Good day. Welcome to the Oxford Industries, Inc. third quarter fiscal 2012 financial results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Anne Shoemaker, Treasurer. Please go ahead, ma'am.
Thank you, Melissa. 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, 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 the documents filed by us with the SEC. We undertake no duty to update any forward-looking statements. Also, during this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at oxfordinc.com. Now I'd like to introduce today's call participants.
With me today are Hicks Lanier, Chairman and CEO; Tom Chubb, President; Scott Grassmyer , CFO; Terry Pillow, CEO of Tommy Bahama; and Doug Wood, President of Tommy Bahama. Thank you for your attention. Now I'd like to turn the call over to Hicks Lanier.
Good afternoon. Thank you for joining us to discuss our results. Both Tommy Bahama and Lilly Pulitzer posted strong sales in the third quarter. We continue to invest in the growth of these fantastic brands, and we're very pleased with their contribution to our solid operating results. Our third quarter adjusted earnings increased 19% over last year within our previously issued guidance range. In this quarter, which is by far our smallest of the year, Ben Sherman's disappointing performance muted our overall financial results. We have moderated our guidance for the year as the Ben Sherman struggles continue into the fourth quarter, and we experienced delays in opening three key Tommy Bahama stores. Terry Pillow and Tom Chubb will provide more details on both of these items.
That said, our expectation for the full year adjusted earnings reflects an earnings increase of 8% to 12% for the year, even after our significant investments in Tommy Bahama this year. I'll return with some closing comments before Q&A, but I'd like to now turn the call over to Terry Pillow to discuss Tommy Bahama's results for the quarter. Terry?
Thank you, Hicks. Tommy Bahama sales grew by 12% in the third quarter. We are particularly pleased with our direct-to-consumer performance. Through the first nine months, our full-price comp store sales have increased in the high single digits, with low single digits reported in the third quarter, our smallest quarter of the year. Our e-commerce business has posted significant gains both in Q3 and for the first nine months of the year. We are now up to 110 Tommy Bahama stores, with five new stores opened in the third quarter and three more expected to open in the fourth. A very important store, the N.Y. flagship store, opened two weeks later than we planned, on November the 17th. Due to Hurricane Sandy, we experienced some delays obtaining required permitting, which caused delays in opening the restaurant and bar.
We plan to open the restaurant and bars on December the 14th, approximately six weeks later than planned. Even without the critical restaurant and bar components, we are pleased with the early results at the retail store. We have a long-term lease in this Fifth Avenue location with a great rent deal and are very excited with what we have done there. I'd note, in addition to our N.Y. location, 15 other Tommy Bahama stores were impacted to varying degrees by Sandy, with our two New Jersey stores still feeling some impact. Affecting our forecast for the fourth quarter is the delay for our Chicago store on Michigan Avenue. We have been required to stop work on that location due to an unresolved dispute between our landlord and the developer. This opened and previously planned for November has been pushed into fiscal 2013.
Our Hong Kong store, which also was planned for November, is now expected to open towards the end of December. We have seen a positive reaction in both our retail stores and e-commerce with our holiday loyalty cards that we sent out in mid-November. Our holiday gift guide started hitting homes last week, and the early read is very positive. We believe our product assortment in both men's and women's has never looked better, and our inventory position is in great shape. As you know, as part of our international expansion strategy, we acquired our Australian business from our licensee in the second quarter. We have made some enhancements there and are encouraged by the initial results we are seeing. We are well positioned on the Gold Coast market and are finalizing plans to expand into the Sydney market with a full-price retail store.
With all these elements in place, we are looking forward to a good holiday season to finish what has been another great year of development for the Tommy Bahama brand. I'll turn the call over to Tom Chubb to discuss results for the rest of our operating groups.
