Oxford Industries Inc (OXM) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Oxford Industries Incorporated first quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded. And now, I would like to turn the conference over to Ms. Anne Shoemaker, Vice President and Treasurer. Please go ahead, ma'am.

Thank you, Rebecca, 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 part of the prepared remarks or in response to your questions which are not historical facts, may 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 transition report on Form 10-KT filed with the Securities and Exchange Commission on April 1, 2008 and in our subsequent filings with the Securities and Exchange Commission.

A copy of this report is available online or upon request from Oxford's Investor Relations Department. Oxford disclaims any duty to update any statement. And now, I would like to introduce the call's participants. With me today are Hicks Lanier, our Chairman and CEO, Terry Pillow and Doug Wood from our Tommy Bahama Group, Tom Chubb, Executive Vice President, and Scott Grassmyer, CFO. Thank you for your attention and now, I would like to turn the call over to Hicks Lanier.

Thanks, Anne. Good afternoon and thank you for joining us to discuss our first quarter results, which we just announced. As you may have read, while we achieved our financial plan for the quarter and the business is fundamentally in good shape, the risk associated with the tough external environment have prompted us to moderate our expectations for the near future. Consolidated net sales for first quarter ended May 3, 2008 were $273 million, compared to $292 in the same period of the prior year. Earnings per share during this period were $0.59, compared to $0.95 in the same period of the prior year.

Considering how tough it was out there, we were pretty happy with our business performance. Not only were we in line with our guidance, we ended the quarter with inventories in very good shape, down 23% from the beginning of the quarter and 17% from the same time last year. In this sea of promotional activity, our gross margins were actually up a bit and cash flow from operations was very strong. The macroeconomic environment is worse than we had anticipated. As you read recently, other than the discount in price club distribution, May retail sales continue to be weak. We do think however, that this environment will turn at some point and that will benefit from it. We are dedicated to ensuring that we position ourselves well to both weather the current climate and to quickly improve its condition.

The key to our strategy is not to sacrifice our brands in any way to achieve short-term results. We will continue to make appropriate investments in Tommy Bahama and Ben Sherman to ensure that they are well-positioned for an improved environment. Our plan for the rest of the year includes continued, but more moderate marketing campaigns, measured and well thought out new store openings, and surgical expense in inventory control. I'll reserve some additional comments for closing. I will turn the call over to Terry Pillow who joined our organization on March 17, and became CEO of Tommy Bahama on June 1.Terry has done a great job in these first few months getting to know the people and the business. We are delighted to have Terry on board, and are very pleased with his transition to our organization. Terry?

Thank you very much Hicks. Tommy Bahama's results for the first quarter were in line with our expectations. We reported net sales of $129.3 million for the first quarter of fiscal 2008, compared with $131.8 in the same period of the prior year. The sales decrease was driven by softness in both our wholesale sales and Company-owned retail stores. Tommy Bahama's operating income for the first quarter was $19.5 million, compared to $26.5 million in the same period the prior year.

I think it's important to understand what is happening in our retail stores in this very tough environment. Our issue is a traffic problem. The decrease in traffic is affecting Tommy Bahama and our peers. That said, our conversion rates, dollars per transaction, and average retail prices are holding. And remember, we are a full price retailer. Taking the concurrent retail environment into consideration, we have been managing our inventories very conservatively. We also continue to feel the impact of our regional store concentrations in Florida, California, Arizona, and Nevada. What has been a plus for us in the past is now precisely what is disproportionally affecting us now.

We are continuing to have better results outside of these four states. For example, in Texas where the energy boom was driving a strong economy, we are performing quite well. We are also operating eight more stores and two more cafe emporiums than last years. For several quarters now, the lower sales had a deleveraging effect and frankly, we have taken it on the chin. The flip side is of course, when sales go back up, we will benefit in the other direction. For the first quarter, we also felt the impact of preopening expenses associated with cafe emporiums. These expenses were about $1 million higher in the first quarter than the same period last year.

E-commerce is a bright spot for the direct-to-customer business. We now have built our house file of addresses to over half a million names, and our email addresses to over 200,000. This is going to allow us to talk directly to our guests, something this company has done very little of in the past. This is an area we are going to discuss further in upcoming months. Women has performed well throughout the spring season in our retail stores and with our wholesale partners. Unlike much of the market, we have seen a good swim and swim-related product performance. We are going to build this on this success and invest in our women's business to develop a full line of women's resort brand.

