Greetings, and welcome to the Oxford Industries Second Quarter Fiscal 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Anne Shoemaker, Treasurer. Please go ahead.

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 the 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. Please note that all financial results and outlook information discussed on this call, unless otherwise noted, are from continuing operations, and all per-share amounts are on a diluted basis. Our disclosures about comparable sales include sales from our full-price stores and e-commerce sites, and excludes sales associated with outlet stores and e-commerce/clearance sales. And now I'd like to introduce today's calls 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 for joining us this afternoon. I want to start today's call by taking a moment to remember and honor the victims of 9/11, their families, as well as the survivors and first responders. That tragic day will always serve as a reminder of our country's resilience and the strength of the American spirit. Our second quarter performance included top and bottom line results that were within our guidance ranges, despite some marketplace headwinds. Our strategy of operating a powerful portfolio of lifestyle brands like Tommy Bahama, Lilly Pulitzer and Southern Tide and emphasizing full price direct-to-consumer channels continues to produce enhanced profitability and drive long term shareholder value. I am pleased to report that for the 10th consecutive quarter, we posted consolidated comparable sales growth and expanded consolidated gross margin and operating margin in the quarter. To win with today's highly informed and empowered consumer, you need to have a brand that stands for something, a lifestyle or culture that resonates with your target audience, and you have to reinforce that lifestyle and culture in everything you do from product and marketing to service and distribution. This is the Oxford approach and the foundation for the company's ongoing success. Looking at each of our channels in more detail, the growth of our e-commerce business continues to be a highlight of Oxford's modern distribution network. Our high average ticket, high gross margin, modest return rates and efficient distribution centers make this a very profitable channel. E-commerce represents 22% of our consolidated sales on a trailing 12 month basis, up from 20% this time a year ago, and remains our fastest growing channel of distribution. At the same time, our unique combination of bricks-and-mortar retail stores, restaurants and bars remain strategically important. These physical assets allow us to showcase the…

Thanks Tom. As Tom mentioned, our full price direct business continues to be healthy and growing. Lilly Pulitzer's top line growth was fueled by double digit e-commerce comps and the addition of three stores since the end of the second quarter last year. Tommy Bahama's full price direct business also remain strong, with a 3% comp increase on top of an 8% comp increase in the second quarter of last year. And Southern Tide's revenue increased 6% year-over-year, driven by growth in e-commerce. These increases were offset by reductions in wholesale sales at Tommy Bahama and Lanier Apparel, as well as softness in our outlet stores, as traffic in outlet malls continues to decline. We achieved a 40 basis point improvement in our consolidated adjusted gross margin in the second quarter with modest expansion in both Tommy Bahama and Lilly Pulitzer. This includes a change in sales mix as the higher margin direct-to-consumer businesses represented a larger portion of sales in the quarter. Adjusted operating profit increased from $40.6 million to $41.7 million. Our adjusted operating margin expanded at 13.8% in the second quarter, compared to 13.4% in the same period last year. A higher year-over-year tax rate resulted in adjusted net earnings increase of only 1% as compared to a 3% increase in adjusted operating profit. Our balance sheet and capital structure remain very strong to support our growth initiatives and investments. On July 31st, we amended our $325 million credit facility. This amendment extended the maturity to 2024, added a lower pricing tier, reduced our unused line fee and other favorable changes. As of August 3, 2019, we had no borrowings outstanding compared to $25 million at the end of the second quarter of fiscal 2018. Our cash balance increased to $31 million compared to $7 million in…

[Operator Instructions] Our first question comes from the line of Paul Lejuez with Citi. Please proceed with your question.

You mentioned the $0.20 tariff hit. I'm curious if that is a gross number that you will still try to offset - you're not sure if you'll be able to? Or is it a net number, in which case I'd be curious to know what the gross number was and how much you were able to, to offset it? And then second, just curious if you could maybe talk a little bit more about performance at mall versus off mall locations. You mentioned some weakness, and outlet to be curious if you could provide any sort of quantification as to how much the outlets underperformed the rest of the business? Thanks.

So with respect to tariffs, that's an estimated net impact of the higher tariffs. And that's sort of taking everything into account. As we referred to in the call, we have been able to get price reductions that were offsetting a significant portion of the gross amount. I think it would be in the neighborhood of 40%. But we are also continuing to push for more. So the various levers that we're addressing are moving production out of China, which we've done a lot of already. We'll continue to do more of that where we're staying in China, trying to get the price concessions to offset some of the impact. And then in some cases, we have done some select price increases and there will be more of that, more of that to come. Then in terms of outlet stores, Scott, you want to.

