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Article by DailyStocks_admin    (12-30-08 06:44 AM)

Oxford Industries Inc. CEO JOHN HICKS LANIER bought 34100 shares on 12-23-2008 at $7.59

BUSINESS OVERVIEW

Overview

We are an international apparel design, sourcing and marketing company that features a diverse portfolio of owned and licensed lifestyle brands, company-owned retail operations, and a collection of private label apparel businesses. Originally founded in 1942 as a Georgia corporation, we have undergone a transformation in recent years as we migrated from our historical domestic manufacturing roots towards a focus on designing, sourcing and marketing apparel products bearing prominent trademarks owned by us. During fiscal 2007, approximately 59% of our net sales were from brands owned by us compared to approximately 2% of our net sales being from owned brands in fiscal 2002.

A key component of our business strategy is to develop and market compelling lifestyle brands and products that are “fashion right” and evoke a strong emotional response from our target consumers. As part of this strategy, we strive to exploit the potential of our existing brands and products domestically and internationally and, as suitable opportunities arise, to acquire additional lifestyle brands that we believe fit within our business model. We consider “lifestyle” brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude, such as the Tommy Bahama ® and Ben Sherman ® brands. We believe that by generating an emotional connection with our target consumer, lifestyle brands can command higher price points at retail, resulting in higher profits. We also believe a successful lifestyle brand can provide opportunities for branded retail operations as well as licensing ventures in product categories beyond our core apparel business.

Our strategy of emphasizing branded apparel products rather than private label products is driven in part by the continued consolidation in the retail industry and the increasing concentration of apparel manufacturing in a relatively limited number of offshore markets, two trends we believe are making the private label business generally more competitively challenging. As we embarked on our brand-focused business strategy, the first major step was our acquisition of the Tommy Bahama brand and operations in June 2003. Then, in July 2004, we acquired the Ben Sherman brand and operations. In June 2006, another significant step in this transition occurred with the divestiture of our former Womenswear Group operations which produced private label women’s sportswear, primarily for mass merchants.

We distribute our products through several wholesale distribution channels including national chains, department stores, mass merchants, specialty stores, specialty catalog retailers and Internet retailers. Other than our Ben Sherman operations in the United Kingdom, substantially all of our net sales are to customers located in the United States. Our largest customer, Macy’s Inc. (formerly known Federated Department Stores, Inc.) represented 10% of our consolidated net sales in fiscal 2007. We also operate retail stores, restaurants and Internet websites for some of our brands.

In connection with the close of fiscal 2007, we reassessed and changed our operating groups for reporting purposes. All prior period amounts included in this report have been restated to reflect the revised operating groups. Our four operating groups for reporting purposes consist of:


• Tommy Bahama;

• Ben Sherman;

• Lanier Clothes; and

• Oxford Apparel

Generally, each operating group is differentiated by its own distinctive brands or products, product styling, pricing strategies, distribution channels and target consumers. Each operating group is managed to maximize the return on capital invested and to develop its brands and operations within the operating group in coordination with our overall strategic plans.

Lanier Clothes and Oxford Apparel also sell private label products, which comprised approximately 27% of our consolidated net sales in fiscal 2007. We consider “private label” sales to be sales of products exclusively to one customer under a brand name that is owned or licensed by our retail customer and not owned by us.

We operate in highly competitive domestic and international markets in which numerous U.S-based and foreign apparel firms compete. Our operations are subject to certain risks, many of which are beyond our ability to control or predict. Important factors relating to these risks include, but are not limited to, those described in Part I, Item 1A. Risk Factors.

Operating Groups

Our business is operated through four operating groups: Tommy Bahama, Ben Sherman, Lanier Clothes and Oxford Apparel. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. In connection with the close of fiscal 2007 and due in part to changes in our management reporting structure, we reassessed and changed our operating groups for reporting purposes. Leaders of the operating groups report directly to our Chief Executive Officer. The information below presents certain recent financial information about our operating groups (in thousands). All amounts presented below for previous periods have been restated to reflect the revised operating groups.

Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, LIFO inventory accounting adjustments and other costs that are not allocated to our operating groups.

As discussed in Note 1 of our consolidated financial statements included in this report, we sold the operations of the Womenswear Group in June 2006. The Womenswear Group produced private label women’s sportswear separates, coordinated sportswear, outerwear, dresses and swimwear primarily for mass merchants. For more details on each of our operating groups, see Note 10 of our consolidated financial statements and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, both included in this report. For financial information about geographic areas, see Note 10 of our consolidated financial statements, included in this report.




MANAGEMENT DISCUSSION FROM LATEST 10K

The following discussion and analysis of our operations, cash flows, liquidity and capital resources should be read in conjunction with our consolidated financial statements contained in this report.

OVERVIEW

We generate revenues and cash flow through the design, sale, production and distribution of branded and private label consumer apparel and footwear for men, women and children and the licensing of company-owned trademarks. Our principal markets and customers are located primarily in the United States and, to a lesser extent, the United Kingdom. We source substantially all of our products through third party producers in foreign countries. We primarily distribute our products through our wholesale customers which include chain stores, department stores, specialty stores, specialty catalog retailers, mass merchants and Internet retailers. We also sell products of certain of our owned brands through our own retail stores.

We operate in an industry that is highly competitive. We believe our ability to continuously evaluate and respond to changing consumer demands and tastes across multiple market segments, distribution channels and geographic regions is critical to our success. Although our approach is aimed at diversifying our risks, misjudging shifts in consumer preferences could have a negative affect on future operating results. Other key aspects of competition include brand image, quality, distribution method, price, customer service and intellectual property protection. We believe our size and global operating strategies help us to compete successfully by providing opportunities for operating synergies. Our success in the future will depend on our ability to continue to design products that are acceptable to the markets we serve and to source our products on a competitive basis while still earning appropriate margins.

We are executing a strategy to move towards a business model that is more focused on brands owned or controlled by us. Our decision to follow this strategy is driven in part by the continued consolidation in the retail industry and the increasing concentration of apparel manufacturing in a relatively limited number of offshore markets, trends which make the private label business increasingly more competitively challenging. Significant steps in our execution of this strategy include our June 2003 acquisition of Tommy Bahama; our July 2004 acquisition of Ben Sherman; the divestiture of our private label Womenswear Group in June 2006; the closure of certain of our manufacturing facilities located in Latin America and the associated shifts in our Oxford Apparel and Lanier Clothes operating groups towards package purchases from third party manufacturers primarily in the Far East; and the acquisition of several other trademarks and related operations including Solitude, Arnold Brant and Hathaway. In the future, we will continue to look for opportunities by which we can make further progress with this strategy, including through organic growth in our owned brands, the acquisition of additional brands, and further streamlining of portions of our private label businesses that do not have the potential to meet our operating income expectations.

The most significant factors impacting our results and contributing to the change in diluted net earnings from continuing operations per common share of $2.93 in fiscal 2007 from $2.88 in fiscal 2006 were:


• a $10.0 million, or 14.0%, increase in the operating income of Tommy Bahama primarily due to the increased sales and a reduction in intangible asset amortization expense;

• a $2.0 million, or 18.9%, decrease in the operating income of Ben Sherman primarily as a result of a reduction in net sales and operating income in the United Kingdom and the United States;

• a $13.2 million, or 75.7%, decrease in the operating income of Lanier Clothes primarily due to the challenging conditions and sluggish demand in the tailored clothing market in fiscal 2007;

• a $8.2 million, or 56.3%, increase in operating income in Oxford Apparel primarily due to a reduction in selling, general and administrative expenses and the purchase of a two-thirds interest in the entity that owns the Hathaway trademark in the United States and certain other countries; and

• an effective tax rate of 33.5% and 30.9% in fiscal 2007 and fiscal 2006, respectively. Fiscal 2006 was impacted by the repatriation of certain earnings of our foreign subsidiaries, under the provisions of the American Jobs Creation Act of 2004. We believe our effective tax rate in fiscal 2008 will approximate 34.0% to 34.5%.

RESULTS OF OPERATIONS

The following tables set forth the line items in our consolidated statements of earnings data both in dollars and as a percentage of net sales. The tables also set forth the percentage change of the data as compared to the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as statement of earnings classification of certain expenses may vary by company.

OPERATING GROUPS

Our business is operated through our four operating groups: Tommy Bahama, Ben Sherman, Lanier Clothes and Oxford Apparel. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. In connection with the close of fiscal 2007 and due in part to changes in our management reporting structure, we reassessed and changed our operating groups for reporting purposes. Leaders of the operating groups report directly to our Chief Executive Officer. All amounts presented below for previous periods have been restated to reflect the revised operating groups.

