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spk09: Greetings and welcome to Oxford Industries Inc. second 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 a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Smith, Director of Financial Reports and Investor Relations. Thank you. You may begin.
spk05: 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 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 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'll 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.
spk02: Good afternoon, and thank you for joining us. Before I jump into reporting on results for the second quarter and our outlook for the balance of the year, I want to start by acknowledging the state of Hawaii in the island of Maui in particular, which have been a very important and special part of our business for many years. We have over 200 members who live on Maui and over 450 in the state of Hawaii. These are wonderful people who we value greatly and our hearts are with all of them as they work to recover from the devastation of the recent wildfires. I am also proud of and grateful for the generosity of our associates across the enterprise who have pitched in in so many ways to help the people of Maui recover from this disaster. This generosity and the resilience of our people in Maui and Hawaii are among the characteristics that make Oxford such a great company. Moving to our results, we're pleased to be reporting sales and adjusted earnings per share within our forecasted range, given the top E operating environment. During the quarter, we achieved 16% total year-over-year revenue growth, driven by our acquisition of Johnny Wust in the third quarter of last year, and a 1% increase on an organic basis which is on top of 11% organic growth in the year-ago period. In addition to the tough comparison, the more modest organic growth rate this year reflects, as widely reported across the marketplace, a customer that has become somewhat more cautious with regard to discretionary purchases. As you know, Our purpose as a company is to evoke happiness in our customers with our brands. Our customer metrics indicate that we are doing exactly that. Excitement for and interest in our brands remains very high. Our active customer count and new customer ad rate are both growing, and our average order value has held steady. and we have seen higher traffic across our portfolio of brands this year. At the same time, conversion rates are lower on a year-over-year basis. In addition, consumers are making more of their purchases during our promotional events. Both of these factors reinforce the notion that the consumer has become more cautious in their discretionary spending than they were a year ago. with the increased purchasing activity during promotional periods also putting some modest gross pressure on gross margins. As we move down the income statement, we saw some operating deleverage during the quarter as a result of our increased investment in a couple of key expense categories. The first is employment expense. Our team is our most valuable asset and is the key to all our success. To be certain that we can continue to be successful going forward, we need to ensure that we have a sufficient number of staff and that they are fairly compensated. Last year, the growth in our business had outrun the size of our staff, and we had a bit of catching up to do to be fully staffed. In addition, we are continuing to invest in our team in an inflationary environment by increasing wage rates and salaries to ensure that we stay competitive and can continue to attract and retain the best people. The second major area of increased expense is in advertising and promotion. As the post-pandemic rebound moves further into the rearview mirror, and the market and consumer continue to normalize, we want to make sure we are doing what we need to in order to maintain high levels of excitement about and awareness of our brands. Accordingly, we have increased our advertising spend levels this year, both in absolute dollars and as a percentage of sales, especially in awareness advertising and experimenting with new media channels. Finally, we are feeling the impact of depreciation, software subscription, and other expenses related to technology and other investments we have made to ensure that we have a modern omnichannel selling platform. While these expenses are causing some short-term operating deleverage in a weaker demand environment, We believe that all three of these areas represent prudent investments in our future. In keeping with our purpose and objective to evoke happiness in our customers and deliver long-term value to our shareholders, we have a number of strategic initiatives underway which are all designed to drive excellence across our portfolio of lifestyle brands to help spur sustained profitable growth. The biggest of these initiatives is a multi-year Southeastern United States Fulfillment Center enhancement project to ensure best-in-class direct-to-consumer throughput capabilities for our brands. When complete, the Fulfillment Center will help support our very large, highly profitable e-commerce business across all our brands and will help support our retail business in the eastern half of the country, particularly Florida, which is our largest revenue state by a wide margin. Another very exciting initiative is the upcoming relaunch of the Johnny Was website. The new Johnny Was website will have the same beautiful, aspirational look and feel of the current site, but will utilize the excellent, best-in-class technology platform that powers our Lilly Pulitzer website. The result will be a website that is 100% Johnny Woz and is much more searchable, more shoppable, easier to check out, and overall provides a better customer experience. When launched later this year, we expect a new site to drive incremental growth in our Johnny Woz e-commerce business. In addition to the website and the fulfillment center projects, we are driving excellence across the portfolio by leveraging our talented people across the brands. Specifically, we have been shifting functional expertise across brands to enhance areas that will further support operational excellence across the enterprise. Aligning talent with opportunities