Oxford Industries Inc (OXM) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to today's Oxford Industries Incorporated second-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 for questions. As a reminder, today's conference is being recorded. And now I would like to turn conference over to Anne Shoemaker, Treasurer. Please go ahead, ma'am.

Thank you, Doris, 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 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 statement. 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 posted under the Newsroom tab of our website at www.oxfordinc.com.

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'd like to turn the call over to Hicks Lanier.

Good afternoon, and thank you for joining us today. We are very pleased with the outstanding results we achieved during the second quarter, which were driven by especially strong performances from our Tommy Bahama and Lilly Pulitzer businesses. On a consolidated basis, we had 26% sales increase and adjusted operating margins improved by 190 basis points year-over-year.

These increases were driven by the addition of Lilly Pulitzer and the strength in our direct-to-consumer businesses. We were also pleased to have used excess cash to significantly reduce our outstanding debt and interest expense while maintaining a high level of liquidity which ensures that we will have ample financial flexibility going forward. I'll return with some closing comments before questions and answers, but I'd 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 strong results in both sales and operating income. The increase in net sales for Tommy Bahama was due to increases in our retail sales including comp store sales growth in our full price stores in the low double digits and revenues associated with 4 additional retail stores.

Additionally, we experienced continued strong growth in eCommerce sales. At the end of the second quarter, Tommy Bahama operated 90 retail stores. By the end of the fiscal year we expect to be operating 97 stores. The 20% increase in operating income to $17 million was primarily due to the increased net sales and improved gross margins resulting from a greater proportion of direct-to-consumer sales. These increases were partially offset by increased SG&A.

The second quarter included a great Father's Day. We were very successful in all men's categories led by our knit polo program. The Marlin embroidered Emfielder Polo has now become the number 1 item in our retail stores. After Father's Day, we had a swim event which continued to power us through the quarter. Women's continued to have year-over-year double-digit growth.

Earlier this year, we implemented eCommerce kiosks in our brick and mortar stores. The kiosks give the customers and store personnel the opportunity to access a full array of inventory in real time. This allows the customer to buy style, color or size that the store might not happen to have in stock. The kiosks are adding a couple of points to our retail sales which we believe are for the most part incremental sales. Perhaps more importantly, the kiosks are enhancing the total Tommy Bahama experience for our guests.

We are pleased with the impact our mailers have had so far this year. In September, we have our first ever denim mailer featuring not only denim offerings, but also an assortment of cool weather products including long sleeve woven shirts, sweaters and outerwear. For the rest of the year, we will have 3 additional mailers for holiday.

In 2012, we expect to continue our pace of 7 to 10 new store openings per year. In particular, we are excited to announce it that we have signed the lease for a prime location on Michigan Avenue in Chicago. Chicago has always been a great wholesale and retail market for us and we look forward to having a highly visible store in what is one of the best shopping streets in America. The location features 80 feet of frontage and is in the ground floor of the new Ritz Carlton residential tower.

Also for 2012, as recently announced, we have add additional space to the lease for our Fifth Avenue location. This New York lease will give us room to include a fantastic bar with a street level entrance and a second floor restaurant overlooking the retail space. We are thrilled at the prospect of having an island location which will fully and completely communicate the Tommy Bahama brand message in the heart of Manhattan. This location will elevate Tommy Bahama's visibility on a world stage. Now I'll turn the call over to Tom Chubb to discuss the results for the rest of our operating groups.

Thanks, Terry. Good afternoon, everyone, and thank you for joining us. I'll start with Lilly Pulitzer. Lilly Pulitzer continued its outstanding spring/summer season with increased sales in all channels of distribution including wholesale, retail and eCommerce. Lilly Pulitzer reported sales of $24.8 million and operating income of $5.6 million which was negatively impacted by a $600,000 charge related to purchase accounting. The 36% year-over-year sales increase was driven by the strength of the product as well as our successful efforts to reach additional consumers through e-mail, social media and mailers.

Dresses, a perennial strength for Lilly, performed very well through the critical spring/summer selling season. We had good results with a number of sportswear items including our shorts and a variety of knit tops. The fall selling season, which occurs in our third quarter, is a smaller season for Lilly given the brand's Resort Chic positioning and optimistic color palette. Accordingly, we bought inventory for fall quite conservatively. We are happy to report that initial fall sell-throughs are quite strong, which should leave us in a great position as we enter the more important resort selling season during the fourth quarter.

We continue to be delighted with the addition of Lilly Pulitzer to our Company. The depth and strength of the management team is superb. Integration is progressing smoothly and we are pleased to be working with them on the continued growth of this fantastic brand.

