Greetings. Welcome to the Oxford Industries, Inc. First Quarter Fiscal 2023 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, Jevon Strasser of Investor Relations. 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. 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.

Good afternoon, and thank you for joining us. We appreciate your interest in our Company. We are pleased to be reporting a solid first quarter of fiscal 2023, which happens to be our eighth consecutive record quarter. Sales of $420 million were up 19% over the prior year, with 14% of the growth coming from the addition of Johnny Was, which we acquired last year, and 5% organic growth in our other five brands. Our adjusted EPS was $3.78 for the quarter compared to $3.50 for the first quarter of last year. Our trailing 12-month active customer count at quarter end was $2.6 million, which increased 9% compared to the end of the first quarter last year, while our new customer add rate on a trailing 12-month basis was 6% higher than it was at the end of the first quarter in fiscal 2022, and the average annual spend with our consumers is more than $400. We believe these results are directly attributable to our North Star pillars, our objective, our strategy, our purpose, and our focus, our formula for delivering on these pillars, and our execution of that formula. As always, our objective is to maximize long-term shareholder value. Our strategy is to earn a portfolio of lifestyle brands that can deliver sustained profitable growth, our purpose is to have evoke happiness, and our focus is to generate cash to fund organic growth in our brands, acquisition opportunities, and the return of capital to our shareholders, all while maintaining our rock-solid balance sheet. Within each of our aspirational happy lifestyle brands, the formula for delivering this sustained profitable growth that drives long-term shareholder value is first to focus and be crystal clear on what the brand stands for and then deliver on that brand promise through terrific products, a…

Thank you, Tom. We are pleased to report another solid quarter in sales and earnings growth. Our operating groups executed well in an uncertain macroeconomic environment during the first quarter of 2023. Both of our two largest brands, Tommy Bahama and Lilly Pulitzer generated a mid-single-digit percentage sales increase and achieved strong operating margins in excess of 20%. Consolidated net sales for the first quarter of fiscal 2023 were $420 million, which included $49 million of sales for Johnny Was and increases in each operating group, growing 19% above last year's first quarter net sales of $353 million. In the aggregate for Tommy Bahama, Lilly Pulitzer, and Emerging Brands, we generated growth across all our full-price distribution channels with increases of 2% in full-price bricks and mortar, 20% in full-price e-commerce, 4% in wholesale sales, and 4% in food and beverage sales. We did have a $7 million decrease in Lilly Pulitzer e-commerce flash sales after not anniversarying last year's Q1 flash event. Importantly, in addition to increased sales, adjusted gross margin expanded 130 basis points over last year to 65.8% driven by higher gross margins in both Tommy Bahama and Lilly Pulitzer. We benefited from lower freight costs where inbound freight has returned to approximately pre-pandemic levels, we saw additional gross margin benefits from a better mix of sales, which was influenced by the addition of the higher gross margin Johnny Was and no e-commerce flash sales in the first quarter of 2023, as well as higher item use. Adjusted SG&A expenses were $200 million compared to $157 million last year. This quarter included $28 million of SG&A associated with the Johnny Was business, which we did not own in the prior year period. There are also SG&A increases in our other businesses for employment costs, advertising costs, variable…

[Operator Instructions] Our first question comes from the line of Edward Yruma with Piper Sandler. Please proceed with your question.

Hi, good afternoon, guys. Thanks for taking the questions. I guess two from me. First, I want to link back to kind of overall inventory levels and the shape of the balance of the year. I know you said that you were going to end the year with inventory levels down year-over-year, but I guess kind of how should we think about when you kind of get them maybe more in line with sales growth? And then I guess specifically with the Emerging Brands Group, is there a particular brand where the excess inventory was most pronounced? And then just as a follow-up to that in terms of the earnings estimate adjustment for the balance of the year, I know you obviously have adjusted the second quarter, how should we think about the kinds of reductions you've put into place for the back half of the year? Thank you.

Okay. Thank you for your -- being on the call today and I actually think I mean let Scott take both of these. Other than I'll say that the inventory level and the EBT Group and Scott will elaborate on this a little more. It was the biggest piece of it was in the Beaufort Bonnet Company, but it was a little bit dispersed too. But as we said in our prepared remarks, we're working through it methodically. We've got our arms around it, it's just -- it's going to continue to drag on profitability probably through the year.

Ed, our inventory each quarter will be closing the gap to last year and by the end of the year we expect to be lower and part of it is, I think we've discussed before, we had baked in a lot of cushions in our supply chain due to some supply chain issues. We're able to start cutting some of those weeks out, and we also are just trying to run leaner inventory with some of our systems, so it will be a good -- inventory will be a good story this year and our cash flow will be a good story where as I mentioned in the prepared remarks, last year we had quite a working capital build, in this year working capital is probably neutral or maybe even providing a little cash this year or something is going to speak really well for our cash flow. But we believe by end of the year, we should be lower and are able to kind of pull some of that cushion out supply chain that we had to build in. And as Tom mentioned, some of the inventory build was Beaufort Bonnet and a little bit in Southern Tide and we've got -- we've done the markdowns, and we took a little bit of more markdown in Q1 but most of the markdowns were taken last year. But as we liquidate those goods, they go through a zero to little margin. So they do push a little pressure on both gross and operating margins as we actually ship those goods out the door.

