Oxford Industries Inc (OXM) 2012 Q1 法說會逐字稿

Good day, and welcome to the Oxford Industries' Incorporated first quarter fiscal 2012 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Anne Shoemaker, Treasurer. Please go ahead, ma'am.

Thank you, Melanie, 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 for 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 posted under the newsroom tab of our website at oxfordinc.com

And now I'd like to introduce today's call participants. With me today are Hicks Lanier, Chairman and CEO, Tom Chubbs, 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 to discuss our first-quarter results. We have begun fiscal 2012 on a strong note, with an 11% increase in sales and with adjusted EPS ahead of our guidance at $1.12. These results were fueled by strength at both Tommy Bahama and Lilly Pulitzer, particularly in the direct-to-consumer businesses. At Lilly Pulitzer, we have begun our store rollout. Our new right-sized stores in Charlotte and Atlanta have been met with a great deal of excitement, and their performances are exceeding our expectations.

We now have a lease signed at Towson Center outside of Baltimore, and are actively working on securing additional leases. Tommy Bahama's global expansion is underway, with stores now open in Macau and Singapore, and additional stores slated for Hong Kong and Tokyo. In addition to Tommy Bahama's international expansion, we will operate approximately 11 additional stores in the US by the end of 2012. The build out of the New York Fifth Avenue location with two bars, a restaurant and a store, is in progress [and this] and our Michigan Avenue store will open later this year.

We continue to believe that our emphasis and investment in our direct-to-consumer businesses, and international expansion is critical to driving long-term profitable growth. As always, we are mindful of the challenging economic environment. But to date, we are pleased with the way that we have positioned our Company to navigate those challenges. I now would like to turn the call over to Terry Pillow to discuss Tommy Bahama's results for the quarter. Terry?

Thank you, Hicks. We couldn't be more pleased with our first-quarter results. Tommy Bahama reported a 15% increase in net sales to $141.1 million for the first quarter of fiscal 2012. High single-digit comp store sales increases in our full-priced stores, the contribution from new stores, significantly higher e-commerce sales, and increases in our wholesale business drove the increase.

Our operating income rose 8% to $25.6 million, driven by higher sales, but also reflecting the planned increase in SG&A from expenses associated with our international roll out, and pre-opening costs for the New York stores -- store, and costs associated with operating additional retail stores. Our first quarter saw strength in all categories of our business, and our performance in non-resort regions of the country, such as the Midwest and the West Coast was very strong. Women's performed exceptionally well this spring, with a nice run-up through May, reflecting significant Mother's Day sales. In the first quarter, our direct-to-consumer women's business grew 25% over last year. This performance further validates our strategy to continue to develop and grow Tommy Bahama women's. To further enhance our women's business, we have brought on a small development and sourcing team last year for women's accessories, and have seen a positive result in scarves, handbags, beach bags, jewelry, and footwear.

Our creative services team has been working to align our message in our stores, e-commerce sites, and our advertising mailers. This team has focused our look and feel to reflect a more aspirational and forward view of the brand. 250,000 Father's Day mailers were sent to targeted customers the last week in May, and another 250,000 are being mailed this week. The early read is that we have very positive momentum leading to Father's Day, as we are seeing a direct and immediate effect on traffic and sales, boding well for our second quarter.

As Hicks mentioned, our international expansion is well underway, and we are very pleased with our management team's execution. Both Macau, which opened in March, and Singapore, which has been open about two weeks are reporting solid sales. These customers are embracing the island lifestyle message, which is a fresh, new look at retail in these markets. Hong Kong and Tokyo are next. Our plans for international expansion have a long-term horizon, and we expect this to be another sales growth engine in the years to come. 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. While the spring selling season is traditionally the biggest of the year for Lilly, their results for the first quarter of 2012 were nonetheless, nothing short of remarkable. Sales in the first quarter of fiscal 2012 rose 19%, to $35.6 million. This growth was achieved with increases in comp store sales in the upper teens, the addition of the Charlotte retail store, and continued dramatic growth in e-commerce sales. Lilly also saw a meaningful increase in it's wholesale business year-over-year. With a healthy sales increase and the higher gross margins, Lilly reported a stellar 35% increase in adjusted operating income, to $11.6 million for the first quarter of fiscal 2012.