Ben Sherman reported net sales of $20.9 million for the second quarter of fiscal 2011 compared to $18.3 million in the second quarter of fiscal 2010. The increase was primarily due to the impact of currency exchange rate changes between the United States dollar and the British pound Sterling. Ben Sherman reported an operating loss of $1.8 million in the second quarter of fiscal 2011 compared to an operating loss of $600,000 in the second quarter of fiscal 2010. The lower operating results were primarily due to increased product sourcing costs as anticipated.

Lanier Clothes continued its steady performance with net sales of $22.9 million in the second quarter of fiscal 2011, slightly ahead of the $22.7 million reported in the second quarter of fiscal 2010. Operating income in the second quarter of fiscal 2011 was $2.3 million compared to an operating income of $2.8 million in the second quarter of fiscal 2010 with the decrease primarily due to higher SG&A.

Corporate and Other reported an operating loss of $5.4 million for the second quarter of fiscal 2011 compared to an operating loss of $5.2 million in the second quarter of fiscal 2010. Decreases in LIFO accounting charges were offset by higher incentive compensation costs. With the acquisition of Lilly Pulitzer and the divesture of Oxford Apparel our expenses for incentive compensation, which are aligned with earnings are now more heavily weighted to the first half of the year. Total incentive compensation for the year is expected to be comparable to last year. I'll now hand the call over to Scott Grassmyer to comment on our consolidated financial results.

Thanks, Tom. As Hicks mentioned, we had a strong sales increase over last year and as a result, earnings from continuing operations on an adjusted basis increased 78% to $0.57 per share compared to $0.32 per share last year. The adjusted earnings exclude the impact of the repurchase of a portion of our senior secured notes, which I will discuss in more detail in a minute, purchase accounting charges and LIFO accounting adjustments.

I want to remind everyone that the operating results for Lilly Pulitzer, which was acquired December 2010, are not included in our prior year results. Consolidated gross margins for the second quarter increased by 170 basis points to 57% compared to 55.3% in the second quarter of fiscal 2010. The acquisition of the higher margin Lilly Pulitzer business coupled with the increased proportion of direct-to-consumer sales drove this increase. Gross margins also reflect the net impact of LIFO accounting. In Ben Sherman, higher product sourcing costs partially offset this increase.

SG&A for the second quarter was $88.3 million or 48.9% of net sales compared to $71.3 million or 49.9% of net sales in the second quarter of fiscal 2010. We gained operating leverage on the higher sales base in the quarter. The increase in total SG&A was primarily due to expenses associated with the inclusion of Lilly Pulitzer business, higher incentive compensation costs and expenses associated with the operating additional Tommy Bahama retail stores. We are very pleased with the 54% increase in adjusted operating income for the quarter to $18.7 million.

As we announced on our June call, in the early part of the second quarter we repurchased, in a privately negotiated transaction, $40 million in principal amount of our 11.375% senior secured notes due 2015 for $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 loss of approximately $8.2 million. As a result of the repurchase, our interest expense was reduced to $4.3 million for the quarter. The remaining bonds are callable at half coupon premium in July of 2012.

Our liquidity remains very strong. In addition to reducing our long-term debt, at the end of the quarter we had no borrowings outstanding under our US revolving credit facility and $37.8 million of cash and cash equivalents.

Total inventories at the close of the second quarter of fiscal 2011 were $77.7 million compared to $57.2 million at the close of the second quarter of fiscal 2010. We are comfortable with our inventory levels, which are higher than last year primarily due to the addition of Lilly Pulitzer and an increase at Tommy Bahama to support anticipated sales and additional retail stores. Receivables are also higher primarily attributable to the addition of Lilly Pulitzer receivables.

We're delighted to be investing in our brands with capital expenditures for fiscal 2011, expected to rise to approximately $35 million. These expenditures will consist primarily of additional retail stores, retail store remodeling, information technology investments and distribution center enhancements. Much of our IT and distribution center investments are centered around our rapidly growing eCommerce business including website enhancements, customer service operations and fulfillment capabilities. We have updated our guidance for fiscal 2011 and now expect adjusted earnings from continuing operations per diluted share in a range of $2.20 to $2.30 and net sales of $735 million to $750 million.

This compares to our prior guidance of $2.15 to $2.25 in adjusted earnings from continuing operations per diluted share and net sales of $730 million to $745 million. This guidance reflects an expected effective tax rate for the second half of fiscal 2011 of 36%.

