Earnings Call: Q4 2017

Mar 23, 2017

day, ladies and gentlemen, and welcome to the Oxford Fourth Quarter and Fiscal 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the floor over to Ms. Anne Shoemaker for opening remarks and introductions. Please go ahead. Thank you, Sheila, 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, which is presented as a separate operating group. 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. As we begin our new fiscal year, I want to take just a few minutes to recap our 2016 results and then spend some time elaborating on Oxford's strategies for growth and success in the future. Overall, fiscal 2016 was a year of mixed results for Oxford with some important successes as well as challenges and opportunities for future improvement. In the Q4, we recognized $0.27 per share of charges related to our Tommy Bahama business, which were not included in the guidance we issued on December 6, 2016. Absent these charges, our results for the quarter year were within our guidance ranges. The charges were related to initiatives we are taking to improve the financial results at Tommy Bahama. They included inventory markdowns, primarily of residual women's product, severance costs as back office headcount reductions were made in January and costs associated with the closing of 3 outlet locations, including 1 in Japan. In the Q1 of 2017, Tommy Bahama's results to date are encouraging with modestly positive comp store sales gains to date. So far, we have seen a strong response to our new 130 page direct mail piece, which offered a comprehensive view of the Tommy Bahama brand. The catalog has driven traffic to our stores and website and items featured in this piece, including men's, women's and accessories have sold very well. I will go into more detail about Tommy Bahama, but want to first spend a few minutes on the current environment and its impact on our industry at Oxford. As we come out of 2016 and enter 2017, across the portfolio, we are dealing with several macro trends that are impacting our entire industry. The first is a significant shift in consumer shopping patterns from brick and mortar to e commerce. This shift is being driven and enabled by innovation that uses commonplace technologies in new and creative ways that are disrupting traditional shopping patterns. Thanks to mobile devices and the Internet, consumers now have unprecedented access to information about brands, products and pricing, as well as the ability to communicate directly with brands and other consumers. In addition, they have access to multiple responsive distribution platforms. All of this makes it easy for consumers to find the lowest prices on products from brands they love and find substitutes for products from brands they are not emotionally connected to. The shift from bricks and borders to online shopping is being exacerbated by the coming of age of the millennial generation. Millennials are currently between the ages of 2036 and have surpassed the baby boomers as the largest generation at over 75,000,000 members. The combination of these two facts makes them very important from a consumer spending standpoint. Finally, as the 1st generation of digital natives, millennials grew up with digital technology always in the hand and are inherently comfortable with it. Another macro trend impacting our industry is the rapid growth of the outlet mall off price and fast fashion channels of distribution. These businesses all continue to experience robust growth and are putting enormous pressure on more traditional channels. Interestingly and importantly, the outlet off price and fast fashion businesses are predominantly bricks and mortar rather than e commerce businesses. So while there is a lot of attention appropriately being paid to the impact of Amazon and other e commerce businesses on malls and department stores, a significant amount of pressure on traditional channels is coming from outlets off price and fast fashion. The sum of these macro trends is creating significant disruption in our industry. The access to product and brands from around the world provided by the Internet is diminishing the anticipation of discovery that once was part of the excitement of going to the mall and is eroding the relevance of the department store's traditional role as a curator of brands. The price transparency created by the Internet as well as the value offered by outlet and off price stores is making traditional department store promotions less effective and forcing the department stores to become even more aggressive in their promotions. As a result, department stores are struggling and are no longer able to pull traffic to themselves or the malls that they anchor the way they once did. Availability of trend following product and value at fast fashion retailers combined with the Internet price transparency mean that mall based retailers that do not have distinct points of view, but mostly offer commoditized products are also struggling mightily. As the department stores and mall based retailers struggle, mall traffic is declining. In the absence of any other reason to exist, in a bid to survive, these retailers are increasingly resorting to intense price promotion, which is impacting the entire marketplace. At the same time, Internet based retailers, most notably Amazon, continue to grow and gain strength. This year, Amazon is on track to become the nation's largest apparel retailer. To date, Amazon has been particularly successful selling price driven and commodity type products. That said, they are dedicating significant resources to becoming a more capable fashion retailer. In addition to the changes that are happening in distribution channels, there are also massive changes in the way that brands communicate and market. Like the changes in distribution, the changes in communication and marketing are being driven in large part by technology and millennials. Traditional large scale marketing campaigns run through traditional media channels are being supplanted by targeted campaigns run through the modern media ecosystem, including email, social