Oxford Industries Inc (OXM) 2011 Q1 法說會逐字稿

Welcome to today's Oxford Industries Incorporated first-quarter 2011 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.

Now I would like to turn the conference over to Anne Shoemaker, Treasurer. Please go ahead.

Thank you, Peter, 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.

Also, during this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our press release issued earlier today, which is also 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; Tom Chubb, President; Scott Grassmyer, CFO; Terry Pillow, CEO of Tommy Bahama; and Doug Wood, President of Tommy Bahama. Thank you for your attention.

Now I would like to turn the call over to Hicks Lanier.

Good afternoon, and thank you for joining us to discuss our first-quarter results. We are very happy with our results for the quarter, which were exceptionally strong at Tommy Bahama, Lilly Pulitzer, and Lanier Clothes. We are particularly pleased with the outstanding performance of our direct-to-consumer businesses, as both comp store and e-commerce sales remained strong throughout the first quarter. The Tommy Bahama team continues to do a superb job of expanding its full-price direct-to-consumer business.

With Lilly Pulitzer's Resort Chic positioning, the first quarter is the biggest and most important for the brand, and the results exceeded our expectations in all channels of distribution. The spring/summer product is clearly resonating with an expanding base of consumers to yield outstanding profitability. The integration of the Lilly Pulitzer team into our corporate support platform is going very well, and we continue to be impressed with the quality and talent of the people.

We are also pleased to announce that subsequent to quarter-end, we were able to deploy cash on hand to repurchase $40 million principal amount of our 11.375% senior secured notes. 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 $122.9 million for the first quarter in fiscal 2011, compared to $109.1 million in the first quarter of fiscal 2010. The increase in sales was primarily due to the improved comparable store sales, higher e-commerce sales, and sales from additional stores. Tommy Bahama's operating income for the first quarter was $23.8 million, or 19.3% of net sales compared to $17.9 million or 16.4% of net sales in the first quarter of 2010. The first quarter is Tommy Bahama's strongest quarter. The increase in operating income resulted from increased sales and improved gross margins, due to direct-to-consumer sales representing a greater portion of Tommy Bahama sales.

As of April 30, 2011, Tommy Bahama operated 89 retail stores compared to 84 stores on May 1, 2010. Our retail stores had a very good quarter, resulting from strong comp store increases driven by well-merchandised assortment, and exciting product that clearly resonated with consumers. Our lifestyle-driven website continued to outperform our expectations in the first quarter, with double-digit increases in all our product categories. We expect to increase e-commerce sales to over $35 million in fiscal 2011.

Our strong comp store increases were broad based across both traditional markets like the Midwest and Texas, as well as resort markets like west Florida and Hawaii. We are continuing to see strong menswear business in both knits and wovens. The acceptance of our product offering in men's in spring gives us confidence for the upcoming Father's Day, which is second only to the holiday season in its importance to our menswear business.

Womenswear continues to see gains in our retail stores and on-line with double-digit increases. This is particularly noteworthy because this is on top of double-digit gains from the first quarter a year ago. In addition to our women's sportswear business in our own stores, our women's swim business is seeing double-digit gains in retail, e-commerce, and wholesale.

The mailer we dropped in March, which focused on women's sportswear and swim, helped drive our first-quarter business. We followed that with the men's and women's swim focus piece in May, and the early results are very positive. Our mailing list and e-mail list has become our number 1 tool to communicate to our guests. We have seen results in all facets of our business, and are planning 4 more mailings for the remainder of the year.

We continue to make progress in filling the pipeline of new retail locations. We have 6 leases signed for future store openings, and have several more currently under negotiation.

I just returned from my second trip to Asia in the last 4 months. I continue to be bullish regarding this market, and the relevance of the Tommy Bahama brand in that market. We continue to work hard in developing our plans for an Asian rollout of the Tommy Bahama brand. This summer, we plan to relocate a high-level executive with significant Asian experience from our Seattle headquarters to Hong Kong, to head up our in-region effort. We continue to be enthusiastic about our opportunities for our brand in this part of the world.

Now I will turn the call over to Tom Chubb for details on the other 3 operating groups.

Thanks, Terry. Good afternoon, everyone, and thank you for joining us. I will start with Lilly Pulitzer. Because Oxford acquired Lilly Pulitzer on December 21, 2010, operating activities for Lilly Pulitzer were not included in our consolidated first-quarter fiscal 2010 results. Lilly Pulitzer's first-quarter sales of fiscal 2011 results were very strong, reporting $29.9 million of sales, with increases in all channels of distribution, including wholesale, retail, and e-commerce, compared to Lilly's results last year as an independent company.

