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Executives

Anne M. Shoemaker - Vice President of Capital Markets and Treasurer

Thomas Caldecot Chubb - Chief Executive Officer, President and Director

Terry R. Pillow - Chief Executive Officer of Tommy Bahama Group

K. Scott Grassmyer - Chief Financial Officer, Senior Vice President of Finance, Chief Accounting Officer and Controller

Douglas B. Wood - President and Chief Operating Officer

Analysts

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Rick B. Patel - Stephens Inc., Research Division

Eric M. Beder - Brean Capital LLC, Research Division

Pamela Nagler Quintiliano - SunTrust Robinson Humphrey, Inc., Research Division

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Oxford Industries (OXM) Q3 2013 Earnings Call December 11, 2013 4:30 PM ET

Operator

Good day, and welcome to the Oxford Industries, Inc. Third Quarter 2013 and Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Anne Shoemaker, Treasurer. Please go ahead, ma'am.

Anne M. Shoemaker

Thank you, Blake, and good afternoon, everyone. 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 statement. Important factors that could cause actual results of operations or our financial condition to differ are discussed in the documents filed by us with the SEC. 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 GAAP financial measures to non-GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at oxfordinc.com.

Also, for comparative purposes, keep in mind that fiscal 2013 is a 52-week year while fiscal 2012 was a 53-week year, with the extra week in the fourth quarter of fiscal 2012.

And now, I'd like to introduce today's call participants. With me today are Tom Chubb, CEO and President; Scott Grassmyer, CFO; Terry Pillow, CEO of Tommy Bahama; and Doug Wood, President of Tommy Bahama.

Thank you for your attention. And now, I would like to turn the call over to Tom Chubb.

Thomas Caldecot Chubb

Thank you, Anne, and thank you for joining us this afternoon. I'll walk you through our third quarter results. But I know how interested everyone is to get an update on what's been happening over the last couple of weeks. Our fourth quarter has been very solid to-date. Both Tommy Bahama and Lilly Pulitzer have seen strength in e-commerce and in the retail stores during the first 6 weeks of the quarter.

We believe we have excellent plans for the remainder of the holiday season, as well as January, and expect to deliver strong fourth quarter results. We are pleased that our third quarter results met our sales and earnings expectations.

Sales were up 9% over last year; and adjusted EPS was $0.10, which reflects a significantly higher effective tax rate. EPS was also affected by the deleveraging of SG&A, which we experienced in the third quarter, as the fixed costs associated with operating more retail stores is spread over our smallest quarterly sales space.

At Tommy Bahama, sales from 27 additional stores and the comp store sales increase of 8% drove a solid 10% sales increase in the third quarter. This year, Tommy Bahama's adjusted operating income was $1.7 million compared to $3.4 million in the third quarter of 2012, as Tommy Bahama experienced the impact of SG&A deleveraging that I just described.

I'll turn the call over to Terry Pillow to provide more color on Tommy Bahama in a minute. But first, I want to walk you through our other operating groups.

Lilly Pulitzer's net sales increased 13% to $30.3 million in the third quarter. Our e-commerce clearance sale was very successful and generated $7.6 million in sales over a 3-day period. These semi-annual e-commerce events are our primary way to clear end-of-season merchandise, and our inventories are very clean. The top line also benefited from higher wholesale sales, as well as sales from operating 4 additional retail stores.

These increases were partially offset by a modest comparable store sales decrease of 2%. As a reminder, sales from our e-commerce clearance sale are excluded from our comps. Lilly Pulitzer operated 22 stores at the end of the quarter compared to 18 stores at the end of the third quarter of fiscal 2012.

In late November, Lilly Pulitzer opened its 23rd store at the Waterside Shops in Naples, Florida. Not surprisingly, this location is off to a great start.

Lilly Pulitzer's continued investment in infrastructure and SG&A associated with new stores offset the gross profit impact of the sales increase. This resulted in an adjusted operating income of $4 million for the third quarter of fiscal 2013, slightly lower than last year. Lilly had a great November with very strong comps and is off to a great start in their holiday resort season. We believe our SG&A investments, such as the one we have made in building a world-class communication team at Lilly, are paying off. We believe that the strong results we are seeing are being driven by great product, great distribution and great communication.

