Oxford Industries Inc (OXM) 2006 Q3 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to today's Oxford Industries Inc. third-quarter results conference call. (OPERATOR INSTRUCTIONS).

And now, I would like to turn the conference over to Mr. Reese Lanier. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us. As always, I will start today with our Safe Harbor language. 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 April 5, 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 statements.

Thank you for your attention, and now I would like to introduce Hicks Lanier, 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 third quarter which ended March 3rd. Consolidated net sales increased 2% to $356 million from $349 million in the year-ago quarter. The Tommy Bahama Group was up 7%, the Womenswear Group was up 3% and the Menswear Group was down just under 2% for the quarter. Our consolidated gross margins increased 160 basis points to 34.7%, primarily reflecting gross margin expansion in Tommy Bahama's wholesale business and an increasing mix of sales through company-owned retail stores.

Diluted earnings per common share increased 3% to $0.82 from $0.80 last year. This figure includes $0.06 per common share of non-recurring plant closure and related expenses that were not incorporated in our previously issued earnings guidance of $0.80 to $0.85.

We continued to make significant progress on the strategic repositioning of our business in the third quarter. In the Menswear Group, we elected to close four manufacturing facilities based in the Dominican Republic and Honduras, and to begin consolidating related US-based support functions in an effort to streamline our operation. This was not previously contemplated by our guidance, and reduced our earnings by approximately $1.6 million, or $0.06 per share during the third quarter. Absent these non-recurring expenses, we would have exceeded the top of our earnings guidance range by $0.03. Nevertheless, the disclosures are expected to result in a more flexible cost-effective sourcing network for our historical Menswear businesses, and will leave us with only two remaining owned manufacturing facilities in all of Oxford Industries.

In Ben Sherman, we have moved aggressively to address merchandising and operational issues in the US business, which we continue to believe has tremendous potential for growth. As we mentioned last quarter, our product offering for fall and spring was a little bit off the mark, and our sales plans were too aggressive. This resulted in higher-than-anticipated returns, allowances and markdowns to clear excess inventories and a significant reduction in our profitability this quarter.

That said, the brand remained strong, the opportunity large and our customers continue to be supportive of the line. For the upcoming fall season, we have narrowed the line and refocused on the core elements of the Ben Sherman brand. Based on the response to the fall collection from our key retailers, we are confident that we are back on track with the product. Additionally, we launched our retail store rollout in the US with our first store opening in SoHo. We believe a company-owned retail presence is an important brand-building tool that enables us to effectively communicate the Ben Sherman lifestyle and aesthetic. The SoHo store is off to a great start, and we expect a follow-up with additional stores in Las Vegas and Los Angeles in the next few months.

The Tommy Bahama group had an outstanding third quarter in every respect. Sales grew 7% and operating earnings rose 46%. The Tommy Bahama team ran an extremely clean business, generating an operating margin of over 18% for the quarter. We have also been very pleased with the launch of the Relax line and the launch of Tommy Bahama Golf 18, the new golf line targeted to green grass and resort markets. We are increasingly optimistic that these new ventures will develop into meaningful components of our Tommy Bahama business.

The Womenswear Group delivered another quarter of improving profitability, with an 18% increase in operating income. Our Womenswear segment has generated five consecutive quarters of year-over-year profitability improvement since the second quarter of fiscal 2005. This business operates in one of the more competitive segments of our industry, and it has done a terrific job of maintaining its competitive positioning.

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 third-quarter sales of $166 million, a decline of 2% from last year's figure of 169 million. In our historical Menswear businesses, sales were up approximately 3% year over year, driven by the first-half acquisitions of the Solitude and Arnold Brant brands. As Hicks mentioned earlier, we decided to close four manufacturing facilities in the Caribbean Basin and to consolidate certain US-based support functions, with a corresponding reduction in headcount. These facilities have become increasingly less competitive over the past two years, and their disposal will result in a more flexible sourcing network and lower costs.

The Ben Sherman business generated $35 million in sales for the third quarter, compared to 42 million last year. There are several factors at work that limited our volume. First, the UK retail environment in general remains extremely challenging. Second, the dollar/pound translation rate accounted for more than a third of the sales decline. Third, as we communicated previously, we have continued to pare back our volume in the lower tier of distribution to focus on our key customers in the higher tier. While this will cause some contraction of the business in the short term, we believe it definitely will be in the best interests of the brand over the long term.

As Hicks mentioned earlier, we have also faced some challenges in Ben Sherman's US business, resulting from aggressive sales plan and a merchandising mix that departed from the heritage of the Ben Sherman brand. Performance at retail has been below our expectations and we have incurred higher-than-normal returns, allowances and markdowns. We have moved quickly to identify and liquidate excess inventories in the third quarter, and will continue to do the same in the fourth quarter. We do expect to be clean by the close of the fourth quarter. Unfortunately, the costs to resolve these issues have turned out to be more significant than we thought at the time of our January conference call.