In Tommy Bahama we design, source and market collections of men’s and women’s sportswear and related products under brands that including Tommy Bahama, Indigo Palms and Island Soft. Tommy Bahama’s products can be found in our own retail stores as well as certain department stores and independent specialty stores throughout the United States. The target consumers of Tommy Bahama are affluent 35 and older men and women who embrace a relaxed and casual approach to daily living. Tommy Bahama also licenses its brands for a wide variety of product categories.

Ben Sherman is a London-based designer, marketer and distributor of branded sportswear and footwear. We also license the Ben Sherman name to third parties for various product categories. Ben Sherman was established in 1963 as an edgy, young men’s, “Mod”-inspired shirt brand and has evolved into a global lifestyle brand of apparel and footwear targeted at youthful-thinking men and women ages 19 to 35. We offer a full Ben Sherman sportswear collection as well as tailored clothing, footwear and accessories. Our Ben Sherman products can be found in certain department stores and a variety of independent specialty stores, as well as in our own Ben Sherman retail stores.

Lanier Clothes designs and markets branded and private label men’s suits, sportcoats, suit separates and dress slacks across a wide range of price points. Our Lanier Clothes branded products include Nautica, Kenneth Cole (beginning in fiscal 2008), Dockers, Oscar de la Renta, O Oscar (beginning in fiscal 2008) and Geoffrey Beene, all of which are licensed to us by third parties. In fiscal 2006, we acquired the Arnold Brant brand, which is an upscale tailored brand that is intended to blend modern elements of style with affordable luxury. In addition to the branded businesses, we design and source certain private label tailored clothing products. Significant private label brands include Stafford, Alfani, Tasso Elba and Lands’ End. Our Lanier Clothes products are sold to national chains, department stores, mass merchants, specialty stores, specialty catalog retailers and discount retailers throughout the United States.

Oxford Apparel produces branded and private label dress shirts, suited separates, sport shirts, dress slacks, casual slacks, outerwear, sweaters, jeans, swimwear, westernwear and golf apparel. We design and source certain private label programs for several customers including programs for Land’s End, LL Bean and Eddie Bauer. Owned brands of Oxford Apparel include Oxford Golf, Solitude, Wedge, Kona Wind, Tranquility Bay, Ely, Cattleman and Cumberland Outfitters. Oxford Apparel also owns a two-thirds interest in the entity that in turn owns the Hathaway trademark in the United States and several other countries. Oxford Apparel also licenses from third parties the right to use the Tommy Hilfiger, Dockers and United States Polo Association trademarks for certain apparel products. Our Oxford Apparel products are sold to a variety of department stores, mass merchants, specialty catalog retailers, discount retailers, specialty retailers, “green grass” golf merchants and Internet retailers throughout the United States.

Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions as portions of Lanier Clothes and Oxford Apparel are on the LIFO basis of accounting. Therefore, LIFO inventory accounting adjustments are not allocated to operating groups.

FISCAL 2007 COMPARED TO FISCAL 2006

The discussion below compares our results of operations for fiscal 2007 to those in fiscal 2006. Each percentage change provided below reflects the change between these periods unless indicated otherwise.

Net sales increased $19.8 million, or 1.8%, in fiscal 2007 as a result of the changes in sales as discussed below.

Tommy Bahama reported an increase in net sales of $56.0 million, or 13.7%. The increase was primarily due to an increase in unit sales of 16.6% primarily due to growth in Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim products and an increase in the total number of retail stores from 59 at June 2, 2006 to 68 at June 1, 2007. These factors were partially offset by a decrease in the average selling price per unit of 3.2%, primarily because our sales of Tommy Bahama products at wholesale grew faster than sales at retail.

Ben Sherman reported a decrease in net sales of $9.8 million, or 5.9%. The decrease was primarily due to a decrease in unit sales of 13.5% resulting from a unit sales decline in the United Kingdom and the United States. This decline was primarily due to the continued weakness in the United Kingdom apparel market through much of fiscal 2007 and our efforts to restrict distribution of Ben Sherman products and decreases inventory levels at retail in the United States. This decrease in unit sales was partially offset by an increase in the average selling price per unit of 8.8%, which was primarily due to an 8.6% increase in the average exchange rate between the United States dollar and the British pound sterling.

Lanier Clothes reported a decrease in net sales of $15.3 million, or 8.5%. The decrease was primarily due to a unit sales decrease of 8.5% primarily due to sluggish demand in the tailored clothing market at retail as well as our difficulty in forecasting demand for the combined operations of Macy’s following its merger with May Company and operational issues associated with shifts in sourcing to new locations and repositioning certain of our Lanier Clothes product lines.

Oxford Apparel reported a decrease in net sales of $13.6 million, or 3.9%. The decrease was primarily due to a decrease in the average selling price per unit of 8.0%. This decrease was due to product mix including an increase in the percentage of sales on an FOB Foreign Port basis, which generally have lower sell prices and the exit from certain lines of business. The decrease in the selling price per unit was partially offset by an increase of 4.5% in unit sales, primarily due to new programs in fiscal 2007, including sales of Hathaway branded products.

Gross profit increased 3.7% in fiscal 2007. The increase was due to higher sales, as described above, and higher gross margins. Gross margins increased from 38.9% during fiscal 2006 to 39.7% during fiscal 2007. The increase was primarily due to the increased sales of Tommy Bahama, which has higher gross margins, and decreased sales in the other operating groups. Additionally, we incurred approximately $2.2 million of costs and plant operating losses related to the closure of manufacturing facilities by Oxford Apparel and Lanier Clothes in fiscal 2006.

Our gross profit may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.

Selling, general and administrative expenses, or SG&A, increased 5.3% in fiscal 2007. SG&A was 31.6% of net sales in fiscal 2007 compared to 30.6% in fiscal 2006. The increase in SG&A was primarily due to the expenses associated with opening new Tommy Bahama retail stores and the increase in the average currency exchange rate related to our Ben Sherman business in the United Kingdom. Additionally, in fiscal 2007, we recognized approximately $3.3 million in severance costs in Oxford Apparel, Lanier Clothes and Corporate and Other, and in fiscal 2006 we recognized approximately $1.2 million of restructuring costs primarily related to the consolidation of certain support functions in Oxford Apparel.

Amortization of intangible assets decreased 16.2% in fiscal 2007. The change was primarily due to certain intangible assets acquired as part of our previous acquisitions, which generally have a greater amount of amortization in the earlier periods following the acquisition than later periods. We expect that amortization expense will decrease in future years unless we acquire additional intangible assets with definite lives.

Royalties and other operating income increased 25.2% in fiscal 2007. The increase was primarily due to our share of equity income received from an unconsolidated entity that owns the Hathaway trademark in the United States and several other countries, which was acquired in the first quarter of fiscal 2007, and a pre-tax gain of $2.0 million on the sale of our Monroe, Georgia facility in fiscal 2007.

Operating income increased 2.8% in fiscal 2007 due to the changes discussed below.

Tommy Bahama reported a $10.0 million, or 14.0%, increase in operating income in fiscal 2007. The net increase was primarily due to higher net sales, as discussed above, and a decrease in amortization of intangible assets. This was partially offset by higher SG&A due to the additional Tommy Bahama retail stores opened during fiscal 2007.

Ben Sherman reported a $2.0 million, or 18.9%, decrease in operating income in fiscal 2007. The net decrease was primarily due to the decrease in sales and operating income in the United Kingdom and United States markets which were partially offset by the improved results from our operations in other international markets and the positive impact of foreign currency exchange rates on our earnings from the United Kingdom.

Lanier Clothes reported a $13.2 million, or 75.7%, decrease in operating income in fiscal 2007. The net decrease was primarily due to the sluggish demand in the tailored clothing market and challenging conditions, as discussed above, that resulted in decreased sales and gross margins which included higher inventory markdowns and allowances during fiscal 2007. In fiscal 2007, Lanier Clothes incurred approximately $0.9 million in severance costs, and in fiscal 2006 Lanier Clothes incurred approximately $1.2 million of costs and operating losses related to the closure of a manufacturing facility in Honduras.

Oxford Apparel reported a $8.2 million, or 56.3%, increase in operating income in fiscal 2007. The net increase was primarily due to reduced SG&A resulting from the exit of certain lines of business and a reduction of associated infrastructure, increased equity income from the unconsolidated entity that owns the Hathaway trademark, and a pre-tax gain of $2.0 million from the sale of our Monroe, Georgia facility.

These items were partially offset by the impact of the reduced sales as discussed above. Additionally, in fiscal 2007, we incurred approximately $1.0 million of severance costs in Oxford Apparel, and in fiscal 2006 we recognized approximately $2.2 million of costs related to the closure of manufacturing facilities and the consolidation of certain Oxford Apparel support functions.

