Oxford Industries, Inc. (NYSE:OXM) Q3 2022 Earnings Call Transcript
Oxford Industries, Inc. (NYSE:OXM) Q3 2022 Earnings Call Transcript December 7, 2022
Oxford Industries, Inc. beats earnings expectations. Reported EPS is $1.46, expectations were $1.22.
Operator: Greetings, and welcome to the Oxford Industries Third 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. Please note that this conference call is being recorded. I will now turn the conference over to our host, Jevon Strasser of Investor Relations. Thank you. You may begin.
Jevon Strasser: 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 our 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 at oxfordinc.com. 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.
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Tom Chubb: Thank you, Jevon. Good afternoon, and thank you for joining us for the third quarter of fiscal 2022 OXM conference call. As most of you know, our purpose as a company is to evoke happiness in our customers with the products, services and experiences, we offer through our portfolio of brands. When we are successful in evoking that happiness, our businesses deliver profitable growth and, of course, sustained profitable growth is what allows us to accomplish our objective of driving long-term shareholder value. And we certainly did that during the third quarter, delivering our sixth consecutive quarter of record adjusted earnings. Strong top line growth across all our brands, combined with the acquisition of the Johnny Was brand in September fueled a 26% sales gain.
Sales in the aggregated group of Tommy Bahama, Lilly Pulitzer and emerging brands grew 19% and with Johnny Was contributing an additional $23 million of sales for the quarter. At the same time, adjusted gross margin improved an impressive 120 basis points. All of these factors, along with our repurchase activity helped drive a 23% or $0.27 increase in adjusted earnings per share from $1.19 last year to $1.46 this year. The biggest contributor to our increased earnings was our largest brand, Tommy Bahama, which delivered 20% top line growth and a $9 million increase in adjusted operating income for the quarter, with excellent results in all channels of distribution. Lilly Pulitzer are also had a successful quarter with sales growing 16% and positive comps in both retail and e-commerce.
Finally, our newly constituted Emerging Brands Group had a revenue increase of 22% during the third quarter. We have also recently advanced a number of strategic initiatives. I will highlight just three among many. First, during September, we added the Johnny Was brand to our portfolio of lifestyle brands. The brand has clearly defined positioning, which drives emotional connection and strong engagement with its very loyal customer base. Johnny Was has priced a bit higher than our other brands and sits in the very attractive affordable luxury portion of the market. The brand has an excellent balanced distribution model with 40% of sales coming through e-commerce bolstered by a fleet of 60 plus carefully located stores with attractive unit economics and a brand enhancing and mutually profitable wholesale business, currently generating annualized sales of over $200 million with operating margins in the mid to high-teen range, Johnny Was has a profitable growth trajectory ahead of it.
The brand is led by an excellent management team that has been in place for many years and is well aligned culturally and strategically with OXM. The Johnny Was an OXM corporate teams have been working hard on the integration and laying the foundation for future growth in the brand. I'm grateful to all of them for their extraordinary efforts and the successes that they have achieved so far. In November, we were also pleased to announce our first Tommy Bahama branded hotel, the Tommy Bahama Mira Monte Resort, which should open in late 2023. Tommy Bahama is a long time player in the hospitality business with a restaurant business that's over 25 years old and does more than $100 million in business annually. Our customers have long viewed a resort hotel as a natural extension of our hospitality business.
One of our most successful restaurants is located in the Coachella Valley in California, where we've been operating a bar restaurant and store in Palm Desert since 1998. We also opened a Marlin Bar in Palm Springs in 2018. For those of you who are familiar with the Coachella Valley and/or our Tennis Fans, the location of the Tommy Bahama Miramonte Resort will be an Indian wells, which is also home to the BNP Paribas Tennis tournament. We have a fantastic partner in the Low Group and have been discussing this opportunity with them for a number of years. We are glad to see it coming to fruition. We look forward to the opening in the hotel and hope that all of you will be able to visit. Third, we continue to make excellent progress in our ability to attract and retain customers and drive customer engagement.
As of the end of the quarter, our customer base, excluding Johnny Was customers, increased by 16% versus last year's third quarter. Including, Johnny Was, as of the end of the quarter, we had 2.5 million identifiable unique customers who have transacted in the last 12 months. We not only brought in more customers, but they spent more with us as well with average annual spending increasing across all of our brands. We believe that most of these gains are attributable to our digital marketing efforts, which have been a strategic priority for us across the enterprise this year. Included in those efforts have been the establishment of a marketing center of excellence whose principal function is to service the brands within our emerging brands group.
This team was built during this fiscal year and began posting some very impressive results during the third quarter particularly during the Black Friday, Cyber Monday weekend. With a little less than three weeks to go before Christmas, we feel very positive about the holiday selling season and our ability to deliver a strong fourth quarter. Scott will elaborate more in a minute, but our inventories are in excellent shape to support holiday season as the result of more normalized levels as well as bringing in inventory early to avoid any supply chain snows (ph). Finally, as I do every quarter, I would like to thank and express my gratitude to our incredible team of people. Whatever their role within the company may be their commitment and dedication to evoking happiness in our customers is simply unparalleled.