On the product front, Lilly continues to be fueled by strength in dresses. We have also been delighted to see some very good selling results in bottoms, particularly our elegant white bi-stretch twill trouser, colored denim, a 100% linen beach pants, and the Pippa pant, a printed drapey rayon pant that epitomizes Lilly's resort chic positioning. Lilly also recently launched the island polo, a cotton spandex performance pique, that comes in eight optimistic colors, and has been well-received by the consumer.

At the end of May, we opened a Lilly store at Phipps Plaza in Atlanta. At 2,600 square feet, it is similar in size and design concept to the store we opened in February in Charlotte. Like Charlotte, the Atlanta store is off to a terrific start. We are delighted with the store, and believe it is a highly scalable retail model that will provide excellent prospects for continued growth. Never comfortable resting on their laurels, the Lilly management team also continues to strengthen it's already deep talent pool by adding key positions that should help drive future growth.

Ben Sherman continues to be impacted by the very difficult economic conditions in the UK, and Europe, where it operates approximately 70% of it's business. Traffic year-over-year in our retail stores in these markets was down markedly, with the resulting downward sales pressure being partially offset by significantly higher average unit retail prices. The higher retail prices are the result of our strategy to sell more elevated, special and the higher-priced product. Reduced traffic in these markets has also created a highly promotional environment, which together with the higher input costs, put pressure on gross margins for the quarter.

For the first quarter, Ben Sherman reported net sales of $17.4 million, compared to the $19.4 million in the first quarter last year, due to expected reductions in it's UK and European wholesale business. The operating loss for the first quarter was $2.7 million, compared to an operating loss of $800,000 from the first quarter of fiscal 2011, primarily due to gross margin erosion and lower wholesale sales. The impact of higher product costs on gross margin should abate in the second half of 2012. We have seen modest improvements in traffic early in the second quarter, but we remain very cautious, and will continue to manage this business closely.

Lanier Clothes reported sales at $33 million in the first quarter, flat with last year. Operating income declined to $4 million in the quarter, from $4.7 million in the first quarter of fiscal 2011, primarily due to continued gross margin pressures. The team continues to execute very well, delivering a respectable 12% operating margin. The corporate and other operating loss for the first quarter of fiscal 2012 was $5.1 million, compared to an operating loss of $4 million in the first quarter last year. The difference was primarily due to the impact of LIFO accounting, where we had a $600,000 LIFO credit in the first quarter last year, and a $200,000 LIFO charge in the first quarter this year. I will now hand the call over to Scott Grassmyer.

Thank you, Tom. I will walk through our consolidated results. As Hicks mentioned, we reported a strong first quarter. Our consolidated net sales rose 11% to $231 million, and on an adjusted basis, earnings per diluted share from continuing operations increased 5% to $1.12. On a US GAAP basis, earnings per diluted share from continuing operations rose $0.06, to $1.09 in the first quarter of fiscal 2012. As we anticipated, there were some gross margin pressures in the first quarter, particularly at Ben Sherman when [when Lanier Clothes] to higher cost of goods, compared to last year flowing through cost of sales. Ben Sherman's gross margins were also impacted by the depressed economic conditions, affecting the UK and European businesses.

Consolidated gross margins for the first quarter of fiscal 2012 decreased slightly to 55.9%, from 56.5% in the first quarter of fiscal 2011. We expect these gross margin pressures to begin to ease in the second half of fiscal 2012. This, along with the anticipated increasing proportion of the higher gross margin Tommy Bahama and Lilly Pulitzer businesses relative to the prior year, is expected to result in consolidated gross margin expansion for the year.

SG&A for the first quarter of fiscal 2012 was $100.8 million or 43.6% of net sales, compared to $91.1 million or 43.8% of net sales in the first quarter of fiscal 2011. Some leveraging of SG&A was achieved, despite the $2.4 million of cost in the first quarter associated with the Tommy Bahama international roll-out and the New York store. Our New York location will have an unusually long build-out period. We took possession of our New York location earlier in the year, and plan to open the store late this year. As a result, we will have rent expense flowing through our P&L for most of the year, without the benefit of meaningful revenue.

