Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended August 1, 2015

or

 

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

For the transition period from                      to                     

Commission File Number 001-34842

 

 

Gordmans Stores, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   26-3171987

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1926 South 67 Street,

Omaha, Nebraska 68106

(Address of principal executive offices) (Zip Code)

(402) 691-4000

(Registrant’s telephone number, including area code)

 

 

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   x     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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     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 the definitions 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   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $0.001 par value, outstanding as of August 26, 2015: 19,726,448 shares

 

 

 


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

INDEX

 

PART I  

FINANCIAL INFORMATION

     3   

ITEM 1.

 

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     3   

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     14   

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     25   

ITEM 4.

 

CONTROLS AND PROCEDURES

     26   
PART II  

OTHER INFORMATION

     26   

ITEM 1.

 

LEGAL PROCEEDINGS

     26   

ITEM 1A.

 

RISK FACTORS

     26   

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     26   

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

     26   

ITEM 4.

 

RESERVED

     26   

ITEM 5.

 

OTHER INFORMATION

     26   

ITEM 6.

 

EXHIBITS

     27   

SIGNATURES

     28   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in 000’s except share and per share data)

(Unaudited)

 

     13 Weeks
Ended
August 1,
2015
    13 Weeks
Ended
August 2,
2014
    26 Weeks
Ended
August 1,
2015
    26 Weeks
Ended
August 2,
2014
 

Net sales

   $ 143,434      $ 141,039      $ 289,374      $ 284,061   

License fees from leased departments

     1,986        1,942        4,419        4,161   

Cost of sales

     (82,593     (83,251     (165,998     (165,118
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     62,827        59,730        127,795        123,104   

Selling, general and administrative expenses

     (64,819     (63,494     (128,137     (126,852
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,992     (3,764     (342     (3,748

Interest expense, net

     (1,038     (1,341     (2,074     (2,538

Loss on extinguishment of debt

     (2,014     —          (2,014     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before taxes

     (5,044     (5,105     (4,430     (6,286

Income tax benefit

     2,013        1,916        1,773        2,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (3,031   $ (3,189   $ (2,657   $ (3,921
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic loss per share

   $ (0.16   $ (0.16   $ (0.14   $ (0.20

Diluted loss per share

   $ (0.16   $ (0.16   $ (0.14   $ (0.20

Basic weighted average shares outstanding

     19,395,818        19,360,394        19,380,839        19,356,156   

Diluted weighted average shares outstanding

     19,395,818        19,360,394        19,380,839        19,356,156   

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in 000’s except share and per share data)

(Unaudited)

 

     August 1,
2015
    January 31,
2015
    August 2,
2014
 

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

   $ 9,946      $ 7,634      $ 11,052   

Accounts receivable

     3,608        3,930        3,292   

Landlord receivable

     2,561        1,559        4,294   

Income taxes receivable

     11,001        8,525        6,348   

Merchandise inventories

     118,889        94,470        96,077   

Deferred income taxes

     2,896        2,895        2,786   

Prepaid expenses and other current assets

     9,985        8,535        9,172   
  

 

 

   

 

 

   

 

 

 

Total current assets

     158,886        127,548        133,021   

PROPERTY AND EQUIPMENT, net

     86,955        91,601        85,700   

INTANGIBLE ASSETS, net

     1,820        1,820        1,863   

OTHER ASSETS, net

     4,827        5,908        5,882   
  

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 252,488      $ 226,877      $ 226,466   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

CURRENT LIABILITIES:

      

Accounts payable

   $ 79,436      $ 64,349      $ 67,373   

Accrued expenses

     27,235        31,353        28,781   

Current portion of long-term debt

     32,229        12,463        6,463   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     138,900        108,165        102,617   
  

 

 

   

 

 

   

 

 

 

NONCURRENT LIABILITIES:

      

Long-term debt, less current portion

     28,891        28,827        43,875   

Deferred rent

     31,640        35,381        32,143   

Deferred income taxes

     16,318        15,636        9,832   

Other liabilities

     237        381        373   
  

 

 

   

 

 

   

 

 

 

Total noncurrent liabilities

     77,086        80,225        86,223   
  

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

      

STOCKHOLDERS’ EQUITY:

      

Preferred stock — $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of August 1, 2015, January 31, 2015 and August 2, 2014

     —         —         —    

Common stock — $0.001 par value, 50,000,000 shares authorized, 20,133,581 issued and 19,724,948 outstanding at August 1, 2015; 19,985,526 issued and 19,576,623 outstanding as of January 31, 2015; 19,960,156 issued and 19,554,905 outstanding as of August 1, 2014

     20        20        20   

Additional paid-in capital

     54,542        53,870        53,454   

Accumulated deficit

     (18,060     (15,403     (15,848
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     36,502        38,487        37,626   
  

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 252,488      $ 226,877      $ 226,466   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in 000’s except share and per share data)

(Unaudited)

 

     Shares of
Common
Stock
    Common
Stock
     Additional
Paid-In
Capital
    Accumulated
Deficit
    Total  

BALANCE, February 1, 2014

     19,420,444      $ 19       $ 53,795      $ (12,009   $ 41,805   

Share-based compensation expense (benefit), net of forfeitures

     —         —           (155     —          (155

Deferred tax asset shortfall related to share-based compensation expense

     —          —           (182     —          (182

Issuance of restricted stock, net of forfeitures

     135,300        1         —          —          1   

Repurchase of common stock

     (839     —           (4     —          (4

Forfeiture of dividends payable on unvested restricted stock

     —          —           —          82        82   

Net loss

     —          —           —          (3,921     (3,921
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, August 2, 2014

     19,554,905      $ 20       $ 53,454      $ (15,848   $ 37,626   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, January 31, 2015

     19,576,623      $ 20       $ 53,870      $ (15,403   $ 38,487   

Share-based compensation expense (benefit), net of forfeitures

     —          —           640        —          640   

Issuance of restricted stock, net of forfeitures

     142,500        —           —          —          —     

Exercise of stock options

     5,825        —           31        —          31   

Tax benefit on stock options exercised

     —          —           1        —          1   

Net loss

     —          —           —          (2,657     (2,657
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

BALANCE, August 1, 2015

     19,724,948      $ 20       $ 54,542      $ (18,060   $ 36,502   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in 000’s)

(Unaudited)

 

     26 Weeks
Ended
August 1,
2015
    26 Weeks
Ended
August 2,
2014
 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (2,657   $ (3,921

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization expense

     8,083        6,013   

Write-off of deferred financing fees related to extinguishment of debt

     1,722        —     

Amortization of deferred financing fees

     355        280   

Loss on retirement / sale of property and equipment

     23        85   

Deferred income taxes

     681        127   

Share-based compensation expense (benefit), net of forfeitures

     640        (155

Net changes in operating assets and liabilities:

    

Accounts, landlord and income taxes receivable

     (3,156     (2,654

Merchandise inventories

     (24,419     (1,366

Prepaid expenses and other current assets

     (1,450     (811

Other assets

     80        87   

Accounts payable

     15,087        24,812   

Deferred rent

     (3,741     552   

Accrued expenses and other liabilities

     (2,109     4,928   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (10,861     27,977   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (8,038     (31,277

Proceeds from sale-leaseback transactions

     2,412        11,033   

Proceeds from insurance settlement

     21        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,605     (20,244
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Borrowings on revolving line of credit

     111,850        91,850   

Repayments on revolving line of credit

     (92,502     (93,762

Proceeds from secured term loan

     30,000        —     

Payment of long-term debt

     (29,518     (487

Payment of debt issuance costs

     (783     (4

Payment penalty on early extinguishment of debt

     (292     —     

Dividends paid

     (8     (37

Proceeds from the exercise of stock options

     31        —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     18,778        (2,440
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     2,312        5,293   

CASH AND CASH EQUIVALENTS, Beginning of period

     7,634        5,759   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 9,946      $ 11,052   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

6


Table of Contents

GORDMANS STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share Data and Per Share Amounts)

(Unaudited)

A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation The condensed consolidated financial statements include the accounts of Gordmans Stores, Inc. (the “Company”) and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of January 31, 2015 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly our financial position and results of operations and cash flows for the periods presented. All of these adjustments are of a normal recurring nature.

Summary of Significant Accounting Policies The accounting policies followed by the Company are reflected in the notes to the consolidated financial statements for the fiscal year ended January 31, 2015, included in our fiscal year 2014 Annual Report on Form 10-K, filed with the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended January 31, 2015. Due to the seasonality of our business, the results of operations for any quarter are not necessarily indicative of the operating results for the full fiscal year. In addition, quarterly results of operations can vary based upon the timing and amount of net sales and costs associated with the opening of new stores.

B. DESCRIPTION OF THE BUSINESS

Gordmans Stores, Inc. operated 101 everyday value price department stores under the trade name “Gordmans” located in 22 states as of August 1, 2015. Gordmans offers a wide merchandise assortment including apparel and footwear for men, women and children, accessories, fragrances and home fashions for up to 60% off department and specialty store regular prices every day in a fun, easy-to-shop environment.

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that its Chief Executive Officer is the Chief Operating Decision Maker. The Company has one reportable segment. The Company opened four new stores during the twenty-six week period ended August 1, 2015 and opened five new stores, relocated an existing store and closed two existing stores during the twenty-six week period ended August 2, 2014.

The following table reflects the percentage of revenues by major merchandising category:

 

     13 Weeks
Ended
August 1,
2015
    13 Weeks
Ended
August 2,
2014
    26 Weeks
Ended
August 1,
2015
    26 Weeks
Ended
August 2,
2014
 

Apparel

     59.1     60.9     58.5     59.0

Home Fashions

     25.4        24.3        25.6        25.4   

Accessories (including fragrances)

     15.5        14.8        15.9        15.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Table of Contents

C. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

 

     August 1,
2015
     January 31,
2015
     August 2,
2014
 

Leasehold improvements

   $ 12,624       $ 12,098       $ 10,870   

Furniture, fixtures and equipment

     86,641         81,199         73,522   

Computer software

     26,957         24,496         22,635   

Capitalized leases

     2,402         2,402         1,740   

Construction in progress

     2,659         7,731         6,569   
  

 

 

    

 

 

    

 

 

 
     131,283         127,926         115,336   

Less accumulated depreciation and amortization

     (44,328      (36,325      (29,636
  

 

 

    

 

 

    

 

 

 
   $ 86,955       $ 91,601       $ 85,700   
  

 

 

    

 

 

    

 

 

 

D. DEBT OBLIGATIONS

Revolving Line of Credit Facility – Gordmans, Inc. (the “Borrower”), a wholly owned subsidiary of the Company, has an $80.0 million revolving line of credit facility dated February 20, 2009, as amended effective June 29, 2015 with Wells Fargo Bank, National Association (“Wells Fargo”), as the arranger and administrative agent for the lenders. The revolving line of credit facility may be increased by $20.0 million. The agreement expires June 28, 2020, at which time all outstanding indebtedness under the agreement becomes due and payable.

