Q1 2022 Oxford Industries Inc Earnings Call
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Please note this conference is being recorded.
Now I'll turn the conference over to your host Jamie <unk> 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 the federal Securities laws forward looking statements are not guarantees and actual results may differ materially from those expressed or.
And the forward looking statements.
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.
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. Dot com.
And now I'd like to introduce today's call participants with me today are Tom Chubb, Chairman and CEO , and Scott grass Meyer CFO and COO.
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 we're pleased to be reporting an incredibly strong start to fiscal 2022, Scott will provide additional detail in a moment, but here are some of the highlights before I jump in I want to pause to thank our incredible team for all that they do.
Five consecutive quarters of record earnings do not happen on the road.
Each of our happy upbeat lifestyle brands, Tommy Bahama, and Lilly Pulitzer as well as southern tide, the Buford Bonnet company Duck head, which comprise our newly designated emerging brands group achieved exceptional results in the first quarter of 2022.
All three operating groups posted strong sales and operating profit growth.
2021.
On adjusted basis, our consolidated first quarter sales of $353 million operating margin of 22% and EPS of $3 50.
Which was in the 85% increase over last year's record first quarter EPS of $1 89, all outperformed expectations.
Terrific quarter for all the biggest contributor to our record earnings was the performance of our largest brands Tommy Bahama, where sales grew 46% versus 2000 $21 million to $228 million and adjusted operating margin.
Crease, nearly 1000 basis points to 23%.
We continue to focus on the execution of our strategic priorities that I laid out at the beginning of the year, which drive both our performance to date and optimism for the future. Our brands are at the core of our business and we remain acutely focused on Brian .
Positioning and voice to remain true to who we are.
While each brand has a unique DNA inspiring optimism and aspirations for happiness is paramount across the portfolio. This can be seen particularly through enhanced creative and digital marketing efforts, which are driving tremendous success.
Yes.
<unk> of our marketing efforts can be further evidenced by the $2 2 million active customers.
They ended the quarter and an increase of over 20% relative to pre pandemic levels.
In addition to our relentless focus on the health of our brands delivering a plus product eight plus distribution and a plus communications continues to further drive our performance from a product perspective, we are rolling out new offerings.
Capitalized on consumers return to social events.
Asia travel and even the more casually are tired post pandemic physical workplace.
Tommy Bahama, who's winning and gaining share through women's apparel category continues to grow faster than even though our men's business with particular strength in dresses and swim.
The St Lucia and Diamond clip jacquard tiered dresses brought newness alongside the continued strength in the two palm Russell linear and hero franchise.
Further we cater to the continued easy to wear trend through innovative fabrications like the island zone franchises, all breeding performance fabric, which has established itself as a platform fabric and the men's fine. We have also leaned into performance oriented styles.
<unk> with the island Zone collection, comprising approximately one third of Tommy Bahama mens business, including the Palm coast Polo, and the chips and new <unk>.
Our shores.
At literally pellets or we are leaning in to one of the brand's long term competitive advantage is and winning in the social dressing category as weddings and special events are back in full swing.
These categories are driving business towards higher priced tiers, such as the poly mini dress.
Especially popular up entities, we also play to the trend towards Limon with continued innovation introducing that light and airy machine Washable lagoon limit also our luck sladek Activewear collection continues to grow on the foundation of fabric.
Platforms, such as the Merrill lot nylon and fairway performance twill.
On the distribution front, our mix among our brands continues to shift towards higher margin direct to consumer channels, which comprise a larger portion of our total revenue than they did prior to the pandemic, while direct to consumer continues to grow at a faster pace.
And is by far the largest part of our business. Our wholesale business is very healthy and poised to grow at a modest rate over the coming years, we have outstanding our wholesale partners with whom we are aligned on how to present and sell our wonderful.
Brands. This enables us to have a wholesale business, which is mutually profitable for both us and the retailer and exhibits our brands and an elevated way to consumers, who we might otherwise not.
Our retail footprint continues to expand as well in April we enhanced literally pellets or presence in the southeast with the opening of a new location in Alpharetta, Georgia as Avalon communities.
In May we were delighted to open our second the Buford Bonnet company store in Kiawah Island, and our new Southern Tide store in Cary North Carolina has recently launched and project, we continue to invest in our premium bricks and mortar footprint with lease.
<unk> secured for two additional southern tide stores in Florida, and a new Lilly pellets or store in Charlottesville, Virginia.
<unk> now opened later this year.
