Greetings, welcome to the Oxford Industries, Inc., Second Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jevon Strasser.

Thank you. You may begin..

Thank you and good afternoon. 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 the 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 non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website. And now I'd like to introduce today's call participants.

With me today are Tom Chubb, Chairman and CEO; and Scott Grassmyer, CFO and COO. Thank you for your attention. And now, I'd like to turn the call over to Tom Chubb..

growing our brands for the long term, enhancing our digital and omnichannel capabilities, operational excellence, managing our portfolio, capital allocation to draw long-term shareholder value, and developing our people and team. Our share repurchase program illustrates the continued execution of our objective to maximize long-term shareholder value.

Since initiating the plan in December 2021, we have used this vehicle to return $86 million to our shareholders, repurchasing at an average price of $89 per share, enhancing the already high returns from our stock performance and dividend payments of $32 million in the last 12 months.

While we are aware of some of the macroeconomic headwinds, the momentum that we created in the first half of the year has continued into the early part of the third quarter. In addition, we are in a much healthier inventory position than we were a year ago.

Our excellent results in the first half, healthier inventory position and the outstanding plans we have for the second half should allow us to deliver double-digit top and bottom line growth with some modest operating margin expansion for the year.

I'll now turn it over to Scott for more detail about second quarter results and our forecast for the remainder of the year.

Scott?.

Thank you, Tom. We executed well during the second quarter and once again delivered record performance, as Tom mentioned earlier. Our strong quarter was driven by sales growth across all distribution channels and particularly notable sales growth in Tommy Bahama 17%.

In the second quarter of fiscal 2022, consolidated net sales were $363 million, an 11% increase over last year's second quarter net sales of $329 million. Excluding $8 million of sales from Lanier Apparel in the prior year period, sales increased 14% year-over-year. Our full price e-commerce business grew significantly, up 13%.

On the bricks-and-mortar front, we generated full-price retail comps of plus 14%. Performance of our food and beverage locations was healthy as well with 6% growth over last year. Our second quarter adjusted gross margin was 64.6% compared to 64.3% in fiscal 2021.

This 30 basis point improvement was fueled by a shift in sales mix towards full-price direct-to-consumer channels and higher IMUs, particularly in innovative new performance offerings. Higher freight costs of approximately 50 basis points and inventory markdowns within the emerging brands group offset some of the margin improvement.

Our operating profit increased to $78 million on an adjusted basis or 21.5% of net sales with notable operating income growth in Tommy Bahama. This excellent operating margin was highlighted by 24% operating margins at both Tommy and Lilly. Our business is supported by our strong balance sheet. Here are some highlights.

Our inventory balance at the end of the quarter positions us well to execute on our sales plan for the second half of fiscal 2022, which calls for revenue growth in the high single to low double digits. Inventory increased $58 million on a LIFO basis and $71 million or 53% on a FIFO basis compared to the end of the second quarter of fiscal 2021.

Inventory balances at July 30, 2022, representing a more normalized level after inventory levels were lower than optimal throughout fiscal 2021 with a stronger-than-expected rebound in consumer demand outpaced inventory purchases.

Also, inventory increases included early receipt of an incremental $27 million of fall inventory to mitigate supply chain delays or disruptions, inventory to support anticipated sales increases in the second half of fiscal 2022 and higher product costs.

Compared to the end of the second quarter of fiscal 2019, when on FIFO basis, inventory decreased by 3%. While the sales for the first half of fiscal 2022 were 23% higher than the first half of fiscal 2019.

To crystallize where we are on inventory, our trailing 12-month FIFO inventory turns at the end of the second quarter of 2022 were 3x compared to 2.3x in 2021 and 2.5x in 2019. Our liquidity position is healthy with no debt and $186 million of cash and short-term investments at the end of the second quarter.

Our sizable cash flow allowed us to invest in our businesses, return capital to shareholders via multiple approaches and still have a significant amount of cash and short-term investments on our balance sheet.

Today, we have repurchased approximately 970,000 shares for $86 million, representing over 5% of our shares outstanding since the December announcement of our Board's new share repurchase authorization. As Tom noted, we are very pleased with the results of our repurchasing program to date.

