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 vary significantly from what those statements suggest or imply. The key factors that might make our actual operating results or financial condition come out differently are laid out in the press release we put out earlier today and in the documents we file with the SEC, among them the risk factors in our Form 10-K; we have no obligation to revise any forward-looking statements. We'll also be talking about some non-GAAP financial measures during this call. A reconciliation between non-GAAP and GAAP financial measures appears in our press release from earlier today, which you can locate under the Investor Relations tab on our website. 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 and COO. I appreciate your attention. I'll now hand the call over to Tom Chubb.

Good afternoon, and thank you for being with us. It's a pleasure to share that our fiscal 2022 second quarter was exceptionally strong. I'll walk through a few highlights, and then Scott will offer more detailed commentary. You can't achieve outstanding results without outstanding people, and our team truly has no equal. I want to express my gratitude to every one of our dedicated team members for their hard work, which made it possible for us to post our sixth straight quarter of record earnings. During the quarter, the power of our brands, our products, and our customer experiences drove a 14% rise in comparable direct-to-consumer sales along with expansion of our already healthy gross margin. Favorable market conditions during the quarter included the continued return of the consumer to physical retail, the continued return to in-person work and social events, the continued growth in year-round population in many of our key markets, and the continued rebound in leisure travel. All of these factors, which play to the strength of our portfolio of brands, continue unabated and augur well for the balance of the year; on an adjusted basis, we recorded consolidated second quarter sales of $363 million and EPS of $3.61, which was an 11% increase over last year's record second quarter EPS of $3.24. Adjusted gross margin expanded 30 basis points to 64.6%, and adjusted operating profit increased 8% to $78 million or 21.5% of sales. The biggest contributor to our record earnings was the performance of our largest brand, Tommy Bahama. Compared to last year, sales grew 17% versus 2021 to $244 million. Adjusted gross margin expanded to 64.3%, and adjusted operating margin increased by 150 basis points to an exceptional 24%; these results exceeded our expectations for the brand this quarter and at the risk of sounding immodest, are spectacular. The success starts with our powerful Live the Island Life brand message, which our team brings to life through beautiful, inspirational, creative messaging, differentiated products that are relevant to today's consumer and marketplace, then delivering all that through wonderful customer experiences on our website, in our stores, bars and restaurants, and through our carefully selected wholesale partners. As noted a minute ago, market conditions are playing to the strength of our portfolio. The return to leisure and vacation travel and permanent migration of so many people to warmer climates are obvious advantages for us. What is possibly less obvious is how much we benefit from the return to in-person work and social events. While Tommy Bahama is famous in menswear for our colorful camp shirts, polos, tees, shorts, and swimwear, we also have a powerful assortment of long pants and long sleeve woven shirts that are appropriate for most post-pandemic workplaces and a wide variety of social events. Among our standout daily long-sleeve options are the Sarasota Stretch and the San Lucio Stretch — each delivers a highly refined appearance, plus the sumptuous materials and exceptional comfort that Tommy Bahama is known for. Over the past 2 years, one of the most thrilling merchandising stories at Tommy Bahama has been how our men's pant category has grown and strengthened. The Boracay Chino got it all started, winning favor with our guests quickly, and we've since taken it into shorts, jeans, five pockets, and even women's. Lately we've introduced the IslandZone performance pant, the Chip Shot performance five pocket, and the On Par performance flat front pant. Every one of these pants shows what it means to be on brand while staying relevant to today's consumer, and they're