Oxford Industries Inc (OXM) 2013 Q3 法說會逐字稿

Good day and welcome to the Oxford Industries Incorporated third-quarter 2013 and earnings conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Anne Shoemaker, Treasurer. Please go ahead, ma'am.

Thank you, Blake, 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 statement. 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 could find a reconciliation of GAAP financial measures to non-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, 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 call 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.

Thank you, Anne, and thank you for joining us this afternoon. I'll walk you through our third-quarter results, but I know how interested everyone is to get an update on what's been happening over the last couple of weeks. Our fourth quarter has been very solid to date. Both Tommy Bahama and Lilly Pulitzer have seen strength in e-commerce and in the retail stores during the first six weeks of the quarter. We believe we have excellent plans for the remainder of the holiday season as well as January and expect to deliver strong fourth-quarter results.

We are pleased that our third-quarter results met our sales and earnings expectations. Sales were up 9% over last year and adjusted EPS was $0.10, which reflects a significantly higher effective tax rate. EPS was also affected by the deleveraging of SG&A which we experienced in the third quarter as the fixed cost associated with operating more retail stores is spread over our smallest quarterly sales pace.

At Tommy Bahama, sales from 27 additional stores and a comp store sales increase of 8% drove a solid 10% sales increase in the third quarter. This year, Tommy Bahama's adjusted operating income was $1.7 million compared to $3.4 million in the third quarter of 2012 as Tommy Bahama experienced the impact of SG&A deleveraging that I just described. I'll turn the call over to Terry Pillow to provide more color on Tommy Bahama in a minute, but first I want to walk you through our other operating groups.

Lilly Pulitzer's net sales increased 13% to $30.3 million in the third quarter. Our e-commerce clearance sale was very successful and generated $7.6 million in sales over a three-day period. These semiannual e-commerce events are our primary way to clear end of season merchandise and our inventories are very clean. The top line also benefited from higher wholesale sales as well as sales from operating four additional retail stores. These increases were partially offset by a modest comparable store sales decrease of 2%. As a reminder, sales from our e-commerce clearance sale are excluded from our comps.

Lilly Pulitzer operated 22 stores at the end of the quarter compared to 18 stores at the end of the third quarter of fiscal 2012. In late November, Lilly Pulitzer opened its 23rd store at the Waterside shops in Naples, Florida. Not surprisingly, this location is off to a great start. Lilly Pulitzer's continued investment in infrastructure and SG&A associated with new stores offset the gross profit impact of the sales increase. This resulted in an adjusted operating income of $4 million for the third quarter of fiscal 2013, slightly lower than last year.

Lilly had a great November with very strong comps and is off to a great start in their holiday resort season. We believe our SG&A investments, such as the one we had made in building a world class communication team, at Lilly are paying off. We believe that the strong results we are seeing are being driven by great product, great distribution and great communication.

Like Tommy and Lilly, Lanier Clothes also reported a double digit year-over-year sales increase. Sales of Lanier increased 11% to $30.1 million. As a result of higher sales, operating income in the third quarter of fiscal 2013 grew to $3.4 million compared to $2.4 million in the third quarter of fiscal 2012. In the fourth quarter, Lanier is expected to have a significant sales increase over last year, as they add a major private label pant program with a warehouse club.

Moving to Ben Sherman. Sales declined in the third quarter to $18.6 million as improvements in the UK and Europe were more than offset by an expected decline in US wholesale sales. Ben Sherman's operating loss was $1.9 million compared to $2.1 million in the third quarter last year. The modest improvement, despite lower sales, was driven by SG&A reductions and we believe the actions we have taken will deliver more significant year-over-year improvements in the fourth quarter.

Finally, our corporate and other segment reported a higher operating loss of $2.1 million on an adjusted basis primarily due to higher SG&A. All in all, the third quarter met our expectations and based on the strength of what we have seen in the first six weeks of the quarter, we are very pleased to affirm our full-year adjusted EPS guidance. I'd like to now turn the call over to Terry Pillow to give more insights on Tommy Bahama. Terry?

Thank you, Tom. As Tom mentioned, we are very pleased with what we are seeing so far in the fourth quarter. We made adjustments to our marketing campaigns that appear to be driving very strong sales this year. We sent a larger gift guide to over 600,000 customers the first week of November. We also sent loyalty gift cards to 1.8 million customers in the second week of November.

