Tailored Brands, Inc. Reports Fiscal 2019 Second Quarter Results

Tailored Brands, Inc. (NYSE: TLRD) today announced consolidated financial results for the fiscal second quarter ended August 3, 2019.

For the second quarter ended August 3, 2019, the Company reported GAAP diluted earnings per share of $0.68 and adjusted diluted earnings per share⁽¹⁾ of $0.82, compared to GAAP diluted earnings per share of $0.97 and adjusted diluted earnings per share⁽¹⁾ of $1.07 last year.

Second quarter 2019 results exclude net charges of $10.4 million comprised of $11.3 million of charges related to our multi-year cost savings and operational excellence programs (consisting of $6.1 million in consulting costs, $2.9 million related to the closure of a distribution center in Canada, $2.2 million in severance costs and $0.1 million in lease termination costs), offset by a $0.9 million net favorable adjustment primarily related to a derivative instrument entered into for the corporate apparel business.

“We were pleased to deliver second quarter comparable sales in line with our guidance and adjusted earnings per share above our guidance,” said Tailored Brands President and CEO Dinesh Lathi. “We are also seeing early customer response to our initiatives, which gives us confidence that unleashing the potential for this business to generate healthy positive comps lies in our transformational strategies of providing i) personalized products and services, ii) inspiring and seamless experiences in and across every channel, and iii) brands that stand for more than just price.”

Lathi added, “On our year-end call, we indicated that we had work ahead of us to transform our customer-facing experience to one that can generate sustainable and profitable growth. We also said that, while we transform the experience, we would execute and invest in a focused manner with a clear goal of continuing to generate cash that we would deploy responsibly. Our sale of the corporate apparel business is consistent with our commitment to focused execution and investment. The Board of Directors’ unanimous decision to suspend the quarterly cash dividend for reallocation to debt repayment and share repurchases is consistent with our commitment to responsible allocation of capital. And while our Q2 results and Q3 guidance reflect what we’ve previously shared about the need to transform our customer experience and the fact that transformations take time, the early signs of customer response to our strategies indicate that we are making healthy progress on our journey.”

__________________________
(1)		In the second quarter of fiscal 2019, adjusted items consist of $11.3 million in costs related to our multi-year cost savings and operational excellence programs including consulting, the closure of a distribution center in Canada, severance and lease termination costs, offset by a $0.9 million net favorable adjustment primarily related to a derivative instrument entered into for the corporate apparel business. In the second quarter of fiscal 2018, adjusted items consist of a loss on extinguishment of debt related to the partial redemption of $175 million of the Company’s senior notes, costs related to the closure of a rental product distribution center and an unfavorable final working capital adjustment related to the divestiture of the MW Cleaners business. See Use of Non-GAAP Financial Measures for additional information on items excluded from adjusted EPS for the second quarter of fiscal 2019 and with respect to the Company’s outlook for the third quarter of fiscal 2019.

Second Quarter Fiscal 2019 Results

Net Sales Summary(1)
	Net Sales			% Total Sales		Comparable Sales
	(U.S. dollars in millions)			Change		Change(2)
Retail	$	736.1		(4.1)%		(3.6)	%
Men's Wearhouse	$	423.5		(4.9)%		(4.3)	%
Jos. A. Bank	$	166.1		(3.7)%		(3.3)	%
K&G	$	82.7		(1.1)%		(1.3)	%
Moores(3)	$	63.9		(4.1)%		(2.5)	%
Corporate Apparel	$	53.3		(3.9)%
Total Company	$	789.5		(4.1)%

__________________________
(1)		Amounts may not sum due to rounded numbers.
(2)		Comparable sales is defined as net sales from stores open at least 12 months at period end and includes e-commerce sales.
(3)		The Moores comparable sales change is based on the Canadian dollar.

Net Sales

Total net sales decreased 4.1% to $789.5 million. Retail net sales decreased 4.1% primarily due to a decrease in retail segment comparable sales of 3.6%. Corporate apparel net sales decreased 3.9%, or $2.2 million, primarily due to the impact of a weaker British pound this year compared to last year.

Comparable Sales

Men’s Wearhouse comparable sales decreased 4.3%. Comparable sales for clothing decreased due to a decrease in transactions, average unit retail and units per transaction. Comparable rental services revenue decreased 3.1%, primarily reflecting the continuing trend to purchase suits for special occasions.

