Oxford Industries Inc (OXM) 2019 Q4 法說會逐字稿

Greetings, and welcome to the Oxford Industries Fourth Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Anne Shoemaker, Treasurer for Oxford Industries. Thank you. You may begin.

Thank you, and good afternoon. 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 federal security 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 our operations 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 per share amounts disclosed on this call are on a diluted basis. Our disclosures about comparable sales include sales from our full-price stores and e-commerce sites, and excludes sales associated with outlet stores and e-commerce flash clearance sales. 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 now I'd like to turn the call over to Tom Chubb.

Thank you for joining us this afternoon. Just 2 weeks ago, I would have wanted to spend a good amount of time on our fiscal 2019 results and share with you the details of our exciting plans for 2020. With the recent events associated with the COVID-19 outbreak that no longer seems as relevant. First and foremost, our thoughts are with the people who have been affected by the COVID-19 virus as well as everyone who is working to protect and serve impacted communities. During these unprecedented times, our priority is and will continue to be the health and well-being of our employees, our customers and the communities in which we live and work. To the extent it provides a framework for our current environment, I'm going to spend just a moment on our fiscal 2019 results and then spend the rest of our time on how we are responding to the current environment.

Our consolidated financial results for fiscal 2019 were fairly consistent with fiscal 2018; however, looking at our performance in more detail shows that big strides were made in the right places. Our direct businesses, which are 70% of our sales were strong with positive comps in all quarters of the year by brand and on a consolidated basis. Importantly, our e-commerce business led the charge with 10% year-over-year growth and 11% comp and now represents 23% of sales. At the same time, our wholesale sales declined in 2019 as many of those retailers continue to face strategic challenges with sales to department stores representing only 11% of our consolidated revenue. We would love to continue to partner with these retailers, but in some cases, their business model is becoming more challenging, and our strategy reflects that.

Our adjusted earnings of $4.32 per share, which were flat with fiscal 2018, included the negative impact of increased tariffs as well as an increase in our effective tax rate. Importantly, as we ended the fiscal year with very strong liquidity, including $53 million of cash and no borrowings under our $325 million asset-based credit facility, which leads us to the topic of the day.

In our 78-year history, Oxford has weathered many crises, and we are highly confident in our ability to weather the impact the COVID-19 outbreak is having on our business and the retail marketplace. We are approaching our businesses with 3 top priorities: our people, our brands and our liquidity. First, we have been and will continue to make the health and well-being of our employees, guests and communities in which we live and work, our priority. All of our North American stores and restaurants have been temporarily closed since March 17, and our Australian stores closed earlier this week. All of our distribution centers are operational, and we've implemented a comprehensive program of prudent measures in all of our distribution centers to keep our people safe. Most of our associates in our corporate and brand offices are working remotely. As we come out of this crisis, it is critical that any actions we take preserve our ability to have the team we need in place for the future.

Second, our lifeblood is the strength of our compelling brands and we will zealously protect them. We have a tremendous portfolio led by Tommy Bahama, Lilly Pulitzer, Southern Tide as well as our collection of smaller brands, like the Beaufort Bonnet Company and Duck Head. We will not take actions to try to prop up our top line in the short run that could harm our brands over the long term. Each of our brands engages their customers with exciting websites and memorable digital marketing programs. Our technological capabilities will serve us well as we stay connected with our customers during this period of self-isolation.

Our third priority is liquidity. Importantly, we entered fiscal 2020 with the inventory levels in very good shape. We had a strong start through the middle of March; however, as concerns about the COVID-19 virus began to impact our business, sales have substantially deteriorated. We are taking steps to mitigate the risk of the inventory increases by working with our suppliers to cancel, delay or reduce our forward purchases. We are also taking advantage of our strength in digital to remerchandise and remarket our seasonal offerings for this channel.

Finally, preserving our liquidity will be paramount over the near term, and we are extremely well positioned on this front. As I mentioned earlier, we entered 2020 with over $50 million in cash and an undrawn $325 million credit facility. To further bolster our cash position and maintain our high level of liquidity, we have drawn down $200 million from the facility.

