Oxford Industries Inc (OXM) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Oxford Second Quarter 2017 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the floor over to Ms. Anne Shoemaker, Treasurer, for opening remarks and introduction.

Please go ahead, ma'am.

Thank you, Bethany, and good afternoon, everyone.

Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause actual results of operation or our financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-K.

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 non-GAAP 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.

Please note that all financial results and outlook information discussed on this call, unless otherwise noted, are from continuing operations, and all per-share amounts are on a diluted basis.

As a reminder, the results from the Ben Sherman business are reflected as discontinued operations for all periods presented.

Also, on April 19, 2016, the company acquired Southern Tide.

Please also note that fiscal 2017, which ends February 3, 2018, is a 53-week year.

And now I'd like to introduce today's call participants.

With me today are Tom Chubb, Chairman and CEO; and Scott Grassmyer, CFO.

Thank you for your attention, and I'll now like to turn the call over to Tom Chubb.

Good afternoon, and thank you for joining us.

Before we jump into the discussion of our results and outlook, I want to spend just a minute or 2 on a topic far bigger and much more important.

The devastation being delivered by Hurricane Harvey to the Gulf Coast region of our country is simply horrific.

Our thoughts and prayers are with the millions of people whose lives have been disrupted and, in many cases, upended by the hurricane, including some of our own employees and guests.

If there's anything redeeming about this terrible natural disaster, it is it's a demonstration of the fact that when the chips are down, it becomes evident that there is an incredible capacity for goodwill and generosity across our nation.

The can-do spirit of the people in the affected regions coming together and helping each other on a neighbor-to-neighbor basis as well as the work of the tens of thousands of professional and volunteer relief workers involved in the effort is truly inspiring.

We are proud to have a number of initiatives underway through which our company and our employees across the enterprise are helping in the effort.

I'll now move on to some commentary on our business.

With solid results for the first half of the fiscal year under our belt, we are well positioned to deliver a healthy growth on both the top and bottom line in fiscal 2017.

Our dynamic portfolio of compelling lifestyle brands and our well-managed channels of distribution differentiate Oxford, and we are confident in our ability to deliver shareholder value.

A real highlight of our first half is the positive momentum we saw and are continuing to see at Tommy Bahama.

In a very crowded and noisy marketplace where consumers are bombarded, perhaps even overwhelmed, by various forms of nonstop communication, many brands struggle to effectively deliver their message.

Not so with Tommy Bahama.

Our call to Live the Island Life is one that Tommy Bahama alone can proclaim boldly and with authority.

Then we not only talk the talk, but we walk the walk by backing up our brand message with our beautiful, differentiated and innovative product, our island-inspired stores, restaurants and communications and, most important of all, our wonderful people, who embody the aloha spirit in everything they do to serve our guests.

The numbers we have achieved thus far this year in Tommy Bahama are the direct result of proclaiming the message Live the Island Life starting with a 132-page brand catalog we sent to over 900,000 guests in March and then bringing that message to life in every product we make and everything we do and say.

Our men's business remained unfalteringly strong and we gained traction in our women's business.

Traffic inched into positive territory in Q2 and comps were solidly positive at plus 5% for the first half.

In addition, our restaurant business comped up 6% in the half, with particular strength in our key Hawaiian market.

Leveraging the competitive advantages of the Tommy Bahama brand is how we have succeeded and how we will continue to succeed.

During the second half, we will continue to leverage our island lifestyle positioning with a variety of compelling initiatives to excite and attract customers.

Tommy Bahama's newest retail restaurant location, which opened this month in Plano, Texas, near Dallas, came out of the gate very strongly.

The success we are seeing in Plano proves once again our unique ability to deliver a compelling on-brand food and beverage experience.

Delivering this experience to the guests not only drives our restaurant business but cements our position in the guests' minds as the authoritative island lifestyle brand, which in turns helps sell all our products.

We will continue to leverage this competitive advantage to drive sustained profitable growth.

Turning to Lilly Pulitzer.

With its true resort product, expertise in print, pattern and color and multigenerational approach, no other brand delivers a resort message the way Lilly Pulitzer does.

