Oxford Industries, Inc.

Greetings and welcome to the Oxford Industry's third quarter fiscal 2024 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Smith. Thank you. 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 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 statement. Important factors that could cause actual results of operations or a financial condition to differ are discussed in our press release. issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-K. We undertake no duty to 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 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 I'd like to turn the call over to Tom Chubb.

Good afternoon, and thank you for joining us. We are excited to be in the midst of a holiday season where the consumer appears to be regaining confidence and is more willing to make discretionary purchases. I'm going to start with a summary of the third quarter then move to our expectations and plans for the fourth quarter, and finally give you a bit of a sneak preview on our plans for 2025. But before jumping into the results of the third quarter, I want to acknowledge the multiple headwinds faced by our brands in the third quarter, including the conclusion of the most intense election cycle in recent memory and the impact of two major hurricanes that devastated parts of the southeastern United States. You will recall that during last quarter's call, we anticipated a relatively soft third quarter, primarily due to macro factors and set our guidance accordingly. We were on track to finish within the forecast, but then the impact of the two hurricanes pushed us below the bottom of the range for both sales and earnings per share. The election, among other noteworthy world events, was a major distraction for our more mature headline-sensitive consumer over the last several months, culminating with the election early in the fourth quarter. Also during the third quarter, Hurricanes Helene and Milton impacted the southeastern United States within only a few weeks of each other. The southeastern United States is our most important and significant region, with Florida alone representing approximately one-third of our direct-to-consumer business. All of these factors impacted our business during the quarter and were exacerbated by a consumer that already felt pinched by the cumulative effects of several years of high inflation. We should also point out that we own a portfolio of premium brands that sell primarily at full price with very limited exposure to the off-price and outlet channels. These value-oriented channels have been thriving as costless consumers seek special offers and clearance pricing. We believe our full-price premium strategy has been and will be a long-term competitive strength, but in the current environment, it is a headwind to our top line while acting as a tailwind for others in our states. Scott will provide more details in his section, but we ended the quarter with sales of $308 million and adjusted net loss per share of 11 cents for the quarter, coming in below our guidance range. We estimate that as a result of the hurricanes, we lost at least $4 million of sales. We also incurred significant incremental expenses for cleanup efforts and assistance to our employees in need, resulting in a cumulative 14-cent negative per share impact from the hurricanes. I am so proud and grateful for the generosity of our associates across the enterprise who pitched in in so many ways to help the people in the communities that we serve and operate to recover from the devastation. This includes not only donations of money, but of time and effort to collect and provide the goods and relief that was needed most. The resiliency of our people in Florida, Georgia, and the Carolinas and the generosity of our people throughout the country are among the characteristics that make Oxford such a great company. Moving to our results, the decline in sales reflects the continuation of the negative comp store sales trends that we experienced in the first half of the year, continuing throughout most of the third quarter. While there was some choppiness, the third quarter looked slightly worse than the first half of this year. Continuing the trend from the first half of this year, our results in the third quarter were driven by reduced conversions while traffic has remained healthy, indicating that our consumer is interested in our brands but continues to be cautious when making purchase decisions. Consumers also continued to react strongly to fashion and new and differentiated products, while interest in core styles is more muted. We believe that we have corrected some of the missteps that we have previously discussed and are prepared