Q3 2023 Oxford Industries Inc Earnings Call

Participants

Brian Smith; IR; Oxford Industries Inc.

Tom Chubb; Chairman, President & CEO; Oxford Industries Inc.

Scott Grassmyer; EVP, CFO & COO; Oxford Industries Inc.

Edward Yruma; Analyst; Piper Sandler

Ashley Owens; Analyst; KeyBanc Capital Markets

Dana Telsey; Analyst; Telsey Advisory Group

Mauricio Serna; Analyst; UBS

Tracy Kogan; Analyst; Citi

Jeff Lick; Analyst; B. Riley Financial

Janine Stichter; Analyst; BTIG

Presentation

Operator

Greetings and welcome to the Oxford Industries Inc. third quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Brian Smith of our three industries. You may begin.

Brian Smith

Thank you and good afternoon. And before we began, I would like to remind participants that certain statements made on today's call 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 financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10 K. We undertake no duty to update any forward looking statements during this call, we will be discussing certain non-GAAP financial measures and you can find a reconciliation of non-GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at Oxford bank.com. Now I'd like to introduce today's call. Participants. With me today are Tom Chubb, Chairman and CEO, and Scott Grassmyer, CFO and COO.
Thank you for your attention. And now I'd like to turn the call over to Tom Chubb.