Interest expense for the first quarter of fiscal 2012 decreased 25% to $3.6 million, as a result of our repurchase at $45 million of our 11.375% senior secured notes in fiscal 2011. As we have previously announced, we intend to redeem the remaining $105 million of notes in July in 2012. To refinance the redemption of the notes, and ensure adequate liquidity, we expect to amend and restate our existing $175 million US revolving credit facility to, among other things, increase the size of the facility, and extend the maturity date. This is anticipated to reduce interest expense for 2012 to approximately $9.5 million, which is lower than our previous estimate of $11 million. In the second half of fiscal 2012, interest expenses is expected to be approximately $2.6 million.

The effective tax rate for the first quarter of fiscal 2012 was significantly higher than last year, at 38.3%, compared to 34.2%. The effective tax rate for the first quarter of fiscal 2012 is more indicative of the anticipated effective rate for the future periods, as last year's rate benefited from certain favorable [permanent] differences and discrete items.

Inventory increased to $86 million at the end of the first quarter, from $62.8 million at the end of the first quarter of last year. The increase was the supportive of our anticipated sales growth across all channels of distribution and the operation of additional stores. The inventory levels were also impacted by increased product costs, and early receipts from vendors. At the end of the first quarter, we had very good liquidity, with approximately $159 million available under our US revolving credit facility. In the quarter, we had $9.6 million in capital expenditures, and continue to expect capital expenditures to approach $60 million for the year.

For our outlook for fiscal 2012, we are pleased to raise our full-year guidance for adjusted earnings per share to a range of $2.85 to $2.95, compared to $2.41 per share in fiscal 2011. The increase is supported by the continued positive momentum in Tommy and Lilly, as well as the impact on interest expense from the refinancing of the senior secured notes, partially offset by the higher anticipated tax rate. We also have increased our full-year outlook for sales to a range of $850 million to $865 million, compared to sales of $759 million in fiscal 2011.

The adjusted earnings per share excludes the impact of approximately $9 million in charges associated with the expected refinancing of the senior secured notes, and approximately $2.4 million associated with a change in fair value of contingent considerations. On a US GAAP basis, diluted -- earnings per diluted share from continuing operations for fiscal 2012 are now expected to be between $2.40 and $2.50, compared to $1.77 in 2011. The second quarter, ending on July 28, 2012, the Company anticipates net sales in the range of $200 million to $210 million, compared to net sales of $180.6 million in the second quarter of fiscal 2011.

Adjusted earnings per share are expected to be between $0.60 to $0.65, compared to adjusted earnings per diluted share of $0.57 in the second quarter of fiscal 2011. On a US GAAP basis, earnings per diluted share for the second quarter are expected to be between $0.23 and $0.28, which includes the impact of approximately $9 million in charges associated with the expected refinancing of senior secured notes in July 2012, and a $600,000 charge associated with the fair value of contingent considerations. The earnings estimates for the year, include the impact of approximately $12 million of expenses associated with the Tommy Bahama international rollout and the New York store, with approximately $3.1 million of these costs expected to occur in the second quarter. Thanks for your attention. And now, I'll turn the call back over to Hicks Lanier for some closing comments.

Thanks, Scott. Well, Melanie, we are ready for questions and answers, if there are any.

Thank you.

(Operator Instructions).

We will go first to Edward Yruma with KeyBanc.

Hi, thanks so much for taking my question. Given the success that you reported with these new format Lilly Pulitzer stores -- I believe you indicated you signed one additional lease. But how does this success make you think about the longer-term growth square footage opportunity at Lilly, particularly as it relates to store count?

Well, definitely you have us pretty excited about direct-to-consumer and bricks and mortar retail in this 2,500 square foot or so format that we settled into. We think we've really hit the right size for Lilly Pulitzer, and what we found with early results in Charlotte and Phipps is that, when we are in the right locations, in that size box, it works really well. As we have told you on several occasions before, Ed, the Lilly team had not really opened any new stores for several years before we bought them. Charlotte, at the beginning of the quarter, was the first that they had opened. Now they have opened Phipps. We've got one more lease signed. We are going to be very disciplined in site selection and size. There is also some infrastructure building that needs to be done in terms of the team, to support new store openings. So for right now, I think that number we have given you of sort of three to four a year, is the right number to be thinking about. Although we -- our enthusiasm for retail is definitely increasing.

