $288.4 million in the six months ended July 31, 2021 from $276.7 million in the same period last year.

Our wholesale and retail operating segments had gross profit percentages of 33.5% and 47.1%, respectively, for the nine months ended October 31, 2019.

Both operating segments experienced increased gross profit percentages compared to the pre-pandemic period ended October 31, 2019 due to less promotional activity and strategic price increases in the current period, partially offset by increased freight costs.

Selling, general and administrative expenses increased to $470.8 million in the nine months ended October 31, 2021 from $454.3 million in the same period last year.

The increase in expenses was primarily due to an increase of $43.9 million in compensation expense, primarily from bonus accruals.

As a result of the COVID-19 pandemic, the prior year’s period had a nominal bonus accrual.

As a result of the adverse effect of the COVID-19 pandemic on our operating results, the prior year’s period had a reduced bonus accrual.

The increase in expenses was also due to a $20.5 million increase in contractual advertising and a $10.4 million increase in third-party warehouse expenses related to increased sales.

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In addition, there was a $14.5 million decrease in bad debt expense primarily related to allowances recorded against the outstanding receivables of certain department store customers in the prior year period.

Depreciation and amortization was $14.1 million for the six months ended July 31, 2021 compared to $19.6 million in the same period last year.

Depreciation and amortization was $21.2 million for the nine months ended October 31, 2021 compared to $29.7 million in the same period last year.

This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other income was $3.8 million in the six months ended July 31, 2021 compared to an other loss of $0.1 million for the same period last year.

This change is primarily due to other income of $2.1 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief.

In addition, this change is also the result of recording $0.6 million of foreign currency losses during the six months ended July 31, 2021 compared to foreign currency income of $0.1 million during the six months ended July 31, 2020 and $2.3 million in income from unconsolidated affiliates during the six months ended July 31, 2021 compared to $0.2 million of loss from unconsolidated affiliates in the same period last year.

Interest and financing charges, net, for the six months ended July 31, 2021 were $24.6 million compared to $19.6 million for the same period last year.

Income tax expense was $19.5 million for the six months ended July 31, 2021 compared to an income tax benefit of $20.1 million for the same period last year.

Our effective tax rate increased to 30.0% in the current year’s period from 27.0% in last year’s comparable period.

This is primarily due to the carryback of net operating losses for U.S.

federal income tax purposes to a taxable year with a 35% federal tax rate compared to the current year federal tax rate of 21%.

In addition, due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, we used a discrete effective tax rate method to calculate taxes last year.

We returned to our historical practice of using an annual effective tax rate based on full fiscal year income in the current year.

In addition, the prior year period also experienced higher depreciation and amortization due to write-offs taken in connection with the reduction of the retail store count from 202 at October 31, 2020 to 56 at October 31, 2021 and store asset disposals as a result of the retail restructuring.

Other income was $4.7 million in the nine months ended October 31, 2021 compared to $0.1 million for the same period last year.

This change is primarily due to other income of $2.4 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief as well as other income of $1.2 million from the change in fair value of certain equity investments during the nine months ended October 31, 2021 and $2.8 million in income from unconsolidated affiliates during the nine months ended October 31, 2021 compared to $0.3 million in income from unconsolidated affiliates in the same period last year.

Other income was offset in part by our recording of $1.6 million of foreign currency losses during the nine months ended October 31, 2021 compared to foreign currency losses of $0.2 million during the nine months ended October 31, 2020.

Interest and financing charges, net, for the nine months ended October 31, 2021 were $36.9 million compared to $38.2 million for the same period last year.

The decrease is primarily due to a $6.5 million charge to interest expense in the prior year period as a result of extinguishing debt issuance costs upon the repayment of our term loan facility and amendment of our revolving credit facility, partially offset by the senior secured notes outstanding in the current period having a higher principal balance and interest rate than the term loan that was outstanding in the majority of the prior year period.

Income tax expense was $59.7 million for the nine months ended October 31, 2021 compared to $8.4 million for the same period last year.

Our effective tax rate decreased to 28.2% in the current year’s period from 48.4% in last year’s comparable period due to the impact of tax adjustments in the prior period related to executive compensation, foreign tax expense and disallowed state tax benefits on losses incurred.

These adjustments had a greater impact on the lower amount of pre-tax income in the prior period.

Our effective tax rate for the nine months ended October 31, 2020 also includes an income tax charge of $1.4 million in connection with the vesting of equity awards.

Liquidity and Capital Resources

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The cash requirements of our business are primarily related to the seasonal buildup in inventories, compensation paid to employees, payments to vendors in the normal course of business, capital expenditures, interest payments on debt obligations and income tax payments.

