What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-09-07 compared with 2023-06-06 · 138 added, 112 removed, 213 unchanged (54% of the section changed)

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For example, our fiscal year ending January 31, 2024 is referred to as “fiscal 2024.”

Vilebrequin, KLH, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by G-III.

Accordingly, the results of Vilebrequin, KLH, Fabco and Sonia Rykiel 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 three-month period ended April 30, 2023, the results of Vilebrequin, Fabco, KLH and Sonia Rykiel are included for the three-month period ended March 31, 2023.

KLH, Vilebrequin, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by G-III.

Accordingly, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included in the 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, 2023, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2023.

We accounted for our investment in each of KLH and KLNA using the equity method of accounting through May 30, 2022.

As of May 31, 2022, KLH is accounted for as our consolidated wholly-owned subsidiary and KLNA is an indirect wholly-owned subsidiary of ours.

Effective May 31, 2022, KLH is accounted for as our consolidated wholly-owned subsidiary and KLNA is an indirect wholly-owned subsidiary of ours.

Our retail operations segment uses a 52/53-week fiscal year.

For fiscal 2023 and 2022, the three-month period for the retail operations segment were each 13-week periods and ended on April 29, 2023 and April 30, 2022, respectively.

For fiscal 2024 and 2023, the three and six-month periods for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on July 29, 2023 and July 30, 2022, 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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● dependence on existing management;

● our ability to make strategic acquisitions and possible disruptions from acquisitions, including our recent acquisition of the remaining interest in Karl Lagerfeld;

● our ability to make strategic acquisitions and possible disruptions from acquisitions, including our ownership of the entire Karl Lagerfeld business;

● need for additional financing;

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● effects of war, acts of terrorism, natural disasters or public health crises could adversely affect our business and results of operations, including the war in Ukraine;

● the global health crisis caused by the COVID-19 pandemic has had, and the current and uncertain future outlook of the outbreak will likely continue to have, adverse effects on our business, financial condition and results of operations;

● the global health crisis caused by COVID-19 has had, and the current and uncertain future outlook with respect to COVID-19 and its variants will likely continue to have, adverse effects on our business, financial condition and results of operations;

● our dependence on foreign manufacturers;

● risks of expansion into foreign markets, conducting business internationally and exposures to foreign currencies;

● risks related to the adoption of a national security law in Hong Kong;

● risks related to the implementation of the national security law in Hong Kong;

● the need to successfully upgrade, maintain and secure our information systems;

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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, Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto, Dockers, Nautica and Halston.

We have an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Nautica, Halston, Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto, Dockers and Champion.

Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League and over 150 U.S.

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

Bass, Andrew Marc, Wilsons Leather and Sonia Rykiel businesses.

Bass, Wilsons Leather and Sonia Rykiel businesses.

We operate in fashion markets that are intensely competitive.

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We are now focused on the repositioning and expansion of the Donna Karan brand for Spring 2024.

The new Donna Karan will be a modern system of dressing created to appeal to a woman’s senses on every level, addressing the full lifestyle needs of a new customer.

The new Donna Karan will be a modern system of dressing created to appeal to a woman’s senses on every level, addressing her full lifestyle needs.

Our Donna Karan product is expected to be distributed in better department stores, digital channels and our own Donna Karan website in North America and internationally.

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First deliveries are expected to begin in January 2024.

The product is expected to be distributed in better department stores, digital channels and Nautica’s stores and website in North America and franchised stores globally.

The product is expected to be distributed in better department stores, digital channels and Nautica’s stores and website in North America, as well as in franchised stores globally.

We believe that significant opportunity exists in the better women’s apparel space in categories where we have strong expertise.

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First deliveries of Halston product are expected to begin in the fall of 2024.

The product will be distributed globally through better department stores and digital channels.

Our Halston product is expected to be distributed globally through better department stores and digital channels.

We believe that significant opportunity exists in the better women’s apparel space where G-III has significant expertise.

The Halston brand joins G-III’s portfolio of some of the largest American brands in the world.

License Agreement for Champion Brand

In September 2023, we entered into a license with HanesBrands Inc.

to design and produce a men’s and women’s outerwear collection for their Champion brand in North America.

The agreement provides for an initial term of five years, effective beginning in January 2024, with a five year renewal option based on achieving sales targets.