Tom Chubb

Good afternoon, and thank you for joining us. I want to spend just a few minutes talking about the third quarter and then move to our expectations and plans for the fourth quarter. And finally, give you a bit of a sneak preview on our plans for 2024. We are pleased to be reporting solid results for the third quarter of fiscal 2023. Our results reflect low single digit sales growth inclusive of comps that were down low single digits, which come on top of a 12% positive comp in the third quarter of last year. While the consumer has clearly become more judicious in their discretionary spending. We believe our performance, especially on a two year stack basis, compares favorably to our peer group. Despite a more difficult backdrop, we delivered these results as our people have remained focused on leveraging our strong brands to deliver clear and consistent messages that inspire and resonate with customers creating strong desire for our products and services, a great example of this during the third quarter includes the opening of the Tommy Bahama Mirra mountain resort in Indian Wells, California. This Jewel Box resort in the Coachella Valley leverages the credibility that Tommy Bahama has built over nearly 30 years in the hospitality space through our very popular restaurants and bars as well as the overall strength of Tommy Bahama as one of the America's premier lifestyle brands. The resort will have a meaningful impact on reinforcing and even strengthening the lifestyle positioning of the Tommy Bahama brand, ultimately helping us reach new customers retain existing ones and increase the engagement of our customers, while at the same time generating meaningful, but modest royalty income over time.
Another great example of leveraging the strength of our brands to drive business results in the third quarter was the launch of the gorgeous new Johnny was website. You will recall that the new website layers, the exquisite Johnny was imagery brand messaging and product on the best-in-class Lilly Pulitzer e-commerce technology that we have implemented over the last several years. The new website, combined with the change in digital marketing agencies has us very excited about our ability to grow our Johnny was web business going forward. As a result of these and many other activities by our brands, our traffic and full-price selling remained healthy during the quarter, and we were actually able to expand adjusted gross margins. In addition, our active customer count and our new customer ad rate both increased mid single digits versus last year, while average annual spend has remained roughly flat. All of these metrics are extraordinarily positive indicators of the strength of our brands.
Finally, Scott will provide more details in a minute, but I would be remiss if I did not call out the strength of our cash flow from operations, which was 169 million on a year-to-date basis, our balance sheet and the fact that we were able to actually reduce inventory on a year-over-year basis during the quarter.
Moving on to the fourth quarter, we are excited about our plans and our opportunities in a market that remains somewhat uneven. Our DCDTC. business got off to a bit of a sluggish start in early November and then posted strong results during the very important Thanksgiving weekend. As you are aware, this year's calendar provides the longest possible selling period between Thanksgiving and Christmas at 32 days, not surprisingly business since the middle of the week following Thanksgiving and has been choppy history indicates that when we have a calendar like this year's, we cannot expect a dramatic ramp-up in sales during the 10 to 12 days before Christmas. We expect to see that ramp up this year, and we are excited about the plans we have in each of our brands to capitalize on that opportunity.
With respect to our wholesale business, we do expect to experience some headwinds during the fourth quarter. Our brands and products continue to perform very well at our key wholesale Pub Partners. However, due to the uncertain consumer environment, wholesale accounts have become more cautious in their purchasing for spring of 2024. And therefore, spring bookings are down as the result of this harvest and not because of performance. Given that many of our early spring orders typically shipped during the last month of each fiscal year, we expect some softness in our fourth quarter wholesale business. Scott will provide more detail in a minute, but as a result of the wholesale situation and the uneven direct to consumer market in the interest of caution, we are moderating our guidance for the fourth quarter.
Moving beyond this year, we are extremely excited about our developing plans for 2024 and beyond. While it is too early for us to give our initial forecast for 2024. We would like to give you a sneak peek at some of our key plans. We believe that the most likely scenario for the economy is a soft landing. And in the absence of a broad macro economic setback, we believe that we can continue to leverage our incredible brands to inspire customers and generate the demand for our brands and services that will drive growth in our business. Year to date, we have increased our store count by a net 17 stores through the first three quarters and expect another five openings during the fourth quarter. Most of the openings happened in the back half of the year. And given the timing and typical post-opening ramp-up period, we will not see the full benefit of these stores until fiscal 2024. On top of this, we will also realize the full benefit from the upgrades that we have made to the Tony was e-commerce business, which were completed in the third quarter of this year in 2024. In addition to annualizing the impact of many of our 2023 activities. We also plan to continue to fuel future growth, which with projects that we have planned for 2024. First, we plan to increase our store count by more than 25 net new stores with Tommy Bahama and Lilly Pulitzer returning to more of a pre pandemic store opening cadence. We are particularly excited about the six Marlin Bars slated for the next 12 months, which includes our Winter Park, Florida location scheduled to open in January. We also anticipate meaningful openings for both. Johnny was and our emerging brands where we have opportunities for continued retail growth. The preopening activities associated with these stores, particularly the five Borland's, will put some pressure on 2020 for operating margins, but having these stores in place will fuel our growth trajectory in 2025 and beyond. We are also excited about the pins and potential to utilize our emerging brands group platform as a vehicle for growth. The platform has evolved nicely, and we have proven its ability to support smaller brands in their growth and development. The Beaufort Bonnet Company is a great example. Since we acquired TBBC. in 2017, it has grown at a compound annual growth rate of 23%. Another great example is the stock had an iconic brand with an iconic product in over 150 years of history. This spring goods, all but out of business when we bought it in Synta, adding it to our platform. We relaunched to rebuild the brand into a rapidly growing profitable business with sales in excess of $10 million and meaningful potential. We are constantly on the lookout for more opportunities like the timely. We are enhancing our long-term distribution capabilities by building an expanded modern automated distribution center near our existing facility in Lions, Georgia. The target is to complete this project during 2025. Once complete, it will increase our annual shipping capacity from 7 to 7 million units, whatever 20 million units with potential to grow to 30 million units with some additional equipment investment. The project will add numerous significant benefits to the enterprise and will help continue to drive future growth.
First, the cost per unit of the handling and shipping unit in this facility will continue to be highly competitive with greater automation. Secondly, it will give us the additional capacity that we need to service the concentration of stores that we have in Florida and elsewhere in the eastern part of the country, giving us the ability to optimize inventory better by replenishing stores more quickly and more frequently finally, it will allow us to serve more of our web customers in the eastern part of the country better by getting products into their hands more quickly. All of these activities in addition to that, others that we will talk about in March when we provide our initial forecast for the year promise to help fuel growth in 2024 and beyond none of what we have accomplished during 2023. Our plan for 2024 would be possible without our wonderful and dedicated team of people. And during this holiday season, we would like to express our sincere gratitude for all that they do.
And now I'll turn the call over to Scott for additional comments on our results for the third quarter and forecast for the balance of the year. Scott?

