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

Thanks, and good afternoon, everyone. Before we get started, I want to remind everyone on the line that some of what we say today during this call, as well as in the Q&A portion, might count as forward-looking statements under the federal securities laws. Such statements aren't promises, and what actually happens could wind up differing materially from what those statements express or imply. The significant factors that might make our actual operating results or financial condition come out differently are covered in the press release we put out earlier today, along with the documents we file with the SEC, which includes the risk factors in our Form 10-K; we're under no obligation to update any forward-looking statements. On this call, we'll also be going over certain non-GAAP financial measures. A reconciliation between non-GAAP and GAAP financial measures appears in the press release we issued earlier today, and you can find it posted under the Investor Relations tab on our website at oxfordinc.com; at this point I'd like to introduce the people 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. And with that, I'll hand the call over to Tom Chubb.

Good afternoon, and thanks for being with us today. We're thrilled to be right in the middle of the holiday season, when shoppers seem to be getting their confidence back and are showing more readiness to spend on non-essentials. First, I'll walk through how the third quarter went, after that I'll cover what we expect and what we're planning for the fourth quarter, and then I'll wrap up by giving you an early look at what we have in store for 2025. However, prior to getting into the third-quarter numbers, I'd like to recognize the various obstacles our brands encountered during the third quarter, among them the wrapping up of the hardest-fought election cycle anyone can remember, plus the toll taken by two enormous hurricanes that left parts of the Southeastern United States in ruins. As you'll remember, on our call for the prior quarter, we expected a fairly weak third quarter, largely because of macroeconomic conditions, and we set our guidance on that basis. We had been on pace to land inside that forecast, yet the fallout from those two hurricanes ended up driving us under the low end of the range for sales as well as earnings per share. Along with other notable global events, the election proved a huge source of distraction over the past several months for our more mature consumers who follow the headlines closely, and that reached its peak when the election took place early in the fourth quarter. In addition, during the third quarter, Hurricane Helene and Hurricane Milton struck the Southeastern United States just a few weeks apart from one another. The Southeastern United States happens to be our single most important and substantial region, and Florida by itself accounts for roughly 1/3 of our direct-to-consumer business. Every one of these things weighed on our business during the quarter, and conditions were made worse by a consumer who was already feeling squeezed from the accumulated impact of multiple years of elevated inflation. We should also note that what we own is a portfolio of premium brands that mostly sell at full price, with only very limited exposure to off-price and outlet channels. Those value-oriented channels have been booming as careful shoppers hunt for deals and clearance prices. Our belief is that a full-price premium approach has been, and will continue to be, a competitive advantage over the long term. Yet in today's environment, it works as a drag on our top line, even while it gives a boost to others operating in our space. Scott will go into greater detail when it's his turn, but we closed out the quarter with sales of $308 million and adjusted net loss per share of $0.11, which landed beneath our guidance range; we figure that the hurricanes cost us no less than $4 million in sales. On top of that, we took on sizable additional costs for cleanup work and for helping employees who needed support, which together added up to a $0.14 negative per share impact attributable to the hurricanes. I feel such pride and gratitude for how generous our associates throughout the whole enterprise were, stepping up in countless ways to assist people in the communities where we serve and operate as they worked to rebuild after the devastation. That covers not just monetary gifts, but also the hours and labor spent gathering and delivering the supplies and assistance that were most urgently required. The strength shown by our teams in Florida, Georgia and the Carolinas, along with the kindness displayed by people across the nation, rank among the traits that make Oxford such an outstanding organization. Now to our numbers. The sales decrease mirrors how the unfavorable comparable store sales pattern from the first half of the year persisted across the majority of the third quarter. Though things were uneven at times, the third quarter came in a bit weaker than what we saw in the first half of this year. Extending