Good day, welcome to the Oxford Industries, Inc. third quarter 2013 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Anne Shoemaker, Treasurer. Please go ahead, ma'am.
Thank you, Blake, good afternoon, everyone. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, actual results may differ materially from those expressed or implied in the forward-looking statement. Important factors that could cause actual results of operations or our financial condition to differ are discussed in the documents filed by us with the SEC. 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 GAAP financial measures to non-GAAP financial measures in our press release issued earlier today, which is posted under the investor relations tab of our website at oxfordinc.com.
Also, for comparative purposes, keep in mind that fiscal 2013 is a 52-week year, while fiscal 2012 was a 53-week year, with the extra week in the fourth quarter of fiscal 2012. Now I'd like to introduce today's call participants. With me today are Tom Chubb, CEO and President, Scott Grassmyer, CFO, Terry Pillow, CEO of Tommy Bahama, Doug Wood, President of Tommy Bahama. Thank you for your attention, now I'd like to turn the call over to Tom Chubb.
Thank you, Anne, thank you for joining us this afternoon. I'll walk you through our third quarter results, I know how interested everyone is to get an update on what's been happening over the last couple of weeks. Our fourth quarter has been very solid to date. Both Tommy Bahama and Lilly Pulitzer have seen strength in e-commerce and in the retail stores during the first six weeks of the quarter. We believe we have excellent plans for the remainder of the holiday season, as well as January, expect to deliver strong fourth quarter results. We are pleased that our third quarter results met our sales and earnings expectations. Sales were up 9% over last year, adjusted EPS was $0.10, which reflects a significantly higher effective tax rate.
EPS was also affected by the deleveraging of SG&A, which we experienced in the third quarter as the fixed costs associated with operating more retail stores is spread over our smallest quarterly sales base. At Tommy Bahama, sales from 27 additional stores and a comp store sales increase of 8% drove a solid 10% sales increase in the third quarter. This year, Tommy Bahama's adjusted operating income was $1.7 million, compared to $3.4 million in the third quarter of 2012 as Tommy Bahama experienced the impact of SG&A deleveraging that I just described. I'll turn the call over to Terry Pillow to provide more color on Tommy Bahama in a minute, but first, I want to walk you through our other operating groups. Lilly Pulitzer's net sales increased 13% to $30.3 million in the third quarter.
Our e-commerce clearance sale was very successful and generated $7.6 million in sales over a three-day period. These semi-annual e-commerce events are our primary way to clear end-of-season merchandise, and our inventories are very clean. The top line also benefited from higher wholesale sales, as well as sales from operating four additional retail stores. These increases were partially offset by a modest comparable store sales decrease of 2%. As a reminder, sales from our e-commerce clearance sale are excluded from our comps. Lilly Pulitzer operated 22 stores at the end of the quarter, compared to 18 stores at the end of the third quarter of fiscal 2012. In late November, Lilly Pulitzer opened its 23rd store at the Waterside Shops in Naples, Florida. Not surprisingly, this location is off to a great start.
Lilly Pulitzer's continued investment in infrastructure and SG&A associated with new stores offset the gross profit impact of the sales increase. This resulted in an adjusted operating income of $4 million for the third quarter of fiscal 2013, slightly lower than last year. Lilly had a great November with very strong comps and is off to a great start in their holiday resort season. We believe our SG&A investments, such as the one we have made in building a world-class communication team at Lilly, are paying off. We believe that the strong results we are seeing are being driven by great product, great distribution, and great communication. Like Tommy and Lilly, Lanier Clothes also reported a double-digit year-over-year sales increase. Sales at Lanier increased 11% to $30.1 million.
