Oxford Industries, Inc.

Greetings. Welcome to the Oxford Industries Inc. First Quarter Fiscal 2022 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. I'll now turn the conference over to your host, Jevin Strasser. You may begin.

Thank you and good afternoon. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or 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. 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 and COO. Thank you for your attention, and now I'd like to turn the call over to Tom Chubb.

Good afternoon, and thank you for joining us. We are pleased to be reporting an incredibly strong start to fiscal 2022. Scott will provide additional detail in a moment, but here are some of the highlights. Before I jump in, I want to pause to thank our incredible team for all that they do. Five consecutive quarters of record earnings do not happen on their own. Each of our happy, upbeat lifestyle brands, Tommy Bahama and Lilly Pulitzer, as well as Southern Tide, the Beaufort Bonnet Company, and Duckhead, which comprise our newly designated emerging brands group, achieved exceptional results in the first quarter of 2022. All three operating groups posted strong sales and operating profit growth over 2021. On an adjusted basis, our consolidated first quarter sales of $353 million, operating margin of 22%, an EPS of $3.50, which was an 85% increase over last year's record first quarter EPS of $1.89, all outperformed expectations. While a terrific quarter for all, the biggest contributor to our record earnings was the performance of our largest brand, Tommy Bahama, where sales grew 46% versus 2021, to $228 million and adjusted operating margin increased by nearly 1,000 basis points to 23%. We continue to focus on the execution of our strategic priorities that I laid out at the beginning of the year, which drive both our performance to date and optimism for the future. Our brands are at the core of our business and we remain acutely focused on brand positioning and voice to remain true to who we are. While each brand has a unique DNA, inspiring optimism and aspirations for happiness is paramount across the portfolio. This can be seen particularly through enhanced creative and digital marketing efforts, which are driving tremendous success. The effectiveness of our marketing efforts can be further evidenced by the 2.2 million active customers we had at the end of the quarter, an increase of over 20% relative to pre-pandemic levels. In addition to our relentless focus on the health of our brands, delivering A-plus product, A-plus distribution, and A-plus communications, continues to further drive our performance. From a product perspective, we are rolling out new offerings to capitalize on consumers' return to social events, leisure travel, and even the more casually attired post-pandemic physical workplace. Tommy Bahama is winning and gaining share through women's apparel. The category continues to grow faster than even our men's business, with particular strength in dresses and swims. The St. Lucia and Diamond Clip Jacquard tier dresses brought newness alongside the continued strength in the two-palm ruffle linen hero franchise. Further, we cater to the continued easy-to-wear trend through innovative fabrications that like the Island Zone franchise's Aubrey performance fabric, which has established itself as a platform fabric. In the men's line, we have also leaned into performance-oriented styles with the Island Zone collection comprising approximately one-third of Tommy Bahama men's business, including the Palm Coast polo and the chip shot and new on-par shorts. At Lilly Pulitzer, we are leaning into one of the brand's long-term competitive advantages and winning in the social dressing category, as weddings and special events are back in full swing. These categories are driving business towards higher price tiers, such as the poly midi dress, an especially popular event piece. We also play to the trend towards linen, with continued innovation, introducing the light and airy machine-washable Lagoon linen. Also, our Luxletic activewear collection continues to grow on the foundation of fabric platforms such as the Merrill nylon and Fairway performance twill. On the distribution front, our mix among our brands continues to shift towards higher margin direct-to-consumer channels, which comprise a larger portion of our total revenue than they did prior to the pandemic. While direct-to-consumer continues to grow at a faster pace and is by far the largest part of our