to have the maximum impact on the business benefits both the company and the employee. Our healthy business continues to generate strong cash flow, and we remain focused on using that cash wisely by investing in organic growth and acquisition opportunities and the return of capital to our shareholders. all while maintaining a very healthy balance sheet. This quarter provides an excellent example of that focus in action. During the quarter, we opened five net new locations, bringing our total for the year to eight net new locations. By the end of the year, we expect to have opened 25 net new locations, bringing our total count close to 320 stores and retail bar restaurant locations. In addition, the beautiful Tommy Bahama Miramonte Resort in Indian Wells, California, is on track to open in the third quarter. Included in the openings during the quarter was a beautiful new Marlin Bar and Tommy Bahama store in Palm Beach Gardens. The Marlin Bar is off to a terrific start and as always, has dramatically enhanced our retail business in that location, particularly our women's business. This Marlin Bar is unique among the eight that we have opened so far in that it is in an indoor-outdoor location situated at the entrance to an enclosed mall. Our hospitality business is a linchpin of our Tommy Bahama strategies. And with two more Marlin Bars scheduled to open this year and three planned for fiscal 24, we are extremely excited about the growth that it will help us fuel for many years to come. Our cash generation during the quarter also benefited from our acquisition of Johnny Was last year, with Johnny Was contributing $7.3 million of adjusted operating profit, or approximately $0.34 a share to our quarterly results. We are delighted to have Johnny Wise as part of the portfolio and believe it has lots of runway to grow top line and expand operating margin going forward. This strong cash flow allowed us to pay down $46 million of debt, leaving $48 million outstanding while repurchasing $19 million of stock or approximately 196,000 shares representing 1% of our outstanding stock, paying $10 million in dividends and investing $15 million in capital expenditures during the quarter. Our inventories are very healthy and we're in outstanding position to continue to deliver robust cash flow for the balance of the year and for many years to come. Scott will provide more details on the quarter and the balance of the year in a moment, but as we look forward, given the impact of the Maui wildfires and the slightly more hesitant consumer purchasing behavior to start the third quarter, we believe building in a bit of caution to our guidance for the balance of the year is prudent. At the same time, we know that our efforts to evoke happiness, drive excellence across the portfolio, and invest in our business will drive profitable growth and long-term shareholder value for many years to come, as evidenced by our expected 10-year adjusted EPS CAGR of 14% based on our updated guidance range. Now I will turn the call over to Scott for more details on the quarter and the balance of the year. Scott?
spk03: Thank you, Tom. As Tom mentioned, we are pleased to report another strong quarter that is within our guidance range in an uncertain microeconomic environment where the consumer has become more cautious, our operating groups executed very well going against direct consumer costs of 14% in the second quarter of 2022. Consolidated net sales for the second quarter of fiscal 2023 were $420 million, which included $52 million of sales for Johnny Woz and increases in each operating group, growing 16% above last year's second quarter net sales of $363 million. In the aggregate, Tommy Bahama, Lilly Pulitzer, and Emerging Brands had decreases of 3% in full-price brick and mortar, 4% in full-price e-commerce, and 7% in wholesale sales. These declines were offset by 8% growth in our food and beverage business and 16 million of sales from the Lilly Pulitzer e-commerce flash sale that we did not hold in the second quarter last year. Adjusted gross margin was 64.3% compared to 64.6% last year. This slight decline was driven by increased e-commerce flash sales at Lilly Pulitzer and a greater proportion of sales during Time Bahamas loyalty award card flip side and end of season clearance events. Partially offset by the higher gross margin of Johnny Was and reduced freight expense. Adjusted SG&A expenses were 202 million compared to 163 million last year. This quarter included 29 million of SG&A associated with the Johnny Was business, which we did not own in the prior year period. There were also additional SG&A increases in our other businesses for employment cost, advertising cost, variable expenses, and other expenses that we continue to invest in our businesses to fuel and support anticipated future growth. The result of all this yielded 73 million of adjusted operating income or a 17% operating margin compared to 78 million in 2022. The 73 million of operating income included 7 million of operating income for Johnny Wise. The decrease in operating income reflects our planned SG&AD leveraging and the 2 million impact of lower royalty income from our licensing partners, notably in the furniture and home categories which saw a surge during the pandemic and subsequent recovery period. Moving beyond operating income, we incurred more interest expense after having no debt in the second quarter last year and benefited from a lower effective tax rate due to the favorable tax impact of stock awards vesting during the quarter. With all this, we achieved $3.45 of adjusted EPS towards the top end of our guidance range. I'll move on to our balance sheet, beginning with inventory. Our inventories increase 14% or 28% year-over-year on a FIFO basis, including $18 million of Johnny Wood's inventory. The 14% increase in inventory is in line with our low double-digit plans. planned sales increase for 2023. So we believe our inventory levels are appropriate to allow us to deliver on our forecast for the remainder of the year. We used our cash, cash equivalents, and short-term investments on our balance sheet last year, as well as some borrowings under our revolving credit agreement to fund our acquisition of Johnny Wise. We finished the quarter with $48 million of borrowings