true religion - skatoff declaration - 10.2.2020 (executed)
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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE
_______________________________________________ ) In re: ) Chapter 11 ) TRUE RELIGION APPAREL INC., et al., ) Case No. 20-10941 (CSS) ) Debtors.1 ) (Jointly Administered) ) )
DECLARATION OF DAVID SKATOFF
I, David Skatoff, hereby declare under penalty of perjury, pursuant to section 1746 of title
28 of the United States Code, as follows:
1. I am a Partner at Ducera Partners LLC (“Ducera”), which maintains its headquarters
at 11 Times Square, 36th Floor, New York, New York, 10036. Ducera has been retained by
counsel to Farmstead Capital Management LLC (“Farmstead”) to assist with certain matters in
connection with the Debtors’ Second Amended Joint Chapter 11 Plan of Reorganization of True
Religion Apparel, Inc. and its Affiliated Debtors [Dkrt. No. 423] (the “Plan”), including to serve
as an expert witness to address the valuation of the Debtors and their assets at the upcoming hearing
to confirm the Plan.
2. I am over the age of 18 and am duly authorized to submit this declaration (this
“Declaration”) in lieu of direct examination. I reserve the right to amend this declaration as
necessary.
3. The statements in this Declaration are, except where specifically noted, based on
my personal knowledge or opinion, discussions with Farmstead, information that is publicly
1 The Debtors and the last four digits of their respective taxpayer identification numbers are: TRLG Intermediate Holdings, LLC (3150); True Religion Apparel, Inc. (2633); Guru Denim LLC (1785); True Religion Sales, LLC (3441); and TRLGGC Services, LLC (8453). The Debtors’ headquarters is located at 1888 Rosecrans Avenue, Manhattan Beach, CA 90266.
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available, or information that I have received from the Debtors (including discussions with their
management) or Ducera’s employees working directly with me or under my supervision or
direction. If called upon to testify, I would testify to the facts set forth herein.
4. This declaration summarizes the analysis set forth in the valuation report attached
hereto as Exhibit A (the “Valuation Report”). I understand that other professionals, retained by
the Debtors (supporting confirmation of the Plan) and by parties opposing confirmation, have
submitted valuation reports in connection with confirmation of the Plan. Prior to submitting the
Valuation Report, neither I nor any personnel at Ducera reviewed any of those reports or discussed
their contents with anyone.
Background and Qualifications
5. Ducera is an independent investment banking firm that provides strategic advisory
and M&A services as well as capital markets knowledge, financing skills, and restructuring
capabilities that are employed in large-scale corporate restructuring transactions. Ducera’s
professionals have extensive experience providing investment banking services to financially
distressed companies and to creditors, equity holders, and other constituencies in reorganization
proceedings and complex financial restructurings, both in-court and out-of-court. Since its
inception in 2015, Ducera has provided restructuring services in numerous large, complex chapter
11 cases. In addition to out-of-court restructuring and sale assignments, Ducera has served as an
investment banker to debtors, creditor groups, and asset purchasers in a number of bankruptcy
matters.2
2 For instance, Ducera is providing or has provided financial advisory services in connection with the following matters: In re Imerys Talc America, Inc., Case No. 19-10289 (Bankr. D. Del.); In re Paniolo Cable Company, LLC, Case No. 18-01319 (Bankr. D. Haw.); In re Specialty Retail Shops Holding Corp., Case No. 19-80064 (Bankr. D. Neb.); In re Sungevity, Case No. 17-10561 (Bankr. D. Del.); In re Toys “R” Us, Inc., Case No. 17-034665 (Bankr E.D. Va.); In re Panda Temple Power, LLC, Case No. 17-10839 (Bankr. D. Del.); In re Dacco Transmission Parts (NY), Inc., Case No. 16-13245 (Bankr. S.D.N.Y.); In re Hercules Offshore, Inc., Case No. 16-11385 (Bankr. D. Del.); In re Illinois Power Generating Co., Case No. 16-36326 (Bankr. S.D. Tex.); In re Paragon Offshore PLC,
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 2 of 14
6. Prior to working at Ducera, I was the Managing Partner at Skatoff & Company.
Previously, I worked at Eton Park, was a founding partner of R6 Capital Management, and was an
officer at Greenhill and Houlihan Lokey. In those roles, I focused on financial restructuring
advisory, liability management, distressed M&A, and restructuring and rescue financings. I hold
an MBA from the Wharton School at the University of Pennsylvania and a Bachelor of Science
degree in Commerce from the McIntire School at the University of Virginia.
7. I have over 25 years of investment banking and capital structure advisory
experience assisting companies on a wide range of strategic matters. I have advised companies,
creditors, shareholders, and other stakeholders regarding restructurings and recapitalizations,
chapter 11 reorganizations, and mergers and acquisitions. While at Ducera and at prior firms, I
have advised significant stakeholders in chapter 11 cases, including most recently Centric Brands
Inc., Nine West Holdings, Inc., and American Apparel.
8. I have testified at trial, deposition, or by proffer in the Chapter 11 proceedings of
Adelphia, the foreign bankruptcy proceedings of Crystallex, and the Chapter 11 proceedings of
RBX Corp. As a result of my experience and training, I am familiar with the standard
methodologies and analyses necessary to determine a company’s enterprise value.
Summary of Analysis and Conclusions
9. At the request of Farmstead’s counsel, Ducera was asked to perform a valuation
analysis of the estimated enterprise value of the Debtors on a going concern basis as of the Plan’s
proposed effective date. I understand that this analysis is being used for purposes related to
confirmation of the Plan.
Case No. 16-10386 (Bankr. D. Del.); and In re Remington Outdoor Company, Inc., Case No. 20-81688-CRJ11 (Bankr. N.D. Ala.).
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 3 of 14
10. The preparation of a valuation analysis is a complex analytical process involving
subjective determinations about which methodologies of financial analysis are most appropriate
and relevant and the application of those methodologies to particular facts and circumstances in a
manner that is not readily susceptible to summary description.
11. In performing our analysis, Ducera relied on various sources of information. Those
include historical and projected operating and financial information provided directly by the
Debtors and their advisors, publicly available information (including news releases, regulatory
filings and SEC filings) for relevant companies within the retail industry, and third-party reports
and analyses related to the retail industry overall.
12. In preparing its valuation analysis, Ducera utilized a variety of generally recognized
valuation methodologies, including (a) a comparable public companies analysis, (b) a selected
transactions analysis and (c) two discounted cash flow analyses.