In the first quarter, we recognized approximately $2.2 million in additionally marketing expenses over last year. Both our wholesale customers, and retail and e-commerce customers responded very well to our Santorini spring advertising campaign. At this time, Tommy Bahama does not have an international footprint that some of our competitors have recently benefited from. Our Australian licensee is going to open another two stores in the upcoming months, bringing their total to three. And with our license -- partners we operate six stores in Canada and two stores in [Nuebii]. With the success in these markets, we feel we have international opportunities in front of us and we are actively pursuing our options.

In closing, let me say I am delighted to be a part of the Tommy Bahama team and one of the clearly defined and best brands in our industry. With the strength of this brand and our team, I believe we have significant untapped opportunities. Now, I'll turn the call over to Tom Chubb for details on the other three operating groups and consolidated figures for the quarter. Tom? Thank you.

Thanks, Terry. Good afternoon, everyone, and thank you for joining us. I'll start with Ben Sherman. Ben Sherman reported net sales of $36.6 million for the first quarter of fiscal 2008, compared to $39.3 million in the same period of the prior year. The lower sales were primarily due to lower sales in our United Kingdom wholesale business as we continue to reposition the brand, and in our wholesale business in the United States, as we exited from the Evisu apparel business. This was partially offset by increased international and Company-owned retail sales. Operating income for Ben Sherman was $300,000 in the first quarter of fiscal 2008, compared to $1.7 million in the same period of the prior year. The reduction in operating income was primarily due to expense deleveraging on the lower sales space.

As we mentioned, our Company-owned retail stores have performed quite strongly in the United States. Our Ben Sherman customer is typically a young single guy with discretionary income and for whom fashion is a high priority. He just doesn't seem to be as concerned by the economy as many other consumers. We are encouraged by our performance at retail and with that, are pleased to announce plans for our fifth Ben Sherman store in the United States. We have selected another premier location. This time on Newberry street in Boston. With this eclectic mix of salons, high-end fashion shops, and dining establishments, we believe this rich retail environment will compliment our existing retail presence in Soho, San Francisco, Los Angeles, and Las Vegas. The store is slated to open early in November 2008.

Our international expansion is continuing on plan. We've recently opened a store in Beijing, two stores in Korea, and our most recent addition was in Gutenberg, Sweden's second largest city and the home to two significant universities, a great location for Ben Sherman. The repositioning of the brand in the U.K. Is progressing on plan. In the U.K., we have radically changed the way we operate within Debenhams, who is our biggest U.K. wholesale customer.

The introduction of the more aspirational black and orange product, together with enhancing our shop-in-shops, and a more controlled merchandise flow has worked really well. Our areas in their stores are looking good and performing solidly. Also over our whole U.K. apparel business, we are gradually raising prices to reflect our strategy of trading up to a more premium position. This has been accepted by our customers without significant resistance. We are very pleased with the progress Ben Sherman has achieved in advancing our strategy this year, and expect to begin to realize the fruits of our efforts in fiscal 2009.

Net sales for Lanier Clothes were $38.7 million in the first quarter of fiscal 2008, compared to $42.7 million reported in the same period of the prior year. For the quarter, Lanier Clothes reported break-even operating results, compared to an operating profit of $1.4 million in the same period of the prior year. Weak demand for branded tailored clothing has continued, particularly in the department store channel of distribution. Despite the weak demand, we have reduced inventory levels by 28% in Lanier Clothes over last year. In addition, we have taken a page out of our successful Oxford Apparel strategy and are reviewing Lanier customer by customer, program by program. We have already implemented costcutting measures and are identifying ways to rationalize underperforming businesses. We are confident that we can restore Lanier Clothes to profitability, even if it means a smaller business.

Oxford Apparel reported net sales of $68.7 million for the first quarter, down 12.4% from $78.4 million in the same period of the prior year. Operating income for Oxford Apparel was $5.3 million for the first quarter of fiscal 2008, compared to $7.3 million in the same period of the prior year. Last year's operating income benefited from a one-time $2 million gain on the sale of the Company's Monroe, Georgia facility. Oxford Apparel continues its strategy of focusing on key product categories and exiting certain underperforming lines of business, resulting in comparable profits on reduced sales and a smaller asset base. The corporate and other expenses decreased to $5 million for the first quarter of fiscal 2008, from $5.9 million in the same period of the prior year. The decrease was primarily due to the impact of severance expenses recognized in the same period of the prior year.

