Oxford Industries Inc (OXM) 2006 Q1 法說會逐字稿

Welcome to today's Oxford Industries Incorporated first quarter results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded. Now at this time I would like to turn the conference over to Reese Lanier. Mr. Lanier, please go ahead.

Good afternoon everyone, and thank you for joining us. 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 due to a number of risks and uncertainties, which are described in the Company's current report on Form 8-K, dated October 6, 2005. 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, the Chairman and Chief Executive Officer of Oxford Industries.

Good afternoon, and thank you for joining us. With me today are Michael Setola, President, Tom Chubb, Executive Vice President, Scott Grassmyer, Controller, and Reese Lanier, Treasurer. Tony Margolis, CEO of our Tommy Bahama Group, is out of the country and could not be with us today.

We are pleased to begin our new fiscal year with an exceptional first quarter, which ended September 2. Each of our operating segments turned in a strong performance, and we are reporting the highest level of first quarter sales and earnings in the Company's history.

I would like to start with a summary of the key financial highlights for the first quarter. Consolidated net sales increased 27% to a first quarter record of $336 million. The Menswear Group reported sales growth of 49%, aided by a total three-month contribution from Ben Sherman. Our Womenswear Group enjoyed an impressive sales increase of 30%. In the Tommy Bahama Group sales declined 2% due primarily to an anticipated decline in wholesale volume and the termination of its private-label business.

Consolidated gross margins increased 210 basis points to 34.5%, reflecting the improvement in Tommy Bahama margins, as well as the increasing contribution of lifestyle brands and Company-owned retail operations.

Royalty and other income increased 86% over last year's 3.3 million -- excuse me, over last year's 23.3 million. The inclusion of Ben Sherman's licensing income and the higher sales volume of Tommy Bahama licensees generated the growth in royalty income.

Diluted earnings per share increased 119% to a first quarter record of $0.79 from $0.36 last year. This was well above our previously issued guidance range of $0.57 to $0.62, and above the current First Call consensus estimate of $0.61. Each operating group contributed to the growth, but the vast majority of out performance came from the Tommy Bahama Group.

We are obviously very pleased with our first financial results this quarter. Our sales were slightly ahead of plan, but our profitability was significantly stronger than anticipated due to operational improvements in the Womenswear Group and in Tommy Bahama. The Womenswear Group has continued to focus on improving profitability through more efficient sourcing and leveraging of expenses. This focus has generated year-over-year profitability improvements in each of the last three fiscal quarters.

In the Tommy Bahama Group initiatives to tighten up inventory procurement and flow have resulted in higher margins and significantly lower inventories. The impact of these initiatives was not expected to begin generating significant benefits until the second quarter. The fact that these benefits came much earlier than expected was the primary reason for the out performance in the first quarter. Now I would like Mike Setola to give you an overview of the Menswear Group.

Good afternoon everyone. The Menswear Group reported a first quarter sales increase of 49% to 177 million from 119 million last year. Sales growth in our historical Menswear businesses, excluding Ben Sherman, was 30% for the first quarter, with continuing strength in Lanier tailored clothing, Oxford apparel, woven and men's sport shirts and dress shirts. We also benefited from our newest marketing initiatives, mainly Nick(it) and Orvis Signature, which added to our sales growth.

Ben Sherman contributed just over $44 million in sales for the quarter compared to a one month contribution last year of 17 million.

The UK business was better than expected during the quarter, despite the challenging retail environment that has prevailed among High Street retailers. The strength and positioning of the Ben Sherman brand continues to serve us well even in this difficult market.

In the U.S. we continue to be enthusiastic about the opportunities of the Ben Sherman brand. We saw solid growth in all major product categories for the first quarter. Our continued progress in building the full collection lifestyle approach to the brand is the key to driving performance at retail.

In the quarter we completed the acquisition of Solitude, a California lifestyle brand based in Santa Barbara. The principles and founders, Shawn and Karla Thomson (ph) will remain with the brand, and continue to develop product and conduct public relations. Solitude was traded primarily in better department and specialty stores, as well as surf and sports market accounts. Our acquisition was made with the intent of repositioning the brand as the premier lifestyle brand in JCPenney's. It will debut for spring in 500 doors.

