Half Moon Capital on Oxford Industries $OXM (podcast #140)
The team from Half Moon Capital, Eric DeLamarter and Brandon Carnovale, come on the pod to discuss their thesis on Oxford Industries (OXM). OXM owns the Tommy Bahama and Lily Pulitzer brands, and Half Moon thinks the market is underestimating the strength of those brands for a variety of reasons.
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Transcript begins below
Andrew Walker: Hello, and welcome to Yet Another Value Podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could follow, rate, subscribe, and review it, wherever you're watching or listening. With me today, I'm happy to have the team from Half Moon Capital, Eric DeLamarter and Brandon Carnovale. Guys, how's it going?
Eric DeLamarter: Good. Good morning. Thanks for having us.
Brandon Carnovale: Appreciate it. First-time long-time Andrew.
Andrew: I appreciate that, and I'm really excited to have you guys today. Let me start this podcast the way I do every podcast. First, a disclaimer to remind everyone nothing on this podcast is investing advice. Please do your own work. Consult a financial advisor. This isn't financial advice. Then second, the way I start every podcast with a pitch for you, to my guest. I mean, you two do great fundamental research. I've been doing it for a while. Eric, actually, when I was researching this podcast, I remember I looked at Tile Shop a couple of years ago. There was a bunch of stuff from you specifically on Tile Shop. But you all do great work. I'm really excited to have you on. We're going to talk about, I believe, your kind of highest conviction name today. I think that's really going to shine through. The company we're talking about is Oxford Industries. The ticker is OXM, and I think Eric was going to start off. I'll just kind of pause there and toss it over to Eric. Brandon can jump whenever he wants. What is Oxford Industries, and why is it so interesting?
Eric: Oxford Industries, OXM as you know, is a company we've been involved with since earlier in the summer. It's a business that, I think, there's a handful of misconceptions and confusion. The core business itself is Tommy Bahama, which is about two-thirds of revenue and the biggest driver of the fundamentals to a lesser degree, Lilly Pulitzer, and some smaller brands. We have done an extensive amount of diligence on this one to glean these insights we have that, I think, over the next couple of quarters will illuminate the value, kind of disprove some of the confusion and alleviate some of that misperception. That's kind of the setup from a high-level. I'm happy to get into those details.
Andrew: Brandon, do you want to add anything?
Brandon: Yeah. I'd say, I think how people maybe know it best as if you go to the beach, Eric and I went to the beach over the summer. You're going to see a sea of Tommy Bahama. It's not going to be there as much at least in the Northeast, but you're going to see the umbrellas. You're going to see the lawn chairs. I think that's probably how people know it best. If you're just here in Manhattan, you're walking down Fifth Avenue, they have a great location. They got a Marlin Bars I think we're talking earlier. We're going to go check it out pretty soon, grab a coffee. I think, like Eric said, two-thirds of the business and then there's Lily Pulitzer which is also like a fun female fashion brand also on the beach. There may be a couple of smaller, higher growth brands like Southern Tide and Duck Head. Then, I think Johnny Was is a little bit of a newer acquisition. That's not really their strategy here, but it is very on brand and exciting and will double-digit grow our high margin business.
Andrew: We can talk about lots. But just one thing that pops into my mind with Johnny Was and we can probably address that later. Crocs, which is kind of a loose comp here. Obviously, people are going to be looking at evaluation. But they did the HEYDUDE acquisition over the summer, which at the time I looked at it and was like, "Oh, this weird brand." It's early, right? It's only been a couple of months but so far, I think as people have kind of started seeing those numbers and seeing the growth of the HEYDUDE, I think that's proved to be a very astute acquisition. Now, Johnny Was is a little bit smaller for OXM versus the whole company compared to Crocs and HEYDUDE. I guess I'm jumping on myself. OXM, they are a little handful of a couple of different brands. The two big ones here are Lilly Pulitzer and really Tommy Bahama. I just want to spend a second and talk about - Brandon started doing it a little bit - but talk about Tommy Bahama because I think people might see the brand and think, "Oh, it's this lifestyle beach brand." There are other lifestyle beach brand. I kind of want to dive into why you guys think this is more than just a fad brand or an [inaudible], like, why there's real brand strength here?
Eric: I mean, that was kind of our perception when we first looked at it. I think a lot of folks, big cities on the coast, seeing loud Hawaiian tropical shirts. In fact, that's only about, as we discovered, 3 or 4 percent of the business. These are actually high performance flows, jeans, polo shirts, pants, jewelries, and women's fashion in Tommy Bahama category. These stuff are very popular in the south demographic, which skews towards retired folks, 60 plus. These are clothes that these folks wear. That's the only brand that they buy. Marlin is something that they pay a premium for. It's essentially a luxury brand if you look at the margins and the price point, and probably the lack of discounting and the channel in which they operate.
Andrew: Eric, just one thing you said. 60 plus, do you think this skews a lot older in terms of the main demographic consumer?
Eric: Yeah. We found that that is the case. The kind of typical guy that buys these clothes are a bit older, retired, and it's almost 98% domestic American.
Andrew: Brandon, do you want to add anything there?
Brandon: Sure. I think the question tell me about and by the way, I'm done with product placement here. I don't know if Tommy Bahama is watching. Feel free to send me a little free promotion. I think Tommy Bahama is a fun brand. I think Eric really touched on is if you walked on and there's a lot of guys in polos but they're not Tommy Bahama. They may have the beach chair when they go to the beach in Westchester. But when you go to Florida, I was there for Father's Day which is their key selling day. I mean, this is dads, like Eric said, over 60. The Tommy Bahama Fort Myers was just packed. There's not a seat in the house. The retail store is magnificent. It's interesting that Tommy Bahama really does view themselves as a luxury brand that I think investors may be not yet viewing this so much as a luxury brand.
