Oxford Industries - Q2 2025

Transcript

Operator (participant)

Greetings, and welcome to the Oxford Industries second quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Brian Smith. Thank you, Brian. You may begin.

Brian Smith (Head of Investor Relations)

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 our 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'll be discussing certain non-GAAP financial measures.

You will find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under our Investor Relations tab of our website at oxfordinc.com. I'd now like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO, and Scott Grassmyer, CFO and COO. Thank you for your attention, and I'd like to turn the call over to Tom Chubb.

Tom Chubb (Chairman and CEO)

Good afternoon, and thank you for joining us. I'm going to start with an update on the execution of our plan for the second quarter of fiscal 2024 and our current expectations for the balance of the year. During the second quarter, we continued to make excellent progress on long-term strategic goals, but fell short of delivering on our near-term financial targets. Sales of $420 million and adjusted EPS of $2.70 for the quarter were below our guidance range, primarily due to a continued pullback from the consumer. The pullback worsened sequentially during the quarter, coinciding with consumer sentiment, hitting an eight-month low in July, with a trend continuing into August and the start of our third quarter.

While most underlying economic indicators remain reasonably strong, the cumulative effect of several years of inflation may be catching up with the consumer. Simultaneously, the second quarter was also marked by several national and global noteworthy events that led to a more distracted consumer at several points over the summer. Certain factors that we may believe may have amplified these headwinds with respect to our particular business include, first, our focus on affluent 45 and up customers who tend to be more headline and market sensitive. Second, our significant exposure to Florida, which accounts for over a third of our bricks-and-mortar business and grew at an exceptional pace coming out of the pandemic, but has slowed down as the new post-pandemic world settles in. And finally, some commercial and merchandising missteps on our part, including assortment misses and timing of promotional events.

The slowdown we experienced in our business has been driven by reduced conversion, while traffic has remained strong, which indicates that consumers are very interested in our leading brands but have become cautious when making purchase decisions. Looking across the marketplace, the two areas where the consumer continues to respond positively are newness and value. During the quarter, we saw a strong full price response to fashion and new and differentiated products, while interest in core styles was more muted. The consumer also responded to value in the quarter, with a higher proportion of sales during the quarter occurring during promotional events and at our outlet stores than in last year's second quarter. The greater proportion of off-price selling put pressure on gross margin versus our expectation, which, along with lower than anticipated sales, resulted in operating margin, operating profit, and ultimately, EPS, that were below our plan.

Importantly, our balance sheet remains strong. Inventories were down on a year-over-year basis to end the quarter, while strong cash flows allowed us to continue investing in the future of our business, including investing in our store pipeline and Lyons, Georgia distribution center project, which Scott will detail shortly, pay off our debt, and return cash directly to shareholders through our quarterly dividend. For the balance of the year, we expect to continue to see a more cautious consumer, and accordingly, we have reduced our forecast for the year. Our playbook for achieving forecasted results will be, as always, to protect the strength and integrity of our brands for the long term by avoiding brand-damaging, short-sighted reactions to current market conditions. At the same time, we will create excitement and enthusiasm for our brands via some specific initiatives in the second half.

These include new collections, such as our Tommy Bahama Indigo Palms collection of denim and denim-friendly products, which launched early in the third quarter. Initial reception to the collection's launch has been strong. The Indigo Palms collection encompasses a range of styles for both men and women, and the early success is fueling our optimism for how it can help us continue to build and grow our business going forward in both our direct channels as well as wholesale. By offering our guests a completely on-brand assortment of Tommy Bahama product that is appropriate for cooler weather, it enhances our ability to be relevant in the cooler months, particularly in the western part of the country, the Midwest, the Mid-Atlantic, and the Northeast.

Also, in the denim universe, Johnny Was is collaborating with Sasson Denim, playing to nostalgia for the original premium denim brand and featuring a beautiful marketing campaign with Lily Aldridge as the face of the brand. A campaign like this is new territory for us, and we are excited to see what we learn from it. From a value perspective, we will again protect the integrity of our brands, but within that constraint, offer plenty of opportunities for our customers to get lots of value for their money in brand-friendly ways. Some examples of this include the seasonal Lilly Pulitzer sale, which is happening right now, and our holiday marketing plans, which feature special value products, gift with purchase, gift cards, bounce-back deals, and many others.

