Oxford Industries, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers Oxford Industries’ first quarter of fiscal 2019, the 13 weeks ended May 4, 2019, compared with the 13 weeks ended May 5, 2018. The company operates Tommy Bahama, Lilly Pulitzer, Lanier Apparel, Southern Tide and other businesses. The requested metadata says “2018 Q1,” but the filing itself identifies this as fiscal 2019 Q1.
Financial performance
| Metric | First quarter fiscal 2019 | First quarter fiscal 2018 |
|---|---|---|
| Net sales | $282.0 million | $272.6 million |
| Gross profit / margin | $165.8 million / 58.8% | $164.1 million / 60.2% |
| Operating income / margin | $29.7 million / 10.5% | $28.4 million / 10.4% |
| Net earnings | $21.7 million | $20.6 million |
| Diluted earnings per share | $1.29 | $1.23 |
| Interest expense, net | $0.7 million | $0.8 million |
- Sales increased 3.4%. Wholesale sales rose to $101.9 million from $94.4 million; e-commerce sales rose to $48.0 million from $44.5 million. Comparable sales increased 2% to $128 million.
- Tommy Bahama sales declined 1.4% to $164.7 million, while operating income rose 6.2% to $15.2 million. Lilly Pulitzer sales increased 5.8% to $72.6 million, but operating income declined 3.6% to $15.3 million. Lanier Apparel sales grew 33.6% to $26.6 million and operating income increased to $1.2 million. Southern Tide sales rose 4.9% to $14.1 million.
- Gross margin fell 1.4 percentage points, mainly due to a larger share of lower-margin Lanier Apparel sales and weaker margins in Lilly Pulitzer and Lanier. Improved Tommy Bahama and Southern Tide margins partly offset the decline.
- SG&A was nearly unchanged at $139.8 million, but declined as a share of sales to 49.6% from 51.2%. Effective tax rate was 25.5% in both periods.
Cash flow, debt and liquidity
- Operating activities used $6.1 million of cash, versus $7.1 million used a year earlier. Investing activities used $8.3 million, including $8.3 million of capital expenditures, compared with $13.1 million used in the prior-year quarter.
- Financing activities provided $11.6 million, including $97.5 million of revolving-credit borrowings and $77.3 million of repayments. Dividends paid were $6.3 million. Cash declined by $2.8 million during the quarter to $5.5 million.
- At May 4, 2019, revolving-credit borrowings were $33.2 million and unused availability was $274 million; $5 million of letters of credit were outstanding. The weighted-average borrowing rate was 4.7%. The facility matures in May 2021, and the company reported covenant compliance.
- Working capital was $106.9 million and the current ratio was 1.64, down from 1.90 at February 2, 2019. The company attributed much of the increase in current liabilities and the change in balance-sheet totals to adoption of lease accounting.
- Fiscal 2019 capital expenditures were forecast at $45 million to $50 million, including $8 million incurred in Q1.
Outlook, commentary and risks
- Management expected fiscal 2019 Lanier Apparel sales to increase in the high-single-digit percentage range versus fiscal 2018, noting that Q1’s 34% growth was not indicative of planned sales in later quarters; some growth reflected shipment timing.
- Management expected a fiscal 2019 effective tax rate of approximately 26% and anticipated sufficient liquidity from operating cash flow and revolving-credit availability to fund operations and planned investment.
- The company adopted revised lease accounting in Q1. It recorded $294.1 million of operating lease assets and $349.1 million of lease liabilities, including $53.7 million current and $295.4 million non-current. Adoption materially affected the balance sheet but did not materially affect reported operating results or cash flows. Q1 operating and variable lease expense totaled $21 million.
- Management cited apparel-market competition, shifting consumer shopping patterns, discretionary-spending and economic uncertainty, wholesale-channel challenges, weather, and potential higher U.S. tariffs on China-made goods as risks. Other identified uncertainties include sourcing and labor costs, execution of growth initiatives, acquisitions, and litigation or regulatory outcomes.
- The company reported no litigation or regulatory matter believed likely to have a material impact, no material change to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether Lanier’s Q1 shipment timing and customer-program growth support the full-year high-single-digit sales outlook.
- Whether gross-margin pressure in Lilly Pulitzer and Lanier persists, and whether Tommy Bahama’s margin improvements continue.
- Inventory levels and receivables growth: inventory was $157.2 million at May 4, 2019, up from $132.3 million a year earlier; management said inventory was appropriate for anticipated sales.
- Cash conversion and seasonal working-capital needs, given that Q1 operating cash flow was negative despite positive earnings.
- The effect of lease obligations, planned capital expenditures, dividends and any tariff or sourcing-cost changes on liquidity and profitability.