13. After performing four different valuation analyses, Ducera ultimately concluded
that the Debtors would have, as of the effective date of the Plan, an enterprise value between $50
and $85 million.
Publicly Traded Companies Approach
14. A publicly traded companies approach (or comparable public companies analysis)
(“Publicly Traded Companies Approach”) involves selecting and analyzing publicly traded
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companies similar to the subject company, determining the valuation multiples for such companies
and then applying those multiples to the subject company. This approach requires that adjustments
be made to account for similarities and differences between the subject company and the publicly
traded companies.
15. Under the Publicly Traded Companies Approach, Ducera first determined both
larger-cap and smaller-cap companies most comparable to the Debtors. For larger-cap companies,
Ducera selected American Eagle Outfitters, Inc., Urban Outfitters, Boot Barn Holdings, Inc.,
Land’s End, Inc., The Buckle, Inc., The Children’s Place, Inc., Zumiez, Inc., and Abercrombie &
Fitch Co. For smaller-cap companies, Ducera selected J. Jill, Inc., Chico’s FAS, Inc., Citi Trends,
Tilly’s, Inc., and Cato Corporation. These companies were chosen because, like True Religion,
they generally sell apparel and related products. We looked at both large- and small-cap companies
in order to consider the implications of a company’s size on valuation multiples.
16. Ducera then developed a range of indicative enterprise value to revenue and
indicative enterprise value to EBITDA multiples that could be applied to the Debtors’ revenue and
EBITDA, respectively, based on the comparable public companies’ revenue, projected revenue,
EBITDAs, and projected EBITDAs.
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 5 of 14
17. Ducera selected a range of valuation multiples for the Debtors based on the
valuation multiples of the comparable public companies and the application of considered
judgment as to how the market would value the Debtors based on their similar or varying
characteristics versus the comparable public companies. Risk-based adjustments in multiple
selection are frequently warranted when actual results or forward-looking projections for the
Debtors have a different risk profile when compared to the actual results or forward-looking
projections for the comparable public companies for the same period. In addition, forward-looking
multiples may only be appropriately utilized to the extent there are available consensus analyst
estimates for the comparable public companies for the same period of time.
18. In determining revenue and EBITDA enterprise valuation multiples for the
Debtors, Ducera weighed several considerations, including, but not limited to, (i) the magnitude
of the Debtors’ significant revenue underperformance versus the comparable public companies
over the latest 12-month period, (ii) the Debtors’ demonstrated history of failing to achieve their
forecasts, and (iii) the Debtors’ management’s forward-looking EBITDA projections assume a
dramatic improvement in profitability vis-à-vis their latest reported financial statements.
19. While the Debtors’ LTM Adjusted EBITDA is negative $18 million (which
precludes use of an LTM EBITDA for calculating enterprise value), the Debtors project that their
12-month EBITDA will swing to a positive $17 million and positive $36 million by September 30,
2021 and September 30, 2022, respectively.
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 6 of 14
20. Ducera also took into account several other considerations in its analysis including:
• The Debtors are smaller in scale than most publicly traded companies;
• While the Debtors are planning to emerge from their second Chapter 11 case in the past three years, none of the comparable public companies have filed for Chapter 11 during this period. Many retailers that have filed Chapter 11 have demonstrated a proclivity to subsequently file a second Chapter 11 case, reflecting a heightened risk for the Debtors;
• The Debtors have replaced the substantial majority of their executive leadership team (including the CEO and CFO), while the leadership of the comparable public companies is more stable;
• The Debtors have recently made changes to their supply chain operations, materials utilized, and partners in the Far East, with a changeover of ~60% of the vendor base;
• The Debtors also have a high product concentration in jeans versus more diversified product offerings by the comparable public companies;
• The Debtors have reduced their Selling, General & Administrative expenses (“SG&A”) in calendar year 2020, but it is unclear whether the Debtors will be able to successfully operate and grow sales with a reduced SG&A structure;
• The Debtors have made modifications to lease agreements to provide higher retail downside protection versus the comparable public companies for the near-term period; and
• The Debtors’ continuing evolution of brand identity and market strategy over the past few years poses another area of significant uncertainty.
21. Taking all of those factors into consideration and exercising our considered
judgment, we calculated an indicative enterprise value for the Debtors based on the Publicly
Traded Companies Approach of between $52 million and $85 million.
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 7 of 14
Selected Transactions Analysis
22. Ducera also performed a selected (or precedent) transactions analysis (“Selected
Transactions Analysis”). Selected Transaction Analysis involves analyzing precedent transactions
involving publicly traded companies that are comparable to the subject company in order to
determine valuation multiples implied by the transaction that can then be applied to the subject
company.
23. Ducera selected nine recent M&A transactions involving acquisitions of bankrupt
retailers in the last six years. Ducera utilized publicly available information to calculate an LTM
revenue multiple for each of the transactions. In particular, the transactions selected were (a) the
September 2020 purchase of JCPenney’s retail and operating assets by Brookfield and Simon
Property Group, (b) the August 2020 purchase of Brooks Brothers by SPARC Group, (c) the
November 2019 purchase of Barneys New York by Authentic Brands Group, (d) the October 2019
purchase of certain assets of Destination Maternity by Marquee Brands, (e) the June 2017 purchase
of Eastern Outfitters by Sports Direct International, (f) the November 2016 purchase of certain
assets of American Apparel by Gildan Activewear, (g) the September 2016 purchase of
Aeropostale’s operating assets by Authentic Brands Group, (h) the March 2015 purchase of Wet
Seal by Versa Capital Management, and (i) the May 2014 purchase of Coldwater Creek by Gordon
Brothers, Hilco, and Sycamore Partners.
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24. Ducera calculated the Enterprise Value / Revenue multiples using both the Debtors’
LTM revenue and 2021 revenue.
25. Ducera weighed the same considerations as in the Publicly Traded Companies
Approach, while also recognizing that the selected transactions, unlike the comparable public
companies, were all made in the context of a Chapter 11 bankruptcy of the target, among other
considerations.
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26. EBITDA and forward-looking information for the target companies was generally
not available. We were also mindful of the fact that acquirers tend to base their views of valuation
on actual financial performance and ascribe significantly less weight to projected and unproven
financial results.
27. Taking all of those factors into consideration and exercising our considered
judgment, Ducera estimates an indicative enterprise value for the Debtors based on the selected
transactions analysis of between $52 million and $73 million.
