Oxford Industries Inc (OXM) 2006 Q2 法說會逐字稿

Thank you for standing by and welcome to today's Oxford Industries Inc. second-quarter results 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 your questions. As a reminder, today's conference is being recorded.

And now, I'd like to turn the conference over to Reese Lanier, Oxford's Treasurer. Mr. Lanier, please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today. Before we get started, 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 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 January 10, 2006. 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 statement.

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; Tony Margolis, CEO of our Tommy Bahama Group; Tom Chubb, Executive Vice President; Scott Grassmyer, Controller; and Reese Lanier, Treasurer.

I would like to start today with a summary of the key financial highlights for the second quarter, which ended December 2. Consolidated net sales increased 7% to a second-quarter record of 335 million. All three operating segments contributed to the sales growth, with the Tommy Bahama Group up 5%, the Menswear Group up 3% and the Womenswear Group up 26% versus last year's second quarter.

Consolidated gross margins increased 60 basis points to 33.3%, primarily reflecting gross margin expansion in Tommy Bahama's wholesale business and an increasing mix of sales for the Company-owned retail stores.

Royalty and other operating income increased 11% over last year to $3.7 million, driven by sales growth in our licensed product portfolio. Diluted earnings per common share increased 17% to a second-quarter record of $0.62 from $0.53 last year. This was slightly above our previously issued guidance range of $0.55 to $0.60 and above the current First Call consensus estimate of $0.61.

We are obviously very pleased to report record sales and earnings per share for our second quarter of fiscal 2006. Each of our three segments contributed to the sales growth, and our focus on improving profitability was well-rewarded.

Greater operating discipline with regard to inventory management, distribution practices and sourcing controls and a generally improved level of execution have been top priorities of our organization this year.

The biggest impact has come in the Tommy Bahama Group, which achieved a 72% increase in second-quarter operating income. During this segment's seasonally weak second quarter, the Tommy Bahama Group expanded its operating margin to 11.2% from 6.8% last year.

For the total Company, second-quarter operating margins increased by 70 basis points to 7.3% from 6.6% last year.

As we discussed last quarter, we had implemented initiatives in Tommy Bahama to tighten operating controls and enhance profitability. These efforts have been highly successful, and we believe we will continue to achieve improved levels of operating profitability in the second half of this fiscal year.

I think it is important to note that these initiatives not only improve profitability, but also generate long-term benefits that will ensure we are maximizing our opportunities for growth. We're keeping the Tommy Bahama distribution very clean and maintaining the element of exclusivity that helps keep it an aspirational brand. This is the proper positioning of the business and ties in seamlessly with our efforts in licensing development and growth in Company-owned retail stores.

We believe we are pursuing a similar mindset when it comes to Ben Sherman, which we believe has significant untapped potential to build an enduring and substantial business in the U.S. and abroad. In our historical businesses, we are pushing hard for greater operating efficiency in an effort to improve profitability and add value for our retail partners. This is increasingly important for us in a retail industry that continues to consolidate and focus on a smaller number of key suppliers.

Now I would like to ask Michael Setola to give you an overview of our Menswear Group.

Thank you, Hicks. Good afternoon, everyone. The Menswear Group reported a second-quarter sales increase of 3% to 187 million from 181 million last year. Ben Sherman contributed 48 million in sales for the quarter compared to 53 million last year, a decline of approximately 8%.

I wanted to expand on Hicks' comments about our focus on brand management as it relates to distribution. It is important to note that the sales decline in Ben Sherman was confined to our business in the UK. As you know, the brand was founded in the UK over 40 years ago.

We have been carefully repositioning the brand away from lower-tier, non-investment accounts and focusing on our more upscale retail partners. We are evolving the product to meet the needs of these retailers and moving out of distribution that is inconsistent with our long-term goals.

In addition, the retail environment in the UK and Continental Europe has remained extremely challenging and there's no question that this has had a meaningful impact on our business.

In the U.S., the Ben Sherman brand continued to show growth in the second quarter, but the sales volume was below our expectations. While we are told Ben Sherman performed well against our competition, the contemporary sportswear sector was difficult for the fall holiday season.

