Oxford Industries (NYSE:OXM) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Oxford Industries reported first-quarter sales in line with expectations and better-than-anticipated earnings due to strong gross margin performance.

Tommy Bahama brand showed strong direct-to-consumer growth, while Lilly Pulitzer underperformed due to merchandising and execution issues.

The company adjusted its full-year sales outlook, lowering the top end of the range, but increased the low end of the EPS guidance range.

Operational improvements include sourcing strategy updates and a new distribution center in Lyons, Georgia.

Management emphasized maintaining brand health and long-term value creation amid consumer caution and macroeconomic pressures.

Full Transcript

OPERATOR

Greetings and welcome to the Oxford Industries first quarter fiscal year 2026 earnings call. at this time, all participants are in a listen only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Smith of Oxford Industries. 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 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 10K.

We undertake no duty to update any forward looking statements. During this call we'll be discussing certain non GAAP financial measures. You can find a reconciliation of GAAP to non-GAAP financial measures in our press release issued earlier today which is posted under the Investor Relations tab at our website at OxfordIndustries.com And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO Scott Grassmeyer, CFO and coo.

Thank you for your attention and I'd like to turn the call over to Tom Chubb.

Tom Chubb (Chairman and CEO)

Thank you. Brian, Good afternoon and thank you for joining us. I'm pleased to be here today to discuss our first quarter results, the progress we are making across the portfolio and our outlook for the balance of the year. Overall sales in the first quarter were in line with our expectations and earnings were better than we anticipated, primarily due to stronger than expected gross margin. That gross margin performance reflects meaningful work done by our teams over the past year to respond to tariff pressure, including updates to our sourcing strategies, refinements to our pricing architecture, improved freight rates through vendor negotiations, and the benefit from a higher mix of direct to consumer sales. Importantly, we achieved this margin performance while absorbing an $11 million or 55 cent a share year over year increase in tariff costs during the quarter. Absent that increase, both gross margin and earnings would have improved over the prior year. Looking across the portfolio, the first quarter included several important positive takeaways. Tommy Bahama, our largest brand, performed well, led by healthy direct to consumer results, and our emerging brands continued to generate strong, strong growth, particularly in the The Beaufort Bonnet Company and Duckhead however, these positive results were not consistent across the portfolio. Johnny Was is progressing through its turnaround plan and we are encouraged by the progress on gross margin and direct to consumer performance even as wholesale remains pressured. Lilly Pulitzer was below our expectations while lapping the strong stock prior year first year quarter and its softness weighed on our overall results. The consumer backdrop remains unsettled. Consumers continue to navigate macroeconomic and geopolitical pressures, including conflicts around the world, higher energy prices, uncertainty around trade policy and tariffs, and pressured sentiment around discretionary spending.

As we have discussed in recent quarters. While some hard data may suggest consumers have the ability to spend, the soft data and what we are seeing continue to point to consumers that is more cautious, selective and highly discerning. In this type of environment, product relevance and brand connection are especially important. Consumer response is strongest to differentiated products and brands that create an emotional connection that is where our portfolio is advantaged.

Our brands are built around lifestyle optimism and experiences and our job is to stay focused on the product, storytelling and service that bring those brands to life for our consumers. Tommy Bahama delivered the strongest performance in the quarter. Our direct to consumer business comped positive in the mid single digit range with encouraging results in retail and E commerce and continued contribution from food and beverage. More broadly, the brand benefited from a better assortment balance, improved key item execution and the enduring appeal of its relaxed warm weather lifestyle positioning.

We are pleased with the execution. At Tommy Bahama. The brand continues to occupy a unique position in the market with a lifestyle proposition that extends beyond any one product category or channel. Its advantage comes from the combination of compelling product, clear storytelling, strong customer engagement and distinctive experiences across retail, digital and hospitality. That combination continues to support our confidence in Tommy Bahama long term opportunity even in an uncertain near term environment.

At Lilly Pulitzer, first quarter results were below our expectations and we have work to do. Lilly Pulitzer remains a distinctive and beloved brand with a highly engaged customer and a very clear point of view, but the business did not execute to its potential. In the first quarter. Sales were pressured, particularly in E commerce and we believe that pressure reflected in part some merchandising and execution issues including gaps in certain entry price points and allocation opportunities.