Like Tommy and Lilly, Lanier Clothes also reported a double-digit year-over-year sales increase. Sales at Lanier increased 11% to $30.1 million. As a result of higher sales, operating income in the third quarter of fiscal 2013 grew to $3.4 million compared to $2.4 million in the third quarter of fiscal 2012.

In the fourth quarter, Lanier is expected to have a significant sales increase over last year, as they had a major private label pant program with a warehouse club.

Moving to Ben Sherman. Sales declined in the third quarter to $18.6 million, as improvements in the U.K. and Europe were more than offset by an expected decline in U.S. wholesale sales.

Ben Sherman's operating loss was $1.9 million compared to $2.1 million in the third quarter last year. The modest improvement, despite lower sales, was driven by SG&A reductions, and we believe the actions we have taken will deliver more significant year-over-year improvements in the fourth quarter.

Finally, our Corporate and Other segment reported a higher operating loss of $2.1 million on an adjusted basis, primarily due to higher SG&A.

All in all, the third quarter met our expectations. And based on the strength of what we have seen in the first 6 weeks of the quarter, we are very pleased to affirm our full year adjusted EPS guidance.

I'd like to now turn the call over to Terry Pillow to give more insights on Tommy Bahama. Terry?

Terry R. Pillow

Thank you, Tom. As Tom mentioned, we are very pleased with what we are seeing so far in the fourth quarter. We made adjustments to our marketing campaigns that appear to be driving very strong sales this year. We've sent a larger gift guide to over 600,000 customers in the first week of November. We also sent loyalty gift cards to 1.8 million customers in the second week of November. Our very successful flip side event also got a facelift this year with 2 offerings to our customers, one before Thanksgiving and another in December.

The flip side is basically a bounce-back program, where, with a purchase, our customer is rewarded when they shop with us in January. These events serves as an immediate call to action and do a great job getting our customers back online and in our stores in January.

Finally, our full-priced resort season, which begins on Friday and continues through January, will be supported by a non-comp resort mailer hitting homes this week. Our marketing efforts, combined with fantastic product, are allowing us to achieve excellent results in this highly competitive environment.

Our wholesale business also reflects the positive response to our product. Our key item business remains very strong, with our ever-popular reversible half-zip sweater leading the way. We are pleased with what we have seen in holiday selling to-date, and we'll be working hard over the next 7 weeks to deliver excellent results for the full fourth quarter.

Now I'll turn the call over to Scott Grassmyer to discuss our consolidated highlights for the quarter. Scott?

K. Scott Grassmyer

Thanks, Terry. For the third quarter, consolidated net sales increased 9% to $198 million compared to $181 million in the third quarter of fiscal 2012.

We saw double-digit sales increases at Tommy Bahama, Lilly Pulitzer and Lanier Clothes, partially offset by a sales decrease at Ben Sherman. The higher sales drove increased gross profit for the quarter. At 53.1%, gross margin was slightly lower than the same period last year due to the impact of purchase accounting and LIFO accounting.

As Tom mentioned, we had a deleveraging impact on SG&A from operating additional retail stores in our third quarter. SG&A was $104 million or 53% of net sales compared to $94 million or 52% of net sales in the third quarter of fiscal 2012. The increase in SG&A was primarily due to $8 million of incremental costs associated with operating additional retail stores and restaurants, as well as other incremental expenses to support the growing Tommy Bahama and Lilly Pulitzer businesses. As planned, these increases were partially offset by SG&A reductions at Ben Sherman.

For the third quarter of fiscal 2013, consolidated operating income was $4.6 million compared to $5.9 million in the third quarter of fiscal 2012. Interest expense was $1.2 million in the third quarter of fiscal 2013 compared to $1 million in the third quarter of fiscal 2012, primarily due to higher borrowings.

At the end of the third quarter, we had $167 million of borrowings outstanding and $69 million of unused availability under our U.S. and U.K. revolving credit agreements.

In late November, we amended the U.S. revolving credit agreement to effectively reduce the interest rate, extend the maturity date of the facility until November 2018 and make favorable modifications to certain other provisions and restrictions. The effective tax rate for the third quarter of fiscal 2013 was 74% compared to 39% in the third quarter of fiscal 2012.

