Oxford Industries, Inc. (NYSE:OXM) Q1 2023 Earnings Call Transcript

Oxford Industries, Inc. (NYSE:OXM) Q1 2023 Earnings Call Transcript June 7, 2023

Oxford Industries, Inc. misses on earnings expectations. Reported EPS is $3.5 EPS, expectations were $3.74.

Operator: Greetings. Welcome to the Oxford Industries, Inc. First Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Jevon Strasser of Investor Relations. You may begin.

Jevon Strasser: 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 our 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 the Investor Relations tab of our website at oxfordinc.com. And now I’d 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 now I’d like to turn the call over to Tom Chubb.

Tom Chubb: Good afternoon, and thank you for joining us. We appreciate your interest in our Company. We are pleased to be reporting a solid first quarter of fiscal 2023, which happens to be our eighth consecutive record quarter. Sales of $420 million were up 19% over the prior year, with 14% of the growth coming from the addition of Johnny Was, which we acquired last year, and 5% organic growth in our other five brands. Our adjusted EPS was $3.78 for the quarter compared to $3.50 for the first quarter of last year. Our trailing 12-month active customer count at quarter end was $2.6 million, which increased 9% compared to the end of the first quarter last year, while our new customer add rate on a trailing 12-month basis was 6% higher than it was at the end of the first quarter in fiscal 2022, and the average annual spend with our consumers is more than $400.

We believe these results are directly attributable to our North Star pillars, our objective, our strategy, our purpose, and our focus, our formula for delivering on these pillars, and our execution of that formula. As always, our objective is to maximize long-term shareholder value. Our strategy is to earn a portfolio of lifestyle brands that can deliver sustained profitable growth, our purpose is to have evoke happiness, and our focus is to generate cash to fund organic growth in our brands, acquisition opportunities, and the return of capital to our shareholders, all while maintaining our rock-solid balance sheet. Within each of our aspirational happy lifestyle brands, the formula for delivering this sustained profitable growth that drives long-term shareholder value is first to focus and be crystal clear on what the brand stands for and then deliver on that brand promise through terrific products, a balanced mix of retail e-commerce and the wholesale designed to serve the customer where and how she wants to be served an effective and efficient in obtaining, retaining, and developing customers through a variety of communication channels.

Nowhere did we execute on this formula better than in our Tommy Bahama brand, where growth in all channels of distribution delivered topline growth of 5%, a highlight of growth we expect, well, both men’s and women’s grew, our women’s business and our direct-to-consumer channels grew at a faster rate than our men’s business and for the quarter comprised 42% of the total as compared to 40% of the total in the first quarter of fiscal 2022. Developing our women’s business in Tommy Bahama remains both a priority and a huge opportunity for us given that the women’s market is roughly doubled the size of the men’s market. A clear indication of the strength of our Tommy Bahama brand is that we were able to expand gross margin during the quarter to 66.1% from 64.6% last year.

We continue to invest in the business in people, marketing, IT, stores, and restaurants, and as a result, experienced some modest SG&A deleveraging. Nonetheless, our strong gross margin performance and sales growth allowed us to expand operating margin to 23.2% for the quarter compared to 23.1% last year. All in all, it was a very good quarter for Tommy Bahama, especially given the unseasonably cold wet weather on the West Coast, which include some of the brand’s largest markets and the numerous macro headwinds pressuring consumer spending. We could not be more bullish about the long-term prospects for the brand and continue to invest in its future including plans to open three Marlin Bars, one of which is in Palm Beach Gardens, scheduled to open later this month.

And our first Tommy Bahama resort during late 2023. And our second largest brand Lilly Pulitzer, we also had a good quarter with sales growing 6% from $92 million last year to $97 million this year. Our direct-to-consumer channels delivered the growth while we had a modest decline in the wholesale channel, owing we believe to the cautiousness of many retailers in the marketplace. We experienced some SG&A deleveraging in Lilly Pulitzer as we continue to invest in the brand, but we were able to expand gross margin during the quarter to 70.1% from 69% last year. The sales growth combined with the expanded gross margin allowed us to deliver a very strong 25.2% operating margin for the quarter. One of the keys to our success with Lilly Pulitzer during the quarter was a change in our customer-called action strategy as compared to the first quarter of last year.

