Oxford Industries Inc (OXM) 2013 Q1 法說會逐字稿

Good day, and welcome to the Oxford Industries Incorporated first quarter 2013 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Ms. Anne Shoemaker, Treasurer. Please, go ahead.

Thank you, Brendan, 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 our forward-looking statements. Important factors that could cause actual results of operations, or our financial condition, to differ are discussed in the documents filed by us with the SEC. We undertake no duty to update any forward-looking statements.

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 Investor Relations tab of our website at oxfordinc.com. Also, for comparative purposes, please keep in mind that Fiscal 2013 is a 52-week year while Fiscal 2012 was a 53-week year with the extra week in the fourth quarter of Fiscal 2012.

And now, I'd like to introduce today's calls participants. With me today are Tom Chubb, CEO and 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 Tom Chubb.

Good afternoon, and thank you for joining us to discuss our first quarter results. We are very happy with what we were able to accomplish during the first quarter. Earnings came in at $0.82, which was at the top end of our guidance. I should note that we were able to deliver these solid results while making significant increases in SG&A designed to support future growth at Tommy Bahama and Lilly Pulitzer. I'd like to take a minute to walk you through our thoughts on our investments in these brands.

While much of the increased SG&A is related to operating new stores, a portion of the increase is also related to expanding and developing our teams. With the rate of growth at Tommy and Lilly, we have needed to add personnel in almost every area of these businesses including retail, eCommerce, design, marketing, and IT. And, we have built a strong team in the Hong Kong to support Tommy's Asia Pacific expansion. We have also expanded our marketing spend and efforts to further support these brands.

In addition to SG&A, we are also making significant capital investments. In 2012, at $61 million, our capital expenditures were the highest in our Company's history as we rolled out our international presence, built a New York flagship, expanded our domestic presence, and supported our eCommerce growth.

While this level of capital expense will moderate to approximately $45 million in 2013, the investments will continue and remain aligned with supporting the growth of Tommy and Lilly with new stores, remodeling of existing stores, and IT spend particularly associated with eCommerce.

We believe that this level of investment in both operating expenses and Capital Expenditures is essential to support our long term strategy for the growth of the Tommy and Lilly brands. I'd like to now turn the call over to Terry Pillow to discuss Tommy Bahama's results for the quarter. Terry?

Thank you, Tom. I'm pleased to report another quarter of solid results for Tommy Bahama. As we mentioned in our last call, our East Coast business was affected by unusually cold spring weather. We rebounded in April, and for the quarter posted a 10% comp store increase and a net sales of $150 million.

Our operating income was $21 million with an operating margin of 14%, a very respectable outcome given the level of investments we are making.

It was a very busy spring for store openings. We added six stores in the United States, including a long anticipated Michigan Avenue store in Chicago, two in Japan, and early in the Second Quarter opened a store in Sydney, Australia.

In May we brought in the Canadian business adding nine more stores. Similar to our experience in Australia, we think the real opportunities to improve this business were the change in the Canadian pricing strategy to be more aligned with the US and an improved merchandising mix. We also have the opportunity to enhance our marketing to our Canadian customers through our website.

Our New York flagship is making a marked impact on Fifth Avenue. We are experiencing a robust lunch hour and our bars are becoming a destination in New York City. We are seeing our dinner seatings improve every week.

If you will recall, we opened New York City in the dead of winter followed by one of the coldest spring seasons in recent history. As the weather turned, our positive momentum has increased and business is quite good in both the restaurant and retail store.

We experienced a longer ramp up with street locations. And, while we probably won't make money during our first year of operations in the [pat], we are confident that we have a home run here.

Our Asian Pacific rollout continues. The strategic corner stone of Tommy Bahama's entry into Japan was the opening of a Tommy Bahama Island, which is a combined retail store and restaurant, in the heart of the trend setting Ginza shopping district in Tokyo. This marks the first Tommy Bahama Island opened outside the United States. We also opened a 2,200 square foot retail store at the suburban LaLaport Mall in Yokohama.