Because of the seasonality of the Tommy Bahama and Lilly Pulitzer businesses and their significance to our results, the third quarter is a small sales quarter. This, along with a fixed expense structure of our retail businesses, results in a lower operating margin compared to other quarters. For the third quarter, we anticipate sales in a range from $160 million to $170 million and adjusted earnings from continuing operations per diluted share of $0.10 to $0.15.

Our Board of Directors has approved a cash dividend of $0.13 per share. Oxford has paid dividends every quarter since it became publicly owned in 1960. Thanks for your attention and now I'll turn the call over to Hicks Lanier for some closing comments.

Thank you, Scott. As we enter the second half of the year, we are mindful of the macroeconomic uncertainty, but we are confident in the strength of our brands and the capability of our management team. Over the last several years, we have significantly developed our skills and ability to communicate with the ultimate consumer through mailings, social media and e-mail. We believe this type of marketing has been instrumental in the success we have had so far this year.

Coupled with fantastic product offerings, we believe our positive momentum will continue, particularly during the important holiday selling season. Thank you for your attention today, and I believe we're now ready to take your questions. Doris?

Thank you. (Operator Instructions) We'll go first to Eric Beder with Brean Murray.

Good afternoon. Congratulations on an extraordinary quarter.

Thank you.

Lilly Pulitzer has basically outperformed everything you said it would when you acquired it. Where do you go next year in terms of the next step in your ability to lead under Oxford?

Well, Eric, Lilly Pulitzer certainly has outperformed our expectations for it. We knew it was a great brand and a great business run by fantastic people, but it has delivered more than we expected. The growth has really been driven, and the strength has been driven, while it is across all channels, the biggest driver is the direct-to-consumer business and our focus going forward for next year and the subsequent years will be on growing the direct-to-consumer business and that will be in both bricks and mortar stores as well as eCommerce. ECcommerce has performed extraordinarily well for us this year.

It's a channel that works quite well for the Lilly Pulitzer brand and so that will continue to be an important part of the mix. We have not opened any stores since we bought Lilly Pulitzer. I expect that we will start opening some stores next year, but we'll take a relatively cautious approach with that and sort of take a page out of the Tommy Bahama playbook and crawl, walk and run on that.

It's been a number of years since Lilly has opened a new retail store and we want to make sure that we're getting it right. But overall we're extremely happy with Lilly and think that there's lots and lots of untapped potential there.

Yes. We've decided after careful consideration not to put the brakes on them.

You know, throughout the earnings season we've heard how people are handling higher cotton pricing and other costs by raising prices. I guess we have to ask the (inaudible) question, how are you handling higher costs and [greater] pressures this year and maybe into next?

I think I can speak for sort of across the board. The good news for us is we repositioned ourselves into high margin businesses where the swings in the cost of goods sold do not affect us as much as they would have had we had our historical business model. But having said that, there are increases and we are selectively increasing pricing from -- so we're dealing with it.

Tom in his report on Ben Sherman indicated that the higher product costs there eroded our gross margin in the first half and will affect us some in the second half, but we see that moderating as we get into 2012 and back to more traditional margins.

Great. And finally, Tommy Bahama women's, it's rolled out in your stores. How much is it as a percentage of sales in your stores and kind of where would you like to see Tommy Bahama women's end up as a percentage of sales in the total Tommy Bahama mix?

Terry has been practicing the answer to that question all day. (laughter)

Eric, thanks a lot. As I said, we're very happy. We saw, again, double-digit comps and growth in our women's business. I can tell you right now in aggregate it's running at approximately about 27% of the business. Some stores we've got that are running much higher than that.

We've got stores running as much as 50%. We talk about here a lot that we think a nice place for our brand, a healthy place, would be a 50/50 mix between men's and women's and we've seen a nice growth from where in the last couple years getting there. So we're not going to get there overnight, but that's our goal and we think we'll be a much healthier brand when we achieve that ratio.

Great. Again, congratulations on a solid quarter.

Thanks, Eric.

And our next question comes from Edward Yruma with KeyBanc Capital Markets.

Hi, thanks for taking my question and nice quarter.

Sure.

Can you talk a little bit about Ben Sherman and your longer-term goals to get that business to higher levels of profitability? I know, obviously, you talked about the product costs and I know that you have been opportunistically introducing your product, but how do you think about kind of the medium-term goals for getting stronger profitability in that business?