business, our wholesale business is very healthy and poised to grow at a modest rate over the coming years. We have outstanding wholesale partners with whom we are aligned on how to present and sell our wonderful brands. This enables us to have a wholesale business which is mutually profitable for both us and the retailer and exhibits our brands in an elevated way to consumers who we might otherwise not reach. Our retail footprint continues to expand as well. In April, we enhanced Lily Pelletier's presence in the southeast with the opening of a new location in Alpharetta, Georgia's Avalon community. In May, we were delighted to open our second, the Beaufort Bonnet Company Store in Kiowa Island and a new Southern Tide store in Cary, North Carolina's recently launched Fenton Project. We continue to invest in our premium bricks and mortar footprint with leases secured for two additional Southern Tide stores in Florida and a new Lilly Pelletzer store in Charlottesville, Virginia, slated to open later this year. On top of that, we will continue to build on the success of the Marlin Bar concept with committed deals in Palm Beach Gardens and Winter Park, Florida, slated for fiscal 23 openings and others in the pipeline. In order to maintain our competitive advantage in communications in a rapidly changing media environment, we continue to invest in people, processes, and systems. We are focused on improving our capabilities to identify prospective audiences, connect with our existing customer base, deliver targeted messages, and assess and refine these efforts to attract new customers, retain our existing customers, and increase overall spending. We have made much progress in this area over the last several years and are excited about the projects that we have underway to continue to enhance these capabilities. From a creative standpoint, we are very focused on creating aspirational messages that evoke an I want to be there wearing that product moment for our customers. A look back at some of the recent messaging we have had at Tommy Bahama provides some excellent examples of how we are doing this, particularly with regard to our female customers. Female customers are responsible for buying more than half of all the men's products and substantially all of the women's product that we sell. Our increasing effectiveness in reaching these female shoppers in Tommy, Bahama is a large part of our recent success. We also continue to invest in our omni-channel capabilities. The ship-from-store capability that we went live with in Tommy, Bahama during the third quarter of 2020 has been an unmitigated success. This allows us to satisfy more customers, do more business on less inventory, achieve higher full-price sell-throughs, and ultimately higher margins. As successful as our ship-from-store capability has been so far, we believe there is still more opportunity to capitalize on this capability as we continue to refine our processes. In our emerging Southern Tide retail operations, We recently and successfully launched ship-from-store capabilities that we will continue to enhance and grow as the Southern Tide retail footprint expands. In Lilliput, we have had ship-from-store capabilities for a number of years, but currently have a very exciting project underway that will significantly enhance those capabilities and should go live sometime next year. Additionally, we are using clienteling tools to merge the digital and retail experiences for Lilly Pellitzer customers. Operationally, we are focused on managing inventory and optimizing our supply chain. We have the appropriate inventory levels to support our planned growth for this year. Additionally, we are seeing benefits from implementing platform fabrics such as the previously mentioned Tommy Bahama Aubrey and Lily Pulitzer Merrill Nylon and Fairway Performance Twill collections, which bolster inventory management and profitability. Such platforms speed up the product development process, allow us to buy in higher quantities, and defer the point of differentiation until later in the process. The momentum that we created has continued into the early part of the second quarter and we have outstanding plans to deliver double digit top and bottom line growth with operating margin expansion for the year. We look forward to updating you on the progress of all these plans as well as our results as this year progresses. I'll now turn it over to Scott for more detail about first quarter results and our forecast for the remainder of the year. Scott?