As a result of higher sales, operating income in the third quarter of fiscal 2013 grew to $3.4 million, compared to $2.4 million in the third quarter of fiscal 2012. In the fourth quarter, Lanier is expected to have a significant sales increase over last year as they add a major private label pant program with a warehouse club. Moving to Ben Sherman, sales declined in the third quarter to $18.6 million, as improvements in the U.K. and Europe were more than offset by an expected decline in U.S. wholesale sales. Ben Sherman's operating loss was $1.9 million, compared to $2.1 million in the third quarter last year. The modest improvement, despite lower sales, was driven by SG&A reductions, and we believe the actions we have taken will deliver more significant year-over-year improvements in the fourth quarter.
Finally, our corporate and other segment reported a higher operating loss of $2.1 million on an adjusted basis, primarily due to higher SG&A. All in all, the third quarter met our expectations, and based on the strength of what we have seen in the first six weeks of the quarter, we are very pleased to affirm our full year adjusted EPS guidance. I'd like to now turn the call over to Terry Pillow to give more insights on Tommy Bahama. Terry?
Thank you, Tom. As Tom mentioned, we are very pleased with what we are seeing so far in the fourth quarter. We made adjustments to our marketing campaigns that appear to be driving very strong sales this year. We sent a larger gift guide to over 600,000 customers the first week of November. We also sent loyalty gift cards to 1.8 million customers in the second week of November. Our very successful Flipside event also got a facelift this year with two offerings to our customers, one before Thanksgiving and another in December. The Flipside is basically a bounce back program where, with a purchase, our customer is rewarded when they shop with us in January. These events serve as an immediate call to action and do a great job getting our customers back online and in our stores in January.
Finally, our full price resort season, which begins on Friday and continues through January, will be supported by a non-comp resort mailer hitting homes this week. Our marketing efforts, combined with fantastic product, are allowing us to achieve excellent results in this highly competitive environment. Our wholesale business also reflects the positive response to our product. Our key item business remains very strong, with our ever popular reversible half zip sweater leading the way. We are pleased with what we've seen in holiday selling to date, and we'll be working hard over the next seven weeks to deliver excellent results for the full fourth quarter. I'll turn the call over to Scott Grassmyer to discuss our consolidated highlights for the quarter. Scott?
Thanks, Terry. For the third quarter, consolidated net sales increased 9% to $198 million, compared to $181 million in the third quarter of fiscal 2012. We saw double digit sales increases at Tommy Bahama, Lilly Pulitzer, and Lanier Clothes, partially offset by a sales decrease at Ben Sherman. The higher sales drove increased gross profit for the quarter. At 53.1%, gross margin was slightly lower than the same period last year due to the impact of purchase accounting and LIFO accounting. As Tom mentioned, we had a deleveraging impact on SG&A from operating additional retail stores in our third quarter. SG&A was $104 million, or 53% of net sales, compared to $94 million or 52% of net sales in the third quarter of fiscal 2012.
The increase in SG&A was primarily due to $8 million of incremental cost associated with operating additional retail stores and restaurants, as well as other incremental expenses to support the growing Tommy Bahama and Lilly Pulitzer businesses. As planned, these increases were partially offset by SG&A reductions at Ben Sherman. For the third quarter of fiscal 2013, consolidated operating income was $4.6 million, compared to $5.9 million in the third quarter of fiscal 2012. Interest expense was $1.2 million in the third quarter of fiscal 2013, compared to $1 million in the third quarter of fiscal 2012, primarily due to higher borrowings. At the end of the third quarter, we had $167 million of borrowings outstanding and $69 million of unused availability under our U.S. and U.K. revolving credit agreements.
In late November, we amended the U.S. revolving credit agreement to effectively reduce the interest rate, extend the maturity date of the facility until November of 2018, and make favorable modifications to certain other provisions and restrictions. The effective tax rate for the third quarter of fiscal 2013 was 74%, compared to 39% in the third quarter of fiscal 2012. To add to Tom's comments earlier, the rate in both years was impacted by our inability to recognize a tax benefit for losses in certain foreign jurisdictions. However, in fiscal 2012, the impact of the foreign losses on our tax rate was offset by certain favorable discrete items. The impact of foreign losses on our effective tax rate is significantly more pronounced in our seasonally low third quarter. The effective tax rate is expected to be approximately 43% for the fiscal year. Now to the balance sheet.
