Oxford Industries Inc (OXM) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Oxford Industries Incorporated third quarter fiscal 2005 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded. And now I'd like to turn the conference over to Reese Lanier. Please go ahead.

Good afternoon, everyone. Before we get started, I would 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 future results might differ materially from those projected in such statements does to a number of risks and uncertainties which are described in the Company's S3 registration statement dated September 24, 2004. A copy of this registration statement is available online or upon request from Oxford's Investor Relations Department. Oxford disclaims any duty to update any forward-looking statements. I appreciate your attention and now I would like to introduce Hicks Lanier, the Chairman and Chief Executive Officer of Oxford Industries. Good afternoon and thank you for joining us. With me today are Michael Setola, President, Tony Margolis, CEO of our Tommy Bahama Group, Tom Chubb, Executive Vice President, Scott Grassmyer, Controller and Treasurer. We are pleased to report financial results for the third quarter of our fiscal year 2005 which ended February 25, 2005. I would like to start with a summary of the key financial highlights of the quarter. Consolidated net sales increased 24% to a third quarter record of $349 million, up 281 million last year. Sales growth was driven by a $42 million contribution from Ben Sherman and significant increases in other areas of the Menswear Group. Tommy Bahama Group sales were down slightly due to the exit of the private label business.

Consolidated gross margins increased 160 basis points to 32.5%. The increasing percentage of our business represented by Company owned brands, primarily Tommy Bahama and Ben Sherman, which were responsible for the gross margin expansion. Our royalty income continued to show strong growth, rising 320% at $9 million from $900,000 in the year ago quarter. The higher sales volume of Tommy Bahama licensees and the inclusion of Ben Sherman's licensing income generated the growth in royalty income. Diluted earnings per share increased 38% to a third quarter record of $0.80 a share from $0.58 last year. This was above our previously issued guidance range of $0.65 to $0.71 in the current first call consensus estimate of $0.69. Our financial results for the third quarter highlight the strategic and operational improvements that we've made to our portfolio of businesses.

Company owned lifestyle brands, Tommy Bahama and Ben Sherman, to continue -- continue to perform and represent a great opportunity for ongoing growth in sales and profitability. These brands also provide us with a highly profitable royalty stream from in a standing portfolio of licensed products. We also have a significant opportunity to pursue a growth strategy for Company owned retail stores under each of these brands. Our Menswear Group has enjoyed strong revenue growth as a result of new marketing initiatives which include Oxford Golf, Wedge(ph) Golf for for cold(ph) and Nick(it) for J.C. Penny. In addition we enjoyed particularly strong sales growth in tailored clothing and dress shirts. Our Womenswear team has implemented a more efficient sourcing structure that has improved profitability. Operating margins have improved sequentially in each of the last two fiscal quarters. While we believe that revenue growth will remain a challenge over the short term, we believe improvements in profitability will continue going forward.

With respect to our guidance, we came in at the bottom of our sales range and exceeded the top range of our earnings per share range by $0.09 per share. Our historical Menswear and Womenswear businesses fell short of their sales goal for the quarter which was partially offset by significantly better than expected performance from Ben Sherman. This shift in sales mix resulted in a higher percentage of branded sales and better than anticipated profitability. This shift also illustrates the attractiveness of our transition toward a portfolio of brands with an emphasis on owned lifestyle brands. Now I would like to ask Michael Setola to give you an overview of Menswear.

Thank you, Hicks. Good afternoon, everyone. The Menswear Group reported a third quarter sales increase of 69% to $169 million from $100 million last year. The strength in our Menswear business during the quarter was broad based and extended to most major product categories. Excluding the contribution of Ben Sherman, our historical Menswear businesses increased sales by 27% over last year to 127 million, driven by growth in dress and sports shirts, tailored clothing and our new Nick(it) sports wear collection. Early retail sales results of Nick(it) have significantly exceeded our plan and we are increasingly enthusiastic about its success at J.C. Penney.. I'm very pleased to report that Ben Sherman had an exceptionally strong quarter contributing $42 million in sales. Despite unpleasant weather and a sluggish retail environment, the U.K. business had a solid third quarter and exceeded projections.