I think one of the perks of that is, this year they rate prices by x [inaudible] but they're very focused about X percent and they just kept reaffirming it. We never had any pushback on that. This is people, like you said, are 65-year-old retirees. A lot of them are actually going on vacation. I was running on the West Side Highway. You see people here taking pictures, and I've seen a couple guys who were in Tommy Bahama. This is like their vacation. On Cyber Monday, I think cruise bookings are up 50%. They have a store in Fort Lauderdale, and everyone in that line. A lot of people in that line are wearing Tommy Bahama to go on their cruise. There's some really interesting drivers here that have honestly allowed them to grow at 20%. I think, initially, consensus was looking for low single digits. There's been some really interesting drivers that we think are longer-term emerge here.
Andrew: My first experience with the brand - I didn't even know it at the time - but during the height of COVID, my wife and I evacuated to Fort Myers. I remember we went to Naples. We were walking around and we're like, "Tommy Bahama!" They basically controlled an entire block there, and we were shocked. It was packed. This was December of COVID in Florida. COVID kind of wasn't existing anymore, but the thing was packed. I had no idea that they had that brand strength. I think I told that to you guys when we started doing this. I'll give you full disclosure. I feel like a bad podcaster. This is not a Tommy Bahama floor for people on the thing though. Tommy Bahama is very much in my brand. My wife and I, we've got reservations for next week to go check out the restaurant.
I will be checking out the Marlin Bar. I guess from a bull case thesis, the thing that strikes me as a bull case. I was looking at their cue to call and they started saying, "Hey, one thing we're pushing into is pants," and Eric addressed one of my things. I was like, "Oh, these are all floral shirts," and they were talking about, "Hey, we're pushing into pants. We're pushing some other things. We're adding features." Is the the bull case here? Like, Tommy Bahama is kind of following the Lululemon pack. Where Lululemon for years, people say, "Oh, it's just yoga pants. It's just yoga," and now that's a lifestyle brand. It's a solid brand. I mean, it trades for 20-25. It trades with a Nike-like earnings level. Is that kind of the bull case path that you guys see for Tommy Bahama?
Brandon: A hundred percent. I think just along the line of Lululemon, you don't think we're going to get 20 times earnings per share or even higher than that. I don't want to have our investment thesis contingent that's turning a premium to Lululemon. But if you look at Tommy Bahama's financials or Oxford's financials, they are growing almost as fast. At least probably a bit faster. All organic, all same store sales, they're not opening up new locations, it's e-commerce driven, retail revenue from 2018. Today is actually flat, it's just been purely e-commerce, and that's what improve the margins by so much. They have what Lululemon doesn't have is - well, maybe they do but not to this degree - is the royalty income. It's 100% margin for them. One of the things they just did, they launched a suitcase with Samsonite which is like a luxury $400 suitcase. They're going to earn 5% of sales on that. I mean, it's below 5% but it's in that ballpark. It doesn't hit revenue but it just hits their bottom-line. That's why their even margins kind of screens pretty high because I think that's one of the big drivers here. That's been growing 20% year-over-year, and that you can see umbrellas in the launch as you see at the beach as well.
Andrew: Eric, do you want to add anything there?
Eric: Yeah. We are discussing this actually the other day in fact. Looking back to Lululemon it reached this point before five years ago, whereby skepticism started to arise. The products get knocked off. They weren't going to be able to move into apparel type categories, and there's kind of a decent short interest. Then, since it's clearly proven that that is not the case and maintain premium pricing alternatives exist in, but people want the Lululemon brand. Here we sit with Tommy Bahama very similarly. People are thinking, "Why don't you just go buy your shirts on Amazon?" Well, people want the Marlin logo and that's kind of playing out now. You're seeing the pricing, the margin sustainability of that. I think the next couple of quarters will really come to bear and illustrate that. Just proving that short piece sort of the skepticism that overlays the valuation.
Andrew: We are going to talk valuation and skepticism in a second, but I just want to come back to one thing. Brandon said they're like bringing the 5%. Samsonite's a real brand. They're clearly licensing this because they think they can sell suitcases in this case at a premium by putting the Tommy Bahama and the Marlin brand on there. My guess would be, hey, when you've got some licensing, a, it helps build up the ecosystem. The kind of like brand ecosystem a little bit because people get another connection point there. But, b, it just speaks to, "Hey, slap a logo on it and you can sell the same suitcase. It's probably a 20% premium." That's the only reason they do it, right? You can sell it for a huge premium. There's going to be demand there. It speaks to a brand with real strength. I'm kind of lobbying you a softball, but I just wanted to dive into that for a second.
Brandon: I think you're touching a lot of really interesting points there. The Tommy Bahama, because it is vacation, now you have suitcases so there's a natural shift there. I'd say probably there's older people, they really have that disposable income so they can pay for a Samsonite bag. I think Tommy Bahama, they just really have figured out this licensing. Back in the day, they used to have an RV, like the wind stream. You want a vacation and you went stream? Maybe that's retirees. There's like a natural connection there. I'm sure everyone just been sure you saw two recently. They did a resort out in, I think, Nevada? If I remember correctly. There's going to be a Tommy Bahama Hotel now that you can go and stay. They rebranded that. An existing hotel to Tommy Bahama because they think people like it. It's a fun brand, it's a little whimsical. When you say Tommy Bahama, I think everyone has something in their head that they can kind of relate to, and it's got those kind of beachy vacation vibes that everyone likes to associate with.
