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Oxford Industries (OXM -3%) is heading lower following disappointing Q1 (Apr) earnings results and guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Beaufort Bonnet and Duck Head focuses on the laid-back vacation vibe. OXM has now missed on EPS in back-to-back quarters following 11 consecutive beats. It also guided Q2 (Jul) and full year below expectations.

• As a vacation-focused brand, the company had been benefitting from consumers getting out to travel more as they focus more on experiences than things. However, OXM explains that, while most economic indicators remain fairly positive, consumer sentiment has dropped meaningfully from when OXM provided guidance in March. The consumer has become more cautious in her spending on discretionary items such as the fashion resort apparel, which is the core of OXM's business.
• Q1 revenue fell 5.2% yr/yr to $398.2 mln with sales declines in most of its full price channels, with an especially difficult wholesale channel where sales dropped 16%. Most of its wholesale channel partners were very cautious in their inventory purchases for spring and summer this year, and that shows up in OXM's Q1 numbers.
• The silver lining is that its forward order book is solid and OXM expects to make up about half of Q1's shortfall in the wholesale channel over the remaining three quarters of the year. Also, its fall order books are trending higher than in the prior years and inventory levels in major department stores have improved.
• Another factor in its sales decline was a change in promotional cadence and events in its Lilly Pulitzer brand. As a result, LP was the weakest brand in Q1, with sales down 9.3% yr/yr to $88.4 mln. However, OXM expects Q2 LP sales to be significantly higher yr/yr. Also contributing to the sales decline was a -7% negative comp in its DTC businesses as OXM continues to see a consumer that is more cautious.
• The good news is that Q2 comps have rebounded and are positive QTD. Also, OXM noted that, as it starts to anniversary the more cautious environment that began in Q1 last year, OXM believes the positive comp trend will continue through the remainder of the year and will result in positive comps for the full year. That includes Q2 comps in the mid-single digits and back half of the year as OXM starts to lap negative comps.

At first blush, we were surprised to see OXM's recent struggles given their older and higher net worth customers, who have generally been less impacted by inflationary pressures. At the same time, OXM's price points are quite lofty and it seems like consumers are getting more cautious with discretionary spend. We think the stock is not down more because OXM braced investors for a weak Q1 with significant downside guidance last quarter. As such, some negativity appears to have been priced in already. Also, OXM still expects full year topline growth in all brands and it will be lapping easier comps in Q2-Q4.