Oxford Industries Inc (OXM) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to today's Oxford Industries incorporated first quarter 2009 earnings conference call.

(Operators instructions) As a reminder, today's conference is being recorded and now I would like to turn the conference over to Ann Shoemaker.

Please go ahead.

Thank you.

Good afternoon, everyone.

Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the Federal securities law.

Forward-looking statements are not guarantees that actual results may differ materially from those expressed or implied in 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 undertakes no duty to update any forward-looking statements.

And now I'd like to introduce today's call participants.

With me today are Hicks Lanier, Chairman and CEO, Terry Pillow, CEO of Tommy Bahama, Doug Wood, President of Tommy Bahama, Tom Chubb, Executive Vice President and Scott Grassmyer, CFO.

Thank you for your attention and now I'd like to turn the call over to Hicks Lanier.

Good afternoon and thank you for joining us to discuss our first quarter results that we just announced.

Consolidated net sales for the first quarter ended May 2, 2009, were $216.7 million compared to $272.9 million in the first quarter of fiscal 2008.

Diluted net earnings per common share were $0.42 compared to $0.59 in the first quarter of fiscal 2008.

The first quarter sales in earnings declines were consistent with the comments we made on our last call.

We expect the percentage sales decline experienced in the first quarter to be consistent with the percentage sales decline expected for the whole year.

Historically, our first quarter is our biggest sales quarter and we expect that to be true for this year.

Our SG&A expenses in dollars are anticipated to remain roughly flat throughout the year.

Accordingly, we tend to get our best operating leverage and profitability in the first quarter.

While our topline remains challenged by the retail marketplace, we are encouraged by our ability to maintain strong gross margins and expect them to remain relatively flat throughout the year.

For the first quarter this year, we've reduced SG&A by over 20% from $99.6 million to $78.7 million.

We also reduced inventories from $122.7 million at the end of the first quarter last year to $103.3 million as of May 2, 2009.

At the same time, we have maintained the integrity of our Tommy Bahama and Ben Sherman Brands and believe we have strengthened the position of each in its core market.

Additionally our legacy businesses have performed quite well and are clearly showing the benefits of the restructuring efforts we initiated prior to the downturn in (inaudible) I'll return with some additional comments for closing.

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

Thank you, Hicks.

Tommy Bahama reported net sales of $98.4 million for the first quarter compared to $129.3 million in the first quarter of fiscal 2008.

Our operating income for first quarter was $12.3 million compared to $19.5 million in the first quarter of 2008.

The decrease in operating income was due to lower sales and lower royalty income.

However, we were able to mitigate the impact of lower sales with improved gross margins and lower SG&A.

We understand that in this unprecedented market, the customer needs a reason to come into the store and by.

As always we believe our best strategy is to excite the consumer with creative and innovative products.

We have also required our design and sourcing departments to develop products at price points that will be attractive to a broader reach of our audience while maintaining our gross margins.

We remain a full priced affordable luxury merchant and believe that offering a selection of products with the compelling price value equation works well in a challenged marketplace.

Equally important to having compelling product is our product presentation, we have initiated a key item merchandising format that highlights selects products and offers them in a breath of colors and sizes.

We have seen positive results where we have employed this approach.

In addition, Tommy Bahama continues to offer brand appropriate incentives to our customers.

Currently, we are executing our spring summer flip side events offering our customers who spend more than $200 for the $50 gift card towards future purchases.

We occasionally offer limited windows of free shipping on our e-commerce web site and also plan to anniversary our loyalty program for this holiday season, which similarly rewards our best customers with a $50 gift card.

We at Tommy Bahama are very proud and optimistic about our wholesale businesses.

We have developed strong partnerships over the years that have elevated and broadened the Tommy Bahama brand.

Through our wholesale customers have not been spared the effects of this market, we are witnessing encouraging signs of strengths in certain regions of the United States.

We continue to dedicate great time and effort working with these partners to ensure gains in all regions and for a long future of stability and growth.

In this current sales environment, we do not under estimate the importance of appropriately managing SG&A.