In addition to our focus on top-line initiatives, our second half will include focus on our operating margin with a keen interest in opportunities for SG&A reductions. As an example, we invested in the relocation of Johnny Was distribution center operations from high-cost distribution centers in Los Angeles to Lyons, Georgia, that will result in significant operating cost reductions that Scott will discuss more in a minute. We will also continue to look across all areas of business for opportunities to reduce SG&A spend without impairing our future growth prospects.

While we are disappointed in our recent performance and revised outlook for this year, our teams have successfully navigated challenging economic cycles before, and I am confident that we have the right people and strategies in place to emerge on the other side of this difficult market with the health of our brands and our consumer connections stronger than ever. Thanks for your attention, and I will now turn the call over to Scott for additional detail. Scott?

Scott Grassmyer (CFO and COO)

Thank you, Tom. As Tom mentioned, there were several macroeconomic headwinds across the marketplace that negatively affected our financial results during the quarter, most notably lower consumer sentiment and an increase in the promotional environment. Despite these headwinds, our teams are focused on executing against our strategies of delivering newness and compelling products that resonate with consumers to combat these challenges and encourage full price selling. In the second quarter of fiscal 2024, consolidated net sales of $420 million were comparable to the second quarter of fiscal 2023 and below our initial guidance range of $430 million-$450 million.

Notably, sales in our outlets increased 4%, as this channel benefited from consumers looking for deals and promotions, while sales in full price brick-and-mortar locations were up 1%, driven by new stores and increased promotional activity, partially offset by low single-digit negative comps. Our wholesale channel, which was particularly challenging in the first quarter of this year, had a difficult second quarter, with sales down 5% compared to the second quarter of 2023, as the specialty store business across our brands continues to struggle, partially offset by increased sales to major department stores. E-commerce and food and beverage sales were relatively flat compared to the second quarter of 2023. Adjusted gross margin contracted 100 basis points to 63.3%, driven primarily by a higher proportion of net sales occurring during promotional events in Tommy Bahama, Lilly Pulitzer, and Johnny Was.

Across our three brands, we saw a strong response from consumers to our promotions, and end-of-season clearance events. We were able to partially offset this decrease in our emerging brands group through our continued efforts to improve our inventory position and reduce the need for off-price, wholesale, and promotional direct-to-consumer sales. Adjusted SG&A expenses increased 5.7% to $213 million, compared to $202 million last year. During the second quarter of fiscal 2024, we incurred higher expenses related to recent and ongoing investments in our business, primarily from the addition of 30 new brick-and-mortar locations opened since the second quarter of last year, and the addition of Jack Rogers brand, acquired in the fourth quarter of 2023.

We also have incurred costs on some of the approximately 15 net new brick-and-mortar locations, including four Marlin Bar locations, that we expect to open in the second half of the fiscal year. Additionally, we incurred approximately $1 million of expenses, which were omitted from adjusted SG&A, associated with the relocation of Johnny Was's distribution center operations from Los Angeles to Georgia. We expect to incur an additional $1 million of charges related to the relocation in the second half of the year, but are projecting this move to save Johnny Was approximately $4 million in operating costs per year, with the potential for additional savings.

The results of this yielded $57 million of adjusted operating income, or 13.5% operating margin, compared to $73 million or 17.3% in the prior year. The decrease in adjusted operating income reflects the SG&A investments amidst a challenging consumer environment for sales and gross margin. Moving beyond operating income, our effective tax rate was flat. Our interest expense was $1 million lower compared to the second quarter of 2023, resulting from lower average debt levels. With all this, we achieved $2.77 of adjusted EPS. I'll now move on to our balance sheet, beginning with inventory. During the second quarter of fiscal 2024, we were able to decrease inventory by 6% or $13 million year over year on a FIFO basis.

The decrease in inventories resulted from our continued inventory discipline across our portfolio. We're also able to repay our remaining outstanding debt and ended the quarter with an $18 million cash position. From a liquidity standpoint, our $122 million of cash flows from operations in the first half of fiscal 2024 allowed us to fund our elevated level of capital expenditures of $54 million and pay $22 million of dividends, all while being able to repay the $29 million of borrowings that was outstanding at the end of fiscal 2023. I'll now spend some time on our outlook for 2024. We finished the second quarter of fiscal 2024 with negative comps of 1%, which was lower than our previous forecast of mid-single-digit positive comps for the quarter.