connecting across all channels of distribution. For a guest who's getting out and about more — whether heading to the office or out to dinner — they're a perfect pitch purchase. What we love about building a substantial pant business is that it tends to be a repeat business. Once a guy finds a pant that he likes, he will tend to come back for it over and over again. Every time he does, we can refresh his pant inventory and have a chance to show him other products that he will love. At Lilly Pulitzer for the second quarter, we posted modest top-line growth and a very healthy 24% operating margin. The sales growth was driven by solid increases in both our wholesale and retail channels, which saw healthy comp store sales gains with some contraction in e-commerce. This contraction was due to some temporary challenges that we faced on the marketing front. A hallmark of the Lilly team has always been an incredible drive to improve in all areas of the business, even those where we already excel. Lilly has long been a leader in digital marketing. Against the backdrop of a rapidly evolving digital marketplace and landscape, and in an effort to maintain and even increase our digital marketing edge, we implemented some new technology and changed some of our marketing agency partnerships. This transition created some temporary headwinds that we believe suppressed our second quarter results, keeping them somewhat below our expectation for the quarter. We felt the impact primarily in our e-commerce business as the digital marketing issues impacted our flow of new customers. Our team reacted quickly and has made appropriate adjustments to our marketing approach effective in August; we are already seeing the benefit of the changes, including a strong gift with purchase event over this past weekend. As there is some ramp-up period before the full impact is realized, we expect to see some benefit during the third quarter and should be in excellent shape for the fourth quarter. Our shoppers are just as enthusiastic about Lilly Pulitzer as a brand and about what we make as they've ever been, and thanks to the adjustments we've put in place, we're looking at a strong finish to the year. During the second quarter, our Emerging Brands Group delivered a noteworthy 31% increase in sales versus the prior year, with solid growth coming from all three of its brands: Southern Tide, The Beaufort Bonnet Company, and Duck Head. Part of what fueled that growth was the work we've done to strengthen EBG's digital and omni-channel capabilities. EBG's gross margin came under pressure this quarter because of an inventory markdown taken within this operating group to fix an overbought position; we've applied a suitable markdown to resolve the lengthy inventory position and have collaborated with the emerging brand teams to shore up our inventory planning and buying processes; our confidence in the future opportunity for Southern Tide, The Beaufort Bonnet Company, and Duck Head could not be greater, and we're eager for the excellent results we anticipate from them in the second half. Throughout the whole company, we keep making strong headway on our strategic pillars: growing our brands for the long term, enhancing our digital and omni-channel capabilities, operational excellence, managing our portfolio, capital allocation to drive long-term shareholder value, and developing our people and team. Our share repurchase program demonstrates our ongoing pursuit of the goal of maximizing long-term shareholder value. Since the plan began in December 2021, we've used it to give back $86 million to shareholders, buying shares back at an average price of $89 per share, which boosts the already strong returns from our stock performance and dividend payments totaling $32 million over the last 12 months. Although we're mindful of certain macroeconomic headwinds, the momentum built during the first half of the year has carried into the early portion of the third quarter. On top of that, our inventory position is far healthier than it was 12 months ago. The strong results we achieved in the first half, our healthier inventory position, and the excellent plans in place for the second half ought to let us deliver double-digit growth on both the top and bottom lines, along with some modest operating margin expansion, for the year. I'll hand things over now to Scott, who can share more detail on second quarter results and our forecast for the rest of the year. Scott?

