Q3 2019 Earnings Call
Greetings and welcome to the Oxford Industries incorporated third quarter fiscal 2019 earnings conference call.
At this time all participants are they listen only mode. A question answer session Wolf all the formal presentation. If anyone should require operator systems. During the conference. Please press star zero under telephone keypad <unk>.
Please note. This conference is being recorded I will now turn the conference over to your host Anne Shoemaker Treasurer Ms. Shoemaker 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 into Q1 exception 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 operations for our financial condition to defer are discussed in our press release issued earlier today and in documents filed with that I asked what the FCC, 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 financial GAAP measures.
non-GAAP financial measures you can find a reconciliation of non gap to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at Oxford Inc. Dot com.
Please note that all per share amounts discussed on this call or on a diluted basis.
Our disclosures about comparable sales increased sales from our full price stores and E Commerce site and exclude sales associated with the outlet stores and E Commerce clash clearance sales.
And now I'd like to introduce today's call participants.
With me today, or 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 I want to start todays call by reminding our listeners what Oxford represent.
<unk> portfolio powerful lifestyle brands, Tommy Bahama, Lilly Pulitzer Southern tide, and a collection of smaller brands like the Buford Public company Duck had in Oxford golf, our amazing people develop fantastic differentiated product create compelling.
Onion innovative brand messages and deliver incredible shopping experiences to our customers in our stores bars restaurants, and online and I couldn't be prouder of our people and the work they do to bring the happiness tar customers.
As we reported our third quarter generated solid results highlighted by 6% positive comp on top of 7% gain a year ago and earnings at the high end up or guidance range, while the third quarter remains our smallest quarter because of the seasonality of our large.
For lifestyle brands there were a few items of note during the quarter that merit emphasis.
In September Lilly Pulitzer held one of the semi annual clearance events with very limited opportunities to purchase Lilly on sale. This event continues to generate excitement for better in Lilly Lubbers and those just aspiring to the brand.
And just three days, we possibly cleared almost all of our end of season ended and toward this years. After party sale generated just over $30 million online with higher gross margin compared to the prior year.
In addition to the successful sale.
Politzer opened a couple of stores during the quarter that represent potential new market opportunities just for the brand.
First Lilly opening a store in Palm Desert, California, as we continue to build blue at least present southwest where at the Black brand is still significantly under represented.
We also believe there's an opportunity with the right store concept for Lilly Pulitzer to fill in some of the market opportunity and premium coastal communities with Assortments that are curated precisely for the needs of a customer on vacation.
To test as potential opportunity at the end of the third quarter really opened its first beach shop in she asked a key.
Quite eight mile Long Island, near Sarasota, Florida, there's shop in smaller than our typical store and merchandise slightly differently with more casual and relax selections from the life.
We're looking forward to saying its performance as this region moves and Tourettes high season.
Both of these stores have relatively short lease terms that allow us to test the market opportunity before committing to a long term boys.
In the fourth quarter, we are continuing to our investments in carefully selected retail locations in November we opened our first company owned southern tide store in St. John's Town Center in Jacksonville, Florida.
And we have two others southern tide stores planned for the first half of 2020.
Los Angeles, Fort Lauderdale, and Sam Destin, Florida.
Tommy Bahama will continue its marlin bar rollout with locations and Dania Pointe, Florida and the relocation in conversion of our law Solus Fort Lauderdale store into a Marlin bar.
Both projects are slated for completion in January .
We have four more marlin bars plan for fiscal 2020.
St John's Town Center in Jacksonville Fashion Valley in San Diego line on Maui at Las Vegas Town Center.
As we noted in our press release earlier today fourth quarter to date sales are tracking a bit behind our previous forecast, which Scott will comment on it in more detail in a moment.
With a lot of holiday selling still ahead of us and the all important resorts season, beginning in a few days we are confident that we can deliver a solid fourth quarter.
That said, we believe it was prudent to modestly trim. The top end up our earnings outlook, we remain confident that our strategy of operating a powerful portfolio.
Lifestyle brands like Tommy Bahama, Lilly Pulitzer in southern tide, and emphasizing full price direct to consumer channels will drive increased shareholder value over the near and long term.
I'll now turn the call over to Scott Grassmyer for more details on our results.
Plans for the rest of 2019.
Thanks, Tom.
As Tom mentioned, our full price direct business continues to grow into healthy pace, Tommy Bahama and we'll report for each posted a 6% comp gain in the quarter with positive comps in both stores and E. Commerce on a consolidated basis. This was the 11th consecutive quarter of positive comps speaking to the strength of our brand port.