well with fresh and new products for the holiday and upcoming resort travel season. Our consumer also responded to our value offering in the quarter with a higher proportion of sales during the quarter occurring during promotional events and at our outlet stores than in last year's third quarter. Despite short-term headwinds affecting our results, we have not backed off on investing in the business with new stores, Marlin bars, our new distribution center and technology, among other strategic investments, all of which are adding expense at a time when top line is weak hurting bottom line in the near term, but continuing to strengthen us for the long term. During the quarter, we opened 12 net new retail locations. That brings our total store count to 342, compared to 309 at the end of the third quarter fiscal 2023. Our balance sheet and liquidity have remained strong allowing us to continue investing in the future of our business, including our store pipeline and Lions Georgia Distribution Center project, which Scott will detail shortly, and cash returned directly to shareholders through our quarterly dividend. Moving on to the fourth quarter, November started on a similar trajectory to the third quarter, but once we got past the election, business began to improve and we had a strong finish to November with a very solid Thanksgiving weekend. As you're aware, this year's calendar provides the shortest possible selling period between Thanksgiving and Christmas compared to the longest possible period in the prior year. This obviously means that we have to get our holiday business done in a more compressed time period. Accordingly, we are delighted that we have what we believe are outstanding products and marketing plans for holiday and are encouraged by the results we are seeing. We have been thrilled by the performance of Tommy Bahama's Indigo Palms Denim Collection, particularly on the men's side, the new men's Luxe Sweater Offering, and the new Tommy Bahama Palm Voyage Women's Collection. Indigo Palms was a bright spot even during the tough third quarter and performed extremely well during November. Denim is a category that works in all geographies year-round, but is especially important in cooler geographies and during the cooler times of year. We are excited about the impact Indigo Palms is currently having and the potential it has to help us grow our business in the years to come. We are equally excited about our new Luxe sweater offering this holiday season. Giftable sweaters are always a big business driver during the fourth quarter. For the last several years, our go-to sweater has been the Tobago Half Zip Pullover at $118. This year, we are also having tremendous success with the new Marlin Luxe Cotton Silk Cashmere Blend Half Zip at $178 and the Sunbreak Half Zip at $158. The Luxe sweaters are not only selling very well, but they are also helping push gross margins and average order value higher. On the women's side, Convoyage, which are elevated travel-ready separates, has performed very well in our own channels and also in our key wholesale accounts. We love to see this because on the wholesale floor, we are going head-to-head with our competitors, and we are winning. We have also seen great success in Lilly with whimsical new products like the Ellery sweater and seemingly anything with bows or sequins on it. The takeaway from all of this is that when we deliver innovation, newness and excitement, our customers respond favorably. The reaction to our products and an apparent change in the trajectory of consumer sentiment is driving improving comp store sales post-election that have begun to reverse the disappointing trends experienced the last several quarters. Looking ahead to fiscal 2025, our number one priority is stabilizing and expanding our operating margins. As we plan for the year, we are encouraged by recent sales trends in our business. We are also encouraged by our forward wholesale bookings. While there's plenty of reason to be optimistic, we're going to be cautious about getting overly exuberant with our comp assumptions for the year and will be focused on improving operating margin through better expense control and leverage. We look forward to outlining our fiscal 25 plans for you in more detail in March. While we are disappointed in our third quarter results, we are confident in the product our teams have developed and our business to date in the fourth quarter and plans for the remainder of the holiday and resort season. We are very grateful to our team and wish all of them and all of you a very happy holiday season. I'll now hand the call over to Scott who will provide more details on the quarter and our outlook for the balance of the year.