We want to be clear that Lilly Pulitzer's performance was below our expectations and below where we are confident it can be. The brand has tremendous equity with its customer, but in the first quarter we did not bring together product pricing, allocation and messaging that is on us and the team is focused on correcting these issues. Keep in mind this is the same highly talented Lilly team that has consistently delivered strong results and we are very confident in their ability to address these issues.

The good news is that we have identified what we believe are the core issues and we believe they are addressable. Some can be corrected relatively quickly like messaging and marketing, while others related to merchandising can only move as fast as the product development life cycle and will accordingly take more time. We are focused on addressing these issues and reestablishing Lilly Pulitzer's positive trajectory and unlocking its long term growth potential.

The brand is strong and we believe the team has the talent, experience and urgency to restore the level of performance we expect. Turning to Johnny Was, we believe the brand is on track with its turnaround plan. As we have discussed previously, our focus has been primarily on improving profitability, reinforcing the fundamentals during the first quarter, gross margin increased as the team made significant progress buying inventory tighter, reducing promotional activity and improving gross margin return on investment.

In terms of top line results, sales were most under pressure in wholesale where Johnny Was has had the greater expense than our other brands to specialty stores, a market that has declined meaningfully in recent years. Sales were also lower to off priced retailers due to healthier inventory levels and to Saks Fifth Avenue which has been impacted by its bankruptcy process. Historically, Neiman Marcus insights have been very important venues for Jonny Was.

Importantly, performance in the direct to consumer business was much more in line with our expectations and we believe that side of the business is becoming healthier. We are focused on bringing greater cohesion to the design process, refining the assortment, improving marketing effectiveness and driving better execution across retail, e commerce and wholesale. With the new management team in place, we have also become more aggressive in reassessing and rationalizing our store base.

Closing five underperforming locations in the first quarter we will continue to assess retail performance and opportunity on a market by market basis and location by location and close underperforming stores where appropriate to ensure that our footprint is aligned with the brand's long term potential. Turnarounds do not happen overnight and there's still a lot of work to do, but we believe Johnny Was has meaningful long term potential. Our objective is to build a stronger, more disciplined and more prosperous profitable business that better reflects the strength and resonance of the brand.

Our emerging brands also contribute positively with notable strength particularly in the The Beaufort Bonnet Company and Duckhead businesses. These brands continue to bring energy and growth potential to the portfolio and we remain focused on building them in a disciplined way through stronger storytelling and growing distribution across the enterprise. We are also continuing to strengthen the operational foundation of the company, our new Lyons, Georgia District Abuse and Center is an important part of that work.

As we have said before, we do not expect the ramp up to be without initial costs or complexity, particularly while we are training transitioning between facilities. But over time we believe Lions will be a meaningful competitive advantage, particularly as direct to consumer demand continues to gain share across our portfolio. Stepping back from the individual brands, we were pleased with the way we started the fiscal year. At the same time, sales trends softened as we moved through April and that deceleration continued into May and early June.

Some of that reflects the broader consumer environment and the increased caution we are seeing in discretionary spending along with the shift in timing of the important Father's Day holiday. Continued softness at Lilly Pulitzer is also an important factor, particularly given that some of the product and merchandising improvements we are making will take some time to fully flow through the assortment. Given these trends, we believe it's appropriate to take a more measured view of the upside sales opportunity for the balance of the year.

As a result, we are narrowing our full year sales outlook by lowering the top end of the range. We believe this is a prudent approach based on what we are seeing in the business and the broader environment today. At the same time, we are tightening our EPS guidance range for the remainder of the year by raising the low end of our previous range. Due to the impact of the current lower tariff rates flowing through for the balance of the year. Combined with the focused expense and inventory management, tariffs remain a major topic and source of uncertainty.

Scott will provide more detail on the updated assumptions embedded in our outlook. From an operating standpoint, our priorities remain unchanged, optimize sourcing, manage pricing thoughtfully, protect gross margin where we can, and avoid actions that would undermine the long term health of our brands. Periods like this can push companies to become defensive and overly short term. We are not going to do that. Our brands exist to bring happiness, optimism and a sense of possibility to our customers.

