Q3 2024 Oxford Industries Inc Earnings Call
newness and excitement, our customers respond favorably.
The reaction to our products and an apparent change in the trajectory of consumer sentiment is driving improving comp store sales post-election that have begun to reverse the disappointing trends experienced the last several quarters.
As we plan for the year we are encouraged by recent sales trends in our business. We are also encouraged by our forward wholesale bookings.
While there is plenty of reason to be optimistic, we are going to be cautious about getting overly exuberant with our comp assumptions for the year and will be focused on improving operating margins through better expense control and leverage.
We look forward to outlining our fiscal 25 plans for you in more detail in March.
While we are disappointed in our third quarter results, we are confident in the product our teams have developed and our business to date in the fourth quarter and plans for the remainder of the holiday and resort season.
We are very grateful to our team and wish all of them and all of you a very happy holiday season.
I'll now hand the call over to Scott who will provide more details on the quarter and our outlook for the balance of the year Scott Thank you, Tom
Scott: There are several macroeconomic headwinds across the marketplace that negatively affected our financial results during the quarter. Most notably the continued challenging consumer environment, distractions due to the elections, and the hurricanes that impacted the southeastern United States.
Scott: In the third quarter of fiscal 24, consolidated net sales of $308 million decreased compared to sales of $327 million in the third quarter of fiscal 2023, and below our guidance range of $310 to $325 million.
Speaker Change: As Tom mentioned, we estimate that we lost approximately $4 million in sales from evacuation closures for many of our Southeastern locations and the temporary closure of several stores in Florida, including three stores in a restaurant location in St. Armand Circle outside of Sarasota that were heavily damaged.
Speaker Change: Most of these St. Armand's locations will remain closed through the majority of the fourth quarter.
Speaker Change: Including the impact of the hurricanes, sales in our full-price brick-and-mortar locations were down 6%, driven by high single-digit negative comps, partially offset by the addition of new store locations. E-commerce sales decreased 11%.
Speaker Change: which was particularly challenging in the first half of this year.
Speaker Change: had a challenging third quarter with sales down 2% compared to the third quarter of 2023.
Speaker Change: Adjusted risk margin contracted 100 basis points to 63%, driven primarily by a higher proportion of net sales occurring during promotional events in Tommy Bahama, Willie Poulter, and Johnny West.
Speaker Change: Across our three major brands, we continue to see strong responses from consumers to our promotional and end-of-season clearance events.
Speaker Change: were able to partially offset this decrease in Lily Pulitzer through lower discounts and markdowns and in our emerging brands group through our continued efforts to improve our inventory position and reduce the need for all price wholesale and promotional DTC sales.
Adjusted SG&A expenses increased 5% to $201 million.
compared to $191 million last year.
Speaker Change: During the third quarter of fiscal 2024, we incurred higher expenses related to recent and ongoing investments in our business primarily from the addition of 33 net new brick-and-mortar locations open since the third quarter of last year.
including four new Tommy Bahama Marlboro locations.
Speaker Change: Costs related to some of the approximately five net new brick-and-mortar locations and two additional Tommy Bahama Marlin Bar locations that we expect to open in the fourth quarter or early in the first quarter of fiscal 2025.
Speaker Change: edition of the Jack Rogers brand acquired in the fourth quarter of fiscal 2023 and approximately a million dollars in incremental hurricane related costs including salaries wages and additional assistance paid to employees who are affected by the hurricanes as well as cleanup cost
The result of this shield is a three million dollar
Speaker Change: adjusted operating loss, or a negative 1.1% operating margin, compared to 21 million operating profit, or 6.6% in the prior year. A decrease in adjusted operating income reflects SG&A investments and lower gross margins.
Speaker Change: Moving beyond operating income, our effective tax rate was impacted by certain discrete events that were amplified by our operating loss. Interest expense was a million dollars lower compared to the third quarter of fiscal 2023, resulting from lower average debt levels.
Speaker Change: With all this we ended with 11 cents of adjusted net operating loss per share which includes approximately 14 cents negative impact associated with loss revenue and additional expenses related to the hurricanes.
Speaker Change: I'll now move on to our balance sheet beginning with inventory.
Speaker Change: During the third quarter of fiscal 24, inventory decreased slightly on a LIFO basis.
Speaker Change: On a FIFO basis, inventory increased slightly by two million dollars or one percent, but inventory relatively flat in all of our operating groups.
Speaker Change: We ended the quarter with outstanding long-term debt of $58 million. That's $104 million of cash flow from operations in the first nine months of fiscal 24. We're outpaced by our elevated level of capital expenditures of $92 million.
Speaker Change: primarily related to the Lions Storage and Distribution Center project and the addition of new brick and mortar locations.
