Oxford Industries Inc (OXM) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to today's Oxford Industries Inc. second quarter 2010 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 your questions. As reminder, today's conference is being recorded. And now, I would like to turn the conference over to Anne Shoemaker, Treasurer.

Thank you, Sarah, 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 in 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 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 Wood, President of Tommy Bahama. Thank you for your attention, and now I would like to turn the call over to Hicks Lanier.

Thanks, Anne. Good afternoon and thank you for joining us to discuss our second-quarter results. Consolidated net sales were $186.5 million in the second quarter of fiscal 2010 compared to $192.9 million in the second quarter of fiscal 2009. Last year sales included $13.4 million of sales from businesses that we have exited. Diluted net earnings per share were $0.44, exceeding both our previously issued guidance of $0.30 to $0.35 per share and a loss of $0.01 per share in second quarter of fiscal 2009.

The second quarter of fiscal 2010 included $1 million of LIFO accounting charges compared to $4 million in the second quarter of fiscal 2009.

In the second quarter of fiscal 2009 we also incurred $1.4 million of restructuring charges at Ben Sherman and $1.8 million related to the write-off of unamortized deferred financial costs. We were pleased that demand for our Tommy Bahama product remained strong in the second quarter. Both comparable store sales and e-commerce sales delivered healthy increases over the prior year, and our wholesale order bookings for the second half of fiscal 2010 are strong. Our efforts to refocus the Ben Sherman business continued to pay off, as we saw a significant improvement in our operating performance. Our heritage groups, Lanier Clothes and Oxford Apparel, both posted gratifying results once again. We are pleased that this translated into earnings per share of $0.44 in the quarter.

We will continue to focus on the efficiency of our operations and on carefully selected sales growth opportunities. We are also committed to maintaining a strong balance sheet and preserving the full range of our strategic alternatives as we position our business to capture additional value for our shareholders.

I will return with some closing comments before Q&A, but I would like to now turn the call over to Terry Pillow to discuss Tommy Bahama's results for the quarter. Terry?

Thank you, Hicks. Tommy Bahama reported net sales of $99.3 million for the second quarter of fiscal 2010 compared to $94.4 million in the second quarter of fiscal 2009. The increase in net sales for Tommy Bahama was primarily due to increases in comparable store sales and higher e-commerce sales.

Tommy Bahama's operating income for the second quarter was $14.2 million compared to $13.4 million in the second quarter of fiscal 2009. The increase in operating income was primarily due to the increased net sales, improved gross margins due to greater proportion of direct-to-consumer sales and higher royalty income. These increases were partially offset by increased SG&A.

At the end of the second quarter, Tommy Bahama operated 86 retail stores compared to 84 on August 1, 2009. We continue to see strength in our business with high single-digit comps in our retail stores and double-digit increase in e-commerce. We are excited to see performance in a wide variety of product offering including men's denim and longsleeved shirts, and our women's business, specifically dresses and swim. Our ability to compete in a broad offering of product categories gives us confidence that this strength in our business will continue in the back half of the year.

Our spring/summer 2010 sell-throughs with our wholesale partners were very strong and are translating into meaningful increases in forward bookings. We saw increases in holiday bookings over last year and are encouraged by what we have seen so far for spring 2011. As our product has continued to perform well, we have raised our inventory commitments over last year's levels. We know that we had unmet demand a year ago and believe these commitments will enable us to capture some upside. We will be opening an additional three stores before the end of the year, bringing our total for the year to five. We're looking forward to returning to our pace of seven to 10 new stores in 2011.

We are targeting high-profile locations in New York City, Michigan Ave. in Chicago and Waikiki. One of the best ways that we can deliver our brand message is our retail/restaurant combination. The Laguna Beach store, which opens in November 2010, will be the next-generation Tommy Bahama experience. The new, smaller format plan gives us a more intimate integration of our retail and restaurant environment.

The concept of combining retail and restaurants has been a brand builder where our customers can fully appreciate the Tommy Bahama experience. We are very pleased that Rob Goldberg has joined us Senior Vice President of the Tommy Bahama Restaurant Division. Rob will be responsible for overseeing the operations and development of Tommy Bahama restaurants as well as providing direction and inspiration to expand the restaurant division. With over 20 years of experience in the restaurant and hospitality and luxury lifestyle industries, Rob will make an invaluable contribution to the continued success of our restaurant division. Most recently, Rob was president of the Moana Hotel and Restaurant Group, a sister company of the world-famous Auberge Resorts. He was also the CEO of PlumpJack Group and has held executive-level positions at Hard Rock Group.