media such as Snapchat, Instagram and Facebook, bloggers, influencers and the like. In the old world of brand communication, most communication was from the brand to the consumer. This has been replaced with two way communication between brands and their consumers as well as communication between and among consumers. The macro trends discussed above are also relevant to Oxford's strategy of operating a dynamic portfolio of businesses that is capable of delivering sustained profitable growth. As a result of the shifts that are happening in distribution channels away from department stores and mall based retailers and towards online outlets off price and fast fashion as well as the changes from a consolidated to a fragmented communication environment, it is more important than ever that brands be very specific and definite in what they stand for and that they remain true to that brand message. We believe that going forward, there will be fewer multibillion dollar mega brands and more smaller, more definite brands like Tommy Bahama, Lilly Pulitzer and Southern Tide. It will be more important than ever to be the 1st choice of a few rather than the 2nd choice of many. Against this backdrop, we have 7 key priorities for fiscal 2017. 1st, continue to monitor the impact of the macro trends I've just discussed on our business and refine our operating and strategic plans accordingly. 2nd, focus on improving the operating performance at Tommy Bahama, more on that in just a moment. 3rd, continue our conservative stance on new store openings and renewals of existing stores. This means that we will be exceedingly selective in new store locations. In addition, we will pay special attention to renewals to make sure we get an adequate return on the remodeling capital that is typically needed upon lease renewal. 4th, we are going to play hard to our strength in e commerce and mobile. All of our brands have strong, profitable and rapidly growing e commerce businesses. We intend to fuel this strength with a particular focus on the increasing importance of mobile in our space. 5th, we need to revise our approach to outlet stores and clearance of residual inventory in Tommy Bahama, the only business where we have outlet stores. 6th, we need to manage our department store exposure very carefully. Department stores still provide meaningful gross margin contribution in each of our businesses and can still be a good vehicle for customer acquisition. At the same time, we need to be careful to not let their struggles end up tarnishing the integrity of our brands. Finally, we need to make sure we are staffed and organized appropriately to meet the challenges of today as well as those that lie ahead. I now want to go into more detail regarding our 2017 plans for improving the operating performance at Tommy Bahama. We believe Tommy Bahama's results are closely related to the macro trends affecting our industry. At the top of the list is the impact that shifts in the industry are having on traffic in our bricks and mortar stores. Our in store traffic was down 10% for the year, which negatively impacted our comp store sales in 2016. We have historically been conservative with the store openings, but our stance going forward will be even more conservative and focused on making sure that any profit, any location we open is expected to generate an acceptable return on capital. In 2017, a handful of openings will likely be offset by a handful of lease expirations and result in no net increase in the number of Tommy Bahama stores for 2017. We believe the food and beverage component of the Tommy Bahama business, which generated both top and bottom line growth in 2016 is a unique confidence of the brand that we can leverage to our advantage. Our Marlin Bar concept at Coconut Point Southwest Florida has been a huge success and the restaurant has outpaced our expectations. We have been particularly pleased to see how much business it has driven to the retail side of this location with increased traffic, dwell time and frequency. This location has comped at a very high rate. We are excited about what we think the Marlin Bar concept can do and are evaluating additional sites as well as other ways that we might use what we have learned at the Marlin Bar to drive profitable growth at Tommy Bahama. Another area of focus is making improvement to our clearance strategy at Tommy Bahama. Over time, Tommy Bahama's strategy to use outlets as a true clearance vehicle has become more challenging and is less effective as a means to clear end of season residual inventory. To improve this situation, we have developed a multi pronged strategy that includes taking end of season markdowns selectively in our own full price retail stores, which is a new practice for Tommy Bahama. We will also improve the merchandising and product presentation in the outlets by changing how we distribute product from the stores to the outlet locations. And as mentioned earlier, we are closing a handful of outlets and took markdowns in 2016 to work more quickly through prior season women's product that had been clogging our outlets. In 2016, our women's product did not work as well as we had hoped. While we received very favorable feedback on the aesthetic of our designs, our assortment did not have the right balance of styles to drive the sales that we had hoped to achieve. As a result, on a comparable sales basis, our women's business actually took a step back during 2016. In 2017 to date, we are seeing results with quintessentially Tommy Bahama women's products like swim and cover ups, breezy linen styles, easy to wear knit dresses and our new handbag collection. We are optimistic that products like these will help us gain much needed traction in women's. At the same time, we have also taken a more conservative approach to our forward inventory ties as we continue to develop this avenue for growth. Our friends and family flipside and loyalty award card promotional events continue to gain traction, but as they grow in size, they put pressure on our gross margin. We do not envision this trend reversing and are therefore very