Well, Ed, I think that we have a great example here between Lilly Pulitzer and Tommy Bahama. We have two great aspirational lifestyle brands that are really hitting fundamentally on all cylinders. With Ben Sherman we've got a brand that we believe has the raw ingredients to be an aspirational lifestyle brand, but it's not quite there yet, and in order to get there what we need to do is we need to get the product, the price, the distribution, the customer and the marketing all aligned and all appropriate to an aspirational brand.

I know that while out at -- in Las Vegas at the project show, as you wrote up in your recent note, you got some exposure to the new Plectrum line which is the elevated segment of the Ben Sherman line and that is, obviously, a key part of getting both the product and pricing in line with what we think the target customer is. As you know very well, we're working on the distribution and have been working on that. I think we've made a lot of progress towards getting the distribution correct and then the marching message, I think, you got some exposure to some of the newer ad campaigns and other marketing materials and I think we're getting that in line.

Only when we get these things in alignment does the brand have a chance to succeed financially. We, as you know, two years ago we lost $8 million or whatever it was. Last year we did slightly better than break-even. This year, absent the gross margin pressure, we probably would have had a low-single-digits operating margin. The sort of cost issue that we had has knocked us back to more of a sort of a break-even or thereabouts scenario for this year.

But going forward to next year, as Hicks mentioned, we think we've largely addressed the product cost issue and then with the work that we've done in the other key areas, we believe, and it's a bit early to talk about next year for us yet because we really haven't fully booked spring yet and some of the indicators that would give us a better view of 2012, but our current thinking on 2012 is that we will get some sales growth which will be the net impact of some further -- walking away from some of the less desirable distribution in the wholesale, building some better wholesale distribution or continuing to build better wholesale distribution and then continued growth in retail.

And one of the things that's masked in this year's results is that retail has actually had year-over-year quite a good first half and Sherman comped up in the low-double-digits and whereas through the first half last year they were -- we were losing money on the retail operation. This year we're actually slightly in the black and for Ben Sherman, unlike Tommy and Lilly, first half is not the strongest half. So those are sort of the things that we think need to happen in Ben Sherman.

We think we've got the right strategy. We've got the right group of people working on it. We're very pleased with the team and I know you got to meet some of them out in Las Vegas and we think they're working on the right things and we're doing everything that we can to support them.

I'd just add one thing to that, Ed, and that's that we're not in a position to declare victory at this point, but we are seeing some tangible results, both in our own stores and in our key retailers that the product is performing and the ultimate consumer is voting positively.

That's right. And he's talking about that new Plectrum product, Ed, that you saw early results, but very positive so far.

Got you. Super. And, Hicks, one other question, or I guess this is for the greater team, you mentioned the macroeconomic volatility. I know that you do have a more affluent customer. Can you talk about weakness you might have seen in that customer base given all the macro volatility that we've been seeing? Thank you.

Okay. There's no question that the volatility is concerning to us and to our customer, but versus the depths of 2008 when the Dow Jones got down into the 8,000 neighborhood, we're just not near that territory right now.

So sure, we'd like it to be a lot more stable and a lot more positive, but we don't think we're in the same ball game we were there, not that we don't monitor it every day, but as I said in the closing comments, I think the power of the brands we've got, the skills of the management team we've got, our demonstrated ability to navigate through very difficult times, the combination of those makes us feel pretty positive about things.

Got you. Thanks very much.

Sure.

(Operator Instructions) And from SunTrust we'll go next to Robin Murchison.

Thank you. Good afternoon, guys. Had a few questions here. I wanted to ask you, first of all, if you look at Ben -- I'm sorry, if you look at Lilly Pulitzer and you look at Tommy Bahama women's in the second half, am I correct in assuming that Tommy Bahama women's would have a stronger relative second half than Lilly?

Are you asking if it's more of a year-round proposition?

Yes. That's the better way to ask it. Thanks, Tom, yes.

Well, Terry, why don't you comment on the women's business including the swimwear component and how that relates to the seasonality and then you can sort of make a comparison.

Yes. Hi, Robin, this is Terry. I can just talk about our plans and Eric asked the question about the growth in our women's businesses. We said we're very excited about the growth in our women's business as it was in the first half, and we're looking for that growth to continue in the second half in all categories.

When we talk about women's, it's not just women's sportswear. We have a pretty diversified mix of women's product in our stores. We're seeing a tremendous amount of growth in our accessory business, which is a new business to us, footwear, handbags, bags in general, jewelry, things that really round out the women's assortment and make the women's product more exciting.

