Oxford Industries Inc (OXM) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Oxford Industries Q2 2008 conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for to you queue up for questions. As a reminder, today's call is being recorded, and now, I would like to turn the conference over to Ms. Ann Shoemaker. Please go ahead.

Thank you, Nicole. And good afternoon, everyone. Thank you for joining us today.

Before we get started I would like to point out that some of these statements made on this call, as part of the prepared remarks or in response to your questions, which are not historical remarks which 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 our annual report on form 10-KT filed with the Securities and Exchange Commission on April first, 2008. And in our subsequent filings with the Securities and Exchange Commission.

A copy of this report is available online or upon request from our Investor Relations department. We disclaim any duty to update any forward-looking statements. Finally, during this call, in talking about our results, we will discuss some non-GAAP financial measures about earnings per share. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release, which is posted under the news room tab on our Web site at www.oxfordinc.com.

And now I would like to introduce today's call participants. With me today are Hicks Lanier, Chairman and CEO,Terry Pillow and Doug Woods from our Tommy Bahamas group. Tommy 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.

Good afternoon, and thank you for joining us to discuss our second quarter results. We are pleased to have exceeded our financial plan for the quarter and to have taken decisive action to restructure our legacy businesses.

While the tough environment continues, we remain confident in our full-year outlook, and believe that we will be able to leverage our brands well, improve our efficiency, and focus our organization on the best opportunities we have for growth. Consolidated net sales for the second quarter ended August second, 2008 were $231 million, compared to 245 million in the same period of the prior year. Earnings per share during this period, excluding our restructuring charges and other unusual items, were $0.43. This is better than our previous guidance of $0.31 to $0.36. Though still below the year-ago level of $0.49.

Given the current economic environment, we believe our second quarter results are solid and we are pleased with our performance. On the positioning the company for long term improvement has been to focus the legacy businesses on profitability rather than growth. We've taken significant steps to exit underperforming pieces of Lanier Clothes, somewhat to the successful approach we took with Oxford Apparel. The restructuring reduces our working capital requirements in these businesses and improves our return on investment.

As we've previously made clear with respect to Tommy Bahama and Ben Sherman, it is our policy not to sacrifice our brand position in order to shore up short-term results. This decision has prompted us to keep our inventories clean, to maintain the integrity of our wholesale distribution, and to minimize promotional activity. While we have been careful to control our costs, and to watch our risk levels, we have been able to continue to invest in Tommy Bahama and Ben Sherman for new store openings and marketing initiatives.

Tommy Bahama is a very healthy business and while the numbers don't reflect it yet, we are becoming increasingly positive about Ben Sherman's brand positioning and its prospects for the future. We continue to think that when the market improves, as it inevitably will, we will be in a position to quickly see incremental benefits. I will reserve some additional comments for closing.

I would now like to turn the call over to Terry Pillow, the CEO of our Tommy Bahama group. Terry?

Thank you, Hicks. At Tommy Bahamas we provide respectful results in light of this difficult economic environment.

Tommy Bahama reported net sales of 112 million for the second quarter of fiscal 2008, compared to 114.4 million in the same period of the prior year. Slight sales decrease continued to be driven by softness in both wholesale sales and company-owned retail stores. We believe that while holiday will still be challenging, we're well positioned with strong product offering and a clean inventory position.

Tommy Bahama's operating income for the second quarter was 18.1 million, compared to 20.9 million in the same quarter of the prior year due to higher SG&A expenses associated with the operation of nine more stores than the prior year. So a slight gross margin improvement during the quarter which we believe is validation to our approach to the market. Traffic at retail continues to be weak, but conversion rates are good and the average unit retail prices have continued to hold and we have maintained our philosophy as a full-priced retailer.

Recently, we're still seeing better performances outside of those states hit hardest by the housing and credit crisis. E-commerce continues to be a high spot for the Tommy Bahama customer as we approach the first anniversary, this venture continues to exceed our expectations. This summer we initiated a new branding concept for Tommy Bahama, the one brand concept we introduced is designed to seamlessly blend our popular menswear collections and bring them all together under the Tommy Bahama label. Although these collections were originally introduced as independent brands, uniting them under the Tommy Bahama brand, reinforces the company's position as a true life style brand that covers all aspects of our customer's life.

At the magic trade show we previewed the blended lines concept for spring 2009. It was overwhelmingly well received by our wholesale customer base. We expect our concept to create a strong and cohesive brand presence. To summarize, we expect ongoing challenges from the market, so we're continuing to operate prudently. Our third quarter has historically been Tommy Bahama's smallest retail period and we do not see that trend changing. We believe that we are well positioned in terms of our inventory, our merchandising plan, the brand strength with the customer, to have a good healthy holiday season.

Now I will turn the call over to Tom Chubb for details on our other three operating groups and consolidated figures for the quarter.