Yes. The outlet stores were certainly negative comps and the traffic was weak at the outlet store. So we're certainly, I think, feeling, what I think which most people in the industry. The good news is, I believe, we have about 34 outlets in the U.S. So we're not heavily outlet dependent, our outlets are mainly clearance vehicles. So we never went down making a lot of goods for outlets to primary clearance vehicles. And they're pretty small fleet of outlets, but we have seen some traffic.

And Paul, you're relatively new to the story but we - going back several years ago, we really curtailed any future growth of outlets. There's still a good channel for us to clear end of season merchandise. But we have not grown that channel. In fact, we've actually dropped a couple over the last couple of years. So we like our position on outlets. We don't think we're overexposed there. We did see some weakness there. But I think that's one of the strengths of our model, is that we're not overly dependent on outlets.

Thank you. And how about mall versus off mall performance?

Well, certainly in malls, we see the traffic and off mall, you don't necessarily see the traffic counts for the venue the same way, but mall traffic continues to decline, as you know. And that is one of the reasons that we're glad that we're not over stored and also not over-represented in malls, for example in Tommy Bahama, less than 40% of our retail locations are mall locations.

And then if I can just one follow up. Tom, where are you going to be at the end of the year in terms of China sourcing? And where do you expect that number to go to the next year?

Scott, you want to give him --

Yes. We were 54% last year and we begun shifting, but I think that we'll really feel the most of the shifting in next year. Certainly, next spring and summer, sourcing plans in China is much smaller. So yes, hopefully we will - by next year we'll be in - more in the 40% range, maybe even less. We're continuing to look for other countries. And we are - we do have our China factories, and they want to keep the business. So they are - and also as the dollar is getting stronger against the China currency. You know, I think concessions will continue to come. So that will weigh into how much we move, but we do want to de-emphasize China more than we have so far.

Our next question comes from the line of Rick Patel with Needham & Company. Please proceed with your question.

Congrats on comping the comp. I have a question. I have a follow up to Paul's question on tariffs as we think about how to model 2020. On the last call, you touched on what the impact would be on prices at the retail level. But given the business also has wholesale and restaurant, it's a bit tricky to back into the impact on cost. So I'm curious, is there any way to characterize how much of your cost of goods these tariffs will be touching?

Well, I think the restaurant is pretty easy. I don't believe we're using any Chinese food resources there or liquor to speak of. So I don't think it will impact restaurants much at all. In the wholesale, that is one of the challenges of addressing pricing is that we got to move that channel or try to as much as possible and sync with retail. And that means you've got a little longer lead time on changing prices that show up both - on products that show up in both wholesale and retail. But we think we got room to move there and do what we need to do as well.

And Rick, I think if you back out our restaurants and then of the payroll about 75% of the cost is dutiable. You know, when you pull off the non-dutiable aspects and as the China percent keeps coming down, now it's just under 50% that will come down next year. And then some of the price increases we're doing, there'll be more price increases that will affect next year. Very little is affecting this year, more will affect next year. So that will lower the impact also, will help mitigate the impact.

Can you also help us on how to think about comps for Tommy and Lilly in 3Q versus 4Q? Tommy, you lapped a very tough comparison in 2Q, so I'm assuming that you still expect higher comps in the back half. And please correct me if I'm wrong there. And for Lilly, you're lapping a plus 15 in the third quarter from last year. So should we be modeling a step down in 3Q and any thoughts on 4Q?

I think our - you know, our plan assumes for the back half of the year sort of low single digit comp in Q3 and then mid singles in Q4 is we - well we got right in there.

And my last one is on Southern Tide. So interesting development with the owned retail strategy. What gives you conviction that now is the right time to expand and any high level thoughts on what you see as the market opportunity for stores?

I think we don't want to get too far ahead of ourselves on what the market opportunity is, although a guy like you can pretty easily imagine what it might be. I think where our confidence is coming and why we've decided now is the time is that, we have had good success with the Signature Stores. The line has developed and matured to the point where we think it can fill out a retail store nicely. And then you look at the strength of our e-commerce business and the fact that the guest is responding to us. They love the brand. They love the product. And when we give them an opportunity to buy it direct from us, that becomes another important channel for them. Wholesale will still be important. E-commerce will still be important. But we think there is a good opportunity there in company-owned retail as well.

