Oxford Industries (NYSE: OXM) is a prominent brand management company, owning and operating renowned names like Tommy Bahama, Lilly Pulitzer, and Johnny Was. Initially a manufacturer and licensor, the company shifted its focus to brand acquisition and retail following the 2000s recession. This strategic pivot began with the acquisition of Tommy Bahama in 2003 and continued with brands such as Lilly Pulitzer in 2010 and Johnny Was in 2022. Oxford stock has divested from its manufacturing businesses, completing the transition in 2020.
The company emphasizes coastal resort lifestyle brands, offering affordable luxury products primarily in the U.S., with a strong direct-to-consumer focus. Its store presence is concentrated in warmer states like California, Florida, and Texas. Oxford’s management stability, profitable brand growth, and focus on U.S. markets have contributed to its solid margins and low leverage.
Q2 Fiscal 2024 Performance Overview
In the second quarter of fiscal 2024, Oxford Industries (NYSE: OXM) made progress toward its long-term strategic goals but fell short of immediate financial targets. The company reported sales of $420 million and an adjusted EPS of $2.70, both below expectations. This underperformance was largely attributed to a continued decline in consumer spending, which worsened as consumer sentiment hit an eight-month low in July, a trend that carried into the start of the third quarter.
Several factors contributed to these challenges. Oxford’s core customer base, affluent individuals aged 45 and older, is more sensitive to economic headlines and market shifts, impacting their purchasing behavior. Additionally, Florida, which accounts for a significant portion of Oxford’s retail business, experienced a slowdown as post-pandemic growth stabilized.
Other issues included merchandising missteps, such as missed product assortments and poorly timed promotions. Despite strong store traffic, consumer conversion rates declined, signaling hesitation in spending. However, the quarter saw positive consumer responses to new and differentiated products, as well as value-driven purchases, with promotional events and outlet stores outperforming core sales.
Consumer Behavior and Promotional Strategy Outlook for Oxford
During the second quarter of fiscal 2024, Oxford Industries (NYSE: OXM) observed a sequential decline in consumer spending, with July being the weakest month. While May performed relatively well and June softened only slightly, July saw a notable drop in consumer activity, especially in the latter half. This trend continued into August, indicating ongoing consumer caution.
In terms of consumer behavior, the market is currently driven by value, with shoppers becoming more responsive to discounts and promotions. Oxford remains committed to its strategy of maintaining full-price, premium brands like Tommy Bahama and Lilly Pulitzer, but the company is adjusting its promotional strategy to align with consumer preferences. During Q2, a greater portion of sales occurred during promotional events, with both the number of promotional days and the depth of discounts increasing compared to previous quarters.
Looking ahead to the third and fourth quarters, Oxford expects a similar promotional environment, with discounts playing a key role in driving sales. This approach has been factored into the company’s guidance, with the expectation that consumer interest will peak during promotional periods, reflecting the current value-oriented market sentiment.
Successful Brand Nurturing at Oxford Industries
Oxford Industries has demonstrated a strong track record in nurturing acquired brands, translating them into substantial revenue and profitability growth. Since divesting most of its manufacturing business in 2011, Oxford has effectively managed brands like Tommy Bahama (TB), Lilly Pulitzer (LP), and newer additions such as Southern Tide, Duck Head, and Tommy Bahama Bar & Grill (TBBC), which were acquired between 2016 and 2017.
For instance, Lilly Pulitzer, acquired in 2010 for $70 million, initially generated $95 million in sales with 15% operating margins. By 2022, LP’s sales had soared to $340 million, with margins approaching 20%. Similarly, Southern Tide, bought in 2017 for $92 million, increased its sales from $40 million to $62 million by 2022, with margins improving from 11% to around 20%.
However, not all acquisitions have been smooth. Tommy Bahama, purchased for $250 million in 2003, saw sales growth from $370 million in 2004 to $650 million by 2019, though operating margins halved. Ben Sherman, acquired in 2004 for $145 million, was sold in 2015 for $65 million after failing to meet profitability expectations. Most recently, Johnny Was, acquired in 2022 for $270 million, achieved $200 million in sales and $20 million in operating income, reflecting moderate success in Oxford’s latest acquisitions.