Thanks, Terry. Good afternoon, everyone. And thank you for joining us.

I will start with Ben Sherman. Ben Sherman reported net sales of $32.5 million for the second quarter of fiscal 2008, compared to 36.5 million in the same period of the prior year. The lower sales reflect a continued repositioning in the better tiers of distribution in the UK, as well as fewer off price sales, and our exit from the [Avasu] brand here in the US. The decline was partially offset by increased sales in markets outside of the US and UK and by the growth in company-owned retail sales. We were quite pleased with our US stores, which continue to track at or above our model expectations and the progress we have made in repositioning the brand in the UK market.

I hope you had a chance to visit our project booth two weeks ago in Las Vegas. Our customers were very excited and frankly, we had nothing short of an extraordinary response to our spring '09 line, with bookings significantly outpacing last year's show. Ben Sherman had an operating loss of $2 million from the second quarter of fiscal 2008, compared to $1.5 million loss in last year's comparable period. This decrease was due primarily to lower sales. We continue to believe that we will turn a corner on volume and expense leverage in fiscal 2009, with our elevated distribution in the UK, continued growth in the US wholesale business, and our expansion into international markets.

Net sales for Lanier Clothes in the quarter were $28.2 million, compared to $31.6 million from the same period of the prior year. For the quarter, Lanier Clothes reported an operating loss of $11.4 million, versus a loss of $2.2 million in the year-ago period. The increase in the operating loss was a direct result of $9.2 million of restructuring charges. As you know, we have been talking for quite a while now about the softness in the moderate tailored clothing market.

We have taken some painful, but necessary steps to put this business back on track and expect the changes we have made to result in a smaller but profitable boost. Oxford Apparel reported net sales of $58 million for the second quarter, compared to $61 million from the same period of the prior year. Operating income for Oxford Apparel was $3.7 million for the second quarter of fiscal 2008, compared to $3.1 million in the same period of the prior year. We continue to drive increased profitability by managing costs carefully, resulting in reduced SG&A expenses.

The reduction in the SG&A more than offset the unfavorable net impact of the restructuring charges and unusual items for Oxford Apparel in the quarter. The corporate and other expenses decreased to half a million dollars for the second quarter of fiscal 2008, from $3.8 million in the same period of the prior year. This improvement was due primarily to the impact of LIFO accounting adjustments, which included the reversal of $1.9 million of restructuring charges, as well as lower corporate SG&A. I will now move on to consolidated results for the income statement, balance sheet, and cash flow statement.

As Hicks mentioned earlier, the second quarter ended August two, 2008, consolidated net sales were $231 million, compared to $245 million in the same period of the prior year. Consolidated gross margins for the second quarter of fiscal 2008 were 41.9%, compared to 42.1%, in the same period of the prior year. The slight decrease in gross margins was primarily due to the restructuring charges in Lanier Clothes and Oxford Apparel, partially offset by the increased proportion of Tommy Bahama and Ben Sherman sales, which generally have higher gross margins than Lanier Clothes and Oxford Apparel.

Gross margins for both Tommy Bahama and Ben Sherman improved compared to the prior year. Selling, general, and administrative expenses, or SG&A, for the second quarter of fiscal 2008, were $89 million or 38.6% of net sales, compared to $89 million, or 36.4% of net sales in the same period of the prior year. Restructuring charges in Lanier Clothes and increased expenses associated with the operation of additional retail stores, were offset by reductions in employment and other costs, and the resolution of a contingent liability. The increase in SG&A as a percentage of net sales was due to the reduction in net sales.

Amortization of intangible assets increased to $4.1 million for the second quarter of fiscal 2008, from $1.3 million in the same period of the prior year. The increase was primarily due to the impairment charges associated with Lanier Clothes, and Oxford Apparel. Royalties and other operating income for the second quarter of fiscal 2008, increased 13.6% to $4.4 million, from $3.8 million in the same period of the prior year, primarily due to the sale of a trademark by Oxford Apparel, which is included in the unusual items. As a result of these factors, operating income for the quarter was $8 million, versus $16.6 million in the same period of the prior year.

We believe our annual effective tax rate for fiscal 2008, before the impact of any discrete events, will be approximately 32%. As we have explained, we have had a net impact of $0.34 per diluted share for restructuring charges and other unusual items, of which $0.16 per diluted share were noncash charges. Excluding these charges, diluted net earnings per common share for the second quarter were $0.43, compared to $0.49 in the same period of the prior year. These restructuring charges and unusual items reduced diluted earnings per share to $0.09.

Turning to the balance sheet, receivables were $96.5 million at August two, 2008, compared to $99.2 million at the same time last year. Total inventories decreased 17%, to $129.9 million at August second, 2008, compared to $156.9 million at August three, 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 for the first six months of fiscal 2008 was $62.1 million, compared to $44.5 million in the same period of the prior year.

