Oxford Industries Inc (OXM) 2004 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Oxford Industries Incorporated Fourth Quarter 2004 Earnings Conference Call. At this time all participants have been placed on a listen-only mode and the floor will be opened for questions following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Reese Lanier. Sir, you may begin.

Thank you, Holly. Good afternoon everyone. My name is Reese Lanier I am the Treasurer of Oxford Industries. Before we get started today, I’d like to point out that some of the statements made on this call as part of the prepared remarks or in response to your questions, which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results -- future results might differ materially from those projected in such statements due to a number of risks and uncertainties, which are described in the Company's current report on Form 8-K dated July 16, 2003. A copy of this report is available online or upon request from Oxford's Investor Relations Department. Oxford disclaims any duty to update any forward-looking statements. Thank you for your attention and now I would like to introduce Hicks Lanier, Chairman and Chief Executive Officer of Oxford Industries.

Thanks Reese. Good afternoon and thank you for joining us. With me today are Ben Blount, our Chief Financial Officer; Tony Margolis, President of our Tommy Bahama Group; Tom Chubb, Executive Vice President; Scott Grassmyer, Controller; and Reese Lanier, our Treasurer.

We are pleased to report record financial results for the fourth quarter and full year ended May 28, 2004. We achieved the [desired] sales and earnings in the company’s history and made significant process -- progress in the strategic repositioning of Oxford Industries.

I will begin today by briefly touching on the key financial highlights for the year and then I will walk you through our fourth quarter results.

For the full year, consolidated net sales increased 46% to $1.117 billion. Operating earnings increased to 146% to $87 million and diluted earnings per share increased 78% to $2.38 from $1.34 last year. The fourth quarter results were also quiet strong. Sales increase 71% to a record level of $339 million verses $198 million in the year ago quarter. The increase was driven by the contribution of the Tommy Bahama Group along with growth in Menswear and Womenswear groups. Consolidated gross margin increased by 10 full percentage points to 31.2% driven by the superior margins of the Tommy Bahama Group.

Operating earnings rose 242% to $31.7 million verses $9.3 million in the year ago quarter. Diluted earnings per share were $0.97 significantly better than our guidance and consensus and an increase of 223% over last years $0.30 per shares. Obviously, we were pleased to have exceeded our plan for both the fourth quarter and the full year, and we have entered the new fiscal year with positive momentum. I would like to take a moment to discuss some specific in our Menswear and Womenswear segments during the fourth quarter and then I will turn the call over to Tony to discuss the Tommy Bahama Group.

Menswear sales for the fourth quarter increased by 9% to $118 million, slightly better than we had expected. We benefited from a number of new programs with existing customers notably Target and Men’s Wearhouse. The rollout of Oxford Golf has been a resounding success partially offsetting the discontinuation of the Izod Club Golf business last year. We also saw a stabilization of our Sears Land's End business during the quarter and our projecting moderate growth with this customer going forward.

Fourth quarter operating earnings for the Menswear Group increased to 169% over last year to $15.2 million resulting in an operating margin of 12.9%. The improvement in profitability was driven by increase sales volume, lower mark down to allowances and the discontinuation of Izod Club's unprofitable operation.

For the full year, Menswear Group sales declined 1% to $449 million from $456 million last year. The sales decline was due to a $33 million decrease in shipment to Sears Land's End offset by growth with Target, Men’s Wearhouse and others. I thank Mike Setola and his team did an admirably job of managing their businesses this year and I commend them on their efforts.

In the Womenswear Group, fourth quarter sales increased by 5% to $95 million due to stronger than anticipated spring, summer reorder business particularly with Target. As was the case in the third quarter, we faced significant gross margin pressure with our mass merchant customers that contributed to a 50% decline in fourth quarter operating earnings to $3.1 million from $6.3 million last year.

For the full year, Womenswear Group sales declined 4% to $298 million from $309 million last year due primarily to our decision last year to discontinue our business with K-Mart and to aid the client at Wal-Mart. We are obviously pleased with financial and operational performance of our business, but we also made significant progress on the strategic fronts.

