Anne Shoemaker - VP, Capital Markets and Treasurer Tom Chubb III - President and CEO Terry Pillow - CEO of the Tommy Bahama Group Scott Grassmyer - SVP, Finance and CFO Douglas Wood - President and COO of the Tommy Bahama Group.

Rick Patel - Stephens Inc. Eric Beder - Wunderlich Securities Edward Yruma - KeyBanc Mike Richardson - Sidoti.

Good day and welcome to the Oxford Industries, Inc. Second Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anne Shoemaker. Please go ahead, ma'am..

Thank you, Amber, and good afternoon everyone. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause actual results of operations or our financial condition to differ are discussed in our press release, issued earlier today, and in documents filed by us with the SEC, including the risk factors contained in our fiscal 2013 Form 10-K. We undertake no duty to update any forward-looking statements.

During this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of GAAP financial measures to non-GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our web site at oxfordinc.com. And now, I'd like to introduce today's call participants.

With me today are Tom Chubb, CEO and President; Scott Grassmyer, CFO; Terry Pillow, CEO of Tommy Bahama; and Doug Wood, President of Tommy Bahama. Thank you for your attention; and now I'd like to turn the call over to Tom Chubb..

Thank you for joining us this afternoon. We are pleased with our results for the second quarter, which we believe demonstrate our strong brands like Tommy Bahama and Lilly Pulitzer can perform in a very tough and a highly promotional retail environment.

Our earnings for the second quarter came in at the high end of our guidance range, and we are very happy to have reaffirmed our full year earnings guidance. Tommy Bahama had a good second quarter, with a modest top line increase, and a good performance in our direct-to-consumer businesses, with positive comps in our full priced business of 4%.

As we mentioned on our call in June, we saw a decline in our wholesale sales, as retailers continue to battle weak consumer demand of lower traffic. As anticipated, we experienced some pressure on gross margin, as we had more spurning goods to push through our outlets.

The impact on the gross margin however was fairly moderate, and Tommy was able to deliver a very respectable adjusted operating margin of 14%, in an undoubtedly difficult environment.

As we head into the second half of the year, we feel good about our product assortment and our marketing plans, and are optimistic that Tommy will deliver strong second half results. Terry Pillow will provide more color on Tommy Bahama, after I give you an update on our other operating groups.

Lilly Pulitzer positive momentum from the first quarter continued into the second, and we couldn't be more pleased with what we are seeing. With the top line increase of 22% and a 251 basis point increase in gross margin, Lilly increased its operating income by 17% over last year. Comp store sales were up a remarkable 19%.

Once again, we believe beautiful product, supported by fantastic marketing drove these impressive results. On the new store front, we just opened our 27th store in Birmingham, Alabama in mid-August, and expect to open our second location in Sarasota, in mid October.

The primary clearance channel for Lilly Pulitzer are the twice yearly e-com flash sales, and the warehouse sale. These events not only do a great job helping us clear end-of-season inventory at a good margin, but also generate an amazing amount of excitement and energy around the Lilly brand.

Early in the third quarter, we completed the resort spring clearance sale, which exceeded our expectations. Sales for the three day event approached $12 million, compared to $7.6 million last year, leaving inventories extremely clean. While Lilly's strength has historically been in the first half of the year, we expect to deliver a solid second half.

Lilly Pulitzer will offer an assortment highlighted by truly resort product in some beautiful new prints, seasonal key items that build upon the success we have seen in recent years, and great fun, giftable items. Our Lanier Clothes Group reported a 4% decrease in net sales in the second quarter.

Operating income in the second quarter declined to $1.5 million, reflecting the lower sales. Our sales forecast for the second half is strong, and for the full year, we expect sales increases in the low to mid single digits, and an operating margin in the high single digits.

Moving to Ben Sherman; we continue to be encouraged by the improved performances of our retail stores and concessions, which contributed to the sales growth in the second quarter.

With an increase in the DTC business driving improvements in gross margin, Ben Sherman took another step in the right direction and reduced its operating loss in the second quarter, by approximately $700,000, in spite of the unfavorable impact of currency translation.

