This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: 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. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Ann Shoemaker, Treasurer. Please go ahead.
spk00: 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 implied in 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 and First Quarter 10-Q. We undertake no duty to update any forward-looking statements. During this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab, of our website at Oxfordinc.com. And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO, and Scott Grassmeyer, CFO. Thank you for your attention, and now I'd like to turn the call over to Tom Chubb.
spk02: Good afternoon, and thank you for joining us. I am encouraged by our third quarter results as each of our branded businesses, Tommy Bahama, Lilly Pulitzer, and Southern Tide exceeded our internal plans. During our historically smallest quarter of the year, our full price e-commerce business grew 51%, helping partially offset the headwinds in other channels due to COVID-19. Our sustained digital success this year underscores the power of our brands and their strong consumer connections and is a great indication that our business is well positioned for success in the post-pandemic environment. With the onset of COVID-19 in March, we focused on three priorities, the safety of our people and our customers, protecting the integrity of our brands, and preserving liquidity. We have done a good job executing on all three of these fronts. At the same time, our business and industry are facing significant changes that have only accelerated during the last nine months. As we have progressed through the year, while not taking our eye off the three priorities I outlined, we have resumed our focus on initiatives that will help us to better capitalize on important market trends in both the near term and the long term. In the post-pandemic world, we believe products will continue to trend towards easy to wear and easy care. Traffic in malls will remain significantly below 2019 levels. Department stores will be less relevant than they were before. E-commerce will be bigger and more important than ever. Company-owned stores and restaurants will be a physical representation of the brand, seamlessly integrated into a total direct-to-consumer ecosystem, including e-commerce, and heavily digital, diversified marketing channels will be essential. All of these trends should benefit our business as we emerge from this crisis. We are building upon our already strong foundation and are well prepared for the post-pandemic environment. We continue to identify ways in which we can better build a customer-focused, digitally-driven, mobile-centered and cross-channel, personalized and seamless shopping experience that recognizes and serves the customer in their brand discovery and purchasing habits of the future. We are delivering innovative and differentiated products that are on brand and in sync with consumers' desires and needs. From offering virtual shopping appointments, curbside pickup, digital clienteling, and having our store associates field customer service calls, to delighting our guests with our exciting Marlin Bar concepts, Each of our brands continues to develop and implement new ways to enhance the customer experience. We continue to invest in improved customer data and analytics that are helping and will help us assimilate, analyze, and use customer data to provide a better, more personalized experience that boosts retention rates and spending levels. Importantly, these tools are also helping us identify and acquire new customers, a critical initiative for us. We continue to expand our enterprise order management capabilities to increase our ability to ship from our company-owned stores by matching demand from anywhere. With inventory located anywhere, we are able to minimize stock outs, increase customer satisfaction, and improve inventory efficiency. This is helping us navigate through the pandemic and positions us well to grow and thrive in a new post-pandemic normal. Across Oxford, our talented teams have risen and continue to rise to the occasion by staying focused on our core purpose of making our customers happy. Our brands are all happy brands, and our customers look to us to deliver happiness through our products, communications, and brand experiences. Throughout this challenging period, our people in every function from creative and design to shipping and fulfillment and every function in between have helped us deliver happiness to our customers. We are grateful for their efforts and proud of their achievements. We have been in the apparel business for almost 80 years and have a portfolio of businesses which has adapted over the years to remain relevant to the marketplace and the consumer and to deliver shareholder value. Today, we announced our most recent actions the decision to exit our legacy Lanier apparel business, which has been a part of our portfolio for more than 50 years. Throughout that time, Lanier apparel has been well-run by an exceptional group of people. That said, Lanier's business model, which provides licensed tailored clothing to department stores and big box retailers, does not fit our long-term vision for the enterprise and the challenges presented by the pandemic have amplified this misalignment. Exiting this business will result in a portfolio that is completely in sync with our strategy. We are working closely with our licensors, customers, and suppliers to ensure a smooth process. And I want to personally thank the dedicated employees of Lanier Apparel for their contributions to Oxford over these many years. I'll now turn the call over to Scott with more details on our third quarter results and our plans for the rest of the year. Scott.