Scott Grassmyer

Thank you, Tom. As Tom mentioned, we are pleased to report another solid quarter that is within our guidance range and a challenging macroeconomic environment for the consumer for operating groups executed well, going against -- up against DTC comps of 12% in the third quarter of 2022. Consolidated net sales for the third quarter of fiscal 2023 were $327 million, which included $49 million of sales for Johnny Was as compared to $23 million in the six weeks we owned Johnny Was last year. And a slight decline on our organic basis, resulting in 4% growth above last year's third quarter net sales of $313 million.
In aggregate, Tommy Bahama, Lilly Pulitzer, and emerging brands had decreases of 2% in full-price bricks-and-mortar, 3% in full price e-commerce, and 9% in wholesale sales. Despite a decline of 3% year-over-year, the performance of our food and beverage locations remained strong with the decreases driven by remodels and closures resulting from the mali wildfires.
We were able to expand adjusted gross margin 60 basis points to 64% compared to 63.4% last year. Our lowering inventory balances across all operating groups over the same time period. The increase in adjusted gross margin was driven by a full quarter of higher margin sales from Johnny Was compared to a partial quarter last year, a decrease in inventory markdowns, an increase in direct-to-consumer sales in our merchant brands, and decreased freight costs. These were partially offset by decreased Lilly Pulitzer full price e-commerce sales.
Adjusted SG&A expenses were $191 million compared to $171 million last year. This increase was largely driven by an incremental $17 million of SG&A associated with the Johnny Was business, which we owned for the full third quarter of '23 versus a partial third quarter in 2022. The result of all of this yielded $21 million of adjusted operating income, 47% operating margin compared to $32 million in 2022. The $21 million of operating income included $1 million of incremental operating income for Johnny was driven by a full quarter of ownership this year. The decrease in operating income reflects our planned SG&A investments in our people business, we ourselves saw modest declines in revenue from our licensing partners.
Moving beyond operating income, we incurred more interest expense as a result of higher interest rates and higher average debt levels, but benefited from a lower effective tax rate due to certain discrete items that have a larger impact on our tax rate in the third quarter, given our lower earnings than in other fiscal quarters. With all this, we achieved $1.01 of adjusted EPS solidly within our guidance range.
I'll now move on to our balance sheet beginning with inventory. Our inventories decreased by 4% or $9 million year-over-year on a FIFO basis, while being able to expand gross adjusted gross margins. Inventory decrease in all operating groups resulting from our continued inventory discipline.
Over the last 12 months, we used our robust cash flow to significantly repay our borrowings used to fund the Johnny Was acquisition. Our borrowings increased slightly in the third quarter, which has historically been a cash use quarter, given our lower earnings compared to other fiscal quarters. We finished the quarter with $66 million of borrowings under our revolving credit facility, down from $119 million of borrowings at the beginning of the year.
Our $169 million of cash flow from operations in the first nine months of 2023 compared to $86 million in the first nine months last year, allowed us to reduce outstanding debt by $53 million since the beginning of fiscal 2023, while also funding $54 million of capital expenditures, $31 million of dividends, and $20 million of share repurchases. We expect strong cash flow for the rest of the year anticipate repaying additional debt in the fourth quarter.
I'll now spend some time on our outlook for the remainder of 2023. As Tom mentioned, we are moderating our full year view to reflect the impact of continued hesitancy shown by consumers in the third and fourth quarters.
For the full year, we now expect net sales to be between $1.57 billion and $1.59 billion, growth of 11% to 13% compared to sales of $1.41 billion in 2022. The planned increase in sales and a 53-week 2023 includes the benefit of the full year of Johnny Was as well as growth in our existing brands in that low single digit range, driven by increases in our direct consumer businesses and relatively flat sales in our wholesale channel.