what we saw during the first half, third quarter performance was pushed by lower conversion, even though traffic stayed solid — a sign that shoppers remain engaged with our brands yet stay careful when it comes time to buy. Buyers likewise keep responding enthusiastically to fashion along with new and differentiated items, whereas enthusiasm for core styles is softer. We think we have fixed several of the errors we talked about earlier and are set up nicely with fresh, new merchandise for the holidays and the resort travel season ahead. Shoppers also gravitated toward our value proposition during the quarter, since a larger share of sales came through promotional events and at our outlet stores than was the case in last year's third quarter. Even with near-term pressures weighing on our performance, we have kept up our spending on the business through new stores, Marlin Bars, our new distribution center and technology, along with other strategic investments — all of which raise costs while the top line is soft, which damages the bottom line for now but keeps making us stronger over the long haul. We added 12 net new retail locations during the quarter. That lifts our total store count to 342, versus 309 when the third quarter of fiscal 2023 ended. Our balance sheet and liquidity stay solid, which lets us keep putting money into our business's future, such as our store pipeline, the Lyons, Georgia distribution center project that Scott will walk through in a moment, and returning cash straight to shareholders via our quarterly dividend. Turning to the fourth quarter. November opened on a path similar to the third quarter, yet after the election passed, business started picking up, and we closed November strongly with a very robust Thanksgiving weekend. As you know, the calendar this year gives us the shortest stretch possible for selling between Thanksgiving and Christmas, in contrast to the longest stretch possible a year earlier. That clearly means our holiday business has to be completed within a tighter window. So we are thrilled to have what we consider excellent merchandise and marketing strategies for the holidays, and we feel encouraged by what the results are showing us. Tommy Bahama's Indigo Palms denim line has really delighted us, especially where the men's offerings are concerned, along with the debut men's Luxe Sweater range and the fresh Tommy Bahama Palm Voyage collection for women. Even through a difficult third quarter, Indigo Palms stood out, and it did remarkably well in November. Denim succeeds across every region throughout the year, yet it matters most in colder regions and colder months; we're eager about what Indigo Palms is doing right now and how it might drive growth for our business in future years. We feel just as enthusiastic about the Luxe Sweater range we've introduced for this holiday period. Sweaters that make good gifts consistently fuel significant business in the fourth quarter. Over the past few years, the Tobago Half Zip Pullover at $118 has been our staple sweater; this year we're additionally enjoying enormous success with the new Marlin Luxe cotton, silk, cashmere blend half-zip priced at $178, plus the Sunbreak Half Zip at $158. These luxe sweaters aren't merely selling strongly — they're also lifting gross margins and average order value; where women's is concerned, Palm Voyage, an elevated line of travel-ready separates, has done very well both in our own channels and across our key wholesale accounts. It's gratifying to witness, since on the wholesale floor we compete directly against our rivals, and we're coming out ahead; we've likewise enjoyed great results in Lilly with playful new items such as the Ellorie Sweater and practically anything featuring bows or sequins. What all of this tells us is that whenever we bring innovation, newness and excitement, our customers react positively. The response to our products, amid what appears to be a shift in the direction of consumer sentiment, is fueling better comp store sales after the election that have started to undo the letdowns of the past several quarters. Turning to fiscal 2025, our top priority is to stabilize and then grow our operating margin. As we budget for the year, the recent sales trends in our business give us encouragement. Our forward wholesale bookings encourage us too. Though there's ample cause for optimism, we intend to stay careful about becoming too exuberant with our comp assumptions for the year; and we'll concentrate on boosting operating margins via stronger expense control and leverage. We're eager to lay out our fiscal '25 plans for you in greater detail come March. Although the third quarter results let us down, we have faith in the products our teams have created, in how our business has done so far in the fourth quarter, and in our plans for the rest of the holiday and resort season; we're deeply thankful to our team and wish each of them, and all of you, a very happy holiday season. I'll now pass the call to Scott, who'll share further specifics on the quarter and our outlook for the rest of the year. Scott?

