OXM
#Thank you, <UNK>.
And, yes.
100%, the reason that we're maintaining guidance instead of raising guidance is really because our view on wholesale for the back half of the year is lower than it would have been a quarter ago.
So the whole erosion, if you will, is in the wholesale business.
And it has really nothing to do with the way that we are performing in those accounts and has everything to do with the way that they are approaching the market and their inventory planning.
It is like we said, we think it is probably a pretty smart move for them and hopefully a healthy thing for the industry.
But, we cannot escape the fact that we are feeling some impact from it right now.
Okay.
Thanks, <UNK>.
Okay.
So let me start and I'm going to flip it over to <UNK>.
I will go in reverse order.
In our Asia business, the bottom line is that we are performing according to plan.
I think we are actually a bit ahead of our plan for the year.
So as you know, the goal was to reduce some of the infrastructure cost, reduce the operating loss over there, grow the businesses, focus on Japan and Australia, and look for opportunities where we could perhaps go with the distributorship model in certain markets.
What I will tell you is that we are tracking according to plan.
Japan is actually comping really nicely and our losses there are reducing.
Australia continues to grow and be a small but a nice market for us.
Overall I think we are going to achieve our goals of loss reduction for the year there.
With regard to Waikiki and Hawaii, as you have heard from us, we referred to it a bit in our prepared comments when we talked about the international tourist and we talked about it on the first quarter call and probably at some other points that we have spoken with you.
Hawaii has been a challenging market for us for the last year or so.
The international tourists are spending a lot less money there.
We think a lot of that has to do with exchange rates.
But overall it has been a challenging market.
Within that context, though, we are very pleased with the way that the Waikiki location has ramped up.
They have been in business since late last calendar year.
And this summer in particular they have trended very nicely.
And we believe that is going to be a very successful location for us, both as a profitable store but also as a good brand builder, particularly with regard to a lot of international tourists.
And now on the women's inventory question, I'm going to that over to <UNK> and let him give you a little more detail on that.
Yes, <UNK>.
We had some excess women's and excess footwear inventory that we needed to clear.
We did a special flash sale during the quarter, just women's and footwear-centric.
There was no men's in that flash sale back in the second quarter.
We also got more promotion in our outlet stores to move those categories.
A lot of that, of the women's, was pre-spring, maybe a little bit of early spring, but most of it was pre-spring.
We just needed to keep pace and keep our inventories clean.
As then as we mentioned, our inventories at <UNK>my are down even though we have seven additional new stores and have growth planned.
So we are really pleased with the fact that they are focused on the inventory reduction.
But it did eat into the margin a little bit this quarter.
We did comp up nicely at <UNK>my, and that was in men's and women's in the second quarter.
So we were pleased to see that.
Keep in mind, <UNK>, that it takes us more than a year to really make any adjustments between when you see retail selling on the floor and when you get to anniversary that and put those learnings into use.
That said, we were pleased with what we saw in the second quarter.
Women's sort of pulled its weight and contributed positively to that comp that we had.
So it had a year-over-year increase in comp stores and e-comm, which was good to see.
Overall, as you know, in the first quarter it was a little more hit and miss.
And overall I think what we have learned in the first half of the year is that we continue to be very strong in women's swim and in dresses, which have always been strong categories for <UNK>my in women's.
And we have learned an awful lot in regards to sportswear that we will incorporate into next spring.
So a good solid second quarter.
And for the total first half, I think we have learned a lot that will help us next year.
It is very early stages.
And to be very direct about it, our initial focus, this brand was much more earlier stage than other acquisitions we've made.
And as we outlined in our first-quarter call, we thought there was a much greater opportunity here than, say, when we bought <UNK>my Bahama to really help them by providing a lot of infrastructure and back-office type functionality, fulfillment through an existing distribution center where you have ---+ and things like production and sourcing, product development.
We have been very focused on bringing them onto our platform in the first couple of months.
And that has gone extremely well.
We think that sets them up well for growth.
As you know, currently their business is about 80% wholesale, and that is primarily specialty stores.
And I think they are in about 700 doors or so, specialty store doors.
Then they have a very small department store business with two of the better department stores.
And in total that would be probably 5% of their business, or something like that.
So growth opportunities going forward, we definitely think e-comm is one.
Wholesale is an opportunity.
They've just gotten into doing a couple of license stores, similar to the Lilly Pulitzer license stores.
And then a couple of years out we anticipate that they will open Company-owned stores as well.
Okay.
Thanks, <UNK>.
You do have the Lilly flash sale in Q3.
So that tends to pull down gross margins.
Also it is a very weak direct quarter.
We also ---+ Lanier, who has lower gross margins actually will have third quarter, will be a decent quarter for them ---+ fourth quarter being a little more challenging for them.