Our very successful flip side event also got a face lift this year with two offerings to our customers, one before Thanksgiving and another in December. The flip side is basically a bounce back program where with a purchase, our customer is rewarded when they shop with us in January. These events serve as an immediate call to action and do a great job getting our customers back online and in our stores in January. Finally, our off -- our full price resort season which begins on Friday and continues through January, will be supported by a non-comp resort mailer hitting homes this week. Our marketing efforts, combined with fantastic product, are allowing us to achieve excellent results in this highly competitive environment.

Our wholesale business also reflects the positive response to our product. Our key item business remains very strong with our ever popular reversible half zip sweater leading the way. We are pleased with what we've seen in holiday selling to date and we'll be working hard over the next seven weeks to deliver excellent results for the full fourth quarter. Now I'll turn the call over to Scott Grassmyer to discuss our consolidated highlights for the quarter. Scott?

Thanks, Terry. For the third quarter, consolidated net sales increased 9% to $198 million compared to $181 million in the third quarter of fiscal 2012. We saw double-digit sales increases at Tommy Bahama, Lilly Pulitzer and Lanier Clothes partially offset by a sales decrease at Ben Sherman. The higher sales drove increased gross profit for the quarter. At 53.1%, gross margin was slightly lower than the same period last year due to the impact of purchase accounting and LIFO accounting.

As Tom mentioned, we had a deleveraging impact on SG&A from operating additional retail stores in our third quarter. SG&A was $104 million, or 53% of net sales, compared to $94 million, or 52% of net sales in the third quarter of fiscal 2012. The increase in SG&A was primarily due to $8 million of incremental cost associated with operating additional retail stores and restaurants as well as other incremental expenses to support the growing Tommy Bahama and Lilly Pulitzer businesses. As planned, these increases were partially offset by SG&A reductions at Ben Sherman.

For the third quarter of fiscal 2013, consolidated operating income was $4.6 million compared to $5.9 million in the third quarter of fiscal 2012. Interest expense was $1.2 million in the third quarter of fiscal 2013 compared to $1 million in the third quarter of fiscal 2012 primarily due to higher borrowings. At the end of the third quarter, we had $167 million of borrowings outstanding and $69 million of unused availability under our US and UK revolving credit agreements. In late November, we amended the US revolving credit agreement to effectively reduce the interest rate, extend the maturity date of the facility until November of 2018 and make favorable modifications to certain other provisions and restrictions.

The effective tax rate for the third quarter of fiscal 2013 was 74%, compared to 39% in the third quarter of fiscal 2012. To add to Tom's comments earlier, the rate in both years was impacted by our inability to recognize a tax benefit for losses in certain foreign jurisdictions. However, in fiscal 2012, the impact of the foreign losses on our tax rate was offset by certain favorable discrete items. The impact of foreign losses on our effective tax rate is significantly more pronounced in our seasonally low third quarter. The effective tax rate is expected to be approximately 43% for the fiscal year.

Now to the balance sheet. Total inventories at the close of the third quarter of fiscal 2013 were $124 million, compared to $102 million at the close of the third quarter of fiscal 2012. The increase supports our anticipated sales growth and the operation of additional retail stores. The increase also reflects the earlier receipt of some shipments this year.

In the first nine months of the year, our capital expenditures were $37 million as we continued to open new retail stores, remodel existing retail stores and restaurants, and invest in information technology initiatives including e-commerce enhancements. For the year, we expect capital expenditures to be approximately $45 million compared to $61 million in fiscal 2012.

Also our Board of Directors has approved a cash dividend of $0.18 per share for the quarter. We have paid dividends every quarter since we became publicly owned in 1960.

Moving to our outlook for the remainder of the year. For fiscal 2013, we are affirming our full-year adjusted EPS guidance. We expect adjusted EPS in a range of $2.90 to $3.05 and net sales in a range of $922 million to $932 million. On a GAAP basis, we expect EPS in a range of $2.85 to $3 for the year. This compares with fiscal 2012 EPS of $2.61 on an adjusted basis and $1.89 on a GAAP basis on sales of $856 million.