under our revolving credit facility after having $119 million of borrowings at the beginning of the year. $153 million of cash flow from operations in the first half of fiscal 2023, compared to $91 million in the first half last year, allowed us to significantly reduce outstanding debt by $71 million during the first half, while also funding $31 million of capital expenditures, $21 million of dividends, and $19 million of share repurchases. We have spread strong cash flows for the back half of the year and anticipate repaying additional debt in the fourth quarter. I'll now spend some time on our outlook for 2023. As Tom mentioned, we are moderating our full year view to reflect the impact of the Maui wildfires and a bit more caution being shown by the consumer early in the third quarter. For the full year, we now expect net sales to be between $1.57 billion and $1.6 billion, growth of 11% to 13%, compared to sales of $1.41 billion in 2022. The planned increase in sales in the 53-week 2023 includes the benefit of the full year of Johnny Wise, as well as growth in our existing brands in the low single-digit range, driven by our direct-to-consumer businesses. while wholesale sales in our existing businesses are expected to be comparable to 2022. We still anticipate modest gross margin expansion for the full year of 2023, with much of that improvement in the first and fourth quarters. The higher sales 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. as we continue to invest in our businesses, as Tom outlined earlier. While we don't want to back off on expense investments that help build for the future, we are redoubling our efforts to scrub the income statement and prudently trim expenses where appropriate. We also expect royalty income for the year to be lower, with the second half being comparable to the prior year. Considering all of these items, we expect that operating margin will decrease from 2022 levels to a percentage of between 14 and 14 and a half percent of sales. Additionally, we anticipate higher interest expense at five million for the year after incurring almost four million of interest expense in the first half. This compares to three million of interest expense in the full year of 2022 when we had no debt outstanding until the third quarter. We also 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 $10.30 and $10.60 versus adjusted EPS of $10.88 last year, with the inclusion of a full year of profit from Johnny Woz being offset by lower operating income and resisting businesses, the increased effective tax rate, and higher interest expense. Further, we expect pressure on our second half performance debilitate our business on Maui, where our brands generated nearly 30 million of sales in 2022. Of our six locations on the island, only the Wailea Tommy Bahamas store and restaurant and Johnny Wa's store remain open, but with significantly reduced traffic. Our Lahaina Marlin Bar location was a total loss, while the reopening path and results after reopening for our three stores in the Whaler Village Center remains uncertain. We expected net effect of this is a negative impact of approximately 10 cents per share on both the third and fourth quarter, or 20 cents for the second half. In the third quarter of 2023, we expect sales of 320 to 335 million, compared to sales of 313 million in the third quarter of 2022. In the third quarter of 2023, we expect higher sales as this year includes a full quarter of Johnny Woz after Q3 last year only included half a quarter of operations after the September 2022 acquisition, partially offset by lower respective sales in our other businesses after we generated 12% comps in the third quarter last year. We also anticipate comparable gross margin to last year's third quarter and continued SG&AD leveraging. We expect this to result in third quarter adjusted EPS of between $0.90 and $1.10, compared to $1.46 in the third quarter of 2022. The lower year-over-year EPS expectation in the quarter is primarily driven by increased SG&A investments, which has a larger impact on our operating income in our smallest sales quarter of the year, and by the impact of the situation in Maui. In the fourth quarter, Increased sales do impart to the additional week in the quarter with otherwise comparable sales year-over-year after generating 9% comps in Q4 of 2022. Modestly higher gross margins as the fourth quarter of 2022 included certain inventory markdowns in the emerging brands businesses and modest SG&A deleveraging as SG&A increases at a higher rate than sales. Also, we expect interest expense in the fourth quarter to be lower than interest expense in the fourth quarter last year due to our significant reduction in debt during 2023 and a higher effective tax rate as the fourth quarter of 2022 included certain favorable items that are not expected to repeat in the fourth quarter of the current year. Capital expenditures in 2023 are expected to be approximately 90 million compared to 47 million in 2022. As we mentioned last quarter, the plan CapEx increases include spend associated with brick-and-mortar locations, including build-out associated with approximately 35 locations across all brands, including three Marlin bars and about 10 new Johnny Wuz locations. A number of these are relocations and remodels, which along with a few store closures, should result in a net increase of full-price stores of about 25 by the end of the year, with approximately nine net new locations in both the third and fourth quarters. The 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 initial spend associated with a multi-year project across our fulfillment network in the southeastern U.S. to enhance direct consumer throughput capabilities for our brands. 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 in excess of $200 million in 2023. This level of positive cash flow from operations provides ample cash flow to fund our planned 2023 capital expenditures, payment of dividends at the current rate, $20 million of recently completed 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 set the table well for mid- to upper-single-digit top-line growth and long-term operating margin target at or above 15%. Thank you for your time today. And now we return the call over for questions. Doug?
