Oxford Industries, Inc. — Form 10-Q Summary
Period and context: The supplied filing is for the third quarter of Fiscal 2020, the 13 weeks ended October 31, 2020—not 2019 Q3 as stated in the request metadata. Oxford operates Tommy Bahama, Lilly Pulitzer, Southern Tide and Lanier Apparel, among other businesses. Results were substantially affected by COVID-19.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 FY2020 | Q3 FY2019 | First nine months FY2020 | First nine months FY2019 |
|---|---|---|---|---|
| Net sales | $175.1 | $241.2 | $527.5 | $825.2 |
| Gross profit / margin | $96.3 / 55.0% | $133.0 / 55.1% | $295.1 / 55.9% | $478.6 / 58.0% |
| Operating income (loss) | $(13.7) | $2.6 | $(107.2) | $72.6 |
| Net income (loss) | $(10.6) | $1.7 | $(83.5) | $53.2 |
| Diluted EPS | $(0.64) | $0.10 | $(5.04) | $3.15 |
| Operating cash flow | Not separately provided | Not separately provided | $22.7 | $75.2 |
- Sales mix: Q3 e-commerce sales increased 6% to $66.1 million; retail, wholesale and restaurant sales declined. For the first nine months, e-commerce grew 25% to $226.6 million, while retail fell 59% to $134.7 million and wholesale fell 48% to $132.8 million.
- Operating performance: Q3 SG&A was $113.5 million, down 15% year over year, but rose to 64.8% of sales from 55.6% as lower revenue outweighed expense reductions. First-nine-month SG&A declined 16% to $352.2 million. The nine-month operating loss included $60.5 million of goodwill and intangible-asset impairment charges.
- Cash and liquidity at October 31, 2020: Cash was $53.1 million; working capital was $86.1 million and the current ratio was 1.49. The company had $34.8 million of long-term debt outstanding and $287 million of unused revolving-credit availability. Operating cash flow of $22.7 million was below the prior-year $75.2 million. Investing activities used $24.9 million, including $21.9 million of capital expenditures and a $3.0 million investment. Financing activities provided $2.8 million.
- Debt and leases: Revolver borrowings were $35 million, at a 2.0% weighted-average borrowing rate, with maturity in July 2024. Operating lease liabilities totaled $307.8 million; current and non-current portions were $62.8 million and $245.0 million. The company reported compliance with applicable credit covenants.
- Other: Dividends declared were $0.25 per share in Q3, versus $0.37 a year earlier. Total assets were $902.0 million and shareholders’ equity was $418.9 million at quarter-end.
Material changes versus the comparable period
- Q3 sales declined 27%; first-nine-month sales declined 36%. COVID-related store and restaurant closures, reduced traffic and weaker wholesale demand drove much of the decrease.
- Sales shifted toward online channels: e-commerce represented 38% of Q3 sales, versus 26% a year earlier, and 43% of nine-month sales, versus 22%.
- Q3 gross margin was nearly flat year over year, but nine-month gross margin fell 2.1 percentage points to 55.9%, reflecting promotions, markdowns and mix. A favorable LIFO accounting effect partially offset markdown costs.
- Results turned to losses from prior-year profits. Besides reduced sales, the nine-month comparison reflects the Southern Tide impairment and Lanier Apparel exit charges.
- The company drew on its revolving facility to preserve cash during the pandemic; it had no borrowings at the prior-year comparison date of November 2, 2019.
Outlook, risks and unusual items
- Management expected a net loss for full-year Fiscal 2020 and said COVID-19 would materially adversely affect results, cash flows and financial condition for the foreseeable future. It stated the pandemic’s ultimate impact could not be reasonably estimated.
- Oxford decided to exit Lanier Apparel, with completion expected in the second half of Fiscal 2021. It recorded approximately $10 million of Q3 pre-tax exit charges and expected approximately $5 million of additional charges through the exit period. The charges included inventory markdowns, lease and fixed-asset impairments, employee costs and costs related to the Merida facility closure.
- The $60.5 million impairment primarily related to Southern Tide goodwill and trademarks, reflecting weaker business outlook amid COVID-19. Management reported no additional goodwill or intangible impairment-testing trigger in Q2 or Q3.
- FY2020 capital expenditures were expected to total approximately $30 million, including $21.9 million spent in the first nine months. The company had reduced, deferred or cancelled some planned expenditures.
- Management cited substantial uncertainty from potential renewed closures, consumer spending, e-commerce demand, wholesale customer bankruptcies or restructurings, supply-chain disruption, and the execution and cost of the Lanier exit. It said available credit and anticipated cash flows were expected to support ongoing needs.
- The CARES Act enabled tax-loss carrybacks to pre-tax-reform years; the first-nine-month tax benefit was $25.4 million. The company also reported $2 million of eligible rent concessions recognized under the COVID-19 lease practical expedient.
- The board approved a $0.25-per-share dividend payable January 29, 2021. Dividend payments remain subject to business needs and credit-facility restrictions.
Important facts for investors to verify
- Confirm the period: the filing covers Fiscal 2020 Q3 ended October 31, 2020, despite the request’s 2019 Q3 label.
- Track subsequent sales, margins and cash generation, particularly whether e-commerce strength offsets continued weakness in stores, restaurants and wholesale.
- Monitor revolver use, borrowing-base availability, covenant headroom and the company’s ability to meet substantial lease obligations.
- Assess the total cash and earnings impact of the Lanier Apparel wind-down against the estimated additional charges and expected completion timing.
- Review the assumptions supporting Southern Tide asset values and any further impairment risk as business conditions evolve.