Lilly Pulitzer reported $7 million of operating income, which was impacted by purchase accounting charges. These charges included approximately $1 million of charges to cost of goods sold, resulting from the write-up of acquired inventory to fair value. We do not expect any such charges to cost of goods sold in future periods. Additionally, Lilly Pulitzer's operating results for the first quarter included a $600,000 charge related to the change in the fair value of contingent consideration. The operating income, as adjusted, was $8.6 million, or 28.8% of net sales. As Hicks mentioned, with the brand's Resort Chic positioning, the first quarter is the biggest and most important quarter.

The excellent results achieved by Lilly Pulitzer for the first quarter were driven by 2 key factors. First, we have outstanding product that our customer has clearly embraced. Second, we expanded Lilly Pulitzer's consumer base. Principally through the use of social and other digital media, Lilly Pulitzer was able to dramatically increase the number of consumers to whom it is communicating on a daily basis. We believe that this communication to an ever-increasing number of consumers is driving traffic through all channels of distribution, including our own stores, our website, Lilly Pulitzer signature stores, and other carefully selected wholesale accounts.

Integration of the Lilly Pulitzer business onto our corporate support platform is going very well and according to schedule. When we acquired Lilly Pulitzer, we added to our Company not only a great brand, but also an exceptional group of people, led by an exceptional management team. We could not be more pleased with the way this acquisition has played out.

Ben Sherman reported net sales of $19.4 million for the first quarter of 2011, compared to $22.2 million in the first quarter of 2010. The decrease in sales was primarily due to reduced sales at certain moderate department stores in the first quarter of fiscal 2011. Additionally, the first quarter of fiscal 2010 included $1.6 million of sales related to the previously exited women's and footwear businesses, with no such sales in the first quarter of fiscal 2011. These factors were partially offset by a 5.2% increase in the average exchange rate of the British pound sterling versus the United States dollar.

Ben Sherman reported an operating loss of $800,000 in the first quarter, compared to operating income of $0.5 million in the first quarter of 2010. The operating loss was primarily the result of decreased sales, which had a deleveraging effect on the existing cost structure. Although operating results for the first quarter were lower than last year, we still expect Ben Sherman to deliver a small profit for the year.

Net sales for Lanier Clothes were $33 million from the first quarter of fiscal 2011, compared to $30.4 million in the first quarter of fiscal 2010. The increase in sales was due to increases in the branded businesses, partially offset by decreases in private label sales. For the quarter, Lanier Clothes reported operating income of $4.7 million, compared to operating income of $4.4 million in the first quarter of fiscal 2010. The increase in operating income was primarily due to the increase in sales.

As a tailored clothing supplier, Lanier Clothes' market is perhaps one of the most competitive in our entire industry, and to have achieved meaningful sales growth and an operating margin over 14% is exceptional. Once again, we are very proud of the way this team continues to execute.

The corporate and other operating loss for the first quarter of fiscal 2010 was $4 million compared to an operating loss of $7.8 million in the first quarter of fiscal 2010. The first quarter of fiscal 2011 included a LIFO accounting credit of $600,000 compared to a LIFO accounting charge of $700,000 in the first quarter of fiscal 2010. The first quarter of fiscal 2011 benefited from decreased employment costs and the inclusion of transition service income related to our former Oxford Apparel group.

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

Thanks, Tom. I will now move on to some of the financial highlights for the first quarter. The first quarter ended April 30, 2011, consolidated net sales were $208.3 million, compared to $163.6 million in [the first quarter] of 2010. Consolidated gross margins for the first quarter of fiscal 2011 increased to 56.5% from 54.8% in the first quarter of fiscal 2010. Gross margins improved, primarily due to changes in the sales mix. First-quarter fiscal 2011 included the addition of Lilly Pulitzer, an increased proportion of direct-to-consumer sales at Tommy Bahama, and the positive net impact of LIFO accounting. The increase in gross margins was partially offset by the impact of the $1 million write-up of Lilly Pulitzer inventory, which Tom discussed earlier.

