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Oxford Industries (NYSE:OXM)
Q1 2018 Earnings Conference Call
Jun. 12, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. Welcome to today's Oxford Industries Inc., first-quarter 2018 earnings conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I'd like to turn the floor over to Ms. Anne Shoemaker. Please go ahead, ma'am.

Anne Shoemaker -- Investor Relations

Thank you, Kellyanne, 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 statements. Important factors that could cause actual results of operations or our financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10-K.

We undertake no duty to update any forward-looking statements.During this call, we will be discussing certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at OxfordInc.com. Please note that all financial results and outlook information discussed on this call, unless otherwise noted, are from continuing operations and all per-share amounts are on a diluted basis.Our disclosures about comparable-store sales include sales from our full-price stores and e-commerce sites and including sales associated with e-commerce/clearance sales. Because fiscal 2017 had 53 weeks, each fiscal week in fiscal 2018 starts and ends one calendar week later than in fiscal 2017.To provide a more accurate assessment of our fiscal 2018 comparable-store productivity, we are presenting fiscal 2018 comparable-store sales on a calendar-adjusted basis by comparing the fiscal 2018 period to the comparable calendar period in the preceding year.

Thus comparable-store sales for the first quarter of fiscal 2018 compare sales in the 13-week period ending May 5, 2018, to the 13-week period ending May 6, 2017. And now I would like to introduce today's call participants. With me today are Tom Chubb, chairman and CEO, and Scott Grassmyer, CFO.Thank you for your attention. And I'll now turn the call over to Tom Chubb.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Good afternoon and thank you for joining us. During the first quarter of fiscal 2018, we executed well on our plans and I'm pleased with the results that we achieved. Our sales for the quarter finished at the high end of our range and our EPS exceeded our guidance. At the same time, we continue to enhance the ways in which our customers are able to experience our powerful portfolio brands.

There's no better way to deliver our unique brand experiences than through our stores, restaurants, and websites, along with our select wholesale partners.In the first quarter, we saw solid growth in our direct-to-consumer business, highlighted by positive consolidated comparable sales. The strongest part of our direct-to-consumer business was e-commerce, where both Tommy Bahama and Lilly Pulitzer generated solid comp gains driven by increased site traffic. With our high average order size and high gross margin in e-commerce, growth in e-commerce is accretive to our operating margin.While our bricks-and-mortar stores, like much of the industry, were impacted by the unseasonably cold and wet weather, in many parts of the country this spring our retail performance in areas where the weather was good, such as in Florida, where we have a significant concentration of stores, was strong.Florida, which had solidly positive comps, accounted for more than a third of our brand's bricks-and-mortar comp sales in the quarter. As we moved into the second quarter, the first-quarter momentum we saw in our Florida stores spread across the country and quarter-to-date comps at both Tommy and Lilly are strong.Shifting to wholesale, as planned we made select wholesale door count reductions, primarily with department stores.

This was done to ensure that the customer experience at every point of distribution is consistent with the experience in our own direct channels, which we believe is incredibly important to maintaining the strength and integrity of our leading brands.As a reminder, we also had sales from the 12 Lilly Pulitzer signature stores we acquired last year shift from wholesale sales in 2017 to retail sales in 2018. With the growth of our DTC businesses and the wholesale adjustments I just mentioned, our DTC businesses represented 65% of total revenue in the first quarter of 2018, compared to 60% in the first quarter of last year. This mix change helped drive a 120 basis point improvement in adjusted gross margins year over year. To build our positive momentum, we are continuing to invest in and enhance our compelling omnichannel brand experience and have achieved several important milestones.Our all-new Lilly Pulitzer website, which represents the best digital presentation of the brand we have every delivered through both mobile and desktop devices.

