Greetings, and welcome to Oxford Industries Second Quarter 2020 Fiscal Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. 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 our 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 and first quarter 10-Q. 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. And now, I'd 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. Before I start, I would like to wish you and your families my personal best for your health and safety during these difficult times. I'd also like to pause just for a moment to thank our incredible people for all they are doing to delight our customers under such difficult circumstances. Our strategy at Oxford is a simple one: to own brands that make people happy, to delight our customers with memorable experiences and products they love. During 2020, we have faced a myriad of new challenges. Nonetheless, every day we are finding ways to successfully execute this strategy. In order to do this in the current environment, we’ve leaned heavily into our advanced digital capabilities. The investments we've made in our e-commerce channel over the past several years allowed us to capitalize on the accelerated shift to online spending. Each of our brands, Tommy Bahama, Lilly Pulitzer, and Southern Tide positively contributed to the 52% year-over-year increase in e-commerce sales in the second quarter. Lilly Pulitzer was the standout, up an extraordinary 142%. The Lilly product collection this summer was very strong and in many ways offered exactly what the customer was looking for: sun, happy, easy-to-wear apparel. The collection was highlighted by very effective digital marketing to which we shifted more resources in the quarter. A non-comp flash sale in June also added to the success of Lilly's second quarter results. Historically, the Lilly website offers sale items only 5 days a year. To ensure excellent inventory control, an additional 2-day flash sale was held in the second quarter, which generated $15 million from sales at a solid 40% margin. Even absent the flash sale, Lilly Pulitzer's e-commerce business grew 74% over last year. We continue to invest in our digital platforms and evolve our digital capabilities, including upgrades and redesigns of websites, enhanced search engine optimization, and enterprise order management systems. We believe the accelerated shift to online shopping brought on by the coronavirus health crisis is likely to continue. While brick-and-mortar will continue to be a key part of our distribution strategy, we believe our e-commerce channel will be stronger, bigger, and a more critical component to our overall strategy coming out of this crisis. In contrast, through our e-commerce business, consumer traffic to brick-and-mortar locations was understandably very challenged in the quarter, driving meaningful revenue decreases in our stores and restaurants. In addition to operating under restricted hours and limited capacity, important markets, which rely heavily on tourists, such as Hawaii, Las Vegas, and New York City, were pressured even further. Despite the temporary headwinds we are currently experiencing, we believe our modest physical footprint holds true competitive advantages for us. Across all of our brands, we have only 187 full-price stores and restaurants, with most located in premium, off-mall locations, such as lifestyle centers, iconic resorts, resort towns, and prestigious street fronts. Our beautiful stores and restaurants engage our customers, immerse them in our brands, and function as an important guest acquisition tool for us. While we look forward to the time when the store traffic improves, we are taking advantage of this opportunity to judiciously prune underperforming and non-brand enhancing locations. By the end of 2020, we will have closed approximately 10 locations, including 5 that closed in the first half. At the same time, we are also making some exciting additions to the lineup this year. We have already opened a Marlin bar at Dania Point near Fort Lauderdale and converted two existing Tommy Bahama locations on Las Olas Boulevard in Fort Lauderdale and St. John's Town Center in Jacksonville into Marlin bars. In the back half of the year, we plan to open Marlin bars at Fashion Valley in San Diego and Lahaina on Maui. During the pandemic, our Marlin bars, with their casual bar and dining concept and outdoor seating, have been a bright spot. Every day we are serving existing customers and attracting new customers to the brand. We strongly believe in the Marlin bar strategy, and we are optimistic about the role the concept will play in our future growth strategy. Southern Tide, which just began its foray into owned retail, now has two stores, both in Florida, with another opening in the Destin area this fall. While it is difficult to fully assess performance under current conditions, the results we have seen so far are encouraging. Lilly Pulitzer has done an outstanding job leveraging their brick-and-mortar locations by adding a concierge level of service for their customers with private appointments and curbside pickup. Their talented store associates are also assisting with customer service calls, further blurring the line between our online and store channels. Our wholesale channel, which we have been strategically pruning prior to the pandemic and represented approximately 30% of our revenue in 2019, has been significantly impacted by current conditions in the consumer marketplace and the weakness of many retailers going into the COVID crisis. Our wholesale sales in the second quarter were less than half of what they were a year ago. As part of our plan to focus on only the strongest partners in this channel of distribution, we meaningfully reduced our exposure to department stores, which made up only 11% of our total revenue last year. We are expecting sales reductions in this channel to continue through the back half of the year and are addressing this trend by very carefully managing our inventory levels. Across all channels, our sourcing, planning, and merchandising teams have done an extraordinary job, and our inventory levels are in very good shape, as is the rest of our balance sheet. Cash flow was quite strong in the second quarter, as we made significant expense reductions related to employment across the enterprise and reductions in occupancy costs. We ended the quarter with a strong liquidity position with over $30 million in net cash and over $250 million of availability under our credit facility. In March, I outlined our priorities for this year as: 1. the safety of our people and our customers; 2. protecting the integrity of our brands; and 3. preserving liquidity. These have been the right things to focus on during this crisis, but it is also important to remember that while dealing with the issues at hand, we haven't lost sight of our future and what a future we have at Oxford. With the strength of our brands, the resilience of our people, an enviable balance sheet, and the competitive advantages mentioned earlier, we look forward to returning the company to growth and resuming our long-term track record of generating increased value for our shareholders in 2021 and beyond. I'll now turn the call over to Scott with more details on the second quarter and our plans for the back half of 2020.