We expect some product cost increases in fiscal 2011, particularly in the second half of the year, and more pronounced at Ben Sherman and Lanier Clothes. That said, the shift in our portfolio towards lifestyle brands, and the continued emphasis on growth in the direct-to-consumer channel, has mitigated much of the impact on a consolidated gross margin. We still expect a slight uptick in consolidated gross margin, and a meaningful increase in consolidated operating margin in fiscal 2011.

The increase in net sales allowed us to [incrementally] improve our SG&A leverage for the first quarter of fiscal 2011, resulting in a 410-basis-point decrease in SG&A as a percentage of net sales, compared to the first quarter of last year. Because the first quarter is our strongest quarter, we get the most leverage of our SG&A. We do not expect the improvement in SG&A as a percentage of sales to be as dramatic in the remaining quarters of fiscal 2011.

Royalties and other operating income for the first quarter of fiscal 2011 was $4.8 million compared to $3.5 million in the first quarter of fiscal 2010. The increase was primarily due to increased royalty income in Tommy Bahama and Ben Sherman, as well as royalty income associated with the Lilly Pulitzer business. Operating income for the quarter more than doubled to $30.7 million versus $15 million in the same period the prior year.

The effective tax rate for the first quarter of fiscal 2011 was 34.2%, compared to 14.8% in the prior year. The prior-year rate was significantly impacted by lower earnings levels in fiscal 2010, and in magnitude of discrete items. The effective tax rate for the first quarter of fiscal 2011 is a better indicator of the anticipated effective tax rate for future periods. However, the effective tax rate in future may be higher if our earnings level increase as the incremental earnings will be likely taxed at rates more closely aligned with statutory tax rates.

Turning to the balance sheet, receivables increased primarily as a result of the inclusion of the receivables associated with the Lilly Pulitzer business, while inventories increased due to the inclusion of the Lilly Pulitzer inventories, as well as an increase in inventory levels at Tommy Bahama to support planned sales increases. As of April 30, 2011, we had no borrowings outstanding under our US revolving credit facility, and $47 million in cash. Our anticipated capital expenditures for fiscal 2011, including $3.6 million incurred during the first quarter, are expected to be approximately $35 million. These expenditures are expected to consist primarily of costs associated with additional retail stores, retail store remodeling, information technology investments, and distribution-center enhancements. For the year, we expect to have meaningful free cash flow after funding capital expenditures and dividends.

In May 2011, we repurchased, in a privately negotiated transaction, $40 million in aggregate principal amount of our 11.375% senior secured notes through 2015 for approximately $46.6 million, plus accrued interest, using cash on hand. The repurchase of the notes and related non-cash write-off of approximately $1.6 million of unamortized deferred financing costs and discount resulted in a pre-tax loss of approximately $8.2 million, which will be reflected in our consolidated financial statements for the second quarter of fiscal 2011.

After completion of the transaction, $110 million aggregate principal amount of notes remained outstanding. The lower principal amount resulting from this transaction will reduce interest expense by $0.03 per share in the second quarter of fiscal 2011, and $0.05 per share in each quarter thereafter. We now expect interest expense for fiscal 2011 to be approximately $16.5 million.

We have increased our full-year outlook for sales and EPS. In fiscal 2011, we expect adjusted earnings from continuing operations per diluted share in a range of $2.15 to $2.25, and net sales of $730 million to $745 million. This guidance reflects the positive impact for the year on interest expense of $0.13 per share, related to the repurchase of the senior secured notes. This compares to our prior guidance issued on March 29, 2011, of $1.95 to $2.05, in adjusted earnings from continuing operations per diluted share, and net sales of $725 million to $740 million. The adjusted EPS excludes the impact of purchase accounting charges, LIFO accounting adjustments, and the loss from the repurchase of the notes.

For the second quarter ending on July 30, 2011, we anticipate net sales in a range from $172 million to $182 million, compared to net sales of $143 million in the second quarter of fiscal 2010. Adjusted earnings from continuing operations per diluted share are expected to be $0.48 to $0.53, compared to adjusted earnings per diluted share of $0.32 in the second quarter of fiscal 2010. This guidance reflects the positive impact for the quarter of $0.03 per share on interest expense, related to the repurchase of the notes. The adjusted EPS excludes the impact of purchase accounting charges, LIFO accounting adjustment, and the loss on the repurchase of the notes.

Thanks for your attention. Now I will turn the call over to Hicks Lanier for closing comments.