This new platform provides a faster, more fluid experience no matter how our customers choose to interact with the brand and each visit is personalized for our guest based on her favorite prints, colors and what's in her closet.The new Lilly website also has more features to connect the Lilly leather to our stores. For instance, she can information, receive emails on upcoming store events and can pick up for online orders at her favorite Lilly Pulitzer locations.For Tommy Bahama, our multiyear omnichannel IT infrastructure project continues to progress well and our customers should see additional benefits from our recent investments in the form of an enhanced brand experience later in the year, improve data analytics and replenishment systems will ensure that we have the right product in the right store for our customer and our new enterprise order management tools will make our omnichannel processes more seamless.In addition to improving the brand experience for our guests, we have several initiatives under way aimed at broadening awareness of our brands and attracting new customers to our business. Based on the strength of our brands, we know that there is an opportunity to increase our customer base and we are making additional market investments in 2018 that are focused on customer acquisition.Our approach at Tommy Bahama is multifaceted and we will be adapting and updated our strategies as we gather data and learn which tactics are most effective. We are very early in the process, however, we were very pleased with the results of Tommy Bahama's localized advertising campaigns in key markets such as San Diego, Scottsdale, and Naples during the first quarter.

Tommy Bahama restaurants also play an important role in introducing the brand to new customers. In early May we opened our second exciting Marlin Bar, this one located in downtown Palm Springs. This 180-seat indoor/outdoor restaurant is anchored by an expensive mister and umbrella-covered patio that keeps our guests cool and comfortable in the sunny desert climate. This new location is off to a great start. We are actively pursuing additional Marlin Bar opportunities and we are planning to open a couple in 2019.

The team at Lilly Pulitzer did an amazing job creating a tremendous amount of buzz around the brand during the first quarter. With customer awareness in mind, Lilly Pulitzer collaborated with Pottery Barn on an exclusive collection of home décor and furniture. When the beautiful Pottery Barn catalogs featuring Lilly on the cover hit homes, we saw an immediate lift to traffic on our own website. And Lilly's launch of its swim line in mid-February was a big hit in two important ways. First, our current base of Lilly fans have been clamoring for swim, and based on the response to the product offering, it's clear we delivered what she was looking for.

Secondly, Lilly swim is proving to be a fantastic entry point for new customers, even a woman who doesn't own a Lilly printed dress can see herself at the beach or pool in a colorfully printed Lilly swimsuit or cover-up. We also had some exciting store opening in 2018 at Lilly. To highlight just a few, this summer we will open at Whaler's Village on Maui and later in the year at Fashion Island at Newport Beach, California. These locations represent important first forays on the West Coast. We will also be opening on Worth Avenue in Palm Beach, where the Lilly brand was born almost 60 years ago.

By continuing to focus on providing our customers with a great band experience, we generated positive momentum in the first quarter, particularly in our DTC businesses. As I just mentioned, the second quarter is off to an even better start and we continue to feel very good about future growth perspective, evidenced by our increased outlook for the year.I'll now turn the call over Scott Grassmyer for a bit more on our Q1 results and more details on our guidance for Q2 and the year. Scott?

K. Scott Grassmyer -- Chief Financial Officer and Controller

Thanks, Tom. On a consolidated basis, as Tom mentioned, increased sales in our direct-to-consumer businesses, which included a 1% comparable-store sales increase, were offset by our by our planned decrease in wholesale sales. Our Southern Tide business which had a very strong first quarter grew their wholesale business with the expansion of the of their signature store base. There are now a dozen Southern Tide signature stores, including four exciting new locations in the Northeast.

In the first quarter of fiscal 2018, SG&A as a percent of net sales increased by 51%, compared to 49% last year, approximately $3 million of the increase was marketing. We also had an incremental cost associated with the operation of additional retail stores, particularly at Lilly Pulitzer. If you recall, in 2017 Lilly acquired 12 signature stores and opened six new stores. U.S tax reform had a positive effect on our earnings in the first quarter with a tax rate of 25.5%, compared to 40.8% last year. Our adjusted EPS was $1.28 in the first quarter of '18 versus the $1.12 last year and above our guidance range of $1.15 to $1.25. Our balance sheet and capital structure remain very strong and support our growth initiatives and investments.

We saw inventory balance increase about $5 million, or 4%, over last year to $132 million. This increase is to support planned sales increases and the operation of 18 additional retail stores of Lilly Pulitzer. We also ended the quart with $211 million of unused availability under our revolving credit facility. Turning to our outlook, we initiated our guidance for the second quarter of fiscal 2018. With sales increases in each of our operating groups, we expect net sales of between $300 million and $310 million in the second quarter.