Andrew: It reminds me of Jimmy Buffett has Margaritaville, and people probably laugh when they hear it. I laugh because it was in the FTX bankruptcy that I think FTX owns a Margaritaville restaurant, like $55,000 which I don't know if I can get to $55,000 parts. Margaritaville is a literal multibillion-dollar business which slaps brands. People want to live the Margaritaville lifestyle. I know in Florida, they're building a Margaritaville-themed retirement home or a retirement community basically. They've got the restaurants, the hotels. That is a massive brand, lots of licensing. I could see Tommy Bahama is leaning in that direction and that probably. I'll let either of you guys speak to it, but that will probably lead us nicely into valuation. When you say, "Hey, Margaritaville, this three-billion-dollar brand." We can probably start talking or extends overall valuation everything.
Eric: I think that's right. There's parallels not necessarily party lifestyle, but these kind of leisure, comfort, and beach element to it. A lot of people have it here too. There have been shift in population in southern states and acceleration retirement. Those are all kind of tailwinds are benefiting them. Over the last 30 years, year-after-year, taking on these new customers. People that are retired and/or on vacation. It's proven sustainable and I think they've done a bunch of things over the last two years that really changed the structure of the business, the margin profile. I think it's going to be translating to this higher, continuous earnings.
Brandon: Let me touch on one thing. One question they had on the licensing, just so people understand like manage of it. Tommy Bahama will do $850 million of revenue this year. I mean, sorry. That was like their initial gain over the summer, $850 million. But overall, the brand will do maybe 1.3 billion in terms of revenue. It's like $400 million of licensing revenue and $25 million of that $400 million will hit their balance sheet or just pure income. That's actually a little quick data point we found in this WWD 30-year anniversary for Tommy Bahama. They got a low profile. The CEO had mentioned that statistic. But just maybe quantify what we're talking about for license revenue.
Andrew: I guess rough numbers. If people look at the LTM, I mean LTM for Tommy Bahama is $830 million in revenue. What you're seeing is, "Hey, that's a lot, but it's actually bigger than that. This brand is kind of punching 50% above this weight if you were just looking at the financials"? Let's turn to valuation because I think valuation will bleed nicely into talking about. I think there's a pretty active short thesis or maybe some cell size don't get the valuation. I think talking valuation will bleed nicely into that. Either one of you can start. As you and I are talking this about $110 per share stock price. What's that translate into market per cap, enterprise value, valuation and all that?
Brandon: I got the financials I promised here. Feel free to jump in if I miss it. I think what really pops off the page, the earnings per share is up 142% since 2019. I think what really caught our interest initially is that this management team is focused on gap BPS. The guy that got BPS, they buy back stock, they do creative acquisitions. We're getting gap BPS in this business and there's 100% pre-casual conversion. I think that's kind of maybe the metric that we're focusing on for valuation here. Like I said, the BPS is up on 142% since 2019, but the stock is not. We think the delta there is people saying, "Okay, this is peak." I'm sure we'll touch on that a little bit later about why we don't think its peak. But just right there, you kind of keep the valuation multiple flat. The business has just improved by so much since 2019, or margins of double the business historically was in the wholesale channel. They totally flipped the wholesale channel now into direct-to-consumers, 80% direct-to-consumer. Kind of like Ralph Lauren is, there are majority wholesale, so it's not as attractive.
You're selling in the department stores, exactly the client is closing locations. These guys control that distribution channel and where they're going to. We call it soft guidance in the 10K, they said, "We expect our growth to come from the e-commerce channel". The e-commerce channel is just so much higher margin for them. On valuation, you look at Columbia Sportswear and you look at Deckers Outdoors, these are somewhere like the higher growth tier guys that are doing double digit growth with expanding margins like Tommy Bahama, and they get mid-teens PE multiples. It would be like a consensus next year. We're thinking it's very conservative. We're thinking this business just continues to grow at 0%. The terminal value applied in the business is negative. It's like that right there is your huge upside scenario. How do we get to that $188 price target is just looking at, like I said, I think the Columbia or Deckers, not Lululemon. But these guys are a little higher margin, better returns on invested capital, and going to be around for the next 30 years like they have the product 30 years.
Andrew: Eric, did you want to add anything to that?
Eric: Yeah. On that, too, we're training like ten times at the current valuations to clarify where we stand in the discrepancy between that and what we think it should trade for. Having to get into some of the reasons why probably that discount exist.
Andrew: I guess the first high-level is, I've looked at, they've got all their peers listed in their proxy. There's Buckle, Carter's, Chico's is in there, Children's Place, and then the three that Eric mentioned: Decker's, Columbia Sportswear, and Lululemon are all in there too. What you guys are saying, "Look, I've got my little Bloomberg pull on my ring. The median of those peer rates is about ten, which is about where Oxford straight for. But the best which would be Decker's, Columbia and Lulu, all of those trade for..." The smallest is Columbia at 17, Deckers is 20, and Lulu is way over 20. The simple thesis here is Oxford has Tommy Bahama. Tommy Bahama is one of the best brands in here. It should trade for a multiple that's kind of in the top quartile brands here. From 10 to 17, that's your very simple thesis right there.
Brandon: It's a part of it. I think, yes, some multiple trend's huge. I think one interesting thing about these guys is they're 96% North America. It's the highest of that comp group. You're not taking Europe or Asia or China risk right now. Like I said, direct-to-consumer. I think when you look at the valuation discrepancies, a lot of it is, "Are you selling in the department stores where you don't control the pricing or are you controlling the customer?" I think the other big variable there is going into this year and maybe even the last couple months, the expectation was that earnings per share is going to decline, revenue was going to decline. We think that by said investor expectations were just so far below consensus. They were really overly discounting those consensus estimates to kind of ahead that this business was just going to turn over next year. They really weren't pricing in consensus yet. I think what we've seen is that these guys have continued to deliver. I think our big catalyst was all cities' going to flip from a cell to abide so they're neutral, and the stock went down 3%. That was like, "Okay, we got the fundamental improvements. We don't really get the valuation we're looking for." But we started to see the narrative, I think, really shift towards, "Okay, maybe this is going to be a long-term growth, spectacular business that should earn the valuation of a lot of the businesses you just mentioned."