Thank you, Scott. We finished the first quarter with a great deal of momentum, but are certainly cognizant of the macroeconomic deterioration in recent weeks, and have factored that into our outlook for the balance of the year. We believe that our focus on strengthening our brands by further developing the direct-to-consumer businesses and being selective in wholesale distribution will serve our shareholders well. Thank you for your time this afternoon, and your continued support.

And Peter, we're ready for questions now.

(Operator Instructions) We'll first go to Eric Beder from Brean Murray.

Good afternoon. Congratulations on a solid quarter.

Thanks, Eric.

Could you talk a little bit about Lilly Pulitzer, some of the longer-term plans in terms of new stores? And other pieces now that you have owned it for about 4 months. And what are you seeing in your guidance in terms of price increases, and how are you trying to handle that?

Are you talking about price increases generally, or just for Lilly?

Cost increases really for cotton.

Okay, let's start with the Lilly question first, and I'll let Tom Chubb address that.

Okay, Eric. I think that in terms of the opportunity to grow Lilly in the direct-to-consumer space, Lilly's performance so far this year in direct-to-consumer has been outstanding. It's working very, very well in both the brick and mortar stores, as well as in e-commerce. And we do believe that there's the potential to grow that direct-to-consumer business significantly over the next couple of years. At present, we have no stores in the pipeline. We're just beginning to look for stores, and I think it would be sometime in 2012 at the earliest, before we would open additional Company-owned stores. And I think as our plans for that evolve, we'll share more with you about it.

In terms of the overall growth, if you go back to some of the things that we talked about when we acquired it, our plan for Lilly is really to develop a plan that has sustained long-term growth, and we believe that we have that.

Why don't you comment on the e-commerce business and the social networking?

Yes, we mentioned in our comments, Eric, that we thought a lot of the business was being driven by really 2 things, or the success in the business this year by 2 things -- the strength of the product, and expansion of the consumer base. And we mentioned that the expansion of the consumer base was largely coming through digital media and social media. That's been a focus for the team at Lilly Pulitzer. They recognized, going back a year or 2 ago, that in order to really grow the business, they needed to expand the number of the consumers they were reaching, and that one of the best ways to do that in the modern world was through digital and social media, so they've made a concerted effort to grow those.

Just to give you a few stats, they've more than doubled their number of Facebook fans, from 116,000 fans last year, to over 276,000 fans now, and they've doubled their e-mail list from 105,000 names last year to well over 200,000 names this year. And by expanding the number of customers that they're reaching through digital media, they believe that they're able to communicate with interested parties on a frequent, even a daily basis, and that it drives business not only in our own e-commerce site and our Company-owned stores, but also in our signature stores, which are a very important part of the distribution and in our other wholesale accounts.

And those numbers, when you say last year, that's as of January 31, 2011. So that's in 5.5 months, that we've had that kind of growth in our lists. So pretty impressive, I think.

As it relates to the increases in the price of cotton, and general labor increases, Scott mentioned in his comments that there's no question that we're grappling with that issue, just like everybody else is, but it's certainly minimized in our lifestyle brands, with a heavy direct-to-consumer component, where our initial margins are much greater than some of our legacy, or historical, businesses, which we have exited. So we are having some price increases, and will continue to have more, but we think that overall we're very competitive with our pricing for the value equation of the products. And as Scott mentioned in the summary, we expect to increase our gross margins this year, even with the cost pressures.

Great. Just 1 quickie. What is your appetite to buy back more debt now that you've done the $40 million. I know, next year, you can call it. Would you be amenable to buying back more debt now before you have the ability to call the debt in?

We have exhausted the authority that we have with our Board, but we're meeting next week, and we expect to have that on the table. And we had gotten a $50 million authorization last June -- spring, so yes, we have more appetite for that, particularly if we have cash on our balance sheet, and even after this buyback of the $40 million in bonds, we have a healthy cash component on our balance sheet as of today. So yes, we'd be very interested in that.

Great. Again, congratulations on a solid start to the year.

Thanks.

And a question now from KeyBanc Capital Markets, Edward Yruma.

Hi, thanks very much for taking my question, and congratulations on a good quarter. Your commentary on the macroenvironment was somewhat interesting. Can you talk about your trends as you exited the quarter, and have you seen any fall-off in performance, particularly at the Tommy Bahama stores?

We had a first quarter that exceeded our expectations pretty dramatically. And we've gone through approximately 5 or 6 weeks of the second quarter, and we're still very pleased with the performance we're getting there, both in our owned stores and in e-commerce. They're not quite at the level they were in the first quarter, but they're certainly healthy and robust by almost any standard.