I have mentioned before we are pursuing a Company-owned retail strategy for Ben Sherman to build awareness, to support growth in wholesale and licensing and to enhance profitability. We're scheduled to open our first two U.S. retail stores in Soho and Los Angeles this spring, and we're very enthusiastic about the locations we have secured. I think these stores will make a big brand statement and provide meaningful support to our brand development efforts in the U.S.

Sales volume in our historical menswear business, excluding the Ben Sherman brands, was up about 8% for the quarter. We saw modest growth across several major product categories and also benefited from new marketing initiatives, including Ben Sherman dress shirts and suits, Orvis Signature, Solitude and the recently acquired Arnold Brant tailored clothing line.

Second-quarter income for the Menswear Group declined 12% to 16 million from 18 million last year. The decrease in operating earnings was driven primarily by lower sales volume in the Ben Sherman business, less favorable currency exchange rates compared to last year and expenses associated with the new marketing initiatives.

We will continue to face an extremely competitive environment in our private label men's sportswear businesses. Demands from our customers for lower pricing have required us to shift production and pursue more aggressive sourcing plans to improve competitiveness. These production shifts have led to inefficiencies in our owned plants and additional expenses.

We are developing more cost-effective sourcing options for the Menswear Group and are critically evaluating the effectiveness of our existing sourcing and manufacturing operations.

In addition, we will face challenges in the women's and footwear segments of our Ben Sherman business in the second half. We believe these issues will result in relatively flat sales and lower operating income in the second half of fiscal 2006.

Thanks, and I'll now turn the call back over to Hicks.

Thank you, Michael. Our Womenswear Group continues to generate significantly improved financial results. Second-quarter net sales increased 26% to $57 million from 45 million last year. The sales increase was again driven by growth with this group's two largest customers, Target and Wal-Mart.

I'd like to remind you that our programs with these retailers are not purely commodity apparel. Our programs generally incorporate more sophisticated construction and design elements that are at the higher end of the price range for these customers.

We have highly developed design and sourcing expertise for these types of value-added programs, which play a meaningful role in their product assortments.

Second-quarter operating income increased to $2 million from $200,000 last year. This improvement in profitability was driven by sales volume, sales mix and expense leveraging against a weak quarter last year. This segment has achieved a dramatic turnaround on last year in an extremely competitive segment of the business.

Now I'd like to turn the call over to Tony Margolis to take you through the Tommy Bahama business.

Thank you, Hicks, and good afternoon, everyone. The Tommy Bahama Group had an outstanding second quarter. Sales increased 5% to $90 million from 86 million last year. Adjusting for the 2.8 million in private label sales in last year's second quarter, our core branded business actually grew by about 8% for the quarter.

Operating income for the Tommy Bahama Group increased 72% to 10.1 million from 5.9 million last year, and the operating margin rose 440 basis points to 11.2% from 6.8% in last year's second quarter.

We continued to benefit from a more disciplined approach to planning and inventory control, which has resulted in lower inventories and lower off-price sales. We are firm believers in this kind of inventory control and we expect these initiatives to positively impact profitability for the balance of the year.

On the wholesale side, we continue to pursue our strategy of restricted distribution with a focus on sell-through with our key retail partners. The men's business continues to be very strong, particularly under the Tommy Bahama brand and the Indigo Palms labels. Our women's business has shown a fairly dramatic improvement in profitability, and we are optimistic that we will begin to see volume increases in the near future.

Early reports from our key retail accounts indicate strong sales performance in Tommy Bahama product for the month of December and a healthy start to our third quarter. Spring bookings have come in well ahead of last year, and we are very enthusiastic about the second half.

We have begun shipments of our new Relax line in selected wholesale accounts and the response has been terrific. Our new golf line, Tommy Bahama Golf 18, will debut at the PGA Show in Orlando at the end of this month. The golf market is a natural fit for the Tommy Bahama brand, and we have high expectations for its success, but have planned for conservative growth from this new effort.

On the retail side, we continue to be very pleased with the performance of our Company-owned stores. We opened two new stores during the second quarter in San Antonio, Texas, and Seattle, Washington, bringing our total to 57 Company-owned retail stores. We remain on track to open a total of seven retail stores in fiscal 2006.

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

Thank you, Tony. 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 statements, balance sheet and cash flow statement for the quarter.

Consolidated gross margins for the second quarter rose by 60 basis points to 33.3%. This margin expansion was driven primarily by the operational improvements in the Tommy Bahama business.

