Oxford Industries, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 3, 2014, the first quarter of fiscal 2014, and compares results with the 13 weeks ended May 4, 2013. This differs from the “2013 Q1” period in the request metadata.
Financial results
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Net sales | $257.6 million | $234.2 million | Up 10.0% |
| Gross profit / margin | $147.3 million / 57.2% | $134.1 million / 57.2% | Profit up 9.9% |
| SG&A | $123.2 million | $113.0 million | Up 9.0%; 47.8% of sales versus 48.3% |
| Operating income / margin | $28.5 million / 11.0% | $26.1 million / 11.1% | Income up 9.2% |
| Net earnings | $15.0 million | $13.6 million | Up 9.9% |
| Diluted EPS | $0.91 | $0.82 | Up $0.09 |
| Operating cash flow | $12.6 million | $(4.6) million | Improved |
| Capital expenditures | $6.7 million | $13.9 million | Down |
Cash from operations less capital expenditures was approximately $5.8 million. The company paid $3.5 million in dividends and reported net interest expense of $1.1 million. Declared dividends were $0.21 per share, compared with $0.18.
Business performance and material changes
- Sales increased in each operating group. Lilly Pulitzer led growth: sales rose 27.7% to $50.4 million, comparable-store sales increased 34%, and operating income rose 34.1% to $14.8 million.
- Tommy Bahama sales increased 5.3% to $158.4 million, but operating income fell 7.1% to $19.9 million. Comparable-store sales declined 1%; management cited lower gross margins, higher store and support costs, and reduced royalty income.
- Lanier Clothes sales rose 5.5% to $28.7 million, primarily reflecting a new warehouse-club pants program. Ben Sherman sales rose 23.3% to $15.1 million, but included increased off-price sales from aged-inventory liquidation and favorable currency translation; it continued to report an operating loss of $4.7 million.
- Consolidated gross margin was unchanged at 57.2%. Lilly Pulitzer margin improved to 65.9% from 63.1%, while Tommy Bahama declined to 61.1% from 61.9% and Ben Sherman declined to 46.1% from 51.5%.
Financial position and liquidity
- At May 3, 2014, cash was $8.6 million and total debt was $142.0 million, consisting of $3.4 million short-term and $138.6 million long-term debt. Debt was $165.1 million at May 4, 2013.
- Working capital was $140.2 million; the current ratio was 2.07. The debt-to-total-capital ratio was 34%, versus 41% a year earlier.
- Unused availability under revolving credit agreements was $94.9 million, after considering borrowing-base limits, letters of credit, and other restrictions. The company said it was in compliance with credit covenants; no financial covenant testing was required during the quarter.
- Inventory was $128.3 million, up from $95.8 million a year earlier. Management attributed the increase to growth plans and new markets, shipment timing and goods in transit, replenishment needs, and currency effects.
Outlook, risks and unusual items
- Fiscal 2014 outlook disclosed: capital expenditures of approximately $55 million; net interest expense of approximately $4.5 million; an effective tax rate of approximately 42.5%; intangible-asset amortization of approximately $2.5 million; and a contingent-consideration fair-value charge of approximately $0.3 million.
- Management expects continued investment in Tommy Bahama and Lilly Pulitzer stores, e-commerce, infrastructure, and brand support, which may pressure margins until sales growth provides leverage. It described the apparel retail environment as promotional and exposed to economic uncertainty and consumer spending.
- Key risks include fashion and demand shifts, wholesale shipment timing, weather, competition, sourcing and labor costs, foreign currency movements, reliance on overseas manufacturers, and seasonal working-capital needs. The company noted foreign losses for which it could not recognize tax benefits, contributing to elevated quarterly tax rates.
- The $12.3 million Lilly Pulitzer contingent-consideration obligation was classified as current at quarter-end because payment was expected within 12 months. Ben Sherman’s sales increase included off-price inventory liquidation, which lowered its gross margin.
- Management reported no litigation or regulatory matter expected to have a material adverse effect, no material change in market-risk exposure, and effective disclosure controls.
Investor facts to verify
- Confirm the filing period: the document is Q1 FY2014, ended May 3, 2014, not Q1 FY2013.
- Assess whether Lilly Pulitzer’s strong comparable-store growth can be sustained and whether Tommy Bahama can restore operating margin.
- Track inventory levels, wholesale receivables, and seasonal working-capital movements alongside operating cash flow.
- Review the timing and payment amount of the Lilly Pulitzer contingent consideration and the quality of Ben Sherman’s sales growth after inventory liquidation.
- Monitor capital spending against the approximately $55 million fiscal-year expectation, debt and revolver availability, and the effects of foreign losses on the tax rate.