To add to Tom's comments earlier, the rate in both years was impacted by our inability to recognize a tax benefit for losses in certain foreign jurisdictions. However, in fiscal 2012, the impact of the foreign losses on our tax rate was offset by certain favorable discrete items. The impact of foreign losses on our effective tax rate is significantly more pronounced in our seasonally-low third quarter. The effective tax rate is expected to be approximately 43% for the fiscal year.

Now to the balance sheet. Total inventories at the close of the third quarter of fiscal 2013 were $124 million compared to $102 million at the close of the third quarter of fiscal 2012. The increase supports our anticipated sales growth and the operation of additional retail stores. The increase also reflects the earlier receipt of some shipments this year.

In the first 9 months of the year, our capital expenditures were $37 million, as we continue to open new retail stores, remodel existing retail stores and restaurants and invest in information technology initiatives, including e-commerce enhancements. For the year, we expect capital expenditures to be approximately $45 million compared to $61 million in fiscal 2012.

Also, our Board of Directors has approved a cash dividend of $0.18 per share for the quarter. We have paid dividends every quarter since we became publicly owned in 1960.

Moving to our outlook for the remainder of the year. For fiscal 2013, we are affirming our full year adjusted EPS guidance. We expect adjusted EPS in a range of $2.90 to $3.05 and net sales in a range of $922 million to $932 million.

On a GAAP basis, we expect the EPS in a range of $2.85 to $3 for the year. This compares with fiscal 2012 EPS of $2.61 on an adjusted basis and $1.89 on a GAAP basis on sales of $856 million.

For the fourth quarter, ending on February 1, 2014, we expect net sales in a range of $255 million to $265 million and EPS in a range of $0.98 to $1.13 on an adjusted basis and $1.01 to $1.16 on a GAAP basis.

In addition to excluding the purchase accounting impact of Tommy Bahama Canada, our adjusted EPS guidance in the fourth quarter also excludes a gain on real estate sold in November.

In the fourth quarter of fiscal 2012, which included 14 weeks, EPS was $0.65 on an adjusted basis and $0.32 on a GAAP basis on sales of $236 million.

Thanks for your attention. And now, I'll turn the call back over to Tom Chubb.

Thomas Caldecot Chubb

Thank you, Scott. I'll return with some closing comments. But now, we would like to take any questions you may have. Blake, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Edward Yruma with KeyBanc.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Can you talk a little bit about the Lilly Pulitzer comp in the quarter? I know that you did not include the e-comm sale. But just trying to understand if something had changed in the business and kind of how you view the long-term sustainable comp at your own Lilly stores.

Thomas Caldecot Chubb

Sure, Ed. I think that's a great question and an obvious one, obviously, given what the results were for the quarter. I'll point out that third quarter is their smallest quarter by a pretty significant margin. Even being small and with the third quarter deleveraging effect, they had a 13% operating margin, so still not bad. Q3, as you know, is not a natural strength for Lilly, given its Palm Beach resort seat positioning. And I think what happened this third quarter is that, in an effort to be a bit more full, if you will, they veered a bit off our Palm Beach resort seat positioning and ended up a little bit under assorted in prints and knit dresses and things that we need to really drive the business. But as soon as November 1 rolled around, we got resort holiday into the stores. The business took right back off. We comped very well in November and really, to-date, in the quarter, we're really happy with what we've got in the pipeline. I think we've learned some lessons about following Q3 that we've incorporated into next year, and we're very happy with where the business is and what we've got coming ahead. This is a very healthy business with excellent growth potential, both through comp in the existing stores and e-comm, as well as additional stores. So no systemic issues there at all, Ed.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Got it. And I know you mentioned -- I think Terry did in his comments about Tommy kind of a more expansive use of some mailers and maybe potentially the flip side of that. I guess, are you finding more success at some of these kind of bounce-back dollar promos? Are you going to have strong return on that? And I guess, should we expect for usage of those types of incentives to increase going forward?

Thomas Caldecot Chubb

Well, I'll comment briefly. I think that, over the last several years, the Tommy group, as well as the Lilly group, have really developed their thinking on very brand-friendly marketing initiatives that are consistent with running a full-priced business, but at the same time can spur demand at appropriate times during the year. And I would say that they've gotten increasingly sophisticated about that. And these programs are largely working, and we're pleased with the way they work and that would go across really the entire business, I'll let Terry and Doug comment a little further on the specifics at Tommy.