First quarter operating earnings for the Menswear Group rose 68% to 15 million from 8.9 million last year. The increase in operating earnings was driven by higher sales volume, improved profitability in our historical businesses, and a considerable contribution from the Ben Sherman business, which was included for the full three months of the quarter.

Thank you, and I would like to now turn the call back over to Hicks.

The Womenswear Group has continued to make steady progress over the past three quarters and generated greatly improved results for the first quarter. Net sales increased 30% to 68 million from 52 million in last year's first quarter. The sales increase was primarily with the Group's two largest customers, Target and Wal-Mart. Continuing the trend from the second half of last year, profitability for the first quarter was dramatically higher. Operating earnings increased to 3.9 million, from an operating loss of $1 million last year. This improvement in profitability was driven by the Group's continuing efforts to leverage expenses, source aggressively, and accept only programs that met profitability hurdles.

Turning to Tommy Bahama, since Tony couldn't be with us today I'll continue. Net sales for the first quarter were $92 million compared to 93 million last year. An increase in retail sales was offset by a decline in wholesale revenues, and by the discontinuation of our private-label business. Against relatively flat wholesale bookings for fall, we bought very conservatively to lower inventories and minimize risk. We also shipped some early fall deliveries in the month of May, which you may remember was a 14 week quarter for us to pull a quarter last year.

While this strategy resulted in a significant reduction in at-once and off-price sales, and nearly a 30% decline in quarter end inventory, we may have carried too little inventory at wholesale and retail to meet demand. And Tommy Bahama wholesale business was slightly ahead of plan for the first quarter. We have continued to pursue our strategy of restrictive distribution with a particular focus on sell-through as opposed to sell-in with our key retail partners. We believe this strategy is critical to the strength of our brands over the long term and will enable us to run a tighter, more efficient operation.

Looking ahead to spring, we are seeing stronger bookings than we had experienced for fall and holiday, and continue to expect modest growth for the second half. The relaxed line, which we showed at the Magic Show in August has met with very enthusiastic response from our customers. As a more casual take on the Tommy Bahama lifestyle, relaxed is designed to fill a niche previously underserved by a core sportswear offering. We believe relaxed will provide us with the opportunity to reach new customers, as well as to generate some incremental sales growth with existing customers.

On the retail front we opened two new stores during the first quarter in San Antonio, Texas and Tampa, Florida, bringing our total to 55 Company-owned retail stores. We were extremely fortunate to have had minimal disruption to our retail operations due to Hurricanes Katrina and Rita. The only direct impact was our compound in the Woodlands outside of Houston, Texas which was closed for a few days. We remain on track to open a total of seven retail stores in fiscal 2006.

With respect to profitability, the Tommy Bahama Group's operating income for the first quarter increased 21% to 14.4 million from 11.9 million last year. And the operating margin rose 300 basis points to 15.7 from 12.7 in last year's first quarter.

As I mentioned earlier, new inventory control initiatives information systems have enabled us to buy tighter, timelier and smarter, which has lowered inventory, reduced risk and improved efficiencies in the sourcing process. While these initiatives are expected to positively impact profitability, for the balance of the year the year-over-year improvement in our operating margin is not expected to be as pronounced as it was in the first quarter.

Thank you for your attention, and now I'm about to turn the call over to Tom Chubb.

Since we have already reviewed the sales figures, both consolidated and by segment, I will walk you through the key elements of the consolidated income statement, balance sheet and cash-flow statement for the quarter.

Consolidated gross margins for the quarter rose 210 basis points to 34.5%. As Hicks mentioned, this margin expansion was driven by the operational improvements at Tommy Bahama and the increasing contribution of both the Tommy Bahama and Ben Sherman brands.

