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

Thanks, and good afternoon, everyone. I want to start by noting, before we get going, that some of what gets said 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 end up differing materially from what those forward-looking statements say or suggest. The key factors that might make our actual operations or financial condition come out differently are covered in the press release we put out earlier today and in the documents we file with the SEC, such as the risk factors in our Form 10-K. We're not obligated to revise any forward-looking statements. We'll also be talking about some non-GAAP financial measures on this call. A reconciliation between non-GAAP and GAAP financial measures appears in the press release we issued earlier today, and you'll find it under the Investor Relations tab at oxfordinc.com. Now let me bring in the people joining us on today's call. Here with me are Tom Chubb, our Chairman and CEO, along with Scott Grassmyer, our CFO and COO. Appreciate your time, and I'll now hand things over to Tom Chubb.

Good afternoon, and thanks for being with us; we're happy to share first quarter fiscal 2025 results that landed squarely inside the guidance we had provided, despite market conditions that were extremely difficult and hard to predict. According to what's commonly called hard data, the consumer continues to have the capacity to make purchases. On the other hand, soft data—especially surveys of consumer sentiment and reports covering discretionary spending—points to a consumer who has grown far more careful about purchases in discretionary categories, which basically covers the entire range of what we offer. What we ourselves experienced this quarter matched the pattern from the previous several quarters: buyers react most enthusiastically to fresh, innovative, differentiated products, and to promotions offering strong perceived value. Making things more complicated is the fast-moving U.S. trade policy toward other countries, tariffs in particular. Tariffs are creating difficulties for us on multiple fronts. To begin with, worries among consumers about how tariffs will affect prices and the economy are deepening already-weak sentiment. Next, because tariff policy keeps shifting so quickly, planning and forecasting the business has become extraordinarily hard. And last, tariffs are forcing us to make substantial changes to our supply chain—which might end up driving some shifts in how we source that ultimately serve the interests of our company and its shareholders, though in the near term they definitely bring difficulties and financial consequences. When market conditions are as tough as the ones we're facing right now, we must never forget that our whole purpose is bringing happiness to our customers. Every one of the 7 brands in our portfolio qualifies as what we term a happy brand, and customers turn to them for the optimism and sense of possibility they radiate. That happiness reaches people through how we position our brands, the products themselves, our marketing copy and visuals, and the experiences we create in our stores, restaurants and bars, our resort hotel, and on our e-commerce sites. Keeping our attention on delivering happiness to customers helps soften the effects of difficult marketing conditions and guarantees that once those conditions ease, we'll come out of them stronger than we were going in. The pandemic gave us powerful proof of this concept; during the lockdowns it would have been simple to let our brand messaging turn darker and more pessimistic, yet we would not allow that, and we came through on the far side stronger than we had ever been. Similarly, bringing joy to people is still what drives us now. During Q1 of fiscal 2025, our Lilly Pulitzer brand turned that sustained dedication to happiness into remarkable results, given the conditions around us. Because Lilly stayed committed to pleasing its most devoted, biggest-spending shoppers, we delivered growth in the double digits, posting positive comps across both e-com and retail, plus notable increases in average order size and improved profitability. Several high points stood out for Lilly during that