The Corporate and Other operating loss increased 2.1% in fiscal 2007. The increase in the operating loss was primarily due to severance costs partially offset by payments we received for certain corporate administrative services we provided to the purchaser of the assets of the Womenswear Group pursuant to a transition services agreement, which will not continue in fiscal 2008.

Interest expense, net decreased 7.3% in fiscal 2007. The decrease in interest expense was due to lower levels of debt during fiscal 2007, partially offset by higher interest rates in fiscal 2007.

Income taxes were at an effective tax rate of 33.5% for fiscal 2007 as compared to 30.9% for fiscal 2006. The fiscal 2006 effective tax rate benefited from the impact of the repatriation of earnings of certain of our foreign subsidiaries and changes in certain contingency reserves. The fiscal 2007 effective tax rate benefited from the reversal of a deferred tax liability in association with a change in our assertion regarding our initial investment in a foreign subsidiary, which is now considered permanently reinvested, partially offset by a change in certain contingency reserves and other adjustments to tax balances arising in prior years. We believe our effective tax rate in fiscal 2008 will approximate 34.0% to 34.5%

Discontinued operations resulted from the disposition of our Womenswear Group operations on June 2, 2006, leading to all Womenswear operations being reclassified to discontinued operations for all periods presented. The decrease in earnings from discontinued operations was primarily due to fiscal 2006 including the full operations and the gain on sale of the Womenswear Group, while fiscal 2007 only included incidental items related to the Womenswear Group.

FISCAL 2006 COMPARED TO FISCAL 2005

The discussion below compares our results of operations for fiscal 2006 to those in fiscal 2005. Each percentage change provided below reflects the change between these periods unless indicated otherwise.

Net sales increased by $52.3 million, or 5.0%, in fiscal 2006. The increase was primarily due to an increase in the average selling price per unit of 2.3% and an increase in unit sales of 2.1%.

Tommy Bahama reported a $9.5 million, or 2.4%, increase in net sales in fiscal 2006. The increase was due primarily to an average selling price per unit increase of 3.3%, excluding the private label business, resulting from increased retail sales and a higher average selling price per unit on branded wholesale business. The increase in retail sales was primarily due to an increase in the number of retail stores from 53 at the end of fiscal 2005 to 59 at the end of fiscal 2006. The higher average selling price per unit on branded wholesale business was due to lower levels of off-price merchandise during fiscal 2006. The net sales increase was partially offset by Tommy Bahama’s exit from the private label business, which accounted for $10.0 million of sales in fiscal 2005 and virtually no sales in fiscal 2006.

Ben Sherman, which we acquired on July 31, 2004, reported a $12.5 million, or 8.1%, increase in net sales in fiscal 2006, primarily due to its inclusion in our results of operations for twelve months in fiscal 2006 as compared to ten months in fiscal 2005. The increase in units sold was partially offset by a decrease in the average selling price per unit which was primarily due to the high level of markdowns and allowances required for our products in fiscal 2006.

Lanier Clothes reported a $7.2 million, or 4.2%, increase in net sales in fiscal 2006. The increase was the result of a 2.5% increase in unit sales and a 1.6% increase in the average selling price per unit. The increase in sales was primarily due to the acquisition of the Arnold Brant business in the second quarter of fiscal 2006. The increase in net sales from Arnold Brant of approximately $11.4 million was partially offset by a decline in net sales in certain branded merchandise of the group.

Oxford Apparel reported a $23.6 million, or 7.2%, increase in net sales in fiscal 2006. The increase was primarily due to a 3.6% increase in the average selling price per unit and a 3.4% increase in units shipped. The increase in unit sales was due to new marketing initiatives, including our Solitude and Wedge brands and certain dress shirt replenishment programs, partially offset by decreases in other replenishment programs. The increase in average selling price per unit was due to product mix.

Gross profit increased 7.1% in fiscal 2006. The increase was due to higher sales and higher gross margins. Gross margins increased from 38.2% of net sales in fiscal 2005 to 38.9% of net sales in fiscal 2006. The increase was primarily due to the increased margins of Tommy Bahama partially offset by the sales increases in the lower-margin Oxford Apparel and Lanier Clothes and the one-time costs of approximately $2.2 million associated with the closure of four manufacturing facilities in Oxford Apparel and Lanier Clothes in fiscal 2006.

Our gross profit may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.

Selling, general and administrative expenses, increased 7.8% during fiscal 2006. SG&A was 29.8% of net sales in fiscal 2005 compared to 30.6% of net sales in fiscal 2006. The increase in SG&A was primarily due to:


• the ownership of Ben Sherman, which has a higher SG&A structure than certain of our other operating groups, for twelve months in fiscal 2006 compared to ten months in fiscal 2005;

• additional Tommy Bahama retail stores;

• expenses associated with the start-up of new marketing initiatives in Oxford Apparel;

• costs of approximately $1.2 million associated with the consolidation of certain support functions in Oxford Apparel; and

• operating expenses of the Arnold Brant business in Lanier Clothes which has a higher SG&A structure than the rest of Lanier Clothes.

Amortization of intangible assets decreased 11.4% in fiscal 2006. The decrease was due to certain intangible assets acquired as part of our acquisitions of Tommy Bahama and Ben Sherman, which have a greater amount of amortization in the earlier periods following the acquisition than later periods. This decline was partially offset by recognizing amortization related to the intangible assets acquired in the Ben Sherman transaction for the entire period during the twelve months of fiscal 2006 compared to only ten months in the prior year.

Royalties and other operating income increased 9.0% in fiscal 2006. The increase was primarily due to the benefit of licensing related to Ben Sherman for the entire twelve months of fiscal 2006, as well as higher royalty income from existing and additional licenses for the Tommy Bahama brand.

Operating income increased 6.3% in fiscal 2006 primarily due to the net effect of the following factors:

Tommy Bahama reported an increase of $17.4 million, or 32.1%, in operating income in fiscal 2006. The increase in operating income was primarily due to:


• improvements in gross margins due to higher retail sales, improvements in product sourcing and improved inventory management, which resulted in reduced markdowns;

• exiting the private label business, which produced lower margins; and

• reduced amortization expense related to intangible assets.

Ben Sherman reported a $12.0 million, or 53.7%, decrease in operating income in fiscal 2006. The decline was primarily due to poorly performing product lines, which resulted in markdowns, allowances and returns in fiscal 2006.

Lanier Clothes reported a $4.0 million, or 18.5%, decrease in operating income in fiscal 2006. The decline was primarily due to the closure of manufacturing facilities as discussed above and the operating loss experienced by the Arnold Brant business while it was being integrated into our operations.

Oxford Apparel operating income was relatively flat in fiscal 2006 compared to fiscal 2005. The impact of the sales increase was offset by the closure of manufacturing facilities, consolidation of support functions and streamlining of operations discussed above.

Corporate and Other operating loss decreased $4.4 million, or 21.8%, in fiscal 2006. The decrease in operating loss was primarily due to decreased parent company expenses, including a decrease in incentive compensation.

Interest expense , net decreased 8.3% in fiscal 2006. The decrease in interest expense was primarily due to a non-recurring $1.8 million charge recognized in the first quarter of fiscal 2005 related to the refinancing of our U.S. revolving credit facility in July 2004 and lower debt levels in fiscal 2006, partially offset by higher interest rates during fiscal 2006.

Income taxes were at an effective tax rate of 30.9% for fiscal 2006 compared to 33.5% for fiscal 2005. The fiscal 2006 effect tax rate benefited from the impact of the repatriation of earnings of certain of our foreign subsidiaries and changes in certain contingency reserves. The fiscal 2005 effective tax rate benefited from changes in certain contingency reserves.

Discontinued operations resulted from the disposition of our Womenswear Group operations on June 2, 2006, leading to all Womenswear Group operations being reclassified to discontinued operations for all periods presented and diluted earnings from discontinued operations per common share of $1.08 in fiscal 2006 and $0.34 in fiscal 2005. The increase in earnings from gain on sale and discontinued operations was primarily due to the gain on the sale of our Womenswear Group operations and higher sales in fiscal 2006.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our primary source of revenue and cash flow is our operating activities in the United States and to some extent the United Kingdom. When cash inflows are less than cash outflows, subject to their terms, we also have access to amounts under our U.S. Revolver and U.K. Revolver, each of which are described below. We may seek to finance future capital investment programs through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities and sales of debt or equity securities.