In April 2022, we had one of our well-known Lilly Pulitzer flash sales comprised of resort 2021 merchandise, mark down in the 60% to 70% off range. This year, we did not hold a flash event and replaced that instead with a 30% off current merchandise sale online and -store in April. The road results were spectacular as we recorded sales of about $25 million in a three-day period at a very attractive gross margin. As we move forward through the year, we will continue to evaluate the most effective ways to call our customer tags and drive continued topline growth in a brand-appropriate manner all while generating very healthy margins at both the gross margin and operating margin level. Johnny Was is our newest brand having been added to the portfolio during the third quarter of 2022 and we are delighted to have it as part of our company.

Our focus this year, the first full year that Johnny Was as part of the Oxford portfolio is on completing its integration onto our powerful platform and enhancing the foundation for sustained profitable growth in the brand. We have completed most of the earlier stage parts of this project and are now focused primarily on leveraging our best-in-class existing Lilly Pulitzer e-commerce platform to improve the already robust Johnny Was e-commerce business, which generates about 40% of the brand sales. To be clear, Johnny Was will continue to maintain its own website with its distinctive look and feel, while utilizing the technical functionality and features we have developed in the Lilly Pulitzer e-com platform. Our three smaller brands, Southern Tide, The Beaufort Bonnet Company, and Duck Head comprise our Emerging Brands Group.

We were pleased to post 7% year-over-year sales growth in the Emerging Brands Group. Profitability during the quarter was suppressed by our continued investment in people marketing, IT, and stores and by the financial impact of the over-inventory position that we discussed on last quarter’s conference call. We have our arms completely around the inventory situation and are working through it methodically, but it will be a drag on the margin of the Emerging Brands Group during this year. The first quarter of fiscal 2023 was a very good quarter. But it is worth noting that it started in February, stronger than it finished in April. Starting in late March the consumer became noticeably more cautious in their spending. Our traffic trends remain positive signifying increasing affinity for and interest in our brands, but conversion rates have been lower than they were last year.

We believe this is the result of consumers being more cautious in how they spend their discretionary dollars, which in turn has led to a much more promotional marketplace than it has been in recent years at this time of year. While we are encouraged that our May sales trend was sequentially better than April and early June business appears to be incrementally stronger, our performance second quarter-to-date is tracking below where we thought it would be when we provided our initial full-year outlook in March. Based on this, along with what we now expect to be a highly promotional environment for the next few quarters, we believe it is appropriate to moderate our forecast for the year which Scott will detail in just a moment. While we are moderating our forecast for the year, we remain extremely bullish on our six powerful aspirational happy brands, and on our ability to capitalize on the strength of our brands to deliver the sustained profitable growth that drives long-term shareholder value.

While year-over-year growth will be a bit lower than previously expected, it will still be a solid year in absolute terms, and cash flow, as Scott will discuss should be exceptionally strong. Accordingly, we will continue to invest in people, marketing, IT, fulfillment capabilities, stores, and food and beverage locations to set ourselves up for continued future growth in 2024 and beyond. We believe our North Star pillars, our formula for delivering on those pillars, our execution of that formula, and our brand leaders, an incredible team of people will allow us in future years to grow total portfolio sales mid to upper single digits annually while maintaining a 15% or greater operating margin. I will now turn the call over to Scott for more details on the quarter and the forecast for the balance of the year.

Scott?

Scott Grassmyer: Thank you, Tom. We are pleased to report another solid quarter in sales and earnings growth. Our operating groups executed well in an uncertain macroeconomic environment during the first quarter of 2023. Both of our two largest brands, Tommy Bahama and Lilly Pulitzer generated a mid-single-digit percentage sales increase and achieved strong operating margins in excess of 20%. Consolidated net sales for the first quarter of fiscal 2023 were $420 million, which included $49 million of sales for Johnny Was and increases in each operating group, growing 19% above last year’s first quarter net sales of $353 million. In the aggregate for Tommy Bahama, Lilly Pulitzer, and Emerging Brands, we generated growth across all our full-price distribution channels with increases of 2% in full-price bricks and mortar, 20% in full-price e-commerce, 4% in wholesale sales, and 4% in food and beverage sales.