Thanks, Terry. Good afternoon, everyone, thank you for joining us. While the third quarter remains a small one for Lilly Pulitzer, by continuing to develop innovative products that the customer loves and d eliver a brand message that truly resonates with her. Lilly was able to deliver $26.9 million of sales, which represents an impressive 62% increase over last year, with increases in all channels of distribution.
The sales increase drove a swing from a small loss in the third quarter last year to a 13% positive operating margin this quarter. In August, the customer once again showed her enthusiasm for the brand with Lilly's flash sale on its e-commerce site exceeding our expectations. For the quarter, full price sales on our site also continued to have excellent year-over-year increases, and we achieved comp growth in brick-and-mortar stores in the low double digits for the quarter and the year so far.
We continue to be very pleased with the performances of our new stores in Charlotte, Atlanta, and Baltimore, and our 19th store at Tysons Galleria outside of Washington, D.C., opens this week. We have also signed leases for three new Lilly stores. The Shops at Riverside in New Jersey and Kenwood Towne Center in Cincinnati are expected to open in the first quarter of 2013, and Streets at Southpoint in Durham, North Carolina, in the second quarter. We are continuing to evaluate other sites as new stores are demonstrating that they are an excellent growth vehicle for Lilly. Lilly is off to a very good start in the fourth quarter with success in some new sportswear items and holiday gift items. Needless to say, we are very enthusiastic about Lilly's performance this year.
Ben Sherman's results for the third quarter were disappointing, both in absolute terms and relative to our expectations. Ben Sherman reported net sales of $19.8 million for the third quarter of fiscal 2012, down sharply compared to $25.2 million in the third quarter of fiscal 2011. Sales in the third quarter were impacted by a misstep in Ben Sherman's merchandise mix, which resulted in too much of the product offering in styles at the high end of the price range. This, coupled with the difficult economic conditions in the U.K. and Europe, as well as Ben Sherman's exit from certain moderate-tier wholesale accounts in the U.K., resulted in the sales decrease.
Ben Sherman reported an operating loss of $2.1 million in the third quarter of fiscal 2012 compared to operating income of $0.3 million in the third quarter of fiscal 2011, primarily due to the decreased sales, partially offset by lower SG&A. Following the end of the third quarter, we had a change in leadership at Ben Sherman with the departure of the CEO who had been in place for the last couple of years. We are moving quickly to examine every facet of this business. We are focusing on Ben's core businesses, exiting unprofitable or low potential businesses, and improving our execution, including having a better balance of merchandise in the spring assortment. We are moving swiftly to cut expenses to bring the overhead structure in line with the size of the business. We believe these initiatives will help put Ben Sherman on firmer footing.
Net sales for Lanier Clothes were $27.2 million in the third quarter of fiscal 2012, down from last year's $33.1 million. Last year, Lanier benefited from initial shipments related to a new product launch. This year, the business was impacted by a slowdown in the intake rate on replenishment programs by a key customer. Operating income decreased to $2.4 million in the quarter, primarily due to lower sales and gross margins, partially offset by lower SG&A. We expect Lanier's fourth quarter sales to be above last year. For the year, we expect sales to be slightly below last year and operating margins approaching double digits. Corporate and Other reported an operating loss of $1.2 million for the third quarter of fiscal 2012 compared to an operating loss of $2.1 million in the third quarter of fiscal 2011. The improved results reflect the net impact of LIFO accounting.
I'll now hand the call over to Scott Grassmyer to comment on our consolidated financial results.
Thanks, Tom. I'll now walk through the consolidated results. Consolidated net sales increased 7% to $181.4 million in the third quarter of fiscal 2012. On an adjusted basis, earnings per share increased 19% to $0.19 compared to $0.16 in the third quarter of fiscal 2011. On a U.S. GAAP basis, earnings per share increased to $0.18 in the third quarter of fiscal 2012 compared to $0.10 in the same period of the prior year. Consolidated gross margins for the third quarter increased to 53.4%, compared to 52.1% in the third quarter of fiscal 2011. The increase in gross margins was primarily due to sales mix continuing to shift towards our higher gross margin Tommy Bahama and Lilly Pulitzer businesses, the increased percentage of direct-to-consumer sales, and the net favorable impact of LIFO accounting adjustments.