The June 29, 2015 amendment established a $30.0 million secured term loan facility provided by Wells Fargo, Pathlight Capital LLC and Gordon Brothers Finance Company, as discussed below. The amendment changed the 1% early termination fee applicable to the revolving line of credit facility such that the fee is payable if the facility is terminated prior to November 14, 2016 and extends the maturity date of the revolving line of credit facility from August 27, 2018 to June 28, 2020. The amendment also eliminated the seasonal borrowing periods during which periods the applicable interest rate increased by 75 basis points and advance rates under the borrowing base were increased by 5.0%, amended the minimum excess availability covenant, and amended certain negative and affirmative covenant requirements.

The Company had $30.4 million of borrowings outstanding under the revolving line of credit facility as of August 1, 2015, which is included in the current portion of long-term debt as the Company intends to repay the outstanding borrowings within the next twelve months. The Company had $11.0 million and $5.3 million of borrowings outstanding under the revolving line of credit facility as of January 31, 2015 and August 2, 2014, respectively. Average borrowings during the twenty-six week periods ended August 1, 2015 and August 2, 2014, were $17.1 million $9.0 million, respectively.

Borrowings under this facility bear interest at various rates, with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at the prime rate plus 1.00% when average excess availability is less than or equal to $40.0 million and the prime rate plus 0.75% when average excess availability is greater than $40.0 million, and (2) for LIBOR rate advances, borrowings bear interest at the LIBOR rate plus 2.00% when average excess availability is less than or equal to $40.0 million and the LIBOR rate plus 1.75% when average excess availability is greater than $40.0 million. The Company is required to maintain minimum excess availability under the revolving line of credit facility of at least $20.0 million, the calculation of which now includes up to $3.0 million of unrestricted cash. The Company had $42.5 million, $44.1 million and $69.4 million available to borrow at August 1, 2015, January 31, 2015 and August 2, 2014, respectively. Borrowings under this facility bore interest at a rate of 4.00% under the base rate option at August 1, 2015, and 3.75% at January 31, 2015 and August 2, 2014. The Company had outstanding letters of credit included in the borrowing base totaling approximately $7.1 million, $7.0 million and $1.2 million as of August 1, 2015, January 31, 2015 and August 2, 2014, respectively.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolver amount during the immediately preceding month plus the average daily balance of the letter of credit usage during the immediately preceding month. An administrative agent fee is also payable under the facility on an annual basis. Borrowings are secured by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement. The revolving line of credit facility has a first lien on all collateral other than term loan priority collateral, as defined in the June 29, 2015 amendment, and a second lien on the term loan priority collateral, as defined in the June 29, 2015 amendment.

Term Loan Facility – The Borrower entered into a $45.0 million senior term loan on August 27, 2013, as amended November 14, 2014, with Cerberus Business Finance, LLC (“Cerberus”) to partially fund the $69.9 million special cash dividend declared in August 2013. This senior term loan with Cerberus was extinguished in full on June 29, 2015 with the proceeds from the new $30.0 million secured term loan facility established by the June 29, 2015 amendment discussed above.

 

8


Table of Contents

The new secured term loan facility matures on the same date as the revolving line of credit facility and has principal payments of $0.4 million due on a quarterly basis beginning in October 2015 through the maturity date, with the remaining principal due on the maturity date of June 28, 2020. The Company may repay at any time all or a portion of the outstanding principal amount of the new secured term loan facility, subject to a prepayment premium equal to 3.0% in the first year, 1.5% in the second year, 0.5% in the third year and 0.0% thereafter. The term loan facility carries an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.0%. The interest rate on the new secured term loan facility was 7.25% at August 1, 2015 which compares to the Cerberus senior term loan interest rate of 9.5% at January 31, 2015 and August 2, 2014. The secured term loan facility includes a borrowing base in addition to the revolving loan borrowing base. The secured term loan facility is secured by the same collateral as the revolving line of credit facility but has a priority lien on real estate, fixtures, equipment, intellectual property and books, records, permits, licenses, insurance and proceeds thereof and a second lien on the revolving priority collateral, as defined in the June 29, 2015 amendment.

The Cerberus senior term loan had a maturity date of August 27, 2018, with payments of $0.3 million due on a quarterly basis from October 2014 through October 2015 and payments of $0.4 million due on a quarterly basis beginning in January 2016 through the maturity date, with the remaining principal due on the maturity date. The Cerberus senior term loan was secured on a second lien basis by the Company’s inventory, accounts receivable and all other personal property, except as specifically excluded in the agreement. In connection with the extinguishment of the Cerberus senior term loan, the Company wrote off deferred financing fees of $1.7 million and paid a prepayment penalty of $0.3 million, which was equal to 1.0% of the outstanding principal balance at the time of the loan extinguishment. These expenses are recorded as loss on extinguishment of debt in the condensed consolidated statement of operations during the second quarter of fiscal year 2015.

Among other provisions, the Company’s debt agreement with Wells Fargo contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under our $30.0 million senior term loan and, subject to certain conditions, indebtedness not to exceed $10.0 million in the aggregate in connection with all acquisitions occurring after February 20, 2009. Our revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $0.5 million in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries, (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with ordinary corporate governance, overhead, legal and accounting and maintenance and (vi) dividends so long no event of default exists, projected excess availability for the next twelve months is greater than $35.0 million 30% of the loan cap and the fixed charge coverage ratio is greater than 1.0 to 1.0 on a historical and projected basis. The agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. Should the Company default on scheduled repayment of the secured term loan facility, Wells Fargo may make any outstanding obligations under the agreement immediately due and payable. As of August 1, 2015, the Company was in compliance with all of its debt covenants.

Long-term Debt – Long-term debt consists of the following:

 

     August 1,
2015
     January 31,
2015
     August 2,
2014
 

Revolving line of credit facility

   $ 30,382       $ 11,034       $ 5,338   

Term loan

     30,000         29,437         45,000   

Capital lease obligations

     738         819         —    
  

 

 

    

 

 

    

 

 

 

Total long-term debt

     61,120         41,290         50,338   

Less current portion of long-term debt

     (32,229      (12,463      (6,463
  

 

 

    

 

 

    

 

 

 

Long-term debt, less current portion

   $ 28,891       $ 28,827       $ 43,875   
  

 

 

    

 

 

    

 

 

 

At August 1, 2015, annual maturities of long-term debt during the next five fiscal years and thereafter were as follows:

 

Remainder of 2015

   $ 908   

2016

     1,849   

2017

     1,856   

2018

     1,863   

2019

     1,822   

2020

     52,822   
  

 

 

 

Total long-term debt

   $ 61,120   
  

 

 

 

 

9


Table of Contents

Financial Instruments – Based on the borrowing rates currently available to the Company for debt with similar terms and the variable interest rate of the term loan dated June 29, 2015, the fair value of the term loan approximates its carrying amount of $30.0 million at August 1, 2015. Fair value approximates the carrying value of the outstanding balance on the revolving line of credit facility due to both the short-term nature of these borrowings and the variable interest rates of this agreement. For all other financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of those instruments.

E. LEASES

The Company has entered into short and long term operating lease agreements. These leases relate to retail store locations, the distribution centers and the corporate headquarters. The leases expire on various dates through the year 2029 with most of the leases containing renewal options. Leases for retail store locations typically have base lease terms of 10 years with one or more renewal periods, usually for five years. Certain retail store leases contain provisions for additional rent based on varying percentages of net sales. Leases for the second distribution center and the corporate headquarters have base lease terms of 15 years with multiple renewal periods. In fiscal 2014, the Company entered into capital lease arrangements for computer hardware and related software with a lease term of 5 years.

Future minimum lease payments, by year, under operating leases and future obligations under non-cancelable leases, by year, as of August 1, 2015 are as follows:

 

     Operating
Leases
     Capital
Leases
 

Remainder of 2015

   $ 28,289       $ 79   

2016

     53,428         192   

2017

     50,027         192   

2018

     45,131         192   

2019

     40,311         143   

2020

     135,749         —    
  

 

 

    

 

 

 

Total minimum lease payments

   $ 352,935         798   
  

 

 

    

Less: capital lease amount representing interest

        (60
     

 

 

 

Present value of minimum lease payments

        738   

Less: current maturities of capital lease obligations

        (167
     

 

 

 

Noncurrent maturities of capital lease obligations

      $ 571   
     

 

 

 

F. SHARE BASED COMPENSATION

The Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan (the “2010 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents and other share-based awards. Directors, officers and other associates of the Company and its subsidiaries, as well as others performing consulting or advisory services, are eligible for grants under the 2010 Plan. As of August 1, 2015, an aggregate of 4,573,086 shares of the Company’s common stock were available under the 2010 Plan, subject to adjustments for stock splits and other actions affecting the Company’s common stock. The exercise price of an option granted under the 2010 Plan will not be less than 100% of the fair value of a share of the Company’s common stock on the date of grant, provided the exercise price of an incentive stock option granted to a person holding greater than 10% of the Company’s voting power may not be less than 110% of such fair value on such date. The term of each option may not exceed ten years or, in the case of an incentive stock option granted to a ten percent stockholder, five years. Under the 2010 Plan, in the event of a dividend or other distribution other than regular cash dividends, recapitalization, or other transactions or events affecting the Company’s common stock, the Company must equitably adjust the number of shares of common stock subject to outstanding stock options and restricted stock and must adjust the exercise price of any outstanding stock options.

There were 1,305,880 shares of common stock available for future grants under the 2010 Plan at August 1, 2015.

 

10


Table of Contents

Restricted Stock - A summary of restricted stock activity during the twenty-six weeks ended August 1, 2015 is set forth in the table below:

 

     Number
of
Shares
     Weighted Average
Grant Date
Fair Value
 

Non-vested, January 31, 2015

     209,770       $ 6.21   

Granted

     142,500         5.77   

Forfeited

     (4,850      4.96   

Vested

     (41,625      4.76   
  

 

 

    

Non-vested, August 1, 2015

     305,795       $ 6.22   
  

 

 

    

Restricted stock vests at varying rates of 20% per year over five years, 25% per year over four years or 33% per year over three years, as applicable. Unrecognized compensation expense on the restricted stock was $1.7 million at August 1, 2015, which is expected to be recognized over a period of 2.0 years.

