Oxford Industries, Inc. (OXM)

Earnings Call: Q2 2018

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Aug 31, 2017

Good day, ladies and gentlemen, and welcome to the Oxford Second Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the floor over to Ms. Anne Shoemaker, Treasurer, for opening remarks and introductions. Please go ahead, ma'am. Thank you, Bethany, and good afternoon, everyone. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q and 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 ks. 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 atoxfordinc.com. Please note that all financial results and outlook information discussed on this call, unless otherwise noted, are from continuing operations and all per share amounts are on a diluted basis. As a reminder, the results from the Ben Sherman business are reflected as discontinued operations for all periods presented. Also on April 19, 2016, the company acquired Southern Tide. Please also note that fiscal 2017, which ends February 3, 2018, is a 53 week year. And now, I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO and Scott Grassmire, CFO. Thank you for your attention, and I would now like to turn the call over to Tom Chubb. Good afternoon, and thank you for joining us. Before we jump into the discussion of our results and outlook, I want to spend just a minute or 2 on a topic far bigger and much more important. The devastation being delivered by Hurricane Harvey to the Gulf Coast region of our country is simply horrific. Our thoughts and prayers are with the millions of people whose lives have been disrupted and, in many cases, upended by the hurricane, including some of our own employees and guests. If there is anything redeeming about this terrible natural disaster, it is its demonstration of the fact that when the chips are down, it becomes evident that there is an incredible capacity for goodwill and generosity across our nation. The can do spirit of the people in the affected regions coming together and helping each other on a neighbor to neighbor basis as well as the work of the tens of thousands of professional and volunteer relief workers involved in the effort is truly inspiring. We are proud to have a number of initiatives underway through which our company and our employees across the enterprise are helping in the effort. I'll now move on to some commentary on our business. With solid results for the first half of the fiscal year under our belt, we are well positioned to deliver a healthy growth on both the top and bottom line in fiscal 2017. Our dynamic portfolio of compelling lifestyle brands and our well managed channels of distribution differentiate Oxford, and we are confident in our ability to deliver shareholder value. A real highlight of our first half is the positive momentum we saw and are continuing to see at Tommy Bahama. In a very crowded and noisy marketplace where consumers are bombarded, perhaps even overwhelmed by various forms of nonstop communication, many brands struggle to effectively deliver their message. Not so with Tommy Bahama. Our call to live the island life is one that Tommy Bahama alone can proclaim boldly and with authority. Then we not only talk the talk, but we walk the walk by backing up our brand message with our beautiful, differentiated and innovative product, our island inspired stores, restaurants and communications and most important of all, our wonderful people who embody the Aloha spirit in everything they do to serve our guests. The numbers we have achieved thus far this year in Tommy Bahama are the direct result of proclaiming the message, live the island life, starting with the 132 page brand catalog we sent over 900,000 guests in March and then bringing that message to life in every product we make and everything we do and say. Our men's business remained unfalteringly strong, and we gained traction in our women's business. Traffic inched into positive territory in Q2 and comps were solidly positive at +5 percent for the first half. In addition, our restaurant business comped up 6% in the half with particular strength in our key Hawaiian market. Leveraging the competitive advantages of the Tommy Bahama brand is how we have succeeded and how we will continue to succeed. During the second half, we will continue to leverage our island lifestyle positioning with a variety of compelling initiatives to excite and attract customers. Tommy Bahama's newest retail restaurant location, which opened this month in Plano, Texas near Dallas, came out of the gate very strongly. The success we are seeing in Plano proves once again our unique ability to deliver a compelling on brand food and beverage experience. Delivering this experience to the guests not only drives our restaurant business, but cements our position in the guests' minds as the authoritative island lifestyle brand, which in turn helps sell all our products. We will continue to leverage this competitive advantage to drive sustained profitable growth. Turning to Lilly Pulitzer. With its true resort product, expertise in print pattern and color and multi generational approach, no other brand delivers a resort message