Bahama and Lilly Pulitzer owner, Oxford Industries (OXM 68.73,
-6.08, 8.13%), traded to 12-month lows this morning, though pares its worst levels in
recent action, after last night’s disappointing third quarter report and
underwhelming guide. OXM now sits 8.13% lower after opening down 14.70%.
Despite the top and bottom line misses, Oxford was able to turn in solid comparable store sales at both of its major brands. Tommy Bahama reported Q3 comps of 5% while Lilly Pulitzer saw a 15% comp in the quarter.
Q3 earnings per share (EPS) came in at $0.14 while sales fell 1.0% compared to last year to $233.7 mln. The Q3 results reflect the shift in timing of Lanier Apparel shipments coupled with some unanticipated softness in replenishment orders at Lanier Apparel. Management highlighted that the company’s improved direct to consumer sales were offset primarily by a sales decrease at Lanier Apparel.
Typically, Oxford’s results are seasonal as the company focuses primarily on spring, summer, and resort. The majority of the business is done in the first, second and fourth quarters while the third quarter remains the smallest volume quarter. However, the third quarter does boast the Lilly Pulitzer after-party sale which is a 3-day event on Lilly's website. This year after-party achieved record setting e-commerce sales of $29 mln with a gross margin over 40%.
What’s more, Q3 adjusted gross margins expanded 160 basis points to 55.3%, primarily due to a change in the company’s sales mix with the higher margin branded businesses making up a greater proportion of sales than in the same period last year.
Management highlighted on the conference call that Oxford is “on-track to deliver solid growth for the fourth quarter and fiscal 2018” even in the face of one less week in the fourth quarter compared to last year.
That said, the company has tampered its fourth quarter comparable sales assumptions as demand in its direct-to-consumer channels has moderated versus third quarter levels. Trends at both, Tommy Bahama and Lilly Pulitzer are running below Oxford’s initial expectations with Lilly off more than Tommy due to greater pressure on e-commerce sales through the first 6 weeks of the fourth quarter.
The company now expects comparable sales to increase in the low single-digits, compared to prior expectations in the high single-digits. Additionally, the company has seen some continued softness in the wholesale replenishment which along with its third quarter results has been factored into the updated full year outlook.
The outlook then, too, was worse than expected as the company sees Q4 net sales between $297-307 mln on adjusted EPS in a range of $0.96-1.11. This guidance takes the full year fiscal 2018 adjusted EPS range to $4.20-4.35 (from $4.45-4.65 prior) on net sales which are expected to grow to between $1.106-1.116 bln (from the previous $1.125-1.145 bln outlook).
On the whole investors don’t appear to be too pleased with the Q3 performance and commentary about weakness at Lanier and a soft start to the holiday quarter. The Q3 comps were solid, yes, and the after-party sale at Lilly Pulitzer did offer some relief from slowing overall sales, but it wasn’t enough to perk up the end result.
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