Performance Shares – On June 4, 2015, the Board of Directors granted 97,900 performance shares to be awarded in the form of common stock to officers and other associates of the Company if certain market condition criteria is achieved. The performance shares vest at the end of fiscal year 2017 if certain criteria is achieved, provided the participant is then employed by the Company. Vesting of these potentially issuable shares are dependent upon the Company’s total shareholder return for the three-year measurement period compared to a pre-determined retail peer competitor index. If the Company’s total shareholder return is at the high end of the pre-determined retail peer competitor index, the maximum amount of shares available to be issued pursuant to this award is 195,800 performance shares or 200% of the 97,900 performance shares approved on June 4, 2015. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the Company’s total shareholder return compared to the peer performance at the end of fiscal year 2017.

The Company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the Company in applying the Monte Carlo valuation model for option grants during the twenty-six weeks ended August 1, 2015 are illustrated in the following table:

 

     26 Weeks
Ended
August 1,
2015
 

Risk-free interest rate

     0.9

Dividend yield

     0.0

Expected volatility

     51.0

The Monte Carlo valuation also estimated the number of performance shares that would be awarded which is reflected in the fair value on the grant date. The Monte Carlo valuation assumed 159.9% of the performance shares granted on June 4, 2015 would be awarded at the end of fiscal year 2017 based upon the estimated Company’s total shareholder return relative to peer performance. The Company’s average stock price was $5.86 on the date of the grant. Accordingly, stock compensation expense of $0.9 million, excluding forfeitures will be recognized over the vesting period of these performance share awards. Unrecognized compensation expense on the restricted stock was $0.9 million at August 1, 2015, which is expected to be recognized over a period of 2.5 years.

 

11


Table of Contents

Stock Options - A summary of stock option activity during the twenty-six weeks ended August 1, 2015 is set forth in the table below:

 

     Number      Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(in Years)
     Aggregate
Intrinsic
Value (1)
 

Outstanding, January 31, 2015

     1,326,143       $ 7.50         

Granted

     623,500         5.85         

Exercised

     (5,825      5.22         

Forfeited

     (45,265      6.45         
  

 

 

          

Outstanding, August 1, 2015

     1,898,553         7.00         8.5       $ —    

Exercisable, August 1, 2015

     433,354         10.19         6.9         —    

Vested or expected to vest as of August 1, 2015

     1,691,752         6.98         8.5         —    

 

(1) The aggregate intrinsic value for stock options is the difference between the current market value of the Company’s stock as of August 1, 2015 and the option strike price. The stock price at August 1, 2015 was $5.51, which was below the weighted average exercise price for options exercisable at August 1, 2015.

The Company received $31 thousand of proceeds from the exercise of stock options during the twenty-six weeks ended August 1, 2015, which is reflected as a financing cash inflow in the condensed consolidated statement of cash flows. The aggregate intrinsic value of stock options exercised during the twenty-six weeks ended August 1, 2015 was $10 thousand. There were no stock option exercises during the twenty-six weeks ended August 2, 2014.

The Company used the Black-Scholes option valuation model to estimate fair value of the options. This model requires an estimate of the volatility of the Company’s share price. While the Company’s shares or options have not been publicly traded for a period equal to the option term, the Company determined that it was not practical to use the expected volatility of its share price as the sole estimate of volatility. As the Company matures as a public company, the Company accounts for equity share options based on a value calculated using a mix of the historical volatility of the Company’s share price and the historical volatility of an appropriate industry sector index. The historical volatility was calculated using comparisons to peers in the Company’s market sector, which was chosen due to the proximity of size and industry to the Company over the expected term of the option.

In determining the expense to be recorded for options, the significant assumptions utilized in applying the Black-Scholes option valuation model are the risk-free interest rate, expected term, dividend yield and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the assumption in the model. The expected term of the option awards is estimated using the simplified method, or the average of the vesting period and the original contractual term.

The weighted average assumptions used by the Company in applying the Black-Scholes valuation model for option grants during the twenty-six weeks ended August 1, 2015 are illustrated in the following table:

 

     26 Weeks
Ended
August 1,
2015
 

Risk-free interest rate

     1.8% - 2.0

Dividend yield

     2.0

Expected volatility

     39.0% - 40.0

Expected life (years)

     6.25   

Weighted average fair value of options granted

   $ 1.91   

 

12


Table of Contents

Stock options have ten-year contractual terms and vest at varying rates of either 20% per year over five years or 25% per year over four years as applicable. None of the stock options outstanding at August 1, 2015 were subject to performance or market-based vesting conditions. As of August 1, 2015, the unrecognized compensation expense on stock options was $2.4 million, which is expected to be recognized over a weighted average period of 2.3 years.

Share-based compensation expense is recorded in selling, general and administrative expenses in the consolidated statements of operations. For the thirteen week periods ended August 1, 2015 and August 2, 2014, share-based compensation expense was $0.4 million and $0.1 million, respectively. Share-based compensation expense was $0.6 million for the twenty-six period ended August 1, 2015. For the twenty-six week period ended August 2, 2014, the Company recorded a share-based compensation benefit of $0.5 million related to the forfeiture of unvested share-based awards granted to the Company’s former chief executive officer, who retired effective March 25, 2014, and the Company’s former chief merchandising officer, who retired effective May 28, 2014, and a $0.1 million benefit resulting from changes in the forfeiture rates used to measure share-based compensation expense based on actual historical and expected future forfeitures. The remaining share-based compensation expense for the twenty-six weeks ended August 2, 2014 was $0.3 million.

G. LOSS PER SHARE

The following is a reconciliation of the outstanding shares utilized in the computation of the loss per share:

 

     13 Weeks
Ended
August 1,
2015
     13 Weeks
Ended
August 2,
2014
     26 Weeks
Ended
August 1,
2015
     26 Weeks
Ended
August 2,
2014
 

Basic weighted average shares outstanding

     19,395,818         19,360,394         19,380,839         19,356,156   

Dilutive effect of share-based awards

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average shares outstanding

     19,395,818         19,360,394         19,380,839         19,356,156   
  

 

 

    

 

 

    

 

 

    

 

 

 

The anti-dilutive effect of 1,758,717 and 1,479,947 stock options has been excluded from diluted weighted average shares outstanding for the thirteen and twenty-six week period ended August 1, 2015, respectively. The anti-dilutive effect of 1,043,159 and 972,647 stock options has been excluded from diluted weighted average shares outstanding for the thirteen and twenty-six weeks ended August 2, 2014, respectively.

H. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth non-cash investing activities and other cash flow information:

 

     13 Weeks
Ended
August 1,
2015
     13 Weeks
Ended
August 2,
2014
     26 Weeks
Ended
August 1,
2015
     26 Weeks
Ended
August 2,
2014
 

Non-cash investing and financing activities:

           

Purchases of property and equipment in accrued expenses at the end of the period

   $ 1,733       $ 1,041       $ 1,733       $ 1,041   

Sales of property and equipment pursuant to sale-leaseback accounting

     2,900         4,947         7,868         8,749   

Dividends payable forfeited on unvested restricted stock

     —           14         —           82   

Deferred financing fees in accrued expenses at the end of the period

     132        —           132         —     

Other cash flow information:

           

Cash paid for interest, net

     444         1,190         1,335         2,308   

Cash (received) / paid for income taxes, net

     (18      87         21         87   

 

13


Table of Contents

Sales of property and equipment pursuant to sale-leaseback accounting represents the amount of structural assets sold to the landlord at the completion of construction for which the Company was deemed the owner during the construction period, pursuant to sale-leaseback accounting, and for which no cash was received upon transfer of ownership.

I. RELATED PARTY DISCLOSURE

The Company has a services agreement with Sun Capital Partners Management V, LLC (“Sun Capital Management”), an affiliate of the private equity firm Sun Capital Partners, Inc. (“Sun Capital”) to (1) reimburse Sun Capital Management for out-of-pocket expenses incurred in providing consulting services to the Company and (2) provide Sun Capital Management with customary indemnification for any such services. Sun Capital was reimbursed $5 thousand and $33 thousand during the thirteen week periods ended August 1, 2015 and August 2, 2014 and $21 thousand and $0.3 million during the twenty-six week periods ended August 1, 2015 and August 2, 2014, respectively. Expenses incurred during the twenty-six week period ended August 2, 2014 include reimbursement payments to Sun Capital for third party professional consulting services related to the search for a chief executive officer following the retirement of our former chief executive officer during the first quarter of fiscal 2014. Additionally, the Company purchased merchandise inventories of $0.7 million and $0.5 million in the normal course of business from merchandise vendors which are Sun Capital affiliates during the thirteen week periods ended August 1, 2015 and August 2, 2014, and $1.0 million and $0.9 million during the twenty-six week periods ended August 1, 2015 and August 2, 2014, respectively.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the factors described in “Item 1A – Risk Factors” in our fiscal year 2014 Annual Report on Form 10-K.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion and analysis should be read in conjunction with our fiscal year 2014 Annual Report on Form 10-K and the unaudited condensed consolidated financial statements and the related notes thereto included in Item 1. Consolidated Financial Statements of this Quarterly Report.

Executive Overview

Gordmans is an everyday value price department store featuring a large selection of brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment. Our merchandise assortment includes apparel and footwear for men, women and children, accessories (including fragrances) and home fashions. The origins of Gordmans date back to 1915, and as of August 1, 2015, we operated 101 stores in 22 states situated in a variety of shopping center developments, including regional enclosed shopping malls, lifestyle centers and power centers. The company also operates an e-commerce site at Gordmans.com where it provides shoppers with a broad selection of merchandise in a convenient, user-friendly digital platform.

We opened four new stores during the first half of fiscal 2015, two of which opened during the second quarter of fiscal 2015. This compares to opening six stores during the first half of fiscal 2014, which included two new stores opened during the second quarter of fiscal 2014 and one existing store relocated during the second quarter of fiscal 2014. We closed two existing stores during the first half of fiscal 2014, one of which closed during the second quarter of fiscal 2014. We also opened our second primary distribution center at the end of the second quarter of fiscal 2014.

 

14


Table of Contents

In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and comparable store sales and other individual store performance factors, gross profit and selling, general and administrative expenses.

Net Sales . Net sales reflect our revenues from the sale of our merchandise less returns and discounts and exclusive of sales tax. Net sales include comparable store sales and non-comparable store sales.

Comparable Store Sales . Comparable store sales have been calculated based upon stores that were open at least 16 months as of the end of the reporting period. Comparable store sales include stores that were relocated or remodeled and exclude stores that are closed. Comparable store sales are assessed on both an owned and licensed basis, which includes the impact to growth in comparable sales of departments where we own the inventory or departments which are licensed to third parties. We also review the average sale per transaction, comparable store transactions, store traffic and sales conversion rates. Comparable store sales are an important indicator of current operating performance, with higher comparable store sales helping us to leverage our fixed expenses and positively impacting our operating results.