For the second half, we expect top line improvements, particularly in the fourth quarter, which is Ben's biggest sales quarter, to drive additional reductions in Ben Sherman's operating loss. Clearly, the consumer marketplace remains tough.

However, we believe that with the strengths demonstrated by our brands, and the confidence and dedication of the people that operate them, we will achieve our goals for the full year. I'd like to now turn the call over to Terry Pillow, to give more insights on Tommy Bahama.

Terry?.

Thanks Tom. As Tom mentioned, we were generally happy with how we navigated this tough environment in the second quarter. While we are not planning for macro business trends to improve significantly in the second half year, we believe we have the good game plan and believe our plans will deliver positive results in the back half of the year.

Tommy Bahama continues to gain a lot of traction as a 12-month brand. This year, we turned harder and earlier into the fall selling season. Our mailer, which went out just before Labor Day, led with men's fall product and the consumers responding very well. The mailer included long sleeve woven and long sleeve knit shirts and denim.

We also launched our Tommy Bahama NFL offering for men and women at the end of August, and are excited that this premium product is performing extremely well. Going into holiday, we have a focused marketing that we believe will inspire our consumer and drive sales.

Our plan is to get our guests to come to us more frequently during the holiday season, using email messaging, gift cards and direct mail. Throughout all our communication, print, digital and in-store, we will be using compelling imagery, highlighting our offering of cooler weather fall product for both men and women.

While a never increasing amount of our communication is digital, the ability of our direct mail pieces to drive business is clear, and we have added a fantastic non-comp mailer going out at the end of October, and as we grow our database, we will continue to find better ways to target and refine our marketing efforts.

In addition to develop a beautiful product and compelling marketing, we have been busy getting new stores opened.

In 2014, our store opening cadence is really back-half loaded, you may recall, we had not store openings in the first quarter, in the second quarter we opened two full priced stores and two outlets in the United States, as well as our seventh in Australia in Byron Bay, and an outlet in Japan.

Things really ramped up in the second half with six additional full price stores, two outlets and the Jupiter, Florida retail restaurant location. This will be our 15th restaurant and is located in what we can best described as a very Tommy friendly area of Florida.

I will now turn the call over to Scott Grassmyer to discuss our consolidated highlights.

Scott?.

Thanks Terry. I'd like to walk you through a selection of highlights from our consolidated results for the second quarter of fiscal 2014. Our consolidated sales increased 5% in the second quarter over the prior year period. As Tom mentioned, Lilly Pulitzer was exceptionally strong with a 22% increase.

This increase along with increases of Tommy Bahama and Ben Sherman were partially offset by sales decreases in our Oxford Golf business and at Lanier Clothes. On a consolidated basis, gross margin improved 82 basis points, to 59.1%.

SG&A increased 9% to $122 million, due to increased incentive comp, primarily at Lilly Pulitzer, incremental costs associated with offering additional retail stores, and continued investments in infrastructure and systems. SG&A also increased due to changes in foreign currency translation rates.

As we mentioned on our call in June, we expected a year-over-year decrease in operating income in the second quarter. We reported consolidated operating income of $27 million, compared to $28 million in the prior year. Our effective tax rate for the second quarter was 41.8% compared to 40.7% in the second quarter of fiscal 2013.

The rate in both periods was unfavorably impacted by our inability to recognize a tax benefit for losses in foreign jurisdictions. Last year rate benefited from a reduction in the active tax rate in the U.K.

Now on to the balance sheet; total inventories at the close of the second quarter of fiscal 2014 were $141 million, compared to $102 million at the close of the second quarter of fiscal 2013. As you will recall, we carry a significant LIFO reserve for tax purposes.

For reference on a FIFO, after adding back the LIFO reserve, total inventories increased by 25% to $198 million from $158 million. The increase in our inventory levels was primarily due to anticipated sales growth, particularly within our direct-to-consumer businesses.

Inventory levels also increased as a result of the earlier shipments from suppliers of fall goods and the impact of currency exchange rates. We are comfortable with our inventory levels, and believe each of our operating groups have effective brand-appropriate means to sell any excess or prior season inventory, as needed.

Our liquidity continues to be strong. At the end of the quarter, we had $108 million of borrowings outstanding, and $124 million of unused availability under our revolving credit agreements. Our capital expenditures were $20 million in the first half, and we expect to spend approximately $55 million in CapEx for the year.