And then on the reduction in the back half guide or what's implied within the overall guidance?

Yes. Yes, overall, we've got -- we've kind of reduced comps from more mid-single down to low single digits. And it's just really what we've been seeing as Tom mentioned, April was a tough month, May got a little bit better, June is getting a little bit better, but what kind of looked at that May, June pace to date and are kind of projecting out hopefully the June trend continues and I think there are some upside but the consumer is cautious. We've definitely seen them being more cautious, we are seeing them come in our stores, they're just not converting at the same rate. And I think they bought an awful lot of last two years and we have added a lot of customers, which is great and they still are into our brands, but I think they've -- very robustly last year especially, and I think they're just being a little more cautious on their spend this year.

Thanks so much.

Thank you, Ed.

Our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks for taking my question. Just wondering if you could provide a little bit of color on kind of the trends by brand embedded in the second quarter guidance, as well as just any color by brand on the exit rate leaving the first quarter? And then separately was hoping you could just provide some color on Johnny Was and how they performed relative to your expectations and just kind of any early-ish learnings there? Thank you.

Yes. So, I'll tackle a little bit of that and then turn it over to Scott, maybe to fill in sort of the details on the second quarter guide. But what I would say is if you look back at what we said in the prepared remarks, Tommy Bahama, really had a very good quarter in the first quarter. All metrics up for the quarter year-over-year growth in all channels expanded, gross margin expanded, operating margin really good, they did suffer a bit as we referred to from the tough weather on the West Coast, but they were actually able to more than overcome that in the other regions of the country. And then I think in terms of just the shape of the quarter, nobody was really immune from that phenomenon of it started stronger in February than ended the quarter. So sort of the back half of March, you really couldn't noticeably, you see that consumer getting more cautious. And I think that coincided and not that there aren't things that we'll look to improve on next year. But I think a lot of it had to do with what was going on externally in terms of whether the bank failures, the highly promotional market, and all this sort of had the consumer a little more cautious. And then as we said, April was kind of at the low point, May got a little better, and June has been even better than May was so far. So, that's sort of the way it shaped up and I think you would asked about maybe a little more detail on where the second quarter guidance was coming from.

Yes. Remember last year in Q2, we comped up 14%. So, we're going against a very robust comp, and we have Tommy comping up very marginally and Lilly on full-price probably comping down a little bit but -- and then our other brands kind of flattish to last year. So, we think in total, we'll eke out a little bit of growth in the quarter in our existing brands, but it did -- the quarter did start slowly, but we are seeing June rebounding a little bit. So, hopefully, we'll -- hopefully, June will continue and we can deliver numbers a little bit better than this.

And then I'll come back to your question about Johnny Was, as we said in the prepared remarks, this is our first full year of owning Johnny Was, we're looking at it that's the baseline year, we'll get the foundation firmly younger Johnny Was and set it up for future growth and we're doing all of that. As we said, we've completed most of the earlier stage sort of more basic parts, if you will, of the integration, and the big focus now that we're very excited about is utilizing the Lilly Pulitzer e-commerce platform to help power the Johnny Was website. They already have a great e-commerce business, they have a beautiful website that will continue. It will only be the kind of the behind the scenes about the technology that's used in the functionality and features that provides and what that really is all about is increasing the shopability of the website, making it easier for the guests to shop for her to find things and for her to transact with us. So, we think that'll provide a boost to an already very robust e-commerce business, then as Scott mentioned, we're also investing in stores in Johnny Was with about 10 new locations coming this year, which were very excited about And then in terms of just the overall business, it was a little less in the first quarter than we would have planned for it to be, but I think that they got her, particularly hard by California and what was going on out there and dealing with probably the highest demographic customer that we have in our portfolio, I think some of the caution creeped into that part of the market a little more. So, a little tougher conditions, but nothing that we're concerned about at all for the long term. It's a great brand with a great dedicated base of customers. The addressable market is much larger than we're currently reaching and we're very focused on reaching the broader part of the market that's available to us there. We've got great leadership and a great team there, who we love working with and we continue to feel extremely positive about what Johnny Was can do both on its own and as part of our portfolio going forward.

Thank you.

Our next question comes from the line of Dana Telsey with Telsey Group. Please proceed with your question.

Hi, good afternoon, everyone. As you think about the current consumer environment and I always think of wholesale as a small part of your business. When you think about the different brands, how are you positioning the product assortment as we move forward basics versus fashion or color or print, whatever you want to call it core versus others in each of the businesses, and is that an opportunity for margin?