Gross Profit . Gross profit is equal to our net sales minus cost of sales, plus license fee income generated from sales of footwear and maternity apparel in our leased departments. Cost of sales includes the direct cost of purchased merchandise, inbound freight to our distribution center, inventory shrinkage and inventory write-downs. Gross profit margin measures gross profit as a percentage of our net sales. Our gross profit may not be comparable to other retailers, as some companies include all of the costs related to their distribution network in cost of sales while others, like us, exclude a portion of these costs from cost of sales and include those costs in selling, general and administrative expenses. Our gross profit margin is a function of initial markup less markdowns, with higher initial markup and lower markdowns positively impacting our operating results.

Selling, General and Administrative Expenses . Selling, general and administrative expenses include all operating costs not included in cost of sales. These expenses include payroll and other expenses related to operations at our corporate office, store expenses, occupancy costs, certain distribution and warehousing costs, pre-opening and closing expenses, depreciation and amortization and advertising expense. Our ability to manage store level and certain other operating expenses directly impacts our operating results.

Overview

The net loss for the thirteen and twenty-six weeks ended August 1, 2015 was $3.0 million and $2.7 million, respectively, as compared to a net loss of $3.2 million and $3.9 million, respectively, for the thirteen and twenty-six weeks ended August 2, 2014. The improvement in the loss was primarily due to higher net sales attributable to new stores, a 150 basis point increase in gross profit margin during the thirteen weeks ended August 1, 2015, and a 90 basis point increase in gross profit margin during the twenty-six weeks ended August 1, 2015, partially offset by an increase in selling, general and administrative expenses and loss on extinguishment of debt. Below are highlights of our financial results for the thirteen and twenty-six weeks ended August 1, 2015.

 

    Net sales increased 1.7% and 1.9%, respectively, for the thirteen and twenty-six weeks ended August 1, 2015 as compared to the thirteen and twenty-six weeks ended August 2, 2014. Higher net sales were driven by an increase in non-comparable store sales due to the opening of six stores during fiscal 2014, three of which opened in the twenty-six weeks ended August 2, 2014, and the four new stores opened during the twenty-six weeks ended August 1, 2015. Comparable store sales on an owned and licensed basis decreased 1.6% and 1.3%, respectively, for the thirteen and twenty-six weeks ended August 1, 2015 as compared to the prior year. On an owned basis, comparable store sales declined 1.7% for both the thirteen and twenty-six weeks ended August 1, 2015, as compared to a decline of 6.8% and 4.8% for the same periods in the prior year. We are working on a number of initiatives to improve our recent comparable store sales trend, including several merchandising strategies focused on injecting breadth, diversity and value into our product selection and modifying our marketing strategy while leveraging our loyalty program. In addition, we launched our e-commerce operation at the end of the second quarter of fiscal 2015.

 

    Gross profit margin increased 150 basis points during the thirteen weeks ended August 1, 2015 and 90 basis point during the twenty-six weeks ended August 1, 2015, as compared to the thirteen weeks and twenty-six weeks ended August 2, 2014, primarily as a result of lower merchandise inventory markdowns.

 

    Selling, general and administrative expenses increased 20 basis points to 45.2% of net sales for the thirteen weeks ended August 1, 2015 compared to 45.0% of net sales for the thirteen weeks ended August 2, 2014 and decreased 40 basis points to 44.3% for the twenty-six weeks ended August 1, 2015 compared to 44.7% for the twenty-six weeks ended August 2, 2014. The increase in selling, general and administrative expenses for the thirteen weeks ended August 1, 2015 as a percentage of net sales was primarily due to higher store expenses and depreciation expense, partially off-set by lower advertising expenses, and store pre-opening and closing expenses. The decrease in selling, general and administrative expenses for the twenty-six weeks ended August 1, 2015 as a percentage of net sales was primarily due to lower pre-opening and closing expenses and lower advertising expenses, partially off-set by higher depreciation expense.

 

15


Table of Contents

Basis of Presentation and Results of Operations

The consolidated financial statements include the accounts of Gordmans Stores, Inc. and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. We utilize a typical retail 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. Fiscal years 2015 and 2014 represent fifty-two week years ending January 30, 2016 and ended January 31, 2015, respectively. All references to fiscal years are to the calendar year in which the fiscal year begins. The thirteen weeks ended August 1, 2015 and August 2, 2014 represent the second quarters of fiscal 2015 and fiscal 2014, respectively. The twenty-six weeks ended August 1, 2015 and August 2, 2014 represent the first half of fiscal 2015 and fiscal 2014, respectively.

The table below sets forth the consolidated statements of operations data for the periods presented (in thousands):

 

     13 Weeks
Ended
August 1,
2015
     13 Weeks
Ended
August 2,
2014
     26 Weeks
Ended
August 1,
2015
    26 Weeks
Ended
August 2,
2014
 

Statements of Operation Data:

          

Net sales

   $ 143,434       $ 141,039       $ 289,374      $ 284,061   

License fees from leased departments

     1,986         1,942         4,419        4,161   

Cost of sales

     (82,593      (83,251      (165,998     (165,118
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

     62,827         59,730         127,795        123,104   

Selling, general and administrative expenses

     (64,819      (63,494      (128,137     (126,852
  

 

 

    

 

 

    

 

 

   

 

 

 

Loss from operations

     (1,992      (3,764      (342     (3,748

Interest expense, net

     (1,038      (1,341      (2,074     (2,538

Loss on extinguishment of debt

     (2,014      —           (2,014     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Loss before taxes

     (5,044      (5,105      (4,430     (6,286

Income tax benefit

     2,013         1,916         1,773        2,365   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net loss

   $ (3,031    $ (3,189    $ (2,657   $ (3,921
  

 

 

    

 

 

    

 

 

   

 

 

 

The table below sets forth the components of the consolidated statements of operations as a percentage of net sales:

 

     13 Weeks
Ended
August 1,
2015  (1)
    13 Weeks
Ended
August 2,
2014  (1)
    26 Weeks
Ended
August 1,
2015  (1)
    26 Weeks
Ended
August 2,
2014  (1)
 

Net sales

     100.0     100.0     100.0     100.0

License fees from leased departments

     1.4        1.4        1.5        1.5   

Cost of sales

     (57.6     (59.0     (57.4     (58.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     43.8        42.3        44.2        43.3   

Selling, general and administrative expenses

     (45.2     (45.0     (44.3     (44.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1.4     (2.7     (0.1     (1.3

Interest expense, net

     (0.7     (1.0     (0.7     (0.9

Loss on extinguishment of debt

     (1.4     —          (0.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before taxes

     (3.5     (3.6     (1.5     (2.2

Income tax benefit

     1.4        1.4        0.6        0.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (2.1 )%      (2.3 )%      (0.9 )%      (1.4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Percentages may not foot due to rounding.

Thirteen Weeks Ended August 1, 2015 Compared to Thirteen Weeks Ended August 2, 2014

Net Sales

Net sales for the thirteen weeks ended August 1, 2015 increased $2.4 million, or 1.7%, to $143.4 million as compared to $141.0 million for the thirteen weeks ended August 2, 2014. This increase was primarily the result of a $4.7 million increase in non-comparable store sales due to the opening of six stores in fiscal 2014 and the opening of four new stores during the first half of fiscal 2015. Owned comparable store sales decreased $2.3 million, or 1.7% while owned and licensed comparable store sales decreased 1.6% during the thirteen weeks ended August 1, 2015. Both owned and owned and licensed comparable store sales were negatively impacted during the thirteen and twenty-six weeks ended August 1, 2015 by a shift in sales tax holidays from July to August in a number of our markets. The comparable store sales decrease was primarily due to a mid-single digit decrease in comparable transactions resulting from a decrease in guest traffic, partially offset by a mid-single digit increase in the average sale per transaction. From a major merchandising category perspective, Accessories (including fragrances) and Home Fashions generated low-single digit comparable store sales increases, while Apparel experienced a mid-single digit comparable store sales decrease for the thirteen weeks ended August 1, 2015 compared to the thirteen weeks ended August 2, 2014.

 

16


Table of Contents

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments was $2.0 million, or 1.4% of net sales, for the thirteen weeks ended August 1, 2015 and $1.9 million, or 1.4% of net sales, for the thirteen weeks ended August 2, 2014.

Gross Profit

Gross profit, which includes license fees from leased departments, for the thirteen weeks ended August 1, 2015 increased $3.1 million, or 5.2%, to $62.8 million as compared to $59.7 million for the thirteen weeks ended August 2, 2014. Gross profit margin increased 150 basis points to 43.8% of net sales as compared to 42.3% of net sales for the second quarter of 2014. The 150 basis point increase in gross profit was due primarily to lower merchandise inventory markdowns and higher license fees from leased departments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses during the thirteen weeks ended August 1, 2015 increased 2.1%, to $64.8 million as compared to $63.5 million for the thirteen weeks ended August 2, 2014. As a percentage of net sales, selling, general and administrative expenses were 45.2% compared to 45.0% for the thirteen weeks ended August 1, 2015, a 20 basis point increase due primarily to higher store payroll as a percentage of net sales.

Store expenses increased $1.5 million in the thirteen weeks ended August 1, 2015 as compared to the thirteen weeks ended August 2, 2014 primarily due to increased payroll, occupancy, and utilities expenses associated with the three stores opened in the second quarter of fiscal 2014 and the four new stores opened in the first half of fiscal 2015, as well as higher vacation expense and health insurance costs. Store expenses were 28.3% of net sales in the second quarter of fiscal 2015, a 60 basis point increase compared to the second quarter of fiscal 2014, primarily resulting from higher store payroll as a percentage of net sales.

Depreciation and amortization expenses increased $1.1 million, or 70 basis points as a percentage of net sales, in the thirteen weeks ended August 1, 2015 as compared to the thirteen weeks ended August 2, 2014 due to increased property additions associated with new store openings, our second distribution center which opened at the end of the second quarter of fiscal 2014, as well as investments in upgrading our information technology systems.

Corporate expenses increased $0.8 million or 40 basis points in the thirteen weeks ended August 1, 2015 as compared to the thirteen weeks ended August 2, 2014, primarily due to increases in payroll expense of $0.6 million related to new staff positions to support our growth including our e-commerce initiative, expanding the management team and merit compensation increases. Share-based compensation expense increased $0.3 million during the second quarter of fiscal 2015 as compared to the same period a year ago when forfeitures of share-based awards associated with our former Chief Merchandising Officer’s (“CMO”) separation were realized. These increases were partially offset by a decrease in recruiting and relocation expenses of $0.2 million due primarily to the addition of several associates to our merchandising and store teams during 2014.

The $0.1 million increase in distribution center expenses in the thirteen weeks ended August 1, 2015 was primarily the result of higher payroll expense necessary to process higher merchandise inventory receipts compared to the thirteen weeks ended August 2, 2014. Distribution center expenses increased 10 basis points in the thirteen weeks ended August 1, 2015 as a result of higher benefit expenses related to increased health insurance costs, partially off-set by capitalized freight on higher merchandise inventory.