These stores have already generated a lot of interest in our brand. And, Isetan, one of Japan's premier department stores, has invited us to introduce Tommy Bahama via pop-up shops in key doors. Our two different store types and the pop-up shops will give us multiple perspective and exposures in this high potential market.

Australia is also enjoying success with the resort location stores in Queensland. One of our strategic goals in acquiring this business was to begin to open retail stores in Australia's more populous cities. In keeping with that strategy, at the beginning of the second quarter we opened a 2,400 square foot store in Sydney's central business district on busy George Street. We also opened our first permanent outlet store in Australia.

We had success in the first quarter in continuing in our initiative to grow our women's business. We saw 28% growth in our full price direct-to-consumer women's business. As a percentage of Tommy's full price direct-to-consumer sales, women's increased from 32% to 35% with strong growth in all areas including sportswear, swim, and accessories. This momentum carried into the second quarter with our growing Mother's Day business and, as you know, this weekend with Father's Day. Father's Day week is historically the third biggest week of the year for us and will be important to our second quarter results.

As a footnote, during the quarter we had a very successful launch of a new fragrance with a new fragrance licensee. It has performed well in our direct-to-consumer channels and with our wholesale customers. As we continue to develop our international business we should have the ability to build an even larger fragrance business.

Now, I'll turn the call over to Tom Chubb to discuss the results for the rest of our operating groups. Tom?

Thanks, Terry. I'll pick back up with Lilly Pulitzer. We were pleased to report for the first quarter an 11% increase in sales of Lilly Pulitzer. While a double digit sales increase is good, we believe the increase would have been even larger if we had not had such a cold, wet spring on the East Coast where Lilly's business is concentrated.

Lilly's operating margin was a strong 28% and operating income was flat with last year at $11 million as we continued to invest in Lilly's infrastructure, mostly in terms of people building the teams in the retail, marketing, and IT areas.

We opened two new stores during the quarter at the Kenwood Mall in Cincinnati, Ohio, and the Shops at Riverside in Hackensack, New Jersey. We expect to have two more open by the end of the year including a store in Raleigh-Durham and another at Waterside in Naples, Florida.

Our stores continue to perform very well and are a compelling investment for us. As I mentioned earlier, we are experiencing good momentum so far in the second quarter, which is historically one of Lilly's strongest quarters. As with Tommy, we are planning for solid increases to the top and bottom lines in the second quarter and the year.

As most of you know, our Lanier Clothes business is a wholesale business comprised of a variety of branded and private label programs across a broad range of customers.

While we expect Fiscal 2013 to deliver comparable sales to Fiscal 2012, as is typical with Lanier, there will be shifts in sales in operating income from quarter to quarter as Lanier moves in and out of programs and transitions from old to new programs with its customers.

Lanier's results for the first quarter were lower than last year but in line with their plan. Sales declined to $27 million and they delivered a 9% operating margin. Their investment in working capital remained very low as inventory levels also decreased. The second quarter of Fiscal 2013 is expected to be very similar to the second quarter of Fiscal 2012.

As we expected, Ben Sherman saw a significant reduction in the top line and a larger operating loss than the first quarter of last year. Sales were $12 million and the operating loss was $4.8 million. While on the surface this doesn't sound like good news, we believe we are seeing important evidence of stabilization at Ben Sherman as these results were well aligned with their plan for the quarter.

The management team, led by recently promoted CEO Mark Maidment, is focused and determined to deliver improved results. Inventories have been reduced too much healthier levels. We have also implemented a number of cost cutting measures, including to a more efficient UK third party distribution center.

These cost cutting measures should begin to bear fruit in the form of lower second half SG&A expenses compared to last year. The autumn/winter season has been purchased in a more commercially appropriate manner for our retail stores and has been well received by our wholesale customers.

We expect to see a relatively difficult year-over-year comparison in the second quarter but believe the actions we've taken will drive meaningful improvement in the second half of the year.