First deliveries of Champion product are expected for the Fall 2024 season.

Our Champion product is expected to be distributed through better department stores and digital channels in North America.

Our collections will feature quality heritage pieces that complement and enhance Champion’s principles.

We believe this license aligns with G-III’s core competencies in outerwear and will fit seamlessly into our well-developed outerwear divisions.

We report based on two segments:

wholesale operations and retail operations.

Our wholesale operations segment includes sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin and Karl Lagerfeld businesses, other than sales of product under the Karl

Lagerfeld Paris brand from our retail stores and digital outlets.

Wholesale revenues also include royalty revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, Sonia Rykiel, G.H.

Bass and Andrew Marc.

Our retail operations segment consists primarily of direct sales to consumers through our company-operated stores and through digital channels.

Our company-operated stores consist primarily of 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.

Substantially all DKNY and Karl Lagerfeld Paris stores are operated as outlet stores.

Our wholesale operations segment includes sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Karl Lagerfeld and Vilebrequin businesses, including from retail stores operated by Vilebrequin and Karl Lagerfeld, other than sales of product under the Karl Lagerfeld Paris brand from our retail stores and digital outlets.

Wholesale revenues also include revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Karl Lagerfeld, G.H.

Bass, Andrew Marc, Vilebrequin and Sonia Rykiel.

Our retail operations segment consists primarily of direct sales to consumers through our company-operated stores and product sales through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

Bass and Wilsons Leather businesses.

Our company-operated stores primarily consist of DKNY and Karl Lagerfeld Paris retail stores, substantially all of which are operated as outlet stores.

Trends Affecting Our Business

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We are investing in digital personnel, marketing, logistics, planning, distribution and other strategic opportunities to expand our digital footprint.

Our digital business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.ghbass.com, www.vilebrequin.com, www.andrewmarc.com, www.wilsonsleather.com, www.soniarykiel.com, www.karllagerfeldparis.com and www.karl.com.

Our digital business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.ghbass.com, www.vilebrequin.com, www.wilsonsleather.com, www.soniarykiel.com, www.karllagerfeldparis.com and www.karl.com.

In addition, we sell to leading online retail partners such as Amazon, Fanatics, Zalando and Zappos and have made minority investments in two e-commerce retailers.

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We have attempted to respond to general trends in our industry by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities.

We have also responded with the strategic acquisitions made by us, such as our recent purchase of the interests not owned by us that resulted in Karl Lagerfeld becoming our wholly-owned subsidiary, and new license agreements entered into by us that added to our portfolio of licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels.

We have also responded with the strategic acquisitions made by us, such as our purchase of the interests not owned by us that resulted in Karl Lagerfeld becoming our wholly-owned subsidiary, and new license agreements entered into by us, such as our recent license agreements for the Nautica, Halston and Champion brands, that added to our portfolio of licensed and proprietary

brands and helped diversify our business by adding new product lines and expanding distribution channels.

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.

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Inflationary pressures have impacted the entire economy, including our industry.

Recent historic high rates of inflation, including increased fuel and food prices, has led to a softening of consumer demand and increased promotional activity in our categories and may lead to further challenges to grow our sales.

Recent high rates of inflation, including increased fuel and food prices, have led to a softening of consumer demand and increased promotional activity in the apparel categories we sell and may lead to further challenges to increase our sales.

Ongoing inflation may also negatively impact our cost structure and labor costs in the future.

The Federal Reserve raised interest rates multiple times in fiscal 2023, as well as thus far in fiscal 2024, in response to concerns about inflation and may continue to do so in the remainder of fiscal 2024.

Higher interest rates increase the costs of our borrowing under our revolving credit facility, may increase economic uncertainty and may negatively affect consumer spending.

Higher interest rates increase the cost of our borrowing under our revolving credit facility, may increase economic uncertainty and may negatively affect consumer spending.

Volatility in interest rates may adversely affect our business or our customers.

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Volatility in the global foreign currency exchange rates may have a negative impact on the reported results of certain of our non-United States subsidiaries in the future, when translated to the U.S.

In our two previous fiscal years, there were numerous factors disrupting the shipping industry that negatively affected transit times from our overseas suppliers, as well as our ability to ensure that we were able to import our product in a manner that allows for timely delivery to our customers.

