Q3 2021 Oxford Industries Inc Earnings Call
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Speaker 1: .
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Speaker 2: Greetings. Welcome to the Oxford Industries Inc. Third Quarter Fiscal 2021 Earnings Conference.
Greetings and welcome to the Oxford Industries, Inc. Third quarter fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is.
Speaker 2: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker 2: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Being recorded I'll now turn the conference over to your host and Shoemaker you may begin.
Speaker 2: I will now turn the conference over to your host, and Shoemaker, you may begin.
Speaker 3: 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 the federal securities laws.
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 the federal Securities laws forward looking statements are not guarantees and actual results may differ materially.
Speaker 3: forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statement.
<unk> from those expressed or implied in the forward looking statements important.
Speaker 3: Important factors that could cause actual results of 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.
Factors that could cause actual results of 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 Oxford <unk> Dot com.
Speaker 3: 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.
Speaker 3: Due to the material impact of COVID-19 on our business in fiscal 2020, we will also include comparisons to our fiscal 2019 results.
Due to the material impact of COVID-19 on our business in fiscal 2020.
Also include comparisons to our fiscal 2019 results and now I'd like to introduce today's call participants with me today are Tom Chubb, Chairman and CEO and Scott Crafts Meyer CFO. Thank you for your attention and now I'd like to turn the call over to Tom Chubb.
Speaker 3: And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO , and Scott Grassmeyer, CFO . Thank you for your attention, and now I'd like to turn the call over to Tom Chubb.
Speaker 4: Thank you, Anne. Good afternoon, and thank you all for joining us. Before I begin reviewing third quarter results, I want to remind everyone of Oxford's core operating philosophy.
Thank you Ann good afternoon, and thank you all for joining us before I begin reviewing third quarter results I want to remind everyone of oxfords core operating philosophies.
Speaker 4: Our objective is always to deliver long-term shareholder value.
Our objective is always to deliver long term shareholder value.
Speaker 4: Our strategy for delivering this value is to own a portfolio of powerful lifestyle brands that can drive sustained profit.
Our strategy for delivering this value is to own a portfolio of powerful lifestyle brands that can drive sustained profitable growth and our purpose as a company and in each of our brands is to make people happy.
With that we're delighted to be reported record sales and earnings for the third quarter of fiscal 2021.
These outstanding results are directly attributable to the power of our brand portfolio, the strength of our product offerings, and our ability to connect with and serve customers across channels.
Bind with the great work, our teams have done to fortify the foundational cornerstones during the pandemic.
As compared to the same quarter last year, our sales increased 41%.
And EBIT more importantly, our sales also increased as compared to pre COVID-19 physical 2019 levels, excluding Lanier apparel, where operations were effectively exited during the third quarter of fiscal 2021 net sales increased 15 per.
Over the same period of fiscal 2019.
The robust sales growth that we experienced during the third quarter was driven by 40% growth in our full price direct to consumer business with growth in each of our brands compared to fiscal 2019, including a 13% increase in full price.
Retail and a 100% gain in full price e-commerce.
Restaurant sales also contributed to our topline improvement growing 14% in the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2019.
Fuel by strong increases at existing locations as well as the addition of five new Marlin bar locations.
At the same time adjusted gross margin increased an impressive 710 basis points to 62% during the third quarter of fiscal 2021 as compared to fiscal 2019.
Scott will elaborate on all of these excellent metrics in more detail momentarily, but I will mention that they drove record third quarter earnings of $1 19 per share on an adjusted basis compared to an adjusted loss of 44 cents per share last year.
And adjusted earnings per Se or up 10 cents during the third quarter of fiscal 2019.
While our third quarter results no doubt benefited from a very strong consumer market. We believe the primary driver of our outperformance was the excellent execution of our strategy and purpose.
<unk> of linear apparel during the third quarter marked an important milestone in our long term strategy as Lanier was the last of our legacy private label businesses.
Our current portfolio consists of five excellent lifestyle brands.
<unk> Biopharma.
Pellets are southern tide, the Buford Bonnet company and Duck head.
These brands are 100% focused on the consumer and making that consumer happy with powerful clear brand messages.
Exceptional differentiated product superior customer experiences, including our e-commerce websites, our stores and restaurants and strategic wholesale accounts.
Over the last two years across our brands, we have redoubled, our commitment to delivering a positive upbeat brand messages through beautiful creative content and imagery.