We have improved the fall collection by reducing the number of styles, and by refocusing the line on the key elements that had made the Ben Sherman brand a distinctive lifestyle proposition. You'll see a merchandising focus which continues to move beyond wovens and emphasizes the full collection proposition. The feedback from our key accounts and specialty stores has been very positive, and we're looking forward to fall. Going forward, our focus is to ensure that the collections are sold into the right doors and the appropriate quantities to generate high full-price sell-throughs at retail.

The last piece of our Ben Sherman strategy is our plan for company-owned retail expansion. We opened our first US store in SoHo a few weeks ago. The look and atmosphere of the store is ideal for the brand, and the financial performance thus far has been above our expectations. The store is powerful in terms of presentation, and adds a phenomenal location in this key retailing district. We plan to open our second store in Los Angeles at the end of this month and our third store in Las Vegas in August. These stores will build brand awareness, support growth in wholesale and licensing and enhance profitability.

Current profitability in the Menswear Group has been severely impacted by the challenges in the Ben Sherman business, and by the closures and streamlining of operations in our historical Menswear business. Third-quarter operating earnings declined to 6.4 million from 14.1 million last year. We are obviously not pleased with the results, and are taking aggressive steps to address the challenges.

Looking ahead to the fourth quarter, we will incur approximately $1.2 million, or $0.04 per diluted common share in additional expenses to streamline operations in our historical Menswear divisions. In the Ben Sherman business, fourth-quarter performance will be challenged by many of the same issues that we faced in the third quarter. However, let me conclude by saying that we are recognizing the financial impact this fiscal year so that we can move forward into fiscal 2007 with a clean slate.

Thank you, and I will now return the call back over to Hicks.

Thank you, Mike. The Womenswear Group reported a very solid quarter. Third-quarter net sales increased 3% to 81 million from $79 million last year. The sales increase was driven by growth with Target, to whom we made shipments of the Luella Bartley product under Target's new Go International program. Third-quarter operating income increased 18% to $6.1 million from 5.2 million last year. This improvement in profitability was driven by higher gross margins due to a more favorable sales mix.

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

Thank you, Hicks, and good afternoon, everyone. I am pleased to report that the Tommy Bahama Group had another outstanding quarter. Sales increased 7% to 109 million from 101 million last year. Adjusting for the 2.5 million in private-label sales in last year's third quarter, our core branded business actually grew by 10% for the quarter.

Operating income for the Tommy Bahama Group increased 46% to 19.7 million from 13.5 million last year. Our operating margin rose 490 basis points to 18.2% from 13.3% in last year's third quarter.

We continue to see benefits from our disciplined approach to planning and inventory control, which resulted in lower inventories and lower off-price sales. Our profitability was also aided by a growing percentage of sales through company-owned retail stores and a decline in intangible asset amortization expense from last year.

Our wholesale business continued to be very strong in the third quarter. Tommy Bahama, Indigo Palms and Island Soft were all ahead of plan, and performed very well at retail. The new Tommy Bahama Relax line is off to a very good start, and we are very pleased with the placement that the line has received at our key wholesale accounts. The Relax line is complementary to our Tommy Bahama and Indigo Palms offerings, and will give us the opportunity to garner a larger share of our target consumer's wardrobe.

Our new golf line, Tommy Bahama Golf 18, debuted at the PGA show in January, and the response to the line was terrific. The line includes both men's and women's offering that is distinctively Tommy Bahama in its styling, and delivers the performance characteristics required by today's golf enthusiasts. The product will begin shipping in early summer to a select group of private clubs and high-end resorts. Tommy Bahama has always had a close association with golf, so we think a golf-specific line is a natural fit for the brand.

Our retail stores also had a very successful third quarter. Store traffic was strong, with particularly good months in December and February. We opened a Tommy Bahama store in West Palm Beach, Florida in February, and plan to open one more store in Indianapolis before the end of our fiscal year in May. This will bring our store count to 59 company-owned retail stores in the United States.

Thank you for your attention, and now I would like to 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 statement, balance sheet and cash-flow statement for the quarter. Consolidated gross margins for the second quarter rose 160 basis points to 34.7%. This margin expansion was driven primarily by the strong performance in the Tommy Bahama business.

Selling, general and administrative expenses increased to 95.7 million or 26.9% of net sales from 88.5 million or 25.3% of net sales last year. The increase in expenses was due primarily to additional Tommy Bahama and Ben Sherman retail stores and investment in new marketing initiatives.