On the expense side, we are pulling levers across most spending categories. One of the largest is employment costs, which were approximately $260 million in fiscal 2019. As store and restaurant closures persist, we are using furloughs and layoffs as needed and warranted. Where possible, our plans will include preserving employee benefits at least for a period of time. At all times, our priorities will be protecting the health of our employees and ensuring Oxford remains well positioned for the future.

Today, Tommy Bahama announced a furlough of most of its retail and restaurant team to begin on March 31. Through March 30, these employees will have received full pay and benefits. During the month of April, Tommy Bahama will continue to cover the cost of benefits for furloughed employees. These are very difficult decisions, and we are looking forward to the time when we can welcome back our employees and our guests.

We are also focusing efforts, including partnering out with our landlords as appropriate on mitigating our occupancy costs, which were over $100 million last year. Marketing expense, which was over $50 million last year is being addressed in phases. Our reliance on digital marketing affords us opportunities to quickly modify our messaging and our spend as needed while continuing to stay engaged with our customers and generate traffic for our e-commerce websites. Meanwhile, reductions are being taken in other areas such as catalogs and photo shoots. Also, other variable costs such as credit card transaction fees, royalties on licensed brands, sales commissions, packaging and supplies were approximately $50 million in fiscal 2019.

All capital expenditures are being reevaluated with many, including new store openings and remodels as well as certain IT projects, being deferred in this uncertain environment. And our Board of Directors reduced our quarterly dividend from $0.37 a share to $0.25 per share. We believe these measures, among others, position us well to successfully navigate through these unprecedented times. Importantly, I want to acknowledge our teams of talented, hard-working and resilient men and women; many of whose lives are being disrupted in ways, which we couldn't have imagined only a few weeks ago. Ultimately, it's the character and the quality of our people that will help us navigate these troubled times. By focusing on our people, our brands and our liquidity, we are confident in our ability to continue our history of delivering long-term shareholder value.

Melissa, we're now ready for questions.

(Operator Instructions) Our first question comes from the line of Paul Lejuez with Citi.

It's Tracy Kogan filling in for Paul. I had 2 questions. The first is on your inventory, your inventory levels look to be in good shape. I was just wondering if there was any difference in levels by brand. And then I was wondering how your discussions with your retail partners are going and how they are planning inventory for the remainder of this year? And then, just secondly, what is your maintenance CapEx level? Like what level can we think of as where you might fall out this year if you get rid of some of those discretionary things you spoke of?

Okay. Thank you very much, Tracy, and I'll tackle the wholesale partners question and then let Scott talk to you a little bit about inventory by group, and how low we might be able to go with the capital expenditures.

On the wholesale front, obviously, at this point, I would say probably the majority of our customers, if not overwhelming majority, are closed in their bricks-and-mortar stores. Those who are still open and they are not many of them, but those who are, I think, are not doing much business. And so obviously, those people will have to react with their own inventory plans. And I think as you would expect, we're getting lots of requests for delays in delivery, reductions in the quantity of product purchased, request for extended terms, all of those things. And obviously, we're going to work through those issues. We have a lot of great partners that we want to navigate this situation together with and come out successfully on the back end. But I think all the things that you would expect are happening. Obviously, we're factoring those into our own forward inventory plans.

And when I mentioned our efforts to cancel, reduce or otherwise modify our forward inventory purchases, we're covering not only our direct-to-consumer businesses with that, but also our wholesale businesses. And we're -- we've made tremendous progress on that. It's ongoing, but we've made lots of headway on that. Already, our teams are fully engaged on that. We've got a team of wholesale and other leaders from across our business, all business units working together, sharing ideas and information. I'm very pleased. I think we'll do a good job on managing those inventory levels as well as preserving our good relationships with our wholesale customers as we navigate through a very difficult time that neither one of us created. Scott can fill you in a little bit now on inventory by group and also on the CapEx.

Yes. Tommy Bahama and Lanier Apparel were both down, inventory wise, and Lilly Pulitzer was up just a little bit in inventory.