As I mentioned, in the first half of fiscal 2010 our women's business has been very strong, up double-digits in our own stores as well as our e-commerce side. We are excited about our progress to continue our momentum and have hired Stephen Cirona as Senior Vice President of Women's Sportswear. Stephen is responsible for all designed merchandising aspects of women's sportswear and will oversee the development of divisions built upon its current momentum and meet the Company's growth plans for our women's business. Coming to Tommy Bahama with more than 25 years of experience in the fashion industry, Stephen was instrumental in the development of Tommy Hilfiger's USA women's sportswear and the Red Label Collection. Stephen also served as Executive Vice President and Men's Global Creative Director at Tommy Hilfiger. Previously, Stephen was President and Principal at Stephen Cirona New York and Vice President of Design and Product Development for Eddie Bauer Holdings, where he helped the company achieve positive growth in all areas of the business with a major focus on women's.

These strategic appointments will support the growth and success Tommy Bahama has experienced as one of the leading lifestyle brands in the market today. These appointments are effective immediately, and both executives will be based in our Seattle, Washington headquarters. We are happy to bring a new leadership to help build these businesses and are confident that Stephen and Rob will help us achieve our goals.

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

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

I'll start with Ben Sherman. Ben Sherman reported net sales of $18.3 million for the second quarter of fiscal 2010 compared to $23.6 million in the second quarter of fiscal 2009. For the quarter, Ben Sherman benefited from an increase in comparable store sales in its retail business and increases in the wholesale sales of its men's sportswear business. These increases were offset by a $5.4 million reduction in sales in kids, footwear and women's, all of which Ben Sherman decided to exit last year. Kids and footwear were subsequently licensed to third parties. Reported sales at Ben Sherman reflect a 6.3% decrease in the average exchange rate of the British pound sterling versus the United States dollar, which had a $1.2 million negative impact. Ben Sherman reported an operating loss of $600,000 in the second quarter of fiscal 2010 compared to an operating loss of $6.3 million in the second quarter of fiscal 2009. The dramatic increase in operating performance for Ben Sherman was due to improved gross margins, reduced SG&A and higher royalty income.

The second quarter of fiscal 2009 also included $1.4 million of restructuring charges related to Ben Sherman's exit from and subsequent licensing of its footwear and kids businesses and other streamlining initiatives. While there is much work still to be done in Ben Sherman, we are pleased with the progress that has been made year-over-year. Our inventories remain very clean, expenses are being managed carefully and we are encouraged by the growth we are seeing in our wholesale business in the United States and continental Europe as well as in our own retail stores.

Our heritage businesses delivered a very strong second-quarter performance. Net sales for Lanier Clothes were $22.7 million in the second quarter of fiscal 2010 compared to $25.2 million in the second quarter of fiscal 2009. Most of the decline was attributable to underperforming businesses that Lanier has exited.

Operating income in the second quarter of fiscal 2010 was $2.8 million compared to an operating income of $2.7 million in the second quarter of fiscal 2009. Gross margins improved due to branded sales representing a greater proportion of Lanier Clothes' sales in the second quarter of fiscal 2010 and closeout sales associated with the exited businesses included in the prior year.

Oxford Apparel reported net sales of $45.6 million or the second quarter of fiscal 2010 compared to $49.5 million in the second quarter of fiscal 2009. Last year's sales included $6.2 million of sales from businesses that Oxford Apparel has exited. Operating income was $3.4 million for the second quarter of fiscal 2010 compared to $4.1 million in the second quarter of fiscal 2009. The decrease in operating income was primarily due to decreased sales and increased SG&A, which were partially offset by higher gross margins.

Corporate and other reported an operating loss of $4.4 million for the second quarter of fiscal 2010 compared to an operating loss of $7.6 million in the second quarter of fiscal 2009. The decrease in the operating loss was primarily due to LIFO accounting charges of $1 million in the second quarter of fiscal 2010 compared to $4 million in the second quarter of fiscal 2009.

I will now hand the call over to Scott Grassmyer, to comment on our consolidated financial results.

Thanks, Tom. As Hicks mentioned earlier, consolidated net sales were $186.5 million in the second quarter of fiscal 2010 compared to $192.9 million in the second quarter of fiscal 2009. Last year's sales included $13.4 million of sales from businesses that we have exited. Diluted net earnings per share were $0.44 compared to a loss of $0.01 per share in the second quarter of fiscal 2009.