Our updated guidance reflects decreases in comp store sales in the low single digit range, they softened wholesale outlook. We still anticipate modest gross margin expansion for the full year of 2023, including in the fourth quarter higher sales year over year and modestly higher gross margins are expected to be offset by increased SG&A, which is expected to grow at a rate higher than sales in each quarter of 2023, although at a rate in the fourth quarter, that is more similar to the third quarter than the first two quarters.
Building on our efforts in the third quarter, we will continue to scrub the income statement in prudently trimming expenses where appropriate while continuing to invest and help build for the future.
Finally, we expect royalty income in the fourth quarter to be comparable to the prior year. Considering all these items, we expect adjusted operating margin for the full year to be approximately 14%. Additionally, we anticipate higher interest expense of 6% for the full year after incurring almost $5 million of interest expense in the first nine months of the year. This compares to $3 million of interest expense in the full year 2022 when we had no debt outstanding until the third quarter acquisition of Johnny Was we also expect a higher effective tax rate of approximately 24% compared to 23% in 2022.
After considering these items, 2023 adjusted EPS is now expected to be between $10.10 and $10.30 versus adjusted EPS of $10.88 last year, with the inclusion of a full year of profit from Johnny Was being offset by lower operating income in our existing businesses, increased effective tax rate, and higher interest expense.
After generating 9% comps in Q4 of 2022, we expect increased sales in the high single digits in the fourth quarter due in part to the additional week in the quarter and our new brick-and-mortar locations, partially offset by lower comp store sales as discussed earlier, and a softened wholesale outlook. We also spent modestly higher gross margins, a higher mix of direct to consumer sales and modest SG&A deleveraging as SG&A increases at a higher rate than sales we further expect interest expense in the fourth quarter to be lower than the interest expense in the fourth quarter last year due to our significant reduction in debt during 2023 and a higher effective tax rate as the Q4 2022 included certain favorable items that are not expected to repeat in the fourth quarter of the current year.
Capital expenditures in fiscal 2023 are expected to be approximately $80 million compared to $47 million in fiscal 2022. This is lower than prior estimates due to certain CapEx for our fulfillment center project shifting from fiscal '23 to fiscal '24. As we mentioned last quarter, planned CapEx increase includes spend associated with brick and mortar locations including build-out associated with approximately 35 locations across all brands, including two new Marlin Bars and approximately 10 new Johnny was locations.
A number of these are relocations and remodels, which along with a few store closures should result in a net increase of full-price stores of about 22 by the end of the year with approximately five net new locations in the fourth quarter. The spend associated with these brick and mortar locations represent about one half of the planned capital expenditure amounts for 2023.
Additionally, we will also continuing with our investments in our various technology systems initiatives. Finally, we anticipate limited limited initial capital spend in the fourth quarter related to our multiyear fulfillment center project that Tom highlighted earlier. We anticipate expenditures related to the project to continue in 2024 and 2025 with a substantial majority of this spend occurring in 2024. We expect total spend for the project to be approximately $130 million.
We continue to have a very positive outlook on our cash and liquidity position as well after generating cash flow from operations of $126 million in 2022, which included a working capital increase of $85 million. We expect to increase our cash flow from operations significantly to a level well in excess of 200 million in 2023. This level of positive cash flow from operations provides ample cash flow to fund our capital expenditures dividends, share repurchases and the continued reduction of our outstanding debt during the year. Although SG&A investments will put pressure on 2023 margins, these actions will set the table well for mid to upper single digit top line growth, a long-term operating margin target at or above 15%.
Thanks for your time today. And now we'll turn the call over for questions.