More recently, shipping costs and transit times have returned to comparable, and in some cases lower than, pre-pandemic levels.

In fiscal 2022 and 2023, there were numerous factors disrupting the shipping industry that negatively affected transit times from our overseas suppliers, as well as our ability to ensure that we were able to import our product in a manner that allows for timely delivery to our customers.

More recently, shipping costs and transit times have returned to levels comparable to, and in some cases lower than, pre-pandemic time periods.

We continue to monitor the transportation market for circumstances that may cause delays and negatively impact our ability to deliver product to our retail partners in a timely manner.

As a result of supply chain disruptions, in fiscal 2023, we accelerated production schedules to allow for more lead time and to accommodate the anticipated extended transit times from our overseas suppliers in an effort to import our product in a manner that allows for timely delivery to our customers.

As a result, our inventory levels were, and continue to be, higher than in the comparable period of prior years.

As a result, our inventory levels were higher than in the comparable period of prior years.

Elevated inventory levels and disruptions in the shipping industry contributed to us incurring significant demurrage charges in fiscal 2023.

We believe we have taken sufficient measures to ensure that we do not again incur these charges in our current fiscal year, including reducing product buys to account for current inventory levels, adjusting our production schedules and contracting with vendors to provide storage options domestically and overseas, if needed.

We expect to have inventory levels that are higher than normal through the first half of fiscal 2024.

As a result, we expect our warehouse operations may be less efficient and that we will continue to incur additional labor and storage costs related to our inventory in the first half of fiscal 2024.

In the third and fourth quarters of fiscal 2024, we expect our inventory levels to be reduced to more normalized levels and our warehouse capacity to be sufficient for our needs which is expected to bring these costs in line with historical norms.

We experienced inventory levels that were higher than normal through the first half of fiscal 2024.

As a result, our warehouse operations were less efficient and we continued to incur additional labor and storage costs related to our inventory in the first half of fiscal 2024.

In the third and fourth quarters of fiscal 2024, we expect our inventory levels to return to more normalized levels and our warehouse capacity to be sufficient for our needs which is expected to bring these costs in line with historical norms.

We have secured new contracts with two of our long-term steamship carrier partners and are finalizing a third in an effort to mitigate our risk should rates increase.

We are presently seeking to secure space needed for peak shipping periods through existing contracts and to leverage favorable spot market rates from secondary market providers.

Excess Inventory in the Marketplace

Higher marketplace inventories and a rapidly changing economic environment have caused retailers to rationalize their inventory levels.

As a result, retailers have increased promotional activity to reduce their inventory.

While we have planned for a certain amount of promotional activity, additional promotional activity in excess of what we have planned for could have an adverse effect on our results of operations.

Impact of COVID-19

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 around the world in the public and private responses to the pandemic.

New information may emerge concerning the severity of the outbreak and the

spread of 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.

We continue to monitor the latest developments regarding the COVID-19 pandemic and have incorporated certain assumptions regarding the duration, severity and global macroeconomic impact of the pandemic into our financial outlook.

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

The extent to which COVID-19 impacts our results will depend on continued developments around the world in the public and private responses to COVID-19.

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

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

We continue to monitor the latest developments regarding the impacts of COVID-19 and have incorporated certain assumptions regarding the duration, severity and global macroeconomic impact of the pandemic into our financial outlook.

War in Ukraine

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Results of Operations

Three months ended April 30, 2023 compared to three months ended April 30, 2022

Net sales for the three months ended April 30, 2023 decreased to $606.6 million from $688.8 million in the same period last year.

Three months ended July 31, 2023 compared to three months ended July 31, 2022

Net sales for the three months ended July 31, 2023 increased to $659.8 million from $605.2 million in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment decreased to $586.9 million for the three months ended April 30, 2023 from $680.9 million in the comparable period last year.

This decrease is primarily the result of a decrease in net sales of Calvin Klein and Tommy Hilfiger licensed products and in net sales of our DKNY and Donna Karan products due to a moderation in consumer demand.

This decrease was partially offset by the inclusion of the results of the Karl Lagerfeld business in the quarter which added $60.9 million in net sales to our wholesale operations segment for the three months ended April 30, 2023.

