Oxford Industries, Inc. (OXM) Q2 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to the Oxford Industries, Inc. Second Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Anne Shoemaker, Treasurer of Oxford Industries. Thank you. 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 would 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.

Good afternoon and thank you for joining us. I would like to start by thanking our incredible team of people for delivering outstanding second quarter results that include record sales, gross margin, operating margin and earnings per share. Our performance was strong across all of our brands, particularly in our direct-to-consumer channels of distribution. While we are benefiting from some favorable market conditions, the numbers that we delivered are the direct result of our team’s ongoing efforts to navigate through the short-term challenges posed by the pandemic, while staying focused on our long-term strategic objective of delivering happiness to our customers. Our excellent results are attributable to the strength of our brand portfolio and how we communicate our aspirational upbeat brand messages through beautiful imagery, differentiated products and exceptional customer experiences. To deliver superior customer experience in today’s market, we need to stay focused on our long-term North Star objective of continuing to improve our customer-centric, digitally-driven seamless cross-channel shopping experience with an emphasis on mobile. We continue to invest heavily in further improving the customer experience with enhancements to our mobile apps, search engine optimization, customer data and insights, customer service and much more. The boundaries between our retail and e-commerce businesses are becoming increasingly blurry. We recognize that an ever growing number of customer journeys to purchase include both physical and digital elements. Most consumers no longer distinguish between the relationship with the digital aspect of the brand and their physical relationship with our brands, they simply think of their relationship with our brands. They want and expect to be able to mix and match digital and physical elements at will. We are determined to fulfill this desire and continue to invest in the people, processes and technology that will allow us to do so. We have talked many times about our ability to ship from store as an example of the blending of these two channels. We have also added capabilities such as drive-to-store digital marketing; buy online, pickup in store; reserve online, pickup in store; virtual shopping appointments; and cross-channel customer service to better meet the needs of our customers. The better we are at providing a truly seamless omni-channel experience the better our customers’ overall experience will be which will ultimately result in increased brand loyalty and a stronger business over the long-term. Our team’s relentless focus on improving our customer experience is evident in our numbers, which exceeded 2019 levels. During the second quarter, our combined direct-to-consumer, full-price store and e-commerce comp grew by an impressive 22% compared to 2019 with 15% growth in our biggest brand, Tommy Bahama and a remarkable 31% growth in Lilly Pulitzer. Growth in our direct-to-consumer channel was led by our highly profitable e-commerce business, which grew by 49% over the second quarter of 2019. In addition to the impressive top line growth, we were able to simultaneously expand our e-commerce gross margin. Our e-commerce business has been enhanced by our ship-from-store capability, which allows us to leverage inventories located in stores to serve e-commerce demand as well as demand from other stores. For the year, we expect our total e-commerce business to be roughly a third of consolidated sales compared to 23% in fiscal 2019. While e-commerce is our fastest growing channel, physical stores remain an incredibly important part of our direct-to-consumer business. In certain instances, there is no substitute for the personal interaction and high level of service that we are able to provide in stores. Our retail stores grew top line during the quarter, modestly over 2019 levels despite lower traffic with sequential improvement through the second quarter across all regions of the country. As we did in e-commerce, we were also able to expand retail store gross margins during the quarter driven by full-priced selling and higher IMUs. For this year, we expect retail stores to be just under 40% of our total business. We further differentiate our omni-channel approach to delivering happiness to our customers with our food and beverage offering. Restaurant bar sales grew 26% during the quarter compared to 2019. We have positive comp growth in all locations as compared to second quarter of 2019, with all, but a couple at double-digit levels. For this year’s second quarter, we have 5 additional Marlin Bar locations as compared to 2019. Our food and beverage capabilities give us a unique and powerful way to build relationships with new customers as well as reinforce the love that existing customers have for our Tommy Bahama brand. Based on the strong start to 2021 and our growing footprint, we expect our restaurant and bar business to achieve close to $100 million in revenue this year. Finally, while our wholesale business only comprises about 20% of our total sales, it remains an important channel of distribution. In situations where both we and our wholesale partner can be profitable, wholesale can be an important vehicle for exposing new customers to our brands and another way in which we can serve our customer when and how she wants to be served. The excellent performance across the enterprise for the quarter was driven by stellar achievements within each of the individual brands. Starting with Tommy Bahama, the brand delivered double-digit top line growth over 2019. Higher sales, combined with improvement in gross margin and excellent expense control drove 1,000 basis points improvement in operating margin to a very strong 22.7%. During the quarter, much of the growth was driven by knit-tops and shorts in both men’s and women’s, including many of our IslandZone performance styles. The strength in these categories is a terrific example of how Tommy Bahama benefits from and is capitalizing on the longstanding trend towards casual, easy care and easy-to-wear product. At the same time, Lilly Pulitzer achieved top line growth, up 16% over 2019, expanded their gross margin and also controlled expenses well. Combined, these results drove a 230 basis point improvement in the operating margin to an impressive 29.5%. From a product perspective, we have seen a nice rebound in woven dresses, which has been a historical strength for Lilly, but the biggest growth category has been our Lilly Luxletic activewear, which is now about 12% of our business. In our Southern Tide business, excellent growth in e-commerce plus the addition of our new retail stores drove 17% sales growth, which combined with expanded gross margins, resulted in a 21% operating margin. While it is early in Southern Tide’s retail journey, operating just a handful of company-owned stores in Florida, we are encouraged by the results that we are seeing. Finally, our early-stage business is The Beaufort Bonnet Company and Duck Head, while currently small, are an important part of our overall enterprise growth strategy. With our strong e-commerce businesses and growing wholesale businesses, both The Beaufort Bonnet Company and Duck Head delivered strong growth and expansion in both gross and operating margin. In addition, we are thrilled to have signed our first lease for a company-owned store for The Beaufort Bonnet Company and look forward to opening later this year. As we head into the second half of the year, while being mindful of the ongoing COVID-related challenges in supply chain and store and restaurant operations, we believe that our focus on executing our long-term strategic initiatives will continue to drive strength in our business. We have built a powerful and profitable, seamless, digital and mobile-first omni-channel platform that is driving growth by providing a superior modern customer experience. From a product perspective, the trend towards casual, easy care and easy-to-wear plays right into the sweet spot of our brands and we are doing a great job of capitalizing on the market opportunity. In closing, I would once again like to thank our committed and dedicated team members and express my sincere gratitude to our customers for the relationship we have with them as well as to our shareholders for their ongoing support. And now, I will turn the call over to Scott for additional details on the quarter and the outlook for the second half. Scott?

