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

Thanks, and good afternoon, everyone. I want to start by reminding those listening that some of what we say on this call, including during the Q&A, might count as forward-looking statements under the federal securities laws. Such statements aren't promises, and what actually happens could differ substantially from what those statements express or suggest. The key factors that might cause our operating results or financial condition to come out differently are described in the press release we put out earlier today, as well as in the documents we file with the SEC, among them the risk factors in our Form 10-K. We're not obligated to revise any forward-looking statements. Also, on this call we'll reference certain non-GAAP financial measures. A reconciliation between non-GAAP and GAAP figures appears in the press release we issued earlier today, which you'll find posted under the Investor Relations tab at oxfordinc.com. Because COVID-19 had such a material effect on our business in 2020, we'll also be providing comparisons against our 2019 results; and at this point, let me introduce the people joining today's call. Here with me are Tom Chubb, our Chairman and CEO; Scott Grassmyer, our CFO; and Anne Shoemaker, our Treasurer. I appreciate your attention. And with that, I'll hand things over to Tom Chubb.

Thank you, Jevon. Good afternoon, and we appreciate you being with us. It's a pleasure to share our results from what proved to be a remarkable fiscal 2021 for Oxford, along with what we're planning for an even stronger fiscal 2022. Scott is going to walk through more specifics shortly, but first, let me offer a few key points. Every one of our cheerful, optimistic lifestyle labels — Tommy Bahama, Lilly Pulitzer, Southern Tide, The Beaufort Bonnet Company, and Duck Head — enjoyed its strongest year on record in 2021. Each of the five delivered robust growth on both the top and bottom lines, not just against 2020, but also when measured against pre-pandemic 2019 figures. Against 2019, setting aside Lanier Apparel, which we left behind in 2021, net sales rose 9% for the entire fiscal year and 8% in the fourth quarter; on an adjusted basis, our consolidated fiscal 2021 gross margin of 63%, operating margin of 15%, and earnings of $7.99 per share all set records for Oxford. While every brand had a wonderful year, the single largest driver of our record earnings came from our biggest brand, Tommy Bahama, where sales climbed 7% compared with 2019, reaching a record $724 million, and adjusted operating margin almost doubled to 16% over that same period. These excellent results reflect strong execution against the strategic priorities we set to drive our recovery from the pandemic, paired with our simple formula for success. On the branding side, across all five labels, we stayed faithful to our cheerful, optimistic positioning and backed each brand with the timeless three pillars of any great brand: A+ product, A+ distribution, and A+ communication. On the product side, we brought forward innovative, differentiated items that stay true to each brand's DNA while remaining relevant to today's marketplace and consumer. Among the hundreds of new products introduced this year, standout examples include our Tommy Bahama men's IslandZone chip shot short and women's palm modern swimwear; at Lilly Pulitzer, our Luxe cotton French Terry Harriet dress, plus many Luxletic editions; and at Southern Tide, our Sunterra capsule collection. Every one of these items fits the brand and aligns well with the continuing trends toward casualization, easy-to-wear and easy-care clothing, and appetite for performance-inspired product. And our customers absolutely love them. On the distribution side, we keep refining our premium full-price selling platform so that our brands, products, and services reach our customer whenever and wherever she wants them. As we see it, a customer-focused, modern distribution platform for any fashion brand ought to combine a balance of company-owned retail stores and company-owned e-commerce, supplemented by a strategic wholesale business. By strategic, we mean a wholesale business that enhances the brand, is profitable for us and for our wholesale customer, and introduces us to a wider consumer base that might otherwise never know our brands. We also think it matters for modern brands to deliver an experiential element. In our lovely retail locations and our truly distinctive Tommy Bahama bars and restaurants, we deliver outstanding