Oxford Industries, Inc.
Q1 2008 Earnings Call Transcript

Published: 11 Jun 2008

[Operator:]

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to today’s Oxford Industries, Inc. first quarter 2008 earnings conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today’s conference is being recorded. Now, I would like to turn the conference over to Miss Anne Shoemaker, Vice President and Treasurer.

[Anne M. Shoemaker:]

Good afternoon everyone. Thank you for joining us today. Before we get started I would like to point out that some of the statements made on this call as part of the prepared remarks or in response to your questions which are not historical fact may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties which are described in the company’s annual report on Form 10-KT filed with the Securities and Exchange Commission on April 1st, 2008 and in our subsequent filings with the Securities and Exchange Commission. A copy of this report is available online or upon request from Oxford’s Investor Relations department. Oxford disclaims any duty to update any forward-looking statements. And now I’d like to introduce today’s call participants. With me today are Hicks Lanier, Chairman and CEO; Terry Pillow and Doug Wood from our Tommy Bahama group; Tom Chubb, Executive Vice President; and Scott Grassmyer, CFO. Thank you for your attention and now I’d like to turn the call over to Hicks Lanier.

[J. Hicks Lanier:]

Good afternoon and thank you for joining us to discuss our first quarter results which we just announced. As you may have read while we achieved our financial plan for the quarter and the business is fundamentally in good shape the risks associated with the tough external environment have prompted us to moderate our expectations for the near future. Consolidated net sales for the first quarter ended May 3rd, 2008 were $273 million compared to $292 million in the same period of the prior year. Earnings per share during this period were $0.59 compared to $0.95 in the same period of the prior year. Considering how tough it was out there we were pretty happy with how our business performed. Not only were we in line with our guidance we ended the quarter with inventories in very good shape down 23% from the beginning of the quarter and 17% from the same time last year. In this sea of promotional activity our gross margins were actually up a bit and cash flow from operations was very strong. The macro economic environment is worse than we had anticipated. As you read recently other than the discount and price club tier of distribution May retail sales continue to be weak. We do think however that this environment will turn at some point and that we’ll benefit from it. We are dedicated to ensuring that we position ourselves well to both weather the current climates and to quickly improve as conditions allow. The key to our strategy is not to sacrifice our brands in any way to achieve short term results. We will continue to make appropriate investments in Tommy Bahama and Ben Sherman to ensure that they are well positioned for an improved environment. Our plan for the rest of the year includes continued but more moderate marketing campaigns, measured and well thought out new store openings and surgical expense and inventory control. I’ll reserve some additional comments for closing. I’d like now to turn the call over to Terry Pillow who joined our organization on March 17th and became CEO of Tommy Bahama on June 1st. Terry has done a great job in these first few months getting to know the people and the business. We are delighted to have Terry on board and are very pleased with his transition to our organization.

[Terry R. Pillow:]

Tommy Bahama’s results for the first quarter were in line with our expectations. We reported net sales of $129.3 million for the first quarter of fiscal 2008 compared with $131.8 million in the same period in the prior year. The slight sales increase was driven by softness in both in our wholesale sales and our company owned retail stores. Tommy Bahama’s operating income for the first quarter was $19.5 million compared to $26.5 million in the same period the prior year. I think it’s important to understand what is happening in our retail stores in this very tough environment. Our issue is a traffic problem. The decrease in traffic is affecting Tommy Bahama and our peers. That said our conversion rates, dollars per transaction and average retail prices are holding and remember we are a full price retailer. Taking the current retail environment into consideration we have been managing our inventories very conservatively. We also continue to feel the impact of our regional store concentrations in Florida, California, Arizona and Nevada. What has been a plus for us in the past is now precisely what is disproportionately affecting us now. We’re continuing to have better results outside of these four states. For example in Texas where the energy boom is driving a strong economy we’re performing quite well. We are also operating eight more stores and two more café emporiums than last year. For several quarters now the lower sales had a de-leveraging affect and frankly we’ve taken it on the chin. The flip side is of course when sales go back we will benefit in the other direction. For the first quarter we also felt the impact of pre-opening expenses associated with café emporiums. These expenses were about $1 million higher in the first quarter than the same period last year. E-commerce is a bright spot for the direct to consumer business. We now have built our house style of addresses to over 500,000 names and our email address to over 200,000. This is going to allow us to be able to talk directly to our guests something this company has done very little of in the past. This is an area we are going to discuss further in upcoming months. Women’s has performed well throughout the spring season at our retail sales and with our wholesale partners. Unlike much of the market we have seen a good swim and swim related product performance. We are going to build on this success and invest in our women’s business to develop a full line women’s resort brand. In the first quarter we recognized approximately $2 million in additional marketing expenses over last year. Both our wholesale customers and retail and e-commerce customers responded very well to our [Santorini] spring advertising campaign. At this time Tommy Bahama does not have an international footprint that some of our competitors have recently benefited from. Our Australian licensee is going to open another two stores in the upcoming months bringing their total to three and with our licensing partners we operate six stores in Canada and two stores in Dubai. With the success in these markets we feel we have international opportunities in front of us and we are actively pursuing our options. In closing let me say I am delighted to be a part of the Tommy Bahama team and one of the most clearly defined and best brands in our industry. With the strength of this brand and our team I believe we have significant untapped opportunities. Now I’ll turn the call over to Tom Chubb for detail on our other three operating groups and consolidated figures for the quarter.