Total inventories at the close of the third quarter of fiscal 2013 were $124 million, compared to $102 million at the close of the third quarter of fiscal 2012. The increase supports our anticipated sales growth and the operation of additional retail stores. The increase also reflects the earlier receipt of some shipments this year. In the first nine months of the year, our capital expenditures were $37 million as we continued to open new retail stores, remodel existing retail stores and restaurants, and invest in information technology initiatives, including e-commerce enhancements. For the year, we expect capital expenditures to be approximately $45 million, compared to $61 million in fiscal 2012. Also, our board of directors has approved a cash dividend of $0.18 per share for the quarter. We have paid dividends every quarter since we became publicly owned in 1960.
Moving to our outlook for the remainder of the year. For fiscal 2013, we are affirming our full year adjusted EPS guidance. We expect adjusted EPS in a range of $2.90-$3.05, and net sales in a range of $922 million-$932 million. On a GAAP basis, we expect EPS in a range of $2.85-$3 for the year. This compares with fiscal 2012 EPS of $2.61 on an adjusted basis and $1.89 on a GAAP basis, on sales of $856 million. For the fourth quarter ending on February 1st, 2014, we expect net sales in a range of $255 million-$265 million, and EPS in a range of $0.98-$1.13 on an adjusted basis, and $1.01-$1.16 on a GAAP basis.
In addition to excluding the purchase accounting impact of Tommy Bahama Canada, our adjusted EPS guidance in the fourth quarter also excludes a gain on real estate sold in November. In the fourth quarter of fiscal 2012, which included 14 weeks, EPS was $0.65 on an adjusted basis and $0.32 on a GAAP basis on sales of $236 million. Now I'll turn the call back over to Tom Chubb.
Thank you, Scott. I'll return with some closing comments. Now we would like to take any questions you may have. Blake, we're ready for questions.
Thank you, sir. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow our signal to reach our equipment. Again, press *1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Edward Yruma with KeyBanc. Please go ahead, sir.
Hi. Thanks so much for taking my question and congrats on a solid quarter.
Thank you, Ed.
Can you talk a little bit about the Lilly Pulitzer comp in the quarter? I know that you did not include the e-com sale, just trying to understand if something had changed in the business and how you view the long-term sustainable comp at your own Lilly stores.
Sure, Ed. I think that's a great question and an obvious one, obviously, given what the results were for the quarter. I'll point out that third quarter is their smallest quarter by a pretty significant margin. Even being small and with the third quarter deleveraging effect, they had a 13% operating margin. Still not bad. Q3, as you know, is not a natural strength for Lilly, given its Palm Beach resort chic positioning. I think what happened this third quarter is that in an effort to be a bit more fall, if you will, they veered a bit off our Palm Beach resort chic positioning and ended up a little bit under assorted in prints and knit dresses and things that we need to really drive the business. As soon as November 1 rolled around, we got resort holiday into the stores.
The business took right back off. We comped very well in November and really to date in the quarter. We're really happy with what we've got in the pipeline. I think we learned some lessons about fall in Q3 that we've incorporated into next year. We're very happy with where the business is and what we've got coming ahead. This is a very healthy business with excellent growth potential, both through comp in existing stores and e-com, as well as additional stores. No systemic issues there at all, Ed.
Got it. I know you mentioned, I think Terry did in his comments about Tommy, a more expansive use of some mailers and maybe potentially the Flipside of that. I guess, are you finding more success at some of these bounce back dollar promos? Are you getting a strong return on that? I guess, should we expect for usage of those types of incentives to increase going forward?
Well, I'll comment briefly. I think that over the last several years Tommy Group as well as the Lilly Group have really developed their thinking on very brand-friendly marketing initiatives that are consistent with running a full price business, but at the same time can spur demand at appropriate times during the year. I would say that they've gotten increasingly sophisticated about that, and these programs are largely working, and we're pleased with the way they work. That would go across really the entire business. I'll let Terry and Doug comment a little further on the specifics at Tommy.
