SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative
(SG&A) expenses, including warehousing and receiving expenses, as a percentage of net revenues, increased 10 basis points to 39.5% for the three months ended March 31, 2012 as
compared to 39.4% for the three months ended March 31, 2011. Included in SG&A for the three months ended March 31, 2012 is $1.7 million of deferred compensation plan liability charges,
which dollar-for-dollar offset income and realized gains related to investments within the deferred compensation plan recorded in Interest and other income, net. Excluding these charges,
SG&A, as a percentage of net revenues, decreased 140 basis points to 38.0%. Total SG&A decreased $0.1 million to $46.2 million for the three months ended March 31, 2012 from $46.3
million for the three months ended March 31, 2011. The decrease in SG&A expenses was driven primarily by a reduction in operating expenses from store closures in the prior year offset
by costs associated with the startup of the womens sportswear business and the deferred compensation plan liability charges. In April 2012, one of the Companys third-party
logistics vendors (3PL) notified the Company it will be ceasing its warehousing and distribution operations during the second quarter ended June 30, 2012. The Company has an
agreement to replace the 3PL and is transitioning to a new 3PL as the current 3PL winds down its operations. The Company expects to incur certain additional charges during the transition
with limited disruption to its business in the second quarter of 2012.
SEVERANCE, STORE CLOSING AND COSTS IN CONNECTION WITH PROPOSED
TRANSACTION: During the three months ended March 31, 2012, the
Company incurred $0.5 million of costs in connection with the
non-binding proposal of the Company's Chairman of the Board, Mr.
Cole, to acquire all of the Company's outstanding Class A Common
Stock. Further, approximately $0.3 million of severance was recorded
during the three months ended March 31, 2012 compared to $5.5 million
during the three months ended March 31, 2011. The Company closed two
stores during the three months ended March 31, 2012 that incurred
nominal costs to close the stores compared to closing eight stores
during the three months ended March 31, 2011 for approximately $7.0
million in net costs from contract lease terminations and other
related costs to close the stores.
INTEREST AND OTHER INCOME, NET: Interest and other income, net
increased $1.6 million to approximately $1.7 million for the three
months ended March 31, 2012 as compared to $0.1 million for the three
months ended March 31, 2011. The increase is primarily due to the
Company recording $1.7 million of income and realized gains related
to investments within the deferred compensation plans' assets which
offset charges in SG&A during the three months ended March 31, 2012.
INCOME TAXES: The Company's effective tax rate was 9.0% for the three
months ended March 31, 2012 compared to 0.8% for the three months
ended March 31, 2011. Income tax expense in each period is comprised
of state, local, and foreign jurisdiction taxes.
NET LOSS: As a result of the foregoing, the Company recorded a net
loss of $1.9 million or (1.6)% of net revenues for the three months
ended March 31, 2012 as compared to $17.2 million, or (14.6)% of net
revenues for the three months ended March 31, 2011.
Related Party Transaction
Please refer to Footnote 11 for the Company's related party
transaction disclosure.
Liquidity and Capital Resources
As of March 31, 2012, the Company had $48.9 million in cash and cash
equivalents, which consist primarily of overnight bank demand
deposits and short-term government money market funds. The Company
uses cash from operations as the primary source of financing its
capital expenditures and seasonal requirements. Cash needs vary from
time to time as a result of the timing of the receipt of merchandise
from suppliers, the delivery by the Company of merchandise to its
wholesale customers and its retail stores and the level of inventory
and accounts receivable balances. At March 31, 2012 and December 31,
2011, working capital was $94.5 million and $92.3 million,
respectively.
Net cash used in operating activities was $10.2 million for the three
months ended March 31, 2012, compared to $28.8 million for the three
months ended March 31, 2011. The decrease in cash used in operating
activities was primarily attributable to a decrease in net loss and
the timing of receivables and payables.
Net cash used in investing activities totaled $1.1 million for the
three months ended March 31, 2012 compared to $15.4 million for the
three months ended March 31, 2011. The decrease resulted primarily
from the $15.0 million that had been deposited into a restricted cash
account in the prior year to serve as collateral for irrevocable
standby and open letters of credit.
Net cash provided by financing activities was $2.2 million for the
three months ended March 31, 2012 compared to $0.2 million for the
three months ended March 31, 2011. The increase was primarily
attributable to a $2.0 million increase in proceeds from the exercise
of stock options during the three months ended March 31, 2012.
On August 12, 2011 the Company entered in an Asset-Based Lending
Facility (the "ABL") with Wells Fargo Bank, National Association
which provides the Company with initial borrowing availability of $50
million. The Company did not borrow under