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

Thanks, and good afternoon, everyone. Before we get started, I want to remind those on the line that some of what we say during today's call and in the Q&A portion may count as forward-looking statements under the Federal Securities Laws. Such statements aren't guarantees, and what actually happens could differ materially from what those statements express or imply. The significant factors that might cause our operations' actual results, or our financial condition, to come out differently are covered in the press release we put out earlier today and in the documents we file with the SEC, which include the risk factors in our Form 10-K. We're not obligated to update any forward-looking statements. On this call, we'll also be talking about 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'll find it posted under the Investor Relations tab of our website at oxfordinc.com. Now 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, and I'll now hand the call over to Tom Chubb.

Good afternoon, and thanks for being with us today. We're happy to share fourth-quarter net sales and Adjusted EPS, both of which landed close to the upper end of the guidance ranges we provided. Back in December, we told you we anticipated a robust holiday selling season, and that is exactly what happened — consumers truly came out to purchase gifts for the people they care about, choosing the items they genuinely wanted from the brands they hold dear. Looking at the period leading up to the holiday, we felt particularly good about the performance of several of our newer specialty items. These included the Indigo Palms Denim and Denim Friendly offering from Tommy Bahama, the Tommy Bahama Marlin Luxe Quarter Zip Polo, and the Lilly Pulitzer Reserve Collection. When higher-priced items deliver results like that, it tells us clearly that if there's a compelling reason to buy, shoppers will choose to spend their money with our brands. That helped lift comps by 2% in December. Then January came, and demand eased off. We attribute that to the pattern we've been seeing lately, where consumers step back any time there isn't a reason to purchase, plus sentiment among consumers getting worse. As a result, January finished softer than December, with comps declining 3%. That downward movement picked up speed at the start of fiscal 2025, as February comps came in at negative 9%. Against that background, we're satisfied with how the fourth quarter turned out and want to commend and thank our team for producing these results; we think the uneven demand we saw as fiscal 2024 wound down will probably persist for the near term. Much like customers came out ready to buy during the holiday season, we see the same pattern playing out across the opening two quarters of fiscal 2025. We expect healthy sales activity around key dates — Easter, Mother's Day, Father's Day, Memorial Day, and the 4th of July. In the gaps between those events, we think shoppers will be more hesitant to open their wallets, which mirrors the unease present in the current market. Because of our strong lineup of brands that spark joy, our top-tier omnichannel operation, our solid cash position and balance sheet, and our dependable workforce, we continue to believe the opportunity awaiting us over the long haul is incredibly promising. Even so, we understand reality well enough to recognize that the challenges currently facing us do not spare us. During times like these, when so much is up in the air, the thing we can actually do is take charge of what's within our reach and stay dialed in. Number one on that list is the customer. Keeping our attention laser-locked on the Four Point North Star — the framework guiding how this company operates — is what we care about above all else. To recap, that Four Point North Star begins with our broad plan to drive the greatest possible long-term worth for shareholders. What's essential to keep in mind is that we're creating a durable enterprise and shareholder worth over the long haul, even when things get rocky in the near term. Owning a collection of lifestyle brands is the second piece of that plan. We've got 83 years of history, and we've stayed successful through plenty of difficult periods; we understand how to handle this. In this period of uncertainty, we'll ensure we're safeguarding our brands' integrity over the long haul. Safeguarding our brands' integrity means steering clear of quick fixes that deliver marginally better short-term results while harming our brands and our future prospects. Third is our company purpose, which is to bring happiness to our consumers. Every one of our brands is a happy brand that figuratively transports our customers to