We incurred $1.9 million of intangible asset amortization expense during the quarter, compared to 2.3 million in last year's third 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-cash charges reduced our reported earnings per share by approximately $0.07.

Royalties and other operating income for the third quarter declined to 3.1 million from 3.9 million last year. Our licensees in the UK have faced the same difficult retail climate as our own businesses in the UK, which has resulted in a decline in the sales of Ben Sherman licensed products. Royalties were also impacted by less favorable currency translation rates. Year-to-date licensing revenue remains ahead of last year, and we expect to see growth in royalty income for the full fiscal year.

We continue to be pleased with the condition of our balance sheet. Quarter-end inventories declined 11% from last year to 166 million, and our accounts receivable declined modestly from last year to 207 million. Cash flow from operations for the first nine months of fiscal 2006 was 14.2 million, compared to $400,000 last year. Higher net earnings were partially offset by reductions in accounts payable and accrued expenses.

For the full fiscal year, we project cash flow from operations to be in excess of $70 million versus a fiscal '05 level of $52 million. In the fourth quarter, we expect to repatriate approximately $23 million of undistributed earnings of certain foreign subsidiaries under provisions of the American Jobs Creation Act of 2004. This repatriation will result in a onetime $3 million reduction in our tax expense, or a $0.16 addition to diluted earnings per common share for the fourth quarter.

I appreciate your attention, and I will turn the call over to Reese Lanier to update our guidance.

Thank you, Tom. We are updating our guidance to reflect our expectations for lower fourth-quarter profitability in Ben Sherman, nonrecurring expenses related to the streamlining of operations in our historical Menswear businesses and the repatriation of undistributed foreign earnings. During the fourth quarter, we expect to incur expenses of approximately $1.2 million or $0.04 per diluted common share to streamline operations in the Menswear Group. The foreign earnings repatriation will result in a reduction of approximately $3 million in our fourth-quarter income tax expense, which will effectively increase diluted earnings per common share by $0.16.

After giving effect to these items, we are continuing to project fourth-quarter net sales of $360 million and $370 million, and revising our projected diluted earnings per common share to a range of $1.22 to $1.27. For the full year, we continue to project net sales of between 1,380,000,000 and 1,400,000,000 and now project diluted earnings per common share of $3.44 to $3.49.

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

I would conclude today's comments by saying that our overall performance for the third quarter was very strong. Tommy Bahama had a fantastic quarter, and we expect this outstanding performance to continue into the future. The Womenswear Group also turned in a very solid quarter, and has done a terrific job of responding to challenges in a very competitive marketplace.

In our historical Menswear businesses, we continue to evolve beyond our heritage as a private-label manufacturer. The plant closures and streamlining activities of the third and fourth quarters will greatly advance this process.

With respect to the Ben Sherman business, we view the challenges that we faced in the third and fourth quarters as short-term in nature, and should be concluded by the end of the fiscal year. We are confident that the Ben Sherman business will be back on track for the fall season, and we remain committed to the brand and there's tremendous opportunities for growth in the US and abroad.

With that, I would like to thank everyone for joining us today, and we will open it up for questions.

(OPERATOR INSTRUCTIONS). Jeff Klinefelter, Piper Jaffray.

Just a couple of questions for you. First of all, Reese or Hicks if you want, just to clarify the Q4 guidance -- I think last time, you reported the quarter, the revenue guidance was the same at 360 to 370. I believe EPS at that time was 1.21 to 1.26.

That is correct.

Okay, so I'm just trying to compare that to the guidance you're giving now. You are --

I will make it very simple for you. If you take that 1.21 to 1.26 we're taking the Ben Sherman underperformance, it is greater than we anticipated when we made our comments in January. And we are lowering that figure by $0.11 to $1.10 to $1.15. Then we are adding $0.16 for the repatriation of foreign profits and deducting $0.04 for the continued one-shot restructuring in the Menswear Group.

Thank you. That actually clarifies it very well. So then, taking from that point, talking about two things -- clearly, Tommy Bahama had a fantastic performance -- I want to get to that -- but on Ben Sherman, can you talk a little bit about what exactly is happening with the brand here in the third and fourth quarters? Are you providing significant markdown dollars to the existing retailers? Are you selling into off-price? How are you clearing through that inventory, and how is that hitting your income statement?

Mike, do you want to take that? I think it is all of the above.

Sure. Let's specifically address the US. Is that the question, Jeff?

Yes.