Scott? Thank you, Tom. As Tom mentioned, we finished the quarter with top and bottom line results below our expectations. there were several macroeconomic headwinds across the marketplace that negatively affected our financial results during the quarter, most notably the continued challenging consumer environment, distractions due to the elections, and the hurricanes that impacted the southeastern United States. In the third quarter of fiscal 24, consolidated net sales of $308 million decreased compared to sales of $327 million in the third quarter of fiscal 2023. and below our guidance range of 310 to 325 million. As Tom mentioned, we estimate that we lost approximately four million in sales from evacuation closures for many of our Southeastern locations and the temporary closure of several stores in Florida, including three stores and a restaurant location in St. Armands Circle outside of Sarasota that were heavily damaged. Most of these St. Armands locations will remain closed through the majority of the fourth quarter. including the impact of the hurricanes. Sales in our full-price brick-and-mortar locations were down 6%, driven by high single-digit negative comps, partially offset by the addition of new store locations. E-commerce sales decreased 11%. Our food and beverage and outlet locations performed better, with a 4% and 3% sales increase, respectively, driven by new locations and partially offset by low single-digit negative comps. Our wholesale channel, which was particularly challenging in the first half of this year, had a challenging third quarter with sales down 2% compared to the third quarter of 2023. As the specialty store business across our brands continues to struggle, partially offset by increased sales to major department stores. Adjusted gross margin contracted 100 basis points to 63%, driven primarily by a higher proportion of net sales occurring during promotional events in Tommy Mahama, Lily Poulter, and Johnny West. Across our three major brands, we continue to see strong responses from consumers to our promotional and end-of-season clearance events. We're able to partially offset this decrease in Lily Poulter through lower discounts and markdowns. and in our emerging brands group through our continued efforts to improve our inventory position and reduce the need for all price wholesale and promotional DTC sales. Adjusted SG&A expenses increased 5% to 201 million compared to 191 million last year. During the third quarter of fiscal 2024, we incurred higher expenses related to recent and ongoing investments in our business, primarily from the addition of 33 net new brick and mortar locations open since the third quarter of last year, including four new Tommy Bahama Marlin Bar locations. Costs related to some of the approximately five net new brick and mortar locations and two additional Tommy Bahama Marlin Bar locations that we expect to open in the fourth quarter or early in the first quarter of fiscal 2025. The addition of the Jack Rogers brand acquired in the fourth quarter of fiscal 2023, and approximately a million dollars in incremental hurricane-related costs, including salaries, wages, and additional assistance paid to employees who were affected by the hurricanes, as well as cleanup costs. The result of this yielded a $3 million adjusted operating loss, or negative 1.1%. operating margin compared to 21 million operating profit or 6.6% in the prior year. A decrease in adjusted operating income reflects SG&A investments and lower gross margins. Moving beyond operating income, our effective tax rate was impacted by certain discrete events that were amplified by our operating loss. Interest expense was a million dollars lower compared to the third quarter fiscal 2023, resulting from lower average debt levels. With all this, we ended with 11 cents of adjusted net operating loss per share, which includes approximately 14 cents negative impact associated with lost revenue and additional expenses related to the hurricanes. I'll now move on to our balance sheet, beginning with inventory. During the third quarter of fiscal 24, inventory decreased slightly on a LIFO basis. On a FIFO basis, inventory increased slightly by $2 million, or 1%, with inventory relatively flat in all of our operating groups. We ended the quarter with outstanding long-term debt of $58 million as our $104 million of cash flow from operations in the first nine months of fiscal 24 were outpaced by our elevated level of capital expenditures of $92 million. primarily related to the Lyons-Georgia Distribution Center project and the addition of new brick-and-mortar locations, $33 million of dividends, and changes in working capital needs as the third quarter is historically our lowest operating cash flow quarter. I'll spend some time on our outlook for 2024. We finished the third quarter fiscal 2024 with negative comps of 10%, which was lower than our previous forecast of low to mid-single-digit negative comps for the quarter. Despite a negative 10% comp in the third quarter, comp sales figures in the fourth quarter to date have improved and are slightly negative. We believe this improvement in the fourth quarter will continue and result in slightly negative comps in the