The U.S. business came in well above budget and continues to expand its presence in upscaled department stores and independent specialty stores with placement in more than 1200 doors. Our efforts to emphasis a strong U.S. branding position continues at retail with investments in national media, in-store signage and co-sponsored PR events. Also, our website and online store continue to generate increased traffic. As you may have read, we launched Ben Sherman tailored clothing, dress shirts and neckwear for fall 2005. The target distribution remains focused on upscale department stores and specialty stores, specifically on those that service the dress and furnishings consumer. We're quite pleased with the efforts to penetrate this market and reach a new consumer with updated products new to this market.

We're excited about the opportunity to expand the brand in the U.S. and have received very positive feedback from our customers. Further focus is being directed at positioning and placing our Womenswear and Footwear programs into the U.S. market. This is a relatively new initiative for the brand and while limited, early results are positive. Finally, a second U.K. store has been leased in Manchester and an effort is underway for a first store in the U.S.

Profitability for the Menswear Group is also very strong in the third quarter. Operating earnings more than doubled to 14.1 million from 7 million last year, despite startup costs for the launches of Nick(it) and Orvis Signature. The increase in operating earnings was driven by higher sales volume in our historical Menswear businesses and a considerable contribution from the higher margin Ben Sherman business. We continue to have tremendous enthusiasm for the progress that's been made in our Menswear businesses since the beginning of the fiscal year. The business is revitalized and growing at a healthy pace. We've got a number of new opportunities which we are excited about and the buzz surrounding the Ben Sherman brand continues to build.

Thanks, Michael. Our Womenswear Group reported a third quarter sales increase of 1% to 79 million from 78 million last year. Our Wal-Mart volume, which had been down year-over-year in each of the last two quarters, was this quarter. Changes to our sourcing structure generated higher gross margins which resulted in a significant increase in profitability for the quarter. We are particularly pleased with this improvement and believe that we have an opportunity to sustain the momentum in this business. Operating earnings for the third quarter increased 56% over last year to 5.2 million. I'd now like to turn the call over to Tony Margolis to give you an update on Tommy Bahama.

Thank you, Hicks. Good afternoon, everyone. Results for the Tommy Bahama Group were unplanned for the quarter. We reported third quarter sales of 101 million compared to 103 million last year. As you know from our previous conference calls, the exit from our private label business was responsible for what appears to be a slight decline. Our private labeled sales were less than 3 million this quarter compared to 14 million in last year's third quarter. Excluding private label our core branded sales increased 10% in the third quarter to 99 million from 90 million last year. Operating income for the third quarter totaled 13.5 million compared with 14.8 million last year. We incurred two unusual items this year. $1.1million in marketing expenses for the network broadcast of the Tommy Bahama challenge on New Year's Day. And 600,000 in relocation expenses for the consolidation of our Seattle operations into a new office building. These two items account for all of the decline in operating earnings.

The performance of the Tommy Bahama mensbusiness(ph) was in line with expectations for the third quarter. We believe our strategy of restricted distribution has continued to serve us well. Growth in our men's business is driven by product extensions and expanding market share within our existing customer base, not by broadening distribution and indiscriminately adding new doors. The men's business will obviously remain the foundation of our Company as we pursue opportunities for more aggressive growth in our womens business, our licensing portfolio, our retail store strategy, our Indigo Palms and Island Soft projects and eventually international expansion. Our Tommy Bahama womens business continues to be a work in process. As we indicated last quarter, we had planned our spring business to be down modestly for -- and the third quarter results came in about where we had expected them to.

However, our womens product continues to show strong results in our Company-owned retail stores. The positive year-over-year sales comparisons that began in December continue throughout the balance of the third quarter. We believe that the improving performance in our Company-owned stores is validation by the consumer that the changes we have made in the line are on the mark. We further believe that success at retail will translate into success with our wholesale customers in the future. As we stated last quarter, we are confident that there is a sizable opportunity for us in the women's market and we will remain focused and patient. Our Indigo Palms brand remains a big opportunity for us and continues to make progress. The men's business was up sharply during the quarter, driven by growth in fashion tops and bottoms. The Indigo Palms womens business for the spring season was a bit soft as expected.

For fall, we have refocused the women's line on premium denim, bottoms, with a higher fashion content. We want to offer our customer a product that is trend right but in a fit that is -- that will flatter the adult customer. We are very excited about the direction of this brand -- that this brand is headed. During the third quarter, we opened two new Company-owned retail stores bringing our total to 50 locations. We opened a new Indigo Palms store in Fort Lauderdale, Florida, and a new Tommy Bahama store in Wellington, Florida, which is just outside of West Palm Beach. We have also begun to make some minor changes to the Indigo Palms retail concept to bring more warmth and personality to the stores. We will be updating interior designs and fixturing in our four Indigo Palms stores over the next several months which we believe will enhance the shopping experience of our guests. Thank you for your attention and now I will turn the call over to Tom Chubb.