Douglas B. Wood

Yes. I don't know how much more we could add, Ed. I think, Tom, you covered it really well. I think that, with us, with -- the flip side event is something that we've actually been doing now for over 5 or 6 years and in this exact time period. So it's just -- it's a really good way to get people into the store in January, and it also adds to order size in the time period of December, where you want to try to drive a little order size. So it has worked for us. And as Tom said, it's done in an appropriate manner and we're running a full-priced business and trying to incentivize people to come in.

Terry R. Pillow

And, Ed, and the other piece of it, as you mentioned was the mailers. The mailers are our real communication to our guests on the brand image. And the clarity of the brand image, of which we always talk about, is one of our largest assets. And that's the reason we think this non-comp book that we're delivering on Friday is going to be a big boost as people will start thinking about going away for the holidays. It's the first time we've done it. It's a beautiful book, and I'd encourage you to get one of them and take a look. You might even like something in there because it's a beautiful book. And these are the kind of vehicles that we need to do more of to continue to drive business on a regular-priced business.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Got it. And one last final -- or one final question. How should we think about -- I think your store format in the Tommy Bahama business has changed over time, and it seems like some of the New York stores are a little bit more contemporary. I know you're sort of talking about remodels. I guess, have you done any remodels? And what kind of economic lift do you see or you're expecting to see when you do these?

Thomas Caldecot Chubb

Terry and Doug, do you want to tackle that one?

Terry R. Pillow

Yes, yes. Thanks a lot for -- but we have modernized our -- the new stores we're building are clearly a different model than the ones that we've been doing for 20 years. And wherever we do a remodel, we get a nice lift in business. They're much more friendly, much more shoppable and we're trying a lot of different formats. We just opened a store during the early fourth quarter in Florida Keys, which was a much smaller format store, yet a very modern store in a smaller market that we've gotten into. And we're quite pleased and surprised with that. So there could be a whole other group of stores out there that we could take a look at and other locations other than the traditional pre-standing street location or mall locations, as we continue to evolve our concept. As you know, Ed, the New York concept was a different one. We built that same concept in Chicago, and we're working on a very exciting brand new concept that we're going to open in Waikiki with an island and a restaurant that is something that is quite spectacular. We're going to be opening it soon. So we think a variety of -- it's not a cookie-cutter one format fits all, we're trying to tailor these to different markets. And as we look at the budget for '14 on the remodels, we'll take a look at them.

Operator

And next, we'll take Rick Patel with Stephens Inc.

Rick B. Patel - Stephens Inc., Research Division

Can you give us a little bit more detail about wholesale for the Tommy business during the third quarter? I know that things started off a little bit softer, but I'm curious if those trends remained soft throughout the third quarter and just what you're hearing from your wholesale accounts so far in the new quarter.

Thomas Caldecot Chubb

Terry, you want to jump on that one?

Terry R. Pillow

Doug will take it.

Douglas B. Wood

So far, we've actually gotten good results from our wholesale accounts as we go into holiday. And what we've seen in the fourth quarter so far is a strong business. And as we look forward, we see a strong wholesale business. I think that, for us and I think that Tom and Terry talked about this before, we're so committed to our wholesale business. The wholesale business is evolving too, and it has everything to do with the omni channel and how we play in that. And I think that for our business -- is that we're going to continue to be committed to it, and we actually have been pretty pleased with how we've been performing in the fourth quarter.

Thomas Caldecot Chubb

Yes. And, Rick, I would just add to Doug's comments there. He mentioned it, but we spent a lot of time talking about e-comm and our own stores, and we all obviously like them a lot. I think they're great vehicles for growth. But wholesale is a very important channel for us across the entire company. We're very committed to it, and we're in no way backing off it. That said, as Doug mentioned, the retail climate is changing a lot particularly among department stores with the emergence of omni channel, changes in their strategies and they're trying to buy less early and drive the higher turn rates and the higher ROIs and that type of thing. And so, if that happens, there may be situations where we need to slow down or even back off for a short period of time in wholesale, but that in no way changes our commitment to building and maintaining successful, mutually profitable, full-priced wholesale businesses.