For the fourth quarter, ending on February 1, 2014, we expect net sales in a range of $255 million to $265 million, and EPS in the range of $0.98 to $1.13 on an adjusted basis, and $1.01 to $1.16 on a GAAP basis. In addition to excluding the purchase accounting impact of Tommy Bahama Canada, our adjusted EPS guidance in the fourth quarter also excludes a gain on real estate sold in November. In the fourth quarter of fiscal 2012, which included 14 weeks, EPS was $0.65 on an adjusted basis and $0.32 on a GAAP basis on sales of $236 million. 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 now we would like to take any questions you may have. Blake, we're ready for questions.

(Operator Instructions)

Edward Yruma, KeyBanc.

Hi thanks very much for taking my question and congrats on a solid quarter.

Thank you, Ed.

Can you talk a little bit about the Lilly Pulitzer comp in the quarter? I know that you did not include the e-com sale but just trying to understand if something had changed in the business and how you view the long-term sustainable comp at your own Lilly stores?

Sure, Ed. I think that's a great question and an obvious one, obviously given what the results were for the quarter. I'll point out that third quarter is their smallest quarter by a pretty significant margin, even being small and with the third quarter deleveraging effect, they had a 13% operating margin, so still not bad. Q3 as you know is not a natural strength for Lilly given its Palm Beach resort seat positioning. And I think what happened this third quarter is that in an effort to be a bit more fall, if you will, they veered a bit off our Palm Beach resort seat positioning and it ended up a little bit under assorted in prints and knit dresses and things that we need to really drive the business. But as soon as November 1 rolled around, we got resort holiday into the stores, the business took right back off, we comped very well in November and really to date in the quarter we're really happy with what we've got in the pipeline. I think we learned lessons about fall in Q3 that we've incorporated into next year. And we're very happy with where the business is and what we've got coming ahead. This is a very healthy business with excellent growth potential, both through comp in the existing stores and e-com as well as additional stores. So no systemic issues there at all, Ed.

Got it, and I know you mentioned I think Terry did in his comments about Tommy, a more expansive use of some mailers and maybe potentially the flip side event. I guess are you finding more success at some of these bounce back dollar promos, are you getting a strong return on that? And I guess should we expect for usage of those types of incentives to increase going forward?

Well, I'll comment briefly. I think that over the last several years that Tommy Group as well as the Lilly Group have really developed their thinking on very brand-friendly marketing initiatives that are consistent with running a full price business, but at the same time can spur demand at appropriate times during the year. And I would say that they've gotten increasingly sophisticated about that and these programs are largely working and we're pleased with the way they work, and that would go across really the entire business. I'll let Terry and Doug comment a little further on the specifics at Tommy.

Yes, I don't know how much more we could add. I think Tom you covered it really well. I think that with us, with the flip side event is something that we've actually been doing now for over five or six years and in this exact time period, so it's just a really good way to get people into the store in January. And it also adds to order size in the time period of December where you want to try to drive a little order size. And so it has worked for us and as Tom said, its done in an appropriate manner where we're running a full price business and trying to incentivize people to come in.

And Ed the other piece of this you mentioned were the mailers. The mailers are our real communication to our guests on the brand image and the clarity of the brand image which we always talk about is one of our largest assets and that's the reason we think this non-comp book that we're delivering on Friday is going to be a big boost as people start thinking about going away for the holidays. It's the first time we've done it, it's a beautiful book. I'd encourage you to get one of them and take a look, you might even like something in there because it's a beautiful book. And these are the kind of vehicles that we need to do more of to continue to drive business in a regular price business.

Got it. And one last final -- or one final question. How should we think about I think your store format and the Tommy Bahama business has changed over time and it seems like some of your stores are a little bit more contemporary. I know you started talking about remodels. I guess have you done any remodels and what kind of economic lift do you see or are you expecting to see when you do these? Thank you.

Terry and Doug do you want to tackle that one?

Yes, thanks a lot for -- but we have modernized -- the new stores we're building are clearly a different model than the ones that we've been doing for 20 years and wherever we do a remodel, we get a nice lift in business. They're much more friendly, much more shoppable, and we're trying a lot of different formats. We just opened a store during early fourth quarter in Florida Keys which was a much smaller format store, yet a very modern store and a smaller market than we would go into. And we're quite pleased and surprised with that. So there could be a whole other group of stores out there that we could take a look at and other locations other than the traditional freestanding street location or mall locations as we continue to evolve our concept.

