Oxford Industries, Inc. — Form 10-Q Summary
Business context and reporting period
This unaudited filing covers the first quarter of fiscal 2020, the 13 weeks ended May 2, 2020, compared with the 13 weeks ended May 4, 2019. Oxford operates Tommy Bahama, Lilly Pulitzer, Lanier Apparel and Southern Tide, alongside other brands and businesses. The quarter was severely affected by COVID-19-related store, restaurant and wholesale-customer closures.
Financial results and liquidity
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net sales | $160.3 million | $282.0 million |
| Gross profit / margin | $94.1 million / 58.7% | $165.8 million / 58.8% |
| Operating income (loss) | $(85.5) million | $29.7 million |
| Net income (loss) | $(66.8) million | $21.7 million |
| Diluted earnings (loss) per share | $(4.02) | $1.29 |
| Cash used in operating activities | $45.8 million | $6.1 million |
| Cash used in investing activities | $8.6 million | $8.3 million |
| Cash provided by financing activities | $183.9 million | $11.6 million |
Sales fell 43.1% year over year. Retail sales declined 58%, wholesale 52%, restaurant 50% and outlet sales 60%; e-commerce sales rose 12% to $53.7 million. Gross margin was nearly flat overall, as inventory markdowns were substantially offset by a favorable LIFO adjustment.
At May 2, 2020, cash and cash equivalents were $181.8 million, inventories $169.5 million, current assets $423.7 million and current liabilities $153.1 million. Working capital was $270.6 million and the current ratio was 2.77. Revolver borrowings were $207.6 million, with $114 million of reported unused availability; the weighted-average borrowing rate was 1.7% and maturity is July 2024. Debt to total capital was 32%. The company reported compliance with applicable credit covenants.
Oxford recorded $60.5 million of goodwill and intangible-asset impairment, primarily for Southern Tide, including a full write-off of its goodwill. The effective income tax rate was a 22.5% benefit rate; the CARES Act carryback of most fiscal 2020 net operating losses to pre-tax-reform years partly increased the tax benefit. The declared dividend was $0.25 per share, down from $0.37 a year earlier.
Material changes, outlook and risks
- All North American retail and restaurant locations closed temporarily on March 17, 2020; Australian retail locations also closed. As of June 10, approximately 55% of stores and restaurants had reopened. Management expected substantially all to reopen by the end of June, subject to public-health conditions.
- Management said the pandemic would materially adversely affect fiscal 2020 results, cash flows and financial position, but that its financial impact could not then be reasonably estimated. It believed cash and the credit facility would support liquidity until operating cash flow recovered.
- Actions included furloughs and layoffs, executive and other salary reductions, suspending rent payments while negotiating with landlords, delaying or cancelling product deliveries and capital spending, and suspending share repurchases on March 17. The company also drew approximately $200 million on its revolver as a precaution.
- Management estimated fiscal 2020 capital expenditures of approximately $30 million, while noting that projects were being deferred or cancelled. No specific full-year sales or earnings guidance is provided in the filing.
- Rent nonpayment could lead to landlord default claims; the company said negotiations were ongoing and offered no assurance of resolution. Other key risks include renewed closures, weaker consumer demand, e-commerce uncertainty, supply-chain disruption, credit losses, inventory markdowns, asset impairments and economic deterioration. Reopening and safety measures may raise operating costs.
- Lease obligations were substantial: reported operating lease liabilities totaled $337.9 million, with $56.8 million of scheduled payments for the remainder of fiscal 2020.
Important facts for investors to verify
- Subsequent sales, store traffic, reopening status and e-commerce performance, including any renewed closures.
- Cash burn, revolver availability and covenant headroom as operating conditions evolve.
- Outcomes of landlord rent negotiations and any resulting lease claims or concessions.
- Further impairment, inventory markdown and wholesale-customer credit-loss exposure.
- Whether the announced capital-spending plan and $0.25 dividend remain sustainable.