Thank you, Tony. Since we have already walked you through the sales figures of consolidated and by segment, I will review the key elements of the income statement and balance sheet for the quarter. Consolidated gross margins for the third quarter increased 160 basis points to 32.5% from 30.9% last year. Both Ben Sherman and Tommy Bahama generate significantly higher gross margins than our historical businesses, so our overall gross margins have continued to increase as these branded businesses grow as a percentage of total sales. Total operating expenses for the third quarter increased to 88.7 million from 66.5 million last year. As a percentage of sales, total operating expenses increased 180 basis points to 25.4% from 23.6% in the year ago quarter. The increase was due primarily to the inclusion of Ben Sherman, expenses related to additional Tommy Bahama retail stores and additional marketing expenses in the Tommy Bahama Group. Total operating expenses also included $2.3 million of intangible asset amortization expenses associated with the Tommy Bahama and Ben Sherman acquisitions.

These amortization expenses, which are non-cash, reduced third quarter earnings per share by $0.08 compared to $0.06 last year. Third quarter operating income increased 34% to 28.7 million from 21.5 million last year. Our operating margin increased 60 basis points over last year to 8.2% of sales. Interest expense during the quarter increased to 7 million of 6.3 million in the year ago quarter due to higher average borrowings used primarily to finance the acquisition and working capital of Ben Sherman. Diluted EPS for the quarter, third quarter, were $0.80 compared to $0.58 in last year's third quarter. Diluted shares outstanding for the quarter increased to 17.2 million from 16.7 million in the year ago quarter. The increase was primarily the result of shares granted to the selling shareholders of Tommy Bahama and additional option exercises.

We continue to be pleased with the condition of our balance sheet. Our total inventories at quarter end increased to $186 million from $134 million last year. The inclusion of Ben Sherman added $25 million. We significantly increased dress shirt inventories in the Menswear Group to support several new replenishment programs. In the Tommy Bahama Group we brought in spring inventories much earlier than last year to guard against delivery disruptions and to ensure delivery at the beginning of our shipping windows. We also increased inventories in our retail operations to support eleven more retail stores than were open at the end of the third quarter last year. Our accounts receivable totalled $209 million at quarter end, up 25% over last year's third quarter. The increase over last year was due primarily to the inclusion of the Ben Sherman accounts receivable.

You will note again this quarter a number of other changes in our balance sheet that result from the Ben Sherman acquisition. These include increases in intangible assets, goodwill and deferred income taxes. I'd now like to turn the call over to Reese Lanier, our Treasurer, to walk you through the guidance for the remainder of the year.

Thank you, Tom. As we commented last quarter, we were a little disappointed in spring bookings for certain segments of our business and generally cautious about the spring selling season. Since then, we've experienced unfavorable spring weather patterns, particularly in California and the northeast, which have affected our own stores as well as our wholesale customers. Looking ahead to the fourth quarter, we are now projecting sales of 350 to $365 million and diluted earnings per share of $1 to $1.10. Incorporating our better than expected performance for the third quarter, this would generate full year sales of 1.278 billion to 1.292 billion and full year earnings per share of $2.69 to $2.79. These figures are after deduction of approximately $0.39 per share in non-cash, non-operating costs associated with intangible amortization expenses and deferred financing fee write-offs.

This full year EPS estimate is consistent with the guidance provided at the beginning of this fiscal year and represents significant growth over last year. With respect to our outlook for our fiscal 2006, which begins in June, we are scheduled to release guidance at the end of May. At that time we will host a conference call to discuss our expectations for fiscal year 2006. Now, I would like to turn the call back over to Hicks for some closing comments. Thanks, Reese. Our performance for the third quarter continues to validate the strategic and operational improvements that we've made to our portfolio of businesses. We have deployed our capital in a way that has created significant growth opportunities, has enabled us to carefully manage our lifestyle brands and has greatly improved our profitability. As we look beyond the fourth quarter, we believe the opportunity exists for improving market conditions and we are excited about the strength of our product offerings in each segment of our business. Thank you for your continued interest and support. We are now ready to take questions, Natalie.

