Q3 2020 Oxford Industries Inc Earnings Call

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Greetings and welcome to Oxford Industries, Inc. Third quarter fiscal 2020 earnings conference call at this time all but.

Our day listen only mode. A question answer session will follow the formal presentation. If anyone should require operator, such during the conference. Please press star zero cash.

Phone keypad.

As a reminder, this conference is being recorded I would now like to turn this conference over to your hopes and Shoemaker Treasurer. Please go ahead.

Thank you and good afternoon before.

Before we begin I would like to remind participants that certain statements made on today's call and in the Q and 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 operations for financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the FCC, including the risk factors contained in our form 10-K, and first quarter 10-Q, 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 Oxford, Inc. Dotcom.

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.

Good afternoon, and thank you for joining us I am encouraged by our third quarter results of each of our brand. This is Tony.

Tommy Bahama, Lilly Pulitzer and southern tide exceeded our internal plan.

Moving to our historic for the smallest quarter of the year, our full price ecommerce business grew 51%, helping to partially offset headwinds from other channels due to cope in 19, our sustained digital success. This year underscores the power of.

Our brands and their strong consumer connections.

And it was a great indication that our business is well positioned for success in the post pandemic Empire.

With the onset of Cold 19 during March we focused on three priorities.

For our people in our customers protecting the integrity of our brands and preserving liquidity, we have done a good job executing on all three of these fronts at the same time, our business and industry are facing significant changes that have only accelerated during the last night.

As we progress through this year, while not taking our eye off the three priorities high outlined we have resumed our focus on initiatives that will help us to better capitalize on important market trends in both the near term and the long term.

And the post pandemic World, we believe products will continue to trend towards easy to wear and easy care traffic in malls will remain significantly below 2019 levels department stores will be less relevant than they were both for E commerce will be.

Bigger and more important than ever company owned stores and restaurants will be a physical representation of the brand seamlessly integrated into a total direct to consumer ecosystem, including E commerce and the heavily digital diversified marketing channels.

The essential.

All of these trends should benefit our business as we emerge from this crisis. We are building upon our already strong foundation and are well prepared for the post pandemic environment.

We continue to identify ways in which we can better build a customer focused digitally driven mobile centered and cross channel personalized in seamless shopping experience that recognizes and serves the customer and their brand discovery and purchasing habits of the future.

We are delivering innovative and differentiated products that or brand and in saying with consumers' desires and needs from offering virtual shopping appointments curbside pickup digital clienteling and having our store associates field customer service costs.

Sales to delighting, our guests with our exciting Marlin bar concepts each of our brands continues to develop and implement new ways to enhance the customer experience.

We continue to invest in improved customer data and analytics that are helping and will help us assembly analyze and use customer data to provide a better more personalized experience that boost retention rates and spending levels importantly, these tools for all.

Also helping us identify and acquire new customers a critical initiative for US we continue to expand our enterprise order management capabilities to increase our ability to ship from our company owned stores.

Matching demand from anywhere within John Tory located anywhere we are able to minimize stockouts increased customer satisfaction and improved inventory efficiency.

This is helping us navigate through the pandemic and positions us well to grow and thrive in a new posts pandemic normal across.

Across Oxford, our talented teams have risen and continue to rise to the occasion by staying focused on our core purpose of making our customers happy.

Our brands for all happy brands, and our customers look to us to deliver happiness through our products communications and brand experiences.

Throughout this challenging period, our people in every Thompson from creative and design to shipping and fulfillment and every expense between have helped us deliver happiness to our customers. We are grateful for their efforts and proud of their achievements.

We have been in the apparel business from most 80 years and have a portfolio of businesses, which has adapted over to use to remain relevant to the marketplace and the consumer and to deliver shareholder value.

Today, we announced our most recent actions the decision to exit our legacy Lanier apparel business, which has been a part of our portfolio for more than 50 years throughout that time Lanier apparel, it's been well run by an exceptional group of people.

That said Linear's business model, which provides for license tailored clothing department stores and big box retailers does not fit our long term vision for the enterprise and the challenges presented by the pandemic have amplified this misalignment.

Exiting this business will result.

In a portfolio that is completely in sync with our strategy.

