Greetings and welcome to the Oxford Industries Second Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Brian Smith. Thank you, Brian. 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 our 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 will find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under our Investor Relations tab of our website at oxfordinc.com. And 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'm going to start with an update on the execution of our plan for the second quarter of fiscal 2024 and our current expectations for the balance of the year. During the second quarter, we continued to make excellent progress on long term strategic goals, but fell short of delivering on our near term financial targets. Sales of $420 million and adjusted EPS of $2.70 for the quarter were below our guidance range, primarily due to a continued pullback from the consumer. The pullback worsened sequentially during the quarter, coinciding with consumer sentiment hitting an eight-month low in July, with a trend continuing into August and the start of our third quarter. While most underlying economic indicators remain reasonably strong, the cumulative effect of several years of inflation may be catching up with the consumer. Simultaneously, the second quarter was also marked by several national and global noteworthy events that led to a more distracted consumer at several points over the summer. Certain factors that we may believe may have amplified these headwinds with respect to our particular business include, first, our focus on affluent 45 and up customers, who tend to be more headline and market sensitive; second, our significant exposure to Florida, which accounts for over a third of our bricks and mortar business and grew at an exceptional pace coming out of the pandemic, but has slowed down as the new post-pandemic world settles in. And finally, some commercial and merchandising missteps on our part, including assortment misses and timing of promotional events. The slowdown we experienced in our business has been driven by reduced conversion while traffic has remained strong, which indicates that consumers are very interested in our leading brands but have become cautious when making purchase…

Thank you Tom. As Tom mentioned, there were several macroeconomic headwinds across the marketplace that negatively affected our financial results during the quarter, most notably lower consumer sentiment and an increase in the promotional environment. Despite these headwinds, our teams are focused on executing against our strategies of delivering newness and compelling products that resonate with consumers to combat these challenges and encourage full-price selling. In the second quarter of fiscal 2024, consolidated net sales of $420 million were comparable to the second quarter of fiscal 2023, and below our initial guidance range of $430 million to $450 million. Notably, sales in our outlets increased 4% as this channel benefited from consumers looking for deals and promotions, while sales in full-price brick-and-mortar locations were up 1% driven by new stores and increased promotional activity partially offset by low single-digit negative comps. Our wholesale channel, which was particularly challenging in the first quarter of this year, had a difficult second quarter with sales down 5% compared to the second quarter of 2023. As the specialty store business across our brands continues to struggle, partially offset by increased sales to major department stores, e-commerce and food and beverage sales were relatively flat compared to the second quarter of 2023. Adjusted gross margin contracted 100 basis points to 63.3%, driven primarily by a higher proportion of net sales occurring during promotional events in Tommy Bahama, Lilly Pulitzer, and Johnny Was. Across our three brands, we saw a strong response from consumers to our promotions, promotional and indices and clearance events. We were able to partially offset this decrease in our Emerging Brands Group through our continued efforts to improve our inventory position and reduce the need for off price wholesale and promotional direct to consumer sales. Adjusted SG&A expenses increased 5.7% to $213…

[Operator Instructions] Our first question is from Ashley Owens with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks for taking my question today. This is Chandana Madaka on for Ashley. So I just wanted to dig into maybe a little bit more about how you're thinking about promotional events going into the back half, maybe any color you could provide there by brand, just now that the thinking around promotions is a little bit differently. Also wanted to see if you could dig in further for us on what you're hearing from wholesale partners, maybe an update on the order books. Thank you.

Okay, so on the promotions, I wouldn't say that we're really thinking about it differently. I think what we're thinking is just we recognize that they're going to be very important this year, especially as they always are during the holiday period. And so we're going to start a bit earlier. As you know, the shopping season is about five days, it's not about, it's exactly five days shorter this year than it was last year. So, it's going to be important that we jump on it at the beginning of November. We're going to have an assortment of mailers. We're doing a mailer in Tommy Bahama that we haven't done in a couple of years. So that would be a little bit of a change. We've got a great gift-with-purchase offering that we're going to do over the Cyber Weekend, starting with Black Friday and going through the weekend actually starting on Thursday, I believe we've got our normal gift cards. We've got bounce-back sales. We'll have the Lilly Pulitzer Flash Sale in January. So, it's really the same types of things. I think it's just that our focus on those maybe will be a little bit more intent than it has been in the past. In terms of the wholesale performance, as Scott mentioned in his prepared remarks, the year overall has been tougher in wholesale. We do expect the second half to be about flat with last year, whereas the first half was down, I think about 5% or so. But our performance with our majors, which is where we have the most visibility to how we're doing, has actually been quite good. And I think as we're starting to see spring bookings, we're actually encouraged with what we're seeing there.