If you like to ask a question, please signal by pressing the star key followed by the number one on your touch-tone telephone. If you are a using a speakerphone, make sure that your mute button is turned off to allow your signal to reach our equipment. Again it is star, one to ask a question. We'll pause for just a moment to assemble our roster. We will take our first question from Jeff Klinefelter with Piper Jaffray.

Congratulations on your third quarter results to everybody. Couple questions. One would be on Tommy Bahama royalties, sounds like you had some strength this last quarter. Could you comment on which categories, which royalty categories you are seeing strength in or product categories, rather? And then on the men's side, Nick(it) sounds like exceeding plan which is a great sign. Can you give us some sense for what the magnitude is? What kind of a run rate do you anticipate this business growing into if we think about it kind of on an annualized basis? And then lastly, just how much in terms of the startup expenses that you did incur this quarter with Nick(it) and Orvis and if you kind of back that out and think about more of normalized out margin for men's.

Mike Setola, do you want to start with the Nick(it)?

Sure. Jeff, the Nick(it) program launched in 500 doors at Penney's for spring. We began in February. 500 doors at the rate of sale that we are currently trending at on the launch should yield us somewhere in the 12 to $15 million first year range. For Nick(it).

On the Tommy Bahama royalty issue, we had about a 60% increase in royalty income in the quarter for Tommy Bahama. And, Tony, I believe, we could say was pretty well broad based. We do have some new licensees which generated some royalty. I think as a general rule it was growth in virtually every one of our licensees.

That's exactly right, Hicks. We've had an across the board sort of strengthening of all of our licensed products. As in the past, of course, the furniture license continues to be our strongest. And we -- as Hicks mentioned we have some new people that are coming on board that we believe will reflect very favorably on our licensing income flow for next year. Most notably would probably be fragrances. But the growth that you saw in the third quarter, I think, was fairly well spread out among the existing licenses.

As it relates to the startup expenses, Mike, I will make a comment and then you can add to it as you see fit. We actually had startup expenses in the Orvis Signature line, the Nick(it) line, and also the beginnings of the Ben Sherman dress shirt and clothing line. We had our first shipments of Nick(it) which more than offset the startup costs, so we were in a profit mode there. But that was not the case with the other two. And I would say you are looking at somewhere in the half million dollar area.

Yes, that's about right, Hicks. Nick(it) was about $0.5 million on the startup costs to get the product launched. And some of the Orvis was absorbed and certainly the addition was the startup at the Ben Sherman programs and that was somewhere in the 150 to 200 range.

Great. One last follow-up here. In terms of the guidance, I can appreciate the volatility in the marketplace here in March. Is this sort of across the board kind of the moderate channel, moderate department stores, is that where you're seeing them pull in the reins on some bookings? Is there a particular area where you are seeing the softness in bookings for spring.

Obviously, most of our spring bookings occurred before our January call in terms of initial orders in the branded businesses. But particularly in the month of March the -- the had once business that we expected to generate and had in prior years in March was not up to par. And I think -- and I think Tommy Bahama was one of the areas that suffered there and we can relate it pretty directly to our own stores because the weather pattern caused us to have a weak March there where -- Tony, you might give them an update of what's happened just recently.

Actually, it's been very exciting to see as the weather has turned, especially in California, the sales -- the comp store sales have again accelerated up to be significantly over last year. However, as Hicks said, the rain patterns that occurred in the spring this year on the west coast didn't only affect the Tommy Bahama stores, but it affected all of our third party clients as well. So we saw a meaningful falloff in the once ordering that we would normally see this time of year. It just was not as strong as expected.

Tony, just a one quick follow-up to that. You had mentioned at magic that you anticipated or you were seeing positive comps in your own stores and also at Nordstrom seeing some improvement in womens and then holiday was going to be your first chance to showcase some of those improvements to the other wholesale customers. Is that coming up soon? The holiday line review?

The holiday line I believe breaks around the latter part of April and we are booked pretty solidly with appointments to see that new collection. There is a lot of enthusiasm for some of the things that have happened to us in Womenswear and it's a kind of a crawl, walk, run world we are operating in and people are sort of getting a lot more comfortable than they were six months or a year ago, certainly. As I've mentioned in earlier calls, we've resolved the fit issue, I think, to most peoples satisfaction. And are working aggressively on building product now that is trend oriented and appropriate to our customer.