their happy place. Staying concentrated on delivering that happiness to our customers matters, rather than getting pulled off course by outside challenges we can't control. The fourth thing we're focused on, and the final one, is generating cash we can put back to work — growing the businesses we already have, going after acquisitions when the chance comes up, and returning capital to shareholders, while at the same time maintaining a strong balance sheet. For fiscal 2025, each of our brands has its own detailed plan, tailored to that brand's unique situation, the hurdles it faces, and the openings ahead of it. Still, there's one thing they all have in common: an emphasis on the essence of what makes each brand great. At Tommy Bahama, that emphasis on the essence translates into making sure we're involved and running at full strength in our top 25 markets. In each of those markets, we have an enormous following, and that gives the business a wonderful base to build on. At the same time, we see a major opportunity to bring in many more people to the brand. When we light up and activate those key markets during 2025, our goal isn't only to please the customers we already have — we also want to connect with potential buyers, which should push more visits and better conversion rates everywhere we sell. At Lilly Pulitzer, focusing on the core really means focusing on the top 20% of our customers. That group accounts for 67% — that's two-thirds — of our sales, and contributes an even larger portion of our profitability, because they're the ones who buy at full price. If we make sure our offerings, the experiences around them, and how we talk about them in marketing genuinely please these shoppers, that should go a long way toward keeping them actively spending with us throughout fiscal 2025. On top of that, we're convinced that putting even more emphasis on taking care of our very best customers will bring in a great many additional people whose demographic and psychographic profiles mirror those of the top buyers we already have. When it comes to Johnny Was, focusing on the core translates into going back to what the brand was built on — the sorts of items that earned Johnny Was its fame and its status as a favorite for hundreds of thousands of customers. Over the past few years, while pushing to expand what this brand is capable of becoming, we likely took some attention off the embroidered and embellished items that shoppers had grown fond of. As we move toward 2025, we'll concentrate on delighting those loyal customers by providing a broader assortment of what we call our collection product — pieces that reflect Johnny Was' origins more closely. We believe that spotlighting the characteristics that distinguish Johnny Was and give it a unique place in the marketplace will also bring in new enthusiastic followers of the brand. In a moment, Scott will walk you through our guidance in greater depth, though it's reasonable to say that persistent volatility in the market has led us to take a somewhat more careful stance regarding the full year. Even so, we continue to anticipate robust cash flow, with cash generated by operations expected to reach roughly $170 million across the year. Our plan is to keep putting that cash flow to work in the areas we believe support long-term shareholder value. Growing and reinforcing our omnichannel platform sits at the very top of our investment priorities. Over the past several months, we have finished major upgrades to the e-commerce sites for Tommy Bahama, Lilly Pulitzer, Southern Tide, and The Beaufort Bonnet Company. Beyond that, toward the end of this year, we anticipate wrapping up the new distribution center, which will let us boost our inventory velocity and sell-throughs as it supports our extremely sizable omnichannel operation across the eastern and southern regions of the country. We also intend to launch roughly 20 new stores this year, among them four new Marlin Bars; our commitment to returning capital to shareholders stays as strong as ever, and we have already bought $50 million in stock in the early portion of this fiscal year at prices we feel will look very appealing over the long run. Furthermore, on Monday, our board of directors gave the go-ahead for a 3% bump in our quarterly dividend, taking it from $0.67 to $0.69. Keep in mind that we have issued a dividend each quarter since our 1960 public listing. Even with all the unknowns in front of us, we feel more sure of ourselves because we know exactly what kind of organization we are and what our team is working toward. At this point I'll pass things along to Scott, who can walk you through more specifics regarding Q4, the entire year, and what we expect for fiscal 2025. Scott?