Adjusted earnings per share are expected to be between $1.75 and $1.85.On a comparable basis, sales were $285 million in the second quarter of fiscal 2017 and adjusted EPS was $1.44. [Technical difficulty]

Operator

[Operator instructions]. Again, everyone, thank you for your patience. We should be connecting to our speakers here momentarily. And you've all rejoined the conference.

K. Scott Grassmyer -- Chief Financial Officer and Controller

OK, this is Scott. I know we dropped sometime during mine, so I am just going to start my section over from the beginning, so I apologize if some of this is a repeat. On a consolidated basis, as Tom mentioned, increased sales in our direct-to-consumer business, which included a 1% comparable-store sales increase, were offset by our planned decrease in wholesale sales. Our Southern Tide business, which had a very strong first quarter grew their wholesale business with the expansion of their signature store base. There are now a dozen Southern Tide signature stores, including four exciting new locations in the Northeast. In the first quarter of fiscal 2018, SG&A as a percentage of net sales increased by 51%, compared to 49% last year. Approximately $3 million of the increase was marketing.

We also had incremental costs associated with the operation of additional retail stores, particularly at Lilly Pulitzer. If you will recall, in 2017 Lilly acquired 12 signature stores and opened six new stores.U.S. tax reform had a positive effect on our earnings in the first quarter with a tax rate of 25.5%, compared to 40.8% last year. Our adjusted EPS was $1.28 in the first quarter of '18 versus the $1.12 last year and above our guidance range of $1.15 to $1.25.Our balance sheet and capital structure remain very strong and support initiatives and investments.

We saw our inventory balance increase to about $5 million, or 4%, over last year to $132 million. This increased support for planned sales increases and the operation of 18 additional retail stores of Lilly Pulitzer. We also ended the quarter with $211 million of unused availability under our revolving credit facility. Turning to our outlook, we initiated our guidance for the second quarter of fiscal 2018 with sales increases in each of our operating groups. We expect net sales between $300 million and $310 million in the second quarter.

Adjusted earnings per share are expected to be between $1.75 and $1.85. On a comparable basis, sales were $285 million in the second quarter of fiscal 2017 and adjusted EPS was $1.44.Our third quarter remains our smallest sales and earnings quarter due to the seasonality of our Tommy Bahama and Lilly Pulitzer direct-to-consumer operations, therefore we expect our third-quarter earnings to be comparable to last year and expect to see meaningful, direct-to-consumer growth in the fourth quarter. We have raised our guidance for the full year due to our solid first-quarter results and our strong start in the second quarter. We now expect sales between $1.125 billion and $1.145 billion in fiscal 2018 and adjusted earnings per share in a range of $4.45 to $4.65. This compares to net sales of $1.086 billion in fiscal 2017 and adjusted earnings of $3.66 per share. Our interest expense is expected to be slightly less than $3 million, and our effective tax rate for fiscal 2018 is expected to be approximately 26%. Capital expenditures including $13 million in the first quarter of fiscal 2018 are expected to approach $60 million in fiscal 2018.

This will primarily consist of investments in information technology initiatives, new retail stores and restaurants, and investments to remodel existing retail stores. Kellyanne, with that we are now ready for questions.

Questions and Answers:

Operator

Thank you. [Operator instructions]. We'll hear first from Edward Yruma with KeyBanc Capital Markets.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hi, good afternoon. Thanks for taking my questions. I guess first, just so I'm crystal clear, the comp trend improved materially post-quarter-end and maybe more specifically on Tommy Bahama, kind of maybe walk us through some of the puts and takes on the comp. I know you talked about weather, and then maybe how the promotional efficacy on the flip side promo is running versus maybe this time last year.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

So I'll start with Tommy Bahama and just since the end of the quarter and it has been pretty marketed the improvement. I mean we had a very, very good May and that's continued on into June and up to today with strong comps in both Tommy and Lilly, and I think there are a couple of things that have contributed to that. One is sort of the more normalized weather patterns around the country has helped. Secondly, some of the marketing activities that we've done.