[Thomas C. Chubb:]

Good afternoon everyone and thank you for joining us. I’ll start with Ben Sherman. Ben Sherman reported net sales of $36.6 million for the first quarter of fiscal 2008 compared to $39.3 million in the same period of the prior year. The lower sales were primarily due to lower sales in our United Kingdom wholesale business as we continue to reposition the brand and in our wholesale business in the United States as we exited from the [inaudible] apparel business. This was partially offset by increased international and company owned retail sales. Operating income for Ben Sherman was $300,000 in the first quarter of fiscal 2008 compared to $1.7 million in the same period of the prior year. The reduction in operating income was primarily due to expense de-leveraging on the lower sales base. As we mentioned our company owned retail stores have performed quite strongly in the United States. Our Ben Sherman customers typically are young single guys with discretionary income and for whom fashion is a high priority. He just doesn’t seem to be as concerned by the economy as many other consumers. We are encouraged by our performance in retail and with that are pleased to announce plans for our fifth Ben Sherman store in the United States. We have selected another premier location this time on Newberry Street in Boston. With its eclectic mix of salons, high end fashion shops and dining establishments we believe this rich retail environment will complement our existing retail presence in Soho, San Francisco, Los Angeles and Las Vegas. The store is slated to open early in November of 2008. Our international expansion is continuing on plan. We’ve recently opened a store in Beijing, two stores in Korea and our most recent addition was in Gothenburg, Sweden’s second largest city and home to two significant universities a great location for Ben Sherman. The repositioning of the brand in UK is progressing on plan. In the UK we have radically changed the way we operate within [Devonon] who is our biggest UK wholesale customer. The introduction of the more aspirational and black and orange product together with enhancing our stop and shops and a more controlled merchandise flow has worked really well. Our areas stores are working good and performing solidly. Also over our whole UK apparel business we are gradually raising prices to reflect our strategy of trading up to a more premium position. This has been accepted by our customers without significant resistance. We are very pleased with the progress Ben Sherman has achieved in advancing our strategy this year and expect again to realize the fruits of our efforts in fiscal 2009. Net sales for Lanier Clothes were $38.7 million in the first quarter of fiscal 2008 compared to $42.7 million reported in the same period of the prior year. For the quarter Lanier Clothes reported break even operating results compared to an operating profit of $1.4 million in the same period of the prior year. Weak demand for branded tailor clothing has continued particularly in the department store channel of distribution. Despite the weak demand we have reduced inventory levels by 28% in Lanier Clothes over last year. In addition we have taken a page out of our successful Oxford apparel strategy and are reviewing Lanier customer by customer program by program. We have already implemented cost cutting measures and are identifying ways to rationalize underperforming businesses. We are confident that we can restore Lanier Clothes to profitability even if it means a smaller business. Oxford Apparel reported net sales of $68.7 million for the first quarter down 12.4% from $78.4 million in the same period of the prior year. Operating income from Oxford Apparel was $5.3 million for the first quarter of fiscal 2008 compared to $7.3 million in the same period of the prior year. Last year’s operating income benefited from a one time $2 million gain on the sale of the company's Monroe, Georgia facility. Oxford Apparel continues its strategy of focusing on key product categories in exiting certain underperforming lines of business resulting in comparable profits on reduced sales and a smaller asset base. The corporate and other expenses decreased to $5 million for the first quarter