Yeah. I don't know how much more we could add. I think, Tom, you covered it really well. I think that with us, with the Flipside event is something that we've actually been doing now for over five or six years and in this exact time period. It's a really good way to get people into the store in January. It also adds to order size in the time period of December where you want to try to drive a little order size. It has worked for us, and as Tom said, it's done in an appropriate manner and where we're running a full price business and trying to incentivize people to come in.
Yeah. The other piece of this you mentioned were the mailers. The mailers are our real communication to our guests on the brand image and the clarity of the brand image, of which we always talk about as one of our largest assets. That's the reason we think this non-comp book that we're delivering on Friday is going to be a big boost as people start thinking about going away for the holidays. The first time we've done it. It's a beautiful book. I'd encourage you to get one of them and take a look. You might even like something in there because it's a beautiful book. These are the kind of vehicles that we need to do more of to continue to drive business in a regular price business.
Got it. One final question. How should we think about, I think your store format and the type of how business has changed over time. It seems like some of your stores are a little bit more contemporary. I know you started talking about remodels. I guess, have you done any remodels? What kind of economic lift do you see or are you expecting to see when you do these? Thank you.
Terry and Doug, do you want to tackle that one?
Yeah. Thanks a lot. We have modernized. The new stores we're building are clearly a different model than the ones that we've been doing for 20 years. Wherever we do a remodel, we get a nice lift in business. They're much more friendly, much more shoppable. We're trying a lot of different formats. We just opened a store during early fourth quarter in Florida Keys, which was a much smaller format store, yet a very modern store and a smaller market that we would go into, and we're quite pleased and surprised with that. That could be a whole other group of stores out there that we could take a look at in other locations other than the traditional freestanding street location or mall locations as we continue to evolve our concept. As you know, Ed, the New York concept was a different one.
We built that same concept in Chicago. We're working on a very exciting brand new concept that we're going to open in Waikiki with an island and a restaurant that is something that is quite spectacular that we're going to be opening soon. We think a variety of it's not a cookie cutter one format fits all. We're trying to tailor these to different markets. As we look at the budget for 2014 on the remodels, we'll take a look at them.
Great. Thanks so much, guys.
Thanks, Ed.
Thank you. Next, we'll take Rick Patel with Stephens Inc.. Please go ahead, sir.
Thank you. Good afternoon, everyone, and congrats on a strong start to the holiday season.
Thanks, Rick.
Can you give us a little bit more detail about wholesale for the Tommy business during the third quarter? I know that things started off a little bit softer, but I'm curious if those trends remain soft throughout the third quarter and just what you're hearing from your wholesale accounts so far in the new quarter.
Terry, you want to jump on that one?
Doug will go take it.
Well, so far, we've actually gotten good results from our wholesale accounts as we go into holiday. What we've seen in fourth quarter so far is strong business. As we look forward, we see a strong wholesale business. I think that for us, and I think that Tom and Terry talked about this before, we're so committed to our wholesale business, but the wholesale business is evolving, too, and it has everything to do with the omni-channel and how we play in that. I think that for our business is that we're going to continue to be committed to it, and we're actually very pleased with how we've been performing in the fourth quarter.
Yeah. Rick, I would just add to Doug's comments there. He mentioned it, we spend a lot of time talking about e-com in our own stores, and we all obviously like them a lot and think they're great vehicles for growth. Wholesale is a very important channel for us across the entire company. We're very committed to it, and we're in no way backing off it. That said, as Doug mentioned, the retail climate is changing a lot, particularly among department stores with the emergence of omni-channel changes in their strategies, they're trying to buy less drive higher turn rates and higher ROIs and that type of thing.
As that happens, there may be situations where we need to slow down or even back off for a short period of time in the wholesale, that in no way changes our commitment to building and maintaining successful, mutually profitable, full-price wholesale businesses.