Thank you, Tom. Our operating groups executed exceptionally well during the first quarter of 2022 and delivered record performance, as Tom mentioned earlier. Our strong start to the year was driven by growth across all brands and channels, supported by outstanding trends in customer count, retail traffic, and average transaction value. In the first quarter of fiscal 2022, consolidated net sales were $353 million, a 33% increase over last year's first quarter net sales of $266 million, which included $12 million of sales from Wind Air Apparel. Our full-price e-commerce business grew significantly, up 20%. On the bricks and mortar front, we saw full-price retail growth of 51%, driven by comp store increases. Performance of our food and beverage locations was strong as well, with 23% growth over last year. Our first quarter adjusted gross margin was 64.5% compared to 64% in fiscal 2021. This 50 basis point improvement was fueled by a shift in sales mix towards full price direct-to-consumer channels and higher IMUs. particularly in innovative new performance offerings. Almost 100 basis points of higher freight cost, including the use of air freight, partially offset some of the margin improvement. Our operating margins increased 700 basis points on an adjusted basis to 22 percent of net sales, driven by improvements in gross margin and leverage within SG&A, which decreased to 45 percent of sales versus 51 percent last year. All three of our operating groups achieve year-over-year operating margin expansion. Tommy Bahama had especially impressive profitability trends with a 990 basis point operating margin expansion compared to last year. Our business is supported by a very strong balance sheet. Here are some highlights. We need to quarter with M&T in excellent shape to support plan growth. On an as-reported LIFO basis, inventory increased 13% to $123 million at the end of the first quarter, compared to $109 million in the prior year. On a FIFO basis, inventory increased by 18%. We believe our inventory levels are well aligned with our projected revenue growth. Our liquidity position is strong, with no debt and $166 million of cash, cash equivalents, and short-term investments. at the end of the first quarter of fiscal 2022. Trailing 12-month operating cash flow was 179 million, with capital expenditures of 36 million, resulting in 143 million of free cash flow. The strong cash flow allowed us to return $80 million to shareholders via share repurchases and dividends in the last 12 months. To date, we have repurchased approximately 800,000 shares for $70 million, representing nearly 5% of our shares outstanding since the December announcement of our board's new share repurchase authorization. We are pleased with the results of our repurchasing program to date. I am also pleased to share that our board of directors declared a dividend of 55 cents per share. I'd now like to walk you through our projections for the remainder of 2022. Our significant beat in the first quarter and the momentum we've seen so far in the second quarter give us confidence to raise our sales and EPS guidance for the year. Although last year's COVID recovery will make brick and mortar comps more difficult as 2022 progresses, we expect to continue building on the momentum we've established so far this year. Our e-commerce business is expected to continue to expand, driven by our enhanced digital capabilities focused on new customer acquisition, retention, and increased spend. Our physical locations are seeing strong traffic and we anticipate year-over-year sales growth in all regions. Our strategic positioning to emphasize direct-to-consumer channels, which represent 80% of our business, has enhanced our continued ability to execute well within a disruptive supply chain. As our talented merchandising teams continue to create compelling assortments on our sites and retail floors as product is available. Our ability to navigate supply chain challenges along with our product innovation are also driving a robust forward order book and a wholesale channel for 2022. For the year, we expect modest gross margin expansion as we continue to see the benefits of higher IMUs partially offset what we expect to be a somewhat more promotional environment. For the year, we expect modest SG&A leverage driven by the significant leverage in Q1, despite inflationary cost pressures, including a challenging labor market. Putting together these dynamics, we expect to deliver double-digit top and bottom line growth with operating margin expansion for the year. Second quarter sales are expected to increase from $329 million, which included $8 million of linear apparel, to a range of $350 to $370 million, reflective of strong quarter-to-date results in both direct and wholesale channels. Full-year sales are now expected to increase to a range of $1.285 billion to $1.325 billion, up from our prior range of $1.245 billion to $1.285 billion, and compared to $1.142 billion in fiscal 2021 which included $25 million of linear apparel. The increased sales guidance for the year reflects double-digit increases in our direct-to-consumer business and a healthy wholesale order book. A particularly strong sales increase in Q1 is expected to moderate to high single to low double-digit increases in the later quarters. Our effective tax rate for fiscal 2022 is expected to be between 24% and 25%. On a adjusted basis, we expect EPS in a range of $3.30 to $3.50 in the second quarter of fiscal 2022, compared to $3.24 last year. For the full fiscal year, we now expect adjusted EPS in the range of $9.60 to $10, up from our initial guidance range of $8.75 to $9.15. and compared to $7.99 in fiscal 2021. Thank you for your time today, and we'll now turn the call over for questions. Shamali?

