Oxford Industries, Inc. — Form 10-Q Summary
Reporting period: Third quarter of Fiscal 2018, the 13 weeks ended November 3, 2018, and first nine months of Fiscal 2018, the 39 weeks ended that date. The filing is for Fiscal 2018, not 2017 as indicated in the request metadata. Fiscal 2017 had 53 weeks, shifting the comparable fiscal-period dates; the company calendar-adjusts comparable-store sales to address this.
Financial performance
| Metric | Third quarter FY2018 | Third quarter FY2017 | First nine months FY2018 | First nine months FY2017 |
|---|---|---|---|---|
| Net sales | $233.7 million | $236.0 million | $808.9 million | $793.0 million |
| Gross profit / margin | $129.3 million / 55.3% | $125.2 million / 53.0% | $472.7 million / 58.4% | $450.6 million / 56.8% |
| Operating income / margin | $3.7 million / 1.6% | $1.1 million / 0.5% | $68.6 million / 8.5% | $67.5 million / 8.5% |
| Net earnings | $1.9 million | $1.1 million | $49.6 million | $41.0 million |
| Diluted EPS | $0.11 | $0.06 | $2.95 | $2.45 |
- For the quarter, sales declined 1.0%, while gross margin improved 2.3 percentage points and operating income increased $2.6 million. Results benefited from Lilly Pulitzer, Corporate and Other, and improved Tommy Bahama gross margin; Lanier Apparel and Southern Tide operating income declined.
- For the first nine months, sales grew 2.0%, gross margin rose 1.6 points, operating income increased 1.6%, and net earnings rose 21.1%. Net earnings growth substantially exceeded operating-income growth, primarily because of lower taxes following U.S. Tax Reform, plus lower interest expense and improved results in Corporate and Other.
- Segment trends: Third-quarter sales increased 15% at Lilly Pulitzer and 3% at Southern Tide, but fell 33% at Lanier Apparel and 1% at Tommy Bahama. Nine-month sales increased 9% at Lilly Pulitzer and 11% at Southern Tide, while decreasing 14% at Lanier Apparel and approximately 0.2% at Tommy Bahama.
Cash flow, balance sheet, and liquidity
- First-nine-month operating cash flow was $64.6 million, versus $65.3 million a year earlier. Investing used $31.3 million, including $30.9 million of capital expenditures; financing used $32.1 million, including $17.3 million of dividends. Cash increased $1.3 million to $7.4 million.
- At November 3, 2018, current assets were $251.9 million and current liabilities were $124.8 million, yielding working capital of $127.1 million and a current ratio of 2.02.
- Long-term debt was $32.2 million, down from $72.1 million at October 28, 2017. Debt-to-total-capital was 6%, versus 15% at October 28, 2017. The company reported $225 million of unused availability under its $325 million revolving credit agreement, after borrowing-base limitations and letters of credit. It was compliant with covenants; no financial covenant testing was required during the period.
- Inventory was $138.2 million, up from $127.3 million at October 28, 2017. Management attributed increases at several groups to anticipated fourth-quarter sales and, for Lanier Apparel, rebuilding inventory from below-optimal prior-year levels.
Outlook, commentary, risks, and unusual items
- Management expected Fiscal 2018 effective tax rate of approximately 26%; the nine-month rate was 25.6%. Tax accounting for U.S. Tax Reform remained provisional, and final amounts could change.
- Fiscal 2018 capital expenditures were expected to total approximately $45 million, including $31 million spent in the first nine months. Lanier Apparel full-year sales were expected to be modestly below Fiscal 2017. The filing does not provide a clear consolidated full-year revenue or earnings forecast.
- Tommy Bahama recorded $4 million of Japan restructuring and downsizing charges in the second quarter, including lease termination, impairment, inventory markdown, and severance costs. No additional charges were recorded in the third quarter; $2 million remained payable. The Ginza restaurant had closed, and the retail store was planned to close in the fourth quarter.
- Management cited apparel-market competition, changing consumer shopping patterns, discretionary-spending sensitivity, promotional pressure, wholesale customer exposure, shipment timing, weather, sourcing and labor costs, and foreign-currency and interest-rate movements as risks. The company said its third quarter is seasonally its smallest; Fiscal 2017’s third quarter represented 1% of annual operating income.
- Adoption of the new lease accounting standard in Fiscal 2019 was expected to significantly increase reported right-of-use assets and lease liabilities, though management did not anticipate a material effect on the income or cash-flow statements.
- The company reported no litigation or regulatory action it believed would reasonably be expected to have a material financial impact. Disclosure controls were considered effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether the anticipated approximately 26% full-year tax rate and provisional U.S. Tax Reform accounting are borne out in year-end results.
- Whether the fourth-quarter sales and margin outlook supports management’s inventory levels, particularly in Lanier Apparel, Lilly Pulitzer, and Southern Tide.
- Whether Lanier Apparel’s shipment timing, customer bankruptcies, and lower replenishment demand persist, and whether its expected modest full-year sales decline is achieved.
- Whether the Japan exit and restructuring are completed as planned and whether remaining costs or liabilities change.
- The eventual balance-sheet impact of lease-standard adoption and whether operating cash flow continues to fund capital spending, dividends, and debt reduction.