Selling, general and administrative expenses increased to 88.7 million, or 26.4% of net sales, from 68.3 million, or 25.8% of net sales last year. The increase in expenses was primarily attributable to the inclusion of Ben Sherman for the full three months of the first quarter, and the overhead of 10 more retail stores than we had in last year's first quarter. We incurred $1.9 million of intangible asset amortization expense during the quarter compared to 1.7 million in last year's first quarter.

If you will recall, amortizable value was assigned to the Tommy Bahama and Ben Sherman 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 $0.07.

Royalty and other operating income for the first quarter grew 86% to 3.3 million from 1.8 million last year. Higher sales volume for Tommy Bahama licensees and the addition of Ben Sherman generated the increase.

We continue to be pleased with the condition of our balance sheet. Quarter end inventories increased 18% over last year to $169 million. The increase was driven by additional inventory to support new replenishment programs and growth in our Menswear Group. As we mentioned in the last call, we are moderately over inventoried in this group, and anticipate bringing the Menswear inventories down in the next few quarters.

Inventories in the Womenswear and Tommy Bahama Groups were down from last year. Our accounts receivable increased 25% over last year to $200 million, which is consistent with our first quarter sales increase of 27%. Cash flow used in operations for the first quarter was $18.6 million compared to cash flow provided by operations of $12.1 million last year. The decline in cash flow from operations this year compared to last year was due primarily to higher investment in accounts receivable as a result of the sales growth in the first quarter.

For the full fiscal year we continue to expect cash flow from operations to be approximately 60 to $70 million. Thank you for your attention, and now I will turn the call over to Reese Lanier to update our guidance.

We are raising our full year guidance to reflect better-than-expected performance in the first quarter, and we are initiating guidance for the second quarter. For the full year we are now projecting total revenues of between 1.38 billion and 1.40 billion, and raising diluted earnings per share guidance to a range of $3.42 to $3.52.

For the second quarter of fiscal 2006 we are projecting total revenues of between 320 million and $330 million, and diluted earnings per share of $0.55 to $0.60. While we see no evidence that the trends within our business will change, the combination of low visibility on the private-label business, an increasingly challenging macroeconomic environment, and the heightened competitive dynamic in the retail industry are all leading us to continue to adopt a conservative position on guidance. We believe that the potential impact of these factors is reflected in the low end of our guidance range for both the full year and for the second quarter.

Now I would like to turn the call back over to Hicks for some closing remarks.

I hope you share our enthusiasm for our business and our prospects. We believe that each of our operating segments is well positioned, both strategically and operationally. Our lifestyle brands remain very strong, and our legacy business has continued to improve as demonstrated by our record first quarter results.

This concludes the formal piece of our presentation, and we will open it up to questions.

(OPERATOR INSTRUCTIONS). Jeff Klinefelter with Piper Jaffray.

Congratulations to everyone on an outstanding quarter. Maybe starting off, Hicks, in terms of your guidance -- appreciating being conservative about the next quarter, it sounds like -- and from Reese's comments -- no change in trend. And recognizing that we have just come through September and it is kind of mixed results out there, is that to say that there is still no material change in your strong trends in the legacy business or Tommy as we enter the second quarter?

And I guess if that is the case, any particular reason why we would anticipate that becoming more challenging?

Well, as it relates to Tommy, I think you can see by the first quarter figures that we're doing a good job of bringing it to the bottom line there. It is a result of increased margins in that business, partially as a result of some minor price increases, some better sourcing, but particularly better risk management. And we think the business is very well-controlled at this point, and we expect that to continue throughout the balance of the year.

And as we pointed out, we had anticipated that through most of the year, but we got started on it a little sooner than we anticipated. In the Womenswear sector, the improved performance is predominately as a result of better margins, although the fact that we had a nice 30% sales increase certainly didn't hurt us. But we expect that to continue. As we said, this is the third consecutive quarter since we sort of pulled ourselves out of a swamp in the first quarter of last year. So we feel pretty good about that business.

And as we pointed out the bulk of that business is with the mass merchant sector. As you know, we are pretty much in the main flow of Target's fashion Womenswear business. And as Wal-Mart tries to penetrate that portion of the business more and more, I think it certainly plays to our skill set. And I will let Mike Setola comment on the Menswear sector.