Rick B. Patel - Stephens Inc., Research Division

Great. And then, can you talk to us about the performance of accessories? I think you mentioned on the last call that you had a very strong performance since bringing shoes in-house. I'm just curious if that continues to do well and what the outlook for accessories is like over a longer time horizon.

Thomas Caldecot Chubb

Well, just commenting generally, I think you're targeting your question to Tommy, and I'll let Doug and Terry talk about that one. But we view accessories as a longer-term opportunity really across all the brands. Tommy is probably a little bit further along in the revolution, and they are seeing some good things, which I'll let Terry and Doug comment on.

Terry R. Pillow

Yes. Thanks, Rick. You're right, it is continuing and it's continuing on a very good cliff. The shoe -- bringing the shoes in-house, we've seen not only a nice response and pick-up in the shoes we're developing in our own stores in both men's and women's, but also our wholesale bookings that we're starting to see right now in the wholesale customers that want to be involved in Tommy Bahama Footwear. We've got some very exciting new technology initiatives that we're launching in the spring, which we're very excited about. And so, that's a key business for us. And also, our women's accessories that we've been -- that I think I've talked to -- that you alluded to last time, continues to show great promise especially in our mailers -- helped us round out the whole lifestyle piece of our mailers, and it's also performing very well. And it's not necessarily accessories but we're talking about non-apparel. We've really seen this holiday season, which is a very pleasant surprise, is our home business is really, really picked up and is being a major contributor, and we've been working hard on that. It's glad to see that that's picking up. So those are the components when you talk about growing those kind of businesses that really talk to a lifestyle brand and not just like another apparel brand when you got men's and women's apparel, accessories, home, footwear. So we're very excited about that, and we think those are big growth opportunities. So thanks for asking.

Rick B. Patel - Stephens Inc., Research Division

And then, just a last question on Asia. I'm just curious how that region is shaping up versus your expectations? And any early indications of what the financial impact could be, like, in 2014?

Thomas Caldecot Chubb

Rick, let me comment on that, and then let Terry and Doug add to it. Terry, Doug and I recently spent about 11 days in Asia. We came back, I think, excited as ever about the international opportunity. In our mind and I think the reality is we're still early on the learning curve there. We're having many successes there and seeing lots of things that we like about what we've done, but we also recognize that we have some learnings that we're developing and that we need to incorporate into the business. We knew going in that developing a successful international business would be a longer-term, sort of, proposition for us. We've got a very big and successful business here in the U.S. that still has a lot of opportunity for profitable growth and investment. But for the longer term, we do need to develop this international business. So we're going to stick with it, we're going to keep working away at it and build a business that can provide us with long-term profitable growth opportunity.

Operator

[Operator Instructions] At this time, we'll go with Eric Beder at Brean Capital.

Eric M. Beder - Brean Capital LLC, Research Division

Could you give us an update about the New York City flagship and, kind of, where that is and its growth? I know we're starting to anniversary the opening of that.

Thomas Caldecot Chubb

Terry and Doug, why don't you guys jump on that one?

Terry R. Pillow

Sure. Eric, I can't thank you enough for asking the question. I just got back. I was there all week last week. I had meetings, and I was popping in and out of that store. So I'm very familiar with the answer to that question. Last week, the New York restaurant was the #1 restaurant out of all 14 that we operate. That's, I think, the first time we've seen that, and it's been a gradual -- that's not out of nowhere, it's been a gradual climb. The restaurant has gotten better and better. And last Saturday, New York city was the #1 store out of the 88 full-priced stores that we operate in America. So we're up against -- we opened it about a year ago during Hurricane Sandy, but we're very excited about the comps that we're seeing in that store right now. We've just done a remodel -- or, not a remodel, but a remerchandising of it when I was there. And I'd put it up against any store on Fifth Avenue. I couldn't have been more proud of how that store shows up and the customer is responding and the business is good. So I'd encourage you, if you haven't spend that $50 gift card yet, to run in and buy and spend in that store because it really looks terrific.

Thomas Caldecot Chubb

And I would add the obvious, Eric, but that -- as you know very well, we intend to make money at that store. This is not a flagship. It's just there for marketing purposes. But that said, I think it's done incredible work in terms of raising our visibility in the global marketplace, which has been terrific to see. And as Terry said, we are all extremely proud of the way we show up there and represent the brand.