As of July 31, 2021, we had cash and cash equivalents of $510.0 million and availability under our revolving credit facility of approximately $400 million.

As of July 31, 2021, we were in compliance with all covenants under our debt agreements.

As of October 31, 2021, we had cash and cash equivalents of $279.6 million and availability under our revolving credit facility of approximately $626 million.

As of October 31, 2021, we were in compliance with all covenants under our debt agreements.

Senior Secured Notes

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The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.

At any time prior to August 15, 2022, we may redeem some or all of the Notes at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date

plus a “make-whole” premium, as described in the Indenture.

On or after August 15, 2022, we may redeem some or all of the Notes at any time and from time to time at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

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Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and overadvances as specified in the ABL Credit Agreement.

Borrowings bear interest, at the Borrowers’ option, at LIBOR plus a margin of 1.75% to 2.25% or an alternate base rate margin of 0.75% to 1.25% (defined as the greatest of (i) the “prime rate” of JPMorgan Chase Bank, N.A.

from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 1.00%, with the applicable margin determined based on Borrowers’ availability under

the ABL Credit Agreement.

Chase Bank, N.A.

The ABL Credit Agreement is secured by specified assets of the Borrowers and the Guarantors.

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In certain circumstances, the revolving credit facility also requires us to maintain a fixed charge coverage ratio, as defined in the agreement, not less than 1.00 to 1.00 for each period of twelve consecutive fiscal months of the Company.

As of July 31, 2021, the Company was in compliance with these covenants.

As of July 31, 2021, we had no borrowings outstanding under the ABL Credit Agreement.

As of October 31, 2021, the Company was in compliance with these covenants.

As of October 31, 2021, we had no borrowings outstanding under the ABL Credit Agreement.

The ABL Credit Agreement also includes amounts available for letters of credit.

As of July 31, 2021, there were outstanding trade and standby letters of credit amounting to $9.2 million and $4.0 million, respectively.

As of October 31, 2021, there were outstanding trade and standby letters of credit amounting to $13.1 million and $4.0 million, respectively.

At the date of the refinancing of the Prior Credit Agreement, we had $3.3 million of unamortized debt issuance costs remaining from the Prior Credit Agreement.

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We have a total of $8.0 million debt issuance costs related to our ABL Credit Agreement.

As permitted under ASC 835, the debt issuance costs have been deferred and are presented as an asset which is to be subsequently amortized ratably over the term of the ABL Credit Agreement.

As permitted under ASC 835, the debt issuance costs have been deferred and are presented as an asset which is amortized ratably over the term of the ABL Credit Agreement.

We issued to LVMH, as a portion of the consideration for the acquisition of DKI, a junior lien secured promissory note in favor of LVMH in the principal amount of $125 million (the “LVMH Note”) that bears interest at the rate of 2% per year.

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Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 2.0% per annum, payable on either a quarterly or monthly basis.

As of July 31, 2021, TRB had an aggregate outstanding balance of €7.5 million under these unsecured loans.

As of October 31, 2021, TRB had an aggregate outstanding balance of €7.3 million ($8.4 million) under these unsecured loans.

Overdraft Facilities

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As part of a COVID-19 relief program, TRB and its subsidiaries have also entered into several state backed overdraft facilities with UBS Bank in Switzerland for an aggregate of CHF 4.7 million at varying interest rates of 0% to 0.5%.

As of July 31, 2021, TRB had an aggregate €3.8 million drawn under these facilities.

As of October 31, 2021, TRB had an aggregate €2.5 million ($2.8 million) drawn under these facilities.

Outstanding Borrowings

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The primary sources to meet our operating cash requirements have been borrowings under this credit facility and cash generated from operations.

We had no borrowings outstanding under our revolving credit facility at July 31, 2021 and 2020.

We had $400 million in borrowings outstanding under the Notes at July 31, 2021.

The Notes repaid the $300 million in borrowings under the Term Loan Credit Agreement that were outstanding at July 31, 2020.

Our contingent liability under open letters of credit was approximately $13.2 million and $10.4 million at July 31, 2021 and 2020, respectively.

In addition to the amounts outstanding under these two loan agreements, at July 31, 2021 and 2020, we had $125 million of face value principal amount outstanding under the LVMH Note.

As of July 31, 2021 and 2020, we had an aggregate of €7.5 million ($8.9 million) and €5.7 million ($6.4 million) outstanding under Vilebrequin’s unsecured loans.

As of July 31, 2021 and 2020, we also had €3.8 million ($4.5 million) and €3.1 million ($3.5 million) outstanding under Vilebrequin’s overdraft facilities.

We had cash and cash equivalents of $510.0 million at July 31, 2021 and $252.8 million at July 31, 2020.

