Oxford Industries Inc (OXM) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to today's Oxford Industries, Inc.

fourth 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 Miss Anne Shoemaker, Treasurer.

Please go ahead ma'am.

Thank you, Jamie, and good afternoon, everyone.

Before we begin, I would like to remind participants that certain statements made on today's call and in the q-and-a session, may constitute forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause actual results of operations or the financial condition of the Company to differ are discussed in the documents filed by the Company with the SEC.

The Company under takes no duty to update any forward-looking statements.

During this call, in talking about our results we will discuss some non-GAAP financial measures.

You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release which is posted under the newsroom tab of our website 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, CEO of 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.

Thank you for joining us this afternoon to discuss our fourth quarter and 2008 fiscal year results.

I think the best place to begin our discussion today is to acknowledge that we are all operating in unprecedented times.

All of us here today understand that risks are harder to quantify than defensive tactics and our wholesale and retail businesses are the order of the day.

That said it's important for us and for our investors to focus on a few of our [press falls] that have not changed despite the pressures of the marketplace.

First we are dedicated to protecting our brands.

While the accounting rules required us to impair our goodwill, we believe our Tommy Bahama and Ben Sherman brands represent two of the best lifestyle brands in our industry.

We've held true to our strategies to protect the integrity and the long-term opportunity for growth and prosperity.

At Tommy Bahama we have aborted the type of heavy promotional activity that is so common in the market today.

During the fourth quarter we saw lower sales volume, but were able to maintain our gross margins.

Through careful planning, despite the sales decline, we were able to reduce our inventories throughout the course of the fiscal year.

In the short run we expect lower sales volumes but believe we will retain market positions that provide for strong price points and gross margin that was -- once lost are very difficult to recapture.

Second, we have continued our Company's discipline with respect to cost.

We cut approximately $40 million in annual cost from the business and we have contingency plans if additional cuts are required by further deterioration in the market.

Third, we are dedicated to maintaining an exceptional balance sheet.

We were fortunate to have closed a very significant revolving line of credit prior to the onset of major problems in the credit market.

Our strong cash flow from operations allowed us to reduce our total debt by $72 million.

Part of the debt reduction resulted from the fourth quarter repurchase of $33 million of our bonds at a significant discount.

This created a $7.8 million gain and should save us over $2 million in interest annually.

We have also enhanced liquidity by reducing our first quarter dividend in our planned capital expenditures by half.

With those comments as a backdrop, I would like to give you some of the highlights from this afternoon's press release.

Consolidated net sales were $199.9 million in the fourth quarter compared to $261.9 million in the same period of the prior year.

Excluding non-cash impairment charges and other unusual items, earnings per diluted share were $0.06, consistent with our previously issued guidance at March 5th, 2009 announcement.

On a GAAP basis we reported a loss of $18.17 per diluted share, in the fourth quarter compared to a profit of $0.36 a share in the same period of the prior year.

For the full year consolidated net sales were $947.5 million, compared to $1.1 billion in the prior 12 month period.

Excluding non-cash impairment charges and other unusual items, earnings per diluted share were $1.44 for the 2008 fiscal year.

On a GAAP basis, we reported a loss of $17 per diluted share in fiscal 2008 compared to earnings of $2.59 in the prior 12 month period.

I will reserve some additional comments for closing.

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

Terry?

Thank you Hicks and good afternoon everyone and thank you for joining us.

Over the holiday season, we faced daunting retail competition as the promotional environment was like anything we have ever seen.

Our wholesale customers were also severely challenged.

Our results reflect both the environment as well as how we responded to it.

Tommy Bahama reported net sales of $96.7 million for the fourth quarter of fiscal 2008, compared to $113.8 million in the same period for prior year.

The fourth quarter sales decrease was primarily driven by continued softness in the wholesale business, as well as comparable store sales declines in our retail stores.

Tommy Bahama by using only limited brands appropriate promotions, was able to maintain gross margins comparable to the same period of the prior year.

Despite the reduction in sales, and operating 10 additional stores we have been able to reduce our inventory levels year-over-year.