<unk>.
And the great execution by our teams.
Our gross margin held well in the third quarter gross margin at Lilly Pulitzer expanded at both direct to consumer in wholesale.
This was offset by decrease at Tommy Bahama, primarily due to sales mix, but all price wholesale sales, representing a greater proportion of sales in the quarter.
SGN as a percent of sales increased 50 basis points in the third quarter, primarily due to increased marketing spend.
Operating income came in slightly better than plan at 2.7 million rezoning an earnings at the high end of our range for the quarter.
Moving to our balance sheet.
Our cash flow remains strong and as of November 2nd we had no borrowings under our 325 million credit facility and 22 million in cash compared to borrowings at 32 million and cash of 7 million as I'd November Threerd 2018.
At the ended the third quarter inventory increased 154 million from 138 million last year, when a FIFO basis after adding back our 62 million LIFO reserve to both years. The increase was 8% which reflects additional inventory to support key items at Tommy Bahama anticipate.
Sales growth and new retail stores and Marlim bars.
Our balance sheet and capital structure remains solid.
Now with underpinnings for Oxford future growth and investment.
Turning to our outlook.
As Tom mentioned, we are tracking a bit behind our earlier plans for the fourth quarter I'd like to give you some more detail on what we're seeing quarter to date the calendar shift with the later Thanksgiving and six fewer shopping days have made planning and forecasting more challenging.
On a consolidated basis, we went into the quarter with a plan for a mid single digit comp increase which we have now moderated to a low single digit comp increase.
Direct consumer channels quarter today, we have seen strength at Lilly Pulitzer, the Tommy Bahamas, lying earlier expectations and their existing stores and online. We have also had delays in mall and more openings.
We are still rolling out great product and marketing and are confident we will gain traction at Tommy Bahama over the remainder of the holiday and resort season.
And our wholesale channel by near Apparels replenishment business, the softer than anticipated and time Bahamas wholesale business is lower than our earlier plan, so putting that altogether for the fourth quarter.
We now expect sales to range from 300 to 310 million slightly higher than last year and adjusted earnings per share of dollar one cent totaling 16 cents compared with a dollar an eight cents into fourth quarter of 2018.
For the full year, we now expect net sales to grow between 1.1 to 5 billion and 1.135 billion compared to 1.107 billion last year adjusted earnings per share are now expected to be between $4 in 25 cents $4 in 40 cents compared to 4030.
Two cents per share last year.
Capital expenditures in fiscal 2019, including 27 million in the first nine months are expected to be approximately 40 million, primarily reflecting investments and information technology initiatives, new retail stores, and marlim bars and investments to remodel existing retail stores and restaurants.
Free cash flow for fiscal 2019 is expected to exceed 50 million.
Our sourcing and merchandising teams continue to make very good progress or initiatives to mitigate the impact of punitive tariffs on our business by reducing our exposure to China negotiating price concessions in making selective price increases we expect the impact of Phoenix shares to be fully mitigated by the second half of fiscal.
20 Twond.
Finally, our board of directors as approved a quarterly cash dividend of 37 cents per share.
Oxford has paid a dividend every quarter since becoming a public company 1960.
No Omar we're now ready for questions.
At this time, we will be conducting a question answer session. If you'd like to ask a question. Please press star one under telephone keypad, a confirmation tone when Kate Your line is in the question Q. You May proceed starts you. If you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before passing the Starkey one moment please while.
We pull for questions.
Our first question is from.
Suzanne Anderson B. Riley FBR. Please proceed with your question.
Hi, good evening nice job on the core I think your second question Hi.
I guess, just a follow up on the lighter sales so far for fourth quarter. It sounds like it's mainly within wholesale or is that correct. And then also maybe if you could talk a little bit about what you're seeing in your resort locations, particularly Hawaii and if theres been any kind of change in performance in the any of those.
So thanks.
Yes, the sales the sales moderation as both the combination of Tommy Bahama direct to consumer.
In the wholesale about Tommy and linear and as we mentioned we have moderated our comp assumption, we had a mid single digit comp assumption before and we've moderated that to low single digit and and our direct businesses and thats, mostly coming from the Tommy side Lilly's often been after good starting to consistently strong silver.
Feel good there as we mentioned this is has been a really difficult on holiday to plan you have the calendar shift.
It does create some havoc is we have six days less yes. So it's really youre not really on a true comp basis. When you look at today.
Thanks, So we do we feel good about commies business, we think will.
