Oxford Industries Inc (OXM) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to today's Oxford Industries Incorporated fourth quarter earnings conference call. At this time all participants are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder today's conference is being recorded. And now, I would like to turn the conference over to Mr. Reese Lanier, Senior Vice President and Treasurer.

Thank you, Justin. And good afternoon, everyone. Thank you for joining us today. Before we get started, I would like to point out that some of the statements made on this call as a 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 or implied by such statements due to a number of risks and uncertainties, which are described in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on August 15, 2006 and in our subsequent filings with the SEC.

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. And now, I would like to introduce today's call participants. With me today are Hicks Lanier, Chairman and CEO; Tony Margolis, CEO of Tommy Bahama; Tom Chubb, Executive Vice President; and Scott Grassmyer, Controller. Thank you for your attention and now I would like to turn the call over to Hicks Lanier.

Thank you, Reese. Good afternoon, everyone and thank you for joining us today. Before we begin, I would like to point out that beginning with the fourth quarter of fiscal 2007, we have broken out our business into four operating groups, which we believe provides greater clarity and facilitates a better understanding of our different businesses. Effective with the financial results reported today, our four operating groups are Tommy Bahama, Ben Sherman, Lanier clothes and Oxford apparel.

I will start today's call with a brief summary of the operational highlights for the fourth quarter of fiscal 2007, which ended on June 1. Our consolidated net sales for the fourth quarter of fiscal 2007 were $287 million, which was flat with last year and consistent with our previously-issued guidance. Consolidated the gross margins for the fourth quarter increased to 41.6% from 39.4% in last year's fourth quarter. This expansion in our gross margins was due primarily to the growth in the Tommy Bahama business as a percentage of our total sales.

Selling, general and administrative expenses increased as a percentage of net sales to 31.7% in the fourth quarter, from 29.6% of net sales in the fourth quarter of fiscal 2006. The increase in SG&A expenses as a percentage of net sales was due to the growth in Tommy Bahama as a percentage of our total sales and to a greater number of Company-owned retail stores. Fourth quarter royalties and other operating income increased to $6.2 million from $3.1 million in last year's fourth quarter due to an increase in sales of licensed products and a $2 million pretax gain on the sale of a distribution facility in Oxford apparel.

Fourth quarter operating income increased 13.5% over last year's fourth quarter to $33.1 million, reflecting the increase in gross margins and higher royalties in other operating income. Diluted net earnings from continuing operations per common share for the fourth quarter were $1.08, compared to $1.02 in last year's fourth quarter. We benefited from $0.06 per share in nonrecurring tax adjustments, which provided a lower tax rate in the fourth quarter of fiscal 2007.

Excluding nonrecurring items, our adjusted diluted net earnings from continuing operations were $0.98 per share for the fourth quarter, compared to $0.92 per share for the fourth quarter, fiscal 2006. Our performance in the fourth quarter came in as expected with the exception of tailored clothing. On an operating basis, our financial results were within our expected range before consideration of the tax benefit.

I would like take a moment to walk you quickly through each of the operating groups and provide you with some color on how we view the position and prospects for each of our operating groups. We were encouraged by the way we ended the year in Ben Sherman, which concluded with fourth quarter sales growth of 7% and operating income of $2.8 million. Our strategy has been to steadily elevate the branch UK product and distribution, which will result in the launch of a unified global sportswear collection for spring, 2008. This will enable us it to present a consistent brand image in all of our markets and to capture efficiencies in design, sourcing and other areas of our business.

In the U.S., we have focused the collection and narrowed our distribution in an effort to generate stronger performance in retail and for ourselves and our retail partners. While this has taken a bit longer then we had expected, we are certainly encouraged by the recent results. We continue to advance our international and retail expansion strategies. The Ben Sherman brand is receiving prominent placement at retail in more then 30 international markets around the globe.

