Oxford Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal 2011, the 52 weeks ended January 28, 2012. The request metadata says “2010 Q4,” but this filing covers fiscal 2011; its fourth-quarter results are reported separately below. Unless indicated otherwise, financial amounts are in U.S. dollars.
Business context and reporting period
Oxford designs, sources, markets and distributes apparel through owned lifestyle brands Tommy Bahama, Lilly Pulitzer and Ben Sherman, as well as tailored-clothing and golf businesses. About 88% of fiscal 2011 sales came from company-owned brands; about half of consolidated sales were through direct-to-consumer channels. The fiscal 2011 results include Lilly Pulitzer for a full year, following its December 2010 acquisition. Oxford sold substantially all of its former Oxford Apparel operations in January 2011; those operations are presented as discontinued operations.
Financial performance and liquidity
| Metric | Fiscal 2011 | Fiscal 2010 |
|---|---|---|
| Net sales | $758.9 million | $603.9 million |
| Gross profit / margin | $413.0 million / 54.4% | $327.4 million / 54.2% |
| Operating income / margin | $68.8 million / 9.1% | $40.7 million / 6.7% |
| Continuing-operations earnings | $29.2 million; $1.77 diluted EPS | $16.2 million; $0.98 diluted EPS |
| Net earnings | $29.4 million; $1.78 diluted EPS | $78.7 million; $4.75 diluted EPS |
| Cash from operating activities | $44.6 million | $35.7 million |
| Capital expenditures | $35.3 million | $13.3 million |
| Cash and cash equivalents at year-end | $13.4 million | $44.1 million |
Fiscal 2011 net earnings were substantially below fiscal 2010 despite improved continuing operations because fiscal 2010 included $62.4 million of earnings from discontinued operations, including the gain on sale of Oxford Apparel. Fiscal 2011 continuing-operations results included a $9.0 million loss on repurchasing senior notes and a $2.4 million charge from the change in fair value of Lilly Pulitzer contingent consideration.
Fourth-quarter fiscal 2011 sales were $199.7 million, gross profit $103.6 million, operating income $13.6 million and continuing-operations earnings $7.1 million. In fourth-quarter fiscal 2010, the corresponding figures were $157.7 million, $85.0 million, $8.1 million and $1.7 million. Fiscal 2011 fourth-quarter operating income included a $5.8 million LIFO charge; the quarter also included a $1.2 million life-insurance death-benefit gain.
At January 28, 2012, total debt was $106.0 million: $105.0 million principal of 11.375% senior secured notes and $2.6 million drawn under the U.K. revolver, less unamortized discount. The U.S. revolver had no borrowings. Unused availability was approximately $148.1 million under the U.S. facility and $3.2 million under the U.K. facility. Working capital was $97.7 million, the current ratio was 1.83 and debt-to-total-capital was 34%. The company reported covenant compliance.
Material changes versus the prior comparable period
- Sales rose 25.7%, principally because Lilly Pulitzer contributed $94.5 million for a full fiscal year versus $6.0 million included in fiscal 2010, and Tommy Bahama sales increased 13.5% to $452.2 million.
- Gross margin increased 0.2 percentage points, helped by Lilly Pulitzer and a greater direct-to-consumer mix at Tommy Bahama. Higher LIFO charges and weaker margins at Ben Sherman and Lanier Clothes partly offset the improvement.
- Operating income rose 69.2%. Tommy Bahama operating income increased 25.6% to $64.2 million; Lilly Pulitzer reported $14.3 million; Ben Sherman remained loss-making at $2.5 million; Lanier Clothes income declined 10.2% to $12.9 million.
- Interest expense declined 18.2% to $16.3 million following debt reduction. The company repurchased $45.0 million principal of notes for $52.2 million plus accrued interest, recognizing a $9.0 million loss on repurchase.
- Cash from operations increased, but year-end cash fell by $30.7 million, reflecting the note repurchase, increased capital spending and working-capital needs. Inventory increased 21.2% to $103.4 million.
Outlook, commentary, risks and unusual items
Management said economic uncertainty, weak consumer traffic and promotional retail conditions remained concerns, while recent sales had generally improved. It anticipated ongoing product-cost pressure into the first half of fiscal 2012, with some costs potentially moderating in the second half. Management did not provide a specific earnings or sales forecast.
- Fiscal 2012 capital expenditures were expected to be approximately $60 million, mainly for new stores, technology, remodels and distribution-center enhancements. Planned expansion included 10–12 net domestic Tommy Bahama openings, Asian Tommy Bahama stores, and three or four Lilly Pulitzer stores. Management cautioned that expansion and pre-opening costs would weigh on near-term operating income.
- Oxford intended to seek refinancing or redemption of its 11.375% notes beginning July 15, 2012, subject to financing availability. The notes carried $105 million principal at year-end, matured in July 2015 and had a stated effective interest rate of 12%. The company warned that refinancing with variable-rate debt could increase exposure to interest-rate changes.
- The Lilly Pulitzer acquisition included up to $20 million of performance-based contingent payments. $2.5 million had been earned in fiscal 2011 and was expected to be paid in the first half of fiscal 2012; the recorded fair-value liability was $13.1 million.
- Key business risks include fashion and brand execution, discretionary consumer demand, sourcing concentration (about 70% of fiscal 2011 product purchases were from China), rising materials, labor and freight costs, dependence on third-party manufacturers, customer concentration, inventory estimation and markdown risk, foreign exchange, and execution of retail and international expansion.
- The company reported no litigation or regulatory matter it believed would have a material impact. It had a $1.9 million environmental remediation reserve; timing and ultimate costs remain uncertain. Operating lease commitments totaled $286.8 million, in addition to minimum royalty and advertising commitments.
Important facts for investors to verify
- Separate underlying growth from the full-year Lilly Pulitzer contribution; assess comparable sales and the sustainability of Tommy Bahama’s direct-to-consumer performance.
- Track inventory growth, markdowns and the $5.8 million LIFO charge, including sensitivity to inventory levels and price indexes.
- Confirm funding, terms and covenant implications of any note refinancing or redemption, and assess resulting interest-rate exposure.
- Monitor delivery and returns on the planned $60 million fiscal 2012 capital program and store expansion, including near-term operating costs.
- Review Lilly Pulitzer performance against earnout targets and the resulting contingent payments, and evaluate Ben Sherman’s continuing losses and Lanier Clothes margin pressure.