The strength of our resort positioning enabled Lilly to deliver a remarkable 29% operating margin for the first half.

We also saw good growth in our e-commerce business, which will be about 1/3 of Lilly's business for the year.

Lilly's solidly profitable brick-and-mortar presence is an important point of connection with our consumer that helps reinforce the brand's resort positioning.

This is particularly true when the store is located either in a resort area or within the premises of a resort, and we believe there is a lots of room to grow this brand within this resort space.

We recently took advantage of an opportunity to bring in some licensed signature stores in very strategic key resort markets such as Nantucket, Martha's Vineyard and 4 stores on Cape Cod.

These locations tie in nicely with our new Watch Hill, Rhode Island and Avalon, New Jersey stores as well as the Ritz-Carlton's Lilly shop at Amelia Island, Florida, where we can focus on true resort.

Later in the second half, pop-up shops on Las Olas Boulevard in Fort Lauderdale and on Marquette Island will continue to reinforce Lilly's resort brand position.

So we just completed our 3-day end-of-season clearance sale, and when the dust settles, it will be the largest in Lilly's history.

We saw incredible excitement and enthusiasm from our Lilly customers, who were lined up outside our store and came to our website in droves.

Full price sales were also quite robust during the sale period.

The amazing passion for Lilly we just witnessed reinforces our confidence to deliver a strong second half.

We believe our continued key to growth and success is having fantastic brands that offer beautiful product to our customer when, where and how she wants it.

We are distribution-agnostic.

We want our products distributed in ways where we can best grow revenue, build brand awareness and acquire new customers.

And we believe the most meaningful opportunities for our brands are in our direct-to-consumer initiatives, enhancing our customers' e-commerce experience, having new stores and new concepts in great locations and exploiting our food and beverage expertise.

Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel have distinct competitive advantages as well as talented teams operating within a culture of excellence that brings out their best efforts.

This is in any environment a formula for success.

With that, I'll now turn the call over to Scott Grassmyer.

Thanks, Tom.

Just a quick additional comment related to Hurricane Harvey.

In the Houston area, we have one Lilly Pulitzer and 5 Tommy Bahama stores, none of which appear to have any physical damage.

We reopened our Tommy Bahama retail restaurant location in The Woodlands today, and we're working to get the others opened as soon as possible.

Now I'd like to walk you through some additional details by operating group and our guidance for the third quarter and full year.

Please refer to our press release issued earlier today for additional information.

Second quarter 2017 net sales increased to $285 million compared to $283 million last year.

Once again, Tommy Bahama had a very good quarter.

Direct-to-consumer comps increased 4%, and we also saw a nice sales increase in our restaurants.

Importantly, Tommy's adjusted operating margin expanded 50 basis points year-over-year to 11.9%.

Tommy is on track for the year to grow the top line in the mid-single digits and expand operating margin by over 100 basis points.

Lilly Pulitzer sales were essentially flat, with contributions from new stores and positive e-commerce comps, offset by lower wholesale sales and negative brick-and-mortar comps.

Lilly Pulitzer's operating margin remained very strong at 30%.

Tom mentioned the incredible results we just saw in Lilly's clearance event this week.

Not only is this a great brand-appropriate way to clear end-of-season merchandise, it also delivers a very healthy gross margin.

For the year, we expect that Lilly sales to increase in the mid-single digits and operating margins to remain very healthy at around 20%.

Sales at Lanier Apparel were lower than last year but essentially in line with what we had planned for the second quarter.

For the year, we expect mid-single digit top line growth and an operating margin in the mid-single digits.

Southern Tide in its first full year of operations with Oxford is on track to deliver revenue just above $40 million and an operating margin in the low double digits.

On a consolidated basis, our adjusted operating income in the second quarter was $38 million compared to $40 million in the same period of the prior year.

Adjusted EPS in the quarter was $1.44 compared to $1.48 in the second quarter of 2016.

Our balance sheet remains strong.

We did a good job of executing our plans on inventory and refining our clearance strategy at Tommy Bahama, and we believe we're well positioned for better operating performance in our outlet stores and other clearance channels going forward.

This improvement at Tommy Bahama as well as reductions at Lanier Apparel and Southern Tide resulted in an 11% decrease in inventory to $120 million.