focused on improving both initial and maintained gross margin by reducing input costs and making selective price increases. All of that said, as I mentioned before, we are off to a good start in 2017 and are encouraged by our Q1 to date results. Tommy Bahama's position as the island lifestyle brand distinguishes it in the marketplace and we are confident we will achieve improved financial results in fiscal 2017. Shifting gears to Lilly Pulitzer, fiscal 2016 was another terrific year for Lilly Pulitzer with sales growth of 14% and our operating margin expanding to 22%. The combination of excellent plans and excellent execution of those plans unsurprisingly produced excellent results. As we move into 2017, there are several key priorities for Lilly Pulitzer. First, we need to continue our very careful approach to bricks and mortar store openings. That said, with Lilly's small door count only 40 right now and very high productivity at $8.40 in sales per square foot, we believe there is still room to grow. Our focus will include both traditional locations and smaller jewel box locations such as Watch Hill, Rhode Island. Opening in May, this will be the 1st company owned store in that area of the country. To add to the fund, Lilly has collaborated with Ocean House Resort Management to create a Lilly Pulitzer Suite at the Watch Hill Inn and will provide Lilly pillows and towels for the Ocean House Beach Cabanas. 2nd, Lilly is already incredibly strong in e commerce, digital marketing and mobile and we want to continue to play to these strengths. We will continue to invest capital in both systems and people in these areas. 3rd, Lilly is a proven leader in how to communicate market in the modern distributed media ecosystem. In this fast paced world, we will work hard to maintain our edge in marketing and brand communication. Finally, we will continue to manage our department store exposure carefully. Lilly will stay focused on working only with department stores that can hit our brand standards and performance expectations. We are optimistic and confident about Lilly Pulitzer's prospects for 2017. While Lanier Apparel is executed admirably for the last several years, generating strong free cash flow with very little capital investment, the marketplace is presenting ever increasing challenges. Lanier's traditional predominantly department store and big box markets are challenged. We're working towards matching Lanier's operational competencies with sales and marketing opportunities for long term growth. Oxford Golf as the Oxford brand, a complete line of terrific looking men's sportswear suitable for sale not only at Green Grass Pro Shops and Resort Shops, but also at top tier off course independent specialty stores. The Oxford brand was officially launched at the PGA show in January, where we presented the fall 2017 line. We are not walking away from Lanier's traditional businesses, but believe more sportswear opportunities like the new rebranded Oxford line will provide Lanier with alternative avenues for growth. Southern Tide, the newest and smallest of our businesses is now well integrated into Oxford and delivered a nice performance in 2016 despite the environment. Key opportunities for this brand include growth in its traditional wholesale business where they are now seeing some early success with a small women's line, the expansion of the signature store concept and growth in the e commerce, which represents roughly 20% of their business. We are excited about the future of Southern Tide and believe they will make a meaningful contribution to our company in the years to come. As we move forward with our strategic plans for our operating groups, we believe our plans for capital allocation are well aligned with the changes to our strategic environment. We are spending more than ever on IT and infrastructure designed to enhance our ability to delight our consumers on an omnichannel basis. Our capital allocation policy is well balanced between prudent, carefully vetted investments and organic growth, a reasonable dividend policy, our willingness and determination to add brands that have the potential to create long term value for our shareholders and maintaining financial flexibility as our industry transitions. With that, I'll now turn the call over to Scott Grassmyer to discuss our consolidated highlights and plans for 2017. Scott? Thanks, Tom. I'd like to walk you through a selection of highlights from our consolidated results for the 4th quarter as well as our guidance for fiscal 2017. Please refer to our press release issued earlier today for the complete results for the Q4 and full fiscal year. In the Q4 of fiscal 2016, consolidated net sales were $261,000,000 compared to $260,000,000 last year. Lilly Pulitzer sales increased 26%. About half of that increase was due to the January e commerce flash sale, which was significantly larger than last year. Inclusion of Southern Tide sales this year also contribute to the increase. Sales at Tommy Bahama were lower this year than last year as both our wholesale and direct to consumer businesses were affected by declining consumer traffic. Lanier also had lower sales due to a lower volume of private label business in part due to shift in timing. Our consolidated adjusted operating income in the 4th quarter was $16,700,000 compared to $29,100,000 last year, negatively impacted by the $0.27 per share or $7,100,000 of Tommy Bahama related charges and the lower offering resulted Tommy Bahama and Lanier Apparel. Adjusted earnings were $0.63 per share compared to $1.09 per share in the same period of the prior year. Now onto the balance sheet. Our balance sheet remains strong and we have a capital structure well positioned to support growth. We believe inventory levels in each of our operating groups are appropriate for our future sales plans. Inventory increased to $142,000,000 reflecting the inclusion of Southern Tide. And as of January 28, 2017, we had $91,500,000 of borrowings outstanding and $186,000,000 of availability under our revolving credit agreement. Our capital expenditures for fiscal 2016 were $49,000,000 primarily related to opening, relocating and remodeling retail stores and restaurants, IT initiatives and facility enhancements for distribution centers and offices. Of the $49,000,000 of capital expenditures, dollars 6,000,000 was funded by landlords through tenant improvement allowances. Cash flow from operations was $119,000,000 compared to $105,000,000 in 2015. Free cash flow for 2016 was $69,000,000 compared to $32,000,000 in the prior year. I'd like to walk you through our projections for next year. In 2017, we expect our earnings to be negatively impacted by a higher effective tax rate. The tax rate increase is due to the impact of how the vesting of certain restricted stock awards are treated due to a change in an accounting standard. In 2016, we also were able to take advantage of some operating loss carry forwards that will not be available to us in 2017. As a result, our effective tax rate is expected to increase to 39% from 37% last year. For the full year, adjusted earnings per share is expected to be between $3.50 $3.70 on a sales range of $1,080,000,000 to $1,100,000,000 On a comparable basis, fiscal 2016 sales were 1,023,000,000 dollars and adjusted earnings per share from continuing operations was $3.30 For the Q1 of fiscal 2017, we currently expect net sales to grow between 270,000,000 dollars to $280,000,000 Adjusted earnings per share from continuing operations are expected to be between $1 $1.10 On a comparable basis, sales were $256,000,000 in the Q1 of fiscal 2016 and adjusted earnings per share from continuing operations was $1.26 The first quarter effective tax rate is expected to be approximately 41.5% compared to 35.7% in the Q1 of fiscal 2016, reflecting the unfavorable impact of items described above. Capital expenditures are expected to be approximately $55,000,000 in fiscal 2017 to include expenditures associated with information technology initiatives, new retail stores, our retail restaurant location at Legacy West in Plano, Texas and remodeling and relocating existing retail stores. Fiscal 2017, we expect cash flow from operations to significantly exceed our capital expenditures and dividend requirements. Now I'll move to our fiscal 2017 plans by operating group. Here's some additional details of our plans for Tommy in 2017. Overall, we expect Tommy Bahama's top line to grow in the low single digits, comps to increase in the low single digits and wholesale sales to decline slightly. We expect to open approximately 6 new stores including Legacy West in 2017. We are also likely not to renew a comparable number of leases, so we're not planning an increase in door count for the year. We have planned modest gross margin expansion as we make progress on reducing input costs, make selected price increases and clear end of the season goods more effectively. We expect to continue to improve our results in Asia Pacific, losses reducing by approximately $2,000,000 Operating margin expansion of approximately 100 basis points is planned for fiscal 2017. Lilly Pulitzer is expected to continue to deliver strong top line growth while maintaining a solid operating margin. For fiscal 2017, Lilly Pulitzer is expecting a high digit a single digit sales increase compared to fiscal 2016 with comps in the mid single digits. We expect to open 5 to 6 new stores in 2017. Gross margin should expand slightly as we expect a lower percentage of sales to come from the e commerce flash sales. For Lanier Apparel, we're expecting a mid single digit percentage increase in sales with operating income flat with 2016. Southern Tide's plan for fiscal 2017 has sales of approximately $40,000,000 to $45,000,000 and an operating margin in the low teens. Finally, the operating loss in our Corporate and Other segment is expected to increase by approximately $2,000,000 Before we take questions, I also want to mention that our Board of Directors have declared a cash dividend of $0.27 per share as we continue to believe this is an important way to return value to our shareholders. Now, Shailah, we are now ready for questions. We will take our first question from Corina Van Der Hiss of Citi Research. Your line is open. Hi, Cord. We will go to Jeff Van Sinderen of B. Riley. Your line is open. Good afternoon. I wonder if you guys can speak a little bit about the ecom growth trend at Tommy and Lilly? And then also could you give us a little more on the difference in traffic you're seeing between the stores with and without restaurants? And then also maybe what you are seeing at Marlin Bar. I know you mentioned that a little bit. What we should expect for Marlin Bar this year? Do you think you will start to open another or 2 of those? Maybe we can start there. Well, maybe we'll start with the Marlin Bar and what we've seen with the Marlin Bar is all good news. I mean, it's simply been terrific. We opened it up back in November and it's as we've been told by other tenants in the mall, it's literally moved the center of gravity in the mall to another part. It's not really a mall, it's an outdoor lifestyle center, but has moved it to Tommy Bahama that's become kind of the heartbeat and it's on the restaurant bar side, it's performed way beyond our expectations and we're very thrilled with that side of it. And then what we really love is what it's doing on the retail side of the business, where it's driving a very, very strong comp store sales performance on that side. So we really like the Marlin Bar. We're as we said in the prepared remarks, we're evaluating additional locations. I'm not sure that we'll get any open during 2017 just because of the lead time on these things. But then we're also trying to take what we're learning at the Marlin Bar and evaluate ways that we can apply those learnings in our other existing restaurants. And by that, I don't mean to suggest we're going to convert them to Marlin bars, but I think there are things we're seeing in the Marlin bar that will probably be beneficial in some of our other operations. I think you had a traffic question about restaurants versus yes, you're right. Yes, our restaurants are in the locations, restaurants