Those Brian messages are resonating with our consumers and are a big part of the excellent results that we're delivering.
The predominant mix of direct to consumer which is expected to be over 80% of our business enhances our ability to deliver happiness to our customers. The direct model gives us significant agility and flexibility in managing the flow of product.
To our customers.
This flexibility has proven especially useful this year.
Industry wide supply chain challenges have required our merchants to be highly adaptable as to what product. We are featuring on the floor and on our website at any particular point in time.
The direct business also provides us with significant margin power.
And is responsible for a large portion of the gain in gross margin that we achieved during the quarter.
Finally, the direct to consumer model gives us the opportunity to deliver an unparalleled customer experience that is consistent with the aspirational positioning of our brands and our incredible people have continued to provide that elevated experience.
Through all of the challenges of the last two years.
Yeah.
One of our strategic priorities over the last couple of years has been to enhance our digital marketing capabilities by improving our ability to assimilate and analyze data use that data to develop insights about existing and potential customers create campaigns.
Designed to reach those consumers and measure the effectiveness.
Of those campaigns with the goals of increasing our customer account retaining existing customers and driving higher spend across all customers I am pleased to report that on a trailing 12 month basis customer metrics at the end of the third quarter.
Fiscal 2021, including customer accounts rate of new customer additions retention rates and customer lifetime value were all strong relative to pre pandemic numbers.
From a product perspective, we continued to see strength in the casual easy and cozy styles that are our hallmark of all of our brands.
Examples of this are continued strength in Tommy Bahama, Knits, Insureds women's lounge, and sleepwear and Lilly pellets are as luck sladek absolute leisure collection.
At the same time, we saw a nice rebound in some of the occasion driven categories that were most challenged last year, including men's pants, and woven shirts and women's dresses as people re engaged in more social events.
As we head into the final stretch of the year I am pleased to report at holiday selling to date has been robust and I firmly believe that we will deliver a strong finish to a fantastic year.
Credibly grateful to our team.
Sure their pride in what we have delivered for our customers and our shareholders.
Now I'll turn the call over to Scott for additional detail on the third quarter.
And insights into the our outlook for the balance of the year.
Thank you Tom.
As Tom just mentioned, we had outstanding performances in each of our brands during the third quarter, which resulted in significant sales gross margin operating margin and earnings growth to levels exceeding pre pandemic results.
On the topline demand for our products remained high in revenue exceeded 2019 in our direct to consumer channels and in each of our brands.
Excluding lanier apparel, where operations were effectively exited during the third quarter of fiscal 2021 consolidated sales increased 15% to $243 million.
We had improvements in all regions with particular strength in Florida, the southeast and Texas.
Hawaii has been positive overall with strength itself on the island of Oahu, which is more dependent on foreign tourists than the other islands.
Our gross margin continued to attract significantly higher than 2019 on an adjusted basis gross margin expanded 710 basis points over 2019% to 62% in the third quarter.
Driving this improvement was a higher proportion of full price sales our overall shift in our sales mix to higher margin direct to consumer channels of distribution and improved I amuse.
Approximately 270 basis points of higher freight costs, including the use of airfreight, partially offset some of the margin improvement.
On an adjusted basis, we gained 260 basis points of SG&A leverage in the third quarter, improving from 56% of sales in 2019% to 53% of sales in 2021 adjusts.
Adjusted SG&A dollars decreased modestly from 2019 levels with decreases in employment cost due to head count reductions and lower occupancy costs, partially offset by increases in marketing expense.
As a result, our consolidated operating margin expanded 970 basis points from 1% in 2019% to 11%.
Tommy Bahama Lilly Pulitzer and southern tide, all experienced operating margin expansion.
Moving to the balance sheet, our liquidity position is strong we ended the third quarter with $188 million of cash and short term investments and no borrowings outstanding under our revolving credit facility.
FIFO inventory decreased 17% compared to fiscal 2020, excluding lanier apparel.
Due to higher than expected sales during the first nine months of 2021.
Our ongoing enhancements to enterprise order management systems and prudent seasonal purchases.
We believe our inventory is well positioned to meet forecasted demand throughout the remainder of the holiday selling season.
Looking ahead, we are pleased with our holiday season results to date and are confident we can deliver a solid fourth quarter. Our outlook reflects our expectation of continued strength in full price direct to consumer business.
