Greetings. Welcome to Oxford Industries, Inc. Third 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 would now turn the conference over to your host, Brian Smith of Oxford Industries. 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 Web site 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. I want to spend just a few minutes talking about the third quarter, then move to our expectations and plans for the fourth quarter and finally give you a bit of a sneak preview on our plans for 2024. We are pleased to be reporting solid results for the third quarter of fiscal 2023. Our results reflect low single digit sales growth, inclusive of the comps that were down low single digits, which come on top of a 12% positive comp in the third quarter of last this year. While the consumer has clearly become more judicious in their discretionary spending, we believe our performance, especially on a two year stack basis compares favorably to our peer group. Despite a more difficult backdrop, we delivered these results as our people have remained focused on leveraging our strong brands to deliver clear and consistent messages that inspire and resonate with customers, creating strong desire for our products and services. A great example of this during the third quarter includes the opening of the Tommy Bahama Miramonte Resort in Indian Wells, California. This jewel box resort in the Coachella Valley leverages the credibility that Tommy Bahama has built over nearly 30 years in the hospitality space through our very popular restaurants and bars, as well as the overall strength of Tommy Bahama as one of America's premier lifestyle brands. The resort will have a meaningful impact on reinforcing and even strengthening the lifestyle positioning of the Tommy Bahama brand, ultimately helping us reach new customers, retain existing ones and increase the engagement of all customers, while at the same time, generating meaningful but modest royalty income over time. Another great example of leveraging the strength our brands to drive business results in the third…

Thank you, Tom. As Tom mentioned, we are pleased to report another solid quarter that is within our guidance range. In a challenging macroeconomic environment for the consumer, our operating groups executed well going up against DTC comps of 12% in the third quarter of 2022. Consolidated net sales for the third quarter of fiscal 2023 were $327 million, which included $49 million of sales for Johnny Was as compared to $23 million in the six weeks we owned Johnny Was last year, and a slight decline on a organic basis, resulting and 4% growth above last year's third quarter net sales of $313 million. In aggregate, Tommy Bahama, Lilly Pulitzer and Emerging Brands had decreases of 2% in full price bricks and mortar, 3% in full price e-commerce and 9% in wholesale sales. Despite a decline of 3% year-over-year, the performance of our food and beverage locations remained strong with the decreases driven by remodels and closures resulting from the Maui wildfires. We were able to expand adjusted gross margin 60 basis points to 64% compared to 63.4% last year, are lowering inventory balances across all operating growth over the same time period. The increase in adjusted gross margin was driven by a full quarter of higher margin sales from Johnny Was compared to a partial quarter last year, a decrease in inventory markdowns, an increase in direct-to-consumer sales in Emerging Brands and decreased freight cost. These were partially offset by decreased Lilly Pulitzer full price e-commerce sales. Adjusted SG&A expenses were $191 million compared $171 million last year. This increase was largely driven by an incremental $17 million of SG&A associated with the Johnny Was business, which we own for the full third quarter of '23 versus a partial third quarter in 2022. Result of all this yielded…

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

I guess, first, with Tommy Bahama, we noticed you swapped out your traditional flip side with the gift and purchase [indiscernible] Lilly has used successfully. Would love to understand if you think that was part of the softness that you pointed to in direct to consumer? And then I guess just stepping back a little bit, I remember, I think, in the last quarter, you talked about some assortment issues and that some of the newer stuff was moving faster than some of the older stuff. I guess, did you see some of those trends persist?

First with respect to the -- sort of the special offers around the Black Friday, Cyber Monday weekend. If you look back at what we did last year, we actually didn't have the flip side starting over that weekend. The last year that we did that, I believe was 2020. And since then, we pushed the start of the flip side out and sort of separated those events. The difference between last year's weekend and this year’s was that last year, we had a couple of category wide discounts. So for example, I think we were 30% off on all Island Soft this year -- last year. This year, we didn't do that. We had a couple of special value items where we delivered some styles that were at very compelling prices, but it was just a handful. And then we did the gift with purchase, which was the beach chair with a $300 spend, which by the way, performed very, very well. We were very happy with the results that we got from that, both online and in-store, which is kind of unusual for gift with purchase for it to work in both channels. So we love that. And then other than that, Ed, we really have the same pack cards or gift cards that we've done for as long as I can remember though and then the flip side, which is similar in timing to where it's been the last couple of years. So what I would tell you is we're really less promotional in Tommy than we were last year. And then yes, on the newness question, I would say really across the brands, all the brands, newness is more compelling to consumers this here. They want to see new. They loaded up on a lot of stuff over the last couple of pandemic years in their loving newness. Fortunately, we've got a lot of it for them. So I think we're pretty well positioned from that standpoint.