the way Lilly Pulitzer does. The strength of our resort positioning enabled Lilly to deliver a remarkable 29% operating margin for the first half. We also saw good growth in our e commerce business, which will be about a third of Lilly's business for the year. Lilly's solidly profitable brick and mortar presence is an important point of connection with our consumer that helps reinforce the brand's resort positioning. This is particularly true when the store is located either in a resort area or within the premises of a resort. And we believe there is a lot of room to grow this brand within this resort space. We recently took advantage of an opportunity to bring in some licensed signature stores in very strategic key resort markets such as Nantucket, Martha's Vineyard and 4 stores on Cape Cod. These locations tie in nicely with our new Watch Hill, Rhode Island and Avalon, New Jersey stores as well as the Ritz Carlton's Lilly shop at Amelia Island, Florida, where we can focus on True Resort. Later in the second half, pop up shops on Las Olas Boulevard in Fort Lauderdale and on Marco Island will continue to reinforce Lilly's resort brand position. So we just completed our 3 day end of season clearance sale, and when the dust settles, it will be the largest in Lilly's history. We saw incredible excitement and enthusiasm from our Lilly customers who were lined up outside our store and came to our website in droves. Full price sales were also quite robust during the sale period. The amazing passion for Lilly we just witnessed reinforces our confidence to deliver a strong second half. We believe our continued key to growth and success is having fantastic brands that offer beautiful product to our customer when, where and how she wants it. We are distribution agnostic. We want our products distributed in ways where we can best grow revenue, build brand awareness and acquire new customers. And we believe the most meaningful opportunities for our brands are in our direct to consumer initiatives, enhancing our customers' e commerce experience, having new stores and new concepts in great locations and exploiting our food and beverage expertise. Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel have distinct competitive advantages as well as talented teams operating within a culture of excellence that brings out their best efforts. This is, in any environment, a formula for success. With that, I'll now turn the call over to Scott Grassmyer. Thanks, Tom. Just a quick additional comment related to Hurricane Harvey. In the Houston area, we have 1 Lilly Pulitzer and 5 Tommy Bahama stores, none of which appear to have had any physical damage. We reopened our Time Bahama retail restaurant location in The Woodlands today, and we are working to get the others opened as soon as possible. Now I'd like to walk you through some additional details by operating group and our guidance for the Q3 and full year. Please refer to our press release issued earlier today for additional information. 2nd quarter 2017 net sales increased to $285,000,000 compared to $283,000,000 last year. Once again, TimeBama had a very good quarter. Direct to consumer comps increased 4%. We also saw a nice sales increase in our restaurants. Importantly, Tommy's adjusted operating margin expanded 50 basis points year over year to 11.9%. Tommy is on track for the year to grow the top line in the mid single digits and expand operating margin by over 100 basis points. Lilly Pulitzer sales were essentially flat with contributions from new stores and positive e commerce comps, offset by lower wholesale sales and negative brick and mortar comps. Lilly Pulitzer's operating margin remained very strong at 30%. Tom mentioned the incredible results we just saw in Lilly's clearance event this week. Not only is this a great brand appropriate way to clear indices and merchandise, it also delivers a very healthy gross margin. For the year, we expect Lilly's sales to increase in the mid single digits and operating margins to remain very healthy at around 20%. Sales at Lanier Apparel were lower than last year, but essentially in line with what we had planned for the Q2. For the year, we expect mid single digit top line growth and an operating margin in the mid single digits. Southern Tide in its 1st full year of operations with Oxford is on track to deliver revenue just above 40,000,000 dollars and an operating margin in the low double digits. On a consolidated basis, our adjusted operating income in the second quarter was $38,000,000 compared to $40,000,000 in the same period to the prior year. Adjusted EPS in the quarter was $1.44 compared to $1.48 in the Q2 of 2016. Our balance sheet remains strong. We did a good job of executing our plans on inventory and refining our clearance strategy at Tommy Bahama. And we believe we are well positioned for better operating performance in our outlet stores and other clearance channels going forward. This improvement at Tommy Bahama as well as reductions at Lanier Apparel and Southern Tide resulted in 11% decrease in inventory to $120,000,000 We continue to generate strong cash flow from operations and reduce our outstanding