Oxford Industries, Inc. FY2025 Q1 Earnings Call Summary and Q&A Highlights: Tariff Challenges and Strategic Brand Focus
Earnings Call
12 Jun
Oxford Industries, Inc. reported Q1 FY2025 results aligning with its guidance despite facing significant tariff-driven cost pressures and a challenging macroeconomic environment. The company highlighted key metrics, including $393 million in net sales, a 1% decline in brick-and-mortar sales, a 5% decrease in e-commerce sales, and a 4% increase in wholesale channel sales. The Lilly Pulitzer segment experienced low double-digit growth, driven by positive comps in both e-commerce and retail, increased average order size, and improved profitability. The company is focusing on its core consumer group and product innovation to drive brand momentum, as evidenced by Lilly Pulitzer's newness quotient exceeding 50% this spring compared to approximately 40% last year.
Management expects adjusted EPS for FY2025 to be between $2.80 and $3.20, a significant decrease from $6.68 in FY2024. This is due to increased tariffs, higher SG&A, and interest expenses. The company anticipates a full-year net sales guidance of $1.475 billion to $1.515 billion, representing a 3% decline to flat sales versus last year. Full mitigation of the $40 million tariff impact is expected by spring 2026 through sourcing shifts out of China. The company plans to reduce direct sourcing from China to approximately 30% in FY2025 and below 10% in FY2026. SG&A expenses are expected to increase at a mid single-digit rate, higher than top-line growth, due to store expansion and technology investments.
Consolidated net sales for Q1 FY2025 were $393 million, slightly below the $398 million in Q1 FY2024, but near the high end of guidance ($375 million–$395 million). Brick-and-mortar sales decreased by 1%, e-commerce sales fell by 5%, while wholesale channel sales increased by 4%. The Lilly Pulitzer segment saw low double-digit growth, driven by positive comps in both e-commerce and retail. Adjusted operating margin decreased to 9.8% from 14.4% last year, reflecting higher SG&A costs and lower operating profit. Adjusted gross margin contracted by 110 basis points to 64.3% in Q1 FY2025, primarily due to higher e-commerce freight costs, increased markdowns, and a sales mix shift toward wholesale. Adjusted SG&A expenses rose 5% to $221 million, mainly due to compensation, occupancy, and depreciation from 31 newly opened brick-and-mortar locations. Adjusted operating income was $39 million, with an adjusted operating margin of 9.8% compared to $57 million and 14.4% last year. Adjusted net EPS was $1.82 in Q1 FY2025. Inventory increased by $18 million, or 12% on a LIFO basis, and by $20 million, or 9% on a FIFO basis, in Q1 FY2025, with $3 million of the increase attributed to tariffs. Long-term debt was $118 million at the end of the first quarter of fiscal 2025, reflecting $51 million in share repurchases, $23 million in capital expenditures, and $10 million in dividends. Cash flow from operations was negative $4 million in Q1 FY2025, mainly due to lower net earnings, increased working capital needs, and accelerated inventory purchases related to tariffs.
Did the recent changes in US trade policy, including the increase in tariffs on Chinese imports, impact your financial performance in Q1 FY2025? How are you planning to mitigate these impacts in the future?
Answer: Scott Grassmeyer acknowledged that the rapidly evolving tariff and trade environment posed unprecedented challenges during the first quarter. The company faced $1 million in incremental charges due to US tariffs on imported goods, which resulted in an approximate 20 basis point negative impact on consolidated gross margin, equating to $0.04 per share in cost of goods sold. To mitigate these impacts, Oxford Industries is working on diversifying its supply chain away from China, with a target to reduce direct sourcing from China from approximately 40% in FY2024 to 30% in FY2025, and below 10% by FY2026. Management is confident that these efforts will ultimately benefit the company and its shareholders, despite short-term challenges.
Question 2: Can you provide more details on the performance of the Lilly Pulitzer brand in Q1 FY2025? What factors contributed to its growth, and how do you plan to sustain this momentum?
Answer: Tom Chubb highlighted that Lilly Pulitzer achieved low double-digit growth in Q1 FY2025, driven by positive comps in both e-commerce and retail, increased average order size, and improved profitability. The brand's success is attributed to a focus on its most committed customers, consistent brand experience, and targeted newness in product lines. The newness quotient exceeded 50% this spring compared to approximately 40% last year, contributing to the brand's strong performance. The reintroduction of Lilly men's products and a collaboration with the Normandy-based French brand Saint James also generated excitement and high sell-through rates.