Moving to corporate and other, for the first quarter, higher sales and gross profit at Oxford Golf and the operations at our Lyon distribution center reduced the operating loss to $4 million from $5 million last year. We also benefited from reduced SG&A in our corporate operations and lower LIFO accounting charges.

I'll now turn the call over to Scott Grassmyer to discuss our consolidated highlights for the quarter. Scott?

Thanks, Tom. For the first quarter of Fiscal 2013, we saw a 7% sales increase at Tommy Bahama and an 11% sales increase at Lilly Pulitzer. These increases were partially offset by decreases, as expected, at Lanier Clothes and Ben Sherman. As a result, our consolidated net sales rose slightly to $234 million compared to $231 million in the first quarter of Fiscal 2012.

Consolidated gross margins continued to expand as the direct-to-consumer component of our sales mix grows. Gross margins increased 130 basis points to 57.2% and gross profit for the first quarter of Fiscal 2013 increased $134 million. SG&A continued to increase at both Tommy Bahama and Lilly Pulitzer.

For both of these operating groups, there's the additional SG&A associated with operating more retail stores and we have higher employment and marketing expenses to support their growth and brand development.

Additionally, there was $4 million of incremental SG&A for Tommy's Asia Pacific expansion. We saw reductions in SG&A at Lanier Clothes, Ben Sherman, and in Corporate and Other. The net result was SG&A of $113 million, or 48% of net sales, compared to $101 million, or 44% of net sales, in the first quarter of Fiscal 2012.

Both interest and taxes were generally in line with our expectations. All borrowings for the quarter were under our revolving credit facilities with interest expense for the quarter at $900,000, compared to interest expense of $3.6 million in the first quarter of Fiscal 2012.

At quarter end we had $165 million of borrowings outstanding and approximately $72 million of unused availability under our US and UK revolving credit facilities. Our effective tax rate for the first quarter was 45.8% compared to 38.3% in the first quarter of Fiscal 2012, impacted by our inability to recognize a tax benefit for losses in foreign jurisdictions. In the second quarter, the effective tax rate is expected to moderate to approximately 39.5% and blend out to approximately 41% for the year.

Now, to the balance sheet, there is one unusual item I'd like to point out. Typically, we report a modest cash balance. At the end of the first quarter, our cash and cash equivalents balance was significantly higher because it also included $19 million related to the acquisition of the Tommy Bahama business of our Canadian licensee, including the purchase price, transaction expenses, and associated working capital. We completed that transaction a few days after quarter end on May 6, 2013, and cash balances have returned to more normal levels.

Our inventory increased to $96 million at the end of the first quarter from $86 million at the end of the first quarter of Fiscal 2012. The increase was primarily to support anticipated sales growth and additional retail stores at Tommy Bahama and Lilly Pulitzer. We're pleased that inventory levels decreased at both Lanier Clothes and Ben Sherman.

We had a lot of store openings in the first quarter. As a result, our capital expenditures were $14 million in the first quarter. We expect capital expenditures for Fiscal 2013 to be approximately $45 million. In addition to the cost of opening new retail stores, we will be doing some remodeling of selected retail stores and restaurants. And, we'll be making information technology investments including eCommerce enhancements.

Moving to our outlook for the second quarter and year. Our outlook for the second quarter of Fiscal 2013 includes meaningful increases in both sales and earnings and, what has historically been a strong quarter for both Tommy and Lilly particularly in the direct-to-consumer channels.

We anticipate net sales in a range from $240 million to $250 million compared to net sales of $207 million in the second quarter of Fiscal 2012. Earnings on an adjusted basis are expected to benefit from Tommy and Lilly offering additional retail stores as well as growth in eCommerce.