The Menswear segment for the future really is on the basis of -- well, what we saw this quarter was a large increase from Ben Sherman. Excluding Ben Sherman, the Menswear Group, the legacy Menswear Group, had a large increase on the basis of some new program startups. The go forward forecast really reflects what has been going on at retail. It hasn't been a particularly strong retail environment, considering especially what we have just seen on the September numbers. We don't necessarily expect, nor have we forecasted for that to get any significantly better as we go into the balance of the quarter.

I guess as a follow-up, Mike, on the men's side. If you back out Orvis and Nick(it), what would sort of the core business run rate be in terms of growth? And then also, Hicks, on the Wal-Mart side, this has been a declining customer for you for the last several quarters. Are we to the point now on a topline basis where this is stable, and we're now essentially looking for it to grow again?

Let me take that question first and then let Mike address the question you had for him. As we pointed out, Wal-Mart and Target generated the sales increase for us in the first quarter. So obviously for this quarter that we just concluded, we had a meaningful sales increase with Wal-Mart. But also, as you know, the visibility in this business is a lot shorter than in the lifestyle branded segments of our business. So as I pointed out where they seem to be moving seems to be a good fit with our skill set. So I hope that the future will continue to hold sales increases there.

If you back out the start ups, the ramp ups, we have said pretty much all along that our intent in this segment of the business was to try and offset some less than, in our perspective, appropriately profitable, private-label programs with these new programs.

We did get the benefit of some increases this quarter. The regular run rate on core businesses, the core businesses, is relatively flat and will remain that, and in some cases decline. We're hoping that the offset with the new businesses bring improved margins, not necessarily just improved topline.

Okay, great, and just lastly, one thing, you mentioned, Hicks, strong bookings for spring on Tommy Bahama line.

I wasn't quite that aggressive. I said that --.

Or stronger.

Better than last year, and certainly better than either fall or holiday relative to previous years. So we are pleased.

And any particular pockets of strength in terms of those bookings? Is it better on -- is the women's starting to improve at this point?

It is pretty much across the board. But it did include -- the men's is stronger than the women's. But in all three of the men's businesses we are up so far for spring, and that would be Tommy Bahama, Indigo Palms and Island Soft.

In women's we are ahead of our plan for spring. But that doesn't necessarily mean it is a meaningful increase over last year. We planned it conservatively. We're beating those plans, but similar to the first quarter we're going to manage the inventory pretty tightly. I will say this about women's, in the first quarter our margins improved dramatically there. And so the profitability of that business has improved dramatically. We are very -- we are pleased with the way we're tracking that business. As you know from the Magic Show we have tried to make the line more on trend, a little more fashionable, and we're getting a positive response to that.

Lee Backus with Buckingham Research.

First, congratulations on a great quarter. Hicks, one thing that sort of stands out is the significant increase in royalty income. I know part of that was just including Ben Sherman. Could you give us a sense of all the new licensing programs that you've got in work in both areas?

It is not so much new programs as it is volume increases. Obviously for Ben Sherman we had one month in the first quarter last year versus three months this year, plus just some general growth with those licensees. There is -- in the first quarter we did have the first round of royalty income from the U.S. licensees. And that included neckwear and tailored clothing. And we have had quite -- and dress shirts -- and we have had quite nice retail results with the original -- initial product that we shipped, so we have been pleased with that.

In the case of Tommy Bahama we don't have that many new licensees that weren't there at least in the fourth quarter, it is just growth year-over-year with them.

Embedded in your guidance, what kind of number do you expect for royalty this year? Could you give us a sense how much up over last year?

I would say we would be looking at at least a 50% increase for the year.

There is certainly talk out there about -- a lot of people talking about the difficult woven shirt business. Could you talk how you're doing in that area, maybe with regard to Ben Sherman or --?

Mike, why don't you take that one?

We have talked about it in the past as well on these calls. The woven shirt business, particularly in the higher end branded segment, has significantly dropped from prior year. Our initiatives with Ben Sherman have been to expand the product categories into a full lifestyle presentation, and not be a shirt company per se.