Question 2: Can you provide more details on the performance of the Tommy Bahama and Johnny Was segments in Q1 FY2025? What are your expectations for these brands moving forward?
Answer: Tom Chubb explained that sales at Tommy Bahama and Johnny Was were lower in Q1 FY2025, driven by negative comps. However, the company is focusing on increasing profitability and reinforcing the fundamentals of the Johnny Was brand, with improvement initiatives aimed more at 2026 and beyond. For Tommy Bahama, the company is projecting a less than 3% increase in AUR for spring 2026, which is expected to fully recover gross margin dollars, with initial gross margin percentage decreasing by less than 50 basis points. The company is also opening new Marlin Bar locations to drive brand engagement and customer traffic, with three new locations planned for the year.
Ethan Saghi: Can you provide more details on the tariff impact and your mitigation strategies? How do you plan to address the increased costs in the short term?
Tom Chubb: The $40 million tariff impact for FY2025 is the gross impact, up from the $9 million–$10 million previously assumed. The increase is due to the China tariff rising from 20% to 30% and additional tariffs on other countries. The company is working on mitigation actions, including sourcing shifts out of China, with a target to reduce direct sourcing from China to approximately 30% in FY2025 and below 10% in FY2026. While the tariffs will hit hard in FY2025, the company expects to be fully mitigated by spring 2026. The focus is on maintaining initial gross margin percentages and recovering gross margin dollars without dramatic changes in pricing.
Question 4: How did the restaurant business perform in Q1 FY2025, and what are your expectations for this segment moving forward?
Answer: Tom Chubb noted that sales in the food and beverage channel were down 3% in Q1 FY2025, but comp was down only 1%, with sequential monthly improvement observed. April was the strongest month, partly due to the Easter holiday shift. The company expects a low to mid single-digit increase in the food and beverage channel for FY2025, benefiting from the addition of three new Marlin Bar locations during the year. The Sarasota restaurant is expected to reopen late this summer, which should positively impact comps.
1. The tone of the management was cautiously optimistic, acknowledging the challenges posed by tariffs and a challenging macroeconomic environment while emphasizing strategic brand focus and supply chain diversification. 2. Analysts' questions focused on understanding the impact of tariffs, brand performance, and mitigation strategies, indicating a concern for the company's ability to navigate current challenges.
Metric
Q1 FY2025
Q1 FY2024
Consolidated Net Sales
$393 million
$398 million
Brick-and-Mortar Sales
Down 1%
-
E-commerce Sales
Down 5%
-
Wholesale Channel Sales
Up 4%
-
Adjusted Operating Margin
9.8%
14.4%
Adjusted Net EPS
$1.82
-
Inventory Increase (LIFO)
12%
-
Long-Term Debt
$118 million
-
Cash Flow from Operations
Negative $4 million
-
1. The company faces significant tariff-driven cost pressures, with an expected $40 million tariff expense in FY2025, up from $9 million–$10 million previously forecast. 2. The rapidly evolving US international trade policy, particularly with regard to tariffs, presents challenges in planning and forecasting the business. 3. The company is working on diversifying its supply chain away from China, with a target to reduce direct sourcing from China to approximately 30% in FY2025 and below 10% in FY2026, which presents short-term challenges and financial ramifications. 4. The company anticipates a 200 basis point contraction in gross margin for FY2025, with full mitigation expected by spring 2026. 5. SG&A expenses are expected to increase at a mid single-digit rate, higher than top-line growth, due to store expansion and technology investments. 6. The company expects a higher adjusted effective tax rate of 26% for FY2025 versus 20.9% for FY2024, impacting EPS by approximately $0.20–$0.25.
Oxford Industries, Inc. reported Q1 FY2025 results in line with guidance despite facing significant tariff-driven cost pressures and a challenging macroeconomic environment. The company is focusing on strategic brand initiatives, such as the sustained growth of the Lilly Pulitzer segment, to drive momentum. However, the company faces substantial challenges due to increased tariffs and a rapidly evolving trade policy environment, which are expected to impact financial performance in FY2025. Management is working on supply chain diversification and other mitigation strategies to address these challenges, with full mitigation expected by spring 2026. While the company remains cautiously optimistic about its long-term objectives, it anticipates continued negative comps for the remainder of Q2 FY2025, with only modest improvement expected in the second half of the year.
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