spk09: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Edward Yoruma with Piper Sandler.
spk07: Please proceed with your question. Hey, good afternoon, guys. Thanks for taking the question, and our thoughts are for all of your colleagues in Maui. I guess a couple quick ones from me. First, you guys have added quite a few new customers to the Tommy Bahama customer file really over the past couple years. As you think about kind of retaining some of those customers, I guess kind of maybe talk a little about trends that you've seen and maybe tie that back to some of the comments around the promotional environment. And then as a follow-up, just maybe any insight on the organic growth rate of Johnny Wise and how the business is performing would be appreciated. Thank you.
spk02: Okay. Thank you, Ed, and thanks for your comments regarding Maui. We know that you know what a special place that is, and it is a tough situation for sure. So we appreciate the thoughts. On the customers at Tommy Bahama, I would say what we're seeing today There is really what we're seeing fundamentally across the brands, and I think this is consistent with what's going on in the marketplace, is that traffic remains good. Interest in the brand is good. Our customer count is growing. Our new customer ad rate is growing. The issue is really on conversion, and we would attribute that, as we said during the to a lower or to a more cautious consumer that's, I believe, part of it is being worried about where the economy is going and the actions of the Fed and interest rates and all that. And then I do think the other factor that's making customers be more selective in their buying is the amount of promotional activity in the marketplace. That does seem to be abating a bit through the spring and the early part of the summer. It was at very elevated levels, and that part does seem to be correcting a bit, but I think there's some overhang from the economy that's weighing on the consumer a bit. And then in terms of Johnny Wise, I would say that there's the same thing. They're experiencing some organic growth challenges themselves. They're not any different than what we're seeing in the other brands, and it's really the same set of drivers at work there.
spk03: Yeah, and they are, you remember, they have a very heavy California business. And California was really difficult, you know, both the first quarter and part of the second quarter for sure. So that's been a particular challenge that Johnny was.
spk02: But we remain super excited about having them be part of our portfolio and They did have, they delivered $7.2 million, I think it was, of operating profit, which translates to 34 cents a share for the quarter. I think they were at a 14.2 operating margin, which is lower than where we think they can and will be. We're very confident of that, but it's still, it's a respectable operating margin. And the focus this year, Ed, as you know and Johnny was, has been very much about onboarding them onto our platform, setting them up the way that we like to run our brands, which is not 180 degrees different than the way they were running under private equity ownership. But it is a little bit. So we view this as the baseline year. We feel very strongly and confidently that we can grow both top line and expand operating margin in Johnny Wise going forward. And one of those activities, as we outlined on the call that we've been working on this year, is bringing them on the Lilly Pulitzer sort of back end, if you will. for e-commerce. Johnny Woz has a nice e-commerce business, and when you land on the landing page, it's a beautiful website, but the shopability of it is just not great, and we're convinced that that's causing us to leave money on the table, which when we go live on the new Lilly website, we think will be a big enhancement to their business, and Still very excited about Johnny was and what it can contribute this year and going forward.
spk07: Thank you very much.
spk02: Thank you, Ed.
spk09: Our next question comes from the line of Noah Zatchkin with KeyBank. Please proceed with your question.
spk08: Hi, thanks for taking my question. I guess first, just hoping you could provide any color on kind of the monthly cadence of sales moving through the quarter. and then the exit rate leaving the second quarter. And then secondly, just wondering how you're feeling about the inventory position and then any color unplanned adjustments to their promotional calendar through the balance of the year would be helpful. Thanks.
