RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
Three months
ended
November 2,
2019
|
|
Three months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
Net sales
|
|
$
|
200,117
|
|
$
|
210,758
|
|
$
|
602,974
|
|
$
|
645,957
|
|
Cost of goods sold, buying and occupancy costs
|
|
|
144,519
|
|
|
142,383
|
|
|
425,099
|
|
|
438,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
55,598
|
|
|
68,375
|
|
|
177,875
|
|
|
207,710
|
|
Selling, general and administrative expenses
|
|
|
67,664
|
|
|
66,802
|
|
|
199,964
|
|
|
199,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(12,066
|
)
|
|
1,573
|
|
|
(22,089
|
)
|
|
8,105
|
|
Interest income, net of interest expense of $101, $72, $267, and $362, respectively
|
|
|
(158
|
)
|
|
(258
|
)
|
|
(734
|
)
|
|
(453
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(11,908
|
)
|
|
1,831
|
|
|
(21,355
|
)
|
|
8,319
|
|
(Benefit) provision for income taxes
|
|
|
(259
|
)
|
|
106
|
|
|
33
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(11,649
|
)
|
$
|
1,725
|
|
$
|
(21,388
|
)
|
$
|
7,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.18
|
)
|
$
|
0.03
|
|
$
|
(0.33
|
)
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.18
|
)
|
$
|
0.03
|
|
$
|
(0.33
|
)
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
64,420
|
|
|
63,940
|
|
|
64,317
|
|
|
63,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
64,420
|
|
|
66,289
|
|
|
64,317
|
|
|
65,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Three months
ended
November 2,
2019
|
|
Three months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
Comprehensive (loss) income
|
|
$
|
(11,597
|
)
|
$
|
1,760
|
|
$
|
(21,231
|
)
|
$
|
7,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
2
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
November 2,
2019
|
|
February 2,
2019*
|
|
November 3,
2018
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,565
|
|
$
|
95,542
|
|
$
|
83,662
|
|
Accounts receivable
|
|
|
11,762
|
|
|
9,879
|
|
|
14,134
|
|
Inventories, net
|
|
|
115,230
|
|
|
82,803
|
|
|
121,586
|
|
Prepaid expenses
|
|
|
11,162
|
|
|
16,921
|
|
|
16,894
|
|
Other current assets
|
|
|
2,399
|
|
|
1,818
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
206,118
|
|
|
206,963
|
|
|
238,639
|
|
Property and equipment, net
|
|
|
53,129
|
|
|
63,791
|
|
|
65,292
|
|
Operating lease assets
|
|
|
209,336
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
16,672
|
|
|
16,813
|
|
|
16,891
|
|
Other assets
|
|
|
1,176
|
|
|
1,311
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
486,431
|
|
$
|
288,878
|
|
$
|
322,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
102,800
|
|
$
|
77,050
|
|
$
|
107,231
|
|
Accrued expenses
|
|
|
62,973
|
|
|
68,585
|
|
|
66,487
|
|
Current operating lease liabilities
|
|
|
39,233
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
375
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
205,006
|
|
|
146,010
|
|
|
173,734
|
|
Non-current operating lease liabilities
|
|
|
198,761
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
|
|
|
25,090
|
|
|
25,623
|
|
Other liabilities
|
|
|
26,247
|
|
|
31,165
|
|
|
32,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
430,014
|
|
|
202,265
|
|
|
231,583
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, voting, par value $0.001; 300,000 shares authorized; 67,084, 66,649 and 66,663 shares issued and 65,253, 64,818 and 64,832 shares
outstanding at November 2, 2019, February 2, 2019 and November 3, 2018, respectively
|
|
|
67
|
|
|
67
|
|
|
67
|
|
Additional paid-in capital
|
|
|
186,544
|
|
|
185,020
|
|
|
184,916
|
|
Retained deficit
|
|
|
(124,327
|
)
|
|
(92,450
|
)
|
|
(88,802
|
)
|
Accumulated other comprehensive loss
|
|
|
(782
|
)
|
|
(939
|
)
|
|
(446
|
)
|
Treasury stock at cost; 1,831 shares at November 2, 2019, February 2, 2019 and November 3, 2018
|
|
|
(5,085
|
)
|
|
(5,085
|
)
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
56,417
|
|
|
86,613
|
|
|
90,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
486,431
|
|
$
|
288,878
|
|
$
|
322,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Derived
from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 2,
2019.
See accompanying notes.
