Q3 2024 Oxford Industries Inc Earnings Call
Greetings welcome to the Oxford Industries, Inc. Third quarter fiscal 2023 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 being recorded.
Speaker 1: 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
Speaker 1: I'll now turn the conference over to your host, Brian Smith of Oxford Industries.
I'll now turn the conference over to your host Ryan Smith of Oxford Industries, you may begin.
Speaker 2: Thank you and good afternoon. Before we begin, I would like to remind participants that certain statements made on today's call in the Q&A session may constitute forward-looking statements within the meaning of the federal securities law.
Thank you and good.
Good afternoon, before we began I would like to remind participants that certain statements made on today's call and the Q&A session may.
May constitute forward looking statements within the meaning of the federal Securities laws.
Speaker 2: Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statement.
Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward looking statements.
Speaker 2: Important factors that could cause actual results of operations or a 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 updating
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.
Speaker 2: 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.
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.
Speaker 2: which is posted under the Investor Relations tab on our website at OxfordBank.com. And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO .
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 <unk> CFO and COO.
Speaker 2: Scott Grassmeyer, CFO and COO. Thank you for your attention and now I'd like to turn the call over to Tom Shum. Good afternoon and thank you for joining us.
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 want to spend just a few minutes talking about the third quarter, then move to our expectations and plans for the fourth quarter and finally give you a bit of a sneak preview on our plans for 2024.
Speaker 3: I want to spend just a few minutes talking about the third quarter, then move to our expectations and plans for the fourth quarter, and finally give you a bit of a sneak preview on our plans for 2024. We are pleased to be reporting solid results for the third quarter of fiscal 2023.
We are pleased to be reporting solid results for the third quarter of fiscal 2023.
Speaker 3: Our results reflect low single-digit sales growth, inclusive of comps that were down low single digits, which come on top of a 12% positive comp in the third quarter of last year.
Our results reflect low single digit sales growth inclusive of the comps that were down low single digits, which come on top of a 12% positive comp in the third quarter of last year.
Speaker 3: While the consumer has clearly become more judicious in their discretionary spending.
While the consumer has clearly become more judicious in their discretionary spending.
Speaker 3: We believe our performance, especially on a two-year stack basis, compares favorably to
We believe our performance, especially on a two year stacked basis compares favorably to our peer group.
Speaker 3: Despite a more difficult backdrop, we delivered these results as our people have remained focused on leveraging our strong brands to deliver clear and consistent messages that inspire and resonate with customers, creating strong desire for our products and services.
Despite a more difficult backdrop. We delivered these results is our people who remain focused on leveraging our strong brands to deliver clear and consistent messages that inspire and resonate with customers, creating strong desire for our products and services are gray.
Speaker 3: A great example of this, during the third quarter, includes the opening of the Tommy Bahama Miramonte Resort in Indian Wells, California.
Example of this during the third quarter includes the opening of the Tommy Bahama Mirror Monte resort in Indian Wells, California.
Speaker 3: This jewel box resort in the Coachella Valley leverages the credibility that Tommy Bahama's built over nearly 30 years in the hospitality space through our very popular restaurants and bars, as well as the overall strength of Tommy Bahama as one of America's premier lifestyle brands.
This jewel box resort in the Coachella Valley Leverages, the credibility that Tommy Bahama has built over nearly 30 years in the hospitality space through our very popular restaurants and bars as well as the overall strength of Tommy Bahama.
As one of America's Premier lifestyle brands, the resort will have a meaningful impact on reinforcing and even strengthening the lifestyle positioning of the Tommy Bahama brand ultimately, helping us reach new customers retaining existing ones and increase the <unk>.
Engagement of all customers.
The same time generating meaningful but modest royalty income overtime.
Speaker 3: Another great example of leveraging the strength of our brands to drive business results in the third quarter was the launch of the gorgeous new Johnny Was website.
Another Great example of leveraging the strength of our brands to drive business results in the third quarter was the launch of the gorgeous New Johnny was website, you will recall that the new website layers. The exquisite Johnny was imagery brand messaging and product on the best in class.