Our liquidity requirements arise from the funding of our working capital needs, which include inventory, other operating expenses and accounts receivable, funding of capital expenditures, payment of quarterly dividends, repayment of our indebtedness and acquisitions, if any. Generally, our product purchases are acquired through trade letters of credit which are drawn against our lines of credit at the time of shipment of the products and reduce the amounts available under our lines of credit when issued.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-KT for the eight-month transition period ended February 2, 2008.
OVERVIEW
We generate revenues and cash flow through the design, production, sale and distribution of branded and private label consumer apparel and footwear for men, women and children and the licensing of company-owned trademarks. Our principal markets and customers are located in the United States and, to a lesser extent, the United Kingdom. We source substantially all of our products through third-party producers located outside the United States and United Kingdom. We distribute the majority of our products through our wholesale customers, which include chain stores, department stores, specialty stores, specialty catalog retailers, mass merchants and Internet retailers. We also sell products of certain owned brands through our owned and licensed retail stores and e-commerce websites.
Fiscal 2008 has been a challenging time for the retail and apparel industry as a result of the weak economic conditions which began in the second half of calendar year 2007 and significantly deteriorated further in the third quarter of fiscal 2008. These conditions impacted each of our operating groups, and we expect that challenging economic conditions will continue into fiscal 2009. Therefore, we have continued to plan inventory purchases conservatively, which will limit our sales growth opportunities for the remainder of fiscal 2008 and fiscal 2009. This strategy, however, will also mitigate inventory markdown risk and promotional pressures, while also protecting the integrity of our brands. In the current economic environment, it is important that we continue to focus on maintaining our balance sheet and liquidity by reducing working capital requirements, moderating our capital expenditures for future retail stores and reducing our overhead.
Diluted net earnings per common share were $0.31 in the third quarter of fiscal 2008 and $0.76 in the three months ended November 2, 2007. The most significant factors impacting our results during the third quarter of fiscal 2008 are discussed below:
• Tommy Bahama’s operating income decreased $10.6 million, or 93.9%, during the third quarter of fiscal 2008 compared to the three months ended November 2, 2007. The decrease was primarily due to the impact of the current economic environment on sales at our owned retail stores and in our wholesale business and higher SG&A expenses associated with operating additional retail stores. These factors were partially offset by reductions in overhead during the third quarter of fiscal 2008. The third quarter historically has been Tommy Bahama’s weakest quarter at our owned retail stores, but the third quarter of fiscal 2008 was particularly weak as a result of significantly diminished traffic during September and October.

• Ben Sherman’s operating income decreased $2.4 million, or 42.1%, during the third quarter of fiscal 2008 compared to the three months ended November 2, 2007. The decrease in operating income was primarily due to lower sales in our United Kingdom business as we exited certain lower tier customer accounts that were still active in the three months ended November 2, 2007 as part of our efforts to reposition the brand, the current economic conditions and the impact of the weaker British pound versus the U.S. dollar during the third quarter of fiscal 2008. The impact of the sales decrease in the United Kingdom was partially offset by increased sales in other markets and reductions in overhead.

• Lanier Clothes’ operating income increased $1.9 million, or 71.2%, during the third quarter of fiscal 2008 compared to the three months ended November 2, 2007. This increase in operating income was primarily attributable to reductions in SG&A. Net sales declined during the third quarter of fiscal 2008 compared to the three months ended November 2, 2007 primarily due to the winding down of the Oscar de la Renta and Nautica licensed businesses, the restructuring of the Arnold Brant business and the impact of the weak demand in the tailored clothing market. The sales decline resulted in a decline in gross profit which was more than offset by the reductions in overhead.

• Oxford Apparel’s operating income was flat during the third quarter of fiscal 2008 compared to the three months ended November 2, 2007. The third quarter of fiscal 2008 provided lower sales levels due to the current economic conditions and our continued focus on key product categories and lines of business. The impact of the lower sales was offset by a significant reduction in SG&A in the third quarter of fiscal 2008. Also, the same period of the prior year included charges totaling $1.0 million associated with the sale of Oxford Apparel’s last owned manufacturing facility.

• Corporate and Other’s operating loss decreased $0.8 million, or 22.8%, in the third quarter of fiscal 2008 compared to the three months ended November 2, 2007. This decrease in operating loss was primarily due to the impact of lower corporate SG&A.
ACCELERATED SHARE REPURCHASE PROGRAM
On May 22, 2008, at the conclusion of our accelerated share repurchase program which we entered into in November 2007, we received an additional 0.6 million shares of our common stock, bringing the total number of shares received pursuant to the program to 2.5 million. This accelerated share repurchase program is complete and we will not receive any additional shares in the future pursuant to this program. For further information regarding our $60 million accelerated share repurchase program, see Note 5 to our unaudited condensed consolidated financial statements included in this report.
U.S. REVOLVING CREDIT AGREEMENT
On August 15, 2008, we amended and restated the Prior Credit Agreement. The U.S. Revolving Credit Agreement provides for a revolving credit facility which may be used to refinance existing funded debt, to fund working capital, to fund future acquisitions and for general corporate purposes. The U.S. Revolving Credit Agreement provides for a revolving credit facility of up to $175 million, which may be increased by up to $100 million by us subject to certain conditions, and is scheduled to mature August 15, 2013. The Prior Credit Agreement provided for a revolving credit facility of up to $280 million and was scheduled to mature in July 2009. See Note 7 to our unaudited condensed consolidated financial statements included in this report for further information regarding our U.S. Revolving Credit Agreement including limitations on the borrowing base, interest rates on advances, security for the facility, and financial, affirmative and negative covenants. As a result of amending and restating the U.S. Revolving Credit Agreement during the third quarter of fiscal 2008 we wrote off approximately $0.9 million of unamortized financing costs incurred in connection with the Prior Credit Agreement.
RESULTS OF OPERATIONS
The following table sets forth the line items in our consolidated statements of earnings (in thousands) and the percentage change during the third quarter of fiscal 2008 as compared to the three months ended November 2, 2007 and the first nine months of fiscal 2008 compared to the nine months ended November 2, 2007. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as statement of earnings classification of certain expenses may vary by company.

OPERATING GROUP INFORMATION
Our business is operated through our four operating groups: Tommy Bahama, Ben Sherman, Lanier Clothes and Oxford Apparel. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. The leader of each operating group reports directly to our Chief Executive Officer.
Tommy Bahama designs, sources and markets collections of men’s and women’s sportswear and related products. Tommy Bahama® products can be found in our own retail stores and on our Tommy Bahama e-commerce website as well as in certain department stores and independent specialty stores throughout the United States. The target consumers of Tommy Bahama are affluent 35 and older men and women who embrace a relaxed and casual approach to daily living. We also license the Tommy Bahama name for a wide variety of product categories.
Ben Sherman is a London-based designer, marketer and distributor of branded sportswear and footwear. Ben Sherman® was established in 1963 as an edgy, young men’s, “Mod”-inspired shirt brand and has evolved into a British lifestyle brand of apparel and footwear targeted at youthful-thinking men and women ages 19 to 35 throughout the world. We offer a full Ben Sherman sportswear collection, as well as tailored clothing, footwear and accessories. Our Ben Sherman products can be found in certain department stores and a variety of independent specialty stores, as well as in our owned and licensed Ben Sherman retail stores and on our Ben Sherman e-commerce websites. We also license the Ben Sherman name to third parties for various product categories.
Lanier Clothes designs and markets branded and private label men’s suits, sportcoats, suit separates and dress slacks across a wide range of price points. Certain Lanier Clothes products are sold using trademarks licensed to us by third parties, including Kenneth Cole®, Dockers®, Geoffrey Beene® and Nautica, although we are exiting the Nautica business as discussed elsewhere in this report. We also offer tailored clothing products under the Arnold Brant and Billy London® trademarks, both of which are brands owned by us. In addition to our branded businesses, we design and source certain private label tailored clothing products. Significant private label brands include Stafford®, Alfani®, Tasso Elba® and Lands’ End®. Our Lanier Clothes products are sold to national chains, department stores, mass merchants, specialty stores, specialty catalog retailers and discount retailers throughout the United States.
Oxford Apparel produces branded and private label dress shirts, suited separates, sport shirts, casual slacks, outerwear, sweaters, jeans, swimwear, westernwear and golf apparel. We design and source certain private label programs for several customers, including programs for Men’s Wearhouse, Lands’ End, Target, Macy’s Inc. and Sears. Significant owned brands of Oxford Apparel include Oxford Golf®, Ely®, Cattleman® and Cumberland Outfitters®. Oxford Apparel also owns a two-thirds interest in the entity that owns the Hathaway® trademark in the United States and several other countries. Additionally, Oxford Apparel licenses from third parties the right to use the Dockers, United States Polo Association® and Tommy Hilfiger® trademarks for certain apparel products. Our Oxford Apparel products are sold to a variety of department stores, mass merchants, specialty catalog retailers, discount retailers, specialty stores, “green grass” golf merchants and Internet retailers throughout the United States.
Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions, as portions of Lanier Clothes and Oxford Apparel are on the LIFO basis of accounting. Therefore, LIFO inventory accounting adjustments are not allocated to operating groups.