Thank you, Tom. As Tom discussed our sales in the second quarter were significantly lower year-over-year. The 36% decrease was driven by lower sales in our retail, restaurant, and wholesale channels, partially offset by an increase in e-commerce. Our gross margin was 55% in the quarter, down from 60% in the second quarter last year. We were modestly more promotional across our brands, including the addition of a successful Lilly Pulitzer flash sale, and we took inventory markdowns across all operating groups. We're pleased with the cost reduction efforts taking across Oxford as SG&A decreased 19% or $28 million. It's important to note that in the second quarter, we incurred $10 million on an adjusted basis related to credit losses, including the Tailored Brands bankruptcy, inventory markdowns, and fixed asset and operating lease impairments, or just a loss for the quarter, which included these charges was $0.38 per share. Managing inventory is a critical component of ensuring the health of our brands, and we have inventory levels that are appropriate for our plans for the second half of the year. We ended the quarter with inventory 3% lower than last year, despite the significant sales decline. As Tom mentioned, preserving a high level of liquidity is essential during these uncertain times. We have ample liquidity to meet our ongoing cash requirements, reflecting the strength of our balance sheet entering the pandemic, as well as the recent actions we've taken to mitigate the COVID-19 impact. During March 2020, as a proactive measure to bolster cash, we drew down on our $325 million asset-based revolving credit facility. With strong cash flow, we ended the second quarter with $65 million of borrowings, $97 million of cash, and unused availability of $257 million. As we move into the back half of the year, we'll continue to face the challenges and uncertainties created by the pandemic. In our third quarter, which is typically our smallest quarter of the year, we're expecting the year-over-year decline in brick-and-mortar traffic to be slightly less pronounced than it was in the second quarter. In addition, our Lilly Pulitzer flash sale, which has been a bright spot in the third quarter, is expected to be significantly smaller as some of the inventory that would have been available for the September event was pulled forward into the non-competitive June. As a result of the reduced traffic, a smaller flash sale, and continued softness at wholesale, we expect year-over-year revenue to decline in the third quarter at a rate similar to that of the second quarter. For the month of August, e-commerce continued with strong, positive comps. We continued to see year-over-year decreases in brick-and-mortar and wholesale with modest sequential improvement. For the fourth quarter, we don't anticipate a significant rebound in brick-and-mortar traffic and wholesale. We believe we will move closer to break-even, and expect to return to profitability in fiscal 2021. Our dividend is an important component of our commitment to our shareholders. Our board declared a quarterly dividend of $0.25 per share.

Our first question comes from Paul Lejuez with Citi Research. You may proceed with your question.

Hi. This is Kelly on for Paul. Thanks for taking our question. Let's dig into inventory a little bit more. It was down 3%, but that's much less than we are expecting your sales to be down in the back half of the year as such. So I was just wondering if you could talk about the health of the inventory, how much of that might carry a markdown risk? How do you plan on ending inventory at the end of the third quarter and any color by brand? And then just, secondly, if you could talk about the order books for the back half of the year, this fall, and then how that shaping up for spring. Thank you.