Great. And I know you called out some success with Lilly Pulitzer at wholesale as well. Can you give us an update as to whether that is existing doors, and if there is an incremental wholesale door opportunity?

There is -- I don't think there was any meaningful increase in distribution, Ed, and our distribution strategy for Lilly Pulitzer is the same as it has been, which is that we are delighted when we can find customers that have the same idea about how to present the brand, and how to manage the brand, and where those opportunities, where we find those, we will of course be delighted to sell those accounts. But where we can't do that, we will stay focused really, on just growing the direct-to-consumer business. And direct-to-consumer is really where we are focused on growth.

Great. And the final question, I know that you have taken a lot of steps to stabilize and improve the underlying Ben Sherman business. But given the macro weakness in Europe, does it give you any more thought about strategic alternatives for the business? Thanks.

Obviously, the results in Ben Sherman were not good. We expected to have a tough first quarter this year, and it didn't disappoint at all. The macro conditions over there made it extremely tough. And I think, if we didn't believe that the macro conditions were making it so hard for us, we would probably be thinking more quickly about what our alternatives might be. We do think that the strategy that Ben Sherman has settled on is the correct strategy for them and it's really just become quite difficult to get the results of the right -- the result of the macro conditions.

Great. Thank you.

Just an add on to that, Ed. We spent a good deal of time in the UK and on the Continent -- we would compare the current conditions, as very similarly to what we had in '09, '08 '09 here. And if you can turn the clock back and remember that was like, it was pretty tough. So we are hoping, we are going to see improvement there. But if not, we will do what we have to do.

We will go next to Eric Beder with Brean Murray.

Good afternoon. Congratulations on a great quarter.

Thanks.

Could you -- what is driving -- I'm sorry, I missed this. What is driving the interest expense reduction for the back half? Is that just lower cost of debt for the replacement?

Yes, yes, more favorable structure of replacing the debt. We are looking at amending our existing revolver. And so we will anticipate borrowing more at the revolver rates, and which are materially lower.

Okay. In terms of -- you've had great brands here. And in terms of the potential to -- what are you thinking about with pricing here over this year? Last year, you raised prices on both Ben Sherman and Lilly. What the thought process in those brands for this year, in terms of pricing?

For price increases, the prices that -- at Ben Sherman are up materially this year, as I've mentioned in my comments. That's -- not like-for-like product necessarily, but as you know, Eric, we tried to really elevate the whole brand. I think elsewhere within the business, the other three operating groups, it was really more selective price increases, where we thought there was room to do that.

Great. And in terms of Tommy Bahama women's, I see it's doing great. What categories are really driving that? And where -- I think you mentioned accessories, are there other alternatives or other opportunities to drive there even higher?

Yes, Eric. This is Terry. This category is not dissimilar to the Lilly business. Dresses have been the big winner for us in Tommy Bahama, which is a good news story for us, because it's the most feminine category. And it's the category that we have seen rapid growth. We -- there are, as I have mentioned, we are very excited about the accessory business. For us to get into the bag business, women, and shoes, is a big opportunity for us. But just generally, we are seeing a great business, you can't get these increases that we are seeing in women's by just one category. So it's being led by dresses. But overall, this acceptance to the product that we are putting out there, has been overwhelmingly positive.

And in terms of the category, you have talked before about 30% of the stores. Is it still about that level, what -- how much is it, by increasing, as a percentage in the owned stores?

It's increasing, as a percentage of our total direct-to-consumer business, and in our stores and e-commerce business. And it's still growing consistently with, where we said -- as you said, running approximately 30% of our total business. But the problem with that, Eric, is that as a percentage, we would love for it to be higher, but our men's business is growing fast too. So it's kind of hard to outpace that, which is --

Yes. That's a good problem.

A high-quality problem. Right.

That's a very high-quality problem. Just last question on e-commerce. E-commerce is big push for you. Where do you see that going? And I know that you do like only big and tall on the Tommy Bahama side, are there opportunities like that to create niches in e-commerce that you don't see in stores?