All of that will weigh margins down year over year, probably a couple hundred basis points year over year, with the bigger flash sale and Lanier being a little bigger piece of the pie weighing into that.
Yes.
There is no question about it, at the back half of the first quarter and early in the second quarter we really felt the year-to-year difference with the Target collaboration that happened on April 19 of last year.
So in May we comped down in the upper teens.
And then in June and July we sort of roared back and had very strong comps to finish the quarter at a minus 1% comp in Lilly, which we thought stacked up against the plus 41% last year, and I think a plus 19% a year ---+
Two years.
Both years before that.
Yes, both years before that.
So plus 19%, plus 19% plus 41%, and then to be at minus 1% this year with a very strong June and July, we just couldn't be a whole lot happier with that result.
So hopefully that helps.
I think that to be fair, I think even this time last year we were still getting some kick from the whole Target collaboration.
But we have shown, I think, in the back half of the second quarter that we can more than overcome that.
So in terms of comp assumptions for Q3 and Q4, I will let <UNK> ---+
Yes, and we had strong comps last year in both quarters but we still think we can comp positive.
And we think it will be a more modest rate as we are going against strong comps.
But we would expect Lilly to comp positive in Q3 and Q4.
But again, more modestly.
We generally try to avoid being in that business of having a lot on hand to support chase.
There are some areas in some specific pockets of business where we do that.
But, for example, in <UNK>my Bahama that is part of why their inventories year to year are lower, is that the orders came in a little light and we're trying to keep our inventories a little bit light as well.
To reiterate what <UNK> said a minute ago.
We feel really good about where our inventories are.
And we think that <UNK>my in particular has done a terrific job.
And with the flash sale at Lilly, which is a Q3 event, they came out of Q2 a little bit heavier than last year, because last year they did a warehouse sale in Q2 and then the flash sale in Q3.
This year we did away with the warehouse sale, which I think was about $4 million last year.
So, Lilly, we're in really good shape on inventories.
Okay.
Thanks a lot, <UNK>.
Yes.
That is a great question and very timely.
We just opened a new store in the NorthPark Mall in Dallas about 10 days ago.
And that is sort of the A-plus mall in the Dallas market.
It is off to a great start.
We are very excited about it and we think it is going to be a very successful store.
We had our Lilly Pulitzer CEO and key members of a retail team been out in Texas this week.
It has never been a huge market for us.
We have had a couple of stores out there.
But we really believe that we can build that.
And then we opened a store in Chicago, I guess, that was a year ago now.
And we have been really pleased with the way that that one has worked.
So as we build into these markets, we want to be careful and make sure that we are building very carefully and supporting these stores well with marketing and other support in markets where we are not as well known.
We believe that we can be successful and we will continue to build into those markets.
It is really wholesale driven, the fourth quarter, maybe nothing is having quite the year-over-year growth that some would expect.
As mentioned earlier, Lanier, we're expecting a fairly weak fourth quarter.
Third quarter we're expecting to hold okay.
But fourth quarter we are seeing a little lower order patterns.
And we are seeing holiday bookings, people booking more conservatively.
Sure, there will be ---+ hopefully there'll be some chasing going on.
Hopefully there will be an opportunity to capture some of it.
But as <UNK> mentioned, we're not going to have a ton of inventory to support a ton of that, but it is wholesale driven is the maybe the lightness you might feel in the fourth quarter, is wholesale driven.
Thanks, <UNK>.
On the loyalty gift card event, we are very pleased with the way it works.
I think it was maybe a few more cards than last year, but roughly comparable to last year.
It worked extremely well, as did the other two second-quarter events.
We actually had an additional event last year, the Polo'ha Polo promotion that you may remember that we actually dropped this year.
So on a combined first- and second-quarter basis, we actually had one less event not one more ---+ or not the same amount.
Actually, the event sales themselves, we actually drove a little bit higher gross margin year over year.
But we had a little more concentrated volume within the event.
The event, people responded more to the event but we were able to drive a little higher gross margin in the event.
We went with 175 hurdle on the flipside, which worked well.
And we tend to get a little higher average ticket during that event.
In outlet stores, that world is changing a bit.
And I think it has everything to do with the amount of off-price that is available all over the place.
So as you will have noticed, we have not opened an outlet store in a while.
And we're really revamping the way that we merchandise those stores.
We have tested it in a couple of markets and have been very pleased with what we have seen so far, and anticipate that we will probably do that more broadly within our 30-some-odd outlet stores that we have at this point.
I think not so much for the Lilly, because of their strategy which is really not ---+ they are not into the department stores much at all.
In <UNK>my Bahama, I do think it possibly creates some opportunity to do some more business.
Thank you.
Thank you again for your time this afternoon.
We very much appreciate your interest, and look forward to speaking to you again next quarter.