Andrew: You mentioned the city. I think generally, I'm sure all of us don't like to get hung up too much on quarters. We're talking December 1st 2022. We were talking before. We're right in the midst of all of the kind of soft lines and retailers reporting. One of the reasons we want to record this today is so we could get it out before Oxford reports their Q3 earnings next week. I just do want to talk and this leads nicely into another thesis. Brandon started mentioning it. Earnings are way up since 2019. In 2019, they do about $4.30 per share in earnings. This year, they're guiding for over $10 and I think people look at that and say, "This is a business that way over enduring COVID." You think about Tommy Bahama being outdoor, living the beach lifestyle 2020, 2021. That's what people are doing, right? They were getting out of by one-bedroom apartment in Hearing City and they were going to the beach.
I think people look at that and say, "Everything retail over earned during COVID." These guys especially might have over earned because people were just really going to where their stores are focused, where their lifestyle is focused, and they'll look into that and say, "Hey, 2023 might not be great because you've got this overearning pullback, you've got all the promotional environment, and everything we're talking about." Then, I even think for the quarters coming up, people are looking and say, "Their environment is getting really rocky out there. We're seeing a lot of businesses that are having to promote like crazy. People are stuffed with inventory." I think there's like this quarter risk out there and there's kind of the 2023 lapping the 2019 COVID boom, all that type of stuff. I threw a lot out there. I'll let either of you talk if you want to.
Brandon: I think you really touched on it. That's great. When we talk to people, that's what they tell us. Q3 is a little bit dearest, not dearest. But they did the Johnny Was acquisition and then they pre-announced, "Okay, we're actually raising organic growth guidance because demand for Tommy Bahama and Lilly Pulitzer is just coming in stronger than expected." Q3 is our seasonal low quarter. When Q2 was really strong, we're like, "Okay, everyone who just want a vacation need to keep going." Then, Q3 is coming a little stronger. Now, we look where Q4 estimates are. Maybe we'll dive in this a little bit later where we kind of differentiate from consensus estimates. But if we just assume, Q4 is like a seasonally in line quarter like it has in 2019 and years prior. There's a decent amount of upside to those Q4 estimates. We don't really think they're reflecting how strong they pushed Tommy Bahama makes. Usually, Q2 and Q4, they're two big quarters. They are usually about equivalent in revenue. We're kind of making that assumption that that's going to stay fair and correct this year. There's at least 10% upside for Q4 revenue there, and then just keep going from there.
Andrew: Brandon, you mentioned on the Johnny Was acquisition, which happened a few weeks after they announced Q2. They came out and they said, "Hey, we're raising a full-year guidance and part of that is because we're doing an acquisition, but another part is organic strength in our two key brands." I think they raised EPS targets a little bit and everything as well. Do you think because that was like line paragraph 3 or 4 of an acquisition press release, it kind of buried the lead? I mean, obviously, cell sides are going to pick up on it. But do you think it didn't kind of get the notice that it would have if they had gone to a conference and put out a press release that said, "Headline: Oxford Industry Raises Guidance on Stronger Organic Trends," or something?
Brandon: I think the funny thing is people here looks at Oxford apparel and say, "I don't want to own a contract manufacturer." It's like that company raising guidance won't remove the stock either. Everything Eric and I have been laughing about is we know we see some retailers report earnings, and maybe they only declined 2% versus 5% as expected when the stocks go up 20%. Burlington, great example. Stock goes up 20% because they only declined, I think, 17% this quarter. That was better than the 20% expected.
Andrew: If I remember correctly, they came on the call and they said, "Look, our systems are way worse than all our competitors, but we promise we're going to figure it out over time. It just takes time." I'm laughing because I kind of flip through that call. I remember reading it and be like, "The stock was up on this?"
Brandon: To your point, Tommy Bahama said, "Yeah, we're actually going to go 20% instead of 15% or whatever exactly kind of breaks into, and the stock barely moved." I think there's definitely something there.
Andrew: Eric, did you want to add anything there?
Eric: Yeah. I mean, the name whenever we discuss with others have never heard of it or they're familiar with Tommy Bahama. Again, how does that get rectified? Change the name of the company, Tommy Bahama and company, or something like that. They're going to be doing an investor day next year. They've improve some of that outreach and it's a great story. Their articulate management team is very solid operator. I think we'll start to see some more of that, now that a number of these shifts in the business have manifest themselves and we're kind of coming out of it, and probably entering a more normalized environment. I think that the set up and timing for that would be attractive for them.
Andrew: I'm just laughing because I think you're exactly right. I mean, I knew we were doing a podcast on this. I read the cue to call last night. I was getting ready. I tweeted it out, "Hey, we're doing a podcast on Oxford. Does anyone have any questions?" I tweeted out and I was like, "Oh, that's Oxford Industries. That can't be the right company." I just tweeted out the wrong thing. I was like, "Andrew, you've been looking at this." I do think there's something. Let me just dive a little bit more into the bear case. I do want to switch this into a little bit talking management. You guys mentioned they're going to get more articulate with investor day but I went back. The CEO, he's a lifer at Oxford Industries. He becomes the CEO in 2013. I think he was CFO before that. He's been VP. He's been here since the '90s. He takes over in 2013.