Thanks, Tom. Like Tom said, we wrapped up Q4 and the entire fiscal year 2024 with both revenue and earnings landing at the upper boundary of the guidance we provided. Our operating groups enjoyed solid holiday periods and turned in good performance in Q4, even though consumers pulled back on spending in January. Consolidated net sales for the 52-week fiscal 2024 fell 3%, coming in at $1.52 billion. Keep in mind that 2023 net sales contained roughly $16 million tied to the 53rd week, which produced $10 million in extra gross profit. Sales at our full-price brick-and-mortar stores declined 2%, owing to a negative comp in the mid-single digits, partly offset by newly added store locations. E-commerce sales were down 4%. Our food and beverage and outlet locations did better, posting sales gains of 1% and 3%, respectively, fueled by new locations and partly offset by negative comps in the low single digits. Our wholesale channel, which faced a particularly difficult year, was down $31 million, or 10%, since the specialty store business across our brands remains challenged, partly offset by higher sales to major department stores. Adjusted gross margin narrowed 80 basis points to 63.2%, mainly because a larger share of net sales occurred during promotional and clearance events at Tommy Bahama, Lilly Pulitzer, and Johnny Was. During fiscal 2024, for each of our three main brands, the strongest consumer response came for fresh, innovative fashion items and during clearance and promotional events. In our view, the fact that a larger portion of spending clustered around major promotional windows points to a comeback in pre-COVID purchasing patterns. The drop in gross margin resulting from heavier clearance and promotional activity was partially counterbalanced by a change in sales mix, as direct consumer channels accounted for a greater portion of what we sold. By strengthening inventory positions and cutting back on promotional selling, our merchant brands group was able to raise gross margin substantially. On an adjusted basis, SG&A came in at $841 million, up 4%. For comparison, that figure stood at $807 million in fiscal 2023, a year that also included about $11 million in extra SG&A stemming from the 53rd week. As we moved through fiscal 2024, our costs increased because the incremental SG&A tied to the 23 net new stores we added in fiscal 2023 became fully annualized. On top of that, we've made recent and continuing investments in the business, driven mainly by the 30 net new brick-and-mortar sites that opened in fiscal 2024, among them three additional Tommy Bahama Marlin Bar locations. We had expenses tied to roughly five planned brick-and-mortar stores set to launch early in the year, plus the Tommy Bahama, King of Prussia, and Charlotte, North Carolina, Marlin Bar spots that just debuted last week, along with bringing in Jack Rogers, a brand we picked up during the fourth quarter of fiscal 2023. That left us with adjusted operating income of $136 million, a 9% operating margin, compared with $216 million, or 13.8% of net sales, the prior year. The decline in adjusted operating income stems from our SG&A investments amid a challenging consumer environment, which dragged sales lower and compressed gross margins. Outside of operating income, we got a lift of $4 million from reduced interest expense, thanks to lower average debt levels plus a lower adjusted effective income tax rate. Certain discrete items affected our tax rate, among them interest income tied to a refund we received for our fiscal 2020 net operating loss; taking all of that together, we finished at $6.68 of Adjusted EPS, landing at the top end of our guidance. Now I'll turn to the balance sheet, starting with inventory. As fiscal 2024 closed, inventory had risen 5% on a LIFO basis and on a FIFO basis alike. Most of that benefit stemmed from goods shipped from Asia that landed sooner than expected, ahead of when certain new tariffs took effect. When the year ended, we had $31 million in outstanding long-term debt, up modestly from the year before, because the $194 million in cash flow from operations we generated in fiscal 2024 was exceeded by our high capital expenditures of $134 million—mainly related to the Lyons, Georgia distribution center project and new brick-and-mortar locations—along with $43 million in dividends, acquisitions, and shifts in working capital needs. I'd like to turn now to what we expect in 2025. For the entire year, we anticipate net sales will come in somewhere between $1.49 billion and $1.53 billion. That works out to a decline of 2% at the low end and growth of 1% at the high end, when you compare it with the $1.52 billion we recorded in 2024. Built into our 2025 sales plan is a total comp decrease ranging from 2% to 4%, along with gains from Lilly Pulitzer and our emerging brand segments, which are partly offset by declines in Tommy Bahama and Johnny Was. Turning to distribution channel, the plan calls for roughly flat sales across both brick-and-mortar and wholesale, plus a mid-single-digit lift in food and beverage. On top of that, we're projecting e-commerce sales will drop by a low single-digit percentage. For 2025, we expect gross margin to come in lower by 50 to 100 basis points. The main reasons are tariffs and our assumption that full-price direct-to-consumer sales will make up a smaller share. In fiscal 2025, we think shoppers will keep gravitating toward our promotional events and value-priced items, just as they did in fiscal 2024. Regarding tariffs, our gross margin outlook bakes in an unmitigated hit of roughly $9 million to $10 million — around $0.45 to $0.50 per share — on products manufactured in China, reflecting the incremental tariffs recently enacted that are now in force. Once the broader tariff picture comes into focus, we'll keep rolling out additional steps to mitigate the impact. To reduce the impact of new tariffs, we have taken and will keep taking several actions: bringing in goods before those tariffs start, moving sourcing to nations where duties and tariff levels are lower, splitting tariff costs with our suppliers, shifting what we merchandise toward products with better duty treatment, and raising prices on certain items. Our brand management teams are highly skilled and have shown they can make up for earlier tariff increases, and they are already acting ahead of the tariff changes we are aware of. With these measures, we expect to offset a substantial portion of the impact from both the tariffs that have been announced and those already in force by spring 2026. Beyond tariffs and gross margin, SG&A is projected to rise in the low to mid-single-digit range, mostly from the annualization of added SG&A tied to the 30 net new stores opened in fiscal 2024. We're also investing in more brick-and-mortar openings in 2025, among them four new Marlin Bars. Our net new brick-and-mortar count should grow by roughly 20 locations, along with extra costs from launching our new distribution center in Lyons, Georgia, during the fourth quarter of 2025. Even though our number of stores should grow during fiscal 2025, mostly thanks to leases we've already signed in the pipeline, we anticipate that the rate of new openings will slow down in fiscal 2025 and on into 2026, since we'll be inking fewer new deals and launching fewer Johnny Was and Southern Tide spots. At the same time, Tommy Bahama and Lilly Pulitzer are going to stay highly selective when it comes to any additional sites. On top of that, when you look at operating income, royalties along with other income ought to remain more or less level. Fiscal 2025.