Selling, general and administrative expenses increased to 88.7 million or 26.5% of net sales from 82.4 million or 26.3% of net sales last year. The increase in expenses was due primarily to the overhead of additional Tommy Bahama retail stores and a modest increase in incentive compensation. We incurred $1.9 million of intangible asset amortization expense during the quarter, compared to 2.4 million in last year's second 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 quarter on an after-tax basis, these nonoperational, non-cash charges reduced our reported earnings per share by approximately $0.07.

Royalties and other operating income for the second quarter grew 11% to 3.7 million from $3.3 million last year. Higher sales volume for our licensed product portfolio generated the increase.

We continue to be pleased with the condition of our balance sheet. Quarter-end inventories increased 3% over last year to 167 million. Our accounts receivable increased 6% over last year to 186 million, which is consistent with our second-quarter sales increase of 7%.

Cash flow from operations for the first half was 8.9 million, compared to 14.7 million last year. Higher net earnings were offset by reductions in accounts payable, taxes payable and accrued expenses. For the full fiscal year, we continue to expect cash flow from operations to be approximately 60 to 70 million versus a fiscal 2005 level of 52 million.

Our Board of Directors has approved an 11% increase in our quarterly dividend to $0.15 from $0.135 per share. The increase will begin with the dividend payable on March 6, 2006, to shareholders of record on February 15, 2006. This increases our indicated annual dividend rate to $0.60 per share.

Thanks for your attention. And now, I'll turn the call over to Reese Lanier to update our guidance.

Thank you, Tom. We are maintaining our previously issued full fiscal year guidance and initiating guidance for the third and fourth quarters. For the full year, we continue to project total revenues of between 1.38 billion and 1.40 billion, and diluted earnings per share of $3.42 to $3.52.

For the third quarter of fiscal 2006, we are projecting total revenues of between 355 million and 365 million and diluted earnings per share of $0.80 to $0.85.

For the fourth quarter of fiscal 2006, we are projecting total revenues of 360 million and 370 million and diluted earnings per share of $1.21 to $1.26.

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

Thanks, Reese. I would like to conclude today by saying that we are generally pleased with our financial performance for the second quarter and the first half of fiscal 2006, as well as with our outlook for the balance of the fiscal year.

We believe we are succeeding in our mission to transform our Company. We have invested in strong lifestyle brand and used our operating capabilities and back-office platforms to help make those businesses more efficient. We have been very careful to treat our intellectual property in a manner that will generate sustainable and profitable growth. At the same time, we're taking important steps to enhance the capabilities and performance of our historical businesses.

We still have a great deal of work to do, but we are confident that there are opportunities for additional improvement ahead of us.

With that, I'd like to thank everyone for joining us today and open it up for questions. Dwayne, if you will set the question process in motion, we are ready.

(OPERATOR INSTRUCTIONS). [Robert Reif], Centurion Investment Group.

First of all, I just wanted to make sure I understood. So the -- unless I am reading it wrong, you are projecting sort of a mixed quarter with somewhat slower earnings growth than you had previously -- or you achieved this quarter, unless I misunderstand. Is that correct?

Well, we would have been hard pressed to continue the rate we had in the first quarter. It has moderated somewhat in the second quarter and will be moderate in the second half.

Right. That may well account for the recent extraordinary volatility in your stock. But another thing -- and one thing I don't really understand is I noticed a great deal of insider transactions. I am particularly concerned because I know Tony has made us all so rich. And it is great to have the insight on the part of the family to have bought Tommy Bahama.

But I was wondering with this transaction getting older and the contracts coming up and stock ownership being so small, what exposure do we have as shareholders that the management of Tommy Bahama, having made us so rich, will continue to be interested and stay with the enterprise?

Well, I don't want to speak for Tony, but I think that it's pretty natural in a situation like this for the owners of a business who sell it and receive stock to diversify their portfolio, and --

Let me -- can I jump in there just a little bit, Hicks? I think it is also important to know that there was a pretty significant earnout stock payment that arrived slightly later than it would have normally. And in fact, because there are so many limited windows of opportunity for me, in order to keep my personal assets in balance and reasonable balance, Oxford stock would have been probably an unusually out of proportion holding. And it was recommended that we sell off some of the shares that we're holding in light of the fact that we had a large payment coming in again, which since has arrived. I'm not sure that that clears it for you, but I still hold a lot of Oxford stock at this time.

