Oxford Industries, Inc. (OXM) Earnings Call Transcript & Summary

Good afternoon, and thanks for joining us. I want to start by reminding everyone that some of what we say during this call, including in the Q&A portion, might qualify as forward-looking statements under Federal Security laws. Such statements aren't promises, and what actually happens could end up differing materially from what those forward-looking statements express or imply. The key factors that might make our operations' or our financial condition's actual results come out differently are covered in the press release we put out earlier today, as well as in the documents we've filed with the SEC, among them the risk factors in our Form 10-K. We're under no obligation to revise any forward-looking statements. On this call, we'll also touch on certain non-GAAP financial measures. A reconciliation between non-GAAP and GAAP financial measures appears in the press release we issued earlier today, which you'll find posted under the Investor Relations tab of our website at oxfordinc.com. Keep in mind that every per share amount we talk about on this call is on a diluted basis. When we disclose comparable sales, that figure takes in sales from our full-price stores and e-commerce sites while leaving out sales tied to outlet stores and e-commerce flash clearance sales; and at this point I'd like to introduce today's call participants; joining me today are Tom Chubb, Chairman and CEO and Scott Grassmyer, CFO. Thanks for your attention, and now I'll hand the call over to Tom Chubb.

Thanks for being with us today. If this were only 14 days earlier, I'd have devoted a substantial chunk of time to walking through our fiscal 2019 results and telling you about the great things we have planned for 2020. Given what has happened lately with the COVID-19 outbreak, that material doesn't feel nearly as important now. Above all, we're thinking of those touched by the COVID-19 virus, and also of all the people putting in effort to safeguard and assist the communities hit hardest. In these extraordinary times, the health and safety of our team members, our shoppers, and the places where we live and work remains our number one concern, and it always will be. Since it might help frame the situation we're in today, I'll take a brief moment to go over fiscal 2019, and then use the remainder of our time to discuss how we're handling the present circumstances. For fiscal 2019, our overall financial performance came in roughly in line with fiscal 2018; even so, a closer look at how we did reveals that meaningful progress happened exactly where it needed to. Our direct operations, accounting for 70% of sales, performed well, delivering positive comps across every quarter of the year, both by brand and on a consolidated basis. Notably, e-commerce drove the momentum, posting 10% growth versus the prior year and an 11% comp, and it now makes up 23% of sales. Meanwhile, wholesale sales fell during 2019, since a number of those retailers kept confronting strategic difficulties, with department store sales amounting to just 11% of our consolidated revenue; we'd be happy to keep partnering with these retailers, but their business model is getting harder in certain cases, and our strategy takes that into account. Adjusted earnings per share came to $4.32, flat versus fiscal 2018, and that figure absorbed the drag from higher tariffs plus a rise in our effective tax rate. Just as importantly, we closed out the fiscal year in a very strong liquidity position, with $53 million in cash and nothing drawn on our $325 million asset-based credit facility, which brings us to today's main subject; across our 78-year history, Oxford has survived numerous crises, and we have great confidence in our capacity to get through the effects that the COVID-19 outbreak is having on our company and on the retail marketplace. We're managing our businesses around three leading priorities: our people, our brands and our liquidity. To start, the health and well-being of our employees, guests and the communities where we live and work has been, and will remain, our priority. Every one of our North American stores and restaurants has been temporarily shut since March 17th, and our Australian stores were closed earlier this week. All of our distribution centers continue to operate, and we've put in place a thorough set of sensible measures across every one of those distribution centers to protect our people. The majority of our associates at our corporate and brand offices are working remotely. When we emerge from this crisis, whatever steps we take must protect our capacity to keep the workforce we'll