ZUMIEZ INC. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and related notes included elsewhere in this document. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "Item 1A Risk Factors." See the cautionary note regarding forward-looking statements set forth at the beginning of Part I of the Annual Report on Form 10-K.
The following Management's Discussion and Analysis of Financial Condition and
Result of Operations ("MD&A") is intended to help the reader understand the
financial condition, results of operations, and the certainty of cash flows of
Fiscal 2022-A Review of This Past Year
After a record year of sales and earnings in fiscal 2021 fueled by domestic government stimulus yielding 19.5% growth in net sales and 61.6% growth in diluted earnings per share, fiscal 2022 was much more challenging. During the front half of fiscal 2022 we were facing difficult year-over-year sales comparisons from the record US government stimulus in early fiscal 2021. In addition, there was significant inflationary pressure on discretionary spending in our customer base and more competition for discretionary dollars from categories such as travel and entertainment. This resulted in a 19% decrease in net sales for the full year fiscal 2022. The lower sales level combined with inflation in our cost structure resulted in a decrease in earnings per diluted share of 77.7%.
After six straight years of product margin gains, fiscal 2022 Product margin
decreased 50 basis points from the prior year driven primarily by the difficult
sales environment during the back-to-school and holiday peaks necessitating
discounting to maintain a healthy inventory position at year end. Regardless of
this decrease, fiscal 2022 product margin is at the second highest level in our
history and we believe current levels represent structural gains rather than
short-term, pandemic related improvements. In a more normalized sales
environment, we anticipate that we can recover what was lost in fiscal 2022 and
continue to grow product margins through existing initiatives in the business
over time. Total gross margin decreased by 470 basis points in fiscal
2022. Beyond the product margin impact discussed above, the 19.0% decrease in
net sales created deleverage of significant fixed costs included in gross margin
such as occupancy, distribution center, and merchandising expenses. While we
were able to reduce total selling, general and administrative expenses in 2022,
these costs deleveraged due to the sales decline. Our earnings per diluted share
of
As a leading global lifestyle retailer, we continue to differentiate ourselves
through our distinctive brand offering and diverse product selection, as well as
the unique customer experience across all of our platforms. We remain committed
to serving the customer through introducing newness in our product offering
launching over 100 new brands in 2022. We made investments over several years to
integrate the digital and physical channels creating a seamless shopping
experience for our customer. We are continuing to deliver our online orders in
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The following table shows net sales, operating profit, operating margin and diluted earnings per share for fiscal 2022 compared to fiscal 2021:
Fiscal 2022 Fiscal 2021 % Change
Net sales (in thousands) (1)
3.2 % 13.3 %
Diluted earnings per share $ 1.08 $ 4.85 -77.7 %
(1) The decrease in net sales was primarily driven by continued inflationary
pressures on the consumer and the benefits from domestic stimulus in the
prior year when consumers were less likely to spend on travel and in-person
entertainment due to COVID-19. The decrease in net sales was driven by a
decrease in transactions and a decrease in dollars per transaction. The
decrease in dollars per transaction was driven by a decrease in units per
transaction, partially offset by an increase in average unit retail. For the
year, the men's category was our largest declining category followed by
hardgoods, accessories, women's and footwear.
Fiscal 2023-A Look At the Upcoming Year
In fiscal 2023, our focus remains on serving the customer with strategic
investments largely tied to enhancing the customer experience while increasing
market share and creating operational efficiencies to drive long-term operating
margin back to historical levels. Though 2022 was a highly challenging year, the
balance sheet remains strong with
Exiting a difficult year for sales and earnings in fiscal 2022, the macro-economic environment in 2023 remains unclear. Inflation remains high compared to historical levels and this continues to weigh on the discretionary income of our customer base. Economic indicators show that our customers savings levels are decreasing and credit card levels are increasing. While current conditions appear difficult for consumers, we remain focused on our long-term initiatives that will help us capitalize on opportunities as these circumstances improve. These include concepts like; continued globalization of the brand to enhance our ability to reach consumers in each geography that we operate, an intense focus with our brand partners to bring forth relevant product with the speed expected by our customers, aggressively managing inventory levels, continuing to rethink how the customer interacts with the brand, and actively managing how we optimize the trade areas in which we serve our customers.