Jos. A. Bank comparable sales decreased 3.3% primarily from a decrease in average unit retail partially offset by an increase in both transactions and units per transaction.

K&G comparable sales decreased 1.3% primarily due to a decrease in both units per transaction and transactions partially offset by an increase in average unit retail.

Moores comparable sales decreased 2.5% primarily due to a decrease in both transactions and average unit retail partially offset by an increase in units per transaction.

Gross Margin

On a GAAP basis, consolidated gross margin was $333.7 million, a decrease of $35.2 million, primarily due to the decrease in net sales. As a percent of sales, consolidated gross margin decreased 250 basis points to 42.3%. On an adjusted basis, consolidated gross margin decreased 260 basis points to 42.6% primarily due to a lower retail gross margin rate.

On a GAAP basis, retail gross margin was $319.1 million, a decrease of $34.9 million. As a percent of sales, retail gross margin decreased 270 basis points to 43.4%. On an adjusted basis, retail gross margin decreased $35.9 million and the retail gross margin rate decreased 290 basis points to 43.7%, primarily due to increased promotional activities, as well as deleveraging of occupancy costs.

Advertising Expense

Advertising expense decreased $5.5 million to $33.2 million primarily driven by reductions in television advertising reflecting a shift to digital advertising as well as the timing of marketing spend. As a percent of sales, advertising expense decreased 50 basis points to 4.2%.

Selling, General and Administrative Expenses (“SG&A”)

On a GAAP basis, SG&A decreased $2.3 million to $240.0 million and increased 100 basis points as a percent of sales. On an adjusted basis, SG&A decreased $9.3 million to $232.5 million primarily due to lower incentive and share-based compensation. As a percent of sales, adjusted SG&A was flat at 29.4% primarily due to deleveraging from lower sales.

Operating Income

On a GAAP basis, operating income was $60.6 million compared to $88.0 million last year and operating margin decreased 300 basis points. On an adjusted basis, operating income was $71.0 million compared to $92.5 million last year. As a percent of sales, adjusted operating margin decreased 220 basis points to 9.0%.

Net Interest Expense and Net Loss on Extinguishment of Debt

Net interest expense was $18.1 million compared to $20.7 million last year. The decrease in interest expense was due to the reduction of our outstanding debt.

On a GAAP basis, there was no net loss on extinguishment of debt this year compared to an $8.1 million loss on extinguishment of debt last year. Last year’s net loss on extinguishment of debt consisted of the 3.5% premium on the $175 million partial redemption of the Company’s senior notes as well as the write-off of related deferred financing costs. On an adjusted basis, there was no net loss on extinguishment of debt this year or last year.

Effective Tax Rate

On a GAAP basis, the effective tax rate was 19.4% compared to 16.7% last year. On an adjusted basis, the effective tax rate was 21.2% compared to 23.9% last year.

Net Earnings and EPS

On a GAAP basis, net earnings were $34.3 million compared to net earnings of $49.2 million last year. Diluted EPS was $0.68 compared to diluted EPS of $0.97 last year.

On an adjusted basis, net earnings were $41.7 million compared to net earnings of $54.6 million last year. Adjusted diluted EPS was $0.82 compared to adjusted diluted EPS of $1.07 last year.

Balance Sheet Highlights

Cash and cash equivalents at the end of the second quarter of 2019 were $19.5 million, a decrease of $48.7 million compared to the end of the second quarter of 2018 primarily due to the decrease in sales and the use of cash on hand for costs related to our multi-year cost savings and operational excellence programs and debt reduction. At the end of the second quarter of 2019, there were $45.0 million of borrowings outstanding on our revolving credit facility. Total liquidity at the end of the second quarter was $421.3 million, comprised of availability on our revolving credit facility and cash and cash equivalents.

Inventories increased $60.4 million, or 7.7%, to $847.0 million at the end of the second quarter of 2019 compared to the end of the second quarter of 2018. The increase was primarily driven by higher levels of raw materials including fabric in support of basic, replenishment product.

