Oxford Industries, Inc. — Fiscal 2012 Form 10-K
Reporting period: Fiscal 2012 was the 53 weeks ended February 2, 2013; fiscal 2011 was the 52 weeks ended January 28, 2012. The request metadata labels the period “2011 Q4,” but this filing reports fiscal 2012 annual results. Fiscal 2012’s fourth quarter had 14 weeks, versus 13 weeks in fiscal 2011.
Business context
Oxford designs, sources, markets and distributes apparel through owned lifestyle brands Tommy Bahama, Lilly Pulitzer and Ben Sherman, as well as licensed and private-label products. It sells through wholesale accounts and direct-to-consumer channels, including stores, e-commerce and Tommy Bahama restaurants. More than 90% of fiscal 2012 sales were to U.S. customers; direct-to-consumer channels contributed 54% of consolidated sales.
Key financial results
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net sales | $855.5 million | $758.9 million |
| Gross profit / margin | $469.6 million / 54.9% | $413.0 million / 54.4% |
| Operating income / margin | $69.0 million / 8.1% | $68.8 million / 9.1% |
| Continuing-operations earnings | $31.3 million | $29.2 million |
| Diluted EPS from continuing operations | $1.89 | $1.77 |
| Net cash from operating activities | $67.5 million | $44.6 million |
| Capital expenditures | $60.7 million | $35.3 million |
Sales rose 12.7%; operating income was nearly flat as higher brand investment and a larger contingent-consideration charge offset sales growth. Gross margin improved modestly, but operating margin declined as SG&A rose 14.5% to $410.7 million. Interest expense fell 45% to $8.9 million. The $9.1 million loss on redemption of senior notes reduced pretax earnings.
At year-end, cash was $7.5 million, working capital $98.1 million, and the current ratio 1.79. Total borrowings were $116.5 million, comprising $108.6 million under the U.S. revolver and $7.9 million under the U.K. facility. Reported unused availability was approximately $105.7 million, subject to borrowing-base limits. Debt-to-total-capital was 34%, unchanged from the prior year.
Material changes and segment performance
- Tommy Bahama: Sales increased 16.9% to $528.6 million; operating income rose 8.2% to $69.5 million. Results included $15.9 million of operating losses associated with international expansion and the New York restaurant-retail location.
- Lilly Pulitzer: Sales increased 29.7% to $122.6 million; operating income rose 41.9% to $20.3 million. Its results included a $6.3 million contingent-consideration charge.
- Lanier Clothes: Sales fell 1.4% to $107.3 million and operating income declined 15.7% to $10.8 million, amid competitive and product-cost pressures.
- Ben Sherman: Sales fell 10.4% to $81.9 million; operating loss widened to $10.9 million from $2.5 million. Lower wholesale volume, weak U.K. and European conditions, merchandise-mix mistakes, promotions and markdowns contributed.
- Fourth-quarter sales were $236.2 million, operating income $9.9 million and continuing-operations earnings $5.3 million. The quarter included a $4.5 million LIFO charge and a $4.5 million contingent-consideration charge; the extra week also limits comparability.
Outlook, risks and unusual items
- Management expected fiscal 2013 capital expenditures of approximately $45 million and interest expense of approximately $4.5 million, assuming no significant interest-rate changes. No consolidated earnings or revenue guidance is provided in the filing.
- Planned fiscal 2013 expansion included 12 domestic and four or five international Tommy Bahama stores, and four or five Lilly Pulitzer stores. Management expected continued near-term costs from Tommy Bahama’s international infrastructure and store openings.
- Management expected Ben Sherman’s fiscal 2013 operating loss to be lower than fiscal 2012 following merchandise and cost-reduction actions, while describing the outlook as dependent on execution and economic conditions. Lanier Clothes was expected to face near-term competition and cost pressure.
- Oxford redeemed the remaining $105 million of 11.375% senior secured notes in July 2012, paying a $6 million premium and recording a $9.1 million loss; funding came from the new $235 million U.S. revolving facility and cash. The facility matures in June 2017. All credit-facility covenants were met at year-end.
- The Lilly Pulitzer acquisition earnout had a $14.5 million recorded fair value and up to $15 million remaining potentially payable, subject to performance criteria. The filing identifies a $1.8 million environmental remediation reserve; timing and ultimate remediation costs remain uncertain.
- Principal risks include fashion and discretionary-spending volatility, sourcing concentration (about 65% of products sourced from China), cost inflation, dependence on wholesale customers and suppliers, inventory and markdown exposure, foreign exchange and variable-rate debt, and execution risks in Ben Sherman and international expansion. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Important facts for investors to verify
- Whether Tommy Bahama and Lilly Pulitzer growth and store/e-commerce investments can translate into improved operating margins and returns on invested capital.
- Whether Ben Sherman’s cost reductions and merchandising corrections reduce its operating losses without further weakening sales or brand positioning.
- The actual cash cost and timing of the remaining Lilly Pulitzer earnout, and how earnout remeasurement affects reported earnings.
- Whether planned capital spending, dividends and seasonal working-capital needs remain supportable by operating cash flow and revolver availability.
- How much of future earnings is exposed to sourcing costs, promotional activity, foreign exchange, interest rates and customer concentration.