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

This is Carlin Lynch on for Susan. I just wanted to follow up on something you had just said on the Tommy comps in the back half. With the business, you know, being as strong as it is, how much more room do you see for margin improvement? And what are the steps that the company is taking to kind of drive that expansion, especially in the fourth quarter with the mid single digit comp?

Yes, Tommy Bahama operating margin improvement has been - continues to be a high priority. First, you know, we've made some progress in a cleaning up Asia last year, we have gotten our initial gross margins. We continue to work on trying to get those higher. Obviously, the tariff situation puts a, you know, a little pause on that as we're navigating through that. And we continue to grow a really healthy, direct-to-consumer business. So I think Tommy Bahama's operating margins have room to expand. And yeah, hopefully each year we will make some steady progress towards that goal.

And I just wanted to kind of touch on some of the new categories that you guys have been adding to or expanding over the course of the last year, whether it's golf, swim, tennis. How are those performing relative to your initial expectations? You know, is tariffs kind of impacting that in any way? And as you think about the broader portfolio, are there any other gaps in the merchandise that you see the need to fill in or kind of glaring holes? Thanks.

So we've been really pleased with the performance. I think you're talking about Lilly Pulitzer in specific, where we've added swim, golf and tennis within the last year. That's part of a broader category really that we would think of, as we call it Luxletic that's really activewear. Within Lilly Pulitzer, we'd been thrilled with the way it's performed. Golf and tennis and swim, each of those by themselves are pretty small, but when you look at that whole activewear round within Lilly Pulitzer, it's become a, you know, pretty meaningful piece of the overall pie. And then to answer the second part of your question, I don't think that's been impacted any worse than any other part of the business by the China tariff situation. It's certainly not exempt from it. But I don't think it's necessarily been hit any harder than that. And then in terms of new categories, we're always looking for opportunities and white spaces that we think we can fill, not prepared to announce anything at the moment. But that's always an objective in all of our businesses, is to look for new areas that we can go into and a great example of that is Tommy Bahama, where it's great as that business is, and it's great as it had been for a very long time. We've never had the strongest sort of key item type business. And now with things like the Boracay pants and shorts, which is really our whole family of bottoms products, we really built a franchise there. The Palm Coast Polo was our first foray into a true performance Polo, and I believe it's become our number one selling Polo and is, you know, it's just got tremendous legs. And then over the last couple of years, we build another of others in Tommy Bahama. So we're always looking for those opportunities. And I think we'll continue to discover new ones each year.

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

As you think of the current retail environment beyond tariffs going into the balance of the third quarter and into the fourth quarter, what are the biggest puts and takes that you see could be the differences between this year and last year, in relation to the consumer, and in relation to your business initiative? Thank you.

So in relation to the consumer, look we know there's a lot of noise out there about where the economy is headed. But if you look at the consumer themselves, unemployment numbers are still incredibly good and favorable. A number of people working full time is the highest it's been since before the Great Recession. Wage growth is over 4% on a trailing 12 month basis. You look at all these things, the savings rates are actually still quite high. Gas prices are favorable. You just look and the list goes on and on and on. So I believe there's significant reason to believe that the economy is going to remain strong for the next 12 months, and that the consumers are going to remain strong. And that's certainly what we've factored in to, you know, our plans for the fourth quarter. I'm not sure if that answered everything you asked.

And as you think of each brand in terms of whether it's Lilly, whether it's Tommy, is there marketing, is there a new product that we should look to in terms of driving the excitement as we go through the balance of the year? And then how do you think about inventory levels as we move through the year?

Yes. I'll let Scott comment on the inventory levels in a minute. But in terms of marketing and new products, we do have and we'll talk about this more on our December call, as we're closer to the heart of the holiday season. But in Tommy in particular in women's, we have a number of new products coming this fall. We've got some that are already out, some that are coming a little bit later that we're very excited about. They're more seasonally appropriate than I think we've ever been in Tommy Bahama women. So we've got more things with sleeves, more warm and kind of cozy product that's on the way. So we're very excited about that. And then in terms of marketing, I don't think we have any initiative that's like a new technique. But we are going to be doing some things a little bit differently. Not all of that is fully crystallized at the moment, but we would anticipate having at least one extra mail I think in Tommy Bahama during the fall holiday season and those are very important for us. And then, you know, we're going to mix up the cadence a little bit and make some tweaks to our marketing activities. But we've got lots of things that we're excited about in terms of what we're doing. And then we still think there's good reason to believe that the consumer is in a good position to spend money at holiday time.