3
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Nine months ended
November 2, 2019
|
|
Nine months ended
November 3, 2018
|
|
Operating activities
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(21,388
|
)
|
$
|
7,878
|
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,778
|
|
|
15,833
|
|
Non-cash lease expense
|
|
|
33,861
|
|
|
|
|
Loss from impairment charges
|
|
|
782
|
|
|
486
|
|
Amortization of intangible assets
|
|
|
141
|
|
|
234
|
|
Amortization of deferred financing costs
|
|
|
27
|
|
|
49
|
|
Write-off of unamortized deferred financing costs
|
|
|
|
|
|
239
|
|
Share-based compensation expense
|
|
|
1,609
|
|
|
1,997
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,551
|
)
|
|
(1,981
|
)
|
Inventories, net
|
|
|
(32,427
|
)
|
|
(37,088
|
)
|
Prepaid expenses
|
|
|
596
|
|
|
(447
|
)
|
Accounts payable
|
|
|
25,750
|
|
|
37,142
|
|
Accrued expenses
|
|
|
(5,887
|
)
|
|
(10,202
|
)
|
Income taxes payable
|
|
|
(375
|
)
|
|
(12
|
)
|
Deferred rent
|
|
|
|
|
|
(1,594
|
)
|
Operating lease liabilities
|
|
|
(35,735
|
)
|
|
|
|
Other assets and liabilities
|
|
|
(4,128
|
)
|
|
(3,071
|
)
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(23,947
|
)
|
|
9,463
|
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(4,755
|
)
|
|
(3,705
|
)
|
Insurance recoveries
|
|
|
267
|
|
|
375
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,488
|
)
|
|
(3,330
|
)
|
Financing activities
|
|
|
|
|
|
|
|
Principal payment on capital lease obligations
|
|
|
(1,318
|
)
|
|
(1,320
|
)
|
Payment of financing costs
|
|
|
(139
|
)
|
|
|
|
Shares withheld for payment of employee payroll taxes
|
|
|
(85
|
)
|
|
(309
|
)
|
Repayment of long-term debt
|
|
|
|
|
|
(11,750
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,542
|
)
|
|
(13,379
|
)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(29,977
|
)
|
|
(7,246
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
95,542
|
|
|
90,908
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
65,565
|
|
$
|
83,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Retained
Deficit
|
|
|
|
(Amounts in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Total
|
|
Balance at August 4, 2018
|
|
|
64,440
|
|
$
|
66
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
184,243
|
|
$
|
(90,527
|
)
|
$
|
(481
|
)
|
$
|
88,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options and stock appreciation rights
|
|
|
2
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Restricted stock issued and vesting of units
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeits and shares withheld for employee payroll taxes
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
(138
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
811
|
|
|
|
|
|
|
|
|
811
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,725
|
|
|
|
|
|
1,725
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,725
|
|
|
35
|
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 3, 2018
|
|
|
64,832
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
184,916
|
|
$
|
(88,802
|
)
|
$
|
(446
|
)
|
$
|
90,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Retained
Deficit
|
|
|
|
(Amounts in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Total
|
|
Balance at August 3, 2019
|
|
|
65,292
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
186,313
|
|
$
|
(112,678
|
)
|
$
|
(834
|
)
|
$
|
67,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock appreciation rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued and vesting of units
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeits and shares withheld for employee payroll taxes
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
(26
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
|
257
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,649
|
)
|
|
|
|
|
(11,649
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,649
|
)
|
|
52
|
|
|
(11,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 2, 2019
|
|
|
65,253
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
186,544
|
|
$
|
(124,327
|
)
|
$
|
(782
|
)
|
$
|
56,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
Table of Contents
RTW Retailwinds, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Retained
Deficit
|
|
|
|
(Amounts in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Total
|
|
Balance at February 3, 2018
|
|
|
64,065
|
|
$
|
66
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
183,228
|
|
$
|
(90,797
|
)
|
$
|
(551
|
)
|
$
|
86,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC Topic 606Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,883
|
)
|
|
|
|
|
(5,883
|
)
|
Issuance of common stock upon exercise of stock options and stock appreciation rights
|
|
|
43
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Restricted stock issued and vesting of units
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeits and shares withheld for employee payroll taxes
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
(309
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
1,997
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,878
|
|
|
|
|
|
7,878
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,878
|
|
|
105
|
|
|
7,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 3, 2018
|
|
|
64,832
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
184,916
|
|
$
|
(88,802
|
)
|
$
|
(446
|
)
|
$
|
90,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Retained
Deficit
|
|
|
|
(Amounts in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Total
|
|
Balance at February 2, 2019
|
|
|
64,818
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
185,020
|
|
$
|
(92,450
|
)
|
$
|
(939
|
)
|
$
|
86,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC Topic 842Lease Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,489
|
)
|
|
|
|
|
(10,489
|
)
|
Issuance of common stock upon exercise of stock appreciation rights
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued and vesting of units
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeits and shares withheld for employee payroll taxes
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
(85
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
1,609
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,388
|
)
|
|
|
|
|
(21,388
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,388
|
)
|
|
157
|
|
|
(21,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 2, 2019
|
|
|
65,253
|
|
$
|
67
|
|
|
1,831
|
|
$
|
(5,085
|
)
|
$
|
186,544
|
|
$
|
(124,327
|
)
|
$
|
(782
|
)
|
$
|
56,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
Table of Contents
RTW Retailwinds, Inc.
Notes to Condensed Consolidated Financial Statements
November 2, 2019
(Unaudited)
1. Organization and Basis of Presentation
RTW Retailwinds, Inc. (together with its subsidiaries, the "Company") is a specialty women's omni-channel retailer with a multi-brand
lifestyle platform providing curated fashion solutions that are versatile, on-trend, and stylish at a great value. The specialty retailer, first incorporated in 1918, operates 414 retail and outlet
locations in 35 states and a substantial and growing eCommerce business. The Company's portfolio includes branded merchandise from New York & Company, Fashion to Figure,
Happy x Nature, and collaborations with Eva Mendes, Gabrielle Union and Kate Hudson. The Company's branded merchandise is sold at its retail locations and online at www.nyandcompany.com,
www.fashiontofigure.com, www.happyxnature.com, and through its rental subscription businesses at www.nyandcompanycloset.com and www.fashiontofigurecloset.com. The target customers for the Company's merchandise are women between the ages of 25 and 49.
The
condensed consolidated financial statements as of November 2, 2019 and November 3, 2018 and for the 13 weeks ("three months") and 39 weeks ("nine months")
ended November 2, 2019 and November 3, 2018 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC").
Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 52-week fiscal year
ended February 2, 2019 ("fiscal year 2018"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 17, 2019. The 52-week fiscal year ending
February 1, 2020 is referred to herein as "fiscal year 2019." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
The
Company identifies its operating segments according to how its business activities are managed and evaluated. Its operating segments have been aggregated and are reported as one
reportable segment based on the similar nature of products sold, production process, distribution process, target customers and economic characteristics. All of the Company's revenues are generated in
the United States.
In
the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly
the financial condition, results of operations and cash flows for the interim periods. All significant intercompany balances and transactions have been eliminated in consolidation. Certain totals that
appear in this Quarterly Report on Form 10-Q may not equal the sum of the components due to rounding.
Due
to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.
2. New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which is a comprehensive new lease standard that amends
various aspects of existing accounting guidance for leases. The core principle of ASU 2016-02 requires lessees to present the assets and liabilities that arise from leases on their balance sheets. ASU
2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years and requires modified retrospective adoption with a cumulative effect
adjustment to the opening retained earnings balance. The Company adopted ASU 2016-02 as of February 3, 2019 (the first day of fiscal year 2019). Please refer to Note 3, "Leases," for
further information regarding the adoption of ASU 2016-02.
7
Table of Contents
In
February 2018, the FASB issued ASU 2018-02, "Income StatementReporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income" ("ASU 2018-02"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act of 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2018-02 as of
February 3, 2019. The adoption of ASU 2018-02 did not have a material impact on the Company's financial position or results of operations.
In
June 2016, the FASB issued ASU 2016-13, "Financial InstrumentsCredit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which
changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 requires entities to measure expected losses over the life of
the asset and recognize an allowance for estimated credit losses upon recognition of the financial instrument. A modified-retrospective adoption with a cumulative effect adjustment to retained
earnings is required. The new standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted.
The Company is currently evaluating the adoption of this new standard. However, the Company does not expect there to be a material impact to its financial position or results of operations upon
adoption of ASU 2016-13.
In
August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use-Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That is a Service Contract" ("ASU 2018-15"). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
A modified-retrospective adoption with a cumulative effect adjustment to retained earnings is required. This new guidance will be effective for fiscal years beginning after December 15, 2019
and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the adoption of this new standard. However, the Company does not expect there to be a
material impact to its financial position or results of operations upon adoption of ASU 2018-15.
3. Leases
The Company leases retail business locations, office facilities, office equipment, and automotive equipment under various non-cancelable
operating leases expiring in various years through 2031. Leases on retail business locations typically specify minimum rentals plus common area maintenance charges, real estate taxes, other landlord
charges and possible additional rentals based upon a percentage of sales. Most of the retail business location leases previously had an original term of 10 years and some provide renewal
options at rates specified in the leases. The Company's lease agreements do not contain any material residual value guarantees. As of November 2, 2019, approximately 70% of its store leases
could be terminated by the Company within two years, providing the Company with operating flexibility. The Company leases office space for its corporate headquarters at 330 West
34th Street, New York, New York. The lease for the corporate headquarters expires in 2030.
As
previously disclosed in Note 2, the Company adopted ASU 2016-02 on February 3, 2019, using the transition option to recognize a cumulative adjustment to the opening
retained earnings balance and without adjustment to prior periods. As permitted under the guidance, the Company has elected the package of transition practical expedients which allows the Company to
carry forward its identification of contracts that are or contain leases, its historical lease classification, and indirect costs for existing leases. In addition, the Company has elected the
practical expedient to separate its lease components from non-lease components. The Company has elected to not record short-term leases on its consolidated balance sheet. Short-term leases are leases
with a term of twelve months or less
8
Table of Contents
("short-term
leases"). Instead, the Company recognizes short-term leases on a straight-line basis over the related lease term and does not record a related right-of-use asset or lease liability. The
Company has not elected to apply the hindsight practical expedient.
Adoption
of ASU 2016-02 resulted in the recording of operating lease assets and operating lease liabilities of approximately $238.1 million and $268.4 million,
respectively, as of February 3, 2019. The difference between the additional lease assets and lease liabilities primarily represents adjustments for
initial direct costs, tenant allowances, deferred rent, and the initial right-of-use asset impairment amounts associated with stores with fixed assets that were previously impaired. The adoption of
this standard did not materially impact the Company's condensed consolidated statements of operations or condensed consolidated statements of cash flows.
In
accordance with the new lease standard, the disclosure of the impact of the cumulative effect adjustment to the opening balance of retained deficit on the Company's condensed
consolidated balance sheet on February 3, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2019
(As reported)
|
|
Effect of
ASU 2016-02
Adoption
|
|
February 3, 2019
(As amended)
|
|
|
|
(Amounts in thousands)
|
|
Retained deficit
|
|
$
|
(92,450
|
)
|
$
|
(10,489
|
)
|
$
|
(102,939
|
)
|
The
$10.5 million cumulative effect adjustment primarily represents impairment charges to the right-of-use asset associated with stores with fixed assets that were previously
impaired.
Although
the adoption of ASU 2016-02 did not have a material impact on the operating results for the nine months ended November 2, 2019, the Company could however experience a
material non-cash impact to operating income (loss) as the result of future impairments of the right-of-use asset depending on store performance, among other factors.
Lease Assets and Liabilities
The following table discloses supplemental balance sheet information for the Company's leases:
|
|
|
|
|
|
|
|
|
Classification
|
|
November 2, 2019
|
|
|
|
|
|
(amounts
in thousands)
|
|
Assets
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease assets
|
|
$
|
209,336
|
|
Finance lease assets
|
|
Property and equipment, net
|
|
|
4,283
|
|
|
|
|
|
|
|
|
Total lease assets
|
|
|
|
$
|
213,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Current operating lease liabilities
|
|
$
|
39,233
|
|
Finance
|
|
Accrued expenses
|
|
|
1,292
|
|
Non-current
|
|
|
|
|
|
|
Operating
|
|
Non-current operating lease liabilities
|
|
|
198,761
|
|
Finance
|
|
Other liabilities
|
|
|
1,161
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
|
|
|
$
|
240,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Table of Contents
Lease Cost
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Three months
ended
November 2,
2019
|
|
Nine months
ended
November 2,
2019
|
|
|
|
|
|
(amounts in thousands)
|
|
Operating lease coststores(1)
|
|
Occupancy costs
|
|
$
|
19,013
|
|
$
|
54,965
|
|
Operating lease costoffice space and equipment
|
|
SG&A
|
|
|
2,405
|
|
|
7,205
|
|
Finance lease costs:
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
Occupancy costs/SG&A
|
|
|
357
|
|
|
1,069
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
|
25
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
|
|
$
|
21,800
|
|
$
|
63,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes
$5.2 million of short-term lease costs and $1.0 million of variable lease costs for the three months ended November 2, 2019. Includes
$13.7 million of short-term lease costs and $3.1 million of variable lease costs for the nine months ended November 2, 2019.
Maturity of Lease Liabilities
The following table summarizes the maturity of lease liabilities as of November 2, 2019:
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Operating
leases
|
|
Finance
leases
|
|
|
|
(amounts
in thousands)
|
|
2019
|
|
$
|
10,823
|
|
$
|
316
|
|
2020
|
|
|
55,157
|
|
|
1,365
|
|
2021
|
|
|
44,789
|
|
|
705
|
|
2022
|
|
|
38,142
|
|
|
160
|
|
2023
|
|
|
34,776
|
|
|
|
|
Thereafter
|
|
|
113,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease obligations
|
|
$
|
296,948
|
|
$
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest
|
|
|
58,954
|
|
|
93
|
|
|
|
|
|
|
|
|
|
Present value of lease liabilities
|
|
$
|
237,994
|
|
$
|
2,453
|
|
|
|
|
|
|
|
|
|
The
table above does not include $4.3 million of short-term lease commitments.
10
Table of Contents
Lease Term and Discount Rate
The following table discloses the weighted-average remaining lease term and weighted-average discount rate for the Company's leases, excluding
short-term leases:
|
|
|
|
|
|
|
November 2,
2019
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
|
|
7.1
|
|
Finance leases
|
|
|
2.0
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
|
6.2
|
%
|
Finance leases
|
|
|
3.4
|
%
|
The
discount rate is the rate implicit in the lease unless that rate cannot be readily determined. Most of the Company's leases do not provide an implicit interest rate, therefore, the
Company is required to use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar
term an amount equal to the lease payments in a similar economic environment. The Company used incremental borrowing rates based on information available at the date of adoption of ASU 2016-02.
Other Information
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
Nine months
ended
November 2,
2019
|
|
|
|
(amounts
in thousands)
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
47,397
|
|
Operating cash flows from finance leases
|
|
$
|
74
|
|
Financing cash flows from finance leases
|
|
$
|
1,318
|
|
Lease assets obtained in exchange for new operating lease liabilities
|
|
$
|
4,950
|
|
Lease assets obtained in exchange for new finance lease liabilities
|
|
$
|
|
|
4. Revenue Recognition
The Company recognizes revenue from the sale of merchandise at the Company's stores at the time the customer takes possession of the related
merchandise and the purchases are paid for. Revenue, including shipping fees billed to customers, from the sale of merchandise at the Company's eCommerce websites is recognized when the merchandise is
shipped to the customer and the purchases are paid for. Sales taxes collected from customers are excluded from revenues.
The
Company issues gift cards and merchandise credits which do not contain provisions for expiration or inactivity fees. Revenue from gift cards and merchandise credits is recognized at
redemption. The portion of the dollar value of gift cards and merchandise credits that ultimately is not used by customers to make purchases is known as breakage and will be recognized as revenue if
the Company determines it is not required to escheat such amounts to government agencies under state escheatment laws.
The
Company offers its private label credit card holders a points-based customer loyalty program, in which customers earn points based on purchases (the "Runway Rewards" program). When
customers reach predetermined point thresholds, earned points are converted to rewards that can be redeemed
11
Table of Contents
for
discounts on future purchases of Company merchandise. Under the Runway Rewards program, points earned expire after 12 months if the point threshold for a reward is not attained. Issued
rewards expire after approximately 60 days if they are not redeemed. As rewards are being earned, the Company defers a portion of the revenue equal to the estimated sales value of the reward
that is expected to be redeemed using the standalone selling price method. Revenue is recognized as rewards are redeemed or expire.
The
Company recognizes revenue in connection with its private label credit card agreement with Comenity Bank, a bank subsidiary of Alliance Data Systems Corporation ("ADS") (the "ADS
Agreement"). Pursuant to the terms of the ADS Agreement, ADS has the exclusive right to provide private label credit cards to the Company's customers. The Company's private label credit card is issued
to the Company's customers for use exclusively at the Company's stores and eCommerce websites, and credit is extended to such customers by Comenity Bank on a non-recourse basis to the Company. After
the execution of the ADS Agreement on July 14, 2016, the Company received a $40 million signing bonus, which was recorded as deferred revenue, and is being amortized on a straight-line
basis over the 10-year term of the ADS Agreement. In addition, over the term of the ADS Agreement, the Company receives royalty payments based on a percentage of private label credit card sales, which
the Company recognizes as revenue as it is earned.
The
opening and closing balances of the Company's contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gift Cards & Merchandise
Credits
|
|
Loyalty Rewards
|
|
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
|
|
(Amounts in thousands)
|
|
Beginning balance
|
|
$
|
12,206
|
|
$
|
13,649
|
|
$
|
6,389
|
|
$
|
7,331
|
|
Increase/(decrease)
|
|
|
(1,976
|
)
|
|
(1,569
|
)
|
|
(1,289
|
)
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
10,230
|
|
$
|
12,080
|
|
$
|
5,100
|
|
$
|
7,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities related to gift cards and merchandise credits and loyalty programs are reported in "Accrued expenses" on the condensed consolidated balance sheets.
The
amount of revenue recognized during the three months ended November 2, 2019 and November 3, 2018 that was included in the opening contract liability balance for gift
cards and merchandise credits was $0.4 million and $1.1 million, respectively. The amount of revenue recognized during the nine months ended November 2, 2019 and
November 3, 2018 that was included in the opening contract liability balance for gift cards and merchandise credits was $3.4 million and $5.1 million, respectively. During the
three months ended November 2, 2019 and November 3, 2018, the net revenue impact from rewards issued, redeemed and expired under loyalty reward programs was $0.1 million of
revenue
deferred and $0.4 million of revenue deferred, respectively. During the nine months ended November 2, 2019 and November 3, 2018, the net revenue impact from rewards issued,
redeemed and expired under loyalty reward programs was $1.3 million of revenue recognized and $0.4 million of revenue deferred, respectively.
Deferred
revenue related to the ADS Agreement was $26.0 million at November 2, 2019, of which $22.0 million is included in "Other liabilities" and
$4.0 million is included in "Accrued expenses" on the condensed consolidated balance sheet. As of November 3, 2018, deferred revenue related to the ADS Agreement was
$30.0 million, of which $26.0 million is included in "Other liabilities" and $4.0 million is included in "Accrued expenses" on the condensed consolidated balance sheet. During the
three months ended November 2, 2019 and November 3, 2018, the Company recognized revenue of $5.6 million and $6.0 million, respectively, from royalties and the amortization
of signing bonuses in
12
Table of Contents
connection
with the ADS Agreement. During the nine months ended November 2, 2019 and November 3, 2018, the Company recognized revenue of $16.6 million and $17.6 million,
respectively, from royalties and the amortization of signing bonuses in connection with the ADS Agreement.
5. Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding for the
period. Except when the effect would be anti-dilutive, diluted earnings per share are calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect of
share-based awards calculated under the treasury stock method. A reconciliation between basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
November 2,
2019
|
|
Three months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
Net (loss) income
|
|
$
|
(11,649
|
)
|
$
|
1,725
|
|
$
|
(21,388
|
)
|
$
|
7,878
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
64,420
|
|
|
63,940
|
|
|
64,317
|
|
|
63,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.18
|
)
|
$
|
0.03
|
|
$
|
(0.33
|
)
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
64,420
|
|
|
63,940
|
|
|
64,317
|
|
|
63,738
|
|
Plus impact of share-based awards
|
|
|
|
|
|
2,349
|
|
|
|
|
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
64,420
|
|
|
66,289
|
|
|
64,317
|
|
|
65,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.18
|
)
|
$
|
0.03
|
|
$
|
(0.33
|
)
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
calculation of diluted earnings per share for the three and nine months ended November 2, 2019 and November 3, 2018 excludes the share-based awards listed in the
following table due to their anti-dilutive effect as determined under the treasury stock method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
November 2,
2019
|
|
Three months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
|
|
(Amounts in thousands)
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Stock appreciation rights(1)
|
|
|
2,102
|
|
|
846
|
|
|
2,173
|
|
|
339
|
|
Restricted stock and units
|
|
|
727
|
|
|
313
|
|
|
634
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
2,829
|
|
|
1,159
|
|
|
2,807
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Each
stock appreciation right ("SAR") referred to above represents the right to receive a payment measured by the increase in the fair market value of one share of
common stock from the date of grant of the SAR to the date of exercise of the SAR. Upon exercise, the SARs will be settled in the Company's common stock.
6. Pension Plan
The Company sponsors a single employer defined benefit pension plan ("plan") covering substantially all union employees. Employees covered by
collective bargaining agreements are primarily
13
Table of Contents
non-management
store associates, representing approximately 6% of the Company's workforce at November 2, 2019. The collective bargaining agreement with the Local 1102 unit of the Retail,
Wholesale and Department Store Union AFL-CIO is in effect through August 31, 2021.
The
plan provides retirement benefits for union employees who have attained the age of 21 and complete 1,000 or more hours of service in any calendar year following the date of
employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to annually contribute the amount necessary to provide for benefits based on
accrued service and to contribute at least the minimum required by ERISA rules. Net periodic benefit cost includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
November 2,
2019
|
|
Three months
ended
November 3,
2018
|
|
Nine months
ended
November 2,
2019
|
|
Nine months
ended
November 3,
2018
|
|
|
|
(Amounts in thousands)
|
|
Service cost
|
|
$
|
97
|
|
$
|
97
|
|
$
|
290
|
|
$
|
290
|
|
Interest cost
|
|
|
79
|
|
|
76
|
|
|
236
|
|
|
229
|
|
Expected return on plan assets
|
|
|
(130
|
)
|
|
(140
|
)
|
|
(388
|
)
|
|
(421
|
)
|
Amortization of unrecognized losses
|
|
|
56
|
|
|
39
|
|
|
168
|
|
|
117
|
|
Amortization of prior service credit
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(11
|
)
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
98
|
|
$
|
68
|
|
$
|
295
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with FASB ASC Topic 220, "Comprehensive Income," comprehensive (loss) income reported on the Company's condensed consolidated statements of comprehensive (loss) income
includes net (loss) income and other comprehensive income. For the Company, other comprehensive income consists of the reclassification of unrecognized losses and prior service credits related to the
Company's minimum pension liability. The total amount of unrecognized losses and prior service credits of the plan reclassified out of "Accumulated other comprehensive loss" on the condensed
consolidated balance sheets and into "Selling, general, and administrative expenses" on the Company's condensed consolidated statements of operations for the three months ended November 2, 2019
and November 3, 2018 was approximately $52,000 and $35,000, respectively, and for the nine months ended November 2, 2019 and November 3, 2018 was approximately $157,000 and
$105,000, respectively. As of February 2, 2019, the Company reported a minimum pension liability of $1.4 million due to the underfunded status of the plan. The minimum pension liability
is reported in "Other liabilities" on the condensed consolidated balance sheets.
7. Income Taxes
The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. The Company is no
longer subject to U.S. federal income tax examinations for tax years through 2014. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years
through 2014.
At
February 2, 2019, the Company reported a total liability for unrecognized tax benefits of $2.4 million, including interest and penalties. There have been no material
changes during the nine months ended November 2, 2019. Of the total $2.4 million of unrecognized tax benefits at February 2, 2019, approximately $1.3 million, if
recognized, would impact the Company's effective tax rate. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next
12 months.
The
Company continues to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the
future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the
14
Table of Contents
more
likely than not standard under ASC Topic 740, "Income Taxes," the applicable valuation allowance would be reversed accordingly in the period that such determination is made. As of
November 2, 2019, the Company's valuation allowance against its deferred tax assets was $61.7 million.
8. Long-Term Debt and Credit Facilities
On October 24, 2019, RTW Retailwinds, Inc. and its wholly-owned direct and indirect subsidiaries, including Lerner New
York, Inc., Lernco, Inc., Lerner New York Outlet, LLC, Lerner New York FTF, LLC, Lerner New York Holding, Inc., New York & Company Stores, Inc., Lerner
New York GC, LLC and FTF GC, LLC entered into Amendment No. 1 to Fourth Amended and Restated Loan and Security Agreement and Joinder (the "Amendment") with Wells Fargo Bank,
National Association, as administrative agent and lender, which amends that certain Fourth Amended and Restated Loan and Security Agreement, dated October 24, 2014 (the "Existing Agreement", as
amended by the Amendment, the "Loan Agreement"). The Existing Agreement was scheduled to mature on October 24, 2019. All capitalized terms used herein without definition have the meanings
ascribed to such terms in the Loan Agreement.
The
amendment to the Existing Agreement provides for, but is not limited to: (i) an extension of the term of the revolving credit facility to October 24, 2024;
(ii) a reduction of interest rates related to the revolving credit facility (see below); (iii) a reduction of certain fees related to the revolving credit facility (see below); and
(iv) a release of certain intangible assets as collateral.
The
maximum revolving credit facility commitment remains unchanged, providing the Company with up to $100 million of credit, consisting of a $75 million revolving credit
facility (which includes a sub-facility for issuance of letters of credit up to $45 million), and a fully committed accordion option that allows the Company to increase the revolving credit
facility up to $100 million in the aggregate or decrease it to a minimum of $60 million in the aggregate, subject to certain restrictions. Borrowing availability under the Company's
revolving credit facility is determined by a monthly borrowing base calculation based on applying specified advance rates against inventory and certain other eligible assets. Under the Loan Agreement,
the Company continues to be subject to a Minimum Excess Availability covenant equal to the greater of (i) 10% of the revolving credit facility commitment and (ii) $7.5 million.