We expect full price direct to consumer sales growth and consolidated gross margin expansion over 2019.
We raised our outlook for the year year over year improvement in our full price direct business is expected to be partially offset by a handful of specific items in the fourth quarter of the fiscal year.
We expect sales from linear apparel to be approximately $20 million lower than 2019 fourth quarter as we exited the business in Q3 of this year.
In addition, we expect our branded wholesale business to be approximately $15 million lower than 2019.
This is impacted by the shift of certain initial spring wholesale shipments. These have historically shipped in the fourth quarter, but are expected to ship in the first quarter of 2022, as we've reduced our reliance on air freight for warmer weather product.
We also spent to Lilly Pulitzer fourth quarter flash clearance sale to be lower compared to 2019 due to strong year to date full price sales, resulting in less available inventory for the flash sale.
For the fourth quarter, we expect sales to be between 285 and $295 million compared to sales of $298 million in the fourth quarter of fiscal 2019.
Again linear apparel generated $20 million in net sales in the fourth quarter of 2019.
In the fourth quarter of fiscal 2021, we expect earnings of $1 20 to $1 35 per share on an adjusted basis compared to earnings of $1 <unk> per share on an adjusted basis in the fourth quarter of 2019.
Our outlook includes strong quarter to date results with a solid start to the holiday selling season.
For the full year, we now expect sales in a range of $1, one $2 7 billion to $1 137 billion as compared to sales of 112 3 billion in 2019.
For the full year sales from linear apparel are expected to be $25 million in 2021 compared to $95 million in 2019.
Adjusted earnings per share expected to be between $7 52 and.
$7 67.
This compares to earnings of $4 32 per share on an adjusted basis in 2019.
Our effective tax rate for the full fiscal year 2021 is expected to be approximately 22%.
We continue to support our business with investments for future growth capital expenditures are expected to be between 35% and $40 million in fiscal 2021, primarily reflecting investments in information technology initiatives, new Marlin bars and retail stores.
We're excited to open our first company owned Pfeuffer bond that company store in Grand Boulevard at Sandestin later this quarter.
We continued to generate strong cash flow from operations, including a $157 million year to date.
Our capital allocation priorities include investing in our businesses.
Acquisitions, and the return of capital to shareholders through dividends and share repurchases. We remain in a strong position to return cash to shareholders and are proud of our long history of returning value through dividends, which we have paid every quarter since going public in 1960.
This quarter, our board of directors has declared a dividend of 42 per share.
Additionally, in assessing our capital allocation plan, our board of directors approved a new share repurchase authorization of $150 million.
We appreciate your time today and now we turn the call over for questions.
Molly.
Thank you and 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.
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One moment, please while we poll for questions.
Our first question comes from the line of Andrew.
With Keybanc. Please proceed with your question.
Hey, guys, congratulations on a great quarter and great to hear the momentum in the holiday. Thus far I guess for me kind of shorter term focus question and then a longer term focus question.
I guess you guys sound like you've done a really good job pulling inventory around juggling.
Michael for the in stocks were sufficient for holiday.
I know you're not offering guidance for next year, yet, but should we think about any implications other than the wholesale shift you indicated.
Pulling inventory forward and how those legacy situated at least for the opening part of 'twenty two and then a longer term question. I know you guys have started the process of opening more southern tide stores.
You guys sound like you're going to do the one Beaufort bonnet store.
Just to kind of an overview of where you think you are in your store rollout potential across your banners. Thank you.
Yeah. So thank you Ed.
We're very very pleased with the results of the third quarter and the way that we've differentiated ourselves, but as to the inventory I think we've done a terrific job as you mentioned being agile and nimble.
And dealing with the situation and making sure that we were able to meet our sales objectives and satisfy our customers.
And we're not anticipating really any.
Problem in doing that there's a lot of work that's going into making sure that it all works but.
We're ordering inventory earlier.
To account for the stretched out time.
Supply chain that everybody in the industry is experiencing and then we're continuing to be nimble and agile said the bottom line on that is that I don't expect us to not be able to deliver the business based on supply chain issues.
If that's helpful for you.
I think we'll be in good shape.
And then on the long term.
Yeah on the long term store were I think very pleased with the way that the four southern tide stores that we've got are progressing.
They were learning a lot from that and we've got more stores in the pipeline.