Speaker Change: 33 million of dividends and changes in working capital needs as the third quarter is historically our lowest operating cash flow quarter.
and they'll spend some time on our Outlook for 2024.
Speaker Change: We finished the third quarter, fiscal 2024, with negative comps of 10%, which was lower than our previous forecast of low to mid-single-digit negative comps for the quarter.
Speaker Change: Despite a negative 10% comp in the third quarter, comp sales figures in the
Speaker Change: 4th quarter to date have improved and are slightly negative. We believe this improvement in the 4th quarter will continue and result in slightly negative comps in the low single digit range in the 4th quarter.
Speaker Change: These assumptions are consistent with our previous expectations from September that assume low to mid-single-digit native coms for the remainder of the year.
Speaker Change: However, as a result of the miss in the third quarter
Speaker Change: The impact of the hurricanes and continued weakness in the wholesale channel, we have revised our sales forecast accordingly. Our revised sales forecast includes a $3 million reduction in sales in the fourth quarter from stored restaurant closures resulting from the hurricanes.
Speaker Change: For the full 52-week year, we now expect net sales to be between $1.5 billion and $1.52 billion, or a decline of 3 to 4 percent, compared to sales of $1.57 billion in the 53-week fiscal of 2023.
Speaker Change: Our updated sales plan for the full year of 2024 now includes low to mid-single digit sales declines in Tommy, Bahama, Lilly, Poulter, and Johnny Was partially offset by sales growth in the low single-digit range for the emerging brands group.
Speaker Change: By channel, we expect low to mid-single digit sales decreases in the e-com and full price retail channels. We expect wholesale sales, which were down $22 million in the first nine months of the year, to be down another $4 million in the fourth quarter of 2024.
Speaker Change: We expect growth in our outlets as those locations continue to perform better than our full-price locations in the current environment And in our food and beverage locations that will benefit from the addition of four new Marlin Bar locations during the year
Speaker Change: Consistent with our previous guidance, we still anticipate gross margin for the year will decline by approximately 50 to 100 basis points.
Speaker Change: compared to the prior year. It's expected increased activity during promotional events across our brands will more than offset the gross margin benefit from proportionally lower wholesale sales.
Speaker Change: For the year, we expect SG&A to grow in the mid-single-digit range due to the investments in our business, including expanding our store count at a net of approximately 30 locations with four new Tommy Bahama Marlon bars, continued IT investments, and the addition of Jack Rogers.
Speaker Change: Additionally, as discussed during our last call, we expect the Jack Rogers brand acquired in the fourth quarter of fiscal 2023 to generate an operating loss of approximately 2.5 million dollars in 2024 as we reset and refocus the business.
Speaker Change: We also anticipate lower interest expense of $3 million for the year compared to $6 million in 2023 and higher royalty income higher royalty and other income primarily from a full year of the time of the homeowner in Monterey Resort
Speaker Change: Additionally, we now expect a flat adjusted effective tax rate of approximately 23%, consistent with 2023, with both periods benefiting from certain favorable items.
Speaker Change: including an estimated $0.11 per share impact from the hurricanes in the fourth quarter on top of the $0.14 from the third quarter. We had spent fiscal 2024 adjusted EPS to be between $6.50 and $6.70.
Speaker Change: In the 13-week fourth quarter of 2024, we expect sales of $375 to $395 million compared to sales of $404 million in the 14-week fourth quarter of 2023.
Speaker Change: This reflects our low single-digit negative comp assumption, lower wholesale sales, and one week less of sales that resulted in 17 million of sales in Q4 of 2023, partially offset by the addition of non-comp stores. We also expect
Speaker Change: We expect this to result in fourth quarter adjusted EPS between $1.18 and $1.38, compared to $1.90 in the fourth quarter of 2023.
Speaker Change: The spending on the investments we're making in 2024, I'd like to briefly discuss our CapEx outlook for the fourth quarter. Consistent with our part...
Speaker Change: quarter guidance, we expect capital expenditures to be approximately 150 million dollars, including 92 million incurred during the first nine months of the year.
Speaker Change: compared to $74 million in fiscal 2023, with approximately $75 million related to this significant multi-year project to build a new distribution center in Lyons, Georgia that will enhance the direct consumer throughput capabilities of our brand.
Speaker Change: The remaining capital expenditures relate to the execution on our pipeline of Marlin bars, increases in store count across Tommy Bahama, Lillie Paltzer, Johnny Woz, Southern Tide, and the Buford Bonding Company, and increased investments in our various direct consumer technology systems initiatives.
Speaker Change: We expect this elevated capital expenditure level to moderate in 2025 and further moderate in 2026 and beyond after the completion of the Lions Georgia project.