That year, Tommy Bahama does 627 million in revenue and 71 million on EBIT. By 2019, Tommy Bahama is doing 677 million in revenue and 56 million EBIT. So, revenue up 10%, EBIT down 20%. I look at that, and then in the last 12 months, Tommy Bahama's 831 million in revenue and 160 million in EBIT. It is hard to look at those numbers and say, "Hey, for five years, the Tommy Bahama brand was kind of flat-ish. Then, you get COVID and the sprint spikes." It's hard for me to look at that and say, "What accelerated this in the past 3-ish years aside from COVID." COVID could be. People came to the Tommy Bahama brand, they liked it, and you built up a real brand there. People have created real bands, but I just look at those five years in 2014 to 2019 and say, "Oh, that wasn't really a great time for Oxford." I wonder if that kind of disprove some of this thesis?
Brandon: I mean, those are very valid points. I think we totally agree there's if you want to be, make sure this business isn't overearning. I think, metric, we kind of look at is, it's been around 30 years in 1999. I think when the first released financials, they did 300 million of revenue. It's kind of grown at like low single-digit since then, including this year. I think that's how we put the back into it because there is some noise in like 2-3 years prior, where they're really dogging sales growth by doing this rotation from the wholesale channel to the direct-to-consumer channel. When you're taking revenue from one channel trying to push it into another one, there's floor price here, it's higher price here, got to get the customer to follow you. It definitely created a little bit of an overhang. In fact, the funny thing is, the stocks will trade for 15 times earnings per share. But in terms of what's really changed, I think there's somewhat of a, we don't want to overstate it, but there's somewhat of a pop culture phenomenon to Tommy Bahama right now. We're usually watching a show on Netflix or something on Hulu.
Everyone knows Craig Robinson from The Office. He just got a new show called Killing It where he kills snakes in the Florida, Everglades. There's a scene where the guys were in a Tommy Bahama polo and they zoom in on it. It's like pretty authentic there. There's another movie called Barb & Starr Go To Vista Del Mar, which is like a Ford resort with Kristen Wiig and some other big names. There's a character called Tommy Bahama in the movie. There's another scene where Kristen Wiig needs a lange and she goes, "You got to go to this resort for that." The men had the toe Tommy Bahama. It's like the movie based in Florida. They're really repping fully Bahaman. Everyone knows Melissa McCarthy, but she has a new show called God's Favorite Idiot. I think she kind of like pairs into someone for wearing a Tommy Bahama Polo. There's just all these movies we've seen the last few years come out and they're like talking about Tommy, and this is a small brand. Everyone's kind of like talking about it in reference to Florida and going to the beach. We think it has kind of captured the imaginations of a lot of people.
Andrew: Eric, did you want to add anything there?
Eric: Yeah. I think one of the kind of structural changes that COVID benefitted for them was these are older folks. Historically, we're shopping maybe in stores. Now, a lot of them start shopping online. You kind of access those people that increased the wallet share of those individuals. Our diligence is with essentially small percentage of the shoppers or customers account for the bulk of the sale. They'll be able to everything they buy is Tommy Bahama and that's kind of spread its the done and member marketing mission is to improve that. It's kind of a nice and that marketing initiative program is kind of a relaunch effectively through the website and from some other programs still over the last two years. That's really, I think a permanent change will continue to benefit them.
Andrew: Just something that jumps out at me. Just because they've got maybe a little bit of an older demographic shopping them, do you think one thing people might be missing is, like, I look at their Instagram and there's about 85 thousand followers which is not small by any mean. It's probably a little bit behind some of the comps that we've been talking about. Do you think just because, I mean, the 65-year old, 6-year old's, probably aren't on Instagram? People might look at that and like underestimate the brand strength. I use Instagram but we can probably talk other social medias. I just use that as a very high level example.
Brandon: It's so funny you said that because we had the opportunity to speak with another former marketing guys. They're super knowledgeable on it. Historically, they just don't mail inserts. They're just pushing that channel. They haven't really navigated towards e-commerce in the last year. I think one thing we learned is that last year they did a massive overhaul of the website. They used to just be people dancing around on the beach in floral shirts and they've kind of started to regroup it. I think that's all super interesting there. How we were kind of looking at it too and how beginning of year consensus position was 2021, was the catch up here. They did 7 or 20 million of Tommy Bahama revenue last year. That was above the 676 million they did in 2019. Everyone said, "Okay, that's a full catch up by a huge amount. Revenue is up 72% last year." Then, the first half of this year, they're lapping super easy caps where revenue grew over 100%. It's like, "Oh, they can really going to be able to put growth on top of 150% comp." It's like, "Sure enough. They grew 17% last quarter and their toughness
comparison of the year."
Andrew: Let's go back to management real quick. Again, I mentioned the CEO's a lifer. He owns about $50 million worth of stock, which I'd love to own $50 million worth of stock. It's not nothing but he makes about 4 to 5 million per year. He's a lifer. I just want to talk both management strength and I guess the thing I was going to, I was surprised it wasn't a little higher kind of insider ownership there. I think the person who was at the wholesale business that they kind of disposed of is on the board still and has a little bit of ownership. I'm just surprised there wasn't a little bit higher insider ownership. I want to talk that and management strength here.
Brandon: I think we're really like management.
Andrew: You love him or do you like him? There are a lot of relation there. I feel like you're about to drop the l-bomb on him here.
Brandon: I can even throw in a couple more wheelies. We think they're doing the right thing. They think about the business the right way. They're allocating capital to shareholders. They're focusing on gap BPS. They have the right incentives where they are aligned with shareholders. I think they'll continue to deliver their very, I'd say, they manage a business, very conservatively. They're not like out there promoting the business, which at times were like, "Just tell them you have such a great story. Just get it out there." I don't really do that too much. I think, management, A plus. We want them to keep doing what they're doing. What was the other question?
Andrew: Inside ownership management, which I think you were just. But Eric, did you want to add anything there?