quarter, including our stunning prints, which achieved a strong seasonal mix of tonal versus multicolor patterns and of bright versus soft shades. Sportswear items likewise delivered solid performance, for instance the Ronson Top — a staple tee lifted with gold buttons and puffy sleeves. We reintroduced Lilly men's after more than ten years away, and we did that alongside our collaboration with St. James, the Normandy-based French label. We deliberately built that launch without aiming for big unit sales, but it still sold through extremely well and created a lot of chatter and enthusiasm. This spring, our newness measure reached a strong figure above 50%, compared with about 40% the prior year. On the marketing side, we continue to capitalize on the excitement our Palm Beach Fashion Show generated last fall, where we presented Spring 2025 merchandise. In our Tommy Bahama operation, we kept striving to deliver joy to a broader group of customers by launching 2 additional Marlin Bars. We've opened two additional locations — one inside the King of Prussia Mall, located on the mainline in Pennsylvania, and another at SouthPark Mall in Charlotte, North Carolina. Compared with the warm weather destinations we normally target, these markets have milder climates, and each one is inside a sizable regional mall, which is also a departure from the usual placement of Marlin Bars. In both Charlotte and King of Prussia, Tommy Bahama stores were already operating before we opened Marlin Bars at those sites. Drawing on what we've learned from previous Marlin Bar conversions, we expect a significant increase in retail sales at those two spots, along with an opportunity to deliver an immersive Tommy Bahama brand experience through the bar and restaurant offerings. When it comes to creating real enthusiasm for Tommy Bahama, there's nothing quite as effective as gathering with loved ones over a good meal and a drink or two at one of our Marlin bars. Among the top two locations nationwide are SouthPark Mall and King of Prussia Mall, and we're eager to find out what results we can achieve in those spots. Even as we remain committed to our evergreen, long-term goal of bringing joy to customers through our happy brands, we're simultaneously putting significant effort into tackling the more pressing issues in front of us. Heading that list is the fast-moving shift in U.S. trade policy, especially around tariffs. Starting more than 50 years ago, when as an enterprise, we first branched into international product sourcing, our objective has always been to have a resilient supply chain that can respond to the changing needs both the marketplace as well as to significant changes in U.S. trade policy. Over the years, trade policy has shifted in major ways—NAFTA, several other free trade deals, China joining the WTO in 2005, and more. Every single time, our supply chain adjusted fast and effectively to the new rules. What's different now is that this policy shift arrived with shorter warning and greater unpredictability than earlier ones did. Even so, our approach to pivoting remains the same, and that is exactly what we're carrying out. We're making solid progress on our goal of diversifying our sourcing footprint, above all cutting back our dependence on China, and at this moment we expect to exceed the targets we laid out in April. Come the second half of 2026, our present plan is to be largely finished with China. When we're navigating the intricate task of setting prices and starting gross margins for a given season, tariffs count among the many input costs we factor in. Naturally, as we undertake that exercise for upcoming seasons, we're incorporating what we presently understand regarding tariffs. A great deal of effort remains ahead, yet the headway makes us happy. To illustrate, at Tommy Bahama, our biggest business, for Spring 2026, factoring in the elevated tariff rates now in effect, we estimate our AUR will rise by under 3%, completely recouping gross margin dollars, even as our starting gross margin percent would fall by under 50 basis points. Looking at later seasons, we anticipate being able to lift initial gross margin percentages back up absent any drastic pricing shifts.