We had no borrowings outstanding under our revolving credit facility at October 31, 2021 and October 31, 2020.

We had $400 million in borrowings outstanding under the Notes at October 31, 2021 and October 31, 2020.

Our contingent liability under open letters of credit was approximately $17.1 million and $9.7 million at October 31, 2021 and 2020, respectively.

In addition to the amounts outstanding under these two loan agreements, at October 31, 2021 and 2020, we had $125 million of face value principal amount outstanding under the LVMH Note.

As of October 31, 2021 and 2020, we had an aggregate of €7.3 million ($8.4 million) and €6.2 million ($7.2 million) outstanding under Vilebrequin’s unsecured loans.

As of October 31, 2021 and 2020, we also had €2.5 million ($2.8 million) and €2.5 million ($2.9 million) outstanding under Vilebrequin’s overdraft facilities.

We had cash and cash equivalents of $279.6 million at October 31, 2021 and $149.7 million at October 31, 2020.

Share Repurchase Program

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Share repurchases may take place on the open market, in privately negotiated transactions or by other means, and would be made in accordance with applicable securities laws.

No shares were repurchased during the three months ended July 31, 2021.

As of August 31, 2021, we had 2,949,362 authorized shares remaining under this program and 48,566,107 shares of common stock outstanding.

No shares were repurchased during the three months ended October 31, 2021.

As of December 3, 2021, we had 2,949,362 authorized shares remaining under this program and 48,568,473 shares of common stock outstanding.

Cash from Operating Activities

We generated $193.8 million in cash from operating activities during six months ended July 31, 2021, primarily as a result of our net income of $45.5 million and non-cash charges in the aggregate amount of $43.2 million relating primarily to operating lease costs of $20.6 million, depreciation and amortization of $14.1 million and share-based compensation of $8.4 million.

We also generated cash from operating activities as a result of an increase of $126.5 million in accounts payable and accrued expenses and a decrease of $107.7 million in accounts receivable.

These items were offset, in part, by an increase of $82.8 million in inventories and decreases of $36.3 million in customer refund liabilities and $22.6 in operating lease liabilities.

The changes in operating cash flow items are consistent with our seasonal pattern of building up inventory for the fall shipping season resulting in the increases in inventory and accounts payable.

We used $15.4 million in cash from operating activities during nine months ended October 31, 2021, primarily as a result of increases of $351.7 million in accounts receivable and $32.5 million in inventories, as well as decreases of $34.7 million in operating lease liabilities and $18.1 million in customer refund liabilities.

These items were offset, in part, by our net income of $152.2 million and non-cash charges relating primarily to operating lease costs of $31.6 million, depreciation and amortization of $21.2 million and share-based compensation of $11.8 million.

We also generated cash from increase in accounts payable and accrued expenses of $136.1 million.

The changes in operating cash flow items are consistent with our seasonal pattern of sales activity for the fall shipping season resulting in the increases in accounts receivable, inventory and accounts payable.

The fall shipping season begins during the latter half of our second quarter.

Our accounts receivable and customer refund liabilities decreased because we experience lower sales levels in our first and second quarters than in our third and fourth quarters.

Our typical seasonal patterns were disrupted last year due to the COVID-19 pandemic.

Cash from Investing Activities

We used $32.5 million of cash in investing activities during six months ended July 31, 2021, primarily as a result of a $25.0 million minority investment in an e-commerce retailer.

In addition, we also had $7.5 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

We used $51.3 million of cash in investing activities during nine months ended October 31, 2021, primarily as a result of a $25.0 million minority investment in an e-commerce retailer.

In addition, we also had $13.0 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores as well as $13.3 million for our investment in connection with a brand acquisition.

Cash from Financing Activities

Net cash used in financing activities was $2.6 million during six months ended July 31, 2021 primarily as a result $4.3 million for taxes paid in connection with net share settlements, partially offset by $1.7 million of net borrowings under Vilebrequin’s overdraft facilities.

Net cash used in financing activities was $4.5 million during nine months ended October 31, 2021 primarily as a result $4.3 million for taxes paid in connection with net share settlements.

Critical Accounting Policies

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The accounting policies and related estimates described in our Annual Report on Form 10-K for the year ended January 31, 2021 are those that depend most heavily on these judgments and estimates.

As of July 31, 2021, there have been no material changes to our critical accounting policies, other than the change in our retail inventory valuation method from the lower of cost or market as determined by the retail inventory method to the lower of cost or market under the weighted average cost method as discussed in Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of October 31, 2021, there have been no material changes to our critical accounting policies, other than the change in our retail inventory valuation method from the lower of cost or market as determined by the retail inventory method to the lower of cost or market under the weighted average cost method as discussed in Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis