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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

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

FOR THE QUARTERLY PERIOD ENDED OCTOBER 29, 2016

OR

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

Commission file number 000-51300

 

 

ZUMIEZ INC.

(Exact name of registrant as specified in its charter)

 

 

Washington

 

91-1040022

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

4001 204th Street SW, Lynnwood, WA 98036

(Address of principal executive offices)  (Zip Code)

Registrant’s telephone number, including area code: (425) 551-1500

 

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

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

At December 1, 2016, there were 24,897,189 shares outstanding of common stock.

 

 

 


ZUMIEZ INC.

FORM 10-Q

TABLE OF CONTENTS

 

Part I.

Financial Information

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at October 29, 2016 (unaudited) and January 30, 2016

3

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Income for the three and nine months ended October 29, 2016 and October 31, 2015

4

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the   three and nine months ended October 29, 2016 and October 31, 2015

5

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended October 29, 2016  and October 31, 2015

6

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 29, 2016 and October 31, 2015

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

 

Part II.

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

31

 

 

 

 

 

Item 1A.

Risk Factors

31

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

 

 

Item 5.

Other Information

31

 

 

 

 

 

Item 6.

Exhibits

32

 

 

 

 

Signature

33

 

 

2


ZUMIEZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

October 29, 2016

 

 

January 30, 2016

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

18,001

 

 

 

$

43,163

 

Marketable securities

 

31,169

 

 

32,391

 

Receivables

 

14,265

 

 

12,840

 

Inventories

 

150,623

 

 

98,299

 

Prepaid expenses and other current assets

 

14,199

 

 

12,204

 

Total current assets

 

228,257

 

 

198,897

 

 

 

 

 

 

 

 

Fixed assets, net

 

135,325

 

 

137,233

 

Goodwill

 

56,920

 

 

54,245

 

Intangible assets, net

 

14,900

 

 

11,766

 

Deferred tax assets, net

 

9,533

 

 

4,634

 

Other long-term assets

 

8,093

 

 

7,920

 

Total long-term assets

 

224,771

 

 

215,798

 

 

 

 

 

 

 

 

Total assets

 

 

$

453,028

 

 

 

$

414,695

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade accounts payable

 

 

$

58,088

 

 

 

$

21,919

 

Accrued payroll and payroll taxes

 

12,000

 

 

12,466

 

Income taxes payable

 

4,310

 

 

4,066

 

Deferred rent and tenant allowances

 

8,276

 

 

8,116

 

Short-term borrowings

 

 

 

11,787

 

 

 

Other liabilities

 

21,582

 

 

22,575

 

Total current liabilities

 

116,043

 

 

69,142

 

 

 

 

 

 

 

 

Long-term deferred rent and tenant allowances

 

42,715

 

 

43,779

 

Other long-term liabilities

 

4,839

 

 

4,817

 

Total long-term liabilities

 

47,554

 

 

48,596

 

 

 

 

 

 

 

 

Total liabilities

 

163,597

 

 

117,738

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Preferred stock, no par value, 20,000 shares authorized; none issued and outstanding

 

 

 

 

Common stock, no par value, 50,000 shares authorized; 24,899 shares issued and outstanding at October 29, 2016 and 25,708 shares issued and outstanding at January 30, 2016

 

139,758

 

 

135,013

 

Accumulated other comprehensive loss

 

(14,698)

 

 

(15,247)

 

Retained earnings

 

164,371

 

 

177,191

 

Total shareholders’ equity

 

289,431

 

 

296,957

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

 

$

453,028

 

 

 

$

414,695

 

 

See accompanying notes to condensed consolidated financial statements

 

3


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 29, 2016

 

 

 

October 31, 2015

 

 

October 29, 2016

 

 

 

October 31, 2015

 

Net sales

 

$

 

221,391

 

 

$

 

204,320

 

 

$

 

572,634

 

 

$

 

561,749

 

Cost of goods sold

 

 

 

145,213

 

 

 

 

134,261

 

 

 

 

391,653

 

 

 

 

377,382

 

Gross profit

 

 

 

76,178

 

 

 

 

70,059

 

 

 

 

180,981

 

 

 

 

184,367

 

Selling, general and administrative expenses

 

 

 

59,265

 

 

 

 

54,835

 

 

 

 

169,144

 

 

 

 

159,706

 

Operating profit

 

 

 

16,913

 

 

 

 

15,224

 

 

 

 

11,837

 

 

 

 

24,661

 

Interest (expense) income, net

 

 

 

(37

)

 

 

 

84

 

 

 

 

22

 

 

 

 

440

 

Other income (expense), net

 

 

 

11

 

 

 

 

(71

)

 

 

 

253

 

 

 

 

(227

)

Earnings before income taxes

 

 

 

16,887

 

 

 

 

15,237

 

 

 

 

12,112

 

 

 

 

24,874

 

Provision for income taxes

 

 

 

6,192

 

 

 

 

5,584

 

 

 

 

4,392

 

 

 

 

9,238

 

Net income

 

$

 

10,695

 

 

$

 

9,653

 

 

$

 

7,720

 

 

$

 

15,636

 

Basic earnings per share

 

$

 

0.44

 

 

$

 

0.36

 

 

$

 

0.31

 

 

$

 

0.56

 

Diluted earnings per share

 

$

 

0.43

 

 

$

 

0.36

 

 

$

 

0.31

 

 

$

 

0.55

 

Weighted average shares used in computation of earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

24,485

 

 

 

 

26,467

 

 

 

 

24,798

 

 

 

 

27,973

 

Diluted

 

 

 

24,622

 

 

 

 

26,602

 

 

 

 

24,982

 

 

 

 

28,178

 

 

See accompanying notes to condensed consolidated financial statements

 

4


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 29, 2016

 

 

October 31, 2015

 

 

October 29, 2016

 

 

October 31, 2015

 

Net income

 

$

10,695

 

 

$

9,653

 

 

$

7,720

 

 

$

15,636

 

Other comprehensive (loss) income, net of tax and

   reclassification adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(1,888

)

 

 

67

 

 

 

441

 

 

 

(2,608

)

Net change in unrealized gain/loss on available-for-sale

   securities

 

 

(8

)

 

 

15

 

 

 

108

 

 

 

(34

)

Other comprehensive (loss) income, net

 

 

(1,896

)

 

 

82

 

 

 

549

 

 

 

(2,642

)

Comprehensive income

 

$

8,799

 

 

$

9,735

 

 

$

8,269

 

 

$

12,994

 

 

See accompanying notes to condensed consolidated financial statements

 

5


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 30, 2016

 

 

25,708

 

 

$

135,013

 

 

$

(15,247

)

 

$

177,191

 

 

$

296,957

 

Net income

 

 

 

 

 

 

 

 

 

 

 

7,720

 

 

 

7,720

 

Other comprehensive income, net

 

 

 

 

 

 

 

 

 

549

 

 

 

 

 

 

549

 

Issuance and exercise of stock-based awards, including net tax

   loss of $809

 

 

386

 

 

 

1,346

 

 

 

 

 

 

 

 

 

1,346

 

Stock-based compensation expense

 

 

 

 

 

3,399

 

 

 

 

 

 

 

 

 

3,399

 

Repurchase of common stock

 

 

(1,195

)

 

 

 

 

 

 

 

 

(20,540

)

 

 

(20,540

)

Balance at October 29, 2016

 

 

24,899

 

 

$

139,758

 

 

$

(14,698

)

 

$

164,371

 

 

$

289,431

 

 

 

 

Common Stock

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 31, 2015

 

 

29,418

 

 

$

129,094

 

 

$

(11,278

)

 

$

241,708

 

 

$

359,524

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,636

 

 

 

15,636

 

Other comprehensive loss, net

 

 

 

 

 

 

 

 

(2,642

)

 

 

 

 

 

(2,642

)

Issuance and exercise of stock-based awards, including net tax

   benefit of $714

 

 

241

 

 

 

866

 

 

 

 

 

 

 

 

 

866

 

Stock-based compensation expense

 

 

 

 

 

3,843

 

 

 

 

 

 

 

 

 

3,843

 

Repurchase of common stock

 

 

(2,976

)

 

 

 

 

 

 

 

 

(77,697

)

 

 

(77,697

)

Balance at October 31, 2015

 

 

26,683

 

 

$

133,803

 

 

$

(13,920

)

 

$

179,647

 

 

$

299,530

 

 

See accompanying notes to condensed consolidated financial statements

 

6


ZUMIEZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

October 29, 2016

 

 

October 31, 2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

7,720

 

 

$

15,636

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

21,178

 

 

 

23,158

 

Deferred taxes

 

 

(4,983

)

 

 

(5,223

)

Stock-based compensation expense

 

 

3,399

 

 

 

3,843

 

Excess tax benefit from stock-based compensation

 

 

 

 

 

(714

)

Other

 

 

221

 

 

 

1,222

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(1,361

)

 

 

(3,211

)

Inventories

 

 

(51,047

)

 

 

(40,571

)

Prepaid expenses and other current assets

 

 

(3,183

)

 

 

(1,127

)

Trade accounts payable

 

 

35,873

 

 

 

15,951

 

Accrued payroll and payroll taxes

 

 

(631

)

 

 

(3,231

)

Income taxes payable

 

 

(708

)

 

 

(964

)

Deferred rent and tenant allowances

 

 

(1,035

)

 

 

3,924

 

Other liabilities

 

 

(1,459

)

 

 

(8,217

)

Net cash provided by operating activities

 

 

3,984

 

 

 

476

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to fixed assets

 

 

(16,829

)

 

 

(27,115

)

Acquisition, net of cash acquired

 

 

(5,395

)

 

 

 

Purchases of marketable securities and other investments

 

 

(48,232

)

 

 

(58,641

)

Sales and maturities of marketable securities and other investments

 

 

49,986

 

 

 

144,446

 

Net cash (used in) provided by investing activities

 

 

(20,470

)

 

 

58,690

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

17,849

 

 

 

33,504

 

Payments on revolving credit facilities

 

 

(5,813

)

 

 

(32,393

)

Repurchase of common stock

 

 

(21,607

)

 

 

(77,697

)

Proceeds from exercise of stock-based awards, net of withholding tax

 

 

756

 

 

 

678

 

Excess tax benefit from stock-based compensation

 

 

 

 

 

714

 

Net cash used in financing activities

 

 

(8,815

)

 

 

(75,194

)

Effect of exchange rate changes on cash and cash equivalents

 

 

139

 

 

 

(50

)

Net decrease in cash and cash equivalents

 

 

(25,162

)

 

 

(16,078

)

Cash and cash equivalents, beginning of period

 

 

43,163

 

 

 

20,862

 

Cash and cash equivalents, end of period

 

$

18,001

 

 

$

4,784

 

Supplemental disclosure on cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for income taxes

 

$

10,042

 

 

$

15,348

 

Accrual for purchases of fixed assets

 

 

2,236

 

 

 

5,487

 

 

See accompanying notes to condensed consolidated financial statements

 

7


ZUMIEZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Nature of Business and Basis of Presentation

Nature of Business—Zumiez Inc., including its wholly owned subsidiaries, (the “Company,” “we,” “us,” “its” and “our”) is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through the fashion, music, art and culture of action sports, streetwear, and other unique lifestyles.  At October 29, 2016, we operated 688 stores; 608 in the United States (“U.S.”), 47 in Canada, 28 in Europe, and 5 in Australia.  We operate under the names Zumiez, Blue Tomato, and Fast Times.  Additionally, we operate ecommerce websites at www.zumiez.com, www.blue-tomato.com, and www.fasttimes.com.au.

In August 2016, we acquired 100% of the outstanding stock of Fast Times Skateboarding (“Fast Times”) for $7.1 million paid in $5.7 million of cash and $1.4 million in shares of common stock.  Fast Times is an Australian specialty retailer of skateboards, hardware, apparel and footwear. Fast Times currently operates 5 stores and a website. All assets and liabilities assumed were measured at fair value on the date of the acquisition and primarily consisted of inventory, fixed assets, intangible assets and goodwill.

Fiscal Year—We use a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31.  Each fiscal year consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years.  The three months ended October 29, 2016 and October 31, 2015 were 13-week periods.  The nine months ended October 29, 2016 and October 31, 2015 were 39-week periods.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited condensed consolidated financial statements include the accounts of Zumiez Inc. and its wholly-owned subsidiaries.  All significant intercompany transactions and balances are eliminated in consolidation.

In our opinion, the unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated balance sheets, operating results and cash flows for the periods presented.

The financial data at January 30, 2016 is derived from audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended January 30, 2016, and should be read in conjunction with the audited consolidated financial statements and notes thereto.  Interim results are not necessarily indicative of results for the full fiscal year due to seasonality and other factors.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period.  These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk and financial condition.  Actual results could differ from these estimates and assumptions.

Segment Reporting—We identify our operating segments according to how our business activities are managed and evaluated.  Our operating segments have been aggregated and are reported as one reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers and economic characteristics.

Recent Accounting Standards—In March 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (ASU) as part of its simplification initiative that includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Upon the adoption of the ASU, excess tax benefits and deficiencies for share-based payments are recorded as an adjustment of income taxes and reflected in operating cash flows rather than recorded in equity and reported in financing cash flows.  The guidance allows for the employer to withhold up to the maximum statutory tax rates in the applicable jurisdictions without triggering liability accounting.  The guidance also allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for the fiscal year beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of this standard on our condensed consolidated financial statements.

8


In February 2016, the FASB issued a comprehensive standard related to lease accounting to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Most significantly, the new guidance requires lessees to recognize operating leases with a term of more than 12 months as lease assets and lease liabilities. The adoption will require a modified retrospective approach at the beginning of the earliest period presented. The new standard is effective for the fiscal year beginning after December 15, 2018, with early adoption permitted. We are evaluating the impact of this standard on our condensed consolidated financial statements.

In January 2016, the FASB issued a new standard related primarily to accounting for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income for equity securities with readily determinable fair values. The new standard will be effective for the fiscal year beginning after December 15, 2017 and early adoption is permitted. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

In July 2015, the FASB issued guidance simplifying the measurement of inventory. This standard requires entities that use inventory methods other than the last-in, first-out (LIFO) or retail inventory method to measure inventory at the lower of cost or net realizable value, which is defined as the estimated selling prices in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation. We are required to adopt this guidance for the fiscal year beginning after December 15, 2016. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

In May 2014, the FASB issued a comprehensive new revenue recognition standard.  The new standard allows for a full retrospective approach to transition or a modified retrospective approach.  This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2016.  In August 2015, the FASB issued updated guidance deferring the effective date for the fiscal year beginning after December 15, 2017 and will permit early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating the method of adoption we plan to use and the effect the standard is expected to have on our condensed consolidated financial statements.

 

 

2. Cash, Cash Equivalents and Marketable Securities

The following tables summarize the estimated fair value of our cash, cash equivalents and marketable securities and the gross unrealized holding gains and losses (in thousands):

 

 

 

October 29, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

16,563

 

 

$

 

 

$

 

 

$

16,563

 

Money market funds

 

 

1,438

 

 

 

 

 

 

 

 

 

1,438

 

Total cash and cash equivalents

 

 

18,001

 

 

 

 

 

 

 

 

 

18,001

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local government securities

 

 

23,930

 

 

 

6

 

 

 

(12

)

 

 

23,924

 

Variable-rate demand notes

 

 

7,245

 

 

 

 

 

 

 

 

 

7,245

 

Total marketable securities

 

$

31,175

 

 

$

6

 

 

$

(12

)

 

$

31,169

 

9


 

 

 

January 30, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

Losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

33,608

 

 

$

 

 

$

 

 

$

33,608

 

Money market funds

 

 

9,555

 

 

 

 

 

 

 

 

 

9,555

 

Total cash and cash equivalents

 

 

43,163

 

 

 

 

 

 

 

 

 

43,163

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local government securities

 

 

32,754

 

 

 

8

 

 

 

(187

)

 

 

32,575

 

Variable-rate demand notes

 

 

644

 

 

 

 

 

 

 

 

 

644

 

Total marketable securities

 

$

33,398

 

 

$

8

 

 

$

(187

)

 

$

33,219

 

Less:  Long-term marketable securities (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(828

)

Total current marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

$

32,391

 

 

(1)

At January 30, 2016, we held one auction rate security, classified as available-for-sale marketable securities and included in other long-term assets on the condensed consolidated balance sheet.

All of our available-for-sale securities have an effective maturity date of two years or less and may be liquidated, at our discretion, prior to maturity.

The following tables summarize the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time that individual securities have been in a continuous loss position (in thousands):

 

 

 

October 29, 2016

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local government securities

 

 

10,437

 

 

 

(11

)

 

 

302

 

 

 

(1

)

 

 

10,739

 

 

 

(12

)

Total marketable securities

 

$

10,437

 

 

$

(11

)

 

$

302

 

 

$

(1

)

 

$

10,739

 

 

$

(12

)

 

 

 

January 30, 2016

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local government securities

 

 

16,884

 

 

 

(15

)

 

 

853

 

 

 

(172

)

 

 

17,737

 

 

 

(187

)

Total marketable securities

 

$

16,884

 

 

$

(15

)

 

$

853

 

 

$

(172

)

 

$

17,737

 

 

$

(187

)

 

We did not record a realized loss for other-than-temporary impairments during the three and nine months ended October 29, 2016 or October 31, 2015.

 

 

3. Commitments and Contingencies

Leases—We lease our stores and certain corporate and other operating facilities under operating leases.  Total rent expense is as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 29, 2016

 

 

October 31, 2015

 

 

October 29, 2016

 

 

October 31, 2015

 

Minimum rent expense

 

$

18,803

 

 

$

17,518

 

 

$

55,213

 

 

$

51,462

 

Contingent rent expense

 

 

674

 

 

 

531

 

 

 

1,547

 

 

 

1,270

 

Total rent expense (1)

 

$

19,477

 

 

$

18,049

 

 

$

56,760

 

 

$

52,732

 

10


 

(1)

Total rent expense does not include real estate taxes, insurance, common area maintenance charges and other executory costs, which were $10.2 million and $30.7 million for the three and nine months ended October 29, 2016 and $9.7 million and $28.7 million for the three and nine months ended October 31, 2015.