low single digit range in the fourth quarter. These assumptions are consistent with our previous expectations from September that assumed low to mid single digit negative comps for the remainder of the year. However, as a result of the miss in the third quarter, the impact of the hurricanes, and continued weakness in the wholesale channel, we have revised our sales forecast accordingly. Our revised sales forecast includes a $3 million reduction in sales in the fourth quarter from stored restaurant closures resulting from the hurricanes. For the full 52-week year, we now expect net sales to be between $1.5 billion and $1.52 billion or a decline of 3% to 4% compared to sales of $1.57 billion in the 53-week fiscal of 2023. Our updated sales plan for the full year of 2024 now includes low- to mid-single-digit sales declines in Tommy Bahama, Lily Poulter, and Johnny Wise, partially offset by sales growth in the low single-digit range for the emerging brands group. By channel, we expect low to mid single-digit sales decreases in the e-comm and full-price retail channels. We expect wholesale sales, which were down $22 million in the first nine months of the year, to be down another $4 million in the fourth quarter of 2024. We expect growth in our outlets as those locations continue to perform better than our full-price locations in the current environment and in our food and beverage locations that will benefit from the addition of four new Marlin Bar locations during the year. Consistent with our previous guidance, we still anticipate gross margin for the year will decline by approximately 50 to 100 basis points compared to the prior year. It's expected increased activity during promotional events across our brands will more than offset the gross margin benefit from proportionally lower wholesale sales. For the year, we expect SG&A to grow in the mid single digit range due to the investments in our business, including expanding our store count by a net of approximately 30 locations with four new Tommy Bahama Marlin bars, continued IT investments, and the addition of Jack Rogers. Additionally, as discussed during the last call, we expect the Jack Rogers brand acquired in the fourth quarter of fiscal 2023 to generate an operating loss of approximately $2.5 million in 2024 as we reset and refocus the business. We also anticipate lower interest expense of $3 million for the year compared to $6 million in 2023. and higher royalty income, higher royalty and other income, primarily from a full year of the time of Bahama Miramonte Resort. Additionally, we now expect a flat adjusted effective tax rate of approximately 23%, consistent with 2023, with both periods benefiting from certain favorable items. Including an estimated 11 cents per share impact from the hurricanes in the fourth quarter, on top of the 14 cents from the third quarter, we had spent fiscal 2024 adjusted EPS to be between $6.50 and $6.70 versus adjusted EPS of $10.15 last year, with decreases in all of our businesses partially offset by the lower interest expense and higher adjusted royalty and other income. In the 13-week fourth quarter of 2024, we had spent sales of $375 to $395 million, compared to sales at $404 million in the 14-week fourth quarter of 2023. This reflects our low single-digit negative comp assumption, lower wholesale sales, and one week less of sales that resulted in 17 million of sales in Q4 of 2023, partially offset by the addition of non-comp stores. We also expect gross margin to be flat SG&A to grow in the low single-digit range, flat interest expense, and increase royalty and other income. We expect this to result in fourth quarter adjusted EPS between $1.18 and $1.38, compared to $1.90 in the fourth quarter of 2023. In spending on investments we're making in 2024, I'd like to briefly discuss our CapEx outlook for the fourth quarter. Consistent with our prior quarter guidance, we have spent capital expenditures to be approximately $150 million, including $92 million incurred during the first nine months of the year, compared to $74 million in fiscal 2023, with approximately $75 million related to the significant multi-year project to build a new distribution center in Lyons, Georgia, that will enhance the direct-to-consumer throughput capabilities of our brand. The remaining capital expenditures relate to the execution on our pipeline of Marlin Bars, increases in store count across Tommy Bahama, Lilly Pulcher, Johnny Woz, Southern Tide, and the Beaufort Bonding Company, and increased investments in our various direct consumer technology systems initiatives. We expect this elevated capital expenditure level to moderate in 2025 and further moderate in 2026 and beyond after the completion of the Lions Georgia project. We also have a positive outlook on our cash and liquidity position as well. Cash flows from operations are expected to be very strong, giving us ample room to fund the previously mentioned investments, our quarterly dividend, and limit the need to borrow on a revolver, although we do expect a modest debt position for the remainder of the year due to our elevated capital expenditures. Thank you for your time today, and we'll now turn the call over to the operator for questions.