On top of that we will continue to build on the success of the Marlin bar concept with committed deals in Palm Beach Gardens, and Winter Park, Florida slated for fiscal 'twenty, three openings and others in the pipeline.
In order to maintain our competitive advantage in communications in a rapidly changing media environment. We continue to invest in people processes and systems. We are focused on improving our capabilities to identify prospective audiences connect with our existing customer.
Base deliver targeted messages and assess and refine these efforts to attract new customers and retain our existing customers.
Kris overall spending we have made much progress in this area over the last several years and are excited about the projects that we have underway to continue to enhance these capabilities.
From a creative standpoint, we're very focused on creating aspirational messages that evoke and I wanted to be there wearing that product moment for our customers a look back at some of the recent messaging we haven't had at Tommy Bahama provide some excellent.
Apples of how we are doing this particularly with regard to our female customers.
Male customers are responsible for buying more than half of all the men's product and substantially all of the women's product that we sell are increasing effectiveness in reaching these female shoppers in Tommy Bahama is a large part of our recent success.
We also continue to invest in our omni channel capabilities.
ZIP from store capability that we went live with in Tommy Bahama during the third quarter of 2020 has been an unmitigated success. This allows us to satisfy more customers do more business on less inventory achieve higher full price sell throughs.
And ultimately higher margins as successful as our ship from store capability has been so far we believe there is still more opportunity to capitalize on this capability as we continue to refine our processes.
In our emerging southern tide retail operations. We recently successfully launched ship from store capabilities that we will continue to enhance and grow.
The southern tide retail footprint expands and Lilly pellets or we Havent had ship from store capabilities for a number of years that currently you have a very exciting project underway that will significantly enhance those capabilities and should go live sometime next year.
Additionally, we are using client telling tools to merge the digital and retail experiences for literally pellets are customers.
Operationally, we are focused on managing inventory and optimizing our supply chain, we have the appropriate inventory levels to support our planned growth for this year. Additionally, we are seeing benefits from implementing platform fabrics, such as the previously mentioned.
Tommy Bahama, Aubrey and Lilly Pulitzer Merrill nylon, and fairway performance, twill collections, which bolstered inventory management and profitability.
Such platform speed up the product development process allow us to buy into higher quantities and defer the point of differentiation until later in the process the.
The momentum that we created has continued into the early part of the second quarter and we have outstanding plans to deliver double digit top and bottom line growth with operating margin expansion for the year.
We look forward to updating you on the progress of all these plans as well as our results as this year progresses.
Ill turn it over to Scott for more detail about first quarter results and our forecast for the remainder of the year Scott.
Thank you Tom.
Our operating groups executed exceptionally well during the first quarter of 2022 and delivered record performance as Tom mentioned earlier, our strong start to the year was driven by growth across all brands and channels supported by outstanding trends in customer count retail traffic and average transaction value.
In the first quarter of fiscal 2022 consolidated net sales were 353 million a 33% increase over last year's first quarter net sales of 266 million, which included $12 million of sales from linear apparel.
Our full price ecommerce business grew significantly up 20%.
On the bricks and mortar front, we saw full price retail growth of 51% driven by comp store increases.
Performance of our food and beverage locations was strong as well with 23% growth over last year.
Our first quarter adjusted gross margin was 64, 5% compared to 64% in fiscal 2021 is 50 basis point improvement, which fueled by a shift in sales mix towards full price direct to consumer channels and higher <unk>.
Particularly innovative new performance offerings, almost 100 basis points of higher freight costs, including the use of air freight.
Partially offset some of the margin improvement.
Our operating margins increased 700 basis points on an adjusted basis to 22% of net sales driven by improvements in gross margin and leverage within SG&A, which decreased to 45% of sales versus 51% last year, all three of our operating groups achieved year over year.
<unk> operating margin expansion.
Bahama had especially impressive profitability trends with a 990 basis point operating margin expansion compared to last year.
Our business is supported by a very strong balance sheet.
Here's some highlights.
We ended the quarter with inventories in excellent shape to support planned growth on an as reported LIFO basis inventory increased 13%.
$123 million at the end of the first quarter compared to $109 million in the prior year.
On a FIFO basis inventory increased by 18%, we believe our inventory levels are well aligned with our projected revenue growth.
Our liquidity position is strong with no debt and $166 million of cash cash equivalents and short term investments at the end of the first quarter of fiscal 2022.
