Greetings. Welcome to the Oxford Industries, Inc. Third Quarter Fiscal 2021 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 your host, Anne Shoemaker. 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 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. Due to the material impact of COVID-19 on our business in fiscal 2020, we will also include comparisons to our fiscal 2019 results. And now, I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO; and Scott Grassmyer, CFO. Thank you for your attention. And now I'd like to turn the call over to Tom Chubb.

Thank you, Anne. Good afternoon and thank you all for joining us. Before I begin reviewing third quarter results, I want to remind everyone of Oxford's core operating philosophies. Our objective is always to deliver long-term shareholder value. Our strategy for delivering this value is to own a portfolio of powerful lifestyle brands, that can drive sustained profitable growth. And our purpose as a company and in each of our brands is to make people happy. With that, we're delighted to be reporting record sales and earnings for the third quarter of fiscal 2021. These outstanding results are directly attributable to the power of our brand portfolio, the strength of our product offerings and our ability to connect with and serve customers across channels, combined with the great work our teams have done to fortify these foundational cornerstones during the pandemic. As compared to the same quarter last year, our sales increased 41%. And even more importantly, our sales also increased as compared to pre-COVID fiscal 2019 levels. Excluding Lanier Apparel, where operations were effectively exited during the third quarter of fiscal 2021, net sales increased 15% over the same period of fiscal 2019. The robust sales growth that we experienced during the third quarter was driven by 40% growth in our full-price direct-to-consumer business, with growth in each of our brands compared to fiscal 2019, including a 13% increase in full price retail and a 100% gain in full-price e-commerce. Restaurant sales also contributed to our top line improvement, growing 14% in the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2019, fueled by strong increases at existing locations, as well as the addition of 5 new Marlin Bar locations. At the same time, adjusted gross margin increased an impressive 710 basis points to…

Thank you, Tom. As Tom just mentioned, we had outstanding performances in each of our brands during the third quarter, which resulted in significant sales, gross margin, operating margin, and earnings growth. to levels exceeding pre-pandemic results. On the topline, demand for our products remained high and revenue exceeded 2019 at our direct-to-consumer channels and in each of our brands. Excluding Lanier Apparel, where operations were effectively exited during the third quarter of fiscal 2021. Consolidated sales increased 15% to $243 million. We had improvements in all regions with particular strength in Florida, the Southeast, and Texas. Hawaii has been positive overall with strength except on the Island of Oahu, which is more dependent on foreign tours than the other islands. Our gross margin continued to track significantly higher than 2019. On an adjusted basis, gross margin expanded 710 basis points over 2019 to 62% in the third quarter. Driving this improvement was a higher proportion of full-price sales, our overall shift in our sales mix to higher margin direct-to-consumer channels of distribution, and improved IMUs. Approximately 270 basis points of higher freight cost including the use of air freight, partially offset some of the margin improvement. On an adjusted basis, we gained basis points of SG&A leverage in the third quarter, improving from 56% of sales in 2019 to 53% of sales in 2021. Adjusted SG&A dollars decreased modestly from 2019 levels with decreases in employment costs due to headcount reductions and lower occupancy costs, partially offset by increases in marketing expense. As a result, our consolidated operating margin expanded 970 basis points from 1% in 2019 to 11%. Tommy Bahama, Lilly Pulitzer, and Southern Tide all experienced operating margin expansion. Moving to the balance sheet, our liquidity position is strong. We ended the third quarter with $188 million…

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

Hey, guys. Congratulations on the great quarter and great to hear the momentum the holiday thus far. I guess for me, kind of a shorter-term focus question and then a longer-term focus question, I guess, you guys sound like you've done a really good job pulling inventory around juggling, making sure the in-stocks were sufficient for holiday. I know you're not offering guidance for next year yet, but should we think about any implications other than that wholesale shift you indicated of kind of pulling inventory forward and how this leaves you situated at least for the opening part of 2022? And then a longer-term question, I know you guys have started the process of opening more Southern Tide stores. You guys sound like you're going to do the one Beaufort Bonnet store. Just kind of an overview of where you think you are in your store rollout potential across your banners? Thank you.