General
Net sales constitute gross sales, net of actual and estimated returns and deductions for promotions, and shipping revenue. Net sales include our store sales and our ecommerce sales. We record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card. Additionally, the portion of gift cards that will not be redeemed ("gift card breakage") is recognized based on our historical redemption rate in proportion to the pattern of rights exercised by the customer.
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We report "comparable sales" based on net sales beginning on the first anniversary of the first day of operation of a new store or ecommerce business. We operate a sales strategy that integrates our stores with our ecommerce platform. There is significant interaction between our store sales and our ecommerce sales channels and we believe that they are utilized in tandem to serve our customers. Therefore, our comparable sales also include our ecommerce sales. Changes in our comparable sales between two periods are based on net sales of store or ecommerce business which were in operation during both of the two periods being compared and, if a store or ecommerce business is included in the calculation of comparable sales for only a portion of one of the two periods being compared, then that store or ecommerce business is included in the calculation for only the comparable portion of the other period. Any increase or decrease less than 25% in square footage of an existing comparable store, including remodels and relocations within the same mall, or temporary closures less than seven days does not eliminate that store from inclusion in the calculation of comparable sales. Any store or ecommerce business that we acquire will be included in the calculation of comparable sales after the first anniversary of the acquisition date. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. Stores closed due the impacts of COVID-19 are excluded from our comparable sales calculation if they were closed for longer than seven days. Our ecommerce business has remained open during the COVID-19 pandemic and therefore remains reported in our comparable sales calculation. There may be variations in the way in which some of our competitors and other apparel retailers calculate comparable sales. As a result, data herein regarding our comparable sales may not be comparable to similar data made available by our competitors or other retailers.
Cost of goods sold consists of branded merchandise costs and our private label merchandise costs including design, sourcing, importing and inbound freight costs. Our cost of goods sold also includes shrinkage, buying, occupancy, ecommerce fulfillment, distribution and warehousing costs (including associated depreciation) and freight costs for store merchandise transfers. This may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold. Cash consideration received from vendors is reported as a reduction of cost of goods sold if the inventory has sold, a reduction of the carrying value of the inventory if the inventory is still on hand, or a reduction of selling, general and administrative expense if the amounts are reimbursements of specific, incremental and identifiable costs of selling the vendors' products.
With respect to the freight component of our ecommerce sales, amounts billed to our customers are included in net sales and the related freight cost is charged to cost of goods sold.
Selling, general and administrative expenses consist primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, freight costs for merchandise shipments from the distribution centers to the stores, store supplies, depreciation on fixed assets at our home office and stores, facility expenses, training expenses and advertising and marketing costs. Credit card fees, insurance, public company expenses, legal expenses, amortization of intangibles, and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be comparable to the way in which our competitors or other retailers compute their selling, general and administrative expenses.
Key Performance Indicators
Our management evaluates the following items, which we consider key performance indicators, in assessing our performance:
Net sales. Net sales constitute gross sales, net of sales returns and deductions for promotions, and shipping revenue. Net sales includes comparable sales and new store sales for all our store and ecommerce businesses. We consider net sales to be an important indicator of our current performance. Net sales results are important to achieve leveraging of our costs, including store payroll and store occupancy. Net sales also have a direct impact on our operating profit, cash and working capital.
Gross profit. Gross profit measures whether we are optimizing the price and inventory levels of our merchandise. Gross profit is the difference between net sales and cost of goods sold. Any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.
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Operating profit. We view operating profit as a key indicator of our success. Operating profit is the difference between gross profit and selling, general and administrative expenses. The key drivers of operating profit are net sales, gross profit, our ability to control selling, general and administrative expenses and our level of capital expenditures affecting depreciation expense.
Diluted earnings per share. Diluted earnings per share is based on the weighted average number of common shares and common share equivalents outstanding during the period. We view diluted earnings per share as a key indicator of our success in increasing shareholder value.
Trends and Uncertainties Affecting Our Results and Comparability
We have been, and we expect to continue to be affected by a number of factors
that may cause actual results to differ from our historical results or current
expectations. These factors include the impact of the COVID-19 pandemic on our
operations and financial results; foreign currency rates; changes in laws,
including
These and other factors can affect our operations and net earnings for any period and may cause such results not to be comparable to the same period in previous years and the results presented in this report are not necessarily indicative of future operating results.