Total debt at the end of the second quarter of 2019 was approximately $1.2 billion, down $61.7 million compared to the end of the second quarter of 2018. During the second quarter of 2019, the Company made its scheduled $2.3 million payment on its term loan and repaid $3.5 million on its revolving credit facility.

Cash flow from operating activities for the six months ended August 3, 2019 was $33.3 million compared to $198.0 million last year. The decrease was driven by lower net earnings after adjusting for non-cash items, an increase in inventories, and fluctuations in accounts payable and accrued liabilities primarily due to timing.

Capital expenditures for the six months ended August 3, 2019 were $39.1 million compared to $24.6 million last year.

Sale of Corporate Apparel Business

As previously announced, on August 16, 2019, the Company closed the sale of its corporate apparel business for total cash consideration of $62 million, subject to certain working capital adjustments. The Company will use cash proceeds from the transaction to reinvest in its business in accordance with the provisions of its term loan. This will free up funds previously slated for capital expenditures for debt reduction. The Company expects to present the sale as a discontinued operation beginning in the third quarter of fiscal 2019.

Capital Allocation Policy Update

After extensive review, the Board of Directors approved an update to the Company’s capital allocation policy. Effective in the fourth quarter, the Company’s quarterly cash dividend will be suspended and redeployed for accelerated debt repayment and share repurchases. This does not impact the previously approved quarterly cash dividend of $0.18 per share payable on September 27, 2019, to shareholders of record at the close of business on September 17, 2019.

Suspending the quarterly cash dividend of $0.18 per share is expected to make available approximately $36.5 million on an annualized basis. The Company has $48.0 million available for share repurchases under its previously authorized 2013 share repurchase program.

Q3 FISCAL 2019 OUTLOOK

The Company’s outlook for the third quarter of fiscal 2019 is as follows:

• Earnings per Share: The Company expects to achieve adjusted diluted EPS in the range of $0.40 to $0.45, excluding the impact of any share repurchases.
• Comparable Sales: The Company expects comparable sales for:
  • Men’s Wearhouse to be down 3% to 5%
  • Jos. A. Bank to be down 2% to 4%
  • K&G to be down 2% to 4%
  • Moores to be down 4% to 6%.
• Effective Tax Rate: The Company expects an effective tax rate of 23% to 24%.
• Real Estate: The Company expects net closures of seven stores, across Men’s Wearhouse and Jos. A. Bank.
• The Company’s outlook excludes expected costs for third party domain experts and other actions associated with its cost savings and operational excellence programs.

STORE INFORMATION

	August 3, 2019				August 4, 2018				February 2, 2019
	Number		Sq. Ft.		Number		Sq. Ft.		Number		Sq. Ft.
	of Stores		(000's)		of Stores		(000's)		of Stores		(000's)
Men's Wearhouse(a)	720		4,038.8		719		4,036.3		720		4,035.5
Men's Wearhouse and Tux	45		66.3		49		73.3		46		68.8
Jos. A. Bank(b)	476		2,244.4		487		2,293.7		484		2,280.2
K&G(c)	88		2,028.4		88		2,028.4		88		2,028.4
Moores	126		787.4		126		787.5		126		787.4
Total	1,455		9,165.3		1,469		9,219.2		1,464		9,200.3

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(a)		Includes one Joseph Abboud store.
(b)		Excludes 14 franchise stores.
(c)		84 stores offering women’s apparel at the end of each period, respectively.

Conference Call and Webcast Information

At 5:00 p.m. Eastern time on Wednesday, September 11, 2019, management will host a conference call and webcast to discuss fiscal 2019 second quarter results. To access the conference call, please dial 201-689-8029. To access the live webcast, visit the Investor Relations section of the Company’s website at http://ir.tailoredbrands.com. A webcast archive will be available free on the website for approximately 90 days.

About Tailored Brands, Inc.

As the leading specialty retailer of men’s tailored clothing and largest men’s formalwear provider in the U.S. and Canada, Tailored Brands helps men love the way they look for work and special occasions. We serve our customers through an expansive omni-channel network that includes over 1,400 locations in the U.S. and Canada as well as our branded e-commerce websites. Our brands include Men's Wearhouse, Jos. A. Bank, Joseph Abboud, Moores Clothing for Men and K&G.