To supplement Company-owned retail stores in the U.S. and the U.K., we are establishing relationships with international partners with local expertise and the financial wherewithal to support our retail and wholesale expansion plans for Ben Sherman. At year-end, we had a total of 19 Company-owned stores and licensed retail stores and plan to add additional owned and licensed stores in fiscal 2008. In fact, just this past Saturday, we opened our store in San Francisco and were quite pleased with the opening two days' results.

While we believe that business is much stronger and better positioned as a result -- in Oxford apparel, which consists of branded and private label dress shirts, sportswear and golf apparel, we have taken aggressive steps this year to cut costs and rationalize underperforming businesses. For the fourth quarter, net sales declined 15% from last year to $72.4 million.

However, operating income increased 184% to $7.2 million, aided by a $2 million pretax gain on the sale of the distribution facility. While we believe that the business is much stronger and better positioned as a result of our refocusing efforts, we expect to see the impact extend into fiscal 2008. Oxford apparel sales are expected to be down by approximately $65 million for 2008 but operating margins should be higher, yielding operating income that should be roughly flat with fiscal 2007.

In Lanier clothes, our tailored clothing group, we had an extremely difficult quarter in fiscal 2007. The tailored clothing markets experienced weak consumer demand, particularly in the moderate channels of distribution. The weak demand at retail resulted in missed sales [plans] high markdowns of seasonal merchandise and significant increases in our replenishment inventory. The impact on our financial performance was profound.

Net sales for Lanier clothes declined 8.5% to $165.2 million in fiscal 2007 from $180.4 million in fiscal 2006. Lanier clothes' operating income declined 75.7% to $4.2 million in fiscal 2007 from $17.4 million last year. As we move into fiscal 2008, we believe our tailored clothing business is well under control. Even without improvement in market conditions, we expect to work through our inventory position and deliver a dramatic improvement in operating income on a relatively conservative increase in net sales.

Before I turn the call over to Tony Margolis, I would like to mention that we just celebrated the fourth anniversary of our partnership with Tommy Bahama. The combination has exceeded our expectations in just about every respect. Tommy Bahama's contribution to our success has been enormous and represented approximately 40% of our net sales and approximately 70% of our operating income before unallocated corporate expenses in fiscal 2007.

Not only has Tony Margolis provided strong leadership in the business, but he has been the driving force behind the development of the next generation of senior leadership that will take Tommy Bahama to the next level. We are very grateful to Tony's efforts and look forward to his continuing contributions. I appreciate your attention and now I'll turn it over to Tony.

Thank you, Hicks. And good afternoon, everyone. We continue to be extremely pleased with the performance of the Tommy Bahama brands. Our sales increased 13% for the fourth quarter and 14% for the full year, as compared to the same periods last year. Our sales growth has been driven by strong consumer demand for our core Tommy Bahama, Indigo Palms, and Island Soft collections, as well as by the more recent introduction of Tommy Bahama Relax, and Tommy Bahama Golf 18 and our women's swim line.

Our operating income increased 14% in fiscal 2007 to $81.5 million, from $71.5 million in fiscal 2006. Driven by sales growth and a reduction of intangible asset amortization expense. Our retail strategies continue to serve us well. We added seven retail stores and two compounds, one in Hawaii and one in Florida this fiscal year. Bringing our total store count at year-end to 68. We have expanded our retail formats to include a men's only, a women's only, and a Relax concept, which are still in the development stage but could provide us with new opportunities to expand our presence at retail.

Our newest direct-to-consumer initiative is the upcoming launch of the Tommy Bahama eCommerce Website. We believe that this site will give us an exceptional opportunity to interact with our target consumer, market the Tommy Bahama lifestyle brand to its fullest, and extend the reach of our brands. This is a natural evolution of of the Tommy Bahama brand and we're very excited about the opportunity. Thank you for your attention and now I would like to turn the call over to Tom Chubb.