So we did a big catalog, brand catalog mailing piece that we sent out this year, that we had that piece last year, but this year is dual-gender, last year was men's only, we sent it to more people. It's a bigger, more substantial book and we think that's helped a lot as well. So we're really pleased with what we've seen in the second quarter, and in the first quarter, as we said, we saw good comps in places like Florida and Hawaii, where the weather was good, but as you know, in a lot of the country really was unseasonably cold and wet and that, we believe, held our comps back.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Got it. And a follow-up on Lilly Pulitzer, I know that it was obviously a different type of promotion or collaboration than we target, but kind of talk about momentum post that. Did you see a pickup in business when the Pottery Barn collaboration was running and has it introduced you to a new set of customers? Thanks so much.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Well, it certainly exposed us to a lot of new customers and that was the idea behind it. If you think about it in terms of marketing, this is sort of a top-of-the-brand, funnel-type activity that's designed to promote awareness of the brand and it did that in spades. It also drove some business in terms of some events that we did to coincide with the launch of the Pottery Barn initiative. So it drove some business, it increased awareness, and if you think about it, this was a marketing event that was huge and that we actually didn't pay for.

We actually get paid for doing this. It's not a huge amount of money and that's not the driver for doing it, but it's certainly a good way to drive brand awareness. And then the last thing I would mention is, I think it demonstrated to us based on the great results that Pottery Barn had, that our costume wants Lilly Pulitzer home décor and furniture. That's something that she's clearly given us permission to do. Very receptive to it and I think that means that that's an opportunity for us going forward.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

OK, thanks so much, guys.

Operator

We'll hear next from Pamela Quintiliano with SunTrust.

Pamela Quintiliano -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks so much for taking my questions, guys. And congratulations on the quarter. So it's just a quick one, a clarification.

The weather impact, was it similar at both Tommy and Lilly and have you seen similar magnitude of improvements quarter to date? And then with the 1Q weather challenges, was there excess carryover inventory at either division that you needed to clear through and if so, were those markdowns taken in 1Q or is there any lingering impact in 2Q?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

So I'll talk first about the weather impact and then I'll let Scott talk about the inventory situation but I think the weather impact, look, Lilly was a little bit stronger across the board than Tommy in the first quarter but what happens is that Lilly's concentration is greater in Florida, so they benefited more from the strong Florida business proportionately than Tommy did.And then in terms of what's happening in the second quarter, they are both pretty close in terms of how strong their business is, and it's quite strong. It's really been very good for both of them. We've been very happy with what we've seen in May and thus far in June. And then, Scott, maybe can fill you in on the inventory.

K. Scott Grassmyer -- Chief Financial Officer and Controller

Yeah, we're not too worried about the inventory situation. The second quarter's a bigger direct quarter and, as Tom mentioned, we're off to a very good start. So we've got some really good momentum and I think our inventories are in line, and we have very brand-appropriate ways to clear any goods that are left, which is just a natural part of the business. So I don't think we have any kind of inventory bubble because of the softness because I think the strength that we've got now is certainly taking care of that.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

And keep in mind, I mean, we did have positive comps for the quarter. We were certainly pleased with the quarter given overall circumstances and then again, I couldn't be more excited about what we're seeing in the second quarter.

Pamela Quintiliano -- SunTrust Robinson Humphrey -- Analyst

And then, could you also just comment, specifically at Tommy how the women's is performing and maybe any detail you can give on year-over-year change in penetration there? And then I know you mentioned Hawaii as a positive because they have more seasonal weather, but given what's going on there, do you think it could have been better if there weren't the issues on the big island? Thank you.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

So on the women's business, they had a strong first quarter. I think what we've seen is the work that I mentioned that's more of a second-quarter item that we dropped in a May that last year it was men's only this year has men's and women's. It has really stepped up the women's even further. So it's had a good first quarter, had an even better second quarter so far, and then in addition to that, Pam, you may have seen this if you've been in the 5th Avenue store lately, but we rearranged the floor a bit, created what we're calling a dress shop, which is a dedicated area where we have dresses hanging and it makes it easier for our customer to shop those dresses, and that's helping the business as well. So a lot of good things happening on the women's front in Tommy Bahama and then in Hawaii right now the business is really pretty strong.