For additional information on Tailored Brands, please visit the Company’s websites at www.tailoredbrands.com, www.menswearhouse.com, www.josbank.com, www.josephabboud.com, www.mooresclothing.com, and www.kgstores.com.

This press release contains forward-looking information, including the Company’s statements regarding its Q3 2019 outlook for adjusted earnings per share, comparable sales, effective tax rate and store closures. In addition, words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “guidance,” “may,” “projections,” and “business outlook,” variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements that we make herein are not guarantees of future performance and actual results may differ materially from those in such forward-looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans; cost reduction initiatives and revenue enhancement strategies; changes to our capital allocation policy; changes in demand for clothing or rental product; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies, including the enactment of duties or tariffs; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and the impact of climate change.

Forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

(Tables Follow)

TAILORED BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
For the Three Months Ended August 3, 2019 and August 4, 2018
(In thousands, except per share data)
	Three Months Ended
						% of										% of
	2019					Sales					2018					Sales
Net sales:
Retail clothing product	$		580,900			73.6		%			$		605,788			73.6		%
Rental services			120,329			15.2		%					125,095			15.2		%
Alteration and other services			34,916			4.4		%					37,031			4.5		%
Total retail sales			736,145			93.2		%					767,914			93.3		%
Corporate apparel clothing product			53,343			6.8		%					55,516			6.7		%
Total net sales			789,488			100.0		%					823,430			100.0		%
Total cost of sales			455,761			57.7		%					454,528			55.2		%
Gross margin (a):
Retail clothing product			321,853			55.4		%					346,763			57.2		%
Rental services			100,556			83.6		%					105,729			84.5		%
Alteration and other services			1,302			3.7		%					3,282			8.9		%
Occupancy costs			(104,585	)		(14.2	)	%					(101,772	)		(13.3	)	%
Total retail gross margin			319,126			43.4		%					354,002			46.1		%
Corporate apparel clothing product			14,601			27.4		%					14,900			26.8		%
Total gross margin			333,727			42.3		%					368,902			44.8		%
Advertising expense			33,164			4.2		%					38,661			4.7		%
Selling, general and administrative expenses			239,973			30.4		%					242,255			29.4		%
Operating income			60,590			7.7		%					87,986			10.7		%
Interest expense, net			(18,101	)		(2.3	)	%					(20,742	)		(2.5	)	%
Loss on extinguishment of debt, net			—			—		%					(8,122	)		(1.0	)	%
Earnings before income taxes			42,489			5.4		%					59,122			7.2		%
Provision for income taxes			8,223			1.0		%					9,884			1.2		%
Net earnings	$		34,266			4.3		%			$		49,238			6.0		%
Net earnings per diluted common share	$		0.68								$		0.97
Weighted-average diluted common shares outstanding			50,624										50,851

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(a)		Gross margin percent of sales is calculated as a percentage of related sales.

TAILORED BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
For the Six Months Ended August 3, 2019 and August 4, 2018
(In thousands, except per share data)
	Six Months Ended
					% of									% of
	2019				Sales					2018				Sales
Net sales:
Retail clothing product	$	1,175,679			74.8		%			$	1,219,432			74.3		%
Rental services		214,069			13.6		%				225,322			13.7		%
Alteration and other services		71,059			4.5		%				78,003			4.8		%
Total retail sales		1,460,807			93.0		%				1,522,757			92.8		%
Corporate apparel clothing product		110,068			7.0		%				118,637			7.2		%
Total net sales		1,570,875			100.0		%				1,641,394			100.0		%
Total cost of sales		916,592			58.3		%				927,268			56.5		%
Gross margin (a):
Retail clothing product		647,988			55.1		%				684,187			56.1		%
Rental services		181,279			84.7		%				191,299			84.9		%
Alteration and other services		3,598			5.1		%				10,076			12.9		%
Occupancy costs		(208,317	)		(14.3	)	%				(202,791	)		(13.3	)	%
Total retail gross margin		624,548			42.8		%				682,771			44.8		%
Corporate apparel clothing product		29,735			27.0		%				31,355			26.4		%
Total gross margin		654,283			41.7		%				714,126			43.5		%
Advertising expense		78,207			5.0		%				79,894			4.9		%
Selling, general and administrative expenses		485,184			30.9		%				493,349			30.1		%
Operating income		90,892			5.8		%				140,883			8.6		%
Interest expense, net		(36,668	)		(2.3	)	%				(42,638	)		(2.6	)	%
Loss on extinguishment of debt, net		—			—		%				(20,833	)		(1.3	)	%
Earnings before income taxes		54,224			3.5		%				77,412			4.7		%
Provision for income taxes		12,816			0.8		%				14,265			0.9		%
Net earnings	$	41,408			2.6		%			$	63,147			3.8		%
Net earnings per diluted common share	$	0.82								$	1.24
Weighted-average diluted common shares outstanding:		50,606									50,785