We did have a $7 million decrease in Lilly Pulitzer e-commerce flash sales after not anniversarying last year’s Q1 flash event. Importantly, in addition to increased sales, adjusted gross margin expanded 130 basis points over last year to 65.8% driven by higher gross margins in both Tommy Bahama and Lilly Pulitzer. We benefited from lower freight costs where inbound freight has returned to approximately pre-pandemic levels, we saw additional gross margin benefits from a better mix of sales, which was influenced by the addition of the higher gross margin Johnny Was and no e-commerce flash sales in the first quarter of 2023, as well as higher item use. Adjusted SG&A expenses were $200 million compared to $157 million last year. This quarter included $28 million of SG&A associated with the Johnny Was business, which we did not own in the prior year period.

There are also SG&A increases in our other businesses for employment costs, advertising costs, variable expenses, and other expenses to fuel and support anticipated future sales growth. Of note, we incurred $1 million of SG&A costs related to the ongoing re-platforming of Johnny Was e-commerce website to sales force by utilizing the existing Lilly Pulitzer e-commerce tech stack, which is expected to be completed this summer. The result of all this yielded $83 million of adjusted operating income or a 20% operating margin compared to $77 million in 2022. This increased operating income was partially offset by increased interest expense due to the borrowings associated with the acquisition of Johnny Was and higher tax expense due to an increased tax rate compared to the prior year period.

Despite the higher interest and higher taxes, we achieved year-over-year EPS growth of 8% to $3.78. I’ll now move on to our balance sheet, beginning with inventory. We’re in a good position to deliver on our forecast for the remainder of the year, with inventories up 32% or $60 million year-over-year on a FIFO basis, including $17 million of Johnny Was inventory. In addition to supporting planned sales growth, inventory balances grew due to increased product cost, and the addition of higher quantities of core styles that live for many seasons or even years. Looking forward, we expect year-end inventory balances to be at or below last year levels. We used our cash, cash equivalents, and short-term investments on our balance sheet last year, as well as some borrowings under our revolving credit agreement to fund our acquisition of Johnny Was.

We finished the quarter with $94 million of borrowings under our revolving credit facility after having a $119 million of borrowings at the end of — at the beginning of the year. Our $53 million of cash flow from operations compared to $22 million in the first quarter last year allowed us to meaningfully reduce outstanding debt by $25 million during the first quarter, while also funding $17 million of capital expenditures and $10 million of dividends. We expect robust cash flows for the rest of the year and anticipate repaying substantially all of our outstanding borrowings by the end of the year. I’ll now spend some time on our outlook for 2023. For the full year, we expect net sales to be between $1.59 billion and $1.63 billion growth of 13% to 16% compared to sales of $1.41 billion in 2022.

The planned increase in sales in the 53-week 2023 includes the benefit of the full year of Johnny Was as well as growth in our existing brands in the low to mid-single-digit range, which consists of full-price brick-and-mortar and e-commerce channel growth and generally flat wholesale. We anticipate a much more modest gross margin expansion for the full year of 2023 than we achieved in the first quarter, which was more favorably impacted by the year-over-year freight cost reduction as freight rates continued to decrease throughout 2022. The modest gross margin expansion will also include our expectation of a higher proportion of full-price direct-to-consumer sales, a lower proportion of wholesale sales, and the inclusion of the higher gross margin Johnny Was business for the full year in 2023.