And how about in terms of with the transaction having been aged? Your term comes up -- will you -- is your intention to remain with the Company?

I will tell you that if we can continue to perform at the level that we are continuing, I would be happy to stay forever.

You would?

Yes. This is not a -- the whole process for us has been a wonderful transition, and the way in which we operate within the Oxford organization continues to be pretty free and exciting.

[Tim Geyer], Piper Jaffray.

Congratulations on the quarter. A couple of questions for you. First of all, you mentioned you experienced some sales increases into the Target and Wal-Mart channel. Just wondering if you know some of the factors that maybe led to some of those sales increases?

Well, I think we point out what we think our skill set is with that group, particularly in the womenswear sector. And we continue to, I think, gain market share with both of those customers, particularly with Target, and got some fairly unique positioning with Target.

I think you may know about their Go International program, where they are sort of taking a leaf out of H&M's book by having events done by designers around the globe. And we are basically their partner in that process. So that -- and most of that is ahead of us rather than behind us.

But I would also say that for the most recently concluded holiday season, Target business and the women's apparel sector was quite good. I cannot say the same for Wal-Mart, unfortunately.

Another question, then, would be Sears mentioned on their last same-store sales call that apparel had been a weakness for them. Just wondering how the Lands' End business has been trending?

It has not been trending particularly well. And I think that that's an ongoing challenge for us, particularly as it is somewhat unclear exactly how they intend to manage that brand and what role it's going to play in the Sears stores and possibly other stores.

And then I guess lastly, just a question on the upcoming launch of the Tommy Bahama Relax line. What door count do you anticipate on the launch for that?

It is a product line that is offered to all existing Tommy Bahama accounts. It is not a limited release line. It's just a process of I would say expanding on the vision. I think it would be fair to say that in some respects, it takes us back to some of the original roots of the brand. Over time, it has evolved to be dominated by silk and dressier product. And we are just reinstating some of the early, sort of much more casual elements that sort of built the company to begin with.

So it is being offered to all of our existing accounts. It does open some doors for us, perhaps, in some younger markets that we might not have participated in before. But we are not looking for extensive distribution increases.

Susan Sansbury, Miller Tabak.

Nice quarter. Question, though -- you may have gotten the idea that people were a little bit nervous about what appears to be a lowering of expectations in the second half. Question for Mike Setola with respect to Ben Sherman. You mentioned the Ben Sherman faces challenges in the second half. Can you elaborate a little bit more in detail in terms of what they are and how manageable they are and what you plan to do to turn them -- to deal with them?

We really have a -- let me address the problems first, Susan. One, we have not achieved our level of penetration in womenswear that we were hoping for to date. So we are behind a curve that we had set out for. So we are missing some goals in our women's penetration area, both in the UK and in the U.S.

Second, our footwear area is another area where we had some growth opportunities that we did plan a bit aggressively for, and we're also not achieving those as we move into the second half. Both those areas are areas that are performing -- well, footwear is performing well. We are just not achieving our plan. Womenswear, we have not quite hit that mix yet of who that woman is and how to penetrate her open to buy at retail.

The other issue we have relates to the U.S., where the fall season for us at retail was slower than anticipated. We did have a very good holiday season at retail, though. The holiday line was much more on track to the core heritage of the Ben Sherman brand and the British roots.

The fall line did get a bit off-track. It got a little bit too forward, a little too wild. We took appropriate markdowns. We also have taken appropriate action to liquidate the inventories associated with that as we move through this season -- the balance of this season and the balance of the year.

With regard to fixing and our outlook and our future forecasts on this, we have been pretty consistent from the beginning that we made a long-term investment in the brand and the brand needed some repositioning, especially in the UK. We have continued to move away from accounts which we refer to as non-investment accounts that are in the best interest of the long-term growth of the brand, continue to position ourself with our major customers there.

We had a good retail season for holiday in the UK. Debenhams is an example -- is our largest department store account there. We had a very strong retail season. We were, I believe, if not their best, in their top two of performing vendors during the holiday season.

Here in the U.S., I mentioned a strong holiday season at retail. And the only category that showed some weakness was the woven shirt category -- still trending down a bit across not only the Ben Sherman brand, but across the entire menswear platform -- wovens trends are certainly off.

