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

Thanks, and good afternoon everyone. I want to start by reminding those on the line that some of what we say during today's call and in the Q&A portion could be considered forward-looking statements under federal securities laws. Such statements aren't promises, and what actually happens may end up differing substantially from what those statements express or suggest. The key factors that might lead our operating results or financial condition to 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, including 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 be going over some non-GAAP financial measures. A reconciliation between non-GAAP and GAAP figures appears in the press release we issued earlier today, which you can locate under the Investor Relations tab at oxfordinc.com. Because COVID-19 had such a material effect on our business in fiscal 2020, we'll be providing comparisons to our fiscal 2019 results as well; and at this point, let me introduce who's joining us on today's call. Here with me are Tom Chubb, our Chairman and CEO; and Scott Grassmyer, our CFO. I appreciate your attention. And with that, I'll hand things over to Tom Chubb.

Thank you, Anne, and I appreciate everyone being here this afternoon. It's a real pleasure to share that we've had an exceptionally robust beginning to fiscal 2021. Right when the pandemic hit, we made firm choices to safeguard our team, our labels, and our cash position. Alongside that, throughout the last year we concentrated on bringing joy to shoppers and putting money into stronger digital promotion and shop expertise, plus our bars and restaurants, and all of this has solidified our base for profitable expansion. As people have grown more at ease with going back to in-person retail, engagement overall has risen sharply, creating powerful momentum throughout every brand we own. Considering how things stood a year ago, it makes sense that we delivered solid revenue increases across every brand and every distribution channel in the first quarter of fiscal 2021 versus the first quarter of fiscal 2020. What stands out far more regarding our Q1 2021 results is the way they stack up against the first quarter of 2019. In our view, measuring against 2019 gives a far clearer picture for most intents than a 2020 comparison does. So, in what we cover today, we'll concentrate on the encouraging progress we've achieved toward getting back to, and even surpassing, where we stood in 2019. Q1 revenue reached $266 million, against $282 million in fiscal 2019 and against our guided range of $220 million to $240 million. Worth pointing out: of the $16 million drop in sales versus the first quarter of fiscal 2019, $14 million stemmed from weaker sales at Lanier Apparel, which, as everyone knows, we are working to wind down. On an adjusted footing, diluted earnings per share climbed to $1.89, up from $1.30 in Q1 of fiscal 2019. Scott will walk through more specifics shortly, but these figures came from exceptionally robust results in our e-commerce operations and superb gross margins. Our bar and restaurant segment likewise turned in a very solid quarter; at our physical locations, we mostly experienced traffic and sales improving sequentially through the quarter, with Florida, the Southeast, and Texas showing the greatest strength, whereas the Mid-Atlantic, the Northeast, and the Midwest are bouncing back somewhat more gradually. Without a doubt, we're gaining from a degree of pent-up demand so far during this spring and summer, and from our brands aiming at merchandise tied to travel, vacation, and social events lining up with shoppers' wish to travel and reconnect socially; we anticipate this continuing as additional parts of the country start to normalize. Even so, we feel the numbers we've recorded so far this year, and those we're forecasting for the rest of the year, likewise show how valuable it is to remain faithful to our brands through the difficulties we encountered last year. The fact that we've stayed dedicated to those cheerful, positive, uplifting brand messages and gotten them out to shoppers via what we sell and the services we offer is really delivering strong results now that the world is opening back up. Beyond that, the money we've put in — and keep putting in — to make our brands' creative output better, to upgrade customer service across every channel, and to sharpen how we do digital marketing in our stores, bars, and restaurants is bringing back solid returns. Tommy Bahama, our largest brand, sits squarely in that easygoing island way of life; we bring that way of life to guests via fantastic merchandise, terrific shops, and our e-commerce site, and — crucially — through our bars and restaurants too. By remaining faithful to the Live the Island life brand message and making the sorts of investments I just described, we managed to post exceptional results for the first quarter. Overall sales nearly matched what we saw in 2019, fueled by solid increases in e-commerce and restaurants, while wholesale stores kept getting better quarter by quarter. Crucially, more selling at full price plus better initial IMUs, along with terrific cost discipline, contributed to a substantial lift in gross margin and operating margin, plus a 36% rise in operating income versus the first quarter of 2019. The margins we posted this quarter make us very happy. Last, it was great to observe that although our men's business performed well, our women's business at Tommy Bahama did even better. We feel privileged to have such a devoted group of genuine Tommy Bahama enthusiasts making up our extremely loyal customer base. Even so, we think there's still space on the island to win over additional customers. With the investments we're making and the priorities we've set, we're determined to broaden our customer reach even as we keep serving those loyal guests. Remaining rooted in its resort chic < > way of life — being the sunshine, as we like to say — served Lilly Pulitzer quite well in the first quarter. For spring '21, Lilly's product focus was feel good fashion, centering on cheerful color and print, easy chic < > comfy items, and a resort mindset. That focus, combined with the investments we've made to strengthen brand creative and upgrade our store and digital capabilities, produced strong first quarter results; e-commerce keeps growing robustly, while our stores in the wholesale business kept improving as shoppers grow more at ease interacting with the physical world. All told, first quarter '21 sales topped first quarter 2019 sales, and operating margin landed at an impressive 27% versus 21% in 2019. Luxletic and lounge merchandise kept fueling growth, and we enjoyed a healthy rebound in our dress business as her social calendar starts filling back up. Meanwhile, our golf and tennis lines have been bright spots too, and she's displaying strong renewed appetite for swim as she contemplates travel and vacation this summer. The latest numbers we posted make it clear the product is what she's after, and the message behind our brand is connecting with her. Through the rest of the year, we're eager to keep pushing a robust business forward. Southern Tide, The Beaufort Bonnet Company, and Duck Head — our more niche labels — likewise turned in a strong first quarter, with each one recording substantial sales increases over the levels seen in the first quarter of 2019. This year, all 3 of them are set up to add to what we earn. The first quarter figures leave us quite happy, and we feel great about what's left of the year. In a moment, Scott will go deeper into our guidance, though I'll note now that a solid year is what we anticipate, especially when it comes to profitability. Driving our optimism are things outside the company along with the internal goals we've kept our attention on over the past year. Let me begin with those outside factors. As summer moves along, we anticipate that certain regions that have taken longer to bounce back — for us, that means the Mid-Atlantic, the Northeast, and the Midwest — will gain steam. We're also of the view that through this year, consumers will stay highly interested in travel, vacation, and social events.

