Oxford Industries, Inc. — Form 10-Q Summary
Reporting period: First quarter of Fiscal 2023, the 13 weeks ended April 29, 2023. The filing’s period is FY2023 Q1, despite the request metadata stating 2022 Q1. Comparisons below are with the 13 weeks ended April 30, 2022. Amounts are in millions unless noted.
Business context and results
Oxford designs, sources, markets and distributes apparel and lifestyle products through Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, TBBC and Duck Head. Its channels include retail, e-commerce, food and beverage, wholesale and licensing. Johnny Was, acquired September 19, 2022, is included in current-quarter results but not the prior-year quarter, making the acquisition a significant factor in reported growth.
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $420.1 | $352.6 | +19.1% |
| Gross profit / margin | $275.1 / 65.5% | $226.4 / 64.2% | Margin +1.3 points |
| SG&A | $203.1 | $157.4 | +29.1% |
| Operating income / margin | $80.3 / 19.1% | $76.0 / 21.5% | Income +5.7% |
| Net earnings | $58.5 | $57.4 | +2.0% |
| Diluted earnings per share | $3.64 | $3.45 | +5.5% |
| Cash provided by operating activities | $52.6 | $22.5 | +$30.1 |
Revenue growth reflected $49.5 million from Johnny Was and increases across the other operating groups; management said growth was primarily volume-driven. E-commerce sales rose 30% to $125.8 million, retail sales rose 16% to $157.6 million, wholesale rose 18% to $104.8 million, and food and beverage sales rose 4% to $32.0 million.
Financial position and liquidity
- At April 29, 2023, cash was $9.7 million, with no short-term investments; inventory was $179.6 million. Working capital was $85.7 million and the current ratio was 1.35.
- Long-term debt was $94.3 million, compared with $119.0 million at January 28, 2023 and none at April 30, 2022. The company reported $224 million of unused availability and $7 million of standby letters of credit under its $325 million revolving facility.
- The amended credit facility matures in March 2028. Borrowings bear variable rates; the weighted-average rate was 7% at quarter-end. The company was compliant with applicable covenants, and no financial covenant testing was required during the quarter.
- Operating cash flow was $52.6 million; investing activities used $15.5 million, primarily for $16.7 million of capital expenditures; financing activities used $36.1 million, including $10.4 million of dividends paid. Cash increased by $0.9 million during the quarter.
- Total operating lease liabilities were $290.4 million at quarter-end. Total lease expense was $28 million, up from $24 million, primarily due to Johnny Was.
Changes, outlook and notable items
- Gross margin improved as freight costs declined, initial product margins improved, Johnny Was contributed at a 67.9% gross margin, and Lilly Pulitzer had no e-commerce flash-clearance sales in the quarter. The margin improvement was more than offset at the operating-income level by higher SG&A; SG&A rose 29%, including approximately $31 million attributable to Johnny Was. Operating margin declined to 19.1% from 21.5%.
- Segment operating income was $55.5 million for Tommy Bahama, $24.5 million for Lilly Pulitzer, $2.5 million for Johnny Was and $3.9 million for Emerging Brands. Emerging Brands operating income fell 49%, with lower gross margin from off-price wholesale mix and markdowns, plus higher expenses. Lilly Pulitzer operating income fell 6% despite higher sales.
- Net interest expense rose to $2.3 million from $0.2 million, primarily reflecting debt used to fund the Johnny Was acquisition. The quarter included a $1.8 million gain on the sale of the Merida manufacturing facility. Johnny Was operating income included $3.5 million of intangible amortization and approximately $1 million of e-commerce platform implementation costs.
- Management expected approximately $90 million of FY2023 capital expenditures, including $17 million incurred in Q1. Plans included new, relocated or remodeled stores, with a net increase of approximately 25 full-price stores expected by fiscal year-end, technology investments and distribution-center enhancements. Management said it anticipated a significant reduction in debt during FY2023.
- The board approved a $0.65-per-share dividend payable July 28, 2023. The company had $50 million remaining under its share-repurchase authorization; it made no share repurchases in Q1 FY2023.
- Management cautioned that results are seasonal and the first quarter is not indicative of full-year results. Risks cited include discretionary consumer demand, inflation and interest rates, supply-chain and product-cost pressures, competition, acquisition integration, cybersecurity, and geopolitical and regulatory developments. The company reported no legal proceedings it believed would reasonably be expected to materially affect its financial position, results or cash flows.
Most important facts for investors to verify
- How much of the 19.1% sales increase reflects Johnny Was versus underlying growth in existing brands and channels.
- Whether gross-margin gains can be sustained while SG&A growth, including acquisition-related costs and store expansion, is controlled.
- Progress on the stated FY2023 debt-reduction expectation, given low cash balances and variable-rate borrowings.
- Execution and returns from the approximately $90 million capital-expenditure plan and planned store expansion.
- Emerging Brands’ markdown and margin trends, and the ongoing integration and provisional purchase accounting for Johnny Was.