Yes. There's -- e-commerce has so many different facets, big and tall gives us the business that we don't have in stores. Just last week, we tested a product with major-league baseball, where basically put a shirt out there, and pick your team, and we embroidered it here, and so it's almost made-to-order for whatever team you want to have. Immediately, that was our number one item on the site that day. So there's certain business opportunities you can do online, that you just can't do in the store. So it's just a pretty amazing channel.

Great. Again, congrats on a great start to the year. Looking really good. Thank you.

Thanks, Eric.

We will go next to Robin Murchison with SunTrust.

Hi, thanks. Hello, everyone. I want to ask you -- I want to ask you -- let me start with Tommy, the comps were mentioned in the full priced stores. Is there anything to say about the comps in the outlet stores?

Yes, Robin. Our outlet stores comp sales are -- we are very pleased with them. Consistent with -- actually slightly better than we are reporting in full priced stores. So we're very -- it's a significantly less number of doors that we have out there now, outlets. But we're very pleased with the comp increase. As you know, we use that as a disposition channel, to make sure that we maintain a full price strategy in our full-price stores. However, it's always nice to see when they are working. And also, the gross margins, not only is the comp sales increase in those stores significant. But also our gross margin in the outlet stores improved greatly. So we couldn't be more pleased with the performance of both full price and outlet retail.

Sounds good. And I just wondered if any of you would be worried about the omission of comps referenced in outlet stores. Okay.

Don't worry.

Okay. Let me move on to Lilly. And it's interesting -- two natural markets, Charlotte and Atlanta for Lilly Pulitzer. And undoubtedly, some interesting competition, or at least you got to have competition with some signature stores or product placement. So that's commendable that you're doing as well in your own stores to get the full breadth of assortment. With those two new Lilly stores, what about -- can you give us an update about West Coast Lilly, West Coast demands? That seems to be such a wide open space for you, in terms of signature and company-owned stores?

Well, as the two guys that run Lilly Pulitzer for us, Scott Beaumont and Jim Bradbeer, say anything west of the Mississippi is international for them, and I think that's still very much the case. I mean, it's very much an East Coast brand at this point. They are really focused on the East Coast, as they say, they want to color in the map on a contiguous basis. So they feel like there's a lot of white space still on the East Coast and that's where they're going to focus first and foremost. But longer term, we certainly believe that there is an opportunity to move West. And there is some wholesale business that's done out on the West Coast. It's not huge at all. But there is some that's done out there.

What about --

It's --

I'm sorry, go --

As Hicks point out, e-commerce, we also see demand from there. And California is typically one of our top states in e-commerce. Of course, it's a big state with a lot of population. But nonetheless, we do generate a lot of e-commerce business from there.

Okay. Just in terms of keeping up with, sort of watching Lilly on the web and watching the e-mails and so forth and so on, it seems to me -- you talk about new categories in Tommy Bahama. But it seems like you've expanded the assortment in shoes, and maybe some other non-apparel categories. But even in apparel, am I right in thinking that you are adding a number of new prints and silhouettes, and just upping the ante in terms of SKU count?

I'm not sure that the SKU count really moved all that much year to year. It was probably a little bit bigger this spring/summer. But there is -- I think we actually want to manage the SKU count, not let it get too big. They are trying to develop in some sportswear categories that they haven't been as strong in before. And the sportswear portion of the business is growing at a pretty rapid rate at this point. Of course, dresses are growing too. It's sort of like Terry's analysis of men's and women's and Tommy Bahama, we are sort of growing in all parts, which is a good thing.

Is there anything, Tom, to talk about in terms of additional opportunity for Lilly in the second half of the year, which is traditionally not the -- seasonally strong for Lilly? And maybe some initiatives?

