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

Thanks, and good afternoon, everyone. I want to start by reminding those on the line that some of what we say during this call, including in the Q&A portion, could be considered 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 statements express or imply. The key factors that might cause our operating results or financial condition to come out differently are described in the press release we put out earlier today and in the documents we file with the SEC, among them the risk factors in our Form 10-K. We're not obligated to update any forward-looking statements. We'll also be talking about certain non-GAAP financial measures today. As of the fourth quarter of fiscal 2025, our profitability measure shifted from segment operating income to segment EBITDA. A reconciliation between non-GAAP and GAAP financial measures, segment EBITDA included, appears in the press release issued earlier today, which you'll find under the Investor Relations tab at oxfordinc.com. At this point, let me introduce who's joining us on the call. Here with me are Thomas Chubb, our Chairman and CEO, along with Scott Grassmyer, our CFO and COO. I appreciate your time, and I'll now hand things over to Thomas Chubb.

Good afternoon, and thanks for being with us. It's a pleasure to be here today to walk through what we delivered in the fourth quarter, how fiscal 2025 progressed, and what we expect for fiscal 2026. We felt good that fourth quarter net sales and adjusted earnings per share, aided by a late-January surge from Tommy Bahama, our biggest brand, came in at the midpoint of the guidance ranges we gave, leaving out charges tied to the Saks Global bankruptcy that we didn't know about when we last updated that outlook. The holiday season played out against an uneven consumer backdrop, with traffic and conversion under pressure across much of our portfolio and a marketplace that was heavily promotional, yet the steps we took during the year to shore up the business contributed to trends that got better late in the fourth quarter. The holiday quarter largely matched the pressures we outlined three months earlier, especially in the categories and assortments hit hardest by sourcing choices related to tariffs and by a market with deep discounting. Even with higher tariff costs and stiff competition, our work to reinforce the supply chain and broaden where we source let us safeguard solid gross margins and keep inventory at healthy levels. Notably, if you set aside the effect of those higher tariff costs, gross margin would have risen compared with the prior year. As fiscal 2025 wrapped up, we took encouragement from the improvement we saw upon leaving the holiday season and moving into the key resort and early spring windows. Comparable sales, driven by mid-single digit positive comps at Tommy Bahama, got better and turned positive for the whole company in late January; so far in the first quarter of fiscal 2026, Tommy Bahama comps have stayed mid-single-digit positive, and total company comps have stayed modestly positive. Over at Lilly Pulitzer, first quarter comps have trailed our plan, which we think stems mostly from colder weather along the eastern seaboard, including Florida and the Southeast, the brand's most important markets. At Johnny Was, comps are still negative, but the business is tracking with what we expected and getting better as the quarter goes on, as our actions to improve marketing and merchandising start to gain hold. Quarter to date, business in the emerging brands group is quite strong, with comps well into double digits. We're particularly encouraged that performance got better as we shifted into resort and early spring, when what we offered matched customer demand more closely than our holiday assortments did. We see that improvement as especially meaningful, since these are seasons where our brands are especially well-positioned, thanks to their ties to warm weather lifestyles and the occasions our customers care about most. Though the environment is still uncertain, these trends bolster our confidence that the steps we've taken are building momentum; we also made significant headway in fiscal 2025 in reinforcing our operational foundation. Not long after year-end, we finished building our new state-of-the-art distribution center in Lyons, Georgia, and started taking in the first inventory shipments. Lyons stands as the biggest infrastructure project Oxford has undertaken in quite a while, and the teams that got it here make us proud. As we've said before, we aren't anticipating any meaningful financial payoff in the near term while the ramp is still in its early phases. Hitting this milestone matters as a step toward bolstering our long-term operating platform. Beyond finishing Lyons, we keep putting money into technology, data and analytics, and artificial intelligence, and we're also pushing forward with strategic sourcing efforts to broaden where we buy from. At the start of fiscal 2025, roughly 40% of our apparel and related products were anticipated