We continue to generate strong cash flow from operations and reduce our outstanding debt while continuing to invest in our brands and pay a dividend.

We ended the quarter with $38 million in borrowings and $215 million of unused availability under our revolving credit facility, and we are well positioned to support our growth initiatives.

I'll now walk you through our outlook for the third quarter and full year.

Earlier today, we initiated guidance for the third quarter of fiscal 2017, which ends on October 28.

In the third quarter, we expect net sales to be in a range from $240 million to $250 million and adjusted earnings per share to be between $0.09 and $0.19.

On a comparable basis, sales were $220 million in the third quarter of fiscal 2016 and we had an adjusted loss per share of $0.07.

This improvement is primarily due to an expected year-over-year sales increase at Lanier Apparel and the impact of the larger Lilly flash sale.

We're very pleased to have affirmed our adjusted EPS outlook for the full year.

Adjusted earnings per share are expected to be between $3.50 and $3.70, which compares to adjusted earnings of $3.30 per share in fiscal 2016.

We now expect net sales to grow between $1.085 billion to $1.105 billion as compared to fiscal 2016 net sales of $1.023 billion.

Our effective tax rate for fiscal 2017 is expected to approach 39% compared to 37% in the full 2016 fiscal year, with the increase reflecting the unfavorable impact of the vesting of stock awards in the first quarter of this year and reduction in the utilization of operating loss carryforwards related to fiscal 2016.

Full year interest expense is now expected to be approximately $3.4 million, which is comparable to last year.

Capital expenditures in fiscal 2017 are expected to be approximately $50 million.

We are investing in information technology initiatives and new Lilly Pulitzer and Tommy Bahama retail stores as well as investments to remodel and relocate existing stores.

CapEx this year also include Tommy Bahama's newest retail restaurant location in Plano, Texas.

Bethany, we are now ready for questions.

(Operator Instructions) And we will take our first question from Edward Yruma at KeyBanc Capital Markets.

First on Tommy, I know you guys have had some success of introducing products at higher price point.

Can you talk about pricing overall at Tommy Bahama and maybe opportunities to raise price selectively on existing products?

And then as a follow-up, at Lilly Pulitzer, how would you score kind of current product acceptance?

Are there areas in the assortment that are stronger?

And maybe where are the pockets of weakness?

Okay, Ed.

First, with respect to Tommy Bahama, I think as we talked about as early as the beginning of the year, we are doing some selective price increases.

Some of those have kicked in and have been sort of a nonevent.

In other words, they haven't slowed down the velocity of those products at all.

And then I think the balance of those will kick in mostly in the third quarter of this year.

But we're not really anticipating any real resistance to those.

So combined with what we've done on the product cost side, we continue to expect higher initial gross margins in Tommy Bahama going forward.

And with respect to Lilly and product acceptance, I think the issues that we've had there have not been so much product acceptance but probably a little more assortment of product and not having as much of the entry point kind of product in the mix as well as our marketing, which has been a little bit more geared to the existing core customer and not so much as the newer customer that's just nibbling at the edges of the brand.

And those are things that we will obviously be addressing going forward.

In the fourth quarter particularly, we've got all kinds of great things happening, Ed, that we feel very good about from both a product and marketing perspective.

So if you'd like, a couple of examples of those, we've had really good success with some of these, what we call prints with a purpose, which are special prints, where part of the proceeds goes to the benefit of a charity.

And we did one in August called Tortuga Time for loggerhead turtles, which did very, very well.

We'll be doing more of that.

I don't want to get into details yet.

We'll be doing more direct mail, including a non-comp mailer in December, I believe.

We've got more frequent, smaller drops of products.

So during November and December, we'll add newness in the stores basically every single week.

We've expanded our lounge offering, which is a great space for us what we sometimes called cozy lounge.

So these are pajama-type products that are substantial enough and stylish enough to be worn as loungewear, including some printed velvet and velour that we're very excited and we think the Lilly customer will be very excited about.

And there's a great product collaboration going that I think will provide a very exciting entry point kind of product in the stores.

So lots of good things cooking out there for the -- particularly the fourth quarter.