Excluding impairment and severance charges, operating income for the quarter was $10.5 million compared to operating income of $17.1 million, for the same period of the prior year due to reduction in sales.

While we are not resorting to indiscriminate discounting in our stores, we developed additional initiatives to address the difficult economic conditions.

We are very focused on merchandising efforts in our stores to better tell our story and display our products in a compelling way.

We are also focusing on key item presentations and price points.

At wholesale, Tommy Bahama is performing well compared to other brands.

We ended the year with inventories that are current and at appropriate levels, lowered overhead costs and feel that we are positioned to take advantage of the inevitable upturn in the economy.

Now I will turn the call over to Tom Chubb for details on the 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.

While we are continuing to have success in our efforts to upgrade this brand, market conditions in the UK -- Ben Sherman's biggest market -- remain extremely difficult.

Our results reflect the impact of these headwinds.

Ben Sherman reported net sales of $26.2 million for the fourth quarter of fiscal 2008, compared to $36.5 million in the same period of the prior year.

This decrease was primarily due to lower sales in the UK wholesale business, particularly footwear, and a 26% reduction in the average value of the British pound versus the US dollar.

The decrease was partially offset by increased sales in our Company owned retail stores and the increased sales in markets outside of the UK and the US.

Excluding impairment and severance charges, the operating loss for the quarter was $2.2 million, compared to operating income of $2.7 million in the same period of the prior year, primarily due to the impact of lower sales.

Net sales for Lanier clothes were $24.4 million in the fourth quarter of fiscal 2008, compared to $33.6 million in the same period of the prior year, with the decline driven primarily by continued difficulty in the tailored clothing market and the exit from the O Oscar and Nautica licensed businesses.

Excluding $600,000 of restructuring charges, the operating loss for the quarter was $800,000, compared to a $2 million operating loss in the same period of the prior year.

The impact of lower sales was more than offset by reductions in operating expenses.

While the climate remains difficult, we believe we are beginning to benefit from the restructuring done primarily during the second quarter of fiscal 2008.

In fact, on an adjusted basis, Lanier made an operating profit in the second half of fiscal 2008.

Oxford Apparel reported net sales of $52.3 million for the fourth quarter of fiscal 2008, compared to $77.9 million in the same period of the prior year.

The decline in net sales was generally planned and attributable to our strategy to focus on key product categories, and exit underperforming lines of business although the difficult market conditions also had an impact.

Excluding impairment charges, operating income for the quarter was $2.3 million, or 4.4% of sales, compared to operating income of $2.9 million, or 3.7% of sales, in the same period of the prior year.

As you will recall, in both of our legacy businesses -- Lanier Clothes and Oxford Apparel -- our focus over the last couple of years has been on maximizing the cash return on cash investing.

We have deliberately exited underperforming businesses and in the process have extracted working capital which has resulted in smaller businesses with higher returns.

Corporate and operating income was $1.4 million for the fourth quarter compared to an operating loss of $5.7 million in the same period of the prior year.

This income was primarily attributable to the impact of favorable LIFO accounting adjustments of $6 million, and reductions in overhead costs including lower employee compensation costs, partially offset by $1.1 million of restructuring charges related to severance and vacating leased office space.

Excluding the LIFO accounting adjustment and restructuring charges, operating loss for the quarter was $3.4 million.

LIFO accounting charges of $2.2 million were recognized in the same period of the prior year.

I will now move on to the consolidated results for the income statement, balance sheet and cash flow statement.

As Hicks mentioned earlier, for the full year, consolidated net sales were $947.5 million, compared to $1.1 billion in the same period of the prior year.

Consolidated gross margins for the fourth quarter of fiscal 2008 were 45% compared to 39% in the same period of the prior year.

Gross margins for fiscal 2008 were 41.8% compared to 40.3%, in the prior 12 month period.

The increase in gross margins for the year was primarily due to the impact of $8.8 million of income related to LIFO accounting adjustments in fiscal 2008, compared to LIFO charges of $1.5 million, in the prior 12 month period.

SG&A for the fourth quarter of fiscal 2008 was $84.8 million, or 42.4% of net sales, compared to $91.2 million or 34.8% of net sales, in the same period of the prior year.

