Oxford Industries Inc (OXM) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by today. Welcome to this Oxford Industries Incorporated first quarter 2010 earnings conference call.

(Operator Instructions).

And now I would like to turn the conference over to Ms. Ann Shoemaker, Treasurer. Please go ahead.

Thank you, Lisa, 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&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 our operations or our financial condition to differ, are discussed in the documents filed by us with the SEC. We undertake 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, Tom Chubb, President, Scott Grassmyer, CFO, Terry Pillow, CEO of Tommy Bahama, and Doug Woods, President of Tommy Bahama. 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. Our first quarter results are solid by any measure. Consolidated net sales for the first quarter ended May 1, 2010 were $217.8 million, compared to $216.7 million in the first quarter of fiscal 2009. Earnings per share were $0.76, compared to $0.42 in the first quarter of fiscal 2009. Increased consumer demand at both our owned stores, and those of our wholesale customers drove stronger than expected sales. In our retail stores, we have achieved healthy comparable store sales.

On the wholesale side, our customers had initially booked spring 2010 very conservatively, and finished 2009 with very lean inventories. As they began to experience positive sales trends during holiday 2009, and the early part of this year, many of them scrambled to try to and rebuild inventory, to what we believe are more normalized levels. We did everything we could to service these customers, and as a result, some sales originally planned for our second quarter shipped in the first quarter. With increased gross margins across the Company, we were able to leverage the additional sales into a respectable bottom line result of $0.76 per share, despite a modest increase in SG&A, that primarily resulted from the resumption of our performance-based bonus plan which we had suspended for fiscal 2009.

Looking forward, we continue to anticipate a steady recovery in the business, and are increasing our guidance for the year to net sales of $790 million to $805 million, and EPS of $1.70 to $1.80. On the retail side, we expect to continue to see positive comp store sales for the balance of the year. On the wholesale side, second quarter sales will be impacted by the sales our customers pull forward into the first quarter. Excluding the impact of businesses we exited, we generally expect to see continued steady sales improvement through the year. For the second quarter, we expect sales of $175 million to $185 million, and EPS of $0.30 to $0.35.

While there is still significant uncertainty in the economy, we are pleased with our first quarter results, and the improved trajectory of our business. The steps we took last year to protect our brands, mitigate risk, and aggressively reduce our expense structure are paying off for our shareholders. I'll reserve some additional comments for closing. I'd now like to turn the call over to Terry Pillow, CEO of our Tommy Bahama Group. Terry?

Thank you, Hicks.Tommy Bahama reported net sales of $109.1 million for the first quarter of fiscal 2010, compared to $98.4 million in the first quarter of fiscal 2009. The increase in sales was due to increases in both the direct to consumer and wholesale channels of distribution, as the retail environment improved. Tommy Bahama's operating income for the first quarter was $17.9 million, compared to $12.3 million in the first quarter of 2009. The increase in operating income was due to increased sales, improved gross margins, higher royalty income, partially offset by the increases in SG&A.

While apparel and retail experienced rebound over last year's dismal retail environment, we also believe that we have gained market share. This spring our product clearly resonated with our customers. They responded to all channels of distribution and in all regions, with very strong sell-throughs at our owned retail stores, and our eCommerce site with our wholesale customers. In wholesale, we were also pleased with our fall and holiday bookings, which are tracking well above last year. Our retail stores and eCommerce business, each experienced double-digit comp increases in the first quarter. Our web presence continues to be the hub of our direct-to-consumer strategy, allowing us to speak directly to our Tommy Bahama guest. This allows us to drive sales through our website, as well as drive guests to our stores and restaurants.

Our woven business is very strong, with a broader range of products including long sleeved woven shirts in cotton, linen, silk and silk blends. The direction we have taken in our women's products continues to pay off, and the business is growing nicely. We believe our positive trajectory in all channels will continue, and we have bought inventory to support a solid second half. Spring 2010 marks the first season of our new in-house footwear initiative. Footwear is found in our own retail stores, eCommerce site, and in select specialty stores. The footwear is exactly on brand, and the initial results and market reaction are encouraging. We're excited about the prospect of building a meaningful footwear business going forward.