I'll now move on to the consolidated results for the income statement, balance sheet, and cash flow statement for the first quarter. As Hicks mentioned earlier, for the first quarter ended May 3, 2008, consolidated net sales were $273 million, compared to $292 million in the same period of the prior year. Consolidated gross margins for the first quarter of fiscal 2008 increased to 42.6% from $41.2% in the same period of the prior year. The improvement in gross margin was driven primarily by a higher proportion of Tommy Bahama and Ben Sherman sales, which generally have higher margins than Lanier Clothes and Oxford Apparel. Year-over-year gross margins improved in both Tommy Bahama and Ben Sherman.

Selling, general, and administrative expenses or SG&A for the first quarter of fiscal 2008 increased to $99.6 million or 36.5% of net sales from $93.5 million or 32% of net sales in the same period of the prior year. The increase in SG&A was due primarily to increased investment in the Tommy Bahama brand, including the operation of additional retail stores, the spring 2008 marketing campaign, and a higher preopening expenses associated with two new cafe emporiums. Royalties and other income was $4.2 million for the quarter compared to $5.6 million in the same period of the prior year. Royalty income increased moderately at Tommy Bahama and Ben Sherman. Last year's royalties and other operating income results were favorably impacted by the above-mentioned $2 million gain on the sale of our Monroe, Georgia facility.

Operating income for the quarter was $20.1 million versus $30.9 million in the same period of the prior year. The reduction was primarily due to lower sales volume and higher SG&A. Our effective tax rate was 30.8% in the first quarter and 33.1% in the same period last year. The change in our effective tax rate was the result of a change in our May 2007 assertion, regarding our initial investment in a foreign subsidiary, the impact of certain contingency items in this quarter, and lower anticipated earnings in the current year, resulting in certain book-to-tax differences and discrete items having a larger impact on our effective tax rate. Diluted net earnings per common share for the first quarter were $0.59, compared to $0.95 in the same period of the prior year.

Turning to the balance sheet. Receivables were $123.1 million at May 3, 2008, compared to $121.4 million at May 4, 2007. Total inventories decreased 17% to $122.7 million at May 3, 2008, compared to $148 million at May 4, 2007. We continue to manage inventory levels carefully and do not believe we have a significant risk from excess inventory. Cash flow from operating activities in the first quarter was $36.2 million, compared to $26.4 million in the same period of the prior year. This allowed us to reduce our debt during the quarter by $33 million. As noted in our press release, we successfully completed our repurchase of $60 million of our common stock at a price of $24 per share. In May, we received an additional $558,000 shares, bringing the total shares repurchased to 2.5 million or approximately 14% of our shares outstanding at the commencement of the program in November.

Based on market conditions as we see them today, we feel it is prudent to take a more conservative position and are moderating our guidance for fiscal 2008. Fiscal 2008 net sales are now expected to be approximately $1 billion, compared to prior guidance of $1.01 to $1.06 billion. Fiscal 2008 diluted earnings per common share are now expected to be in the range of $1.90 to $2.05, compared to prior guidance of approximately $2.35. For the second quarter of fiscal 2008, which will end August 2, 2008, net sales are expected to be between 225 and $235 million and diluted net earnings per common share are expected to be between $0.31 and $0.36. This compares with net sales of $244.6 million and diluted net earnings per common share of $0.49 during the three months ended August 3, 2007. Thanks for your attention. And now, I'll turn the call over to Hicks Lanier for some closing comments.

Thank you, Tom. While conditions in the marketplace are as bad as we have seen in a long time, we remain as bullish as ever about our future. We have built a first rate management team at Tommy Bahama, and we are confident that Terry is the right person to lead this brand to the next level. Tommy Bahama still has a lot of flight space with opportunities for continued growth in Company-owned retail, women's, e-commerce, and international expansion. With the market presence in more than 35 countries worldwide, we are developing a true international brand in Ben Sherman. In addition, we have a balance sheet that provides us ample financial flexibility today and will support our strategic objectives going forward. For the short-term as I mentioned, we are under no illusions about the marketplace, and we remain focused on inventory management and expense control. We expect to emerge from the current difficulties unharmed in any fundamental way and to be in a position to take full advantage of an economic recovery. Thank you for your time this afternoon and your continued support. Rebecca, we are ready for questions now.