Our next question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So just first, you called out some choppiness around the business so far in 4Q. Just curious if you've seen any different behavior among consumers shopping brick and mortar versus e-commerce, and then any variances you're seeing between each brand?

Between what?

Between each of…

Yes, between brick and mortar and e-commerce. I think the big theme, Ashley, to us is really that conversion rates are coming down. That's the big difference. Traffic generally, it's going to defer a little bit among the different brands and the channels. But the big theme to me this year and this is where you see the caution or the more judicious spending by the consumer come into play is that the conversion rates have come down a bit from where they would have been a year ago.

And then just second real quick. Emerging Brands, you've seen some strength within that segment during the year, and you've opened a couple of stores there. Just kind of an overview of where you think you are in your store rollout potential within Emerging Brands and how you're thinking about that opportunity longer term?

So I think we've got -- in the Emerging Brands group, at this point, we have three brands where we've got -- where we own 100% of the business and they're part of our reporting and those three are Southern Tide, The Beauford Bonnet Company and Duck Head. Two of those brands currently have stores open. Southern Tide's up to 15 now, I think, with plans to add more. And Beauford Bonnet Company, we've got three open now and a couple more on the drawing board. We're still in the early stages with those. We like what we see but we want to make the formula right. But then assuming that we can do that and have a retail formula that works well, and we very much believe we can in both of those brands then I think they could have a similar number of stores that you see in Lilly Pulitzer pretty easily. I think, geographically, their strength is going to mirror Lilly Pulitzer's pretty closely. They're similarly positioned from sort of a price point and where they sit in the market standpoint. So I think seeing a Lilly number and thinking 75, 80 stores longer term, I think, is very easy to get your head around. All of course caveated with we want to make sure we've got a retail formula that delivers good cash return on cash invested.

And our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Tom, Scott, as you think about the current environment and what you saw, how much of what's happening is the external environment with the brands, how much of it do you see product enhancements coming on the way that should help accelerate sales growth? And on the wholesale channel, which I've always thought of as very small for you, how do you see the go forward there and what opportunities are to stabilize that business?

So with respect to the first question, I mean, Dana, I don't want to sound like we're the kind of company that always points the finger at external factors and never looks within, with the first place we always look is what could we do better. And we've got a list that's six pages long of things that we will -- lessons that we've learned from this year that we'll incorporate into next year and try to improve things. But I honestly believe the biggest factor is the external market conditions. And I don't think we're unique in this at all. I think if you look across the space and the companies that we would really think of as peers, I think that most of them are seeing similar trends. I think the biggest factor really is the more cautious and more judicious consumer. That said, again, we are looking internally and looking at ways that we can improve. And we do that every year, whether business is good or whether it's not so good, we're always looking at the ways that we can improve. And we've definitely seen as we commented in response to Ed's question that newness is selling really well and innovation is selling really well. We think we're good at that and we will be sure that we continue to do that. And then with regard to wholesale, Dana, we don't really think we've lost any position at all. And where we have good data on it, our performance at retail, our sell through, if you will and our natural gross margin, has been quite good, it's simply that the retailers have sort of pulled back a bit for spring and we're feeling the effect of that. From a brand health standpoint, we don't really mind that, because we'd rather not have them be over inventoried. But I think what's going to happen is they're going to get into spring and they're going to be chasing inventory. And of course, we'll do what we can to help. But I'm guessing there's going to be a little bit of demand left on the table.

And our next question comes from the line of Mauricio Serna with UBS.

Just wanted to check on the fourth quarter sales outlook. What does it imply for the -- just want to double check like what does it imply for the comp sales growth of the business and how much you expect the additional week to contribute to sales growth? And then lastly, on the commentary on the outlook, I think, you mentioned something about -- you expect some pressure on margins in fiscal year '24, because of the investments in store openings. So I don't know if that means we should assume like on top of where like the 14% margin that you expect for '23, we could expect another year of operating margin compression?

So I'll start with the first one. I don't think it necessarily means that we're going to see compression in the operating margin. It's just that we'll have some headwinds to the margin. There will be things that help us in that regard, too, including annualizing all the stores that we've opened this year, the Johnny Was Web site. I think back half probably improvement in the wholesale market. So I don't know that I'd jump to that yet. I'll let Scott elaborate on that. And then with regard to the fourth quarter outlook that is a good question, because we actually -- it's not just the comp, there's the 53rd week and there's the wholesale situation, and I'll let Scott also sort of try to bridge that gap for you.

Mauricio, remember, we mentioned we're going to open six Marlin Bars next year. One of them is going to open at the very beginning of the year. It's one that we thought we'd get in January, it's pushing out. But the other five will have significant preopening. You've got preopening rents starting about seven months before you actually open, so when you have that many of them. But again, we're going to have the benefit of the 24 stores that hopefully help neutralize that. As far as the 53rd week, we're going to be somewhere in that $25 million range in top line for that additional week. In our comps, we've got low single digit comps in our fourth quarter plan. And then we've got the new units we have this year that hopefully will contribute around 10 million in the fourth quarter.