Thanks, Tom. We had a solid second quarter and, as Tom noted earlier, once again turned in record results. Growth in sales across every distribution channel powered this strong quarter, with Tommy Bahama standing out in particular at 17% sales growth. Consolidated net sales for the second quarter of fiscal 2022 came to $363 million, which is 11% above the $329 million in net sales we posted in last year's second quarter. If you set aside the $8 million in sales from Lanier Clothes in the prior year period, sales were up 14% year-over-year. Our full-price e-commerce business expanded substantially, rising 13%. When it comes to brick-and-mortar, we posted full price retail comps of +14%. Our food and beverage locations also performed well, growing 6% over last year. Adjusted gross margin for the second quarter was 64.6%, versus 64.3% in fiscal 2021; that 30 basis point gain came from a sales mix shift toward full-price direct-to-consumer channels along with higher IMU, especially in innovative new performance offerings. Roughly 50 basis points of higher freight costs and inventory markdowns in the emerging brands group partially offset the margin gain. Adjusted operating profit rose to $78 million, equal to 21.5% of net sales, with particularly strong operating income growth at Tommy Bahama. Operating margins of 24% at both Tommy and Lilly were a highlight of this excellent operating margin. A strong balance sheet stands behind our business. Here are a few highlights. The inventory balance we held at quarter's end puts us in a good position to carry out our sales plan for the second half of fiscal 2022, which calls for revenue growth in the high single- to low double-digit. Inventory rose $58 million on a LIFO basis and $71 million, or 53% on a FIFO basis, against the close of the second quarter of fiscal 2021. The inventory balances at July 30, 2022 reflect a more normalized level, following inventory levels that were below optimal all through fiscal 2021, when a stronger than expected rebound in consumer demand outran inventory purchases. In addition, the inventory increases took in early receipt of an incremental $27 million of fall inventory to mitigate supply chain delays or disruptions, inventory to support anticipated sales increases in the second half of fiscal 2022, and higher product cost. Measured against the close of the second quarter of fiscal 2019, on a FIFO basis, inventory was down 3%, while sales for the first half of fiscal 2022 came in 23% above the first half of fiscal 2019. To crystallize where we stand on inventory, our trailing 12-month FIFO inventory turns at the close of the second quarter of 2022 were 3 x, against 2.3 x in 2021 and 2.5 x in 2019. Our liquidity position is healthy, with no debt and $186 million of cash and short-term investments at the close of the second quarter. The substantial cash flow we generated gave us room to put money back into our operations, distribute capital to stockholders through a number of methods, and yet keep a meaningful level of cash along with short-term investments on the balance sheet. Since the December announcement regarding our board's fresh share repurchase authorization, we have bought back about 970,000 shares for $86 million, which works out to more than 5% of shares outstanding. As Tom mentioned, the results from our repurchase program so far make us quite happy. Over the past 12 months, we've also given back another $32 million of capital to investors in the form of dividends. Turning to what's ahead, I'm glad to report that our board of directors has declared a quarterly dividend of $0.55 per share for the third quarter. Now I'd like to take you through our projections for the rest of 2022. Given the outstanding performance and EPS we posted in the second quarter, we are lifting our guidance for the year. We anticipate continued growth in our e-commerce business. In addition, our brick-and-mortar stores are delivering encouraging comp sales as shoppers keep coming back to in-store purchasing, and in our wholesale channel we still have a very strong, broad order book for 2022. For the full year, we continue to anticipate modest gross margin expansion, since we keep realizing the advantages of higher IMU, partly offset by what we anticipate will be a somewhat more promotional climate. For the year, we expect some modest SG&A leverage, driven by significant leverage in Q1 even with inflationary cost pressures, among them a difficult labor market. Tying these dynamics together, we expect to achieve double-digit growth on both the top and bottom lines, along with operating margin expansion, for the full year. Full year sales are now projected to rise to a range of $1.3 billion-$1.325 billion, versus $1.142 billion in fiscal 2021, a figure that included $25 million of Lanier Clothes sales. For the full fiscal year, we now anticipate adjusted EPS in the range of $9.85-$10.10, versus $7.99 in fiscal 2021. Third quarter sales should rise from $248 million a year ago, which included $4 million of Lanier Clothes, to a range of $270 million-$280 million, reflecting strong quarter-to-date results in our direct-to-consumer channels plus substantial wholesale sales planned for the quarter; on an adjusted basis, we expect EPS in a range of $0.90-$1.05 in the third quarter of fiscal 2022 versus $1.19 a year ago. In the third quarter, much like the first two quarters of the year, we anticipate some modest gross margin expansion; this expected gross margin expansion reflects our expectation of lower freight costs and higher IMU in the third quarter, partly offset by a shift in sales mix with a greater proportion of Lilly Pulitzer e-commerce flash clearance sales. As a reminder, because of the seasonality of our brands, the third quarter is our smallest sales and earnings quarter of the year. So, with the business continuing to grow, the increased SG&A that comes with that expansion tends to cause deleveraging in the third quarter, when sales are lower, while also making it possible to gain more SG&A leverage and grow earnings in the quarters with higher sales across the year. For fiscal 2022, we anticipate an effective tax rate of 24% to 25%. We appreciate the time you've given us today, and at this point we'll hand the call over for questions. Alex?