SG&A for the third quarter of fiscal 2012 was $94.1 million, or 51.9% of net sales, compared to $85.2 million or 50% of net sales in the third quarter of fiscal 2011. In the quarter, the company incurred approximately $5.1 million of SG&A as we continued to make investments in Tommy Bahama's international expansion and incurred pre-opening expenses for the New York store. Last year, SG&A related to these investments was $1.2 million in the third quarter. SG&A also increased in the quarter due to the cost of operating additional retail stores and other expenses to support the growing Tommy Bahama and Lilly Pulitzer businesses, partially offset by decreases in SG&A in Ben Sherman and Lanier Clothes. Royalties and other operating income for the third quarter of fiscal 2012 were $3.8 million, approximately flat with last year.
As a result of the improvements we made in our capital structure in the second quarter, interest expense for the third quarter of fiscal 2012 was 74% lower than the same period last year, or $1 million compared to $3.7 million. Income tax expense for the third quarter of fiscal 2012 increased to $2 million from $700,000 in 2011. The increase was primarily due to higher pre-tax earnings and an increase in the effective tax rate from 31.2% to 39.3%. The current year tax rates were unfavorably impacted by an inability to fully recognize benefits from losses in foreign jurisdictions, as well as a greater proportion of our earnings occurring in jurisdictions with higher tax rates. Both periods benefited from certain favorable discrete items. Total inventories at the close of the third quarter were $102.2 million, compared to $91 million at the close of the third quarter of fiscal 2011.
Our inventory levels are higher to reflect our anticipated sales growth and the operation of additional retail stores by Tommy Bahama and Lilly Pulitzer. Our borrowings under our U.S. and U.K. revolving credit facilities are higher than last year due to the redemption of our senior secured notes last quarter and higher capital expenditures. As of October 27th, 2012, we had $130.3 million of borrowings outstanding and good liquidity with approximately $91.4 million of unused availability. As we continue to make investments in our brand, our capital expenditures for fiscal 2012, including $47.7 million incurred during the first nine months of fiscal 2012, are expected to approach $60 million. These expenditures consist primarily of costs associated with opening new retail stores, information technology investments, retail store remodeling, and distribution center enhancements. Although we haven't finalized our forecast for 2013, we expect this pace of expenditures to be lower next year.
As Hicks mentioned, we have moderated our near-term earnings guidance predominantly as a result of the ongoing challenges at Ben Sherman. To a lesser extent, the store opening delays at Tommy Bahama and the impact of Hurricane Sandy on our business also affecting earnings. For the fiscal year 2012 ending on February 2nd, 2013, we now expect adjusted earnings from continuing operations per share at a range of $2.60-$2.70 and net sales of $845 million-$855 million. This compares to adjusted earnings from continuing operations per share of $2.41 and net sales of $759 million in fiscal 2011. On a U.S. GAAP basis, earnings per diluted share are expected to be between $2.19 and $2.29 for fiscal 2012, compared to $1.77 in fiscal 2011.
For the fourth quarter of fiscal 2012, we anticipate net sales in a range of $225 million-$235 million and adjusted earnings per share of $0.64-$0.74. This compares to adjusted earnings per share of $0.61 and net sales of $200 million in the fourth quarter of fiscal 2011. On a U.S. GAAP basis, earnings per share for the fourth quarter of fiscal 2012 are expected to be between $0.62 and $0.72, compared to $0.43 in the fourth quarter of fiscal 2011. I'd like to walk you through the impact of our investments in Tommy Bahama's international expansion and New York store are having on operating income. In fiscal 2012, we expect these investments to reduce operating income by approximately $15 million, slightly higher than our earlier estimate due to the store opening delays in New York and Hong Kong.