Awesome. Thanks. Nice to hear.

Thank you.

Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi. Good afternoon, everyone. As you think about the state of the consumer and what you saw in outlets versus the other channels of distribution, with the brands, with Tommy, with Lilly, what are you seeing that's different? How did the cadence of the quarter go? And are there categories that performed better or worse than others? And with the promotional environment, how deep are the markdowns, and how you're thinking about promotions for Q3 and Q4. Thank you.

Okay. Thank you, Dana. So the cadence of the quarter, as we mentioned was that it got worse sequentially through the quarter. May was actually an okay month. June softened a bit, but not terribly. And then July got a lot worse, especially in the back half of July. And then as we mentioned, August was weak as well in terms of what the consumer is looking for. As you know, I think very well it is a value-driven market right now. We are intent on maintaining our strategy of being a full portfolio of full price premium brands, and we're not really veering away from that. But we are going to be paying a lot of attention and be very focused on sort of the types of promotional activities that you've seen from us in the past, Dana. And then, as we mentioned in our prepared remarks, we during the second quarter did a greater proportion of our sales during those events. We may have had a little bit more in terms of the number of promotional days, but the biggest factor was just that that was the time when the consumer was most interested in shopping and the time where they were most interested in converting, if you will. I would say that the discounts were also a little bit steeper during the second quarter. And I think it's reasonable to expect that we're going to see a similar pattern in the third and fourth quarter. And that is what we built into our guidance. And Scott, you may want to reiterate and elaborate on our guidance a bit.

Yes. As we mentioned in the call, we have moderated the comps where we were expecting positive comps in our earlier guidance, and we moderated down to kind of the low to mid-single digit range. And just basically what we've been seeing recently in the state of the consumer, we just thought it was prudent to do that. And we do have the shorter period between Thanksgiving and Christmas, and we do think it's going to be a promotional period, and we're going to try to do similar type events. But as we found in the second quarter, we tended to have a little bit more inventory to fuel those events than we might have last year, which did erode gross margin a little bit.

And then, Dana, in terms of products, I would say anything that's truly new, truly innovated, truly differentiated are the products that are most likely to get the consumer's attention. And then just broadly, I would say that the more casual categories, the athleisure type product swim has been slower. Those types of things have been slower. Dresses have really been strong across the portfolio, and more the dressier end of the spectrum, I would say that the more presentable end of the spectrum, I think, is where we've seen the relative strength in general.

And then just picking apart freight costs, how are you thinking about the puts and takes on margins?

Yes, we build in about 15 basis points to 20 basis points in margin hit due to elevated freight. So, it's not a huge amount we are watching and that's mainly in some of the Red Sea issues that have inflated rates. We are seeing or we are watching closely the East Coast situation with the union negotiations and are diverting some product to the West Coast and then we'll have to bring it across the country in some cases. So that's something we continue to watch, but we have built in some disruption from that. Obviously, if the East Coast ports do go on strike, that's going to be a disruptor to, I think everyone.

Just one last thing. With the change in business patterns, any -- whether it's marketing or store openings or Marlin Bars, any adjustments that you're thinking about, whether in terms of timing or shifts in how you're thinking about any of the initiatives. Thank you.

Not really. We're pretty much full steam ahead.

Yes. On the growth initiatives, we are SG&A is something we always look at. But it's obviously we're looking at opportunities there when they present themselves. We mentioned the Johnny Was distribution center move, which was going to save us a bit of money and we're looking at other opportunities to reduce SG&A. But as far as growth initiatives, we're moving forward.

Which would include the stores that we're opening, the Marlin Bars, and the distribution center in Lyons. And you know, look, Dana, we don't -- we believe that this is a worse than an old-school recession, maybe not even that. It's not the type of event that we saw in the pandemic or the financial crisis. And we want to be ready when business starts to pick up, we believe in our direct-to-consumer channels as we do our wholesale channel and building stores and Marlin Bars, and having a DC that can serve us both retail, wholesale and our e-com businesses is going to be very important as we get a year, two, three years out. So, we want to make sure that we're there. These are long-term projects that we need to manage for the long term.