Great. Thank you.

Next we will go to Lee Backus with Buckingham Research.

First, congratulations on a good quarter. And it seems like you are on the way to have a good year and it seems like you're going to end up at the end of the year with guidance similar to just about the same as when you started. But you are certainly not getting paid for it in the marketplace. You know, it's my guess is part of that reason is just because sort of the guidance has been changing. You are talking about tough environment out there but you are still beating numbers. There is a question at the end of this and I'm not sure what it is. Maybe you can talk about the kind of guidance you give and certainly you keep being conservative about guidance and then you keep beating numbers. But somehow if you -- there has got to be a way of honing in on that guidance or giving some sort of better sense of what's going on so that you get adequately paid in the marketplace for what you've accomplished.

Well, we concur with most of your statements including the ones about the financial marketplace. I would point out that with the third quarter we went the low end of the range as it relates to our top-line. And fairly significantly exceeded the top end of the range on the bottom-line. And as you know better than we do, a number of our peers have brought their guidance down pretty dramatically. We have never done more than just tweak ours and there is some legitimate reasons to have concern about the top-line. I will say we are pretty pleased with the way we have executed the business and within our guidance is a for instance, is the fact that our spring business was not quite up to par in the month of March, either in our own stores or at our customer's. And as a result we got a little overage of spring inventory that we have factored into our guidance for the fourth quarter to make sure we come out of the year with a clean inventory position. You know, it will be interesting to see the March numbers that will come out, I guess, tomorrow in terms of retail comp store sales.

A week from tomorrow they come out.

A week from tomorrow. We haven't heard great things about the sales from many of our customers. It's a general rule, as Mike Setola mentioned, we have been quite pleased with the launch of Nick(it) at Penney. But that's probably an exception to the general rule. So, you know, I don't think you're going to change our basic bend of the way we try to forecast and tell you what we think about the future. We are going to keep trying to maximize that bottom line in every way that we can. We feel extremely positive about our strategy and strategic positioning. And think that regardless of the external conditions, the way we are moving the Company is going to pay dividends for everybody.

Could you give us some sense of what Q1 would look like?

We are -- as you know, I am having (inaudible) with us. Our budgeting process for our upcoming fiscal year starts about now and we plan to give that guidance in the latter part of May.

One of the other concerns that I have certainly heard in the marketplace is about Lands' End and there was a lot of chatter about Sears selling Lands' End. What will happen to your business. It looks like at this point in time Eddie Lampert says that he is not selling it. Maybe you could give us an update of what's going on there?

We may have been starting some of the rumors.

Were you going to buy it?

No. We don't think Lands' End belongs in that situation. And if it is sold, particularly to a financial buyer, we'd be quite pleased. Depending on who the strategic buyer was, if there was one and if it's for sale, we would take our chances there, too. But we have no inside information. And we will say this, we've spent a lot of time over the last year talking about that situation. We had predicted at the beginning of the year that our business with Lands End would be up modestly and that is the case through three quarters. So we -- our position there is certainly solid. We really think that that's a brand that has not been managed to its maximum over the last couple of years and we think that maybe -- I don't whether it's we think or we wish that even if it stays under Eddie Lampert's control, that it is put out to the side and run as a separate free standing entity. I think it's got a much better chance of being successful.

Could you also comment on other operating income? Is that the licensing income?

Yes. That would be principally licensing income.

Good, thank you.

Next we'll go to Eric Tracy with BB&T Capital Market.

Good afternoon. Congratulations as well on the quarter. Had a question just with respect to the women's legacy businesses. Still was wondering if you're still planning that business down, you know, still looking for roughly 250 for the year. And then with respect to margins, just talk about some of the sourcing initiatives taking place there to maintain profitability.

The number will probably come in a bit lower than the 250, more like 235 to 240. As you saw from our press release, we had a modest increase this quarter. We don't -- we will have some further attrition in the fourth quarter. The fourth quarter relative to last year will be somewhat like our guidance for the third quarter, the top-line won't look so good in Womenswear, but we think the bottom-line will relative to a year ago. Part of the sourcing initiatives was sort of being a little more prudent in some of the business that we took because we've made a concentrated effort to get our gross margins up there. Part of it had to do with sourcing and part of it had to do with being willing to let the volume go down rather than take business at margins that didn't meet our financial targets. The good news there is that we've been able to flex our organization expense structure in conjunction with the size of the business.