Thank you, Tony. Good afternoon, everyone. As Hicks has already touched on the fourth quarter and segment results, I'll walk you through the consolidated results for the income statement, balance sheet and cash flow statement for the full year. Our consolidated net sales increased 1.8% to $1.129 billion in fiscal 2007 from $1.109 billion in fiscal 2006.

Sales growth of 14% in Tommy Bahama offset sales declines in our other three operating groups. Consolidated gross margins for fiscal 2007 increased to 39.7% from 38.9% in fiscal 2006. The margin increase was due primarily to growth in sales of Tommy Bahama products as a percentage of our total sales. Selling, general and administrative expenses for the year increased to 31.6% of net sales from 30.6% of net sales last year.

Tommy Bahama, which carries a higher expense structure then our other businesses, represented a larger percentage of our consolidated sales in fiscal 2007 than in fiscal 2006. Intangible asset amortization expense for the year declined to $6.4 million from $7.6 million in fiscal 2006. The amortization of intangible assets acquired in recent acquisitions was greater in the periods immediately following the acquisitions than in more recent periods.

For the full year, these noncash charges reduced our diluted earnings by approximately $0.24 per common share in fiscal 2007. Royalties and other operating income in fiscal 2007 increased 25.2% over fiscal 2006 to $16.5 million, driven primarily by an increase in sales of licensed products and a gain on the sale of a distribution facility in the fourth quarter. We benefited from a lower tax rate for the fourth quarter of fiscal 2007 due to a reevaluation of and change in management assumptions under APB 23.

This change in assumption allows us to report our foreign tax expense in a way that more closely correlates with the actual taxes paid. For fiscal 2008, we expect our tax rate to be in a range of 34% to 34.5%. Diluted earnings from continuing operations per common share were $2.93 for fiscal 2007, compared to $2.88 in fiscal 2006. Excluding nonrecurring items, adjusted diluted earnings from continuing operations per common share were $2.95 in fiscal 2007, compared to $2.86, fiscal 2006. Attached to our press release, issued earlier today, is a reconciliation of adjusted to GAAP diluted earnings from continuing operations per share that details these nonrecurring items.

Turning to the balance sheet. Accounts receivable at year-end declined 4% to $138 million from $144 million last year due to a greater proportion of retail sales and the timing of sales within the quarter compared to last year. Total inventories at year-end increased 11% to $137 million from $124 million at the end of last year. The increase was driven by higher tailored clothing inventories due to lower then planned sales and higher Tommy Bahama inventories to support retail store growth.

Cash flow from operating activities in fiscal 2007 was $59.6 million, compared to $81 million in fiscal 2006. The decrease in cash flow from operations was primarily due to additional investment in the inventories compared to the prior year. Our Board of Directors declared a cash dividend of $0.18 per common share payable on August 31, 2007 to shareholders of record at the close of business on August 15, 2007.

As noted in our earnings release, we remain comfortable with our fiscal 2008 full year guidance. Our first quarter sales and earnings per share, however are expected to be at or slightly below our previously expected guidance ranges, due to the anticipated deferral of shipments from the first quarter into the second quarter. Thanks for your attention and now I'll turn the call over to Hicks Lanier for some closing comments.

Thank you, Tom I'll summarize by saying that we accomplished a great deal in fiscal 2007. Tommy Bahama continues to demonstrate that it is a powerful lifestyle brand with clear opportunities for long-term growth in sales and earnings. I believe the Ben Sherman business has turned the corner and is on a path to become Oxford's first lifestyle brand with a truly global reach. At our historical operating groups, we've have taken aggressive steps to reposition these businesses with a focus on key product categories and branded initiatives. We will continue to manage these businesses to maximize cash flow. I would like to thank you for your attention today and continuing support. And Justin, we're ready to take questions now.

Thank you. (OPERATOR INSTRUCTIONS) We have a question from Robin Murchison, Suntrust Robinson Humphrey.

I wanted to ask you just a few questions here. First is, there was no call out in Tommy Bahama women's but for swim. And the missy sector, of course, is under a lot of pressure. I'm wondering what kind of traction you're making with the design there or -- and if you're able to -- I'm assuming it remains under pressure. Are you able to discern whether it's a design process on your part or just an overall weakness in the segment?