Great.

One final follow-up, if I may.

Can you talk a little bit about Tommy Bahama performance, the stores that have a high bias towards foreign tourists, so it's kind of New York, Hawaii, Las Vegas?

So as we mentioned in our comments, our prepared remarks, Hawaii has been good.

We've seen really good strength there.

And as you know, there had -- we went through a couple of years where the Hawaiian market was not as strong.

But this year-to-date, we've really had seen good results, good, strong comps.

Restaurants, as we mentioned, I mean, the Hawaiian key locations, like Waikiki and Mauna Lani, where we've been before, I think, were really good.

So we were pleased to see that.

And we will take our next question from Pam Quintiliano of SunTrust.

The first one, just a follow-up on Ed's question.

Can you dig in a little bit more into Lilly's comp?

Particularly you said in the prepared remarks that brick-and-mortar was negative.

So I know you just said it was about product acceptance and entry point.

Is there anything else there you think that we can attribute that to?

And then all that detail in 4Q is great, but when we think about the 3Q comp, which is a bit more challenging than 2Q was, were you able to adjust anything there?

Just reflecting some of the learnings you had from 2Q.

And even if there was anything with the inventories or adjusting Tommy inflows, just how to think about that?

And then I have one follow-up on Tommy after that.

Yes.

So Pam, what I would tell you is that in third quarter, if you think about it, it's a very, very small quarter.

The biggest part of third quarter is the sale, to be honest with you.

That's sort of the story of the third quarter, and it's going to be a good story on sale.

Overall, for the second half, what we experienced in the first half was negative store comps, positive e-comm comps, which were netting down to an overall negative.

In the second half, we see that pattern continuing.

We do have comps modeled getting a little bit better, but we're not projecting a complete turnaround there.

And what would you attribute that to with the negative store comps?

Is it that she is just shifting a lot more online?

Or is there anything else with her, pattern (inaudible)

Yes, there are 2 things.

One that we don't spend a lot of time talking about because there's not a whole lot that's within our control, and that's just general retail traffic, which, as you know, it was a trend nationwide pretty much across all retailers.

The second part and where -- this is actually a good news story, we think more of the story is within things that we control.

And the simple way of putting it is that as we went into this year, we feel like we shifted more towards our core consumer and had less emphasis on attracting new customers or the customers that had only been in a small kind of way and trying to get them to come back and buy more.

That was deliberate on our part.

In hindsight, we think we swung the pendulum a little bit too far.

So the fix is, is really just to step on the gas a bit in terms of bringing in those newer and lower-spend customers and making -- bringing more of them in and increasing their spend.

And we think we are quite certain that there are levers that we can pull that will help us do that.

That sounds great.

And then...

One other thing, Pam.

This is Scott.

Yes, the third quarter, we're going against some pretty tough double stacked comps from the last 2 years, 27 and 12.

So they are tough numbers and it's a small quarter.

And as Tom mentioned, the sale is really the -- that's the big thing in the quarter and we executed on it.

We're very pleased with the way the sale is shaking out.

I mean, the sale is over.

The dust hasn't all settled.

Yes, Pam, we know you were probably one of our over a million customers that visited the website during those 3 days.

And maybe you got in the stores as well, but it was just an absolute frenzy.

I mean, we literally -- in many, if not most of our stores, we had people lined up outside the store.

Anne and Scott and I saw a number of videos of people at King of Prussia Mall and locations all over the country literally like wrapped around the mall, waiting to get in.

And as you know, on the website, we had enormous traffic.

It was a very, very successful sale, really, on all fronts.

In terms of the dollars we generated, as Scott mentioned, for us, that's at a very healthy gross margins.

So this is a -- it contributes to our success.

It was great from a customer reactivation as well as acquisition standpoint.

We've got a lot of new customers in and saw a lot of old customers as well.

So it was really just a terrific sale all around, and it proves to us that the enthusiasm for the brand remains incredibly high.

And we think we understand where we can make some adjustments to really restart the comps in a positive direction.

At the same time, this is an incredibly strong business.

I mean, a 29% operating margin for the first half is something that we're quite proud of.

And as you know, the sales productivity of these stores is incredibly high.