That is a real source of differentiation and we believe the near term adjustments we are making in the company current environment will capitalize on each brand's unique attributes and position us to deliver long term value to our shareholders. 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.

Scott Grassmeyer (CFO and COO)

Thank you Tom. As Tom mentioned, our teams have shown great discipline and resilience in executing our plan against the backdrop of a challenging consumer and macro environment. Consolidated net sales were 391 million in the first quarter of fiscal 26 compared to 393 million in the first quarter of fiscal 25 and above the midpoint of our guidance range of 3185 million to 395 million. Total company comparable sales decreased 2% including 2% decreases in both retail and E commerce.

The decline in retail comp sales was offset by sales from non comp stores open primarily in the prior year. Notably, food and beverage sales increased 14% driven primarily by non comp locations. Wholesale sales decreased 5% compared to the prior year period which is better than our original forecast by brand Tommy. Bahama delivered solid results with the total sales increasing year over year driven by mid single digit comps in our DTC channels partially offset by a decline in wholesale sales.

Emerging brands continued their momentum with sales growth in the low double digits. The positive comps at Tommy Bahama and growth in emerging brands were offset by sales declines at Lilly Pulitzer and Johnny Was. At Lilly Pulitzer, significant declines in the E Commerce Channel and a difficult comparison to the prior year led to overall low teen negative comps and at Johnny Was. As Tom mentioned, the sales decline was driven by a significant decrease in the wholesale channel and mid single digit negative comps in our DTC channels.

Adjusted gross margin contracted 90 basis points to 63.4% driven by approximately $11 million or 280 basis points of increased cost of goods sold from the additional tariffs implemented starting in fiscal 25. Despite this US Supreme Court's ruling in late February, the previously paid tariffs were capitalized in the inventory that we sold during the first quarter. The increased tariffs were partially offset by updated sourcing and pricing architecture strategies across the portfolio, lower freight cost to customers due to improved carrier rates from contract renegotiations and a change in sales mix.

With wholesale sales representing a lower proportion of net sales. Adjusted SGeorgia expenses increased 1% to 209 million compared to 206 million last year, impacted primarily by a new brick and mortar retail and food beverage locations as well as increases in software and consulting costs and costs associated with the transition of our Lyons, Georgia distribution center operations. These increases were partially offset by lower advertising cost and cuts in more discretionary categories like travel.

The result of this yielded adjusted EBITDA of $45 million or an 11.6% adjusted EBITDA margin compared to adjusted EBITDA $54 million or 13.7% in the prior year. Moving beyond EBITDA, adjusted depreciation amortization was flat compared to the prior year, with increases in depreciation related to our new Lions facility and new brick and mortar locations offset by lower software related depreciation. Interest expense of $2 million was higher than the prior year due to higher average debt levels and our effective tax rate of 25.4% was higher than the prior year due to certain discrete items.

With all this, we ended with $1.39 of adjusted EPS moving to the balance sheet. Inventory decreased $15 million or 9% on a LIFO basis and $3 million or 1% on a FIFO basis as compared to the first quarter of 2025. Despite $9 million of additional tariff costs capitalized into inventory compared to 3 million at the end of first quarter of 2025. Inventory decreased across our three larger brands partially offset by higher inventory in the emerging brands group to support their higher levels of growth.

We ended the quarter with long term debt of $143 million as compared to $118 million at the end of the first quarter of 2025 and $116 million at the end of fiscal 2025. Cash flows from operations provided $8 million in the first quarter of fiscal 26 compared to cash flows used in operations of $4 million in the first quarter of fiscal 25 with lower earnings offset by positive changes in working capital. We also had capital expenditures of 23 million primarily related to the Lyons, Georgia distribution center project and the addition of new brick and mortar locations and $11 million of dividends that led to an increase in our long term debt balance since the beginning of the fiscal year. I'll now spend some time on our updated outlook for 2026. As Tom mentioned, the positive momentum we saw to start the year decelerated a bit at the end of the first quarter and continued into the second quarter. For the second quarter, we now expect our total company comp to be in the low single digit negative to flat range and for the full year, our updated comp assumption assumes a range of slightly negative to slightly positive. The updated second quarter and full year comp assumptions are lower than our previous expectations of flat to low single digit positive comps.