to come from manufacturers based in China. Thanks to steps taken over the course of the year, that number fell to just under 30% of our product purchases in fiscal 2025, and the annualized run rate we're carrying into fiscal 2026 is down to about 15%. Taken together, these moves have given us more flexibility and put us in a better spot to handle ongoing uncertainty in the market. Shifting to fiscal 2026, our guidance presumes we extend the encouraging momentum seen early in the first quarter, especially at Tommy Bahama. Although tariffs remain in flux and we're absorbing significant tariff pressure in Q1 that wasn't there a year ago, we think the steps we've taken to diversify sourcing and sharpen execution throughout the business will help contain the hit to earnings as fiscal 2026 progresses and let us turn low single-digit sales growth into substantial earnings gains. Scott will walk through the factors behind our outlook in more detail, but our priorities are plain. Keep the momentum going, lift profitability, and keep making our brands stronger for the long haul. Zooming out, our operating priorities stay steady and simple no matter what the macro backdrop looks like. Take care of our customer, safeguard the integrity of our lifestyle brands, and produce cash so we can reinvest wisely in the business, keep a strong balance sheet, and build long-term shareholder value; when consumers are uncertain, winning means managing whatever is within our control and keeping our eyes on execution. Every one of our brands has its own fiscal 2026 priorities suited to its particular opportunities, yet a common thread runs through them. Concentrating on what sets each brand apart, the product, the storytelling, and the experiences that hold customers' attention. At Tommy Bahama, our number one priority for fiscal 2026 is to extend the momentum the brand has built, with comps running in the mid-single-digit range in the first quarter to date. That momentum, we believe, mirrors the work the team has put in to improve assortment balance, reinforce key in-stock programs, and bring product offerings into better alignment with customer demand; in fiscal 2026, we're concentrating on refining merchandising, lifting brand storytelling, boosting hospitality performance, and evolving our marketing approach to generate demand, deepen retention, and connect with new audiences. That mix, we believe, sets Tommy Bahama up to achieve better profitable growth while cementing its standing as a top premium lifestyle brand. When it comes to Lilly Pulitzer, we're concentrating on a number of strategic levers meant to free up more lasting profitability while getting the brand ready for growth over the long haul. We see real opportunities to make our assortment strategy sharper, to enhance how we handle pricing architecture and how effectively we allocate, to deepen the bond with our core customer by telling more personalized stories, and to fine-tune Lilly's mix of distribution and channels in ways that fuel both growth and brand awareness. Over at Johnny Was, our top priority is still carrying out the revitalization plan for the brand that we've been putting together; that starts with product as we strive to bring more cohesion into the design process, hone assortments, and build a smoother commercial model spanning retail, e-commerce, and wholesale. Meanwhile, we're keeping our attention on the merchandising discipline, consistency in go-to-market, and marketing effectiveness that are required to lift execution and steady performance as time goes on. We think these moves, together with the leadership changes we told you about in the third quarter, will shore up the business's foundation and put the brand in a better spot for what's ahead, producing a significantly better EBITDA for the year. Inside our emerging brands group, the emphasis for fiscal 2026 is on ramping up brand heat, growing distribution in a measured manner, and persisting in using our shared operating platform to generate profitable growth. This group kept delivering encouraging growth and energy during fiscal 2025, and we think there's a real chance to extend that momentum via stronger storytelling, improved merchandising tools, and more efficient allocation across channels. Throughout our portfolio, we're pursuing a measured, phased strategy for building out our data and AI capabilities. At the outset, we're zeroing in on places where the near-term return on investment is most obvious, which includes marketing and e-commerce use cases, tools for enterprise productivity, and certain IT applications like developer productivity. We're beginning with pragmatic use cases while we keep reinforcing the data foundation required to back more sophisticated capabilities down the road. As ever, I want to voice my profound gratitude to our teams throughout the enterprise. Their resilience, creativity, and commitment to our customers underpin everything we do. With that, I'll hand the call to Scott so he can give more detailed commentary on our financial performance and outlook.