spk02: Okay. Thank you, Noah. Thanks for being on the call today. So through the second quarter, June was what I would call a wobbly month. It got a little better later in the month and sort of a wobbly month, but July actually ended up being a good month. It was pretty strong. And then as we commented in the prepared remarks, early August has been a bit soft. It's not like the bottom's dropping out or anything like that, but it has been soft as we saw during some of the first quarter months. as well, and the sum of all these things now has convinced us, as we said on the call, that the consumer is in a more cautious shopping mindset at this point. And accordingly, we have moderated our guidance a little bit for the rest of the year. In terms of inventory, I'm gonna let Scott comment on that in more detail, but we feel great about where inventory is. We think we're in a good spot.
spk03: Yeah, we do. We're up 14% on a FIFO basis on inventory year over year, but with the addition Johnny was, with the sales growth we have. And also last year, we were building inventory still, trying to kind of get inventory back to appropriate levels. It was really Q3 and Q4 before we really felt we got inventory back to where it needed to be. So I think by the end of the year, we should be much closer to flat and maybe even a little down year over year. So we feel good about where we are there.
spk02: And then in terms of plan changes to the promotional environment, I would say that in Lilly Pulitzer in particular, as we've done all year, it's not really that we're doing more promotions, we're just mixing them up a bit. As you saw with the, we had a couple of events this year that we didn't have last year, but we've also eliminated In Tommy, Bahama, I think it will be really very, very similar to what we did last year. Thank you.
spk09: Our next question comes from the line of Mauricio Serna with UBS. Please proceed with your question.
spk06: great uh good afternoon thanks for taking uh my question um just wanted maybe to get a little bit more detail you know about what caused uh you know the company to lower the the sales outlook i know like you know previously talked about this in the in the earnings call in the previous earnings call that you know we have sensed more caution from consumers uh just trying to understand like is this and considering that you know that the sales and got and eps came within your expectations, you know, if this was something that really happened post-quarter or is this just, like, making more conservatism because, you know, there's still a lot of uncertainty. And then maybe if you could elaborate more about, like, your so far, like, you know, big picture lessons learned from, you know, Johnny Wass and how you see the growth on the brand, you know, going forward. Thank you.
spk02: Okay, so I think, and thank you for the question, Mauricio, and thank you for being all on. But on the guidance, I think we covered that reasonably thoroughly. But again, I think the issue is just a realization and a belief on our part that the consumer is, in fact, a bit more cautious. And early in the year, I'm not sure we really saw that at all as the year has progressed. and especially as we got into August, I think we just have pretty strong evidence. It's hard to know exactly what's going on in the consumer's mind, but they're just being a little bit more careful about when they spend. Again, interest in the brand remains very high. Our traffic looks really good. When they do spend, as reflected in our average order values and our average annual spend, that actually are spending the same or even a little bit more than they did last year, but the conversion rate is lower and more of it's happening during promotional time periods. And when you look at all that together, that tells us that you have a consumer that's just being a little more careful about how they're spending their discretionary time. But we feel very good about the health of our brands and our position in the marketplace. Our cash flow, as we outlined, Mauricio, is just outstanding. It's going to be fantastic for the year, over $200 million. And we're investing that money. We've kind of done it all in the last 12 months, acquisitions, stock repurchases, dividends, capex, I mean we're kind of hidden, checking all the boxes if you will. And then lessons learned from Johnny was I think every acquisition we do, as you know Mauricio, I believe all six of the brands that we have in our company, every bit of our company is something that we acquired in the last 20 years, and I think we get better and better with each acquisition and how we do it. And an example of that I would point to, and Johnny was, is moving, I know it may from the outside not feel super quick, but it was actually pretty quickly to go ahead and get them on a much better website, which we'll have done hopefully quite soon, but certainly uh this year so we always learn little things and one of the things is to to move as quickly as you can and i think we're doing that and johnny was and as i mentioned earlier uh believe very strongly that this is a brand that continue to grow and uh expand operating margin as we move forward and it's already you know it's already contributing it was uh added 34 cents to EPS in this quarter, which we're quite happy to have.
spk03: One other thing, Maurice, on the top line, both top and bottom line, is the Maui situation that we talked about. So it's $3 to $4 million both in the third quarter on top line and in the fourth quarter on top line in our projections that we've reduced it. We've got six stores, a $30 million business on top Maui, and the two that are open are operating at less than half of the sales volume right now. The Lahaina Marlin Bar is gone. It is gone, and the Three Waywoods Village stores are not open right now. We are optimistic that we will be able to get them open, but I don't think there's going to be a lot of tourists. It's very, very close to So we really think it's going to take quite a while for the tourism to get back in that area. So that is also a contributor to both our top and bottom line guidance changes. Got it.