Tariffs are definitely going to cause some disruption in our numbers for this year, but over the long haul, we don't view them as a danger to how competitive we are or to our capacity to generate long-term value for shareholders. A second, more pressing issue that we're putting significant effort into is boosting the profitability of our Johnny Was business. Johnny Was is a fantastic brand with truly gorgeous product, customers who are loyal and engaged, and a team that is remarkably committed, hard-working and professional; in our view, Johnny Was also has room to lift its profitability up to a level comparable to what we're used to seeing at Lilly Pulitzer and Tommy Bahama. Following a stretch of extremely fast growth, which included quick expansion of its retail store count across the past 6 or 7 years — part of that occurring before we acquired the brand — we're now redirecting our attention toward raising profitability and shoring up the fundamentals; that covers brand creative, merchandising assortment and planning, marketing efficiency and retail execution; we've been laboring diligently on this initiative for the past several months and have recruited extra talent along with outside resources to assist; we're eager to update you on the plan and how it's progressing in upcoming quarters. Our new state-of-the-art fulfillment center in South Georgia is moving forward as scheduled, and we anticipate finishing it at the close of the fiscal year. Once it's done, we think the new SC will give us a competitive edge in our most commercially significant region, the Southeastern United States, particularly Florida. There's no question that we're functioning in extremely tough conditions, yet we're handling the present difficulties effectively while always keeping the long-term goals and objectives in view; we feel tremendous gratitude toward every one of our team members for everything they do for our customers and our shareholders. At this point I'll hand the call to Scott, who will share more specifics about our first quarter results and what we expect for the rest of the year. Scott?