Thanks, Tom. Like Tom said, we closed out the fourth quarter and the entire fiscal year 2025 with top-line numbers landing inside our guidance range, and bottom-line results also inside that range, if you exclude $0.19 per share of charges tied to the Saks Global bankruptcy. Consolidated net sales for fiscal 2025 fell 3% to $1.48 billion. At our full price brick-and-mortar stores and in e-commerce, sales dropped 3%, pulled down by a total DTC comp of -4%, partly made up for in our retail channel by new store openings. Outlet sales likewise slipped 2%. Our food and beverage spots posted 4% growth, mainly from the four new food and beverage locations we added over the year, partly offset by a slightly negative comp. Our wholesale channel, still under pressure largely because of the shrinking specialty store market, was down $13 million, or 5%. Even with the specialty market's decline, we're happy with how sell-throughs have gone at our most important department store customers, and with our capacity to grow market share or at minimum hold onto it. Looking at brands, sales declines at Tommy Bahama and Johnny Was came from negative comps in the high single-digit and low double-digit range, respectively. Sales at Lilly Pulitzer, meanwhile, came from a positive comp in the low single-digit range. Our emerging brands remain a bright spot, with sales growth in the low double-digit range as the brand keeps growing and maturing. Adjusted gross margin shrank 190 basis points to 61.3%, mostly because of higher tariffs of $30 million, or 200 basis points. Setting tariffs aside, a bigger share of net sales fell during promotional and clearance events at Tommy Bahama and Lilly Pulitzer, partly offset by lower freight costs to customers thanks to successful contract renegotiations during the year, plus a shift in sales mix toward a greater proportion of DTC sales. Across our three major brands, consumer response remains strongest during our promotional end-of-season clearance events and into our new and innovative fashion products, extending a trend from the last couple of years. Adjusted SG&A expenses, which we've adjusted this year to strip out depreciation and amortization, rose 4% to $815 million, versus $784 million in fiscal 2024. In fiscal 2025, we took on higher expenses tied to the 10 net new retail stores opened in fiscal 2025, including four new food and beverage locations, plus the 30 net new stores added during fiscal 2024. Together, those locations made up nearly half of the SG&A increase for the year. We also took on higher costs for software and professional service fees. Credit loss is mostly tied to the Saks bankruptcy, partly offset by lower advertising costs. All of this produced adjusted EBITDA of $107 million, or a 7.2% EBITDA margin, against adjusted EBITDA of $193 million, or 12.7% of net sales, a year earlier. Past EBITDA, adjusted depreciation and amortization came in flat versus fiscal 2024. Higher average debt levels meant we took on $4 million more in interest expense, and our adjusted effective tax rate also came in higher. Taking all of that together, adjusted EPS landed at $2.11, a figure that includes $0.19 of charges tied to the Saks bankruptcy. Turning next to the balance sheet, I'll start with inventory. When FY 2025 closed, inventory on a LIFO basis was down 1%, a result affected by a sizable jump in our LIFO reserve. On a FIFO basis, inventory rose 2%. That gain came from $11 million in incremental tariff costs capitalized into inventory, tied to tariffs put in place during FY 2025. Across the brands, inventory was only marginally higher, with Johnny Was the exception, largely because of the added tariff cost; on the subject of tariffs, there are a few important points I want to cover. In fiscal 2025, we paid roughly $40 million in tariffs imposed under IEEPA that the Supreme Court later struck down. Those payments might eventually become a receivable, but both the timing and the collectability are still uncertain, and no possible recovery was factored into our fiscal 2025 results, nor is any included in our fiscal 2026 guidance. We closed the year carrying $116 million of outstanding long-term debt, which is up from $31 million at the close of the prior year. Our $120 million in cash flows from operations during fiscal 2025 fell short of our $108 million in capital expenditures, mainly for the Lyons, Georgia distribution center project and new brick-and-mortar locations, along with $55 million of share repurchases and $42 million of dividends. I'll now take some time on our outlook for 2026. For the full year, we expect net sales to be between $1.475 billion and $1.53 billion, approximately flat to up 4% compared to sales of $1.478 billion in 2025. The 2026 sales plan includes growth in the Tommy Bahama, Lilly Pulitzer, and Emerging Brands segments, partially offset by a decrease at Johnny Was. Total comps of approximately flat to positive 3%, with some additional lift from non-comp locations opened in 2025. Looking at distribution channel, the sales plan is made up of mid-single-digit increases in brick-and-mortar and retail channels, plus a low double-digit increase in food and beverage locations that reflects the annualization of four new locations from 2025. We expect the wholesale channel to contract in the mid-single digit range, due primarily to continued declines in the specialty store market. More broadly, our guidance balances the modestly positive first quarter-to-date comps against the uncertainty we continue to see in the consumer environment. That covers the potential for added pressure from the conflict involving Iran and the possibility that higher oil prices could weigh on consumer spending, freight, and raw material cost. Moving on to gross margin. Let me first lay out the tariff assumptions embedded in our outlook; we are assuming tariff rates for the full-year fiscal 2026 will remain generally consistent with the incremental tariff rates put in place during fiscal 2025. Those rates align with what shows up in our inventory balances as fiscal 2026 gets underway, and with what we anticipate for receipts later in the year. No benefit is being factored in from the Supreme Court's recent ruling, nor from any subsequent moves tied to other tariff issues. On top of that, we aren't counting on getting any money back for tariffs already paid. Given those assumptions, we anticipate total IEEPA-related tariff headwinds hitting $50 million across fiscal 2026 — that's an incremental $20 million, or 150 basis points of gross margin impact, plus a $1 per share impact, stacked on the $30 million of tariff headwinds we took on in fiscal 2025. These added tariff costs won't land evenly across the year. As we've noted before, we picked up very little in the way of incremental tariff costs during the first quarter of fiscal 2025, given when tariffs took effect and our push to speed up big chunks of inventory purchasing. Consequently, we're looking at roughly $12 million, or 300 basis points, of gross margin headwind in the first quarter of 2026. Starting in the second quarter, we anticipate the incremental tariff effect easing considerably as we lap stretches of FY 2025 that carried heavier tariff impacts.

