OXM
(Oxford Industries, Inc.): Tommy Bahama and Lilly Pulitzer Brands Lead Oxford Forward into 2016
By:
Robert Uhland, Student Analyst at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• This apparel company is well positioned relative to its peers. With CEO successions in
both brands (Tommy Bahama and Lilly Pulitzer), Oxford Industries is ready with new, exciting product initiatives. It has a history of pioneering new lines through innovation - which will continue into 2016.
• In a depressed
apparel industry, OXM prevails above its peers with significant plans to expand
its robust brands: tommy Bahama and Lilly Pulitzer.
• With over $160MM in
unused availability under its U.S credit revolving agreement, OXM is well
suited and aggressively on the hunt to acquire strong lifestyle brands.
• Driven by Lilly’s
comp store sales increases of 30% through Q3 FY15, including a +27% 3Q comp.
store sales increase, the future looks bright.
• Tommy Bahama posted
negative (-5%) comp store growth in light of a difficult environment. With QTD
comps for Tommy and Lilly increasing in November and December, OXM is poised to
see a solid rebound in Q1 2016.
• Tommy Bahama’s spring
2016 women’s line is on track to be a popular choice in fashion - and could be the catalyst to drive the firm's stock higher.
Oxford
Industries, Inc. (NYSE:OXM) offers an exceptional growth
opportunity in a highly competitive apparel industry. Currently, trading at about $60, OXM offers a great entry point into the industry. OXM has been able to
maintain an edge over its competitors like PVH, Perry Ellis, and Ralph Lauren
in the apparel industry - which is due to its ability to be a design-led, trend aware
business with a sound capital structure. Although management has conservatively
reduced FY15 guidance, given the positive QTD comps for Tommy and Lilly, it
appears that the company is set to deliver moving forward into the new year.
The company has a
healthy balance sheet which provides them with more than enough liquidity to
acquire one or two lifestyle brands that align with OXM’s existing portfolio. Furthermore,
OXM’s unused availability under the credit revolver leaves the company well
positioned to fund any future capital expenditures, operating activities, or
strategic acquisitions.
Building on this growth
story, OXM management is poised to expand Tommy and Lilly considerably. The
company delivered stellar Q3 gross margin growth of 270 basis points
year-over-year lending to the strength of OXM’s brands. Additionally, Tommy has
recovered and comparable store sales remain ahead of last year's Q4. A favorable retail-restaurant
location opening for Tommy in Hawaii earlier this year and decreased
international headwinds on Tommy’s Asia–Pacific operations bode well for Tommy.
The aforementioned drivers, coupled with Lilly’s push to make its mark in the Midwest territory, should propel the company forward as we move into the new year.
Lastly, the Tommy
Bahama spring 2016 women’s line has already started to impress critics. The spring
wholesale order book for both Tommy and Lilly are growing as interest has
heightened for the long awaited new launch. Considering that this is the first
line under the new management at Tommy Bahama, investors have high hopes for the
future.
What
has the stock done lately? Over the past three months, OXM is
down 23% and has taken a hard stock hit. The apparel industry as a whole has suffered and
thus, I feel, this downward pressure has led to an aggressive tumble on OXM's stock price. On December 8, 2015 Q3 earnings were released and the company beat
on earnings (+$.01) and missed on revenues. The company revenue miss was driven
by Tommy Bahama’s underperformance. The day after earnings were released, OXM’s
stock tumbled to around $60; however, this is the lowest that I see it going - and offers an attractive entry point.
Past
Year Performance: OXM has increased 15% in value over
the past year and was just added to the AIM portfolio on December 15.
OXM reached its 52 week high in August at $91.24 before plummeting down to the
current level. Despite a disappointing consumer sales environment in the second half of 2015, Lilly has continued to
generate stunning comp growth - and Tommy is poised to deliver in Q4 and beyond. Yes, OXM
missed on revenues recently, but all five analyst’s covering the company reiterated a 'buy' on
the stock the day after the announced earnings, with some even bumping up their future revenue estimates. The past
performance, given an unfavorable Q3 environment, has been solid with OXM's stud brands
propelling the company into 2016.
Source:
FactSet
My
Takeaway
With consumer confidence,
spending, and disposable income set to reach record highs moving forward in 2016, OXM is in a position to generate favorable returns. I feel that the stock
has been depressed by an unfavorable environment and a recent revenue miss, but it possesses exceptionally
strong brands to weather the storm. Jump on board soon, as I see OXM
taking off with the release of Tommy’s new women’s line and positive
expansionary efforts in 2016. Driven by strong comps at both Tommy and Lilly, the
company’s rock solid balance sheet, and an EV/EBITDA of 7.0x compared that of
its peers 10.8x, I believe that OXM is trading at a discount and is
undervalued. Taking into consideration the aforementioned drivers, I feel that
OXM is a top-tier growth story in the overlooked apparel industry. As the five day chart below shows, this stock c
Source: Yahoo!Finance