For southern Tide I'll, let Scott elaborate in just a minute and the plan is to continue to open more southern tide stores Buford Barnett as Scott mentioned in his section we will have the <unk>.
First open soon we've got a couple more in the works.
<unk> <unk> company.
And then as to Tommy and Lilly.
As you know in Tommy Bahama, the focus is very much on Marlin bars.
And we like what we're seeing with the Marlin bars, and we're going to continue.
To look for additional locations and potentially some standalone stores as well, but I think the focus will be much more on Marlin bars, and then in Lilly, we're looking at new <unk>.
These two.
With respect to Tommy and Lilly, we're also evaluating all existing stores.
Carefully and there may be from time to time, some that drop out of the roster.
As we get toward renewal dates are our other opportunities too.
But.
We're definitely in the hunt.
For new stores really across all four of the brands that have now.
Yes.
Yes, it takes a little while to build the pipeline of stores. So the marlin bars in particular, but we feel confident that we will get some marlin bars in 'twenty, two and half and leave the year with a strong pipeline of Marlin bars for for the future.
So were we liked we still like to brick and mortar stores and our brands.
Thank you.
Thank you Ed happy holidays too.
You guys as well.
Thank you.
And our next question comes from the line of Paul <unk> with Citigroup. Please proceed with your question.
Thanks, It's Tracy Kogan filling in for Paul I had a couple of questions.
I know you guys said holiday sales to date have been robust I was wondering if you could frame that for us.
At sales trends relative to 2019 accelerated.
<unk> just any color you can give there and then on the wholesale side.
Im wondering what youre seeing from your wholesale partners are are there any order cancellations and things are potentially arriving later our partners still.
Just taking anything that they can get thank you.
Yes, sure Tracy and thanks for being on the call today as to the wholesale partners are the performance of our products at retail for our wholesale partners.
Has really been quite good.
Through the third quarter and the early part of the fourth quarter.
They understand the supply chain situation and so no we are not anticipating.
Cancellations I think it's safe to say in most cases.
They would take more from us if we had it available a lot of them are quite hungry for goods from us.
Asking if we can give them more.
With the strength of our own sales, we don't necessarily have a lot to give them, but we are not anticipating issues with <unk>.
Cancellations and then on the fourth quarter.
Today direct consumer trend and.
Expectations for the rest of the quarter I'll, let maybe Scott jump in yeah, we're tracking right now pretty similar to the third quarter and total direct consumer there are a lot of timing dynamics.
With E comm, maybe anticipated to cut off a little earlier this year because of some of the freight concerns and.
All stores pick that up so we're monitoring that closely so theres a lot of holiday lab, but we are pleased with the beginning holiday.
And this wasn't one additional point on the wholesale business we did for.
For all chance, we did invest for holiday and some air freight to bring product and so we were trying to make sure. Our wholesale partners did have the right goods on the floor for holiday everything might not have been right on time, but we did invest in airfreight.
Offset some of the delays in the supply chain and it was a little bit of a margin drag, but our margins would have been even better with it without them.
Got it thanks, very much good luck and forecasts.
Thank you Tracy.
And our next question comes from the line of Susan Anderson with B. Riley. Please proceed with your question.
Hi, good evening nice job on the quarter.
And I guess, just a follow up really quick on the wholesale orders I'm, assuming first spring there.
Probably higher than what we're seeing in <unk>.
I guess.
Pending on how much product you can get to them and then just on your DTC business. Obviously, that's been pretty strong how are you thinking about that penetration as we look out longer term.
Yes.
On the wholesale I think we are pleased with the booking trends that we're seeing for next year at this point, that's really spring and a little bit of summer that we're seeing and I think the wholesale business is.
Rebuilding nicely, we're selling through on the.
The retail floor quite well.
I think pretty much universally all our wholesale customers and that I think is a good sign for the future of wholesale as to the proportion if thats the question of direct to consumer.
Versus wholesale.
Susan we've been in a.
Period over the last couple of years, where the actual wholesale dollars have been going down a bit as we've been very selective about.
Who we sell to and what we sell to them I do think we're at a point, where our wholesale probably got some growth opportunity in dollars and then the question will be just really whether it grows as fast as is the direct businesses.
My hunch is that it probably hangs in there somewhere around that 20% number that we've mentioned.
But if it does do not think that's probably because direct consumers growing even faster.
Great. That's helpful. And then just really quick on the pricing can you remind us.