are the traffic certainly held better than the ones without traffic still down, but the restaurant sales have held quite well and the comps at stores retail stores with restaurants has held better than they have with the ones without. Okay. And then the other thing I was asking about was your e comm growth trend at both Tommy and Lilly. Just wondering if there's anything to talk about there? Well, it's certainly been strong in both of them. And we at this point in the quarter, we hate to get too specific on comp trends, but I think we did comment that Tommy's overall comps are modestly positive that's stronger in e com than it is in stores. And Lilly's e com would be stronger than their stores as well. And that's really, Jeff, that's been the case for 7 or 8 years now. E commerce growth continues to outpace store growth. Right. Right. And then if I could just We would expect that to continue. Okay, good. And then if I could just squeeze in one more on Tommy Women's. Just wondering, I mean, it sounds like you're you feel like have picked some categories, it sounds like where you are having success. Maybe the mix wasn't quite right last year, but I guess how should we think about the women's business at Tommy for this year? Well, it's very, very early in the year. So, you can't read too much into it. But again, we were pleased we've been very pleased with what we've seen so far. And when I look at it and look at what's selling really well there, what I would call quintessentially Tommy Bahama products. So it's things like there's a linen dress called the 2 Palms linen dress that's done very, very well. There's a 2 Palms jacket, also linen that's done very well. The swim and cover ups and those types of items have been extremely good. And in my mind, there's a theme to all these is that there are things that people think of when they think of Tommy Bahama. They're the types of products that they think of and they're working well. And then I think another piece of it that we talked about is the catalog that we sent out several weeks ago and hopefully you've seen this. If you don't have a physical copy of it, you can see a digital copy on the website and I would encourage you to look at it because it's absolutely gorgeous and the consumer clearly liked it and clearly responded to it because we've seen them come into the store with the catalog in hand asking for products and we've seen a lot of the terminology that we used in the catalog show up as frequently searched terms on our website. So we know it's having an impact. It's very positive and that has a lot to do with having a great brand and great products, but then also communicating the full aspirational dream that is Tommy Bahama because this catalog includes beautiful lifestyle shots, product lay downs, food and beverage shots. We've even got from our license partner, we've got several pages of the furniture in there. We've got pictures of cocktails, all these things that drive home that this is not just about a few printed camp shirts, but it truly is a lifestyle. And we think these are the types of things that in the industry, in the marketplace as it's evolving, this is how we stand out, how we get noticed and how we succeed and it's working. Okay, good to hear. Thanks for taking my questions and best of luck for the rest of the quarter. Okay. Thank you, Jeff. We will take our next question from Corina Van Der Haan. Your line is open. Great. Thank you. Hi, Corina. I am so sorry about that. No, that's okay. I go through. No, that's all right. I was hoping to start with your distribution plans for this year. Hopefully, it wasn't asked earlier when I was dialing back in. But how many wholesale doors are you planning to exit this year in terms of what's currently included in your guidance? And also what do you see as the long term retail store potential for both the Tommy and Lilly concept? So, and when you're talking about you're talking about wholesale doors and how many we are planning on exiting? Yes. We have got some minor number of doors reduction a minor door reduction in the plan. And there are places where we are adding doors as well. Overall, I don't think we're looking to see a large drop in our wholesale business at all. It's just that we want to be very mindful of what's going on there. If you take Tommy for example, our fall bookings, which are not completely done, but they're looking pretty good right now relative to last year. Our Southern Tide bookings are looking pretty good. So we're it's not that we're looking for a wholesale to drop off a cliff or anything like that, we're just being mindful of what's going on there. And how do you reconcile that with your with the guidance that you guys talked about earlier with the planned wholesale modest decline for Tommy for this year if the bookings sound like they are positive? That's for those are the fall, but Yes. Spring will be down a little bit. And then some of that's just pushing less into certain doors. I mean, we monitor with our majors. We look at their maintain gross margins and there's some that that we need to cut back on what we're alone to ship into those stores. And we do that on a regular basis. So we spring first half of the year, we've got wholesale down a little bit, but fall bookings look like they'll hopefully be up a little bit year over year. Okay. And then just a question on the retail stores for Tommy and Lilly longer term? So in Lilly, if you look at them with their 40 that they've got now and we've been adding averaging, I think, 5 a year really since for the last several years. And with them, with their small footprint, as we said in the prepared remarks and their extremely high productivity, I think that we've got an opportunity to continue to add stores at our same pace for several years. The way we're selecting stores may change a little obviously, we're going to be we've always been very careful, but we'll be even more careful about where we decide to put a store. We're doing a couple of these jewel box locations that we talked about in the prepared remarks. We mentioned the one that will be at