Thank you, Tom. As Tom just mentioned, outstanding performances in each of our brands in the second quarter resulted in record-breaking revenue, gross margin, operating margin and earnings. On the top line, demand for our products remained high and revenue exceeded 2019 levels in each of our direct-to-consumer channels and in each of our brands. Consolidated sales in the second quarter were $329 million compared to $302 million in the second quarter of 2019. Our gross margin continued to track significantly higher than 2019. On an adjusted basis, gross margin expanded 450 basis points over 2019 to 64% in the second quarter. Driving this improvement was the 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. Higher freight costs put some pressure on margin in the quarter partially offsetting some of the improvement. We gained SG&A leverage in the second quarter, improving from 47% of sales in 2019 to 44% of sales. SG&A dollars increased modestly from 2019 levels with increases in performance-based incentive compensation and marketing expense partially offset by decreases in other employment costs due to headcount reductions and lower occupancy cost. In the second quarter, our consolidated adjusted operating margin expanded 820 basis points over 2019 to 22% with operating margin expansion in all operating groups. Our business is well supported by our solid balance sheet and strong cash flow from operations. Our liquidity position is strong with $180 million in cash and no borrowings outstanding under our revolving credit facility at the end of the second quarter. Cash flow remains very strong. In the first half of 2021, cash provided by operating activities was $149 million compared to $24 million in the first half of 2020. On a FIFO basis, inventory decreased 34% compared to the end of the second quarter of 2020. Excluding Lanier Apparel, which we are exiting, FIFO inventory decreased 26% as compared to the end of the second quarter of 2020. Tommy Bahama, Lilly Pulitzer and Southern Tide each lowered inventory levels year-over-year with conservative purchases of seasonal inventory and higher-than-expected first half sales. Ongoing enhancements to enterprise order management systems are also contributing to a more efficient use of inventory. On a LIFO basis, inventory decreased 48% and excluding Lanier Apparel, decreased 39% compared to the end of the second quarter 2020. Our outlook for the back half of the year reflects our expectation of strength in our full-price direct-to-consumer business. We expect full-price direct-to-consumer sales growth and consolidated gross margin expansion over 2019. While we have raised our outlook for the second half, year-over-year improvement in our full-price direct business is expected to be partially offset by a handful of specific headwinds in the back half of the fiscal year. The strong first half full price sales has left us with less inventory for our second half clearance events, including an expected $15 million reduction in Lilly Pulitzer’s third quarter flash clearance sale compared to 2019. In addition, initial spring wholesale shipments which has historically shipped in the fourth quarter, are likely to ship in the first quarter of 2022 due to supply chain delays. Finally, the exit of Lanier Apparel is expected to impact revenue in both the third and fourth quarters. We expect sales from Lanier Apparel to be approximately $25 million lower than 2019’s third quarter and $20 million lower than 2019’s fourth quarter. For the full year, we now expect sales in a range of $1.085 billion to $1.105 billion as compared to sales of $1.12 billion in 2019. Adjusted earnings per share, is expected to be between $6.45 and $6.70, a significant increase from our previous guidance. This compares to earnings of $4.32 per share on an adjusted basis in 2019. For the full year, sales from Lanier Apparel are expected to be $25 million in 2021 compared to $95 million in 2019. For the third quarter, we expect sales to be between $220 million and $230 million compared to sales of $241 million in the third quarter of fiscal 2019. In the third quarter of fiscal 2021, we expect earnings of $0.20 to $0.30 per share on an adjusted basis compared to earnings of $0.10 per share on an adjusted basis in the third quarter of 2019. Our outlook includes strong quarter-to-date results with August as the most impactful month of the quarter in 2021. The company’s effective tax rate for the full year is expected to be approximately 23%. We continue to support our business in fiscal 2021 with investments for future growth. Capital expenditures are expected to be approximately $40 million in fiscal 2021 as we focus on technology related to digital marketing, customer service, mobile enhancements and improved distribution. In addition, we will be investing in additional brick-and-mortar locations with our newest Marlin Bar at Town Square in Las Vegas slated to open tomorrow. This Marlin Bar is replacing the recently closed full-service restaurant in the same center. Finally, we are proud of our long history of returning value to our shareholders through dividends, which we have paid every quarter since going public in 1960. This quarter, our Board of Directors has declared a dividend of $0.42 per share. We appreciate your time today, and we will now turn the call for questions. Hilary?