spk06: Very helpful. And congratulations on the result. Thank you.
spk02: Thank you. Thank you, Maurice, too.
spk09: Our next question comes from the line of Paul Lejeu with Citigroup. Please proceed with your question.
spk04: Thanks. It's Tracy Cogan for Paul. I was wondering if you guys could just elaborate on the current trends a little bit more. I was wondering is it one brand more than the other where you're seeing a caution or maybe one channel versus another, just any differences you're seeing there. And then I have a follow-up. Thanks.
spk02: So the trend, Tracy, is really it's the three bigger brands are all having a roughly similar experience. And it's a bit of a mix of channels. And again, it's really the conversion issue that's holding us back a bit. And then the three smaller brands actually continue to grow nicely. But when you're as small as they are still at this point, there's a bit of room to run always. So that's kind of what we're seeing.
spk04: Got it. And then I was wondering if you could quantify some of the moving pieces within gross margin this quarter and kind of where those are headed in the back half. I think you mentioned freight helping. I was wondering if you could maybe quantify that and maybe talk about when that benefit runs out. Does it still go into next year, that freight benefit? Any color you have on that would be helpful. Thanks.
spk03: Yeah, the freight for the most part is, you know, it's close to flushing itself through the system. You know, the higher freight from last year was mainly a first half item and mainly a first quarter, less so in the second quarter. Fairly minimal in Q3 and 4. So, yeah, that's much less of an impact than it had been, you know, in previous quarters. We got... You know, having Johnny was helps us there. And then we had some inventory write downs in Q4 last year that we, in our emerging brands group, that we don't anticipate anniversarings. So our fourth quarter, that will help our fourth quarter gross margin. So I think those are the big rides.
spk04: Got it. Thanks very much.
spk03: Thank you, Tracy.
spk09: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
spk00: Hi. Good afternoon, everyone. Hi, Dana. Hi. As you think about what's happening with the current consumer, with the consumer right now, and obviously your inventory levels also, how are you planning full price versus markdown business going forward? And is there anything on the category side by brand that that has done better or not as better to give you any indication of consumer pulse and what they're focused on?
spk02: Yes. Great questions, as always, Dana, and thanks for being on the call. So in terms of full price versus markdown, you know, our plan obviously is to do as much full price business as we possibly can. And as we outlined in our response to NOAA earlier in Lilly Pulitzer, we're not really going to do more promotional events, but we're going to mix them up. So the cadence of those and the look of those will be a little bit different than they were last year. And then in Tommy Bahama, it's really going to be very similar to what you saw last year and really in the past. And the issue will be you know, whether the consumer shops at their normal levels during full price or whether they hold back a little bit more and save their dollars for the events. And that's certainly, we saw a bit of that in the second quarter where people were, you know, holding off and spending during the events, which in more, when the consumer's feeling a little more robust, they tend to not wait. They just want it as soon as it hits the floor. And that's kind of what we factored into our guidance as best as we can estimate all that. That's what we factored into our guidance for the balance of the year. And then the category question is a good one because we've definitely seen a return this year to, I wouldn't call them dressy styles, but dressier where you know, during the pandemic, it went super casual and cozy, and then that actually continued for a while, and we're more back to sort of what I would call normal, so ladies wearing prettier, more structured dresses, and gentlemen wearing more long-sleeve wovens and that kind of thing. And in the first half, if you think about it, when we were buying product, at the time we had to place those buys that hit the floor in the first half, that was when the supply chain was an absolute disaster and we were probably buying typically six weeks earlier than we normally would, which meant we were buying in much more of an information vacuum. And as a result of that, I think it's a natural sort of instinct that because we didn't know, we got much more basic and core in our assortment. And to be honest, I think that probably hurt us a little bit in the first half. By the time we get to the second half, what's on the floor now, and particularly for fourth quarter, we're much more where we're buying in our normal cycle. The assortments have a lot more newness in them than we did in the first half of the year, and I think we've got, we're better aligned with what the consumer actually wants now, which is those dressier styles. Not that there's not still plenty of room for core and basic, but just the proportion was probably a little bit out of whack during the first half, and I think we're much better for the second half.
spk00: Thank you.
spk02: Thank you, Dana.
spk09: If there are no further questions, I'd like to hand it back to Mr. Chubb for closing remarks.
spk02: Okay. Thank you, Doug, and thanks to all of you for your interest in our company. We look forward to talking to you again in December and hope that all of you are well until then.
spk09: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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