We have been busy rebuilding the new retail store pipeline. In May, we opened a full price store at the Galleria in Roseville, outside Sacramento. For the balance of the year, we expect to open four additional stores, including a retail restaurant island location in Laguna Beach. It's good to feel a little wind at our back, and we look forward to delivering continued improved results. Now I'll turn the call over to Tom Chubb, for details on the other three operating groups, and consolidated 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 $22.2 million for the first quarter of fiscal 2010, compared to $24.2 million in the first quarter of 2009. The decrease in sales was primarily due to the exit and subsequent licensing of the footwear and kids businesses, and the exit from the women's operations, partially offset by a 5.6% increase in the average exchange rate of the British pound Sterling versus the United States dollar, and increased retail sales. Ben Sherman reported operating income of $0.5 million dollars in the first quarter, compared to an operating loss of $2 million in the first quarter of 2009. The increase in operating income was primarily due to increased gross margins, reduced SG&A, and increased royalty income. While there is much work still to be done, we are pleased to see our refocusing efforts begin to bear fruit.

Net sales for Lanier Clothes were $30.4 million in the first quarter of fiscal 2010, compared to $31.5 million in the first quarter of fiscal 2009. The decrease in sales was due to Lanier Clothes exit from certain businesses, resulting in close-out sales in the first quarter of last year. This decline was partially offset by higher sales levels in it's owned and licensed branded businesses, resulting from the improved retail environment. For the quarter, Lanier clothes reported operating income of $4.4 million, compared to operating income of $2.7 million in the first quarter of fiscal 2009. The increase in operating income was primarily due to increased gross margins, resulting from a higher proportion of branded sales, partially offset by increased SG&A. Lanier in particular, benefited from retailers trying to rebuild their inventory levels in the first quarter, and was able to leverage the increased demand into positive operating results.

Oxford apparel reported net sales of $56.3 million for the first quarter of fiscal 2010, compared to $63.2 million in the first quarter of fiscal 2009. The decrease in sales was primarily due to Oxford apparel's exit from certain businesses, resulting in close-out sales in the first quarter of last year. The decrease was partially offset by the impact of the improved retail environment. Operating income for Oxford apparel increased to $6 million for the first quarter, compared to $5.2 million in the first quarter of fiscal 2009, primarily due to decreased SG&A and improved gross margins. Once again, Oxford Apparel executed very well and delivered solid results.

The corporate and other operating loss for the first quarter of fiscal 2010 was $7.3 million, compared to an operating loss of $4.8 million in the first quarter of fiscal 2009. The increase in the operating loss was due to increased SG&A, resulting from increased incentive compensation and severance related costs. The first quarter of fiscal 2010 included a LIFO accounting charge of $700,000, compared to a LIFO accounting charge of $1.4 million in the first quarter of fiscal 2009. I'll now hand the call over to Scott Grassmyer to comment on our consolidated financial results.

Thanks, Tom. 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 1, 2010, consolidated net sales were $217.8 million, compared to $216.7 million in the first quarter of 2009. Consolidated gross margins for the first quarter of fiscal 2010 increased to 46.7%, from 41.5% in the first quarter of fiscal 2009. Tommy Bahama sales, which generally have higher gross margins than our other operating groups increased in total, and as a proportion of consolidated sales. All other operating groups also had increased gross margins in the first quarter.

SG&A for the first quarter of fiscal 2010 increased to $83.8 million, or 38.5% of net sales, from $78.7 million or 36.3% of net sales in the first quarter of fiscal 2009. The increase in SG&A was due primarily to costs associated with the resumption of our incentive compensation program, which is tied to financial performance. The increase was also due to severance related costs. Royalty and other operating income for the first quarter of fiscal 2010 were $3.8 million, compared to $2.5 million in the first quarter of fiscal 2009. The increase was primarily due to increased royalty income in both Tommy Bahama and Ben Sherman, as sales reported by certain licensees increased, and new licenses were added.