Eric M. Beder - Brean Capital LLC, Research Division

Great. And in terms of women's, I know we always -- I think I always ask this question, how is the women's business doing versus the men's at Tommy Bahama? And is it taking more share?

Thomas Caldecot Chubb

We're growing the women's business across the board in all our stores. But talking specifically about New York, as you know, if you're in there a lot, Eric, we've allocated about 45% of the space and we've moved women's to the front of the stores. It's not generating that yet. But on a curve, sometimes we do. But this time of year, it's not. But we love the presence of women's, and we're going to continue to lead with women's in that store. But this is a significant business, and we think that, with the shopper on Fifth Avenue, that we're better off leading with women's business. Across the board in all our stores, we couldn't be happier with the growth in the third quarter and in what we're seeing early in the fourth quarter with our Women's business. But New York -- we'll get to 50% in women's, which is our goal.

Eric M. Beder - Brean Capital LLC, Research Division

For Ben Sherman, so this was a quarter of small progress, when should we start to think about Ben Sherman starting to demonstrate, kind of, a turnaround in operating income going forward?

Thomas Caldecot Chubb

Well, I think, in the fourth quarter, you'll see a much more significant improvement. As we've said all year, Eric, I think we've been very consistent in saying we should see improvement in the second half. We've got a little bit of that in the third quarter, and I think we'll see a lot more of that in the fourth quarter. Last year, they lost $4.5 million in the fourth quarter. This year, they should approach breakeven. So I think you'll see, again, a very marked improvement. That's still a good ways from being a healthy business. But in terms of the year-over-year and sequential improvement, it's pretty significant.

Eric M. Beder - Brean Capital LLC, Research Division

That really is pretty impressive. Final question. In terms of international expansion. Is 2014 kind of -- you talked about it's a learning experience. Should we expect -- when is the next time we should expect potentially opening stores in Tommy Bahama in Asia?

Thomas Caldecot Chubb

I think, Eric, the way that we would describe it, I'm using, I guess, a metaphor that Scott Grassmyer has used, which is we're not stepping on the brakes, but we're not stepping on the gas either. So we're really trying to focus on incorporating the learnings that we have to-date to tweak and improve our model over there to make sure that we're confident that we've got it right before we step on the gas too much. That said, I think we've got a couple of outlet stores in the works, which we really wanted to have before now, but just didn't have the right real estate opportunities to get those open. But that would sort of be in keeping with the way we operate here. So I don't think we'll see a big growth in store count in '14 in the international part.

Operator

And our next question will come from Pamela Quintiliano.

Pamela Nagler Quintiliano - SunTrust Robinson Humphrey, Inc., Research Division

So you're obviously an outlier in terms of being pleased with the quarter-to-date performance given what we've heard thus far this earnings season. Can you just talk us through what you're potentially doing differently this year versus last year for 4Q in terms of promotional cadence, product, anything really to combat what is arguably a very difficult environment out there? And then, along those lines -- and I know this is a tough one, but any commentary at all surrounding Black Friday, the Black Friday weekend and just how it was for you guys and perhaps the shopping behavior of your customer online versus in-stores? And then, just lastly, have you been surprised with the competitive landscape, and how do you think about the health of your consumer?

Thomas Caldecot Chubb

I guess, going in reverse order, Pam, I would say that we're not really surprised by the competitive landscape. It's been building every year. And given the somewhat fragile nature still of the economy and the consumer, I think we anticipated that this season would be very promotional, a lot of discounting and door buster deals and all that kind of stuff. So I don't think we've been too surprised by that. In terms of Black Friday and the Thanksgiving weekend, I'll let Terry and Doug comment more on it. But really, for the company, that was -- it was a good weekend. We were very happy with what we saw, sort of, Thanksgiving through Cyber Monday. We really liked what we saw there, as well as November. And then, going back to your original question, which again I'll let Terry and Doug elaborate more on, but how is it that we're performing well in a good environment? I would sum it up by saying that we've got great brands and we're playing our game. We're not playing somebody else's game. We're sticking to our game, and we're playing it and sticking by it, playing it hard and working hard but sticking to our game and what we do best and not really worrying as much about what the other guys are doing. And certainly, in the 6 weeks to-date in the quarter, that has served us very well. And while none of us knows for sure what the future holds, we see no reason why that wouldn't continue to work for the balance of the quarter. I think Terry and Doug may want to offer some additional comments on some of the specifics of the marketing cadence, which has changed a bit.