Great. Can you talk to us about the performance of accessories? I think you mentioned on the last call that you had a very strong performance in bringing shoes in-house. I'm just curious if that continues to do well and what the outlook for accessories is like over a longer time horizon.
Well, just commenting generally, I think you're targeting your question to Tommy, I'll let Doug and Terry talk about that one. We view accessories as a longer-term opportunity, really across all the brands. Tommy's probably a little bit further along in their evolution. They are seeing some good things, which I'll let Terry and Doug comment on.
Thanks, Rick. You're right. It is continuing, and it's continuing at a pretty good clip. Bringing the shoes in-house, we've seen not only a nice response and pickup in the shoes we're developing in our own stores in both men's and women's, but also our wholesale bookings that we're starting to see right now and our wholesale customers that want to be involved in Tommy Bahama footwear. We've got some very exciting new technology initiatives that we're launching in the spring, which we're very excited about. That's a key business for us. Our women's accessories that I think I talked to, that you were alluding to the last time, continue to show great promise, especially in our mailers. It helps us round out the whole lifestyle piece of our mailers, and it's also performing very well.
It's not necessarily accessories, but we're talking about non-apparel. We've really seen this holiday season, which is a very pleasant surprise, is our home business. It's really picked up and is being a major contributor, and we've been working hard on that, and it's glad to see that that's picking up. Those are the components when you talk about growing those kind of businesses that really talk to a lifestyle brand and not just like another apparel brand when you've got men's and women's apparel, accessories, home, footwear. We're very excited about that, and we think those are big growth opportunities. Thanks for asking.
Just a last question on Asia. Just curious how that region is shaping up versus your expectations and any early indications of what the financial impact could be like in 2014. Thank you.
Rick, let me comment on that and then let Terry and Doug add to it. Terry, Doug, and I recently spent about 11 days in Asia. We came back, I think, excited as ever about the international opportunity. In our mind, and I think the reality is, we're still early on the learning curve there. We're having many successes there and seeing lots of things that we like about what we've done. We also recognize that we have some learnings that we're developing and that we need to incorporate into the business. We knew going in that developing a successful international business would be a longer-term sort of proposition for us. We've got a very big and successful business here in the U.S. that still has a lot of opportunity for profitable growth and investment. For the longer term, we do need to develop this international business.
We're going to stick with it. We're going to keep working away at it and build a business that can provide us with long-term profitable growth opportunity.
Thanks, good luck for holiday.
Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. If your question has been answered, please press the star key followed by the digit 2. At this time, I'll go with Eric Beder at Brean Capital. Please go ahead, sir.
Good afternoon. Congratulations, thank you for the coupon.
Oh, you're welcome.
It's already-
Have you bought some big and tall merchandise?
Until we get it online, it's already been done.
We'll be back.
All right.
Could you give us an update about the New York City flagship and kind of where that is in its growth? I know it's our anniversary, the opening of that.
Terry and Doug, why don't you guys jump on that one?
Eric, I can't thank you enough for asking the question. I just got back. I was there all week last week. I had meetings, and I was popping in and out of that store. I'm very familiar with the answer to that question. Last week, the New York restaurant was the number 1 restaurant out of all 14 that we operate. That's I think the first time we've seen that. That's not out of nowhere. It's been a gradual climb. The restaurant has gotten better and better. Last Saturday, New York City was the number 1 store out of the 88 full-price stores that we operate in America. We opened it about a year ago during Hurricane Sandy. We're very excited about the comps that we're seeing in that store right now.
We've just done a remodel, or not a remodel, but a remerchandising of it when I was there. I'd put it up against any store on Fifth Avenue. I couldn't have been more proud of how that store shows up, and the customers are responding, and the business is good. I'd encourage you, if you hadn't sent that $50 gift card yet, to run in and buy and spend it in that store because it really looks terrific.