Operating income for the first quarter was $21.4 million, versus $13.4 million in the same period of the prior year. The increase was primarily due to the increased net sales, improved gross margins, and higher royalty income, partially offset by increased SG&A as discussed earlier. Operating income in the quarter also included charges for LIFO accounting of $700,000, compared to $1.4 million last year. Income taxes were 23.9% of pre-tax income in the first quarter of fiscal 2010, and 25.3% of pre-tax income in the first quarter of fiscal 2009. The rates for both periods reflect a favorable impact of permanent differences, which do not necessarily fluctuate with earnings, as well as the impact of certain discrete items, including the decrease in certain income tax contingency reserves. We expect an effective tax rate of approximately 30% for the full-year fiscal 2010.

Turning to the balance sheet, receivables were $94.5 million at May 1, 2010, compared to $93.8 million at May 2, 2009. Total inventories decreased 40% to $56.3 million at May 1, 2010, compared to $93.9 million at May 2, 2009. Inventory levels decreased significantly as we focused on increasing inventory turns, and mitigating inventory markdown risk and promotional pressure. We also exited certain lines of business last year, and in the current year shipped goods in the first quarter, that were originally planned for the second quarter. We believe our inventories are well planned to support our needs for the remainder of the year. As of May 1, 2010 we had no borrowings outstanding under our US revolving credit facility, and $18.8 million of cash. Our anticipated capital expenditures for fiscal 2010, including $1.6 million incurred during the first quarter, are expected to be approximately $15 million. These expenditures were primarily consist of additional retail stores, and the costs associated with investment in certain technology initiatives.

As Hicks mentioned earlier, we have increased our full-year outlook for sales and EPS. For fiscal 2010, we now expect net sales of $790 million to $805 million, and diluted earnings per share in a range of $1.70 to $1.80. This compares to our prior guidance of net sales of $760 million to $775 million, and $1.40 to $1.50 in diluted earnings per share. For the second quarter ending July 31, 2010, the Company anticipates sales in a range from $175 million to $185 million, and diluted earnings per share of $0.30 to $0.35. Our guidance reflects our expectations regarding the impact of cost of goods, resulting from the well publicized increase in cotton prices, wages in Asia, and ocean shipping cost. These challenges we are facing as a result of these increases, are not unlike many we have faced in the past, and we are addressing them with revised sourcing and selected price increases.

On a consolidated basis, we still expect a meaningful improvement in gross margins, compared to last year, driven primarily by growth in Tommy Bahama and by improved gross margins in Ben Sherman. I'd like to also provide updated guidance for 2010 on other income statement items. SG&A is expected to have a mid-single digit percentage increase, compared to fiscal 2009 in dollars for the year. The increase is primarily due to increased incentive compensation and additional retail stores. Depreciation and amortization of intangible assets are expected to be approximately $20 million. Royalty income is expected to achieve a modest increase over fiscal 2009 results. Interest expense is expected to be approximately $20 million. The effective tax rate is expected to be approximately 30%. Thanks for your attention, and now I'll turn the call over to Hicks Lanier for some closing comments.

Thanks, Scott. We are fortunate to have begun significant restructuring efforts even before the market challenges, and we've continued with for the past couple years. We shed unprofitable businesses, tightened our belt with regard to expenses, planned our inventory very conservatively, and as a result, really protected our brands and our businesses. Tommy Bahama appears to be set for a strong year. Ben Sherman is clearly improving, and we should continue to see solid performances from Lanier Clothes and Oxford Apparel. Additionally, we've strengthened our balance sheet, and have good access to the capital we'll need to pursue growth. Perhaps most importantly, our team here is very enthusiastic. The opportunity we have now to return to growth, and to drive performance is a powerful motivator for our organization. We are excited to demonstrate further improvement as the year progresses. Thank you for your time and your attentive support. Lisa, we are ready for questions now.

Thank you, sir.

(Operator Instructions).

Our first question today comes from Edward Yruma with KeyBanc.

Thanks very much for taking my question, and congratulations on a great quarter.

Thanks, Edward.

Can you please talk a little bit about the sourcing pressures that you mentioned. How should we think about them flowing through the P&L during the course of the year? Is this primarily a latter part of 2010 issue, or should we expect this for the balance of the year?