These expenditures consist primarily of costs associated with both new and remodeled retail stores and restaurants. We will also continue to invest in information technology and e-commerce capabilities, and we will make certain enhancements to our facilities. I'd now like to comment on our outlook for the full year and third quarter.

We were pleased to have affirmed our earnings guidance for the full year. We also provide our initial guidance for the third quarter in this afternoon's press release. We expect the third quarter to be the smallest sales quarter of the year, reflecting the seasonality of the Tommy Bahama and Lilly Pulitzer businesses.

This along with the meaningful fixed expense structure of the business, results in lower operating income compared to other quarters. For the third quarter ending on November 1st, 2014, we expect sales in a range of $220 million to $230 million. On an adjusted per share basis, we expect to be in a range between a loss of $0.05 and earnings of $0.05.

On a GAAP per share basis, we expect to be in a range between a loss of $0.08 and earnings of $0.02. This compares with earnings per share of $0.10 on an adjusted basis and $0.05 on a GAAP basis in the third quarter of fiscal 2013, on sales of $197.5 million. The effective tax rate for the fiscal 2014 year is expected to be approximately 43%.

Before we take questions, I also want to mention that our Board has declared a cash dividend of $0.21 per share. Amber, we are now ready for questions..

(Operator Instructions). And we will go first to Rick Patel with Stephens Inc..

Hi. Good afternoon everyone. Congrats on a nice quarter..

Hi Rick. Thanks a lot..

Hey Tom. Can you comment on the wholesale channel? I know it has been pretty choppy for a few quarters now.

So do you get a sense that department stores are done right sizing their inventories at this point, or should we expect some more volatility in the coming quarters? And then as a follow-up, what's the right run rate assumption that we should use for the wholesale business as you scale the retail channel?.

I think as with respect to the first question, I do think from what we can tell, retailers have done a decent job of getting inventories to about the right, so that there is not a lot of inventory overhang remaining out there after they got through the spring summer season. And Terry and Doug may want to elaborate on that in a minute.

As to the second question for -- as far as growth rate in the wholesale going forward as we continue to ramp up direct-to-consumer really in all of our businesses, I would say very modest increases. We are not really looking to shrink the business, but by the same token, we don't expect to see a whole lot of growth in the wholesale channel either.

And Terry and Doug, do you want to add anything to either of those points?.

Yeah Rick -- this is Terry Pillow, what Tom said about -- retailers are the people we partner with. Our wholesale customers have been real conscious about making sure their inventories are clean, and they came out going into the fall season relatively clean, and they have been planning their assortments much closer.

I can tell you that, looking at the last couple of weeks as the retailers brought in fall goods early, new goods are selling really well and they are having good experience early on, some early fall fashion goods. So gives us, as we have seen in some parts of our business as I mentioned in our prepared remarks.

We have seen some early reaction to fashion goods going into the fall season, so with our retail. So we hope that continues, and we see a good fall in holiday season with our wholesale partners..

And any potential updates to selling the women's assortment into the wholesale channel?.

Terry, do you want to comment on that? Just give --.

Yeah Rick. We are continuing to pursue that effort, and we have opened some new doors and there is the spring season and that's continuing into the fall. It’s a little early yet to talk a whole lot about that performance, but they performed quite well in the spring summer, and we are looking forward to continuing that effort in fall.

Hopefully we will --.

But important to note Rick that, you're starting from a very small base there and the growth rate is still fairly modest. So there may be some room long term, but I don't think we are going to see any meaningful dollar growth in the near term..

Then just the last question on inventories; can you parse out how much of the increase at the end of the quarter was due to the timing shift versus what you're investing in wholesale and retail? We are just trying to understand all the moving pieces and how they are contributing to the year-over-year increase?.

If you take about the 25% increase, and we have about $2.4 million of currency deflected in that, and about $3 million higher in transit. So you are just a little bit over 20% up, and you've got a third quarter that should be in the double digit sales increase..

Right..

So our inventories may be a hair higher than ideal, but no concerns..

Thanks very much. Good luck this fall..

Okay. Thanks Rick..