We are proud of the way our associates have risen to this challenge.

And while we have made significant reduction inside G&A expenses, they remain invisible to our customers who frequent Tommy Bahama stores and restaurants.

Our e-commerce sales continue to exceed both last year's results and our plans.

Women's swimwear has performed exceptionally well, positioning Tommy Bahama as one of the premiere swimwear brands in the industry.

In closing, we are experiencing market conditions that continue to challenge our business.

But our team is poised to continue to maintain solid gross margins, manage our expense levels carefully and most importantly offer compelling and exciting product that drives our ongoing development of the Tommy Bahama brand.

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

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 $24.2 million for the first quarter compared to $36.6 million in the first quarter of 2008.

Ben Sherman reported an operating loss of $2 million in the first quarter compared to operating income of $300,000 in the first quarter of 2008.

The decrease in net sales and operating income was primarily due to the 26% reduction in the average exchange rate of the British pound versus the United States dollar, coupled with challenging consumer market conditions in the United Kingdom.

Because the majority of Ben Sherman's inventory purchases are denominated in U.S.

dollars, while Ben Sherman sales are primarily in other currencies, the currency fluctuation negatively impacted Ben Sherman's gross margins.

The lower margins were partially offset by reductions in SG&A.

Despite the negative financial performance, we continue to see a number of positives within the Ben Sherman business.

Our U.S.

owned Ben Sherman retail store operations are comping positive year-to-date.

While the stores are still in their infancy and there is much work to be done the positive sales trend is quite encouraging.

In addition, in the last several months we opened two Ben Sherman stores in Germany, one Cologne and one in Berlin.

The stores feature an updated look that truly captures the essence of the Ben Sherman brand and early commercial results for the German stores are quite good.

Finally, starting a few months ago, we initiated in Ben Sherman a refocusing process similar to what we have done in Oxford apparel and Lanier Clothes.

The objective of this process is to streamline the business and focus it on those core elements that give us our best opportunity for profitable growth with this global lifestyle brands.

As a result of this process, we have announced plans to stop doing kids ware and footwear.

In the short term existing these businesses will result in some restructuring costs, but over the mid to long-term we will have a much more focused and efficient Ben Sherman business.

Net sales for Lanier Clothes were $31.5 million in the first quarter compared to $38.7 million reported in the first quarter of fiscal 2008.

For the quarter, Lanier Clothes reported operating income of $2.7 million compared to break even results in the first quarter of fiscal 2008.

The reduced sales and improved profitability resulted from Laniers exist from the Nautica and Oscar de la Renta businesses and restructuring of the Arnold Brandt business as well as initiatives to reduce overhead.

Clearly, the restructuring we started in the second quarter of last year continues to yield positive results as it did in the seconds half of last year.

Oxford Apparel reported net sales of $63.2 million for the first quarter, compared to $68.7 million in the first quarter of fiscal 2008.

Operating income for Oxford Apparel was $5.2 million for the first quarter, compared to $5.3 million in the first quarter of fiscal 2008.

The decrease in sales was primarily due to Oxford Apparels strategy to focus on key product categories and exit certain underperforming lines of business.

The decrease in sales and corresponding decrease in gross profit were offset by decreases in SG&A in the form of reduced employment costs and other variable operating expenses.

We continue to be very pleased with the efforts of this team to produce solid results in this difficult environment.

The corporate and other operating loss for the first quarter was flat with last year.

The first quarter of fiscal 2009 included a LIFO accounting charge of $1.6 million compared to a LIFO accounting charge of $.5 million in the first quarter of fiscal 2008.

This additional LIFO charge was offset by decreases in SG&A primarily consisting of reduced employment costs.

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 2, 2009, consolidated net sales were $217 million compared to $273 million in the first quarter of 2008.

Consolidated gross margins for the first quarter decreased to 41.4% from 42.6% in the first quarter of fiscal 2008.

The moderate decline in gross margin was primarily attributable to the larger LIFO charge that I previously referred to as well as our sales mix.

