Oxford Industries, Inc. — Form 10-Q summary
Reporting period: The filing covers the third quarter and first nine months of Fiscal 2016, ended October 29, 2016. This conflicts with the request metadata identifying “2015 Q3”; the filing period is the one summarized below. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
Oxford operates apparel and lifestyle brands Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel. Southern Tide was acquired on April 19, 2016. Ben Sherman, sold in July 2015, is reported as discontinued operations.
Financial performance
| Metric | Q3 FY2016 | Q3 FY2015 | First 9 months FY2016 | First 9 months FY2015 |
|---|---|---|---|---|
| Net sales | $222.3 | $198.6 | $761.5 | $709.7 |
| Gross profit / margin | $118.3 / 53.2% | $107.9 / 54.3% | $436.1 / 57.3% | $413.4 / 58.2% |
| Operating income (loss) | $(0.3) | $(1.2) | $70.4 | $69.1 |
| Continuing-operations net income (loss) | $(1.6) | $(1.4) | $42.5 | $41.0 |
| Diluted earnings (loss) per share from continuing operations | $(0.10) | $(0.08) | $2.55 | $2.48 |
| Net cash provided by operating activities | Not separately presented | Not separately presented | $53.3 | $68.6 |
Q3 sales rose 11.9%, but gross margin fell 1.1 percentage points; the company recorded a small operating loss and a larger continuing-operations net loss than a year earlier. Nine-month sales increased 7.3%, operating income rose 1.9%, and continuing-operations net income rose 3.6%. The prior-year nine-month net income included a $27.9 million loss from discontinued operations, so reported total net income comparisons are not directly comparable.
Balance sheet, debt and liquidity
- At October 29, 2016, cash was $5.4 million, current assets $239.8 million, and current liabilities $97.7 million. Working capital was $142.1 million; the current ratio was 2.45.
- Long-term debt was $142.4 million, versus $68.7 million at October 31, 2015. Debt to total capital increased to 28% from 18%.
- The company reported $133.4 million of unused availability under its $325 million revolving credit facility, which matures in May 2021. The weighted-average borrowing rate was 2.0%; the facility is secured by substantially all assets of the company and certain domestic subsidiaries.
- Oxford reported compliance with all credit covenants at quarter-end; the fixed-charge coverage test was not triggered. The covenant applies if availability falls below specified thresholds.
- Nine-month investing cash outflow was $137.1 million, including $92.0 million for Southern Tide and $40.1 million in capital expenditures. Financing provided $82.6 million, including net revolving-credit borrowings; dividends paid were $13.6 million.
Material changes and management commentary
- Q3 sales growth was driven in part by Southern Tide ($8.7 million), increased clearance sales, added stores, wholesale growth and Tommy Bahama restaurant sales. Comparable store sales declined 1% overall; Tommy Bahama declined 6%, while Lilly Pulitzer increased 12%.
- For the first nine months, Tommy Bahama operating income fell 22.7% to $26.8 million, primarily reflecting lower comparable sales, lower gross margin and higher store and restaurant costs. Lilly Pulitzer operating income rose 17.2% to $49.6 million; Lanier Apparel operating income rose 11.9% to $6.6 million.
- Southern Tide contributed $19.3 million of sales and a $0.4 million operating loss from acquisition through quarter-end. Results included acquisition-related inventory step-up costs; the preliminary purchase-price allocation included $40.9 million of intangible assets and $33.8 million of goodwill.
- Management cited soft consumer traffic, less focus on fashion apparel, a highly promotional retail environment and Hurricane Matthew’s effect on store operations and wholesale reorders. The Hanjin shipping bankruptcy delayed some Lilly Pulitzer shipments, shifting sales into Q4.
Outlook, unusual items and risks
- Management expected the FY2016 effective tax rate to be approximately 36%, interest expense approximately $3.4 million, and capital expenditures approximately $55 million, including $40.1 million incurred in the first nine months.
- Management estimated Southern Tide FY2016 sales from acquisition through fiscal year-end at $25–$30 million, with approximately 75%–80% from wholesale. It expected about $3.0 million of FY2016 cost of goods sold from acquired-inventory step-up; no further inventory step-up or distribution-center integration charges were anticipated after FY2016.
- Q3 gross profit included a $1.9 million benefit from Deepwater Horizon economic-loss claim settlements and a $1.3 million charge for asserted underpaid customs duties. The customs matter remained unresolved and could be adjusted or reversed.
- A $3.3 million liability remained for retained Ben Sherman lease obligations; the ultimate loss depends partly on future sublease income. Oxford said it knew of no litigation or regulatory action expected to have a material adverse effect.
- Other cited risks include consumer demand and apparel-market competition, shipment timing, weather, product and labor costs, acquisition integration and synergies, foreign-exchange and interest-rate exposure, and access to credit. The company noted higher interest-rate exposure following increased borrowings.
Important facts for investors to verify
- Confirm the intended period: the supplied filing is for Q3 FY2016, not Q3 FY2015.
- Reconcile the MD&A statement that cash flow from operations was $90.1 million in the debt discussion with the cash flow statement’s $53.3 million for the first nine months of FY2016.
- Track comparable sales, gross-margin trends and clearance activity, particularly at Tommy Bahama and Lilly Pulitzer.
- Monitor Southern Tide’s sales, profitability, integration, purchase-price allocation and acquired-intangible amortization.
- Review revolving-credit availability, covenant thresholds, debt levels and the retained lease liability as new information becomes available.