Robin, to be candid, I would think it's probably both. I think we have turned a design corner for ourselves in the women's division. As you may recall the woman that was responsible for building the swim platform that we have took on responsibility for the sportswear lines as well. And her performance has certainly, I would say redirected the line to a healthier place than it has been for many years. The process of rebuilding those relationships is clearly going to take time. I think the results that we are seeing in our own stores indicates that we have some clearer vision.

We have downsized the presence of women's in our stores and we're starting to see the kind of sell-through rates that we would hope to see, but clearly we've got a tall ladder to climb back up again. In light of the fact that the business that we're functioning in is also struggling, it just make it's harder for us to get those inroads that we're looking for to rebuild relationships with third party retailers.

Let me add just a bit to that, Robin and tell you emphatically that our swimwear business in women's and related products to swimwear like cover-ups and sarongs and so forth has been terrific. So we have expanded that business fairly significantly in the last year.

Okay. Good to know. Should we also assume that Tommy, for FY '08, I think on the last conference Tony you indicated mid to high single digit grown on the top line.

We are expecting to hit the $0.5 billion mark, up from the $465 million that we showed in the breakout in the release.

Okay. Thank you for that. And then also, what is the rationale behind putting the Ben Sherman tailored part in the Lanier segment? Have I missed something or was it always there?

It's always been there and in the U.K. we have a licensee that does the tailored portion. And in the U.S. rather then shipping stuff from the U.K. over here, we're letting Lanier do the tailored component.

All right.

Which they're well qualified to do.

So nothing new there?

No, it's just what it's been.

The asset amortization, the $0.24 in FY '07, can you have the -- do you have the comparative for FY '06?

It's about [$0.28] now, it was about [$0.28] last year. It went from $6.4 million this year and $7.6 million last year.

Okay. And then just one last question. Hicks, can you characterize the retail environment out there? Obviously, it's looking pretty sloppy. Just wondering if you have anything from your perch that you can add to --?

I wish I had a lot of good news for you.

You did.

But the retail environment is definitely sluggish and I think we all know the factors which have led to that. So I won't bore the audience with the repetition there but it's pretty sluggish. And we're also at sort of at a dog-day of summer time of year. I would say for the last three or four months, it's been sluggish at best.

Congratulations on your performance and like the new divisional setup. Thank you.

The next question comes from Jeff Klinefelter with Piper Jaffray.

Yes, I have a couple of questions for you. Hicks maybe starting out with the Ben Sherman brand. It's encouraging that you're seeing a turn in the business and that you're anticipating that to continue. Could you step back and give us an updated look at -- in the U.S. market what is sort of the current distribution or number of doors? What's your strategy for expanding that over thos next fiscal year? So we have a sense for sort of the growth of the U.S. market. And then, it sounds now like it's improving in the U.K. and other European markets. That's been even more -- had been very challenging I think over the last few years in terms of it become in pricing degradation and brand degradation. So, maybe give an update there on distribution and planned.

Well, let me start with the U.K. since that's the largest segment of the business. When we bought Ben Sherman, the brand in U.K. was very differently positioned than it was on the rest of the globe. And it was more towards the blue collar moderate end of the business and the distribution was that way. We started after the first year or so to really analyze that distribution and concluded that it was not quite where we thought we wanted it for the long haul. And we have undertaken a very difficult task to reposition it upwards and it's been a combination of new distribution but obviously a significant difference in the product we're offering too.

We have upgraded it from almost very vantage point, from starting with fabrications and nice details and fashionability and everything to try to get it in line with the rest of the world. We've had it established in the U.S., Canada, the continent of Europe surprisingly, Middle East, Australia, New Zealand, the Far East. All of those markets had it much more elevated than we had it in the U.K. So we've been at this process for awhile. Just in the last six months, we've taken some pretty serious steps to put our money where our mouth is, so to speak, and be willing to exit retailers entirely to get where we needed to.

