Oxford Industries (OXM) Q2 2026 earnings call transcript

It is now my pleasure to introduce Brian Smith. 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 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-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 out of our website at oxfordinc. com.

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

Thank you, Brian. Good afternoon, and thank you for joining us. I'm 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 Tommie 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 continue 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 Pellitzer 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 the 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 positioned Lilly Pellitzer for improved performance beginning with the spring 2027 season. We remain confident in Lilly Pellitzer'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 JohnnyWiz, 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 Lily Pulitzer, tend to be active travelers, And 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 Tommie 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 Pellitzer, including the impact of a more promotional posture for the balance of the year, together with softer demand and 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 Wuzz. 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 are $394 million in the second quarter of fiscal 26, compared to $403 million in the second quarter of fiscal 25. 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 stores open primarily in the prior year Notably food and beverage sales increased 11 driven primarily by non locations Wholesale sales decreased 14 compared to the prior year but was primarily driven by lower sales of residual inventory through off channels By brand, sales growth at Time Bahama helped to partially offset decreases in their 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.

Depositive sales growth at Tommy Bahama was driven by a low single-digit positive comp and or 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, Lily Pulsar, and emerging brands. Tariff costs included in inventory sold during the year were materially consistent with the prior year. As Tom mentioned, we recorded and received significant tariff refunds during the quarter. We recorded a reduction to cost of goods sold of $42 million of tariffs previously paid and received substantially the entire balance during the second quarter or shortly thereafter. The impact of these refunds was excluded from our adjusted results.

Adjusted SG&A expenses increased slightly to $210 million compared to $209 million last year, impacted primarily by new brick-and-mortar retail and food and beverage locations, as well as increases in software and consulting costs and costs associated with the transition of our Alliance Georgia Distribution Center operations. These increases were partially offset by lower incentive compensation and cuts in more discretionary categories like travel.

The result of this yielded adjusted EBITDA of $45 million or an 11.4% adjusted EBITDA margin compared to adjusted EBITDA of $43 million or 10.7% in the prior year. Moving beyond EBITDA, adjusted depreciation amortization increased by approximately $1 million compared to the prior year, primarily due to increases in depreciation related to our new Lions facility. Interest dispense was relatively flat compared to the prior year, so our average debt levels declined during the year. Our effective tax rate of 27.5% was lower than the prior year of 29.6% due to certain discrete items that were more significant in the prior year. With all this, we ended up with $1.34 of adjusted EPS.

Moving to the balance sheet, inventory decreased $20 million or 12% on a LIFO basis. That included a $10 million increase to the LIFO reserve. On a FIFO basis, inventory decreased $9 million or 4% compared to the second quarter of 2025, with decreases in emerging brands, Louis Poulter and Johnny Wuzz. We ended the quarter with long-term debt of $73 million, which is down $70 million compared to $143 million at the end of the first quarter, and compared to long-term debt of $81 million at the end of the second quarter of fiscal 2025, and $116 million at the end of fiscal 2025. Cash flow from operations provided $97 million in the first half of 2026, which includes $29 million received related to tariff refunds, compared to $80 million in the first half of 2025.

We also had lower capital expenditures of $32 million in the first half of 2026, compared to the first half of fiscal 25 of $55 million. The decrease, which primarily related to the addition of fewer new bricks-and-mortar locations and lower expenditures on the Lions Georgia Distribution Center project as that project comes to a close, also allow for further reduction of our long-term debt. We're also paying dividends of $22 million. I'll now spend some time on our updated outlook for 2026. As Tom mentioned, the ongoing challenges in the Lilly Pulitzer business, along with our generally conservative view of consumer sentiment, led us to reduce our top and bottom line outlook for the remainder of the year. For the full year, we now expect a low single-digit negative comp for the total company, which is lower than our previous range of slightly negative to slightly positive.