As a result of the change in our comp assumptions, we're revising the top end of our revenue guidance range for the full year. For the full year, net sales are expected to be between 1.475 billion and 1.505 billion, a relatively flat to up 2% compared to sales of 1.478 billion. In fiscal 2020, a revised sales plan for the full year of 2026 includes a sales increase in Tyne Bahama and continued growth in emerging brands, partially offset by a sales decrease in Lily Poulter and Johnny was.

Our updated sales plan does include improvement in the second half as we correct the issues discussed at Lilly Pulitzer and Johnny Was continues its turnaround plan. We will also benefit from correcting the tariff related merchandising issues that impacted the results of most of our brands in the second half of the prior year, specifically in the fourth quarter and during the holiday season by distribution center. The full year sales plan consists of high single digit increase in our food and beverage channel that is benefiting from the addition of new locations added during fiscal 2025, partially offset by low single digit decreases to flat sales in our direct to consumer channels and a mid single digit decrease in wholesale.

Moving on to gross margin, our current assumption is that the current tariff the current lower tariff rate of 10% will remain in place for the remainder of the year. These rates are generally consistent with the rates in effect for most of our images inventory receipts during the first quarter of 2026. While we are not including the impact of tariff refunds in our guidance, we paid approximately $40 million of tariffs in fiscal 2025 and an additional $5 million of tariffs in the first quarter of 2026 that were ultimately invalidated by the U.S. Supreme Court ruling in February. To date, we have filed for approximately 25 million in phase one claims and have begun to receive refunds. A refund process for Phase two and the remainder of our unfiled claims has not yet been established, but we are ready to file claims for refunds as soon as a process is established.

It is important to note that given the timing of our planned inventory receipts for the balance of the year, changes in tariff rates during fiscal 2026 would be expected to have a more limited impact on fiscal 26 results than they would on future periods. In addition to lower tariff assumptions, we expect that gross margins will benefit significantly from the shifts in sourcing and updates to our pricing architecture that our teams have worked on for the last year and a shift to a higher proportion of direct to consumer sales. As a result, we expect gross margins to improve 100 to 200 basis points in Q2, Q3, and Q4 of fiscal 26 compared to the prior year periods and an Overall approximate 100 basis point increase for the year when including the headwind from the first quarter.

In addition to lower sales and higher, gross margins, we expect SGA to grow in the low single digit range primarily due to increased software related costs and the annualization of incremental SGA from new stores added since the end of the second quarter of fiscal 25. Also with an EBITDA we expect higher royalties and other income approximately $2 million in fiscal 26. Outside of EBITDA we expect an increase in depreciation due to significantly all the incremental costs to operate the new Lions DC in fiscal 2026 being depreciation related.

Considering all these items, interest expense of $7 million, a higher tax rate of 28%. We are tightening our 2026 adjusted EPS guidance to $2.3 to $2.7 versus adjusted EPS of $2.11 last year. Again, our guidance does not include the impact of any tariff refunds. The second quarter of 2026 we expect sales of 380 million to 400 million compared to sales of 403 million in the second quarter of 2025. This primary reflects our low single digit negative to flat comp assumption and decreased wholesale sales in the high single digit range by brand.

We expect lower sales at Lilly Pulitzer Johnny was to be partially offset by a sales increase at Tommy Bahama and continued growth at emerging brands. We also expect gross margins to expand approximately 100 basis points SG and A to grow in the low single digit range. Royalty income of approximately $5 million, interest expense of 2 million and a higher effective tax rate of approximately 29% primarily related to the impact of our annual stock vesting.

We expect this to result in second quarter adjusted EPS between $1.20 and $1.40 compared to $1.26 last year. 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 $23 million spent in the first quarter of fiscal 26 compared to a total of 180 million in fiscal 2025. Regarding capital expenditures relate to the new distribution center lines, GA and new brick and mortar locations. Thank you for your time today.

We'll now turn the call over for questions. Paul.

Paul

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please. While we poll for questions, Our first question is From Ashley Owens with Keybank Capital Markets.