These higher sales and modestly higher gross margins are expected to be partially offset by increased SG&A, which is expected to grow at a rate higher than sales in 2023 as we continue to invest in our business, including information technology spend and SG&A in both IT people and IT infrastructure, higher employment cost, higher advertising expenses including more awareness driving spend, additional brick and mortar locations opening in 2023 and increased depreciation expense resulting from both IT spend and brick and mortar locations. Considering all these, we expect the operating margin will decrease from 2022 levels to a percentage of between 14.5% and 15% of sales. Additionally, we anticipate higher interest expense at $5 million, with about half of that interest expense incurred in the first quarter and interest expense of $1 million or less for each of the second, third, and fourth quarters as we continue to reduce our outstanding debt levels during 2023.

This compares to $3 million of interest expense for the full year of 2022 when we had no debt outstanding until the third quarter. We also expect a higher effective tax rate of approximately 25% compared to 23% in 2022 which benefited from certain favorable items such as prior year operating loss utilizations and the reversal of some valuation allowances. After considering these items, 2023 adjusted EPS is expected to be between $10.80 and $11.20 versus adjusted EPS of $10.88 last year with the inclusion of a full year of operating income of Johnny Was being offset by lower operating income in our existing businesses as we invest in those businesses in 2023, and the incremental income tax expense and interest expense. In the second quarter of 2023, we expect sales of $415 million to $435 million compared to sales of $363 million in the second quarter of 2022.

In the second quarter of 2023, we expect higher sales, slightly lower gross margin, SG&A deleveraging, higher interest expense, but a lower effective tax rate at approximately 24% as we expect the tax rate in the quarter to be favorably impacted by the tax benefit associated with divesting of certain restricted share awards late in the quarter. We spent this to result in second-quarter adjusted EPS of between $3.30 and $3.50 compared to $3.61 in the second quarter of 2022. The lower year-over-year EPS expectation in the quarter is primarily driven by increased SG&A investments and interest expense being larger than the gross profit generated from the increased sales. Expanding on the theme of 2023 being an investment year, I’d like to briefly discuss our CapEx outlook for 2023.

Capital expenditures in fiscal 2023 are expected to be approximately $9 million compared to $47 million in fiscal 2022. As we mentioned in the last quarter, the planned CapEx increase includes spend associated with brick-and-mortar locations, including buildout associated with approximately 35 locations across all brands, including three new Marlin Bars and about 10 new Johnny Was locations, a number of these are relocations and remodels, which along with a few store closures should result in a net increase of full-price stores of about 25 by the end of the year, with these additions being more second half weight. This spend associated with these brick-and-mortar locations represent about one-half of the planned capital expenditure amount for 2023.

Additionally, we will also continue with our investments in our various technology system initiatives including e-commerce and omnichannel capabilities, data management and analytics, customer data and insights, cyber security, automation including artificial intelligence, and infrastructure. Finally, we anticipate spend associated with a multiyear project at Lyons, Georgia distribution channel center to enhance its direct-to-consumer throughput capabilities for our brands. We have a very positive outlook on our cash and liquidity position as well after generating cash flow from operations of $126 million in 2022, which including a working capital increase of $85 million, we expect to increase our cash flow from operations significantly to a level in excess of $200 million in 2023.

This level of positive cash flow from operations provides ample cash flow to fund all of our planned 2023 capital expenditures, payment of dividends at the current rate, and the repayment of substantially all of our outstanding debt by the end of the year. Our investments will put pressure on 2023 margins, these actions set the table well for mid to upper single-digit topline growth and operating margins at or above 15% in 2024 and beyond. Thank you for your time today and we’ll now turn the call for questions. Shamali?

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Edward Yruma with Piper Sandler. Please proceed with your question.

Edward Yruma: Hi, good afternoon, guys. Thanks for taking the questions. I guess two from me. First, I want to link back to kind of overall inventory levels and the shape of the balance of the year. I know you said that you were going to end the year with inventory levels down year-over-year, but I guess kind of how should we think about when you kind of get them maybe more in line with sales growth? And then I guess specifically with the Emerging Brands Group, is there a particular brand where the excess inventory was most pronounced? And then just as a follow-up to that in terms of the earnings estimate adjustment for the balance of the year, I know you obviously have adjusted the second quarter, how should we think about the kinds of reductions you’ve put into place for the back half of the year? Thank you.