Well, they've definitely done some things in fall and resort, which are their weakest seasons, the third and fourth quarter, really, for them are the weak part of the year. And they've definitely done some things to try to capture some of the fall type business where, for example, the 725 delivery is heavy on knit dresses, in Lilly colors, but fall-friendly colors. And that's a good sort of transitional fabric for a lots of their markets, the knits are, that they hope to build on the fall business. It still will not be their strong season, but they are doing some things there. And then as you get into resort and holiday time, they're trying to make sure they have plenty of giftable type items, as well as some sort of unique items. They have a Puffer vest, that they've done for this resort season that -- it comes in several Lilly colors, and then a print version as well. The solid colors have print lining. And then, there's one that is print on the outside. They've also done a very plush sort of polar fleece-type jacket, again in Lilly colors, that's quite nice-looking. And both of those have booked quite well. So they're definitely doing some things to try to enhance the second half business.

Good. Thank you. Good luck.

Thank you.

(Operator Instructions).

We will go next to Susan Sansbury with Miller Tabak.

Great. Thanks so much. Sticking with Lilly, you -- Tom, you mentioned there are going to be some talent pools additions. Can you elaborate on that? And is this part of this infrastructure build, in front of rolling out more than three to four stores a year?

Well, it is. It's part of that, although it's not limited to that. But Lilly has experienced some pretty significant growth over the last couple of years, going from somewhere in the mid-70s two years ago, to 110-ish this year. So that's a lot of growth to sustain, in what was a fairly small business. So they are adding people in the design area, they are adding people in the marketing area, in the e-commerce area which continues to grow very rapidly, in the information technology, places like that. Retail, of course, all areas where we need capable people to help us capture the growth opportunities. And some of that has already happened, and some of it is yet to come.

Good. Sticking with Lilly, you said -- and e-commerce, in the press release or the prepared remarks, I don't remember which, you used the word or adjective dramatic increase in e-commerce for Lilly. What is -- how big is dramatic? (Multiple Speakers).

Well, it's more than the comp store sales increase that we saw in our retail stores, which I think we said, was in the upper teens. It's more than that.

So the penetration rate has moved up to -- I think it was high teens at year-end. So is it 20% now or -- ?

You mean, at what percentage of the total business it is?

Right.

I think the -- we reported that, at the end of each of the previous two years. And we'll probably do that again this year.

Okay.

But we're getting great growth in e-commerce.

Okay. Switching to Ben Sherman, I hate to bring it up, but given the macro environment in Europe, presumably, the plan for Ben Sherman has come down. Can you share with us what outlook for Ben Sherman is for the year at this point? And then, Tom, is there a plan B? I mean, are you prepared -- if Europe gets into a real tizzy, are you prepared to cut costs, or do something a little bit more dramatic than just plan conservatively?

Yes. I think at the beginning of the year, we said that we expected Ben Sherman sales to be roughly flat with last year, and that we thought they would make a little bit of money this year. The way that the Ben Sherman business flows, it was always the case that the first half was not going to make money. It was going to lose money. And then we would make some in the second half. With the economy there being worse than we anticipated, I think we now expect sales to actually be down a bit to last year, sort of mid-single digits percentage-wise, down to last year. And I think Ben Sherman will have to work hard to get to the breakeven zone, and that would be a first-quarter loss. Hopefully, a smaller second quarter loss, and then some profitability in Qs 3 and 4. And then as to plan B, Susan, you've known us for a long time. And you know that from sort of a corporate perspective, we are in this to make money for our shareholders. And we're patient, long-term guys, but we are not afraid of making bold moves, if those become the right thing to do for the shareholders.

Okay. Great to hear. Just a question for Scott, then I'll get off. Scott, you said gross margin for the year was going to be up. Is it -- are you at the liberty to quantify what the -- what that gross margin improvement might be in terms of bps?

Yes, hopefully, will be at least 100 basis point up, but it's really going to depend on the direct-to-consumer momentum, and how well it continues. But I think that's a reasonable expectation.

Okay. And then finally, are you, when are -- you didn't talk about the structure of this new financing yet, so I guess it hasn't been put to bed. Or can you discuss the structure?

Well, it's basically a restatement, amendment and restatement of our current facility, with an upsize. And we're not ready to give the exact details, because as you said, it has not closed, but we feel highly confident it will. And what it will provide is ample liquidity, and enable us to take the notes out, without having to go into a term market to do so. So it will be, certainly, a more favorable interest expense picture, than our original guidance for the year.

Okay. So there won't be any term loan? It will just be revolver?