Question and Answer Session

Operator

(Operator Instructions)
Edward Yruma, Piper Sandler.

Edward Yruma

Good afternoon, guys, and thanks for taking the question. I guess first with Tommy Bahama, we noticed you swapped out your traditional flip side with a gift with purchase, which I know Lilly has successfully, would love to understand. I think that was part of the softness that you pointed to in direct to consumer and then I guess just stepping back a little bit, I remember last quarter you talked about some assortment issues and that some of the newer stuff was moving faster than some of the older stuff, I guess, did you see some of those trends persist? Thanks very much and happy holidays.

Tom Chubb

Okay. First, with respect to the, you know, sort of the special offers around the Black Friday Cyber Monday weekend. And if you look back at what we did last year, we actually didn't have the flip side starting over that weekend at the last year that we did that, I believe was 2020. And since then, we push the start of the flip side out in sort of separated those events. The difference between last year's weekend. And this year's was that last year we had a couple of category wide discount. So for example, I think we were 30% off on the whole island soft this year. Last year, this year, we didn't do that. We had a couple of special value items where we delivered some styles that were at very compelling prices, but it would assist a handful. And then we did the gift with purchase, which was the beach chair. And with those $300 spent, which, by the way, it performed very, very well we were very happy with the results that we got from that both online and in-store, which is kind of unusual for a gift with purchase for work in those channels. And so we love that. And maybe other than that, we have we really have the same pack cards or gift cards that we've done for as long as I can remember, though, and then the flip side, which is similar in timing to where it's been in the last couple of years. So I guess what I would tell you is we're really less promotional in Tommy than we were last year and maintenance and then the.
Yes, the new this question, I would say, really across the brands, all the brands, newness is more compelling to consumers this year. They they want to see new. They loaded up on a lot of stuff over the last couple of pandemic years, and they're loving newness. Fortunately, we've got a lot of it for them. And so I think we're pretty well positioned from from that standpoint.

Edward Yruma

Thanks so much. Happy holidays.

Tom Chubb

You too Ed.

Operator

Ashley Owens, KeyBanc Capital Markets.

Ashley Owens

Great, thanks. So just first, you called out some choppiness around the business so far in 4Q just curious if you've seen any different behavior among consumers, shopping brick and mortar versus e-commerce, And then any variances you're seeing between brand?

Tom Chubb

Excuse me, but 20 what?

Ashley Owens

Between between retail and e-com?

Tom Chubb

Yes, between brick-and-mortar and come up with a big theme actually to us, it's really the conversion rates are coming down. That's the big difference. You know, traffic generally units kind of differ a little bit among the different brands and the channels. But the big thing to me this year, and this is where you see that caution for the movie more judicious spending by that consumer come into play is that the conversion rates have come down a bit from where they would have been on a year ago.

Ashley Owens

Okay, great. And then just second real quick on emerging brands. You've seen some strength within segment during the year. You've opened a couple have stores there and kind of an overview of where you think you are in your store rollout potential within emerging brands and how you're thinking about that opportunity longer term?

Tom Chubb

Yes. So I think we've got it in the Emerging Brands Group. At this point, we have three brands where we got where we own 100% of the business and they're part of our reporting in those three years. Southern Tide for Bonnet Company and talk had two of those brands currently have stores open Southern Tide's up to speed 15. Now I think with plans to add more and be for dynamic company. We've got three open now and a couple of more on the drawing board. We're still in the early stages with those. We like what we see, but we want to make the formula right, but then assuming that we can do that and have a retail formula that works well and we very much believe we can in both of those brands then I think they could have a similar number of stores that you see in Lilly Pulitzer pretty easily. I think geographically, their strength is going to be or Lilly Pulitzer's up pretty closely at those similarly position from sort of a price point and where they sit from a market standpoint. So I think seeing a, you know, Lilly number and thinking you know, 75, 80 stores longer term, I think is very easy to get your head around all, of course, caveated with we want to make sure we've got a retail formula that delivers good cash return on cash invested.

Ashley Owens

Great.
Very helpful color. Thank you.

Tom Chubb

Okay. Thank you, Ashley.

Operator

Dana Telsey, Telsey Advisory Group.

Dana Telsey

Hi, good afternoon, everyone from Scott. As you think about the current environment and what you saw much of what's happening is the external environment with the brands, how much of it do you see product enhancements coming on the way that should it help accelerate sales growth?
And on the wholesale channel, which I've always thought of it's very small for you. How do you see the go forward there and what opportunities are to stabilize that business? Thank you.