The final piece of the puzzle for us was and continues to be the investment in retail stores and our own platforms. We do have, as we had mentioned before, two stores due to open up this spring, one here in Soho in New York and one out in Los Angeles in the Beverly Center. We are very optimistic about those two stores.

Our experience with retail and the new store in the UK in Trafford Centre was very positive during the holiday season. We exceeded our expectations and our budgets during that period.

So I believe we've got a platform for future growth. I believe we are on track to achieve it long term. The fall season here in the U.S. certainly did not help us, and got us a little off course. The womenswear business has caught us a bit by surprise and got us a little off course. But I believe we've got the team to put that back into place and arrest the [technical difficulty] back.

Reese, based on these revenue estimates, though, it looks like you are looking for a negative fourth-quarter sales -- sales are supposed to decline in the fourth quarter. Is that correct? And is the decline in the second half -- it looks like the second half might be down -- is that all attributable to Ben Sherman?

I would say that we are expecting the women's business to be flattish in the fourth quarter at this point. And I would say that Ben Sherman will also contribute to that.

But we are always projecting the women's business to be flattish at that point for this week. We don't have the visibility all the way into May for that business, and so we project fairly conservatively.

Okay, that's great. Let me get back into queue. I'm going to have to think of another question here. Thanks very much.

Eric Tracy, BB&T Capital Markets.

Michael, if you could walk through the Ben Sherman just a little bit more in terms of differentiating between the UK and the U.S., particularly just the U.S. business, looking to the back half of this year on the men's side in particular, where you see -- again, you walked through the footwear and the women's side, but just some of the issues that may be going on in the men's business?

Well, the back half of this year for us is essentially the spring season. So we have booked our spring season. We have booked our summer season. We have not bought aggressively for what would be the reorder process. Part of that is I think what trapped us during the fall season. There's historically been a pretty good fill-in as the season has gone on, and we didn't sell through in that fall season. That cycle of scarcity we've heard about from Tony before disappeared.

So we bought spring very close to the vest. We forecasted that sell in, and we've got the opening of the stores in the April period in the U.S.

So nothing seriously within the wholesale side and obviously going to be incubating on the retail?

Yes. The other thing I would just mention is here on the U.S., we moved from the UK -- Paul [McAdam] was the UK Managing Director. We asked Paul to come to the U.S., and in fact he has and has made a meaningful impact in I think what we would best say restoring the U.S. -- the UK roots and the traditional British aspect of the branding here in the U.S. and has also brought a great deal of discipline with him with regard to the stock inventory management and the line SKU management. So we are optimistic Paul's contributions will be felt rather quickly.

And then, Tony, with respect to Tommy Bahama, just talk through a little bit more on the women's business, if we can possibly see that starting to translate on the wholesale side on the back half. And then maybe a little bit on Indigo Palms and sort of where we stand on the development there.

Yes, I would tell you that our position on womenswear continues to be very conservative. We are I think in the process of sort of rebuilding our team there, first of all. There has been a number of what I will describe as sort of false starts over those prior couple of years. And we are committed to ensuring that the product that we put in the stores is brand-appropriate and communicating to our target customer.

For us to predict any sort of immediate impact from that would be I think foolish. And we are going to continue to crawl, walk, run that process for growth in womenswear.

Just real quick -- so the success we've seen in the Company in retail and it seems like over the last couple of quarters, we are gaining some traction with accounts -- are you --

I am telling you that I think that there continues to be account movement. We've got accounts that used to buy Tommy Bahama for what I'll describe the older customer, who we are slowly but surely evolving the line away from. And they are obviously falling out of the mix. And the process of bringing new people on board is a slow process that includes some testing and then some proving and then some growth from there.

So I would tell you that we are taking a very conservative approach to the growth plans for our women's company. It clearly is still a huge opportunity for us. But we have made the mistake in the past of buying product on the assumption that the growth would be there and then having to purge it. And we are not going to do that. So that in itself is going to limit some of the potential for short-term growth.

The Indigo Palms situation in menswear continues to be extremely strong. We are, in fact, ranked in the top three as a men's vendor in our biggest single account with Indigo Palms. The women's side of that company actually is starting to get some traction. It is still a very small business as well. But we had extremely successful sell-throughs of the new product that has hit the stores for holiday. And we are expecting to be rewarded from that over the next six to eight months.