debt while continuing to invest in our brands and pay a dividend. We ended the quarter with $38,000,000 of borrowings and $215,000,000 of unused availability under our revolving credit facility, and we are well positioned to support our growth initiatives. I'll now walk you through our outlook for the Q3 and full year. Earlier today, we initiated guidance for the Q3 of fiscal 2017, which ends on October 28. In the Q3, we expect net sales to be in a range $240,000,000 to $250,000,000 and adjusted earnings per share to be between $0.09 $0.19 On a comparable basis, sales were $220,000,000 in the Q3 of fiscal 2016, and we had an adjusted loss per share of $0.07 This improvement is primarily due to an expected year over year sales increase at Lanier Apparel and the impact of the larger Lilly flash sale. We're very pleased to have affirmed our adjusted EPS outlook for the full year. Adjusted earnings per share are expected to be between $3.50 $3.70 which compares to adjusted earnings of $3.30 per share in fiscal 2016. We now expect net sales to grow between $1,085,000,000,000 to $1,105,000,000 as compared to fiscal 2016 net sales of $1,023,000,000 Our effective tax rate for fiscal 2017 is expected to approach 39% compared to 37% in the full 2016 fiscal year, with the increase reflecting the unfavorable impact of the vesting of stock awards in the Q1 of this year and reduction in the utilization of operating loss carry forwards related to fiscal 2016. Full year interest expense is now expected to be approximately $3,400,000 which is comparable to last year. Capital expenditures in fiscal 2017 are expected to be approximately $50,000,000 We are investing in information technology initiatives and new Lilly Pulitzer and Time Bahama retail stores as well as investments to remodel and relocate existing stores. CapEx this year also will include Time Bahama's newest retail restaurant location in Plano, Texas. Brittany, we're now ready for questions. Thank And we will take our first question from Edward Yruma of KeyBanc Capital Markets. Hi, good afternoon guys. Congrats on the quarter. First on Tommy, I know you guys have had some success at introducing product at higher price points. Can you talk about pricing overall at Tommy Bahama and maybe opportunities to raise price selectively on existing product? And then as a follow-up, at Lilly Pulitzer, how would you score kind of current product acceptance? Are there areas in assortment that are stronger? And maybe where are the pockets of weakness? Okay. First, with respect to Tommy Bahama, I think as we talked about as early as the beginning of the year, we are doing some selective price increases. Some of those have kicked in and have been sort of a non event. In other words, they haven't slowed down the velocity of those products at all. And then I think the balance of those will kick in mostly in the Q3 of this year. But we're not really anticipating any real resistance to those. So combined with what we've done on the product cost side, we continue to expect higher initial gross margins in Tommy Bahama going forward. And with respect to Lilly and product acceptance, I think the issues that we've had there have not been so much product acceptance, but probably a little more assortment of product and not having as much as the entry point kind of product in the mix, as well as our marketing, which has been a little bit more geared to the existing core customer and not so much as that newer customer that's just nibbling at the edges of the brand. And those are things that we will obviously be addressing going forward. In the Q4, particularly, we've got all kinds of great things happening that we feel very good about from both a product and marketing perspective. So if you'd like a couple of examples of those, we've had really good success with some of these, what we call, prints with a purpose, which are special prints, where part of the proceeds goes to the benefit of a charity. And we did one in August called Tortuga Time for Loggerhead Turtles, which did very, very well. We'll be doing more of that. I don't want to get into details yet. We'll be doing more direct mail, including a non comp mailer in December, I believe. We've got more frequent smaller drops of products. So during November December, we'll add newness in the stores basically every single week. We've expanded our lounge offering, which is a great space for us, what we sometimes call cozy lounge. So these are pajama type products, but that are substantial enough and stylish enough to be worn as lounge wear, including some printed velvet and velour that we're very excited and we think the Lilly customer will be very excited about. And there's a great product collaboration going that I think will provide a very exciting entry point kind of product in the stores. So lots of good things cooking out there for the particularly the Q4. Great. One final follow-up, if I may. Could you talk a little bit about Tommy Bahama performance at stores that have a high bias toward foreign tourists? So if it's kind of New York, Hawaii, Las Vegas? Well, as we mentioned in our comments, our prepared remarks, Hawaii has