Trailing 12 month operating cash flow was 179 million with capital expenditures of $36 million, resulting in a $143 million of free cash flow. The strong cash flow allowed us to return $80 million to shareholders via share repurchases and dividends in the last 12 months.
To date, we have repurchased approximately 800000 shares for $70 million, representing nearly 5% of our shares outstanding since the December announcement of our board's new share repurchase authorization.
We're pleased with the results of our repurchasing program to date.
Yeah.
I'm also pleased to share that our board of directors declared a dividend of <unk> 55 per share.
I'd now like to walk you through our projections for the remainder of 2022.
A significant beat in the first quarter and the momentum we've seen so far in the second quarter gives us confidence to raise our sales and EPS guidance for the year.
Although last year's Covid recovery will make brick and mortar comps more difficult as 2022 progresses, we expect to continue building on the momentum we've established so far this year.
Our ecommerce business is expected to continue to expand driven by our enhanced digital capabilities.
Focused on new customer acquisition retention and increased spend our physical locations are seeing strong traffic.
Despite year over year sales growth in all regions.
Our strategic positioning deemphasize direct to consumer channels, which represent 80% of our business.
<unk> enhanced our continued ability to execute well, but then a disrupted supply chain as our talented merchandising teams continue to create compelling assortments on our sites and retail floors as product is available.
Our ability to navigate supply chain challenges along with our product innovation. We're also driving a robust forward order book and our wholesale channel for 2022.
For the year, we expect modest gross margin expansion as we continue to see the benefits of higher Imu's, partially offset what we expect to be a somewhat more promotional environment for the year, we expect modest SG&A leverage driven by the significant leverage in Q1.
Despite inflationary cost pressures, including a challenging labor market.
Putting together these dynamics, we expect to deliver double digit top and bottom line growth with operating margin expansion for the year.
Quarter sales are expected to increase from 329 million, which included $8 million of linear apparel to a range of 350 to 370 million reflective of strong quarter to date results in both direct and wholesale channels full year sales are now expected to increase to a range of <unk>.
128, 5 billion to 132 5 billion.
Up from our prior range of one to $4 5 billion.
$212 5 billion.
And compared to $1 $1 2 billion in fiscal 2021, which included $25 million of the near apparel.
The increased sales guidance for the year reflects.
Double digit increases in our direct to consumer business.
And a healthy wholesale order book.
Particularly strong sales increase in Q1 is expected to moderate to high single to low double digit increases in the later quarters.
Our effective tax rate for fiscal 2022 is expected to be between $24, 25%.
On an adjusted basis, we expect EPS in a range of $3 30.
To $3 50.
In the second quarter of fiscal 2022 compared to $3 24 since last year for the full fiscal year. We now expect adjusted EPS in the range of $9 62.
$10.
From our initial guidance range of $8 75.
To $9 15.
And compared to $7 99 and.
In fiscal 2021.
Thank you for your time today, and we'll now turn the call over for questions smiling.
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 a.
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One moment, please while we poll for questions.
Our first question comes from the line of Dana Telsey Telsey Telsey Advisory group.
Please proceed with your question.
Thank you congratulations everyone, what a terrific quarter.
Outlook.
Thank you Dana.
As you think about the current environment and what Youre seeing with prices and what we're hearing about wholesale order directional changes and then becoming more conservative.
Are you planning AUR.
Price increases.
The freight costs looked like it went to one <unk>.
Basis points this quarter from $1 60 last quarter under the Hood. How are you thinking about the puts and takes of gross margin.
And then I just have a question about the brand. Thank you.
Well I'll, let Scott elaborate on this in a little bit, but I think that generally we feel pretty good about where that's going to come out as we mentioned I think in the March call.
Did some pricing that took effect in first quarter, we will have more.
Kicks in over the next couple of quarters, and then in terms of maintaining or improving our initial markups I think we've done a pretty good job of staying ahead of some of the cost pressure.
We will probably see some level of promotional activity creeping back into the market place as you know last year the market place in general was much cleaner than it usually is and we were.
Yeah.
As non promotional as we've ever been so we probably got a little pressure from that and then the freight as you highlight it has.
Some of that headwind has started too.
Decrease in intensity.
I think thats a potential pickup that we have.
Going forward as well Scott do you want to yes.
And some of the blanks, yes, yes.
On the freight second quarter might be a little bit of a headwind because we didn't have a lot of them.
In the second quarter last year, but in the third and fourth quarter.
It is easing compared to the prior year also the way we move some merchandising calendars. We think we can avoid the degree of air freight that we had to do in the second half of last year.