Well, for all practical purposes, we can see the balance of the year pretty clearly. And in some cases, as we mentioned in our comments, we have changed some sourcing. And in selected places we've raised prices, we have continued (inaudible) on that issue now, as it primarily relates to next year. So I think the guidance we've given you takes complete consideration of those cost increases into the effect for the balance of this year.

Got you. And you had indicated that you were planning inventory levels to be up within your owned retail, to meet the higher than expected demand of Tommy Bahama. You mentioned this for a couple of quarters now, and seems like you've continuously been in an inventory chase position. Do you feel at this point that your inventory levels are sufficient to meet demand, or will they be light for another couple of quarters? Thank you.

Well I think the most significant part of that question has to do with Tommy Bahama. And I'll let Terry and Doug take that one.

Edward, this is Terry Pillow. As I mentioned in the prepared remarks, we have been in 2009, planning our inventories quite lean. But as we saw the business start to pick up at the end of last year and into the first quarter, when we have to buy that inventory for the back half of the years, I think we're buying enough inventory to capture whatever demand is out there.

Our inventory has never been in better shape. And I think we're really poised, as I said to capture whatever's out there. And we have a mix of stores of full priced stores and outlet stores that can take care of whatever issue were to arise. But I have never felt better about our inventory position and the age of our inventory. Our inventory is very, very current, and our mix is very appropriate for our business right now. So I think we've never been in better shape on inventory at Tommy Bahama.

Great. Thank you very much.

Up next, we'll take a question from Brian Garrity, SunTrust.

Hi guys, congrats on a great quarter.

Thanks.

I just want to piggy back off that question, and just ask what you're seeing at the wholesale level, what your customers -- how they are planning inventories levels now, and also for the second half. And then, how you're managing to meet those expectations.

Brian, this is -- sorry, Hicks.

Go ahead.

Brian, this is Terry Pillow again. As Hicks mentioned earlier, we've got visibility, because we've just a few weeks ago launched our holiday line, and our bookings for both fall and holiday with our customers have been very, very strong. So that inventory, we obviously are buying. And the comments I made earlier about inventories in our own stores. So we're seeing our wholesale customers after going through what they did in 2009, they're increasing their purchases, and they're feeling very good about what they're seeing. And they, like us, don't want to miss whatever business might be out there because of a lack of inventory. So we're seeing most of our big customers, and even our specialty stores, primarily a lot of the specialty stores, really buying more aggressively than they did in 2009.

Just to add to that, in the balance of the business I think you can rest assured, that we're not going to take undue risk and stacking up uncommitted debt -- So that's still going to be a discipline we're going to follow.

Do you guys think --

that helped us through this past couple of years. In the case of Tommy Bahama, where we see clear traction and have alternatives for the product and our own outlet stores, if need be, we feel pretty safe to taking some extra help putting more on the shelf, so-to-speak.

Okay. Excellent. And then given the strong performance at Ben Sherman this quarter, how should we be thinking about the rest of the year?

Well, we're definitely pleased with the results that we saw in the first quarter, as I mentioned, Brian. I think what you're seeing there is the manifestation of the refocusing that we did last year, where we exited women's and converted kids and footwear into a licensed model. So we're not seeing the top line sales, but we also cut out a lot of expense, a lot of risk, a lot of inventory, and a lot of management distraction. And so we did see a nice improvement. I think our hope is that we'll sort of bounce around breakeven for the balance of this year and I think our -- we're looking to be in good position to do that. The one caveat I would throw out is that obviously, between the UK and continental Europe, that's still the overwhelming majority of the business. And while the UK is not part of the European monetary union, the issues that they're facing over there right now are something that we're watching pretty carefully, and have some level of concern about.

Okay. Well, I wish you guys the best of luck. Thank you very much.

Thanks.

And next up we'll hear from Bill Reuter, Bank of America.

This is actually Robert in for Bill. I just had one house keeping question. In terms of your updated guidance, $1.70 to $1.80 per share, I'm kind of backing into an EBITDA number of around $80 million to $83 million. Does that sound about right?

Starting to approach 80, getting close to $80 million.