Consolidated gross margins for the second quarter of fiscal 2010 were 47.1% compared to 40.1% in the second quarter of fiscal 2009. Gross margins improved as a result of changes in product mix in each operating group and the increase in Tommy Bahama sales, both in total and as a proportion of consolidated net sales. Gross profit included LIFO accounting charges of $1.0 million in the second quarter of fiscal 2010 and $4.0 million in the second quarter of fiscal 2009.

We anticipate that consolidated gross margins for fiscal 2010 will continue to increase compared to the prior year as our consolidated sales mix is more heavily weighted towards Tommy Bahama.

SG&A for the second quarter of fiscal 2010 was $76.2 million or 40.9% of net sales compared to $73.6 million or 38.2% of net sales the second quarter of fiscal 2009. The increase in SG&A was primarily due to costs associated with the resumption of our incentive compensation program, which is tied to our financial performance. The second quarter fiscal 2009 SG&A for Ben Sherman included $1.4 million of restructuring charges, as mentioned above.

Royalties and other operating income for the second quarter of fiscal 2010 were $4.0 million compared to $2.9 million in the second quarter of fiscal 2009. The increase in royalties and other operating income was primarily due to increased royalty income in both Tommy Bahama and Ben Sherman as sales reported by certain licensees increased and new licensees were added. As a result of these factors operating income for the quarter was $15.4 million versus $6.3 million in the same period of the prior year.

Interest expense for the second quarter of fiscal 2010 was $5.1 million compared to $6.2 million in the second quarter of fiscal 2009. The decrease in interest expense was primarily due to the $1.8 million write-off of unamortized deferred financing costs associated with retirement of our 8.875% senior unsecured notes in June of 2009 and a lower level of borrowing during the second quarter of fiscal 2010.

These decreases were partially offset by the higher interest rates associated with the 11.375% senior secured notes issued in June 2009.

For the first half of fiscal 2010 consolidated net sales were $404.3 million compared to $409.6 million in the first half of fiscal 2009. Last year's sales included $26.4 million from businesses we have exited. Diluted net earnings per share were $1.19 compared to $0.40 in the first half of fiscal 2009. The first half of fiscal 2010 included $1.6 million of LIFO accounting charges compared to $5.5 million in the first half of fiscal 2009. In the first half of fiscal 2009 we also incurred $1.4 million of restructuring charges at Ben Sherman and $1.8 million related to the write-off of unamortized deferred financing costs.

Total inventories at the close of the second quarter of fiscal 2010 were $76.3 million, down 12% from the close of the second quarter of fiscal 2009. Inventory levels at Ben Sherman decreased significantly, primarily as a result of the exit from and subsequent licensing of footwear and kids businesses and the exit from the Ben Sherman women's operations.

Receivables totaled $74.6 million at quarter end, down 5% from the end of last year's second quarter. The decrease was attributable to lower wholesale sales.

As of July 31, 2010, we had no borrowings outstanding under our US revolving credit facility and $28.2 million of cash. Our capital expenditures for fiscal 2010, including $3.4 million incurred during the first half of fiscal 2010, are expected to be approximately $13 million. These expenditures will consist primarily of additional retail stores and the costs associated with investment in certain technology initiatives.

While we remain mindful with macroeconomic issues, we have increased our full-year outlook for sales and EPS, due to the continued pause in momentum in our business. In fiscal 2010 we expect diluted earnings per share in the range of $1.82 to $1.92 and net sales of $800 million to $815 million. This compares to our prior guidance of $1.70 to $1.80 in diluted earnings per share and net sales of $790 million to $805 million.

For the third quarter ending on October 30, 2010, we anticipate sales in a range from $195 million to $205 million and diluted earnings per share of $0.25 to $0.30. Our guidance reflects our expectation regarding the impact on our cost of goods resulting from the well-publicized increases in cotton prices, wages in Asia and ocean shipping cost. We are addressing these challenges 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.

We expect our effective tax rate for the second half of fiscal 2010 to be approximately 32%. Our Board of Directors has approved a cash dividend of $0.11 per share, payable on October 29, 2010, to shareholders of record as of the close of business on October 15, 2010. Oxford has paid dividends every quarter since it became publicly owned in 1960.

Thank you for your attention, and now I will turn the call back over to Hicks Lanier for some closing comments.

Thank you, Scott. We're confident that we can sustain and build on this positive momentum in our business and provide superior values to our shareholders. Thank you for your attention today and, Sarah, we are now ready for questions.