Results of Operations
In
2020, the
The following table presents selected items on the consolidated statements of income as a percent of net sales:
Fiscal 2022 Fiscal 2021 Fiscal 2020
Net sales 100.0 % 100.0 % 100.0 %
Cost of goods sold 66.1 % 61.4 % 64.7 %
Gross profit 33.9 % 38.6 % 35.3 %
Selling, general and administrative expenses 30.7 % 25.3 % 25.5 %
Operating profit 3.2 % 13.3 % 9.8 %
Interest and other income, net 0.2 % 0.3 % 0.5 %
Earnings before income taxes 3.4 % 13.6 % 10.3 %
Provision for income taxes 1.2 % 3.5 % 2.6 %
Net income 2.2 % 10.1 % 7.7 %
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Fiscal 2022 Results Compared With Fiscal 2021
Net sales were
The decrease in net sales was driven by a decrease in transactions and a decrease in dollars per transaction. The decrease in dollars per transaction was driven by a decrease in units per transaction, partially offset by an increase in average unit retail. For the year, the men's category was our largest declining category followed by hardgoods, accessories, women's, and footwear.
By region,
Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were
Net Income
Net income for fiscal 2022 was
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Fiscal 2021 Results Compared With Fiscal 2020
Net sales were
The increase in net sales was driven by an increase in transactions and an increase in dollars per transaction. Dollars per transaction increased due to an increase in average unit retail partially offset by a decrease in units per transaction. For the year, the men's category was our largest growth category followed by accessories, footwear, and women's. Our only negative category for the year was hardgoods.
By region,
Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were
Net Income
Net income for fiscal 2021 was
Liquidity and Capital Resources
Our cash requirements are subject to change as business conditions warrant and opportunities arise. Our primary uses of cash are for operational expenditures, inventory purchases, common stock repurchases and capital investments, including new stores, store remodels, store relocations, store fixtures and ongoing infrastructure improvements. Historically, our main source of liquidity has been cash flows from operations.
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The significant components of our working capital are inventories and liquid assets such as cash, cash equivalents, current marketable securities and receivables, reduced by accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale, while we typically have longer payment terms with our vendors.
At
The following table summarizes our cash flows from operating, investing and financing activities (in thousands):
Fiscal 2022 Fiscal 2021 Fiscal 2020
Total cash (used in) provided by
Operating activities $ (379 ) $ 134,950 $ 138,412
Investing activities 54,209 101,643 (110,541 )
Financing activities (87,257 ) (191,409 ) (9,694 )
Effect of exchange rate changes on cash and
cash
equivalents (2,172 ) (1,822 ) 3,522
Net (decrease) increase in cash, cash
equivalents, and restricted cash $ (35,599 ) $ 43,362 $ 21,699 Operating Activities
Net cash provided by operating activities decreased by
Investing Activities
Net cash provided by investing activities was
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Financing Activities
Net cash used in financing activities in fiscal 2022 was
Capital Expenditures
Our capital requirements include construction and fixture costs related to the opening of new stores and remodel and relocation expenditures for existing stores. Future capital requirements will depend on many factors, including the pace of new store openings, the availability of suitable locations for new stores and the nature of arrangements negotiated with landlords. In that regard, our net investment to open a new store has varied significantly in the past due to a number of factors, including the geographic location and size of the new store, and is likely to vary significantly in the future.
During fiscal 2022, we spent
During fiscal 2021, we spent
During fiscal 2020, we spent
In fiscal 2023, we expect to spend approximately
Other Material Cash Requirements
Our material cash requirements include the following contractual and other obligations: (1) purchase obligations (for additional information, see Note 11 to the Consolidated Financial Statements); (2) supply and service arrangements entered in the normal course of business; (3) operating lease payments (for additional information, see Note 10 to the Consolidated Financial Statements); and (4) employee wages, benefits, and incentives; (5) commitments for capital expenditures; and (6) tax payables. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters.