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(a)		Gross margin percent of sales is calculated as a percentage of related sales.

TAILORED BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
	August 3,				August 4,
	2019				2018
ASSETS
Current assets:
Cash and cash equivalents	$	19,476			$	68,215
Accounts receivable, net		65,176				65,099
Inventories		846,952				786,510
Other current assets		63,882				87,491
Total current assets		995,486				1,007,315
Property and equipment, net		421,188				427,107
Operating lease right-of-use assets		918,541				-
Rental product, net		99,085				111,345
Goodwill		79,283				103,686
Intangible assets, net		155,309				165,881
Other assets		5,806				13,497
Total assets	$	2,674,698			$	1,828,831
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	187,946			$	145,981
Accrued expenses and other current liabilities		289,810				313,319
Current portion of operating lease liabilities		185,800				-
Income taxes payable		10,102				6,659
Current portion of long-term debt		9,000				9,000
Total current liabilities		682,658				474,959
Long-term debt, net		1,145,651				1,207,377
Operating lease liabilities		763,865				-
Deferred taxes and other liabilities		77,961				146,484
Total liabilities		2,670,135				1,828,820
Shareholders' equity:
Preferred stock		-				-
Common stock		506				498
Capital in excess of par		510,021				498,670
Accumulated deficit		(445,392	)			(470,377	)
Accumulated other comprehensive loss		(60,572	)			(28,780	)
Total shareholders' equity		4,563				11
Total liabilities and shareholders' equity	$	2,674,698			$	1,828,831

TAILORED BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended August 3, 2019 and August 4, 2018
(In thousands)
	Six Months Ended
	2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	41,408			$	63,147
Adjustments to net earnings:
Depreciation and amortization		53,810				52,719
Non-cash lease expense		98,683				-
Rental product amortization		19,047				19,755
Asset impairment charges		184				269
Loss on extinguishment of debt, net		-				20,833
Amortization of deferred financing costs and discount on long-term debt		972				2,228
Loss on disposition of assets		2,946				7,768
Other		8,004				7,423
Changes in operating assets and liabilities:
Accounts receivable		5,952				10,461
Inventories		(22,507	)			42,186
Rental product		(21,450	)			(12,102	)
Other assets		(15,621	)			(9,372	)
Accounts payable, accrued expenses and other current liabilities		(30,928	)			(3,497	)
Income taxes payable		(5,789	)			697
Other liabilities		(101,388	)			(4,524	)
Net cash provided by operating activities		33,323				197,991
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(39,092	)			(24,645	)
Proceeds from divestiture of business		-				17,755
Net cash used in investing activities		(39,092	)			(6,890	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on old term loan		-				(993,420	)
Proceeds from new term loan		-				895,500
Payments on new term loan		(7,120	)			(4,500	)
Proceeds from asset-based revolving credit facility		673,500				199,500
Payments on asset-based revolving credit facility		(677,000	)			(95,000	)
Repurchase and retirement of senior notes		-				(199,365	)
Deferred financing costs		-				(5,644	)
Cash dividends paid		(18,784	)			(18,744	)
Proceeds from issuance of common stock		879				4,113
Tax payments related to vested deferred stock units		(1,052	)			(6,501	)
Net cash used in financing activities		(29,577	)			(224,061	)
Effect of exchange rate changes		(609	)			(2,432	)
DECREASE IN CASH AND CASH EQUIVALENTS		(35,955	)			(35,392	)
Balance at beginning of period		55,431				103,607
Balance at end of period	$	19,476			$	68,215

TAILORED BRANDS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)