It will be revolver. Correct.

And what, the $9.5 million, what was your actual interest expense last year? Or was this $9.5 million net of interest income?

Well, there's no interest income to speak of with the rates now. But we, last year we were at 16.2. $16.2 million.

That was interest expense --

That was interest expense last year. And remember, we had $150 million of bonds outstanding, until we bought a chunk back in Q2, and a chunk back -- a smaller chunk back in Q3. So that picture was moving throughout the year. Then we opened this year with $105 million of the bonds, and should -- in much more favorable interest -- in borrowing rates.

That's perfect. I was just checking to make sure my model -- the numbers in my model are correct, which you never know. Anyway, these are great results. And best of luck for the balance of the year.

Thank you.

We will go next to James Ragan with Crowell Weedon.

Yes, hello, thanks. Hello, everybody. I do have one question on Tommy Bahama, Terry, you had mentioned growth in the wholesale segment. Can you talk a little bit more about are you getting more product placement this year, anymore floor space, maybe just a little color on that?

We -- thanks for asking. We just were looking at today, at last week as we move into the Father's Day season and with all our big, major accounts, we have a had terrific couple of weeks on the selling side of the business to the consumer. Our forward bookings are up for the back half of the year. We will be opening our spring line, but our holiday bookings are up. So we feel good. Listen, we talk a lot about direct-to-consumer, and that's clearly where we've got a lot of focus. But our wholesale partners -- it's still a significant piece of the business for us. And right now, it's tracking, I think pretty nicely. And our accounts that -- our important accounts that are retailing the product, great. And also the mix of product that they are retailing, it's -- we've gotten a lot of traction outside of short-sleeved shirts, which traditionally this time of year are big business. Long-sleeved is a big portion of that business. So we are very happy and very pleased with the performance of our wholesale business, and I appreciate you asking.

Great. That's good to hear. And then looking at just the overall inventory position, pretty typical decrease from the fourth quarter. But you had a bit of an increase year-over-year. Could you just talk a little bit about that? Is that fairly balanced across the different segments?

Terry, could you take that one?

Tommy Bahama is the biggest piece. But with the growth they are experiencing, there's inventory support, the future sales growth. And also with the number of doors increased year-over-year, there's inventory associated with that. And we also have some little bit earlier shipments from vendors, which is nice when your business is so good, to have inventory in a little early, it gives you a lot more flexibility. So we are very happy with our inventory levels. But Tommy Bahama, growth businesses are the main places.

Okay. Related question on inventory, related to Ben Sherman, Hicks, you had mentioned that a bit of a comparison to the '08, '09 period that we had here domestically. So one of the things you did then was to give up sales at the expense of keeping the inventory fairly clean. I mean, are you doing that type of thing at Ben Sherman now?

We're trying to be very conservative and pragmatic there. So.

Okay. And then going to the international -- I'm sorry?

Just want to make sure I fully answered your question.

Sorry.

Obviously with the sales not hitting our targets for the first quarter, we have some excess inventory. And that's built into the margin discussion we've had, with the margin being a little lower. But it is a manageable issue. We certainly don't have a major disaster on our hands.

Right. Yes. That's a fairly small percentage of inventory anyway so.

Correct.

Okay. Sorry for interrupting you there. And then last question, is having to do with the new stores and international stores for Tommy Bahama. I guess at this point the only one you really have experience with is Macau. Anything in the early stages that you are able to learn, and perhaps apply to Singapore, Hong Kong or eventually Tokyo, as you're getting ready to open those? I guess Singapore just opened. But anything you're learning from Macau, that might help you at the other stores?

Every day. And I will say, that the big things we wanted to learn, the first two stores were relatively small stores. We wanted to get them opened, and the key thing is we talked about before, we initiated a brand-new size spec for that market. And the good news is, it's overwhelmingly been received positively. The clothes fit, which is something that we are very happy about. And also the acceptance. We've opened kind of quietly. We didn't spend a whole lot of marketing dollars over there, but the acceptance to the brand and the brand message, I mentioned in my prepared remarks, that we look different in that market. We're not competing with -- for price, we're competing in lifestyle business. And our lifestyle approach, and even though the stores we opened were small, we didn't skimp on building out very aspirational build outs over there. So the learning in the two stores in Macau and Singapore, not only did we learn that sizing works, but the business as I have said, has been very good. We -- our expectations have been met.