At
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Sources of Liquidity
Our most significant sources of liquidity continue to be funds generated by operating activities and available cash, cash equivalents and current marketable securities. We expect these sources of liquidity and available borrowings under our revolving credit facility will be sufficient to meet our foreseeable cash requirements for operations and planned capital expenditures for at least the next twelve months. Beyond this time frame, if cash flows from operations are not sufficient to meet our capital requirements, then we will be required to obtain additional equity or debt financing in the future. However, there can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.
As of
Additionally, on
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with
Our significant accounting policies are discussed in Note 2, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements found in Part IV Item 15 of this Form 10-K. We believe that the following accounting estimates involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements.
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Judgments and Effect If Actual Results Differ
Description Uncertainties From Assumptions
Valuation of Merchandise
Inventories
We value our inventory at Our write-down reserve We have not made any material
the lower of average cost or contains uncertainties changes in the accounting
net realizable value through because the calculation methodology used to calculate
the establishment of requires management to our write-down and shrinkage
write-down and inventory make assumptions based reserves in the past three
loss reserves. on the current rate of fiscal years. We do not believe
Our write-down reserve sales, the age and there is a reasonable
represents the excess of the profitability of likelihood that there will be a
carrying value over the inventory and other material change in the future
amount we expect to realize factors. estimates we use to calculate
from the ultimate sales or Our shrinkage reserve our inventory reserves.
other disposal of the contains uncertainties However, if actual results are
inventory. Write-downs because the calculation not consistent with our
establish a new cost basis requires management to estimates, we may be exposed to
for our inventory. make assumptions and to losses or gains that could be
Subsequent changes in facts apply judgment material. Our inventory
or circumstances do not regarding a number of reserves have decreased by $0.8
result in the restoration of factors, including million in fiscal 2022.
previously recorded historical percentages A 10% decrease in the sales
write-downs or an increase that can be affected by price of our inventory at
in that newly established changes in merchandise January 28, 2023 would have
cost basis. mix and changes in decreased net income by $0.6
Our inventory loss reserve actual shrinkage million in fiscal 2022.
represents anticipated trends. A 10% increase in actual
physical inventory losses physical inventory shrinkage
("shrinkage reserve") that rate at January 28, 2023 would
have occurred since the last have decreased net income by
physical inventory. less than $0.1 million in
fiscal 2022.
Valuation of Long-Lived
Assets
We review the carrying value Events that may result We do not believe there is a
of our long-lived assets, in an impairment reasonable likelihood that
including fixed assets and include the decision to there will be a material change
operating lease right-of-use close a store or in the estimates or assumptions
assets, for impairment facility or a we use to calculate long-lived
whenever events or changes significant decrease in asset impairment losses.
in circumstances indicate the operating However, if actual results are
that the carrying value of performance of a not consistent with our
such asset or asset group long-lived asset group. estimates and assumptions, our
may not be recoverable. Our impairment operating results could be
Recoverability of assets to calculations contain adversely affected. Declines in
be held and used is uncertainties because projected cash flow of the
determined by a comparison they require management assets could result in
of the carrying amount of an to make assumptions and impairment. We recognized
asset to future undiscounted to apply judgment to impairment losses of $2.1
net cash flows expected to estimate future cash million related to long-lived
be generated by the asset. flows and asset fair assets in fiscal 2022.
If such assets are values, including
considered impaired, the forecasting future A 10 basis point decrease in
impairment recognized is sales, gross profit, forecasted sales assumptions
measured by comparing the operating expenses, or would have resulted in an
fair value of the asset to sub-lease income. In additional impairment charge of
the asset carrying addition to historical $0.1 million in fiscal 2022.
value. The fair value of the results, current trends
asset is based on the future and initiatives, and
discounted cash flow of long-term
current market rents that we macro-economic and
could receive as sublease industry factors are
income. qualitatively
considered.
Additionally,
management seeks input
from store operations
related to local
economic conditions,
including the impact of
closures of selected
co-tenants who occupy
the mall.