In the US. The excess wholesale inventories on both fall/holiday '05 and spring/summer '06 -- we have taken all the necessary markdowns, and either have cleared or are clearing those inventories as we speak. I think I stated in my comments that we felt we would be clean by the end of the fiscal year, and we should accomplish that. The second effect was, in fact, slower-than-anticipated selling at retail. And so the discounts, allowances and returns effect that we experienced coming through this quarter were a little higher than we thought, and we are anticipating what we believe we need to address in Q4, as well, and we have put that into our guidance. This really came as a result of some aggressive sales plans, a little bit of a general wovens slowdown in the period, and we have taken the steps on both the markdowns at wholesale and at retail to clear through those goods.

The last piece is that as we brought over new management -- which we mentioned on the last conference call -- from the UK, Paul McAdam, who was really the number-two man in the UK, has really taken a hands-on approach to philosophically what has made the brand strong in the UK, and that is really the heritage of our brand. The merchandise has been addressed and focused on a much more concise basis towards the full brand heritage proposition. So the line is tighter, our inventory purchases going into the fall '06 season are much more concise. We've taken a very clear lesson from the Tommy Bahama cycle of scarcity, and making sure that the ownership of those inventories are appropriate to the order files.

So we should see a dramatic reduction in the excess inventory issues, the discounts and allowances at retail. Part of the strategy there was also to eliminate a number of the bottom-selling performing doors at retail and actually close those. We have accomplish that in the period.

And really, the final piece is we mentioned the opening of the SoHo store. That SoHo store -- I saw you there for the opening party. I hope you got a chance to sort of feel the overall effect of the brand and the positioning we want to take with that. I invite anyone who has not been down there, please go down and take a look at it. That is the story and that is the sell. We've got two more of those planned for the balance of this year.

That is very helpful. Just trying to actually get to that -- if you are closing some doors or narrowing your distribution, that is great, taking returns to get out of that product. Just kind of curious, as you're getting feedback from customers that really like what they see for fall and holiday coming up this next year, but at the same time you're getting returns for those same retailers now just to sort of true-up their inventory positions. Is that how you are looking at it?

Yes, and actually, the return process was really from what was fall and holiday inventories from this past season. We are not experiencing [necessarily] returns from the current spring season, beyond anything that would be normal and planned. So it really was a result of last fall's and holidays performance, which we identified was weaker than planned.

And then, on to the Tommy Bahama business. Congratulations. Very strong performance in the quarter. Can you give us, Tony, maybe a little more color on driving that growth, that if you back out private-label 10% growth, you have been working on the cycle of scarcity. So I would have imagine that that might have been narrowing, just slightly, at least your distribution or number of doors out in the marketplace. What is driving it at this point? Is it your core distribution to places like Nordstrom? Is it the launch of the new product? Is Relax driving that up? How is the Relax accounted for in that number?

I think Relax had a minimal impact on the quarter that you're talking about. There is some of the product actually might have hit in the latter part of the quarter, and has had a very positive sell-through at retail. So there is some impact, but it is certainly minimal in the grand scheme. I think there is a little bit of a misconception. I don't believe we have contracted our distribution to any significant extent. There's a little bit of attrition of accounts, especially independent specialty stores, as some of our larger customers open additional branches. And as we open some of our own freestanding stores, we do see some attrition there, but it is minimal.

And I think the truth of the matter is that there was somewhat of a conservative vision that I think a lot of the stores were thinking was going to be the result of the difficult weather season that occurred last fall. But in fact, retail sales turned out, as I mentioned earlier, particularly in December and February of this year, to be extremely strong. And I think that performance was allowed us to move through whatever inventories did exist at full margins, and it is the best-laid plans not going astray at all, but in fact coming home as you would hope they would. And I think that the demand for product has increased, because there is not a lot of available product at reduced prices. I don't know if I have answered your questions fully, but I have tried to let you know that it is the result of the performance of the existing core Menswear business.

Okay, no, that is great. A couple of just things real quick and then I will let you go. Updated on the Women's business and Tommy Bahama?

I think a fair update is that it continues to be -- the product that is in the stores is still the result of some misdirection of the line's development. And we are starting to see some improvement in some of what I will call core items. As I mentioned on an earlier call, our very first effort was to correct some erroneous fit issues that we had, which we clearly have done. We have both bottoms and tops that are selling well, and obviously fitting the targeted customer as we would hope they would. But that line development is an ongoing issue, and I think I have mentioned to you in the past, we have had a restructuring of the senior management of the Women's division. We have bought both Women's swimwear in-house, which has turned out to be extremely successful for us. And having that team of people in-house heading up the development of our sportswear collection, as well, we believe will have some positive results for us, certainly in the fourth quarter of this calendar year. We will have the reactions to those lines probably coming this May/June. So we will know a lot more at the very early part of the next fiscal year.