Pre-opening and closing expenses decreased $0.8 million, or 60 basis points as a percentage of net sales, in the thirteen weeks ended August 1, 2015 due to expenses incurred in the thirteen weeks ended August 2, 2014 associated with our second distribution center which opened in the second quarter of fiscal 2014. In addition, the Company opened two new stores in the second quarter of fiscal 2015 as compared to three stores opened in the second quarter of fiscal 2014 and closed no stores in the second quarter of fiscal 2015 compared to one store closed in the second quarter of fiscal 2014.

Advertising expenses decreased $1.4 million, or 100 basis points as a percentage of net sales, in the thirteen weeks ended August 1, 2015 as compared to the thirteen weeks ended August 2, 2014 due primarily to changes in our marketing strategy regarding the timing of television advertising during key selling periods which will result in more advertising expense allocated to the second half of the year.

 

17


Table of Contents

Interest Expense, Net

Interest expense, net for the thirteen weeks ended August 1, 2015 decreased $0.3 million to $1.0 million compared to $1.3 million for the thirteen weeks ended August 2, 2014 due primarily to the $15.0 million early payment of the senior term loan in November 2014 and a 225 basis point reduction of the interest rate on the refinanced term debt during the second quarter of fiscal 2015.

Loss on Extinguishment of Debt

The loss on extinguishment of debt for the thirteen weeks ended August 1, 2015 of $2.0 million was result of extinguishing in full the senior term loan with Cerberus Business Finance, LLC. The loss on extinguishment of debt includes the write off of deferred financing fees of $1.7 million related to the extinguished senior term loan during the second quarter of fiscal 2015, as well as incurring a $0.3 million penalty on the early extinguishment of the term loan.

The loss before taxes for the thirteen weeks ended August 1, 2015 was $5.0 million compared to the loss before taxes of $5.1 million in the thirteen weeks ended August 2, 2014. As a percentage of net sales, the loss before taxes was 3.5% for the second quarter of fiscal 2015 compared to the loss before taxes of 3.6% for the second quarter of fiscal 2014.

Income Tax Benefit

The income tax benefit for the thirteen weeks ended August 1, 2015 was $2.0 million compared to an income tax benefit of $1.9 million for the thirteen weeks ended August 2, 2014. The effective tax rate for the second quarter of fiscal 2015 of 39.9% differed from the effective tax rate of 37.5% for the second quarter of fiscal 2014 primarily due to federal tax credits. The effective rate differed from the federal enacted rate of 35% primarily due to state taxes, net of federal benefits.

Net Loss

The loss for the thirteen weeks ended August 1, 2015 was $3.0 million compared to a net loss of $3.2 million for the thirteen weeks ended August 2, 2014, representing an improvement of $0.2 million. The improvement in net loss was primarily due to higher net sales attributable to new stores and a 150 basis point increase in gross profit margin, partially offset by an increase in selling, general and administrative expenses and the loss on extinguishment of debt.

Twenty-six Weeks Ended August 1, 2015 Compared to Twenty-six Weeks Ended August 2, 2014

Net Sales

Net sales for the twenty-six weeks ended August 1, 2015 increased $5.3 million, or 1.9%, to $289.4 million as compared to $284.1 million for the twenty-six weeks ended August 2, 2014. This increase was the result of a $10.0 million increase in non-comparable store sales due to the addition of six new stores in fiscal 2014, five of which opened in the first half of fiscal 2014, and the opening of four new stores in the first half of fiscal 2015. Owned comparable store sales decreased $4.7 million, or 1.7%, during the twenty-six weeks ended August 1, 2015, while owned and licensed comparable store sales decreased by 1.3% during the twenty-six weeks ended August 1, 2015. The comparable store sales decrease was primarily due to a mid-single digit decrease in comparable transactions, which represents our measure for guest traffic, partially offset by a mid-single digit increase in the average sale per transaction. From a major merchandising category perspective, Apparel and Home Fashions experienced a low-single digit comparable store sales decreases while Accessories (including fragrances) experienced low-single digit increase for the twenty-six weeks ended August 1, 2015 compared to the twenty-six weeks ended August 2, 2014.

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments for the twenty-six weeks ended August 1, 2015 increased $0.3 million, or 6.2%, to $4.4 million.

Gross Profit

Gross profit, which includes license fees from leased departments, for the twenty-six weeks ended August 1, 2015 increased $4.7 million, or 3.8%, to $127.8 million as compared to $123.1 million for the twenty-six weeks ended August 2, 2014. Gross profit margin increased 90 basis points to 44.2% of net sales as compared to 43.3% of net sales for the twenty-six weeks ended August 2, 2014. The 90 basis point increase was primarily due lower merchandise inventory markdowns and higher license fee income from leased departments.

 

18


Table of Contents

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the twenty-six weeks ended August 1, 2015 increased $1.3 million, or 1.0%, to $128.1 million as compared to $126.9 million for the twenty-six weeks ended August 2, 2014. As a percentage of net sales, selling, general and administrative expenses decreased to 44.3% as compared to 44.7% during the twenty-six weeks ended August 1, 2015, a 40 basis point decrease. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to lower store pre-opening and closing expenses and lower advertising expenses, partially off-set by higher depreciation expense.

Depreciation and amortization expenses increased $2.1 million, or 70 basis points as a percentage of net sales for the twenty-six weeks ended August 1, 2015 as compared to the twenty-six weeks ended August 2, 2014 due to increased property additions associated with new store openings, our second distribution center which opened at the end of the second quarter of fiscal year 2014, investments in upgrading our information technology systems and the our corporate headquarters.

Store expenses increased $1.9 million for the twenty-six weeks ended August 1, 2015 as compared to the twenty-six weeks ended August 2, 2014 due to increased payroll and real estate expenses associated with new store growth. Store expenses were 27.6% of net sales in the first half of fiscal 2015 as compared to 27.5% of net sales in the first half of fiscal 2014, a 10 basis point increase, primarily resulting from higher payroll as a percentage of net sales.

The $0.8 million increase in distribution center expenses was primarily the result of higher payroll expense necessary to process higher merchandise inventory receipts for the twenty-six weeks ended August 1, 2015, partially off-set by a benefit associated with higher capitalized freight due to higher merchandise inventory levels compared to the twenty-six weeks ended August 2, 2014. Distribution center expenses were 4.5% of net sales in the first half of fiscal 2015 as compared to 4.4% of net sales in the first half of fiscal 2014, a 10 basis point increase, which is due to higher health insurance costs primarily related to newly eligible associates at the second distribution center which opened at the end of the second quarter of fiscal 2014.

Corporate expenses decreased $0.2 million for the twenty-six weeks ended August 1, 2015 as compared to the twenty-six weeks ended August 2, 2014 primarily due to a $1.2 million decrease in expenses associated with the retirement of our former Chief Executive Officer (“CEO”) in the first quarter of fiscal 2014 and our former CMO in the second quarter of fiscal 2014, a decrease in recruiting and relocation expenses of $0.7 million due to addition of several associates to our management teams during the first half of fiscal 2014, respectively. These reductions of corporate expenses were partially off-set by an increase in payroll costs of $1.8 million comprised of higher share-based compensation expense of $0.8 million primarily associated with forfeiture benefits realized from our former CEO’s and CMO’s separation during the first half of fiscal 2014, new staff positions to support our growth including our e-commerce initiative launched at the end of the second quarter of 2015 and merit compensation increases. Corporate expenses were 7.0% of net sales during the first half of fiscal 2015 compared to 7.2% of net sales during the first half of fiscal 2014, a 20 basis point improvement.

Advertising expenses decreased $1.4 million for the twenty-six weeks ended August 1, 2015 as compared to the twenty-six weeks ended August 2, 2014 primarily due to changes in our marketing strategy regarding the timing of television advertising during key selling periods which will result in more dollars allocated to the second half of the year, partially offset by higher web marketing and direct mail expenses. Advertising expenses were 1.8% of net sales during the twenty-six weeks ended August 1, 2015 as compared to 2.4% of net sales during the twenty-six weeks ended August 2, 2014.

Pre-opening and closing expenses decreased $1.8 million, or 70 basis points as a percentage of net sales, for the twenty-six weeks ended August 1, 2015 compared to the twenty-six weeks ended August 2, 2014. This decrease was primarily the result of expenses associated with our second distribution center which opened at the end of the second quarter of fiscal 2014 and the closing of two existing stores in the first half of fiscal 2014. The Company opened four new stores in the first half of fiscal 2015 as compared to five new stores and one relocated store opened in the first half of fiscal 2014, and closed two existing stores in the first half of fiscal 2014, as compared to no store closures during the first half of fiscal 2015.

Interest Expense

Interest expense, net for the twenty-six weeks ended August 1, 2015 decreased $0.5 million to $2.1 million due to the $15.0 million early payment of the senior term loan in November 2014 and the term debt refinancing during the second quarter of fiscal 2015 which resulted in a 225 basis point reduction of the interest rate.

Loss on Extinguishment of Debt

The loss on extinguishment of debt for the twenty-six weeks ended August 1, 2015 of $2.0 million was the result of extinguishing in full the senior term loan with Cerberus Business Finance, LLC. The loss on extinguishment of debt includes the write off of deferred financing fees of $1.7 million related to the extinguished senior term loan during the second quarter of fiscal 2015, as well as a $0.3 million penalty on the early extinguishment of the term loan.

 

19


Table of Contents

Loss before Taxes

The loss before taxes for the twenty-six weeks ended August 1, 2015 decreased to $4.4 million compared to the loss before taxes of $6.3 million in the twenty-six weeks ended August 2, 2014. As a percentage of net sales, the loss before taxes was 1.5% of net sales for the twenty-six weeks ended August 1, 2015 compared to the loss before taxes of 2.2% of net sales for the first half of fiscal 2014.

Income Tax Benefit

The income tax benefit for the twenty-six weeks ended August 1, 2015 was $1.8 million compared to income tax benefit of $2.4 million for the twenty-six weeks ended August 2, 2014. The effective tax rate for the first half of fiscal 2015 of 40.0% differed from the effective tax rate for the first half of fiscal 2014 of 37.6% due primarily due to higher federal tax credits. The effective rate differed from the federal enacted rate of 35% primarily due to state taxes, net of federal benefits.

Net Loss

The net loss for the twenty-six weeks ended August 1, 2015 decreased $1.3 million to a net loss of $2.7 million compared to the net loss of $3.9 million for the twenty-six weeks ended August 2, 2014. As a percentage of net sales, the net loss was 0.9% of net sales for the first half of fiscal 2015 compared to the net loss of 1.4% of net sales for the first half of fiscal 2014. The decrease in net loss was primarily due to higher net sales attributable to new stores, a 90 basis point increase in gross profit margin, lower selling, general and administrative expenses, partially offset by expenses associated with early retirement of debt.