Terry R. Pillow

Yes. Pam, I talked about it in my prepared remarks of how important these mailing pieces are. We look at our business, and we'd say the same thing in this environment what we are doing that we're so much better. And as we look at our business, I think, the clarity of our brand message and there's a lot of sameness out there in the marketplace, and we're providing an island lifestyle concept that -- as long as we deliver on it, we're seeing the results of it. Plus, on the product side, this year, we took a few more risks in the third quarter, which has traditionally not been our biggest quarter and in the early fourth quarter on heavier product, where we can execute that product that it looks still appropriate under the Tommy Bahama label, and we're seeing very marked results in that kind of product. So we're finding that our customer is giving us entrée into other categories here before that we kind of stayed away from because we're Tommy Bahama. So we're seeing customer wants more from us and more products and more variety of products, and that's very encouraging under our philosophy. And Black Friday, I'll turn it -- I'll let Doug talk about it.

Douglas B. Wood

And like all retailers, we also strategize on how to entice the guests to shop over that weekend. And I think because of the shorter time period between Thanksgiving and Christmas, we think -- I think everybody tried to pull that forward. I think the difference with Tommy Bahama is that, because we're not promotional and because we can't really have a door-buster strategy, we took a different approach and took our -- took the things that we already have and that is the loyalty card, which we pulled earlier in the month, as well as the flip side event, where you spend $250 and you get $50 for January. We actually pulled that over that weekend, and it gave us results. And because we really didn't change anything from what we've done before. But because of that weekend and then because of the messaging and the mailer and the card, we were actually able to just have everything fit perfectly over that weekend. And it was really explosive. I mean, we were really pleased with that weekend.

Operator

And we'll take our final question from Susan Sansbury with Miller Tabak.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Tom and everyone, I'm really pleased that the New York City flagship store has turned into the profit column. I'm...

Thomas Caldecot Chubb

Let me -- Susan, it's not going to be profitable this year, but it's definitely on the right track.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

It's profitable currently, is that what I heard?

Thomas Caldecot Chubb

No, no, no. Maybe Scott...

K. Scott Grassmyer

Yes, and I think we believe it's going to be a profitable store. It's not just a flagship, it's going to be a marketing exercise for us. We're going to get those marketing benefits, but it will be. But this year, we'll lose some money this year. And obviously, holiday is going to have a big say on -- hopefully, that will also be less than what we maybe earlier anticipated due to the good holiday we're having there. But this will be, in the future, a profitable store. We're very confident about it.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. So -- but I thought I heard Mr. Pillow say that it had broken into the black. And so, I didn't hear that correctly?

Thomas Caldecot Chubb

I don't think so.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. All right. And the real focus of my question is, yes, the New York flagship will become profitable. But I'm curious about your commentary about the Asian stores. So what should we anticipate at this point in terms of the losses currently being generated in Asia? Will they stay at this level?

Thomas Caldecot Chubb

Scott, why don't you walk her through that?

K. Scott Grassmyer

Yes. So for this year, yes, we're going to lose somewhere in the $12.5 million to $13 million, which is I think pretty consistent with what we had said last quarter. What we're finding -- and we've only had 2 stores that have actually anniversary-ed, that's Macau and Singapore, 2 of our smallest stores. But as anticipated, we're seeing significant comps in year 2 over year 1. So year 1, on a 4-wall basis, most likely, the stores are going to lose money in year 1; year 2, hopefully, start approaching breakeven; and, hopefully, year 3, we'll start getting some 4-wall contribution. So it's going to take some time. But hopefully, the others will have that year 1 to year 2 accomplished in our Macau and Singapore, and I think we'll be making progress towards that.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. So these losses are going to gradually come down?

K. Scott Grassmyer

Yes, it should, yes.

Thomas Caldecot Chubb

Yes, it should.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. Any commentary, Terry, about -- or, Doug, about in-store inventory levels -- or, Tom, to get you in their in-store inventory levels at Tommy Bahama or Lilly?

