Oxford Industries: Long-Term Debt Reduction Encouraging Despite Drop In Net Sales

felixmizioznikov/iStock Editorial via Getty Images Investment Thesis: I take a bullish view on Oxford Industries. In a previous article back in January 2023, I made the argument that Oxford Industries (NYSE:OXM) has the potential for a rebound going forward, on the basis of continued growth in sales. Since then, the stock is up by just over 10%: TradingView.com The purpose of this article is to assess whether Oxford Industries has the capacity for further upside from here, taking recent earnings results into consideration. Performance When looking at the most recent earnings results (as released on Jun 12, 2024), we can see that total company net sales were down by 5.2% from that of the prior year quarter. This was in large part due to a 5.8% decline in net sales across the Tommy Bahama line, which is the largest segment by net sales for the company. Oxford Industries First Quarter 2024 Results When looking at net sales for Tommy Bahama from Q1 2022 to the present, we can see that net sales are also down by $18.2 million as compared to the previous quarter (Q4 2023). Net sales figures ($ in millions) sourced from historical quarterly earnings reports for Oxford Industries. Heatmap generated by author. I had previously expressed the concern that while the acquisition of Johnny Was had contributed to revenue growth, this had the impact of increasing long-term debt and reducing the company’s cash reserves. However, as of Q4 2023, the company had substantially reduced its long-term debt to $29 million from over $119 million in the prior year quarter – with a further reduction to $18.63 million in the most recent quarter. Oxford Industries First Quarter 2024 Results When looking at long-term debt relative to total assets, we can see that this ratio is down significantly from that of the prior year quarter. Apr 2023 May 2024 Long-term debt 94306 18630 Total assets 1194230 1156976 Long-term debt to total assets ratio 7.90% 1.61% Click to enlarge Source: Figures sourced from Oxford Industries First Quarter 2024 Earnings Report. Long-term debt to total assets ratio calculated by author. From a short-term standpoint, we can see that the company’s quick ratio has remained below 1 in the most recent quarter – indicating that the company does not possess sufficient liquid assets to service its current liabilities. Jul 21 Oct 21 Jul 22 Oct 22 May 24 Total current assets 349046 366953 421248 299495 298363 Inventories, net 77330 90981 135483 171639 144373 Prepaid expenses and other current assets 24720 23609 29242 28643 38978 Total current liabilities 220184 207172 222640 230395 225585 Quick ratio 1.12 1.22 1.15 0.43 0.51 Click to enlarge Source: Figures (except quick ratio) sourced from Oxford Industries Earnings Results (Q2 2022, Q3 2022 and Q1 2024). Figures provided in USD thousands. Quick ratio calculated by author as total current assets less inventories less prepaid expenses and other current assets all over total current liabilities. However, I take the view that this is a minor concern given the fact that we have seen long-term debt continue to decrease. Looking Forward and Risks From the above, we can see that while the reduction in long-term debt has been particularly encouraging, the company saw downward pressure by way of net sales – with the Tommy Bahama brand in particular having seen a significant decline. However, while SG&A expenses were up to $213 million as compared to $203 million in the previous year, this was due to expenses related to the opening of 27 new stores since Q1 2023 as well as pre-opening expenses for a remaining 15 to 20 stores expected to open during fiscal 2024 – including four new Tommy Bahama Marlin Bars. While Oxford Industries attributes the decline in sales to increased caution on the part of consumers – the company also cites that same-store sales had improved since the first quarter and were in positive territory for the second quarter so far. In this regard, I take the view that the company has the capacity to see a rebound in net sales across Tommy Bahama over the next couple of quarters, and the company’s store expansion efforts have the capacity to bolster net sales growth going forward. When looking at the company’s P/E ratio, we can see that the ratio has risen back to its highest level since 2022, while we have seen a drop in earnings per share. ycharts.com This indicates that the stock may potentially be overvalued at this time. In my view, the main risk for Oxford Industries is that growth in net sales may potentially remain modest over the next couple of quarters. With consumers having cut back on clothing purchases given the continually high prices of basic necessities, it may be some time before we see consumer confidence rebound from here. Conclusion To conclude, Oxford Industries has continued to show an encouraging reduction in long-term debt. While the growth trajectory for the stock remains uncertain in the short to medium-term, I take the view that the company has the capacity to grow net sales across the Tommy Bahama segment over the longer-term. For this reason, I continue to take a bullish view on Oxford Industries.

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