THIRD QUARTER OF FISCAL 2008 COMPARED TO THREE MONTHS ENDED NOVEMBER 2, 2007
The discussion below compares our operating results for the third quarter of fiscal 2008 to the three months ended November 2, 2007. Each percentage change provided below reflects the change between these periods unless indicated otherwise.
Net sales decreased $42.1 million, or 14.7%, in the third quarter of fiscal 2008 compared to the three months ended November 2, 2007 primarily as a result of the changes discussed below.
Tommy Bahama’s net sales decreased by $19.2 million, or 18.7%. The decrease was primarily due to the diminished traffic at our owned retail stores during the third quarter of fiscal 2008 due to the difficult retail environment. Tommy Bahama’s wholesale business was also impacted by the difficult retail environment. This decrease in sales in our existing owned retail stores and in our wholesale business was partially offset by retail sales at our 10 retail stores opened after August 4, 2007, which was the first day of the three months ended November 2, 2007, and e-commerce sales which commenced in October 2007. We operated 79 Tommy Bahama retail stores on November 1, 2008 compared to 72 retail stores on November 2, 2007. Unit sales decreased 23.1% due to the difficult retail environment at our own retail stores and our wholesale customers’ stores during the third quarter of fiscal 2008. The average selling price per unit increased by 3.8%, as sales at our retail stores and our e-commerce sales, both of which have higher average sales prices than wholesale sales, represented a greater proportion of total Tommy Bahama sales in the current year.
Ben Sherman’s net sales decreased $8.4 million, or 18.1%. The decrease in net sales was primarily due to lower sales in our United Kingdom wholesale business. The lower sales in the United Kingdom were primarily due to our exit from certain lower tier customer accounts that were still active in the three months ended November 2, 2007 as part of our efforts to reposition the brand, the impact of the British pound being 12% weaker compared to the U.S. dollar during the third quarter of fiscal 2008 compared to the prior year and the impact of the current economic environment. These declines were partially offset by increased sales in other markets. During the third quarter of fiscal 2008, unit sales for Ben Sherman declined 19.6% due primarily to the decline in the United Kingdom wholesale business noted above. The average selling price per unit increased 1.9%, primarily due to obtaining higher price points in the current year, partially offset by the impact of the weaker British pound.
Lanier Clothes’ net sales decreased $8.5 million, or 16.2%. The decrease was primarily due to the winding down of the Oscar de la Renta and Nautica licensed businesses, the restructuring of the Arnold Brant business and the impact of the weak demand in the tailored clothing market. These items resulted in lower unit sales of 8.8% and lower average selling price per unit of 8.1%.
Oxford Apparel’s net sales decreased $5.3 million, or 6.3%. The decrease in net sales was anticipated in connection with our strategy to focus on key product categories and exit underperforming lines of business, but was also impacted by the current economic conditions. Unit sales decreased by 3.8% primarily due to our exit from certain product categories and the current economic conditions, and the average selling price per unit decreased by 2.6% due to changes in product mix.
Gross profit decreased $18.6 million, or 16.6%, in the third quarter of fiscal 2008. The decrease was due to lower sales in each operating group as described above, and lower gross margins. Gross margins decreased to 38.3% of net sales during the third quarter of fiscal 2008 from 39.2% in the same period of the prior year. The decrease in gross margins was primarily due to the decreased proportion of Tommy Bahama and Ben Sherman sales in the current year, which generally have higher gross margins than our Lanier Clothes and Oxford Apparel businesses. Gross margins for both the Tommy Bahama and Ben Sherman businesses were flat compared to the same period in the prior year.
Our gross profit may not be directly comparable to those of our competitors, as statement of earnings classifications of certain expenses may vary by company.
SG&A expenses decreased $8.2 million, or 8.8%, in the third quarter of fiscal 2008. SG&A was 34.7% of net sales in the third quarter of fiscal 2008 compared to 32.4% in the three months ended November 2, 2007. Reductions in employment and other costs in each operating group were partially offset by increased expenses associated with operating additional Tommy Bahama retail stores and approximately $0.6 million of severance costs in the third quarter of fiscal 2008. The increase in SG&A as a percentage of net sales was due to the reduction in net sales, as discussed above.
Amortization of intangible assets decreased $0.5 million, or 43.6%, in the third quarter of fiscal 2008. Intangible assets generally have a greater amount of amortization in the earlier periods following an acquisition than in later periods and therefore decrease over time, which is the primary reason for our lower amortization expense.
Royalties and other operating income decreased $0.4 million, or 8.3%, in the third quarter of fiscal 2008. The decrease was due to decreased royalty income in Ben Sherman partially due to the impact of the weaker British pound during the third quarter of fiscal 2008.
Operating income decreased $10.3 million, or 44.4%, in the third quarter of fiscal 2008 primarily due to the changes discussed below.
Tommy Bahama’s operating income decreased $10.6 million, or 93.9%. The decrease was primarily due to the decreased net sales resulting from the difficult retail environment described above. Higher SG&A expenses associated with operating additional retail stores in the third quarter of fiscal 2008 were partially offset by reductions in overhead in other areas, including employee compensation costs.
Ben Sherman’s operating income decreased $2.4 million, or 42.1%. The decrease in operating income was primarily due to lower sales in our United Kingdom wholesale business, lower royalty income in the third quarter of fiscal 2008 and the weaker British pound during the third quarter of fiscal 2008, each as discussed above. These declines were partially offset by the higher sales in our United States wholesale business and reductions in overhead costs during the third quarter of fiscal 2008.