As you know Ed, the New York concept was a different one. We built that same concept in Chicago and we're working on a very exciting brand new concept that we're going to open in Waikiki with an island and a restaurant that is something that is quite spectacular that we're going to be opening soon. So we think a variety of -- it's not a cookie cutter one format fits all. We're trying to taylor these to different markets, and as we look at the budget for 2014 on the remodels, we'll take a look at them.

Great. Thanks so much, guys.

Rick Patel, Stephens Incorporated.

Good afternoon, everyone, and congrats on a strong start to the holiday season.

Thanks, Rick.

Could you give us a little bit more detail about wholesale for the Tommy business during the third quarter? I know that things started off a little bit softer, but I'm curious if those trends remain soft throughout the third quarter and just what you're hearing from your wholesale counts so far in the new quarter?

Terry, do you want to jump on that one?

Doug will take it.

Well so far, we've actually gotten good results from our wholesale accounts as we go into holiday. And what we've seen in the fourth quarter so far is strong business. And as we look forward, we see a strong wholesale business. I think that for us, and I think that Tom and Terry talked about this before, we're so committed to our wholesale business that the wholesale business is evolving too and it has everything to do with the omni-channel and how we play in that. And I think that for our business is that we're going to continue to be committed to it and we're actually been very pleased with how we've been performing in the fourth quarter.

Yes, Rick, I would just add to Doug's comments there that he mentioned it, but we spend a lot of time talking about e-com in our own stores and we all obviously like them a lot and think they're great vehicles for growth, but wholesale is a very important channel for us across the entire Company. We're very committed to it and we're in no way backing off it. That said, as Doug mentioned, the retail climate is changing a lot, particularly among department stores with the emergence of omni-channel changes in their strategies and they're trying to buy less early and drive the higher turn rates and higher IROIs and that type of thing. And so as that happens, there may be situations where we need to slow down or even back off for a short period of time in the wholesale. But that in no way changes our commitment to building and maintaining successful mutually profitable full price wholesale businesses.

Great, and then can you talk to us about the performance of accessories? I think you mentioned on the last call that you had a very strong performance since bringing shoes in house. I'm curious if that continues to do well and what the outlook for accessories is like over a longer time horizon?

Well, just commenting generally, I think you're targeting your question to Tommy and I'll let Doug and Terry talk about that one. But we view accessories as a longer term opportunity really across all of the brands. Tommy's probably a little bit further along in their evolution and they are seeing some good things, which I'll let Terry and Doug comment on.

Yes, thanks, Rick. You're right, it is continuing, and it is continuing at a pretty good clip. The shoe -- bringing the shoes in house, we've seen not only a nice response and pick up in the shoes we're developing in our own stores in both men's and women's, but also our wholesale bookings that we're starting to see right now and our wholesale customers that want to be involved in Tommy Bahama. So where we've got some very exciting new technology initiatives that we're launching in the spring which we're very excited about. So that's a key business for us. And also, our women's accessories that we've been -- that I think I talked to that you alluded to the last time, continued to show great promise especially in our mailers, it helps us round out the whole lifestyle piece of our mailers, and it's also performing very well.

And it's not necessarily accessories, but we're talking about non-apparel. We've really seen this holiday season, which is a very pleasant surprise, which is our home business has really, really picked up and is being a major contributor and we've been working hard on that. And it's glad to see that that's picking up. So those are the components when you talk about growing those kind of businesses that really talk to a lifestyle brand and not just like another apparel brand when you got men's and women's apparel, accessories, home, footwear. So we're very excited about that and we think those are big growth opportunities, so thanks for asking.

And a last question on Asia. Curious how that region is shaping up versus your expectations and any early indications of what the financial impact could be like in 2014? Thank you.

Rick, let me comment on that and then let Terry and Doug add to it. Terry, Doug and I recently spent about 11 days in Asia. We came back I think excited as ever about the international opportunity. In our mind and I think the reality is we're still early on the learning curve there. We're having many successes there and seeing lots of things that we like about what we've done, but we also recognize that we have some learnings that we're developing and that we need to incorporate into the business. We knew going in that developing a successful international business would be a longer term proposition for us. We've got a very big and successful business here in the US that still has a lot of opportunity for profitable growth and investment. But for the longer term, we do need to develop this international business. So we're going to stick with it, we're going to keep working away at it and build a business that can provide us with long-term profitable growth opportunity.