I will tell you that our shirt business is not down at the same percentage rate that our customers' shirt business is down. We have seen numbers from our core customers in our target zone down close to 40% from a year ago in fashion wovens. We're not trending down at that rate. We have offset those businesses with the introduction of knitwear sweaters this fall, jackets and outerwear. Our denim business has grown nicely this fall. And we have offset that also with sport coats. So it is a significant drop at retail. It is a big part of the Ben Sherman business, but a much smaller part than it was a year ago.

So that area -- your Ben Sherman business this year will be up despite the drop in woven shirts?

Yes.

Also, just to refresh our memory as far as the intangibles -- non-cash intangibles you expect per quarter, and how that will flow over the next year or so?

About $0.07 a share a quarter or $0.28 for the year.

$0.28 for this year (inaudible)?

Right.

John Rouleau with Wachovia.

Nice quarter. Hicks, I want to go back to your comments a little bit about the year-over-year improvements in Tommy Bahama, and those being most pronounced in the first quarter. Given that you kind of started this initiative and it took hold sooner than you thought, I'm just trying to I guess better understand that comment a little bit, and why some of that wouldn't flow through maybe over the next two or three quarters, given that we're on the early side of that.

It is going to flow through, but it was already in our plan and our guidance for the last three quarters. It was not for the first quarter. That is the only reason we have tried to segment that out.

So there is the incremental part. Okay. And then kind of second question, Sears -- there is all sorts of talk about what is going on at Sears and how they are running that business; still probably a fairly important customer to you. Just thought maybe you could add some color -- talk about Sears a little bit.

It is -- and Mike can add to my comments -- but I assume when you're talking about Sears you're talking about Lands' End as well, which is part of Sears.

Correct.

With the formation of Sears Holdings in the role Mr. Lampert is playing there it is a little bit difficult to predict. And they are a significant customer of ours, and that is an issue that we're monitoring very closely and have some concerns about.

Specifically the Lands' End segment of our business that was planned to be or previously in the Sears stores, that segment of our business is down. It was actually planned down and is performing down. The Lands' End to Lands' End wholesale business at the catalog level is relatively stable. But there's a shift, and the shift is towards more aggressive sourcing. The shift is towards a streamlining in their operations base. And, yes, we do have a significant segment of our private brand business with that group.

So with the aggressive shift in the sourcing side --?

They just want to buy it closer to need and more efficiently. And we think we can help them there.

As far as Lands' End is concerned as a brand, have they kind of strategically decided one way or the other on that brand, whether they step it up and support it or whether they do something else with it, or are they still in limbo there?

From the information and the relationship we have, I think it is what we have all seen at retail going on. There has been a bit of a consolidating of inventories of Lands' End goods in Sears stores. But recently, and there is some local stores you could see it in here in the New York area, they have taken a renewed approach and really tried to build environments in shops to showcase and highlight the Lands' End brand better in the Sears retail stores. So it appears to us that the brand is to stay, and the brand relationship between Lands' End and Sears as a retail format is ongoing and future.

And then I guess last question. And I think, Hicks, you kind of alluded to this, but Wal-Mart announced this Metro 7, which is going to be kind of a new urban brand aimed at a young urban female consumer. And it does appear that they're going more branded. They realize that they do need brands to compete. Any talk about the Metro 7? Are you going to get a piece of that or --?

The Metro 7 is basically targeted toward the Hispanic audience, and one manufacturer that is doing the whole thing initially. That specific one we will not play a part in. But if they have success in programs of that type, I think that they will be turning to us to provide the design and product development, in addition to other resources. But that pretty much plays right down to our -- the strength of where we're having our success with Target.

And Menswear is an example, we do have a 100 door test program going in on what would be a golf collection. So it does continue to talk to them, trying to put a presentation together of more collection oriented products.

Erica (sic) Tracy with BB&T Capital Markets. Ms. Tracy, you might have to resignal. We will go to Elizabeth Montgomery with SG Cowen.