Thanks, Tom. Tom already mentioned that during Q1, our teams ran into a huge amount of unpredictability and hurdles connected to the rapidly shifting tariff and trade situation. Despite those major challenges, our people kept their attention on what they could influence and delivered revenue and profit figures that fell within the outlook ranges we'd given earlier. In the first quarter of fiscal 2025, total net sales were $393 million, compared with $398 million in Q1 of '24, which put us near the upper end of the $375 million to $395 million range we had projected. Revenue from our physical stores fell 1%, the result of a negative comp of 5%, partly made up for by stores we recently opened. E-commerce revenue declined by 5%. At our food and beverage spots, sales were down 3%, and outlet location sales came in around the same level as the prior year. Our wholesale channel saw a 4% gain versus the first quarter of 2024, driven by higher sales to major department stores and off-price retailers. Looking at it by segment, weaker sales at Tommy Bahama and Johnny Was were partly balanced out by a low double-digit increase at Lilly Pulitzer, which found success with its strategy of concentrating on product that connects strongly with its core customer, along with growth in emerging brands thanks to a promising rollout of new retail locations. On an adjusted basis, our gross margin fell by 110 basis points, landing at 64.3%. The main factors behind that decline were higher freight costs tied to e-commerce customers at Tommy Bahama, bigger markdowns taken during clearance events at Lilly Pulitzer and Johnny Was, and a shift in our sales mix, where wholesale — including off-price wholesale — made up a larger share of net sales. Beyond that, we absorbed $1 million in extra charges in cost of goods sold stemming from U.S. tariffs placed on imported goods that took effect in the first quarter of fiscal 2025. That worked out to roughly a 20 basis point drag on consolidated gross margin, or $0.04 per share. Our adjusted SG&A came in at $221 million, which is up 5% from $210 million a year ago. Of that $6 million increase — that's 59% of it — the drivers were higher employment costs, occupancy costs, and depreciation, all tied to launching 31 new brick-and-mortar retail locations, among them 4 new Tommy Bahama Marlin Bars, since the first quarter of fiscal 2024. That figure includes the 8 net new stores we opened in the first quarter of fiscal '25, 2 of which were Tommy Bahama Marlin Bars. On top of that, we took on preopening expenses tied to some of the roughly 7 net new stores we expect to open over the rest of fiscal '25, which includes one more Tommy Bahama Marlin Bar. That gave us an adjusted operating profit of $39 million, which works out to a 9.8% operating margin. In the prior year, we had $57 million in operating profit, or a 14.4% margin. The drop in adjusted operating income comes from what we're putting into the business while facing a tough consumer and macro environment. Now, past operating income. Certain discrete items affected our adjusted effective tax rate of 24.2%, and the biggest one was interest we received tied to a U.S. Turning to the federal income tax receivable. Interest expense ran $1 million higher than what we saw in the first quarter of fiscal 2024, and that was because our average debt levels were greater. So when you put all those pieces together, adjusted net earnings per share came in at $1.82. Let me now turn to the balance sheet, beginning with inventory. During the first quarter of fiscal '25, inventory was up $18 million, or 12%, on a LIFO basis, and up $20 million, or 9%, on a FIFO basis, with increases posted in each operating group except Johnny Was, mostly reflecting the impact of the U.S. tariffs enacted in the first quarter of fiscal 2025, including inventory bought at an accelerated pace before the anticipated higher tariffs were imposed and more costs capitalized into inventory after those tariffs went into effect. As of the close of the first quarter of '25, our inventory balances carried an extra $3 million of cost linked to the higher tariff enacted in the first quarter of fiscal '25; long-term debt stood at $118 million when the quarter closed; operations consumed $4 million of cash during the first quarter of fiscal '25, chiefly because of weaker net earnings, shifts in working capital requirements, such as the acceleration of inventory buying, plus $12 million of spending on implementation costs for cloud computing arrangements that fall under operating cash outflows. Beyond that, we bought back $51 million worth of stock, spent $23 million on capital expenditures — largely for the Lyons, Georgia distribution center project and for launching new brick-and-mortar locations — and distributed $10 million in dividends, and all of that drove our long-term debt balance up. Now I'd like to walk through a few specifics of our updated 2025 outlook. When fiscal 2025's first quarter ended, our comp was negative 5%, just under the negative 2% to 4% comps we had guided to previously. In the second quarter thus far, comp sales are negative, quite similar to what we saw in the first quarter, and we expect that pattern to continue for the remainder of the quarter. We do expect the negative comp trend to improve to some degree in the back half of fiscal 2025, when we go up against easier comparisons — partly because two hurricanes struck the Southeastern United States in the third quarter of fiscal 2024 and weighed on results. Even so, our guidance continues to call for comps to decline in the low single-digit range for the remainder of the year. Net sales for the entire year are now expected to land between $1.475 billion and $1.515 billion, which represents a drop of 3% to roughly flat compared with fiscal 2024 sales of $1.52 billion. Under our updated plan for full-year 2025, total company comp sales are now anticipated to fall somewhere in the low to mid-single-digit range. The declines we saw in Tommy Bahama and Johnny Was were driven by negative comps, though new store openings helped soften that impact. We expect that drop to be partly balanced out by improvements in Lilly Pulitzer and Emerging Brands, where positive comps at newly opened locations are providing momentum. Turning to distribution channel, our sales plan assumes e-commerce and wholesale will each fall by a low single-digit percentage, with that decline partially countered by full-price retail and outlet, both of which should come in somewhere between flat and a low single-digit increase. In our full-price retail and outlet segments, we expect a boost from about 15 net new stores opened during the year, though negative comparable sales will partly counteract that; for food and beverage, we're also projecting a low to mid-single-digit gain, supported by 3 new Marlin Bar openings this year. Our revised guidance also takes into account the latest tariff changes. When we last provided guidance in March, extra tariffs on Chinese goods were at 20%, and reciprocal tariffs for nations besides China hadn't been revealed yet. Tariffs on goods coming in from various nations have been all over the place since March — there have been holds and postponements, plus extra duties on Chinese goods that climbed to 145%. For the rest of fiscal 2025, our latest projection takes as a given that the additional 30% levy now in effect on Chinese imports, along with 10% on everyone else, stays as is.