of fiscal 2008 from $5.9 million in the same period of the prior year. The decrease was primarily due to the impact of severance expenses recognized in the same period of the prior year. I’ll now move on to the consolidated results for the income statement, balance sheet and cash flow statement for the first quarter. As Hicks mentioned earlier for the first quarter ended May 3, 2008 consolidated net sales were $273 million compared to $292 million in the same period of the prior year. Consolidated gross margins for the first quarter of fiscal 2008 increased to 42.6% from 41.2% in the same period of the prior year. The improvement in gross margin was driven by primarily by a higher proportion of Tommy Bahama and Ben Sherman sales which generally have higher margins than Lanier Clothes and Oxford Apparel. Year-over-year gross margins improved in both Tommy Bahama and Ben Sherman. Selling, general and administrative expenses or SG&A for the first quarter of fiscal 2008 increased to $99.6 million or 36.5% of net sales from $93.5 million or 32% of net sales in the same period of the prior year. The increase in SG&A was due primarily to increased investment in the Tommy Bahama brand including the operation of additional retail stores, the spring 2008 marketing campaign and higher pre-opening expenses associated with two new café emporiums. Royalties and other income was $4.2 million for the quarter compared to $5.6 million in the same period of the prior year. Royalty income increased moderately at Tommy Bahama and Ben Sherman. Last year’s royalties and other operating income results were favorably impacted by the above mentioned $2 million gain on the sale of our Monroe, Georgia facility. Operating income for the quarter was $20.1 million versus $30.9 million in the same period of the prior year. The reduction was primarily due to lower sales volume and higher SG&A. Our effective tax rate was 30.8% in the first quarter and 33.1% in the same period last year. The change in our effective tax rate was the result of a change in our May 2007 assertion regarding our initial investment in a foreign subsidiary, the impact of certain contingency items in this quarter and lower anticipated earnings in the current year resulting in certain book to tax differences and discreet items having a larger impact on our effective tax rate. Diluted earnings per common share for the first quarter were $0.59 compared to $0.95 in the same period of the prior year. Turning to the balance sheet, receivables were $123.1 million at May 3, 2008 compared to $121.4 million at May 4, 2007. Total inventories decreased 17% to $122.7 million at May 3, 2008 compared to $148 million at May 4, 2007. We continue to manage inventory levels carefully and do not believe we have a significant risk of excess inventory. Cash flow from operating activities in the first quarter was $36.2 million compared to $26.4 million in the same period of the prior year. This allowed us to reduce our debt during the quarter by $33 million. As noted in our press release we successfully completed our repurchase of $60 million of our common stock at a price of $24 per share. In May we received an additional 558,000 shares bringing the total shares repurchased to 2.5 million or approximately 14% of our shares outstanding at the commencement of the program in November. Based on market conditions as we see them today we feel it is prudent to take a move conservative position and are moderating our guidance for fiscal 2008. Fiscal 2008 net sales are now expected to be approximately $1 billion compared to prior guidance of $1.01 billion to $1.06 billion. Fiscal 2008 diluted earnings per common share are now expected to be in a range of $1.90 to $2.05 compared to prior guidance of approximately $2.35. For the second quarter of fiscal 2008 which will end August 2nd, 2008 net sales are expected to be between $225 million and $235 million and diluted net earnings per common share are expected to be between $0.31 and $0.36. This compares with net sales of $244.6 million and diluted net earnings per common share of $0.49 during the three months ended August 3, 2007. Thanks for your attention and now I’ll turn the call over to Hicks Lanier for some closing comments.