Earnings per share are expected to be in a range of $0.92 to $1.02, compared to earnings per share of $0.30 on a GAAP basis and $0.65 on an adjusted basis in the second quarter of Fiscal 2012. We continue to expect earnings per share for Fiscal 2013 in a range of $3 to $3.15 and net sales in the $930 million to $940 million range. This compares with Fiscal 2012 earnings per share of $1.89 on a GAAP basis and $2.61 on an adjusted basis.

Thanks for your attention. And now, I'll turn the call back over to Tom Chubb.

Thank you, Scott. I'll return with some closing comments but would now like to take any questions you may have. Brendan, we're now ready for questions.

Thank you.

(Operator Instructions)

Jessica Schmidt, KeyBanc.

Hi, thank you for taking my question. My first question, just in terms of Ben Sherman, the new leadership team has had some time to review the business. And I was wondering if you could talk a little bit about the cost cutting opportunities they've identified so far? And, how you feel about the expenses at this point?

That's a good question, Jessica. And, I think the three key cost cutting areas are in distribution cost, marketing, and a little bit in people with some redundancies there.

As to distribution costs, I mentioned that we actually just in the last week or so have completed the move out of one third party distribution center into a new third party distribution center in the United Kingdom. And, that move alone will yield some very material cost savings to us.

Obviously, there were some transition costs. But, even net of those, there are significant cost savings that we'll get in the second half of this year. And then, next year we'll get a full annualized benefit of those.

In the marketing arena, it's not that we're going to cut out marketing expenditures all together. But, we do think that in the past we spent some money not very effectively.

And so, what we're looking to do, and we've already done to some extent in terms of forward commitments that we have, is reduced marketing expenditures but have done it in a way that we don't think it impairs the business in any way. And, just as an example, part of our marketing spend is on trade shows. And, it's important for a brand like Ben Sherman to show up at trade shows.

But, we believe we can do it effectively while still spending a lot less money than we were in the past.

And then, the third area that I mentioned is that there have been a few redundancies from a people perspective that have been actioned recently in the business.

And then, beyond that, it's really just going through the income statement line by line and looking for a lot of small opportunities to save money that together add up to a pretty meaningful expense savings through the second half of the year. And then, again a lot of those we'll get a full annualized benefit of next year.

Thank you. And, just as a quick follow-up, can you talk about the competitive environment across Tommy and Lilly and if you've seen any need to promote more?

I'll let Terry and Doug maybe handle the Tommy part and then come back on the Lilly part.

Yes, Jessica, this is Terry. There's always competition. We face it every day. But, we've been able to, over the first quarter and what we saw coming out of the momentum out of first quarter extend into May, we've been able to keep our strategy.

We'll basically keep our stores -- our full price stores at full price. And, we haven't seen any reason that we need to promote, which we're very encouraged about. We, as I said in the prepared remarks, we're very happy with our Q1. And, we're looking forward to Father's Day and what we've seen so far we're quite optimistic about.

And Jessica, on Lilly, the strategy is very similar to Tommy Bahama when it comes to pricing. Lilly's very much a full price brand. As you know, with the exception of two brief sales at the end of the season, the eCom site is full price all the time and the retail stores are largely full priced too. We do do some mark downs in stores and have end of season sales, but they're very limited.

And, we're going to stick with that strategy. We like it a lot. It's worked well with Tommy Bahama and worked well for the Lilly guys, even before we bought them. And, we've encouraged them to continue that approach to the business.

Great, I'll pass it along.

Thank you, Jessica.

Pamela Quintiliano, SunTrust.

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

So, I had actually a few for you. If you could just provide an update on the Tommy women's business and just any learnings from the flagship in Asia? For example, I noticed in New York the women's had been moved up front and just the rationale behind that?

And, as far as Lilly, just the weather sensitivity, were you able to adjust the timing of the flows there and how should we think about that?

Terry, do you want to tackle the Tommy question?

I'd be happy to. Thanks for noticing, Pamela, that we moved women's up front in New York. When we opened New York, we merchandised it with men's up front, women's in the back. During the Mother's Day period we decided to move it, a few weeks before Mother's Day, move it up front. And, we've seen, interestingly enough, not only an increase in women's but even with men's in the back, we've seen men's increase.