Ashley Owens (Equity Analyst)

Thanks. Good afternoon. Maybe just to start, I want to click down on the comments about the trend softening through April into May and then early June. And then you flagged that father's Day shift. Is there any way to help us isolate how much of that deceleration is calendar versus the genuine demand softness? Like once you normalize for that Father's Day timing, what, what does the underlying trend look like there? And I have a follow-up.

Tom Chubb (Chairman and CEO)

So I would say, you know, we built into our guidance flat to low single digit negative for Q2 and I think we're, you know, we're more at the moment in the low single digit negative. I think when we get past Father's Day we'll be in that zone of flat to low single digit negative I believe is where we'll land. I think we're going to pick up a bit, you know, through Father's Day. And right now we're, you know, we're tracking fine.

Ashley Owens (Equity Analyst)

All right, understood. Maybe even just secondly more broadly on wholesale, just be curious, you know, since we last spoke, there's obviously been elevated gas prices have continued. Consumer discretionary sentiment is weak. I would just be curious if you're seeing any shifts in some of the wholesale order behavior across your portfolio for the balance of the year. Any retailers trimming buys here, pushing out deliveries? Anything to call out. Thanks.

Tom Chubb (Chairman and CEO)

You know, they're still being cautious and we still think we'll be down but we're not seeing a drastic change. But I think everybody is, you know, given the environment is being a bit cautious and you know, so I think the opportunity for some, you know, increases might not be there quite the way we had hoped. But, but I think they're seeing a lot of what we're seeing right now. And yeah, you do have the shift. So I think a lot of people are trying to sort through the current business and how much this father's day shift is impacting it versus how much is the consumer. And that's a hard thing to really tell. There's, I think some of both in what's going on.

And you know, Ashley, it always comes down to how you're performing on their floor. And our wholesale performance overall has hung in pretty well so far year to date there, you know, that's some places are stronger than others, but I would say overall it's been pretty strong.

Ashley Owens (Equity Analyst)

Okay, understood. Thank you. I'll pass it along.

OPERATOR

Our next question is from Dana Telsey with Telsey Advisory.

Dana Telsey (Equity Analyst)

Hi, good afternoon. I want to unpack the performances of Tommy Bahama and Lilly. Certainly the improvement in the performance of Tommy Bahama even from the fourth quarter to the first quarter is impressive. And wanted to get whether it's men's, women's prices category, what's driving that? And then the Lilly downtick. I think last quarter when we all spoke, you talked about the headwinds, whether it was a Florida of weather, but felt that the structural components of Lilly was very much in place.

What's changed? Where's the softness coming from? Is it by region, by channel, by customers at print pattern, solid promotions? And what's the timeline of the Lilly fix? Thank you.

Tom Chubb (Chairman and CEO)

Okay, so let me start with Tommy Bahama and I would say the, you know, it was a very nice quarter for Tommy Bahama. We're very proud of it. Men's had an increase in our direct to consumer business year over year. We talked about this in March, but that was really driven by core product that we were sort of weak on last year. And that's things like the M. Fielder, the Boracay and some of our big linen programs that really drove it. The real strength in the quarter, you know, men's was good, but women's was even better.

And the numbers were really driven by the women's side of the business, which we love seeing because, as you know, long term, we continue to believe we have a very large opportunity in Tommy Bahama women's. So the women's DTC business was up, I think about 7.5% for the quarter, which is quite strong. And it was driven by what we would consider the fashion part of the business. There are a couple of categories within fashion. I think pants and woven were both strong during the quarter, but, you know, we were glad to see that.

And you know, we're still very much a men's driven business, but seeing that strength in women's, where it really helped drive our quarterly results to a large degree, was great. And then one other little stat that I'll throw out at you that I love is that during the first quarter of 2026, 30% of our E-commerce orders included both a men's and a women's item. That's up from last year when it was 25%. And we don't have any great benchmarking on that, but we believe that benchmarks really well in terms of our ability to.

To sell both genders effectively. When you got, you know, almost a third of your orders are dual gender orders, we think that's really great. So really like what we saw in Tommy Bahama during the quarter, some of that softness that we saw in April and May had to do with some timing shifts and maybe, you know, a little planning hiccup. I really believe that, you know, we're going to get through Father's Day and still be on a very good track. It's a little hard to see it today just because of the shift.