Seasonality

Our business is subject to seasonal fluctuations, which are typical of retailers that carry a similar merchandise offering. A disproportionate amount of our sales and net income are realized during the fourth fiscal quarter, which includes the holiday selling season. In fiscal years 2014, 2013 and 2012, respectively, 32.1%, 32.3% and 33.3% of our net sales were generated in the fourth quarter. Our business is also subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving and Christmas and regional fluctuations for events such as sales tax holidays.

Liquidity and Capital Resources

Our primary ongoing cash requirements are for operating expenses, inventory, new store capital investment, investments in our information technology (including e-commerce operations which were launched at the end of the second quarter of 2015 and the replacement of our existing point-of-sale system beginning in 2016), capital expenditures for existing store improvements and investments in our distribution centers, as well as debt service. Our typical investment in a new store is approximately $1.3 million, which represents pre-opening expenses of $0.4 million and inventory of $0.9 million (of which $0.3 million is typically financed through trade payables). The fixed assets and leasehold improvements associated with a new store opening of approximately $1.2 million have typically been financed by landlords through favorable tenant improvement allowances. Our primary sources of funds for our business activities are cash from operations, borrowings under our revolving line of credit facility, tenant improvement allowances and the use of operating leases for new stores.

Our working capital at August 1, 2015 increased $0.6 million, or 3.1%, to $20.0 million compared to working capital of $19.4 million at January 31, 2015. Working capital was $30.4 million at August 2, 2014. The decrease in working capital from August 2, 2014 to August 1, 2015 primarily relates to higher borrowings on our line of credit facility and higher accounts payable due to merchandise inventory receipts.

Total long-term debt increased from $41.3 million at January 31, 2015 to $61.1 million at August 1, 2015 primarily due to higher borrowings on our line of credit facility related to higher merchandise inventories at August 1, 2015 as compared to January 31, 2015 as we build inventory levels for the back-to-school and fall season. On August 26, 2013, the Company entered into a five year, $45.0 million senior term loan with Cerberus Business Finance, LLC (“Cerberus”) as amended on November 14, 2014, to fund a portion of the $69.9 million special cash dividend payment declared in 2013. The remainder of the special cash dividend payment was funded by cash from operations. The Company paid down $15.0 million of principal on the senior term loan on November 17, 2014. On June 29, 2015, this senior term loan was extinguished in full with proceeds from a new $30.0 million secured term loan facility provided by Wells Fargo Bank, National Association (“Wells Fargo”), as arranger and administrative agent for the lenders, pursuant to the Joinder and Eighth Amendment to Loan, Guaranty and Security Agreement (“Eighth Amendment”) dated June 29, 2015. The majority of the secured term loan principal is due on the maturity date of June 28, 2020, with quarterly principal payments of $0.4 million through the maturity date. Principal payments on our secured term loan will be funded with cash from operations and, if necessary, borrowings under our $80.0 million revolving line of credit facility.

 

20


Table of Contents

The Company was subject to a prepayment premium of $0.3 million related to the Cerberus senior term loan early extinguishment, which was equal to 1.0% of the outstanding principal balance at the time of the payoff of the Cerberus senior term loan. The revolving line of credit facility with Well Fargo, as amended on June 29, 2015 with the Eighth Amendment, contains a provision for a 1.0% early termination fee payable if the facility is terminated prior to November 14, 2016. The June 29, 2015 amendment also extended the maturity date of the revolving line of credit facility from August 27, 2018 to June 28, 2020.

The Eighth Amendment to the debt agreement with Wells Fargo changed the minimum excess availability requirements and certain negative and affirmative covenant requirements. The amendment established a term loan borrowing base to govern the term loan facility in addition to the revolving loan borrowing base that currently governs the revolving line of credit facility. The Company was in compliance with all of its debt covenants as of August 1, 2015.

There were $30.4 million of borrowings outstanding under our revolving line of credit facility at August 1, 2015, as compared to $11.0 million of borrowings outstanding under our revolving line of credit facility at January 31, 2015 and $5.3 million borrowings outstanding under our revolving line of credit facility at August 2, 2014. Cash and cash equivalents were $9.9 million, $7.6 million and $11.1 million at August 1, 2015, January 31, 2015 and August 2, 2014, respectively. Net cash used in operating activities was $10.9 million during the twenty-six weeks ended August 1, 2015 compared to cash provided by operating activities of $28.0 million during the twenty-six weeks ended August 2, 2014. Average borrowings under our revolving line of credit facility increased to $17.1 million in the first half of fiscal 2015 from $9.0 million in the first half of fiscal 2014, in part due to the $15.0 million of principal paid on our senior term loan in November 2014. The largest amount borrowed at one time during the first half of fiscal 2015 was $30.4 million compared to $22.9 million during the first half of fiscal 2014. Availability under our revolving line of credit facility was $42.5 million at August 1, 2015 compared to $44.1 million at January 31, 2015 and $69.4 million at August 1, 2014. Stockholders’ equity was $36.5 million as of August 1, 2015 compared to $38.5 million as of January 31, 2015 and $37.6 million as of August 2, 2014.

During the course of our seasonal business cycle, working capital is needed to support inventory for existing stores, particularly during peak selling seasons. Historically, our working capital needs are lowest in the first quarter and peak late in the third quarter or early in the fourth quarter in anticipation of the holiday selling season. Management believes that the net cash provided by operating activities, bank borrowings, vendor trade terms, tenant improvement allowances and the use of operating leases for new stores will be sufficient to fund anticipated current and long-term capital expenditures and working capital requirements.

Capital Expenditures

Net capital expenditures during the twenty-six weeks ended August 1, 2015 and August 2, 2014 were $5.6 million and $20.2 million, respectively. Net capital expenditures during the twenty-six weeks ended August 2, 2014 included $8.6 million of non-recurring capital expenditures for our second distribution center which opened in the second quarter of fiscal 2014 and the our corporate headquarters which opened in the first quarter of fiscal 2014. Additionally, there were only four new stores opened during the first half of fiscal 2015 compared to five new stores and one relocated store opened and two stores closed during the first half of fiscal 2014.

We lease all of our store locations. In certain cases, we negotiate leases whereby we take responsibility for construction of a new store during the construction period and are reimbursed for our costs from the landlord. When this situation occurs, we report the construction costs as part of our capital expenditures and, as reimbursements for structural assets, such as the building shell, are received from the landlord for construction costs where we are the accounting owner during the construction period, we report the proceeds received from the landlord as proceeds from sale-leaseback transactions.

Cash Flow Analysis

A summary of operating, investing, and financing activities are shown in the following table (in thousands):

 

     26 Weeks
Ended
August 1,
2015
     26 Weeks
Ended
August 2,
2014
 

Cash flows provided by (used in) operating activities

   $ (10,861    $ 27,977   

Cash flows used in investing activities

     (5,605      (20,244

Cash flows provided by (used in) financing activities

     18,778         (2,440
  

 

 

    

 

 

 

Net increase in cash and cash equivalents

     2,312         5,293   

Cash and cash equivalents at beginning of period

     7,634         5,759   
  

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 9,946       $ 11,052   
  

 

 

    

 

 

 

 

21


Table of Contents

Cash Flows from Operating Activities

Net cash used in operating activities for the twenty-six weeks ended August 1, 2015 was $10.9 million, which included a net loss of $2.7 million and noncash charges of $11.5 million comprised of depreciation and amortization expense of $8.1 million, write-off of deferred financing fees of $1.7 million, changes in deferred income taxes of $0.7 million, share-based compensation expense of $0.6 million, amortization of deferred financing fees of $0.4 million and loss on retirement of property and equipment of $23 thousand. Net cash used in operating activities in the twenty-six weeks ended August 1, 2015 was favorably impacted by an increase in accounts payable of $15.1 million related to higher merchandise inventory receipts in the first half of fiscal 2015 attributable to seasonality, new store growth and higher average comparable store inventory levels, as well as an increase in other assets of $80 thousand. The increases in operating cash flows for the twenty-six weeks ended August 1, 2015 were partially offset by a $24.4 million increase in merchandise inventories primarily related to higher average comparable store inventory levels as we increased inventory in advance of the back-to-school selling season, four new stores that opened during the first half of fiscal 2015, and the four new stores which opened in the second and third quarters of fiscal 2014. Operating cash flow were also reduced by an increase in deferred rent primarily related to new stores of $3.7 million, an increase in accounts, landlord and income taxes receivable of $3.2 million, an increase in accrued expenses and other liabilities of $2.1 million, and an increase in prepaid and other current assets of $1.5 million primarily due to the timing of insurance renewals and new store growth.

Net cash provided by operating activities in the twenty-six weeks ended August 2, 2014 was $28.0 million, which included the net loss of $3.9 million and noncash charges of $6.3 million comprised of depreciation and amortization expense of $6.0 million, amortization of deferred financing fees of $0.3 million, changes in deferred income taxes of $0.1 million, a loss on the retirement/disposal of property and equipment of $0.1 million and a share-based compensation benefit of $0.2 million. Net cash provided by operating activities in the twenty-six weeks ended August 2, 2014 were favorably impacted by an increase in accounts payable of $24.8 million related to seasonality, enhanced cash management and new store growth and an increase of $4.9 million in accrued expenses primarily due to our second primary distribution center that opened in the second quarter of fiscal 2014 and an increase in new store activity for the ten new stores opened in fiscal 2013 and the six new stores and one relocated store that opened in fiscal 2014. Net cash provided by operating activities was also favorably impacted by a $0.6 million increase in deferred rent associated with new store growth and an $87 thousand decrease in other assets. These increases in operating cash flows for the twenty-six weeks ended August 2, 2014 were partially offset by a $2.7 million increase in income taxes receivable, landlord receivable and accounts receivable primarily associated with the income tax benefit for the first half of fiscal 2014 of $2.4 million and a $0.8 million increase in prepaid expenses and other current assets related to new store growth and the timing of insurance renewals. The increases in operating cash flows were also partially offset by cash used to increase inventory of $1.4 million for the back-to-school season and for the five new stores and one relocated store opened in the first half of fiscal 2014, partially offset by a double digit decrease in comparable store merchandise inventory levels resulting from our inventory recalibration efforts to drive comparable store sales.

Cash Flows from Investing Activities

Net cash used in investing activities in the twenty-six weeks ended August 1, 2015 and August 2, 2014 was $5.6 million and $20.2 million, respectively. Cash of $8.0 million and $31.3 million was used for purchases of property and equipment during the twenty-six weeks ended August 1, 2015 and August 2, 2014, respectively. The decrease in cash used in investing activities is due to the decrease in cash invested in non-recurring property and equipment additions during the twenty-six weeks ended August 1, 2015, of $8.6 million used for our second primary distribution center that opened in the second quarter of fiscal 2014 and our new corporate headquarters that we moved into during March 2014. Additionally, less cash was used on new stores during the twenty-six weeks ended August 1, 2015, as there were only four stores opened in the first half of fiscal 2015 compared to five new stores and one relocated store opened in the first half of fiscal 2014. There were $1.7 million of property and equipment purchases in accrued expenses at August 1, 2015.