Could it be stronger absent the volcano issues? I guess it might be, but we certainly aren't complaining about where it is right now.

Pamela Quintiliano -- SunTrust Robinson Humphrey -- Analyst

OK, thanks so much. Best of luck.

Operator

We'll hear now from Needham & Company's Rick Patel.

Rick Patel -- Needham & Company -- Analyst

Thank you and good afternoon, everyone. Hey, Tom, congrats on the positive momentum as well. Just a question on your guidance. So it looks like the back of the envelopes math shows that your fourth-quarter guidance is in the ballpark of $1.20 or even higher, which is a pretty massive year-over-year increase, especially considering you're going to be lapping the 53rd week from last year.

So hoping you can provide some context on what's going on there in terms of underlying assumptions for DTC growth and if there are also any timing elements we should be keeping in mind for SG&A or taxes?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Yeah, Rick, the tax rate certainly will be lower than last year. As far as DTC, we will have the additional stores we open during the year and we're having you know good gross margin expansion with some of the actions that we were sort of taking last year. Additional actions for this year on prices we think will also roll through. We're seeing good you know outlet margin improvements which we think will continue to roll through the rest of the year. So we're pretty bullish on the rest of the year and we think the fourth quarter just sets up for a very good direct-to-consumer quarter.

Rick Patel -- Needham & Company -- Analyst

And can you talk a little bit about Lilly? As we think about the relaunch of your swim line and your collaboration with Pottery Barn, is there any way to give a context on how much your new customer file increased in the first quarter and as we think about the rest of the year, do you have incremental drivers that keep that momentum going or is it more flow-through benefits of the initiatives you had in the first quarter?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Yes, I would say two things. I think some of the activities that we did in the first quarter, like the Pottery Barn thing, probably have a bit longer fuse on them. The swim you see almost an immediate benefit from and, as we mentioned, that has been a good tool for acquiring additional new customers. Pottery Barn drove some great awareness and it drove some great business through some of the events that we did in conjunction with that, but we think it'll also continue to have benefits through the year and then the most important thing, I think is the way we set up this year. In Lilly Pulitzer, there's been a steady flow of events and launches and special pop-up prints and all kinds of things.

It seems like every week or two we got something coming down the pike. So, just for example, in the first quarter in addition to the Pottery Barn and the swim, we have the Honda Classic down in Florida that we were a sponsor for. That's a PGA golf tournament. We got lots of good buzz and did some good business around that. We had the S'well water bottle collaboration that we'd done before. We just recently a couple of weeks ago launched a small tennis capsule.

So we did some tennis-specific skirts and dresses and tops that I think created some good excitement. We had another delivery of swim. We were basically sold out of the early deliveries. We had another one that delivered for summer and so we got a whole flow of these things. We're driving a lot of excitement by using influencers, which is something that we sort of dabbled with in the past but I think we've stepped on the gas and that's a very, I think, modern and brand-appropriate way for us to reach our consumers. So the short answer, Rick, is that I think some of the activities that we did earlier in the year will continue to benefit us throughout the year and beyond but then in addition to that we've got a lot of additional things coming and some of them we are not quite ready to talk about because we do like to surprise our customers and have something new and fresh and exciting for but there is definitely a steady flow lined up.

Rick Patel -- Needham & Company -- Analyst

Just the last one for me on Tommy. Tom, you talked about omnichannel and planned to offer an enhanced brand experience later this year. Just curious if you can go into some more details. If you were a Tommy customer, what's going to change experience wise versus what he or she would have experienced last year?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

So as you know, Rick, we've had this IT omnichannel infrastructure project going on for a couple of years and its one of those things where you are doing a lot of foundational work that's really, really hard work and it's a big investment of both time and money and effort but you don't really see a lot of results from that. We are getting into the phase now, we are going live with some things that have really helped us a lot. So as I mentioned on the script, I think two of the things we are excited about that are coming sort of in the back half of this year are enhanced analytics and planning and allocation that will help us have, do a better job of matching up inventory with what customers in specific locations want and then some functionality that will help streamline the omnichannel process. So basically when you go in a store and you are looking for particular shirt in a size medium, and maybe they don't have in stock, it moves and facilitates that process of getting that shirt for you and then next year we've got what I think of is even more exciting stuff that gets into some of the "buy online, pick-up in store," buy in one store maybe have it, so you can pick it up in another store.