Speaker 3: You will recall that the new website layers the exquisite Johnny Woz imagery, brand messaging, and product on the best-in-class Lilly Pulitzer e-commerce technology that we have implemented over the last several years.
Pellets are ecommerce technology that we have implemented over the last several years.
Speaker 3: The new website, combined with a change in digital marketing agencies, has us very excited about our ability to grow our Johnny Woz web business going forward.
The new website combined with a change in digital marketing agencies.
We're very excited about our ability to grow our Johnny was web business going forward.
Speaker 3: As a result of these and many other activities by our brands, our traffic and full price selling remained healthy during the quarter. And we were actually able to expand adjusted gross margin.
As a result of these and many other activities by our brands our traffic and full price selling remained healthy during the quarter and we were actually able to expand adjusted gross margin.
Speaker 3: In addition, our active customer count and our new customer ad rate both increased mid-single digits versus last year, while average annual spend has remained roughly flat. All of these metrics are extraordinarily positive indicators of the strength of our brand.
In addition to our active customer count and our new customer AD rate, both increased mid single digits versus last year, while average annual spend has remained roughly flat.
All of these metrics are extraordinarily positive indicators of the strength of our brands. Finally, Scott will provide more details in a minute, but I would be remiss if I did not call out the strength of our cash flow from operations, which was 169 million.
Speaker 3: Finally, Scott will provide more details in a minute, but I would be remiss if I did not call out the strength of our cash flow from operations, which was $169 million on a year-to-date basis, our balance sheet, and the fact that we were able to actually reduce inventory on a year-over-year basis during the quarter.
On a year to date basis, our balance sheet and the fact that we were able to actually reduce inventory on a year over year basis during the quarter.
Speaker 3: Moving on to the fourth quarter, we're excited about our plans and our opportunities in a market that remains somewhat uneven.
Moving onto the fourth quarter, we are excited about our plans and our opportunities in our market remains somewhat uneven.
Speaker 3: Our DTC business got off to a bit of a sluggish start in early November and then posted strong results during the very important Thanksgiving weekend.
Our D C DTC business got off to a bit of a sluggish start in early November and then posted strong results during the very important Thanksgiving weekend.
Speaker 3: As you are aware, this year's calendar provides the longest possible selling period between Thanksgiving and Christmas at 32 days.
As you are aware this year's calendar provides the longest possible selling period between Thanksgiving and Christmas at 32 days not surprisingly business since the middle of the week following Thanksgiving that's been choppy.
Speaker 3: Not surprisingly, business since the middle of the week following Thanksgiving has been choppy.
Speaker 3: History indicates that when we have a calendar like this year's We can expect a dramatic ramp up in sales during the 10 to 12 days before Christmas
History indicates that when we have a calendar like this years, we cannot expect a dramatic ramp up in sales during the 10 to 12 days before Christmas.
Speaker 3: We expect to see that ramp up this year, and we are excited about the plans we have in each of our brands to capitalize on that opportunity.
We expect to see that ramp up this year and we are excited about the plans we have in each of our brands to capitalize on that opportunity.
Speaker 3: With respect to our wholesale business, we do expect to experience some headwinds during the fourth quarter. Our brands and products continue to perform very well at our key wholesale partners.
With respect to our wholesale business, we do expect to experience some headwinds during the fourth quarter.
Our brands and products continue to perform very well at our key wholesale partners.
Speaker 3: However, due to the uncertain consumer environment, wholesale accounts have become more cautious in their purchasing for spring of 2024, and therefore spring bookings are down as the result of this caution, not because of performance.
However, due to the uncertain consumer environment wholesale accounts have become more cautious in their purchasing for spring of 2024, and therefore spring bookings are down as the result of this cost and not because of performance given that many of our early.
Speaker 3: Given that many of our early spring orders typically ship during the last month of each fiscal year, we expect some softness in our fourth quarter wholesale business.
Bearing orders typically shipped during the last month of each fiscal year, we expect some softness in our fourth quarter wholesale business Scott will provide more detail on amendment. That's as a result of the wholesale situation and the uneven direct to consumer market in the interest of caution.