So when you talk about a comp, you're talking about dropping from well over $800 a square foot to something that's slightly lower than that but it's still a very, very productive retail chain.

And then there are the new stores that we're incredibly excited about.

These Martha's Vineyard, Nantucket, the 4 out on Cape Cod, the 1 on Newbury Street in Boston.

I mean, these are markets that are key strategic markets to have a company-owned store.

And we've been well represented there by our signature store partner, but we believe that we can be even better represented with a company-owned store in those very, very important markets.

Oh, I definitely contributed in Watch Hill and the flash sale.

Watch Hill and Avalon have been terrific both from -- we've done an excellent business there, but hopefully, we're indelibly imprinting the vision of the brand as a true resort brand in the clientele that visits those places.

And as you know, the clientele that's in those places is exactly the type of guests that we're trying to target.

Then can I just quickly ask on, Tommy?

Anything -- any commentary on Asia and just any update there?

And how is the Marlin Bar going?

And I'm sure it continues to be a smashing success.

Any thoughts on how you're rolling that out into more locations?

Yes.

So on Asia, we made good progress in the quarter.

Sales were up slightly.

I think we reduced the operating loss for the half by $1 million versus last year.

So we continue to execute our plan there.

And as you know, in Australia, we're very committed to that market.

We like that market.

We have a good business there, and it's -- we're going to steam ahead there.

In Japan, we're very happy with the improvement we've seen and the growth that we've seen, but we're still a good ways from being profitable there.

So we continue to look for a solution that allows us to not walk away from the market and all the goodwill that we'd built there but at the same time to eliminate those operating losses.

And then just the Marlin Bar, what's going on?

And on the Marlin Bar, we continue to be extremely pleased with what it's doing both on the food and beverage side as well as very importantly what it's done for our retail business there, particularly the women's business.

So it's been a big success, and we're continuing to look for opportunities for how we can take the learnings from that food and beverage concept and leverage it into new locations.

The next place where you'll really see strong evidence of that is in Palm Springs that's going to be a lot more like a Marlin Bar than it is like one of the traditional restaurants.

And that is currently scheduled to open in early '18, I think.

So you'll see it there.

And at the same time, we just opened this great store and restaurant in, I believe it's called Legacy West in Plano, Texas.

And that thing has just come out of the gates incredibly strong.

It's been very, very pleasing to see.

And I think it's also a great model of where retail is actually headed in the future.

So we don't believe at all that bricks-and-mortar retail is going away.

We just believe that it's changing.

And very, very happily for us, we think it's changing in our direction.

So if you look at Legacy West, it's a lifestyle shopping center, no department store, only food and beverage and then what I would call very special and unique retail there.

And when you think of our portfolio, that's perfect for us.

That's what we are across our business.

So as retail evolves, we think that not only can we survive.

We actually think it's a better environment for us.

I'm very excited to go visit that store.

Oh yes, that's right.

You are going to be out there.

We look forward to you being there.

And we'll take our next question from Corinna Van der Ghinst of Citi Research.

I wanted to start with a couple of questions on the guidance.

It looks like you just took a full year top line guidance just down a hair.

And it sounds like that's maybe on the Lilly Pulitzer brand now being expected up mid-single digits.

Just trying to parse out how much of the converted Lilly or the acquired Lilly signature stores are contributing in revenues.

Yes.

One thing you've got to remember, the stores are very seasonal and we're buying them after season.

So on a full year basis, they're going to be about $6 million on a full year basis.

But for the season, some of them aren't even open after -- once you get into October and later, so it's going to be very, very little in the second half of the year.

And they'll actually be a little dilutive to the bottom line in this year, but they'll be accretive next year.

And -- so the stores aren't going to have much top line or bottom line impact this year, but next year, though, it will contribute.

Okay, great.

And then just to clarify.

You guys are expecting Tommy comps to look slightly better for Q3 than Q2 and Lilly comps also slightly better but still comping negatively in the third quarter?

Is that the right way to think about it?

Yes.

And then just lastly on the guidance, sorry.

Does the updated guidance assume higher marketing expense than you guys had previously kind of modeled in just given some of the new marketing initiatives that you talked about, like the direct mailer for Lilly in December?