Lanier Clothes’ operating income increased $1.9 million, or 71.2%. The increase in operating income was primarily due to reductions to SG&A including reductions in royalty, selling, advertising and employment costs partially offset by the reduction in gross profit from the lower reported sales, as discussed above.
Oxford Apparel’s operating income was flat in the third quarter of fiscal 2008. The third quarter of fiscal 2008 provided lower sales levels, as discussed above. The impact of the lower sales was offset by a significant reduction in SG&A in the third quarter of fiscal 2008. The same period of the prior year included charges totaling $1.0 million associated with the sale of Oxford Apparel’s last owned manufacturing facility.
Corporate and Other’s operating loss decreased $0.8 million, or 22.8%. The decrease in the operating loss was primarily due to the impact of lower corporate SG&A.
Interest expense, net increased $0.9 million, or 16.6%, in the third quarter of fiscal 2008. The increase in interest expense was primarily due to the write off of $0.9 million of unamortized financing costs during the third quarter of fiscal 2008 as a result of our amendment and restatement of our U.S. Revolving Credit Agreement and higher average debt outstanding during the period. The higher average debt outstanding was primarily a result of our $60 million accelerated share repurchase program in November 2007 and our acquisition of Tommy Bahama’s third-party buying agent on February 1, 2008, both of which were initially funded through borrowings under our Prior Credit Agreement. The additional borrowings to fund these two transactions were partially offset by positive cash flow from operating activities and reductions in working capital subsequent to November 2, 2007. The impact on interest expense of the write off of unamortized financing costs and higher average debt outstanding were partially offset by lower interest rates in the third quarter of fiscal 2008.
Income Taxes were at an effective rate of 26% for the third quarter of fiscal 2008 compared to 23% for the three months ended November 2, 2007. The rates for both periods were impacted by certain items which may not be present in future periods. The third quarter of fiscal 2008 was impacted by lower projected earnings for fiscal 2008 which resulted in favorable permanent differences having a greater impact on the overall tax rate. The three months ended November 2, 2007 benefitted from the change in the enacted tax rate in the United Kingdom. Based on current year earnings projections, we believe that the annual effective tax rate, before the impact of any discrete items, will be approximately 30%. However, that rate may change as the impact of certain permanent items on our tax rate will change if net earnings vary from our expectations.
Diluted net earnings per common share decreased to $0.31 in the third quarter of fiscal 2008 from $0.76 in the three months ended November 2, 2007, due to the changes in the operating results discussed above, partially offset by the reduction in the weighted average shares outstanding during the period as a result of our receipt of approximately 1.9 million and 0.6 million shares of our common stock in November 2007 and May 2008, respectively.
FIRST NINE MONTHS OF FISCAL 2008 COMPARED TO NINE MONTHS ENDED NOVEMBER 2, 2007
The discussion below compares our operating results for the first nine months of fiscal 2008 to the nine months ended November 2, 2007. Each percentage change provided below reflects the change between these periods unless indicated otherwise.
Net sales decreased $75.7 million, or 9.2%, in the first nine months of fiscal 2008 compared to the nine months ended November 2, 2007 primarily as a result of the changes discussed below.
Tommy Bahama’s net sales decreased $24.1 million, or 6.9%. The decrease was primarily due to a reduction in net sales at wholesale and in our existing owned retail stores resulting from the difficult retail environment, particularly in the third quarter of fiscal 2008. This decrease in wholesale sales and existing store retail sales was partially offset by increased retail sales at our retail stores opened after February 3, 2007, which was the first day of the nine months ended November 2, 2007, and sales on Tommy Bahama’s e-commerce website which commenced in October 2007. Unit sales decreased 11.5% due to the difficult retail environment at our own retail stores and our wholesale customers’ stores during the first nine months of fiscal 2008. The average selling price per unit increased by 3.9%, as sales at our retail stores and our e-commerce sales, both of which have higher sales prices than wholesale, represented a greater proportion of total Tommy Bahama sales.
Ben Sherman’s net sales decreased $15.1 million, or 12.3%. The decrease in net sales was primarily due to lower sales in our United Kingdom wholesale business and our United States wholesale business. The lower sales in the United Kingdom were primarily due to our exit from certain lower tier customer accounts that were still active in the nine months ended November 2, 2007 as part of our efforts to reposition the brand, the impact of the British pound being 5% weaker during fiscal 2008 compared to the prior year and the impact of the current economic environment. The decrease in our United States wholesale business was partially due to reduced off-price sales in the current year and our exit from the Evisu apparel business during calendar year 2007. These declines were partially offset by increased sales at our owned retail stores and increased sales in markets outside of the United Kingdom and United States. During the first nine months of fiscal 2008, unit sales for Ben Sherman declined by 12.9% due primarily to the decline in the United Kingdom and United States wholesale businesses. The average selling price per unit increased 0.6%, resulting primarily from a larger percentage of total Ben Sherman sales being sales at our retail stores and obtaining higher price points in the current year, which were partially offset by the impact of the weaker British pound.
Lanier Clothes’ net sales decreased $15.9 million, or 12.5%. The decrease was primarily due to continuing weak demand in the tailored clothing market, the winding down of the Oscar de la Renta and Nautica licensed businesses and the restructuring of the Arnold Brant business in fiscal 2008. These factors resulted in a decrease in unit sales of 8.7% and a decrease in the average selling price per unit of 4.1% during the first nine months of fiscal 2008.
Oxford Apparel’s net sales decreased $18.0 million, or 8.1%. The decrease in net sales was generally anticipated in connection with our strategy to focus on key product categories and exit underperforming lines of business, but was also impacted by the current economic conditions. Unit sales decreased by 5.4% as a result of the exit of certain lines of business, and the average selling price per unit decreased by 2.8% due to changes in product mix.
Gross profit decreased $29.2 million, or 8.7%, in the first nine months of fiscal 2008. The decrease was due to lower sales in each operating group, as described above. Gross margins increased to 41.0% of net sales during the first nine months of fiscal 2008 from 40.8% in the nine months ended November 2, 2007. The increase was primarily due to the increased proportion of Tommy Bahama and Ben Sherman sales, which generally have higher gross margins than our Lanier Clothes and Oxford Apparel businesses. Gross margins for both Tommy Bahama and Ben Sherman improved compared to the nine months ended November 2, 2007, which was partially due to a greater proportion of retail sales in the current year.
Our gross profit may not be directly comparable to those of our competitors, as statement of earnings classifications of certain expenses may vary by company.
SG&A decreased $2.1 million, or 0.8%, in the first nine months of fiscal 2008. SG&A was 36.5% of net sales in the first nine months of fiscal 2008 compared to 33.4% in the nine months ended November 2, 2007. The decrease in SG&A was primarily due to reductions in employment costs and the resolution of a contingent liability during fiscal 2008. These reductions were partially offset by expenses associated with operating additional Tommy Bahama retail stores in fiscal 2008 and certain restructuring charges incurred in the second quarter and third quarter of fiscal 2008. The increase in SG&A as a percentage of net sales was due to the reduction in net sales, as discussed above.
Amortization of intangible assets increased $1.3 million, or 30.6%, in the first nine months of fiscal 2008. The increase was primarily due to $3.3 million of impairment charges, taken in the second quarter of fiscal 2008, related to the Arnold Brant and Solitude intangible assets in Lanier Clothes and Oxford Apparel, respectively. These charges were partially offset by a decrease in amortization expense as amortization is typically greater in the earlier periods following an acquisition.
Royalties and other operating income decreased $1.4 million, or 9.3%, in the first nine months of fiscal 2008. The decrease was primarily due to the nine months ended November 2, 2007 including a $2.0 million gain related to the sale of our Monroe, Georgia facility by the Oxford Apparel Group. This decrease was partially offset by the sale of a trademark in the second quarter of fiscal 2008.
Operating income decreased $29.8 million, or 42.1%, in the first nine months of fiscal 2008 primarily due to the changes discussed below.
Tommy Bahama’s operating income decreased $20.4 million, or 34.8%. The decrease was primarily due to reduced sales, as discussed above, and higher SG&A expenses due to operating costs of additional retail stores which were partially offset by reductions in other overhead costs during fiscal 2008.
Ben Sherman’s operating income decreased $4.3 million, or 74.3%. The decrease was primarily due to lower sales in our United Kingdom and United States wholesale businesses, as discussed above.
Lanier Clothes’ operating results declined $8.8 million. The decline in operating results was primarily due to restructuring charges incurred in the second quarter of fiscal 2008 and lower sales during fiscal 2008, as discussed above. In the second quarter of fiscal 2008, we incurred restructuring charges totaling $9.2 million associated with our exit from the Nautica and O Oscar licensed businesses and the restructuring of our Arnold Brant business. The restructuring charges include costs associated with disposal of inventory, license termination fees, the impairment of the intangible assets associated with the Arnold Brant business, severance costs and the impairment of certain property, plant and equipment.
Oxford Apparel’s operating income decreased $1.3 million, or 7.3%. The decrease was primarily attributable to (1) a $2.0 million gain related to the sale of our Monroe, Georgia facility in April 2007 and (2) the second quarter fiscal 2008 impairment of the Solitude trademark and certain other costs associated with exiting the Solitude business. These items were partially offset by (1) a significant reduction in overhead in fiscal 2008, (2) the resolution of a contingent liability in the second quarter of fiscal 2008 and (3) charges totaling $1.0 million associated with the sale of Oxford Apparel’s last owned manufacturing facility in the same period of the prior year.
The Corporate and Other operating loss decreased 37.7%. The decrease in the operating loss was primarily due to the impact of LIFO accounting and lower employee compensation costs in the current year.
Interest expense, net increased $2.8 million, or 17.2%, in the first nine months of fiscal 2008. The increase in interest expense was primarily due to a higher average debt outstanding during the period and the write off of $0.9 million of unamortized financing costs as a result of our amendment and restatement of our U.S. Revolving Credit Agreement in August 2008. The higher average debt outstanding was primarily a result of our $60 million accelerated share repurchase program in November 2007 and our acquisition of Tommy Bahama’s third-party buying agent on February 1, 2008, both of which were funded through borrowings under our Prior Credit Agreement. The additional borrowings to fund these two transactions were partially offset by positive cash flow from operating activities and reductions in working capital subsequent to November 2, 2007. The impact on interest expense of the higher average debt outstanding and the write off of unamortized financing costs were partially offset by lower interest rates in the third quarter of fiscal 2008.
Income Taxes were at an effective rate of 29% for the first nine months of fiscal 2008 and 28% for the nine months ended November 2, 2007. The rates for both periods were impacted by certain items which may not be present in future periods. The first nine months of fiscal 2008 benefitted from lower operating income, which resulted in favorable permanent differences having a greater impact on the overall tax rate. The nine months ended November 2, 2007 benefitted from the reversal of a deferred tax liability in association with a change in our assertion regarding our initial investment in a foreign subsidiary which is now considered permanently reinvested and a change in the enacted tax rate in the United Kingdom.
Diluted net earnings per common share decreased to $1.00 in the first nine months of fiscal 2008 from $2.20 in the nine months ended November 2, 2007, primarily due to the sales declines resulting from the current economic conditions discussed above, and restructuring charges taken in the second and third quarters of fiscal 2008. This decline in net earnings was partially offset by the reduction in the weighted average shares outstanding during the period as a result of our receipt of approximately 1.9 million and 0.6 million shares of our common stock in November 2007 and May 2008, respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is our operating activities in the United States and, to a lesser extent, the United Kingdom. When cash inflows are less than cash outflows, subject to their terms, we also have access to amounts under our U.S. Revolving Credit Agreement (or the Prior Credit Agreement before August 15, 2008) and U.K. Revolving Credit Agreement, each of which are described below. We may seek to finance future capital investment programs through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities and sales of debt or equity securities.
Our liquidity requirements arise from the funding of our working capital needs, which include inventory, other operating expenses and accounts receivable, funding of capital expenditures, payment of quarterly dividends, periodic interest payments related to our financing arrangements, repayment of our indebtedness and acquisitions, if any. Our product purchases are often acquired through trade letters of credit which are drawn against our lines of credit at the time of shipment of the products and which reduce the amounts available under our lines of credit when issued.
Cash and cash equivalents on hand was $8.0 million at November 1, 2008 and $12.0 million at November 2, 2007.
Operating Activities
During the first nine months of fiscal 2008 and the nine months ended November 2, 2007, our operations generated $61.3 million and $9.2 million of cash, respectively. The operating cash flows were primarily the result of earnings for the period, adjusted for non-cash activities such as depreciation, amortization and stock compensation expense and changes in our working capital accounts. In the first nine months of fiscal 2008 the significant changes in working capital from February 2, 2008 were a decrease in inventory levels and an increase in accounts receivable, as discussed below. In the nine months ended November 2, 2007, the significant changes in working capital from February 2, 2007 were a decrease in inventory, an increase in accounts receivables, a decrease in accounts payable and an increase in other non-current liabilities, each as discussed below.
Our working capital ratio, which is calculated by dividing total current assets by total current liabilities, was 2.14:1 and 2.93:1 at November 1, 2008 and November 2, 2007, respectively. The change from November 2, 2007 was primarily due to the significant reductions in accounts receivable and inventory and higher debt levels included in total current liabilities at November 1, 2008.
Receivables were $120.0 million and $156.4 million at November 1, 2008 and November 2, 2007, respectively, representing a decrease of 23% which was primarily due to lower wholesale sales in the last two months of the third quarter of fiscal 2008 compared to the months of September and October of 2007.
Inventories were $108.6 million and $155.8 million at November 1, 2008 and November 2, 2007, respectively, representing a decrease of 30%. Inventory for Tommy Bahama was comparable to the prior year, primarily due to a tighter inventory buy in the current year, which offset the inventory necessary to support additional retail stores. Ben Sherman inventory was lower in the current year primarily due to the impact of the weaker British pound. Lanier Clothes inventory levels decreased significantly in the current year as we have reduced the amount of excess inventories from prior year levels and due to the impact of exiting certain business lines, as discussed above. Inventory levels for Oxford Apparel decreased compared to the prior year, primarily due to inventory reductions in replenishment programs and the exit of certain programs. Our days’ supply of inventory on hand, using FIFO basis, was 98 days and 118 days as of November 1, 2008 and November 2, 2007, respectively, primarily due to the changes in the operating group inventories discussed above.
Prepaid expenses were $21.1 million and $22.0 million at November 1, 2008 and November 2, 2007, respectively. The decrease in prepaid expenses was primarily due to the timing of payments for certain operating expenses and changes in deferred income taxes resulting from certain timing differences related to employee compensation amounts.
Current liabilities were $120.3 million and $118.0 million at November 1, 2008 and November 2, 2007, respectively. The increase in current liabilities was primarily due to certain outstanding debt being classified as current at November 1, 2008 partially offset by the reductions in payables accounts primarily due to lower inventory levels.
Other non-current liabilities, which primarily consist of deferred rent and deferred compensation amounts, were $50.6 million and $51.7 million at November 1, 2008 and November 2, 2007, respectively. The decrease was primarily due to the decline in the market values of certain deferred compensation plans, which was partially offset by recognition of additional deferred rent amounts during the 12 months subsequent to November 2, 2007.
Non-current deferred income taxes were $54.4 million and $66.7 million at November 1, 2008 and November 2, 2007, respectively. The change resulted from the impact of changes in book to tax differences for depreciation, deferred compensation and amortization of intangible assets, a distribution from a foreign subsidiary in January 2008 and the weaker British pound at November 1, 2008 compared to the exchange rate on November 2, 2007.
Investing Activities
During the first nine months of fiscal 2008 investing activities used $17.9 million of cash including $17.3 million for capital expenditures, primarily related to new retail stores and costs associated with our implementation of new integrated financial systems which is currently in process. During the nine months ended November 1, 2007, investing activities used $44.5 million of cash. These investing activities included $25.4 million of capital expenditures primarily related to new retail stores and the payment of $22.1 million for the final earn-out payment for the 2003 Tommy Bahama acquisition in August 2007, which were partially offset by $2.5 million of proceeds from the sale of our Monroe, Georgia facility in April 2007.
Non-current asset s, including property, plant and equipment, goodwill, intangible assets and other non-current assets, decreased from November 2, 2007 to November 1, 2008 primarily due to the impact of the weaker British pound at November 1, 2008 compared to the prior year, depreciation related to our property, plant and equipment, impairment and amortization of certain intangible assets, changes in market values of deferred compensation investments and amortization of deferred financing costs subsequent to November 1, 2007. These decreases were partially offset by the increase in goodwill resulting from our acquisition of Tommy Bahama’s third-party buying agent on February 1, 2008 for approximately $35 million and capital expenditures for our new retail stores.
Financing Activities
During the first nine months of fiscal 2008, financing activities used $49.5 million of cash. The cash flow provided by our operating activities in excess of cash flows used in investing activities and the four quarterly dividends paid totaling $11.6 million were used to repay amounts outstanding under our U.S. Revolver. During the third quarter of fiscal 2008, we paid $1.7 million of financing costs associated with the amendment and restatement of our U.S. Revolving Credit Agreement.
During the nine months ended November 1, 2007, financing activities provided $16.5 million of cash as we borrowed additional funds to supplement cash flows from operating activities and to pay three quarterly dividends totaling $9.6 million during the nine month period. Financing activities for the period also included cash received related to the exercise of employee stock options during the nine month period ended November 2, 2007 totaling $3.9 million.