SG&A for the first quarter decreased to $78.7 million or 36.3% of net sales from $99.6 million or 36.5% of net sales in the first quarter of fiscal 2008.

The decrease in SG&A was due primarily to significant reductions in the overhead cost structure throughout all parts of our Company, cost reductions associated with the exit of certain businesses, the impact on Ben Sherman of the reduction in the average value of the British pound versus the U.S.

dollar, reductions in preopening expenses for Tommy Bahama stores and restaurants, and reductions in advertising expenses.

These costs were partially offset by expenses associated with the operation of additional Tommy Bahama retail stores.

Royalties and other operating income for the first quarter were $2.5 million compared to $4.2 million in the first quarter of fiscal 2008.

The decrease was primarily due to our termination of the license agreement for footwear in Tommy Bahama, the aforementioned decline in the British pound versus the U.S.

dollar which impacted Ben Sherman royalty income, and the difficult economic conditions.

Operating income for the quarter was $13.2 million versus $20.1 million in the same period of the prior year.

The reduction was primarily due to lower sales volume.

Turning to the balance sheet, receivables were $93.8 million at May 2, 2009, compared to $123.1 million at May 3, 2008.

Total inventories decreased 16% to $103.3 million at May 2, 2009 compared to $122.7 million at May 3, 2008.

We continue to manage inventory levels carefully and do not believe we have a significant risk from excess inventory.

As of May 2, 2009, we had approximately $122.8 million in unused availability under our U.S.

revolving credit facility and $9.1 million in unused availability under our United Kingdom revolving credit facility.

Our anticipated capital expenditures for fiscal 2009 including $3.8 million incurred during the first quarter are expected to be approximately $12 million.

These expenditures will consist primarily of Tommy Bahama and Ben Sherman retail stores and the costs associated with the implementation of a new integrated financial system.

Thanks for your attention, and now I'll turn the call over to Hicks Lanier for some closing comments.

Thank you, Tom.

Despite reduced consumer demand for discretionary items including apparel, Oxford is solidly profitable and we expect to continue to generate substantial cash from operations.

We remain confident that our fundamental strategy is on target and will allow to us to generate excellent financial returns as conditions in our markets improve.

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

Thank you.

(Operator instructions) We'll go first to Edward Yruma with KeyBanc Capital Markets.

Thanks very much for taking my question.

Just to reiterate on the SG&A comment, you indicated that SG&A would be flat for the remainder of the year yet I think historically you've had a little bit more seasonality.

Is it assuming that it's flat on the dollar basis or that the decline is flat?

It's flat on a dollar basis.

Roughly, there's a little bit of variability.

It will be a little bit lower in our smaller sales quarters because there are some variable expenses that sort of float within as sales go up and down.

But it should be within three or $4 million of the $78 million or so that we had in the first quarter.

Got you.

For each of the remaining quarters.

Can you give us an idea exactly on the impact of SG&A on the currency exchange with the Ben Sherman business.

Was it meaningful or just a nominal amount?

Hang on just a second.

We'll give you a little input on that.

It was significant.

It was a little less than $4 million, about $3.5 million to $4 million.

Got you.

And finally, I know that you've repositioned much of your Ben Sherman lineup in the U.K.

Can you give us a little bit of indication as to how that's been performing and if there are other tweaks you are going to make to improve the performance of that brand?

Thank you.

I think the performance in the U.K.

, the repositioning has gone well.

We've enhanced the distribution over there quite a bit by exiting some lower tier accounts.

And adding some upper tier accounts while improving our positioning and our pricing at our largest customer over there which is Demondants.

Now as I say that I have to caveat all that against the backdrop of sort of the market conditions over there.

They are as bad over there as they are over here.

So we are sort of sailing into a head wind.

But given the conditions I think we've been pleased with the way the repositioning of the brand in the

Great.

Thank you very much.

We'll go next to Eric Tracey with BB&T Capital Markets.

Good afternoon.

Hi, guys.

For either Hicks, Terry or Doug just on Tommy Bahama, maybe just sort of talk to the various pieces of the P&L.