Well, what I would say is I think that our wholesale business was very strong relative to our peer group. We're hanging in there. I think overall, we're going to be flattish for the year, which I think in this year, Dana, you follow all this very closely, I know. But I think flat is a great number wholesale, we do get sales readouts from the bigger customers, we get detailed feedback on how we're doing and how we stack up against a lot of our peers. And it's really, really good and it's one of the things that we take a lot of comfort in a year that's not as strong as we would like. Overall, we've had a couple of just extraordinarily strong years. And so, while we're still going to be up and it's still going to be a very solid year, it's not like last year was. But when we look at our total business, all channels of distribution, we look at wholesale and how well we're performing on the floor where we're going head to head, rounder to rounder, against some of our peers and we just look great from that perspective. In terms of the assortment and how they buy it, different retailers buy it very differently. I was just going through last week with our head of the wholesale in Tommy Bahama we went by customer by customer and you sort of recapped how they just come in and place their buys and everybody has got a different job that they want to do on the floor and we provide a lot of partnership with them and help on that. And of course, we're looking to maximize both their margin first because it's got to work for them and our margin. So, I would say, given the strength of our performance there, I do think we can incrementally boost better margin than our margin over time, but we don't totally direct that, of course, it's a partnership with them in terms of what they buy, and different retailers come to us with a different idea in mind about how they want to buy it.

Got it. And then can you remind us the cadence of flash sales at Lilly Pulitzer? Is it at all different than prior years or what are you looking for in terms of that cadence?

Well, last year we did, we did a little flash sale in April then we did the big one at the end of the summer and the big one in early January. As we mentioned in the prepared remarks, we're going to mix it up a little bit this year. Keep the consumer surprised and delighted as we like to say that absolutely worked in April where, as I mentioned last year we did a flash sale of resort 21 merchandise and did $7 million in one or two days. I can't remember exactly, but that was that sort of 60%, 70% off, this year, we did a 30% off of the current merchandise and the $25 million in three days. And Dana, you'd be a new, I know how good you are at retail math, and when you started the kind of buy and use, we do a 30% off sale, you can still come out with just a fantastic great margin and we did, so we love that. So, as we look at the back half of the year, we're looking to be creative about how we do it because we think the customer really liked that. She likes being surprised and delighted, she loved the mix-up this year, it worked for us, it worked for her. So, I would say that you'll see more of that sort of mixing things up from us this year. And Scott, I don't know if you want to add anything to that from a guidance perspective.

Yes. We will mix things up and we'll produce something in Q2 with Lilly, but we haven't announced exactly what that will be, but we do have baked into our projection doing something at Lilly in Q2.

Thank you.

Thank you, Dana.

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. First, I had a clarification on your inventory comments, I think when you were talking about your inventory by brand, you mentioned having too much of some of the Emerging Brands inventory. And I was just wondering at Tommy and Lilly, I'm not sure if I heard whether you feel comfortable with your inventory levels there and where you expect those brands inventory levels to trend for the year? And then I have a follow-up. Thanks.

Yes. We do feel comfortable with their inventories. We think they're very appropriate, we do have a little bit more core oriented at Tommy. So, we brought a little bit of that in earlier. And as I mentioned earlier, we did have -- we're bringing goods earlier for supply chain reasons and we're starting to wean off of that and that's helping us we do. So, we feel good about those inventories and we think at the end of the year in total be lower year-over-year.

Got it. And then I was wondering, just what your pricing strategy is for this year at each brand if you're -- I imagine you're not planning any more price increases, but just wanted to double check on that? And then I was wondering what you guys think about whether your consumers telling you maybe there were sensitive and showing some price resistance to prior price increases. I'm not sure based on what you saw in 1Q versus what you're seeing quarter-to-date, what you think on the price resistance. Thanks.

First of all, Tracy, I don't think we've got a whole lot more pricing flowing through at this point, I think that's mostly in -- I don't -- I can't say there is no more, but I think that's mostly in. Secondly, on the price resistance, I really don't think we're seeing that. I think one thing we do is benchmark closely against our peers and we really feel if saying maybe we've been a little less aggressive than some of them in the pricing. And then the other thing that I would say is that when we look at AUR, so the average unit retail and the average dollars per transaction. So, when they're buying those metrics are actually either flat or up, which to me tells me there's not any serious price resistance out there. I think it's more about just being generally cautious about spending money. Another thing and this was in the prepared remarks, but you might not have fully zeroed in on. So, our restaurant business is actually performing really, really well. We pushed prices in restaurants too as we've needed to, to cover the cost increases there, and our restaurant business is really, really strong. So, I think it's more about they bought a lot of stuff over the last couple of years, they're being slightly more cautious and more judicious if you will, about when they're actually pulling the credit card out. But when they do, they seem very happy to spend on our products.

Great. Thanks very much. Good luck, guys.

Thank you, Tracy.

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

Thank you, Shamali, and thank you all for your interest in our company. We look forward to talking to you again next quarter and I hope all of you have a great summer until then.

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