Tommy Bahama's inventory is slightly up compared to last year, and they did not have a typical end-of-season clearance event, which has been rescheduled for this weekend. This should help bring Tommy's inventory below last year's levels. Lanier's close inventory is higher than desired, but we have implemented appropriate markdowns, and it's mostly replenishment inventory. The pipeline cutoff levels are somewhat elevated, but they will decrease over time. This inventory has a long life, and it replenishes as our wholesale accounts sell the goods. We are confident in our inventory management and have taken the necessary markdowns. While inventory levels may be slightly higher than ideal, they are well-marked down. Lilly will have another September flash, which will be smaller than last year due to the June flash, but it will help reduce inventory. With the sales decrease, our actions to limit inventory input have kept us below last year's levels instead of significantly above. Although we have taken some markdowns, they are relatively modest compared to others in the industry. Overall, we believe we are in a good position regarding inventory.

So just on the order book?

And then the order book going forward, I think the comments that we made about the sales expectations for the third and fourth quarter reflect what we're seeing there. Beyond that as you get into 2021, I think it's a little early to say where that's going to shake out. We'll certainly have more about that in December.

Okay, great. Thank you.

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

Thank you. Good afternoon, and hope everyone is well.

Thank you, Rick.

Question on e-commerce. So do you believe the acceleration in the e-commerce segment represents a permanent change in the way your customers are shopping? And if that is the case, how are you thinking about your store footprint going forward? I know you're moving forward with the Marlin bar strategy, but curious if we should expect even more closures for your other locations beyond this year.

Well, Rick, we feel very, very good about e-commerce. As you know, we've been on that bandwagon for a long time. We've had great growth in e-commerce, even pre-COVID, and it's profitable growth for us as you know, our e-commerce channel is very profitable. So we like seeing growth there. I do think the shift is likely to be long-term. I don't like to use the word permanent because nothing seems to be permanent these days, but I definitely think that's the direction that things are going. So as we go into '21, I would expect e-commerce to be a significantly larger portion of the business than it was in 2019. And that's a good thing for us. We do think that brick-and-mortar are still a very important part of the future for our brand. We'll be very selective about locations and what we're really doing now is we're coming up on renewals or other opportunities to exit leases. We're looking very hard at them and there will be, I think over the next couple of years, we will continue to probably trim some here and there. But we will also add stores as we're doing even now in the right circumstances and in the right locations. And as you called out and pointed out, I think particularly Marlin bars are something that we're interested either in new locations or, in many cases, as we've done a couple of this year, it could be a conversion of an existing store location into a Marlin bar.

And a question on the outlook for 2021. So I appreciate that it's next to impossible to forecast anything with high conviction right now, but just curious about how you're approaching the year. Do you see it as a normal year, like 2019, but perhaps with a bit of conservatism, or do you see the potential for a hockey stick-like recovery where the business will reach a new high? Just, I'm just curious about what the assumptions are behind expectations for profitability next year?

We plan to approach this conservatively, which may limit our potential upside if there is a significant rebound in the consumer market. However, I believe this is the wiser strategy as it protects against downside risks, similar to how we managed the latter part of this year. While it's too early to make definitive statements about 2021, it's reasonable to anticipate that it will be smaller than 2019, but we expect it to be on a growth trajectory again. We'll start from a lower point, but we aim to be on a path of growth.

Thank you very much and all the best this fall.

Okay. Thanks a lot, Rick.

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

Hey, good evening guys, and thanks for taking the question. I guess, first, on kind of Lanier and the longer-term view there. I know you took the charge off at Tailored Brands, and maybe there are some even kind of acceleration of longer-term secular trends away from suiting. You manage that for cash flow historically. How do we think about the business in the medium term? And then as a follow-up with Tommy Bahama, clearly very destination-focused, are there ways you can pivot the assortment to be maybe more appropriate for the current environment? Thank you.

Yes. Thank you very much, Ed, and thanks for being on. And with respect to Lanier, the first thing I would say is, look, we've got a terrific team there. They worked very, very hard and they continue to work very hard and they're the best in their sector at what they do. That said, it is a very, very challenged segment of the apparel market within the customer base that they serve, which is largely department store and big box oriented. And they had a couple of customers, actually three in the last couple of weeks and tailored brands, Stein Mart and Lord & Taylor that all filed for bankruptcy. So they got that challenge, and then they’ve got their key product category being tailored clothing, basically men's suits that certainly have big challenges during the coronavirus. But even prior to that, it had some sort of secular challenges with just the ongoing casualization in the country. So their challenges are quite big at this time and we're working very, very hard with them on what the path forward is for that business. But, again, I'm glad you remembered it and called it out. What we've been doing for a number of years now is managing that business for cash flow. And that will be the priority going forward with Lanier. It's really maximizing cash flow from that business and I expect in December, we'll be able to tell you some more about that. But we will continue with that focus on really cash flow.