Terry, if you have anything to add to that -- ?

Edward, the trend that we had in fourth quarter continued into Q1 obviously by the quarter that we had, and we have plans in place for Q2 and the rest of the year that we never felt better about the product that we have, the assortments, the inventory, and the marketing we have to back it up. So we're prepared for the rest of Q2. We have a lot more Q2 business to do as we go into Father's Day, but as Hicks said, we like what we see in Q2. And we don't know, we can't predict what's going to happen in the market, but from our plans and where we sit, I feel very good about our plans going forward.

Okay. And I know that you are expecting to see better performance out of Ben Sherman through the progression of the year, but is further restructuring necessary, or do you believe at this point that you can grow top line in order to leverage some of those expenses?

Tom?

Well, Ed, we do expect top line for the year to be up modestly versus last year, and that's really the combination of a couple of different factors. The retail is growing nicely. In fact, during the first quarter we had a strong quarter at retail with very impressive comp store performance in Ben Sherman, and we had good growth in our international wholesale business. In other words, that part of the business that's in international countries, other than the UK.

The biggest miss for the quarter, besides the $1.6 million of business that we didn't anniversary in women's and footwear, and that we mentioned, was really in our moderate wholesale distribution in the UK. And I think there are 2 factors at work with respect to the moderate wholesale business in the UK. The first is the condition of the economy and trading for those retailers over there, which is quite challenging at the moment. Our own retail stores in the UK are comping up. A lot of our wholesale customers are having a tougher time this year, and so, there's some challenges that come out of that.

Then the second piece is that I think a lot of that moderate distribution that we have, primarily in the UK, we don't really have that internationally, but in the UK we have a greater degree of moderate wholesale distribution that's, I think, going through a bit of an evolution over the last couple years where they're becoming increasingly promotional and increasingly focused on exclusive or private label brands. And those are things that are really inconsistent with what we're trying to do in Ben Sherman. So what we expect going forward is that we will probably continue to see some erosion in some of that moderate wholesale distribution in the UK.

Growth in the international wholesale distribution, and growth in retail, and the exact pace at which those 2 things will happen over the next year or 2 is a little hard to know. We are trying hard to grow the good parts of the business faster than we're eroding in other parts of the business. And in the long term, we're confident that will happen. In this year, it will be a modest uptick in sales with it being a net of the things that I mentioned.

Does that help?

Absolutely. Maybe 1 other follow-up on Lilly Pulitzer. I think when you set out the year, you were looking for about $80 million in total revenue from Lilly for the year. Do you have an updated number for us today? Thank you.

I think it would be slightly higher than that, Ed. Business is definitely a bit ahead of our plan in Lilly Pulitzer. First quarter as we mentioned, is by far the most important quarter for Lilly. Second quarter so far, and second quarter would be the second most important quarter, and it's certainly looking pretty good so far, too. So I definitely think we'll be up a little bit over the $80 million in sales, and still looking, I think, at a mid-teens operating margin for the year.

Great. Thanks very much.

Thank you.

(Operator Instructions) We'll now go to SunTrust Robinson Humphrey, Robin Murchison.

Good afternoon, and congratulations. Several questions here. Let me start with Ben Sherman. Directionally, how much more of your moderate placement do you have to come out of?

Well, I think I could tell you that about a quarter of the total business is in the UK wholesale arena, and that's the part of the business that I think is the -- has the most questionable distribution. It's not all of it there. There are some very good accounts that we have there. We're in John Lewis, we're in House of Fraser, we're in some specialty stores that are quite good. We're in Selfridges for the first time this year, which is probably the best account that we could have in the UK.

So there's a lot of good stuff, but we still have, as our largest wholesale customer in Ben Sherman, Debenhams, which of course is UK-based, and there are a couple others that are in that definite genre, where I think they have the biggest challenges in Ben Sherman as a brand has the biggest challenges. We're not necessarily walking away from them, it's just that they have some of their own issues that they're dealing with now, with the economy there being very tough. And then I think longer term how they feel about premium brands like Ben Sherman, and with what we're trying to do with the brand, I think that's the part of the business that's in question.

Were Ben Sherman's gross margins -- you focused on the operating margin differential and the inability to leverage the expense base. I just wanted to see if there was any comment about gross margins?