When we look at the period after Q1, we expect tariff pressures to weigh on us versus the prior year by about $2 million to $4 million, and that works out to 50 to 100 basis points every quarter. Beyond tariffs, three things — a full-year benefit from increased prices, a mix shift with more of our business coming from direct-to-consumer, and a somewhat softer cadence of promotions — ought to deliver modest improvement in adjusted gross margin, bringing it to roughly 62%. The price increases reflected in our guidance range from 4% to 8% and vary by brand. Those moves reflect a more elevated assortment as well as higher prices on new products, whereas comparable increases on items already in the line stay relatively modest. Shifting from tariffs and gross margin to SG&A — which excludes depreciation and amortization now — we expect an increase in the low single-digit range, mostly tied to greater software costs, the lapping of added SG&A from the 10 new stores that opened in fiscal 2025 along with a few more locations, including a new Tommy Bahama Marlin Bar in fiscal 2026, and higher incentive compensation, largely a function of smaller payouts in recent years. Also, inside EBITDA, royalties and other income ought to be up roughly $2 million in fiscal 2026. On top of that, our fiscal 2026 guidance bakes in an unfavorable $5 million, or $0.25 per share, from bigger losses connected to the opening of our new Lyons DC. Those losses come from ramp-up costs of launching and operating the site before we hit the inventory levels we're aiming for, plus the cost of running two sites while we transition out of the old one and into the new one; we expect that all incremental expense of running the new Lyons DC in fiscal 2026 will be depreciation related, with some offsetting reductions in cash operating cost. We also expect growth in non-operating items, including anticipated higher interest expense of $1 million for the year, or an EPS impact of about $0.05, driven by expected higher average debt levels. Beyond that, we expect a higher adjusted effective tax rate, about 28%, compared with 24% in 2025; that produces roughly $2 million in additional tax expense, or a $0.15 per share impact. The increase in the effective tax rate is mainly due to expected shortfalls in stock-based compensation vesting during fiscal 2026. When we add all of this up, we expect 2026 adjusted EPS of between $2.10 and $2.70, against adjusted EPS of $2.11 a year ago, which included $0.19 of charges related to the Saks Global bankruptcy. Before we get to the first quarter, let me quickly address the completion of the new distribution center in Lyons. As Tom mentioned, we're still in the early stages of ramping the facility, and we want to be careful about assigning particular financial benefits before it's fully up and running and handling the volume we anticipate over time. Longer term, we see Lyons as a key asset for Oxford. The site was designed to improve the efficiency and flexibility of our distribution network, supported by a more modern layout and state-of-the-art automation. If we glance forward, fiscal 2026 will absorb those added depreciation expenses I mentioned earlier, because we're moving through the early stages of the ramp connected to start-up activity from 2025. Even at this point, Lyons is already producing several strategic wins for us. One of them: we can now close 2 higher-cost distribution locations in L.A. that arrived with the Johnny Was acquisition in fiscal 2024. We're also reducing leased square footage elsewhere in our distribution network. That gives us greater flexibility as our sourcing network continues to shift. Over time, it ought to enhance our ability to operate with tighter inventory. It also improves service to important Southeast and East Coast markets for Tommy Bahama, which historically were served from our Auburn, Washington, facility on the West Coast. Now moving to Q1 of fiscal 2026, we expect sales of $385 to 395 million, compared with $393 million in Q1 of 2025. Included in that first-quarter sales plan is a comp that is flat to slightly positive, in the low single-digit range. By channel, we anticipate low- to mid-single-digit increases in retail and e-com direct to consumer, along with mid- to high-teens growth in food and beverage, partly offset by a low double-digit decrease in wholesale; we also expect the $12 million in additional cost of goods sold, roughly 300 basis points of gross margin impact, or $0.60 per share, from higher tariffs, as I said earlier, along with a larger promotional and clearance sales mix, partly offset by a bigger direct to consumer mix. SG&A de-leveraging largely comes from the anniversaring of new stores opened in 2025, some added costs related to the new Lyons, Georgia, facility, and higher incentive compensation, as previously mentioned. Interest expense will rise by roughly $1 million, and the effective tax rate should be approximately 25%, compared with 24% in Q1 of 2025. Tying that together, we see first-quarter adjusted EPS coming in between $1.20 and $1.30, against $1.82 in Q1 of 2025. If you exclude the additional $12 million, or $0.60 per share, in tariffs, adjusted EPS at the low end of our range is basically flat versus a year ago. Mainly because the new Lyons DC is complete and we're opening far fewer new stores, total capital expenditures for fiscal 2026 should be about $65 million, down from $108 million in fiscal 2025. That $65 million figure includes roughly $20 million of final spending to finish the new Lyons facility early in fiscal 2026, money we had originally intended to spend late in 2025. The remainder of 2026's capital expenditures will support continuing investments as we carry out our pipeline of new stores and Marlin Bars, including one Marlin Bar we expect to open in 2026, plus capital expenditures for relocating and renovating existing brick-and-mortar locations. When we take a step back and examine the entire company, we expect to open a modest number of new locations at Tommy Bahama and Lilly Pulitzer, but we also expect to close some stores and other brands, which should mean our overall store total stays about the same this year. Wrapping up the guidance we gave, we estimate cash flow from operations of approximately $130 million, and that will allow us to pay down a meaningful portion of our debt, complete the investments I referenced earlier, and make the quarterly dividend payment — at our most recent meeting in March, the board increased that dividend by 1% to $0.70 per share. We're also looking at roughly $385 million in liquidity. Thank you all for joining us today. With that, we'll take your questions. Jameelah?