Similar to the results we saw in the second quarter, comp sales figures in the third quarter to date are negative. We believe the negative comp trend will continue and result in negative comps in the low- to mid-single-digit range for the remainder of the year, on top of similar comps in the prior year. These assumptions compare to our previous expectations from June that assumed mid-single-digit positive comps for the remainder of the year, and we revised our sales forecast accordingly. For the full year, we now expect net sales to be between $1.51 billion and $1.54 billion, or a decline of 2%-4% compared to sales of $1.57 billion in 2023.

Our updated sales plan for 2024 now includes low- to mid-single-digit sales declines in Tommy Bahama and Lilly Pulitzer, partially offset by sales growth in the low single-digit range for Johnny Was and Emerging Brands Group. By channel, wholesale comprises the majority of the sales decrease, with a partial offset from a slight increase in our direct-to-consumer channels. We expect wholesale sales, which were down approximately $20 million in the first half of the year, to be relatively flat in the second half of the year compared to fiscal 2023, as we go against easier comps relative to what we saw in the first half.

In our direct-to-consumer channels, we expect growth in our outlets as those locations continue to perform well in the current environment and in our full-price retail food and beverage locations that will benefit from the addition of the approximately thirty new locations during the year. We expect sales in our e-commerce channel will be flat to slightly negative for the year. Looking across the marketplace, there are many macroeconomic risks and uncertainties that could affect our outlook, including consumer headwinds and industry trends that we have already discussed. There are also the upcoming elections in November and the related consequences that could have the potential to disrupt demand. Other challenges, including the shipping disruptions to global trade, caused in part by the attacks in the Red Sea, also have the potential to disrupt the supply of goods across the economy and increase freight cost.

We now anticipate gross margin for the year will decline by approximately 50-100 basis points compared to the prior year, as expected increased activity during promotional events across our brands will more than offset the gross margin benefit from proportionally lower wholesale sales. We also anticipate a slightly negative impact in the second half from an increase in freight rates. Our guidance contains our best estimate of the impact that increased freight will have on our earnings. In addition to slightly lower sales and negative gross margin, we expect SG&A to grow at a rate higher than sales in 2024, primarily due to the investments in our business, including expanding our store count by a net of approximately 30 locations, with 5 new Tommy Bahama Marlin Bars, continued IT investments, and the addition of Jack Rogers.

Additionally, as discussed during our last call, we expect the Jack Rogers brand, acquired in the fourth quarter of fiscal 2023, to generate an operating loss of approximately $2.5 million in 2024, as we reset and refocus the business. We also anticipate lower interest expense of $2 million for the year, compared to $6 million in 2023, and higher royalty and other income, primarily from a full year of the Tommy Bahama Miramonte Resort. Additionally, we expect a higher adjusted effective tax rate of approximately 24%, compared to 23% in 2023, which benefited from certain favorable items that are not expected to reoccur in 2024....

Considering all these items, we expect operating margin to decrease from 2023 levels and now expect 2024 adjusted EPS to be between $7-$7.30, versus adjusted EPS of $10.15 last year, with decreases in all of our businesses and a higher tax rate being partially offset by the lower interest expense and higher adjusted royalties and other income. In the third quarter of 2024, we expect sales of $310 million-$325 million, compared to sales of $327 million in the second quarter of 2023. We also expect gross margin to contract by approximately 50-100 basis points, with the trend of increased sales during promotional events expected to continue.

SG&A deleveraging, $1 million of lower interest expense, and a flat royalty in other income. We expect this to result in third quarter adjusted EPS between $0.00 and $0.20, compared to $1.01 in the third quarter of 2023. Given our fixed cost structure and the seasonality of our business, third quarter is typically the smallest of the year from a sales and EPS perspective, and will be further impacted in 2024 by heavy pre-opening costs for new stores and Marlin Bars. Expanding on the investments we are making in 2024, I'd like to briefly discuss our updated CapEx outlook for the remainder of the year.

Due to refined cash flow timing projections for our Lyons, Georgia distribution center project and adjustments to other capital projects, capital expenditures in fiscal 2024 have been moderated and are now expected to be approximately $150 million, including $54 million incurred during the first half of the year, compared to $74 million in fiscal 2023, with approximately $75 million related to the significant multiyear project to build a new distribution center in Lyons, Georgia, that will enhance the direct-to-consumer throughput capabilities of our brands. The remaining capital expenditures relate to the execution of our pipeline of Marlin Bars, increases in store count across Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, and The Beaufort Bonnet Company, and increased investment in our various direct-to-consumer technology systems initiatives.