Proceeds from sale-leaseback transactions were $2.4 million and $11.0 million for the twenty-six weeks ended August 1, 2015 and August 2, 2014, respectively, where the Company was deemed the accounting owner of the structural property additions during the new store construction period pursuant to the underlying lease agreement. This $8.6 million decrease in cash generated from proceeds from sale-leaseback transactions primarily resulted from the timing of receipt of payments from landlords, as well as one less new store in fiscal 2015 subject to sale-leaseback accounting as compared to fiscal 2014.

 

22


Table of Contents

Cash Flows from Financing Activities

Net cash provided by financing activities was $18.8 million during the twenty-six weeks ended August 1, 2015, as compared to net cash used in financing activities of $2.4 million during the twenty-six weeks ended August 2, 2014. Borrowings and repayments on our revolving line of credit facility were $111.9 million and $92.5 million, respectively, during the twenty-six weeks ended August 1, 2015, compared to $91.9 million and $93.8 million, respectively, during the twenty-six weeks ended August 2, 2014. Cash proceeds of $30.0 million were received from the new Wells Fargo secured term loan that were used to extinguish the Cerberus senior term loan in full during the twenty-six weeks ended August 1, 2015. Cash of $29.5 million was used during the twenty-six weeks ended August 1, 2015 for payment of long term debt including the Cerberus senior term loan payoff of $29.2 million and a $0.3 million quarterly principal payment on the term loan in the first quarter of fiscal 2015. Cash of $0.8 million was paid for debt financing fees during the twenty-six weeks ended August 1, 2015 related to the Eighth Amendment to the loan agreement effective June 29, 2015. Additionally, the Company was subject to a penalty of $0.3 million, which was equal to 1.0% of the outstanding principal balance and was paid during the second quarter of fiscal 2015 on the early extinguishment of debt. Proceeds of $31 thousand were received in connection with the exercise of stock options during the twenty-six weeks ended August 1, 2015. Dividends of $8 thousand were paid on restricted stock that vested in the first half of fiscal 2015 related to the $69.9 million special cash dividend declared in August 2013.

Existing Credit Facilities

Gordmans, Inc. is the borrower under a loan, guaranty and security agreement dated as of February 20, 2009, as amended June 29, 2015, with Wells Fargo Bank, National Association as agent and a lender and with certain other lender parties thereto from time to time. Gordmans Stores, Inc., Gordmans Intermediate Holdings Corp., Gordmans Distribution Company, Inc., Gordmans Management Company, Inc. and Gordmans LLC are all guarantors under the loan agreement. The loan, guaranty and security agreement provides for an $80.0 million revolving line of credit facility, subject to increase by the Company up to $100.0 million. The description which follows includes the terms of the Eighth Amendment to the loan agreement, which became effective June 29, 2015.

Our revolving line of credit facility is available for working capital and other general corporate purposes and is scheduled to expire on June 28, 2020. At August 1, 2015, we had $30.4 million of borrowings outstanding under our revolving line of credit facility as compared to outstanding borrowings of $11.0 million at January 31, 2015 and $5.3 million at August 2, 2014. The availability of our revolving line of credit facility is subject to a borrowing base, which is comprised of eligible credit card receivables and the liquidation value of eligible landed inventory, eligible distribution center inventory and eligible in-transit inventory. The Company is required to maintain minimum excess availability under the revolving line of credit facility of at least $20.0 million, the calculation of which now includes up to $3.0 million of unrestricted cash. Availability under our revolving line of credit facility was $42.5 million at August 1, 2015, and included letters of credit issued with an aggregate face amount of $7.1 million. There were borrowings under the facility of an aggregate of $111.9 million during the first half of fiscal 2015 and repayments of $92.5 million during the first half of fiscal 2015.

Interest is payable on borrowings under our revolving line of credit facility monthly at a rate equal to LIBOR or the base rate as selected by management, plus an applicable margin which ranges from 0.75% to 2.00% set quarterly dependent upon the whether excess availability is less than or greater than $40.0 million.

An unused line fee is payable quarterly in an amount equal to 0.25% of the sum of the average daily unused revolver amount during the immediately preceding month plus the average daily balance of the letter of credit usage during the immediately preceding month. An administrative agent fee is also payable under the facility on an annual basis.

The revolving line of credit facility has a first lien on all collateral other than term loan priority collateral, as defined in the June 29, 2015 amendment, and a second lien on the term loan priority collateral, as defined in the June 29, 2015 amendment.

On August 27, 2013, Gordmans, Inc. entered into a $45.0 million senior term loan, as amended November 14, 2014, with Cerberus Business Finance, LLC. This senior term loan with Cerberus was extinguished in full on June 29, 2015 with the proceeds from the new $30.0 secured term loan established by the June 29, 2015 amendment with Wells Fargo discussed above.

 

23


Table of Contents

The new secured term loan matures on the same date as the revolving line of credit facility and has principal payments of $0.42 million due on a quarterly basis beginning in October 2015 through the maturity date, with the remaining principal due on the maturity date of June 28, 2020. The Company may repay at any time all or a portion of the outstanding principal amount of the secured term loan facility, subject to a prepayment premium equal to 3.0% in the first year, 1.5% in the second year, 0.5% in the third year and 0.0% thereafter. The term loan carries an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.0%. The interest rate on the term loan was 7.25% at August 1, 2015 which compares to the Cerberus senior term loan interest rate of 9.5% at January 31, 2015 and August 2, 2014. The term loan is secured by the same collateral as the revolving line of credit facility but has a priority lien on real estate, fixtures, equipment, intellectual property and books, records, permits, licenses, insurance, in each case related to term loan priority collateral, and proceeds thereof and a second lien on the revolving priority collateral, as defined. As of August 1, 2015, the Company was in compliance with all of its debt covenants and expects to be in compliance with all of its debt covenants for measurement periods occurring through the remainder of fiscal 2015.

Among other provisions, the Company’s loan agreement with Wells Fargo contains customary affirmative and negative covenants, including a negative covenant that restricts the level and form of indebtedness entered into by the Company or its wholly owned subsidiaries. Exceptions to this covenant include borrowings under our $30.0 million senior term loan and, subject to certain conditions, indebtedness not to exceed $10.0 million in the aggregate in connection with all acquisitions occurring after February 20, 2009. Our revolving line of credit facility also includes a negative covenant that restricts dividends and other upstream distributions by the Company and its subsidiaries to the extent the Company does not meet minimum excess availability thresholds. Exceptions to this covenant include dividends or other upstream distributions: (i) by subsidiaries of Gordmans, Inc. to Gordmans, Inc. and its other subsidiaries, (ii) that consist of repurchases of stock of employees in an amount not to exceed $0.5 million in any fiscal year, (iii) that consist of the payment of taxes on behalf of any employee, officer or director of the Company for vested restricted stock of the Company owned by such employee, officer or director, (iv) to the Company to pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of the Company and its subsidiaries, (v) to the Company to pay certain reasonable directors’ fees and out-of-pocket expenses, reasonable and customary indemnities to directors, officers and employees and other expenses in connection with the ordinary corporate governance, overhead, legal and accounting and maintenance and (vi) dividends so long no event of default exists, projected excess availability for the next twelve months is greater than $35.0 million 30% of the loan cap and the fixed charge coverage ratio is greater than 1.0 to 1.0 on a historical and projected basis. The agreement also includes a negative covenant that restricts subsidiaries of the Company from making any loans to the Company. Should the Company default on scheduled repayment of the secured term loan facility, Wells Fargo may make any outstanding obligations under the agreement immediately due and payable. As of August 1, 2015, the Company was in compliance with all of its debt covenants.

We also entered into two financing arrangements to purchase computer hardware and software during fiscal 2014. The Company’s remaining obligation under the financing arrangements is $0.7 million at August 1, 2015 and $0.8 million January 31, 2015.

Contractual Obligations and Off-Balance-Sheet Arrangements

As noted in the table which follows, the Company has contractual obligations and commitments as of August 1, 2015 that may affect the financial condition of the Company. However, management believes there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results of operations, or cash flows. Other than the letters of credit set forth in the table below, the Company had no off-balance-sheet arrangements as of August 1, 2015. Letters of credit are entered into with certain of our vendors and Wells Fargo Bank, National Association with terms that are financially and operationally beneficial to both parties primarily related to certain vendor financing partners and insurance providers for self-insurance reserves.

 

24


Table of Contents

The following table summarizes our contractual obligations and commitments as of August 1, 2015:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 
     (in 000’s)  

Contractual Obligations:

              

Capital leases (1)

   $ 798       $ 80       $ 383       $ 335       $ —    

Operating leases (2)(3)

     352,935         28,289         103,455         85,442         135,749   

Term loan (4)

     39,420         1,944         7,436         6,936         23,104   

Revolving line of credit

     30,382         —          —          —          30,382   

Letters of credit

     7,112         7,112         —          —          —    

Purchase orders (5)

     127,013         127,013         —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 557,660       $ 164,438       $ 111,274       $ 92,713       $ 189,235   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Includes principal and interest payments on capital lease obligations.
(2)   Certain retail store leases contain provisions for additional rent based on varying percentages of sales when sales reach certain thresholds, but are not included in operating lease obligations.
(3)   Real estate taxes, common area maintenance and insurance are expenses considered additional rent that can vary from year to year, but are not included in operating lease obligations. These expenses represented approximately 39% of lease expense for our retail stores in the twenty-six weeks ended August 1, 2015.
(4)   Includes $30 million of principal payments and $9.4 million of interest payments on the term loan. Interest is calculated using the interest rate of 7.25% at August 1, 2015.
(5)   Purchase orders consist of open purchase orders for merchandise, net of receipts already received on those orders. Amounts committed under open purchase orders for merchandise are cancelable without penalty prior to a date that precedes the vendors’ scheduled shipment date.

Critical Accounting Policies and Estimates

We have determined that our most critical accounting policies are those related to revenue recognition, merchandise inventories, long-lived assets, operating leases, self-insurance, share-based compensation and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies discussed in our fiscal year 2014 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily through borrowings under our revolving line of credit facility and through outstanding borrowings on our senior term loan, both of which bear interest at variable rates.