Thank you, and at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants and speaker equipment, it may be necessary to pick up your hand tip before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Thank you. Congratulations, everyone. What a terrific quarter and a great outlook.

Thank you, Dana.

As you think about the current environment and what you're seeing with prices and what we're hearing about wholesale order directional changes and then becoming more conservative, how are you planning AUR and price increases? The freight costs look like it went to 100 basis points this quarter from 160 last quarter. Under the hood, how are you thinking about the puts and takes of gross margin and SG&A? Then I just have a question about the brand. Thank you.

Well, I'll let Scott elaborate on this in a little bit, but I think that generally we feel pretty good about where that's going to come out. As we mentioned, I think, in the March call, we did some pricing that took effect in the first quarter. We'll have more that kicks in over the next couple of quarters. And in terms of maintaining or improving our initial markups, I think we've done a pretty good job of staying ahead of some of the cost pressure. We will probably see some level of promotional activity creeping back into the marketplace. As you know, last year the marketplace in general was much cleaner than it usually is. And we were just as non-promotional as we've ever been. So we'll probably get a little pressure from that. And then the freight, as you highlighted, some of that headwind has started to decrease in intensity a bit. And I think that's a potential pickup that we have going forward as well. Scott, do you want to fill in some of the blanks?

Yeah, yeah. On the freight, second quarter might be a little bit of a headwind because we didn't have a lot in the second quarter last year. But in the third and fourth quarter, it is easing compared to the prior year. Also, the way we've moved some merchandising calendars, we think we can avoid the degree of air freight that we had to do in the second half of last year. And then as far as SG&A, as a percent of sales, it'll probably level off or maybe be a little higher in the last three quarters than the prior year as a percent of sales, but we do expect robust growth and we do have some inflationary pressures, particularly with things like labor that we're combating. And then as Tom mentioned, gross margin-wise, we think we've gotten ahead of the input cost increases and should still have higher IMUs throughout the year.

Got it. And then the flash sale movement to this quarter, what's the impact on that on, I think it's either the second quarter or the third quarter, how are you thinking about that going forward? And then the Marlin bars look like they did very well. I think one opening this year, what are you expecting for that?

Yeah, so on the flash sale, philosophically, and I'll let Scott talk about what the dollars will look like possibly for the rest of the year, but philosophically, the idea is behind the movement and the fly sale was really to mix it up a little bit. As you know, Dana, during the really 2020, during the height of the pandemic and then last year, we kind of mixed up our game a little bit, tried some different things. We like it. I think our consumer really likes to be surprised a little bit And we like to be a little less predictable with some of that stuff so that seven million dollars was You know really a movement in the timing as much as anything we will still have an August flash sale and then a January flash sale and Scott, do you want to fill in some of the numbers?

Yeah, yeah. Last year, we did not do any in the first half of the year, but had about $19 million in the third quarter. But we had a lot less inventory. We evolved to a higher inventory level. So we still expect a third quarter flash sale, but probably be a little bit above last year's flash sale, even though we did an additional sale. And then the Fourth quarter sale, we'll have one in January, and right now we think it'll be pretty flattish with last year. We did $13 million last year, and we'll be somewhere in that range this year in our January sale.

Two quick last things. One is on the categories that you're selling, are you flexing? It sounds like the dresses and you're flexing into along with men's and swim's. Anything to note on categories and how maybe the athleisure trend is trending for you, and then for you, Tom, and then for Scott, typically the second quarter operating margin, even if you look in the past, before 2019, is higher than the first quarter. Any thoughts behind that or how you're thinking about it? Thank you.

Okay, thank you very much, Dana, and I'll tackle the category shift for you, and as you would expect, really across the whole enterprise, we're shifting into more dressier, more structured kind of categories. So in Lilly Pellitzer, we're probably selling less leggings than we were last year, but more occasion dresses than we were last year. And that's actually good because it's moving the average unit retail up without really a price increase, but just the shift in the mix is helping drive a higher AUR, which is great to see. We're seeing a similar thing in Tommy Bahama, and the best example maybe is in men's where we've seen huge growth in wovens, which are a fairly pricey category for us and a very key category for us. And while everything, I think every significant category in Tommy Bahama grew during the quarter. We really saw a lot of that dollar increase was coming through Wovens, which is a positive. Then in terms of the athleisure wear, some of those trends you would think would be slowing down the more performance driven product, but that's not really true. Performance product has continued to grow in both Tommy and Lilly. The mix of that product has changed a bit. So for example, in Lilly, as I mentioned, the leggings maybe have slowed down a bit, but we're doing really well with some of the tennis and golf type items. And I think what you're seeing Is that you know as people as we said return to travel? Social events and even you know going back to the workplace Which is more casual than it's ever before and our brands are more appropriate Than they've ever been before for the workplace. We're getting a lot of pickup from from all of those things As far as the operating margins

The first quarter we had great expansion and our wholesale business is healthier and Q1 is a big wholesale quarter as you ship in initial spring. Also, a women's business at Tommy has gotten very, very strong and that tends to be a strong first quarter business. A second quarter we think will still be a strong quarter, but I think first and second on the operating margin are coming a lot closer together than they have been in the past. Second quarter has always been a big Father's Day quarter for Tommy, and it'll continue to be. But I think we'll see pretty similar operating margins in Q1 and Q2.

Thank you.

Thank you, Damon. Our next question comes from the line of Susan Anderson with B Reilly. Please proceed with your question.

Hi. Nice job on the quarter, and thanks for taking my question. I'm wondering if you could maybe just talk about Southern Tide, the stores there, how those are performing versus your expectations. And then I'm curious if you're seeing any difference in that consumer, given I think they're a little younger than the other two brands and maybe a little bit more impacted by inflation. Just curious if you're seeing any difference. And then I have another question. Thanks.