We've been rewarded with that by getting into House Appraisal, which is at a higher distribution level than our top customer over there . We've got them to agree to be willing to go to higher price points and present the product in a much more upscale fashion than has been the case. So we're very excited with where we're going. We have dropped off some of the lower tiers of distribution and that means our growth rate in the U.K. we're probably going to be treading water at best for a year or two. But when we accomplish what we want because I think everybody's on board that this is what we need do. We think we'll see some meaningful growth over there.

Concurrently in the U.K., we're expanding our own stores pretty aggressively. And particularly in the last year, we've really gotten traction in same-store sales comps from a year ago in these Company-owned stores. So we're pretty pleased with the way it's going there. It's a little frustrating in that you don't see it in the numbers as fast as you would like to but we're just absolutely certain we're on the right path there.

And we're beginning to really get traction in the rest of the world. In the U.S., back to your question on the U.S., Jeff, we had a sales decrease in the U.S. this year. You might remember that when we bought Ben Sherman, we inherited in the U.S. the [B Sue] brand of both jeans and footwear. We have transitioned that license back to the parent Company for the U.S. and it has peaked in the U.S. alone, and this is the jeans part, it was about a $9 million or $10 million business. So we've got to overcome that volume shortfall.

We also have to overcome in the U.S. and one of the reasons the figures are as weak as they are, both this year and last year, is we had a huge cleanup to do in the U.S. and that has been the principal factor in the depressed earnings of Ben Sherman for the last two years. This fourth quarter was sort of a similar event for us because I think it did show that we're turning the corner for that and we feel that we're the product is right. It's been retailing for the last couple of seasons. It's in the right stores.

Nordstrom's is still by far our biggest customer. We're in the right specialty stores. Our own retail stores are performing, as I mentioned the San Francisco thing we think we've got a perfect location. Our Soho store has been having tremendous comps this year over last year.

The store we have in Las Vegas, which I saw at the last Magic -- Magic before the last, I guess it was. You might remember that they were doing a lot of construction there with Planet Hollywood across the street and everything. That construction is supposed to be finished in September so we think that will really pick up. So, we're pretty confident that we've got a lot of things moving in the right direction there.

Okay.

And just not to beat you to death on this one but probably the most encouraging thing about Ben Sherman is what's happening in the rest of the world and the fact that our retail partners are stepping up to bat opening stores. You may remember that we've had three stores in Australia, we'll be adding an additional store there. We've got stores now opened in Manila, Singapore, Abu Dhabi, Bulgaria. We have plans to open up stores in the next 12 months in Capetown, South Africa. Beijing, Shanghai, Hong Kong, Kuwait.

So we've got a lot of pretty exciting things. We're dying to find the right location for Germany where we're doing that business ourself and we thought we had one and it slipped through our hands. I think H&M got it but we're pretty aggressive in that rollout of stores and we've got the metrics and the stores work and so we're pretty enthusiastic about it. It probably won't show up much this year as it will the year after but we really think we're on the path to build a true global lifestyle brand there.

And so your strategy in terms of Company-owned versus licensed or partnered stores in the international market is what again?

Well, it's in markets that we do the wholesale distribution ourselves, we'll do the retail stores also. Where we will have partners is in parts of the world that we don't feel we have the expertise for either part of that now. But as you know we did do Germany ourselves and it's taken us three years to get where we want with being in the right stores. You might be interested to know that GQ Magazine in Germany had Ben Sherman as their lifestyle brand of the year. So, it's some indication of the progress that we've made in that market this year.

Yes, that's great. In addition, on Ben Sherman, what do you think about the next couple of years or two to three years? The U.S. versus non-U.S. What sort of growth rates do you anticipate getting out of this brand or how are you thinking of your two or three year plan for top line and for Op income growth? As a follow-up to that, just to add on for you and Tony, is also just curious on Tommy Bahama with the number of growth levers you have there and the thinking over the three to five years, what do you expect that growth to be?