I will tell you that we were quite pleased that gross margins were up in Ben Sherman retail stores, Company-owned retail stores. They were up meaningfully, and they are at very, very healthy levels. The gross margins in those stores are everything they need to be.

In wholesale, our gross margins were down a bit, and we definitely suffered from cotton costs and other cost-of-goods-type pressures in some of the wholesale business in Ben Sherman. And we factored that into our projection for the entire year. As we have said, we do expect to make a little bit of money in Ben Sherman. I think it would be meaningfully better this year in Ben Sherman if it were not for the cost pressure, which is hitting our wholesale business a bit harder than it is the retail.

Are you all seeing any light at the end of the tunnel, in terms of cotton, as you look out to the future?

Well, yes. I'm sure you're reading at least some of the same stuff that we are, and cotton prices have dropped quite a bit. I think the bubble has been pricked a bit, and I think they will get much more in line. But some of the other inflationary pressures like the wage pressure coming out of China, I'm not sure are going to abate. And the task we have is to address this through some selective price increases, which we've done, really throughout the Company. And then in certain situations, looking at resourcing products to get the margins where they need to be. But as you know, for the total Company for the year, we're projecting gross margins to be up.

Right. On Lilly, Lilly seems to have, and maybe -- I just want to get your comments on it. It seems to have more frequent flows, or am I wrong on that? It seems like there's always an e-mail with a refresh of product, and I felt like I was seeing that more often than, say, maybe at Tommy. Is that accurate, or do you flow more inventory through in just smaller depths of SKU?

They do have a lot of smaller deliveries that hit, sometimes sort of mid-month in certain periods of the year, but I think a lot of it has to do with just the way they're marketing it. I believe there's a daily e-mail blast that you're getting where they try to show you something new every day, and the customer very much responds to that. They get a lot of business through the e-mail blasts, and as you know, if you've seen it, it's something new and fresh. And a lot of times in addition to being new, fresh product there, there's also some type of little hook, like the Goslings Dark n Stormy Rum print that they did the other day, I don't know if you saw that one?

Yes, I did.

But I think it's little things like that, that give it some interest every day, and the consumer definitely responds to it.

And that's particularly true during this time of year, when they're really in season, at peak.

Lastly, and maybe, Hicks, you can address this. I just wondered, your comment about being cognizant of the macroeconomic deterioration in recent weeks. All of that has bounced around, up, down, 20 ways to Sunday for a while. I just wondered what part of that you might be more focused on.

Well, I think everybody is focused on the issue of unemployment, on the issues of the high gas prices and so forth. But I would say this, and as it relates to Tommy Bahama, Lilly, and Ben Sherman, 3 principal brands, the target customer group we have is not as immune to those issues there, as what it would have been had we not done the pretty dramatic repositioning of the Company. And as we said, these cost increases are not hitting us as hard, and I think some of these economic dislocations are not hitting us as hard -- are not hitting our target customer as hard as they do the general population.

I guess we put that in there because we didn't want you to think we had our head in the sand, and were so swept up with things that there was no downside on anything. So just cautious optimism, I'd say.

Thank you, and good luck.

Thanks.

We have a question now from Jim Ragan with Crowell Weedon.

Yes, thank you. I will add my congratulations for a fine quarter. I wonder if you could talk about the Tommy Bahama plans for the year. You had mentioned 7 leases are signed. Can you talk about where some of those stores are, square footage that you're looking at. I know one of the issues has been that you're considering opening some stores maybe further away from the coastal areas. Just some comments on that?

Terry, do you want to pick that one up?

Jim, we do have, as I said, 7 leases, 6 leases signed. It's a mix of around the country. The most important one that we've talked about before is New York City, which is clearly, to your point, away from the coast, but it's still on a coast, and we're very excited about that lease that was signed. Bethesda, we're opening a store outside of Washington, DC, in Bethesda. We already have a very successful store in Washington, DC, so that's a market that we feel good about.

Raleigh, we have a lease signed there in Crabtree Mall, which we know from our experience down there that that's a sweet spot for us there. Corte Madera, outside of San Francisco, across the Golden Gate Bridge, very nice shopping center there that we feel good about. It's right in the, again, in the sweet spot of where our customer is. Boca Town Center we expect to open in August. Again, right in the middle of where we do a tremendous amount of business.