As we announced on June 21, we reached an agreement to acquire another very strong brand Ben Sherman. While we covered the acquisition in some detail in a conference call after the announcement, I’d just like to reiterate that the financial characteristics of this business. Quite [similar] to Tommy Bahama, although the brand positioning is more useful. We believe that Ben Sherman has tremendous growth opportunity and are pleased to be in the position to supports its growth going forward. The brand and business are complimentary to a number of existing businesses and should produce synergies in several areas. Retail expertise in Tommy Bahama organization should be particularly helpful if Ben Sherman develop its retail strategy in the US. In the U.K., we will look to benefit from the Ben Sherman management’s team expertise and believe that they may be able to create opportunities for us to expand our others businesses in U.K. and a number of other countries. As I'm sure you read in our press release, we’ve updated our guidance for fiscal year 2005 to reflect the addition of Ben Sherman.

To sum up, I’d say that we are proud of our accomplishments over the past year and we are enthusiastic about the opportunities that we see in the year ahead.

Before I turn the call over to Tony Margolis to take you through the Tommy Bahama results, I would like to congratulate Tony and the Tommy Bahama team on a truly outstanding year. Tony?

Thanks, Hicks. We certainly are pleased with the results for the year. For the fourth quarter, we contributed sales of 126 million, up roughly 32% over the same period last year. Operating earnings for the quarter were $21.3 million, generating an operating margin of 16.9%, which included the amortization of intangible assets. Our sell-through at retail remained very strong. We had an excellent Father's Day business, and we are very excited about our new spring lines, which we will be showing at the Magic Show next month. We fully achieved our bookings targets for both fall and holiday and continue to be enthusiastic about our business going forward. For the full year we achieved sales of approximately 369 million, an increase of roughly 16% over the same period last year when we were still a private company. Our retail stores performance has been very strong and represents just over 40% of our total sales this year. We opened 11 new stores in the fiscal 2004, bringing our total store count at yearend to 42.

Regarding the development of our Tommy Bahama Women's business, we continue to make steady progress in solidifying the position of the line. New fabrics such as stretch cotton and knitwear have performed well, and we are increasingly confident in the direction of that business. Indigo Palms continues to be very strong but is still a relatively small percentage of our total business. Indigo Palm men's wear is doing very well and the women's line, which has only been in the stores for a short time, has already exceeded our expectations.

In summary, I'd say we have enjoyed great success in our first year as part of the Oxford team, and we anticipate that our success will continue. Thank you and I’ll now turn the floor over to Ben to go through the numbers.

Thank you, Tony. Since Hicks and Tony have already walked you through the sales figures, I will review the key elements of the income statement and the balance sheet for the quarter. Consolidated gross margins for the quarter rose 10.4 percentage points to 31.2% versus a year ago level of 20.8%. This increase reflects the inclusion of the Tommy Bahama Group, which carries much higher gross margins.

Selling, general and administrative expenses for the fourth quarter were $75.8 million versus $31.9 million in the year-ago quarter. Fourth quarter expenses increased 630 basis points to 22.4% of sales from 16.1% of sales in the year-ago quarter, again, this increase was the result of the inclusion of the Tommy Bahama Group, which carries a higher expense structure than the corporate average.

We once again incurred $1.7 million on intangible asset amortization expense during the quarter. As a reminder, amortizable value was assigned to Tommy Bahama customer relationships, licensing agreements and other intangible assets. For the quarter, on an after tax basis, these non-operational, non-cash charges reduced our reported earnings per share by approximately $0.06.

If you look on the segment information schedule attached to the earnings release, the corporate and other expenses for the fourth quarter increased to $8 million from $2.7 million last year. The increase was due primarily to LIFO accounting adjustments of 3.3 million and higher unallocated corporate expenses. Fourth quarter operating earnings increased 222% to $31.7 million generating an operating margin of 9.3%. This was a 460 basis point increase in the operating margin over the year ago level of 4.7%. Interest expense during the quarter reflected our debt associated with the acquisition and was 5.8 million versus 1.8 million in the year ago fourth quarter.

Net income increased 256% to $16.5 million to $4.6 million last year. Diluted shares outstanding for the quarter were $17.2 million versus a split adjusted 15.2 million last year. The increase was primarily the result of shares granted to the selling shareholders of Tommy Bahama; 776,400 shares at closing last year and 485,000 shares were accumulated profitability goals under the earn-out agreement for the fiscal year just ended.

We were extremely pleased with the condition of our balance sheet at year end. Inventories totaled 116.4 million, an increase of 11.6% over last year and included $32.9 million from the Tommy Bahama Group. Menswear Group inventories declined by approximate 20 million from last year. Overall, we believe our inventories are clean and properly valued.