We expect this elevated capital expenditure level to moderate in 2025 and further moderate in 2026 and beyond, after the completion of the Lyons, Georgia project. We also have a positive outlook on our cash and liquidity position as well. Cash flow from operations are expected to remain very strong, giving us ample room to fund the previously mentioned investments. Our quarterly dividend and limit the need to borrow under our revolver, although we do expect a modest debt position for much of the second half due to the elevated capital expenditures. Thank you for your time today. We'll now turn the call over for questions. Paul?

Operator (participant)

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 two 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. In the interest of time, we ask that participants limit themselves to one question and one follow-up. One moment, please, while we poll for questions. Thank you. Our first question is from Ashley Owens with KeyBank Capital Markets. Please proceed with your question.

Chand Madaka (Senior Equity Research Associate)

Hi, thanks for taking my question today. This is Chandana Madaka on for Ashley. So I just wanted to dig into maybe a little bit more about how you're thinking about promotional events going into the back half, maybe any color you could provide there by brand, just, you know, now that the thinking around promotions is a little bit differently. Also wanted to see if you could dig in further for us on what you're hearing from wholesale partners, maybe an update on the order books. Thank you.

Tom Chubb (Chairman and CEO)

Okay. So on the promotions, I wouldn't say that we're really thinking about it differently. I think what we're thinking is just we recognize that they're going to be very important this year, especially as they always are during the holiday period. So we're gonna start a bit earlier. As you know, the shopping season is exactly five days shorter this year than it was last year. So it's gonna be important that we jump on it at the beginning of November. We're gonna have an assortment of mailers. We're doing a mailer in Tommy Bahama that we haven't done in a couple of years, so that would be a little bit of a change.

We've got a great gift with purchase offering that we're gonna do over the cyber weekend, starting with Black Friday and going through the weekend. Actually, starting on Thursday, I believe. We've got our normal gift cards. We've got bounce back sales. We'll have the Lilly Pulitzer flash sale in January. So it's really the same types of things. I think it's just that our focus on those maybe will be a little bit more intent than it has been in the past. In terms of the wholesale performance, as Scott mentioned in his prepared remarks, the year overall has been tougher in the wholesale. We do expect the second half to be about flat with last year, which is the first half was down, I think, about 5%.

... or so, but our performance with our majors, which is where we have the most visibility to how we're doing, has actually been quite good, and I think as we're starting to see spring bookings, we're actually encouraged with what we're seeing there.

Chand Madaka (Senior Equity Research Associate)

Awesome. Thanks. Nice to hear.

Scott Grassmyer (CFO and COO)

Thank you.

Operator (participant)

Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Dana Telsey (Telsey Advisory Group)

Hi, good afternoon, everyone. As you think about the state of the consumer and what you saw in outlets versus the other channels of distribution, with the brands, with Tommy, with Lilly, what are you seeing that's different? How did the cadence of the quarter go? And are there categories that performed better or worse than others? And with the promotional environment, how deep are the markdowns, and how are you thinking about promotions for Q3 and Q4? Thank you.

Tom Chubb (Chairman and CEO)

Okay. Thank you, Dana. So the cadence of the quarter, as we mentioned, was that it got worse sequentially through the quarter. May was actually an okay month. June softened a bit, but not terribly. And then July got a lot worse, especially in the back half of July. And then as we mentioned, August was weak, as well. In terms of what the consumer's looking for, as you know, I think very well, it is a value-driven market right now. We are intent on maintaining our strategy of being a full portfolio of full price premium brands, and we're not really veering away from that.

But we are going to be paying a lot of attention and be very focused on some sort of the types of promotional activities that you've seen from us in the past, Dana. And then, as we mentioned in our prepared remarks, you know, we during the second quarter did a greater proportion of our sales during those events. We may have had a little bit more in terms of the number of promotional days, but the biggest factor was just that that was the time when the consumer was most interested in shopping and the time where they were most interested in converting, if you will. I would say that the discounts were also a little bit steeper during the second quarter.

And I think it's reasonable to expect that we're gonna see a similar pattern in the third and fourth quarter, and that is what we built into our guidance. And Scott, you may wanna reiterate and elaborate on our guidance a bit.