(OPERATOR INSTRUCTIONS). Our first question will come from Eric Tracy with BB&T Capital Markets.

Good afternoon. Maybe Hicks, if we could just talk a little bit bigger picture. Obviously environment is what it is, and is pressuring most everyone in the space. Is there any ability -- I notice you continue to go through this strategic repositioning of the Company towards higher margin branded offering to pull -- given the flexibility that you have in the balance sheet, to maybe be a little bit more aggressive on the acquisition front. Is there something out there that maybe is attractive or that you have your eye on that you are aggressively pursuing at this point?

I wouldn't say that there's something that we are aggressively pursuing at this point, but we are certainly cognizant of most of the opportunities that exist out there and are keeping in pretty close touch with it. As we expect to continue to evolve our strategy in the same direction that we've trying move into. There's no change in the basic direction at all. And we think the fact that we do have a sound balance sheet and we are managing our assets well, there's going -- enable us to take advantage of opportunities.

Okay. Uses of cash, really continue to pay down of debt and potential sort of opportunistic share repurchases?

Yes, I think that and opportunistic situations.

Fair enough.

In this environment.

Right, right. Okay. And then maybe just in terms of the Q2 guidance at least relative to my model, it seems like top line, pretty consistent, yet the EPS well below implies there's a pretty significant hit to margins. Could you all, either Hicks or Tom, talk through what that is?

I think I can comment on that. One of the things that Terry emphasized in his situation, is that our basic problem with our own stores now is just macro issues relating to traffic. The fact that our conversion is as good as it has ever been and the average transaction is as good as it's ever been, when we have a decrease from lack of traffic in the stores, we're really losing a double margin on that, sales, the wholesale margin and the retail margin. That impacts us pretty dramatically. The month of May was quite sluggish for us in our own stores. We have seen a little bit of pick up in the first ten days of June which is encouraging to us, but when we decided on this guidance, we didn't have enough information to really get too bullish at this point.

Okay. And is there -- a couple of follow ups on that in terms of Tommy Bahama. I think you talked last call, just in terms of seeing some pockets of strength, Florida in particular, was that more of you think a blip or was there any continued --

I think what we said is the west coast of Florida was doing pretty well on the last call, relative to the East Coast. But Florida is still weak by almost any measure. West Coast a little better than East Coast, and we continue to struggle in Southern California particularly, Nevada with Las Vegas being our -- we've got four stores there as you may remember.

Right.

And Arizona, we've got --as Terry mentioned, we've got some pockets of strength like Texas, like relatively the Midwest and the Pacific Northwest. But it's a challenging environment out there.

Okay. And then maybe lastly, it sounds like women's continues to perform obviously, off a low base, but can you talk a little bit about that? I'm assuming that there is a pretty tight correlation to the marketing and the investments you put behind that, as well as the design shifts that have been made. But is there an opportunity to accelerate that a little bit at wholesale? Is there enough demand there to maybe offset some of the weakness?

Eric? Eric?

Yes.

That's Terry. Go ahead, Terry.

Eric, this is Terry Pillow. As I've said earlier, we have seen in our own retail stores and in some degree the wholesale business, we have seen a very strong women's presence in our retail stores this spring, primarily around swim. When I say swim -- swim and swim-related products, which is where we are making a real impact in the market. In the wholesale side, the women's business today is primarily swim and swim-related markets, wherever we had distribution in department stores. We are consistently one of the top performers, either one or two, in every department store group, which -- that's where we are focusing our attention and building our entire women's platform around swim, spa, and resort-related products. With regard to accelerating that we -- this holiday, we are focusing and making a more aggressive presentation on that and continuing with the strength we built on this spring and through the holiday season. So, yes, we see big growth and big future for our women's business.

To elaborate on that a second, in this environment, we are not going to get too far ahead of ourselves. We are going to continue to plan pretty conservatively and leave everybody a little hungry. That's a good thing. I would say the real impact for women's will probably come in our next fiscal year for spring, spring '09 and beyond. But we're -- I think just universally, we couldn't be more pleased about the way the product is coming along, the team is coming along. And that goes for our own stores, plus our wholesale accounts and we've gotten very good response from this marketing campaign for spring '08 in women.