The results of the Karl Lagerfeld business was not included in our results until May 31, 2022.

Net sales of our retail operations segment increased to $30.2 million for the three months ended April 30, 2023 from $27.9 million in the same period last year.

The number of retail stores operated by us increased to 61 at April 30, 2023 from 60 at April 30, 2022.

The increase in sales in our retail operations segment is primarily the result of increased sales of our Karl Lagerfeld Paris products associated with our conversion of DKNY stores to Karl Lagerfeld Paris stores.

Gross profit was $249.8 million, or 41.2% of net sales, for the three months ended April 30, 2023, compared to $246.0 million, or 35.7% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 39.9% in the three months ended April 30, 2023 compared to 34.1% in the same period last year.

The addition of the results of KLH resulted in an increase of 2.2% in the gross profit percentage of our wholesale operations segment as this business operates with a higher gross profit percentage than our legacy wholesale operations segment.

Net sales of our wholesale operations segment increased to $639.2 million for the three months ended July 31, 2023 from $588.0 million in the comparable period last year.

We recognized an additional $37.7 million of net sales as a result of the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Additionally, the increase in net sales of our wholesale operations segment was also the result of a $10.9 million increase in net sales of our Levi’s outerwear products.

Net sales of our retail operations segment increased to $34.3 million for the three months ended July 31, 2023 from $31.1 million in the same period last year.

The number of retail stores operated by us was 59 at both July 31, 2023 and 2022.

The increase in sales in our retail operations segment was primarily the result of increased sales of our Karl Lagerfeld Paris products associated with our conversion of DKNY stores to Karl Lagerfeld Paris stores.

Gross profit was $276.7 million, or 41.9% of net sales, for the three months ended July 31, 2023, compared to $228.9 million, or 37.8% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 40.6% in the three months ended July 31, 2023 compared to 36.2% in the same period last year.

The addition of the results of KLH for all of the current period compared to one month in the same period last year resulted in an increase of approximately 1.5% in the gross profit percentage of our wholesale operations segment as this business operates with a higher gross profit percentage than our other businesses in the wholesale operations segment.

The gross profit percentage in the current year period was also positively impacted by slightly higher prices to our customers and lower freight costs compared to the same period last year.

The gross profit percentage in our retail operations segment was 50.9% for the three months ended April 30, 2023 compared to 49.9% for the same period last year.

Selling, general and administrative expenses increased to $228.0 million in the three months ended April 30, 2023 from $185.4 million in the same period last year.

The inclusion of the results of KLH for the three months ended April 30, 2023 represented $36.1 million of this increase.

The remainder of the increase in expenses was due to an increase of $6.0 million in third-party warehouse and facility expenses primarily related to higher inventory levels.

The gross profit percentage in our retail operations segment was 50.5% for the three months ended July 31, 2023 compared to 51.6% for the same period last year.

Selling, general and administrative expenses increased to $239.2 million in the three months ended July 31, 2023 from $191.0 million in the same period last year.

We recognized an additional $28.7 million of expenses due to the inclusion of the results of KLH for all of the current period ended July 31, 2023 as compared to one month in the same period last year.

The remainder of the increase in expenses was primarily due to an increase of $12.2 million in compensation expense,

primarily from increased salary and bonus expense accruals, and $4.6 million in third-party warehouse and facility expenses primarily related to higher inventory levels during the period.

Depreciation and amortization was $6.0 million for the three months ended July 31, 2023 compared to $6.7 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years, partially offset by an increase of $0.8 million of depreciation and amortization expense due to the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Other income was $0.2 million in the three months ended July 31, 2023 compared to other income of $30.3 million for the same period last year.

Other income in the prior period resulted from a gain of $30.9 million during the three months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% investment in KLNA as of the effective date of the acquisition by us of the interests in KLH that we did not previously own.

Other income in the current period consisted of $0.7 million of foreign currency income during the three months ended July 31, 2023 compared to $2.0 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the three months ended July 31, 2023 were $9.5 million compared to $12.6 million in the same period last year.

The decrease in interest and financing charges was primarily due to a $1.8 million increase in investment income from having a larger cash position in the current year compared to the prior year and recording lower interest of $0.9 million related to the LVMH Note as we repaid $75 million of the principal amount of this Note on June 1, 2023.