And then the retail component of Indigo Palms, any update?

Again, no movement there. We are waiting to allow the business to sort of demand that we expand it to any meaningful extent.

And then just kind of lastly, Hicks, just if you could sort of talk through the womenswear business, and obviously planning that business flat as always, but maybe just sort of talk through what you are seeing in that kind of mass channel environment in terms of trying to offer more fashionable product and how you view or could potentially forecast Oxford playing in that on a go-forward basis?

Well, our track record has been very consistent with target. That has been on a growth track for a number of years now. And the fact that we are right in the core hotspot for these new initiatives I think is quite a positive for us.

With Wal-Mart, it has been more erratic over the years, as has their performance in the womenswear sector. What they are saying is that they want to expand their business in the more fashion-forward products and also push the envelope a little bit on price. What we don't have yet from them is a lot of tangible success stories of that strategy working. But if it does work, I think we're going to be right in the hot zone there. We feel pretty good about it.

Jeff Kobylarz, Solomon Asset Management.

Good numbers. I wanted to asked about the women's business, and first quarter was strong, second quarter was strong, up mid- to high 20s percentages. Can you comment about the sell-through in the first half of this year -- fiscal year?

Well, I commented earlier about the holiday trends at both Wal-Mart and Target, and at Target their women's business was very good and our women's business with them was very good from a sell-through standpoint. For Wal-Mart, as a general rule, I don't think -- you saw what their total same-store sales were for December, which was not very robust, and I think their apparel area was one of the weaker segments. So that doesn't paint a real pretty picture.

Can you comment about men's sell-through also?

At Wal-Mart and Target?

In general over the Christmas season.

Mike, do you want to take that one?

It was a tougher holiday in the holiday season in the mid-tier distribution, tougher than it was in department stores, and the department stores were tougher than it was in the better tier.

Across the board on our products, we had some strong sell-throughs in the holiday period on our launch of the new Solitude products. Nick(it) sold through on and about plan during the holiday season. The new Orvis products in the Orvis distribution channel, specifically their catalogs and their retail stores -- we had a pretty good holiday with them as well.

I will say that the private label businesses, unbranded, I think that there's a bit of a backlog out there with the fall holiday season and the clearance needs in January will be rather specifically high, as we've seen some inventory buildups on the retail side. And I think in tailored clothing, the other issue I'd tell you is that it was a very promotional season in the tailored clothing area, and specifically in the department store zone. And the suited separates area continues to be a driver of out-the-door retail for them.

And then you were talking a little bit about your fourth-quarter guidance and the revenues being down 5% or so in the fourth quarter. Can you elaborate about why you're seeing that decline?

Well, let me remind you that we had a 14-week fourth quarter last year. This year, it is a 13-week. So that is part of it.

And then lastly, can you address what your priorities would be with uses of free cash flow?

Well, we just used a little bit of it with the dividend increase. We are constantly reviewing acquisition opportunities. And we don't -- we are not averse to the fact that our balance sheet has improved fairly dramatically over the course of the last year and expect that to continue.

Any general theme of acquisitions you could address?

Nothing to talk about right now. But there would be -- I guess we think the formula of the last couple is a good one. Brands that could be construed as aspirational lifestyle brands -- we think that is the type that we would be interested in.

John Rouleau, Wachovia Securities.

I want to go back to Ben Sherman for a moment, if I could. Mike, it was down a little bit, about 9% I guess in the quarter, and you said back half of the year you are looking for something more flat. So I'm assuming that you are kind of predicting that the U.S. business picks up a little bit from some of the merchandise changes that you talked about. Or are you assuming a different trendline in the UK business?

We have not gotten aggressive in the U.S., John. As I stated, we really bought the inventory to orderbook and sales plan. And it really is just about keeping the inventory on a stable base and just getting a good season under our belt as we move into the fall season, which is what we are selling right now in market.

But to get back to flat from being down a little bit in the quarter, it's a modest improvement in the U.S. side or in the UK side? Or how do you get there?

The UK side comes back. And the U.S. side stays flat.

Got it. And then switching gears over to Tommy Bahama -- again, I know you don't break it out anything between wholesale and retail, but can you give us just maybe some flavor as to the retail stores? Are they kind of comping where you hoped and thought they would? And how is that versus kind of where the wholesale business is trending? Just any breakout at all qualitatively.