Use of Non-GAAP Financial Measures

In addition to providing financial results in accordance with GAAP, we have provided adjusted information for the fiscal second quarters and six months ended August 3, 2019 and August 4, 2018. This non-GAAP financial information is provided to enhance the user’s overall understanding of the Company’s financial performance by removing the impacts of large, unusual or unique transactions that we believe are not indicative of our core business results. For the second quarter of fiscal 2019, these items consist of costs related to our multi-year cost savings and operational excellence programs, offset by a net favorable adjustment related to the corporate apparel business. For the second quarter of fiscal 2018, adjusted items consisted of a loss on extinguishment of debt related to the partial redemption of $175 million of the Company’s senior notes, costs related to the closure of a rental product distribution center and an unfavorable final working capital adjustment related to the divestiture of our MW Cleaners business.

Management uses these adjusted results to assess the Company’s performance, to make decisions about how to allocate resources and to develop expectations for future performance. In addition, adjusted EPS is used as a performance measure in the Company’s executive compensation program to determine the number of performance units that are ultimately earned for certain equity awards.

The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, financial information prepared in accordance with GAAP. Management strongly encourages investors and shareholders to review the Company’s financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

A reconciliation of third quarter fiscal 2019 adjusted EPS, which is a forward-looking non-GAAP financial measure, to the most directly comparable GAAP financial measure, is not provided because the Company is unable to provide such reconciliation without unreasonable effort. The inability to provide this reconciliation is due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. These GAAP measures may include the impact of items such as costs related to our multi-year cost savings and operational excellence programs and the tax effect of such items. Historically, the Company has excluded these types of items from non-GAAP financial measures. The Company currently expects to continue to exclude these items in future disclosures of non-GAAP financial measures and may also exclude other items that may arise. The decisions and events that typically lead to the recognition of non-GAAP adjustments are inherently unpredictable as to if or when they may occur. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.

Reconciliations of non-GAAP information to our actual results follow and amounts may not sum due to rounded numbers. In addition, only the line items affected by adjustments are shown in the tables.

GAAP to Non-GAAP Adjusted Consolidated Statements of Earnings Information

GAAP to Non-GAAP Adjusted - Three Months Ended August 3, 2019
					Multi-Year Cost			Divestiture of
		GAAP			Savings and Operational			Corporate			Total			Non-GAAP
Consolidated Results		Results			Excellence Program(1)			Apparel(2)			Adjustments			Adjusted Results
Rental services gross margin		$	100,556		$	2,938		$	-		$	2,938		$	103,494
Total retail gross margin			319,126			2,938			-			2,938			322,064
Total gross margin			333,727			2,938			-			2,938			336,665
Selling, general and administrative expenses			239,973			(8,404)			915			(7,489)			232,484
Operating income(3)			60,590			11,342			(915)			10,427			71,017
Provision for income taxes(4)			8,223									3,001			11,224
Net earnings			34,266									7,426			41,692
Net earnings per diluted common share		$	0.68								$	0.14		$	0.82

__________________________
(1)		Consists of $6.1 million in consulting costs, $2.9 million of rental product write-offs related to the closure of a distribution center in Canada, $2.2 million in severance costs and $0.1 million in lease termination costs.
(2)		Consists of a $1.3 million favorable adjustment related to a derivative instrument entered into for the corporate apparel business offset by $0.4 million in transaction costs.
(3)		Of the $10.4 million in adjustments to operating income, $7.3 million relates to the retail segment and $3.1 million relates to shared services.
(4)		The tax effect of the excluded items is computed as the difference between tax expense on a GAAP basis and tax expense on an adjusted non-GAAP basis.

GAAP to Non-GAAP Adjusted - Six Months Ended August 3, 2019
					Multi-Year Cost			Divestiture of
		GAAP			Savings and Operational			Corporate			Total			Non-GAAP
Consolidated Results		Results			Excellence Program(1)			Apparel(2)			Adjustments			Adjusted Results
Rental services gross margin		$	181,279		$	2,938		$	-		$	2,938		$	184,217
Alteration and other services gross margin			3,598			213			-			213			3,811
Total retail gross margin			624,548			3,151			-			3,151			627,699
Total gross margin			654,283			3,151			-			3,151			657,434
Selling, general and administrative expenses			485,184			(12,575)			915			(11,660)			473,524
Operating income(3)			90,892			15,726			(915)			14,811			105,703
Provision for income taxes(4)			12,816									3,842			16,658
Net earnings			41,408									10,969			52,377
Net earnings per diluted common shares		$	0.82								$	0.22		$	1.04