Income tax expense was $6.0 million for the three months ended July 31, 2023 compared to $13.0 million for the same period last year.

Our effective tax rate increased to 26.8% in the current year’s quarter from 26.4% in last year’s comparable quarter.

Six months ended July 31, 2023 compared to six months ended July 31, 2022

Net sales for the six months ended July 31, 2023 decreased to $1.27 billion from $1.29 billion in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment decreased to $1.23 billion for the six months ended July 31, 2023 from $1.27 billion in the comparable period last year.

This decrease was primarily the result of a decrease in net sales of Calvin Klein and Tommy Hilfiger licensed products and in net sales of our DKNY and Donna Karan products due to a moderation in consumer demand.

This decrease was partially offset by the addition of $98.6 million in net sales due to the inclusion of the results of the Karl Lagerfeld business for all of the current period compared to one month in the same period last year.

Net sales of our retail operations segment increased to $64.6 million for the six months ended July 31, 2023 from $59.0 million in the same period last year.

The number of retail stores operated by us was 59 at both July 31, 2023 and 2022.

Gross profit was $526.5 million, or 41.6% of net sales, for the six months ended July 31, 2023, compared to $475.0 million, or 36.7% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 40.3% in the six months ended July 31, 2023 compared to 35.1% in the same period last year.

The addition of the results of KLH for all of the current period compared to one month in the same period last year resulted in an increase of approximately 1.8% in the gross profit percentage of our wholesale operations segment as this business operates with a higher gross profit percentage than our other businesses in the wholesale operations segment.

The gross profit percentage in the current year period was also positively impacted by slightly higher prices to our customers and lower freight costs compared to the same period last year.

The gross profit percentage in our retail operations segment was 50.7% for the six months ended July 31, 2023 compared to 50.8% for the same period last year.

Selling, general and administrative expenses increased to $467.2 million in the six months ended July 31, 2023 from $376.5 million in the same period last year.

We recognized an additional $64.8 million of expenses due to the inclusion of the results of KLH for all of the current period ended July 31, 2023 as compared to one month in the same period last year.

The remainder of the increase in expenses was primarily due to an increase of $15.6 million in compensation expense, primarily from increased salary and bonus expense accruals, and an increase of $10.6 million in third-party warehouse and facility expenses primarily related to higher inventory levels.

This increase was partially offset by reduced royalty advertising expenses which decreased due to lower net sales of licensed product.

Depreciation and amortization was $6.6 million for the three months ended April 30, 2023 compared to $6.1 million in the same period last year.

This increase primarily results from the inclusion of the results of KLH for the three month period which increased depreciation and amortization by $1.3 million, partially offset by lower depreciation and amortization as a result of a reduction in capital expenditures in recent years.

Other income was $1.0 million in the three months ended April 30, 2023 compared to other loss of $2.7 million for the same period last year.

Other income in the current period consisted of $0.4 million of foreign currency income during the three months ended April 30, 2023 compared to $3.4 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the three months ended April 30, 2023 were $12.2 million compared to $12.2 million in the same period last year.

Income tax expense was $0.9 million for the three months ended April 30, 2023 compared to $9.0 million for the same period last year.

Our effective tax rate increased to 23.1% in the current year’s quarter from 22.7% in last year’s comparable quarter due to discrete items in the quarter.

We anticipate that our annual effective tax rate will be approximately 28% for fiscal 2024.

Depreciation and amortization was $12.5 million for the six months ended July 31, 2023 compared to $12.8 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years, partially offset by an increase of $2.1 million of depreciation and amortization expense due to the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Other income was $1.2 million in the six months ended July 31, 2023 compared to other income of $27.6 million for the same period last year.

Other income in the prior period resulted from a gain of $30.9 million during the six months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% investment in KLNA as of the effective date of the acquisition by us of the interests in KLH that we did not previously own.

Other income in the current period consisted of $1.1 million of foreign currency income during the six months ended July 31, 2023 compared to $5.4 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the six months ended July 31, 2023 were $21.6 million compared to $24.8 million in the same period last year.

The decrease in interest and financing charges was primarily due to a $2.6 million increase in investment income from having a larger cash position in the current year compared to the prior year and recording lower interest of $0.8 million related to the LVMH Note as we repaid $75 million of the principal amount of this Note on June 1, 2023.