In the first nine months of this year, we have incurred $11.6 million of SG&A, offset by $1.7 million of gross margin and royalty income, netting to $9.8 million of negative impact. In fiscal 2011, we incurred $3.5 million of comparable negative impact, of which $1.9 million was incurred in the first nine months of 2011. I'll now turn the call over to Hicks Lanier.
Thank you, Scott. Let me just pick up on Scott's last comments. If you recall, starting with the beginning of this year, we made the communication that this was going to be an investment year for Tommy Bahama. That $15 million figure that Scott just mentioned of the impact on operating earnings net of the gross margin that we achieved from those two ventures is the magnitude of the annual investment we made there. At this juncture, we feel very good about it. You can see that in the fourth quarter, that figure's going to be $5.2 million, the net of the $9.8 from $15 million. It's a significant investment for us. I think every one of us feels very strongly that we've done the right thing and that we'll get a meaningful reward for years to come from this investment.
Secondly, on the Ben Sherman front, there's no question that we have run into some issues in the third quarter. From my vantage point, this is sort of good news because we were under the assumption going back three or four months ago that most of our problems were macroeconomic issues in Europe and the U.K. We pinpointed that we had some very specific missteps and issues, fortunately, they are very correctable. The Ben Sherman team is highly focused on getting about correcting those. There'll be an impact in the fourth quarter, hopefully when we talk to you next, we'll have a much better story to tell there. Melissa, we are ready to take any questions now.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. If you have signaled for a question prior to hearing these instructions, please repeat the process now by pressing star one again to ensure our equipment has captured your signal. Once again, if you'd like to ask a question, please press star one now. Our first question will come from Edward Yruma from KeyBanc Capital Markets.
Hi, great. Thanks for taking my question. Wanted to drill in a little bit more on Ben Sherman. I know that there's been a deliberate attempt with Plectrum to elevate the business. I'm just trying to understand the sequencing of some of these operational issues that you've uncovered. Were they more pronounced than you would've expected? I guess, Tom, now that you've kind of gotten your hands more involved there, how quickly can you influence the trajectory of the business?
Ed, as to the question about how quickly we can influence, there are some issues here that really will carry from the third quarter to the fourth quarter. If you remember, we talked about it being attributable to the merchandise mix being skewed too far towards the upper end of the price range. Because Ben Sherman basically works on two big seasons a year, autumn-winter and spring-summer, that merchandise mix is basically the mix that we're stuck with through the fourth quarter. I think it's going to continue to present some challenges to us through the fourth quarter. For spring and beyond, which basically corresponds to our first quarter, I think we were better assorted from the beginning. We've also had some ability to influence that assortment here in the last month or so.
I do think while we will have some real challenges through the fourth quarter, and those are obviously built into the guidance now, we can begin to influence some meaningful things for the spring-summer season and then for subsequent seasons even more.
Sure. One follow-up to that point. I think you said before that you weren't unwilling to consider a more strategic thought process around Ben Sherman should either macro not improve or the business not improve. I guess where are you on evaluating the business from that perspective?
Well, I think that we have immediate problems in Ben Sherman that require immediate attention, and that's really been our focus is dealing with the very near-term issues. We had the exit of the CEO about a month ago. That has enabled us to get much closer to the business and really get a much more detailed understanding of the business. As I mentioned, while we do have some of these issues in the merchandise mix that are going to carry through the fourth quarter, that's not to say there's nothing that we can do even in the very near term. Anything that we can do or identify that we think might improve trading results, we're acting on it immediately. We're also, as I mentioned in the prepared part of our remarks, exiting certain unprofitable or low potential activities.
There were some things that were going on in Ben Sherman that I think were distracting from the core mission
We've moved already to shut some of those down. We've also initiated a very aggressive expense reduction program to bring the overhead structure in line with the size of the business. These are all things that some of them have already happened, some of them can happen in the coming weeks and months, and some of them will take a little longer to happen.