__________________________
(1)		Consists of $9.1 million in consulting costs, $3.3 million in severance costs, $2.9 million of rental product write-offs related to the closure of a distribution center in Canada and $0.4 million in lease termination costs.
(2)		Consists of a $1.3 million favorable adjustment related to a derivative instrument entered into for the corporate apparel business offset by $0.4 million in transaction costs.
(3)		Of the $14.8 million in adjustments to operating income, $10.6 million relates to the retail segment and $4.2 million relates to shared services.
(4)		The tax effect of the excluded items is computed as the difference between tax expense on a GAAP basis and tax expense on an adjusted non-GAAP basis.

GAAP to Non-GAAP Adjusted - Three Months Ended August 4, 2018
								Partial			Closure of U.S. Rental
		GAAP			Divestiture of			Redemption of			Product Distribution			Total			Non-GAAP
Consolidated Results		Results			MW Cleaners(1)			Senior Notes(2)			Center(3)			Adjustments			Adjusted Results
Rental services gross margin		$	105,729		$	-		$	-		$	4,010		$	4,010		$	109,739
Total retail gross margin			354,002			-			-			4,010			4,010			358,012
Total gross margin			368,902			-			-			4,010			4,010			372,912
Selling, general and administrative expenses			242,255			(154)			-			(365)			(519)			241,736
Operating income			87,986			154			-			4,375			4,529			92,515
Loss on extinguishment of debt			(8,122)			-			8,122			-			8,122			-
Provision for income taxes(4)			9,884												7,263			17,147
Net earnings			49,238												5,388			54,626
Net earnings per diluted common share		$	0.97											$	0.10		$	1.07

__________________________
(1)		Consists of a $0.2 million true up loss for the MW Cleaners business related to the retail segment.
(2)		Consists of the $6.1 million premium and elimination of unamortized deferred financing costs totaling $2.0 million related to the partial redemption of senior notes.
(3)		Consists of $4.0 million of rental product write-offs, $0.2 million of accelerated depreciation and $0.2 million of severance costs, all related to the retail segment.
(4)		The tax effect of the excluded items is computed as the difference between tax expense on a GAAP basis and tax expense on an adjusted non-GAAP basis.

GAAP to Non-GAAP Adjusted - Six Months Ended August 4, 2018
											Partial			Closure of U.S. Rental
		GAAP			Divestiture of			Refinancing of			Redemption of			Product Distribution			Total			Non-GAAP
Consolidated Results		Results			MW Cleaners(1)			Term Loan(2)			Senior Notes(3)			Center(4)			Adjustments			Adjusted Results
Rental services gross margin		$	191,299		$	-		$	-		$	-		$	4,010		$	4,010		$	195,309
Total retail gross margin			682,771			-			-			-			4,010			4,010			686,781
Total gross margin			714,126			-			-			-			4,010			4,010			718,136
Selling, general and administrative expenses			493,349			(3,766)			-			-			(365)			(4,131)			489,218
Operating income			140,883			3,766			-			-			4,375			8,141			149,024
Loss on extinguishment of debt			(20,833)			-			11,858			8,122			-			19,980			(853)
Provision for income taxes(5)			14,265															11,316			25,581
Net earnings			63,147															16,806			79,953
Net earnings per diluted common share		$	1.24														$	0.33		$	1.57

__________________________
(1)		Consists of a $3.8 million loss upon divestiture of MW Cleaners business related to the retail segment.
(2)		Consists of the elimination of unamortized deferred financing costs and original issue discount related to the refinancing of the Term Loan totaling $11.9 million.
(3)		Consists of the $6.1 million premium and elimination of unamortized deferred financing costs totaling $2.0 million related to the partial redemption of senior notes.
(4)		Consists of $4.0 million of rental product write-offs, $0.2 million of accelerated depreciation and $0.2 million of severance costs, all related to the retail segment.
(5)		The tax effect of the excluded items is computed as the difference between tax expense on a GAAP basis and tax expense on an adjusted non-GAAP basis.

 

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