Just lastly, Tony, on fit on Men's, I know you have been working on that. We heard about it at MAGIC, and changing that slightly to accommodate a little narrower fit.

Yes, and as an overall statement, I will tell you that it has met with good response. There are a couple of notable exceptions, and we are tweaking some of our adjustments, particularly in the extra large and double extra large sizes, to accommodate the fact that we have what I will call a highly-developed business of larger men, as a result of our old fit spec, and we don't want to walk away from them. And so we are just tweaking those slightly.

Robbie Ohmes, Banc of America Securities.

Just a couple of quick questions. On the Menswear facilities closings, the charges, just quickly -- where are those accounted for? Are those all in SG&A, if we want to pull that out of your numbers?

They are all in cost of goods sold.

And then, as a follow-up to that, can you give us some quantification of the savings you expect next year from these closings?

I would say that it is pretty difficult to do that, because the alternative sourcing is sort of a moving target, depending on quota fills out of China and issues like that. But needless to say, there are going to be meaningful savings there.

Just quickly, when we pull out the -- another accounting question, guys. I know you're going to love this. When you pull out the repatriation, what is the normalized tax rate we should use for the fourth quarter ex- the repatriation, and also for next year?

Around 36%.

John Rouleau, Wachovia.

A couple of questions. Beside what the implied the outlook is in your new guidance in the fourth quarter for the UK side of the Ben Sherman business, we've talked a lot about US. But the UK does not seem to be getting any better at the macro level, so just kind of wondering what you're thinking there?

The UK business is really a result of what is happening in their general economy, their weather patterns and this general malaise at retail there. We have not forecasted aggressively up or down. The path has been rather consistent there, and we carry that into the fourth quarter as well.

And did that business perform more or less in line with where you had thought it would in the third quarter, so it was really just the US piece that was -- in terms of markdowns and allowances?

The third quarter for the UK was slightly off where we thought it would be. We actually feel like we accomplished much in that. We are better than most in that environment. If you tick down the Ted Baker's, French Connection's, Next, John Lewis's and people like that, we're seeing some really desperate numbers out of the UK. We were not in that company.

And regarding the Ben Sherman business next year, we saw it at MAGIC. It looks great. I know the line has been kind of refocused. And I know you don't give any guidance, but the SKU counts reduced, can we just kind of assume that sales kind of follow the SKU count type reduction, and profitability should be enhanced, as far as top line is concerned, with the US? Kind of model that according to where the SKU count is going? Or how can we think about that?

No, that might be a good logic, but it probably won't apply in our Ben Sherman forecasting. I think it is relative -- assume that while the SKU counts are going down, it is just becoming more focused. We are going to eliminate sort of the unnecessary markdowns in fringe items, tighten up our own markdowns, discounts, allowances. I think flattening is a much better point of view, John.

Okay, I appreciate that. And then, regarding the retail stores, I mean obviously the SoHo store looks great. It's a very strong representation of the brand. At one point do you feel like you guys will be ready to kind of ramp up the retail store growth? Are you go to open these three stores and let them test for a while and look at them, or are you going to continue to open stores next year?

We think our strategy is going to show us and tell us an awful lot in the near future. SoHo is just a great downtown urban location. We're at the root and heart and soul of kind of the customer base. And we're off to a great start, and we're very optimistic about the investment there.

The second store is a mall-based location in Bev Center. So we go out to L.A. We've got a different consumer profile there. We are in a mall. We are going to learn an awful lot about that consumer habit. And what the mall-based proposition is -- because we're not going to be able to build a 4,500-square-foot selling space in a mall.

The third location in Las Vegas is kind of the blend of both. We think we've got the "Perfect Storm" of customer coming through Las Vegas, and the location is such that we really should tap not only the young consumer but the young-thinking older consumer.

We've got a real good mix and a real good test. I cannot give you a specific on when we're going to roll out, because we're going to really end up learning a lot from these three. I think we will adapt the strategy of growth based on the performance of these three very different environments that will come together.

But it sounds like you sit on these for a little while, see how things come in and then begin to retool and re-roll out.

Well, I can answer it this way -- there's no fourth store on the drawing board (multiple speakers), so that would be yes.

And then, last but not least, I guess on the SG&A side, that caught me a little bit by surprise in terms of the increases. I kind of assumed that the restructuring costs were in there. But you said marketing initiatives, and the store opening expenses. Maybe you could just add a little bit of color to the marketing initiatives, and what kind of drove those?

Sorry, the marketing initiatives really come from two areas. We have got the opening and launching of the Arnold Brant business and the Solitude business in the Menswear Group. And the SG&A costs really have grown in the opening of the stores for Ben Sherman. We've got not only the SoHo store, but we have got store two and three as a part of that.