(Operator instructions) Edward Yruma, KeyBanc.

Just a quick clarification point on the guidance. You're implying basically, if we look at the midpoint, that fourth quarter will have a higher EPS than the third quarter and that, at least since you've changed your fiscal year, historically it has not been consistent. So I wanted to understand, are there specific items impacting the third quarter, or are things in the fourth quarter that we should be mindful of? Thank you.

Well, I would say that the third quarter is by far our weakest quarter of the year in Tommy Bahama, and it has historically been that. And as Tommy Bahama becomes an increasing percentage of the total Company's business, we are more skewed to their seasonal pattern than we are historically. So I would say that is the real factor there, Ed.

In terms of the legacy businesses, Hicks, are there any other unprofitable parts of the business that you expect to exit? Or, at this point, are we getting closer to a good baseline number on these legacy businesses?

I think we are getting pretty close to where we want to be on them. And as we said in the comments, we are very pleased with the performance there.

And my final question for you -- I know you guys were very deliberate in the press release and in your prepared remarks to comment on strategic alternatives. Is there anything we should contemplate within that context, or what were you speaking about?

That was a bit of a teaser. We've got a full range of things that we've talked about on prior calls, and we've mentioned that someone went to our international opportunities in Tommy Bahama. And we expect by year end to have a pretty detailed plan there and what resources we'll need to achieve those plans. So that's certainly an alternative.

When you look at our balance sheet, we are getting increasingly liquid and strong, so we're pretty confident we can take advantage of most of the opportunities we have. We have mentioned in the past that additional acquisitions are certainly an opportunity that we are always mindful of and keeping a close touch on opportunities. But I think we certainly see continued runway in Tommy Bahama with women's, with additional stores, with international. So you can count on us putting our resources behind that on a continuous basis.

Paula Torch, Needham & Co.

I wanted to ask about your women's business with Tommy. It's a growth opportunity for you, obviously. You're doing a great job with women's in your retail stores. I was wondering, actually, how you are feeling about your product categories within women's. I understand that swim and dresses are doing well, but wonder if there are any areas where you could see improvements within women's. And any categories that you are not in that you would like to be? And how are you thinking about growing women's wholesale business going forward?

We obviously see a lot of opportunity in the women's business. I'll start with end of your question first. We've always said in the business, in women's, we wanted to get it right in our own stores before we really made a big push. We are doing, obviously, a small wholesale business in women's, and it's growing and it has been quite successful. So we are encouraged about that, but the first primary focus is going to be in our e-commerce business and our own stores.

We've had, as I said in my part, that we've had success over a broad range of products in women's. You specifically mentioned dresses and swimwear. But just the overall casual sportswear piece of the business, was where we started focusing the business, has been very good for us, just focusing on easy, casual, relaxed women's sportswear.

We've definitely made some inroads and had some progress. But by bringing on Stephen Cirona, he's been on for about a month now, and we think that -- we fine-tuning this women's collection and making it better in all categories can do nothing but help it grow. So we've got tremendous opportunity in the women's business.

Robin Murchison, SunTrust.

Thanks very much, congratulations on the nice performance. I have a few questions here. I don't think I heard, or maybe you said, Tom, what exactly same-store sales were in Ben Sherman. Did you all disclose that?

We only said that they were up.

Okay.

That was really the only comment that we made. And I'll tell you that same-store sales, comp store sales were up in the single-digit range in Ben Sherman, both year-to-date and in the second quarter. Gross margins in dollars were actually up in the double-digit range, so our gross margins have improved significantly at the same time as sales are going up, which is a good combination.

Oh yes, okay, we'll take that. Also, I wanted to just -- when you look around in your business, and if you want to segment it wholesale versus your own retail or however you want to talk about it -- but could you just let us know what you are seeing regionally, either by brand or by business, how the country breaks out?

I'll let Terry talk about Tommy Bahama first.

We are seeing -- we have businesses in all parts of the country, and we've been -- first and second quarter, we've seen businesses being strong pretty much across the board. The Midwest has been a region that's been surprisingly robust for us, even in second quarter. So we are very encouraged by that, that we are not just limited to doing business in resort locations, that it's a pretty diverse spread of business around the country. So we are very happy about that, that we've been able to achieve good results across the board.

Okay, good.

And, Tom can comment on Ben Sherman.