For both Lilly and Tommy, we'll be spending more in marketing in the second half than -- within in the original guidance, [than] they did last year.

Okay, perfect.

And then if I could just squeeze in a second question.

I'm just hoping you -- I know in Tommy gave some detail in the prepared remarks about the rationale behind acquiring these signature stores.

But maybe you just could walk us through kind of why now, what the cost was?

And is this something that you guys would like to do more of going forward?

And does this take the place of kind of traditional M&A that you've talked about on new brands?

Well, it certainly doesn't take the place of additional M&A, and there were really 12 stores altogether that we bought, 6 that we bought from one operator and 6 that we bought from another operator.

5 and 7.

5 and 7, excuse me.

And one of them was really just an opportunistic situation that came up pretty quickly.

Those stores are all in the Virginia area.

And that was the 5-store operator.

And that came up pretty quickly.

She just got to a point where she was ready to move on in her life and -- so we had an opportunity to take those stores over, and we did.

The second group, the New England group, if you will, those out on the Cape, the Vineyard, Nantucket, Boston, that was something that we'd actually been interested in for a long time.

In fact, the discussions predate our acquisition of Lilly Pulitzer in 2010.

So that had been going on for a long time.

I think both parties always knew that those stores would probably end up within the company-owned portfolio.

And we worked out a deal this year.

And the fact that we did all these together is really more of a coincidence than anything.

It wasn't like we decided to go on a full scale assault to buy as many signature stores as we could -- as quickly as we could.

With regard to future plans, Cori, it would be sort of on a case-by-case basis.

I do think that these are probably not the last signature stores that we will buy.

I suspect we will take on some more from the operators -- some of the operators.

But I also don't expect us to take them all on.

We still think there are an awful lot of markets that are best suited for a partner store rather than a company-owned store.

We very much value our signature store operators and what they do for the brand, and we believe that they will continue to be an important part of our company for a long time.

With regard to the economics, I'll let Scott chime in.

Yes, we're not going to disclose the purchase -- the actual purchase price of the stores.

But as Tom said, they -- the opportunities come up in the one case and one was much more strategic.

And as he said, there will -- I'm sure there'll be additional ones, but it will kind of be on a case-by-case basis.

Okay, great.

And also, I should have asked, is it fair to assume that this doesn't preclude Lilly's move kind of westward across the U.S. as well?

No.

And again, it does not alter our overall M&A strategy either.

And we will take our next question from Rick Patel of Needham & Company.

I had a question on Hurricane Harvey.

So if the stores that you have in the region have to remain closed for an extended period of time, how will that impact sales in the third quarter?

And is that risk embedded into your guidance already for the quarter?

It's not embedded in our guidance.

And I think, Rick, it seems at this point while we're still assessing, it seems highly unlikely that they're going to stay closed for more than a couple more days.

I mean, there is -- from every indication we have, which includes photographs and discussions with our landlords as well as physical inspection by our employees, in some cases, there's no physical damage to the property or our inventory.

It's really just a matter of the floodwaters receding and the power coming back on, I think, for the most part.

The biggest one of them, The Woodlands retail and restaurant, reopened today.

So that's really good news.

And we don't know and we want to be careful, but I think we really expect that the rest of them will be back pretty quickly.

And it's 6 stores altogether, one -- again, the biggest of which is already reopened.

Rick, the other part of it, of course, is what happens once they're reopened, just how quickly life returns to normal and shopping patterns resume and all that.

And that's a little harder to call, but we'll see.

Can you provide some more color on Lilly stores that you're acquiring?

I'm just curious how sales productivity and margins compare to what you have for your owned stores and what levers do you need to pull in order to improve these metrics?

They're going to be a little below our owned stores, but some of them are seasonal because some aren't open year-round.

We do believe that us controlling the product flow that we can improve those.

And there are wholesale sale today, so we'll give up the wholesale sale, replace it with retail sales.

But we will have control of flowing the merchandise the way we think we need to flow it, being able to refill in the appropriate product that's really selling.

So we think once we get them and get it back in season, we'll be able to improve them.

But currently, they are not quite at the performance level of our owned stores, but they are profitable.

