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Oxford Industries’ CFO Talks Multi-Prong Approach Ahead of Tranche 4 Tariffs

Accelerated fall deliveries, negotiated price reductions from factories and selective price increases are part of a multi-pronged approach that Oxford Industries Inc. is taking to mitigate the impact from a possible next round of tariffs on Chinese imports that would include apparel, footwear and textiles.

In a Nutshell: In a conference call to Wall Street analysts Wednesday in connection with Oxford’s first-quarter results, Scott Grassmyer, chief financial officer, spoke about what the parent company to labels like Tommy Bahama and Lilly Pulitzer, is doing to mitigate the potential impact from the Trump administration’s proposed 25 percent tariff on tranche 4 goods. The CFO said current guidance reflects only the cost of tariffs that have gone into effect. Meanwhile, he said, “we are actively working on mitigating the potential risk of the proposed additional tariffs.”

“A shirt which sells for $100 at retail would have approximately $20 of duty-evoked cost subject to the additional 25 percent tariff that is currently under consideration. So we are left with about $5 of additional cost to mitigate for goods sourced in China,” the CFO said.

Grassmyer explained that the company has already moved some production out of China to other countries, and it plans to continue reducing the amount of goods it makes in the country. Instead, Oxford is ramping up sourcing in places like Vietnam, Thailand, India and Peru. For products that are still made in China, Grassmayer said the company has “accelerated the delivery of fall product and [has] also had success in negotiating price reductions from factories. Finally, our brands have good pricing power with consumers and we are planning selective price increases.”

On first-quarter results, chairman and chief executive officer Tom Chubb said they “exemplify the successful execution of Oxford’s strategy to own, develop and use powerful emotional brands like Tommy Bahama, Lilly Pulitzer and Southern Tide to deliver value to our shareholders.”

Direct-to-consumer is the largest and fastest growing channel of distribution for the company and, as Chubb explained, “we just delivered our ninth consecutive quarter of positive comparable sales.”

Total store count is 230 worldwide, but he also said the locations selected for the Tommy Bahama and Lilly Pulitzer brands are generally in lifestyle centers that offer open air shopping and dining experiences, whether on streets and boulevards that are itself destinations or in resorts. Fewer than half of the company’s 174 domestic full-price stores are located in regional malls, all of which, the company said are “better malls that attract an affluent consumer.” Seventeen Tommy Bahama locations also include a bar and restaurant.

“Importantly, we still have opportunities for prudent bricks-and-mortar expansion, particularly with the Tommy Bahama Marlin Bar concept, the westward expansion of Lilly Pulitzer and the potential rollout of Southern Tide stores,” Chubb said.

Net Sales: Net sales for the three months ended May 4 rose 3.4 percent to $282 million from $272.6 million. By segment, Tommy Bahama saw sales slip 1.4 percent to $164.7 million, while Lilly Pulitzer sales rose 5.8 percent to $72.6 million. The legacy Lanier Apparel business was up 33.6 percent to $26.6 million, and the Southern Tide business was up 4.9 percent to $14.1 million.

Earnings: Net income was up 5.3 percent to $21.7 million, or $1.29 a diluted share, from $20.6 million, or $1.23, in the year-ago period.

The company guided net sales for the second quarter ending Aug. 3 in the range of $300 million to $310 million, with earnings per share expected in the range of $1.79 to $1.89. On an adjusted basis, EPS was forecasted at between $1.80 to $1.90.

Oxford said the third quarter is expected to remain its smallest sales and earnings quarter, owing mostly to the seasonality of its Tommy Bahama and Lilly Pulitzer direct-to-consumer operations. And for full year fiscal 2019 ending Feb. 1, 2020, Oxford affirmed prior forecasts that pegged at between $1.14 billion to $1.16 billion, with EPS between $4.42 and $4.62. Adjusted EPS is expected in the range of $4.45 and $4.65.

CEO’s Take: “We will continue to make investing in the growth of the lifestyle brands we own a priority. We also continue to vet acquisition opportunities and remain committed to our dividend policy as a vehicle fore returning value directly to shareholders,” Chubb said.

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