been good. We've seen really good strength there. And as you know, there had we went through a couple of years where the Hawaiian market was not as strong, but this year, year to date, we've really had seen good results, good strong comps, restaurants, as we mentioned, I mean, the Hawaiian key locations like Waikiki and Mauna Lani, where you've been before, I think, were really good. So we were pleased to see that. And we will take our next question from Pam Quintigliano of SunTrust. Great. Hey, guys. Congrats on the quarter and thanks so much for taking my questions. Of course. The first one, just a follow-up on Ed's question. Can you dig a little bit more into Lilly's comp? Particularly, you said in the prepared remarks that brick and mortar was negative. So I know you just said it was about product acceptance and entry points. Is there anything else there you think that we could attribute that to? And then all that detail on 4Q is great, but when we think about the 3Q comp, which is a bit more challenging than 2Q was, Were you able to adjust anything there just reflecting some of the learnings you had from 2Q? And even if there was anything with inventories or adjusting timing of flows, just how to think about that? And then I have one follow-up on Tommy after that. Yes. So Pam, what I would tell you is that in Q3, if you think about it, it's a very, very small quarter. And the biggest part of Q3 is the sale, to be honest with you. That's sort of the story of the Q3, and it's going to be a good story on sale. Overall, for the second half, what we experienced in the first half was negative store comps, positive e com comps, which were netting down to an overall negative. In the second half, we see that pattern continuing. We do have comps modeled getting a little bit better, but we're not projecting a complete turnaround there. And what do you attribute that to with the negative store comps? Is it that she's shifting a lot more online? Or is there anything else with her? Yes. I think there are 2 things. One that we don't spend a lot of time talking about because there's not a whole lot that's within our control and that's just general retail traffic, which as you know, is a trend nationwide pretty much across all retailers. The second part, and this is actually a good news story, we think more of the story is within things that we control. And the simple way of putting it is that as we went into this year, we feel like we shifted more towards our core consumer and had less emphasis on attracting new customers or customers that had only been in, in a small kind of way and trying to get them to come back and buy more. That was deliberate on our part. In hindsight, we think we swung the pendulum a little bit too far. So the fix is really just to step on the gas a bit in terms of bringing in those newer and lower spend customers and making bringing more of them in and increasing their spend. And I think we are quite certain that there are levers that we can pull that will help us do that. That sounds great. And then One other thing, Pam. This is Scott. Yes, the Q3, we're going against some pretty tough double stack comps from the last 2 years, 2712. So they are tough numbers and it is a small quarter. And as Tom mentioned, the sale is really the that's the big thing of the quarter and we executed on it. We're very pleased with the way the sale is shaking out. I mean, the sale is over, the dust has been all settled. Yes. Pam, we know you were probably one of our over a few customers that visited the website for those 3 days and maybe got into store as well, but it was just an absolute frenzy. I mean, we literally, in many, if not most of our stores, we had people lined up outside the store. Anne and Scott and I saw a number of videos of people at King of Prussia Mall and locations all over the country literally like wrapped around the mall waiting to get in. And as you know, on the website, we had enormous traffic. It was a very, very successful sale really on all fronts in terms of the dollars we generated. As Scott mentioned, for us, that's at a very healthy gross margin. So this is a it contributes to our success. It was great from a customer reactivation as well as acquisition standpoint. We got a lot of new customers in and saw a lot of old customers as well. So it was really just a terrific sale all around, and it proves to us that the enthusiasm for the brand remains incredibly high. And we think we understand where we can make some adjustments to really restart the comps in a positive direction. At the same time, this is an incredibly strong business. I mean, a 29% operating margin for the first half is something that we're quite proud of. And as you know, the sales productivity of these stores is incredibly high. So when you talk about a comp, you're talking about dropping from well over $800 a square foot to something that's slightly lower than that, but it's still a very, very productive retail chain. And then there were the new stores that were incredibly excited about these Martha's Vineyard, Nantucket, the 4 out on Cape Cod, the one on Newberry Street in Boston. I mean, these are markets