A majority of our leases provide for ongoing co-tenancy requirements or early cancellation clauses that would further lower rental rates, or permit lease terminations, or both, in the event that co-tenants cease to operate for specific periods or if certain sales levels are not met in specific periods.  Most of the store leases require payment of a specified minimum rent and a contingent rent based on a percentage of the store’s net sales in excess of a specified threshold, as well as real estate taxes, insurance, common area maintenance charges and other executory costs.  Future minimum lease payments at October 29, 2016 are as follows (in thousands):

 

Fiscal 2016

 

$

17,668

 

Fiscal 2017

 

 

66,715

 

Fiscal 2018

 

 

61,871

 

Fiscal 2019

 

 

55,081

 

Fiscal 2020

 

 

51,249

 

Thereafter

 

 

163,711

 

Total (1)

 

$

416,295

 

 

(1)

Amounts in the table do not include contingent rent and real estate taxes, insurance, common area maintenance charges and other executory costs obligations.

Purchase Commitments—At October 29, 2016, we had outstanding purchase orders to acquire merchandise from vendors of $153.0 million.  We have an option to cancel these commitments with no notice prior to shipment, except for certain private label and international purchase orders in which we are obligated to repay contractual amounts upon cancellation.

Litigation—We are involved from time to time in claims, proceedings and litigation arising in the ordinary course of business.  We have made accruals with respect to these matters, where appropriate, which are reflected in our condensed consolidated financial statements.  For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made.  We may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if we believe settlement is in the best interest of our shareholders.

Insurance Reserves—We use a combination of third-party insurance and self-insurance for a number of risk management activities including workers’ compensation, general liability and employee-related health care benefits.  We maintain reserves for our self-insured losses, which are estimated based on historical claims experience and actuarial and other assumptions.  The self-insurance reserve at October 29, 2016 and January 30, 2016 was $2.8 million and $2.1 million.

 

 

4. Revolving Credit Facilities and Debt

On February 5, 2016, the Company entered into an asset-based revolving credit agreement with Wells Fargo Bank, National Association, which provides for a senior secured revolving credit facility of up to $100 million (“ABL Facility”), subject to a borrowing base, with a letter of credit sub-limit of $10 million. The ABL Facility is available for working capital and other general corporate purposes.  The ABL Facility replaced our $25.0 million secured revolving credit facility with Wells Fargo, which was entered into on July 9, 2014.  The ABL Facility will mature on February 5, 2021.

The ABL Facility is secured by a first-priority security interest in substantially all of the personal property (but not the real property) of the borrowers and guarantors.  Amounts borrowed under the ABL Facility bear interest, at the Company’s option, at either an adjusted LIBOR rate plus a margin of 1.25% to 1.75% per annum, or an alternate base rate plus a margin of 0.25% to 0.75% per annum. The Company is also required to pay a fee of 0.25% per annum on undrawn commitments under the ABL Facility. Customary agency fees and letter of credit fees are also payable in respect of the ABL Facility.

There were no borrowings outstanding under the ABL Facility at October 29, 2016 or the replaced secured revolving credit facility at January 30, 2016. We had no open commercial letters of credit outstanding under these lines of credit at October 29, 2016 and at January 30, 2016.

Additionally, we have revolving lines of credit of up to $22.4 million, the proceeds of which are used to fund certain international operations.  The revolving lines of credit bear interest at 1.65%. There were $11.8 million borrowings outstanding at October 29, 2016

11


and no borrowings outstanding at January 30, 2016. We had no open commercial letters of credit outstanding under these lines of credit at October 29, 2016 and at January 30, 2016.

 

 

5. Fair Value Measurements

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

Level 1— Quoted prices in active markets for identical assets or liabilities;

 

Level 2— Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and

 

Level 3— Inputs that are unobservable.

The following tables summarize assets measured at fair value on a recurring basis (in thousands):

 

 

 

October 29, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

1,438

 

 

$

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

State and local government securities

 

 

 

 

 

23,924

 

 

 

 

Variable-rate demand notes

 

 

 

 

 

7,245

 

 

 

 

Other long-term assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

1,832

 

 

 

 

 

 

 

Equity investments

 

 

 

 

 

 

 

 

119

 

Total

 

$

3,270