As far as inventory, Dana, inventory is up 16% year-over-year. But if you really build the inventory back, it's not an aged inventory increase. It's really mostly key items in replenishment type programs, things like the Boracay, where we were breaking some last year, we're in good stock there where we can replenish our stores and we're in stock on e-comm. We've got some other key items and merchandising wise, we're trying to stress key items in both men's and women's at Tommy and that is what caused inventory to be up some. But we feel good about the inventory levels and compensation out of the inventory.

And is there anything besides - excluding tariffs, anything on the expense bucket in the back half of the year and what do you think is comparable to last year?

Yes, we got arrived a couple of things in the second quarter. If you - in case you missed it, as Scott told out, we had a higher tax rate that created about $0.045 drag and I think the way we'd think about that tax rate is it's more than normal. Last year was unusual, but it was favorable to us. And then in Q3 and Q4, we got some of the Marlin Bar pre-opening expenses that are what Scott --

$0.04 in Q3 and about $0.05 in Q4. And the Marlin Bars it's not just the two we're opening this year, it's about a six month lead time. So that rent, even if we're in a free rent period, the rent goes to our P&L from the time we take possession. So we're going to have five different Marlin Bars running through some pre-opening expense through this fiscal year. So that's causing a little bit of a headwind expense wise.

Yes. So, you know, it's all baked into the guidance. But to answer your question, there are a couple of things that are year-over-year drags on the bottom line.

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

As far as the discretionary spend expectations go for the balance of the year, were there any changes in the annual guidance associated with deltas in discretionary spend either up or down? Or was that $0.20, 100% wholly tariffs?

That's all tariffs. That $0.20 is all tariffs.

And so there again, there was no changes in discretionary spend from the last time you spoke to the Street on guidance.

Correct.

That's right.

And my second question is, as it pertains specifically to the Q3 comp guidance, is there any acceleration in the business expected between now and the balance of the quarter? Or is it more or less steady as she goes?

Not really. It's steady as she goes. I think right now we're tracking really right where we would - what we would need to do for the quarter.

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

Thanks very much for taking the questions today. I guess first, since you used outlets as your promotional vehicle or your disposition vehicle, I guess, you know, are you seeing inventory backing up in outlets, given some of the commentary you had? Or do you expect a kind of clear through them in due course? And then second, as we step back and think about the overall promotional strategy, either the Bounce Back or the Lilly sale, I know you indicated you may make some tweaks to marketing or some strategies? Are you changing promotional strategy at all? And how does that impact your back half view?

So I would say, first of all, with respect to the outlets, they are still an important clearance channel for us. But as you know, we've developed some others over the last couple of years, including twice a year, doing some clearance within the Tommy Bahama stores, which has made us less reliant on outlets and overall has allowed us to get better realization on our end of season, sort of residual inventory. But with respect to the inventory levels in outlets are actually quite low right now, they're clean as a whistle, as we would say. And that actually gives us some room. You know, if needed there's room to press additional inventory through the outlets. And then in terms of basic strategies and, you know, all our basic strategies, we have the gift with purchase, the catalogs, the Tommy Bahama gift cards, the Bounce Back or the flip side sale, as we call it. I don't think there's any real change in strategy, but we will make some tweaks in some of the timing of some of those events. And of course, those are all designed to enhance results in the fourth quarter. That's certainly the plan.

I got it. Maybe just taking one final one. Any interesting commentary on tourism that we should consider particularly as you think about Hawaii and California, given some of your new emphasis on that state?

I don't think we're seeing a - what we view is a big impact one way or the other from tourism right now and that is what I would say. Well, you know, there have been times where we felt like it was either a strong positive or a strong negative. And I don't think that's the case at the moment.

Ladies and gentlemen, there are no further questions at this time. And I'd like to turn the call back to Tom Chubb for closing remarks.

Okay. Thank you, Dana. And thank you very much to all of you for your interest. We look forward to talking to you again in December.

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