that are key strategic markets to have a company owned store. And we've been well represented there by our signature store partner, but we believe that we can be even better represented with a company owned store in those very, very important markets. Oh, I definitely contributed in Watch Hill and the Flash Sale. Watch Hill and Avalon have been terrific, both from we've done excellent business there, but also hopefully we're indelibly imprinting the vision of the brand as a true resort brand in the clientele that visits those places. And as you know, the clientele that's in those places is exactly the type of guest that we're trying to target. And can I just quickly ask on Tommy, anything any commentary on Asia and just any update there? And how's the Marlin Bar going? And I'm sure it's a continues to be a smashing success. Any thoughts on how you're rolling that out to more locations? Yes. So on Asia, we made good progress in the quarter. Sales were up slightly. I think we reduced the operating loss for the half by $1,000,000 versus last year. So we continue to execute our plan there. And as you know, in Australia, we're very committed to that market. We like that market. We have a good business there and it's we're going to steam ahead there. In Japan, we're very happy with the improvement we've seen and the growth that we've seen, but we're still a good ways from being profitable there. So we continue to look for a solution that allows us to not walk away from the market and all the goodwill that we built there, but at the same time to eliminate those operating losses. And then just the Marlin Bar, how it's going? And on the Marlin Bar, we continue to be extremely pleased with what it's doing both on the food and beverage side as well as, very importantly, what it's done for our retail business there, particularly the women's business. So it's been a big success, and we're continuing to look for opportunities for how we can take the learnings from that food and beverage concept and leverage it into new locations. The next place where you'll really see strong evidence of that is in Palm Springs. That's going to be a lot more like a Marlin bar than it is like one of the traditional restaurants. And that is currently scheduled to open in early 'eighteen, I think. So you'll see it there. And at the same time, we just opened this great store and restaurant in, I believe it's called Legacy West in Plano, Texas. And that thing has just come out of the gates incredibly strong. It's been very, very pleasing to see. And I think it's also a great model of where retail is actually headed in the future. So we don't believe at all that bricks and mortar retail is going away. We just believe that it's changing. And very, very happily for us, we think it's changing in our direction. So if you look at Legacy West, it's a lifestyle shopping center, no department store, only food and beverage. And then what I would call very special and unique retail there. And when you think of our portfolio, that's perfect for us. That's what we are across our business. So as retail evolves, we think it not only can we survive, we actually think it's a better environment for us. Very excited to go visit that store and That's right. You are going to be out there. We look forward to you being there. And we will take our next question from Corina Vendergast of Citi Research. Hi Corina. Hi Corina. Hi Corina. Hi Corina. Good afternoon. I wanted to start with a couple of questions on the guidance. It looks like you just took the full year top line guidance just out of hair and it sounds like that's maybe on the Lilly Pulitzer brand now being expected up mid single digits. Just trying to parse out how much the converted Lilly or the acquired Lilly Signature stores are contributing in revenues? Yes. That's one thing you've got to remember, those stores are very seasonal and we're buying them after season. So, on a full year basis, they're going to be about $6,000,000 on a full year basis. But for the season, some of them aren't even open after once you get into October and later. So it's going to be very, very little in the second half of the year. And they'll actually be a little bit dilutive to the bottom line in this year, but they'll be accretive next year. And so those stores aren't going to have much top line or bottom line impact this year, but next year they will contribute. Okay, great. And then just to clarify, you guys are expecting Tommy comps to look slightly better for Q3 than Q2 and Lilly comps also slightly better, but still comping negatively in the Q3. Is that the right way to think about it? Yes. And then just lastly on the guidance, sorry. Does the updated guidance assume higher marketing expense than you guys had previously kind of modeled in just given some of the new marketing initiatives that you talked about like the direct mailer for Lilly in December? Both Lilly and Tommy will be spending more marketing in the second half than was in the original guidance and then they did last year. Okay, perfect. And then if I could just squeeze in a second question, I was just hoping you I know, Tom, you gave some detail in the