Up some ground, but but we are moderating hopefully, we're just being prudent to doing that.
And then on the Hawaii question, Susan I think we've seen good things kind of why and we're expecting more there. This time last year people had been kind of scared off by the volcano Reissues and so I think we'll see a nice rebound there and then another resort locations, particularly Florida.
This is a huge state for us in Tommy and Lilly.
The business has really been good.
Consistently good there for quite awhile now so good to see all that.
Great that's sounds good and I guess at Tommy then are you seeing that a lighter sales across both men's and women's or are there any product categories. Specifically you could point to where it's kind of gets really across the board.
It's really a actually women's has been performing very very nicely in the has been really tracking I think a little bit above what our expectation would have been men's is lagging a little bit and that actually we believe.
We're going to my tied up in large part.
Saying when we look back at the.
12, 13, calendars, which has the last time, we had this exact same calendar shift in the way that the business built than.
It really ramps up in the week or two before Christmas thing Thats whats going to happen again this year.
We've done what we think is prudent to guidance, but we're also very excited about the opportunity that we have.
Front of US and then as we always remind people resorts very important.
Tower brands as well and we'll be.
Starting to do some of that resort type business in the next couple of days really.
We've got and Tom Great Wonderful women's resort mailer that should be hitting homes, including hopeful yours.
Yes, we shouldnt beautiful and we've got great product to support.
Great and look for that and then I guess finally, just on the gross margin maybe if you talk about a little bit the puts and takes for fourth quarter, but then also for Tommy and there's still opportunity, particularly the layer sell to continue to grow that margin.
[noise], Yes, I think there is.
Certainly opportunities.
At Tommy but.
The gross margin.
We.
It Tommy we were little bit lighter, but that was in third quarter, but that was really the wholesale mix, where our wholesale business had more off price sales, which is extremely low margins, which way that down fourth quarter.
I think will be a little.
Little bit closer to year over year.
God.
Yes, we need direct consumer does have a good holiday and I think that will.
Great. That's helpful. Thanks, so much good luck for holiday.
Thanks, Susan the happy holidays to.
Our next question is from Paul let us.
Citigroup. Please proceed with your question.
Thank you everyone. This is tracy filling in for Paul I'm I had two questions I was hoping on in your DTC businesses for the third quarter, you could tell us what the drivers were of the Com between you are traffic you PT et cetera.
Also how that's looking fourth quarter to date, I guess really yet at the Tommy business, what's changed there as it is that traffic conversion et cetera.
And then I have a follow up thank you.
Yeah, I would say treasury, yet the big driver on the comp is really conversion. That's the story I think is getting better conversion out of the traffic that we're we're getting.
I don't think Theres Big movement, you are 82 years, so much assets.
It's really the conversion that's driving it.
Well you are up for the quarter at both brands.
The major brands.
Hang up just a second it was down slightly.
At Tommy I believe but I want to confirm that.
And the up slightly that Lily.
But not big movement, some some of that bounces around from year to year I don't think we sell anything too.
Earth shattering there were again, where we're seeing bigger movements really in conversion.
Is that the issue in fourth quarter, where I think you said the Tommy.
Comp had slowed on the retail side, a little bit is it the conversion just fall off a little bit well. The problem is I don't you are really not comparable with the calendar thats the difficult thing about it right now so by the so we're really having to compare back to our plan and our plan.
Maybe was a little front end loaded more front end loaded that should be when we really study history, but but still we are all four earlier planned Bob a little bit we wanted to be prudent there, but you really I don't think is going to be able to really conclude a comp until you get through the whole.
Got it and then my follow up is I was just wondering if you could update us on some of your omni channel initiatives like buy online pick up in store. Thanks, Yeah. Great question Tracy. Thank you for asking here, we've got some really exciting things going on there.
We recently in Tommy Bahama went live in all stores with our enterprise Order management system, which allows you to go in to your local store and if they don't have the particular item you're looking for your size in stock that Ken in the same transaction with the other merchandise that your part.
Just saying medchem.
Jim.
Wrapping it up same transaction, one recede automatically gets rounded to the best store for that to ship to and you have that basically the next day in.
Thats something that we've always been able to do better required a lot of labor and a lot of work in depth there.
And a separate transaction a lot of cases. This is a single transaction for the just single receipt much easier and quicker for the store associate which means that they can.
Got you checked out quickly and then move on to helping Minex, Yes, and then in Lilly Pulitzer.
Something what we've got going out and that's really exciting.
Is that we've got a curbside pickup option this time around which is great.