spk01: Scott Walker Thank you, Tom. We were quite pleased with our performance in the third quarter given the circumstances. As a reminder, our third quarter is historically our smallest quarter of the year. with Lilly Pulitzer's spring-summer clearance event making a meaningful contribution. This year we made some changes to the event. We did not hold sales in our stores. Lilly's customers show up in force, and for the safety of our employees and our customers, we decided to limit the sale to online. The other big change was to hold the event in two parts, the first in June in our second quarter and the second in September in our third quarter. The third quarter event was 12 million or 41% lower than last year due to the shift. The combined online events, however, were very successful and $2 million or 7% higher year over year. For our full price e-commerce business, we saw solid growth in each of our brands on a consolidated basis Our full-price e-commerce comps increased 51%. Each of our brands exceeded our internal plans for the third quarter, with full-price e-com at Tommy Bahama increasing 38%, Lily Pulitzer up 93%, and a 36% increase at Southern Tide. Our full-price retail sales decreased 45% as traffic was down significantly, and most of our stores continued to operate under various restrictions. More important, Hawaiian locations were severely impacted by travel and other restrictions. Tommy Bahama operates 19 locations with a food and beverage component. Excluding Hawaii and New York, where we had extended closures and restrictions, we were very pleased with our restaurant comp of negative 6%. Our newest Marlin Bar in Jacksonville, Florida, which opened in the second quarter, exceeded even our pre-pandemic plans. Overall, restaurants were down 30 percent year over year. Our gross margin was 55 percent in the quarter, comparable to last year, and SG&A decreased 15 percent, or $21 million, some of which is permanent. Impacting both gross margin and SG&A, were charges related to the exit of linear apparel, which Tom just discussed. During the third quarter of fiscal 2020, we recorded a $10 million pre-tax charge related to the linear apparel exit. About $6 million of this was inventory markdowns impacting cost of goods sold. Most of the inventory markdown was reversed and included in a LIFO accounting credit in corporate and other. Approximately $4 million were SG&A charges related to operating lease impairments severance and retention cost, and non-cash fixed asset impairment. In addition, between now and the completion of our exit in the second half of 2021, we expect to incur approximately $5 million of incremental charges. Approximately half of these charges are expected to occur in the fourth quarter of fiscal 2020. We expect the exit of linear apparel to be cash flow positive. Moving to our balance sheet. We ended the quarter with inventory 4% lower than last year, which we believe is properly reserved and positions us well for future sales. As Tom mentioned, reserving a high level of liquidity has been a priority for us, and we have executed well on that front. The strength of our balance sheet entering the pandemic, as well as the actions we have taken to mitigate the COVID-19 impact, positions us well for the future. We ended the third quarter with $35 million of borrowings and $53 million of cash. This left us in a net cash position of $18 million compared to $22 million in the third quarter last year. And we had $287 million of unused availability under a revolving credit agreement. We have re-evaluated all of our capital projects. Our technology projects to support our digital initiatives retain their high priority. We also remain committed to expanding our successful Marlin Bar concept. Year to date, we have converted two locations to Marlin Bars and opened a new location. In the fourth quarter, we expect to open two Marlin Bars in Lahaina, Hawaii, and Fashion Valley in San Diego. And Southern Tide has opened two more stores in Florida this year, bringing their store count to three. We have also taken advantage of the current situation to do some pruning. Year-to-date, we have closed four Tommy and two Lilly stores. We expect to close two more locations this year and have a handful slated for closure in 2021, unless the landlord provides us a compelling reason to stay. Looking ahead with the recent resurgence in COVID cases, we continue to see depressed traffic in our stores, with particular concerns around our 25 stores and three restaurants in California. Meanwhile, e-commerce has remained strong quarter-to-date. Based on current trends combined with our view of how we think the remainder of the season plays out, we believe our fourth quarter revenue will decline on a percentage basis similar to what we experienced in the third quarter. As we think about fiscal 2021, it's too early to comment on anything specific, but with our exit from Lanier and other macro changes, we expect our top line to be smaller than 2019 However, we anticipate returning to profitability. Lastly, our commitment to returning value to shareholders is clear. Oxford has paid a dividend every quarter since we became public in 1960, and our board of directors has declared a quarterly dividend of 25 cents per share. Thank you for your time today, and we will now turn the call out for questions. Laura?
spk06: 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 sign 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. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment while we poll for questions. Our first question comes from the line of Paul LaFleur with Citigroup. You may proceed with your question.
spk05: Hey, guys. Thanks. curious if you can maybe talk a little bit more about what you're seeing quarter to date, both in terms of sales trends and how that ties into what you expect for the rest of the quarter. Also, curious about the promotional environment, what you're seeing currently, and how you're thinking about the gross margin line for 4Q. And I think part of the gross margin improvement that you saw this quarter was probably from the change in Lilly promos. But maybe can you also talk about the other moving pieces within the gross margin line in 3Q? Thanks.