Congratulations on the quarter. I guess my question is, and I hope I didn't miss this, but I was hoping you could talk more about what the new strategy is for the legacy business in terms of creating these four silos? And how you view the long-term growth rate of that business now under this new strategy?

I think we've actually tried to unsilo the business with this strategy, and really bring the common merchandising, sourcing and back ends of what was the individual slack company and the individual shirt company into one group. The focus is on four lifestyle merchandising areas. And those areas are areas that we feel that we have significant expertise in, the island lifestyle concept, the golf market, our outdoor market, and our contemporary modern market, all areas where there is significant existing businesses, both branded and non-branded. And our intent is to try and merchandise branded, non-branded, licensed and private branded businesses, both classification and collection oriented, through those four segments of merchandise. So we have really done a consolidation, if you will, of our efforts and then tried to streamline the back ends to service them.

As far as that growth or forecast goes, I would again reiterate that the goal wasn't necessarily and isn't necessarily to continue to grow the topline aggressively in that segment, it is to try and replace what we feel are, in many cases, less than profitable in our view investments of our inventory and resources in classification, private-label, low margin, high inventory businesses and turn those more into faster turning, higher profitable, sportswear oriented businesses. It doesn't mean we're abandoning the classification business by any means, but hopefully we'll be in a position to be more selective about some of those programs.

And the ones that you are more selective on would be the ones that fit into one of those four categories?

Those would hopefully be one of the ones we're selective on, on the positive side. On the negative side we may be more selective about eliminating programs that may have been just pure running volume programs that managed a needed high inventory management.

If we take the men's legacy business, as you guys report it, and strip out Ben Sherman, of the part that is left, what would you say is the mix between the more low margin commodity classification businesses with high inventory levels versus the sportswear ones that would fit into those four (multiple speakers).

I think if you back out the dress shirt company right now, it is about half.

It is half and half already?

If you back out the dress shirt company.

Erica Tracy with BB&T Capital Markets.

Not only am I getting dropped, but apparently I'm a female now.

We know who you are, Eric.

I appreciate that. Hopefully, I didn't miss some of this, but again just on Tommy Bahama, Hicks, if you could clarify again the sales decline? Was that due solely to the loss of the private label or --?

No, we have been talking about dropping that private label for a long time, but this I think is the last meaningful quarter where we had 4 or $5 million worth of business last year and none this year.

And then just on the relaxed line, again how that is being positioned within retailers, and the potential for opening new doors versus further penetration in existing accounts?

I think it is going to be primarily part of the penetration in existing accounts. There will be some new accounts, you know, the surf shops, upscale beach and surf shops, but it is primarily just to expand the product horizontally.

In terms of just the existing accounts, how that is going to be merchandised -- within the same department or --?

It varies. In some cases it will continue to be shown as part of a Tommy Bahama department. In other cases it will go into a swimwear or more active department. It depends on each retailer. It just varies door to door. But we're very pleased with the reception we've gotten to it.

Just on the margin front, in terms of how that impacts the overall Tommy Bahama, particularly given the strength that you are demonstrating within that line -- within the relaxed line?

The margin had nothing to do with relaxed.

No, no, no, I am saying just going forward though how you see that (multiple speakers) impact?

We had a very favorable move forward in the first quarter. We had projected that to already be in existence for the second, third and fourth quarter. So we expect the first quarter level in Tommy Bahama to continue throughout the balance of the year.

And then, Mike, just real quick on the Ben Sherman women's. Not -- you talked about -- obviously still fairly early stages. But can you talk just a little bit about the development of that, particularly domestically?

It is developing. It is a small business. Our growth plans are not large, baked into our forecasting. And we are experiencing -- our plan on sell-in and our plan on sell-through, we do not have an aggressive plan built into the balance of this year.

(OPERATOR INSTRUCTIONS). Susan Sansbury with Miller Tabak.

(technical difficulty). This quarter was fantastic. I hope it blows away all the doubters.

We hope the same.