Significant working capital reductions associated with the rationalization of our legacy business has contributed to our strong operating cash flow. For the year, we expect to generate cash flow from operations in excess of $75 million, incur capital expenditures of approximately $25 million, and due to the change in our fiscal year, we expect to make five dividend payments totaling approximately $14.5 million. With our strong free cash flow, and our new credit facility, our liquidity remains excellent.

In the third quarter, we expect to incur approximately $0.06 per share of additional charges, which include both restructuring charges and the write-off of unamortized financing costs related to our prior credit agreement. Including the restructuring and write-off charges, we expect diluted earnings per share to be between $0.37 and $0.42 on sales of 250 to $260 million. While market conditions remain challenging, for the year, we believe we will be in a position to deliver sales and earnings consistent with our prior full-year guidance.

Excluding the impact of our restructuring charges and unusual items, we expect diluted earnings per share of $1.90 to $2.05. Including the impact of these items, we expect diluted earnings per share to be in the range of $1.50 to $1.65. Thanks for your attention.

And now, I will turn the call over to Hicks Lanier for some closing comments.

Thank you, Tom. Our capital risk management and expense control has allowed us to deliver respectable results and strong cash flow even in this difficult economic environment. We have a strong balance sheet that provides us ample financial flexibility today and will support our strategic objectives going forward.

We continue to be excited about the long term growth opportunities with Tommy Bahama and Ben Sherman and are pleased with the work we have done to reposition our legacy businesses. While we are not sure when it will happen, when the inevitable turnaround in the economy occurs, we believe our business will be well positioned to prosper and bring value to our shareholders.

Thank you for your time this afternoon and your continued support. Nicole, we are ready for questions now.

Thank you, the question and answer question will be conducted electronically. (OPERATOR INSTRUCTIONS) And we will go first to [Shawn Naughton] at Piper Jaffray.

Good afternoon.

Good afternoon, Shawn.

A quick question for you on Tommy Bahama to start, on the retail sales portion. Could you -- is there any way you could talk about the comps in those stores? How things are different in the housing states versus nonhousing states, and then in addition, your expansion plans for next year?

Sure, Shawn. This is Terry Pillow. Our comps, our traffic in our retail stores continues, as I said in the prepared announcements, continues to be weak, which is affecting our comp sales, for our retail business. Particularly being hit hard, as you mentioned, in the states where the housing and credit crisis, not to mention the weather that we've had in Florida.

As far as our cadence on opening new stores, we will continue to open stores as we have said that we are, even though we are looking at opportunistic situations, as they come available in the marketplace, we are still on track to open another five stores this year, and we're on track in 2009, we have five stores on the plans right now. And we're looking at opportunities as they come available, in this retail -- in this economic environment, there are some opportunities, some spaces that we have been looking at that are becoming available. So we're still optimistic and looking to continue to open new stores.

Okay. And then on the wholesale channel for TV, is there -- have you guys been narrowing the distribution at all, to try and maintain some of the price points or any price conflicts that may be in there, in the mall?

We constantly look at our distribution and performance in the doors that we're in, with our department store partners, looking at new opportunities, with doors, and also looking at underperforming doors, to clean up our distribution. So it is something that we do look at. However, our wholesale business as we've talked about, with our partners that we're with, has been good, even though their businesses have been reported, in the press, has been great, either, but we have a good position with those partners.

Okay. And then finally, on the and maybe this is for you Tom, just based on the $9.2 million of restructuring in Lanier and I guess there were some other -- a couple of things in Oxford. Is there any way you could provide some additional color on what that -- that 9.2 million is paying for? Is that in terms of some severance or some other SG&A reductions or what what does that number entail?

Yes. There are a couple of things, Shawn. There are inventory disposal costs related specifically to the businesses that we're exiting. And as we clear out of those businesses, we're going to -- well, we've taken some hits on the inventory to get out, there's some royalty and license termination type fees involved, in the exit of the two businesses within Lanier Clothes.

There's some asset write-downs, both intangible and tangible, and there's some severance which to your question does lead to a significant reduction going forward in Lanier Clothes in particular, to the tune of sort of -- well in excess of $3 million a year, in SG&A savings annually, going forward.

I guess the thing that I would comment on, Shawn, is we view this move in Lanier as we said, in the prepared remarks, it is painful, it is not the type of thing you want to have to do, but we really do think it is a very positive step for the business going forward. In making it smaller but more focused and profitable, just like we have done in Oxford Apparel, over the last six or search quarters, and I think you've witnessed that story and you're well familiar with our sort of mantra that less can be more in these -- particularly in these legacy businesses.

Sure. Okay. Well, best of luck on the rest of the year.

Thank you.

(OPERATOR INSTRUCTIONS) And we will go to Eric Tracy with BB&T Capital Markets.