[J. Hicks Lanier:]

While conditions in the marketplace are as bad as we’ve seen in a long time, we remain as bullish as ever about our future. We have built a first rate management team at Tommy Bahama and we are confident that Terry is the right person to lead this brand to the next level. Tommy Bahama still has a lot of flight space with opportunities for continued growth in company owned retail, women’s e-commerce and international expansion. With a market presence in more than 35 countries worldwide we are developing a true international brand in Ben Sherman. In addition we have a balance sheet that provides us ample financial flexibility today and will support our strategic objectives going forward. For the short term as I mentioned we are under no illusions about the marketplace and we remain focused on inventory management and expense control. We expect to emerge from the current difficulties unharmed in any fundamental way and to be in a position to take full advantage of an economic recovery. Thank you for your time this afternoon and your continued support. Rebecca, we’re ready for questions now.

[Operator:]

(Operator Instructions) Our first question will come from Eric Tracy – BB&T Capital Markets

[Eric Tracy:]

Maybe Hicks if we could kind of talk a little bit bigger picture, obviously environment is what it is and is pressuring most every one in the space, is there ability as you continue to go through the strategic repositioning of the company towards a higher margin branded offering to pull, given the flexibility that you have in the balance sheet, to maybe be a little bit more aggressive on the acquisition front? Is there something out there that maybe is attractive that you have your eye on that you’re sort of aggressively pursuing at this point?

[J. Hicks Lanier:]

I wouldn’t say that there’s something that we’re aggressively pursuing at this point but we’re certainly cognizant of most of the opportunities that exist out there and are keeping in pretty close touch with it. As we expect to continue to evolve our strategy in the same direction that we’ve been trying to move. There’s no change in the basic direction at all and we think the fact that we do have a sound balance sheet and we are managing our assets well is going to enable us to take advantage of opportunities.

[Eric Tracy:]

So use of the cash to continue to pay down the debt and potential for the opportunistic share repurchases?

[J. Hicks Lanier:]

I think that and opportunistic situations in this environment.

[Eric Tracy:]

Any additional detail in terms of the Q2 guidance at least relative to my model, it seems like top line pretty consistent yet the EPS well below sort of implies that there’s a pretty significant hit to margins. Could you all either Hicks or Tom sort of talk through what that is?

[J. Hicks Lanier:]

I think I can comment on that. One of the things that Terry emphasized in his situation is that our basic problem with our own stores now is it’s just macro issues relating to traffic. The fact that our conversion is as good as it has ever been and the average transaction is as good as it’s ever been when we have a decrease from lack of traffic in the stores we’re really losing a double margin on that sale, the wholesale margin and the retail margin. So that impacts us pretty dramatically and the month of May was quite sluggish for us in our own stores. We’ve seen a little bit of pick up in the first 10 days of June which is encouraging to us but when we decided on this guidance we didn’t have enough information to really get too bullish at this point.

[Eric Tracy:]

A couple of follow ups on that in terms of Tommy Bahama, I think you talked last call just in terms of seeing some pockets of strength, Florida in particular, was that more of a blip or is there any continued?

[J. Hicks Lanier:]

I think what we said was the West Coast of Florida was doing pretty well on the last call relative to the East Coast, but Florida is still weak by almost any measure. The West Coast a little better than the East Coast as we continue to struggle in Southern California particularly, Nevada with Las Vegas, we’ve got four stores there as you might remember and Arizona, as Terry mentioned we’ve got some pockets of strength like Texas, like relatively the Midwest and the Pacific Northwest but it’s a challenging environment out there.

[Eric Tracy:]

Lastly it sounds like women’s continues to perform obviously off a low base but can you talk a little bit about that? I’m assuming that there is a pretty tight correlation to the marketing and investments you put behind that as well as just the design shifts that have been noted but is there an opportunity to accelerate that a little bit at wholesale? Is there enough demand there to offset?

[Terry R. Pillow:]

As I said earlier, we’ve seen in our own retail stores and in some degree the wholesale business, we’ve seen a very strong women’s presence in, when I say swim, swim and swim related products which is where we are making a real impact in the market. In the wholesale side the women’s business today is primarily swim and swim related markets. Wherever we have distribution in department stores we’re consistently one of the top performers either one or two in every department store group which that’s where we’re focusing our attention in building our entire women’s platform around swim, spa and resort related products. In regard to accelerating that with holiday we are focusing and making a more aggressive presentation on that and continuing on the strength we built on the spring into the holiday. So yes we see great growth and big future for our women’s business.

[J. Hicks Lanier:]

Just to elaborate on that, in this environment we’re not going to get too far ahead of ourselves so we’re going to continue to plan pretty conservatively and leave everybody a little hungry and that’s sort of a good thing. I would say the real impact for women’s will probably come in our next fiscal year, for spring 09 and beyond. But we are I think just universally we couldn’t be more pleased about the way the product is coming along, the team is coming along and that goes for our own stores plus our wholesale accounts and we’ve gotten very good response from this marketing campaign for spring 08 in women’s.

[Operator:]

And next we’ll hear from Susan Sansbury - Miller Tabak & Co., LLC.

[Susan Sansbury:]

Hicks and I guess Terry, with respect to Tommy Bahama I believe Hicks you mentioned that you’re intending to moderate the advertising or marketing program on a go forward basis for the balance of the year.

[J. Hicks Lanier:]

Let me just interrupt you right there, that just means we’re not going to have an incremental $2.2 million each quarter for the balance of the three quarters. We will have an increased spend over the previous year but it will not be as great as it was in the first quarter.