And then on Capex, roughly $15 million is kind of the maintenance number. Now some of that can still be deferred even it's in the maintenance category, but -- so there is a substantial opportunity in our CapEx to reduce some spending if need be.

Our next question comes from the line of Rick Patel with Needham & Company.

Have you seen an acceleration in online sales since your stores closed in mid-March? I'm just curious if the restrictions on travel have consumers in a holding pattern in terms of buying anything right now. And to what extent are you using digital channels today to manage store level inventories?

So with respect to what we've seen in e-commerce, I would say, overall, it's been down a bit. Our products are and our brands are highly discretionary. As you know, they're highly correlated with social events, social activity and travel. So in the early phases of this, overall, we've seen a bit of a downturn in e-commerce. That said, it has been a little bit uneven. And in some places, we're seeing very strong business and good response to some very creative marketing things that our brands are doing, and so we're working. Obviously, the plans we had for e-commerce at this time of year are kind of out of the window. And the teams are working very rapidly and very creatively to come up with messages that are appropriate for the times and resonate with the customers, and we've seen some great things happen in that regard this week for sure.

Great. And then also a question on the wholesale channel. How much of your first quarter business in this channel was complete before the virus concerns escalated in mid-March? I'm just curious how much of your wholesale business is a lock versus what's vulnerable to being canceled?

I don't know that we have -- I don't -- we didn't anticipate that question, frankly, Rick. And I don't know that I can tell you. It would have been a lot of it because people are obviously trying to get spring inventory on the floor for spring selling. And so we tend to be, I think, it's fair to say, fairly front-loaded during the first quarter. But I don't know exactly how much. And then the other thing is that it takes a little while for retailers sometimes to put on the brakes. And last week, we were still shipping some wholesale. Now it was down over what you would have normally expected, but we were still shipping it. That was down from the week before, and I would imagine that, that will continue to dwindle down. But it didn't dry up immediately.

And last question on the Marlin Bar store openings for this year. Are they moving full steam ahead? Or have you put the brakes on those?

At the moment, the brakes are kind of on everything. We -- as this thing really picked up steam, I guess, going back 2 or 3 weeks ago, we put the brakes on all CapEx projects. Typically, we're approving things sort of a year in advance. Scott sent out a memo to all the groups that said, "Even if it was approved before, you need to check back in with us before you do anything." And so right now, everything sort of on hold. But what we'll start to do is, we get a little more clarity on where this thing is headed, we'll prioritize which things we want to release. And obviously, critical maintenance things would be at the top of the list. But then beyond that, it would be projects that are actually going to be revenue generators. So some things in e-com and some things in retail and restaurant are probably the things.

Yes. Rick, we did get the 2 Marlin Bars opened in February. So Las Olas Boulevard and we have one at Dania Pointe, both in South Florida. So those 2 did get open in early February.

Our next question comes from the line of Ed Yruma with KeyBanc Capital Markets.

I guess, first, I'm just trying to square the comments on -- obviously, you're managing receipts, but you're also kind of committing that you're not going to engage in heavily promotional activity. Is it fair to assume you're going to pack away some inventory that doesn't move? Or how should we think about kind of exiting this and the disposition of inventory? One. Two, I know that there's quite a bit of special occasion items that probably are going to be pretty weak, so if you could kind of contextualize how big of maybe the Lilly Pulitzer business that is, that would be helpful? And then three, I know you mentioned the Tommy Bahama furlough. Are you at this stage doing the same at Lilly Pulitzer?

Okay. So I'll try to tackle those 3 questions. And what we're doing on inventory, and this is one of the great bits of thinking that's come out of our team is, obviously, we've got a time period right now where we'd be delivering product. And there's -- I don't even know if we could deliver it. But if we could, it would just be sitting in the back room of the store collecting dust. So what our teams realized is that we can actually hold on to that inventory, cancel some deliveries that are due to come in later in the year, particularly in December and then hold on to the inventory that was going to hit in April and drop it in December instead, having canceled the December delivery. This is requiring a little bit of remerchandising. It's requiring a little bit of thinking about how we're going to market and that kind of thing. But the product doesn't really look that different. Because in December, we're shifting to early spring product anyway. And then there are many similar ideas like that, that are allowing us to take advantage of time to get rid of -- or not get rid of, but to flow inventory properly without too much piling up and without having to get too extreme on promotional type activities.