To follow up on the royalty income, as far as looking forward and modeling, not necessarily in the next year but at least for Q4, kind of anticipate these levels particularly within the Tommy Bahama and any incremental upside potential within Ben Sherman?

Scott, you got something on that? We have got the fact that we're up against zero last year for Ben Sherman and we expect continued increases in the Tommy Bahama bit. I would say the spread will not be quite as dramatic as it was in the third quarter.

Okay. All right. And then lastly just with respect to obviously very strong denim category right now, just wanted to get a sense of -- you spoke a little bit about trying to focus on the premium within the womens on Indigo Palms. Tony, maybe if you could talk a little bit more about that and then also as well, Mike on the Ben Sherman side, anything you are able to capitalize on there?

I would tell you that a number of the things that we have discussed in the past about the Tommy Bahama sportswear efforts in womens were similar experiences for us in the Women's Jeans Wear World. And we took an aggressive position about tweaking that line into a more youthful and more trend oriented product line, but still with a fit characteristic that was targeted to an adult woman. The wholesale third party responses to that have been very positive. That product is actually not scheduled to arrive into the stores until the first quarter of next year -- of next fiscal year and as a result we don't have any actual over the counter retail to report, but the initial wholesale response to it has been very, very positive.

Ben Sherman denim has historically been on the opening price of fashion denim. It's been a $79 fashion program. The best selling product that we've had over the last two quarters, frankly, is in the $99 and up category. So we have focused a fair amount of energy and inventory towards more fashion driven denim. Recently launched a new collection called special brew which is a bit more distressed. Has a bit more wash characteristics, a little more premium denim base cloth, and we are seeing a lot of very positive reaction from it, both at the specialty store level and in the upscale department store group.

What kind of pricing on that?

It's 99 and higher. Goes up to about $135.00 I believe.

Great. Thank you very much.

And, Mike, haven't our customers endorsed us moving up to those price points?

Yes, they have been positive about it. It really came off the back of the actual retail selling of the better product. I just note one other thing for you. One of the best selling products we've got currently in the Nick(it) out the door at Penny's happens to be the denim. It's a modified fashion denim for kind of a Penny customer fit and that product is retailing in the $39 range which is a pretty high ticket for J.C. Penney's fashion denim, premium or not.

Okay, great. Thank you.

One point that I would think is worth making is that those price points, although in the grand scheme of our -- anybody that's been in this business seem to be premium in what's actually going on in the denim markets today, those are almost in the middle of the price range. They are certainly not outrageously high by any means.

But we can get there with -- other segment, Mike.

We have another segment within Ben Sherman. It's a licensed program which is actually a brand called Evisu. The Evisu denim begins at $200. And we are seeing some pretty strong sales although the numbers are not as big, smaller units. But the increases are growing pretty rapidly.

Great. Thank you.

Next we will go to Elizabeth Montgomery with S.G. Cowen.

Hi, guys. I have a couple questions. I guess the first one, are there any kind of one time or extra incremental cost for the Tommy Bahama business that we should be looking out for in Q4 like there were in Q3?

No. Not that I'm aware of. Tony, have you got any?

No, I think we were good.

Okay. But the real growth opportunity there is leveraging the expense base with more revenue, right? Rather than improving the operating margins considerably from say the 13% level?

Well, I think it's going to be a little bit better than 13% I think we're running through nine months close to 14 and the fourth quarter's usually our strongest quarter. I think you're going to end up the year a little higher than 14.

Okay. And then I had a couple questions on Ben Sherman. Did I hear correctly that it's in 1200 doors in the U.S.?

That's pretty accurate, yes. Primarily specialty doors.

So I guess is there growth in door count left in this business? I would think that there still is.

There is both in the specialty store base in the denim driven accounts. And now in some of the more specialty and tailored businesses with the dress shirt, tailored clothing launch. And then at the department store level, the brand is really traded in Bloomingdales, Nordstroms, and limited top doors of Federated. We also have a handful of doors at Lord and Taylor. But there was and is no May Company distribution and, frankly, short of Macy's West and some Macy's East, there is not much of a Federated distribution on the brand either.

Okay. So do you have any idea kind of what the increase in doors or revenue that you can get from the fall launch of the tailored clothing and the neckties and stuff could be?