Thanks, Tom. Like Tom said, we closed out the quarter with both revenue and earnings coming in under what we had projected. A number of macroeconomic pressures throughout the market weighed on our financial performance in the quarter. Chief among them: the ongoing difficult consumer backdrop, disruptions stemming from the elections, and the hurricanes that hit the Southeastern United States. During fiscal '24's third quarter, consolidated net sales came in at $308 million, which was a decline from the $327 million recorded in fiscal 2023's third quarter, and also fell short of our guidance range of $310 million to $325 million. As Tom noted, we figure we lost roughly $4 million in sales because of evacuation closures at a number of our Southeastern locations, along with the temporary shuttering of several stores in Florida — among them three stores at our restaurant location in St. Armands Circle, outside of Sarasota, which sustained heavy damage. The majority of the St. Armands locations are expected to stay closed for most of the fourth quarter. Taking into account the hurricane impact, sales at our full-price brick-and-mortar locations declined 6%, pushed lower by high single-digit negative comps, though this was partly offset by newly added store locations. E-commerce sales fell 11%. Our food and beverage and outlet locations did better, posting sales gains of 4% and 3%, respectively, fueled by new locations and partly offset by low single-digit negative comps. Our wholesale channel, which was especially difficult during this year's first half, had a tough third quarter, with sales dropping 2% versus the third quarter of 2023, as the specialty store business across our brands remains challenged, partly offset by higher sales to major department stores. Adjusted gross margin narrowed 100 basis points to 63%, mainly because a larger share of net sales occurred during promotional events at Tommy Bahama, Lilly Pulitzer and Johnny Was. Across all three of our major brands, we keep seeing strong consumer responses to our promotional and end-of-season clearance events. We managed to partly offset this decline at Lilly Pulitzer through lower discounts and markdowns, and within our Emerging Brands group through our ongoing work to strengthen our inventory position and lessen the need for all-price wholesale and promotional DTC sales. Adjusted SG&A expenses rose 5% to $201 million, up from $191 million a year ago. In fiscal 2024's third quarter, we took on higher expenses tied to recent and ongoing investments in our business, chiefly from the addition of 33 net new brick-and-mortar locations opened since the third quarter of last year, including four new Tommy Bahama Marlin Bars locations. Costs are related to some of the roughly five net new brick-and-mortar locations and two additional Tommy Bahama Marlin Bar locations that we anticipate opening in the fourth quarter or early in fiscal 2025's first quarter. We picked up the Jack Rogers brand during the fourth quarter of fiscal 2023, and we also absorbed roughly $1 million of extra hurricane-related expenses — that covers salaries, wages, and additional support provided to team members hit by the storms, along with cleanup costs. What that produced was an adjusted operating loss of $3 million, a negative 1.1% operating margin, against $21 million in operating profit, or 6.6%, a year earlier. The drop in adjusted operating income comes from SG&A investments and softer gross margins. Beyond operating income: our effective tax rate was affected by certain discrete events that our operating loss magnified. Interest expense came in $1 million below the third quarter of fiscal 2023 because of lower average debt levels. Taking all of that together, we finished with $0.11 of adjusted net operating loss per share, and that figure includes about $0.14 of negative impact tied to revenue we lost along with extra costs stemming from the hurricanes. Now I'll turn to the balance sheet, starting with inventory. In the third quarter of fiscal '24, inventory edged down on a LIFO basis; on a FIFO basis, it edged up by $2 million, or 1%, and inventory was basically flat across each of our operating groups. We closed the quarter carrying $58 million of outstanding long-term debt, since the $104 million in cash flow from operations we generated over the first 9 months of fiscal '24 was exceeded by our elevated capital expenditures of $92 million — mainly tied to the Lyons, Georgia distribution center project and the opening of new brick-and-mortar locations — plus $33 million in dividends and shifts in working capital needs, given that the third quarter is historically our weakest quarter for operating cash flow. Let me now take some time on our outlook for 2024. We closed the third quarter of fiscal 2024 with negative comps of 10%, which came in below our earlier forecast of low to mid-single-digit negative comps for that quarter. Even with a negative 10% comp in the third quarter, comp sales numbers so far in the fourth quarter have gotten better and are slightly negative. We think that fourth-quarter improvement will carry forward and deliver slightly negative comps in the low single-digit range for the fourth quarter. These assumptions line up with what we said back in September, which assumed low to mid-single-digit negative comps through the rest of the year. That said, given the third-quarter miss, the hurricane impact, and ongoing softness in the wholesale channel, we've adjusted our sales forecast to reflect all of it. Our updated sales forecast factors in a $3 million sales reduction in the fourth quarter from store and restaurant closures caused by the hurricanes; for the full 52-week year, we now expect net sales between $1.5 billion and $1.52 billion, which is a decline of 3% to 4% versus sales of $1.57 billion in the 53-week fiscal 2023. For the entire 2024 fiscal year, our revised sales outlook now factors in low to mid-single-digit declines for Tommy Bahama, Lilly Pulitzer, and Johnny Was, which are partly offset by low single-digit growth for the Emerging Brands group. Looking at channels, we anticipate low to mid-single-digit decreases in e-com and full-price retail. Wholesale, which saw a $22 million drop across the first 9 months of the year, should fall by an additional $4 million in Q4 of 2024. We're expecting gains in outlets, since those spots keep outperforming our full-price locations given the current climate, and in food and beverage, where four new Marlin Bar openings this year will provide a lift. As with our earlier guidance, we continue to expect gross margin to fall roughly 50 to 100 basis points for the year versus last year, since heavier promotional event activity across our brands should outweigh the margin gain from a proportionately smaller wholesale mix. On SG&A, we're looking at mid-single-digit growth for the year, driven by business investments such as a net addition of about 30 stores, four new Tommy Bahama Marlin Bars, ongoing IT spending, and bringing Jack Rogers on board.