[Susan Sansbury:]

With regard to your plans for new stores, Tommy Bahama also?

[J. Hicks Lanier:]

We’re still on a plan for this fiscal year of about eight to 10 new ones and I think that we’ll proceed with that and this environment as far as beyond that is we believe will provide us with some locations that are some we have probably coveted for a few years but could not get in prior environments but we will now. I think it’s going to be a plus for us in the long run.

[Susan Sansbury:]

In terms of traffic can you share with us how much traffic is down year-to-date or from peak to trough? Is it accelerating, decelerating, stabilizing?

[Doug Wood:]

It really goes market to market and I think as Hicks said, that we’ve seen anywhere in the Las Vegas desert and Southern California markets traffic decreases in the high 15% to 20% range. So that’s where when you get traffic down like that, we were seeing a conversion go up and we’re actually seeing our dollar transaction go up. We’re able to focus on what less customers but you still can’t make up for the footfall reduction. That’s what we’ve seen and we’ve seen a dip in the first quarter and actually as we went into May.

[Susan Sansbury:]

Is this just in Las Vegas or is this in Florida and just Southern California?

[Doug Wood:]

Susan, it differs region to region, the worst traffic issues right now are in that what we call our desert region, the Las Vegas region and our Southern California regions for sure. But we have seen traffic decreases also in Florida and even we’ve seen some traffic reductions in Hawaii as I’m sure you all followed the, we’ve had some airlines go out of business and a couple of the islands in Hawaii got just beat with that. So we’ve seen traffic issues there as well.

[J. Hicks Lanier:]

Susan, I think it works both ways. We’ve benefited from it for a long time but we’re suffering from the fact that not only the general economic conditions but the lack of tourism in these Sunbelt resort areas which is sort of our hot spot, so we’ve gotten a double dose of the general economic conditions plus this tourism shortfall.

[Doug Wood:]

As Hicks said earlier that what we see there we then flip over and look at Texas and we’ve got a market in Texas where we’re up double digit in traffic and in sales which is encouraging one way but that’s not where we have the majority of our stores.

[J. Hicks Lanier:]

But it’s encouraging to us in that we know it’s not a product issue.

[Susan Sansbury:]

Switching to Lanier you mentioned that your goal was to return it to [inaudible] is there a timeframe here?

[J. Hicks Lanier:]

We are profitable. It’s not been losing money it just hasn’t been up to its historical standards or our financial targets and I think we’ve said pretty consistently for the past few calls that that sector of the market is probably the weakest of any of them. That is what we.

[Susan Sansbury:]

So this is a macro issue, there isn’t anything that you can do quickly to substantially improve the profitability?

[J. Hicks Lanier:]

We’re working day by day but it would be a lot easier if we were in more favorable economic conditions but we’re not and so we’re just dealing with it.

[Susan Sansbury:]

Hicks, in the UK for Ben Sherman you’ve been repositioning this business it seems to me for a long time, maybe it’s just my perspective.;

[J. Hicks Lanier:]

Well, it seems like a long time to us, too.

[Susan Sansbury:]

Is there a light at the end of the tunnel?

[J. Hicks Lanier:]

Absolutely there is a light at the end of the tunnel. Joanne, I think we’ve told you on the first call it wasn’t going to show in the business this year, this was sort of an inflection year for us and it will show next year. But let me preface by saying that the conditions in the UK are not any better than the US, they’ve got the same residential housing plummet over that we’ve got here, they’ve got unemployment issues, they’ve got energy issues. Generally in their weak market there but the repositioning that we’ve done has really played out according to the plan we have. We’ve upgraded the product, we’ve upgraded the presentation in the retailers that we have historically had. We’ve added on to retailers at a higher level and we’ve trimmed the bottom tiers, so it’s all played out just as we had hoped and I think Ben Sherman at this point is sort of pinching themselves that the higher prices have been accepted, the improved presentation in the stores is working. The problem is that we made this huge effort there but we trimmed off business at the bottom so whatever we did at the top is just not quite reflecting what we’ve trimmed, but we’re getting close to a point where we will start showing some tangible growth and I think the UK retailing partners that we’ve got are very pleased with what’s happened. They had some reservations about what we were trying to do but they see the merits of it now. So it’s a good situation and particularly it’s good because it’s a springboard to create this international brand. It’s just working, it’s just going, you’ve got to be a little patient for a little longer, I guess is the story there because as we have expanded internationally we have expanded our infrastructure to make sure that business is handled properly. I think we told you on the last call we’ve hired this Andrew to be our global retail director, he’s been in the States, he’s been in the Far East. I visited with him a bit, very positive we think he’s a great resource. We’ve added the continent of Europe to the infrastructure that we’ve got there. I think we told you that we moved James [Beadle] from the UK to Hong Kong to head up the Far East and it’s not him by himself, it’s an office of four or five people. So we’ve got an infrastructure in all of these areas now. At this juncture the income is probably not covering that infrastructure but it continues to level out as we planned. It’s going to be terrific.