Let me we finish up on Ben Sherman and I'll let Tony pick up the part on Tommy Bahama. But we currently have 19 stores in Ben Sherman and probably open six or eight during fiscal 2008. But if you go out to like '10 we would expect that total to be up in the 50 neighborhood if not higher. So that's obviously a key process. We do have Websites open in both the U.K. and the U.S. in Ben Sherman and we think we'll continue to sophisticate those. We're not at a point where I think we can give you something to hang your hat up on as far as growth rates in total because the biggest part of the business is still in the U.K. And we are planning to rationalize a good portion of that business. And at this point, we think we'll add on enough new business to offset that in the U.K. but it will moderate the total growth rate.

Okay.

Tony, you want to tackle the --?

Well, I think we are continuing, first of all, with a moderate growth plan. As we've discussed in the past, we are, I think judicious, is the word I'm going to use, about where we open sites. We're committed to trying to keep a fine balance between our relationship with our third party accounts and being a retailer ourselves. I think that from my prospective, one of the most exciting vehicles that we're looking at are what I'll define as these stand alone men's only or women's only or relaxed concept stores, where we're dealing with space that is not as large, something for the relax concept.

Something in the neighborhood of a 2,500 square foot store versus a 3,500 to 4,000 square foot the store that the Tommy Bahama line requires. And it also opens an opportunity for us to target specific communities like beach resorts and things like that where the concept is clearly fresh and slightly more youthful then the original Tommy Bahama store. So it does open an opportunity for us to expand at different levels of retail distribution, which I think is a very important growth opportunity for us. I don't know if I've answered your question properly but I think that's the --.

You might add, Tony, that as far as international, we're pretty well-developed in Canada and we're beginning to branch out and I think you've got a new licensee distributor on that front.

Yes, we just recently signed an agreement with Australia and they are starting up in the Melbourne Gold Coast area -- I'm sorry, not Melbourne but Brisbane Gold Coast area and we have high hopes that that will be a successful future Tommy Bahama international distribution agreement. I think the key for us is to continue to stay focused on maintaining our position in the U.S. and then slowly and surely developing mirror images of that in markets throughout the world that are capable of selling product that we produce. As the line evolves and we've discussed this at greater length also in the past. As our lines evolve to be broader and less focused on what I'll call a tropical print vision, I think the brand becomes even more viable for international distribution. So we're excited about it but we're still taking a relatively slow sort of crawl walk/run approach to international.

Okay. Thank you. That was very helpful. Last question, Hicks, is on your other two divisions. I agree very helpful in how you've reclassified that. Should we read anything into this or what should we expect in terms of your strategy to fix or change the structure of the Company how much time are you giving yourselves?

I think you've seen clearly in Oxford apparel that we think less is more. And we are willing to shed the businesses that are not meeting our financial targets. And as we said, we had a very significant improvement in the operating results there.

Significantly, aided by what we all our refocused project, which we've been at about eight months, and what we've done is really singled out the businesses that we think have legs going forward and can meet our financial targets. And we've said on our guidance call a couple of months ago that we expect it to drop another $65 million in volume and have approximately the same operating profit, which means we're getting the operating margins up to a point that they're just a lot more viable then they have been. And we're trying to structure the businesses so where -- so that they've got ingredients to them that differentiate us in some way, so they perform whether it's a brand that allows us to escape the commodity product trap and we're very intent on that.

The strategy for Lanier clothes is not the fact the brands component of Lanier clothes, whether it's owned or licensed brand, is a lot greater then it is in Oxford apparel, although Oxford apparel is closing the gap rapidly. We had just a sort of year from hell there. It is so different from our 20 year performance in that particular operating unit. We just consider it an aberration. The conditions in that market, as we've talked throughout the year, have been awful.