need going forward. Next, the vitality of our strong brands is our lifeblood, and we'll defend them fiercely. Ours is an outstanding portfolio, anchored by Tommy Bahama, Lilly Pulitzer, and Southern Tide, plus a group of smaller labels such as the Beaufort Bonnet Company and Duck Head. We won't do things aimed at shoring up revenue in the near term that might damage our brands down the road. Every one of these brands connects with shoppers through engaging websites and digital marketing efforts that people remember. Our tech capabilities will help us stay in touch with shoppers while everyone is self-isolating. Liquidity comes third on our list. It's worth noting that we began fiscal 2020 with inventory in quite healthy condition. Things got off to a solid start up until the middle of March; even so, once COVID-19 worries started hitting our business, sales fell off considerably. To lower the danger of inventory building up, we're coordinating with suppliers to cancel, postpone, or cut back upcoming purchases. We're also leveraging our digital strength to remerchandise and remarket seasonal products for that channel. Last, keeping our liquidity intact matters most in the near term, and on that front we're in an extremely strong position. As I said before, we started 2020 holding more than $50 million in cash along with an untapped $325 million credit facility. To strengthen our cash position further and hold onto our high liquidity level, we've pulled down $200 million from that facility. Regarding expenses, we're pulling levers across the majority of spending categories. Employment costs rank among the biggest, at roughly $260 million during fiscal 2019. With store and restaurant closures continuing, we're turning to furloughs and layoffs when necessary and justified. Where we can, our plans will involve keeping employee benefits going, at minimum for some stretch of time. At every point, our top concerns will be safeguarding our employees' health and making sure Oxford stays well-positioned going forward. Today Tommy Bahama announced that most of its retail and restaurant team will be furloughed starting March 31st. Up through March 30th, those employees will have gotten full pay and benefits. Throughout April, Tommy Bahama will keep covering costs and benefits for furloughed employees; these calls are very hard to make, and we look forward to the moment we can welcome our employees and our guests back. We're also directing efforts, such as working with landlords where it makes sense, toward reducing occupancy costs, which exceeded $100 million last year. Marketing expense, which came in above $50 million last year, is being handled in stages. By leveraging digital marketing, we can swiftly adjust what we tell customers and how much we spend when necessary, all while keeping them engaged and driving visitors to our e-commerce sites. At the same time, we're cutting back in other places, like catalogs and photo shoots. Additionally, other costs that fluctuate — things such as fees for credit card transactions, royalties tied to licensed brands, commissions on sales, and packaging along with supplies — came to roughly $50 million during fiscal 2019. Every capital expenditure is under review, with numerous items, including store openings and remodels, plus certain IT projects, postponed amid this uncertain climate, and our Board of Directors lowered the quarterly dividend we pay from $0.37 per share down to $0.25 per share; we trust these steps, along with others, put us in a strong position to make it through these unprecedented times successfully. More than anything, I want to recognize our teams — talented, hard working, resilient men and women, lots of whom are facing upheaval in their lives in ways none of us could have envisioned just a few weeks ago. In the end, what will carry us through these troubled times is the character and the caliber of our people. With our attention on our people, our brands and our liquidity, we feel confident we can keep up our record of creating long-term shareholder value. Melissa, we're now ready for questions.

Tracy Kogan here, sitting in for Paul. Two things I wanted to ask. First, regarding your inventory — the levels appeared to be in solid shape. I was curious whether there's any variation in those levels across brands, and also how the conversations with your retail partners are progressing and what their approach is to planning inventory for the rest of this year. Second, what's your maintenance CapEx level — what figure should we have in mind that you might highlight this year as you eliminate some of those discretionary items you mentioned? Thank you.