Okay.

And then just a question on Tommy.

So I guess, how should we be thinking about your promotions going forward?

I know there was a promotional shift out of 2Q and 3Q.

Any way to quantify the positive impact that could have to your third quarter as we think about comps?

And in the past, you've had these traffic driving events, these gift card promotions in the past and they've been pretty successful.

As you think about the back half, should we expect an increase in the cadence of those types of events, especially for the fourth quarter?

I don't think there will be an increase in the cadence.

I think we will continue to do them, and in some cases, we may reach more guests with them as we have through time.

We've grown the list of people that we're targeting.

The big thing in the fourth quarter that will be different is that the book that we did back in the spring, the Live the Island Life book, we're going to do another one of those in the holiday this year.

So it will be the same size and sort of weight and quality and all that.

And we were really, really pleased with how that worked in the spring.

And -- so we're going to do that again in the holiday.

And as far as the event that crossed over, last year, it was part second, part third quarter.

This year, it was a third quarter event.

So it will have a slight lift to our comps.

It's not going to -- it's not a huge amount, but it should help our comps slightly in the third quarter.

Got you.

And then last question for me is on Lilly.

So it sounds like the flash sale went really well.

It sounds like it's up.

Any color on why you would expect the slowdown in comps?

Is there anything that happened last year in particular that would make you be a little bit more conservative about the outlook for the rest of this quarter?

A couple of things.

Just traffic patterns, so the brick-and-mortar traffic patterns, one thing.

And then just the comps we're going up against in the third quarter, 27, 2 years ago and 12 last year.

So we're going against some tough numbers.

And Tom mentioned some of the products that we're going to get into, especially some of the little bit lower-priced products that are really going to be more of a fourth quarter thing rather than a third quarter.

And Rick, just so you're clear, flash is not in the comp.

The sale is not in the comp number.

Right.

And we will take our next question from Eric Beder of FBR.

Could you talk a little bit -- I know you've gone to Tommy Bahama doing more in-season, end-of-season sales.

How has that worked out?

And how does it enable you to be a little bit better on the outlet channel?

It's worked out just fantastically well for us.

We couldn't be happier with the way that the overall clearance within Tommy Bahama has worked.

If you remember, Eric, going into the year, our priority in Tommy Bahama was actually improving the whole clearance operation, including what we do in the outlets and how we do it in the outlets, and fundamentally, how we clear end-of-season merchandise.

So we accomplished a number of things.

We did very, very good business during the sale periods that we did in January and then in July.

We also managed to sort of take the first mark in-store and get rid of a lot of the inventory there at a very good recovery and also without incurring the handling and freight charges that you would have if you moved it out.

And you also will remember, Eric, that one of our big objectives was sort of unclogging the outlet stores of inventory so that they could perform better.

I believe during the course of the year, we'd lowered the number of units in the outlets by about 40%, which is a big accomplishment, and it's working.

We're seeing the gross margins in outlet go up in the business and the outlet is performing stronger.

So when you look at that total clearance situation, it's really a very, very healthy and strong one.

We're very, very pleased with that.

The team at Tommy has done a terrific job.

I see you closed an outlet.

Have you -- does this lead you to kind of rethink how many outlets you actually need or the ratio they need to be therefore?

Well, as you know, we haven't added one in, I don't know, 4 years?

In the U.S., it's probably been about 4 years in the U.S. since we've added one.

Yes, so the ratio is definitely tilted more towards full-price stores and I think will continue to do so.

Okay.

In terms of Tommy Bahama women's that you guys have worked a lot on it, where -- how is it -- you mentioned it's doing extremely well.

What's the next kind of iteration for Tommy Bahama women's going forward?

I think you saw -- if you've been watching it this year, I think it's a lot of that.

It's targeted unashamedly to a 45-year-old and up woman.

It's easy to wear.

It's what I think of as being breezy and very much Tommy Bahama product.

Those are the products that have worked well this year.

As we talked about our women's business, it's grown nicely this year.

Swim has been extremely strong, but sportswear has been strong, too.

And we're happy with what's happening there and are going to continue in that same direction.

And can I ask a Southern Tide question?