Tom Chubb

Yes. So with respect to the first question, I mean, I don't I don't want to sound like what are the kind of company that always points that figure that external factors and never looks within with the first place we always look at is what could we do better? And we've got a list that's United six pages long and things that we will lessons that we've learned from this year that will incorporate into next year. And I tried to improve things, but I honestly believe the biggest factor is the external market conditions. And I don't think we're unique in this at all. I think if you look across the space and the companies that we would really think of this as peers are saying that most of them are seeing and similar trends I think the biggest factor really is the more cautious and more judicious consumer. That said, you know, again, we are looking internally and looking at ways that we can improve and we do that every year, whether business is good or whether it's not so good. We're always looking at ways that we can improve. And we've definitely seen in the suite commented in response to a question that newness is selling really well in innovation and selling really well. We think we're good at that and we will be sure that we continue to do that.
And then with regard to wholesale at Dana, we don't really think we lost and position that all and where we have good data on it. Our performance at retail our sell through, if you will. And our natural gross margin has been quite good. It's simply that the retailers have sort of pulled back a bit for our first spring and we're feeling the effect of that. As you know, from a brand health standpoint, we don't really mind that because we'd rather not them to have them be over-inventoried. But I think what's going to happen is they're going to get into spring and they're going to be chasing inventory. And of course, we'll we'll do well, we can help them. But I'm just saying there's going to be a little bit of demand left on the table.

Dana Telsey

Thank you.

Tom Chubb

Thank you, Dana.

Operator

Mauricio Serna, UBS.

Mauricio Serna

Good afternoon and thanks for taking my questions on. I guess just wanted to check on the fourth quarter sales outlook. What does it imply for though, just wanted to check like what is implied for those comps? Are growth of organic of the business and how much you expect the additional week to contribute to sales growth.
And then lastly, on the commentary on the outlook, I think you mentioned something about and you expect some some pressure on margins in fiscal year 24 because of the investments in store openings. So I don't know if this is if that means we should assume like.
And on top of work like this, the 14% margin that you expect for 23, we could expect another year of operating margin compression?

Tom Chubb

I think yes, I'll start with the first one. I don't think it necessarily means that we're going to see compression in operating margin. It's just that we will have some headwinds to the margin will be things that help us in that regard, too, including annualizing all the stores that we've opened this year at the Johnny was Web site. I think back half probably improvement in the wholesale market. So I don't know that I'd jump to that yet. I'll let Scott elaborate on that.
And then with regard to the fourth quarter outlook, that is a good question because we actually it's not just the comp. There's the 53rd week in there the wholesale situation.
Now let Scott also sort of tried to bridge that gap for you.

Scott Grassmyer

Yes, Marissa, remember, we mentioned we're going to open six Marlin Bars next year, one of them is going to have in the very, very beginning of year. It's one that we thought we'd get in January. It's pushing out, but the other five will have some significant preopening, you're you've got preopening rent starting about seven months before you're actually open. So when you have that many of them. But again, we're going to have the benefit of the 24 stores on that, hopefully help neutralize that. As far as the 53rd week, we're going to be somewhere in that $25 million range in top line for that additional week in our comps. We've got a low single digit comps in our fourth quarter plan. And then we've got some new units we have in this year that hopefully will contribute around 10 million in the fourth quarter.

Mauricio Serna

Right, understood.
Thank you so much.

Operator

Paul Lejuez, Citi.

Tracy Kogan

Hey, thanks. It's Tracy Kogan filling in for Paul. I think you guys were talking about conversion earlier, and I think you had mentioned last call you had seen a slowdown in August driven by conversion. I was just wondering how your overall trends wound up going through the rest of the quarter and did conversion decelerate from there from what you were seeing in August? Or did it kind of stabilize? And then also what was your AUR for the quarter?
Thanks.

Tom Chubb

And so with respect to the Converse and Tracy, I think it's a little bit more of a continuation really of what we were seeing in August. And you know, if you want to get super granular about it, I'm sure we can parse out some differences. But I think it's really that same phenomenon that we were seeing in August.
And just to be clear, it's not like conversions dropping through the floor. It's just lower than last year. And when you look at, you know, at had comp sales, you know, that's really a function of traffic conversion and then how much they're spending and trying to give you a good flavor, clear flavor of what's going on among those levers. It's really the conversion that's, you know, that the pull in the numbers now an update on the AUR., Brian, or it's holding its own and pretty good.

Tracy Kogan

Why don't you start it up?

Tom Chubb

No, go ahead.

Tracy Kogan

But now I was just going to ask what your 4Q guidance assumes for the promotional environment.
Jerry, as we know, are you assuming an increase in promotions relative to last year.

Tom Chubb

You mean for us or for the market?