A great example of this occurred during the aftermath of Hurricane Ian, notwithstanding the fact that it struck one of the most important markets we have in the entire company and notwithstanding the challenges the hurricane had on their personal lives. Due to the commitment and resilience of our people, we hardly missed a beat and we were operating on a business-as-usual basis within a very short time. This is just one example among many of how focused our people are on serving our customers. We are very grateful to all of them and wish all of them and all of you a very happy holiday season. I'll now hand the call over to Scott, who will provide more details on the quarter and our outlook for the balance of the year. Scott?
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Scott Grassmyer: Thank you, Tom. We're thrilled to deliver our sixth consecutive quarter of record sales, gross margin and adjusted earnings in the third quarter of 2022. Excellent performance was driven by revenue expansion in all of our brands and distribution channels versus the third quarter of 2021. Consolidated net sales were $313 million for the third quarter, which included $23 million of sales for Johnny Was, growing 26% above last year's third quarter sales of $248 million, which included $4 million of sales from linear apparel. This growth was strong across all distribution channels with increases of 22% in full price bricks-and-mortar, 26% in full price e-commerce, 32% in wholesale, 17% in restaurants and 15% in outlets.
We also had increased sales of $9 million in the Lilly Pulitzer e-commerce flash sale. Meanwhile, adjusted gross margin expanded to 63.4%, which is 120 basis points above last year's third quarter. We benefited from lower freight costs, which included less air freight due to the early receipt of inventory and from lower freight rates. Also, we increased IMUs. This was partially offset by the impact of Lilly Pulitzer's larger flash sale this year due to extremely lean inventories last year. Adjusted SG&A expenses were $171 million in the third quarter of 2022 compared to $131 million last year. This increase was driven by the addition of Johnny Was operating expenses as well as increases in our other businesses for employment costs, advertising costs, favorable expenses and other expenses to support sales growth.
The result of all this yielded $33 million of adjusted operating income compared to $27 million in the prior year period with improved operating income driven by the strong results in Tommy Bahama and the inclusion of Johnny Was for half the quarter. This level of operating profit, combined with a $0.07 benefit from our share repurchase program led to EPS growth of $0.27 to $1.46. I'll now move on to our balance sheet, beginning with inventory. With employees up 61% year-over-year on a FIFO basis, we're in a good position to capture the sales momentum we built throughout the year. Two strategic actions contributed to the inventory growth. $25 million of additional inventory from our acquisition of Johnny Was and the early receipt of $20 million of incremental inventory to mitigate supply chain disruptions, increased product costs and raised inventory balances as well.
Comparing back to 2019, our 25% revenue growth for the first nine months of the year significantly outpaces our FIFO inventory growth of 14% over the same period, even with the earlier receipt of product. From a liquidity standpoint, we had $15 million in cash and cash equivalents versus $188 million of cash, cash equivalents and short-term investments at the end of the third quarter of fiscal 2021. We also had $130 million of borrowings outstanding under our revolving credit agreement at the end of the third quarter of fiscal 2022, increasing from no borrowings at the end of the prior year period. The change in our liquidity position was clearly driven by our funding of the Johnny Was acquisition, which we believe will yield significant long-term benefits to our shareholders.
As of today, we have returned $134 million of capital directly to shareholders in the last 12 months via dividends and open market share repurchases. A $100 million of this came from repurchasing, 1.1 million shares or over 6% of total shares outstanding at the inception of the program in Q4 of 2021. $5 million of these repurchases occurred in the fourth quarter of 2022. This represents the completion of the $100 million share repurchase program. Looking forward, I'm pleased to announce that our Board of Directors declared a dividend of $0.55 per share for the fourth quarter of payable in January. I'll now spend some time on our outlook for the remainder of the year. For the full year, we are raising our sales guidance to a range of $1.395 billion to $1.41 billion, up from our prior range of $1.375 billion to $1.405 billion and compared to sales of $1.142 billion in fiscal 2021.
Accordingly, we expect adjusted EPS for fiscal 2022 to be between $10.60 to $10.75, up from our previous guidance of $10.25 to $10.60 and compared to $7.99 in 2021. We expect sales in the fourth quarter of 2022 to be between $366 million and $381 million compared to sales of $300 million in the fourth quarter of 2021. More than 60% of the sales increase is expected to be from Johnny Was sales. These updated guidance figures also reflect strong holiday sales to date while contemplating the uncertainty as we believe shoppers are returning to pre-COVID holiday shopping patterns after shopping earlier in 2021. We also anticipate modest gross margin improvement in the fourth quarter. These higher sales and improved gross margins are expected to be partially offset by increased SG&A, higher interest expense and a higher effective tax rate.
The fourth quarter 2022 include a full quarter of interest expense. After the third quarter only included about a half quarter of interest expense as we were debt-free until acquiring Johnny Was in mid-September. We expect the effective tax rate to be higher this year as Q4 of the prior year included certain non-recurring favorable items. After considering these items, Fourth quarter adjusted EPS is expected to be between $2.01 and $2.16 versus adjusted EPS of $1.68 last year. The fourth quarter will be the first full quarter of operations for Johnny Was as part of the Oxford family. We're excited to have added a business with annual net sales in excess of $200 million, the opportunity for double-digit top line growth in the future, the expectation of approximately 65% gross margins and mid to high-teen operating margins, excluding any inventory step-up charges and amortization of intangible assets.
Thank you for your time today, and we will now turn the call over for questions. Diego?
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