It looks like sales continued to accelerate a bit and talk through the contrast of ,Terry, your comments that you are seeing some signs geographically at least domestic that will are possibly turning.

And then just from a gross margin and G&A perspective sounds like you are making the right moves on the G&A.

You mentioned that things are taking place, that the customer is not seeing.

Maybe just a little bit more color there.

And on the gross margin from the price sort of value equation, how we should thinking about that.

And what the moves should be taken if we are going to have a lower price point maybe on the sourcing side or what's going on to maintain as margins.

Okay.

Eric, this is Terry Pillow.

On the pricing, as I said on the call, we are addressing and looking at the prices in our products and our stores.

It's not to say that we are dramatically changing the strategy of what we do.

We still, some of the product that we are currently selling are the more expensive products.

We are just trying to balance in the stores to make sure that we have a correct appropriate amounts of products at all price levels.

We are working with our sourcing partners in Asia to make sure that we are developing those products versus just stripping out and taking quality out of those products.

We are commit to do continue to make the quality of product that we've always made.

The comment I made about seeing some positive signs in wholesale, we have seen in the quarter, we started to seeing with is some of our wholesale accounts region until summary orders that were better than they have been than we have seen in a few months which was encouraging to us and some pickups in parts of the around the country with some of our biggest wholesaler customers.

So that was very encouraging for us to see.

Real quick just to follow on that.

Do you feel like a sense that they get through Q4, Q1, that the destocking level had really reached a bottom and is there to that point of there's summary orders picking up that there is restocking or just --

Eric, clearly people played it very conservatively coming out of the fourth quarter for first quarter.

I think there was some degree of that.

But I think there could be some of that.

And we also think that our products in those stores right now where we are positioned in the marketplace and our price point and our whole fashion equation of where we are positioned in this market happens to be a winning strategy for us.

And customers are voting for our products.

So we are encouraged.

Okay.

Okay.

And on that pricing, I know Nordstrom is sort of taking a little bit more of an aggressive approach to maybe resetting of pricing a bit, have you all seen that to any degree and, I know you mentioned you're doing this sort of proactively with the Company in retail but wholesale in a customer such as Nordstrom.

Are you seeing that at all?

I think Nordstrom we have seen them be focused, a little bit more focused in offering of some more competitively priced products.

We applaud that.

They are doing it without going on sale.

Right.

And discriminately mark down their store, but I think it's a prudent thing to do as we are in our retail stores right now.

So clearly, we've seen that.

And luckily the majority of outsourcer products are sort of based in the sweet spot for a lot of our wholesale customers but we are being able to take advantage in a difficult market.

We use the term affordable luxury.

We are not inexpensive.

We build quality products and we will continue.

However, we are not we are not out of line in what we are charging for our products and we are finding that the customer is responds to go that level.

You're right, there is a resetting of a lot of the wholesale customers of where their sweet spot is and we are a recipient of some of the positive pieces to that.

Maybe with Hicks and Tom, turning to Ben Sherman, sort of the decision to exit the kids ware and footwear, footwear in particular seemed to be such an integral part of the line for awhile.

Kind of talk through the decision there.

And obviously probably just from a manufacturing standpoint offer some improved efficiencies, but then also just from the branding element of it maybe talk through.

I think footwear had become increase single challenging over the past few seasons and we determined that was not necessarily a core competence of ours to do it internally.

So in all likelihood we will be farming that out so to speak and I don't think we will be out of the footwear business on a permanent basis.

So, there will be a temporary sort of shut down but then the idea of ramping it on a third party basis?

Yes, that's correct.

And in the case of kids ware where it was just a case of it was fun and cute but there wasn't a critical mass there either.

And in this environment we just didn't have the luxury of fun and cute without a financial reward.

Right.

Right.

But we think the ability to just really focus in on the core men's primarily and women's products are going to serve us quite well.

Okay.

Then you mentioned the positive comps within the U.S.

retail.