Got you. My final question. I know you don't provide specific comp data points for your direct-owned businesses, but you have from time to time provided some directional colors to the trajectory of comps. What are comps looking like at the Tommy Bahama stores, and how much was the moderation from Sandy? Thank you.
Ed, this is Terry. As we said, our comps in Q3 were in the low single digits for Q3. Our e-com business was terrific and experienced great growth. We saw a little bit of a spreading around of the sales. Q3, obviously, we were pleased with the way the business formed. That's our smallest quarter. As we moved into November, we saw mid-single-digit comps in November. We're still getting very healthy comps, and the e-com business is still a very explosive business for us. We got a lot of business to do the rest of December and for the holiday seasons. We've been experiencing good comp store growth.
Great. Thanks so much.
We'll now go to our next question from Danielle McCoy from Brean Capital.
Hi, guys. First, I just wanted to say the Fifth Avenue store looks amazing. I was just there the other day, everything just really looks great.
All right. Thanks, Danielle.
Oh, hi.
This is Terry Pillow. I appreciate that. I appreciate somebody taking notice of it because we spent a lot of time on it's doing quite well. As we said in the remarks there, the results have been very promising. Can't wait to show you the bar and the restaurant.
Yeah, I'm definitely looking forward to that. I guess just one little follow-up on Ben Sherman. Was there any cotton impact with that?
Not really. Cotton prices have sort of become a non-issue in Ben Sherman. I'd love to be able to blame the problems there on cotton prices, I don't think that would be fair.
Okay.
It was an issue for us a year or so ago, it's really not now.
Okay. Then I guess, just a little bit more color on the non-dress Lilly Pulitzer looks, how they're doing, a little bit color on the new Lilly stores, and any more detailed expansion plans or a roundabout how many stores for next year?
Well, on the sportswear looks and what's worked during the third quarter, which basically neatly corresponds to Lilly's fall season. Sportswear actually exceeded dresses in terms of dollar sales volume, which for Lilly is a relatively unusual occurrence. Normally, dresses are the leading category for the third quarter. Sportswear actually exceeded dresses. Then in the fourth quarter so far, sportswear is again performing very nicely. None of that says that dresses still aren't and always will be a very important category for Lilly, and at the end of that day, probably always be the most important category. It's nice to see that Lilly is having some good success in sportswear as well. For store openings, we laid out in the prepared remarks, there's a store that's opening this week in Tysons Galleria outside of Washington, D.C.
We've got three stores that we've signed leases on that are opening two in the first quarter and one in the second quarter of next year. At present, those are the only leases that we've got signed. We're looking at lots of opportunities. We're very interested in opening more. For modeling purposes, I think somewhere around three to five stores is still the right number. We'll keep you posted as our plans there evolve. As you know, we're very happy with the way the retail stores are performing and are anxious to identify good opportunities for expansion there.
Okay, then just lastly, uses of free cash flow going forward?
We have a high capital expenditure rate this year that we've indicated that we'll probably moderate next year. We think next year is setting up to be a very strong free cash flow year. In the short term, we'll pay revolver debt down with it. We continue to have great investment opportunities in Tommy Bahama and Lilly Pulitzer. That's our number one goal is to continue to invest in those brands. Another acquisition, if the right thing came along, we'd certainly look. In the nearer term, it'll be investments in Tommy and Lilly and reducing debt levels.
All right. Great. Thanks, guys. Good luck.
All right.
Once again, ladies and gentlemen, if you'd like to ask a question at this time, please press star one. Now we'll go to Susan Sansbury from Miller Tabak.
Yes. Hi. I got lost a little bit in the prepared remarks. Scott, can you explain to me why the tax rate went up?
A couple reasons. First of all, getting closer to a normalized rate, we've had a couple things that have swung this higher. Part is some of our foreign losses, both at Ben Sherman and Asian expansion. You're in jurisdictions where you don't have income to offset it, so you're not getting a benefit for those losses.