the ocean or part of the ocean house sort of property there in Watch Hill, Rhode Island. And that one will be similar in a lot of ways to the one that we've had for several years down at Ocean Reef in Key Largo. And so we'll do some of those, some of those stores will be more like the others that we've been opening, but we think we can continue to open at the same pace that we've been opening in Lilly and Tommy Bahama for this year. As Scott mentioned, I think in his remarks, we've got what 6 opening, 6 leases that are going to expire that we probably won't renew. That's our thinking at this point. And then in future years, we're going to probably open a few less than we've been opening and we'll continue to look at the lease expirations very carefully. And what we're doing there, Corey, is just if they're in a place where traffic is declining, we're sort of evaluating where we think that's heading and making sure that we think they can make a good contribution going forward. Okay, great. And then my second question was, can you just walk us through some of the puts and takes of your gross and operating margin expectations for the year? And just how much flexibility do you have around your SG and A expenses if you need to cut costs? As far as gross margins, we're expecting some gross margin expansion at both Tommy and Lilly. Tommy, we've got several actions that we mentioned, both we're going after trying to get lower input costs, working with our factories there. We have taken some selective price increases. Some of that will benefit the second half more than the first half. We also on the clearance strategy, we think just by in the categories like women's buying very conservatively, taking that first mark in our full price stores, we'll be able to have less to clear and net out at a better gross margin. SG and A, Tommy, we've made some SG and A reductions right at the end of 2016 And we'll continue to monitor it. Things like incentive comp obviously are very variable as far as how if things got worse that that expense would get lower. But there is we're always watching in things like Tom mentioned on some of these store renewals, just having a marginal store that we have to put capital into. We're going to look very, very hard on whether that's an expense load we want to continue to carry or whether we close some stores. Okay. Thanks. And if I could just sneak in one last question. Aside from the new direct mailer that you guys put out, is there anything that you can point to that's really driving the positive quarter to date traffic for Tommy Bahama? Has there been a noticeable change in your international tourist traffic trends? Or is there anything else that you're seeing to help kind of drive that positive momentum right now? Yes, I think we do think that the international tourist situation has gotten a little bit better in most of our locations and we've seen evidence of that. We the other big thing I would point you to is that we did have our friends and family event, which just wrapped up the past week and that's an annual event, but we completed that and that in and of itself was very successful. It drove really good traffic online and in stores. And that's nothing that we haven't done before, but it worked very well this year. And did you guys mention what the Havilillie comps are trending quarter to date as well? There is a it's early in the quarter for them and the reason being that Easter is so important to them, Cory, and Easter is 3 weeks later this year than last year. So for them, it's a little hard to call it a comp at this point. But what we've seen to date is that stores are a bit negative, e comm is strongly positive. We still are optimistic about what we can do in the quarter, but the Easter shift makes it hard to really get a comp at this point. From a calendar date perspective, it's a comp, but from the way that the Lilly Shoppers shops, we're not really at comp until we get past Easter. Great. That sounds fair. Okay, I'll jump off. Thank you guys so much. Okay. Thank you. We will take our next question from Ed Yruma with KeyBanc Capital Markets. Just a couple of quick ones. First, if I heard you correctly, you said there was a $0.27 kind of bucket of charges really related to the Tommy Bahama repositioning. Could you give us a little bit more color on how much of that was the inventory markdownimpairment in the women's versus what was the outlet store closures? Yes, about $4,700,000 was the inventory write down and that was for older season, mainly women's goods in our outlets and some in the DC that hadn't flowed to the outlets yet. We had about $1,600,000 related to the 3 outlet stores, and then we had another about $800,000 related to severance charges. Was any of the comp acceleration that you saw at Tommy Bahama quarter to date related to closing out of the women's product or is that women's product kind of marked down or written off and kind of sold through in the Q4? We don't include outlets in our comp. And so in our outlets, they we're doing more markdowns on women's, but that does not go in our comp. So our stores were I think pretty much all. Yes. And the big drivers, Ed, again were the friends and family event that was fueled with the catalog. And post friends and family, we think the catalog is still having an influence on the customer, which is certainly what we hope to have happen and it seems to be the case. Great. And 2 other quick ones. I think you indicated that the Lilly Pulitzer flash sale in January was maybe larger than it has or maybe you hadn't had one there before. I guess kind of what drove that if I heard that correctly? And then the final question, I think you said that Asia losses should improve $2,000,000 in this coming fiscal year. Just remind us again what the base was last year? Thanks a lot. So on the Lilly clearance sale, we just had more inventory and we cleared more through the flash sale than we cleared in the brick and mortar stores. So just had more inventory to clear and cleared more through the flash sale. So on Tommy, we're at $7,300,000 this year and that includes some of that