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

It's Tracy Kogan filling in for Paul. I think you guys were talking about conversion earlier, and I think you had mentioned last call that you had seen a slowdown in August driven by conversion. I was just wondering how your overall trends wound up going through the rest of the quarter? And did conversion decelerate from there from what you were seeing in August or did it kind of stabilized? And then also, what was your AUR for the quarter?

So with respect to the conversion, Tracy, I think, it's a little bit more of a continuation really of what we were seeing in August. If you want to get super granular about it, I'm sure we can parse out some differences. But I think it's really that same phenomenon that we were seeing in August. And just to be clear, it's not like conversions dropping through the floor, it's just lower than last year. And when you look at comp sales that's really a function of traffic conversion and then how much they're spending, and trying to give you a good flavor, clear flavor of what's going on. Among those levers, it's really the conversion that's pulling the numbers down a bit. And then on AUR, Brian or…

Yes, it's holding pretty flat…

I was just going to ask what your 4Q guidance assumes for the promotional environment. Are you assuming an increase in promotions relative to last year?

You mean for us or for the market in general…

I guess both.

Yes, I think for us, we're very consistent. We walked ahead through the whole cadence of promotions with Tommy Bahama. But I would say across the board, we're consistent with last year. We've mixed things up a little bit, not every event is exactly apples-to-apples.

And we did mention we expect some very modest gross margin expansion and that's a little more mix oriented with the direct consumer being a bit higher. But overall margin should hold well, which means promotions should be pretty much in line with last year.

Our next question comes from the line of Jeff Lick with B. Riley Financial.

I was just wondering if you could elaborate a little bit on the food and beverage, coming in at 23, obviously, Hawaii and then you mentioned remodels had an impact. I was just wondering if you can maybe reconcile, like how much of an impact that might have been? And then, obviously, Tommy appears to be the standout in terms of sales. I was just curious if you maybe unpack a little bit of where that came from, did you continue to see good growth in women's? Just any help there would be appreciated.

I'll start with the women's, because boy, that's a great story that we've had this year. Jeff, we always look at that with our direct-to-consumer basis, because that's the clean way to look at it. But in the third quarter, we were up from just under 30 last year to just under 35 this year, which we're super excited. And year-to-date, we're close to 38 from roughly 35 last year. So that's a very good story. And then in terms of some of the remodeling and Hawaii impact, Scott?

Jeff, we were down 3% but we comped up 1% in food and beverage. We had about $1 million of top line impacted by both Lahaina being gone and then Mauna Lani, we had a major remodel. So it was closed a good part of the quarter. So overall, our food and beverage business has been very good. So we've been very pleased with that.

It's also -- I'll just add, it's been very steady. Scott and I were talking about this earlier today, but we haven't had more than one or two days in a row that maybe we're off a little bit, but it's just been every day, we seem to just keep delivering in food and beverage, which is great.

And our next question comes from the line of Janine Stitcher with BTIG.

Just another question on promotions. Understanding that the promotions are planned in Q4 pretty similar to last year. But I'd love to understand just if the environment remains promotional as we get into next year, your high level kind of philosophical thoughts just your willingness to flex more promotions to stay competitive? And then second for me, on active customers, you've grown them by a huge number over the last few years. So just any changes in retention of those customers or any habits of these more recent cohorts?

I think with respect to our promotional philosophy, I don't think it will really change awful lot. I think we focus on keeping our brands relevant by making sure that they have very clear positions, that they make very clear and consistent brand messaging. And then it's all about creating desire, Janine. As you know, what we sell is not something that people really need, it's more of a want item. And that's our number one job through our brands is to create that desire and then have the products that the desire can be the object of. And we've been through a lot of promotional cycles forever. And every year, the market is promotional. And we strongly believe, as we've demonstrated this year and in the third quarter, and I think we will in the fourth quarter, that we can remain very relevant and perform well relative to where the market is based on those branding activities. So that's sort of our game plan there.

And then just on active customers?

Active customers, as we said, our active customer count is up mid single digits for the trailing 12 months year-over-year. And our new customer add rate is also up mid single digits. So the health of our customer base, our ability to attract and retain remains quite good. And then as we mentioned in the prepared remarks, average annual spend is more or less flat.

And our retention rates are holding well, which is something that -- we have a very high retention rate, and it's been holding.

Yes, very healthy retention.

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

Okay. Thank you, [Shamila]. Thanks to all of you very much for your interest in our company. We wish you all a very happy holiday season, and we look forward to talking to you again next quarter. Take care until then.

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