So, our strategy when we went to the Far East in building these stores, since we were a brand new brand in these markets, we merchandised the stores approximately 50/50. And, they're performing to that level or better.

So, we couldn't be -- we've been talking about women's for the last three or four years and, as I said in the prepared remarks, we couldn't be more pleased.

We think we've got the apparel on track. The addition of accessories to that mix is providing another lift in business. And, it also just gives us the ability to look fresh in the stores and project a very current image.

So, the good news about it is is by moving it around and increasing our women's business, the reason we're having a hard time getting it to 50% of the business is men's continues to grow fast as well. So, it's a high quality problem to have but we're very pleased with it.

Pam, and on the question about Lilly and the sensitivity to weather. As we mentioned in the prepared comments, Lilly, as you know, is very concentrated on the East Coast and it was quite a cold and wet spring. And, Lilly's a very warm weather brand. So, that wasn't a great combination.

And, there's no question that while Lilly delivered an excellent quarter, it could have been even better had the weather been more cooperative.

As to what we did to react to that, as you know, like most fashion brands, Lilly's deliveries are planned way in advance and carefully orchestrated. We did make some tweaks. But, of course, you don't want to change the entire game plan. We made a few tweaks to when we were actually putting stuff on the floor. And then, also to the way they were merchandising it both in store and on the website to try to be responsive to the situation.

But, for the balance of the year we'll pretty much stick to our planned delivery schedule.

Thanks, so much, for answering those. If I could just squeeze in one more on Ben Sherman. It seems like you guys are pleased with how things are going thus far compared to your expectations and the orders for the fall are coming in okay. What do you see as potential hiccups? What are you looking out for now?

I think the word pleased is maybe an overstatement when you have a business that's achieving, or failing to achieve, financial results the way Ben Sherman is. It's hard to say that we're really pleased.

Well, relative to just where you saw it.

Yes, we do believe we've got a good plan, though, and the team's very focused on it and they're executing on it. And, as we mentioned several times in the past, the key parts of that are the team, which we believe we've got a great team in place now and focused on the right things. The cost cutting, which is entirely internal, that's not dependent on any external factors. We just need to execute that.

And, based on what they've done with the distribution center, we feel good about our ability to deliver that part of it. Then wholesale business, we've tried to clean up the bad accounts and focus on growing the good accounts. And, at this point, we've got most of the bookings that are required to support our plan for the year.

We are just starting to sell spring now, some of which will deliver in January. And then, for the balance of the year, we've really just got a modest improvement in retail planned. Those things all added together would result in a very meaningful reduction in the loss that we had last year.

Great. Thanks, so much, good luck.

Thank you.

Eric Beder, Brean Murray.

Hi, good afternoon. Congrats on a solid quarter.

Thank you, Eric.

You really ramped up the rollouts of Tommy Bahama's in Q1. How many are left for the rest of the year?

Eric, we've got -- in Q1 we mentioned we had six, which those were primarily full priced stores and two outlets. We've got another seven stores for the balance of the year to open and we've got as busy of a back half as we had first half. But, we're excited about those stores.

We've got our fourth store in Chicago in a shopping center called Oakbrook, which is a great center. We're trying a new format store for us in Annapolis, which we're excited about. And, the balance of them are outlet stores which we are going to open up four of those in the back half of the year.

Eric, I would just add to that that some of that just has to do with the inability of a retailer, like us, to completely control when retail real estate is available. And, sometimes they come in clumps a little more than maybe is ideal.

So, this is really going to be more than the normal 8 to 10 you have this year?

Yes, and my little additional comment there was a long way of saying don't necessarily plan on 13 a year for the next several years.

Oh, who would do that? Never. The new Chicago store, how has the response been to that? And, you mentioned that the New York store has not been profitable. I assume that's your expectation. And when do you think that store will be profitable?