Women's swimwear business is a business that -- and in a lot of our locations even in the holiday season it is still a very viable big business for us in the resort areas. So we don't see any slowing down in the back half of the growth that we've seen in the women's and we've bought inventory. We allocate an ample amount of pages in these books that we're talking about mailing. Even though the fall book is a bit slanted towards women's, the holiday book is much more of a women's book and women's swimwear is incorporated in there.

So we're just keeping it fresh and making sure that we continue to delight the consumer with our women's product. It's working so far and we couldn't be happier and optimistic about the back half of the year. So that's where we are with Tommy.

I thought the recent e-mail with the Tommy women's dresses was terrific.

That e-mail, Robin, today? You're talking about the one today?

It was the one with sort of the long cocoa-colored (inaudible)dress.

Yes. There's been a phenomenal response to that dress. Whenever we do that, when we talk to the consumer directly with a product like that that resonates -- knit dresses is a category that in the back half of the year that is clearly going to be a driver and I'm glad you brought that one up.

Well, I can see that you had traction in the assortment and how you kind of dovetail it to the season, for the fall with the half zip or the reverse flip zip or whatever it is.

Yes.

The different things that you do in the product category. I think, maybe for Tom or Hicks, what I'm ultimately wondering is if you guys think down the road once you get past some of this low hanging fruit with Lilly, I mean if you think there's an opportunity to drive a similar business for Lilly. As I look at the website, at Lilly's website, it doesn't look to me like there's as much product on it as there was certainly during spring and summer and I would expect that, but I'm just wondering if there's an opportunity down the road.

Well, Robin, this is Tom, and to answer your question, Lilly is clearly a very seasonal business at this point. They've made an awful lot of money through the first two quarters. The third quarter will be significantly smaller in sales and it's sort of a [break-even-ish] or maybe even lose a little bit of money kind of quarter. Fourth quarter picks up a bit as you get into resort selling and those sales pick up and it gets into some modest profitability, but nothing like the first two quarters. So that's sort of the current state of the business.

We believe very strongly, and the team at Lilly Pulitzer believe that there is more of a fall opportunity than the brand has really exploited at this point. I think you've hit on exactly the type of product where there might be opportunity in some sweaters, second layer knits related-type pieces, and I think in the years to come you'll see more effort from Lilly in trying to develop some of that real fall kind of business. A sort of very important thing for the Lilly team has always been staying on brand, and as you know, it's a very definite brand and I think that they want to be careful and we want to be careful that in the quest to develop a fall business we don't stray too far off brand, but I think we think and they think that there is a way to do that.

Much as Tommy Bahama has done, as you know, it was a much more seasonal business in men's when we bought it than it is now. So it's a great question and we agree with you. We think there's some longer-term opportunity there.

And that question has gotten a lot of discussion on our part with the Lilly team. So --

Okay. Well, great. And one more for Terry, if I may. I like the kiosk idea in the Tommy stores because I feel like a lot of times you go into the Tommy stores and sometimes the breadth of assortment that, particularly when you're talking about two-piece swimsuits and some, you have a lot of mix and match ability. Will the kiosks -- will the ordering kiosks be in all stores or is this a test? Just want to be clear about that.

No. It is up in all stores as we speak, Robin. Based on -- we've tested it in about a dozen stores initially and based on that success ran. In the old crawl, walk, run philosophy of Tommy once we saw the results, we stopped crawling and walking, and we went straight to run because with the results that we saw on that and it's continuing to drive business.

In addition to what you mentioned in matching up swimsuits, one of the big draws to the spend has been Big & Tall and it's made us aware of just how big a business this Big & Tall business is. People coming into the store, they see a shirt that they like and we haven't been aggressive with stocking our stores with Big & Tall product just because it's a space allocation in the stores, but now that we have it on the kiosk we're seeing a tremendous lift in our Big & Tall business. So we think -- I mentioned in the prepared remarks that we're seeing a two-point increase, but we think there's more opportunity as we continue to learn and explore what this kiosk can do for us.

Got you. And then lastly, if I may, I think your royalties were down sequentially from Q1 and I just wanted to see if there was anything to say about that and I guess year-over-year, I believe. No, I'm sorry, they were up year-over-year but down sequentially from first quarter. Just wanted to see if there was anything --

Nothing material. A lot of our licensees are experiencing the same level of business we are. I don't know of anything materially that would be different affecting that.

And that's partially a seasonality. Our first quarter is bigger than our second quarter. You know, they're both strong quarters. So that would just be the pattern, the seasonal pattern.

And it's a wholesale sell-in of spring-type items so it's going to be a bigger first, like our wholesale business is bigger in the first for Tommy.