Thank you. [Operator Instructions] Our first question is from Paul Lejuez of Citigroup. Please state your question.

Hi, thank you. It’s Tracy Kogan filling in for Paul. I had two questions. First, I was wondering if you guys could elaborate on your comment about August being the most impactful month and that you’re off to a good start. I guess what did you see in August that Tommy and Lilly versus August 2019, both in terms of sales and in terms of margins. And then I have 1 follow-up when you’re finished. Thank you.

Okay. Tracy, thanks for being on the call, and I’ll let Scott talk to you about August and its importance.

Yes. In August, we have – Tommy has the Friends & Family event, which is a very important event, and it was – they had a very, very strong event. And Lilly also has some gift with purchase events. Also, it’s kind of towards the end of summer where we still have some great summer string. So August is always an important month for us. And this year with the strong events at both Tommy and Lilly, it was an exceptional month. We’re not fully closed. I’m not going to give gross margin actual comparisons and numbers because we haven’t fully closed the month. But August, we are going to have strong gross margins compared to ‘19, again, and we expect that to continue not only throughout the quarter but throughout the year.

And I guess on the sales line, maybe you don’t want to quantify it too much, just if you could give us some sense. Have things accelerated, decelerated versus – this quarter that just passed versus 2019? Is there a sequential improvement or deceleration on the sales line?

August itself has probably kept pace. I think September, October, there is just not as much opportunity. First, they are just not big months for us other – and the Lilly flash sale will be much smaller. So it used to be September, the Lilly flash sale was by far the biggest event. And then other than that, we’re really getting to that fall period where neither of our brands are overly strong in that period of time. We don’t have back-to-school businesses. In Florida – it’s kind of hurricane season in Florida. So those historically have not been very strong months other than the Lilly flash clearance, which as we said on the prepared remarks, will be about $15 million lower year-over-year.

Got it, thank you. And then my second question is, you guys mentioned a number of the omni-channel services you’re currently offering, such as ship from store, buy online, pick up in store. I’m wondering what are the big initiatives that you’re working on this year in the omni-channel world, in both your brands or in your key brands? Thank you.