Thanks and good luck for holiday.

(Operator Instructions)

Eric Beder, Brean Capital.

Good afternoon. Congratulations and thank you for the coupon.

You're welcome. Have you bought some big & tall merchandise?

Probably get it online, it's already been done.

All right.

Could you give us an update about the New York City flagship and where that is in its growth? I know it's our anniversary, the opening of that.

Terry and Doug, why don't you guys jump on that one.

Eric, I can't thank you enough for asking the question. I just got back, I was there all week last week. I had meetings and I was popping in and out of that store, so I'm very familiar with the answer to that question. Last week, the New York restaurant was the number one restaurant out of all 14 that we operate. That's I think the first time we've seen that, its been a gradual, that's not out of no where, it's been a gradual climb. The restaurant has gotten better and better. And last Saturday, New York City was the number one store out of the 88 full price stores that we operate in America.

So we're up against -- we opened it about a year ago during Hurricane Sandy, but we're very excited about the comps that we're seeing in that store right now. We've just done a remodel, not a remodel but a remerchandising of it when I was there and I'd put it up against any store on Fifth Avenue. I couldn't have been more proud of how that store shows up and the customers are responding and the business is good. So I'd encourage you if you hadn't spent that $50 gift card yet to run in and buy it and spend it in that store because it really looks terrific.

And I would add the obvious, Eric, but that as you know very well, we intend to make money at that store. This is not a flagship that's just there for marketing purposes. But that said, I think it's done incredible work in terms of raising our visibility in the global market place, which has been terrific to see, and as Terry said we are all extremely proud of the way we show up there and represent the brand.

Great and in terms of women's, I know I seen to always ask this question. How is the women's business doing versus the men's at Tommy Bahama and is it taking more share?

We're growing the women's business across the board in all our stores, but talking specifically about New York. As you know, if you're in there a lot Eric, we've allocated about 45% of the space and we've moved women's to the front of the store. It's not generating that yet but on a curve sometimes we do, but this time of year, it's not. But we love the presence of women's and we're going to continue to lead with women's in that store because it's a significant business. And we think that for the shopper on Fifth Avenue that we're better off leading with women's. But across the board in all our stores, we couldn't be happier with the growth in the third quarter and in what we're seeing early in the fourth quarter of our women's business. But New York, we'll get to 50% in women's, which is our goal.

For Ben Sherman, so this was a quarter of small progress. When should we start to think about Ben Sherman starting to demonstrate a turnaround in operating income going forward?

Well, I think in the fourth quarter, you'll see a much more significant improvement. As we've said all year, Eric, I think we've been very consistent in saying, we should see improvement in the second half. We got a little bit of that in the third quarter and I think we'll see a lot more of that in the fourth quarter. Last year they lost $4.5 million in the fourth quarter. This year they should approach breakeven, so I think you'll see again a very marked improvement. That's still a good ways from being a healthy business, but in terms of the year over year and sequential improvement, it's pretty significant.

No, that was really pretty impressive. Final question, in terms of international expansion, is 2014 a -- you talked about it's a learning experience, should we expect -- when's the next time we should expect potentially opening stores in Tommy Bahama in Asia? And again, congrats on a great quarter.

I think, Eric, the way that we would describe it, I'm using a metaphor that Scott Grassmyer has used, which is we're not stepping on the brakes, but we're not stepping on the gas either. So we're really trying to focus on incorporating the learnings that we have to date to tweak and improve our model over there, make sure that we're confident that we've got it right before we step on the gas too much. That said, I think we've got a couple outlet stores in the works which we really wanted to have before now, but just didn't have the right real estate opportunities to get those open. But that would be in keeping with the way we operate here. So I don't think we'll see a big growth in store count in 2014.

Great, thank you.

In the international part.

Pamela Quintiliano.

Thanks for taking my questions, guys, and congratulations on a great quarter in a really difficult environment. So you're obviously an outlier in terms of being pleased with the quarter-to-date performance given what we've heard thus far this earning season. Can you talk us through what you're potentially doing differently this year versus last year for Q4 in terms of promotional cadence, product, anything really to combat what's arguably a very difficult environment out there? And then along those lines, I know this is a tough one, but any commentary at all surrounding Black Friday, Black Friday weekend, and just how it was for you guys and perhaps the shopping behavior of your customer online versus in stores? And then lastly, have you been surprised with the competitive landscape and how do you think about the health of your consumer?