As a result of the change in our comp assumptions, we were revising our guidance range for the full year and now expect sales to be between $1.43 billion and $1.47 billion, or a decline of 3% to relatively flat, compared to sales of $1.478 billion in fiscal 2025. Our revised sales plan for the full year of 26 includes a sales decrease in Lillie Poulter and Johnny Wuzz, partially offset by a sales increase in Tommy Bahama, and growth in the emerging brands. By distribution channel, the full-year sales plan consists of low single-digit decreases in our direct-to-consumer channels and a high single-digit decrease in wholesale, partially offset by a low double-digit increase in our food and beverage channel that is benefiting from the addition of new locations.

Moving on to gross margin, our outlook assumes that the tariff rates reflecting the recent Section 301 changes will remain in effect for the balance of fiscal 2026. Because those rates are only modestly higher than the rates applicable to most of our first-half inventory receipts, we do not expect the changes to materially affect fiscal 2026 results. Any additional tariff increases implemented during the balance of the year would be expected to affect primarily future periods due to the timing of inventory receipts and sales. When removing any tariff refund-related impact, we now expect an approximate 50 basis points increase in gross margin for the year, with improved IMUs and a continuation of the shift to a higher proportion of direct consumer sales to be partially offset by higher promotional activity, particularly at Lilly Pulitzer.

As a result of these factors, we expect gross margins to improve approximately 100 basis points in both Q3 and Q4 fiscal 26 compared to the prior year. In addition to lower sales and higher gross margins, we expect SG&A to grow in the low single-digit range, primarily due to the annualization of incremental SG&A from new stores added primarily in fiscal 2025. Additional costs related to transition to the Lions-Georgia Distribution Center and increased software-related costs.

Also within EBITDA, we expect higher royalties and other income of approximately $2 million in Fiscal 26, largely due to the normalization of sales from our licensing partners that were heavily impacted by the implementation of tariffs in Fiscal 25. Outside of EBITDA, we expect an increase in depreciation due to significantly all of the incremental costs to operate the new Lions DC and fiscal 26 being depreciation related.

We also expect interest expense of $6 million, which is lower than our previous estimate due to our recent significant reduction in debt. But considering all these items and a tax rate between 27 and 28 percent, we're revising our 2026 adjusted EPS guidance to $1.60 to $2 versus adjusted EPS of $2.11 last year. In the third quarter of 26, we expect sales of $280 to $300 million compared to sales of $307 million in the third quarter of 25. This primarily reflects a mid-single-digit negative to low-single-digit negative comp assumption in relatively flat wholesale sales. By brand, we expect lower sales at Lilly Poulter and Johnny Was to be partially offset by a sales increase at Tommy Palma and growth at emerging brands.

We also expect gross margins to expand approximately 100 basis points, SG&A to grow in the low single-digit range, royalty income of approximately $3 million, and interest expense of $1 million. And an effective tax rate of approximately 24%. We expect this to result in third quarter adjusted loss per share between $1.40 and $1.20, compared to a loss per share of $0.92 last year. Our fourth quarter sales plan includes the benefits of some additional promotional activity, primarily at Lilly Pulitzer, along with most of our groups benefiting from the correction of tariff-related merchandising issues that significantly impacted our holiday season and fourth quarter results last year. As a result, our fourth quarter plan includes a comp assumption of relatively flat to slightly positive.

Moving to our CapEx outlook for the remainder of the year, we expect capital expenditures for the year to be approximately $60 million, including the $32 million spent in the first half of fiscal 26, compared to a total of $108 million in fiscal 25. The remaining capital expenditures relate primarily to new brick-and-mortar locations and the remaining capital expenditures from the new distribution center in Lyons, Georgia. I will now turn it back to Tom for some closing comments.

Thank you, Scott. Before we open the call for questions, I want to briefly discuss a broader review we recently initiated across the enterprise aimed at meaningfully enhancing operating margins in the next few years. The review is focused on opportunities to simplify the business improve efficiency and sharpen how we allocate resources across Oxford in order to become less dependent on historical rates of growth to fuel higher profitability We are still developing our plans and expect to share more as they are finalized, but we believe it is important to highlight several actions already underway.