We have further returned $32 million of capital to investors through dividends over the last 12 months. Looking forward, I am pleased to share that our Board of Directors declared a dividend of $0.55 per share for the third quarter. I'd now like to walk you through our projections for the remainder of 2022.

After outstanding performance and EPS beat in the second quarter, we are raising our guidance for the year. We expect our e-commerce business to continue to expand.

Also, our physical locations are seeing encouraging comp sales as consumers continue to return to in-store shopping, and we continue to have a very robust forward order book in our wholesale channel for 2022.

For the year, we still expect modest gross margin expansion as we continue to see the benefits of higher IMUs, partially offset by what we expect to be a somewhat more promotional environment.

For the year, we expect some modest SG&A leverage, driven by a significant leverage in Q1 despite inflationary cost pressures, including a challenging labor market. Putting together these dynamics, we expect to deliver double-digit top and bottom line growth with operating margin expansion for the full year.

Full year sales are now expected to increase to a range of $1.3 billion to $1.325 billion compared to $1.142 billion in fiscal 2021, which included $25 million of Lanier Apparel sales. For the full fiscal year, we now expect adjusted EPS in the range of $9.85 to $10.10 compared to $7.99 in fiscal 2021.

Third quarter sales are expected to increase from $248 million last year, which included $4 million of Lanier Apparel to a range of $270 million to $280 million, reflective of strong quarter-to-date results in our direct-to-consumer channels as well as substantial wholesale sales planned in the quarter.

On an adjusted basis, we spent EPS in the range of $0.90 to $1.05 in the third quarter of fiscal 2022 compared to $1.19 last year. In the third quarter, similar to the first two quarters of the year, we anticipate some modest gross margin expansion.

This expected gross margin expansion includes our expectation of lower freight costs and higher IMUs in the third quarter, partially offset by a change in sales mix with an increased proportion of Lilly Pulitzer's e-commerce flash clearance sales.

As a reminder, the third quarters are smaller sales and earnings quarter of the year due to the seasonality of our brands.

Thus, as our business continues to expand, the higher SG&A associated with the growing business often results in deleveraging in the lower sales third quarter, but also allows for additional SG&A leverage and earnings growth in our higher sales quarters during the year. Our effective tax rate for fiscal 2022 is expected to be between 24% and 25%.

Thank you for your time today, and we will now turn the call over for questions.

Alex?.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Edward Yruma with Piper Sandler. Please proceed with your question..

A couple for me. I guess, first, I know that some of your regions are performing strongly relative to others from a tourist perspective.

I was wondering, if you can kind of talk about some of the regions holistically and kind of where is New York, Hawaii, Las Vegas, et cetera, versus kind of previous peak? And then as a follow-up, I know you've had the strategy of raising AUR, adding more content to the product.

How much more headroom do you think is still available? Are you seeing any signs of price resistance?.

Okay. Thank you, Ed. Great to have you on the call today, and I would comment on the regionality, and Scott has always may add some color to this. But really, the only area that's still sort of lagging, if you will, is New York City itself where we have the big Tommy Bahama store bar and restaurant.

And I suspect you've been into the city recently, and it's -- New York is just not fully back, not really even quite close to fully back, and we are definitely seeing that in that store. Other than that, I think the -- all other regions of the country really performed well.

There were a couple of small pockets in California that were kind of flattish for the quarter. But really no laggards at this point other than New York City. And then in terms of raising AUR by increasing the sort of features in the product and the differentiation in the product, we continue to have great success with that.

I think as long as the customer perceives that we're delivering additional value to them. I think we've got plenty of room to run on that. And Scott, if you would, please add anything..

Yes, we are seeing -- we're really not seeing resistance in the price increases we took and then our AURs are off and part of that is to price increases on existing items, but part is also just going out with more higher cost items that we do put more value into the product, and we're not seeing resistance to that either..

Our next question comes from the line of Steve Marotta with CL King & Associates. Please proceed with your question..

Tom, I was wondering if so many other retailers are reporting that consumers kind of turned on a dime in late May and early June, particularly in traffic to brick-and-mortar locations.

Did you experience anything like that? Was there any discernable change in consumer behavior during those months?.