outlet store closure cost, some of that a little bit of that's in that number also. So we expect to take the $7,300,000 hopefully down to $5,300,000 or less in 'seventeen. Great. Thanks so much guys. Thanks, Ed. We will take our next question from Pam Quintilliano of SunTrust. Your line is open. Great. Thanks so much for taking my questions guys. And for your extensive commentary, Tom, regarding the changing environment, that was very helpful to hear your insights on it. So a quick point of clarification with the Tommy Corus date commentary. Men's and women's, you're both encouraged. And I guess following up on that, just how you are feeling about men's? Obviously women's has been a bigger issue, but just what's going on there as well? Yes. What I'd tell you is that they both sold well and we're pleased with where we are with both. I mean, obviously, you have all kinds of issues going on in the industry and this traffic issue is a very real issue. I know that you're very in tune with it because everybody is talking about it and it is a real issue, but we think we've got the tools to win in that environment. We've got great brands that really stand for something and are supported with great product and at the end of the day, that's what always prevails and we think that's what we've seen to date, quarter to date in Tommy Bahama. We've got always had a great brand. We've got great products there and we communicated it very effectively through this book, which I hope you've seen. And again, if you haven't, would encourage you to at least look at the digital version and we'll get you a print copy if you don't have one. But the combination of those things, I think, even in this tough environment is working and it's work to pay. And then how do I and I do have a copy and it's beautifully done. So and then how do we think about you were talking about the quintessential women's product and how well that's doing now. Can we talk about the depth of that this year versus last year? And if you've increased your emphasis on it year over year? And are you going to continue increasing if so, are you going to continue increasing your emphasis on it as we progress at least throughout the first half of the year? Well, yeah, that's the essence of being a merchant is delivering to the customer the products she needs and wants. And last year, we had a lot of stuff that was really beautiful and the customer loved the way it looked and all that, but didn't buy quite as much of it as we would have liked to have seen. And I think this year, we're based on the results we've seen today, we're the products that we've got, not only is she loving them, but she's buying them too, which is what we want. And when you look at it, there to me and I'm not a merchant, but as you know, but I've certainly been around the game a long time and have watched this for a long time. And there's a theme to them and the term quintessentially Tommy Bahama was mine because to me they're the kinds of things that when you think of Tommy Bahama, these are the things that pop into mind. So swim, which has always been a strength, Tommy Bahama women's is doing very well. The cover ups and some of the other items that go along with that have done well. If you look in your catalog or online, it actually shows up in a couple of places in the catalog. There's a linen shift dress called the 2 Palms dress that's it's very easy to wear breezy linen, simple shift, but to me that just looks like what you would think Tommy Bahama women's would be and it's working and then there's a 2 Palms Linen jacket and there's a wonderful printed knit dress that's done really well. And all these things, again, there's this theme of sort of breezy, easy to wear, island inspired, certainly people can wear them anywhere, including New York, we'd be happy for you to wear it. But they are at the same time quintessentially Tommy Baham and I think we were just sort of feeling our way towards that last year and we're it would appear that we're getting closer to the mark this year. And then is there a way to think about the depth, any percentage numbers or even just any way to think about how meaningful how much more meaningful the emphasis is this quarter versus last year? On women's or on those products? On those products in women's. I think we certainly if you look in the catalog, I think you see a lot of that kind of stuff in there. I don't have specific statistics. I don't know whether Scott's got any I don't, but I know we did go some of those key type items. We went deeper in those key type items and they're on the maybe more fashion items a little smaller buy. Okay. And then switching gears, because you had discussed the shift in the way the millennials are shopping or something we're all seeing. Obviously, Lilly, she's very plugged in. You have the app. She's always online. How do you feel about Tommy Bahama and the mobile experience and the opportunity there? And is there any changes that you're trying to implement or any learnings from Lilly that you could pull over? Well, certainly there's a lot of communication between the teams at Tommy and Lilly and there's a lot that they can learn from each other. They are different brands with different customer bases. So some of the some things that are appropriate for one brand might not be appropriate or as appropriate for the other, but certainly a lot that they can and do learn from each other. In terms of mobile, there's no question that everywhere we look, mobile traffic is increasing. So including our friends and family sale this year, I don't have the stat with me right now, but the mobile traffic was up dramatically and that's what we're seeing everywhere. And what that means is that in all of our brands, we're really trying to adopt a mobile first mentality, because we have to think that more likely than not the place that the guest is looking is on their phone. And so we need to build our visual assets and then our website and everything else to support that and that's going on across the company. Okay. And then last one, Amazon, can you remind me again your approach with