We haven't put that out there yet. But it is -- it's not on the scale in par of launching a fashion collection of sportswear. It's a much more limited door opportunity. And the nature of that business is that accounts generally test and react. So our opening orders are all test opportunities and we're going to have to monitor it once the goods hit the floor and start retailing.

And then the last question on the Ben Sherman, given that it seems to be tracking above where you expected it in terms of revenue, have you changed your estimate for the operating margin target for the year?

I don't believe we have. Tom? Reese?

No, we haven't.

No.

Is it a case where you are reinvesting in the upside?

We are as we talked a little bit about in the script, we're feeding back into the U.S. market which is our primary investment position now and both marketing and advertising and some focus on opening up retail.

Okay. Great, thanks a lot.

Just to add to that, you're going to have in Ben Sherman on operating margin in that same 14% area for the year.

For the year?

Yeah.

Okay.

Next we will go to Susan Sansbury Miller Tabak.

Thank you very much. Going back to the Womenswear legacy business. If you ex-out Wal-Mart year-to-date, can you give me an idea of the strength of the underlying Womenswear legacy business?

Are you talking about the strength at the top-line or the bottom-line?

Well, the Womenswear business ex Wal-Mart in total. Because we know the Wal-Mart business is down, correct?

Yes, it is. It was up in the third quarter, however. But the other key customers are down on a more modest basis year-to-date.

They are?

Yes.

Okay. I thought they would be up year-to-date. Glad I asked. Going back to the weakness in spring bookings, you're attributing it all to weather? Or is there another issue?

A series of issues. If you heard our January call we were concerned about the price of gas, the consumer confidence, just a laundry list of issues. I think they worked their way and we were also very concerned at that point about how the holiday season wound up with the sales figures being salvaged at most retailers by intense markdowns and promotions. It started from that base. And then the weather has been an additional issue there.

But there are no sell through issues related to product and/or merchandising specific to Tommy Bahama or any other band or segment of the business?

I will answer for the Tommy Bahama part. The answer to that is, no. Everything that we have had success with over the last year or two continues to perform relatively well. I would say we are -- there is always an ebb and flow of sales in a specific product category strengthening, like knits getting stronger than wovens or vice versa or bottom selling a little stronger or shorts outselling pants. But basically the performance of the products in the Tommy Bahama line both -- in both men's lines, Tommy Bahama and Indigo Palms, the sell through rates continue to be strong.

And Reese, can you remind me, I have been out of the loop for awhile, what had been the previous fourth quarter guidance?

EPS range was $1.06 to $1.15. And the net sales range was 355 to 370 million.

And one other niggling question, if Tommy Bahama sales were up 10%, and you back out the operating -- the extraordinary expenses, why was the operating income flat?

Well, there was some contribution from the business that caused the total sales to be down.

Meaning private label?

Yes.

I appreciate it. Thank you very much.

Next we will go to Dennis Van Zelfden from SunTrust Robinson.

Thank you. I guess this would be for Tony. Of the roughly 390 million to 400 million in Tommy Bahama sales in the May '05 year, how much of that is going to be women's?

My recollection is that it's in the low 20s. Is that right?

That's correct.

Just for frame of reference, what would it have been last year, May '04?

Somebody help me out there. I would have said a little bit higher, maybe 25 to 28%. Is that an accurate -- ?

It's really pretty close because what you got is in our retail stores the percentage of women's business is going up and wholesale business is going down as a percentage of the total. It's about the same both years, low 20s.

My question is, if the Tommy Bahama womens business continues to track strong in your retail stores right now, what sort of order of magnitude could that business grow year to year?

I think that depends entirely on your timeframe, but near-term, Tony, I believe we agree that we think it can become 30, 35% of the business.

I think that's a realistic expectation over a period of time that would go beyond probably the next year.

I think that is a realistic figure for our own stores by the end of the next year.

By the end of May '06 --

We would be tracking at that rate.

Perhaps as high as in the low 30s.

Okay. All right, thank you.

And just to elaborate on that, there is no question that the women's business continues to be one of our primary growth opportunities. That's the reason we are sticking with it and continue to invest in it. That we truly believe that we've got an excellent opportunity there. And we are a little frustrated, as I'm sure you are, that it's taken as long as it has, but we are confident we are on the right track.

If I could, am I still on?

Sure.

What kind of growth do you see in Tommy Bahama men's business?