Let me comment on Chicago. We're very pleased with Chicago. It's a smaller store, it's the same footprint of the store that you just saw in New York that we've opened, it's called Urban Resort model. We're very pleased, it's a smaller store than New York, but we're very pleased. And, the other store we have nearby that store is also performing quite well too. So, Chicago is a great market for us.

New York, as I said in the prepared remarks, we have a home run in New York. We couldn't be happier about New York. And, you're right, that is within the expectations of how we planned that.

On the profitability of it, it depends on how we can ramp up the business there. But, I've got to tell you, from a lot of perspective, not only the sales but the visibility that -- we had a party there last night, we had 200 people upstairs, it was quite an event. And, it's just turning into a very visible property for us and one that we couldn't be more excited about.

In terms of Lilly Pulitzer, you have two more openings. Cincinnati was a -- how was the Cincinnati store? And, when you look at it, are there opportunity to open more than the two you listed for Lilly? And, I guess we should assume the four to six going forward is pretty much a good number for Lilly Pulitzer openings?

I think, for now, the four to six a year is a good number. We've got the two planned for the balance of the year. The Raleigh-Durham store should open this summer and then the Naples store later in the year. We've got a decent pipeline of stores in the works that should support a four to six number for next year.

And, Cincinnati has been really good for us. But, we didn't go into that blind. We knew that we had customers in Cincinnati based on our wholesale business there as well as eCom. So, we knew it was a good market for us. And, we've got a good location there and it's working well for us.

Okay, and finally, just to close off on Lilly Pulitzer. That's a big dress business. The comps are about 3%. What was the driver in Q1? Was it still dresses or other categories? I know you are trying to diversify the mix. Were other categories stronger?

No, dresses were very strong in the first quarter. I don't think we lost any momentum at all in dresses. And, the other parts of the business grew. But I don't -- because we had overall growth, but dresses remained a strength at Lilly.

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

Thanks, Eric.

(Operator Instructions)

Mike Richardson, Sidoti.

Yes, good afternoon and thanks for taking my call. I have a couple of quick ones here. How much of the sales increase in the second quarter do you think was due to pent-up demand just from the first quarter? Or was that $240 million to $250 million kind of what you were expecting with your original plan?

That was pretty much in line with what we were expecting in our original plan.

Okay. And then, obviously, Ben's had some brand specific issues and what not. But, I was reading something the other day that was saying that they thought the UK economy was beginning to strengthen. I'm wondering if you're getting that sense as well, just from people talking over there and what not?

Well, I think that I don't know that I would quite say that. I think it's been a very, very tough market over there for several years. And, maybe it's started to stabilize a bit. But, within that environment, I think we've performed very poorly over the last couple of years. And, while some of that's been the macro environment, an awful lot of it has been self-inflicted.

And, obviously, our focus now is on fixing what we can control, which is our own performance. We're doing that. The UK was really the first market that we tackled in terms of focusing on improving our own retail. And, in the last couple months we've actually seen a nice pick up in our own retail in the UK, which I think has a whole lot to do with the new team and the focus that they are bringing to the matter.

Okay, thanks, and just the last one. What were the comps at Tommy and Lilly? I think you said Tommy comped 10%?

Tommy was 10% for the quarter and Lilly was 3% for the quarter.

3%. Great. Thank you, very much.

Okay, thank you.

And, we have no additional questions in our queue at this time. I would like to turn the call back over to Mr. Tom Chubb for any additional or closing remarks.

Okay, thank you, Brendan. Just in closing, we really believe in our ability to deliver long term value to our shareholders. To sustain the growth necessary to deliver on this objective, we're going to need to continue to support Tommy and Lilly with the capital and resources they need.

We will look to Lanier to continue to provide us with a solid cash return on the cash invested, and to Ben Sherman to execute their planned improvements.

Thank you, again, for your time this afternoon and we look forward to talking with you again in September.

And, that does conclude today's call. Thank you all for your participation.