[Susan Sansbury:]

Also dependent on macro factors? You said you expected a recovery in 2009 but is that contingent on the UK economy improving or not getting any worse? Or no? That’s fine, Hicks.

[J. Hicks Lanier:]

I’ll go with the no.

[Operator:]

We’ll take a question from Holly Guthrie – Janney Montgomery.

[Holly Guthrie:]

Question on Tommy Bahama, I know the Tommy Bahama brand is a wonderfully priced brand but I was just wondering in some of the tougher markets, have you tested any promotions and if so how has the customer responded and if you haven’t tested are you thinking about is that potentially maybe a way to boost income a little bit?

[J. Hicks Lanier:]

Let me make one or two comments and I’ll turn it over to Terry. This is a very topical conversation with us. As far as our full price stores which is all but seven of them we feel very strongly about those being full price stores and there are not going to be significant promotions in them. We are very sensitive when we have a situation with our wholesale accounts where they are promoting more than we think they should and in times when we think they should not. There is one avenue that we have had some discussions on, our outlet stores, and we’ve got about one outlet store for each ten regular stores and that’s where we take care of the merchandise that’s not selling satisfactorily. When it’s generally sort of a high spots are the rejects out of a stores we are discussing the possibility and are actually at a testing phase of putting a broader product line in those and keeping certain core items stocked in the stores the way many of our peers do like Polo but a number of ours and that could a vehicle for additional volume for us. We have pretty much concluded that there is not a huge amount of price elasticity in our own stores and it just doesn’t work for us to put them on sale. We don’t get that extra volume and we lose margin.

[Terry R. Pillow:]

That’s true, Hicks. Holly it is essential in the company, you’re right it’s a unique position to be in but I think it’s a very positive position to be in, be a full price retailer right now in this economy rather than looking at how we’re promoting, we’re concentrating more on the things that we do best and make sure that our product is quality and designed to demand those prices at retail and make sure that our presentation in most stores is good as it possibly can be and I’ve been out there in the last couple of months looking at these stores. We’re doing a great job of presenting our product and also the last would be educating our salespeople and educating our guests on just why this product is special and so we’re doing all the things that we can other than converting it because we have a very unique position and I think a very unique product and it deserves to be presented in a full price environment. I think that’s what’s brought this brand here and what’s going to continue. Hick Doug, you might comment on the website as a vehicle.

[Doug Wood:]

To go to that point and, one of the things that Terry brought up in his comments was that we’ve now built an email database that just in a very short period of time it’s over several hundred thousand names and because we’re a full price brand we’ve actually went the other way where we’ve said our guests actually respond to exclusive offerings. So just recently for example we went out with an exclusive shirt that instead of lowering the price we made only 250 of them and we priced them at $250, put in a letter of authenticity, a print to it and went out and within literally 24 hours were sold out and our waiting list is over 500 people. What we look at that as an opportunity for us to actually remind our guests why we’re special in this market because it is a sea of promotions out there and to be able to talk to people in a full price way but in a branded way is something that we’re doing at e-commerce and what you’re going to see very soon and it’s through our mailing list that we’ve been working on, we’re going to start talking to people directly to bring them to our website but also bring to our retail stores and these are vehicles that other retailers have had or have that we as a company we’ve not had before and when I say not had before, I mean literally 90 days ago we didn’t have this. This is something that we’re focusing on this year that may not show up in this fiscal year but certainly is going to pay big dividends for us next year and in the future.

[J. Hicks Lanier:]

One last comment and then we’ll ask you for other questions, we are quite pleased with the fact that in this most recent quarter our gross margin percentage was up, not down and in the environment that we’re talking about, that’s a pretty big statement. It’s also a pretty big statement to talk about reducing inventories the amount we did and still having these margins. We’re talking about that inventory reduction did not come for free. It cost us to move some of that inventory but we were determined to do it and we’re pretty pleased with that.