Well, I meant consolidated. I'm just looking at two years of data, an entire two years of data and it looks like it usually grows Q1 to Q2, but I hear you. Thanks very much.

Sure.

Our next question comes from Jim Ragan with Crowell, Weedon.

Thank you. I have a quick question just about the Tommy Bahama retail stores. It looks like -- so there was one store that was opened in the second quarter. Can you just talk a little bit about how that went and then also the timing of the store, the new stores scheduled by year-end?

We -- Jim, this is Terry. We're opening another seven stores in the back half of this year. I don't know what store you're referring to we opened in the first quarter. I think that must have been in Hilton Head. Hilton Head, we opened in first quarter which was an outlet store which brings our outlet total to approximately 18 stores, which we think is a very nice mix for us, but we're very excited about the opening cadence.

I was just in Corte Madera just outside Marin County just over the Golden Gate Bridge on Monday where we opened a fantastic store to great fanfare and I know two days don't start a trend, but what we've seen in those two days in that store is just terrific. We also opened a store on Monday in Boca Raton which is our second store and it's very positive. So we're experimenting with different layouts.

The Boca Raton store we opened and the Corte Madera store are totally different retail formats that we're looking into and gauging and talking about which format, rather than just open the same format over all these stores we even have two additional formats in the seven we're opening if the back half of the year. So it's not just opening stores, Jim, to open stores. We're trying to be more strategic on not only the location where we put these stores, but also the store design and the mix and tailoring the mix to these individual locations. Our merchants have done a terrific job.

Obviously, the product that we have in Corte Madera that I saw there the other day is a pretty much totally different product than we have in Boca Raton. So we have the breadth of assortment in our product development where we can do that. So I hope that answered your question. Was there something more specific?

No. You addressed it. I was just interested in kind of, as you said, the cadence. It's just not all weighted to the fourth quarter. You definitely have stores here that are ready to open in Q3?

Oh, absolutely. We're opening Corte Madera, I told you Boca, Raleigh, we're opening a full-size store in October, Bethesda, we're opening a store in December. Potomac Mills we're opening, just opened this month as well.

Okay, great. All right, and then just a bigger question, just a refresh on the continuing to show some numbers on the income statement from the discontinued operations. Can you just talk about what exactly is included in that and then when you expect that to be done?

Yes, Jim. That's pretty much done now. In the first quarter we had some income, mainly some wind down in our agent sourcing office and we felt that belonged in discontinued. And then we had the final settlement of the working capital adjustment and so we kind of did our final accounting on the gain/loss piece of the transaction. So anything going through in the future will be very immaterial. So it's pretty much behind us now.

Okay, great.

So it's [break-even-ish] for the year.

And then you talked a little bit about the Lilly Pulitzer -- there was a question earlier about expanding the distribution. You're going to kind of play it close to the vest. Can you talk about what you might be looking at in terms of expanding the line for spring of 2012?

First of all, with respect to expanding distribution, we said we were going to expand direct-to-consumer. There's really not any plan to expand wholesale distribution in a big kind of way. I think we'll get some growth in some places, but the emphasis going forward really is on the direct business more than anything else. In terms of the spring product offering, I think the line is actually smaller in terms of number of SKUs which I think is a good thing just from an inventory management standpoint, not drastically smaller, but just slightly smaller.

I think there's a little bit more emphasis on sportswear and items other than dresses than there has been in the past and then the big initiative for spring 2012 which we're quite excited about is a white pant program, and for the spring season it will be two different fits of white denim jeans in two different models each, so a total of four different offerings there. And then in summer we'll have a white twill pant. We think the white pant program is a natural for Lilly Pulitzer.

It works very well with the rest of the product line and we think there's an opportunity there to build a business that can be more of an ongoing type of in-stock type of business that to date Lilly really doesn't have a whole lot of. So we're pretty excited about that.

Great. Thank you.

And our next question comes from Bill Reuter with Bank of America Merrill Lynch.

Good afternoon, guys. I was wondering with the bond repurchases during the quarter if you could talk about how you guys are thinking about that opportunity, whether you guys will continue to potentially do this and if there are limits on your ability to repurchase bonds?

Scott?

If the right opportunity came along, we would certainly consider entertaining it. As time goes on it would have to be at a lower price than we bought the first batch, but something that we certainly would entertain. And as you know, in July of 2012 we have the call. We would certainly anticipate calling the rest of the bonds by July 2012.

Okay. And housekeeping item, did I hear in your prepared remarks that your tax rate is expected to be 36% for 2011?