And then on Tommy?

Tommy has a wide range of products that are performing exceptionally well in the current market. For instance, the Chip Shot Short, made from quick-drying performance fabric, is ideal for transitioning from the ocean to a poolside restaurant. While resort attendance may be lower now, this type of product meets customer needs perfectly. Another standout is the Palm Coast Polo, which we launched over a year ago and has consistently remained one of our top sellers. We also have some new performance wovens in short and long sleeves that have received positive feedback from wholesale markets and will be available next year. We've also introduced the IslandZone Pant, featuring performance fabric that's easy to wear and care for, which is in high demand right now. Our entire portfolio is focused on these trends, and Tommy Bahama has always emphasized comfort, but the shift towards easy care has gained momentum over the past few years, and we plan to continue this direction. For this holiday season, we will present a collection of women's performance athleisure products that I believe will be very successful. Overall, Tommy is adapting well to the current environment and we're seeing strong sales from these products.

Great. Thanks so much, guys.

Yes. Thanks, Ed.

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

Hi, good evening. Thanks for taking my question. I was wondering if you could talk about the performance across the geographies, I guess, Florida, Hawaii, California? And I think you mentioned Hawaii, New York and Vegas were pressured. So maybe if you could just give us some color on kind of just the variety of differences and performances across those geographies.

Sure, I'll provide an overview of the market situations. Currently, Hawaii's market is essentially closed due to travel restrictions, preventing tourists from entering and imposing limitations on those already there. This has posed a significant challenge, especially for Tommy Bahama, which heavily relies on Hawaii. While we see this as a potential competitive advantage long-term, it is an immediate burden. In California, indoor malls are not allowed to open, affecting about eight of our stores. New York City is facing tough circumstances, and we remain closed there as well. On the positive side, drive-to markets are performing well. For example, Destin in the Florida Panhandle is thriving since it is primarily driven by rental houses, which are in high demand as families want to vacation together. Palm Springs has also seen great results, with visitors from LA taking advantage of their current inability to fly elsewhere. Jupiter, Florida, is another strong market, particularly benefiting from snowbirds from the Northeast who have not returned home. Additionally, a new Marlin bar in Jacksonville has opened recently and is performing exceptionally well. Overall, we are seeing success in these drive-to vacation destinations and areas where people from other regions are relocating temporarily.

That's very helpful. I wanted to get your perspective on the fourth quarter. Typically, you would have the resort line available, and consumers often consider taking vacations to warmer places, especially from the colder Northern states, but that may not happen this year. Consumers might be hesitant to fly. How are you approaching your product lineup for the fourth quarter? Are there any changes being made? Additionally, do we need domestic tourism to return to normal levels for sales to improve?

For the fourth quarter, we have made significant adjustments to our merchandise mix across all brands. While we have not completely abandoned our typical approach, we have focused more on the products that are currently in demand. Recently, items such as shorts, t-shirts, polo shirts, and light sweaters, along with many athleisure products, have been selling well. Swim products have also been strong sellers during the summer, particularly beach chairs, which have been difficult to keep in stock at Tommy Bahama, likely due to customers purchasing them for backyard use. We have adjusted our assortment in the fourth quarter based on the assumption that travel will not be as prevalent as before. We are observing trends in certain markets, like Destin, where individuals who would typically travel to destinations like Italy are opting to stay local and visit beach areas instead. This trend is present in many New England beach locations as well. We see plenty of opportunities to capitalize on this situation and believe we have been effectively adapting. Our fourth quarter plans have been shaped by the expectation of lower travel activity.

That's helpful. Lastly, it seems there are still some inventory issues to address in the third quarter. How do you view the promotional landscape for the brands in the third quarter compared to the second quarter?

Well, Lilly you'll have a little bit smaller flash sale than they normally have because they actually did part of it early in the whole variety of reasons that they did that, but they pulled a bunch of that inventory early into the second quarter, had a very successful flash sale. There will be one at some point during the third quarter. We're not going to call the name out yet or the data out yet, but it'll be a good bit smaller than in past years. And then Tommy, as Scott, I think, mentioned in his comment, ordinarily does a pretty significant online clearance and in stores in June, July that's been pushed out into the third quarter. So I guess, a little less in Lilly and a bit more in Tommy. And then overall, we're not really planning to be a lot more promotional. We are shifting some things around a little bit, doing things a little bit differently, but we've tried to manage the inventories so that we don't have to be highly promotional.