Also, as we mentioned on our previous call, the Jack Rogers brand that we bought in Q4 of fiscal 2023 is projected to post an operating loss of about $2.5 million during 2024 while we reset and refocus that business. We also expect interest expense for the year to be lower by $3 million versus $6 million in 2023, along with greater royalty income — greater royalty and other income, mostly driven by a full year of the Tommy Bahama Miramonte Resort. In addition, we now anticipate a flat adjusted effective tax rate of roughly 23%, the same as 2023, with favorable items benefiting both periods. Counting an estimated impact of $0.11 per share from the hurricanes in Q4 on top of $0.14 from Q3, our fiscal 2024 adjusted EPS should land between $6.50 and $6.70, compared with adjusted EPS of $10.15 a year ago, as declines across all of our businesses are partly offset by lower interest expense and greater adjusted royalty and other income. For the 13-week fourth quarter of 2024, we project sales between $375 million and $395 million, versus $404 million in the 14-week fourth quarter of 2023. That assumes our low single-digit negative comp, reduced wholesale sales, and 1 fewer week of sales, which contributed $17 million of sales in Q4 of 2023, partly offset by non-comp store additions. We further expect gross margin to be flat, SG&A to rise in the low single-digit range, interest expense to be flat, and royalty and other income to increase. We anticipate this producing fourth quarter adjusted EPS of between $1.18 and $1.38, versus $1.90 in the fourth quarter of 2023. Turning to the investments we are making in 2024, let me briefly cover our CapEx outlook for the fourth quarter. In line with our guidance last quarter, we expect capital expenditures of roughly $150 million, which includes $92 million incurred during the first 9 months of the year, compared with $74 million in fiscal 2023. About $75 million relates to the significant multiyear project to build a new distribution center in Lyons, Georgia, which will improve the direct-to-consumer throughput capabilities of our brand. The rest of the capital expenditures relate to execution on our pipeline of Marlin Bars, store count growth across Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide and The Beaufort Bonnet Company, and greater investments in our various direct-to-consumer technology systems initiatives. We expect this elevated capital expenditure level to moderate in 2025, and to moderate further in 2026 and beyond once the Lyons, Georgia project is complete. We also feel positive about our cash and liquidity position. Cash flows from operations should be very strong, giving us ample room to fund the previously mentioned investments of quarterly dividend and limiting the need to borrow on our revolver. That said, we do expect a modest debt position for the remainder of the year because of our elevated capital expenditures. We appreciate everyone joining us today, and at this point we'll hand things over to the operator so questions can begin. Matt?

You brought up that store comps have gotten better thus far in Q4, plus the holiday season is beginning on a stronger note. You also said outlets keep performing ahead of full price, I believe, but could you break down for each brand what you are observing when it comes to store comps?