[Operator:]

We’ll hear from Sean Naughton - Piper Jaffray.

[Sean Naughton:]

A couple of quick questions, when you’re talking about the new store openings for Tommy Bahama I think it was between eight and 10, can you talk about the cadence for that the balance of the year and the mix between compound and full price retail stores?

[J. Hicks Lanier:]

I can tell you right off the bat that there has been no further compounds for this year. It was sort of a freak that we ended up opening two in one quarter and if we ever do that, just shoot me. That was a challenge most financially and operationally because when you do a compound you’re talking about the pre-opening expenses being a lot heavier because you’re training not only for store personnel, which is a relative handful, but you’ve got the whole crop for the restaurant which just takes in a whole different genre. Doug, do you have the rollout on the remaining stores for this year?

[Doug Wood:]

You actually saw it in the first quarter we actually did several in the first quarter. We’ve got Anaheim that’s going to be rolling out in the month after next. We’ve got Sarasota which what we’ve got going in Sarasota we’re opening up in a bigger site and we’re actually looking at opening up another outlet and this one would be out in Utah right outside of Salt Lake. I think we’ve got three more stores left in this fiscal calendar and nothing else that I’m aware of on the books.

[Sean Naughton:]

You sound like you’re pretty pleased with the Ben Sherman direct to retail program that you have here in the United States, can you comment on whether or not is that business profitable today or are you pleased with how the operating margins are on that business?

[J. Hicks Lanier:]

Let me say this, we’ve got four stores open right now with a fifth to open. Obviously that’s not enough to have much of a critical mass in terms of your support group there, so it’s a little out of balance from that standpoint. I would say that we’re very pleased with the store in Soho, that’s just been a homerun for us. We were disappointed with the first year or so in San Francisco but it’s really beginning to gather momentum. The one in Las Vegas we knew it was going to be rough for the first year because they were doing a lot of construction at the opening of that Miracle Mile and it proved to be challenging but that’s pretty much behind us and we’re seeing real good comps there. By and large we’re pleased with those stores and we think it’s going to be a very viable financial model.

[Sean Naughton:]

Lastly, on the Ben Sherman international, how many stores are we talking about here for opening this year?

[J. Hicks Lanier:]

I think we had 29 for the year, Anne?

[Anne M. Shoemaker:]

Yes.

[Sean Naughton:]

How far are we through that campaign right now?

[Anne M. Shoemaker:]

We have 17 license stores right now.

[J. Hicks Lanier:]

And we expect to have 29 at the end of the year.

[Anne M. Shoemaker:]

Something like that.

[J. Hicks Lanier:]

And then further rollouts next year. So that one’s moving quite rapidly and that’s the reason for this infrastructure build in Europe and in the Far East. The Far East is supporting mainly South Korea, the way I think the plans are to have 10 stores within 18 months and we currently have six. China where we’ve got two in Hong Kong open, one in Shanghai but more on the going forward.

[Anne M. Shoemaker:]

Beijing.

[J. Hicks Lanier:]

Yes. We’re moving pretty rapidly there.

[Operator:]

We’ll take a question from Holly Guthrie – Janney Montgomery.

[Holly Guthrie:]

Question on Ben Sherman, I was hoping to get some understanding as we move into the rest of the year and you start going against the period where you [inaudible] the UK, could you talk about your taste for your overall business? If we get to that period if the retail stores seem to perform well, will that anniversarying, the change in the UK offset some of the sluggishness in the US business if that doesn’t change too much or how can we think about once we get to the back half for venture?

[J. Hicks Lanier:]

I think that just to make sure you understand what we’re [inaudible] the retail stores we have here by and large have held up pretty well during the first four months of this fiscal year in terms of comping. We’ve been pleased with that. The wholesale business in the US we had this [Evasue] brand which we phased out of and we’re up against some of those figures from last year but that’s pretty much behind us now as far as comping going forward. We expect growth in the US, we’re expanding the number of wholesale door and we’re expanding the retail doors. The UK, we are not in an expansion mode with the retail stores over there. We may open one or two in the next year or so but fundamentally we’re putting our money in the US and in these international locations. Like we’ve been looking for 18 months to find the right spot in Berlin and I think we finally got it so we’re hoping that’s going to be a major opening for us in the next six to nine months.

[Holly Guthrie:]

On the gross margin, you had indicated and you had a very successful first quarter as far as the gross margin picking up, that’s great. Could you talk about what it was that drove the margin? Was it better sourcings or lower costs? What was it?