Amazon? I know that there is Lilly product that shows up on Amazon and we're seeing that, but just across the brands, how we think about Amazon as a partner, the timing of the launches, if you're taking pricing in store, what happens on Amazon, that type of thing? Yes. Well, so we Amazon, of course, owns Amazon and Zappos and they are a top 10 customer for the corporation. We sell them in Tommy, Lilly and Lanier Apparel. We are testing Zappos is very good vehicle for fashion. In the Amazon world, we're we've got our toe in the water and we're trying to figure out how to build a mutually beneficial business there. We're seeing a lot of success, but obviously it's a very different vehicle from a lot of other places that we sell our brands and we want to make sure we understand how it works and make sure that we're doing it in a way that's not just volume dollars, but that's also brand enhancing and consistent with maintaining our brand integrity. So we're certainly spending a lot of time and effort looking at it, working with it, trying to learn how we can best interact in that world. Great. Thank you. And they are a top ten customer at this point. Well, thank you so much and thank you for giving me an excuse to go to the Ocean House this summer and grab a drink and see everything there. Good. Good. We will take our next question from Danielle McCoy of Telsey Advisors. Your line is open. Hi, Danielle. Hi, thank you for taking my question. Of course. I was wondering if you can give us an idea on how many leases for Tommy Bahama are coming up for expiration over the next few years? And is there any areas where you're seeing greater pressure than others or any areas that you are seeing some success in? As far as the leases, we're roughly 10 a year. Tom, we have been opening kind of that 7 to 10 to 12 a year. And so now we are kind of in the pace where every year we've got usually 10 year leases and every year we have roughly 10 coming up. And Danielle, in terms of strength or weakness, I mean, mean, malls are not going away altogether. I don't believe, I think there's some challenges out there. But the best malls, which are the only malls we're in, they're going to figure it out. They're all working on adding other components to their lineup like food and beverage, makeup bars, different things that will bring traffic into the mall as opposed to traditionally relying really primarily on the department stores to bring that traffic in. So we think it's not that we think they're going away. And are there some that are currently stronger than others? Absolutely. I'm not sure we're prepared to comment on that exactly, but there are some that are not having the same level of traffic declines as others and that's certainly as we look at lease renewals, that's part of the equation. All right, great. And then can you give us any updated thoughts on Tommy International? Yes, we mentioned we expect to reduce the loss by a couple of $1,000,000 this year. We are looking for a partner in Japan. Australia is going well. In Hong Kong, we have one store. It's probably about a year out before we can get out of that lease. So that at least we're starting to get an end in sight on that one. But I think the key is to find a partner in Japan, because Australia we're happy with. We make some money there and we've expanded there and we've had success there. So in Hong Kong, we've got an end to the size of Japan is really the market, but we made some good inroads and made some good progress, but we really would like to find a partner to kind of leverage the brand awareness we created there. Great. And then just last on Southern Tide, how many signature stores do you have and where do you kind of see that going ahead? We've got 3 open and I think we expect that we'll get a couple more open this year and it's we think it's a good channel for us. It's certainly been a big part of the Lilly Pulitzer brand. It was enormously important in their growth and development way back before we even bought them. And to this day, it remains a very important part of the Lilly Pulitzer equation. For Lilly, I believe that it'd be about 15% or 16% of their business would be sales wholesale sales to signature stores. And I don't know, we don't at present have a strong view on where the settles out for Southern Tide, but we're excited about the partners we have and excited about the businesses that we're building together through those signature stores. Great. Thank you guys so much. Good luck. Thank you. We will take our next question from Michael Kawamoto of D. A. Davidson. Your line is open. Hey, guys. This is Michael on for Andrew Burns. Thanks for taking my question. Just kind of a follow-up just kind of a follow-up to a previous question. As you look at selectively opening Tommy's stores down the road, do you think the majority of your store base will be in street and lifestyle centers? And will the stores with a restaurant or bar component ultimately be a larger piece of the mix given your success with the Marlin Bar? Thanks. Yes, I would suspect that the tilt towards lifestyle and street locations will continue. As you know, we're only 50% mall right now or even less than that, it's 45% or something mall. So we already tilt a bit away from the mall and I would guess that that would continue to increase. I'm not going to say we'll never open another mall store, but I would certainly think that would be true. And then will more include some type of food and beverage element, I would guess that yes, that's true. Not necessarily a bigger proportion of full blown island retail restaurants, but as you suggested the Marlin Bar concept may be a part of a significant number of the future stores. Thank you, guys. Okay. Thanks a lot. That concludes the Q and A portion of today's call. I will now turn the call back over to Chairman and Chief Executive Officer, Tom Tubbs. Please go ahead. Thank you again for your time this afternoon. We very much appreciate your interest and look forward to speaking to you again in June. That concludes today's conference. Thank you for your participation. You may now