And then as far as.
SG&A.
As a percent of sales it will probably level off or maybe be a little higher.
Last three quarters in the prior year as a percent of sales, but we do expect.
Robust growth and we do have some inflationary pressures.
And particularly with things like labor.
That were combating.
That will.
But and then as Tom mentioned gross margin wise, we think we've.
<unk> gotten ahead of the.
Input cost increases and should still have higher I am used throughout the year.
Got it and then the flash sale movement to this quarter.
What's the impact on that.
The second quarter, the third quarter, how are you thinking about that going forward and then the marlin bars looked like they did very well.
I think one opening this year what are you expecting for that.
Yes, so on the Playa sale philosophically and I'll, let Scott talk about the.
What the dollars will look like possibly for the rest of the year, but.
Philosophically the idea.
The movement in the flash sale was really the mix it up a little better as you know.
Dana during the 2020.
The height of the pandemic can that last year, we kind of.
Mixed up our game a little bit tried some different things.
We like it I think our consumer really likes to be surprised a little bit.
We like to be a little less predictable with some of that stuff so that $7 million was.
Really a movement in the timing.
As much as anything we will still have an August flash sale and then at January <unk>.
Scott do you want to fill in some of the numbers last year.
We did not do any in the first half of the year, but had about $19 million in the third quarter, but we had a lot less inventory, we would fall into a higher inventory level. So we still expect the third quarter flash sale, but probably be a little bit above last year's flash sale, even though we did an additional sale.
And then the.
Fourth quarter. So we'll have one in January and right now, we think it'll be pretty flattish with.
With last year.
We did $13 million last year and will be somewhere in that range. This year and our January so.
Two quick things one is on the categories that youre selling.
Are you flexing it sounds like the dresses and and you're flexing into along with men.
Swim anything to note on categories and how maybe the athleisure trend is trending for you and then on.
Thank you Tom and then on Scott Scott typically the second quarter operating margin, even if you look in the past for 2019 is higher than the first quarter.
Any thoughts behind that.
Thinking about it thank you.
Okay. Thank you very much Dana and ill tackle the category shift for you and as you would expect really across the whole enterprise, we're shifting to more.
Dressier more.
Structured kind of categories. So in Lilly Pulitzer, we're probably selling less leggings.
Then we were last year.
More occasion dresses than we were last year and Thats actually good because it's moving the.
Average unit retail up without really a price increase but just a shift in the mix is helping drive a higher AUR.
Which is great to see we're seeing a similar thing in Tommy Bahama and the Best example, maybe as in men's where we've seen huge growth in <unk>.
Which are fairly pricey category for us and a very key category for us and while everything I think every significant category in Tommy Bahama.
Grew during.
The quarter, we really saw a lot of that dollar increase was coming through <unk>, which is a positive then in terms of the ask at.
At leisure wear some of those trends you would think would be slowing down that more performance driven.
Product, but thats not really true.
Performance product has continued to grow in both Tommy and Lilly.
The mix of that product has changed a bit so for example.
And Lilly.
As I mentioned, the leggings, maybe it slowed down a bit, but we're doing really well with some of the tennis and golf type items and I think what youre seeing.
Is that as people as we said return to travel.
Social events, and even going back to the workplace.
Which is more casual knits ever before and our brands are more appropriate.
Than they've ever been before for the workplace, we get a lot of pickup from from all of those things.
And as far as the operating margins the first quarter, we had great expansion in our wholesale business is healthier in Q1 is a big wholesale quarter as you ship an initial spring also women's business at Tommy is.
<unk> gotten very very strong and that tends to be a strong first quarter business. Our second quarter. We think we will still be a strong quarter, but I think first and second on the operating margin are coming a lot closer together than they have been in the past second quarter has always been a big father's day quarter for Tommy and it will continue to be but I think we will.
<unk>.
Pretty similar operating margins in Q1 and Q2.
Thank you.
Thank you Dana.
Yes.
Our next question comes from the line of Susan Anderson with B. Riley. Please proceed with your question.
Hi, nice job on.
Good quarter and thanks for taking my question.
And of course, you can maybe.
Talk about southern tide stores, there how those are performing versus your expectation and then I'm curious if you're seeing any difference in that consumer given I think it's a little bit younger than the other two brands and maybe a little bit more impacted by inflation just curious if youre seeing any difference and then having.
Another question.
So with respect to the performance of the stores I would say that we're very happy with what we're seeing there we're up to five as we called out in the.