Tom Chubb: Okay. Thank you for your — being on the call today and I actually think I mean let Scott take both of these. Other than I’ll say that the inventory level and the EBT Group and Scott will elaborate on this a little more. It was the biggest piece of it was in the Beaufort Bonnet Company, but it was a little bit dispersed too. But as we said in our prepared remarks, we’re working through it methodically. We’ve got our arms around it, it’s just — it’s going to continue to drag on profitability probably through the year.

Scott Grassmyer: Ed, our inventory each quarter will be closing the gap to last year and by the end of the year we expect to be lower and part of it is, I think we’ve discussed before, we had baked in a lot of cushions in our supply chain due to some supply chain issues. We’re able to start cutting some of those weeks out, and we also are just trying to run leaner inventory with some of our systems, so it will be a good — inventory will be a good story this year and our cash flow will be a good story where as I mentioned in the prepared remarks, last year we had quite a working capital build, in this year working capital is probably neutral or maybe even providing a little cash this year or something is going to speak really well for our cash flow.

But we believe by end of the year, we should be lower and are able to kind of pull some of that cushion out supply chain that we had to build in. And as Tom mentioned, some of the inventory build was Beaufort Bonnet and a little bit in Southern Tide and we’ve got — we’ve done the markdowns, and we took a little bit of more markdown in Q1 but most of the markdowns were taken last year. But as we liquidate those goods, they go through a zero to little margin. So they do push a little pressure on both gross and operating margins as we actually ship those goods out the door.

Edward Yruma: And then on the reduction in the back half guide or what’s implied within the overall guidance?

Scott Grassmyer: Yes. Yes, overall, we’ve got — we’ve kind of reduced comps from more mid-single down to low single digits. And it’s just really what we’ve been seeing as Tom mentioned, April was a tough month, May got a little bit better, June is getting a little bit better, but what kind of looked at that May, June pace to date and are kind of projecting out hopefully the June trend continues and I think there are some upside but the consumer is cautious. We’ve definitely seen them being more cautious, we are seeing them come in our stores, they’re just not converting at the same rate. And I think they bought an awful lot of last two years and we have added a lot of customers, which is great and they still are into our brands, but I think they’ve — very robustly last year especially, and I think they’re just being a little more cautious on their spend this year.

Edward Yruma: Thanks so much.

Tom Chubb: Thank you, Ed.

Operator: Our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Please proceed with your question.

Noah Zatzkin: Hi, thanks for taking my question. Just wondering if you could provide a little bit of color on kind of the trends by brand embedded in the second quarter guidance, as well as just any color by brand on the exit rate leaving the first quarter? And then separately was hoping you could just provide some color on Johnny Was and how they performed relative to your expectations and just kind of any early-ish learnings there? Thank you.

Tom Chubb: Yes. So, I’ll tackle a little bit of that and then turn it over to Scott, maybe to fill in sort of the details on the second quarter guide. But what I would say is if you look back at what we said in the prepared remarks, Tommy Bahama, really had a very good quarter in the first quarter. All metrics up for the quarter year-over-year growth in all channels expanded, gross margin expanded, operating margin really good, they did suffer a bit as we referred to from the tough weather on the West Coast, but they were actually able to more than overcome that in the other regions of the country. And then I think in terms of just the shape of the quarter, nobody was really immune from that phenomenon of it started stronger in February than ended the quarter.

So sort of the back half of March, you really couldn’t noticeably, you see that consumer getting more cautious. And I think that coincided and not that there aren’t things that we’ll look to improve on next year. But I think a lot of it had to do with what was going on externally in terms of whether the bank failures, the highly promotional market, and all this sort of had the consumer a little more cautious. And then as we said, April was kind of at the low point, May got a little better, and June has been even better than May was so far. So, that’s sort of the way it shaped up and I think you would asked about maybe a little more detail on where the second quarter guidance was coming from.