Account receivable totaled 176.4 million at year end, an increase of 59.9% over last year. The increase in accounts receivable compares favorably to our 71% sales increase for the fourth quarter. Long-term debt stood at $198.9 million at year end, representing a total debt-to-capitalization ratio of 45.4%. We had 47.6 million in cash, no direct borrowings under our revolving credit lines, and excess collateral availability of approximately $146 million at year end.

For this fiscal year, we generated cash flow from operations of $62.9 million compared to $27.6 million in the same period last year. The increase was due to significantly higher net earnings, depreciation and amortization. Free cash flow totaled approximately 41.9 million after deducting capital expenditures of 14.1 million and dividends of 6.9 million.

And now I would like to turn your attention to our fiscal 2005, which began in June. As you know, we announced on June 21 a definitive agreement to acquire Ben Sherman, which was scheduled to close this Friday. As previously announced, Ben Sherman is projected to add approximately $150 million in sales and $0.20 to $0.25 per share to earnings at our fiscal 2005. These figures include an estimate of the amortization expenses of Ben Sherman's intangible assets of roughly $0.09 per share for the year or approximately $0.03 per share in each of the second, third and fourth quarters. To finance the acquisition and to provide for future growth, we've entered in our new $280 million, 5-year revolving credit facility. In connection with the new credit facility, we will write off a portion of the deferred financing fees from the previous credit facility. This non-cash write-off will take place in the first quarter and amount to approximately $0.05 for diluted share.

Updating our guidance to reflect the inclusion of Ben Sherman and the write-off of deferred financing fees, we are now projecting the following -- for the full year ending May 2005, net sales of $1.285 billion to $1.325 billion and diluted earnings per share of $2.70 to $2.85; for the first quarter, net sales of $275 million to $285 million and diluted earnings per share of $$0.37 to $0.39; for the second quarter, net sales of $305 million to $315 million and diluted earnings per share of $0.48 to $0.52; and for the second half of fiscal 2005, net sales of $705 million to $725 million and diluted earnings per share was $1.85 to $1.95. As we move into the spring 2005 selling season and visibility improves, we should be in a better position to break out information on the third and fourth quarters.

I would also like to give you a few additional data points for fiscal 2005. Cash flow from operations is projected to be on the range of $50 million to $55 million. The decline from fiscal '04 is due to an additional investment in working capital assets, particularly, inventory. Capital expenditures are projected to be approximately 20 million primarily the new Tommy Bahama stores and for Ben Sherman. Interest expense is expected to be approximately 30 to 33 million and with that I would like to turn the call back over to Hicks. Thank you

Thank you, Ben. To conclude I like to express my sincere appreciation to our employees and partners around the world, whose dedication and hard work made this year such a tremendous success and I also like to welcome Ben Sherman team to the Oxford family. We are enthusiastic about their opportunities for growth and look forward to supporting them as they expand the reaching scope for the Ben Sherman brand. Thanks for your participation today and we are ready for questions now.

Thank you sir. The floor is now open for questions. If you do have a question, you may press "*" "1" on your touchtone phones. If at any point your questions have been answered you may remove yourself from the queue by pressing the “#” key. We do ask that when you pose your question that you please pick up the handset to derive optimum sound quality. Once again it is "*" "1" to ask a question. Our first question comes from Marisa Mohican (phonetic) of Piper Jaffray.

Hi guys. Congratulations on a great quarter.

Thanks

Could you all give just a little bit more on color and detail on this is probably for Tony on Tommy Bahama women’s line, just a little bit more color possibly on the sell-throughs and also an update on how things are looking for holidays and beyond?

Okay

And then I have a couple of follow-ups.

I can tell you first of all that the process we are going through and I'm not sure that whether you participated in our presentations at MAGIC, but the product that we were showing at that show is now just starting to arrive in the stores and the primary initial phase of that was to make some significant fit adjustments, which I think we have alluded to earlier and are experiencing a dramatic improvement in sale completions. I think that one of the major [end sticks] for us was to measure the actual customers that came in the door of our stores, tried the product on, and left buying something versus left empty handed. And that has improvement dramatically. I don't have the specifics of those numbers to go through, but the improvements are dramatic there and that's a sign as you know in Womenswear, fit is everything. And we have made major strides there, I think the holiday line was the second season in a row where we were -- we attained our sales goals.