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Judgments and Effect If Actual Results Differ
Description Uncertainties From Assumptions
Right-of-use Assets and
Lease Liabilities
Significant judgment is We do not believe there is a
We determine if a contract required in determining reasonable likelihood that
contains a lease at our incremental there will be a material change
inception. Our operating borrowing rate and the in the estimates or assumptions
leases primarily consist of expected lease term, we use to calculate
retail store locations, both of which impact right-of-use assets and lease
distribution centers and the determination of liabilities. Given the
corporate office space. We lease classification significant operating lease
do not have any material and the present value assets and liabilities
leases, individually or in of lease payments. recorded, changes in the
the aggregate, classified as Generally, our lease estimates made by management or
a finance leasing contracts do not the underlying assumptions
arrangement. provide a readily could have a material impact on
determinable implicit our consolidated financial
Operating lease right-of-use rate and, therefore, we statements.
assets and liabilities are use an estimated
recognized at commencement incremental borrowing Total undiscounted future
date based on the present rate as of the lease payments for lease liabilities
value of lease payments over commencement date in were $272.8 million at January
the lease term, net of lease determining the present 28, 2023. If the incremental
incentives received and value of lease borrowing rate increased 10
initial direct costs paid. payments. The estimated basis points from the rate in
Our retail store leases are incremental borrowing effect at January 28, 2023, the
generally for an initial rate reflects lease liability balance would
period of 5-10 years, with considerations such as decrease by $0.3 million .
some of our international market rates for our
leases structured to include outstanding
renewal options at our collateralized debt and
election. We include renewal interpolations of rates
options that we are for leases with terms
reasonably certain to that differ from our
exercise in the measurement outstanding debt.
our lease liabilities and
right-of-use assets. Our lease terms include
option periods to
extend or terminate the
lease when it is
reasonably certain that
those options will be
exercised, which is
generally through an
initial period of 5-10
years.
Revenue Recognition
Revenue is recognized upon Our revenue recognition We have not made any material
purchase at our retail store accounting methodology changes in the accounting
locations. For our ecommerce contains uncertainties methodology used to measure
sales, revenue is recognized because it requires future sales returns or gift
upon shipment to the management to make card breakage in the past three
customer. Revenue is assumptions regarding fiscal years.
recorded net of sales future sales returns
returns and deductions for and the amount and We do not believe there is a
promotions. timing of gift cards reasonable likelihood that
Revenue is not recorded on projected to be there will be a material change
the sale of gift cards. We redeemed by gift card in the future estimates or
record the sale of gift recipients. Our assumptions we use to recognize
cards as a current liability estimate of the amount revenue. However, if actual
and recognize revenue when a and timing of sales results are not consistent with
customer redeems a gift returns and gift cards our estimates or assumptions,
card. Additionally, the to be redeemed is based we may be exposed to losses or
portion of gift cards that primarily on historical gains that could be material.
will not be redeemed ("gift experience.
card breakage") is Our sales return reserve has
recognized in proportion of decreased by $0.4 million in
the patterns used by the fiscal 2022. A 10% increase in
customer based on our our sales return reserve at
historical redemption January 28, 2023 would have
patterns. decreased net income by $0.3
million in fiscal 2022.
Our gift card breakage reserve
has increased by $1.8 million
in fiscal 2022. A 1% increase
in the estimated gift card
redemption rate would have
decreased net income by $0.1
million in fiscal 2022.
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Judgments and Effect If Actual Results Differ
Description Uncertainties From Assumptions
Accounting for Income Taxes
As part of the process of Significant judgment is Although management believes
preparing the consolidated required in evaluating that the income tax related
financial statements, income our tax positions and judgments and estimates are
taxes are estimated for each determining our reasonable, actual results
of the jurisdictions in provision for income could differ and we may be
which we operate. This taxes. During the exposed to losses or gains that
process involves estimating ordinary course of could be material.
actual current tax exposure business, there are At January 28, 2023 and January
together with assessing many transactions and 29, 2022, we had valuation
temporary differences calculations for which allowances on our deferred tax
resulting from differing the ultimate tax assets of $12.8 million and
treatment of items for tax determination is $10.0 million ,
and accounting purposes. uncertain. For example, respectively. Significant
These differences result in our effective tax rates changes in performance or
deferred tax assets and could be adversely estimated taxable income may
liabilities, which are affected by earnings result in a change in our
included on the consolidated being lower than assessment of the valuation
balance sheets. Valuation anticipated in allowance.