On the second question about special occasion dresses, those are obviously very important part of Lilly Pulitzer. Dresses in aggregate are I think about 40% of the business and social dresses would be a significant part of that, although there are day dresses, casual dresses, all kinds of other dresses, too. But those typically are late fall, sort of, holiday type is where we really get into that a lot. And we think we've got ample time to react to that scenario and change our merchandising assortment strategies a little bit to compensate for the fact that, that might not be quite as powerful a category for us.

And then, the last thing, with respect to any employment actions that might happen. Look, as we said, we do not like disrupting people's lives. These are very, very difficult decisions for us to make. What we're trying to do is to preserve as many jobs as possible for as long as possible and the big picture goal is to make sure that we navigate the company through this biologically sort of created situation, so that all of us can have a good job and career going forward. And so I can't -- we're sort of taking it on a week-by-week basis. And the actions that we ultimately have to take will depend in part on -- in large part really on how long this goes on.

(Operator Instructions) Our next question comes from the line of Susan Anderson with B. Riley FBR.

I wanted to follow-up on the -- on Lilly and Tommy's performance through mid-March. Did you say both of them, I guess, were comping positive until they started to kind of fall off due to COVID-19? And then on the supply chain front, are your vendor partners fully up and running now in China, so there's no issue there?

Great questions. And thank you, Susan. And the answer is yes, we were looking really good up until, I guess, about 2, 2.5 weeks ago. It's amazing how quickly this thing has unfolded. But Tommy was very strong and Lilly was really just incredibly strong in the early part of the year, and we were very excited about what we were seeing, very excited about our plans for the year, all of that. But that obviously has changed a bit, but it was -- it is -- as we're going through this crisis, I think it's -- we want to remind ourselves that we were really resonating with our customers, and we absolutely know that we can get that back as the world starts to come back to normal whenever it is that, that happens.

And then the second question, the supply chain. Great question, too. Because probably 5 or 6 weeks ago, that was what we were worried about with respect to the coronavirus. China was under all kinds of restrictions at that point. Our factories were not at anywhere near full capacity. We kind of worked through that and as of 2 to 3 weeks ago, we were feeling very good about the supply chain side. China is fundamentally back in the supply business at this point. And we were down to the point where we thought it was sort of 5% or so of the product that might end up being late as a result of the problems on that end. So we felt like we'd sort of conquered that problem. And of course, at this point, it's not an issue at all. We can get everything we need or at least we believe we can get everything.

Great. Yes, that's amazing how things have changed. I guess, one follow-up, just trying to understand the inventory flows. So I guess, when looking at your wholesale partners and trying to preserve the brand, are you thinking about keeping now, I guess, some of your inventory versus delivering it if they don't want or if they want to cancel orders versus, I guess, giving them markdown money to get rid of it at some point?

Well, those are complicated discussions. And there's -- you can delay, you can cancel, you can do -- offer them terms. There are lots of different things that we can do, and it's hard to generalize. But we've got to balance our interests and their interests and make sure we're preserving our liquidity while doing -- and the integrity of our brands while doing everything we can to help them be successful and help them navigate this crisis as well. So I think the reality of it is that we will -- some stuff will be slower going out than we wanted. We will probably see some extension in our terms, I think it is reasonable to assume. But these are all things that we're factoring in as we focus on maintaining our liquidity, and we're very confident on our ability to do it. It's going to be a rocky year, there's no getting around it. But we think we can successfully navigate the sort of storm and then be in a good position as things start to normalize.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Chubb for any final comments.

Thank you all very much for your interest. Please stay safe and healthy, and we look forward to talking to you again in June.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.