(Operator Instructions). We will go to Eric Beder with Wunderlich Securities..

Good afternoon. Let me add my congratulations on a solid Q2..

Thanks Eric..

Could you just remind us, in Q3, what the pace of store openings are versus this year versus last, in terms of the incremental costs on those?.

Hang on just a minute, let us get our facts here. Make sure we are not --.

Moving to another one while you're doing that..

Okay..

Could you talk a little bit about -- Lilly Pulitzer last year, they did a negative -- it comes from a negative.

What are you doing differently this year, to make sure that fall certainly is not Lilly Pulitzer's biggest quarter?.

Yeah, that is true, and I think for the foreseeable future, fall will continue to be Lilly Pulitzer's [indiscernible] quarter. But what we are doing this year, which is a little bit different, is that we are playing print and resort much harder than we have in the past.

We are sort of doing this idea, you may have seen the hashtag campaign resort365, and is supposed to moving away from a resort during fall, we are sticking with it during fall, and we think that's a very appropriate path for Lilly to take. Obviously this is the first year, we have done it that way. So we will see what results that generates.

But we are enthusiastic about it, thus far..

Okay..

On your store question, we plan on opening eight stores in total, six at Tommy and two at Lilly in the third quarter this year, and last year in the third quarter, we opened four Tommy and we didn't open any at Lilly. So we opened twice as many stores in the third quarter. The preopening, it will be a little bit higher.

It's not that significant on a -- just a regular store. None of these opening in the third are restaurants, we will have one in the four. So we will have a little bit of a preopening there. So we probably have a couple of hundred thousand dollars more preopening, but its not going to be that material..

Okay. And just quickly a question on Tommy Bahama. You have done the Major League Baseball and now you're doing the NFL. When you look at it, how should we think about those as growth vehicles? I know that those are -- the sporting pieces or premium products are very expensive, relatively speaking compared to the similar product without the logos on.

How do those look, in terms of demand and how do you look -- foresee those going forward?.

I am going to let Terry, Doug jump on that one in a minute Eric, but I would start by saying the way I look at those things as, they are really primarily marketing initiatives that are designed to add a little spark and excitement to the brand, by bringing something in that we know is part of our guest's life.

These guys are sports fans, they like MLB, they like NFL, and we do ladies products as well. And so its, the Tommy Bahama is still about Tommy Bahama and inspiring the world to relax, and these are just bringing in other pieces of the guest's life to create a little excitement.

Tommy, do you want to elaborate?.

Yeah I will let Doug -- Doug has been on the front end of these two projects. I will let Doug talk about it..

Tom said about it, if there is anything we have learned, our guests really reacts to exciting products, and that is part of their life and it involves sports, and so these are things that we have laid out, and I think years in the making actually, sporting both MLB and NFL. And we have a very specific strategy.

We are looking for the season ticket holders, the suite guest, and we are really taking a very high end special approach, and its working, and what's exciting is that, when you drop a product like this in timeframes where our guest is looking for something unique, they are reacting in just a real positive way and that's what spun right now with NFL, especially in a timeframe like third quarter, where we may not be the first go-to brand, we put this in a [indiscernible] out there, and boy, our guest has really responded pretty much all over the country.

So it's exciting..

Great. Thank you. Congratulations again..

Thanks Eric..

And we will go next to Jessica Schmidt with KeyBanc..

Hi, this is Ed Yruma. Two quick questions I guess, first on inventory specifically as it relates to Tommy Bahama. I know you had a soft sales quarter -- the first quarter, a respectable second quarter I guess.

How do you feel with the overall quality of the Tommy Bahama inventory?.

I will comment briefly and say that I think we are very comfortable with where we are there, and Scott may want to elaborate a little bit on it?.

We are very comfortable with it. One that we had this year was a class sale, and over the Labor Day weekend, which is the first time we have done a flash sale at that point in time. So that moves some inventory and some really good gross margins. So overall we are comfortable, we think we have the right number of outlet stores.

Also we think we can move through any product season inventory in a very clean and brand appropriate manner..

Got it. And one other follow-up. There is obviously a lot of discussion about secular pressures in Golf. I know that performance at Oxford Golf was weaker than last year. I guess how do you view strategically, and how important is it within the portfolio? Thanks..