Here again, I think it depends on your timeframe. Near-term, we are a lot more fully exploited in men's than we are in womens. But we have had that situation for a number of years and we continue to have growth. But what we do not intend to do, as Tony said in our prepared remarks, was -- would be to make any change in our distribution because we feel that the Tommy Bahama story is a brand story. We have got what we think we can build into a world class global aspirational lifestyle brand. And the key to doing that is the way you manage it, both from a distribution standpoint, a marketing standpoint, a product standpoint, and we are determined to do that the right way. If that means sacrificing some growth in the short-term, you better believe we're going to do it. We are not going to compromise our basic strategy there. Because if we did, it would inhibit our ability to capitalize on these growth vehicles like Womenswear, like licensing, like our own stores and like an international expansion and that's the reason we are so determined that we're going to manage this brand the right way. We've got such a huge potential payoff if we are able to do that and we have every indication that we are on the right track to doing that.

Okay, thank you.

Sure.

Next we will go to Clark Orsky with KDP Asset Management.

Hi, can you hear me?

Yes.

Thanks. Not much left. I guess, Reese, can you tell me what's out in the revolver?

Our revolver balance was roughly $140 million outstanding -- I mean, outstanding debt at the end of the quarter.

Okay. This is peak, right?

Yes, it is. Absolutely peak for the whole annual working capital cycle.

And where do you see that sort of at the end of the year, do you think?

I would like to think it would be in the 65 to $75 million range.

Okay.

We ought to be able to cut it in half in the fourth quarter.

Okay. That's all I have.

Thanks, Clark.

Once again, please press star, one to ask a question. Next we will go to Jeff Kobylarz with Salomon Brothers.

Hi, good afternoon. Can you tell me what the sales for Ben Sherman were in the third quarter last year?

31.

31?

And we had a plan at 36 and 37 and exceeded it by about 5 million.

In the second quarter call you mentioned that you changed out a number of doors in the U.K. to shift to a higher end doors. Can you say how that played out?

So far so good. It was easy to lose the bottom doors. The top doors placements and sell throughs have been on plan.

Can you comment about the men's legacy revenues if you exclude Nick(it), Orvis and Ben Sherman, what's the percentage change in the third quarter?

Sales went from 100 to 126.

And that 126 includes the initial shipments of Nick(it).

If you back that out?

That was about six, I believe. Maybe five.

So you have got in excess of a 20% increase.

And then can you say what the Tommy Bahama private label sales were in the fourth quarter, May '04?

Do you guys have that number?

Yeah. So that (inaudible) last year and I think we got next to nothing planned.

All right.

And for the total year, last year we were right at 40 million. This year we will be at about a $30 million drop for the year as a result of private label exit and then of course next year there will be none.

Thank you very much.

Next we will go to Lee Backus with Buckingham Research.

Just a couple of quick follow-up questions. I believe in the last year your Tommy Bahama margins were like 13.7% but that included lower margins on the private label business and no licensing or much smaller licensing which is certainly a much higher margin business. So where does that take the potential operating profit margins once all the dust has settled for Tommy Bahama?

Can you guarantee a sunshine every day?

Yes. You know, in most of your markets you do have sunshine quite a bit, Florida, southern California, Hawaii.

Yeah, ask them about that right now. Did you try to watch the golf tournament there last weekend?

I was in Jacksonville. It was deluge.

My condolences to you. We have got some upside potential.

I have got to ask this question, too. There's been some chatter about changing fiscal year-end. First off, does it make sense? And second off, is that something you would consider?

We have been part of the chatter, I guess, internally from time to time on that issue. There are pros and cons to it and we have not made a decision on that issue at this point.

Thank you.

I can tell you this, our controller here would be very much in favor of it, so he doesn't have to close out his year in the middle of the summer.

What are the issues against it?

Well, just the confusion of doing it when things are going pretty well.

But then you are -- right now there is a lot of confusion in the marketplace with the calendar -- or the calendar numbers.

Yeah. We will continue to discuss it and we will take your input.

Thank you.

Thanks.

There are no further questions at this time. I will turn the call over to Hicks Lanier for any closing comments.

Obviously we are pleased with the quarter we just finished. And obviously we are very pleased with our strategic positioning. We think with any kind of external environment we will continue to perform in a very satisfactory manner and we appreciate your interest and look forward to continuing our dialogue. Thanks. That concludes our comments.

And that does conclude today's conference call. Thank you all for your participation and have a good day.