For the second half of the year, so it will blend down lower than that, but the first half you'll have some discrete items including the UK rate went down, so you revalue the deferreds, taxes and push it through. Things like some of those types of discrete items push the first half rate down. The rate in the second half will be 36% and we'll come out probably [35-ish%] or maybe a hair under for the year.

Okay. When I take your EPS guidance and I try and put it to the EBITDA line, I come up somewhere in the mid-90s. Does that sound about right?

Yes, that's in the ballpark for sure.

Okay. That's it for me, guys. Thanks a lot.

Thanks, Bill.

And we'll go next to Susan Sansbury with Miller Tabak.

Hi, yes, thanks very much. The tone of this conference call is so dramatically different than it has been for a long time and I think everybody on the team is to be applauded.

Thank you.

Okay. I do have a couple of questions, first for Terry. You guys don't provide guidance, so I had to pencil in my own sales estimate for Tommy Bahama, but in the second quarter the less than double-digit sales increase seems a little light, certainly when -- since you had double-digit comps. Was there a timing shift on the wholesale side?

No. On the -- I don't know what number, for the first half, as I reported, it was double-digit comps in the first half.

I think I can help Susan on that one, Terry, by saying that the wholesale business was relatively flat. So all of the increase came from the direct-to-consumer business. That percentage increase was up, actually with the four new stores, it was actually much higher than 10%.

Okay. So what's the split at this point wholesale, retail?

65/35 which it's getting around that range.

Yes.

And the wholesale -- and I don't mean, Susan, say that our wholesale business was difficult. A lot of this is planned. We're focusing on better quality doors in our wholesale channel than we've had. We just -- we were out at Las Vegas for the trade show and as we continue to focus on better door distribution and that, a lot of the wholesale people are experiencing great sell-throughs and had great sell-throughs this spring and we're very optimistic about our business.

Even though we talk, and we're focusing on the direct-to-consumer business, wholesale business is still a very important piece of our business and we don't take our eye off the ball on the wholesale, on the wholesale piece of the business, so --

No, I didn't mean to imply that there was anything negative or nefarious going on. I just wanted to --

We had --

I'm sorry?

We'll have some modest growth for the year in wholesale. But the quarter was flattish, we'll have modest growth for the year but the real growth engine is the direct-to-consumer.

Okay.

We think it's a good thing.

Oh, I don't disagree. Terry, I was unable to go to [Magic] because the prior week I had spent the entire time on the West Coast. Can you give us sort of a pulse check from a retailer standpoint in terms of how the show went and how it came out?

Sure. Yes, we -- I walked -- there's several, as you know, Susan, the show has become a little dissected. There's several shows going on out there, the Magic show, the Project show, which we showed Ben Sherman there, but I thought the attendance was good. I didn't see -- in talking to people, I didn't see there being a big increase.

It was pretty similar. But the mood at the show, and I had an opportunity to sit with a lot of our very good specialty and department store customers, the mood is pretty good. I mean, I think that they all saw, kind of mirrored what we saw in our own retail stores in the first half of the year where business is actually pretty good and they're feeling optimistic and especially with our brand and the product assortment that we were showing and I think they feel pretty good. They're obviously concerned.

I was a little surprised that they were not as concerned as I thought they would be about the economic conditions. There wasn't a whole lot of chatter. I think that finally a lot of the wholesale customers are just ready to get on with it and they realize they've got to do business and they're buying goods and planning for the back half of the year to be good. So I would say, Susan, that the wholesale specialty and department store generally were upbeat about how they looked at the back half of the year.

Okay, good to hear. Now I was going to ask Tom a question about this new merchant at Ben Sherman.

[Ben Sherman?]

Right. But because in the announcement in Women's Wear Daily the CEO of Ben Sherman said that his arrival was going to be an important first step in repositioning the brand. But the way you described it in this conference call, well, I guess the question is what changes can we anticipate or are we going to take a step back with his arrival from -- where did he come from, Burberry, or are you just going to charge ahead?

I certainly don't think we'll take a step back.

Well, I was thinking he might hire some new people or something like that.

He probably will bring in one or two people, but I think that, Susan, it's really a continuation of the strategy that we've been on, and what he does is he brings together some different parts of the Ben Sherman business that, as I talked about, we need to get in sync. His primary responsibilities are threefold. He is the key person for the global wholesale business and we've got heads of wholesale in each of the three major markets we participate in, Europe, the UK and the US, but he'll be the -- sort of the global focal point for wholesale.