I understand that's kind of a small base but can you talk through the dynamics there, is that full price sell through or is there some potential --

We are doing some promoting.

I don't know whether you've been in our SoHo store lately but we have a little back corner that we put sale merchandise in and it's working pretty well for us.

But the bulk of the store is as the customer comes in is full priced and we've had, we are comping up.

We are up in dollars in gross margin.

We are down slightly in percentage in gross margin but overall we are pretty pleased with the way the retail is working for us in the U.S.

And we are planning to open a store in Boston.

Tom, when is that?

August.

Yes, August, right, before school starts.

So we've got a good location on Newbury Street and we think that will be a successful location for us.

Okay.

All right.

Lastly Tom for you on the tax rate, sort of any thoughts for the balance of the year, I was just?

I will let Scott handle that one.

That's okay.

It should be slightly below 30% .

This quarter we had a little bit of contingency reserves reverse.

But the lower, when our earnings are lower the permanent differences have a higher impact in earnings this year, lower than last year.

So it will push our rate down.

Due to some of the permanent differences having a bigger impact.

So slightly below 30% this year and as earnings grow that tax rate

Great.

Thanks, guys, and best of luck.

We'll go next to Robin Murchison with SunTrust.

Hi, good afternoon.

Hi, Robin.

Again, congratulations.

Nice performance.

Thank you.

We are actually pretty proud of the quarter with the exception of the topline.

We think that's somewhat out of our control but not entirely.

Well, all the same.

Okay.

So a few things here.

In piggybacking off of Eric's question, was there any change in your own, Ben Sherman, your positive comps, any change in your own stores pricing structure or strategy?

Not really, no.

All right.

And also noticing --

You might remember that we said before that the target customer for Ben Sherman which is principally an 18 to 30 years old mail, fashion apparel is pretty important on their pecking order.

And so we have noticed that our sales in our own stores and our customers has held up better than apparel targeted to an older age group.

You did not mention comps at Tommy Bahama.

So we presume they are negative -- Tommy Bahama.

Well, they are, and part of it is our own making because our pretty conservative plan.

And that has enabled us to maintain the margins we have.

Yes, they have, the comps have been negative.

They have improved over the last few months.

So, we are optimistic about the trends lines there.

Do you have any sense with maybe fragile improvement in the overall financial market, that it's making your customer feel, it's allowing your customer to feel a little better about some spending?

Well, we were encouraged by these consumer attitude figures that came out a couple of weeks ago and saw that the stock market react to do that.

But we had a reserve reserve celebration until we see a little more of it.

What about, what are the restaurants or the compounds seeing, any kind of, same, slightly improved, slightly worse?

Robin, this is Terry Pillow.

I will let Doug Wood talk to that issue on the restaurants.

I think you can just assume, Robin, that we are seeing the same type of traffic issues in our restaurants that we are seeing in retail.

Especially, when you consider that our restaurants are in the, we only have 12 and 11 or 12 of them are in resort locations and that's where the travel has hit our restaurants the same as it's hit the retail stores.

And I don't know if I have missed this or not, but I've noticed just perusing your web site particularly on the Tommy Bahama web site that there are a limited number of SKUs that are valued -- let me get to the women's real quickly here, for example, Island Values, I think you call it, I did not recall that you used to show some mark down merchandise on the web site.

Is that fairly new?

That is, Robin, that is relatively new and it's something that we are testing it has not, it's insignificant what that is generating on our web site as we talked about our comp business on the web has increased over last year and increased our plans.

We are watching that closely in the test to make sure that we monitored that butter it's something that I think, Doug, we want to [inaudible] two months ago.

Yes, about two months ago.

But it's insignificant.

All right.

Then also I want to do ask the same with Tommy Bahama for just a second.

I want to do ask you, because of the predominance of where your stores are located in some key swing states, particularly for housing and in light of the comments that you made about regional pick up, anything you can tell us about business, the California, Nevada, Florida, that might dovetail?

As you know, Robin, those were the first ones to be affected the worse.

And we were in those markets at this time a year ago when we started seeing this.

