Oxford Industries, Inc. — Form 10-Q Summary
Period: Second quarter and first half of Fiscal 2020. The quarter ended August 1, 2020; the first half covered the 26 weeks ended that date. The request metadata says “2019 Q2,” but the filing is for Fiscal 2020 Q2.
Business context
Oxford designs, sources, markets and distributes apparel and related products through Tommy Bahama, Lilly Pulitzer, Lanier Apparel, Southern Tide and other businesses. COVID-19 drove temporary store and restaurant closures beginning in March, followed by phased reopenings. E-commerce grew sharply as shopping shifted online.
Financial performance
| Metric | Q2 FY2020 | Q2 FY2019 | First half FY2020 | First half FY2019 |
|---|---|---|---|---|
| Net sales | $192.0 million | $302.0 million | $352.3 million | $584.0 million |
| Gross profit / margin | $104.7 million / 54.6% | $179.8 million / 59.5% | $198.8 million / 56.4% | $345.6 million / 59.2% |
| Operating income (loss) | $(8.0) million | $40.3 million | $(93.5) million | $70.0 million |
| Net earnings (loss) | $(6.1) million | $29.8 million | $(72.9) million | $51.5 million |
| Diluted EPS | $(0.37) | $1.76 | $(4.40) | $3.05 |
| Operating cash flow | Not separately provided | Not separately provided | $24.3 million | $67.3 million |
Q2 sales fell 36.4% year over year; first-half sales fell 39.7%. In Q2, e-commerce sales rose 52% to $106.8 million, while retail sales fell 69%, wholesale fell 55% and restaurant sales fell 59%. E-commerce represented 56% of Q2 sales versus 23% a year earlier. First-half e-commerce rose 36% to $160.5 million.
Gross margin declined amid lower sales, promotional activity, inventory markdowns and a channel shift toward e-commerce and off-price sales. Q2 SG&A decreased 19.3% to $115.7 million, but rose to 60.2% of sales from 47.5%, reflecting the lower revenue base. The first-half operating loss included $60.5 million of impairment charges, principally Southern Tide goodwill and trademarks; the impairment was recorded in Q1.
Cash, debt and liquidity
At August 1, 2020, cash and cash equivalents were $97.1 million, compared with $52.5 million at fiscal year-end and $30.8 million a year earlier. First-half cash provided by operations was $24.3 million; investing used $16.7 million, including $13.7 million of property and equipment purchases and a $3.0 million investment; financing provided $37.0 million. Cash dividends paid were $8.4 million and share repurchases were $18.1 million.
Long-term debt was $65.0 million, versus none at February 1, 2020 or August 3, 2019. The revolving facility had $257 million of unused availability, subject to borrowing-base limitations, and a 1.2% weighted-average borrowing rate. The company reported $3 million of letters of credit outstanding, compliance with applicable covenants, and no required financial covenant testing during the quarter. Working capital was $124.7 million and the current ratio was 1.72. Operating lease liabilities totaled $321.6 million.
Outlook, commentary and risks
Management expected a net loss for full-year Fiscal 2020 and said the pandemic was likely to materially adversely affect results, cash flows and financial condition for the foreseeable future. It did not provide a clear numerical earnings or revenue forecast. Management believed cash and revolving-credit availability were sufficient for Fiscal 2020 and near-term needs, pending a return to positive operating cash flow.
Fiscal 2020 capital expenditures were expected to be approximately $30 million, including $14 million incurred in the first half; some planned spending had been deferred or cancelled. The board reduced the Fiscal 2020 dividend rate; a $0.25-per-share dividend was approved for payment October 30, 2020. The filing cautions that dividends may be modified or discontinued.
Key risks include continuing store traffic and capacity restrictions, uncertain e-commerce demand, weaker consumer spending, wholesale customer bankruptcies or restructurings, supply-chain disruption, credit losses, inventory markdowns and further asset impairments. The company also reported negotiating rent arrangements with landlords and withholding certain prior-period rent while discussions continued. It disclosed no litigation or regulatory matter expected to have a material financial impact.
Important facts for investors to verify
- Whether store and restaurant traffic, operating restrictions and e-commerce demand improved or weakened after August 1, 2020.
- Whether the $257 million of reported credit availability remained accessible under borrowing-base limits, and whether covenant headroom changed.
- Whether wholesale customer distress, credit-loss provisions and inventory markdowns led to additional losses or cash-flow pressure.
- Whether Southern Tide and other assets required further impairment testing or charges.
- Whether the expected full-year loss, capital spending plans and dividend remained consistent with subsequent results and announcements.