It's still good. It's just not quite as strong as it was. But I think that's, you know, the Father's Day shift that we're seeing. And then on Lilly Pulitzer, I do believe that the February weather in Florida was a contributing factor. And at the time we were talking in March, I think that was very valid because it was especially during February and the first part of March where the average daily temperatures were much, much lower than the normal average daily temperatures.

And that's that time of year when it matters a lot in Florida as to whether people are motivated or not. But then as we got deeper into the quarter, we realized that there were other issues with both the assortment and with the messaging and marketing around them. So as we identified during the fall prepared remarks, Dana, some of the issues that we were way under inventoried in our opening price point bucket, and I think that cost us some business.

You know, some of those customers were willing to move up the price point scale, but I think some of them just ended up not buying. And I think that's where we saw a lot of the. The sales erosion. Then from a print and color perspective, if you've been watching it, we leaned heavily into the sort of vintage prints. And while, you know, we love those prints and they're beautiful, I think we probably overdid that. And those tend to appeal a little bit more to the, you know, the most dedicated Lilly fans and maybe a little less so to the newer Lilly fans.

I think that was an issue. And then the last big one I would identify is what we're calling novelty,. So, as you know, Dana, there's been a lot of emphasis not only from us, but across the market place, newness and novelty, and that kind of thing. And I believe we just swung the pendulum a little bit too far on that this spring. And that had. It's good to have a good bit of that, but we just had too much of it and not enough of our assortment was more versatile.

And I think especially when you get into time period where people are being a little bit more discerning about their purchases, I think she's looking at the versatility of that dress maybe a little more than she would when she's in more of a free spending mode. So we were talking about it yesterday, but we have had this spring an absolute gorgeous dress that was the type of dress that you would wear to some kind of charity ball or gala or something like that.

Absolutely gorgeous. But it's really one of those dresses that you're probably only going to wear once because it's so unique and so special and so dramatic and stunning. And you know, it was over $700, which for us, high price point. And we just have a little too much of that. So in terms of the timeline to fixing, I would also say that that leaning into vintage and nostalgia I think also showed up in our messaging and marketing. You know, the way this works, Dana, messaging and marketing can be addressed more quickly generally and how we're targeting and some of that stuff we can, you know, we're already adapting and things like promotions you may have watched, we did a big Lilly Pulitzer promotion this past weekend. That was something that we did in what I would call an agile response to the situation. So those things can be doomed more quickly. The product development timeline is what it is. So it's more of a resort before you can really, you know, up until resort, you're kind of dealing with the product that, you know, you designed and bought way back when you did that. And you know, I do think, I believe we feel that some of our later summer deliveries are a bit stronger and maybe don't have quite the degree of issues.

And then what we're doing just in sort of our agile response and rethinking promotions and all, I think we're going to, you know, we're going to make the best of it. I'm super proud of the Lilly team in the way that they've responded to it. Dana, you know this well, but this is a fashion business and you're going to have a hiccup like this every now and again. And the issue, you know, that's just, that's part of the business. Hopefully it's not very often, but it's going to happen every once in a while.

And then the key is how do you respond that to that in the short term and then in the long term. And I think as they do the, the Lilly team is doing a terrific job on both fronts. So that was a lot that hopefully answered your question.

Dana Telsey (Equity Analyst)

Very helpful. Thank you.

OPERATOR

Our next question is from Jeanine Stichter with bti.

Jeanine Stichter (Equity Analyst)

Hi, thanks for taking my question. Wanted to delve into the gross margin side a bit. You talked about Having some big wins on the sourcing side. So maybe you could just talk about what's working there, how much you view as kind of structural and able to continue. And then as you think about the guidance for gross margin to increase throughout the balance of the year, what does that assume in terms of promotions by brand, how you're planning them, and also how consumers are shopping around those promotions. Thank you.

Tom Chubb (Chairman and CEO)

On the gross margin, yeah, we have. We had done a lot of sourcing shifts. We also. A lot of the price increases, a lot of them were on newness. And so we do have some products with some good margins. And at especially at Tommy, we sold through at full price nicely. And so we had a pretty nice higher than expected gross margin there. And then as we mentioned, the tariffs are 10% now. That's our assumption going forward. So we, you know, and we. We did have overall some lower promotions both in the first quarter internally and on sales of all price to wholesale accounts.