Borrowings under this facility bear interest at various rates, with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at the prime rate plus 1.00% when average excess availability is less than or equal to $40.0 million and the prime rate plus 0.75% when average excess availability is greater than $40.0 million, and (2) for LIBOR rate advances, borrowings bear interest at the LIBOR rate plus 2.00% when average excess availability is less than or equal to $40.0 million and the LIBOR rate plus 1.75% when average excess availability is greater than $40.0 million. Borrowings and repayments under our revolving line of credit facility may not exceed the lesser of a calculated borrowing base or $80.0 million. Borrowings under our revolving line of credit facility during the twenty-six weeks ended August 1, 2015 were $111.9 million and $92.5 million, respectively, with $30.4 million being the largest amount borrowed at one time, and $30.4 million of borrowings were outstanding under our revolving credit facility at August 1, 2015. Average daily borrowings during the first quarter of fiscal 2015 were $17.1 million. We performed a sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings of our revolving line of credit facility. As of August 1, 2015, the analysis indicated that such a movement would result in an increase to interest expense of approximately $0.2 million per year.

Borrowings under our term loan bear interest at an interest rate equal to the LIBOR rate plus 6.25% with a floor of 1.00% (7.25% at August 1, 2015). We performed a sensitivity analysis assuming a hypothetical 100 basis point increase in the interest rate applied to the average amount outstanding on the term loan. As of August 1, 2015, the analysis indicated that such a movement would result in an increase to interest expense of approximately $0.3 million per year.

 

25


Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

The required certifications of our Chief Executive Officer and Chief Financial Officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures, internal control over financial reporting and changes in internal control over financial reporting referred to in those certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

Evaluation of Disclosure Controls and Procedure

Under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of August 1, 2015 to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal claims and proceedings which arise in the ordinary course of our business, including employment related claims, involving routine claims incidental to our business. Although the outcome of these routine claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these claims will have a material adverse effect on our results of operations, financial condition or cash flow.

ITEM 1A. RISK FACTORS

Our risk factors have not changed materially from those disclosed in our fiscal year 2014 Annual Report on Form 10-K. The risk factors disclosed in our Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report, could materially affect our business, financial condition or results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

None

 

26


Table of Contents

ITEM 6. EXHIBITS

The following exhibits are filed or furnished with this Quarterly Report:

EXHIBIT INDEX

 

Exhibit
Number

  

Description

  10.1    Joinder and Eighth Amendment to Loan, Guaranty and Security Agreement, dated June 29, 2015, by and among Gordmans, Inc., each of the other credit parties thereto, the lender party thereto and Wells Fargo Bank, National Association, as arranger, administrative agent and term agent (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed on July 2, 2015)
  10.2    Form of Performance Shares Agreement under the Gordmans, Stores, Inc. 2010 Omnibus Incentive Compensation Plan
  31.1    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

27


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 28, 2015

 

GORDMANS STORES, INC.
By:   /s/ ANDREW T. HALL
 

 

  Andrew T. Hall
 

President, Chief Executive Officer and Secretary

(Principal Executive Officer)

By:   /s/ MICHAEL D. JAMES
 

 

  Michael D. James
 

Senior Vice President, Chief Financial Officer,

Treasurer and Assistant Secretary

(Principal Financial Officer and Principal Accounting Officer)

 

28

Exhibit 10.2

PERFORMANCE SHARE AWARD AGREEMENT

PURSUANT TO THE

GORDMANS STORES, INC. 2010 OMNIBUS INCENTIVE COMPENSATION PLAN

*  *  *  *  *

Participant:                                         

Grant Date:                                         

Number of Performance Shares granted:                                         

*  *  *  *  *

THIS PERFORMANCE SHARE AWARD AGREEMENT (this “ Agreement ”), dated as of the Grant Date specified above, is entered into by and between Gordmans Stores, Inc., a Delaware corporation organized in the State of Delaware (the “ Company ”), and the Participant specified above, pursuant to the Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan, as in effect and as amended from time to time (the “ Plan ”), which is administered by the Committee; and

WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Performance Shares provided herein to the Participant.

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:

1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

2. Grant of Performance Share Award .

(a) The Company hereby grants to the Participant, as of the Grant Date specified above, the number of Performance Shares specified above, subject to the Company’s total shareholder return (TSR) determined during the Performance Measurement Period (Fiscal 2015 through Fiscal 2017). The number of unrestricted shares of common stock to be delivered to the Participant after the vesting period will be determined based upon the Company’s TSR during the Performance Measurement Period compared to the Comparator Group (defined below) on the following sliding scale:

 

Percentile Ranking of Performance Group     Performance Shares Earned
(Prorated)
 
  100     200
  75     150
  50     100
  25     25
  < 25     0


(b) The Comparator Group is defined as a select group of department stores, home fashion and apparel retailers that are included in the S&P 1500 Retail Index. At the beginning of Fiscal 2015, those companies are as follows:

 

S&P 1500 Retail Index

Department Stores

  
Dillard’s, Inc.    Macy’s, Inc.
J.C. Penney Corporation, Inc.    Nordstrom, Inc.
Kohl’s Corporation   

 

S&P 1500 Retail Index

Apparel and Home

  
Abercrombie & Fitch Co.    Foot Locker, Inc.
Aeropostale, Inc.    The Gap, Inc.
American Eagle Outfitters, Inc.    Genesco, Inc.
Ann Inc.    Kirkland’s
Ascena Retail Group, Inc. (Dress Barn)    The Men’s Wearhouse, Inc.
Bed, Bath and Beyond Inc.    Ross Stores, Inc.
The Buckle, Inc.    Stage Stores
The Cato Corporation    Steinmart Inc.
Chico’s FAS, Inc.    The TJX Companies, Inc.
The Children’s Place Retail Stores, Inc.    Urban Outfitters, Inc.

(c) Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participant’s interest in the Company for any reason. Subject to Section 5, the Participant shall not have the rights of a stockholder in respect of the shares underlying this Award until such shares are delivered to the Participant in accordance with Section 4.

3. Vesting .

(a) The Performance Shares subject to this grant shall cliff vest on the first day of the fiscal year after the Performance Measurement Period, provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to the vesting date and all vesting shall occur only on the specified vesting date, subject to the Participant’s continued service with the Company or any of its Subsidiaries on the specified vesting date.

 

2


(b) Certain Terminations . All unvested Performance Shares shall immediately become vested upon a Termination due to (i) the Participant’s death or (ii) the Participant’s Disability, at the value measured on the date of Termination.

(c) Change in Control . All unvested Performance Shares shall immediately become vested upon a Change in Control, at the value measured on the date of the Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date.

(d) Effect of Detrimental Activity . The provisions of Section 8.1 of the Plan regarding Detrimental Activity shall apply to the Restricted Stock.

(e) Forfeiture . Other than as specifically set forth in Section 3(b), all unvested Performance Shares shall be immediately forfeited upon the Participant’s Termination for any reason.

4. Delivery of Unrestricted Shares . When Performance Shares awarded by this Agreement become vested, the Participant shall be entitled to receive unrestricted shares of commons stock free of any legend restricting the transfer of such shares (except any legends requiring compliance with securities laws).

5. Dividends and Other Distributions; Voting . Participants holding Performance Shares shall be not be entitled to receive dividends and other distributions paid with respect to such shares, nor shall the Participant be entitled to voting rights with respect to the Performance Shares granted hereunder.

6. Non-transferability . The Performance Shares, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way any of the Performance Shares, or the levy of any execution, attachment or similar legal process upon the Performance Shares, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.

7. Non-Competition Covenant. In consideration of the Performance Shares being granted herein, the Participant agrees that during the Participant’s service as an employee of the Company or its Affiliates and for the six-month period thereafter, the Participant shall not, directly or indirectly, engage in, or serve as a principal, partner, joint venturer, member, manager, trustee, agent, stockholder, director, officer or employee of, or advisor to, or in any other capacity, or in any manner, own, control, manage, operate, or otherwise participate, invest, or have any interest in, or be connected with, any person, firm or entity that engages in any activity which competes directly or indirectly with any business of the Company or its Subsidiaries (collectively, the “ Company Business ”) anywhere in the U.S. or any other country in which the Company Business was conducted or related sales were effected during the preceding two (2) years. This Section 7 will not apply and will not be enforced by the Company with respect to post-Termination activity by the Participant that occurs in California or in any other state in which this prohibition is not enforceable under applicable law.

 

3


8. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.

9. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participant’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Performance Shares and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable to the Participant hereunder.

10. Securities Representations . The shares of Common Stock being issued to the Participant upon vesting of the Performance Shares and this Agreement is being made by the Company in reliance upon the following express representations and warranties of the Participant. The Participant acknowledges, represents and warrants that:

(a) The Participant has been advised that the Participant may be an “affiliate” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “ Act ”), and in connection therewith the Company is relying in part on the Participant’s representations set forth in this Section 10.

(b) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Act, the shares of Common Stock must be held indefinitely unless an exemption from any applicable resale restriction is available or the Company files an additional registration statement (or a “re-offer prospectus”) with regard to the shares of Common Stock and the Company is under no obligation to register the shares of Common Stock (or to file a “re-offer prospectus”).

(c) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Act, the Participant understands that the exemption from registration under Rule 144 will not be available unless (i) a public trading market then exists for the Common Stock of the Company, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 or any exemption therefrom are complied with; and that any sale of the shares of Common Stock may be made only in limited amounts in accordance with such terms and conditions.

11. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.

 

4


12. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.

13. Acceptance . As required by Section 8.2 of the Plan, the Participant shall forfeit the Performance Shares if the Participant does not execute this Agreement within a period of sixty (60) days from the date the Participant receives this Agreement (or such other period as the Committee shall provide).

14. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or Affiliates to terminate the Participant’s employment or service at any time, for any reason and with or without cause.

15. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Performance Shares awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.

16. Compliance with Laws . The issuance of the Performance Shares or unrestricted shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Performance Shares or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.

17. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the shares of Performance Shares are intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.

18. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.

 

5


19. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

20. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

21. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.

22. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

23. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of Restricted Shares made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Performance Shares awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participant’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

*  *  *  *  *

 

6


IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.

 

GORDMANS STORES, INC.
By:  

 

Name:  

 

Title:  

 

PARTICIPANT

 

Name:  

 

Social Security Number:  

 

 

7

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew T. Hall, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 28, 2015

 

/s/ ANDREW T. HALL

Andrew T. Hall

Chief Executive Officer, President and Secretary

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. James, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Gordmans Stores, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 28, 2015

 

/s/ MICHAEL D. JAMES

Michael D. James

Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

(Principal Financial Officer

and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended August 1, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew T. Hall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ ANDREW T. HALL

Andrew T. Hall

Chief Executive Officer, President and Secretary

(Principal Executive Officer)

August 28, 2015

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Gordmans Stores, Inc. (the “Company”) for the quarterly period ended August 1, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. James, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ MICHAEL D. JAMES

Michael D. James
Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

(Principal Financial Officer

and Principal Accounting Officer)

August 28, 2015

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.