All these different permutations of things that people want to be able to do now that will be coming a little bit later. So we are sort of getting into the fun phase of the whole omnichannel IT project.

Rick Patel -- Needham & Company -- Analyst

That's great. Thank you, guys. All the best.

Operator

We'll hear next from Michael Kawamoto with D.A. Davidson.

Michael Kawamoto -- D.A. Davidson -- Analyst

Hey, guys. Thanks for taking my question. How's it going?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Hey, Michael. Good. Thanks for your call.

Michael Kawamoto -- D.A. Davidson -- Analyst

Yeah. So just on the Lilly flash sale in August last year I think you put a little more on sale, you did some taking some discounted merchandise out of stores earlier in the year. What are your expectations for the flash sale this year given you had a pretty big sale last year?

K. Scott Grassmyer -- Chief Financial Officer and Controller

It will probably be a little bit larger, similar size, maybe a little bit larger. We do, in the spring-summer season, we are able to buy a little more inventory, do a little more chasing, knowing that we have that big August opportunity where we have a very profitable exit. So right now we're planning to flash sale up slightly from last year in August and we did $24 million last year in August flash.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

And, Michael, as you know, that is our primary liquidation vehicle in Lilly Pulitzer. Our website is 100% full-priced product for 360 or 361 days a year. We do limited in-store markdowns, we don't have outlet stores. So the customer doesn't have many chances to buy Lilly Pulitzer at a reduced price and there is a lot of pent-up demand out there when that flash sale rolls round in August.

Michael Kawamoto -- D.A. Davidson -- Analyst

Got it, thanks. And then on Tommy, you've made some substantial improvements in recent quarters. Can we get an update on the Tommy outlet operations, how those are going?

K. Scott Grassmyer -- Chief Financial Officer and Controller

We are very pleased with the progress there, especially with our gross margin expansion and outlets. That's been a very strong, I think our outlooks better and we would rather have higher gross margin, less highly promotional outlets and we are able to achieve that now.

Michael Kawamoto -- D.A. Davidson -- Analyst

Awesome. Thanks, guys, and best of the luck for the rest of the year.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Thank you, Michael.

Operator

[Operator instructions]. We'll hear now from Susan Anderson with B. Riley FBR.

Luke Hatton -- B. Riley FBR -- Analyst

Good afternoon. This is Luke Hatton for Susan.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Hi, Luke.

Luke Hatton -- B. Riley FBR -- Analyst

Hi. How are you? So, just generally, the stronger sales momentum you're seeing and sort of the improved consumer confidence across the retail space, how is that affecting how you're thinking about store openings going forward?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Well, I think there are a couple things that impact store openings. So you know obviously, the improved consumer confidence helps. Actually, the changes in the tax law help a lot, because that's just right out of the box improving you're after tax sort of cash return on your investment makes the math work a little easier and a little better. At the same time, we are in an emerging omnichannel where there is more and more business is being down online. For us, that's a good thing, as we mentioned in our prepared remarks e-commerce business because of our high average order size and our high gross margins e-commerce business is actually accretive to our operating margins.

So we don't mind growth in e-commerce and the trick going forward is to keep e-commerce and physical stores in the appropriate balance but there are lots of good opportunities out there for us, we highlighted a couple again on the prepared remarks like couldn't be more excited about the Tommy Bahama Marlin Bar and store in Palm Springs, California, that just opened and then in Lilly, we mentioned we got Whaler's Village on Maui and Hawaii opening in a couple of weeks. We think that's going to be a terrific store for us. It's been a terrific Tommy Bahama location for many years and then we've got Fashion Island in Newport Beach, California, going. So we are starting to you know stake our claim to the western part of the United States of Lilly Pulitzer and then we've got a terrific store coming on Worth Avenue in Palm Beach, which is the home of Lilly Pulitzer going back almost 60 years ago. So there will be new stores but at the same time we are seeing a lot of growth opportunity in e-commerce and we are excited about that as well.