That helped. We also had direct was a higher percentage of our total sales versus wholesale. So that always helps. Also, as far as promotions, you know, Lily will probably be a little more promotional than we planned at the beginning of the year. Just kind of given the start. Tommy, you know, pretty much the normal cadence at Tommy. So I think overall we won't be. I don't think our overall total company promotional cadence will be drastically different.

Probably a little bit more. More, Lilly? Quite a bit less. At Johnny Was. Johnny Was has really hung the inventory down there, being much more disciplined on promotional events. And their gross margins were very good. And I think they'll continue to be for the rest of the year. So I think some structural things that Johnny Was that are really starting to show through on the gross margin line and some of the SGA controls there, and I think they'll begin to show on the top line later in the year.

Jeanine Stichter (Equity Analyst)

Got it. And with the price increases, have you seen any pushback at either of the brands, the price increases and then just any more plans for ticket increases the rest of the year?

Tom Chubb (Chairman and CEO)

I would say, Jeanine, there's a nuanced answer to that. There hasn't really been any direct pushback to it. But if you look at our numbers were, you know, we're selling less units, you know, the AOV is going up, the AUR is going up. So people are selling or are paying the price. But, you know, the total number of units that we sold during the quarter was, you know, down a bit. Not, you know, it's not drastic, but so it's hard to know exactly how to interpret that. I think some of that's about the softness and just general caution among the consumer. But we're looking at it hard to make sure we're not, you know, out of whack with what the consumer is willing to pay. We do not believe we're out of whack with the market, you know, at all.

We think we're in sync with our, you know, our peers or competitors, whatever you want to call them. But, you know, it bears further scrutiny for sure.

Jeanine Stichter (Equity Analyst)

Great. Thanks for the color.

Tom Chubb (Chairman and CEO)

Thank you, Janine.

OPERATOR

Our next question is for Mauricio Cerna with ubs.

Mauricio Cerna (Equity Analyst)

Great. Thanks for taking my questions. I guess just first on Tommy Bahama, could you talk about your expectations in terms of the comps for Q2 and the rest of the year? Just thinking about, you know, the very good traction you're getting. You got in Q1. Is it fair to assume that, you know, the brand can sustain a mid single digit comp? And then similar question on, I guess, similar question on Johnny was it seemed like you've really been able to bring that business into a healthier place, at least in terms of margins, gross margin. How should we think about the timing for an inflection to positive sales growth of the brand? Could it happen by second half of the year? Thank you.

Tom Chubb (Chairman and CEO)

Yeah, Tommy, we think we can have positive comps the rest of the year. Our model has a little bit lower than the mid single, just slightly lower than the first quarter. But a lot of it's just some of what we're seeing now. We got the whole Father's Day shift. So I think it's really once we get through Father's Day and kind of get that dust settled, I think we'll be in a good place there at Johnny was, we think, you know, we can start having positive comps in the second half. I think just some of the discipline that we've got and then the product, you know, we really couldn't impact product in the first half of the year.

In second half of the year, we really think a lot of the work we've been doing in identifying how we ought to be assorting the line that was known going into the design process. So we, I think we'll have better commercial lines and we also will have a line of more essentials that kind of go with the prints we don't have. We have very little of that right now. We'll have quite a bit more of that in the second half. So we think, you know, you know, first half, you know, the comp will be a little tough. Johnny was. But a lot more discipline on, you know, healthier gross margins, a lot more expense discipline then second half. We really think the comp can start turning around.

Mauricio Cerna (Equity Analyst)

Got it. And then just a couple of follow ups on the gross margin side it seems like, you know, the assumption is, you know, even though like, I guess even though like if tariffs go back to ipa, like after July, the way that you flow your inventory, it shouldn't have like a meaningful impact for at least fiscal 26. I just want to make sure that I understood that. But I guess that means that you could face a headwind in 24.