Speaker 3: Scott will provide more detail in a minute. But as a result of the wholesale situation and the uneven direct-to-consumer market, in the interest of caution, we are moderating our guidance for the fourth quarter.
We are moderating our guidance for the fourth quarter.
Speaker 3: Moving beyond this year, we are extremely excited about our developing plans for 2024 and beyond. While it is too early for us to give our initial forecast for 2024, we would like to give you a sneak peek at some of our key plans.
Moving beyond this year, we are extremely excited about our developing plans for 2024 and beyond.
While it is too early for us to give our initial forecast for 2024.
We would like to give you a sneak peek at some of our key plans, we believe that the most likely scenario for the economy, It's a soft landing.
Speaker 3: We believe that the most likely scenario for the economy is a soft landing.
Speaker 3: And in the absence of a broad macroeconomic setback, we believe that we can continue to leverage our incredible brands to inspire customers and generate the demand for our brands and services that will drive growth in our business.
And in the absence of a broad macro economic setback, we believe that we can continue to leverage our incredible brands to inspire customers and generate the demand for our brands and services that will drive growth in our business year to date, we have increased our store count.
Speaker 3: Year-to-date, we have increased our store count by net 17 stores through the first three quarters and expect another five openings during the fourth quarter. Most of the openings happen in the back half of the year and given the timing and typical post-opening ramp-up period, we will not see the full benefit of these stores until fiscal 2024.
Net 17 stores through the first three quarters and expect another five openings during the fourth quarter.
Most of the openings happened in the back half of the year and given the timing and typical post opening ramp up period, we will not see the full benefit of these stores until fiscal 2024 on.
On top of this we will also realize the full benefit from the upgrades that we've made to the Johnny was E Commerce business, which were completed in the third quarter of this year in 2024.
In addition to Annualizing the impact of many of our 2023 activities. We also plan to continue to fuel future growth, which with projects that we have planned for 2024.
First we plan to increase our store count by more than 25, net new stores with Tommy Bahama and Lilly pellets are returning to more of a pre pandemic store opening cadence we are particularly excited about the sixth Marlin bars slated for the next 12 months.
This includes our Winter Park, Florida location scheduled to open in January.
We also anticipate meaningful openings for both Johnny was and our emerging brands, where we have opportunities for continued retail grows the pre opening activities associated with these stores, particularly the five marlin bars will put some pressure on 2024 operating margin.
But having these stores in place we will fuel our growth trajectory in 2025 and beyond.
We are also excited about the potential to utilize our emerging brands group platform as a vehicle for growth. The platform has evolved nicely and we have proven its ability to support smaller brands in their growth and development.
The Buford Bonnet company is a great example, since we acquired <unk> in 2017, it has grown at a compound annual growth rate of 23%.
Another Great example, as Doug had an iconic brand with an iconic product and over 150 years of history.
This is <unk> all of that out of business, when we bought it and since adding it to our platform.
Relaunched and rebuild the brand into a rapidly growing profitable business with sales in excess of $10 million and meaningful potential we are constantly on the lookout for more opportunities like that.
Finally, we are enhancing our long term distribution capabilities by building an expanded modern automated distribution center near our existing facility in Lyons, Georgia.
The target is to complete this project during 2025 once complete it will increase our annual shipping capacity from <unk> 7 million units to over 20 million units with potential to grow to 30 million units with some additional equipment investment.
The project will add numerous significant benefits to the enterprise and will help continue to drive future growth.
First the cost per unit of the handling and shipping on unit and this facility will continue to be highly competitive with greater automation.
Secondly, it will give us the additional capacity that we need to service the concentration of stores that we have in Florida and elsewhere in the eastern part of the country, giving us the ability to optimize inventory better by replenishing stores more quickly and more frequently.
It will allow us to serve more of our web customers in the eastern part of the country better by getting products into their hands more quickly.
All of these activities. In addition to the others that we will talk about in March when we provide our initial forecast for the year promise to help fuel growth in 2024 and beyond.
None of what we have accomplished during 2023 are planned for 2024 would be possible without our wonderful and dedicated team of people and during this holiday season, we would like to express our sincere gratitude for all that they do and.