prepared remarks about the rationale behind acquiring these signature stores, but maybe you could just walk us through kind of why now, what the cost was and is this something that you guys would like to do more of going forward? And does this take the place of kind of traditional M and A that you've talked about on new brands? Well, it certainly doesn't take the place of additional M and A, and there were really 12 stores altogether that we bought, 6 that we bought from 1 operator and 6 that we bought from another operator or 57, excuse me. And one of them was really just an opportunistic situation that came up pretty quickly. Those stores are all in the Virginia area and that was the 5 store operator. And that came up pretty quickly. She just got to point where she was ready to move on in her life. And so we had an opportunity to take those stores over and we did. The second group, the New England group, if you will, those out on the Cape, the Vineyard, Nantucket, Boston, that was something that we'd actually been interested in for a long time. In fact, the discussions predate our acquisition of Lilly Pulitzer in 2010. So that had been going on for a long time. I think both parties always knew that those stores would probably end up within the company owned portfolio. And we worked out the deal this year. And the fact that we did all these together is really more of a coincidence than anything. It wasn't like we coincidence than anything. It wasn't like we decided to go on a full scale assault to buy as many Signature stores as we could as quickly as we could. With regard to future plans, Corey, it will be sort of on a case by case basis. I do think that these are probably not the last signature stores that we will buy. I suspect we will take on some more from the some of the operators. But I also don't expect us to take them all along. We still think there are an awful lot of markets that are best suited for a partner store rather than a company owned store. We very much value our signature store operators and what they do for the brand and we believe that they will continue to be an important part of our company for a long time. With regard to the economics, I'll let Scott chime in. Yes, we're not going to disclose the purchase the actual purchase price of the stores. But as Tom said, the opportunities come up in the one case and one was much more strategic. And as he said, that will I'm sure there'll be additional ones, but they'll kind of be on a case by case basis. Okay. Great. And also, I should have asked, is it fair to assume that this doesn't preclude Lilly's move kind of westward across the U. S. As well? No. And again, it does not alter our overall M and A strategy either. And we will take our next question from Rick Patel of Needham and Company. Congrats on the strong execution at Tommy. I had a question on Hurricane Harvey. So if the stores that you have in the region have to remain closed for an extended period of time, how would that impact sales in the Q3? And is that risk embedded into your guidance already for the quarter? It's not embedded in our guidance. And I think, Rick, it seems at this point, while we're still assessing, it seems highly unlikely that they're going to stay closed for more than a couple more days. I mean, there is from every indication we have, which includes photographs and discussions with our landlords as well as physical inspection by our employees, in some cases, there's no physical damage to the property or our inventory. It's really just a matter of the floodwaters receding and the power coming back on, I think, for the most part. The biggest one of them, The Woodlands retail restaurant reopened today. So that's really good news. And we don't know and we want to be careful, but I think we really expect that the rest of them will be back pretty quickly. And it's 6 stores altogether, one again, the biggest of which has already reopened. Rick, the other part of it, of course, is what happens once they're reopened, just how quickly life returns to normal and shopping patterns resume and all that. And that's a little harder to call, but we'll see. But we kind of the smaller stores that you're acquiring, I'm just curious how sales productivity and margins compare to what you have for your own stores and what levers do you need to pull in order to improve these metrics? They're going to be a little below our own stores, but some are more seasonal, so some aren't open year round. We do believe that us controlling the product flow that we can improve those. There are wholesale sale today, so we'll give up the wholesale sale, we place it with the retail sales, but we will have control of flowing the merchandise the way we think we need to flow it, being able to refill in the appropriate product that's really selling. So we think once we get them and get it back in season, we'll be able to improve them. But currently, they're not quite at the performance level of our own stores, but they are profitable. Okay. And then just a question on Tommy. So, I guess, how should we be thinking about your promotions going forward? I know there was a promotional shift out of 