Eric: Yeah, I'm having been very distant capital allocators and that's something critical to us, right? Generate a lot of cash flow. We've previously been buying back stock. Just like Johnny Was acquisition that will go to debt pay down and then share repurchases. We know where the capitals are going and they have made blenders acquisitions in the past. We've all been logical fits. They can deploy their strategy to these new brands that are acquiring, grow them with that playbook. I think we'll start to see that with Johnny Was as they have with the prior brands required.
Andrew: I guess let's just quickly talk Johnny Was. This was an acquisition that was announced mid-September, $270 million acquisition. Oxford is just under 2 billion market cap company. Just over $1.5 billion enterprise value company. It's not a 'may bet the whole firm type' acquisition, but 270 million is a meaningful acquisition for them. It sounds like you guys like this deal. Do you want to talk about why you like this deal? We can also talk share repurchase because you know I love a good share repurchase and they've done some of that too. But just talk about their acquisition strategy, Johnny Was, and what you think going forward. I guess, Eric, I'll toss it over to you to start.
Eric: We don't know a whole lot about this uses. It was announced essentially last month. Johnny Was has 60 stores. I think they can grow that to about 160. There's a skew towards California. It's going to the casual beach where female line. They're smaller store unit level in terms of size. I think they're generating about 2 to 2.4 million per store. I think their belief is they can expand this nationally into the markets where it's relevant in warmer weather climates, and use kind of the core skills that they've used in utilizing with probably most likely, Lilly Pulitzer. I think there'll be more to come. They just kind of provided those initial numbers and some of which we kind of were able to find out the back end, looking at the business from scoping it out online.
Andrew: Brandon, do you want to add anything there?
Brandon: No. I think he nailed it. I mean, it's an interesting double-digit revenue growing business and [inaudible] as much. They had 200 million of cash on the balance sheet. I don't really think investors were giving them credit for that because they kind of knew who was going to be deployed to afford acquisition. They haven't made acquisition quite a while and it actually close down a couple brands that were underperforming, which is enough for management teams paid on EPS. They close out a couple brands. It kind of takes it away from the earnings per share. We're really impressed that they would do that. But now, they may disagree of acquisition. They haven't really told us too much about it. That's like the funny part of this is make this big acquisition. Don't even hold a conference call.
Andrew: I was laughing. I was trying to find the conference call. They do a big acquisition. They put out a, I guess, it's about a 9-page slide deck. But six of the pages are almost just like it's one model for Johnny Was with acquisition overview or something on it. There's really just not a lot of information there. Let me talk quickly, speaking of acquisitions. One that I keep jumping into my mind is last, I mentioned it at the start. Last year, Crocs buys HEYDUDE. HEYDUDE is not really a comp for Tommy Bahama in any way. We're talking completely different things. HEYDUDE is almost exclusively shoes. They don't have a lot of direct consumer. I guess they do have a decent in digital, but they're mainly doing wholesale through things.
But the one thing that jumps out to me is a Crocs' pace two and a half billion dollar for HEYDUDE. About 15 times EBITDA. Approaching 4 times revenue. I look at that and I have to wonder, "Are you guys looking at?" We've talked almost exclusively Tommy Bahama here. I mean, Lilly Pulitzer is a real brand, but Tommy Bahama's the majority of sales than the pretty big majority burning. That's really why we focus here. Do you guys look at that HEYDUDE transaction or there have been other transactions in the brand space and say, "Oh, the market for all the reasons we've discussed. This is named Oxford. This is Barry. People are worried." The market is really missing the multiple for these brands is pretty big.
Eric: I don't think we'll use those as like comps. I mean, that'd be like a triple to the stock. [crosstalk] They have multiple. They were never friends or anything on it. Acquisition take out premium, but yeah, absolutely. There's a huge disconnect in the valuation. I mean, that is going to become more stark as they start to put up sustainably higher margins and continue to grow at an accelerating rate or an attractive rate. But that's where we stand.
Andrew: We've joked about this company being named Oxford a few times. Again, this is a little bit of softball. But it does strike me. Monster Energy Drink, it still might be the best performing stock of this century. For a long time, it was like the best performing stock of the past 10-20 years. Obviously, that's a huge growth story and you need the fundamentals to work and all that. But one of the things people would always say is Monster Energy Drink, I can't even remember what it was called anymore. But for a long time, it was called something different because it was the small brand that grew into this enormous thing under another thing.
For a long time, people would say, "Look, one of the issues with the company is this stock is like undervalued because people don't realize it's named Oxford soft drinks not Monster Energy Drink." People don't give it the thing. It doesn't like get immediate recognition. If they would change that, the stock would almost get a 6 months pop as people just got comfortable. "Oh, I'm buying Monster Energy Drinks, not some random industrial." You mentioned investor day next year. Do you think longer term, there's almost a little bit of, "Hey, when they change their name to Tommy Bahama & Co. or something, there's going to be some type of pop or that would be like a catalyst for investor recognition"?
Eric: I think that would. Be it formally announced and intention but certainly. Getting back to the Johnny Was real quick. I mean, the granularity detail of the financial service company is exceptional. We'll start to really see that, like the delineate time bomb. They don't earnings revenue. A lots of metrics of others down. We'll probably start seeing that as soon as the name on next quarter for Johnny Was. Brandon, feel free to add.
Brandon: That's exactly right. I think the funny thing of it is, when we say everyone always thinks Oxford Industry is just like contract apparel manufacturer and that's because it was IPO and I think in 1965. That's what they did for the history of the company.
Andrew: I've heard 1965. I think they even say their deck. We've paid a dividend for like 40 or 50 years consecutively. Obviously with their cash flow, they keep doing that. But it's '65, like they were paying a dividend as a contract manufacturer. They've been doing this for a long time.