Thomas Caldecot Chubb

I think it's just that -- touching on Lilly real briefly, we had a great November and Thanksgiving weekend, and they're small stores. So when they have a really big week or weekend, they can be a little broken on Monday. But they're getting better and better at restocking them very quickly, and we're locked and loaded and ready to go for holiday there.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. And finally, can you talk about the new club program for 1 year and how that's going to -- you said you're expecting...

Thomas Caldecot Chubb

Well, you might want to hear from Doug and Terry on Tommy inventory levels...

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay, sure.

Douglas B. Wood

And then, we could add...

Thomas Caldecot Chubb

[indiscernible] to Lanier.

Douglas B. Wood

Yes. I just -- Tommy's inventory. We're in a great position right now. But I think this is also -- you read about the omni channel. The omni channel is real. I mean, one of the things we all wait for here is that it takes a little bit, it's like, a couple of hours each morning before we find out what our [indiscernible] shipments are in the morning. And so, not only I'm a in great shape in-store, but I'm in great shape in the DC so that if one of our stores doesn't have a specific size or color now, I've got access to inventory in our warehouse, so that I can get there overnight [indiscernible]. So the game has changed and in a positive way, utilization of inventory in a timely fashion for holiday has really been great for -- all over the country.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. And these comments are consistent in-store or at wholesale?

Douglas B. Wood

You know what? It's been in both in our stores and in the e-comm. Now wholesale is a little bit different because of a standpoint of how they have bought their inventories going into holiday time period, and it's kind of -- it has to go account by account on what their positions are. I can tell you that just because of what we have talked about earlier about a lot of focus on turn this year at our wholesale [indiscernible]. My guess is, hey, they're going to start running low on inventories. And that's just the way they plan their business. So -- but I can tell you that for the businesses that we have direct control over right now, we've got great position.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. Great. Sounds good. Tom, Lanier?

Thomas Caldecot Chubb

Yes. In the warehouse program that they have, Lanier, as you know, Susan, is a category specialist as opposed to being just dedicated to 1 brand. And so, their expertise is really in men's tailored clothing, which includes suits, sport coats and dress pants. And as a result of their known expertise, they're one of a handful of major players in that space in the U.S. And as a result of that, they were offered an opportunity to bid on a what's actually a dress pant program in terms of the construction. It's a casual-type fabric, but it's a dress pant construction and they were given the opportunity to bid on it and got the order. As these things go, it's a huge order. It's basically 1 style, but a huge order. The gross margins tend to be a bit low, but that's really why we called it out because you'll get a big pop in sales, it's big enough that, at the low margin, it's going to dilute the gross margin a bit for Lanier in Q4. But it's still a great contribution for us. So it's a good -- it's a positive development because it's gotten them into a channel that they've never been in before. And this is early days, excited about having the order and delivering it. And we'll see where it goes from there.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Is this a test? Or do you have a 6- or 9-month or, gasp, 12-month commitment?

Thomas Caldecot Chubb

Well, the way this particular program works is there's an initial shot that's quite large that will go in January and then part of it in early February. And then, there's a second shot that we've already got the order for that will go in third quarter of '14. And beyond that, the way those guys work, they don't commit any further out than that. But hopefully, we'll be successful. They like the program and want to continue it going forward.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. I know, but currently...

Thomas Caldecot Chubb

As you know, though, Susan, they operate very differently and just because they have something and it does well, they may or may not decide to continue it. I do think it will give us the opportunity as it already has to bid on other programs and items there.

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Okay. And then, I know you don't want to discuss exactly which club you're dealing with or maybe you will. But I mean, is this the largest club or the second-largest club, or is it...

Thomas Caldecot Chubb

Well, there's not a lot of choices out there, Susan. I don't think it's really appropriate for us to call somebody out like that, but it's a private label program for one of the major clubs.

Operator

And there are no further questions in the queue. At this time, I'd like to turn the call back over to Mr. Chubb. Please go ahead, sir.

Thomas Caldecot Chubb

Thank you, Blake. Our earnings expectation for the year reflects the solid performance of our business and our continued investment in future growth. We expect the power of our direct-to-consumer strategy, coupled with the strength of our brands and people, to deliver sustainable comp and bottom line growth in the years to come.

Thank you, again, for your time this afternoon. Happy holidays, and we look forward to speaking to you in March.

Operator

That does conclude today's conference. We thank you for your participation.

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