Speaker Change: We also have a positive outlook on our cash and liquidity position as well.
Speaker Change: Thank you for your time today, and we'll now turn the call over to the operator for questions.
Thank you.
Speaker Change: This time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation phone will indicate your line is in the question queue.
Speaker Change: You may press star 2 to remove yourself from the screen.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.
One moment please while we pull for questions.
Speaker Change: First question is from Ashley Owens from Keith and Capital Markets. Please go ahead.
Ashley Owens: Hi, good afternoon. So you mentioned some improvements to store comps so far in the fourth quarter and holiday being off to a better start. I know you mentioned that Outlet continues to track better than full price, but could you just parse that out what you're seeing from a brand perspective in terms of store comps?
Speaker Change: about the weekend after the election, we started seeing, you know, recovery. So, all the brands, I think, are slightly negative, except Lilly might be slightly positive right now. But they all are improving. And so the negative comp, which started the first week or so, we're in double digits negative. We are now in the lower single digit negative range.
Speaker Change: And to amplify what Scott said, I think the important point is that they're all improving sequentially versus where we were in the third quarter, really in the first week of November.
Speaker Change: which is great to see, with Lily being the strongest, I think, at this point.
okay gotcha that's helpful um then just
Speaker Change: Any color on the wholesale order book for resort season what you're hearing from your specialty and department store partners And then just as a comparison Can you maybe talk about the magnitude of newness you're anticipating relative to last year and how much you plan to lean into that aspect? Of the business seeing as it has been working really well
Speaker Change: Yeah, well what I'll tell you about the resort, you know, sort of the current wholesale selling is that it's very strong. We're performing well.
Speaker Change: have it for sure, and in terms of what we actually had booked for this.
Speaker Change: time period and we do expect to be down as Scott mentioned in his section.
up there year over year in the wholesale.
Speaker Change: for the fourth quarter, but remember that those were, you know, bookings and reorders that would have happened some some time ago.
Speaker Change: we're seeing there, and it all goes back to performance on the wholesale floor. And as I mentioned in my section, what we love about performing well in the wholesale is that on those floors with the great retail partners that we have, you're going head-to-head.
Speaker Change: with a lot of other great brands and we're holding up and showing up really really well in that context, often being the top of the department and if not the very top close to it.
Great. Super helpful, Collar. Thanks so much. Thank you, Ashleigh.
Speaker Change: Our next question is from Janine Spencer from PTIG. Please go ahead.
Speaker Change: Hey everyone, you got Ethan, Saggy on for Janine. First question, just with all the tariff uncertainty out there, would be helpful to get your thoughts on how the company's currently positioned in terms of sourcing and, you know, what plans you may have in place to mitigate some of the potential headwinds from increased tariffs next year?
Speaker Change: talked about and it's a little hard to know exactly what might happen. I would say like all or almost all of our peers we do have exposure to China.
We have really no exposure to Mexico or Canada.
wouldn't impact us if those were isolated.
Speaker Change: would be like we did during the first Trump administration, and basically it's a combination of moving production out of China.
Speaker Change: We wouldn't be able to move everything, but there are things that we could move out, and we would do that.
Blow
Speaker Change: We had a lot of success with that last time around.
Speaker Change: And in some cases, we might do some, you know, work with amounts of very small
we would expect the same this time as well.
Speaker Change: Got it. That's really helpful. And then just a follow-up, so far through the holiday season, how has the promotional activity been across your brand and just in the industry in general compared to your prior expectations?
Speaker Change: Well, as we commented on in our prepared comments, I mean, we have done more business, you know, sort of during our promotional events. And in some cases, maybe you've extended the time period for those.
Speaker Change: I think in the case of Lilly, we offered a little bit, slightly more discount this year.
Speaker Change: then in terms of the market. But, you know, that's all baked into the numbers that you saw in the forward guidance.
Speaker Change: I think it's, you know, that's been a staple of holiday seasons for quite a while now.
Speaker Change: If there was any difference this year, I would just say that I think it started maybe earlier this year than it has in past years.
Speaker Change: Like a lot of people, I went out shopping Thanksgiving week and actually ahead of the Thanksgiving holiday, and it seemed like almost every retailer you went in was.
Speaker Change: you know, in full promotional mode already. They weren't even waiting for Black Friday, they were already there. And as you know, no doubt, a lot of them went a lot earlier than that.
Yep, got it. Thanks so much. I'll pass it on.
Thank you.
Speaker Change: As a reminder, if you'd like to ask a question, install one.
Speaker Change: Next question here is from Mauricio Cerna from UPS. Please go ahead.