To wrap things up, following such a prolonged health crisis, shoppers now value the distinctive, joyful, vibrant, and optimistic character of what we offer even more than before. Every one of these outside influences suggests a robust 2021 lies ahead. We're likewise thrilled by the gains that have come from the things we've chosen to focus on internally. There are — well, I'll mention — five I want to point out here. Number one, when it comes to our brand messaging, we've been careful to make certain that what we say stays faithful to the values at the heart of our brand and speaks to what today's buyer and the current market need. Number two, we've restructured our creative groups and are upgrading the creative material we produce so that it fully conveys the strength of our brand messages. Number three, as we work to strengthen our digital skills, we're getting better at gathering and interpreting customer information in a manner that honors her privacy while also positioning us to serve her more effectively and in a more tailored fashion. That also assists us in finding and connecting with fresh groups of prospective buyers. Number four, we're sharpening our ability to gauge how well the different channels perform and to fine-tune them — a lot of those being digital media — that we rely on to connect with current customers as well as possible new ones. Number five, we keep improving the ways we fulfill orders placed at our stores. This lets us draw on stock held anywhere within our network to meet demand coming from any location. The consequences for how efficiently we manage inventory, how quickly goods sell through, and in the end, our gross margins, are enormous. We feel that pairing these favorable outside influences with the gains from our internal focus provides plenty of justification for optimism about 2021. To finish, let me convey my heartfelt gratitude to our fantastic, devoted customers and to our exceptional staff — a remarkable collection of women and men who have put in more effort than at any prior point across the past 1.5 years to bring happiness to those shoppers. Thank you for everything you do. At this point, I'll hand the call over to Scott, who will share more specifics about our results and what we expect for the rest of the year. Scott?