Luke Hatton -- B. Riley FBR -- Analyst

Got it, thank you. And then just switching gears. So where are you sort of in the process of transitioning Southern Tide over to the overall sourcing and distribution platform? And then also for that website is that still tracking to roll out in the first half of this year?

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Yes, so Southern Tide I would say is pretty much fully integrated at this point. We are very, very pleased with the way that has all gone and the team is totally bought into being a part of Oxford Industries and we've totally bought into having Southern Tide as part of the company. It's a great brand with lots of great opportunities. They did transition to a new e-commerce platform during the first quarter and e-commerce continues to be a great growth opportunity for them. They saw a growth during the first quarter and there are wholesales growing too.

So I think for the year that will end up being about 20% of the business on e-commerce with good growth in both wholesale and e-com.

Luke Hatton -- B. Riley FBR -- Analyst

OK, thank you. Good luck next quarter.

Operator

We'll hear now from Dana Telsey with Telsey Advisory Group.

Dana Telsey -- Telsey Advisory Group -- Analyst

Hi, good afternoon everyone, and nice to see the progress. As you think about the wholesale channel, any more color on the wholesale channel by brand, ordering patterns and just what you are seeing there even in terms of promotion. And then the accelerated pace of business you've seen so far in the second quarter to date, is that more traffic, more conversion? Where do you see that evolving? And then just lastly on the Lilly Pulitzer or swim, how is that contribution in the margin and where do you see it getting toward the percentage of the Lilly business. Thank you.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

OK, so the wholesale sales, I would say that most of our wholes partners, their businesses are actually performing pretty nicely right now for the most part. And even though we are planning wholesale down for the year, we actually have in some cases more than a few here people are actually chasing goods right now, which is positive to see. Overall for the long term, Dana, as you know, we value wholesale, we are in the, in the wholesale business and we plan to be in it. We do see more growth over time in direct-to-consumer but the wholesale market seems to be doing pretty well right now.

Your second question was --

Dana Telsey -- Telsey Advisory Group -- Analyst

Second quarter is the --

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Second-quarter momentum, yeah, its traffic has improved a good bit. I think we were happy with conversion rates in the first quarter in several cases they picked up but I think the bigger driver so far in the second has been traffic that's improved and then on Swim that's going to be a relatively small category for us but its, you know to us it demonstrates that we can provide more of her needs for a day at a resort. So we can dress her not only in the morning at breakfast, for exercise, for dinner and cocktails in the evening and afternoon, but we can also dress her literally for the beach and the pool, with swim, and so it rounds out our offering there.I think the second thing that it demonstrates is how we can look at an opportunity, be innovative in the product that we're offering, and then take an innovative approach to marketing, which we did primarily through influencers this time, and really make it work for our customer, really make her happy, delight her, and in the process of doing that, do some good business. On the margin structure, I don't know, Scott, if you want to comment on that.

K. Scott Grassmyer -- Chief Financial Officer and Controller

It's close to our apparel margins and I think they will keep getting better as the category does grow, but it's good margin business.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you very much.

Operator

And with no other questions, I would like to turn the program back to Mr. Chubb for any closing remarks.

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

Thank you very much, Kellyanne. We have a terrific portfolio of brands and an incredible team of people that bring these brands to life. By staying focused on providing a great brand experience to our customers, I am confident we are well-positioned to deliver consistent earnings growth and increase shareholder value over the long term. Thank you again for your time this afternoon. We appreciate your interest.

Look forward to speaking to you again after Labor Day and hope you have a wonderful summer.

Operator

[Operator signoff]

Duration: 52 minutes

Call Participants:

Anne Shoemaker -- Investor Relations

Thomas C. Chubb III -- Chairman, President, and Chief Executive Officer

K. Scott Grassmyer -- Chief Financial Officer and Controller

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Pamela Quintiliano -- SunTrust Robinson Humphrey -- Analyst

Rick Patel -- Needham & Company -- Analyst

Michael Kawamoto -- D.A. Davidson -- Analyst

Luke Hatton -- B. Riley FBR -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

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