The stock is incredibly cheap. Anyway, I would like to go back to a couple of questions really focused for you, Mike. First of all, the men's tailored clothing market, could you give us an update or a summary of what is going on there? We have heard that it is beginning to slow up. Are you seeing that at Lanier, or will that have any impact on the Lanier division, if in point of fact it is slowing?

Secondly, Wal-Mart and Target are both entering the tailored market. What impact do you suspect that may or may not have on Lanier? And finally, in terms of Solitude, I know you won't answer this, but I have to ask it. Any idea of first year contribution annualized at JCPenney?

Mike, are you there?

It will be just one moment. This is the operator. We will make sure that his line is open as well. His line apparently has disconnected instead of -- and we do show a line coming back in. We will have him connected in just a moment.

Susan, I'm afraid you're going to have to ask your question again.

That's all right. I will try to be briefer.

I'm back on.

Did you fall out of your chair?

Technical difficulties.

We've got Susan Sansbury on here who’s got a question just targeted to you.

That’s right. I don't know if you heard it.

I'm ready.

The question relates to the men's tailored clothing market. The first question is have you seen any change in direction here? We have heard from some other major participants that the rate of growth is slowing. If that is true, what might be the -- have you seen something like that, and what would be the impact on Lanier -- the Lanier division?

Question number two is D&R (ph) has reported that both Wal-Mart and Target are entering the tailored market -- tailored men's clothing market. Are you going to participate with them? If not, what do you think the ramifications are for Lanier and the general men's tailored market overall?

I will work backwards for you. The Target launch -- I believe we are 80% of the supply side on that launch right now. That is primarily our product that is on the floor in both the wool and in the blended programs at $59 retail. The products have had incredible performance. Everybody is really happy with the launch. And it looks like that whole suit separate opportunity, especially for the opening and moderate price consumer, is a new category which has opened up. We're not participating at the Wal-Mart level, at least at this point. Although in similar price point zones we are competing at the Kmart level. We do have some product in at Kmart right now. So, yes, we are participating in those opening price point segment launches.

They are, as I think you know, all suit separate programs. They're not actually suits together on a hanger. And that seems to still be the primary trend when you move out of that zone and into the more department store Men's Wearhouse, JCPenney zone where the real volume tailored clothing in the United States is going on.

We are seeing a little bit of a slow down. A bit of the euphoria of the tailored clothing renewal is worn off, but our business remains strong. And our trend, although slowing, is still a significant trend and a positive trend. We're just going to try and manage our inventories appropriately, especially on the fill-in things.

Our seasonal order book is very good. And we look okay as we move forward on it. But, yes, an astute observation. There is a bit of a slowing, but you have to recall in the past year we have seen such a tremendous spike forward in out the door retail sales in the tailored area. A lot of that being spurred on by the sport coat look and a lot of young consumers wearing sport coats.

I would just add at the end of that that in a recent launch with Ben Sherman, we just launched into Nordstrom's and the better specialty market what would be about an average $650 retail suit targeted at the young consumer, the 25 to 30-year-old looking for something other than his father's suit, but wants to wear a quality, higher end, better suit. The product is only on the floor a few weeks, but we are seeing some very positive sell-throughs at retail on that.

And that goes along with our recent launch of the Ben Sherman dress shirt line, which is a slimmer fitting, high-quality product targeted at the 79 and $89 retail zone. So again a better quality garment targeted to a younger consumer. And we are seeing exceptionally strong sell-throughs in that launch. We've got ourselves very spread out with regard to diversity of customer price point and product in Lanier. I think things may get a little tougher as we move into the balance of this quarter at retail, along with the general retail slow downs we are seeing. But I think we are positioned well within Lanier to address the opening price, mid-price and higher end retail segments.

And all of this business, the new business at Target and Kmart is going to be incremental? It is not going to -- if I remember correctly and I may be wrong, you also are a large supplier to Federated of private -- Federated store label nested suits. To get the Target business is the Federated business going to be affected or the department store?

