You may not be familiar with the name Oxford Industries (OXM 0.91%), but if you've been to a resort, the beach, a tiki bar, or even a backyard barbecue over the last few years, you've almost certainly seen its core Tommy Bahama brand on beach chairs, polos, and Hawaiian shirts. But there's a lot more to the company than just high-end floral shirts. Here's why Oxford Industries looks like a strong buy heading into 2023.
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Aspirational lifestyle brands
Oxford Industries is an apparel company that owns multiple brands, including Tommy Bahama, Lily Pulitzer, Southern Tide, and more. Tommy Bahama is the company's flagship brand and accounts for 62% of revenue. It's probably best known for its floral shirts, but it also makes polos, T-shirts, sweatshirts, jeans, outerwear, footwear, and more.
Lily Pulitzer makes dresses, swimwear, activewear, and other apparel for women, while Southern Tide has become popular with younger consumers and college students in particular. You've probably seen Southern Tide apparel if you've been at a college football game in the past few seasons.
Oxford describes Tommy Bahama (and its other brands) as "happy, upbeat lifestyle brands," which I would say is an accurate take on their overall vibe. I think of Tommy Bahama as an aspirational brand that people enjoy wearing while on vacation, at the beach, playing golf, or just at summertime get-togethers.
Indeed, to emphasize the brand's angle, in 2023 the company will open its first Tommy Bahama-branded resort in Indian Wells, California, which should help to bolster its image. The company also operates 21 restaurants (Tommy Bahama Restaurants & Marlin Bars), that add to this imagery -- including one on Fifth Avenue in New York City.
This is a fast-growing company that is successfully navigating high inflation and the rest of the macroeconomic challenges pressuring businesses right now. During the third quarter, Oxford grew sales by 26% year over year. Not only did it rake in record revenue, it was the company's sixth quarter in a row of record revenue, and it's showing strong sequential growth.
It's doing well on the bottom line, too. Earnings per share increased 22.6% to $1.46. Based on the strong results, the company updated guidance. Oxford Industries now forecasts revenue growth in the 22% to 23% range for the year and earnings per share growth in the 27% to 29% range.
Trading at a Black Friday valuation
While Oxford Industries doesn't do a lot of discounting, its shares are trading like they are part of a Black Friday sale. The stock has actually held up better than the broader market, logging a roughly flat performance year to date at a time when the broader indices are in bear territory.
However, the shares are still appealingly valued at just 10.5 times earnings and an even more attractive 8.5 times next year's expected earnings. Those valuations put it at a substantial discount relative to the broader market.
While nailing down an exact set of peers for Oxford is more of an art than a science, it also trades at a discount to other makers of high-end leisure wear like Lululemon Athletica (which trades at 38 times earnings) and Columbia Sportswear (which trades at 16.5 times earnings). This isn't to say that Oxford necessarily deserves the same valuation multiple as Lululemon, but it illustrates that it has room for substantial upside.
Oxford Industries boasts even stronger gross margins than Lululemon -- 64.7% vs. 56.5% -- indicating that consumers view its brands as premium products for which they are willing to pay a premium. Both companies have grown their earnings at impressive rates over the last few years.
60 straight years of dividend payments
Oxford Industries is a dividend payer and at the current share price, its payout yields about 2.2%. While management hasn't boosted the dividend much over the past few years, the company has paid dividends every quarter since it went public in 1960, and there is something to be said for that level of consistency.
The company has also bought back $100 million worth of its shares since the fourth quarter of 2021. Between dividends and share buybacks, Oxford Industries has returned $134 million to shareholders over the past year.
The company owns a group of brands that boast enviable standings with their core customers. Its strong margins indicate that consumers view them as worth their premium price. Management is doing a good job of leveraging its flagship brand's status with restaurants and its upcoming resort.
Revenue and earnings are both growing and hitting record levels, while the company's valuation looks attractive at just over 10 times earnings, making Oxford Industries a strong, long-term buy. Add the stock to your portfolio, hit the beach, kick your feet up, and the returns could roll in over the next few years.