Yes. Thank you, Ed. We were very, very pleased with the results of the third quarter and the way that we've differentiated ourselves. But as to the inventory, I think we've done a terrific job, as you mentioned, of being agile and nimble in dealing with the situation, making sure that we were able to meet our sales objectives and satisfy our customers. And we're not anticipating really any problem in doing that. There's a lot of work that's going into making sure that it all works. But we're ordering inventory earlier to account for the stretched out time in the supply chain that everybody in the industry is experiencing. And then, we're continuing to be nimble and agile. So the bottom line on that is that, I don't expect us to not be able to deliver the business based on supply chain issues, if that's helpful for you. I think, we'll be in good shape. And then on the long term -- yes, on the long-term store, we're, I think, very pleased with the way that the four Southern Tide stores that we've got are progressing. They were learning a lot from that, and we've got more stores in the pipeline for Southern Tide. I'll let Scott elaborate in just a minute. And the plan is to continue to open more Southern Tide stores. Beaufort Bonnet, as Scott mentioned in his section, we'll have the first open soon. We've got a couple more in the works at Beaufort Bonnet Company. And then as to Tommy and Lilly, as you know in Tommy Bahama, the focus is very much on Marlin Bars. And we like what we're seeing with the Marlin Bars and are going to continue to look for additional locations and potentially some stand-alone stores as well. But I think the focus will be much more on Marlin Bars. And then in Lilly, we're looking at new opportunities, too. With respect to Tommy and Lilly, we're also evaluating all existing stores carefully, and there may be, from time to time, some that drop out of the roster as we get to renewal dates or other opportunities to exit. But we're definitely in the hunt for new stores really across all four of the brands that have them now.

Yes. We -- yes, it takes a little while to build the pipeline of stores. So the Marlin Bars in particular, but we feel confident that we'll get some Marlin Bars open in 2022 and have -- and leave the year with strong pipeline of Marlin Bars for the future. So we're -- we like -- we still like the brick-and-mortar stores and our brands.

Thank you.

Thank you, Ed. Happy holidays to you.

To you guys as well.

Thank you.

And our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Thanks. It's Tracy Kogan filling in for Paul. I had a couple of questions. The first is, I know you guys said the holiday sales to date have been robust. I was wondering if you could frame that for us, have sales trends relative to 2019 accelerated compared to 3Q? Just any color you can give there. And then on the wholesale side, I'm wondering what you're seeing from your wholesale partners? Are there any order cancellations when things are potentially arriving late, or are partners still just taking anything that they can get? Thank you.

Yes. Sure, Tracy, and thanks for being on the call today. As to the wholesale partners are, the performance of our products at retail for our wholesale partners has really been quite good through the third quarter and the early part of the fourth quarter. They understand the supply chain situation. And so, no, we are not anticipating cancellations. I think it's safe to say in most cases, they would take more from us if we had it available. A lot of them are quite hungry for goods from us and are asking if we can give them more -- with the strength of our own sales, we don't necessarily have a lot to give them, but we are not anticipating issues with cancellations. And then on the fourth quarter to date, direct-to-consumer trend and expectations for the rest of the quarter, I'll let maybe Scott Jump in.

Yes. We're checking right now pretty similar to the third quarter in total direct-to-consumer. There are a lot of timing dynamics. And with e-com, maybe anticipated to cut off a little earlier this year, because of some of the freight concerns and well stores pick that up. So we're monitoring that closely. So there's a lot of holiday left, but we are pleased with the beginning of the holiday. And just one additional point on the wholesale business. We did – for all chances, we did invest for holiday and some airfreight to bring product in. So, we were trying to make sure our wholesale partners did have the right goods on the floor for holiday. Everything might not have been right on time, but we did invest in airfreight to help offset some of the delays in the supply chain. And it was a little bit of a margin drag, but margins would have been even better without that.

Got it. Thanks very much. Good luck in 4Q.

Thank you, Tracy.

And our next question comes from the line of Susan Anderson with B. Riley. Please proceed with your question.

Hi, good evening. Nice job on the quarter. I guess just a follow-up really quick on the wholesale orders. I'm assuming for spring, they're probably higher than what we're seeing in fall, I guess, is depending on how much product you can get to them? And then just on your DTC business, obviously, that's been pretty strong. How are you thinking about that penetration as we look out longer term?

Yes. So, on the wholesale, I think we are pleased with the booking trends that we're seeing for next year. At this point, that's really spring and a little bit of summer that we're seeing. And I think the wholesale business is rebuilding nicely. We're selling through on the retail floor quite well. I think, pretty much universally all our wholesale customers, and that I think, is a good sign for the future of wholesale. As to the proportion, if that's the question of direct-to-consumer versus wholesale, as you know, Susan, we've been in a period over the last couple of years where the actual wholesale dollars have been going down a bit as we've been very selective about who we sell to and what we sell to them. I do think we're at a point where wholesale probably has got some growth opportunity in dollars. And then the question will be just really whether it grows as fast as the direct businesses? And my hunch is that, it probably hangs in there somewhere around that 20% number that we mentioned. But if it doesn't, I think that's probably because direct-to-consumer is growing even faster.