Mauricio Cerna: Greg, sorry, Greg, good afternoon. Thanks for taking my questions. First, you know, to start, you mentioned one of your focuses is to
Mauricio Cerna: improve operating margins in 2025. Maybe could you provide any initial guideposts for margins and you know also any color on sales you know and also another follow-up on
Mauricio Cerna: Could you provide, like, any math on, you know, the Tony Bahama modeling bars in terms of, like, their contribution to sales so far this year or expectations for this year and going into 25 given what you, you know, the openings that you've made over the last 12 months or so? Thank you.
Yeah, so...
Speaker Change: in the prepared remarks. We are encouraged by what we've seen in the wholesale bookings.
Speaker Change: We're encouraged by what we're seeing in our own direct channels.
Speaker Change: and our focus is really going to be on improving the operating margin through...
Speaker Change: better expense management and in some cases reduction and thereby achieving greater operating leverage.
Speaker Change: And then your second question about the economics of the Moreland Bar, Scott, do you want to?
Yeah, yeah, yeah, so on the Marlin bars...
Speaker Change: We talked some in the past about, you know, some of these are conversions within existing centers and we tend to get a very nice lift in the retail side and tend to have a solid food and beverage locations. These units
Speaker Change: They cost, you know, three to four million dollars, you know, to build But the nice thing is is the patio area is rent free Which is where a lot of the seating is so it's very efficient from a rent standpoint very efficient from a labor standpoint
Speaker Change: and it's pushing, you know, the traffic to the store. So the combined model, while we tend to see, you know, the market improvement on profitability from...
the Standalone Retail Store.
Speaker Change: Our food and beverage locations tend to average about twice the sales per square foot that a just a standalone store.
Speaker Change: average. So it really is a, you know, not only a profitable venture, but it also is a great customer acquisition tool and brand awareness tool.
Speaker Change: Sorry, and then if I may, just on the Q4 growth margin guidance, I think you mentioned you expected
Speaker Change: flat year over year and I guess that's like an improvement relative to what you have for the full year, 50 to 100 basis points contraction. I just wanted to get a better sense of what is driving that sequential improvement. I think it will be a little more mixed with direct consumer being a higher percent of the mix.
Speaker Change: is certainly helping there. And we've got a lot of new locations coming in.
Speaker Change: And our inventories going in are, we believe, are in very good shape. So, you know, the level of...
Thank you.
Thank you, Mauricio.
Speaker Change: And our last question is from Paul Lechwitz from Citigroup. Please go ahead.
Paul Lechwitz: Hey, thank you guys. I'm curious if you could talk about what percent of your sales occur at sold price?
currently like if you look back over this year versus
Paul Lechwitz: What you might have seen historically and curious if you see that percentage changing given the consumer environment that you described
Paul Lechwitz: And then second, you mentioned outperformance of the outlets, I believe. Is that driven by stronger traffic or stronger conversion or both? Maybe if you could just talk about the different comp metrics of full price versus factory source, thanks.
Paul Lechwitz: Well, I would say, Paul, on the first part of your question, we definitely, and we've talked about this for each of the last several quarters, we've definitely sold more during the promotional events.
Paul Lechwitz: proportionately than we have in prior years and that's as we've talked about that's where some of the pressure on our margin came in like we were down on an adjusted basis 100 basis points for the third quarter and that's a lot of where that where that came from.
Paul Lechwitz: of the business that doesn't include just the other promotional type activities like when we do a flip side of that you're more of our normal part from a activities in a full price at the true all price channel so if we don't have huge number outlet stores you compared
Paul Lechwitz: Summoned industry and we are teaching those the primary goal is to clear. We did make a little bit for but not Not a lot
Speaker Change: Got it. Then I guess just to follow up on the...
Speaker Change: On the higher percentage of sales happening during promotional periods, is it that business performed better than you thought during those promotional events, or is it just a higher mix of sales because sales were weaker during the non-promotional periods?
I'd say a little of both.
Speaker Change: I mean in some cases we did outperform expectations on the promotional events. There's no question that full price sales have been, you know, lower than we anticipated.
And that alone would, you know, would...
Speaker Change: change the ratio towards the promotional events. But in at least in some cases, we did more during the promos than we thought. And part of that is when you have less full price selling, there's more inventory available during those promotional times.
Got it. Okay, great. Thank you. Good luck.
Thank you.
Speaker Change: This concludes the question and answer session. I'd like to turn it back over to Tom Chubb for any closing comments.
Tom Chubb: Okay, thank you all very much for your interest. We look forward to talking to you again in March, at which time we'll lay out 2025 for you. And until then, we wish you a very happy holiday season and New Year.
Speaker Change: This concludes our teleconference. You may disconnect your lines at this time. Thank you again for your participation.