Brandon: I think that's everyone's perception of it. It's somewhat of a double whammy too is because once you realize that, they actually shut that business down and they actually shut down the last of it this year. They own like Oxford brand and the contract apparel manufacturers. A little bit of a double whammy because people realize, "Okay. So, this is actually a Tommy Bahama and group. But Tommy Bahama's a joke brand." I think we like to reference the Family Guy spoof of it. I think everyone has that in the back of their head that Family Guy spoof and I think they see Tommy Bahama. They go, "That's a joke brand. Why would I want to invest in that?" You have to educate the investor. Even another further step beyond just having a somewhat confusing name.
Andrew: It's funny you mentioned the joke because the next thing I was going to ask you is - just to reiterate kind of the brainstorming what's developing here - they're opening a Tommy Bahama Hotel and kind of luxury resort in California. I think it's slated to open in late '23. It's funny you mentioned the joke because the first thing that pops up, there's a travel and leisure article. It's almost making a joke out of it. It says, "That's right. There's going to be a Tommy Bahama Hotel, right?" Clearly, people are thinking, "Oh, this is more of a joke brand." They're not understanding the brand power here, underestimating it, or maybe they're waiting for it to be proven out. But I wanted to mention that California was it, a, to do another indication of brand power? But, b, to ask like, how will you know if you're wrong or if the Tommy Bahama brand like kind of doesn't have these legs if their shifts? I mean, one early indication would be this hotel project failing or not filling up. But what are some other ways you guys kind of track that the Tommy Bahama brand is not a fad story, that it's staying on strength, that its continuing to grow?
Eric: I think the California Hotel, they're not like building the hotel. Most likely, there's only recently announced, it will be like a royalty agreement as well. It's not like there's a huge capital on there.
Andrew: But if it's 20% occupancy for a year, it's like, "Oh, the Tommy Bahama Hotel can't really attract people."
Eric: I don't think that's really bearing that. That is much risk. But I'd say, what do we look to? I mean, 30 years of continuously kind of cultivated the brand affiliations high, retirees, or older folks. It's kind of people retiring younger just continue to use, the pricing, they continue to raise pricing. We closely track that. There were $120 polos. Almost none of which have been discounted. You're seeing a lot of discounting starting from kind of the lower end in some of the piers where there's plenty of other options out there, polo and like. The ongoing kind of sustainability that is demonstrated in historical and kind of what we're seeing is the current environment.
Andrew: Did you want to add anything?
Brandon: I think I mentioned it. We talked to a former marketing guy. I think the questions you're kind of picking up on is exactly what we pick them and we know we are asking about. I think he just had this one really interesting quote with obviously you don't have a crystal ball. But he goes, I was there and we've never saw a cliff and sales. He's like, "They never really got too high, never got too low." Kind of spin like steady. They spent 5% of revenue in advertising and that just hasn't changed in the years. He's like, they're actually probably not pushing as hard as they should. But people will keep going on vacations. People will keep retiring. Their customer probably has a boat in Florida, probably spends at least half a year there. I said my parents have a place down there.
I mean, they live in Syracuse which is obviously the snowiest city in entire of the United States. Then, I could get away for. They do that every year kind of like regardless of what's going on. I think that's who they're selling to and their customers didn't get skinny list checks. They didn't have this like big bump like we saw in Footlocker and some other Lauren guys. They've kind of just been steady. What we learned is at first look. If I'm going on vacation or if I'm going to the beach, a lot of their customers will use Tommy Bahamas at first look. A small portion of them are recurring ones that make up the lion's share of profits. It's something else that we learned. I think that gives us confidence that this is more than just a one year, like we said, COVID beneficiary.
Andrew: I just wanted to add something, too. I thought you made a great point. "Hey, no discounting." I'm just looking at their website off the corner of my eye. It's everything on there. We're talking the Thursday after Black Friday, right? Lots of brains are still doing, lots of discounting, trying to get those Christmas sales. I don't really see any. I'm only looking at the men's polos and t-shirts. I don't see anything discounted. The one offer I do see is if you spend $175, they'll give you a $50 gift card that you can use in January, right? They're almost like pre-selling something. Obviously, there's a cost that gift card but they're saying, "Spend $175 now, get 50," which I'm very familiar with these things because what they're hoping is, when you come spend that 50-year basket adds it to 100, you throw another $50 in cash there. Either way, the gross margins on these things are very high so they could probably even if you only spend that $50 gift card, but they're hoping they get that. It encourages a repeat visit.
They're encouraging repeat behavior. I think that's really smart. I'm saying that because it sounds $50 gift card on 175 they're discounting. Technically, yes. Myles Apparel is one I like. They're doing, "Hey, everything's 40% off. Spend 100 and get an extra 10% off. Spent 200 on it." They're nowhere close to that. They're doing a small discount to encourage repeat visit and a big basket. I think that kind of speaks to the brand string. It's just, I love capital returns. I love capital allocation. I'll let you guys talk to share buy-backs. As you mentioned, Johnny Was acquisition, they've got plenty of cash. They could continue sharing buy-backs, might slow down a little in Q3 and Q4 just as they close and integrate. But let's just talk. They've done dividends for a long time. I'm rambling. I'll turn over to you guys. Capital returns for the company.
Brandon: Management focuses on gap BPS. I think for us, we're okay. These guys are aligned with us and I think you brought up a great point. We'd love for them to own some more stock. They have some stuff we love from [inaudible] but because they are aligned with shareholders, you think they'll keep delivering for us. Historically, they had that on the balance sheet maybe 7 years ago, paid it all off, built up a huge surplus of cash, and kind of weighs down your PE multiple. People are kind of like, "Every day's going to do with it." They bought back a $100 million of stock which was I think five and a half percent of shares outstanding, which is just phenomenal. There's almost no stock-based compensation in this business either.
