Oxford Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal 2019, the 52 weeks ended February 1, 2020. Although the request refers to “2018 Q4,” this filing is an annual report; it also reports fourth-quarter results for the 13 weeks ended February 1, 2020. The comparable Fiscal 2018 fourth quarter covered 14 weeks, limiting direct comparison.
Business context and reporting period
Oxford is a branded apparel company whose principal businesses are Tommy Bahama, Lilly Pulitzer, Lanier Apparel and Southern Tide. Fiscal 2019 sales were 70% direct-to-consumer and 30% wholesale; 93% were from company-owned brands and 97% were in the United States. Tommy Bahama accounted for 60% of consolidated sales and Lilly Pulitzer for 25%.
Financial results and liquidity
| Metric | Fiscal 2019 | Fiscal 2018 |
|---|---|---|
| Net sales | $1,122.8 million | $1,107.5 million |
| Gross profit / margin | $645.0 million / 57.4% | $637.1 million / 57.5% |
| Operating income / margin | $93.7 million / 8.3% | $90.6 million / 8.2% |
| Net earnings | $68.5 million | $66.3 million |
| Diluted earnings per share | $4.05 | $3.94 |
| Cash from operations | $121.9 million | $96.4 million |
| Capital expenditures | $37.4 million | $37.0 million |
Annual sales rose 1.4%; comparable sales increased 4% to $539 million. E-commerce grew to 23% of sales from 21%, while wholesale declined to 30% from 31%. Gross margin was nearly flat as improved Lilly Pulitzer margins were offset by weaker Lanier Apparel, Tommy Bahama and Southern Tide margins; China tariffs reduced gross profit by about $2 million.
At year-end, cash and cash equivalents were $52.5 million, revolving-credit borrowings were zero, and unused credit availability was $322 million. Working capital was $111.0 million, down from $127.6 million; the current ratio was 1.62 versus 1.90. The company paid $25.2 million in dividends, or $1.48 per share. Operating cash flow less capital expenditures was approximately $84.5 million.
Reported debt excludes lease liabilities. Adoption of the revised lease standard added $287.2 million of operating lease assets and $342.1 million of current and non-current lease liabilities to the balance sheet. Total assets were $1.03 billion and shareholders’ equity was $528.6 million.
Material changes versus the prior comparable period
- Lilly Pulitzer sales increased 4.6% to $284.7 million and operating income increased 9.6% to $51.8 million; gross margin improved to 61.3%.
- Tommy Bahama sales were essentially flat at $676.7 million and operating income was $53.2 million. Comparable sales increased 3%, with e-commerce reaching 20% of the brand’s sales.
- Lanier Apparel sales declined 3.2% to $97.3 million and operating income fell 71% to $1.5 million, reflecting lower sales and inventory markdowns.
- Southern Tide sales increased 2.6% to $46.4 million, while operating income decreased slightly to $5.6 million. It opened its first company-owned store.
- Operating cash flow increased by $25.5 million, helped by lower receivables and inventory; the company ended the year with more cash and no revolving-credit debt, versus $13.0 million of long-term debt a year earlier.
- Fiscal 2019 operating income improved despite higher SG&A; interest expense fell to $1.2 million. The effective tax rate rose to 25.9% from 24.9%.
Fourth quarter: Net sales were $297.6 million versus $298.5 million; gross profit was $166.4 million versus $164.4 million; operating income was $21.1 million versus $22.0 million; net earnings were $15.3 million versus $16.7 million; diluted EPS was $0.90 versus $0.99. The prior-year quarter had one additional week.
Outlook, risks and unusual items
- COVID-19: After year-end, reduced traffic and temporary closures began in March 2020. North American retail stores and restaurants closed March 17, followed by Australian stores. Management said the disruption would significantly affect Fiscal 2020 results, cash flows and financial position, but its duration and financial impact could not be reasonably estimated.
- In March 2020, the company drew $200 million under its revolving facility to bolster liquidity. It furloughed many employees, reduced some salaries, worked to cancel or defer product deliveries, deferred capital expenditures and reduced the first-quarter Fiscal 2020 dividend rate. Management described liquidity as adequate, but did not provide quantified Fiscal 2020 earnings or sales guidance.
- The Board declared a $0.25-per-share dividend payable May 1, 2020. After year-end, the company also repurchased 332,000 shares for $18 million.
- The company planned to exit its remaining Tommy Bahama Japan operations in the first half of Fiscal 2020; Fiscal 2019 included $3 million of related charges. It also planned to shift more sourcing away from China after tariffs increased costs.
- Key exposures include discretionary consumer demand, retail traffic and wholesale customer health, inventory and markdown risk, competitive and promotional pressure, tariffs and foreign sourcing, and concentration in Tommy Bahama and Lilly Pulitzer. China represented approximately 49% of product sourcing; the company paid more than $45 million in direct U.S. import duties in Fiscal 2019.
- Lanier Apparel’s largest four customers represented 69% of its sales, and its top ten represented more than 85%. Company-wide, five largest wholesale customers accounted for 13% of consolidated sales; their receivables totaled $32 million, or 55% of receivables.
- Other notable matters: the company recorded no goodwill or intangible-asset impairment. The auditor issued unqualified opinions on the financial statements and internal controls; the Southern Tide goodwill and trademark impairment analysis was identified as a critical audit matter. The filing reported no legal proceeding expected to materially affect financial position, results or cash flows.
Important facts for investors to verify
- Post-year-end liquidity: utilization of the $200 million draw, remaining borrowing-base availability, covenant headroom and cash burn during store closures.
- COVID-19 effects on sales channels, wholesale collections, inventory levels, markdowns, margins and Fiscal 2020 operating cash flow.
- Progress and costs of the Tommy Bahama Japan exit, China sourcing shifts and tariff mitigation.
- Whether Lanier Apparel’s customer concentration and markdown pressures persist, and whether growth in Lilly Pulitzer and e-commerce offsets them.
- Lease obligations and capital commitments, including how lease liabilities affect liquidity and fixed-cost flexibility.
- Dividend policy and share repurchases in light of the pandemic-related draw and uncertain outlook.