Hello. Thanks for that, and good afternoon. Maybe we could start with Tommy Bahama. You've been pretty transparent about the assortment changes you've been working to put in place there. As you started to see that improvement, with the mid single digit comps so far this quarter, could you help us dig further into what's fueling that momentum? Are you noticing any encouraging signs in traffic, basket size or conversion that give you confidence the trends you're seeing now might be sustainable?

Yeah. Thank you, Ashley. No, Tommy Bahama has us genuinely thrilled right now, since what we're witnessing isn't just that mid-single-digit figure — and honestly, this really traces back to the latter portion of January, meaning the very tail end of last year, continuing into the quarter-to-date period of this year. Things have stayed fairly steady; it's not like, well, even right now, this week has been solid. Wednesday — yesterday — turned out to be a fantastic day for us, and we're getting that sort of steady performance that leaves us feeling quite confident. The other point I'd make, Ashley, is that so much of this comes down to stocking the proper merchandise at the proper depth within our stores. Sure, e-commerce plays a role too, but that's the main force behind it. On the men's side, which represents the largest portion of our sales, a few top performers include the Emfielder Polo — essentially our signature polo. We made a few adjustments, so it's an updated, enhanced version, though it remains the Emfielder Polo. You're also probably aware of our Boracay pant line, which has been around for some time. It began with a chino originally, and later we introduced a short, followed by a five pocket, and then last fall a new chino, all of which has sold extremely well. Moving on to spring, we've got the new Boracay short. There was a Boracay short in the past, though similar to what happened with the pant, this updated iteration is a significant improvement, and it's genuinely driving a lot of business. Turning to women's, dresses are doing well. Wovens, shorts, and pants, from what I understand, are all doing well; Ashley, we're also noticing that whatever we feature in our marketing materials — for instance, a mailer from last month — that's exactly what's moving, and seeing that link is encouraging. When we review all of this, it gets us quite enthusiastic. One more point: looking at what we've reported thus far, Florida matters most for us during this period of the year, yet performance there hasn't reached the level we're aiming for. What's actually fueling our numbers is the West. The upside, Ashley, is that once we move into the second quarter, the West carries a larger share of our overall business. Given that we're seeing strong momentum across the board—and especially in that region—I believe we're well positioned to keep it going. Ultimately, it comes down to product: offering what customers expect from us. There were multiple factors at play in the prior year — many tied to tariffs, though there were additional causes too — and because of that, our attention to it fell short of what was required. That's different now: we're focused on it this year, and the results show it's paying off.