And I think that that's a significant statement that the product that we are presenting to the market is certainly in the zone that they would expect to find from us and in spite of what I would call difficult and trailing 12 and 24 months sales results, the customers seem to be coming in at a level that met our expectations. The new spring line, which we are just breaking -- actually as we speak this week and next week, is similarly developed. It’s headed in the same direction of the line that preceded it and we expect to get some rewards for consistency in that regard, but the process of turning the women's company around will be a lengthy one. It does not happen in one season it’s a process of delivering product, proving the performance and growing from there.

Okay. But initially at this time you are seeing some improved sell--?

Absolutely.

Great. What about on – I have a couple of more. As far Indigo Palms, set of the same question, what you are saying in terms of the sell-throughs and then for Ben Sherman any initial recent booking?

Okay. On in Indigo Palms you are referring to men’s and women’s or just women’s?

Both.

Okay. I can tell you that men’s sell-throughs are extremely strong. We have two categories of product, one that we refer to as 365 product, which is what I call our core basics and those products are experiencing extremely strong reordering on a regular basis. So we are very confident about the base of the line. The fashion pieces in the line, the new season, the fall season which is just arriving in the stores as we speak. It would be too early for me to give you any specifics about success of that line, but we feel confident of it based on the way the wholesale community reacted to it. On the women’s side, again we -- that’s not a well-developed business at this point. We just started shipping products in February of this year, but it continues to exceed our expectations in terms of bookings.

Okay and then Ben Sherman for bookings?

I’ll turn that over to Hicks.

Yes, thanks. Let me take it in two parts. [Bahamian] stock with the U.S. portion of the Ben Sherman business and Ben Sherman has been in the U.S. just for 3 or 4 years. But it is growing rapidly and based on bookings in hand for both fall and holiday it would appear that the business will increase roughly 50% and we had our Ben Sherman sales meeting a couple of weeks ago for the U.S. also and the reaction from all of our sales people is very positive to that. So I think we would be safe in projecting about 50% sales increase in Ben Sherman USA for the year that we just started. Let me also comment that Ben Sherman will be part of Oxford, but basically 10 months -- 12 months, that’s for year started in August 1. If you [inaudible] to the U.K. business which is the dominant part also the bookings for the last couple of seasons have been strong and that they feel very confident with at meeting their sales goals for the year.

Okay, great thanks guys and again congratulations.

Thank you.

Once again to ask a question please press "*" "1" on your touchtone phone at this time. Our next question is from Carol Cranmer of Morgan Joseph.

Thank you. I’ll add my congratulations.

Thank you.

I appreciate you giving us such specific guidance on the quarters. I wonder if you could talk a little bit in general about how we should think of the different pieces of your business in the coming year as well as on the quarterly basis? Just going back to previous discussion, we talked about the legacy business being more or less flat with men’s being stronger offsetting weakness in women’s. You also talked about different seasonal patterns in Tommy Bahama as well as Ben Sherman in terms of which quarters seems to be strong as well as the impact of some maybe more aggressive marketing spending in Tommy Bahama and I was just wondering if you could take us through with those cost [turning] for the year and quarter as you see them now?

Well, let me give you key general comments and as to your question. If it relates to the historical Oxford business of men’s and women's wear. As we pointed out and we've basically sticked in to that, we expect the sales to be relatively flat for the year with women's down a tad touch and men's up a little bit. We actually are projecting a slight increase in women's profitability this year, so hopefully the profitability in total for the historical business will be up a little bit on relatively flat sales.

I think you could see from the fourth quarter, the impact of -- and seasonality of the Tommy Bahama business, and you've got that in the news release that we released at 4 o'clock, so that should give you some help. The Ben Sherman business from a seasonal standpoint is not as spring-summer oriented as Tommy Bahama, so the fall holiday period is certainly as strong there also.

As it relates to the marketing question you asked, which we did discuss on one of our recent calls, and probably didn't give a thorough enough description of that when we talked about the golf tournament that we were sponsoring, on New years Day television CBS, the total marketing expenditures for Tommy Bahama in the year we've just started will be up probably 18% to 20% from the previous year, and obviously the golf tournament alone is more than that expense, but it has sort been a reallocation of the various marketing expenditures through various categories, so there have been some reductions in certain categories that will offset as a part of the increase, but in total and I think this is important that total marketing expenditures as a percentage of the wholesale business are going to be a tad over 4% and that's up from like 20.8% in the year we just ended, so nothing radical or dramatic there, just a different [slice] only. And Tony I don't know whether you have anything to add to that.