Discounted Cash Flow Analyses
28. Ducera also prepared two discounted cash flow analyses. Discounted cash flow
analysis involves discounting the expected future cash flows of the business to the present, using
an appropriate weighted-average cost of capital, and assuming a sale of the business or terminal
valuation at the end of the projection period. The future expected cash flows of the business should
reflect a balanced view of how the Debtors expect to perform in the future given both key upside
opportunities and downside risks inherent in the business.
29. Here, we used two separate sets of financial projections to perform two different
discounted cash flow analyses.
30. In the “Management Case,” the Debtors are projecting a dramatic increase in
EBITDA for the 12-month period ending September 30, 2021 versus the LTM period ending July
31, 2020. Ducera understands the Debtors believe the Management Case is achievable provided
that (i) store-level year-over-year revenue growth recovers to more stable levels, including during
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 10 of 14
the critical 2020 holiday season, (ii) there is not another wave of COVID-related demand
suppression, whether driven by regulatory actions or customer response to a resurgence in new
case counts, and (iii) demand remains unaffected by (a) any continuing lack of further fiscal
stimulus from the United States and/or relevant state governments and (b) the associated economic
impact on the Debtors’ customers. As a result of these risk factors, Ducera views the Management
Case for the 12-month period ending September 30, 2021 as more of an upside case than an
expected case.
31. Given that the Management Case represents in our view an upside scenario, Ducera
has utilized an adjusted set of financial projections that it believes reflects an alternative plausible
outcome to the Debtors’ financial projections. We refer to this as the “Sensitivity Case.” In the
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Sensitivity Case, which Ducera has generally discussed with the Debtors’ management, estimated
2021 revenue is calculated as 80% of the Debtors’ LTM revenue (as of July 31, 2020), which is
designed to account for potential revenue declines attributable to COVID-related performance.
Ducera also estimated 2021 EBITDA at $5 million compared to $17 million in the Management
Case. Estimated 2022 EBITDA reflects a one-year delay from the Management Case EBITDA
(i.e., the estimated 2021 EBITDA from the Management Case is the estimated 2022 EBITDA in
the Sensitivity Case). Subsequent to 2022, Ducera then grows estimated EBITDA by 5.0%
through estimated 2025. Ducera has also held EBITDA margins for estimated 2022-2025 constant
at the Management Case estimated 2021 EBITDA margin of 9.8%.
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 12 of 14
32. In both the Management Case and the Sensitivity Case, Ducera used a terminal
mid-point EBITDA multiple of 4.25x to determine the terminal value and a 23% mid-point
discount rate. A traditional calculation of the weighted average cost of capital was not possible
given a lack of publicly traded companies in an analogous situation with the Debtors. Ducera
arrived at a mid-point EBITDA multiple of 4.25x based on our selected EBITDA multiple range
of 3.5x to 5.0x in the Publicly Traded Companies Approach. Ducera arrived at a mid-point
discount rate of 23% based on (i) our judgment and experience concerning the levels of return that
an equity investor would require in order to invest equity capital in a retail business that has been
through two Chapter 11 cases in the recent past and in the context of other issues discussed above,
(ii) an assumed cost of debt in the range of the Debtors’ pro forma cost of debt, and (iii) an assumed
debt to total capitalization ratio that is reasonable based on our experience.
33. Under the Management Case, Ducera estimates indicative enterprise value to be
between $80 million to $106 million. Under the Sensitivity Case, Ducera estimates indicative
enterprise value to be between $46 million to $63 million.
Conclusion
34. After taking into consideration the reliability of each of these valuation analyses in
the context of the Debtors’ emergence from Chapter 11, Ducera weighed the four analyses
accordingly and concluded an enterprise value on the low end of $50 million and an enterprise
value of $85 million on the high end.
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Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true
and correct to the best of my knowledge, information, and belief.
Dated: October 2, 2020 New York, New York
Respectfully submitted,
/s/ David Skatoff David Skatoff
Case 20-10941-CSS Doc 577 Filed 10/02/20 Page 14 of 14
Exhibit A
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 1 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
October 2020
True Religion Apparel, Inc.
Discussion Materials (Contains Non-Public Information)
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 2 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Indicative Enterprise Value
Low High
Publicly Traded Companies Approach $52 $85
Selected Transactions Approach 52 73
Discounted Cash Flow Approach - Management Case 80 106
Discounted Cash Flow Approach - Sensitivity Case 46 63
Indicative Enterprise Valuation Level $50 $85
Summary of Indicative Enterprise Value
Summary of Indicative Enterprise Value
($ in millions)
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 3 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Publicly Traded Companies Approach The Publicly Traded Companies Approach involves:
– Selection and analysis of comparable Publicly Traded Companies to the subject company
– Selection of a range of valuation multiples for the subject company based on the valuation multiples of the Publicly Traded Companies and the application of considered judgment as to how the market would value the subject company based on its similar or varying characteristics vs. the Publicly Traded Companies