How much you raised prices in the back half and what the expectations are for next year.
Our I amuse were up about one point and I am use this year.
And going into next year, there is what we are.
We are moving on price, but we are going to have some cost pressures and we're not sure exactly how it's all going to shake out, but our operating groups have been.
Very proactive on.
Moving prices up to hopefully at least to offset and maybe a little more than offset the inflationary pressures that we see coming at US next year. There is the factories. They are having a lot of inflation in there.
There are certainly planning to attempt to pass pass that on and we've got to move on our I am used to help offset that.
Great.
And then one last one if I could add just yet.
Record cash balances on the balance sheet any thoughts around capital allocation cash return to shareholders and potential acquisitions.
Yes, so Susan as Scott mentioned in his remarks, our capital allocation strategy really has not changed and that's first and foremost to invest in our existing businesses second.
Appropriate M&A opportunities.
And third returning capital to shareholders, which would include.
Both dividends and share repurchases.
What's changed for US is that the cash situation and cash flow are really very strong right now accordingly, we announced the $150 million.
Share repurchase authorization.
Our board just.
And I don't think the philosophy has changed it's just that our cash flow and our cash position our stronger really Ben.
<unk> been before.
Great. That's very helpful. Good luck, the rest of the year and happy holidays.
You too happy holiday season.
Yes.
And our next question comes from the line of Steve Marotta with CL King <unk> Associates. Please proceed with your question.
Evening, John Scott and congratulations again on the third quarter.
Two questions on the restaurants are there any continued capacity constraints.
Or is that yes in the rig.
Okay.
No there are still some and I'm not sure I can recite them all to be better at.
At least in the Hawaii, there are some and I think possibly in a couple of other places we've still got some of that.
Is it possible to quantify on a.
Chain wide is it roughly 90% or 80%, 70% just a ballpark.
Yes.
It's tough to quantify but it is limited to some states, but there are also some operating hour restrictions.
A couple of our centers, where we have a marlin bar.
So so our restaurants I think it could be that they are doing extremely well, but could be doing some more business.
That.
Yes.
We're really happy with the way, they're performing but they could be doing more and some of the areas restricted.
But basically the question also.
Now that <unk>.
Thanks.
Steve if I could on the restaurants I think it's important to remember what an incredible experience those deliver for our guests in those restaurants.
We think of it as hospitality and Thats, a big word for us that's a powerful word hospitality that really means that you are making somebody feel at home and we want them to feel not only at home in a restaurant, but in our brand and I think what I love.
An awful lot about the numbers, we are delivering in restaurants is not just the numbers and the financial impact, but really what that's doing.
For our guests in terms of making them happy and what the implications of that are for our brand and that's really I think the biggest story.
On restaurants, the financial parts wonderful.
But the reinforcement of the brand and the.
The brand experience.
And the depth and texture that that adds to our brands I think is just it's hard to overstate the value of that.
Yes.
That's very helpful and now that you've got a bit more of Cal.
Calendar under your belt with the Marlin bars has there been any material seasonality that has surprised you either to the upside or the downside.
I think in.
Some of the warm some of the warm weather markets, even when you get out of season, it's amazing how well they are holding where having some places like coconut point you'd expect when.
<unk> got in the summer that there would be about that and there's still there's still traffic. So I think they felt better in the off seasons.
We've got some still some over the months around.
Fort Lauderdale are still they're very cruise traffic dependent so those still are not doing what we know they will do.
Once that returns to normal but.
But we have been.
Very pleased with the mono bores.
And I would just reinforce what Scott said, if there was a surprise there I think it's just the willingness of people to sit outside at times when.
Arguably methanol that pleasant.
And you would think you might see more of a drop off than we than we do.
You want unpleasant tried December in Albany, New York. Thank you.
Good luck.
Everything is relative.
Yeah.
Thank you very much.
Yes.
Good afternoon.
Yes.
Yes.
Thank you.
And we have reached the end of our question and answer session I will now turn the call back over to Tom Chubb for closing remarks.
Okay. Thank you very much to all of you for joining US we are really proud of the results that we delivered for the third quarter and.
What we believe that we're going to be able to do for the fourth quarter and think it is a direct result of all the work that we've done.
To continue to differentiate our brands our products and the service that we deliver to our customers.
We wish you all happy holidays, and look forward to talking to you again in March.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
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Okay.