Scott Grassmyer: Yes. Remember last year in Q2, we comped up 14%. So, we’re going against a very robust comp, and we have Tommy comping up very marginally and Lilly on full-price probably comping down a little bit but — and then our other brands kind of flattish to last year. So, we think in total, we’ll eke out a little bit of growth in the quarter in our existing brands, but it did — the quarter did start slowly, but we are seeing June rebounding a little bit. So, hopefully, we’ll — hopefully, June will continue and we can deliver numbers a little bit better than this.

Tom Chubb: And then I’ll come back to your question about Johnny Was, as we said in the prepared remarks, this is our first full year of owning Johnny Was, we’re looking at it that’s the baseline year, we’ll get the foundation firmly younger Johnny Was and set it up for future growth and we’re doing all of that. As we said, we’ve completed most of the earlier stage sort of more basic parts, if you will, of the integration, and the big focus now that we’re very excited about is utilizing the Lilly Pulitzer e-commerce platform to help power the Johnny Was website. They already have a great e-commerce business, they have a beautiful website that will continue. It will only be the kind of the behind the scenes about the technology that’s used in the functionality and features that provides and what that really is all about is increasing the shopability of the website, making it easier for the guests to shop for her to find things and for her to transact with us.

So, we think that’ll provide a boost to an already very robust e-commerce business, then as Scott mentioned, we’re also investing in stores in Johnny Was with about 10 new locations coming this year, which were very excited about And then in terms of just the overall business, it was a little less in the first quarter than we would have planned for it to be, but I think that they got her, particularly hard by California and what was going on out there and dealing with probably the highest demographic customer that we have in our portfolio, I think some of the caution creeped into that part of the market a little more. So, a little tougher conditions, but nothing that we’re concerned about at all for the long term. It’s a great brand with a great dedicated base of customers.

The addressable market is much larger than we’re currently reaching and we’re very focused on reaching the broader part of the market that’s available to us there. We’ve got great leadership and a great team there, who we love working with and we continue to feel extremely positive about what Johnny Was can do both on its own and as part of our portfolio going forward.

Noah Zatzkin: Thank you.

Operator: Our next question comes from the line of Dana Telsey with Telsey Group. Please proceed with your question.

Dana Telsey: Hi, good afternoon, everyone. As you think about the current consumer environment and I always think of wholesale as a small part of your business. When you think about the different brands, how are you positioning the product assortment as we move forward basics versus fashion or color or print, whatever you want to call it core versus others in each of the businesses, and is that an opportunity for margin?

Tom Chubb: Well, what I would say is I think that our wholesale business was very strong relative to our peer group. We’re hanging in there. I think overall, we’re going to be flattish for the year, which I think in this year, Dana, you follow all this very closely, I know. But I think flat is a great number wholesale, we do get sales readouts from the bigger customers, we get detailed feedback on how we’re doing and how we stack up against a lot of our peers. And it’s really, really good and it’s one of the things that we take a lot of comfort in a year that’s not as strong as we would like. Overall, we’ve had a couple of just extraordinarily strong years. And so, while we’re still going to be up and it’s still going to be a very solid year, it’s not like last year was.

But when we look at our total business, all channels of distribution, we look at wholesale and how well we’re performing on the floor where we’re going head to head, rounder to rounder, against some of our peers and we just look great from that perspective. In terms of the assortment and how they buy it, different retailers buy it very differently. I was just going through last week with our head of the wholesale in Tommy Bahama we went by customer by customer and you sort of recapped how they just come in and place their buys and everybody has got a different job that they want to do on the floor and we provide a lot of partnership with them and help on that. And of course, we’re looking to maximize both their margin first because it’s got to work for them and our margin.

So, I would say, given the strength of our performance there, I do think we can incrementally boost better margin than our margin over time, but we don’t totally direct that, of course, it’s a partnership with them in terms of what they buy, and different retailers come to us with a different idea in mind about how they want to buy it.

Dana Telsey: Got it. And then can you remind us the cadence of flash sales at Lilly Pulitzer? Is it at all different than prior years or what are you looking for in terms of that cadence?