experiences for guests. Our fiscal 2021 sales, we feel, show the strength of a well-balanced, contemporary distribution model: company-owned retail contributed 39%, e-commerce 32%, restaurants and bars 9%, and wholesale 20%. When it comes to communication, having creative content that captivates is more essential than ever, and in today's marketplace that content must be crafted specifically for the digital media that command so much of the modern consumer's attention. Beyond that, brands must be capable of grasping and meeting what current customer audiences need and want, while also spotting prospective audiences whose needs and wants align. And lastly, brands require the methods, rigor and abilities to get powerful creative content to those present and future consumer audiences both effectively and efficiently — in a manner that draws in new buyers, keeps the ones already there, and motivates everyone to deepen their involvement and spending with the brand. The yardstick by which we gauge how well these efforts work is our customer KPIs, and our customer count wrapped up the year above 2 million active brand customers, versus approximately 1.8 million when fiscal 2019 ended. Our gifted, deeply committed teams will keep refining and refreshing our merchandise and brand messaging so that they remain pertinent for today's consumer while staying faithful to what makes each brand's DNA distinctive. This has been, and will keep being, the cornerstone of our achievement as we generate long-term value for our shareholders. Great as fiscal 2021 turned out to be, we see the outlook for 2022 and afterward as even more promising. The momentum built throughout 2021 has carried over into the beginning of 2022, and we hold excellent plans for delivering double-digit growth on both the top and bottom lines on a consolidated basis. During 2022, our attention will center on four strategic pillars, underpinned by the base of our business — our remarkable team of people. First, we intend to grow our brands over the long haul. Toward that end, we have thorough plans for sharpening our clarity regarding brand positioning and voice. As caretakers of our lifestyle brands, we are in the dream business, and making certain that every brand sparks optimism and aspirations for happiness matters above all. Our brands will keep providing A+ product, A+ distribution and A+ communications. Second, we will keep strengthening our digital and omnichannel abilities in order to draw in new customers, hold onto current ones and boost frequency and spend. Throughout the enterprise, we have many initiatives involving people, processes and technology, especially those tied to unlocking consumer insights in more effective ways and delivering wonderful, seamless customer experiences that will bolster and elevate our capabilities in these areas. Third, we will push for operational excellence throughout the enterprise so we can serve our customers better and guarantee that we run as efficiently as we possibly can. To back this effort, our attention is on areas like fulfillment and distribution, strategies for retail real estate, improving processes, enterprise-wide technology, and getting our ESG initiatives across effectively. Fourth, we'll keep managing our portfolio and aligning our capital structure so we can drive sustained profitable growth. The detailed plans include assessing market opportunities to better guide future growth plans, refining our brand health metrics so we can better manage our businesses, evaluating growth opportunities both organic and acquisition-based, benchmarking ourselves against competitors, and monitoring our capital allocation strategies over time, including returning capital to shareholders. Lastly, we have plans to keep developing our people and our teams so rewarding careers are possible for our people and so the Company can execute our strategy now and in the future. To do this, our focus is on acquiring and developing exceptional and diverse talent, leadership succession, minimizing the impact of the so-called great resignation, and maximizing engagement and effectiveness of remote and hybrid workers. People are our most important asset, and we will keep investing to ensure that we continue to have the best. We look forward to updating you on the progress of all these plans as well as our results as this year progresses. I'll now turn it over to Scott for more detail about the results in fiscal 2021 and our strong forecast for top line growth and operating margin expansion in fiscal 2022. Scott?