Risk-based adjustments in multiple selection are frequently warranted when actual results or forward-looking projections for the subject company have a different risk profile as compared to the actual results or forward-looking projections for the publicly traded companies for the same period
Forward-looking multiples may only be appropriately utilized to the extent there are available consensus analyst estimates for the publicly traded companies, for the same period of time
In selecting a range of applicable revenue and EBITDA enterprise valuation multiples for True Religion Apparel, Inc. (“True Religion” or the “Company”), Ducera Partners LLC (“Ducera”) weighed the following considerations, among other factors:
– The magnitude of True Religion’s significant revenue underperformance vs. comparable Publicly Traded Companies over the latest 12-month period (see page 18)
– True Religion’s demonstrated history of failing to achieve its forecasts (see page 19)
– True Religion’s forward-looking EBITDA projections assume a dramatic improvement in profitability vis-à-vis the Company’s latest reported financial statements
Notes:(1) LTM EBITDA is calculated based on latest Company-reported adjusted EBITDA ending 07/31/20
EBITDA % Growth
LTM Adjusted EBITDA(1) ($18) n/a
12-month EBITDA ending 9/30/21 17 n/a
12-month EBITDA ending 9/30/22 36 110%
($ in millions)
True Religion EBITDA Projections
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 4 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Publicly Traded Companies Approach (Continued)
– In comparison with the publicly traded companies, True Religion is significantly smaller in scale
– True Religion is planning to emerge from its second Chapter 11 in the past three years, while the publicly traded companies have not filed for Chapter 11 during this period; many retailers that have filed Chapter 11 have demonstrated a proclivity to subsequently file Chapter 11 again (see page 20) reflecting a heightened risk for True Religion
– True Religion has recently replaced the substantial majority of the Company’s executive leadership team (including the CEO and CFO) vs. more stable teams at the Publicly Traded Companies
– True Religion has recently made significant changes to its supply chain operations, materials utilized, and partners in the Far East, with a changeover of ~60% of the vendor base
– True Religion has a high product concentration in jeans vs. more diversified product offerings of the Publicly Traded Companies
– True Religion has seen significant reductions to SG&A in calendar year 2020; open question of True Religion’s ability to drive its business with a reduced SG&A structure
– True Religion has made modifications to lease agreements to provide higher retail downside protection vs. the Publicly Traded Companies for the near-term period
– True Religion’s continuing evolution of brand identity and market strategy over the past few years poses another area of significant uncertainty
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 5 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Publicly Traded Companies Approach (Continued)
Sources: FactSet – Pricing as of 09/29/2020Notes:(1) LTM Revenue is calculated based on latest company-reported revenue ending 07/31/20(2) LTM EBITDA is calculated based on latest company-reported EBITDA ending 07/31/20
Multiple Range Indicative Enterprise Value
Low High Low High
Revenue - LTM(1) $184 0.3x 0.4x $55 $73
Revenue - 2021 174 0.3x 0.4x 52 69
Adjusted EBITDA - LTM(2) (18) NMF NMF NMF NMF
Adjusted EBITDA - 2021 17 3.5x 5.0x $60 $85
Indicative Enterprise Valuation Level $52 $85
Representative
Amount
Publicly Traded Companies Approach – Summary of Indicative Enterprise Value
($ in millions)
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 6 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Publicly Traded Companies Approach (Continued)
($ in millions)
Publicly Traded Companies
Sources: Company filings, FactSet – Pricing as of 09/29/2020Notes:(1) Consensus estimates for the publicly traded companies are for fiscal years ending in January/February
Revenue(1) Revenue YoY Growth EV/Revenue EBITDA(1) EV/EBITDA EBITDA Margin
Company
Current
EV FY19 A FY20 E FY21 E 18-19 A 19-20 E 21-22E FY19 A FY20 E FY21 E FY19 A FY20 E FY21 E FY19 A FY20 E FY21 E FY19 A FY20 E FY21 E
Larger-Cap CompaniesAmerican Eagle Outfitters, Inc. $2,040 $4,308 $3,744 $4,323 6.8% (13.1%) 15.4% 0.5x 0.5x 0.5x $495 $115 $436 4.1x 17.7x 4.7x 11.5% 3.1% 10.1%Urban Outfitters 1,500 3,984 3,466 4,016 0.8% (13.0%) 15.9% 0.4x 0.4x 0.4x 374 118 355 4.0x 12.8x 4.2x 9.4% 3.4% 8.8%Boot Barn Holdings, Inc. 932 846 815 917 8.8% (3.6%) 12.5% 1.1x 1.1x 1.0x 96 79 103 9.7x 11.8x 9.0x 11.3% 9.7% 11.3%Lands' End, Inc. 753 1,450 1,391 1,464 (0.1%) (4.1%) 5.3% 0.5x 0.5x 0.5x 78 67 75 9.7x 11.2x 10.0x 5.4% 4.8% 5.1%The Buckle, Inc. 736 900 821 907 1.7% (8.8%) 10.5% 0.8x 0.9x 0.8x 155 139 151 4.7x 5.3x 4.9x 17.2% 17.0% 16.7%The Children's Place, Inc. 614 1,871 1,435 1,579 (3.5%) (23.3%) 10.0% 0.3x 0.4x 0.4x 177 12 113 3.5x 51.3x 5.4x 9.5% 0.8% 7.1%Zumiez, Inc. 570 1,034 975 1,064 5.7% (5.7%) 9.1% 0.6x 0.6x 0.5x 111 104 113 5.1x 5.5x 5.0x 10.8% 10.6% 10.6%Abercrombie & Fitch Co. 462 3,623 2,996 3,411 0.9% (17.3%) 13.9% 0.1x 0.2x 0.1x 256 142 262 1.8x 3.3x 1.8x 7.1% 4.7% 7.7%
Peer Average $951 2.6% (11.1%) 11.6% 0.5x 0.6x 0.5x 5.3x 14.9x 5.6x 10.3% 6.8% 9.7%Peer Median $745 1.3% (10.9%) 11.5% 0.5x 0.5x 0.5x 4.4x 11.5x 5.0x 10.1% 4.8% 9.5%
Smaller-Cap CompaniesJ. Jill, Inc. $261 $691 $459 $556 (2.1%) (33.6%) 21.1% 0.4x 0.6x 0.5x $62 ($66) $22 4.2x n/m 12.0x 8.9% (14.3%) 3.9%Chico's FAS, Inc. 163 2,038 1,450 1,733 (4.4%) (28.9%) 19.5% 0.1x 0.1x 0.1x 79 (217) 63 2.1x n/m 2.6x 3.9% (15.0%) 3.6%Citi Trends 158 782 n/a n/a 1.6% n/a n/a 0.2x n/a n/a 38 n/a n/a 4.2x n/a n/a 4.8% n/a n/aTilly's, Inc. 72 619 522 612 3.5% (15.7%) 17.1% 0.1x 0.1x 0.1x 51 (2) 41 1.4x n/m 1.8x 8.2% (0.3%) 6.7%Cato Corporation 50 825 n/a n/a (0.5%) n/a n/a 0.1x n/a n/a 54 n/a n/a 0.9x n/a n/a 6.5% n/a n/a
