Business context and reporting period
Oxford Industries, Inc. designs, sources, markets and distributes apparel and related products through Tommy Bahama, Lilly Pulitzer, Southern Tide, The Beaufort Bonnet Company and Duck Head. This Form 10-Q covers the 13 weeks ended April 30, 2022, the first quarter of Fiscal 2022; comparisons are with the 13 weeks ended May 1, 2021.
Financial results and liquidity
| Metric | Q1 Fiscal 2022 | Q1 Fiscal 2021 |
|---|---|---|
| Net sales | $352.6 million | $265.8 million |
| Gross profit / margin | $226.4 million / 64.2% | $166.6 million / 62.7% |
| Operating income / margin | $76.0 million / 21.5% | $34.9 million / 13.1% |
| Net earnings | $57.4 million | $28.5 million |
| Diluted EPS | $3.45 | $1.70 |
| Cash from operating activities | $22.5 million | $41.0 million |
- Sales rose 32.7%; growth across the three continuing lifestyle-brand groups and distribution channels more than offset the absence of Lanier Apparel sales. Retail sales increased 51%, wholesale sales excluding Lanier rose 42%, and e-commerce sales increased 30%.
- Gross margin improved 1.5 percentage points. Management cited brand and channel mix, improved initial product margins, lower LIFO charges and no current-period Lanier exit charges; higher freight costs partly offset these benefits.
- SG&A increased 14.8% to $157.4 million, but fell to 44.6% of sales from 51.6%, reflecting sales growth outpacing expense growth. Net margin was 16.3%, versus 10.7%.
- Operating cash flow declined despite higher earnings, principally because receivables, inventory and prepaid expenses absorbed cash. Capital expenditures were $9.3 million.
- At April 30, 2022, cash and equivalents were $31.8 million and short-term investments were $134.3 million. Working capital was $181.5 million and the current ratio was 1.80. The company had no debt outstanding, $322 million of unused revolver availability, and reported total liquidity of $408 million.
- Financing cash outflows included $42.9 million of open-market share repurchases, $3.2 million of employee tax-withholding share repurchases and $9.0 million of dividends paid.
Material changes and unusual items
- Tommy Bahama sales increased 45.5%, Lilly Pulitzer 25.1%, and Emerging Brands 41.6%. Lanier Apparel had no current-quarter sales following its Fiscal 2021 exit; the prior-year quarter included $12.0 million of Lanier sales and related exit charges.
- The comparison benefited from the prior-year quarter’s COVID-related store closures, operating restrictions and softer wholesale demand. Current-period wholesale growth also reflected higher Spring 2022 orders and shipment timing.
- Oxford repurchased 491,000 shares for $43 million under its open-market program during the quarter. Through June 8, it repurchased a further 220,000 shares for $19 million.
- The effective tax rate was 24.2%, compared with 17.8% a year earlier; the prior period included a $2 million benefit from settling uncertain tax positions.
Outlook, commentary and risks
- Management described consumer demand as exceptionally strong but cautioned that its continuation is uncertain. It expects Fiscal 2022 capital expenditures of approximately $50 million and an annual effective tax rate of 24%–25%.
- The board approved a $0.55-per-share dividend payable July 29, 2022. The company stated dividends may be modified or discontinued.
- Management identified inflation and higher product, freight, labor and operating costs; supply-chain and freight constraints; shifts in consumer discretionary spending; COVID-related disruptions; and geopolitical risks, including the conflict in Ukraine, as uncertainties. The company increased prices to help mitigate cost pressures.
- The business is seasonal, and interim results may not indicate full-year performance. No litigation or regulatory matter was identified as reasonably expected to have a material financial impact.
Important facts for investors to verify
- Whether strong demand and sales growth persist after accounting for the prior-year COVID disruption and wholesale shipment timing.
- Whether elevated freight, inventory and other inflationary costs continue to pressure brand-level gross margins.
- Whether working-capital needs and planned inventory growth affect operating cash flow and the reported liquidity position.
- The pace and price of future share repurchases, and the company’s capacity to sustain dividends alongside planned capital expenditures.
- Potential effects of supply-chain disruption, consumer spending changes and other disclosed risks on the Fiscal 2022 outlook.