I think you have covered it, thanks.

As I mentioned the golf tournament, I will say that we have got a -- we are going to have a total of 8 players, 4 from the international group and four from the U.S. group and we've got commitments from two on each side and we are really pleased with the caliber the players we branded up so far; we've got Chad Campbell and Zach Johnson from the U.S. and Adam Scott and Paul Casey from the international team. So we -- and the other ones will be selected strictly on the basis of their world rankings and money winnings, and we are not to the end of the period where those are determined yet. Carol, I don't know whether that answers your question, but hopefully we gave you some insight.

Yes that's helpful. I'll just ask one more question. Could you review your store expansion and compound expansion plans for the coming year?

Sure. You want me to handle that one, Hicks.

That would be fine.

For the Tommy Bahama stores, for the next year our plan is to open approximately 7 to 8 Tommy Bahama stores and one compound, and that compound will be opening in the latter half of the last quarter. Indigo Palms stores, I think, we have plans to open four for the next year, in this next fiscal year and that's it for 2005, alright.

Thanks very much.

Once again ladies and gentlemen, to ask a question please press "*" "1" on your touchtone phone at this time. Our next question is coming from John Rouleau of Wachovia Securities.

Hey guys, nice quarter

Thank you

First I just wanted to confirm really I mean -- in terms of your guidance, there has really been no change to the guidance that you put out there back at the end of May. You've updated for Ben Sherman both on the sales side and EPS side and then you took up $0.05 for the non-cash charges. Is that correct?

That is correct.

Okay. Just wanted to be clear on that for those of us who aren't [mathed] with this?

We put the Ben Sherman guidance in there on June, 21.

Right, right exactly.

We have not changed our basic guidance in the last month.

Got it. Now looking at the Ben Sherman business and the bookings, you've given us the numbers for the U.S., what bookings are kind of running and the relative size of the business there, and I think you said that you are expected to grow that business in the U.K., but what's happening on the distribution side there, is it safe to say that they are kind of tightening the distribution so to speak?

It is very safe to say that. What they have been doing for a couple of years is trying to enhance their distribution by dropping some of the lower ends and adding to the higher ends, and now we are in complete agreement with that approach.

So that will probably temper growth out at the U.K. for a little while and where does that all fall out on the growth side, are we looking at a mid-single type digit growth for the next year and 18 months out of the U.K. --

As far as U.K. we are not projecting any meaningful growth this year, just because we are rationalizing some of the business on the low end and adding some to the high end, So very modest growth, if any there, but fairly significant growth in the U.S. as we've said.

Okay, but one's that's kind of paired back, will that have fairly meaningful profit implications for the U.K business or --?

We think it will. And the product [offering] is pretty diverse there and some areas are going very rapidly like shoes as a case in point.

Right exactly.

U.K. is going aggressively.

Okay.

And there are some areas that are not moving that fast.

And then Hicks, wondering if you could just update us on kind of Sears Lands' End. I know that business has been lumpy, you were facing the fill ins from the year ago, it sounds like that's stabilized?

Well we still got that in our first quarter. With the last 400 stores--

Okay, great.

Once we get past the first quarter, we expect we expect to see growth there and have already gotten some pretty positive indications in both dress shirts, sports shirts and slacks. The business may be better then we had anticipated for this year.

So even the troubles that they have add had, that have been talked about lately with them reporting and talking about softer apparel sales, is that -- you still think your business is obviously trending in the right direction there?

That's correct.

Okay, great. And then any further color or update on private label with Wal-Mart or is it still the same situation?

Well. We saw [inaudible] summer June and July there hadn’t been much good news coming out of Wal-Mart in terms of the women's apparel sales in particular. So we have no reason to change our position on that one at this point.

Okay, great. Thanks guys.

Once again to ask a question please press "*" "1" on your touchtone phone at this time. Gentlemen there are no further questions. I would like to turn the floor back over to you for any final comments.

Well, obviously we are quite pleased with our fourth quarter and the year we have just finished and quite enthusiastic about our prospects going forward and are looking forward day after tomorrow to officially welcoming the Ben Sherman Group into our family. And we thank everyone for their interest and attention to dial in. Look forward to talking to you soon.

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Have a great day. Thank you.