spk02: Okay. I'll talk about the sales trends a little bit. Paul, this is Tom Chubb, and then I'll let Scott comment on anything else he would mention on the sales trends as well as walk you through the gross margin issues. So sales quarter to date, we've actually been really pleased with. Our business has been strong with the election. November, as expected, started out a little bit slow, but we had really planned that. And then since then, it picked up momentum. And I be thinking that the sales decline fourth quarter would be a bit less than the third quarter, but because of what's happening there with the new restrictions and having 27 stores and three restaurants there, we've backed off our expectation a little bit for the fourth quarter. But what we've seen has been good. It's been you know, stores quarter to date have actually been better. They've continued to pick up a little bit of steam and e-commerce has continued to be strong. I will point out the obvious that e-commerce with FedEx and UPS having the issues they're having, that'll probably start to wind down earlier this year than it has in years past, but of course we build all that into the plan. as well, so really happy with what we're seeing so far. But, you know, obviously still a challenging environment out there.
spk01: As far as the gross margins in Q3, consolidated basis, we're, you know, a little bit up, but slightly up year over year, and that did benefit from the shift in the Lilly clearance event. That's where some of it was moved back to the second quarter. But Tommy was just a little bit lower year over year, And Lilly was meaningfully higher, but again, that mix influenced that. Then Southern Tide and Lanier were both meaningfully lower due to mainly some inventory markdowns. So, but it all blended together to be up slightly.
spk05: Male Speaker 2. Got it. And then how should we be thinking about gross margin for 4Ks? Male Speaker 1.
spk01: For the fourth quarter, We'll probably be down slightly year over year, but it'll be pretty comparable in Q4. Down just a little bit is the way it's looking right now.
spk05: Got it. Thank you. Good luck.
spk01: Thanks, Paul.
spk06: Our next question comes from the line of Edward Yuma with Seabank Capital Markets. You may proceed with your question.
spk03: Hey guys, thanks for taking the questions today. I guess first and just as a follow up to Paul's question, I know that your promo at Tommy was restructured this year and wasn't the classic kind of bounce back. I guess kind of how do we think about if any modeling implications to the lack of a bounce back? And then two, you know, I know Lanier has historically been really managed for cash flow. Obviously the world has changed, but how should we think about kind of what the normalized cash flow was from Lanier as we think about kind of modeling your business post-Linear. Thank you.
spk01: I'll actually let you handle this. Okay, okay. On the bounce back at Tommy, we did the same event. The timing was just a little bit later, where last year the cards went out in late October, and this year they didn't go out until, I guess, the second week of November. So it's just really a little bit of a timing shift at Tommy, but they still have the... both the cards and the flip side of that where you spend a certain amount and we will expect a little bit less transactions because of the traffic in the stores but we are still doing it online also and
spk00: cash flow.
spk01: Oh, yeah. Lanier's cash flow was very volatile over the last couple years. I mean, it would have some ebbs and flows. But normally, on a normal year when they weren't having a significant inventory build or contraction, Lanier would have very little capital expenditures, very little DNA, so it's really the tax-affected operating profit was really usually translated to their cash flow. But they did over the last couple years have a lot more volatility with inventory levels at times running up and then at times running back down. And then this year, obviously, they've had a very challenging year, so they've been using cash in their normal operations this year. And So, you know, it was becoming, you know, we didn't have confidence that we could maintain that cash flow.
spk02: I think that if you look back at that and sort of normalize the inventory peaks and valleys through the years, the sales were really sort of flatlining. And so you really didn't, if you averaged it out over time, you're talking a pretty small amount of cash flow that was actually coming out of the linear.
spk03: Got it. Thanks so much, guys.
spk06: Our next question comes from the line of Susan Anderson with B. Riley FBR. You may proceed with your question.
spk08: Hi, good evening. Thanks for taking my question. I guess I'm curious, just looking at fourth quarter, are you doing anything different with the product or the business? I think typically you would be rolling out your resort line, but with limited people, I guess, traveling to resorts. I guess, how are you marketing the product to consumers? And then also, I'm just curious if you could talk a little bit about the home project at Tommy and how that's doing.