Well, really, Tracy, there are a whole host of projects and all of them are involved around improving the customer experience, making it easier and simpler for her to shop however she wants. And as I mentioned during the prepared remarks to really sort of mix and match physical elements of the experience and digital elements of the experience, so the more that we can merge those two channels together and make them work in harmony with each other, the better experience the consumer is. So some of the ones that I mentioned are some of the big initiatives, which we’ve either completed or are in process, and it will be similar items to that, that really improve the seamlessness of the experience. So making it easier for her to – and for the store associates to handle a return in store, maybe that’s something that she bought online or order it from the store and if they don’t have it in stock, ship it from another store or the DC, which we can do already, but we’re already – we’re improving those capabilities enhancing her ability to sample products. So we talked about the reserve online, pick up in store. The idea there is that a customer could go online, pick out five or six styles that she thought she might be interested in, reserve them online and the store staff can actually build a dressing room for her with those styles. In the dressing room, she can zip in, try them all on, she sort of prescreened them online. They are all there waiting for her to try on. So it’s that kind of thing. And it’s almost a never-ending list, but the more that we can do, the better experience that we will provide for her.

Got it. Thank you guys very much.

Our next question is from Susan Anderson of B. Riley. Please state your question.

Hi, good evening. Nice job on the quarter. I’m curious, just looking into the back half, it looks like you’re expecting some lower profitability versus the first half. I’m just curious, is that more on the gross margin line? And would that be supply chain issues? Or are you also expecting higher SG&A expenses?

It’s much more top line. We called out the impact of Lanier and the impact of the Lilly flash sale. Also in the fourth quarter, we have our initial spring delivery. It’s usually – normally, it’s kind of available for a late January delivery and some people choose to take it in January, some choose to take it in February. We think with some of the supply chain issues that, that delivery might – most likely is going to be virtually all of 2022, will still be within windows of the wholesalers, but that will be more of an early 2022. So that’s providing a little bit of headwind also.

Got it. And is that for – sorry, go ahead.

Gross margin-wise, though, we still expect every quarter to have good expansion, gross margin-wise versus ‘19 in each quarter this year.

Okay, great. And for the late delivery, is that the resort line for this year?

It’s really spring one. And – yes, and we might have – we’re airing some goods, we might have some goods a little bit late in resort, but it really comes to where we still think we will be able to recapture most of that demand in the quarter. Really it’s that initial spring delivery impact on our wholesale businesses where the supply chain might push some sales from late in the fourth quarter to early in the first quarter.

Great. And then just regionally, are you still seeing the same trends that you saw last quarter with the South being stronger? And then I’m curious if Hawaii got back to ‘19 levels and then, I guess, your expectations for the back half there because I think they may be implemented some more restrictions?

Yes. So Susan, I would say that the relative strength of the regions was similar but that all regions really improved during the quarter. So the ones that had been weaker in the first quarter, the Northeast and the Midwest, mid-Atlantic, in particular, there is still – they haven’t caught up with some of the Southern regions, but they have closed the gap versus ‘19, which is great to see. And really all of them ended up looking pretty good as we progressed through the quarter. And then on Hawaii, there are some additional restrictions in place. I think they are working very hard in Hawaii to try to avoid a hard extended shutdown like they had last year. They are being smart about it. And obviously, they have got to be concerned about the public health issues. So undoubtedly, there’ll be a bit of turbulence there, but I do think that they are working hard to avoid the kind of scenario that we saw last year.

Okay, great. Thanks so much. Good luck in the back half.

Thank you.

Our next question is from Ed Yruma of KeyBanc. Please state your question.

Hey, guys. Thanks for taking the question. I guess first, clearly, a lot of goodness on the gross margin line. As we kind of think about this longer term, how would you parse out the benefits of kind of more D2C, more e-comm and reduced wholesale versus kind of maybe what’s more transient and kind of lower markdowns? And then just as a quick housekeeping. I noticed you guys did an $11 million sale of an unconsolidated entity. Any color on what that was? Thank you.