For the full year SG&A expenses were $358.1 million, or 37.8% of net sales, compared to $366.5 million or 33.8% of net sales in the prior 12 month period.

The decrease in SG&A for the year were reflective of reductions in overhead including employment costs in each operating group, the impact of a 10% reduction in the average value of the British pound versus the US dollar, and the resolution of a contingent liability, partially offset by expenses associated with operating additional Tommy Bahama retail stores and certain restructuring charges in fiscal 2008.

The increase in SG&A as a percentage of net sales was due to the reduction in net sales as described above.

Amortization of intangible assets decreased to $600,000 in the fourth quarter of fiscal 2008, from $1.2 million in the same period of the prior year.

For the year amortization was $2.9 million, compared to $5.4 million in the 12 months ended February 2, 2008.

The decrease resulted from amortization typically being greater in the earlier periods following an acquisition.

Amortization of intangible assets is expected to be approximately $1.2 million, and depreciation is expected to be approximately $20 million in fiscal 2009.

Impairment of goodwill intangible assets and investment in joint ventures was $311.5 million from the fourth quarter, and $314.8 million in the full year of fiscal 2008 with no such charges taken in the prior 12 month period.

These non-cash charges were required under the application of current accounting rules for impairment, and resulted principally from the decline in our market capitalization.

Royalties and other operating income for the fourth quarter of fiscal 2008, were $4.2 million compared to $5.3 million, in the same period of the prior year.

For the full fiscal year, royalties and other operating income were $17.3 million, compared to $19.8 million, in the prior 12 month period.

The decrease for the year was primarily due to a $2 million gain in the prior 12 month period related to the sale of a facility, and the impact of foreign currency rates on royalty income in the Ben Sherman Group, partially offset by the sale of a trademark in the second quarter of fiscal 2008.

Due to softness in the economy, and the impact of currency exchange rates, we expect a decrease in royalty income in fiscal 2009.

Over the course of the fourth quarter of fiscal 2008, we paid $25 million to repurchase a face value of $33.2 million, of our 8 7/8 percent senior unsecured notes.

This repurchase created a pre-tax gain in the quarter of approximately $7.8 million.

As a result of these transactions, we expect to save in excess of $2.2 million of annual interest expense in fiscal 2009 at the rate currently applicable under our US revolving credit facility.

Interest expense in the fourth quarter of fiscal 2008 decreased to $4.9 million, from $6.4 million in the same period of the prior year.

Interest expense increased 6%, to $23.7 million for fiscal 2008, compared to $22.4 million in the prior 12 month period, primarily due to the write-off of unamortized financing costs.

This was partially offset by lower applicable interest rates.

Borrowings under the US revolving credit facility during the fourth quarter were at prime or libor plus 200 basis points.

Turning to the balance sheet, receivables were $78.6 million at January 31, 2009, compared to $105.6 million at February 2, 2008.

The 26% decrease was primarily due to lower wholesale sales in the last two months fiscal 2008, compared to the months of December 2007 and January 2008.

We believe we are properly reserved for these receivables and that the overall quality of the receivables is sound.

Inventories at the end of fiscal 2008 were $129.2 million, versus $158.9 million, at February 2nd, 2008.

A reduction in our LIFO reserve partially offset inventory reductions at all operating groups.

Managing inventories closely was an important initiative throughout fiscal 2008.

Tight inventory control reduced our need for mark downs and promotional activity particularly during the holiday season.

Total liquidity at the end of the fourth quarter was $116 million, which included $3 million in cash, and $113 million of availability under our $175 million revolving credit facility.

Cash flow from operations was $90.4 million in fiscal 2008 compared to $67 million, in the prior 12 month period.

Fiscal 2008 cash flow from operations was driven by earnings before the impact of non-cash items, as well as reductions in inventory and receivables.

Thanks for your attention.

And now I'll turn the call over to Hicks Lanier for some closing comments.

Thanks, Tom.

Leadership is incredibly important at times like these, and I'm very confident that we have a management team and an organizational culture that responds extremely well when challenged.

2009 is obviously going to be a challenging year, and our plans are very conservative.