Tom Chubb (Chairman and CEO)

Fall will pretty much be in house and then you've got some core that also goes even further during the year. So if tariff rates did go back to ieva and right now I think what they're talking is more of a 10 to 12 is at least what's being discussed and how quickly that happens. You know, you could have a gap where you don't have any, you know, these are going to expire. The section 122 will expire in July and I don't know if these others can be in place right away. So the tariffs are still fairly uncertain. But even if they went all the way back to ipa, it would not have, you know, a huge impact because I think falls pretty much in at 10 and resort could have a little bit of impact.

Mauricio Cerna (Equity Analyst)

Got it. And then just the last point on that, like with tariff refunds, what would be, you know, the primary use of the proceeds?

Tom Chubb (Chairman and CEO)

Debt repayment, Pay down debt. Yeah, yeah. And our debt, you know, not just on the quarter, but some of that is seasonal and we expect second quarter, you know, debt to come down and then if we get the tariff refunds, then we'll come down even more significantly.

Mauricio Cerna (Equity Analyst)

Awesome. Well, thanks for answering the questions and best of luck.

OPERATOR

Thank you, Mauricio.

Joseph Savillo (Equity Analyst)

Our next question is from Joseph Savillo with True Security. Hey guys, thanks so much for taking my questions. Just trying to zero in a little bit more on the consumer versus Father's Day. Is there any way you could break down the tax refund impact on 1Q.

Tom Chubb (Chairman and CEO)

I'm not sure we can do that. I don't know.

Joseph Savillo (Equity Analyst)

You know, I believe it was probably a positive, you know, for us for sure, but I don't know that we have a good way to break that down. As you know, Joe, there are a lot of people, including some of your peers out there in the analyst world that, you know, trying to do all kinds of things about tax returns and I've read a lot of that, but I'm not sure we can translate it exactly. Yeah, I figured it'd be pretty tough, but figured I'd ask. And then secondly, talk a little bit more about.

Tom Chubb (Chairman and CEO)

One analysis that I've read is that when you get to $4.50 a gallon, you've eaten up all the benefit of the tax return is some people are thinking about it now. We're not at 450 a gallon most places. And you know, with where oil settled down, you know, it's been in the high 80s, low 90s, and seems pretty immune to what the news headlines are in terms of any big swings. And at that level, you're looking at, you know, 375 a gallon on average, I think, which is, I don't think is going to cripple the economy. I mean, people don't like it, it impacts sentiment, but I don't think it's going to cripple the economy.

Joseph Savillo (Equity Analyst)

That's helpful. And then I guess on the. Can you give any more color on the regional performance of Tommy and maybe how the new DC has impacted operations?

Tom Chubb (Chairman and CEO)

You want to talk about dc? Yeah, yeah. New dc. We moved our first brand over at the very end of February. We now have four brands over there, so we've got three more brands to move. You know, remember Lyons was doing a tiny bit for Tommy. They were doing all the emerging brands. They were doing a tiny bit for Lilly and all that. Johnny was so. And then we'll end up moving. Once we get all the brands in and get it all settled down, we will actually start shifting more Tommy over.

We currently have Jack Rogers in a 3 PL and that will move. And so the move, you know, it'll probably end of July, early August, we'll have all the brands moved over and then as our efficiencies get better, we'll move more and more Tommy there. So, you know, we're kind of in the startup phase and you know, with something, a project like this, you know, you kind of, you work out the different kinks and you kind of move the brands over slowly and then you really absorb them and get more efficient and then you move to the next brand.

So we're kind of in that phase now. But, you know, the summer will, you know, get all the brands over and then, and then, you know, continue to move more Tommy over and continue to get more efficient. So. But it is a good, it's going to be a great operation and it's going to be a great long term asset for the company. And then, Joe, from a geographic standpoint, for Tommy, it's really a West coast or western part of the country versus Eastern issue. And the west has been strong this year, which is really good to see. We had a couple of years where it was lagging, and that's really been the strongest part of the country for us, which we're really glad to see. Got it. Thanks so much, guys. Thanks, Jeff.

OPERATOR

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Tom Chubb for any closing remarks.

Tom Chubb (Chairman and CEO)

Okay. Thank you very much for your time and attention today. We appreciate your interest in our company, and we look forward to talking to you again at the end of the summer.

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