Thank you, Tom. As Tom just told everyone, fiscal 2021 has gotten off to a wonderful beginning, delivering record profits right out of the gate in quarter one. Let me take you through the path that brought us here. Revenue came in above what we had anticipated and, once you set aside what the departure of the Lanier Apparel business did, stood at levels comparable to 2019. Our full-price e-commerce channel came in 55% above 2019, posting meaningful gains versus 2019 across every one of our branded businesses. What we saw in our retail stores mirrors the considerable regional variation in how quickly things are bouncing back; we enjoyed genuine strength in the Southeast and Southwest, especially Florida, where retail sales reached 2019 levels; on the other hand, recovery is coming along far more slowly in other regions, where sales in the Northeast, Mid-Atlantic and Midwest, though better than Q4, remained more than 30% below 2019. Taken as a whole, our retail sales ran 16% under 2019; we keep seeing gains thus far in quarter two and anticipate that trend to carry on as restrictions ease and a summer arise in these areas. Our restaurants got a boost from adding five Marlin Bars along with the robust rebound in certain regions, delivering a sales gain of 7% against 2019. Every restaurant has reopened now aside from New York, which we intend to bring back this fall. We take particular pride in the effort we've put into lifting our gross margin, which on an adjusted basis grew 520 basis points versus 2019, reaching 64%. Because demand stayed elevated, a larger share of our first quarter sales went at full price than was the case in the first quarter of 2019. Gross margin also gained from our emphasis on and investments in our direct-to-consumer businesses and from lower sales at Lanier Apparel, producing a substantial shift in our sales mix toward these higher-margin channels of distribution. During the first quarter of 2021, our direct business accounted for 72% of revenue, up from 64% in the first quarter of 2019; we've also raised our IMUs by cutting product cost and raising prices selectively. SG&A came down slightly from 2019 levels thanks to lower employment costs, occupancy costs, variable expenses and travel costs, partly offset by higher performance-based incentive compensation. When you add everything up, in quarter one our consolidated adjusted operating margin grew 410 basis points versus 2019, hitting 15%, with operating margin expansion across all operating groups. Our business rests on our strong balance sheet and cash flow from operations. A few highlights: on a FIFO basis, inventory fell 29% against the close of the first quarter of 2020. Setting aside Lanier Apparel, which we are exiting, FIFO inventory dropped 22% against the — into the first quarter of 2020. Tommy Bahama, Lilly Pulitzer and Southern Tide each brought inventory levels down considerably year-over-year, helped by cautious buying of seasonal inventory and first quarter sales that beat expectations. We're also seeing better inventory utilization from the work we keep doing on enterprise order management systems; measured on a LIFO basis, inventory was down 36% from where it stood at the close of the first quarter of 2020. Difficulties in the supply chain persist, among them greater transit expenses along with delays in production and transit. That said, because we concentrate on direct-to-consumer channels, we have greater latitude regarding when products are released. At the close of the first quarter our liquidity was solid, with $92 million in cash and no debt; during the first quarter of 2021, operating activities generated $41 million in cash, whereas in the first quarter of 2020 operating activities consumed $46 million in cash. Now to our outlook. The favorable momentum from the first quarter has carried forward, and for the second quarter we anticipate delivering robust revenue and earnings. Second quarter sales should land between $300 million and $310 million, versus $302 million in the second quarter of 2019. One factor weighing on second quarter sales is the winding down of our Lanier Apparel business. We project Lanier Apparel revenue will fall to roughly $5 million in the second quarter of fiscal 2021, down from $20 million in the second quarter of fiscal 2019. We anticipate that solid full price selling, a mix shift toward our brands and our direct-to-consumer channels, and better IMUs in the second quarter will drive a significant rise in consolidated gross margin relative to 2019. On an adjusted basis, second quarter 2021 earnings per share should come in between $2.15 and $2.35, against $1.84 per share in the second quarter of 2019. Owing to the seasonality of our brands, the third quarter has historically been our weakest for both sales and earnings. Additionally, we place end of season inventory during both the third and fourth quarters, with the highly profitable Lilly Pulitzer after-party sales standing out as our most prominent event. We expect that strong sell-throughs in the first quarter along with the elevated sales levels we have planned for the second quarter will shrink the excess inventory available for these clearance events. Given reduced planned revenue from clearance events in the third quarter plus the effect of exiting Lanier Apparel, we project an adjusted loss for the quarter between $0.20 and $0.35 per share, compared with adjusted earnings of $0.10 per share in the third quarter of 2019. Thanks to first quarter results that beat our expectations, together with our forecast of a strong finish to the year powered by the continued strength we have planned in our full-price e-commerce channel and our retail and restaurant channels of distribution, we are lifting the guidance for 2021 that we issued earlier. We now anticipate sales between $1.015 billion and $1.05 billion, against net sales of $1.12 billion in 2019. Looking at the entire year, we anticipate Lanier Apparel sales will come in at roughly $20 million, or $75 million, below what we saw in 2019, and we have nothing planned for Lanier Apparel in Q4. For 2021, adjusted earnings per share should come in above where they were in 2019, and we'll get a solid lift from gross margin expansion. Full-year SG&A ought to land near 2019's figure, helped by reduced employment costs, occupancy costs, and travel costs, though that will be partly offset by higher performance-based incentive compensation along with marketing investments, which include top of the funnel spending. Our current outlook for adjusted earnings is $4.85 to $5.15 per share, versus $4.32 per share back in 2019. Our intention is to keep putting money into growth opportunities, mostly information technology initiatives, for example the redesign and relaunch of the Lilly Pulitzer mobile app, plus further development of digital marketing and customer service enhancements; we also intend to open new retail stores and a new Marlin Bar at Town Square in Las Vegas, which is going to take the place of our full-service restaurant in the center; for 2021, full-year capital expenditures should be about $35 million, similar to what we spent in 2019. Thank you for your time today, and now we'll open up the call for questions. Hilary?