Scott Grassmyer (CFO and COO)

Yeah, as we mentioned in the call, we have moderated the comps where we were expecting positive comps in our earlier guidance, and we moderate them down to you know, the low to mid-single digit range. And just, it's just basically what we've been seeing, you know, recently in the state of the consumer. We just thought it was prudent to do that. And we do have the shorter period between Thanksgiving and Christmas, and we do think it's gonna be a promotional period. And, you know, we're gonna try to, you know, do similar type events. But as we found in the second quarter, we tended to have a little bit more inventory to fuel those events than we might have last year, which you know, did erode gross margin a little bit.

Tom Chubb (Chairman and CEO)

Dana, in terms of products, I would say, you know, anything that's truly new, truly innovative, truly differentiated, are the products that are most likely to get the consumer's attention. Just broadly, I would say that the more casual categories, the athleisure-type product, swim has been slower. Those types of things have been slower. Dresses have really been strong across the portfolio, and more, the dressier end of the spectrum, I would say, you know, the more presentable end of the spectrum, I think, is where we've seen the relative strength in general.

Dana Telsey (Telsey Advisory Group)

Just picking apart freight costs, how are you thinking about the puts and takes on margins?

Scott Grassmyer (CFO and COO)

Yeah. We built in about 15-20 basis points in margin hit due to elevated freight, so it's not a huge, huge amount. We are watching, and that's mainly in some of the Red Sea issues that have inflated rates. We are seeing, or we are, you know, watching closely the port, the East Coast, situation with the, union negotiations, and are diverting some product to the West Coast, and then we'll, you know, have to bring it across the country in some cases. Yes, so, so that's something we continue to watch. But, but we have built in, you know, some disruption from that. Obviously, if the East Coast ports have a-- do go on strike, that's, you know, that's gonna be a disruptor to, I think, everyone.

Dana Telsey (Telsey Advisory Group)

Just one last thing: With the change in business patterns, any, whether it's marketing or store openings or Marlin Bars, any adjustments that you're thinking about, whether in terms of timing or, or shifts in how you're thinking about any of the initiatives? Thank you.

Tom Chubb (Chairman and CEO)

... Not, not really. Yeah, we're pretty much full steam ahead.

Scott Grassmyer (CFO and COO)

Yeah, on the growth initiatives, we are. Yeah, SG&A is something we are, you know, we always look at, but it's obviously, you know, we're looking at opportunities there when they present themselves. We mentioned the Johnny Was distribution center move, which we, you know, is gonna save us a bit of money, and we're looking at other opportunities to, you know, reduce SG&A. But as far as growth initiatives, we're moving forward.

Tom Chubb (Chairman and CEO)

Which would include the stores that we're opening, the Marlin Bars and the distribution center in Lyons. You know, look, Dana, we don't. We believe that this is, you know, at worst, an old school recession, maybe not even that. It's not the type of event that we saw in the pandemic or the financial crisis. You know, we wanna be ready when business starts to pick up. We believe in our direct-to-consumer channels as we do our wholesale channel, and building stores and Marlin Bars and having a DC that can serve us both retail, wholesale, and our e-com business is, you know, gonna be very important as we get a year or two, three years out. So we wanna make sure that we're there. These are long-term projects that we need to manage for the long term.

Dana Telsey (Telsey Advisory Group)

Thank you.

Tom Chubb (Chairman and CEO)

Thank you, Dana.

Operator (participant)

Thank you. Our next question is from Mauricio Serna with UBS. Please proceed with your question.

Mauricio Serna (Executive Director)

Hi, good afternoon. Thanks for taking our questions. I guess maybe if you could elaborate a little bit more on the promotional activity across each of the, you know, three big brands. You know, I know, I recall, like, there was some shift in promotional events and Lilly Pulitzer, but, you know, outside of that, like, anywhere where you saw, like, promotions really surprise you on the negative side, and, yeah, like, just a bit more details on that would be very helpful. Thank you.

Scott Grassmyer (CFO and COO)

I would, Mauricio, I'd say it's more we just had. We sold through a bit less at full price than we expected, so we had more inventory when we did, like, Tommy's end of the season sale had, you know, more inventory than did the prior year, you know, Lilly, Johnny Was. That was more the case, so it just resulted in, and you had a consumer much more willing to buy during those events. So it wasn't that we had major change in the events or were majorly different on the degree of discounts. It was that there was just more inventory available that sold, so we kind of traded some full price sales for off-price sales during typical clearance periods.

