Oxford Industries, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2014, the 52 weeks ended January 31, 2015, compared mainly with fiscal 2013, ended February 1, 2014. It is not a filing for 2013 Q4. Fiscal 2014 fourth-quarter figures are included below where available.
Business context and reporting period
Oxford designs, sources, markets and distributes apparel and related products through its Tommy Bahama, Lilly Pulitzer, Lanier Clothes and Ben Sherman businesses, plus smaller Corporate and Other operations. Direct-to-consumer sales include stores, e-commerce and Tommy Bahama restaurants. About 90% of fiscal 2014 sales came from company-owned brands; approximately 61% came through direct-to-consumer channels. The company reported that more than 90% of sales were to U.S. customers.
Key financial results
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Net sales | $997.8 million | $917.1 million |
| Gross profit / margin | $554.7 million / 55.6% | $513.6 million / 56.0% |
| Operating income / margin | $83.6 million / 8.4% | $84.7 million / 9.2% |
| Net earnings | $45.8 million | $45.3 million |
| Diluted earnings per share | $2.78 | $2.75 |
| Cash provided by operating activities | $95.4 million | $52.7 million |
| Capital expenditures | $50.4 million | $43.4 million |
Sales grew 8.8%, while operating income declined 1.3%; net earnings increased about 1%. Gross margin fell 0.4 percentage points and operating margin fell 0.8 points. Operating cash flow less capital expenditures was approximately $45.1 million in fiscal 2014.
Fiscal 2014 fourth-quarter net sales were $274.5 million, operating income $25.7 million and net earnings $15.8 million. The comparable fiscal 2013 quarter recorded sales of $250.4 million, operating income of $26.3 million and net earnings of $15.0 million.
Segments and changes versus prior year
- Tommy Bahama: Sales increased 7.3% to $627.5 million, but operating income declined 1.5% to $71.1 million. Lower gross margin and higher costs supporting store, restaurant and infrastructure growth offset sales gains. Asia-Pacific operations generated a $10.3 million operating loss, improved from $11.9 million.
- Lilly Pulitzer: Sales rose 21.6% to $167.7 million and operating income rose 24.0% to $32.2 million, reflecting higher comparable sales, new stores and improved gross margin, partly offset by expansion-related expenses.
- Lanier Clothes: Sales increased 3.1% to $112.9 million; operating income was essentially flat at $10.8 million. A larger mix of lower-margin private-label sales weighed on gross margin.
- Ben Sherman: Sales increased 15.3% to $77.5 million, partly from off-price inventory sales and favorable currency translation. The operating loss narrowed to $10.8 million from $13.1 million; the business remained unprofitable.
Consolidated SG&A increased 9.2% to $488.9 million, rising to 49.0% of sales from 48.8%. The company attributed the increase to business expansion, additional stores and restaurants, higher incentive compensation, advertising and equity-based compensation. Lower Tommy Bahama gross margin and a $2.1 million unfavorable LIFO impact also pressured results. Fiscal 2013 included a $1.6 million property-sale gain.
Debt, liquidity and financial position
At January 31, 2015, cash was $5.3 million and total borrowings were $109.0 million, down from $141.6 million a year earlier. The company reported approximately $128 million of unused availability under its U.S. and U.K. revolving facilities, subject to borrowing-base and other limits. Working capital was $123.0 million, down from $138.0 million; the current ratio declined to 1.78 from 2.04. Debt to total capital was 27%, compared with 35%.
The U.S. revolving facility matures in November 2018 and bears variable interest; the U.K. facility is payable on demand. The company said it was compliant with all credit-facility covenants and that no financial covenant testing was required during fiscal 2014. All debt outstanding was variable-rate at year-end. Dividends paid were $13.9 million, or $0.84 per share.
Outlook, risks and unusual items
- Management expects fiscal 2015 capital expenditures of approximately $70 million, primarily for store and restaurant openings or relocations, remodels, facilities and technology. It anticipated landlord reimbursements of about $13 million.
- Planned openings included approximately 8–10 domestic Tommy Bahama locations and 2–3 international stores, plus six Lilly Pulitzer stores. Management cautioned that brand investments and international expansion could pressure margins until sales scale sufficiently. It expected a lower fiscal 2015 effective tax rate than fiscal 2014’s 42.9%, primarily due to anticipated lower foreign losses.
- On March 24, 2015, the board authorized management to pursue a sale of Ben Sherman. The company expected a sale within fiscal 2015 but gave no firm timetable and offered no assurance a transaction would occur; it planned to operate the business during the process.
- Material risks include promotional apparel retail conditions, discretionary consumer demand, fashion and brand execution, reliance on wholesale customers and overseas manufacturers, sourcing costs and currency movements, inventory risk, store commitments, information security and variable-rate debt. China accounted for approximately 60% of product sourcing.
- The company recorded a $12.5 million current liability for the final Lilly Pulitzer acquisition contingent-consideration payment, expected in the first quarter of fiscal 2015. It also reported a $1.3 million environmental remediation reserve; timing and ultimate costs remain uncertain.
- The fourth quarter included a $2.6 million LIFO accounting charge. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether the proposed Ben Sherman sale was completed, on what terms, and with what effect on earnings, cash and reported segments.
- Whether planned fiscal 2015 capital spending and store expansion were delivered, and whether new locations generated adequate returns.
- Whether Tommy Bahama’s Asia-Pacific losses and the company’s declining gross and operating margins improved.
- Whether the $12.5 million Lilly Pulitzer contingent payment was made as expected and how remaining liquidity changed after that payment and planned investment.
- How inventory levels, promotional and off-price sales, LIFO adjustments, foreign exchange and customer credit quality affected subsequent results.
- Whether variable-rate debt, covenant headroom and dividend payments remained manageable as capital needs increased.