Well as to the second piece of it, its less than 2% of sales.

So in some respects, all our businesses are important, but in terms of materiality, its really quite small, as to the decline in sales during the second quarter, that was largely because last year, we had a large pipeline filled for an online program, that we are supporting with a major online retailer and of course once the pipeline is filled, you don't typically anniversary that, which is the case this year.

We think that business, while its still really just a year old, we think its going to be a nice steady piece of business for us in the long term and we are not particularly concerned about that one quarter decline in sales. All that said, I will bring you back to my initial comment, which is, this is less than 2% of sales for the corporation..

Great. Thanks so much..

Okay. Thanks Ed..

(Operator Instructions). We will go next to Mike Richardson with Sidoti..

Yeah, good afternoon and thanks for taking my questions. I am just wondering, are you guys still projecting a $7 million to $9 million operating loss for Ben Sherman, and then I was hoping, maybe you could give us an update on the performance of Tommy Bahama, both in Asia and then as far as women's category goes? Thank you..

Yeah, I will start with Ben Sherman, and we are currently projecting a $4 million to $5 million reduction in the operating loss for the year, which I think would get back to your number Mike.

As to Tommy Bahama Asia, I am going to aim women's, I will let Terry and Doug comment on that in a minute, but we did have a modest improvement in the operating loss during the second quarter, and that was coming both from Australia and Asia.

I would remind you that we really have two markets that we are focused on in Asia, or in that Pacific region, one being Australia, that's a market that we bought back from a partner. We are very happy with that market. We have what we view as a good business there, and our focus is on growing it.

The other key market that we are emphasizing is Japan, that we entered last year. We are learning a lot there, the business is improving, but we are still not where we wanted to be.

However, we think we can get there, we are very focused on doing so, and we believe that long term, it's an excellent growth market for us, and we are very committed to it, and I think now maybe Terry and Doug, maybe a little additional color on that..

Yeah Mike, as Tom said, we couldn't be happier about the Australia business. Its comping up very nicely, and its exceeding its budget. As I mentioned in the prepared remarks, we opened one store, and we are opening another store. So we have got big plans for Australia.

When you move to Hong Kong, that again is doing very well with healthy comps this year. We think we had tremendous upside in both Hong Kong and Tokyo. We have adjusted the assortments.

We were over there about this time a little later last year, and we saw some improvements that we can make in our assortments to be heavier and have more of a fall, so we have done that this year.

I am on my way over there next week, to both Hong Kong and Tokyo to see that, and we think that the adjustments we made in both of those markets would pay dividends for us in the back half of the year. So we are very excited. As far as women's, we are on track this year to grow the women's business as a percent of our total. We are about 32%.

We are on track to do that. The sportswear is doing well, primarily in knits and knit dresses. However, the big shining stars are women's accessories, that include scarf, jewelry and shoes. We have launched this Relaxology platform in both men's and women's and its working in both, and we are seeing a significant increase in that.

So again we have talked about, we are interested in growing our women's business. As a percentage, it gets harder as men's continues to grow. But we are making progress. The other thing is you will see this fall, I mentioned in the prepared remarks, we have really shifted this non-comp mailer as primarily a women's fashion mailer.

We always used the term Tommy Bahama, we have the appropriate amount of sand on all the product we do. But this book is entitled new sand, which we have got to the high desert, and got a high desert holiday theme, which we are very excited about, in not only our women's, but in our women's and our marketing efforts in the back half of the year.

So we are feeling good about women's and we are feeling good about our growth in Asia. So thanks a lot Mike..

Thanks. Just one more question, I guess probably for Scott; just directionally in the third quarter, how should we be thinking about gross margin year-over-year? Thanks..

Probably down just a little bit in gross margin, and some of that will be some higher product label programs out of Lanier, will be the main mark over there. 100 basis points maybe, something in that range, modest..

Thank you very much and best of luck for the second half of the year..

Thanks Mike..

It appears there are no further questions at this time. I'd like to turn the conference back over to Tom Chubb for any additional or closing remarks..

Thank you again for your time this afternoon. We very much appreciate your interest and look forward to talking to you again in early December..

That does conclude our conference. Thank you for your participation..