And now I'll turn the call over to Scott for additional comments on our results for the third quarter and forecast for the balance of the year Scott.
Thank you Tom.
Tom mentioned, we're pleased to report another solid quarter that is within our guidance range and a challenging macroeconomic environment for the consumer our operating groups executed well going against up against DTC comps of 12% in the third quarter of 2022.
Consolidated net sales for the third quarter of fiscal 2023 were 327 million, which included $49 million of sales for Johnny was as compared to $23 million and the six weeks, we own Johnny was last year.
And a slight decline on an organic basis, resulting in 4% growth above last year's third quarter net sales of $313 million.
In the aggregate Tommy Bahama, Lilly Pulitzer and emerging brands had decreases of 2% and full price bricks and mortar, 3% and full price ecommerce and 9% in wholesale sales.
Despite a decline of 3% year over year, the performance of our food and beverage locations remained strong with the decrease is driven by Remodels and closures, resulting from the Maui wildfires.
We were able to expand adjusted gross margin 60 basis points to 64% compared to 63, 4% last year are lowering inventory balances across all operating groups over the same time period.
The increase in adjusted gross margin was driven by a full quarter of higher margin sales from Johnny was compared to a partial quarter last year, a decrease in inventory markdowns and.
An increase in direct to consumer sales in emerging brands and decreased freight cost.
These were partially offset by a decrease in Lilly Pulitzer full price ecommerce sales.
Adjusted SG&A expenses were $191 million compared to $171 million last year. This increase was largely driven by an incremental $17 million of SG&A associated with the Johnny was business, which we owned for the full third quarter of 23 versus a partial third quarter in 2022.
The result of all of this yielded $21 million of adjusted operating income, 7% operating margin compared to $32 million in 2022.
The 21 million of operating income included $1 million or incremental operating income for Johnny was driven by a full quarter of ownership this year.
The decrease in operating income reflects our planned SG&A investments in our people and business.
<unk> saw modest declines in revenue from our licensing partners.
Moving beyond operating income, we incurred more interest expense as a result of higher interest rates and higher average debt levels, but benefited from a lower effective tax rate due to certain discrete items that have a larger impact on our tax rate in the third quarter, given our lower earnings than in other fiscal quarters.
With all of this we achieved $1 <unk> adjusted EPS solidly within our guidance range.
I'll now move on to our balance sheet, beginning with inventory.
Inventories decreased by 4% or $9 million year over year on a FIFO basis, while being able to expand gross adjusted gross margin inventory decrease in all operating groups, resulting from our continued inventory discipline.
Over the last 12 months, we used a robust cash flow to significantly repay our borrowings used to fund the Johnny was acquisition our borrowings increased slightly in the third quarter, which has historically been a cash use quarter, given our lower earnings compared to other fiscal quarters. We finished the quarter was $66 million of borrowings.
Under our revolving credit facility down from $119 million in borrowings at the beginning of the year.
$169 million of cash flow from operations in the first nine months of 2023 compared to $86 million in the first nine months last year allowed us to reduced outstanding debt by $53 million since the beginning of fiscal 2023, while also funding $54 million of capital expenditures $31 million of Debbie.
<unk> and 20 million of share repurchases.
We expect strong cash flow for the rest of the year anticipate repaying additional debt in the fourth quarter.
I'll now spend some time on our outlook for the remainder of 2023.
Jim mentioned, we are moderating our full year view to reflect the impact of continued hesitancy shown by consumers in the third and fourth quarters.
For the full year, we now expect net sales to be between one $5 7 billion and $1 $5 9 billion.
<unk> growth of 11% to 13% compared to sales of 141 billion in 2022.
The planned increase in sales into 53 week 2023 includes the benefit of the full year, Johnny was as well as growth in our existing brands in that low single digit range.
Driven by increases in our direct consumer businesses and relatively flat sales in our wholesale channel.
Our updated guidance reflects decreases in comp store sales in the low single digit range may soften wholesale outlook, we still anticipate modest gross margin expansion for the full year of.
2023, including in the fourth quarter.
