Equity Method Investment |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jan. 28, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Method Investment |
The following table is a summary of the Company’s equity method investment:
The Company accounts for equity investments through which it exercises significant influence but does not have control over the investee under the equity method. Under the equity method, the Company recorded its investment in the investee on the balance sheet initially at cost, and subsequently adjusts the carrying amount based on its share of the investee's net income or loss. Royalty distributions received from the investee are recognized as a reduction of the carrying amount of the investment. The Company's share of equity (income)/losses and other adjustments associated with these equity investments will be included in other operating income, net in the Consolidated Statements of Income and Comprehensive Income. The carrying value for the Company's equity investment is reported in Equity Method Investment on the Consolidated Balance Sheets. The Company reports its share of earnings using a one-month lag because results are not available in time for it to record them in the concurrent period. The Company will begin reporting information under S-X Rule 4-08(g) for the Joint Venture in future quarters. Equity Method Investment with WHP Global On December 8, 2022, the Company entered into a strategic partnership with WHP, a leading global brand management firm. On January 25, 2023 the related transactions closed and funded. The mutually transformative strategic partnership advances the Company's omnichannel platform which is expected to drive accelerated, long-term growth through the acquisition and operation of a portfolio of brands. The Company formed an intellectual property Joint Venture with WHP, which acquired certain intellectual property of the Company. Concurrently, the Company transformed into an omnichannel platform company, managed and run by its current leadership. All other aspects of the existing business remain unchanged. The Company entered into an exclusive long-term License Agreement (as defined below) with multiple renewal options with the Joint Venture to use the contributed intellectual property for the Company’s existing business and will pay a royalty fee to the Joint Venture. Cash earnings in the Joint Venture will be distributed quarterly to the Company and WHP on a pro rata basis. Under the derecognition guidance from ASC 810, the Company derecognized the intellectual property assets at their carrying amount upon their contribution to the Joint Venture. In exchange for the Company's contribution of its intellectual property assets to the Joint Venture, WHP invested $235.0 million for a 60% stake in the Joint Venture, implying a fair value of the Company’s retained 40% interest of approximately $156.7 million. The carrying amount of the intellectual property assets was zero, leading to recognition of a $391.7 million gain of which $156.7 million was related to the Company’s retained 40.0% interest in the Joint Venture. The gain was recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income. Transaction costs capitalized in the cost of the equity method investment totaled $9.4 million. Separately, under the terms of the transaction, WHP also made a common equity investment to acquire 5.4 million newly issued shares of the Company at $4.60 per share, representing an approximate pro forma ownership of 7.4%. The difference between the price paid and the fair value of the share price on the day of the transaction resulted in a gain of $17.8 million recorded in gain on transaction with WHP on the Consolidated Statements of Income and Comprehensive Income. Refer to Note 8 in our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion. In connection with the strategic partnership with WHP, on January 25, 2023, the Company and the Joint Venture entered into an Intellectual Property License Agreement (the “License Agreement”). The License Agreement provides the Company with an exclusive license in the United States to the intellectual property contributed in connection with the Membership Interest Purchase Agreement and certain other intellectual property. The initial term of the License Agreement is 10 years, and the License Agreement automatically renews for successive renewal terms of 10 years (unless the Company provides notice of non-renewal at least 24 months prior to the end of the initial or applicable renewal term). Except for the Company’s right not to renew the License Agreement, the License Agreement is not terminable by either party. The Company will pay the Joint Venture a royalty on net sales of certain licensed goods and will commit to an annual guaranteed minimum annual royalty during the term of the License Agreement (i.e., $60.0 million in the first contract year, increasing by $1.0 million per year for the next contract years, and remaining at $65.0 million following the sixth contract year). The Company will pay royalties at a rate of (i) 3.25% of net sales arising from retail sales of certain licensed goods in the first through fifth contract years (and 3.5% thereafter), and (ii) 8% of net sales arising from wholesale sales of such goods. The Company prepaid the Joint Venture’s first year guaranteed minimum royalty of $60.0 million with a portion of the transaction proceeds and recorded as a prepaid royalty on the Consolidated Balance Sheets. As WHP is an affiliate of the Company as part of the transaction, the intellectual property purchase, stock purchase and related royalty payments are considered related party transactions. Equity Method Investment in Homage, LLC In 2016, the Company made a $10.1 million investment in Homage, LLC, a privately held retail company based in Columbus, Ohio. The non-controlling investment in the entity was being accounted for under the equity method. During the third quarter of 2020, the Company sold all of its interest in Homage, LLC back to Homage, LLC in exchange for a promissory note payable to the Company in the principal amount of $1.5 million. The Company recorded a reserve against the full value of this promissory note. During the fourth quarter of 2021, the Company revised the payment terms of the note receivable and collected $0.3 million which was recorded as other income within other (income)/expense, net in the Consolidated Statements of Income and Comprehensive Income. During 2022, the Company collected $1.2 million which was recorded as other income within other (income)/expense, net in the Consolidated Statements of Income and Comprehensive Income. The Company has no remaining activity with Homage, LLC.
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