allowances are established jurisdictions where we Upon income tax audit, any
when necessary to reduce have lower statutory unfavorable tax settlement
deferred tax assets to the rates and higher than generally would require use of
amount expected to be anticipated in our cash and may result in an
realized. jurisdictions where we increase in our effective
We regularly evaluate the have higher statutory income tax rate in the period
likelihood of realizing the rates. of resolution. A favorable tax
benefit for income tax settlement may be recognized as
positions we have taken in The assessment of a reduction in our effective
various federal, state and whether we will realize income tax rate in the period
foreign filings by the value of our of resolution.
considering all relevant deferred tax assets
facts, circumstances and requires estimates and
information available to us. judgments related to
If we believe it is more amount and timing of
likely than not that our future taxable income.
position will be sustained, Actual results may
we recognize a benefit at differ from those
the largest amount that we estimates.
believe is cumulatively
greater than 50% likely to Additionally, changes
be realized. in the relevant tax,
accounting and other
laws, regulations,
principles and
interpretations may
adversely affect
financial results.
Accounting for Contingencies
We are subject to various Significant judgment is Although management believes
claims and contingencies required in evaluating that the contingency related
related to lawsuits, our claims and judgments and estimates are
insurance, regulatory and contingencies, reasonable, our accrual for
other matters arising out of including determining claims and contingencies could
the normal course of the probability that a fluctuate as additional
business. We accrue a liability has been information becomes known,
liability if the likelihood incurred and whether thereby creating variability in
of an adverse outcome is such liability is our results of operations from
probable and the amount is reasonably period to period. Additionally,
estimable. If the likelihood estimable. The actual results could differ and
of an adverse outcome is estimated accruals for we may be exposed to losses or
only reasonably possible (as claims and gains that could be material.
opposed to probable), or if contingencies are made See Note 11, "Commitments and
an estimate is not based on the best Contingencies," in the Notes to
determinable, we provide information available, the consolidated financial
disclosure of a material which can be highly statements found in Part IV
claim or contingency. subjective. Item 15 of this Form 10-K.
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Judgments and Effect If Actual Results Differ
Description Uncertainties From Assumptions
Goodwill and
Indefinite-lived Intangible
Assets
We assess goodwill and The goodwill and Based on the results of our
indefinite-lived intangible indefinite-lived annual impairment test for
assets for impairment on an intangible assets goodwill and indefinite-lived
annual basis or more impairment tests intangible assets, no
frequently if indicators of require management to impairment was recorded. All
impairment arise. We perform make assumptions and reporting units had a fair
this analysis at the judgments. value in excess of the carrying
reporting unit level. value. If actual results are
Our quantitative not consistent with our
We have an option to first goodwill analysis of estimates or assumptions, or
perform a qualitative fair value is there are significant changes
assessment to determine determined using a in any of these estimates,
whether it is more likely combination of the projections and assumptions,
than not that the fair value income and market could have a material effect of
of a reporting unit is less approaches. Key the fair value of these assets
than its carrying amount. If assumptions in the in future measurement periods
we choose not to perform the income approach include and result in an impairment,
qualitative test or we estimating future cash which could materially affect
determine that it is more flows, long-term growth our results of operations.
likely than not that the rates and weighted
fair value of the reporting average cost of A goodwill impairment analysis
unit is less than the capital. Our ability to was performed for each of our
carrying amount, we compare realize the future cash reporting units as of November
the carrying value of the flows used in our fair 1, 2022. Based on this analysis
reporting unit to its value calculations is the implied fair value of each
estimated fair value, which affected by factors of our reporting units was in
is based on the perspective such as changes in excess of its carrying value. A
of a market-participant. If economic conditions, 10% decrease in the estimated
the fair value of the operating performance fair value of the Blue Tomato
reporting unit is lower than and our business reporting unit based on a
the carrying value, an strategies. Key future cash flow valuation
impairment loss is recorded assumptions in the model, would not have resulted
for the amount in which the market approach include in a different conclusion.
carrying value exceeds the identifying companies
estimated fair value. and transactions with
comparable business
factors, such as
earnings growth,
profitability, business
and financial risk.
The fair value of the
trade names and
trademarks is
determined using the
relief from royalty
method, which requires
assumptions including
forecasting future
sales, discount rates
and royalty rates.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements found in Part IV Item 15 of this Form 10-K.
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