First, we have made significant progress ramping up the Lions Georgia Distribution Center. As the facility matures, we'll look to take full advantage of our investment and move more product into the building, including from a legacy 3PL, to operate more efficiently across our increasingly automated footprint. With a major investment phase nearing completion, we also expect capital expenditures to normalize after several years of elevated spending on Lions, which will increase the cash available for further debt reduction. With impending retirements within our technology leadership, we have transitions underway that will support a reassessment of our IT infrastructure with an eye towards simplifying our tech stack and advancing our data analytics and AI capabilities across the enterprise. We are also optimizing our store fleet, including converting selected Southern Tide and Johnny Wuzz locations to Lilly Pellitzer, where we believe the market and location are better suited to that brand.

We will continue to evaluate the fleet market by market and location by location and make changes where we believe they will create the greatest long-term value. We have a new brand leader at Southern Tide, and also within our emerging brands group, we consolidated oversight of the group's finance, planning, and operations functions to improve consistency and efficiency. These are a few examples of the actions underway. Alongside the work at Tommy Bahama, Lily Pellitzer, and Johnny Wuzz, we believe these actions will simplify the business, strengthen execution, and position Oxford for more consistent performance and stronger returns over time. We'll have more to say about all of this in December.

With that, we're happy to take your questions. Paul?

Yeah, so I think you understand this, Ashley, but the length of the product pipeline is really the issue. So you get into spring 26, you realize that you've got a really pretty strong It's a pretty significant assortment issue, but you've got the rest of the year's product already in the pipeline, and you can do limited things to adjust for it. So spring 27 is the first season where we were able to really incorporate what we realized was wrong about the assortment in spring 26. The rest of the seasons for 26, you know, we're already fundamentally in the pipeline.

There are some other reasons to think that there might be some fourth quarter upside in Lilly, and that's just because last year they were struggling through the tariff-related gaps in the product assortment, And they overall had a weak fourth quarter last year. So you might see some upside because of those things in the fourth quarter. And then the other thing is the resort product line, I think, which will look more like the spring 27 line, I think could give us some early reads. But you're not really going to know until very late in the quarter when you've got some spring stuff. And then on the gross margin question, certainly a good question.

And I'll let Scott walk you through that and why we feel good about what we're projecting. Yeah, we are starting with higher IMUs. Also, wholesale will be a little bit lower percent of the total mix. So that will help neutralize, or more than I'll set, the higher promotional cadence that we do expect out of LIDLI this year.

For helpful color, thank you.

Thank you, Ashlyn.

Well, what I would say is I don't think there's really a big divergence between Tommy and most of the rest of the portfolio. It's a little complicated, but Tommy and Lily, clearly a big divergence. And I think that's almost all about the assortment challenges that Lily has. Johnny was, even though their comp numbers are not where Tommy's are, we kind of knew that going into the year just because of the trajectory that we came out of 25 on. As we've talked about extensively, the goal in JohnnyWiz this year is to improve profitability, even if the sales number comes in a bit lower. And that's exactly what happened in the second quarter. So we really look at JohnnyWiz as a positive story year to date.

We think they're ticking the box on their turnaround plan. And then within the emerging brands, it's really a southern tide issue.

They're too small for it to make sense for us to get into breaking out a lot of granularity, but southern tides, the lag are there. Everything else looks quite good. And as we talked about we brought in a new leader at Southern Tide very excited about him I think this is his sixth week maybe on the job and we kind of rebooting Southern Tide He already seeing some good opportunities of things that we can improve you know closer in and then obviously beyond So I don think there as much of a divergence as it might seem like on the surface Got it. That's a really helpful color and kind of answered my next question, which is going to be on emerging brands.

So, I'll pass it on. Thanks. Okay.

Yeah, the COMPS quarter date, a little cloudy because you have some promotion timing. You also have Labor Day being late, so it's a little cloudy. They're down slightly, but there's a lot of noise in them this early in the quarter that will normalize more as the quarter goes on.