Okay. Fair enough. Thank you, guys, very much and best of luck.

Thanks.

From Miller Tabak, we'll hear from Susan Sansbury.

Hi. Thanks very much. Hicks and I guess Terry, with respect to Tommy Bahama, I believe Hicks, you mentioned that you intended to moderate the advertising and marketing program on a go-forward basis for the balance of the year.

Let me just interrupt you right there. That just means we are not going to have an incremental $2.2 million each quarter for the balance of the three quarters. We will have an increased spend over the previous year, but it will not be as great as it was in the first quarter.

Are you revising your plans for new stores at Tommy Bahama also?

We are still on a plan for this fiscal year of about eight to ten new ones, and I think we'll proceed with that. And this environment, as far as beyond that, we believe will provide us with some locations that are some we have probably covered it for a few years, but could not get in prior environments, but that we will now. I think it's going to be a plus for us in the long run.

Oh, sure. Absolutely. In terms of traffic, can you share with us how much traffic is down year-to-date or from peak to trough? Is it accelerating, decelerating, stabilizing?

Doug, you can probably tackle this one.

It really goes market-to-market. As Hicks said, we've seen anywhere in the Las Vegas, and desert and Southern California market, traffic decreases in the high 15 to 20% range. That's where -- when you see traffic down like that, as Hicks said, we were seeing our conversions go up and we are actually seeing our dollar per transaction go up because we're able to focus on less customers but you can't makeup for the footfall reduction. That's what we've seen and we've seen it, as Hicks said, in the first quarter and we actually saw it as we went into May.

Is this just in Las Vegas or is this in Florida and Southern California?

You know what, Susan, it differs region to region. The worst traffic issues right now are in that what we call our desert region, our Vegas region, and our Southern California region for sure. But we have seen traffic decreases also in Florida. And even, we've seen some traffic reductions in Hawaii as I'm sure you all have followed. We've had airlines go out of business and a couple of the islands in Hawaii -- there's just less people there. We've seen traffic issues there as well.

Susan, I think -- which works both ways that we benefited from for a long time. But we are suffering from the fact that not only the general economic conditions, but the lack of tourism in the East sunbelt resort areas which is our hot spot. We have gotten a double dose of the general economic conditions, plus this tourism shortfall.

To add to Hicks, what he said earlier, bit what we see and -- what we see there, we then flip over and look at Texas and gosh, we've got markets in Texas where we're up double-digit in traffic and in sales. Which is encouraging in one vein, is just that that's not where we have the majority of our stores.

But it's encouraging to us and we know it's not a product issue.

It's a fabulous brand. It's a fabulous product. I know that. I've been a fan for a long time.

Okay.

Switching to Lanier, your mentioned that your goal was to return it to a break-even or profitability. Is there a timeframe here?

Well now, we are profitable, but -- it has not been loosing money. It's just hasn't been up to its historical standards or our financial targets. I think we've said pretty consistently for the past few calls that that sector of the market is probably the weakest of any of them.

All right, so this is a macro issue. There isn't anything that you can do quickly to substantially improve the profitability?

We are working day by day, but it would be a lot easier if we win more favorable economic conditions. But we are not, so we are just dealing with it.

And Hicks, in the U.K. for Ben Sherman, you've been repositioning this business seems to me for a long time. Maybe it's just my perspective.

It seems like a long time to us, too.

Is there a light at the end of the tunnel?

Absolutely there's a light at the end of the tunnel. I think we told you on the first call if one doesn't show in the figures this year that this was an influxion year for us and it will show next year. But let me preface by saying that the conditions in the U.K.are not any better than the U.S. They have got the same residential housing plummet over there that we've got here. They've got unemployment issues. They have got energy issues. Generally a very weak market there, but the repositioning that we've done has really played out according to the plan we have. We've up- graded the product. We've upgraded the presentation in the retailers that we have historically had. We've added onto retailers at a higher level, and we've trimmed the bottom tiers off.

It has all played out just as we had hoped. I think our home team at Ben Sherman at this point, is pitching themselves that the higher prices have been accepted, the improved presentation in the stores is working. The problem is that we may this huge effort there, but we trimmed off business at the bottom. Whatever we get at the top is just not quite replacing what we trimmed, but we are getting close to a point where we will start showing some tangible growth. And I think the U.K. retailing partners that we've got are very pleased with what's happened. They had some reservations about what we were trying to do, but they see the merits of it now. It's a good situation.