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 phone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we pull for questions. First question is from Ashley Owens from KeyBank Capital Markets.

Please go ahead.

Hi. Good afternoon. So you mentioned some improvements to store comps so far in the fourth quarter and holiday being off to a better start. I know you mentioned that Outlet continues to track better than full price, but could you just parse that out, what you're seeing from a brand perspective in terms of store comps?

Yeah, from a brand perspective, all our brands started the quarter in pretty severe negative territory. And then it seemed about the weekend after the election, we started seeing recovery. So all our brands, I think, are slightly negative. Lily might be slightly positive right now. But they all are improving. And so the negative comp, which started the first week or so, we were in double digits negative. We are now in the lower single digit negative range.

And to amplify what Scott said, I think the important point is that they're all improving sequentially versus where we were in the third quarter, really in the first week of November. which is great to see, with Lilly being the strongest, I think, at this point.

Okay. Gotcha. That's helpful. Then just any color on the wholesale order book for resort season, what you're hearing from your specialty and department store partners. And then just as a comparison, can you maybe talk about the magnitude of newness you're anticipating relative to last year and how much you plan to lean into that aspect of the business, seeing as it has been working really well?

Yeah, well, what I'll tell you about the resort, you know, sort of the current wholesale selling is that it's very strong. We're performing well on the floor, which is great. In some cases, we even have wholesale sales. customers trying to reorder products for at-once delivery. I'm not sure we're going to be able to satisfy that demand, but it's good to have that for sure. And in terms of what we actually had booked for this time period, we do expect to be down, as Scott mentioned in his section, a bit year-over-year in the wholesale market. for the fourth quarter. But remember that those were bookings and reorders that would have happened some time ago. Then with respect to the bookings that are for next year, it's early and we don't have anything like the full order booking, but we're very encouraged, I would say, by what we're seeing there. And it all goes back to performance on the wholesale floor. And as I mentioned in my section, what we love about performing well in the wholesale is that on those floor with the great retail partners that we have, you're going head to head with a lot of other great brands. And we're holding up and showing up really, really well in that context, often being the top of the department and if not the very top close to it.

Great, super helpful caller. Thanks so much.

Thank you, Ashley. Our next question is from Janine Spicer from PTIG. Please go ahead.

Hey, everyone. You got Ethan Saggy on for Janine. First question, just with all the tariff uncertainty out there, would it be helpful to get your thoughts on how the company is currently positioned in terms of sourcing and what plans you may have in place to mitigate some of the potential headwinds from increased tariffs next year?

Sure, we'll answer that. The first thing I would say is who knows what's actually going to happen. There have been quite a few different versions of proposals talked about, and it's a little hard to know exactly what might happen. I would say like all or almost all of our peers, we do have exposure to China. We have really no exposure to Mexico or Canada, so those wouldn't impact us if those were isolated. Of course, a global tariff would impact everything, and then a China tariff would impact that business. And our mitigation strategy, if it's a China-specific tariff, would be like we did during the first Trump administration, and basically it's a combination of moving production out of China. We wouldn't be able to move everything, but there are things that we could move out, and we would do that. Secondly, we would seek to have our vendors in China bear some of the cost of those tariffs, and let's call it, for argument's sake, a 50-50 split. We had a lot of success with that last time around. And in some cases, we might do some, you know, what would amount to very small price increases to help offset the tariff impact. But if you look back on when this happened before, we were, it was a lot of work, but we were able to navigate through it without, you know, what I would call any major damage. And we would expect the same this time as well.

Got it. That's really helpful. And then just, you know, follow up. How is the, so far through the holiday season, just how has the promotional activity been, you know, across your brands and just in the industry in general, you know, compared to your prior expectations?

Well, as we commented on in our prepared comments, I mean, we have done more business you know, sort of during our promotional events. And in some cases, maybe you've extended the time period for those. And I think in the case of Lilly, we offered a little bit, slightly more discount this year than in terms of the market. But, you know, that's all baked into the numbers that you saw in the forward guidance. And then in terms of the market, I would say it, you know, it's very promotional out there. I think it's, you know, that's been a staple of holiday seasons for quite a while now. If there was any difference this year, I would just say that I think it started maybe earlier this year than it has in past years. Like a lot of people, I went out shopping Thanksgiving week and actually ahead of the Thanksgiving season And it seemed like almost every retailer you went in was, you know, in full promotional mode already. They weren't even waiting for Black Friday. They were already there. And as you know, no doubt, a lot of them went a lot earlier than that. Yep.

Got it. Thanks so much. I'll pass it on. Thank you. As a reminder, if you'd like to ask a question, install one. Next question here is from Mauricio Serna from UBS. Please go ahead.

Greg, sorry, Greg, good afternoon. Thanks for taking my questions. First, you know, to start, you mentioned one of your focuses to improve operating margins in 25. Maybe could you provide any initial guideposts for margins and, you know, also any color on sales, you know, and also another follow-up on could you provide like any math on, you know, the autonomy, Bahama modeling bars in terms of like your contribution to sales so far this year or expectation for this year and going into 25, given what you, you know, the openings that you've made over the last 12 months or so. Thank you.