Income tax expense was $6.9 million for the six months ended July 31, 2023 compared to $22.0 million for the same period last year.

Our effective tax rate increased to 26.2% in the current year’s period from 24.8% in last year’s comparable period due to a $1.3 million tax benefit related to the foreign tax credit that was recorded during the first quarter of the prior year.

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.

During fiscal 2024, the principal amount of $125 million under the LVMH Note will become due and payable.

A principal payment of $75 million was made on June 1, 2023 and the remaining principal of $50 million is due and payable on December 1, 2023.

A principal payment of $75 million was made on June 1, 2023 with respect to the LVMH Note with the remaining principal amount of $50 million due and payable on December 1, 2023.

We have also used cash to repurchase our shares.

As of April 30, 2023, we had cash and cash equivalents of $289.7 million and availability under our revolving credit facility of approximately $500 million.

As of April 30, 2023, we were in compliance with all covenants under our senior secured notes and revolving credit facility.

As of July 31, 2023, we had cash and cash equivalents of $197.7 million and availability under our revolving credit facility of approximately $640 million.

As of July 31, 2023, we were in compliance with all covenants under our senior secured notes and revolving credit facility.

Senior Secured Notes

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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.

Borrowings originally bore 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.

The calculation of the interest rate under the ABL Credit Agreement has been revised as set forth in the next paragraph.

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

In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, we are required to pay a commitment fee to the lenders under the credit agreement with respect to the unutilized commitments.

The commitment fee accrues at a tiered rate equal to 0.50% per annum on the average daily amount of the available commitments when the average usage is less than 50% of the total available commitments and decreases to 0.35% per annum on the average daily amount of the available commitments when the average usage is greater than or equal to 50% of the total available

As of April 30, 2023, interest under the ABL Credit Agreement was being paid at an average rate of 6.62% per annum.

On April 20, 2023, we amended the ABL Credit Agreement to replace LIBOR with Adjusted Term Secured Overnight Financing Rate (“SOFR”) as a successor rate.

In April 2023, we amended the ABL Credit Agreement to replace LIBOR with Adjusted Term Secured Overnight Financing Rate (“SOFR”) as a successor rate.

All other material terms and conditions of the ABL Credit Agreement were unchanged.

Borrowings under the amended ABL Credit Agreement will bear interest, at the Borrower’s option, at the alternate base rate (defined as, for a given day, the greatest of (i) the “prime rate” in effect on such day, (ii) the NYFRB Rate (as defined in the amendment) in effect on such day plus 0.5% and (iii) the Adjusted Term SOFR (defined as an interest rate per annum equal to the Term SOFR for such interest period plus 0.10%) for a one-month interest period as published two business days prior to such day plus 1%) plus an applicable spread or the Adjusted Term SOFR Rate plus an applicable spread.

Borrowings under the amended ABL Credit Agreement now bear interest, at the Borrower’s option, at the alternate base rate (defined as, for a given day, the greatest of (i) the “prime rate” in effect on such day, (ii) the NYFRB Rate (as defined in the amendment) in effect on such day plus 0.5% and (iii) the Adjusted Term SOFR (defined as an interest rate per annum equal to the Term SOFR for such interest period plus 0.10%) for a one-month interest period as published two business days prior to such day plus 1%) plus an applicable spread or the Adjusted Term SOFR Rate plus an applicable spread.

We applied certain provisions and practical expedients of ASC 848 – Reference Rate Reform related to the transition from LIBOR to SOFR.

We do not expect a material change to our interest expense or results of operations as a result of transitioning the reference rate used in our ABL Credit Agreement from LIBOR to SOFR.

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

The revolving credit facility contains covenants that, among other things, restrict our ability to, subject to specified exceptions, incur additional debt;

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and make certain investments.

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 April 30, 2023, the Company was in compliance with these covenants.

As of April 30, 2023, we had no borrowings outstanding under the ABL Credit Agreement.

As of July 31, 2023, we were in compliance with these covenants.

As of July 31, 2023, we had no borrowings outstanding under the ABL Credit Agreement.

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

As of April 30, 2023, there were outstanding trade and standby letters of credit amounting to $7.8 million and $2.9 million, respectively.