And particularly, it's good because it gives us a spring board to create this international brand. And it's just working. It's just going -- you have to be a little patient for a little longer I guess is the story there. Because we have expanded internationally, we have expanded our infrastructure to make sure that business is handled properly. I think we told you on the last call, we tied this Andrew Horton to be our Global Retail Director. He's been in the states. He's been in the Far East. I've visited with him a bit, very positive. We think he's a great resource.

We've added on the continent of Europe to the infrastructure that we have that there. I think we told you that we moved James Beall from the U.K. to Hong Kong to head up the Far East. It's not just him by himself, but he has an office of four or five people. We have an infrastructure in all of these areas now. At this juncture, the income is not covering that infrastructure, but it continues to rollout as we planned. It's going to be terrific.

Okay. Also dependent on macro factors, you said you expected a recovery in 2009. But is that contingent on the U.K. economy improving or not getting any worse? Don't know? That's fine, Hicks.

I'll go with the don't know.

Okay. Thanks for all your comments and best of luck.

Thanks.

And we'll take a question from Holly Guthrie with Janney Montgomery.

Thank you. Good afternoon, everybody.

Hello.

Question on Tommy Bahama. I know the Tommy Bahama brand is a wonderful full-price brand, but I was just wondering in some of the tougher markets, have you tested any promotions and if so, how has the customer responded? And if you haven't tested, are you thinking about -- is that potentially maybe a way to boost a little income?

Let me make one or two comments, and I will turn it over to Terry. This is a very topical conversation with us. As far as our full-price stores, which is all but seven of them, we feel very strongly about those being full-price stores and there are not going to be significant promotions in them. We are very sensitive when we have a situation with our wholesale accounts, where they are promoting more than we think they should and at times when we think they should not.

There is one avenue that we have had some discussions on. Our outlets stores, and we have got about one outlet store for each ten regular-price stores, and that's where we take care of the merchandise that is not selling satisfactory. But it's generally a hodge-podge of the rejects out of the stores. We are discussing the possibility, and are actually in a testing phase of putting a broader product line in those and keeping certain core items stocked in the stores, the way many of our peers do like Polo and a number of others. That could be a vehicle for additional volume for us. But we have pretty much concluded that there's not a huge amount of price elasticity in our own stores and it doesn't work for us to put them outside. We don't get that extra volume and we loss margin on it. Terry, can you add to that?

That is true, Hicks. Holly, since I've joined the Company, it's -- you are right. It's a unique position to be in, but I think it's a very positive position to be in to be a full-price retailer right now in this economy. Rather than looking at how we are promoting, we are concentrating more on the things that we do best, and making sure that our product is quality and designed to demand those prices at retail, and making sure that our presentation in those stores is as good as it possibly could be. I've been out there in the last couple of months, looking at these stores and we are doing a great job of presenting our product. Also last, would be educating our sales people and educating our guests on just why this product is special. We are doing all the things that we can, other than promoting it, because we have a very unique position, and I think a very unique product. It deserves to be presented at a full-price environment, and I think that is what brought this brand here and that's going to continue.

You might comment on the website vehicle.

Yes. To go to that point, and one of the things that Terry brought up in his comments was that we have now built an email database, and just in a very short period of time, that's over several hundred names. Because we are a full-price brand, we've actually went the other way, where we've said, you know what, our guests actually respond to offerings that -- exclusive offerings. Just recently for example, we went out with an exclusive shirt that instead of lowering the price, we've made only 2350 of them and we priced them at $250 with letter of authenticity, a print on it. And went out, and within literally 24 hours we're sold out and our waiting list is over 500 people.

What we look at that is an opportunity for us to actually remind our guests, why we are special in this market because it is a sea of promotions out there. And to be able to talk to people in a full-price way than in a branded way is something we are doing in e-commerce. What you are going to see very soon, and it's through our mailing list that we've been working on, we going to start talking to people directly to bring them to our website, but also bring them to our retail stores. And these are vehicles that other retailers have had or have, that we as a company, we have not had before. When I say, not had before, literally 90 days ago we didn't have this. This is something that we're focusing on this year. It may not show up in this fiscal year, but certainly it's going to pay big dividends for us next year and in the future.