Okay, that's really useful. So perhaps only a single additional question regarding gross margin. We're grateful for everything you shared on that front, yet I believe there was mention of certain shifts in channel mix. As that occurs and things lean further toward D2C along with food and beverage, how ought we to view the effects on margin and the contribution toward overall profitability in 2026?

Yes. Absolutely regarding gross margins, with DTC expanding while wholesale contracts, we discussed scaling back somewhat, that clearly boosts gross margin. We, as you know, are doing well at wholesale locations, particularly the majors. We believe regaining some momentum at wholesale is possible. Both of them, certainly where gross margin is concerned, are beneficial. And once DTC arrives via comps, it genuinely drops straight to the bottom line. Should we manage to achieve comps that are meaningfully positive, it truly does flow through.

Okay, that sounds good. I'll share that with the team. Thanks once more.

Thanks, Ashley.

Hello there, good afternoon to all of you. When you consider Saks and what's been lost with Saks, plus what you brought up regarding wholesale distribution, what other avenues might you pursue or examine — could any of those be among the current players such as Dillard's, Macy's, or Nordstrom? In your view, where is the wholesale channel headed from here? You also brought up Florida's results, which I understand came in below the West Coast. What's the gap in performance versus the West Coast, and what are your thoughts on that? And finally, when you consider the structure for margins along with the income statement and balance sheet for this year, and the reduced CapEx for this year, what are the implications? How do you view the potential uses for that cash? What's your thinking on margins and SG&A expenses as the year progresses? Thanks.

All right. Let me begin with Florida. I want to be crystal clear that Florida is in fact strengthening. Things are looking up there. The thing is, the West has simply been performing incredibly well. I don't want anyone walking away thinking Florida is stuck where it's been for some time. It genuinely is gaining momentum, and that's been a welcome sight. Florida saw some very frigid weather in February. Maybe you were there yourself, or you've got friends or relatives who were. February turned out to be a genuinely chilly month in Florida, and that was a drag. I believe we're seeing some genuinely encouraging indicators coming out of Florida. The real takeaway, though, is simply that the West is performing incredibly well, and that's a positive signal for us, particularly as we move into the second quarter. As you're aware, Dana, when you post a strong first quarter and second quarter, I mean, that sets you up for a genuinely strong year; that has us excited. When it comes to Saks, look, we're pulling for them. We'd like to see them do well. Clearly, the footprint is going to shrink; we, you know, we enjoy working with them. We view it as a fantastic venue, particularly for our Johnny Was brand, which has traditionally done nicely with both the Saks side and the Neiman side of the business. We're pulling for that. I think you know, there's some business available out there as they exit certain locations and certain markets. My belief is the winners will be the folks you mentioned, you know, Macy's, but to be more precise, I think Bloomingdale's, along with some of the top-tiered doors at Macy's. Then Dillard's and Nordstrom, I think, are also positioned to win. I think if you take a broad look from that angle, you know, we've got solid relationships with every one of those, and we enjoy working with all of them. You know, we'll compete to win as the market evolves. On the CapEx and margin questions, I'll hand that off to Scott.

Spending on capital expenditures is going down. A bit — clearly, with the Lyons DC, we've still got some amounts rolling over from the prior year, though considerably reduced, and store-level spending is lower too. Our intention is to, well, we increased the dividend by a modest amount, and after that our intention is to reduce debt. We believe we're able to make a, you know, sizable reduction in what we owe; those are, you know, the present intentions for the cash. As for your question about margin. Could you say that again, Dana? My apologies.

Okay. When you're considering how margins will play out across this year, what are the pluses and minuses on the growth levers or SG&A, how do you expect things to flow quarter by quarter, and what might work against you or in your favor?

Yes. For the year overall, I'd say it hinges on where we land within the sales guidance range — if we can get nearer to the top end, then we ought to get some leverage on SG&A, which would be a positive, plus a modest amount of expansion in our gross margin percentage. In terms of the percentage, you won't see anything too dramatic swinging from one year to the next — perhaps somewhat more in Q2 versus Q1, but by quarter the gross margin percentage should stay fairly flat, so nothing extreme there. With certain of the price increases, despite the tariff headwinds we're facing, we believe we can offset those within our gross margin, and I consider that significant. Clearly, plenty of upside exists if — as you know — we had factored in the IEEPA rates. Right now the rates sit lower, and nobody can predict what will occur. So should they remain at today's levels, there is definitely some upside. Once more, we didn't include any refund for what was paid last year. So depending on how the tariffs move, there is definitely upside to be had out there.