The Loan
Agreement contains other covenants and conditions, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or
purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes.
Under
the terms of the Loan Agreement, the interest rates applicable to Revolving Loans have been reduced by 25 basis points. At the Company's option, Revolving Loans now bear interest
at either (i) a floating rate equal to the LIBOR plus a margin of between 1.25% and 1.50% per year for LIBOR Rate Loans or (ii) a floating rate equal to the Base Rate plus a margin of
between 0.25% and 0.50% per year for Base Rate Loans, with each such margin determined based upon the Company's Average Compliance Excess Availability. The fees the Company pays to the Lenders under
the Loan Agreement have also been reduced and now the Company pays a monthly fee on outstanding commercial letters of credit at a rate of between 0.625% and 0.75% per year and on standby letters of
credit at a rate of between 1.25% and 1.50% per year, with each such rate determined upon the Company's Average Compliance Excess Availability, plus a monthly fee on a proportion of the unused
commitments under the Loan Agreement, which has been reduced to a rate of 0.20% per year.
On
April 5, 2018, the Company used cash on-hand to prepay in full the $11.5 million outstanding balance of a $15 million, 5-year term loan under the Existing
Agreement. The Company can no longer borrow funds under the term loan.
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The
maximum borrowing availability under the Loan Agreement is determined by a monthly borrowing base calculation based on applying specified advance rates against inventory and certain
other eligible assets. As of November 2, 2019, the Company had availability under the Loan Agreement of $64.6 million, net of letters of credit outstanding of $10.4 million, as
compared to availability of $35.0 million, net of letters of credit outstanding of $11.9 million, as of February 2, 2019, and availability of $59.9 million, net of letters
of credit outstanding of $13.0 million, as of November 3, 2018. The $10.4 million of letters of credit outstanding at November 2, 2019 represent $10.1 million of
standby letters of credit primarily related to the Company's corporate headquarters and certain insurance contracts and $0.3 million of commercial letters of credit. Standby letters of credit
related to the Company's corporate headquarters were reduced by $2.0 million in November 2019. As of November 2, 2019, the Company had no borrowings outstanding under the Loan Agreement.
The
lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially
all other tangible assets of RTW Retailwinds, Inc. and its subsidiaries, as collateral for the Company's obligations under the Loan Agreement. In addition, RTW Retailwinds, Inc. and
certain of its subsidiaries have fully and unconditionally guaranteed the obligations under the Loan Agreement, and such guarantees are joint and several.
9. Fair Value Measurements
The Company measures fair value in accordance with FASB ASC Topic 820, "Fair Value Measurements" ("ASC 820"). ASC 820 establishes a three-level
fair value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure
fair value are as follows:
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Level 1:
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Observable inputs such as quoted prices in active markets;
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Level 2:
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Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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Level 3:
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Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.
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The
carrying values on the balance sheets for cash and cash equivalents, short-term trade receivables and accounts payable approximate their fair values due to the short-term maturities
of such items.
The
Company classifies long-lived store assets and operating lease assets within Level 3 of the fair value hierarchy. The Company evaluates the impairment of long-lived assets in
accordance with ASC Topic 360, "Property, Plant and Equipment." Long-lived assets are evaluated for recoverability whenever events or changes in circumstances indicate that an asset may have been
impaired. The evaluation is performed at the individual store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and
liabilities. In evaluating long-lived assets for recoverability, the Company estimates the future cash flows at the individual store level that are expected to result from the use of each store's
assets based on historical experience, omni-channel strategy, knowledge and market data assumptions. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the
long-lived assets, an impairment loss, equal to the excess of the carrying amount over the fair value of the assets, is recognized. During the three and nine months ended November 2, 2019, the
Company recorded $0.4 million and $0.8 million of non-cash impairment charges related to underperforming store assets in "Selling, general and administrative expenses" on the Company's
condensed consolidated statement of operations, respectively. During the nine months ended November 3, 2018, the Company recorded $0.5 million of non-cash impairment charges related to
underperforming store assets in "Selling, general and administrative expenses" on the Company's condensed consolidated statement of operations. There were no asset impairment charges recorded during
the three months ended November 3, 2018.
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