So with respect to the performance of the stores, I would say that we're very happy with what we're seeing there. We're up to five as we called out in the call script. We've got a couple more that are in the works to open hopefully before too long. So we like what we're seeing there. It's still a new operation. We're learning a lot. I mentioned in the prepared remarks that we Just recently launched ship from store capabilities, which just enhances the overall value of those stores to our operation. And, you know, bottom line, we like them a lot. And then in terms of the consumer and any differences there, I think it's a similar economic demographic that we're tracking there. actually a lot of our younger Southern Tide consumers, it's probably their parents that are paying for it, not them, so the response of the consumer to the current conditions has really been pretty similar. And you saw that the Emerging Brands Group posted a, they had a great quarter too. They're the smallest of our three reporting segments now, but they had a terrific quarter as well, and the biggest piece of that is Southern Tide, but I'll tell you that all three brands had a great quarter. As we mentioned in the prepared remarks, when you look at the quarter, all brands and all channels of distribution were up year over year, which is pretty impressive to be in that position.

Great. That sounds good. Thanks for all the details there. And then lastly, it sounds like you expect all of the regions to be up this year, which is good to hear. So I'm just curious if you could talk about maybe the performance in the north now or the regions that underperformed last year, what you're seeing there. And then also, it sounds like Florida and stuff has continued to be strong. If you could talk about that. Thanks.

Yeah, that's a great question, Susan. And we are seeing, really, I think all the regions pretty much on a year-to-date basis are up, which is good to see. So those regions that lagged a little bit in coming back to life, the Mid-Atlantic, the Midwest, and the Northeast, are all positive in coming back to life and growing pretty nicely, which is great to see. At the same time, the regions that have really been the strongest since the beginning of the pandemic, particularly Florida and Texas, it's unbelievable. They just have remained very, very strong. I think a lot of what's happening, particularly in our two big brands, Tommy and Lily, that have you know, a lot of presence in Florida, is that a lot of their customers are really, you know, they're relocating to those places. And so for them, what previously maybe was a warm weather or vacation brand is really becoming a year-round brand for them when they relocate from the Northeast to somewhere in Florida. And that's more good news for us, to be honest.

Great. That sounds good. Good luck the rest of the year.

Thank you, Susan. And our last question comes from the line of Paul LeJuez with Citigroup. Please proceed with your question.

Thanks. It's Tracy filling in for Paul. I had a couple questions. I guess the first is on inventory. Maybe if you could give us a sense of where it is by brand and if there are any areas, you know, if you're more constrained, you were more constrained at one brand versus the other this quarter, and if you thought you missed sales because of supply chain constraints. And then the second question is just on the drivers of the comp increase at retail in the first quarter, where I was wondering if it was,

primarily ticket and AUR driven or you know just what your traffic looked like in the first quarter thank you do you want to tackle the first part yeah yeah our inventory um you know each uh each brand was up some but as you mentioned last year was a little bit um lower than ideal um And this year, with supply chain things, I'm sure there's some sales missed, but us being 80% direct, we had very compelling, well-merchandised packages on the floor and on the site. I don't think we missed a lot of sales, but there are some pockets where maybe some late inventory, if we hadn't had it on the floor, we might have had some opportunities. But we feel good about our inventory. As we've talked about with some of the systems We have now, we believe we can do more sales with less inventory, and I think that's showing through. Our inventory levels now on a FIFO basis are no higher than 19 levels, and we're doing a lot more business on that. that inventory. So we feel good about our inventory. We are bringing some goods in earlier. We're still looking at some, maybe gets on our books a little bit earlier as we reacted to some supply chain things by placing orders earlier. But anytime you don't get everything you want and it is exactly when you want it, you might be missing some sales, but being 80% direct, you can mitigate a lot of that.

And then, Tracy, in terms of what's driving the increase in the direct-to-consumer, it's primarily traffic, a bit of AUR increase as well, with a lot of that AUR increase actually coming from, as we talked about, the mix of product and the skewing maybe to some more expensive items, plus a little bit of price increase getting in there. from lake for lake. And that's really been true, you know, across the big brands, but the smaller brands as well, Duckhead and Beaufort Bonnet and Southern Tide.

Got it. Thanks very much.

Thank you, Tracy. We have reached the end of the question and answer session. I'll now turn the call back over to Tom Chuck for a close remarks.

Okay, Somali, thank you very much, and thanks to all of you for your interest. Enjoy your summer, and we look forward to talking to you again in early September.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.