2Q into 3Q. Any way to quantify the positive impact that could have to your Q3 as we think about comps? And in the past, you've had these traffic driving events, these gift card promotions in the past, and they've been pretty successful. As you think about the back half, should we expect an increase in the cadence of those types of events, especially for the Q4? I don't think there'll be an increase in the cadence. I think we will continue to do them. And in some cases, we may reach more guests with them as we have through time. We've grown the list of people that we're targeting. The big thing in the Q4 that will be different is that the book that we did back in the spring, the Live the Island Life book, we're going to do another one of those in the holiday this year. So it will be the same size and sort of weight and quality and all that. And we were really, really pleased with how that worked in the spring. And so we're going to do that again in the holiday. And as far as the event that crossed over, last year was part second, part Q3 this year, it was a Q3 event. So it will have a slight lift to our comps. It's not going to it's not a huge amount, but it should help our comps slightly in the Q3. Got you. And then last question for me is on Lilly. So it sounds like the Flash sale went really well. It sounds like it's up. Any color on why you would expect a slowdown in comps? Is there anything that happened last year in particular that would make you be a little bit more conservative about the outlook for the rest of this quarter? A couple of the units, just traffic patterns, so the brick and mortar traffic patterns, one thing and then just the comps were going up again in the Q3, 27, 2 years ago and 12 last year. So we're going to get some tough numbers. So and I mentioned some of the products that we're going to get into, especially some of the little bit lower free price products are really going to be more of a 4th quarter thing rather than a 3rd quarter. And Rick, just so you're clear, Flash is not in the comp. The sale is not in the comp. Right. All right, great. I appreciate all the color and all the best in the back half. Okay. Thanks, Rick. And we will take our next question from Eric Beder of FBR. Good afternoon. Congratulations on a solid quarter. Thanks, Eric. Could you talk a little bit I know you've gone to Tommy Bahama doing more in season, end of season sales. How has that worked out? And how has it enabled you to be a little bit better on the outlet channel? It's worked out just fantastically well for us. We couldn't be happier with the way that the overall clearance within Tommy Bahama has worked. If you remember, Eric, going into the year, a priority in Tommy Bahama was actually improving the whole clearance operation, including what we do in the outlets and how we do it in the outlets and fundamentally how we clear end of season merchandise. So we accomplished a number of things. We did very, very good business during the sale periods that we did in January and then in July. We also managed to sort of take the 1st mark in store and get rid of a lot of inventory there at a very good recovery and also without incurring the handling and freight charges that you would have if you moved it out. And you also will remember, Eric, that one of our big objectives was sort of unclogging the outlet stores of inventory so that they could perform better. I believe during the course of the year, we've lowered the number of units in the outlets by about 40%, which is a big accomplishment and it's working. We're seeing the gross margins in outlet go up in the business and the outlets is performing stronger. So when you look at that total clearance situation, it's really a very, very healthy and strong one. We're very, very pleased with that. The team at Tommy has done a terrific job. I see you closed an outlet. Have you does this lead you to kind of rethink how many outlets you actually need for the ratio they need to be there for? Well, we as you know, we haven't added 1 in, I don't know, 4 years in the U. S. It's probably been 4 years in the U. S. Since we've added 1. Yes. So the ratio is definitely tilted more towards full price stores, and I think we'll continue to do so. Okay. In terms of Thai Bahama Women's, I know you guys have worked a lot on it. Where how is it you mentioned it was doing extremely well. What's the next kind of iteration for Thai Bahama Women's going forward? I think you saw if you've been watching it this year, I think it's a lot of that. It's targeted unashamedly to a 45 year old and not woman. It's easy to wear. It's what I think of as being breezy and very much Tommy Bahama product. Those are the products that have worked well this year. As we talked about, our women's business has grown nicely this year. Swim has been extremely strong, but sportswear has been strong, too. And we're happy with what's happening there and are going to continue in that same direction. And I'll ask the Southern Thai question. What's happening with Southern Thai in terms of the franchise stores and expanding that more into women? So we've got 3 franchise stores or licensed stores. They're