As of July 31, 2023, there were outstanding trade and standby letters of credit amounting to $3.7 million and $2.9 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.

We extinguished and charged to interest expense $0.4 million of the prior debt issuance costs and incurred new debt issuance costs totaling $5.1 million related to the ABL Credit Agreement.

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

We have recorded $8.0 million of 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 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.

$75 million of the principal amount of the LVMH Note was paid on June 1, 2023 and $50 million of such principal amount is due and payable on December 1, 2023.

The LVMH Note is classified in current portion of notes payable in our consolidated balance sheet as of April 30, 2023.

$75 million of the principal amount of the LVMH Note was repaid on June 1, 2023 and $50 million of such principal amount is due and payable on December 1, 2023.

The LVMH Note is classified in current portion of notes payable in our Company’s condensed consolidated balance sheet as of July 31, 2023 and January 31, 2023.

$75.0 million of the LVMH Note is classified in current portion of notes payable in our condensed consolidated balance sheet as of July 31, 2022.

Based on an independent valuation, it was determined that the LVMH Note should be treated as having been issued at a discount of $40 million in accordance with ASC 820 — Fair Value Measurements .

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Several of our foreign entities borrow funds under various unsecured loans of which a portion is to provide funding for operations in the normal course of business while other loans are European state backed loans as part of COVID-19 relief programs.

In the aggregate, the Company is currently required to make quarterly installment payments of principal in the

amount of €0.6 million.

In the aggregate, we are currently required to make quarterly installment payments of principal in the amount of €0.6 million under these unsecured loans.

Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 5.0% per annum, payable on either a quarterly or monthly basis.

As of April 30, 2023, the Company had an aggregate outstanding balance of €10.3 million ($11.2 million) under these unsecured loans.

As of July 31, 2023, the Company had an aggregate outstanding balance of €9.1 million ($9.9 million) under these unsecured loans.

Overdraft Facilities

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TRB entered into an uncommitted overdraft facility with HSBC Bank allowing for a maximum overdraft of €5 million.

Interest on drawn balances accrues at a fixed rate equal to the Euro Interbank Offered Rate plus a margin of 1.75% per annum, payable quarterly.

Interest on drawn balances accrues at a fixed rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus a margin of 1.75% per annum, payable quarterly.

The facility may be cancelled at any time by TRB or HSBC Bank.

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 April 30, 2023, TRB had an aggregate €3.8 million ($4.1 million) drawn under these facilities.

As of July 31, 2023, TRB had an aggregate of €2.0 million ($2.2 million) drawn under these facilities.

Foreign Credit Facility

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with a credit limit of €15.0 million which is secured by specified assets of KLH.

Borrowings bear interest at the Euro Interbank Offered Rate (“EURIBOR”) plus a margin of 1.7%.

As of April 30, 2023, KLH had €7.8 million ($8.5 million) of borrowings outstanding under this credit facility.

Borrowings bear interest at the EURIBOR plus a margin of 1.7%.

As of July 31, 2023, KLH had €7.5 million ($8.2 million) of borrowings outstanding under this credit facility.

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 at April 30, 2023 and April 30, 2022, respectively.

We had $400 million in borrowings outstanding under the Notes at April 30, 2023 and April 30, 2022, respectively.

Our contingent liability under open letters of credit was approximately $10.7 million and $22.2 million at April 30, 2023 and 2022, respectively.

In addition to the amounts outstanding under these two loan agreements, at April 30, 2023 and 2022, we had $125 million of face value principal amount outstanding under the LVMH Note.

As of April 30, 2023 and 2022, we had an aggregate of €10.3 million ($11.2 million) and €7.1 million ($7.8 million) outstanding under the Company’s various unsecured loans.

As of April 30, 2023 and 2022, we had €3.8 million ($4.1 million) and €2.8 million ($3.1 million) outstanding under the Company’s various overdraft facilities.

As of April 30, 2023, we had €7.8 million ($8.5 million) outstanding under KLH’s foreign credit facility.

We had no borrowings outstanding under our revolving credit facility at July 31, 2023 and $51.6 million outstanding at July 31, 2022, respectively.

We had $400 million in borrowings outstanding under the Notes at July 31, 2023 and July 31, 2022, respectively.