Peer Average $141 (0.4%) NMF NMF 0.2x NMF NMF 2.6x NMF NMF 6.5% NMF NMFPeer Median $158 (0.5%) NMF NMF 0.1x NMF NMF 2.1x NMF NMF 6.5% NMF NMF
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 7 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Selected Transactions Approach
The Selected Transactions Approach involves:
– Selection and analysis of precedent transactions of publicly traded companies comparable to the subject company
– Selecting a range of valuation multiples for the subject company based on the implied valuation multiples of the Selected Transactions and the application of considered judgment as to how the market would value the subject company based on its similar or varying characteristics vs. the companies that were acquired in the Selected Transactions
In selecting a range of applicable revenue enterprise valuation multiples for True Religion, Ducera weighed the same considerations as the Publicly Traded Companies Approach, while also recognizing that the Selected Transactions, unlike the Publicly Traded Companies, were all made in the context of Chapter 11 bankruptcy of the target, among other considerations
EBITDA and forward-looking information for the acquired companies was generally not available
Buyers of companies tend to frame their views of valuation based on actual financial performance and ascribe significantly less weight to projected and unproven financial results
Ducera selected nine comparable M&A transactions involving acquisitions of retail companies that have filed for bankruptcy to guide valuation multiples
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 8 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Selected Transactions Approach (Continued)
Multiple Range Indicative Enterprise Value
Low High Low High
Revenue - LTM(1) $184 0.3x 0.4x $55 $73
Revenue - 2021 174 0.3x 0.4x 52 69
Indicative Enterprise Valuation Level $52 $73
Representative
Amount
Selected Transactions Approach – Summary of Indicative Enterprise Value
($ in millions)
Notes:(1) LTM revenue is calculated based on latest company-reported revenue ending 07/31/20
Case 20-10941-CSS Doc 577-1 Filed 10/02/20 Page 9 of 26
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Privileged and ConfidentialAttorney Work ProductFor Discussion Purposes OnlyNot for Distribution or Reproduction Absent Written Consent
Acquirer / Target Date EV Revenue EV/Revenue EV/EBITDA Description
September 2020 $1,750(1) $10,716(1) 0.2x 3.0x
August 2020 $325(2) $991(2) 0.3x n/a
November 2019 $271(3) $800(3) 0.3x n/a
October 2019 $50(4) $406(4) 0.1x 3.9x
June 2017 $101(5) $400(5) 0.3x n/m
November 2016 $88(6) $663(6) 0.1x n/a
Selected Transactions Approach (Continued)
Notes:(1) Per FactSet, JC Penney SEC filings (2019 10-K), and Reorg Research report dated 09/09/2020(2) Per Reorg Research case summary dated 07/08/2020(3) Per Barneys First Day Declaration, Reorg Research, and DIP Financing Motion dated 08/06/2020(4) Per Destination Maternity 10-K, First Day Declaration, and press release dated 12/12/2019(5) Per SEC filings and Sports Direct press release dated 04/21/2017(6) Per American Apparel First Day Declaration and Debtwire report dated 01/10/2017
In August 2020, SPARC Group acquired Brooks Brothers for $325 million
Brooks Brothers had $991 million in revenue in FY 2019
In August 2020, J.C. Penney announced that it would pursue a credit bid transaction with its lenders as it completes Chapter 11 reorganization (filed May 15, 2020)
On September 9, it agreed to sell retail and operating assets to Brookfield and Simon Property Group for $1.75 billion
($ in millions)
In November 2019, Barneys was acquired by Authentic Brands for $271 million
Barneys filed for Chapter 11 on 8/6/2019
In October 2019, Destination Maternity’s e-commerce business and IP assets were acquired by Marquee Brands
Destination Maternity filed for Chapter 11 on 10/21/2019
In April 2017, Sports Direct International acquired Eastern Outfitters LLC for $101 million in a 363 asset sale
Eastern Outfitters had ~$400 million in revenue in FY 2016
In November 2016, Gildan Activewear acquired American Apparel’s IP assets for $88 million
American Apparel filed for Chapter 22 on 11/14/2016
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September 2016 $243(7) $1,507(7) 0.2x n/m
March 2015 $28(8) $450(8) 0.1x n/a
May 2014 $161(9) $742(9) 0.2x n/m
Average 0.2x
Median 0.2x
Selected Transactions Approach (Continued)
Notes:(7) Per Aeropostale 10-K, First Day Declaration, and press release dated 09/15/2016(8) Per Wet Seal Disclosure Statement dated 02/11/2015 and Debtwire report dated 04/01/2015(9) Per Coldwater Creek 10-K and Debtwire report dated 05/06/2014
($ in millions)
In September 2016, a consortium of buyers acquired Aeropostale’soperating assets for $243 million
Aeropostale filed for Chapter 11 on 5/4/2016
In March 2015, Versa Capital Management acquired Wet Seal for $28 million
Wet Seal filed for Chapter 11 on 1/15/2015
In May 2014, Gordon Brothers, Hilco, and Sycamore Partners acquired Coldwater Creek for $161 million
Coldwater Creek filed for Chapter 11 on 4/11/2014
Acquirer / Target Date EV Revenue EV/Revenue EV/EBITDA DescriptionAcquirer / Target Date EV Revenue EV/Revenue EV/EBITDA Description
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Discounted Cash Flow Approach
The Discounted Cash Flow Approach involves:
– Discounting the expected future cash flows of the business to the present, using an appropriate weighted-average cost of capital, and assuming a sale of the business or terminal valuation at the end of the projection period
– The future expected cash flows of the business should reflect a balanced view of how the Company can “expect” to perform in the future given the key upside opportunities and downside risks inherent in the business
Observations regarding True Religion’s financial projections (the “Management Case”):
– The Company is projecting a dramatic increase in EBITDA for the 12-month period ending 9/30/21 vs. the LTM period ending 7/31/20
We understand the Company believes these results are achievable so long as:
Store-level year-over-year revenue growth recovers to more stable levels, including the critical 2020 holiday season
There is not another wave of COVID-related demand suppression, whether driven by regulatory actions or customer response to a resurgence in new case counts
Demand remains unaffected by any continuing lack of fiscal stimulus from the U.S. and/or relevant state governments and the associated economic impact on the Company’s customers
In light of these qualifications, Ducera views the Company’s Management Case for the 12-month period ending 9/30/21 as more of an “upside” case than an “expected” case
While the company has not produced a downside case projection for the 12-month period ending 9/30/21, we understand from discussions with management that they believe they can manage the business to at least cash-flow breakeven in the downside case
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Discounted Cash Flow Approach (Continued)
– The Company is projecting another dramatic increase in EBITDA for the 12-month period ending 9/30/22 vs. the 12-month period ending 9/30/21
We understand the Company believes these results are achievable so long as:
Store level year-over-year revenue growth recovers to more stable levels across this 24-month projection period
There is not another wave of COVID-related demand suppression, whether driven by regulatory actions or customer response to a resurgence in new case counts across this 24-month projection period
Demand remains unaffected by any continuing lack of fiscal stimulus from the U.S. and/or relevant state governments and the associated economic impact on the Company’s customers
The Company is successful in growing retail and winning significant additional market share through each of its e-commerce and wholesale channels
– We understand these risk factors are the principal driver to the difference in the Company’s EBITDA projection for the 12-month period ending 9/30/22 vs. 9/30/21
In light of these qualifications, Ducera views the Company’s Management Case for the 12-month period ending 9/30/22 as more of an “upside” case than an “expected” case
While the company has not produced a downside case projection for the 12-month period ending 9/30/22, we understand from discussions with management that they believe they can manage the business to at least cash-flow breakeven in the downside case
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Discounted Cash Flow Approach (Continued)
Remediating Adjustments and Observations:
– As explained in the foregoing, Ducera views the Company’s Management Case as reflecting more of an “upside” view than an “expected” view
– At the same time, as mentioned in the foregoing, the Discounted Cash Flow Approach requires a discounting of “expected” future cash flows
– To address this potential inconsistency, Ducera has utilized an adjusted set of financial projections (the “Sensitivity Case”), which we believe reflects an alternative plausible outcome to the Company’s financial projections
2021E revenue is calculated as 80% of True Religion’s LTM revenue (as of 7/31/2020), which reflects the potential revenue declines attributable to COVID-related performance
2021E EBITDA is reduced to $5 million from $17 million in the Management Case
2022E EBITDA reflects a one-year delay from the Management Case EBITDA (i.e. the 2021E EBITDA from the Management Case is the 2022E EBITDA in the Sensitivity Case)
Subsequent to 2022E, EBITDA is then grown by 5.0% through 2025E
EBITDA margins for 2022E-2025E are held constant at the Management Case 2021E EBITDA margin (9.8%)
– Ducera has not evaluated whether the Sensitivity Case might lead to lender covenant issues and/or a liquidity shortfall based on the Company’s pro forma financing arrangements
– Ducera notes that a version of this approach was recently utilized in the Ascena Retail Group, Inc. Chapter 11 filing, where Ascena’s investment banker was provided with two cases of financial projections by Ascena management, which the investment bank then used to underpin its discounted cash flow analysis
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Exit Value Multiple Range Indicative Enterprise Value
Low High Low High
Management Case Scenario 3.5x 5.0x $80 $106
Sensitivity Case Scenario 3.5x 5.0x 46 63
Indicative Enterprise Valuation Level $46 $106
Discounted Cash Flow Approach (Continued)
Discounted Cash Flow Approach Summary
($ in millions)
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Discounted Cash Flow Approach (Management Case)($ in millions)
Illustrative True Religion DCF
Assumptions
Revenue Growth Rate 16.6% 2.1% 0.1% 0.7%EBITDA Margin 9.8% 17.6% 16.2% 14.0% 13.5%Tax Rate 26.0% 26.0% 26.0% 26.0% 26.0%
Discounted Cash Flow Analysis 2021E 2022E 2023E 2024E 2025E
Revenue $174 $202 $207 $207 $208Cost of Revenue (76) (81) (82) (83) (85)Gross Profit $97 $122 $124 $124 $123
Gross Margin 56.0% 60.2% 60.2% 59.7% 59.3%
EBITDA $17 $36 $33 $29 $28( - ) Depreciation & Amortization (4) (5) (5) (6) (6) EBIT $13 $31 $28 $23 $22( - ) Taxes (3) (8) (7) (6) (6) NOPAT $9 $23 $21 $17 $16(+) Depreciation & Amortization 4 5 5 6 6( - ) Capex (0) (3) (6) (6) (6)( + / - ) Change in NWC 5 (5) (1) (1) (1) Unlevered Free Cash Flow $18 $19 $19 $16 $16
Discount Rate 23.0% 23.0% 23.0% 23.0% 23.0%Discount Factor 0.81 0.66 0.54 0.44 0.36PV of Free Cash Flow $14 $13 $10 $7 $6
Terminal EBITDA Multiple 4.25x Illustrative Value Sensitivity( x ) Terminal EBITDA $28 Terminal EBITDA Multiple
Terminal Value (Undiscounted) $119 3.5x 4.0x 4.5x 5.0x( x ) Discount Factor 0.36 21.0% $90 $95 $101 $106Terminal Value (Discounted) $42 Discount 22.0% 87 93 98 103
% of TEV 45.8% Rate 23.0% 85 90 95 10024.0% 83 87 92 97
Total Enterprise Value $92 25.0% 80 85 89 94
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Discounted Cash Flow Approach (Sensitivity Case)
Notes:(1) For 2023E-2025E (years three through five), EBITDA is grown at 5% from 2022E EBITDA of $17 million, and EBITDA margin is kept constant at 9.8%(2) Working capital, D&A, and capital expenditures are calculated using % of revenue and % of COGS assumptions from the Management Case