CONF CALL

Anne M. Shoemaker

Thank you [Gwen] 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 the financial condition of the company to differ are discussed in the documents filed by the company with the SEC. The company undertakes no duty to update any forward-looking statements. For your reference, a reconciliation of the non-GAAP financial measures discussed during this Q&A to GAAP financial measures is set forth in our earnings release, which is posted under the Newsroom tab of our website at OxfordInc.com.

And now I’d like to introduce today’s call participants. With me today are Hicks Lanier, Chairman and CEO; Terry Pillow and Doug Wood from our Tommy Bahama group; Tom Chubb, Executive Vice President; and Scott Grassmyer, CFO. Thank you for your attention and now I’d like to turn the call over to Hicks Lanier.

J. Hicks Lanier

Good afternoon and thank you for joining us to discuss our third quarter results. Obviously we are disappointed with our absolute results for the third quarter. However, we believe we managed the business well despite what are indisputably the worst market conditions in decades.

While we’ve been hurt like everyone else, our wounds are not self-inflicted. We believe we are on the right path in this environment, and we remain focused on three key areas; protecting the integrity of our brands, controlling and reducing costs, and maintaining and protecting our strong balance sheet and liquidity.

For the third quarter it is worth noting that we were on plan in August and September but October was worse than expected, as consumers reacted negatively to the deluge of bad economic news. Consolidated net sales for the third quarter ended November 1, 2008 were

$244 million compared to $286 in the same time period of the prior year.

Earnings per diluted share during this period were $0.31 compared to $0.76 in the same period last year. These results include $0.07 per share of restructuring and other unusual items comprised of $0.04 per share of the write off of unamortized deferred financing costs and $0.03 per share of severance. In response to the extraordinary market conditions that exist, we have taken deliberate but significant steps to insure that our cost structure and balance sheet are appropriate for the current retail environment.

We have taken cost cutting actions across all parts of Oxford, primarily during the second half of the current fiscal year which will reduce our annualized employment costs on a going forward basis by over $18 million. Additionally, we have moderated store roll out plans pending an improvement in economic conditions.

Our capital expenditures for fiscal 2008 are expected to total approximately $22 million. We currently anticipate less than $10 million in capital spending for fiscal 2009. We have continued to manage inventories very tightly and year-over-year inventories are down by 30%, contributing to a very strong year with cash flow from operations of over $61 million.