Hi there, good afternoon. I appreciate you fielding this. Nice work on such a strong quarter. So first off, I'd like to dig into gross margin a bit — clearly that was a tremendously impressive result. Regarding last year, I recall you had inventory you stored away. Did bringing that inventory back into circulation this year give you any advantage on the cost side? Then, secondly, when you consider the longer view on DTC penetration, especially for Tommy, do you feel you've reached a ceiling, or could the direct business keep expanding its share of total sales? Thanks.

Ed, perhaps I'll handle the first one, and then pass it — actually, let me take the second one, pardon me, and then hand it to Scott regarding whatever gross margin benefit we may have seen. But Ed, I genuinely think DTC's share of the total still has room to rise. It will definitely represent a bigger portion this year than during 2019, given that wholesale is bouncing back. Our wholesale operation, I believe, is quite robust. We're doing well across every one of our major accounts, which is encouraging. Yet looking further ahead, DTC should remain the main engine of our growth. Scott, would you like to address gross margin?

Right, there wasn't any meaningful cost gap compared to what we brought forward. What that let us accomplish was avoid sitting on a pile of extra inventory last year that we'd be dumping into the market. And I believe it genuinely benefited our brand health. And I think our merchandising folks did an excellent job of taking what we could sell effectively into that spring assortment, and it simply meant we didn't need to purchase a large amount of inventory for early spring, since we already had it on hand. It also assisted with certain transit delays, because that inventory was already sitting here. So, we truly experienced no delays in that area.