I guess going in reverse order, Pam, I would say that, we're not really surprised by the competitive landscape, it's been building every year. And given the somewhat fragile nature still of the economy and the consumer, I think we anticipated that this season would be very promotional, a lot of discounting and door buster deals and all that kind of stuff, so I don't think we've been too surprised by that.

In terms of Black Friday and the Thanksgiving weekend, I'll let Terry and Doug comment more on it. But really for the Company, that was -- it was a good weekend, we were very happy with what we saw Thanksgiving through cyber Monday. We really liked what we saw there as well as November.

And then going back to your original question, which again I'll let Terry and Doug elaborate more on, but how is it that we're performing well in a good environment? I would sum it up by saying that we've got great brands and we're playing our game. We're not playing somebody else's game. We're sticking to our game and we're playing it and sticking by it. Playing it hard and working hard, but sticking to our game and what we do best and not really worrying as much about what the other guys are doing. And certainly, in the six weeks to date in the quarter, that has served us very well. And while none of us knows for sure what the future holds, we see no reason why that wouldn't continue to work for the balance of the quarter. I think Terry and Doug may want to offer some additional comments on some of the specifics of the marketing cadence, which has changed a bit.

Yes, Pam. I talked about it in my prepared remarks of how important these mailing pieces are. And we look at our business and we'd say the same thing in this environment. What are we doing that we're so much bette. And as we look at our business I think the clarity of our brand message, and there's a lot of sameness out there in the marketplace, and we're providing an item lifestyle concept that as long as we deliver on it, we're seeing the results of it. Plus on a product side, this year we took a few more risks in third quarter which has traditionally not been our biggest quarter and in the early fourth quarter on heavier product, where we can execute that product that it looks still appropriate under the Tommy Bahama label. And we're seeing very marked results in that kind of product. So we're finding that our customers giving us entree into other categories the here to fore that we stayed away from because we're Tommy Bahama. So we're seeing customer wants more from us and more products and more variety of products and that's very encouraging under our philosophy. And Black Friday, I'll turn -- I'll let Doug talk about.

And like all retailers, we all strategize on how to entice the guest to shop over that weekend. And I think because of the shorter time period from Thanksgiving to Christmas, I think everybody tried to pull that forward. I think the difference with Tommy Bahama is that because we're not promotional and because we can't really have a door buster strategy, we took a different approach and took the things that we already have, and that is the loyalty card which we pulled earlier in the month, as well as the flip side event where you spend $250 and you get $50 for January, you actually pulled that over, over that weekend and it gave us result. And because we really didn't change anything from what we've done before, but because of that weekend and then because of the messaging and the mailer and the card, we were actually able to just have everything hit perfectly over that weekend and it was really explosive. We were really pleased with that weekend.

That sounds great. Congratulations, guys. I look forward to hearing more about the rest of the holiday season.

Thanks, Pam.

Susan Sansbury, Miller Tabak.

Tom and everyone, I'm really pleased that the New York City flagship store has turned into the profit column.

Let me -- Susan, it's not going to be profitable this year, but it's definitely on the right track.

It's profitable currently, is that what I heard?

No, no, no. Maybe Scott will jump in here.

Yes, I think -- yes, we believe it's going to be a profitable store. It's not just a flagship that's going to be a marketing exercise for us. We're going to get those marketing benefits, but it will be. But this year, we'll lose some money this year and obviously holiday is going to have a big say on hopefully that will also be less than we maybe earlier anticipated due to the good holiday we're having there. But this will be in the future a profitable store, we're very confident of that.

Okay so -- but I thought I heard Mr. Pillow say that it had broken into the black, so I didn't hear that correctly?

I don't think so.

Okay, all right. The real focus of my question is yes the New York flagship will become profitable, but I'm curious about your commentary about the Asian stores. So what should we anticipate at this point in terms of the losses currently being generated in Asia? Will they stay at this level?

Scott, why don't you walk her through that?

Yes, so for this year, we're going to lose somewhere in the $12.5 million to $13 million range, which is I think pretty consistent with what we had said last quarter. What we're finding, we've only had two stores that have actually anniversaried and that's Macau and Singapore, two of our smaller stores. But is anticipated we're seeing significant comps in year two over year one. So year one on a four-wall basis most likely the store is going to lose money in year one. Year two, hopefully, start approaching breakeven and hopefully year three we start getting some four-wall contribution. So it's going to take some time, but hopefully the others will have that year one to year two comp we're seeing now in Macau and Singapore and I think we'll be making progress towards that.

