Oxford Industries, Inc. — Form 10-Q Summary
Period: First quarter of fiscal 2016, the 13 weeks ended April 30, 2016; comparisons are with the 13 weeks ended May 2, 2015. The request metadata says “2015 Q1,” but the filing itself reports fiscal 2016 Q1.
Business: Apparel and lifestyle brands Tommy Bahama, Lilly Pulitzer, Lanier Apparel and, following its acquisition, Southern Tide. Ben Sherman is reported as discontinued operations.
Financial performance
| Metric | Fiscal 2016 Q1 | Fiscal 2015 Q1 |
|---|---|---|
| Net sales | $256.2 million | $260.4 million |
| Gross profit / margin | $152.1 million / 59.4% | $154.4 million / 59.3% |
| Operating income / margin | $32.0 million / 12.5% | $35.5 million / 13.6% |
| Continuing-operations earnings | $20.2 million | $21.3 million |
| Diluted continuing-operations EPS | $1.21 | $1.29 |
| Net earnings | $20.2 million | $17.3 million |
| Operating cash flow | $1.7 million | $5.1 million |
Revenue declined 1.6%; operating income fell 9.8%. Net earnings rose 16.9% because the prior-year quarter included a $4.1 million after-tax loss from discontinued operations. The effective tax rate declined to 35.7% from 38.6%; management expects approximately 36% for fiscal 2016. Dividends declared were $0.27 per share, versus $0.25.
Brands and margins
- Tommy Bahama: Sales decreased 5.8% to $162.7 million; operating income fell 35.9% to $13.3 million. Comparable store sales declined 13%. Management cited lower traffic, consumers’ reduced focus on fashion apparel, shifted loyalty-card mailers, and delayed wholesale replenishment orders.
- Lilly Pulitzer: Sales increased 9.8% to $64.7 million; operating income rose 17.2% to $20.8 million. Comparable store sales increased 1%.
- Lanier Apparel: Sales decreased 5.0% to $26.6 million, while operating income increased 55.4% to $2.9 million, supported by better gross margin and lower SG&A.
- Southern Tide: Included only from its April 19 acquisition through quarter-end: sales of $1.4 million and operating income of $48,000. This short period is not representative of expected results.
Consolidated SG&A increased 1.2% to $124.2 million and rose to 48.5% of sales from 47.1%. Higher store, restaurant and occupancy costs and $0.8 million in acquisition expenses were partly offset by lower incentive compensation. Interest expense declined 20.6% to $0.6 million.
Financial position and liquidity
At April 30, 2016, cash was $7.0 million, total debt was $152.9 million, working capital was $146.2 million, and the current ratio was 2.34. The debt-to-total-capital ratio was 30%, versus 12% at January 30, 2016. Under the then-existing revolver, availability was $77.5 million; the company reported compliance with its covenants.
Operating cash flow was $1.7 million; investing activities used $104.5 million, including $91.9 million for Southern Tide and $10.6 million of capital expenditures. Financing activities provided $103.2 million, principally from revolving-credit borrowings. Cash increased by $0.4 million during the quarter.
On May 24, 2016, the company amended and restated its credit agreement, increasing facility capacity from $235 million to $325 million and extending maturity from November 2018 to May 2021. The facility is asset-secured, has variable-rate interest, and includes restrictions and an availability-triggered fixed-charge coverage covenant. Management expected a $0.3 million write-off of deferred financing costs in fiscal 2016 Q2.
Acquisition, outlook and risks
Oxford acquired Southern Tide for cash on April 19, 2016. The stated initial price was $85 million, subject to working-capital adjustment; the filing reports $91.9 million paid net of acquired cash after a preliminary adjustment. The preliminary purchase-price allocation included $41.7 million of intangibles and $33.4 million of goodwill and remains subject to revision. Management expects Southern Tide sales of $30–$35 million from acquisition through fiscal year-end. The acquired inventory step-up is expected to add $3.0 million to cost of goods sold as inventory is sold during fiscal 2016.
Management expects approximately $55 million of fiscal 2016 capital expenditures, primarily for technology and e-commerce initiatives, store openings, relocations and remodels. It cited long-term direct-to-consumer growth opportunities but noted a promotional retail environment, weaker department-store and mall traffic, consumer-demand uncertainty, seasonality, fashion and weather risks, and possible higher interest-rate exposure from increased borrowing. The company estimated a $4.3 million liability for retained Ben Sherman lease obligations; ultimate losses depend partly on future sublease income. It reported no litigation expected to have a material adverse effect.
Key facts for investors to verify
- Whether Tommy Bahama’s comparable-sales weakness and reduced operating income persist, and whether management’s cited demand and order-timing factors improve.
- Southern Tide’s post-acquisition sales, margins, integration results, final purchase-price allocation and inventory step-up charges.
- Borrowings, revolver availability, interest-rate exposure and covenant headroom following the credit-agreement amendment.
- Whether operating cash flow and inventory levels improve after the seasonal first-quarter working-capital outflows.
- Actual fiscal 2016 capital expenditures, tax rate and Southern Tide sales relative to management’s estimates.