And I can't honestly say that we see much of an improvement in the general conditions there's but I think what we do have is a situation where I think we will be able to manage through it a lot better then we encountered this past year. Obviously, a big part of our miss was a result of the Federated May merger and not so much that we lost doors. It's just that the May doors that they continued with just didn't perform as they had hoped and as they had told us to prepare for. So, that was a huge issue for us this past year and I don't think we will get snookered on that one again.

But even a place like JC Penney where we have been their core supplier for almost forever, their business in tailored was down dramatically this past year. It is what it is. We think we'll see a meaningful step up in our profitability this year. A more modest step up in sales, a significant reduction in inventory that's our principal objective. And to put your mind at rest, the seasonal inventory that we carried over was properly valued for disposition and the bulk of that inventory, however, was on continuing replenishment programs. Most of them separate programs where they were created just because they didn't pull to the projected level.

But we have a plan to work that off during the course of this year and we're getting getting monthly reports on how that's going. So we'll be monitoring that one quite closely. And obviously, in order to accomplish that we're having to cut back our production significantly, our input but that's part of the medicine.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) Moving on to Clark Orsky with KDP Investment Advisors.

I may have missed it but can you talk more about the deferral of shipments that's mentioned in the press release?

Well, I think it goes back more to the question of how -- one of the retail conditions right now and I think they're sluggish and I don't think a lot of the retailers have cleared their spring/summer merchandise in order to take the fall product in on a timely basis. So we're getting some pushout beyond the end of August on fall merchandise that we would have shipped out in August. It's not like we've lost the business, it's just a pushout.

Any particular channels or product lines you want to kind of call out that are being affected more than others?

I would say across the board pretty much. It's pretty much the general scenario out there. And we've got a bit of an aberration this year because our first quarter, the way we had it planned and budgeted was relatively weak anyway and the second quarter was pretty good. So, this is just going to magnify that differential between first and second.

Okay. Appreciate that.

Next question from David Glick with Buckingham Research Group.

Good afternoon, Hicks. If you could give us a little bit more color on the tailored clothing environment? Obviously, to go from down in mid teens to stabilizing next year is a big improvement. And just wanted to get your thoughts whether this is just a higher ticket item that the consumer might be pulling back on, a fashion issue, a lack of newness? Suit separate slowdown or maybe it's a brand portfolio issue? Just see if I can get a little better understanding.

Let me start with the last one first. I don't think it's a brand portfolio issue. I think we've got the best established matrix of brands that we've ever had and they're all positioned where they make sense so we're not eating our own lunch with them. So I definitely don't think that's the case.

I also don't think it's a product issue. If it was -- I would be thrilled if we could find out, yes, it's a brand issue. We've got the wrong brands. We've got the wrong product. But I think we're being objective in finding out that that's not the issue. It's just sort of a general malaise in this sector. And I think to your point, about being a relatively high-ticket item it's postponable. I'll latch onto that one as making sense to me.

And is the growth rate in suit separates declining because I know that's certainly helped the segment over the last few years?

Well, it definitely has and quite frankly that's where the bulk of our replenishment inventory is, is in that sector. I think one of the things that has changed is for a number years there weren't that many people in suit separates but now everybody is in it and at all price levels. And then the phenomenal of Target having suit separate is due to the last couple of years but they have them now.

Is the pendulum swinging back to nested suits?

I would think -- I don't think suit separates are going to go away because they make so much sense. What they don't give you the option to do is add a lot of differentiation of product. Most of the separates are reasonably basic. So I think to the extent that fashion drives the business, it will go back to nested suits. People are just looking for body cover and separates will continue to be a big part of it.

Thanks for that color. Appreciate it.

Next is Eric Tracy with BB&T Capital Markets.

Good afternoon, guys. Hi, Tony, maybe if we can touch on Tommy Bahama a little bit in terms of the growth on the wholesale side, maybe provide just a little bit more color as to the evolution of some of the sub brands, how those are helping to augment the core business? And then on the profitability of Tommy Bahama, sort of what levers you still have to pull in terms of expanding what has obviously been an already great margin expansion story over the last year? But just maybe some of the other opportunities, particularly as retail continues to become a greater percentage of the mix.