The next two, Hong Kong, which is slightly -- quite a bit larger, almost double the size of those two, is going to be very interesting. And then, as we move into Tokyo, where we're going to open an Island, where we are going to have a restaurant and a bar, and we're very excited about those two. Again, that's a much larger location. So all the things we wanted to learn with the two new stores in Macau and Singapore, we have learned, and it's positive. And we are looking forward to continuing the strategy.

And what does the timing look like on the Hong Kong store?

Hong Kong looks like October, November. And then looks like right now, we're going to push Tokyo, because we are getting our legs on the restaurant and the bar there, it looks like we're going to push that into next year.

Okay. Great. Thank you.

All right.

We will go back to Susan Sansbury for a follow up.

Hi, yes, a question for Terry. You mentioned that you are broadening the accessories assortments at Tommy Bahama women's. Is that correct?

Yes.

Okay. Were those -- are you bringing license in-house? Or are you licensing, or can you just clarify what you are actually doing here?

As of right now, Susan, what we did as I mentioned, we brought on an in-house group of development design and sourcing people to take those categories right now, to see where we get traction. We were buying some product from the market, just to keep those categories going. But now we're doing our own development, not licensed, of bags and beach bags and women's bags, scarves, and things that I mentioned. And we think that the early read on it is, we are having acceptance with the product. It's small, and we're doing it just for our stores. We are not wholesaling those products. But we are learning a tremendous amount. And we are learning that the acceptance is good. We're not opposed to licensing. And some of these categories, we get up and running, and with international business we need these categories to tell the lifestyle brand. And if one of them emerges into a category that we could think about licensing, we're not going to rule that out. But right now, we're trying to get in those businesses on our own. And so far, the team has done a great job even with the small quantities of getting those products sourced at very respectable gross margins. So we are very happy about it.

Okay. And within the US license product category, has there been any major changes? I mean, I remember furniture being the single largest license category. But that may be -- I may be woefully out of date. This is pre-recession.

Well, furniture is still a very nice business. As matter of fact, we are opening a furniture store in Newport Beach, freestanding Tommy Bahama furniture store in Newport Beach -- the license is. We're not, it's not our store, but we're working with them very closely on that store because it's a Tommy Bahama store. The only big difference in licensing that we have -- on fragrance, we have just entered into a new agreement on fragrance, home fragrance that we're very excited about, that we will be launching in the holiday season. It's a small and a soft launch, and really launching into the spring, but we're very excited about that. It's always been a very important piece of our business, and we have got a great new partner that -- other than that, all our licensing business seems to be quite strong.

Is the agreement signed? Can you reveal who your new fragrance partner is?

We will be announcing it. It's a done deal, but I would rather wait on that.

Okay. Just -- analysts are nosy. Sorry. (Laughter). Are you still doing rum?

We are not doing rum. We discontinued the license with rum. But we are exploring a new license. We are talking to someone about a new rum. We like the rum business. It's a license -- and we have enough from the license to continue it in our stores right now. But we are in active talks with someone about a new and better and more improved rum distribution agreement.

Okay. Royalty income is trailing the performance at Tommy Bahama, why is that? Or am I'm not interpreting the numbers correctly? The growth in royalty income is not -- is not as good.

Royalty, yes, for all brands, not just Tommy.

So who is down?

Ben Sherman would be down.

Okay. Okay. That's it. All right. Sounds great. Thanks ever so much.

Thank you, Susan.

That concludes today's question and answer session. At this time, I will turn the conference over to Hicks Lanier for any additional or closing remarks.

Okay. Thank you, Melanie. As I think you can grasp from the conversation today, continued growth in our direct-to-consumer business, and development of an international business are critical elements of our strategy to drive long-term profitable growth and deliver value to our shareholders. We are delighted with the progress our management teams are making on both fronts, and believe our future prospects are very promising. Thanks for your interest and attention today, and we will look forward to our next communications in about three months.

That concludes today's conference. We thank you for your participation.