It won't have a direct effect on us, meaning if we're doing Target will we do less Federated? They are entirely different products. I think there is some shifting going on, and I think there is some opening price point opportunities. And there is price compression in the department store zone, as well as the JCPenney's and Men's Wearhouse zone. There is some natural shifting that is occurring. But Target's orders as an example, they are certainly incremental orders, but it doesn't mean it is all layered on top of an existing business that doesn't have a normal shifting of demand.

We are in the suit separate business. We are in the regular nested suits. And we are in the sport coat and trouser business as separates as well. So we are definitely seeing some shifts in the mix of inventories. And we are seeing some shift in the mix of retail demand and performance out the door.

I don't mean to be a hog here, but going back to Beth's questions about the new strategy for legacy business, where does Lanier fit if we're focusing on sportswear and whatnot?

Lanier is being maintained and managed as a stand-alone operating Company -- operating group. When we speak to the unsiloing of the merchandising efforts, we are really specifically talking about the bringing together of what was our independent slack company and our independent shirt companies.

One final one. On the Solitude, I didn't realize it was going to be a -- what is it, 500 door --?

500 doors for spring.

Is that a test?

They don't test in 500 door increments, but it is a big commitment on both partners in believing in the presentation of the business. We will be essentially the lifestyle presentation prior. There were a number of different brands that represented different parts of this lifestyle on their floor. And we have really taken a consolidated approach. And this will be the dominant presentation in JCPenney's. It will have some -- maybe for Penney's nontraditional shop appearances to it, a lot of signage, promotion and branding efforts put in to really bring a full branded effect to the consumer through retail.

If you develop the full potential of Solitude, is this going to be a significant several hundred million dollar business for you, or is it --?

Oh, boy, I hope so. I think we've got our sights set on getting this 500 doors in at retail, having it perform for the spring season, developing a fall business as well on a full twelve-month basis. I think we've got the right number of doors. As you know, at that retail level, and we have targeted this as an exclusive opportunity with Penney's, at that retail level at Penney's the additional doors that exist within the Penney's structure don't do a lot of volume. They are fringed doors. So we've got this targeted in the doors that we believe are the appropriate number to really make a significant impact.

That has been very helpful. You are wonderful. Thanks ever so much.

Jeffrey Matthews with Ram Partners.

Number one, has the initiatives by Eddie Lampert to get more involved in merchandising, does that give you any less visibility or more visibility on your business with Sears, Kmart over the next year or two?

His heavy involvement has just been over the last couple of months. And it is a little too early for us to determine exactly what the impact of that is going to be.

Is your sense that they are just going to get a lot more aggressive on terms or --?

My sense is that they're going to get a lot more aggressive about consolidating their efforts with regard to the design, merchandising and sourcing processes more than anything.

Can you help them with that?

We think so. Yes, we do. We think so.

And then secondly in terms of supply chain, has there been any impact at all from the oil and gas situation and the chemical -- petrochemical situation on any aspect of your business?

In our legacy group we have not seen significant increases in piece good prices. We don't have a big polyester-based business here. Certainly our freight and shipping and air charges, we have seen some increases there just based on the energy costs.

John Rouleau with Wachovia.

One quick one. In the past you have kind of laid out some of the sales growth expectations for each of the divisions. I am wondering if you could maybe just touch upon that, whether that has changed at all much? I think you did that last time when you reported the year. But maybe you could run through that quickly?

We don't normally do that on a quarterly basis. And I think you can just stick with what we told you the last time, particularly since it was only a couple of months ago.

The Tommy Bahama private label, when do you anniversary that? Is that basically in the third quarter?

No, it is pretty much done now.

Oh, it is? The exit of private label is anniversaried at this point? Okay.

This quarter was about a 4 to $5 million versus last year, but the first quarter last year was basically the wind down of it.

(OPERATOR INSTRUCTIONS). It appears there are no further questions at this time. I would like to turn the conference back to the speakers for additional or closing remarks.

We have told you everything we know. So thanks for your interest, and we will look forward to talking to you again at the next quarterly conference call.

Again, this does conclude today's conference call. We would like to thank everyone for their participation, and wish everyone a good day.