In a reminder of the volatility of consumer discretionary investments focused on retail, Oxford Industries (NYSE:OXM) misfired on hitting its own earnings guidance in fiscal second-quarter earnings released Wednesday after markets closed for trading. The parent company of the Tommy Bahama, Lilly Pulitzer, and Southern Tide fashion brands also trimmed its full-year outlook due to anticipated cost pressures from tariffs on Chinese-manufactured goods. As we work through vital details from the last three months, note that all comparative numbers are presented against those of the prior-year quarter.
The raw numbers
|Metric||Q2 2019||Q2 2018||Change|
|Revenue||$302.0 million||$302.6 million||0%|
|Net income||$29.8 million||$27.2 million||9.6%|
|Diluted earnings per share||$1.76||$1.61||9.3%|
What happened with Oxford Industries this quarter?
- Revenue of $302 million materialized at the low end of Oxford's previous guidance range of between $302 million and $310 million. Diluted earnings per share (EPS) of $1.76 fell shy of the company's forecast of $1.79-$1.89.
- Comparable-store sales at both Tommy Bahama and Lilly Pulitzer locations increased by 3%, marking the company's 10th consecutive quarter of positive retail "comps."
- Strength in Oxford's direct-to-consumer business was offset by weaker wholesale revenue and "some softness" in the company's outlet store sales.
- E-commerce revenue made up 22% of the company's total top line during the quarter, increasing from a 20% contribution to total sales in the prior-year quarter.
- Oxford continued to decrease its dependence on department stores. After accounting for as much as 14% of total sales in fiscal 2017, and 12% of total sales in fiscal 2018, department store business comprised 10% of the company's sales this quarter.
- Gross margin inched up 30 basis points to 59.5%.
- Selling, general, and administrative expenses (SG&A) decreased by 90 basis points to 47.5% of sales. This cost efficiency helped Oxford improve net earnings and EPS despite the flat sales level.
- In my earnings preview, I discussed the importance of the company's retail strategy, which embraces carefully selected brick-and-mortar locations. For the remainder of 2019, management indicated that Oxford will open two new Tommy Bahama Marlin Bar locations, along with a Lilly Pulitzer store in Palm Desert, California. Oxford will also open its first retail Southern Tide location in Jacksonville, Florida.
In Oxford's press release, CEO Thomas Chubb lauded the company's diversified revenue strategy, but also signaled its limited ability to absorb further monetary impacts from tariffs imposed on clothing products imported from China:
Our Tommy Bahama, Lilly Pulitzer and Southern Tide businesses are built on a strong foundation. It starts with the incredible connections each brand has established with its core consumer. Our success is also rooted in our highly disciplined distribution strategy, which features exciting retail stores, bars and restaurants, a highly profitable and rapidly growing e-commerce business, and careful placement in appropriate department stores and specialty retailers.
As we move into the second half of 2019, the fundamentals of our business remain strong. We continue to focus on executing our growth strategies while working to minimize the impact of additional tariffs on both our consumers and our financial results. While we have revised our outlook for the year to reflect the estimated increase in cost of goods associated with these tariffs on the back half of the year, we are still on track to deliver solid results in 2019 with confidence in the strength of our brands and our talented and dedicated people.
Management revised full-year fiscal 2019 guidance on Wednesday. Sales expectations remain unchanged at $1.135 billion-$1.155 billion. However, diluted EPS are now expected to land between $4.15 and $4.35, against the previous full-year forecast of $4.42 to $4.62. The new earnings estimate includes $0.20 in costs of goods sold attributable to the tariff impacts Chubb mentions above.
For the seasonally thin third quarter, Oxford anticipates revenue of $235 million-$245 million versus nearly $234 million in sales in the third quarter of 2018. Earnings per share are projected to range from breakeven to $0.10, against $0.11 earned in the prior-year quarter. The lack of anticipated year-over-year growth in the third quarter is likely to contribute to negative near-term investor sentiment on Oxford's shares.