Good afternoon. Terry, maybe just a follow-on, the Tommy Bahama, provide a little bit more color, and sort of the decision around bringing the sub brands back under the parent Tommy Bahama brand, and seemingly a very favorable response at magic. Kind of talk through sort of how you view that playing out in the balance of the year.

The decision was made, these brands have been -- they have been successful. It is not that these brands have not been successful. We just felt that the best place, the best foot forward we had was the Tommy Bahama brand. So to integrate all of them under the Tommy Bahama brand in our own stores and with our wholesale partners was the right thing to do from a branding message.

And also our ability to market the brand through our advertising and communication across the brands. Tommy Bahama is the best asset that we have in integrating all of these brands under the Tommy Bahama umbrella has been received as we said very, very positive and we think that we will see big results from it.

And Eric, this is Hicks, let me just add one comment to that. We had had a fair amount of duplication in product categories between the three brands, and with them all being under the Tommy Bahama umbrella, and all under a central design group, we are going to eliminate a lot of duplication that I think was a disservice to us and an inefficiency.

Okay. And sort of in that context, just in terms of retailer merchandising. Looking at a given retail partner in the pads that they may play, is this an incremental positive or is this potentially saying, okay, here is the Tommy Bahama line in general, we're scaling back a little bit on some of the sub brands? How should we think about that?

We view it as very much a positive because particularly as Terry mentioned the ability to leverage our marketing effort to one brand instead of three brands is just huge for us. And as you know, with the spring season, we ticked up our marketing effort pretty dramatically and Tommy Bahama plan to continue that for the holiday and beyond. So it is just a plus-plus from every standpoint.

Okay. Okay. And then maybe either Hicks or Tom, just kind of touch on Ben Sherman. It sounds like the growth outside the US and UK are pretty -- still good, I guess, relatively speaking. Maybe just provide a little bit more color on that. And just in the context of Europe, slowing macro over there, how you view -- because I know that is sort of one of the key focal points of growing in Western Europe. How you see that playing out.?

Well, there is no question that the UK market has been sluggish, just like the US market for some time. And that, as we all know, that has spread to the continent, with Germany probably being the most -- the biggest focal point right now, but I think it is throughout the continent. So that is something we have to deal with.

In terms of the rest of the world, we are continuing our expansion, opening stores, we just opened a store last week in Osaka, Japan, which is the first one in Japan and we're really pleased with that, and there is another one on the drawing board for Tokyo before the end of the year.

So we're continuing to expand in most of the geographic areas of the world. So we continue to think that that process is rolling out. The economic environment certainly doesn't give us wind at our back, but I think as with -- with our other situations, when this thing turns, our positioning we think is going to be terrific.

And it sounds like the US-based retail, tracking quite well despite the environment. Any kind of plans, thoughts, to accelerating that --

Well, we've got four stores open now and we've got two other locations that we're trying to open in Chicago, and Boston. And the results we've had so far in the US particularly in the Soho store which was the first one in San Francisco, we've been exceedingly pleased with. Unfortunately, the Las Vegas store is suffering from the same traffic issues we have in Tommy Bahama.

Okay. And just lastly, Tom, in terms of the guidance, just want to kind of clarify, for Q3, it is a GAAP number, that 37 to 42, which given the $0.06 restructuring is kind of a $0.43 to $0.48?

I think you could think of it that way.

Okay. And just given kind of the top line appears to be holding at least relative to my expectations, and I think the streets. Is there something going on at the margin that is kind of causing that, the delta, relative to what I'm expecting? There just seems to be something that seems to be taking place from a gross or an SG&A perspective.

I'm sorry, I'm not understanding your question.

Well, you basically held the sales constant for that quarter, the 250 to 265, yet from an EPS perspective, is again, in that $0.43 to $0.48 relative to I think kind of street, they called 64 or 66. Is there something going on at the margin there?

I think one of the issues that we have is that that is a very small retail quarter for us. If you think of those three months, it is a very small retail period for us, and so you've got all of the additional SG&A expenses of having the additional stores open, but it is not a heavy sales period.

So you get the expenses weigh heavier on you than they do in an upsales period like the fourth quarter, which even though this year, we're looking at as probably for the balance of the year, the year being a pretty weak traffic year, the fourth quarter is still relatively a big retail quarter.

And that's particularly true of Tommy Bahamas. We actually had some -- a stronger second quarter than we expected, but a weaker third quarter and then a strong fourth quarter.

Okay. Fair enough. Thanks, guys. And best of luck.

Thanks, Eric.

And there are no more questions at this time. I would like to turn the call back over to management for any additional or closing remarks.

Okay. Thank you, Nicole. Let's see if we've got any closing remarks. I don't think we do. We thank you for your attendance and interest in Oxford.

And that does conclude today's conference. We appreciate your participation, and you may now disconnect.