($ in millions)Illustrative True Religion DCF
Assumptions
Revenue Growth Rate 18.2% 5.0% 5.0% 5.0%EBITDA Margin 3.4% 9.8% 9.8% 9.8% 9.8%Tax Rate 26.0% 26.0% 26.0% 26.0% 26.0%
Discounted Cash Flow Analysis 2021E 2022E 2023E 2024E 2025E
Revenue $147 $174 $182 $191 $201Cost of Revenue (65) (76) (73) (77) (82)Gross Profit $82 $97 $110 $114 $119
Gross Margin 56.0% 56.0% 60.2% 59.7% 59.3%
EBITDA $5 $17 $18 $19 $20( - ) Depreciation & Amortization (4) (4) (5) (5) (6) EBIT $1 $13 $13 $13 $14( - ) Taxes (0) (3) (3) (3) (4) NOPAT $1 $9 $10 $10 $10(+) Depreciation & Amortization 4 4 5 5 6( - ) Capex (0) (3) (5) (6) (6)( + / - ) Change in NWC 8 (6) 0 (2) (2) Unlevered Free Cash Flow $12 $5 $9 $8 $8
Discount Rate 23.0% 23.0% 23.0% 23.0% 23.0%Discount Factor 0.81 0.66 0.54 0.44 0.36PV of Free Cash Flow $10 $3 $5 $3 $3
Terminal EBITDA Multiple 4.25x Illustrative Value Sensitivity( x ) Terminal EBITDA $20 Terminal EBITDA Multiple
Terminal Value (Undiscounted) $84 3.5x 4.0x 4.5x 5.0x( x ) Discount Factor 0.36 21.0% $52 $56 $60 $63Terminal Value (Discounted) $30 Discount 22.0% 50 54 58 61
% of TEV 54.9% Rate 23.0% 49 52 56 5924.0% 47 51 54 58
Total Enterprise Value $54 25.0% 46 49 53 56
(1) (1)(1)
(2)
(2)
(2)
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Appendix
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Comparison of Publicly Traded Companies Quarterly Revenue Performance
($ in millions) 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 YTD 2020 LTM
True Religion $62 $68 $57 $72 $259 $24 $31 $55 $184QoQ / YoY Growth (2.4%) 10.0% (16.6%) (27.2%) (11.5%) (61.0%) (55.1%)
American Eagle Outfitters, Inc. $886 $1,041 $1,066 $1,315 $4,308 $552 $884 $1,435 $3,816QoQ / YoY Growth 7.7% 7.9% 6.2% 5.7% 6.8% (37.8%) (15.1%)
Urban Outfitters 864 962 987 1,170 3,984 588 803 1,392 3,549QoQ / YoY Growth 1.0% (3.0%) 1.4% 3.6% 0.8% (31.9%) (16.5%)
Abercrombie & Fitch Co. 734 841 863 1,185 3,623 485 698 1,184 3,232QoQ / YoY Growth 0.4% (0.2%) 0.2% 2.6% 0.9% (33.9%) (17.0%)
The Buckle, Inc. 201 204 224 271 900 115 216 331 827QoQ / YoY Growth (1.7%) 1.4% 4.2% 2.5% 1.7% (42.7%) 6.0%
Zumiez, Inc. 213 228 264 329 1,034 138 250 388 981QoQ / YoY Growth 3.2% 4.3% 6.1% 7.9% 5.7% (35.3%) 9.6%
Chico's FAS, Inc. 518 508 485 527 2,038 280 306 586 1,598QoQ / YoY Growth (7.8%) (6.7%) (3.0%) 0.4% (4.4%) (45.9%) (39.8%)
The Children's Place, Inc. 412 420 525 513 1,871 255 369 624 1,662QoQ / YoY Growth (5.5%) (6.3%) 0.4% (3.3%) (3.5%) (38.1%) (12.3%)
Lands' End, Inc. 262 298 340 549 1,450 217 312 529 1,419QoQ / YoY Growth (12.5%) (3.1%) (0.5%) 9.4% (0.1%) (17.3%) 4.6%
Boot Barn Holdings, Inc. 186 187 284 189 846 148 - 148 808QoQ / YoY Growth 14.7% 11.3% 11.8% (2.1%) 8.8% (20.5%) na
J.C. Penney Company, Inc. 2,439 2,509 2,384 3,384 10,716 1,082 1,390 2,472 8,240QoQ / YoY Growth (5.6%) (9.2%) (10.1%) (7.7%) (8.1%) (55.6%) (44.6%)
Cato Corporation 230 213 192 191 825 101 168 269 651QoQ / YoY Growth (3.3%) 1.8% 0.8% (0.8%) (0.5%) (56.3%) (20.9%)
Citi Trends 205 183 183 211 782 116 216 332 726QoQ / YoY Growth (2.8%) 0.5% 4.4% 4.9% 1.6% (43.4%) 18.2%
J. Jill, Inc. 176 181 166 168 691 91 93 184 518QoQ / YoY Growth (2.8%) 0.6% (4.6%) (1.7%) (2.1%) (48.4%) (48.7%)
Tilly's, Inc. 130 162 155 172 619 77 136 213 540QoQ / YoY Growth 5.4% 2.8% 5.4% 1.1% 3.5% (40.7%) (16.0%)
Peer Average (0.7%) 0.1% 1.6% 1.6% 0.8% (39.1%) (14.8%)Peer Median (2.3%) 0.5% 1.1% 1.8% 0.9% (39.4%) (16.0%)
Quarterly Revenue of Publicly Traded Companies
Sources: FactSet, Company filings
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Analysis of True Religion Projections Track Record True Religion has historically experienced challenges with regard to forecasting, as shown by the variance between its predicted
and actual financial performance in 2018 and 2019
2017 Disclosure Statement Projections v. Actual Performance
Sources: Company filings, Company reports
($ in millions) 2017 DS Projections Actuals VarianceFY 2018 FY 2019 FY 2018 FY 2019 FY 2018 FY 2019
Total Net Sales $336.3 $342.9 $292.8 $259.2 ($43.5) ($83.7)
Gross Profit $193.0 $197.1 $152.4 $114.1 ($40.6) ($83.0)% of Sales 57.4% 57.5% 52.1% 44.0% (5.3%) (13.5%)
Adj. EBITDA $36.6 $39.0 $5.8 ($17.5) ($30.8) ($56.5)% of Sales 10.9% 11.4% 2.0% na (8.9%) na
Operating Profit $25.0 $28.1 ($20.2) ($36.2) ($45.2) ($64.3)% of Sales 7.4% 8.2% na na na na
Pre-Tax Income $13.6 $16.6 ($42.3) ($50.5) ($55.9) ($67.1)% of Sales 4.0% 4.8% na na na na
Net Income $8.2 $10.0 ($34.1) ($50.5) ($42.3) ($60.5)% of Sales 2.4% 2.9% na na na na
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Representative Retail Companies with Multiple Chapter 11 Filings
Sources: Company filings, CNBC
Representative Retail Companies with Multiple Chapter 11 Filings
Company First Filing Second Filing Current Status
Eastern Outfitters LLC Feb-17 Feb-20 Acquired, liquidated
Barneys New York, Inc. Jun-05 Aug-19 Acquired, liquidated
Charming Charlie Dec-17 Jul-19 Liquidated
Gymboree Group, Inc. Jun-17 Feb-19 Liquidated, going-concern
Payless, Inc. Apr-17 Feb-19 Liquidated
RadioShack Mar-15 Mar-17 Liquidated, going-concern
Wet Seal Jan-15 Feb-17 Acquired, liquidated
American Apparel, Inc. Oct-15 Nov-16 Acquired, liquidated
The Great Atlantic & Pacific Tea Company ("A&P") Dec-10 Jul-15 Liquidated
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COVID-19 Forecasting Outlook
“The Company cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can it predict the severity and duration of its impact. As such, impacts of COVID-19 on the Company are highly uncertain, and the Company will continue to assess the financial impacts. The significant disruption to the global economy and to the Company's business may lead to additional triggering events that may indicate that the carrying value of certain assets, including inventories, long-lived assets, and intangibles may not be recoverable. The situation is changing rapidly and future material impacts may materialize that are not yet known.”