We are working closely with our license orders customers and suppliers to ensure a smooth process.

And I want to personally thank the dedicated employees of Lanier apparel for their contributions to Oxford over these many years.

Ill now turn the call over to Scott with more details on our third quarter results and our plans for the rest of the year Scott. Thank you Tony.

We were quite pleased with our performance in the third quarter given the circumstances as a reminder, our third quarters historically, our smallest quarter of the year with Lilly Pulitzer Spring summer clearance event, making a meaningful contribution.

This year, we made some changes to Doug that we.

We did not hold sales in our stores will these customers show up in force in for the safety of our employees and our customers, we decided to limit the sales to online.

Now the big change for us to hold event in two parts for the first in June and our second quarter and the second in September and our third quarter.

Third quarter event was $12 million or 41% lower than last year due to the shift.

Combined online events, however were very successful in $2 million or 7% higher year over year.

For our full price ecommerce business, we saw solid growth in each of our brands.

Consolidated basis, our full price ecommerce comps increased 51% each of our brands it exceeded our internal plans for the third quarter with full price E com at Tommy Bahama, increasing 38% Lilly Pulitzer up 93%.

In a 36% increase at southern tide.

Our full price retail sales decreased 45% as traffic was down significantly.

Significantly in most of our stores continue to operate under various restrictions.

Important Hawaiian locations for severely impacted by travel and other restrictions.

Tommy Bahama operates 19 locations with the food and beverage component, excluding Hawaii in New York, where we had extended closures and restrictions we were very pleased with our restaurant comp of negative 6%.

Our newest Marlin bar in Jacksonville, Florida, which opened in the second quarter exceeded even our pre pandemic plans over an overall restaurants were down 30% year over year.

Our gross margin was 55% in the quarter comparable to last year, and SGN eightyc decreased 15% for $21 million some of which is permanent.

Impacting both gross margin and SGN a for charges related to the exit of linear apparel, which Tom just discussed.

During the third quarter of fiscal 2020, we recorded a 10 million dollar pre tax charge related to the Lanier apparel exit about 6 million of this was inventory markdowns impacting cost of goods sold.

For most of the inventory markdown was reversed and included in a LIFO accounting credit from corporate and other.

Approximately $4 million were SGN aid charges related to operating lease impairment severance and retention costs and noncash fixed asset impairment.

In addition between now and the completion of our EPS sitting in the second half of 2021, we expect to incur approximately $5 million of incremental charges approximately half of these charges are expected to occur in the fourth quarter fiscal 2020.

We expect the exit linear apparel to be cash flow positive.

Moving to our balance sheet.

We ended the quarter with inventory for percent lower than last year, which we believe is properly reserved and positions us well for future sales.

As Tom mentioned reserving a high level of liquidity has been a priority for us and we have executed well on that from.

The strength of our balance sheet entering the pandemic as well as the actions we have taken to mitigate the COVID-19 impact positions us well for the future.

We ended the third quarter with $35 million of borrowings and $53 million of cash. This left us in a net cash position of 18 million compared to 22 million in the third quarter last year.

And we had $287 million of unused availability under a wrong revolving credit agreement.

We have re evaluated all of our capital projects, our technology projects to support our digital initiatives retain their high priority. We also remain committed to expanding our successful Marlin bar concept.

Year to date, we have converted two locations to Marlin bars and opened a new location in the fourth quarter, we expect to open to Marlin bars, and the high enough for White and fashion Valley in San Diego and Southern Tide has opened two more stores in Florida this year, bringing their store count to free.

We have also taken advantage of the current situation to do some pruning year to date, we have close for Tommy into Lilly stores, we expect to close two more locations. This year and have a handful slated for closure in 2021, unless the landlord provides us a compelling reason to stay.

Looking ahead for the recent resurgence in cobot cases, we continue to see depressed traffic in our stores, but particular concerns around our 25 stores and three restaurants in California mean.

Meanwhile, E Commerce has remained strong quarter to date.

Based on current trends combined with our view of how we think the remainder of the season plays out we believe our fourth quarter revenue will decline on a percentage basis similar to what we experienced in the third quarter.

As we think about fiscal 2021, it's too early to comment on anything specific but with our exit from linear and other macro changes we expect our top line to be smaller than 2019, However, we anticipate returning to profitability.