Given these revised assumptions, we now anticipate gross margin for the year will shrink by roughly 200 basis points. That decline reflects $40 million of extra tariff expense, or $2 per share on an after-tax basis, up from the $9 million to $10 million we had baked into our March forecast. We are working diligently to offset the tariff hit to gross margin dollars, and we anticipate being fully offset by the spring of '26. The mitigation plans involve shifting sourcing away from China toward nations with lower tariff rates, which includes our push to bring sourcing from China down from roughly 40% in 2024 to roughly 30% for 2025, along with our expectation of more activity around promotional events across our brands, since the difficult macroeconomic backdrop will have consumers hunting for deals and promotions. Beyond lower sales and gross margin, we anticipate SG&A rising in the mid-single-digit range, growing faster than sales in 2025, mainly because of ongoing investments in our business, such as the annualization of incremental SG&A tied to the 30 net new locations added in fiscal 2024. There's also incremental SG&A connected to roughly 15 net new locations, among them 3 new Tommy Bahama Marlin Bars — the 2 that opened in the first quarter plus a third slated to open on the big island of Hawaii late this year — and a rise in adjusted depreciation and amortization from $57 million in fiscal 2024 to $59 million in fiscal 2025, which leaves out $11 million of amortization of acquired intangibles in fiscal '24 and $8 million in fiscal '25. Also within operating income, we anticipate lower royalties and other income of about $1 million in fiscal 2025. In addition, our fiscal '25 guidance incorporates the unfavorable effect of nonoperating items, among them $5 million of higher interest expense versus $2 million in 2024, or an impact of roughly $0.20 to $0.25 on EPS. The elevated debt levels in fiscal '25 stem from our ongoing capital expenditures on the Lyons, Georgia distribution center, technology investments and returning capital to shareholders, which together exceed cash flow from operations. We also anticipate a higher adjusted effective tax rate of roughly 26%, versus 20.9% in 2024, which had benefited from certain favorable items mostly tied to interest income and tax receivables that we don't expect to recur in 2025. That higher tax rate will produce an impact of approximately $0.20 to $0.25 per share. Taking all of these together, including the $2 tariff impact, higher interest expense and a higher tax rate, we anticipate 2025 adjusted EPS of between $2.80 and $3.20, against adjusted EPS of $6.68 last year. For the second quarter of 2025, we anticipate sales of $395 million to $415 million, versus sales of $420 million in the second quarter of 2024. That mirrors our assumption of a low to mid-single-digit negative comp, partly offset by the addition of noncomp stores and wholesale sales that are relatively flat. Additionally, we anticipate a roughly 250 basis point reduction in gross margin. That figure incorporates our revised tariff estimate, which adds $15 million in tariff expenses, equivalent to $0.75 per share on an after-tax basis. SG&A should increase within the mid-single-digit range, driven mostly by the new store locations, along with $2 million more in interest expense, royalty and other income staying flat, and an effective tax rate that climbs to about 31% because of net discrete tax expense tied to stock-based compensation. From this, we foresee second quarter adjusted EPS landing between $1.05 and $1.25, versus $2.77 during the second quarter of 2024. Now I want to cover our CapEx outlook for the rest of the year. Largely in line with what we guided previously, we anticipate capital expenditures of about $120 million, which counts the $23 million spent in the first quarter, compared with $134 million in fiscal 2024, and roughly $70 million of that goes toward completing the new distribution center build in Lyons, Georgia. The rest of our capital expenditures go toward executing our pipeline of new stores in Tommy Bahama Marlin Bars, which includes growing store count across Tommy Bahama, Lilly Pulitzer, Southern Tide and The Beaufort Bonnet Company. Once the Lyons, Georgia project wraps up, we expect this heightened level of capital expenditure to ease in 2026 and beyond. As we move into our busiest period of the year, we anticipate cash flows from operations will be robust, which lets us fund the investments just mentioned, our quarterly dividend, and pay down our outstanding borrowings, though we do expect to remain in a debt position through the rest of the year as a result of our first quarter share repurchase, dividend payments and anticipated capital expenditures. Thank you for your time today. We will now turn the call over for questions. Joe?