What's happening with Southern Tide in terms of the franchised stores and expanding that more into women's?

So we've got 3 franchised stores -- or licensed stores.

They're not franchised.

There's a legal difference.

So they're licensed stores.

We've got 3 open now.

We've got a number in works, of which I think we'll have 3 or 4 more open by the end of the year.

And then we've got a nice pipeline of them that extends into next year as well.

So that's going well.

We're pleased with the way that that's developing.

And then in women's, I think overall, that's probably somewhere just north of 10% of the business in total.

So still small, but it's actually growing at a rapid rate.

Our bookings for fall and then for next spring or -- well, fall is in the book, and the pre-book number is up quite strongly over last year.

Still small numbers, keep in mind, but it's grown very nicely.

And then for spring of next year, we're in the booking cycle now, but it's going quite well, too.

So we're pleased with the development in the women's business, albeit still quite small in Southern Tide.

(Operator Instructions) We will take our next question from Danielle McCoy from Telsey Advisory Group.

I was wondering if you could talk about the Tommy Bahama performance in Canada and anything to note between the Canadian market and what you're seeing here in the U.S.

Canada has been -- it's been good.

It's -- we are -- we did open 2 new stores last year, which were the first 2 stores to be opened since we got the license back.

And where there's a couple of small stores, we'll probably -- I think one we've closed.

An additional one we might close.

But I think we are upgrading into better locations.

And we also have a small but nice wholesale business in Canada also.

And those closings are on lease expirations.

We're just not going to renew in a couple of places.

But the only downside to Canada, really, Danielle, is just that it's a small market.

There's not a lot of population out there.

All right.

And then I guess, as we start to see the product mix shift a bit at Lilly and some more marketing targeting that younger consumer, how should we think about more of a normalized comp going forward for that brand?

Well, I think we can certainly get back to where we're in positive comps.

And again, in bricks-and-mortar, we're at a very, very high level of productivity.

So how much comp is reasonable to expect there, I'm not sure, although I think it can be positive.

And then on e-comm, I think we can continue to comp quite nicely.

And we're getting way ahead of ourselves here in terms of what budgets we actually have, but I don't see why double-digit comps in e-comm are not achievable.

And we will take our next question from Andrew Burns of D. A. Davidson.

Most of my questions were answered, but just a follow-up on Southern Tide.

You've owned the brand for over a year now.

And setting aside some industry-wide wholesale headwinds, how is the brand developing versus your initial expectations?

And secondly, you made some investments there and the gross margins for the brand have bounced around a bit.

How do you think about the margin profile developing as we move forward?

I think in terms of how it's performing versus our expectations, I would say the thing that we didn't expect was for the market to be as tough as it's been.

So what's changed is that the market is a good bit tougher than when we bought the brand.

And that, to be fair, has slowed things down just a bit.

All that said, we're going to get good growth this year, top and bottom line.

We're pleased with the way the brand is developing.

There is some noise, as you point out, in our gross margins, and I'll let Scott elaborate on that, if he wants a little further.

But the brand has a very, very healthy margin structure and has all the makings of business that can grow profitably for a long time.

Yes.

You remember Southern Tide is mostly a wholesale business, where other businesses have a lot of direct consumers.

So their gross margins will be a little bit less than some of the other businesses that have a lot direct.

But for our wholesale business, very healthy gross margins and some things that we've -- doing some -- we're finding some synergies sourcing-wise that hopefully can help enhance those margins in the future.

As you look at the environment today, do you think the potential for tucking in additional smaller growth brands like Southern Tide is improving given the market volatility?

Well, we certainly have the capacity and the wherewithal and the desire to do that.

It's very hard to predict when an opportunity will materialize.

We are optimistic, though, to your point that some of the volatility in the marketplace will sort of trigger some opportunities, if you will.

And we're aggressively looking for them.

That concludes our question-and-answer session.

For additional and closing remarks, I would like to turn the call over to Mr. Tom Chubb.

Thank you, Bethany, and thanks again for your time this afternoon.

We appreciate your interest and look forward to speaking to you again in December.

And ladies and gentlemen, this does conclude today's conference.

We thank you for your participation.

You may now disconnect.