Oxford Industries, Inc. — FY2013 Form 10-K
Reporting period: Fiscal 2013, the 52 weeks ended February 1, 2014. The filing also reports fourth-quarter results. Fiscal 2012 had 53 weeks, so annual and quarterly comparisons are not fully like-for-like.
Business context
Oxford designs, sources, markets and distributes apparel and related products, principally through Tommy Bahama, Lilly Pulitzer, Lanier Clothes and Ben Sherman. In FY2013, 89% of sales came from company-owned brands and 59% from direct-to-consumer channels, including stores, e-commerce and restaurants. More than 90% of sales were to U.S. customers; approximately 62% of product purchases were sourced from China.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $917.1 million | $855.5 million |
| Gross profit / margin | $513.6 million / 56.0% | $469.6 million / 54.9% |
| Operating income / margin | $84.7 million / 9.2% | $69.0 million / 8.1% |
| Net earnings | $45.3 million | $31.3 million |
| Diluted EPS | $2.75 | $1.89 |
| Operating cash flow | $52.7 million | $67.1 million |
| Capital expenditures | $43.4 million | $60.7 million |
Sales increased 7.2%. Tommy Bahama sales rose 10.7% to $584.9 million and Lilly Pulitzer rose 12.5% to $137.9 million. Lanier Clothes sales grew 2.1% to $109.5 million; Ben Sherman sales fell 17.9% to $67.2 million. Operating income improved at Tommy Bahama and Lilly Pulitzer, while Ben Sherman’s operating loss widened to $13.1 million. Gross margin benefited from a higher share of sales from higher-margin brands and direct-to-consumer channels, and the absence of FY2012’s $4.0 million LIFO charge.
Fourth-quarter FY2013 sales were $250.4 million, operating income $26.3 million, net earnings $15.0 million and diluted EPS $0.91, compared with $236.2 million, $9.9 million, $5.3 million and $0.32, respectively, in the prior-year quarter. FY2012’s fourth quarter included 14 weeks versus 13 weeks in FY2013. FY2013 fourth-quarter results included a $1.6 million gain on property sale.
Liquidity, debt and financial position
At February 1, 2014, cash was $8.5 million, total debt was $141.6 million and unused availability under revolving facilities was $96.5 million. Working capital was $138.0 million, with a 2.04 current ratio; debt-to-total-capital was 35%. Inventory increased 31.1% to $143.7 million, while receivables increased 19.9% to $75.3 million. Operating cash flow declined despite higher earnings, primarily reflecting less favorable working-capital movements, including higher inventory and receivables. The company reported compliance with credit covenants; its U.S. revolver matures in November 2018.
Outlook, commentary and risks
- Management expects continued investment in Tommy Bahama and Lilly Pulitzer, with near-term operating-margin pressure until sales support the added costs. FY2014 anticipated capital expenditures were approximately $55 million.
- FY2014 plans included 11 domestic Tommy Bahama retail openings, one or two international openings and five Lilly Pulitzer stores. Management estimated FY2014 interest expense of approximately $4.5 million and expected the effective tax rate to be below FY2013’s 43.7%, but above FY2012’s 38.5%.
- Management sees growth potential in Tommy Bahama and Lilly Pulitzer direct-to-consumer and e-commerce operations. It described tailored clothing as challenging and Ben Sherman as requiring further work despite management changes, cost reductions and a renewed focus on its core customer.
- Key risks include discretionary consumer demand, fashion and inventory execution, promotional pressure, reliance on foreign suppliers and concentrated sourcing, wholesale customer concentration, retail expansion costs, foreign exchange and variable interest rates. Tommy Bahama represented 64% of consolidated sales, increasing exposure to that brand’s performance.
- The Lilly Pulitzer acquisition earnout liability was $14.7 million; management anticipated that the remaining $12.5 million would be earned and paid, subject to the arrangement’s terms. An environmental remediation reserve was $1.6 million. The company said no pending litigation or regulatory matter was expected to have a material impact.
Most important facts for investors to verify
- Whether Tommy Bahama and Lilly Pulitzer sales growth, comparable-store performance and new-store economics can offset expansion costs and protect margins.
- Whether Ben Sherman’s turnaround improves sales and reduces its operating losses, and whether Lanier Clothes’ new private-label programs sustain growth without further margin erosion.
- Whether inventory growth and working-capital needs convert into sales and cash flow without elevated markdowns.
- Revolver availability, variable-rate debt exposure, covenant headroom and the company’s ability to fund planned capital expenditures and dividends.
- Final Lilly Pulitzer earnout payments, future tax-rate outcomes and the effect of foreign currency, sourcing costs and economic conditions.