Thank you.

Thank you, Dana.

Thank you. Our next question is from Mauricio Serna with UBS. Please proceed with your questions.

Hi. Good afternoon. Thanks for taking our questions. I guess maybe if you could elaborate a little bit more on the promotional activity across each of the three big brands, I know I recall there was some shift in promotional events in Lilly Pulitzer, but outside of that, anywhere where you saw like promotions really surprise you on the negative side, and like just a bit more details on that will be very helpful. Thank you.

I would -- Mauricio, I'd say is this more we just had, we sold through a bit less at full price than we expected, so we had more inventory when we did, like Tommy's end of the season sale had, more inventory than did the prior year, Lilly, Johnny, was that was, that was more the case. So it just resulted in, and you had a consumer much more willing to buy during those events. So, it wasn't that we had major change in the events or were majorly different on the degree of discounts, it was -- there was just more inventory available that sold. So, we kind of traded some full-price sales for off-price sales during typical clearance periods.

Understood. And then just a quick follow-up. Surprised to see also kind of like the slowdown on the restaurant business. Could you elaborate a little bit more about what happened there? And lastly, could you remind us the comp sales, the compares you're up against in the second half of the year? I think, yes, just to be mindful of that. Thank you.

Yes, I think the restaurants slowdown, as you know, Mauricio, the restaurants just had not slowed down really up until the second quarter. They had been extremely strong as they reopened. Even during the pandemic when service was much more limited, they were quite strong and then just had been super strong. And I think a little bit of that has slowed down. Florida, for example, is a big restaurant market. And as we talked about in the retail business in Florida as well, which had been just sort of nonstop go, go, go since the pandemic. And it sort of settled down to it where it was performing more like the rest of the country during the quarter.

As far as comps last year, Q3 and Q4, we were kind of in that -- we were kind of the 3% to 5% range negative. And so we're projecting similar type comps in our second half this year and where before we were projecting positive comps. So that's the big change in guidance is really that comp movement is the biggest, biggest change.

Thank you.

And we're going to be working very hard, of course, Mauricio, to try to turn that negative comp assumption into a positive result. But given what we've seen over the last six or eight weeks, we just thought it was prudent to lower the expectation.

Thank you. Our next question is from Janine Stichter with BTIG. Please proceed with your question.

Hi. Thanks for taking my question. So to start out on the consumer, you went through a whole host of factors that might have contributed to the slowdown. I think you talked about distraction and inflation and some merchandising missteps. Maybe just help us rank order in your opinion, which are the most meaningful in terms of the change you've seen in the top line trend. And then within that, we'd love some more context around Florida. It grew a lot in the years after COVID. You're talking about some normalization, just maybe your thoughts on what inning we're in with the normalization there and maybe some context on how much it grew with COVID. Thank you.

So with respect to Florida, what I want to be very clear about is that it's nothing underperforming so much the rest of the country is that it's just no longer outperforming the rest of the country, which was really what happened continuously for the three previous years, was that it outperformed everybody else. Now it's sort of more running with the pack. What I believe we're going to see going forward at least for the next several quarters is that it's probably just going to run with the pack a bit more. So if things pick up nationally, I would expect Florida to pick up with that, I believe. And if they don't pick up as quickly, I think Florida will sort of stay more or less where most of the other regions are. And then in terms of trying to rank order the three factors that we talked about that headline distraction, Florida and the merchandising missteps, it's kind of hard to do that. I would say that they're all meaningful factors, Janine. I think they all had a material impact on results. There's some data from a big advertising agency that sort of supports our theory on the headline distraction, where they looked at, I think, over 100 brands that mostly cater to a 45 and up type consumer and saw that during July, they were down 14% year-over-year. And that would tend to support the theory that that was a material factor for us. Our merchandising missteps, some of them we can measure a little bit more than others, but we again think that they were material. And then the Florida thing, I mean, it's a third of our business, and it went from a third of our retail business, and it went from a significant outperform to running with the plaque, which cost us a lot of incremental contribution dollars.

Okay, great. And then on the merchandising missteps, it sounds like you have a lot of things already in the works, but just would love to hear your sense of when we should expect to see some improvement there.