Sure. Looking at it by brand, every one of our brands entered the quarter in quite deeply negative territory. Then around the weekend following the election, a rebound began to appear. So I'd say each of our brands is a bit negative, though Lilly could be a bit positive at this point. Even so, they are all getting better. That negative comp, which was there during roughly the first week, had us down by double digits. At present, we sit in the negative low single-digit range.

To build on what Scott mentioned, the key takeaway is that each of them is getting better in sequence compared with our position in the third quarter — honestly, even during the first week of November — which is encouraging, and Lilly, I'd say, is the most robust right now.

Alright, understood. That helps. So, any details you can share about the wholesale order book for the resort season — what are you picking up from your specialty and department store partners? And to put that in context, could you describe how much newness you expect compared with a year ago? And how heavily do you intend to push that side of the business, given how well it has been performing?

Sure. Regarding resort, the wholesale selling right now is extremely robust. Our performance on the floor is solid, which is excellent. In certain instances, wholesale accounts are even attempting to place repeat orders for immediate shipment. Whether we can fulfill that need is uncertain, but having it is definitely a positive. As for what we had on the books for this stretch, we do anticipate a decline, as Scott noted in his portion, somewhat versus a year ago in wholesale for Q4. Keep in mind, though, those were orders and repeats that would have been placed quite a while back. Turning to bookings for the coming year, it's still early, and nothing resembling a complete order book has come in yet, but what we're seeing makes us quite optimistic, I'd say; and it all ties back to how we're doing on the wholesale floor. As I said in my portion, what we appreciate about strong wholesale performance is that on those floors, alongside the excellent retail partners we work with, you're competing directly against many other strong brands, and we're standing firm and appearing very, very strong in that setting, frequently ranking at the top of the department and, when not, extremely close to the top.

Ethan Saghi here, sitting in for Janine. To kick things off — given all the ambiguity around tariffs right now, it would really help to hear your perspective on where the company stands today regarding sourcing. And also, what measures might you put in place to lessen some of the possible headwinds tied to higher tariffs in the coming year?

Sure, we can address that. First off, nobody really knows what will ultimately take shape. A number of different proposal versions have been floated, and pinning down precisely what could occur is somewhat difficult. Like all or nearly all of the companies we compete with, we do carry exposure to China. Exposure to Mexico or Canada is essentially nonexistent for us; so if those were separate, they wouldn't hit us. Naturally, a tariff applied globally would touch everything. And then a tariff aimed at China would affect that portion of the business. As for our approach to softening the blow, if the tariff targets China specifically, it would resemble what we carried out under the first Trump administration, and essentially, that means a mix of shifting production away from China. Not everything could be relocated, but certain items could be shifted out, and that's what we'd do. Second, we would push for our China-based vendors to absorb part of the tariff burden, and let's say, just to illustrate, an even 50 to 50 division. We achieved considerable success with that approach previously; and in certain instances, we might implement some — essentially quite minor price adjustments to assist in counterbalancing the tariff effect. But when you recall how things played out the last time this occurred, we were — it required a great deal of effort, yet we managed to get through it without, in my view, any significant harm, and our expectation is the same outcome now.

Understood, that's very useful. Then one more question. During the holiday period up to now, how has promotional activity looked across brands and for the industry overall relative to what you had expected beforehand?

As we mentioned in our prepared remarks, we've conducted additional business during our promotional events. In certain instances, we may have stretched out how long those lasted. And with Lilly, I believe we gave a somewhat larger discount this year; regarding the market, all of that is already reflected in the figures you observed in the forward guidance; and as for the market, I'd describe it as extremely promotional right now. I think that has been a regular feature of holiday seasons for a long time. If anything differed this year, I'd simply note that it appears to have begun perhaps sooner this year than in previous years. Like many folks, I headed out to shop during Thanksgiving week and in fact before the Thanksgiving holiday, and it looked as though nearly every retailer you entered had already shifted fully into promotional mode; they weren't even holding off for Black Friday. They were already doing it. And as you're certainly aware, plenty of them began far sooner than that.