One last comment, and then we'll let you ask further questions. We are quite pleased with the fact that in this most recent quarter, our gross margin percentage was up, not down. And in the environment that we are talking about, that's a pretty big statement. It's also a pretty big statement to talk about reducing inventories the amount we did, and still having these margins we're talking about. That inventory reduction did not come for free. It cost us to move some of that inventory, but we were determined to do it. And we are pretty pleased with that.

(OPERATOR INSTRUCTIONS). From Piper Jaffray, we'll here from [Shawn Knott].

Good afternoon. A couple of quick questions. When you were talking about the new store openings for Tommy Bahama, I think it was between eight and ten. Can you talk about the cadence for that for the balance of the year, and the mix between compound and full-price retail stores?

Well, I can tell you right off the bat that there have been no further compounds for this year, which other -- we ended up opening two in one quarter. If we ever do that, just shoot me. Because that was a challenge, both financially and operationally. Because when you do a compound, you are talking about the preopening expenses being a lot heavier, because you are training not only the store personnel, which is a relative handful. But you've got the whole crowd with the restaurant, which just takes you into a whole different genre. Doug, do you have the rollout on the remaining stores for this year?

Yes, and you actually saw it in the first quarter. We actually did several in the first quarter. We've got Anaheim that's going to be rolling out in just a few -- I think in this month after next. We have Sarasota which -- what we've got going on in Sarasota is actually we're opening up in a bigger site. And we are actually looking at opening up another outlet, and this will be out in -- I don't have right off the top of my head, but in Utah, right outside of Salt Lake. I think we have three more stores left in this fiscal calendar, and nothing else that I'm aware of on the books.

Okay. And then you sound like you are pretty pleased with the Ben Sherman direct-to-retail program that you have here in the United States. Can you comment on whether or not that business is profitable today? Or are you pleased with how the operating margins are in that business?

We are pleased with -- let me say this. We've got four stores open right now with the fifth to open. Obviously, that is not enough to have much of a critical mass in terms of your support group there. It's a little out of balance from that standpoint, but I would say that we are very pleased with the store in Soho. That has just been a home run for us. We were disappointed with the first year or so in San Francisco, but it's really beginning to gather momentum. The one in Las Vegas, we knew it was going to be rough for the first year, because they were doing a lot of construction there at the opening of that miracle mile, and it proved to be challenging. But that is pretty much behind us, and we are seeing real good comps there. By enlarge, we are pleased with those stores and we think it's going to be a very viable financial model.

Okay. And then just lastly on the Ben Sherman and international, how many stores are we talking about here for opening this year?

I think we had 29 for the year. Anne, is that correct?

Yes.

Okay. And how far are we through that campaign right now?

We have 17 licensed stores right now.

Okay.

And expect to have 29 at the end of the year, and then further rollout next year. That is moving quite rapidly. That's the reason for this infrastructure building in Europe and in the Far East. The Far East is supporting mainly South Korea. I think the plans are to have ten stores within 18 months, and we've currently got six. China where we've got several in, two in Hong Kong open, one in Shanghai, but more on the drawing board.

One in Beijing.

Yes. Anyway, we are moving pretty rapidly there.

Great. Best of luck to you guys for the rest of the year. Take care.

We'll take a question from Holly Guthrie with Janney Montgomery .

Thanks. I got kicked out of the queue there. Question on Ben Sherman. I was hoping to get some understanding as we move into the second half of the year, and you start going against period where you will see (inaudible) U.K.. You talk about your cadence for the overall business, when we get to that period, if there retail stores continue to perform well, will the -- that anniversary, the change in the U.K., offset some of the sluggishness in the U.S. business if that doesn't change too much? How can we think about -- once we get to the back half for Ben Sherman?

Well, I think that -- just to make sure you understand what we are saying properly. In the U.S., the retail stores we have here, by and large have held up pretty well during the first four months of this fiscal year, in terms of comping. We've been pleased with that. The wholesale business in the U.S., we had this [Eversuit] brand which we phased out of it. We are up against some of those figures from last year, but that is pretty much behind us now as far as comping going forward. We expect growth in the U.S. -- we are expanding the number of wholesale doors. We are expanding the retail doors.

The U.K., we are not in an expansion mode with the retail stores over there. We may open one or two in the next year or so, but fundamentally we are putting that money in the U.S. and in the international locations. We've been looking for 18 months to find the right spot in better Berlin, and I think we finally got it. We're hoping that is going to be a major opening for us in the next six to nine months.