Mauricio Serna (Executive Director)

Understood. And then just a quick follow-up. Surprised to see also kind of like the slowdown on the restaurant business. Could you elaborate a little bit more about what happened there? And lastly, could you remind us the comp sales, you know, the comps you're up against in the second half of the year? I think, yeah, just to be mindful of that. Thank you.

Tom Chubb (Chairman and CEO)

Yes, I think the restaurants slowed down. As you know, Mauricio, the restaurants just have not slowed down really up until the second quarter. They have been extremely strong as they reopened. Even during the pandemic, when service was much more limited, they were quite strong and then just had been super strong, and I think a little bit of that has slowed down. Florida, for example, is a big restaurant market, and as we talked about, in the retail business in Florida as well, which had been just sort of nonstop, go, go, go since the pandemic, and it sort of settled down to it where it was performing more like the rest of the country during the quarter.

Scott Grassmyer (CFO and COO)

As far as comps, last year, Q3 and Q4, we're kind of in that, we're kind of the 3%-5% range negative. And so we're projecting similar type comps in our second half this year. And where before we were projecting positive comps. So that's the, you know, the big change in guidance is really that comp movement is the biggest change.

Mauricio Serna (Executive Director)

Thank you.

Tom Chubb (Chairman and CEO)

We're gonna be working very hard, of course, Mauricio, to try to turn that negative comp assumption into a positive result. But given what we've seen over the last six or eight weeks, we just thought it was prudent to lower that expectation.

Operator (participant)

Thank you. Our next question is from Janine Stichter with BTIG. Please proceed with your question.

Janine Stichter (Managing Director and Consumer Retail and Lifestyle Brands Analyst)

Hi, thanks for taking my question. So, you know, to start out, you on the consumer, you went through a whole host of factors that might have contributed to the slowdown. I think you talked about distraction and inflation and some merchandising missteps. You know, maybe just help us rank order, in your opinion, which are the most meaningful in terms of the change you've seen in the top-line trends? And then, within that, we'd love some more context around Florida. It grew a lot in the years after COVID, and you're talking about some normalization. Just maybe your thoughts on, you know, what inning we're in with the normalization there, and maybe some context around how much it grew with COVID. Thank you.

Tom Chubb (Chairman and CEO)

... So with respect to Florida, what I wanna be very clear about is that it's not underperforming so much the rest of the country, is that it's just no longer outperforming the rest of the country, which was really what happened continuously for the three previous years, was that it outperformed everybody else. Now it's sort of more running with the pack. What I believe we're gonna see going forward, at least for the next, you know, several quarters, is that it's probably just gonna run with the pack a bit more. So if things pick up nationally, I would expect Florida to pick up with that, I believe. And if they don't pick up as quickly, I think Florida will sort of stay more or less where most of the other regions are.

And then in terms of trying to rank order the three factors that we talked about, the headline distraction, Florida, and the merchandising missteps, kind of hard to do that. I would say that they're all meaningful factors, Janine. I think they all had a material impact on results. There's some data from a big advertising agency that sort of supports our theory on the headline distraction, where they looked at, I think, over 100 brands that mostly cater to a 45 and up type consumer, and saw that during July, they were down 14% year over year. And that would tend to support the theory that that was a material factor for us.

Our merchandising missteps, some of them we can measure a little bit more than others, but we, again, think that they were material. And then the Florida thing, I mean, it's a third of our business, and it went from a third of our retail business, and it went from a significant outperform to running with the pack, which cost us a lot of incremental contribution dollars.

Janine Stichter (Managing Director and Consumer Retail and Lifestyle Brands Analyst)

Okay, great. And then on the merchandising missteps, it sounds like you have a lot of things already in the works, but I'd just love to hear your sense of when we should expect to see some improvement there.

Tom Chubb (Chairman and CEO)

Well, certainly on a year-over-year basis, as we get to the second quarter of next year, they're all completely fixable. Undoubtedly, we will make some other missteps next year. That's a part of the business. Hopefully, they'll just be a little less pronounced than this year, and we believe they will. And then in terms of what we've got coming for the third and fourth quarter, from a merchandise and commercial standpoint, we really like it a lot. One of the things that we've got that we think will be a meaningful plus for us this year, we've got the Indigo Palms launch in Tommy Bahama, which is already driving some positive results in the getting cooler month that we're in now and should help as we get further into the cooler months.