The higher sales year over year and modestly higher gross margins are expected to be offset by increased SG&A, which is expected to grow at a rate higher than sales in each quarter of 2023, although.
At a rate in the fourth quarter that is more similar to the third quarter than the first two quarters.
Building on our.
Efforts in the third quarter, we will continue to scrub the income statement and prudently trim expenses, where appropriate while continuing to invest and help build for the future. Finally, we expect royalty income in the fourth quarter to be comparable to the prior year.
<unk> all these items, we expect adjusted operating margin for the full year to be approximately 14%.
Additionally, we anticipate higher interest expense at 6% for the full year after incurring almost $5 million of interest expense in the first nine months of the year.
This compares to $3 million of interest expense and the full year 2022, when we had no debt outstanding until the third quarter acquisition of Johnny was.
So expect a higher effective tax rate of approximately 24% compared to 23% in 2022.
After considering these items 2023, adjusted EPS is now expected to be between $10 10.
And $10 and 30 <unk>.
Versus adjusted EPS of $10 88 last year with the inclusion of a full year of profit from Johnny was being offset by lower operating income in our existing businesses increased effective tax rate and higher interest expense.
After generating 9% comps in Q4 of 2022, we expect to increase sales in the high single digits in the fourth quarter.
Due in part to the additional week in the quarter.
And our new brick and mortar locations, partially offset by lower comp store sales as discussed earlier and a softened wholesale outlook.
We also spent modestly higher gross margins.
A higher mix of direct to consumer sales and modest SG&A deleveraging as SG&A increases at a higher rate than sales.
We further expect interest expense in the fourth quarter to be lower than the interest expense in the fourth quarter last year due to a significant reduction in debt during 2023, and a higher effective tax rate as the fourth quarter 2022 included certain favorable items that are not expected to repeat in the fourth quarter of the current year.
Capital expenditures in fiscal 2023 are expected to be approximately $80 million compared to $47 million in fiscal 2022. This is lower than prior estimates due to certain capex for our fulfillment Center project shifting from fiscal 'twenty three to fiscal 'twenty four as we mentioned last quarter.
The plan Capex increase includes spend associated with brick and mortar locations, including build out associated with approximately 35 locations across all brands, including two new Marlin bars, and approximately 10, new Johnny was locations.
A number of these relocations and Remodels, which along with a few store closures should result in a net increase of full price stores of about 22 by the end of the year with approximately five net new locations in the fourth quarter.
<unk> spend associated with these brick and mortar locations represent about one half of the planned capital expenditure amounts for 2023. Additionally, we will also.
Continue with our investments in our various technology systems initiatives. Finally, we anticipate limited limited initial capital spend in the fourth quarter related to a multiyear fulfillment center project that Tom highlighted earlier.
We anticipated expenditures related to the project to continue in 2024 and 2025 with.
With a substantial majority of the spend occurring in 2024, we expect total spend for the project to be approximately $130 million.
We continue to have a very positive outlook on our cash and liquidity position as well after generating cash flow from operations of $126 million in 2022, which included a working capital increase of $85 million.
We expect to increase our cash flow from operations significantly to a level well in excess of $200 million in 2023. This level of positive cash flow from operations provides ample cash flow to fund our capital expenditures dividends share repurchases and the continued reduction of our outstanding debt during the year.
Although SG&A investments will put pressure on 2023 margins. These actions will set the table well for mid to upper single digit top line growth and a long term operating margin target at or above 15%.
Thank you for your time today, and now I will turn the call up for questions sure Molly.
Thank you 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 confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before questions.
The Star Keys.
Please.
And our first question comes from the line of Edward <unk>.
Sandler. Please proceed with your question.
Hey, good afternoon, guys and thanks for taking the question I guess first.
Bahama, we noticed you swapped out traditional flip side, but again the purchase that they know.
Really as you successfully would love to understand I think that was part of the softness that you pointed to a direct to consumer and then I guess just stepping back a little bit.
Remember last quarter, you talked about.
Portman issues.
Some of the newer suffers with moving faster than some of the older stuff I guess did you see some of those trends per se, thanks, very much and happy holidays.
Okay first with respect to that.