Tracy Kogan

(multiple speakers)

Tom Chubb

Yes. I think for us, we're very consistent. We walked through the whole cadence of promotions with Tommy Bahama. But I would say across the board that were consistent with the IRS to mix things up a little bit.
You know, not every events exactly apples to apples, but and.

Scott Grassmyer

we did mention we expect some very modest gross margin expansion, and that's a little more mix oriented with the direct consumer being a bit higher beta. But overall, margins should hold well, which means promotion should be pretty much in line with last year.

Tracy Kogan

Thank you.

Tom Chubb

Thank you, Tracey.

Operator

Jeff Lick, B. Riley Financial.

Jeff Lick

Good afternoon, guys. Congrats on a great quarter. I was just wondering if you could elaborate a little bit on the food and beverage coming in at '23. Obviously, Hawaii, you mentioned remodels had an impact I was just wondering if you can maybe reconcile like how much of an impact that might have been.
And then obviously, Tommy appears to be the standout in terms of sales I'm just curious to maybe unpack a little bit of where that came from.
Is that can you continue to see good growth in women's?
Just any any help there would be appreciated.

Tom Chubb

Yes, I'll start with the women's because, boy, that's a great story that we've had this year. As you know, Jeff, we always look at that with our direct consumer bases because that's the clean way to look at it. But in the third quarter, we were up from just under 30 last year to just under 35 this year, which we're super excited. And year to date, we're close to 38 from roughly 35 last year. So that's a very good story.
And then in terms of some of the remodeling and July impact, Scott?

Scott Grassmyer

Yes, yes, Jeff, we comped down we were down 3%, but we comped up 1% in food and beverage. We had about 1 million of top line impacted by both behind us being gone and modularity. We had a major remodel, so it was closed a good part of the quarter. So overall, food and beverage business has been very good. So we've been very pleased with that.

Tom Chubb

It's also I'll just add it's been very steady, Scott and I were talking about this earlier today, but it, you know, we haven't had more than one day or one or two days in a row that maybe were off a little bit, but it's been every day. We seem to just keep delivering in food and beverage, which is great assets.

Jeff Lick

thanks very much for the color and look forward to following up.
Thank you.

Tom Chubb

Thank you, Jeff.

Operator

Janine Stichter, BTAG.

Janine Stichter

Congrats on the strong quarter in a tough environment. And the other question on promotions understanding that the promotions are planned in Q4 pretty similar last year. But I'd love to understand just that the environment remains promotional as we get into next year, your high-level kind of philosophical thoughts on just your willingness to flex more promotions to stay competitive?
And then second, for me, on active customers, you've grown them by a huge number over the last two years. So just any changes in retention of those customers for any habits of the more recent cohorts? Thank you.

Tom Chubb

I think with respect to our promotional philosophy, I don't think it will really change a whole lot that I think we focus on keeping our brands relevant by making sure that they have very clear positions that they make very clear and consistent brand messaging. And then it's all about creating desire to me, as you know, what we sell is not something that people really need. It's more of a one item and that's our number one job at through our brands is to create that desire and then have the products that they desire can be the object of. And we've been through a lot of promotional cycles, you know, forever and every year the market is promotional. And we strongly believe as we've demonstrated this year and you know, in the third quarter and I think we will in the fourth quarter that we can remain very well up and come and perform well relative to where the market is based on our latest branding, our activities on. So that's sort of our game plan better.

Janine Stichter

And then there's an active customers, active customers.

Tom Chubb

As we said, our active customer count is up mid single digits up for the trailing 12 months year over year. And our new customer add rate is also up on a mid single digit. So, you know, the health of our customer base, our ability to attract and remains quite good. And then as we mentioned in the prepared remarks, average annual spend is more or less flat.

Scott Grassmyer

Our retention rates are holding well, which is I guess, something that you have a very high retention rate and it's been Tony.

Tom Chubb

Very healthy retention.

Janine Stichter

Great.
Thanks so much.

Brian Smith

Thank you, Jane.

Operator

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Chairman and CEO, Tom Chubb for closing remarks.

Tom Chubb

Okay, thank you. Some US sites, all of you very much for your interest in our company. We wish you all a very happy holiday season, and we look forward to talking to you again next quarter. Take care until then.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.