Then in January, they're actually gonna have an early spring delivery that's gonna hit the floor in January. Typically, January is just a bit about what everything that's left over from sort of the pre-holiday and resort time. This year, we're actually gonna give our guests a taste of spring in January that we think they'll be receptive to and they'll like. So we like our lineup for the second half. We wish the consumer were a little bit stronger than they are, but we do think we've got good tools to work with to try to capitalize on the demand that is there.

Janine Stichter (Managing Director and Consumer Retail and Lifestyle Brands Analyst)

All right, great. Perfect. Thanks for all the color.

Tom Chubb (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. Our next question is from Paul Lejuez with Citigroup. Please proceed with your question.

Paul Lejuez (Managing Director)

Hey, guys. Thanks. Can you talk about-

Tom Chubb (Chairman and CEO)

Hi, Paul.

Paul Lejuez (Managing Director)

Which regions were performing this quarter? It sounds like Florida was in line with the chain, but where did you see better results by region, and where did you see weaker results? And then can you talk about where each of the brands are in terms of full price selling relative to all-time peaks, also maybe relative to pre-pandemic levels? Just trying to understand, you know, the level of markdowns that you're seeing, what percentages of the assortment for each of the brands are selling at full price today versus what you saw last year, or year before, maybe pre-pandemic, just to kind of frame where you are in that continuum. Thanks.

Tom Chubb (Chairman and CEO)

Okay. Thank you, Paul. And first, with respect to the regional question, this is on a relative basis. Nowhere was really great. Almost everywhere was soft during the quarter. But the places that were relatively strong were some of the cooler weather places like the Midwest, the Mid-Atlantic, New England, and then some of the spots out west, I think, especially the Northwest, some of the desert areas were relatively strong as compared to Florida, Texas, some of the places that, you know, were a little bit weaker. But again, nowhere was really what I would call strong. Everywhere was soft.

And again, on Florida, it's not that it was, you know, way worse than other places. It's just that it looked more like other places where for the last couple of years, it had been an outlier on the positive side, and now on the relative level of discount-

Scott Grassmyer (CFO and COO)

Yeah, one more to add to that. The Marlin Bar locations held, the retail side of the Marlin Bars held much better, you know, than the averages out there. So that part was encouraging.

Tom Chubb (Chairman and CEO)

Yeah, very important.

Scott Grassmyer (CFO and COO)

Yeah. As far as the level of discount, we were pretty low levels, you know, obviously, since pre the pandemic, I would say this year's kind of reverting back to closer to a pre-pandemic level. I don't have the exact percentages, but it's not a big outlier from where we operated pre-pandemic. It's just been more promotional than we've been since the pandemic. And again, it's the lower full price sales that's just yielding. It's not because we're doing lots more events, it's just the lower full price sales is just providing more inventory that we need to clear, and so some of our clearance and promotional events are just a bit bigger.

Paul Lejuez (Managing Director)

Got it. How are you thinking about ticket prices? Do they need to be adjusted lower to avoid having to use more discounts to drive sales, or do you prefer to leave them where they are and, you know, show the customer that discount as a call to action?

Tom Chubb (Chairman and CEO)

I think that we want to, you know, we don't wanna, you know, reprice existing product or, you know, the same style if it goes forward. There's a little bit of an opportunity to adjust the AUR by buying more heavily into some of our lower price point offerings in future seasons, and I think we will do a little bit of that. I don't think it'll be dramatic, but I think we'll probably invest a little bit more in some of the, you know, in the, some of the lower price point price points that we already have, where we were lighter in inventory this year, and we, in upcoming seasons, I think we'll probably invest a little bit more.

That was an example of one of the issues, Paul, that we had in the second quarter, was our opening price point dresses in Tommy Bahama, which for Tommy Bahama is sort of $90-$120. We were significantly underinvested in inventory in that price point for dresses during the second quarter, and we felt it. We, you know, I think lost some revenue as a result of that, and so when we get to next spring, I think you'll see us more heavily invested. So again, not so much changing the prices on existing product, but we do have some ability to, you know, to tweak the AUR just by the mix of price points that we're offering.

Paul Lejuez (Managing Director)

All right. Thank you. Good luck.

Tom Chubb (Chairman and CEO)

Thank you, Paul.

Operator (participant)

Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Tom Chubb (Chairman and CEO)

Okay. Paul, thank you very much for hosting our call, and thanks to all of you for your interest in our company, and we look forward to talking to you again in December, and hope all is well until then.