He's going to handle licensing and then merchandising, and this is a role that's been sorely needed in Ben Sherman for a long time. It's been fulfilled in parts by different people. Pan Philippou, the new CEO at Ben Sherman, started talking about the need for this position even before he started work at Ben Sherman, and it's been a role that we wanted for quite a while. We searched very hard to make sure that we got the right guy or person and in [Adrian] we think we've got exactly that. So it's really a continuation of what we've been working on, but I think it just helps us pull it all together and he's a very highly qualified, highly respected, very capable guy.

Well, I came to the same conclusion given the brief description of his bio.

Yes. His pedigree is quite strong.

Yes. Pedigree is very strong, okay. And then finally, because I'm a financial analyst here, can we parse this inventory increase a little bit more? Can you actually tell me how much of the delta was Pulitzer and the costs of the organic growth in inventory how much it units and how much is cost per dollar? Because percentage-wise it's a big increase.

Yes. Lilly is about being close to $10 million of the increase and Tommy's the lion's share of the rest, but we have inventory in transit to open. We opened one store and we've got seven more opening with, I think, four of those in the third quarter. You've got the inventory to support those, plus the stores that we opened late last year. So you have a bigger store base. Also we're buying to an increased business. So about $10 million at Lilly and Tommy being the biggest piece of the remaining increase.

How much is in transit? May I be so nosey as to ask?

I don't have the exact in-transit number, but, yes, in-transit is part of our inventory balance.

We feel very comfortable about our inventory levels.

Thanks very much, and I'm happy to -- I'm glad that everybody's happy.

Thanks, Susan.

We're happy that you're happy.

And we're happy.

And we'll go next to Jeff Matthews with Ram Partners.

Hi, thanks. I'm glad everybody's happy.

Yes. That's great.

I was just wondering if you could talk a little about sourcing costs and what's happening to pricing this year, and then what it looks like next year, and anything you're doing to alter sourcing, if at all. Thank you.

Well, just as a general rule -- we talked about this a little while ago -- we think sourcing is a skill set that we have in the organization and each of the key entities has dedicated sourcing groups and there's no question there's been pressure on that front, both from a raw material standpoint and a labor standpoint.

And as I said earlier, we have had selective price increases and we'll continue to have some from time to time, but everything considered we -- the price increases that we have implemented have been accepted as fair and appropriate by our wholesale customers and where we have raised prices in our retail stores the consumer is continuing to react positively to it. So I don't mean to make light of it but we think we've got that under control.

That's good. I just wondered, also, if you've seen -- further on that point, though, if you're seeing anything that looks different going into next year, good or bad, that cotton, obviously, has changed? And, secondly, if you're doing anything differently in terms of sourcing in other countries? Thank you.

Okay. Well, certainly that's one of the benefits of having been in the sourcing business for a long time. We are able to move from country to country and we've got pretty good knowledge of the spread of the countries both in the Far East and in other areas of the world. So we are constantly evaluating movements between countries but also keeping in mind the quality requirements and the service requirements that we've got. So that -- you can never declare victory on that front. It's a day-to-day proposition.

Thank you.

Okay. Thank you.

And we'll take a follow-up question from Robin Murchison with SunTrust.

Yes, thank you. Just a quick question. Are you seeing anything in some of the key markets? Always like to sort of check about some of those key housing markets, California, Florida, Arizona? And then is there any sort of comment that you want to make in term of how third quarter has started out? Thank you.

Well, I'd say for the last couple of days since about last Friday the East Coast hasn't been as vibrant as we would have hoped with the hurricane. But I think some markets and, Terry, you and Doug will chime in on this, but I think we've been fairly pleased that California, which has been sort of a weak spot for us for some time, has shown some signs of recovering and strength over the last six months, so that's been a positive.

Yes, Doug monitors that pretty closely. I'll let Doug Wood talk to it. Doug?

Yes, I mean, what we're seeing right now especially through the summer, California is the one market that's really in season where Florida and the desert, and other key markets really go out of season California kicks in. We've seen nice healthy business in California which has been positive because, as Hicks mentioned, where everything else was doing fantastic for the first part of the year California was lagging behind from an economic standpoint.

So overall we're seeing some healthy regions and, Robin, we've reported over the last couple years pretty much region by region how things have been going, and the one that we were watching was California and they seem to have come back.

Thank you.

Sure.

And there are no further questions. At this time, I'll turn the call back to Mr. Lanier for any closing remarks.

Well, just like to thank you for your interest in Oxford and we'll continue to work hard and advancing the ball. Thanks.

And, ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.