So we are watching very carefully to make sure which of those markets come out the quickest.

We have seen even though I think it's way early to call it a trend, but we have seen in our, in some of our stores and with some of our partners in the Southern California region having a pick up.

But again it's still very difficult out there.

So any kind of bright spot that we get we look at it very carefully.

But I think it's way too early to call it.

Into this thing but there are some signs regionally and Southern California is one that we are watching closely.

Okay.

Thank you.

And then two more if I can.

In the Lanier Clothes division, would you please remind me which quarter it was last year that.

The second quarter.

Thank you, you knew where I was going.

Okay.

And.

We've got a solid three quarters back to back where we've been very pleased with the progress there.

Still in a very challenging market.

On the last conference call the one of the things you talked about are guided to was your expectation that sales in this year would be high teens.

And I'm wondering I'm thinking with the performance of the first quarter are wondering with the perform of the first quarter how you are feeling about things now.

Are you holding to a decline in the high teens and expense reductions of about $40 million?

Thank you very much.

We are in that same range that we talked about, high teens.

That's what we expect for the balance of the year.

And if so as we repeatedly said the way we are planning our inventories, this fairly little upside potential on that.

But that's pretty key to the way we've been able to manage our risk and manage our gross margins.

So it seems to work for us.

All right.

Thank you very much and good luck.

Thanks.

Thank you.

(Operator Instructions) Next, Susan Sansbury with Miller Tabak.

Hi, yes, thanks.

Going back to this regional strength, I think in prior conference calls you highlighted Texas and now you are sort of mentioning Southern California.

Are those the only two regions where you are seeing some strength or is it broader?

Susan,.

Or, I'm sorry, is it client specific?

We are still seeing some signs of strength in Texas in addition to some of these, but it's really by account and looking at our stores under a microscope and really dissecting this think.

It's as I said even though there are some signs of strength I think its too broad to call it wide sweeping at this point.

Okay.

That's helpful.

Now going back to Tommy Bahama comps can we parse that a little bit in terms of some buckets, traffic, conversion?

We,.

And the actual number, maybe.

In the quarter we continue to see our traffic down in the mid-teens.

We saw a little bit, a little bit of traffic increase a little bit in May.

But still our traffic is considerably off from a year ago and that's a very accurate number.

We keep up with on a daily basis.

So we are still seeing significant traffic decreation in our stores.

Okay.

And tell me what it was in the fourth quarter.

Is that a change in trends from the fourth quarter?

In the fourth quarter we were seeing traffic down around in the 20% range, in the first quarter move to the mid-teens.

For the balance of the year, do you.

I wish I had a crystal ball.

Okay.

And then final question is outlet stores, which were mentioned as something that you were reviewing in terms of testing these, I guess merchandising, merchandising strategies.

With respect to promotional cadence, any updates on whether you are going to ramp up outlet stores or whether you prefer to do this on the Web site.

Susan, we feel that our balance between full price and outlet stores is very appropriate right now.

We open add few more outlet stores this year.

We will open them appropriately but right now the balance between 13 outlet stores and 70 full priced stores we think is a healthy balance.

Which enables us to keep our full priced stores current and our inventories current and clean and maintain our pricing strategy in the full priced stores by taking our markdowns in our outlet stores.

We are cognizant.

We don't want those stores, we don't want that balance to get out of line but we are very comfortable right now where we are with our full price and outlet store mix.

Okay.

I appreciate it.

Good luck.

Thanks very much.

Thank you.

And there are no further questions at this time.

I'd like to turn things back to our speakers for any additional or closing remarks.

I guess in summary, we think our team did a pretty good job on the expense control, risk control, inventory control, gross margin control.

And we think we are in just terrific position once we get any kind of wind at our back or uptick for the incremental sales, and that good gross margin we've got to drop right to the bottom line.

So I know you all are anxious for us to get there and we are, too.

So thanks for your continued interest and support and we will look forward to talking to you at the end of the next quarter.

Thank you everyone.

That concludes today's conference call.

We thank you for your participation.