All right, thanks so much, Tracy. I'll take the question about wholesale partners, and then I'll have Scott speak to you about inventory by group and just how low we could potentially go on capital expenditures. On the wholesale side, clearly right now, I'd say likely most of our customers — if not the vast majority — have their bricks and mortar stores shut. The ones who remain open — and there aren't many — I believe aren't conducting much business. So clearly those folks will need to respond with their own inventory plans; and as you'd probably anticipate, we're receiving many requests for postponed deliveries, lower quantities of product bought, asks for longer terms — all of that. And clearly we'll work our way through those matters. We have many wonderful partners, and we want to steer through this circumstance alongside them and emerge victorious on the other side. But I believe everything you'd anticipate is taking place. Clearly, we're incorporating those into our own future inventory plans; and when I brought up our actions to cancel, reduce, or otherwise adjust our upcoming inventory purchases, we're addressing not just our direct to consumer operations with that, but our wholesale operations too, and we've achieved enormous progress on it. It continues, but we've already gained a great deal of ground. Our teams are completely dedicated to it. We have a group of wholesale and other leaders from throughout our company — every business unit — collaborating, exchanging thoughts and data. I'm quite happy. I believe we'll perform well at handling those inventory levels, along with maintaining our strong ties with our wholesale customers, as we get through an extremely challenging period that neither side caused. Scott can now give you some detail on inventory by group, and on the CapEx as well.

Yeah.

Thanks.

When it comes to inventory, both Tommy Bahama and Lanier Apparel saw declines, while Lilly Pulitzer had a slight increase. Turning to CapEx, the maintenance figure sits at about $15 million. Even when something falls under maintenance, a portion of it can still be pushed out — so if necessary, we have a meaningful chance to cut back on CapEx spending.

Since your stores shut down in the middle of March, have you noticed online sales speeding up? I'm just wondering whether travel limitations have put consumers in a wait-and-see mode about purchasing anything at this point; and how much are digital channels being leveraged at present to handle inventories at the store level?

Regarding what we've observed in e-commerce, on the whole it's declined somewhat. As you're aware, our products and our brands are extremely discretionary. They track closely with social gatherings, social engagement and travel. So during the initial stages of this situation, on balance we've experienced a slight softening in e-commerce. Having said that, it's been somewhat inconsistent and in certain markets we're witnessing quite robust business and a favorable reaction to some highly inventive marketing efforts our brands are undertaking, so we're engaged in that work. Clearly, the e-commerce strategies we'd set for this period of the year have essentially been discarded, and the teams are moving extremely quickly and with great ingenuity to craft messages suited to the current circumstances that connect with the customers, and we've definitely witnessed some excellent developments on that front this week.

Thanks. I also wanted to ask about the wholesale side. Within that channel, what portion of your Q1 activity had already been finished before worries about the virus accelerated during the middle of March? I'm simply trying to understand what share of your wholesale operation is largely done versus what could still be scrapped.

Honestly, we didn't see that one coming, Rick, and I'm not sure I'm able to give you an answer. A large share would have been done, since clearly folks are working to place spring goods in stores for the spring selling period, so I'd say it's reasonable to describe us as quite front loaded in Q1. Still, I can't say the precise amount; beyond that, retailers can take some time before they hit the brakes; as recently as last week we were continuing to ship certain wholesale orders; that was lower than the normal level you'd have anticipated, yet shipments were still going out. It had fallen compared with the prior week, and my expectation is that it will keep shrinking, though it didn't stop all at once.

And for my final question, regarding the Marlin Bars locations slated to open during this year — are those proceeding at full speed, or have you halted them?

Right now, we've kind of stopped everything. We — once this situation truly gained momentum, I suppose around two or three weeks back, we halted every CapEx initiative. Normally, we give approvals roughly twelve months ahead of time. Scott circulated a memo to each of the teams stating that even if something had been greenlit previously, you must check in with us again prior to taking any action; and so at present, everything is essentially paused; but what we'll begin doing is, once we gain a bit more clarity regarding where this situation is going, we'll rank which items we wish to greenlight, and clearly essential maintenance items would sit at the very top. Beyond those, though, it would be initiatives that will genuinely drive revenue; so certain items in e-com along with certain items in retail and restaurant are likely solid choices.

Yeah, and Rick, those 2 Marlin Bars did open during February — the one on Las Olas Boulevard plus the location at Dania Pointe, both situated in South Florida. So both of them were up and running at the start of February.