Okay. That's helpful. And then on the gross margin, you had indicated -- and you had a very successful first quarter as far as the gross margin percentage. That's great. Could you talk about what it was that drove the margin? Was it better sourcing to lower cost? What was it that contributed?

The biggest issue is it was a high percentage of our two brands, Ben Sherman and Tommy Bahama, and a higher percentage of direct-to-consumer business under those two brands. That is principally what drove the margins. Unfortunately, what we didn't get with that was as big a bump in the top line as we would have liked, and would have had in a more normal situation. That is why we keep referring to the deleveraging we've encountered over the last few quarters, where we've opened more stores but we don't have a big bump in the top line. You've got more fixed expenses that are sitting there. But we feel pretty confident that's a result of the macroeconomic situation. We can't tell you when that is going to change, but we know it will at some point, and we'll be hopefully in the catbird seat. That's when you get the opposite of a deleveraging, and you get a fair positive leveraging aspect to it. In the meantime as we pointed out, we have been pretty vigilant, not only on risk management and inventory control, but also on our expenses.

Great. Thank you, and good luck this summer.

Thank you.

From Miller Tabak, we'll hear from Susan Sansbury.

Hi. Yes. Two quickie questions. In terms of the inventory reduction, can you share with us where you took it? Was it evenly across the divisions? Was it more Tommy -- at the Oxford Apparel and Lanier?

I would say, the biggest hunks were in the two legacy businesses, Oxford Apparel and Lanier.

Okay. And then --

That's where we wanted it.

Absolutely. Just checking. I notice that -- this is a question for Tom Chubb and/or Scott Grassmyer. Are you going to replace your financial systems with an SAP package?

Correct.

Okay. Have you started? Are there going to be start up expenses? Is this the beginning of a huge project?

It's all baked into the guidance that we have given you so far this year. There's some capital expenditures that will hit this year, and then there will be a bit next year, but it's all incorporated into what you've already received.

But it's only the financial solutions? It's not planning and allocation or inventory management?

That's right. And if you are familiar with SAP, it will do the financial systems. While it's a big deal for us, it's about probably 10% of the project that it would be if we were going to go to their inventory and order management system.

We are just dipping our toes in the water? Or we're going to commit to SAP?

All we are focused on right now is the financial systems. We have a very disparate set of systems now. We've got AR and credit on one system, We've got general ledger on another, accounts payable on yet another, fixed assets on yet another. We've got different systems here in the U.S. The U.K. and the Hong Kong, and this will get us on one integrated financial system.

Okay.

Which will give us some great benefits, in terms of efficiency and also accessibility of information for us.

But that assumes that they're going to be -- this is somehow -- a history of installation issues, startup issues. Can you talk about what type of benefits you expect once you get the financial part up and running? Once your integrate your global system?

As you might imagine, with the disparate systems that we have, there's -- we do a great job. Scott and Anne, and their finance teams do a great job of pulling together everything that we need, and our auditors are quite happy with us as well. But as you might imagine, there's a lot of manual processing that has to happen. This will give us a much greater efficiency in those financial processes. And then the second thing is, it will give us better visibility to information across the business.

As you know over the last five years, we've changed quite a bit with bringing in Tommy Bahama and Ben Sherman, and them giving us a truly international aspect to our business as well as all the retail. That's made it -- it's not that we don't get it, but it just requires a lot more manual intervention to get the type of information that we want to see at the corporate level to manage the business. Those are the main benefits. As to the issues with implementing SAP, we are very cognizant of some of the problems that people have had in the past. We've studied where people have gone wrong, and think we are doing all the right things to avoid those issues. And then the other thing I'd say on that is that again, doing just the financials is a much, much smaller project than if you were doing the full blown ERP, enterprise resource planning.

All right. Well, good luck.

Thank you.

And we have no further questions. I would like to turn the conference back to the presenters for any additional or closing remarks.

We would like to thank you for your interest in us today. We are frustrated with this external environment, but very confident on our strategy and our execution of it. We'll hopefully look forward to our next visit, telling you that we got some tailwinds instead of headwinds to keep us moving forward.

Ladies and gentlemen, that does conclude today's presentation. We thank everyone for their participation. Have a wonderful day.