First part of the question would be that we are continuing to have pretty solid sales results in the Tommy Bahama brand. As I mentioned earlier in the conference call, we have been evolving that line over the last -- I would say two years to be a much broader assortment of product that doesn't revolve around tropical prints. And I think that move has served us well. Our customer base continues to clamor, is the word I would use, for more product. So, we're seeing solid -- the base business is solid and continuing to grow at a nice rate.

Adding to that, the success we've experienced with Relax, I think it's taken on a significantly larger part of the business over the last 1.5 year. It's really coming into its own. I think this current spring that the consumer has had a taste of a nice assortment of product and has responded well to it. We are showing fall and winter product in that collection, as we have this conference call, and the wholesale response to it has been quite strong. So, I think it's also helped us to sort of evolve out of the mindset that maybe the brand was just about spring and summer.

I think the Indigo Palms' line, which we haven't talked very much about in this conference call at all has really found a very, very strong following in the adult male market. Again, I think our women's business there has been minimal but the men's side of that business has found a very strong niche. It's an adult male consumer whose comfortable with jeans wear and understands the fashion trends but is not a slave to youthful fashion. And I think we've touched in and he's very, very content to come to us for product assortment.

I think the answer to the second part is that our margins -- we're not aggressively tweaking our margins at the wholesale side. But as we expand our retail presence and the percentage that retail represents to our business, because the retail division works on a higher margin, it's going to have a positive impact on our total performance. So, I think it's an evolving gentle swing in an up direction.

And then just on the wholesale again, to follow on to that. In terms of is the growth predominantly coming just from within existing accounts or is there because you've evolved the line creating some opportunities to expand?

A little bit of both is I think is an honest answer. We have -- when you introduce new product categories, obviously everybody wants to -- depending on for example, Golf 18 has been an opportunity for us to expand our distribution and has had little impact on our existing account base. The product line is separate. It's specifically golf-oriented product. And it's being sold to what I'll call green grass accounts that some of whom were Tommy Bahama accounts but very few in the grand scheme.

On the other side of the coin, the expansion of the Relax line, the expansion of Island Soft, and Indigo Palms has had a positive impact with existing accounts. We have opened a number of Federated stores in the last two years but have also been very judicious about that. And are actually repositioning where some have struggled with product, maybe because the presentation wasn't appropriate or something like that. We are in the process of repositioning with some of those stores to make sure that the stores that we do sell are successful with the product. And so, I would say that the growth is coming from

both experiences.

Hicks, just to clarify the discussion of the deferral of shipments short of being across the board but that it's predominantly within in tailored clothing and sportswear businesses or is it reaching in there to Ben Sherman Tommy as well?

Well, I think it would probably be more in it to the two historical businesses.

And just to answer your question about Tommy Bahama, because we flow product every month, it becomes very difficult for a store that tries to delay something. They are sort of -- if they did that, they would be getting goods that were already sold in the other stores and wouldn't be timely. So we don't see that at all.

Okay. Great. And then Hicks, just maybe lastly, turning to plans for uses of cash, obviously came up with a dividend again. Kind of your thoughts in terms of balancing and enhancing shareholder value? Be it through special dividends or potentially making acquisitions, understanding that the M&A environment is still pretty difficult out there.

Well, it appears to be changing.

This is very true. Very true.

I'll pass on that one.

That does conclude the question and answer session. I would like to turn the conference over to you for any additional or closing remarks.

Thank you, Justin. We appreciate everybody's interest and attention today. Hope we've enlightened some of the areas that had been a little fuzzy before. I think this new segment reporting will be easier for you guys to understand our business and easier for us to talk about it now. So we'll look forward to continuing that dialog. And with that, we have no other comments. Thanks, Justin.

Thank you, that does conclude today's conference call. Thank you for your participation.