Thanks, Tom. Each of our operating groups performed at a high level throughout 2021 and turned in record results at every brand, which Tom noted a bit earlier. A historic fourth quarter wrapped up an outstanding fiscal 2021, powered by ongoing momentum in e-commerce, better full-price sell-through, and stronger gross and operating margins; consolidated net sales for fiscal 2021 came to $1.142 billion. If you set aside Lanier Apparel, sales rose 9% compared with fiscal 2019, reaching $1.117 billion, as our revenue mix kept moving toward full-price direct-to-consumer. Our full-price e-commerce operation expanded dramatically, climbing 58% against fiscal 2019, with significant double-digit gains at every one of our brands. Turning to bricks-and-mortar, our retail stores and restaurants posted especially strong results in Florida, the Southeast and Texas relative to fiscal 2019. Adjusted gross margin for fiscal 2021 was 63%, versus 57.6% in fiscal 2019. That 540 basis point gain came from robust full-price sales, a mix shift toward full-price direct-to-consumer channels and better IMUs, especially in innovative new performance offerings. Greater freight costs, air freight among them, cut gross margin by 160 basis points across the full year, with a 300 basis point hit during the fourth quarter; on an adjusted basis, operating margin for the full year rose 650 basis points to 15% of net sales, thanks to gross margin gains and leverage in SG&A. Now I'd like to take you through what we project for fiscal year 2022, which started January 30. Looking ahead to 2022, we anticipate our business will stay robust. Continued growth is expected in e-commerce, powered by stronger digital capabilities aimed at acquiring new customers, keeping them and boosting their spend. Traffic at our physical locations keeps improving, and we foresee sales growth year over year across every region. By strategically emphasizing direct-to-consumer channels, which make up 80% of our business, we have strengthened our capacity to perform well amid a disruptive supply chain, since our talented merchandising teams keep building compelling assortments on our sites and retail floors as product arrives. Our skill at working through supply chain difficulties, together with our product innovation, is likewise producing a strong forward order book in wholesale. We anticipate modest gross margin expansion as we keep realizing benefits from higher IMUs, partly offset by what we expect will be a somewhat more promotional environment; despite inflationary cost pressures, a difficult labor market included, we expect modest SG&A leverage. Taken together, these dynamics should let us deliver double-digit growth on both the top and bottom lines, along with operating margin expansion, in fiscal 2022. For the first quarter, sales should rise from $266 million, which included $12 million from Lanier Apparel, to a range of $315 million to $335 million, reflecting very strong quarter-to-date results in both direct and wholesale channels. For the entire year, we anticipate sales will grow from $1.142 billion in fiscal 2021, a figure that contained $25 million from Lanier Apparel, to somewhere between $1.245 billion and $1.285 billion in fiscal 2022. The higher sales come from double-digit growth in our direct-to-consumer segment along with a solid wholesale order book. We project our effective tax rate for fiscal 2022 will land between 24% and 25%; adjusted for certain items, we're looking at EPS of $2.65 to $2.85 for the first quarter of fiscal '22, versus $1.89 during the same period a year ago. Across the whole fiscal year, adjusted EPS should come in between $8.75 and $9.15, compared with $7.99 in fiscal 2021. A strong balance sheet stands behind our business. Let me walk through a few highlights. We closed fiscal 2021 with inventory in great condition. Measured on an as-reported LIFO basis, inventory fell $118 million by the close of the fourth quarter, against $124 million the year before. On a FIFO basis, though, inventory rose 12%, once you set aside the effect of Lanier Apparel. We believe the efficiencies our enterprise order management systems deliver will keep letting us handle more business while carrying less inventory. Our liquidity is solid, with zero debt plus $210 million in cash and short-term investments as fiscal 2021 ended. Capital expenditures came to $32 million in 2021, and we're projecting roughly $50 million for fiscal 2022, which reflects ongoing spending on information technology initiatives, expansion of new Marlin Bar stores, and renovations at select existing locations. I'm happy to report that our Board of Directors raised the quarterly dividend from $0.42 per share to $0.55 per share — a 31% bump from the previous level. So far, we've bought back roughly 430,000 shares at an average price of $87 per share, totaling $37 million, which includes $8 million in fiscal 2021, after our Board announced a new share repurchase authorization in December; we're glad to keep finding meaningful ways to return capital to shareholders. Thank you for your time today, and now we'll open the call for questions. Shamali?