I would add the obvious, Eric, as you know very well, we intend to make money at that store. This is not a flagship that's just there for marketing purposes. That said, I think it's done incredible work in terms of raising our visibility in the global marketplace, which has been terrific to see. As Terry said, we are all extremely proud of the way we show up there and represent the brand.
Great. In terms of women's, I know I always ask this question, how is the women's business doing versus the men's at Tommy Bahama, and is it taking more share?
We're growing the women's business across the board in all our stores, talking specifically about New York, because you know if you're in there a lot, Eric, we've allocated about 45% of the space, and we've moved women's to the front of the store. It's not generating that yet, on a curve, sometimes we do. This time of year, it's not. We love the presence of women's, and we're going to continue to lead with women's in that store because it's a significant business, and we think that for the shopper on Fifth Avenue, that we're better off leading with women's. Across the board, in all our stores, we couldn't be happier with the growth in the third quarter and in what we're seeing early in the fourth quarter of our women's business.
Okay.
New York, we'll get to 50% in women's, which is our goal.
For Ben Sherman, this was a quarter of small progress. When should we start to think about Ben Sherman starting to demonstrate the turnaround in operating income going forward?
I think in the fourth quarter, you'll see a much more significant improvement. As we've said all year, Eric, I think we've been very consistent in saying we should see improvement in the second half. We got a little bit of that in the third quarter, and I think we'll see a lot more of that in the fourth quarter. Last year, they lost $4.5 million in the fourth quarter. This year, they should approach breakeven. I think you'll see, again, a very marked improvement. That's still a good way from being a healthy business. In terms of the year-over-year and sequential improvement, it's pretty significant.
Yeah, that would be pretty impressive. Final question, in terms of international expansion, is 2014 a learning experience. When's the next time we should expect potentially opening stores in Tommy Bahama in Asia? Again, congrats on a great quarter.
I think, Eric, the way that we would describe it, I'm using, I guess, a metaphor that Scott Grassmyer has used, which is we're not stepping on the brakes, but we're not stepping on the gas either. We're really trying to focus on incorporating the learnings that we have to date to tweak and improve our model over there, make sure that we're confident that we've got it right before we step on the gas too much. That said, I think we've got a couple of outlet stores in the works, which we really wanted to have before now, but just didn't have the right real estate opportunities to get those open. That would be in keeping with the way we operate here. I don't think we'll see a big growth in store count in 2014.
Great. Thank you.
In the international part.
Thank you. Our next question will come from Pamela Quintiliano. Please go ahead, ma'am. From SunTrust.
Thank you. Thanks for taking my questions, guys, and congratulations on a great quarter in a really difficult environment. You're obviously an outlier in terms of being pleased with quarter to date performance, given what we've heard thus far this earnings season. Can you just talk us through what you're potentially doing differently this year versus last year for 4Q in terms of promotional cadence, product, anything really to combat what's arguably a very difficult environment out there. Along those lines, I know this is a tough one, but any commentary at all surrounding Black Friday, Black Friday weekend, and just how it was for you guys and perhaps the shopping behavior of your customer online versus in stores. Just lastly, have you been surprised with the competitive landscape, and how do you think about the health of your consumer?
I guess going in reverse order, Pam, I would say that we're not really surprised by the competitive landscape. It's been building every year, and given the somewhat fragile nature still of the economy and the consumer, I think we anticipated that this season would be very promotional, a lot of discounting and doorbuster deals, and all that kind of stuff. I don't think we've been too surprised by that. In terms of Black Friday and the Thanksgiving weekend, I'll let Terry and Doug comment more on it. Really for the company, it was a good weekend. We were very happy with what we saw, sort of Thanksgiving through Cyber Monday. We really liked what we saw there, as well as November.
Going back to your original question, which again, I'll let Terry and Doug elaborate more on, but how is it that we're performing well in a good environment? I would sum it up by saying that we've got great brands and we're playing our game. We're not playing somebody else's game. We're sticking to our game and we're playing it and sticking by it, playing it hard and working hard, but sticking to our game and what we do best and not really worrying as much about what the other guys are doing. Certainly in the six weeks to date in the quarter, that has served us very well. While none of us knows for sure what the future holds, we see no reason why that wouldn't continue to work for the balance of the quarter.