And then specifically on Tommy, We're not going to get into comps by a group this early. It's just one month is not with some of the time. No, I wasn't asking about the comps for Tommy. How are you thinking about the comps for that brand in the year?

Yeah, for the year, Tommy, we expect them to be slightly positive for the year. And so, yeah, slightly positive calls for the year. Got it.

Got it.

What's the rationality behind that, considering that that brand seems to be still obviously struggling, and you expect that to continue throughout the rest of the year? Yeah, good questions, Mauricio. And we have, over the last several years, been able to grow the higher-priced business at Lilly Pellitzer. And even this year, we continue to have success in those higher price points. But think of your pricing strategy as like a pyramid where that top tier, which for us in dresses is $400 and up, it's the little tiny triangle at the top of the pyramid. And then you go down, you know, the pyramid, the pieces get bigger and bigger. That's, I think, the way almost any brand in the world is, you know, set up from a price architecture standpoint.

And so what we did this year, you captured it, is I think we just went too far too fast in shifting up the pricing tiers. And so last year, in our entry price point bucket, and for us, that's dresses, which are a big category, under $200. Last year, that would have been about half of the styles that we offered would have been in that price bucket. This year, it was down to almost down to a third. I think it was like 35%. That was just too much too quickly. And, you know, and as a result of that, some of those customers were willing to move up a price point, but a lot of them I think were not.

And that's been, you know, I think the bigger part of our problem has been the price architecture. So going forward, what we've done is we've gone back to what we had in 25. And 26 will move a little more in the upward direction than 25. Excuse me, 27 will move a little more upward than 25, but that'll be a lot back from 26, if that makes sense. Yeah. And then on the Y, switch the stores. These are all locations. And, you know, Lilly Pulitzer, even this year, as bad as it is, it's still a profitable brand. We very much believe in the brand and the team there. This is completely a fixable issue. And the locations that we're converting are some that where we believe Johnny was in Southern Tide just because of the level of brand awareness in those markets is going to have a long, hard road to profitability.

But that Lilly Pellitzer can easily be profitable. A great example is on King Street in Charleston where Lilly Pellitzer had operated a store. The landlord was expanding a jewelry and watch business and needed to take the space back. So we were about to be off King Street in Charleston and Lilly. At the same time, we had a Johnny Wuz store that was losing a couple of hundred thousand dollars. And, you know, Charleston's not the most natural market for Johnny Wuz. I do believe, you know, over the long term, that'll be a place where Johnny was a win. But in the short term, and with all the other challenges we had, we knew if we flipped it to Lilly Pulitzer, we'd immediately start making a lot of money, which is exactly what happened.

So it's those types of scenarios, Mauricio.

Okay, thank you for the questions.

Conversion rates have been off a little bit. Average order values, average basket sizes have been one of the bright spots in the story for us. And then the AURs, I think mostly due to the level of the IMUs are higher and the MSRPs are higher, but the AURs have actually gone down a bit due to the amount of stuff that we promoted this year. Is that true? I would guess some of that's a little different, though, between Tommy and Lily. Were you speaking about one of them in your answer there, or was that kind of an overall comment?

It was more of an overall comment. There are differences in the brands, but the trend's been pretty similar. Got it. Thanks.

And then on the freight? Yeah, on the freight, you know, we've built in some slight increases, but we have a little bit of an offset from some of our outbound parcels. We have lowly renegotiated contracts, so we're, you know, in the first half of the year especially, we've got a favorable there that's helping neutralize. On the second half, we'll, you know, I'm sure we'll get some fuel, additional fuel surcharges that will have a slight increase. But overall, our base rates were starting a little bit lower on our outbound parcels, but our containers coming in from Asia are slightly higher, and it's not a real material.

Thank you.

I'd like to hand the floor back over to Tom Chubb for any closing comments. Thank you, Paul, and thanks to all of you for your interest. We look forward to talking to you again in December, and I hope all is well until then.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.