It's just pure to the bottom line. Going forward. Now, they have about $100 million on a credit revolvers just from Johnny Was that will pay that down by the second half of next year. Then from there, we're kind of hoping they'll keep building up that cash. We like this business to be very well capitalized. They're not opening up new locations that much. There really is no upfront capital investment here. We see a lot of the smaller guys, like Boot Barn is a great example. They did a conference and we're going to triple our store base. This isn't that story. They have 110 locations. They'll probably have 120 in like three years.
Andrew: That's because it's a premium brand, right? There are only so many locations when you're selling a $100 pullovers. That's great. But you're not going to sell $100 pullovers in - I'm from New Orleans - not going to do it 30 minutes outside New Orleans in some small town. It needs to be in a premium location. Again, these are floral brands. You're probably going to want to do it in New York City. It makes lots of sense because everybody wants a flagship, but you're probably going to want to do it in Naples, with a warm climate, beaches close by, all that type of stuff. Eric, do you want to add anything there?
Eric: No. I think that's right. You get the groceries coming from pricing higher turns for store and then this improve channel, as opposed to a huge growth by new store opening profile.
Andrew: I think we've covered all of my notes, most of my questions and everything. I do just want to, again, I think we've done a great job covering it. We talked about valuation. We talked about what kind of the shorts and discreet might be missing. What people might be missing when they think this industrial. But I just want to turn it over to you all. Is there anything you think we kind of glanced over that we should hit harder or anything we didn't talk about that you think people should be thinking about as they look at this name?
Eric: We've talked a lot about it and kind of like the perception of peak or sales. Just an important part is the key kind of earnings and margin. I think Brandon mentioned earlier. This makeshift that's occurred that's a permanent structural change. In fact, there's actually some tailwinds to this being in moderation cotton prices, freight costs moderation. They are shipping a lot by air last year to meet inventory and short notice. Now, that's going to go by freights, where freights also decline. We're looking at a margin profile I think that is will be sustainable, if not, it will increase versus what I think is perceived as at leas on the bear side is a reversion back to 2019 levels and next couple quarters. I think they'll be disproved if not in the next quarter.
Andrew: Brandon, anything else from you?
Brandon: Yeah, that's it. I mean, that's very comprehensive. I appreciate the detail there. When it really, just I think maybe we'll just touch on if it closes the inventory. I don't know. Everyone's mind like, "Oh my God. These guys got a bunch of inventory they have to discount." I think what we found really encouraging was that inventories actually 2 or 3% below where it wasn't huge in '19. Revenue is up 25% or just about. What they did and we've started to appreciate more, is they created a ship from store inventory management system just in 2020. They've also reduced their scoot out massively over the years. I used to have 15 polos or it was an insane amount of bolos. Now, they don't have as many. Maybe only two or three different price tiers. Good, better, best. That's just drastically reduce our inventory pressure. We think going into the key holiday season and other very well positions. We're excited to see what what they do.
Andrew: Just on inventory with Tommy Bahama, there's always fashion risk in inventory and retail is always a concern. I kind of agree with you, and we can talk about what they said and every thing. This Tommy Bahama, I would guess it doesn't have as much kind of fashion or stale risk as something more fashionable. My floral polo or whatever is going to be in demand in 2022. It's going to be in demand in 2023. I guess there's just a little less obsolescence risk. Would you agree with that or am I kind of off? Because it is high price. Maybe you do need to keep it a little bit fresher.
Brandon: That's kind of our fault for not referencing this up sooner. But Eric and I aren't fashion guys. Not even really retail guys. It's not where we play. But we did like is if you go back 10 years and you look at Tommy Bahama polo, it's just really selling the dads over 65. They're like their fashion trends aren't really changing that fast. That's what I think gave us confidence in this business and they drench in Crocs, like Crocs can be really cool one year. It's actually big with dads and they're not so cool the next year. They did really take initiative or less coming in the cove at the switch what they called it 'one third basic, two-third fashion.' They flipped it. The two-third basic one-third fashion. That's where we saw with the reduce key account and that's where their position today. That gives you a huge benefit in the queue. Next year, where Patsy[?] is in, you're not having to dump last year's fashion inventory. They didn't sell. They really cleaned up the business nicely.
Andrew: Just on inventory, I'll log you guys another softball because I know it's been a bear case. They said, "Oh, they're over inventory." When I was reading the cues to call, they sounded very confident on it. Then, couple weeks later, they came out and actually raise their guidance for the year. I kind of thought that would put the inventory issue to rest short-term at least. Now, I've certainly seen companies say- this is even as recently as this year in April. They said, "Don't worry. Inventory's fine. Sales trends are picking up." Then, they come back and report in July. They say, "June was a disaster. We're over inventory. Everything must go remarks down." It's not that they're completely off the hook. They could have been wrong. Trends could have turned. There's all sorts of things, but I did kind of think that got put to bed at least temporarily by that. Eric, do you want to add anything there?
Eric: I think that's right. Frankly, the fact they're not discounting it suggests that. You'll get a pull over 50% off like you reference from Ralph Lauren, you can. Tommy Bahama, their quality and pricing power, it's going to demonstrate through this period where a lot of peers are being forced to cut prices.
Andrew: Guys, I think I'll wrap it up there. I should have mentioned right at the top of the show. They've put together a PDF presentation that walks through all their thesis. All they're both points, valuation, everything. I'll include a link in the show notes. I'll tweet it out. I'm sure people will be able to find that there. But people should be sure to check that out. Brandon, Eric, thank you guys so much for coming on. Looking forward to having you guys again. More than that, looking for it, I'll send you some reviews in the Marlin Bar. I think Tommy Bahama's up my dad's angle. Maybe I'll get him something for Christmas. We're sending you guys some reviews and doing some due diligence on this thing.
Eric: I look forward to it. Great, thank you very much. [crosstalk]
Andrew: Thanks again, guys. Talk to you soon.
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