I think Terry and Doug may want to offer some additional comments on some of the specifics of the marketing cadence, which has changed a bit.
Yes. Pam, I talked about in my prepared remarks of how important these mailing pieces are. We look at our business and we say the same thing in this environment, what are we doing that we're so much better? As we look at our business, I think the clarity of our brand message, and there's a lot of sameness out there in the marketplace, and we're providing an island lifestyle concept that as long as we deliver on it, we're seeing the results of it. Plus, on the product side, this year, we took a few more risks in third quarter, which has traditionally not been our biggest quarter, and in the early fourth quarter on heavier product, where we can execute that product that it looks still appropriate under the Tommy Bahama label. We're seeing very marked results in that kind of product.
We're finding that our customer is giving us entree into other categories that heretofore that we've kind of stayed away from because we're Tommy Bahama. We're seeing customer wants more from us and more products and more variety of products, and that's very encouraging under our philosophy. Black Friday, I'll let Doug talk about.
Like all retailers, we all strategize on how to entice the guest to shop over that weekend. I think because of the shorter time period between Thanksgiving and Christmas, I think everybody tried to pull that forward. I think the difference with Tommy Bahama is that because we're not promotional and because we can't really have a doorbuster strategy, we took a different approach and took the things that we already have, and that is the loyalty card, which we pulled earlier in the month, as well as the Flipside event where you spend $250 and you get $50 for January. We actually pulled that over that weekend, it gave us results.
Because we really didn't change anything from what we've done before, but because of that weekend and then because of the messaging and the mailer and the card, we were actually able to just have everything hit perfectly over that weekend. It was really explosive. We were really pleased with that weekend.
Oh, that sounds great. Congratulations, guys. I look forward to hearing more about the rest of the holiday season.
Thanks, Pam.
Thank you. Happy holidays to you.
We'll take our final question from Susan Sansbury with Miller Tabak.
Hi, thanks. Happy holidays to everybody there as well.
Thank you. You too.
Oh, absolutely. Tom and everyone, I'm really pleased that the New York City flagship store has turned into the profit column.
Susan, it's not going to be profitable this year, but it's-
Well, that I understand but-
definitely on the right track.
It's profitable currently, is that what I heard?
No, maybe Scott will jump in here.
Yeah. We believe it's going to be a profitable store. It's not just a flagship that's going to be a marketing exercise for us. We're going to get those marketing benefits, but it will be. This year, we'll lose some money this year. Obviously holiday is going to have a big say on, hopefully that loss will be less than we maybe earlier anticipated due to the good holiday we're having there. This will be in the future a profitable store. We're very confident of that.
Okay. I thought I heard Mr. Kohler say that it had broken into the black. I didn't hear that correctly?
I don't think so.
No.
Okay. All right. The real focus of my question is yes, the New York flagship will become profitable, but I'm curious about your commentary about the Asian stores. What should we anticipate at this point in terms of the losses currently being generated in Asia? Will they stay at this level?
Scott, why don't you walk her through that?
Yeah. For this year, we're going to lose somewhere in that $12.5 million-$13 million range, which is I think pretty consistent with what we had said last quarter. What we're finding, we've only had
stores that have actually anniversaried. That's Macau, Singapore, two of our smaller stores. As anticipated, we're seeing significant comps in year two over year one. Year one, on a four-wall basis, most likely the store's going to lose money in year one. Year two, hopefully, start approaching break even, and hopefully year three, we start getting some four-wall contribution. It's going to take some time, but hopefully the others will have that year one to year two comp of Macau, Singapore, and I think we'll be making progress towards that.
Okay. These losses are going to gradually come down.
Yeah. They should, yes. They should.
Okay. Any commentary, Terry, about, or Doug, about in-store inventory levels, or Tom, to get you in there, in-store inventory levels at Tommy Bahama or Lilly?