So those are the full-price stores, and to keep our mix of full-price and outlets, we're going to open 2 more outlet stores, one in Hilton Head in July, and Potomac Mills in August. So we're keeping -- I mentioned we have 89 stores opened. We like the mix of where we are in outlet to full-price stores. Helps us keep our full-priced model in our regular-priced stores. So those are some of the locations.

We're continuing to look at other locations, and I mentioned in our first quarter -- our strong comp store increase is pretty broad based, from Texas to the Midwest. So it's not just resort-oriented where we're finding success. So hopefully, that answers your question.

Yes, it does, that's great. Speaking of the comp stores, can you give ranges of what type of comps you did see in Tommy Bahama in the quarter?

Mid-teens, in the quarter, that we continued to drive as we said on the last call, we saw mid-teen comps, very encouraged.

Okay. Then I think we're also pretty excited about the international potential. You mentioned Hong Kong. Can you maybe just provide a little more information on the timeline of how you see that progressing, now that will you be putting an executive over there?

As I said, it was an incredible trip, this trip, and the second one in 4 months. We just realized on this trip that we needed to move quicker. Therefore, we wanted to get this gentleman over there. The gentleman we're moving over there is Brian Pearce. He was formerly our Senior Vice President of Retail Stores, which is largely responsible for the good business that we're having right now in our retail stores, so he has extensive experience in Hong Kong. He lived in Hong Kong before, and in South Korea.

We're going to get him over there in place this summer, and we'll be talking to you about our plans on how fast and what our roll-out strategy is, as soon as we get it formulated. But it's going to be a wonderful -- the people we're talking to over there, just looking at the market, it's a perfect market for us. It's a product category that we feel is missing, and that we can be very successful. So we'll be talking to you more about it as it rolls out.

Great. My last question just has to do with inventory. The inventory levels consolidated will be up this year, as you add Lilly Pulitzer in there. What's the outlook for inventory on the other brands? I know last year, you kept real conservative. I imagine you will stay a little bit more aggressive now as the year progresses?

Well, that's certainly the case with Tommy Bahama. We planned for meaningful sales increases throughout the balance of the year, and I think the same goes for Lilly. So where we anticipate the growth in inventory is certainly there, but we're not concerned about our inventory levels anywhere.

Great, thank you very much.

And it looks like our last question at this time comes from William Reuter with Banc of America-Merrill Lynch.

Good afternoon, guys.

Hello, Bill.

Most of mine have been answered. Just a quick one on where you guys are in terms of your acquisition appetite, and maybe what you're seeing there. Can you talk about -- given the strong performance in Lilly Pulitzer, are you guys, at this point, ready to look to acquiring an additional brand? And then what you guys are generally seeing in the M&A landscape, whether that's described in terms of acquisition multiples. And then, how large the opportunities you might be looking for would be.

Let me take a crack at that, Bill. The good news from our vantage point is that we're not in a position where we think we have to continue to make repeated acquisitions to grow the business. We see a lot of runway ahead of us, in Tommy Bahama, in Lilly, and in Ben Sherman we think we're on the right track, and we're growing the parts of the business that we want to grow, and the other part of the business is sort of atrophying, and that's okay. That's sort of the way it needs to be for us to accomplish our objectives there.

The other thing is that an acquisition target for us has to meet a fairly stringent group of parameters for us to be interested in it. It's not just what's generally happening in the M&A in apparel and retailing for us. It's a pretty narrow prism, if you will. And I think from our vantage point, the things that are becoming increasingly important to us is the direct-to-consumer ingredient, where we have a vertical retailing proposition. It plays out both in brick and mortar, and increasingly in the e-commerce world.

So with the cash generation we're going to have, the first priority is going to be to support the growth opportunities we have with our major brands. And then it certainly looks like we're going to achieve free cash flow beyond that with the earnings momentum we have. So I would say we're still a player, but a very particular one at this point.

And I guess, just generally, are you seeing a lot of opportunities in the market? Are there a lot of brands that are becoming kind of sale price existing run on those?

We're seeing a lot of things, a lot of stuff, if you will. But to say it would be something we'd be interested in, is a different question.

That's it for me, thank you.

Okey-doke.

We have no further questions in the queue. I would like to turn the conference back over to the Company, if they have any additional or closing remarks at this time.

We'd just like to thank you again for your interest and attention, and we'll look forward to keeping you updated on our progress.

With that, we now conclude our conference call and webcast for today. Thank you very much for your participation. Have a great day.