So first of all, on the gross margin, I’ll let Scott add to this. But I think the gross margin, a lot of what we gained, I believe, is sustainable there. There will be some pressure, as you point out, going forward from probably more promotion in the marketplace than there was – there is been really this year. But our pickup in gross margin wasn’t just about reduced promotional activity. It was also about the mix shift towards direct to consumer, which you identified. But in addition, it’s really better IMUs, which is the result of work that we’ve done on pricing and the cost of goods from the factory over the last couple of years, and I think we’re really seeing the benefits of that. And then the other thing that I would point out is that while we had those positives that helped our gross margin, we did incur a lot of additional freight cost during the quarter and we will probably for the balance of the year. Eventually, that will fade away. I’m not saying it’s going to happen during the remainder of this year. But I don’t believe those freight increases are all permanent and at some point, those will alleviate and will stop bearing that pressure that we actually had on gross margin during the quarter. And then on the callout that we had in the press release about the $11 million gain on the sale of our minority interest in an unconsolidated entity, that’s part of our emerging business units effort that we have talked about a bit, where over the last 4 years or 5 years, we have been making small investments, typically in the neighborhood of 10% in small but growing apparel brands. We have been partnering with those people and trying to learn from them and they learn from us. We help them a bit in their development. And then a couple of those have turned into acquisitions for us, where we have taken full control, like we did with Beaufort Bonnet. And then in some cases, we expect this to happen, and that’s what happened with the one that we have called out is that we conclude that we are not the right long-term home for them. But nonetheless, they are ready to consummate a bigger control-type transaction. And as part of that, we would sell our interest. So, out of the, I think, six maybe investments that we made so far, we have actually sold two of those, I believe is the count including the one that we called out in the press release. So, I think in the future, certainly not something we would expect to see every quarter and maybe not even every year. But from time-to-time, we will sell some of those interests and then some of them will go the other way, and we will go from minority interest to a controlled transaction. And with all that said, I will leave it to Scott to clean up everything – anything on the gross margin.

Yes. I will give you a little more comment on gross margin. Kind of the promo discount – the lower promos and discount, so it was a little shy of 300 basis points of margin. Our sales mix change was a little bit shy of 200 basis points. IMU was a little shy – right around almost 100 basis points. But then the freight was a little over 100 basis points going the other way. So, that kind of bridges the margin. And I think the promos, while – when you have that big a drop there, we are probably missing some sales because the inventory levels are so low. So, I think there was some top line opportunity that we couldn’t fulfill because our inventories were so lean. So, even if that number comes down a little bit in the future, I think we have some top line opportunity to be better inventoried.

And I think from a big picture perspective, Ed, that’s our model is really working. And a lot of what was – what we saw in the second quarter, there are no doubt favorable market conditions out there, and that did help, and we are not going to take full credit for all of that. But I think an awful lot of what we saw in the quarter is directly attributable to initiatives that we have been working on for years that are really paying off for us, and there are things that particularly during the COVID year last year, we just never took our eye off the ball. We did what we had to do to get through the year, but we also kept focused on those bigger term – long-term objectives. And I think that’s a lot of what you are seeing in the results and a lot of that will stick with us going forward.

Great. Thanks so much, guys.

Thank you, Ed.

Our next question is from Steve Marotta of CL King & Associates. Please state your question.

Good afternoon everybody. Wanted to talk about two things; first, just hitting the supply chain again. Can you quantify what you are seeing right now in delivery delays? And if there was – I mean you did call out the freight expense in the second quarter. Is it – was it air freight? And if so, how much was air freight in the first half and how much is built into the guidance in the second half?

I will let Scott provide additional color on this. But the issues, Steve, are – we are incurring some air freight to try to close the gap on some of the delays that we are experiencing and airfreight is always, as you know, much more expensive sort of per unit than ocean freight would be. But ocean freight rates have also spiked up quite dramatically. In sometimes – in some cases, as much as maybe 4x what they would have been a couple of years ago. So, it’s really air freight and ocean freight, and then we are incurring other expenses, in some cases, to try to help us expedite stuff that slate. In terms of trying to quantify the amount of slate, that’s – I am not sure I can quite do that for you. But what I will tell you is that our teams are being highly responsive. They are being very nimble and agile. They are adjusting. They are launching product that we do have in the warehouse earlier to compensate for stuff that might be coming in later. They are doing what we need to do to satisfy the outstanding customer demand that we have. And I think one of the biggest impacts that we will really see from a top line perspective will be, as Scott called out, those year-end Spring One wholesale shipments that we would normally get in the current year, but it will probably drift into next year. And Scott, anything you would add on the things Steve asked about the freight numbers?

Yes. The other thing in the freight is some – our e-commerce getting surcharges from the FedEx, UPS people of the world. And we will still see these freight cost pressures. They might be a little bit higher in Q3 and Q4 than they were in Q2. And it is – as Tom mentioned, it’s a combination of air freight plus much more expense of ocean freight.

That’s helpful. And in the prepared remarks, there was lots of peppered commentary about Tommy Bahama women’s. Can you talk a little bit about any strides you made during the period in that particular initiative? Thanks.