Okay, so these losses are going to gradually come down?

They should, yes.

They should.

Okay, any commentary, Terry about -- or Doug about in-store inventory levels or Tom to get you in there, in-store inventory levels at Tommy Bahama or Lilly?

I think touching on Lilly real briefly, we had a great November and Thanksgiving weekend. And they're small stores, so when they have a really big week or weekend, they can be a little broken on Monday. But they're getting better and better at restocking them very quickly and we're locked and loaded and ready to go for holiday there.

Okay and finally, can you talk about the new club program for Lanier and how that's going to, you said you're expecting --

Well you might want to hear from Doug and Terry on Tommy inventory levels for the --

Okay, sure.

And that way you can go back to Lanier.

Yes, I -- spend a second on Tommy's inventory. We're in a great position right now but I think this is also you read about the omni-channel. The omni-channel is real. One of the things we all wait for here is that takes a little bit, like a couple hours each morning before we find out what our kiosk shipments are in the morning. And so not only am I in great shape in store, but I'm in great shape in the DC so that if one of our stores doesn't have a specific size or color now, I've got access to inventory in our warehouse that I can get there overnight to the guest. So the game has changed and in a positive way so you can -- utilization of inventory in the timely fashion for holiday has really been great for all over the country.

Okay, and these comments are consistent in store or at wholesale?

You know what? It's in both in our stores and in e-com. Now wholesale is a little different because of a standpoint of how they have bought their inventories going into holiday time periods. And it's -- they have to go account by account on what their positions are. I can tell you that just because of what we talked about earlier about a lot of focus on turn this year at our wholesale guest, my guess is they're going to start running low on inventory and that's just the way they plan their business. So -- but I can tell you that for the businesses that we have direct control over right now, we've got great position.

Okay, great, sounds good. Tom, Lanier?

Yes, in the warehouse program that they have, Lanier, as you know, Susan is a category specialist whose supposed to be just dedicated to one brand and so their expertise is really in men's tailored clothing which includes suits, sport coats, and dress pants. And as a result of their known expertise, they're one of a handful of major players in that space in the US. And as a result of that, they were offered an opportunity to bid on a -- what's actually a dress pant program in terms of the construction. It's a casual-type fabric but it's a dress pant construction, and they were given the opportunity to bid on it and got the order.

As these things go, it's a huge order, it's basically one style but a huge order. The gross margins tend to be a bit low, but that's really why we called it out because you'll get a big pop in sales. It's big enough that at the low margin, it's going to dilute the gross margin a bit for Lanier in Q4 but it's still great contribution for us. So it's a good -- it's a positive development because its gotten them into a channel that they've never been in before and this is early days, excited about having the order and delivering it. We'll see where it goes from there.

Is this a test or do you have a six or nine-month or 12, gasp, 12-month commitment?

Well the way this particular program works is there's an initial shot that's quite large that'll go in January and then part of it in early February. And then there's a second shot that we've already got the order for that'll go in third quarter of 2014. And then beyond that, the way those guys work, they don't commit any further out than that. But hopefully we'll be successful, they'll like the program and want to continue it going forward.

Okay. No it could be --

As you know though, Susan, they operate very differently and just because they have something and it does well, they may or may not decide to continue it. I do think it'll give us the opportunity, as it already has, to bid on other programs and items there.

Okay. I know you don't want to discuss exactly which club you're dealing with or maybe you will, but this is the largest club or the second largest club?

Well there aren't a lot of choices out there, Susan.

No.

I don't think it's really appropriate for us to call somebody out like that but it's a private label program for one of the major clubs.

Okay, all right. Again have a great holiday season.

And there are no further questions in the queue at this time. I'd like to turn the call back over to Mr. Chub. Please go ahead, sir.

Thank you, Blake. Our earnings expectation for the year reflect the solid performance of our business and our continued investment in future growth. We expect the power of our direct-to-consumer strategy, coupled with the strength of our brands and people, to deliver sustainable top and bottom line growth in the years to come. Thank you again for your time this afternoon. Happy Holidays and we look forward to speaking to you in March.

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