Q3 2004 Oxford Industries Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the Oxford Industries, Incorporated third-quarter 2004 earnings conference call. At this time all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. It is now my pleasure to introduce our host, Mr. Reese Lanier. Sir, the floor is yours.

REESE LANIER, TREASURER AND IR DIRECTOR, OXFORD INDUSTRIES INC: Thank you, Anthony. Good afternoon, everyone. Before we get started, I'd like to point out some of the statements made in this call as part of the prepared remarks are in response to your questions which are not historical facts may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties which are described in the Company's current report on form 8-K dated July 16, 2003.

A copy of this report is available online or upon request from Oxford Investor Relations Department. Oxford disclaims any duty to update any forward looking statements.

I appreciate your attention and now I'd like to introduce Hicks Lanier, Chairman and Chief Executive Officer of Oxford industries.

HICKS LANIER, CHAIRMAN AND CEO, OXFORD INDUSTRIES INC: Good afternoon and thank you for joining us. With me today are Tony Margolis, President of our Tommy Bahama[R] Group, Ben Blount, our Chief Financial Officer, Scott Grassmyer, our controller, and Reese Lanier, our Treasurer and investor relations director.

Our third-quarter was stronger than expected. It resulted in record third-quarter sales in earnings per share. Tommy Bahama[R] continued to make significant gains and had an excellent quarter. We have continued to make good progress on the integration and could not be more pleased with this business. Our legacy business has faced some volume issues but performed at the level we had anticipated. We are expecting a gradual stabilization of the Sears Lands End business and are enthusiastic about a number of areas where our businesses are producing solid growth.

Here are the financial and operational highlights from the third-quarter. Sales increased 35 percent to a record $281 million versus 209 million in year ago quarter. Consolidated gross margin increased 10 full percentage points to 30.9 percent from 20.5 percent in the year ago quarter driven by the superior margins of the Tommy Bahama[R] group.

Consolidated selling, general, and administrative expenses increased 23.6 percent for sales from 15 percent of sales in the prior year's quarter reflecting the higher cost structure of the Tommy Bahama[R] Group. Operating earnings rose 87 percent to $21.5 million dollars from 11.5 million a year ago quarter. I would remind you that these figures include $1.7 billion (ph) in intangible asset amortization expense related to the acquisitions.

Fully diluted earnings per share were 58 cents better than our guidance and consensus estimates and an increase of 26 percent over last year's 46 cents a share. We are pleased to outperform our plan for the third-quarter and look forward to a strong fourth-quarter finish for the year.

As I'm sure you read in our press release, we have narrowed the range and reaffirmed our guidance for the fourth quarter.

Now I'd like to take a moment to discuss some specifics in our menswear and womenswear segments and then I'll turn the call over to Tony to discuss the Tommy Bahama[R] Group.

Menswear's revenues declined 18 percent to $100 million, in line with our expectations. There were two primary factors behind the decline. The performance of Sears Lands End and the wind down of IZOD (ph) Club Golf. Excluding these two factors sales growth was about 5 percent ahead for the quarter. With respect to the Sears Lands End situation we had $21 million in pipeline fill in last year's third-quarter that did not anniversary in this quarter.

I won't belabor this issue since we've discussed it in depth on previous calls. But I will say that we expect to see a return to growth in the Lands End business by the end of this year.

The balance of our menswear business is performing fairly well. We are particularly pleased with the recent performance of our Tommy Hilfiger dress shirt business and the launch of the new H. line by Tommy Hilfiger. Another bright spot has been the spring launch of Oxford Golf. We're in over 1000 green grass locations in our first season and the response to the product has been overwhelmingly positive.

Womenswear revenues declined 11 percent to $78 million. This was also in line with our plan. The reduction was due to lower shipments of women's apparel to Wal-Mart. We have enjoyed some terrific growth with Wal-Mart over the last three years by confining innovative styling and design with well-executed global sourcing and logistics. But we have faced some recent challenges with this customer, given Wal-Mart's increasing emphasis on direct sourcing along with their planned reduction in rack space for women's apparel and the narrowing of a women's assortment. We believe that growth in sales and profitability with this customer over the next few quarters will be very difficult to achieve.

That said, our business with …