Also, our outlook for fiscal 2025 accounts for some negative effects from non-operating items. We anticipate interest expense will be higher, at $7 million for the year, versus $2 million in 2024, which works out to roughly a $0.20-$0.25 hit to EPS. Debt levels will be up in fiscal 2025 because we're continuing to spend on capital projects for the Lyons, Georgia distribution center and returning capital to shareholders beyond what operations generate in cash. On top of that, we're expecting a higher adjusted effective tax rate, around 24.5%, up from 20.9% in 2024. That lower 2024 rate got a boost from some unfavorable items, mainly interest income on tax receivables that we don't think will show up again in 2025. This higher tax rate translates to about a $0.20-$0.25 per share impact. When we add all this together — the $0.85-$1 from tariffs, the greater interest expense, and the elevated tax rate — we're looking at 2025 Adjusted EPS in the range of $4.60-$5, down from adjusted EPS of $6.68 last year. For the first quarter of 2025, our sales expectation is $375 million-$395 million, versus $398 million in the first quarter of 2024. The first quarter sales plan reflects declines in our direct consumer channels, partly offset by growth in our wholesale channel. We're also anticipating lower gross margin due to a smaller share of full-price sales and the tariffs. SG&A de-leveraging mostly stems from the new stores we mentioned earlier, roughly $1 million in higher interest expense, and an effective tax rate about 100 basis points below the first quarter 2024 rate of 25.6%. This should bring first quarter Adjusted EPS to somewhere between $1.70 and $1.90, compared to $2.66 in the first quarter of 2024. Now, turning to the spending we plan to do in our business, I want to touch briefly on our CapEx in fiscal 2024 and what we expect for 2025. In fiscal 2024, capital expenditures totaled $134 million, which included about $70 million for the multi-year Lyons, Georgia distribution center project — a project we expect will need a total investment of $130 million. Much like fiscal 2024, the biggest chunk of our anticipated $125 million in capital expenditures for fiscal 2025 will go toward finishing the Lyons, Georgia distribution facility, which we expect to complete in the fourth quarter of fiscal 2025. The rest of the capital expenditures in fiscal 2025 will cover executing our pipeline of new stores and Marlin Bars, including four we expect to open in 2025, plus increases in store count, primarily across Tommy Bahama, Lilly Pulitzer, Southern Tide, The Beaufort Bonnet Company, along with store remodels and other maintenance capital. We anticipate that the elevated level of capital expenditures in fiscal 2024 and fiscal 2025 will come down meaningfully in fiscal 2026 and beyond, once the Lyons, Georgia project is done. To wrap up our guidance, we expect cash flow from operations to be strong, and along with borrowings under our revolver, that gives us plenty of room to fund the investments I just mentioned, pay our quarterly dividend, and fund share repurchases. During Q1 of fiscal 2025, we kicked off and wrapped up a 10B5 to 1 plan worth $50 million, buying back 842,000 shares — roughly 5% of those outstanding — at an average price of $59.38 that we think will turn out to be appealing. After that recent purchasing, on March 24 the board gave the go-ahead for a fresh $100 million buyback program, which takes the place of what we had previously approved. Thanks for spending time with us today, and now we'll hand things over so you can ask questions. Stacey.

