Highlights From Oxford Industries's (OXM) Q2 Conference Call: Inventories Down 25%, Expenses Down 17%

September 3, 2009 10:23 AM EDT

Oxford Industries (NYSE: OXM) reports Q2 EPS of $0.30 adjusted, 23 cents better than the analyst estimate of $0.07. Revenue for the quarter was $192.9 million, versus the consensus of $189.91 million. Investors are high on a solid earnings report and strong guidance...shares are up 19% today.

Highlights From OXM's Q2 Conference Call:

• Sees FY09 revs $765M to $780M vs. $798.19M consensus. Sees FY09 EPS 90c to $1.05 vs. $0.69 consensus.
  
• (CEO) Tommy Bahama, Lanier Clothes and Oxford Apparel all gave solid performances in the quarter.
  
• We reported very clean inventories down 25% over last year, and expenses down 17%.
  
• We expect initiatives taken by Ben Sherman in this quarter to deliver improved results next year.
  
• (CEO, Tommy Bahama Group) Tommy Bahama reported net sales of 94.4 million for Q2, compared to 112 million in Q2 of fiscal 2008.
  
• Tommy Bahama's operating income for the second quarter of fiscal 2009 was 13.4 million, compared to 18.1 million in the second quarter of fiscal 2008.
  
• At the end of Q2, Tommy Bahama operated 84 retail stores compared to 78 on August 2, 2008.
  
• In our own retail stores, we're seeing some signs of stabilization.
  
• We are seeing positive signs that our strategy of growing our women's business and focusing on our target 35-year old demographic is working.
  
• (President) Ben Sherman reported net sales of $23.6 million for Q2 of fiscal 2009, compared to $32.5 million in Q2 of fiscal 2008. The reduction in sales was primarily due to the 18% reduction in the average exchange rate of the British pound versus the United States dollar, as well as reduced wholesale shipments due to challenging market conditions.
  
• Ben Sherman reported an operating loss of $6.3 million in Q2 of fiscal 2009, compared to an operating loss of $2 million in Q2 of fiscal 2008.
  
• As we migrate footwear and kids to license businesses, it will allow management to focus on core businesses, extract working capital, and move us from an operating loss in those businesses to a stream of royalty income.
  
• Our legacy businesses delivered a very strong second quarter performance. Net sales for Lanier Clothes were $25.2 million in the second quarter of fiscal 2009, compared to $28.2 million reported in the second quarter of fiscal 2008. Lanier Clothes reported a material improvement in operating results due to improved gross margins and reductions in SG&A.
  
• We are pleased with the positioning of Kenneth Cole tailored clothing in the marketplace, and the results that this business is delivering. We just renewed our license agreement with Geoffrey Beene, a partner of ours since 1997, and are optimistic about our prospects for this brand.
  
• We saw a nice rebound in our Land's End business, and significant growth in both the Kirkland Signature and Hathaway businesses at Costco.
  
• (CFO) Royalties and other operating income for Q2 were 2.9 million, compared to 4.4 million in Q2 of fiscal 2008. The decrease was primarily due to our termination of the license agreement for footwear at Tommy Bahama, the decline in the British pound versus the US dollar, which impacted Ben Sherman royalty income, and the generally difficult economic conditions.
  
• Turning to the balance sheet, total inventories at the close of q2 were 97.4 million, down 25% over last year.
  
• Inventory levels at Ben Sherman, Lanier Clothes, and Oxford Apparel have each decreased as we focused on mitigating inventory markdown risk and promotional pressure, as well as exiting certain lines of business.
  (Q&A) Can you talk a little bit about your ability to meet increased retailer demand? I know that you talked about planning conservatively for the upcoming seasons, but should retailers decide to chase inventory, what is your ability to scale up to that need? (A)Well, company-wide I'd say it's limited near term. We're happy to see some signs, and I think Terry, you might specifically comment on Tommy Bahama, but we are
  definitely having some situations where people are looking for more growth near term, as a result of our successful sell throughs. But our ability to fill those many to - as I said is pretty limited. (A)That's right, Hicks. We are - this is Terry Pillow with Tommy Bahama, we're right in the middle of market week right now, selling spring summer 2010, and we're meeting with a lot of the retailers at this time and what we are hearing is with our products their sell-throughs are quite good, and they would prefer, if we had additional inventory to have - to reorder that much product from us. As Hicks said, we have don't have that available inventory right now. We're trying to help wherever we can, and find pockets of inventory to help out, but I think that the retailers are experiencing their businesses a little better than the fall that they thought it was going to be, and we're [inaudible] conservatively.
  
• And one question if I may, I know that you've been very aggressive with SG&A reductions, how much more is left, and at some point when does SG&A pick up again? Thank you. (A)Well, I would say we're at close to the bottom on that. And I think SG&A will not pick up until our top line picks up, but we hope that's relatively soon.
  
• I'm wondering how you guys are thinking about acquisition opportunities at this point, whether you guys are still comfortable enough with your liquidity situation that if you saw something that was attractive, you would go for it, or if you're still kind of in play defense mode? (A) Well, we feel very good about our liquidity situation. As you pointed out, we generated a lot of free cash flow over the last couple of years, and we would certainly evaluate any acquisition that we thought fit into that strategy, but we think we've got some excellent opportunities organically. As Tom just mentioned, more retail stores we think that - ensuing periods are going to offer some real opportunities on prime space, and we think particularly in Tommy Bahama we've got international expansion opportunities that are pretty high on our list, so...

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