not franchise. There's a legal difference. So they're licensed stores, but we've got 3 open now. We've got a number in works of which I think we'll have 3 or 4 more open by the end of the year. And then we've got a nice pipeline of them that extends into next year as well. So that's going well. We're pleased with the way that that's developing. And then in women's, I think overall, that's probably somewhere just north of 10% of the business in total. So still small, but it's actually growing at a rapid rate. Our bookings for fall and then for next spring or well, falls in the book and the pre book number is up quite strongly over last year. Still small numbers, keep in mind, but it's grown very nicely. And then for spring of next year, we're in the booking cycle now, but it's going quite well too. So we're pleased with the development of the women's business, albeit still quite small in Southern Tide. We will take our next question from Danielle McCoy of Telsey Advisory Group. Hi, everyone. Thank you for taking my question. Of course. I was wondering if you could talk about the Tommy Baham performance in Canada and anything to know between the Canadian market and what you're seeing here in the U. S? Yes. Canada has been good. We did open 2 new stores last year, which were the first two stores we opened since we bought the license back. And then we've there's a couple of small stores we'll probably I think one we've closed and additional one we might close. But I think we've got upgrading the portfolio into better locations. Then we also have a small but nice wholesale business in Canada also. And those closings are on lease expirations. We're just not going to renew in a couple of place yet. But the only downsize that can't add really, Danielle, is just that it's a small market. There's not a lot of population. All right. Thank you. And then I guess, as we start to see the product mix shift a bit at Lilly and some more marketing targeting that younger consumer, how should we think about more of a normalized comp going forward for that brand? Well, I think we can certainly get back to where we're in positive comps. And again, in bricks and mortar, we're at a very, very high level of productivity. So how much comp is reasonable to expect there, I'm not sure, although I think it can be positive. And then on e comm, I think we can continue to comp quite nicely. We're getting way ahead of ourselves here in terms of what budgets we actually have. But I don't see why double digit comps in e comm are not achievable. All right, great. Thank you, guys. Good luck for the rest of the year. Thank you. And we will take our next question from Andrew Burns of C. A. Davidson. Good afternoon. I'll add my congratulations. Most of my questions were answered, but just a follow-up on Southern Tide. You've owned the brand for over a year now. And setting aside some industry wide wholesale headwinds, how is the brand developing versus your initial expectations? And secondly, you made some investments there and then the gross margins for the brand have bounced around a bit. How do you think about the margin profile developing as we move forward? I think in terms of how it's performing versus our expectations, I would say the thing that we didn't expect was for the market to be as tough as it's been. So what's changed is that the market is a good bit tougher than when we bought the brand. And that's, to be fair, has slowed things down just a bit. All that said, we're going to get good growth this year, top and bottom line. We're pleased with the way the brand is developing. There is some noise, as you point out, in our gross margins. And I'll let Scott elaborate on that if he wants a little further. But the brand has a very, very healthy margin structure and has all the makings of business that can grow profitably for a long time. Remember, Southern Tide is mostly a wholesale business, so where other businesses have a lot of direct to consumer. So their gross margins will be a little bit less than some of the other businesses that have a lot of to brag. But for our wholesale business, they're very healthy gross margins and some things that we've been doing some we're finding some synergy sourcing wise that hopefully can help enhance those margins in the future. Thanks. And as you look at the environment today, do you think the potential for tucking in additional smaller growth brands like Southern Tide is improving given the market volatility? Well, we certainly have the capacity and the wherewithal and the desire to do that. It's very hard to predict when an opportunity will materialize. We are optimistic though to your point that some of the volatility in the marketplace will sort of trigger some opportunities, if you will, and we're aggressively looking for them. This concludes our question and answer session. For additional and closing remarks, I would like to turn the call over to Mr. Tom Shrub. Thank you, Bethany, and thanks again for your time this afternoon. We appreciate your interest and look forward to speaking to you again in December. And ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.

• Earnings release