Our contingent liability under open letters of credit was approximately $6.7 million and $11.3 million at July 31, 2023 and 2022, respectively.

In addition to the amounts outstanding under these two loan agreements, at July 31, 2023 and 2022, we had $50 million and $125 million of face value principal amount outstanding under the LVMH Note, respectively.

As of July 31, 2023 and 2022, we had an aggregate of €9.1 million ($9.9 million) and €7.6 million ($8.0 million) outstanding under the Company’s various unsecured loans.

As of July 31, 2023 and 2022, we had €2.0 million ($2.2 million) and €3.1 million ($3.2 million) outstanding under our various overdraft facilities.

As of July 31, 2023 and 2022, we had €7.5 million ($8.2 million) and €0.4 million ($0.4 million) outstanding under KLH’s foreign credit facility.

Share Repurchase Program

In March 2022, our Board of Directors authorized an increase in the number of shares covered by our share repurchase program to an aggregate amount of 10,000,000 shares.

Pursuant to this program, during the three months ended April 30, 2023, we acquired 1,124,271 of our shares of common stock for an aggregate purchase price of $16.8 million.

In August 2023, our Board of Directors authorized an increase in the number of shares covered by our share repurchase program to an aggregate amount of 10,000,000 shares.

Prior to this increase, we had 6,813,851 authorized shares under

this program.

Pursuant to this program, during the six months ended July 31, 2023, we acquired 1,598,568 of our shares of common stock for an aggregate purchase price of $26.1 million.

The timing and actual number of shares repurchased, if any, will depend on a number of factors, including market conditions and prevailing stock prices, and are subject to compliance with certain covenants contained in our loan agreement.

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.

As of April 30, 2023, we had 7,288,148 authorized shares remaining under this program.

As of June 2, 2023, we had approximately 45,593,524 shares of common stock outstanding.

As of September 5, 2023, we had 45,721,002 shares of common stock outstanding.

Cash from Operating Activities

We generated $201.8 million in cash from operating activities during the three months ended April 30, 2023, primarily as a result of our net income of $3.2 million and decreases of $180.4 million in accounts receivable and $79.0 million in inventories.

We generated $212.5 million in cash from operating activities during the six months ended July 31, 2023, primarily as a result of our net income of $19.7 million, a decrease of $155.6 million in accounts receivable and an increase of $154.4 million in accounts payable and accrued expenses.

We also generated cash from operating activities as a result of non-cash charges relating primarily to depreciation and amortization of $12.5 million and share-based compensation of $6.8 million.

These items were offset, in

part, by decreases of $46.7 million in accounts payable and accrued expenses and $20.4 million in customer refund liabilities.

The changes in operating cash flow items are consistent with our seasonal pattern.

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

The decrease in accounts payable and accrued expenses is primarily attributable to vendor payments related to inventory purchases and the payment of year-end bonuses in our first fiscal quarter.

These items were offset, in part, by an increase of $95.5 million in inventories and a decrease of $33.5 million in customer refund 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.

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.

Cash from Investing Activities

We used $8.6 million of cash in investing activities during the three months ended April 30, 2023.

We used $14.8 million of cash in investing activities during the six months ended July 31, 2023.

We had $11.1 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

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Cash from Financing Activities

Net cash used by financing activities was $95.8 million during three months ended April 30, 2023 primarily as a result of repayments of borrowings of $85.4 million under our ABL Credit Agreement, partially offset by borrowings of $5.3 million under that Agreement.

In addition, we used $16.8 million of cash to repurchase 1,124,271 shares of our common stock under our share repurchase program.

Net cash used by financing activities was $194.3 million during six months ended July 31, 2023 primarily as a result of repayments of borrowings of $85.4 million under our ABL Credit Agreement, partially offset by borrowings of $5.3 million under that Agreement, as well as the $75.0 million principal repayment of the LVMH Note.

In addition, we used $26.1 million of cash to repurchase 1,598,568 shares of our common stock under our share repurchase program and $10.8 million for taxes paid in connection with net share settlements of stock grants that vested.

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, 2023 are those that depend most heavily on these judgments and estimates.

As of April 30, 2023, there have been no material changes to our critical accounting policies.

As of July 31, 2023, there have been no material changes to our critical accounting policies.

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