We are expecting a topline reduction in the high teens, reflecting the exit of underperforming businesses, the impact of currency translation rates, and a difficult retail environment.

While the year will be tough, through tight inventory control and expense management, we expect to come through in relatively good shape.

The Company has come through some tough times before.

While we have current challenges to work through, I have every confidence in our team and, as in the past, we will come through as a stronger, leaner, more focused organization with our abilities and opportunities intact.

Thank you for your time this afternoon and your continued support.

Jamie, we are ready for questions now.

Thank you.

(Operator Instructions).

We'll take our first question today from Robin Murchison with SunTrust.

Good afternoon everyone.

Hi, Robin.

Hi, I wanted to ask you a few things, if you could characterize the current environment now vis-a-vis fourth quarter.

Some of the retailers have indicated that the current environment is not as aggressive, presumably because of better inventory control.

Otherwise caught and unaware basically in fourth quarter, so rerouted everything into the first quarter, making it a little bit easier for them.

I'm just wondering from your side of the equation being -- from your vendor wholesale side -- what it looks like to you.

Terry and I were discussing this earlier today and he spent a good deal of time out in the stores over the weekend.

So Terry why don't you tell her what you saw out there.

Robin we are continuing to see -- our traffic is off still pretty consistent with the way we saw it in the fourth quarter.

However, our inventories in our stores are very current.

We are in a position right now -- I said to Hicks -- I don't think we've looked better in our retail stores and even in some of the wholesale accounts that I visited this weekend.

We are in good shape and positioned to do well.

We just need some more customers.

Our traffic continues to be down, pretty much as I said what we said in the fourth quarter coming out.

I think what you also told me, Terry, and it's consistent with what I've seen is -- the promotional activity is still intense.

Absolutely.

It was very intense as I eluded to for the fourth quarter and as we seen nothing like this before.

It continues -- a lot of the stores are still very very heavily promotional.

As we look at our conversion rate in our stores of customers -- we have a lot of people in the stores that are coming in and just sort of sport shopping and looking for discounts and if they don't find them, they'll will move on.

It's a tough environment out there.

To your point, I think the key to getting out of this cycle is for -- the wholesale side to manage the inventories to realistic expectations and hopefully create a cycle of scarcity.

I don't think we are close to that right now.

Okay.

Another one for Terry, if you can.

Certainly have heard of some retailers out there -- just to name one -- Nordstrom -- requesting from the vendor wholesale group lower opening price points.

Presumably they have requested that of you guys.

Wondering if -- how that plays to what you do with your price points in your own stores.

We are all taking a closer look -- a close look at price points -- not to say we are going to change our strategy and where our brands sets in the marketplace.

As I mentioned in my comments, price point is clearly something that we are looking at, because we are primarily a full priced merchant and we are not discounting.

So, we are being very aware that price point is an issue right now and I think Nordstrom -- they are great merchants -- and we have had conversations.

They are looking at their price points and how they assort their mix of all their items and that's just part of being a good merchant in these times.

We are going to stay very consistent of where we are in the marketplace.

At the same time looking at our presentations and making sure that our inventories are balanced with the appropriate fashion product and basic product and price points mixture that we cover the myriad of guests that come in our stores.

And I think other good merchants will do the same.

Wondering if -- I think the decline in inventory coming out of Q3 was down 30%?

Decline coming out of Q4 was down 19%.

I think there are two factors on that, Robin.

One is a little bit of changing in the Chinese New Year, where we had to take in goods earlier than we did last year to make sure they got in -- they were ex-China before Chinese New Year.

And the other is the impact of our LIFO charge in the fourth quarter which had a material affect on our LIFO inventories on a FIFO basis is a reduction of about 4% more than there is on a LIFO basis.

Right.

So those two would bridge that gap.

Could I venture to ask how you think it might look going forward?

Well, I will assure you -- I think our comments were -- this is about as high a priority as we have to keep our inventories in good shape, and we have done that throughout the past year.

We certainly don't have the opportunity to reduce them by the same magnitude we did this past year.

But we are certainly planning them to a lower sales base.

And so, I think that will continue to go down.

I will jump out and let somebody else ask a question but may jump back in, thank you very much.