So you can get your order and for our very very busy Lily customer we've got.
Legitimate gift wrapping not just a gift box, but we wrap it for you in the store and beautiful wrapping paper with the ribbon on a BOE and then you can pick it up at curb side. So there are lots and lots of ways that we're using.
Technology to really enhance our relationship and interaction with gas them.
We're excited about those and think that theyre going to.
BD meaningful contributors to our.
Fourth quarter business.
Great. Thank you guys and good luck for how thank you Tracy happy holidays. Thank you you too.
Our next question from Edward Yorba Keybanc capital markets. Please proceed with your question.
Hey, good afternoon, guys and thanks for taking the questions I guess first I add on promotions.
And just try to little bit of a different strategies here. It seems like we've been Tommy Bahama with some key item pricing.
I noticed you also retinal Lilly Pulitzer promo that I think was 20-F 100, and we haven't seen in a while I guess, how would you score the efficiency of those promos and did they perform as you would have expected. Thank you.
Thank you had good question you had the key toll of that is as you know during that cyber five or whatever you want to call at.
That Thanksgiving weekend three Monday.
As you know the market is very noisy there's lots going on everybody's got appeal in an offer and so what we want to do an hour brands is.
Make it simple for our customers you know some of our.
Typical marketing activities are a little bit complicated our customer understand some well, but during that very busy time of year. We wanted to off from something that simple respectful of their time during that very busy.
Tom Your and it worked we we love the results that we got and to go to the you know the $20 Forever you hundred you spend in Lilly Pulitzer.
That actually you know, we don't think on a net margin basis that was.
Any worse and in fact, I think there's a chance it ends up being better.
Than what we did last year with our gift with purchase.
Program. So in Lilly that was for Sunday, and Monday of Thanksgiving weekend.
First I'd Friday Saturday that stackable ornament gift with purchase.
Offer and that was a very simple I believe it was $75. Every 75, you spend you get another Christmas tree ornament and again very simple customer that NAFTA spend a lot of time thinking about that they can spend what they want to spend it might get a nice little.
Treat forever you $75 that most worked really quite well and I think with very minimal margin dilution also at day, one promotion Thats publishes the same number of days. So it wasnt additional days. It was just mixing the promos up during those same day. So it wasn't more days on promo.
It was.
Just gift with purchase part of the time in the 20 off 100 part of the Tom where last year was gift with purchase.
Hello five days.
Great and we're just not all I may on inventory I guess, how do you feel about quality of inventory and how do you plan to exit the quarter given that the comps are a little bit maybe softening initially planned.
Thanks.
It is junior Campbell effects, and we feel good about the inventory Tommy were up 8% year over year in the lion's share that is at Tommy and most of it is really being in stock in key items and that's one thing we feel good going into holiday, where last year, we were starting to break in some key items, we are well stocked and things like that.
Okay the Newport.
Coast long sleeve woven some of those key items that become very important holiday. We are in stock where last year, we are quite stock properly. So so I think this adjustment inventory.
As appropriate last quarter were up 16% year over year, some that were up 8% year over year, which I feel it's about the right running rate.
Yes.
Thanks again guys.
Thanks had the happy holidays.
As a reminder, we're now conducting a question answer session. If he would like to ask your question. Please press star one under telephone keypad.
One other piece, while we pull for questions.
Our next question is from Rick Petra.
Needham and company. Please proceed with your question.
Hey, good afternoon, guys congrats on that strong third quarter performance.
Thanks, Rick.
I'm, hoping you can help us understand what's embedded in the updated guidance, Tom you talked about expecting to see a bounce back into Christmas is that improvement reflected in your current guidance right now or are you assuming that the weakness persists.
There is that we have some improvement baked in and we believe there's opportunity for improvement above what we have baked in but we do have some improvement baked.
And just looking studying the calendar setting.
The last time this calendar existed that's exactly what happened we.
Are you know and again the planning is difficult here I think there's a.
A lot of shopping days in some key shopping days, which.
Yes.
So so we do have yes, we do have some improvement baked in but we believe there is opportunity.
For improvement above.
And I would add to that Rick that our stores have never been better prepared to do a lot of business over the next couple of weeks Huffington. Both brands, we've got a REIT items in stock our staffs are better than they've ever been before they've always been terrific, but they're better than they've ever been before.
And we've got the tools like the enterprise order management that I.
I mentioned to you at Clienteling tool that we have been Lilly Pulitzer. So, we're giving have lots of tools.
10 enhance.