It's good to see the business carrying some momentum into this year. I wanted to ask whether you could discuss what pricing you anticipate for this year compared with last year. Also, regarding how inventory is positioned, do you expect units to rise this year, with growth really being led more by price?

Yes. I'll say a few things about that, and then let Scott give you some further detail regarding how the financials are affected. We're raising prices in a way that's highly strategic and selective. A portion of those have already been implemented, and additional ones will arrive during the second half of the year. Again, Scott will go into more depth on this, but my view is those will keep us ahead of the product cost inflation we've observed up to now; and looking at growth overall, if you consider the double-digit growth we're projecting, price increases alone don't account for it. Unit growth factors in too. So, Susan, we feel really, really good about where the business is, I think that the momentum we generated in 2021 was really about actions that we took in 2020. And even prior to 2020, we realized the benefits of those actions in 2021, and we'll continue to see it in 2022 and beyond. And then as we elaborated on, we're not done yet. We've got great strategic priorities for the year that I walked through in my part of the call that I think are going to continue to enhance our ability to reach and serve the needs of even more customers. Scott, do you want to elaborate more on the pricing?

Yeah. Like Tom said, it comes from both price and volume, and the split between those two is fairly even. As for the increases we're taking on price — a portion kicks in for spring, though additional ones will land for some, and still more will come for fall resorts. So what we were aiming for was ensuring that our pricing keeps pace with, and gets out in front of, some of the cost pressure on inputs that we're facing. And I believe we have — I believe we're going to get that done; plus we do anticipate growing — growing gross margins by a modest amount, despite the fact that we could be somewhat more promotional simply because we're carrying more inventory. And I suspect the entire market is going to be a touch more promotional than it was a year ago, and even so, I think we can still grow gross margins under these conditions.

Great; that sounds pretty positive. And then if I could just add one follow-up. Maybe if you could talk about what you're expecting from growth by brand for this year. And then also just on the Tommy brand, Tommy Bahama. Can you talk about the performance or give us an update on men's versus women's and kind of how you're expecting that performance also for this year?

Yes; so I'll start and then let Scott again elaborate on a few things. But in terms of growth across all the brands, it's really pretty balanced. I mean they all, again, are going to have a terrific year, at least that's what we're forecasting. They all had record years last year, incredible top and bottom line growth. And we've got more of that across all five brands again for this year. And then on Tommy, men's versus women's, what I'll tell you, Susan, is that men's is incredibly hot, and women's is even hotter right now. It's really just unbelievable to see what's happening in our women's business. We've had a couple of things that have happened. We've had a day recently where we did $1 million of women's sportswear in our online business, which is just sort of a milestone that we've never reached before in a single day. We've had in the month of February for most — much of the month, our women's business online was actually bigger than our men's business. Men's was growing very robustly, but women's was growing even faster; and again, this is not a fluke, Susan. These are very deliberate markets that have to do with the way that we've set up our sourcing. We've completely realigned that over the last several years, the way that we're designing product, the merchandising of our line. So a couple of years ago, we were kind of upside down and had 2/3 fashion, 1/3 basic; now we've flipped that. So we've got the predominance of our inventory dollars are in more core type products, which is a much better way to drive a business. We still have fashion, but we're much more balanced in that regard. And then on marketing, and I'm sure you paid attention to it, Susan, but we're leaning very hard into our great women's swim business as a way to really introduce women and get them to look at the brand; so if you've noticed online, we've done a lot of marketing with that, and it helps bring women in; then they come in, they see everything that's in the line. They love it. They buy it. And it's just — it's a really, really great story. So, the total business is superstrong. Men's is very, very strong and growing rapidly, but women's is even stronger right now, and we'd love to see that. It's such a great story all the way around.

Great. What portion of the business does women's represent at this point?