Call script.
We've got a couple more that are that are in the works to.
Hopefully before too long.
So we like what we're seeing there it's still a new operation we're learning a lot I mentioned in the prepared remarks that we.
Just recently launched ship from store capabilities, which enhances the overall value.
<unk> of those stores to our operation.
And.
Bottom line, we like them a lot and then in terms of the consumer.
Consumer and any differences there I think it's a similar.
Economic demographic that we're tracking there actually a lot of our younger southern tide consumers, it's probably their parents that are paying for it.
So the response of the consumer to the current conditions has really been pretty similar.
And you saw that the emerging brands group posted a they had a great quarter.
The smallest of our three.
Porting segments now, but they had a terrific quarter as well and the biggest piece of that.
As southern tide, but I will tell you that all three brands.
Had a great quarter as we mentioned in the prepared remarks, when you look at the quarter all brands in all channels of distribution were up.
Year over year, which is pretty impressive to be in that position.
Great that sounds good thanks for all the details there and then lastly, it sounds like you expect all of the regions to be up this year, which is good to hear so I'm. Just curious if you could talk about maybe the performance and then north now are the regions that underperformed last year, what youre seeing there and then also it sounds like like Florida.
And that has continued to be strong if you could talk about that.
Yes, that's a great question, Susan and we are seeing really I think all of the regions pretty much on a year to date.
<unk> are up which is good to see you set those.
Regions that lagged a little bit and coming back to life. The mid Atlantic the Midwest and the northeast are all positive and coming back to life and growing pretty nicely, which is great to see at the same time the regions that have really been the strongest through the.
Since the beginning of the pandemic, particularly.
Florida and Texas.
Ben.
Unbelievable. They just have remained very very strong and I think a lot of what's happening, particularly in our two big brands, Tommy and Lilly that had.
A lot of presence in Florida.
Is that a lot of their customers are really they're relocating to those places and so for them.
<unk> may be was a.
A warm weather or vacation brand is really becoming a year round.
Brand for them when they relocate from.
The north east to somewhere in Florida.
And that just that's more good news for us to be honest.
Alright that sounds good good luck the rest of the year. Thank.
Thank you Susan.
And our last question comes from the line of Paul <unk> with Citigroup. Please proceed with your question.
Thanks, It's Tracy filling in for Paul I had a couple of questions. I guess the first is on inventory, maybe if you could give us a sense of where it is by brand and if there are any areas.
Can you tell if youre more constraint you were more constrained at one brand versus the other this quarter and if you thought in the sales because of supply chain constraints.
And then the second question is just on other drivers.
But the comp increase at retail in the first quarter, what I was wondering if it was.
Primarily ticket and AUR driven or.
Just what your traffic looked like.
First quarter. Thank you.
Do you want to tackle.
Yes, yes.
Tori each.
Each each brand was up some but as you mentioned last year was a little bit.
Lower than ideal.
And this year.
Supply chain things I'm sure, there's some sales miss but us being 80% <unk> had very compelling.
Well merchandised packages on the floor and on the side. So I don't think we missed a lot of sales, but there are some pockets where maybe some light inventory. If we had an AD on the floor, we might've had some opportunities, but we feel good about our inventory.
As we've talked about with some of the systems. We have now we believe we can do more sales with less inventory and I think thats showing through.
Is that where are inventory levels now.
FIFO basis are.
No higher than 19 levels, and we're doing a lot more business on that home that.
That inventory so we feel good about our inventory we are bringing some goods in earlier, we still would love to hear some maybe it gets on our books a little bit earlier as we reacted to some supply chain things by placing orders earlier.
But anytime you don't get everything you want and it is exactly when you want it you might be missing some sales, but being 80% of rack you can mitigate a lot of that.
And Tracy in terms of what's driving the increase in the direct to consumer it's primarily traffic.
A bit of the AUR increase as well with a lot of that AUR increase actually coming from as we've talked about the.
The mix of prospect in the skewing maybe.
Maybe to some more expensive items, plus a little bit of price increase getting in there from.
From like for like and that's really been true.
<unk> the big brands.
Smaller brands as well.
<unk> had in Buford Donna.
Southern tide.
Got it thanks very much.
Okay.
Yes.
Thank you Andres.
We have reached the end of the question and answer session I will now turn the call back over to Tom Chubb for closing remarks.
Okay.
Thank you very much and thanks to all of you for your interest.
Enjoy your summer and we look forward to talking to you again in early September .
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].