Yes, I would tell you that we had a pretty satisfactory December. The prior two months were a little disappointing.

For Mike again, quickly switching gears one last time -- tailored, I know it's been a bit weak in promotional at the department store level. It seems like it has picked up, though, kind of at the moderate level with Target and a bunch of others. That's probably part of what is going on with the weakness at the department store tier. But how are the sell-throughs there on the tailored side? Is that business picking up or is that something that could fade somewhat quickly here?

Well, let me elaborate in the three tiers. We are a large part in menswear of the Target program -- the tailored program, both in the polyblends and the wools. And we are having sensational sell-throughs there, and Target is very positive about the trendline they are running there.

We are also seeing a fair amount of inquiry and opportunity in the marts -- into Wal-Mart/K-mart zone, looking for suit separates in that opening price zone. They clearly have put some pressure on the price area above it in the department stores. But we really are talking, though, in many ways, apples and oranges with regard to just the branded segment versus the unbranded segment.

Above the department store zone, that better-tailored business is actually on a very good trend. This Arnold Brant acquisition gives Oxford a piece of that business as we move forward. And we launched this past season the Ben Sherman tailored clothing, primarily into Nordstrom's, as well as Ben Sherman dress shirts, again, primarily into Nordstrom's, but better department stores and selects specialty stores.

We have experienced very strong sell-throughs in the, let's call it above $550 range to $700 range tailored clothing area. So the better segment seems to be doing well. I do believe there is market share being stolen from the middle down into the opening price point tier.

And if you kind of separate your business in those three tiers, is it roughly equal, a third, a third, a third, in those three? Or where do you have more business with?

No, it is probably, at this point, 20-65-10.

And then last question in regards to Solitude. I thought there was a spring '06 launch. It sounds like there is some product out there now --

We had a 125-door launch with Penney's right at Thanksgiving so that we captured the early selling on spring and transitional in the southern markets.

And that goes to 500 doors for spring '06?

Yes, actually, it just shipped. So it should be getting a floor set very quickly.

Great, we will be looking for it in the stores. Thanks. We will miss you guys down here in Florida.

Yes, we will, too.

(OPERATOR INSTRUCTIONS). Susan Sansbury, Miller Tabak.

Actually, John answered my question about the back half for Ben Sherman. But Tony, I just bought my fifth pair of Indigo Palms jeans -- you are moving in the right direction. Now, I had to search the entire country to get them. Any plans on opening something vaguely on the East Coast?

Well, does the East Coast include Florida? Because we actually have a store in Fort Lauderdale.

Fort Lauderdale. I'm not sure if I can --

Yes, it is on Las Olas Boulevard.

I'm not sure I can get there at this time. But how about something a little further --

Further north?

Further north?

Not in the foreseeable future, Susan. I think the goal for us is to establish that brand and its credibility with better specialty people. And we will slowly evolve the store expansion once we see that it has the kind of legs that we hope it will.

You will eventually get it right. I mean [multiple speakers]

I have as much confidence in that as you do. And we just want to be cautious about it.

Mike, a silly question, but I missed -- the 20/65/10 split was what?

The 20 is in the opening tier. The 65 would be in Penney's and department stores. And the balance would be in the better tier and the Nordstrom's tier, if you will.

Okay, you're wonderful. Thanks ever so much. Just keep working hard -- it will work, I am sure.

There are no further questions in the queue. I'll turn the call back to the speakers for any additional or closing remarks.

Well, we thank you once again for joining us. The tone of the questions didn't seem to quite pick up on the strength of what we think the strength of our first half was, particularly the performance in the Tommy Bahama operation.

We have just had incredible improvement there, both in the first half and anticipated in the second half on relatively flat volume. But we do have, with these product extensions, some pretty meaningful growth opportunities ahead of us. And as Mike Setola indicated, we have got a few issues, both with Ben Sherman and the legacy menswear section, but nothing we haven't faced before and nothing we don't think we can get squared away in a relatively short period of time.

So we are pretty enthusiastic about the state of our business right now. And I guess that all I've got to say. But we appreciate your interest. Thank you.

Again, that does conclude today's conference call. And we'd like to wish everyone a good day.

Thank you.