Thank you, Robin.

We will now hear from Jeff Blaeser with Morgan Joseph.

Good evening and thanks for taking my question.

Sure, Jeff.

Couple of questions on the high teens topline expectations or reductions for next year -- can you give us a feel for the Tommy Bahama and Ben Sherman in those numbers or how much of the rationalization is going to be --

I think I can help you on that.

We mentioned three factors there that went to that.

One was just the marketplace and what they were.

There is also the -- currency impact that we have principally out of the UK -- and I will just give you absolute dollars on this -- but that would be somewhere in the neighborhood of $17 million.

We also have businesses in legacy Oxford that are basically discontinued entities and we expect an erosion of about $60 million there.

So if you eliminate those two factors and you figure the percentages on them, that gets us down to a projected decrease of closer to the 10% neighborhood give or take a point or two.

So I hope that will help you in your modeling.

It does, thank you.

And on the legacy -- the rationalization on the legacy -- is that an extension of the 2008 rationalization or is that just ongoing?

In some cases -- point of it -- some of that reduction might go back to the first quarter of last year, where we had business that we don't have this year.

And some of it may be stuff that we had all year last year but that we're not going to have going forward.

It's a combination.

But it's the same general plan.

In that business it's been a less is more concept.

Right.

Okay.

Then are you factoring in any kind of uptick in the economy in the back half or -- ?

No.

Not in this forecast.

Okay.

Is there any points -- if this were to continue throughout '09, in 2010 -- that you think that you may have to start looking at your price points?

You certainly --

I think what Terry just told you is we are already looking at our price points.

When he talks about core items he is talking about items that deliver compelling value to the customer.

And so they would be -- in many cases -- lower than what they have been -- but they have been merchandised that way.

So that we are not necessarily sacrificing gross margin but we are going to give the consumer a more compelling value.

Okay, finally on the contingency SG&A, I believe probably -- can you give us a magnitude of how much additional costs you can --

We've got quite a few levers that we think we can pull if we have to, so it would just depend on the circumstances.

Thank you very much.

Thank you.

As you can tell from what we done tangibly, when we talk about a $40 million reduction from '08 to '09.

That's in place -- that's not something that we are going to do -- that's something that is basically done as we have entered this year.

So we are managing those costs pretty well I think.

Yes, that certainly seems in line with --

Having said that, unfortunately, in this environment we are still experiencing some deleveraging with the -- as the sales have gone down we have not been able to -- in every case -- to take the expenses down there.

I think we have in at legacy Oxford pretty well, but in our brands, there are certain -- as we talked before -- the costs of additional stores are primarily fixed costs so you don't have much alternative there.

Okay, great, thank you.

Thank you, Jeff.

(Operator Instructions).

We will now hear from [Kelly McKay] with Eaton Vance.

Hi, thanks for taking another question.

Most of my questions have been answered.

I just wanted to follow up -- I would still expect -- I know you are not giving guidance -- but I would still expect with a high teens revenue decline that you might generate some free cash flow and I was curious if you are still prioritizing debt reduction with that free cash flow?

Well, I would say emphatically yes, that we are managing our business for liquidity and continued reduction of debt in this environment.

And so obviously with the projected decline in topline, we will expect our receivables over the course of the year to decline and our inventory to decline so we would expect continued free cash flow coming out this coming year.

And we expect to maintain the type of balance sheet that we have been talking about, which would entail further debt reduction during the year.

Okay.

Great, and I apologize -- I know the previous caller was asking about the $40 million of savings -- you said that all of those initiatives that are going to generate those savings are already in place?

That's correct.

Okay.

All right, I will follow up on that.

Thank you so much.

Thank you, Kelly.

That is all the questions we have.

I will now turn it back to our speakers for closing or additional remarks.

Thanks Jamie.

We like to thank all of you for your interest.

Obviously these are tough times, challenging times, interesting times, and we are not getting the most help in the world from our government.

We are pretty confident in our positioning at this point and our strategy and we are very focused and I believe we will be rewarded for that.

Thanks for your interest.

Ladies and gentlemen that does conclude our conference for today.

Thank you for your participation and have a wonderful day.