Thanks. That's all I had. Thank you.

(Operator Instructions).

Next up is Jeff Van Sinderen of B. Riley.

Hi, good afternoon. And let me add my congratulations as well. I wanted to know in terms of the trends that you've seen in your own retail stores, if you've seen any changes in April and into May, just generally in terms of seasonal merchandise. I know a lot of your merchandise is generally seasonal, that might be weather related, just maybe you can give us any sense of what you saw in April, May, and then even the first week of June in terms of trends shifting?

Terry, you want to take that one?

Sure. Jeff, this is Terry pillow. We obviously were happy with Q1, and we have seen the business in the last couple months. We continue to be very encouraged by what we see in our business, business continues to be very strong. I mentioned the women's initiative and it's been a very important part of our business in spring, and it continues to be in the last few weeks. The nice thing about our business right now is that it's pretty widespread. You mentioned that we have a lot of seasonality in our business.

We have actually a lot less seasonality to our business than we used to, by expanding into some of these categories, long sleeved woven shirts, jeans, in the back half of the years, heavy knits and sweaters are a big portion of our business as well. So even our home business, and our own retail stores, it's been very good. So it's not such a one dimensional business. It's pretty widespread, and we think that we're seeing the trend over a lot of categories. It's not just coming from one or two categories that we've traditionally focused on. So we're very happy with our business in the last few weeks, and very happy about the prospects in the back half of the year.

That's great to hear. And then, you mentioned the women's business. Just wondering what sort of feedback you've been getting in terms of product, that you're selling now for future seasons.

We refocused the business in the back half of last year to make our women's business much more a sportswear business, a casual wash, relaxed sportswear business, that's resonating with our guests in our owned retail stores. It's primarily our own retail initiative. But that's where we're still seeing some growth. Casual dresses, this spring, it's been a big category for us. So we're finding our way through the women's business. But we think in the future of this business at Tommy Bahama, we're still very bullish about it, and converting this business to a better mix between men's and women's in our retail stores. So very encouraging for us.

Okay. And then maybe you can just touch on international initiatives, because it seems like for Tommy Bahama, that's wide open for you.

It is wide open for us. We've got a few countries we're operating in .We're currently right in the middle of formulating a plan for international, an extensive plan, because we are going to get aggressive about international. That's the plan we're working on right now, to begin to executing that plan in 2011 and 2012, and we'll be happy to share that plan with you by the end of the year.

Okay.

Very exciting for us, and I think big growth opportunity for us going forward.

That's our number one priority, by far.

Good to hear. Thanks very much, and good luck for this quarter.

Thanks, Jeff.

And next up is James Ragan, Crowell Weedon.

Yes, thank you. You had talked a little bit about the cost pressures, the ongoing cost pressures that you're facing. And if you could just talk about how you'll address that. I assume that pricing is probably your number one defense, but could you just tie that into how that might impact your gross margin over the balance of the year?

We made the statement in our comments that we expect our gross margin to continue to improve over the balance of the year. We have certain segments of the business where we will have some gross margin erosion through the fall holiday season. But Tommy Bahama is not one of them, nor is Ben Sherman.

Okay. Great.

And where we have gross margin erosion, we are positioning ourselves to try to get increases for spring 2011.

Okay. Thank you. And looking at the royalty income line which is very strong on the quarter, could you just talk without about some of the programs that really were the positive surprise there?

I think it was really short of an across the board improvement for the most part, certainly in the Ben Sherman part of the business which is a substantial chunk of the royalty income. It was really an across the board up tick, almost down to each and every licensee. There were only one or two that were flat or down, almost all of them were up.

And you might recall, we had mentioned that when we switched from a licensing model in Tommy Bahama footwear to an in house model, we had a drop in royalty there for a few quarters and we sort of anniversaried that, so we're back in a growth mode there also.

Great. Thank you.

And there appear to be no further questions at this time. I'll turn the conference back over to Mr. Hicks Lanier for any additional or closing remarks.

Just again, thank you for your interest in our Company. We're pretty excited about where we stand right now, and look forward to talking to you in approximately three months.

And ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.