Oxford Industries, Inc. 2027 Q2 Earnings Call

Please go ahead. Thank you, and good afternoon.

Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results of operations or financial conditions to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-K. 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 our investor relations tab of our website at oxfordinc.com.

I would now like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO, and Scott Grassmyer, CFO and COO. Thank you for your attention, and I will turn the call over to Tom Chubb.

Thank you, Brian. Good afternoon, and thank you for joining us. I am pleased to be here today to discuss our second quarter results, the performance of our brands, and our outlook for the balance of fiscal 2026. Overall, second quarter results were within our expectations, highlighted by year-over-year adjusted earnings per share growth and a low single-digit comparable sales gain at Tommy Bahama. We also delivered meaningful adjusted gross margin expansion despite a higher level of promotional activity, reflecting the progress our teams have made on assortment, sourcing, and pricing across the portfolio. The strong cash flow we generated enabled us to make meaningful progress reducing debt in the second quarter. Refunds of previously paid tariffs contributed to that reduction. Maintaining a strong balance sheet and generating cash that can be deployed thoughtfully remain important priorities for us.

Scott will provide more detail on our cash flow and balance sheet performance. Tommy Bahama's second quarter results were consistent with our expectations. As our largest brand, its positive comparable sales growth provided important support to the overall portfolio and helped offset pressure elsewhere in the business. We were also encouraged by a return to positive comparable sales in Florida, a key market for the brand that had experienced softer results in recent periods. We are pleased with the consistency of the brand's performance and remain focused on sustaining that momentum through disciplined merchandising, marketing, and operating execution. While we continued to deliver positive results at Tommy Bahama, performance at Lilly Pulitzer remained weak in the second quarter, and our outlook for the brand for the balance of the year is now below what we anticipated at the end of the first quarter.

As we discussed on our first quarter call, Lilly Pulitzer entered the quarter with several product and marketing challenges. The core problem is the assortment, with the key issue being that we shifted far too much of our inventory investment out of our entry price points to higher price points. Second quarter results and the trends we are currently seeing indicate that those challenges have been more significant than we originally anticipated. We are responding with actions aimed at both near-term performance and the longer-term health of the brand. Because of our product development lead times, spring 2027 is the first season in which we can substantially reshape a full assortment. In the meantime, we are refining our marketing and messaging, adjusting the promotional cadence, and managing inventory and expenses more tightly. Given current trends, we expect Lilly Pulitzer to be more promotional during the balance of the year.

We will remain strategic and disciplined, using targeted promotional activity to support customer engagement and inventory sell-through while protecting the long-term integrity of the brand. Promotions are one lever, but lasting improvement will also require stronger product relevance, marketing effectiveness, and execution. We are laser-focused on delivering these requirements. For spring 2027, our work is centered on four areas: our pricing architecture strategy, balance of print, pattern, and color, mix of intended use occasions between social and casual, and the proportion of new versus continuing styles. These assortment changes will not drive a positive trends change in fiscal 2026, but we believe they will create a more balanced and compelling assortment and better position Lilly Pulitzer for improved performance Beginning with the spring 2027 season. We remain confident in Lilly Pulitzer's long-term potential.

The brand has a clear point of view, a strong emotional connection with its customer, and meaningful opportunities for improvement. That confidence does not lessen the urgency of the current situation. We are focused on addressing the issues directly and returning Lilly Pulitzer to the level of performance we expect from the brand. At Johnny Was, we continue to make progress on the turnaround plan. The brand significantly increased EBITDA during the second quarter, driven by higher gross margin resulting from tighter inventory management and fewer promotions, together with disciplined SG&A cost management. There is still work to do, but we are encouraged by the improvement in profitability. Stepping back, weaker consumer sentiment has added pressure to discretionary demand.

Our customers, particularly at Tommy Bahama and Lilly Pulitzer, tend to be active travelers. Although they continue to travel, higher airfare, lodging, and other travel costs may be leaving less room in their discretionary budgets for apparel. Even so, the steady performance at Tommy Bahama reinforces the compelling product and consistent execution can still produce solid results in this environment. Our responsibility is to deliver that level of product relevance and execution more consistently across the portfolio. The continued softness at Lilly Pulitzer, including the impact of a more promotional posture for the balance of the year, together with softer demand in certain other parts of the portfolio, led us to lower our top and bottom-line guidance for the remainder of the year.

At Lilly Pulitzer, the issues are primarily assortment and marketing related, while the pressure elsewhere in the business is more closely tied to a more cautious, discerning consumer. We believe the updated guidance represents a prudent assessment of current business trends, the macro environment, and the actions we expect to take. Scott will provide more detail on our revised outlook and the assumptions underlying it. Against this backdrop, our priorities are clear. Sustain the positive momentum at Tommy Bahama, address the assortment and marketing issues at Lilly Pulitzer, and build on the profitability improvement at Johnny Was. We are managing inventory expenses and capital carefully while maintaining our focus on cash generation, debt reduction, and a strong balance sheet. After Scott's comments, I will turn briefly to discuss several broader actions underway across Oxford. As always, I want to thank our teams across Oxford.

Their resilience, creativity, and commitment to our customers are the foundation of everything we do. With that, I'll turn the call over to Scott for more detailed commentary on our financial performance and outlook.

Thank you, Tom. Consolidated net sales were $394 million in the second quarter of fiscal 2026, compared to $403 million in the second quarter of fiscal 2025, and near the high end of our guidance range of $380 million to $400 million. The company comparable sales were down slightly at 1%, including a 3% decrease in retail sales and flat e-commerce sales. The decline in retail comp sales was partially offset by sales from non-comp stores opened primarily in the prior year. Notably, food and beverage sales increased 11%, driven primarily by non-comp locations. Wholesale sales decreased 14% compared to the prior year, but was primarily driven by lower sales of residual inventory through off-price channels. By brand, sales growth at Tommy Bahama helped to partially offset decreases in our other businesses.

Sales decreases at Lilly Pulitzer and Johnny Was were driven by a mid-single-digit negative comp and lower off-price wholesale sales. While the sales decline at Emerging Brands was driven primarily by lower wholesale sales. DTC sales growth at Tommy Bahama was driven by a low single-digit positive comp in our DTC channels, partially offset by a decline in wholesale sales, driven primarily by lower off-price clearance sales. Adjusted gross margin expanded 140 basis points to 63.1%, driven primarily by updated assortment, sourcing, and pricing strategies across our portfolio that resulted in higher IMUs, along with a change in sales mix, with off-price wholesale sales representing a lower proportion of net sales. These factors were partially offset by a higher proportion of net sales in our DTC channels occurring during promotional events at Tommy Bahama, Lilly Pulitzer, and Emerging Brands.