spk02: Yeah, so, you know, the theme is, of course, as we talked about in product, it's really easy to wear and easy care. You see that throughout the industry, and that's true for us as well. So what that means is a lot of lounge type wear across all our brands. All that type of product is doing well. quite well, as they always do this time of year in Tummy, Bahama. Second layer knits for men are doing really, really well. They're giftable items. They're comfortable items. They actually lend themselves really well to the work-from-home Zoom environment. And then those sort of athleisure-type performance-inspired products that we have in all the brands have done really well, and that's where we've tried to tilt the product assortment. Of course, we were reacting on very short notice, but that's what we've tried to set up for a holiday, and that's what's selling well. One of the highlights, Susan, of the selling so far in Tommy Bahama has been on the women's side, where typically for Tommy, women sort of takes a step back this year, at this time of year, and it becomes really all about the men's business. Well, this year it's different in that men's is doing well, but women's is really stepping up, and we've got quite a few items, women's items, In our top ten right now for Tommy Bahama, and those are really things that are coming out of our Island Soft line, which I would describe as being cozy loungewear. And then our Island Zone line, which is performance product that we describe as sort of effortless function and feel products. So those are real bright spots that we're very excited about. We've got a really cool thing in Lilly Pulitzer right now, which is a couple items that have a built-in face mask that you kind of pull up when you need it, and when you don't need it, you can drop it back down, which is a fun nod to the current environment And that's creating some excitement and some buzz as well.
spk08: Wow, that's great. And then what about the home product at Tommy?
spk02: Yeah, well, home kind of stuff, giftable type items, you know, of course, very, very popular. It's not a massive part of the line at Tommy Bahama, but it is, you know, it is popular as always this time of year. Cookies also sell well, which is an interesting extension of our food business. But we do offer packaged cookies in our stores. Those are doing really well right now. Awesome.
spk08: Wow, that's interesting. I guess really quick, too, just on the regional performance, did you see any change from second quarter into third quarter? And then also, I guess it sounds like Hawaii still is a pressure point, but has that improved at all?
spk02: Yeah, I think the big theme has been that sort of throughout the year, And I'm trying to draw some generalizations, but sort of Florida and the southeast have tended to be the strongest pretty much throughout this whole situation. And then the rest of the country has been weaker with, you know, movements and traffic really sort of corresponding to the level of COVID infections and hospitalizations and things like that. So the Midwest has been weaker lately than some of the other regions. Obviously, California has its challenges. And Hawaii, for a long time, you fundamentally couldn't travel at all there. They have created a path for you to be able to travel now, at least. So that's improved a bit in Hawaii. And Scott, anything I'm missing there on the regional flavor? No, I think that covers it.
spk08: Okay. And then just lastly, really quick on Southern Tide, was it the new stores, I guess, that helped to drive the growth there, or did you guys see also, I guess, maybe growth driven by online pickup?
spk02: It was both, and then a little bit of an off-price wholesale, too, I believe, that helped But we were pleased with what we saw in direct-to-consumer. You know, e-com, as we mentioned, was plus 36 for the quarter, which was great to see. And then also we were happy to have the stores open. And Southern Tide continues to do some great marketing. I think they punch above their weight in that regard and You know, and that's been true this year, too. I think they've tailored their marketing very well and, you know, continue to deliver a lighthearted, upbeat, happy message, but one that was not tone deaf to what's going on in the world either.
spk08: Great. Okay, well, thanks so much, and good luck over holiday.
spk02: Thank you, Susan. Thank you.
spk06: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. You may proceed with your question.
spk07: Hi, good afternoon, everyone. As you think about the shift with Lilly Pulitzer and the flash sales, how are you thinking about promotional cadence going forward for all of the brands? And then also, as you think about this fourth quarter into next year, The expense structure giving shipping and shipping surcharges with online, how are you planning? Thank you.
spk02: Okay, I'll talk about the promotional thing. I think what we learned this year is that shifting the promotional cadence around is not a bad thing at all. I think the customer actually enjoys the variety a little bit. It takes some of the predictability out of it, which is good for us. from a business basis, so I don't know exactly what we'll do next year. It's way too early to say that, but I do think the idea of mixing things up a bit is a good idea, and it's something that sort of was inspired, if you will, by the the coronavirus situation this year, but I do think it's one of those valuable lessons that we'll take away from this year, because we're really pleased with the way that our promotional activities played out this year, and we think it's been good for the guests created some excitement and variety for her, and it's good for our business. And then on the shipping charges and the surcharges and how that will impact the quarter, I'll let Scott comment on that.