Yes. We had great performance in women’s and one of the things that we are very excited about as we mentioned that – but as we mentioned in the prepared remarks, Steve, was the performance of our IslandZone performance product in both men’s and women’s, but that was a real standout. I am going to let Scott give you some of the numbers in a minute. But the IslandZone product was really good. Dresses are always a strength for us and did really well. But when you look from a broader perspective, and I alluded to this in my comments, at the product, what you see is all these sort of macro trends, you see about casualization and easy care and easy to wear, as I have said in the comments, that plays right into the sweet spot of the brand, really all of our brands. And you see that in Tommy Bahama women’s. We are leaning into that. We are playing to those trends. It’s a natural for the brand and it’s really working for us.

Tommy Bahama direct-to-consumer channels – or women’s business expanded from 30% share to about 32.5% shares, so about 250 basis points of share. So, women’s had great growth, and men’s grew at the same time but women’s just really gained a lot of share in the quarter.

And when you think about that, Steve, that’s pretty impressive when you have a men’s business that’s twice as big as the women’s or a little more than twice as big, and it’s growing at a steady clip, and women’s is actually gaining share. That’s really pretty impressive.

Thank you again.

Thank you, Steve.

Our next question is from Dana Telsey of Telsey Advisory Group. Please state your question.

Good afternoon everyone and congratulations on the results. What was also very impressive was the operating margin improvement for each brand relative to 2019. As you think of the levers for each of those brands and what drove that operating margin improvement and the continuity go forward, how would you frame it for each brand? What’s different or the same for each of them?

Well, I think the big picture levers are really pretty similar. Everybody had improvement in gross margin. I think expense control was excellent really across the board. The gross margin improvement we talked about what was driving that, and a lot of those are things that I believe were directly attributable to long-term initiatives that we have had, including shifting more of the mix to direct-to-consumer, improving our sourcing to drive higher IMUs, working on pricing and frankly, having the brand strength to make pricing stick. And then the other thing that I will add is just the – and it’s sort of a soft factor, but that superior customer experience that we talked about in the prepared remarks, that really helps drive that full price, high rate of sell-through. And it’s both e-comm, it’s the stores and then it’s the two channels working in harmony together that are really doing that. And that has an enormous impact on our ability to drive full price sales. One of the facets of that is our ability to ship from store, which we have been talking about a lot the last three quarters or four quarters, but it’s a really big deal because we are able to match full price demand with inventory wherever it is located in the system. And that ultimately drives higher full price sell-through. And then another thing that I think I don’t want to leave this call without commenting on it is the exceptional customer experience that we provide in stores. And as excited as we are about everything that’s happening in e-comm and the sort of omni-channel blended e-comm and store experience. There is, in many cases, no substitute for that in-person, high-touch experience that you can have in one of our stores. And I have said this before, I will say it again, it’s a tribute to our teams. We will put our stores up against any, in terms of the quality of the experience that you have in those stores and that’s attributable to our great people that work in those stores. And in fact, just this week, I believe, a major news magazine rated Tommy Bahama stores #1 in customer experience, which is something that we are really proud of.

Got it. And then the other thing you mentioned is about e-commerce, and it sounded like the profitability or the margin accretion for e-commerce has accelerated. What are you seeing there? And how do you see that profile developing?

Do you want to talk about the e-commerce?

Yes. I mean our e-commerce business obviously our top line keeps growing at a very healthy rate. But it is, again, very profitable business. Our average in retails, were increased during the quarter. And again, with e-comm, some of these extra costs that go with e-comm when you have a large ticket and you have an expanding initial gross margin, it is a very profitable business and is growing at a great rate. And we have seen just a world of opportunity for that to continue in the future.

And just one last thing, how do you see inventories by the end of the year? Will inventories be in balance given the lean inventory levels that there are now?

They will come up some from the year-over-year decreases we are having now as we are able to react to the higher selling. As you remember, early February was – we were – first few weeks of February were tracking behind plan. We really got momentum in late February and into March, and then we started trying to react later in the year buys and started increasing those. So, I think our inventory positions will continue to get healthy. I mean they are very lean now, a little leaner than we would like, but it’s not an unhealthy thing to go through, and I think we will have a little bit more inventory by the end of the year.

Thank you.

Thank you, Dana.

We have reached the end of the question-and-answer session. I will now turn the conference back over to Tom Chubb for closing remarks.

Thanks to all of you very much for your interest. We hope you and your families have a safe and happy Labor Day holiday, and 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, and have a great day.