Understood. Then I have another follow-up. You folks said, as I recall, that certain tactical price hikes were being implemented. From what I understand about your history, that's something you've carried out when launching a new product or when adding some new functionality. So when these prices go up, is the reasoning roughly the same as when a new product arrives, or is a broader, more sweeping method being applied to at least some of those increases? Thanks.

Ed, this is a matter of picking specific spots rather than applying increases universally.

Right, and beyond that, when we move further into products built for performance, the new items we've rolled out in that performance segment usually carry a bigger gross margin as well.

This is Tracy Kogan, sitting in for Paul. Two things were on my mind. First, regarding the supply chain — could the holdups you're experiencing be playing a part in the shortage of clearance inventory you anticipate for Q3? Or does that really tie back more to your sell-throughs? Second, about Tommy, I was curious how much international tourism's absence has weighed on your outlet channel. Could you shed some light on how outlet results compare with full-price doors — specifically, those located in tourist areas against those that aren't? Many thanks.

Alright. As for the supply chain matter and whatever effect it might have on the Lilly Pulitzer after-party sale down the road, the way I'd put it, Tracy, is that our biggest driver — the root cause, so to speak — behind having less inventory is the stronger sell-through we've posted year-to-date. That said, supply chain troubles do complicate our ability to chase inventory, both for the full-price side and for what would eventually leave us potentially sitting on more goods for the after-party sale. So we're running into some difficulties with shipping delays, plus certain production delays at the factory level stemming from the COVID pandemic. Naturally, we've done our best to build all of that into our forecast and believe we've more or less accounted for it, but the true reason is the full-price selling during the early portion of the year that came in above what we projected; and then, on the outlet stores?

Yeah. Our store locations have declined in a way that mirrors what happened across all our retail; international travelers don't really do much for us, unlike how it may work for certain labels in their outlet shops over there. Even though revenue has fallen, our outlet gross margins remain quite robust, since our stock levels are far more streamlined, and that merchandise is high quality, plus we can secure somewhat improved rates, needing to mark things down a bit less than was necessary in earlier years. So on the whole, within our outlet operations — top-line results are lower, yet margins have risen, which makes it reasonably solid.

Hi there, good evening. It's great to see the quarter getting better. I'm wondering — I believe you said the Northern states should improve once they began reopening. Have you actually observed that happening, or are they only just beginning to bounce back? Also, has the South kept up its strong results? And what about Hawaii now that it has reopened?

Sure. Regarding the Mid-Atlantic, Northeast, and Midwest — the three lagging areas we identified — conditions are getting better. Comparing recent results with how things looked earlier in the year, the overall direction is positive. It's what you'd anticipate: with more people going out, feeling at ease as certain limits are eased and vaccination rates rise, folks are eager to shop and purchase items, and we believe that works strongly in our favor. In those states, summer provides an excellent opportunity to draw shoppers to our brands, which center on warm weather, sunshine, and similar themes. As for the South, compared with any other year, results remain quite strong. What we're seeing there makes us happy. I should note that Florida invariably decelerates for us somewhat in the summer months compared with other periods, and I think that's happening. It won't represent a decline relative to prior years, but it will account for a smaller portion of our total sales during those summer months. Now turning to Hawaii, the situation is somewhat uneven. Locations depending heavily on international visitors — particularly those arriving from Japan or Australia — meaning the island of Oahu, since travel from those places still faces problems. Those spots haven't bounced back as quickly as places like Maui and the Big Island, which draw more U.S. tourists. Restrictions also remain in effect, yet we're observing a solid rebound, and I expect that to persist as the year goes on. I believe all of Hawaii will keep improving, which benefits us. We're delighted by the results from the first quarter; though once more, that happened while certain regions remained below their 2019 levels. As those areas return, we think that's a good sign for us.