Hi there, good afternoon, and thank you for fielding my question. Congratulations on the quarter. I have a couple of things. First, I realize certain of your markets are doing quite well compared with others when it comes to tourism. Could you perhaps discuss a few of those markets in a broad way, and also tell us where New York, Hawaii, Las Vegas, and so on stand relative to their earlier highs? Second, I'm aware of your approach of pushing AUR higher and putting additional content into the offerings. How much further room do you believe remains? Have you noticed any indication of customers pushing back on price? Thanks.

All right. Thanks, Ed. It's great to have you with us on today's call, and I'll speak to the regional picture, and Scott, as he always does, might offer some additional perspective; but honestly the single market that continues to trail, so to speak, is New York City proper, where, as you know, we operate the large Tommy Bahama store, bar, and restaurant. My guess is you've visited the city lately, and, as you know, New York simply hasn't come all the way back yet, not even particularly near to coming all the way back. We're certainly observing that at that location. Beyond that, I'd say every other part of the country truly did nicely. A few minor areas in California were somewhat flat during the quarter, but at this stage there are genuinely no weak spots besides New York City. When it comes to lifting AUR through adding more of those features within the product, along with the differentiation inside the product, we keep enjoying terrific results from that. So long as the customer feels we are providing extra value to them, I believe there's ample runway for us on that front. Scott, if you don't mind, please share whatever you'd like to add.

Right, so honestly, when it comes to the higher prices we implemented, we aren't encountering pushback at all. On top of that, our AURs have climbed, and that's partly because of raising prices on products already in our lineup, but it also comes from simply rolling out additional items that cost more, where we've added greater value into what we offer, and customers aren't pushing back on that either.

Thanks so much.

Thank you, Ed.

Good afternoon, everyone. Tom, I wanted to ask — a lot of other retailers seem to be saying that shoppers changed course abruptly in late May and early June, especially when it comes to foot traffic at physical stores. Did you see anything along those lines? Did consumer behavior shift in any noticeable way across those months?

Not particularly. You know, I'd say, Steve, and you follow this industry closely, you're aware of this, a genuine split is taking place. At the middle and lower portions of the income range, folks are truly being pinched severely by rising prices at the pump, at the grocery store, for housing, for medical care, all of it, and we feel great empathy for them. You know, looking at the broader macro situation, you know, that's something we're watching, and we have a lot of sympathy for those folks; we understand that they're experiencing genuine hardship, and they're pulling back on what they spend on nonessentials. In the segment of the market where we compete, which is really the top 20% or 25%, that demographic, what they spend on discretionary items hasn't been hit nearly as hard by the very real inflation that exists right now. They're getting out more, heading to the office, perhaps not every day, but more often than they did a year or two back, attending more and more social gatherings. Leisure travel remains extremely, extremely robust. All of that genuinely aligns with what we do best. You know, we truly didn't observe that shift and really haven't observed one since the quarter ended. You know, our August sales came in very strong. We posted a great comp in August and have begun September very strong. I think it's, you know, partly it's the consumer we cater to, and then a large part of it, naturally, is how strong our brands and our products are. Finally, I'd mention the exceptional customer experience that we provide. Just today, for instance, a major news magazine named us as one of the top five retailers in the country for customer service in our Tommy Bahama stores. That marks the second year in a row that we've been included, and we are the only retailer to appear there two years in a row. I think that factors into our success, and that's part of why we're so proud of our teams, because they're the ones that deliver those great experiences.

Nice work on receiving that recognition. On a related note, ever since the pandemic started, have you examined how well you're keeping customers? Put another way, when it comes to those who signed up while the pandemic was going on, do they behave in a different way from those who were already customers before it hit — whether we're talking average yearly spending, how often they spend, spending over their lifetime, churn, or anything along those lines?

Well, Steve, I've got to be honest with you — I'm not sure we've broken out that particular group, the ones, you know, who joined us during the pandemic, to compare how they did against folks who signed up during more typical periods. What I can say is that, broadly speaking, every one of our customer KPIs keeps getting better, so honestly we haven't observed any deterioration. I can't claim we've isolated that cohort and analyzed it. Still, that's a solid question — perhaps we will.

Of course.

It looks like the customer analytics team may have just been handed a fresh task.

Absolutely. We can pick that up separately afterward. Thanks once more, and well done.

All right. Thanks, Steve. Alex?

Hello, and thanks for letting me ask something. Congratulations on the quarter.

Thanks.