You'd have to sort of the special offers around the black Friday cyber Monday weekend.
If you look back at what we did last year, we actually didn't have the flip side starting over that weekend.
Last year that we did that I believe was 2020 and since then we've pushed the start of the flip side out in sort of separated those events. The difference between last year's weekend. In this years was that last year, we had a couple of <unk>.
Gory wide discounts. So for example, I think we were 30% off on all islands soft this year last year. This year, we didn't do that we had a couple of special value items.
Where we delivered some styles that were at very compelling prices, but it was just a handful and then we did the gift with.
Purchase which was the beach chair.
With a 300 dollar spend which by the way performed very very well we were barriers.
Happy with the results that we got from that both online.
And in store, which is kind of unusual.
FERC gift with purchase for work in both channels.
So we love that and then other than that Ed.
We we really have the same pack cards gift cards that we have done for as long as I can remember.
And then the flip side, which is similar in timing to where it's been the last couple of years.
So what I would tell you is were.
We're really less promotional and Tommy than we were last year.
And maintenance and then the newness question I would say really across the brands all the brands.
Newness is more compelling to consumers this year, but they want to see new they loaded up on a lot of stuff over the last couple of pandemic years.
And their loving newness, Fortunately, we've got a lot of it for them.
So I think we're pretty well positioned from from that standpoint.
Thanks, so much happy holidays.
Thank you you too.
Our next question comes from the line of Ashley <unk> with Keybanc capital markets. Please proceed with your question.
Great. Thanks.
Just first I know you called out some choppiness around the business so fine.
Just curious if you're seeing any different with PJM.
Steamers shopping brick and mortar versus E Commerce, and then any variant.
In each brand.
Excuse me, but 'twenty one.
Yeah.
Yes.
Yes between brick and mortar and you cannot take a big theme Ashley to US is really that conversion rates are coming down that's the big difference traffic Gen.
Generally units going to differ a little bit among the different brands.
And the channels, but the big thing to me this year and this is where you see that caution or the more judicious spending by the consumer come into play is that conversion.
Rates have come down a bit from where they would've been.
A year ago.
Okay, Great and then just secondly, real quick emerging brands.
Strength within that segment during the year.
Hello.
Or is there just kind of an overview of where you think you are in your store rollout potential within emerging brands and how you're thinking about that opportunity longer term.
Yes, So I think we've got in the emerging brands group at this point we have.
Three brands, where we've got.
Where we own 100% of the business and they are part of our reporting in those three years Southern tide B for Bonnet company in dock head to.
Two of those brands currently you have stores open.
Turn tied to up too.
15, 15, now I think with plans to add more in Buford Banach company. We've got three open now.
And a couple more on the drawing board.
Still in the early stages with those we like what we see but we want to make the formula right.
But then assuming that we can do that and have a retail formula.
It works well and we very much believe we can in both of those brands than I think they could have a similar number of stores that you see in Lilly Pulitzer.
Pretty easily I think geographically the strength is going to.
Lilly Pulitzer is pretty closely.
Similarly positioned from sort of pre.
<unk> point, and where they sit from a market standpoint seeing.
Seeing a.
Lily number and thinking.
75 to 80 stores longer term.
I think is very easy to get your head around all of course caveat. It with we want to make sure we've got a retail formula.
It delivers good cash return on cash invested.
Yes.
Great very helpful color. Thank you.
Okay. Thank you Ashley.
And our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Hi, good afternoon, everyone.
Scott as you think about the current environment and what you saw.
Each of what's happening in the external environment with the brands how much of it do you see.
Product enhancements coming on the way that should be helpful.
Help accelerate sales growth and on the wholesale channel, which I've always thought of it is very small for you how do you see the go forward there.
And what opportunities are to stabilize that business. Thank you.
So with respect to the first question.
Dana I don't want to sound like what are the kind of company that always points the finger at external factors.
Never looks within with the first place we always look at is what could we do better and we've got a list.
Six pages long of things that we will lessons that we've learned from this year that will incorporate.
In the next year.
Try to improve things, but I honestly believe.
