Oxford Industries, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first half of fiscal 2023. The quarter ended July 29, 2023; comparative periods ended July 30, 2022. Amounts below are in millions unless stated otherwise.
Business context
Oxford designs, sources, markets and distributes lifestyle apparel and related products through Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, The Beaufort Bonnet Company and Duck Head. The reportable operating groups are Tommy Bahama, Lilly Pulitzer, Johnny Was and Emerging Brands. Johnny Was was acquired in September 2022, so it contributes to fiscal 2023 results but not the comparable fiscal 2022 reported results.
Key financial results
| Metric | Second quarter FY2023 | Second quarter FY2022 | First half FY2023 | First half FY2022 |
|---|---|---|---|---|
| Net sales | $420.3 | $363.4 | $840.4 | $716.0 |
| Gross profit | $268.7 | $232.1 | $543.9 | $458.5 |
| Gross margin | 63.9% | 63.9% | 64.7% | 64.0% |
| SG&A | $205.2 | $163.1 | $408.4 | $320.5 |
| Operating income | $67.7 | $75.4 | $148.0 | $151.3 |
| Net earnings | $51.5 | $56.6 | $110.0 | $114.0 |
| Diluted earnings per share | $3.22 | $3.49 | $6.86 | $6.94 |
- Second-quarter sales rose 15.7%, including $52.0 million from Johnny Was. E-commerce sales increased, including Lilly Pulitzer flash-clearance activity; reported sales also benefited from growth across the operating groups.
- Despite higher sales, second-quarter operating income declined 10.2% and net earnings declined 9.1%. SG&A rose 25.8% and increased from 44.9% to 48.8% of sales. Higher expenses, including employment, advertising and occupancy costs, and higher interest expense more than offset sales growth.
- First-half sales rose 17.4%, also including Johnny Was. Operating income fell 2.2% and net earnings fell 3.5%; diluted EPS declined 1.2%. First-half SG&A increased 27.4% and was 48.6% of sales, versus 44.8% a year earlier.
- First-half operating cash flow was $152.5 million, compared with $90.6 million. Investing activities used $32.6 million, including $31.4 million of capital expenditures; financing activities used $120.9 million. Cash flow from operations less capital expenditures was approximately $121.1 million.
Balance sheet, debt and liquidity
- At July 29, 2023, cash and cash equivalents were $7.8 million, with no short-term investments. Working capital was $49.8 million and the current ratio was 1.21, compared with $198.6 million and 1.89 at July 30, 2022. The lower cash and investment balance primarily reflects funding the Johnny Was acquisition.
- Long-term debt was $48.5 million, down from $119.0 million at fiscal year-end. The $325 million revolving facility matures in March 2028; $266 million was available at quarter-end, with $6 million of letters of credit outstanding. Borrowings had a weighted-average interest rate of 8%.
- The company reported compliance with applicable credit covenants; no financial covenant testing was required because minimum availability thresholds were met. Total operating lease liabilities were $286.9 million, including current and non-current portions.
- First-half capital returns included $20.8 million of dividends paid and $19.0 million of open-market share repurchases, in addition to employee-share withholding repurchases. The declared quarterly dividend was $0.65 per share.
Material changes and management commentary
- Johnny Was contributed $52.0 million of second-quarter sales and $101.5 million for the first half. Its first-half operating income was $6.3 million, after $6.9 million of acquired-intangible amortization and $1 million of e-commerce platform implementation costs. Purchase price was provisionally estimated at $273.6 million; acquisition accounting remained subject to review.
- Second-quarter segment operating income declined at Tommy Bahama, Lilly Pulitzer and Emerging Brands compared with the prior-year quarter. Tommy Bahama operating income fell 13.4%, Lilly Pulitzer 13.6% and Emerging Brands 24.1%. Johnny Was generated $3.8 million of operating income.
- First-half gross margin improved 0.7 percentage points, supported by Johnny Was, lower freight costs and improved initial product margins. Clearance activity at Lilly Pulitzer and Tommy Bahama, and off-price wholesale sales at Emerging Brands, were offsets.
- First-half results included a $1.8 million gain on sale of the Merida manufacturing facility. Effective tax rates were 22.5% for the quarter and 23.8% for the first half; management noted that equity-award vesting and other items lowered the first-half rate relative to a more typical rate of about 25%.
Outlook, risks and contingencies
- Management expected fiscal 2023 capital expenditures of approximately $90 million, including store openings, relocations and remodels, technology investments and distribution-center enhancements. It anticipated a net increase of approximately 25 full-price stores by fiscal year-end. No earnings or revenue guidance is stated in the provided filing text.
- Management expected debt to be further reduced in the second half of fiscal 2023 and said operating cash flows and revolver access were expected to support operating needs, investment and debt repayment. Results are seasonal; management cautioned that first-half results are not indicative of the expected quarterly pattern.
- Risks highlighted include discretionary consumer demand, inflation and interest rates, competitive promotional activity, supply-chain and product costs, acquisition integration, labor and freight, cybersecurity, indebtedness and geopolitical developments.
- After quarter-end, wildfires destroyed the Tommy Bahama Marlin Bar in Lahaina, Maui. The company expected insurance to cover substantially all losses on inventory, property and equipment and related costs; other Maui locations were also affected.
- The company reported no litigation or regulatory matter it believed could reasonably be expected to have a material financial impact. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of reported sales growth and future performance is attributable to Johnny Was versus organic growth, and how integration and platform investments are progressing.
- Whether higher SG&A, promotional activity and brand-level operating-income declines persist, particularly at Tommy Bahama, Lilly Pulitzer and Emerging Brands.
- Inventory levels, clearance sales and gross-margin trends, including the effects of LIFO accounting and product markdowns.
- Debt reduction, variable-rate interest exposure, revolver availability and covenant headroom as capital expenditures and shareholder distributions continue.
- Insurance recoveries and any business interruption or other effects from the Maui wildfires.