The relationship in the interaction with the customer and you know again and Scott's Meds and you look back to the 12 13 calendar shift, we're actually tracking a little bit better than that and the way about one unfolded. So hopefully that same quarter will continue and we.
I think we're we're ready to get.
Get our share of the action for sure.
Got it and can you also provide some color on your new store test for Lilly.
Maybe compare and contrast that smaller format location with your legacy stores and if it's too at the test does go well, what's the longer term opportunity you see for these smaller format locations.
So it's kind of a nooks and crannies strategy, if you're familiar with CF sticky. It's the are our store in Sarasota or one of them. We've got a couple of them, but one of them Tonsan Darman's circle, which is actually on the I believe it's called Lido Hep C and the next to island below that.
That is suggest at Ti.
And it's a beautiful.
Florida West Coast to Florida Beach plays where people have second homes and going.
Style, yet rentals and other places and.
The idea is that a lot of people that go to see asked and other places like that.
Once I kept their they really don't want to leave even together the couple of miles up to say you Norman circle.
So what we're offering them is that island in a very small store front I think it's 11 under feed or something it's a it's a casual beachy kind of Lilly Pulitzer store, that's got a very casual relaxed assortment and it's all out of the line, but the we've just.
Assorted that a little bit differently and there are two things.
That store can do for US I think and one is we can do some incremental business, because we're serving or right there where she is.
A walk or a bike ride from or house.
And you know when we can we can gather that cover up or payer shorts or whatever it is she forgot pack and do some incremental business and then I think the second thing it does for us.
Is it.
Reinforces our positioning is a true resort brand because we're right there in the place with her.
And finally, it gives us some exposures to some eyeballs that might not otherwise notice us and whether they shop, while they're there.
Or you know maybe when they get back home to wherever that came from the debt online in check us out a little bit further so.
And we can make money doing us this is not a it's not just the marketing exercise. The ran up these types of locations is not much.
And we think we can make money and so if it works. We think there were a number of these places.
There are probably four or five I'm just on the west coast to Florida, where you can fill in with a little.
Store like this.
So it's not at the end of the day, it's not going to be the biggest thing that ever happened.
It really Pulitzer, but we think it's a nice addition.
Thanks, very much have a great how they okay. Thanks Rick.
Our next question is from Steve Marotta, C.L. King and associates.
Please proceed with your question.
Good afternoon, everybody Scott as far as the quantitative impact the tariffs next year I understand.
Clear and what the mitigating factors are but I believe you said that it wouldn't be until mid next year that they'd be fully offset can you talk a little bit about obviously without giving specific guidance next year.
Would be a normalized impact.
Unmitigated tariffs are partially mitigated terrorists or half a year.
Yes, we think it's probably going to be similar to the second half of this year, which will be in kind of that 15 to 20 cents.
Range, we think right now, but next year will probably be something in that ballpark and a lot of is the way goods flow you know in this actually when they flow out, but but we do have some were really happy with the.
Actions our teams have taken.
Working.
With vendors moving sourcing and we've made some really good progress. So we feel good about it and we feel very confident that the second half of the year. This is going to be a non events or even if tariffs around we're going to abdominal we've had to do it just takes some time to get it put in place.
Given the long product development cycle.
We are we started work on this a long time ago and.
And we've made some good progress.
It's hard the Marlin bars that were opened this year are they all tracking on plan and can you talk about how long those delayed marlin bars were delayed.
None of open this year.
We we opened the ones the ones that the ones that are open yes, yes to that open event coconut point is just continues to do fantastic Jen.
And Palm Springs is doing well that areas still being developed so it's not at full.
Full production, but it's in a moneymaking mode and we feel good about it the ones were gunnoe, Ben those of kind of delayed a little bit just.
Just permitting and getting possession of the space is there's a lot of things, but but we're going to get to open late this year and those are in construction now and we've got.
For slotted for next year. So we really believe this pipeline is there and.
And.
We're hoping that we were going to get three opened this year and that they were going to be early in the fourth quarter now we're going to get to open and they're going to be towards the end of the fourth quarter. So we're not going to get.
Much impact at all this year from the two that opened but next year will go into beginning the year with two up and running and another one coming relatively early in the year and then the rest will be spread out during the year. So so weve yes.
It always takes a little longer than you then we would like but we've got.
We've gotten coming.
Very helpful. Thank you.
Thanks, Steve.
We have reached the end of the question answer session now I'll now turn the call back over to Tom Chen for closing remarks.
Okay. Thank you very much for your interest and all the best to you in your families for a very happy holiday season.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.