Great. That's helpful. Thanks so much. Good luck.

Thanks, Susan.

Our next question comes from the line of Steve Marotta with CL King. You may proceed with your question.

Good afternoon, everybody. Tom, considering that your customers can't come to you in Hawaii and other destinations, I'm assuming you're trying to go to them from a digital marketing standpoint. Can you talk a little bit about how you're engaging the customer and keeping the brands top of mind for them and converting digitally?

Our e-commerce results this quarter were exceptionally strong, showing a 52% year-over-year growth, with Lilly leading the way. Their success can be attributed to their strong digital marketing efforts, which have been their primary marketing strategy for years. They've significantly focused on social media and invested in paid social campaigns this year, which has proven effective for them. In contrast, Tommy has traditionally relied more on physical stores; they excel at using retail locations not only for sales but also for customer acquisition, ultimately supporting e-commerce. However, this year has posed challenges due to store closures lasting approximately eight weeks and a slow recovery in customer traffic. As a result, Tommy is shifting towards digital strategies and is making good progress, even though this approach has not been their primary focus in the past, unlike Lilly. The smaller brands seem to be in between, also performing well. Furthermore, we're facilitating the sharing of marketing techniques across all brands, enabling them to learn from one another.

That's helpful. And my follow-up question is, Scott, as far as the expense reductions go in the second quarter, can you talk a little bit about what's permanent? And I guess theoretically, what could potentially flex as you recoup some sales, but thinking about the permanency of some of the expense reductions would be helpful.

Yes. And also in the second quarter, May, the stores were, in essence, shut down. So you had a lot more furloughed employees. So we think we'll be at least 10% lower year-over-year in SG&A in Q3 and Q4. So, yes, I think that's more the permanent piece of it. So about 10% down in Q3 and Q4, maybe a little higher than that, but in that general range.

Thank you. That's helpful.

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

As you think about the e-commerce business and I think it was around 23% of sales last year, where do you see that going? And how do you see that even for next year? And while you've talked about e-commerce being profitable growth with shipping costs and what we're hearing now of potentially surcharges for the fourth quarter, how are you thinking of that blend of profitability in e-commerce this year and the impact on earnings? Thank you.

Okay. I'm going to let Scott handle the second part of that question in a minute. I'll take the first part. And it's hard for me to quantify exactly how big I think e-commerce is going to be next year. But I'm very confident in saying it'll be a much bigger piece of the pie in '21 than it was in '19. Hopefully, it'll be smaller than it is in '20, because that's really been the primary channel for a long time. But I think you look '19 to '21, you see a big step up. And longer term, in my mind, it's not hard at all. I don't know exactly how many years, but for it to be half our business is done online, doesn't strain my imagination at all. And we think that's a good thing. We're thrilled about that. I'll let Scott talk a little bit about some of the profitability profile and the impact of shipping charges.

Yes, I mean, e-commerce, the gross margins do end up being a little bit lower, because you do have the freight cost and the picking, packing cost. So it does end up being a little bit lower margins to start with. However, you kind of growth rates would get out of that, which you're going to grow that way in stores, you'd be opening additional retail units, and we're kind of getting this growth on a platform. And you have to continue to invest in the platform, but with our average ticket value and our high gross margins, it's still a very, very profitable business to us. And I think it can continue to be very profitable in the future.

Is there any difference by brand?

There isn't a significant difference. The average ticket prices are quite similar, and the gross margins are also comparable. For every box you send out, there are substantial gross margin dollars involved. So, if tipping adds a couple of extra dollars, it may slightly impact your gross margin, but not by a large margin. This scenario is very different from a business with an average ticket of $20 and a 50% gross margin, where a couple of dollars can severely affect them. In our case, with an average ticket of 150 and high or mid-70s gross margins, there are plenty of dollars to manage.

And can you remind us how big was the Lilly flash sale for the third quarter last year? How much did it contribute to the top line?

It was about $31 million. It was a significant sale, but in the second quarter, we made $15 million. We still generated a bit from the third quarter sale. While we will have a meaningful sale, it won't reach that $31 million level.

Got it. Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Mr. Tom Chubb for closing remarks.

Okay. Thank you, Laura, and thanks to all of you for your interest and your continued support. Stay safe. And we look forward to talking to you again in December.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.