Thank you.

Thank you, Dana.

Ethan here, sitting in for Janine — appreciate you taking our questions. So, to start: I believe you mentioned wanting to bring debt down by a sizable amount during this year. I was just curious whether there's a specific level you're aiming to finish the year at, and how that goal fits into your broader capital allocation priorities for the year?

Our hope is to reduce it, assuming no tariff refunds come through — the plan we have right now reflects a decrease of $30 to 40 million.

Okay, regarding how we're allocating capital, Ethan, honestly there's not much different there. You're aware that we feel dividends matter, and we've issued one each quarter without fail since our 1960 IPO. Over the past 10 years, our dividend CAGR is roughly 10%. Earlier this week, the board raised it by $0.01 per quarter. Dividends are one piece of it, along with paying down debt. As Scott mentioned in his remarks, CapEx is going to drop significantly this year. I'd say the large chunk of CapEx from the prior two years is mostly done with now. A small amount spilled into this year, but that was purely a timing issue. Looking at this year and ahead, what we expect is CapEx at far more typical levels. There ought to be ample cash flow, plus free cash flow.

Understood. That helps a lot. I've got just one additional question. Could you share a bit more specifics about what the marketing and merchandising initiatives at Johnny Was are going to involve during this year, as you aim to bring new energy to the brand?

Sure. On the marketing side, the focus is genuinely on storytelling that's more elevated and stronger, one that highlights what makes the brand distinctive and special, and presents that in a refined manner, while also hopefully connecting with a somewhat wider group of people than we reached before. At Johnny Was we have an extremely loyal customer following, but we believe there's a larger audience we can draw in, and we're already beginning to see evidence of that. When it comes to product and merchandising, the key is ensuring we've got the correct silhouettes, the correct fabrications, and very crucially, the correct price points, that we're delivering innovation and newness, all while staying true to the Johnny Was DNA, and then putting suitable inventory levels behind it. This is a major undertaking that's been underway, and it actually began last summer. Some of the outcomes are already becoming visible; there's a weekly report we review each week containing sales and margin of course, plus a few other KPIs. One of the best aspects of it is that when we review it, you know, this year, nearly every week we're finding almost everything green on that report, while for a couple of years it was mostly red, and these days it's nearly all green. We're also noticing the payoff from some of that merchandising effort we completed. As an example, that effort showed that dresses in the $200 to 300 price bucket mattered a great deal; we put more inventory dollars into that category for spring, and it's delivering returns. It's genuinely performing well. Those are the sorts of things we're doing. What I'd say, Ethan, though, is that the complete effect of this work won't truly become apparent until the fall product arrives on the floor, which happens July 30. We ship fall on July 30. At that point you'll see, I believe, a fuller picture of the effort we've put in there. One more thing I'd be remiss not to bring up is the addition of certain items I think we're referring to as essentials or core essentials. These are basic pieces. There's something like a top, a pant, a skirt, possibly one or two additional items, and they arrive in, I believe, three solid colors that merchandise beautifully alongside all our, you know, embroidered and printed product. They provide a woman with a way to come in and, you know, if she'd like to purchase a printed top but would rather have a solid pant or skirt to pair with it, we have that available for her. It gives her a chance to finish off the look inside our store, and that's a benefit. Plus, from a visual merchandising perspective, it simply makes it easier to separate all the embroidery and prints we carry in the shop. Along those same lines, I'd describe what we're doing as toning down the interiors of the store — our store — somewhat, so they feel less overpowering and simpler to navigate. Much of this is already underway. Some portions will require additional time before they're completely realized, but we couldn't be more enthusiastic. One aspect we truly appreciate is that a particularly significant wholesale account of ours, upon visiting to view fall, was completely taken with it; they committed to it. They were fans of what we're doing, and they genuinely increased the budget for their purchase from us, which stands as a very powerful signal of their view of the line. To me, that's an early signal. Naturally, in the end it's the consumer who casts the vote, but retailers who are skilled merchants — their judgments often serve as fairly solid signals of the direction you're moving in.

Yeah, definitely; that's wonderful to hear, and I appreciate all the detail. I'll share it with others.

Many thanks, Ethan.