Finally, in August we closed on a new $175 million asset based revolving credit facility, which provides us with ample liquidity. I’ll reserve some additional comments for closing. I would now like to turn the call over to Terry Pillow, the CEO of our Tommy Bahama Group. Terry.

Terry R. Pillow

Thank you Hicks. Tommy Bahama reported net sales of $84 million for the third quarter of fiscal 2008 compared to $103 million in the same period the prior year. Sales decrease was due to particularly difficult market conditions for both wholesale business and the company owned retail stores where like virtually all our peers we experienced a sales decline. This was partially offset by very strong performance in our e-commerce business, which celebrated its first birthday in October and since that anniversary has performed well above last year’s sales level.

We have reduced costs and our careful inventory management has left us in excellent inventory position despite the weak sales. Tommy Bahama’s operating income for the third quarter was

$700,000 compared to $11 million in the same period prior year. The decrease in operating income was primarily attributable to the decrease in income for our company owned retail stores where comparable store sales created a de-leveraging effect of our expenses.

This decrease was perhaps exacerbated because this third quarter period has historically been the weakest sales period for Tommy Bahama retail stores. This year the third quarter was particularly weak as a result of our significantly diminished traffic during September and October. This, coupled with the expenses of seven additional retail stores, resulted in significant lower operating profits in the third quarter of this year compared to the same period last year.

Because of this challenging economic environment, we are taking measures to address our holiday business. Over the last year we have been working diligently to develop our database of our customers. In November we mailed our Holiday brand book along with a Loyalty Card of $50 to 225,000 of our best customers. We believe promotions like this will bring our loyal customers into stores without resorting to indiscriminate discounting as most other retailers have done.

Also, starting December 1 we are beginning our On The Flip Side promotion, which enables customers to purchase who purchase $150 a $50 card to be redeemed in January, ’09. We feel that these measures will be effective to drive traffic and increase sales in a very brand appropriate manner.

The three months that makes Tommy Bahama’s fourth quarter has historically been its largest retail period, and accordingly the retail stores have achieved greater operating leverage in those months. While we do not expect Tommy Bahama fourth quarter operating income to reach last year’s level, we do expect to approach a low double-digit operating margin.

Now I’ll turn the call over to Tom Chubb for details of our other three operating groups and [consolidated] figures for the quarter.

Thomas C. Chubb, III

Thanks Terry. Good afternoon everyone and thank you for joining us. I’ll start with Ben Sherman. The economic crisis is truly global in nature. Conditions in the UK, Ben Sherman’s home market, are as bad or possibly worse than here in the U.S. Ben Sherman reported net sales of $38 million for the third quarter of fiscal 2008 compared to $47 million in the same period of the prior year due to lower sales in the United Kingdom.

UK sales, which account for over two-thirds of the Ben Sherman business, declined primarily due to the exit from certain lower tier customer accounts that were still active last year; the difficult current economic environment; and the impact of a 12% decrease in the value of the British pound versus the U.S. dollar compared to the year ago quarter. The decline was partially offset by increased sales in other markets, including the United States.

Ben Sherman had operating income of $3.2 million in the third quarter of fiscal 2008 compared to operating income of $5.6 million in last year’s comparable period. The decrease in operating income was primarily due to the lower sales and lower royalty income, partially offset by reductions in overhead costs.

Net sales for Lanier Clothes in the quarter were $44 million compared to $53 million in the same period of the prior year, due primarily to the winding down of the Oscar de la Renta and Nautica license businesses, the restructuring of the Arnold Brant business, and the impact of weak demand in the tailored clothing market. For the quarter, Lanier Clothes reported operating income of $4.5 million versus operating income of $2.6 million in the year ago period. The increase in operating income was the result of reductions in SG&A expenses.

Oxford Apparel reported net sales of $78 million for the third quarter, compared to $83 million in the same period of the prior year. This anticipated decrease in net sales resulted from our continued focus on key product categories and decisions to exit under-performing lines of business. Operating income for Oxford Apparel was flat with last year at $7 million for the third quarter of fiscal 2008.

The impact of the lower sales was offset by a significant reduction in SG&A expenses during the third quarter of fiscal 2008. The same period of the prior year included charges totaling $1 million associated with the sale of Oxford Apparel’s last owned manufacturing facility. The corporate and other operating loss decreased to $2.9 million for the third quarter of fiscal 2008 from $3.7 million in the same period of the prior year. The decrease in the operating loss was primarily due to lower corporate SG&A expenses.

I’ll now move on to the consolidated results for the income statement, balance sheet and cash flow statement. As Hicks mentioned earlier, for the third quarter ended November 1, 2008 consolidated net sales were $244 million compared to the $286 million in the same period of the prior year. Consolidated gross margins for the third quarter of fiscal 2008 were 38.3% compared to 39.2% in the same period of the prior year. The decrease in gross margins was primarily due to the decreased proportion of Tommy Bahama and Ben Sherman sales in the current year, which generally have higher gross margins than Lanier Clothes and Oxford Apparel.

Sound inventory management as well as the fundamentally full price retail strategy of Tommy Bahama contributed to third quarter gross margins for the branded businesses remaining flat compared to the same period of the prior year. SG&A expenses for the third quarter of fiscal 2008 were $84.6 million or 34.7% of net sales compared to $92.8 million or 32.4% of net sales in the same period of the prior year.

Reductions in employment and other costs in each operating group were partially offset by increased expenses associated with operating additional Tommy Bahama retail stores and severance expenses associated with staff reduction. The increase in SG&A expenses as a percentage of net sales was due to the reduction in net sales described earlier.

Amortization of intangible assets decreased to $700,000 for the third quarter of fiscal 2008 from $1.2 million from the same period of the prior year. Royalties and other operating income for the third quarter of fiscal 2008 decreased 8.3% to $4.6 million from $5.0 million in the same period for the prior year. The decrease was primarily due to decreased royalty income of Ben Sherman, partially due to the impact of the decline of the British pound in the third quarter of fiscal 2008.

Interest expense increased 16.6% to $6.4 million for the third quarter compared to $5.5 million in the same period of the prior year, primarily due to the write off of $900,000 of unamortized financing costs when we entered into our new credit facility. As a result of these factors, operating income for the quarter was $13 million versus $23 million in the same period of the prior year. Earnings per diluted share for the quarter were $0.31 compared to $0.76 in the same period last year.

Turning to the balance sheet, inventories at the end of the third quarter of fiscal 2008 were $108.6 million compared to $155.8 million a year ago, a net reduction of 30%. While business conditions remain challenging, our inventory position is well managed and at an appropriate level. Receivables at the end of the third quarter were $120 million versus $156.4 million at
November 2, 2007. The reduction in receivables was primarily due to lower wholesale sales in the last two months of the third quarter of fiscal 2008.

Total liquidity at the end of the third quarter of fiscal 2008 was $125 million, which included

$8 million in cash and $117 million of availability under our new $175 million revolving credit facility, which closed on August 15, 2008. Cash flow from operating activities for the first nine months of fiscal 2008 was $6.1 million compared to $9 million in the same period of the prior year. Significant working capital reductions associated with the rationalization of our legacy business has contributed to our strong operating cash flow.

For fiscal 2008, we expect to generate cash flow from operations in excess of $65 million; incurred capital expenditures of approximately $22 million; and due to the timing of dividend payments to align with our new fiscal year, we expect to make five dividend payments totaling approximately $14.5 million.

With our strong free cash flow and our new credit facility, our liquidity remains excellent. In the fourth quarter we expect to incur approximately $0.04 per share of additional restructuring charges. Including these charges, we expect diluted earnings per share to be approximately breakeven on sales of $195 to $205 million.

Because of the intensity of the economic downturn, we are moderating our previously issued guidance for the full fiscal year 2008. We now expect sales to be approximately $950 million and diluted earnings per share to be approximately $1.00, which includes approximately $0.45 per share of restructuring charges and other unusual items.

Thanks for your attention. And now I’ll turn the call back over to Hicks Lanier for some closing comments.

J. Hicks Lanier

Thank you Tom. We are prepared for a relatively lengthy and very difficult market environment. While this environment has proved disastrous to many businesses, we expect to remain profitable and to continue to pursue our core strategic plan. To be sure, we will be cutting back where appropriate and keeping our pencils very sharp. We have changed much over the last several years and I think that our company’s presence in the marketplace for over 65 years has given us an appreciation and a skill set managing a business conservatively and navigating through difficult times.

We are going to deploy capital very carefully and look to protect our brand and our business unit until conditions warrant and a re-acceleration of our growth. Thank you for your time this afternoon and for your continued support. Gwen, we are now ready for questions.

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