Well, certainly on a year-over-year basis, as we get to the second quarter of next year, they're all completely fixable, undoubtedly, we will make some other missteps next year that's a -- it's a part of the business. Hopefully, they'll just be a little less pronounced than this year, and we believe they will, and then in terms of what we've got coming for the third and fourth quarter, from a merchandise and commercial standpoint, we really like it a lot. One of the things that we've got that we think will be a meaningful plus for us this year, we've got the Indigo Palms launch in Tommy Bahama, which is already driving some positive results in the getting cooler month that we're in now and should help as we get further into the cooler months. And then in January, they're actually going to have an early spring delivery that's going to hit the floor in January. Typically, January is just been about what everything that's left over from sort of the pre-holiday and resort time. And this year, we're actually going to give our guests a taste of spring in January that we think they'll be receptive to and they'll like. So, we like our lineup for the second half. We wish the consumer were a little bit stronger than they are, but we do think we've got good tools to work with to try to capitalize on the demand that is there.

All right, great. Perfect. Thanks for all the color.

Thank you.

Thank you. Our next question is from Paul Lejuez with Citigroup. Please proceed with your question.

Hi, guys. Thanks. Can you talk about which region were performing this quarter? It sounds like Florida was in line with the chain. But where did you see better results by region, and where did you see weaker results? And then can you talk about where each of the brands are in terms of full price selling relative to all time peaks? And also maybe relative to pre-pandemic levels? Just trying to understand the level of markdowns that you're seeing. What percentages of the assortment for each of the brands are selling at full price today versus what you saw last year or year before maybe pre-pandemic, just to kind of frame where you are in that continuum. Thanks.

Okay. Thank you, Paul. And first, with respect to the regional question, this is on a relative basis, nowhere was really great. Every -- almost everywhere was soft during the quarter, but the places that were relatively strong were some of the cooler weather places like the Midwest, the Mid Atlantic, New England were some of the -- and then some of the spots out West, I think especially the Northwest, some of the desert areas were relatively strong as compared to Florida, Texas, some of the places that were a little bit weaker. But again, nowhere was really what I would call strong. It was -- everywhere was soft. And again, on Florida, it's not that it was way worse than other places. It's just that it looked more like other places where for the last couple of years, it had been an outlier on the positive side. And now on the relative level of discount...

Yes, one more to add to that, the Marlin Bar locations held, the retail side of the Marlin Bars held much better than the averages out there. So that part was encouraging.

Yes. Very important.

Yes as far as the level of discount, we were pretty low levels since the pandemic, I would say this year's kind of reverting back to closer to a pre-pandemic level. I don't have the exact percentages, but it's not a big outlier from where we operated pre-pandemic. It's just been more promotional than we've been since the pandemic. And again, it's the lower full-price sales that's just yielding. It's not because we're doing lots more events. It's just the lower full-price sales. It's just providing more inventory that we need to clear. And we're -- so some of our clearance and promotional events are just a bit bigger.

Got it. How are you thinking about ticket prices? Do they need to be adjusted lower to avoid having to use more discounts to drive sales or you prefer to leave them where they are and show the customer that discount as a call to action?

I think that we want to -- we don't want to reprice existing product or the same style if it goes forward, there's a little bit of an opportunity to adjust the AUR by buying more heavily into some of our lower price point offerings in future seasons. And I think we will do a little bit of that. I don't think it will be dramatic, but I think we'll probably invest a little bit more in some of the lower price points that we already have, where we were lighter in inventory this year and we -- in upcoming seasons, I think we'll probably invest a little bit more. That was an example of one of the issues, Paul, that we had in the second quarter was our opening price point dresses in Tommy Bahama, which for Tommy Bahama is sort of $90 to $120. We were significantly underinvested in inventory in that price point for dresses during the second quarter, and we felt that. We, I think, lost some revenue as a result of that. And so when we get to next spring, I think you'll see us more heavily invested. So, again, not so much changing the prices on existing product, but we do have some ability to tweak the AUR just by the mix of price points that we're offering.

Thank you. Good luck.

Thank you, Paul.

Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Okay, Paul, thank you very much for hosting our call, and thanks to all of you for your interest in our company. And we look forward to talking to you again in December and I hope all is well until then.

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