Robin, as you know, in Ben Sherman we've got retail stores in the United Kingdom, in England. We've got stores in Germany, and we've got stores in the US. I would say that the strongest performances we've had this year have actually been out of our two stores in Germany, which have done extremely well. Our two stores in London, where we do roughly half of our total business, and England is within (inaudible) 25 in London, and they've done very well. And then the SoHo store in the US in New York, which is really just shy of half of the total retail business, has done extremely well.

In terms of our wholesale business, we have been strongest in continental Europe, followed by the US. The UK in our men's wholesale business, where we are, as you know, a very mature brand, we really haven't seen the uptick there. But we are very pleased; we are growing in the places that we want to grow.

Okay, and just two others, if I can, please. Terry, over at Tommy Bahama when you look at the women's business, and I love the strides that you continue to make with the categories in the silhouettes and the fabrications. But when you look at the women's business, where else might those -- or what other brands might the important to this customer?

Robin, we look at everybody as competition. We are in centers across the country with a diverse of competitor -- a lot of different competitors. It's kind of hard for us when, clearly, in our swimwear and our swim cover-up tops, that's one group of competitive set. And then the casual sportswear, it's very broad. I hate to call out individual companies, but when we look at how we are putting this women's product together, we are clearly more concentrating on the Tommy Bahama woman that we are trying to dress. And we put her at about a 35-year-old consumer and try to develop sportswear for her that mirrors the true essence of Tommy Bahama versus really looking at other people's and trying to draw inspiration from that. So we think we've got a nice niche in women's that -- the reason we are experiencing the growth that we are, that we are hitting a niche that hasn't been hit by anybody in the sweet spot where we exist. So we're pretty happy about the niche that we have and, therefore, we're getting the growth out of it.

No; it looks -- the product is fabulous. And just one last sort of, if I can -- over in -- we hear a lot of about -- and this is just more generally, actually, aimed towards the legacy business, is the question. We certainly hear a lot about women's wear-to-work being a very important category right now -- a lot of retailers are sort of started calling that out -- and wondering if, in the legacy business, men's wear-to-work, do you feel like, absent the exiting of some businesses from last year, you're seeing the same thing -- more demand, if you will?

Well, as you've seen in our tailored business, which is all suits, sport coats and dress pants, you've seen that we had quite a strong year, notwithstanding the fact that we exited a couple of businesses, and that if you set aside the sales decline from the exits, it has been a good, strong year there.

Okay, thanks guys, and good luck.

(Operator instructions) James Ragan, Crowell, Weedon.

I was wondering if we could talk a little bit about the Tommy Bahama wholesale strength that you've been seeing lately. Can you just talk about -- is that -- are you gaining space in existing accounts, opening up new accounts? Are they extending the programs? Maybe you could just expand on that a bit.

I think, James, a little bit of all of that. We've seen the specialty store piece of our business, which is a pretty large piece of the wholesale business -- during the recession, they got hit pretty hard. There has been some fallout there, but we are finding that those stores are coming in and putting more dollars with proven vendors. Unfortunately, we are one that has proven over the years that we can perform well for them. So the specialty store piece of it has come back.

In our department store and at our specialty store business we are seeing just a variety of products. I mentioned in my opening remarks that denim, in our department store, we are making big strides in the denim business, not only in denim bottoms, but denim woven shirts. And that's a business that's growing for us.

So I think it's a little bit of everything that you said. We're getting new programs that we hadn't had before, and people are coming in and looking at our collections that we are offering, and realizing that their business with Tommy Bahama is good and they think it can be better.

And then, also, you had mentioned being a little bit ready for a larger inventory commitment. Are you gearing up for that down the road, or is that something that you want to be ready for a holiday, or is that more spring of 2011?

It's right away for holiday. We had some big items in our retail stores last year for the selling season that we thought we had ample supply, and we got caught a little bit short. So this year we're making sure that we're going to capture whatever demand is out there. We've got some great key items, and our merchants have done a great job of sorting that product and making sure that we're going to capture whatever business is out there.

So no; this is something that we're doing right away for this holiday season. We are feeling real good about the back half of the year for us.

Okay, great. And then, finally, this one might be for Scott. But in just getting back to the SG&A on the incentive comp accrual, can you give a little more information on the side of that, last year versus this year, or at least the increase that is included in this year's quarter?

For the quarter, it's about roughly $3 million increase over last year. And last year, remember, we had virtually zero (multiple speakers) year.

And for the half, about $8 million.

Yes.

Okay, great, thank you very much.

And there are no further questions at this time. I will turn the conference back over to management for any closing or additional comments.

I think we've told you everything we know, so far, and look forward to our call in December. And thanks a lot for your interest in Oxford.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.