10-Q September 3, 2020p.37
“The COVID-19 global pandemic could continue to have a material impact on our business, including our results of operations, financial condition and liquidity. …The extent of the impact of the COVID-19 global pandemic on our business is highly uncertain and difficult to predict, given the innumerable unknowns regarding the duration and severity of the pandemic.”
10-QSeptember 10, 2020p.24
American Eagle Outfitters, Inc.
“We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties that will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration of the COVID-19 pandemic and the impact of governmental regulations that might be imposed in response to the pandemic, which could, among other things, require that we close our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our e-commerce business. …While it is premature to accurately predict the ultimate impact of these developments, we expect our results for the remainder of the COVID-19 pandemic to be adversely impacted in a significant manner.”
10-Q September 9, 2020p.38
“There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy and consumer confidence. These and other effects make it more challenging for us to estimate the future performance of our business, particularly over the near-to-medium term.”
10-QAugust 5, 2020p.7
Boot Barn Holdings, Inc.
The Children’s Place, Inc. Zumiez, Inc.
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COVID-19 Forecasting Outlook (Continued)
“Due to the inherent uncertainty involved with estimates, actual results may differ. The extent to which the current outbreak of coronavirus disease (“COVID-19”) impacts the Company’s business and financial results will depend on numerous evolving factors...The Company’s assessment of these, as well as other factors, could impact management's estimates and result in material impacts to the Company’s consolidated financial statements in future reporting periods.”
10-Q September 8, 2020p.9-10
“The impact of the COVID-19 pandemic and measures to prevent its spread are affecting our business in a number of ways. We continue to believe that we will emerge from these events well positioned for long-term growth, though we cannot reasonably estimate the duration and severity of this global pandemic or its ultimate impact on the global economy and our business and results.”
10-QSeptember 9, 2020p.19
“The extent of the impact of the coronavirus pandemic on our business, consolidated results of operations, consolidated financial position and consolidated cash flows…all of which are highly uncertain and cannot be predicted. Additionally, we may need to cease or significantly limit our operations again if subsequent outbreaks occur, either more broadly or within our stores. Nevertheless, the coronavirus pandemic presents significant uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows.”
10-QSeptember 9, 2020p.34
Urban Outfitters, Inc.
Abercrombie & Fitch, Co. Lands’ End, Inc.
The Buckle, Inc.
“The company cannot reasonably estimate the length or severity of the pandemic's impact. Also, although the Company had reopened 397 of its 444 stores as of June 5, 2020, it is difficult to estimate the continuing impact of COVID-19 on the Company's consolidated financial position, consolidated results of operations, and consolidated cash flows for the remainder of fiscal 2020.”
10-Q June 11, 2020p.17
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COVID-19 Forecasting Outlook (Continued)
“The extent to which COVID-19 will impact our business operations, consolidated financial results and liquidity will depend on future developments which are highly uncertain and cannot be predicted. …As a result of the current level of uncertainty over the economic and operational impacts stemming from the COVID-19 pandemic, the impact on our business cannot be reasonably estimated at this time.”
10-Q September 8, 2020p.17
“While we anticipate that the foregoing impacts are temporary, we cannot predict the specific duration for which we may be impacted, and we may experience additional or further impacts from the COVID-19 pandemic, and/or elect or need to take additional measures as the information available to us continues to develop, including with respect to our employees, inventory receipts, store leases, and relationships with our third-party vendors. …The extent to which the COVID-19 pandemic and our response thereto may impact our business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time.”
10-QSeptember 8, 2020p.25
J. Jill, Inc.
“The degree to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the possibility of a “second wave” of COVID-19, the actions to contain the virus or treat its impact, other actions taken by governments, businesses, and individuals in response to the virus and resulting economic disruption, and how quickly and to what extent normal economic and operating conditions can resume. We are similarly unable to predict the degree to which the pandemic will impact our customers, suppliers and other partners, and their financial conditions, but a material effect on these parties could also adversely affect us.”
10-Q September 10, 2020p.28
Citi Trends, Inc. Tilly’s, Inc.
Chico’s FAS
“The COVID-19 pandemic (the "pandemic") has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business disruptions and adversely impact our results of operations. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our actual results could materially differ from those estimates in future periods.”
10-Q August 27, 2020p.9
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COVID-19 Forecasting Outlook (Continued)
“While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including possible new information and understanding about the severity of COVID-19, related potential economic impacts to customers and suppliers, and the effect of actions taken to contain it or mitigate its impact.”
10-QAugust 27, 2020p.26
The CATO Corporation
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DisclaimerThe information herein has been prepared exclusively for Proskauer Rose LLP (“Proskauer”), counsel to Farmstead Capital Management, LLC (the “Client”) by Ducera Partners LLC (“Ducera”). The information contained herein is based on information provided by True Religion Apparel, Inc. (“True Religion”) or otherwise publicly available sources.
For the avoidance of doubt, Ducera has not assumed any responsibility for independently verifying the information contained herein. These materials have been prepared exclusively for the benefit and internal use of Proskauer to assist Proskauer (and its Client) with evaluating, on a preliminary basis, the valuation of True Religion and does not carry any right of publication or disclosure, in whole or in part, to any other party. These materials are for illustrative purposes only and no representation or warranty, express or implied, is or will be made, and no responsibility or liability is or will be accepted, by Ducera or by any of its officers, directors, agents, or affiliates as to, or in relation to, the accuracy or completeness of any information contained herein. In furnishing this information, Ducera undertakes no obligation to provide Proskauer (or its Client) with access to additional information, to update any information contained herein, or to correct any inaccuracies herein. These materials and the information contained herein are confidential and may not be disclosed publicly or made available to any third party without the prior written consent of Ducera.
These materials are for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Ducera. To the fullest extent permitted by applicable laws and rules, the work performed by Ducera, including, without limitation, any communications with Proskauer (or its Client), and any advice, analysis or reports Ducera may prepare, shall be covered by attorney work-product doctrine, the attorney-client privilege, and all other applicable privileges. Any reports or analyses generated by Ducera are not the property of Proskauer (or its Client), and such reports or analyses are property of Ducera.
Ducera does not provide legal, accounting, regulatory or tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by Ducera to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. Each person should seek legal, accounting and tax advice based on his or her particular circumstances from independent advisors regarding the impact of the transactions or matters described herein.
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