Susan Sansbury, Miller Tabak.

Going back to the store opening expenses, can you quantify what has already been booked in SG&A and what is going to the there for the entire year?

I don't think we have have broken that out. Scott, have we?

Some of that expense is new stores and Tommy Bahama, and it's just when you open a store -- and particularly a compound, where we have a restaurant and a store -- the labor ingredient there is pretty significant on an ongoing basis. But as you know, so is the margin that we generate from that. So I think more than any other issue, it is the continued rollout of Tommy Bahama stores, and anniversarying a period a year ago, when we did not have some of those stores. And now, you've got that whole payroll that has fallen out in SG&A this year.

Okay, that helps. In terms of the charge to close the manufacturing facilities, how much of that will be cash?

Give us a second on that.

About 600 will be non-cash.

600?

Of the 1.6 million.

Yes.

Oh, 600,000. (Multiple speakers). Will be -- I'm sorry, what?

600,000 will be non-cash and 1 million will be cash.

Okay. Another --?

A significant amount of that would be severance pay.

Another minor question here -- I got interrupted when I was listening to your comment about the tax credit for the repatriation. Did you give an actual number, how much taxes will go down?

Yes, 3 million.

Right, a $3 million reduction in the income tax expense for the fourth quarter.

Going back to the cost savings from realigning the sourcing, we have already seen you change your sourcing in Womenswear. I mean, are the forthcoming improvement in margins going to be consistent with what you have already done in Womenswear? Or can you sort of describe the outline of the elephant?

The facilities were basic manufacturing facilities of classification products. These were pants factories in the Dominican Republic, which for the benefit of timing with 807 and such. And with customers like Lands' End paying premium for the process of service and quality, those facilities were quite beneficial to the strategy of the group at the time. It is just not the strategy. It is about price and quickness to market, in terms of overall quantities, not replenishing quantities. And the effect of service has become less of an advantage for us.

So it isn't a black and white of I'm making a garment here, and I'm going to make it cheaper someplace else and so here is my benefit. Some of these are businesses that we may not be in and supplying as we move forward. So it is not an elephant that is black or white.

But it is a continuation of the change in our business model from being principally a manufacturer to being mainly a brand manager and, marketer. And it is something we have been about for quite some time, and this is sort of the final vestiges of the manufacturing issues.

Well, then, what is the expected life of the remaining -- what is it, two facilities?

They have both got specific needs right now. One of them happens to be sort of the manufacturing headquarters of our tailored clothing operation. It is the only wholly-owned factory they have. It is in Merida, Mexico. The other is a dress shirt plant in Honduras, which benefits from a short supply fabric advantage. And also, we have a custom fit program there that would be hard to duplicate elsewhere.

So it is specific needs for them. Will they last forever? Doubtful, but for the moment, there is a reason for being for both of them.

Hicks, can you bring us up to date on -- we know your Target business is doing extremely well. Can you bring us up to date on Lands' End and Wal-Mart and/or any other private-label programs that are out there? Any new initiatives beyond what we already know at Solitude, nick(it) and Orvis?

Well, Mike just touched on the Lands' End situation, where with the new ownership structure out there, the priorities are a little different than they have been historically. So that sort of changed the way we are trying to position ourselves with that business. And that is part of this issue of these plant closings. As it relates to Wal-Mart, it has been -- and we touched on this briefly in the last call, but I think the that that they are making attempts to upgrade their apparel offering and make it more fashionable, as opposed to just basic items, fundamentally plays to the strengths that we have, in terms of design and service and so forth.

But have you won and/or are you in negotiations for some of these newer programs, with respect to their --?

We're in dialogue continuously. But we don't have any big announcement to make today.

Tony, not to leave you out, can you define the split between Tommy Bahama Wholesale Tommy Bahama Retail? Are they both up 10%? Because I know they are roughly 50/50. Or is retail (multiple speakers)?

Scott, have you got that at your fingertips?

Oh, yes. Actually, the retail portion is slightly bigger than the wholesale portion at this point. But I think what we can tell you it is that we are experiencing increases in the wholesale business. Obviously, as we add stores and have same-store sales growth, the retail business has that organic growth. Wholesale, for a couple of seasons we have been relatively flat. But Tony, you might comment on the fall booking situation.

Actually, our fall bookings were quite strong. I think, again, there is some of that impact of the cycle of scarcity is starting to fit in with a lot of our retailers, who are recognizing that there is not a lot of inventory sitting there waiting for them. If they are not looking it up front, there's not going to be product. So we were very pleased with the results of our fall bookings throughout the Company.

Up single digits, or --?

I think up low double maybe.

That's accurate.