Tom Chubb: Well, last year we did, we did a little flash sale in April then we did the big one at the end of the summer and the big one in early January. As we mentioned in the prepared remarks, we’re going to mix it up a little bit this year. Keep the consumer surprised and delighted as we like to say that absolutely worked in April where, as I mentioned last year we did a flash sale of resort 21 merchandise and did $7 million in one or two days. I can’t remember exactly, but that was that sort of 60%, 70% off, this year, we did a 30% off of the current merchandise and the $25 million in three days. And Dana, you’d be a new, I know how good you are at retail math, and when you started the kind of buy and use, we do a 30% off sale, you can still come out with just a fantastic great margin and we did, so we love that.

So, as we look at the back half of the year, we’re looking to be creative about how we do it because we think the customer really liked that. She likes being surprised and delighted, she loved the mix-up this year, it worked for us, it worked for her. So, I would say that you’ll see more of that sort of mixing things up from us this year. And Scott, I don’t know if you want to add anything to that from a guidance perspective.

Scott Grassmyer: Yes. We will mix things up and we’ll produce something in Q2 with Lilly, but we haven’t announced exactly what that will be, but we do have baked into our projection doing something at Lilly in Q2.

Dana Telsey: Thank you.

Tom Chubb: Thank you, Dana.

Operator: And our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Tracy Kogan: Thanks. It’s Tracy Kogan filling in for Paul. First, I had a clarification on your inventory comments, I think when you were talking about your inventory by brand, you mentioned having too much of some of the Emerging Brands inventory. And I was just wondering at Tommy and Lilly, I’m not sure if I heard whether you feel comfortable with your inventory levels there and where you expect those brands inventory levels to trend for the year? And then I have a follow-up. Thanks.

Tom Chubb: Yes. We do feel comfortable with their inventories. We think they’re very appropriate, we do have a little bit more core oriented at Tommy. So, we brought a little bit of that in earlier. And as I mentioned earlier, we did have — we’re bringing goods earlier for supply chain reasons and we’re starting to wean off of that and that’s helping us we do. So, we feel good about those inventories and we think at the end of the year in total be lower year-over-year.

Tracy Kogan: Got it. And then I was wondering, just what your pricing strategy is for this year at each brand if you’re — I imagine you’re not planning any more price increases, but just wanted to double check on that? And then I was wondering what you guys think about whether your consumers telling you maybe there were sensitive and showing some price resistance to prior price increases. I’m not sure based on what you saw in 1Q versus what you’re seeing quarter-to-date, what you think on the price resistance. Thanks.

Tom Chubb: First of all, Tracy, I don’t think we’ve got a whole lot more pricing flowing through at this point, I think that’s mostly in — I don’t — I can’t say there is no more, but I think that’s mostly in. Secondly, on the price resistance, I really don’t think we’re seeing that. I think one thing we do is benchmark closely against our peers and we really feel if saying maybe we’ve been a little less aggressive than some of them in the pricing. And then the other thing that I would say is that when we look at AUR, so the average unit retail and the average dollars per transaction. So, when they’re buying those metrics are actually either flat or up, which to me tells me there’s not any serious price resistance out there.

I think it’s more about just being generally cautious about spending money. Another thing and this was in the prepared remarks, but you might not have fully zeroed in on. So, our restaurant business is actually performing really, really well. We pushed prices in restaurants too as we’ve needed to, to cover the cost increases there, and our restaurant business is really, really strong. So, I think it’s more about they bought a lot of stuff over the last couple of years, they’re being slightly more cautious and more judicious if you will, about when they’re actually pulling the credit card out. But when they do, they seem very happy to spend on our products.

Tracy Kogan: Great. Thanks very much. Good luck, guys.

Tom Chubb: Thank you, Tracy.

Operator: And we have reached the end of the question and answer session. And I’ll now turn the call back over to Tom Chubb for closing remarks.

Tom Chubb: Thank you, Shamali, and thank you all for your interest in our company. We look forward to talking to you again next quarter and I hope all of you have a great summer until then.

Operator: And this concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.