Lastly, our commitment to returning value to shareholders is clear, Oxford has paid a dividend every quarter. Since we became public in 1960, and our board of directors has declared a quarterly dividend of 25 cents per share. Thanks.

Thanks for your time today, and we will now turn the call up for questions Laura.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Information from indicate your line is in the question queue. You May press Star to if you would like Jim Love your questions from the queue corporate Justin using speaker equipment. It may be necessary for you to pick up your handset before pressing the sorry, one moment, while we pull for questions.

Our first question comes from the line of Paul look price at Citigroup. You May proceed with your question.

Hey, guys. Thanks.

Curious if you can maybe talk a little bit more about what you're seeing quarter to date.

In terms of sales trends and how that ties into what you expect for the rest of the quarter.

So curious about promotional environment, what you're seeing currently and how you're thinking about the gross margin line for term for Q.

And next is part of the gross margin improvement that you saw this for this quarter was this.

Probably from change in Lilly promos, but maybe can you also talk about the other moving pieces within the gross margin line in Threeq. Thanks.

Okay, I'll talk about the sales trends a little bit Paul This is Tom Chubb, and then I'll, let Scott comment on anything else. He would mention on the sales trends as well as walk you through the gross margin issues. So sales quarter to date, we've actually been really pleased with how our business has been.

Strong wood.

The election November as expected started out a little bit slow, but we have really plan for that and then since then picked up momentum and I say absent the California situation, we'd probably be thinking that's the sales decline fourth quarter would be.

You know a bit less than the third quarter, but because of what's happening there with the new restrictions and having 27 stores and three restaurants there were.

Backed off our expectations kind of.

A little bit.

For the fourth quarter, but what we've seen for has been good it's been.

Yes stores quarter today, you'd have actually been better continued to pick up a little bit of the E. Commerce has continued.

To be strong I will point out the obvious that E commerce with Fedex, yes, having the issues they are having that'll probably so.

Start to wind down earlier this year than it has in years past, but of course, we build all that into the plan.

As well, so really happy with what we're seeing so for.

But you know, obviously still a challenging environment out there.

As far as the gross margins in Q3, non consolidated basis were little bit up slightly up year over year and that did benefit from the shift in the Lilly.

Lilly.

Clearance event for some level was moved back to the second quarter, but a Tommy was just a little bit lower year over year.

And Lilly was not.

Meaningfully higher, but again that mix influence that and southern tide and linear will both meaningfully lower two.

Who do you mainly some inventory markdowns, so but it all blended together to be up slightly.

Got it and then how should we be thinking about gross margin for for Fourq case.

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For the fourth quarter will probably be down slightly year over year, but it'll be pretty pretty comparable.

Q4.

Down just got a little bit is the way, it's looking right now.

Thank you good luck.

Thanks, Paul.

Our next question comes from the line of Edward Youre right Keybanc capital markets. You May proceed with your question.

Hey, guys. Thanks for taking the question I guess first and just off the pulp question I know that yet from all I'd comment was restructured this year. It wasn't the classic kind of bounce back I guess kind of how do we think about if any modeling patients to the lack of a bounce back and then too.

Yes, I know linear has historically been really managed for cash flow, obviously that while this change, but but how should we think about what the normalized free cash flow was from linear as we think about kind of modeling your business post linear thank you.

Actually glad to have I was okay. Okay.

On the balance back at Tommy we did when we did the same event. The timing was just a little bit later, where last year.

The car to announcement.

Late October and this year. They didn't go out until I guess the second week of November. So is this really a little bit of timing shift.

At Tommy but they still have the are you about the cards.

Cards, and net net flip side of that where you spend a certain amount and.

And we will expect to have a little bit less transactions because of the traffic in the stores, but we are still doing it online.

Also.

And.

Thanks, Chris.

Cash flow, yes, a linear is cash flow was but it was very volatile over the last couple of years. I mean, you would have some ebbs and flows.

But normally on a normal year, when they weren't having a significant inventory.

Yes, bill or contraction linear wood ahead.

Very little capital expenditures very.

Very little DNA, so it's really that Doug.

Tax affected operating profit was really you know usually translated to their cash.