Eric Tracy, BB&T Capital Markets.

Sorry, not to beat this, but just in terms of the guidance for Q4, again, just a little bit of clarification. So roughly $0.11 from the Ben Sherman are sort of ongoing operational, and then a net sort of $0.12 of non-recurring items, is that accurate?

$0.12 up.

Correct.

Yes, that is correct.

Okay, I just wanted to clarify that. Tony, just on the Tommy Bahama, obviously tremendous margin expansion over the last really three quarters. I just wanted to see what the opportunities going forward are, to continue that?

Well, to continue that growth rate would be difficult, obviously, but as the balance of retail stores continues to grow, that will have its positive impact on us. I think the ability for us to expand the brand into some additional product categories clearly will serve our purposes well. And as we have mentioned before, if we can see any kind of a positive turnaround on our Women's side, the opportunity for margin expansion there is significant.

Okay, and then, just in terms of the store openings, sort of the planned unit growth?

We continue along the path of somewhere between let's say seven and ten, depending on the sites. We are more obsessive-compulsive about location than we are about the number of stores we open.

Right. Any kind of updates on the ultimate saturation point there, or --?

I would tell you that we are at -- the level we are, we are not there yet.

And then, just in terms of layering in some of the Tommy Bahama Relax, I know we talked about this in the past, just in terms of there is no cannibalization of the core business, but sort of how that is working with retailers in terms of complementary. Do you see the pie growing much more so than them allocating dollars elsewhere?

The answer is that Relax is an extension, or almost a redevelopment of a product that we actually were doing when we started the Company. The impact of silk in our Company over the last seven years has been significant, and it was coming at the cost of our ability to develop other product, and frankly, to place other product. But I think as the brand has continued to grow in popularity and consumer awareness, our ability to expand product categories and fabric bases has come along with that. And so, we see the Relax brand as a natural expansion of our existing consumer's wardrobe. If you went to look at the more casual sides of his wardrobe two years ago, you probably would not have seen a lot of Tommy Bahama product there, because of the importance of silk to us. But as we have introduced Relax washed cottons and things of that nature, it has clearly given us an opportunity to grab another piece of the wardrobe. I don't know if I answered you fully there.

No, no, absolutely.

Yes, it is definitely an incremental business for us.

And then, just Hicks, maybe lastly if you could just touch on the Womenswear, the private-label business -- again, obviously getting pretty robust traction within the Target's and Wal-Mart's of the world. Do you see that continuing? How do you see the landscape sort of evolving, in terms of them still focusing on the more fashionable type product?

Well, that is sort of our niche and our reason for being, so I don't see any real change in that. We are certainly not going to try to go back and make commodity product for those people. That is a no-win strategy for us.

No, I guess I was just -- in terms of you seeing that trend continuing, that they are absolutely trying to go a little bit more upstream?

Yes, well I think this Go International program for Target is a perfect case in point of what they are trying to do, as is Metro7 for Wal-Mart. So yes, and to date, Target appears to be pleased with the way the Luella Bartley one has worked for them, and they've got a number in the pipeline behind it. So I think we definitely will see a continuation of that.

Clark Orsky, KDP Asset Management.

Just on the cash flow, Reese, of 70 million for the year -- you should have some pretty strong cash flow. Any thoughts on what you're going to do with it? Pay down the revolver or any other investments?

I think obviously the first thing we will do is reduce the revolver, just as a matter of practice to keep our debt as low as possible and minimize cash balances. I think beyond that, we have used it over the last two years to raise our dividend actually three times in three years. And we have been fairly vocal about evaluating opportunities to expand our brand portfolio, and are looking for lifestyle brands that might become available out there.

And what is the availability on the revolver now?

We have got somewhere around $80 million in debt and about $100 million in -- a little over 100 million in receivables, which would put us at availability of somewhere between 80 and $100 million.

By the end of the quarter, it will be significantly more than that.

That is right. The fourth quarter is a strong cash flow generation quarter for us. So the debt will come down significantly over the next two months.

David Glick, Buckingham Research Group.

Tony, I was wondering if you could comment on the Nordstrom Tommy Bahama business? Obviously, that is a big customer-developed business. Are they part of that low double-digit increase in bookings, or is it more coming from Federated and some other less-developed customers?

No, actually, I think our business with them continues to expand. We have, I think, proven ourselves to that account over the years, to the extent that when we do launch new concepts, they are a very receptive partner. And so, the opportunity to expand that we are seeing from Tommy Bahama Relax is their perception, as well.

So you will continue to see good, solid growth in the Nordstrom business?

We believe so, yes.