I think in just touching on Lilly real briefly, we had a great November and Thanksgiving weekend, and they're small stores, so when they have a really big week or weekend, they can be a little broken on Monday. They're getting better and better at restocking them very quickly, and we're locked and loaded and ready to go for holiday there.
Okay. Finally, can you talk about the new club program for Lanier? You said you're expecting a-
Well, you might want to hear from Doug and Terry on Tommy inventory levels.
Okay, sure.
We can circle back to Lanier.
Yeah, I just spend a second on Tommy's inventory. We're in great position right now, but I think this is also, you read about the omni-channel. The omni-channel is real. One of the things we all wait for here is, it takes a little bit, like a couple of hours each morning before we find out what our kiosk shipments are in the morning. Not only am I in great shape in store, but I'm in great shape in the DC, so that if one of our stores doesn't have a specific size or color now, I've got access to inventory in our warehouse that I can get there overnight to the guest. The game has changed and in a positive way, speaking utilization of inventory in a timely fashion for holiday has really been great for all over the country.
Okay. These comments are consistent in store or at wholesale?
You know what? It's in both, in our stores and in e-com. Wholesale is a little different because of a standpoint of how they have bought their inventories going into holiday time period. It's kind of, I have to go account by account on what their positions are. I can tell you that, just because of what we had talked about earlier about a lot of focus on turn this year at our wholesale guest. My guess is, hey, they're gonna start running low on inventory. I can tell you that for the businesses that we have direct control over right now, we've got great position.
Okay, great. Sounds good. Tom Lanier.
Yeah, in the warehouse program that they have, Lanier, as you know, Susan, is a category specialist as opposed to being just dedicated to one brand, so their expertise is really in men's tailored clothing, which includes suits, sport coats, and dress pants. As a result of their known expertise, they're one of a handful of major players in that space in the U.S., and as a result of that, they were offered an opportunity to bid on a what's actually a dress pant program in terms of the construction. It's a casual type fabric, but it's a dress pant construction, and they were given the opportunity to bid on it and got the order. As these things go, it's a huge order. It's basically one style, but a huge order. The gross margins tend to be a bit low.
That's really why we called it out because you'll get a big pop in sales. It's big enough that at the low margin, it's gonna dilute the gross margin a bit for Lanier, in Q4. It's still a great contribution for us. It's a positive development because it's gotten them into a channel that they've never been in before, and this is early days, excited about having the order and delivering it, and we'll see where it goes from there.
Is this a test, or do you have a six or nine month or 12 commitment?
Well, the way this particular program works is there's an initial shot that's quite large that'll go in January and then part of it in early February. Then there's a second shot that we've already got the order for that'll go in third quarter of 2014. Beyond that, the way those guys work, they don't commit any further out than that, but hopefully we'll be successful. They'll like the program and want to continue it going forward.
Okay. No, because
As you know, Susan, they operate very differently, just because they have something and it does well, they may or may not decide to continue it. I do think it'll give us the opportunity as it already has, to bid on other programs and items there.
Okay. I know you don't want to discuss exactly which club you're dealing with, or maybe you will, I mean, this is the largest club or the second largest club, or?
Well, there are not a lot of choices out there, Susan.
I know.
I don't think it's really appropriate for us to call somebody out like that, but it's a private label program for one of the major clubs.
Okay. All right. Again, have a great holiday season.
You too, Susan.
Thank you.
There are no further questions in the queue at this time. I'd like to turn the call back over to Mr. Chubb. Please go ahead, sir.
Thank you, Blake. Our earnings expectation for the year reflect the solid performance of our business and our continued investment in future growth. We expect the power of our direct-to-consumer strategy, coupled with the strength of our brands and people, to deliver sustainable top and bottom line growth in the years to come. Thank you again for your time this afternoon. Happy holidays, and we look forward to speaking to you in March.
That does conclude today's conference. We thank you for your participation.