Okay.
Those losses can carry forward. If we have income in the future, we're going to get a recognized benefit. The way the accounting rules work, when we're building up those losses, we're not able to recognize those benefits from a GAAP accounting basis right now. Hopefully, we get those ventures profitable, and then we have a carry forward opportunity. That's really the main thing. The other thing is, as Lilly Pulitzer and Tommy Bahama grow, some of the tax jurisdictions are higher, so they're getting closer to more normal statutory rates that you would expect for U.S. earnings. 39% is when you build in a 35% federal, and you build in some state tax on top, you're getting pretty close to statutory rates.
I think really our rate is normalizing where maybe it was way down for some foreign benefits we had, and we had lower domestic earnings at the same time.
Okay. Second question. For Tom Chubb, I guess. With respect to Ben Sherman, I know you don't want to be specific in the short term or whatnot, but should we expect operating losses to continue in the fourth quarter?
Yes.
Okay.
Yes. That's implied in our guidance is a fourth quarter operating loss for Ben Sherman.
Okay. Order of magnitude is going to be bigger than it was in the third quarter?
Probably roughly comparable to maybe a bit smaller.
Okay.
It'll be in the same neighborhood generally.
Okay. Extending through the first quarter of next year. In other words, we've got three consecutive quarters of losses for Ben Sherman. Is that the way to think about it?
Too early to know how the quarters for next year lay out, Susan, to be honest. I think there's a very good chance that Ben Sherman can improve significantly for the total year next year. How that may lay out by quarter, it's just too early for us to know.
Okay. Terry, I've been in the New York City flagship store. It's only a block and a half away from me twice now. Actually, I was amazed to see the number of people in the store, given the fact that you haven't advertised it. I concur with you that it's doing quite well. Yes, please get that bar restaurant opened. I need a drink.
Did you buy anything, Susan? I hope you bought something in there.
No, I channel checked like mad and talked to customers as well as associates.
As you know, Susan, when we have the bar restaurant component working with the store, it definitely increases it. We've been happy with the traffic that we've had in there even without it. We think with the restaurant that we'll clearly make a better, bigger splash.
With the amount of merchandise, my only comment is the amount of merchandise that you're trying to put into that small space makes it a little cramped every now and then. I think you're off to a marvelous start.
Okay, great.
Hurry up and get it. Let's have the grand opening and hurry up.
Thank you. Thanks, Susan.
We can make it a hotspot.
Okay
in Midtown.
All right.
Have a great holiday season and best of luck.
Thank you. Thanks very much.
Sure.
Our next question will come from Mike Richardson from Sidoti.
Yeah. Good afternoon, everyone. Just a couple of quick questions for you. Is there any timetable on when that Chicago store might be opening?
Mike, as we said, we were hoping to get it opened this year, it's really depending on how these landlords can solve their issue. We don't know. We got halfway finished with it before we were required to stop work on it, everything is ready to go. If we get back in there and start working, we can open it pretty quick. It's just a matter of when the dispute is going to be settled and we can get back in there. It's clearly on Michigan Avenue. It's a premier location on Michigan Avenue, and one that we want to open because we think it's clearly, it's not with a restaurant and a bar, but it's clearly a flagship for us as well. We're hoping to get it as soon as possible.
It's out of our hands and in the hands of the courts at this point.
Okay, thanks. I guess in the release, you mentioned that 24 stores were impacted by Sandy. You called out at least one in New Jersey that hadn't quite got back to where it was before. I'm just wondering, the other stores are all sort of back to where they were, and I'm wondering if the sales trends improved in the back half of November, just generally.
Yeah. Mike, Atlantic City, we've had a store there for a number of years. It got slammed pretty hard. That's the one that we're referring to that's still a bit recovering. All of those stores up and down that coast got hurt. We're pretty much back to normal now. I was in New York during that whole time, and even though in some parts of New York, we didn't feel it, but up and down that coast, it was pretty severe. Happy that things are pretty much back to normal at every store but Garden State, and Atlantic City.