spk01: We are obviously getting some surcharges, but we've also implemented – the enterprise order management abilities to ship e-com from store at Tommy, and that's going to help mitigate that some. We're not shipping all orders from store, obviously, but we are able to take advantage of that. So we do have a bit of mitigation because we're shipping a lot of orders a lot closer to the person's home. So not only will it be better customer service, it also will you know, reduce some freight costs. So, you know, net-net will probably be a little bit higher, but we do have a little bit of mitigation with the enterprise order management system.
spk07: And one last thing. Of the stores that haven't reopened, are you looking to close them? Do you keep them? How do you think about the store base? And in, like, Manhattan, how do you think about it?
spk02: Well, we've got, I think, a handful of stores that have already closed this year, a few more that will close during the year, and then a group next year. And altogether, I think that's about 22. Yeah, the two together. The two years together. Those are, you know, and that could change depending on landlord negotiations or whatever, but What we're really doing, Dana, is looking very hard at any opportunity where we have a kick-out clause in a lease that allows us to get out at a certain point or we've got a renewal. We're just looking at them and evaluating them very carefully to see whether it makes sense to continue to operate that store or or can we satisfy that demand some other way, either through targeting e-commerce more heavily to that area or through an enhanced wholesale relationship or whatever it may be. So we're being smart about it, I think, being very analytical about it, taking a 360-degree view of those areas, stores and, you know, if we were to close them, how will we continue to serve that guest and capture those dollars? And I think what will happen is that will lead to some closures, but we're also opening a few stores too, as you know. So net-net, I think the store count will probably drift down maybe just a little bit. over the next few years, but we'll end up with a portfolio of stores that are better positioned and more profitable for us.
spk07: Thank you.
spk06: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Steve Morota with CL King. You may proceed with your question.
spk04: Good afternoon, Scott and Anne. Forgive me, my phone disconnected briefly if this question was asked. My apologies. But can you talk a little bit about inventory being down 4% versus sales down being 27% and what gives you confidence that the inventory composition is good?
spk01: Yeah, our inventory on all groups except Tommy is down, and Tommy is pretty flat. And remember, we shifted their summer line to serve as kind of the resort spring, much of the resort spring line. So we do have that spring inventory in-house, where last year some of that would have not left factory yet. So at the end of the quarter, I think we have that difference. I think our inventories are in good shape. Our old inventories, our aged inventories are actually lower year over year. And our core inventories, some of the basics, is a little bit higher year over year. But we feel good where that will work out in ordinary core. So we feel good about our inventory and the items that we felt we do need to liquidate. We've taken proper reserves on those. So I think overall we are in good shape.
spk04: That's very helpful. I'd also like to review what you said about Marlin Bar that they are tracking at your pre-COVID planned levels. That's pretty amazing considering what COVID has done to restaurant traffic in general. Can you unpeel that a little bit more?
spk02: Yeah, no, not only are they tracking at pre-COVID plan levels, the new one that we opened in Jacksonville is actually exceeding the plan that we had for it before we had even heard of the coronavirus. It's been really awesome to see, and it's also driven a big increase in our retail business there. It's not technically a comp because we – move the location of that store within the center. But whereas our tummy stores in general are comping down about 40%, that location this year is comping up since the opening in the Marlin Bar, I think about 30% or so. So you have a massive difference, which is attributable, I think, primarily to the existence of the Marlin Bar there. And one of the greatest things about that is a huge amount of that comp increase is actually being driven by women's. So that's turning into one of our strongest women's doors. And as you know, Steve, we've always thought we had a bigger opportunity in women's than we've been, you know, sort of bringing into the cash register. And what we're seeing is that in these Marlin bars, Not only do they help drive the overall business, but they really help drive the women's business, which is a big opportunity for us. And then you, Steve, heard from Scott before about all the advantages of a Marlin bar with the lower capital commitment, the lower rent number that's typically involved. in the lower labor level that you can operate on there. So they're a winning formula. I would also say that from a consumer standpoint, they're more about how people want to eat out these days with the more of a grazing approach than a full sit-down multi-course meal that we have in our full-service restaurants. So they offer a great quality of food, but it's in a sort of a small plate type and sandwich and bowls and salads format with great cocktails and wine and beer and such. And that's something that's very appealing to people in the contemporary market.
spk04: That's terrifically helpful. I'll take the balance of my questions offline. Thank you again.
spk06: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Tom Chubb for closing remarks.
spk02: Okay. Thank you, Laura, and thanks to all of you for your interest in our company. Stay safe, and I wish you and your families a very happy holiday season, and we'll look forward to talking to you again in March.
spk06: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your evening.
Disclaimer