The biggest factor is the external market conditions and I don't think we're unique in this at all I think if you look across the space and the companies that we would really think of us as peers I think that most of them are seeing.
Similar trends I think the biggest factor really is the more cautious and more judicious consumer that said again, we are looking internally.
And looking at ways that we can improve it.
We do that every year, whether business is good or whether it's not so good we're always.
Looking at the ways that we can improve and we've definitely seen as we commented in response to <unk> question that newness is selling really well.
And innovation and selling really well, we think we're good at that and we will.
Be sure that.
We continue to do that.
<unk>.
With regard to wholesale.
Dana we don't really think we've lost in position at all.
And where we have good data on it our performance at retail.
Our sell through if you will in our natural gross margin has been quite good it's simply that the retailers have sort of pulled back a bit for.
For spring and we're feeling the effect of that.
From a brand health standpoint, we don't really mind that because we'd rather not have them be over inventoried.
But I think what's going to happen and they're going to get into the spring and theyre going to be chasing inventory and of course, we'll we'll do what we can help but.
But I'm guessing there's going to be a little bit of demand left on the table.
Thank you.
Thank you Dana.
And our next question comes from the line of Mauricio CMO with UBS. Please proceed with your question.
Great. Good afternoon, and thanks for taking my questions just wanted to check on the fourth quarter sales outlook.
Does it imply for the discipline that we will take like one implant for the compound growth.
The business and how much you expect that additional week to contribute to sales growth and then lastly on the commentary on the outlook I think you mentioned something about.
You expect.
Pressure on margins in fiscal year, 'twenty four because of the investments in store openings. So I don't know.
That means we should assume like in on top of warrant like this is a 14% margin that you expect for 'twenty. Three we can expect another year of operating margin compression.
Yes, I'll start with the first one I don't think it necessarily means that we're going to see compression in the operating margin. It's just that we'll have some headwinds to the large and there'll be things that help us in that regard too, including and utilizing all of the stores that we've opened this year.
The Johnny was website I think back half probably improvement in the wholesale market. So I don't know that I jumped to that yet I'll, let Scott elaborate on that and then with regard to the fourth quarter outlook that is a good question because we actually it's not us.
The comp there is the 53rd week and there's the wholesale situation I'll, let Scott also.
Sort of try to bridge that gap for you.
Yes, when you say remember we mentioned we're going to open six Marlin bars next year one of them is going to open the very very beginning of the year. It's one that we thought we'd get in January is pushing out.
But the other five will have <unk>.
Preopening.
You've got Preopening rent starting about seven months before you actually open. So when you have that many of them, but again, we're going to have the benefit of the 24 stores.
But hopefully help neutralize that as far as the 53rd week, we're going to be somewhere in that $25 million range in top line for that additional week.
Our comps, we've got low single digit comps in our fourth quarter.
Plan.
And then we've got the new units, we opened this year that hopefully will contribute around $10 million in the fourth quarter.
Alright understood. Thank you so much.
Yes.
Our next question comes from the line of apologize with Citi. Please proceed with your question.
Hey, Thanks, It's Tracy Kogan filling in for Paul I think you guys are talking about conversion.
And I think you had mentioned last call that you had seen a slowdown in August driven by conversion I was just wondering how your overall trend wound up.
Going through the rest of the quarter and did conversion <unk>.
From there from what you were seeing in August you'll get to kind of stabilize and then also what was your AUR for the quarter. Thanks.
So with respect to the conversion trends, yeah, I think it's a little bit more of a.
Continuation really of what we were seeing in August.
If you want to get Super granular about it I'm sure we can parse out some differences.
But I think it's really that same phenomenon that we were seeing in August.
Just to be clear, it's not like conversions dropping through the floor, it's just lower than last year.
When you look at.
Ed.
Yes.
Comp sales, that's really a function of traffic conversion and then how much they're spending and trying to give you a good flavor clear flavor of what's going on among those levers, it's really the converters and that's that.
Pulling the numbers down a bit and then on the AUR Brian or.
It's holding its holding pretty good.
Got it.
Oh, sorry.
No no go ahead Scott.
Just going to ask what your <unk> guidance.
It seems for the promotional environment are you.