Not really. I think, Steve, and you're a great student of the industry, you know this. There is a very real bifurcation going on. So in the moderate and lower end of the income spectrum, people are really getting squeezed hard by the increases in gasoline prices food prices, housing costs, health care costs, all these things.

And we're very empathetic to that. And from a bigger macro picture, we've got our eye on that and we're very sympathetic to those people. We recognize that people are feeling real pain and they're cutting back their discretionary spending. But in the part of the market that we play in, which is really the top 20% or 25%.

That group, their discretionary spending has not been impacted nearly as much by the very real inflation that's out there. They're getting out about more going to the office, maybe not all the time, but more than they were a year or two ago, going to more and more social events, leisure travel continues to be very, very strong.

All of these things really play to our strengths. And so we really didn't see the pivot and really haven't seen one since the end of the quarter. Our August sales were very strong. We had a great comp in August and have started out September very strong. And I think it's -- part of it is the consumer we play to.

And then a big part of it, of course, is the strength of our brands and our products. And last but not least, I would add the outstanding customer experience that we deliver. And just today, for example, we were named by a major news magazine as one of the top five retailers in the country for customer service in our Tommy Bahama stores.

That's the second year in a row that we've been in there and we are the only retailer to be in there two years in a row. And I think that's part of our success, and that's part of why we're so proud of our teams because they're the ones that deliver those great experiences..

Congratulations on that honor.

Relatedly, have you looked at customer retention since the pandemic began? In other words, for the customers that were gained during the pandemic, are they acting any differently than customers that were active prior to the pandemic, either in average annual spend, frequency of spend, lifetime spend, anything churn, anything like that?.

I have to tell you, Steve, I don't know that we've separated that cohort out those added during the pandemic to see what their performance was versus people that came in more normal times. I will tell you that as a general rule, all our customer KPIs have continued to improve. So, we really haven't seen any degradation.

But I can't say that we've separated that cohort and looked at it. It's a good question though. We might -- the customer analytics team might have just gotten and they would have found them..

Sure thing, I'll take the balance offline..

Okay. Thank you, Steve..

Thank you, Ladies and gentlemen. Our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Please proceed with your question..

Strong performance from your emerging brands during the quarter.

Hoping you could provide some color on the performance of Southern Tide during the quarter as well as how you're thinking about the long-term opportunity for those brands?.

Southern Tide had a great quarter. We were very proud of their performance. They continue to perform well in the wholesale, which is sort of their heritage.

But they've also done a great job through this year of growing the e-commerce business, which we've always believed was a tremendous opportunity for them, not that they didn't have a great e-commerce business, but we've just thought that there was so much more potential there, and they delivered well on that year-to-date.

And then as we mentioned in the prepared comments, with what we've got going on, on the digital marketing front in the emerging brands group. We think there's just a lot that we're going to realize there. And then finally, in their own company-owned retail stores, we're still early in that experience, and we've got five open, six open now.

Five now, yes -- excuse me, I get mixed up sometimes. But five open now very happy with them. I think we're learning a lot every single day and getting better and better at doing retail ourselves in Southern Tide. So there's a lot of opportunity there.

And when you look at the brand and what it's offering is the demographic that it's appealing to, I just think there's massive opportunity there we're not even at $100 million yet. And I think the idea that this brand longer term is multiple hundreds of millions of dollars doesn't stretch the imagination too far at all.

I'm not giving you a time line for that exactly at this point. But I think this brand can run a long, long way. And then the other two emerging brands, The Beaufort Bonnet Company and Southern Tide are still significantly smaller at this point in earlier in their trajectories, but we feel equally good about them.

Duck Head does not yet have any of its own retail stores but has a great and nicely growing wholesale business and then a very strong and rapidly growing e-commerce business, and we'll get company-owned retail there in the foreseeable future. And then Beaufort Bonnet has a couple of retail stores open. We like what we're seeing there.

And of course, I've got a terrific e-commerce business and a nice wholesale business, and we're actively looking for additional sites in Beaufort Bonnet as well as Southern Tide. In terms of potential the EBG is an operating segment, did 31% growth in the first quarter.

And we think it will be our fastest growing segment we would expect for a good while to come..

Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question..

This is [Brandon Chatham] filling in for Paul. Just wondering, if we could kind of expand on the promotional environment that you're expecting for the second half? As you look at kind of environment around you, it seems like there's kind of a glut of apparel out there.

So just wondering, what like guidance is expecting for the promotional environment? And then do you think you're going to be able to kind of separate yourself from some of the other apparel players that seem to be dealing with quite a bit of inventory at the moment?.

Yes. So what I would say, Brandon, is I think if you look at what's happening out there, there are a lot of retailers that are over-inventoried at this point and that traditionally, you have led to a lot of promotion.

You do have a few that are talking about hoteling product, as I call it, where they're just going to put it in the warehouse and dust it off this time next year and put it out. So that might take a little pressure off. But I do think there'll be a lot of promotions going on in the marketplace. But what I -- and that is not a complete nonissue for us.

But what I would tell you, Brandon, and you can look at our long history on is we don't really play that game. And in the world, there are kind of two kinds of brands and retailers. There are those that compete on price and there is that compete on brand and product, and we're in the latter group.

And so our proposition is not about competing with our peers to see you can offer the consumer the lowest price or the biggest discount. Our proposition is who offers the strongest brand method and has the product that backs that up. And that's what we've done very, very successfully for 20 years now.

And so, we do think we will be able to come through this environment. And as we said post double-digit top and bottom line growth for the year and modest operating margin expansion. And I'll give you an example, Brandon. You can see this in another industry.

If you want an example of if you're going out and buying a car, you can go to Ford and Chevy and a couple of other places and negotiate price spend your whole Saturday negotiating price. And those guys will deal with you. And you can get a significantly lower price, if you're willing to work at it. Then you look at Tesla. They don't do that.

The price you see is the price you pay. They've got the brand, they've got the product. The price is the price and they're able to do business on that basis. And I would tell you that we're in a similar position. We've got great brands. We've got great products, the differentiated products. Our customers are very loyal to us.

And we've got a 20-year track record of navigating through tough markets and still being a full-price retailer. Now, I'll let Scott comment on what we've got baked into guidance..

Yes. We mentioned we expect to expand gross margins, but that will be with some higher promotions, and it's mainly because last year, we were so lean on inventory. We just had very little product to promote.

This year, we -- our inventories are -- we feel more appropriate type levels, but that does mean Lilly's flash cell later this month will be bigger than last year's. And that's not a bad thing. It just means we've got more and more appropriate level.

So we will, as we mentioned in the prepared remarks, we'll be -- the market is a little more promotional. It will be a little more promotional mainly through just the clearance events. But it's really due to the compare we're going against was last year was extremely low from an in-to-season promotion standpoint..

Got it. Yes, makes sense. And one more, if I could, just any update on kind of supply chain headwinds.

It seems like some of your competitors are seeing that alleviate? What did you see in the second quarter? And what are your expectations for back half of the year?.

I do think it's getting a bit better, Brandon. It's still not where we'd love to see it sort of pre-pandemic normal, but it is improving over time, both at the factory and then in the whole freight chain, if you will, from the foreign port all the way through to the warehouse in the U.S.

And then, from a freight cost standpoint, we've got some of that in our guidance. And Scott, you might want to tell Brandon what we've got there..

Yes. We -- last year, in the second half, we were close to 300 basis points of margin freight headwind. And this year, we're still got some freight headwinds, but it will be considerably lower than last year.

Another thing, I think we maybe you're having a little less disruption than many because we did adjust our merchandising calendars and we mentioned that at the end of the second quarter, we had $27 million more fall inventory on our books than we did at this time last year.

And a good part of that was due to the fact that we moved our merchant contain calendars out four to six weeks. So, we were accepting product that much earlier to help alleviate some of that. Not that we've been immune to the disruptions, but I think we've maybe navigated them a little more effectively than some in the market..

[Operator Instructions] And ladies and gentlemen, I'm seeing no further questions in the queue. I will now turn the call over to Tom Chubb for closing remarks..

Okay. Thank you, Alex, and thanks, everybody, for your attention and your interest today. Stay safe, and we look forward to seeing you again in early December..

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..