Good afternoon. First off, I'd like to discuss the outlook for quarter one. I'm aware you addressed a few of the comps and what has been observed so far. Could you perhaps assist us in breaking down the various headwinds you referenced, along with how large each one was, and whether it differed across brands? Also, when we consider the rest of the year, what are the positives and negatives, plus your presumptions for the lower and upper ends of the revenue guidance ranges? Thank you.

Regarding how strong the brands are relative to one another, my answer would be that Lilly currently performs best and is in fact doing fairly well at present. As for the remaining brands, the larger ones, they are down somewhat. I should note that the Easter shift occurs this year, so it isn't fully unexpected that March comps declined a little, since Easter moved entirely away from March and landed in April. When it comes to guidance for the remainder of the year, the positives and negatives affecting the top and bottom of the revenue range.

Right, so the new locations are definitely playing a part in balancing out the projected decline in comparable sales. Once again, our expectation is that Lilly will post a positive comp, and a few of the smaller brands could also see positive comps. As for Tommy and Johnny Was, our plans assume they will comp somewhat negative.

Alright. And real quick too, from a few other brands we've talked with, plus wholesale partners, we keep hearing that order books are getting trimmed for the rest of the year and that folks are turning cautious once more. I'd be interested whether you've seen that, and whether it differs depending on the brand. Also, maybe just a bit more detail on the Johnny Was plan; it fell 9% during the quarter. So were you seeing any of those weak patches, and is it regional or widespread, anything beyond the assortment that you'd like to change or where you see an opportunity this year? Anything you can share about wholesale door growth as the year goes on? I think you said earlier that this brand was getting back into certain accounts during 2025.

Yeah. As far as the wholesale market overall goes, there's concern, I think, that a number of the large retailers are going to reduce their forward orders somewhat; we'd view that as a possible headwind, no question. We've taken that into account while putting our forecast together. Conversely, how our brands have done on the selling floor at our main wholesale accounts has been pretty good, pretty strong. Typically, that shields you from a portion of those downdrafts. Somewhat contradictory signals, so to speak — the headwind of whatever they might be sensing across the market, yet the tailwind we could be enjoying because of how strongly we're performing. Actually, in many instances, we do better in those stores than we do in our own stores. When it comes to Johnny Was, we're hopeful we can rebuild that wholesale business, which has declined somewhat over recent years, particularly among the majors. I'd say we're optimistic about it, though once again, you've got the sort of possible headwind of the broader market pulling back there. I think that was — did she ask something else? I believe those were all of them.

Right. Was there anything else related to Johnny Was—perhaps any areas beyond the current product mix that could provide a chance to shift things this year?

Boosting how our retail locations perform strikes me as a major priority. I mean, broadly speaking, conditions in the market are quite tough at the moment, yet we're pulling out all the stops—from how we present merchandise visually in stores, to our approach to staffing them, to the way we build their assortments—which includes tilting the overall mix somewhat further toward our classic collection-style offerings, while also, on a finer-grained level, working to tailor each store's assortment more effectively. We've got plenty of initiatives aimed at lifting retail results. Beyond that, we clearly want to strengthen our wholesale business too. Wholesale delivers an excellent contribution margin, meaning each additional dollar from it benefits our bottom line substantially; those are essentially the main priorities at Johnny Was. Then the final item worth mentioning—something I believe came up in earlier quarters—is our effort to make marketing spending more efficient. That applies beyond Johnny Was, though I'd say it matters particularly for Johnny Was: getting more out of what we spend on marketing.

All right, that's good. Many thanks. I'll make sure that gets shared. Appreciate it.

Thanks as well, Ashley.

Ethan Saghi here, filling in for Janine. To start, given all the macroeconomic unpredictability we've seen this year, is the customer still reacting well to fresh product in the mix, or have they stepped back everywhere? In your view, is the assortment now better balanced when it comes to newness, or is there still room to do better?

Yeah. No, we have a lot more newness, particularly in our largest brands. At Tommy and Lilly, the volume of new product this spring is way up compared with spring a year ago. That newness is what's powering the business. When things overall are somewhat weak, it can be tough to spot where you're strong, but newness is a place where we are strong. We're happy to have the amount of new product that we do, because the customer is reacting to it very favorably. At Tommy Bahama, there's the Barbados Pro short — Ethan, if you enjoy being outdoors in the summer, that item is simply excellent. It's built on many past wins we've had in shorts and genuinely elevates it. At Lilly Pulitzer, a few of the standouts have been — I think the name is the Taisie Dress, which has been a standout, along with our Disney capsule collection that we launched, I think, a week ago, and it's performed very well; that's something new for us. We've carried Disney merchandise previously in our Disney stores, the Disney Springs store, but now this is sold in every location, and it's performed extremely well. One final illustration, the pinnacle of newness really, is Lilly Pulitzer Men's Wear, which we last offered in a significant way roughly fifteen years back. That one has been — it's modest. It won't become a massive piece of the business, but it has definitely done very well and generated plenty of excitement and buzz for the brand. Yes, newness is working, and we have some of it, and we're pleased about that.

Good to hear that. I've got one additional question. Other than a consumer who's more bullish, might you give us additional specifics regarding the internal efforts you're making to boost conversion?

There are many different elements involved: enhanced product knowledge within the stores, attempting to center the customers or, pardon me, the associates, assisting them with the knowledge they require to sell the products more effectively, adjusting the assortments, like we discussed. These are all sorts of blocking and tackling types of things we're attempting to accomplish, implementing enhancements to the websites that make it simpler to get from wherever you begin to check out and afterward simpler to check out. I noted during the prepared comments that we've completed significant upgrades to the Tommy Bahama, Lilly, Southern Tide, and Beaufort Bonnet websites. Every one of those has numerous features included that are intended to help move people through to check out and afterward get them checked out.

Understood — that’s genuinely useful. I’ll relay it, and I hope everything goes well.