And Hicks, just quickly, for Q4, the outlook on the Menswear business -- excluding Ben Sherman, obviously; that clouds the picture a little bit. You have a lot of initiatives going on in private-label and a lot of exciting things happening in the Menswear business. Can you give us a sense what to expect in sales for Q4, excluding Ben Sherman, in Menswear?

We have not broken that out, David, specifically for reporting purposes. But in each of the segments in Q4, the dress shirt segment and the sportswear segment as well as golf, our track has been pretty consistent with some of these new initiatives, and we anticipate that continuing.

(OPERATOR INSTRUCTIONS). Susan Sansbury, Miller Tabak.

Two other questions. One, the currency impact -- can you be specific in terms of sales and EPS?

Well, Scott, do you want to take that one?

Yes. On sales, it's about 2.5 million on sales for the quarter. And it is roughly $300,000 on our operating [profit].

Are those the numbers that we should apply to the fourth quarter, as well?

I guess it depends. Last year, the exchange rate really peaked in the third quarter, and then started dropping back down some. So it is obvious that we don't have a crystal ball on what the exchange rates are going to do.

What about the year to date, or was the third quarter the only time where this became a bigger reportable number?

It was $4.5 million in sales for the year.

And the net income impact?

About 700.

700,000.

$700,000, yes.

Next question. Royalty income is being affected by currency, as well as the macroeconomic issue in the UK you mentioned specifically. I take it -- is it going to continue in the fourth quarter at that same rate of decline? Do we have any new product initiatives, any new licensings agreements -- Tommy Bahama and/or Ben Sherman -- in the works? Or is it going to be launched in the fourth quarter? I guess not. You would not launch them in the fourth quarter. That was a dumb question. But anything going on a go-forward basis?

I think Mike can shed some light to that, because the decline in the third quarter was pretty much entirely in the Ben Sherman issue, and it was a bit of an aberration, which I think Mike can shed some light on.

Yes, Hicks is correct. The third-quarter miss that we are reporting is entirely in the Ben Sherman -- in the Group. But for the nine months, the licensing income for the Ben Sherman Group is actually up, and the forecast remains through Q4 that it will be up, as well, in total. So it really just became a bit of a flow and a timing issue, in terms of how things came in this year versus last year. But overall, there has not been a significant impact, as there has not been a significant impact in the UK Ben Sherman business either. The brand is holding its position both in our own businesses and in the license businesses, and including some new initiatives that are going on both in the UK and the US. So there is not a macro problem with it, and it really just is a bit of flow that we're experiencing here in Q3.

I think you lost me. What is the issue, then? Because I thought Hicks said, or you said that licensing was down, it was mostly UK-related and it was a combination of currency and the fact that the licensees businesses were down.

They were in the third quarter, but in the nine months year to date they were up, and they will be up again in the fourth quarter. So we think it was more of a timing issue. Now, that does not -- we do have the issue of the currency translation. And that has affected us all year, but even with that negative impact, we will be up for the year in our royalty income from the UK.

Any new licensee agreements in the works in the pipeline for Tommy Bahama and/or Ben Sherman that you can discuss?

I think that last part was where you sort of put me at a disadvantage. There are obviously a number of things in the works, but I don't believe they are at a point where we can discuss them.

We would be in the same position with both the UK and the US Ben Sherman businesses.

You might comment on the dress shirts and clothing and ties for Ben Sherman in the US.

Yes, they are not new. We have discussed that we're doing them internally through our own license, and they have performed exceptionally well out the door at retail. So those are contributors into the Ben Sherman licensing segment.

One other point I'd like to make that we have not really spent any time on, but within our Company, there is a brand expansion under the Indigo Palms line, and that line also is starting to develop some conversation on licensing, based on its success.

So we have a product expansion because of licensing, or you have added product categories?

No, I'm telling you that the Indigo Palms brand has become a desirable enough brand in the market that there are people now in negotiation with us to license that label.

That is wonderful. Good for you. Now if we can only work on the Northeast quadrant.

You mean for Women's Indigo Palms?

No. Men's. The [thin, long] retail store, dual gender, something close to the major Metropolitan area of New York, that would be nice.

We're working on it every day.

You're working on it every day?

Every day.

You are wonderful. Thanks ever so much.

This does conclude today's Q&A session. At this time, I would like to turn the conference back over to your host, Mr. Hicks Lanier, for any additional and/or concluding comments at this time.

I really don't have any comments, other than thank you for your interest and attendance today. We think we have laid out our situation as clearly and concisely as we can, and I think we are all pretty optimistic about what the future holds for us. So thanks again for your attendance, and I look forward to talking to you. I guess our next conversation will probably be late May/early June, with some guidance for our fiscal '07, which begins in the first of June.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. At this time, you may now disconnect.