It's great to see how well Lilly performed this quarter. You went into detail about a few of the strengths you noticed there. What lessons have come out of that strength? Is the main thing there to keep pushing a wide variety of colorways along with the fresh offerings you're bringing out? And are there any levers you can point to that are set up to keep that momentum going for the rest of the year?

Ashley, thank you for asking — I believe what really matters is zeroing in on those customers who are most devoted, roughly the top 20% of the customer base. They represent over 60% of sales and an even bigger share when it comes to profitability, so we concentrate on what they adore about Lilly and give it to them in a manner that stays consistent with the brand's DNA, which in my view we're doing very much at this moment, while also remaining relevant to today's customer and marketplace. And I simply believe the Lilly team has accomplished something remarkable there. Ashley, you're aware of this since you follow things closely, and it truly began at the start of last year when we marked the 65th anniversary, and we created some special capsules plus plenty of marketing initiatives, and it sort of accumulated over the year, and now it's genuinely benefiting us; so looking ahead, I'd say the key really is concentrating on that core customer, remaining faithful to our DNA, yet simultaneously staying relevant to what's happening now.

All right, that's great. So, a quick follow-up here. I'm aware that you went over certain positives and negatives related to margins and price hikes at Tommy Bahama as we head toward spring 2026. Would you mind going into more detail about any pricing strategies you've outlined for your remaining brands, if there are any? I'm simply interested in how you're managing these margin challenges tied to promotional expenses, and on top of that, the tariffs now — specifically, how do you weigh the possible requirement to keep up promotional efforts against possible price hikes meant to counterbalance these elevated costs?

Yeah. That's an excellent question. I believe we used the Tommy Bahama case as an illustration, where our spring 2026 plan calls for our AUR to rise by under 3%. At that point, we recover all the gross profit dollars. Our initial margin would decline by under 50 basis points. Then — the second part of what you asked is whether margin dilution will occur from promotional efforts. For 2026, it's simply far too soon for us to genuinely forecast that, in my view. As Scott mentioned, for the remainder of this year, we've incorporated certain extra promotions — not actually additional promotions, rather the assumption that a greater share of business will occur during those promotional periods. But regarding '26, everything we've really — the only thing we've reached so far is really the initial margins. Scott, I'm not sure whether you'd like to include anything?

Correct. And when you look at 2025, spring and summer represent the peak periods for us, so there isn't a great deal of flexibility in that area. What we're beginning to observe, then, is a slight uptick in pricing for the fall, followed by spring, at which point we achieve complete offset.

I was hoping to get an update on the wholesale side. My understanding is that you mentioned growth of 4%. Could you discuss how that stacked up against what you had anticipated, and what retailers are saying as we move into the second half of the year?

Sure, I'll have Scott add a bit more detail regarding what we expect, but seeing that wholesale growth was something we felt good about, and honestly, I'd characterize how we've done in wholesale as pretty strong, which is something we're always happy to observe, Joe. I believe we've discussed this before. Still, when you look at the selling floor at one of our large department store partners, where we're competing directly against a number of other excellent brands in the difficult conditions that exist today, finding that we're truly holding our own in that direct competition is quite encouraging. It demonstrates how strong our brands are, along with our products. As for how you'd assess that against what we were looking for...

Yeah. My sense is that the wholesale side is basically coming in right where we figured it would. We were aware that our spring order book was somewhat higher, and we anticipated that the back half of the year would decline somewhat, since many accounts have turned more cautious; so at this point, for the entire year, a modest decrease, though a modest increase in Q1; and specialty stores have definitely been softer than department stores; so that specialty store channel remains fairly under pressure.

Ethan here, filling in for Janine. First off, it's wonderful to hear the newness is truly connecting at Lilly. I was hoping you could share some detail about what's new in the assortment at Tommy and how customers are responding to it? Then for my second question, looking more closely at Johnny Was, what was behind that mid-teens drop in Q1? And what makes you confident about the guidance for that brand over the remainder of the year?

All right. Regarding Lilly, the newness — as I've mentioned, and it was definitely a major factor in our success — our newness quotient came in higher this year. This year it was slightly above 50%, compared with roughly 40% a year ago, I believe. So that was encouraging for us. Much of it came from sportswear pieces, such as the top I pointed out. It's great to see that. Dresses have always been an area of real, real strength for us, but it's good to see strength in sportswear too; and then, as I said, we believe much of it — we felt our spring print assortment was genuinely strong and very well balanced, offering customers lots of great choices, whether they preferred multicolor, something more tone on tone, bright, or soft. They simply had good options. Then at Tommy, I'd say newness is also delivering. I mean, we're noticing that across the board; it's kind of — like I said, it's items that feel new and exciting and different or — apart from that, they tend to seek out what they see as high-value situations. And like Scott mentioned, that results in us doing somewhat more business proportionately during our promotional windows. Then when it comes to the Johnny Was guidance for the future, I'd say we aren't anticipating a major rebound there relative to how the brand is currently performing, though we'd certainly love to see one and we're undertaking many efforts to try to bring that about. As I describe the plan we're developing at Johnny Was, by and large, it would likely affect '26 and beyond more than '25. So what's built into the guidance model doesn't truly assume a significant rebound at Johnny Was over the next quarter or 2. Scott, I don't know if you...