Great. That's helpful. And then just really quick on the pricing. Can you remind us how much you raised prices in the back half and what the expectations are for next year?

Our IMUs were up about 1 point in IMUs this year. Going into next year, there's -- we are moving on price, but we are going to have some cost pressures and we're not sure exactly how it's all going to shake out, but our operating groups have been very proactive on moving prices up to hopefully at least offset and maybe a little more than offset the inflationary pressures that we see come at us next year. There is, the factories they're having a lot of inflation and they are there's certainly planning to attempt to pass that on, and we've got to move on our IMUs to help offset that.

Great. And then one last one, if I could add. Just obviously, you're a record cash balances on the balance sheet, any thoughts around capital allocation, cash return to shareholders and potential acquisitions?

Yes. So Susan as Scott mentioned in the – in his remarks, our capital allocation strategy really has not changed and that's first and foremost, to invest in our existing businesses; second, appropriate M&A opportunities; and third, returning capital to shareholders, which would include both dividends and share repurchases. What's changed for us is that, the cash situation and cash flow are really very strong right now. Accordingly, we announced the $150 million share repurchase authorization that our Board just approved and I don't think the philosophy has changed. It's just that our cash flow and our cash position are stronger really than – I think they've ever been before.

Great. That’s very helpful. Good luck for rest of the year and happy holidays.

You too. Happy holiday, Susan.

Thanks.

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

Good evening, Tom, Scott, congratulations again on the third quarter. Two questions on the restaurants. Are there any continued capacity constraints, or is that in the rearview mirror?

No. There are still some, and I'm not sure I can recite them all to you, but they're at least in the Hawaii, there are some, and I think possibly in a couple of other places, we've still got some of that.

Is it possible to quantify on a chain-wide, is it roughly 90% or 80%, 70%, just in ballpark?

It's tough to quantify, but it is limited to some states, but there are also some operating hour restrictions in a couple of our centers where we have Marlin Bar. So our restaurants, I think could -- they're doing extremely well, but could be doing some more business that we're really happy with the way they're performing, but they could be doing more in some of the areas restricted.

That's basically the question. Also now that you got...

Steve, if I could, on the restaurants, I think it's important to remember what an incredible experience to deliver for our guests in those restaurants. And we think of it as hospitality, and that's a big word for us. That's a powerful word hospitality that really means that you're making somebody feel at home, and we want them to feel not only at home in our restaurant, but in our brand. And I think what I love an awful lot about the numbers we're delivering in restaurants is not just the numbers and the financial impact, but really what that's doing for our guests in terms of making them happy and what the implications of that are for our brand. And that's really, I think, the biggest story on restaurants. The financial part is wonderful, but the reinforcement of the brand and the brand experience in the depth and texture that that adds to our brands. I think it's just it's hard to overstate the value of that.

That's very helpful. And now that you've got a bit more of a calendar under your belt with the Marlin Bar, has there been any material seasonality that has surprised you either through the upside or the downside?

I think in some of the warmer the markets, even when you get out of season, it's amazing how well they are holding where I think some places like Coconut Point, you'd expect when you got in the summer that they would be about dead, and there's still traffic. So I think they've felt better in the off seasons. We've got some still -- some of the ones around Fort Lauderdale are still they're very cruise traffic dependent. So those are still -- are not doing what we know they'll do once that returns to normal. But we've been very pleased with the Marlin Bar.

And I would just reinforce what Scott said, if there's a surprise there, I think it's just the willingness of people to sit outside at times when it's arguably not all that pleasant to be there, and you would think you might see more of a drop-off than we do.

You want unpleasant tried December in all of New York.

Thank you. Look, everything is relevant. We get that.

Thank you very much.

Happy Holiday’s, Steve.

Thank you.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Tom Chubb for closing remarks.

Okay. Thank you very much to all of you for joining us. We're really proud of the results that we delivered for the third quarter and what we believe that we're going to be able to do for the fourth quarter and think it is a direct result of all the work that we've done to continue to differentiate our brands, our products and the service that we deliver to our customers. We wish you all Happy Holidays and look forward to talking to you again in March.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.