OXM

Business Context and Reporting Period

Company: Oxford Industries, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: First Quarter of Fiscal 2009 (13 weeks ended May 2, 2009)
Business Overview: The company designs, produces, and distributes branded and private label consumer apparel for men, women, and children. Operations are organized into four groups: Tommy Bahama, Ben Sherman, Lanier Clothes, and Oxford Apparel. The company sources products primarily from third-party producers outside the U.S. and U.K.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 20.6% ($56.2 million) primarily due to challenging economic conditions impacting consumer demand.
  • Tommy Bahama: Sales down 23.9% due to reduced wholesale and retail unit sales.
  • Ben Sherman: Sales down 33.8% driven by a 26% decline in the British pound exchange rate and weaker U.K. business.
  • Lanier Clothes: Sales down 18.6% due to economic conditions and exits from Oscar de la Renta and Nautica licensed businesses.
  • Oxford Apparel: Sales down 8.0% due to strategic exits from underperforming lines and economic conditions.
• Profitability: Operating income fell 34.0% to $13.2 million. While SG&A expenses decreased 21.0% due to cost-cutting and overhead reductions, these savings were insufficient to offset the revenue decline.
  • Ben Sherman: Reported an operating loss of $2.0 million compared to a profit of $0.3 million in the prior year.
  • Lanier Clothes: Operating income improved to $2.7 million despite sales declines, driven by significant SG&A reductions.
• Cash Flow: Net cash provided by operating activities dropped significantly to $2.5 million from $36.2 million, largely due to changes in working capital (increased receivables and decreased current liabilities).
• Debt: Total debt decreased to $207.0 million from $239.1 million, aided by lower working capital requirements.

Guidance, Outlook, and Risks

• Outlook: Management expects challenging economic conditions to continue impacting all operating groups through fiscal 2009 and potentially beyond.
• Strategy: The company is focusing on maintaining a healthy balance sheet and liquidity by reducing working capital, moderating capital expenditures for retail stores, and reducing overhead.
• Capital Expenditures: Anticipated capital expenditures for fiscal 2009 are approximately $12 million, primarily for new retail stores and a new integrated financial system.
• Liquidity: The company maintains access to U.S. and U.K. revolving credit facilities. As of May 2, 2009, unused availability was approximately $122.8 million (U.S.) and $9.1 million (U.K.).
• Risks: Key risks include the duration and severity of economic conditions, consumer demand, access to credit markets, foreign currency exchange rates (specifically the British pound), and the impact of exiting certain business lines.

Investor Verification Checklist

• Foreign Currency Impact: Verify the sensitivity of Ben Sherman's results to fluctuations in the British pound sterling exchange rate.
• Inventory Levels: Review the reduction in inventory levels ($103.3 million vs. $122.7 million prior year) and the associated LIFO accounting charges ($1.6 million in Q1 2009).
• Debt Covenants: Confirm compliance with fixed charge coverage ratios and other covenants under the Senior Unsecured Notes and Revolving Credit Agreements.
• Store Count: Note the increase in Tommy Bahama retail stores (84 as of May 2, 2009 vs. 77 in prior year) and the associated pre-opening costs.
• Business Exits: Assess the long-term impact of exiting the Oscar de la Renta, Nautica, and Solitude businesses on future revenue streams.