Okay, thanks. Just last one. Just any general comments on the sourcing environment and what you guys are seeing just directionally in prices and pricing?
Yeah, nothing, as Tom mentioned, in regard to Ben Sherman on cotton. We've got a mechanism that our office and sourcing group around the world is doing a great job, as always. We're not seeing any real change or anything dramatically happening in that regard. Our supply chain is very solid at this point.
Okay, thanks, guys. Best of luck.
Our next question will come from Jim Regan from Crowell Weedon.
Yes, thank you. I wonder if you could just talk a little bit about the merchandise mix in Q3 and maybe early Q4 in Tommy Bahama. Specifically, I know there's been a push to increase the Tommy Bahama women's line. Can you just talk about how that's going?
Yeah. Okay. We're very happy with the progress we're making in women's right now. As we said here, I was just reviewing it the other day. Our women's is just past 30%, around 30% of the business total. However, we always talk about it's hard to grow that when men's keeps growing as well. Right now with the, you mentioned the merchandise mix we have, we're seeing some key items that we didn't think could get any bigger for us just keep getting bigger this year in both e-com and the retail stores. Unfortunately, I mentioned in my prepared remarks, our inventory levels going into these next three weeks before Christmas, which traditionally our biggest three weeks of the year.
The reason I call that out, we were looking at it last week just to make sure that where we were on inventory, and I couldn't be happier where we are positioned on inventory going into this critical time period. Women's is working well. However, it's hard to grow that percentage when men's is continuing to grow and it's coming from fashion and key items. I can tell you right now, the key item piece of the business is really on fire in both e-com and full-price retail.
Okay, great. I also had a question regarding just the retail store expansion. This has been a year of a few flagship stores between New York City, Chicago, and then some of your international stores, I think would be considered flagships. What's the outlook for that going forward? Are you going to do some more ambitious store projects as you open new stores next year, or will you pull that back a little bit?
We're looking at in the next year of domestically opening between 6 and 8 stores, majority of those being full-price stores, probably an outlet in there. We have 4 international stores next year, 2 in Japan, one of those being an aggressive project, also an island in Tokyo with a restaurant and a bar. We're opening a second store in a mall about an hour outside of Tokyo just to get an idea of both of those, what's an island look like, and then what's a freestanding store without a restaurant look like. We think we'll get a pretty good read on the Japanese market we're opening. As I mentioned in the prepared remarks, we've got a lease on a store in Sydney that we're very happy with.
It's on the high street, high visibility, as high as New York or Michigan Avenue in comparison to Australia. However, because of the size of the space, we're not going to open an island there. We're just going to open about a 3,000 square foot retail store. The store we're opening in Hong Kong, I would say even though that location, it's a freestanding building even though we're not having a full restaurant, we are having a hospitality component where we will offer guests drinks and such that that's a high-profile location for us. We'll probably open another store in Singapore. We're not backing off. We're learning with each of these stores internationally. We're seeing great increases in Macau and Singapore where we've got stores open right now. We're encouraged and we're learning every day about this market.
That's sort of our cadence going into next year.
Okay. Thank you. That's helpful.
That's it.
That does conclude our question and answer session. At this time, I'd like to turn the call back over to Hicks Lanier for closing remarks.
Thanks, Melissa. As I think you can gather, we believe both Tommy Bahama and Lilly Pulitzer represent excellent vehicles for driving sustainable, profitable long-term growth. We are addressing the issues with Ben Sherman, and we'll continue to take corrective action. Our management teams are dedicated and motivated to executing optimal strategy, and as always, are focusing on delivering outstanding shareholder value. Thanks for your attention today, and we'll look forward to the next call.
That does conclude our conference at this time. We thank you for your participation. You may now disconnect.