[J. Hicks Lanier:]

Well, I think the biggest issue is it was the high percentage of our two brands, Ben Sherman and Tommy Bahama and a higher percentage of direct to consumer business under those two brands. So that’s principally what drove the margins. Unfortunately what we didn’t get with that was as big a bump in the top line as we would have liked and would have had in a more normal situation and that’s why we keep referring to the de-leveraging we’ve encountered over the last few quarters where we’ve opened more stores but we don’t have a big bump in the top line. So you’ve got more fixed expenses that are sitting there but we feel pretty confident that that’s a result of the macro economic situation and we can’t tell you when that’s going to change but we know it will at some point and we’ll be hopefully in the [inaudible] seat and that’s when you get the opposite of a de-leveraging and you get a very positive leveraging aspect to it. In the meantime as we pointed out we have been pretty vigilant not only on risk management and inventory control but also on our expenses.

[Operator:]

We’ll hear from Susan Sansbury - Miller Tabak & Co., LLC.

[Susan Sansbury:]

Two quickie questions, in terms of the inventory reduction, can you share with us where you took it? Was it evenly across the divisions? Was it more at Oxford Apparel and Lanier?

[J. Hicks Lanier:]

I would say the biggest hunks went in the two legacy businesses, Oxford Apparel and Lanier. That might be the best way we wanted it.

[Susan Sansbury:]

I guess this question is for Tom and/or Scott Grassmyer, you’re going to replace your financial systems with an SAP package?

[Thomas C. Chubb:]

Correct.

[Susan Sansbury:]

Have you started? Are there going to be startup expenses? Is this the beginning of a huge project?

[Thomas C. Chubb:]

It’s all baked in to the guidance that we’ve give you so far this year. There’s some capital expenditure that will hit this year and then there will be a bit next year. But, it’s all incorporated to what you’ve already received?

[Susan Sansbury:]

But it’s only the financial solutions, it’s not planning and allocation or inventory?

[Thomas C. Chubb:]

That’s right. And, if you’re familiar with SAP at all, doing the financial systems while it’s a big deal for us, its about probably 10% of the project that it would be if we were going to go to their inventory and order management system.

[Susan Sansbury:]

So we’re just dipping out toes in the water? Or, we’re going to commit to SAP?

[Thomas C. Chubb:]

All we’re focused on right now is the financial systems. We have a very disparate set of systems now, we’ve got AR and credit on one system, we’ve got general ledger on another, accounts payable on yet another, fixed assets on yet another. We’ve got different systems here in the US, the UK and the Hong Kong and this will get us on one integrated financial system which will give us some great benefits in terms of efficiency and also accessibility of information for us.

[Susan Sansbury:]

But, that assumes that there’s going to be – this system has a history of installation issues, startup issues, can you talk about what type of benefits you expect once you get the financial part up and running? Once it’s integrated to the whole system?

[Thomas C. Chubb:]

As you might imagine with the disparate systems that we have we do a great job, Scott and Anne, and their finance teams do a great job of pulling together everything that we need and our auditors are quite happy with us as well but as you might imagine there’s a lot of sort of manual processing that has to happen and this will give us much greater efficiency in the financial process. And then the second thing is it will give us better visibility to information across the businesses. You know, the last five years we’ve changed quite a bit with bringing in Tommy Bahama and Ben Sherman and them giving us a truly international aspect to our business as well as all the retail and that’s made it, it’s not that we don’t get it but it just requires a lot more manually intervention to get the type of information that we want to see at the corporate level to manage the business. So, those were the main benefits. As to the issue with implementing SAP, we’re very cognoscente of some of the problems that people have had in the past and we’ve studied where people have gone wrong and I think we’re doing all the right things to avoid those issues. Then, the other thing I’d say on that is again, doing just the financials is a much, much smaller project than if you’re doing the full blown ERP enterprise resource planning.

[Operator:]

We have no further questions. I would like to turn the conference back over to the presenters for any additional or closing remarks.

[J. Hicks Lanier:]

We’d like to thank you for your interest in us today. We are frustrated with this external environment but very confident on our strategy and our execution of it so we’ll hopefully look forward to our next visit telling you that we’ve got some tailwinds instead of headwinds to keep us moving forward.

[Operator:]

Ladies and gentlemen that does conclude today’s presentation. I do think everyone for their presentation. Have a wonderful day.