Yeah, so nice to to hear from you, Mauricio. And I would say with respect to 25, at this point, I don't think we can really go a whole lot beyond what we said in the prepared remarks. We are encouraged by what we've seen in the wholesale bookings. We're encouraged by what we're seeing in our own direct channels at present. But all that said, I think we're going to be pretty cautious about not planning top line too aggressively. And our focus is really going to be on improving the operating margin through better expense management, and in some cases, reduction, and thereby achieving greater operating leverage. And then your second question about the economics of the Marlin Bar. Scott, do you want to?

Yeah, yeah. Yeah. So on the Marlin bars, we talked some in the past about, you know, some of these are conversions within existing centers and we tend to get a very nice lift in the retail side and tend to have a solid food and beverage locations. These units. that costs three to four million dollars to build, but the nice thing is the patio area is rent-free, which is where a lot of the seating is, so it's very efficient from a rent standpoint, very efficient from a labor standpoint And it's pushing the traffic to the store. So the combined model, while we tend to see market improvement on profitability from the standalone retail store, our food and beverage locations tend to average about twice the sales per square foot that just a standalone store average. average. So it really is not only a profitable venture, but it also is a great customer acquisition tool and brand awareness tool.

And then if I may, just on the Q4 gross margin guidance, I think you mentioned you expected flat year over year. And I guess that's like an improvement relative to what you have for for the full year, 50 to 100 basis points contraction. Just wanted to get a better sense of what is driving that sequential improvement.

Probably a little more mix with direct consumer being a higher percent of the mix is certainly helping there. And we've got a lot of new locations coming in. And our inventories going in are, we believe, are in very good shape. So, you know, the level of exiting in the season type merchandise should not be too severe or more down.

Thank you. Thank you, Mauricio. And our last question is from Paul Lachlis from Citigroup. Please go ahead.

Hey, thanks, guys. I'm curious if you could talk about what percent of your sales occur at full price. currently, like if you look back over this year versus what you might have seen historically. And I'm curious if you see that percentage changing given the consumer environment that you described. And then second, you mentioned outperformance of the outlets, I believe. Is that driven by stronger traffic or stronger conversion or both? Maybe if you could just talk about the different comp metrics of full price versus factory source, I think.

Well, I would say, Paul, on the first part of your question, we definitely, and we've talked about this for each of the last several quarters, we definitely sold more during the promotional events proportionately than we have in prior years. And that's, as we've talked about, that's where some of the pressure on our margin came in, like we were down On an adjusted basis, 100 basis points for the third quarter, and that's a lot of where that came from.

And as far as, you know, outlets, you know, the Lilly, you know, true flash sale in the all-price channel, it's probably around 20%. of the business that doesn't include just the other promotional type activities. Like when we do a flip side of that, you're more of our normal part, promote activities in a full price of the true all price channel. So we don't have huge number of outlet stores compared to some in the industry. And we are using those. The primary goal is to clear. We do make a little bit for, but not a lot.

Got it. And then I guess just to follow up on the higher percentage of sales happening during promotional periods, is it that business performed better than you thought during those promotional events, or is it just a higher mix of sales because sales were weaker during the non-promotional periods?

I'd say a little of both.

I mean, in some cases, we did outperform expectations on the promotional events. There's no question that full price sales have been lower than we anticipated. And that alone would change the ratio towards the promotional events. But at least in some cases, we did more during the promos And part of that is when you have less full price selling, there's more inventory available during those promotional times.

Got it. Okay, great. Thank you. Good luck. Thank you. This concludes the question and answer session.

I'd like to turn it back to Tom Chubb for any closing comments.

Okay, thank you all very much for your interest. We look forward to talking to you again in March, at which time we'll lay out 2025 for you. And until then, we wish you a very happy holiday season and new year.

You may disconnect your lines at this time. Thank you again for your participation.