For the full-price retail plus e-commerce side, it's just above 32%, which increased from roughly slightly more than 30% in '19. In '20, the figure stood near 29%. Back in '19, though, it sat at just over 30%; at present we're at just above 32%; therefore we picked up 2 points of share during '21. And like Tom said, we're positioned to add more in '22.

And that's even as men's is expanding. So when you're sitting at 30% in women's and men's is on the rise, picking up two points — you get how the numbers play out. You've truly got to be performing strongly. And it's simply — it's wonderful to see.

I'd also like to say congratulations on an excellent fourth quarter. Tom, could you discuss the supply chain situation right now? How are goods moving at present? What's your outlook for that, let's say, 3 to 6 months down the road? And perhaps what should we expect it to look like once the year wraps up?

Sure. Absolutely; we're encountering supply chain difficulties just as others across the industry are. Let me say this — I'll begin by noting that in my view our teams have performed amazingly well at handling those supply chain challenges, staying extremely flexible and quick and reducing their effects. However, we're experiencing factory hold-ups because of COVID problems, with workforces not at full strength and/or needing to close for a number of days. There are also holdups with inbound shipping. And holdups at U.S. ports. The very same situation you're seeing reported everywhere — taken together, that's likely stretched our product cycle time out by roughly 6 to 12 weeks; we've made up for it by purchasing much earlier than we used to, and that's among the steps we're taking. Then when it comes to receiving — and Steve, you're familiar with this — you've heard us mention it previously, but we remain extremely flexible and quick in getting whatever product we do have onto the floor. Sometimes items arrive late; we simply re-merchandised the line and make do with whatever we've got; then as those goods show up late, we merchandise them onto the floor at that moment — and this has worked really well, and it's taught us a great deal. In certain respects, it's a lesson you'd rather not have had to learn, yet what we've discovered is that we're capable of doing this while keeping the consumer very satisfied. And since our business is so heavily direct-to-consumer-driven, we have the capacity to pull that off. Given that it's 80% direct-to-consumer, we can — our destiny rests in our own hands; we're capable of doing it; and although we'd rather see things return to a more normal state, and eventually they will, I believe we're managing it superbly. And as you can observe, it truly isn't damaging our results.

So as we move further into the year, do you expect things to become any simpler? Or is a delay of roughly 6 weeks still likely, looking 3 to 6 months out and possibly near the close of the year too?

Yeah. I believe a portion of the freight — will begin to ease up a bit as we advance through the year regarding COVID and holdups at the factory. I really hope that happens, though I'm not sure we can forecast that with much certainty. And I think our approach will be to continue hoping for improvement and continue managing the circumstances as they develop. And I have a lot of confidence in our capacity to cope with it. I think if there's anything we demonstrated during the past 2 years, it's that we can handle the delays and other supply chain problems.

Certainly, I get it — yep. Please continue.

Given the way our products are priced and how our margins are built, whenever air freight comes into play, sure, that does — it creates a modest drag on gross margin, yet a substantial amount of margin remains for us. Therefore, we are — whenever necessary, we continue shipping by air, currently somewhat less often than during the third and fourth quarter. However, should the need arise — if a disruption occurs and merchandise must go onto an aircraft, we remain able to do so.

That helps; and Scott, in the fourth quarter it seemed like royalties moved up in a step change. Could you explain a bit why that happened, and whether we should expect the same thing in the fiscal year we're in now?

Yeah. The — we had a few royalties and other items. Of the $33 million figure for the year, roughly $15 million consisted of gains that we backed out when calculating our adjusted earnings. So 15 of that was — once we get to adjusted earnings, we've removed it, and it came from selling a minority interest plus selling a distribution center tied to Lanier Apparel. So, those are the nonrecurring sort — the distributions that we hope won't repeat.

<<inaudible>>

Yeah. Yeah. Beyond that, honestly, things were simply — what I'm saying is that even once you take that $15 million out, we saw solid expansion across the majority of our licensees as well. So our licensing business has performed well, which I'd attribute to the overall strength of our business.