Are you assuming an increase in promotions relative to last year.
You mean for us.
The market in general for Us.
Yes, I think for US we're very consistent with.
We walked add through the whole K.
Cadence of promotions with Tommy Bahama, but I would say across the board were consistent with last year.
And we can make things up a little bit you know not every events exactly apples to apples, but and.
And we did mentioned we expect some very modest gross margin expansion and Thats, a little more mix oriented.
The direct consumer being a bit higher, but but overall margins should hold well, which means promotions should be pretty much in line with last year.
Got it thank you.
Thank you Tracy.
Our next question comes from the line of Jeff <unk> with B Riley financial. Please proceed with your question.
Good afternoon, guys congrats on a great quarter.
Okay.
Hey, I was just wondering if.
If you could elaborate a little bit on the food and beverage coming in at 23, obviously.
And you mentioned Remodels had an impact.
Was wondering if you can maybe reconcile like how much of an impact that might have been and then obviously Tommy appears to be the standout in terms of sales.
Just curious maybe unpack a little bit of where that came from is that did you continue to see good growth in women's just any any help there would be.
I appreciate it.
Yeah, I'll start with the women's because boy that's a great story that we've had this year.
Jeff we always look at that with our direct to consumer basis, because that's the clean way.
To look at it but in the third quarter, we were up from just under 30 last year to just under 35, this year, which we're super excited and year to date.
We're close to <unk> 38 from roughly 30.
Last year.
So that's a very good story and then in terms of some of the remodeling in Hawaii impact Scott, Yes, yes.
Comped down we were down 3%, but we comped up 1% in food and beverage we had about $1 million of top line impacted by.
Both Lahaina being gone and then model on it we had a major <unk>.
The remodel so it was closed a good part of the quarter. So overall food and beverage business has been.
Very good.
So we've been very pleased with that.
Also I'll just add that it's been very steady Scott we're talking about this earlier today, but it's.
We haven't had more than one day or one or two days in a row that maybe were off a little bit but it has been.
Every day, we seem to keep delivering in food and beverage which is great.
Awesome, Thanks, very much for the color and look forward to following up.
Thank you thank you Jeff.
And our next question comes from the line of Janine Stichter with BTG. Please proceed with your question.
Hi, congrats on the strong quarter in a tough environment.
Another question on promotions.
That plan.
Q4 based on our last Gamble, that's I understand it's just that the environment remains promotional I think next year your high level kind of philosophical thoughts on just your willingness to flex smart promotions to stay competitive and then second for me on active customer I think Brian and buy huge number over the last year. So just any changes in retention of those customers or any habits.
Thank you.
Yeah.
I think with respect to our promotional philosophy I don't think it will really change.
A whole lot of that I think we focus on keeping our brands relevant by making sure.
But they have very clear.
Physicians that they made very clear.
And consistent brand messaging and then it's all about creating desire.
As you know what we sell is not something that people really need its more of a one item and that's our number one job through our brands is to create that desire and then have the products.
The desire can be the object of and we've been through a lot of promotional cycles forever and every year the market is promotional.
We strongly believe as we've demonstrated this year.
Third quarter.
And I think we will in the fourth quarter that we can remain Barry.
Relevant.
And perform well relative to where the market is based on those.
Brian.
<unk> activities.
So that's sort of our game plan there.
Great and then just on active customers.
Active customers as we said our active customer count is up mid single digits.
For the trailing 12 months year over year, and our new customer add rate is also up.
<unk>.
Mid single digits.
The health of our customer base, our ability to attract and retain remains quite good and then as we mentioned in the prepared remarks average annual spend is more or less flat and our retention rates are holding well which is.
Yes, something.
We have a very high retention rate and it's been holding.
Very healthy retention.
Great. Thanks, so much.
Thank you Tim.
And we have reached the end of the question and answer session I'll now turn the call back over to the chairman and CEO, Tom Chubb for closing remarks.
Okay. Thank you. Thanks to all of you very much for your interest in our company.
We wish you all a very happy holiday season, and we look forward to talking to you again next quarter.
Care until then.
Okay.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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Yes.
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Okay.